[2024] KETAT 883 (KLR)

Double Shasa Ltd v Kenya Revenue Authority (Tax Appeal E773 of 2023) [2024] KETAT 883 (KLR) (28 June 2024) (Judgment)

Neutral citation: [2024] KETAT 883 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E773 of 2023

CA Muga, Chair, BK Terer, D.K Ngala & SS Ololchike, Members

June 28, 2024

Between

Double Shasa Ltd

Appellant

and

Kenya Revenue Authority

Respondent

Judgment

Background 1. The Appellant is a limited liability company whose principal activity is printing of general stationaries.

2. The Respondent is the principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws. Under Section 5(1), the Respondent is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) with respect to performance of its functions under subsection (1), it is mandated to administer and enforce all provisions of the Written Laws as set out in Part 1 and 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Appellant was issued with an assessment on 30th May, 2023 for Kshs 13,499, 510. 56 inclusive of penalties and interest. This was in respect of Value Added Tax for the years 2018, 2019 and 2020 and Corporation Tax for the years of Income 2018, 2019, 2020 and 2021.

4. The Appellant objected to this demand vide its letter dated 12th August, 2023 stating its grounds of objection that the amount of money in its bank accounts did not only constitute money from the business but also loans from the bank and the director’s income that were not chargeable to tax and did not constitute the sales of goods and services.

5. The Respondent reviewed the Appellant’s objection and vide a letter dated 11th October, 2023 issued the objection Decision confirming the demand for Kshs 13,499, 510. 46.

6. Aggrieved by the Respondent’s decision the Appellant filed its Notice of Appeal dated 3rd November 2023 on even date.

The Appeal 7. The Appeal was premised on the following grounds of Appeal as stated in the Appellant’s Memorandum of Appeal dated 3rd November, 2023 and filed on even date.a.That the learned assessing officer erred in law and in fact in the confirmation of default assessments against the objections of the Appellant while the following facts were clear;b.That the additional assessments were raised from a computed tax based on gross income instead of net income therefore disregarding allowable costs contrary to Income Tax Act, Cap 470 of Kenya’s Laws (hereinafter “ITA) –Part IV Ascertainment of total income Section 15(1) deductions allowed.c.That the Respondent erred in law and fact by stating that the Appellant had failed to provide sufficient relevant documentary evidence, whereas the Appellant provided a bundle of documents listed as per the objection decision.d.That the Respondent erred in law and fact by not considering the fact that the tax due declared in original assessment for the income tax periods was 2018- Kshs 24, 566. 10, 2019- Kshs 106,974. 30, 2020- Kshs 24,403. 25. The tax due for the additional assessment was overstated not considering the ITA Part IV. The original return declared for VAT for the period was correct since most supplies were not registered for VAT obligation as the tax invoice compliance is guided by VAT and levied under the Value Added Tax Act, CAP 476 of Kenya’s Laws (hereinafter “VAT Act”) and VAT Regulations 2017. All traders with a turnover of taxable supplies of 5 million per annum and above are required to register for VAT. Voluntary registration is allowed for traders with taxable supplies below Ksh 5million threshold. Most of the supplier of services were not registered for VAT.e.That the Respondent erred in law and in fact by not considering information and explanation provided by the Appellant.

The Appellant’s Case 8. The Appellant supported its Memorandum of Appeal with its Statement of Facts dated 3rd November, 2023 and reiterated that it was assessed for tax of Kshs 13,499,510. 56 through the Respondent’s Objection decision dated 11th October, 2023 and prayed that the Respondent be ordered to:(a)Allow amendments to the additional assessments as per Section 31 of the Tax Procedures Act CAP 469B of Kenya’s Laws (hereinafter “TPA”); and(b)Set aside income tax additional assessment for fiscal years 2018, 2019, 2020 and 2021 and VAT for December 2019, December 2020 and December 2021 and allow computation of tax in compliance with ITA Part IV Ascertainment of total income section 15(1) Deduction allowed and VAT Cap Pat XI submission of Returns.

