[2024] KETAT 1321 (KLR)

Centsavvy Capital Ventures Limited v Commissioner of Investigation and Enforcement (Tax Appeal E156 of 2023) [2024] KETAT 1321 (KLR) (23 August 2024) (Judgment)

Neutral citation: [2024] KETAT 1321 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E156 of 2023

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

August 23, 2024

Between

Centsavvy Capital Ventures Limited

Appellant

and

Commissioner Of Investigation And Enforcement

Respondent

Judgment

1. The Appellant is a private limited company incorporated in Kenya whose principal activity is the provision of advances and loans to individuals and corporations.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of the Laws of Kenya. 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 concerning 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 Parts 1 and 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 investigations on the Appellant’s tax affairs for the period 2016 to 2020. The investigations were based on the assertion that the Appellant filed income tax returns only for the year 2018 and had filed Nil returns for VAT for the period under review.

4. On 25th February 2022, the Respondent issued a notice of tax investigation to the Appellant informing the Appellant that a preliminary review carried out by the Respondent indicated that the Appellant had underdeclared their sales.

5. This was followed by a series of information exchange between the Appellant’s tax agent and the Respondent.

6. On 31st May 2022, the Respondent issued the Appellant a preliminary letter of findings communicating its intention to issue additional assessments amounting to Kshs. 88,249,491. 00 following the Respondent’s deposit analysis for the period January 2016 to December 2021.

7. The Appellant responded to the letter on 13th June 2022 requesting for 14 days to put together a comprehensive response.

8. After a series of communication, the Respondent on 13th October 2022 issued additional assessments to the Appellant demanding income tax amounting to Kshs. 96,295,932. 88 inclusive of principal tax, penalties and interest.

9. Aggrieved by the additional assessments, the Appellant objected to the same vide a notice of objection dated 4th November 2022. On 16th November 2022, the Respondent declared the objection invalid.

10. Subsequently, on 22nd December 2022, the Respondent issued a demand letter after conducting banking analysis of the Appellant demanding income tax amounting to Kshs. 78,364,957. 00. On 10th March 2023, the Respondent issued a letter confirming the additional assessments.

11. The Appellant being dissatisfied with the Respondent’s confirmed assessment, filed a notice of appeal at the Tribunal dated 6th April 2023 on even date.

The Appeal 12. The Appellant filed its Memorandum of Appeal dated 19th April 2023 and set out the following grounds of appeal:a.That the Respondent erred in law and fact by resorting to and relying solely on the bank credit deposits in determination of the Appellant’s taxable income for the period under investigation.b.That the Respondent erred in law and fact by assuming that all the bank deposits to the Appellant’s accounts equated to income chargeable to corporate income tax.c.That the Respondent erred in law and fact by treating non-revenue items including interbank and intercompany transfers, reversals and bounced cheques, loans and advances received in the Appellant’s bank statement as revenue leading to incorrect imposition of corporation income tax on those items contrary to the provisions of section 3(2) of the Income Tax Act CAP 470 of the Laws of Kenya (hereinafter “ITA”).d.That the Respondent erred in law and fact in finding and holding that the Appellant had failed to provide relevant documents to support its averments that the Respondent had considered the non-income deposits in its bank accounts and that without the alleged documents, it was impossible for the Respondent to determine if indeed they were non-income deposits received.e.That the Respondent erred in law and fact by not considering the costs incurred by the Appellant in earning the established income thereby raising additional assessments on gross established income contrary to Section 15(1) and 16(1) of the ITA.f.That Section 31 of the Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter “TPA”) was clear on the 5-year threshold within which the Commissioner should issue an amended assessment, and the additional assessments for the years 2016 and 2017 are therefore out of scope and should be expunged.

The Appellant’s Case 13. The Appellant set out its case in the Statement of Facts dated 18th April 2023 and filed on 20th April 2023. On whether the assessment of Kshs. 70,954,362. 85 was justified in law, the Appellant stated as follows;

14. That the Respondent erred in law by raising the additional income for the year 2016 to 2020 based on the bank deposit analysis and disregarding all the material explanations and facts given by the Appellant. That the actions of the Respondent amounted to procedural impropriety.

