[2024] KETAT 1093 (KLR)

Bwanyange Limited v Commissioner of Domestic Taxes (Tax Appeal E078 of 2023) [2024] KETAT 1093 (KLR) (28 June 2024) (Judgment)

Neutral citation: [2024] KETAT 1093 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E078 of 2023

E.N Wafula, Chair, RO Oluoch, Cynthia B. Mayaka, AK Kiprotich & T Vikiru, Members

June 28, 2024

Between

Bwanyange Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a resident company incorporated in Kenya and a registered taxpayer. The principal business activity of the Appellant is commodity import and trading.

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

3. The Respondent issued a tax demand dated 20th June 2022 for Corporation income tax self-assessment for the year 2020 plus instalment tax assessment for the year 2020.

4. On 27th June 2022 and 6th July 2022, the Respondent issued agency notices to the Appellant bankers. Aggrieved by this the Appellant filed an application at the Tribunal vide MISC No. 262 of 2022 which was determined through a Ruling delivered on 11th November 2022.

5. Thereafter the Respondent issued a tax investigation findings vide a letter dated 16th December 2022. The Appellant replied through a letter dated 22nd December 2022.

6. The Respondent further through an email dated 27th January 2023 reminded the Appellant to provide supporting documents to its objection. The Respondent confirmed the assessment through its letter dated 1st February 2023.

7. The Appellant being dissatisfied with the Respondent’s confirmed assessment, filed this Appeal.

The Appeal 8. The Appeal as stated in the Memorandum of Appeal dated 9th March 2023 and filed on 10th March 2023 is premised on the following grounds:i.That the Respondent erred in law and in fact in failing to consider an objection issued under Section 51(3)(b)(7)(a) of the Tax Procedures Act.ii.That the Respondent erred in law and in fact in failing to consider the reasons advanced by the Appellant for being unable to comply and/or produce any supporting documents which documents are in the hands of a third party who has been adversely working in cahoot with the Respondent.iii.That the Respondent erred in law and in fact in issuing numerous conflicting tax assessments against the Appellant - based on the same period/years.iv.That the Respondent erred in law and in fact in failing to consider that the earlier demanded taxes were fully paid by the Appellant on the 23rd September,2022. v.That the Respondent erred in law and in fact in failing to consider that the Appellant had already made an overpayment of Kshs.8,800,000. 00 to the Respondent.vi.That the Respondent erred in law and in fact in failing to consider that the issue of the Appellant's documents detained by one Yusuf Alibhai is pending before the Central Police Station Mombasa, the same having been reported vide OB/NO.29 of 16th July,2022.

Appellant’s Case 9. The Appellant’s case is premised on the hereunder filed documents and proceedings before the Tribunal;i.The Appellant’s Statement of Facts dated 9th March, 2023 and filed on 10th March 2023 together with the documents attached thereto.ii.The Appellant’s written submissions dated 9th August 2023 and filed on 10th August 2023.

10. The Appellant stated that on 27th June 2022, and on diverse dates, the Respondent issued agency notices to the Appellant's bankers, that is Family Bank, ABSA Bank Plc, and Equity Bank (K) Ltd under Section 42 of the Tax Procedure Act, 2015 in enforcement of alleged tax arrears amounting to Kshs.27,964,020. 00.

11. That on the 14th July, 2022 the Appellant's Advocates wrote to the Respondent and explained why the tax arrears demanded were based on wrong assessment.

12. That the Respondent further re-assessed the tax amount due from the Appellant at Kshs.9,154,412. 27. It averred that the Respondent thereafter generated a PRN Form to enable the Appellant to pay on 14th September, 2022.

13. That on the 23rd September 2022, the Appellant paid the entire taxes demanded of Kshs.9,226,890. 00.

14. The Appellant contended that the Respondent yet again generated various assessment on diverse dates in October 2022, and demanded payments thereof, namely; 19th October 2022, and 26th October 2022.

15. That on the 16th December 2022, the Respondent issued another assessment for a staggering sum of Kshs.412,201. 000. 00.

16. The Appellant further submitted that on the 22nd December 2022, the Appellant responded to the new assessment. That indeed it stated in its letter to the Respondent that its documents had been detained by Mr. Yusuf Alibhai and thereafter it could not make a comprehensive response as required by the Respondent.

