GUNUNG LANG DEVELOPMENT SDN BHD v Ketua Pengarah Hasil Dalam Negeri (WA-14-47-10/2020)

Masterskill Synergy Sdn Bhd 18.5.2010 2. Ban Loong Properties & Development Sdn Bhd 18.10.2010 3. 2 SPAs with Chye Hin Land Sdn Bhd Both 11.4.2011 4. Puspakota Sdn Bhd 28.10.2011 5. Aun Huat & Brothers 25.4.2012 6. MBMR Properties Sdn Bhd 16.5.2013 [4] In regard to the SPAs with MBMR Properties Sdn Bhd (“MBMR Properties”), Aun Huat & Brothers (“Aun Huat”), Puspakota Sdn Bhd (“Puspakota”), Chye Hin Land Sdn Bhd (“Chye Hin Land”) and Ban Loong Properties & Development Sdn Bhd (“Ban Loong Properties”), the appellant had reported its income in Year of Assessment (“YA”) 2014. [5] The income in respect of the SPA with Masterskill Synergy Sdn Bhd (“Masterskill Synergy”) was reported in YA 2015. [6] Based on the aforesaid SPAs, the appellant had paid tax amounting to RM5,160,351. [7] On 27.4.2016, the respondent, the Director General of Inland Revenue (“DGIR”), requested a list of documents from the appellant that included the audited financial statements, comprehensive tax computation and Excel format. The appellant duly complied. [8] The appellant then received a letter from the DGIR on 24.10.2016 stating that the income for the SPAs should be declared as at the date of the SPAs. [9] The appellant replied to this letter and contended that the income should only be declared after the condition precedents stated in the SPAs had been fulfilled. [10] The appellant then received yet another letter dated 12.12.2017 from the DGIR imposing an additional tax of RM9,297.50 and a penalty of RM2,326,341.83 against the appellant. [11] Aggrieved by the said imposition of additional tax and penalty, the appellant appealed to the Special Commissioner of Income Tax (“SCIT”). The proceedings before the SCIT [12] At the proceedings of the appeal before the SCIT, there were 3 issues raised by the appellant:

(a) Whether Forms J dated 5.12.2017 for YAs 2011 and 2012 are barred by the 5-year limitation imposed by s 91 of the Income Tax Act 1967 (“ITA”).

(b) Whether the imposition of the Assessments by the DGIR based on the dates of the SPAs is wrong under the ITA.

(c) Whether the penalties imposed by the DGIR under s 113(2) of the ITA are wrong, null and void. [13] As to the first issue, the SCIT was of the view that the DGIR was not time-barred by s 91(3) of ITA for YAs 2009 to 2015 on the ground that the appellant was negligent or otherwise fraudulent in reporting its income. [14] According to the SCIT, for YAs 2011 and 2012, the DGIR had acted in accordance with s 91(3)(b) of ITA. The appellant’s negligence was only discovered on 30.6.2016 based on the documents furnished by the appellant to the DGIR during the audit process. [15] As to the second issue, according to the SCIT, the appellant did not declare its income from the disposal of the said Lands at the time of the execution of the SPAs. The late declaration of the income can be seen in the following table: Purchasers Date of SPA Sale Reported in YA MBMR Properties 16.5.2013 Aun Huat 25.4.2012 Puspakota 28.10.2011 Chye Hin Land (2 SPAs) Both dated 11.4.2011 Ban Loong Properties 18.10.2010 Masterskill Synergy 18.5.2010 YA 2015 The SCIT ruled that the income for the SPAs should have been declared on the respective dates of the SPAs, notwithstanding that the conditions precedent under the SPAs were only fulfilled later. According to the SCIT, the respective dates of the fulfilment of the conditions precedent were irrelevant under s 24(1) of the ITA. [16] On the penalties, the SCIT found that the DGIR was correct in imposing the same since s 113(2) of the ITA gives the DGIR the discretion to do so. The SCIT referred to the judgment of Aziah Ali J (later FCJ) in Ketua Pengarah Hasil Dalam Negeri v Shaklee Products (M) Sdn Bhd MTKL Rayuan Sivil No: RI-14-07-2008. It carries the proposition that the Appellant was empowered to impose a penalty to a maximum equal to the amount of tax undercharged under the law. [17] The SCIT also held that the failure of the appellant to call its tax agent as a witness had invoked the application of the presumption of adverse inference under s 114(g) of the Evidence Act 1950. In coming to the said conclusion, the SCIT relied on the judgment of the Federal Court in Mohamad Azanul Haqimi v Timbalan Menteri Dalam Negeri, Malaysia & Ors [2019] 6 MLJ 2020 FC. The SCIT was of the view that if the tax agent were to be called as an appellant’s witness it would have corroborated the appellant’s case: Sekiranya ejen cukai ini dipanggil untuk menguatkan kes mereka, sudah tentu mereka akan dapat melihat kebenaran tuntutan Perayu. [18] For the aforesaid reason, the SCIT held that the imposition of a 45% penalty on the appellant was reasonable in the circumstances of the case. At the High Court [19] At the High Court, learned counsel for the appellant submitted that the SCIT had erred in law based on the following grounds:

(a) The basis of the assessments that was premised on the date of the SPAs is wrong, null and void under the law.