15. The Appellant stated that the Respondent breached the rules of natural justice by failing to consider the person whom the decision affects. The Appellant relied on the cases of Kenya Medical Association Housing Cooperative Society Limited v Attorney General & another [2016] eKLR and Ridge v Baldwin [1963] 2 ALL ER 66 at Page 61 citing that a decision given without regard to the principle of natural justice was void.

16. The Appellant stated that in the objection application letter lodged on iTax portal and filed herein, the Appellant provided all explanations on the non-income bank deposits received in the bank statement including inter-account transfers, but the Respondent disregarded this information and proceeded to confirm the assessment based on the bank statement deposits. Therefore, the assessments raised had no basis in law as the Respondent did not take into consideration any material facts placed before them.On the failure to consider non-income bank deposits received in the Appellant’s Bank Account

17. The Appellant stated that in their notice of objection of 4th November 2022, it had indicated that the assessments as communicated in the notice of assessment were excessive and not based on material facts and the law. Further, the Appellant asserted that the Respondent erred in law and fact by subjecting all the money received in the Appellant’s bank accounts to taxation contrary to provisions of Section 3(2) of the ITA.

18. The Appellant asserted that the Respondent acted on the assumption that all the monies received were gains/profits from the business carried out by the Appellant, contrary to the facts presented to the Respondent during in-person interviews. The Appellant relied on the case of Afya X-Ray Centre Ltd v Commissioner of Domestic Taxes [2019] eKLR to support this assertion.

19. The Appellant stated that it received money from investors for onward lending to businesses and individuals. Sample agreements for both the receipts and disbursements were presented to the Respondent during the objection review. Additionally, the Appellant stated that it received advances from investors at the rate of 3% and advanced them to the loanees at 5% thereby making only 2% inclusive of administrative costs and disbursements. Thus, the Appellant averred that the additional assessments were erroneous and grossly exaggerated as the same included taxation of non-income bank deposits.On taxation of gross established income contrary to section 15(1) and 16(1) of the ITA

20. The Appellant averred that the Respondent erred in fact and law by charging income tax on the gross established income contrary to Sections 15(1) and 16(1) of the ITA which allows the Appellant to claim all the expenses and/or costs incurred wholly and exclusively for purposes of earning an income in determination of the taxable income resulting in grossly exaggerated additional assessments.

21. The Appellant stated that the Respondent’s objection decision violated the Appellant’s legitimate expectation in application of Section 31(1) of the TPA Procedures Act which was clear and capped the threshold within which the Respondent could issue an additional assessment to 5 years implying that the 2016 and 2017 additional assessments were out of this scope and ought to be expunged.

22. The Appellant made the following prayers to the Tribunal:a.That this Appeal be allowed.b.That the Tribunal forthwith withdraws the objection decision letter dated 10th March 2023 and directs the Respondent to consider all the material facts presented before it in determining the correct tax position.c.That the Tribunal orders the Respondent to stay the enforcement of assessed taxes until the matter is conclusively determined.

The Respondent’s Case 23. The Respondent has set out its case on the Statement of Facts dated 17th May 2023 and filed on even date.

24. The Respondent submitted that the Appellant filed its income tax returns only in 2018 and had filled Nil returns for VAT for the period under review being the period 2016 to 2020.

25. The Respondent averred that the investigations carried out sought to establish whether the Appellant declared all income earned for the period under investigation, whether the Appellant committed any prosecutable offence under the prevailing tax laws, gather evidence for prosecution purposes in case of court process and assess, demand and collect outstanding taxes.

26. The Respondent stated that the investigation approach was analysis of bank statements and iTax data.

27. On the bank account analysis, the Respondent averred that its investigations established that the Appellant operated a Kenya shilling account at Equity bank and the Respondent requested the copies of the bank statements from the bank to estimate the income of the company.

28. The Respondent from the analysis established the taxable income for the period 2016 to 2020 at Kshs. 261,241,624. 00. The Respondent stated that the corporation tax that was due from the Appellant was Kshs. 78,364,957. 00 within the period of review while no VAT was due as the Appellant was exempt from VAT as it deals in financial and insurance services which are exempt from VAT by virtue of Part II of the Second Schedule of the VAT Act.

