Mohammed Siddiqi and Commissioner of Taxation
[2012] AATA 589
[2012] AATA 589
Division TAXATION APPEALS DIVISION File Numbers
2011/5274, 2011/5648, 2011/5649
Re
Mohammed Siddiqi
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Egon Fice, Senior Member
Date 31 August 2012 Place Melbourne Save for the amounts conceded by the Commissioner of Taxation which totalled $20,452.87, and the necessary adjustments to penalties, the objection decision made by the Commissioner on 17 October 2011 was correct. The Tribunal varies that decision and finds that Mr Siddiqi's taxable income is reduced by $3275 for the 2008 income year and by $17,177.87 for 2009 income year; the penalty assessment for the GST net amounts is reduced by $465; the penalty assessment for income tax for the 2008 income year is reduced by $311; and the penalty assessment for income tax for the 2009 income year is reduced by $1092.
...[sgd Egon Fice].....................................................................
Egon Fice, Senior Member
TAXATION – Business Activity Statements – Goods and Services Tax – Income Tax – tax shortfall penalty – discrepancies between Business Activity Statements and income tax returns – omitted income – onus of proof – cash transactions – lack of business records
Administrative Appeals Tribunal Act 1975 (Cth) s 33
Taxation Administration Act 1953 (Cth) ss 14ZL, 14ZY, 14ZZK, 105-5, 105-40, 284-75, 284-80, 284-90, 298-20, 298-30
Income Tax Assessment Act 1936 (Cth) s 227
Income Tax Assessment Act 1936-1969 (Cth) s 190(b)Dixon v Federal Commissioner of Taxation (2008) 167 FCR 287
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614
Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81
Imperial Bottleshops Pty Ltd and Egerton v Federal Commissioner of Taxation (1991) 22 ATR 148
R v The War Pensions Entitlement Appeal Tribunal and another; ex parte Bott (1933) 50 CLR 228
Re Optimise Group Pty Ltd and Commissioner of Taxation [2010] AATA 782
The Commissioner of Taxation of the Commonwealth of Australia v Traviati [2012] FCA 546
Miscellaneous Taxation Ruling MT 2008/1
REASONS FOR DECISION
Egon Fice, Senior Member
Mr Mohammed Siddiqi was selected by the Australian Taxation Office (ATO) for a cash economy audit in May 2010. He attended an interview on 25 May 2010 following notice of the audit being issued to him on 12 May 2010. The notice informed Mr Siddiqi that the audit would cover the 2008 and 2009 income years. It also indicated that the transactions used to prepare his business activity statements (BAS) for the periods 1 July 2007 – 30 June 2008 and 1 July 2008 – 30 June 2009 would be examined. He was asked to bring with him a number of documents evidencing his business activities and he was also asked to complete a personal living expenses questionnaire. A minute prepared in the course of the audit interview indicates that Mr Siddiqi is a sole trader conducting an import, local purchase and export business. He operates under the trading name of Surplus Trading Company.
After giving Mr Siddiqi the opportunity to provide documents to the ATO substantiating a number of transactions which caused concern, on 15 November 2010 the ATO provided Mr Siddiqi with its decision. In summary, the ATO determined:
·there was additional Good and Services Tax (GST) payable of $9262.00;
·there was additional income tax payable of $24,206.56; and
·Mr Siddiqi was liable for penalties of $8422.65.
The ATO provided Mr Siddiqi with written reasons for its determination. Those reasons were:
·there were withdrawals of $40,605 in the 2008 income year but the net income reported for that year was $14,412;
·there were withdrawals of $33,630 in the 2009 income year but the net income reported that year was $9557;
·the conclusion drawn was that there was omitted income of $50,266 in the figures reported;
·amounts drawn by cheques and deposited into other accounts were allowed;
·amounts said to have been received from family and friends were disallowed because they could not be substantiated;
·amounts received from overseas were also disallowed for lack of evidence; and
·amounts received from sales of mobile phones to friends were disallowed as he had purchased in excess of 40 mobile phones and claimed GST credits.
On 15 November 2010 the Commissioner issued to Mr Siddiqi a notice of assessment regarding indirect tax in accordance with s 105-5 of the Taxation Administration Act 1953 (TAA). In the attached Schedule the Commissioner set out the changes made to his activity statements for GST for the September 2007, December 2007, March 2008, June 2008, September 2008, December 2008, March 2008 and June 2008 quarters. The Commissioner added $9262 DR to Mr Siddiqi's running balance.
On 25 November 2010 the Commissioner issued Mr Siddiqi with the notice of assessment and liability to pay a penalty imposed in respect of his activity statements due to shortfall amounts. The penalty amount was $2371.
On 30 November 2010 the Commissioner issued to Mr Siddiqi a notice of amended assessment for the income year ended 30 June 2008 and for the income year ended 30 June 2009. Mr Siddiqi's amended taxable income for the 2008 income year was $77,119. His amended taxable income for the 2009 income year was $39,476. The Commissioner also issued two notices of assessment of shortfall penalty on 1 December 2010. He assessed Mr Siddiqi to be liable to pay a penalty of $4648.10 for the 2008 income year and $1403.45 for the 2009 income year.
On 4 April 2011 Mr Siddiqi's tax agent, MJC Partners Pty Ltd, lodged an objection against the amended income tax assessments and the amended GST assessments. That objection set out some 31 transactions in the 2008 and 2009 income years, providing further information for the Commissioner. It followed an earlier response from Mr Siddiqi's tax agent which dealt essentially with information regarding BASs for the periods in question.
The Commissioner provided Mr Siddiqi with his Notice of Objection Decision on 17 October 2011. The Commissioner disallowed all of Mr Siddiqi’s objections and imposed a penalty of 25% of the tax shortfall. Mr Siddiqi lodged with the Tribunal an application for review of the Commissioner's decision on 8 December 2011.
