Commissioner of Inland Revenue v Bhika [2006] FJMC 32; Criminal Case 848 of 2005 (23 October 2006)

IN THE RESIDENT MAGISTRATE'S COURT
AT SUVA

Criminal Case No. 848 of 2005

CIR

vs

DHANSUK LAL BHIKA
S/O Ranchod Bhikahabhai

Prosecution: Ms A Koroi / Mr J Mynavolau.
Defence: Mr G Turner with Mr C Cameroon

JUDGMENT

The accused has been charged under the Income Tax Act Cap 201 with 10 counts.

Counts 1 & 2: Contrary to Section 96(2)(a)

Willfully with intent to assist another person, namely Suncourt Wholesalers Limited, to evade, Tax, omitting from the Tax return of Suncourt Wholesalers Limited, being a return signed by him, certain income which should have been included in the same, Contrary to Section 96(2)(a), Income Tax Act.

Particulars are Dhansukh Lal Bhika on 23rd July 2002 willfully and with Intent to assist Suncourt (Wholesalers) Limited to evade Tax imposed, omitted from returns made by him, income of Suncourt which should have been included in the returns to the extent of $170,086.

Count 2: Similar particulars as Count 1 on 3rd of July 2003 evasion for a sum of $244,785.

In Counts 3-10: Contrary to Section 96(2)(B)

Willfully with intent to assist another person, namely Suncourt Wholesalers Limited, to evade Tax, imposed by the Income Tax Act, making a false statement in the Tax Return of the said Suncourt (Wholesalers) Limited, being a Return signed by him, claiming a certain allowance allegedly due under the income Tax Act Contrary to Section 96(2)(B), of the said Act.

Particulars are Bhika on various dates willfully and with intent to assist Suncourt made a false statement in the Tax return claiming certain allowances for himself and his relative directors of Suncourt which were of personal nature and not in allowable claim in the company returns. Each count has the alleged particulars of false claims.

The Prosecution amended it's charges on 16th August 2006 and further amended two counts on 20th September 2006.

The accused has pleaded not guilty to each of the 10 counts.

At the end of the Prosecution case I held a prima facie case to answer and called the accused to his defence. The accused elected to remain silent and not to call any evidence.

The Prosecution Case

They called 6 witnesses. Ms Traill, a tax auditor headed a team of auditors. Copies were made of general ledger records from documents in possession of police. She found discrepancies in Directors personal expenses accounts.

The company paid out from its' income for the benefit of directors. This reduced company profits and lesser tax was paid as an evasive measure. Personal Directors tax dues and Sky TV annual fee for directors were paid out by company and charged to the general account in ledger.

As a result the company evaded payments of actual tax due. Ms Traill referred to individual payments in each count which were private expenses of directors and relatives paid by company accounts.

These were not claims allowable to be credited to company accounts. The taxpayer appealed to the taxation Court Of Review. The Review Court partly allowed the appeal and recommended reassessment.

Evasions were discovered and Bhika charged as a managing director and authorized officer who signed the Tax Returns of the company. M.N. Khan (PW2) made schedule of discrepancies after the Court Of Review's decision. It showed the total discrepancies in 2002 as $244,795 and in 2001 as $170,086.

Vimal Krishna (PW3) brought in evidence of similar fact.

He carried out a tax audit of Suncourt during 1995 and found company claimed private expenses as business and trade expenses. The reassessed accounts were paid by the Taxpayer to CIR. His compliance report is (Exhibit 27) in evidence.

(PW4 & 5) were cashiers. They were shown computer prints of receipts (Exhibit 7 - 15) which were payments made to CIR in favour of directors personal Tax accounts. The group accountant of Sky Fiji (PW6) testified $385 was paid as annual subscription of Sky pay TV in the name of accused. The prosecution relies on circumstantial evidence and implications from evidence. It says because Suncourt did not appeal the Court of Review ruling and paid the amounts assessed is circumstantial evidence that accused as the authorized officer of Suncourt has accepted owing the amount therefore committed a criminal act of assisting wilful evasion by the company.

Prosecution again relies on circumstantial evidence and judicial knowledge to establish identity of accused and incorporation and existence of Suncourt as a company.

Prosecution also argued that the accused's refusal to voluntarily allow tax team to audit the books of accounts implies circumstantially that the accused had guilty knowledge of his records and was trying to prevent commissioner to access it.

