https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/162

African Banking Corporation Ltd v Commissioner of Domestic Taxes (Appeal E1324 of 2025) [2026] KETAT 162 (KLR) (13 July 2026) (Judgment) Neutral citation: [2026] KETAT 162 (KLR) Republic of Kenya In the Tax Appeal Tribunal Appeal E1324 of 2025 RM Mutuma, Chair, G Ogaga, T Vikiru & JM Malla, Members July 13, 2026 Between African Banking Corporation Limited Appellant and Commissioner of Domestic Taxes Respondent Judgment Background 1.The Appellant is a limited liability company incorporated in Kenya and licensed by the Central Bank of Kenya to carry on banking business under the Banking Act, Cap. 488, Laws of Kenya. 2.The Respondent is the principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469, Laws of Kenya. The Kenya Revenue Authority is charged with the responsibility of, among others, the assessment, collection, accounting and general administration of tax revenue on behalf of the Government of Kenya. 3.The Respondent conducted a compliance check on the Appellant in relation to Corporation tax for the year of income 2019 and notified the Appellant of its intention to audit its operations, requesting it to provide records for review. The Appellant sought, and was granted, additional time to provide the requested documents. 4.On 13th June 2025, the Respondent issued the Appellant with a pre-assessment notice communicating its findings, and on 27th June 2025, it issued the Appellant with an assessment notice for Corporation tax for the year of income 2019 demanding Kshs. 8,658,236.00, comprising principal tax of Kshs. 5,247,416.00, a penalty of Kshs. 262,371.00 and interest of Kshs. 3,148,449.00. 5.The assessment arose from two adjustments to the Appellant's taxable income: first, the disallowance of Kshs. 1,339,841.00 being corporate social responsibility (CSR) costs which the Respondent found to have been included in the Appellant's advertising and marketing expenses; and secondly, the disallowance of Kshs. 37,703,741.00 being the portion of the Appellant's interest and operating expenses which the Respondent attributed to exempt infrastructure bond income of Kshs. 40,738,219.00 by applying a ratio of 1.14%, thereby revising the taxable income to Kshs. 331,848,672.00. 6.Dissatisfied with the assessment, the Appellant lodged an objection vide a letter dated 25th July 2025 objecting to the assessment in its entirety. 7.Upon review of the objection, the Respondent rendered its Objection decision dated 23rd September 2025 fully rejecting the objection and confirming the assessment, tabulating a total tax payable of Kshs. 8,920,489.00 inclusive of the penalty and the interest accrued as at the date of the decision. 8.Aggrieved by the Objection decision, the Appellant lodged a Notice of Appeal dated and filed on 4th November 2025. The Appeal 9.The Appeal is premised on the Memorandum of Appeal dated and filed on 19th November 2025 wherein the Appellant raised the following grounds of appeal:i.That the Respondent erred in law and fact and contrary to the provisions of Section 15(1) of the Income Tax Act, by disallowing advertising and marketing expenses which were wholly and exclusively incurred in the production of the Appellant's income.ii.That the Respondent erred in law and fact by recharacterizing bona fide advertising and marketing initiatives, including corporate sponsorship of events such as the Mater Heart Run and partnership with organized groups, as ineligible donations yet the Appellant did not make donations; it engaged in corporate sponsorships integral to its business model.iii.That the Respondent erred in law and fact by attributing interest and operating expenses to exempt income without any factual or legal justification, the Appellant not having incurred or claimed any expense in relation to the exempt infrastructure bond income, which was passive in nature.iv.That the Respondent erred in law and in fact by applying an arbitrary apportionment ratio of 1.14% to the Appellant's interest and operating expenses thereby disallowing legitimate expenses without demonstrating any nexus between the disallowed expenses and the exempt income.v.That the Respondent erred in law and fact and contrary to Section 31(4) of the Tax Procedures Act by issuing an assessment dated 27th June 2025 in respect of the 2019 year of income, the statutory five-year period for amending self-assessments having expired on 31st December 2024, making the assessment time-barred, invalid, and unenforceable.vi.That the Respondent erred in law and fact by concluding that the Appellant failed to discharge its burden of proof under Section 56 of the Tax Procedures Act, 2015, despite the Appellant having furnished documentation substantiating the legitimacy of the expenses claimed.vii.That in view of the foregoing, the Appellant is apprehensive that the actions of the Respondent lack in merit, are unlawful and a gross abuse of its office and statutory powers, and that unless the orders sought are granted, the Appellant risks being unjustly required to pay the alleged tax amount of Kshs. 8,658,236.00 which is not payable under the law. The Appellant's Case 10.The Appellant's case is premised on its Statement of Facts dated and filed on 19th November 2025 together with the documents annexed thereto, and its written submissions dated 26th May 2026. 