[2024] KETAT 17 (KLR)

Edkan Enterprises Limited v Commissioner of Domestic Taxes (Tax Appeal 1384 of 2022) [2024] KETAT 17 (KLR) (26 January 2024) (Judgment)

Neutral citation: [2024] KETAT 17 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1384 of 2022

RM Mutuma, Chair, W Ongeti, M Makau, EN Njeru & BK Terer, Members

January 26, 2024

Between

Edkan Enterprises Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a telecommunication company incorporated in Kenya as a subsidiary of a company in Mauritius.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya revenue Authority Act, 1995. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5 (2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 & 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 additional tax assessments on 11th August 2021 for the period 2018 and 2019 for withholding tax on the basis of withholding income tax credits without corresponding declaration of income.

4. The Respondent placed agency notices on 13th June 2022. On 18th July 2022, the Appellant lodged a late objection to the additional taxes which application for lodging a late objection was allowed on 2nd August 2022 with the Appellant required to validate its objection with documents.

5. The Appellant was requested to provide information to support its objection and produce audited financials. The Respondent rejected the objection on 16th September 2022.

6. Being aggrieved by the Respondent’s objection decision, the Appellant filed the instant Appeal with the Tribunal.

The Appeal 7. In its Memorandum of Appeal dated 6th October 2022 and filed on 17th November 2022, the Appellant premised its Appeal on the following surmised grounds;-a.The Respondent erred in law and fact by failing to consider supporting documentation provided by the Appellant.b.The Respondent erred in law and in fact by assessing and confirming income tax without taking into consideration the expenses that were incurred in the accounting period.

The Appellant’s Case 8. The Appellant set down its case, in its;a.Statement of Facts dated 6th September 2022 and filed on 17th November 2022 and the documents annexed thereto;

9. The Appellant averred that having been issued with an objection decision, it exercised its right of Appeal pursuant to Section 51 of the Tax Procedures Act and lodged a Notice of Appeal to this Tribunal well within time on 27th September 2022.

10. The Appellant stated that the failure to file an objection within time was a result of the failure of its former accountant, which the Appellant admits was unprofessional.

11. The Appellant averred that it was not aware of any previous demands or assessments since it was the accountant who created the Company and iTax portal.

12. It contended that the accountant used his own email instead of the Company's email therefore the Appellant could not access its iTax portal to confirm anything from the Respondent.

13. The Appellant asserted that having explained this predicament to the Respondent, the Respondent still declined to accept the Appellant's application for late objection.

14. It is the Appellant's case that the Respondent erred in law and in fact by failing to consider supporting documentation provided by the Appellant.

15. The Appellant stated that the Respondent erred in law and in fact by assessing and confirming income tax without taking into consideration the expenses that were incurred in the accounting period which taxes were as a result of reviewing whereby the tax man picked income inclusive of VAT instead of picking exclusive income.

16. The Appellant stated that the tax charged is punitive and unfair since the Respondent charged 30 percent of the income made without taking into consideration the expenses, it incurred in the accounting period mentioned.

17. The Appellant averred that the allegations that some of the supporting documentation was not availed are unfounded and are an attempt to deny the Appellant its right to claim the input VAT incurred on its purchases.

18. It averred that it provided the Respondent with the relevant documents as required in the former Section 17 (2) as well as Section 17 (3) of the VATAct, which fact is not in dispute.

19. The Appellant did not file its submissions; therefore, the Tribunal shall rely on the available pleadings and documents attached to determine the totality of its case.

The Appellant’s prayers 20. The Appellant prayed for orders against the Respondent that:a.The objection decision of the Respondent dated 16th September 2022 be annulled and set aside in its entirety.b.The Tribunal does issue an order directing the Respondent to consider fully and on merit the Appellant's application and grounds for late objection and re-issue an assessment.c.The Appeal be allowed with costs to the Appellant; andd.Any other orders that the Tribunal may deem fit.

The Respondent’s Case 21. The Respondent’s case is premised on its;a.Statement of Facts dated and filed on 16th December 2022. b.Written submissions dated and filed on 16th December 2022.

