Parekh and Commissioner of Taxation

[2020] AATA 3756

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(Decision by: Senior Member Theodore Tavoularis and Member Peter Ranson)

Richa Parekh
and Commissioner of Taxation

Tribunal:

Member:
Senior Member Theodore Tavoularis and Member Peter Ranson

Legislative References:
Income Tax Assessment Act 1936 - The Act
Taxation Administration Act 1953 - The Act

Case References:
Bosanac v Commissioner of Taxation - [2018] FCA 946
FCT v Cassaniti - [2018] FCAFC 212
FCT V Rigoli - [2013] FCA 784
Imperial Bottleshops Pty Ltd v Commissioner of Taxation - (1991) 22 ATR 148
Otway Pastoral Pty Ltd v Federal Commissioner of Taxation - [2005] AATA 649
Picton Finance Limited and Commissioner of Taxation - [2013] AATA 116

Hearing date: 19 July 2018, 20 July 2018 and 19 September 2018
Decision date: 24 August 2020

Brisbane
File Numbers 2017/2295-2296, 2019/6937-6938

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Decision by:
Senior Member Theodore Tavoularis and Member Peter Ranson

DECISION

The Tribunal affirms the Commissioner's objection decisions dated 16 February 2017 and 30 August 2019.

REASONS FOR DECISION

BACKGROUND

1. Mrunal Narendra Parekh (Mrunal) and Richa Parekh (Richa) are Indian nationals who have been resident in Australia for many years. Richa was raised in a family with traditional Hindu values. They live on the Gold Coast with their children. Mrunal and Richa live a lifestyle seemingly unsupported by the profits of their business. They drive a late model Porsche as well as ride a Harley Davidson motorcycle. There is a Mercedes-Benz parked in the driveway used by Mrunal, and Mrunal's father when he is in Australia, and they travel overseas extensively, usually flying business class (prior to COVID-19 lockdown). Their children attend a private school and Richa has an American Express Centurion Card, the holders of which are required to achieve a very high minimum spend per annum and have substantial income and net worth.

2. Mrunal's father is Narendra Jayantilal Parekh (Narendra) who lives in the city of Muscat in the Sultanate of Oman. Sajid Mohamad Ali Attar (Sajid) is a business associate and friend of Narendra. Both operate businesses of wholesaling and retailing perfumes in the city of Muscat.

3. Narendra and Sajid have an ongoing arrangement whereby at the request of one, the other will transfer funds to third parties if they are unable to attend their own bank to advance these funds. Funds advanced under this arrangement are considered a loan by the person transferring the funds to the person requesting the transfer and not a loan to the person receiving the funds. Narendra and Sajid do not document these loans, nor do they keep formal records of them. Each is confident they know at any given time the relative position of the loan balance as between themselves.

4. Over the years, Narendra and Sajid arranged numerous transfers of funds to Richa, either personally, to her solicitor's trust account or to her business, which Richa says were used to fund the deposit on the purchase of a home at Clear Island Waters on the Gold Coast (the Residence). Richa says the property was purchased for approximately $1.6 million with the assistance of these loan funds provided by Narendra and Sajid plus a home loan from National Australia Bank (NAB).

5. Mrunal has operated several businesses most notably Pinnacle Global Enterprises Pty Ltd ACN 143 376 658 (Pinnacle) and 365 Marketing Services Pty Ltd ACN 605 703 348 (365 Marketing). Pinnacle has since been deregistered and 365 Marketing is currently under external administration.

6. At various times, Mrunal and Richa have been associated with companies such as:

(a)

Universal Trading Strategies Pty Ltd (ACN 167 446 086) (Universal),

(b)

Accord Professional Group Pty Ltd (ACN 140 977 466) (Accord), and

(c)

Voss Capital Management Pty Ltd (ACN 154 822 590) (Voss).

Each of these companies has since been deregistered.

7. Mrunal was declared bankrupt on 14 November 2011 and was discharged on 15 November 2014. During this period and since, Mrunal was involved in numerous banking transactions in which large sums of cash were withdrawn from either Universal, Accord or Voss, which he says did not involve him other than his assistance in attending bank branches with representatives of the company from which the cash was withdrawn.

8. Richa has not lodged her personal income tax returns for the 2014 and 2015 financial years. In 2015, the Australian Taxation Office (the Commissioner) conducted an audit of Richa's taxation affairs for those years and concluded her taxable income was $244,352 and $1,861,276 respectively and accordingly issued default assessments for those amounts. Richa had sworn in an affidavit her taxable income was $28,000 for 2014 and $74,000 for 2015 and then her accountant subsequently conceded her taxable income was $145,248 and $376,939 respectively. The Commissioner initially considered Richa was in business and sought to treat her taxable income as inclusive of GST however that was later withdrawn. They did however discover further undisclosed income which resulted in amended default assessments based on taxable income of $480,436 for 2014 and $1,873,226 for 2015.

9. In accordance with relevant taxation laws, substantial penalties and interest charges have been applied to the income tax payable for 2014 and 2015 as identified by the Commissioner. The total amount owing according to the Commissioner is around $2M. Richa objected to the default assessments and the resultant penalties, which was substantially disallowed, and sought a review by the Tribunal of the objection decision dated 16 February 2017 (the First Objection Decision). Subsequently, on 8 March 2017 the Commissioner issued notices of amended assessment for the years ending 30 June 2014 and 30 June 2015 (the Amended Assessments). ^[1] The substantive hearings for the First Objection Decision were held in 2018.

10. The Commissioner granted an extension of time for the Applicant to lodge an objection to the Amended Assessments. That objection was lodged on 5 July 2019.^[2] The Commissioner made a further objection decision dated 30 August 2019 (the Second Objection Decision), which reduced her taxable income as shown below at paragraph [?29]. The Applicant applied for review of the Second Objection Decision before this Tribunal on 23 October 2019 (Second Application for Review).

11. Taxation laws in Australia operate to place the onus on the taxpayer (in this case Richa) to prove the assessments are excessive, and importantly to establish with certainty the correct amount of taxable income. Richa claims she cannot properly discharge the onus of proof required of her because her records and those of Universal were seized by the Qld Police Service in February 2016 yet that occurred well after the returns should have been lodged.

12. For the reasons set out below, the taxpayer, Richa, has not discharged the onus of proof the assessments were excessive, nor has she established with certainty the correct amount of taxable income for the 2014 and 2015 years. She has not established any special circumstances which may mitigate the penalties imposed..

ISSUES FOR DETERMINATION

Income tax

13. Richa failed to lodge her personal income tax returns for the years ended 30 June 2014 and 30 June 2015. As a result, in late 2015 the Commissioner conducted an audit of her taxation affairs by analysing her bank statements and discovered a series of unexplained deposits into her bank accounts. The Commissioner also determined Richa was in business and should be registered for Goods and Services Tax (GST) with an Australian Business Number (ABN). The Commissioner then issued default assessments and penalty notices on 16 December 2015.

14. The Statement of Issues, Facts and Contentions provided by the Commissioner dated 28 September 2017 (Respondent's SIFC) ^[3] sets out the details of those default assessments:

15. Richa's accountant is Mr Graeme Gillard of Accountants for Free Enterprise (Mr Gillard) and on 28 June 2016 he lodged an objection to the default assessments and penalties. He also provided the Commissioner with substantial further information on her behalf from then to 6 February 2017.

16. After considering the objection and the further information the Commissioner agreed GST did not apply to Richa's income however he found further unexplained deposits. On 8 March 2017 the Commissioner issued amended assessments for the 2014 and 2015 financial years and further penalty notices. The taxable shortfall amount, penalties and interest in dispute are also shown in the Respondent's SIFC as the following:

17. An application for review of a reviewable objection decision was lodged with the Administrative Appeals Tribunal (AAT) by Richa on 11 April 2017.^[8]

18. The default assessments are made under s 167 of the Income Tax Assessment Act 1936 (ITAA 1936). That places the onus in on the taxpayer, viz, Richa, to positively prove her actual taxable income. Discharging that burden of proof usually requires proper identification of the sources of Richa's income, an explanation of her income earning activities and an explanation of the source of her assets. It also requires her to prove what the assessment should have been. ^[9] This is issue number one.

