RIGOLI v FC of T

Judges:
Pagone J

Court:
Federal Court, Melbourne

MEDIA NEUTRAL CITATION: [2015] FCA 803

Judgment date: 7 August 2015

Pagone J

1. Mr Little Joe Rigoli appeals under s 44(1) of the Administrative Appeals Tribunal Act 1975 (Cth) ("the AAT Act") from a decision of the Administrative Appeals Tribunal. The Commissioner has objected to the competency of the appeal contending that Mr Rigoli's notice of appeal does not raise a question of law. The Commissioner has also filed a notice of contention seeking to have the Tribunal's decision affirmed on grounds other than those relied upon by the Tribunal. The appeal and the objection to competency were heard together.

2. Mr Rigoli contended that the Tribunal fell into legal error, and failed to discharge the review function of the Tribunal, when the Tribunal found that Mr Rigoli could not discharge his burden of proof by relying upon an expert report by Mr Kompos ("the Kompos report") which had been prepared for the Commissioner for a different purpose. The Commissioner's assessments had been raised under s 167 of the Income Tax Assessment Act 1936 (Cth) ("the 1936 Act") for the 1994 to 2001 years of income on the basis that Mr Rigoli had defaulted in furnishing returns. The Commissioner had obtained, and had relied upon, the Kompos report in making the assessments which Mr Rigoli sought to challenge. Section 14ZZK(b)(i) of the Taxation Administration Act 1953 (Cth) ("the Administration Act") imposed upon Mr Rigoli the legal burden of proving that the Commissioner's assessments were excessive if Mr Rigoli wanted to challenge the assessments. In earlier proceedings Mr Rigoli had contended that he was able to discharge the legal burden upon him of proving the assessments to be excessive by "conceding" the Commissioner's estimates of income based upon the Kompos report which had been made under s 167 of the 1936 Act but to claim deductions from that conceded amount which the Commissioner had not allowed.

3. Mr Rigoli was unsuccessful in seeking to discharge the burden upon him by "conceding" parts of the Commissioner's estimates of Mr Rigoli's taxable income:
Re Rigoli and Commissioner of Taxation [2012] AATA 757;
Commissioner of Taxation v Rigoli [2013] FCA 784;
Rigoli v Commissioner of Taxation [2014] FCAFC 29. On 18 March 2014 the Full Court dismissed Mr Rigoli's appeal in the earlier proceedings and remitted Mr Rigoli's applications to the Tribunal to review the Commissioner's objection decision. The Full Court ordered that the remitted proceeding be heard and determined on the evidence which had been before the Tribunal, but subject to any order of the Tribunal for proper cause:
Rigoli v Commissioner of Taxation [2014] FCAFC 29. The remitted proceeding was heard on 12 November 2014. On 24 March 2015 the Tribunal affirmed the Commissioner's decisions.

4. The basis upon which counsel for Mr Rigoli sought to discharge the legal burden of proof in the remitted proceeding differed from the approach which had been taken in the earlier proceedings. In the earlier proceedings, Mr Rigoli had "conceded" the Commissioner's estimates based upon the Kompos report but claimed deductions which the Commissioner had not allowed. In the remitted proceedings Mr Rigoli purported to rely upon the Kompos report as expert "evidence" of his taxable income. The Tribunal decided that Mr Rigoli could not discharge the burden of proof in that manner.

5. The questions of law in the notice of appeal were stated as follows:

The grounds relied upon by Mr Rigoli are, in essence, that he was entitled to rely upon the Kompos report to discharge the burden imposed on him by s 14ZZK(b) of the Administration Act and that the Tribunal erred in not finding that he could do so. The grounds in the notice of appeal were set out as follows:

The fundamental issue raised by this appeal concerns what Mr Rigoli is required to prove to discharge the burden of proof and whether in the remitted proceeding he could do so by relying upon the Kompos report.