Prior to the hearing, the Commissioner lodged with the Tribunal a table setting out 38 transactions which were in dispute. Those transactions may be categorised as follows:
(a)reimbursement of moneys expended in the course of business;
(b)loans provided to Mr Siddiqi;
(c)cash payments of credit card debts;
(d)transactions previously recorded on BASs;
(e)deposits by cheque and cash for daily living expenses; and
(f)receipts in respect of sale of mobile phones.
The issues in this case involved the substantiation of the 38 transactions impugned by the Commissioner.
ONUS OF PROOF
As the Commissioner correctly submitted, Mr Siddiqi bears the onus of proving that each of the assessments made, the subject of this review, is excessive. Section 14ZZK of the TAA provides:
14ZZK Grounds of objection and burden of proof
On an application for review of a reviewable objection decision:
(a)the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and
(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; or
(ii) if the taxation decision concerned is a franking assessment—the assessment is incorrect; or
(iii) in any other case—the taxation decision concerned should not have been made or should have been made differently.
Because Mr Siddiqi was self-represented, I will explain as clearly as I can what is required to discharge the onus of proof. The first thing I need to explain is that Mr Siddiqi's evidence given in the course of the hearing, while it must be taken into account, without some supporting objective evidence which is consistent with his oral evidence, carries little weight. The oral evidence given by Mr Siddiqi is in the nature of a self-serving statement. That is not a criticism of Mr Siddiqi but rather, it is simply what one would expect from an applicant attempting to advance his or her case. This was explained clearly by Hill J in Imperial Bottleshops Pty Ltd and Egerton v Federal Commissioner of Taxation (1991) 22 ATR 148, at 155, where he said:
A taxpayer who does not keep records of his deductible outgoings faces a very difficult task. If he goes into the witness box and swears that he has incurred the outgoings he is making a self-serving statement. That does not necessarily mean that he is not to be believed. Such a statement, like statements of purpose, or object or state of mind must, however, be "tested most closely, and received with the greatest caution": Pascoe v FCT (1956) 6 AITR 315; 11 ATD 108 at 111. It would, of necessity, be a rare case indeed where a taxpayer, claiming to have expended a very large sum of money on trading stock and other business expenses, would succeed in satisfying the burden of proving that the assessment is excessive. Some other corroborative evidence would normally be required which makes it more probable than not that his sworn testimony is to be believed. It must, however, be borne in mind that the evidence of the taxpayer is not to be regarded as "prima facie unacceptable",…
Furthermore, as Ms E Mealy of counsel, who appeared on behalf of the Commissioner, submitted, there is no onus on the Commissioner to show that the assessments were correctly made. This was clearly stated by Mason J in Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81. Although his Honour dissented in that case, and it dealt with s 190(b) of the Income Tax Assessment Act 1936-1969, his statement regarding onus of proof remains relevant. Section 190(b) was in similar terms to that now found in
s 14ZZK of the TAA. He said, at 89:
The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The implication of such a requirement would be inconsistent with s. 190(b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail.
The view expressed by Mason J was approved by the High Court in Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614. Brennan J, in referring to the passage I have quoted above, said, at 624:
The manner in which a taxpayer can discharge that burden varies with the circumstances. If the Commissioner and a taxpayer agree to confine an appeal to a specific point of law or fact on which the amount the assessment depends, it will suffice for the taxpayer to show that he is entitled to succeed on that point. Absent such a confining of the issues for determination, the Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment, though the taxpayer is limited to the grounds of his objection. …
To discharge the onus borne by Mr Siddiqi, he must establish affirmatively, on the balance of probabilities, that the amount of taxable income as assessed exceeds his actual taxable income derived during the 2008 and 2009 income years. As Ms Mealy submitted, Mr Siddiqi also bears the onus concerning the assessments of the GST net amounts. That is because:
(a)s 105-40 of Schedule 1 in the TAA provides that a taxpayer may object against a decision which is a reviewable indirect tax decision, including an assessment of a net amount of indirect tax, in the manner set out in Part IVC of the TAA;
(b)s 14ZL of the TAA states that if a provision of an Act or regulations provides that a person who is dissatisfied with an assessment, determination, notice or decision, or with the failure to make a private ruling, may object against it in the manner set out in Part IVC – the objection is called a taxation objection;
(c)s 14ZY of the TAA provides that the Commissioner must decide whether to allow or disallow an objection made under Part IVC and that decision is called an objection decision; and
(d)s 14ZZK of the TAA deals with an application for review of a reviewable objection decision.
Ms Mealy also correctly submitted that Mr Siddiqi bears the onus in respect of objection decisions concerning penalties. Division 298 of the TAA contains machinery provisions dealing with penalties. Section 298-30(1) provides that the Commissioner must make an assessment of the amount of an administrative penalty under Division 284. Section 298-30(2) provides that an entity dissatisfied with a penalty assessment may object against it in the manner set out in Part IVC of the TAA.
I should also say something briefly about the rules of evidence for the benefit of Mr Siddiqi. Quite plainly, this Tribunal is not bound by the rules of evidence (see s 33(1)(c) of the Administrative Appeals Tribunal Act 1975). However, that does not mean that the Tribunal can simply ignore the rules of evidence, which are designed specifically to ensure fairness between parties to a dispute. As Evatt J said in R v The War Pensions Entitlement Appeal Tribunal and another; ex parte Bott (1933) 50 CLR 228 at 256:
Some stress has been laid by the present respondents upon the provision that the Tribunal is not, in the hearing of appeals, "bound by any rules of evidence". Neither it is. But this does not mean that all rules of evidence may be ignored as of no account. After all, they represent the attempt made, through many generations, to evolve a method of inquiry best calculated to prevent error and illicit truth. No Tribunal can, without grave danger of injustice, sit them on one side and resort to methods of inquiry which necessarily advantage one party and necessarily disadvantage the opposing party. In other words, although rules of evidence, as such, do not bind, every attempt must be made to administer "substantial justice". …
Deputy President Forgie in Re Optimise Group Pty Ltd and Commissioner of Taxation [2010] AATA 782 at [32] said:
For all practical purposes, there is often little difference between the task of a court bound by the rules of evidence and that of the Tribunal in assessing the relevance and probity of material. Each must assess the weight that it gives to the pieces of evidence or other material that it has. Each must also consider the weight, if any, to be given to the failure of a person to produce evidence or material in its control or to call a witness who might be expected to have relevant evidence. When considering omission, the principles in Jones v Dunkel are, on their face, just as relevant in Tribunal proceedings as in court proceedings even though they are regarded as among the rules of evidence.
