[2024] KETAT 728 (KLR)

Adan v Commissioner of Investigations and Enforcement Domestic Taxes (Tax Appeal 1346 of 2022) [2024] KETAT 728 (KLR) (9 May 2024) (Judgment)

Neutral citation: [2024] KETAT 728 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1346 of 2022

Grace Mukuha, Chair, Jephthah Njagi, E Komolo, G Ogaga & W Ongeti, Members

May 9, 2024

Between

Dr. Al Amin Adan

Appellant

and

Commissioner of Investigations and Enforcement Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is an individual taxpayer and his main activity is working as a medical administrator at the County Government of Isiolo.

2. The Respondent is a principal officer appointment under Section 13 of Kenya Revenue Authority Act, the Kenya Revenue Authority’s mandate is the collection of revenue and the administration of tax laws within the Republic of Kenya.

3. A notice of intention to verify the Appellant's tax declarations covering the period- January 2016 to December 2019 was issued by the Respondent via a letter dated 19th August 2019. That in the letter various documents and records were requested to be availed to the Respondent and that some of the requested documents and records were provided to the Respondent by the Appellant.

4. The Respondent consequently issued the Appellant with an assessment and a tax demand on his income covering the period January 2015 to December 2019 vide a letter dated 7th December 2020. The assessment amounted to Kshs. 13,062,406. 00.

5. On 17th March 2022, the Appellant lodged an objection to the assessment raising several issues and also availed supporting documentation.

6. The Respondent consequently requested for further documentation vide a letter dated 11th August 2022 and later on 28th September 2022 issued the objection decision.

7. The Appellant aggrieved by the decision lodged his Notice of Appeal dated 17th October 2022 and filed the Appeal on 4th November 2022.

The Appeal 8. The Appeal is premised on the following grounds as stated in the Appellant’s Amended Memorandum of Appeal dated 4th August 2023 and filed on 1st September 2023:-a.That the Respondent has not furnished the Appellant with the source of the stated underdeclared income for the years 2015 Kshs. 1,420,951. 00, 2016 Kshs. 2,000,009. 00, 2017 Kshs. 3,042,147. 00, 2018 Kshs. 5,044,710. 00 and 2019 Kshs. 1,554,589. 00. b.The Appellant has on numerous occasions requested for the evidence that he has any other income other than what has been declared in the Appellant's Annual Income Tax.c.The Respondent has not issued evidence of other sources of income by the tax payer.d.That the Respondent erroneously included financial year(s) 2015 and 2016 in their assessment despite the same being outside the 5-year threshold as provided under Section 31 of the Tax Procedures Act, 2015. e.That the Respondent omitted several entries in their banking analysis which resulted in an overstatement of the expected income.f.That the Respondent's assessment is in contradiction of Section 5 of the Income Tax Act as the Respondent issued assessments on amounts received as reimbursement of amounts expended by the taxpayer in service of Government duties out of office.g.That the Respondent's assessments and subsequent Objection decision were issued in breach of the Appellant's right to legitimate expectation and fair administrative action.

Appellant’s Case 9. The Appellant’s case is premised on:a.Its amended Statement of Facts dated 4th August 2023 and filed on 1st September 2023b.The Written Submissions dated and filed on 9th November 2023 together with the documents attached thereto.

10. The Appellant averred that he objected to the assessment via a letter dated 17th March 2022 on various grounds and the Respondent vide the objection decision dated 28th September 2022 vacated some of the claims in the assessment and determined that the Appellant owed taxes amounting to Kshs. 2,333,648. 89.

11. The Appellant averred that the Respondent erred in confirming the assessment without considering the grounds of objection, that the Respondent did not give the source of the computation for the initial assessments and that the Respondent failed to capture the entirety of the loans and reversals taken out by the Appellant. That this notably had the effect of inflating the expected taxable income.

12. The Appellant also averred that the Respondent also failed to appreciate the provision of Section 5(2)(ii) of the Income tax and in ignoring the said provision, the Respondent essentially issued assessments on amounts received as reimbursement of monies expended by the taxpayer in service of Government duties out of office.

