Joseph Levy v. Minister of National Revenue, [1986] 1 CTC 2071, 85 DTC 768

Rip, T.C.J.:—The appellant appeals from notices of reassessment for 1976, 1977, 1978 and 1979 which were prepared by the respondent, the Minister of National Revenue, on a net worth basis. The following table describes the amounts of income from the business the respondent added to Mr. Levy's income, the amounts of income reported by Mr. Levy and the penalties assessed by the Minister pursuant to subsection 163(2) of the Income

Tax Act:

	Unreported	Amount Reported
Year	Income Income	by Mr. Levy	Penalty
1976	$ 44,484.43	$10,951.45	$3,481.90
1977	$ 28,540.91	$35,491.67	$2,848.67
1978	$ 92,503.01	$15,850.00	$8,231,58
1979	$ 24,518.15	$ 7,104.74	$1,421.36
	$190,046.50	$69,397.86

Mr. Levy was born in Jerusalem, Israel in 1933. His father died when he was an infant and he spent his childhood in an orphanage; after he completed grade four he was forced to seek work. Mr. Levy reads English that is written in block letters only.

After his discharge from the Israeli Army in 1951 Mr. Levy found a job as a welder in a factory manufacturing farm equipment. However he wished to work on his own and eventually he left this employ and opened a bicycle repair shop. This business was relatively successful and he found he enjoyed working as a welder designing and cutting metal. He soon moved to larger premises where he also manufactured expresso coffee machines. This shop eventually evolved into a machine shop rather than a repair shop. His uncle loaned him money to buy a lathe machine and he started manufacturing dollies which were able to lift up to 800 pounds with ease. He also started constructing works of art in metal.

His reputation as a welder of art work was such that he entered into a working relationship with an artist in Israel, a Mr. Azzaz, who commissioned him to construct works of art which the former designed. The works of art were done mainly in bronze and because bronze was difficult to obtain in Israel, the artist supplied the bronze to Mr. Levy. Most of the works were designed for clients in the United States. A 17-ton bronze work was constructed for a synagogue in Chicago, Illinois for which Mr. Levy earned $125,000; he obtained $60,000 from Mr. Azziz for another work for an American client. Mr. Levy did not use all the bronze given to him and after these two works had been completed he was permitted to retain the surplus bronze. Mr. Levy estimated that perhaps two-thirds of the bronze given to him by Mr. Azziz was surplus to his needs.

In 1964 Mr. Levy left Israel to reside in Canada. His wife joined him in 1964; his children remained in Israel. He estimated that in 1964 the value of his material and equipment in Israel was approximately $350,000 to $400,000. This material and equipment included the surplus bronze as well as various tools, implements and machinery which he had acquired and built during the previous twelve years. He testified he was a collector of tools and implements and he built machines for specific purposes.

Mr. Levy submitted a statement of assets in Israel which he claimed he sold after 1964 when he visited Israel in ‘1975, 1977, 1978 and 1979. This list was prepared for trial by Mr. Levy from memory. Various assets, primarily machinery, and their values as at 1964 were listed. Mr. Levy testified that the value accorded to each asset was based on reviewing various catalogues of recent vintage for price and his best estimate of value at the time; he esti- matd the value of the equipment at 1969 would be approximately $20,000 to $30,000 more than at present.

Mr. Levy testified that when he left Israel in 1964 he locked up his shop and closed his business down. He left the equipment behind so that if he was not successful in Canada he could return to Israel and continue the business. He also stated his wife was not anxious to emigrate to Canada and the house in Israel which the family lived in was not sold.

In Canada Mr. Levy at first resided in Montreal but after two years he moved to Vancouver where he worked in a shipyard in Burnaby for two years. In 1967 he started a business in Surrey manufacturing handmade fire screens. The first screens he constructed were made of wire mesh but later on he built glass screens as well.

