• The impact of this case on ATO policy is discussed in Decision Impact Statement: Rigoli v Commissioner of Taxation (VID 475 of 2015).

RIGOLI v FC of T

Members:
E Fice SM

Tribunal:
Administrative Appeals Tribunal, Melbourne

MEDIA NEUTRAL CITATION: [2015] AATA 169

Decision date: 24 March 2015

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E Fice (Senior Member):

1. I first heard this matter between September 2011 and June 2012 and handed down my decision on 1 November 2012
([2012] AATA 757). The matter then went on appeal to the Federal Court of Australia. On 7 August 2013 Pagone J allowed the appeal by the Commissioner of Taxation (the Commissioner)
([2013] FCA 784 (7 August 2013)). He ordered that the Tribunal decision be set aside and the matter be remitted.

2. Mr Rigoli then appealed the decision of Pagone J to the Full Court of the Federal Court of Australia. On 18 March 2014 the Court (Edmonds, Jessup and McKerracher JJ) made the following orders
([2014] FCAFC 29):

• 1. The appeal be dismissed with costs.
• 2. The orders made by Pagone J on 7 August 2013 be supplemented by the addition of the following order:

  4. In the Administrative Appeals Tribunal, subject to any order of the Tribunal for proper cause, the remitted proceeding be heard and determined on the evidence which was before the Tribunal in the proceeding which resulted in its decision of 1 November 2012.

• 3. Otherwise, the cross-appeal be dismissed.
• 4. There be no order as to the costs of the cross-appeal.

3. Although Mr Rigoli indicated that an application would be made to allow him to adduce further evidence in this matter, no such application was made. On remittal, in order to establish his taxable income for the years in question, Mr Rigoli sought to rely on a report prepared by the Commissioner's expert (Mr G Kompos) subject to the findings I made on the first hearing of this matter regarding depreciation. Accordingly, I heard this matter on the basis of the evidence which was before me on the first hearing of Mr Rigoli's application to the Tribunal.

4. The submissions put to me by counsel for the parties were directed essentially to legal issues regarding the means by which Mr Rigoli was able to establish his actual taxable income.

5. In order that the reader of these reasons may understand the difficulties confronting Mr Rigoli in attempting to establish that the Commissioner's assessment was excessive, and in particular his claimed reliance upon the Commissioner's calculation of his assessable income, I need to carefully examine the way in which ss. 166 and 167 of the Income Tax Assessment Act 1936 (Cth) (ITAA 36) have been construed by the Courts. Of course I accept that the Tribunal is bound by the construction of a statutory provision adopted by the Federal Court.

OPERATION OF SS. 166 AND 167 OF THE INCOME TAX ASSESSMENT ACT 1936 (ITAA 36)

6. Section 166 of ITAA 36 imposes on the Commissioner a duty to make an assessment of the amount of taxable income and the tax payable thereon. It provides:

166 From the returns, and from any other information in his possession, or from any one or more of these sources, the Commissioner shall make an assessment of the amount of the taxable income (or that there is no taxable income) of any taxpayer, and of the tax payable thereon (or that no tax is payable).

7. The expression taxable income is a defined term which means assessable income less deductions (per s. 4.15 of the Income Tax Assessment Act 1997 (Cth) (ITAA 97) and s. 6 of ITAA 36). When one examines Part III of ITAA 36 and Chapter 2 of ITAA 97, which deal with liability to taxation, it should be immediately apparent that liability to taxation is determined by the application of those provisions. Assessable income involves a determination of ordinary income and statutory income and may involve considerations regarding exempt income; while deductions may be general or specific, there being rules about deductibility of particular kinds of amounts. Plainly, liability to taxation depends on an ascertainment of those two components. I should add that the amount of income tax payable by a taxpayer may also be reduced by the allowance of tax offsets (a list of those available offsets now appearing in s. 13-1 of ITAA 97) or, as they were previously described, rebates. It follows that the Commissioner is not simply free to base his or her assessment on anything other than those

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two components, regardless of the methodology he adopts to arrive at an amount. Broadly, a taxpayer is liable to pay tax on the net gain derived by income in an income year, taking into account the expenses incurred in producing that income. That net gain includes any net capital gain for the income year (s. 102-5 (1) of ITAA 97).

8. Although s. 167 of ITAA 36 has the paragraph heading Default Assessment and is frequently referred to by that name, it is only partially correct. In fact, in earlier statutes which contained marginal notes rather than paragraph headings, what was stated was: Assessment in case of default or unsatisfactory return. While the marginal note is clearly more accurate, I am of course mindful of the fact that neither paragraph headings nor the marginal notes form part of an Act (Acts Interpretation Act 1901 (Cth), s. 13).

9. Section 167 provides:

167 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 judgment income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of section 166.

10. In my opinion it is sufficiently clear that s. 167 sets out three circumstances in which the Commissioner may make an assessment of taxable income for the purposes of s. 166 (
R v Deputy Commissioner of Taxation (W.A.); Ex parte Briggs (1987) 14 FCR 249, 263-4 (Briggs)). The Commissioner, under the self-assessment scheme which was adopted in 1990, may simply issue an assessment of taxable income on the basis of the income tax return furnished by the taxpayer. However, if the Commissioner is not satisfied with such a return, he may make his assessment from any other information in his possession. Similarly, where a person has failed to lodge an income tax return or where the Commissioner believes that a taxpayer has derived taxable income but has not lodged a return, he may make an assessment from any other information in his possession. What s. 167 does, effectively, is to permit the Commissioner to make an assessment of taxable income irrespective of an income tax return having been lodged or, where one has been lodged, irrespective of the information contained in such a return. The methodology which the Commissioner adopts to make an assessment, particularly where no income tax return has been lodged, is not prescribed.

11. The cases involving the application of s. 167 of ITAA 36 are diverse. As Sheppard J said in Briggs, at 263:

It is to be observed that s. 166 empowers the Commissioner to use the returns lodged by a taxpayer and other information in his possession for the purpose of making an assessment of the amount of the taxable income of the taxpayer. The Commissioner may, pursuant to this section, rely entirely upon the returns, partly on the returns and partly on other information, or entirely on sources of information apart from the returns.

12. His Honour then referred to the relationship between ss. 166 and 167 as was stated by the High Court (Dixon CJ, McTiernan, Williams, Webb and Fullagar JJ) in
George v Federal Commissioner of Taxation (1952) 86 CLR 183 (George). He then said, at 264:

Section 167, so it was submitted, also contemplated this process, that is to say, the ascertainment of the assessable income, the ascertainment of the allowable deductions, and thus the amount of the taxable income. In the present case there was no evidence that this process had been followed. Instead, Mr Gill and those advising him had come directly to the ascertainment of the taxable income without turning their minds to the amount of the prosecutor's assessable income or the amount of allowable deductions which he might have claimed.

