18782

ASSESSMENTS – Best judgment – Nil returns rendered in periods in which sales took place – Sums paid into bank account treated as consideration for sales – No evidence produced by Appellant to prove otherwise – Admission by Appellant that some tax due – Allegation of bad faith on part of assessing officer – Whether assessments to best judgment – Yes – Appeal dismissed – VATA 1994, s 73(1)

LONDON TRIBUNAL CENTRE

	GOWER CONTRACTS LTD	Appellant

-	and –

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

				Tribunal:	ANGUS NICOL   (Chairman)
						KENNETH MANTERFIELD FCA 

Sitting in public in London on 29 March, 10 May and 14 June 2004

Laith Hayali, director, for the Appellant 

Miss Eleni Mitrophanous, counsel, instructed by the Solicitor for the Customs and excise, for the Respondents

© CROWN COPYRIGHT 2004

DECISION

1.	The Appellant company is appealing against two assessments for VAT and a misdeclaration penalty. According to the amended statement of case, there are two assessments each in respect of the two periods 7/99 and 10/99. A notice of assessment dated 13 July 2001 (assessment A) shews an assessment for the period 7/99 of £1,616 and for 10/99 of £9,873.  A further notice of assessment dated 14 December 2001 (assessment B) is for £2,085 for period 7/99 and £6,241 for period 10/99.  These are separate assessments, and do not arise out of the same facts although for the same periods. The notice of assessment of misdeclaration penalty was dated 28 January 2002, and is for a total penalty of £2,102, in respect of those same two periods.

2.	According to the amended statement of case, the assessments arose in the following way. The Appellant had failed to render returns for the periods 1/00, 4/00 and 1/01.  On a visit in April 2001 it was discovered that whereas nil returns had been submitted for the periods from 1 May to 31 October 1999 [sic: presumably 1 August was meant] and 1 May to 31 July 1999, there were no records available to verify those returns (paragraph 4a of the amended statement of case).  It was also discovered that an amount of input tax relating to purchase invoices had been claimed by the Appellant and also by an associated company, Digital Contractors Ltd, in the periods 4/00 and 7/00 (paragraph 4b).  On the Appellant providing bank statements from June to December 1999, it was seen that there were several deposits for which the Appellant was asked for an explanation (paragraph 5) but failed to provide one or any supporting documentation (paragraph 6).  Those deposits were therefore treated as being related to taxable supplies.  As a result, the returns for 7/99 and 10/99 were incorrect, and further assessments were raised under section 73 of the Value Added Tax Act 1994 (paragraph 7) as mentioned above.  The notice of amendment amends only assessment A, reducing the figures to £1,616 and £7,777 respectively.

3.	The Appellant’s notice of appeal gave the following grounds:

“1.	The assessments made by the officer were wrong.  I had some missing records and no purchases were taken into consideration at all.  Subsequently penalties and interest was added.

2.	The assessments of quarters 07/99 and 10/99 were produced considering the bankings and as we could not show any purchase invoices it had been assumed that there were no purchases associated with the sales.  This is a ‘mistaken assessment’.”

4.	The Appellant put in a statement, in which it dealt seriatim with the matters raised in the amended statement of case. As to paragraph 4a, the Appellant said that the visiting officer had been told that the accounts were with a book-keeper who had gone abroad and had not yet returned.  It was admitted, in response to paragraph 4b, that there had been some duplication, but in very few cases and in insubstantial sums.  As to paragraph 5, bank statements had been obtained at the request of the officer.  The Appellant had not been asked for any explanation of the bankings referred to in paragraphs 5 and 6. The Appellant referred to a letter of 18 October 2002 as shewing that “Piling assessments were received on pre-assumptions”.  That letter actually says:

“… As you are aware the disputed assessments of VAT in respect of the tax periods ending 31 July 1999 and 3 [sic] October 1999 have been raised largely in respect of monies deposited in the Gower Contracts Ltd bank account during those periods. However, the VAT returns for those periods were submitted showing NIL liability.