11.The Appellant averred that it is a relationship-driven bank whose business model depends materially on engagement with organized constituencies, including youth and women groups popularly known as “CHAMAS”, church dioceses, SACCOs, schools, community-based groups and other institutional networks. For such a banking model, it averred, expenditure incurred on sponsorships, event participation and visibility platforms is not collateral or gratuitous but is part of the ordinary means by which it promotes its products, including loan facilities, savings accounts and trade finance services, deepens institutional relationships, attracts and retains clients, and expands opportunities for lending and transactional banking. 12.On the disallowed advertising and marketing expenses, the Appellant submitted that the test under Section 15(1) of the Income Tax Act (ITA) is one of purpose, substance and commercial nexus, and is not defeated merely because an expenditure was incurred in connection with a public event, a community institution or an organized group. 13.The proper inquiry is whether, viewed objectively, the expenditure bore a real and sufficient nexus to the Appellant's income-earning operations, including customer acquisition, brand visibility, relationship management and client retention. It submitted that Section 15(1) of the ITA embodies the principle that taxation is levied on net income after the deduction of legitimate business expenses, and that by disallowing the impugned expenditure the Respondent effectively taxed it on income that was never earned. 14.The Appellant submitted that the Respondent fell into error by treating the impugned expenditure as charitable or gratuitous merely because some of the events or institutions involved had religious, educational, medical or community-facing characteristics. That approach, it submitted, ignores the distinction between a donation, which is a gratuitous transfer made without expectation of business return, and a sponsorship or promotional outlay, which is incurred with an expectation of reciprocal commercial benefit, including visibility, audience access, stakeholder engagement and relationship-building with existing or potential clients. 15.The Appellant further submitted that the Respondent's reclassification, founded on the fact that the Appellant's own ledgers had labelled the entries as “CSR”, rests on an impermissible emphasis on labels rather than substance, contrary to the substance over form principle in tax law which requires that transactions be assessed on their economic reality. 16.Deductibility under Section 15(1) of the ITA, it submitted, is determined by the actual commercial function of the expenditure in the taxpayer's operations, and where expenditure is approved, documented, traceable and connected to identifiable business-facing engagements, the Respondent cannot recharacterize it as non-deductible without demonstrating why the claimed business nexus fails. The taxpayer, it added, is best placed to determine the commercial needs of its business. 17.The Appellant urged the Tribunal to note that on cross-examination, the Respondent's witness expressly admitted that corporate sponsorship is a recognized form of advertisement distinct from traditional methods, and that sponsorships confer visibility and brand promotion. This admission, the Appellant submitted, corroborates its position that the impugned expenditure comprised bona fide marketing initiatives and fatally undermines the Respondent's attempt to reclassify the sponsorships as donations. 18.The Appellant further submitted that the Respondent's refusal to accept the documentation it provided imposed an unreasonable evidentiary burden contrary to Section 56 of the Tax Procedures Act (TPA), that the sudden and unsupported reclassification violates the principle of certainty in taxation, and that the disallowance is punitive and contrary to the constitutional principle of fair taxation under Article 201(b)(i) of the Constitution of Kenya, 2010. 19.On the expenses attributed to exempt income, the Appellant submitted that the exempt income in question arose from investments in infrastructure bonds (IFBs), which income is passive in nature, accruing automatically by virtue of holding the bonds, and does not require the incurrence of staff costs, advertising or interest expenses. 20.It averred that it did not incur, and could not have incurred, any expenses in relation to the exempt income, and that the Respondent's position rests on an unfounded assumption that some portion of its general expenses must relate to exempt income despite the absence of any evidence that such expenses were ever claimed. The consequence of Section 15(1) of the ITA, it submitted, is that only expenses actually incurred in producing exempt income may be disallowed, and tax liability must be founded on verifiable facts, not assumptions. 