29. On PAYE, the Respondent stated that the Appellant has no PAYE obligation as they neither filed Nil returns nor claimed employment costs. The Respondent therefore proceeded to issue an assessment of Kshs. 78,364,957. 00 upon the Appellant on 13th October 2022.

30. The Respondent argued that the Appellant admitted to engaging with the Respondent at all times through its tax agent. The Respondent averred that the Appellant was aware of the tax investigation and the options available having been issued with a notice of tax investigation on 25th February 2022 by the Respondent and was later served with a notice of preliminary findings on 31st May 2022.

31. The Respondent averred that the Appellant’s tax agent sought time to respond to the findings and to put together supporting documents. The Respondent stated that it considered the explanations and documents supplied by the Appellant and made a determination that led to issuance of the assessment above.

32. The Appellant objected to the assessment but failed to provide requisite supporting documents leading the Respondent to confirm the assessment on 10th March 2023.

33. In its response to the Appellant’s case, the Respondent argued that the Appellant did not particularize how the Respondent erred in relying on the bank analysis method which is a universally accepted principle used to determine income payable and stated further that it used the best judgement in determining the taxes due.

34. The Respondent averred that the adequacy of information supplied by the Appellant could have been the only ground for departing from the banking analysis method but the Appellant failed to provide requisite documents and information.

35. The Respondent stated that the Appellant failed to demonstrate with sufficient clarity the assumption made by the Respondent that all the bank deposits were chargeable to income.

36. The Respondent relied on section 56 of the TPA in stating that the burden of proof is with the Appellant to prove that a tax decision is incorrect. The Appellant was given adequate opportunity to defend itself but failed to do so.

37. The Respondent stated that related to the ground above, the Appellant failed to specify and state in particular the non-revenue items and how they were not taken into account by providing documents in support of the claim of non-revenue items. That the absence of evidence advancing this position make it unfounded allegations.

38. The Respondent further averred that section 31 of the TPA is clear on the 5 years threshold within which the Commissioner should issue an amended assessment and the additional assessments for the years 2016 and 2017. The Respondent however, averred that it is empowered to review beyond the 5-year period if fraud is demonstrated.

39. The Respondent averred that fraud in relation to tax by omitting taxable income in returns as per section 97 of the TPA and failure to pay tax as per section 95 of the TPA were evidently shown. The Respondent relied on the case of Maciejewski v Revenue and Customs (Income tax/ Corporation tax: Penalty) i(2018)UKFIT754 (TC 19 December 2019) which offers much guidance at paragraph 32 to the effect that the purpose of the limit is to ensure that both the taxpayer and HMRC have finality and certainty.

40. The Respondent therefore averred that the question of time limitation being administrative rather than substantive in nature, should not be interpreted strictly but purposively and relied on the case of Gatirau Peter Munya v Dickson Mwenda Kithinji & 2 others, Supreme Court No.26 of 2014 eKLR to underlie the aspect of purposive interpretation of the law. The court opined a purposive interpretation should be given to statutes to reveal their real intention.

41. The Respondent made the following prayers to the Tribunal:a.That the Tribunal finds that the Respondent’s objection decision dated 10th March 2023 as proper in law and the same be affirmed.b.That the Tribunal finds that the short-levied taxes, resultant penalty and interest as due and payable by the Appellant.

Parties’ Written Submissions 42. The instant appeal was canvassed by way of written submissions. The Appellant’s submissions were dated 16th March 2024, whereas the Respondent’s submissions were dated 8th January 2024. The Appellant submitted on the following issues as set out below;i.On whether the Respondent was justified in raising additional assessment based on bankings without adjusting for non-income bank deposits received in the bank

43. The Appellant submitted that the Respondent erred in law and fact by subjecting all the bank deposits in the Appellant’s bank account to tax without making any adjustments for non-income bank deposits.

44. The Appellant noted that all the deposits received in the Appellant’s bank account were subjected to taxation contrary to the provisions of Section 3(2) of the ITA which provides as follows:“(2) Subject to this Act, income upon which tax is chargeable under this Act is income in respect of –a.gains or profits from-i.any business, for whatever period of time carried on;ii.any employment or services rendered;iii.any right granted to any other person for use or occupation of property.”