22. The Respondent raised a Preliminary Objection on the grounds that the Appellant had made an Appeal out of time without first seeking leave of the Tribunal and that there is no Notice of Appeal hence the entire Appeal is invalid.

23. The Respondent relied on Section 13 of the Tax Appeals Tribunal Act and Rule 10 of the Tax Appeals Tribunal (Procedure) Rules 2015 and stated that it issued its decision on 16th September 2022 which was communicated promptly to the Appellant.

24. It reiterated that the Appellant was required to lodge a Notice of Appeal by 16th October 2022 failure to which it will be needed to first seek leave and having not sought leave makes the whole Appeal invalid.

25. Further, it contended that the Appeal is incompetent for being filed without a Notice of Appeal contrary to Section 12 of the Tax Appeals Tribunal Act.

26. The Respondent averred that the Appellant was issued with additional tax assessments on 11th August 2021 and having not objected the Respondent placed agency notices on 13th June 2022 which was after the taxes had crystallized.

27. It asserted that the notice of objection was lodged after 342 days and at that time the agency notices were already in place.

28. Further, the Respondent asserted that the notice of objection was invalid for non-compliance with Section 51 (3) of the TPA for non-production of the relevant documents therefore the agency notices were and are still validly in place since there is still no valid objection.

29. The Respondent contended that the Appellant lodged a late objection to the additional assessments on 18th July 2022 after the agency notices were placed on the Appellant's accounts.

30. The Respondent reiterated that it allowed the application to object out of time whereby the Appellant was required to validate its objection with documents.

31. The Respondent stated that the Appellant was issued with additional tax assessments for withholding tax on the basis of withholding income tax credits without a corresponding declaration of income during the same period.

32. It cited Section 24 (2) of the Tax Procedure Act, 2015, and posited that in fulfilling its mandate, it is not bound by the tax returns of the Appellant and may assess a taxpayer's tax liability using any information available to the Respondent.

33. The Respondent contended that it is empowered to issue additional assessments based on available information and best judgment. It added that the additional assessments were issued because of withholding income tax credits without a corresponding declaration of income.

34. It cited Section 51 (3) of the Tax Procedures Act and averred that the Appellant is required to object to the assessments within the provisions of the said Section.

35. It relied on Section 23 (1) (a) of the Tax Procedures Act, 2015, and stated that it is the duty of the Appellant to provide documents whenever required by the Respondent.

36. The Respondent contended that the Appellant failed to support its objection with relevant documents despite email reminders and the Respondent requested for relevant documents which were not availed except the financial statements. It added that the Appellant did not provide specifically requested documents including trial balances and detailed ledgers, expense supporting documents (invoices and evidence of payment), and bank statements.

37. The Respondent maintained that the Appellant having not provided documents or explanations capable of making the assessment vacated or amended, the Respondent correctly confirmed the assessment and rejected the objection.

38. It asserted that the Appellant only alleges the documents were provided which claim is denied by the Respondent as the Appellant has not adduced any evidence supporting the claim that documents were availed.

39. It cited Sections 107 and 109 of the Evidence Act and Section 56 (1) of the Tax Procedures Act, 2015, and stated that whoever asserts must prove and that the Appellant has the burden to demonstrate that the Respondent's decision is wrong.

40. The Respondent submits that extension of time is an equitable remedy available only to a deserving party and the Appellant did not and still has not provided a reasonable ground why it should lodge an appeal out of time.

41. The Respondent asserted that an extension of time relies on the criteria set in the case of Nicholas Kiptoo Arap Korir Salat vs. Independent Electoral and Boundaries Commission & 7 Others (2014) eKLR and the case of Weston Hotels Limited vs. Commissioner of Domestic Taxes TAT NO 176 of 2021 [2022] eKLR where this Tribunal held that:“The gist of the foregoing is that it is not necessarily the length of time that the Applicant has been delinquent that determines whether the delay has been inordinate. Rather it is the reason for the delay. To receive condonation of the delay by the Tribunal, the Applicant must demonstrate that the delay, no matter how long, was not intentional and it occurred to due to reasons beyond its control and not due to lack of due care and diligence.”

