https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/270

**REPUBLIC OF KENYA** **IN THE TAX APPEALS TRIBUNAL AT NAIROBI** **APPEAL NO. E1164 OF 2025** **BBOXX CAPITAL KENYA LIMITED............................................................APPELLANT** **VERSUS** **COMMISSIONER OF LEGAL AND BOARD SERVICES............................RESPONDENT** **JUDGMENT** **BACKGROUND** 1. The Appellant is a private limited liability company incorporated in Kenya whose principal activity is the supply, purchase and sale of solar panels, lamps, batteries, connectors, solar parts and solar accessories, and which provides its customers with solar home systems on pay plan arrangements. It also acts as an agent, wholesaler and distributor for solar products and provides solar installation and related services. 2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 Laws of Kenya (KRA Act). Under Section 5 (1) of the Act, KRA is an agency of the Government for the collection and receipt of all revenue. For the performance of its function under Subsection (1), the Authority is mandated under Section 5(2) of the Act to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the KRA Act to assess, collect, and account for all revenues under those laws. 3. *Vide* a notice dated 22nd November 2023, the Respondent notified the Appellant of its intention to audit its tax affairs for the period 2018 to 2022 and requested information for that purpose. Following the audit, the Respondent issued the Appellant with its preliminary findings and workings, to which the Appellant responded through various correspondences. 4. On 29th June 2025, the Respondent issued the Appellant with an assessment order on iTax for Corporation Tax for the year of income 2019 demanding Kshs. 780,173,126.25, comprising principal tax of Kshs. 450,967,125.00 and interest of Kshs. 329,206,001.25. 5. The assessment arose from two adjustments to the Appellant's taxable income for the year of income 2019: first, under-declared/receivable sales of Kshs. 1,534,762,601.00, computed by treating the Appellant's lease stock as credit sales and applying thereto a margin of 30%; and secondly, the add-back of a hire purchase asset write-off of Kshs. 33,747,809.00 treated as a non-deductible expense. 6. Dissatisfied with the assessment, the Appellant lodged an objection against the entire assessment *vide* a letter dated 28th July 2025. 7. The Respondent rendered its objection decision dated 18th September 2025 fully rejecting the objection and confirming the assessment. 8. Aggrieved by the objection decision, the Appellant lodged a Notice of Appeal dated 29th September 2025 and filed on 30th September 2025. **THE APPEAL** 1. The Appeal is premised on the Memorandum of Appeal dated and filed on 16th October 2025 wherein the Appellant raised the following grounds of appeal: i. That the Respondent erred in law and fact by misclassifying the Appellant's finance lease business model as a hire purchase arrangement, contrary to the Income Tax (Leasing) Rules, 2002 and the IFRS 16 guidance on leases. ii. That the Respondent erred in law and fact by failing to consider all relevant facts and by drawing conclusions regarding the nature of the Appellant's lease arrangements and the value of leased items without examining the operative contracts for the audit period, contrary to Section 51(10) of the Tax Procedures Act. iii. That the Respondent erred in law and fact by arbitrarily applying a 30% mark-up to the Appellant's lease stock balance without legal, regulatory or accounting basis, contrary to Article 201(b)(i) of the Constitution of Kenya, which guarantees fairness and certainty in taxation. iv. That the Respondent erred in law and fact by treating the Appellant's hire purchase asset write-off of Kshs. 33,747,809.00 as a non-deductible expense, despite clear evidence that the write-off represented the removal of fully depreciated assets from the asset register with no impact on taxable income, the adjustment thereby lacking a legal and accounting foundation and resulting in an overstated tax liability. v. That the Respondent erred in law and fact by disregarding the material evidence and documentation adduced by the Appellant in response to the audit findings and during the objection process, including sample contractual terms, financial statements, reconciliations and detailed explanations, the objection decision thereby failing to demonstrate consideration of such evidence as required under Section 51(10) of the Tax Procedures Act. **THE APPELLANT'S CASE** 1. The Appellant's case is premised on its Statement of Facts dated and filed on 16th October 2025 together with the documents annexed thereto, and its written submissions dated 19th May 2026 and filed on the same date. 2. The Appellant averred that it operates a finance lease business model within the meaning of the Income Tax (Leasing) Rules, 2002 and IFRS 16, under which its customers take solar home systems on pay plan arrangements. It averred that in the year of income 2019 it declared upfront sales of Kshs. 23,531,000.00 and lease revenue of Kshs. 598,136,000.00, both of which were recognized as income in its audited financial statements and subjected to tax in its tax computation. 3. The Appellant relied on Rule 2 of the Income Tax (Leasing) Rules, which defines a finance lease as a contract in which the lessor agrees to lease assets to the lessee for a specified period of time where the risks and rewards associated with ownership of the assets are substantially transferred from the lessor to the lessee, but with the title to the assets always remaining with the lessor. 