Addoug and Commissioner of Taxation [2010] AATA 79 (3 February 2010)

Last Updated: 11 February 2010

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2010] AATA 79

ADMINISTRATIVE APPEALS TRIBUNAL )

) No 2007/5020

TAXATION APPEALS DIVISION		)
	Re		LINDA ADDOUG

Applicant

And

COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal

M D Allen, Senior Member

Date 3 February 2010

Place Sydney

Decision

The decision under review is VARIED in that the penalty relating to the shortfall of GST paid is reduced to 25% however, in all remaining aspects the decision under review is AFFIRMED.

.....................[sgd].......................
M D Allen, Senior Member

CATCHWORDS

INCOME TAX – Penalties imposed for assessed shortfall in amounts of GST and Income Tax paid by the taxpayer. Onus upon taxpayer to show default assessments excessive. Onus not discharged.

LEGISLATION

Taxation Administration Act (1953) s14ZZK, 284-80, 284-90(1).

CASES

Federal Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614

McCormack v Commissioner of Taxation [1979] HCA 18; (1979) 143 CLR 284

Gauci v Federal Commissioner of Taxation [1975] HCA 54; (1975) 135 CLR 81

REASONS FOR DECISION

3 February 2009

M D ALLEN, SENIOR MEMBER

1. This matter originally came on for hearing before Senior Member Hunt on 7th and 8th days of April and the 1st day of May 2009. At the time Senior Member Hunt’s appointment to the Tribunal expired on 4 July 2009 no decision had been made by her.
2. On 18 August 2009 the President of the Tribunal Downes J directed pursuant to section 23 Administrative Appeals Tribunal Act 1975 that the Tribunal be reconstituted. Subsequently it was agreed by the parties that any re-hearing should take place using the transcript of the hearing before SM Hunt and the written submissions of Counsel filed subsequent to the last day of the hearing.
3. The Application before the Tribunal concerned an objection decision made by the Respondent on 15 August 2007. That decision disallowed the Applicants objections to:
   • (a) Amended assessments of income tax in respect of the years of income ended 30 June 2003, 2004, 2005.
   • (b) Assessments for a net amount of GST made in relation to the quarters ended 31 March 2004, 30 June 2004, 30 September 2004, 31 December 2004, 31 March 2005, and 30 June 2005.
   • (c) Assessments of administrative penalties.
4. The Amended Assessments of Income Tax, Assessment of GST and imposition of Administrative Penalties arose out of an audit undertaken of the Applicant’s business activities.
5. Pursuant to section 14ZZK of the Tax Administration Act (1953) (“TAA”) the Applicant bears the onus of proving that any assessment of tax is excessive. In order to discharge the onus of proof a taxpayer must prove not only that the assessment is excessive but also prove what the true amount should be. See Federal Commissioner of Taxation v Dalco (1990) 168 CLR 164.
6. In McCormack v Commissioner of Taxation [1979] HCA 18; (1979) 143 CLR 284 at 301. Gibbs J (as he then was) said that section 190(b) of the Income Tax Assessment Act 1936 (“ITAA”), (the predecessor to s14ZZK and s14ZZ0 of the TAA) placed the burden of proving that the assessment was excessive upon the taxpayer, and that on ordinary principles the taxpayer therefore bore the burden of proving the facts necessary to make out his or her case. To discharge the burden of proving that the assessment was excessive the taxpayer in McCormack (supra) was required to prove affirmatively on the balance of probabilities that the property was not acquired for the purpose of profit-making by sale.
7. Gibbs J said that the burden may be discharged by drawing inferences from the evidence, but at page 303 he rejected the argument that a tax payer can succeed simply because there is no evidence from which it can be concluded that the relevant purpose of profit-making existed. The reason for this is that such submission, if accepted, would mean that the burden of proving the existence of that purpose lies upon the Commissioner. Such a result would invert the onus of proof. His Honour also said at p303:

“The taxpayer will succeed if the proper inference from the evidence is that the property was not acquired for the relevant purpose, but if there is no evidence as to the purpose for which the taxpayer acquired the property, the appeal must fail.”