42. The Respondent contended that the Appellant has not demonstrated that failure to lodge an Appeal within time was due to factors beyond its control by demonstrating that it exercised ordinary care, intelligence and prudence, to ensure that the Appeal was filed without unreasonable delay.

43. The Respondent relied on the case of Commissioner of Domestic Taxes vs. Mayfair Insurance Company Limited (2017) eKLR and submitted that the Tribunal should not provide cover, refuge, and comfort to parties who exhibit scant respect for rules and timelines of procedure. It added that the Appellant should not be allowed to lodge a late Appeal after choosing not to Appeal within the provided timelines of 30 days. The Respondent placed further reliance on the case of Africa Oil Turkana Limited & 2 Others vs. Edward Kings Onyancha Maina & 2 Others [2016] eKLR.

44. On whether the agency notices were issued after the taxes had crystallized. The Respondent reiterated that the Appellant was issued with additional tax assessments on 11th August 2021 and having not objected the Respondent placed agency notices on 13th June 2022 which was after the taxes had crystallized. The notice of objection was lodged after 342 days and at that time the agency notices were already in place.

45. Further, the notice of objection was rejected for non-compliance with Section 51 (3) of the Tax Procedures Act, 2015 for non-production of the relevant documents. Therefore, the agency notices were and are still validly in place.

46. The Respondent submitted that the Appellant lodged a late objection to the additional assessments on 18th July 2022 after the agency notices were placed on the Appellant's accounts.

47. The Respondent averred that it allowed the application to object out of time whereby the Appellant was required to validate its objection with documents.

48. On whether the assessments and the objection decision are proper in law. The Respondent submitted that the Appellant was issued additional tax assessments for withholding tax on the basis of withholding income tax credits without a corresponding declaration of income during the same period.

49. It argued that in fulfilling its mandate, the Respondent is not bound by the tax returns of the Appellant and the Respondent may assess a taxpayer's tax liability using any information available to the Respondent per Section 24 (2) of the Tax Procedure Act, 2015.

50. It is the Respondent’s submission that when issuing assessments, the Act does not specify which method to use, what is required is best judgment. It reiterated that the additional assessments were issued because of withholding income tax credits without a corresponding declaration of income. It relied on the case of Tenhos Sacco Society Limited vs. Commissioner of Domestic Taxes TAT Appeal NO. 413 of 2019.

51. The Respondent submitted that it used the availed information and best judgement to come up with the assessment and without availing the records requested the Appellant cannot claim the assessments are wrong without adducing evidence which is the very documents it has refused to avail. It cited the case of Ngurumani Traders Ltd vs. Commissioner of Investigations and Enforcement (TAT Appeal No. 125 of 2017).

52. It asserted that the Appellant is required to object to the assessments within the provisions of Section 51 (3) of the Tax Procedures Act, 2015. It further asserted that it is the duty of the Appellant to provide documents whenever required by the Commissioner. 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.

53. The Respondent argued that the Appellant failed to support its objection with relevant documents despite email reminders. It further argued that it requested for relevant documents which were not availed except for the financial statements. That the Appellant did not provide specifically requested documents including trial balances and detailed ledgers, expense supporting documents (invoices and evidence of payment), and bank statements.

54. It contended that the Appellant having not provided documents or explanations capable of making the assessment vacated or amended, the Respondent correctly confirmed the assessment and rejected the objection.

55. The Respondent submitted that the Appellant failed to support its objection as required and cited the case of Dryer & Dryer Limited vs. Commissioner of Domestic Taxes TAT NO. 139 of 2020 [2021] eKLR.

56. The Respondent submitted that the Appellant did not provide relevant supporting documents as required by Section 51 (3) (c) of the Tax Procedures Act, 2015 hence the rejection of the objection and the confirmation of the assessment was within the law as the Appellant only alleges the documents were provided which claim is denied by the Respondent. It added that the Appellant has not adduced any evidence supporting the claim that documents were availed.

57. The Appellant has not availed documents in opposition to the assessments but has only made assertions with no evidence. The Respondent relied on the cases of Alfred Kioko Muteti vs. Timothy Miheso & another [2015] eKLR and Anne Wambui Ndiritu vs. Joseph Kiprono Ropkoi & another [2004] eKLR and submitted that the Appellant has failed to discharge its burden by adducing evidence.