If the disputed assessments are to be reconsidered it will be necessary that satisfactory evidence be produced to Customs showing that the monies deposited were not liable to VAT.  I have, as you requested, enclosed a schedule of the monies deposited.”

The facts

5.	The facts were not significantly in dispute, save as to whether or not the Commissioners had considered inputs incurred by the Appellant in the course of its business. Most of the facts appear from correspondence, though there was oral evidence given by Mr Laith Hayali, a director of the Appellant, who also represented his company, and by Miss Minal Chandé, an officer of Customs and Excise.  The main dispute is as to what was contained in the missing records of the Appellant, and as to the nature of the sums deposited in the Appellant’s business account for which there was no explanation.  Unless the contrary appears, we accept the facts set out below.

6.	There was a visit to the Appellant’s premises on 9 April 2001 by Miss Chandé.  That visit was heralded by a letter of 14 March, which asked the Appellant to have all business records and accounts available, including annual accounts, bank statements, accountant’s working papers, and business correspondence. On this visit it was discovered that the Appellant’s records for the several periods to 31 July 1999 were not available. The returns for the periods 7/99 and 10/99 were both nil returns, shewing neither outputs nor inputs. It also appeared that some purchase invoices relating to the periods 4/00 and 7/00 had been claimed by both the Appellant and an associated company, Digital Contractors Ltd.  Miss Chandé requested the Appellant to obtain duplicate bank statements for the period from 15 June to 20 December 1999. These, together with some sales and purchase ledgers were sent to Mrs Chandé under cover of a letter of 24 April 2001, which mentioned that sales invoices were also ready for inspection and could be delivered to Customs if required.

7.	A letter of 4 July 2001 set out the Commissioners’ views at that stage.  It said that the purchase invoices had been duplicated and input tax claimed by both the Appellant and Digital Contractors Ltd and were therefore disallowed.  Miss Chandé confirmed that Mr Hayali had said that the records of the business were with the book-keeper, Mr Cohen, whom the Appellant had been unable to contact. The bank statements shewed deposits of £10,856.49 in the period 7/99 and of £66,294.16 in the period 10/99.  The Appellant was asked in a letter of 17 May 2001, and also at a later meeting and by telephone, to explain what the deposits represented and to produce any supporting documents, but failed to do either.  As a result, in a letter of 4 July 2001, Miss Chandé informed the Appellant that in the absence of any explanation she would assume that the deposits were receipts from sales.  She calculated output tax in respect of them in the amounts of £1,616.92 for 7/99 and £9,873.60 for 10/99.  A notice of assessment dated 13 July 2001 was sent to the Appellant.  It also included amounts relating to the input tax wrongly claimed, in the total sum of £238.

8.	A letter from Isaac Cohen & Co to Miss Chandé, dated 31 July 2001, was produced, who referred to Mr Hayali as his client.  The letter said,

“I understand that Mr Hayali did not have complete VAT records for the two quarters from 1.5.99 to 31.10.99.  You have therefore assessed his VAT for that period on the basis of his banking only and came up with an output VAT figure of £11,717.00 which he has now been asked to pay. I further understand that Mr Hayali has informed you of the reasons behind the missing records and that he needs more time to obtain them.  Mr Hayali informed me that you have suggested to him that since he disputes the assessment you would accept a signed declaration from him indicating what he thinks is the correct input VAT which he can add to the next VAT return and then furnish the required evidence at the next VAT inspection.

After discussing these matters with Mr Hayali we have decided to write to you to ask for further clarification of the implications to my client of making such a declaration, the amount of extra time that he would be allowed to collect all the evidence, and the kind of evidence that would satisfy HM Customs and Excise.”

