[2023] KETAT 290 (KLR)

Berowa Traders Limited v Commisioner of Domestic Taxes (Tax Appeal 350 of 2022) [2023] KETAT 290 (KLR) (Civ) (2 June 2023) (Judgment)

Neutral citation: [2023] KETAT 290 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Tax Appeal 350 of 2022

RM Mutuma, Chair, EN Njeru, RO Oluoch, D.K Ngala & EK Cheluget, Members

June 2, 2023

Between

Berowa Traders Limited

Appellant

and

Commisioner of Domestic Taxes

Respondent

Judgment

BACKGROUND 1. The Appellant carries on wholesale business of petroleum products except LPG products. The taxpayer is registered for income tax obligations.

2. The Respondent is principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. 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 & 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 conducted a tax compliance review of the Appellant’s tax affairs and it subsequently issued a tax demand on September 24, 2021 amounting to Kshs 5,589,514. 98 for Corporation tax for the period January 2018 to December 2018.

4. The Appellant filed an objection against this assessment on October 22, 2021 and the Respondent issued its Objection decision thereof on February 4, 2022.

5. The Appellant was aggrieved by this decision and it filed an Appeal to this Tribunal.

The Appeal 6. The Appellant’s Memorandum of Appeal filed on the 7th of April 2022 was premised on the following grounds:a.The Appellant is a taxpayer resident in Kenya and carries on wholesale of petroleum products except LPG.b.The additional assessments are made up of wrong estimates, guess work and not on principal tax and lacks merit. The appellant trades in products whose selling price is controlled by the government.c.The Respondent erred in law and fact by misapplying the provisions of theIncome Tax Actof the laws of Kenya leading to double taxation.d.The assessments are excessive and do not reflect the correct position.e.The Respondent did not suffer any monetary loss.f.The Respondent did not address itself to recognize basic accounting principles.g.Tax on taxes paid is unlawfully due and the Tribunal must not hesitate to disallow it to uphold both law and the integrity of the rule of law not to breach fundamental rights by violation of the provisions of the Income Tax Act.h.The Respondent erred in law and fact by making a decision based upon materially misstated facts by wrongly assuming the applicant is allowed to make margins on taxes and ignored goods in transit, downtime encountered in queues at the pipeline, rules and regulations to adhere when handling petroleum products, invoices at year end, a chance was denied to us to authenticate the evidence or ever sought further clarification ignoring all our schedules, failing to review, never the less the respondent proceeded to confirm the assessment contrary to the TPA.i.The Respondent did not follow the law, as prescribed by Section 15(1) of the Income tax Act. Failing to render the Objection decision within the time period.j.Notice of Intention to Appeal to Tribunal on iTax has been impossible or undue difficulty in the starting the matter is under objection tactical move to deny right to a fair trial.

Appellant’s Case 7. The Appellant stated as follows in its Statement of Facts filed on the April 7, 2022, that:a.The additional assessments of Kshs 3,992,510. 70 demanded by the Respondent on September 24, 2021 for the year 2018 was objected to on the October 22, 2021 in time as per the law.b.The Respondent rejected its objection on February 4, 2022 on the grounds that some invoices did not distinctively separate the fuel levies from gross amounts yet all the petroleum products have levies in the price component when purchased from Kenya Pipeline.c.The assessment resulted in a sale that exceeds the purchases. This error was arrived at by the Respondent because it failed to consider the process one has to go through from ordering the product, payment processing, down time in queue at the pipeline, time spent in delivering the product to the stations, Laws and Regulations to be observed when handling the products and the invoices raised at the end of the year.

8. The Appellant posited that the Respondent did not review the documents it had supplied.

9. It stated that its delay in lodging the Appeal was not inordinate because the iTax system denied it the chance to file its Notice of Appeal in time.

10. The Appellant averred that it has paid all its taxes and the present assessment was excessive, biased and based on levies which lack a factual basis.

11. It stated that it had only operated for four months from September 2018 to December 2018. It was thus not possible for its business to make such astronomical sales or profits.