58. The Respondent relied on the case of Wilken Telecommunications vs. Commissioner of Domestic Taxes TAT 195 OF 2021 to buttress how it verified the statements and how the statements were calculated since the Appellant only provided financial statements without supporting documents.

59. The Respondent cited the cases of Kasango LJ in Sheria Sacco Limited vs. Commissioner of Domestic Taxes (2019) eKLR and Commissioner of Domestic Taxes vs. Metoxide Africa Ltd E121 of Republic vs. Kenya Revenue Authority; Proto Energy Limited (Ex Parte) (Judicial Review Application E023 of 2021) [2022].

60. It cited the case of Commissioner of Domestic Taxes vs. Metoxide Africa Ltd E121 of 2021 and submitted that the Respondent is not only to receive documents but to scrutinize the documents.

61. In conclusion, the Respondent submitted that the assessments are proper in law and the objection was properly rejected. The requested documents were not availed to support the objection. Further, the Appellant has neither sought leave to appeal out of time nor lodged a notice of appeal making the entire appeal fatally defective.

The Respondent’s prayers 62. The Respondent, therefore, prayed for orders that the Tribunal:a.Upholds the Respondent’s assessment as proper and in conformity with the provisions of the law.b.Upholds the objection decision carried out by the Respondent.c.Dismisses this Appeal be dismissed with costs to the Respondent.

Issues For Determination 63. After perusing the Memorandum of Appeal and parties' Statements of Facts together with the Respondent’s submissions and documentation attached therewith, the Tribunal presents the following as the issue for determination:Whether there is a competent Appeal before the Tribunal.

Analysis And Findings 64. The Tribunal wishes to analyze the issue as herein-under.

65. The Respondent raised a preliminary objection on the grounds that the Appellant had made an Appeal out of time without first seeking leave of the Tribunal and that there is no Notice of Appeal hence the entire Appeal is invalid.

66. The Respondent relied on Section 13 of the Tax Appeals Tribunal Act and Rule 10 of the Tax Appeals Tribunal (Procedure) Rules 2015 and stated that it issued its decision on 16th September 2022 which was communicated promptly to the Appellant.

67. It reiterated that the Appellant was required to lodge a Notice of Appeal by 16th October 2022 failure to which the Appellant was required to first seek leave and failure to seek leave would render the Appeal invalid.

68. Further, it contended that the Appeal is incompetent for being filed without a Notice of Appeal contrary to Section 12 as read together with Section 13 (1) of the Tax Appeals Tribunal Act, which provides as thus;“12. Appeals to the TribunalA person who disputes the decision of the Commissioner on any matter arising under the provisions of any tax law may, subject to the provisions of the relevant tax law, upon giving notice in writing to the Commissioner, appeal to the Tribunal.Provided that such person shall before appealing, pay a non-refundable fee of twenty thousand shillings.”

13. Procedure for appeal1. a notice of appeal to the Tribunal shall –a.be in writing or through electronic means;b.be submitted to the Tribunal within thirty day upon receipt of the decision of the Commissioner.”

69. On its part, the Appellant averred that having been issued with an objection decision, it exercised its right of Appeal pursuant to Section 51 of the Tax Procedures Act and lodged a Notice of Appeal to this Tribunal well within time on 27th September 2022.

70. Gleaning through the various documents presented before it, the Tribunal notes that there is no Notice of Appeal on record.

71. The Notice of Appeal is a mandatory document envisaged in law for an appeal to be considered as competently presented before the Tribunal.

72. The Tribunal finds that the Appeal herein is fatally defective and is therefore incompetent and untenable in law. The Appeal is therefore not validly and properly before the Tribunal.

Final Decision 73. The upshot to the foregoing is that the Appeal is incompetent, and the Tribunal consequently makes the following Orders; -a.The Appeal be and is hereby struck out.b.Each party bears its own costs.

74. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 26TH DAY OF JANUARY, 2024ROBERT M. MUTUMA - CHAIRPERSONDR. WALTER ONGETI - MEMBERMUTISO MAKAU - MEMBERELISHAH N. NJERU - MEMBERBONIFACE K. TERER - MEMBER