[2024] KETAT 574 (KLR)

Britken Hauliers Limited v Commissioner of Domestic Taxes (Tax Appeal 193 of 2023) [2024] KETAT 574 (KLR) (22 March 2024) (Judgment)

Neutral citation: [2024] KETAT 574 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 193 of 2023

CA Muga, Chair, BK Terer, D.K Ngala & SS Ololchike, Members

March 22, 2024

Between

Britken Hauliers Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited company duly incorporated and registered in Kenya. Its principal activity is transport and storage activities.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act 1995, CAP 469 of laws of Kenya. Under Section 5 (1) of the Act, the Respondent 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), it is mandated to administer and enforce all provisions of the Written laws as set out in Parts 1 & 2 of the First Schedule to the Act for purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Appellant was issued with income tax-company additional assessment vide the assessment orders dated 11th April, 2019 for the years 2016 and 2017 for the sum of Kshs.3,878,814. 00.

4. The Appellant objected to the assessment on 15th December 2022 and the same was acknowledged by the Respondent vide an objection acknowledgement receipt of even date.

5. The Appellant vide electronic mail correspondence dated 30th December 2022 and 26th January, 2023 was requested to provide specific documents for review of its objection decision. The Respondent acknowledged receiving bank accounts statements from 1st January 2016 to 5th January 2017, unsigned draft financial statement and ledgers in soft copies.

6. The Respondent reviewed the documents and issued its objection decision dated 13th February 2023 confirming the tax due of Kshs 6,263,154. 00 which was inclusive of penalties and interest.

7. Aggrieved by the Respondent’s decision the Appellant filed its Notice of Appeal dated 17th February, 2023 on even date.

The Appeal 8. The Appeal is premised on the following grounds of Appeal as stated in the Appellant’s Memorandum of Appeal dated and filed on 3rd March, 2023:a.That the Respondent erred in law and fact by bringing and assessing Corporation tax on the basis that there is a variance between the sales declared as per VAT returns and Income tax.b.That the Respondent erred in law and fact by not considering all the documents requested and supplied by the Appellant.

Appellant’s Case 9. In its Statement of Facts dated and filed on 3rd March, 2023, the Appellant stated that it was assessed for Corporation tax of Kshs 1,445,139. 00 for the year 2016 and Kshs 2,433,675. 00 for the year 2017, the basis of the additional assessment being the undeclared sales relating to variance between VAT returns and Income returns transactions.

10. The Appellant reiterated its grounds of Appeal to buttress its argument and expressed its intention to engage the Respondent through the Respondent’s Alternative Dispute Resolution framework.

Appellant’s Prayers 11. The Appellant prayed that:a.The Respondent’s objection decision dated 13th February, 2023 be struck out in its entirety.b.It be awarded the costs of the Appealc.Any other remedies that the Tribunal deemed just and reasonable.

The Respondent’s Case 12. The Respondent addressed the Appellant’s grounds of Appeal through its Statement of Facts dated 10th March, 2023 and filed on even date.

13. It averred that the assessments were correctly issued and conformed to the Value Added Tax Act No. 35 of 2013 (hereinafter ‘VAT Act’). Further that the Appellant did not provide any evidence that would have altered the assessment. It asserted that Section 56(1) of the Tax Procedures Act No. 29 of 2015 (hereinafter ‘TPA’) places the onus of proof in tax objections on the taxpayer who in this case failed to avail evidence that would support a contrary assessment or that would have guided the Respondent at arriving to a different objection decision.

14. In further response to the grounds of Appeal, the Respondent asserted that the Appellant lodged the objection on i-Tax which the Respondent acknowledged and treated it as invalidly lodged as it did not have proper grounds of objection. The Respondent stated further that it notified the Appellant and requested for documents which the Appellant failed to do.

15. The Respondent contended that when the Appellant failed to respond to the request of documents, it invoked Section 59(1) of the TPA and assessed the Appellant based on the only available information and its best judgement.

16. It was the Respondent contention that the Appellant was selected for a returns review following a variance from the analysis of its return in VAT tax, which were compared hence the objection decision provided a precise and clear breakdown of workings used to reach at the assessments. Further that the assessment was issued based on the information provided and in light of the inconsistencies within the Appellant’s books of accounts. It averred that it is empowered under Section 31 of the TPA to make alterations or additions to original assessments from available information for a reporting period based on its best judgement.

