GUNAWARDENA, COMMISSIONER OF INLAND REVENUEAND OTHERS
COURT OF APPEAL.
F.N.D. JAYASURIYA, J.
C.A. NO. 328/87.
OCTOBER an 1996.
Certiorari -Prohibition – Board of Review Department of Inland Revenue – Fraudand neglect in disclosure of income – Onus of proof-sections 118,124(1) of InlandRevenue Act No. 28 of 1979 and sections 98, 104(1) of the Inland Revenue ActNo. 4 of 1963.
A statutory presumption has the effect in law of shifting the onus of proof, as thePetitioner failed to rebut the statutory presumption arising in regard to fraud andwilful neglect in furnishing returns of income by adducing proof to the satisfactionof the Commissioner and the Board of Review, the penalties imposed undersection 124(1) of the Inland Revenue Act No. 28 of 1979 and section 104(1) ofthe Inland Revenue Act No.4 of 1963 were justified. There was no error on theface of the record, no failure to consider the effect of material placed before theBoard, no improper evaluation of evidence, no misdirection in point of fact or lawor defect of procedure.
APPLICATION for writs of certiorari and Prohibition.
Stanley Fernando for Petitioner.
S. Sri Skantharajah, Senior State Counsel with Adrian Perera and Mrs. GamageState Counsel for 1st to 4th Respondents.
F.N.D. JAYASURIYA, J.
The Petitioner, who is a doctor engaged in private practice at Mataraand who also carries on business in agricultural undertakings and exporttrade has preferred this application for the issue of a writ of certiorariand prohibition seeking an order quashing the order of the Board ofReview dated 05.01.87 constituted under Section 98 of the InlandRevenue Act No. 4 of 1963 read with Section 118 of the Inland RevenueAct No.28 of 1979 which communication letter and order has beenproduced marked A10 and A11 as exhibits to the said application.
The Commissioner of Inland Revenue, by a letter dated 02.12.85required the Petitioner to state in writing on or before 24.12.85, thegrounds on which the Petitioner relies to prove that there was no fraudor wilful negligence in the disclosure of his income in the Returnssubmitted by the Petitioner for certain years of assessment which arespecified in that letter. The said letter has been annexed to the petitionas an exhibit marked A1(Y). The Commissioner General in issuingthis letter purported to act under the provisions of section 124(1) ofthe Inland Revenue Act No. 28 of 1979. Upon receipt of this letter, thePetitioner replied to the Commissioner General stating the groundson which he relied to prove that there was no fraud or wilful negligencein the disclosure of his income. A copy of the said letter has beenannexed to the petition as an exhibit marked A1 (x). A perusal ofdocument A1 (x) discloses that there are no facts set out therein torebut a presumption of fraud or wilful neglect which arises in terms ofthe statutory provisions already referred to by me. It sets out that thepetitioner's accounts in regard to wealth have been accepted by theAssessor, but in the computation of his income, both the Assessorand the Deputy Commissioner have increased his statutory income onthe basis of heavy personal expenses incurred by the petitioner. ThePetitioner sets out that he was unable to adduce cogent evidence inrefutation of the assessment of his personal expenses arrived at bythe Tax Authorities. The Petitioner has expressed the view that he waskeen to settle his appeals with the Inland Revenue Department andthat he had accepted the estimated income of his personal expensesand the computation of his statutory income as assessed by the TaxAuthorities. These facts recited in A1 (x) are wholly insufficient to rebutthe statutory presumption arising in regard to fraud and wilful neglect.A statutory presumption has the effect in law of shifting the onus ofproof.
Thereafter, by letter dated 13th January, 1986, the first Respondentrequired the Petitioner to call over on 07.02.86 at the Regional Officeof the Department of Inland Revenue for further inquiry into the matterof the imposition of a penalty under section 104(1) of the Inland RevenueAct No. 4 of 1963 read with section 124(1) of the Inland Revenue ActNo. 28 of 1979. That letter has been produced as an exhibit markedA1. The Petitioner appeared before the first Respondent CommissionerGeneral of Inland Revenue on that day with his registered auditor, Mr.Leeiananda de Silva and his bookkeeper, Mr. Nandasena Gamage.Although in paragraph 7 of the Petition, the Petitioner wrongly statesthat the Commissioner of Inland Revenue failed to hold an inquiry, asstated in his letter; at the hearing of the argument in this matter, SeniorState Counsel produced the official file maintained by the Departmentin respect of the Petitioner and wholly rebutted this incorrect assertionon the part of the Petitioner. The onus lay on the Petitioner to adducefacts and reasons to rebut the aforesaid statutory presumption. Aregistered auditor, in terms of the practice and the rules that prevailin the Inland Revenue Department, has no right to an audiencewith the Assessor or the Assistant Commissioner to the exclusionof the tax-payer.TheTax Officials are entitled to have discussionsand deliberations in the absence of the tax-payer?only when anattorney-at-law or a qualified Chartered Accountant appears beforesuch officials.
It is unfortunate that the Petitioner had not availed himself of theprofessional advice and services of the pleader who appeared beforeme in support of this application, when he appeared on the 7th ofFebruary, 1986 at the Regional Office of the Inland RevenueDepartment. In view of the default and omission on the part of thePetitioner to adduce facts, submissions and representations in rebuttalof the aforesaid statutory presumption on the 7th of February, 1986,the first Respondent by two notices dated 21.03.86 issued on thePetitioner in terms of section 124(1) of the Inland Revenue Act No. 28
of 1979, required him to pay a penalty of Rs.17,000 under section 104(1)of the Inland Revenue Act No. 4 of 1963 and a penalty of Rs.33,000 onthe Petitioner under section 124(1) of the Inland Revenue Act No. 28 of1979. Further, the first Respondent issued on the Petitioner an Orderdated 07.02.86 imposing the aforesaid penalties on the Petitioner.These two notifications marked A2 and A3 and copy of the order dated07.02.86 marked A4 have been annexed as exhibits to the presentapplication.