45. The Appellant submitted that the Respondent acted on the assumption that all the monies received by the Appellant were gains and/or profits from the business carried out by the Appellant, contrary to the facts presented to the Respondent during in-person interviews.

46. The Appellant submitted that various non-revenue items were erroneously included in the Respondent’s additional assessment for corporate tax, these included loans and refunds, intercompany transfers, reversals and unpaid cheques.

47. The Appellant submitted that it received loans and advances from friends for purposes of working capital and were strictly utilized for investment purposes and did not constitute taxable income pursuant to Section 3(2) of the ITA.

48. On intercompany transfers, the Appellant submitted that the Respondent erred in law and fact by treating the Appellant’s internal circulation of funds from one company to the other as revenue and charging corporation tax on the same yet this was normal transfer between related companies and the Director for cash flow management therefore there was no income generated from the intercompany transfers and the Respondent erred in treating them as revenue.

49. The Appellant submitted that it provided the bank statements whose transaction description was clear as to the source of funds and pointed out the same in its notice of objection but the Respondent insisted that the Appellant had not supplied supporting documents.

50. The Appellant submitted that the Respondent’s inclusion of reversed transactions as well cheques in their computation of additional tax for corporation tax was erroneous in fact and law as these transactions did not qualify as revenue by their nature, the money was basically returned to its source. The reversed transactions constitute revenue that was never actually received. The Appellant relied on the case of Afya X-Ray-Centre- Ltd-v -Commissioner- of -Domestic- Taxes [2019] eKLR where it was held as follows:“…the Assessment as it currently stands is in breach of the basic accounting principles that if allowed will be prejudicial to the Appellant. Secondly, the Respondent has to be put on Notice because it has become habitual to rely on Bank Statements and raise an assessment against taxpayers. This in our humble opinion is unacceptable if at all we are concerned with giving unto Caesar only that which is due.” Further: “…The Tribunal is concerned with the status or better yet, the validity of an assessment that has relied only on Bank Statements. It is common knowledge that every deposit in an account is not necessarily income to the account owner…”

51. The Appellant submitted that the Respondent’s additional assessments as they stand were erroneous and grossly exaggerated as the same included taxation of all bank deposits and non-revenue bank deposits received in the Appellant’s Bank Account.ii.On whether the Respondent was justified in invalidating the Appellant’s Objection on the basis that the Appellant did not discharge its burden of proof

52. The Appellant submitted that the description on the bank statements obtained from the Appellant’s bankers was clear and that it provided enough evidence that there were non-revenue bank deposits received from the Appellant’s related parties.

53. The Appellant submitted that during investigations it provided a reconciliation schedule alienating the non-income bank deposits from the income received in the Appellant’s bank account.

54. The Appellant submitted that as per the reconciliation schedule and bank statements shared with the Respondent, the Appellant had discharged their burden of proof by pointing to the non-revenue bank deposits received in the Appellant’s bank account.

55. The Appellant contended that the Respondent’s requisition for additional documents was misdirected as the tax statutes do not envisage that the Appellant be put in a position where the Appellant would be required to produce any documents that the Respondent requested.

56. The Appellant submitted that by virtue of them pointing out that there were bounced cheques and reversals, for instance, they had discharged their burden of proof. The Appellant relied on the case of Shreeji Enterprises (K) Ltdv Commissioner for Investigations and Enforcement, Tax Appeals Nos. 58 and 186 of 2019 where it was held as follows:“Although the current tax laws provide that the onus of proof lies with the appellant, who contends that the tax was paid or that the Respondent’s Assessment was wrong, it cannot have been the Legislature to put the Taxpayer in a position where he would be required to produce any document that the Taxman may require. In demanding, the production of documents which are not prescribed by legislation, the Tax Authority should be guided by reasonableness, the nature and the circumstances of the trader. Otherwise, it would, as it occasionally does, demand information which the trader cannot produce because it does not have.”

57. The Appellant submitted that it had discharged their burden of proof through well-substantiated averments, supporting documents, and references to applicable legal precedents.iii.On whether the Respondent was justified in raising additional assessments on gross established income.

58. The Appellant submitted that the Respondent erred in law and fact by raising additional assessments on gross established incomes contrary to the provisions of Section 15 (1) and 16 (1) of the ITA.

