Seoul High Court (Chuncheon) 2013Nu647 ( October 28, 2015)

early 201J 4973 (Law No. 10, 2012)

The court shall cancel only the portion exceeding the legitimate amount of tax where there is any data to calculate the legitimate amount of tax.

In case where the data to calculate the amount of a legitimate tax is submitted by the time the fact-finding court is closed, the court shall review the amount of a legitimate tax and cancel only the exceeding part.

Article 55 (Calculation of Necessary Expenses of Business Income)

2015du1076 Disposition of revocation of imposition of income tax, etc.

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BB Director of the Tax Office

Seoul High Court (Chuncheon) Decision 2013Nu647 Decided January 28, 2015

July 9, 2015

The part against the defendant is reversed, and that part of the case is remanded to the Seoul High Court.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. According to Article 80 (3) of the Income Tax Act, 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 relevant taxable period pursuant to paragraphs (1) and (2), he/she shall determine or correct them based on the account books and other evidentiary documents: Provided, That where it is impossible to calculate the amount of income by means

Inasmuch as the taxation by estimation under the Income Tax Act is recognized only when there is no account books or documentary evidence of a taxpayer, which serves as the basis for the determination of income amount or tax base, or when it is impossible to conduct a field investigation due to lack of details or false details, taxation by estimation may not be conducted if there are books or documentary evidence available for a field investigation. In addition, in a lawsuit seeking revocation of a taxation disposition, a party to a lawsuit may submit all the documents and claim that the tax assessment is lawful based on the documents submitted up to the time of the closing of argument in the lawsuit seeking revocation of the disposition. Therefore, even if the tax authority rendered the estimated taxation due to deficiencies in the account books or other documentary evidence at the time of the disposition, when the account books or other documentary evidence are displayed in the lawsuit seeking revocation of the disposition, the amount of income or tax base should be

2. The reasoning of the lower judgment reveals the following facts.

A. From October 12, 2005 to April 21, 2011, the Plaintiff operated an entertainment tavern (hereinafter “the instant entertainment tavern”) as indicated in the judgment of the lower court.

B. The Defendant requested the Plaintiff to submit an account book necessary to verify the sales amount while conducting a tax investigation on the entertainment tavern of this case. However, the Defendant calculated the difference between the reported sales amount and the sales amount after estimatinging the sales amount, and rendered a disposition imposing global income tax, value-added tax, individual consumption tax, education tax, etc. from 2006 to 2010 (hereinafter “instant disposition”). However, the Plaintiff submitted the credit account book stating the details of the credit sales (hereinafter “the credit account book 1”) after 2006 of the entertainment tavern of this case to the lower court, and the Plaintiff stated that the transaction partner, the date and time of the transaction, the transaction amount, and the amount of the tax are detailed.

D. Meanwhile, the Defendant submitted as evidence the credit card sales data, which is divided into the income of the instant entertainment tavern and the employee service fee (hereinafter “the sales data of this case”). Even if the credit sales account amount recorded in the instant credit sales account book are reflected in the necessary expenses, the Defendant asserts that the sales amount and the tax amount in the case of making a determination based on the sales data of this case and the credit account book of this case are more than the estimated sales amount and the tax amount calculated based on the instant disposition.” However, the lower court determined that (1) the instant disposition was unlawful on the ground that it lacks rationality and feasibility necessary for the estimation investigation because it did not fully deduct necessary expenses, such as bad debts corresponding to the omitted sales, etc., and (2) the instant sales data is deemed unlawful on the ground that it is difficult for the Defendant to calculate the actual sales amount, so long as it calculated the Plaintiff’s sales by estimation on the ground that it is difficult for the Defendant to calculate the actual sales amount, the sales amount, which is the premise of deduction, should be revoked in its entirety on the ground that the evidence presented in (3) alone cannot reflect the global income tax amount.

4. However, in light of the legal principles as seen earlier and the evidence duly admitted.

In light of the above, so long as the above credit account books of this case and the plaintiff's income amount and the service fee for employees are separately stated, the court below should have deliberated on the reasonable amount of tax that can be calculated by the actual investigation method based on the above data, and then, if the amount of tax is deemed more than the amount of the disposition tax of this case as alleged by the defendant, it shall not be revoked even if the disposition of this case was based on the illegal estimation, and if the amount of tax of this case is deemed to exceed the legitimate amount of tax, the court below should revoke the excess amount.

5. Nevertheless, as seen above, the lower court determined otherwise. In so doing, the lower court erred by misapprehending the legal doctrine on the method of determining tax base, etc. in a case where account books and other documentary evidence were submitted during a lawsuit seeking the revocation of a tax disposition by estimation, and by failing to exhaust all necessary deliberations, thereby adversely affecting the conclusion of the judgment. The allegation in the grounds of appeal

6. Therefore, without further proceeding to decide on the remaining grounds of appeal, the part against the defendant in the original judgment is reversed, and this part of the case is remanded to the court below for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.