[2023] KETAT 977 (KLR)

China Railway No. 5 Engineering Group Co. Ltd v Commissioner of Domestic Taxes (Tax Appeal 197 of 2023) [2023] KETAT 977 (KLR) (11 December 2023) (Ruling)

Neutral citation: [2023] KETAT 977 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 197 of 2023

E.N Wafula, Chair, EN Njeru, M Makau, E Ng'ang'a & AK Kiprotich, Members

December 11, 2023

Between

China Railway No. 5 Engineering Group Co. Ltd

Appellant

and

Commissioner of Domestic Taxes

Respondent

Ruling

1. The application which was by way of Notice of Motion dated 19th October 2023 and filed under a certificate of urgency on 23rd October 2023 is supported by an Affidavit sworn by the Appellant’s Accountant, Frankline Omwenga, sought for the following Orders:-a)This Honourable Tribunal be pleased to grant the Appellant leave to produce additional evidence and admit such evidence namely:i.Copies of invoices from suppliers whose costs/expenses were disallowed by the Respondent in the Appeal (previously shared as a link in an email during the filing of the notice of objection).ii.Copies of extracts from certified bank statements showing proof of payments for the said supplies/expenses.iii.Copies of ledgers showing movement in the supplier accounts for the selected suppliers.iv.Copies of employment contracts with the Chinese members of staff.v.Copy of email printout showing that the above-mentioned documents had been previously shared during the objection review.b)The costs occasioned by this application be costs espoused in the Appeal.

2. The application was premised on the following grounds:-a)That the Appellant is opposed to the Respondent’s Objection decision dated 20th December 2022 confirming additional assessments for Income tax, VAT and PAYE.b)That the main grounds upon which the Respondent disallowed the Appellant’s costs during the Objection review process was that the Appellant had not supported its explanations with primary documentary evidences which had actually been attached and provided (together with the notice of objection) as URL link vide an email dated 25th October 2022 to iro@kra.go.ke and copied to legalservices@kra.go.ke.c)That the Respondent will suffer no prejudice if this application is granted since it is yet to file its written submissions to the main appeal and the documents had previously been shared with them.d)That the said documents are critical to the Applicant’s appeal and failure to admit them would amount to a miscarriage of justice.e)That it is just and equitable to grant the relief sought.

3. The Appellant filed written submissions dated the 7th November, 2023 and which were adopted by the Tribunal on the 9th November, 2023, in which it raised the following two issues:-a)Whether the documents in question were produced during the objection stage; andb)Whether the Respondent is likely to suffer prejudice should the Tribunal allow the documents

a) On whether the documents were produced during the Objection stage? 4. The Applicant submitted that the documents were provided digitally as a link vide an email dated 25th October 2022 addressed to iro@kra.go.ke and copied to legalservices@kra.go.ke which email also conveyed the Appellant’s objection to the assessment.

5. It submitted that the same documents had earlier been shared at the Review stage with the Respondent vide an email dated 23rd November 2021 sent to Kennedy.Okoth@kra.go.ke.

6. It contended that it had since realised that some of these documents, which are pertinent evidence even though supplied to the Respondent at the review/objection stage had been inadvertently omitted in the Appellant’s bundle of documents as part of its evidence.

7. It asserted that all the documentation and information had already been shared with the Respondent at the objection and review stage, the Application is not attempting to introduce fresh evidence.

8. It reiterated that the Respondent disregarded supporting information provided to it in arriving at the Objection decision.

9. It submitted that the existence of the documents in its Statement of Facts dated 3rd March 2023 indicates that the same shall be availed to the Tribunal for scrutiny and examination and the Respondent’s allegation that it was not provided with the documents is disingenuous, erroneous and misleading.

10. The Appellant submitted that the Respondent should be estopped from alleging that the documents were not submitted due to its failure or omission to download and review the documents provided in the email link.

b) On whether the Respondent is likely to suffer prejudice should the Tribunal allow the documents? 11. The Appellant submitted that the Respondent had disallowed a majority of project costs on the grounds that there was insufficient or no information provided to support these costs.

12. The Appellant submitted that documentary evidence of supplier statements, proof of payments, supply invoices, delivery notes and local purchase orders in respect of the disallowed expenses was made available to the Respondent vide the e-mail link. That it was the Appellant’s expectation that the Respondent would have reviewed the documentation and, if necessary, sought additional information to ascertain the expenses were incurred.

13. The Appellant averred that the Respondent for reasons unknown to the Appellant did not consider the information and/or documentation provided by the Appellant. That, since the matter would be proceeding for hearing, it was prudent in the circumstances that the Appellant ensured that it has adequately supported its case. The Appeal challenges the Respondent’s decision and the matter is being heard by the Tribunal as a court of first instance, it is of utmost importance that all the evidence previously supplied to the Respondent ought to be brought on record for a judicious decision.

