[2025] KETAT 115 (KLR)

Astronea Construction Limited v Commissioner of Domestic Taxes (Tax Appeal E328 of 2024) [2025] KETAT 115 (KLR) (Commercial and Tax) (7 February 2025) (Judgment)

Neutral citation: [2025] KETAT 115 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tax Appeal E328 of 2024

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

February 7, 2025

Between

Astronea Construction Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability Company duly incorporated in Kenya, in the construction industry.

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. The Respondent issued additional assessment dated 5th December 2023 following turnover variance between Sales declared in Income Tax returns and VAT returns for the periods 2020 to 2023. On 3rd January 2024, the Appellant lodged online objections, challenging the additional assessment.

4. The Respondent issued an objection decision through a letter dated 22nd February 2024 wherein the Respondent confirmed the additional assessment.

5. The Appellant being dissatisfied with the Respondent’s objection decision, filed the instant Appeal through the notice of appeal dated 18th March 2024 and filed on 19th March 2024.

The Appeal 6. The Appellant lodged its memorandum of appeal dated 18th March 2024 and filed on 19th March 2024 raising the following grounds of appeal:a.That the Respondent erred in fact and law by fully rejecting the objection to VAT and income tax- company assessments.b.That the Appellant's director, at the time of objection review, was of ill-health and could not discharge the mandate as per the requirements of Section 51 of the Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter “TPA”) by availing documents in support of the objection.c.That the Appellant does not agree to the amount payable as per the decision issued by the Respondent and wishes to avail all the reconciliations of VAT and copies of audited financial statements for the periods assessed strained the administrative process of the company, and consequently the accountant did not submit the same in good time.d.That the Respondent proceeded to issue an objection decision on 22nd February 2024, confirming the assessments.e.That the Appellant is ready and willing to provide any documents required by the Respondent for review and verification in order to determine the correct tax position.f.That in light of the above, it is the Appellant's case that the decision made by the Respondent confirming the assessment of Kshs 48,903,011. 00 is unfair and does not reflect the right tax payable.g.That the Appellant prays to this Tribunal to review the Appellant's objection of its merit and restrain the Respondent from enforcing the said decision.

Appellant’s Case 7. In support of the appeal, the Appellant filed its statement of facts dated 18th March 2024 and filed on 19th March 2024. The Appellant also filed written submissions on 30th October 2024 which were adopted by the Tribunal during the hearing on 13th November, 2024.

8. The Appellant stated that on 4th December 2023 and 5th December 2023, the Respondent issued income tax and VAT assessments against the Appellant amounting to Kshs 48,903,011. 00 and that subsequently, on 3rd January 2024, the Appellant objected to the assessments and uploaded a letter stating the grounds of objection and expressed willingness to corporate with the Respondent during objections review.

9. It was the Appellant’s case that its director was experiencing ill-health at the time when the Respondent requested for supporting documents.

10. In its written submission, the Appellant submitted that Respondent’s objection decision was not validly issued as the Respondent did not comply with the law and in particular, Article 47 of the Constitution of Kenya, 20210 (hereinafter “the Constitution”) on the right to fair administrative action.

11. The Appellant cited the case of Kenya Agricultural and Livestock Research Organization v Leah Okoko & another [2022] eKLR where the High Court held as follows:“Finally, this court observes that points of law can be raised at any time of the proceedings in a case before it. Points of law need not be pleaded as parties are only expected to plead facts and submit on points of law.”

12. The Appellant cited Section 51(4) of the TPA to argue that the Respondent failed to issue a notice under the said law. The said section provides as follows:“Where the Commissioner has determined that a notice of objection lodged by a taxpayer has not been validly lodged, the Commissioner shall within a period of fourteen days notify the taxpayer in writing that the objection has not been validly lodged.”

13. The Appellant submitted that it is currently engaging with the Respondent in an ADR process where the Appellant has since submitted all the necessarily documents that can explain the true tax position; the Appellant has submitted audited financial statements and reconciliations of vatable sales declared on iTax and all the VAT withholding certificates issued to the Appellant that seek to demonstrate that its self-assessment was accurate. It also submitted that the ADR process being a process that is executed on a ‘without prejudice’ basis, the Appellant does not have the remedy of introducing this evidence at the Tribunal to support its appeal.

14. It relied on that Section 13(6) of the Tax Appeals Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”) which provides as follows:“The appellant shall, unless the Tribunal orders otherwise, be limited to the grounds stated in the appeal or documents to which the decision relates.”

15. The Appellant submitted that the Respondent’s decision was affected by procedural impropriety. To shed light on this issue, the Appellant urged the Tribunal to consider the case of Republic v Principle Secretary, Ministry of Transport, Housing and Urban Development Ex parte Soweto Residents Forum CBO [2019] eKLR.