Ms Mealy also drew my attention to the Full Court of the Federal Court decision in Richard Walter Pty Ltd v Commissioner of Taxation (1996) 67 FCR 243. Although that decision involved transactions which were said to be loans but which the Commissioner claimed were sham transactions, and there is no suggestion in this case that any of the transactions were a sham, it is nevertheless instructive regarding how a taxpayer may succeed in demonstrating that an assessment is excessive. Hill J said, at 259:
These principles work out in the present case in the following way. The Commissioner alleges that the payments from Morlea to Richard Walter are income. In order to show that the assessment is excessive Richard Walter must thus show on the balance of probabilities that the payments are not income. It seeks to do that in the present case by making a case that the payments were loans. If this case is accepted, Richard Walter will, but subject to the s 260 issue, be entitled to succeed. In the present case it is sought to show the amounts in question were loans through the evidence of Mr Holden who swore that they were and that the accounts reflecting them were correct. His Honour did not believe Mr Holden, finding that there was no intention that the loans would be repaid. This being the case, the payments in question were not loans. Whether they had some other character may have relevance to the question of sham, but that can for the moment be put to one side. It can not be correct to say that the onus lay upon the Commissioner to establish what the payments in question were. If they were not loans it will be for the taxpayer then to show that they are something else which does not have the character of income. If the taxpayer does not do this it will not have satisfied the onus of showing that the assessment is excessive.
It should then be clear to Mr Siddiqi that it is not sufficient to simply claim that the transactions which the Commissioner questions are of a different nature to that which the Commissioner has assessed. Mr Siddiqi is required, by evidence, to demonstrate that they have a character which is different to that claimed by the Commissioner. While I accept that this is no easy task where a trader, such as Mr Siddiqi, has many cash transactions, it nevertheless remains a requirement to prove, on the balance of probabilities, that the assessment made by the Commissioner was excessive.
THE CONDUCT OF MR SIDDIQI'S BUSINESS
The nature of Mr Siddiqi's business was given in evidence by him in the course of cross-examination. The material which I have set out below also comes from a minute of interview with officers of the ATO on 25 May 2010.
Mr Siddiqi runs his business from home. He buys goods, shop returns, rejects or seconds and he either exports them and sells them or sells them locally. In the course of his interview with the ATO, he indicated that about 40% of goods were exported and the remaining 60% were sold locally. He said he did not have a market stall although he did sometimes sell his goods on eBay. He indicated the type of items he dealt with were electrical, power tools, clothing, sheets, mobile phones and ornaments. His wife did not work and they received Family Benefit Payments A & B each fortnight. He did not have a warehouse and had no rental overheads in respect of business. When asked whether he received cash payments in the course of his business, he answered: not really.
In cross-examination Mr Siddiqi said that they sold their house towards the end of 2006 and obtained a bank loan for the purpose of constructing a new residence. Construction commenced at the start of 2007 and finished in 2009. The funds for the construction were borrowed from the Westpac bank and those borrowed funds increased during the course of construction to about $200,000.
When Mr Siddiqi was asked whether he sold goods overseas, he said most of his goods were sold overseas, some being sold locally. This is clearly inconsistent with the statement he made when interviewed by officers of the ATO in May 2010. When asked if payments in his business were made into his bank account, he said they were, some by overseas telegraphic transfer and local cheques. He denied receiving cash cheques. He admitted to retaining large amounts of cash, particularly in the course of building the new residence where he said he needed it from time to time to pay for materials. He said that money came from his personal account or the business account. He said that if he received payment in cash, he would put it into his cheque account and then draw cash as he needed it.
When asked which bank account he used for his business, he said it was mainly his ANZ account described as a Business Cash Management account. He testified that all of his business went through that account but sometimes loan repayments were made from his private account and some cheques were deposited in that private account. He had been in that business for 7 to 8 years. He did not employ anybody and his wife did not work. He supported his wife and three children. During the relevant years, he held a number of credit cards including NAB Visa, ANZ Gold Visa and ANZ Diners Club
Mr Siddiqi was taken to the income tax returns he lodged for the 2008 and 2009 income years. He said that his tax agent completed the 2008 return and he completed the returns for the 2009 income year using etax. In the 2008 income year, he agreed that he reported business income in the amount of $98,960 with costs of sales at $70,889. After allowing for other expenses, Mr Siddiqi reported net business income of $10,217. In the 2009 income year, Mr Siddiqi reported business income of $31,335. After deducting costs of sales and other expenses Mr Siddiqi reported net business income of $9064. By way of contrast, in the 2008 income year, Mr Siddiqi's BASs recorded taxable supplies of $107,266 or some $8306 more than he reported in his income tax return. Similarly, in the 2009 income year, Mr Siddiqi's BASs recorded taxable supplies of $33,539, $2204 more than he reported in his income tax return. He was not able to explain the differences. When it was suggested to Mr Siddiqi that he had understated taxable supplies, he said there might be a mistake somewhere.
After selling the house in which he and his family lived at the end of 2006, Mr Siddiqi rented premises which he said cost him $867 per month until he and his family moved into the newly built house in 2009.
DISPUTED RECEIPTS
The Commissioner provided to the Tribunal a colour-coded list containing 38 items being deposits made to 3 different bank accounts in the name of Mr Siddiqi which he claimed should be treated as income as there was no evidence to the contrary. As I understood it, these were the only amounts now disputed by Mr Siddiqi after a number of discussions with officers from the ATO. The bank accounts to which the transactions were posted were the ANZ Business Cash Management account, the NAB FlexiAccount and one entry in the Westpac bank account.
