There was, therefore, evidence upon which the Tribunal could affirm the assessments made. The critical conclusion, however, was that the taxpayers had failed to prove the assessments to be excessive because the Tribunal was not satisfied that the evidence relied upon by the taxpayers was sufficient to establish their claim. Its lack of satisfaction was not because it failed to accord procedural fairness but because, having accorded procedural fairness, it had decided against the taxpayers. The specific instances listed in the taxpayers' first question are all matters which the Tribunal considered and decided against the taxpayers.
13 The first instance set out in the first question formulated by the taxpayers which is said to be a failure by the Tribunal to accord to them procedural fairness is a complaint that a statement of Mr Douglas Smith, and the documents attached to his statement, were admitted into evidence and given weight in circumstances when Mr Smith and the makers of the statements were not available to give evidence. The admission of evidence is not a breach of procedural fairness and the duty to accord procedural fairness does not necessarily require the Tribunal to exclude evidence, or to give no weight to evidence, based upon statements which have not been the subject of cross-examination. It has long been held that the Tribunal, and the Board of Review before it, is an administrative body with a discretion as to its procedure and the evidence that it will receive: see Mobil Oil Australia Pty Ltd v Federal Commissioner of Taxation (1963) 113 CLR 475 ("Mobil Oil"); Mulherin v Commissioner of Taxation [2013] FCAFC 113 at [53]. The Tribunal is obliged to ensure that every party to a proceeding is given a reasonable opportunity to present his or her case and, in particular, to inspect any document, and to have an opportunity to make submissions on any document, to which the Tribunal proposes to have regard in reaching a decision: s 39(1), AAT Act. The relevant question in each case is whether the Tribunal's process was unfair in the circumstances: Wilson Finances Pty Ltd v Commissioner of Taxation [2012] FCAFC 26 at [73] and [137].
14 The evidence of Mr Smith was received by the Tribunal on its conclusion, after argument, that the evidence fell within s 69(2) of the Evidence Act 1995 (Cth). Section 69(2) provides an exception to the rule against hearsay for business records which contain representations made by a person who had or might reasonably be supposed to have had personal knowledge of the asserted facts. The sub-section provides:
The hearsay rule does not apply to the document (so far as it contains the representation) if the representation was made:
(a) by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact; or
(b) on the basis of information directly or indirectly supplied by a person who had or might reasonably be supposed to have had personal knowledge of the asserted fact.
The evidence of Mr Smith, about which the taxpayers complain, was of statements which the Tribunal concluded on the facts fell within this statutory exception and the taxpayers in this appeal did not contend any error of principle in this regard. The Tribunal also considered that the taxpayers had not explained the nature of any prejudice to the taxpayers of an inability to cross-examine the authors of documents which were annexed to Mr Smith's statements. At [550] of the Tribunal's reasons, to which the taxpayers' amended notice of appeal directed attention, the Tribunal stated:
550. In this case, I accept that Dr Orow is not able to cross examine the authors of the documents annexed to Mr Smith's statement but he has not explained the nature of any prejudice this will visit upon his clients. At the time of the tender, those annexures were simply documents extracted from the ATO's records. They are records of communications between officers of the ATO and representatives of [Mr Haritos] and [Mr Kyritsis] or persons or bodies associated with them. The records have long been available to [Mr Haritos] and [Mr Kyritsis] and they have had the opportunity to produce evidence contradicting the statements made in the records and attributed to those representing [Mr Haritos] and [Mr Kyritsis] or persons or bodies associated with them. They have also had the opportunity to respond to assertions made in those records of facts as perceived by officers of the ATO. The records contain some statements that may be regarded as prejudicial to the interests of certain persons or bodies but, the ATO's records of what has transpired and in view of the opportunity given to [Mr Haritos] and [Mr Kyritsis] to respond to them, are not unfairly prejudicial to them in the sense used in s 1359(a) or otherwise. For these reasons I admitted Mr Smith's statement. Its weight and the weight I give to its annexures is a matter I will consider in addressing the evidence below.