6. The Commissioner contended that Mr Rigoli's appeal was incompetent as it did not raise a question of law as required by s 44(1) of the AAT Act. In
Haritos v Commissioner of Taxation [2015] FCAFC 92 the Full Court summarised their conclusions at [62] by saying:

The Commissioner's contentions in the present case were that neither of the questions posed by Mr Rigoli were questions of law. The first was said to be based upon a misconception of what the Tribunal had found and the second was said to seek an impermissible review on the merits raising what was said to be at best mixed questions of fact and law.

7. Whether or not Mr Rigoli's appeal is on a question of law is, as the Full Court said in Haritos at [62(6)], "to be approached as a matter of substance rather than form". The questions posed for Mr Rigoli in this case are, in substance, questions of law. Mr Rigoli's complaint is in substance that by not finding that Mr Rigoli had discharged his burden by reliance, as evidence, upon the Kompos report the Tribunal had failed to exercise its review function by "identifying a wrong issue, asking a wrong question, [or] ignoring relevant material" (see
Minister for Immigration and Multicultural Affairs v Yusuf (2001) 206 CLR 323, 351 [82]), or that it had left incomplete its review function because it had not addressed an aspect relevant to determine the excessiveness of the assessments (see Haritos [218]-[219]). It may be that Mr Rigoli's submissions on the questions raised will not succeed for the reasons which the Commissioner advanced, but the possibility of, or the fact of, failure does not deprive the questions of the character as questions of law.

8. Mr Rigoli had the legal burden under s 14ZZK(b) of proving at the Tribunal in the remitted proceedings that the Commissioner's assessments were "excessive or otherwise incorrect and what the assessment[s] should have been". Section 14ZZK(b) relevantly provides:

On an application for review of a reviewable objection decision:

[…]

  • (b) the applicant has the burden of proving:
    • (i) if the taxation decision concerned is an assessment - that the assessment is excessive or otherwise incorrect and what the assessment should have been; […]

ATC 17509

It is well-established that a taxpayer seeking to prove that an assessment is excessive is required to establish the actual taxable income that ought to have been assessed. Mr Rigoli was not able to undertake that task from his own sources but contended that he could do so by relying in part upon what the Commissioner had relied upon for the purpose of raising the assessments in the years in question. The Commissioner's objection to that approach was that it did not do what s 14ZZK(b) required Mr Rigoli to do. In
Rigoli v Commissioner of Taxation [2014] FCAFC 29 the Full Court said at [14]:

It is only in circumstances where the Commissioner has agreed to a process such as that adopted by Mr Rigoli that this would be permissible. As Brennan J noted in Dalco (at 624-626), absent an agreement confining the issues for the determination the Commissioner is entitled to rely upon any deficiency in proof of the excessiveness of the amount assessed. The taxpayer must establish not that the Commissioner's assessment was wrong but, rather, what the actual amount should be. Although the means of doing so will vary from case to case, it cannot be done, the primary judge said, by the AAT proceeding by way of a concession as to a critical part of the Commissioner's assessment. The primary judge also noted the observation in
Ma v Federal Commissioner of Taxation (1992) 37 FCR 225 that the task for the taxpayer on objection is not to prove that the Commissioner erred but to prove, on the balance of probabilities, the correct amount upon which tax should be levied.

These observations were consistent with those in
Gashi v Commissioner of Taxation (2015) 209 FCR 301, at [53]-[55] and [63] which were referred to by the Full Court in Rigoli at [11]. The fundamental task for a taxpayer in Mr Rigoli's position is to do that which ought to have been done when furnishing a return of income. Mr Rigoli's obligations, such as, to keep records and to furnish a return of income preceded the obligation under s 14ZZK(b) when before the Tribunal. It was Mr Rigoli's failure to lodge income tax returns that had led the Commissioner to rely upon s 167 of the 1936 Act to issue assessments, but those assessments, or the basis upon which they were made, are not a substitute for Mr Rigoli's obligations. The raising of assessments under s 167 did not displace Mr Rigoli's obligations to establish what the assessments should have been and, absent agreement to the contrary, the Commissioner is entitled "to rely upon any deficiency in proof": Rigoli at [14]. Mr Rigoli was given the right to object to the Commissioner's assessments and to establish what the assessments should have been notwithstanding his failure to have lodged returns. But that is a right to establish what the assessments should have been if he is able to do so.