17. That the Appellant had reported the matter of the detention of documents vide OB/No.29 at the Central Police Station, Mombasa.

18. That the Appellant has since filed suit in the High Court of Kenya in Mombasa demanding, inter-alia, the release of its document by Mr. Yusuf Alibhai now still pending in court.

19. That it was obvious from the foregoing that both the Respondent and Mr. Yusuf Alibhai have been working against the Appellant. That for example, in Tax Appeals Miscellaneous Application No. 262 of 2022, Bwanyange Limited-vs-Commissioner of Domestic Taxes, the said Yusuf Alibhai attempted to join the suit as an interested party.

20. It added that it was curious that the numerous different tax assessments by the Respondent were all in respect of the same period, that is 2018 to 2020.

21. The Appellant reiterated that the Respondent's action were unreasonable, illegal, ultra-vires its powers and authority as the amount demanded was disputed, some already paid and/or had not been ascertained to be due and payable as envisaged under Section 42 of the Tax Procedures Act, 2015.

22. The Appellant submitted that the numerous unlawful actions of the Respondent had totally crippled the Appellant. That it was in the interest of justice that the Tribunal allows the Appeal as the actions of the Respondent violate Article 40 of the Constitution of Kenya 2010.

23. That the Appellant is amenable to engage the Respondent's Alternative Dispute Resolution framework with a view to solving the tax dispute amicably.

Appellant’s Prayers 24. The Appellant prayed to the Tribunal that;i.The Respondent's tax decision dated the 1st February 2023, be halted by this Tribunal pending the hearing and determination of the High Court Civil case No. 15 of 2023; Bwanyange Limited-Vs-Yusuf Alibhai and Equity Bank (K) Ltd.ii.The Tribunal makes a finding that the action by the Respondent against the Appellant are punitive, destructive and/or malicious.iii.The Tribunal makes a finding that the numerous demand notices issued by the Respondent to the Appellant infringe on the Appellant's Constitutional rights.iv.The Appeal be allowed with costs to the Appellant.v.Any orders the Tribunal may deem fit.

Respondent’s Case 25. The Respondent’s case is premised on the Respondent’s Statement of Facts dated 19th June 2023 and filed on the same date together with the documents attached thereto.

26. The Respondent stated that it received information that the Appellant was experiencing ownership tussles. That it carried out measures to ensure that taxes due based on self-assessment were safeguarded.

27. That the Respondent established that the company had pending Corporate income tax self-assessment of Kshs 8,574,592. 00 for the year 2020 and the Appellant had not filed Income tax self-assessment for the year 2021.

28. The Respondent submitted that it issued a tax demand dated 20th June 2022 for KShs.27,964,020. 21 being the outstanding Corporate income tax self-assessment for the year 2020 for KShs. 8,574,592. 00 plus the installment tax assessment of Kshs 15,672,526. 00 for the year of income 2021.

29. That on 27th June 2022 and 6th July 2022, it issued agency notices to the Appellant's bankers at Equity, Absa, NCBA, Family bank and Eco bank.

30. That aggrieved by the agency notices, the Appellant filed an application at the Tax Appeals Tribunal vide Miscellaneous Application No.262 of 2022. That the Application was heard and determined by the Tribunal through its Ruling delivered on 11th November 2022.

31. The Respondent averred that the Appellant further challenged the demand of KShs. 27,964,020. 21 through TAT No. 1124 of 2022. That the Appellant later withdrew the TAT No. 1124 of 2022.

32. That the Respondent thereafter conducted a tax audit on the Appellant's tax affairs and issued is findings and additional tax demand of KShs. 412,201,000 vide letter dated 16th December 2022.

33. That the Appellant lodged an objection to the additional tax demand vide a letter dated 22nd December 2022.

34. The Respondent stated that Appellant's objection was not accompanied by documents supporting the objection as required under Section 51(3) of the Tax Procedures Act.

35. That the Appellant was requested to provide documents supporting its objection vide an email dated 27th January 2023. It averred that the Appellant was requested to supply the documents within 7 days. That the Appellant never provided the documents despite the request.

36. The Respondent submitted that the Appellant having failed to supply the documents despite the reminder, it proceeded to confirm its assessment vide a notice of confirmation of assessment dated 1st February 2023.

37. It was the Respondent's case that the Appellant's Appeal is bad in law as the Appellant’s objection dated 22nd December 2022 was not valid.