(b) The additional assessments for YA 2011 and 2012 are time-barred. The SCIT, according to learned counsel, had misapplied the law in holding that there was fraud and/or negligence on the part of the appellant.

(c) The penalty imposed under s 113(2) of the ITA is wrong, null and void as the declaration of income is just a timing issue.

(d) There is a breach of natural justice at the trial before the SCIT in relation to the Statement of Agreed Facts. According to learned counsel, in the course of the proceedings, the SCIT had allowed the DGIR to withdraw para 5 of the Statement of Agreed Facts. [20] In response to the appellant’s submission, the learned Senior Revenue Counsel (“SRC”) contended that the SCIT did not err in concluding that the assessments should be based on the date of the SPAs. According to the learned SRC, the finding of the SCIT was in consonance with s 24(1) of the ITA. The argument of the learned SRC is based on the following grounds:

(i) The vacant lands which were the subject matter of the SPAs were the stock-in-trade of the appellant and were sold based on the date of the respective SPAs.

(a) makes an incorrect return by omitting or understating any income of which the ITA requires him;

(b) No prosecution has been instituted in respect of the incorrect return or incorrect information; then

(c) The DGIR may require that person to pay the penalty equal to the amount of tax that has been undercharged in consequence of the incorrect return or incorrect information. [27] The word “may” in s 113(2) indicates that the DGIR has the discretion to impose a penalty in consequence of the incorrect return or incorrect information. Like any other discretion, it has to be exercised judiciously and in accordance with the law. It cannot be made willy-nilly. It is not unfettered. If any authority is needed for the aforesaid proposition, it can be bound in the judgment of the Supreme Court in KPHDN v Kim Thye & Co [1992] 1 CLJ (Rep) 135 SC. In delivering the judgment of the Court, Peh Swee Chin SCJ (later FCJ) observed that: On an overview, however, we are more readily inclined to the view that a penalty imposed under s. 113(2), notwithstanding eg. the preceding para is appealable to the Special Commissioners as an assessment referred to in s. 99 of the Act for reasons stated above, especially that there can be no unfettered discretion. [28] The learned SRC referred me to the judgment of the Court of Appeal in Syarikat Ibraco-Peremba Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2017] 2 MLJ 120 CA. Umi Kalthum JCA, in delivering the judgment of the Court, remarked that: That being the case, the defence of ‘good faith’ as found in sub-s 113(1), and not found in sub-s 113(2), does not apply to the Director General’s discretion under sub-s 113(2). The learned SRC then submitted that the defence of good faith, if at all, does not apply to the appellant. [29] On the other hand, learned counsel for the appellant referred me to the case of MHL Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2011] ATMC 1213, where the SCIT held that the penalty under s 113(2) of the ITA should not be imposed on the as the appellant had “acted in good faith, made full disclosure and obtained professional advice”. In any event, the dispute, according to the SCIT, was merely based on the question of interpretation of the law. [30] With respect, I am bound by the judgment of the Court of Appeal in Syarikat Ibraco-Peremba. This means that even if the appellant were acting in good faith, of which no finding is made here, it would not preclude the DGIR from exercising his discretion in imposing the penalty under s 113(2) of the ITA. [31] To begin with, ignorance of the law is no excuse. The appellant could not argue that the declaration of income is a timing issue only. To my mind, it is more than the timing issue, as learned counsel for the appellant urged me to conclude. The management accounts which are relied on by the appellant could not be reconciled with the specific provision of cl 1(b)(iii) of the SPA. [32] The appellant could not conveniently depart from the provision in the SPA and claim the expenses on the infrastructure payment when the SPA states that the purchaser should bear it. Further, cl 12(c) of the SPA provides that the purchaser would reimburse whatever expenses incurred by the appellant in respect of the completion of the infrastructure and amenities. S 10 of the Schedule to the SPA even states the exact amount of payment to be made to the appellant in respect of the infrastructure expenses. [33] In the circumstances of the case, the appellant had failed to show at the trial before the SCIT that in the exercise of his discretion in imposing the penalty, the DGIR was acting according to his whim and fancy. In any event, the SCIT had made a finding of fact that the percentage of the penalty was not imposed by the system but by the DGIR acting manually. [34] Secondly, I am in agreement with the learned SRC that proceeds of the purchase price under the SPAs were receivable at the date of the SPAs. It can be seen from the SPAs that although the sub-divisions of the said Land were yet to be carried out, the subject matter of the respective Lots was clearly determined by the parties in the SPA. The terms and conditions of the SPA are certain and capable of being made certain. [35] I also respectfully agree