The Taxpayer’s Dilemma
It began as a routine audit but quickly turned into a tangled web of accusations, incomplete evidence, and unanswered questions. The tax authorities had identified discrepancies in the financial records of a taxpayer who served as a director and shareholder of a company. According to the company’s financial statements, the taxpayer had received director’s fees totaling RM427,000 across 2015, 2016, and 2017. Yet, no tax returns had been filed for those years.
The Director General of Inland Revenue (DGIR) wasted no time issuing Notices of Assessment under Section 90(3) of the Income Tax Act 1967, along with penalties for the failure to file tax returns. The taxpayer, however, claimed that the story was not as simple as it seemed.
The Defense
The taxpayer’s defense was as bold as it was surprising. “I never received these payments,” she declared, pointing fingers at the company, alleging misuse of her name as a shareholder and director. To support her claim, she submitted bank statements for 2016 and 2017, which showed no trace of the alleged payments. For 2015, however, no bank statements were provided at all.
The DGIR was skeptical. The incomplete documentation raised more questions than answers. Why were bank statements missing for 2015? Why hadn’t the taxpayer called any witnesses from the company to corroborate her claims? To the authorities, these omissions cast doubt on her defense.
The Verdict
The case reached the Special Commissioners of Income Tax (SCIT), where every detail was scrutinized. The taxpayer’s incomplete evidence and lack of testimony from key witnesses weighed heavily against her. On 4 October 2024, the SCIT ruled in favor of the DGIR, upholding the original Notices of Assessment and penalties.
The taxpayer’s argument, they concluded, lacked the proof needed to overturn the assessments. The penalties, set at 45% under Section 112(3) of the Income Tax Act 1967 for failing to file tax returns, were deemed appropriate. The taxpayer was left with 21 days to appeal the decision—a small window of time to gather the evidence that had been missing all along.
The Lesson
This case serves as a cautionary tale, highlighting the critical importance of thorough documentation and proactive compliance in tax matters. The key takeaways are clear:
- Filing Tax Returns is Non-Negotiable: Even if disputes arise over income, failing to file tax returns can result in severe penalties.
- Document Everything: In tax disputes, the burden of proof rests on the taxpayer. Incomplete evidence can be as damaging as no evidence at all.
- Call Key Witnesses: If third-party testimony is vital to your defense, ensure these witnesses are available to corroborate your claims.
For taxpayers, this case is a reminder that allegations alone are not enough. Without concrete evidence, the tax authorities—and the courts—will side with the facts presented in official records.