13. In the case of a true default assessment, that is one made by the Commissioner in circumstances where no income tax return has been furnished by the taxpayer, while the

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Commissioner is not limited to any particular methodology in arriving at a figure upon which in his judgment tax ought to be levied, he cannot simply pluck a figure out of the air. Commonly, the Commissioner utilises what is called a T-Account and/or an analysis of Asset Betterment. Both of these methodologies are indirect methods of estimating taxable income derived for a fixed period. The T-Account allows the Commissioner to compare cash available at the beginning of the period plus cash received during the period with cash expended during the period plus cash on hand at the end of that period. If the two sides of this account are not in balance, it is likely, subject to further enquiry, that there is undisclosed income. That methodology does not expressly address assessable income and/or deductions. The Commissioner simply draws an inference from this secondary material.

14. Similarly, the process of determining Asset Betterment results, possibly, in revealing undisclosed income. The net worth of an entity or a taxpayer at the end of each relevant income year is compared with their net worth at the beginning of each of those years and an estimate of annual asset growth is thereby obtained. Non-deductible expenditure (usually estimated) is added to the estimated growth of net worth and then known liabilities and exemptions are subtracted. The resultant figure is inferred to be taxable income from which is subtracted previously declared taxable income leaving a balance which forms the outstanding taxable income. Once again, it is readily apparent that this process has nothing to do with addressing assessable income or deductions. It is based on secondary material from which the Commissioner draws a reasonable inference regarding taxable income.

15. However, as I have already indicated above, the Commissioner may, from other information, determine that an income tax return lodged by a taxpayer is unsatisfactory in that there is undisclosed income or that non-allowable deductions have been claimed. As will become apparent presently, the methodology used by the Commissioner to arrive at an amount upon which tax ought to be levied does not affect the way in which a taxpayer can prove that the assessment is excessive. It may alter the way in which a review hearing is conducted, particularly if the Commissioner agrees to limit the grounds upon which the review is conducted. I have more to say about that below.

16. One of the concerns I have with the Full Court decision in this matter (
Rigoli v Federal Commissioner of Taxation 2014 ATC 20-446) is its reliance on the decision in
Gashi v Commissioner of Taxation (2013) 209 FCR 301 (Gashi).

17. Gashi was a case where the Commissioner utilised the Asset Betterment method of assessment. That is not the method adopted by the Commissioner in Mr Rigoli's case. In this case, the Commissioner obtained an expert report from Mr Kompos, then an Executive Director of the accountancy firm Ferrier Hodgson. In his report, Mr Kompos set out the methodology adopted in order to determine the financial affairs of the partnership of which Mr Rigoli was one of three partners. In the introduction to this report, Mr Kompos said:

I was initially requested to provide an analysis of the gross income derived, expenses incurred and the change in net assets of the "Bonanza Pack", later the "Principality of Ponderosa", partnership for each of the years of income ended 30 June 1994 to 30 June 1997 inclusive.

18. Effectively, what Mr Kompos did was produce a complex and detailed report based on numerous primary financial documents including bank statements and passbooks, invoices, receipts, cheques, deposit and withdrawal slips, correspondence from suppliers and all creditors, diesel fuel rebate statements and witness statements from suppliers and/or creditors. He also conducted an analysis from the available information identifying amounts which were of a capital nature; of a private nature; or cash transactions. From those available documents, he also identified asset purchases of the partnership setting out in tabulated form the amounts of expenditure and a depreciation table. He calculated the gross income derived and expenses incurred by the partnership for each year of income and allowed an amount for depreciation. Mr Kompos also calculated a change in the net assets of the partnership for

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each year of income. He made allowances for personal living expenses based on figures published by the Melbourne Institute of Applied Economic and Social Research. He used seasonally adjusted household disposable income figures for each year of income for a single adult and a couple.

19. Despite doing the best he could with the information available to him, Mr Kompos frankly admitted that he used a mixture of cash accounting and accruals accounting in making his assessment. Because of the way the partnership conducted its affairs, including a large number of cash transactions, he found he could not rely solely on information which appeared on bank statements and other documents. Furthermore, he could not adopt an accruals accounting method because many source documents for income and expenses were not available.

20. Clearly, Mr Kompos' analysis is not a precise account of the financial transactions for the years in question. It is his best estimate of the true financial position of the partnership in those years. Nevertheless, the important point to note is that the analysis conducted by Mr Kompos is in fact a reasonable reconstruction of the financial statements which should have been prepared by the partnership in the relevant years. It is not merely a guess. Furthermore, relying on Mr Kompos' report, the Commissioner, in arriving at each of the assessments, has done so by taking into account estimates of gross income and expenses including depreciation of assets likely to have been used in the production of assessable income. He has also taken into account later income tax returns lodged on Mr Rigoli's behalf by William Buck which resulted in the allowance of some of his objections.

21. The Commissioner has not simply drawn inferences from figures which bear no direct relationship to income or expenses. In fact, it should be said that the Commissioner has thoroughly and properly applied his mind to arriving at the best possible estimate of the partnership's true financial position in each of the years in question.

22. Returning now to Gashi, the Court (Bennett, Edmonds and Gordon JJ) said, when dealing generally with s. 167, at 312-3:

The s. 167 power is necessarily different to that in s. 166. Under s. 166, the power is to "make an assessment of the amount of the taxable income". The phrase "taxable income" is defined to mean "assessable income" minus "deductions": s. 4-15 of the 1997 Act and s. 6 (1) of the 1936 Act. Under s. 167, that process of calculating taxable income as assessable income minus deductions is not possible (in whole or in part) because of one of the preconditions to the exercise of the power in subss (a)-(c) of s. 167-a failure by a person to lodge a tax return, the tax return is deficient or the Commissioner has reason to believe that a person who has not lodged a return has derived taxable income. It is for those reasons that the balance of s. 167 empowers the Commissioner to make an assessment of the amount upon which income tax ought to be levied and for that amount to be deemed to be the taxpayer's taxable income for the purposes of s. 166.

23. With respect to the Full Court, despite the fact that the Commissioner utilised an Asset Betterment analysis to determine his assessment, the above quoted statement appears to misstate the operation of the sections. Section 166 provides that the Commissioner must make an assessment of the amount of taxable income from income tax returns, and from any other information, or from any one or more of those sources. In other words, the Commissioner must make an assessment of the amount of taxable income of a taxpayer, and may do so irrespective of whether the taxpayer has lodged an income tax return, by using other information. At the risk of being seen to be pedantic, I should also mention that the words used in s. 167 (b) are [If] the Commissioner is not satisfied with the return furnished by any person, not, as the Court stated, the tax return is deficient, which suggests incomplete rather than the broader statement of not being satisfied.

24. Where the Commissioner makes an assessment based on other information, it may or may not be possible to make an assessment of taxable income because the elements of taxable income, that is assessable income and allowable deductions, may or may not be available to the Commissioner. Hence the addition of s. 167 which permits the

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Commissioner to make an assessment of the amount upon which in his judgment income tax ought to be levied in circumstances where he must rely on secondary materials which, by inference, permit him to assess an amount which becomes the taxable income of the taxpayer for the purposes of s. 166. The difference in expression between the two sections appears to result simply from the variety of methodologies available to the Commissioner to make an assessment of taxable income when relying on other information. It is of course correct to say that the Commissioner is not limited to simply making an assessment of assessable income and allowable deductions. It also does not mean that he cannot do so.

