CAPORALE and COMMISSIONER OF TAXATION

[2011] AATA 570

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2011] AATA 570

ADMINISTRATIVE APPEALS TRIBUNAL        )

)No NT200400035

Taxation Appeals Division  )         NT200400036

NT200400037

NT200400038

NT200400039         

NT200400040

NT200400041

NT200400042

NT200400043

NT200400044

NT200400045         

NT200400046

Re DOMENICA & GIACOMO CAPORALE

Applicants

And COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal Senior Member S E Frost

Date2 August 2011

PlaceSydney

Decision The decisions dated 24 December 2003 are affirmed.  

....................[sgd].....................

S E Frost,
  Senior Member

CATCHWORDS

TAXATION – Income tax – Application for adjournment  – Failure to discharge the burden under s 14ZZK – Review of objection decision - Decision affirmed

PRACTICE AND PROCEDURE – Application for adjournment of resumed hearing after failure to comply with a direction to provide certain material to the Tribunal – Application for adjournment refused – No intelligible basis put forward by Applicants to calculate taxable income – Decision affirmed

Administrative Appeals Tribunal Act 1975 s 42A(2), s 42A(5)(a), s 42A(5)(b), s 43

Taxation Administration Act 1953 s 14ZZK

Administrative Appeals Tribunal, Listing and Adjournment Practice Direction, 19 April 2005

REASONS FOR DECISION

18 August 2011 Senior Member S E Frost  

1.On 2 August 2011, Mr Papadopoulos, who appeared for the applicants, applied for an adjournment of the hearing to allow the applicants one final opportunity to put forward the information they say they have that will prove their case.  In the circumstances (which are set out in detail below), and after careful consideration, I refused to grant the adjournment.  I then had to consider whether I should:

(a)affirm the objection decisions under s 43 of the Administrative Appeals Tribunal Act 1975 (AAT Act) on the basis that the applicants had failed to discharge the burden they bear under s 14ZZK of the Taxation Administration Act 1953 (Administration Act) of proving the assessments excessive;

(b)dismiss the applications under s 42A(5)(b) of the AAT Act for failure within a reasonable time to comply with a direction of the Tribunal; or

(c)dismiss the applications under s 42A(5)(a) of the AAT Act for failure within a reasonable time to proceed with their applications.

2.I decided that the appropriate course was to affirm the Commissioner’s objection decisions.  I informed the parties of my decision and provided an outline of my reasons for it.

3.The parties have asked for a statement in writing of the reasons for my decision. Those reasons follow.

Background

4.These applications were lodged with the Tribunal in February 2004, that is, seven and a half years ago.  They were travelling with applications made by other members of the Caporale family at around the same time and it is fair to say that the parties spent most of their energy dealing with the other applications.  As a result these particular applications were put to one side for some years.  As it happens, the applications for the other family members were all eventually resolved.

5.That left only these current applications on foot in the Tribunal.  They relate to applications by the taxpayers to review objection decisions made by the Commissioner in relation to each of the income years from 1996 to 2000. 

Progress of the applications

6.The first substantive direction that was made for the purpose of progressing the matters was made on 5 October 2010.  By that direction the applicants were required to lodge with the Tribunal and serve on the respondent the applicants’ witness statements and a statement of facts, issues and contentions by 29 October 2010.  That direction had not been complied with by 2 November 2010 and so the matter was set down for a non-compliance directions hearing on 11 November 2010.

7.The matter came on before Senior Member Allen on that date.  The Senior Member vacated the direction of 5 October 2010 and directed instead that the applicants were to file and serve a statement of facts and contentions and all evidence on which they intended to rely by 16 December 2010.  The direction noted that in default the matter would be dismissed.  There was also a direction that any evidence served or filed by the applicants after 16 December 2010 was not admissible in these proceedings

8.On 15 December 2010, that is one day before the due date for that material, the applicants’ daughter Rosa Caporale sent an email to the Tribunal indicating that the applicants’ then solicitors would no longer be acting for the applicants and that instead she herself would be representing her parents.