9. Mr Rigoli did not seek to prove his actual taxable income at the remitted proceedings from any sources other than the Kompos report, the Commissioner's reasons for objection decision and the findings which the Tribunal had made in the first hearing on depreciation. Indeed, counsel for Mr Rigoli candidly conceded at the remitted proceeding that it was "highly likely" that Mr Rigoli did not "know his actual taxable income". Counsel for Mr Rigoli accepted that a consequence of the earlier proceedings was that Mr Rigoli could not discharge the burden of proving that the assessments were excessive by "conceding" the Commissioner's calculations but at the remitted proceedings purported to adopt part of those calculations as evidence. His counsel said at the hearing of the remitted proceedings:

Our approach is formally and plainly today an evidentiary approach. We accept that we can't merely point to error. We accept that we are not amending in any way by agreement with the Commissioner or otherwise the grounds for objection, that we must prove, on the balance of probabilities, putting aside the issue of the 167 discretion, but on the balance of probabilities, Mr Rigoli's actual taxable income for the relevant income years.

And we formally rely on the evidence which has been placed before the tribunal by the Commissioner. We formally rely on the Commissioner's analysis underlying the assessments and we formally rely on, and we continue to rely on the

ATC 17510

tribunal's findings on depreciation. So of course, the question is as a matter of evidence, is that a sufficient probative basis for the tribunal to find that the taxpayer's actual taxable income was something other than, and indeed less than that which was assessed.

The written submissions which had been filed with the Tribunal for Mr Rigoli had stated that he relied "on the evidence of the Commissioner's expert […] subject to the Tribunal's existing findings concerning depreciation". Counsel for Mr Rigoli did not take the Tribunal to the facts upon which the Kompos report was based but referred to the fact that the report had been based upon substantial material providing a body of probative evidence upon which the Tribunal could draw the same inferences that Mr Rigoli was seeking the Tribunal to draw from the Kompos report. Mr Rigoli's case was not simply to accept the Commissioner's assessments but sought to adopt those parts of the assessments which were based upon the Kompos report subject to the Tribunal's earlier findings concerning depreciation and to be "correct" further by materials in the Kompos report concerning diesel fuel rebates which were received by the partnership, by claims concerning capital gains which were made by the partnership on the sale of two machines, and by the material in documents before the Tribunal under s 37 of the AAT Act of the Centrelink payments received by Mr Rigoli in 1994, 1995 and 1996. The Tribunal concluded at [89] that Mr Rigoli did not discharge his onus of proof "by simply relying on the report prepared by Mr Kompos". That conclusion was based upon an evaluation of the Kompos report by the Tribunal and a finding that the Kompos report did not establish Mr Rigoli's taxable income and that the calculation of Mr Kompos could not be substituted for the actual taxable income of Mr Rigoli from all sources.

10. The claim for Mr Rigoli on appeal to this Court was that the Tribunal wrongly concluded that the Kompos report could not be relied upon as evidence in the discharge of Mr Rigoli's burden of proof. It may be that some parts of the Tribunal's reasons appear to be expressed as stating that Mr Rigoli was not permitted to rely upon evidence produced to the Tribunal by the Commissioner for another purpose, but the Tribunal's reasons need to be read and understood in the context of the issues before the Tribunal and the way in which the parties had presented their respective cases. The fundamental issue before the Tribunal in the remitted proceeding became whether Mr Rigoli could discharge his burden of proof by reliance upon the opinion of an expert whose task had been to undertake a different, albeit potentially overlapping, exercise than the one required for Mr Rigoli to undertake to discharge his burden of establishing that the assessments were excessive. Mr Rigoli had not furnished returns and the Commissioner had retained Mr Kompos to undertake the task of providing an opinion on the income, expenses and change in net assets of a partnership of which Mr Rigoli was a partner. The process undertaken in producing the Kompos report had similarity with a taxpayer's return of income but it was not in form or in substance evidence of Mr Rigoli's taxable income. Mr Kompos had not been asked to prepare, nor did he purport to prepare, a report which assessed Mr Rigoli's taxable income, although Mr Kompos used material which bore upon that topic and expressed opinions upon which Mr Rigoli could have relied in support of his case. The Tribunal should not be understood as deciding that a taxpayer may not rely upon probative material solely because it was not led in evidence by the taxpayer or because it had been placed before the Tribunal by the Commissioner for some other purpose. The Tribunal's reasons for rejecting Mr Rigoli's reliance upon the Kompos report was, rather, that it did not establish Mr Rigoli's taxable income. The Tribunal said at [73] of its reasons:

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 [of] 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

ATC 17511

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.