25. What concerns me most about Gashi is that while the High Court decision in George was referred to by the Full Court, it made no mention of the detailed analysis conducted by the High Court of the relationship between s. 166 and s. 167. Although tempting to set the passages out in their entirety, I will simply refer to those matters which I believe are critical to my understanding the relationship between those sections.

26. As Kitto J (the primary judge) explained in George (page 188), a notice of assessment was issued by the Deputy Commissioner of Taxation accompanied by an adjustment sheet which stated that the taxpayer's return was considered to be unsatisfactory and therefore, his assessment was raised in accordance with s. 167 of the Income Tax Assessment Act 1936-47. The sections in question were in identical terms to those set out now in ss. 166 and 167. According to Kitto J, Mr George had given to the Commissioner information about the annual improvement in his assets position between 1940 and 1947. Apparently, the Commissioner based his assessment on the increase in value of the taxpayer's assets. The purpose of the application to the High Court was to have the Commissioner disclose to the taxpayer particulars regarding the source from which the Commissioner alleged the applicant derived the amount by which his taxable income as assessed exceeded the taxable income disclosed on his income tax return (page 189).

27. Kitto J said that the taxpayer's case must be that he did not derive from any source taxable income to the amount of the assessment. In other words, he had to account for the increase in his assets. He noted that the source of the increase in assets was not the issue in the case but rather, it was whether or not from any source the taxpayer derived as much taxable income as the assessment treated him as having derived. Kitto J dismissed the applications made by Mr George for a summons directing that the Commissioner furnish him with particulars of his assessment. Mr George then appealed that decision to the Full Court of the High Court.

28. The High Court said this, at 203-4:

The formation of the judgment as to what is the amount of the income that ought to be taxed is no condition precedent to the power to assess. It is part of the very process of assessment itself. Section 166 and s. 167 do not prescribe distinct duties or functions. They combine to show what the Commissioner may or must do in performing his single duty of arriving at an assessment. Section 166 on its own terms covers cases where the Commissioner depends exclusively on sources other than a return. It says that he is to make his assessment from (1) the returns, (2) from any other information, or (3) from any one or more of these sources. Clearly enough under s. 166 the Commissioner can make an assessment which does not adhere to the income returned and yet to do so must involve some want of satisfaction with the return. Section 167 is epexegetical to s. 166. It is not an independent power. What it does is to mention with particularity three situations which might arise in carrying out the duty imposed by s. 166, and to direct how in those situations the Commissioner shall proceed for the purpose of s. 166. Just as under s. 166 considered alone the Commissioner ascertains the amount of the taxable income and thus assesses it so does he under s. 167, used in aid of s. 166, ascertain the amount upon which, in his judgment, income tax ought to be levied and thus assesses it.… It is an error to treat the formation by the Commissioner of a

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judgment as to the amount of the taxable income as if it were not the ascertainment of the taxable income which constitutes assessment or a necessary part of that process and as if it were but the fulfilment of the condition precedent to the power or authority to assess.

29. And further, at 206:

In the present case we are concerned with the function of assessing taxpayers. It has already been pointed out that s. 166 and s. 167 are not independent, but together give the directions which the assessing officer must pursue. The discretion or judgment involved in s. 167 forms a practically inseparable part of that function.

30. Early commentary on the operation of s. 167 is discussed in Gunn's Income Tax Law and Practice, Volume 4, Eighth Edition, 1966. The learned authors state, at 4003-4:

The Act imposes upon the taxpayer the obligation of supplying the materials from which the Commissioner will be able (with or without any other information in his possession) to discharge his duty of assessing the taxpayer (a) in an amount of taxable income and (b) in the amount of tax payable thereon. Ordinarily, assessments are made, under authority of s. 166, of the actual "taxable income" as defined in s. 6 (1). Section 167 mentions three situations which might arise out of the duty imposed on the Commissioner by s. 166 and directs how in those situations he shall proceed for the purpose of s. 166, so that s. 167 is not an independent power but is in aid of s. 166 in the performance by the Commissioner of his single duty of arriving at an assessment [167/8].

31. The High Court also examined the application of ss. 166 and 167 of ITAA 36 in
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 (Dalco). That matter went on appeal from the decision of the Full Court of the Federal Court which held, by majority (Shepherd and Gummow JJ, Wilcox J dissenting), that although Mr Dalco had not shown that his income in any year was less than the figure arrived at by the Commissioner, the Commissioner had proceeded on a wrong basis in making the assessments (page 615). The Commissioner was granted special leave to bring the appeal. All seven justices of the Court (Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ) heard the matter.

32. I should briefly refer to the submissions made on behalf of the Commissioner because they give context to the reasons for judgment provided by the members of that Court. The submissions made by Mr KR Handley QC, counsel for the Commissioner, included that the Full Court overlooked the fact that where the Act uses the word excessive, it corresponds to the word amount. The Full Court erred by treating the expression excessive as covering an erroneous decision-making process regardless of its effect on the quantum of the assessment (page 616). He submitted that approach was inconsistent with the High Court decision in
McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263. Mr Handley also explained that the appeal was in the Court's original jurisdiction and therefore not an appeal in the strict sense, but rather was concerned with the taxpayer's true substantive liability.

33. Brennan J explained that the Commissioner had assessed Mr Dalco to income tax by amended assessments in respect of a number of income years. The amended assessments were made under s. 167 (b) of ITAA 36. In other words, Mr Dalco had lodged income tax returns but the Commissioner was not satisfied with those returns. The first thing Brennan J said, at 618 and 619-20, relying on the decision in George, was that:

Section 167 must be read in conjunction with s. 166 of the Act for the two sections together prescribe the scope of the duty of the Commissioner to make assessments and confer upon him the power to perform that duty:… The taxpayer does not impugn the validity of the assessments; he attacks the respective amounts at which his taxable income was assessed.…

Where one or other of the situations described in pars (a), (b) and (c) of s. 167 exists, the Commissioner or his delegate is empowered to make an assessment of an amount which, in the Commissioner's judgment, is the amount on which tax ought to be levied: George's Case (28). It is that amount which, for the purposes

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of s. 166, becomes the taxpayer's taxable income. That amount may not be in truth the taxpayer's taxable income for a particular income year and it may not be so regarded by the Commissioner (as in
Trautwein v Federal Commissioner of Taxation (29)) but, for the purpose of s. 166, that amount is the taxpayer's taxable income for the income year to which the assessment relates unless it is shown on appeal from, or on review of, the assessment that the amount of the assessment is wrong:
Henderson v Federal Commissioner of Taxation (30).

