[2025] KETAT 55 (KLR)

Eveready Security Guards Limited v Commissioner of Domestic Taxes (Tax Appeal E068 of 2024) [2025] KETAT 55 (KLR) (31 January 2025) (Judgment)

Neutral citation: [2025] KETAT 55 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E068 of 2024

RM Mutuma, Chair, M Makau, Jephthah Njagi, D.K Ngala & T Vikiru, Members

January 31, 2025

Between

Eveready Security Guards Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company duly incorporated under the Companies Act of the Laws of Kenya and whose principal business activity is provision of security services.

2. The Respondent is the principal officer appointed under Section 13 of the Kenya Revenue Authority Act, and mandated with the responsibility for the assessment, collection and accounting for all tax revenue as an agent of the Government of Kenya. The Respondent is also mandated with the responsibility for the administration and enforcement of the statutes set out under the schedule to the said Act.

3. The Respondent conducted a review of the Appellant’s declared tax returns for the years 2019- 2021, which the Respondent stated indicated there were reconciliations relating to bank charges, benevolent deduction deducted twice, double claimed directors Sacco charges and amounts below PAYE threshold which revealed inconsistencies. Following the review, the Respondent issued the Appellant with an assessment notice dated 2nd August 2023 for the sum of Kshs. 21,269,640. 25.

4. The Appellant objected to the additional assessment raised by the Respondent vide a letter dated 23rd October 2023. The Respondent reviewed the objection application and informed the Appellant vide its letter dated 31st October 2023 that its objection notice was invalid and requested for additional documents.

5. The Appellant responded vide its letter dated 17th November 2023 stating that it was fully compliant with the provisions of Section 51 (3) of the Tax Procedures Act.

6. Consequently, the Respondent issued its Objection Decision vide its letter dated 14th December 2023 and confirmed the assessed taxes in the total sum of Kshs. 27,437,835. 92 inclusive of penalties and interest.

7. The Appellant aggrieved by the Respondent’s Objection Decision lodged its Notice of Appeal dated 11th January 2024 and filed on 24th January 2024.

The Appeal 8. The Appellant filed its Memorandum of Appeal dated 23rd January 2024 and filed on 24th January 2024 and set out the following grounds of appeal;a.That the Respondent erred in law by rendering its Objection Decision on 14th December 2023 which decision was rendered 99 days (both days inclusive) after the Appellant had lodged its objection dated 8th September 2023 via email of even date;b.That the Respondent’s additional tax assessment for PAYE covering the period 2021 is illegitimate and erroneous as sufficient information and explanations were provided before the assessment was made;c.That the Respondent erred in law and fact by disregarding the Appellant’s schedule of employees below the PAYE threshold on the basis of lack of unique identifiers to prove the authenticity of the records;d.That the Respondent made an erroneous finding in finding that the Appellant’s payroll for the period 2021 failed to reconcile the variances arrived at yet most of the reconciling items were paid to employees that were below the taxable threshold; and,e.That the Respondent erred in fact by holding that the Appellant’s supporting documents as provided were not sufficient to support the variances on PAYE declared for the period 2021 and the payroll payments for the period 2021.

The Appellant’s Case 9. The Appellant’s case is set out on its;a.Statement of Facts dated 23rd January 2024 and filed on 24th January 2024; and,b.Written submissions dated 4th September 2024 and filed on 9th September 2024.

10. The Appellant stated that on the 17th August 2022, the Respondent vide a letter of even date issued a notice of intention to verify tax declarations to the Appellant, under Section 59 of the Tax Procedures Act.

11. Following the receipt of the aforesaid notice, the Appellant vide a response letter dated 28th October 2022 requested to be allowed 45 days to provide the requested documents for the years 2019, 2020, and 2021 stipulated in the notice which include;- General ledger;- Sales and purchases invoice;- Bank statements; and,- Payroll.

12. The Appellant stated that vide an email dated 9th December 2022 yet again requested for documents, and the Appellant vide a response letter dated 20th December 202 explained to the Respondent that it was sorting out its documents which were mixed up and destroyed following a forced eviction from their business premises. The Appellant also on the same date forwarded to the Respondent its financial statements for the years 2019, 2020, and 2021 and undertook that it would strive to retrieve the outstanding requested documents.

13. The Respondent vide an email dated 20th January 2023 once again requested for the Appellant’s documents, and the Appellant vide a letter dated 26th January 2023 provided the said required documentation.

14. The Appellant stated that the Respondent thereafter issued its additional tax assessment vide a letter dated 4th August 2023 which letter was received by the Appellant on 9th August 2023.

15. The Appellant further stated that on 8th September 2023, it lodged its objection to the additional tax assessment via email on the same date. The said objection was lodged together with supporting documents which were also attached to the email. The Appellant lodged the objection via email and not on the iTax platform since the additional tax assessment had not been posted on iTax and the mandatory 30 days timeline of lodging an objection was set to lapse on 9th September 2023.

