Absolute Vision Technologies Pty Limited and Innovation and Science Australia (Taxation) - [2022] AATA 2319

Absolute Vision Technologies Pty Limited and Innovation and Science Australia (Taxation) [2022] AATA 2319 (13 July 2022)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2019/7899, 2019/7900 and 2019/7901
Re:ABSOLUTE VISION TECHNOLOGIES PTY LIMITED
APPLICANT

AndINNOVATION AND SCIENCE AUSTRALIA
RESPONDENT

DECISION
Tribunal:Deputy President B J McCabe and Senior Member D K Grigg
Date:13 July 2022
Place:Sydney

The Tribunal affirms the decision under review.
The Tribunal directs that publication of the decision will not occur before 21 July 2022.
.........................[SGD].....................................
Deputy President B J McCabe and Senior Member D K Grigg

CATCHWORDS
TAX – R&D Tax Incentive – whether activities undertaken by the Applicant are eligible research and development activities under the Industry Research and Development Act 1986 (Cth) and Income Tax Assessment Act 1997 (Cth) – where expert evidence unchallenged – where lack of contemporaneous documentation - decision under review affirmed
LEGISLATION
Income Tax Assessment Act 1997 (Cth)
Industry Research and Development Act 1986 (Cth)
CASES
Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41
Coal of Queensland Pty Ltd v Innovation and Science Australia [2021] FCAFC 54
Commissioner of Taxation v Bogialto [2020] FCA 1130
Docklands Science Park Pty Ltd and Innovation Australia [2015] AATA 973
Federal Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55
Hull v Thompson [2001] NSWCA 359
Mine Subsidence Board v Maria Vervon [2008] NSWCA 280
Moreton Resources Limited v Innovation and Science Australia [2019] FCAFC 120
Precision Plastics Pty Ltd v Demir (1975) 132 CLR 362
Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355
Royal Wins Pty Ltd and Innovation and Science Australia [2020] AATA 4320
SZTAL v Minister for Immigration and Border Protection [2017] HCA 34
SECONDARY MATERIALS
Explanatory Memorandum, Tax Laws Amendment (Research and Development) Bill 2010 (Cth)
REASONS FOR DECISION
Deputy President B J McCabe and Senior Member D K Grigg
13 July 2022
Contents
Introduction
Legislative background
What is a “core R&D activity” and “supporting R&D activity”?
What are “experimental activities” section 355.25
AVT’s APPLICATION/REGISTRATION PROCESS
ISA’S REVIEW OF THE CLAIMED ACTIVITIES
Issue for the Tribunal
CONTENTIONS
AVT’s Contentions
ISA’s contentions
Witnesses
EVIDENCE
Dr Srivastava
The Contemporaneous Documents
AVT’s Contentions re Associate Professor Wong

CONSIDERATION
Are the claimed activities “core” or “supporting” R & D activities
Was the progression of work based on principles of established science?
Evidence of observation and evaluation?
Conclusion
Scant Documentation
Decision
Introduction

