Hua-Aus Pty Ltd v Commissioner of Taxation

Federal Court of Australia|2010-04-14|Before: Mr CJ, Edmonds J

The appeal be allowed.
The decision of the Administrative Appeals Tribunal [2008] AATA 1033 be set aside.
The applicant's application for review of the respondent's objection decision be remitted to the Administrative Appeals Tribunal differently constituted to be determined according to law.
The respondent pay the applicant's costs of the appeal. Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

Introduction 1 This is an appeal from a decision of the Administrative Appeals Tribunal (Ms Robin Hunt SM) ('the Tribunal'), [2008] AATA 1033, varying an objection decision of the respondent ('the Commissioner') on an objection lodged by the applicant ('Hua-Aus') against a Notice of Assessment of GST net amount for the period 1 October 2004 to 31 December 2004 ('the period') and a Notice of Penalty for failure to withhold amounts pursuant to s 12‑190(1) of Sch 1 to the Taxation Administration Act 1953 (Cth) ('the TA Act').

Background 2 By Notice of Assessment of GST net amount issued on 28 October 2005, the Commissioner increased Hua-Aus' GST net amount for the period by including as consideration for unreported taxable supplies 'unsourced deposits' into bank accounts operated by Hua-Aus and by its principal, Mr Mike Hua. 3 On 16 December 2006, the Commissioner issued a Notice of Amended Assessment of GST net amount for the period to give effect to a decision on an objection to the assessment in [2] above. This gave rise to a small credit to Hua-Aus' running balance account. 4 Following the filing of the Application for Review of Decision, the Commissioner undertook further investigations and obtained information and documentation which assisted with the characterisation of some of the deposits under scrutiny as being other than consideration for unreported taxable supplies. Following the receipt of further information from Mr Hua, the Commissioner made adjustments or concessions to his calculations. In the words of the Tribunal relevantly at [14] of its reasons: 'One major adjustment related to a deposit of $200,000 made on 24 November 2004 into the Business Cheque Plus Account operated by [Hua-Aus]. The Commissioner accepted, and I find, that the $200,000 deposit is not a taxable supply but represents a loan towards a purchase of real estate ("the [Chippendale] property") for $500,000. The source of additional funds for the balance of the purchase price of the [Chippendale] property, however, has not been satisfactorily explained.' The last sentence of this extract from the Tribunal's reasons is a reference to cash of $140,000 presented to Hua-Aus' bank on 25 November 2004 to assist in the purchase of a bank cheque in the amount of $349,059.24 which was used to settle the purchase of the Chippendale property.

The Tribunal's Decision 5 The Tribunal varied the objection decision by finding that: 1. (1) Hua-Aus' taxable supplies for the period totalled $343,034. 2. (2) Hua-Aus' creditable acquisitions for the period totalled $44,306. 3. (3) The Commissioner correctly imposed a penalty in the sum of $24,597.50 for failure to withhold. These figures accorded with the Commissioner's contentions on the hearing before the Tribunal. In themselves, they require no further elaboration although some, if not all, of the constituent elements of the first are in dispute.

Finding of Fact 6 The Tribunal relevantly made the following findings of fact with respect to Hua-Aus and its activities during the period: (1) Hua-Aus carried on business as a provider of escort services. (2) Mr Mike Hua was the sole director of Hua-Aus. (3) Hua-Aus supplied delivery and advertising services to escorts used in its enterprise. (4) The escorts provided escort services to clients. (5) Hua-Aus carried on the enterprise of supplying escort services, with the escorts in the position of contractors to Hua-Aus. (6) Hua-Aus received one-half of the gross fee paid by the client and the escort received the other half. (7) Hua-Aus was not in partnership with the escorts it provided to clients. (8) There was no evidence that the escorts participated in the management of the affairs of Hua-Aus. (9) The relationship between Hua-Aus and the escorts operated as an unwritten contract. Activities were performed according to the unwritten understanding between Hua-Aus and parties who had a role in its activities.

