[2024] KETAT 279 (KLR)

Curly Wurly Limited v Commissioner of Domestic Taxes (Tax Appeal 1504 of 2022) [2024] KETAT 279 (KLR) (8 March 2024) (Judgment)

Neutral citation: [2024] KETAT 279 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1504 of 2022

Grace Mukuha, Chair, Jephthah Njagi, W Ongeti, G Ogaga & E Komolo, Members

March 8, 2024

Between

Curly Wurly Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a private company incorporated in Kenya whose principal activity is property management.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and KRA is 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. The Appellant was selected under Revenue Enhancement Initiative of Non-filers income tax returns.

4. The Respondent flagged out the Appellant for payable income tax because the Appellant failed to file its income tax returns. The Respondent therefore raised a default assessment.

5. The Respondent raised the assessment orders amounting to Kshs. 7,918,776. 00 for the period 201 and 2018 on 24th February 2019.

6. Dissatisfied with the assessment orders, the Appellant on 21st May 2020 filed an objection on the iTax system and received acknowledgement receipts.

7. The Respondent, on the 14th November 2022 sent the Appellant a notice of rejection of the objection.

8. Aggrieved by the Respondent's decision, the Appellant filed a Notice of Appeal to the Tribunal on 13th December 2022.

The Appeal 9. The Appeal is premised on the Memorandum of Appeal filed on 13th December 2022 raising the following grounds: -a.That the Respondent erred in computing the income tax and failed to take into account all information, documents and explanations provided by the Appellant before arriving at the rejection decision.b.That the Respondent wrongfully assessed the income tax because, during the periods assessed, the Appellant did not have income.c.That the Respondent's demand of Kshs. 7,918,776. 00 which is the principal tax of Kshs. 6,365,101. 00 plus interest of Kshs. 1,534,520. 00 is excessive, illegal, punitive and beyond the ability of the Appellant to pay contrary to the generally accepted canons of taxation.

Appellant’s Case 10. The Appellant’s case was premised on the following documents filed with the Tribunal:-a.The Appellant’s Statement of Facts dated 9th December 2022 and filed on 13th December 2022 together with the attachments thereto.b.The Appellant’s Written Submissions dated 9th August 2023 and filed on 10th August 2023.

11. The Appellant averred that it received assessment orders on 24th February 2019 for the years 2017 and 2018 represented by assessment numbers KRA201902046205 and KRA201902046259.

12. That the Appellant made an objection to the assessments under the acknowledgment numbers KRA202009131116 and KRA202009130858 both dated 21st May 2020.

13. That the Appellant objected to the entire additional assessments amounting to Kshs. 19,155. 00 for 2017 and Kshs. 6,365,101. 79 for the year 2018.

14. That the Respondent's demand of Kshs. 7,918,776. 00 as contained in the assessment orders dated 24th February 2019 for years 2017 and 2018 was excessive, punitive and beyond the ability of the Appellant to pay contrary to generally accepted canons of taxation.

15. That the Respondent demanded records of sales and purchases. That during the period assessed, there were no purchases or sales hence the claim by the Respondent that the Appellant did not provide documents. That the bank statements for the period assessed were however provided to the Respondent.

16. The Appellant further averred that on 14th November 2022, the Respondent fully rejected the Appellant's objection without examination of Appellant's additional documentation and information provided as demanded by the Respondent.

17. That the Appellant being dissatisfied with the decision of the Respondent filed a Notice of Appeal to the Tribunal after paying Kshs. 20,000. 00 as provided in Section 12 of the Tax Appeals Tribunal Act, 2013.

18. The Appellant submitted that the Respondent erred in tax computation.

19. That the Respondent was furnished with all the documents relating to the Appeal, bank statements, audited accounts, tax computations, ledgers and land transfer documents.

20. That however, even after receiving all the documents, the Respondent maintained that the assessment was in order but failed to demonstrate how the assessed amount was arrived at.

21. That in the case of Primarosa Flowers Limited vs Commissioner of Domestic Taxes (2019), it was held that:“The onus is on the taxpayer in proving that the assessment was excessive by adducing positive evidence which demonstrates the taxable income on which tax ought to have been levied...”

22. That the Appellant adduced evidence by providing audited accounts, ledgers and bank statements for the period under assessment to the Respondent.

23. That in the case of Bata Shoe Company (Kenya) Limited vs Kenya Revenue Authority (2014), It was held that:“Payment of tax is an obligation imposed by the law. It is not a voluntary activity. That being the case, a taxpayer is not obliged to pay a single coin more than is due to the taxman. The taxman on the other hand is entitled to collect up to the last coin that is due from the taxpayer.”

