[2024] KETAT 702 (KLR)

Deep Forest Hardware Limited v Commissioner of Investigation and Enforcement (Tax Appeal E291 of 2023) [2024] KETAT 702 (KLR) (17 May 2024) (Judgment)

Neutral citation: [2024] KETAT 702 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E291 of 2023

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, T Vikiru & AK Kiprotich, Members

May 17, 2024

Between

Deep Forest Hardware Limited

Appellant

and

Commissioner of Investigation and Enforcement

Respondent

Judgment

Background 1. The Appellant is a resident company incorporated in Kenya under the provisions of the Companies Act whose principal business activities are in the sale of construction equipment and materials.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority (KRA) 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 Respondent issued the Appellant with a tax demand for outstanding taxes on 15th March, 2023 for the aggregate sum of Kshs. 88,359,790. 31.

4. The Appellant filed an objection on the iTax platform and also submitted a written objection via email on 16th March, 2023.

5. The Respondent replied to the objection via email on 23rd March, 2023 and informed the Appellant that the objection was not valid and requested the Appellant to file a valid objection.

6. The Appellant responded vide its letter dated 17th April, 2023.

7. The Respondent issued an objection decision on 28th April, 2023 confirming a tax liability of Kshs. 61,089,313. 64.

8. Following its dissatisfaction with the Respondent’s decision, the Appellant filed a Notice of Appeal to the Tribunal dated 25th May, 2023

The Appeal 9. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated 8th June, 2023 and filed on 9th June, 2023:-i.That the Respondent erred in fact and in law by using fraudulent declarations to assess the approximate probable income to the Appellant and consequently an erroneous figure in Corporate tax.ii.That the Respondent erred in fact and in law in relying on fraudulent declarations to approximate Value Added Tax and thereby an erroneous figure in VAT.iii.That the Respondent erred in fact by failing to consider all the information relevant to this matter and without regard to the information provided by the Appellant and also held by the Kenya Revenue Authority.iv.That the Respondent erred in law by conducting an additional assessment and demand without awaiting the logical conclusion of legal measures taken by the authority on the fraudulent conduct of third parties in the declaration of the transactions that form the basis for the further assessment.

Appellant’s Case 10. The Appellant’s case is premised on the following documents:i.The Appellant’s Statement of Facts dated 8th June, 2023 and filed on 9th June, 2023. ii.The Appellant’s written submissions dated 15th January, 2024 and filed on 16th January, 2024.

11. That a third party by the name of Evans Odunga Brian, with the intention to evade paying taxes, fraudulently made entries for consignments entered into the Country using the Appellant’s PIN.

12. That the said activities were done during the years 2018 and 2019, which form the basis of the additional assessment by the KRA.

13. That the said third party was arrested and charged with offences under the Customs & Excise Act, under Milimani Criminal Case No. 578 of 2019: R. versus Evans Odunga Brian.

14. That the proceedings against the said third party are spearheaded by officials of the Kenya Revenue Authority. However, the matter is yet to be concluded.

15. That the prosecution evidence entails the fraudulent entry declarations which were against the Appellant’s PIN account.

16. That the Respondent had issued a tax demand dated 22nd May, 2023 for Kshs. 478,872. 44 for the same period as the earlier demand of 15th March, 2023.

17. That however, the Appellant is not objecting to the latter assessment and has agreed upon payment of the said tax arrears by installments.

Appellant’s Prayers 18. The Appellant prayed that:i.This Honorable Tribunal be pleased to allow the Appellant’s Appeal and set aside the assessment under review herein.ii.Thereafter, this Honorable Tribunal be pleased to find that the Respondent's actions are pre- mature and the Appellant is not liable to pay any additional taxes with regard to the period under review.iii.The Honorable Tribunal be pleased to order the Respondent to pay the costs of this Appeal.iv.This Honorable Tribunal be pleased to issue any other order favorable to the Appellant as it may find just and expedient.

Respondent’s Case 19. The Respondent’s case is premised on the hereunder filed documents before the Tribunal: -i.The Respondent’s Statement of Facts dated and filed on 10th July, 2023 together with the documents attached thereto.ii.The Respondent’s written submissions dated and filed on 21st December, 2023.

20. The Respondent averred that Section 51(2) of the Tax Procedures Act (TPA) mandates a taxpayer who is aggrieved by a tax decision to lodge an objection to the Commissioner within 30 days.

21. That pursuant to the provisions of Section 51(3) of the TPA a notice of objection is valid if it satisfies the conditions set therein. Section 51(3) provides as hereunder:“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.”

22. That one of the grounds set out by Section 51(3) to be satisfied for an objection to be treated as validly lodged is provision of all relevant documents relating to the notice of objection. That in the instant case the Appellant failed to provide the documents relevant to the objection.

23. That the Appellant’s reason for failure to provide documents is contained in its letter dated 17th April, 2023 wherein the Appellant alleges that a significant portion of the income declared for the years 2018 and 2019 was fraudulently declared by one Mr. Evans Odunga Brian who the Appellant alleges was facing a criminal case. The Appellant alleged that the necessary documents to support its objection are in the custody of the prosecution and hence it could not get them.

24. That the predicaments of the Appellant above notwithstanding, the Respondent is mandated by Section 51(11) of the TPA to issue an objection decision within 60 days from the date an objection is raised failure to which the objection shall be deemed allowed. That following the strict provisions of Section 51(11) of the TPA the Respondent had no option but to issue an objection decision.