Item 1 – 31 July 2007 – cheque deposit $2000
In the objection lodged by Mr Siddiqi's tax agent, this deposit was said to be a reimbursement made for purchases on 13 July 2007 and 18 July 2007 in the same account for $1300 and $1000 respectively. However, in a letter sent to the ATO on 11 April 2012, Mr Siddiqi said that he bought a car for personal use from a Dandenong business, Exotic Panels. He said the car had problems and he returned it in order to be refunded his payment. He said he was not able to get a receipt from the seller of the car but he had a cheque bit (butt) which he produced amongst documents which were admitted into evidence. There was a photocopy of a document dated 31 July 2007 which is made out to cash for $2000. However, on a note to that photocopy, Mr Siddiqi said he bought the car for $2300.
Mr Mohammed Atesh, the seller of the motor vehicle, gave evidence by telephone. Mr Atesh said that he worked at the panel shop and that the car had belonged to him. He said the sale to Mr Siddiqi was not in the course of his business and he did not provide a receipt or an invoice. He also said he did not provide a receipt for the reimbursement he made. He said he knew Mr Siddiqi previously as he had bought other cars from him. He said he had known him for seven or eight years.
With respect to Mr Atesh, his evidence was vague and he simply stated that the car was returned to him after one week because it required some work although he was not able to identify precisely what work it required. The evidence of Mr Siddiqi was contradictory. His account of that receipt had changed significantly since the objection was lodged with the ATO. He gave no explanation for why he accepted a refund of $2000 whereas the purchase price was $2300. Mr Atesh attempted to explain that the reason he refunded $2000 instead of $2300 was because he had done some work on the car. However, given that Mr Siddiqi said that the car was unsuitable, there is no obvious logic in him accepting a lesser sum by way of reimbursement. Although Mr Siddiqi said that he had requested the original cheque from the bank, he was not able to produce it at the hearing.
The cheque butt produced by Mr Siddiqi appears to indicate that the cheque was made out for $2000 payable to cash. There is no other explanation on that document describing the purpose of the payment. Nor is there anything on that document to identify it as coming from Mr Atesh. I find that Mr Siddiqi has not discharged his onus of proving that the amount of $2000 was not income.
Item 2 – 16 August 2007 – loan $500
The bank account statement where this deposit is recorded has the entry: from AM Home Furnishi Marks Bill. Mr Siddiqi was unable to explain that transaction. When asked whether he sold cleaning rags, he said that he never sold cleaning rags to that entity. When it was suggested that it was payment for a sample, he responded: you can put it that way. There being no rational explanation for this deposit, I find that Mr Siddiqi has not discharged his onus of proving that the amount of $500 was not income.
Item 3 – 20 August 2007 – loan $4800 and Item 9 – 15 October 2007 – loan $10,000
Mr Siddiqi testified that the $4800 was repayment of a loan he made to Mr Besim Gunes, who it appears, conducts a similar business to that of Mr Siddiqi. He said the moneys for the loan were withdrawn from his ANZ account in the amount of $3000 on 1 February 2006 and a further $2000 on 31 May 2006. He also said that later in October 2007 Mr Gunes lent him $10,000. He said he had known Mr Gunes for many years and was a good friend and therefore there was no written contract between them and no interest was charged.
Mr Gunes provided a letter to the Tribunal and he gave oral evidence by telephone at the hearing. In his letter, which is undated, Mr Gunes stated that he owed and paid $4800 to Mr Siddiqi on 20 August 2007 and later lent him $10,000 in October 2007 for his business. He said that the two had done a few business deals but that this particular transaction was of a personal nature. When asked at the hearing when the transaction took place, Mr Gunes said he thought it was in 2007, 2006, 2008. Mr Gunes said he used the loan obtained from Mr Siddiqi to buy stock. When asked how much Mr Siddiqi owed him, Mr Gunes said he could not remember but thought it was $7000 or $8000.
In cross-examination Mr Gunes was asked if he had copies of bank statements indicating deposits and withdrawals. He said he did not and that the transactions were in cash. He was asked again if he could remember the dates and he said he could not, but thought it was in 2007 or 2008. When asked about the letter he provided to the Tribunal, and if he could recall the date on which the payment was made, he said he could not remember the date. It was pointed out to him that he provided a specific date in the letter, being 20 August 2007, and now he was not sure and he was unable to answer. He could not explain why that was the case. In fact the answer came from Mr Siddiqi when he was asked about that and he said he gave Mr Gunes the dates and the amounts which were inserted into the letter. It was quite clear from Mr Gunes' evidence that he had no recollection of the transactions in question. Mr Gunes was not able to provide an answer to the question regarding what he used the money for.
With respect to Mr Gunes, his evidence was unsatisfactory. He provided a letter to the Tribunal indicating his knowledge of the transactions in question even though, as it later transpired, he had no knowledge or recollection of those transactions himself. He attempted to give the impression that he did.
As for the $10,000 Mr Siddiqi said he borrowed from Mr Gunes, in the objection lodged with the Commissioner, he said that the money borrowed was used as capital in his business. However, the BAS for the second quarter of 2007 discloses $0 capital purchases. Mr Siddiqi also said that he was repaying that loan and he still owed Mr Gunes some $7000 – $8000. When asked if he kept records of that loan he said he did but he did not have them with him. I have not since the hearing of this matter received any further material from Mr Siddiqi. Again, the evidence regarding these transactions was wholly unsatisfactory and Mr Siddiqi has failed to discharge his onus of proving that these deposits in his account were not income.
Item 4 – 20 August 2007 – cash payment against credit card $650
This was a payment by Mr Siddiqi reducing the balance on his ANZ Gold Visa credit card. Mr Siddiqi was unable to provide an explanation for where that money came from other than to say it was simply a cash payment. With respect to Mr Siddiqi, that explanation does not discharge his onus of proving that the amount was not income.