It is clear, therefore, from the very paragraph relied upon by the taxpayers in this appeal, that the facts do not establish a failure to accord procedural fairness to Messrs Haritos and Kyritsis from an inability by them to cross-examine Mr Smith or those who had made statements in annexures to his material. Indeed, no specific prejudice was referred to or relied upon in the appeal beyond the generalised statement that an ability to cross-examine was a breach of the Tribunal's duty of procedural fairness to the taxpayers. There is no foundation in law for an obligation to permit cross-examination in all circumstances of the kind which arose in the proceeding before the Tribunal and there were no specific facts relied upon in the appeal or before the Tribunal which established a specific breach in respect of these taxpayers in this case before the Tribunal. The Tribunal, rather, did provide the taxpayers with an opportunity to identify any substantive prejudice occasioned by the absence of an opportunity to cross-examine Mr Smith. The Tribunal specifically said at [522]:
522. The second perspective relates to the scope of any likely cross-examination. Apart from his stating that his clients have been denied the opportunity to cross examine Mr Smith, Dr Orow has not put forward any substantive disadvantage that his clients would suffer from being denied the opportunity. He has not made me aware of any matters in the documents with which [Mr Haritos] and [Mr Kyritsis] take issue and would not want to explore but, even if he had, I come back to the first perspective I have mentioned. Section 69(2) provides for an exception to the hearsay rule in the case of business documents. They are admissible. If Dr Orow wanted to test the representations made in the documents, he could have taken steps to do so. It is not enough simply to claim that his clients have been denied procedural fairness. In my view, they have not been denied that fairness.
In addition, and fundamentally, the appeal to this Court failed to show how the Tribunal's decision was infected by any such failure to permit Mr Smith's evidence to be the subject of cross-examination. The Tribunal's decision was that the taxpayers had failed to discharge their burden of proving their actual taxable income. The taxpayers did not identify anything in the Tribunal's reasons for its decision to warrant a conclusion that a failure to cross-examine Mr Smith's evidence was operative in the Tribunal's determination of the substantive issues, let alone that any impermissible failure to permit cross-examination had resulted in the conclusion that the taxpayers had failed to discharge their burden of proof. It might have been otherwise if, for example, the taxpayers had themselves called Mr Smith to give evidence and had been prevented from testing the evidence which had previously been relied upon by the Commissioner.
15 The second instance relied upon for the taxpayers in relation to the first question which was said to be a question of law was the receipt into evidence of the opinion evidence of Mr Meredith who, it was contended, did not possess relevant expertise in relation to the matters before the Tribunal. The paragraph of the Tribunal's reasons to which the taxpayers' amended notice of appeal referred was [484] in which the Tribunal said:
484. Dr Orow objected to Mr Greg Meredith's giving evidence on the basis that he should not be regarded as an expert witness. He accepted that he is a highly qualified forensic accountant and did not challenge his expertise in that regard. Where Mr Meredith was not an expert, Dr Orow submitted, is in the relevant service industry in which [AES Services] was engaged. That is expertise, Dr Orow submitted, that Mr Meredith needed to possess if he was to answer questions relating to benchmark analysis in that industry. Mr Meredith would, for example, need to know the labour costs in that industry. I consider that Dr Orow's objection to Mr Meredith's expertise was made on too narrow a basis. I find that Mr Meredith had expertise in service industries of types other than the relevant service industry in which [AES Services] was engaged. That expertise, together with his expertise as a forensic accountant qualified him as an expert witness in this case and he did not need to have experience in or a detailed knowledge of the relevant service industry required by Dr Orow.
It is plain from a reading of the paragraph relied upon by the taxpayers in their claim of a denial of procedural fairness that the receipt into evidence of the opinion of Mr Meredith was based upon a finding of fact which was not challenged and, in any event, appeared plainly to have been open to the Tribunal to find. The Tribunal gave careful consideration to the admissibility of the evidence tendered on behalf of the Commissioner, including the evidence of Mr Meredith. The taxpayers have not identified any error in the Tribunal's approach to the receipt of expert evidence except the assertion, without challenge of the contrary finding by the Tribunal of the fact, that Mr Meredith did possess the relevant expertise in respect of which his opinion had been expressed. In any event, the evidence of Mr Meredith was not the basis upon which the Tribunal concluded that the taxpayers had failed to discharge their burden of proof by having failed to establish their actual taxable income.
16 The third instance relied upon by the taxpayers for the contention that the Tribunal had failed to accord procedural fairness was said to lie in the Tribunal having denied them the opportunity "to cross examine Mr Meredith on the basis upon which his evidence was received". That assertion, however, is not supported by the facts. Mr Meredith was called to give evidence and he was cross-examined by counsel for the taxpayers. It is inaccurate to say that the taxpayers were denied the opportunity to cross-examine Mr Meredith on the basis upon which his evidence was received when the fact was that he was present at the hearing before the Tribunal and was in fact cross-examined by counsel for the taxpayers who appeared both before the Tribunal and in this Court on appeal. The transcript of that cross-examination does not reveal any impediment of any kind on the cross-examination.
