Mircev and Commissioner of Taxation

[2002] AATA 1254

DECISION AND REASONS FOR DECISION [2002] AATA 1254

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No QT2001/460

TAXATION APPEALS DIVISION )          
           Re      MILAN MIRCEV     
  Applicant
           And    COMMISSIONER OF TAXATION          
  Respondent

DECISION

Tribunal       Mr B J McCabe, Member  

Date6 December 2002

PlaceBrisbane

Decision      The Tribunal affirms the objection decision under review.      

…….(Sgd) B J McCabe…..
  Member
CATCHWORDS
TAXATION – income tax – whether applicant has failed to disclose assessable income – whether applicant has provided credible explanation as to origin of income - whether applicant has discharged onus of proof - whether objection decision assessment excessive

Taxation Administration Act 1953

Favaro v Federal Commissioner of Taxation (1997) 97 ATC 4442
Raffaele v Deputy Federal Commissioner of Taxation (1994) 94 ATC 4746
Raffaele v Deputy Federal Commissioner of Taxation (1995) 95 ATC 4650

REASONS FOR DECISION

6 December 2002   Mr B J McCabe, Member              

Introduction

1. The applicant, Mr Milan Mircev, has objected to an amended assessment in respect of the year of income ended 30 June 1999. The applicant, through his company, operated coffee shops on the Gold Coast during the year of income. The Commissioner says the applicant should have declared an additional $106,675 as part of his assessable income. The applicant says the money was the proceeds of selling of antiques and other items left to him by his late father and his in-laws.

2. It is common ground the applicant bears the onus of establishing to the Tribunal's satisfaction that the assessment issued against him is excessive: s 14ZZK, Taxation Administration Act 1953. The applicant sought to discharge the burden by giving evidence of how he came into possession of the goods in question. He described how he stored the items in his home for a period of time before commencing a sale process. He was also questioned about the success of his business ventures that generated assessable income.
   The Material Before the Tribunal

3. The Tribunal was provided with the material required under s 37 of the Administrative Appeals Tribunal Act 1975. The applicant gave evidence in person. His brother also gave evidence. Copies of bank account records were tendered in evidence. Mr Mircev was represented by Mr Wright, and the Commissioner was represented by Ms Newman.
   The Facts

4. The applicant's company purchased a coffee shop at Pacific Fair on the Gold Coast in October 1997 for $270,000. He says the whole amount of the purchase price was borrowed. The shop in question was nearing the end of a five-year lease and the lease required that the premises be refurbished. The refurbishment proceeded at a cost of around $45,000 in February 1998.

5. Mr Mircev says the purchase and the additional burden of the refurbishment strained his financial resources. The refurbishment had to be funded out of takings in the shop. He also had to draw money to live out of the till. He said the situation was made much worse by the fact that takings did not meet his expectations. He said he was led to believe before buying the shop that the business was turning over around $40,000 per month. After he took over, he claims the shop was only turning over around $30,000 per month. He says this was attributable to the fact he had never run this kind of business before.

6. Mr Mircev had a Suncorp Metway account in the name of Milan Ivanov. The applicant denied it was a false name. He explained he was of Slovakian extraction and it was not uncommon to have two surnames.  He said Ivanov was an alternative last name. The Tribunal was shown a copy of some documents issued in Bulgaria bearing all three names. Ivanov was also his father's name.  It appears the bank at one point froze the account when it learned of the death of the applicant's father.

7. The bank records show a large number of cash deposits made on a regular basis during the relevant period. Most of the deposits were made through the Pacific Fair branch of Suncorp Metway.

8. Austrac (the Australian Transaction Reports & Analysis Centre) became aware of the cash deposits. The applicant was identified as the depositor. (The applicant acknowledged it was his money – this was not a case of mistaken identity). An investigation was commenced into the applicant's tax affairs. In the course of that investigation, the Commissioner used the "T-account" method of ascertaining assessable income. The "T-account" method is described in Favaro v Federal Commissioner of Taxation (1997) 97 ATC 4442. As a result of the investigation, the Commissioner concluded the applicant must have been earning more than he declared. The respondent said the money in the account should have been included in the assessable income, and raised an amended assessment.

9. Mr Mircev says the money in the account is the proceeds from the sale of antique furniture, jewellery and objects d'art that he inherited from his late father. He says his father was a wealthy man in his home-town in Slovakia, and he owned a large house with many valuable antiques and other objects. When his father died in late 1993, it was decided the applicant's mother would come to Australia. The applicant's brother Ivan travelled overseas and arranged for the contents of the house in Slovakia to be loaded into a container and shipped back to Australia. The applicant's in-laws also handed over some items to be sent out in the container. When it arrived here, the items belonging to their father were divided between the applicant and his brother. The applicant and his wife also kept the items sent by her family. The applicant stored the chattels at his home.

