[2025] KETAT 241 (KLR)

Agigu Company Limited v Commissioner of Domestic Taxes (Tax Appeal E1459 of 2024) [2025] KETAT 241 (KLR) (21 May 2025) (Judgment)

Neutral citation: [2025] KETAT 241 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E1459 of 2024

CA Muga, Chair, EN Njeru, E Ng'ang'a & SS Ololchike, Members

May 21, 2025

Between

Agigu Company Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited company registered under the Companies Act, CAP 486 of the Laws of Kenya (hereinafter “the Companies Act”) and its principal activity is construction.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws (hereinafter “the Act”). 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. Further, under Section 5(2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. On 14th March 2024, the Respondent issued the Appellant with additional assessments for income tax-company amounting to Kshs 26,421,555. 08 and VAT amounting to Kshs 18,461,037. 70 for the period January-December 2022.

4. The Appellant filed its objection manually on 22nd October 2024 which the Respondent received 23rd October 2024. The Respondent, having considered the evidence, disallowed the late objection application and confirmed the additional assessments vide a letter dated the 4th of November 2024.

5. The Appellant being aggrieved by the Respondent's decision lodged the notice of appeal dated 3rd November 2024 on 4th December 2024.

The Appeal 6. The Appellant lodged its memorandum of appeal dated 17th December 2024 on 18th December 2024 raising the following grounds of appeal:a.That the Respondent erred in law and fact in disallowing the Appellant's Application for extension of time to lodge an objection notice against VAT and income tax company, January to December, 2022 and additional assessment amounting to Kshs 17,044,969. 00 and Kshs 21,657,012. 36, respectively.b.That the Respondent erred in law and fact by unreasonably disallowing the Appellant's application for extension of time to lodge its objection notice against VAT and income tax company, notwithstanding the fact that the Appellant reasonably demonstrated that the delay was occasioned by the fact that the sole director who has sole access to the company's email has been away in China, sick and bedridden since March, 2024. c.That the Respondent erred in law and fact by arbitrarily imposing and confirming assessment based on a 40% mark up on the 2022 sales of the Respondent while disregarding the fact that the Appellant had only started its operations in 2022 and the fact that the mark up is excessively high and unrealistic in the prevailing market conditions.d.That the Respondent erred in law and fact by disallowing/and or failing to consider the Appellant's already paid taxes on its purchases in the sum Kshs 48,437,706 as part of the appellant's costs.e.That the Respondent erred in law and fact by finding that the Appellant had unpaid taxes whereas they had fully met all their tax obligation.

Appellant’s Case 7. The Appellant filed its statement of facts dated 17th December 2024 on 18th December 2024. The Appellant also relied on the testimony of Justus Otieno whose witness statement was dated and filed on 8th April, 2025. It also filed written submissions dated 7th May 2025 on even date in compliance with the directions of the Tribunal.

8. The Appellant stated that it was registered for income tax company on the 2nd September, 2021 while it was registered for VAT obligations on 17th January, 2022.

9. It stated that its sole director fell later fell ill and left Kenya on 20th January, 2024, going back to his home country in China. According to the Appellant, its director was diagnosed with pancreatic cancer in March, 2024, at the Affiliated Hospital of Putian University Hospital and that since then, the director has never recovered and is still bedridden.

10. It was discovered in September 2024 when filing VAT for August, 2024 that the Appellant had been placed on special table. Upon inquiry from the Respondent, the Appellant discovered that the Respondent had previously issued tax demands through the director's electronic mail that had not been responded to.

11. Upon discovery of this fact, the Appellant’s appointed representative Mr. Justus Otieno made and effort to follow up with the Respondent for the Appellant to be lifted from the Special table and to be allowed time to lodge objection notice against VAT and income tax company assessments but his efforts were futile.

12. The Respondent dismissed its application to file notice of objection via the letter dated 4th November, 2024 and instead imposed on it punitive tax obligations in the form of VAT and income tax company in respect of the period from January to December, 2022 and additional assessment amounting to Kshs. 17,044,969. 00 and Kshs. 21,657,012. 36, respectively.