Administrative penalties

19. Richa failed to lodge her personal income tax returns for the 2014 and 2015 financial years. She claims her husband Mrunal attended to such matters, as dictated by their culture, and she believed he had done so, notwithstanding it is her responsibility as the taxpayer to ensure her lodgment obligations are met. In any event, the returns were not lodged, and the Tribunal has no evidence before it to indicate they have been lodged even now. As a result, the Commissioner was required to determine her taxable income in the absence of those returns and did so by analysing the flow of funds through her various bank accounts.

20. Where the Commissioner determines a taxpayer's taxable income without the assistance of a lodged tax return, the Taxation Administration Act 1953 (TAA 1953) provides for an administrative penalty of 75% to be applied to the tax shortfall.^[10] Remission of administrative penalties can occur if there are special circumstances, which is discussed later in this decision.

21. Further, where a taxpayer has been previously liable for an administrative penalty, an uplift of 20% of that penalty applies in subsequent years.^[11] The meaning of 'previously liable' is discussed in detail later.

22. Issue number two is whether Richa should be liable for administrative penalties of 75% of the tax-related liability arising from the Commissioner's determination of her income for those years and whether those penalties should be increased by 20% in the 2015 year if she had been previously liable for such penalties, viz, for the 2014 year.

Interest

23. Shortfall interest charge (SIC)^[12] is applied to income tax shortfalls for the period before assessments are amended and generally from the due date for payment of the earlier, understated assessment until the day before the notice of amended assessment is issued. SIC is calculated on a daily compounding basis using a base interest rate and an uplift factor.^[13]

24. The penalties and interest shown above compromise the following:

25. In the Second Objection Decision the Commissioner exercised his discretion to remit in full the additional penalties, shown above as $69,474.55 for the 2014 financial year and $5,269.95 for the 2015 financial year, imposed and assessed on 8 March 2017^[22]. On 18 October 2019 the Applicant applied for a review of the Second Objection Decision and at section 3 noted she is satisfied with and does not seek a review of the Second Objection Decision is relation to the penalty assessments for the years ended 30 June 2014 and 2015.

GST not applicable

26. The Commissioner initially found Richa was carrying on an enterprise of providing services to several companies including Pinnacle of which she was the sole director and shareholder. The Commissioner formed the view the provision of those services was IT consulting and Richa was making taxable supplies. s she had exceeded the relevant turnover threshold of $75,000 p.a., she was liable for GST on those supplies as they were not GST free or input taxed.^[23]

27. In the objection decision of 16 February 2017, the Commissioner conceded Richa was not in business as an individual and the GST assessments for the BAS quarters from 1 July 2013 to 30 June 2015 were withdrawn.^[24]

28. The Commissioner recomputed the default assessments to add back the GST previously deducted.

29. On 30 August 2019, the Commissioner made a further decision in relation to the Applicant's objection dated 5 July 2019^[25] in which the taxable incomes were reduced as follows.

30. Further, the Commissioner exercised his discretion to reduce the penalties^[26] as follows:

PRELIMINARY MATTERS

Procedural history

31. An oral hearing of the application for review was conducted by Senior Member Tavoularis over three days on 19 July 2018, 20 July 2018 and 19 September 2019. The hearing time was largely taken up with oral evidence by Richa, Mrunal, Narendra and Sajid.

32. At the conclusion of the oral hearing on 20 July 2018, Senior Member Tavoularis allowed time for written closing submissions to be filed. Those final submissions were heard on 19 September 2019.

33. On 15 November 2019, Senior Member Tavoularis directed, and with the consent of the parties, the applications 2017/2295-2296 & 2019/6937-6938 be determined together and were to be reserved as at this date.

34. After a discussion with the parties' representatives at a directions hearing held in June 2020, and after consideration of the voluminous material filed by the applicant, in particular Exhibit 9 and Exhibit 6 being an Affidavit from Richa dated 17 October 2017 and the attachments thereto, it was determined consideration of the matter would benefit from including a Member with specialist skills in accounting. Member Ranson was then constituted to the Tribunal.

35. The reconstituted Tribunal, viz, Senior Member Tavoularis and Member Ranson, had the benefit of the transcript and a complete audio recording of the hearing. After listening to the audio recording and reviewing the transcript, all witness statements, other documentary evidence and written submissions, the Tribunal is satisfied it can decide the matter in a way that provides procedural fairness to both parties.

Evidence

36. A list of the documents which were admitted into evidence has been annexed to this Decision at 'Attachment A':

Burden of proof

37. In Bosanac v Commissioner of Taxation [2018] FCA 946 (Bosanac), Stewart J found:

'The onus is on the taxpayer to prove on the balance of probabilities the extent to which an impugned assessment is excessive. Where a taxpayer fails to retain records, which evidence the course of a business, or fails to create such documents, he or she may well face a great difficulty in demonstrating excessiveness. This was the very problem which the applicant faced here.'^[27]

38. In the words of the learned Judge from the previous paragraph, this is the very problem which the applicant, viz, Richa, faces in this review.

Facts based on oral evidence

39. The Tribunal's approach to evaluating the evidence contained in the exhibits and the oral evidence given at the hearing is based on the following principles:

(a)

Facts may be found based on oral evidence alone. There is no barrier to a fact being found on the uncorroborated evidence of an applicant. There is no requirement that direct evidence by oral testimony or affidavit may only be accepted if corroborated.

(b)

Self-serving statements should be closely scrutinised, that is, tested thoroughly and received with great caution.

(c)

In respect of income tax, where a taxpayer has received funds that are not explained in contemporaneous records, the taxpayer may face a challenge in satisfying the burden of proof without corroborating evidence.

(d)

Evidence of a taxpayer is not to be regarded as prime facie unacceptable. While it is often prudent to put forward corroborating evidence, taxpayers are not obliged to call all material witnesses or produce all material documents.^[28]

LEGAL FRAMEWORK

S166 & S167 of the ITAA 1936

40. Section 166 of the ITAA 1936 provides as follows:

166 Assessment

From the returns, and from any other information in the Commissioner's possession, or from any one or more of these sources, the Commissioner must make an assessment of:

(a)

the amount of the taxable income (or that there is no taxable income) of any taxpayer; and

(b)

the amount of the tax payable thereon (or that no tax is payable); and

(c)

the total of the taxpayer's tax offset refunds (or that the taxpayer can get no such refunds).

41. Section 167 of the ITAA 1936 provides as follows:

167 Default assessment

If:

(a)

any person makes default in furnishing a return; or

(b)

the Commissioner is not satisfied with the return furnished by any person; or

(c)

the Commissioner has reason to believe that any person who has not furnished a return has derived taxable income;

the Commissioner may make an assessment of the amount upon which in his or her judgment income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of section 166.

42. In FCT V Rigoli [2013] FCA 784 (Rigoli) ^[29], the court held: 'Section 167 does not in terms require the Commissioner to make an assessment of a taxpayer's 'taxable income' but, in contrast to s 166, has the effect of deeming as the taxpayer's 'taxable income' the amount which upon his judgment income tax ought to be levied...'. That is, s166 of the ITAA 1936 requires the Commissioner to assess a taxpayer's taxable income and the tax payable thereon whereas s167 of the ITAA 1936 only requires the Commissioner to assess the amount upon which income tax ought to be levied. The amount so determined effectively becomes the taxable income.

Penalties & interest

43. The Commissioner can impose administrative penalties in certain circumstances under s284-75 of the TAA. Because Richa has not lodged her 2014 and 2015 tax returns, the operative provision for this case is s 284-75(3) of the TAA 1953 which states:

4 You are liable to an administrative penalty if:

(a)

you fail to give a return, notice or other document to the Commissioner by the day it is required to be given; and

(b)

that document is necessary for the Commissioner to determine a tax-related liability (other than one arising under the Excise Acts) of yours accurately; and

(c)

the Commissioner determines the tax-related liability without the assistance of that document.

44. Section 284-90 of the TAA 1953 then provides details of the base amount of the penalty from a table. Item 7 of the table applies in this case as it relates back to the penalty imposed under s 284-75 1953. Item 7 says:

You are liable to an administrative penalty under subsection 284-75(3): 75% of the tax-related liability concerned.

What does previously liable mean?

