[2023] KETAT 946 (KLR)

CM Redd International Limited v Commissioner of Legal Services and Board Co-ordination (Appeal 1249 of 2022) [2023] KETAT 946 (KLR) (Civ) (10 November 2023) (Judgment)

Neutral citation: [2023] KETAT 946 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Appeal 1249 of 2022

Grace Mukuha, Chair, E Komolo, Jephthah Njagi, G Ogaga & T Vikiru, Members

November 10, 2023

Between

CM Redd International Limited

Appellant

and

Commissioner of Legal Services and Board Co-ordination

Respondent

Judgment

1. The Appellant is a private limited liability company incorporated in Kenya under the Companies Act.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 460 Laws of Kenya. Under Section 5(1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all revenue. Under Section 5(2) of the Act with respect to the performance of its function under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part I & II of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Respondent conducted a compliance check on the status of the Appellant’s tax affairs and noted that there was a variance which arose due to the Appellant’s failure to declare income tax turnover for the period 2020.

4. As a result of the review, the Respondent issued the Appellant with an income tax additional assessment of Kshs. 1,916,276. 00 on 28th March 2022 based on the declared sales for VAT.

5. The Appellant lodged a late objection to the entire assessment on 16th September 2022 via the Respondent’s iTax platform and obtained an objection acknowledgement receipt on even date. The Appellant stated among other reasons for late objection that it could not access its iTax registered email.

6. On 29th September 2022 the Respondent rejected the Appellant’s request for extension of time stating that the Appellant had failed to give valid reasons and provide documents in support of the application. The Respondent confirmed the tax assessment of Kshs. 2,107,904. 00 as due and payable.

7. The Appellant, dissatisfied with the Respondent’s decision dated 29th September 2022 lodged a Notice of Appeal dated 21st October 2022 and filed on 25th October 2022.

The Appeal 8. The Appellant’s Appeal is premised on its Memorandum of Appeal dated 12th October 2022 and filed on 25th October 2022 stating the following grounds: -a.The Respondent erred in law and fact by failing to consider the Appellant’s grounds of objection on its full merit.b.The Respondent erred in law and fact by issuing the Appellant with an additional assessment without taking into consideration the expenses that were incurred in the business.

The Appellant’s Case 9. The Appellant's case was premised on its Statement of Facts dated 12th October 2022 and filed on 25th October 2022.

10. The Appellant averred that it did not have access to its iTax email and only got to know of the assessment when its director visited the Respondent’s offices hence the late objection.

11. The Appellant stated that it lodged a late objection to the said assessment on iTax on 16th September 2022 and stated the reason as inability to access its iTax email.

12. The Appellant averred that on 21st September 2022, the Respondent requested it to give reasons and support its application for the late objection.

13. The Appellant averred that it was surprised by the Respondent’s letter dated 29th September 2022 declining to grant the application to file a late objection since according to it, it had given the Respondent sufficient reasons as to why it could not object in time.

14. The Appellant contended that eight (8) days later even before the lapse of the sixty (60) days statutory timelines, the Respondent wrote to the Appellant a letter dated 29th September, 2022 indicating that it had rejected the Appellant’s application for late objection.

15. The Appellant further stated that the Respondent proceeded to reject its application for late objection even though the Appellant had clearly cited the reasons why it objected to the assessment late.

The Appellant’s Prayers 16. The Appellant prays for orders that:a.The Objection decision dated 29th September 2022 be annulled and set aside in its entiretyb.The Appeal be allowed with costs to the Appellantc.Any other orders that the Honorable Tribunal may deem fit.

The Respondent’s Case 17. The Respondent premised its case on the following documents before the Tribunal: -a.The Respondent’s Statement of Facts dated 14th December 2022 and filed on 16th December 2022. b.The Respondent’s Written Submissions dated 27th June 2023 and filed on 29th June 2023.

18. The Respondent submitted that its compliance check on the Appellant’s tax affairs revealed that it had failed to declare income tax turnover for the period 2020.

