https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/110

Armadilo Equity Ltd v Commissioner of Legal Services & Board Co-ordination (Tax Appeal E1253 of 2025) [2026] KETAT 110 (KLR) (2 June 2026) (Judgment) Neutral citation: [2026] KETAT 110 (KLR) Republic of Kenya In the Tax Appeal Tribunal Tax Appeal E1253 of 2025 RM Mutuma, Chair, JM Malla, G Ogaga & T Vikiru, Members June 2, 2026 Between Armadilo Equity Limited Appellant and Commissioner of Legal Services & Board Co-Ordination Respondent Judgment Background 1.The Appellant is company registered in Kenya under the Companies Act and registered for tax purposes. Its principal activity is to lease and rent out commercial property. 2.The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws. 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.The Respondent on the 21st and 28th June 2024 issued the Appellant with additional assessments for the period 2016 - 2023 amounting to Kshs. 54,211,284.30. 4.On 20th August 2024, the Appellant filed a late objection which was accepted by the Respondent. 5.The Respondent issued its Objection decision vide a letter dated 1st October 2024. 6.Being dissatisfied with the Respondent’s Objection decision, the Appellant filed the instant Appeal on 3rd September 2025 having been granted by the Tribunal leave file the appeal out of time. The Appeal 7.The Appellant lodged memorandum of appeal dated 1st October 2025 raising the following grounds of appeal:a.That the Respondent is yet to vacate the assessments, which has hindered the submission of the self-assessment returns for the periods.b.That in the assessment notice, the Respondent assessed corporation taxes based on the sales declared in the VAT returns allowed for purchases in the VAT returns which were not correctly extracted, and demanded corporation tax for the years 2016 - 2023 of Kshs. 54,211,284.30 which is incorrect.c.That the Respondent erred in law and fact by disregarding the Appellant's audited financial statements and basing their assessment on incorrect estimates.d.That the correct tax position for the years of income 2016 - 2023 was as per the audited financial statements.e.That the Respondent erred in its estimates by failing to take into account the full disclosures as entailed in the audited financial statements and supporting documentation to arrive at the correct tax position, and the additional tax liability is therefore incorrect.f.That the sales figures as derived in the Respondent’s Decision assume that the company is a December year-end, yet the accounting period for the Appellant business remains to be September, and therefore the estimates would be incorrect based upon this fact.g.That the Respondent’s estimates are baseless and misleading and this Honourable Tribunal should not allow the incorrect estimates by the Respondent as they would result in excessive taxes being demanded, and which the Appellant would not financially be capable of paying since no such taxable profits were achieved in the said periods. The Appellant’s Case 8.In support of the appeal, the Appellant a statement of facts dated 1st October 2025 wherein it stated as follows:i.The Appellant is a resident company whose principal activity is to lease and rent out commercial property in exchange for rental income.ii.The Respondent raised additional assessments in respect of corporation tax for the 2016 - 2023 tax periods issued between 21st June 2024 and 4th July 2024.iii.The additional assessments were objected to on 20th August 2024 and later accepted as a late objection application on 6th September 2024.iv.The Respondent issued the confirming notice on 1st October 2024.v.The Appellant prays that the Respondent be required to amend the 2016 - 2023 additional assessments in light of the Memorandum of Appeal. 9.The Appellant filed written submissions dated 18th February 2026 wherein it submitted that the Respondent erred in raising additional assessments on iTax based on incorrect estimates. 10.It submitted that the Respondent assessed corporation taxes based solely on the sales declared in the Appellant’s VAT return, and that the Respondent also assessed corporation taxes based on the purchases declared in the VAT returns for the periods October 2015 - September 2023, and only allowing for tax purposes these purchases against the incomes generated for the respective tax periods yet the purchases figures were not correctly extracted. 11.The Appellant submitted that the sole reliance by the Respondent on incorrect extraction of figures from the VAT returns for the sales and expenditure figures resulted in the Respondent arriving at a tax liability of Kshs 54,211,284.30, which is grossly overstated. It submitted that the Respondent erred in law and fact by disregarding the Appellant's audited financial statements and basing the assessment on incorrect estimates. 12.According to the Appellant, the correct tax position for the years of income 2016 - 2023 was as per the audited financial statements that were attached in the Appeal papers. It submitted that the estimates arrived at by the Respondent also assume that the books of accounts prepared by the Appellant are maintained using a December accounting year-end. In the contrary, the Appellant submitted that the correct accounting period is September, as confirmed from the audited financial statements. 