Respondent’s Case 9. The Respondent addressed the Appellant’s grounds of Appeal through its Statement of Facts dated 16th February 2024 and filed on even date.

10. It contended that the Appellant was requested to provide business and personal bank statements including M-pesa Statements for the period assessed. The Appellant was further requested to provide the following documents- Banking Analysis for the period assessed

General ledgers for the period assessed

Audited financial statements and income tax computations

Loan agreement documents and loan repayment schedules (if any)

Debtors and creditors schedules and statements.

All invoices and evidence of payment.

Support for expenses

Monthly Z reports and any other documents relevant to support the objection.1. The Respondent stated that the Appellant only provided the bank statement for the period January to December 2021 and did not provide the other requested documents.

11. It was the Respondent’s assertion that its decision to assess the taxes was expeditious, lawful, reasonable, efficient and procedurally fair. It averred that in the absence of detailed documentary evidence, it correctly calculated the tax due and therefore recommended the confirmation of the assessments in their entirety.

12. The Respondent averred that the Taxpayer bears the preeminent burden of proof in tax matters pursuant to Section 56 of the TPA and Section 30 of the Tax Appeals Tribunal Act, CAP 469A of Kenya’s Laws (hereinafter “TATA”) which clauses imply that the burden of proof rests with the side who has the obligation to persuade or the danger of not persuading. Further that the taxpayer must demonstrate that the Commissioner’s assessment is incorrect and that it has a significantly higher burden to prove that an assessment is incorrect.

13. It was the Respondent’s assertion that the Appellant failed to discharge the requisite burden of proof and as such its Memorandum of Appeal and Statement of Facts were unfounded, not supported by evidence and were without any colour of law.

14. The Respondent made the following prayers to the Tribunal:a.That its objection decision be upheld;b.That the tax due and unpaid together with interest thereon be paid to the Respondent;c.That the Appeal be dismissed; andd.That the Appellant be compelled to pay costs to the Respondent.

Parties’ Submissions 15. The Appellant did not file its written submissions. The Tribunal will therefore only consider the Respondent’s submissions dated 22nd March, 2024 and filed on 25th March 2024 wherein it raised one issue for determination.

16. The Tribunal notes that the Respondent’s Written submissions as filed in the e-filing Case Tracking System (CTS) were filed without pages 4, 6, and 8. The Tribunal will therefore only consider the pages that were filed.

Whether the Income Tax Additional Assessments issued by the Commissioner were valid 17. The Respondent submitted that Section 31 of the TPA was instructive on matters of additional assessments and that by the time the objection decision was issued, no documents had been provided by the Appellant to challenge the assessments that had been issued. It submitted further that the Appellant only attached some documents at the Appeal stage which the Respondent did not have an opportunity to peruse. Further, that the Appellant failed to specify which documents or evidence it believed were not considered by the Respondent in confirming the assessments.

18. The Respondent submitted that the Appellant bears the preeminent burden pursuant to Section 56(1) of the TPA. In this case, the Appellant failed to provide a detailed list of documents that it had alleged were overlooked which in essence undermines the transparency and effectiveness of the appeals process.

19. The Respondent relied on the case of Digital BoxLimited vs Commissioner of Domestic Tax, Tax Appeal No115 of 2017 where the Tribunal dismissed the appeal as the Appellant did not specify the particular entries the Respondent had misapplied in confirming the assessments. It stated as follows:“The Tribunal notes that in disputing the Respondent’s analysis the Appellant did not specify the entries in the bank statement which the Respondent has used wrongly/misapplied or which should not have been included in the assessment and the reasons why the entries should not be included. Its averments remain founded upon the argument that the Respondent used extraneous information and that the applied method resulted in an unrealistic tax assessment. The issue of the extraneous information has already been dealt with. The averment that the application of the test resulted in an unrealistic assessment is in and of itself not sufficient to discharge the burden on the Appellant. The Appellant must prove that the method was flawed.”