The Grounds of Appeal 7 The grounds of appeal all go to the Tribunal's finding that Hua-Aus' taxable supplies for the period totalled $343,034 and that, in consequence, Hua-Aus under reported taxable supplies by $278,509 and GST on taxable supplies by $25,319. None of the grounds of appeal go to the Tribunal's findings that Hua-Aus' creditable acquisitions for the period totalled only $44,306, not $51,323 as reported, or the Tribunal's finding that the Commissioner correctly imposed a penalty of $24,597.50 for failure to withhold $49,195 from $101,433.67 of payments made to escorts during the period. 8 Within the context of the grounds of appeal, counsel for Hua-Aus focused on the Tribunal's approach and reasons for concluding as it did with respect to two transactions, contending that such approach and reasons exemplified error of law, of one kind or another, on the part of the Tribunal. The first concerned a deposit of $20,000, as part of a larger deposit of $20,497.96, into Hua-Aus' cheque account on 25 October 2004. The second concerned the presentation of the $140,000 in cash to Hua-Aus' bank on 25 November 2004 in part payment of the bank cheque in the sum of $349,059.24. 9 As to the first transaction, the Tribunal made the findings and drew the conclusions that are set out at [24] of its reasons: 'On 25 October 2004, a sum of $20,000 was deposited into the Business Cheque Plus Account operated by [Hua-Aus]. The only explanation offered by Mr Hua is that this money represents a "deposit" for the purchase of the [Chippendale] property. A handwritten letter from a Mr Li to the ATO, dated 16 August 2007, states the $20,000 was a deposit towards the purchase of the [Chippendale] property. [Hua-Aus] did not call Mr Li as a witness. In these circumstances, I accept the Commissioner's assertion that the surrounding documents are inconsistent with the explanation offered by [Hua-Aus]. As the Commissioner has pointed out, a deposit is usually given in "earnest to bind the bargain so entered into": Howe v Smith (1884) 27 Ch D 89, 101 per Fry LJ, and a payment made on entering into a contract "guarantee[ing] that [the contracting party] will fulfil his contract": Farr, Smith & Co v Messrs Limited [1928] 1 KB 397, 408 per Wright J. The deposit of $20,000, however, was not made at the time of the contract. The copy of the Contract for the Sale of Land which Mr Hua has furnished is dated 22 January 2004. The deposit was made on 25 October 2004, more than 9 months after the date of contract. Further, the sum of $20,000 does not represent the whole deposit stipulated under the contract in the amount of $50,000. Mr Hua gave evidence about complications that arose when one of the parties to the contract withdrew and that he had to find another purchaser but did not explain particular portions or interests or percentages of intended ownership. As I have observed above, Mr Li has not been called to give evidence in support of Mr Hua's explanation and in these circumstances, I am not persuaded that Mr Hua's explanation is adequate.' 10 As to the second transaction, the Tribunal made the findings and drew the conclusions that are set out at [15], [21], [25] and [26] of its reasons: '15. On 25 November 2004, bank statements show [Hua-Aus] presented $140,000 in cash to its bank and purchased a bank cheque in the amount of $349,059.24. In the absence of an explanation as to the source of these funds, the Commissioner treated the $140,000 as sourced from taxable supplies. I find this is appropriate treatment as no better evidence of the source of this sum has been furnished for the review and the burden of proof rests on the taxpayer to show the assessment is excessive or should have been made differently (section 14ZZK of the [TA Act]). … 21. On 25 November 2004, [Hua-Aus] drew a bank cheque for $349,059.24 at its bank. In the absence of any other information, I find that part of the funds for this cheque came from an amount of $140,000 cash supplied by [Hua-Aus] at the time the cheque was drawn. In the absence of any alternative explanation of the source of deposits in [Hua-Aus'] bank account and Hua-Kuang's bank account, as well as the payments on Mr Hua's MasterCard and another credit card and the $140,000 contributed to the bank cheque, I find the Commissioner was correct in treating these amounts as taxable supplies. … 25. On 25 November 2004, [Hua-Aus] withdrew from a Business Cheque Plus Account the amount of $209,065.74. The Commissioner accepts that the sum of $200,000 deposited a day earlier, is not a taxable supply. The Commissioner has located a further withdrawal in the form of a bank cheque made payable to Perpetual Lawlink Victoria Limited. The cheque was for $349,059.24 because [Hua-Aus] produced a further sum of $140,000 in cash for the cheque. [Hua-Aus] has not explained the source of these funds and it follows that I accept the Commissioner's treatment of the funds as a taxable supply or supplies. 26. Section 14ZZK of the [TA Act] requires the taxpayer to prove that the assessment is excessive or should be made differently. Mr Hua did endeavour to explain the purchase of the [Chippendale] property and the difficulties he experienced when a joint purchaser pulled out, but this difficulty did not account for $140,000 of the funds eventually used to conclude the purchase.' 11 In his oral submissions, counsel for Hua-Aus said that there were four overall complaints which he thought distilled down to probably three. The first complaint, he said, is enunciated in grounds 4(a) to 4(e) of the amended notice of appeal although grounds (a) to (c) seem to be more concerned with an alleged erroneous interpretation of s 14ZZK of the TA Act, while grounds (d) and (e) seem to focus on the alleged failure of the Tribunal to make any finding of credit against Mr Hua. In any event, I propose to deal with grounds (d) and (e) separately from grounds (a) to (c). The second complaint - the no evidence complaint - he said, is the subject of one discrete ground (ground 4(f)) and goes to the Tribunal's conclusion at [35] of its reasons, which needs to be read in conjunction with [34]. The third complaint - the Tribunal's alleged erroneous application of the principles coming out of Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81 at 85 to 88 and 90 - treating it, he said, as an aspect of the first complaint, is raised in ground 4(g). The fourth complaint - ground 4(h) of the amended notice of appeal - he said, is a procedural fairness complaint relating to the conduct of the review application by the Tribunal in connection with its treatment of the $140,000 cash used (in part) to purchase the bank cheque which was in turn used to purchase the Chippendale property. Treating the first and third as one complaint, the fourth complaint was described by counsel for Hua-Aus as the third substantive complaint.

