https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/88

Shah v Commissioner for Domestic Taxes (Tax Appeal E1122 of 2025) [2026] KETAT 88 (KLR) (Appeals) (26 June 2026) (Judgment) Neutral citation: [2026] KETAT 88 (KLR) Republic of Kenya In the Tax Appeal Tribunal Appeals Tax Appeal E1122 of 2025 RO Oluoch, Chair, AM Diriye & E Komolo, Members June 26, 2026 Between Chandrakant Devraj Shah Appellant and Commissioner For Domestic Taxes Respondent Judgment 1.The Appellant is a resident of Kenya and duly registered taxpayer, whose principal business is real estate, specifically rental of godowns. 2.The Respondent is the principal officer appointed under Section 13 of the Kenya Revenue Authority Act. The Kenya Revenue Authority is an agency of the Government of Kenya mandated with the duty of collection and receipting of all tax revenue, and the administration and enforcement of all tax laws set out in parts 1 & 2 of the First Schedule to the Act, including assessing, collecting, and accounting for all tax revenues in accordance with those laws. 3.The Respondent issued an Assessment Order against the Appellant on 19th September 2023 for income tax (individual) for the period 2017 to 2021. On 11th October 2024, the Respondent also issued VAT assessments against the Appellant for the same period. 4.On 18th July, 2025, the Appellant objected to the additional income tax (individual) and VAT assessments in its entirety. 5.On 12th September 2025, the Respondent issued its Objection Decision confirming the VAT and income tax assessments of Kshs. 29,719,291.00 and Kshs. 34,856,479.00 respectively, inclusive of penalties and interests. 6.Aggrieved by the Respondent’s Objection Decision, the Appellant lodged this Appeal vide its Notice of Appeal dated 3rd October, 2025. The Appeal 7.In its Memorandum of Appeal dated 9th October, 2025, the Appellant raised the following grounds of appeal: -a.The Respondent erred in law and fact in issuing the assessments for the period 2017 which is inconsistent with provisions of Section 29 of the Tax Procedures Act.b.The Respondent erred in law and fact in failing to consider that the premises in question were not fully occupied hence the amount subjected to tax is overstated.c.The Respondent erred in law and fact by allowing only 40% allowance for expenses which is significantly lower than the actual expenses incurred in the business.d.The Respondent erred in law and fact by alleging that it did not receive any documentary evidence to support Kshs. 3,279,192.00 that was paid by the Appellant’s customer, yet the customer withheld the amount from the Appellant and remitted the same to the Respondent.e.The Respondent erred in law and fact by alleging that it was not furnished with documentation, while the same was availed on the 12th September 2025.f.The Respondent erred in misallocating payments amounting to Kshs. 3,616,000, which was recovered from the Appellant’s bank account to January 2023, a period not covered by the assessment in question. Appellant’s Case 8.The Appellant’s case is based on its Statement of Facts dated 9th October 2025 and Written Submissions dated 24th April, 2026. 9.The Appellant averred that on 13th June 2023, the Respondent’s Regional Audit Centre (RAC) issued an audit notice to him indicating its intention to carry out verification of his business affairs. Pursuant to the notice, the Respondent conducted an audit on the Appellant’s operations for the years of income 2017 to 2021, and established that the Appellant owned commercial property which the Appellant charged rental income. 10.The Appellant further averred that on 19th September 2023, the Respondent issued additional assessments on the Appellant’s iTax account without providing grounds for issuing the assessments. 11.The Appellant contended that the additional assessments were issued by the Respondent’s Machakos Service Station without any communication regarding the basis of the additional assessments. Later, on 13th December 2023, the Respondent issued the Appellant with audit findings amounting to Kshs. 64,056,501 comprising of Kshs. 32,584,439 and Kshs. 31,508,062 for income tax and VAT respectively. The findings alleged that the Appellant did not declare income tax and VAT on the rental income for the period as required by the law. 12.The Appellant posited that the Respondent also stated that its review of the iTax data and VAT withholding credits for the period under review established that there were no corresponding declarations made by the Appellant. Consequently, the Respondent decided to use the schedules shared by the Appellant to raise assessments despite the schedules not containing critical information, such as units that were occupied for the period under review. 13.The Appellant averred that on 15th January 2024, the Respondent issued a payment demand of Kshs. 9,500,000 to I&M Bank, being payment for the registration numbers (PRN) 2020230005001813 and 2020230005002094. This was to act as partial payment of tax due from the Appellant since the Agency Notice was in place. 14.The Appellant further averred that on 11th October, 2024, the Respondent amended the first set of the additional assessments dated 19th September 2023 and issued a new additional assessment number KRA202320563284. The total tax payable totaled to Kshs. 34,578,608.90. 15.The Appellant contended that the Respondent was time-barred in issuing assessments for income tax and VAT for the 2017 year of income, which is beyond the stipulated five-year period for issuance of an assessment. 