https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/106

Diamond Trust Bank Kenya Ltd v Commissioner of Domestic Taxes (Appeal E944 of 2025) [2026] KETAT 106 (KLR) (18 May 2026) (Judgment) Neutral citation: [2026] KETAT 106 (KLR) Republic of Kenya In the Tax Appeal Tribunal Appeal E944 of 2025 RM Mutuma, Chair, G Ogaga, T Vikiru & JM Malla, Members May 18, 2026 Between Diamond Trust Bank Kenya Limited Appellant and Commissioner of Domestic Taxes Respondent Judgment Background 1.The Appellant is a public limited company incorporated in Kenya whose principal activity is providing banking services. 2.The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 Laws of Kenya (KRA Act). Under Section 5 (1) of the Act, KRA is an agency of the Government for the collection and receipt of all revenue. For the performance of its function under Subsection (1), the Authority is mandated under Section 5(2) of the Act to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the KRA Act to assess, collect, and account for all revenues under those laws. 3.The Appellant lodged a refund application is respect of excess Corporation tax paid for the year of income 2020 on 5th December 2022. 4.The Respondent, in a letter dated 17th January 2023, confirmed receipt of the refund application and notified the Appellant that the claim was forwarded to audit in accordance with Section 47(4) of the Tax Procedures Act. 5.The Appellant wrote to the Respondent in a letter dated 20th January 2023 and received by the Respondent on 24th January 2023 requesting the Respondent’s audit section to validate and process the refund claim. 6.In a letter dated 24th April 2023, the Respondent notified the Appellant that the refund application was approved and forwarded for further processing. 7.Following a subsequent compliance review covering the years 2019 to 2023, unrelated to the refund application, the Respondent issued the Appellant with preliminary findings on 29th November 2024 followed by a notice of assessment of PAYE, Corporation tax, Withholding tax and Excise duty dated 16th June 2025. 8.The Respondent thereafter emailed the Appellant on 2nd July 2025 notifying the Appellant that the refund claim has been rejected as an amendment/assessment was initiated and approved for the period. 9.The Appellant, being dissatisfied with the Respondent’s notification of 2nd July 2025, filed its Notice of Appeal against the same dated 13th August 2025 on the same date. The Appeal 10.The Appeal is premised on the Memorandum of Appeal dated and filed on 1st September 2025 which raised the following grounds: -a.That the Respondent acted unlawfully by rejecting a refund that had already been approved by operation of law.b.That the Respondent acted unlawfully and violated a legitimate expectation it had created by rejecting a refund which it had admitted emanated from the Appellant’s overpayment of instalment taxes.c.That the Respondent acted unlawfully by failing to disburse the refund within two years from the date of approval of the application and further acted unlawfully by refusing to accrue interest on the outstanding refund amount.d.That the Respondent acted in bad faith and unlawfully by relying on an assessment to delay disbursing a refund.e.That the Respondent acted unreasonably and unlawfully by blaming its own iTax system for duties that the Commissioner was not permitted by law to delegate to a machine; andf.That the Respondent acted unlawfully and in bad faith by structuring its system in a manner that rejects refunds without basis in law and further acted unlawfully by failing to reconfigure the iTax fault. Appellant’s Case 11.The Appellant’s case is premised on the following documents:a.The Appellant’s Statement of Facts dated and filed on 1st September 2025, and the documents attached thereto; andb.Its Written Submissions dated 30th March 2026 and filed on the same date. 12.The Appellant stated that on 5th December 2022, it lodged a refund application for the Corporation tax overpayment of Kshs. 417,095,386.08. 13.That the Respondent kept the Appellant abreast of the progress of the refund application by updating the status of the application on the Appellant’s iTax account, and the Respondent allocated the application to its refund analysis officer for processing. 14.The Appellant averred that ninety days from the date of lodging the application lapsed on 5th March 2023. The Appellant claimed that on 5th April 2023, the refund application was unconditionally allowed by operation of Section 47(3) of the Tax Procedures Act, 2015 (TPA). 15.That the Appellant then wrote to the Respondent a letter dated 22nd March 2023 informing the Respondent of the lapse of time and requesting the Respondent to process the payment. 16.The Appellant submitted that it reasonably expected the Respondent to disburse the refund within two years of approval of the refund. That the two years lapsed on 5th March 2025. 17.The Appellant summarised its correspondence with the Respondent as follows:a.On 2ⁿᵈ July 2025, the Respondent (refunds department) wrote to the Appellant informing the Appellant that its refund had been rejected due to the issuance of an assessment for the year 2020.b.On 7ᵗʰ July 2025, the Appellant wrote to the Respondent requesting for the provisions of the law the Respondent relied on to reject a refund that had been allowed over two years ago.c.On 16ᵗʰ July 2025, the Respondent responded stating that it rejected the refund due to the issuance of an amended assessment.d.On account of the Respondent’s failure to specify the law it relied on, the Appellant wrote an email to the Respondent on the same day reiterating its query on the law the Respondent relied on to reject the refund after approving it and the law it relied on to use an assessment to diminish the already approved refund.e.The Respondent replied on the same day referring the Appellant to another department within the Respondent’s office (Large Taxpayers Office) for clarification on the reasons for the assessment.f.The Appellant responded informing the Respondent that it was well aware of the assessment and intended to object to the same. The Appellant also reiterated its query on the law the Respondent relied on to reject the already approved refund.g.On 21ˢᵗ July 2025, the Respondent informed the Appellant that iTax automatically rejected the refund due to issuance of the additional assessment and instructed the Appellant to reapply for the refund.h.On the same day, the Appellant (having not received any response on the law the Respondent relied on) requested the Respondent to specify the provisions of law it relied on.i.On 30ᵗʰ July 2025, the Respondent emphasized that iTax was configured to automatically reject refunds upon the issuance of additional assessments and encouraged the Appellant to reapply for the refund based on the outcome of the objection. 18.That as a final attempt to amicably resolve this matter, the Appellant wrote a letter to the Respondent on 5ᵗʰ August 2025 seeking a disbursement of the funds by 12ᵗʰ August 2025 (a day prior to the notice of appeal filing deadline). 