The Applicant, Absolute Vision Technologies Pty Limited (‘AVT’) is “an independent software vendor that provides IT services and develops Cloud based digital solutions for wholesale, retail, manufacturing, and distribution businesses”.[1] AVT was established by Dr Gaurav Srivastava in 2006 and has been primarily engaged in developing “a real time freight or manufacturing scheduling system focused on the speed (for shipping) and drag-&-drop functionally linked to production and procurement control systems (for manufacturing) (‘the Project’).[2] This Project lies at the heart of these proceedings which focus on the eligibility of AVT to claim a research and development tax offset under the Income Tax Assessment Act 1997 (Cth) (‘ITAA 1997’) in relation to the Project.
[1] Exhibit 1, Tribunal Book, Applicant’s Statement of Facts, Issues, and Contentions, 6 [4] (‘Applicant’s SFIC’).
[2] Exhibit 1, Tribunal Book, Applicant’s Outline of Submissions, 36-37 [3] (‘Applicant’s Submissions’).
Pursuant to the Industry Research and Development Act 1986 (Cth) (‘IR & D Act’), entities can register research and development activities with the Respondent, Innovation and Science Australia (‘ISA’). If those research and development activities are eligible, a tax offset may be claimed. ISA administers the registration of entities and their research and development activities. ISA also assesses registered entities’ eligibility to claim an R & D Tax Offset under Division 355 of the ITAA 1997 for the activities.
legislative background
The Full Federal Court explained and summarised the R & D tax incentive scheme in Moreton Resources Limited v Innovation and Science Australia [2019] FCAFC 120 (‘Moreton Resources’) at paragraphs [5] to [25]. We would adopt that explanation as the background to our discussion. Having said that, it is worth reproducing some of the relevant provisions in detail given their complexity.
The object of the IR & D Act, as stated in section 3 “is to position Australia as a leading innovation nation by:
(a) facilitating the provision of independent strategic advice about investment in industry, innovation, science and research; and
(b) supporting and encouraging collaboration in the development and delivery of programs relating to industry, innovation, science and research; and
(c) authorising spending on programs relating to industry, innovation, science and research; and
(d) promoting the development, and improving the efficiency and international competitiveness, of Australian industry by encouraging R&D activities, innovation and science activities and venture capital activities
The IR & D Act established ISA whose functions are to, among other things, undertake audits, prepare, review, and amend plans in relation to, industry, innovation, science, and research matters, and to administer the R&D tax offset scheme.
Pursuant to section 27A of the IR & D Act, an entity may apply to be registered for a particular financial year for “core R&D activities” and “supporting R&D activities”.
ISA may examine an R&D entity’s registration on its own initiative (s 27F(2)) and may then make one or more of the following findings under section 27J(1):
(a) that all or part of a registered activity was a core R&D activity conducted during the registration year;
(b) that all or part of a registered activity was not an activity of a kind covered by paragraph (a);
(c) that all or part of a registered activity was a supporting R&D activity conducted during the registration year and in relation to:
(i) one or more specified registered core R&D activities; or
(ii) one or more specified core R&D activities for which the entity has been registered in an earlier income year; or
(iii) one or more specified core R&D activities yet to be conducted for which the entity could be registered in the registration year if those activities were conducted during the registration year; or
(iv) several specified core R&D activities, each covered by subparagraph(i), (ii) or (iii);
(d) that all or part of a registered activity was not an activity of a kind covered by paragraph (c).
ISA’s section 27J findings are then communicated to the R&D entity (s 27K). Findings made under section 27J(1) are “reviewable decisions” (s 30A). An entity may request an internal review of a reviewable decision (s 30C(1)), following which an entity may apply for a review to the Administrative Appeals Tribunal.(s 30E).
What is a “core R&D activity” and “supporting R&D activity”?
For the purpose of the IR & D Act, the terms “core R&D activities”, “R&D activities” and “supporting R&D activities” have the same meaning as in the ITAA 1997[3] as follows:
[3] IR & D Act s 4.
Section 355.25
Core R&D activities
(1) Core R&D activities are experimental activities:
(a) whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that:
(i) is based on principles of established science; and
(ii) proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and
(b) that are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services).
(emphasis added)
Section 355.30
Supporting R&D activities
(1) Supporting R&D activities are activities directly related to * core R&D activities.
(2) However, if an activity:
(a) is an activity referred to in subsection 355-25(2); or
(b) produces goods or services; or
(c) is directly related to producing goods or services;
the activity is a supporting R&D activity only if it is undertaken for the dominant purpose of supporting * core R&D activities.
What are “experimental activities” per section 355.25 of the ITAA 1997
The Full Court in Moreton Resources determined (at [148]) that:
·the words “experimental activities” in the opening line of section 355.25(1) of the ITAA 1997 are merely activities that meet the descriptions in sub-paragraphs (a) and (b);
·Activities must meet the descriptions in both paragraphs to satisfy the defined expression “core R&D activities”.
·Given the detail and content of the description in paragraphs (a) and (b), it is difficult to envisage activities that would meet the description in paragraphs (a) and (b) but would not be considered “experimental activities”.
·[T]he word “experimental” in the opening line of the subsection is … at least, descriptive of the types of activities that are described in paragraphs (a) and (b).
The key elements that must be satisfied under section 355.25 of the ITAA 1997 are:
(a)The activities in question must be experimental activities;
(b)The outcome of the activity in question cannot be known or determined in advance;
(c)The outcome of the activity in question can only be determined by a systematic progression of work;
(d)That progression of work must be
(i)based on principles of established science; and
(ii)proceed from hypothesis to experiment, observation, and evaluation, and leads to logical conclusions; and
(e)the work must be conducted for the purpose of generating new knowledge.
AVT’s APPLICATION/REGISTRATION PROCESS
While AVT says it has been engaged in researching and developing the Project since 2009,[4] it is only the activities undertaken in the 2014, 2015 and 2016 financial years that are relevant here (‘Relevant Years’). The Full Federal Court recently made it clear in Coal of Queensland Pty Ltd v Innovation and Science Australia [2021] FCAFC 54 (at [131]) that whether the overall purpose of the activities should, or more importantly can, be taken into account in assessing whether registered activities in the relevant financial years are R&D activities, regard is not to be had to the whole project for the purpose of section 27J of the IR & D Act, and activities which occur outside the years under consideration are only relevant if they shed light on the matters under consideration.
[4] Exhibit 1, Tribunal Book, T9, 253 (‘T9’); Exhibit 1, Tribunal Book, T14, 266 (‘T14’); Exhibit 1, Tribunal Book, T17, 280 (‘T17’).
For the Relevant Years, AVT registered its activities with ISA, pursuant to sections 27A and 27D of the IR & D Act as “research and development activities” (‘R&D Applications’).[5] The claimed R&D Activities were made up of activities defined as “core activities” and “supporting activities” as set out in paragraph 9 above.
[5] T9 (n 4) 249-260; T14 (n 4) 262-273; T17 (n 4) 275-287.
AVT claimed in its R & D Applications that the objective of the R & D Project was:[6]
…to evolve available cloud based management information software and advance it to a level capable of providing new products to the Australian wholesale, manufacturing professional services and industry…through leveraging the current Netsuite cloud technology platform and providing a more cost effective and real time multi-disciplined business solutions platform…
[6] T9 (n 4) 254; T14 (n 4) 267; T17 (n 4) 281.
In the R & D Applications the claimed “core activities” and “supporting activities” for the 2014 financial year were described by AVT as follows (‘Claimed Activities’):[7]
Core Activity
The core SuiteApps research and development projects is designed to evolve available cloud based management information software and advance it to a level capable of providing new products to the Australian wholesale, manufacturing professional services and industry. This will be achieved through leveraging the current Netsuite cloud technology platform and providing a more cost effective and real time multi-disciplined business solutions platform to support these Australian business communities. There is a clearly identifiable and measurable knowledge gap between what is currently available in the market and the products that the firm is developing. The products will enable wholesale, manufacturing professional services and industry increase their efficiency and profitability through the provision of advanced management information systems and the overall increase in resource allocation effectiveness.
Supporting Activity
The supporting activity includes all activities that are performed for the dominant purpose of supporting the core research and development activity. This includes maintenance (sic) awareness of the current cloud platform knowledge within the relevant industries and other general research and development functions and other activities for the dominant purpose of supporting the core activity. It excludes general business expenses and other administrative expenses which do not have a nexus to the core research and development project.
[7] T9 (n 4) 256-257.
The Claimed Activities for the 2015 and 2016 financial years were the same as those described by AVT for the 2014 financial year.
ISA accepted AVT’s R&D Applications for registration for the Relevant Years. ISA explained to AVT that registration of the activities does not equate to a determination that the registered activities are eligible or comply with the R & D Tax Incentive requirement.[8]
[8] Exhibit 1, Tribunal Book, T10, 261; Exhibit 1, Tribunal Book, T16, 274; Exhibit 1, Tribunal Book, T18, 288.
ISA’S REVIEW OF THE CLAIMED ACTIVITIES
In December 2016 ISA informed AVT it was conducting a review of its Claimed Activities for the 2012 to 2016 financial years to ensure those activities complied with the IR & D Act.[9] ISA requested AVT provide it with, inter alia, the following additional information:
[9] Exhibit 1, Tribunal Book, T24, 289-292.
·What hypothesis was being tested?