That letter was answered on 9 August 2001 by Miss Chandé, who enclosed copies of all previous correspondence, and drew attention to her letter of 4 July 2001 which answered all Mr Cohen’s questions.  There was no further correspondence from Mr Cohen.  Mr Hayali said later that this Mr Cohen was not the Mr Cohen who had departed and gone to Israel, but another Mr Cohen to whom he had turned for assistance with the assessments.

9.	On 5 October 2001 Mr Hayali wrote to Miss Chandé disputing the assessments. The reasons he gave were:

“1.	I am disputing the assessment of quarters 07/99 and 10/99 on the basis that your assessment was produced considering the banking as the VAT input and since we could not show any purchase invoices against that you assumed that there was no purchasing associated with the sales.  This, as I explained to you on the phone is a mistaken assessment that probably you could not avoid doing it in this way for lack of the company records.

2.	I have started, after receiving your assessment, to collate the purchase invoices of the company, and because of the matter going back two years, it has taken some time.  I already collected invoices totalling approx. £41,440 (not including VAT) and there still is some to collect.  This alone affects the picture in a sizeable way.

The profit that we made on purchasing was between 15-20%, averaged at 18%.  So my appeal is to review your assessment and either meet me to inspect the invoices for the two quarters or finalise the matter on the basis of the 18% average applied to the banking of the two periods 07/99 and 09/99 [sic].”

He also mentioned that he had two bad debts and that the Appellant had received threats from the Commissioners to wind the company up.

10.	Miss Chandé answered on 11 October 2001, saying,

“I note from the contents of your letter that you are now able to produce the records for tax periods 07/99 and 10/99.  Please would you forward these for my inspection.

In order to resolve the matter speedily, please ensure that all relevant records, i.e. VAT summary, Day books (sales and purchase), invoices, delivery notes, bank statements and credit card statements reflecting payment made and received are sent for inspection.”

11.	Following that letter, there was a meeting on 7 November 2001 and another on 16 November. On 22 November Miss Chandé wrote again to Mr Hayali.  She referred to her examination of the Appellant’s records, and explained one or two elementary matters relating to VAT.  She then dealt with the records, and said,

“From the examination of the purchase invoices and your purchase day book (PDB), I have noted that:

(a)	The last two invoices on the PDB, dated 3/11/99, correctly belong to 	period 01/00. As I do not have access to the records for this period, I am 	unable to check this. Therefore please forward a copy of your purchase day 	book for this period for inspection.

(b)	Tax invoices from Ingram Micro, not produced to support input tax 	claims.

(c)	Only 3 purchase invoices were addressed to Gower Contracts Ltd.

(d)(i)	Purchase invoices are addressed to Gower Microsystems Ltd
	>   This company was a separate entity with VAT No.558 1004 48.
	>   It ceased trading and de-registered on 31 August 1999.
    (ii)	Customer VAT number quoted on invoice from Micro P is that of Gower 	Microsystems Ltd.
   (iii)	With regards to payments for these purchases, I was unable to trace 	them on Gower Contracts Ltd’s bank statements for the periods in question.  I 	do recall, you mentioned that when company funds were not available to pay 	for purchases, your personal savings/credit cards were used.”

Taking the above matters into consideration, Miss Chandé said that she had concluded the matter as follows:

“All invoices dated up to and including 31 August 1999, belong to Gower Microsystems Ltd and should correctly have been claimed via its VAT return i.e. VAT No.558 1004 58. As this company has de-registered, you may reclaim the VAT charged on these invoices, using form VAT 427 (enclosed).  Please note, you may have to produce records for Gower Microsystems Ltd, as evidence to support that these claims are not duplicated.

Invoices dated 1/9/99 and later, even though they are addressed to Gower Microsystems Ltd, after taking into account Gower Microsystems Ltd’s de-registration date, and your reasoning that you used the same suppliers, as a once-off concession, I am allowing these claims.”