16.The Appellant further contended that he provided the Respondent with all the supporting documentation, which the Respondent did not factor while issuing the Objection Decision. Thus, the 40% allowance granted by the Respondent for expenses on the basis that the Appellant did not provide documentation is significantly lower compared to the actual business expenses incurred for the period under audit. 17.On the Respondent’s contention that the Appellant did not declare any rent income in the income tax returns for the period 2017 to 2021 and that it was provided with tenant schedules, which it used to compute the chargeable income tax and VAT, the Appellant averred that the Respondent’s audit findings assumed that all units were fully occupied, which was not the case. The occupancy kept on changing; hence, the revenue as per the Respondent’s findings is incorrect. 18.The Appellant averred that he provided the Respondent with correct rent schedules for the occupied units for the years of income assessed, and that the same was not considered while issuing the assessments. 19.On under-utilized customer payments, the Appellant averred that the Respondent alleged that there was no documentary evidence to support payment of Kshs. 3,279,192 paid by one of the Appellant’s suppliers. However, the referenced amount was a payment made to the Respondent by a customer and not a supplier. 20.The Appellant submitted that the Respondent carried out an audit on one of his tenants (Statement Products Kenya Ltd) and disallowed the input VAT claimed from the Appellant on the grounds that he had not declared sales for the period 2020 to 2022. 21.The Appellant submitted that his tenants paid VAT amounting to Kshs. 3,164,000, being VAT at the rate of 16% on Kshs. 22,700,000 rent for the period. Additionally, the Appellant withheld VAT amounting to Kshs. 462,000 and paid this amount to the Respondent. Kshs. 3,279,192 was remitted by the Appellant’s tenant; hence, the amount should be offset against the tax assessed. 22.It is the Appellant contention that on 12th September 2025, he furnished the following documents to the Respondent, but which were not considered: -a.Certified Audited Financial Statementsb.Copies of invoices and receipts.c.Certified bank statements.d.General ledgers – purchases and sales ledgers.e.Trial balances. Appellant’s Prayers 23.The Appellant prayed to the Tribunal for the following orders: -a.The Respondent’s Objection Decision dated 12th September 2025 demanding payment of Kshs. 64,575,770 be set aside in its entirety.b.The Respondent’s tax demand for the 2017 year of income be deemed time-barred, as it is beyond the stipulated five-year period for issuance of an assessment.c.The Appeal be allowed.d.Any other remedies that the Tribunal deems just and reasonable. Respondent’s Case 24.The Respondent filed its Statement of Facts dated 14th January 2026 and Written Submissions dated 4th May 2026 in opposition to the Appeal. 25.The Respondent averred that it conducted an audit on the Appellant for the period 2017 to 2021 and established that the Appellant owned commercial property, i.e. godowns, which it charged rental income for, but neither declared income tax nor VAT as required by the law. Data from iTax confirmed that the Appellant had VAT withholding credits with no corresponding declarations. 26.The Respondent further averred that it proceeded to use rent schedules shared by the Appellant as the correct sales for each given year and raised assessments against the aforementioned variances. The Respondent allowed 40% as expenses while raising the assessments on income tax. 27.The Respondent contended that during the objection review stage, the Appellant was requested but failed to provide the following supporting documents: -a.Certified Audited Financial Statements (AFS)b.Copies of Invoices and Receipts.c.Certified Bank Statements.d.General Ledgers-Purchases; ande.Sales Ledgers and Trial Balances. 28.The Respondent posited that based on the foregoing, the review of the objection was rendered impossible owing to the lack of records. Thus, the assessments were confirmed. 29.The Respondent stated that the Appellant bears the burden to prove that the Respondent’s assessments are incorrect through documentation, and that the Appellant has failed to discharge his burden. Respondent’s PrayerS 30.The Respondent prayed to the Tribunal for the following orders: -a.The Appeal be dismissed with costs for the Respondent.b.The Respondent’s Objection Decision dated 12th September 2025 be upheld. Issues For Determination 31.The Tribunal, having considered the parties' pleadings, submissions and documents filed before it, is of the view that the issue that falls for its determination is whether the Respondent’s Objection Decision dated 12th September 2025 is justified. Analysis And Determination. 32.The instant appeal is premised on the Respondent’s Objection Decision dated 12th September 2025, which partially allowed the Appellant’s objection and confirmed VAT and income tax assessments of Kshs. 29,719,291 and 34,856,479 respectively, mainly on the ground that the Appellant did not provide the documents to support his objection. 33.In the Objection Decision, the Respondent listed the following documents that were sought from the Appellant, but which he did not provide: -a.Certified Financial Statements (AFS)b.Copied of invoices and receiptsc.Certified bank statementsd.General ledgers-purchases and sales ledgers.e.Trial balances. 