with the submission of the learned SRC that in the event that the sub-divisions exercise was rejected by the relevant authorities or the certain purchasers failed to be the balance of the purchase price, the SPAs could be terminated, and the stock would be restored in the appellant’s inventories. The appellant could then make the necessary adjustment to its income. [36] Thirdly, on the issue of the alleged breach of natural justice. [37] On 12.6.2020, the appellant forwarded the draft Statement of Agreed Facts to the DGIR for his comment and approval. The draft was duly agreed upon by the DGIR. The agreement was communicated by the DGIR via an email dated 17.6.2020. The appellant then filed a finalised copy of the Statement of Agreed Facts. [38] On the first day of the trial, the Statement of Agreed Facts was duly admitted and marked as Exh A. [39] The trial went on with SR1, Norbani binti Hasyifudin, giving evidence on behalf of the respondent. After the cross-examination of Norbani was concluded, the SRC raised disagreement to para 5 of the Statement of Agreed Facts and urged the SCIT to strike it out. [40] The impugned para 5 of the Statement of Agreed Facts states as follows: [5] Kesan bersih Taksiran Responden tersebut adalah bahawa Perayu dikenakan cukai tambahan (tanpa kira penalti) adalah RM9,279.50 dengan penalti sebanyak RM2,326,341.83 terhadap Perayu. Counsel for the appellant objected to this attempt by the SRC to strike out the impugned para. After a series of exchange of arguments, the SITC ruled for the impugned para to be struck out from Exh A: CHM2 : So, I strike it out, we strike it out and ask him [SRC] to sign. Can we do that? A/C : Yes, Yang Arif. But it’s recorded that this is without prejudice to our right to submit on this, Yang Arif. CHM2 : Yes. A/C : Much obliged. [41] The question that arises is, can a tribunal amend or strike out certain details that were already marked as an exhibit as in the instant case? An almost similar situation arose in Public Bank Bhd v Paramjit Singh Gill [2015] 1 MLJ 414 CA. In that case, a letter of demand was issued to the respondent in 1986 (“the 1986 demand”). The appellant then initiated a legal suit against the respondent (“the 86 Suit”) the same year. The respondent’s defence in the 86 Suit was that he never received the 1986 Demand and hence pleaded that there was no demand as required by the letter of guarantee to effect any liability to pay. Realising that there was no liability arose, the appellant withdrew the 86 Suit with liberty to file afresh. Subsequently, the appellant issued another letter of demand in 1998, and premised on that demand, the appellant took out the suit against the respondent to recover the outstanding sum. The respondent again raised the defence of limitation on the ground that the 1998 suit was also time-barred. The learned trial judge held that the 1998 suit was time-barred. The appellant appealed to the Court of Appeal. [42] In delivering the judgment of the Court of Appeal, David Wong JCA (as the former CJ Sabah & Sarawak then was) held that: By availing the defence of non-receipt, the respondent in fact was taking a factual position which as we have said above was conceded by the appellant and once concession was made, there cannot be any reopening of the agreed fact. Not only that it is logical, it is also only just and fair. It is my respectful view that, the Statement of Agreed Facts, once marked as an exhibit, could not be altered anymore. Any attempt to strike out certain parts of Exh A is akin to tampering. That, I believe, is not allowed, notwithstanding that it was signed by both parties later. [43] With respect, it is my considered view that the SCIT is not in the position to strike out para 5 of the Statement of Agreed Facts, which was already referred to during the cross-examination of the SR1. The ruling made by SCIT amounted to the reopening of the agreed fact, which is not allowed on the authority of Paramjit Singh Gill. [44] Even if the proposed amendment were to be agreed upon by both parties, of which no finding is made here, the proper procedure would be for the SCIT to direct the parties to prepare a fresh Statement of Agreed Facts and mark it as an additional exhibit. Under no circumstances can a marked exhibit be amended by a tribunal. Findings [45] It is for this reason that the SCIT had made an appealable error that warrants intervention. The trial before the SCIT was conducted in a manner that had prejudiced the appellant. It had prepared its case based on the Statement of Agreed Facts. It had prepared the related documents based on the same. In fact, the cross-examination of SR1 was also based on the agreed facts. To amend Exh A without giving the opportunity to the appellant to reassess its trial strategy is a clear breach of the maxim of audi alteram partem. [46] As alluded to earlier, I take note that counsel for the appellant had agreed to continue with the proceedings without prejudice to the appellant’s right to raise this issue at a later stage. [47] In the result, the appeal is allowed. As a consequential order, the additional tax of RM9,297.50 and penalty of RM2,326,341.83 already paid by the appellant are hereby declared null and void be refunded by the DGIR. [48] There shall be no order as to costs. Tarikh: 3 Jun 2022 (WAN AHMAD FARID BIN WAN SALLEH) Hakim Mahkamah Tinggi Kuala Lumpur.