Items 11, 22, 26 and 37 – cash and cheque payments to credit cards
These transactions took place on 2 November 2007, 2 April 2008, 11 June 2008 and 17 April 2009. The first two transactions involved cash payments to Mr Siddiqi's Diners Club credit card in the amounts of $2850 and $960 respectively. The next two payments were made against Mr Siddiqi's NAB Visa card in the amounts of $6920 and a cheque payment of $1400 respectively.
Mr Siddiqi denied the assertion that the moneys used to pay those credit card debts were sourced from income which he had failed to declare. He was unable to identify the source of those payments. Accordingly, I must find that Mr Siddiqi has failed to discharge his onus of proving that each of those amounts was not sourced from income.
Items 5, 6, 8, 10, 12 – 15, 19, 28, 31 – 34 – taxable supplies/income
Mr Siddiqi accepted that each of the amounts identified under these items were taxable supplies arising from his business trading. They were in the amounts as follows:
(a)3 September 2007 – $16,370;
(b)12 September 2007 – $8800;
(c)1 October 2007 – $17,755;
(d)29 October 2007 – $9000;
(e)16 November 2007 – $1863.50;
(f)7 December 2007 – $7796.25;
(g)17 December 2007 – $4988;
(h)28 December 2007 – $30,004.05;
(i)5 March 2008 – $10,660.80;
(j)2 July 2008 – $1445;
(k)14 July 2008 – $5500;
(l)23 July 2008 – $12,000;
(m)23 July 2008 – $2344; and
(n)8 October 2008 – $14,250.
The point being made by the Commissioner about these deposits is that they total $142,766.60 over the two income years in question. In his income tax returns for those two years, Mr Siddiqi reported total income of $130,295. In cross-examination, Mr Siddiqi said that a mistake had simply been made. He agreed that all of the deposits referred to above were income from taxable supplies in the course of his business.
In fact, in his objection Mr Siddiqi referred to the $12,000 deposit made on 23 July 2008, indicating that $10,000 was reported on the BAS. The balance of $2000 was said to be a capital contribution as a result of the sale of old furniture from his home. However, Mr Siddiqi's BAS for the quarter ended 30 June 2008 discloses a total sales figure of $0. Mr Siddiqi had previously supplied to the ATO an invoice addressed to NDL Group Pty Ltd dated 30 June 2008 involving what is described as 188 computer sets for the total cost of $10,000. When asked if he recalled receiving that payment in cash, Mr Siddiqi said he could not. Furthermore, there is no evidence on Mr Siddiqi's BASs of any capital purchases relating to the furniture he said he subsequently sold. I find that the $12,000 recorded by the Commissioner as income received in the course of Mr Siddiqi's business on 23 July 2008 was income which he failed to disclose.
Item 7 – 28 September 2007 – $4296.49
Mr Siddiqi claimed that this amount was the repayment of a loan made to Mr Deemant Himmat Lodhia who previously lived in New Zealand but, according to Mr Siddiqi, was now located in Fiji. I had in evidence a letter signed by Mr Lodhia dated 4 December 2010 in which he said he obtained a loan of US $3800 a few years back which he repaid in September 2007 through his sister. The letter stated it was a personal transaction and had nothing to do with his or Mr Siddiqi's business. Mr Siddiqi was not certain as to where the money came from to lend to Mr Lodhia. He said no formal loan agreement was made between the two of them.
I also had in evidence a credit advice from NAB dated 28 September 2007 indicating that the amount of US $3800 was received into Mr Siddiqi's account from RDDS Investments LLC, which appears to be located in California. The credit advice notes that the person ordering the transfer of moneys was Sonkia Lodhia Raniga, who Mr Siddiqi said was Mr Lodhia's sister. Mr Siddiqi admitted that he did not know the entity from whom money was transferred nor had he ever met Ms Raniga. Mr Siddiqi said there were no other documents to support the transaction. Mr Siddiqi said that he asked Mr Lodhia to send the letter to which I have referred above.
Although there is evidence of the source of these moneys and a letter from Mr Lodhia claiming that this was a repayment of a loan, there was nothing else amongst the documents to evidence any such loan. Furthermore, given that Mr Siddiqi was in contact with Mr Lodhia for the express purpose of getting him to write a letter supporting his claim, I am not satisfied that Mr Siddiqi has discharged the onus of proving that this deposit was in fact the repayment of a loan. I do not have any confidence in the letter provided by Mr Lodhia given that Mr Siddiqi had previously provided details to Mr Gunes in the letter he wrote supporting the loan said to have been made in August 2007 and later borrowings in October 2007. There was also no explanation given for why these moneys were repaid by a transfer of funds from Mr Lodhia's sister in California. I find Mr Siddiqi has failed to discharge his onus of proving this amount was not income.
Item 16 – 9 January 2008 – $4619
Mr Siddiqi claimed that this deposit resulted from money he received from Ms Josephine Komey from Papua New Guinea (PNG). He said that he had been asked to buy something for her but because he could not get the product, he refunded the money.
I had in evidence a report from Austrac dated 7 January 2008 which indicated incoming funds in the amount of $4619 for the benefit of Surplus Trading, the name under which Mr Siddiqi conducted his business. The moneys were sent by Shriji Stores Fiji.
Mr Siddiqi testified that on 14 January 2008 he returned $3866 to the customer in PNG. I had in evidence a Lodgment Receipt produced by ANZ bank which appears to be a transfer of $3866 to Ms Komey. The reference on that receipt states DVDGOLD refund. Mr Siddiqi said in evidence that he had deducted the balance of moneys for his expenses. He did not produce any documents in support this transaction. When asked about the relationship between the Fiji entity and Ms Komey, Mr Siddiqi said the supply was through relatives. The problem for Mr Siddiqi is that other than his account of this transaction, there is nothing which supports his version of events. The deposit in his account most certainly came from Fiji and, on his own testimony, he exported goods for sale to Fiji. A reasonable inference to be drawn is that the transfer of funds was for goods provided to the Fijian entity. The subsequent claimed refund of $3866 was to a different entity in a different country for a different sum. Without further documents corroborating Mr Siddiqi's claim, he has failed to discharge the onus of proving that the deposited sum of $4619 was not income from his business activities.
