Whether there was any omission in necessary expenses corresponding to the gross income reported or omitted.

There is no evidence deemed necessary expenses, such as where the basis documents, financial data, etc. for the payment of necessary expenses are unclear and the amount of the construction cost is inconsistent with the specifications

Article 27 of the former Income Tax Act / [Calculation of Necessary Expenses]

1. The plaintiff's appeal is dismissed.

2. The costs of appeal shall be borne by the Plaintiff.

1. Purport of claim

The Defendant’s disposition of imposition of global income tax of KRW 212,345,470 for the Plaintiff on August 1, 2005 shall be revoked.

2. Purport of appeal

The part against the plaintiff in the judgment of the court of first instance shall be revoked. The part against the defendant in the disposition under the preceding paragraph against the plaintiff shall be revoked.

1. Details of the disposition;

A. From May 1, 2002 to December 3, 2003, the Plaintiff (i) newly built ○○○○○○○○○○○○○○○○○○○○○○○○○○○○, and (ii) sold six households among them in units in 2003, and (iii) actually received a total of KRW 1,39,00,000,000 (=130,000,000,006), and (iii) filed a total of KRW 780,00,00,000 (=130,000,000,006), necessary expenses, 763,19,470 (sales KRW 760,740,740,000 + sales expenses and general management expenses + 2379,289, 208, 208, 2036,5308,506).

B. On August 5, 2004, the Defendant confirmed the Plaintiff’s under-reported total revenue amount of KRW 619,00,000 (i.e., KRW 1,399,000,000 - 780,000,000) and notified the Plaintiff of the total income amount of KRW 249,905,410,00, after being notified of the details of sale and sales contract of the instant tenement house from the director of ○○○ Regional Tax Office as taxation data.

C. On September 24, 2004, the Plaintiff filed a request for examination with the Commissioner of the National Tax Service. On May 20, 2005, the Commissioner of the National Tax Service, from the total revenue amount of the instant tenement, deducted the sales contract amount of KRW 230,000 from the revenue amount of KRW 230,000 from the sales contract under B-402 from the cancellation of the sales contract on September 22, 2003, and the corresponding cost shall be deducted from the necessary expenses, but the penalty of KRW 3,00,000 from the cancellation of the contract shall be added to the total revenue amount, and the remainder

D. Accordingly, on May 26, 2005, the Defendant issued a notice of reduction of the above tax amount to KRW 249,905,410 on 154,219,400. On August 1, 2005, the Defendant notified the Plaintiff of a disposition to increase the tax amount to KRW 212,345,470 on the ground that the sales amount of KRW 760,740,190 was not deducted from KRW 126,79,031 on the ground that the sales amount of KRW 2-402, among the apartment houses of this case, the sales amount of KRW 760,740,190 was not deducted from KRW 126,79,031 on the ground that it was erroneous in calculating the amount of income (hereinafter “instant disposition”).

Each entry of Gap evidence 1-2, Gap evidence 3, Eul evidence 1-2, Eul evidence 1-2, 3, Eul evidence 2, 4, Eul evidence 5-1 through 6

2. Whether the instant disposition is lawful

A. The plaintiff's assertion

(1) First, the Plaintiff calculated the sales price per each household of the instant apartment houses by appropriating the amount of KRW 130 million as the actual cause, and filed a false return on the amount of KRW 780 million, and filed a false return on the amount of KRW 467,078,078,936 (acquisition 5,060,000, construction cost, KRW 451,279,318, interest paid, KRW 10,739,618, and KRW 947,178,718 (such as land, etc., KRW 592,797,860, KRW 313,075,144, KRW 41,305,714 in 203, and KRW 41,714 in 205,714).

Therefore, in the disposition of this case, the Defendant calculated the amount of income by deducting acquisition tax of 5,060,000, construction cost of 338,459,48 (i.e., 451, 279, 318 X 6 households/8 households) and paid interest of 10,739,618, which were omitted as necessary expenses in 2003 as above, from the total amount of income in 2003, and then calculating the amount of income, but did not deduct it.

(2) Second, since the most important sale price and construction cost of the instant apartment house in the new apartment house sales business are false, it is unlawful for the Defendant to determine the amount of income by a field investigation even though the necessary expenses should be estimated and investigated in accordance with Article 80(3) of the Income Tax Act and Article 143(1) of the Enforcement Decree

(b) Related statutes;

Attached Form is as shown in the attached Form.

(c) Fact of recognition;

(1) During the period from March 2, 2003 to July 15, 200 of the same year, the Plaintiff: (a) purchased six households out of the instant apartment house from the ○○○○○○, etc.; (b) received KRW 1,172,00,000 as the sale price from the said ○○, etc. (3,000 won as the sale price for five households + KRW 1,169,000 as the sale price for five households + KRW 3,00,000 as the penalty for one household, which was the sale price for one household on September 22, 2003). However, the Plaintiff entered a false contract with KRW 130,00,000 for each household’s sale price of KRW 780,00,000,000 for each household’s account books; (c) omitted from the gross income amount of KRW 392,00,000,709; and (d) omitted from the necessary expenses.