According to his evidence Mr. Levy ran the business himself without any employees, although in the beginning his wife helped him. The business was successful. He stated he made between 120 to 140 glass fire screens per year in his good years. He would receive from $45 to $400 per screen, depending on whether it was a mesh or glass screen, the type of frame used and the design.

Mr. Levy said that he not only built the fire screens but also took the measurements for the screens at the residence of his clients, prepared invoices and delivered the fire screens. In addition to manufacturing the screens, he also sold fireplace accessories and made repairs to fire screens.

He testified that in 1965 there was only one competitor in the fire screen business in the lower mainland of British Columbia whereas today there are approximately 20 to 25 in Surrey alone. He said the business has “dried up” and in the past six years he has made only three or four screens.

Mr. Levy visited Israel in 1975, 1977, 1978 and 1979 to visit his mother. During his first trip he decided that since he was a Canadian citizen there was no sense to holding onto the equipment and material in Israel and he decided to sell. However he did not sell all his equipment at once. In 1975 he sold only that which was readily saleable. The equipment was sold on the Israeli black market and he was paid in U.S. dollars, in later years he was paid in a combination of Canadian and U.S. dollars. He made sales on all four trips and estimated he received approximately $150,000 to $175,000 over the four-year period. He testified he brought the money to Canada and deposited some into a credit union and some into term deposits. He also deposited funds to various accounts at The Bank of Montreal and The Bank of British Columbia. Money was also used for living expenses and for the business. He also stated he kept some cash at home (in a hole in a wall), hidden from his wife from whom he has since been divorced.

Mr. Levy stated that he had money in various accounts because some of the accounts were for personal use and some for business use and in one case, an account with The Toronto-Dominion Bank, he was depositing money which he wanted to hide from his wife. Mr. Levy said he dealt with several banks because some banks had long line-ups at various times during the week whereas The Toronto-Dominion Bank branch and The Bank of British Columbia branch did not. However he stated that 95 per cent of the money from the business was deposited in The Bank of Nova Scotia account and the balance to the credit union account.

He testified that he submitted all his invoices to his accountant even if a personal cheque was received. Some cheques were payable to him personally rather than to Levy Firescreens, the name under which the business was known.

Mr. Levy stated that he lived frugally in the years under appeal and said that the personal expenditures described by Revenue Canada are excessive. He did admit that he owned a boat which he acquired for $15,000. He said he purchased the boat as an experiment to show a fireplace could be put on a boat and in fact it was a business promotion. He said he does not use the boat and it is now in “terrible shape?' He also acknowledged he had acquired a Cadillac automobile which he said he used to deliver screens since the rear of the passenger compartment and trunk in the Cadillac automobile was very large permitting him to place six screens on the back seat and two or three in the trunk.

Mt. Levy also testified that from 1968 to date of trial he purchased approximately $20,000 worth of wire mesh and brass from a firm in Chicago to build his fire screens. His counsel attempted to produce evidence to show that the business carried on by Mr. Levy was modest and would not, even in the best of circumstances, be able to produce $259,444 of net income as alleged by Revenue Canada.

In cross-examination Mr. Levy was questioned in respect of the list of assets he stated he owned when he left for Canada in 1964. Mr. Levy had not provided such a list to the Minister’s officials. Mr. Levy stated that the list was drawn up because his lawyer told him evidence was necessary to disprove the assessments. He reiterated that he checked the current book of equipment for prices. He said that the $100,000 estimate of bronze was simply a current estimate. Mr. Levy confirmed that he did not visit Israel from the time he came to Canada in 1964 until 1975. He stated that during his first visit to Israel in 1975 he was approached to sell the equipment but does not remember how much money he received in that year, although he does remember he was paid in U.S. dollars. In a further visit in 1977 he sold other equipment although he does not know to whom this machinery was sold. Also in his visits to Israel in 1978 and 1979 merchandise was sold but he has no record or recollection who the purchaser was or the amount of the proceeds, although in answer to his counsel he agreed he brought approximately $150,000 to $175,000 to Canada.