38. That Section 51(3) (c) of the Tax Procedures Act (TPA) provides that;“A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if-…c.all the relevant documents relating to the objection have been submitted.”

39. That the Appellant lodged a notice of objection dated 22nd December 2022 to the Respondent's assessments dated 16th December 2022. That in its objection the Appellant failed to provide documents in support. That the notice of objection raised by the Appellant was therefore invalid.

40. The Respondent stated that in the spirit of taxpayer facilitation it requested the Appellant to provide the documents in support of its objection vide an email dated 27th January 2023. That the Appellant however failed to provide the documents despite the reminder.

41. That there being no valid objection, the Respondent had no option but to confirm its demand vide a notice of confirmation dated 1st February 2023.

42. It was the Respondent’s contention that the fact that the Appellant had not provided supporting documents is not in dispute as the Appellant has itself admitted to it in its pleadings. That the Appellant's allegations are that the required documents are in the hands of a third party and as such it is unable to access them.

43. That the allegations by the Appellant that the alleged third party is working in cahoots with the Respondent are unsubstantiated. That the said allegations are vehemently denied and the Appellant should be taken to task to proof the same.

44. The Respondent submitted that the law requires a taxpayer, such as the Appellant, to keep a record of its transactions and provide them when required to do so and the same to assist the Appellant to discharge its burden of proof. That this is provided for under Section 23 (1b) of the Tax Procedure Act and Section 43 of the VAT Act.

45. The Respondent averred that the duty of keeping records is on the taxpayer and where the same falls in the hands of a third party, such as alleged by the Appellant, it is upon the taxpayer, in this case the Appellant to ensure that the documents are obtained from the third party and made available to the Respondent.

46. That the Appellant's tussle with the alleged third party who has the Appellant's documents should not be visited on the Respondent.

47. That the timelines within which the Respondent should conduct an audit and issue an additional assessment if any is governed by statute. That further the Respondent cannot tell or estimate how long the tussle between the Appellant and the alleged third party who had its documents is going to take. It posited that the Respondent therefore could not sit down and wait for its timelines to expire before it does its statutory duty.

48. It stated that the allegation by the Appellant that its documents were in the hands of a third party are not yet proven.

49. The Respondent submitted that the Appellant had the responsibility of maintaining records and to provide them to the Respondent when required to. That the Respondent was not privy to the matter at the Central Police Station.

50. In response to the Appellant's assertion that the Respondent erred in law and facts in issuing numerous conflicting tax assessments against the Appellant based on the same period, it averred that the Appellant was confusing the demand of Kshs. 27,964,020. 21 issued on 20th June 2022.

51. It was the Respondent's case that the earlier demand of 20th June, 2022 was based on the Appellant's self-assessments and the same was subject to a different Appeal (TAT NO.1124 of 2022).

52. On the allegation by the Appellant that it paid some taxes, it was the Respondent's case that taxes settled by the Appellant were different from those subsequently demanded by the Respondent.

53. On the Appellant's prayer that the Tribunal halts its hearing pending hearing and determination of the High Court Case 15 of 2023: Bwanyange V Yusuf Alibhai and Equity Bank. It was the Respondent's case that based on the attached Plaint the issues in the High Court case were very different with the issues herein.

54. The Respondent urged the Tribunal to find that there is no valid Appeal before it and proceed to dismiss the prayers sought by the Appellant in its Memorandum of Appeal.

Respondent’s Prayers 55. The Respondent prayed that the Tribunal dismisses this Appeal with costs to the Respondent.

Issues For Determination 56. The Tribunal notes that subsequent to filing the Appeal, the Appellant vide a Notice of Motion dated 14th July 1023 and filed on 18th July 2023 applied for orders to lift agency notices issued by the Respondent to its banks on 3rd May 2023. The Tribunal directed the Notice of Motion to be handled together with this Appeal.

57. The Tribunal therefore having considered the parties pleadings, submissions and the Notice of Motion filed on 18th July 2023 is of the view that the following issues fall for its determination;i.Whether the Appellant lodged a valid objection within Section 51(3) of the TPA in its letter dated 22nd December 2022. ii.Whether the Respondent erred in confirming the assessment of tax on the Appellant.