45. Section 284-220 of the TAA 1953 deals with increases in the base penalty amount and reads as follows:

5 The base penalty amount is increased by 20% if:

...

(e)

your liability to a penalty arises under subsection 284-75(3) and you were previously liable to a penalty under that subsection.

46. The meaning of previously liable is the subject of much debate in this case and is considered later in this decision.

WRITTEN AND ORAL EVIDENCE

47. Witness statements were received from Sajid and Narendra and affidavits were received from Mrunal and Richa. They gave their oral evidence at the hearing in that order.

Witness statements of Sajid

48. Sajid provided a witness statement dated 21 August 2017 (Sajid's First Witness Statement) ^[30] and a supplementary witness statement dated 18 May 2018 (Sajid's Supplementary Witness Statement) ^[31].

49. Sajid's First Witness Statement begins by explaining he has known Narendra for over 20 years, and they have: 'an ongoing arrangement for the transfer of funds to third parties when either Narendra or I are unable to attend our bank to advance those funds from our own account. Any funds advanced under this arrangement are considered a loan by the person transferring the funds to the other person. For example, if Narendra requested that I transfer funds to third party, in those funds would be a loan from me to Narendra.'

50. This statement goes on to identify an account with the National Bank of Oman in the name of Sajid (NBO #9001) and identifies two transactions under the loan arrangement with Narendra as described above. Those transactions were $40,000 on 21 September 2014 and $45,000 on 29 September 2014 both of which were sent to Hannay Lawyers' trust account. There are four attachments to the statement marked as SA1 to SA4, which provides documentation to confirm the transfers from NBO #9001 to Hannay Lawyers' trust account.

51. Sajid's Supplementary Witness Statement restates his long-standing business and personal friendship with Narendra and by association Narendra's son Mrunal. It goes on to describe in detail the circumstances around a loan of $150,000 in 2010 to a company called Quick Loan Group Pty Ltd ACN 133 992 720 (Quick Loans) operated by Jason Fakhri, which he asserts was repaid in full by Mrunal after Jason Fakhri left the country later that year. The statement lists a series of 20 payments between 3 May 2013 and 3 July 2014 which total $100,968.43 said to be the repayment of the loan. Sajid asserts the amounts he received approximated the amount of the loan when adjusted for exchange rates at the time. The Tribunal has significant misgivings that exchange rate fluctuations alone would account for the shortfall of approximately $49,000 and notes Mrunal was an undischarged bankrupt during this period. Quick Loans was deregistered on 31 March 2012.

52. Sajid's Supplementary Witness Statement also describes the circumstances of the line of credit of $270,000 to be made to Richa at the request of Narendra in January 2016. He specifies the loan was to be secured by a registered mortgage over the Residence. Amounts of $74,580.38 and $72,850.64, in total $147,431.02, were transferred to Hannay Lawyers' trust account in January and February 2016 respectively.^[32] As set out in Sajid's First Witness Statement, Sajid had previously loaned $85,000 to Richa by transfers to Hannay Lawyers' trust account making a total advance of $232,431.02. The terms of this loan are said to be a term of one year with interest 'At the rate for National Australia home loans the [sic - then] prevailing'.^[33]

53. The reference above to 'Hannay Lawyers' trust account' is a reference to the Law Practice Trust Account of Hannay Lawyers with Suncorp-Metway account number ending 5936.

54. The T-Documents contain a copy of a mortgage form dated 16 June 2016 showing the mortgagor as Richa and the mortgagee as Sajid with the amount secured as $270,000.^[34]

55. The remainder of Sajid's Supplementary Witness Statement concerns itself with detailing five payments totalling $120,000 made between 15 June 2016 and 14 March 2017 being funds transferred by Sajid to 365 Marketing as part of the line of credit of $270,000 for Richa. Sajid's Supplementary Witness Statement does not include any annexures or attachments.

56. In summary, Sajid says he has a long-standing arrangement with Narendra whereby they cover for each other by transferring funds when requested to do so. Importantly, this loan arrangement is between Sajid and Narendra regardless of where the funds were transferred. He lists various amounts he says were transferred to or for the benefit of Richa into the trust account of Hannay Lawyers. However, there are no contemporaneous records confirming that have been provided or alluded to exist. No explanation is given as to why the funds were sent to Hannay Lawyers' trust account. The Tribunal notes most of the funds sent to Hannay Lawyers were ultimately transferred to Richa. The inevitable question thus becomes: why then not transfer them to her directly in the first instance? Curiously, Narendra acknowledges the amounts of $40,000 and $45,000 but not the amounts of $74,580.38 and $72,850.64. Given the loan arrangement is stated by both Sajid and Narendra to be as between themselves, the further question becomes: why do the amounts not correlate and why is security taken over someone else's property?

57. Mr Coveney for the Commissioner questioned Sajid at length during the Hearing about the veracity of his witness statements implying they were prepared by others and he just signed them because he was asked to. The transcript clarifies this. Bearing in mind the language difficulties of English not being Sajid's first language, the Tribunal is satisfied he did provide information such as bank statements from which Stone Group Lawyers prepared the witness statements. Solicitors are officers of the court and so are to be believed. It is common for solicitors to prepare affidavits and witness statements for their clients from the information provided to them. To assist the reader of the document they arrange the information in an orderly fashion and with brevity to make them intelligible. In the final analysis, Sajid signed the affidavits and accepted them as them as his own.

58. The Tribunal concludes a loan arrangement probably exists between Sajid and Narendra and some funds may have been sent to Richa as part of that arrangement and at the request of Narendra however, the amounts said to be the subject of the mortgage are not acknowledged by Narendra. The reference to the funds said to be loaned to and repaid by Smart Loans is dubious at best and its relevance to this case is not apparent. The Tribunal finds the evidence of Sajid to be both unconvincing and unreliable and, ultimately, does not assist Richa in discharging the onus of proof.

Witness statements of Narendra

59. Narendra provided a witness statement dated 26 September 2016 (Narendra's First Witness Statement) ^[35] and a supplementary witness statement dated 18 May 2018 (Narendra's Supplementary Witness Statement) ^[36]. During his oral evidence on day one of the hearing, 19 July 2018, counsel for the Applicant, Mr Anderson, drew Narendra's attention to the date of his first witness statement and pointed out the proceedings had not commenced by 26 September 2016. Narandra was asked what the correct year was, and he responded 2017.^[37] Accordingly, whilst Narendra's First Witness Statement is dated 26 September 2016 it is to be regarded as having been signed on 26 September 2017.

60. Narendra confirms he is the father of Mrunal and has provided loans to Mrunal and Richa to assist them with their living expenses 'during times of financial difficulty'. Narendra does not explain the meaning of the term 'financial difficulty' in this context. He was unable to provide any comprehensible or rational explanation of what he meant by that term when asked about that during cross examination. The Tribunal notes Mrunal concluded his three-year period of bankruptcy on 15 November 2014. Mrunal conceded in his oral evidence at the hearing these arrangements were not disclosed to his trustee in bankruptcy.

61. Mrunal states he advised Narendra in August 2014 that Richa and he were looking to purchase a residence and accordingly on 14 August 2014, three months before the end of Mrunak's bankruptcy, Narendra wrote to Mrunal and Richa setting out the terms of the loan they sought (the Loan Offer). ^[38] Mrunal conceded in his oral evidence at the hearing these arrangements were not disclosed to his trustee in bankruptcy.

62. The terms of the Loan Offer are short on detail however it does specify Narendra required mortgage security over the property as a condition of the loan, utilising a document to be prepared by Mrunal's lawyers in due course. He also states in accordance with their faith he will not charge any interest on the money loaned.

63. He goes on to list the following transfers of funds he says were made as loans to Richa:

64. On 23 March 2015, a loan agreement was signed between Narendra as lender and Richa as borrower (the Narendra Loan Agreement). ^[45] The loan amount is $1,007,632.23, being amounts loaned prior to November 2014 of $336,250 plus amounts loaned in or about October and November 2014 of $671,382.23. The term of the loan is 10 years from the date of the agreement and there is nil interest, which is consistent with the comment made in Narendra's first witness statement. Security for the loan means a registered mortgage over the Residence in an amount of $1,000,000. Repayment in full is due on sale of the property or 10 years whichever occurs first. This means Mrunal and Richa have an interest free loan of $1,007,632.23 for 10 years unless they sell the property in the meantime.