Defence Case

The defence denies that the prosecution has proved it's case beyond reasonable doubt. It questions the identification of accused and company, genuineness of the documents produced. It raises the discrepancies in the charge particulars and the amounts shown in each of the counts thus raising reasonable doubt in the prosecution evidence.

Defence says Suncourt as a substantial firm was not in a position to have its' managing director to check each and every entry in the accounting records. Adequate steps were taken to have an accounting section with 10 - 20 people working and an external auditor to carry out the check and balance required.

It was not a wilful or deliberate act on part of the director. Although it may amount to carelessness.

The defence has raised issue on each of the elements of the offence on individual counts.

Analysis of Evidence

The question now before this court is whether the prosecution has proved each element of the offence charged beyond reasonable doubt. I will deal with each element separately.

(i) Name and identity of accused.

The accused in all charges is named 'Bhika'. The documents, receipts, review court decision show him as 'Bhikha'. The tax returns is signed and declared by authorized officer as 'Bhikha'

The defence Exhibit 1 birth certificate tendered through (PW3) Krishna shows the registered name as 'Bhikha' There has been no identification showing the accused is the person charged in court.

The prosecution witness Vimal Krisha stated that the birth certificate "must have a typographical error in the surname".

The IRD has a tax identification number to identify each tax payer. Documents and receipts tendered show T.I.N. as 02-06305-0-2 and the name is 'Dhansukh Lal Bhikha'.

The burden is on the prosecution to prove Bhika as accused person in charge is one and the same person who is also the director, authorized officer and tax payer known as 'Bhikha.'

(ii) The Company - Suncourt (Wholesalers) Limited.

The company name in the charges is Suncourt Wholesalers Limited. In the particulars of offence it's stated as Suncourt (Wholesalers) Limited. In statement of PW2 (Exhibit 26) as Suncourt Wholesalers Limited. The registration certificate of the company has not been produced in evidence as proof of it's existence and name.

The prosecution has urged court to take judicial notice that Suncourt is a well known Fiji Company. In a charge where the company is referred to "as a person assisted by the accused to commit an offence;" the prosecution has to prove that there was in existence a duly incorporated company with its' correct registered name in the records of Registrar of Companies.

The court may take judicial notice of the fact that Suncourt is a well known hardware merchant in Fiji. However, as an essential element of the offence charged company's full and accurate name would have to be proven by best evidence i.e. a certificate of registration from company registry. (S19 Companies Act Cap 247). Even without certificate oral evidence as to its' correct name has not been led by prosecution. But the prosecution relies on implied evidence.

(iii) Suncourt as taxpayer submitted income tax returns to Commissioner and the returns were evasive and omitted income stated in each of the counts.

From the tax audits and returns filed it could be inferred that Suncourt (Wholesalers) Limited is a tax payer in Fiji.

Exhibit 28/29 show returns were filed for 2001 and 2002. The prosecution for omissions relies on the general ledger entries to show how the general expenses were bolstered up to increase company expenses but it actually was private expenses of directors and relatives which rightfully should have been paid by them personally. Even after reassessments and review decision, it was not done.

In order to successfully prove the omission and evasion; additions to the company ledgers and then to the general expenses on each count ought to be shown in evidence. The prosecution did not lead evidence to show existence of original ledgers. They tried to admit in evidence copy pages of ledger without laying any foundations.

No one said it's the 'business records' of Suncourt to bring it within S4 exceptions of hearsay rule.

Ms Traill said it was documents taken from police but no one said how it was seized.

In closing submissions learned prosecution counsel said an auditor Shivneel Vikash had handed these ledger pages to Ms Traill and Vikash was now 'beyond seas' migrated so within S4 exception.

But no evidence is before court of Vikash's migration, its submission without supporting evidence before court. The purported ledger pages are also headed 'Suncourt hardware'. It is not in evidence how it's related to Suncourt (Wholesalers) Limited as in the charge.

In a criminal case one cannot imply without evidence. The oral evidence of Ms Traill referring to ledger entries in each count cannot be relied on or implications made. All other documentary or oral evidence do not go to show omissions and evasions with any particularity as to the entries made in the Suncourt (Wholesalers) Limited account as alleged in each count.

