[2024] KETAT 1083 (KLR)

Choke v Commissioner of Intelligence, Strategic Operations, Investigations and Enforcement (Tax Appeal E641 of 2023) [2024] KETAT 1083 (KLR) (19 July 2024) (Judgment)

Neutral citation: [2024] KETAT 1083 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E641 of 2023

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

July 19, 2024

Between

Esther Arbe Kora c/o Kora Golcha Choke

Appellant

and

Commissioner of Intelligence, Strategic Operations, Investigations and Enforcement

Respondent

Judgment

Background 1. The Appellant is a Kenya citizen carrying out the business of buying and selling of motor­ cycles within Marsabit and Moyale localities.

2. The Respondent is a principal officer appointed pursuant to Section 13 of the Kenya Revenue Authority Act (KRA), Act No. 2 of 1995, and KRA is empowered to enforce and administer provisions of written laws set out in Section 5 as read together with the First Schedule of the Act.

3. The Respondent conducted an investigation to establish the Appellant’s tax compliance for the period 2017 to 2022.

4. The Respondent issued additional assessments for VAT and Income tax of Kshs. 283,217,308. 00 on 19th December 2022.

5. On 23rd May 2023 the Respondent issued the Appellant with a final demand of tax arrears in the sum of Kshs. 283,217,308. 00.

6. The Appellant lodged an objection to the assessment on 16th June 2023.

7. On 16th August 2023, the Respondent issued an objection decision to confirm adjusted principal tax assessment of Kshs. 313,396,493. 00 for income tax and VAT.

8. The Appellant aggrieved by the Respondent’s objection decision lodged this Appeal at the Tribunal on the 30th September 2023.

The Appeal 9. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal filed on 30th September 2023:i.That the Respondent erred in law and fact by determining the income of the Appellant from bank statements and therein made a wrong assumption that all bank credits constitute sales of the Appellant.ii.That the Respondent erred in law and fact by applying a 16% margin on purchases of the Appellant to determine gross profits of the business, thus subjecting the taxpayer to inaccurate assessment of taxes.iii.That the Respondents erred in law and fact by failing to consider and apply Section 15 of the Income Tax Act, which allows for deductions of costs incurred, wholly and exclusively, in the production of income and wrongfully only allowed 15% of the expenses incurred.iv.That in allowing only 15% of the expenses, the Respondent erred in law and fact by failing to consider the dynamics of the business of the Appellant including the far-off location of the business in Moyale and Marsabit and the peculiar expenses that come with that locality.v.That the Respondent erred in law and fact by misapplying Section 5 (1) of the Value Added Tax Act 2013, which provides that VAT shall be charged on taxable supplies in accordance with the provisions of that Actvi.That the Respondent erred in law and fact by assessing output VAT on assumed sales instead of actual sales as per the income tax returns filed by the Appellant.vii.That the Respondent erred in law and fact by failing to consider the Appellant's input VAT for deduction contrary to the provisions of Section 17 of the Value Added Tax Act 2013. viii.That the Respondent erred in law and fact by ignoring Section 29 of the Tax Procedures Act which places a limit of five years on the period the Respondent can go back to assess a taxpayer's affairs.ix.That the Respondent's demand has amounted to gross violations of Article 47 of the Constitution of Kenya, which guarantees the Appellant a right to fair administrative action that is reasonable and procedurally fair.x.That in view of the foregoing, the Appellant is apprehensive that the demand by the Respondent for the purportedly unpaid tax, if allowed will occasion a grave injustice and harm to the Appellant's business operations due to the misapplication of the Income Tax Act and the VAT Act by the Respondent.

The Appellant’s Case 10. The Appellant's case is premised on the hereunder filed documents:-a.Its Statement of Facts dated 29th September 2023 and filed on 30th September 2023b.Its Written Submissions dated 29th February 2024 and filed 5th March 2024.

11. The Appellant averred that Section 3 (1) and (2)(a) of the Income Tax Act provides that-“(1)Subject to, and in accordance with, this Act, a tax to be known as income tax shall be charged for each year of income upon all the income of a person, whether resident or non-resident, which accrued in or was derived from Kenya.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;”

12. The Appellant submitted that Section 3 (1) and (2)(a) of the Income Tax Act provides that for businesses, Income tax applies to gains or profits derived from the business activities, regardless of the duration for which the business is conducted.

13. The Appellant averred that it implied that any profits or gains generated from operating a business in Kenya are subject to income tax under the provisions of the Income Tax Act.