Thereupon, the Petitioner appealed to the Board of Review againstthe first Respondent Commissioner's order dated 07.02.86 imposingpenalties aggregating to a sum of Rs.50,000/- on the Petitioner. TheBoard of Review, having heard the appeal of the Petitioner on threedays, by its order dated 05.01.87dismissed the appeal of the Appellant-Petitioner.
The Commissioner of Inland Revenue, Matara, in his order imposingthe penalty of Rs.50,000/- (marked as A4) in respect of the years ofassessment 1973-74,1974-75,1975-76,1976-77, and 1980-81, hasheld that the Petitioner has been assessed and called upon to pay taxon an additional income of Rs.871,501. The additional tax imposed inexcess of the tax leviable on his returns for these years amounted to asum of Rs.449,290. These additional assessments have become finaland conclusive.Thus, the assessee has been called upon to pay taxesand he has paid the taxes in respect of a statutory income much inexcess of what has been declared in his returns. On the basis ofdiscrepancy in the amounts returned as income in his income tax returnsand the amounts at which his statutory income has been assessed inthe additional assessments the penalty that could have been imposedin terms of the aforesaid statutory provisions amounted to Rs.912,580.However, the Commissioner-General, taking into account the assistancefurnished by the assessee-Petitioner in the settlement of the appeals,has limited the penalty to a very low sum of Rs.50,000/- in the aggregate.The penalty leviable has been detailed in regard to the different yearsof assessment and has been disclosed in the document A4. The Boardof Review in Us order dated 05.01.87 has spotlighted the fact that theadditional assessments for the years of assessment 1973-74 and 1974-75 were made after the Appellant-Petitioner's returns for these years ofassessment were rejected. The assessments for the years ofassessment 1975-76 to 1980-81 were estimated assessments issuedby the Department on tfys failure of the assessee-Petitioner to submitreturns.The Board of Review has emphasized that it is clearly manifestthat in respect of the aforesaid first two years of assessment 1973-74and 1974-75, the amounts returned by the Appellant-Petitioner wererejected by the Assessor and by the Assistant Commissioner as thereturns did not correctly disclose his actual income for the aforesaidtwo years. In the result, the statutory presumption operated againstthe Petitioner and its legal effect was to shift the onus of proof on tothe Appellant-Petitioner. The Board of Review, therefore, took the viewthat the only issue arising upon this appeal was whether the Appellant-Petitioner has discharged his onus of refuting the statutory presumptionwhich arose that there was fraud or wilful neglect on his part in thedisclosure of his income in his returns for the aforesaid relevant yearsof assessment. Learned counsel for the Petitioner has misconceivedthe legal position and assumed wrongly that the onus was on theCommissioner to establish fraud or wilful neglect on the part of thePetitioner. Having regard to the provisions of section 124(1) and section104(1) of the aforesaid statutory provisions, the law puts the onus onthe tax-payer to prove to the satisfaction of the Commissioner and theBoard of Review that there has been no fraud or wilful neglect iri hisfailure to disclose his correct income in his returns.
The income tax file which was produced at the hearing of thispetition, established that both the Petitioner and his registered auditorfailed to adduce any material except referring to the contents of theaforesaid document A1 (X). At the Board of Review, it was open to theAppellant-Petitioner to lead evidence in discharge of the onus whichlay on him in terms of the statutory provisions. The Board of Reviewhas stressed this feature and stated thus: "In fact, the Appellant didnot give any evidence before us in order to establish this fact, if it wasthe fact. It was merely put to the Board by way of a submission whichwas not supported by the Appellant by giving evidence in this regard."This court is of the considered view that both the Commissioner-Generaland the Board of Review have taken into consideration the highlyinsufficient material which is contained in the explanatosy letter writtenby the Petitioner to the Commissioner-General and which has beenproduced marked A1 (X). For the reasons which I have alreadyemphasized, the Board of Review has very correctly expressed theview that the contents of the said document are unsatisfactory and theeffect of its contents, are wholly insufficient to rebut the statutorypresumption which arose to the detriment of the Appellant-Petitioner.The Board of Review has further emphasized thus: "Even before thisBoard the Appellant failed to give evidence in order to explain his failureto disclose his income for the relevant years of assessment. "ThisCourt in the circumstances holds that the Board of Review was whollyjustified in holding that the Appellant-Petitioner has failed to dischargethe burden of establishing that there was no fraud or wilful neglect onhis part in his failure to disclose his income for the aforesaid two yearsin his returns submitted to the department.
I have patiently given a hearing to learned counsel for the Petitionerwho in his oral submissions reiterated the matter which he has setforth in paragraph 9 (i) (ii) (iii). For the reasons already adduced by meI hold that there is no merit or substance in the aforesaid contention. Ihold that there is no error of law on the face of the record on aconsideration of the entire material which has been placed before thisCourt and on a consideration of the order of the Board of Review dated05.01.87 which has been marked as A11. There is no failure to considerthe effect of material placed before the Board. There is no improperevaluation of evidence. There is no misdirection in point of fact or lawand there is no defect of procedure discernible on a perusal of therecord. In the circumstances I proceed to dismiss the application withcosts in a sum of Rs: 500/- payable by the Petitioner to the firstRespondent.
DR. ABEYSINGHE V. GUNAWARDENA, COMMISSIONER OF INLAND REVENUE AND O