Ms Traill's evidence was accused had accepted the Court of Review ruling and didn't appeal. Payments were made to commissioner. Ms Traill relied on the ledger entries in Suncourt books of accounts. The prosecution relies on above entries as evidence of fact furnished to FIRCA auditors by the accountants of Suncourt. They say because of the discrepancies in the ledger entries and returns, for respective transactions; evasion is proved.

Ms Traill and cashiers evidence assert by way of circumstantial evidence that payment made on behalf of Directors and their family members were claimed business deductibles shown as general expenses. It increased business expenses and reduced company profits thus lesser tax was paid to the Commissioner.

The prosecution again relied on the Court Of Review decision and the reassessment thereafter to show omitted amounts. No detailed analysis of the omitted income amounts and false claim for allowances due was given in evidence.

Again these were left for the court to infer from the Court of Review decision or on circumstances previously. A closer look of the Court of Review decision shows the following:

The Review Court on page 9, parag 4 of its' decision states:

"Another troubling aspect of evidence was that the Respondent (CIR) did not lead comprehensive evidence of decision making process underlying the two amended assessments; including the process leading to the imposition of penalties. Equally troubling is the comparative absence of detailed evidence concerning the decisions underlying the preparation schedules of deficiency_ _"

Further on page 19 parag. 2:

"It does not appear from the evidence that any comprehensive attempt was made by CIR to obtain informations from third parties who may hold relevant information or documents _ _ _ _ no attempt was made to adduce evidence at the hearing of the appeal from any such third party of the precise nature of the enquires made by or on behalf of Respondent (CIR). Any such evidence would have assisted the court to some extent."

On page 20 parag. 3:

"I do not regard the respondent's witness (CIR) Ms Traill and Ms Ravono as expert opinion witnesses _ _ _"

The Court of Review action was taken out by the accused's company. That court allowed certain claims in favour of accused and disallowed some claims and ordered fresh assessments by the CIR. Its important to note the onus in that Court was on the accused to prove his entitlements and to show the CIR assessments to be inaccurate.

But here the Prosecution has to prove each element of the offence beyond reasonable doubt.

On page 24 paragraph 4 the Review Court says "Apart from hearsay assertions and conclusions the respondent (CIR) made no efforts to counter the assertion of genuineness of the credit notes by the appellant (Suncourt) nor of the regularity of record keeping from which the general ledger was produced."

In this case the accused has questioned and countered every assertion of CIR. He has been successful in preventing the admissibility of the ledger pages. The prosecution has thus lost an important link in its chain of evidence required to prove each count against the accused both in omission of income and on false allowance claims.

This court cannot put much weight and reliance on the evidence led by prosecution without the following:

(a) Original Tax returns with assessments on it.

(b) Objections by taxpayer and the Court of Review decisions effect on each of the items and the new income of taxpayer derived with new amounts of income and deductions on each of them.

(c) Proof of acceptance of amended assessments and payments by Suncourt on each by production of some form of receipts.

There are further issues raised by defence which needs consideration here:

(a) Counts 3-10 allege offences against Section 96(2) (B) (sic) of the Income Tax Act. There is no such provision. The Prosecution says it's easily cleared up under maxim which means "a misdescription which does not matter "(falsa demonstration non - noct"

I accept it's a misdescription in form only and does not vitiate the charge. The accused would have knowledge of which section he is charged with, despite the error by prosecution.

(b) The defence raises discrepancies in amounts in counts 3, 8, 9 as shown in cashier's receipts and the years of assessments shown as for 1999 and 2000 in the audit report of CIR. Count 3 refers to tax year 2000 and not 1999. Counts 8 & 9 refers to 1999 and 2000 but the audit report correspondingly refers to 2000 and 2001. There is no audit report Exhibited in evidence before court but it may have been supplied to the prosecution in disclosure document.

Ms Traill heavily relied on this report in her evidence. In cross examination Ms Traill admitted differences in amounts in Counts 3, 6 and year differences; "it could be an error by CIR recording, cashier or Suncourt accounts department " For count 6 she said "have to refer to Bank accounts of Suncourt but it is not here."

(c) Count 5 payment is questionable due to non admissible Sky Fiji documents. Ms Traill referred to discussions and audit report which is not in evidence.

(iv) The returns were made/signed by the accused.