19.The Appellant, being dissatisfied with the Respondent’s decision to reject the already approved refund, lodged its Notice of Appeal and served the Respondent with the same on 13ᵗʰ August 2025 and now appeals to this Honourable Tribunal. 20.That on 18ᵗʰ August 2025, the Respondent responded to the Appellant by claiming that it was empowered by Sections 31 and 59 of the Tax Procedures Act to reject a refund arising from an additional assessment. 21.The Appellant canvassed its issues for determination as follows: I. The Respondent aCted Unlawfully By Rejecting A Refund That Had Already Been Approved By Operation Of Law. Irrevocability Of Refund Decisions 22.The Appellant submitted that Section 47(3) of the TPA provides that a refund is deemed to be allowed by operation of law should the Respondent fail to audit or issue a decision within 90 days from the date of application:“(3)Where the Commissioner fails to ascertain and determine an application under subsection (1) within ninety days, the same shall be deemed ascertained and approved.” 23.That the Respondent failed to issue a refund decision within 90 days from the date the Appellant lodged the refund application. That as a result of this, the refund was deemed approved by operation of law. 24.That once the refund was approved by operation of law, there was no provision in the TPA that empowered the Respondent to overturn such an approval. That despite this, the Respondent purported to overturn a refund approval issued under Section 47(3) of the TPA. 25.The Appellant further submitted that this Tribunal, in Eaton Towers Kenya Limited v Commissioner for Domestic Taxes [2024] KETAT 1759 (KLR) held that an assessment cannot be used as a basis to alter a refund decision that was allowed by operation of law. 26.In light of the foregoing, the Appellant submitted that upon the lapse of the ninety (90) days prescribed under Section 47(3) of the TPA, the refund application stood ascertained and approved by operation of law, thereby rendering the Respondent functus officio in respect of that application. That the statutory language admits of no discretion, qualification, or exception. That consequently, any purported rejection issued thereafter – particularly one made over two years later – is ultra vires, null and void. That the Respondent cannot, by administrative action or internal system configuration, reopen or overturn a decision that the law itself has conclusively determined. Respondent’s Bases In Law For Altering A Refund Decision. 27.The Appellant averred that the Respondent, in its letter dated 18ᵗʰ August 2025, claims to have relied on Sections 31, 47 and 59 of the TPA to overturn a refund decision:“Regarding the legal basis for the rejection, Section 47 of the Tax Procedures Act (TPA) governs refund approvals but does not preclude subsequent adjustments arising from lawful assessments.The Commissioner’s authority to issue assessments under Section 31 (additional assessments) and 59 (recovery of tax) of the TPA provides the legal framework for such actions.” 28.The Appellant contended that each of the laws the Respondent relied on did not empower the Respondent to alter a refund decision, and submitted that the Respondent acted unlawfully by amending a refund decision. II. The Respondent Acted Unlawfully And Violated A Legitimate Expectation It Had Created By Rejecting A Refund Which It Had Admitted Emanated From The Appellant’s Overpayment Of Instalment Taxes. 29.The Appellant maintained its position that the refund was allowed by operation of law, and the Respondent had no power to alter such a refund decision. That without prejudice to that argument, the Supreme Court of Kenya, in Communications Commission of Kenya & 5 others v Royal Media Services Limited & 5 others [2014], set out the principles of the doctrine of legitimate expectation as follows: -“(269)The emerging principles may be succinctly set out as follows:a.there must be an express, clear and unambiguous promise given by a public authority;b.the expectation itself must be reasonable;c.the representation must be one which it was competent and lawful for the decision-maker to make; andd.there cannot be a legitimate expectation against clear provisions of the law or the Constitution.” 30.The Appellant submitted that all elements of the doctrine of legitimate expectation were met as follows:a.The Respondent (vide its letter dated 24ᵗʰ April 2023) made an express, clear and unambiguous promise by informing the Appellant that its refund application had been allowed.“We confirmed that the refund claim of Ksh. 417,095,386.08 emanated from overpayment of instalment taxes. The application was approved and forwarded for further processing.”b.The Respondent’s refund decision dated 24ᵗʰ April 2023 was reasonable as the Commissioner issued it within its ordinary course of business as per Section 47 of the TPA.c.The Respondent is empowered by Section 47 of the TPA to allow a refund application.d.The Respondent’s decision dated 24ᵗʰ April 2023 allowing the refund application did not violate any written law. 31.That the Respondent, having created a legitimate expectation, violated the same by purporting to issue a contrary decision in its email on 2ⁿᵈ July 2025. 32.That further, the Respondent is not empowered by Section 47 to alter a refund decision once issued to a taxpayer. III. The Respondent acted unlawfully by failing to disburse the refund within two years from the date of approval of the application and further acted unlawfully by refusing to accrue interest on the outstanding refund amount. 33.The Appellant submitted that Section 47(2) of the TPA provides in mandatory terms that the Respondent is to disburse a refund within two years of the date of application: 34.That two years from the date of the application lapsed on 5ᵗʰ December 2024. That as at the end of 2024, the Respondent had not refunded the amount to the Appellant and did not provide any reasons for its failure to refund the amount within two years, in contravention of Section 47(2)(b) of the TPA. 35.The Appellant averred that pursuant to Section 47(6) of the TPA, the Respondent owes the Appellant interest on the entire refund sum at a rate of one percent per month until the Respondent fully settles the amount. IV. The Respondent Acted In Bad Faith And Unlawfully By Relying On An Assessment To Delay Disbursing A Refund. Blaming An Assessment That Did Not Exist At The Time Of Refund Approval 36.The Appellant stated that at the time of approval, there was no additional assessment. That for two years after the refund was approved by operation of law, there was no additional assessment affecting the 2020 year of income. That therefore, nothing stopped the Respondent from disbursing the refund during the two years after the refund was approved by operation of law. 37.That over two years after the refund was approved, the Respondent’s only excuse (as per its email on 16ᵗʰ July 2025) for rejecting the refund was the existence of an additional assessment affecting the refund. 