13. In its written submission, the Appellant submitted that it has a valid application against Respondent’s decision on extension of time. It submitted that the director was out the country to obtain medical treatment. It further submitted that the it discovered that much later that the Responded had issued assessments through the director’s electronic mail.

14. The Appellant submitted that the Respondent’s decision dated 4th November 2024 was not in accordance with Section 51(7A) of the Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter “TPA”).

15. The Appellant relied on the following case laws: Owindi & another v Sitialo (Environment & Land Case 131 of 2000) [2023] KEELC 236 (KLR) (26 January 2023) (Ruling).

Republic v Kenya Revenue Authority Ex parte Jaffer Mujtab Mohamed 2015] KEHC 6621 (KLR)

Republic v Commissioner of Domestic Taxes Large Tax Payer’s Office Ex-Parte Barclays Bank of Kenya Ltd [2012] eKLR.

Republic v Kenya Revenue Authority; Proto Energy Limited (Exparte) Judicial Review Application E023 of 2021) [2022] KEHC 5 (KLR) January 2022) (Judgment)

Commissioner of Domestic Taxes v Metoxide Africa Limited [2022] KEHC 14613 (KLR)

Primarosa Flowers Ltd -vs. Commissioner of Domestic Taxes (2019) eKLR.

Appellant’s Prayers 16. The Appellant prayed for the following orders:a.That the Respondent’s decision dismissing the Appellant's application for extension of time to lodge objection notice against VAT and income tax company be set aside;b.That the Appellant be allowed to lodge objection notice against VAT and company tax obligations as assessed by the Commissioner; andc.The Respondent be compelled to take into consideration the costs of purchases by the Appellant and the taxes already paid to the Respondent.

Respondent’s Case 17. The Respondent relied on its statement of facts dated 20th January 2025 and filed on even date. The Respondent also filed written submissions dated 7th May 2025 on even date in compliance with the directions of the Tribunal.

18. The Respondent stated that whereas it issued its assessment on 14th March 2024, the Appellant filed an objection manually on 22nd October 2024 which it received 23rd October 2024, being seven months after the statutory deadline of 30 days from the date of assessment as prescribed under Section 51(2) of the TPA.

19. The Respondent noted that the Appellant's reason for the delay was lack of access to the electronic mail address linked to i-Tax due to the director being out of the country for medical reasons. However, the Respondent asserted that the investigations revealed that the director's medical treatment was concluded in March 2024; no explanation was provided for the delay between March 2024 and October 2024; the Appellant continued to access and use i-Tax during this period, as evidenced by its timely filing of VAT and Income Tax returns.

20. Consequently, the Respondent issued its decision vide a letter dated the 4th November 2024 rejecting the Appellant's late objection request. The Appellant being aggrieved, filed its appeal.

21. The Respondent stated that where a taxpayer has not filed an objection within 30 days, the taxpayer can rely on Section 51 (6) of the TPA and make an application for late objection. It noted that Section 51(7) of the TPA provides that the Respondent has the discretion to allow or reject the application for extension of time to lodge an objection on grounds of absence from Kenya, sickness or any other reasonable cause.

22. Whereas the Appellant asserted that the director's illness and absence from the country constitute reasonable cause for the late filing of the objection, the Respondent argued that while illness and absence are recognized grounds under Section 51(7)(a) of the TPA, the Appellant failed to demonstrate that the delay of over seven months post-treatment was justified.

23. The Respondent also stated that the medical treatment was concluded in March 2024, and the Appellant provided no explanation for the delay between March 2024 and October 2024. This constitutes an unreasonable delay under Section 51(7) (b) of the TPA.

24. The Respondent stated that the Appellant attached a medical report dated 10th December 2024 as part of its documentation. The Respondent urged the Tribunal to disregard the report as it was not provided at the time of the Respondent's review. Furthermore, it argued that the report was generated after the Respondent had already rendered the decision on 4th November 2024 to disallow the late objection application.