14. The Appellant submitted that only amounts certified as comprising gains or profits from a business are subject to income tax, and the law does not intend to tax amounts not certified as income.

15. The Appellant averred that the Respondent’s objection decision dated 16th August 2023, relied on bank statements of the Appellant's associates from both Equity Bank and First Community Bank and assumed that all amounts credited in those accounts comprised of income from the sale of motorcycles by the Appellant.

16. The Appellant averred that contrary to the position espoused by the Respondent, it is common knowledge that every deposit in an account is not necessarily income to the account owner.

17. The Appellant averred that a Meeting was held on 19th December 2022 with the Respondent, and one of the resolutions was that the Appellant was required to amend her self-assessment returns on iTax, on the relevant tax heads with the assistance of a certified accountant.

18. The Appellant submitted that she engaged an auditor and filed amended returns indicating her sales and expenses. The Appellant averred that the Respondent was provided with audited financial statements and an analysis of sales and expenses during her objection to the additional assessments.

19. The Appellant averred that the Respondent deliberately chose to ignore these documents with the actual sales figures. The Appellant relied on the case of Commissioner for The South African Revenue Service v Pretoria East Motors (Pty) Ltd, case number 291/12 [2014] ZASCA 91. The court held that;“in auditing a tax payer the commissioner is required to properly consider the documentation provided and to understand that information. It is not sufficient for the South African Revenue Authority (SARS) to merely request information and then disregard it and to issue an assessment as it sees fit.”

20. The Appellant further relied on the case of Fleur Investments Limited vs. Commissioner of Domestic Taxes & another, while considering the absence of a rational explanation for a conduct/decision in question, adopted with approval the High Court's decision in Republic vs. Institute of Certified Public Accountants of Kenya ex-parte Vipichandra Bhatt T/A V Bhatt & Company Nairobi HCMA No. 285 of 2006, it was held that:-“In the absence of a rational explanation, one must conclude that the decision challenged can only be termed irrational within the meaning of Wednesbury unreasonableness, was in bad faith, and constitutes a serious abuse of statutory power since no statute can ever allow anyone on whom it confers a power to exercise such power arbitrarily and capriciously or in bad faith”

21. The Appellant averred that the Respondent applied a 16% margin on the purchases made by the Appellant to determine gross profits. The Appellant contended that this margin was applied without due consideration for the unique circumstances of the Appellant's business, which significantly differ from those used for comparison, such as that the business operates in the border towns of Moyale and Marsabit but sources motorcycles from Nairobi.

22. The Appellant submitted that the associated costs for transport, logistics, and security are substantially higher for the Appellant compared to the companies used in the analysis.

23. The Appellant averred that the Respondent administered an unreasonable exercise of power and discretion by failing to consider the unique circumstances of the Appellant's business, coupled with the arbitrary application of a margin without justification, which exercise is illogical, absurd, irregular, and illegal.

24. The Appellant relied on the case of Republic vs Kenya Revenue Authority Exparte Jaffer Mujtab Mohamed [2015] eKLR, where the court held that:“46. Therefore, whereas this Court is not entitled to question the merits of the decision of taxing authority, that authority must exercise its powers fairly, and there ought to be a basis for the exercise of such powers. A taxing authority is not entitled to pluck a figure from the air and impose it upon a taxpayer without some rational basis for arriving at that figure and not another figure. Such action would be arbitrary, capricious, and in bad faith. It would be an unreasonable exercise of power and discretion, and that would justify the Court in intervening.”

25. The Appellant submitted that the Respondent must exercise its powers fairly and with a rational basis. The Appellant averred that the court clearly states that a taxing authority cannot arbitrarily pluck a figure from the air and impose it upon a taxpayer without a rational basis, the Respondent's decision, particularly the application of the 16% margin and the non-consideration of amended returns, is arbitrary and lacks a rational basis.

26. The Appellant averred that Section 15 (1) of the Income Tax Act provides that;“For the purpose of ascertaining the total income of any person for a year of income there shall, subject to section 16 of this Act, be deducted all expenditure incurred in such year of income which is expenditure wholly and exclusively incurred by him in the production of that income, and where under section 27 of this Act any income of an accounting period ending on some day other than the last day of such year of income is, for the purpose of ascertaining total income for any year of income, taken to be income for any year of income, then such expenditure incurred during such period shall be treated as having been incurred during such year of income.”

27. The Appellant averred that the Respondent cannot impose an assessment of income tax without allowing the taxpayer to account for expenditure incurred in the production of that income.

