Date: 20001128
Docket: 1999-750-IT-G
BETWEEN:
DARSHEN NARANG,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Beaubier, J.T.C.C.
[1] This appeal pursuant to the General Procedure was heard at Vancouver, British Columbia on November 20, 2000. The Appellant testified and called William Andow, a retired employee of Human Resources Development Canada and David Cooper, who at the material times was an auditor with Revenue Canada, Income Tax and who did the net worth audit on the Appellant. The Respondent did not call any witnesses.
[2] The Appellant has appealed assessments for 1992, 1993 and 1994. At the hearing, the parties agreed that at November 20, 2000, the appeal from 1992 should be dismissed since it is from a nil assessment; that the amount in dispute respecting the appeal for 1993 is $98,816; and that the amount in dispute respecting the appeal for 1994 is $31,470.
[3] On the foregoing basis, the Appellant's appeal from the 1992 assessment is quashed.
[4] Paragraphs 5 to 12 inclusive of the Reply to the Notice of Appeal read:
5. The Appellant declared total income in the following amounts:
|
Taxation Year |
Total Income Reported |
|
1992 |
($3,962) |
|
1993 |
$17,896 |
|
1994 |
$20,696 |
6. In reassessing the Appellant for the 1992, 1993, and 1994 taxation years, the Minister increased the Appellant's total income by the following amounts:
|
Taxation Year |
Increase to Total Income |
|
1992 |
nil |
|
1993 Unreported Income |
$108,352 |
|
1994 Unreported Income |
$334,747 (sic) |
|
RRSP Withdrawal |
$ 20,000 |
|
Total |
$354,749 |
7. In so reassessing the Appellant, the Minister relied on, inter alia, the following assumptions:
Nil Assessment for 1992
a) the Respondent, by Notice of Reassessment dated October 9, 1998, did not assess any federal tax in respect of the Appellant's 1992 taxation year;
b) no Notice of Reassessment respecting the Appellant's 1992 taxation year was issued subsequent to October 9, 1998;
Net Worth
c) in reporting income for the 1993 and 1994 taxation years the Appellant did not include all of the income received in those years;
d) the total income of the Appellant for the 1993, and 1994 taxation years was understated by the amounts of $108,352, and "$354,749" (sic), respectively;
e) the understated amounts were determined by the net worth method (a copy of the Statement of Personal Net Worth is attached as Schedule "A");
f) the Appellant is the owner and operator of "Narang Farms" and "S & D Narang Farms", both of which are unincorporated businesses;
g) in the 1993 taxation year, the Appellant received no more than $2,725 from the Insurance Corporation of British Columbia with respect to the settlement of a claim for damages arising from a motor vehicle injury;
h) the Appellant's books and records were inadequate to properly determine the taxes payable for the 1993 and 1994 taxation years;
RRSP Withdrawal Included in Income
i) during the period from January 1, 1994 to June 3, 1994, the Appellant owned and resided at 31442 King Road, Abbotsford, B.C.;
j) on October 31, 1994 the Appellant made an application under the Home Buyer's Purchase Plan (the "Plan") and withdrew $20,000 (the "Funds") from his RRSP under the Plan;
k) the Appellant advanced the Funds to 458349 B.C. Ltd.;
l) the Funds were not used to buy a qualifying home as defined in the Plan;
m) the Funds were note returned to the Appellant's RRSP within the time limitations set out in the Plan;
Subsection 163(2) Penalties
n) the Appellant knowingly, or under circumstances amounting to gross negligence, in carrying out a duty or obligation imposed under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), as amended (the "Act"), made or participated in, assented to or acquiesced in the making of false statements or omissions in the income tax returns filed for the 1993 and 1994 taxation years, as a result of which the tax that would have been payable assessed on the information provided in the Appellant's income tax returns filed for years, was less than the tax in fact payable; and
o) as a consequence of the said understatement of income, the Minister assessed the Appellant the following penalties under subsection 163(2) of the Act for the 1993 and 1994 taxation years:
|
Taxation Year |
Penalty Assessed |
|
1993 |
$14,870 |
|
1994 |
$ 5,042 |
B. ISSUES TO BE DECIDED
8. The issues are whether:
(a) the Tax Court of Canada has jurisdiction to hear the appeal with respect to the 1992 taxation year;
(b) the Appellant's income for the 1993 and 1994 taxation years as reported was understated; and
(c) the Minister properly assessed penalties pursuant to subsection 163(2) of the Act in those years.
C. STATUTORY PROVISIONS RELIED ON
9. He relies on sections 3, 9, 146.01 and 152 and subsections 146(8), 146(12), and 163(2) and paragraph 56(l)(h.l) of the Act.
D. GROUNDS RELILED ON AND RELIEF SOUGHT
10. He respectfully submits that the Tax Court of Canada has no jurisdiction to hear the appeal with respect to the 1992 taxation year, as the Notice of Reassessment for the 1992 taxation year was not an assessment of tax, but was a notification that no tax was payable.
11. He further submits that the Appellant understated total income for the 1993 and 1994 taxation years by the amounts of $108,352 and "$354,747" (sic), respectively.