The Tribunal's description of the Commissioner's purpose in obtaining the Kompos report in part explained why it did not establish Mr Rigoli's taxable income. The report provided the Commissioner with a reasonable basis for raising assessments in the absence of what Mr Rigoli ought to have furnished but it was not the preparation by Mr Kompos of Mr Rigoli's returns of income for the years in question. The Tribunal found as a fact that the Kompos report did not establish Mr Rigoli's taxable income. The Tribunal had earlier in its reasons analysed the Kompos report saying at [17]-[21]:

The Tribunal found, as it was entitled to find on the material before it, that the Kompos report, and its methodology, was incomplete and did not establish Mr Rigoli's taxable income. The Tribunal's finding was not a rejection of the Kompos report as evidence nor a conclusion that Mr Rigoli could not rely upon evidence which had been produced by the Commissioner for another purpose, but a finding that the report did not establish that which Mr Rigoli needed to establish.

11. The Tribunal's observations at [86] and [87], in the context of considering
Rawson Finances Pty Ltd v Commissioner of Taxation (2013) 296 ALR 307, that the evidence must be produced by Mr Rigoli, must also be understood in the context of the Tribunal's finding that the Kompos report was insufficient to establish Mr Rigoli's taxable income. The reasons for decision of an administrative decision-maker are "not to be scrutinised upon over-zealous judicial review by seeking to discern whether some inadequacy may be gleaned from the way in which the reasons are expressed":
Minister for Immigration and Ethnic Affairs v Wu Shan Liang (1996) 185 CLR 259, 272. It was the Tribunal's rejection of the Kompos report as probative evidence of Mr Rigoli's taxable income which was the Tribunal's reason for observing that there was no other probative material from Mr Rigoli which would have permitted the inferences to be drawn from the report.

12. The limitations of the Kompos report had also been the subject of observation in the judgment of the Full Court where, on the appeal, Mr Rigoli had sought to rely upon the Kompos report in the earlier proceedings. The Full Court had said in its reasons in the earlier proceeding at
[2014] FCAFC 29, [23]-[25]:

It was submitted for Mr Rigoli that these observations were obiter and that they had been made in circumstances where the probative weight of the Kompos report was not relevant to the proceeding in the Full Court and had not been the subject of argument. The Commissioner challenged these submissions but, even if it be accepted for present purposes that the Full Court had not been taken to all of the material upon which the Kompos report was based and, therefore, that (as was contended for Mr Rigoli) the observation of the Full Court (that what had been adduced for the Commissioner "did not purport to provide, and did not provide, the [Tribunal] with a probative foundation upon which factual conclusions could be reached") was obiter, and not binding as between Mr Rigoli and the Commissioner, the Tribunal reached the same conclusion independently in the subsequent remitted proceedings. The observations by the Full Court, in other words, are to the same effect as the Tribunal found in the remitted proceedings, namely, that the Kompos report was not, and did not purport to be, that which Mr Rigoli needed to establish his taxable income. The observation by the Full Court of the deficiencies in the Kompos report are in part an explanation of why the report did not establish his taxable income (or, more precisely, his taxable income to the extent that it was made up of his share of the partnership). The candid remark by Mr Rigoli's counsel to the Tribunal in the remitted proceeding that Mr Rigoli was unlikely to be aware of his taxable income is in part a further explanation why Mr Rigoli's reliance upon the Kompos report does not establish Mr Rigoli's taxable income. Neither explanation amounts to saying that a taxpayer is not able to rely upon evidence tendered by or for the Commissioner in discharging the taxpayer's burden of proof, but may explain why the Kompos report did not do so in this case.

