Year ended 30 June Gross Income Amount Taxable Income

$ $

1993 148,468 961 (L)

1994 226,030 901 (L)

1995 313,498 8,189 (L)

The amended taxable incomes adopted and assessed by the respondent and which are now conceded to be excessive are set out in the adjustment sheets (Exhibit F) as follows:

Year ended 30 June 1993 $

Taxable Income as returned 961 (L)

Omitted Income 188,940

Adjusted Taxable Income $187,979

Year Ended 30 June 1994

Taxable Income as returned 901 (L)

Omitted Income 218,099

Adjusted Taxable Income $217,198

Year Ended 30 June 1995

Taxable Income as returned 8,189 (L)

Omitted Income 159,330

Adjusted Taxable Income $151,141

1. The respondent having conceded that the assessments are excessive, does the onus placed on the applicant by s 14ZZK(b) of the Taxation Administration Act 1953 still apply? In this case the applicant has failed to show that the arbitrary assessments made by the respondent are incorrect. Neither has the respondent explained to the Tribunal the detail as to how the assessments of taxable income were calculated by the respondent's auditor.
2. In Trautwein v FC of T [1936] HCA 77; (1936) 4 ATD 48 at 79 Dixon and Evatt JJ were dealing with statutory provisions, quite different to s 14ZZK(b) in the Income Tax Assessment Act 1922 - an Act which did not have a provision similar to s 14ZZK. Their Honours said that the right of the taxpayer to relief against assessments of income tax was not merely to show that the assessment was erroneous but is a burden to show that the assessment should be reduced by some figure. That is the taxpayer must show that the Commissioner has sought to impose a liability in excess of the liability imposed by the legislation.
3. In my view it is not sufficient to show that some error has occurred if that error has not been quantified as to amount. This Tribunal should not speculate in the absence of evidence as to what the correct assessable income might be. To merely say that an assessment is excessive, as the respondent Commissioner has done in this case, is not to meet the burden imposed on the applicant by s 14ZZK. The Commissioner having conceded that the assessments are excessive, but having failed to quantify the excessive amounts, the burden remains on the applicant as to the quantum of the amount by which the assessments are excessive.
4. That the taxpayer has the burden of proving that the amount by which taxable incomes assessed is excessive is made clear by the decision of the High Court in F C of T v. Dalco 90 ATC 4088. As the Court recognised the mere fact of error in making an assessment under s 167 of the Act by the Commission does not prove that the assessment is excessive.
5. In Dalco Brennan J quoted with approval a dissenting judgment of Mason J in Gauci v. F C of T 75 ATC 4257 as the correct view of then s 190(b) of the Act, which is in terms similar to s 14ZZK, as follows:

"The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The implication of such a requirement would be inconsistent with sec. 190(b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail."

1. In FC of T v Munro 97 ATC 5041 the Federal Court (Lockhart J) held that the taxpayer in that case had not discharged the onus of proof in terms of s 14ZZK. That finding resulted in the appeal from a decision of the Tribunal being allowed and the Tribunal's decision set aside. The Tribunal had rejected the taxpayer's evidence preferring the only slightly more probable evidence of a third party. Lockhart J referred to the evidence relied upon by a Tribunal as "a shaky foundation". His Honour summarised the principles relating to onus of proof at pages 5049-50.
2. The applicant's evidence in this matter is deficient because his records for the relevant years of income are deficient and not because I formed an adverse impression of his evidence. I did however form an adverse impression because I am satisfied that the applicant was seeking to create a particular impression and dissembled when questions likely to lead to a contrary impression were put to him. However my lack of satisfaction with the applicant's evidence does not by itself constitute a failure to discharge the onus. I am still required to consider the material before me.
3. As Burchett J explained in Ma v FC of T 92 ATC 4373 I have to consider whether the applicant has proved sufficient to entitle him to have the assessments set aside. Section 43 of the Administrative Appeals Tribunal Act 1975 will then apply to empower the Tribunal to make a decision within the terms of the section. At page 4379 his Honour made comment on cases such as the one before him and the present case as follows:

"Furthermore, the making of estimates upon inexact evidence, which is so much a feature of both judicial and administrative decision-making, cannot be uniquely excluded from appeals against betterment assessments. To refuse to consider the credit, not only of the applicant, but also of his independent and unchallenged witnesses, simply because the effect of the evidence was to support his accountant's generalizations about double-counting rather than to hit upon a precise figure, was to fall into an error of law. If authority be needed for this proposition, it may be found in the decision of Walsh J, in Krew v. FC of T 71 ATC 4213_, to which Mr Gibb, with his usual frankness, referred me. That was a betterment case, bearing some similarity to the present in which Walsh J., in various parts of his judgment, acted on evidence that_ 'substantial' portions of sums of money represented the proceeds of gambling; expressly eschewed (at 4223) any attempt to reach a 'precise result' and acknowledged (at 4224) that his decision as to certain 'large payments' lacked 'satisfactory evidence of a specific kind', concluding nevertheless that it was 'probable that a large part of the money was derived from gambling', with the result that 'a somewhat arbitrary decision' was required, to some extent in favour of the taxpayer."

