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DALAM MAHKAMAH TINGGI MALAYA DI JOHOR BAHRU
DI DALAM NEGERI JOHOR DARUL TA'ZIM
RAYUAN SIVIL NO: (MT-5) 14-1-2008
ANTARA
1.
2.
LAI KENG CHONG
KON CHEE LEONG
…PERAYU
DAN
KETUA PENGARAH HASIL DALAM NEGERI
…RESPONDEN
KES DINYATAKAN OLEH PESURUHANJAYA KHAS CUKAI
PENDAPATAN BAGI PENDAPAT MAHKAMAH TINGGI
MENURUT PERENGGAN 34 JADUAL 5
AKTA CUKAI PENDAPATAN, 1967
DALAM PERKARA
PESURUHANJAYA KHAS CUKAI PENDAPATAN
RAYUAN NO. PKCP(R) 6/2005
RAYUAN NO. PKCP(R) 7/2005
ANTARA
1.
2.
LAI KENG CHONG
KON CHEE LEONG
…PERAYU-PERAYU
DAN
KETUA PENGARAH HASIL DALAM NEGERI
…RESPONDEN
JB-MT5-14-1-08/Lai Keng Chong & 1YL v KPHDN
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DI DALAM MAHKAMAH TERBUKA
DI HADAPAN Y.A. DATO' HUE SIEW KHENG
PESURUHJAYA KEHAKIMAN
DECISION
1.
This is an appeal by way of case stated against the deciding
order made by the Special Commissioners of Income Tax on
29 May 2007.
2.
The admitted and/or proved facts of the case are as follows:
i)
The Appellants operate a business under the name of Hup
Soon Trading and their principal activity is the business of
trading in all forms of scrap ferrous metals such as wire,
battery, drums, irons, steel aluminium, brass copper, plastics
and crane rental.
ii)
Prior to the field audit, the appellants had submitted their
return forms for the relevant years of assessment
(hereinafter referred as “the first return form”) and declared
that the gross profits ratio for the relevant years of assess
were 28.33%, 26.84%, 16.79% and 15.82% respectively.
iii)
The Inland Revenue Board conducted a tax audit on Hup
Soon Trading (partnership) on 31.03.2003 in respect of the
Years of Assessment 1998, 1999, 2000 (CY) and 2001).
iv)
The field audit team had found thata) the Appellants had not recorded completely all their
business transaction.
b) the Appellants failed to keep and retain their record of
trading for the relevant years of assessment.
c) they did not declare the income from their business of
crane rental for the relevant years of assessment.
d) the money deposited into the bank account was much
higher than the amount declared in their tax computation.
JB-MT5-14-1-08/Lai Keng Chong & 1YL v KPHDN
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e) the Appellants had understated the amount of their
income for the relevant years of income such as belowYA 1998
-
RM16,549,443.27
YA 1999
-
RM15,103,940.98
YA 2000 (CY)
-
RM21,270,204.19
YA 2001
-
RM23,213,112.01
v)
The Appellants agreed with the findings of the audit.
Additional tax liabilities of RM85,103.37 (excluding penalty of
60%) for Mr. Lai Keng Chong (OG 2753026-04) and
RM84,400.93 for Mr. Kon Chee Leong (OG 2758220-05)
were imposed and these were agreed to by both the
appellants. They also paid a sum of RM13,716.54 each by
way of cheque dated 02.06.2003 as a deposit before the
Notices of Additional Assessment were issued by the
Respondent on January 2004. The total additional tax
liability for both the appellants amounted to RM271,206.88
inclusive of penalties.
vi)
After the audit, the Appellants submitted the audited account
for year ended 2001 (“the revised account”) and had claimed
that it was accurate because it was based on the actual
sources of documents. However, after analyzing the revised
account the Respondent had found that it was not accurate
and unreliable therefore it can not be accepted by the
Respondent.
vii)
Subsequently, the Inland Revenue Board revised their
computation, using an average gross profit margin of 22%
for all the relevant.
viii)
The average rate of 22% was obtained from the total amount
of gross profit declared by the Appellants in their first return
form (28.33%, 26.84%, 16.79% and 15.81%) and divided by
4 Years of Assessment [1998, 1999, 2000 9CY) and 2001].
ix)
The additional assessments now stood at RM4,807,937.98,
inclusive of penalties of 60%.
x)
The Appellants disagreed with the gross profit margin
computation and subsequently filed Form Q on 06.02.2004.
JB-MT5-14-1-08/Lai Keng Chong & 1YL v KPHDN
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3.
The issue placed before the Special Commissioners was
whether the average gross profit ratio (GPR) of 22% used by
the respondent for the relevant years of assessment (from
1998-2001) is incorrect and excessive.
4.
The respondent contends that the notices of additional
assessment to the appellants were correct and had been
issued according to the best judgment of the Director General
of Inland Revenue pursuant to section 91(1) of the Income Tax
Act 1967.
The Special Commissioners agreed with the respondent.
5.