As a result, the input tax claim was recalculated, with a sum due from the Commissioners of £1,953.56 in respect of the period 10/99.  A further recalculation was carried our relating to the gross bankings shewn in the statements, resulting in a reduction in the output tax assessment being reduced by £2,096.33.  A letter of 6 December 2001 said that revised assessments would follow.

12.	The misdeclaration penalty was calculated on the basis of the revised assessments, and amounted to £555 in respect of 7/99 and £2,102 in respect of 10/99.

13.	In a letter of 29 July 2002, Mr Hayali said that the Commissioners had given him only three days to pay the amount due. That was in a letter of 23 July 2002, which does not appear in the bundles of documents.  In reply, Mr Hayali made the following points:

“1.	The company is determined to settle up and pay Customs and Excise.

2.	That the figure of £28,610.35 is an estimate. The real figure is just above £18,000.  £13,000 of it was from before and because we were always late a large chunk of this 13,000 is penalties and interest.  Penalties were at one time charged at 30%.

3.	The company suffered stoppage of business for four months after the tragic events of Sept 11th.  Not only that but also our customers who owed us money stopped payment to us.  [Mr Hayali explained that insolvency proceedings would not help them to recover their debts.]

4.	[Mr Hayali said that he had been advised to form a new company, transfer the debt of £18,000 to the Commissioners to the new company and pay it, and the Appellant would then collect the debts owed to it.]

14.	In a letter of 15 October 2002, Mr Harvey Kerntiff, a review officer, wrote to Mr Hayali asking for any further information which he should take into account, or which would resolve the matter without recourse to appeal.  In a further letter of 18 October 2002, he pointed out that the assessments had been raised largely because of the unexplained bankings in periods in which the Appellant had submitted nil returns.  He pointed out that if those assessments were to be reconsidered evidence must be produced to the Commissioners which would shew that the monies deposited were not liable to VAT.

15.	In a further letter, of 25 September 2002, Mr Hayali referred to a telephone conversation with Moon Beaver, solicitors acting for the Commissioners from which he had received a petition to wind up the Appellant, and this at a time when the debt was in dispute and negotiations were going on.  In his letter, Mr Hayali made four points:

“1.	There is an assessment of £11,184.52 that is wrong. Period 7/99-7/00.

2.	There is an assessment of £9,719.15 for an overlapping period to above of 7/99-10/99.  This assessment was on the basis that the company’s records were lost; in fact the accountant that had them went abroad without notice.  Accordingly they calculated that all our banking of that period was sales and they did not include any purchases in the calculations.  They should in my view have assessed the margin and agreed on a realistic figure.  They have done this before and it is a standard procedure of assessment that they have followed in other instances with other companies. This makes as you see duplication with the figure in No.1 which itself has assessments in it.

3.	The incorrect assessments above make following surcharges and interests and civil penalties from then on as all incorrect. …

4.	An assessment of VAT of £28,000 or so means that we have made profits for the period of nearly six times that amount, or nearly £188,000.  The inspector did not spot such a thing during the visit.  In fact if that was the case I would have been delighted to write the cheque on the spot and hand it over at the end of the visit.”

Apart from a reference to the time limited for appeal, the rest of this letter is missing from the bundle.

16.	Mr Hayali, giving evidence, referred to the return of the Appellant for the period 1/00. For that period the declared sales had been £67,907, but the total bankings had been £53,040. In the next period 4/00, the sales were declared at £43,352, while the amount banked was £35,470. Mr Hayali agreed that there was no dispute about the purchases, since he agreed with the Commissioners’ figures. The Appellant’s book-keeper went abroad, as far as he knew, in September 1999, and had not been heard of since.  But he had paid the money into the bank. The payments in to the bank account of £15,000 was a repayment of £10,000 and £5,000 which had been lent to Microsystems.  He agreed that there was no document to shew the nature of the payment of the £15,000.