·What experiments have been undertaken?
·How were the experiments conducted?
·What observations were recorded?
·What conclusions were reached?
·How did the Claimed Activities “extend beyond incremental modification of an established software system”?
·What was the technical knowledge gap AVT was seeking to resolve?
·How was the outcome of the Claimed Activities not known or able to be determined by a competent professional in the industry?
Over the course of the next 17 months or so AVT supplied ISA with additional information concerning its activities and met with ISA representatives, including onsite at AVT’s offices.[10] In response to the specific questions referred to above AVT had Mr Ian Ross-Gowan, Director of Michael Johnson Associates, respond on its behalf to ISA’s requests for further information. It is worth setting out the detail of those responses as follows:[11]
[10] Exhibit 1, Tribunal Book, T29, 293-302 (‘T29’); Exhibit 1, Tribunal Book, T30, 303; Exhibit 1, Tribunal Book, T39, 304-309 (‘T39’); Exhibit 1, Tribunal Book, T41, 310-329 (‘T41’).
[11] T29 (n 10) 293, 296-299.
·What hypothesis was being tested?
Hypothesis 2013-3
Having completed the R&D experimental development activities to enable the completion of the AVT initial system, the focus of R&D became more targeted on specific developments that required R&D experimental developments.
The hypothesis for this targeted experiment on specific functionality improvements was limited to just the following functions in FY2013:
• Whether the product could be improved by adding the ability to estimate shipping on sale order and on fulfilment
• Whether the product could be improved by adding more flexibility in location data and defaults based on a wider range of inputs
• Whether the product could be improved by adding a job board for displaying and rescheduling manufacturing jobs and production runs. This system may also be used for deliveries and deliveries management. This integrated the production schedules to transactions (Sales and Works orders) in a visual environment
• Whether the product could be improved to provide new updates to fulfilment data from other sources such as booking confirmations
Each of these product improvements required the development of improvements to the overall system rather than a simple understood application of what was already known because how the improvements were to be made as (sic) uncertain at the time the improvements commenced. Whilst some aspects may not otherwise be particularly new, they needed to be implemented without impairing the realtime nature of the system, especially against the variables of speed, stability and data integrity All were complete except the last one within FY2013
2014
Hypothesis 2014-1
This is a continuation of Hypothesis 2013-3
The hypothesis for this targeted experiment on specific functionality improvements was limited to just the following functions in FY2014:
• Whether the product could be improved to provide new updates to fulfilment data from other sources such as booking confirmations
• Whether the functionality of the Freight Estimates system could be improved so it can provide freight estimates at different points in the scheduling process. This included when the system is providing quotes, invoices or through a cash sales system.
• Development of new functionality to improve the system flexibility to provide booking confirmations and a new package was developed for similar information on invoices in drop ship situations (i.e. Third party logistics provider manages stock delivery)
• Development of new functionality to improve the system flexibility to provide more flexibility and preferences in sales orders.
• Further improvements to job board provide filters by resource, project and adding rescaling to jobs thereby changing the length of time for task.
Each of these product improvements required the development of improvements to the overall system rather than a simple understood application of what was already known because how the improvements were to be made as (sic) uncertain at the time the improvements commenced. Whilst some aspects may not otherwise be particularly new, they needed to be implemented without impairing the realtime nature of the system, especially against the variables of speed, stability and data integrity. All were complete within FY2014
Hypothesis 2015-1
This is a continuation of Hypothesis 2013-3
The hypothesis for this targeted experiment on specific functionality improvements was limited to just the following functions in FY2015:
• Whether the product can be improved by adding new functionality in the sales orders to allow flexibility in carriers and in the freight bookings when orders are transferred
• Whether the product can be improved to allow new functionality and flexibility in deleting bookings from item fulfilment or sales orders
• Whether the product can be improved to allow auto packaging of goods based on item selection
• Whether the product can be improved by the additions of new functionality to allow bulk estimates in shipping and flexibility in warehouse preferences on transfer orders
• Whether the product can be improved by adding new functionality to the job board. This was to add the ability copy and paste, split operations and delete operations where the simple operations on the board where reflected in the production planning operations.
Each of these product improvements required the development of improvements to the overall system rather than a simple understood application of what was already known because how the improvements were to be made as (sic) uncertain at the time the improvements commenced. Whilst some aspects may not otherwise be particularly new, they needed to be implemented without impairing the realtime nature of the system, especially against the variables of speed, stability and data integrity. All were complete within FY2015
Hypothesis 2015-2
Following the period of experimental development of specific new or improved functionality and the expansion of users and user needs the needed (sic) to seek to further improve core end to end performance. The hypothesis for this activity is that AVT can improve the products performance on the new functionality added and on its end-to-end performance. This includes experimentation of speed stability and data integrity improvements across the whole system.
The new knowledge being generated was in the form of improved real time functionality. The experimental method is common to all hypotheses and as (sic) discussed below. By the end of June 2015 this activity was only in early stages.
·What experiments have been undertaken?
The R&D activities are the experimental development activities necessary to create the first known real-time drag and drop interactive scheduling program for use on multiple device types on any system.
·How were the experiments conducted?
Experimental method
In answering these hypotheses, AVT employs a standard software development process. This process is based Agile and Rapid structures and procedures. The method itself, is not the R&D, just the same as the procedures in an engineering project or a medical clinical trial are not the R&D. It is the application of these procedures to design, order, set up and conduct the experiments by identifying the issues (e.g. speed) or the desired outcome (e.g. that dragging and dropping elements on the screen will in real time initiate and recalculate the schedules as required).
That the results of the simulations and initial trials will produce the observable results that answer the hypothesis and thereby lead to conclusion about the success or failure and next steps in the experimental development of improvements to this product.
·How did the Claimed Activities “extend beyond incremental modification of an established software system”?
…the AVT systems is [not] a modification of an existing application ...
AVT is a separate add-in that merely uses the NetSuite ERP as its operating environment and as a separate extension to its capabilities.
This is a new system that is offering functionality that no other system within or outside of NetSuite offered at that time.
·What was the technical knowledge gap AVT was seeking to resolve?
This question is based on the assumption that the AVT systems is a modification of an existing application. This assumption is not correct. AVT is a separate add-in that merely uses the NetSuite ERP as its operating environment and as a separate extension to its capabilities. This is a new system that is offering functionality that no other system within or outside of NetSuite offered at that time. AVT knows this because it has done extensive study on what was available and identified where the technology available did not have the capabilities that NetSuite was seeking to develop. Please see the answer to Question 3 on why AVT knows that this system is the genuine development of new capabilities that did not previously exist at the time they were developed. As an early adopter of cloud based services with a system that specifically relied on high speed through this structure, there are tasks that AVT needed to undertake then as experiments that today would not be R&D. This is a result of the successful completion of the types of experiments that AVT and others did at that time that would not be required today.
·How was the outcome of the Claimed Activities not known or able to be determined by a competent professional in the industry?
Shipping
There was no single integrated cloud platform/solution available for multi-carrier shipping…
There was no common API available for integration…
The complexities related to cloud architecture calculation required to be performed in real-time across multiple shipping services and rate schedules were unknown and needed to be developed. The ability to integration (sic) this with all the carrier systems needed to be developed. At this early stage the technology to generate and print carrier compliant labels from real time booking data over cloud technology was not there.
Manufacturing
There were no cloud based manufacturing solution for production scheduling. Production managers in small businesses used paper and simple spreadsheets to manage production. There was no fully integrated end to end cloud based solution with drag and drop production scheduling for businesses of any size…
For production scheduling the research is focusing on the development of a framework to support drag and drop production scheduling on the cloud. There was limited research available on the framework to support this model on web browser. This included that there was limited research available on the scalability of the framework and its performance. There was technical uncertainty about integrating this with Manufacturing business objects including Work Orders, Production routings, operations, resources and capacity planning. The complexity related to cloud architecture calculation required this to all be performed in real-time across multiple business objects despite the fact that a simple looking change on the screen could require significant and complex rescheduling and reoptimizing all current work. This had to be integrated with the ERP and the business’ production system.