38.The Appellant argued that the Respondent’s excuse does not hold water as, at the time the refund was approved (5ᵗʰ March 2023), there was no additional assessment that could affect the refund. That this demonstrates that the Respondent did not have any reason to alter the refund decision in the year in which it issued the decision. That this also demonstrates that the Respondent’s excuse of an assessment was an afterthought. 39.The Appellant relied on the High Court decision in Commissioner of Domestic Taxes vs Unga Limited [2021] KEHC 9557 (KLR), where the Court dismissed the Commissioner’s appeal and held that the provisions of the TPA apply to existing liabilities at the time of processing a refund. It submitted that the Court further held that the Commissioner cannot lawfully withhold a refund in anticipation of a tax liability that has not crystallised. That the Court held as follows: -“47.The Tribunal found that the Commissioner was on the wrong in withholding the VAT refund in anticipation of tax liabilities arising. It held that;“The Tax Procedures Act is on existing liabilities at the time of payment of the refund. Holding on to a refund payment by the Respondent in anticipation of a tax liability which has not crystallised in this case is not supported by law.” 48.I agree with the Tribunal that the Commissioner may not withhold a refund in anticipation of a tax liability. This is borne out section 47(4) of the TPA which provides that a refund is what is paid over when the Commissioner has applied overpayment to, “payment of any other tax owing by the taxpayer under the tax law”’ and “payment of a tax owing by the taxpayer under any other tax law.” In this case, the Commissioner did not demonstrate before the Tribunal that Unga owed any tax under the VAT Act , Income Tax Act or any other law which could be applied before the refund. In any case, the letter of 7th October 2014 was clear that the VAT refunds were all processed which means that by that time, the Commissioner had conducted the verification required. It cannot therefore be said that it was acting as a conveyor belt.” 40.The Appellant therefore submitted that the Respondent’s reason for reliance on an additional assessment issued in June 2025 to justify the rejection of the refund is legally untenable. That at the time the refund application was approved on 5th March 2023, there existed no crystallised tax liability capable of being offset under Section 47(5) of the TPA. That the Respondent’s position therefore amounts to an impermissible attempt to retroactively defeat accrued statutory rights, which is contrary to both the TPA and established judicial authority. Irrelevance of the Factors The Respondent Relied On 41.The Appellant averred that the Respondent has blamed the following factors for its rejection decision:a.existence of an additional assessment; andb.iTax configuration. 42.That however, these two factors are not listed under Section 47 of the TPA as factors to consider when making a refund decision. 43.The Appellant averred that the Respondent has made it clear that their decision is a rejection decision and not an offset of an approved refund. That Section 47 of the TPA recognises that the existence of a tax liability (additional assessment) does not affect a refund application and that an existing (disputed) tax liability does not affect the validity of a refund application. 44.That therefore, the most the Respondent could have lawfully done was offset the approved refund against tax liabilities (only at the request of the Appellant). Such an offset is fundamentally different from issuing a rejection decision. 45.The Appellant therefore submitted that the Respondent’s reasons for altering the refund decision were irrelevant and not based on any law. V. The Respondent Acted Unreasonably And Unlawfully By Blaming Its Own Itax System For Duties That The Commissioner Was Not Permitted By Law To Delegate To A Machine. 46.The Appellant submitted that Section 47 of the TPA places the responsibility for ascertaining and disbursing tax refunds with the Commissioner. That Section 2 of the TPA then defines the term “Commissioner” as “the Commissioner-General appointed under the Kenya Revenue Authority Act”. That Section 11(4) of the Kenya Revenue Authority Act empowers the Commissioner-General to delegate such powers to a Commissioner. 47.It was the Appellant’s submission that it is clear that the powers of the Commissioner-General can only be delegated to a human being. That however, a human being (especially a public officer) cannot shift the responsibility for a statutory duty to the machine. 48.The Appellant further submitted that there is illegality of delegating powers to a machine system for the following reasons:a.The Constitution of Kenya, the Kenya Revenue Authority Act, Income Tax Act and the Tax Procedures Act vest powers in individuals and institutions only (not machines);b.Machines only follow the instructions of their owner/designer thus the owner/designer cannot absolve themselves from responsibility for the machine’s actions; andc.Machines cannot be held accountable for their actions thus cannot be put in check. 49.The Appellant averred that in this case, the Respondent shifted blame to iTax in the following terms:“iTax system is designed to automatically reject refund claims where the claim amount as per the tax return has changed due to either tax return amendment or new tax assessment.” 50.The Appellant asserted that this is an admission by the Respondent that it granted powers to iTax to make automated refund application decisions. That this act of delegating refund decision-making powers to iTax was unlawful. 51.The Appellant submitted that the danger of delegating responsibility to machines is that it allows the public officer on duty to run away from responsibility for actions they were tasked with. That in this case, the Respondent was charged with the duty to pay the refund that been approved by Section 47(3) of the TPA and now seeks to blame a machine for its failure to disburse the refund. 52.The Appellant submitted that the Respondent acted unlawfully by granting iTax powers to make refund decisions which could only be made by the Commissioner (or a human being to whom the Commissioner could delegate powers to). VI. The Respondent Acted Unlawfully And In Bad Faith By Structuring Its System In A Manner That Rejects Refunds Without Basis In Law And Further Acted Unlawfully By Failing To Reconfigure The iTax Fault. 53.The Appellant contended that the Respondent is the owner and controller of the design and implementation of iTax. That it has the ability to modify iTax to deal with current issues and to address errors. That this demonstrates that the Respondent is fully capable of rectifying and modifying its iTax system to address changing needs and concerns as they arise. 54.That the Respondent, being the sole administrator of tax laws in Kenya, is responsible for ensuring that its actions and the actions of iTax are lawful and efficient. 55.That the Respondent, in its email on 21ˢᵗ July stated that iTax automatically blocked the refund due to an assessment:“If the return is altered, (either by return amendment or assessment) before a refund task is closed (by approval or rejection) the system automatically blocks the refund from approval and recommends rejection.” 