4. That the same Rule defines a hire purchase as a contract under which the lessor agrees to lease the assets to the lessee for a specified period of time with the intention of transferring ownership on the expiry of the lease. The Appellant submitted that the transfer of ownership is accordingly the key distinguishing element between the two, and that its contracts do not transfer ownership to customers at any point. 5. The Appellant relied on the contractual terms and conditions governing its business, and in particular Clause 1 thereof, which provides that for the duration of the pay plan the system shall remain the property of Bboxx while the risk of loss, theft, damage or destruction of the system passes to the client upon delivery; Clause 4.1.5, which places on the client the responsibility of keeping the system safe at its own expense; and Clause 4.2.1, which prohibits the sale, mortgage or transfer of the system or any act that would jeopardize the right, title or interest of Bboxx therein. 6. It submitted that these provisions demonstrate that while the risks associated with the system are fully transferred to the client upon delivery, ownership and legal title remain with the Appellant throughout the lease period, in precise alignment with the statutory definition of a finance lease and with the indicators in paragraphs 61 to 63 of IFRS 16, including the transfer of substantially all risks and rewards incidental to ownership and a lease term covering a major part of the asset's economic life. 7. The Appellant relied on **Scania Credit Solutions (Pty) Limited v Wargen Services Limited & 2 Others (Civil Suit 379 of 2015) [2023] KEHC 17334 (KLR)**, where the Court, upon consideration of the language and terms of the agreement before it, found that the intention of the parties was that ownership was not to pass at any point, that there was no provision for the transfer of ownership, and that the agreement was accordingly one of lessor and lessee. 8. It submitted that its terms and conditions similarly provide that ownership of the leased systems remains with it throughout the lease period, the clients being granted only possession and use. 9. The Appellant submitted that the Respondent's reliance on Note 29 of its audited financial statements is misplaced and demonstrates a fundamental misunderstanding of accounting disclosures, as the note does not constitute a declaration that the Appellant does not engage in finance leases and does not determine or alter the legal and tax characterization of its lease arrangements. 10. It submitted that the use of commercial terminology such as “pay plan”, “purchase price”, “down payment”, “warranty” and “final payment” merely facilitates customer understanding of the payment structure and is often adopted for ease of communication and marketing, without implying that the lessee acquires ownership; the nature of a transaction is determined by the substance of the contractual obligations and not the labels used. 11. The Appellant added that its recognition of depreciation on the leased assets in Note 11 of the financial statements, and of lease rentals as income, is consistent with finance lease accounting treatment. 12. On its second ground, the Appellant submitted that the Respondent did not review, and never requested, the operative contracts for the period under review, being the year 2019, yet proceeded to make definitive conclusions regarding the nature and value of its lease arrangements, including the conclusion that the leased items were of low value and incapable of constituting finance lease assets. 13. It contended that it cannot be faulted for failing to provide documents that were never requested, and that the Respondent's decision, made without examining the very instruments governing the contractual terms, lacks factual foundation contrary to Section 51(10) of the Tax Procedures Act (TPA) and Section 6 of the Fair Administrative Action Act, 2015. 14. The Appellant exhibited an extract of a sample contract illustrating its operative payment terms, and submitted that these demonstrate a clear distinction within its business model: low-value items such as radios, torches and bulbs are financed over shorter payment periods of one to three years, while higher-value assets, including core energy service components such as control units and solar panels, are financed over longer durations of one to ten years and form part of its finance lease portfolio. 15. It submitted that by the end of the lease term such assets are substantially depreciated through continuous use by the lessee, consistent with IFRS 16, and that the Respondent's blanket classification of all transactions as hire purchase arrangements disregards these distinctions and demonstrates a fundamental misunderstanding of its operations. 16. On its third ground, the Appellant submitted that, without prejudice to its position on its business model, even if it were operating a hire purchase model the Respondent erred in principle by applying a 30% margin to the lease stock balance. The adjustment resulted in duplication and double counting, as the lease stock is already incorporated into the revenues of subsequent years and subjected to tax accordingly, thereby inflating the Appellant's taxable income contrary to Article 201(b)(i) of the Constitution and the principle of fairness in taxation. 