[2023] KETAT 119 (KLR)

City Gas East Africa Limited v Commissioner of Investigations & Enforcement (Tribunal Appeal 411 of 2021) [2023] KETAT 119 (KLR) (17 March 2023) (Judgment)

Neutral citation: [2023] KETAT 119 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal 411 of 2021

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, Jephthah Njagi & AK Kiprotich, Members

March 17, 2023

Between

City Gas East Africa Limited

Appellant

and

Commissioner of Investigations & Enforcement

Respondent

Judgment

Background 1. The Appellant is a limited liability company registered in Kenya and dealing with the sale of liquefied gas among other businesses.

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

3. According to the Respondent, the Appellant was referred for investigations following receipt of intelligence that the Appellant, a dealer in wholesale purchase and resale of LPG gas, was under-declaring its sales for tax purposes.

4. The investigations were carried out in the year 2019 (for the period 2010-2019) to confirm the veracity of allegations and in particular whether the Appellant, had declared its income for tax purposes.

5. The Respondent shared its findings vide a letter dated 16th June 2020 informing the Appellant that a variance of Kshs. 2,884,665,110. 00 had been established between the declared income and the bankings/sales and the same had been brought to charge with resultant Corporation tax of Kshs. 895,651,814. 00.

6. The Appellant wrote to the Respondent on 29th June 2020 in response to the letter of findings requesting the information listed therein and requesting 60 days to enable the company respond to the findings.

7. The Respondent provided the information requested vide its letters dated 2nd July 2020 and 13th July 2020 and granted the Appellant 21 days to respond to the letter of findings.

8. The Appellant responded to the findings vide its letter dated 30th July 2020 raising several issues to which the Respondent responded on 27th August 2020 providing clarifications and requesting the Appellant to avail the listed documents for review.

9. The parties had a series of engagements thereafter culminating in the issuance of assessments on 9th March 2021 requiring the Appellant to pay the assessed taxes amounting to Kshs. 398,448,341. 00 being Corporation Tax due.

10. The Appellant lodged an objection on 26th March 2021 giving grounds for consideration together with corresponding documents.

11. The Respondent issued an objection decision on 25th May 2021, confirming that principal taxes of Kshs. 398,448,341. 00 being Corporation tax was due and payable by the Appellant.

12. Aggrieved by that objection decision, the Appellant issued a Notice of Appeal dated 16th June 2021 and filed on 25th June 2021.

THE APPEAL 13. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal dated 9th July 2021 and filed on 13th July 2021:-a.That the Respondent erred in law by failing to evaluate and analyze the facts, evidence and the law, leading to an erroneous judgment.b.That the Respondent violated the principles of fair hearing by having the same officers involved in investigation being the same officers who rendered the objection decision.c.That the Respondent erred in law by issuing assessments for the years 2012-2015 which periods are outside the statutory timelines provided under the law.d.That the Respondent erred in law by relying on information allegedly supplied by EPRA while ignoring primary data which was available.e.That the Respondent erred in law by ignoring primary transactions data as obtained from the taxpayer’s third party documents in the investigation findings report and additional information supplied by the taxpayer leading to an erroneous assessment.f.That the Respondent erred in law by claiming that third party information could only be used in a criminal trial and could not be used in assessing the Appellant's Tax liability.g.That the Respondent ignored the law and the evidence as presented and delved into extraneous matters thereby occasioning a miscarriage of justice.h.That the Respondent erred in law by rejecting the 7% sales margin as proposed by the Appellant and instead used banking records which led to an unfair decision.i.That the Respondent erred in law by ignoring purchases and business expenses leading to an erroneous decision.j.That the Respondent erred in law in not finding that the Respondent failed to use all the information at his disposal before coming up with a default assessment.k.That the Respondent erred in law in not finding that the Appellant had proved its objection to the required standard of proof.

APPELLANT’S CASE 14. The Appellant’s case is also premised on the following:-a.Appellant’s Statement of Facts dated 9th July 2021 and filed on 13th July 2021 together with the documents attached thereto.b.The witness Statement of Mr. Hassan Bare dated 11th April, 2022 and filed on 12th April, 2022 that was admitted in evidence in chief on 17th August, 2022. c.The Appellants written submissions dated 9th September 2022 and filed on 10th September, 2022.

15. The Appellant stated that in September 2019, the Respondent raided and confiscated documents, records and equipment from the Appellant's offices claiming that they wanted to ascertain the taxable income of the company.

16. That on 16th June 2020, the Respondent issued its investigation findings which indicated that the Appellant had a tax liability amounting to Kshs. 895,651,814. 00.

17. That on 29th June 2020 the Appellant requested for information and extension of time to respond to the findings.

18. That on 2nd July 2020 the Respondent replied to the Appellant's letter dated 29th June 2020.

19. On 8th July 2020 the Appellant responded to the Respondent’s letter referenced above and noted that the information requested had not been provided and the extension of 21 days granted would start running when the requested information is provided.

20. That on 13th July 2020 Respondent replied to the Appellants’ letter referenced above confirming the details of the information it provided and extension of 21 days.

21. That on 30th July 2020 the Appellant comprehensively responded to the investigation findings for the period 2010 to 2018.

22. That on 27th August 2020 the Respondent replied to the Appellant's response to the investigation’s findings.

23. That on 14th September 2020 the Appellant responded in reference to the Respondent's letter dated 27th August 2020.

24. That on 9th March 2021, the Respondent issued a notice of assessment.

25. That on 11th March 2021, the Appellant requested the Respondent to provide the information it had allegedly received from EPRA and used it as a basis of obtaining average selling price of the LPG gas and applied the same to establish the assessed sales and cost of sales. The letter was responded to vide a letter dated 17th March 2021.

26. That on 26th March 2021, the Appellant lodged a notice of objection to the assessment for the period 2010 to 2018 indicating the grounds of objection.

27. That the Respondent in its letter dated 3rd May 2021 asked the directors of the Appellant to appear before it on 5th May 2021 and that the Appellant should carry documents which the Respondent did not specify in its letter. However, a few issues emerged from the letter:i.The Respondent claimed that the reasons for investigating beyond the statutory timelines was because the Appellant was engaged in fraud. It is trite law that fraud must be specifically pleaded and strictly proved beyond reasonable doubt. That was not done.ii.The other issue was that the Respondent admitted that it had information from 3rd parties which could assist the Appellant but could not use it because it was not provided by the Taxpayer. To quote the Respondent in verbatim the Respondent had this to say:“the Commissioner had relied on third party information for prosecution purposes, but with the change in the case being civil, the onus of providing documents and information was with the taxpayer, for which the taxpayer has provided less information."

28. That the Appellant noted that the same officers involved in investigations were the same ones involved in reviewing the objection hence making a mockery of the rules of natural justice and principles of fair administrative hearing. That the Appellant expressed its reservations vide a letter dated 6th May 2021.

