MOHAMMAD YADGAR, Appellant, v. HIS MAJESTY THE KING,, 2023 TCC 104

Docket: 2018-848(IT)G BETWEEN: MOHAMMAD YADGAR, Appellant, and HIS MAJESTY THE KING, Respondent . Appeal heard on March 20, 2023, at Toronto, Ontario Before: The Honourable Justice Gabrielle St-Hilaire Appearances : Counsel for the Appellant: Osborne G. Barnwell Counsel for the Respondent: Amin Nur JUDGMENT In accordance with the attached reasons for judgment, the appeal from the reassessments made under the Income Tax Act for the 2006, 2007, 2008 and 2009 taxation years is dismissed with costs to the Respondent. Signed at Ottawa, Canada, this 18 th day of July 2023. “Gabrielle St-Hilaire” St-Hilaire J.

Citation: 2023 TCC 104 Date: 20230718 Docket: 2018-848(IT)G BETWEEN: MOHAMMAD YADGAR, Appellant, and HIS MAJESTY THE KING, Respondent. REASONS FOR JUDGMENT St-Hilaire J. I. Introduction [ 1 ] This is an appeal by Mohammad Yadgar (the Appellant) from reassessments made under subsection 15(1) of the Income Tax Act , RSC, 1985, c 1 (5 th Supp ) ( Act ). In reassessing the Appellant for the 2006, 2007, 2008 and 2009 taxation years, the Minister of National

Revenue (Minister) added amounts to the Appellant’s income as shareholder appropriations totalling $512,211 and imposed gross negligence penalties. [ 2 ] The Appellant was born in Afghanistan where he graduated from high school and studied physics in university for two years. After spending some time in Pakistan, he immigrated to Canada in 1995. Shortly after coming to Canada, and although not trained as a butcher in Afghanistan, the Appellant found work in that capacity at Paradise Fine Foods, a Toronto market specializing in halal meats.

He later worked as a butcher for Sardar Shanawazi at his Mississauga supermarket called Kabul Farms, a business operated as a sole proprietorship. In 2004, Kabul Farms Inc. was incorporated (Kabul), with the Appellant and Sardar Shanawazi each owning 50% of the common shares. [ 3 ] Within three or four months, and although it is unclear exactly when this occurred, the Appellant purchased Sardar Shanawazi’s share of the corporation.

At some point in 2004 and from then on, the Appellant was the only one involved in running the business and making transactions in Kabul’s business account. [ 4 ] During the taxation years in issue, the Appellant was also the sole shareholder of 1648074 Ontario Inc., a corporation operating a grocery store. In addition, he was a shareholder in Amana Canadian Ltd., a corporation operating a storage business. [ 5 ] The Minister performed a bank deposit analysis of Kabul as well as that of the Appellant’s and his spouse’s joint bank accounts.

At the objection stage, the Appellant provided revised schedules showing shareholder appropriations in the amounts of $194,579, $272,985, $23,679 and $20,968 for the 2006, 2007, 2008 and 2009 taxation years respectively. II. Issues [ 6 ] The Appellant is not challenging the correctness of the amounts, totalling $512,211, included in his income pursuant to subsection 15(1) of the Act for the taxation years in issue. He is, however, challenging the correctness of the Minister’s assessment beyond the normal reassessment period as well as the correctness of the assessment of gross negligence penalties.

It is not disputed that the reassessments were made after the normal reassessment period. Hence, the two issues before the Court are can be summarized as follows: i. was the Minister justified in reassessing the Appellant after the normal reassessment period for the 2006, 2007, 2008 and 2009 taxation years? And ii. was the Minister justified in imposing gross negligence penalties for the 2006, 2007, 2008 and 2009 taxation years? III. Information about Kabul’s assessments [ 7 ] In his Notice of Appeal, the Appellant stated that he was relying on the facts pled in Kabul’s appeal (file no 2016-3660(IT)

G) given that the audit in that file had led to the Appellant’s reassessments. Kabul had not filed any income tax returns for the taxation years in issue.

