[2025] KEHC 10453 (KLR)

Commissioner of Domestic Taxes v Friends Hotel Kakamega Limited (Tax Appeal E031 of 2024) [2025] KEHC 10453 (KLR) (Commercial and Tax) (16 July 2025) (Judgment)

Neutral citation: [2025] KEHC 10453 (KLR)

Republic of Kenya

In the High Court at Nairobi (Milimani Commercial Courts)

Commercial and Tax

Tax Appeal E031 of 2024

JK Ng'arng'ar, J

July 16, 2025

Between

Commissioner Of Domestic Taxes

Appellant

and

Friends Hotel Kakamega Limited

Respondent

(Being an Appeal from the Judgment of the Tax Appeals Tribunal delivered on 8th December 2023 in TAT No. 1148 of 2022)

Judgment

1. The appellant carried out tax investigations on the affairs of the respondent in 2022. Its findings revealed that the respondent exhibited variances between the turnover it declared when filing its income tax returns. On this ground, the appellant issued the respondent with an additional VAT assessment on 30th May 2022. Disquieted by that decision, the respondent lodged its objection in the iTax portal on 25th July 2022. In its letter dated 3rd August 2022, the appellant informed the respondent that its objection was invalid. It was subsequently rejected on 2nd September 2022.

2. This decision galvanized the respondent to lodge an appeal before the Tax Appeals Tribunal in TAT No. 1148 of 2022. In its decision dated 8th December 2023, the tribunal found that the respondent’s appeal was merited. Accordingly, the appellant’s invalidation decision and orders arising therefrom were set aside. The appellant was further urged to consider and issue an appropriate objection decision in relation to the respondent’s objection notice dated 25th July 2022 within thirty days from the date of the judgment.

3. The appellant is aggrieved by those findings. It filed its notice of appeal dated 8th January 2024. It also filed its memorandum of appeal dated 8th February 2024 that raised six grounds disputing the findings of the tribunal. I have summarized those grounds in the following terms: the tribunal fell into error in holding that the appellant’s objection invalidation notice dated 3rd August 2022 contravened section 51 (4) of the Tax Procedure Act; the respondent lodged a late objection to the additional VAT assessment contrary to section 51 (2) and (3) of the Tax Procedure Act; the tribunal erred in failing to find that the appellant had discretionary powers to invalidate an objection under section 51 (4) of the Tax Procedure Act; and the tribunal ignored material facts set out by the appellant in its pleadings and submissions. In view of the foregoing, the appellant prayed that the late objection rejection notices dated 19th September 2022 be upheld, the respondent be ordered to pay Kshs. 1,203,143. 24 together with interest and costs of this appeal.

4. The appeal was canvassed by way of written submissions. However, as I retired to write this decision, I was only in receipt of the appellant’s written submissions dated 5th June 2025. It submitted that the respondent failed to furnish reasons why it filed its late objection on the assessments on 25th July 2022. In its decision dated 3rd August 2022, the appellant asked the respondent to validate by providing grounds of objection and supporting documents. Since the respondent failed to accede to that request, its objection was rejected on 19th September 2022. Additionally, the appellant demanded that the respondent does remit the additional taxes as set out in the additional tax assessment.

5. The appellant submitted that the tribunal misapplied the provisions of the law because when the appellant noted the variances, it charged a standard rate of 16% for VAT and raised assessment reports to the respondent on 30th May 2022. The respondent had within thirty days from receipt of the assessment to lodge an objection by dint of section 51 (2) of the Tax Procedure Act. However, the respondent lodged an objection 26 days after the expiry date. It submitted that recourse only lay to the respondent to file an application for extension of time on the strength of section 51 (6) of the Tax Procedure Act.

6. Be that as it may, the appellant requested the respondent adduce supporting documents to its objection. However, the respondent failed to do so. It was therefore left with no choice but to invalidate the objection and confirm the assessment. Citing several decisions, the appellant urged this court to allow its appeal.

7. I have considered the memorandum of appeal, the appellant’s written submissions as well as the respondent’s statement of facts. I have also examined the record of appeal and supplementary record of appeal and analyzed the law. The main issue for determination is whether the tribunal arrived at a correct decision in finding that the appellant’s invalidation decision of 3rd August 2022 was unlawful. In other words, was the appellant’s decision sound?

8. According to the facts from the record before me, the appellant conducted tax investigations on respondent’ affairs. Its findings revealed that the respondent exhibited variances between the turnover it declared when filing its income tax returns. In the circumstances, the appellant issued the respondent with an additional VAT assessment on 30th May 2022. In it, the respondent was notified that it was at liberty to appeal against that decision within 30 days. The respondent lodged its objection dated 22nd July 2022 in the iTax portal on 25th July 2022 enumerating its objection and lamentations in detail. The same was acknowledged as received by the appellant in its objection application acknowledgment receipt dated 25th July 2022.