17. It submitted that the Respondent failed to provide any explanation, factual basis, legal justification or methodology for the 30% mark-up, contrary to Section 51(10) of the TPA, and that a tax assessment cannot lawfully be founded on conjecture, rough estimates or “eye-balled” figures, but must be grounded in verifiable evidence drawn from the taxpayer's actual records and supported by a transparent computational methodology. 18. The Appellant relied on **Republic v Commissioner of Domestic Taxes Ex Parte Barclays Bank of Kenya Limited (2015)**, where the High Court held that: *“…the duty of the respondent in assessing tax is to identify transactions or payments that attract tax liability especially where there are objections to such categorisation… the respondent is obligated by law to state with clarity its claim and state how the transaction falls within the terms of the statute. The respondent cannot exercise its duty like a trawler in the deep seas expecting all the fish by casting its net wide.”* 1. The Appellant further relied on **Republic v Kenya Revenue Authority Ex Parte Cooper K-Brands Limited (2016) eKLR**, which adopted **Vestey v Inland Revenue Commissioners (1979) 3 All ER 984** for the proposition that a citizen cannot be taxed unless he is designated in clear terms by a taxing Act as a taxpayer and the amount of his liability is clearly defined. 2. It also relied on **Republic v Kenya Revenue Authority Ex Parte Bata Shoe Company (Kenya) Limited [2014] KEHC 7529 (KLR)** for the proposition that a taxpayer is not obliged to pay a single coin more than is due. 3. It additionally relied on **Waweru & 3 Others (suing as officials of Kitengela Bar Owners Association) & Another v National Assembly & 2 Others (Constitutional Petitions E005 & E001 (Consolidated) of 2021) [2021] KEHC 9748 (KLR)**, where the Court held that a system of taxation that lends itself to the possibility of double taxation fails the test of fairness in Article 201(b)(i) of the Constitution. 4. It further relied on **Primarosa Flowers Limited v Commissioner of Domestic Taxes [2019] eKLR**, which adopted the dictum in **Hero Cycles (P) Ltd v Commissioner of Income Tax (Central) Ludhiana [2015] 63 308 (SC)** that the Revenue cannot put itself in the armchair of the businessman and must assess liability from the standpoint of a prudent businessman rather than through hypothetical assumptions. 5. The Appellant submitted that despite furnishing reconciliations, detailed ledgers and movement schedules demonstrating that the lease stock is subsequently recognized as revenue and taxed, which materials it exhibited before the Tribunal, the Respondent failed to reconcile its computation with the Appellant's accounting treatment, to explain the basis of the 30% margin, or to demonstrate how the impugned adjustment corresponded with the Appellant's actual revenue recognition. 6. On its fourth ground, the Appellant submitted that its audited financial statements clearly demonstrate that the hire purchase asset write-off relates to the derecognition of fully depreciated assets with a historical cost of Kshs. 33,747,809.00 and accumulated depreciation of an equivalent amount, resulting in a nil net book value. 7. The write-off merely reflected the administrative removal of fully depreciated assets from the asset register as a matter of sound accounting practice, generated no loss or gain, and had no impact on the profit and loss account or the profit before tax; it therefore has no tax implication and ought not to have been added back in the tax computation. It noted that the add-back attracted additional corporation tax at 30% together with interest and penalties totalling Kshs. 15,895,218.00. 8. The Appellant relied on **Ennus Company Limited v Commissioner of Domestic Taxes (Income Tax Appeal E208 of 2023) [2025] KEHC 7271 (KLR)**, where the High Court held that a taxpayer that provides all documents requested by the Commissioner, without challenge or any request for further information, sufficiently discharges its burden of proof. 9. It also relied on **Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR**, which adopted **Hickman Motors Ltd v Canada [1997] 2 S.C.R. 336** for the proposition that the onus is met when a taxpayer makes out a prima facie case through unchallenged and uncontradicted evidence, whereupon the onus shifts to the revenue authority to rebut it, failing which the taxpayer succeeds. 10. The Appellant submitted that it discharged its burden of proof under Section 56(1) of the TPA by furnishing the Respondent, during both the audit and objection stages, with the contractual terms and conditions demonstrating retention of ownership and transfer of risk; audited financial statements demonstrating its recognition of depreciation on the leased assets and of lease income as revenue; audited financial statements demonstrating the nil net book value of the written-off assets. 11. It further furnished reconciliations, detailed ledgers and movement schedules confirming the accuracy of its accounting and tax treatment of the lease stock, and submitted that the Respondent failed to demonstrate that it considered or rebutted this material prior to issuing the objection decision. **APPELLANT'S PRAYERS** 1. The Appellant prayed that the Tribunal grants the following orders: a) The Respondent's Objection Decision dated 18th September 2025 be set aside and the Appeal be allowed; b) The costs of the Appeal be awarded to the Appellant; and c) Such other reliefs be granted as the Tribunal may deem just and appropriate. **THE RESPONDENT'S CASE** 1. The Respondent's case is premised on its Statement of Facts dated and filed on 3rd December 2025 with the leave of the Tribunal, together with the documents annexed thereto, and its written submissions dated 21st May 2026 and filed on 25th May 2026. 