17 The fourth instance said to reveal that the Tribunal had denied the taxpayers procedural fairness was said to be in the Tribunal's refusal to require the Commissioner to produce a s 264 notice issued to the Australian Federal Police that contained a list of relevant documents in possession of the Commissioner but which were not disclosed to the Tribunal. In advancing this submission the taxpayers did not refer to the facts or the decision in Mobil Oil. In any event, nothing was shown by the taxpayers to warrant the conclusion that the failure to require the production of the notices in any way affected adversely the operative decision by the Tribunal bearing in mind the taxpayers' burden of proof. The amended notice of appeal made specific reference in this context to [573] in the Tribunal's reasons which stated:
573. Dr Orow submitted that the Commissioner should produce the notices he had issued under s 264 of the ITAA 36 to the Australian Federal Police (AFP) on 27 January 2008 and to the Commonwealth Bank of Australia (CBA) on 28 May 2009. He argued that they would assist him in showing the documents that [Mr Haritos] and [Mr Kyritsis] had in their possession when the Commissioner was making his assessments. As I understand him, he wanted the notices themselves to show the documents that were in the possession of the Commissioner and not in that of his clients at particular times. Ms Schilling opposed his submission. If they were, it would support his submission that the Commissioner had acted in bad faith and the assessments are invalid. He also referred to the amendments that the Commissioner had made from time to time as support for his proposition that he had acted in bad faith.
It is plain from the paragraph upon which the taxpayers rely that the failure to require production of the notices issued under s 264 of the 1936 Act did not bear upon the matter which the Tribunal was called to determine bearing in mind that the burden of proof fell upon the taxpayers to prove the actual taxable income and not that the Commissioner was in error. However, if there were any doubt about the matter, it is instructive to read the two paragraphs in the Tribunal's reasons which followed, where the Tribunal said:
574. I do not understand how the documents, or categories of documents, that the Commissioner sought under s 264 notices can assist me in resolving this case. What is important are documents relevant to the review of the decision and that may be sought. For the reasons I have given above, the validity of the assessments is not a matter I can consider. Therefore, issues relating to bad faith that might lead to a declaration of invalidity in a court, can have no relevance to my review of the taxation objection decisions.
575. If I look at the matter from the point of view of reviewing the taxation objection decisions relating to the imposition of penalties, the s 264 notices have no relevance either. What may be relevant is not what was sought but what was available to the taxpayers and what steps they took to make the Commissioner aware of any difficulties they had in obtaining their records. An indication of that might be able to be obtained from three sources. The first is found in the FST Documents where the Commissioner has lodged those in his possession or control and that he considers relevant to the review. The second is in the property seizure record recording the items seized during the search of [AES Services'] premises on 10 June 2009. It lists 90 items and one of [AES Services'] secretarial staff , whom I recall "Samantha", signed a certification to the effect that the items had been correctly described. Also relevant is Samantha's acknowledgement of receipt of [AES Services'] documents returned to it by the AFP on 21 February 2012. That document, exhibit U, contains a description of the documents returned. The source is in any correspondence or communication they or their advisers had with the ATO. Some records are to be found in the T documents.
It is, therefore, clear that the complaint of the refusal to require the Commissioner to produce the s 264 notice issued to the Australian Federal Police was correctly analysed by the Tribunal as irrelevant to the statutory task of reviewing the objection decision. Nothing said by the taxpayers in the appeal warrants any contrary conclusion. There is no basis upon which the taxpayers established that the refusal bore upon the statutory task undertaken by the Tribunal.
18 The fifth instance said to enliven the first question of law as a breach of a duty to accord procedural fairness was in denying the taxpayers the opportunity to subpoena the auditors of the reports that formed the basis of the assessments which were the subject of review and, it is said, that in doing so the Tribunal denied the taxpayers the opportunity to cross-examine those witnesses on matters relevant to the discharge by them of the burden of proof that the assessments were excessive. It may be accepted that the Tribunal did not issue subpoenas to the auditors of the reports as asserted. However, what is not shown is how that decision was not open to the Tribunal as a matter of law or upon the facts. The validity of the assessments was not what the Tribunal had to determine. Its task was to determine whether the assessments were excessive by the taxpayers proving the actual amount of income upon which tax ought to have been levied.