56.That the Respondent, in its email on 30ᵗʰ July 2025 unequivocally confirmed that the configuration was not a flaw but was a deliberate modification to automatically reject refunds upon issuance an additional assessment:“iTax system is designed to automatically reject refund claims where the claim amount as per the tax return has changed due to either tax return amendment or new tax assessment.” 57.That in essence, the Respondent has taken active steps to ensure that iTax unlawfully rejects refunds even after they have been approved. The Appellant maintained that this automated function is unlawful as it:a.Is a form of delegating state powers to a machine;b.Is a form of shifting blame for a refund decision to a machine; andc.Contravened Section 42(1) of the Tax Procedures Act conflicting claim of a recommendation 58.That the Respondent, in its email on 21ˢᵗ July, admitted that iTax recommends rejection. That the essence of a recommendation is that one has the option of adopting the recommendation or ignoring it. That in this instance, the Respondent has made two conflicting claims:a.The system recommended the rejection; andb.The system automatically rejected the refund. 59.That if iTax merely recommended rejection, the Respondent had the option to ignore the recommendation to avoid issuing an unlawful decision. That however, the Respondent wilfully adopted the recommendation. That the Respondent, having made a conscious decision, cannot shift blame to iTax. 60.That on the other hand, if iTax automatically made the decision, the Respondent, being its owner and controller, is liable for the iTax rejection decision. That the upshot of this is that the Respondent is responsible for the decision whether it or its machine made the decision. Appellant’s Prayers 61.The Appellant prayed that the Tribunal:a.Allows this Appeal;b.Sets aside the Respondent’s refund decision dated 2nd July 2025 and any other documentation from the Respondent that has the effect of reducing or delaying the disbursement of the Appellant’s approved refund of Kshs. 417,095,386.08.c.Holds that the Appellant’s income tax refund application lodged on 5th December 2022 was unconditionally approved by the Respondent on 5th March 2023 by operation of Section 47(3) of the Tax Procedures Act, 2015;d.Orders the Respondent to pay the Appellant interest from 5th March 2023 at a rate of 1% per month (or part thereof) for the outstanding refund amount until full settlement of the refund;e.Orders the Respondent to disburse the Kshs. 417,095,386.08 and interest thereon within thirty (30) days of judgment;f.Awards costs of this Appeal to the Appellant. Respondent’s Case 62.The Respondent’s case is premised on the following documents filed before the Tribunal:a.The Respondent’s Statement of Facts dated 1st October 2025 and filed on the same date, and the documents attached to it; andb.Its Written Submissions dated 27th March 2026 and filed on 30th March 2026. 63.The Respondent stated that the Appellant lodged a refund claim on 5th December, 2022 seeking refund for the sum of Kshs. 417,095,386.08. That the claim was forwarded to the Refunds Audit team on 20th January 2023 for an audit to be conducted. 64.The Respondent averred that the audit process was completed on iTax on 30th August 2024 and the refund claim was recommended for payment and the Appellant notified of the audit findings by the Respondent’s Large Taxpayers’ Office audit team (LTO) on 24th April 2023. 65.The Respondent further stated that it was required to obtain a debt report from the Appellant’s Tax Service Office which takes long because of the tax periods and data required to be validated hence the reason which the iTax audit concluded on 30th August 2024. 66.The Respondent stated that before the refund could be approved in iTax because of delays stated above, an additional assessment was raised by LTO Compliance team on 19th June 2025. That due to the additional assessment, the iTax system triggered an automatic rejection of the refund claim, as the system disallowed the refund approval where there are changes such as additional assessments in the tax return. 67.The Respondent pleaded that the system rejection notice was issued to the Appellant on 2nd July 2025 informing them that the rejection was not final and re-application could be made based on the amended return. 68.The Respondent stated that on 16th July 2025, it informed the Appellant that the refund claim was rejected because an assessment had been raised thereby raising an outstanding tax liability. 69.That the Appellant objected to the assessment of 19th June 2025 and requested for time to submit records to facilitate ascertainment of the tax liability raised by the LTO Compliance team. 70.The Respondent averred that on 30th July 2025 it informed the Appellant that additional assessments were raised by LTO, which covered transactions beyond those relating to the refund claim lodged by the Appellant. The Respondent further averred that it advised the Appellant to engage LTO and re-lodge the refund claim depending on the outcome of engagements with LTO. 71.That the Respondent’s LTO Compliance team on 18th August 2025 informed the Appellant the reason for failure to disburse the refund claim. That the Appellant aggrieved by this position lodged an appeal before the Tribunal seeking refund of the sum of Kshs. 417,095,386.08 Whether the Appellant’s Refund Claim Was Payable While The Appellant Had An Outstanding Tax Liability. 72.The Respondent stated that it is required by Section 47(5) of the Tax Procedures Act 2015 to recover any outstanding liability from approved overpayment before paying out the difference to the Appellant. 73.The Respondent asserted that the Appellant’s refund application had been processed and was pending payment. That however, prior to payment being effected, the Respondent’s LTO Compliance team established a tax liability by the Appellant and raised additional assessments. 74.The Respondent stated that the additional assessment altered the Appellant’s status from a credit position to a debit position, and thus the refund could not be paid in light of the impending tax liability. 75.The Respondent’s position is that a refund application results from tax computation in a return. It averred that where a computation is altered through an amendment by either the taxpayer or the Commissioner, the system requires the refund application associated with the return to be rejected for alignment/reapplication based on the new data from the amendment. 76.The Respondent submitted that the provisions of Section 47(5) of the TPA empower it to pay any outstanding tax liabilities on priority if any balance is payable after the settlement of the liability the same is paid to the Appellant. That its action of not making refund payment to the Appellant was not in contravention of the law in light of the above provision. Responses to Issues Raised by the Appellant in the Appeal. 