17.	Mr Hayali suggested a method of calculating reasonable assessments, by subtracting the purchases for the year from the bankings for the year and calculating the VAT on the difference. This method was not accepted by the Commissioners. The turnover for the year from April 1999 to March 2000 was £173,000, and that is what was banked.  The maximum mark-up in the Appellant’s business would be 20 per cent, or £34,600, VAT on which would be £5,153.19.  Or on a turnover of £173,000 the VAT would be £25,766; with purchases of £138,400 on which the VAT would be £20,613.  The difference was £5,153.19.  The worst case would be to add on the unidentified banking of £66,000, less the £15,000, add that to the £173,000 making £224,000; the mark-up of 20 per cent is £44,800, VAT on which would be £6,672.34.  The liability lay, he contended, between £4,500 and £6,672.34.  But in any case, it would be impossible for a company with a turnover of £173,000 to have a liability higher than that, certainly not a liability as high as the Commissioners contended.

18.	On the last day of the hearing Mr Hayali produced a sales ledger sheet for the two quarters after 10/99, that is for 1/00 and 4/00, dated between 26 November 1999 and 25 April 2000.  This is captioned “Unpaid invoices”, and shews unpaid invoices amounting to £66,084 with VAT of £11,564.  He said that all the unmarked payments had been received before the beginning of the period 1/00.  He stated that his dispute with the Commissioners was not confined to the two periods of the assessments, but to six quarters.  He accepted that the bankings for 7/99 amounted to £10,856.49 and for 10/99 to £66,294.16.  He had not at the time disputed that these were sales because he was and still is trying to find the records.  His concern, he said, was to come to a reasonable assessment and get rid of the problem, rather than try to answer things which he could not answer.  Referring to Miss Chandé’s letter of 17 May 2001, Mr Hayali said that he did not know how he had responded, but he had not explained the deposits. He had not said that they were advance payments for sales.  He accepted that the duplicated inputs should not have been included.

19.	Mr Hayali said that some of the unexplained bankings were early payments of invoices issued later on.  He said that, for instance, the sum due from Life Science was paid, and he had allocated a payment to it: he knew they had paid, although it was not recorded.  He did not know where it was recorded.  They were not paid later, that is, not after the end of November 1999.  If they had been, they would have been recorded after that date.  A lot of the earlier invoices were paid from the unexplained bankings. There was a sum of £66,000 of unexplained bankings which he would allocate to the invoices.  People did not always pay the exact sum.  If he received a payment of, say, £20,000 he could break it down and allocate it to smaller invoices. If you cannot find the payments later, he said, you will not find them earlier.  Items in a bank statement credit may have been totals of a number of cheques.

20.	Miss Chandé also gave evidence.  She referred to her notes of interview with Mr Hayali.  Fortunately, it was necessary to refer only to one or two passages, since the notes had been so badly copied that about an inch of the left-hand edge of most pages, and about a third of another page, had not been photographed.  On one page she had noted that output tax was declared on the date of the invoice, rather than being cash accounting.  Later she noted:

“Recs were initially done and maintained by Book-keeper Mr Cohen who has now gone to Israel.  Most of trader recs, he feels, are available but [illegible] are still with Mr Cohen & trader is unable to trace him, as he is abroad.”

And later:

“Recs prior to 10/99 not available – Co was struck off and then reinstated [?] and so bk a/c was closed.”

Miss Chandé said that the only way she could discover if there had been any business activities was from the bank statements.  She had, therefore, to assume that bankings meant sales.  The amendment of the first assessment was the result of the Appellant producing some records.  However, most of the purchase invoices were addressed to Gower Microsystems Ltd, and only three to the Appellant. Gower Microsystems was deregistered on 31 August 1999.  Prior to that date invoices to Gower Microsystems were disallowed; after that date they were allowed.  Miss Chandé said that she had also allowed inputs in respect of payments on Mr Hayali’s personal credit card.