(2) At the time of the request for the examination as above, the Plaintiff asserted that an amount equivalent to KRW 682,546,738 as necessary expenses ( KRW 655,560,960, interest expense of KRW 26,985,778) was omitted in the account book, and submitted a copy of a promissory note issued with the statement and documentary evidence, and a copy of documentary evidence from the transfer of the construction cost, but the financial materials related to the payment of the construction cost are inconsistent with the construction cost and documentary evidence, and the personal information of the payer is unclear, and no written contract by each

(3) During 202 and 2003, the business period of the instant apartment house construction and sales business, the Plaintiff: (a) on the top of ○○○○○○○ Dong 000-0 and ○○○○○○○○○, from June 4, 1988 to December 31, 2003; (b) ○○○○○○-dong 00-0,00,00,000, and 0,00, up to △△△△△△△; (c) on the trade name, 119-90-5**; (d) from April 5, 2003 to January 28, 2005, the Plaintiff continued to operate the Housing Construction and Sales Business (i.e., 119-11-5, 200 to December 31, 200; and (b) from 200 to 205 to 205, 201.

(4) In each head of ○○ Bank, △△ Bank, and △△ Bank (Evidence A1, 12, and 58) established in the name of the Plaintiff, each head of ○○ Bank, △△ Bank, and △△ Bank (Evidence A11, 12, and 58) is not divided into the deposit and withdrawal transactions by each of the above housing construction and sales business places, and also includes the deposit and withdrawal transactions by ○○, a joint business place, △△ Construction (Business Registration Number 1

Each of the evidence (including each number), evidence A4 through 7, evidence A5, evidence A5-1 through 3, evidence B-1, 2, and evidence B-5 through 14 (including each number), and the purport of the whole of the pleadings.

D. Determination

(1) Judgment on the plaintiff's first argument

(A) In a case where the customs office determines the total necessary expenses corresponding to the taxpayer’s total amount of revenue in the current year by a field investigation, and finds the revenue omitted from the original return, the necessary expenses such as the corresponding purchase cost shall be deemed to have already been included in the total necessary expenses corresponding to the total amount of revenue unless there exist special circumstances, such as where the account book or other documentary evidence revealed that it was separately disbursed. In such a case, only the necessary expenses corresponding to the omission of revenue, which is a part of the total revenue, may not be separately determined by the method of a preliminary investigation. If a taxpayer wants to obtain a deduction on the ground that there is an omission of the purchase cost corresponding to the omission of revenue, he/she shall assert and prove the omission of the purchase cost (see, e.g., Supreme Court Decision 90Nu42, Dec. 11,

(B) Comprehensively taking into account the purport of the entire argument in Gap evidence No. 10 (acquisition tax receipt), the plaintiff acquired ○○○○○○○○-dong 00-00 to newly construct the apartment house of this case and paid KRW 5,060,000 on March 27, 2002, but did not enter it in the account book but did not include it in the necessary expenses at the tax return, and the fact that the land size of five households among the apartment houses of this case sold by the plaintiff in 2003 is 167.12m2 among the above apartment houses of this case, it can be acknowledged that the amount to be included in the necessary expenses for the year 2003 among the above acquisition tax is 3,173,085 won (5,060,000 won, X167.26.5,00 won, which is the expenses corresponding to the total income amount).

(C) In addition to the above acquisition tax, it is difficult to find the Plaintiff’s assertion that the above 6-month construction cost should be charged to the above 6-month construction cost of 349,19,106 won (construction cost of 338,459,48 won + 10,739,618 won) as the necessary expenses for the newly constructed apartment house in 203; the Plaintiff’s assertion that the above 6-month construction cost should be charged to the above 6-year construction cost of 400,60,600, 6-month construction cost of 6-year construction cost of 60,000, 706, 70, 606, 60, 606, 60, 76, 60, 60, 606, 60, 60, 606, 60, 76, 606, 60, 606, 60, 606, 7, 666, etc.

(D) Therefore, the plaintiff's above assertion is justified within the above scope of recognition.

(2) Judgment on the second argument by the Plaintiff

If the tax authority found the omitted portion of the amount of income during the taxable period due to the on-site investigation and imposed global income tax by recognizing necessary expenses corresponding thereto as a result of the on-site investigation, it cannot be deemed impossible to make a decision on the on-site investigation, and thus, it cannot be deemed that the decision on the on-site investigation cannot be made. If necessary expenses not recognized by the tax authority exist, it shall be asserted and proved by the tax payer, and the income cannot be determined by the method of the on-site investigation to deduct necessary expenses (see Supreme Court Decision 2002Du12786, Dec. 12, 2003).