65. A title search conducted on 9 March 2016 reveals Narendra holds a registered mortgage dated 17 September 2015 in respect of the Residence.^[46]

66. The Tribunal notes the 11 payments listed above at paragraph [?63] total $774,772.08, being six payments from Narendra, two payments from Sajid, two payments from AGCL and one payment from Greenhouse. The Narendra Loan Agreement identifies the loan amount $1,007,632.23 and there is no credible evidence or explanation before the Tribunal to explain the difference of $232,860.15. This amount is very close to the amount Sajid says he also loaned to Richa, via payments to Hannay Lawyers' trust account ($232,431.02) however neither Narendra nor Sajid acknowledge this and the Tribunal is not here to speculate.

67. Mr Gillard wrote to the Commissioner on 13 September 2016 and at item 1 of his email he lists a series of payments totalling $200,000, being 13 payments of $10,000 plus two payment of $35,000, said to be amounts paid to Narendra over the period 12 January 2014 to 10 June 2015.

68. In Narendra's First Witness Statement he sets out at paragraph 11 a series of amounts in Omani Rials (OMR) which he says are payments received from Richa during the period 15 January 2015 to 19 August 2015. Attachments marked NP13 and NP14 are copies of bank statements from HSBC and Bank of Muscat showing these deposits into accounts in the name of Narendra. The Tribunal has checked the amounts shown in the witness statement to the amounts shown on the bank statements and confirms they agree, save for the omission from the list of an amount received on 11 June 2015 of OMR2,929.598, as shown on the statement at NP14. The Tribunal considered the likely exchange rates at the various dates contemporaneous with when these transactions occurred. It seems clear funds totalling A$200,000, which reflects OMR59,870.921 received during a similar period,^[47] were transferred by or on behalf of Richa to Narendra.^[48] However, the period is 15 January 2015 to 2 July 2015, as confirmed in Mrunal's affidavit^[49] and not 12 January 2014 to 10 June 2015 as set out in Mr Gillard's letter.

69. Narendra's First Witness Statement also lists two payments in August 2015 totalling OMR27,620.841 (approximately A$97,400). The Tribunal has checked these payments against to the bank statements provided and notes they indicate these amounts were paid to Narendra by Pinnacle and not by Richa.

70. The Tribunal concludes the entries dated 2014 as shown in Mr Gillard's letter should be dated 2015 and the list in Narendra's First Witness Statement omits the deposit on 11 June 2015 as shown on the Bank of Muscat statement. Save for those discrepancies, the Tribunal is satisfied Narendra received funds totalling OMR87,491.762 (approximately A$297,400) from Richa and Pinnacle respectively. What is not identified is a source of the funds used to make these payments.

71. Narendra's Supplementary Witness Statement was provided for the purpose of correcting statements made in his First Witness Statement. Narendra's Supplementary Witness Statement refers to Narendra signing a defective mortgage document (the names of the mortgagor and mortgagee were reversed) in March 2015.^[50] He states he doesn't have a copy of the signed defective mortgage document and once informed of its defectiveness a replacement was prepared.^[51]

72. At paragraph 7 of Narendra's Supplementary Witness Statement, he states: 'On 20 August 2015, I attended the Embassy of India in Muscat, Oman to execute a copy of the mortgage form with the correct parties named as mortgagor and mortgagee'. He goes on to say at paragraph 8, on or around the same day he posted the executed mortgage form to Mrunal and in paragraph 9 he states Mrunal contacted him in September 2015 to inform him he was required to provide a solicitor at Hannay Lawyers with instructions to execute the mortgage form on his behalf. He says he subsequently instructed Mr Mark Donnelly of that firm to do so. The copy of the executed mortgage document shows it was signed by Richa on 27 August 2015 and by Narendra on 10 September 2015, which corroborates this assertion.

73. Mr Coveney similarly attempted to challenge the witness statements of Narendra as he did for Sajid. In terms of credibility and reliability, the Tribunal has formed a similar opinion about Narendra's witness statements as it did for Sajid.

74. In summary, Narendra says he provided funds to Mrunal and Richa to assist them with financial difficulties but was unable to explain what financial difficulties they were experiencing. As will be seen later, Mrunal and Richa were travelling overseas at the time they were said to be experiencing financial difficulties. There was a loan offer to assist with the purchase of the Residence and subsequently a loan agreement secured by a registered mortgage. Copies of bank statement entries are provided however they mean little without proper documentary evidence to support them and this was not provided. The amounts said to be transferred to or for Richa are less than the amount claimed. This may be explained by the funds provided by Sajid however neither of Narendra nor Sajid attest to this. Some of the funds are said to have been provided by a Mr Baluchi and a Mr Sheth however the documentary evidence provided in support of those amounts is very sketchy and insubstantial.

75. As for Sajid, the Tribunal concludes a loan arrangement probably exists between Sajid and Narendra and funds were sent to Richa possibly as part of that arrangement and at the request of Narendra. However, there is a discrepancy between the amounts said to be sent by Sajid, which are not acknowledged by Narendra. Narendra has a mortgage for $1,000,000 yet provided $774,772.08. If the difference is explained by the amounts said to have been loaned by Sajid, why did Sajid require a mortgage? Execution and registration of the two mortgages meant the debt of $1,007,632.23 is purportedly secured by two mortgages totalling $1,270,000. The most plausible explanation for this contrivance is surely that the mortgages were generated after the advance of the subject funds in order to lend some measure of efficacy and commerciality to the arrangement. Accordingly, the Tribunal finds the evidence of Narendra, like that of Sajid, to be fundamentally lacking in both credibility and reliability such as to not assist Richa in discharging her onus of Proof.

Mrunal's evidence

76. Mrunal provided three affidavits in this case. They are dated 18 August 2017 (Mrunal's First Affidavit) ^[52], 17 October 2017 (Mrunal's Second Affidavit) ^[53] and 18 May 2018 (Mrunal's Third Affidavit). ^[54]

77. Mrunal's First Affidavit states in 2010 he organised the incorporation of Pinnacle with the assistance of Mr Gillard and arranged for Richa to attend the office of Mr Gillard to sign the relevant documents. At that time, he asserts he was suffering significant financial difficulties as a result of the Global Financial Crisis (GFC) which ultimately led to his filing for bankruptcy in November 2011.

78. Pinnacle, he says, was operated by him from home during the 2014 and 2015 financial years as a commercial vehicle to sell lead information to businesses for marketing purposes. He confirms he was neither a shareholder nor director of Pinnacle and did not draw a wage from the company during those years, and the business was shut down in late 2015. An online search of company records maintained by the Australian Securities & Investments Commission (ASIC) reveals Pinnacle was deregistered on 25 September 2017.

79. Mrunal states he personally prepared all the company's invoices although he did not maintain a register of those invoices and there were no staff to perform ancillary functions such as maintaining company records. All invoices had to be paid in advance so there were no debtors. If, as Mrunal contends, Mr Gillard was provided with all relevant documentation from which to prepare tax returns for the company, then why were the returns not prepared and lodged? While not directly relevant for present purposes, Mrunal states the Commissioner issued a default assessment to Pinnacle in December 2015 concurrent with issuing default assessments to Richa.

80. Mrunal states Richa had no active involvement in the running of Pinnacle as that was all attended to by him. She was paid a weekly wage of $2,000 by online banking transfer from one of the company's Westpac bank accounts. That implies Richa was paid a wage of $104,000 per annum for each of the 2014 and 2015 financial years, which is very different to her sworn position of $28,000 for the 2014 year and $74,000 for the 2015 year, both of which are, in turn, completely contradictory to the combined amount of $522,187.66 conceded to be income for the 2014 and 2015 years as shown in the email of 10 March 2016 to the ATO from Mr Gillard.^[55]

81. Mrunal's First Affidavit states Richa would attend various banking institutions at his request to open accounts and attend to major transactions but was otherwise uninformed about how the company was operated. Because of their cultural background and upbringing, Mrunal had complete control of Richa's personal finances including her bank accounts and made all financial decisions for her. Mrunal also asserts Richa would occasionally accompany him to the offices of clients and potential clients without knowing those persons were clients of Pinnacle. Whilst their cultural beliefs may have dictated such a relationship, it in no way absolves Richa from discharging her taxation obligations and those of Pinnacle of which she was the sole director and public officer.