1. It follows, in my view, that I must accept that the applicant incurred factor charges and commissions in relation to business transacted with charge cards. Although neither party quantified these charges it is now the task of the Tribunal to do so. I am supported in that conclusion by dicta of Davies J in Saffron v FC of T 94 ATC 4049 @ 4051 where his Honour referred to the judgment of Burchett J in Ma and went on to say:

"If, despite the general untruthfulness of a witness and the lack of records, the Court or the Tribunal nevertheless feels satisfied, as a matter of probability, as to the existence of a relevant factor, effect must be given to that conclusion."

1. The applicant puts in issue the validity of the assessments which are the subject of the decisions under review. The issue, as I understand it, is whether the assessments were authorised by s 167 of the Act.
2. On the material before the Tribunal the respondent had reason to be not satisfied with the returns lodged by the applicant and was well justified, in my view, in making assessments of the amounts on which in his judgment income tax ought to be levied. It is well established that s 167 extends the power of the Commissioner under s 166 of the Act upon being satisfied in terms of s 167. I am satisfied that the Commissioner was correct, in the circumstances of this case, in so exercising the power. I am satisfied that the assessments, the subject of this review, were authorised by s 167.
3. For the above reasons I am satisfied that the objection decisions under review should be set aside and each of the objections remitted to the respondent with directions that the assessments are to be amended in each year to reduce each taxable income by $43,680.00 per year of income for receptionists' wages (in accordance with the respondent's concession), $22,331.00 per year of income for charge card commissions and factoring charges (the respondent conceded in principle).
4. In relation to additional tax I am not satisfied that the Commissioner was wrong in concluding that the Act imposed additional tax in the circumstances of this case.
5. Additional tax as tax shortfall interest imposed by s 170AA of the Act has been imposed for the years in dispute. Penalty tax imposed by s 226J of the Act was also assessed. It is not clear to the Tribunal how all the assessed amounts were determined. They are as follows:

Year ended 30 June Shortfall Interest Shortfall Penalty

$ $

1993 19,487.74 81,373.13

1994 14,639.45 72,135.24

1995 2,648.18 47,815.68

In relation to the shortfall penalty the respondent did not exercise the remission discretion in s 227(3) of the Act. Nor does it appear that the discretion contained in s 170AA(11) of the Act was exercised.

1. In essence s 226J operates to impose the shortfall penalty where the shortfall, or part of it, was caused by the intentional disregard by the taxpayer or the tax agent of the Act or the regulations.
2. Section 226J is, in my view, coloured by s 226H which imposes shortfall penalty caused by recklessness of the taxpayer or the tax agent with regard to the correct operation of the Act or the regulations. An intentional disregard must be something more than disregard for the consequences. In my view it suggests that the person must have acted with an actual intent to disregard the operation of the Act and regulations, ie, there must be an intent which transcends a reckless disregard.
3. In the light of the evidence I find it difficult to understand why s 226J is thought to be applicable. There is nothing in the evidence to indicate an intentional disregard for the Act by either the applicant or his tax agent. The evidence does however indicate a recklessness in the way the applicant dealt with his obligations under the Act. In Case 74/96 96 ATC 662 I discussed the operation of s 22H and concluded that it applied where there was gross carelessness without regard for the consequences. That is the situation in this case. I will therefore change the decisions under review so as to impose the shortfall penalty in accordance with s 22H and not s 226J as assessed by the respondent.
4. There is nothing in the material before me suggesting that the discretion in s 227(3) should be exercised in the applicant's favour and I so decide not to exercise the discretion.
5. I do not see any basis for exercising the discretion in s 170AA(11) and I so decide not to exercise the discretion.
6. The respondent has proceeded on the basis that the assessments which are the subjects of the objection decisions are amended assessments. I am not satisfied that any of those assessments are in fact amended assessments. However If I be wrong on that point I have come to the conclusion that s 170(2)(b)(ii) would be satisfied because there has been an avoidance of tax and the time limitation of making the amended assessment within four years of the original assessment could not be an issue given that the assessments in dispute were made in October 1996.
7. The respondent has submitted that the Tribunal increase the assessments for the years ended 30 June 1994 and 30 June 1995. While I accept that the Tribunal may have the power to do so in appropriate cases I am not satisfied that it would be appropriate to do so in the light of the respondent's concession that the assessments are excessive.
8. If the respondent is of the view that amended assessments are authorised then the respondent may take action to give effect to his submission. I do not propose to do so because I am not satisfied that the amended assessments would be authorised by s 170 of the Act.
9. The objection decisions under review will be set aside and each matter remitted to the respondent with directions as follows:
   • (a) as an arbitrary adjustment a deduction is to be allowed in each year of income under review for charge card factoring and commission charges amounting to $22,000.00 ($22,331.00 rounded down);
   • (b) as an arbitrary adjustment receptionists' wages paid in cash should be allowed to a total amount of $43,680.00 in each year of income under review;
   • (c) penalty tax for the tax shortfall is imposed by s 226H of the Act so as to impose additional tax equal to 50% of the amount of the shortfall after giving effect to paragraphs (a) and (b) of this decision; and
   • (d) I will certify that these proceedings have terminated in a manner favourable to the applicant.

I certify that this and the fifteen (15) preceding pages are a true copy of the decision and reasons for decision herein of Mr K L Beddoe (Senior Member)