The parties filed a Consent to Judgment in Kabul’s appeal referring the matter back to the Minister for reconsideration and reassessment on the basis that Kabul had the following unreported sales and gross profits for the taxation years ending May 31, 2005, 2006, 2007, 2008 and 2009 and that the penalties be vacated: Year 2005 2006 2007 2008 2009 Sales $2,237,324 $2,460,926 $2,887,950 $2,755,685 $2,547,001 Gross Profits $314,192 $306,520 $266,355 $400,220 $198,343 [ 8 ] The Court issued a Judgment dated November 23, 2016, allowing the appeal in accordance with the terms of the Consent to Judgment. [ 9 ] At trial, the Appellant asserted that his accountant at the time, Costa Abinajem (Costa, as he was so referred to by the Appellant at trial), advised him to open a second bank account and to make deposits of cash sales into his personal account, and that of his spouse, to avoid ‘some’ charges.

Further, the Appellant acknowledged that monies from Kabul were deposited into his personal bank accounts. IV. Analysis Reassessment beyond the normal reassessment period [ 10 ] In addressing the first issue in this appeal, the Court must determine whether the Minister was justified in reassessing the Appellant beyond the normal reassessment period for the 2006, 2007, 2008 and 2009 taxation years.

For the reasons that follow, I find that the Minister has met his burden to so reassess. [ 11 ] Subsection 152(4) of the Act sets out the Minister’s right to assess beyond the normal reassessment period determined under subsection 152(3.1). More specifically relevant to this appeal, subparagraph 152(4) (a)(

i) provides as follows:

(4) The Minister may at any time makean assessment, reassessment or additionalassessment of tax for a taxation year,interest or penalties, if any, payable underthis Part by a taxpayer or notify in writingany person by whom a return of income fora taxation year has been filed that no tax ispayable for the year, except that anassessment, reassessment or additionalassessment may be made after thetaxpayer’s normal reassessment period inrespect of the year only if (

a) the taxpayer or person filing the return (

i) has made any misrepresentation that isattributable to neglect, carelessness orwilful default or has committed any fraud infiling the return or in supplying anyinformation under this Act, or 152

(4) Le ministre peut établir unecotisation, une nouvelle cotisation ou unecotisation supplémentaire concernantl’impôt pour une année d’imposition, ainsique les intérêts ou les pénalités, qui sontpayables par un contribuable en vertu de laprésente

partie ou donner avis par écritqu’aucun impôt n’est payable pour l’annéeà toute personne qui a produit unedéclaration de revenu pour une annéed’imposition. Pareille cotisation ne peutêtre établie après l’expiration de la périodenormale de nouvelle cotisation applicableau contribuable pour l’année que dans lescas suivants :

a) le contribuable ou la personneproduisant la déclaration : (

i) soit a fait une présentation erronée desfaits, par négligence, inattention ouomission volontaire, ou a commis quelquefraude en produisant la déclaration ou enfournissant quelque renseignement sous lerégime de la présente loi, [12] In MF Electric Incorporated v R, 2023 TCC 60, at paras 31-33 [MF Electric], I discussed the principles which I believe shouldapply to the determination of whether the Minister is justified in reassessing beyond the normal reassessment period, as follows: [31] The wording of subparagraph 152(4)(a)(

i) is such that it is sufficient for the Minister to establish neglect or carelessnesswithout having to consider whether there was wilful default or fraud (see Deyab v Canada, 2020 FCA 222 at paras 58-61[Deyab]). Having said this, the burden is on the Minister to establish both that the taxpayer or the person filing the return hasmade a misrepresentation and that it is attributable to neglect, carelessness, wilful default or fraud (see Vine v R, 2015 FCA125 at paras 23-24). [32] The Minister’s burden is to establish that there has been a misrepresentation at the time the return is filed.

Incommenting on the issue of timing in Nesbitt v Canada, (FCA), 96 DTC 6588 at para 8, the FederalCourt of Appeal expressed its view of the purpose of subsection 152(4) as follows: It appears to me that one purpose of subsection 152(4) is to promote careful and accurate completion of income tax returns.Whether or not there is misrepresentation through neglect or carelessness in the completion of a return is determinable at thetime the return is filed.