Items 17, 20, 23 and 27 – cheque deposits for daily living expenses
The following deposits were said to be for daily living expenses:
(a)17 January 2008 – $600;
(b)6 March 2008 – $1750;
(c)2 April 2008 – $1500; and
(d)13 June 2008 – $2500.
The first payment of $600 was deposited in Mr Siddiqi's account by way of a cheque. In his objection, Mr Siddiqi simply indicated that it was a cheque deposited to his personal account (NAB account) for day to day living expenses. There are no documents which would permit identification of the source of these moneys. Mr Siddiqi said that he thought it was his own cheque although he did not produce a copy of it or, for that matter, the cheque butt. Mr Siddiqi was not able to identify a bank statement which would indicate that the cheque was drawn on one of his accounts. There being no evidence other than Mr Siddiqi's claim about the source of that deposit, it cannot be said that he has discharged the onus of proving that this deposit did not constitute income from his business.
The deposits of $1750 and $1500 are indicated in the bank statement as cash deposits. These amounts were also deposited in Mr Siddiqi's NAB account. The $2500 deposit is said to be a cheque deposit. There were no other documents to indicate the source of these moneys. Mr Siddiqi could not add to the statements he had already made about these moneys being used for everyday living expenses. He could not identify their source. Mr Siddiqi has not discharged his onus of proving that these moneys were not income from his business activities.
Item 18 – 22 February 2008 – $18,087.53
In his objection Mr Siddiqi said these moneys were the result of a refund received from a PNG supplier. He said that the moneys provided for the initial purchase of goods from PNG are reflected in his ANZ business account on 30 January 2008 in the amount of $20,032. He said the contract was later cancelled as a result of being unhappy with the samples received. I had in evidence a statement from the ANZ bank recording an overseas transfer of $20,000 (and an additional charge of $32) on 29 January 2008 from Mr Siddiqi, trading as Surplus Trading Company, to an entity called Surplus Mineral Exports. The correspondent bank is named as Bank South Pacific which is based in Port Moresby. I also had in evidence a notice from the ANZ bank dated 22 February 2008 informing Mr Siddiqi of funds received from the NAB in the amount of $18,087.53. That notice states that the Ordering Customer was Supreme Best N Less Clothing Ltd.
Although Mr Siddiqi in cross-examination maintained that the $18,087.53 was a refund, there were no other documents which linked the transfer of $20,000 with that sum. The transactions are almost one month apart and they are between different entities. Mr Siddiqi said that there were no invoices, receipts or correspondence between him and either of the entities involved. Other than Mr Siddiqi saying so, there is nothing on the ANZ transaction document informing him of the deposit of $18,087.53 to indicate that the moneys were in fact sent from PNG. The details of payment are said to be consultation fee. The exchange rate is said to be 1.00.
Given that the moneys have come from the NAB and the exchange rate was 1.00, it seems reasonable to infer that the transfer was in Australian dollars wherever it came from. I am also aware that the currency in PNG is the Kina and it might be reasonable to infer that had the money come from PNG, as was stated by Mr Siddiqi, the exchange rate would have been different to 1.00, the current rate being around two Kina for every Australian dollar. Although the transaction took place some four years ago, it is highly unlikely that the Kina/Australian dollar exchange rate was at parity. In the absence of any further corroborating evidence, I find that Mr Siddiqi has not discharged his onus of proving, on the balance of probabilities, that the deposit of $18,087.53 was not income from his business activities.
Item 21 – 14 March 2008 – $2500
Mr Siddiqi's NAB account records a deposit of $2500 from Seaford Clothing on 14 March 2008. His explanation for that deposit was that it was repayment of a personal loan from a friend. Mr Siddiqi produced a letter dated 6 December 2010 from Seaford Clothing Pty Ltd, signed by Mr Ajendra Prasad. In his letter Mr Prasad said he certified that he owed $2500 to Mr Siddiqi which he placed in his personal account on 14 March 2008. He added that he had done quite a few business transactions (with Mr Siddiqi) but that this transaction had nothing to do with his or Mr Siddiqi's business. He did not provide any evidence of a loan or obligation to repay this money. Nor did Mr Prasad identify the purpose of the loan.
In cross-examination Mr Siddiqi said that he was friends with Mr Prasad and that they had done business together. When asked why he gave Mr Prasad the $2500, Mr Siddiqi said that they travelled together a lot. However he did not know the last occasion on which he travelled with Mr Prasad and he confirmed it was not repayment for airfares. He said he did not know what Mr Prasad used the money for. There was no explanation for why the repayment took place some 16 months after the moneys were said to have been lent. Mr Siddiqi denied that the money was received in return for goods provided to Mr Prasad. There was no evidence of any loan agreement or obligation to repay this money. Given the lack of supporting documents, I find, on the balance of probabilities, that Mr Siddiqi has not discharged his onus of proving that these moneys were not income from his business activities.
Items 24 and 25 – 12 May 2008 – $400 and $800
These deposits were made in Mr Siddiqi's ANZ business account and they are recorded as being from Mr Ajay Goel mobile and phone N 95. In his objection, Mr Siddiqi said that both of those deposits were from the sale of mobile phones. However, he said those mobile phones were his personal phones and they had never been claimed in his business as a deduction or a depreciable asset.
In cross-examination Mr Siddiqi said that he often used more than two telephones. When asked if he was able to produce invoices for the use of those phones he answered no. He admitted that he did buy and sell mobile telephones in the course of his business.
