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Onus Of Proof - To Convince The Commissioner Otherwise Or A request For Information?

Thursday, 06 May 2010   (0 Comments)
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Onus Of Proof - To Convince The Commissioner Otherwise Or A request For Information?

A Possible Answer

I refer to the article ‘Onus of proof–to convince the Commissioner otherwise or a request for information’,which was published in TAX talk, issue 20.Before I attempt to suggest a possible answer to the writer’s question,I think that it would be helpful to restate some important principles.Section 82 of the Income Tax Act, Act No 58 of 1962,as amended (the Act),places the legal duty on the taxpayer, who claims an expense,as an allowable deduction,to,on a preponderance of probabilities,that such an expense does constitute an allowable deduction. 

In assessing a taxpayer,the Commissioner uses this section,to determine whether or not,an expense passes this test.As part of this process,he can ask the taxpayer to provide proof of this expenditure.If he is satisfied with the nature of the proof that is tendered,he will allow the expenditure as a deduction.The taxpayer may enquire in terms of which section of the Act,the Commissioner requests copies of documents.The provisions of section 74 of the Act grant those powers to the Commissioner.

In the case which was described,it appears that the Commissioner’s employee did not appreciate the right of the taxpayer to ask the Commissioner to explain the source of his authority to request supporting documents.Consequently,that employee’s reply,which referred to the taxpayer’s burden to prove the nature of the deduction,is misplaced.

In my opinion, the correct reply would have been to provide the taxpayer with the reference to the section of the Act,on which he relied as his authority to request the documents. Instead,it appears that the employee viewed the taxpayer’s request as a failure to supply the documentation and,on that basis, simply assessed the taxpayer by disallowing the expenses.

In my opinion,the real question is whether or not that employee actually assessed that expense.By failing to allow the taxpayer to submit the documentation and then considering that documentation,I would suggest that there can be no assessment of that expenditure. 

In handing down its decision in the matter of Irvin and Johnson v CIR,1946,the Appeal court described the process of assessment as a mental process or act of determining the amount on which tax is leviable,which is then reduced to writing.In the light of this definition by the court and the present facts,it is highly questionable whether the Commissioner did,in fact,make an assessment as described in the appeal court.

In this matter,the taxpayer would be well advised to request reasons for the assessment and,in particular,why that particular expense has been disallowed.If the Commissioner’s reply is that he failed to provide the supporting documents,then that cannot be the correct reply.The only conclusion must then be that the Commissioner did not,in fact,assess amount to tax and to that extent the assessment may be void. 

In conclusion,the correct view of provisions of section 82 is that it places the legal duty on the taxpayer to prove in the present case that the expense constitutes an allowable deduction.That duty is usually discharged by providing documentary proof that the expense has indeed been incurred for that purpose. 

Source : By Alan Lewis (TaxTALK)



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