77.On whether the Respondent acted unlawfully by rejecting the Appellant’s application for refund, the Respondent denied the allegation by the Appellant and stated that the Appellant has brought the matter to the Tribunal prematurely. 78.The Respondent stated that the Appellant lodged a refund claim, which was audited and findings issued on 24th April 2023 to the effect that the claim was indeed refundable. The Respondent pleaded that however it the Appellant on 21st July 2025 that an additional assessment was raised and changed the status of the return for the period in question. 79.The Respondent pleaded that it did not violate the Appellant’s legitimate expectation. That further, legitimate expectation must be anchored in law for the same to be valid. It stated that the letter dated 24th April 2023 had a rider that established the claim was refundable based on available information then, but could vary if new information became available, and in this case the Respondent obtained new information that was used in raising the assessment on the Appellant. 80.The Respondent argued that the letter of 24th April 2023 cannot override the provisions of Section 47(5) of the TPA that require a tax liability be offset prior to any refund payment being paid. The Respondent asserted that its action to disallow the refund claim was not in violation of the law but in tandem with Section 47(5) of the TPA. 81.The Respondent refuted the allegation that it acted unlawfully by refusing to accrue interest on the outstanding refund amount, and averred that the Appellant is relying on a wrong provision of the law in prosecuting a matter in 2025. It submitted that the Finance Act 2022 repealed the provision the Appellant has relied upon. 82.The Respondent also refuted the Appellant’s claim that it acted in bad faith. That on the contrary, the Respondent had approved the said claim given that liability had been established before payment of the claim, therefore the Respondent had to comply with Section 47(5) of the Tax Procedures Act. That the said provision requires that a tax liability be given priority before any refund can be made. That further, the Respondent pleaded that the delays occurred in concluding the refund process owing to complexity of the Appellant’s operations that necessitated prolonged field audit. 83.The Respondent further refuted the allegation that it acted unreasonably at all times in handling the Appellant’s refund claim. The Respondent further averred that it has not blamed its own system but simply provided clarification on how it works, for all taxpayers, given the legal right it has to design returns, forms, systems, for the efficient administration of income taxation. 84.The Respondent refuted the allegation by the Appellant that it acted unlawfully and in bad faith by structuring its system in a manner that rejects refunds without basis in law and further acted unlawfully by failing to reconfigure the iTax fault. It averred that at all material times it acted in good faith, and that the responsibility to design returns, forms, including those in the automated environment was clarified, and that it explained to the Appellant the rationale for rejecting a claim with the option for reapplication. 85.The Respondent contended that if the rejection was final, the Respondent was bound by law to provide statement of rejection and next course of action, which is appealing the decision at TAT. The Respondent asserted that it did not issue a rejection notice of the refund. 86.The Respondent averred that the Appellant’s decision to proceed to the Tribunal prematurely is ill advised because it intends to circumvent the legal requirement for recovery of a debt as provided under Section 47(5) of the TPA. 87.The Respondent’s submissions in opposition to the Appeal collapsed what it considered to be the issue for determination as Whether the Appellant’s Refund claim was payable in light of an additional assessment that culminated into a dispute before the Tribunal. 88.The Respondent submitted that it is required by Section 47(5) of the TPA to recover any outstanding liability from approved overpayment before paying out the difference to the Appellant. 89.The Respondent submitted that the Appellant’s refund application had been processed and was pending payment. That however, prior to payment being effected, the Respondent’s LTO Compliance team raised additional assessments dated 16th June 2025. That the the additional assessment altered the Appellant’s return status from a credit position to a debit position and thus the refund could not be paid in light of the impending assessments. 90.The Respondent submitted that it advised the Appellant to resolve the impending assessments with LTO to enable it proceed to process the claim as demonstrated by the Respondent’s email dated 21st July 2025. 91.The Respondent submitted that the Appellant lodged an Objection on 28th August 2025 and it issued an Objection decision dated 27th October 2025 confirming assessments of Kshs. 1,461,573,260 which is the subject of appeal in TAT E1418 of 2025 Diamond Trust Bank Limited vs. Commissioner of Legal & Board Services. 92.The Respondent submitted that it could not issue a refund to the Appellant in light of the outstanding additional assessments confirmed vide the Objection decision of 27th October 2025 which positions the Appellant’s return in a debit position. That this means that the Appellant is not entitled to a refund until the Tribunal determines the appeal in Tax Appeals Tribunal in E1418 of 2025 Diamond Trust Bank Limited vs. Commissioner of Legal & Board Services. 93.The Respondent relied on the case of HICTA E053 of 2020 Sony Holdings. Vs Commissioner of Domestic Taxes (Sony Holdings case) and submitted that Justice Majanja held that where a refund decision is rejected, the Commissioner is required to issue an assessment or demand to the taxpayer as was done by the Commissioner in the present case. 94.The Respondent submitted that the outcome of the present appeal can only be determined once Tax Appeals Tribunal in E1418 of 2025 Diamond Trust Bank Limited vs. Commissioner of Legal & Board Services is heard and determined by the Tribunal. That this is because if the assessments are upheld it would mean that the Appellant’s refund claim is extinguished, if the assessment is dismissed it would mean that the Appellant’s refund claim is due and payable. 95.The Respondent submitted that the provisions of Section 47(5) of the TPA empower it to pay any outstanding tax liabilities on priority if any balance is payable after the settlement of the liability the same is paid to the Appellant. The Respondent maintained that its action of not making refund payment to the Appellant was not in contravention of the law in light of this provision. 96.The Respondent further relied on the Sony Holdings case (supra) where the Court held that: -“The Commissioner is correct to assert that the under section 47(4), which I have set out at para. 14 above, it is entitled to apply the overpayment to settle any other tax liabilities of the taxpayer. Lastly, if any refund has been made in error, under section 48 of the TPA, the Commissioner may demand the amount so erroneously paid and the taxpayer shall pay it.” 97.The Respondent submitted that the Appellant’s Appeal is premature since the same was filed by the Appellant having knowledge that its refund rejection was premised on additional assessments raised in Tax Appeals Tribunal in E1418 of 2025 Diamond Trust Bank Limited vs. Commissioner of Legal & Board Services. 