In the absence of any evidence corroborating Mr Siddiqi's claim about those mobile telephones, I find he has not discharged the onus of proving, on the balance of probabilities, that these deposits were not income from his business activities.
Items 29 and 30 – 8 and 9 July 2008 – $1500 and $933.92
Both of these deposits were made in Mr Siddiqi's NAB account. Mr Siddiqi said, in his objection, that these were the repayments of personal loans made to a friend, Mr Saigal who lived in Frankston. He said the moneys were used by Mr Saigal to help pay for some dental procedures. Mr Siddiqi produced to the ATO an undated and unsigned letter said to be from Mr Saigal in which he states that the amounts of $1500 and $933.92 were repayments of money which he borrowed from Mr Siddiqi previously. That letter does not state the purpose of the loan or when the moneys were in fact borrowed.
Mr Siddiqi said that he had known Mr Saigal for some 15 years. In cross-examination Mr Siddiqi said that his mother paid the money to Mr Saigal but that the repayment was made to him. I confess to not understanding the logic of that statement. Mr Siddiqi agreed that there were no invoices or other documents relating to the purpose for which the moneys were provided. He was also asked whether he provided Mr Saigal with the dates on which the repayments took place. Mr Siddiqi denied that but he did admit that he rang Mr Saigal and spoke with him.
Without corroborating evidence, I find Mr Siddiqi cannot, on the balance of probabilities, discharge the onus of proving that these moneys were not income derived from his business activities.
Item 35 – 5 December 2008 – $3000
In his objection Mr Siddiqi claimed that this deposit resulted from the repayment of a loan provided to a friend. He said that the loan was provided on 4 November 2008 and the moneys were sourced from his ANZ business account. The bank statement simply records a deposit of $3000 on that date. The entry for 4 November 2008 records transfer 931019 to Tayyaba SA. In cross-examination Mr Siddiqi was asked to name the friend but he said he did not know his name and he had no further information about the transaction. He denied that it was a business receipt.
In the absence of further corroborating evidence, I find Mr Siddiqi cannot, on the balance of probabilities, discharge the onus of proving that these moneys were not income derived from his business activities.
Item 36 – 19 December 2008 – $6000
This deposit is recorded as a cheque deposit into Mr Siddiqi's NAB account. In his objection Mr Siddiqi said that $3000 of this sum was sourced from his ANZ business account by a cheque drawn on 9 December 2010 (sic) and the balance being cash which he held at the time. The ANZ business account records a withdrawal described as cash cheque on 9 December 2008 in the amount of $3000. However the $6000 deposit into his NAB Classic Banking account on 19 December 2008 describes the deposit as cheques deposit. There is no suggestion that there was any element of cash involved in that deposit.
When asked about this transaction in cross-examination, Mr Siddiqi said that he could not recall it. He denied that it was income from taxable supplies. However, without corroborating evidence about the nature of this transaction, I find that Mr Siddiqi has not, on the balance of probabilities, discharged his onus of proving that this deposit was not from his business activities and therefore properly described as income.
Item 38 – 27 April 2009 – $900
This transaction is recorded as a deposit in Mr and Mrs Siddiqi's Westpac bank account. In his objection Mr Siddiqi said he withdrew $1000 from his ANZ business account by cheque on the same day for personal use and he deposited $900 into the Westpac account.
Mr Siddiqi's ANZ business account does record the withdrawal by cash cheque on 27 April 2009 in the amount of $1000. By that description I understand that Mr Siddiqi wrote a cheque made out to cash and in fact cashed the cheque by an over-the-counter transaction. If that is correct, then the deposit on 27 April 2009 into his Westpac account would have been cash. However, on the same day, the Westpac account discloses a Handybank withdrawal in the sum of $400. Mr Siddiqi was unable to provide an explanation for that. There is no apparent logic in depositing $900 in cash and on the same day withdrawing $400 in cash from the same account.
Without corroborating evidence, Mr Siddiqi has not, on the balance of probabilities, discharged his onus of proving that the $900 deposit was not income derived in the course of his ordinary business.
Conceded deposits
In written submissions the Commissioner conceded seven deposits made into Mr Siddiqi's bank account were not taxable supplies or assessable income. They were:
(a)$3275 on 24 August 2007;
(b)$6103.60 on 14 October 2008;
(c)$1092 on 12 March 2009;
(d)$816.20 on 20 March 2009;
(e)$5795 on 3 April 2009;
(f)$2970 on 23 April 2009; and
(g)$401.07 on 23 June 2009.
The total of the deposits referred to in the preceding paragraph is $20,452.87. This adjustment will need to be made to the amended assessments issued to Mr Siddiqi.
PENALTIES AND REMISSION
Section 284-75(1) of the TAA provides:
284‑75 Liability to penalty
(1) You are liable to an administrative penalty if:
(a) you or your agent makes a statement to the Commissioner or to an entity that is exercising powers or performing functions under a *taxation law; and
(b)the statement is false or misleading in a material particular, whether because of things in it or omitted from it; and
(c)you have a *shortfall amount as a result of the statement.
Note: Subsection 2(2) specifies laws that are not taxation laws for the purposes of this Subdivision.
Due to the Commissioner having conceded that the sums set out in paragraph 72 above were not taxable supplies or assessable income, the Commissioner also conceded that the penalty assessments for the GST net amounts should be reduced by $465; the penalty assessments for income tax for the 2008 income year by $311; and the penalty assessments for income tax for the 2009 income year by $1092. I agree.
Ms Mealy submitted that Mr Siddiqi made false and misleading statements to the Commissioner in his BASs and income tax returns in the years in question. She submitted that those statements were false and misleading in a material particular within the meaning of s 284-75(1)(b) of the TAA because his taxable supplies and taxable income were understated. Those false and misleading statements resulted in shortfall amounts. The expression shortfall amount is defined at s 284-80(1) of the TAA which provides that a taxpayer has a shortfall amount if an item in the table set out in that section applies. It also provides that the shortfall amount is the amount by which the relevant liability, or the payment or credit, is less than or more than it would otherwise have been.