AVT did not respond to ISA’s questions regarding what observations were recorded and what conclusions were reached for the Relevant Years.
Following its review, ISA informed AVT it had not demonstrated that the Claimed Activities were Core R&D Activities or Supporting Activities. ISA explained the reasons for its decision were as follows:[12]
[12] T39 (n 10) 307-308.
·AVT had not demonstrated it had undertaken eligible experimental activities related to hypotheses and undertaken for the purpose of generating technical new knowledge;
·AVT’s descriptions of Claimed Activities lacked sufficient detail;
·AVT had not demonstrated or identified the knowledge gaps it sought to resolve;
·There was insufficient detail of the state of the art at the time of the Claimed Activities;
·AVT had not provided “specific technical hypotheses that inform the design and conduct of claimed experiments”;
·AVT had not demonstrated how any new knowledge generated differed from the state of existing knowledge;
·AVT had not demonstrated that the outcome could not be known or determined in advance by a skilled professional;
·There was no evidence of a systematic progression of work – the activities in each Relevant Year claimed the same activities;
·There was no evidence that new knowledge was generated;
·There was no detail of the experiments undertaken, how they were performed;
·There was no substantiating evidence that any experiments were performed.
On 31 July 2017 AVT provided a further response as follows:[13]
[13] T41 (n 10) 326-329.
In the Statement of Understanding dated 10 July 2017, AusIndustry has made the following incorrect assertions:
1. AVT has not demonstrated the occurrence of the experiments
AVT showed the AusIndustry officers documents that showed the activities were conducted during the site visit. They showed the release schedule that resulted from the successful completion of these experiments and provided papers discussing the experimental developments.
To further demonstrate that the experiments did occur AVT is sending AusIndustry further samples of documentation on the conduct and results of the experimental development activities.
2. There are insufficient descriptions and details of activities
AusIndustry is of the mistaken belief that the descriptions of activities in the registration form must discuss the details of the RD activities down to “granular” level individual experiments.
This is not a requirement under the Law (Div 355, Income Tax Assessment Act 1997 and Section III, Industry Research and Development Act 1986) or under any regulations or guidelines. The explanatory memorandum to the Bill introducing the programme states specifically in paragraph 2.11 that the experiments can be grouped as “sets of experiments”. No court case has identified any need for the registration to show each individual experiment at a granular level.
The purpose of the core RD activity is identified in the AusIndustry R&D registration application form as being to “describe the experiment or set of related experiments that were undertaken to gain the new knowledge. Include in your answer, a statement about the hypothesis of your experiments, the main steps or actions you did as part of these experimental activities, the results and conclusions.” Note, the form correctly allows for all related experiments to be grouped together as one to answer the hypothesis.
(emphasis in original)
It refers to one hypothesis for all these experiments and only requires the main steps or actions that are part of these experimental activities.
The information provided by AVT clearly described the sets of related experiments by their single core R&D hypothesis, major steps in the experimental methodology and results and conclusions in regards to the hypothesis. By way of example the hypothesis for the two systems was strongly reliant on the process being able to be used in real-time or by drag and drop. The sets of related experiments in 2011-1, 2011-2, 2012-1, 2012-2, 2012-4 and 2013-2 reached the conclusion that the speed issues for the were (sic) finally resolved by the development and application of the third method developed for the shipping and by the completion of the experiments for the manufacturing system. This brought the response times down from 10 to 15 minutes to less than 2 seconds.
To further describe these activities AVT has updated the answers to the question as above. This includes going to the next level by describing sub-hypotheses and further breaking down the experiments.
3. AVT provided no documentation on
a. The state of the art
AusIndustry has documentation that discusses the state of the art and how the development of this solution is superior to what was previously available. This is in the articles provided to AusIndustry previously.
b. What knowledge gaps existed
The knowledge gaps are evident from the activities and how they progressed from the initial experiments to the completely different resulting solution. AusIndustry has been advised of the competing products and how they do not provide what the AVT systems provide.
c. The conduct of the experiments
AusIndustry has sighted documentation on the conduct of the experiments at the site visit. AVT is providing more documentation on this.
4. A technical knowledge gap
Details of the technology gap have provided by reference to systems available prior to the development of these systems. The technology gap is that, prior to the development of these solutions, there were no available systems that could perform the functions identified in the core R&D activities. Other businesses have subsequently tried to develop similar capabilities but none have developed a solution as advanced as the AVT systems.
Further information on this is provided above
5. Specific technical hypotheses that inform the design and conduct of the experiments
The technical hypotheses have been provided in the initial response. These have been expanded in the answers above to sub-hypotheses within the Core R&D activity’s hypothesis
6. The state of knowledge and capabilities at the time and how the new knowledge generated from the experimental activities substantially differs from this
The state of knowledge and capabilities available at the time the R&D activities has been discussed and provided to AusIndustry. This includes third party confirmation of how AVT’s new capabilities are superior to what was previously available in the articles previously provided to AusIndustry. This information has been expanded in the answers above.
7. That the outcomes could not have been known or determined in advance on the basis of existing knowledge
AusIndustry has documentation that discusses how these two systems are significant improvements on what was previously available with specific reference to what functionality competing systems have not been able to develop to match the capabilities of the AVT system.
8. A systematic progression of work from hypothesis to logical conclusion
The experimental process is discussed in the documentation above. They all progress from forming a hypothesis through a disclosed systematic experimental development process. The systematic experimental process used is the same for all activities and new functionality. Each activity has a result at the end of each period. The answers in regards to this has been expanded above.
9. The Core and supporting R&D activities contain the same descriptions and do not demonstrate a systematic progression of work
This is wrong and fails to take into account that an activity can be undertaken over more than one period. Please note: The discussion of the systematic progression of work is discussed separately at the bottom of the discussion on the activity’s hypothesis, necessity and results. Each activity has its own unique hypothesis and its own unique functional improvement. Each activity has its own unique result and a result as at the end of each period if it was not completed. That software development experimental processes are conducted and described in the same way is no different from many other R&D activities.
For example, R&D on medical clinical trials also follow the same processes worldwide. In common with physical engineering experiments, software engineering experiments share their processes with activities that are not R&D e.g. stage gate for physical engineering or Agile for software. The difference is the uncertainty in the hypothesis and whether the results will be achieved or achieved without the need for experiments. The answers above discuss how AVT’s R&D activities are different from normal activities. AusIndustry was shown three related projects by AVT that were not considered R&D at the site visit. They were also shown non-R&D activities for the shipping and manufacturing product projects that were not included in these registrations.
10. Specific experiments are not described.
This is wrong. Each set of experiments is described by its hypothesis, methodology and results. There is no legislative requirement that any experiment be discussed at a “granular” level. When this new requirement was raised in the site visit, this was pointed out to AusIndustry. As this is a made up term and undocumented new requirement, AusIndustry was asked what was meant by this term. No usable definition or guidance on what a “granular” description meant was able to be provided by AusIndustry.
Further information is provided above on sub-sets of experiments to answer sub hypotheses beneath the required hypothesis for each core R&D activity.
11. The new knowledge described appears to be within the application of existing solutions
This is a wrong assumption that is counter to evidence and discussion provided. AVT has identified where it (sic) solutions are superior to all known alternatives. It has also discussed how the core features were only able to be produced following a series of failed experiments and by stepping outside of the methodology of existing solutions.
12. It appears that the activities are to incrementally develop new functionality for an existing software system
New knowledge can be in the form of improved products or services. All of science is the incremental development of new knowledge and this is recognised in the legislation by the requirements that the R&D experiments be based on the principles of established science. The legal requirement is that the experiments are necessary to answer the hypothesis. The improvement need only be significant enough to meet the requirements of the legislation. The EM in paragraph 2.15 allows for trial and error or incremental development to be part of the R&D if the core R&D requirement are met. In all cases the new functionality is more significant than an incremental improvement of existing functionality. The implication that the experimental development of new functionality for an existing software system is not RD is not supported by the legislation, any related court decisions or regulations and guidelines.
13. The company needs to provide contemporaneous documentation.
Please see attached documentation.
In May 2018, following its review, ISA determined the Claimed Activities for the Relevant Years were neither “core activities” nor “supporting activities”. This meant that ISA determined the Claimed Activities were ineligible for registration as R&D Activities.[14] (‘s 27J Decision’).
[14] Exhibit 1, Tribunal Book,T54, 357-358.
A Certificate of Finding was provided to AVT on 10 May 2018.[15]
[15] Exhibit 1, Tribunal Book, T56, 368-370.
Pursuant to section 30D[16] AVT requested an internal review of the s 27J Decision on 12 June 2018.[17] ISA then requested additional information from AVT and the parties engaged in further discussions and exchanges of information.[18]
[16] IR & D Act.
[17] Exhibit 1, Tribunal Book, T59, 371-374.
[18] Exhibit 1, Tribunal Book, T67, 423-425; Exhibit 1, Tribunal Book, T74, 488-497; Exhibit 1, Tribunal Book, T95, 498-518; Exhibit 1, Tribunal Book, T110, 583-605; Exhibit 1, Tribunal Book, T111, 606-609; Exhibit 1, Tribunal Book, T145, 641-647.
On 18 October 2019 ISA confirmed the s 27J Decision that none of the Claimed Activities in the Relevant Years satisfied the definition of “R&D activities” (‘Internal Review Decision’).[19]
[19] Exhibit 1, Tribunal Book, T128, 634-637; Exhibit 1, Tribunal Book, T129, 638-639; Exhibit 1, Tribunal Book, T130, 640.
On 28 November 2019 AVT applied to this Tribunal for a review of the Internal Review Decision.[20]
[20] Exhibit 1, Tribunal Book, T1, 243-248.
We have jurisdiction to review the Decision pursuant to section 25 of the Administrative Appeals Tribunal Act 1975 (Cth) (‘AAT Act’) and section 30E of the IR & D Act.
issue for the tribunal
The issue for us is whether the Claimed Activities meet the conditions for eligible core R & D activities or eligible supporting R & D activities pursuant to Division 355 of the ITAA 1997.
This will involve a consideration of whether:
(a)any of the Claimed Activities are core R&D activities that were an experimental activity:
(i)whose outcome could not be known or determined in advance on the basis of current knowledge, information or experience but could only be determined by applying a systematic progression of work based on principles of established science that proceeded from hypothesis to experiment, observation, and evaluation, and led to logical conclusions: s 355-25(1)(a), ITAA 1997;
(ii)conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes, or services): s 355-25(1)(b), ITAA 1997; and
(iii)not listed in s 355-25(2) of the ITAA 1997;
(b)any of the Claimed Activities are supporting R&D activities which were:
(i)directly related to an eligible core R&D activity;[21] and
(ii)to the extent the activity produced, or was directly related to producing, goods or services, or is an activity listed in s 355-25(2), undertaken for the dominant purpose of supporting core R&D activities.[22]
CONTENTIONS
[21] ITAA 1997 s 355-30(1).
[22] Ibid s 355-30(2).
AVT’s Contentions
AVT contends as follows:[23]
[23] Applicant’s SFIC (n 1) 8 [29], 9 [31].
·The Claimed Activities were eligible core and supporting R & D Activities undertaken by AVT in the Relevant Years as registered activities.
·It undertook experiments, the outcomes of which was not known and could not have been determined in advance.
·The experimental development process undertaken by AVT was:
•a systematic progression of work;
•based on established science;
•which progressed from hypothesis to experiments, observations, and evaluations that led to conclusions.
·The Claimed Activities were undertaken to develop new knowledge.
·ISA has relied too heavily on the record keeping requirements which do not reflect the nature of the Claimed Activities undertaken by the AVT.
·Due weight should be given to the specialists advising AVT; namely Kirk Davis – a Tax Agent and Certified Practicing Accountant, and Mr Ross-Gowan – a Tax Agent, CPA, and Chartered Tax Advisor.
·The requirement for R & D activities to be “experimental” should be construed more broadly than earlier interpretations: Moreton Resources.
AVT submitted the following to the Tribunal:[24]
·[5] … “[AVT] marshalled a substantial amount of material satisfying the legislative requirements”. AVT refers to that material as “The T Documents and the Additional Material at T109-112”.
·[8] …the R&D Activities sought to develop a platform of new products to the Australian wholesale, manufacturing professional services and industry, but two projects separated by the type of end use:
(a) SuiteApp01: Shipping Management Solution for Real-Time Shipping Calculation; and
(b) SuiteApp02: Manufacturing Production Scheduling System to Support Real-Time
Drag and Drop Production Scheduling).
·[9] The former had eight experiments and the latter had six experiments, for 14 experiments in total.
[24] Applicant’s Submissions (n 2) 37-38.
ISA’s contentions
ISA contends that on the material before it, we cannot be satisfied that AVT’s Claimed Activities purportedly conducted in the relevant income years were “R&D activities” within the meaning of the ITAA 1997.[25]
[25] Exhibit 1, Tribunal Book, Respondents Statement of Facts, Issues and Contentions, 34 [95] (‘Respondent’s SFIC’).
Witnesses
AVT relied on the following evidence:
(a)Witness Statement of Dr Gaurav Srivastava dated 12 August 2020;[26] and
(b)Witness Statement of Mr Ian Ross-Gowan dated 12 August 2020.[27]
[26] Exhibit 1, Tribunal Book, Witness Statement of Dr Gaurav Srivastava, 54-55 (‘Dr Srivastava Witness Statement’).
[27] Exhibit 1, Tribunal Book, Witness Statement of Ian Ross-Gowan, 56-58 (‘Ian Ross-Gowan Witness Statement’).
ISA relied on the expert evidence of Associate Professor Raymond Wong.[28]
[28] Exhibit 1, Tribunal Book, Report of A/Prof Raymond Wong, 59-242 (‘Report of A/Prof Wong’).
The witnesses were not required to appear at the hearing and both parties elected not to cross-examine any witness.
EVIDENCE
Dr Srivastava
Dr Srivastava is AVT’s founder and sole director. Dr Srivastava says the Project arose out of five years of research he undertook for his PhD Thesis which was entitled “Efficient topology control algorithms for ad hoc networks”.[29]
[29]Dr Srivastava Witness Statement (n 26) 54 [6].
Dr Srivastava says:[30]
This constituted the research methodology and the approach upon which the R & D activities were performed bearing in mind that the research was applied to the Oracle NetSuite Cloud platform. The research principles acquired during the Thesis were used to formulate the investigation, innovation and hypothesis that is unique to [AVT’s] business and the R & D Activities in the Relevant Years.
[AVT] is still investing in R & D Activities because the experimental projects are ongoing…
[30] Ibid 54-55 [6]-[7].
Dr Srivastava says AVT retained Mr Kirk Davis, CPA, to advise it in relation to the R & D Applications for Registration in the Relevant Years. Since January 2017 AVT has also retained Mr Ross-Gowan to advise it in relation to the R & D claims for the Relevant Years, and he was specifically engaged to assist AVT during the review and audit by ISA.[31]
[31] Ibid 54 [4]-[5].
Dr Srivastava’s statement was very short – a total of seven paragraphs long. Dr Srivastava does not provide any details of the “experimental activities” undertaken, the intended purpose of the Claimed Activities, any explanation of the hypotheses referred to during ISA’s review or to the issues raised by ISA.
Counsel for AVT directed us to three documents[32] as providing the answers (or rather supporting evidence) addressing the issues before us (referred to by AVT as the ‘Contemporaneous Documents’)
[32] Transcript of proceedings, 8; Applicant’s Submissions (n 2) 37 [5]. See: Exhibit 1, Tribunal Book, T42, 330-354 (‘T42’); Exhibit 1, Tribunal Book, T66, 375-422 (‘T66’); Exhibit 1, Tribunal Book, T109, 519-582 (‘T109’).
The Contemporaneous Documents
The first document titled “AVT R & D Activity Evidence Summary Shipping Management Solution & Manufacturing Production Scheduling System”[33] is dated 1 September 2017 and stated to be written by Dr Srivastava (‘AVT Evidence Summary’). This document purports to “[outline] the evidence samples of activities performed by AVT staff for years 2012, 2013, 2014, 2015 and 2016”.[34] The AVT Evidence Summary is not a contemporaneous record of AVT’s research activities. It was prepared after the time the activities purportedly took place.
[33] T42 (n 32) 330-354.
[34] Ibid 332.
The second document is version 2.0 of the AVT Evidence Summary. It is stated to have been prepared on 1 January 2019.[35] Again, this is not a contemporaneous record.
[35] T66 (n 32) 377.