98.The Respondent further submitted that the Appellant ought to have waited for the outcome of the appeal as opposed to rushing to the tribunal prematurely. That contrary to the Appellant’s averments, the Respondent acted within the confines of the law in rejecting the refund claim as provided under Section 47(5) of the TPA. 99.The Respondent asserted that at all material times it acted within the provisions of the law contrary to the averments by the Appellant and thus the Appeal herein is devoid of merit and ought to be dismissed. Respondent’s Prayers 100.The Respondent prayed that the Tribunal:a.Dismisses the Appeal in its entirety.b.Orders the Appellant to pay the costs of the appeal. Issues for Determination 101.The Tribunal has considered the pleadings and the submissions made by the Parties, and considers the issues for determination as follows:A.Whether the Respondent’s notification of 2nd July 2025 is an appealable decision.B.Whether the Appellant’s refund application lodged on 5th December 2022 was deemed ascertained and approved by operation of law. Analysis and Findings 102.Having identified the issues for determination, the Tribunal proceeds to analyse the same as hereunder. A. Whether the Respondent’s notification of 2nd July 2025 is an appealable decision. 103.The Appellant submitted that the Respondent’s email dated 2nd July 2025 constituted an appealable decision rejecting the Appellant’s approved refund, and that the Appellant was therefore entitled to appeal the decision before this Tribunal. 104.The Respondent, on the other hand, contended that the notification was not a formal rejection notice and that the Appellant’s Appeal was premature, having been lodged before the matter could be resolved through the proper process under Section 47(5) of the TPA, which required the Respondent to first offset any outstanding tax liabilities against the approved refund. 105.The Respondent further asserted that it did not issue a rejection notice of the refund and that if it had, it would have been bound by law to provide a statement of rejection and a next course of action. However, elsewhere in its own pleadings, the Respondent acknowledged that it had explained to the Appellant the rationale for rejecting the refund claim and advised the Appellant to reapply. This internal inconsistency in the Respondent’s position is noted by the Tribunal. 106.The Tribunal cites the notification dated 2nd July 2025 by the Respondent to the Appellant which states as follows: -“Subject: Diamond Trust Bank Kenya Limited – Income Tax Refund For The Period 2020Dear Taxpayer,The above subject matter refers.The refund claim has been rejected as an amendment/assessment was initiated and approved for the period.” 107.Contrary to the Respondent’s assertion that it did not issue a refund rejection notice and that the Appellant proceeded to the Tribunal prematurely, the Tribunal finds that the Respondent’s notification to the Appellant expressly and unequivocally stated that the refund claim has been rejected as an amendment/assessment was initiated and approved for the period and therefore provided a statement of reasons for the refusal which satisfied the requirement in Section 49 of the TPA which provides that: -“49.Where the Commissioner has refused an application under a tax law, the notice of refusal shall include a statement of reasons for the refusal.” 108.The Respondent’s attempt, in its pleadings before this Tribunal, to characterise the notification as something less than a formal rejection, while simultaneously acknowledging that it provided the Appellant with the rationale for rejecting the refund claim, cannot be sustained. 109.The Tribunal notes that the Respondent’s notification dated 2nd July 2025 expressly communicated a refund decision, the Appellant, having disputed the decision, had a right of appeal to the Tribunal in accordance with Section 47(13) of the TPA which provides as follows: -“(13)A person aggrieved by a decision of the Commissioner under this section may appeal to the Tribunal within thirty days after being notified of the decision.” 110.Based on the foregoing, the Tribunal finds that the Appeal is properly before this Tribunal as the Respondent’s notification of 2nd July 2025 is a refund decision and therefore, an appealable decision. B. Whether the Appellant’s Refund Application Lodged On 5Th December 2022 Was Deemed Ascertained And Approved By Operation Of Law. 111.Having established that the Respondent’s notification to the Appellant dated 2nd July 2025 was a refund decision, and therefore an appealable decision, the Tribunal proceeds to determine whether the Appellant’s refund application was deemed allowed by operation of law. 112.The Tribunal refers to Section 47 of the Tax Procedures Act, as it read when the Appellant applied for a refund of overpaid tax, to determine this issue: -“47.(1)Where a taxpayer has overpaid a tax under any tax law, the taxpayer may apply to the Commissioner, in the prescribed form —(a)to offset the overpaid tax against the taxpayer's future tax liabilities; or(b)for a refund of the overpaid tax within five years, or six months in the case of value added tax, after the date on which the tax was overpaid.(2)The Commissioner shall ascertain and determine an application under subsection (1) within ninety days and where the Commissioner ascertains that there was an overpayment of tax —(a)in the case of an application under subsection (l )(a), apply the overpaid tax to such future tax liability; and(b)in the case of an application under subsection (1)(b), refund the overpaid tax within a period of two years from the date of the application.(3)Where the Commissioner fails to ascertain and determine an application under subsection (1) within ninety days, the same shall be deemed ascertained and approved.(4)The Commissioner may, for purposes of ascertaining the validity of an application under subsection (1), subject the application to an audit.(5)Where the application is for a refund of tax under subsection (1)(b), the Commissioner shall apply the overpayment in the following order—(a)in payment of any other tax owing by the taxpayer under the specific tax law;(b)in payment of a tax owing by the taxpayer under any other tax law; and(c)any remainder shall be refunded to the taxpayer.(6)Where the Commissioner fails to refund the overpaid tax within the period specified in subsection (2)(b), the amount due shall attract interest of one per cent for each month or part thereof during which the amount remains unpaid.(7)Where the Commissioner notifies a taxpayer that an application under subsection (1)(a) has been ascertained and applies the overpaid tax liability to offset an outstanding tax in accordance with subsection (2)(a), interest or penalties shall not accrue on the amount applied to offsetting the outstanding tax liability from the date of the notification.