14. The Appellant further submitted that this Honourable Tribunal stands as an originating jurisdiction forum, as far as it is in the first instance under which the Appellant can get an independent review of the contesting party’s dispute. As such the Appellant’s full supporting evidence ought to be on the record before the Tribunal. For substantive justice to be achieved then the Tribunal ought to allow the Appellant to file the further list of documents.

15. The Appellant reiterated that the Appeal is yet to be set down for hearing and therefore the Respondent would suffer no prejudice if the orders sought herein are allowed as it can have a corresponding leave to respond. In any event, the Respondent is no stranger to the documents in question.

16. The Appellant also alluded to the fact the Respondent at Paragraph 8 of the Replying Affidavit had stated that should the application be allowed then it ought to be given an opportunity to respond to the documents. The Appellant pointed out that the matter not having been heard, the Respondent shall therefore have an opportunity to review and interrogate the documents that will be filed ahead of the hearing and determination of the substantive Appeal.

17. Lastly, the Appellant submitted the Respondent had not demonstrated or shown what prejudice it was likely to suffer if the application was allowed.

18. The Respondent in response to the application filed a Replying Affidavit sworn by James Arisi, an officer of the Respondent, on 30th October 2023 and filed on 31st October 2023 in which the following grounds of opposition were raised:-a)That the documents sought to be produced by the Appellant were not produced during the Objection stage as provided for under Section 51(11) of the Tax Procedures Act and that the Respondent had not had an opportunity to review and consider the documents before rendering its decision.b)That the Respondent shall suffer prejudice should the application be allowed as this involves a high amount of taxes.c)That should the Tribunal allow the application, the Respondent ought to be granted an opportunity to respond to the said documents.

19. Given that the Respondent did not file any written submissions with the Tribunal, the Tribunal directed that the application was to be determined on the basis of the Replying Affidavit filed by the Respondent.

Analysis and Findings 20. For determination before the Tribunal is the principal question of whether to allow the Appellant to file additional documents in support of its Appeal.

21. Section 13 (6) of the Tax Appeals Tribunal Act, No. 40 laws of Kenya provides as follows with regard to determination of an appeal on the basis of documentation filed before the Tribunal:-“The appellant shall, unless the Tribunal orders otherwise, be limited to the grounds stated in the appeal or documents to which the decision relates.” (Emphasis added)

22. In determining whether to allow additional or further documents, the Tribunal is guided by the case of Commissioner of Income Tax v Total Kenya Limited [2021] eKLR where it was held:“In Tarmohamed & Another v. Lakhani & Company [1958] EA 567, the Court of Appeal for Eastern Africa adopted the decision in Ladd v Marshall [1954] WLR 1489 and stated: -Except in cases where the application for additional evidence is based on fraud or surprise: to justify the reception of fresh evidence or a new trial, three conditions must be fulfilled: first, it must be shown that the evidence could not have been obtained with reasonable diligence for use at the trial; secondly, the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; thirdly, the evidence must be such as is presumably to be believed, or in other words, it must be apparently credible, though it need not be incontrovertible.In Wanjie & Others v. Sakwa & Others [1984] KLR 275, in considering the need for restricting reception of additional evidence under Rule 29 of the Court of Appeal Rules, Chesoni JA observed at pg 280 thus: -This rule is not intended to enable a party who has discovered fresh evidence to import it nor is it intended for a litigant who has been unsuccessful at the trial to patch up the weak points in his case and fill up omissions in the Court of Appeal. The Rule does not authorise the admission of additional evidence for the purpose of removing lacunae and filing in gaps in evidence. The appellate court must find it needful. Additional evidence should not be admitted to enable a plaintiff to make out a fresh case in appeal. There would be no end to litigation if the rule were used for the purpose of allowing the parties to make out a fresh case or to improve their case by calling further evidence. It follows that the power given should be exercised very sparingly and great caution should be exercised in admitting fresh evidence.From the foregoing, it is clear that the power to admit additional evidence is discretionally. However, it should be exercised restrictively. That the evidence should be needful and not meant to patch up an applicant’s case on appeal. Finally, the power should be exercised sparingly but for the ends of justice.In the present case, the evidence was in the possession of the applicant during the trial before the tribunal. However, it was contended, and not controverted, that it was not produced at the trial because the parties knew or conducted themselves in a manner suggesting that it was not necessary. This is so because, the parties with knowledge that the mutual agreement process had collapsed, resorted to the appeal before the Tribunal before and without considering the Alternative Dispute Resolution required under Article 24 of the Double Taxation Agreement. This is the Article the Tribunal relied on to determine the matter against the applicant.The Court has considered that the evidence sought to be relied on is needful. This is so because there was no contention that the respondent had raised the issue of jurisdiction before the Tribunal. It was submitted that that was the case because the parties knew of the position of the MAP that there was no requirement for ADR before approaching the Tribunal.The Court is persuaded that, if it be true that the Tribunal's decision was based on the unavailability of the intended evidence and reliance thereon was suo motto, that piece of evidence would have been crucial to the applicant's case. There would be no prejudice to be suffered if the said evidence is adduced at this stage.” (Emphasis added)