28. The Appellant submitted that for the years under review (2017-2022), the Respondent issued an income tax assessment without considering the actual expenses the Appellant had incurred in the production of the income. Thus, the Respondent erroneously assumed that the business incurred expenses equivalent to 15% of the sales.

29. The Appellant submitted that the Respondent’s assessment is based on inaccurate sales figures and fails to account for the unique and actual expenses specific to the Appellant's business by not considering the actual expenses. The Appellant relied on the case of Silver Chain Limited v Commissioner Income Tax & 3 others [2016] eKLR, wherein the court held that:-“From the pleadings, herein, I am satisfied that the applicant was not given an opportunity to explain his position on the sales reports or the entire operations of the company. What is being demanded as tax is what was unilaterally computed by the respondents. Although the respondents are empowered by the law to assess what a taxpayer ought to pay, it is prudent that while undertaking such an exercise, the taxpayer be given an opportunity to explain its position. The volumes of sales do not dictate the profit margins. It all depends on the type of business. The applicant is running a restaurant If one only computes the sales volume without knowing the costs of those sales as well as other outgoings such as water, electricity and garbage collection bills, then the amount of tax demanded may not reflect the truth.”

30. The Appellant averred that having filed actual returns representing the true state of the business, the Respondent was bound by its obligations under the KRA Act and Article 47 of the Constitution to evaluate and consider the same.

31. The Appellant averred that Section 5 (1) of the Value Added Tax Act provides that;“A tax, to be known as value added tax, shall be charged in accordance with the provisions of this Act on—a.a taxable supply made by a registered person in Kenya;b.the importation of taxable goods; andc.a supply of imported taxable services.”

32. The Appellant submitted that VAT should be chargeable only on actual sales; however, the Respondent used marked-up sales based on the purchases of the Appellant and concluded that there were undeclared sales, which it subjected to VAT.

33. The Appellant averred that Section 17 of the VAT Act obligated the Respondent to consider the Appellant's input VAT for deduction; however, the Respondent imposed a profit margin on purchases and levied VAT on assumed sales without considering the actual expenses incurred in the business operations.

34. The Appellant averred that the Respondent deviated from the principles of fair administrative action by neglecting to consider the self-assessment returns and audited accounts, which portray the accurate financial position of the business.

Appellant’s prayers 35. The Appellant prayed that the Tribunal finds that: -a.The Appeal be allowed with costs;b.The Respondent's decision dated 16th August 2023 confirming an assessment of Kshs. 313,396,493 be vacated and set aside in its entirety;c.Any other order that the Tribunal deems fit and just to grant.

The Respondent’s Case 36. Respondent's case is premised on the following documents before the Tribunal:-a.Its Statement of Facts dated 31st October 2023 and filed on even date.b.Its written submission dated and filed 22nd March 2024.

37. The Respondent averred that an analysis of the payment details revealed bank accounts at Equity Bank Ltd and First Community Bank Ltd, operated by the Appellant's relatives named above, used to pay for the supplied motorcycles.

38. The Respondent submitted that it obtained payment slips from the Appellant's key supplier, Car & General (Trading) Ltd, and ascertained that the Appellant made payments for motorcycles supplied. It also established that the following associates made payments on the Appellant's behalf: Kora Golicha Choke, Emmanuel Jillo Kora, and Aila Kora Golicha, who, as per the iTax profile, were noted to be relatives, i.e., father and brothers, respectively.

39. The Respondent averred that it analysed the Appellant's customer statement summary from Car & General (C & G) (Trading) Limited for the years 2017 to 2022 and it was confirmed that the supplier Car & General (Trading) Ltd supplied, invoiced and later received payment from the Appellant.

40. The Respondent submitted that it reviewed the Appellant's filed Income tax returns and noted that the Appellant filed nil returns for the tax period under review; therefore, the Respondent applied a gross profit margin in determining the taxes payable by the Appellant.

41. The Respondent averred that in establishing the gross profit margin deviation, it sampled four companies operating a similar business and established an average of 16% and from this margin, it computed the additional income tax and VAT payable.