25. Additionally, the Respondent claimed that evidence from i-Tax records showed that the Appellant accessed the platform during the contested period to file VAT and Income Tax returns. The Respondent argued that this undermines the claim of lack of access due to illness or absence.

26. The Respondent cited the case Republic v. Kenya Revenue Authority Ex Parte Shake Distributor Ltd [2020] eKLR, the Court held that taxpayers bear the burden of proof to substantiate claims of compliance or justifiable delays. According to the Respondent, the Appellant's failure to provide adequate documentation or explanations weakens the Appellant’s position.

27. Whereas the Appellant asserted that the 40% mark-up applied to the cost of sales is excessively high and unrealistic, considering that the Appellant had just commenced operations in 2022. the Respondent’s view was that the application of the 40% mark-up was based on: Industry benchmarks and prevailing market conditions; the absence of evidence from the Appellant to justify a lower markup or provide alternative calculations. The Respondent asserted that the Appellant failed to discharge the burden of proof which was contrary to section 56(1) of the TPA.

28. The Respondent stated that the re-computation of sales and resulting variance of Kshs 53,417,224. 00 was necessitated by the Appellant's under-declaration of income, as evident from discrepancies between declared sales and computed sales.

29. The Respondent argued that its approach was consistent with Section 29 of the PTA which allows for estimated assessments where accurate records are unavailable or where discrepancies exist.

30. On whether the Respondent erred by finding that the Appellant had unpaid Taxes whereas the Appellant had met all tax obligations, the Respondent stated that the Appellant failed to prove that the decision was incorrect.

31. On whether the Respondent erred in law by disallowing or failing to consider the Appellant's already paid taxes on its purchases in the sum of Kshs 48,437,706. 00 as part of the Appellant's costs, the Respondent asserted that the audit revealed that the purchases in question were not supported by customs data or valid documentation. The Respondent asserted that these purchases, while claimed in the VAT returns, were flagged as untraceable.

32. The Respondent asserted that under Section 17 of the Value Added Tax Act, CAP 476 of the Laws of Kenya, deductions on input tax must be supported by valid tax invoices or customs documentation but the Appellant failed to provide the necessary evidence to substantiate its claim.

33. It averred that it considered all payments and credits backed by verifiable documentation. The Appellant has not demonstrated that any legitimate costs or payments were excluded from the assessment. It stated that the Tribunal does not have jurisdiction to entertain the matter as there was no appealable decision.

34. In its written submissions, the Respondent submitted that the Appellant failed to account for the delay in filing the objection therefore, the Respondent declined to allow late application under section 51(7) of the TPA.

35. It submitted that the additional assessments for income tax and VAT were lawfully imposed as it was guided by the provisions of section 29 of the TPA. It also submitted that the Appellant failed to discharge its burden of proof contrary to the provisions of section 56(1) of the TPA.

36. The Respondent cited the case of Chromawave Enterprises Limited v Commissioner of Domestic Taxes [2024] KETAT 28 (KLR) to support the position that a taxpayer must adduce evidence to substantiate its/his/her claim. The Respondent insisted that the Appellant failed to do so.

Respondent’s Prayers 37. Based on the foregoing, the Respondent made the following prayers:a.Respondent’s decision issued on the 4th November 2024 be upheld;b.That the taxes due and unpaid together with interest thereon be paid to the Respondent; andc.That the Respondent reserves the right to adduce any further oral and written evidence during the hearing of the Appeal;d.That this appeal be dismissed; ande.That the Appellant be compelled to pay costs to the Respondent

Issues For Determination 38. Having carefully considered parties’ pleadings, documents and written submissions the Tribunal finds that there are two issues for determination as follows:a.Whether the Appeal is properly before the Tribunal.b.Whether the Appellant discharged its burden of proof.

Analysis And Findings 39. The Tribunal will proceed to analyse the issues as hereunder:a.Whether the Appeal is properly before the Tribunal.