17. The Respondent averred that not all income earned by the Appellant was declared and hence the variances were brought to charge and that the Appellant is therefore undeserving of the prayers sought due to the afore stated reasons.

Respondent’s Prayers 18. The Respondent prayed that the Tribunal considers and find that: -a.The Respondents objection decision be upheld.b.The outstanding tax arrears of Kshs 6,263,154. 00 are due and payable by the Appellant.c.The Appeal be dismissed with cost to the Respondent.

Parties’ Submissions 19. Parties had been directed to file their submissions by 26th October 2023. However, by the date of hearing on 6th February, 2024, the Appellant had not filed its written submissions. The Tribunal has therefore considered the Respondent’s written submissions dated 16th October, 2023 and filed on 17th October 2023.

20. In its written submissions, the Respondent established the following three issues which it analysed in general:a.Whether the Respondent took into consideration all additional information availed before making the decision.b.Whether the Respondent erred by raising an assessment for the period of income years 2016 and 2017 for Income tax for years 2021. c.Whether the assessments issued were excessive.

21. The Respondent submitted that the assessments were correctly issued and conformed to the Income Tax Act, CAP 470 of the laws of Kenya (hereinafter ‘ITA’). Further that Section 56(1) of the TPA places the onus of proof in tax objections on the taxpayer who in this case failed to avail evidence that would support a contrary assessment or that would have guided the Respondent at arriving to a different objection decision.

22. The Respondent submitted that the tax due was arrived at based on the information available and that it is empowered by Section 29(1) of the TPA to make such a decision.

23. The Respondent submitted further that the taxpayer underdeclared the income for the period under review contrary to the provisions of the ITA and that according to Section 54A (1) of the said Act, a person carrying on business has the responsibility of maintaining records of all transactions to facilitate the ascertainment of their tax affairs. The Respondent added that the Appellant failed to provide signed financial statements and books to support its allegation.

24. The Respondent asserted that the Appellant supplied insufficient documents and that it assessed additional turnover based on noted unexplained variance between turnover as per the Appellant’s Income tax return and VAT returns for the years 2016-2017. Further that it is empowered under Section 31 of the TPA to make alterations from available information for reporting period based on its best judgement.

25. The Respondent averred that an examination of the Appellant’s records, audited accounts and Income tax returns established that the Appellant failed to declare business income and all its Incomes for the years of Income 2016-2017.

26. It averred further that Section 23(1) (b) of the TPA makes it an obligation of a taxpayer to maintain any document required under a tax law to enable the person’s tax liability to be readily ascertained. It argued that the Appellant’s objection was devoid of substance and failed to include any supporting records to validate Appellant’s claims as required under Section 51 of the TPA.

27. The Respondent relied of the following cases to buttress its case:i.Commissioner of Domestic Taxes vs Metoxide Limited (2021)ii.Monaco Engineering Limited vs Commissioner Domestic Taxes TAT Appeal No 67/2017. iii.John Githua Njogu vs Commissioner Investigation & Enforcement TAT 101/2018iv.Osho Drappers Ltd vs Commissioner of Domestic Taxes TAT No.159 of 2018. v.Miano YI vs Commissioner of Investigation & Enforcement TATNo.441 of 2019vi.Ritz Enterprises Ltd vs Commissioner of Investigations & Enforcement TAT No 227 of 2018.

Issues for Determination 28. The Tribunal has reviewed the parties’ pleadings, documentation and submissions and is of the considered view that this Appeal distils into a single issue for determination.

Whether the objection decision dated 13th February, 2023 was justified. Analysis and Findings 29. The Tribunal will proceed to analyse the issue as follows:

30. The Respondent had contended that the Appellant had underdeclared its income for the years of income 2016-2017 contrary to the provisions of Sections 54A(1) of the ITA which places the responsibility of any person carrying on business to maintain records of all transactions. The Respondent had also contended that the Appellant had not filed income tax returns from the date of its registration. However, it had been filing its VAT returns whose analysis established the variances, the subject of the assessment.

31. On its part the Appellant contended that the Respondent erred by assessing Corporation tax on the basis that there was a variance between the sales declared as per VAT returns and income tax and further that the Respondent did not consider all the documents requested which it had supplied. The Appellant also failed to file its Written submissions as directed by the Tribunal.

