The court reiterated that failure to comply with statutory requirements in tax assessments renders notices null and void, emphasizing the distinct provisions of tax law.

[1] This is an appeal by the appellant against the decision of the Special Commissioners of Income Tax ("SCIT") dated 31 December 2015 which is in favour of the respondent.

The Backgrounds Facts

[2] The established facts found by SCIT or agreed by parties are the following:

(i) The respondent was incorporated on 4 September 2001 by the original shareholders but was inactive. On 21 January 2002, the present shareholders purchased all the respondent's share and assumed control of the respondent.

(ii) In early 2002, 2 groups of families formed a syndicate with the intention to develope a project known as Madge Residence. The 2 groups are as follows:

(a) Group A

Lim Chao Li

Lim Chao Liang

Lo Ying Sai & Lynda Lim Boon Tuang

Dato Lim Kong Wai

(b) Group B

Ng Kim Yip

Ng Kay Ian

Yang Chin Moi

(iii) In furtherance of the intention to develope the project, the 2 groups has entered into a Shareholders Agreement on 29 March 2002. Amongst the terms of the agreement are the following:

(a) a new company will be formed to acquire and develope the land.

(b) 3 from the 8 partners will be appointed as directors.

(c) each partner will purchase a unit in the Madge Residence's project at the price of RM380.00 per square feet ('psf').

(d) the remaining units will be sold on a first come first serve basis.

(iv) Each partner has agreed to buy a unit of the project to ensure that the partnership have sufficient purchase commitment.

(v) On 29 April 2002, the respondent bought a piece of land of 1.322 acres on Lot 70, Seksyen 89A, Jalan Madge, Kuala Lumpur at the price of RM11.28 million. The respondent was also given the approval to develope 3 blocks of 4 floors luxury apartment on the land and the total of 21 units were constructed.

(vi) However, no sale and purchase agreement were signed in regards to the purchase of the units by the 8 partners in 2002 as at the material time the license as developer has not been obtained by the respondent.

(vii) On 12 March 2005, the respondent was granted a housing developer's license by the Controller of Housing.

(viii) Thereafter, as agreed in the Shareholders Agreement, 8 units of the said project were sold to each of the partner at the price of about RM380 psf. The balance of 13 units were sold to third parties except 1 unit was purchased jointly by two of the partners.

(ix) The particulars of the transactions are the following:

(a) Transactions involving the respondent's partners.

(b) Transactions involving third parties.

(x) On 18 August 2008, the appellant has conducted a tax audit on the applicant and found that the sales of the 8 condominium units to the appellant's partners were not at the market value and as such the appellant had invoked sub-section 140(1) of the Income Tax Act 1967 ( ITA 1967'). Thereafter, the purchase price of the 8 units sold to the partners were varied from RM380.00 psf to RM550.00 psf.

(xi) In relation to this, a letter dated 19 November 2008 was issued to the respondent which among others states:

(a) the selling price of the units sold to the directions/ shareholders were not in accordance to the market price as buyers who had interest in the respondent were given a lower price compare to a third party;

(b) the selling price to be adjusted for the sale to the directors/shareholders equivalent to the lowest price sold to a third party;

(c) the difference in price will be added back to the respondent's tax computation as under reported sales.

(xii) Consequently, the respondent's gross income for the year of assessment 2007 has been adjusted by adding the sum of RM6,665,385.00.

(xiii) Notice of additional assessment dated 2 October 2009 were then served on the respondent.

(xiv) Dissatisfied with the appellant's action in issuing the notice of additional assessment, the respondent appealed to the SCIT.