Mr. Levy admitted that in 1976 he acquired real estate in Port Kells, which I understand is in the State of Washington. Mr. Levy testified that “somebody from Seattle" asked if he wanted to participate in a joint venture and he agreed, although he could not remember the exact circumstances. He also acquired some property in British Columbia for $105,000 for which he borrowed $45,000 and paid off the loan in two months. Mr. Levy said he probably was able to pay off the money by cashing in term certificates and bonds.

Mrs. Dorothy Kathleen Giles testified on behalf of Mr. Levy. Mrs. Giles appeared to be an honest lady who with her husband were the accountants for Mr. Levy. She and her husband set up the books of account for Mr. Levy. Mr. Levy would provide them with his invoices, expense records, cancelled cheques, bank statements from his business account and other business documents. She indicated the firm had a close relationship with Mr. Levy and frequently visited his place of business. Mrs. Giles stated that she and her husband had prepared documentation to show that it was impossible for Mr. Levy to have earned as much money in his fire screen business as purported by Revenue Canada. She calculated that the maximum number of fire screens Mr. Levy could have made over the four years under appeal would be 1,000; if Revenue Canada was correct in adding $190,000 to his income for the four years he would have had to made and sell 1,357 fire screens. Mr. Giles was unable to give evidence because of his poor health. However Mrs. Giles testified that Mr. Levy's was a very small business and he worked alone especially since 1977 when he was separated from his wife. In no way, she said, could he have built so many screens. She also testified that his gross profit on the sales was between 41 to 59 per cent and to put in extra revenue the gross profits would be "astronomical.”

Mrs. Giles also testified to the difficulty she and her husband had in attempting to obtain information in respect of the reassessments from Revenue Canada. To put it succinctly, she was being given what can be described as the "run-around.” Counsel for Mr. Levy advised the Court the relevant documentation from Revenue Canada was received only a week before trial; the respondent apologized for the delay, he said, and informed the appellant that a letter of complaint could be written. This however, adds nothing to the merits of the case.

I gather from the evidence of Mr. Levy and Mrs. Giles that there was great friction between Mr. Levy and his representative and officials of Revenue Canada. Mr. Levy was not prepared to cooperate with the taxing authorities during their audit and Revenue Canada officials were leery to accept the word of Mr. Levy unless it was corroborated by written documentation. Mr. Levy's credibility was questioned by counsel for the Minister. Mr. Kennedy referred to an examination for discovery during the divorce proceedings between Mr. and Mrs. Levy, in which questions are asked of Mr. Levy in respect of his home in Israel, the boat and assets in Israel and Canada. Mr. Kennedy's cross-examination of Mr. Levy in reference to the discovery is as follows:

Q. Mr. Levy, during the Examination for Discovery in November of 1979, you were asked questions about your assets that you had in Israel?

A. Yes.

Q. Do you remember that?

A. I can’t remember nothing about it, but if you remind me, maybe I I will recall.

Q. First of all, with respect to your house?

A. Yes.

Q. You indicate you still have it now, you didn’t give it away?

A. I give it away, that is what I’m saying all the time. I mean, it is still probably in my name, according to the law, but I don’t have it, I gave it away to my friend to do whatever he wants with it.

Q. I am just going to read you some questions and answers.

A. Okay.

Q. The question to you was,

“Q. Did you — you say you had the house — did you own that house at the time you were married?

A. Yes — no, no, no.

Q. You bought it after you were married?

A. Yes.

Q. When did you buy it?

A. I don't remember dates".

Now, I am leaving some questions out, and I will let you read them.

A. You will have to read it for me, because I cannot read.

Q. Okay.

“Q. When did you buy it?

A. I can’t remember dates.

Q. How long have you been married?

A. 18 years, I guess.

THE COURT: Excuse me —

MR. KENNEDY: It is a Discovery. The question was,

“Q. No, I am sorry, how long have you been married when you bought the house?