8. Gibbs J in the same case agreed with the statement of Mason J (as he then was) in his dissenting judgement in Gauci v Federal Commissioner of Taxation [1975] HCA 54; (1975) 135 CLR 81 at 89-90, viz:

“The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessment should be sustained or supported by evidence. The implication of such a requirement would be inconsistent with s190(b) for it is a consequence of that provision that unless the Appellant shows by evidence that the assessment is incorrect, it will prevail... the crux of the matter is that when in a s26(a) case an Appellant seeks to overcome the onus created by s190(b) by adducing evidence as to his intentions with a view to establishing the purpose of the acquisition was not a s26(a) purpose and that evidence is not accepted, he has not discharged the onus which he bears. At best, from the Appellant’s viewpoint, the evidence stands in a situation in which it is equivocal, neither establishing a s26(a) purpose nor denying the existence of such a purpose. At worst, the judge may, in the circumstances, be able to infer the existence of a s26(a) purpose. In either event the Appellant fails to discharge the onus and the appeal fails”.

9. In opening, Counsel for the Applicant stated that on disputing the Respondent’s assessment of her taxable income she would provide specific explanation as to the source of the banking deposits by her as being:
   1. Documented loans from relatives;
   2. Gifts from her two brothers in Australia;
   3. Proceeds from the sale of a vehicle given to her by her then spouse (sic) and father of her children;
   4. Gifts/distributions from her grandmother of part of her grandfather’s estate in Lebanon.
10. A notice pursuant to s264 of the ITAA drafted 10 October 2006 was issued to the Applicant requiring her to attend at the offices of the Australian Tax Office (“ATO”) at Albury on the 23rd October 2006. The schedule to that document stated:

“Please produce documentation used to construct your Income Tax Returns for the 2004 and 2005 income years. This includes items such as Purchase Invoices or Capital Statements from your suppliers, Cheque Butts and Bank Statements confirming purchases made and bank reconciliation records. Cash Payment, Cash Receipts, Journals, Loan Agreements relating to the purchase of your tobacco farm.”