25. That Section 23(1)(a) of the Tax Procedures Act, 2015 provides that a taxpayer is required to keep documents or records in such a manner that the taxpayer’s tax liability can be readily ascertained.

26. That Section 59 of the TPA mandates the taxpayer to provide any documents required by the Commissioner for the purposes of obtaining full information in respect of the tax liability of any person.

27. That tax statutes provide strict timelines which must be adhered to. That this being the case, the Respondent had no option but to confirm its assessment, the Appellant having not provided documents to prove that the same was not correct.

28. That the Appellant has the burden to demonstrate that the Respondent's decision is wrong. That Section 56(1)of the Tax Procedures Act, 2015 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 relied on the following cases:i.TAT No. 70 of 2017; Afya Xray Centre vs. Commissioner of Domestic Taxesii.TAT No. 538 of 2021; Greenroad Kenya Limited vs. Commissioner of Domestic Taxes.iii.PZ Cussons East Africa Limited vs. Kenya Revenue Authority (2013) eKLR.

Respondent’s Prayers 30. The Respondent prayed that the Tribunal:i.Dismisses the Appeal with costs for lack of merit.ii.Upholds the objection decision dated 28th April, 2023.

Issue For Determination 31. The Tribunal has evaluated the pleadings and documentation filed by both parties and is of the respectful view that the singular issue for its determination is: Whether the Respondent’s objection decision was justified.

Analysis And Determination 32. The Tribunal having ascertained the issue for its determination as set out above proceeds to deal with the same as hereunder.

33. This dispute arose from the Respondent’s action of confirming by way of an objection decision its assessment of Corporation tax and VAT on the Appellant’s transactions.

34. The Appellant argued that it was unable to provide documentation to support its objection as the same were the subject of a criminal case that involved the Respondent’s officers.

35. The Respondent claimed that the Appellant did not produce documentation to support its objection and thus the Respondent confirmed the assessment.

36. The Tribunal gleaned through the parties’ pleadings and established that indeed the Appellant confirmed, vide a letter from its lawyers, that it was unable to provide relevant documentation requested by the Respondent due to an ongoing criminal case.

37. Further, the Appellant, through the letter from its lawyers dated 17th April 2023, stated that a further hearing of the criminal case was slated for 2nd May 2023 and thereby made a request to the Respondent to allow it a three (3) month period to provide the said documents.

38. It is the Tribunal’s position that the Appellant having committed to providing the said documents within the three month timeline per its letter was enjoined to provide the necessary documents and/ or further updates in the event that it was unable to procure the same from the prosecution in the said criminal case.

39. Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act squarely place the burden of proof upon a taxpayer to discredit any tax assessment or decision.

40. Section 56(1) of the Tax Procedures Act reads as follow regarding burden of proof:-“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

41. Additionally, Section 30 of the Tax Appeals Act provides as follows:-“In any proceeding before the Tribunal the Appellant has the burden of proving-where an appeal relates to an assessment, that the assessment is excessive; orin any other case, that the tax decision should not have been made or should have been made differently.”

42. In the instant case, the Tribunal noted that the Appellant did not provide any further documentation after its letter of 17th April, 2023. The Appellant did not indicate any effort made on its part to retrieve the documents from the prosecution and more importantly its extent of involvement in the investigations leading to the criminal prosecution.

43. Notably, Section 13(3) of the Tax Appeals Tribunal Act provides a means for parties to request for an extension of time to file any documents that they were unable to submit at the time of filing an appeal. The Section states as follows:“The Tribunal may, upon application in writing or through electronic means, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).”

44. It is the Tribunal’s considered view that the Appellant could have sought leave to file the documents that it had stated were with the Prosecution at any point during the pendency of this matter before the Tribunal. Further, it could have updated the Tribunal on the status of the said documents. To the extent that it did not undertake any of these actions, the Tribunal can only conclude that the Appellant did not discharge the burden of proof placed upon it by Section 56 of the TPA and Section 30 of the TAT Act.

45. The Tribunal is guided by the case of Alfred Kioko Muteti vs. Timothy Miheso & Another [2015] eKLR where the court held that:-“a party can only discharge its burden upon adducing evidence. Merely making pleadings is not enough”. In reaching its findings, the Court stated that: “Thus, the burden of proof lies on the party who would fail if no evidence at all were given by either party…. Pleadings are not evidence....”

46. Further, the Tribunal buttresses the issue of burden of proof through the case of Boleyn International Limited vs. Commissioner of Investigations & Enforcement (Tax Appeals Tribunal No 55 of 2019), where the Appellant failed to provide documents, and the Tribunal held that there was no conceivable way the Respondent would have considered the objection as the same did not place itself within the parameters of Section 51(3) of the Tax Procedures Act.

47. Based on the aforementioned provisions of the law and the case law, the Tribunal finds that the Respondent’s objection decision was justified.

Final Decision 48. In view of the foregoing, the Tribunal finds that the Appeal lacks merit and accordingly proceeds to make the following Orders: -i.The Appeal be and is hereby dismissed.ii.The Respondent’s objection decision dated 28th April, 2023 be and is hereby upheld.iii.Each Party to bear its own costs.

49. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 17TH DAY OF MAY, 2024ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERDR. RODNEY O. OLUOCH - MEMBERTIMOTH B. VIKIRU - MEMBERABRAHAM K. KIPROTICH - MEMBER