(8)Where the Commissioner has applied the overpaid tax to offset an outstanding tax liability under subsection (2)(a), any outstanding tax after such application shall accrue interest and penalties in accordance with this Act.(9)Notwithstanding any other provision of this section, where a person overpays an instalment tax due under section 12 of the Income Tax Act, the Commissioner shall apply the overpaid tax to offset the taxpayer’s future instalment tax liability.(10)Where, after the application of the overpaid tax under subsection (9), the Commissioner later determines that there was no overpayment of instalment tax, the amount of the tax that was used to offset the taxpayer’s future instalment tax liabilities under subsection (9) shall be treated as a tax due to the Commissioner in the subsequent tax period.(11)The amount due under subsection (10) shall be due from the date that the Commissioner applied that amount to offset an instalment tax liability.(12)The Commissioner shall notify the taxpayer in writing of the amount due under subsection (10) and specify in the notification —(a)the interest on the amount due; and(b)any penalties due in respect of the amount due.(13)A person aggrieved by a decision of the Commissioner under this section may appeal to the Tribunal within thirty days after being notified of the decision.” 113.The Appellant’s primary submission on this issue is that its refund application was unconditionally approved by operation of law upon the expiry of the ninety (90) day period prescribed by Section 47(3) of the TPA, and that the Respondent was thereafter rendered functus officio in respect of that application. 114.The Appellant contended that, having lodged its refund application on 5th December 2022, the ninety (90) day period under Section 47(3) of the TPA lapsed on 5th March 2023, and the refund application thereby stood approved as a matter of statute without any further act on the part of the Respondent. The Appellant submitted that the Respondent’s written notification of 24th April 2023, in which the Respondent expressly confirmed that the refund application had been approved and forwarded for further processing, did no more than affirm what had already taken effect by operation of law. 115.The Appellant further submitted that Section 47 of the TPA contains no provision empowering the Respondent to overturn or otherwise revisit an approval made under Section 47(3) of the TPA, whether by subsequent assessment or otherwise. 116.The Respondent’s position is substantially different. The Respondent does not dispute that the refund application was audited and found to be valid, nor that it issued the Appellant with a letter on 24th April 2023 confirming that the refund claim had been approved and forwarded for further processing. 117.However, the Respondent submitted that the iTax audit process was only concluded on 30th August 2024, a delay it attributes to the need to obtain a debt report from the Appellant’s Tax Service Office and the complexity of validating the relevant tax data. The Respondent further pleaded that, before the refund could be formally approved and paid within iTax, additional assessments covering PAYE, Corporation tax, Withholding tax and Excise duty were issued by its Large Taxpayers’ Office Compliance team on 19th June 2025. 118.The Respondent explained that the iTax system is designed to automatically reject refund claims where the tax return has been altered, whether by amendment or assessment, before the refund task is closed. It submitted that the system rejection of the Appellant’s refund on 2nd July 2025 was not a final rejection, but a procedural step requiring the Appellant to re-engage with the Large Taxpayers’ Office and, if appropriate, to re-lodge the refund claim after the outcome of the assessment dispute. 119.The Respondent relied on Section 47(5) of the TPA as the legal basis for its position, submitting that any approved overpayment must first be applied against outstanding tax liabilities before any balance is refunded to the taxpayer. The Respondent further pleaded that the Objection decision issued on 27th October 2025 confirmed assessments totalling Kshs. 1,461,573,260, now the subject of a separate appeal in TAT E1418 of 2025 Diamond Trust Bank Limited vs. Commissioner of Legal & Board Services, which placed the Appellant’s tax position in a debit. The Respondent submitted that, in those circumstances, it could not lawfully issue a refund, and that the outcome of this appeal is contingent on the outcome of that separate appeal. 120.The Tribunal notes that the Appellant’s refund application for overpaid Corporation tax for the year of income 2020 was lodged on 5th December 2022, which fell within five years of when the tax was paid, therefore, the application was made in compliance with Section 47(1) of the TPA. 121.The Respondent exercised its powers under Section 47(4) of the TPA by subjecting the refund application to an audit to ascertain the validity of the application. 122.According to Section 47(3) of the TPA, the Respondent is statutorily required to ascertain and determine a refund application within ninety (90) days, failure to which the same shall be deemed ascertained and approved. 123.The Respondent has pleaded that its audit section was allocated the task and that it issued findings on 24th April 2023, confirming that the refund claim of Kshs. 417,095,386.08 arose from an overpayment of instalment taxes and had been approved. However, the Tribunal observes, the ninety (90) day period prescribed by Section 47(3) of the TPA lapsed on 5th March 2023. 124.The Tribunal finds that the Respondent’s notification of 24th April 2023 was therefore issued beyond that period. By virtue of Section 47(3) of the TPA, the refund application had already been deemed ascertained and approved by operation of law. The written notification issued by the Respondent on 24th April 2023, whilst a confirmation of what the Respondent had itself ascertained, merely affirmed what had already occurred as a matter of statute. 125.This interpretation is guided by the High Court’s decision in Commissioner of Domestic Taxes v Royal Floraholland Kenya Limited (Income Tax Appeal E219 of 2024) [2025] KEHC 10008 (KLR) in which the Court affirmed the Tribunal’s holding that Section 47(3) of the TPA is mandatory in nature, and that a failure by the Commissioner to issue a refund decision within the prescribed ninety (90) day period renders those refund applications deemed allowed by operation of law. The Court held in that decision as follows: -“39.This Court agrees with the Tribunal’s interpretation. Section 47(3), though previously silent on the legal effect of non-compliance, was clearly mandatory in nature. The subsequent amendment merely clarified what was already implied in the original provision. The Appellant’s failure to issue a decision within the prescribed 90-day period rendered the refund applications deemed allowed by operation of law.40.This position is supported by the High Court’s decision in Commissioner of Domestic Taxes v Sony Holdings Limited [2021] KEHC 7071 (KLR), where the Court held:“The law concerning refund of overpaid tax is to be found in Section 47 of the TPA, which underpins the taxpayer’s statutory right to apply to the Commissioner for a refund. It imposes on the Commissioner the duty to consider the application, audit the claim if necessary, and thereafter make a decision on it within 90 days of application as provided by Section 47(3)...”42.I agree with the reasoning and holding of the Court in the authority above and find no fault in the Tribunal’s conclusion that the Appellant’s refund decisions were rendered outside the statutory 90-day period. Consequently, the Tribunal was correct in holding that the Respondent’s refund applications were deemed ascertained and approved by operation of law. There is therefore no basis for this Court to interfere with that finding.” 