13. That the Respondent equally failed to appreciate that PAYE even on allowance remains the sole obligation of the employer as enshrined in Section 37 of the Income Tax Act.

14. That by placing the burden and obligation of paying income tax on the employee’s income the Respondent is in essence shifting the obligation from the employer to employee and which goes against the Appellant's right to fair administrative action.

15. The Appellant further asserted that the Respondent's action in using an erroneous banking analysis and purposefully omitting key adjustment constitutes a breach of the Appellant's right to fair administrative action.

16. That the Constitution of Kenya, 2010 under Article 47 states that every person has the right to administrative action that is expeditious, efficient, lawful, reasonable, and procedurally fair. That the Respondent’s action in handling the Appellant’s case fails the aforesaid threshold.

17. That it cannot be overstated that in further breach of the Appellant’s right to fair administrative action, the Respondent's Objection decision was issued outside the mandatory statutory timelines of Section 51 (11) of the Tax Procedures Act. That the Appellant lodged its objection on 17th March 2022 and the Objection decision was issued on the 28th September 2022. That accordingly, a total of 194 days lapsed before the Respondent issued a response to the Objection thereby surpassing the 60 days’ timeframe outlined in Section 51(11) of the Tax Procedures Act.

18. The Appellant averred that contrary to the Respondent’s pleadings that the Appellant did not provide documentation in support of his assertions, he categorically stated that he did provide the same. That the provision of the documents made the Respondent to adjust his assessments. That further, the Appellant has annexed a bundle of documents to his Statement of Facts in pages 10 to 42 of the same.

19. The Appellant in support of his case relied on the holdings in KRA v Man Diesel & Turbo Se,Kenya [2021] Eklr, Tata Chemicals Magadi v The Commissioner of Domestic Taxes [TAT No. 19 of 2021] and NSSF Board of Trustees v Commisioner of Domestic Taxes [2016]Eklr amongst others.

Appellant’s prayers. 20. The Appellant made the prayers that the Tribunal:a.Allows the Appealb.Sets aside the Respondent’s confirmed assessment and objection decisionc.Awards costs of the Appeal to the Appellant

The Respondent’s Case 21. The Respondent’s case is premised on the following documents filed with the Tribunal.a.The Statement of Facts dated and filed on 2nd December, 2022. b.The Written Submissions dated 25th October 2023 and filed on 26th October 2023.

22. The Respondent averred that it selected the Appellant for investigations following receipt of intelligence to the effect that the Appellant had received monies from the County Government of Isiolo for which taxes had not been paid.

23. That the investigations covered Income taxes payable for the years of income 2015 to 2019 and the aim of the investigation was to determine whether the Appellant correctly accounted for income earned for the period under review besides that which was his monthly salary.

24. The Respondent averred that the investigation conducted was a comparative analysis of the bank deposits of the Appellant as compared to his income declared in his returns.

25. That Section 59 of the Tax Procedures Act allows the Respondent to reach out to the bank of the Appellant to receive documentation that helps it ascertain the tax liability of the Appellant.

26. That Section 31 of the Tax Procedures Act also empowers the Respondent to amend an assessment based on information available to him and according to its best judgment.

27. The Respondent argued that having done the comparisons between the bank statements and the income tax returns, it acted within its mandate and power in raising the assessment. That the Appellant ought to have produced relevant and positive documentation and evidence to defray the assessment.

28. The Respondent noted that as a result of the investigation of the Appellant's bank statements, it was discovered that the Appellant had received monies from the County Government of Isiolo and taxes had not been paid on the same and consequently issued a default assessment against this.

29. The Respondent stated that the Appellant was only able to justify part of the under-declared income with his documentation and the Respondent therefore adjusted the taxes payable accordingly to be ksh.2,333,648. 89 in line with the requirements of Section 31 of the TPA.

30. The Respondent in support of its case relied on the cases of TAT No. 70 of 2017 Afya X-Ray Centre Limited v Commissioner of Domestic Taxes,Grace Njeri Githua v Commissioner of Investigations & Enforcement (TAT No. 102 of 2018) and Digital Box Ltd v Commissioner of Investigations and Enforcement [2020] amongst others.