2. The Respondent stated that it conducted a verification of the Appellant's income tax declaration for the period 2019 and made adjustments on under-declared income and disallowed a hire purchase asset write-off found to be non-qualifying for deduction, culminating in the assessment confirmed by the objection decision at Kshs. 766,644,112.00 inclusive of penalties and interest. 3. On the Appellant's business model, the Respondent averred that, contrary to the Appellant's averment that it operates a finance lease model, the Appellant in Note 29 of its audited financial statements explicitly declared that the company has no leases classified under finance leases. It averred that the general term used in the audited financial statements to describe various items is “hire purchase”, as reflected in the statement of financial position and Notes 11 and 18 thereof, and that the audited financial statements describe the nature of the Appellant's business in the following terms: *“the company makes hire purchase sales to customers who are expected to make monthly payments over a period of 3 years for appliances and 10 years for energy service”.* 1. The Respondent further averred that the same audited financial statements declare the Appellant's sales as cash sales and hire purchase sales, from which it concluded that the Appellant was running a hire purchase business. 2. The Respondent averred that the Appellant provided two sample contracts together with its general terms and conditions, and that the contracts provided were dated 2023 and did not align with the period under review, being 2019. 3. The Respondent noted that under one sample contract the client received a light bulb and Startime kit against a deposit of Kshs. 700.00 and a daily rate of Kshs. 24.00 with the contract period undefined, while under the second the client received a package of five light bulbs and a 24-inch television against a deposit of Kshs. 6,499.00, a daily rate of Kshs. 100.00 and a total payable of Kshs. 78,499.00. It averred that the items in question were of low value and could not qualify as assets under finance leases. 4. The Respondent further averred that the terms used in the Appellant's general terms and conditions, including “pay plan”, “purchase price”, “down payment”, “warranty” and “final payment”, demonstrate that the assets are sold at a defined purchase price with the intention of passing ownership of the asset to the client upon completion of the agreed payments. 5. It relied on the definitions of “finance lease” and “hire purchase” in the Income Tax (Leasing) Rules, and stated that hire purchase involves the gradual payment of instalments by the hirer leading to ownership transfer at the end, while leasing entails periodic payments for the use of an asset without ownership transfer. 6. On the credit sales adjustment, the Respondent stated that in computing the credit sales amount it took the lease stock and added a margin of 30%. It stated that it requested the Appellant to provide a reconciliation of the correct position should it be determined that it operates a hire purchase model, together with a detailed breakdown of the operating lease assets account, and that the same was not provided. 7. It stated further that the Appellant, while disputing the computation method as amounting to double counting, failed to provide the reconciliations and amendments required to correct the assessment, such that the Respondent relied on the information that it had. 8. On the hire purchase asset write-off, the Respondent stated that the Appellant failed to demonstrate that the write-off did not have any tax effect, and that it established that the write-off has the effect of reducing the value of the asset in the books, being a loss that eventually affects the taxable profit, hence the add-back. 9. The Respondent submitted that it is not bound by the tax returns or information provided by a taxpayer and may assess a taxpayer's liability using any information available to it pursuant to Section 24(2) of the TPA, and that Section 31 of the TPA empowers it to amend an assessment by making alterations or additions from the available information and to the best of its judgment. 10. It relied on **Digital Box Limited v Commissioner of Domestic Taxes, Tax Appeal No. 115 of 2017**, where the Tribunal held that in both Sections 29(1) and 31(1) of the TPA the Commissioner is allowed to use any information available to it and to use the best of his or her judgment in making the assessment. 11. The Respondent placed particular reliance on this Tribunal's decision in **Bboxx Capital Kenya Limited v Commissioner of Legal & Board Services, TATC/E474/2025**, which it urged is akin on all fours to the present dispute, where the Tribunal, addressing the same Appellant's business model, held that: *“It is therefore inconceivable for the Appellant to admit in its financial records that it does hire purchase sales and claim a misunderstanding of its business model.”