9. On 3rd August 2022, the appellant issued its decision to the respondent’s objection dated 25th July 2022. It notified the respondent that its objection was invalid for failing to qualify itself within the dictates of section 51 (3) of the Tax Procedure Act. It continued:“To validate your objection, kindly but urgently observe the following:1. State precisely the reasons attaching thereon supporting evidence as to why the objection could not be lodged within the stipulated period;2. Submit letter of objection stating grounds. Letter of objection was not uploaded. Assessment order was attached instead;3. Submit monthly Z reports;4. Submit bank statement.”

10. Vide a letter dated 2nd September 2022, the appellant informed the respondent that its objection had been fully rejected. It further informed that it had confirmed a tax liability of Kshs. 1,203,143. 24 that it was required to settle within fourteen days. The reasons for the decision were that the respondent failed to furnish sufficient relevant documentary evidence as requested in support of its objection ground contrary to section 51 (3) (c).

11. In my view, the issues are two pronged. The decision of the tribunal was arrived on the basis of two reasons: firstly, the objection application was lodged late and secondly, the objection was not supported by documentary evidence. On the first issue, section 51 (2) of the Tax Procedure Act provides that a taxpayer dissatisfied with a tax decision may lodge a notice of objection with the Commissioner within 30 days of being notified of the decision. It appears that the time given to file an objection is so sacrosanct that section 51 (6) gives a tax payer leave to apply in writing to the Commissioner for an extension of time to lodge a notice of objection.

12. It is not denied that following the variances, the appellant issued the respondent with assessment reports on 30th May 2022. Thereafter, the respondent lodged a notice of objection to the assessments on 25th July 2022. The respondent did not object that it was in receipt of the assessment reports on the date stated. It was therefore incumbent on it to file the objection within thirty days.

13. I wish to remind parties that rules of procedure are not made in vain. To flout the rules of procedure set out in law would in essence excuse an illegality. It is important for parties to observe strict adherence to the law. The drafters of the provision underscored the import and tenor of prescribing time limitations. And in fact, they proceeded to give an applicant caught with time, an opportunity to redeem himself in line with section 51 (6) of the Act. In this case however, the respondent flouted the law and offered no explanation why they filed their objection out of time. In fact, as rightly stated by the appellant, their recourse lay in filing an application for extension of time in order to lodge the objection notice. That did not take place.

14. The aspect of time compliance is further echoed in section 51 (8) of the Tax Procedure Act which provides that where a notice of objection has been validly lodged within time, the Commissioner shall consider the objection and decide either to allow the objection in whole or in part, or disallow it, and Commissioner's decision shall be referred to as an "objection decision". It is clear that a notice of objection from the wordings of that provision stand invalidated if not lodged within time.

15. Turning to the second issue, the appellant notified the respondent in a letter dated 3rd August 2022 that the notice of objection was invalid on account of the fact that it was not qualified within the validity tenets of section 51 (3) of the Act. To validate the objection, the respondent was required to furnish reasons justifying the late filing of the objection, submit a letter of objection stating ground, submit monthly Z reports and submit bank statements. This was in compliance with section 51 (4) of the Act.

16. My attention is brought to the documents sought by the appellant. Evidently, the respondent did not submit the documents requested for. It is indeed trite law that in these proceedings, the burden rests on the respondent to demonstrate that the decision arrived at by the Commissioner was wrong. However, the respondent failed to furnish the requested documents. In essence, the respondent failed to discharge its burden of proof in line with the provisions of section 56 (1) of the Tax Procedures Act. With paucity of information, the appellant was left with no option but to make a decision based on the information it had been furnished with.

17. Under section 51 (4A), where a taxpayer fails to provide the information required within the specified period, the Commissioner may make an objection decision within sixty days after the date on which the notice of objection was lodged. This is what happened in its decision dated 2nd September 2022. In my view, the appellant upheld the provisions of the law and conducted itself in a lawful manner; contrary to the actions of the respondent.

18. Courts should not be used as conduits for effectuating an illegality. The rules of procedure are clear and were not made in uncertain terms. The respondent ought to have complied with the rules of procedure set out. It is the author of its own misfortune. As a result, I find that this appeal must succeed. The upshot of my above findings is that the appellant’s appeal is merited. I hereby set aside the decision of the tribunal dated 8th December 2023 and substitute the same with an order upholding the appellant’s rejection objection notice dated 2nd September 2022. I direct that each party shall bear its own costs of the appeal.It is so ordered.

JUDGEMENT DATED, SIGNED AND DELIVERED VIRTUALLY THIS 16TH DAY OF JULY, 2025 IN THE PRESENCE OF;Nyapara for the AppellantN/A for the RespondentMark/Siele (Count Assistants).................................J. NG’ARNG’ARJUDGE