12. He further submits that the penalties assessed the Appellant for the 1993 and 1994 taxation years were properly assessed in accordance with subsection 163(2) of the Act because the Appellant knowingly, or under circumstances amounting to gross negligence in carrying out a duty or obligation imposed under the Act made or participated in, assented to or acquiesced in the making of false statements or omissions in the income tax returns filed for the 1993 and 1994 taxation years as a result of which the tax that would have been payable assessed on the information provided in the income tax returns filed for the years was less than the tax payable for years within the meaning of subsection 163(2) of the Act.
[5] Assumptions 7(a), (b), (c), (e), (f), (g), (h), (i), (j), (k), (l) and (m) were not refuted by the evidence. Respecting (f), the Appellant was a partner in S & D Narang Farms. The totals described in paragraph 11 of the Reply were reduced in subsequent negotiations prior to the hearing in Court. The Appellant disputed a number of items which will be dealt with. However he did not bring any supporting witnesses respecting those items where such witnesses were available and he did not testify that such witnesses were not available. Therefore the Court draws an adverse inference respecting the lack of substantiation either with documents or with witnesses. The items specifically disputed by the Appellant are dealt with in the following paragraphs.
[6] The Appellant acknowledged that his withdrawal of the sum of $20,000 from his RRSP in 1994 as specified in assumptions 7(i) to (m) inclusive was not done properly. He testified that his financial institution should have advised him better, and that may or may not be so. Nonetheless that withdrawal is taxable.
[7] The Appellant was assessed respecting $10,100 in 1993 which he stated throughout the assessments and the appeal related to a loan to his brother-in-law. However, there are no documents respecting the alleged transaction and the brother-on-law did not testify, despite the fact that this matter and the necessity for substantiation has been clear to the Appellant since 1995. Therefore the allegations by the Appellant respecting this sum are not accepted.
[8] The Appellant paid $26,100 to the Bank of Nova Scotia in 1993, allegedly to pay down a loan to a third party. He has stated that he does not remember who the third party was and he testified to that in Court. He did not subpoena any witnesses or documents from the Bank of Nova Scotia respecting this allegation. The allegation is not believed. The Appellant is not so well-to-do that he would not know all of the details respecting a lump sum of $26,100. All of the allegations by the Appellant respecting this are incredible.
[9] The Appellant also alleges that he dealt with an inheritance by his wife of $60,000 (Can.) in India in the following fashion: A traveller to India would pay him $5,000 Canadian in Abbotsford. The Appellant would instruct his brother-in-law in India (who held the $60,000 in rupees personally) to release $5,000 Canadian in rupees to the traveller in India. In this way the two parties saved exchange rates. This story is not accepted for a number of reasons: First, the inheritance was his wife's and not his to receive payment on. Second, his wife (now his ex-wife) did not testify. Third, none of the alleged travellers testified. Fourth, no probate or other documents evidencing the alleged inheritance were put before the Court. The Appellant testified that he did not call his ex-wife because he felt that she would not testify in his favour. There is an answer to this - the truth would not be against him if what he alleged was true.
[10] The final sum in dispute is $3,620.11 which the Appellant claims that he received in 1993 from Insurance Corporation of British Columbia ("ICBC"). The Appellant presented various ICBC documents to the Court including Exhibit A-2. However the exact calendar year of payments is not specified in A-2 or elsewhere despite the fact that this was the purpose of obtaining the ICBC documents. As a result there is no corroboration respecting this sum and the Appellant's claim is not accepted.
[11] As a result, none of the Appellant's allegations are accepted by the Court. He failed to provide any acceptable corroboration when he knew that it was necessary. Therefore the appeal of the assessments of income tax for 1993 and 1994 are dismissed.
[12] In dealing with the imposition of penalties, Strayer, J. said in Lucien Venne v. The Queen 84 DTC 6247 at 6256:
With respect to the possibility of gross negligence, I have with some difficulty come to the conclusion that this has not been established either. "Gross negligence" must be taken to involve greater neglect than simply a failure to use reasonable care. It must involve a high degree of negligence tantamount to intentional acting, an indifference as to whether the law is complied with our not. ...
That is the case here. In 1993, the Appellant signed his income tax return in October, 1994. He reported approximately $17,000 income. The amount in dispute is approximately five times that sum. In 1994, the Appellant's authorized representative signed his income tax return and the amount in dispute in Court is about 50 percent more than he declared. But he also failed to declare the sale of a farm property in 1994 for $549,292.37. The discrepancies are very large; there are a number of failures to report. Moreover, even if some of his testimony had been accepted as true, the findings would have been against him respecting his failure to report the RRSP funds in 1994 and the funds he received in 1993 respecting his wife's alleged inheritance. For these reasons, the Appellant's failures to report income were tantamount to intentional acting and amounted to a complete indifference as to whether the law was complied with or not. Therefore his appeal of the imposition of penalties is dismissed.
[13] The appeals are dismissed. The Respondent is awarded party and party costs throughout.
Signed at Ottawa, Canada, this 28th day of November, 2000.
"D. W. Beaubier"
J.T.C.C.