42. The Respondent averred that it is allowed to use either direct methods or indirect methods. The Respondent submitted that the application of indirect methods of auditing information was extensively explained in the article "Revenue Administration: Taxpayer Audit- Use of indirect method" by Edmund Biber, which discusses several indirect methods and states on Page 9 that:-''Although not prescribing the methods to be used, by commenting on the legality and reasonableness of indirect methods, court decisions have, in effect, developed the conditions for their use. In general, it can be said that courts have ruled those administrations;a.may use any method to reconstruct income that is reasonable under the circumstances;b.may not be arbitrary in the use of this authority;c.may use an indirect method to test the accuracy of the taxpayer's books and records;d.must investigate all reasonable evidence presented by the taxpayer refuting the computation of income;e.determinations are presumed to be correct, and the taxpayer bears the burden of proving that it is incorrect;f.are not required to negate every possible non-taxable source for the unreported income in order to sustain a deficiency based on a reconstruction of income; andg.may use third-party records (customers, suppliers, etc.) in the reconstruction."

43. The Respondent averred that bank deposits and cash expenditure method (banking analysis test) is based on the premise that money received must either be deposited or spent. The Respondent submitted that this approach is particularly useful if an analysis of bank accounts and a taxpayer's cash expenditure indicates a likelihood of undeclared income and the taxpayer makes regular payments into bank accounts that appear to be from a taxable source.

44. The Respondent submitted that the Appellant was granted time to provide supporting information and documentation and explain why the Respondent's findings were erroneous and the Appellant failed to do so. Hence, the Appellant herein cannot, therefore, merely allege that the Respondent was wrong in relying on bankings without giving sufficient reasons and evidence supporting that allegation.

45. The Respondent relied on the case of Holland v United States 121(1954), where the Supreme Court stated;“to protect the revenue from those who do not render true accounts, the Government must be free to use all legal evidence available to it in determining whether the taxpayer's books and records accurately reflect his financial history" and that the indirect method used need not be exact, but must be reasonable in the light of surrounding facts and circumstances."

46. The Respondent averred that the provisions of Sections 24(2) and 31 of the Tax Procedures Act, 2015 provides that the Commissioner is not bound by the returns filed by the Appellant or information provided by or on behalf of the taxpayer in assessing a taxpayer's tax liability but is allowed to amend filed returns and use any information available to it to make additional tax assessment which is the case herein.

47. The Respondent relied on the case of Hole v. The Queen, 2016 TCC 55 where the Court stated that: -“There are two primary ways in which a taxpayer can challenge a bank deposit analysis. The first is to prove that his or her records were adequate and thus that his or her income should have been determined using those records. The second, and more common, method is to challenge the actual determination of income made by the Minister under the bank deposit analysis."

48. The Respondent submitted that it was, therefore, justified to apply the banking analysis method to determine the Income earned by the Appellant during the period under review since the Appellant failed to justify that not all the money in the account was derived income from its businesses and as such the assessment issued was justified.

49. The Respondent relied on the case of Nairobi TAT No. 25 of 2016, Family Signature Limited vs. The Commissioner of Investigations and Enforcement, where one of the issues for determination was "whether the Respondent was justified in employing an alternative and indirect method of assessing the Appellant's estimated tax liability."

50. The Respondent submitted that Section 24 of the Tax Procedure Act provides that;“1)A person required to submit a tax return under a tax law shall submit the return in the approved form and in the manner prescribed by the Commissioner.2)The Commissioner shall not be bound by a tax return or information provided by, or on behalf of, a taxpayer and the Commissioner may assess a taxpayer's tax liability using any information available to the Commissioner.”

51. The Respondent submitted that the Appellant is required to file her tax returns; however, the Respondent is not bound by the returns and/or information provided by the Appellant.

52. The Respondent averred that the Appellant filed nil returns, that after carrying out a banking analysis, it established that there were variances in the sales declared in the VAT returns vis a vis the sales declared in the Income tax returns for the tax period under review.

53. The Respondent submitted that Section 31 (1) of the Tax Procedure Act provides that;“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—a.in the case of a deficit carried forward under the Income Tax Act (Cap. 470), the taxpayer is assessed in respect of the correct amount of the deficit carried forward for the reporting period;b.in the case of an excess amount of input tax under the Value Added Tax Act (Cap. 476), the taxpayer is assessed in respect of the correct amount of the excess input tax carried forward for the reporting period; orc.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.”

54. The Respondent relied on the case of Oliver Merrick Fowler & another v Kenya Revenue Authority [2022] eKLR quoted with authority the case of Saima Khalid vs. The Commissioner for Her Majesty's Revenue and Customs- Appeal No. TC/2017/02292 and stated;“...The very use of the word 'judgment makes it clear that the commissioners are required to exercise their power in such a way that they make a value judgment on the material which is before them... What the words 'best of their judgment' envisage, in my view, is that the commissioners will fairly consider all material placed before them. and on that material come to a decision which is one which is reasonable and not arbitrary as to the amount of tax which is due."