59. The Appellant submitted that it should be noted that Sections 15(1) and 16(1) of the ITA affords the Appellant an opportunity to claim all the expenses and/or cost incurred wholly and exclusively for purposes of earning an income in determination of the taxable income.

60. The Appellant relied on the case of Afya-X-Ray-Centre-Ltd-v-Commissioner-of Domestic-Taxes [2019] eKLR where it was held that:“…The Tribunal is concerned with the status or better yet, the validity of an assessment that has relied only on Bank Statements. It is common knowledge that every deposit in an account is not necessarily income to the account owner. The Respondent in this case could have used industrial margins to determine the Appellant’s profits and then subject that figure to the 30% for corporate Tax rather than a topline 30% on Bank Deposits…”

61. The Appellant therefore submitted that the Respondent’s additional tax assessments and tax demands were grossly exaggerated as the same did not factor in the provisions of Section 15 (1) of the ITA.

62. The Respondent submitted on the following issues as set out below:i.On whether the decision by the Respondent is proper in law.

63. The Respondent submitted that Section 23 of the TPA requires the Appellant to keep tax records in a manner that can be easily ascertained. Section 23 reads;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.”

64. The Respondent submitted that it could assess taxpayers’ liability using any information available to the Respondent and was not bound by the tax returns of the Appellant as prescribed under Section 24(2) of the TPA. The Respondent cited the case of Kisa Jaffar Tenge v Kenya Revenue Authority: Cooperative Bank of Kenya (Interested Party) [2020] eKLR where it was held that;“Under section 24 a tax return has to be submitted in an approved form and prescribed form. Under section 24(2) the Commissioner is not bound by a tax return or information provided by or on behalf of the taxpayer and so the Commissioner has the discretion to assess the tax himself using the information available to him.The Respondent’s action to demand more tax is backed by section 24. The onus shifts to the taxpayer to prove that the self assessment was proper and genuine.Section 24A of the Act requires the taxpayer to furnish Commissioner with information as may be prescribed. When the Appellant denied owing the taxes assessed, by the Respondent by letter dated 1/12/2017 the Respondent requested the applicant to furnish purchase agreements/allotment letters for all the properties he owns in Maralal including the ones for the wife; bank statements for the period from 2013 to date; give information on contractual fee that was held in the bank… All the above information was not supplied to the Respondent as required by section 24A…”

65. The Respondent submitted that it used the best judgment based on the available information to make its decision in line with Section 29 and 31 of the Tax Procedures Act and cited the case of Boleyn International Ltd. v Commissioner of Investigations and Enforcement TAT No.55 of 2018 where it was held that;“We find that the Appellant at all times bore the burden of proving that the Respondent's decisions and investigations were wrong. The Tribunal is guided by the provisions of Section 56(1) of the TPA, 2015 which states: In any proceedings under this part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.Further the Tribunal finds the following paragraph from Pierson V Belder(H.M. Inspector of Taxes) (1956-1960) 38 TC 387 to be instructive: But the matter may be disposed of, I think, even more shortly in this way: there is an assessment made by the Additional Commissioners upon the Appellant; it is perfectly clearly settled by cases such as Norman v. Golder, 26 T.C. 293, that the onus is upon the Appellant to show that the assessment made upon him is excessive or incorrect; and of course he has completely failed to do so. That is sufficient to dispose of the appeal, which accordingly I dismiss with costs."

66. The Respondent further relied on the case of Gashi v Respondent of Taxation [2012] FCA 638 where the court stated as follows:“it is not enough for the applicants to establish that the Respondent's estimations were mistaken or erroneous in some or even many respects. It is necessary that they go further and establish what their taxable incomes actually were. If, in the course of that project, they demonstrate that they were not in partnership, and/or that their own incomes did not contribute to accretions in the assets of other members of the family, all well and good. But the bottom-line question, as it were, will always be: what were the taxable incomes of the applicants? It is for them to determine how they will go about answering that question."

67. The Respondent submitted that the Appellant failed to discharge the onus of proving that the Respondent relied on the wrong analysis in its assessment and objection decision.ii.On whether the appeal was merited

68. The Respondent submitted that 51(3) of the TPA provides as follows:“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; andb.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 disputec.All the relevant documents relating to the objection have been submitted.”

