Alexander Forbes had provided services to a client over several years. It was later discovered that the client had been overcharged in earlier years. To correct this, Alexander Forbes refunded the client and recorded the refund as a rebate in its 2017 financial statements.
BURS argued that this amount should not be deducted for tax purposes because it related to earlier years and effectively changed past tax returns. It therefore issued an additional tax assessment disallowing the deduction. Alexander Forbes challenged this decision first before the Board of Adjudicators, which ruled in favour of BURS, and then before the High Court, which ruled in favour of Alexander Forbes.
The Court of Appeal agreed with Alexander Forbes and confirmed the High Court’s decision. It found that the rebate was part of the company’s normal business activities and was sufficiently connected to income it had already earned. The Court also held that, even though the overcharge happened in earlier years, the obligation to refund the client only arose in 2017, so the deduction was correctly claimed in that year. In addition, the Court found that BURS was out of time to reopen the assessment, as it had not met the legal requirements to do so after the four-year limit had passed.
This judgment makes it clear that businesses can claim deductions for expenses that arise when correcting earlier transactions, provided those expenses are closely linked to their business. It also confirms that tax authorities must act within strict time limits when seeking to reopen assessments.
Armstrongs commercial partner Sipho Ziga acted for Alexander Forbes in the matter