21.	Miss Chandé said that she had assessed on the basis of the bankings, subtracting those payments shewn to have been paid in the trade. She would not accept the payments in of £10,000 and £5,000 without the bank statements relating to the account from which they had come. In the case of earlier payments for later invoices, she would expect to see the later invoice and a means of tracing the source of the earlier payment. Information from Gower Microsystems was requested several times but was never forthcoming. Although a company may cease trading and close its bank account, it could still be collecting outstanding debts. The assessments were based upon the sales and purchase day books and the bank statements. Assessments were never made on margins, which was all that the Appellant had suggested.

The law

22.	The only law relevant to this appeal is that giving power to the Commissioners to assess, which is set out in section 73 of the Value Added Tax Act 1994, which, so far as bears upon this appeal, provides as follows:

“(1)	Where a person has failed to make any returns required under this Act (…) or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete of incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him.”

The Appellant’s contentions

23.	Mr Hayali contended that the accounting periods after 10/99 were essential to the appeal because they were interlinked with the two periods the subject of the assessment. He said that he would not have queried the assessments if they had truly been based upon the sales and purchase day books.  He maintained that the officer, Miss Chandé, had wanted to hit the company as hard as possible to make as much money out of it as she could, and would not have accepted any compromise.  The assessments were wrong because they did not reflect the performance of the Appellant company, though he said that he was unable to say exactly where it was wrong.  Miss Chandé was only concerned to defend the basis on which she got the £66,000 into the company.  Her assessment was on the basis, in truth, of cash accounting, although she said that it was made on the invoice basis. The assessment of the misdirection penalty contained a mistake, since 15 per cent of £2,085 is not £555 (it is in fact £312.75).  Mr Hayali admitted that some tax was owed to the Commissioners, and did not dispute that some interest was payable. But the assessment was wrong, and should be recalculated over six quarters on the basis of sales and purchases.  Mr Hayali also relied upon the several statements that he had submitted, and on the proposition that, on the basis of a 20 per cent margin, on a turnover of £173,000 he could not be liable for the amount of tax assessed.

The Commissioners’ contentions

24.	The Commissioners were represented by Miss Eleni Mitrophanous, who provided us with a skeleton argument. Assessment A was based on the unexplained bank deposits, and assessment B on the sales and purchases recorded.  She pointed out that at all times Miss Chandé had given the Appellant opportunities to provide either an explanation or documentary evidence in support of his case, in particular with regard to the unexplained bankings.  Later, the Appellant was asked to produce evidence in support of his claim that nil returns were correct for 7/99 and 10/99.  The Appellant did not offer any such explanation or evidence. In his notice of appeal the Appellant said that no purchases were taken into consideration. However, as Miss Chandé explained, invoices addressed to Gower Microsystems Ltd before that company was deregistered were not allowed, though those after deregistration were, and a claim for input tax of £1,953.79 was allowed for 10/99.  The notice of appeal was in error on that point. It was, however, accepted by Mr Hayali that the Appellant remained liable to pay an unspecified amount of VAT. Although Mr Hayali said that the sum of £15,000 paid into the bank was a repayment of a loan made to Gower Microsystems, and nothing to do with sales, no evidence was produced from the records or bank statements of that company.  Miss Mitrophanous contended that there was absolutely no reason to doubt that all the bankings did represent sales.

25.	The Appellant had contended that the assessments were too high. However, nothing had been said to question assessment B. Mr Hayali had suggested that some of the bankings may have been early payments in respect of later invoices. However, no such invoices were produced, nor any other evidence of what the payments were for or by whom made. Miss Mitrophanous said also that there was an issue of credibility in this case, since the Appellant had rendered nil returns when Mr Hayali knew that VAT was due.  