82. According to Mrunal, Richa had an account with American Express utilised by Richa and him, to which the following cards were connected:

83. American Express Centurion Card is required to achieve a very high minimum spend per annum and have substantial income and net worth.^[56] On that basis, American Express must have been provided with information to give it confidence Richa had a substantial income and high net worth. The Tribunal doubts the declared income of $28,000 and $74,000 would be enough for American Express to approve a Centurion Card.

84. The American Express cards, it is claimed, were utilised for the purpose of accumulating reward points for the benefit of Richa. To that end, Mrunal says expenses for Pinnacle were paid for on one of the above cards and purchases were made on behalf of Pinnacle's clients.

85. Mrunal asserts he was in the process of preparing a business plan to develop a website for the sale of airfares and accommodation from which to directly market his database of leads. To facilitate that, he says, he travelled to New York and from there to Niagara Falls in July 2014, Phuket in December 2014 and Cairns in March 2015. The business plan was never finished as the company ceased trading in late 2015. There is no evidence before the Tribunal to corroborate the existence of the business plan or the travel said to facilitate it.

86. Interestingly, Richa provided evidence in her Affidavit of 16 August 2017^[57] of travel to New York, Niagara Falls, Phuket and Cairns booked through Flight Centre and paid for using one of the American Express cards and not points accumulated from their use.

87. Mrunal's First Affidavit provides a list of funds he says were transferred by him from Richa's Westpac account #6655 to Pinnacle's Westpac account #8433^[58] as follows:

88. Mrunal does not state the source of these funds however it is it implied from his evidence generally these funds were accumulated from loans received from Narendra.

89. Set out in paragraph [?63] above is a list of funds said to be loaned to Richa by Narendra and others. Save for differences resulting from exchange rates and bank fees that list is replicated in Mrunal's First Affidavit.^[59]

90. He then goes on to state that on 10 November 2014, $183,666.71 was transferred from Hannay Lawyers' trust account to Richa's NAB Classic Account ending 0231 (NAB #0231). These funds he says had been accumulated in Hannay Lawyers' trust account for convenience as they were handling the conveyance of the Residence. He does not state the source of these funds however like the previous list it can be implied from his evidence these funds were accumulated from loans received from Narendra or on his behalf.

91. The Tribunal has ascertained Narendra sent funds totalling $165,806.87 to Hannay Lawyers' trust account and Sajid sent funds totalling $232,431.02 to Hannay Lawyers' trust account, giving a combined total of $398,237.89. There is no explanation as to how the difference of $214,571.18 ($398,237.89 less $183,666.71) was used. Again, it can be reasonably implied these funds were used as part of the settlement on the purchase of the Residence although there is no evidence to support that. At paragraph 63 of Mrunal's First Affidavit, Mrunal states: 'In December 2014, I informed my Father that the total sum of the monies referred to in paragraph 59 herein, were used to purchase a property located at [address redacted], Clear Island Waters'.

92. The Tribunal has not been provided with a copy of the contract for the purchase of the Residence nor the settlement statement. These documents, if they exist, would have been useful evidence to corroborate the claims about funds loaned to Richa to assist with the purchase of that property.

93. Mrunal then goes on to list a series of repayments said to have been made by or on behalf of Richa to Narendra during the period 12 January 2014 to 10 June 2015, which is consistent with the evidence of Narendra. Mrunal does not include two payments made by Pinnacle to Narendra in August 2015 totalling OMR27,620.841.^[60] These repayments are discussed in detail at paragraphs [?67] and ?68] above.

94. Mrunal's First Affidavit then turns to describing a series of transactions involving the sale of gold. First, he says on 3 March 2014 he and Richa travelled to the Brisbane office of Cash for Gold Australia Pty Ltd (ACN 075 696 178) (CGA) where they exchanged 10 items of gold jewellery for a loan of $15,000 under a pawn arrangement. The jewellery items are said to have been gifts from Narendra to Richa and him over several years. He refers to a deposit on 3 March 2014 shown on the bank statement of Westpac account #6655 of that amount accompanied by the narration 'Cash for Gold'.^[61] There is no other documentary evidence provided to corroborate this transaction nor is any explanation given as to whether the loan was ever repaid.

95. He then states on 25 May 2015 he met again with the owner of CGA and reached a verbal agreement to sell a 1 kg bar of gold, which he said had come into his possession because he traded 1 kg of smaller pieces of gold for the 1 kg bar of gold. The 1 kg bar of gold was sold to CGA for $51,403. He refers to a deposit on that date shown on the bank statement of Westpac account #6655 of that amount however this entry is accompanied by a narration with a series of reference numbers rather than the narration 'Cash for Gold'.^[62]

96. In summary, 10 items of gold jewellery were pawned for $15,000 in March 2014 and 1 kg of small pieces of gold were exchanged with an unidentified person for a 1 kg bar of gold which was then sold to CGA for $51,403 in May 2015. In both cases the funds were deposited into Richa's Westpac account #6655. There is no explanation as to why these transactions do not give rise to a capital gains tax (CGT) event as collectibles (or otherwise) and the tax consequences arising from such dispositions.

97. Mrunal's First Affidavit concludes by describing the circumstances in February 2016 during which the Queensland Police Service seized his computer and his subsequently unsuccessful court challenge to gain access to the contents of that computer.^[63] The seizure of these records is not seen as an impediment to lodging the outstanding tax returns for the 2014 and 2015 years and is discussed in detail at paragraph 121.

98. Mrunal's Second Affidavit lists a series of 43 bank transfers from Richa's Westpac #6655 or her Westpac Altitude Card to various other accounts. Below is a summary of those transfers:

99. Of the above total amount, $2,900 came from her Westpac Altitude Card #1310 and $15,000 came from her Westpac Altitude Black card #0858. The balance was all transferred from her Westpac #6655. Apart from the amount of $730,000 no explanation is given as to the source of the other funds. 100. Mrunal's Second Affidavit lists a series of 155 bank transfers from either of Pinnacle's Westpac #8425 or #8433 to various other accounts. Below is a summary of those transfers:

101. No distinction is made as to the which account the above funds came from because both accounts were held by Pinnacle. No explanation is given as to the source of these funds.

102. He then seeks to clarify his previous affidavit of 18 August 2017 in relation to the sales of gold. Mrunal's Second Affidavit lists a series of transactions he says are sales of gold. They are as follows:

103. All the above invoices are supplied from an organisation called the trustee for the Salib Family Trust, ABN 60 207 917 153. CGA is the initialisation of 'Cash for Gold Australia'. PMR is a reference to 'PMR Australia' being the name shown on the relevant tax invoice.

104. The Tribunal notes this further evidence^[64] makes no reference to the asserted $15,000 loan received for pawning 10 items of gold jewellery referred to in paragraph 66 and 67 of Exhibit 4. The total of the two PMR tax invoices as shown above corroborates paragraph 73 of Exhibit 4 referred to above at paragraph [?95] of these Reasons.

105. Mrunal's Second Affidavit concludes by stating at paragraph 210 he believes Richa's taxable income for the rendered 30 June 2014 should have been $28,000 and for the year ended 30 June 2015 it should have been $74,000. As stated above, this affidavit is dated 17 October 2017 yet in the email to the Commissioner on 10 March 2016, Mr Gillard provides an analysis on a page by page basis of the various transactions included in the list of unexplained deposits compiled by the Commissioner and offers a purported explanation for various transactions with the balance of the transactions on that page described as 'the taxpayer concedes as income'. The total of the amounts so described is $522,187.66 being $145,248.64 for the 2014 year and $376,939.02 for the 2015 year.

106. The Commissioner obtained copies of reports from the Australian Transaction Reports and Analysis Centre (AUSTRAC) which reveal a series of transactions where cash was withdrawn from each of Voss^[65], Accord^[66] and Universal^[67].