* 1. On the burden of proof, the Respondent relied on Section 56(1) of the TPA, which places on the taxpayer the burden of proving that a tax decision is incorrect, to be discharged through documentary evidence. It relied on **Commissioner of Domestic Taxes v Galaxy Tools Limited [2021] eKLR**, which explains that the tax laws reverse the ordinary principle that he who alleges must prove. 2. It further relied on **Kenya Revenue Authority v Maluki Kitili Mwendwa [2021] KEHC 4148 (KLR)**, which holds that the taxpayer always bears the burden of proof in tax proceedings and must establish, with evidence, the underlying facts on which the law is to operate and that the assessment is excessive or erroneous; and on **Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) [2022] KEHC 9927 (KLR)**, where the High Court held that: *“it is clear that the evidential burden of proof rests with the taxpayer to disprove the Commissioner and that once competent and relevant evidence is produced, then this burden now shifts to the Commissioner… it is only evidence that meets these two tests that demolishes presumption of correctness and swings the burden to the Commissioner.”* 1. The Respondent submitted that in the absence of evidence from the Appellant to validate its objection, the burden of proof was not discharged, and that where a taxpayer fails to discharge its burden the law allows the Commissioner to use its best judgement in determining the tax liability, as this Tribunal held in **Greenroad Kenya Limited v Commissioner of Domestic Taxes**, where the failure by the taxpayer to avail the documents requested was held to grant the Commissioner the power to use its best judgement under Section 31(1) of the TPA. 2. It submitted that it exercised its best judgement by confirming the additional assessments issued since the Appellant had failed to discharge its burden of proof. **RESPONDENT'S PRAYERS** 1. The Respondent prayed that the Tribunal: a) Upholds the Respondent's Objection Decision dated 18th September 2025 as just, proper and in conformity with the provisions of the law; and b) Dismisses the Appeal with costs, as the same is devoid of any merit. **ISSUES FOR DETERMINATION** 1. The Tribunal has considered the Parties' pleadings, documentation and submissions and is of the considered view that the Appeal distils into the following issues for its determination: 2. Whether the Respondent was justified in assessing under-declared income of Kshs. 1,534,762,601.00 by applying a 30% margin to the Appellant's lease stock; and 3. Whether the Respondent was justified in adding back the hire purchase asset write-off of Kshs. 33,747,809.00 in the Appellant's tax computation for the year of income 2019. **ANALYSIS AND FINDINGS** 1. The Tribunal proceeds to analyse the issues *seriatim*: **A. Whether the Respondent was justified in assessing under-declared income of Kshs. 1,534,762,601.00 by applying a 30% margin to the Appellant's lease stock** 1. The Tribunal notes that the Parties canvassed extensively on what the Appellant’s business model. The classification of the Appellant's arrangements is governed, for tax purposes, by the Income Tax (Leasing) Rules, 2002 (Legal Notice No. 52 of 2002). Rule 2 thereof defines the two contracts as follows: *“Finance lease means a contract which the lessor agrees to lease assets to the lessee for a specified period of time, where the risks and rewards associated with ownership of the assets are substantially transferred from the lessor to the lessee, but with the title to the assets always remaining with the lessor.* *Hire purchase means a contract under which the lessor agrees to lease the assets to the lessee for a specified period of time, with the intention of transferring ownership on the expiry of the lease.”* 1. The definition of “lease” under the same Rule is equally instructive. By its proviso, *“any contract whose term is less than six months or a hire purchase shall not be deemed to be a lease.”* A hire purchase contract therefore stands wholly outside the leasing regime: the provisions of Rule 3 on the chargeability of lease income, Rule 4 on the deductions available to lessor and lessee, and Rule 5(1) on the capitalisation of leased assets in the books of the lessor, are reserved for operating and finance leases properly so called. 2. The treatment of a hire purchase under the Income Tax Act (ITA) is the mirror image. Because the contract is made with the intention of passing ownership, the hirer is regarded as the intended owner: it capitalises the cash price of the asset and claims the wear and tear deductions under the Second Schedule to the ITA, the credit element being a financing cost. 3. Conversely, it is only under a finance lease, where title always remains with the lessor, that the lessor capitalises the asset and claims wear and tear under Rule 4(a) as read with Paragraph 9 of the Second Schedule to the ITA which read as follows during the assessment period: *“9. Where machinery is let upon terms that the burden of the wear and tear thereof falls directly upon the lessor, this Part shall apply in relation to him as if the machinery were, during the period of the letting, in use for the purposes of a business carried on by him.”* 1. Two things are apparent from these provisions. First, the transfer of substantial risks to the lessee, upon which the Appellant placed considerable weight, is not a distinguishing feature: under both contracts the lessee holds, uses and bears the risks of the asset during the term. Secondly, the element that separates the two is the intention with which the contract is made: title permanently remaining with the lessor denotes a finance lease, while an intention to transfer ownership on expiry denotes a hire purchase. The inquiry therefore turns on whether the Appellant's arrangements contemplate the eventual passing of ownership. 