[2023] KETAT 105 (KLR)

Bami Investment Limited v Commissioner of Domestic Taxes (Tribunal Appeal 271 of 2022) [2023] KETAT 105 (KLR) (10 February 2023) (Judgment)

Neutral citation: [2023] KETAT 105 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal 271 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, AK Kiprotich & Jephthah Njagi, Members

February 10, 2023

Between

Bami Investment Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited liability company and it is a registered taxpayer. The Appellant is engaged in business of general supply of goods.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act and Kenya Revenue Authority is charged with the responsibility of among others, assessment, collection, accounting and the general administration of tax revenue on behalf of the Government of Kenya.

3. The Respondent raised additional assessment for VAT and Income tax on 4th April 2018, 3rd July 2018 and 14th February, 2019 for the years 2015, 2016 and 2018.

4. The Appellant lodged an objection application on 23rd May 2018. Subsequently the Respondent issued its objection decision on 24th January 2019

5. The Appellant being dissatisfied with the Respondent’s decision filed this Appeal on 15th March 2022.

The Appeal 6. The Appeal as stated in the Memorandum of Appeal filed on the 15th March, 2022 is premised on the following grounds:i.That the Respondent erred in its decision to issue the Appellant with additional tax assessment in respect of VAT.ii.The Respondent failed to consider the reasonable cause for the client to be allowed to explain the nature of the taxpayer business and made assumptions to raise the tax assessments.iii.That the Respondent failed to appreciate the exceptional circumstances under which the business was i.e. main director was indisposed for the longest time due to sickness. That attached herein is his medical report from Ladnan Hospital in support of the same.iv.That the Applicant’s main director had travelled away from the Country during the period for medical attention.v.The Respondent rejected all the Appellant’s objections for Value Added Tax and Income Tax.vi.The Respondent cited reasons of rejecting in totality the Appellant’s objection was that the objection does not precisely state the grounds of objection and the amendments required and not meeting the provisions of Section 51 of the Tax Procedures Act, 2013 (TPA).vii.That the Respondent failed to consider a reasonable cause for the taxpayer to be allowed late objection as per the provisions of Section 51(7) of the TPA.

The Appellant’s Case 7. The Appellant submitted that the grounds of rejecting the objection to the assessment was erroneous and flimsy and that the basis of the computation of the taxes were not clear.

8. That the main director had been unwell and had been intermittently available. It averred that due to his health condition, the taxpayer could not appeal to the objection decision early enough. Furthermore, the taxpayer’s condition had not yet fully stabilized health wise.

9. That the Constitution of Kenya calls for fair administration action i.e. fair hearing to be accorded to all parties before an escalated action be taken. The taxpayer was not accorded such treatment before the assessments were raised.

10. That the taxpayer did not receive prior communication/notice before the assessments as per the requirements of TPA.

11. The Appellant averred that the supporting documents presented in support of the objection were never considered due to the technicality given in the objection decision; that the objection was filed after stipulated time.

12. The Appellant submitted that the assessor did not consider that there was input VAT claimed during the period and this if considered will reduce the VAT assessed significantly.

13. It submitted that looking at the case, the prevailing circumstances, the business and how they have been affected by COVID 19, to be fair to the taxpayer and exercise the discretionary power of the Commissioner to allow the unclaimed inputs and expenses.

14. That the assessor did not consider that the taxpayer had allowable expenses during the period.

15. The Appellant averred that it suspects the taxes to be computed on wrong premise and proper explanations were not received to this effect. Therefore, the assessment was misleading and non-factual.

16. The Appellant contended that the assessment was exorbitant, punitive and unrealistic for a business undertaken by a taxpayer on this. That this kind of assessment was intended to punish the taxpayer and kick him out of business.

17. The Appellant submitted that there were two ways a self-assessment return can be amended;a.That the Commissioner as per TPA Section 31(1) gives a provision for the same and states as follows;“(1)Subject to this section, the Commissioner may amend an assessment (referred to in this section as the “original assessment") by making alterations or additions, from the available information and to the best of the Commissioner's judgement, to the original assessment of a taxpayer for a reporting period to ensure that—a.in the case of a deficit carried forward under the Income Tax Act (Cap. 470), the taxpayer is assessed in respect of the correct amount of the deficit carried forward for the reporting period;b.in the case of an excess amount of input tax under the Value Added Tax Act, 2013 (No. 35 of 2013), the taxpayer is assessed in respect of the correct amount of the excess input tax carried forward for the reporting period; orc.in any other case, the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates.”b.That the second way is through the taxpayer seeking amendment of his returns under Section 31(2) of the TPA.

18. The Appellant stated that it was beseeching the Commissioner to apply the fundamental principles of taxation, neutrality, efficiency, certainty & simplicity, effectiveness & fairness, flexibility and allow the taxpayers plea.

19. The Appellant requested the Commissioner to invoke Section 29 of the TPA on the use of available information and best judgement.

The Appellant’s Prayer 20. The Appellant prayed for;a.The VAT assessment computed on the wrong premise to be vacated by use of the relevant provisions of the TPA cited above in its submissions.b.The Income Tax assessed is not reasonable therefore should be eliminated.c.Any accrued interest and penalty as a result of the assessment to be waived.

The Respondent’s Case 21. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal:i.The Respondent’s Statement of Facts dated 13th April, 2022 and filed on the same day together with the documents attached thereto.ii.The Respondent’s written submissions dated and filed on 28th October 2022.

22. The Respondent stated that it is allowed by Section 24(2) of the TPA to assess a taxpayer’s liability using any information available to him. That this is to reaffirm that the Respondent operated within the confines of law by using data on supplies made to County Government.

23. The Respondent averred that the Appellant’s objection was made late in the day and did not meet the threshold stipulated under Section 51(3) of the TPA. Specifically, the objection did not state precisely the grounds of objection nor adduce evidence and/or documents in support of the objection.