A misrepresentation has occurred if there is an incorrect statement on the return form, at least onethat is material to the purposes of the return and to any future reassessment. It remains a misrepresentation even if theMinister could or does, by a careful analysis of the supporting material, perceive the error on the return form.

It wouldundermine the self-reporting nature of the tax system if taxpayers could be careless in the completion of returns whileproviding accurate basic data in working papers, on the chance that the Minister would not find the error but, if he did withinfour years, the worst consequence would be a correct reassessment at that time. [Underlining added] [33] "Courts have consistently held that the threshold for establishing misrepresentation is low.

In support of this view, in Francis &Associates v R, ""2014 TCC 137"" at para ""20"", Justice Bocock wrote as follows: " A misrepresentation is any statement that is “incorrect.”: Minister of National Revenue v. Foot, (CAEXC), [1964] C.T.C. 317 (Can. Ex. Ct.). Also, several cases have indicated that “any” error made in a return filed istantamount to a misrepresentation, Minister of National Revenue v. Taylor, (CA EXC), [1961] C.T.C. 211(Can. Ex. Ct.), Nesbitt v. R., and Ridge Run Developments Inc. v. R., 2007 TCC 68 , [2007] 3 C.T.C. 2605 (T.C.C.[General Procedure]).

Therefore, the threshold to establish a misrepresentation is low. [13] In this case, the Respondent has not alleged fraud, but rather, has alleged that the Appellant made misrepresentations that areattributable to neglect, carelessness or wilful default. [14] In filing his returns for the relevant taxation years, the Appellant reported the following amounts of income, which are significantlylower than the amounts of unreported income reassessed, the correctness of which he does not challenge: Taxation Year 2006 2007 2008 2009Unreported Income $194,579 $272,985 $23,679 $20,968Reported Income $10,600 $10,300 $6,300 $10,950 [15] Since the Appellant is not challenging the correctness of the amounts assessed as income for the relevant taxation years, the incomehe reported is incorrect.

In my view, that is sufficient to establish that he, or the person filing his return, made misrepresentations in filinghis returns or in supplying any information under the Act as provided by subparagraph 152(4)(a)(i). I note that Sajid Usmani, the

Appellant’s new accountant, testified at the hearing but Costa did not. Sajid Usmani explained that he retrieved the Appellant’sdocuments and prepared schedules reflecting deposits and withdrawals in Kabul’s and the Appellant’s bank accounts and determined theamounts of income that had gone unreported, which are the amounts accepted by the Minister and reassessed as reflected in paragraph 13above.

However, as asserted by the Federal Court of Appeal in Nesbitt, supra at para 8, "“[i]t remains a misrepresentation even if theMinister could or does, by a careful analysis of the supporting material, perceive the error on the return.”" Thus, since themisrepresentations occurred when the returns were filed, it is irrelevant that the Appellant retained the services of a new accountant afterthe returns prepared by Costa were filed incorrectly. [16] As mentioned earlier, the Minister must establish, not only that the Appellant made misrepresentations, but also, that they areattributable to neglect, carelessness or wilful default.

The Appellant testified that Costa was both Kabul’s accountant and his personalaccountant. He stated that Costa was the accountant for the first business where he worked, Paradise Fine Foods, and that Costa had beenpreparing his tax returns since that time. Costa continued to prepare the Appellant’s personal returns when he worked at Kabul Farms forSardar Shanawazi, for whom Costa was also the accountant. After the incorporation of Kabul, including when he became the soleshareholder, the Appellant continued to seek the services of Costa.

I note that Costa was involved in the incorporation of both Kabul,1648074 Ontario Inc. and Amana Canadian Ltd. [17] The Appellant testified that he took his business records (invoices, cash register slips and mail) to Costa every two to three months.Sometimes Costa visited him such that they met every month or two, for an estimated total of 30 times over the course of the relevanttaxation years. He stated that Costa filed his personal returns but that he never signed them.