40. The Tribunal cannot make any step where it has no jurisdiction. The question of jurisdiction was discussed in the locus classicus case of Owners of the Motor Vessel “Lillian S” v Caltex Oil (Kenya) Ltd [1969] KLR, wherein Nyarangi JA held, inter alia as follows:‘‘…Jurisdiction is everything. Without it, a court has no power to make one more step. Where a court has no jurisdiction, there would be no basis for a continuation of the proceedings pending other evidence. A court of law downs its tools in respect of the matter before it the moment it holds the opinion that it is without jurisdiction.”

41. The Appellant in its pleadings admitted that it delayed in filing its notice of objection within 30 days. The Appellant was concerned that the Respondent unfairly refused to admit the late objection. On the other hand, the Respondent stated that it declined to allow the Appellant to file notice of objection on the basis that the Appellant did not justify why it delayed to in filing its objection.

42. A taxpayer who disputes an assessment has a duty to file notice of objection within 30 days as provided for under the TPA. Section 51(2) of the TPA provides as follows:2. A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision.”

43. Pursuant to the provisions of the TPA, a taxpayer may delay in filing an objection against the assessments. The law provides a remedy for such a situation and in that regard, section 51(6) of TPA provides as follows:“A taxpayer may apply in writing to the Commissioner for an extension of time to lodge a notice of objection.”

44. When lodging an application under section 51(6) of the TPA, the taxpayer has must satisfy the Respondent on why it delayed in filing an objection within the required timeline. The Tribunal notes that pursuant to section 51(7) of the TPA, the Respondent has discretion to allow or reject the application. Section 51(7) of the TPA provides as follows:“The Commissioner shall consider and may allow an application under subsection (6) if—a.the taxpayer was prevented from lodging the notice of objection within the period specified in subsection (2) because of an absence from Kenya, sickness or other reasonable cause; andb.The taxpayer did not unreasonably delay in lodging the notice of objection.”

45. The Tribunal notes that the Appellant’s late notice of objection was not validated by the Respondent under Section 51(7) of the TPA and consequently can infer that there was no notice of objection on record. As a result, the Appellant did not object to the assessment and this therefore means that the that the following provisions of section 51(1) of the TPA were invoked:‘‘A taxpayer who wishes to dispute a tax decision shall first lodge an objection against that tax decision under this section before proceeding under any other written law.’’

46. The view of the Tribunal is that pursuant to section 51(1) of the TPA, filing an objection against a tax decision is a condition precedent before proceeding under any other written law. The phrase ‘any other written law’ as stated under section 51(1) of the TPA includes the Tax Appeals Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”). Consequently, the Appellant is unable to invoke the powers of the Tribunal because there was no objection to the assessments.

47. The Tribunal is of the further view that in absence of a notice objection, an appealable decision contemplated under Section 52 of the TPA could not be issued and therefore, the Tribunal finds that there was no appealable decision.

48. The Tribunal notes the assertion of the Appellant that it provided grounds for filing the objection late in its notice of objection. The Tribunal is of the view that pursuant to the provisions of Section 51 (7) of the TPA, the Respondent must consider an application for extension of time to file a late notice of objection but that however, the Respondent has the discretion on whether or not to allow such an application. The Tribunal’s firm view is that it lacks jurisdiction to determine whether or not the Respondent can exercise its discretionary powers as provided for under Section 51(7) of the TPA.

49. Based on the foregoing, the Tribunal finds and holds that Appeal is improperly before it and having so made this finding, the analysis of the remaining issue is rendered moot.

Final Decision 50. The upshot to the foregoing is that the Tribunal finds and holds that the Appeal improperly before it and it proceeds to make the following Orders:a.The Appeal be and is hereby struck out.b.Each party to bear its own cost.

51. It is so Ordered.

DATED AND DELIVERED AT NAIROBI THIS 21ST DAY OF MAY, 2025CHRISTINE A. MUGA - CHAIRPERSONELISHAH N. NJERU - MEMBEREUNICE N. NG’ANG’A - MEMBEROLOLCHIKE S. SPENCER - MEMBER