34. Brennan J also explained that Mr Dalco first appealed to the Supreme Court of New South Wales following the Commissioner's disallowance of his objections to the assessments. The matter was heard by Yeldham J who dismissed his appeal. Brennan J then explained that Mr Dalco appealed to the Full Court of the Federal Court and that the majority did not find any factual error in the findings made by Yeldham J, but held that the taxpayer had succeeded in showing that each of the assessments was excessive in that it was not warranted by law. What Mr Dalco had done was to show that the bases on which the Commissioner had proceeded in making the assessments were erroneous.

35. Toohey J said this about ss. 166 and 167 at 630:

Section 166 is to be read with s. 167 (the latter is not an independent power but is "epexegetical to" the former-
George v Federal Commission of Taxation (58)). In the circumstances of the present appeals it is par. (b) of s. 167 on which the Commissioner relies. That is, he says that he was not satisfied with the returns furnished by the taxpayer and was therefore empowered to "make an assessment of the amount upon which in his judgment income tax ought to be levied". Section 6(1) of the Act relevantly defines "assessment" to mean "the ascertainment of the amount of taxable income and of the tax payable thereon". The view of Kitto J in
Batagol v Federal Commissioner of Taxation (59), that "assessment" means "the completion of the process by which the provisions of the Act relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case" was generally shared by the other members of the Court in that case and was endorsed by Mason and Wilson JJ in F. J.
Bloemen Pty Ltd v Federal Commissioner of Taxation (60).

36. In my respectful opinion, the High Court decisions to which I have referred above bring into sharp focus the operation of ss. 166 and 167 of ITAA 36. The matters set out in s. 167 are not a precondition to the exercise of the power under that section (George). The power to make an assessment from the income tax return lodged by the taxpayer or from any other information is found in s. 166. Arriving at an assessment is a single duty even though the Commissioner may arrive at an amount by different means. That duty remains unaltered whether the Commissioner simply accepts the income tax return lodged by the taxpayer or whether he arrives at a different amount as a result of being in possession of other information. It is wrong to treat the judgment formed by the Commissioner as to the amount upon which income tax ought to be levied as being something different to the taxpayer's taxable income. The two sections must be read together. By whichever means the amount arrived at by the Commissioner is determined, it does not alter the taxpayer's obligation. To succeed on review by the Tribunal, the taxpayer must establish his or her actual taxable income and demonstrate that it is less than the amount assessed by the Commissioner.

THE NATURE OF THE TRIBUNAL'S ROLE

37. Mr D Clough of counsel, who appeared on behalf of Mr Rigoli, submitted that the Tribunal stands in the shoes of the Commissioner in order to do over again… what the Commissioner did in making the assessment. He referred to the decision of Kiefel J in
Shi v Migration Agents Registration Authority (2008) 235 CLR 286 and s. 43 (1) of the Administrative Appeals Tribunal Act 1975 (Cth) (AAT Act). Section 43(1) relevantly provides:

(1) For the purpose of reviewing a decision, the Tribunal may exercise all the powers

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and discretions that are conferred by any relevant enactment on the person who made the decision….

38. Mr Clough also submitted that s. 14ZZK of the Taxation Administration Act 1953 (Cth) (the Administration Act) did not limit or relevantly modify s. 43 (1) of the AAT Act. Furthermore, he submitted the provisions set out in s. 14ZZK of the Administration Act applied to applications made to the Tribunal. Those submissions are not contentious.

39. However, what was contentious was Mr Clough's submission that the relevant decision in this matter involved discretionary considerations. He submitted that the Commissioner's default assessments under s. 167 of ITAA 36 required the tribunal to determine the preferable decision. He submitted that the Tribunal must determine whether the decision was acceptable when tested against the requirements of good government. It should conduct its own, independent, assessment and determination of the matters necessary to be addressed and review the decision itself, not the reasons for it.

40. Mr Clough contended that where a relevant decision involved discretionary considerations, as he claimed was the case where the Commissioner makes an assessment under s. 167, the Tribunal's task is to determine the preferable decision. On the other hand, Ms D Harding QC, who appeared on behalf of the Commissioner, submitted, correctly in my respectful opinion, that s. 167 operates in conjunction with s. 166 of ITAA 36. She referred to the decision in George where the High Court said the formation of the judgment under s. 167 is part of the process of assessment itself and is not a condition precedent to the power to assess. The two sections combine to show what the Commissioner may or must do in performing his duty of arriving at an assessment. They do not prescribe distinct duties or functions.

41. It seems to me to be somewhat artificial to suggest, as did Mr Clough, that the relevant decision involved discretionary considerations. The Commissioner has a duty, not a discretion, to make an assessment of the amount of taxable income of a taxpayer. Furthermore, the Commissioner has a duty, where a taxation objection has been lodged in the required period, to decide whether to allow the objection, wholly or in part, or disallow it (s. 14ZY(1) of the Administration Act). The methodology he adopts in making that assessment is constrained only by the provisions in ITAA 36 and ITAA 97 which deal with liability to taxation. However, he may arrive at an amount using indirect methods such as T-accounts or Asset Betterment Statements from which he draws an inference regarding undisclosed income, or he may, through a data-matching process, include items of income not included in an income tax return or disallow deductions claimed on a return lodged by the taxpayer. The Commissioner may also conduct an audit from which further information is obtained and which may be relied upon by the Commissioner in making an assessment.

42. Although perhaps obvious, it is important to state that the assessment made by the Commissioner, by whichever indirect method is adopted or whatever further documents he has relied upon, does not result in the correct or preferable outcome for the taxpayer. On review by the Tribunal, the review is conducted of the objection decision and not the assessment made by the Commissioner (s. 14ZZ(1) of the Administration Act). The reviewable decision as far as the Tribunal is concerned is the objection decision. While it is correct to say that the Commissioner must exercise judgment regarding the assessed amount upon which income tax ought to be levied, whatever and however that amount has been determined by the Commissioner, the Tribunal on review does not do over again what the Commissioner did in making an assessment of the amount upon which in his judgment income tax ought to be levied.

43. The Tribunal examines the objection decision in light of the evidence which was before it on the hearing of the matter, and determines whether the taxpayer has discharged the onus of proving that the assessment was excessive. That is not a discretionary decision. In those circumstances, the role of the Tribunal is to come to the correct decision based on the evidence which was before it. Were it to find that a taxpayer has discharged the onus to prove the assessment was excessive, in accordance with s. 43 (1) of the AAT Act, it could vary the

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objection decision; set that decision aside and make a decision in substitution; or remit the matter for reconsideration in accordance with any directions or recommendations it chooses to make.

44. In stating the above about the role of the Tribunal, I am mindful of what Foster J said in
Eldridge v Federal Commission of Taxation (1990) 21 ATR 897. After setting out the function of the Tribunal as prescribed in s. 43 (1) of the AAT Act, his Honour referred to the powers and functions of the Board of Review, set up under previous legislation. He referred with approval (at 912) to the statement made by Barwick CJ in
Bailey v Federal Commission of Taxation (1977) 136 CLR 214 where his Honour said, at 217:

… the Act confers on the Commissioner the power and duty of assessment. It does not confer them upon the court. It is of course, otherwise in the case of the Board of Review: See ss. 192 and 193. Thus, the power of the Court given by s. 199 is not a power of initial assessment but a power to correct error in the process of assessment adopted by the Commissioner, the Court being enabled to rectify the error by taking one of the appropriate courses specified in s. 199.