21.The Appellant averred that the expenses actually claimed in the year 2019, including staff costs, advertising costs and interest expenses, related exclusively to the production of taxable income as itemised in its audited accounts; the interest expense in particular comprised interest paid on long-term loans, customer deposits, money market funds and bond financing issued to customers, none of which can be attributed to exempt income. It noted that on cross-examination, and on re-examination by the Respondent's counsel, the Respondent's witness admitted that no specific expense attributable to the infrastructure bond income was identified, which testimony corroborates its documentary evidence. 22.The Appellant relied on Prime Capital and Credit Limited v Commissioner of Legal Services and Board Coordination (TAT E101 of 2023), where the Tribunal held that general expenses such as insurance, salaries, audit fees and legal costs “were not incurred in the generation of the Appellant's exempt income and therefore were utilised in its taxable business and should therefore not be apportioned”, and further confirmed that infrastructure bond income is exempt and passive in nature and does not require intervention or additional expenditure. 23.On the apportionment ratio, the Appellant submitted that the Respondent's method was speculative in that, being unable to attribute any specific expense to the exempt income, the Respondent mechanically applied a ratio of exempt income to consolidated business income of 1.14% against the total net expenses of Kshs. 3,315,033,000.00, without demonstrating any nexus between the disallowed expenses and the exempt income. 24.The Appellant submitted that the Respondent's reliance on best judgement is misplaced, as alternative methods of assessment must be reasonable, pragmatic and based on credible information. 25.It relied on Family Signature Ltd v Commissioner of Investigations & Enforcement (TAT 25 of 2016), where the Tribunal held that best judgement must not result in speculative figures or ridiculously high margins, and on Seroney v Commissioner of Legal Services and Board Co-ordination (Tax Appeal E183 of 2023), where the Tribunal vacated an assessment founded on an arbitrary escalation of income, describing it as “a speculative figure plucked from the air without a basis”. 26.On the limitation of time, the Appellant submitted that the Respondent acted contrary to Section 31(4) of the TPA by issuing an assessment dated 27th June 2025 in respect of the year of income 2019. It averred that its self-assessment return for the year 2019 was duly submitted and acknowledged by the Respondent, and that the statutory five-year period for amendment expired on 31st December 2024. 27.It contended that the Respondent's attempt to justify the assessment by calculating five years from the date of filing of the return is misconceived, as the statutory period is tied to the year of income and not the administrative convenience of filing dates; that the Respondent neither alleged nor demonstrated any fraud, wilful neglect or evasion that would engage Section 31(4)(a) of the TPA; and that the issuance of an assessment outside the statutory period violates the principle of legality in taxation enshrined in Article 210 of the Constitution and erodes the principle of certainty in taxation. 28.On the burden of proof, the Appellant submitted that it fully discharged its burden under Section 56 of the TPA by producing verifiable evidence. In respect of the advertising and marketing expenses, it furnished the Respondent with its advertising, marketing and promotion expenses for 2019 to 2023; the expense ledger for the period 1st January to 31st December 2019; its 2019 income tax computation; and its consolidated and separate annual report and financial statements for the year ended 31st December 2019. 29.In respect of the expenses attributed to exempt income, the Appellant furnished purchase notes for the 10-year IFBs bought in 2009, 2011 and 2018 together with the audited accounts for those years; a schedule showing non-interest sources of funds for 2019; the infrastructure bonds interest schedule for 2019; the 2019 to 2023 cost-free sources of funds; and the Central Bank of Kenya statement for securities as at 31st December 2023. 30.The Appellant submitted that the Respondent's failure to objectively review the material facts and documentation submitted during the objection process breached its statutory duty under Section 51(10) of the TPA to issue a reasoned and evidence-based determination. 