Analysis And Findings 58. The Tribunal having ascertained the issues that crystallize for its determination shall proceed to make an analysis on each of the identified issues separately as hereunder:-i.Whether the Appellant lodged a valid objection within Section 51(3) of the TPA in its letter dated 22nd December 2022.

59. It was the Respondent's case that the Appellant's Appeal is bad in law as the Appellant’s objection dated 22nd December 2022 was not validly lodged.

60. The Respondent stated that Appellant's objection was not accompanied by documents supporting the objection as required under Section 51(3) of the Tax Procedures Act.

61. The Tribunal perused through the documents presented by the parties and noted that the Respondent issued tax investigation findings to the Appellant through a letter dated 16th December 2022. The letter stated in part as follows regarding documents the Respondent requested for;“A)…i.Bank deposit analysis…Remarks:You are requested to provide reconciliations for the above variances, mainly positive variances noted in the year 2019. Unreconciled positive variance will be treated as undeclared income and subjected to VAT and Income Tax. You are also requested to avail additional bank statements which are operated by the company and its directors.ii.Purchases claimed from the company…RemarksThe above variances indicate under-declaration of income. You are required to avail reconciliations and explanations for the variances, failure to which the same shall be subjected to Income Tax and VAT accordingly.ii.Import purchases claimed…Kindly provide reconciliations for the same. The variances are summarized below;…The above taxes finding of Kshs 412,201,000 as summarized above are based on information available to the commissioner.…”

62. As evidenced by the above correspondence from the Respondent the Appellant was requested to provide certain specific documents and information that would have enabled the Commissioner come up with a different tax assessment if the Appellant disputes as provided for under Section 51(3) of the Tax Procedures Act.

63. Section 51(3) provides as follows regarding validity of objections;“A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if—a.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;b.in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay the tax not in dispute under section 33(1); andc.all the relevant documents relating to the objection have been submitted.”(Emphasis added)

64. In the instant case, the Tribunal notes that in its response dated 22nd December 2022, the Appellant did not address the specific issues raised by the Respondent and further did not provide any documents.

65. The Tribunal further notes that the Respondent vide an email dated 27th January 2023 reminded the Appellant that it had not yet provided documents in support of its objection.

66. Although the Appellant in its letter and pleadings cited having filed a case at DCI and another case pending in court, it did not provide any evidence that there were any stay orders barring the Respondent from proceeding with any assessment, or barring the Tribunal from determining this matter.

67. Section 23 (1) & (2) of the Tax procedures Act provides as follows regarding record keeping;“Record-keeping(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.2. The unit of currency in books of account, records, paper registers, tax returns or tax invoices shall be in Kenya shillings.”

68. It follows from the above provisions of the law that the Appellant ought to have kept the records of its transactions and provide them when required by the Respondent in order to ascertain its tax liability. The Appellant in this case failed to provide any document in support of its objection to a tax assessment as provided for under Section 51(3) of the Tax Procedures Act.

69. The Tribunal reiterates its decision in TAT No. 1288 of 2022 Moto Commodities Limited V Commissioner Of Domestic Taxes where it held as follows;“In the Circumstances, the Appellant did not have a valid objection on record and it followed that the Respondent’s assessment stood confirmed, in which case there did not exist a decision of the Commissioner on record in this appeal from which the Appellant could lodge an appeal to the Tribunal. The present appeal is thus invalid as it lacks the legs to stand, crawl or walk on.”

70. In the circumstances and with due consideration of the fact that the Respondent had given the Appellant time to provide the requested documents and information, the Tribunal finds that the Appellant did not lodge a valid objection.

71. Having entered the above finding, the Tribunal did not delve into the other issues that fell for its determination namely; Whether the Respondent erred in its assessment of tax on the Appellant as it had been rendered moot.

Final Decision 72. Based on the foregoing analysis the Tribunal finds that the Appeal lacks merit and accordingly proceeds to make the following Orders:-i.The Appeal be and is hereby dismissed.ii.The Respondent’s confirmation of tax assessment dated the1st February, 2023 be and is hereby upheld.iii.Each party to bear its own costs.

73. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 28TH DAY OF JUNE, 2024ERIC NYONGESA WAFULACHAIRMANDR. RODNEY O. OLUOCHMEMBERCYNTHIA B. MAYAKAMEMBERABRAHAM K. KIPROTICHMEMBERTIMOTHY B. VIKIRUMEMBER