19 The sixth instance relied upon by the taxpayers in its contention of having been denied procedural fairness was said to be that the Tribunal received evidence "which had no rationally probative basis, which evidence included hearsay statements and documents, in circumstances where the [taxpayers] could not cross examine the maker of those statements or test the content of those documents". This complaint, in large part, is a repetition of complaints considered above. In this instance it was generalised in a number of ways including the bald assertion that the evidence had "no rationally probative basis". It is, in its formulation, not clear which evidence received by the Tribunal is to be regarded as having had no rationally probative basis although it seems that the evidence complained about may have been affidavits which had been filed in other proceedings from the taxpayers' respective spouses, Mr Stephen Kyritsis (the son of Mr Kyritsis), and Mr Lionel Wirth (the former legal representative of Messrs Haritos and Kyritsis). This evidence was dealt with by the Tribunal at [714] to [718] where the Tribunal said:
714. In his first witness statement, [Mr Haritos] has stated that the:
"The properties were purchased in the names of entities external to ... [AES Services] to minimise risk and ensure capital preservation. Rental incomes were deposited into the bank accounts of the respective owners."
715. If the properties were purchased with asset preservation in mind, it would be expected that there would be records that reflected that and that ensured that the registered proprietors did not misunderstand that their legal interest was subject to [AES Services'] continuing to hold the beneficial interest. There are no such records. The conduct of the registered owners is not consistent with any understanding that they hold the beneficial interest on trust for [AES Services].
716. I will begin with the affidavits lodged in the Supreme Court in support of applications to lift the freezing orders on Houses 1 to 7. [Mr Haritos'] affidavit dealt with House 1 and Houses 2 and 3. In relation to Houses 2 and 3, he referred to their being funded by cheques drawn on his and [Effie Haritos'] Westpac loan account. No mention is made of the transfers from the [AES Services] Westpac account to that account previously. [Mr Haritos] adopted [Mr Kyritsis'] affidavit in relation to House 1. [Mr Kyritsis] referred to a deposit on the purchase of $392,000 having been made by way of his personal cheque drawn on the Nemo Bank as was the balance of $1,561.477.43 remaining after a loan from Challenger was taken into account. [Mr Haritos], [Mr Kyritsis] believed, had contributed a further sum of $461,477.43 drawn on his and [Effie Haritos'] joint loan facility. That would have been the [Mr Haritos] and [Effie Haritos] Westpac loan account. No reference is made by either [Mr Haritos] or [Mr Kyritsis] to the source of the funds. Instead, they have presented themselves as having funded the properties from their personal funds. When referring to House 6, [Betty Kyritsis] has given the same impression referred to the particular accounts from which funds were drawn but made no reference to the source of at least some of those funds.
717. The other affidavits lodged in support of the lifting of the freezing order do not give any indication that the funds had their origin with [AES Services] or that [AES Services] had any interest in them. [Stephen Kyritsis], for example, refers to a discussion with his parents, [Mr Kyritsis] and [Betty Kyritsis], regarding their desire to help him financially. At the time he swore the affidavit, the property was leased but he intends it to become his home in due course. [Stella Mellas], the daughter of [Mr Haritos] and [Effie Haritos], refers to House 4 as her matrimonial home. Let alone regarding herself as holding the property on some form of trust for [AES Services] or herself in some sort of role protecting the interests of [AES Services], she transferred a half interest in House 4 to her husband, [Mr Terry Christos Mellas]. [Mr Terry Christos Mellas] has spent his time and labour in renovating it.
718. In view of this material, I am not satisfied that [Mr Haritos] and [Mr Kyritsis] have met their burden of proof on this matter. The affidavits were accurate in identifying the accounts from which the funds were drawn but, by choosing not to reveal the origin of the funds in the [AES Services] Westpac account to the Supreme Court, their conduct is consistent only with those of persons who saw the beneficial interest as their own. In nominating their children as the purchasers, their conduct reinforces the perception of them as persons who have the beneficial interest for that is a privilege of beneficial ownership. It is not a privilege of a person who holds funds on trust or who is, in some way, preserving the assets of [AES Services].
It is clear from these passages that the Tribunal accepted evidence which had a rationally probative basis contrary to the assertion in the complaint as formulated in sub-paragraph (f) of question 1. The Commissioner also submitted (and it was not suggested otherwise) that the taxpayers had not raised before the Tribunal that they could not have called any of the deponents in relation to the content of their affidavits if they had sought to controvert the material in any way.