2. The accounting framework points the same way. For the year of income 2019, IFRS 16 (Leases) governs lessor accounting. Paragraphs 61 and 62 of the standard require a lessor to classify as a finance lease a lease that transfers substantially all the risks and rewards incidental to ownership, and paragraph 63(a) lists, first among the situations ordinarily leading to that classification, a lease that *“transfers ownership of the underlying asset to the lessee by the end of the lease term.”* A contract culminating in ownership transfer is thus, in accounting as in tax, an instalment acquisition. 3. Under paragraph 67 of the standard, a lessor under a finance lease derecognises the underlying asset and recognises a receivable equal to its net investment in the lease; it neither carries nor depreciates the asset. The same result obtains for a hire purchase seller, who recognises a sale and an instalment receivable. It is only an operating lease lessor, under paragraph 81 of the standard and following, that retains the asset on its statement of financial position and depreciates it. 4. It is against these benchmarks that the Tribunal examines the Appellant's own records. Its audited financial statements declare, at Note 29, that the company has no leases classified under finance leases; they describe the relevant items in the statement of financial position and Notes 11 and 18 as “hire purchase”; the Appellant describes the business as the making of hire purchase sales to customers expected to make monthly payments over three years for appliances and ten years for energy service; and they declare the company's sales as cash sales and hire purchase sales. 5. It is the Tribunal’s considered view that audited financial statements carry particular weight because they constitute an independent verification of a company's financial information, certified by an external auditor and adopted by the company as its final record. A taxpayer's own contemporaneous records are evidence of the character of its transactions, and a taxpayer who asserts that those records mislabel the true nature of its business assumes the burden of demonstrating that true nature by cogent evidence. 6. Measured against IFRS 16, the Tribunal finds that the very standard the Appellant invoked, its accounts contradict its case. Had the arrangements been finance leases, lessor accounting would have compelled derecognition of the solar home systems and recognition of a net investment receivable, and Note 29 of its financial statements could not have disclosed that no leases were classified as finance leases. Instead, the Appellant capitalised the systems, depreciated them, and asserted that such depreciation is consistent with finance lease accounting. The Tribunal finds that not to be the case: depreciation by a lessor is the hallmark of retained ownership, not of a finance lease under the standard asserted by the Appellant. 7. The Tribunal turns to the general terms and conditions, which the Appellant tendered as decisive of a finance lease. Clause 1 thereof provides that *“for the duration of the Pay Plan, the System shall remain the property of Bboxx”*, while Clause 4.2.1 restricts the sale, mortgage or transfer of the system. Retention of title pending completion of instalments is, however, the standard protection of an owner under an instalment sale, and is a feature common to both finance lease and hire purchase contracts; it cannot, on its own, denote a finance lease. 8. What is decisive is the language of the same terms and conditions: a “pay plan”, a “purchase price”, a “down payment” and a “final payment”, with title to the system falling to be addressed *“upon completion of payment of the agreed purchase price.”* A contract under which the customer pays a deposit and instalments towards an agreed purchase price of the very asset in its possession, with no obligation to return it at the end of the term, is made with the intention of transferring ownership on expiry. That is the statutory definition of a hire purchase. 9. The Tribunal accordingly finds that the financial statement disclosures faithfully reflected the economic reality documented in the Appellant's own terms and conditions: customers acquire the systems by deposit and instalments towards an agreed purchase price, with ownership intended to pass upon final payment. The books and the contracts speak with one voice, and both speak of hire purchase. It is the Appellant's position in this Appeal, and not its contemporaneous records, that departs from the substance of its transactions. 10. For the same reason, **Scania Credit Solutions *(supra)***is distinguishable. In that case the agreement contained no provision for the transfer of ownership and obliged the lessee to return possession of the assets upon expiry of the term. Here, the contractual architecture is built around a purchase price payable by instalments, and the Appellant pointed to no term obliging its customers to return the systems upon completion of their payments. 