45. Foster J then said that in the case before him, it was submitted and not contested that the Tribunal, as always, stood in the shoes of the Commissioner. He also said, at 912:

It is clear, of course, that the ultimate role of the Tribunal, if it did not remit the matter to the Commissioner, was to exercise the Commissioner's assessment-making powers.

46. While that statement appears to support what Mr Clough said was the role of the Tribunal in this case, one needs to have regard to the context in which the statement was made by Foster J. The Commissioner's assessment-making powers referred to by his Honour were clearly the powers set out in s. 43 of the AAT Act. After making the above statement, his Honour referred (at 912-3) to the decision of the Full Court of the Federal Court (Lockhart, Wilcox and Burchett JJ) in
Fletcher v Federal Commissioner of Taxation (1988) 19 FCR 442 where the Court said, at 453:

By force of s. 43 of the Administrative Appeals Tribunal Act, the Tribunal has all the powers and discretions that are conferred by s. 186 of the Income Tax Assessment Act upon the Commissioner. In exercising those powers and discretions the Tribunal was bound to consider the facts as they were proved in evidence before the Tribunal, making the decision which, upon that evidence and at that time, was the correct or preferable decision to be made in considering the objection.

47. It is sufficiently clear that Foster J's reference to the Commissioner's assessment-making powers and the process of assessment must have been a reference to those powers in the context of considering the objection decision.

BURDEN OF PROOF-SECTION 14ZZK OF THE ADMINISTRATION ACT

48. There was no question that Mr Rigoli bears the onus of proving that the assessment made by the Commissioner was excessive. So much is plainly stated in s. 14ZZK of the Administration Act. Prior to 29 June 2013, s. 14ZZK provided:

On an application for review of a reviewable objection decision:

• (a) the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and
• (b) the applicant has the burden of proving that:
  • (i) if the taxation decision concerned is an assessment (other than a franking assessment)-the assessment is excessive; or
  • (ii) if the taxation decision concerned is a franking assessment-the assessment is incorrect; or
  • (iii) in any other case-the taxation decision concerned should not have been made or should have been made differently.

49. The first point to observe about s. 14ZZK is that on review before the Tribunal, the taxpayer is limited to the grounds stated in his or her objection to which the decision relates, unless the Tribunal otherwise orders.

50.

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As I pointed out in my first decision, the Commissioner issued amended assessments for the income years in question under two tax file numbers in October 1999 and December 2001. Those assessments were issued under s. 167 of ITAA 36. That was because Mr Rigoli had not lodged with the Australian Taxation Office (ATO) income tax returns for the income years 1994 - 2000. In a handwritten letter dated 7 January 2002, Mr Rigoli said that he objected to the assessment made by the Commissioner which was dated 13 December 2001. He stated the objection as: No Taxable Income.

51. Despite Mr Rigoli lodging an objection on 7 January 2002, after securing the assistance of a firm of Business Advisers and Chartered Accountants, Mr Rigoli lodged income tax returns for the years in question (1994 - 2000) (the partnership returns) and further income tax returns for the income years 2001 - 2005 (when Mr Rigoli operated the business of manufacturing polystyrene boxes as a sole trader) on 8 August 2005 and on 30 May 2006 respectively. In a letter dated 10 October 2005 the Commissioner notified Mr Rigoli that those additional income tax returns would be taken into account when considering his objections to the assessments made under s. 167. The Commissioner issued Notices of Decision on Objection to Mr Rigoli on 19 December 2008. The Commissioner allowed in part Mr Rigoli's objection for the income years 1994 - 2000; but disallowed his objection for the 2001 income year.

52. In his opening submissions on the first day of the first hearing commencing 1 September 2011, Mr Clough informed me that Mr Rigoli had accepted the Commissioner's assessment of his gross income for the relevant years. According to Mr Clough, the only ground on which Mr Rigoli's objection was pursued was the depreciation expenses disallowed by the Commissioner when he made an assessment of the amount upon which in his judgment income tax ought to be levied. I should point out that the Commissioner did not agree to that narrowing of the grounds stated in the objection lodged by Mr Rigoli.

53. In fact, on this remittal, no such narrowing of the grounds was sought by Mr Rigoli. In any event, as Brennan J said in Dalco at 621:

An objection must state "fully and in detail" the grounds on which a taxpayer relies (s. 185) and the Commissioner is required, after consideration of the objection, to "disallow it, or allow it either wholly or in part": s. 186. But an objection and a Commissioner's notice of decision on the objection are not pleadings which so confine the issues as to preclude the Commissioner from putting the taxpayer to proof of the true amount of his taxable income. After all, the purpose of the procedure of assessment, objection and appeal or review is to ascertain the true tax liability of the taxpayer under the substantive provisions of the Act.

54. Plainly, on this hearing before me, Mr Rigoli has the onus of proving that his actual taxable income is a lesser amount than the amount assessed by the Commissioner.

STANDARD OF PROOF

55. In the submissions made in reply to the Commissioner's submissions on the hearing of this matter on remittal, Mr Clough referred to the fact that s. 14ZZK of the Administration Act does not prescribe a standard of proof. In his initial submissions, Mr Clough referred to the balance of probabilities as the requisite standard of proof. He resiled from that position on the basis that, in his opinion, the role of the Tribunal was inquisitorial and that it need not be satisfied of a particular finding on the balance of probabilities but rather must arrive at the correct or preferable decision.

56. With respect to Mr Clough, while the Tribunal is often referred to as inquisitorial and it acts in a non-adversarial manner, there are a number of statutes which impose an onus on a particular party, frequently the applicant. Where a party has the onus of proving a particular fact, it is inevitable that the party must do so to a particular standard, often expressed as to the reasonable satisfaction of the person reviewing the decision. In a number of cases, that has been referred to as the civil standard which is on the balance of probabilities. It is too broad a proposition to state that at all times, the Tribunal acts in an inquisitorial role. This is despite what the Chief Justice of the High Court

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of Australia said in
Minister for Immigration and Citizenship v Li (2013) 249 CLR 332, at 341-2:

The review function of the tribunals created by the Act [being the Migration Review Tribunal and the Refugee Review Tribunal] is sometimes called "inquisitorial" (40). That designation is a characterisation of their function which distinguishes it from adversarial proceedings (41).… There are similarities to the kind of review provided by the Administrative Appeals Tribunal (the AAT), described by Brennan J in
Bushell v Repatriation Commission (44) as "an administrative decision-maker, under a duty to arrive at the correct or preferable decision in the case before it according to the material before it." As for the AAT, so too for the MRT and the RRT, the onus of proof relevant in judicial fact-finding has no part to play in administrative proceedings (45).