20 The seventh and eighth instances said to form part of those constituting a breach by the Tribunal of a duty to afford procedural fairness to the taxpayers were the generalised, and un-particularised, claims that the Tribunal gave written reasons for decision and rulings on preliminary questions and issues that differed from the oral reasons given during the trial, and that the Tribunal had applied the rules of evidence inconsistently. The written submissions filed for the taxpayers in this appeal did not shed much light on this complaint. Paragraph 34 of the written submissions for the taxpayers stated:
The Tribunal applied the rules of evidence inconsistently but consistently in favour of the Commissioner. That raised questions as to the impartiality of the Tribunal and to that extent the Tribunal failed to act judicially. Instances of such inconsistent applications of the rules of evidence include those at transcript 338, 335, 375, 483, 526, 727 and 1013. The Tribunal refused to receive into evidence T documents identified by the [taxpayers] as relevant and upon which they relied to discharge the onus of proof that the assessments were excessive. Further, the Tribunal received into evidence the T documents in their entirety after the conclusion of the evidence without identifying the evidentiary basis upon which they were received [381, 355]. In doing so the Tribunal denied the applicants the opportunity to test that material and to take objection to inadmissible documents and to make submissions on the relevance and weight to be accorded such documents.
A careful consideration of the Tribunal's reasons, and an examination of the transcript, give a different impression from that created by the complaint as formulated. The implication in the complaint of inconsistency by the Tribunal in the application of the rules of evidence, which was elevated to an assertion of apprehended bias in the taxpayers' written submissions, needs to be considered in light of the paragraph in the Tribunal's reasons which dealt with the decisions which had been made during the course of the hearing on preliminary issues. The Tribunal recorded in [159] of its written reasons that decisions and rulings had been made on a number of matters in the course of the hearing and that in making them the Tribunal "gave brief oral reasons on the basis that [the Tribunal] would give more comprehensive written reasons at a later time as requested by Dr Orow". It was, therefore, always contemplated by the Tribunal, and clearly known by the taxpayers, that the reasons which were given at the hearing were summary and were to be more comprehensively provided subsequently in writing as had specifically been requested by counsel for the taxpayers. Those matters were dealt with at [159] to [215] of the Tribunal's reasons which occupy 26 pages in the Tribunal's reasons for decision. Nothing has been identified in any of those reasons which depart from the substance of the oral reasons, or which occasioned prejudice to the taxpayers or which were erroneous in legal principle.
21 The ninth instance relied upon by the taxpayers is said to be that in allowing into evidence the T documents in their entirety after the conclusion of the evidence, and in failing to identify the weight to be accorded to each document, the taxpayers were denied the opportunity properly to review and test that material. The instance, as formulated, is again contrary to the evidence. The taxpayers had objected to admission of the T documents in their entirety at the outset of the hearing and the Tribunal both considered and determined that objection. There was, therefore, no denial of an opportunity to test the material but, rather, a decision on the facts which the taxpayers have not shown not to have been open to the Tribunal. Furthermore, the Tribunal gave comprehensive and detailed reasons for admitting the T documents in their entirety. It did so in its reasons at [330] to [384] which occupy 19 pages in the Tribunal's reasons. The taxpayers neither contend nor show any error on the part of the Tribunal in applying the relevant legal principles in respect of the admission of the T documents into evidence.
22 The tenth instance relied upon is substantially the same as those previously considered. It is that the taxpayers were denied the opportunity to ask Mr Yeo questions in relation to the negotiations of the Deed of Company Arrangement ("DOCA") between the taxpayers as directors of AES Services, the Commissioner and the administrator. However, there was no foundation for any denial of an opportunity to ask Mr Yeo questions bearing upon the matter the Tribunal was called upon to decide. Nor was anything shown in the appeal to justify what was otherwise a generalised statement without particularisation. Furthermore, the Tribunal gave detailed consideration to the DOCA which had been entered into by AES Services and the Tribunal found that the arrangements established by the DOCA in respect of the liabilities of AES Services did not bear upon the characterisation of the payments which the taxpayers received. At [324] to [326] of the Tribunal's reasons the Tribunal said:
324. In light of these principles, it is clear that the Commissioner must fulfil his statutory duty under the taxation law in relation to [Mr Haritos] and [Mr Kyritsis]. He cannot be estopped in performing that duty by any representation he might have made.
325. Even if I am incorrect in this conclusion, I find that the Commissioner has not made any representation that would form the basis of an estoppel. In assessing [AES Services'] taxation liability, the Commissioner has not made any reference to amounts that might have been lent by [AES Services] to the directors. There was no reason why he should when working out what was assessable income. As part of that process, he has deducted from the deposits in the [AES Services] CBA account and the [AES Services] Westpac account those moneys that have been paid from the personal bank accounts of the directors to those of Freanert, reversed transactions and intra account transfers between the [AES Services] CBA account and the [AES Services] Westpac account in order to prevent double counting.