29. That during the objection review, the Respondent did not prove that there was fraud for the period beyond 5 years. That the Respondent also relied on annual indicative sales amount claimed to have been obtained from EPRA to derive the alleged sales. That the Respondent's allegation that the Appellant had undeclared taxable income was malicious and without any basis in law.

30. That vide the letter dated 25th May 2021, the Respondent rendered its objection without addressing the issue of conflict of interest raised in the Appellant's letter dated 6th May 2021.

31. In submissions, the Appellant stated that company deals in refill of Liquefied Petroleum Gas (LPG). That it sells products to wholesalers at a wholesale price and does not sell directly to the final consumers. That the market is majorly dominated by multinationals such as Total Gas, Pro Gas, Sea Gas and other big companies who have retail and/or distribution agents and/or channels.

32. That the Appellant has no retail shop and relies on wholesalers to get its product to the market. That it is almost impossible to get a universal selling price for LPG as it differs depending on brand and it fluctuates from time to time.

33. That at the time of writing his witness statement Mr. Bare indicated a 13kg cylinder of Total Gas was retailing at Kshs. 3500 while that of the Appellant’s gas was retailing at Kshs. 2700. That the profit margin is actually Kshs 3 per Kilogram or lower.

34. The Appellant submitted that the following should be the issues for determination in this Appeal.a.Whether the Respondent’s method of arriving at the sales figures was correct.b.Whether the Respondent erred in law by failing to constitute an independent panel to hear the objection and instead used the same officers involved in investigations review their own investigations.c.Why did the Commissioner Investigation & Enforcement refuse to delegate the objection review to an independent arbiter?d.Whether the Commissioner can go beyond 5 years in issuing an assessment?

a. Whether the Respondent’s method of arriving at the sales figures was correct. 35. The Appellant submitted that the Respondent claimed to have used its best judgement as per Section 31 of TPA while coming up with an assessment. That the Respondent raided the Appellant’s business premises and carried with them daily sales records, purchases, inventory and bank statements.

36. That the Appellant further provided daily sales volumes for years 2016, 2017 and 2018 and even expressed its willingness to provide further documents when so required. That as per Table 5 of the objection decision, the Respondent admits to have used the information provided by the Appellant in tabulation of costs.

37. That before issuing the objection decision, the Respondent had issued the letter dated 3rd May 2021 which is substantially similar to the objection decision save for the following statement:-“So far, no amendments have been made regarding the established tax computation of Kshs. 398,448,341 and our position still stands. You are required to avail yourself to the Commissioner on 5th May 2021 at CBC Upper Hill at 10. 00 am, either accompanied by your appointed tax agent with relevant documents to support your position.”

38. That inspite of the short notice of 2 days, the Appellant responded albeit belatedly by a day and made the following grievances-:a.That the figures for purchases (which is the only component of cost of goods sold), were erroneous. That in particular, the Respondent used unsupported figure of Kshs. 1,072,979,418. 00 as the cost of sales and Kshs. 1,300,737,572. 00 for year 2018. That the Appellant had provided the actual sales and purchases figures.b.That the Appellant complained that the Respondent raided its offices carrying all the primary documents as confirmed by the Respondent’s own inventory.c.That the Appellant had substantively and exhaustively responded to each and every issue raised in the Respondent’s investigation findings dated 30th July 2020. d.That on 14th July 2022 the Appellant submitted further documents including figures for actual sales and purchases.e.That the Appellant further gave excel workings for years 2016, 2017 & 2018 for purchases and overheads computations.f.That in the letter, the Appellant attached the workings for the actual sales for the years 2016, 2017 and 2018. That the Appellant further requested that the Respondent specifies the documents and information not provided.g.That the Appellant challenged the fairness of the process considering that the same officers involved in investigations also participated in the review of the objection.

39. That the Respondent used the purchases records for every year and multiplied by a figure fished from thin air as shown in the table below:-YEAR KRA SALE KSH VOLUME (KGS) TAXPAYER KSH VOLUME (KGS)

2016 667,247,344 4,025,625 318,539,321 3,480,722

2017 870,902,451 5,455,415 541,409,810 5,454,353

2018 1,300,737,573 7,795,850 681,909,791 6,995,269

2,838,887,367 17. 276. 890 1,541,858,922 15,930,344

40. That when the Appellant asked where the figure came from, the Respondent explained that it was from EPRA, while ignoring the daily sales figures provided by the Appellant, its customers and documents raided from the Appellant’s premises.

41. That when queried on the refusal to use primary data, the answer was that it sought and obtained annual indicative sales amounts from EPRA to determine the quantities and purchase of LPG transacted and computed the estimated revenue earned in the years 2016 - 2018.

42. That two issues emerged. The Respondent assumed that EPRA either supplied the Appellant or kept records of all transactions involving LPG. That the other issue was the proposition that EPRA regulates LPG prices which as per the testimony of Hassan Bare, LPG prices are dictated by the market.

43. That instead of using actual sales figures provided by the Appellant, the Respondent went on a fishing expedition and used both the wrong quantities, the wrong selling prices and therefore giving rise to a ridiculous sales figure. That for the quantities, the Respondent wrongly assumed that all the purchases /stock was depleted/sold and as for the selling prices. That the Respondent ignored the daily sales as provided by the Appellant and instead purported to use prices allegedly given by EPRA.

44. That the Appellant vide the letter dated 11th March 2011, requested for the data informing the selling price.

45. That the Respondent replied by not providing any document from EPRA but instead stated that it was the legal burden of the Appellant to prove that the Respondent’s information was inaccurate or faulty.

46. That had the Respondent employed a semblance of honesty, they would have informed the Tribunal that the figures are not from EPRA as EPRA does not regulate LPG prices. That EPRA only regulates petroleum prices of Petrol, Diesel and Kerosene.

b. Whether the Respondent erred in law by failing to constitute an independent panel to hear the objection and instead used the same officers involved in investigations review their own investigations? 47. That as per the Notice of assessment, the assessment was conducted by the Commissioner Investigation and Enforcement and signed by one L. Mukhweso and Nafula Odonya. That the objection decision was rendered by the same officers. That in Robert Tom Martins Kibisu vs. Republic (2018) eKLR, the Court held as follows:-“[59] We agree that bias is prima facie a factor that may lead to a judge recusing himself from a matter. Such an action is meant to safeguard the sanctity of the judicial process in tandem with the principle of natural justice that no man should be a judge in his own case and that one should be tried and/or have his dispute determined by an impartial tribunal. This is what is provided for in Article 50(1) of the Constitution thus: ‘Every person has the right to have any dispute that can be resolved by the application of law decided in a fair and public hearing before a court or, if appropriate, another independent and impartial tribunal or body’”.

48. That the objection review process is a quasi-judicial where the independence and the impartiality of the decision maker is of paramount importance. That in this case, the Commissioner Investigation and Enforcement was the complainant, investigator and the decision maker.

49. That to further aggravate the unfairness of the process, the same officers who issued the assessment, rendered the objection decision even after protestation by the Appellant.