A. I don't remember that either.

Q. Did you and your wife live in that house?

A. Yes.

Q. Do you know how long approximately?

A. No, it was just one bedroom house.”

Now, these are the questions I am concerned about. The question is,

“Q. What is the value of that house today?

A. Nothing.

Q. Nothing at all?

A. Nothing at all.

Q. What city is it in?

A. As a matter of fact, I gave it away, I donated it.

Q. What city is it in?

A. Hulon.

Q. Well, okay. Who did you donate it to?

A. A good charity cause.

Q. Tell me who it is.

A. Doesn't matter.”

And your counsel instructed you to answer.

“Q. To an individual?

A. Yes.

Q. What is his or her name?

A. It is not his, it is just one boy.

Q. What is his name?

A. I don't remember the name.

Q. You are telling me you gave the house to somebody and you don't remember the name.

A. No.

Q. When was that done?

A. She could have had the house if she wanted it, many time I told her to take

it and she didn't want it, so I gave it away. I told her I was going to give it away.

Q. When was this donation made to this orphan whose name you can’t remember?

A. Last year.

Q. In 1978?

A. Yes.”

Do you recall those questions and answers you made?

A. Yes.

Q. Is that accurate, you gave it away to someone who you can’t remember at all?

A. Well, not exactly. It was — this guy that I gave it to, I told him to do whatever he wants with that, and he mentions about this boy that he wanted to give it to, so I don’t know his name, and I still don’t know, since then I have never been there.

Q. But, you say you still have the house?

A. Well, it is probably still in my own name, because I never sold it.

Q. Okay, that is your explanation?

A. Yes.

Q. Do you remember being examined with respect to that boat that you own?

A. Yes, sir.

Q. Mr. Levy, question 284, you are asked,

“Q. Mr. Levy, did you ever own a boat which was berthed in Bellingham?

A. No.”

Do you remember that answer to that question?

A. No.

Q. Was that accurate, that answer?

A. To where it was built?

Q. Did you ever own a boat which was berthed in Bellingham?

A. Oh, you mean where it was parked?

Q. The answer you gave was no to that question.

MR. LITTLE: He didn’t understand the question.

MR. KENNEDY: Well, his answer was no.

Q. What did you understand, can you recall, you understand the question you were asked?

A. I don’t know, what did you ask me?

THE COURT: Would you repeat the question?

MR. KENNEDY:

Q. You were asked this question,

“Q. Mr. Levy, did you ever own a boat which was berthed in Bellingham?”

That was the question asked of you, Mr. Levy, and your answer was no.

A. I still don’t know what you are asking me.

Q. Okay, I am not going to pursue that. The next question was,

“Q. Do you know a boat which has the name Guneden?

A. Guneden, yes, the same boat, yes.”

I am sorry, the question was,

“Q. Do you know a boat which has the name Guneden?

A. Yes.

Q. Who owns that boat?

A. I don’t know.”

Did you answer that?

A. What do you mean, I don’t know?

Q. The next question,

“Q. All right. What did you have to do with that boat?

A. Just rented it.

Q. When did you rent it?

A. I don’t remember dates.

Q. What year did you rent it in?

A. Many years ago.

Q. What do you call many years ago?

A. A few years back.

Q. How long did you rent it?

A. Just for weekends.

Q. For a whole summer?

A. No, no, no.

Q. How long did you rent it?

A. Every time we wanted to go boating, I mean Sundays sometimes.

Q. Who did you rent it from?

A. From a guy in Bellingham. I don’t see him any more.

Q. What was his name?

A. I don’t remember, Jan something.

Q. How much did you pay?

A. How much did I pay?

Q. Yes?

A. He is a friend, he didn’t charge much.

Q. That is not an answer, how much did you pay?

A. $125.00 a day.”

Now, you tell me now that you in fact did own a boat, and you still own it, and you bought it, and you paid $15,000 for it?