107. Mrunal's Third Affidavit begins by asserting he paid for business expenses on behalf of Voss and Accord. Mrunal states he assisted the owner of Voss and Accord, Mr Jack Doumani (Mr Doumani), who he claims to have known for at least eight years, by acting as Mr Doumani's agent and attending bank branches to withdraw cash funds on his behalf. These funds are asserted to have been used to pay company expenses including wages and subcontractors. Mr Dean McCarthy is recorded as a director of Universal. He has been known to Mrunal for 12 years. Due to certain health issues adversely affecting Mr McCarthy, Mrunal claims to have assisted him in the proper administration of Universal's affairs. Mrunal says he did this by acting as Mr McCarthy's agent and attending bank branches to withdraw funds for payment of necessary company expenses and other disbursements including wages and subcontractors.

108. Mrunal insists his participation in the assisting with cash withdrawals on behalf of Voss, Accord and Universal did not provide any benefit to Richa or him as the cash withdrawn was handed over intact to the company representative who attended the bank branch with him. The company representative he recalls was usually but not always the bookkeeper of the respective company.

109. The Tribunal has analysed the AUSTRAC reports referred to in paragraph [?106] above which revealed the following amounts were received predominately by Mrunal:

110. There are 18 separate transactions involved in the above amounts of which nine were cheques cashed. The AUSTRAC reports also reveal Sajid received $118,876 and Narendra received $3,840 by way of electronic funds transfers from these three companies during the same period.

111. Accompanying Mrunal's Third Affidavit are a series of attachments including copies of bank statements for Voss and Accord. Curiously, these statements reveal several payments narrated as 'subcontractor', for example, Voss Westpac #1162 on 1 August 2013, 8 August 2013, 15 August 2013, 21 August 2013 and Accord Westpac #2313 on 12 August 2013. This is despite the assertion by Mrunal that funds withdrawn as cash were handed to the bookkeeper, or other company representative, and used to pay company expenses including sub-contractors. Bank statements for Universal were not provided.

112. The Tribunal has significant misgivings about, and ultimately refuses to accept, that Mrunal cashed nine cheques and participated in 18 cash withdrawals totalling $396,206 in just over two years just to help friends in business and for no personal gain to himself or his family. The funds transferred to Sajid are not mentioned in any of the witness statements or affidavits nor in the Applicant's SIFC.

113. Under a heading 'Loan from Sajid' Mrunal says he contacted his father, Narendra, in January 2016 and requested that he contact Sajid to arrange a loan to Richa. Sajid agreed to provide a loan of $270,000 to be secured by a mortgage over the Residence. The Tribunal finds it both strange and inconsistent for Mrunal to request his father approach Sajid. Both Narendra and Sajid have asserted in their witness statements the arrangement as between them was to loan to one another regardless of who the ultimate recipient of the funds was. If the arrangement as between Narnedra and Sajid is as they say, all Mrunal had to do was approach his father for the loan. If Narendra did not have the funds or could not get to his bank to arrange the transfer, he could call on Sajid or others to transfer the funds. This is either a break from the 20 plus year tradition of Narendra and Sajid and their sworn statements or a totally new arrangement. The obvious question then becomes why, for the purposes of this advance, was a mortgage required over Richa's property?

114. In any event, a loan facility of $270,000 was said to have been arranged including a Mortgage Linked Loan Agreement (Sajid Loan Agreement) secured by a registered mortgage over the Residence.^[68] The copy of the mortgage document (Form 2) provided as evidence^[69] appears to be signed by Richa personally on 15 June 2016 and by a Mr Mark John Blomkamp, a lawyer, on 16 June 2016 for Sajid. It bears Dealing Number 717330589 from the Queensland Titles Registry evidencing a lodgement date of 21 June 2016.

115. Curiously, the Sajid Loan Agreement states at item 1 of 'Additional Agreements': 'The Mortgagor [Richa] acknowledges and agrees the Mortgagee [Sajid] has already advanced the sum of $70,000.' Sajid stated in his evidence he advanced funds in September 2014 of $85,000 and in January and February 2016 of $147,431.02 (all amounts credited to Hannay Lawyers' trust account). He makes no mention of this advance of $70,000. The amounts he identifies are said to be loans to Narendra in accordance with their private loan arrangement. No evidence was advanced as to who received the $70,000 referred to in the Sajid Loan Agreement leaving the Tribunal to wonder if that statement (in the Sajid Loan Agreement) is accurate, and if it is, who received the funds.

116. In paragraphs 20 to 24 Mrunal lists a series of amounts said to be advances from Sajid to Richa and paid to 365 Marketing. These advances are referred to in paragraph [?55] above.

117. Mrunal's evidence has many inconsistencies and other unresolved aspects. These include, but are not limited to, the following:

(a)

He says he started Pinnacle in 2010 at a time when he was apparently experiencing financial difficulties, without identifying what those difficulties were.

(b)

Those financial difficulties were said to have resulted from the GFC yet the GFC occurred in 2008 and was over with by March 2009. These financial difficulties he says caused him to become bankrupt in November 2011. Pinnacle started in April 2010 and was closed in late 2015. Mrunal had complete control of it and provided the necessary information to the accountant Mr Gillard yet the 2015 tax return for Pinnacle was not lodged and Richa's 2014 and 2015 returns have not been lodged.

(c)

Mrunal blames the Queensland Police Service for seizing the records in February 2016. This should have been no impediment at all considering the returns were already overdue by then.

(d)

He asks the Tribunal to accept that almost $400,000 in cash passed through his hands over a two-year period and none of it benefited him or his family and that he was just helping friends in business.

(e)

The Sajid Loan Agreement mentions an advance of $70,000 yet there is no evidentiary support for such an advance anywhere in the material.

(f)

Mrunal and Richa both swear her income for 2014 was $28,000 and for 2015 was $74,000 yet their accountant says they concede her income across those two years was $522,187.66.

(g)

Why did Mrunal directly approach Sajid for a loan when Sajid and Narendra have a private loan arrangement between them? Why did Sajid require a mortgage over the Residence? Was his loan not part of the $1,000,000 covered by the mortgage already in place for Narendra?

(h)

Mrunal says he pawned gold jewellery for $15,000 then makes no further mention of that and instead introduces further sales for $12,000.87 not previously mentioned. The sale of gold may be subject to CGT, yet no mention is made of that by anyone including Mr Gillard.

(i)

Pinnacle is said to have transferred $548,915.88 to Richa as reimbursement for expenses paid on her credit cards yet the 2014 tax return for Pinnacle shows it had turnover of just $82,929^[70]. Where did it (Pinacle) get the funds to transfer almost $550,000 to Richa?

118. The Tribunal finds the evidence of Mrunal to be fundamentally lacking in both credibility and reliability such that it does not assist Richa in discharging her onus of proof.

Richa's evidence

119. Richa provided three affidavits in this case. They are dated 16 August 2017 (Richa's First Affidavit) ^[71], 17 October 2017 (Richa's Second Affidavit) ^[72] and 18 May 2018 (Richa's Third Affidavit) ^[73].

120. Richa's First Affidavit confirms she is the wife of Mrunal and 'was raised in a family which adhered to very traditional Indian and Hindu values.' She states she has no control over her personal finances for which her husband, Mrunal, is solely responsible. This includes all business and personal financial matters. Richa confirms she signed documents and applications in connection with American Express card facilities, loans from Narendra and the purchase of the Residence. Beyond signing those documents, she asserts she has no knowledge of or interest in them. She confirms the visit to CGA on 3 March 2014 at which Mrunal; 'provided Cash for Gold with possession of approximately 10 items of our jewellery. To the best of my knowledge, all of the jewellery were gifts from my Father-in-law that we had received over a period of multiple years'.

121. Attached to Richa's First Affidavit are copies of invoices addressed to Mrunal from Flight Centre for overseas and local travel paid for on one of the American Express cards. The details are as follows:

122. Richa's Second Affidavit purports to affirm her position she was not involved in her own financial affairs, including her taxation affairs, as that was attended to by Mrunal whom she trusted. The bulk of this affidavit is taken up with references to attachments marked RP1 to RP8, which deal with the list of unexplained deposits identified by the Commissioner and RP9 and RP10, which particularise transactions between Richa and Pinnacle and Narendra and Pinnacle. She concludes by asserting her taxable income for the 2014 year should have been $28,000 and for 2015 year, $74,000. Presumably this is based on a statement at paragraph 3 in which she asserts she was paid a wage from Pinnacle of between $1,500 and $2,000 per week.