16. The Appellant also averred that on 26th October 2023, once the additional tax assessment had been posted on iTax, the Appellant lodged its objection through iTax attaching its objection dated 8th September 2023. The additional tax assessment issued by the Respondent was clear to the effect that the Appellant had 30 days from the date of receipt of the additional assessments to lodge its objection. Consequently, if the Appellant had opted to wait for the posting of the additional tax assessment on its iTax ledgers then the 30 days timeline would have lapsed rendering its filed objection invalid, the Appellant averred.

17. It was also averred that the Respondent vide an email dated 31st October 2023 sent to the Appellant from the objection department, acknowledged receipt of the Appellant’s objection and granted the Appellant seven (7) days to comply with Section 51 (3) of the TPA.

18. The Appellant stated that it responded on 17th November 2023, and confirmed and informed the Respondent that it had fully complied with on the date of lodging the objection. However, out of abundance of caution it proceeded once again to re-forward the supporting documents it had provided at the objection date to enable the Respondent review its objection and make a decision.

19. Subsequently, the Respondent rendered its Objection Decision dated 14th December 2023 via email upholding and confirming the assessment in entirety.

20. The Appellant contends the said Objection Decision was made 99 days after the date of lodging its objection in contravention of the provisions of Section 51 (11) of the TPA, and as such the Appellant’s objection notice dated 8th September 2023 was deemed allowed by operation of the law.

21. The Appellant also contended that the Respondent’s additional tax assessment for PAYE covering the period 2021 is illegitimate and erroneous as sufficient information and explanations were provided before the assessment was made.

22. The Appellant also contended that the Respondent erred in disregarding the Appellant’s schedule of employees below the PAYE threshold on the basis of lack of unique identifiers to prove the authenticity of records.

23. The Appellant also contended that the Respondent further made an erroneous finding in finding that the Appellant’s payroll for the period 2021 failed to reconcile the variances arrived at yet most of the reconciling items were paid to employees that were below the taxable threshold.

24. In its submissions, the Appellant stated that it is evident from the record that the Appellant issued its Objection Decision on 14th December 2023, which goes to confirm that the Objection Decision was issued 99 calendar days from the date of the objection notice (i.e. 8th September 2023).

25. The Appellant submitted that the additional assessment letter dated 4th August 2023 was sent via email to the Appellant on 9th August 2023, and consequently in keeping with the provisions of Section 51 (2) of the TPA, the Appellant lodged its notice of objection dated 8th September 2023 via email on the said date. The Appellant in the said email explained that it could not lodge its notice of objection via iTax as the additional tax assessments did not reflect in its iTax ledger. It was submitted that had the Appellant waited for the posting of the additional assessment on its iTax ledgers, its objection would have been filed out of time thus rendered invalid given that the additional tax assessment was posted in its iTax ledger on 26th October 2023.

26. The Appellant submitted that there is no specific format that a notice of objection should conform with other than requirements provided under Section 51 (3) of the TPA. In essence, the fact that the notice of objection herein was initially lodged via email is a matter of form and not of substance incapable of rendering the notice of objection as invalid.

27. To buttress its submissions, the Appellant cited the case of Republic vs. Kenya Revenue Authority Exparte MKopa Kenya Ltd [2018] eKLR, where the court held;“In my view, since there is no format for making an objection, what is required is the substance rather than the form. What the law frowns at is an objection that is framed in such an ambiguous manner as not to be certain whether the taxpayer is seeking further particulars or indulgence to enable it pay the taxes demanded. In this case the applicant had clearly made what w in substance an objection as envisioned under Section 51 of the Tax Procedures Act.”

28. It was submitted that the relevant provision of Section 51 (3) states;“(3)A notice of objection shall be treated as validly lodged by a taxpayer under sub-section (2) if –a.The notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments; and,b.In relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute;c.All the relevant documents relating to the objection have been submitted.”

29. It was submitted that the Appellant’s objection complied with the above requirements. The Appellant’s objection lodged on 8th September 2023 precisely stated the grounds of the objection, the Appellant settled all the amounts not in dispute and submitted all relevant documents in support of its objection (as per the Appellant’s list of documents).

30. The Appellant also submitted that it lodged its notice of objection within 30 days and in conformity with Section 51 (3) of the TPA. It further submitted that the Respondent in a calculated ploy to circumvent and extend the 60-day statutory timeline required to render its Objection Decision purported to issue a request for documentation to the Appellant via an email dated 31st October 2023.

31. It was further submitted that in response, the Appellant vide a letter dated 17th November 2023 confirmed its position that it had lodge a valid objection with all the required documents and out of an abundance of caution forwarded the same documents it had earlier attached. Subsequently, there was no response from the Respondent other than the Objection Decision dated 14th December 2023. The Appellant further submitted that based on the Respondent’s conduct, it was evident that it agreed with the Appellant’s position in the letter dated 17th November 2023 which was to the effect that its notice of objection lodged on 8th September 2023 was a valid notice of objection.