32. The Tribunal has observed that the Appellant has not been keen to prosecute its Appeal where in its Statement of Facts, it only averred that the Respondent erred in its assessment without substantiating this averment with any documentary evidence. It is worth noting that an averment has to be supported by evidence when pleading one’s case.

33. The Tribunal relied on the case of CMS Aviation Limited vs Cruisair ltd (No.1) (1978) KLR 103;(1976- 80) 1KLR (835) where Madan J (as he then was) stated as follows:“Pleadings contain the averment of the parties’ concerned. Until they are proved or disapproved or there is an admission of them by the parties, they are not evidence and no decision could be founded upon them. Proof is the foundation of evidence. Evidence denotes the means by which an alleged matter of fact, the truth of which is submitted for investigation. Until their truth has been established or otherwise, they remain un-proven. Averments in no way satisfy, for example, the definition of evidence as anything that makes clear or obvious, ground for knowledge, indication or testimony, that which makes truth evident or renders evident to the mind that is truth.”

34. The Tribunal has reviewed an electronic mail communication of 26th January 2023 from the Respondent to the Appellant reminding the Appellant to provide the following documents which the Respondent had earlier requested:i.Bank statements for the years under review.ii.Tender and contract documents for the year under review.iii.Certificates of completion for the works done for the years under review.iv.Sales ledger, Purchase ledger and General ledger for the years under review.v.Audited Accounts for the years under review.vi.Income, costs and Expenses Invoices for the year under review.vii.Any other relevant documents to support the objection.

35. Where additional documents which would be reasonably expected to be in the Appellant’s possession are requested for verification for the alleged transactions, the Appellant is obligated to produce the same to the Respondent. It is the Tribunal’s considered view that the requested documents were reasonable to the Appellant’s business and should have been easily provided when requested. The Respondent acknowledged only receiving bank accounts statements from 1st January 2016 to 5th January 2017, unsigned draft of financial statements and ledgers in soft copies, documents which in the Tribunal’s view, were not adequate to enable the Appellant discharge its burden of proof.

36. Section 23 (1) of the TPA advocates for the importance of keeping and maintaining documents for tax purposes. It provides as follows;“(1)A person shall -a.Maintain any document required under a tax law in either of the official languages……b.Maintain any document required under a tax law so as to enable the person’s tax liability to be readily ascertained; andc.Subject to subsection (3), retain the document for a period of five years from the end of the reporting period to which it relates or such shorter period as may be specified in a tax law.”

37. The Tribunal reiterates its decision in TAT No 55 of 2018 Boleyn International Limited vs Commissioner of investigations & Enforcement where it held as follows:“The Appellant failed to provide documents and the Tribunal held that there was no conceivable way the Respondent would have considered the objection as the same did not place itself within the parameters of section 51(3) of the Tax Procedures Act.”

38. Section 56(1) of the TPA places the burden of proof in tax matters on the Appellant. It provides as follows:“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

39. The Appellant neither provided the relevant documents during the objection stage even when requested nor availed any documents at the Appeals stage to discharge its burden of proof hence compromising its position in this Appeal.

40. In the case of Primarosa Flowers Ltd vs Commissioner of Domestic Taxes HCITA No. 19 of 2017, the Learned Judge cited with approval the case of Mulherin vs Commissioner of Taxation (2012) FCAFC115, where the court held: -“...In tax disputes, the taxpayer must satisfy the burden of proof to successfully challenge income tax assessments. The onus is on the taxpayer in proving that an assessment was excessive by adducing positive evidence which demonstrates the taxable income on which tax ought to have been levied.”

41. It is the Tribunal’s considered view that the Appellant in this case failed to discharge its burden of proof hence the Respondent could hardly be faulted in raising the additional assessment.

42. In view of the foregoing, the Tribunal finds that the Respondent’s objection decision dated 13th February,2023 was justified.

Final Decision 43. The upshot of the foregoing analysis is that the Appeal lacks merit and therefore fails. The Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision dated 13th February, 2023 be and is hereby upheld.c.Each party to bear its own costs.

44. It is so ordered

DATED AND DELIVERED AT NAIROBI THIS 22ND DAY OF MARCH, 2024. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERDELILAH K. NGALA - MEMBERSPENCER S. OLOLCHIKE - MEMBERGEORGE KASHINDI - MEMBER