[2024] KETAT 50 (KLR)

Buildventure Enterprises Limited v Commissioner of Domestic Taxes (Tax Appeal 911 of 2022) [2024] KETAT 50 (KLR) (26 January 2024) (Judgment)

Neutral citation: [2024] KETAT 50 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 911 of 2022

Grace Mukuha, Chair, G Ogaga, T Vikiru & Jephthah Njagi, Members

January 26, 2024

Between

Buildventure Enterprises Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a company incorporated in Kenya and has registered offices in Donholm, Outering Road Nairobi. The Appellant’s principal activity is that of civil engineering, construction and water projects.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and 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 through its West of Nairobi Tax Service Office conducted an audit on the Appellant.

4. Vide a letter dated 14th April 2022, the Respondent issued its audit findings assessing additional Corporation income tax of Kshs. 26,377,212. 00 inclusive of penalties and interest and VAT of Kshs. 36,238,186. 00.

5. The Appellant objected to the Respondent's audit findings via an objection letter dated 11th May 2022.

6. The Respondent issued its decision on 12th July 2022 where it reviewed the Corporation income tax assessment to nil but confirmed VAT assessment of Kshs. 27,331,747. 00 in principal tax.

7. The Appellant being aggrieved by the Respondent’s tax decision contained in the letter of 12th July 2022 lodged this Appeal vide a Notice of Appeal filed on 29th August 2022.

The Appeal 8. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal filed on 29th August 2022. a.That the Respondent erred in law by computing VAT by way of gross banking method without adjusting for non-revenue bank deposits.b.That the Respondent erred in fact by computing VAT by way of grossing up withholding VAT (WHVAT) credits while relying on erroneous figures of the said credits and not the figures in the company's iTax ledger.c.That the Respondent has erred in fact by forming an opinion that the Appellant had filed an application for extension of time to file a late objection notice while indeed the objection had been filed on time.

Appellant’s Case 9. The Appellant’s case is premised on the Appellant’s Statement of Facts dated 26th August 2022 and filed on 29th August 2022 together with the documents attached thereto.

10. The Appellant averred that the Respondent through its West of Nairobi Tax Service Office conducted an audit on it.

11. That vide a letter dated 14th April 2022, the Respondent issued audit findings assessing additional Corporation income tax of Kshs. 26,377,212. 00 inclusive of penalties and interest and VAT of Kshs 36,238,186. 00.

12. The Appellant objected to the Respondent's audit findings via an objection letter dated 11th May 2022.

13. That the letter of objection and the supporting documents were sent by email on Wednesday 11th May 2022 at 2. 58 PM.

14. The Appellant stated that the Respondent issued its objection decision on 12th July 2022 where it reviewed the Corporation income tax assessment to nil but confirmed VAT assessment of Kshs. 27,331,747. 00 in principal tax.

15. The Appellant being aggrieved by the Respondent’s tax decision contained in the letter of 12th July 2022 lodged this Appeal.

16. The Appellant submitted that it examined the Respondent's computations for VAT obligations and noted that the computations were grossly erroneous.

17. That the "expected income" as computed by the Respondent was arrived at through the summation of all the bank deposits i.e through the gross banking method.

18. That from the review, the Appellant noted that the Respondent did not take into consideration correct non­ revenue deposits that affect the expected income when using the gross banking method. That these non-revenue deposits included;a.Loansb.Related parties loans and injectionsc.Inter-bank transfersd.Output VATe.Bounced cheques credited backf.Reversal entries and other non-revenue deposits

19. That based on the Appellant’s workings and reconciliations, it arrived at the “derived income” as summarized in the table below after factoring in the non-revenue deposits:-Years 2018 2019 2020Total Bankings 27. 302 384 I16,350,148 107 378,590Less: Non-Revenue Bankings Including Related party deposits, loans, bounced cheques etc (27 064 545) (80 034. 602) (60. 063 597)Derived Revenue/ ExpectedIncome 237,839 36,315,545 47,314,993Declared Revenue 6,378,786 36,678,186 47. 392. 673Variance (6,140,947) (362,641) (77,680)

Appellant’s Prayers 20. The Appellant made the following prayers:-a.The Appeal be allowed.b.The Respondents decision dated 12th July 2022 be vacated.

Respondent’s Case 21. The Respondent’s case is premised on the hereunder filed documents:-a.The Respondent’s Statement of Facts dated and filed on 28th September 2022 together with the documents attached thereto.b.The Respondent’s written submissions dated 20th March 2023 and filed on 30th March 2023.

22. In response to the Appeal, the Respondent refuted every allegation by the Appellant in the Memorandum of Appeal and Statement of Facts.