126.The Tribunal now turns to consider the Respondent’s argument that Section 47(5) of the TPA empowers it to withhold or reject the approved refund because the additional assessments placed the Appellant in a debit position. 127.Section 47(5) of the TPA prescribes the order in which an approved overpayment is to be applied, not a power to reverse or reject a refund approval that has already taken effect. The provision requires the Respondent to first apply the overpayment against any tax owing, and then to refund any remainder to the taxpayer. It does not contemplate the rejection of an approved refund. A rejection of a refund application, which is a determination that there was no overpayment, is categorically different from an application of an approved overpayment under Section 47(5) of the TPA. The Respondent conflates these two distinct concepts. 128.The Respondent’s reliance on the assessments raised in June 2025 is also problematic in terms of timing. At the date the refund was approved by operation of law, that is, 5th March 2023, it has not been demonstrated that additional assessments existed. For over two years thereafter, still no assessment had been demonstrated to have affected the refund. 129.The Tribunal notes that the assessments upon which the Respondent now relies were not issued until June 2025, and are the subject of an appeal pending determination before this Tribunal in TAT E1418 of 2025 Diamond Trust Bank Limited vs. Commissioner of Legal & Board Services. Further, no evidence has been placed before the Tribunal that those assessments have been determined by the Tribunal to be due and payable. The Tribunal, thus, finds that using contested, unadjudicated assessments as the basis to reject an already approved refund amounts to premature enforcement by the Respondent. 130.The Tribunal also rejects the Respondent’s argument that the rider in its letter dated 24th April 2023, to the effect that the refund approval was based on available information and could vary if new information became available, preserved a power to subsequently reject the refund. By 24th April 2023, the refund had already been deemed approved by operation of law for over six (6) weeks, and no administrative rider issued by the Respondent could qualify or reverse what the statute had already determined. To accept the Respondent’s argument would be to permit an indefinite open-ended compliance review to stand as a surrogate refund audit process without time limitation, a position that is inconsistent with the mandatory ninety (90) day framework in Section 47(3) of the TPA and with the audit powers exercisable under Section 47(4) of the TPA, which are expressly directed at ascertaining the validity of the refund application before the approval period lapses. 131.The Tribunal further observes that the Respondent’s advice to the Appellant to re-lodge its refund application pending the outcome of the appeal TAT E1418 of 2025 regarding the impugned assessments is procedurally misleading, as it fails to consider the time-bound nature of applying for refunds as provided under Section 47(1)(b) of the TPA, which in this case, being a Corporation tax refund, is five years from the date the taxes were paid. It follows, therefore, that the Respondent’s rejection of the refund and advice to the Appellant would potentially prejudice the Appellant should the Tribunal find that the impugned assessments are not due and payable, as five years from when the Corporation tax for 2020 was paid have already elapsed, meaning that the Appellant would be permanently time-barred from re-lodging the refund application, regardless of the outcome of that Appeal. 132.The Appellant, additionally, prayed for the Tribunal to order the Respondent to pay the Appellant interest from 5th March 2023 at a rate of 1% per month (or part thereof) for the outstanding refund amount until full settlement of the refund. The Tribunal, however, notes that the decision appealed against, that is the Respondent’s notification of 2nd July 2025, concerned the rejection of a refund, not any refusal to pay interest. Section 12 of the Tax Appeals Tribunal Act limits the Tribunal’s jurisdiction to hearing and determining appeals of decisions of the Commissioner. As no decision by the Respondent refusing the payment of interest is before the Tribunal in this matter, the Tribunal lacks the jurisdiction to grant orders on that prayer and declines to do so. 133.The Tribunal, thus, finds that the appealed refund decision dated 2nd July 2025 purporting to reject the Appellant’s approved refund application was null and of no legal effect. Section 47 of the TPA contains no provision empowering the Respondent to reject, revoke or reverse a refund that has been approved, whether by statute or by the Respondent’s own affirmative decision. The only action that the law permits upon the approval of a refund is its application in accordance with Section 47(5) of the TPA. The purported rejection of the refund application was contrary to that framework and could not stand. 134.Accordingly, the Tribunal finds and holds that the Appellant’s refund application lodged on 5th December 2022 was deemed ascertained and approved by operation of law upon the lapse of ninety (90) days from the date of that application, and that the Respondent’s purported rejection of that approved refund on 2nd July 2025 was null and void by operation of law. Final Decision 135.The upshot of the above analysis is that the Tribunal finds that the Appeal is meritorious. The Tribunal accordingly proceeds to issue the following Orders:a.The Appeal be and is hereby allowed.b.The Respondent’s refund rejection decision dated 2nd July 2025 be and is hereby set aside.c.The Respondent is hereby ordered to apply the approved refund of Corporation tax for the year 2020 in accordance with the provisions of Section 47(5) of the Tax Procedures Act within ninety (90) days from the date of delivery of this judgment.d.Each party to bear its own costs. 136.It is so ordered. DATED AND DELIVERED AT NAIROBI THIS 18TH DAY OF MAY 2026.……………………………..….ROBERT M. MUTUMACHAIRMAN……………………………… ……..….……..……………..GLORIA A. OGAGAMEMBER……………………………… ……..….……..……………..DR. TIMOTHY B. VIKIRUMEMBER………………………………JIMMY M. MALLAMEMBER