The evidence in this matter discloses that Mr Siddiqi made statements on his BAS returns and income tax returns which were both incorrect and misleading. I find that the false and misleading statements made by Mr Siddiqi resulted in a tax liability which was less than it would have been if the statements were not false and misleading. Accordingly, I find Mr Siddiqi had a shortfall amount as a result of the statements he made and he is therefore liable to an administrative penalty.
The base penalty amount for which Mr Siddiqi is liable is set out in s 284-90 of the TAA. The Commissioner submitted that Mr Siddiqi's penalty should be assessed at Item 3 which provides for 25% of the shortfall amount of penalty as a result of failure by a taxpayer or his or her agent to take reasonable care to comply with a taxation law. Ms Mealy referred me to Miscellaneous Taxation Ruling MT 2008/1 which deals with the meaning of reasonable care, recklessness and intentional disregard. She referred to paragraph 29 which provides:
Judging whether there has been a failure to take reasonable care turns on an evaluation of all the circumstances surrounding the making of the false or misleading statement to determine whether a reasonable person of ordinary prudence in the same circumstances would have exercised greater care.
It is clear from Mr Siddiqi's evidence that he operates his business in an environment where transactions are rarely, if ever, documented and payment is frequently made by cash. While of course there is nothing unlawful about conducting business in this way, under a self-assessment taxation system, the duty placed upon a taxpayer to keep business records to enable substantiation of income and expenditure is high. A failure to keep such records, as in Mr Siddiqi's case, speaks clearly of failure to take reasonable care or even, possibly, recklessness. I find that he failed to take reasonable care and accordingly the 25% penalty applied by the Commissioner was correct.
Division 298 of the TAA sets out the machinery provisions for penalties. Section 298-20 provides for the remission of penalties as follows:
298‑20 Remission of penalty
(1) The Commissioner may remit all or a part of the penalty.
(2) If the Commissioner decides:
(a)not to remit the penalty; or
(b)to remit only part of the penalty;
the Commissioner must give written notice of the decision and the reasons for the decision to the entity.
Note:Section 25D of the Acts Interpretation Act 1901 sets out rules about the contents of a statement of reasons.
(3) If:
(a)the Commissioner refuses to any extent to remit an amount of penalty; and
(b)the amount of penalty payable after the refusal is more than 2 penalty units; and
Note: See section 4AA of the Crimes Act 1914 for the current value of a penalty unit.
(c) the entity is dissatisfied with the decision;
the entity may object against the decision in the manner set out in Part IVC.
The Full Court of the Federal Court in Dixon v Federal Commissioner of Taxation (2008) 167 FCR 287 dealt with the exercise of discretion under s 298-20 of the TAA. The Court said, at 292:
… The matter should have been remitted to the Tribunal for consideration of the question of whether any part of the penalty should be remitted on the basis that the outcome is harsh, having regard to the particular circumstances of the Taxpayer.
The Court also said, at 291:
To the extent that the primary judge concluded that it is necessary that there be special circumstances before the discretion to remit can be exercised, her Honour was in error. …
Middleton J in The Commissioner of Taxation of the Commonwealth of Australia v Traviati [2012] FCA 546, although dealing with s 227(3) of the Income Tax Assessment Act 1936, which is in similar terms to s 298-20 of the TAA, said, at [77]:
Section 227(3) in its terms gave the Commissioner and unfettered discretion to remit the whole, or any part of the additional tax payable. Where discretion is so unconfined, the factors which the decision-maker can consider are similarly unconfined, except insofar that they are limited by subject-matter, scope and purpose of the statute:…
His Honour went on to say, at [78]:
Broadly speaking, the main consideration relevant to the discretion in s 227(3) was whether any part of the penalty should be remitted on the basis that the outcome is harsh so as to provide an unjust result, having regard to the particular circumstances of the taxpayer:…
Mr Siddiqi did not make any submissions about the remission of penalty. The evidence in this matter indicates that Mr Siddiqi simply chose not to keep business records rather than inadvertently failing to record some transactions. In those circumstances, I find that this case does not warrant remission of penalties.
CONCLUSIONS
Mr Siddiqi conducted his business operations in an environment where he did not keep business records and most transactions involved cash. An audit conducted by the Commissioner revealed discrepancies between the BASs and income tax returns in the 2008 and 2009 income years. The Commissioner identified a number of deposits in Mr Siddiqi's bank accounts and sought his explanation regarding the source of those moneys. Although Mr Siddiqi was able to satisfy the Commissioner that some of those deposits did not result from taxable supplies and hence were business income, there nevertheless remained a substantial number of deposits for which there was no satisfactory explanation.
Subject to the deposits set out in paragraph 72 which the Commissioner conceded were not taxable supplies or assessable income, I have found that Mr Siddiqi has failed to discharge the onus of proving that the unexplained deposits were not the result of payments received in the course of conducting his business activities. Accordingly, Mr Siddiqi failed to prove, on the balance of probabilities, that the amended assessments for the 2008 and 2009 income years (save for the conceded amounts) were excessive.
Save for the amounts conceded by the Commissioner which totalled $20,452.87, and the necessary adjustments to penalties, I find that the objection decision made by the Commissioner on 17 October 2011 was correct. Accordingly, I vary that decision and find that Mr Siddiqi's taxable income for the 2008 income year is reduced by $3275 and by $17,177.87 for 2009 income year. I would also vary the administrative penalties imposed on Mr Siddiqi by the amounts I have referred to in paragraph 75 of these reasons for decision.
I certify that the preceding 86 (eighty -six) paragraphs are a true copy of the reasons for the decision herein of
Egon Fice, Senior Member...[sgd].....................................................................
Associate
Dated 31 August 2012
Dates of hearing 12 - 13 June 2012 Representative for the Applicant Self-represented Counsel for the Respondent Ms E N Mealy Solicitors for the Respondent Australian Taxation Office, Legal Services Branch
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