32. It was further submitted that, having confirmed that the notice of objection dated 8th September 2023 was validly lodged on the same date, and going by the provisions of Section 51 (11) of the TPA, the Respondent was obligated to render its Objection Decision within sixty (60) days from 8th September 2023. Consequently, the Objection Decision ought to have been delivered by 8th November 2023, and not 14th December 2023.

33. To buttress its submission the Appellant relied on the case of Eastleigh Mall Ltd vs. Commissioner of Investigations & Enforcement (ITA E060/2020) 2023 KEHC 2000 KLR, where the court stated;“It is clear from the foregoing that the provisions of Section 51 (11) of the TPA are mandatory. They are not cosmetic. Parliament in its wisdom knew that in matters tax, time is very crucial as those in commerce need to make informed decisions. If the Commissioner is allowed to exercise his discretion and stay ad-infinitum before issuing an objection decision, the taxpayer would be unable to make crucial decisions and plan his /her business properly. The timelines set are mandatory and not a procedural technicality.”

34. The Appellant submitted that in view of the foregoing, the Respondent clearly contravened the provisions of Section 51 (11) of the TPA, and thus its Objection Decision issued beyond the statutory timeline of 60 days from the date of lodging the notice of objection was time barred and thus the Appellant’s objection dated 8th September 2023 stood allowed by operation of the law.

35. The Appellant also submitted that under Section 56 (1) 0f the TPA, the burden of proof as to whether a tax decision is incorrect lies on the taxpayer, and that it was its submission that it had in this instance sufficiently discharged this burden of proof.

36. It was submitted that the Respondent in arriving at its decision that there was a variance of Kshs. 21,269,640. 25 for PAYE payable by the Appellant, the Respondent disregarded the fact that there were employees of the Appellant who were below the PAYE threshold. In particular, the Respondent’s decision to overlook the Appellant’s payroll schedule on the basis that it did not have unique identifiers is found to be manifestly erroneous.

37. It was submitted that pursuant to the Third Schedule of the Income Tax Act, PAYE is only applicable to persons earning a gross monthly salary of Kshs. 24,000. 00 and above which translates to an annual income of Kshs. 288,000. 00 and above. In effect any person earning a salary of below Kshs. 24,000. 00 monthly are not subject to imposition of the PAYE tax.

38. The Appellant further submitted that to explain the variance in PAYE tax payable, it supplied the Respondent with a schedule capturing all employees below the PAYE threshold of Kshs. 24,000. 00. It submitted that there is no regulatory requirement dictating that Payrolls ought to have national identity card number details, nonetheless the Appellant in its objection attached its payroll with ID numbers and KRA PINs of its employees.

39. It was submitted that a review of the said schedule of employees reveals that indeed there were guards who were earning a gross salary below the PAYE threshold hence it behooved the Respondent to take into account these employees and reconcile the same with the variances captured. It was averred that on average these approximately 500 guards employed in the year 2021 were earning between Kshs. 15,000. 00 and 17,000. 00, which translated to more than Kshs. 90,000,000. 00 paid out in the year 2021 in salaries.

40. The Appellant submitted that it is the foregoing figure the Respondent has imposed a flat rate of 30 % and demanded more than Kshs. 27,000,000. 00 in PAYE.

41. The Appellant submitted that this tax imposition is unfounded in law, untenable, draconian and erroneous. Missing ID numbers and KRA PINS to identify employees in the payroll cannot form the basis of raising additional taxes. Nevertheless, the stated information was provided by the Appellant in its supporting documents yet this schedule was yet again disregarded by the Respondent.

42. The Appellant to buttress its submission cited the case of Republic vs. Commissioner of Domestic Taxes Large Taxpayers Office Exparte Barclays Bank of Kenya Ltd [2012], where the often-cited case of Cape Brady Syndicate vs. Inland Revenue Commissioners (1920) 1 KB 64 was cited with approval.

43. The Appellant submitted that the taxes imposed by the Respondent must be in conformity with tax legislation. Imposition of PAYE on income below the PAYE threshold as is in this case amounts to a nullity hence the tax decision made by the Respondent is erroneous in substance. It was therefore submitted that in considering the Appellant’s objection, the Respondent was bound to take into account the schedule of employees below the PAYE threshold in its computation of taxes.

The Appellant’s Prayers 44. By reason of the foregoing the Appellant prayed that the Honourable Tribunal;a.Finds the Appellant’s Appeal merited and allow the same;b.Sets aside the Respondent’s Objection Decision dated 14th December 2023 and consequential orders therefrom;c.Award the costs of the Appeal to be borne by the Respondent; and,d.Grant any other reliefs the Honourable Tribunal may deem fit and just to grant in the circumstances of this Appeal.