The third document relied upon by AVT is version 2.2 of the AVT Evidence Summary. It is stated to have been prepared on 15 July 2019.[36] Again, this is not a contemporaneous record.
[36] T109 (n 32) 521.
The three documents, while not contemporaneous themselves, contain some images of computer screenshots which AVT says were prepared contemporaneously. The author describes the screenshots as “experiment logs”. For example, paragraph 2.1.1 of the AVT Evidence Summary contains the following screenshot:
The Contemporaneous Documents were submitted to ISA by AVT during ISA’s review. While these “records” are before us, Dr Srivastava, the stated author of the documents, gave no evidence or explanation about the contents of these documents, for example, how the screenshots were generated.
Should the Contemporaneous Documents (T42, T66, T109) be given any weight?
The Contemporaneous Documents can be given little weight. First, they were prepared after the Relevant Years, so they are not contemporaneous. Second, there is no corroborative evidence of activities described therein. Third, the screenshots are either undated or dated outside the relevant years in question.[37]
[37] Ibid 548, 549, 569.
Mr Ross-Gowan
Mr Ross-Gowan states he is a “highly qualified and experienced R & D tax professional.”[38] He is a registered CPA and CTA. Mr Ross-Gowan advised and represented AVT in relation to its’ R & D registration and claims by advising AVT “on how to sort, summarise and present their contemporaneously created and substantial documentation on their experimental development processes”.[39]
[38] Ian Ross-Gowan Witness Statement (n 27) 56 [2].
[39] Ibid, 57 [6].
In Mr Ross-Gowan’s opinion AVT’s Claimed Activities satisfy the definition of “R & D activities” because:[40]
8.1 The Applicant was systematically conducting several series of experiments needed to answer outcomes that were not determinable in advance;
8.2 These uncertain outcomes were needed to create new services and processes that were based on finding new ways to apply the scientific PhD research by the Applicant’s founder; and
8.3 The Applicant clearly separated the developments that were experimental (as per the requirements of the program) from the other product developments that were a simple application of what was known generally or as a result of previous experiments by the Applicant.
[40] Ibid, 57 [8].
As with Dr Srivastava, Mr Ross-Gowan’s statement is also very short - a total of ten paragraphs in length. There is no evidence that Mr Ross-Gowan has any scientific background, let alone in software development of cloud-based technologies, nor does he have experience in any field of scientific research and experimentation. Mr Ross-Gowan is not an independent witness, having advocated for AVT’s position with ISA since the audit process began. As a result, we do not accept we should give any weight to his opinion about whether AVT’s activities meet the criteria.
Associate Professor Raymond Wong
Associate Professor Wong is an expert in computer science. At the time of the report, he had over 23 years of post-PhD, academic and industry experience in information technology. Associate Professor Wong was, at the time of the report, the Director of Online Education at the School of Computer Science & Engineering, University of New South Wales Sydney, Australia, and the Data Science Consultant at The UNSW Mark Wainwright Analytical Centre.[41]
[41] Report of A/Prof Wong (n 28) 61 [2].
There was no challenge by AVT to Associate Professor Wong’s expertise or his ability to provide expert opinion to the Tribunal in relation to AVT’s Claimed Activities. Associate Professor Wong was the only independent witness to give evidence.
Associate Professor Wong provided a report to the Tribunal dated 6 November 2020.
AVT’s Contentions re Associate Professor Wong
Associate Professor Wong’s evidence was not contradicted before the Tribunal. AVT elected not to cross-examine Associate Professor Wong and did not call any independent expert evidence in response. We queried the applicant’s decision to take this approach at the commencement of the hearing.[42] If a party elects not to call its own expert witness in response and, further, elects not to cross-examine the other party’s expert witness, that witness’s evidence is not contradicted and may be accepted by the Tribunal. Counsel for AVT contended he only needed to make submissions on Associate Professor Wong’s report and his process of reasoning.[43] However, to criticise Associate Professor Wong’s approach and, as a consequence, the opinion that flows from that approach, goes to the substance of Associate Professor Wong’s evidence. Any contention his approach was flawed, wrong or inappropriate and led to erroneous or unreliable conclusions being reached, is exactly what should have been put to the Associate Professor. The NSW Court of Appeal held in Mine Subsidence Board v Maria Vervoon [2008] NSWCA 280 (at [94]):
If [the appellant] considered the [expert’s] evidence on this was critical [which they clearly did by seeking to oppose it], it has an obligation to cross-examine the Respondent’s experts. Its failure to do so meant there was uncontradicted evidence…”
[42] Transcript of Proceedings, 2.
[43] Ibid 2-4.
In Hull v Thompson [2001] NSWCA 359 the New South Wales Court of Appeal said this concerning the appellants failure to cross-examine witnesses:
21.Prima facie if there is no cross-examination of an expert, (and indeed most witnesses), there is no basis for a Judge not to accept the unchallenged evidence. I say “prima facie” because there are circumstances in which evidence in a report may be rejected or subject to criticism or doubt. This may occur where, for example, the report is ex facie illogical or inherently inconsistent; or where it is based on an incorrect or incomplete history; or where the assumptions on which it is founded are not established. However, in the absence of some such matters, there is no rational reason to not accept unchallenged evidence.
22.The reports of the respondents’ two experts did not suffer from any of these deficiencies. Each recommended demolition and re-construction. Mr Margo put many submissions to this Court as to why that was an unreasonable response to the problem. However, the matters Mr Margo put by way of submission should, in my opinion, have been put to the witnesses. As a matter of fairness, they should have been given the opportunity of answering criticisms of their views. As experience in conducting litigation frequently shows, cross-examination, far from eroding the expressed views, often strengthens them as the expert explains in more detail the reasoning process.
23.Furthermore, the Court has the opportunity of hearing the expert and making an evaluation of his or her evidence.
24.Another consequence may well flow from the failure to cross-examine. In the present case the appellant did not challenge the respondents’ experts views. In such circumstances one may ask why the appellant should have been allowed to call any contrary evidence. The lack of challenge meant, at least prima facie, that the appellant accepted the views propounded. To allow conflicting evidence to be called raised, to some extent, a false issue. However, no objection was taken to the tender of that evidence.
(emphasis added)
Despite not cross-examining Associate Professor Wong, Counsel for AVT sought to diminish the weight that should be given to Associate Professor Wong’s evidence by submitting that parts of his opinion were “speculative” or “did not demonstrate a proper basis for his reasoning”:[44]
[44] Ibid 2, 6-7.
Mr Bennett: [Associate] Professor Wong…goes in a very limited step and then takes that to make a conclusion that is not available on the step that he first makes. He says:
I haven't seen from the material provided by the applicant conclusive proof that there is a gap in the market.
From that he then takes the next step, which we say is not available:
Therefore, it must be that there is no gap in the market
…
Mr Bennett:The [Associate] Professor says this is a mature market because this software was developed in the ‘90s, sometime in the ‘90s, therefore a professional would have been able to predict the outcome. But, in my submission, the same problem arises. So the fact that he points to is this software was first established in the 1990s full stop. He then leaps to the conclusion, therefore a professional could have predicted it. He doesn't say how the professional could have predicted it, what steps would have been taken
…it’s just not possible to speculate that a professional could have predicted that. It’s software that deals with a dynamic system that is iterative and updating over time.
(emphasis added)
Contrary to the cautions outlined in the authorities referred to above, the critique of his evidence was not put to Associate Professor Wong for explanation. The submission from AVT seems to be that an expert of Associate Professor Wong’s calibre is not able to draw an inference of what would or could be predicted by a competent professional. Associate Professor Wong’s opinion is not mere speculation. It was his educated expert opinion based on what was known in the 1990s. There is also no evidence proffered by AVT to demonstrate certain “steps” had to be identified for Associate Professor Wong to form his view. In our opinion there is nothing illogical or inherently inconsistent[45] with the views expressed by Associate Professor Wong, as claimed by AVT.
[45] Hull v Thompson [2001] NSWCA 359, [21].
AVT contended it was unclear whether Associate Professor Wong had been instructed to only look at the Contemporaneous Documents:[46]
Mr Bennett: [Associate] Professor Wong says in a number of places:
I've seen the contemporary records. I can’t work out what they mean, therefore it must be that there wasn't a scientific approach or there wasn't a measuring of results. There wasn't any of the rigour that would be needed for this legislation.