50. That vide a Gazette Notice No. 12048 the Commissioner General of KRA recognized the need to separate investigations from dispute resolution. That a question was put forth to Hassan Bare as to whether he had attached the Legal Notice to the Appellant’s Statement of Facts and the simple and straightforward answer is that a party need not plead laws. Admittedly, the Appellant made a typographical error instead of typing 12048, typed 12049. That this does not mean that the Gazette Notice does not exist.

51. That in its submissions, the Respondent appears to suggest that it can treat Constitutional principle of a fair hearing and its own Gazette Notice to do as it pleases.

52. That the Appellant had a legitimate expectation that the dispute would be referred to Independent Review of Objection was informed by the Respondent’s own advertisement on their own website about the existence of such a Department established vide a Gazette Notice no Vol. CXX—No. 141.

53. That the principle of legitimate expectation was well demonstrated in the case of Republic v Principal Secretary, Ministry of Transport, Housing and Urban Development ex parte Soweto Residents Forum CBO [2019] eKLR where the court quoted the Supreme Court in Communications Commission of Kenya & 5 Others v Royal Media Services & 5 Others (2) where the Supreme Court stated that:-“Legitimate expectation would arise when a body, by representation or by past practice, has aroused an expectation that is within its power to fulfil. Therefore, for an expectation to be legitimate, it must be founded upon a promise or practice by public authority that is expected to fulfil the expectation."

54. That the Respondent created the IRO, gazetted the same, published in its own website, waxed lyrical on the importance of divorcing investigations from Objection review and/dispute resolution. That the Respondent cannot be allowed to approbate and reprobate on that issue by holding two diametrically opposed positions. In their website it is important to divorce the two functions, in practice and before the Tribunal, a Commissioner has unfettered powers to appoint whoever he wishes and rules of natural justice are an inconvenience to him. They cannot have an IRO Department as a publicity gimmick to hoodwink the public about their adherence to global practices only to allow the mutilation of fair administrative principles and the rules of natural justice.

55. That further under Section 29(2) (f) of the Tax Procedures Act, the Respondent was under an obligation to advise the Appellant the manner of objecting to the assessment. The manner in this case includes informing the taxpayer about the existence of the body or the division to object to.

56. That recently, Justice Mrima in Constitutional Petition No. E495 of 2021 ruled that charge sheets signed by police officers are defective as one cannot be the complainant, investigator and the prosecutor at the same time.“From the foregoing discussion, it is apparent that the criminal case lacks any legal leg to stand on since the decision to charge was made by the National Police Service who was the investigator. Further, the charges were also drafted by the same investigator and that the prosecution was undertaken by the complainant.Given that the criminal case cannot stand in law, a consideration of the rest of the issues which are largely on the constitutionality of the trial and the manner in which the evidence intended to be adduced at the trial was obtained, will not yield any value or at all. In fact, the Court will be dealing with issues whose substratum is non-existent.”

57. That in the case of Republic vs. Cabinet Secretary, Ministry of Trade & Industry & 6 Others ex-parte Josphat Kimani Gacugu & 4 others [2020] eKLR, the High Court held:“41. A likelihood or apprehension of bias arises where a decision maker acts in such a way that would lead a fair-minded and informed observer to conclude that there was a real possibility that he or she will be biased.”

58. That the test to be applied in determining whether there is a likelihood of bias was stated in Beatrice Wanjiru Kimani vs. Evanson Kimani Njoroge, [1995-1998] 1 EA 134 by Lakha, JA as follows: -“In considering whether there was a real likelihood of bias, the Court does not look at the mind of the justice himself or at the mind of the chairman of the Tribunal, or whoever it may be, who sits in a judicial capacity. It does not look to see if there was a real likelihood that he would or did in fact favour one side at the expense of the other. The Court looks at the impression which would be given to other people. Even if he was as impartial as could possibly be, nevertheless if right minded persons would think that, in the circumstances there was a real likelihood of bias on his part he should not sit…There must be circumstances from which a reasonable man would think it likely or probable that the justice, or chairman, as the case may be, would, or did, favour one side unfairly at the expense of the other. The Court will not enquire whether he did, in fact, favour one side unfairly. Suffice it that reasonable people might think he did. The reason is plain enough. Justice must be rooted in confidence; and confidence is destroyed when right-minded people go away thinking; “The judge was biased.”

59. That the rationale of the rule against bias was explained in detail by the Human Rights Tribunal of Ontario in Jogendra vs. Human Rights Tribunal of Ontario, 2011 HRTO 322 (CanLII), where it was held that:“(71) In order to frame a discussion of the allegation of bias in the present case, it is necessary to set out some of the key principles established by the case law. First, there is a strong presumption of judicial impartiality and integrity, and this has been extended to administrative tribunals and adjudicators: R. v. Brown, 2003 CanLII 52142 (ON C.A.), (2003), 64 O.R. (3d) 161 (C.A.) at paras. 37-39; Chainauskas Estate v. Reed, 2009 ONCA 572 (CanLII), (2009), 251 O.A.C. 209 (C.A.) at para. 12. [72] Numerous decisions have noted that the rule against bias is intended to uphold public confidence in the fairness of administration of justice.”

c. Why did the Commissioner Investigation & Enforcement refuse to delegate the objection review to an independent arbiter? 60. The Appellant submitted that the Tribunal should take judicial notice of the fact that the Respondent has revenue targets. That they make media pronouncements saying that they have either achieved, failed to or surpassed those targets. That when an investigator has a revenue collection target, it is understandable why he or she would find referring his investigation to an independent body to be unnecessary bottleneck. That such an investigator would not wish to relinquish control of the case. That Article 50 of the Constitution of Kenya 2010 is not a lofty aspiration, it is not a suggestion or a representation of wishful thinking. It exists as a safeguard to overzealous state officers who would wish to treat fairness and impartiality as unnecessary roadblocks towards achieving their main goal.

61. That in the words of Justice Weldon Korir in Republic vs. Kenya Revenue Authority ex parte United Millers Limited [2015] eKLR the Court held that:-“The taxman should not behave like an undertaker whose main agenda is to inter one body and move to the next one. The undertaker never seeks to profit more than once from one’s demise. The taxman should be like a farmer who takes good care of his crops and animals with a view to profiting from the same crops and animals again and again. Taxpayers are the reason behind the Respondent’s existence and the Respondent and its officers should internalize this fact.”

62. The Appellant submitted that this was perhaps informed by the realization that an investigator with revenue targets can never be independent or impartial the same way a prosecutor with conviction targets would never see any innocence on an accused person. That a workman whose only tool is a hammer only sees every problem as a nail. That such an investigator would be blind to facts, deaf to reason and impervious to sense.

d. Whether the Commissioner can go beyond 5 years in issuing an assessment? 63. The Appellant submitted that Section 23 of the TPA only requires a taxpayer to keep tax records including tax invoices, receipts and bank statements for a period of 5 years. That to demand that a taxpayer produces documents which he is not under any obligation to keep would fly in the face of the taxpayer’s right to a fair trial.