Conclusions

26.	If we have understood the Appellant’s case correctly, it is that the assessments were not made to the best of the Commissioners’ judgment, and that the assessments, or one or other of them, were made in bad faith.  It is also contended that another basis of assessment would have been fair, namely to have based the assessment upon the margin achieved by the Appellant.  To deal with the second of those contentions first, we have to point out that VAT is not a tax upon profits or upon the margin achieved by a taxpayer, but upon the supplies made by that taxpayer after subtracting such input tax as he is allowed to claim. But even if it were permissible to calculate the assessment upon the basis suggested by Mr Hayali, the Appellant has done no more than to suggest a theoretical average mark-up applied to an approximate figure of turnover for a period which is not covered by the assessments. Consequently, we have no choice but to reject that contention.

27.	We therefore turn to the issue as to best judgment.  If it were the case that the assessments, or either of them, had been made in bad faith, by an officer who “wanted to hit the company as hard as possible to make as much money out of it as she could”, and was “only concerned to defend how she got the £66,000 into the company”, then the Commissioners’ good faith and best judgment might indeed be successfully impugned. We have, therefore, looked with care at the evidence to see whether it establishes such a want of good faith. First, we note that the Appellant rendered nil returns for the two periods concerned, although it was known to Mr Hayali that sales and possibly purchases had been made during those periods.  We were not impressed by Mr Hayali saying that the return for 7/99 was signed by his wife who did not understand what it was. As the director, and as the person who evidently had the day-to-day management and control of the company, the returns were the responsibility of Mr Hayali. Secondly, assessment A was based upon the unexplained bankings, as they have been termed, because they were unexplained.  The Appellant has to this day produced nothing to shew which of the sums paid in during those two periods had no reference to sales, and, apart from the two sums of £10,000 and £5,000, Mr Hayali has done no more than make guesses, unsupported by fact, as to what the payments were for. The sums totalling £15,000 were, he said, repayments of loans made to Gower Microsystems.  However, there was no evidence to shew that such loans were made to Gower Microsystems, nor to shew from where those two payments came. The Commissioners were not prepared to accept that they were repayments of a loan. Bearing in mind that Mr Hayali has done no more than guess at the sources of these payments, we are not prepared to accept, on the balance of probabilities, that the £15,000 was the repayment of a loan or loans.  Several times the Appellant was asked to provide some explanations for these payments, supported by documents, and no explanation or document has been forthcoming. We might not go so far as Miss Mitrophanous and say that there is “absolutely no reason to doubt” that the bankings represent sales.  However, bearing in mind what Mr Hayali himself said relating to advance payment for later invoices, unspecific though that was, we find, on the balance of probabilities, that the bankings did represent sales.  We do not consider that the repeated opportunities given by the Commissioners to the Appellant to provide explanations and evidence to establish the nature of the payments into its bank were the acts of officers who were only interested in hitting the Appellant as hard as they could.  Nor, in our view, would such officers recalculate and reduce an assessment, nor would they allow input tax, as a concession, which was rightly claimable by another company, albeit associated with the Appellant, which had been deregistered. We find that the accusation of bad faith is unfounded.

28.	As to assessment B, we accept that it was calculated on the basis of figures provided by the Appellant itself. No evidence was adduced by the Appellant to contradict it, nor was any argument addressed to it, save the general one that it was too high. However, the Appellant has produced no accounts nor any other figures or records to shew that the basis of the calculation of assessment B was wrong.  In our view, the assessment was arrived at by the Commissioners on the basis of the facts and figures before them, and to the best of their judgment.

29.	For the above reasons, we find that both assessments were made to the best of the Commissioners’ judgment, and that there is no basis upon which, in the present state of the evidence, any further recalculation could reasonably be made. The misdeclaration penalty stands or falls with the assessments. Since we have upheld the assessments for the reasons which we have given, the misdeclaration penalty must stand.

30.	Accordingly, this appeal is dismissed.

31.	No application was made for costs. In case either party should wish to be heard as to costs, we grant liberty to each party to apply. Any such application should be made not more than 42 days after the date of release of this decision.

ANGUS NICOL
CHAIRMAN

RELEASED: 1 October 2004

LON/02/869