57. With respect, that statement appears to overstate the nature of the review conducted by the AAT. The position was more precisely stated by Woodward J as a member of the Full Court of the Federal Court of Australia in
McDonald v Director-General of Social Security (1984) 1 FCR 354 where he said, at 357:

It is possible to imagine a case where the act which the administrator is applying places a requirement or onus on one or other of the parties to an issue to establish a particular state of facts on which the administrator's decision would be based. If that were so, the same requirement or onus would apply before the AAT.

58. It is not disputed that the taxpayer carries the burden of proof in taxation matters. In that situation, I do not understand how the Tribunal can act in an inquisitorial manner and at the same time appear to be impartial. This issue was addressed by Foster J in
Eldridge v Federal Commissioner of Taxation (1990) 21 ATR 897 where his Honour said, at 912:

It is abundantly clear, of course, that even though the Tribunal does over again the work of the Commissioner, it does it in a significantly different way. Although it could be said to be part of an administrative hierarchy, its functions partake far more of the court than of the office desk.

It is clearly not cast in the role of the inquisitor. Although it does not act within the confines of formal pleadings, it is constrained in its enquiries and deliberations by the ambit of the taxpayer's objections. Although it is not bound by the rules of evidence [s. 33 (1) (c)] in reaching its decision it must act upon the evidence which is placed before it.

59. There have been a number of cases brought pursuant to various statutes which have required the Tribunal to be reasonably satisfied in making its decision. Reaching a reasonable state of satisfaction has been equated with the civil standard of proof, that is, on the balance of probabilities. For example, Beaumont J, with whom Northrop and Spender JJ agreed, in
Repatriation Commission v Smith (1987) 15 FCR 327 said, at 335:

Even if the Tribunal is not bound by the traditional evidentiary principles, s. 120(4) constitutes a clear direction to the Tribunal that it must be reasonably satisfied before it makes any decision. In my opinion, this could only have been intended to introduce the standard of proof required in civil litigation.

60. An example in a taxation case is the decision of Ryan J in
Kimche v Federal Commissioner of Taxation (2004) 57 ATR 28 (Kimche) where his Honour said, at 37:

If it is established that a payment was received in a particular year of income, the onus is on the taxpayer to establish, on the balance of probabilities, circumstances which deprive that receipt of the character of income, for example, because it was a repayment of a loan or other capital advance or by way of gift.

61. Contrary to the submissions made by Mr Clough, I find Mr Rigoli bears the onus of proving, on the balance of probabilities, that the assessment made by the Commissioner was excessive in the income years in question.

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DISCHARGING THE BURDEN OF PROOF

62. Section 14ZZK of the Administration Act simply casts the burden of proving that an assessment is excessive on the taxpayer. It does not provide any assistance with how a taxpayer may go about that task. There is nothing in any of the taxation statutes which explains to the taxpayer how that might be achieved. In fact, as Brennan J said in Dalco, the manner in which a taxpayer can discharge the burden varies with circumstances (page 624). His Honour went on to say:

If the Commissioner and a taxpayer agree to confine an appeal to a specific point of law or fact on which the amount of the assessment depends, it will suffice for the taxpayer to show that he is entitled to succeed on that point. Absent such a confining of the issues for determination, the Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed to uphold the assessment, though the taxpayer is limited to the grounds of his objection.

63. Although Ms Harding submitted that when exercising the power found in s. 167, the Commissioner was not required to form any conclusion about the amount of the person's assessable income or deductions, obviously there may be circumstances in which he will do so. In fact, to a large extent, the Commissioner in this case has done so. The problem, if there is one, is the statements made by the Full Court in Gashi regarding the operation of ss. 166 and 167 to which I have referred above at [22].

64. By way of example, the Commissioner may be dissatisfied with an income tax return furnished by a taxpayer because, on a data-match, he has identified what appears to be assessable income which was not returned by the taxpayer. Accordingly, the Commissioner may include that apparently assessable income in his assessment of the amount of the taxpayer's taxable income and determine the tax payable after including that amount. If the so-called s. 167 power is different to that set out in s. 166, the question might be, in this example, whether the Commissioner has acted under one or other of the sections. However, it seems to me that the answer must be he has acted under both sections. He was not satisfied with the return furnished by the taxpayer because he has identified what he believes is assessable income which has not been disclosed. In other words, he has acted on other information in his possession to make an assessment of the amount of taxable income of the taxpayer which seems to accord with s. 166. If one then looks to s. 167, it could also be said that his dissatisfaction with the return furnished by the taxpayer led him to make an assessment of the amount upon which in his judgment income ought to be levied because he formed the opinion that the additional income he has identified is assessable. In my opinion, this example clearly demonstrates what the High Court said in George about the operation of both sections. They do not prescribe distinct duties or functions but rather combine to show what the Commissioner may or must do in performing his duty of arriving at assessment.

65. A further example may be found in the High Court of Australia decision in
Henderson v Federal Commissioner of Taxation (1970) 119 CLR 612 (Henderson). The Court was required in that case to determine whether a partnership conducting an accountancy practice had correctly returned its assessable income, having changed from a cash accounting system to an accruals based system in the relevant income year. The appeal from the objection lodged by the taxpayer was heard by Windeyer J at first instance in the exercise of the Court's original jurisdiction. The Commissioner was not satisfied with the return furnished by the taxpayer. He made an assessment of the taxpayer's taxable income and claimed the assessment must stand unless the taxpayer could displace it (page 620). The Commissioner contended that to do so, the taxpayer was required to show that it was made on an impermissible basis. Windeyer J rejected that proposition and referred to what was said by Dixon J in
Commissioner of Taxes (S.A.) v Executor Trustee and Agency Co. of South Australia Ltd. (1938) 63 CLR 108, at 154 (Carden's Case):

Unless in the statute itself some definite direction is discoverable, I think that the admissibility of the method which in fact has been pursued must depend upon its actual

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appropriateness. In other words, the inquiry should be whether in the circumstances of the case it is calculated to give a substantially correct reflex of the taxpayer's true income.

66. Windeyer J's decision in Henderson went on appeal to the Full Court of the High Court (Barwick CJ, McTiernan and Menzies JJ). The Chief Justice provided the reasons for decision, the remaining justices agreeing with him. His Honour described the submission made by the Commissioner in this way, at 647:

Pointing to ss. 166, 167 and 190 [which formally contained the onus provision] of the Act, it was claimed that the Act gave the Commissioner, as counsel said, an "initiative" to determine the assessable income of a taxpayer and that so long as in determining that income he employed a method which was not inconsistent with any of the provisions of the Act, there would be no ground for setting aside the figure at which he arrived for that income.