31.It relied on Pernod Ricard Kenya Limited v Commissioner of Domestic Taxes (Tax Appeal E012 of 2023) [2024], where the Tribunal found that the Respondent's mere statement that it was “not convinced or not persuaded” by a taxpayer's documentation and explanation did not amount to reasons as provided for under Section 51(10) of the TPA, and that the Respondent ought to have given specifics as to why it was not convinced or persuaded. The Appellant further submitted that the Respondent did not demonstrate that any specific documentation was requested and not provided. Appellant's Prayers 32.The Appellant prayed that the Tribunal grants the following orders:a)The Respondent's Objection decision dated 23rd September 2025 together with the underlying assessment dated 27th June 2025 be vacated and set aside in their entirety for being unlawful, time-barred, and contrary to Section 15(1) of the Income Tax Act and Section 31(4) of the Tax Procedures Act;b)The tax assessment of Kshs. 8,658,236.00 be declared unlawful and unenforceable for lack of factual and legal basis, including the wrongful disallowance of advertising and marketing expenses, the erroneous attribution of expenses to exempt income, and the arbitrary apportionment of 1.14%;c)Costs of the Appeal be awarded to the Appellant; andd)Any other relief that the Tribunal may deem just and equitable in the circumstances. The Respondent's Case 33.The Respondent's case is premised on its Statement of Facts dated 22nd December 2025 together with the documents annexed thereto, the witness statement of Mr. Bonface Ondabu sworn on 24th April 2026 and admitted as the Respondent's evidence in chief on 5th May 2026, and its written submissions dated 26th May 2026. 34.The Respondent's witness, Mr. Bonface Ondabu, an officer in the Large Taxpayers Office of the Large & Medium Taxpayers Department, testified that the Respondent conducted a compliance check on the Appellant in relation to Corporation Tax for the period 2019 and issued the Appellant with an intention to audit vide a letter dated 24th May 2024, in response to which the Appellant sought and was granted additional time to provide the requested records. 35.The witness testified that a review of the Appellant's trial balance, audited financial statements and ledgers revealed that within the expenses listed as marketing and advertising, some of the transaction details were characterized as CSR, such as the sponsoring of church activities and children's homes. He testified that CSR is not marketing but a donation, as sponsoring and charitable activities towards churches and children's homes are charitable in nature as opposed to marketing and advertising. 36.That the nature and character of those sponsorships fitted well within the definition of donations and hence had to meet the threshold governing the allowance of donations, which threshold the expenses failed to meet; that the Appellant failed to prove that the said ledger entries were indeed marketing and advertising related and not donations; and that ordinary marketing and advertising expenses would have an invoice issued to the Appellant for it to pay the said fees and claim them as an expense. 37.On the infrastructure bonds, the witness testified that the Appellant generated income from infrastructure bonds which is exempt from taxation, yet the Appellant did not disallow any expenses incurred to generate the exempt income; that the Respondent accordingly determined the ratio of the exempt interest income to the total interest income and disallowed that portion of the expenses claimed. 38.He testified that the Respondent established that the source of the funds invested in the purchase of the IFBs was customer deposits; that a comparison with industry practice showed that other banks have expenses attributable to such income, for example salaries paid to treasury staff whose work is to invest in the infrastructure bonds, which salaries are wholly and exclusively incurred in earning the infrastructure bond income; and that interest expense on customer deposits and borrowed funds relates to interest-bearing funds and must be apportioned accordingly. 39.The witness further testified that although the Appellant alleged that the funds invested in the IFBs were sourced from shareholder funds and non-interest bearing sources, the Respondent observed that the alleged sources of funds were already tied to the assets of the company as outlined in its statement of financial position prior to the purchase of the IFBs. 40.That there was need for the Appellant to prove that the source of funds invested in the purchase of the IFBs was not interest-bearing customer deposits and/or borrowed funds; and that the Appellant failed to sufficiently demonstrate that the funds invested in the IFBs came from non-interest bearing sources. He confirmed that the pre-assessment notice was issued on 13th June 2025 and the assessment notice on 27th June 2025, and that despite the Respondent's efforts to seek information, the Appellant failed to avail sufficient information or documentation to support its contentions. 41.On the limitation of time, the Respondent submitted that the Commissioner is empowered under Section 31 of the TPA to amend assessments using available information to the best of its judgement, and that under Section 31(4)(b)(i) of the TPA the computation of the five-year statutory limitation is pegged on the date of submission of the self-assessment return by the taxpayer, and not on the year of income. It relied on Commissioner of Domestic Taxes v Dinesh Construction Limited, Income Tax Appeal No. E220 of 2024, where the Court, in interpreting Section 31(4)(b)(i), held that:“The interpretation of this section requires precise calculation of time. The law is unambiguous: the clock starts ticking from the date of submission, not the due date.” 42.The Respondent also relied on Nakuru Cement Supplies Limited v Commissioner of Investigations & Enforcement, HCCOMM ITA E038 of 2021, where the Court held that the period of five years starts to run from the date the taxpayer submitted its return, observing that were it otherwise, a taxpayer would fraudulently evade tax by failing to submit its returns in the hope that the tax authorities would not catch up with it until after five years. 