Mall and Commissioner of Taxation (Taxation)

[2018] AATA 1621

Mall and Commissioner of Taxation (Taxation) [2018] AATA 1621 (5 June 2018)

Division:TAXATION & COMMERCIAL DIVISION

File Number:          2016/1220

Re:Vivek Mall

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Deputy President Bernard J McCabe

Date:5 June 2018

Place:Sydney

The objection decisions in relation to income in the years ended 30 June 2010, 30 June 2011 and 30 June 2012 are affirmed. The objection decision in the year ended 30 June 2013 is varied to reflect the revised figure in the schedule in document MFI9. The objection decisions in relation to penalty in the years ended 30 June 2011, 2012 and 2013 shall be varied so that they do not impose a 20% uplift.

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

Deputy President Bernard J McCabe

CATCHWORDS

TAXATION – taxable income – unexplained deposits into applicant’s bank account – where applicant failed to present a case at hearing – where respondent identified adjustments to be made to assessment figures – assessment and penalty decisions varied

LEGISLATION

Administrative Appeals Tribunal Act 1975 (Cth) – ss 37, 42A(2)

Taxation Administration Act 1953 (Cth) – s 14ZZK(b)

REASONS FOR DECISION

Deputy President Bernard J McCabe

5 June 2018

INTRODUCTION

1. The Commissioner of Taxation says Mr Vivek Mall did not correctly account for all of the taxable income he received in the years ending 30 June 2010 through 30 June 2013. The Commissioner also imposed administrative penalties on the tax shortfalls he identified. Mr Mall asked the Tribunal to review the objection decisions to that effect.

2. The matter was set down for a two day hearing before me on 9 and 10 October 2017. The applicant was unable to attend because he was ill. He provided a medical certificate. I spoke to him by telephone from the hearing room to discuss how we should proceed; it was apparent from that discussion the applicant was not far advanced in his preparation for the hearing. He had not secured the attendance or ensured the availability of key witnesses whom he intended to rely upon. The proceedings were adjourned until 1 November 2017.

3. Mr Mall did not appear at the adjourned hearing. He did not provide an explanation for his absence. I discussed with Mr Peadon, counsel for the Commissioner, how we should proceed. One option was to dismiss the matter for failure to appear under s 42A(2) of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act). I decided against that course because, as Mr Peadon explained, the Commissioner had identified some minor adjustments to the assessment figures for the 2013 year of income which favoured the applicant. The Commissioner also submitted that the penalty assessments in the 2011, 2012 and 2013 years of income should not have included a 20% uplift. Aside from those adjustments, Mr Peadon said there did not appear to be any other evidence that would provide a basis for changes to the assessments that were made.

4. I decided the appropriate course was to proceed with the hearing in the absence of the applicant and review the evidence, such as it was, with a view to making a decision. Ordinarily, I would be reluctant to adopt that course but I decided it was the preferable option in circumstances where:

   ·the applicant had been given ample opportunity to present his case but had failed to file much in the way of material or arrange for the attendance of witnesses; and

   ·s 14ZZK(b) of the Taxation Administration Act 1953 (Cth) obliges the taxpayer to establish that the assessment was wrong and identify the correct (or more nearly correct) amount of tax that he owes

5. After conducting the hearing, I varied the objection decision in relation to income in the year ended 30 June 2013 to reflect the adjustments to the figures contained in the schedule to the Commissioner’s document that was marked MFI9. I also varied the penalty decisions so that the 20% uplift should not be applied. I agreed I would provide written reasons for the benefit of the applicant recording my view. Those reasons are explained below.

   The evidence before the Tribunal

6. The material before me included the documents filed pursuant to s 37 of the AAT Act, together with some supplementary section 37 Tribunal documents. There were also a number of statutory declarations. Mr Peadon identified several other statements from witnesses that were taken into evidence as separate exhibits.

7. Mr Mall had been warned at the hearing on 9 October 2017 the Commissioner would argue the Tribunal should not place any weight on evidence from witnesses who were not available for cross-examination given that issues of credit were likely to arise.

8. The facts of the case are not complicated. The Commissioner identified a number of transactions which he said were not adequately explained. There does not appear to be any dispute that the transactions did in fact take place. The Commissioner said the transacted amounts should be treated as part of the taxpayer’s assessable income.

9. I will briefly describe the categories of transactions which attracted the Commissioner’s attention.

   Amounts of money that were credited to the applicant’s bank accounts

10. The applicant offered a variety of explanations for the amounts deposited in his accounts. He says some of the money was paid by an associate in Pakistan who was planning a move to Australia. The associate wanted Mr Mall to hold the money pending the associate’s arrival or further direction. The applicant also claimed to have received cash gifts from his parents and repayments on undocumented, interest-free loans. He also claimed to hold money on behalf of another organisation which was some kind of charity.