24. That the Appellant was unable to avail all documentation in support of its application for extension of time that met the threshold of Section 51(7) of the TPA which provides that“…The Commissioner may allow an application for the extension of time to file a notice of objection 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; and (b) the taxpayer did not unreasonably delay in lodging the notice of objection.”

25. The Respondent averred that he is allowed by Section 31 of the TPA to make additional assessments based on the available information and to the best of his judgement.

26. The Respondent stated that he did not err in law because he carefully examined the information available to him before issuing assessments.

The Respondent’s Prayers 27. Based on the above, the Respondent prayed that the Tribunal considers the case and finds that:a.The Appeal lacks merit and ought to be dismissed.b.The Respondent is entitled to costs of the Appeal

Issue for determination 28. The Tribunal upon due consideration of the pleadings, documents and the written submissions filed on the part of both parties was of the view that the only issue that crystalized for its determination was: -Whether the Respondent erred in its assessment of VAT on the Appellant.

Analysis and Determination 29. The Tribunal having appropriately ascertained the issue that fell for its determination shall proceed to make an analysis on the issue as hereinafter.

30. The Tribunal noted that the Respondent on 24th January 2019 issued the Objection Decision following the Appellant’s earlier objection to the VAT assessments.

31. The Appellant averred that the supporting documents presented in support of the objection were never considered due to the technicality given in the objection decision; that the objection was filed after stipulated time.

32. The Appellant submitted that, in the assessment, the Respondent did not consider that there was input VAT claimed during the period and this if considered will reduce the VAT assessed significantly.

33. The Respondent on its part averred that he is allowed by Section 31 of the TPA to make additional assessments based on the available information and to the best of his judgement. The Respondent added that he did not err in law because he carefully examined the information available to him before issuing assessments.

34. Section 17(3) of the VAT Act provides as follows regarding documentation;“The documentation for the purposes of subsection (2) shall be—a.an original tax invoice issued for the supply or a certified copy;b.a customs entry duly certified by the proper officer and a receipt for the payment of tax;c.a customs receipt and a certificate signed by the proper officer stating the amount of tax paid, in the case of goods purchased from a customs auction;d.a credit note in the case of input tax deducted under section 16(2); ore.a debit note in the case of input tax deducted under section 16(5).”

35. In addition, Section 43 of the VAT Act provides as follows regarding 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 in Kenya for a period of five years from the date of the last entry made therein.(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; andh.such other accounts or records as may be specified, in writing, by the Commissioner.”

36. The Tribunal however noted that although the Appellant had stated that it had provided supporting documents to its objection, none of the documents prescribed under Section 17 of the VAT Act was attached to its Memorandum of Appeal for the benefit of the Tribunal and in support of the Appeal. It was the Tribunal’s position that since the Appellant deals with vatable goods/services it ought to have kept documents prescribed under Section 17 of the VAT Act and presented them in support of this Appeal in order for the to Tribunal verify for purpose of making a determination regarding its averments.

37. The provision of documents as evidence is well stated under Section 30 of the TAT Act which provides thus:“In a proceeding before the Tribunal, the appellant has the burden of proving-Where an appeal relates to an assessment, that the assessment is excessive; orIn any other case, that the tax decision should not have been made or should have been made differently.”

38. Additionally, the Tribunal found it appropriate to rely on the provisions of Section 107 of the Evidence Act which provides that:“Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.”

39. The court in Alfred Kioko Muteti v Timothy Miheso & another [2015] eKLR held that a party can only discharge its burden upon adducing evidence. Merely making pleadings is not enough., the court stated that:“Thus, the burden of proof lies on the party who would fail if no evidence at all were given by either party…. Pleadings are not evidence, and it is not enough to plead particulars of negligence and make no attempt in one’s testimony in court to demonstrate by way of evidence how the accident occurred and how the 1st defendant was to blame for the said accident. It is trite law that he who alleges must prove and that burden does not shift to the adverse party even if the case proceeds by way of formal proof and or undefended.”

40. Similarly, in the case of Boleyn International Ltd vs Commissioner of Investigations and Enforcement, Nairobi TAT Appeal no.55 of 2018, the Tribunal held that:-“We find that the Appellant’s at all times bore the burden of proving that the Respondent’s decisions and investigations were wrong. The tribunal is guided by the provisions of Section 56(1) of the TPA, 2015 which states: “In any proceedings under this part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

41. Further the Tribunal finds the following paragraph from PiersonvBelder (H.M. Inspector of Taxes) (1956-1960) 38 TC 387 to be persuasive:-“but the matter may be disposed of, I think even more shortly in this way: there is an assessment made by the additional Commissioner upon the Appellant; it is perfectly clearly settled by cases such as in the case of Norman v Golder 26 T.C, 293, that the onus is upon the Appellant to show that the assessment made upon him is excessive or incorrect; and of course he has completely failed to do so. That is sufficient to dispose of the Appeal, which is accordingly dismissed with costs”

42. Consequently, the Tribunal finds that the Appellant failed to discharge the burden of proof placed upon it in demonstrating that the Respondent erred its assessment of VAT.

Final Decision 43. Based on the foregoing analysis the Tribunal determined that the Appeal is not merited. The Orders that accordingly recommend themselves are as follows: -i.The Appeal be and is hereby dismissed.ii.The objection decision dated 24th January, 2019 be and is hereby upheld.iii.Each party to bear its own costs.

44. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 10TH DAY OF FEBRUARY, 2023. ERIC N. WAFULACHAIRMANCYNTHIA B. MAYAKAMEMBERGRACE MUKUHAMEMBERABRAHAM KIPROTICHMEMBERJEPHTHAT NJAGIMEMBER