23. In response to ground 1, the Respondent averred that there were variances between sales declared by the Appellant, sales derived from the withholding VAT certificates and sales derived from banking records. That the VAT returns for the years 2017 to 2020 and Income returns for the years 2019 and 2020 were under stated.

24. That, Section 31(1)( c) of the Tax Procedures Act grants the Respondent the power to amend a taxpayer's assessment to the best of the Respondent's judgement. The provision states that;“...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 ... 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."

25. That additionally, the Appellant failed to provide documentation to support its grounds for objection as required under Section 51(3)(c) of Tax Procedures Act. The provision states that;“A notice of objection shall be treated as validly lodged by a taxpayer if ... the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments... all the relevant documents relating to the objection have been submitted."

26. That the Appellant failed to prove or explain the source and nature of the amounts of cash received in its bank account during the period under review. That in the absence of such proof to the contrary, the Respondent was entitled to draw the inference that the receipts were of an assessable nature.

27. That further, the Appellant has not adduced any evidence before this Tribunal to prove that the income in its bank included non-revenue deposits.

28. That the Appellant thus failed to meet the burden of proof contrary to Section 56(1) of the TPA which provides that in any proceedings, the burden shall be on the taxpayer to prove that a tax decision is incorrect.

29. The Respondent vehemently denied the contents of ground two and averred that there was no reconciliation between the sales received as per bank statements, VAT sales and income tax declared as alleged.

30. The Respondent averred that pursuant to the provisions of Section 29 of the Tax Procedures Act, the Commissioner may in the absence of tax returns by the taxpayer exercise his or her best judgment based on the information available. The Section provides as follows:-“where a taxpayer has failed to submit a tax return for a reporting period in accordance with the provisions of a tax law, the Commissioner may, based on such information as may be available and to the best of his or her judgement, make an assessment (referred to as a "default assessment'') of-"

31. That further, Section 31(1)(c) of the Tax Procedures Act grants the Respondent the power to amend a taxpayer's assessment to the best of the Respondent's judgement.

32. In response to ground 3, the Respondent averred that the Appellant did not produce evidence of the alleged email extract for the Commissioner to consider before delivering his decision and as such new evidence which the Respondent terms as an afterthought cannot be introduced at the instant stage.

33. The Respondent averred that it is trite law that the Commissioner's determinations of tax deficiencies are presumptively correct and the presumption remains so until the taxpayer produces competent and relevant evidence to support its position.

34. That the Appellant failed to meet the burden of proof contrary to Section 56(1) of the TPA which provides that in any proceedings, the burden shall be on the taxpayer to prove that a tax decision is incorrect.

35. The Respondent submitted that the following should be the issues for determination:-a.Whether the Appellant's application for extension of time to file a notice of objection should be allowed.b.Whether there was undue delay of the Appellant's part in filing the Notice of Objection.c.Whether there is a valid appeal before the Tribunal

36. The Respondent submitted that for an objection to be considered as valid, a taxpayer ought to lodge a notice of objection within 30 days of receipt of an assessment as provided for in Section 51(2) of the Tax Procedures Act. It states;“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."

37. The Respondent reiterated that it issued additional assessment on 14th April 2022 and the Appellant lodged its objection to the assessment through iTax 47 days later on 31st May 2022. The Appellant however indicated in the objection reasons that the objection was submitted on time via email.

38. That the Respondent made several requests to the Appellant to provide evidence in support of its position with the last request being the letter dated 9th June 2022 requesting the Appellant to forward to the Respondent the alleged email dated 11th May 2022.

39. That the Appellant however failed to provide records to support its grounds for lodging an objection out of time as required under Section 51(7) of the Tax Procedures Act.

40. The Respondent submitted that Section 51(7) of the Tax Procedures Act states;“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."

41. The Respondent submitted that in the case of Tumaini Distributors Company (K) Limited v Commissioner of Domestic Taxes [2020] eKLR, the Court held that:-“under section 51 aforesaid, a person who is dissatisfied with the decision of the Commissioner on an assessment is entitled to lodge an objection within 30 days. Section 51(6) and (7) provide for what happens when the objection is lodged late. The taxpayer is entitled to apply for extension of time".

42. The Respondent invited the Tribunal to interrogate the reasons given by the Appellant and determine whether they fall under the exceptions given in Section 51(7) and whether the Appellant laid substantial ground for the Tribunal to interfere with the discretion of the Commissioner.

43. The Respondent submitted that the Appellant stated that it lodged the objection on time via email, however when asked to provide evidence of the email mentioned, it failed to do so, thus necessitating the Respondent to reject the late objection and confirm the additional assessments.