10. It was clear from the shipping documents (see document T28) and from the evidence given by the applicant's brother that a container was landed in Australia in October 1994. The container weighed around 5000 kilos and the documents described the contents as "personal effects". The applicant also tendered some photographs of items of furniture that he said came from the container. Ivan Mircev referred in his evidence to furniture, jewellery and other antiques, but he was not precise as to the quantity. He said the shipping documents did not accurately describe what was in the container because the Slovakian authorities might have prevented the container from leaving the country. It was necessary, he explained, to have the container cleared by a customs inspector in Slovakia who was a family friend, and prepared to act corruptly. It was difficult to be sure how many items of value were delivered.

11. The applicant retained possession of the items in his home for a period of three years before he decided to sell off the goods. His description of the sale process was wholly unconvincing. He admits he did not advertise the items. He would attend antique shows throughout south-east Queensland where he would meet with dealers and describe items in his possession. If they were interested in buying, the dealers would attend the applicant's home to inspect the item and pay cash. The applicant did not issue a receipt, and the purchasers apparently did not require one.

12. The applicant said he had a good knowledge of antiques and other items in his possession. He says he was an amateur collector. But he look confused when asked to identify the period and style of various items in photographs he was shown.

13. Mr Mircev was also unable to describe in detail any of the many pieces he had sold. I do not accept he had difficulty remembering the items. By his own account, he must have been tripping over the items as they lay about his home for nearly three years before they were sold. If the items were delivered to him in the container as alleged, and if he were the antique buff that he claimed, he should have been more familiar with the chattels.

14. The doubts over Mr Mircev's claim grow when one considers the size of the list of items he claims to have sold.  The list was provided by his former solicitors under cover of their letter to the respondent dated 10 September 2001 (folio 9 of the T documents).The applicant says almost all of the items were delivered to him in the container and they were subsequently kept at his home. Some of the goods were stored in boxes, but inevitably many were lying about the house. It was an average four bedroom home. On his evidence, the house must have looked like Alladin's Cave. There were at least three dining tables with around twenty dining chairs, cupboards and wardrobes, and at least four (but perhaps as many as fifteen!) chandeliers. Lounges and other bulky items were apparently strewn around the premises.

15. There was also a suggestion from the applicant that some of the money in the bank account was from loan repayments.  The applicant says he had loaned money to friends and business associates.  There was no convincing evidence of any loans, or that repayments were received.

16. Mr Mircev was unbelievable. He was not a confident witness, even allowing for the fact that English was not his first language. He appeared evasive. I reject his explanation of how he came to deposit $106,675 in his account.

17. One might speculate where the money came from. It is unnecessary for me to reach any concluded view in that regard, although the respondent alluded to some of the more obvious explanations.
    The Relevant Law

18. Section 14ZZK(b)(i) of the Taxation Administration Act 1953 provides:

    "On an application for review of a reviewable objection decision: …

    (b) the applicant has the burden of proving that:

    (i)  if the taxation decision concerned is an assessment (other than a franking assessment)—the assessment is excessive…"

1. The operation of the section was discussed by Davies J in Raffaele v Deputy Federal Commissioner of Taxation (1994) 94 ATC 4746. In that case, the taxpayer was attempting to explain away a sum of money that the Deputy Commissioner said should have been included in her assessable income. His Honour said:

   "…the facts concerning the sums totalling $25,400 have not been disclosed to the Court. It may be that, if disclosed, those facts would show that the moneys were not income of Mrs Raffaele. It may be that the moneys were in whole or in part undisclosed income of Mr Raffaele. But it is not for the Court to speculate. Mrs Raffaele has put forward her version of the facts. If the Court is not satisfied on the balance of probabilities with this version, then Mrs Raffaele fails to satisfy the Court as to the issues which she has raised for the Court's determination and fails to satisfy the burden of proving that the amended assessment was excessive."

1. The effect of his Honour's decision in a case such as this is clear. One cannot discharge the onus under s 14ZZK unless one is able, at a minimum, to offer a credible explanation for where the money came from. If the decision-maker doubts the taxpayer's credibility, the taxpayer must fail. His Honour's view was confirmed on appeal to the Full Court: see Raffaele v Deputy Federal Commissioner of Taxation (1995) 95 ATC 4650.

2. The respondent provided very extensive submissions referring to a wide range of cases discussing the interpretation of s 14ZZK. I think the decision in Raffaele makes it clear, the applicant cannot succeed in this case, given my comments about his evidence.
   Conclusion

3. The objection decision under review is affirmed.

   I certify that the 22 preceding paragraphs are a true copy of the reasons for the decision herein of Mr B J McCabe, Member

   Signed:         .....................................................................................
     Associate

   Date of Hearing  22 October 2002 (at Coolangatta)
   Date of Decision  6 December 2002
   Solicitor for the Applicant         Mr M Wright, Ledger Nguyen Lawyers
   Solicitor for the Respondent    Ms S Newman, ATO Legal Practice