43.The Respondent submitted that the Appellant filed its self-assessment return for the year of income 2019 on 30th June 2020, as recorded at paragraph 25 of the Objection decision, such that the five-year window was to lapse on 30th June 2025. 44.The assessment having been issued on 27th June 2025, a duration of precisely 4 years, 11 months and 28 days from the date of the self-assessment, the amended assessment was well within the five-year window. It submitted that the Appellant's contention that the timelines should be computed from the year of income is misconceived and untenable in law, as the Appellant seeks to benefit from its own failure to self-assess within the prescribed timelines. 45.On the disallowed CSR expenses, the Respondent submitted that under Section 15(1) of the ITA the burden is shouldered by the taxpayer to demonstrate, using competent and valid documentation, that the expenses claimed were incurred wholly and exclusively in the generation of income. 46.It submitted that the nature of the alleged corporate sponsorships leaned towards donations, inviting their examination under the test for donations in Section 15(2)(w) of the ITA as read with the Income Tax (Charitable Donations) Regulations, 2007, paragraph 3 of which requires the taxpayer to provide proof of the donation and a copy of the exemption certificate issued by the Commissioner to the charitable organization or the Minister's approval of the project, while paragraph 4(b) provides that:“For purposes of these Regulations, donations made shall not confer any direct benefit to the donor or any person associated to the donor.” 47.The Respondent averred that the Appellant provided proof of donation for only one item, being the Mater Heart Run, in the form of a cheque and a certificate of participation; that no exemption certificate was provided for any of the organizations benefitting from the donations; and that from the Appellant's own admission the donations were intended to promote the Appellant's banking products and services, hence conferring a direct benefit on the donor, such that the donations did not meet the test provided under the law. 48.It further submitted that a taxpayer's own records remain primary evidence, that the Appellant's own classification of the expenditure as “CSR” constitutes an admission which the Appellant failed to substantively rebut, and that the Appellant cannot recharacterize the transactions post-audit to obtain a tax advantage. Without prejudice to the foregoing, it submitted that the Appellant failed to substantiate its claim that the deductions were strictly marketing and advertising expenses by providing documentation, such as invoices, in support of the ledger entries. 49.On the expenses attributed to exempt income, the Respondent submitted that pursuant to Section 15(1) of the ITA documentation is key in any claim for deduction of expenses, and that it behooved the Appellant to prove through valid documentation that the source of the funds invested in the purchase of the infrastructure bonds was not interest-bearing customer deposits and/or borrowed funds, which the Appellant did not do, its claim thereby remaining a mere allegation. 50.It reaffirmed that it has a wide berth in assessing the correctness or falsity of the Appellant's returns under Section 31 of the TPA, and that in the absence of cogent evidence supporting the Appellant's claim, it was left with no option but to reassess the Appellant using available information and best judgement. 51.On the burden of proof, the Respondent submitted that it is trite that the taxpayer bears the burden in tax matters to prove that the Commissioner's assessments are excessive or erroneous, as provided under Section 56(1) of the TPA and Section 30 of the Tax Appeals Tribunal Act (TATA). 52.It relied on Prima Rosa Flowers Limited v Commissioner of Domestic Taxes [2019] eKLR, which adopted the holding in Mulherin v Commissioner of Taxation [2013] FCAFC 115 that the onus is on the taxpayer to prove that an assessment is excessive by adducing positive evidence demonstrating the taxable income on which tax ought to have been levied, and on Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR, where the Court held that:“The commissioner's determinations of tax deficiencies are presumptively correct. Although the presumption created by the above provisions is not evidence in itself, the presumption remains until the taxpayer produces competent and relevant evidence to support his position. If the taxpayer comes forward with such evidence, the presumption vanishes and the case must be decided upon the evidence presented, with the burden of proof on the taxpayer.” 