34.In rebuttal, the Appellant submitted that on 12th September 2025, he provided the following documents to the Respondent, but which were not considered in the objection review: -a.Certified Audited Financial Statementsb.Copies of invoices and receipts.c.Certified bank statements.d.General ledgers – purchases and sales ledgers.e.Trial balances. 35.The Appellant further submitted that the Respondent’s assessments for 2017 were time-barred as they were issued beyond five (5) years, contrary to Section 29(5) of the Tax Procedures Act. 36.The Tribunal has considered the pleadings and submissions by both parties. Whilst the Appellant contended that he provided the documents requested by the Respondent to support his objection, there is nothing on record to show that the same were indeed provided. Instead, the Appellant has belatedly annexed his Audited Financial Statements and bank statements to his Written Submissions dated 24th April, 2026. 37.The Tribunal notes that, apart from the fact that Written Submissions are not pleadings and therefore not a proper way to introduce documents before the Tribunal, the annexures are too general for the Tribunal to make a conclusive determination as to whether they constitute sufficient objection to the Respondent’s additional income tax and VAT assessments of the Appellant at this stage. 38.Section 59 of the Tax Procedures Act (cap 469B) provides as follows regarding the Appellant’s duty to produce documents and records as may be sought by the Respondent: -1.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 authorised officer may require any person, by notice in writing, to –a.produce for examination, at such time and place as may be specified in the notice, any documents (including in electronic format) that are in the person's custody or under the person's control relating to the tax liability of any person;b.furnish information relating to the tax liability of any person in the manner and by the time as specified in the notice; orc.attend, at the time and place specified in the notice, for the purpose of giving evidence in respect of any matter or transaction appearing to be relevant to the tax liability of any person. 39.Section 56 (1) of the Tax Procedures Act (cap 469B), which provides as follows regarding the Appellant’s burden of proof: -"In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect." 40.Furthermore, Section 30 of the Tax Appeals Tribunal Act (cap 469A) provides as follows on the Appellant’s burden of proof: -"In a proceeding before the Tribunal, the appellant has the burden of proving—(a)where an appeal relates to an assessment, that the assessment is excessive; or(b)in any other case, that the tax decision should not have been made or should have been made differently." 41.The Honourable Tribunal has also previously reiterated the Appellant’s duty to discharge its burden of proof in the first instance. In Abyssinia Iron and Steel Ltd -vs- Commissioner of Customs and Border Control (TAT No. 435 of 2022), the Tribunal held as follows: - The bottom line is that once the Appellant has provided evidence that the Respondent's assessment was wrong, then the Respondent must push back and show that its assessment was not arbitrary, capricious, or imagined. The onus will then shift back to the Appellant once the Respondent has discharged its burden on a balance of convenience to discharge the prima facie case that has been presented by the Respondent. 42.Having considered the pleadings and records before it, the Tribunal is therefore constrained to find and hold that the Appellant did not sufficiently support its objection to the Respondent’s additional VAT and income tax assessments, and thus he did not discharge his burden of proof. The Respondent’s additional assessments as per the Objection Decision dated 12th September, 2025 are therefore justified. 43.On the question of the Respondent’s assessments for 2017 being time-barred, the Tribunal notes that Section 29(5) and (6) of the Tax Procedures Act is unambiguous that default assessments must be raised within five (5) years and the attendant conditions for raising a default assessment beyond five (5) years. It provides as follows: -"Subject to subsection (6), an assessment under subsection (1) shall not be made after five years immediately following the last date of the reporting period to which the assessment relates."Subsection (5) shall not apply in the case of gross or willful neglect, evasion or fraud by a taxpayer. 44.In the instant Appeal, the Respondent issued its tax assessment on 13th December 2023 for the period 2017 to 2021 for both income tax and VAT. Income tax is due annually; thus, the assessment for 2017 was time-barred. In relation to VAT assessments, value added tax is due monthly on 20th. The Respondent having issued its VAT assessments on 13th December 2023, it follows that VAT assessments before December 2018 were also statute time-barred. Disposition 45.The upshot of the foregoing analysis is that the Tribunal finds and holds that the Appeal partially succeeds and proceeds to issue the following orders: -a.The Respondent’s Objection Decision dated 12th September, 2025 be and is hereby partially varied as follows: -i.The Respondent’s income tax assessment for 2017 and VAT assessments for December 2018 backwards are hereby set aside.ii.The Respondent’s income tax assessment for 2018 to 2021 and VAT assessments for January 2019 onwards are hereby upheld.b.Each Party is to bear its own costs. 46.It is so ordered. DATED AND DELIVERED AT NAIROBI THIS 26TH DAY OF JUNE 2026.....................................DR. RODNEY ODHIAMBO OLUOCHCHAIRPERSON.....................................ABDULLAHI DIRIYE DR. ERICK KOMOLOMEMBER MEMBER