[2024] KETAT 112 (KLR)

Adabla General Construction and Company Limited v Commissioner Domestic Taxes (Tax Appeal 996 of 2022) [2024] KETAT 112 (KLR) (Commercial and Tax) (2 February 2024) (Judgment)

Neutral citation: [2024] KETAT 112 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tax Appeal 996 of 2022

E.N Wafula, Chair, E Ng'ang'a, RO Oluoch, Cynthia B. Mayaka, AK Kiprotich & B Gitari, Members

February 2, 2024

Between

Adabla General Construction and Company Limited

Appellant

and

Commissioner Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability telecommunications company that is incorporated in Kenya as a subsidiary of a company based in Mauritius.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1), of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue.

3. The Respondent issued the Appellant with an Income tax assessment dated 21st December, 2021 for Kshs 19,157,706. 00.

4. The Appellant lodged an objection to the assessment through iTax on 21st January, 2022.

5. The Respondent rejected the Appellant's Objection on 11th April, 2022 on the ground that the objection was not validly lodged.

The Appeal 6. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated 19th August 2022 and filed on 14th September 2022:a.That the Respondent erred in law and in fact by failing to consider supporting documentation provided by the Appellant.b.That the Respondent erred in fact and in law by assessing and confirming income tax without taking into consideration the expenses that were incurred in the accounting period.

Appellant’s Case 7. The Appellant’s case is supported by the Appellant’s Statement of Facts dated the 19th August 2022 and filed on 14th September 2022 together with the documents attached thereto.

8. That the additional assessment was brought about by a VAT declaration variance which was cleared and all supporting documents provided as concerns the VAT. That the Appellant had provided the income tax supporting documents.

9. The tax raised was for the periods;a.1st June, 2018 – 31st May, 2019 - Ksh.6,469,155. 60b.1st June, 2019 – 31st May, 2020 - Ksh.12,688,549. 95

10. That the taxes were as a result of reviewing whereby the tax man picked income inclusive of VAT instead of picking exclusive income.

11. That the tax charged on the Appellant was punitive and unfair since Kenya Revenue Authority charged 30% of the income it made without taking into consideration the expenses it incurred in the accounting period mentioned.

12. The Appellant therefore averred that the allegations that some of the supporting documentation were not availed are unfounded and are an attempt to deny the Appellant its right to claim the input VAT incurred on its purchases.

13. The Appellant averred that it provided the Respondent with the relevant documents as required in the former Section 17 (2) as well as Section 17 (3) of the VATAct, which fact are not in dispute.

Appellant’s Prayers 14. That the Appellant prayed for orders, that:a.The Objection decision of the Respondent dated 11th April 2022, be annulled and set aside in its entirety.b.The Appeal be allowed with costs to the Appellant; andc.Any other orders that the Honourable Tribunal deems fit.

Respondent’s Case 15. The Respondent’s case is premised on the hereunder filed documents:-i.The Respondent’s Statement of Facts dated and filed on 14th October 2022 with the documents attached thereto.ii.The Respondent’s written submissions dated and filed on 9th May 2023.

16. The Respondent stated that it issued an Income tax additional assessment for the period 2018- 2020 on 21st December 2021.

17. That the Respondent similarly sent audit findings to the Appellant on the same day and consequently, the Appellant objected to the assessment on 21st January 2022.

18. That the Respondent then proceeded to review the objection and vide various correspondences, requested the Appellant on 24th February 2022 to avail documentation to support its objection and pay the undisputed taxes.

19. That the Appellant was similarly contacted on 2nd, 10th and 23rd March, 2022 and was requested for relevant supporting documents and payment for tax not in dispute however the documents were never availed.

20. That consequently the Respondent rejected the Appellant’s notice of objection vide an invalidation notice dated 11th April 2022 and the principal tax of Kshs 19,157,706 as raised on iTax was confirmed in full.

21. That being dissatisfied with the objection decision, the Appellant proceeded to appeal the decision.

22. In regard to issues for determination the Respondent stated that the Appeal evoked the following issues for determination: -a)Whether the notice of objection was validly lodged.b)Whether the Appellant discharged the burden of proof as provided by law.

23. The Respondent relied on the following relevant statutes:a.Section 51 (3) of Tax Procedures Act 2015. b.Section 59 of the Tax Procedures Act 2015. c.Section 31(1) of the Tax Procedures Act 2015.

24. In regard to whether the objection decision was validly lodged, the Respondent stated that the Section 51(3) of the Tax Procedure s Act 2015 provides that:-“A notice of objection shall be treated as validly lodged by an Appellant under subsection (2)(a)the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments;and(b)in relation to an objection to an assessment, the Appellant has paid the entire amount of tax due under the assessment that Is not in dispute or has applied for an extension of time to pay the tax not in dispute under section 33(1);(c)all the relevant documents relating to the objection have been submitted.”

25. That for the avoidance of doubt, the Appellant herein did not lodge notices of objection with respect to the assessments for the assessment period 1st June, 2017 – 31st May, 2018 amounting to Kshs. 14,594,688. 90 which consists of a principal tax of Kshs.9,729,792. 90 and an interest of 4,864,896. 00. The Respondent further averred that the Appellant herein did not apply for an extension of time to pay the tax not in dispute.

26. The Respondent stated that save for the notice of objection on iTax no other document was adduced in support of the late objection application lodged by the Appellant.

27. The Respondent stated that vide various correspondences on 24th February 2022, 10th and 23rd March it notified the Appellant on the invalidity of the objection and advised it to furnish all necessary documents supporting its grounds for late objection and to pay the amount not in dispute so as to validate its application.