Further, the Appellant asserted that he didnot know where the numbers for the income reported came from. [18] The Appellant testified that he supported a family of six during the relevant taxation years.

The total income reported by theAppellant and his wife was insufficient to pay the family’s living expenses, including mortgage payments on the home purchased in2006, nor was it sufficient to provide the funds that Kabul had reported as loans received from the Appellant in the amount of more than3 million dollars. [19] The Appellant may not have had a sophisticated knowledge of the tax system, but I understood from his testimony that he had beenfiling his income tax returns since his very first job at Paradise Fine Foods in 1995, hence he had been filing returns for a decade prior tothe taxation years in issue.

He was a shareholder of three corporations, a director of two. He was the sole shareholder of a verysuccessful business, Kabul, having sales well over 2 million dollars and profits ranging from about $200,000 to $400,000 per year in itstaxation years ending between 2005 and 2009. In addition, the Appellant owned property in Afghanistan, which he later sold and usedthe proceeds to purchase property in Ontario.

He first purchased land for $290,000 and later purchased a home for $456,827, with adown payment of $27,000 and a mortgage for the balance. [20] The Appellant has now acknowledged that his income for the relevant taxation years was significantly underreported, and he madeno inquiries at any time to confirm the appropriateness of the amounts being reported. He also acknowledged that Costa recommendedhe open another bank account to avoid charges. Borrowing the words of the Federal Court of Appeal in Regina Shoppers Mall Ltd v R[1991] F.C.J.

No 52 (FCA) at para 7 [Regina Shoppers], I find that the Appellant did not "“thoughtfully, deliberately and carefully assessthe situation”" before filing his returns; he was content to rely on the trust he claimed to have in Costa. In Regina Shoppers, the FederalCourt of Appeal found that it had been established "“that the care that must be exercised must be that of a wise and prudent person andthat the report must be made in a manner that the taxpayer truly believes to be correct”" (see MF Electric, supra at para 36).

A wise andprudent person would have reviewed his returns and would have noticed the income being reported. [21] At the hearing, the Appellant stated that he delegated everything to Costa, that he compiled his receipts and invoices and gave themto Costa, that he did not review his returns, and in spite of meeting with Costa about 30 times, did not ask any questions. Counselsubmitted that the Appellant had reason to believe in Costa as he had met him at his first job and Costa was recommended to him andfurther that, although he was successful in business, he did not "“know tax”".

Counsel relied on this Court’s decision in Aridi v R, 2013TCC 74 at paras 43 to 45, wherein Justice Hogan found that the accountant had been negligent but that the taxpayer had not. In my view,the circumstances in Aridi are entirely different from those in the present appeal. Suffice it to say that, in Aridi, the taxpayer knew theremay be tax consequences to the transaction in question, provided his accountant with all the necessary documents and questioned himabout his income tax return.

Justice Hogan asserted that "“[t]o rely upon and prove neglect on the part of the accountant or professionalwho acted for the taxpayer will not be sufficient to prevent the application of subparagraph 152(4)(a)(

i) of the ITA. The taxpayer mustalso have acted diligently, or at the very least, must contradict the Minister’s evidence that he had acted negligently”" (Aridi, supra atpara 50). [22] In this case, the Appellant took no steps to confirm the accuracy of his returns. He simply did not ask any questions. I find that theAppellant cannot shield himself from the consequences of subparagraph 152(4)(a)(

i) by shifting the blame to Costa (see for exampleSnowball v R, [1996] T.C.J. No. 276 at para 18; see also Daszkiewicz v R, 2016 TCC 44). The Appellant has fallen short of exercisingreasonable care (see Venne v R, (FC), [1984] FCJ No 314 (FCTD) at para 16 [Venne]). [23] In light of the above, I find that the Appellant made misrepresentations in filing his returns for the 2006, 2007, 2008 and 2009taxation years and further, that these misrepresentations are attributable to neglect or carelessness.