11. The Appellant's contention that the Respondent drew conclusions without examining the operative 2019 contracts inverts the statutory scheme. Sections 23 and 59 of the TPA oblige a taxpayer to keep its records and to produce them on demand. The character of the Appellant's contracts was squarely in issue from the preliminary findings, and it fell to the Appellant, on whom the burden lay, to place the operative 2019 contracts before the Commissioner and, ultimately, before this Tribunal. 12. The Tribunal notes that the Appellant did neither. The Respondent averred that the Appellant provided two sample contracts together with its general terms and conditions, and that the contracts provided were dated 2023 and did not align with the period under review, being 2019, and before the Tribunal the Appellant exhibited only an extract of a sample contract illustrating payment terms. The distinction that the Appellant sought to draw between low-value items financed over short periods and high-value components financed over longer periods was likewise not anchored in any operative 2019 contract; in any event, the duration of a payment plan does not answer the statutory question, which is the intention as to ownership. 13. Finally, the Tribunal takes guidance from its decision in **Bboxx Capital Kenya Limited v Commissioner of Legal & Board Services, TATC/E474/2025**, involving the same Appellant and the same business model for the year of income 2018, where the Tribunal found on materially similar records that the Appellant was dealing in hire purchase sales. While each appeal falls to be determined on its own record, consistency in the tax treatment of the same taxpayer's arrangements commends the same conclusion where, as here, the record points the same way. 14. Consequently, the Tribunal finds that the Appellant's business model in the year of income 2019 constituted a hire purchase arrangement and not a finance lease, and the first and second grounds of appeal fail to that extent. 15. The finding on the business model of the Appellant establishes how the Appellant's income is to be computed: receipts from hire purchase sales constitute business income chargeable under Section 3(2)(a)(i) of the Income Tax Act and, the contracts standing outside the Leasing Rules, fall to be recognised as sales rather than as lease income under Rule 3. The Respondent was entitled in principle to test whether the Appellant's recognition under-declared its income, and was empowered by Sections 24(2) and 31(1) of the TPA to amend the self-assessment from available information and to the best of its judgement. 16. That finding does not, however, without more, establish that income was in fact under-declared, or in what amount. The characterisation of the business model answers how income is to be computed; it does not prove the existence or amount of an under-declaration. It is to that question that the Tribunal now turns. 17. Best judgement is not an unfettered discretion. The Commissioner must identify with clarity the transactions assessed and the basis on which they fall within the taxing statute, and cannot, in the words of the High Court in **Ex Parte Barclays Bank of Kenya Limited *(supra)***, exercise its duty like a trawler in the deep seas expecting all the fish by casting its net wide. 18. Nor may an assessment rest on assumptions substituted for the taxpayer's actual transactions: **Primarosa Flowers Limited *(supra)****.* By Section 51(10) of the TPA, the objection decision must state findings on the material facts and reasons. 19. Measured against these standards, the Tribunal notes that the Respondent’s adjustment of Kshs. 1,534,762,601.00 suffers from defects that the Respondent's case did not cure. First, the base of the computation was the Appellant's lease stock, a balance drawn from its books, to which a uniform margin was applied to derive deemed “credit sales”. Stock is not sales, and no analysis was tendered connecting the balance so used to goods actually hired out in the year of income 2019. 20. Secondly, the Tribunal notes that the 30% margin applied by the Respondent was not explained anywhere on the record: neither the assessment, nor the objection decision, nor the Respondent's Statement of Facts or submissions disclosed its provenance, whether by reference to the Appellant's own records, an industry benchmark or any other credible information. The Tribunal observes that instead of the Respondent providing a rationale for the 30% margin, it casually mentioned in its objection decision that it was the Appellant’s onus to provide the amendments required to correct the assessment. This, the Tribunal finds, is indicative that the 30% margin applied by the Respondent was arbitrary. An unexplained figure is the antithesis of a judgement exercised upon available information. 21. Thirdly, the Tribunal further notes that deemed credit sales, approximately two and a half times the Appellant's declared turnover, were superimposed upon declared revenue of Kshs. 621,667,000.00, being upfront sales of Kshs. 23,531,000.00 and lease revenue of Kshs. 598,136,000.00 already recognised and taxed, without any elimination for amounts recognised in the year under review or in other periods. The Appellant’s double counting complaint was squarely raised at the objection stage; the objection decision's entire engagement with it, again, was that the Appellant did not provide the amendments required, which is neither a finding on material facts nor a reason within Section 51(10) of the TPA. 22. Against this, the Appellant placed before the Tribunal its reconciliation of the tax position together with its detailed ledger and movement schedule for the lease assets, demonstrating its treatment of the lease stock and its progressive recognition as revenue in subsequent periods, in addition to its audited financial statements evidencing the revenue actually recognised and taxed. This was competent and relevant evidence going to the heart of the adjustment. 