9.The next day, 16 December, Senior Member Allen conducted another directions hearing at which, no doubt taking into account the changed circumstances by which the applicants were now to be represented by their daughter, he vacated the direction of 11 November 2010 and substituted a direction that the applicants file and serve a statement of facts and contentions and all evidence on which they intended to rely by 9 February 2011.

10.The revised timetable was not adhered to.  On 10 February 2011 Senior Member Allen granted further time to the applicants to file and serve their statement of facts and contentions and evidence.  This time they were allowed until 4 March 2011 and once again, the Senior Member’s direction noted that in default the matters would be dismissed.

11.On 4 March 2011 the Tribunal received from the applicants a staggering volume of documents, some of them in boxes and others contained in a folder.  One may be forgiven for assuming that the applicants produced to the Tribunal and the Commissioner every document they could find, irrespective of their relevance.  In many cases the documents were bundled by income year (some of the bundles containing over 200 pages each) but there was no explanation of them, and no summary of what they represented, although in some cases a monetary figure was handwritten on the covering page of the bundle.  Perhaps the figure represented the total of the amounts included in the documents, but there was no spreadsheet or calculation sheet to enable that possibility to be checked.

12.The applicants’ approach appears to have been, for the most part, an indiscriminate one, involving the provision of a large quantity of documents to the Tribunal and the Commissioner, together with an assumption that their obligation to prove their case was thereby satisfied.  Included in the documents were:

(a)a receipt for 50 cents, described as “stamp duty on loan”, and paid on 23 June 1982;

(b)a cheque butt for $58.95, apparently paid for gym equipment on 12 August 1986;

(c)a cheque butt for $914.00 for “fees” paid to the University of Sydney on 29 July 1991.

13.Exactly how these documents were thought to be relevant to a business taxation dispute covering the years 1996 to 2000 remains unclear.

14.On 11 March 2011 (that is, one week late) the applicants filed and served a two-page document styled “G & D Caporale Statement of Facts”. 

15.On 14 March 2011 the District Registrar set the matter down for hearing.  The hearing dates were fixed at 31 May and 1 June 2011.

The adjournment applications

16.Rosa Caporale then applied on several occasions to have those hearing dates vacated.  On 25 April 2011 she noted in an email to the Tribunal that she had been served with a summons, on the Commissioner’s application, to produce certain documents to the Tribunal by 28 April 2011.  I note that the documents, if produced, were more likely to assist her parents’ case than the Commissioner’s.  Her email to the Tribunal included the following:

Can you please email me confirmation that I can appear to produce documents at the AAT that have been requested on the 2nd June 2011.

I will require this time for the book keeper to find the breakdowns and calculate interest components and provide further particular details of profit and loss if they have not already provided these in the electronic data that we emailed the ATO on the 4th April 2011.

I also note that given the amount of detail that the ATO has now requested that we produce that the hearing dates of the 31st May 2011 and 1st June 2011 be adjourned and relisted to a date after 2nd June 2011, as suits all parties.

17.The Commissioner’s representative wrote to the Tribunal on 27 April 2011 as follows:

I note that this matter has been listed for hearing on 31 May 2001 (sic) and 1 June 2011.  The summons will be of no effect if it is delayed till the 2 June 2011.

On behalf of the Commissioner we are prepared to extend the time for compliance for 1 further week to 5 May 2011.

18.The Commissioner also resisted the adjournment application, and so on 10 May 2011, I conducted a directions hearing in relation to that issue.  After hearing from the parties I refused to vacate the hearing dates.  I indicated to Ms Caporale that the hearing would proceed on the dates set down.  In refusing the application I was mindful of the Tribunal’s Listing and Adjournment Practice Direction which states at [3] and [4]:

3.Matters are fixed for hearing on the basis that the hearing will proceed on the day fixed.