326. The reference to moneys being loans from [AES Services] to the directors comes from the letter written by [Mr Haritos] and [Mr Kyritsis'] solicitors to Mr Yeo. The Commissioner was not party to that correspondence. Although he was a Participating Creditor and the DOCA did not come into effect until he gave his consent, he was not a party to the DOCA.
None of the findings made by the Tribunal were challenged on appeal and they all appear to be open for the Tribunal to have made on the evidence. No questions were identified on appeal which needed to have been put at the Tribunal hearing and which were not able to be put, nor was any evidence identified which was prevented from being led which might in any way have required a different conclusion from that reached by the Tribunal.
23 The last of the instances relied upon for what was said to be a question of law of a breach by the Tribunal of a duty to afford procedural fairness to the taxpayers, was a claim of the Tribunal refusing to receive into evidence T documents identified by the taxpayers as relevant and upon which they relied to discharge the onus of proof. As with the previous instances referred to for the taxpayers no error was identified or shown to have been committed by the Tribunal in the law it identified in considering the receipt into evidence of the T documents nor in its application of those principles to the facts.
24 The other questions of law which were set out in the amended notice of appeal are similarly complaints about the Tribunal's decision on the evidence which was available to the Tribunal and are not questions of law. Many take the form of asserting a misunderstanding by the Tribunal of the terms of a statutory provision, but the taxpayers do not identify a misconstruction in some way except to contend that the Tribunal should have decided the case in their favour. Thus, for example, question 2 was, in essence, whether the Tribunal had misunderstood or misapplied s 14ZZK(b)(i) of the 1953 Act in light of the evidence before the Tribunal. The question was purportedly expressed in the form of a question of law but it was no more than a complaint that the Tribunal ought to have reached a different conclusion on the evidence in the exercise of its statutory jurisdiction. The reformulation of question 2 made clear the taxpayers' desire to challenge the Tribunal's decision on the facts rather than raising a question of law. Questions 3, 4 and 5 are in the same position.
25 The full text of questions 2, 3, 4 and 5 are:
2. Whether, on the evidence before the Tribunal namely:
a. The evidence given by the Applicants that funds deposited in the Westpac account were used for the purposes of AES Services Pty Ltd (non-private purposes);
b. The evidence given by Glenys Murray in relation to the preparation of MYOB records of sub-contractor payments and director loans;
c. The evidence that all deposits into and withdrawals from the Westpac account were accounted for in full and that the sole issue the verification of the final destination of the withdrawals.
d. The evidence of the Applicants and that of Glenys Murray:
i. was accepted by the administrator of AES Services Pty Ltd in carrying out his duties as the administrator and in settling the dispute with the Commissioner;
ii. was consistent with the costs incurred during the administration of AES Services Pty Ltd by the administrator;
iii. was consistent with the costs incurred by AES Services Pty Ltd after the administration period;
e. The evidence given by Andrew Yeo about the cost structure of AES Services Pty Ltd and that the cost incurred by the Applicants were consistent with his experience in carrying on the business of AES Services Pty Ltd during its administration by him;
f. The evidence given by:
i. Stephen Adrian that the costs were reasonable and consistent with industry benchmarks;
ii. Ivan Dalla Costa that the costs were reasonable and consistent with industry benchmarks and practice;
iii. Jonathan Karlovsky that the costs were reasonable and consistent with industry benchmarks and practice;
iv. Greg Meredith (called by the Commissioner) that the costs were reasonable and consistent with industry benchmarks;
g. The acceptance by the Commissioner of those costs in negotiating his claim against AES Services Pty Ltd;
and the findings of fact made by the Tribunal [76-158], the Tribunal misunderstood and/or misapplied the test in section 14ZZK(b)(i) of the Taxation Administration Act 1953 [4] and concluding that the Applicants failed to discharge the burden cast upon them by that section 14ZZK(b)(i).
3. Whether the Tribunal (i) failed to make findings of material fact that it was required to make (ii) failed to make inferences of fact it ought to have made or which were not permissible (iii) made findings of fact that were not supported by admissible, relevant or probative evidence or were contrary to the evidence (iv) made findings of fact that were manifestly unreasonable.
4. Whether, given the matters in questions 2(a)-(g), the Tribunal's reasoning process was illogical, irrational or lacking a basis in findings or inferences of fact supported on logical grounds and made a decision it was not authorised to make.
5. Whether, given the matters particularised in ground 5 (a)-(f), the Tribunal decision was so unreasonable that no reasonable decision maker could have made and in so doing failed to act judicially.