64. That under Section 29(6) of the TPA, the law only allows the Respondent to go beyond 5 years in the event of gross or willful neglect, evasion or fraud by a taxpayer. That all these are criminal offences. That it is undisputed fact that the Appellant has never been convicted of any tax offence which would allow the Respondent to go beyond 5 years. That the Respondent cannot merely allege, he must prove. It is the law. The Appellant relied on the case of Kinyanjui Kamau v George Kamau Njoroge [2015] eKLR where the Court of Appeal stated:“……It is trite law that any allegations of fraud must be pleaded and strictly proved. See Ndolo v Ndolo (2008) 1 KLR (G&F) 742 wherein the Court stated that:““...We start by saying that it was the respondent who was alleging that the will was a forgery and the burden to prove that allegation lay squarely on him. Since the respondent was making a serious charge of forgery or fraud, the standard of proof required of him was obviously higher than that required in ordinary civil cases, namely proof upon a balance of probabilities; but the burden of proof on the respondent was certainly not one beyond a reasonable doubt as in criminal cases...”In the particulars of fraud, the appellant alleged that he did not consent to the transfer of the property. We find this was not true; as pointed out by the courts below, the appellant had full knowledge of and consented to the transaction. The evidence of the chief (DW2) was instructive in this regard, as was a letter to the Land Registrar, Kiambu. This letter in particular shows that the appellant was fully aware of the transaction between the respondent and his deceased brother.The evidence that was adduced by the Land Registrar seemed to indicate that there may have been some mischief in the manner that the title in favour of the respondent was procured. In his evidence, the Land Registrar indicated that the file in respect of the subject property could not be found, and as such, any transfer that may have been undertaken may have been fraudulent. In cases where fraud is alleged, it is not enough to simply infer fraud from the facts. In Vijay Morjaria v Nansingh Madhusingh Darbar & another [2000] eKLR (Civil Appeal No. 106 of 2000) Tunoi JA (as he then was) stated as follows:““It is well established that fraud must be specifically pleaded and that particulars of the fraud alleged must be stated on the face of the pleading. The acts alleged to be fraudulent must of course be set out, and then it should be stated that these acts were done fraudulently. It is also settled law that fraudulent conduct must be distinctly alleged and as distinctly proved, and it is not allowable to leave fraud to be inferred from the facts.”

65. That all the Respondent did, in his submissions, is to allege that there was fraud and then laid out a few facts for the Tribunal to make an inference of fraud. That fraud cannot be inferred. It must be strictly proved and that to do so, it cannot be through a statement of facts or written submissions. That the allegations of fraud can only be proven through viva voce evidence where the Appellant would have the opportunity to test the same through cross examination. That the Respondent’s sole witness chose not to testify in these proceedings and deprived the Appellant the opportunity to test the veracity of his fraud allegations through cross examination. That the burden of proving fraud is on who alleges because it is trite law that he who alleges must prove and the standard is higher than preponderance of evidence.

66. The Appellant also submitted that the fact that the Respondent never preferred any charges against the Appellant as per Section 97 of the Tax Procedures Act clearly gives rise to the adverse inference that the Respondent had no evidence in support of fraud. That if merely alleging fraud gives the Respondent the powers to extend timelines, it will give the Respondent draconian powers to even go back for 10 years.

67. That even assuming that the Respondent did indeed prefer charges on fraud, the same would not have stood in light of Section 23(1) of the Tax Procedures Act which obligates the taxpayer to keep records for only 5 years.

68. That Should there be an ambiguity in the interpretation of Sections 23 of the TPA and Section 29(6) of the TPA, the Appellant borrowed the words of JG Nyamu in Keroche Industries Limited V Kenya Revenue Authority & 5 Others [2007] eKLR as follows:“…..... On this topic I accept the Applicant’s counsel powerful argument that taxation can only be done on clear words and that taxation cannot be on intendment. Linked to this is that a penalty must be imposed in clear words. Finally even where the inclination of the legislature is not clear or where there are two or more possible meanings, the inclination of the court should be against a construction or interpretation which imposes a burden, tax or duty on the subject…….”

69. That there are two sections here. One is allowing the Commissioner to issue assessments beyond 5 years in the event of fraud. The other one only obligates the taxpayer to keep records for 5 years. That the question becomes, where will the Taxpayer obtain the documents, he is not legally obligated to keep due to effluxion of time? The Appellant submitted that equity does not aid the indolent.

Appellant’s Prayers 70. The Appellant made the following prayers to the Tribunal:-a.That the objection decision made on 25th May 2021 be set aside.b.That the Tribunal orders that the objection decision made on 25th May 2021 did not meet the threshold set under Section 51(8) of the Tax Procedures Act 2015 and dismiss it accordingly.c.That the Tribunal be pleased to order that the Objection was allowed in accordance with Section 51(11) of the TPA.d.That the cost of the Appeal be awarded to the Appellant.

RESPONDENT’S CASE 71. The Respondent’s case is premised on the hereunder filed documents and the proceedings before the Tribunal:-a.The Respondent’s Statement of Facts dated 12th August 2021 and filed on the same date.b.The Respondent’s written submissions dated 10th May 2022 and filed on 11th May 2022 together with the legal authorities filed therewith.c.The Respondent’s supplementary submissions dated 6th September 2022 filed on the same date.

72. The Respondent stated that it considered all the documents availed by the Appellant and actually made adjustments to the original taxes established in the letter of preliminary findings of Kshs. 895,651,814. 00 to Kshs. 398,448,341. 00 which amount was subsequently confirmed.

73. That as demonstrated by the numerous correspondences exchanged, the parties had extensive engagements to resolve issues raised by the Respondent and all the documents availed were taken into account to the extent they supported the position taken by the Appellant.

74. The Respondent averred that it is not restricted in the scope of investigations and the Commissioner may delegate such powers to any authorized officer in exercise of his/her powers including the conduct of investigations and the rendering of objection decisions.

75. That it is within the Respondent’s power to determine the manner in which its operations are to be carried out.

76. The Respondent averred that it acted in line with the provisions of Section 29(6) of the Tax Procedures Act which grants the Respondent statutory power to consider a period out of the five years in cases of gross or willful neglect, evasion of tax or fraud by a taxpayer.

77. That in the present case the Respondent established that the Appellant was involved in fraud in relation to tax, since the Appellant omitted from its returns amounts which ought to have been included therein.

78. The Respondent averred that the Respondent computed the taxes payable by the Appellant herein and issued a notice of tax assessment based on information obtained from the Appellant, third party information and the Commissioner's best judgment pursuant to the provisions of Section 31 of the Tax Procedures Act 2015.

79. That in conducting the investigations, the Respondent carried out several tests to establish the taxes payable including; analysis of the Appellants’ declarations on iTax and as per soft documents provided by the Appellant, analysis of third party information from the Appellant's bankers, EPRA and customers to corroborate the data in the internal databases.