24. That the assessment was found to be in breach of the basic accounting principles and if allowed, it would be prejudicial to the Appellant.

25. That the Respondent has to be put on notice because it has become habitual for it to rely on bank statements and raise assessments against taxpayers.

26. The Appellant submitted that with no income for the years assessed, it is not clear how the Respondent maintained the position that the taxes assessed are correct.

27. That the Respondent exercises absolute powers as the taxes herein assessed have no backing or basis. That without stating the basis of the assessment, the Appellant's rights remain vague and ambiguous to the disadvantage of the Appellant.

Appellant’s prayers 28. The Appellant made the prayers that the Tribunal:-a.Upholds the objection filed by the Appellant.b.Sets aside and annuls the assessment order and the Respondent's decision to fully reject the Appellant's objection.c.Makes such other further, incidental, alternative and/or consequential orders or reliefs as the Tribunal may deem just and appropriate.

The Respondent’s Case 29. The Respondent premised its case on the following documents:-a.The Respondent’s Statement of Facts dated 23rd June 2023 and filed on the same date together with the attachments thereto.b.The Respondent’s Written Submissions dated 26th July 2023 and filed on the same date.

30. The Respondent averred that it stood by its position as stated in the rejection decision communicated to the Appellant and refuted every allegation in the Appellant’s Memorandum of Appeal and Statement of Facts.

31. The Respondent averred that Section 24(2) of the Tax Procedures Act provides 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.”

32. That therefore, the Respondent was well within its right to assess the Value Added Tax for the periods of March 2016 and January to April 2018.

33. That further, Section 31(1) of the Tax Procedures Act grants the Respondent the power to amend a taxpayer's assessment to the best of the Respondent's judgement. That the Section states that:-“...the Commissioner may amend an assessment (referred to in this section as the "original assessment'') by making alterations or additions, from the available information and to the best of the Commissioner's judgement, to the original assessment of a taxpayer for a reporting period to ensure that------(a)-----------------(b)-------------------(c)in any other case, the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates."

34. That the Respondent issued additional assessments on 24th February 2019 but the Appellant objected on 21st May 2020.

35. The Respondent averred that in the instant case, the Appellant lodged the notice of objection beyond the statutory prescribed timelines.

36. That the period within which a notice of objection should be lodged is prescribed under the provisions of Section 51 (2) of the Tax Procedures Act which states:-“A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision."

37. That furthermore, Section 51(3)(c) provides that;“A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if-(a)----------------(b)-----------------(c)all the relevant documents relating to the objection have been submitted”

38. The Respondent averred that pursuant to the provisions of Section 51(7) of the Tax Procedures Act, the Appellant failed to provide valid reasons for lodging its application out of time.

39. That Section 51(7) provides as follows:-“The Commissioner may allow an application for the extension of time to file a notice of objection 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; andb.the taxpayer did not unreasonably delay in lodging the notice of objection."

40. The Respondent averred that the Appellant provided bank statements that were not adequate as requested.

41. That the Respondent is empowered under Section 59 of the Tax Procedures Act and Section 43 of the VAT Act to require the production of documents and information to enable the Commissioner ascertain tax liability of a person.

42. That Section 56(1) of the Tax Procedures Act provides that the burden of proving that the tax assessment is wrong lies with the taxpayer and the taxpayer herein failed to prove to the satisfaction of the Commissioner that the assessment was wrong.

43. The Respondent cited the case of Osho Drapers Limited v Commissioner of Domestic Taxes (Income Tax Appeal E147 of 2020) [2022] KEHC 196 (KLR) where it was held that:-“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.”

44. The Respondent submitted that the only issue for determination in this matter is:-“whether the Respondent erred in the computation and confirming the additional assessment?”

45. The Respondent submitted that in exercising its mandate under Section 29 (1) of the Tax Procedures Act, it issued default assessment against the Appellant to ensure that the Appellant's returns reflected the true tax position. That the Section states that:-“Where a taxpayer has failed to submit a tax return for a reporting period in accordance with the provisions of a tax law, the Commissioner may, based on such information as may be available and to the best of his or her judgement, make an assessment (referred to as a "default assessment") 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;b.the amount of the excess in the case of an excess of input tax carried forward under the Value Added Tax Act, 2013 (No. 35 of 2013), for the period; orc.the tax (including a nil amount) payable by the taxpayer for the period in any other case.

46. That upon receipt of the default assessment, the burden of proof shifts to the Appellant to disprove the Respondent's position. That ideally, the Appellant is meant to demonstrate that the Respondent erred in coming to the tax position.