The returns (Exhibits 28 & 29) are copy Tax Returns of Suncourt. They were admitted on Ms Traill's oral evidence of being signed by accused as a director. Also submitted to the Commissioner by the company accountants. However, the prosecution relies on its' entries and contents as it forms part of an essential element of offence charged. It was for the prosecution to show:

i) That the Director Bhikha is the accused person.

ii) He was the same person who is authorized and did sign the returns.

iii) The signature of the accused was known to the witness (Ms Traill) to belong to him.

No direct evidence of identity of signature was led.

The prosecution again relied on implication and circumstantial evidence to prove this. I will consider it later in judgment.

(v) The accused acted wilfully and with intent to assist Suncourt to evade Tax as stated in each count.

The prosecution relies on evidence that Suncourt did not appeal the Court of Review decision. PW1 and 2 have said the income discrepancy schedule raised by FIRCA was not disputed by Suncourt and paid by it. The Prosecution states this amounts to evidence that Bhika as authorized officer of Suncourt has accepted owing the amount due thus circumstantially admitting to have committed a criminal act wilfully.

The defence in cross examination of Vimal Krishan and Ms Traill showed that Suncourt accounts section employs about 20 - 30 staff and their books are audited by a chartered accountant firm.

They certify the accounts to give a 'true and fair view' of the books of accounts. It's unexpected to expect Bhika as managing director to check each and every entry. He relied on the external audits for advice. Suncourt's payment of its tax liabilities cannot infer any criminal intent on it's director Bhika.

The words 'willfully' and 'with intent' involves specific and deliberate conduct on Bhika's part. It would be necessary to prove that Bhika knew his accounts department were claiming non deductible as deductable claims expenses in Suncourt books of accounts. It was not adjusted and such was deliberate and not negligence or recklessness on Bhika's part.

Prosecution introduced 1995 audit which showed similar pattern of evasion. They said it was during the time Bhika was the director, so he had knowledge.

They also say under S41 of Income Tax Act the authorized officer was responsible and answerable for the company. They therefore impute knowledge on his part.

Conclusion

The crux of the prosecution case is dependant on circumstantial and implication from other evidence.

They rely on court of review findings and reassessments and discrepancy schedule, payments of previous assessments and no appeal stance of Suncourt.

The test for circumstantial evidence is 'whether I am satisfied beyond reasonable doubt that the only reasonable conclusion to be drawn from evidence of prosecution is the guilt of the accused? Does the evidence point inescapably to the accused's guilt? Teper –v- R (1982) A.C. 480.

The learned defence counsel has referred amongst others to the case of Yorke -v- Lucas [1985] HCA 65; (1985) 158 CLR 661 says: "where a person is charged as a secondary party with providing knowing aid or assistance, it must be shown that the person in question has knowledge of the essential matters making up the contravention whether or not he knew that these matters amounted to a contravention."

The prosecution evidence has failed to satisfy me beyond reasonable doubt of the following:

(i) That the name 'Bhika' and 'Bhikha' belong to the one and same person. Also that the accused in the charge and the authorized officer of Suncourt, Director are all one and the same person.

(ii) That the registered name of the company is Suncourt (Wholesalers) Limited or Suncourt Wholesaler Limited which was assisted by the accused.

(iii) The prosecution evidence lacked cogency and with regard to omissions, and allowances it cannot be said that the only reasonable conclusion from evidence points to the guilt of the accused. There are no ledger pages where entries were made to show additions or omissions. Error has been admitted in accounts by Ms Traill as to discrepancies either of cashiers or of Suncourt staff.

The audit report has not been tendered in evidence which has been relied on by Ms Traill in evidence. A likely explanation could well be human negligence or wrongful accounting practice. The accountants who made the returns did not give evidence. If accused signed it as an authorized officer and is responsible; Criminal intent and guilt is not the only reasonable conclusion drawn.

The external auditors by independent chartered accountants would reduce the likelihood of intended assistance to evade Suncourt by the accused.

No evidence of Prosecution implies that accused knowledge of the essential matters which made up the contravention. No specific entries making up the contraventions have been proved.

Payment of reassessment and non appeal may also mean to save company reputation or court battle. The dues are paid does not necessarily imply admitting guilt of accused.

(iv) That the accused's signature was known to Ms Traill and he is the person who signed or made the returns. Even if S41 of Income Tax Act holds authorized officer responsible and answerable, proof of his signature was an essential element.

I therefore acquit the accused on all counts.

Dated this 23rd day of October 2006.

AJMAL GULAB KHAN
RESIDENT MAGISTRATE