https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/11141

**REPUBLIC OF KENYA** **IN THE HIGH COURT OF KENYA AT NAIROBI** **COMMERCIAL & TAX DIVISION** **INCOMЕ TAХ APPEAL NO. E016 OF 2024** **COMMISSIONER OF DOMESTIC TAXES…………….………APPELLANT** **VERSUS** **JAKOLINE ENTERPRISES LIMITED…………….……………RESPONDENT** **JUDGMENT** 1. This appeal presents a simple but fundamental question in tax administration: does a taxpayer’s statutory duty to disprove a tax assessment mean merely providing a haystack of raw financial documents to the revenue authority, or does it require the taxpayer to point directly to the needle that reconciles the variance? The task before this Court is to determine where the boundaries of the evidentiary burden of proof lie when a taxpayer faces a demand for outstanding revenue. **Background Facts** 2. The Appellant, the Commissioner of Domestic Taxes, conducted a desk audit of the Respondent’s Income Tax and VAT returns for the period 2017 to 2020. The audit revealed significant inconsistencies between the purchases claimed in the Respondent’s Corporation Tax returns ($IT2C$) and the purchases declared in its monthly $VAT3$ returns. 3. Consequently, on 11th May, 2022, the Appellant issued additional tax assessments totalling **KES 29,208,766.00**. This figure comprised **KES 14,478,939.00** for Income Tax and **KES 14,729,827.00** for Value Added Tax ($VAT$). 4. The Respondent lodged a late notice of objection on 15th and 16th June, 2022. The Appellant allowed the late lodgement on 21st July, 2022. It also requested targeted supporting documentation through several subsequent communications. Dissatisfied with the unstructured documentation provided by the Respondent, the Appellant issued an Objection Decision on 29th August, 2022 confirming the assessments in full. 5. Aggrieved, the Respondent appealed to the Tax Appeals Tribunal. On 10th November, 2023, the Tribunal delivered its judgement allowing the Respondent’s appeal and setting aside the entire tax assessment. The Tribunal held that by providing bulk digital files and bank statements, the Respondent had discharged its burden of proof, shifting the duty to the Appellant to trace the discrepancies. The Appellant now appeals that decision before this Court. **Grounds Of Appeal and the Reliefs Sought.** 6. The Appellant’s Memorandum of Appeal dated 23rd January, 2024 sets out the following consolidated grounds: * 1. ***THAT*** *the Tax Appeals Tribunal erred in law by holding that the Respondent’s objection complied with Section 51(3)(c) of the Tax Procedures Act, 2015.* 2. ***THAT*** *the Tribunal erred in law and in fact by finding that the Respondent complied with Section 56(1) of the Tax Procedures Act, 2015 and Section 30 of the Tax Appeals Tribunal Act, 2013.* 3. ***THAT*** *the Tribunal erred by failing to appreciate that the Respondent failed to comply with production notices with specificity, thus failing to validly rebut the additional tax assessments.* 4. ***THAT*** *the Tribunal erred by issuing a blanket judgement without verifying the relevance and competence of the individual documents provided by the Respondent.* 7. The Appellant seeks orders from this Court to set aside the judgement of the Tax Appeals Tribunal and to uphold the Objection Decision dated 29th, August 2022 confirming the tax liability. 8. The Respondent opposes the appeal through its Statement of Facts dated 22nd April, 2025 and its written submissions. It argues that it acted transparently and diligently at all material times by furnishing comprehensive financial data, including bank statements, digital invoice copies, and financial statements. 9. The Respondent contends that the Appellant's subjective view that the documents were insufficient does not render them inadequate in law. It maintains that once a taxpayer provides its baseline records, the evidential burden shifts to the Commissioner to meticulously investigate the materials rather than issue a blanket confirmation of additional taxes. The Respondent thus urges this Court to find the Tribunal’s decision sound and well-reasoned. **Issue for Determination** 10. Having considered the Record of Appeal, the submissions of both parties, the oral highlights by Counsel for the parties and the Tax Tribunal’s records, this Court isolates a single issue of law for determination: 1. *Whether the Tax Appeals Tribunal erred in law and fact by holding that the Respondent had discharged its statutory burden of proof to warrant setting aside the Objection Decision.* **Analysis** 11. The appellate jurisdiction of this Court is strictly circumscribed by **Section 56(2) of the Tax Procedures Act, 2015**, which explicitly states: *"An appeal to the High Court or to the Court of Appeal shall be on a question of law only."* 12. What constitutes a question of law in this context is well-settled. The Court of Appeal in **Mati v Returning Officer Mwingi North Constituency & 2 others [2018] KECA 700 (KLR)** clarified that: *"...appeals to this Court... are confined to matters of law only, the interpretation or construction of the Constitution, statute or regulations made thereunder or their application to the sets of facts established by the trial Court. As far as facts are concerned, our engagement with them is limited to background and context and to satisfy ourselves, when the issue is raised, whether the conclusions of the trial judge are based on the evidence on record or whether they are so perverse that no reasonable tribunal would have arrived at them."* 13. Where a lower tribunal draws conclusions from primary factual evidence that are entirely unsupported by that evidence, or where it misapplies statutory standards of proof, that determination becomes a reversible error of law. 1. **Whether the Tax Appeals Tribunal erred in law and fact by holding that the Respondent had discharged its statutory burden of proof to warrant setting aside the Objection Decision.