19. The Respondent submitted that based on the declared sales for VAT, it issued additional assessments for income tax of Kshs. 2,107,904. 00 for the period 2020 vide a demand letter dated 3rd December 2022.

20. The Respondent asserted that the Appellant filed a late and invalid objection contrary to Section 51(3) which provides that: -“A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if—(a)the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments;(b)in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay the tax not in dispute under section 33(1); and(c)all the relevant documents relating to the objection have been submitted.”

21. On the Appellant’s claim that the Respondent had issued an additional assessment without considering the expenses that were incurred in the business, the Respondent submitted that the Appellant had declared VAT in its returns but there were no corresponding income tax returns.

22. The Respondent contended that the Appellant did not declare income tax returns hence there was no way the Respondent would have allowed expenses for income that was not declared.

23. The Respondent averred that Section 29 of the TPA permits it to issue default assessment in instances where the Appellant has failed to file returns. Section 29 of the TPA states that: -“(1)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") of—(a)the amount of the deficit in the case of a deficit carried forward under the Income Tax Act (Cap. 470) for the period”

24. The Respondent asserted that for alleged expenses to be allowed, the Appellant must demonstrate that they were wholly and exclusively incurred in generating income, which burden the Appellant failed to discharge therefore falling short of the requirements of Section 15 (1) of the Income Tax Act which states 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 40 [Rev. 2023] Income Tax CAP. 470 incurred in such year of income which is expenditure wholly and exclusively incurred by him in the production of that income”

25. The Respondent averred that the Kenyan tax system applies a self-assessment regime where the taxpayer assesses itself. However, despite it being a self-assessment system, the Respondent is not bound by the taxpayer’s self-assessment. To this end, the Respondent cited Section 24(2) of the TPA which states that: -“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”

26. The Respondent further stated that it was prompted by the non-compliance on the part of the Appellant to resort to alternative means of obtaining information on the liability of the Appellant and that it reasonably exercised its best judgement in computing the assessment.

27. The Respondent asserted that it was entirely dependent upon the Appellant to furnish all relevant supporting accounting information and documentation. That the Appellant has the onus to provide credible and reliable accounting information to facilitate a proper and fair tax assessment by the Respondent which in this case, the Appellant failed to do.

28. The Respondent further averred that the Appellant as the taxpayer bears the burden of demonstrating that Commissioner’s decision complained of was incorrect. Section 56(1) of the TPA provides that: -“In any proceedings under this part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

29. The Respondent further cited Section 30 of the Tax Appeals Tribunal (TAT) Act, 2013 which is to the same effect that: -“In a proceeding before the Tribunal, the appellant has the burden of proving—(a)where an appeal relates to an assessment, that the assessment is excessive; or(b)in any other case, that the tax decision should not have been made or should have been made differently.”

30. The Respondent averred that the Appellant had not in any way discharged the burden of producing supporting documents that will prove that the assessments by the Respondent were incorrect.

31. It was the Respondent’s position that inspite of being accorded an opportunity to challenge the additional tax assessment, the Appellant ignored and sat on its right to object within the stipulated timelines.

32. The Respondent averred that the Appellant made an application to lodge an objection out of time but failed to provide any reason or for the late application contrary to Section 51(6) & (7) of the TPA which provides as follows: -“A taxpayer may apply in writing to the Commissioner for an extension of time to lodge a notice of objection.(7)The Commissioner shall consider and may allow an application under subsection (6) if—(a)the taxpayer was prevented from lodging the notice of objection within the period specified in subsection (2) because of an absence from Kenya, sickness or other reasonable cause; and(b)the taxpayer did not unreasonably delay in lodging the notice of objection”

33. The Respondent invited the Tribunal to interrogate the reasons given by the Appellant and determine whether they fall under the exceptions given in Section 51(6)&(7) of the TPA and whether the Appellant has laid substantial ground for the Tribunal to interfere with the discretion of the Commissioner.

34. The Respondent submitted that even though the Appellant could not access its email as alleged, it had a VAT obligation and monthly returns to file via iTax hence it could have seen the assessment which was equally available on its iTax platform.