69. The Respondent submitted that the Appellant’s objection letter dated 4th November 2022 failed to comply with Section 51(3) (a) and 51(3) (c) of the TPA and the Respondent notified the Appellant informing them to remedy the defects through an email dated 16th November 2022 (10 days later). The communication was in line with Section 51(4) of the TPA which states as follows;4. Where the Commissioner has determined that a notice of objection lodged by a taxpayer has not been validly lodged, the Commissioner shall immediately notify the taxpayer in writing that the objection has not been validly lodged.”

70. The Respondent submitted that the Appellant failed to comply with the production of the relevant documents which led to invalidation of objection for non-compliance with Section 51(3) of the TPA which was done within reasonable time of 10 days.

71. The Respondent submitted that Section 3 of the Tax Appeals Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”) as read with Section 52 of the TPA, 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".

72. The Respondent submitted that there was no objection decision or any appealable decision made under any tax law that is being appealed against. Thus, this purported Appeal was a nullity ab initio and ought to be struck out and that whereas Section 51(1) of the TPA provides for the procedure of objecting to tax decisions, Section 51(8) of the TPA provides as follows:“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."

73. The Respondent submitted that there was no valid objection or any appealable decision made under any tax law worth appealing against thus Appellant’s actions were in blatant disregard to the doctrine of exhaustion as it ought to have complied with the laid down procedures before invoking the jurisdiction of the Tribunal. The Respondent relied on the decision in the case of Godfrey Osotsi-vsAmani National Congress [2019] eKLR which set out an elaborate analysis of the rationale for the doctrine of exhaustion where Mativo J. as he then was held that;“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."

74. The Respondent submitted that in arriving at its decision to confirm the assessment, the Respondent looked at the merits of the Appellant's objection.

Issues For Determination 75. The Tribunal having carefully considered pleadings and submissions filed by the parties identified two issues for determination as outlined hereinunder:i.Whether the Respondent’s invalidation decision dated 16th November 2022 was justified.ii.Whether the Respondent was justified in raising additional assessments based on the banking analysis method.iii.Whether the assessments for 2016 to 2017 are statutorily time barred.

Analysis And Findingsi.Whether the Respondent’s invalidation decision dated 16th November 2022 was justified.

76. The Respondent’s case was based on the grounds that the Appellant did not provide requested documentation to support its objection consequently invalidating the Appellant’s objection. The Tribunal notes that the Respondent can issue an amended assessment following self-assessment by the Appellant as the Respondent is not bound by the Appellant’s self-assessment. This is done based on the available information and using the Respondent's best judgement as provided for under Section 31(1) of the TPA which as follows:“Subject to this section, 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—c.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.”

77. The Tribunal observes that the additional assessment by the Respondent arose from investigations on the Appellant arising from alleged underdeclared sales by the Appellant leading to anomalies and irregularities in the tax declared. The Tribunal has sighted emails showing several correspondences between the parties including correspondences regarding meetings between the Appellant and the Respondent to discuss the issues raised by the Respondent in the notice of investigation.

78. The Tribunal notes that following the meetings and the documents produced by the Appellant, the Respondent assessments were issued vide iTax on 13th October 2022 which the Appellant objected to on 4th November 2022 and the Respondent informed the Appellant of the invalidity of the objection on 16th November 2022 and requested for more documentation. This was followed by a demand notice on 22nd December 2022 to the Appellant over unpaid income tax amounting to Kshs. 78,364,957. 00 arising from a review of the Appellant’s bank statements where the gross bank deposit of the Appellant was determined to be Kshs. 269,054,223. 00.

79. The Tribunal notes that the income in the bank and the income tax returns of the Appellant as alleged by the Respondent revealed that the income earned by the Appellant from banking was higher leading to the computed tax liability of Kshs. 78,364,957. 00. Further, the Tribunal notes that the objection decision dated 10th March 2023 by the Respondent confirming additional assessment was on the basis that the objection of the Appellant offended Section 51(3) of the TPA by not being validly lodged as all the relevant documents had not been submitted by the Appellant.