** 14. In general civil litigation, the standard maxim is that he who asserts must prove. Tax jurisprudence operates under a different legislative architecture. **Section 56(1) of the Tax Procedures Act, 2015** vests the burden of proof entirely upon the taxpayer: *"In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect."* 15. This rule is reinforced by **Section 30 of the Tax Appeals Tribunal Act, 2013**. The rational basis for this structural reversal of the burden of proof was masterfully summarized by the High Court in **Republic v Kenya Revenue Authority; Proto Energy Limited (Ex parte) [2022] KEHC 5 (KLR)**, where it was stated: *"The most significant justification for placing the burden of proof on the tax payer is the practical consideration that the Commissioner cannot sustain the burden because he does not possess the needed evidence. Under the system of self-reporting tax liability, the taxpayer possesses the evidence relevant to the determination of tax liability. It is simply fair to place the burden of persuasion on the taxpayer, given that he knows the facts relating to his liability, because the commissioner must rely on circumstantial evidence, most of it coming from the taxpayer and the taxpayer's records. The taxpayer must present a minimum amount of information necessary to support his position. This safety valve seems to place the burden of production on the taxpayer without relieving the Commissioner of the overall burden of proof. The tax payers' evidence must meet this minimum threshold.* *A presumption of correctness arises from the Commissioner's determination/assessment. The presumption remains until the taxpayer produces competent and relevant evidence to support his/her position. When the taxpayer comes forward with such evidence, the presumption vanishes and the case must be decided upon the evidence presented."* 16. The Respondent takes the position that it satisfied its legal obligation simply by transmitting bulk soft copies of invoices and years of bank statements to the Appellant's portal. The Tribunal accepted this argument hook, line, and sinker. This Court disagrees. 17. Tax compliance requires strict precision. **Section 54A (1) of the Income Tax Act (Cap 470)** and **Section 43(1) of the Value Added Tax Act, 2013** explicitly command every business person to maintain full, true, and serial records of transactions to readily ascertain tax liability. When the Commissioner identifies an explicit, quantifiable variance between two distinct self-assessments submitted by the same taxpayer, the taxpayer cannot discharge its statutory burden under Section 56(1) by executing a "document dump". 18. To defeat the presumption of correctness attaching to the Commissioner’s assessment, the taxpayer must present evidence that is both **competent** and **relevant**. As this Court held in **Commissioner of Domestic Taxes v Structural International Kenya Ltd [2021] KEHC 152 (KLR)**: *“Here, I will reiterate what the Court stated in Commissioner of Domestic Services v Galaxy Tools Limited [2021] eKLR: -* *“What the respondent had done in producing the invoices, the delivery notes and payment schedules was only prima facie evidence of purchase. On producing the said documents, the evidentiary burden of proof shifted to the appellant. The appellant in answer not only queried the said documents but informed the Tribunal that; he had carried investigations on the alleged suppliers and concluded that they never existed, that there was no supply of any goods at all. That the documents produced did not contain critical details to support any reasonable commercial transaction. All this was laid bare before the Tribunal.* *On the foregoing, the evidentiary burden of proof shifted back to the respondent to show that its documentation was legitimate. This would have been by production of other transactional documentation to support the legitimacy of the alleged transactions. It is at that juncture that sections 59 of the Tax Procedures Act and section 43 of the VAT Act kicks in”.* *In the present case, with all the discrepancies in the documentation of the respondent, the evidentiary burden had shifted back to it to prove that it had not purchased the subject ETR invoices from the suspect entities, but that they were as a result of genuine commercial transactions undertaken in the course of its business.* *The ETR Invoices and ledgers Accounts were not evidence enough to prove that there had been genuine commercial transactions between the respondent and the suspect entities. There needed to be more to prove that fact.* *In the view of this Court, the Tribunal failed to consider the evidence before it. It casually looked at the record and decided to condemn the appellant. It failed to evaluate the evidence produced before it but casually held that the respondent had discharged its burden of proof which it had not.* *A good example is the holding that there was evidence of payment from Equity Bank and Bank of Baroda. With due respect, the Ledgers that were produced never specified for which invoices the entries made therein were for. There were invoices in respect of the suspect entities which were issued outside the period covered by the said Ledgers as already stated above, ie between May, 2016 and 14th September, 2016. What was there to verify them? Nothing. Yet the Tribunal was of the view that the burden of proof had been discharged.* *For the avoidance of doubt, the Tribunal is reminded that in matters where the issue is supply of goods, be it for VAT purposes or Corporation Tax, the burden is always on the trader/tax payer to show that, the documentation set out in the statute and in which he relies on arose out of a commercial transaction. Period. If additional documents, which would be reasonably expected to be in his possession is requested for to verify the alleged transactions, he should produce the same to the commissioner. That is what is expected of a keen and diligent trader.