The Respondent’s Case 45. The Respondent’s case is premised on;a.The Statement of Facts dated and filed on 23rd February 2024 together with the documents attached thereto;b.Written submissions dated and filed on 12th September 2024.

46. The Respondent stated that it conducted a review on the Appellant’s declared tax returns for the years 2019 – 2021, but the dispute subject of this Appeal is in respect to the PAYE for the year 2021.

47. It stated that the review showed that there were reconciliations relating to bank charges, benevolent deductions deducted twice, double claimed directors Sacco charges and amounts below PAYE threshold. However, the amounts relating to NSSF and pension were well supported and formed part of the employment costs claimed in the income tax returns for the period.

48. It was stated that the Appellant averred that there were amounts of Kshs. 67,542,335. 55 that related to employees who were below PAYE threshold but a review of the same reconciliation revealed inconsistencies for the amounts declared per month for the period August 2020 to July 2021.

49. The Respondent also stated that the reconciliation for employees below PAYE threshold was further reviewed and the same compared to payroll summary figures as below for the guards on monthly basis for the period. The analysis revealed that there were inconsistencies in the reconciliation provided and thus the Respondent could not depend on this reconciliation, specifically noted the months of January to April and June 2021.

50. It was further stated that a review of the payroll provided for the above amounts showed that the employee details were inconsistent. Thus, some employees did not have personal numbers, identity card numbers for the entire payroll period.

51. The Respondent also stated that its review of the Appellant’s bank statements did not show the details of employee payments but there were lumpsum figures for the debits and we could not verify payments via bank for the monthly individual payments.

52. It stated that other reconciling items for the year 2021 relating to dismissal were not supported and the Appellant did not provide a breakdown and supporting documents, hence the same was charged at the rate of 30 % for PAYE.

53. Consequently, following the conclusion of the review, the Respondent issued upon the Appellant an assessment notice dated 2nd August 2023, the Respondent averred.

54. The Respondent also averred that the Appellant objected to the additional assessment raised by the Respondent vide a letter dated 23rd October 2023, and subsequently lodged the objection on iTax on 26th October 2023.

55. It stated that while reviewing the Appellant’s objection, it informed the Appellant that the objection was invalid and requested that it provides additional documents vide an email dated 31st October 2023. The Appellant responded to the email vide a letter dated 17th November 2023 making reference to the objection of 23rd October 2023 stating that they were fully compliant with the provisions of Section 51 (3) of the TPA.

56. The Respondent stated that it consequently issued its Objection Decision vide a letter dated 14th December 2023 upholding all of the demanded taxes. The Objection Decision was in reference to the objection dated 23rd October 2023 and was indeed within 60 days timeline prescribed under Section 51 (11) of the TPA.

57. It was stated that the Appellant aggrieved by the Respondent’s Objection Decision of 14th December 2023, the Appellant filed a notice, Memorandum of Appeal and Statement of Facts on 24th January 2024.

58. In its Response to the Appeal, the Respondent stated that it will raise a preliminary objection contesting the validity of the Appeal.

59. The Respondent stated that the Appellant lodged its objection on 23rd October 2023 which was served upon the Respondent on the same date in line with Gazette Notice No. 12048 of 9th November 2018. The Respondent proceeded to review the said objection and issued an Objection Decision within 60 days timeline as required by law. It stated that indeed, it is the said objection of 23rd October 2023 that precipitated the Objection Decision of 14th December 2023, now subject of the Appeal before the Tribunal.

60. The Respondent further stated that the Appellant’s purported objection of 8th September 2023 being inconsistent with Gazette Notice No. 12048 of 9th November 2018 was abandoned by the Appellant, with the Appellant proceeding to lodge a proper objection on 23rd October 2023, the objection of which was reviewed and an Objection Decision made as required by law.

61. It stated that with the assessment being issued on 2nd August 2023 and objection lodged on 23rd October 2023, the said objection was invalid as it was outside the timelines prescribed in law.

62. Consequently, the Respondent stated that it issued an Objection Decision in accordance with the provisions of Section 51 (11) of the TPA which was communicated vide a letter dated 14th December 2023 which was 53 days after the objection was lodged, and not 99 days as claimed by the Appellant.

63. The Respondent also averred that before the assessment was issued and objection decision made, thorough analysis of the Appellant’s objection was done which demonstrated that there was under declaration of PAYE and the Appellant’s grounds of appeal are thus erroneous and unsupported.

64. The Respondent stated that it is not bound by the information provided by the Appellant and it can assess the Taxpayer’s tax liability using any information available to it as per the provisions of Section 24 (2) of the TPA. The Respondent stated that the assessments were based on the information available to it at the time of the review.

65. Further, the Respondent stated that the Appellant is required by Section 37 of the Income Tax Act to deduct and account for tax on all the salaries paid.

