In a case where the revenue amount omitted from the on-site investigation is discovered, the burden of proving the necessary expenses corresponding thereto (=taxpayer)

In cases where the tax authorities determine the total necessary expenses corresponding to the gross income amount of the taxpayer in the current year by on-site investigation and discover the income omitted from the initial return, the necessary expenses such as the corresponding purchase cost shall be deemed to have been included in the total necessary expenses corresponding to the gross income unless there exist special circumstances, such as account books or other documentary evidence revealed that such expenses have been separately paid. In such cases, only the necessary expenses corresponding to the income omitted merely a part of the gross income amount cannot be separately determined by the method of the estimation investigation, and if the taxpayer wants to receive the deduction due to the omission of the purchase cost corresponding to the omission of sales, he/she shall prove the omission of the purchase cost

Articles 31 and 118 of the Income Tax Act

Supreme Court Decision 86Nu217 delivered on November 25, 1986, 85Nu1004 Delivered on October 13, 1987, Supreme Court Decision 88Nu1179 Delivered on July 11, 1989

[Judgment of the court below]

The director of the tax office

Daegu High Court Decision 89Gu47 delivered on November 29, 1989

The part of the lower judgment against the Defendant is reversed, and that part of the case is remanded to the Daegu High Court.

The plaintiff's appeal is dismissed.

The costs of appeal dismissed shall be assessed against the plaintiff.

1. We examine the Plaintiff’s grounds of appeal.

In calculating income tax, if it is possible to determine the amount of income by recognizing the total amount of income and the necessary expenses corresponding thereto through the on-site investigation, the tax base and tax amount shall be calculated on the basis thereof and it shall not be determined by the estimation investigation. Thus, in a case where the tax authority determines the total necessary expenses corresponding to the total amount of income of a taxpayer in the current year by the on-site investigation, and barring special circumstances, such as where the corresponding purchase cost and other necessary expenses, are found to have been disbursed separately by books and other documentary evidence, the necessary expenses corresponding to the total amount of income shall be deemed to have already been included in the total necessary expenses corresponding to the total amount of income. In such a case, only the necessary expenses corresponding to the omitted income which are merely a part of the total amount of income cannot be separately determined by the estimation investigation method, not by the on-site investigation. If a taxpayer intends to obtain a deduction due to the omission of the purchase cost corresponding to the omitted amount of income, he/she shall prove the omission of the purchase cost (see, e.g., Supreme Court Decisions 86Nu217, Oct. 13, 1987.

According to the reasoning of the judgment below, the court below, based on the evidence adopted by the defendant, found that the amount of 315,532,262 won was omitted from sales among the total revenue amount of the business year 1983 reported by the plaintiff in the course of the actual tax investigation, and if there is no other evidence to prove that the necessary expenses corresponding to the omission in sales were actually required due to deducting the amount equivalent to 100/110 of the transaction amount and calculated by deducting the amount equivalent to the added value, it shall be deemed that the necessary expenses corresponding to the omission in sales were already included in the total necessary expenses reported. Since the necessary expenses corresponding to the omission in sales cannot be corrected separately by the method of the estimated investigation or the tax base itself cannot be used by the method of the estimated investigation, the plaintiff's assertion that the omission in sales was caused by the purchase cost of the omission in sales was just based on the above opinion of the party members, and there is no error in the rules of evidence, incomplete deliberation, or misunderstanding of the legal principles as to the method of the estimated investigation and the actual investigation.

2. We examine the defendant's grounds of appeal.

According to the reasoning of the lower judgment, the lower court determined that the Plaintiff’s total sum of KRW 76,271,50 from Non-Party 1 to December 30 of the same year, and paid KRW 29,528,00 through the bank’s account from April 6 to December 30 of the same month, and subsequently, remitted KRW 29,528,00 to Non-Party 2 via the bank’s account from April 13, 1983 to December 30 of the same year, and separately included KRW 8,9,13,15,17 (each protocol of examination of suspect), etc. in the evidence Nos. 4-1,2-2 (Transfer Statement) and evidence Nos. 9-4 (Investigation Report), and the Defendant’s transfer of KRW 17,80,500 as the purchase price between the date of April 5, 1983 to December 27, 197; and thereafter, it should be found that the above amount was unlawful.

Examining the above evidence according to the records, the above evidence is part of the investigation record which was investigated by the plaintiff as a suspected case, such as the violation of the Act on the Aggravated Punishment, etc. of Specific Crimes, etc., on the ground that it was a stolen or embezzled stolen or embezzled goods purchased by the plaintiff from the non-party 1, etc., among them, according to the evidence No. 9-4, which is an illegal oil sales statement prepared by the prosecutory investigator from the cash book of the business office operated by the non-party 1, it is stated that the non-party 1 sold oil equivalent to 76,271,50 won during the period from April 5, 1983 to December 30 of the same year. According to the evidence No. 9-15, which is an examination record of the plaintiff's suspect against the non-party 1, the plaintiff stated that he was supplied with a renewable oil 40 drum on June 4, 1983.

However, from September 11, 1983 to February 19, 1984, the Plaintiff repeatedly stated that the investigative agency had no further purchased 1,901 drums other than purchasing 60,832,000 won (Evidence A-9-8,9,15,17) over 25 times from September 11, 1983, and Nonparty 1 made a statement to the same purport (Evidence A-9-13), taking full account of Nonparty 5-2 (Trial Records), A-6-2 (Examination Record), No. 7-1, and No. 7-2 (Dismissal), the Plaintiff’s above statement was based on the work log kept in Nonparty 1’s business office, and it was finalized after being convicted of the facts charged as to the transaction log 1,901 drums as stated in the above judgment (Evidence No. 7-2, 15,17) and Nonparty 1 made a statement to the same purport (Evidence A-9-13).

Therefore, it is difficult to readily conclude that the Plaintiff paid to Nonparty 1 the amount equivalent to the above judgment in addition to the bank transmission amount as stated in subparagraph 4-2 of the above evidence No. 9-3, and there is no other evidence to acknowledge it differently in the record, on September 11, 1983, without examining why the entry of the cash book, which was the basis of the above investigation report No. 9-4,15, is true, and why it is different from the working day on which the Plaintiff and Nonparty 1’s statement was the basis of the above investigation report, and the reasons why only part of the transaction was prosecuted after September 11, 1983.

Ultimately, the court below failed to exhaust all necessary deliberations and completed a judgment on the value of evidence, thereby affecting the conclusion of the judgment. Therefore, the argument that points this out is reasonable.

3. Therefore, the Plaintiff’s appeal is dismissed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Lee Jong-soo (Presiding Justice) Lee Chang-soo Kim Jong-won