The facts which are incorporated by reference into question 5 are the lengthy facts particularised in grounds 5(a)-(f). I set them out for completeness:
The Tribunal adopted a process of reasoning that was so illogical, irrational or lacking a basis in findings or inferences of fact supported on logical grounds that its reasoning was affected by errors of law and has made a decision that was so unreasonable that no reasonable decision maker would have made, in that:
a. The Tribunal was not satisfied [613-658] that any sub-contractor payments were made from the Westpac account despite evidence that:
i. The business of AES Services Pty Ltd was labour intensive and required the engagement of sub-contractors;
ii. AES Services Pty Ltd engaged subcontractors to perform cleaning services in the ordinary course of its business;
iii. The sub-contractors were actually paid from the Westpac account;
iv. Invoices were obtained from sub-contractors. Some of the invoices were lost and some of the invoices were confiscated by the Australian Federal Police.
v. MYOB records of the payments to sub-contractors, which records were based on Westpac bank statements and hand-written notes of the directors, were prepared;
vi. The Applicants engaged and paid sub-contractors in respect of services provided to AES Services Pty Ltd from the Westpac account;
vii. The amount paid by the directors to sub-contractors was accepted by the administrator of AES Services Pty Ltd;
viii. The amount paid by the directors to sub-contractors was accepted by the Commissioner in negotiating a deed of company arrangement in respect of his claim against AES Services Pty Ltd;
ix. The amount paid by the directors to sub-contractors was less than the costs incurred by the administrators during the period of administration;
x. The amount paid by the directors to sub-contractors was consistent with costs incurred after the period of administration;
xi. The amount paid by the directors to sub-contractors was accepted as reasonable and consistent with benchmarks by three experts called by the Applicants, namely Stephen Adrian, Jonathan Karlovsky and Ivan Dalla Costa; and
xii. The amount paid by the directors to sub-contractors was accepted as reasonable and consistent with benchmarks by Greg Meredith - a witness called by the Commissioner.
b. The Tribunal found that the MYOB records [640-675] in relation to subcontractor payments were not reliable despite evidence:
i. The records were based on hand-written notes prepared by the directors and reconciled with Westpac bank statements;
ii. There was one version of those accounts;
iii. If there was more than one version, the evidence of Stephen Adrian and Greg Meredith that the difference between the two version was not material; and
iv. That the records were consistent with the evidence as particularised in 5(a).
c. The Tribunal was not satisfied [700-710] that AES Services Pty Ltd made loans to the Applicants [as contended at 468] to the extent of the drawings from the Westpac account applied by the Applicants for private purposes despite:
i. Evidence given by the Applicants that they considered the drawings to be loans;
ii. The drawings were recorded in MYOB accounts of AES Service Pty Ltd as loans;
iii. The drawings were accepted by the administrator of AES Service Pty Ltd as loans;
iv. The drawings were accepted by the Commissioner as loans when negotiating the deed of company arrangement;
v. Documents exchanged between the Commissioner, the Applicants as directors of AES Service Pty Ltd and the administrator of AES Service Pty Ltd treat those drawings as loans;
vi. The deed of company arrangement treated those drawings as loans;
vii. Payments by the Applicants to AES Service Pty Ltd pursuant to the deed of company arrangement were made upon the premise that the drawings were loans; and
viii. With respect to the 2009 year of income, the drawings were treated as loans by the Commissioner in a letter upon which the Applicants and AES Service Pty Ltd relied to negotiate the deed of company arrangement.
d. The Tribunal was not satisfied [711-713] that Alex Kyritsis made a loan to George Haritos in the 2009 income year despite:
i. Evidence given by both Applicants that the relevant amount was a loan;
ii. Documents exchanged between the Commissioner, the Applicants as directors of AES Service Pty Ltd and the administrator of AES Service Pty Ltd treat those drawings as loans; and
iii. The deed of company arrangement treated that amount as a loan.
e. The Tribunal was not satisfied that the Applicants discharged the burden of proof in respect of the transactions listed at [722-762] despite:
i. Evidence given by the Applicants of those transactions;
ii. Evidence given by Stephen Adrian, Ivan Dalla Costa, Jonathan Karlovsky and Greg Meredith that the profitability of AES Services Pty Ltd was consistent with relevant industry profitability and benchmarks;
iii. The report of the administrator; and
iv. The evidence of Andrew Yeo.
f. The Tribunal was satisfied [818-828] that the distributable surplus of AES Services Pty Ltd was sufficient to support the deeming of a dividend under Division 7A of the Income Tax Assessment Act 1936 despite:
i. Evidence that, in calculating the distributable surplus, the Commissioner did not take into account liabilities of AES Services Pty Ltd including taxation liabilities, penalties and interest payable under the Taxation Administration Act 1953;
ii. Evidence that the Commissioner did not exercise his discretion under section 109Y(2) of the Income Tax Assessment Act 1936 to substitute an alternative value for the assets of AES Services Pty Ltd or alternatively, it was open for the Commissioner to exercise that discretion on the evidence before him; and
iii. Evidence as to the distributable surplus of AES Services Pty Ltd given by Stephen Adrian.