35. The Respondent submitted that the Appellant had not presented any material evidence before this Honourable Tribunal to demonstrate that it reached out to the Respondent to assist it to change its email on its iTax profile or any communication to the Respondent that it had a challenge with accessing the email.

36. The Respondent invited the Tribunal to interrogate the spirit and intent of the legislature adding to Section 51(7) of the TPA the words – “or other reasonable cause” immediately following after the words absence from Kenya and sickness”.

37. The Respondent submitted that it is a common tenet of interpretation of statutes that statute must be read and interpreted as a whole.

38. The Respondent submitted that the rule in ejusdem generis requires that where in a statute there are words following particular and specific words, the general words must be confined to things of the same kind as those specifically mentioned.

39. The Respondent further submitted that the Appellant’s inability to access its email due to cessation of employment of an accountant who has no legal standing under the TPA cannot be said to be of the same kind as sickness or absence from Kenya, and urged this Tribunal to be guided by this rule and find that the reason given by the Appellant for failure to lodge objection in time cannot fall under “any other reasonable cause” as envisaged in Section 51(7) of the TPA

40. The Respondent maintained that the nature of an extension of time was settled in the case of Nicholas Kiptoo Arap Korir Salat vs IEBC & & Others [2014] eKLR where the court stated as follows: -“Hence this court by virtue of rule 53 of the Supreme Court Rules has discretionary powers to extend time within which certain acts can be undertaken. This can be perceived by the use of the word “may” in the crafting of the rule. This discretion is a very powerful tool which in our view should be exercised with abundant caution, care and fairness; it should not be used judiciously and not whimsically to ensure that the principles enshrined in our constitution are realized.”

41. The Respondent submitted that it did not misdirect itself in denying the application for extension of time as it was guided by the law in Section 51(7) of the TPA in acknowledging that there was inordinate delay and urged the Tribunal to protect this discretion.

42. To buttress its position, the Respondent relied on the case of Tax Appeal No. 667 of 2021 Pollen Limited vs Commissioner of Legal Services and Board Coordination where the Tribunal held that: -“Therefore the Tribunal finds that the above actions of the undisclosed tax advisor who has no standing under the Tax Procedures Act, cannot be elevated to the same reasons as sickness or absence from Kenya, and therefore the reason given by the Appellant for failure to seek extension for a period of more than four years cannot stand, and it cannot amount to “or any other reasonable cause” as envisaged by section 51(7) of the TPA”

43. The Respondent submitted that the application to lodge an objection out of time having been rejected, there was no way whatsoever the Appellant would argue that it lodged a valid objection to warrant the Respondent’s audience to review the alleged documents and consider the objection on merit.

Respondent’s Prayers. 44. The Respondent prayed that the Tribunal:a.Finds that the Respondent did not misdirect itself in rejecting the application to lodge an objection out of time.b.Dismisses this Appeal with costs to the Respondent

Issues for Determination 45. Having considered the pleadings and submissions of the parties and the documentation availed, the Tribunal is of the considered view that this Appeal raises the following issues for determination:a.Whether the Respondent erred in rejecting the Appellant’s application to lodge an objection out of time.b.Whether the Respondent erred by failing to consider the Appellant’s grounds of objection on merit.

Analysis and Findings 46. The Tribunal having determined the issues for determination proceeds to analyse them as hereunder.

a. Whether the Respondent erred in rejecting the Appellant’s application to lodge an objection out of time. 47. The Tribunal’s analysis of the material adduced before it shows that the Appellant made an application to lodge an objection out of time more than five months from the date of assessment. The assessment notice was issued on 28th March 2022 while the Appellant made its application for extension of time to lodge an objection on 16th September 2022.

48. The Tribunal notes that the Appellant’s reason for failure to file an objection in time was that it could not access its iTax registered email as the accountant who had access to it had since ceased working for the Appellant.

49. The Appellant stated that it only got to know of the assessment when its director visited the Respondent’s offices.

50. The Respondent on its part countered that even though the Appellant could not access its email as alleged, it had a VAT obligation and monthly returns to file via iTax hence in the course of filing its monthly returns it ought to have seen the assessment which was equally available on the iTax platform.