53.The Respondent submitted that the Appellant did not provide any documentation to support its claims in respect of both the disallowed CSR expenses and the disallowed expenses attributed to the infrastructure bond income, thereby failing to discharge the burden of proof which squarely lies with it, and that consequently the presumption of correctness remains with the Respondent's determinations. Respondent's Prayers 54.The Respondent prayed that the Tribunal:a)Dismisses the Appeal for lacking in merit;b)Upholds the Respondent's Objection decision dated 23rd September 2025 confirming the assessments; andc)Awards costs to the Respondent. Issues for Determination 55.The Tribunal has considered the Parties' pleadings, documentation, testimony and submissions and is of the considered view that the issues falling for its determination are as follows:A.Whether the assessment dated 27th June 2025 was time barred by dint of Section 31(4)(b)(i) of the Tax Procedures Act;B.Whether the Respondent erred in disallowing advertising and marketing expenses of Kshs. 1,339,841.00 as ineligible CSR/donation costs; andC.Whether the Respondent erred in attributing interest and operating expenses of Kshs. 37,703,741.00 to exempt infrastructure bond income through the application of a 1.14% apportionment ratio. Analysis And Findings 56.The Tribunal proceeds to analyse the issues as framed hereunder. A. Whether the Assessment Dated 27th June 2025 was Time Barred by Dint of Section 31(4)(b)(i) of the Tax Procedures Act 57.Section 31(4) of the TPA provides as follows:“(4)The Commissioner may amend an assessment— (a) in the case of gross or wilful neglect, evasion, or fraud by, or on behalf of, the taxpayer, at any time; or (b) in any other case, within five years of— (i) for a self-assessment, the date that the self-assessment taxpayer submitted the self-assessment return to which the self-assessment relates;…” 58.The language of the provision is plain: the five-year period for the Commissioner to issue an assessment under Section 31 of the TPA is anchored on the date that the taxpayer submitted the self-assessment return, and not on the close of the year of income to which the return relates. 59.As Rowlatt J. stated in Cape Brandy Syndicate v Inland Revenue Commissioners [1921] 1 KB 64, in a taxing Act one has to look merely at what is clearly said; there is no room for any intendment, and nothing is to be read in or implied. The Appellant's construction, which would peg the limitation period to 31st December 2024 being five years from the close of the year of income 2019, is misconstrued as it invites the Tribunal to substitute the words Parliament used with words it did not use. 60.Turning to the facts, the Objection decision recorded, at paragraph 25, that the Appellant submitted its self-assessment return for the year of income 2019 on 30th June 2020. The Appellant did not controvert this date of submission either in its pleadings or at the hearing; indeed, its own income tax computation for the year 2019, annexed to its documentation, was prepared on 30th June 2020. 61.The date of submission being 30th June 2020, the five-year window ran to 30th June 2025. The assessment was issued on 27th June 2025, a period of 4 years, 11 months and 28 days from the date of submission, and was therefore within the statutory window. 62.Consequently, the Tribunal finds that the assessment dated 27th June 2025 was not time barred. B. Whether the Respondent Erred in Ddisallowing Advertising and Marketing Expenses of Kshs. 1,339,841.00 as Ineligible CSR/Donation Costs 63.Section 15(1) of the ITA permits the deduction of all expenditure wholly and exclusively incurred in the production of income, while Section 16(1)(a) of the ITA prohibits the deduction of expenditure not so incurred. 64.Section 15(2) of the ITA provides for specified additional expenditures that a taxpayer can deduct (2) in computing for a year of income the gains or profits chargeable to tax under Section 3(2)(a) of the ITA; and Section 16(2) of the ITA provides for specified additional expenditures that a taxpayer is not allowed to deduct. 65.The dispute under this issue distils to the character of the impugned expenditures which the Appellant christened Corporate Social Responsibility (CSR): if they were marketing and advertising expenditure incurred for reciprocal commercial benefit, they are deductible under Section 15(2)(p) of the ITA; if they were donations, they are deductible only upon satisfaction of the conditions in Section 15(2)(w) of the ITA as read with the Income Tax (Charitable Donations) Regulations, 2007. 66.The Appellant's primary case rests on the first characterization; its case at the objection stage embraced the second characterization in the alternative as a without prejudice argument. The Tribunal considers each in turn. 67.On the first characterization, the Tribunal accepts, as a matter of principle, the Appellant's submission that marketing and advertising expenditure does not cease to be deductible merely because it is incurred through a public-facing or charitable platform, provided its commercial object is established, and that the substance of a transaction prevails over its label. The Tribunal equally takes note of the concession by the Respondent's witness on cross-examination that corporate sponsorship is a recognized form of advertisement that confers visibility and brand promotion. 