A. Yes.

Q. And yet under oath in this Discovery on November 8th, 1979 you indicated you did not own it, you rented it?

A. Well, I said it to my wife, I didn’t want her to know about this thing, but I didn’t think about it any more than that.

Q. Your wife was there, wasn’t she, when you gave these answers.

A. I think so, yes.

Q. And the reason you gave those answers was to keep your wife from knowing that you had the boat?

A. No, I told her that before.

Q. Well, why did you give those answers during Discovery?

You have no answer for that?

A. I have no answer for that.

Q. I am going to ask you — read you some more questions from the Discovery,

“Q. What size of boat?

A. I would say 18.

Q. I see. What kind of boat?

A. What kind?

Q. Yes.

A. I am not very good at boats, I would say it was a, what you call it, Rennel.

Q. A power boat?

A. It was a power boat, yeah, yeah.

Q. Had a motor, inboard motor?

A. Yeah.

Q. The motor was inside the boat?

A. Yeah.

Q. It was a Victoria Bayliner?

A. Could be, I am not good at boats.

Q. And your evidence is, you never had any equity in that boat?

A. No.

Q. All you did was rent it?

A. Yeah.”

Do you have any explanation for those answers?

A. No.

Q. On page 44 of the Discovery, about banks in Israel, and you didn't wish to answer in the presence of your wife, sir, do you recall that, and she was asked to leave, and then you answered questions?

A. I think so, yes.

Q. Well, here is the answer you gave.

“A. Well, when I — as you know, I had the business in Israel, and when I went back, that was one of the reasons also. We sold the business, I mean, it wasn't mine, it was, kind of a — it is a lease that, like, you own, okay. So, all the funds that I had there I put in the childrens’ name so it is not in my name, and I have a certificate here, not with me, but I can provide that.

Q. What bank is it in?

A. If I am not mistaken, it is Discount, but I might be wrong. Discount.

Q. Discount, and your answer?

A. Something like that.

Q. How much money?

A. That is in lira, it is not very much. If I am not mistaken, with 10,000 lira for each child, that is all I got for the business, and so we put it all in both childrens' name.

Q. That is 20,000 lira?

A. 20,000 lira at the time, but now it is probably doubled or tripled. It is in their name, not mine.”

Now, do you recall —

A. Yes, I do recall that.

Q. Do you have any explanation?

A. I definitely do. I didn't exactly understand the question the way you put it now, but the thing is, I left just — I said to them that I had some money left for Dora, 10,000, and for Renna 10,000. I didn't say that was all the assets that I sold for $20,000.

Q. And that is your explanation for that question?

A. That is exactly what happened, yes.

Q. Question 430, at page 50,

Q- I am informed you borrowed money from the bank, and the purpose was to purchase a boat, is that correct?

A. No, it isn’t.

Q. Did you ever purchase a boat in the State of Washington?

A. No.

Q. Did you ever own a boat there?

A. No.

Q. Do you have any assets in the United States of America?

A. No.”

Do you recall those answers?

A. Yes.

Q. Do you have any explanation for those?

A. I lied.

Q. Did you value your equipment from your business in Vancouver in 1979 as about $2,000?

A. $2,000?

Q. In 1979, yes?

A. I don't know how much the value, but I don't know where you get the $2,000 from.

Q. Well, let me read you some questions from page 51.

“Q. What do you value your equipment in your business at?

A. Not much.

Q. Well, that is not a very good answer. You have to do better than that.

A. Come and take a look yourself, they are old. You know, old stuff, very used. They hardly operate.

Q. What would you expect to receive for it if you sold it?

A. As junk, $2,000.

Q. Well, I didn't ask you what you valued it for as junk.

A. Well, that is what it is.

Q. I am talking about equipment for a firescreen business?

A. There is no equipment for a firescreen business, it is machines.

Q. Yes, that is what —

A. Machines, it is not especially for firescreen. You can do everything with the machine, whatever you program to do.

Q. What do you value those machines at?

A. I just said it is not worth more than $2,000 the whole lot.”

Q. Do you remember giving those answers?

A. I don't remember that, but I could have said that, yes.

Q. And that is not accurate?

A. That is not accurate.

Q. That was lies?

A. That was lies.

MR. KENNEDY: Thank you, Mr. Levy.