16. The Appellant also cited the case of Shelterbuilt Company Limited v Commissioner of Domestic Taxes TAT No. 357 of 2022 where it was held as follows:“A cursory reading of this provision, leaves no doubt in the Tribunal’s minds that the Commissioner is enjoined in mandatory terms to notify the taxpayer immediately of any invalidity in its notice of objection. The operative word herein is ‘’immediate”, which means without any delay or instantly. This therefore connotes in essence that the notification is not tethered to the sixty days requirement for rendering an objection decision. It ought to be instantly the triggering action is occasioned… In view of the foregoing, the Tribunal finds that the Respondent’s notice of invalidation of objection dated 26th April 2021 was issued in contravention of the provisions of Section 51(4) of the Tax Procedures Act and is therefore invalid.”

17. Apart from the highlighted cases laws, to beef up the assertion that the Respondent ought to have issued a notice under section 51(4) of the TPA, the Appellant referred to the following case laws: Friends Hotel Kakamega Limited v Commissioner of Domestic Taxes TAT No. 1148 of 2022;

H & K Auto BoxLimited v Commissioner of Domestic Taxes TAT 660 of 2022;

Kaara vs Commissioner of Domestic Taxes TAT No. 393 of 2022; and

Equity Group Holdings Limited v Commissioner of Domestic Taxes (civil appeal E069 & E025 of 2020) KEHC 25 eKLR.

18. Based on the foregoing, the Appellant submitted that that the objection decision being an administrative action failed the constitutional and statutory tests of lawfulness, reasonableness and procedural fairness and as such should be vacated by this Tribunal as the judicial authorities cited.

Appellant’s Prayers 19. The Appellant made the following prayers to the Tribunal:a.This Appeal be allowed;b.The Respondent’s decision as contained in the letter dated 22nd February 2024 be set aside in its entirety;c.The costs of and incidental to this Appeal be awarded to the Appellant; andd.Any other orders that the Tribunal may deem fit.

Respondent’s Case 20. In response to the appeal, the Respondent lodged a Statement of facts dated and filed on 19th April 2024. The Respondent also relied on its written submissions dated 29th October 2024.

21. The Respondent case is that pursuant to Section 24(2) of the TPA, the Respondent is not bound by a tax return or information provided by, or on behalf of, a taxpayer and may assess a taxpayer's tax liability using any information available to him. It also cited the provision of Section 31 (1) of the TPA to argue that the said law allows the Respondent to amend a taxpayer's assessment.

22. It averred that the inquiry into the Appellant's affairs revealed a variance of the Income Tax and withholding VAT returns for the periods 2018 to 2022. Consequently, the Respondent charged to tax the variances in the returns filed for the periods under consideration.

23. The Respondent alleged that it requested the Appellant to provide material information to reconcile the noted variances and specifically requesting for the following documents:a.WHT certificates analysis stating when each certificate was declared;b.Duly signed audited financial statements from 2020 to 2023;c.Variances reconciliation and supporting documents for the periods under review.

24. According to the Respondent, the Appellant failed to present the material requested, therefore, failing to muster its evidential burden under section 56(1) of the TPA and 30 of TATA. The Respondent also argued that the assessment is premised on Respondent's best judgement based on the noted variances as sourced from the Appellant's self-generated data. The Respondent therefore, stated that the Additional VAT and Income Assessments were proper and should be upheld by this Tribunal.

25. In addition to the statement of facts, the Respondent relied on its written submissions wherein it identified two issues for determination as follows: first, whether the Appellant’s notice of objection is valid and whether the Appeal is premised on an Appealable decision; and second, whether the Respondent’s charge of Income and VAT taxes of the Appellant is erroneous or excessive.

26. With regard to whether the Appellant’s notice of objection is valid and whether the Appeal is premised on an Appealable decision; the Respondent submitted that for an appeal to be valid, it has to comply with section 51(1) of the TPA. It also submitted that the objection has to comply with section 51(2) and (3) of the TPA which states that ‘states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments’ and ‘all relevant documents relating to the objection have been submitted.’

27. It relied on the case of Transfix Limited v Commissioner of Domestic Taxes Misc. No. 178 of 2022 where this Tribunal found that a taxpayer has to file a valid notice of objection for the Respondent to proceed. The Respondent submitted that the Appellant filed an invalid objection, failing to provide relevant documents in support of the objection decision. The Respondent submitted that the Appellant on 7th July 2022 via electronic mail requested the Respondent for additional time to tender the necessary documents.

28. With regard to the provisions of section 51(4) of the TPA, the Respondent relied on the case of Holdwadag Construction Company Limited V Commissioner of Investigations & Enforcement Appeal No. 606 of 2020 to submit that the Tribunal noted the immediacy test under the section does not prescribe a mandatory timeline/period, cast in stone in law.

29. The Respondent submitted that its accommodation of the Appellant’s request to validate its objection for 44-days, from the 7th July 2022 to 24th August 2022, militate against a finding of failure to adhere to the immediacy principle. It submitted that its grace and magnanimity ought not be held against it. The Respondent reiterated that the Appellant having failed to validate its objection decision, the Respondent invalidated the Appellant’s objection on 24th August 2022 divesting the Tribunal of jurisdiction to entertain the subject Appeal.

