Obeid and Commissioner of Taxation (Taxation)
[2024] AATA 444
•15 March 2024
Obeid and Commissioner of Taxation (Taxation) [2024] AATA 444 (15 March 2024)
Division:TAXATION AND COMMERCIAL DIVISION
File Number(s): 2023/3724
Re:Damian Obeid
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Deputy President Bernard J McCabe
Date:15 March 2024
Place:Sydney
The Tribunal refuses:
(a)the applicant’s request for orders under s 37(2) of the Administrative Appeals Tribunal Act 1975 (Cth) (the Act); and
(b)leave to issue a summons pursuant to s 40A of the Act in the form provided by the applicants in their request for a summons.
..............................[SGD]..............................
Deputy President Bernard J McCabe
Catchwords
ADMINISTRATIVE LAW –— Consideration of modification of s 37 Administrative Appeals Tribunal Act 1975 (Cth) by s 14ZZK Tax Administration Act 1953 (Cth) — The discretionary and mandatory powers of s 37 — Summons — Whether summons has the possibility of relevance — Appeals Tribunal to refuses the applicant’s application for orders
Legislation
Administrative Appeals Tribunal Act 1975 (Cth)
Income Tax Assessment Act 1936 (Cth)Taxation Administration Act 1953 (Cth)
Cases
FYMS and Commissioner of Taxation [2022] AATA 3790
Gashi v Commissioner of Taxation (2013) 209 FCR 301
Hawkins v Commissioner of Taxation [2017] FCA 1247
Kennedy v Administrative Appeals Tribunal [2008] FCAFC 124Sage v Commissioner of Taxation [2023] FCA 1247
REASONS FOR DECISION
Deputy President Bernard J McCabe
15 March 2024
The applicants in these proceedings have asked the Commissioner to disclose additional documents he may hold which they say are (or may be) relevant to the matters in issue. The request identified 17 categories of documents. It was made pursuant to s 37(2) of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act). In the alternative, the applicant has asked for leave to issue a summons directed to the Commissioner seeking the same documents under s 40A of the AAT Act. The request was made after the Commissioner provided a large quantity of so called ‘T’ documents in purported fulfilment of his obligation under s 37(1)(b) of the AAT Act.
The Commissioner has already decided to release some of the documents referred to in the request. I understand he plans to provide those documents as supplementary T documents. He says I should not make any order under s 37(2) (or give leave to issue a summons under s 40A) that will require him to produce further documents.
THE BACKGROUND TO THESE PROCEEDINGS
The metes and bounds of these proceedings are set out in statements of facts, issues and contentions that have already been exchanged. Counsel conveniently summarised what was in issue at the outset of the hearing of the interlocutory application. What follows is a summary.
The applicants in these proceedings are all members of the same family. Some members of the family were the subject of an investigation by a law enforcement body. Documents uncovered during the investigation included so called ‘monthly summaries’ of takings and expenses in several restaurants conducted by an entity controlled by a family trust associated with the family members. As I understand the story, the law enforcement body suspected the businesses were keeping two sets of books: one set of books that was open to the Commissioner (amongst others) which understated income and overstated expenses, and a second set of books that contained more accurate records.
Information generated through the investigation (or some of it) was passed on to the Commissioner. The Commissioner concluded businesses operated by an entity controlled by a family trust associated with the family members had understated the income of the businesses and understated expenses over the years 2003-2013. That had implications for the beneficiaries under the trust who had received payouts and who had submitted returns on what the Commissioner says was a misleading basis. Two of the applicants are also said to have received income from other sources that was not properly disclosed. The Commissioner issued amended assessments under s 167 of the Income Tax Assessment Act 1936 (Cth) after forming an opinion there was fraud or evasion. The various applicants objected to the amended assessments and now challenge the objection decisions in the Tribunal. They also challenge the administrative penalties which were imposed.