This is sufficient to support a findingthat the Minister has met the burden to reassess the Appellant after the normal reassessment period for the relevant taxation years. Penalties under subparagraph 163(2) [24] In addressing the second issue in this appeal, the Court must determine whether the Minister was justified in imposing penaltiespursuant to subsection 163(2) of the Act with regards to the understated income in the Appellant’s 2006, 2007, 2008 and 2009 taxationyears. [25] Subsection 163(2) of the Act reads as follows:

(2) Every person who, knowingly, or under circumstances amounting to gross negligence, has made or has participated in, assented to or acquiesced in the making of, a false statement or omission in a return, form, certificate, statement or answer (in this

section referred to as a " “return” " ) filed or made in respect of a taxation year for the purposes of this Act , is liable to a penalty of the greater of $100 and 50% of the total of…

(2) Toute personne qui, sciemment ou dans des circonstances équivalant à faute lourde, fait un faux énoncé ou une omission dans une déclaration, un formulaire, un certificat, un état ou une réponse (appelé « déclaration » au présent article) rempli, produit ou présenté, selon le cas, pour une année d’imposition pour l’application de la présente loi, ou y participe, y consent ou y acquiesce est passible d’une pénalité égale, sans être inférieure à 100 $, à 50 % du total des montants suivants… [ 26 ] As provided by subsection 163(3) of the Act , the Minister bears the burden of establishing the facts that justify the assessment of a penalty under subsection 163(2).

Hence, the Minister must show that the Appellant made, or participated in, or assented to, or acquiesced in, the making of a false statement and did so knowingly or did so under circumstances amounting to gross negligence. [ 27 ] In this case, the Appellant acknowledged that he underreported his income and that the amounts reassessed are correct. In failing to report his income correctly, the Appellant has made a false statement such that the first element of subsection 163(2) is established.

In the circumstances, the more pressing question is whether the Appellant made the false statement " “knowingly” " or " “under circumstances amounting to gross negligence” " as required by subsection 163(2) . [ 28 ] Since the oft-quoted case in Venne , supra , courts have consistently held that " “gross negligence” " requires greater neglect than simply failing to exercise reasonable care, which might otherwise be sufficient for the application of subparagraph 152(4)(a)(

i) discussed earlier. In Venne , supra at para 37 , the Federal Court stated that gross negligence " “must involve a high degree of negligence tantamount to intentional acting, an indifference as to whether the law is complied with or not” " .

This was found to mean, " “akin to burying one’s head in the sand” " (see Guindon v Canada , 2015 SCC 41 at para 60 ). [ 29 ] In Wynter v Canada , 2017 FCA 195 [ Wynter ], the Federal Court of Appeal asserted that the Minister could meet its burden of showing that the false statement was made knowingly by demonstrating that the taxpayer was wilfully blind such that knowledge could be imputed to the taxpayer (see also MF Electric , supra ).

Further, in Wynter , the Federal Court of Appeal asserted that gross negligence, which is distinct from wilful blindness, " “arises where the taxpayer’s conduct is found to fall markedly below what would be expected of a reasonable taxpayer.

Simply put, if the wilfully blind taxpayer knew better, the grossly negligent taxpayer ought to have known better” " [ Wynter , supra at para 18] . [ 30 ] For the reasons that follow, I conclude that the Appellant made misrepresentations under circumstances amounting to gross negligence. [ 31 ] With respect, I find that Counsel for the Appellant did not clearly differentiate his position regarding the application of subsection 163(2) from that of the application of subsection 152(4). He did refer to the decision in Venne underlining the different standards that apply to these two provisions.

He submitted that the Appellant came to Canada as a refuge, worked as a butcher where he could serve many clients speaking his native language of Dari while he knew very little English, and that his conduct had to be assessed through the lens of an unsophisticated taxpayer. [ 32 ] Counsel criticized the Respondent for not having called the auditor as a witness.

In this regard, I note that in Lacroix v R , 2008 FCA 241 at para 32 , the Federal Court of Appeal asserted that " “in the vast majority of cases, the Minister will be limited to undermining the taxpayer’s credibility by either adducing evidence or cross-examining the taxpayer.” " When the Federal Court of Appeal later commented on its decision in Lacroix , it did so to clarify that the circumstances related to the failure to report income must be examined to establish whether the requirements of each provision have been met.