12. It raised the issue that the Respondent did not serve it with a Pre-Assessment Notice contrary to the Tax Procedures Act.

13. It also raised the issue that the objection Decision dated February 4, 2022 is a nullity as it was issued out of time contrary to Section 51(11) of the TPA.

14. The Appellant also filed Written Submissions on the December 2, 2022 where it affirmed that the Respondent exposed it to procedural unfairness because its documents which were never reviewed were dismissed without being granted a chance to defend its Objection.

Appellant’s Prayer 15. Flowing from the foregoing averments the Appellant’s Prayer to the Tribunal was for the order that the Respondent be authorized to amend the assessment to show the correct chargeable tax which is Nil.

The Respondent’s Case 16. The Respondent has set out its response to the Appellant’s case in the Statement of Facts filed on June 28, 2022 and Written Submissions filed on January 25, 2023.

17. The Respondent stated that:a.It conducted a review on the Appellant’s tax record to establish compliance with the various tax laws and it established a variance between the VAT and income tax turnover, where the turnover declared for VAT.b.It issued the Appellant with an Assessment on the 24th of September 2021 for Corporation Tax of Kshs 5,589,514. 98 for the period January 2018 to December 2018, inclusive of interest and penalties.c.The assessment made was due to a variance between Value Added tax and Income tax turnover, where the turnover declared in the VAT returns Kshs 61,789,781 was more than the turnover declared in the Income Tax returns for the period January 2018 to December 2018 by Kshs 13,314,663. d.The Appellant on the 22nd of October 2021 lodged an iTax and a manual objection against the assessment and in its grounds of objection it averred that the variance between sales as per the Income tax returns and the VAT returns was caused by the Appellant not declaring fuel levies for sales and purchases.

18. It is the Respondent argument that its assessment was not based on estimates and guesswork. It was instead done on the basis of documents availed to it which included a copy of sales, purchases invoices and schedules and trial balances.

19. The Respondent averred that it obtained information through third party information which was obtained from jaspersoft, whereupon it discovered that the Appellant had made sales of Kshs 1,300,880. 00 to Fifa Holdings Ltd in the month of December, which had not been disclosed in its books of account. It also stated that this discovery was made from the documents that the Appellant presented to it.

20. That the law allows it to carry out assessment based on information that is provided by the taxpayer and that its assessment was based on tax verification of documents presented to it by the Appellant.

21. The Appellant affirmed that the burden of proof to prove the inaccuracy and incorrectness of the assessment is statutorily placed on the Appellant under Section 56 of the Tax Procedure Act.

22. It was its further argument that the Appellant has not shown any export of fuel or any information that was not considered.

23. It stated that the Appellant provided documentation on the 10th, 13th, 17th, 24th and 28th of December 2021. It then issued its Objection decision on the 4th of February 2022, which was 38 days after the last document was provided by the Appellant. Based on this, it affirmed that its decision was not contrary to Section 51(11) of the Tax Procedures Act.

24. On whether the Objection decision was valid, the Appellant stated that the applicable TPA was the 2021 version and not the 2022 version which allows for issuance of Objection decision within 60 days.

25. The Appellant posited that this was not a case of estimated assessment but was an assessment made from the variance that was noted between the sales declared for VAT and the Income tax by the Appellant. Further that the sales and purchase were supported by the sales and purchases invoices which they provided on December 28, 2021.

Issues For Determination 26. The Tribunal having carefully considered the parties’ pleadings, documentation and submissions determines that the issues that call for its determination are:a.Whether the Respondent’s Objection Decision was valid; andb.Whether the Additional Assessment raised against the Appellant on the basis of turnover variances was justified.

Analysis and Determination a. Whether the respondent’s objection decision was valid. 27. The determination of this issue requires a rehash of the chain of events in this dispute, which were as follows:a.The Appellant was issued with an Assessment Order on the September 24, 2021. b.It filed its objection on the October 22, 2021, the same was stamped as received by the Respondent the same day.c.The Respondent requested for documents in support of the objection vide its emails of October 29, 2021 and November 19, 2021. d.The Appellant attached the required documents vide a letter dated December 17, 2021. e.The Appellant delivered the purchases schedule on the 24th of December 2021 and Sales Schedule on the 28th of December 2021. f.The Respondent issued its objection decision on the 4th of February 2022.