The applicants all acknowledge they must satisfy the onus in accordance with s 14ZZK(b) of the Taxation Administration Act 1953 (Cth) (the Administration Act) to succeed. That onus requires them to persuade the Tribunal on the balance of probabilities:
·that the Commissioner’s assessment is wrong and
·what the correct (or more nearly correct) assessment should have been.
In relation to the penalty assessments, the taxpayers are obliged to establish the assessments were wrong and what they should otherwise have been.
As a practical matter, the taxpayers must establish their taxable income to the Tribunal’s satisfaction in these proceedings. In doing so, they must provide evidence going to both sides of the equation (ie, the correct amount of assessable income they derived in the period less any allowable deductions).
The onus of proof lies on taxpayers because they are usually in the best position to explain their own affairs. The Commissioner, in contrast, is typically making a guess on the (usually limited) information before him. In any event, the Commissioner is not under an obligation to produce evidence demonstrating his assessments were correctly made: see Gashi v Commissioner of Taxation (2013) 209 FCR 301 at [61] per Bennett, Edmonds and Gordon JJ.
THE ISSUES FOR CONSIDERATION IN THESE PROCEEDINGS
These proceedings consider the taxpayers’ correct amount of taxable income in circumstances where the Commissioner issued amended assessments following an audit. That audit concluded the businesses which were the ultimate source of the monies paid by way of dividend to the taxpayers had under-reported their takings and over-estimated their wage costs. Two of the taxpayers were also thought to have other sources of income. The Commissioner is not bound by the chain of reasoning that led to the amended assessments, and the applicant taxpayers do not succeed merely by responding to those concerns. The Commissioner has made clear he is not running a so-called ‘positive case’ where he posits that only certain facts are in issue. At a minimum, documents recording information which shed light on the takings and expenses in the businesses concerned might be relevant to the matters I must decide; so too might documents that are consistent (or inconsistent) with the existence of a second set of books. Importantly though, the documents or categories of documents must be identified with sufficient precision – and it is necessary for the taxpayer in each case to establish a potential connection between the documents sought and the facts in issue. As part of the proceedings, it will also be necessary to consider whether the Commissioner properly formed an opinion as to fraud or evasion, and whether the administrative penalties levied on the shortfall at the rate of 75% were appropriate or should be remitted.
I should add the applicants asked that I take into consideration two statements filed earlier in these proceedings: the statement of Mr Di Girolamo dated 4 May 2023 and the statement of Mr Sassine dated 14 July 2023.
THE OBLIGATION TO PRODUCE DOCUMENTS UNDER S 37 OF THE AAT ACT
Section 37(1)(b) of the AAT Act requires the decision-maker in most cases to produce all the documents in its possession that are relevant to the decision under review. In tax cases, s 14ZZF of the Administration Act modifies the general rule in s 37(1)(b). In cases like the present, the Commissioner is only obliged to produce the documents answering the description set out in that sub-section. These include the documents he regards as being necessary for the review, as opposed to the documents which are (or which may be) relevant. As the Full Federal Court explained in Kennedy v Administrative Appeals Tribunal [2008] FCAFC 124 at [28], this different form of words was used deliberately to narrow the volume and range of documents the Commissioner was required to produce pursuant to s 37(1)(b) in these document-heavy cases. (I note the Commissioner’s counsel pointed out some 13,000 pages of documents had already been produced in these proceedings, which amounts to some 20 volumes in hardcopy.)
That is not necessarily the end of the obligation to disclose under s 37. The Commissioner may be required to produce documents pursuant to s 37(2) that are not covered by s 37(1) where:
…the Tribunal is of the opinion that particular other documents or that other documents included in a particular class of documents may be relevant to the review of the decision by the Tribunal…[emphasis added]
It follows ‘relevance’ has a role to play under this sub-section, if not under s 37(1)(b). But as we shall see, the applicant must explain the potential relevance of identified documents that it seeks under s 37(2). As the Full Court explained in Kennedy (at [28]), an applicant who asks the Tribunal to make a direction under s 37(2) must establish:
…how a particular document or category of documents may be relevant to specific issues of fact relating to the excessiveness of the assessment issued to him…
There is another subtle but important difference between the two sub-sections in s 37 as Wigney J pointed out in Hawkins v Commissioner of Taxation [2017] FCA 1247 (at [27]), the power to require disclosure under s 37(2) is discretionary in nature, whereas the obligation to produce documents pursuant to s 37(1)(b) is mandatory.