Grounds 4(a) to (c): 12 Ground 4(a) asserts that the Tribunal erred in law in adopting an interpretation of s 14ZZK of the TA Act relevantly imposing on Hua-Aus the burden of proving that the amended assessment under review was excessive. The ground was particularised in the following way: such an interpretation obviated the requirement for the Tribunal to make findings of fact, or findings of fact and law, as to satisfaction of the statutory criteria for the making by Hua-Aus of taxable supplies on which GST was payable in the amount assessed in the amended assessment for the period and, in particular, the criteria for a taxable supply specified in ss 9-5(a), (b) and (c) and 9-10 of A New Tax System (Goods and Services Tax) Act 1999 (Cth) ('the GST Act'). 13 This ground has no foundation. The Tribunal did not err in its interpretation of s 14ZZK of the TA Act. On the contrary, it was absolutely correct in concluding that s 14ZZK imposed on Hua-Aus the burden of proving that the amended assessment under review was excessive. Such an interpretation did not obviate the requirement for the Tribunal to make findings of fact, or findings of fact and law, of the kind alleged by Hua-Aus. What obviated that requirement was the Tribunal's finding that Hua-Aus failed to discharge the burden imposed on it; relevantly, to establish that the amended assessment under review was excessive. That failure meant that the statutory criteria were never engaged. Whether the Tribunal should have found that Hua-Aus failed to discharge the burden imposed on it is a separate issue. 14 Section 105-5 of Sch 1 to the TA Act relevantly provides: '(1) The Commissioner may at any time make an assessment of: (a) your *net amount, or any part of your net amount, for a *tax period; or (b) … (2) … (3) The Commissioner may make an assessment under this section even if he or she has already made an assessment for the *tax period … concerned.' 15 Section 17-5 of the GST Act sets out the calculation of the net amount for a tax period. It relevantly provides: '(1) The net amount for a tax period applying to you is worked out using the following formula: GST - input tax credits where: GST is the sum of all of the GST for which you are liable on the *taxable supplies that are attributable to the tax period. input tax credits is the sum of all of the input tax credits to which you are entitled for the *creditable acquisitions and *creditable importations that are attributable to the tax period.' 16 An assessment of a person's net amount for a tax period pursuant to s 105-5 of Sch 1 to the TA Act is entitled to the benefit of the 'conclusive evidence' provisions of s 105-100 of Sch 1 to the TA Act. They relevantly provide: 'The production of : (a) a notice of assessment under this Part; (b) … is conclusive evidence: (c) that the assessment … was properly made; and (d) except in proceedings under Part IVC of this Act on a review or appeal relating to the assessment … - that the amounts and particulars in the assessment … are correct.' 17 Section 105-100 is 'relevantly indistinguishable' from s 177(1) of the Income Tax Assessment Act 1936 (Cth) ('the ITAA 1936'): Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473 at [33] and [40] per Gummow A-CJ, Heydon, Crennan and Kiefel JJ. 18 The Commissioner submitted that in proceedings under Pt IVC of the TA Act before the Tribunal, the onus rested on Hua-Aus to demonstrate that the Notice of Assessment of GST net amount issued to it was excessive: s 14ZZK(b)(i) of the TA Act. That provision works no differently in relation to an assessment made under s 105-5 of Sch 1 to the TA Act than it does in relation to an assessment of income tax made under s 167 of the ITAA 1936. 19 According to the Commissioner, it was not the responsibility of the Tribunal in discharging its function under Pt IVC to engage in some form of 'de novo' review and assess the GST liability of Hua-Aus: see generally Vu v Federal Commissioner of Taxation 2006 ATC 4387 at [6] (Finn J). As was observed in Broadbeach Properties at [55], '[n]either the [Tribunal] nor the Federal Court is empowered by Pt IVC to vary assessments. That is for the Commissioner who is charged by ss 14ZZL and 14ZZQ respectively to amend assessments (and determinations) to give effect to decisions of the [Tribunal] and the Federal Court'. 20 The Commissioner submitted that the effect of s 14ZZK(b)(i) was to raise, in relation to the Notice of Assessment of GST net amount issued to Hua-Aus, a 'presumption of the existence of the circumstances which attract liability to the tax assessed': Macmine Pty Ltd v Federal Commissioner of Taxation (1979) 24 ALR 217 at 250 (Murphy J) (cited with approval by Lockhart J in relation to s 14ZZK(b) in Federal Commissioner of Taxation v Munro (1997) 97 ATC 5041 at 5050). The section also gave rise to 'a rebuttable presumption of law that an assessment is not excessive': McCormack v Federal Commissioner of Taxation (1978) 143 CLR 284 at 314 (Jacobs J) - or as Latham CJ said in Trautwein v Federal Commissioner of Taxation (1936) 56 CLR 63 at 88: the assessment is 'prima facie right - and remains right until the appellant shows that it is wrong'. 21 According to the Commissioner, there was no requirement on his part to show that the assessment issued to Hua-Aus could be sustained or supported by evidence: Gauci at 89 (Mason J). It was for Hua-Aus to show that the assessment issued to it was excessive, and the Commissioner was 'entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment': Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 624 (Brennan J). 22 In other words, in challenging the Notice of Assessment of GST net amount, it was for Hua-Aus to establish any fact that demonstrated the assessment to be excessive. As Latham CJ said in Danmark Pty Ltd v Federal Commissioner of Taxation; Forestwood Pty Ltd v Federal Commissioner of Taxation (1944) 7 ATD 333 at 337: 'I agree that upon an appeal the onus rests upon the taxpayer of establishing the facts upon which he relies and if it is necessary for him to establish a particular fact in order to displace the assessment he must satisfy the Court with respect to that fact.' 23 I agree with the Commissioner's submissions. It follows that if no evidence is adduced by Hua-Aus; if such evidence as is adduced is not a reasonable explanation of why the assessment is excessive and, in consequence, is not accepted as discharging the onus; or if such evidence is otherwise rejected, the Notice of Assessment of GST net amount issued to Hua-Aus must prevail: Gauci at 89 (Mason J). 24 Ground 4(b) asserts that the Tribunal erred in law in not finding that there was a statutory requirement for the Tribunal to satisfy itself that each of the receipts of Hua-Aus which the Tribunal found to be unexplained satisfied the statutory criteria for the making of a taxable supply by Hua-Aus specified in ss 9-5(a), (b) and (c) and 9-10 of the GST Act to enable it to conclude that each receipt was consideration for the making of a taxable supply within the meaning of s 9-15 of the GST Act on which GST was payable in the relevant quarter pursuant to s 7-1(1) of the GST Act. 25 Again, this ground has no foundation. The statutory criteria were never engaged because of the Tribunal's finding that Hua-Aus failed to discharge the burden imposed on it, relevantly, to establish that the assessment was excessive. Whether the Tribunal should have found that Hua-Aus failed to discharge the burden imposed on it is a separate issue. 26 Ground 4(c) asserts that the Tribunal erred in law in adopting an interpretation of s 14ZZK of the TA Act which obviated the requirement for the Tribunal to make findings of fact, or findings of fact and law, as to the satisfaction of the statutory criteria specified in ss 9-5(a), (b) and (c) and 9-10 of the GST Act to enable it to conclude that each receipt of Hua-Aus it found to be unexplained was consideration for the making of a taxable supply within the meaning of ss 9-5(a), (b) and (c), 9-10 and 9-15 of the GST Act on which GST was payable in the relevant quarter pursuant to s 7-1(1) of the GST Act. 27 In substance this ground is the same as Ground 4(a) and for the reasons given in [13] - [23] above, has no foundation.