Issues For Determination 20. The Tribunal has considered the parties pleadings, documentation and Respondent’s submissions and is of the view that this Appeal raises a single issue for determination, namely:Whether the Respondent’s objection decision dated 11th October 2023 was justified.

Analysis And Findings 21. Having identified the single issue for determination, the Tribunal will proceed to analyse the issue for determination, as hereinunder:

22. The Appellant was assessed for additional taxes based on banking analysis variances for the years 2018, 2019, 2020, 2021 and VAT for the period December 2019 and December 2020 and also variances in the purchases declared in VAT3 returns as compared to the Income Tax return. In its objection to the demand, the Appellant had stated that the amount of money in its bank accounts did not constitute any money from the business but also loans from the bank and the director’s incomes which in its view were not chargeable to tax and do not constitute the sales of goods and services.

23. The Tribunal notes that the Appellant was requested for the following documents covering the review period to support its objection. Business and personal bank statements including M-pesa statement

Banking analysis

General ledgers

Audited financial statements

Income agreements documents

Loan repayment schedules (if any)

Debtors and creditors schedules and statements

All invoices and evidence of payments

Support for expenses

Monthly Z reports

24. It is the Tribunal’s considered view that the requested documents were relevant for the kind of business that the Appellant was engaged in and which ought to have been in the Appellant’s custody. The Appellant however only provided the bank statement for the period January to December 2021.

25. Sections 56(1) of the TPA and Section 30 of the TATA informs which of the parties bears the burden of proof in tax matters. They provide as follows: -“56(1) TPA“In Any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect”30 TATA Act“In a proceeding before the Tribunal, the Appellant has the burden of proving –a.Where an appeal relates to an assessment, that the assessment is excessive; orb.In any other case, that the tax decision should not have been made or should have been made differently.”

26. The Tribunal associates itself with the case of Kenya Revenue Authority vs Maluki Kitili Mwendwa (2021) eKLR where Mativo J addressed the issue of onus of burden of proof as follows:“The pertinent issue in this appeal as I see it is the question of the taxpayer’s burden of proof in tax cases. The party with the obligation of persuasion- what Wigmore termed the risk of non-persuasion- is said to bear the burden of proof. The effect of non-persuasion on a party with the burden of proof is that the particular issue at stake in the litigation will be decided against the party. Generally, the taxpayer has the burden of proof in any tax controversy. The taxpayer must demonstrate that the Commissioner’s assessment is incorrect. The taxpayer has a significantly higher burden. The taxpayer must prove the assessment is incorrect. This position enjoys statutory backing courtesy of section 56(1) of the TPA which provides that in any proceedings under this part, the burden shall be on the taxpayer i.e. prove that a tax decision is incorrect. As if to underscore the import of the above provision, the legislature deployed the word “shall” in the said section meaning that the provision is couched in peremptory terms..”

27. It is the Tribunal’s considered view that the Appellant in this case failed to discharge its burden of proof for failing to avail the requisite documents to support its averments. The Respondent cannot therefore be faulted in raising the additional taxes the way it did.

28. In view of the foregoing, the Tribunal finds that Respondent’s objection decision dated 11th October 2023 was justified.

Final Decision 29. The upshot of the above is that the Appeal lacks merit and the Tribunal will proceed to make the following orders:(a)The Appeal be and is hereby dismissed.(b)The Respondent’s Objection Decision dated 11th October, 2023 be and is hereby upheld.(c)Each party to bear its own costs.

30. It so ordered

DATED AND DELIVERED AT NAIROBI THIS 28TH DAY OF JUNE, 2024. .................................CHRISTINE A. MUGA..............................CHAIRPERSONBONIFACE K. TERER ................................. MEMBERDELILAH K. NGALA............................MEMBER.OLOLCHIKE S. SPENCER..................................MEMBER