80. That in addition, for the years 2012 to 2015, other than the bank statements available, the Appellant stated that it did not have the documents and therefore, requested the use of 7% gross margin as basis for computing cost of sales. That the 7% computation does not constitute primary documents hence the Commissioner had to use the relevant indirect Method.

81. That for the years 2016-2018, the Appellant provided the cost of sales and the operating expenses, but failed to provide the turnover and the Respondent used the EPRA data to arrive at the turnover.

82. That these tests demonstrate the nature of in-depth investigations that cannot be said to have resulted in erroneous findings. That the findings from the analysis carried out were shared with the Appellant and it was also given opportunities to provide clarifications where necessary.

83. That pursuant to the provisions of Section 56 of the Tax Procedures Act the onus is upon the Appellant to show that the assessment made upon him is excessive and incorrect. That in the Respondent's view, the Appellant has completely failed to discharge this burden.

84. That the Respondent arriving at the taxes payable took into account all the costs provided for by the taxpayer which were fully supported. On any other expense not factored, the onus is on the taxpayer to maintain records as provided for under Section 23 of the TPA and provide the information and documents as per Section 15 and Section 16 of the Income Tax Act, CAP 470 laws of Kenya.

85. The Respondent reiterated that the provisions of Section 56 of the Tax Procedures Act are clear and they place the onus on Appellant to show that the assessment is excessive and incorrect and in the Respondent's view, the Appellant has completely failed to discharge this burden by failing to avail the requested documents in support of its objection.

86. The Respondent indicated that the following should be the issues for determination by the Tribunal:-a.Whether the Respondent erred in law by failing to evaluate and analyze the facts. evidence and the law. leading to an erroneous judgement.b.Whether the Respondent violated the principles of fair hearing by having the same officers involved in investigations being the same officers who rendered the objection decision.c.Whether the Respondent erred in law by issuing assessments for the years 2012- 2015 which periods are outside the statutory timelines provided by the law.d.Whether the Respondent erred in law by relying on information allegedly supplied by EPRA while ignoring primary data which was available and that the Respondent erred in law by ignoring primary transaction data as obtained from the taxpayer's third party documents in the investigations findings and additional information supplied by the taxpayer leading to an erroneous assessment.e.Whether the Respondent ignored the law and the evidence as presented and delved into extraneous matters thereby occasioning a miscarriage of justicef.Whether the Respondent erred in law by claiming that 3rd party information could only be used in a criminal trial and could not be used in assessing the Appellant's tax liability.g.Whether the Respondent erred in law by ignoring purchases and business expenses leading to an erroneous decision.h.Whether the Respondent erred in law in not finding that the Appellant had proved its objection to the required standard of proof.

a.Whether the Respondent erred in law by failing to evaluate and analyze the facts,evidence and the law, leading to an erroneous judgement: 87. The Respondent submitted that the Appellant did not declare its true position on the income earned and received from its business for purposes of Corporation tax. The Respondent submitted that the income from the net banking and the daily sales was higher than the income from the Appellant's declared income from iTax.

88. That the sales figure and the net banking were compared and the higher of the two for each financial year was taken in computing the corporation tax and it was noted that the company under-declared the income for corporation tax.

89. That the Respondent’s findings of the Appellant's under-declaration constitutes a tax offence of knowingly omitting from its tax returns an amount that should have been included contrary to Section 97 (a) of the Tax Procedures Act, 2015 for which the Commissioner may initiate criminal proceedings as provided in law.

90. That Section 97 of the Tax Procedures Act provides for the offence of fraud in relation to tax. that:"Any person who in relation to a tax period, knowingly-(a)omits from his or her return any amount which should have been included; commits an offence"

91. That the Appellant had not declared the income earned until investigations were commenced. That further, the amounts admitted to are lower than the actual amounts owed as taxes to the Respondent as stated in the tax demand letter dated 9th March 2021. That this is demonstrated in the table below provided by the Respondent.Summary of taxes demandedTax Period Total expense Net profit Corporation Tax @30%

2012 15,674,997 168,657,412 50,597,223

2013 16,656,011 170,212,067 51,063,620

2014 24,274,394 79,593,268 23,877,980

2015 50,921,516 2,741,490 822,447

2016 11,127,538 361,349,769 108,404,930

2017 26,633,004 347,081,301 104,124,390

2018 29,232,323 198,525,831 59,557,749

Total 174,519,783 1,328,161,138 398,448,341

92. That Section 24 (1) & (2) of the Tax Procedures Act, 2015 allows a taxpayer to file returns but further provides that the Commissioner is not bound by the information provided therein and can assess the tax liability based on any other available information. The same provides as follows: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."

93. That the Respondent considered all documents availed by the Appellant and actually made adjustments to the original taxes from Kshs. 895,651. 814. 00 to Kshs. 398,448,341. 00 which amount was subsequently confirmed.

94. The Respondent submitted that it acted within the law in issuing the tax demand and did not exercise its discretion unreasonably, in bad faith or in disregard to the law.

b. Whether the Respondent violated the principles of fair hearing by having the same officers involved in investigations being the same officers who rendered the objection decision 95. The Respondent submitted that it is not restricted in the scope of investigations and the Commissioner may delegate such powers to any authorized officer in exercise of his/her powers including the conduct of investigations and the rendering of objection decisions.

96. That Section 5 of the Tax Procedures Act, 2015 provides for the delegation as follows:-“5(1) The Commissioner may, in relation to a tax law, delegate in writing to an authorized officer the performance of any of the powers or functions of the Commissioner under that tax law, other than the power of the Commissioner under section 4. "

97. The Respondent relied on the case of Ngatia & Associates Advocates vs. Interactive Gaming & Lotteries Limited where the learned judge in reaching his decision stated that:"The circumstances under which a Judge interferes with the taxing officer's exercise of judicial discretion are now well settled. These principles are set out in the First American Bank of Kenya vs Shah & Other [2002] 1 EA 64 are:1. That the Court cannot interfere with the taxing officer's decision on taxation unless it is shown that either the decision was based on an error of principle, or the fee awarded was manifestly excessive as to justify an inference that it was based on an error of principle.2. It would be an error of principle to take into account irrelevant factors and according to the order itself, some of the relevant factors to be taken into account include the nature and importance of the cause or matter, the amount or value of the subject matter involved, the interest of the parties, the general conduct of the proceedings and any direction by the trial judge.3. If the Court considers that the decision of the taxing officer discloses errors of principle, the normal practice is to remit it back to the taxing officer for reassessment unless the Judge is satisfied that the error cannot materially have affected the assessment and the court is not entitled to upset the taxation because in its opinion, the amount was high.”

98. That the Respondent maintained that its actions were in accordance with the law and within the Respondent's power to determine the manner in which its operations are to be carried out.