Grounds 4(d) and (e) 28 Ground 4(d) asserts that the Tribunal erred in law in determining whether Hua-Aus had explained the source of receipts for the purpose of treating them as consideration for taxable supplies made by it within the meaning of s 9-15 of the GST Act on which GST was payable pursuant to s 7-1(1) of the GST Act in the period by rejecting the evidence of the applicant's director, Mr Hua, as to the source of the receipts in the absence of corroborating evidence (including the failure to call Mr Li as a witness) without making any finding of credit against him (Mr Hua) which justified the rejection of his sworn evidence explaining the source. 29 The focus of this ground, and the next ground (Ground 4(e)), is that the Tribunal erred in law by rejecting Mr Hua's evidence as to the source of the receipts in the absence of corroborating evidence or further explanation from Mr Hua without making any finding of credit against him. 30 It is not in dispute that the Tribunal made no finding of credit against Mr Hua. At one stage (T26/43 to T27/2), counsel for the Commissioner, who also appeared for the Commissioner on the appeal, asked Mr Hua: 'Mr Hua, if I understand, your evidence is that you say Ms Tian made you sign this agreement otherwise this property would not settle. Why do you say Ms Tian was in a position to prevent this property from settling? Senior Member, I apologise for labouring this point. I only do so because I will ask the tribunal to draw certain findings in relation to Mr Hua's credit and that's why this line of examination is being pursued.' But counsel for the Commissioner never impugned Mr Hua's credit in cross-examination and that no doubt explains why the Tribunal made no finding of credit against him. 31 Later (T52/14 to 24), counsel for the Commissioner submitted to the Tribunal: 'In addition to the written outline of submissions, Senior Member, there are just a few other points I wish to make viva voce, in addition to what is in that document. The first point I make is that, having had the benefit of not only watching, but hearing the answers given by Mr Hua, in my submission, the tribunal can comfortably find that Mr Hua is a witness of very little credit. He is a witness, in my submission, that the tribunal simply cannot believe. It is one thing to say that certain answers might be the consequence of a poor translation, or the like, but the episode that this tribunal bore witness to, in relation to many of the questions I put to Mr Hua about the purchase of this Chippendale property, was quite extraordinary. Mr Hua simply could not give a straight answer. His explanations that he did give are simply improbable, and extremely unbelievable.' That submission has no foundation whatsoever; it should never have been made. It was never put to Mr Hua that he was not telling the truth; or that he should not be believed in the answers he gave in relation to the purchase of the Chippendale property. Nor could it be, because, on my reading of the transcript of the answers he gave to the questions he was asked, bearing in mind that his understanding and command of English required him to have the assistance of an interpreter through whom most, if not all, of his answers were given, suggests that his answers were not only consistent with such documentary evidence (limited as it was) as existed, but truthful. And, as I have already observed, it was never put to him that he was not telling the truth. 32 Looking at what I refer to in [8] above as the first transaction - the deposit of $20,000, as part of a larger deposit of $20,497.96, into Hua-Aus' cheque account on 25 October 2004 - the Tribunal concluded at [24] of its reasons (see [9] above) that as Mr Li had not been called to give evidence in support of Mr Hua's explanation, the Tribunal was not persuaded that Mr Hua's explanation was adequate. Why not, it may be asked, in the absence of any finding of credit against Mr Hua and in the absence of any evidence which put into doubt the veracity of Mr Hua's evidence. 33 Moreover, the Tribunal was aware that on the basis of Mr Li's letter to the Australian Taxation Office ('the ATO') of 16 August 2007, in response to the ATO's letter to Mr Li of 6 July 2007, that the Commissioner had made the concession that the $200,000 paid into Hua-Aus' cheque account on 24 November 2004 was not consideration for taxable supplies (see [4] above and [14] of the Tribunal's reasons). Why, it may be asked, was it not reasonable to accept that the $20,000 paid by cheque one month before, and dealt with in the same letter, as a deposit, was equally explicable. The letter relevantly read: 'Regarding the business Loan between Mr. HUA-AUS P/L & me. Please find the following information: 1 In Jan 2004. I refinanced my home Loan, got $383,000- to invest properties & put some into business. 2. In Oct. 2004, I decided to joined [sic] with Mr. Hua & another person to buy an investment property at 127 Regent St Chippendale NSW 2008. and on Oct. 24th, 2004, I paid deposit $20,000- to HUA-AUS P/L from my Loan A/c. chq No 000046. 3. On 24/11/04, for the settlement of 127 Regent St Chippendale NSW 2008, from my Loan chq, I paid to Hua-Aus P/L $200,000- chq #000055 $100,000- & Chq # 000056 $100,000-.' I will return to Mr Li's letter below. 34 Mr Hua was cross-examined on this transaction at some length, but nothing came out of that cross-examination which was in any way inconsistent with the documentary evidence. The transcript at T19/36 to T21/22 reads: 'MR KASEP: Why would Mr Li be paying you $20,000 for a deposit on a property for a contract that you entered into on 22 January 2004? THE INTERPRETER: Just one second because - yes, I can explain that. It's okay? It's all right? MS HUNT: Sorry. Did my coughing cause you not to hear properly? THE INTERPRETER: No. It's okay. MS HUNT: Could you repeat your answer? THE INTERPRETER: He is just explaining - starting to explain. MS HUNT: Okay. THE INTERPRETER: The question was the contract was entered on 22 January 2004. Is that right, your question? Yes? MR KASEP: Why would Mr Li be paying you $20,000 as a deposit for a property for a contract that you entered into on 22 January 2004? THE INTERPRETER: This contract was entered between myself and another partner called Rui Hong Tian originally and because that crossed out partner didn't pay and sign the