Souvenirs Jeannois Inc. v. The Queen, docket 96-521-IT-G

Date: 19990520

Dockets: 96-521-IT-G; 96-529-IT-G

BETWEEN:

LES SOUVENIRS JEANNOIS INC., ADEL TRABOULSI,

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Tardif, J.T.C.C.

[1] These are appeals from assessments for the 1989, 1990, 1991 and 1992 taxation years.

[2] These appeals are related, which is why it was agreed to proceed on common evidence. The “net worth” method was used to make the assessments in the case of the appellant Adel Traboulsi (file No. 96-529(IT)G).

[3] The evidence was made up of the testimony of Nicol Simard in his capacity as the appellants’ mandatary. Mr. Simard worked on the accounts of both Mr. Traboulsi and Les Souvenirs Jeannois Inc., which ran a cocktail lounge called the “Bar le Sexe-O-Fun Disco le Magnum”. Mr. Traboulsi also testified.

[4] The respondent called Jean-Claude Delisle to testify. Mr. Delisle was in charge of the auditing work behind the assessments.

APPELLANTS’ EVIDENCE

[5] Mr. Simard began by testifying using documents he had himself prepared. He said that he had prepared them after the respondent issued proposed assessments. Since the date was prior to the audit, he claimed that he had simply made a mistake about the date. Mr. Simard’s work and calculations were very perfunctory. There was no basis for some data, which were essentially intuitive. Mr. Traboulsi was the source of the information gathered. It seems that Mr. Simard’s mandate basically involved very superficial work allowing an apparent reconciliation to be done. The purpose of the exercise was to show that the enrichment credited to Mr. Traboulsi originated in a substantial amount from Lebanon that he received starting in 1987.

[6] Mr. Simard was never very explicit; he assumed that the amount had indeed come from Lebanon. Moreover, he regularly used the verbs “presume” and “assume” throughout his testimony. He pointed to all kinds of hypotheses that could explain the differences noted, but he never really fleshed out his arguments with persuasive documentary evidence.

[7] The fact that large beers were sold at the same price as drinks containing hard liquor was commented on at length for the purpose of explaining that this could have had a perverse effect on the business’s net profits. This was pure speculation, since it was not supported by any evidence or voucher. Mr. Simard also thoroughly discussed the ratios and percentages prevailing in such businesses.

[8] Mr. Traboulsi then testified. From the outset, he said that he knew nothing about accounting and blindly trusted those he had charged with handling his accounting. He also said and repeated that he merely signed where he was told to sign.

[9] To justify his lack of knowledge of certain documents, he further stated that he could neither read nor write. He testified at length about the US$34,917 payable to him that came from Lebanon on September 30, 1987. He explained that the amount was sent to him by his family, which had wanted to help him following his financial setbacks.

[10] He asserted that the amount in question was to be used basically to pay his living expenses, adding that he was not allowed to use the money for business purposes. To ensure that the money was properly used, all of it had been handed over to his brother Georges, who did not testify.

[11] Was the amount a gift, a loan or even Mr. Traboulsi's own money put in a Lebanese bank? The evidence never provided an acceptable answer to this question.

[12] The amount from Lebanon apparently became available a few months before Mr. Traboulsi made an assignment of his property on January 25, 1988. Yet in the bankruptcy there was no reference to the amount in terms of either assets or liabilities. According to Mr. Traboulsi, the amount did not have to be declared because it was not from Canada and was to be used solely to support him during the difficult time he was going through.

[13] Once the bank draft was negotiated, the cash was handed over to his brother Georges, who drew on it to give him sums of money—always in cash—as required. The sums in question varied between $400 and $600. Sometimes they were advances, and sometimes they were loans. No document, note or acknowledgement of debt was prepared.

[14] According to Mr. Traboulsi, everything was done in cash because he and his family did not trust the banks.

[15] When he went bankrupt, Mr. Traboulsi transferred his house to his brother Georges, who transferred it back to him once the bankruptcy was over for consideration that was lower by more than $10,000. The evidence never provided an explanation as to whether the amount came out of the money from Lebanon.

[16] The amount in question was referred to each time it became necessary to explain a gap or discrepancy in the accounting. Reference was thus made to it to explain the presence of $20,000 in cash hidden in the ceiling of his office, which Mr. Traboulsi once again said was the money from Lebanon. While he remembered certain things very well, the passage of time had weakened his memory of other things. Added to this was his lack of knowledge of accounting and his inability to read and write.

[17] The Court noted that Mr. Traboulsi was a very intelligent person who could and in fact did understand the situation very well. Quick-witted and very perceptive, he was always in firm control of the information he was willing to give.

[18] The evidence showed in addition that in the early 1980s there had also been assessments of Mr. Traboulsi using the “net worth” method. As well, Mr. Traboulsi admitted that he had been convicted of narcotics trafficking offences. Mr. Traboulsi should have learned from those past experiences that only satisfactory, transparent and appropriate accounting would prevent him from having problems if he were audited. In spite of this, he was unable to provide plausible, coherent justifications. The ignorance and inexperience card he played had the opposite effect to the one he was seeking because of his past experiences that he should have profited by and learned from.

[19] It is not enough to criticize the method used by the Department of National Revenue (“the Department”) by saying that the references used, drawn from recognized statistics or standards, are not relevant.

[20] It is not enough to note one or two minor deficiencies and to conclude that they invalidated the entire process. It may be appropriate to discredit the Department’s approach by showing that some of the bases for that approach were not valid or, if valid, did not have the importance attributed to them. Even if the criticisms and reproaches may be partly justified, this does not make them sufficient to win the case.

[21] It will be necessary or even essential to show on the balance of evidence that the observed increase in assets is justified and can be explained by plausible, credible facts. The various components of the process resulting in that increase will have to be coherent.

[22] Here, in the first place, Mr. Traboulsi established absolutely nothing that could discredit the quality of the work done by the auditors. He basically fell back on the mysterious sum of money that came from Lebanon in 1987. He used that amount as a catch-all to justify whatever did not balance. As for the other items, his counsel said that Mr. Traboulsi did not smoke or make any donations. His accountant reduced the amount allocated to gasoline, saying that although Mr. Traboulsi had five cars, he used just one at a time.

[23] During argument, counsel for Mr. Traboulsi repeated that his client did not correspond to the standard established by Statistics Canada; he argued that his was a special case, but that was never proved. The appellants’ criticisms were superficial and of little significance; they are certainly not sufficient evidence to discredit the overall result.

[24] I simply did not believe Mr. Traboulsi’s testimony as a whole. His all-purpose answers—I do not know how to read or write, I no longer remember, I know nothing about accounting, I sign where I am told to sign, I do not trust the banks, etc.—are certainly not elements that could validate that testimony.

[25] There is no doubt in my mind that Mr. Traboulsi and the company he ran were grossly negligent in handling their accounting. This is all the more unacceptable as the evidence showed that there had been previous assessments of Mr. Traboulsi using the “net worth” method.

[26] He may have argued and submitted that he had not mastered certain rules or that he was unable to read and understand certain documents; the Court could nevertheless see that he had perfectly good knowledge of the universal language of figures. He chose to plead ignorance, but the evidence showed that this was not justified or justifiable in the circumstances, especially since the only testimonial evidence adduced was totally deficient and above all implausible.

[27] For these reasons, the appeals are dismissed with costs.

Signed at Ottawa, Canada, this 20th day of May 1999.

“Alain Tardif”

J.T.C.C.

[OFFICIAL ENGLISH TRANSLATION]

Translation certified true on this 31st day of March 2000.

Erich Klein, Revisor