He carried out a scam with an Arab businessman, Said Ayas, to concoct an alibi with the intention of misleading the Cabinet Secretary Sir Robin Butler, the court was told.
Mr Aitken is suing The Guardian newspaper and Granada TV, makers of the documentary World in Action, over claims that he was in the pocket of powerful Saudi interests, pimped for Arabs and engaged in illegal arms trading.
On the question of who had paid for his two nights at the Paris Ritz while he was defence procurement minister, Mr Aitken maintains his wife Lolicia had paid what she believed to be the full amount in cash.
It was later discovered there was a shortfall of pounds 426 which had been paid by mistake by a nephew of Mr Ayas, Abdul Rahman. Mr Aitken repaid this by cheque.
George Carman QC, for the defence, told the court that the whole bill had in fact been paid by Prince Mohamed, a son of the Saudi king, through his treasurer, Abdul Jawad, and not Mr Ayas's nephew. Acceptance of the hospitality by Mr Aitken would have been in direct contravention of the guidelines regarding ministerial conduct.
Mr Carman further alleged that Lolicia could not even have paid part of the bill, as Mr Aitken had reported the Cabinet Secretary and the Prime Minister. And when there was a danger of being found out he orchestrated the alibi with Mr Ayas.
Mr Carman said to Mr Aitken during cross-examination: "Conspiracy number one - you and Mr Ayas, a long-standing close friend, needed to explain the fact that half the bill had not been paid in cash. And indeed you had committed yourself too early in saying that your wife had paid the bill.
"You and Ayas developed a false story that Rahman had overpaid the bill. And the scam is that you wrote out a cheque to Rahman for pounds 426, he cashes it in, your bank in London is debited, and so you produce a receipt for Sir Robin Butler."
Mr Aitken responded: "I object to alibi. I was trying to set out what had happened as best I could. It was an unfortunate and regrettable muddle. I was making reimbursement, regrettably I made it to the wrong person. I did all this not in scam or conspiracy but in good faith."
Mr Aitken accepted the fact that the whole bill had been picked up by Prince Mohamed, but he did not notice at the time. Mr Carman asked if it was not "astonishing" that Mr Rahman, who had not spent a penny, should cash Mr Aitken's cheque without telling him.
The former Minister denied it indicated a conspiracy.
Mr Aitken had said his wife preferred to pay bills in cash rather than use credit cards because she was dyslexic. However, Mr Carman told the court that the night before she had settled another hotel bill in Switzerland by using an American Express credit card.
Earlier Mr Aitken had told the court that he believed that he may have been the victim of a set-up over his Paris stay.
The case continues.