It is trite that an appellate court can only review the Special
Commissioners’ decision where, inter alia, findings or
inferences of fact are made which are wholly unsupported by
evidence or that the Commissioners have acted without
evidence or upon a view of the facts which could not
reasonably be entertained or there has been an error on a point
of law. (see Mount Pleasure Corp. Sdn. Bhd. v Ketua Pengarah
Hasil Dalam Negeri [2006] 1 MLJ 168; Lower Perak CoOperative Housing Society Berhad v Ketua Pengarah Hasil
Dalam Negeri [1994] 2 MLJ 713 and I. Investment Ltd. v DRIR
[1975] 2 MLJ 208).
6.
The misdirections in law as highlighted by the appellants arei)
the respondent had found various discrepancies in
respect of the appellants’ business transactions and
records when the respondent had conducted the tax audit
on 31.3.2003 following the submission of the first return
forms;
ii)
the first return forms were superseded by the audited
accounts submitted by the appellants for the year ended
2001 which were based on actual sources of documents;
JB-MT5-14-1-08/Lai Keng Chong & 1YL v KPHDN
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iii)
the Special Commissioners had merely accepted that the
respondent had found that the said revised account was
not accurate and unreliable but no evidence was referred
to by the Special Commissioners.
7.
This was despite the fact that after discovering the
shortcomings/infirmities in the appellants’ business transactions
during the tax audit carried out the respondent had imposed
additional tax liabilities in the sum of RM271,206.88 inclusive of
penalties on both the appellants based on a GPR of about 4%
and the appellants had agreed to the additional tax liabilities
and made payment accordingly.
8.
From a perusal of the cause papers and submissions of the
parties I concur with the appellants that having imposed the
additional tax liability after the tax audit carried out the
respondent cannot now revise their computation using an
average GPR of 22% based on the first return forms and issue
the notices of additional assessment to the appellants.
9.
This is clearly a capricious act on the part of the respondent as
it is using figures which the respondent had itself acknowledged
to be wrong to derive the GPR.
As Dr. Veerinderjeet Singh expounded in his book “Malaysia
Taxation: Administrative and Technical Aspects” Fifth EditionThe very use of the word “judgement” makes it clear that the
DG is required to exercise his powers in such a way that he
makes a value judgement on the material which is before
him. It would be a misuse of that power if the DG was to
decide on a figure which he knew was, or thought was, in
excess of the amount which could possibly be payable, and
then to leave it to the taxpayer to appeal for a reduction of
the assessment. There must clearly be some material with
the DG on which a judgement can be based. If there is no
material at all, it would be impossible to form a judgement as
to what the chargeable income and tax payable should be.
JB-MT5-14-1-08/Lai Keng Chong & 1YL v KPHDN
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Normally, the DG would take into account the previous
assessments, local knowledge in regard to the taxpayer, the
average rate of profits made by persons carrying on a similar
trade and any other information that may be in his
possession. Some of the points to be borne in mind by
officers of the IRB, when they are issuing “best judgement”
assessment, are:



there must first be a reasonable opinion that liability
exists;
once such an opinion is formed, the amount for
assessment, although inevitably based on guesswork,
must be reasonable;
the guesswork should be based on the facts and material
available, such as gains or losses incurred in previous
years, unabsorbed losses and capital allowances from
previous years, market conditions, etc.
10.
In the circumstances, the respondent cannot be said to have
issued the notices of additional assessment according to the
“best judgment” of the Director General of Inland Revenue
within the meaning of section 91 of the Income Tax Act 1967.
11.
For this reason and other issues raised in the appellants’
submission I find the Special Commissioners had misdirected
themselves in coming to the conclusion that the 22% GPR
“merupakan suatu anggaran yang berpatutan”.
12.
The Deciding Order dated 29.5.2007 as well as Notices of
Assessment for years of assessment 1998-2001 for the
appellants are set aside and pursuant to para 39(c) Schedule 5
of the Income Tax Act 1967 I hereby order that fresh Notices for
both appellants for the relevant years be issued on the basis of
GPR of 8% which in my opinion is just and appropriate.
JB-MT5-14-1-08/Lai Keng Chong & 1YL v KPHDN
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(DATO' HUE SIEW KHENG)
Judicial Commissioner
High Court Malaya
Johor Bahru
DATE:
5 MARCH 2010
KAUNSEL
En. D. Paramalingam, [En. Shukdev Singh (kaunsel)] – Tetuan Azlan Shah,
Shukdev & Co., Peguambela & Peguamcara, Kuala Lumpur, dan Tetuan Krish
Maniam & Co., Peguambela & Peguamcara, Kuala Lumpur. [Ruj:
KMC.A.1808.KK.PL.sl.2005] – bagi pihak perayu.
Cik Shoba, [Cik Norsalwani Muhd. Nor] – Inland Revenue Board of Malaysia,
Kompleks Bangunan Kerajaan, Jalan Duta, Kuala Lumpur.
[Ruj:
LHDN.01/12.3/353/21/4/1/531) – bagi pihak responden.
MT5-14-1-08/LaiKengChong-LHDN/DHSK/rhea
kptsn.5.3.10/d.s.5.3.10
JB-MT5-14-1-08/Lai Keng Chong & 1YL v KPHDN