13.It submitted that the estimates arrived at by the Respondent are therefore baseless and misleading and this Honourable Tribunal should not allow the incorrect estimates by the Respondent as they would result in excessive taxes being demanded. 14.The Appellant submitted that it stands to be greatly prejudiced if the estimates by the Respondent are allowed since the former did not achieve such taxable profits and would further be financially incapable of paying the incorrect resultant taxes. 15.The Appellant contended that the Respondent acted in total disregard to audited figures when raising the additional assessments and further upon issuing the confirmation notice. Appellant’s Prayers 16.The Appellant prayed that the Honourable Tribunal be pleased to order the Respondent to amend the additional assessments to the figures captured and derived from the audited accounts. The Respondent’s Case 17.In response to the appeal, the Respondent lodged a Statement of facts dated 2nd February 2026. 18.The Respondent’s case was that Section 3(1) of the Income Tax Act Cap 470 (ITA) charges tax on all income generated in Kenya. 19.The Respondent contended that the Appellant failed to validate its objection. It relied on Section 15(1) of the ITA that provides for deductions allowed. Further it relied on Section 59 of the Tax Procedures Act Cap 469B (TPA) which allows the Respondent to seek any information relating to the ascertaining of the correct tax liability of an Appellant. 20.It asserted that the Appellant failed to furnish documentary evidence which is inconsistent with provisions of Section 56 (1) of the TPA, which states, “In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.” 21.It relied on Section 31(1)(c) of the TPA which empowers the Respondent to amend assessment to ensure that the taxpayer pays the correct amount of tax payable in respect of the reporting period to which the original assessment relates. 22.It relied on Section 31(2) of the TPA which provides that a taxpayer who has made a self-assessment may apply to the Commissioner, within the period specified in subsection (4)(b)(i), to make an amendment to the taxpayer's self-assessment. 23.The Respondent also relied on Section 51 of the TPA, which provides that for a notice of objection to be treated as validly lodged, all the relevant documents relating to the objection need to be provided. 24.It cited the case of Mulherin v Respondent of Taxation (2013) FCAFC where the Full Court of Australia (RFC) held that, “an Appellant must satisfy the burden of proof to successfully challenge tax assessments…. Rather, Appellant in proving that an assessment issued by the Respondent is excessive can only be discharged by Appellant by adducing positive evidence.” 25.The Respondent averred that the Appellant failed to fully provide the required documents for the objection application. It contended that the Appellant failed to prove the Respondent’s assessments were erroneous as provided for under Section 56 of the TPA. 26.The Respondent also filed written submissions dated 27th February 2026 wherein it submitted that the Respondent did not err in the computation and confirming the additional assessment. It also submitted that the Appellant failed to discharge its burden of proof. 27.It submitted that since the Appellant failed to avail documents, the Respondent was justified under Section 31(1) of the TPA to rely on the available documents. 28.The Respondent cited the cases of Grace Njeri Githua V Commissioner of Investigations & Enforcement (Tat No. 102 Of 2018); Ushindi Limited v Commissioner of Investigation and Enforcement Kenya Revenue Authority [2020] eKLR; Digital Box Limited versus Commissioner of Investigations and Enforcement [2020]; and Republic V KRA: Proto Energy Limited (2022) eKLR to submit that the burden is on the Appellant to prove the assessment was wrong but the Appellant failed. 29.The Respondent also cited the cases of Boleyn International Limited vs Commissioner of Domestic Taxes TAT No. 55 of 2018; and Afya Xray Centre Limited vs Commissioner of Domestic Taxes TAT No. 70 of 2017 to support the position that the Appellant has to provide the relevant documents in support of its objection but the Appellant failed to do so. Respondent’s Prayers 30.The Respondent prayed that this Tribunal upholds the Respondent’s Objection decision dated 1st October 2024 as proper and in conformity with the provisions of the Law, and dismiss the appeal. Issue for Determination 31.The Tribunal having carefully evaluated parties’ pleadings and submissions it is of the view that the main issue that calls for its determination is: -Whether Respondent erred in confirming the assessment Analysis and Findings 32.The Tribunal analysed the issued for determination as hereunder. 33.The Appellant argued that the Respondent erred by disregarding the Appellant's audited financial statements and basing the assessment on incorrect estimates. It argued that the Respondent failed to take into account the full disclosures as entailed in the audited financial statements and supporting documentation. On the other hand, the Respondent stated that despite reminders, the Appellant failed to provide documents to support the notice of objection therefore, it confirmed the assessment. 