51. The Respondent contended that the Appellant had not presented any material evidence before the Tribunal to demonstrate that it reached out to the Respondent to assist it change it to email on its iTax profile nor was there any communication to the Respondent that the Appellant had a challenge with accessing the email. The Appellant did not contradict this assertion.

52. The Tribunal notes that the Appellant besides stating that it could not access its email did not attach any evidence or supporting document to its application for extension of time to lodge an objection out of time.

53. Section 51(6) of the TPA requires a taxpayer to seek leave from the Commissioner in writing to lodge a late objection while Section 51(7) of the TPA provides the basis upon which such a late objection may be allowed by the Commissioner one of them being that “(b) the taxpayer did not unreasonably delay in lodging the notice of objection.”

54. The Tribunal reckons that five months is a long time for the Appellant not to have noticed the assesment on its iTax platform yet it was filing monthly returns for VAT. It can only be concluded that the Appellant was indolent in pursuing its rights.

55. The Tribunal is cognizant of the fact that the provisions of Section 51(7) of the TPA confer discretion to the Commissioner to determine whether or not the reasons given by a taxpayer for late objection meet the threshold of reasonableness. In the absence of evidence to support the reasons given for the Appellant’s late action, the Tribunal considers that the Respondent lacked a basis upon which to perform the test of reasonableness.

56. Whereas the Appellant decries that its application for extension of time to lodge a late objection was rejected 8 days from the date of application, Section 51(7A) of the TPA requires the Commissioner to notify the taxpayer of its decision made under subsection (7) of the Act within fourteen days after receipt of the application. The Respondent acted within the statutory timelines since an informed decision needed to be made and communicated to the Appellant within 14 days of receipt of the application, the date the rejection decision was rendered was 13 days from the date the Commissioner received the application.

57. The Tribunal is guided by the High Court’s emphasis on the strict application of statutory timelines. The High Court had this to say in Equity Group Holdings Limited -Vs- Commissioner of Domestic Taxes 2021 (eKLR):-“A statutory edict is not procedural technicality. It’s a law which must be complied with. Parliament in its wisdom expressly and in mandatory terms provided………”

58. The Tribunal is further guided by the High Court’s holding in Eastleigh Mall Limited v Commissioner of Investigations & Enforcement (Income Tax Appeal E068 of 2020) [2023] eKLR“It is clear from the forgoing that the provisions of section 51(11) of the Tax Procedures Act are mandatory. They are not cosmetic. Parliament in its wisdom knew that in matters tax, time is very crucial as those in commerce need to make informed decisions. If the Commissioner is allowed to exercise his discretion and stay ad-infinitum before issuing an objection decision, the tax payer would be unable to make crucial decisions and plan his/her business properly. The timelines set are mandatory and not a procedural technicality.”

59. In view of the foregoing, the Tribunal is persuaded that the Appellant not only delayed inordinately in making its application for extension of time but also failed to provide documents to persuade the Respondent that the extension of time was justified. The Respondent being bound by Section 51(7A) of the TPA which provides a timeline of 14 days within which to make a decision on the application to file a late objection did not have the discretion to afford the Appellant more time to comply.

60. The Tribunal, therefore, finds that the Respondent did not err in rejecting the Appellant’s application for extension of time to lodge an objection.

b. Whether the Respondent erred by failing to consider the Appellant’s grounds of objection on merit 61. The Tribunal having determined that the Respondent did not err in rejecting the Appellant’s application for extension of time to file its objection, finds that the issue of considering the merit of the objection has been rendered moot.

Final Decision 62. In light of the foregoing analysis, the Tribunal makes the following Orders:a.The Appeal be and is hereby dismissed.b.The Respondent’s decision dated 29th September 2022 be and is hereby upheld.c.Each party shall bear its own costs.

63. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 10TH DAY OF NOVEMBER, 2023. GRACE MUKUHACHAIRPERSONDR. ERICK KOMOLOMEMBERJEPHTHAH NJAGIMEMBERGLORIA OGAGAMEMBERTIMOTHY VIKIRUMEMBER