4.An application for an adjournment will not be granted unless there are good reasons to justify the adjournment.

19.On 17 May 2011 Ms Caporale made a further application to vacate the hearing dates.  She insisted that she needed more time to comply with the summons and that the documents were “crucial” to the proceedings (despite her not having produced them on her parents’ behalf prior to this).  The adjournment application was once again refused; the refusal was communicated by letter from the Tribunal on 24 May 2011.

20.That triggered a further application for an adjournment, by email, on the very same day.  The email included the following:

This is crucial evidence that must be collated and incorporated to defend the claims of the ATO.

In addition I received confirmation yesterday that I have to appear before the magistrates court in relation to the bankruptcy notice that the ATO has issued on the 31st May 2011.  It is imperative that I appear to contest the application.

21.This application was also refused.

The hearing

22.On the first day of hearing, there was no appearance by or on behalf of the applicants at 10am. It would have been open to me at that point, in the circumstances, to dismiss the applications under s 42A(2) of the AAT Act for the applicants’ failure to appear at the hearing. I did not take that course, preferring instead to try to locate Ms Caporale and have her attend.

23.Enquiries undertaken by Mr O’Brien and his instructing solicitor revealed that Rosa Caporale had chosen to attend the Federal Magistrates Court to appear on behalf of her parents in relation to the application to set aside the bankruptcy notice.  It was curious that she had chosen to do that since the Tax Office (defending that application in the Federal Magistrates Court) had indicated to her that their representatives were prepared to mention her appearance before that court (listed for 9:45am) and have the matter stood over, by consent, for two weeks.  Indeed, it was curious that she had accepted the listing of the matter before the Federal Magistrates Court on 31 May when she knew full well that her parents’ applications were listed for hearing in this Tribunal on the same day.  In any event, the listing in the Federal Magistrates Court provided no justification for the vacation of the hearing dates here, although an application for a brief postponement (until, say, 10:30) might well have been entertained.

24.Rosa Caporale arrived at the Tribunal at about 10:30 on the morning of 31 May to conduct her parents’ applications.

25.Very little progress was made with the applications on that day.  By lunchtime it was clear that we could achieve very little in the afternoon and I granted an adjournment to enable Rosa Caporale to do some work overnight so that she could present her parents’ case the following day.  At that time I indicated to her that she, or they, needed to positively prove the assessments wrong.

26.When we resumed the following day, 1 June, it became clear that the case would fall short unless the parents gave evidence.  I invited Ms Caporale to have her parents attend to give oral evidence.  I did this so that her parents could be given every reasonable opportunity to present their case.  I was mindful of the fact that neither parent had made a witness statement (despite the fact that directions had been made for the filing and service of all evidence much earlier in the proceedings) but I considered that it would be unjust if they were not given that opportunity.  Rosa Caporale arranged for her parents to attend the Tribunal that day, and her father gave oral evidence and was cross-examined by Mr O’Brien for the Commissioner.

27.By the end of the day Mr O’Brien submitted to the Tribunal that, given the state of the evidence, I should resolve the dispute in the Commissioner’s favour (page 115 of the transcript):

MR O'BRIEN:   Perhaps if you can just give me a moment.  I don’t think we need to adjourn it.  I suppose our position, Tribunal, is that basically a lot of resources have been thrown into dealing with the boxes of material that has been given to us – significant resources of the Tax Office over many years, and it’s – I mean, this is the day where we wanted it resolved, full stop, without more – putting more resources into it.  I mean, no other tax payer, you know – I mean the other tax payers do the right thing and produce the records.  We’ve had – basically it’s like extracting teeth here getting this information out, and it’s just a significant drain on resources.  I’m not saying the Tax Office isn’t a big bureaucracy and it’s going to go broke tomorrow, but if they had to deal with too many tax payers like this, I – it’s a terrible burden on the public purse. 