11. During the course of her evidence, the Applicant sought to excuse discrepancies between her evidence and what she had told the ATO investigators on 23 October 2006 by claiming:
    1. She had suffered a miscarriage six months before the interview. I am satisfied that at no time did she inform the ATO officers Maciers, McGinty and McKenzie that she had suffered a miscarriage. Nor was any medical evidence adduced to suggest that in any way was she incapable of fully participating in the interview which she attended together with her father.
    2. I cannot accept that the interview, being at the end of Ramadan and on the Feast of Eide, in any way affected the Applicant’s memory.
    3. Similarly it is farcical to accept, as submitted by the Applicant’s Counsel, that as the Applicant’s tax accountant was not present at the interview and the Applicant did not have the benefit of her accountant’s records that this in some way affected the accuracy of the information the Applicant did volunteer. At no time was it suggested by the Applicant she could not answer a question in the absence of records.
12. At the outset it must be stated that there are real qualifications as to the Applicant’s credibility. In cross examination it became clear that in a loan application made by her to Punchbowl Credit Union, she had given false details as to her employment and wages. Likewise in her application for a tobacco growers’ licence she falsely represented that she had “vast experience in the management and production of green grocery operations” and had “vast business management and business skills and experience”. In fact the only work experience the Applicant ever had prior to the acquisition of the tobacco producers licence was some two years in a fruit shop at Bankstown in Sydney.
13. The Applicant purchased a tobacco farm in Victoria in 2003. I accept, as pointed out by the Respondent, that at the time the Applicant borrowed funds to acquire the tobacco farm her own financial circumstances did not disclose any capacity to make the acquisition herself.
14. A Loan Agreement purporting to be between one Michael Saadie trading as British Finance Pty Ltd and the Applicant is at Exhibit C to the Affidavit of the investigator, Mr McGinty. The Applicant told Mr McGinty that she had paid no repayment on the loan, nor did the lender encumber the property in any way. She then apparently told Mr McGinty that the nature of the advance had changed from a loan to an investment in the property by the lender, although she had no documentation to evidence this.
15. The Applicant also claimed that a sum of $31,500.00 had been borrowed from A. W. Hamze Pty Ltd to pay the deposit on the tobacco farm. In cross examination when it was pointed out to the Applicant that the loan monies from A. W. Hamze Pty Ltd had been paid to the Applicant after the payment of the deposit, she claimed that the deposit monies had come from her account and that the advance was then used to replenish her account.
16. Questions arose as to the authenticity of a purported loan agreement between A. W. Hamze Pty Ltd and the Applicant.
17. Ahmad Abdul Halim Hamze stated that the loan agreement between his company, A. W. Hamze Pty Ltd and the Applicant had been downloaded from the internet by his son. That loan agreement does not make any provision for the payment of interest but does state that the loan was to be repaid after 24 months. It was not repaid until October 2007.
18. In the interim the company A. W. Hamze Pty Ltd had gone into liquidation. According to the affidavit of Ahmad Hamze the monies were not paid to the company but to Mr Hamze directly. In evidence Abdul Hamze said he had personally used this money.
19. What seems clear from the evidence of Abdul Hamze is that he regarded the company as no more than an emanation of himself. Certainly the sum of $31,500.00 was not shown as a debt due to the company in the report of the affairs of the company following liquidation. No documentation was produced however, as to the receipt of any loan repayment and Abdul Hamze was a recalcitrant witness. I find I cannot accept any evidence adduced by the Applicant as to the sum of $31,500.00 purportedly received from A. W. Hamze Pty Ltd.
20. The Applicant claimed she had received the sum of $10,000.00 from Ahmad Ali Hamze who is the nephew of her former partner Chamseddine Hamze.
21. Initially, in her interview with Mr McGinty, the Applicant informed him that she had sold a Toyota Camry motor vehicle. Cross examined she said: “Well it might not have been my car. It could have been somebody who sold it and loaned me the $10,000.00.”
22. Notwithstanding the above evidence, the Applicant maintained that Ahmad Hamze had lent her the $10,000.00. In cross examination she was unable to state the purpose for which the loan was made.
23. At the time of initial interview the Applicant did not inform the investigator of the existence of the loan or of the loan agreement.
24. Cross examined, the Applicant stated that she was pretty sure she had downloaded the loan agreement from the Internet. Ahmad Hamze when cross examined initially stated that the agreement was drafted by the Applicant, but later said the document was written by the Applicant and he and the Applicant’s father agreed on the words and signed it.
25. Questioned about the source of the monies advanced to the Applicant, Mr Hamze said he sold his house, but being questioned was unable to remember the street number of the house.
26. The circumstances surrounding this loan are suspicious. Although the loan agreement states interest was payable on the loan and that it was repayable by 17 April 2006, Ahmad Hamze never requested the payment of interest nor the timely repayment of the loan.
27. This at a time when he was apparently unemployed. Cross examined he stated he was in a hurry to be repaid but on the evidence he did not press for repayment.
28. Perusing the cross examination of Ahmad Hamze, it is clear, despite repeated interruptions of the cross examination by Counsel for the Applicant, that the witness was unable to explain the source of the funds out of which he was able to allegedly loan the Applicant $10,000 and not be concerned to obtain either repayment of the loan or the payment of interest as provided for by the loan agreement.
29. The Respondent undertook property searches to test the veracity of Abdal Hamze’s evidence. See exhibit R12. The only property in Sydney that Ahmad Hamze had ever owned was at 26 Linthorne Street, Guildford, NSW. There was no record of any property owned by Abdal Hamze in Excelsior Street, the address nominated by Abdal Hamze of the property sold. The property in Linthorne Street had been purchased on 27 August 2001 for $240,000.00 and was mortgaged to the extent of $228,000.00 as at that date. The property was sold on 22 August 2003 for $380,000.00 which was well after the date of the agreement and the deposit to the Applicant’s account.
30. Abdal Hamze’s explanation as to the source of the funds allegedly loaned to the Applicant is, I find, false and that of course raises other doubts as to his and the Applicant’s evidence.
31. In Counsel’s opening submissions and in the Applicant’s affidavit, reference is made to cash gifts from two of her brothers, Mustapha Addoug and Ahmed Addoug.
32. Only Ahmed Addoug was called as a witness in these proceedings. Although Mustapha Addoug appeared on the Applicant’s list of witnesses, he was not called. The Applicant was however cross examined on an affidavit sworn by him but not tendered.
33. Exhibit R9 is a statement by Mustapha Addoug in which he claims to have lent his sister the sum of $7,000.00 in the years 2002-2003. Cross examined the Applicant said that Mustapha Addoug had given her $5,000.00 in 2003-2004. She was unable to explain the discrepancy.
34. Ahmed Addoug, in an undated statement, said that he had helped his sister with some financial help for the sum of $5,000 in the year 2002-2003. In cross examination he referred to that period as been 2003-2004. (Reference is made in the transcript to an Affidavit of Ahmed Addoug sworn 25 November 2008, but I cannot locate that affidavit in the exhibits tendered at the hearing).
35. Ahmed Addoug was unable to support his evidence by reference to any bank statements or other documents. He did state that in 2003 he was still at school. He claimed to have earned money working for both KFC and his brother, but when confronted with his tax return for the year 2003 he stated that the amount of income returned viz $696.00 was wrong.
36. No explanation was given by Ahmed Addoug as to the discrepancy between the dates 2002-2003 in Exhibit R10 and his later claim that the sum was given in 2003-2004 other than to say it was a “mistake”. Given the tenor of the cross examination and the discrepancies revealed I do not accept the evidence of Ahmed Addoug nor the assertion by the Applicant that he gave her $5,000.00.
37. Similarly in the absence of Mustapha Addoug I do not accept the Applicant’s claim that he gave her $5,000.00.
38. The Applicant sought to explain the deposit of $21,250.00 to her Commonwealth Bank of Australia (“CBA”) savings account on 10 January 2003 as being proceeds of the sale of a BMW vehicle. A later deposit of $11,000.00 on 7 October 2003 was allegedly from the sale by her then partner of a Holden Commodore motor vehicle.
39. Originally at interview on 23 October 2006 the Applicant had stated that the sum of $21,250.00 was the proceeds from the sale of a four wheel drive motor vehicle.
40. In cross examination the Applicant said that she had told the investigator that the proceeds were from the sale of a four wheel drive vehicle as she could not remember at the time.
41. Cross examined, the Applicant’s evidence on this point was quite vague. At transcript 8 April 2009 page 40, the following passage occurs:

Q: When Mr McGinty interviewed you on 23 October ‘06 you told him that this amount was the proceeds of sale of a four wheel drive?.

A: I couldn’t remember which car it was.

Q: Well, how many cars had you had prior to this Ms Addoug?

A: There was - there was - there was - not many. It doesn’t have to be in my name, but a few friends, family members who had help sold the vehicle to help me; I couldn’t remember the exact vehicle.

Q: And they put the money in your bank account each time, do they?

A: Well, I’ve had a couple here, yes.”

42. The Applicant claimed that she purchased a BMW vehicle from a Haysam Houzaife for $15,000.00 but then on-sold it for $21,250.00.
43. Interestingly the purchase of the BMW vehicle was four months after obtaining a loan of $15,000.00 from the Punchbowl Credit Union for the stated purpose of “fix and furnish house”.
44. Haysam Houzaife in a Statutory Declaration sworn on 6 June 2007 said that he had sold a black BMW to the Applicant around 3 January 2003 but that he had kept the title of the car under his name and did not transfer the title to the Applicant through the Roads and Traffic Authority (“RTA”).
45. He then added that the Applicant sold the vehicle on 10 January 2003 to Borce Ivanovski for $21,250.00.
46. On 7 March 2008 an Abdel-Rahman Hecham Kassem declared that he owned a BMW which he sold to his cousin Haysam Houzaifeh (sic) but that the title stayed in his name in order to save stamp duty and RTA fees. He added “I became the legal owner while Haysam Huzaife (sic) became the beneficial owner.”
47. Neither Haysam Houzaifeh (or Houzaife) nor Abdel-Rahman Hecham Kassem were called in these proceedings.
48. In any event the above Statutory Declarations are false, as is the claim by the Applicant in a Statutory Declaration dated 10 March 2008 in which she states that she kept the registration in the name of the seller. She added: “As the car was never officially registered in my name with the RTA I could get no further detail from the RTA.”
49. Annexure “F” to the Affidavit of Mr McGinty reveals that on 21 November 2002 Abdel-Rahman Hachem Kassem sold a BMW sedan to the Applicant for the sum of $13,000. The Applicant was registered as the owner of that vehicle by the RTA. On 10 January 2003 the registration was transferred to Borce Ivanovski, the sale price recorded by the RTA being $16,000.00.
50. In her Affidavit of 10 November 2008, the Applicant claims to have purchased the BMW motor vehicle for $15,000.00. I find it unconvincing that she claimed in evidence to have obtained the purchase price of the BMW vehicle by withdrawing several amounts in the preceeding weeks. Obviously if the sum of $13,000.00 had been withdrawn in a lump sum, as one might expect, then the bank accounts would show this withdrawal.
51. Questioned regarding the source of funds to purchase the BMW, the Applicant said her grandparents had given her money, however, on her own evidence she had in the year 2002 received the sum of $9,000 only from relatives in Lebanon, which money she had used to pay outstanding debts on her credit cards. See the Applicant’s Affidavit of 10 November 2008 at paragraphs 7 to 10 inclusive.
52. The Applicant claimed that in 2004 a deposit of $11,000.00 in her bank account was the proceeds from the sale of a Holden motor vehicle.
53. Originally, to the investigator Mr McGinty, the Applicant had claimed the sum of $11,000.00 was from the sale of a Mazda Astina. Subsequently the investigator independently confirmed that the sum of $11,000.00 deposited was from Ryan Raymond Gentz.
54. At Exhibit “J” of Mr McGinty’s Affidavit, is an RTA search regarding a Holden motor vehicle, registration number YEH173. It reveals that it was owned by Ghamseddine (sic) Hamze who on 28 August 2003 transferred the vehicle to Anwar Mohamad Tradie for $9,900.00 who in turn on 3 October 2003 transferred the vehicle to Ryan Raymond Gentz for the sum of $9,000.00.
55. At paragraphs 49 and 50 of Exhibit A1 the Applicant states:

49. On about 7 October 2003, I banked $11,000 in my bank account which was the proceeds of the sale of a Holden Commodore YEH-173 which my then partner, Chamseddine Hamze, had sold.