    Overseas transfers

11. I have already noted the applicant received transfers of money from an associate in Pakistan who was supposedly planning to move to Australia. Mr Mall said he paid out money held on trust for that associate to other individuals overseas as directed by the associate.

    Cashed cheques

12. The applicant was a partner in a firm providing security services to other businesses. In his statement, he said he sub-contracted with two other companies to provide the services. In a curious twist, he said the directors of the sub-contractors did not have time to do their own banking and were unable to pay their staff to work for the applicant. The applicant said he regularly obtained cheques from the hardworking directors of the sub-contractors. Mr Mall then cashed the cheques and used the funds to pay the employees of those other companies to provide the services.

    Withdrawals from the accounts of subcontractors

13. The applicant also received amounts that were withdrawn from the accounts of the subcontractors. He said any amounts received in this way were used for the same purpose as the proceeds of the cashed cheques.

14. I should add the applicant also suggests some of the transactions in various accounts are attributable to transfers between accounts. If that is so, there may be an element of double-counting in the Commissioner’s assessments.

    The state of the applicant’s case

15. The outcome of this case turns on whether I am persuaded by the applicant’s explanations for the various transactions. To the extent that I am not satisfied by those explanations, the Commissioner’s assessments must stand.

16. As it happens, the evidence of Mr Mall raises more questions than it answers. How could a man with a relatively modest reported income afford to advance undocumented, interest-free loans? Why is there no record of any report to the authorities with respect to the amounts being brought into the country by associates for safe-keeping? Why was he uniquely positioned to obtain advantageous foreign exchange rates on transfers – one of the reasons why his associates were keen to provide him with cash? Why was he providing the sort of assistance he claimed to provide to subcontractors? Interestingly, this last assertion was inconsistent with evidence obtained by the Commissioner from a research firm which profiled industry practices in the security industry. That evidence suggests the amounts supposedly paid to employees (who were not called to confirm receipt of those cash payments, I note) were significantly inflated relative to the industry standard. Mr Peadon said the Commissioner used the more conservative estimates in his assessment.

17. Some of the evidence provided by the applicant suggests he was asked to repay monies to a person located overseas after that individual changed his mind about migrating to Australia. But the applicant also says some of the payments he was receiving into his account during the same period were received from the individual overseas. That does not, without more, make sense: why would payments flow in both directions?

18. There is also some question over the role the applicant played in the preparation of the statements signed by various witnesses. It is unclear whether all of the witnesses prepared their statements independently.

19. It is possible the applicant has convincing explanations for all of these transactions. But those explanations were not provided to me – or, to the extent explanations were provided in statements, I am not comfortable relying on them to make findings of fact in circumstances where the witnesses were not available to have their evidence tested in cross-examination.

20. The applicant has not discharged his obligation of satisfying me the assessments were wrong – although I accept the assessment in the year of income ending 30 June 2013 should be amended in accordance with the Commissioner’s advice as to the revised figures.

    The penalty decisions

21. I have already noted the Commissioner agrees that a 20% uplift in the penalty should not be imposed in the circumstances of this case. He urges me to otherwise affirm the decision to impose administrative penalties at the rate of 75% which applies in cases where there is a knowing disregard for taxation obligations.

22. The Commissioner points out the applicant claims to be an experienced company director. He is not a novice when it comes to dealing with the tax laws. He also had the assistance of a tax agent, although it is unclear whether the applicant provided all of the relevant information to the agent. He has not provided any evidence to suggest the imposition of a penalty at the rate of 75% is inappropriate. Given the state of the evidence, it seems clear the applicant was receiving amounts of money that should have been included in his assessable income; the most likely explanation for his failure to do so is that he was disregarding his obligations.

    CONCLUSION

23. The objection decision in relation to taxable income for the years ended 30 June 2010, 30 June 2011 and 30 June 2012 remain unchanged. The objection decision in relation to taxable income in year ended 30 June 2013 should be varied in accordance with the schedule in document MFI9. The penalty decision for years of income ending on 30 June in 2011, 2012 and 2013 should be varied so that the 20% uplift is not applied.

I certify that the preceding 23 (twenty-three) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe

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Associate

Dated: 5 June 2018

Dates of hearing:	9 October 2017 1 November 2017
Applicant:	By phone
Counsel for the Respondent:	Mr C J Peadon