67. Barwick CJ rejected that submission. He said, at 647 - 648:

The Act by s. 17 levies income tax upon the amount of taxable income derived by the taxpayer in the year of tax. The taxable income results from the application of the provisions of the Act to what is in fact the assessable income of the taxpayer: that in the case of a taxpayer resident in Australia is the whole of the income which is not expressly exempted by the Act, which the taxpayer has derived during the year of tax from any source whether within or beyond Australia. That assessable income when ascertained must be expressed in a figure. There cannot in fact be alternative figures for such assessable income. The figure determined as that income may be the result of estimation, as well as of calculation, and its determination may involve the acceptance of opinions, expert or otherwise. In the long run it may be the outcome of an exercise of judgment. But however arrived at, the result is a figure, the assessable income in fact of the particular taxpayer for the year of tax.

68. As I have set out above at [26], the decision at first instance made by Kitto J in George was to reject an application for a summons to the Commissioner seeking particulars of this assessment. In rejecting the application for the summons, Kitto J explained if at the hearing of the matter, the onus were upon the Commissioner to establish that the taxpayer did in fact derive more income in the relevant year than he had disclosed, there would be much to be said to order the giving of particulars for the purpose of defining the precise issues for trial. However, because the onus of proof fell upon the taxpayer, his Honour said, at 189:

But s. 190 (b) places the burden of proving that the assessment is excessive upon the appellant; and in order to carry that burden he must necessarily exclude by his proof all sources of income except those which he admits. His case must be that he did not derive from any source taxable income to the amount of the assessment. That will involve him, of course, in accounting for the increase in his assets, and it may well be that the commissioner will direct his efforts mainly or even wholly to endeavouring to meet the evidence the appellant adduces on this point. But the source of the increase in the assets is not the actual issue in the case; even if it were proved, for example, that that source consisted of winning bets on the racecourse, the issue would still be whether or not from any source the appellant derived as much taxable income as the assessment treats him as having derived.

The object of the present application is really to have the commissioner say whether he is prepared to assign a source or sources for the moneys included in taxable income in the assessment over and above those disclosed as taxable income in the return, and to admit that if they did not come from that source, or from one or more of those sources, those moneys were not liable to be included in the appellant's taxable income. The commissioner may, if he chooses, voluntarily narrow the possible range of evidence in that way, but there could be no justification for ordering him to do so, under the guise of ordering particulars. If he attempts to prove derivation from a particular source and fails, he is

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nonetheless entitled under the Act to point to another source, or, without troubling about source at all, to stand upon his assessment and submit that the presumption in its favour has not been displaced.

69. On appeal from Kitto J's decision, the Full Court of the High Court (Dixon CJ, McTiernan, Williams and Webb JJ) said, at 201:

The word "assessment" is defined by s. 6 (1) to mean the ascertainment of the amount of taxable income and of the tax payable thereon. In conformity with this definition s. 166 directs the commissioner to make an assessment of the amount of the taxable income of any taxpayer and of the tax payable thereon. From these provisions both in their present form and in their slightly different earlier form, the law has always been taken to be that in an appeal from an assessment the burden lies upon the taxpayer of establishing affirmatively that the amount of taxable income for which he has been assessed exceeds the actual taxable income which he has derived during the year of income:
Stone v Federal Commissioner of Taxation (1);
Moreau v Federal Commissioner of Taxation (2);
Federal Commissioner of Taxation v Clarke (3);
Trautwein v Federal Commission of Taxation (4). "The justice of that burden cannot be disputed. From the nature of the tax, the commissioner has, as a rule, no means of ascertainment but what is learnt from the taxpayer, and the taxpayer is presumably and generally, in fact, acquainted with his own affairs. The onus may prove to be dischargeable easily or with difficulty according to the circumstances", per Isaacs ACJ,
Federal Commissioner of Taxation v Clark (5).

70. Brennan J in Dalco, after referring to what Kitto J said in George, made the statement I have quoted above at [62] regarding the manner in which a taxpayer can discharge the proof.

71. His Honour then referred to what Mason J said in
Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81, at 89:

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

72. Given the above authorities, in the absence of the Commissioner's consent to confine the issues for determination to the assessment of partnership income as set out in Mr Kompos's report, Mr Rigoli's claim to rely on Mr Kompos's report cannot be sustained. The Commissioner has not agreed to confine the issues for determination to the partnership income as assessed by the Commissioner's expert, Mr Kompos, and in fact, to the contrary, has insisted that Mr Rigoli discharge the onus of proving that the assessment was excessive by establishing his actual income from all sources, not solely the partnership. Even if the Commissioner had agreed to confine the issues in this case to Mr Rigoli's assessable income, Mr Rigoli would not discharge his onus of proof by simply referring to the Kompos report.

73. To discharge the onus of proving that the assessment was excessive, the taxpayer must prove, on the balance of probabilities, that he or she did not derive from any source taxable income to the amount of the assessment (George, at 189). While it is true to say that a taxpayer can discharge the burden of proof in a manner which may depend on the circumstances, Mr Rigoli did not adduce any evidence of the amount or source of his income for any the income years in issue. He simply sought to rely on the report prepared by Mr Kompos. That report was prepared for the purpose of enabling the Commissioner to make an assessment of the amount upon which, in his judgment, income tax ought to have been levied. It was not intended to and did not establish, even on the basis of an estimate, the actual taxable income of Mr Rigoli from all sources for the income years in question.

74. I have not overlooked the fact that I had in evidence a report prepared by Mr Anthony Xerri, an accountant, and the report prepared by BMT & Associates, quantity surveyors.

75.

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The problem for Mr Rigoli is that neither Mr Xerri's report nor the BMT & Associates report goes to establishing his actual taxable income for the years in question. As Mr Xerri said in a witness statement made on 9 June 2010:

I attach to this document my expert report which, amongst other things, reviews and determines the methodology and accuracy of the income and expenses assigned by the Respondent [the Commissioner] to the Rigoli family members for the income years 1994-2001.

76. The methodology adopted by Mr Xerri was directed specifically to identifying errors made by the Commissioner in arriving at his assessment. That does not assist Mr Rigoli with establishing his actual taxable income in this case.

77. As Brennan J said in Dalco, at 621:

The burden which rests on a taxpayer is to prove that the assessment is excessive and that burden is not necessarily discharged by showing an error by the Commissioner in forming a judgment as to the amount of the assessment.

78. His Honour went further and said, at 631:

I agree with Wilcox J in the Federal Court that "the task for the taxpayer, upon an appeal or a review under Pt V of the Act, is to show that the amount of money for which tax is levied by a particular notice of assessment exceeds the actual substantive liability of the taxpayer". As his Honour points out, a taxpayer will generally discharge that onus by satisfying the court or tribunal that his or her true taxable income is less than that appearing in the assessment. He or she may also do so by pointing to some error of computation or, as suggested by McAndrew, by showing non-compliance with statutory conditions precedent to the imposition of liability, in that case arising by reason of an amended assessment. A taxpayer does not necessarily discharge the onus of showing that an assessment is excessive, merely by showing that moneys treated by the Commissioner as income are in truth not the income of the taxpayer, though that may be a step in demonstrating his or her taxable income to be less than the assessment.