50. My partner directed the proceeds be made out as a cheque to me as a gift to me shortly after our daughter was born on 13 July 2003.

56. In her oral evidence she said that she was present when Chamseddine Hamze sold the vehicle to Ryan Gentz.
57. No explanation has been given as to the discrepancy between the sum of $11,000.00 deposited and the sale price of the motor vehicle as disclosed to the RTA viz $9,000.00. The RTA search does not corroborate the Applicant’s evidence that the sale to Tradie was aborted because Tradie was unable to pay the purchase price and so returned the vehicle to Hamze. Tradie was not called in these proceedings.
58. Chamseddine Hamze is the former partner of the Applicant and the father of her daughter but he was not called in these proceedings.
59. I am satisfied that the Applicant has not discharged the onus of proof as to the alleged deposit of monies from the sale of motor vehicles.
60. Other deposits to the Applicant’s bank accounts were allegedly funds given to her by relatives either when she was in Lebanon or forwarded via intermediaries to her in Australia.
61. On 19 June 2007 the Applicant swore a Statutory Declaration stating that she had brought funds with her upon returning from Lebanon as follows:

31/07/2002 $8,000.00

09/07/2004 $5,000.00

12/08/2005 $5,000.00

11/01/2006 $7,000.00

62. Subsequently in Exhibit A1 the Applicant swore that in 2002 she received $9,000.00 from relations in Lebanon. In 2003 she received $7,500.00. In 2004 she received $7,000.000 from her paternal grandmother and $5,000 from her daughter’s grandfather. In 2005 she received $5,000 from her paternal grandmother. These amounts are different from the amounts disclosed in the 2007 Statutory Declaration, and for considerably greater sums.
63. None of the persons who are alleged to have given these sums of money were called as witnesses. It is not impossible to take evidence by telephone from people in Lebanon, and in other jurisdictions the Tribunal has done so.
64. I am also unconvinced by the Applicant’s evidence that on arrival in Australia she changed foreign currency at the airport and at later dates at banks. No records were produced to show currency exchanges or deposits into bank accounts.
65. Overall the evidence by the Applicant, and that adduced in her case, was entirely unconvincing. This, together with the general view I formed as to her credibility and inconsistencies in evidence as detailed above, results in a finding that the Applicant has manifestly failed to discharge the onus upon her to demonstrate that the assessment is excessive.
66. The Applicant also has GST liabilities in respect of her tobacco farming activities.
67. In final submissions the Applicant, by her Counsel, conceded that by reason of a GST Recipient Created Tax Invoice she is liable to pay GST during the relevant periods. She did however challenge the imposition of a 75% penalty.
68. The Applicant’s evidence was that at or about the time she commenced her activities as a tobacco grower she received advice from her then accountant that she was not required to be registered for GST as her income was below the $50,000.00 monetary threshold, and her actual income in the relevant years of 2004, 2005, and 2006 had been below this sum.
69. The Applicant’s former accountant was not called, it being stated without objection, that he was overseas at the time of hearing.
70. Notwithstanding the doubts I have as to the Applicant’s credit, I accept that she did receive advice from her accountant that she was not liable for GST. In these circumstances I find that the penalty should be reduced to 25% of the shortfall amount on the basis that the Applicant or her tax agent had failed to take reasonable care to comply with taxation law.
71. As to the penalty arising from the shortfall in Income Tax, I consider that 50% is entirely appropriate given the findings I have made in this matter.
72. The decision under review is VARIED in that the penalty relating to the shortfall of GST is reduced to 25% however in all remaining aspects the Decision under Review is AFFIRMED.
    

I certify that the 72 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member M D Allen.

Signed: .......................[SGD]......................................

K. Lynch, Associate

Dates of Hearing 7 & 8 April and 1 May 2009

and 22 January 2010.

Date of Decision 3 February 2010

Counsel for the Applicant Peter Cullen

Solicitor for the Applicant R Hamdan

Counsel for the Respondent Roger Quinn

Representative for the Respondent ATO Legal Services Branch