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Correction of error or omission

 

The purpose of section 70A is to redress unreasonable hardship, if any, arising from mistakes made by either the taxpayer or the Assessor. This purpose was confirmed in the Board of Review case D6/91 in which the Board rejected the CIR's argument that if a taxpayer took a different view of law on some known facts, section 70A could not be invoked. In its judgment, the Board said:

 

“Clearly there must be finality in taxation matters.  That is the clear intention of section 70...  Section 70 of the Inland Revenue Ordinance states that assessments are to be final and conclusive for all purposes of the Ordinance.    That is a sweeping and draconian section. It is clear that section 70A was introduced to overcome the possible hardship of section 70. ”

 

Hence, the first question for reopening of an assessment by section 70A is whether there is hardship on the part of the taxpayer. If yes, then it is very probable that section 70A could be invoked to redress the hardship.

 

There is no definition of 'error or omission' in the Ordinance. So, we may apply the Literal Rule --- that is to look to their ordinary and literal meaning. The meaning of 'error' given in the Oxford English Dictionary is 'something incorrectly done through ignorance or inadvertence; a mistake'. The meaning of 'omission' in Webster's New International Dictionary is: an act or instance of omitting, whether by leaving out, or by abstention from inserting, or by neglect or failure to do something.

 

Although there are no definition of 'error or omission' in the Ordinance, there are a number of cases on the issue. In the case Extramoney Ltd v CIR, the court made comments on the subject. Click here for details. In the Board of Review Case No. D52/99, the Board also made comments. Click here for details. Besides, in his book Inland Revenue Legislation Annotated, Professor Willoughby also talked about the subject. Click here for details.

 

Section 70A is applicable when the following conditions are satisfied.

  1. The application to re-open the assessment is made within 6 years after the end of the year of assessment or within 6 months from the date of assessment, whichever is the later, and

  2. The tax charged is excessive because of :

(i) an error or omission in any return or statement submitted in respect thereof, or

(ii) any arithmetical error or omission in the calculation of the amount of the net assessable value, assessable income or profits assessed or in the amount of the tax charged. 

Typical examples of 'error or omission' are:

  • A salaried taxpayer reported compensation for loss of an employment as taxable income in his tax return.

  • A salaried taxpayer has not claimed married person allowances, child allowances or dependent parent allowance (this claim is still valid even for an estimated assessment in the absence of a tax return).

  • A salaried taxpayer has not claimed home loan interest, charitable donation, contribution to recognized retirement scheme, traveling expenses from one workplace to another workplace, self-education expenses... etc. in his tax return.

  • A business taxpayer has submitted an incorrect tax computation.

  • A business taxpayer reported offshore profit in his tax return.

  • A business taxpayer has not claimed depreciation allowances in his tax return.

  • A business taxpayer added back an item which should be deductible.

  • A business taxpayer made a arithmetical mistake.

  • An assessor made an salaries tax assessment based on an incorrect employer return.

  • An assessor made an arithmetical mistake in computing the assessable profit.

  • An assessor fails to deal with a deduction claimed by a taxpayer.

The words “error or omission” include :(a) an arithmetical error, (b) an omission to claim an expense or deduction or allowance, (c) an error or omission of fact, or (d) an error of law.

 

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