Mr Bennett:What that fails to determine and it may be that he was instructed to look only at those but it fails to look at the explanations that go into more detail that Ian Ross-Gowan provided by way of numerous correspondence.
(emphasis added)
[46] Transcript of Proceedings, 8.
There is no evidence Associate Professor Wong was instructed to look only at limited evidence. Associate Professor Wong was not questioned about what material he did or did not consider in forming his opinion. Associate Professor Wong’s report clearly indicates, in fact, that he did consider the exchanges between Mr Ross-Gowan and ISA in his brief, and Mr Ross-Gowan’s statement (for example, see paragraphs 17-18 of Associate Professor Wong’s report). There is no basis to conclude he did not review that material.
As referred to above, Mr Ross-Gowan is not a technical expert. He therefore cannot talk to the material in any relevant way that would assist us. He prepared no report and gave no evidence that he had the necessary expertise to do so. Mr Ross-Gowan’s opinion is irrelevant and therefore, in the circumstances, it would be acceptable for Associate Professor Wong to have disregarded it. AVT put only three documents up as “contemporaneous” notes.
CONSIDERATION
The criteria set out above that must be satisfied in the Relevant Years for AVT’s activities to be registered as “R & D activities” are:
(c)AVT must be an “R & D entity” (ITAA1997, s 355-35(1); IR & D Act, s 27A(1)))
(d)In the Relevant Years the claimed activities must be core or supporting R & D activities as described in section 355.25 of the ITAA 1997.
It is not in dispute that AVT is a R&D entity.[47]
Are the claimed activities “core” or “supporting” R & D activities?
What were the activities?
[47] Exhibit 1, Tribunal Book, Respondent’s Statement of Fact, Issues and Contentions, 21 [35].
The two claimed core R & D activities were described by AVT in a document prepared in 2019 titled “AVT R&D Activity Summary Shipping Management Solution & Manufacturing Production Scheduling System” (‘AVT Activity Summary’). This document was prepared several years after the R&D Applications were lodged with ISA. It sets out the core activities as follows:[48]
[48] T109 (n 32) 521-522.
This information in the AVT Activity Summary differs to what was originally claimed in the R & D Applications (see paragraph 15 above).
In the R & D Applications, the applicant said:[49]
One of (sic) the hypothesis of the SuiteApps project was determined the decision was made to research and develop potential solutions and test these developments at critical milestones along the project’s development schedule.
[49] T9 (n 4) 254; T14 (n 4) 267; T17 (n 4) 281.
What is set out above is clearly not a hypothesis and provides none of the details AVT later sought to provide in response to ISA’s reviews in the AVT Activity Summary.[50]
[50] T29 (n 10) 296-297.)
AVT submits that the operation of the IR & D Act is not limited to the specified activities in the registration because:[51]
(a) the second bullet point of the “Simplified outline” in Subdivision A of Division 2 of Part II of the IRD Act confirms there is no such temporal restriction;
(b) s 27A of the IRD Act confirms it is the entity, and not the activity, that is to be registered, ensuring that the entity’s registration can continue if supported by an activity, rather than the initially stated activity;
(c) s 27F of the IRD Act enables [ISA] to examinate or of part of the entity’s registration, not the entity’s activity as stated in the application;
(d) s 27G of the IRD Act enables findings to be made about one, or more than one activity, such as that an R & D entity is not limited to deal with its R & D status only in the way its applied for registration – there is flexibility in the statutory regime as to how the activities, from time to time, would support registration;
(e) s 27H of the IRD Act deals with the entity’s registration, not the entity’s activity as stated in the application,
and, it is submitted, conclusively on this issue, s 27J(1)(c) of the IRD Act confirms that activities yet to be conducted are able to be the sole basis of support of an earlier lodged registration application.
[citations omitted]
[51] Applicant’s Further Outline of Submissions, 15 April 2021, 2 [4].
Counsel for ISA says we are limited by the IR & D Act to consider only those activities originally applied for, not those as now described in the AVT Activity Summary which was prepared for the purpose of an internal review.[52] We agree with ISA. Section 27A of the IR & D Act clearly states that the assessment of whether, on application, to register activities is in relation to “specified activities”. Section 27B of the IR & D Act refers to the Board making findings that “an activity mentioned in the application was a core R&D activity”. Once the “mentioned” activity has been registered, the Board may then make findings in relation to that “registered activity”: (s 27J IR & D Act).
[52] Transcript of proceedings, 13-14.
Only specified activities are registered under section 27D of the IR & D Act. It is these registered activities which are under assessment. Section 27J of the IR & D Act clearly states the findings that can be made are with respect to a “registered activity”. The finding under review is the finding regarding the registered activities. This was confirmed in Moreton Resources as follows:
[5] …the “Board” in the IR&D Act (the Board), may make findings as to whether registered activities were, or were not, “core R&D activities” or “supporting R&D activities” as defined in the ITAA 1997.
…
[23] The effect of [s 27J] is that the Board may make findings as described in paragraph (a), (b), (c) or (d) of subsection (1) in respect of registered activities.
[emphasis added]
Even if consideration could be given to AVT’s Activity Summary, it is deficient in numerous respects.
We agree with ISA that there is a marked discord between the Documents and what was inserted in the R & D Application Forms.[53]
[53] Transcript of Proceedings, 14; T109 (n 32) 528-549.
The Core Activity is described as follows in the R & D Applications:[54]
The core SuiteApps research and development projects is designed to evolve available clouds based management information software and advance it to a level capable of providing new products to the Australian wholesale, manufacturing professional services and industry. This will be achieved through leveraging the current Netsuite cloud technology platform and providing a more cost effective and real time multi-disciplined business solutions platform to support these Australian business communities. There is a clearly identifiable and measurable knowledge gap between what is currently available in the market and the products that the firm is developing. The products will enable wholesale, manufacturing professional services and industry increase their efficiency and profitability through the provision of advanced management information systems and the overall increase in resource allocation effectiveness.
[54] T9 (n 4) 256; T14 (n 4) 269; T17 (n 4) 283.
It is difficult to discern the specific activities for each Relevant Year. The R & D Applications describe the same activities in each year. It may be that some activities in one year could be core activities while claimed activities in a subsequent year are not. This makes it difficult to assess each year separately.
The Contemporaneous Documents include limited detail. Those documents contain what are referred to as a “summary of R&D activity Performed”. No detail is provided of the exact activity which was purportedly undertaken. We say purportedly because there is no other evidence of any experiments having taken place. The Contemporaneous Documents go on to set out a brief description of the experiments purportedly undertaken. The full experiment descriptions can be found in Annexure A.
The screenshots contained within the AVT Activity Summary are not detailed records. The summaries were put together years after the alleged activity has taken place. No explanation of any of these issues was provided by a relevant witness. It can also be seen in the screenshots in Annexure A that some of the entries were made outside of the Relevant Years under consideration.
Of the total of 14 experiments purportedly conducted as part of SuiteApp01 and SuiteApp02, only experiments 0006-0008 of SuiteApp01 and 0003-0005 of SuiteApp02 were conducted during the Relevant Years. The remainder of the experiments were conducted prior to 2013/14. The description of experiments 0006-0008 of SuiteApp01 and 0003-0005 of SuiteApp02 from the AVT Activity Summary are set out in Annexure B.
In the summary of alleged activities undertaken in the 2016 year the description provided is as follows:[55]
[55] T109 (n 32) 548.
The Experimental Hypothesis says “APM Tool help analyse the requests more efficiently and in detail”. What does “more efficiently” mean? What does “in detail” mean? How can this hypothesis be tested? We agree with ISA’s submission that this “hypothesis” is a hypothesis in name only and is in fact merely a vague commercial objective: see Royal Wins Pty Ltd and Innovation and Science Australia [2020] AATA 4320 (‘Royal Wins’), at [47]. There is also a distinct lack of detail in the experiment overview. Again, it is unclear how the screenshots support this later summary of the activities. One of the screenshots for reference 0008 indicates it was performed in 2017, which is not under consideration here:[56]
[56] Ibid 549.
It is impossible for us, given the state of the evidence, to conclude AVT was engaged in eligible R & D core activities. Further, as identified by ISA, the descriptions of the activities or “experimental hypothesis” depicted in the screenshots are not those that are expressed in the R & D Applications.
Only experiments 7 and 8 are related to the Relevant Years, with the remainder of the document irrelevant to the issues we need to determine.
Was the outcome of the claimed activities known or able to be determined in advance?