In the instant case, the Plaintiff spent land acquisition value and construction cost, and appropriated the tax invoice on the necessary expense account book for the portion for which the tax invoice was received. The Defendant clarified the omission of the Plaintiff’s above revenue through the on-site investigation, and subsequently disposed of the instant case. As seen above, it is difficult to recognize that the necessary expenses corresponding to the omission of the above revenue amount, other than the above acquisition tax 3,173,085 won, are particularly higher. Therefore, under such circumstances, it cannot be deemed impossible to make a field investigation decision on the income amount, and therefore, the Plaintiff’s assertion

(3) Justifiable tax amount

If the above acquisition tax amount of KRW 3,173,085, which was recognized as above, is included in the necessary expenses and the income tax for the year 2003 is calculated, the legitimate amount of tax shall be KRW 209,861,390, as shown below. Therefore, the portion exceeding the above KRW 209,861,390 among the disposition in this case shall be deemed unlawful.

(unit: Won)

Gu Sector

Amount of disposition tax in the case

Justifiable Tax Amount

Global income amount;

502,469,016

49,295,931

No. 50

3,600,000

3,600,000

Section 6 5

498,869,016

495,695,931

Tax Rate

36%

36%

United States of America 20

167,892,845

166,750,535

(a) mountain tax:

4,452,625

43,110,859

Total final tax amount

212,345,470

209,861,394

3. Conclusion

Therefore, the plaintiff's claim shall be partially accepted within the scope of the above recognition, and the judgment of the court of first instance is just, and the plaintiff's appeal seeking its revocation is without merit, and it is so dismissed as per Disposition.

Related Acts and subordinate statutes

Income Tax Act

Article 24 (Calculation of Gross Amount of Income)

(1) The total amount of income of a resident shall be calculated on the basis of the total amount received or received during the relevant year.

(2) In cases under paragraph (1), if any income other than money is imported, such income amount shall be calculated according to the value at the time of transaction.

(3) Matters necessary for the scope of the amount received or to be received, and the calculation or confirmation period shall be prescribed by Presidential Decree.

Article 80 (Settlement and Correction)

(3) Where the head of a regional tax office or the head of a regional tax office having jurisdiction over the place of tax payment determines or revises the tax base and amount of tax in the current year under paragraphs (1) and (2), he shall make it based on the books and other documentary evidence: Provided, That if it is impossible to calculate the amount of income by books and other documentary evidence for

former Income Tax Act (amended by Act No. 8144 of Dec. 30, 2006)

Article 27 (Calculation of Necessary Expenses)

(1) In calculating real estate rental income, business income, temporary property income, other income, or forest income, the amount to be included in necessary expenses shall be the sum of expenses corresponding to the total amount of income in the current year, which is generally accepted.

(2) If the expenses corresponding to the gross amount of incomes prior to the current year are not appropriated as the necessary expenses before the current year, they shall be considered the necessary expenses.

Enforcement Decree of the former Income Tax Act (amended by Presidential Decree No. 18173, Dec. 30, 2003)

Article 55 (Calculation of Necessary Expenses for Real Estate Rental Income, etc.)

(1) Necessary expenses corresponding to the total amount of income from real estate rental and business income in each year shall be as follows:

1. Purchase price (excluding a purchase reduction or a purchase discount) of the raw materials for the commodities or products sold and the incidental expenses thereto, if the relevant business operator has consumed such ones for a business use, as have been purchased for other purposes, the original purchase price and incidental expenses thereto shall be applicable;

2. Book value at the time of transfer of real estate (limited to housing construction and sales business and real estate sales business). In this case, with respect to real estate acquired for any purpose other than business, the acquisition value calculated by applying mutatis mutandis the provisions of Article 89 at the time of the initial acquisition by the businessman

Article 143 (Determination and Revision through Estimation)

(1) The term "reasons prescribed by Presidential Decree" in the proviso to Article 80 (3) of the Act means the cases falling under any of the following subparagraphs:

1. Where necessary account books and documentary evidence are missing or important parts are incomplete or false in the calculation of the tax base;

2. Where the contents of the entry are obviously false in light of the scale of facilities, number of employees, raw materials, market prices, various charges, etc. of commodities or products.

3. Where the contents of the bookkeeping are obviously false considering the quantity of raw materials used, electric power used and other operational conditions.

[Supreme Court Decision 2007Du2033, Oct. 14, 2008]

The appeal is dismissed.

The costs of appeal are assessed against the Plaintiff.

All of the records of this case and the judgment of the court below and the grounds of appeal were examined, but it is clear that the appellant's grounds of appeal fall under Article 4 of the Act on Special Cases Concerning the Procedure of Appeal and therefore, the appeal is dismissed pursuant to Article 5 of the above Act. It is so decided as per Disposition by

* Note *

1) Examining the specific details of sale in lots, B-102 sales price of KRW 228,00,000, B-202 sales price of KRW 233,000,000, B-201 sales price of KRW 255,000,000 B-301 sales price of KRW 235,000,000 sales price of KRW B-401, and B-401 sales price of KRW 218,000,000 sales price of KRW 230,000 B-40,000 sales price of KRW 1,39,000,000 sales price of KRW 230,00 sales price of KRW B-402.