Two issues stand out for me in a highly lucid judgement relating to reassessments issued by the Durban Tax Court in January (see case numbers IT 12951 and VAT 885 of 2016).
Briefly, a company disputed the findings of a SARS audit (and subsequent reassessment) of its 2005 and 2006 returns. The ‘problems’ identified related to overseas travel and casual wages, among others.
I was pleasantly surprised to see the judge had ruled that these were valid deductions despite the fact that the taxpayer had produced little documentary evidence to support his submissions, especially those relating to the casual wages paid. The taxpayer’s word was accepted by the court.
The judge examined the standard of proof required and held that the onus of proof is discharged on a preponderance of probability – in other words, the version of the facts found to be the most probable. The judge looked closely at the verbal evidence given by the taxpayer and found him to be truthful – not least because the taxpayer’s testimony was not challenged by SARS. It was a ruling supported by the various cases consulted by the judge.
The judgement is further instructive because SARS was held to its findings and its written reasons. It was prevented from trying to perfect its case by making allegations after the written reasons had been submitted. The SARS audit had also found over-claiming on salaries paid. But the judge agreed with the taxpayer’s submission that the three-year period of prescription laid down by the old Section 79 of the Income Tax Act had passed and the matter could only be reopened in the event of misrepresentation.
Furthermore, the small discrepancy between the salaries paid and the taxpayer’s records found by the audit did not amount to a misrepresentation.
Section 79 was repealed by the Tax Administration Act of 2011, and this aspect of the case need not concern us here. The two points I have highlighted are more important. These are that the taxpayer’s word was accepted in the absence of documentary evidence because it made sense, and SARS was prevented from making additional allegations.
There is a caveat, though.
Take nothing for granted! The version of events put forward by SARS always carries more weight and the onus of proof is regarded as discharged if its version is consistent with the facts. In this case, the taxpayer succeeded because he was able to prove otherwise.