contract I had to look for another partner, which is Mr Li, later. As you can see on the contract it was months before I was able to find someone else. The reason that I found Mr Li is because the original partner did not agree to pay and settle with this contract - the original contract - so it was months after I was able to find Mr Li - a few months after. I wanted certainty from Mr Li. That's why I asked for that deposit money. MR KASEP: You see that the purchases on this contract are listed as Mr Li and Tan Guo Jin? THE WITNESS: Jian Guo Jin, yes. Jian Guo Jin, yes, and me. That's after. Just --- MR KASEP: Do you agree that these were the purchasers identified on the contract, the date 22 January 2004? THE INTERPRETER: This is for, yes, signing the contract, but the payment wasn't until much later, because there was a legal proceeding in between that. MR KASEP: So you say you didn't pay a deposit until many, many months after entering into the contract. THE INTERPRETER: That's correct. The time it took us to pay was because there was a legal proceeding in between that and the original vendor disappeared for a while. It was a long time before I believe we were able to locate him. MR KASEP: The original vendor disappeared? THE INTERPRETER: Yes, because the legal process required the vendor to be present. We weren't able to locate him. MR KASEP: Do you see that the contract stipulates the deposit was of $50,000? THE INTERPRETER: Yes, that contract - that deposit was paid with the original partner. MR KASEP: I'm sorry, you say that the $50,000 was paid with the original partner? THE INTERPRETER: Yes. MR KASEP: So you say you paid $50,000? When do you say you paid that? THE INTERPRETER: I don't know - I don't remember exactly which day, but it should be shortly after this contract, and this deposit went to the original vendor. MR KASEP: Mr Hua, if you paid the deposit under the contract, why then is Mr Li, on 25 October 2004, giving you $2000 as a deposit for this property, if you've already paid it? THE INTERPRETER: The explanation is that Ms Rui Hong Tian, the original partner, didn't have enough funds to complete the settlement, so she pulled out and I was forced to find another partner, Mr Li. MR KASEP: But you had already paid the $50,000 deposit by then, hadn't you, Mr Hua? THE INTERPRETER: Because the original partner pulled out of the deal, I needed certainty from the second partner, that's why I asked her for that deposit.' 35 At [14] of its reasons the Tribunal made a finding that the deposit of $200,000 made on 24 November 2004 was not consideration for taxable supplies but rather represents a loan towards the purchase of the Chippendale property. It did so because the Commissioner accepted that to be the case and he did so on the basis of Mr Li's letter of 16 August 2007. In the absence of any explanation as to why the Commissioner did not accept that the $20,000 paid one month earlier (and referred to in the same letter) did not fall into the same category, and in the absence of any impugnment of Mr Hua's credit, the Tribunal erred in its conclusion that Mr Hua's explanation was inadequate because Mr Li had not been called to give evidence in support of Mr Hua's explanation. My conclusion in this regard is reinforced by reference to the material referred to in [36] below. 36 Immediately following Mr Li's letter to the Australian Taxation Office of 16 August 2007 at p 110 of the Appeal Book, there appears at pp 111 to 113 inclusive copies of the statements of the account (56-478-5958) which Mr Li and Xiu Qing Luo maintained with the National Australia Bank covering part of January, part of August, September, October and November 2004. Those statements show the debits in November 2004 of the two cheques (000055 and 000056) for $100,000 each referred to at 3 of Mr Li's letter and found by the Tribunal not to be consideration for taxable supplies no doubt because of the Commissioner's concession. But those statements also show the $20,000 debited to the account on 25 October 2004 in respect of cheque 000046 referred to at 2 of Mr Li's letter. These matters were not raised by counsel for Hua-Aus on the hearing of the appeal and in the absence of any submission as to their significance, I am left to draw my own conclusions. What these bank entries do is reinforce my conclusion that, in the absence of any impugnment of Mr Hua's credit, the Tribunal erred in its conclusion that Mr Hua's explanation was inadequate to discharge the onus because Mr Li had not been called to give evidence in support of Mr Hua's explanation. What I have said above from [32] onwards, relates solely to what I refer to in [8] above as the first transaction. 37 Turning to what I refer to in [8] above as the second transaction - the cash of $140,000 presented to Hua Aus' bank in part purchase of the bank cheque on 25 November 2004 to be used to settle the purchase of the Chippendale property - the Tribunal, at [15] of its reasons, observed that there had been an absence of an explanation to the Commissioner as to the source of these funds and then found that to treat them as consideration for taxable supplies was 'appropriate treatment as no better evidence of the source of this sum has been furnished for the review and the burden of proof rests on the taxpayer to show that the assessment is excessive'. 38 There are a number of difficulties with this approach and conclusion. First, the $140,000 cash used (in part) to purchase the bank cheque to settle the purchase of the Chippendale property was never an issue until the Commissioner conceded that the $200,000 was not consideration for taxable supplies. So much is apparent from paras 33 to 36 of the Commissioner's Statement of Facts and Contentions (AB 'Part A', 8 - 9): '33. The Respondent now accepts that the deposits of $330 from the Office of State Revenue, $200,000 from Mr Li and Ms Luo and $12,510 from NRMA were not taxable supplies. 34. On 25 November 2004, the Applicant drew a bank cheque for $349,059.24 at the Kingsgrove Branch of the Westpac Bank. Part of the funds for this cheque came from an amount of $140,000 cash supplied by the Applicant at the time the cheque was drawn. CONTENTIONS 35. In the absence of any alternative explanation as to the nature of the deposits in the applicant's bank account and Hua-Kuang's bank account, as well as the payments on the director's MasterCard and the director's Amex card and the $140,000 contributed to the bank cheque, the Respondent contends that these deposits amounts are taxable supplies. 