13. The Tribunal's finding that the Kompos report 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, needs to be borne in mind when considering other parts of the Tribunal's reasons. Counsel for Mr Rigoli referred to some parts of the passages at [72] to [76] to submit that the Tribunal had wrongly rejected the Kompos report on the basis that an expert report produced by the Commissioner could not be relied upon by a taxpayer as probative evidence to discharge the statutory burden of proof. However, the Tribunal's observations must be understood in the light of its finding that the particular report relied upon did not satisfy the Tribunal that it provided probative evidence of that which Mr Rigoli needed to prove. At [72]-[76] (with, for convenience, the repetition of [73] quoted above) the Tribunal said:

At [84]-[87] the Tribunal went on to say:

The observations that the Kompos report had been produced by the Commissioner were made in the context of the Tribunal regarding the Kompos report as inadequate to prove that which Mr Rigoli sought to establish by it. It was the Tribunal's rejection of the report as probative evidence that informed the Tribunal's observations that it had not been evidence produced by Mr Rigoli to establish the taxable income which his counsel had candidly accepted that Mr Rigoli was unlikely to know.

14. For the foregoing reasons I would dismiss the appeal. It is, therefore, unnecessary to deal with the Commissioner's notice of contention that Mr Rigoli did not provide the Tribunal with a probative foundation upon which factual conclusions could be based about either the amount included in his taxable income or allowable as a deduction under s 92 of the 1936 Act or of his actual taxable income for any of the years in question. It may, however, be desirable to make the following observations about the notice of contention.

15. The case conducted for Mr Rigoli in the Tribunal in the remitted proceedings depended upon whether the Kompos report was itself sufficient to provide a probative foundation for the inferences which Mr Rigoli sought the Tribunal to have drawn in his favour. Counsel for Mr Rigoli informed the Tribunal that "there really ought to be no need to go behind Mr Kompos' expert opinion to look at the primary documents he relied on" and that "the evidence that can be looked at can be held in the palm of one's hand", namely, the Kompos report, the Commissioner's reasons for decision and the Tribunal's prior findings on depreciation so that there was "no need to delve into the multitude of T document folders". The Tribunal was not taken to the underlying material in an attempt to provide, or to explain, the evidentiary foundation for the inferences which Mr Rigoli sought to have drawn in his favour. The Tribunal was not obliged in those circumstances to go beyond the material as put by the parties and was not required to undertake for itself an investigation into whether the materials in the documents before the Tribunal provided some independent basis for the inferences which Mr Rigoli sought to have made in his favour. In
Commissioner of Taxation v Glennan (1999) 90 FCR 538 the Full Court said at [82]:

As a matter of general administrative law, it has long been accepted that it is no part of the duty of the decision-maker to make out a case for the applicant:
Prasad v Minister for Immigration and Ethnic Affairs (1985) 6 FCR 155 at 170, per Wilcox J. In a statutory context in which a taxpayer seeking to challenge an assessment is required to specify the grounds of his objection, and bears the burden of proving that it is excessive, as a general rule it cannot be said that the AAT is bound to make findings of fact and rulings on issues not relied upon by the taxpayer in the proceedings before it. It follows that, as a general rule, there is no error of law if the AAT fails to address issues of fact and law not the subject of argument by the taxpayer.

ATC 17516

The case for Mr Rigoli before the Tribunal was not conducted upon the basis that the Tribunal should independently have undertaken a review of all of the material which was before the Tribunal in search of a probative foundation to base conclusions concerning the amount included in Mr Rigoli's assessable income or allowable as a deduction as a partner under s 92 of the 1936 Act or of the amount of his actual taxable income. The Tribunal recorded at [88] of its reasons that the report by Mr Kompos "dealt only with his best estimate of partnership income" and provided no foundation to draw inferences about Mr Rigoli's actual taxable income from any material which the Commissioner used in arriving at his assessment.

16. Accordingly, the proceeding will be dismissed and I will hear the parties in relation to the form of orders and any question of costs.

 

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