So basically we wanted it finished today, and frankly if that’s their evidence, that’s their evidence.  If you find it deficient, then the tax payer loses.  But having said that, I mean, it’s your choice, I think.  I mean, what’s going to flow out of this tribunal, Member, is – I don’t know if these deposit books are going to be found.  I – so everything seems to have been recorded now.  We haven’t seen any of these things.  Everything seems to be recorded in the receipt book, we’re told today.  Here we are, we haven’t seen a receipt book yet.  No doubt we will get another couple of boxes of documents and it will be our obligation to go through it and sort it out, and just more time, more money.  And it was an expectation today was the day.

28.Despite the force of Mr O’Brien’s submissions, I considered that in the interests of justice the taxpayers should be granted one further indulgence.  I said to Ms Caporale (page 123 of the transcript):

MR FROST: I want to give your parents an opportunity to make their case.  They haven’t made it yet.  It would be very easy for me to say, “Yesterday and today were the day.”  This case is so clearly against your parents at this stage that after a two-day hearing I could do the unthinkable and make an oral decision in a tax matter.  That is almost unheard of.  But that is how clearly short your parents are of proving their case.  But I am going to give you an opportunity and I am going to give you a very short timeframe to do it, and it is going to be in circumstances where the Commonwealth doesn’t need to spend any more resources on it.  What I’m going to give you the opportunity of doing within a fortnight is presenting to me a methodology.  You need to be able to satisfy me that there is a methodology that will establish a satisfactory taxable income figure for your parents. 

Progress after the hearing – further directions

29.I adjourned the matter, indicating to the parties that I would draft a direction to give effect to my decision.  After input from the parties in relation to the draft direction, I made the following direction on 3 June 2011:

Pursuant to section 33 of the Administrative Appeals Tribunal Act 1975, the Tribunal directs:

1.    The Applicants to propose, by 17 June 2011, for the Tribunal’s consideration, a detailed methodology by which the Applicants’ taxable income for each of the years in dispute (that is, the years ended 30 June 1996, 30 June 1997, 30 June 1998, 30 June 1999 and 30 June 2000) may be calculated.

The methodology must deal separately with each of the two businesses carried on by the partnership, namely the Service Station business and the Rental business.

In relation to the Service Station business the methodology must:

(a)    specify, in detail, the source materials on which the Applicants propose to rely for each year in dispute; and

(b)   address all relevant aspects of the calculation of the net income of the partnership (to the extent that it relates to the Service Station business), including (but without limiting the generality of the foregoing):

(i)             how cash takings are to be quantified;

(ii)how expenses (other than interest expenses) are to be identified and quantified; and

(iii)how interest expenses are to identified and quantified.

In relation to the Rental business the methodology must:

(c)    specify, in detail, the source materials on which the Applicants propose to rely for each year in dispute; and

(d)   address all relevant aspects of the calculation of the net income of the partnership (to the extent that it relates to the Rental business), including (but without limiting the generality of the foregoing):

(iv)          how rent receipts are to be quantified;

(v)how expenses (other than interest expenses) are to be identified and quantified; and

(vi)how interest expenses are to identified and quantified.

30.Ms Caporale produced a methodology within the time specified in the direction.  The Commissioner noted some concerns with the proposed methodology.  I then made a further direction on 24 June 2011, which, after noting the concerns of the Respondent in relation to the Applicants’ proposed methodology, required the following:

1.The Applicants are to file with the Tribunal and serve on the Respondent, after properly taking into account the concerns raised by the Respondent and noted above, a calculation of the taxable income of the partnership, supported by all relevant supporting source documents and “summary” work sheets (all of which must also be provided) in relation to the 1996 income year (that is 1 July 1995 – 30 June 1996), by 15 July 2011.

2.The matters are to be listed for a Resumed Hearing of 3 hours on 2 August 2011 at 10:00AM.

31.On 18 July 2011 Ms Caporale applied for an extension of time to comply with the direction but, given the history of the matter, I refused to grant a further extension. 