* 19. A review of the Tax Tribunal’s record reveals that for the tax period 2017, there was an unreconciled purchase variance of KES 115,049,988.00 between the Respondent's Corporation Tax Return ($IT2C$) and its $VAT3$ returns. When requested to provide specific invoices and matched proofs of payment for that period, the Respondent supplied bulk soft copies of invoices relating to the year 2020—a period with no relevance to the period under review. 20. Furthermore, regarding duplicate invoices and claims for input VAT on exempt items (such as rice, maize, and wheat flour), the Respondent flatly stated it did not deal in exempt supplies. Yet, the raw invoices submitted showed that exempt food items formed the bulk of its business. No schedules matching banking entries to individual transactions were provided. 21. This factual reality mirrors the findings in **Osho Drapers Limited v. Commissioner of Domestic Taxes, Income Tax Appeal No. E147 of 2020 [2022] KEHC 196 (KLR)**, where the Court dismissed a taxpayer's appeal due to structural discrepancies in documentation: *“It is on the foregoing basis that this Court will now consider whether the appellant sufficiently proved its case before the Tribunal.* *The issue before the Tribunal was whether the respondent was justified in declining the appellant’s claim to VAT input and the resultant assessment of corporation tax. VAT input is claimable under section 17 of the VAT Act. The basis of a claim thereunder is proof of a taxable supply to or purchase by a tax payer.* *In this regard, it was for the appellant to prove that the respondent was wrong in its objection decision because, there had been a taxable supply to it. That is, that the appellant had made taxable purchases.* *The appellant properly supplied the documents set out in section 17(3) of the VAT Act. However, there was some discrepancies in the documents that it produced to support the taxable supplies. According to those documents, some payments indicated that they were made in cash, but the invoices were stamped as paid in cheque. No further cheque details were provided.* *When requested for additional documents, the appellant was unable to provide the same. This Court has carefully perused documents furnished, the discrepancies on the mode of payment is all apparent. Additional documents such as stock control records and bank statements of the respective payments made vide cheques ought to have been supplied. Without provision of such documents, the suspicion raised by the varying mode of payments persisted, hence both the respondent and Tribunal justly found that the appellant failed to sufficiently discharge its burden of proof.* *Sections 59 of the Tax Procedures Act and section 43 of the VAT Act empowers the respondent to request for more and additional information to satisfy himself on the taxable income declared or matters tax. The respondent was therefore well within its right to request for additional information. In the same breath, the appellant was under a duty to keep all records of every transaction made for a period of five years from the date of the transaction. It was also upon the appellant to sufficiently prove all purchases and payments made to the satisfaction of the Tribunal.* *It was thus reasonably expected that the appellant would have produced further documents to satisfy the respondent that payments were indeed made in cash or cheque. It was also incumbent upon the appellant to establish a proper trail of the payments for the alleged purchases. Without such documents and evidence, the appellant cannot be said to have proved that it made the alleged purchases.* 22. In the considered opinion of this Court, the law does not require the Commissioner to play the role of a forensic accountant. When a taxpayer is asked to explain why its own declarations do not add up, the taxpayer must provide a clear, specific, and indexed reconciliation. Flooding the revenue authority with unindexed, chronologically mismatched files is not an act of compliance; it is an evasion of a taxpayer’s evidential duty. By holding that such unstructured data presentation shifted the burden back to the state, the Tribunal committed a profound error of law. 23. The Court is persuaded to allow this Appeal. The upshot of the matter is that the Respondent failed to discharge its statutory burden under **Section 56(1) of the Tax Procedures Act, 2015** and **Section 30 of the Tax Appeals Tribunal Act, 2013**. The presumption of correctness of the Appellant’s assessments remains completely undisturbed. The Tribunal's decision was based on a fundamental misapplication of the rules of evidence and cannot be allowed to stand. 24. As to costs, the same ordinarily follow the event and lie at the discretion of this Court. Looking at this Appeal and taking all factors into consideration the Court orders that let each party bear its own costs of the Appeal. **Determination** 25. The Appeal is successful and this Court makes orders as follows: 1**. THE APPEAL** is **HEREBY ALLOWED** in its entirety. 2. **THE JUDGEMENT** of the Tax Appeals Tribunal delivered on 10th November, 2023 in Tax Appeal No. 1178 of 2022 is **HEREBY SET ASIDE**. 3. **THE APPELLANT’S OBJECTION DECISION** dated 29th August, 2022 confirming the tax assessment of **KES 29,208,766.00**, is **HEREBY REINSTATED** and upheld in full. 4. Each party shall bear its own costs of this appeal and the proceedings below. 26. It is so ordered. **DATED, SIGNED AND DELIVERED AT MILIMANI THIS 21ST DAY OF JULY, 2026** **NJOROGE BENJAMIN K.** **JUDGE** In the presence of: Miss Nyaringita for the Appellant. Mr. Mutua for the Respondent. Mr. John Paul - Court Assistant