68.However, that concession establishes only that sponsorship may, in principle, constitute marketing; it does not prove that each of the impugned expenditures was in fact a sponsorship procured for reciprocal commercial benefit. The substance over form principle aids a taxpayer only where the substance is demonstrated by evidence, and it is at this evidentiary threshold that the Appellant's case falters. 69.The starting point of the evidence is the Appellant's own contemporaneous records. The entries in the Appellant's ledgers described the impugned transactions as CSR, comprising support towards the Mater Heart Run, various Catholic dioceses, various SACCOs and various schools, together with the sponsoring of church activities and children's homes. 70.A taxpayer's own records are primary evidence of the character of its expenditure, and a taxpayer who asserts that its records mislabel the true nature of a transaction assumes the burden of demonstrating the true nature by cogent documentation, such as sponsorship agreements, invoices for advertising services, or evidence of the branding and visibility deliverables procured. No such documentation was placed before the Tribunal in respect of any of the impugned items. 71.The only item that the Appellant substantiated during the objection stage, and acknowledged by the Respondent, was the Mater Heart Run expenditure, in respect of which the Appellant produced a cheque, a certificate of participation and an invitation to advertise the Bank at the event. 72.Taken at its peak, that documentation evidences participation in a charitable event and an opportunity to advertise there; it does not evidence the completion of a marketing and advertising transaction, and the Tribunal notes that the visibility and brand promotion asserted by the Appellant was not proven. In any event, the Appellant did not demonstrate marketing and advertising deliverables, and the Tribunal is in no position to do so on its behalf. 73.The Tribunal further considered the Respondent’s alternative characterization of the Appellant’s CSR expenditures as donations. The Tribunal rejected the Respondent’s attempt to reclassify the Appellant’s CSR expenses as donations. This reclassification unfairly disadvantaged the Appellant because the Respondent evaluated the Appellant’s documentary compliance against documentation rules for donations under Section 15(2)(w) of the ITA and its attendant subsidiary legislation. 74.Since the Appellant had originally claimed these costs as marketing and advertising expenses rather than donations, checking them against donation rules condemned the Appellant to fail. Consequently, the Tribunal threw out the Respondent's findings regarding donation-related documentation. Instead, because the Appellant claimed the CSR costs as marketing and advertising, it was required to provide proof of marketing activity, which as established above, it ultimately failed to do. 75.Applying the principle in Man Diesel (supra), the Tribunal finds that the Appellant did not produce competent and relevant evidence sufficient to displace the presumption of correctness attaching to the Respondent's determination under this issue. 76.Consequently, the Tribunal finds that the Respondent did not err in disallowing the CSR expenses of Kshs. 1,339,841.00 claimed within the advertising and marketing expenses. C. Whether the Respondent Erred in Attributing Interest and Operating Expenses of Kshs. 37,703,741.00 to Exempt Infrastructure bond Income Through the Application of a 1.14% Apportionment Ratio 77.The Tribunal begins by affirming the legal principle underlying the Respondent's adjustment. Interest income from infrastructure bonds is exempt from tax under the First Schedule to the ITA. Since Section 15(1) of the ITA confines deductions to expenditure wholly and exclusively incurred in the production of income chargeable to tax, and Section 16(1)(a) proscribes the deduction of expenditure not so incurred, expenditure incurred in the production of exempt income is not deductible. 78.To that extent, the Respondent's premise was sound in law. The question for determination, however, is not whether such expenditure is disallowable in principle, but whether, on the record before the Tribunal, there was a factual foundation for the finding that the Appellant incurred and claimed such expenditure, and for the quantum attributed to it. 79.The burden of proof lay, in the first instance, on the Appellant. The Tribunal finds that the Appellant discharged its evidentiary burden by adducing positive evidence going to the heart of the adjustment: it produced purchase notes showing that the infrastructure bonds were acquired in 2009, 2011 and 2018, together with the audited accounts for those years; a schedule of its non-interest bearing sources of funds for 2019; the schedule of infrastructure bond interest for 2019; its cost-free sources of funds for 2019 to 2023; and the Central Bank of Kenya custody statement for its securities. 