Taxman Rejects Reimbursement Claim for Foreign Business Travel Charged to Wife’s Card, ITAT Mumbai Clarifies Legal Stance
A Mumbai businessman has secured partial relief from the Income Tax Appellate Tribunal (ITAT) after the tax department disallowed ₹6.42 lakh in travel expenses paid through his wife’s credit card. The tribunal ruled that legitimate business travel expenses do not become disallowable simply because they were initially charged to a spouse’s credit card and later reimbursed. The ITAT’s decision highlights the legal permissibility of using a spouse’s credit card for business expenses.
Background of the Case
The case involved a businessman who incurred a total of ₹20.32 lakh in travel expenses for business trips to Paris, Russia, and other locations. Of this amount, ₹6.42 lakh was charged to his wife’s credit card. The businessman claimed he reimbursed her after returning to India. However, the Income Tax Department questioned this arrangement, arguing that the expenses were unexplained since his wife had no connection to his business travel. Consequently, the Assessing Officer disallowed the ₹6.42 lakh from the man’s business expenditures.
Additionally, the Assessing Officer raised concerns about another ₹1.49 lakh paid in cash, disallowing 20% of that amount due to insufficient verification. A further 20% disallowance was applied to the remaining ₹12.4 lakh in foreign travel expenses, citing a lack of adequate details regarding the travel and services provided.
Income Discrepancy Issues
The assessment also revealed a discrepancy between the income reported by the businessman and that shown in Form 26AS. The Assessing Officer noted that Form 26AS indicated an income of ₹79.87 lakh, while the man’s books reflected ₹75.51 lakh, resulting in a difference of ₹4,36,400. This discrepancy became another point of contention in the tax dispute.
The businessman initially appealed the assessment to the Commissioner of Appeals, but his appeal was rejected. He subsequently approached the ITAT, which granted him partial relief regarding the disallowed travel expenses. However, the tribunal did not resolve the issue concerning the income discrepancy, opting instead to return that matter to the Assessing Officer for further verification.
Tribunal’s Findings
The ITAT ruled in favor of the businessman, stating that the disputed expenses were genuinely incurred for business travel. The tribunal emphasized that there is no legal restriction against using a spouse’s credit card for business expenses. It also dismissed the argument that the reimbursement constituted payment for services rendered by the man’s wife, as she had not provided any independent services.
The tribunal’s decision was supported by details provided by the businessman’s chartered accountant, who outlined the expenses related to business travel, including ₹3.97 lakh for the Metal Expo in Russia and ₹4.94 lakh for the CNR Expo in Istanbul. The tribunal accepted that using a spouse’s credit card for business expenses is permissible under the law and found no impropriety in the arrangement.
The ITAT also noted that the previous ruling in the case of Girish Raghavan supported the businessman’s position. The tribunal directed the Assessing Officer to review the reconciliation statement regarding the income discrepancy and issue a new order after providing the businessman an opportunity to be heard.
Observer Voice is the one stop site for National, International news, Sports, Editor’s Choice, Art/culture contents, Quotes and much more. We also cover historical contents. Historical contents includes World History, Indian History, and what happened today. The website also covers Entertainment across the India and World.