123. The attachments marked RP1 to RP8 to Richa's Second Affidavit are spreadsheets setting out the unexplained deposits and identifying the source of the funds and how she says they were applied. They are discussed in detail at paragraph [?136] under the heading 'Unexplained deposits'. RP9 is a schedule identifying two large payments said to be from AGCL General Trading in October 2014 and RP10 is another spreadsheet said to identify amounts paid by Pinnacle to Richa.

124. Richa's Third Affidavit is solely concerned with the purported loan from Sajid of $270,000 discussed above as part of Mrunal's Third Affidavit. The only attachment, marked S2RP1, provides copies of the mortgage Form 2 and associated mortgage linked loan agreement, described above as the Sajid Loan Agreement.

125. The evidence from Richa - both oral (as given at the hearing) and written (in the form of three affidavits) - only seeks to confirm what others are saying. Her answers to questions under cross examination at the hearing were mostly: 'I don't know'. She does confirm the family travelled overseas and in Australia as shown in paragraph 116 above at a time when they were said to be in financial difficulties. Mrunal was still an undischarged bankrupt at the time they travelled to New York and Niagara Falls. Contrary to Mrunal's assertion the American Express cards were used to an extent where they attracted loyalty points, Richa confirmed the travel was actually paid for on the American Express cards.

126. She seeks to absolve herself from responsibility for her own taxation affairs and those of Pinnacle, of which she was the sole director and public officer, by suggesting that for cultural reasons her husband, Mrunal, exclusively handled those matters and it would have been offensive to him if she had made enquiries and would have been indicative of a lack of trust in Mrunal.

127. The Tribunal finds the evidence of Richa, to be fundamentally lacking in both credibility and reliability such that it does not assist her in discharging her onus of proof.

Second Application for Review

128. On 8 November 2019, the Tribunal received from the Commissioner a bundle of documents entitled Sub-section 37 (1AB) Statement in Lieu^[74]. The bundle includes:

129. The Second Review Application is in respect of the Commissioners' Second Objection Decision in which Richa affirms her objection to the amended income tax assessments but not to the penalty assessments.

130. Annexure A sets out in detail Richa's basis for objecting to the amended assessments, which reaffirms her view the assessments are excessive as they incorrectly treat as ordinary income funds which were transferred between her own bank accounts or were reimbursement of expenses incurred on her credit cards by Voss and Universal.

131. Annexure B is a spreadsheet which identifies transactions said to be intra account transfers, payments from third parties, other amounts from Pinnacle or from an unknown source. The transactions included on the spreadsheets of Annexure B are drawn from the more detailed spreadsheets attached to Richa's affidavit dated 17 October 2017 (RP1 to RP8) and in some cases alter the purpose of the funds, mostly transferring them from 'Unknown' to 'Payments from third parties' asserting they were reimbursement of expenses.

132. Merely stating a particular transaction is 'Reimbursement for Expenses' does not discharge the required onus of proof.

133. Annexure C includes copies of bank statements for Voss, account number ending 0786, for the period 8 August 2013 to 10 September 2014.

134. Annexure D includes copies of bank statements for Universal, account number ending 1388, for the period 13 January 2014 to 13 July 2015 (excluding the period 11 April 2014 to 11 July 2014).

135. Similarly, merely providing copies of bank statements does not discharge the required onus of proof. It is not the work of the Tribunal or the Commissioner to painstakingly comb through the transactions on bank statements to identify what individual transactions may mean. That work is for the taxpayer, that is, Richa. As discussed below at paragraph [?144] it has always been open to the taxpayer, Richa, to have the records processed for the various entities and herself to properly record each transaction. She did not do that, and the Second review Application does not assist in discharging the onus of proof.

Unexplained deposits

136. The heart of the dispute between Richa and the Commissioner centres around a series of deposits, which the Commissioner describes as "unexplained". There are two lists. The first upon which the Commissioner based the original assessments totals $2,315,874.64^[75] (the Original List). The second upon which the Commissioner based the amended assessments totals $2,353,658.70^[76] (the Amended List). The Tribunal has not sought to identify the differences between the two lists because it is not material to this decision but notes the difference is less than 2% of the total. What is important are the explanations provided for the individual amounts shown on the lists, which include more than 350 line items.

137. Mr Gillard wrote to the Commissioner on 10 March 2016 supplying further information in support of the objection to the default assessments^[77]. In that e-mail he refers to various pages, 21 to 33, and provides explanations for the asserted unexplained deposits shown on the Original List. The balance of each page, that is, the total amount unexplained, he says, 'the taxpayer concedes as income'. The Tribunal has summarised those explanations as follows:

138. The Commissioner issued the Amended List as Attachment A to his decision on the objection. The Amended List has various narrations attributed to many line items derived from the objection and the additional information subsequently provided. The Tribunal has summarised those narrations as follows:

139. As can be seen above, the only item common to both lists is the 'sale of gold' for $66,403.10 and even that is said to be a loan of $15,000 leaving $51,403.10 as agreed sale of gold^[78]. Whether the sale of gold gives rise to a CGT event is not pressed by the Commissioner. The amount 'conceded as income' in the Original List of $522,187.66 appears to have grown as $715,544.70 being the items with 'no explanation' on the Amended List. The amount shown as 'personal' on the Original List of $1,095,942.89, which is comprised of many items said to be loans from Narendra, has reduced to $949,916.71 described as 'From Father-in-law' in the Amended List. There is no mention of the supposed loan from Sajid. The amounts described as 'inter account transfers' or 'bank transfers' are not material as they are comparatively so small compared with the overall total of each list.

140. Remembering the onus is on the taxpayer, Richa, to (1) prove on the balance of probabilities the extent to which the default assessments for 2014 and 2015 are excessive and, if so, (2) what those assessments should have been, the question is has she done that?

141. Richa and Mrunal both attest in their affidavits her taxable income for 2014 was $28,000 and for 2015, $74,000. Mr Gillard wrote to the Commissioner on 10 March 2016 and identified so-called 'conceded income' at that time of $522,187.66. The affidavits of Richa and Mrunal were prepared in 2017 and again in 2018 yet no mention was made in any of them of the conceded amount. They remain of the view Richa's income was the lesser amounts shown in their affidavits. In these circumstances and for the reasons mentioned within this decision, the Tribunal is very hard pressed to afford any measure of veracity and/or credibility to those affidavits and accordingly rejects the evidence to which they purport to attest.

142. The objection dated 28 June 2016^[79] lodged by Richa contains a fleeting reference in Annexure B to the correct amount of her taxable income for the 2014 and 2015 years. In the seventh paragraph of Annexure B she says: 'As per the email dated 10 March 2016 the taxpayer indicated what was considered her earnings and what was not.' Presumably this is a reference to the amounts described as 'conceded as income' as shown in paragraph [?122?137] above. That does not amount to positive proof of what her assessments should be because the amount is not specified nor is its nature identified and no satisfactory explanation is given as to why the other amounts are not income nor why the sale of gold does or does not give rise to a CGT event. If these amounts were the correct amount of her taxable income for those years, why did she and Mrunal attest in sworn affidavits in 2017 and 2018 her income for those years was $28,000 and $74,000 respectively? Providing an explanation of her income earning activities is a fundamental part of discharging the onus of proof.

143. Mrunal says their business and taxation records, including his laptop computer with the MYOB program and associated data on it, had been seized by the Queensland Police Service in February 2016 and so this data could not be provided to the accountant, Mr Gillard, to prepare the financial statements and income tax returns. The 2014 financial year tax returns were due no later than 15 May 2015 assuming the taxpayers were on a tax agents lodgment program. The 2014 financial year returns should have already been lodged at least eight months before the records were seized. The 2015 financial year returns were due for lodgment by 31 October 2015 because the 2014 financial year returns were not lodged by their due date. Mr Gillard would have surely known that. The Tribunal finds the seizure of the records by the Queensland Police Service is no excuse for failure to prepare and lodge the relevant tax returns because they were due several months before the records were seized.