99. The Respondent relied on the case of Republic vs. Kenya Revenue Authority & another; Director of Criminal Investigations & Another (Interested Party) ex parte CMC DI Ravenna-Itinera JV [2020] eKLR, where Justice John M. Mativo held that:“this court respects the constitutional and statutory mandate of the Respondents and it cannot intervene except where there is clear abuse of powers. The court cannot grant orders which will impede the Respondents from lawfully performing their legal mandate.”

c. Whether the Respondent erred in law by issuing assessments for the years 2012- 2015 which periods are outside the statutory timelines provided by the law 100. That Section 29(6) of the Tax Procedures Act 2015 grants the Respondent statutory power to go beyond the five years in cases of gross or willful neglect, evasion of fraud by a taxpayer.

101. That Subsection (5) thereof provides that the Section above shall not apply in the case of gross or willful neglect, evasion or fraud by a taxpayer.

102. That the Respondent established that the Appellant was involved in fraud in relation to tax, since the Appellant omitted from its returns amounts which ought to have been included therein.

103. That the Respondent was therefore justified in issuing assessments for the years 2012-2015.

d. Whether the Respondent erred in law by relying on information allegedly supplied by EPRA while ignoring primary data which was available and that the Respondent erred in law by ignoring primary transaction data as obtained from the taxpayer's third party documents in the investigation’s findings and, additional information supplied by the taxpayer leading to an erroneous assessment 104. The Respondent computed the taxes payable by the Appellant and issued a notice of tax assessment based on the information obtained from the Appellant, third party information and the Commissioner's best judgement pursuant to the provisions of Section 31 of the Tax Procedures Act, 2015.

105. That in order to determine the sales of the quantities of LPG in Kilograms and related purchase costs of the LPG, the Respondent obtained the Appellant's compliance history from internal database including iTax and Registrar of Companies to establish the Appellant's Directors and third party information, EPRA and customers to corroborate the data in the internal database.

106. That the Respondent sought and obtained annual indicative sales amounts from the Energy Petroleum Regulatory Authority (EPRA) to determine the quantities and purchase cost of LPG transacted and computed the estimated revenue earned in the years 2016-2018.

107. The Respondent relied on the case of Nairobi TAT No. 25 of 2016 Family Signature Limited vs. The Commissioner of Investigations & 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." 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."

108. The Respondent exercised its best judgment appropriately in arriving at the tax assessment. That the Appellant failed to discharge its evidentiary burden of proof in demonstrating that the assessment by the Respondent was in any manner incorrect or excessive.

109. That the Appellant's conduct in this matter has demonstrated a lack of interest in settling the undisputed taxes due, despite being accorded several opportunities.

110. That although the law recognizes the self-assessment regime, the Respondent is empowered by Section 31 to amend such assessment if it has available information. That in this case, the Respondent had the import entries, specifically the Appellant's bank statements, which were not declared in the Corporation Tax returns and therefore the additional assessment was within the confines of the law. That the Respondent was therefore in compliance with Section 5 (2) of the Value Added Tax and all the other relevant provisions of the tax laws.

e. Whether the Respondent erred in law by claiming that 3rd party information could only be used in a criminal trial and could not be used in assessing the Appellant's tax liability 111. The Respondent submitted that it relied on the third party information for prosecution purposes but with change in the case being civil, the onus of providing documents and information lies with the taxpayer, for which the taxpayer has provided less information.

f. Whether the Respondent ignored the law and the evidence as presented and delved into extraneous matters thereby occasioning a miscarriage of justice 112. The Respondent submitted that it relied on the available facts, evidence and relevant tax laws to come up with the tax demand, which to the best of its knowledge are due and payable.

113. The Respondent relied on the case of Bachmann vs. The Queen. 2015 TCC 51 where the court pronounced itself on this issue, thus:“This Court has recognized that in an appropriate case a bank deposit analysis is an acceptable method to compute income.”

114. The Respondent submitted that the Appellant only raised issues regarding the legitimacy of the applied indirect method (using data from EPRA), to raise taxes but failed to provide supporting documents to support its objection.

115. That the circumstances leading to the manner in which the audit subject to the dispute was conducted necessitated application of, inter alia banking test analysis.

116. That the Respondent is allowed to embrace a range of methods and techniques for determining and verifying a taxpayer's income. That in some instances, like in this case, detecting and deterring non-compliance requires more than an examination of a taxpayer's books and records and necessitates an analysis of the taxpayer'sfinancial affairs to correctly assess tax liabilities.

117. That during such an audit, the Respondent may use either direct or indirect methods.

118. That direct methods, often referred to as specific issue or specific item methods, rely upon verification of income or expenses by direct reference to the books and records used to prepare the tax declaration. That adjustments to declarations or assessments are supported by specific evidence in relation to an income or expense item. That in this instance, there was no chance for the Respondent to apply these methods because the Appellant was deliberately non-compliant.

119. That indirect methods involve the determination of tax liabilities through an analysis of a taxpayer's financial affairs utilizing information from a range of sources beyond the taxpayer's declaration and formal books and records. That assessments are often based on circumstantial evidence indicating a reasonable estimate of the taxpayer's correct liability. That indirect methods consistently and efficiently deduce a reasonable estimate of income to demonstrate under reporting when declarations and books and records cannot be relied upon.

120. That bank deposits and cash expenditure method is based on the premise that money received must either be deposited or spent. 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.

121. That the Tribunal has accepted the position that banking analysis can be used to come up with income for tax purpose as was in the case of Digital Box Limited vs. Commissioner of Domestic Taxes.

g. Whether the Respondent erred in law by rejecting the 7% sales margin as proposed by the Appellant and instead used banking records which led to an unfair decision: 122. The Respondent submitted that for the years 2012-2015, other than the available bank statements, the Appellant stated that it did not have the documents and therefore requested the use of 7% gross margin as a basis for computing cost of sales. The 7% computation does not constitute primary documents hence the Commissioner had to use the relevant indirect method.

123. The Commissioner found that the 7% gross margin proposed without any basis as only few entries had been selected as a representation of the years 2012-2015. The Respondent therefore using the established data computed in 2016-2019, extrapolated the same using adjusted banking deposits for the years 2012-2015 to establish the LPG cost for the years 2012-2015.

h. Whether the Respondent erred in law by ignoring purchases and business expenses leading to an erroneous decision 124. The Respondent submitted that in arriving at the taxes payable took into account all the cost provided by the taxpayer which were fully supported.

125. That on any other expense not factored, the onus is on the taxpayer to maintain records and documents as per Section 23 of the Tax Procedures Act 2015 and provide documents and information as per Section 15 and 16 of the Income Tax Act, CAP 470 Iaws of Kenya.

126. That Section 23(1) of the Tax Procedures Act 2015 provides for record keeping to the effect that,“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."

i. Whether the Respondent erred in law in not finding that the Appellant had proved its objection to the required standard of proof 127. The Respondent relied on the case of TAT NO. 28 OF 2018 - Joycott General Contractors Limited vs. Kenya Revenue Authority, where the Tribunal in dismissing the appeal held as follows:-"We find that the Appellant seems to forget that it bears the burden of proof in law to demonstrate to this Tribunal that the Respondent’s assessment was wrong. Especially with regards to the under declarations and variance in respect of VAT and income sales. On the contrary, the Appellant has not bothered to substantially traverse the assessment raised. All it has done is to make sweeping and expansive accusations without substantial support."