23. Applying **Trical and Hard Limited *(supra)***, the Respondent's own authority, the presumption of correctness was thereby demolished and the evidential burden swung to the Respondent. The Respondent tendered nothing in rebuttal: it neither engaged with the reconciliation and movement schedules nor demonstrated any residual under-declaration after accounting for the revenue recognised, resting instead on the assertion that reconciliations were not provided, an assertion the record before the Tribunal contradicts. 24. The Tribunal has considered the Respondent's reliance on **TATC/E474/2025 *(supra)***, where a like adjustment for the year of income 2018 was upheld. That decision turned on its record: the Tribunal in that case expressly noted that the taxpayer had availed no documentary evidence and had not controverted the asserted 30% industry margin. Those findings and holdings are not the case here, where the 30% margin was squarely disputed and reconciliations, ledgers and movement schedules were exhibited by the Appellant. The Tribunal aligns with the position that judicial consideration does not extend to adopting a conclusion reached on a materially different evidential footing. 25. The Tribunal finds that by the Appellant presenting documentary evidence demonstrating that the Respondent’s tax assessment was erroneous, the Appellant satisfied its burden of proof under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act cited below. 26. Section 56(1) of the Tax Procedures Act provides: - *“56. (1) In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”* 1. Section 30 of the Tax Appeals Tribunal Act states that: - *“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;* *(b) in any other case, that the tax decision should not have been made or should have been made differently.”* 1. In light of the foregoing, the Tribunal finds that the Respondent’s assessment of under-declared income of Kshs. 1,534,762,601.00, computed by applying an unexplained 30% margin to the Appellant's lease stock without eliminating revenue already recognised and taxed, was arbitrary and without a demonstrated factual foundation, and therefore, not justified. **B. Whether the Respondent was justified in adding back the hire purchase asset write-off of Kshs. 33,747,809.00 in the Appellant's tax computation for the year of income 2019** 1. An add-back to a taxpayer's declared profit presupposes that the amount in question was deducted, whether as an expense in the profit and loss account or as an adjustment in the tax computation, in arriving at the declared taxable income. The Appellant's audited financial statements disclose that the written-off hire purchase assets carried a historical cost of Kshs. 33,747,809.00 and accumulated depreciation of an equivalent amount, such that they stood at a nil net book value. 2. Their derecognition from the asset register accordingly passed no charge through the profit and loss account and generated neither gain nor loss. The Respondent did not identify any line in the profit and loss account, or any entry in the tax computation, in which the sum of Kshs. 33,747,809.00 was claimed as a deduction. An add-back untethered to a deduction is an adjustment resting on nothing. 3. The Tribunal finds that the Respondent's stated rationale, that the write-off reduces the value of the asset in the books and is a loss that eventually affects taxable profit, conflates a balance sheet derecognition with a revenue deduction. The reduction in carrying value occurred through depreciation charged in earlier years; depreciation is not deductible in any event under Section 16(1)(b) of the Income Tax Act, and any tax consequence of those charges fell to be addressed in the years in which they were made, not recaptured upon the administrative removal of fully depreciated assets from the asset register. 4. On the burden of proof, the Appellant made out a *prima facie* case through its audited financial statements and the explanations tendered at the audit and objection stages, none of which the Respondent controverted; nor did the Respondent issue any further request for clarification or additional information. Applying **Man Diesel & Turbo Se *(supra)***and **Ennus Company Limited *(supra)****,* the onus shifted to the Respondent to rebut the *prima facie* case, and it provided no evidence in rebuttal. 5. Drawing from the above, the Tribunal finds that the Respondent’s add-back of the hire purchase asset write-off of Kshs. 33,747,809.00 was without legal or factual foundation, and was thus not justified. **FINAL DECISION** 1. The upshot to the foregoing analysis is that the Appeal is merited, and accordingly, the Tribunal proceeds to issue the following Orders: a) The Appeal be and is hereby allowed; b) The Respondent's Objection Decision dated 18th September 2025 be and is hereby set aside; and c) Each party to bear its own costs. 1. It is so ordered. **DATED AND DELIVERED AT NAIROBI THIS 27TH DAY OF JULY 2026.** **……………………………..….** **ROBERT M. MUTUMA** **CHAIRMAN** **……………………………… …………..….……..………..** **GLORIA A. OGAGA DR. TIMOTHY B. VIKIRU MEMBER MEMBER** **……………………………..….** **JIMMY M. MALLA** **MEMBER**