28. Section 52 of the TPAprovides as follows in regard to filing of notice of objection.“(2)A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision.”

29. The time lapse between the Assessment Order issued on the September 24, 2021 and the Objection filed by the Appellant on the October 22, 2021 was about 29 days. The Appellant’s objection was thus lodged in time.

30. This dispute arose on the 24th of September 2021, therefore the applicable version of the TPA is the 2021 edition. The amendments effected to Section 51(11) of the TPA in June 2022 do not therefore apply to this dispute.

31. Section 51(11) of the TPA (2021 version) provided as follows in regards to issuance of objection decisions:“(11)The Commissioner shall make the objection decision within sixty days from the date of receipt of—(a)the notice of objection; or(b)any further information the Commissioner may require from the taxpayer, failure to which the objection shall be deemed to be allowed.”

32. The last communication between the parties herein was on the 28th of December 2021 before the Objection decision was issued on the 4th of February 2022.

33. Section 51(11)(b) of the TPAis clear that computation of time starts running from the date of the receipt of the last information that the Commissioner may require from the taxpayer. In this case therefore, time started running from the 28th of December 2021. Meaning that the Respondent was required to issue its Objection decision by the 27th of February 2022. The Objection decision in this Appeal was issued on the 4th of February 2022. It is thus a valid Objection decision.

34. Whether the Additional Assessment raised against the Appellant on the basis of turnover variances was valid.

35. The Appellant argued that the Respondent did not consider the documents it had provided when it issued its Objection decision more so because it ignored goods in transit, downtimes encountered at Kenya Pipeline, fuel levies incurred, it exaggerated its profit margins and that it did not consider its legal expenses as envisaged in Section 15(1) of theIncome Tax Act.

36. The Respondent on its part stated that it had considered all the documents provided by the Appellant and its analysis of those documents led it to the conclusion that there was a turnover variance of Kshs 13,314,663. 00. It then levied a Corporation tax of 30% on this turnover to arrive at an additional assessment of Kshs 3,994,399. 00

37. The workout of this variance was provided in the Assessment Order issued on the 24th of September 2021. The Appellant therefore was at liberty to request for further clarification on any grey areas that it required to enable it object to the assessment aptly. This request was never made. Meaning that the Appellant must have been clear on what was contained in this turnover variance workout.

38. Section 30 of the TATActrequire the Appellant to prove that the Respondent’s assessment was wrong. Having looked at the totality of evidence presented before the Tribunal, the Tribunal is of the view that that Appellant has failed to present any evidence to show that the Respondent erred and or considered irrelevant factors in computing the Appellant’s assessments.

39. The Appellant instead opted to attack the Respondent’s assessment on generalities without concretizing those general statements into tangible evidence that could help it discharge its burden of proof underSection 30 of the TAT, which provides as follows:“30. Burden of proofIn 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.”

40. The Tribunal also makes reference to its previous decision in the case of TAT NRB 195 of 2021 , Wilken Telecommunications Limited vs Commissioner of Domestic Taxes, where it stated that;-“Once the Assessment was issued, it was upon the Appellant to provide evidence to show that the Assessment was wrong.”

41. Flowing from the above, and considering that the Appellant has failed to prove that the Respondent erred in the computation of its assessment, the Tribunal finds that the Respondent was justified in confirming its assessment based on the turnover variances.

Final Decision 42. The upshot of the foregoing is that the Appeal lacks merit and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby dismissed.b.The Respondent’s Objection decision dated 4th of February 2022 be and is hereby upheld.c.Each party to bear its own costs.It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 2ND DAY OF JUNE 2023. ROBERT M. MUTUMACHAIRPERSONELISHAH N. NJERU RODNEY O. OLUOCHMEMBER. MEMBER.DELILAH K.NGALA EDWIN K. CHELUGETMEMBER. MEMBER.