These observations underline the fact s 37(2) is not intended to serve as a general power of discovery, much less a power to require the delivery of particulars. A taxpayer who wants the benefit of an order under this sub-section needs to be reasonably precise about what documents (or classes of documents) are sought. The taxpayer must also explain how the documents may be relevant to what is in issue in the proceedings. Once that is done, it is still necessary to consider whether disclosure is appropriate having regard to the burden placed on the Commissioner and any other relevant considerations (including any concerns that might arise having regard to the objective in s 2A of the AAT Act). Relevant to the discretion, the Commissioner points out the applicants presumably already have many of the documents or may be able to access them from advisers and former advisers – which might (in the absence of some further explanation) make it more difficult to justify asking the Commissioner to go to the trouble of producing them from his files.
THE SUMMONS POWER IN S 40A
It has been said it is inappropriate to issue a summons to a decision-maker given the option of seeking orders under s 37(2) of the AAT Act. I do not need to express a concluded view in this regard because the principles governing the summons power are the same (at least for present purposes) as those applicable to a request under s 37(2). As I explained in FYMS and Commissioner of Taxation [2022] AATA 3790 at [22] (affirmed on appeal in Sage v Commissioner of Taxation [2023] FCA 1247):
…the threshold question which must be answered when considering the issue of a direction under s 37(2) is essentially the same question that arises when considering a request to issue a summons: is the Tribunal satisfied the documents may be relevant to the review, in the sense the documents may shed light on any question or issue the Tribunal must address in the course of its review: see, generally, Cosco Holdings Pty Ltd v Federal Commissioner of Taxation [1997] FCA 1504; Comcare v Maganga [2008] FCA 285; see also QQRK and WHKY and Commissioner of Taxation [2022] AATA 3399. …
Mr McGovern KC, who appeared for the taxpayers, raised a question over whether the power in s 37(2) was potentially broader than a summons because an order under s 37(2) might refer to [particular] “documents or…other documents included in a particular class of documents” whereas he suggested a summons might not extend to “classes of documents”. I do not think anything turns on that distinction (if there is one), at least for present purposes. If it is not appropriate to make an order under s 37(2), I am satisfied it is not appropriate to issue a summons referring to the same documents.
THE DOCUMENTS SOUGHT IN THE PROPOSED ORDERS
The applicants identified 17 categories of documents in an annexure to the application. The Commissioner’s written submissions noted he already provided or agreed to provide documents described in categories (i), (ii), (vi), (xi), (xii) and (xv) of the annexure. I do not propose to refer to those categories any further, and I will not make any orders under s 37(2) or give leave to issue a summons in respect of those documents. At the interlocutory hearing, Ms Hirschhorn, who appeared for the Commissioner, said the documents in category (ix) had already been included in the documents provided pursuant to s 37(1)(b). In those circumstances, I do not propose to further consider that category. She also confirmed there was no further information available as to the identity of the author of a document found at T386 which was sought by the applicants in proposed order 4(ii).
The request in category (iii) (“all documents considered by the respondent or taken into account in the respondent[‘s] review of the tax affairs of [name of taxpayer] during the period 1990-1994 inclusive”) is problematic. The taxpayer has not demonstrated how the documents might be relevant, particularly in circumstances where those documents pre-date the events which predate the years under review. In any event, the request is oppressive on its face because it is too broad and would effectively require the Commissioner to make generalised discovery.