44. The Respondent called upon the Tribunal to interrogate the spirit and intent of the Legislature in the addition in Section 51(7) of the words "or other reasonable cause" coming right after "absence from Kenya and sickness.”

45. The Respondent submitted that the reason given by the Appellant asserting that it submitted its objection on time cannot be said to be of the same kind as sickness or absence from Kenya.

46. The Respondent further submitted that Section 51(7) goes further to provide that the application for extension of time may be allowed if:“(b)the taxpayer did not unreasonably delay in lodging the notice of objection.”

47. That the provision in Section 51(7) provides that the Commissioner "may" allow an application for extension of time. That the word "may" implies a discretionary power granted unto the Commissioner to make this decision.

48. The Respondent submitted that the Appellant did not suffer any hardship that prevented it from making the application or forwarding the email to prove that it had lodged the objection on time. The Appellant has instead deliberately sought to obstruct the course of justice and inhibit the Respondent from carrying out its statutory and Constitutional mandate in the collection and administration of tax revenue.

49. The Respondent submitted that the Commissioner did not mis-direct himself in rejecting the Appellant's objection of 31st May 2022 and further confirming the assessment as it was guided by the law in Section 51(7) of the TPA.

50. The Respondent noted that this Tribunal's mandate is engrained in the Tax Appeals Tribunal Act, No. 40 of 2013. Section 3 of the said Act provides for its establishment and states as follows: -“Establishment of the Tribunal.There is established a Tribunal to be known as the Tax Appeals Tribunal to hear appeals filed against any tax decision made by the Commissioner".

51. That Section 52 of the Tax Procedures Act, 2015 states as follows:-“(1)A person who is dissatisfied with an appealable decision may appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Tribunal Act, 2013 (No. 40 of 2013)."

52. That Section 3 of the Tax Appeals Tribunal Act", as read with Section 52 of the Tax Procedures Act 2015, defines“appealable decision to mean an Objection and any other decision made under a tax law other than a tax decision or decision made while making a tax decision”.

53. It was the Respondent's contention that there was no objection decision, or any appealable decision made under any tax law worth appealing against and thus the purported appeal is a nullity ab initio and ought to be struck out.

54. That under Section 52 of the Tax Procedures Act 2015, it is only a person who is dissatisfied with an appealable decision who may lodge an appeal to the Tribunal in accordance with the provisions of the Tax Appeals Tribunal Act, 2013. That therefore the Respondent do not have an appealable decision within the meaning of Section 52 of the Tax Procedures Act, 2015.

55. That Section 51 of the Tax Procedures Act provides for the procedure of objecting to tax decisions up until the time the Commissioner arrives at an Objection decision. That Section 51 (1) of the Tax Procedures Act, 2015 provides that:“a taxpayer who wishes to dispute a tax decision shall first lodge an objection against that tax decision under this section before proceeding under any other written law."

56. That Section 51 (2) of the Tax Procedures Act, 2015 provides thus:“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."

57. That Section 51 (8) of the Tax Procedures Act, 2015 provides thus:“Where a notice of objection has been validly lodged within time, the Commissioner shall consider the objection and decide either to allow the objection in whole or in part, or disallow it, and Commissioner's decision shall be referred to as an "objection decision."

58. The Respondent submitted that in its opinion, there is no valid objection or any appealable decision made under any tax law worth appealing against.

59. The Respondent reiterated that the Appellant’s actions were in blatant disregard to the doctrine of exhaustion. That the Appellant ought to have complied with the laid down procedures before invoking the jurisdiction of the Tribunal.

60. The Respondent relied on Honourable Mativo J's decision in the case of Godfrey Osotsi v Amani Naitonal Congress [2019] eKLR which set out an elaborate analysis of the rationale for the doctrine of exhaustion;“Where there is a clear procedure for redress of any grievance prescribed by the Constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures. It is imperative that where a dispute resolution mechanism exists outside courts, the same be exhausted before the jurisdiction of the Courts is invoked. Courts ought to be for a or last resort and not the first port or call the moment a storm brews...The exhaustion doctrine is a sound one and serves the purpose o[ ensuring that there is a postponement of judicial consideration of matters to ensure that a party is first of all diligent in the protection of his own interest within the mechanisms in place for resolution outside the courts... This accords with Article 159 of the Constitution which commands Courts to encourage alternative means of dispute resolution."

61. The Respondent appreciated that as a public body it had a statutory duty to discharge its mandate in an expeditious, lawful, reasonable, and procedurally fair manner. The Respondent however reiterated that lodging an objection after forty-seven (47) days after receipt of the Respondent’s notice of assessment is unreasonable in the circumstances.

