CZY v Commissioner for the South African Revenue Service (IT 24988) [2021] ZATC 18 (5 August 2021)

CZY v Commissioner for the South African Revenue Service (IT 24988) [2021] ZATC 18 (5 August 2021)

Absolution from the instance is not available in the Tax Court, as the rules do not provide for it and granting such relief would not resolve the binding nature of the assessment. The appellant conceded the understatement in its 2014 return, but the court found that, given the appellant's reliance on professional advice from an independent accountant, it acted with reasonable care in submitting its return. However, the Tax Administration Act mandates the imposition of an understatement penalty unless the error was bona fide and inadvertent, which was not the case here. The penalty should be quantified at 10% as a substantial understatement under section 223, rather than the 25% previously...

Citation
[2021] ZATC 18
Parties
Appellant: CZY; Respondent: Commissioner for the South African Revenue Service
Court
Tax Court
Jurisdiction
South Africa
Judgment Date
5 August 2021
Case Number
IT 24988
Procedural Posture
Tax Appeal / Appeal Against Understatement Penalty Assessment
Outcome
Appeal succeeds in part; the 25% penalty is set aside and replaced with a 10% penalty. Each party to pay its own costs.
Judges
Vally, Vincent Kekana, Zeyn Mia
Legal Topics
Understatement Penalty, Reasonable Care, Tax Administration Act, Assessment Objection, Professional Advice, Quantification of Penalty
Tax Law Understatement Penalty Reasonable Care Tax Administration Act Assessment Objection Professional Advice Quantification of Penalty

Case Brief

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Parties

CZY

Appellant

Commissioner for the South African Revenue Service

Respondent

Procedural Posture

Tax Appeal / Appeal Against Understatement Penalty Assessment

Legal Issues

  1. 1 Whether absolution from the instance is available to a taxpayer in the Tax Court where SARS bears the onus for an understatement penalty.
  2. 2 Whether the appellant acted with reasonable care in submitting its tax return and can avoid the penalty.
  3. 3 What is the correct quantification of the understatement penalty under section 223 of the Tax Administration Act.

Ratio Decidendi

Absolution from the instance is not available in the Tax Court, as the rules do not provide for it and granting such relief would not resolve the binding nature of the assessment. The appellant conceded the understatement in its 2014 return, but the court found that, given the appellant's reliance on professional advice from an independent accountant, it acted with reasonable care in submitting its return. However, the Tax Administration Act mandates the imposition of an understatement penalty unless the error was bona fide and inadvertent, which was not the case here. The penalty should be quantified at 10% as a substantial understatement under section 223, rather than the 25% previously...

Court Disposition

Appeal succeeds in part; the 25% penalty is set aside and replaced with a 10% penalty. Each party to pay its own costs.

Orders

  • The application for absolution from the instance by the appellant is dismissed with costs.
  • The 25% understatement penalty imposed by the respondent on the appellant is set aside.