The formulation of the questions in this way reveals how each question fails to identify a question of law but seek, rather, merits review. The questions do not identify any error of principle in the Tribunal's reasoning beyond the complaint that the Tribunal ought to have reached a different conclusion.
26 A further difficulty with questions 2, 3, 4 and 5, and the grounds upon which they are based, is that the facts do not support what is asserted as the factual foundation upon which the questions are based, and, at times, the factual assertions contained in the questions mis-state the facts as revealed by the Tribunal's reasons. Question 2(a), for example, is predicated in part upon the description of the evidence before the Tribunal as being that:
The evidence given by the [taxpayers] that funds deposited in the Westpac account were used for the purposes of AES Services Pty Ltd (non-private purposes).
However, the evidence recited by the Tribunal is significantly different. At [102] of the Tribunal's reasons the Tribunal recorded that Mr Haritos did not dispute that the funds identified in the Pitcher Partners report had been withdrawn for the taxpayer's own use. The relevant paragraph stated:
102. [Mr Haritos] said in cross examination that he agreed with the outcome of Pitcher Partners' forensic accounting that in excess of $46,149,772 had been deposited in the [AES Services] Westpac account in the period from March 2005 to December 2009. The majority had been deposited by Clients A and Z with significant amounts by two other clients and multiple "Other" clients depositing $2,753,871. He did not dispute Pitcher Partners' assessment that $46,074,248 had been withdrawn from that account. He did not dispute their finding that $11,961,373 had been withdrawn for their own use.
It is conceivable that what appeared at [102] of the Tribunal's reasons does not fully address the asserted evidence upon which question 2(a) in part depends, but the passage in the Tribunal's reasons undermines the foundation upon which the question is based and shows, again, that the taxpayers seek to challenge conclusions which were open to the Tribunal upon the evidence rather than that they identify a question of law said to have been erroneously answered by the Tribunal.
27 The Commissioner prepared a table for the appeal in which he identified inconsistencies, mis-statements or errors between, on the one hand, the statements of facts or findings in the Tribunal's reasons and, on the other hand, the statements of the facts or findings as described in the taxpayers' amended notice of appeal forming part of the questions or the grounds relied upon in support of the questions. The relevant part of the table relating to questions 2-5 (including ground 5 which was incorporated into question 5) is as follows:
Question (Q) or Ground (G) in the amended notice of appeal Contrary or Inconsistent Findings by Tribunal in its Reasons
Q 2(a) Inconsistent with [102]
G 2(a)
Q 2(c) Inconsistent with [470]
G 2(c)
Q 2(d),(e) The Administrator had no regard to the "evidence of Glenys Murray": Inconsistent with [110]-[111]
G 2(d), (e)
Q 2(f)(i) Inconsistent with [686]-[688], [691]
G 2(f)(i)
Q 2(f)(ii) and (iii) Inconsistent with [694]
G 2 (f)(ii) and (iii)
Q 2 (f)(iv) Inconsistent with [696] (final sentence)
G 2(f)(iv)
Q 2(g) No finding to the effect alleged
G 2(g)
G 5(a) Inconsistent with [614], [616]
G 5(a)(iv) Inconsistent with [114]-[116], as to the availability of invoices see [575]
G 5(a)(v) Inconsistent with [470] and [639]-[641]
G 5(a)(vii) Mis-states evidence at [112] ("likely payments"), see further the caveats expressed by Mr Yeo at Transcript 932 lines 8-24 and 954 lines 8-10 (Part C document 247)
G 5(a)(viii) No finding to the effect alleged
G 5(a)(x) Inconsistent with [111]
G 5(a)(xi) Inconsistent with [688], [691], [695]
G 5(a)(xii) Inconsistent with [696] (final sentence)
G 5(c)(i)-(iii) Inconsistent with [613], [638]
G 5(c)(iv)-(vii) Inconsistent with [325]-[328]
G 5(d)(i) Inconsistent with [712]
G 5(d)(ii)-(iii) Inconsistent with [325]-[328]
G 5(e)(ii) Inconsistent with [694], [696]
G 5(f)(i) Inconsistent with [818]
G 5(f)(ii) Inconsistent with [820]-[823]