28. The Respondent stated that the Appellant did not pay the undisputed amount and failed to make its application valid, pursuant to Section 51 of the Tax Procedures Act 2015.

29. The Respondent stated that the Appellant's notice of objection is invalid due to the reasons stated above and that that is what informed the objection invalidation dated 11th April, 2022.

30. In regard to whether the Appellant discharged its burden of proof, the Respondent stated that Section 59 of the Tax Procedures Act 2015 requires the Appellant to provide records to enable it determine its tax liability. The Respondent stated that the Appellant failed to avail records as of the expenses incurred and thus it confirmed income assessments.

31. The Respondent stated that the burden is on the Appellant to demonstrate that it has discharged a tax liability as provided for under Section 56 of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act. The Respondent stated that this burden was never discharged as no documentary evidence was availed to the Respondent to allow expenses as alleged.

32. The Respondent stated that Section 31(1) of the Tax Procedures Act 2015 provides that:“(1)Subject to this section, the Commissioner may amend an assessment (referred to in this section as the "original assessment") by making alterations or additions, from the available information and to the best of the Commissioner's judgement, to the original assessment of a Appellant for a reporting period to ensure that-Appellant is assessed in respect of the correct amount of the deficit carried forward for the reporting period;(b)In the case of an excess amount of input tax under the Value Added Tax Act,2013 (No. 35 of 2013), the Appellant is assessed in respect of the correct amount of the excess input tax carried forward for the reporting period; orIn any other case, the Appellant is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates.”

33. The Respondent stated that it considered all documents and information available and acted based on its best judgment as guided by Section 31 of the Tax Procedures Act.

34. The Respondent stated that it analysed all the records and information available to it and exercised the authority assigned to it under Section 31(1) of the Tax Procedures Act,2015.

35. The Respondent stated that it did not err in law and in fact by assessing and confirming income tax without taking into consideration the expenses that were incurred in the accounting period, and this was because the expenses claimed were not sufficiently supported.

Respondent’s Prayers 36. The Respondent’s prayed to this Tribunal for orders that:-a)That this Appeal be dismissed with costs to the Respondent as the same lack merit.b)The invalidation of objection dated 11th April, 2022 be upheld.

Issues for Determination 37. The Tribunal having evaluated the pleadings and submissions of the parties is of the view that there is a single issue that calls for its determination;

Whether the Appeal was validly lodged Analysis and Findings 38. The Tribunal having determined the issue falling for its determination proceeds to analyse it as hereunder.

39. This dispute arose after the Respondent issued an income tax additional assessment for the period 2018-2020 on 21st December 2021 for Kshs. 19,157,706. 00. The Appellant lodged an objection to the asessment through iTax on 21st January 2022 and the Respondent rejected the Appellant’s objection on 11th April 2022 on the grounds that the objection was not validly lodged.

40. The Tribunal observes Section 51(3) of the Tax Procedures Act provides as follows with regard to validity of an objection:-“A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if-(a)the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments;(b)in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay the tax not in dispute under section 33(1); and(c)all the relevant documents relating to the objection have been submitted.”

41. The Tribunal notes that the Appellant did not lodge notices of objection with respect to the assessment for the periods 1st June, 2017- 31st May, 2018 amounting to Kshs 14,594,688. 90 which consisted of principal tax of Kshs 9,729,7292. 90 and an interest of Kshs. 4,8864,896. 00. The Appellant had instead lodged objections with respect to assessment for the periods 1st June, 2018- 31st May, 2019 and 1st June, 2019- 31st May, 2020.

42. The consequence of this is that assessment that was raised by the the Respondent for the periods 1st June, 2017- 31st May, 2018 amounting to Kshs 14,594,688. 90 which consisted of principal tax of Kshs 9,729,7292. 90 and an interest of Kshs. 4,8864,896. 00 have not been objected to by the Appellant and are thus deemed to have been admitted.

43. The Tribunal further notes that the Appellant neither paid the undisputed amount nor entered into any arrangement with the Respondent to pay the taxes not in dispute as provided for by Section 52(2) of the Tax Procedures Act. The Section provides that:-“A notice of appeal to the Tribunal relating to an assessment shall be valid if the taxpayer has paid the tax not in dispute or entered into an arrangement with the Commissioner to pay the tax not in dispute under the assessment at the time of lodging the notice.”

44. There were no receipts or any evidence presented before this Tribunal to demonstrate that this payments were done in accordance with Section 52 (2) of the TPA.

45. The Tribunal holds that the Appellant had the obligation to pay the tax not in dispute or enter into an arrangement with the Respondent to pay the same. In the absence of which the Respondent was justified in invalidating the Appellant’s objection. In the absence of such demonstration, the Tribunal is thus obliged to find and hold that the Respondent's action in invalidating the Appellant's objection on grounds that the Appeal was not validly lodged was justified.

46. The Tribunal reiterates its decision in the case of TAT Appeal No 43 of 2017- Uchumi Supermarkets Ltd vs Commissioner of Domestic Taxes where the Tribunal dismissed the Appeal and held that the Appeal was invalid and incompetent in law as it was in contravention of Section 52(2) of the Tax Procedures Act.

Final Decision 47. The upshot of the foregoing analysis, is that the Tribunal finds and holds that this Appeal is incompetent and accordingly makes the following Orders;a.Appeal be and is hereby struck out.b)Each party to bear its own costs.

48. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 2ND DAY OF FEBRUARY, 2024ERIC NYONGESA WAFULA - CHAIRMANEUNICE NG’ANG’A - MEMBERDR RODNEY O. OLUOCH - MEMBERCYNTHIA B. MAYAKA - MEMBERABRAHAM K. KIPROTICH - MEMBERBERNADETTE GITARI - MEMBER