23. Further, the Supreme Court in Mohamed Abdi Mahmud v Ahmed Abdullahi Mohamed & 3 Others [2018] eKLR expressed itself as thus:-“We therefore lay down the governing principles on allowing additional evidence in appellate courts in Kenya as follows:(a)the additional evidence must be directly relevant to the matter before the court and be in the interest of justice;(b)it must be such that, if given, it would influence or impact upon the result of the verdict, although it need not be decisive;(c)it is shown that it could not have been obtained with reasonable diligence for use at the trial, was not within the knowledge of, or could not have been produced at the time of the suit or petition by the party seeking to adduce the additional evidence;(d)Where the additional evidence sought to be adduced removes any vagueness or doubt over the case and has a direct bearing on the main issue in the suit;(e)the evidence must be credible in the sense that it is capable of belief;(f)the additional evidence must not be so voluminous making it difficult or impossible for the other party to respond effectively;(g)whether a party would reasonably have been aware of and procured the further evidence in the course of trial is an essential consideration to ensure fairness and due process;(h)where the additional evidence discloses a strong prima facie case of willful deception of the Court;(i)The Court must be satisfied that the additional evidence is not utilized for the purpose of removing lacunae and filling gaps in evidence. The Court must find the further evidence needful.(j)A party who has been unsuccessful at the trial must not seek to adduce additional evidence to, make a fresh case in appeal, fill up omissions or patch up the weak points in his/her case.(k)The court will consider the proportionality and prejudice of allowing the additional evidence. This requires the court to assess the balance between the significance of the additional evidence, on the one hand, and the need for the swift conduct of litigation together with any prejudice that might arise from the additional evidence on the other.” (Emphasis added)

24. Based on the foregoing, the Tribunal has interrogated whether the said evidence seeking to be adduced is relevant to the case, and to this, the Tribunal is of the view that the documents listed in the application which the Appellant seeks to adduce before the Tribunal are critical in assisting the Tribunal towards clarifying the facts of the dispute and in helping the Tribunal in arriving at a just and fair determination.

25. On whether it would impact or influence the result of the case if adduced, the Tribunal opines that the said documents appear to go to the crux of the Appellant’s challenge to the tax assessment and thus the same are likely to have an influence on how the Tribunal is likely to reach its decision after the interrogation of such documents.

26. The Appellant has submitted that it was in possession of the impugned documents and had produced the same to the Respondent during the objection stage and had even made reference to the documents in its Statement of Facts when filing the present Appeal and that the same had been inadvertently left out in the bundle of documents filed before the Tribunal.

27. It is the view of the Tribunal that the tests prescribed in Mohamed Abdi Mahmud case [supra] have been met to the extent that the additional evidence sought to be adduced dent to remove any vagueness or doubt over the dispute and has a direct bearing on the main issue in the Appeal.

28. The Tribunal has looked into the list provided by the Appellant and finds that the additional documents are not overtly voluminous thus it might not be difficult or impossible for the Respondent to respond effectively. It is also apparent that the Appellant had the documents in its possession and had shared the documents with the Respondent through an email link during the objection proceedings.

29. The Tribunal does not find any evidence to suggest the Appellant’s intended documents indicate a calculated wilful deception of the Tribunal by the Appellant neither does it seem to be the case that the documents sought to be produced are calculated to be utilized for the purposes of removing lacunae and filling gaps in evidence. The documents are relevant to the Appeal and it is in the interests of justice and fairness to allow the same to be admitted in evidence.

30. The Respondent has also not shown the Tribunal what kind of prejudice it is likely to suffer should the additional documents the Appellant seeks to adduce be admitted by the Tribunal.

Disposition 31. The Tribunal is in the circumstance inclined to exercise its discretion in favour of the Appellant and allow a similar latitude in filing any additional documents to the Respondent for the purposes of balancing out the competing interests of the parties in the Appeal.

32. The Orders that accordingly recommend themselves are as follows:-a)The Appellant be and is hereby granted leave to file a Supplementary Statement of Facts and to file additional documents limited to the documents identified in the application.b)The Appellant to file and serve the Supplementary Statement of Facts and the additional documents within Fifteen (15) days of the date of delivery of this Ruling.c)The Respondent be and is hereby granted a corresponding leave to file and serve any Supplementary Statement of Facts and additional documents.d)The Respondent to file and serve the Supplementary Statement of Facts and additional documents (if necessary) within Fifteen (15) days of the date of being served by the Appellant.e)No orders as to costs.

DATED AND DELIVERED AT NAIROBI THIS 11TH DAY OF DECEMBER, 2023ERIC NYONGESA WAFULA - CHAIRMANELISHAH N. NJERU - MEMBERMUTISO MAKAU - MEMBEREUNICE N. NG’ANG’A - MEMBERABRAHAM K. KIPTROTICH - MEMBER