80. The Tribunal notes that indeed the Appellant was informed of the invalidity of their objection within reasonable time as provided by Section 51(4) of the TPA. The Tribunal also notes that for an objection to be valid, the conditions to be met are stipulated under Section 51(3) of the TPA which provides as follows:;3. 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.”

81. The Tribunal is of the view that a taxpayer should keep all the relevant documents within their custody to ascertain their tax position provided under Section 59 of the TPA which provides as follows:“59. Production of records1. For the purposes of obtaining full information in respect of the tax liability of any person or class of persons, or for any other purposes relating to a tax law, the Commissioner or an authorized officer may require any person, by notice in writing…”

80. Once the documents requested are produced, the Appellant is said to have discharged their burden of proof and the same shifts to the Respondent. However, if the Respondent disputes the authenticity and validity of the additional documents produced, the burden shifts back to the Appellant. This was the position in Income Tax Appeal No. E 088 of 2020. Commissioner of Domestic Taxes (Appellant) V Galaxy Tools Limited where it was held that:“With greatest respect, the Tribunal got it wrong. What the Respondent had done in producing the invoices, the delivery notes and payment schedules was only prima facie evidence of purchase. On producing the said documents, the evidentiary burden of proof shifted to the Appellant. The Appellant in answer not only queried the said documents but informed the Tribunal that; he had carried investigations on the alleged suppliers and concluded that they never existed, that there was no supply of any goods at all. That the documents produced did not contain critical details to support any reasonable commercial transaction. All this was laid bare before the Tribunal.

81. On the foregoing, the evidentiary burden of proof shifted back to the Respondent to show that its documentation was legitimate. This would have been by production of other transactional documentation to support the legitimacy of the alleged transactions. It is at that juncture that Sections 59 of the Tax Procedures Act and Section 43 of the VAT Act kicks in.

82. The said provisions give power to the Appellant to request for more and additional information to satisfy himself on the taxable income declared or matters tax. Some of the documents to be kept by a taxpayer and which should be availed to the Appellant are, copies of invoices, copies of stock records, details of each supply of goods and services among others. According to the Appellant, save for invoices, none of these documents were supplied.”

83. The Tribunal notes that the Respondent had requested the Appellant’s records and books of account vide its notice of tax investigation where it requested for a detailed schedule of the irregularities of each tax period. The correspondences provided by the Appellant show that the Respondent on 18th August 2022 requested for financial statements from the Appellant ahead of their meeting. The Appellant has however, did not provide any correspondences or evidence showing they provided the financial statements requested but instead stated that by providing the bank reconciliation schedule to the Respondent, it had discharged its burden of proof.

84. The Tribunal notes that the Appellant felt that the Respondent was not guided by reasonableness in demanding the said documents as it required documents which the Appellant could not produce based on the Appellant’s nature of business and relied on the case of Shreeji Enterprises (K) Ltdv Commissioner for Investigations and Enforcement, Tax Appeals Nos. 58 and 186 of 2019 to firm up its position. However, looking at documents requested by the Respondent, such as financial statements, the Tribunal is convinced that these were documents the Appellant was required to be in possession of in their ordinary business operations. The Tribunal notes that in Galaxy Tools Limited case (supra), the evidentiary burden of proof did not shift to the Respondent as the Appellant did not provide the additional documents requested.

85. Having considered the facts above and the law, the Tribunal finds that the Respondent was justified in invalidating the objection of the Appellant as the objection was not valid since it did not sufficiently meet the threshold required under section 51(3) (c) of the TPA.

86. Having found that the Respondent was justified in invalidating the Appellant’s objection, the Tribunal will not delve into the other issues identified for determination as the same have been rendered moot.

Final Decision 87. The upshot of the foregoing is the Tribunal’s finding that this Appeal lacks merit and accordingly the Tribunal proceeds to make the following Orders;a.The Appeal be and is hereby dismissed.b.The Respondent’s invalidation dated 16th November 2022 be and is hereby upheld.c.Each party to bear its own cost.

88. It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 23RD DAY OF AUGUST, 2024…………..……………….CHRISTINE A. MUGACHAIRPERSON………………………. …………….……………..BONIFACE K. TERER DELILAH K. NGALAMEMBER MEMBER………………………… ………………………….GEORGE KASHINDI OLOLCHIKE S. SPENCER MEMBER MEMBER