36. The Respondent contends that the Applicant's total taxable supplies for the relevant quarter were $343,034. This is calculated as follows: The Applicant's bank account $163,323.24 Hua-Kuang's bank account $8,284.54 The director's MasterCard $9,500.00 The director's Amex card $21,926.56 Contribution to bank cheque $140,000.00 Total $343,034.34' In those circumstances, the Commissioner's reference to 'the absence of any alternative explanation' is difficult to comprehend. Alternative as to what? 39 The Tribunal's reference to there being 'no better evidence of the source of this sum' is equally difficult to comprehend. Mr Hua was cross-examined on this matter at some length. Relevantly, at T41/21 to T44/15, the transcript reads: 'MR KASEP: Do you agree that during the audit process you never told the ATO that you had presented $140,000 in cash to the Kingsgrove branch of the Westpac bank, did you? THE INTERPRETER:The reason for that is I was never put that question. That's why I didn't disclose it. This money came from a partner - - - MR KASEP: 1 can stop you there. You have answered my question. If I can take you to the supplementary T documents and that's the small bundle of documents you were handed this morning. THE INTERPRETER: Which one would that be? MR KASEP: Mr Hua, can I take you to ST10, page 89 of that small bundle? THE WITNESS: Yes, go ahead. MR KASEP: Now, this is a copy of a letter that you received, isn't it? THE WITNESS. That's correct, yes. MR KASEP: Yes. And it's a copy of a letter that was sent to you some time asking you questions about $140,000 that the respondent had discovered you had presented to the bank? THE WITNESS: To where? THE INTERPRETER: I don't know about this letter. Okay. Sorry. Can you - what was your question? MR KASEP: You have seen this letter before, haven't you, Mr Hua? THE INTERPRETER: Yes. MR KASEP: The respondent sent you this letter asking you questions about this $140,000 that the respondent had discovered? THE INTERPRETER: Yes. MR KASEP: You agree that you never responded to this letter, did you? THE INTERPRETER: I thought the conference was coming up fairly soon. That's why I brought the letter with me today. MR KASEP: Mr Hua, paragraph 9 of the letter states quite clearly: Please provide a response to this request within 14 days of the date of this letter. THE INTERPRETER. Because of my limited English I didn't know that there was a two-week limit. I thought I would just bring it to this place. MR KASEP: Mr Hua, it's $140,000 in cash. It's a taxable supply of the applicant, isn't it? THE INTERPRETER: This is for the purchase of property. No, not a taxable supply. MR KASEP: Mr Hua, this is cash that the applicant --- THE INTERPRETER: My friend gave me this. My partner gave me this for the purchase of the property. He was a partner. MR KASEP: Mr Hua, I will put this proposition to you squarely. This $140,000 in cash is money that the applicant received in carrying on its enterprise as an escort agency, isn't it? THE INTERPRETER: The money is for the purchase of property. MR KASEP: Mr Hua, you might have used the money to purchase the property, but do you accept what I put to you? THE INTERPRETER: What have you put to me? MR KASEP: I have put to you this $140,000 in cash is money that the applicant received in carrying on its enterprise as an escort agency. THE INTERPRETER: I received this money from my friend. It has nothing to do with carrying on a business. This money was given to me. I bought a bank cheque and then it went to the property. MR KASEP: Who is this friend, Mr Hua? THE INTERPRETER: One of the three partners in purchasing the property. One of three purchasers. MR KASEP: And when did they give you this $140,000 in cash? THE INTERPRETER: A few days before this. The money didn't come to me until a few days before, because we did not know whether Ms Tian was going to pull out of the contract. I was able to purchase a bank cheque on the day it settled. MR KASEP: Mr Hua, do you tell this Tribunal that someone gave you $140,000 all in the uncertainty that you would possibly be buying this property with Ms Tian or not? THE INTERPRETER: Yes. MR KASEP: Are you aware of the source of the $140,000? THE INTERPRETER: It came from this partner. MR KASEP: Mr Hua, the bank cheque that the applicant - - - MS HUNT: Mr Hua just added something then. MR KASEP: Oh, I apologise. THE INTERPRETER: Mr Li gave me 220,000 and this person gave me 140,000. MR KASEP: Okay. THE INTERPRETER: There wasn't enough funds in there. I wrote a cheque out after I deposited. MR KASEP: Mr Hua, the applicant purchase[d] a bank cheque for $349,059 on 25 November 2004. THE INTERPRETER: Which month? MR KASEP: This is 25 November 2004. THE INTERPRETER: How much was the figure again? MR KASEP: $349,059. THE INTERPRETER: Yes, that's correct. MR KASEP: And this was to purchase the Chippendale property? THE WITNESS: That's right. That's right. MR KASEP: $200,000 of this money came from Mr Li. THE INTERPRETER: Yes, and the rest was given by the other person. MR KASEP: Okay. That's $349,059 …' 40 On the basis of the transcript, Mr Hua had never given the Commissioner any explanation as to the source of the $140,000 cash used to purchase (in part) the bank cheque, let alone an 'alternative explanation', and the Tribunal's conclusion that there had been no 'better evidence' of the source of this sum furnished on review has no foundation. Mr Hua's explanation was totally consistent temporally with the time of settlement of the purchase of the Chippendale property, with the evidence as to the identity of the persons who ultimately purchased it - Mr Li (33%), Mr Jin (33%) and Mr Hua (34%) - and with the changes that occurred in the identity of those persons between the date of the contract (22 January 2004) and settlement (25 November 2004): see AB 'Part A', 114. 41 At [34] and [35] of its reasons, the Tribunal made the following observations and drew the following conclusions: '34. After conclusion of the tribunal hearing, Mr Hua made further representations by letter dated 6 August 2008. … He also enclosed a letter dated 15 July 2008, signed by Jianguo Jin on the letterhead of Hua-Aus Pty Ltd. The letter set out that the signatory had lent Mr Hua $140,000 cash to purchase the [Chippendale] property and supplied a contact telephone number. 