30. As to whether the Respondent’s charge to tax of the Appellant is erroneous or excessive, the Respondent submitted that the Appellant failed to provide the relevant supporting documents to discharge the burden of proving the assessments as incorrect. It argued that the Appellant has an obligation to keep records under section 23 of the TPA but it failed to do so. The Respondent also submitted that the Appellant failed to provide document to support its notice of objection contrary to Section 17(2) of the Value Added Tax Act, CAP 476 of the Laws of Kenya (hereinafter “VAT Act”).

31. The Respondent relied on the case of Highlands Mineral Water Limited v TheCommissioner of Domestic Taxes, Tax Appeal E026 of 2020 where the court held as follows:“34. I agree with the Appellant and I hold that the plain and unambiguous language of Section 17 of the VAT Act is clear that the only conditions provided for a Taxpayer to qualify for input VAT are: That the input tax was incurred on a taxable supply made to or on importation made by a taxpayer at the end of the tax period, That the input tax is deducted by a registered person on taxable supplies made by him; and That the input tax is to be allowable for deduction within six months after the end of the tax period in which the supply or importation occurred.”

32. The Respondent also submitted that a taxpayer’s claim of deductibles is only valid in law if supported by relevant evidence. It asserted that the Appellant failed to comply with section 17 of the VAT Act and 16 of the Income Tax Act, CAP 470 of the Laws of Kenya (hereinafter “ITA”) on allowable deductions under the respective regimes. The Respondent cited the case of Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR to submit that the Appellant failed to provide documentary evidence therefore, it failed to discharge the burden of proof therefore, the appeal should be dismissed.

Respondent’s prayers 33. The Respondent prayed for the following Orders from the Tribunal:a.That the Tribunal upholds the Respondent’s objection decision dated 22nd February 2024 as proper and in conformity with the provisions of the Law; andb.The Tribunal dismisses the appeal with costs to the Respondent.

Issues For Determination 34. The Tribunal having carefully evaluated parties’ pleadings, documentation and submissions is of the respectful view that the main issue that call for its determination is as hereunder: -1. Whether Appellant discharged its burden of proof.

Analysis And Findings 35. The Tribunal will proceed to analyse the issues identified for determination hereinunder:

Whether Appellant discharged its burden of proof. 36. In analysing this issue, the Tribunal is guided by Section 13(2) of TAT Act which provides as follows:‘‘(2)The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the Tribunal, of—(a)A memorandum of appeal;(b)Statements of facts;(c)The appealable decision; and(d)Such other documents as may be necessary to enable the Tribunal to make a decision on the appeal [emphasis ours]’’

37. The Appellant in its pleadings conceded to not have adduce in record any documentary evidence in support of its appeal, it cited section 13(6) of the TATA as one of the barriers as to why it did not file documentary evidence in support of this appeal. The said section 13(6) provides as follows:“The appellant shall, unless the Tribunal orders otherwise, be limited to the grounds stated in the appeal or documents to which the decision relates.”

38. Whereas section 13(6) of TATA binds the Appellant to the documents or grounds as stated in its appeal, the same law provides an avenue for a taxpayer adduce additional grounds of appeal or additional documents with leave. The words, ‘unless the Tribunal orders otherwise’ allows a taxpayer to seek leave from the Tribunal to adduce additional grounds or additional documents in support of the appeal. In the instant case, the Appellant did not utilise this section to file additional documents. Instead, the Appellant seems to have chosen to make the section a barrier to its case.

39. In addition, the Tribunal has examined the objection decision and noted that the Respondent’s statement of findings states as follows:‘‘In the review process we requested you to provide the following;1. WHT certificates analysis clearly stating when each certificate was declared.2. Duly signed audited financial statements for year 2020, 2022, and 2023. 3.Variance reconciliation and supporting documents for the years under review.Despite numerous reminders, no documents were availed. We wrote intention to confirm the case which you did not respond to.’’

40. From the foregoing, the Appellant was well aware that it was supposed to avail documents to the Respondent in support of its notice of objection but failed to do so. The Appellant failed to adduce documents at objection stage and still failed to adduce documents at the appellate level. The Appellant sought to rely on section 51(4) of TPA and unsuccessfully failed to invoke the said law as this appeal collapses because it offends section 13(2) (d) of the TATA and Rule 5 of the Tax Appeals Tribunal (Procedure) Rules, 2015.

41. Consequently, the Tribunal finds and holds that the Appellant failed to discharge its burden of proving that the Respondent’s decision was incorrect or ought to have been made differently and therefore this Appeal falls.

Final Decision 42. The upshot to the foregoing is that the Tribunal finds and holds that the Appeal lacks merit and makes the following Orders:a.The Appeal be and is hereby dismissed.b.The Respondent objection decision dated 22nd February 2024 be and is hereby upheld.c.Each party to bear its own cost.

43. It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 7TH DAY OF FEBRUARY, 2025. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERELISHAH N. NJERU - MEMBEREUNICE N. NG’ANG’A - MEMBEROLOLCHIKE S. SPENCER - MEMBER