80.This was competent and relevant evidence of the funding and character of the investments, and, per Man Diesel (supra), its production caused the presumption of correctness to vanish, whereupon the issue fell to be decided upon the evidence presented. 81.Weighed against that evidence, the Respondent's case rested on assertion rather than demonstration. The Objection decision recorded that a review of the audited financial statements “established” that the resources invested in the IFBs could not have emanated from shareholder funds, but neither the review nor any supporting analysis or computation of the Appellant's funding structure was placed before the Tribunal or particularized in the Objection decision. 82.The industry-practice comparison offered by the Respondent's witness, being salaries paid to treasury staff whose work is to invest in the infrastructure bonds, was illustrative and unquantified, and no treasury staff cost of the Appellant was identified, isolated or measured. Most significantly, the Respondent's witness confirmed on cross-examination, and on re-examination by the Respondent's own counsel, that no specific expense attributable to the infrastructure bond income was identified. 83.While the Tribunal appreciates that this admission is consistent with the Respondent's premise, that it is not feasible to map specific sources of funds to a specific investment in a deposit-taking institution, a conceivable nexus is not evidence of an actual one. It was open to the Respondent, upon receipt of the Appellant's tracing documentation, to demonstrate by analysis of the funding structure that interest-bearing funds supported the bond holdings in the year of income 2019. It did not do so. 84.The methodology that the Respondent employed compounds rather than cures the flawed computation of the assessment. The assessment notice stated that the Respondent determined “the ratio of the exempt interest income to the total interest income”, yet the ratio actually applied, being 1.14%, was derived from the exempt income of Kshs. 85.40,738,219.00 as a proportion of the consolidated business income of Kshs. 3,581,834,000.00, and was then applied not to the interest expense alone but to the total net expenses of Kshs. 3,315,033,000.00, encompassing operating expenses such as staff and administrative costs with no demonstrated nexus to the passive holding of government securities acquired in years long preceding the year under review. 86.The Tribunal finds that a ratio derived from income proportions bears no necessary relationship to the funding cost of investments acquired in 2009, 2011 and 2018. The exercise of best judgement under Section 31 of the TPA is not at large: as this Tribunal held in Family Signature Ltd (supra), the Commissioner has the onerous responsibility to act reasonably by exercising best judgement informed by pragmatic and reasonable considerations, and as held in Seroney (supra), an assessment founded on a speculative figure without a verifiable basis cannot stand. 87.The Tribunal is further guided by its decision in Prime Capital and Credit Limited v Commissioner of Legal Services and Board Coordination (supra), where it held that general expenses that were not incurred in the generation of a taxpayer's exempt infrastructure bond income, but were utilised in its taxable business, should not be apportioned, the infrastructure bond income being exempt and passive in nature and not requiring intervention or additional expenditure. 88.That reasoning applies with equal force here: once the Appellant's evidence that the bonds were acquired in prior years from sources it documented stood effectively unrebutted, there remained no evidential foundation upon which any portion of the 2019 interest and operating expenses could be attributed to the exempt income. 89.Drawing from the above, the Tribunal finds that the Respondent’s attribution and disallowance of expenses of Kshs. 37,703,741.00 as relating to exempt infrastructure bond income was speculative and without factual foundation. Final Decision 90.The upshot to the foregoing analysis is that the Appeal is partially merited, and accordingly, the Tribunal proceeds to issue the following Orders:a)The Appeal be and is hereby partially allowed;b)The Respondent's Objection decision dated 23rd September 2025 be and is hereby varied in the following terms:i.The Respondent's disallowance of interest and operating expenses of Kshs. 37,703,741.00 attributed to exempt infrastructure bond income be and is hereby set aside;ii.The Respondent's disallowance of CSR expenses of Kshs. 1,339,841.00 claimed within the advertising and marketing expenses be and is hereby upheld;c)The Respondent is hereby directed to revise the Objection decision in line with order (b) above within thirty (30) days of the date of this Judgment;d)Each party to bear its own costs. 91.It is so ordered. DATED AND DELIVERED AT NAIROBI THIS 13TH DAY OF JULY 2026.……………………………..….ROBERT M. MUTUMACHAIRMAN……………………………… ……GLORIA A. OGAGAMEMBER……………………………DR. TIMOTHY B. VIKIRUMEMBER……………………………JIMMY M. MALLAMEMBER