35. None of the material supplied in the letter of 6 August 2008 and the attached letter dated 15 July 2008 adds substance to the representations of Mr Hua. I consider there is no evidence before me leading to a conclusion that the amounts taken into account in reaching the adjusted assessment in the objection decision should be treated differently.' 42 The letter of 15 July 2008, signed by Mr Jianguo Jin on the letterhead of Hua- Aus read: 'To whom it may concern 15th July 2008 Dear Sir or Madam I (Jianguo JIN) gave to my partner (Mike HUA) $140,000 cash as a [sic] purchase the property of 127 Regent St, Chippendale on 25 November 2004 Should you require more information please feel free to contact me on 0410 … at any time? Yours sincerely, [Signature] Jianguo JIN' 43 Mr Hua had endeavoured to tender this letter at the commencement of the Tribunal hearing but, for some inexplicable reason, the Senior Member deferred the tender and in consequence, it was never taken in during the course of the hearing. This is part of Hua-Aus' procedural fairness complaint: ground 4(h). The transcript (at T4/13 to 35) reads: 'MS HUNT: So, Mr Hua, do you feel ready to proceed? THE INTERPRETER: Yes. MS HUNT: What was the document that you wanted to hand up, or the further evidence that you had? THE INTERPRETER: There is a new amount of 140,000 cash that was concerned, and I am presenting that evidence. MS HUNT: What sort of a document do you have about that money? THE INTERPRETER: A letter provided from a partner in the business. MS HUNT: All right. Have you shown that to Mr Kasep? THE INTERPRETER: Yes. MS HUNT: All right. Well, I will wait until we come to that, then, I suppose. Is there any other new document or new evidence that you have with you? THE INTERPRETER: No other.' 44 I have some difficulty with the Tribunal's observations and conclusions at [35] of its reasons. First, its reference to 'the representations of Mr Hua'; that hardly describes his evidence in cross-examination. Second, its reference to 'no evidence', beneficially reading that as 'no probative evidence', can only refer to Mr Jin's letter of 15 July 2008, relevantly because he was not called as a witness and subject to cross-examination. But it cannot refer to Mr Hua's evidence in cross-examination. His evidence was quite clear as to where the $140,000 came from; it was consistent with the time of settlement of the Chippendale property purchase; it was consistent with the identity of the purchasers and it was consistent with Mr Jin's letter. Moreover, his credit was not impugned and the Commissioner, in the face of all this, led no evidence to suggest a different account. 45 Insofar as the second transaction is concerned, namely, the use of the $140,000 cash to purchase (in part) a bank cheque to settle the purchase of the Chippendale property, I am of the view that the Tribunal erred in its conclusion that there was 'no evidence' before it leading to a conclusion that it was not consideration for taxable supplies. I am of the view, for the reasons referred to above, that even if the phrase 'no evidence' is beneficially read as 'no probative evidence', the Tribunal nevertheless erred because in the absence of Mr Hua's credit being impugned, there was probative evidence that the $140,000 was not consideration for taxable supplies, namely, his evidence in cross-examination. 46 In coming to the conclusion I have, I am mindful of, and embrace, what was said by Burchett J in Ma v Commissioner of Taxation (1992) 37 FCR 225 (an authority to which neither party referred) at 230: 'Whether, ultimately, Mr Ma should be believed is not, of course, a matter for me. Nor, if it were, could it be decided upon the written record alone. The decision must take account of the onus under s 190(b). But if a taxpayer denies any undisclosed source of income, provides acceptable evidence of how he spends his time, and demonstrates a reasonable explanation for any appearance of the possession of assets, he will generally discharge his burden of proof unless some positive reason is shown why he is to be disbelieved. Any other view would introduce a degree of arbitrariness into liability for tax. In the present case, the very lack of a clear refutation of the applicant's case at present (I emphasise the words "at present", because on a rehearing the picture may change colour altogether) reinforces my impression that the Tribunal saw the matter entirely or substantially through the spectacles of its view of the law.' 47 In that case, the Tribunal gave oral reasons for its decision, but on becoming aware that the applicant intended to appeal against it, and without application from either party, the Tribunal issued an addendum of additional reasons. In a passage immediately following that extracted in [46] above, his Honour said: 'If the Tribunal, on the other hand, should be taken to have found in the strong language of the addendum (as it expressly said it was not finding in its oral reasons) against Mr Ma's case on the general ground of his credit, it should certainly have explained why it did not believe him, and how it could reconcile its view with the unchallenged independent evidence of Mr Ma's frequent and regular betting activities. I was referred to the decision of the Court of Appeal division of the Supreme Court of New South Wales in Mifsud v Campbell (1991) 21 NSWLR 725, and I think the remarks of Samuels JA (at 728), which I respectfully adopt, are apposite. If the Tribunal had dealt with this issue, it should also, in common fairness to Mr Ma, have adverted to the curious fact, which requires some explanation in this case, that his evidence, on the issue of the frequency and size of his bets, betrays no sign of exaggeration when compared with the unchallenged independent evidence. On the contrary, he appears to have understated his position to his own disadvantage. It is a case where one might think the possibility of distortion of his evidence (much but not all of it interpreted from Cantonese into English, and doubtless accurately interpreted) by linguistic or cultural factors should not be ignored.' (Emphasis in original.) 48 These observations are entirely apposite to the circumstances of the present case.