55. The Respondent submitted that the Appellant is mandated to discharge her burden of proof as provided for in Section 30 of the Tax Appeals Tribunal Act and Section 56 of the Tax Procedures Act, which provides that the burden is on the taxpayer to demonstrate that the Commissioner's decision is excessive or wrong.

56. The Respondent relied on the following cases:-i.Metcash Trading Limited Vs. Commissioner for the South African Revenue Services and Another Case CCT 3/2000ii.Pearson Vs. Belcher CH.M Inspector of Taxes. Tax. Cases Volume 38iii.Mulherin vs Respondent of Taxation [2013] FCAFC 115;

57. The Respondent averred that the Appellant failed to provide the necessary documents and information to dispute the additional tax assessments, that the Respondent was right in exercising its best Judgement and the objection decision was thus proper in law.

58. The Respondent averred that the Appellant failed to discharge her burden of proof in proving that the its objection decision is incorrect as per the provisions of Section 56(1) of the Tax Procedures Act, which provides that:-“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

Respondent’s Prayers 59. The Respondent prays that the Tribunal finds that:a.The objection decision dated 16th August 2023 confirming principal taxes of Kshs 313,396,493. 00 being Income tax of Kshs 57,546,146. 00 and VAT of Kshs 255,850,347. 14 be upheldb.This Appeal be dismissed with costs to the Respondent as the same is without merit.

Issue For Determination 60. The Tribunal has carefully considered the pleadings and documentation of both parties and is of the view that the issue that calls for its determination isWhether the Respondent was justified in confirming the taxes assessed upon the Appellant.

Analysis And Findings 61. Having identified the issue for determination, the Tribunal proceeded to analyse the same as follows.

62. The Appellant contended that the Respondent relied on bank statements from both Equity Bank and First Community Bank and assumed that all amounts credited in those accounts comprised of income from the sale of motorcycles by the Appellant.

63. The Appellant contended further that the banking analysis test applied by the Respondent led to the Respondent levying an unrealistic assessment upon the Appellant.

64. The Respondent on its part argued that the use of the banking analysis test/banking deposit method of proving income is legitimate and was necessitated by the need to confirm its suspicions that the Appellant had unreported income.

65. The Respondent averred that it is allowed to use either direct methods or indirect methods in assessing a taxpayer’s tax liability. It posited that the Appellant having filed nil returns for the period under review it resorted to bank analysis method as the bank statements were the only available documents.

66. The Tribunal is guided by its previous holding on the use of alternative or indirect methods of assessing a taxpayer, these methods are acceptable as long as the Respondent applies its best judgment in so doing as was held in the case of Nairobi TAT No. 25 of 2016 Family Signature LTD Vs The Commissioner of Investigations & Enforcement, where the Tribunal held that:“When the Respondent is prompted to resort to an alternative method of determining the income and in assessing the tax liability of a taxpayer, it has the onerous responsibility to act reasonably by exercising best judgement informed by pragmatic and reasonable considerations that do not in any manner result in a ridiculously high income margin.”

67. The Appellant has not put forth any evidence to show that the Respondent acted dishonestly, vindictively or capriciously in the use of the banking analysis method therefore Respondent was justified in employing the same.

68. The Appellant contended that the Respondent’s assessments were excessive and erroneous, that the Respondent assumed that all inflows in the bank was income hence it sought to tax the Appellant on turnover rather than income.

69. The Appellant averred that businesses should be taxed on gains or profits from the business and not amounts not certified as income, she relied on Section 3 (1) and (2)(a) of the Income Tax Act which provides that:“Charge of tax(1)Subject to, and in accordance with, this Act, a tax to be known as income tax shall be charged for each year of income upon all the income of a person, whether resident or non-resident, which accrued in or was derived from Kenya.(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”

70. The Appellant averred further that she provided the Respondent with an amended self-assessment which had the actual sales figures on which the Respondent ought to have based its assessment.

71. The Respondent stated that as provided by Section 24(2) and 31 of the TPA, it was not bound by the Appellant’s self-assessment and that the Appellant had failed to adduce sufficient evidence to challenge its assessments.

72. The Tax Procedures Act empowers the Respondent to assess a taxpayer in instances where the taxpayer has filed a return and where a taxpayer has not filed a return. Section 31(1) of the Tax Procedures Act deals with instances where a taxpayer has filed a self-assessment return. The Section provides 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…”

73. Similarly, in giving the Commissioner power to issue an assessment where the taxpayer has not filed a return, Section 29(1) provides that:“Where a taxpayer has failed to submit a tax return for a reporting period in accordance with the provisions of a tax law, the Commissioner may, based on such information as may be available and to the best of his or her judgement, make an assessment (referred to as a "default assessment")…”

74. In both instances, the Respondent is allowed to use any information that is available to it and to use the best of his or her judgement in making the assessment.