66. The Respondent avers that the Appellant having not provided the requisite information showing the unique identifiers of the employees to prove that the alleged employees were paid below the taxable amounts, the Respondent could not rely on the information they provided in this regard, and the disallowed sums were chargeable to tax.

67. The Respondent stated that in light of the above, the Appellant failed to discharge its burden of proof as per the provisions of Section 56 (1) of the TPA, which states;“(1)In any proceedings under this part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

68. In its submissions, the Respondent stated that the Appellant duly lodged its objection on 23rd October 2023 which objection was considered and Objection Decision made on 14th December 2023 within the required timeline of 60 days and after various correspondence between the Appellant and the Respondent on the validation of the said objection.

69. It was submitted that in its Appeal and submissions, the Appellant avers that it purportedly lodged a proper objection on 8th September 2023 thus making the Objection Decision of 14th December 2023 time barred.

70. It was further submitted that after verification of the Appellant’s books of accounts, assessments were issued to the Appellant on 2nd August 2023 by the Deputy Commissioner, Medium Taxpayers Office, on behalf of the Commissioner of Domestic Taxes.

71. It was also submitted that once the Commissioner issues an assessment which a taxpayer desires to object, Gazette Notice No. 12048 of 19th November 2018 kicks in and the assessing commissioner is rendered “functus officio”, and the consideration of the objection is delegated to the Commissioner responsible for tax disputes resolution.

72. The Respondent submitted that contrary to the requirements of the aforesaid Gazette Notice, the Appellant purported to lodge an objection on 8th September 2023 directed to the Commissioner Domestic Taxes Department (Medium Taxpayers Office), rather than to the Independent Review of Objections unit which is required to consider the objection.

73. It was further submitted that having established the error, the Appellant proceeded and lodged a proper objection on 23rd October 2023, lodged on iTax on 26th October 2023, and acknowledged by IRO on 31st October 2023. It was stated that thereafter there was exchange of correspondence between the parties regarding the objection lodged on 23rd October 2023.

74. The Respondent submitted that the Objection Decision dated 14th December 2023 was therefore within the statutory timelines.

75. The second limb of the Respondent’s submissions is in regard to whether the assessments against the Appellant were justified.

76. The Respondent submitted that the reason why the assessment was confirmed and the Appellant’s objection disallowed is because the Appellant failed to discharge the burden of proof by providing various documentation, which documentation the Appellant failed to adduce have been well stated in the statement of findings in the Objection Decision and further as demonstrated in the various correspondences during the audit and assessment.

77. It was also submitted that the Appellant in its Appeal and submissions has nor addressed itself to all the grounds/issues which the Objection Decision was based on as per the statement of findings in the Objection Decision;a.Whether they provided information as to the instructions given to the bank on the consolidated debit entries purporting to be payment of employees that were allegedly below the threshold. The issue is therefore uncontested and the Respondent has addressed itself on the same in its statement of facts and submissions.b.Whether proper reconciliation was done by the Appellant to explain away PAYE variances. The issue is uncontested and the Respondent has addressed itself on the same in its statement of facts and submissions.c.Whether the alleged employees below the PAYE threshold had proper identifiers, noting that this is the only issue that the Appellant has attempted to explain and base its Appeal on.

78. It was submitted that the failure to discharge the burden of proof on the foregoing issues renders the Appeal unmerited and liable for dismissal.

79. The Respondent submitted that it is empowered by law to request for relevant additional documents and the Appellant or the Tribunal cannot question that power as the request for further information was reasonable. It cited the case of Commissioner of Domestic Taxes vs. Galaxy Tools Ltd (2021) eKLR to buttress the submissions.

80. The Respondent further submitted that the payroll for the period failed to reconcile the variances which had been arrived at. The Appellant had also not provided information before the Tribunal to demonstrate how the reconciliation was done by the Appellant in order to explain the variances.

81. It was also submitted that the payroll costs incurred could not be authenticated and validated as the Appellant provided schedule capturing all the employees below the threshold with no unique identifiers of these employees necessary to avoid duplicated entries of the said employees. It is for this reason the Respondent requested for the unique identifiers capable of identifying each individual employee below the PAYE threshold.

82. The Respondent submitted that the Appellant has alleged that in the form of PINS and IDs were provided. It was submitted this contention by the Appellant is lacking in merit and intended to mislead and hoodwink the Tribunal, as it is clear that the list provided by the Appellant as containing the identifiers of the employees does not include all its employees, and is only in respect of a select number of employees, most of whom were not target of the assessment. The records thrown at the Tribunal is submitted to be incoherent and unreconciled list.

83. It was submitted that the Tribunal has held that the burden of proof does not operate by way of a taxpayer throwing generalized arguments at the Tribunal. The Appellant is required to pinpoint and provide to the Tribunal or proper particulars to enable the Tribunal to interrogate its argument.