34.Section 50(1)(a) of the TPA provides a rebuttable presumption that the Respondent’s decision is conclusive and correct. It then follows that the Appellant has to prove that the decision is incorrect. In particular, the said section provides as follows:“50.Conclusiveness of tax decisions(1)Except in proceedings under this Part—(a)the production of a notice of an assessment or a document under the hand of the Commissioner shall be conclusive evidence of the making of the assessment and that the amount and particulars of the assessment are correct.’’ 35.To rebut the presumption under Section 50(1)(a) of the TPA, and in cases where the Appellant is appealing on matters of fact, the Appellant has a duty to adduce relevant documentary evidence to prove those facts so as to discharge the burden of proof. Section 56(1) of TPA places the burden of proof upon the taxpayer. It provides that, ‘In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.’’ 36.The Taxpayer has to keep and adduce documents to support notice of objection to discharge the burden of proof. In this regard, the TPA mandates the taxpayer to keep records to facilitate determination of tax liability. In particular, Section 23 (1)(b) of the TPA stipulates that: -“a person shall—(b)maintain any document required under a tax law so as to enable the person's tax liability to be readily ascertained.” 37.The Respondent raised income tax default assessment on the basis that the Appellant had not filed income tax returns. The expectation was for the Appellant to adduce documents to demonstrate that the Respondent erred. The ITA mandates the Taxpayer to keep records. Section 54A (1) thereof provides that:“54A.Keeping of records of receipts, expenses, etc.1.A person carrying on a business shall keep records of all receipts and expenses, goods purchased and sold and accounts, books, deeds, contracts and vouchers which in the opinion of the Commissioner, are adequate for the purpose of computing tax.” 38.The Respondent also noted that the Appellant had declared sales in VAT returns for the period but it failed to declare any sales under income tax returns. The Respondent then raised assessment concerning VAT. Value Added Tax Act Cap. 476 (hereinafter referred to as VATA) mandates the taxpayer to keep records. In particular, Section 43(1) of the VATA provides as follows:“43.Keeping of records(1)A person shall, for the purposes of this Act, keep in the course of his business, a full and true written record, whether in electronic form or otherwise, in English or Kiswahili of every transaction he makes and the record shall be kept for a period of five years from the date of the last entry made therein.” 39.Section 43(2) of the VATA provides some of the documents that the Taxpayer has to keep as follows:“(2)The records to be kept under subsection (1) shall include—(a)copies of all tax invoices and simplified tax invoices issued in serial number order;(b)copies of all credit and debit notes issued, in chronological order;(c)purchase invoices, copies of customs entries, receipts for the payment of customs duty or tax, and credit and debit notes received, to be filed chronologically either by date of receipt or under each supplier’s name;(d)details of the amounts of tax charged on each supply made or received and in relation to all services to which section 10 applies, sufficient written evidence to identify the supplier and the recipient, and to show the nature and quantity of services supplied, the time of supply, the place of supply, the consideration for the supply, and the extent to which the supply has been used by the recipient for a particular purpose;(e)tax account showing the totals of the output tax and the input tax in each period and a net total of the tax payable or the excess tax carried forward, as the case may be, at the end of each period;(f)copies of stock records kept periodically as the Commissioner may determine;(g)details of each supply of goods and services from the business premises, unless such details are available at the time of supply on invoices issued at, or before, that time; and(h)such other accounts or records as may be specified, in writing, by the Commissioner.” 40.In Saniken (K) Limited v Commissioner of Investigations and Enforcement [2023] KEHC 23536 (KLR) the Court held as follows at paragraph 18 of the judgment:“I am also alive to the fact that section 59 of the TPA and section 43 of the VAT Act impose an obligation for tax payers to keep their records for a period of up to five (5) years and produce them when required by the tax authorities. I do not find anything unreasonable about the request for further evidence under the circumstances.’’ 41.When the Respondent issues an assessment, the expectation is that the taxpayer will file a notice of objection and file documents in support of the objection. Section 51(3)(c) of the TPA mandates the taxpayer to file documents when objecting. It provides that;-(3)3) A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if—(c)all the relevant documents relating to the objection have been submitted. 42.The foregoing provisions of the law were enacted to guide taxpayers on how to discharge burden of proof. The burden to adduce documentary evidence is continuous until the matter is heard and determined with finality. The burden does not terminate at objection stage. This is so because upon filing an appeal to this Tribunal, the Appellant has a statutory obligation to prove that the Respondent’s decision was incorrect or should have been made differently. Section 30 of the TATA postulates thus:“ 30.In a proceeding before the Tribunal, the appellant has the burden of proving—(a)Where an appeal relates to an assessment, that the assessment is excessive; or(b)In any other case, that the tax decision should not have been made or should have been made differently.” 