47. The Respondent submitted that Section 56(1) of the Tax Procedures Act provides that:-“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

48. That in order to shift the burden of proof from itself to the Respondent, the Appellant was meant to raise an objection against the assessment as provided for under Section 51 of the Tax Procedures Act.

49. The Respondent relied on Section 51(3) (c) of the Tax Procedures Act 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); andc.all the relevant documents relating to the objection have been submitted.”

50. The Respondent submitted that the Appellant failed to furnish the Respondent with documents supporting its grounds for the objection so as to validate its objection.

51. That considering that the Appellant remained adamant, blatantly defiant and unwilling to avail documents to support its objection, the Respondent proceeded to disallow the Appellant's objection.

52. The Respondent submitted that the Appellant failed in its duty to supply the Commissioner with documentary evidence in support of the objection. That the Appellant equally failed to supply the Tribunal with any document in support of its claim that the Respondent's additional assessments were erroneous.

53. The Respondent submitted that the Appellant was under legal duty to demonstrate to the Tribunal, over and above claiming that the Respondent erred in rejecting its objection, how and to what extent the assessment was erroneous regarding the taxes due and payable.

54. That in the absence of such demonstration, the Tribunal must uphold the Commissioner's assessment as a true reflection of the Appellant's tax liability.

55. The Respondent submitted that the Appellant failed to prove that taxes are not due. The Respondent relied on the case of Primarosa Flowers Limited vs Commissioner of Domestic Taxes(2019) eKLR whilst referring to the Australian case of Mulherin vs Commissioner of Taxation (2013) FCAFC 115 which held thus;-“The onus is on the taxpayer in proving that assessment was excessive by adducing positive evidence which demonstrates the taxable income on which tax ought to be levied ..."

56. Further on the issue of burden of proof, the Respondent relied on the case of Grace Njeri Githua V Commissioner of Investigations & Enforcement (TAT No. 102 of 2018), where the Tribunal emphasized the fact that the burden is on the Appellant to prove the assessment was wrong by stating thus:-“In this Appeal, the Appellant has not provided the Tribunal with enough evidence to show that the net income the Respondent has based the tax assessment was not income or is subject to further cost deduction in arriving at a net profit. It is trite law that the burden of proof is on the taxpayer to show that the tax so assessed is not due from her"

57. The Respondent submitted that due to the failure on the Appellant's part, the grounds of objection remained mere averments by the Appellant.

58. The Respondent further submitted that there was communication between itself and the Appellant where the Respondent sought documents from the Appellant to validate the objection, however, the Appellant was not compliant and as such, the Respondent was forced to confirm the assessment.

59. The Respondent submitted that in the case of TAT No. 55 of 2018 Boleyn International Limited vs Commissioner of Domestic Taxes, it was held that:-“... on 8th March 2018, the Appellant lodged an objection with the Respondent. However, the said objection did not reiterate the grounds of objection, the corrections required to be made and the reasons for the amendments. Neither did the Appellant provide the relevant documents in support of its alleged objection. Therefore, there was no conceivable way the Respondent would have considered the Appellant's objection as the same did not place itself within the parameters of Section 51(3) of the Tax Procedures Act."

60. The Respondent further submitted that in TAT No. 70 of 2017 Afya Xray Centre Limited vs Commissioner of Domestic Taxes the Tribunal held that:“From the foregoing chain of events, it is our understanding that the Appellant failed in its duty in providing these documents, in order that a comprehensive audit of its affairs be done. Accordingly, the Respondent can hardly be faulted for raising the assessment in accordance with the availed documents. Moreover, the Appellant had an opportunity to counter the Respondent's finding after the preliminary finding and after the confirmation of the assessment. Both are instances, where the Appellant could have produced its books of accounts to counter the Respondent's assessment after all the Appellant by law bears the burden of proof. "

61. The Respondent also submitted that Appellant even before the Tribunal did not make any attempt to discharge the pending burden of proof.

62. The Respondent submitted that Section 107 of the Evidence Act states that:-“Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.”

Respondent’s prayers 63. The Respondent prayed that:-a.This Appeal be dismissed with costs.b.The Tribunal upholds the Respondent's decision dated 14th November 2022 as proper and in conformity with the provisions of the law.c.The outstanding taxes demanded are due payable.

Issue for Determination 64. The Tribunal, having reviewed the Memorandum of Appeal, Statements of Facts and the written submissions submitted by the two parties identified the following issue for determination:-Whether the Respondent was justified in rejecting the objection application as stated in the letter dated 14th November 2022.

Analysis and Findings 65. The Tribunal having determined the issue that falls for its determination proceeds to analyze it as hereunder.