79. The BMT report which is dated 20 September 2006 is stated to be a Capital Allowance & Tax Depreciation Report in respect of the property where the partnership conducted its business of manufacturing polystyrene boxes. The covering letter attached to the report states:

The contents should be treated as advice on construction costs and like matters, and not as legal, accounting or taxation advice.

80. That report clearly does not assist Mr Rigoli in establishing his actual taxable income for the years in question.

81. Although not forming part of the submissions made by either party in this matter, for the sake of completeness, I have also examined those cases where the taxpayer was not able to establish with any precision his income or the costs of earning that income. I particularly have in mind the decisions of Burchett J in
Ma v Commissioner of Taxation (1992) 37 FCR 225 (Ma); Davies J in
Martin v Federal Commissioner of Taxation (1993) 27 ATR 282 (Martin); and Ryan J in Kimche. Ma involved Asset Betterment assessments made by the Commissioner. Burchett J said, at 233:

Furthermore, the making of estimates upon inexact evidence, which is so much a feature of both judicial and administrative decision-making, cannot be uniquely excluded from appeals against betterment assessments. To refuse to consider the credit, not only of the applicant, but also of his independent and unchallenged witnesses, simply because the effect of the evidence was to support his accountant's generalisations about double-counting rather than to hit upon a precise figure, was to fall into an error of law.

82. Davies J in Martin said that the fact that a taxpayer is untruthful and a tax evader is not a reason not to arrive at an assessment of income tax if the assessment can be made. Although his Honour found that Mr Martin's evidence regarding his costs was unreliable, he nevertheless formed the view, on the balance of probabilities, that Mr Martin did have substantial costs, particularly expenditure relating to the purchase of stock. While he

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said that it was a matter of guesswork to put a figure on those costs, having regard to the evidence of the nature of the business conducted by Mr Martin and evidence of his lifestyle, it was reasonable to conclude that Mr Martin's taxable income would not have been more than 50% of his identified gross income. However, it should be noted that in that case a witness produced records disclosing sums which he paid to Mr Martin and his Honour accepted that evidence. Furthermore, the parties agreed that the sums which made up Mr Martin's assessments were gross income and that no sum had been allowed as a deduction for the cost of trading stock or otherwise as the cost of gaining or producing the assessable income.

83. Ryan J in Kimche referred to the decisions in Ma and Martin. His Honour said, at 38:

It follows, I consider, that if, in a case like the present, the taxpayer is able to establish facts tending to show that some part of a particular receipt did not bear the character of income but is unable to quantify with precision the amount of that part then the assessment will be excessive only in respect of the minimum amount which could have borne a different character.

84. The three cases I have referred to above are all cases in which the taxpayer was able to establish, on the balance of probabilities, circumstances which deprived receipts treated as income by the Commissioner of that character, or was able, by evidence, to disclose expenditure in the earning of income liable to tax even though precise amounts could not be established. They do not assist Mr Rigoli in this matter because his evidence did not establish his actual taxable income. Although Mr Kompos provided a thorough but inexact assessment of what he considered Mr Rigoli's partnership income might have been in the years in question, that does not assist Mr Rigoli. Mr Rigoli was unable to discharge the onus of proving that the assessment was excessive because he did not lead evidence of his actual income from all sources.

85. Mr Clough also directed my attention to the Full Court of the Federal Court of Australia (Jessup, Jagot and Nicolas JJ) in
Rawson Finances Pty Ltd v Commissioner of Taxation (2013) 296 ALR 307. The main issue before the Court in that case was whether the primary judge erred in concluding that the Tribunal's ultimate finding of the existence of loans was not open on the evidence, or not supported by any evidence. There was no direct evidence of the existence of a loan agreement between the taxpayer and the bank involved. The Tribunal, on review of the Commissioner's decision, based its conclusion by drawing an inference from the evidence before it. Jessup J, while stating that the circumstances of the case might make one sceptical about the taxpayer's case that a loan existed, the material which the taxpayer put before the Tribunal clearly indicated the existence of a loan. His Honour did not accept that the decision was based on speculation or conjecture. He said, at 330:

Any submission that the tribunal resolved the factual issues that were before it on the basis that the evidence was so evenly balanced that the ultimate finding turned, in effect, on the toss of a coin, or upon speculation or conjecture, would be quite inconsistent with the detailed and careful-and, it must be said, wholly conventional-inferential reasoning which supported its decision in the case. In light of the material to which I have referred earlier in these reasons, it was reasonably open to the tribunal to infer that the funds transferred by the bank to the appellant in 1997 were in the way of loans.

86. The point to note for present purposes from the above decision by Jessup J is that the decision of the Tribunal, although made by inferences drawn from indirect evidence, nevertheless resulted from the evidence produced by the taxpayer. Once again, this is clearly essential because it is the taxpayer who has the onus of proving that the assessment made by the Commissioner was excessive.

87. What Mr Clough submitted was that it was open to the Tribunal to draw inferences from the entirety of the evidence before it notwithstanding that Mr Rigoli did not have complete documentation of his assessable income and expenditure. In light of the cases I have referred to above, I must reject that submission.

88.

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The Commissioner made an assessment of the amount on which, in his judgment, income tax should be levied based essentially on the report of Mr Kompos. Regardless of the methodology employed by Mr Kompos, his calculations cannot be substituted for the actual taxable income of Mr Rigoli from all sources. Not only does Mr Rigoli bear the onus of proving what his actual taxable income was in each of the income years, as Ms Harding submitted, in any event, Mr Kompos' assessment dealt only with his best estimate of partnership income. It follows, in my opinion, that in this case it is not open to me to draw inferences about Mr Rigoli's actual taxable income from any material which the Commissioner used in arriving at his assessment.

CONCLUSION

89. Despite Mr Rigoli seeking to rely on the Kompos report for the purpose of establishing his actual taxable income or an estimate of his actual taxable income in the years in question, the case law dealing with this topic makes it clear that in order for a taxpayer to establish that the assessment arrived at by the Commissioner is excessive, absent an agreement to confine the issues in dispute, he or she must prove, on the balance of probabilities, that their actual taxable income from all sources is less than the amount assessed by the Commissioner for the period in question. Mr Rigoli does not discharge his onus of proof by simply relying on the report prepared by Mr Kompos.

90. Although I had in evidence two further reports, one by Mr Xerri and one by BMT & Associates, they do not assist Mr Rigoli in establishing his actual taxable income from all sources.

91. Contrary to the submissions made by Mr Clough on behalf of Mr Rigoli regarding the role of the Tribunal under s. 43 (1) of the AAT Act, in my opinion the Tribunal only exercises all of the powers and discretions conferred on the Commissioner for the purposes of reviewing the objection decision. That does not involve a review of the assessment of taxable income by the Commissioner. There is no onus on the Commissioner to show that the assessments were correctly made or that they are supported by evidence. The review by the Tribunal involves determining whether a taxpayer has discharged the onus of proving that the assessment made by the Commissioner is excessive.

92. It necessarily follows that I find the objection decisions made by the Commissioner on 19 December 2008 in respect of the 1994 - 2001 income years were correct. I affirm those decisions.