The respondent's witnesses included Miss Sonia Mitchell, who has been an auditor with the Vancouver District Office of Revenue Canada since May 1980, and Dora Warman, who was an auditor at the Minister's Vancouver District Office when the assessments were prepared. Miss Mitchell stated that the decision to assess Mr. Levy on a net worth basis was made when she was assigned the file. She testified she prepared a net worth comparative balance sheet for Mr. Levy for the period December 31, 1975 to December 31, 1979 which showed a discrepancy of income over the four years of $190,046.50. She said she sent a copy of the net worth statement to Mr. Levy with a letter on May 5, 1982 asking for his comments within 21 days. Apparently Mr. Levy replied by letter in the Hebrew language. Revenue Canada officals in Vancouver District Office could not find any interpreter and advised Mr. Levy they could reply to him in either the English or French language or have a personal interview with him at his place of business. A meeting took place at the place of business on May 14, 1982 between Mr. Levy, Miss Mitchell and her superior. Mr. Levy was described by Miss Mitchell as being “very agitated” during the meeting and stated that he did not understand the net worth assessments. He told Revenue Canada at the meeting that he had sold business assets in Israel and he had brought cash from Israel to Canada, although he could not remember to whom assets were sold or the amounts of sale. Miss Mitchell said she showed him invoices and bank slips showing those funds going to his personal bank account; however Miss Mitchell described Mr. Levy as "agitated” throughout the meeting and he continually denied he ever deposited business funds in his personal account. She also said he was unable to address specific terms of his disagreement with her.

Miss Mitchell testified in examination-in-chief that she traced various deposit slips from the Fraser Valley Credit Union in 1976, 1977, 1978 and 1979 which she matched to invoices. However she acknowledged she did not check all deposit slips and that there could have been more. In cross- examination Miss Mitchell testified that she did not examine, for example, The Bank of Montreal Mastercard account nor did she verify if the Fraser Valley Credit Union accepted The Bank of Montreal cheques which were drawn on the Mastercard account. She also said she could not testify if these amounts were routed from income. She also testified that since there was no documentary evidence available in respect of money Mr. Levy said he brought from Israel no amounts were allowed to Mr. Levy from that source.

Miss Warman added she went through the books and records of Mr. Levy and questioned him on various occasions. She also confirmed Miss Mitchell's statements that in preparing the net worth statements nothing was allowed in respect of any money brought from Israel since there was no documentation She also acknowledged that as far as she was concerned Mr. Levy lived frugally.

Because of Mr. Levy's prior readiness to lie under oath I am reluctant to accept evidence of Mr. Levy unless it has been corroborated, was not subject to challenge by counsel for the respondent, or was otherwise convincing.

The Minister's determination of income earned by Mr. Levy from his fire screen business in the years under appeal is too high. The number of fire screens Mr. Levy said he could manufacture in any one year, the prices he could fetch for the screens, his work load and the different functions he performed were corroborated by Mrs. Giles. It would be difficult, if not impossible, for Mr. Levy to have earned as much from this business as alleged by the respondent. I believe Mr. Levy did bring money from Israel to Canada during the years under appeal; unfortunately the amounts remain questionable.

I am also convinced Mr. Levy did not report all of his income from the business.