84. The Respondent cited the case of TAT 924 of 2022 Samuel Mwangi Mathu vs. Commissioner of Domestic Taxes, where it was stated;“The Tribunal notes that the Appellant has not provided details and evidence of any expenses or a breakdown of the allowable deductions which were disallowed. As such the Tribunal is left with no choice but to find that the Appellant is merely making generalized assertions without backing the same with evidence and proper particulars to enable the Tribunal interrogate its arguments.”

85. It was therefore submitted that the Appellant is not only required to provide the number of employees which were below the threshold but is equally obligated to ensure that the details provided are verifiable. It was stated that the importance of relevant and material evidence was emphasized in the case of Commissioner of Domestic Taxes vs. Trical and Hard Ltd [2022] KEHC 9927 (KLR).

86. The Respondent further submitted that where a document is provided by a taxpayer challenging an assessment/demand, for which the Commissioner expresses doubt or questions its veracity, then the burden automatically shifts to the taxpayer to challenge the Respondent’s position. Unless that burden is discharged, the Respondent’s position remains lawful and correct. The case of Galaxy Tools (supra) was cited to buttress the submission.Also cited was the case of Osho Drapers Ltd vs. Commissioner of Domestic Taxes (2022) eKLR, where it was stated;“…without provision of such documents, the suspicion raised by the varying mode of payments persisted, hence both the Respondent and Tribunal justly found that the Appellant failed to sufficiently discharge its burden of proof.”

87. In light of the foregoing the Respondent submitted that the Appellant failed to discharge its burden of proof as per the provisions of Section 56 (1) of the TPA, which provides;“(1)In any proceedings under this part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

The Respondent’s Prayers 88. By reason of the foregoing the Respondent prays that the Honourable Tribunal;a.Upholds the Respondent’s Objection Decision as proper and in conformity with the provisions of the law; and,b.Dismisses the appeal herein with costs to the Respondent as the same is devoid of merit.

Issues For Determination 89. The Tribunal having carefully considered the pleadings filed, material adduced, and submissions made by the parties, is of the considered view that the Appeal distils into two issues which commend for determination as follows;i.Whether the Respondent’s Objection Decision dated 14th December 2023 was validly issued; and,ii.Whether the Respondent’s assessment for PAYE in the sum of Kshs 21,269,640 for the year 2020 issued against the Appellant was justified

Analysis And Determination 90. Having identified the issues, the Tribunal proceeds to analyze and determine the same as hereunder;

i. Whether the Respondent’s Objection Decision dated 14th December 2023 was validly issued. 91. The dispute subject of this appeal arose as a result of a compliance audit conducted by the Respondent on the Appellant in respect of PAYE returns for the financial year 2020. The Respondent subsequently issued an assessment for the sum of Kshs. 21,269,640. 00 against which the Appellant lodged an objection notice. Following correspondence and engagement between the parties, the Respondent issued its Objection Decision on 14th December 2023.

92. The Appellant has contended that the Respondent’s Objection Decision was issued beyond the statutory timeline and hence its objection was allowed by operation of the law.

93. The Appellant has averred that it lodged its Objection Decision on 8th September 2023 via email, after it was served with the Respondent’s additional tax assessment dated 4th August 2023 on the 9th August 2023. It averred that in the email it explained that it could not lodge its notice of objection via iTax as the additional tax assessments did not reflect in its iTax ledger. The additional tax assessment was lodged on iTax on 26th October 2023, and had it waited for the posting of the additional assessment on its iTax ledgers, its objection would have been filed out of time thus rendered invalid. It stated that once the additional assessment was posted by the Respondent on iTax on 26th October 2023, it also lodged its objection through iTax and attached its objection dated 8th September 2023. It stated that it received a response to the same from the Respondent vide a request for documents dated 31st October 2023, and responded that it had complied with the provisions of Section 51 (3) of the TPA.

94. The Appellant submitted that there is no specific format that a notice of objection ought to conform to, other than conformity with the requirements provide for under Section 51 (3) of the TPA, and it’s a matter of form and not substance capable of rendering the notice of objection as invalid. The Appellant cited the case of Republic vs. KRA Exparte MKopa Ltd [2018] eKLR to buttress these submissions.

95. The Appellant contended that the Respondent’s Objection Decision which was issued on 14th December 2023, was thus made 99 days after the date of lodging the objection dated 8th September 2023 in contravention of Section 51 (11) of the TPA, and the objection was therefore deemed allowed by operation of the law.

96. The Respondent on its part averred that the Appellant lodged its objection on 23rd October 2023, and the same was reviewed within the statutory timeline of 60 days and an Objection Decision issued on 14th December 2023. The Respondent argued that the Appellant’s objection dated 8th September 2023 was inconsistent with Gazette Notice No. 12048 of 9th November 2018, and was abandoned by the Appellant who proceeded to lodge another objection on 23rd October 2023, and this is the objection which was reviewed and the Objection Decision issued on 14th December 2023.