144. The Commissioner was able to obtain information from the various banks and credit card providers showing all the transactions for the period 1 July 2013 to 30 June 2015. From that information the Original List and the Amended List were created. It was open then and remains so now for Richa or Mrunal, on behalf of Pinnacle and for herself, to obtain similar information, which is available in various formats from online banking services. A format commonly utilised by cloud-based accounting systems is comma-separated values (CSV). Given his personal association with Voss, Accord and Universal and their owners, a similar exercise could also have reasonably been undertaken for those companies.

145. Given how intertwined the financial affairs of Richa, Mrunal, Pinnacle, Voss, Accord and Universal were, an expedient way of discharging the onus of proof and determining the correct amount of the taxable income may have been to undertake such an exercise. That is, by obtaining CSV files of transactions and having them processed by a person competent to do so, preparing financial statements for the various entities, paying attention to inter-company loan accounts, and lodging the resultant tax returns. That did not occur. Instead the Commissioner and now the Tribunal has been deluged with affidavits and witness statements with numerous attachments and appendices none of which is a substitute for that exercise.

146. Maintaining proper books of account and records is an obligation imposed on the directors of companies and taxpayers generally. It is no excuse for Richa to say her cultural heritage somehow permitted her to abdicate from that obligation on the basis she relied on her husband, Mrunal. She was the sole director and shareholder of Pinnacle. She was also its public officer. It was her obligation to ensure records were kept and tax returns lodged. Similarly, with her own personal tax returns. That is not to say Richa was obliged to prepare the tax returns herself. It is quite proper for a company director to arrange for others to do these things for them so long as they keep watch and ensure they are done with appropriate rigour and timeliness. Richa may argue she delegated those tasks and responsibilities to Mrunal. Even so, this Tribunal will not accept that claimed cultural lines of domestic demarcation in the meeting of those responsibilities allowed her to lawfully abdicate those responsibilities.

147. The Tribunal finds Richa has not discharged the onus to prove, on the balance of probabilities the extent to which the default assessments for 2014 and 2015 are excessive and what those assessments should have been.

Was Richa previously liable for an administrative penalty?

148. The definition of previously is: 'coming or occurring before something else' and the definition of liable is: 'under legal obligation'.^[80] A taxpayer who was previously liable is then under a legal obligation which had occurred before another event.

149. The original default assessments for 2014 and 2015^[81] were issued on the same day and attached to the letter to Richa from the Commissioner dated 16 December 2015.^[82] The amended assessments and related penalty assessments are all dated 8 March 2017^[83] and are referred to in the letter to Richa from the Commissioner dated 16 February 2017.

150. The relevant law is section 284-220 of the TAA 1953. It describes the increase in base penalty amount as follows:

6 The base penalty amount is increased by 20% if:

...

(e)

your liability to a penalty arises under subsection 284-75(3) and you were previously liable to a penalty under that subsection.

151. The administrative penalties imposed on Richa arise under subsection 284-75(3) of the TAA 1953 because she failed to lodge her tax returns for 2014 and 2015 by the relevant due dates causing the Commissioner to make his own assessment of her taxable income. Accordingly, s 284-220(1)(e) of the TAA 1953 is the operative provision by which the increase in the base penalty amount applies.

152. Counsel for Richa, Mr Anderson, argues that on the proper construction of the law and having regard to the evidence around the issue:

(a)

the purpose of s284-220 of the TAA 1953 is to provide an additional deterrent in respect of a taxpayer who has previously become liable for a penalty;

(b)

each of the default assessments issued for each of the relevant years were issued at the same time, Richa had never been previously liable to an administrative penalty; and

(c)

Richa had no opportunity to modify her behaviour in response to any finding supporting the assessment of the base penalty because the default assessments, original and amended, were each issued on the same day respectively.

153. Counsel for the Commissioner, Mr Coveney, also predicated an argument on the proper construction of the law having regard to the evidence around the issue. He contends that:

(a)

liability for the administrative penalty arises from the failure to lodge the return by its due date;^[84]

(b)

Richa failed to lodge her 2014 income tax return by its due date, which was at least six months prior to the date the original default assessments were issued in December 2015 and that is when the administrative penalty for the 2014 year arose;

(c)

it is therefore irrelevant whether the default assessments for 2014 and 2015 and the subsequent amended assessments were issued to the taxpayer on the same day; and

(d)

the administrative penalty in respect of the default, and subsequently amended assessment, for 2014 was already in place before the liability for the administrative penalty for the 2015 tax return arose.

154. The Tribunal notes the Commissioner exercised his discretion to remit in full the additional (emphasis added) penalties imposed and assessed to the Applicant on 8 March 2017.

155. Mr Coveney quotes Senior Member Taylor of this Tribunal in Picton Finance Limited and Commissioner of Taxation [2013] AATA 116 (Picton) ^[85] who notes at [21]: 'In my view the expression previously liable to a penalty in s 284-220 refers to a liability that arises in respect of a taxpayer's default in providing a return that related to a tax year preceding the tax year in question.' The applicant argues the decision in Picton falls into error by relying on irrelevant considerations, such as the administrative practices of the Commissioner, and fails to give proper attention to the text itself. That would be correct if the administrative penalty arose at the time the relevant assessment issues. As the administrative penalty arises at the time the taxpayer fails to lodge the return, the proper construction of s 284-220(1)(e) of the TAA 1953 is the position adopted by the Commissioner, which the Tribunal accepts.

156. The Tribunal finds the increase in the base penalty amount has been correctly applied.

Are there any special circumstances?

157. Once a penalty has been applied by the Commissioner, it is open to him under s 298-20 of the TAA 1953 to remit some or all of penalty by written notice with reasons to the taxpayer. In Otway Pastoral Pty Ltd v Federal Commissioner of Taxation [2005] AATA 649,^[86] Senior Member Pascoe of this Tribunal noted at [10]:

'Section 298-20 of Schedule 1 to the Act provides discretion to remit all or part of a penalty under section 286-75. Whilst the section does not contain any guidelines as to appropriate circumstances in which the discretion should be exercised it is clear that remission should be granted only where special circumstances existed, failure to lodge was due to factors outside the control of the taxpayer and all reasonable mitigating steps were taken by the taxpayer.'

158. Richa seeks remission of the administrative penalties because of her special circumstances. She asserts she was unable to control her personal finances because of her cultural background and she did not engage in any reckless behaviour. She says her upbringing demanded she hand over complete responsibility for her financial affairs to her husband, Mrunal, which she did. As discussed above, there is nothing wrong or unusual in a company director delegating to others the work needed to be done to maintain proper books of account and other records necessary to discharge their fiduciary duty. Delegating does not mean, and does not lawfully facilitate, abdication. Delegation does require applying suitable oversight to ensure the work is done to an appropriate standard. Richa did not do that.

159. Richa says her husband, Mrunal, would have been offended if she had made enquiries about her financial affairs lawfully falling within her realm of responsibility. On that basis she did not attend to those affairs. She could have contacted the accountant, Mr Gillard, and made enquiries of him. She didn't do that. Had she done so, she could have determined when her personal returns and those of Pinnacle were due for lodgement. Armed with that information she could have requested Mr Gillard contact Mrunal to get the necessary records, all of which could have happened in good time before the Queensland Police Service seized the records from Mr Gillard's office in February 2016. The Tribunal considers the timing of the seizure of the records did not impede timely access to those records for the purpose of preparing the 2014 and 2015 tax returns for Richa and Pinnacle.

160. There is no evidence before the Tribunal to indicate Richa or her immediate family were incapacitated such as to prevent them from attending to their taxation affairs. They travelled to the United States in July 2014, Thailand in December 2014 and Cairns in May 2015 all of which occurred during the period when the 2014 returns could have been prepared and the records for the 2015 year could have been prepared.

161. Richa says her behaviour was not reckless yet evidencing record points to an opposing reality. Richa simply abdicated her responsibilities as a taxpayer to her husband and so claims to be immune from scrutiny or liability. On the contrary, the Tribunal finds her culpability to be at high level.

162. The Tribunal finds there are no special circumstances to warrant remission of the administrative penalties imposed by the Commissioner.

DECISION

163. The Tribunal affirms the Commissioner's objection decisions dated 16 February 2017 and 30 August 2019.

ANNEXURE A - Exhibit Register