Moshe Schwarz v. Minister of National Revenue, [1981] CTC 2147, 81 DTC 93

D E Taylor:—This is an appeal heard in Toronto, Ontario, on December 11, 1980, against income tax assessments for the years 1973, 1974 and 1975, in which the Minister of National Revenue increased the reported taxable income of the appellant by disallowing cash purchases totalling $20,550, $34,275 and $23,075 respectively for the above-referenced taxation years. The appellant during the relevant period carried on business as a collector and pedlar of scrap metal. He operated by himself with one truck, and during the years in question claimed purchases in cash of $82,200, $137,100 and $92,300 respectively. In assessing the appellant, the respondent relied, inter alia, upon paragraph 18(1)(a) and section 67 of the Income Tax Act, SC 1970-71-72, c 63, as amended.

Contentions

For the appellant:

— The Minister has unrealistically applied the 30-40% profit margin which is found in the scrap metal industry to Moshe Schwarz, and disallowed portions of his claim for expenses.

— The expenses claimed by Moshe Schwarz are legitimate.

— A careful analysis of Moshe Schwarz’s business operation would show a profit margin in the 10% range.

For the respondent:

— None of the cash purchases alleged by the appellant were supported by vouchers.

— The appellant failed to keep proper books, records and accounts.

— 25% of the amounts claimed as cash purchase expenses by the appellant were not outlays or expenses made or incurred by him for the purpose of gaining or producing income from a business.

— 25% of the alleged cash purchase expenses claimed were disallowed as being unreasonable.

Evidence

The appellant presented no business accounting records, nor evidence of any kind related to the cash purchases at issue. He did provide information and documentation supporting the sales of scrap metal he had made, and some invoices for scrap metal purchases made by him by cheque. He indicated that the market for the scrap metal was such that he could only sell for amounts which provided an average of approximately 10% overall gross profit margin. He stated that he had wanted to obtain receipts for the cash payments he made but his supplies and sources would not give such receipts — he was obliged to do business with them their way or not at all. He was completely unable to recall the names or addresses of any of the Suppliers, dealers, factories, industries, contractors, etc., from whom he had allegedly made his cash purchases.

In an attempt at cross-examination of the appellant, counsel for the Minister supplied the Board with a summary sheet which portrayed the basis of the reassessments in dispute:

MOSHE SCHWARZ

COMPARATIVE SCHEDULES OF SALES, PURCHASES, etc.

	1973	1974	1975
Sales	$ 97,779	$157,207	$108,182
Purchases (declared)	85,295	$139,924	$ 96,255
Gross Profit	$ 12,484	$ 17,283	$ 11,927
Percentage	13 %	11%	11%
Cash Purchases	$ 82,200	$137,100	$ 92,300
Percentage of Total	96.37%	97.98%	95%
25% of Cash Purchases
Disallowed	$ 20,550	$ 34,275	$ 23,075
Total Revised Purchases	$ 64.745	$105,649	$ 73,180
Revised Gross Profit	$ 33,034	$ 51,558	$ 35,002
Percentage	34%	32%	32%

Argument

Counsel for the appellant restricted his comments to the point that relevance should be given to the business circumstances under which the appellant operated, and to the testimony given under oath by the appellant regarding the gross profit margin as being important.

Counsel for the respondent noted the virtual absence of any admissible or viable evidence, and the unwillingness or inability of the appellant to provide critical information in support of his appeal. Counsel noted that it was not the Minister’s task to support the reduction of 25% or to provide data related to the adjusted gross profit margin. The Minister simply had no factual basis upon which to allow any of the alleged cash purchases as expenses, but had taken the approach of a 25% reduction as the only route open when confronted with the same lack of information at the time of audit and reassessment. Case law cited for the Board by the respondent included:

William Keppie Murray v MNR, [1950] CTC 7; 50 DTC 723,

Muller’s Meats Limited v MNR, [1969] Tax ABC 171; 69 DTC 172,

C George Johnston v MNR, [1980] CTC 2766; 80 DTC 1644,

Findings

The appellant’s efforts to overturn the Minister’s arbitrary assessments were entirely futile. The Board recognizes that the final gross profit margin percentage adopted by the Minister for the three years in question (34%, 32%, 32%) may well be completely out of proportion in the scrap business, but that merely means they could be too low as well as being too high. The appellant may disagree with the Minister’s unsupported percentage allocation, which he has done, but he cannot be successful in an attempt to overturn the assessments by simply providing equally unsupportable percentages of his own. There is such a dramatic difference in total gross income over a very short period of time (the taxpayer $41,694 as opposed to the Minister $119,594) that at least one other method was directly available to the appellant in presenting his case to the Board — eg, the preparation and presentation of documented comparative net worth statements as at the three year ends of 1973, 1974 and 1975. Clearly, a discrepancy of some $77,900 as noted above, alleged by the Minister, should have had some noticeable impact on the personal and business assets of the taxpayer during this period. This appeal is not a situation which can be regarded in any way as one in which the Minister has assessed a taxpayer and left him with an almost impossible task of reversing or moderating the assessment. This taxpayer simply made no realistic attempt to do so in this case.

Decision

The appeal is dismissed.

Appeal dismissed.