128. The Respondent submitted that the Tribunal should be guided by the provisions of Section 56 of the Tax Procedures Act, 2015 which are clear and they place the onus on Appellant to show that the assessment is excessive and incorrect.

129. That further, Section 107 (1) of the Evidence Act places the burden on the person who wishes the court to give judgement depending on the existence of facts by asserting that;“Whoever desires any court to give judgement as to any legal right or liability dependent on the existence of facts which he who asserts must prove those facts exists; therefore, the Appellants who wishes to court to issue judgement in accordance to its alleged facts, then it must prove the existence of those facts.”

130. The Respondent submitted that the tax assessment was not only correct but also conformed to the Income Tax Act.

Respondent’s prayers. 131. The Respondent prays that the Tribunal:-a.Dismisses the Appeal for lack of merit.b.Upholds the Respondent's objection decision dated 25th May 2021. c.Awards cost of the Appeal to the Respondent.

ISSUES FOR DETERMINATION 132. The Tribunal has carefully studied the pleadings and documentation filed by both parties and is of the respectful view that that the issues that call for its determination are as follows:-a.Whether the Respondent erred in law and fact by issuing assessments for the years 2012-2015 which periods are outside the statutory timelines provided by the law.b.Whether the Respondent erred in law and fact by relying on information allegedly supplied by EPRA.

ANALYSIS AND FINDINGS. a. Whether the Respondent erred in law and in fact by issuing assessments for the years 2012-2015 which periods are outside the statutory timelines provided by the law. 133. On this issue, the Appellant submitted that Section 23 of the TPA only requires a taxpayer to keep tax records including tax invoices, receipts and bank statements for a period of 5 years. The Appellant submitted that to demand that a taxpayer produces documents which they are not under any obligation to keep would fly in the face of the right to a fair trial.

134. The Appellant submitted that under Section 29(6) of the TPA, the law only allows the Respondent to go beyond 5 years in the event of gross or willful neglect, evasion or fraud. These are criminal offences. That the Appellant has never been convicted of any tax offence which would allow the Respondent to go beyond 5 years.

135. The Appellant relied on the case of Kinyanjui Kamau vs. George Kamau Njoroge [2015] eKLR where Court of Appeal stated that:-“……It is trite law that any allegations of fraud must be pleaded and strictly proved. See Ndolo v Ndolo (2008) 1 KLR (G&F) 742 wherein the Court stated that:“In cases where fraud is alleged, it is not enough to simply infer fraud from the facts. In Vijay Morjaria v Nansingh Madhusingh Darbar & another [2000] eKLR (Civil Appeal No. 106 of 2000) Tunoi JA (as he then was) stated as follows:“It is well established that fraud must be specifically pleaded and that particulars of the fraud alleged must be stated on the face of the pleading. The acts alleged to be fraudulent must of course be set out, and then it should be stated that these acts were done fraudulently. It is also settled law that fraudulent conduct must be distinctly alleged and as distinctly proved, and it is not allowable to leave fraud to be inferred from the facts.”

136. The Appellant further submitted that all that the Respondent did, in their submissions, was to allege that there was fraud and then laid out a few facts for the Tribunal to make an inference of fraud. Fraud cannot be inferred. It must be strictly proved. The allegations of fraud can only be proven through viva voce evidence where the Appellant would have the opportunity to test the same through cross examination. The Appellant submitted that the Respondent’s sole witness chose not to testify in the proceedings and deprived the Appellant the opportunity to test the veracity of his fraud allegations through cross examination.

137. The Appellant further submitted that the fact that the Respondent never preferred any charges against the Appellant as per Section 97 of the Tax Procedures Act clearly gives rise to the adverse inference that the Respondent had no evidence in support of fraud. If merely alleging fraud gives the Respondent the powers to extend timelines, it will give the Respondent draconian powers.

138. In addressing this issue, the Respondent submitted that Section 29(6) of the Tax Procedures Act 2015 grants the Respondent statutory power to go beyond the five years in cases of gross or willful neglect, evasion of fraud by a taxpayer.

139. They further submitted that Subsection (5) thereof provides that the Section above shall not apply in the case of gross or willful neglect, evasion or fraud by a taxpayer.

140. The Respondent further submitted that they established that the Appellant was involved in fraud in relation to tax, since the Appellant omitted from its returns amounts which ought to have been included therein. The Respondent submitted that it was therefore justified in issuing assessments for the years 2012-2015.

141. The Tribunal notes that Section 4(3) of the Tax Procedures Act 2015, confers powers of enforcing tax laws to the Respondent. The Section states that:“An authorized officer shall enforce, and ensure due compliance with, the provisions of the tax law, and shall make all due inquiries in relation thereto”.Since the Respondent submitted that “they established that the Appellant was involved in fraud in relation to tax,” the Tribunal finds that it was their duty and responsibility to enforce the law. They should therefore have prosecuted the Appellant if they had the evidence. The fact that this was not done puts into doubt their allegation of fraud.

142. The Tribunal has pronounced itself on the issue of fraud and in TAT No 88 of 2021 Glenrose Ltd vs. Commissioner of Investigations & Enforcement stated as follows:-“the Tribunal finds that the burden of proof, which essentially in law rests upon the Appellant, shifted to the Respondent at the point where issues of fraud were raised. In this regard, the Tribunal relies on the Halsbury’s Laws of England, 4th Edition, Volume 17, Paragraphs 13 and 14, which provide as follows: -“(13) The legal burden is the burden of proof which, remains constant throughout a trial, it is a burden on establishing the facts and contentions which will support a party’s case. If at the conclusion of the trial he has failed to establish that to the appropriate standard he will lose.(14) The legal burden of proof normally rests with the party desiring the court to take action: thus, a claimant must satisfy the court or tribunal that the conditions which entitle him to an award have been satisfied. In respect of a particular allegation, the burden lies upon the party for whom substantiation of that particular allegation is an essential element of this case. There may therefore be separate burdens in a case with separate issues.”

143. The Tribunal is also guided by the ruling in Evans Kidero vs. Speaker of Nairobi City County Assembly & Another [2018] eKLR where the court stated as follows:-“30. Its trite law that he who alleges fraud must prove it. Allegations of fraud must strictly be proved. Great care needs to be taken in pleading allegations of fraud or dishonesty. In particular the pleader needs to be sure that there is sufficient evidence to justify the pleading. This was considered in some detail by Lewison J in Mullarkey -v- Broad. [17] In Central Bank of Kenya Ltd -Vs- Trust Bank Ltd & 4 Others [18] the Court of Appeal in considering the standard of proof required where fraud is alleged had this to say-“The Appellant has made vague and very general allegations of fraud against the Respondent. Fraud and conspiracy to defraud are very serious allegations. The onus of prima facie proof was much heavier on the Appellant in this case than in an ordinary Civil Case.”31. The burden of proof lies on the applicant in establishing the fraud/dishonesty that he alleges. The parties opted to adopt their pleadings as opposed to oral evidence. In my view, whereas it is proper to proceed by way of written submissions and pleadings, where allegations of fraud or dishonesty are alleged, the higher standard of prove required under the law may not be realized. This is because such a high standard of prove may require oral evidence and cross-examination for both parties test the veracity of the allegations.”