97. It stated that the Appellant purported to lodge an objection notice on 8th September 2023 directed to the assessing commissioner of Domestic Taxes Department contrary to Gazette Notice No.12048 of 9th November 2028, rather than to the independent Internal Review of Objection unit (IRO) under the Commissioner for Legal Services & Board Coordination, which under the law is required to consider the objections. It submitted that the objection that was properly before it was the one lodged on 23rd October 2023 and further lodged on iTax on 26th October 2023. It also submitted that the objection of 8th September 2023 having been lodged by the Appellant contrary to the requirements of the Gazette Notice 12048 of 19th November 2018 was a non-existent objection and effectively abandoned.

98. The Respondent also submitted that with the assessment having been issued on 2nd August 203 and an objection lodged on 23rd October 2023, the said objection was invalid as it was outside the timelines prescribed by the law.

99. The Respondent submitted that it issued an objection decision in accordance with the provisions of Section 51 (11) of the TPA which was communicated vide a letter dated 14th December 2023 which was 53 days after the objection was lodged, and not 99 days as contended by the Appellant.

100. The Tribunal has carefully considered the material adduced, arguments and submissions for and against made by both parties. The Tribunal is at the outset satisfied that the core stratum of the instant issue is whether the Appellant’s primary and substantive notice of objection is the one the Appellant lodged vide email on 8th September 2023, and contested by the Respondent or the one lodged on 23rd October 2023, and accepted by the Respondent.

101. With respect to the representations made by the Respondent on the Appellant’s objection notice dated 8th September 2023, and the effect of Legal Notice No.12048 of 19TH November 2018, the Tribunal with associates with the decision made by Lady Justice P. Nyamweya in Republic vs. KRA Ex-parte MKopa Kenya Ltd (supra), where it was held;“In my view since there is no format for making an objection, what is required is the substance rather than the form. What the law frowns upon is an objection that is framed in such an ambiguous manner as not to be certain whether the taxpayer is seeking further particulars or indulgence to enable it pay the taxes demanded. In this case the applicant had clearly made what was in substance an objection as envisioned under section 51 of the Tax Procedures Act …”.

102. From the foregoing the Tribunal is persuaded that the said Legal Notice has no effect on the format of the taxpayer’s objection notice, as the import of the same was to guide on the internal responsibility and mandate with regard to the Commissioner responsible for dispute resolution, rather than how, or where the taxpayers’ objections ought to be lodged.

103. As to the impugned objection notice dated 8th September 2023, though the Appellant has contended that the same was lodged vide email, it has not adduced any evidence of the said email notice and the supporting documentation thereto. The impugned email objection notice has been referred to widely in the Appellant’s statement of facts and submissions, but no evidence of the same has been tendered. The objection therefore remains an averment by the Appellant. The Respondent has also not acknowledged the impugned notice. The Tribunal therefore comes to the inescapable conclusion that the Appellant’s impugned objection notice purportedly dated 8th September 2023 is non-existent.

104. The Objection notice which has been adduced in evidence by the Appellant is the one dated 23rd October 2023 and acknowledged by the Respondent on 31st October 2023. This is the objection notice which has been subjected to an engagement and correspondence by the parties and an Objection Decision in respect thereof issued.

105. In light of the foregoing the Tribunal finds the Appellant’s valid objection was the one lodged on 23rd October 2023, which has been adduced before this Tribunal and the Respondent was justified to act upon the same in accordance with Section 51 (3), (8), (11) of the tax procedures Act.

106. Consequently, the Tribunal holds that the Respondent’s Objection Decision dated 14th December 2023 was validly issued.

ii. Whether the Respondent’s assessment for PAYE in the sum of Kshs. 21,269,640 for the year 2020 issued against the Appellant was justified. 107. The core strata of the dispute under this issue is the Appellant’s contention that the variance in PAYE in the sum of Kshs. 21,269,640. 00 deemed payable was on account of the Respondent disregarding the fact that the bulk of the employees of the Appellant were below the PAYE threshold.

108. The Appellant submitted that to explain to the Respondent the variance in PAYE, it furnished the Respondent with a schedule capturing all employees below the PAYE threshold of Kshs. 24,000. 00.

109. It contended that its employees, who are employed as guards, were on average about 500 employed in the year 2021 and were earning between Kshs. 15,000 – Kshs. 17,000. 00, which translated to more than Kshs. 90,000,000. 00 paid out in salaries in the year 2021, and as the guards as stipulated in the payroll were earning below the PAYE threshold, the Appellant did not have a duty to deduct and remit PAYE from their income.

110. The Appellant also submitted that taxes imposed by the Respondent must be in conformity with tax legislation. Imposition of PAYE on income below the PAYE threshold as is in this case amounts to a nullity hence the tax decision made by the Respondent is erroneous.