The resumed hearing

32.The hearing resumed on 2 August 2011, but the material contemplated by the direction of 24 June had still not been provided to the Tribunal.  Mr Papadopoulos sought an adjournment but, as already indicated, I refused the request.  He submitted that there had been some misunderstanding of the 24 June direction, in that Ms Caporale had been trying to assemble material for the entire five-year period of the dispute (rather than the single year of 1996 as was indicated in the direction) and she had run out of time.  She had brought material with her and wanted a further two weeks to collate it and present it.  I infer from the fact that she still required further time to collate the material that it was still not in a form that was contemplated by the direction (which had been made five and a half weeks earlier).

33.I rejected the claim as to a misunderstanding.  The direction itself is clear, in requiring “a calculation of the taxable income of the partnership, supported by all relevant supporting source documents and ‘summary’ work sheets (all of which must also be provided) in relation to the 1996 income year (that is 1 July 1995 – 30 June 1996)”.  Moreover, the direction is consistent with what I had indicated to Ms Caporale on the second day of the hearing, on 1 June 2011 (page 127 of the transcript – emphasis added):

MR FROST: Right.  This is a two-week window to provide some meaningful alternative method for making an assessment.  If it falls short at the two weeks then I’ve got no choice.  On the basis of what I’ve got I will affirm the decision.  But if it comes in and it passes muster then the next step will be – what I have in mind, but I will hear you on this if you want to say anything – what I have in mind is, okay.  That’s a good methodology.  Do it for 1996.  You have got two weeks, and present the results of your methodology together with all the supporting information, cross-referenced, so that we can have a look at it.  And if it is acceptable then that will dispose of ’96 and then you will have time to do the next year.

34.The only way in which the 24 June direction differed from what I had discussed on 1 June in the hearing was that I eventually allowed three weeks, rather than two, to provide the material for the 1996 year.

Summary

35.The applicants were expected to present their case on 31 May and 1 June 2011.  For reasons I have outlined above, they were granted a number of indulgences on those days, culminating in the direction dated 3 June 2011.  The further direction dated 24 June 2011, contemplated in the hearing on 1 June 2011, was not complied with by the due date of 15 July.  While Ms Caporale may well have been able to present material to the Tribunal when the hearing resumed on 2 August, there was no indication that she could present the “calculation of the taxable income of the partnership …” for 1996, as required by the direction.

36.A critical issue in this case is the amount of assessable income derived by the partnership in conducting the activities of the service station at Gymea and the investment property in Helensburgh. Mr Caporale gave evidence that not all proceeds of either activity were banked[1], and so there is an element of cash dealing that must be factored into the calculation of the net income of the partnership. That is why the “calculation of the taxable income of the partnership” required by the direction of 24 June 2011 is so important. In a case like this, it cannot simply be assumed that the paperwork itself (even if all of it is produced) provides the entire answer. It is quite clear to me that the applicants have not confronted that reality.

[1] Transcript page 84, line 32, and page 105, lines 44-45

37.In the circumstances, after all the delays, all the extensions of time, and all the excuses, the applicants had failed, despite having been given ample opportunity, to discharge the burden of proof under s 14ZZK of the Administration Act. They had proposed no intelligible basis on which their taxable income for the relevant years might be arrived at, and as a result there was no prospect whatever of a finding that the Commissioner’s assessments are excessive. Accordingly I affirmed the objection decisions.

I certify that the 37 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member S E Frost.

Signed:...........[sgd]...................................................................
  Casey Comans, Associate

Date of Hearing  31 May, 1 June & 2 August 2011
Date of Decision  2 August 2011
Date of written reasons             18 August 2011
Solicitor for the Applicant          Mr Peter Papadopoulos 

Counsel for the Respondent     Mr Tony O’Brien
Solicitor for the Respondent     Mr Ram Pandey, ATO Legal Services