Mr McGovern suggested the real motivation in asking the Commissioner to provide these documents (and the similarly broad requests in categories (iv) and (v)) lies in the fact the taxpayers no longer have possession of (or access to) many (perhaps any) of those records. The applicants hope the Commissioner (or perhaps the Tribunal which entertained related proceedings some years ago) might be better placed. As I understand it, the applicants’ copies of the documents – to the extent they still exist – might have been seized during the law enforcement investigation, or they may have been retained by former advisers who have not been approached to cooperate. I am not without sympathy for the taxpayers’ predicament, but s 37(2) (or a summons under s 40A) require the taxpayer in a case like this to be more specific and explain how the specific documents or defined categories may be relevant. That has not been done because the requests are too broad. At this stage, the best course is for the applicants to exhaust their attempts to get the documents from other sources.
I should add that the requests in categories (iv) and (v) and the supporting material do not adequately define which documents or categories might be at least potentially relevant. The terms of the request are also oppressive on their face: the request for all documents considered by decision-makers years ago cannot be accommodated at this distance from the events in question.
Mr McGovern said the applicants did not press the request contained in category (vii) although he indicated they may yet reformulate that request. I do not need to express any further view at this juncture. Mr McGovern did press the request contained in category (viii) which referred to documents related to the affairs of the various entities that had been seized by the law enforcement body from the applicants’ various advisers which were thereafter disseminated to the respondent. Again, I have difficulty with the lack of precision of the request and the failure to identify how the documents or categories of documents that might be covered by the request may be relevant to the matters I must decide. While one could speculate about the contents of the documents apparently covered by the request, speculation is not sufficient for present purposes. I would add the wording of the request – which focuses on documents seized by another agency from named entities – puts the Commissioner at a disadvantage if only because he is not able to say with certainty where the law enforcement agency obtained the documents.
Mr McGovern conceded the request for documents in category (x) was too broad and needed to be reformulated – most obviously to refer to relevant time frames. I will say no more about that request.
Category (xiii) refers to statements of evidence, transcript, and correspondence “relating to the finding by the respondent that the monthly summaries supplied by [the law enforcement agency] evidenced that tax returns furnished by [the named taxpayer] were not accurate”. Mr McGovern said these documents were necessary and relevant because they went directly to the factual questions at issue. Ms Hirschhorn pointed out the monthly summaries had already been provided but the balance of the request was simply too vague – particularly the reference to “correspondence relating to the finding” [emphasis added]. I agree. At a minimum, the request must be reformulated and better targeted. Doing that may well help the applicants demonstrate potential relevance. The same flaw exists in category (xiv) which refers to statements and transcripts of evidence and correspondence “relating to the allegation [that the taxpayers or one of them maintained two sets of books]”. Potential relevance has not been adequately addressed, but the request is too broad and vague in any event.
The broad requests for documents referred to in categories (xvi and xvii) are classic examples of what cannot be permitted. The documents in each request are said to have been seized by the Commissioner using notices issued under s 353 of Schedule 1 of the Administration Act. The applicants want to see them. While there may well be relevant documents in whatever was uncovered using the notices – and some of the documents may help fill gaps in the applicants’ records – the potential relevance of the particular documents or categories has not been adequately explained. I acknowledge the notices themselves might be regarded as an exercise in fishing in search of documents that may or may not exist, but that is the nature of those notices: they serve a different purpose to the power under s 37(2) and the summons under s 40A which require more precision (as the Full Court explained in Kennedy) to lighten the documentary burden on the Commissioner.
CONCLUSION
While noting the Commissioner has already agreed to provide supplementary T documents which will partially satisfy the applicants’ requests, I am not satisfied it is appropriate to make further orders under s 37 or give leave to issue a summons for the reasons I have explained.
I certify that the preceding 27 (twenty-seven) paragraphs are a true copy of the reasons for the decision herein of
.................................[SGD].......................................
Associate
Dated: 15 March 2024
Date(s) of hearing:
5 March 2024
Counsel for the Applicant:
Mr David McGovern SC
Solicitors for the Applicant:
Di Girolamo Lawyers
Counsel for the Respondent:
Senior Counsel Michelle Hirschhorn
Junior Counsel Harry Rogers
Solicitors for the Respondent:
MinterEllison Lawyers
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