The Court asserted that this ought not to be conflated with a finding that an unreported amount of income is taxable, a finding that does not inevitably lead to a conclusion that a gross negligence penalty is justified, but did not otherwise comment on the manner in which the Minister can discharge its evidentiary burden (see Deyab v Canada , 2020 FCA 222 at paras 65-66 and Khanna v Canada , 2022 FCA 84 at paras 23-24 ). [ 33 ] In determining whether the Appellant was grossly negligent, the Appellant’s personal characteristics, including his education, intelligence and experience, are not relevant.

In this regard, I find the remarks of Justice Owen, in Peck v R , 2018 TCC 52 at paras 50 and 51 , instructive regarding the relevance of a taxpayer’s personal attributes.

He wrote as follows: [50] The subjective nature of the wilful blindness standard also means that the personal attributes of the individual may be considered in determining whether the individual is wilfully blind. [51] In contrast, the objective nature of the gross negligence standard means that the personal attributes of the individual are not relevant unless the individual establishes that he or she is incapable of understanding the risk the individual has failed to avoid (see R. v.

Beatty , 2008 SCC 5 , [2008] 1 S.C.R. 49 at paragraph 40 ). [ 34 ] As mentioned earlier, gross negligence arises when a taxpayer’s conduct is found to fall markedly below what would be expected of a reasonable person. In my view, the Appellant’s conduct represents a marked departure from what would be expected of a reasonable person in his circumstances. Query, what can be expected of a reasonable person in the same circumstances. A reasonable person in the circumstances of the Appellant would have asked to see his income tax returns.

A reasonable person would have reviewed his income tax returns and would have noticed the alarmingly low amounts of income being reported. A reasonable person would have asked questions of his accountant regarding the reported income. If concerned with the accountant’s explanations, a reasonable person would have sought independent advice. A reasonable person in the Appellant’s circumstances would have asked questions about the corporation’s income tax returns and the monies he was moving between his personal and the corporate accounts.

[ 35 ] In my view, the Appellant’s conduct represented a marked departure from the conduct one would expect from a reasonable person placed in the same circumstances. The Appellant provided no explanation for his false statements other than to say that he relied on his accountant to prepare his returns.

Like the taxpayer in Peck , supra , the Appellant cannot simply throw his hands up and say that he blindly relied on his accountant, without making any attempt at seeking a better understanding of his obligations and without making any effort to verify the accuracy of the income reported in his income tax returns. [ 36 ] For these reasons, I find that the Minister has established that the Appellant made false statements in his returns for the 2006, 2007, 2008 and 2009 taxation years and did so under circumstances amounting to gross negligence. V.

Conclusion [ 37 ] For all of the above reasons, I conclude that the Minister was justified: i . in reassessing the Appellant after the normal reassessment period for the 2006, 2007, 2008 and 2009 taxation years; and ii. in imposing gross negligence penalties for his failure to report income for the 2006, 2007, 2008 and 2009 taxation years. [ 38 ] The appeal for the 2006, 2007, 2008 and 2009 taxation years is dismissed with costs to the Respondent. Signed at Ottawa, Canada, this 18 th day of July 2023. “Gabrielle St-Hilaire” St-Hilaire J.

CITATION: 2023 TCC 104 COURT FILE NO.: 2018-848(IT)G STYLE OF CAUSE: MOHAMMAD YADGAR AND HIS MAJESTY THE KING PLACE OF HEARING: Toronto, Ontario DATE OF HEARING: March 20, 2023 REASONS FOR JUDGMENT BY: The Honourable Justice Gabrielle St-Hilaire DATE OF JUDGMENT: July 18, 2023 APPEARANCES: Counsel for the Appellant: Osborne G. Barnwell Counsel for the Respondent: Amin Nur COUNSEL OF RECORD: For the Appellant: Name: Osborne G. Barnwell Firm: 515 Consumers Road, Suite 202 North York, Ontario M2J 4W9 For the Respondent: Shalene Curtis-Micallef Deputy Attorney General of Canada Ottawa, Canada