Mr. Little’s main thrust of the appeal was that the Minister’s reassessments of tax for the years under appeal be reduced in part. While I agree that the reassessments of tax ought to be reduced because the Minister’s "net worth" appraisal of Mr. Levy's affairs was too high, there was no evidence submitted by Mr. Levy showing precisely the extent of the Minister's error. This problem was dealt with by Cameron, J. in Chernenkoff v. M.N.R.,[1949] C.T.C. 369 at 374; 49 D.T.C. 680 at 683, where he said:

In effect, the appellant agrees that the “net worth” computation of her income is a Satisfactory basis for arriving at her taxable income, but that some of the items

— those which I have indicated — are wrong. When these are corrected in accordance with the evidence adduced — so she states — the result is that there is no taxable income for any of the years in question.

My opinion is that the appellant must do far more than she has attempted to do here if her appeal is to be successful. There can be no question that the onus lies on the appellant and that, in my view, means that she must establish affirmatively that her taxable income was not that for each of the years for which she was assessed. Two courses were open to her, the first being to establish her income with proper deductions and allowances, and that course could quite readily have been followed.

In the absence of records, the alternative course open to the appellant was to prove that even on a proper and complete “net worth” basis the assessments were wrong. But that also she has failed to do.

It is clear Mr. Levy has not established his income. To prove that on a proper and complete “‘net worth" basis the reassessments were wrong, Mr. Levy must not only show the Minister has made errors in the reassessments but also establish with reasonable certainty the quantum of the errors. Otherwise important criteria forming the assessments are literally up in the air and the Court is unable to get a handle to bring them down to earth to refer the assessments back to the Minister for reassessment.

In this case, the Minister increased Mr. Levy's net worth over the four years by $190,046.50 and then concluded the increase was due to unreported income from his business. Mr. Levy said that $125,000 to $150,000 of the increase was from proceeds he received on the sale of his business in Israel. No attempt was made to show what his actual income from the business for each year was; he appeared to rely on his reported income for each year being the actual income. His principal attack on the Minister's net worth calculations was that he brought approximately $125,000 to $150,000 to Canada from Israel, but he did not know the actual amounts. Mr. Levy is the only person who has, or should have, knowledge of his affairs and if he does not know how much money he brought to Canada, or what his income was in the years under appeal, then the Minister cannot be expected to know.

Similarly in assessing a penalty pursuant to subsection 163(2) of the Act the Minister must establish that portion of the taxpayer's understatement of income in the year that is reasonably attributable to a false statement or omission. I have indicated that in my view the Minister's calculation of income from Mr. Levy's business in the years under appeal was excessive. In the absence of the exact amount of the understatement of income it is impossible for the Court to determine whether any particular penalty was in an amount authorized by subsection 163(2). See Elchuk, [1970] C.T.C. 326 at 329; 70 D.T.C. 6235 at 6237. Where, in an appeal, a penalty assessed by the Minister under subsection 163(2) is in issue, the burden of establishing the facts justifying the assessment of the penalty is on the Minister (subsection 163(3). The portion of Mr. Levy's understatement of income for each year that was reasonably attributable to a false statement or omission is a most important fact to be established by the Minister; in my view the Minister failed to establish with any reasonableness not only that any portion of Mr. Levy's income was reasonably attributable to a false statement or omission but also the amount of the portion of understated income.

The appeal will therefore be referred back to the Minister for reconsideration and reassessment in order to delete the penalties assessed under subsection 163(2) of the Act.

In respect of costs, I shall allow Mr. Levy 75 per cent of his party and party costs. In doing so I am taking into account that he was successful in one of two issues under appeal, the penalties assessed under subsection 163(2) of the Act, and therefore is entitled to 50 per cent of his party and party costs. In exercising my discretion respecting costs I, as may be appropriate to the circumstances, may take into account any unnecessary or improper act by a party in an appeal. The delay by the Minister in providing documentation to Mr. Levy's representatives until the week prior to trial was an unnecessary and improper act by the respondent which had it not occurred may have avoided costs to Mr. Levy. Mr. Levy should therefore be entitled to an additional 25 per cent of party and party costs, for a total of 75 per cent of party and party costs.

Appeal allowed in part.