144. The Tribunal finds that the allegations of fraud have not been proved and therefore the Respondent erred in law and in fact by issuing assessments for the years 2012- 2015 which periods are outside the statutory timelines provided by the law.

b. Whether the Respondent erred in law by relying on information allegedly supplied by EPRA. 145. The Appellant submitted that in order to get the figures for sales, the Respondent used the purchases records for every year and multiplied by a figure fished from thin air. That when the Appellant asked where the figure came from, the Respondent explained that it was from EPRA, while ignoring the daily sales figures provided by the taxpayer, taxpayer’s customers and documents obtained when the Respondent raided the Appellant’s premises.

146. The Appellant further submitted that when queried on the refusal to use primary data, the answer was that it sought and obtained annual indicative sales amounts from EPRA to determine the quantities and purchase of LPG transacted and computed the estimated revenue earned in the years 2016 - 2018.

147. The Appellant submitted that instead of the Respondent using actual sales figures provided by the Appellant, the Respondent went on a fishing expedition and used both the wrong quantities, the wrong selling prices and therefore giving rise to a ridiculous sales figure. For the quantities, the Respondent wrongly assumed that all the purchases/stock was depleted/sold and as for the selling prices, they ignored the daily sales as provided by the taxpayer and instead purported to use prices as allegedly set by EPRA.

148. The Appellant submitted to the Tribunal that vide the letter dated 11th March 2011, requested for the data informing the selling price. The Respondent replied by not providing any document from EPRA but instead stated that it was the legal burden of the Appellant to prove that the Respondent’s information was inaccurate or faulty.

149. The Appellant urged the Tribunal to find that the figures used by the Respondent to arrive at the sales figure were erroneous and that there was no justification to guess the selling prices when actual data was available. Further, there was no justification for rejection of actual data provided by the Appellant.

150. The Respondent stated that they sought and obtained annual indicative sales amounts from the Energy Petroleum Regulatory Authority (EPRA) to determine the quantities and purchase cost of LPG transacted and computed the estimated revenue earned in the years 2016-2018.

151. The Respondent submitted that they relied on the case of Nairobi TAT No. 25 of 2016 Family Signature Limited vs. The Commissioner of Investigations & 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." 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."

152. The Respondent further submitted that they exercised best judgment appropriately in arriving at the tax assessment. That the Appellant failed to discharge its evidentiary burden of proof in demonstrating that the assessment by the Respondent was in any manner incorrect or excessive.

153. The Respondent further submitted that although the law recognizes the self- assessment regime, the Respondent is empowered by Section 31 to amend such assessment if it has available information. That in this case, the Respondent had the import entries, specifically the Appellant's bank statements, which were not declared in the Corporation tax returns and therefore the additional assessment was within the confines of the law. The Respondent was therefore in compliance with Section 5 (2) of the Value Added Tax and all the other relevant provisions of the tax laws.

154. The Respondent submitted that they carried out the investigations in year 2019 after receiving intelligence that the Appellant was under-declaring its sales for tax purposes. The Respondent further submitted that they sought and obtained annual indicative sales amounts from the Energy Petroleum Regulatory Authority (EPRA), to determine the quantities and cost of LPG transacted and computed estimated revenue earned in years 2016 - 2018.

155. The Tribunal notes that the Respondent did not refute the Appellant’s assertion that they were not given any evidence that the information came from EPRA. The Respondent did not present any evidence to the Tribunal on the source of the information they used although it was the basis on which the tax liability of the Appellant was determined.

156. The Courts have pronounced themselves on results of investigations that affect the person being investigated. In the case of Anne Wanjiku Kahwai & Another vs. Kenya Revenue Authority & another [2019] eKLR, Mwongo J, stated as follows:“23. Are the Petitioners entitled to be involved in such investigations I understand “investigation” to mean an inquiry into a matter, or a systematic effort to find out the truth about something; an examination of facts or information to unearth the truth. I see no reason why a statutory entity – such as the 1st Respondent, whose core mandate and function it is to assess, collect and account for income tax and enforce tax statutes – cannot fairly freely conduct investigations on a continuum with or without participation of the party investigated.24. There is a limit to such action, however. The moment the investigator decides to utilize the investigative material or information in such a manner that a third party is likely to be affected by it, the investigator must bring such information to the notice of the third party. This is the essence of the constitutional requirement of fair administration. So that, in this case, the affected party was entitled to receive the appropriate and relevant critical information of the outcome from the investigation which formed the subject matter that would affect the Petitioners.”

157. The Respondent submitted that it used indirect methods in determining the tax liability of the Appellant. That this method involved the determination of tax through an analysis of a taxpayer's financial affairs utilizing information from a range of sources beyond the taxpayer's declaration, formal books and records.

158. The Appellant filed in the Tribunal the records of its purchases (stocks), daily sales, and bank statements. The Appellant also filed their financial statements for the period 2016-2018. The Appellant presented the following table indicating the variance between its figures and those of the Respondent.

YEAR KRA SALE KSH VOLUME (KGS) TAXPAYER KSH VOLUME (KGS)

2016 667,247,344 4,025,625 318,539,321 3,480,722

2017 870,902,451 5,455,415 541,409,810 5,454,353

2018 1,300,737,573 7,795,850 681,909,791 6,995,269

2,838,887,367 17. 276. 890 1,541,858,922 15,930,344 159. It is clear from the table that while the volume figures are not significantly different, the sales figure are huge due to the estimated price applied by the Respondent. The Appellant submitted that there was no need to ignore the primary data that was available in their records or from their suppliers and customers and use other methods to determine their tax liability.

160. In view of the pleadings and the documentation presented, the Tribunal finds that the Appellant has discharged the burden of proof in line with Section 30 of the Tax Appeals Tribunal Act that the assessment is excessive and that the tax decision should have been made differently. The Tribunal therefore finds that the Respondent erred in law and in fact by relying on information allegedly supplied by EPRA as no evidence was adduced before the Tribunal on the source of that information.

FINAL DECISION 161. The upshot of the foregoing analysis is that this Appeal is merited and the Tribunal accordingly proceeds to make the following Orders: -a.The Appeal be and is hereby allowed.b.The objection decision dated 25th May 2021 issued by the Respondent be and is hereby set aside.c.Each party to bear its own costs.

162. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 17TH DAY OF MARCH, 2023. ………………………………………………ERIC N. WAFULACHAIRMAN………………………………………………CYNTHIA B. MAYAKAMEMBER………………………………………………GRACE MUKUHAMEMBER………………………………………………JEPHTHAH NJAGIMEMBER………………………………………………ABRAHAM K. KIPROTICHMEMBER