43.Courts have pronounced themselves on the role of the taxpayer in tax matters. In the case of Kenya Revenue Authority v Maluki Kitili Mwendwa [2021] eKLR, Mativo J (as he then was) held:“The pertinent issue in this appeal as I see it is the question of the taxpayer's burden of proof in tax cases. The party with the obligation of persuasion - what Wigmore termed the risk of non-persuasion - is said to bear the burden of proof. [14] The effect of non-persuasion on a party with the burden of proof is that the particular issue at stake in the litigation will be decided against the party. Generally, the taxpayer has the burden of proof in any tax controversy. The taxpayer must demonstrate that the commissioner's assessment is incorrect. The taxpayer has a significantly higher burden. The taxpayer must prove the assessment is incorrect. This position enjoys statutory backing courtesy of section 56 (1) of the TPA which provides that in any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect. As if to underscore the import of the above provision, the legislature deployed the word “shall'' in the said section meaning that the provision is couched in peremptory terms.” 44.In the case of Singapore Motors Limited v Commissioner of Domestic Taxes (Income Tax Appeal E039 of 2021) [2024] KEHC 2443 (KLR) the High Court held that, ‘This Court has remained emphatic that under section 30 of the Tax Appeals Tribunal Act (TATA) and section 56 of the Tax Procedures Act (TPA), the burden of proving that an assessment is wrong or excessive remains upon the taxpayer.’’ 45.The question then is whether the Appellant fulfilled its statutory duty to prove that the assessments should not have been confirmed. 46.The Appellant filed the following documents:i.Financial statement for the years 2023, 2022, 2021 and 2020. However, the assessment covered the period from 2016 to 2023 therefore, the Appellant did not file complete records.ii.e-Return Acknowledgment Receipt (being for default assessment)iii.notice of objection dated 20th August 2024iv.Objection Decision dated 1st October 2024. 47.Considering that the Respondent issued income tax and VAT assessment, the documents that the Appellant filed could not demonstrate that the Respondent erred in confirming the assessment. 48.The Appellant’s main argument is that the correct tax position for the years of income 2016 - 2023 was as per the audited financial statements. The Tribunal noted that the Appellant did not provide primary documents to support the financial statements. Financial statements constitute secondary evidence, the financial statement must have been generated from primary documents which the Appellant did not adduce to support the appeal. Financial statements on their own are not sufficient. 49.The Appellant filed a statement of facts wherein it stated that Respondent raised assessments, the Appellant objected to those assessments, and that the Respondent confirmed the assessment. Nothing more. The Statement of facts does not contain material facts to enable the Tribunal make a decision in favour of the Appellant. 50.The Appellant failed not only to file documentary evidence, it did not make reference to documentary evidence save for the financial statements which are not source documents and cannot be relied upon on their own, to prove that the Respondent erred. 51.Apart from the foregoing, one of the grounds of appeal in the memorandum of appeal was that sales figures as derived in the Respondent’s decision assume that the company’s financial year ends in December yet the financial year for the Appellant business is September. On this basis, the Appellant argued that the estimates would be incorrect based upon this fact. This argument has two key problems. First, the Tribunal examined the notice of objection dated 20th August 2024 and noted that the Appellant did not raise this issue in the objection. Therefore, pursuant to Section 56(3) of the TPA, this issue cannot be canvassed in this appeal as the Tribunal does not have jurisdiction to deal with it. Secondly, the Appellant’s statement of facts does not demonstrate the impact on the impugned assessment, of assuming that the company’s accounting period ends in December instead of September. 52.The Appellant did not make sufficient effort as would be expected of a diligent taxpayer to support its position. Consequently. The Tribunal finds and holds that the Appellant failed to demonstrate that the Respondent erred in confirming the assessment. Final Determination 53.The upshot to the foregoing is that the Tribunal finds and holds that the Appeal is not meritorious and makes the following orders:a.The Appeal be and is hereby dismissed;b.The Respondent Objection decision dated 1st October 2024 be and is hereby upheld; andc.Each party to bear its own cost. 54.It is so ordered. DATED AND DELIVERED AT NAIROBI THIS 2ND DAY OF JUNE 2026.………………………………..ROBERT M. MUTUMACHAIRMAN……………………………… ……..….……..……………..JIMMY M. MALLA.MEMBER……………………………… ……..….……..……………..GLORIA A. OGAGAMEMBER………………………………DR. TIMOTHY B. VIKIRUMEMBER