62. The Respondent urged the Tribunal to find that the Appellant's appeal is not valid as the Tribunal lacks jurisdiction to entertain the Appeal for failure on part of the Appellant to comply with doctrine of exhaustion.

63. The Respondent submitted that the Appellant is by virtue of its own lack of compliance with the law, estopped from seeking the prayers sought in the Appeal.

64. The Respondent submitted that an injustice will occur if the Appellant's Appeal is allowed. That this is because the tax assessment will be discarded without being heard on merits and the Respondent will stand to lose a substantial amount of taxes collected on behalf of the public.

65. The Respondent submitted that the Tribunal should also remember that tax and revenue collection matters are of public interest and they should be protected by ensuring that justice prevails. That the Appellant should not be allowed to get away without paying taxes due by virtue of the misguided notion that the Respondent made an assumption that the notice of objection had been lodged late. That by allowing interpretation of the law against the public interest will be a travesty of justice.

Respondent’s Prayers 66. The Respondent prayed that The Tribunal considers the case and finds that:a.The Respondent's objection decision dated 12th July 2022 be upheld.b.The instant Appeal be dismissed with costs.

Issue For Determination 67. The Tribunal has carefully studied the pleadings and documentation filed by both parties and is of the respectful view that the only issue for its determination is as follows:-Whether the appeal is valid.

Analysis And Findings 68. The genesis of this dispute is an audit carried out by the Respondent through its West of Nairobi Tax Service Office. Vide a letter dated 14th April 2022, the Respondent issued audit findings assessing additional Corporation income tax of Kshs. 26,377,212. 00 inclusive of penalties and interest and VAT of Kshs. 36,238,186. 00.

69. The Appellant objected to the Respondent's audit findings in a letter dated 11th May 2022 and emailed to the Respondent on the same date. The Respondent issued its late objection rejection notice on 12th July 2022.

70. The Appellant appealed to the Tribunal against the late objection rejection notice in a Notice of Appeal dated 29th August 2022.

71. The Tribunal notes that the procedure for appeal as set out in Section 13 (1) (b) of the Tax Appeals Tribunal Act (TAT Act) requires that a Notice of Appeal shall be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.

72. The Tribunal observes that the Appellant received the Respondent’s decision on 12th July 2022, but filed its Notice of Appeal on 29th August 2022, which was after the stipulated thirty days subsequent to receiving the Respondent’s decision.

73. The Tribunal further notes that the Appellant failed to apply for leave to file its Notice of Appeal out of time as required in Section 13 (3) of the TAT Act which provides: -“The Tribunal may, upon application in writing or through electronic means, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).”

74. The Tribunal is of the considered view that the timelines for appealing the Commissioner’s decisions are clearly set out in the law, and all taxpayers are liable to comply with the timelines, save for when unavoidable circumstances prevent a taxpayer from fulfilling its obligations as envisioned in Section 13 (4) of the TAT Act which states: -“An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from filing the notice of appeal or submitting the documents within the specified period.”

75. The Tribunal buttresses the importance of adherence to timelines by referring to the case of Eastleigh Mall Limited v Commissioner of Investigations & Enforcement (Income Tax Appeal E068 of 2020) [2023] KEHC 20000 (KLR) where the court held as thus: -“... Parliament in its wisdom knew that in matters tax, time is very crucial as those in commerce need to make informed decisions. If the Commissioner is allowed to exercise his discretion and stay ad-infinitum before issuing an objection decision, the tax payer would be unable to make crucial decisions and plan his/her business properly. The timelines set are mandatory and not a procedural technicality.”

76. The Tribunal is further guided by the case of W.E.C. Lines Ltd v The Commissioner of Domestic Taxes [TAT Case No.247 of 2020] where it was held at paragraph 70 while reiterating the holding in Krystalline Salt Ltd vs KRA [2019] eKLR that: -“Where there is a clear procedure for redress of any particular grievance prescribed by the constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures. The relevant procedure here is the process of opposing an assessment by the Commissioner.”

77. Based on the foregoing, the Tribunal finds that there is no valid Appeal before it, therefore, the Tribunal does not have the jurisdiction to determine the matters in the Appeal.

Final Decision 78. The upshot of the foregoing is that the Appeal fails. Consequently, the Tribunal makes the following Orders: -a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

79. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 26TH DAY OF JANUARY, 2024GRACE MUKUHA - CHAIRPERSONGLORIA A. OGAGA - MEMBERTIMOTHY VIKIRU - MEMBERJEPHTHAH NJAGI - MEMBER