Respondent’s prayers. 31. The Respondent prayed that the Tribunal do dismiss the Appeal with costs

Issues for Determination 32. The Tribunal upon considering the evidence before it together with the submissions made by the parties is of the considered view that the issues that are to be determined are as follows:a.Whether the objection decision made by the Respondent on 28th September 2022 was proper in law.b.Whether the Respondent’s additional tax assessments were justified.

Analysis and Findings a. Whether the objection decision made by the Respondent on 28th September 2022 was proper in law 33. The Appellant submitted that the Respondent’s objection decision was issued outside the mandatory statutory timelines of Section 51 (11) of the TPA. That the Appellant lodged its objection on the 17th March 2022 and the objection decision was issued on 28th September 2022.

34. The Tribunal has noted that the Appellant’s averments are true and that the objection decision was made over six months after the Appellant lodged its notice of objection. It is also noted that the Respondent has not refuted the Appellant’s averments at all.

35. The Tax Procedures Act in Section 51 (11) states that:-“The Commissioner shall make the objection decision within sixty days from the date of receipt of-a.the notice of objection; orb.any further information the Commissioner may require from the taxpayer.failure to which the objection shall be deemed to be allowed.”

36. In the case of Nicholas Kiptoo Arap Korir Salat v IEBC & 6 Others [2013] eKLR, on the issue of the necessity to observe statutory timelines, the Court held that:“This Court, indeed all courts, must never provide succor and cover to parties who exhibit scant respect for rules and timelines. Those rules and timelines serve to make the process of judicial adjudication and determination fair, just, certain and even-handed. Courts cannot aid in the bending or circumventing of rules and a shifting of goal posts for, while it may seem to aid one side, it unfairly harms the innocent party who strives to abide by the rules. I apprehend that it is in the even-handed and dispassionate application of rules that courts give assurance that there is a clear method in the manner in which things are done so that outcomes can be anticipated with a measure of confidence, certainty and clarity where issues of rules and their application are concerned…”

37. Similarly, in the Case TAT 127 of 2020, BIC East Africa Ltd vs Commissioner of Customs & Border Control, the Tribunal held that;“Additionally, the Tribunal finds the Respondent's late response to the review application to be in gross violation of Section 229 (5) of the EACCMA 2004 which stipulates that the where the Respondent had not communicated his or her decision within the specified time of 30 days, the review application shall be deemed to have been allowed by the Respondent. To contextualize this, as of 7th June 2019 the Appellant's review application was deemed allowed meaning that it had not tax liability in the eyes of the law. It also meant that the Appellant was well within its right to apply for a refund of the taxes paid earlier under protest. Our resolve in this regard is further cemented in light of the fact that Section 229 (4) & (5) of the EACCMA are cushioned in mandatory terms, hence the Respondent was not allowed to extend the same timelines. (See Associated Battery Manufacturers limited versus Respondent of Customs Services (TAT Appeal No 1 of 2015).”

38. The Tribunal consequently finds that the objection decision having been issued out of the statutory time has no legal basis and the Appellant’s notice of objection was therefore allowed by operation of the law.

39. Having found that the Respondent’s objection decision was not proper in law and consequently finding that the notice of objection by the Appellant was allowed by operation of the law, the Tribunal did not delve into the other issue that fell for its determination as the same was rendered moot.

Final Decision 40. The upshot of the foregoing is that the Appeal succeeds. Consequently, the Tribunal makes the following Orders: -a.The Appeal be and is hereby allowed.b.The Respondent’s Objection decision dated 28th September 2022 be and is hereby set aside.c.Each Party to bear its own costs.

41. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF MAY, 2024GRACE MUKUHA - CHAIRPERSONJEPHTHAH NJAGI - MEMBERDR. ERICK KOMOLO - MEMBERGLORIA A. OGAGA - MEMBERDR. WALTER ONGETI - MEMBER