Pursuant to section 355-25,[57] the outcome of the claimed activities must not be able to be determined without engaging in a systematic progression of work.
[57] ITAA 1997.
Counsel for AVT described the computer program being developed by AVT as “highly complicated”.[58] There was no independent expert evidence to support this submission.
[58] Transcript of Proceedings, 5.
AVT has not supplied corroborative evidence of what was known in the market before it commenced its “experimentation”. AVT has not produced an independent expert to provide a report on the state of the art or the ability of someone with the requisite expertise to opine whether the outcome could not be determined in advance.
The only relevant evidence available to us is that of Associate Professor Wong who said enterprise resource planning technology was a very mature technology by the time AVT built its SuiteApp (by utilising SuiteCloud from NetSuite), and that a competent professional would have had the knowledge and experience to develop add-on software for most commercial and industrial applications.[59]
[59] Report of A/Prof Wong (n 28) 66 [38]-[40].
Associate Professor Wong also pointed out “independent scientific reports (for example, research papers, technical white papers, technical or reference books) should be used to identify the state of the art or related work and hence the knowledge gaps”.[60] There is no evidence that AVT undertook this literature review in order to confirm there was in fact any knowledge gap.
[60] Ibid 63 [19].
Counsel for AVT submitted that a literature search is not the only way to identify a knowledge gap. We were told traversing the market is a “much better source” and that AVT was “keeping tabs” on the market.[61] Where is that evidence? Dr Srivastava did not depose to such in his statement. Mr Ross-Gowan was not engaged by AVT until after the Relevant Years in question, so he is unable to give reliable evidence about whether this occurred. Counsel confirmed at the hearing that the only evidence before us is Dr Srivastava’s brief statement, the Contemporaneous Documents, the statement of Mr Ross-Gowan, and the letters from Mr Ross-Gowan to ISA during the review.[62]
[61] Transcript of Proceedings, 30.
[62] Ibid 31.
Associate Professor Wong’s opinion was unchallenged, as mentioned previously, and we accept it.
Was the outcome of the claimed activity only able to be determined by a systematic progression of work?
It is uncontroversial that whether an outcome can only be determined through the application of systematic progression of work based on scientific principles is an objective determination from the perspective of a competent professional in the field.[63] The Explanatory Memorandum, Tax Laws Amendment (Research and Development) Bill 2010 (Cth) explains that:
2.13 The requirement for the scientific method establishes a threshold for the knowledge gap and the degree of uncertainty that an eligible experiment must seek to address. The threshold will not be met if the knowledge of whether something is scientifically or technologically possible, or how to achieve it in practice, is deducible by a competent professional in the field on the basis of current knowledge, information, or experience.
[63] See Explanatory Memorandum, Tax Laws Amendment (Research and Development) Bill 2010 (Cth) 21-22 [2.13]-[2.15].
Mr Ross-Gowan’s evidence was:[64]
(a)AVT systematically conducted several series of experiments in order to answer outcomes that were not determinable in advance;
(b)The uncertain outcomes were needed to create new services and processes that were based on finding new ways to apply the scientific PhD research of AVT’s founder, Dr Gaurav Srivastava; and
(c)AVT clearly separated the developments that were experimental (as per the requirements of the program) from the product developments that were a simple application of what was known generally or as a result of AVT’s previous experiments.
[64] Ian Ross-Gowan Witness Statement (n 27) 57 [8.1]-[8.3].
AVT submits Mr Ian Ross-Gowan is an expert who was able to give evidence on whether the outcome was known or able to be determined without AVT engaging in the claimed activities. As outlined earlier, we are not persuaded by Mr Ross-Gowan’s evidence, primarily because is he is not a professional in the relevant field. Mr Ross-Gowan is not appropriately qualified to provide an expert opinion on the knowledge gap, if any, which existed and that AVT was seeking to address by its activities. Mr Ross-Gowan was engaged by AVT in 2017, after the Relevant Years under consideration.[65] He was not present when the activities were performed and did not advise AVT on the project itself. At the hearing AVT accepted Mr Ross-Gowan’s expertise was in tax, not computer science.[66]
[65] Ibid 56 [4].
[66] Transcript of Proceedings, 36.
Dr Srivastava is an undisputed expert in the relevant field of technology. This was unchallenged and supported by his achievement of a PhD, the highest level of degree that can generally be attained. However, he is not an objective witness as he is the director of AVT.
No other evidence has been adduced by AVT in support of its claim that the Claimed Activities meet the requirements in section 355.25 of the ITAA 1997.
Was the progression of work based on principles of established science?
Associate Professor Wong explained the scientific research methodology in the field of software system research and development as follows:[67]
In the field of software system R&D (including cloud computing, data management), the R&D process typically involves identifying the problem, identifying existing related work and their deficiencies/issues (confirming the knowledge gaps), formulating the problem statement and/or hypotheses, developing a new approach, designing and conducting experiments, observing and evaluating, all of which, when completed systematically, culminates in the drawing of conclusions.
[67] Report of A/Prof Wong (n 28) 71 [67].
Based on the available material, in Associate Professor Wong’s opinion:
(a)AVT did not appear to have “adapted [a methodology] to the research process in a systematic matter”[68] and
(b)“the steps taken by AVT were not based on principles of established science”.[69]
[68] Ibid 71 [66].
[69] Ibid 72 [72].
In Associate Professor Wong’s unchallenged opinion:[70]
In the registrations, AVT described that their approach to gaining new knowledge was to leverage the intimate product knowledge and instincts of production managers and develop new tools that are easy to use and provide instant feedback. As a result, the steps taken seem to incrementally add functionality to an existing system based on already known methodologies, techniques and technologies to satisfy the customer or market needs.
…
I conclude that the steps taken by AVT were not based on principles of established science.
[70] Ibid 71-72, [65], [72].
We accept Professor Wong’s unchallenged expert opinion.
Did the progression of work proceed from hypothesis to experiment, observation and evaluation, and lead to logical conclusions?
ISA contends that a hypothesis must have the following features:[71]
(a)It must be directed to resolving an uncertainty of a technical or scientific nature; and
(b)It must be general and testable, with elements of focused experimentation such as experiments, observations and evaluation being tied back to the hypothesis.
[71] Respondent’s SFIC (n 25) 26 [54].
There was no dispute that the word “hypothesis” contained in section 355.25[72] should be given its ordinary meaning “in light of its context and purpose”.[73] Its context is within “principles of established science”.
[72] ITAA 1997.
[73] Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, 381 [69]; Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue[2009] HCA 41; (2009) 239 CLR 27,31 [4], 46-47 [47]; Federal Commissioner of Taxation v Consolidated Media Holdings Ltd[2012] HCA 55; (2012) 250 CLR 503, 519 [39]; SZTAL v Minister for Immigration and Border Protection[2017] HCA 34; (2017) 262 CLR 362, 368 [14].
A “hypothesis” described in the R & D Applications is as follows:[74]
One of the (sic) hypotheses of the SuiteApps project determined the decision was made to research and develop potential solutions to test these developments at critical milestones along the project’s development schedule.
[74] T9 (n 4) 254; T14 (n 4) 267; T17 (n 4) 281.
We agree with ISA that this is not an “hypothesis”. There is no “hypothesis” in the R & D Applications, or the Contemporaneous Documents relied on by AVT. What is stated are mere aims or goals which lack clarity. AVT has not demonstrated that it has a proposition to be tested. Associate Professor Wong described AVT’s description of its Core Activity as “high level and broad”.[75]
Was there evidence of observation and evaluation?
[75] Report of A/Prof Wong (n 28) 66 [34].
The only evidence in view was a few screenshots that were not accompanied by a relevant witness’s explanation. The screenshots seem to be ‘end result’ documents as opposed to records of steps taken during the experiments. There was no apparent evaluation.
By way of example, in Activity Evidence Summary the “results summary” for experiment reference 0008 was:[76]
The APM tool was able to provide some insights on total search calls, usage count, recorded operations and total time on execution. These inputs can be used further improve the execution of the application and track the impact of these improvements.
[76] T109 (n 32) 549.
This summary does not enlighten the reader. What insights? What impacts? Where are the recorded observations? How were the results evaluated to form any conclusions?
In Associate Professor Wong’s opinion:[77]
33. The screenshots of the performance measurements of its system were provided in the experiments; however, there were insufficient inclusions of experiment details, observations, evaluations and conclusions (no conclusions were made from the logical steps, other than reporting the measurement or testing outcome of each experiment) in the evidence summary.
[77] Report of A/Prof Wong (n 28) 65 [33].
Overall, there is such a dearth of relevant or probative evidence that it renders AVT’s activities incapable of assessment as to whether the activities engaged in by AVT are “core activities”. Associate Professor Wong reported that he “would have expected to have documentation on the state of the art or related work; the clear description and the elaboration of the knowledge gaps (the market gaps or product feature gaps are insufficient and different from knowledge gaps); and the details of the experiments”.[78]
[78] Ibid 62 [15].
We agree with the submission of ISA’s Counsel that the lack of evidence means we cannot be satisfied the activities purportedly undertaken by AVT were based on principles of science as required by section 355-25(1)(a) of the ITAA 1997.
Was the claimed activity undertaken for the purpose of generating new knowledge?
What is meant by “new knowledge”? The term “new knowledge” is not defined in the Act and therefore the ordinary meaning of the words should be applied “in light of its context and purpose”.[79] The phrase “new knowledge” is found within the section concerned with experiments being conducted where the outcome could not be known in advance by a competent professional in the field (as outlined in the EM (see above). On that basis, it is reasonable to conclude “new knowledge” means not previously known by a competent professional in the field.
[79] Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, 381 [69]; Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue[2009] HCA 41; (2009) 239 CLR 27, 31 [4], 46-47 [47]; Federal Commissioner of Taxation v Consolidated Media Holdings Ltd[2012] HCA 55; (2012) 250 CLR 503, 519 [39]; SZTAL v Minister for Immigration and Border Protection[2017] HCA 34; (2017) 262 CLR 362, 368 [14].
Counsel for AVT submitted that:[80]
[80] Transcript of Proceedings, 7.
…if there was a process available overseas…it was brought to Australia and amended or manipulated to be convenient to the Australian market. …at worst from the applicant’s case, if there was a product of a similar kind overseas the new knowledge arose because it was brought to the Australian market.”
In Associate Professor Wong’s opinion, even if the SuiteApps being developed by AVT were not available for the Australian market, if similar apps have been designed for overseas markets, AVT’s developments could not constitute new knowledge in the field. Associate Professor Wong explains this is because:[81]
… their technical parameters or variables are likely to be similar and are unlikely to have very different outcomes. Hence, the outcome of the customization could have been determined in advance by a competent professional.
[81] Report of A/Prof Wong (n 28) 68 [52].
Associate Professor Wong reported shipping timing SuiteApps of the kind AVT claims it developed were already in existence and were available at suiteapp.com.[82] Associate Professor Wong identified a product known as Descartes OzLink.[83] Associate Professor Wong says any modification made to Descartes OzLink for the Australian market does not constitute the creation of new knowledge.[84] No evidence contradicting Associate Professor Wong was proffered.
Relevance of AVT’s intention in carrying out the activity
[82] Ibid 67 [44].
[83] Ibid.
[84] Ibid 9 [52].
There was a recent attempt by another applicant to argue that if the purpose was to generate new knowledge it did not matter if nothing new was generated (see Coal of Queensland Pty Ltd v Innovation and Science Australia [2021] FCAFC 54 at [121]). The Full Federal Court said it was “artificial to discard the nature of an activity and what it achieves when assessing its purpose”[85] and that “the nature of the activity conducted and the novelty and predictability of the results of that activity may elucidate whether a substantial purpose of an activity is the generation of new knowledge.”[86]
Conclusion
[85] Ibid.
[86] Ibid.
Scant Documentation
In Docklands Science Park Pty Ltd and Innovation Australia [2015] AATA 973, the Tribunal found there was “scant documentation” of the applicant having conducted any activities. In that case the absence of documentation resulted in the applicant failing. SM Fice noted, at [63], that “documents are required for the purpose of evidencing experimental activities”. Citing Docklands, ISA contended that “generally [an applicant] cannot succeed in establishing each of the requirements in the absence of detailed documentation recording the process of each activity as it develops”[87].
[87] Respondent’s SFIC (n 25) 22 [36].
In a few other matters the Tribunal has found a lack of proper/relevant contemporaneous documents has been fatal to the application,[88] and this was pointed out by Counsel for ISA.
[88] Docklands; Royal Wins [37].
AVT also referred to the recent Tribunal decision in Royal Wins where Deputy President Molloy said (at [37]):
…it is an essential aspect of the systematic progression of research and development applications that there be adequate documentary evidence.
The IR&D Act does not expressly require documentation, and it is well-understood that documentation is not inevitably required to substantiate that claimed R&D expenditure was incurred on registered R&D Activities when subsequently dealing with the Commissioner of Taxation: see Commissioner of Taxation v Bogialto [2020] FCA 1130. In this case, not only was there a lack of documentation and records, but there was also a lack of witness statements - and there was no oral evidence. That absence of evidence is particularly problematic when AVT was warned of the risk of proceeding without calling evidence at the commencement of the hearing.[89]
[89] Transcript of Proceedings, 2-3.
In order to qualify for the R & D tax incentive, the party must be seen to have engaged in research. That is, hypotheses need to have been identified, and tested through a set of experiments or evaluations. The results of such experiments/evaluations are required to advance knowledge in the particular discipline. Based on the evidence before us, none of these requirements have been met. The evidence of Associate Professor Wong, which we accept, was not refuted by AVT. In addition, the evidence of AVT’s witnesses was either scanty or not proffered by a witness with the appropriate expertise. The only course of action for us in these circumstances is to reject AVT’s application.
Based on the above, we find that the Claimed R & D Activities do not meet the conditions for eligible core R & D Activity or eligible Supporting R & D Activities pursuant to Division 355 of the ITAA 1997.
decision
The Tribunal affirms the decision under review.