75. Having found that the Respondent is mandated to either amend a taxpayer’s assessment or issue a default assessment and that in this instance the Respondent was justified in its use of the banking analysis method to assess the Appellant, the Tribunal then shifted its focus to whether the Appellant dislodged its burden of proof in showing that the Respondent’s assessments were inaccurate or excessive.

76. It is trite law that the burden of proof in tax disputes rests with the Appellant to disprove the Commissioner’s assessments. Sections 56(i) of the TPA and Section 30 of the TAT Act are an unequivocal that a taxpayer has the duty to show that the Respondent’s assessments are erroneous or inaccurate. The Sections state:Section 56(1) of the TPA: -“In any proceedings under this part, the burden of shall be on the taxpayer to prove that a tax decision is incorrect.”Section 30 of the TAT Act:“In any proceeding before the Tribunal the Appellant has the burden of proving –a.where an appeal relates to an assessment, that the assessment is excessive; orb.in any other case, that the tax decision should not have been made or should have been made differently.”

77. The Appellant averred that she provided the Respondent with audited financial statements and an analysis of sales and expenses during her objection to the additional assessments but Respondent deliberately chose to ignore these documents which had the actual sales figures.

78. The Respondent both in its objection decision and Statement of Facts maintained that the Appellant had failed to avail evidence to contradict its assessment.

79. The Tribunal pored through material adduced before it and noted that as much as the Appellant alleged to have provided the Respondent with audited financial statements and an analysis of sales and expenses to show that its assessments were excessive, she did not avail evidence at the Appeal stage to show that she indeed supplied the Respondent with the said documents.

80. The Tribunal noted that the only documents attached to the Appellant’s Appeal were:i.The Respondent’s tax investigation findings letter dated 19th December 2022ii.Minutes of the Meeting between the Respondent and the Appellant on 19th December 2022. iii.The Respondent’s tax demand letter dated 4th May 2023iv.The Appellant’s letter of objection to the additional assessments dated 16th June 2023 and;v.The Respondent’s Objection decision dated 16th August 2023.

81. The Tribunal holds the view that the above documents could not aid the Appellant in discharging her burden of proof at the Tribunal to show that the Respondent’s assessments were inaccurate, excessive or erroneous as required under Section 30 of the TAT Act stated herein above.

82. The Tribunal holds that a party can only discharge its burden upon adducing evidence. Merely making pleadings is not enough as was stated by the court in Alfred Kioko Muteti v Timothy Miheso & another [2015] eKLR where the court stated that:“Thus, the burden of proof lies on the party who would fail if no evidence at all were given by either party….Pleadings are not evidence and it is not enough to plead particulars of negligence and make no attempt in one’s testimony in court to demonstrate by way of evidence how the accident occurred and how the 1st defendant was to blame for the said accident. It is trite law that he who alleges must prove and that burden does not shift to the adverse party even if the case proceeds by way of formal proof and or undefended. “

83. The Tribunal has held in numerous decisions that the burden of proof in tax disputes rests with the Appellant, the same can only shift to the Respondent once the Appellant produces evidence which the Respondent will then be required to demolish so as to sustain its case. The Tribunal wishes to reiterate its holding in Boleyn International vs Commissioner of Domestic Taxes where it stated that:“All this time, the Resp investigations. The Appellant was given multiple opportunities to support its objections to the investigation findings. We find that the Appellant at all times bore the burden of proving that the Respondents decisions and investigations were wrong. The Tribunal is guided by the provisions of section 56 (1) of the Tax Procedures Act, 2015 which states“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

84. The Tribunal therefore finds that the Respondent was justified in its confirmation of the taxes assessed upon the Appellant.

Final Decision 85. In light of the foregoing analysis the Tribunal makes the following orders;a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision of 16th August 2023 be and is hereby upheld.c.Each party to bear its own costs.

86. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF JULY, 2024ERIC NYONGESA WAFULA.............................CHAIRMANCYNTHIA B. MAYAKA ...............................MEMBERDR. RODNEY O. OLUOCH.............................MEMBERABRAHAM K. KIPROTICH ........................... MEMBERDR. TIMOTHY B. VIKIRU................................ MEMBER