111. The Respondent on its part submitted that the reason why the assessment was confirmed and the Appellant’s objection disallowed is because the Appellant failed to discharge its burden of proof by providing various documentation as stated in the adduced Objection Decision, and correspondence between the parties, particularly instructions given to the banks on consolidated debit entries purporting to be payments of employees that were allegedly below the threshold, whether proper reconciliation was done by the Appellant to explain away PAYE variances, and whether the alleged employees below the PAYE threshold had proper identifiers.

112. The Respondent submitted that it is empowered by law to request for relevant additional documents and the Appellant cannot question that power as the request for information was reasonable in any case. It also submitted that where a document is provided by a taxpayer challenging a demand/assessment, for which the Commissioner expresses doubt or questions its veracity, then the burden automatically shifts to the taxpayer to challenge the Commissioner’s position, and unless that burden is discharged, the Commissioner’s position remains lawful and correct.

113. It was also submitted for the Respondent that the Appellant’s payroll for the period failed to reconcile the variances which had been arrived at, and the details of the employees provided were inconsistent as some employees did not have personal identification numbers and identity card numbers. It was further stated that the bank statements provided only showed the lump sum figures for the debits without demonstrating the individual employees that were to benefit from the consolidated debited amounts.

114. The Respondent further averred that the payroll costs incurred itself could not be authenticated and validated as the Appellant provided schedule capturing all the employees below the threshold without any unique identifiers of these employees, which was necessary to avoid duplicated entries of employees.

115. It was submitted that the records submitted by the Appellant were incoherent and unreconciled lists, which was in way throwing generalized arguments at the Tribunal as opposed to the Appellant pinpointing and providing the Tribunal with proper particulars to enable it interrogate its argument.

116. The Tribunal having considered the material adduced and submissions made notes that the Appellant has indeed made generalized averments and statements as regards the staff said to be below PAYE threshold without backing the same with solid evidence. The Appellant was not only required to provide the number of employees below the PAYE threshold but is equally obligated to ensure that the details provided are verifiable.

117. The Tribunal refers to the case of TAT 924 of 2022 Samuel Mwangi Mathu vs. Commissioner of Domestic Taxes, where it was stated;“The Tribunal notes that the Appellant has not provided details and evidence of the any expenses or a breakdown of the allowable deductions which were disallowed. As such the Tribunal is left with no choice but to find that the Appellant is merely making generalized assertions without backing the same with evidence and proper particulars to enable the Tribunal interrogate its arguments.”

118. The Appellant was requested to provide unique identifier numbers such as PIN and ID numbers of the respective employees to aid in the reconciliation of the impugned payroll, and establish that there were indeed employees below threshold. This information was under the control of the Appellant and required to be maintained under section 59 of the TPA, and would have helped the Appellant discharge its burden of proof. The bank debits for specific individuals would have demonstrated the individual employees below threshold in terms on the bank payments. On the contrary the Appellant failed to provide the requested information particularly the unique identifiers for the employees, reconciled payroll and provided bank statements with lumpsum debits instead of specific employee debits.

119. The Tribunal would associate with the Respondent’s submission that where a document is provided by a taxpayer challenging a demand or assessment, for which the Respondent expresses doubt or questions its veracity, then the burden automatically shifts to the taxpayer to challenge the Respondent ‘s position.

120. In the case of Osho Drapers Limited vs. Commissioner of Domestic Taxes [2022] eKLR, it was stated;“…without provision of such documents, the suspicion raised by the varying mode of payments persisted, hence both the Respondent and the Respondent justly found that the Appellant failed to sufficiently discharge its burden of proof.”

121. In the instant Appeal, the failure by the Appellant to provide the Respondent with the employees’ payrolls with unique identifies, proper reconciliation of variances, and broken-down specific bank payments instead of consolidated ones, meant that the Respondent could not verify and validate the extent of alleged employees below the PAYE threshold, if any.

122. Consequently, the Tribunal finds that the Appellant failed to sufficiently discharge its burden of proof by rendering sufficient and relevant evidence to prove that the Respondent’s PAYE assessment included employees who were below the PAYE threshold.

123. In view of the foregoing, the Tribunal finds and holds that the Respondent was justified in assessing and confirming the assessment for PAYE for the year 2021 in the sum of Kshs. 21,269,640. 00 against the Appellant.

124. The upshot of the foregoing is that the Appellant’s Appeal is found to be without merit and consequently fails.

Final Determination 125. The Appellant’s Appeal having failed the Tribunal makes the following orders;a.The Appellant’s Appeal be and is hereby dismissed;b.The Respondent’s Objection Decision dated 14th December 2023 be and is hereby upheld; and,c.The parties to bear their own costs.

126. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 31ST DAY OF JANUARY 2025ROBERT M. MUTUMA - CHAIRPERSONMUTISO MAKAU - MEMBERJEPHTHAH NJAGI - MEMBERDELILAH K. NGALA - MEMBERDR TIMOTHY B. VIKIRU - MEMBER