I certify that the preceding one hundred and eighteen (118) paragraphs are a true copy of the reasons for the decision herein of Deputy President B J McCabe and Senior Member D K Grigg

.......................[SGD]..............................
Associate
Dated: 13 July 2022

Date/s of hearing:

15 and 16 April 2021

Counsel for the Applicant:

Mr M Bennett (by videoconference)

Solicitors for the Applicant:

Sutton Lawyers

Counsel for the Respondent:

Mr B Kaplan (by videoconference)

Solicitors for the Respondent:

King & Wood Mallesons

………….
Annexure A
In the Relevant Years the following description is provided:
2.1.4 Shipping Integration Testing 2014,2015
Experiments were conducted testing Fulfillments with Carrier and cost allocation
New set of Fulfillments were created to test the revised algorithms
The revised algorithms were expected to reduce the delays associated with overall execution of the process
The listing below outlines the fulfillments in the system that were used for testing.
The system notes on the fulfillments provide the audit trail on what fields were updated and impact of the improvements developed

Annexure B

Date/s of hearing:	15 and 16 April 2021
Counsel for the Applicant:	Mr M Bennett (by videoconference)
Solicitors for the Applicant:	Sutton Lawyers
Counsel for the Respondent:	Mr B Kaplan (by videoconference)
Solicitors for the Respondent:	King & Wood Mallesons