66. The genesis of this Appeal is the two assessment orders amounting to Kshs. 7,918,776. 00 for the period 2017 to 2018 issued by the Respondent to the Appellant on 4th February 2019.

67. Dissatisfied with the assessment orders, the Appellant on 21st May 2020 filed an objection on the iTax system and received an acknowledgement.

68. The Respondent, on the 14th November 2022 sent the Appellant a notice of rejection of the objection.

69. Aggrieved by the Respondent's decision, the Appellant filed this Appeal on 13th December 2022.

70. The Tribunal perused the evidence presented before it and found that the Appellant admitted in its Statement of Facts that:-“it received assessment orders on 24th February 2019 for the years 2017 and 2018 represented by assessment numbers KRA201902046205 and KRA201902046259. ”

71. Further the Appellant expressly stated that it:-“made an objection to the assessments under the acknowledgment numbers KRA202009131116 and KRA202009130858 both dated 21st May 2020. ”

72. The Tribunal notes that the Appellant objected to the assessments about 15 months after receiving them from the Respondent.

73. The Tribunal further notes that the law requires that a taxpayer objects to such assessments within 30 days of receiving the assessment from the Respondent. Section 51(2) of the TPA specifically states that:-“A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing within thirty days of being notified of the decision.”

74. The law also allows the taxpayer to apply for leave to file the objection after the expiry of the 30 days stipulated in Section 51(2) of the TPA.

75. Section 51(6) of the TPA specifically states that:-“a taxpayer may apply in writing to the Commissioner for an extension of time to lodge a notice of objection.”

76. In the instant case, the Appellant did not give evidence that it applied for leave to lodge an objection beyond the 30 days provided by the law. The Appellant just went ahead and filed its objection more than a year later indicating that the reason for late objection was that “there has been no activities since the company was opened.”

77. The Tribunal notes that the timelines for objecting to tax assessments are clearly set in the law, and taxpayers are liable to comply with those timelines, save for when unavoidable circumstances as envisioned in Section 51 (7) of the TPA, as cited below, prevent a taxpayer from fulfilling its obligations: -“(7)The Commissioner may allow an application for the extension of time to file a notice of objection 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.”

78. The Tribunal notes that the Appellant did not discharge its burden of proof as required under Section 56(1) of the Tax Procedures Act and Section 30 (b) of the Tax Appeals Tribunal Act when it failed to adduce evidence to support its Appeal against the impugned late objection rejection and to demonstrate that it did not unreasonably delay in lodging its objection. Section 30 (b) of the TAT Act provides that:-“In a proceeding before the Tribunal, the appellant has the burden of proving—(a)----------------------------(b)in any other case, that the tax decision should not have been made or should have been made differently.”

79. The Tribunal does not wish to depart from its holding in the case of W.E.C. Lines Ltd vs. The Commissioner of Domestic Taxes [TAT Case No. 247 of 2020] where it was held at paragraph 70 while reiterating the holding in Krystalline Salt Ltd vs KRA [2019] eKLR that: -“Where there is a clear procedure for redress of any particular grievance prescribed by the constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures. The relevant procedure here is the process of opposing an assessment by the Commissioner.”

80. The Tribunal is also guided by the holding in the case of Nicholas Kiptoo Arap Korir Salat v IEBC & 6 Others [2013] eKLR, where the court stated as thus:-“This Court, indeed all courts, must never provide succor and cover to parties who exhibit scant respect for rules and timelines. Those rules and timelines serve to make the process of judicial adjudication and determination fair, just, certain and even-handed. Courts cannot aid in the bending or circumventing of rules and a shifting of goal posts for, while it may seem to aid one side, it unfairly harms the innocent party who strives to abide by the rules. I apprehend that it is in the even-handed and dispassionate application of rules that courts give assurance that there is a clear method in the manner in which things are done so that outcomes can be anticipated with a measure of confidence, certainty and clarity where issues of rules and their application are concerned…”

81. Further, the High Court in emphasizing the strict application of statutory timelines 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………”

82. Based on the law and the case laws cited above, the Tribunal finds that the Respondent was justified in rejecting the Appellant’s objection application in its letter of 14th November 2022.

Final Decision 83. The upshot of the foregoing is that the Appeal fails and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby dismissed.b.The Respondent’s decision of invalidation of the notice of objection dated 14th November, 2022 be and is hereby upheld.c.Each party to bear its costs.

84. It is so ordered.

****DATED and DELIVERED at NAIROBI this 8th day of March, 2024GRACE MUKUHACHAIRPERSONJEPHTHAH NJAGI DR. WALTER ONGETIMEMBER MEMBERGLORIA A. OGAGA DR. ERICK KOMOLOMEMBER MEMBER