Ground 4(f) 49 Ground 4(f) - the no evidence complaint - asserts that the Tribunal erred in law in concluding that there was no evidence before it which led to a conclusion that the amounts taken into account by the Commissioner in reaching the adjusted assessment in the objection decision should be treated differently as contended for by Hua-Aus in its objection and before the Tribunal based on the evidence tendered. 50 This ground is a reference to what appeared in the Tribunal's reasons at [35] (see [41] above) but has to be read and understood in context reading [34] and [35] of the Tribunal's reasons together. 51 I have already dealt with this ground in relation to the first and second transactions (see [36] and [45] above).

Ground 4(g) 52 I have already dealt with this ground as part of grounds 4(a) to (c). I accept the Commissioner's submissions that the Tribunal made no error in placing reliance on the observations of Mason J in Gauci at 89.

Ground 4(h) 53 This ground alleges that the Tribunal denied Hua-Aus procedural fairness in the way it treated (in paras [34] and [35]) of its reasons) certain documents lodged with it after the conclusion of the hearing and before it made its decision. The documents were identified as: 4. (i) Hua-Aus' letter dated 6 August 2008 to the Tribunal explaining the 39 bank deposits summarised on the Commissioner's Exhibit R1 which was in evidence before the Tribunal; 5. (ii) Hua-Aus' letter dated 15 July 2008 to the Tribunal explaining the cash transaction of $140,000 which the Commissioner contended was left unexplained at the conclusion of the hearing (which was lodged with the Tribunal as an enclosure with the letter dated 6 August 2008); 6. (iii) the Commissioner's letter to the Tribunal dated 22 August 2008 making submissions on the admissibility and weight to be accorded to the two preceding documents as evidence before the Tribunal for the purposes of the application for review. The ground alleges that the Tribunal denied Hua-Aus procedural fairness by failing to afford it a reasonable opportunity to do a number of things and to re-list the application for review. 54 In my view, the ground has no foundation. First, while paras [34] and [35] of the Tribunal's reasons refer to the first two documents, there is no mention of the third. Second, there is nothing to suggest that the Tribunal failed to afford Hua-Aus a reasonable opportunity to do any of the things listed in sub-paras (iv) to (viii) inclusive of the ground; rather, because Hua-Aus did not have legal representation during the hearing, or the benefit of legal counsel subsequent to the hearing in dealing with the documents it sought to tender and the submissions it sought to make, it did not avail itself of those opportunities. 55 There is no doubt, in my mind, that had Hua-Aus engaged competent legal representation to conduct the hearing of its application for review, many, if not all, of the difficulties of which it now complains would not have occurred. Rather than engage such representation, Mr Hua appeared on behalf of Hua-Aus (something he could not do in this Court without leave) and, in addition, put himself forward as the only witness to give evidence in support of its case. That was his choice and the fact that, out of ignorance, he did not avail himself of the same opportunities as a competent legal representative might have, does not constitute a denial of procedural fairness on the part of the Tribunal. 56 A further difficulty in the way of the hearing of the application before the Tribunal was that Mr Hua's lack of understanding and command of English required him to have recourse to an interpreter, both in answering questions put to him in cross-examination and in making his oral submissions to the Tribunal. This certainly did not help matters. 57 During the hearing of the appeal, I expressed my surprise at some of the aspects of the conduct of the hearing before the Tribunal, bearing in mind that Hua-Aus was represented by an unqualified person whose command of English required him to engage the services of an interpreter. There is no utility in detailing these aspects because I do not think any of them amount to a denial of procedural fairness on the part of the Tribunal. What it does throw up, however, is the need, in such circumstances, for a tribunal or a court to be acutely conscious at all times of those circumstances where they exist; and to be vigilant to ensure that, neither through oversight nor otherwise, the legally represented party does not secure some unintended procedural advantage.

Conclusion 58 As Burchett J observed in relation to Mr Ma (see [46] above) whether, ultimately, Mr Hua should be believed is not a matter for me; on a rehearing the picture may change colour altogether. 59 I have come to the conclusion that the Tribunal's decision is infected with legal error of the kind referred to in [35] and [36] above in relation to the first transaction and of the kind referred to in [45] above in relation to the second transaction. The appeal should be allowed and the Tribunal's decision set aside. Hua-Aus' application for review of the Commissioner's objection decision should be remitted to a differently constituted Tribunal to be determined according to law. The Commissioner must pay Hua-Aus' costs of the appeal. I certify that the preceding fifty-nine (59) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.

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