[2024] KETAT 460 (KLR)

Fahd Commodities Group Limited v Commissioner of Domestic Taxes (Appeal 276 of 2023) [2024] KETAT 460 (KLR) (Civ) (5 April 2024) (Judgment)

Neutral citation: [2024] KETAT 460 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Appeal 276 of 2023

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

April 5, 2024

Between

Fahd Commodities Group Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a company trading in the importation of maize and sugar as of 2017 and 2019. In the year 2021, the Appellant provided foreign customers services of procurement and shipping of wheat bran for export.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 of the laws of Kenya. 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 Parts 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 profiled for a returns review of VAT credit, imports and income tax for the September 2017 and August 2022 review period whereby the Respondent established suppressed sugar sales, inconsistencies in exempt sales and undeclared exports.

4. The Appellant ceased trading briefly in years 2017 and 2019 after incurring losses on maize importation.

5. In July 2021 the Appellant was appointed by ABS Trading LLC, an entity registered in the UAE, as an agent for the procurement and repackaging of wheat bran for foreign customers wherein the Appellant charged management and service fee only because the appointing entity did not have an establishment in Kenya.

6. On 8th November 2022, the Respondent, in a letter, informed the Appellant of its intention to issue additional assessments pursuant to Section 31 of the Tax Procedures Act No. 29 of 2015 (hereinafter ‘TPA’) with a response notice of 7 days. Subsequently, the Respondent proceeded to issue i-Tax generated notices of assessment on 18th November 2022 and 21st November 2022 totaling to Ksh 81,347,705. 66 comprising principal Value Added Tax(VAT) and Corporation Tax respectively.

7. On 15th December 2022, the Appellant lodged its online notice of objection to the entire assessment pursuant to Section 51(2) of the TPA stating its grounds of objection.

8. On 21st December 2022, the Respondent requested further information and documents; subsequently, the Appellant submitted the physical documents to the Respondent through letters dated 27th December 2022, 4th January 2023, 6th January 2023 and 14th January 2023.

9. On 20th February 2023, the Respondent issued its objection decision confirming VAT and Corporation tax totaling Ksh 113,448,822. 00 comprising principal tax, penalties and interest.

10. Aggrieved by the Respondent’s objection decision dated 20th February 2023, the Appellant filed its Notice of Appeal dated 18th March 2023 at the Tribunal on 20th March 2023.

The Appeal 11. The Appeal was premised on the following grounds as laid-out in the Memorandum of Appeal dated 31st March 2023 and filed on 5th April 2023;i.That the Respondent did not provide reasons for the objection decision pursuant to Section 51(10) of the TPA.ii.That the Respondent erred in law by issuing an objection decision beyond the statutory time limit of sixty (60) days as provided for under Section 51(11) of the TPA which deemed the Appellant’s objection as allowed by the operation of law.iii.That the Respondent erred in fact and law by issuing a decision without taking into consideration the Appellant’s comprehensive reconciliations, explanations and documents submitted in the objection notices.iv.That the Respondent made an error of fact and law by issuing agency notices to the Appellant’s bank for recovery of appealable taxes contrary to Section 42(14) of the TPA yet it did not communicate through any means or request for additional information, explanations or reconciliation documents.v.That the Respondent erred in fact and in law in finding that all imported sugar was sold by the Appellant in the year 2017 and proceeded to seek to collect input Value Added Tax (VAT) without taking into consideration assessments earlier issued for the November 2017 and February 2018 period.vi.That the Respondent erred in fact and law by finding that all funds received in the Appellant’s bank accounts could not be recognized as sales and that contrary to Section 3(2)(a)(i) of the Income Tax Act CAP 470 of Kenya’s Laws (hereinafter ‘ITA’), the Respondent imposed tax on the total value of 2021 exports.vii.That the Respondent could only impose and charge to income tax sales and turnover under Section 12(c) of the ITA which was not applicable for the Appellant in the years 2017 and 2019 when Appellant’s income crossed the Ksh 5million threshold as well as the year 2021 when turnovers crossed Ksh 50 million threshold.viii.That the Respondent made an error of fact and law in its 10% mark-up estimation on imported maize for year 2017 and 2019, imported sugar for year 2019 as well as the exported wheat bran for year 2021 by failing to consider the real market prices and profit computations provided by the Appellant in its objection notice.ix.That the Respondent erred in fact and in law when it did not include local direct costs paid by the Appellant for importation of maize and sugar in year 2017 and importation of maize in year 2019. x.That the objection decision was internally inconsistent and contradictory thereby rendering that part of the decision that imposed tax liability on the Appellant an invalid exercise of powers conferred to the Respondent.xi.That the Respondent clearly predisposed its mind to a position favorable to itself and against the Appellant from the outset and thereby failed to accord the Appellant the right to a fair hearing before an impartial authority as envisaged by or under the provisions of Article 50 of the Constitution of Kenya , 2010 (hereinafter ‘the Constitution’) therefore the decision was wrong in law under the Constitution and tax principles and was thus unjust, null and void and ought to be set aside.

Appellant’s Case 12. The Appellant stated as hereunder in its Statement of Facts dated 31st March 2023 and filed on 5th April 2023;

13. The Appellant averred that it was incorporated with a view to import and locally trade in food commodities and makes supply to local customers after arrival of supplies in Kenya and upon clearance for entry by the Respondent.

14. The Appellant averred that upon receipt of the Respondent’s notice of assessment and lodging of its notice of objection, the Appellant through its tax agent submitted the following documents through letters dated 27th December 2022, 4th January, 6th January and 14th January 2023 as requested for by the Respondent:i.Bank statements for the year 2017,2019 and 2021. ii.Tender and contract documents for the year 2017,2019 and 2021. iii.Sales ledger, purchases ledger and general ledger for the year 2017, 2019 and 2021. iv.Audited accounts for the year 2017,2019 and 2021. v.Income, costs and expenses invoices for the year 2017,2019 and 2021. vi.Debtors and creditors listing for the year 2017,2019 and 2021.

15. The Appellant averred that the Respondent failed to communicate even after receiving the requested information and documentation and even though the Respondent did not understand the Appellant’s nature of operations, transactions and business proceeded to issue the impugned objection decision on 20th February 2023.

16. It was the Appellant’s assertion that the Respondent failed to acknowledge the Appellant’s objection explaining the variances but instead relied solely on its customs data to issue the objection decision thus failed to grant the Appellant the right to fair hearing and presentation.

17. The Appellant stated that contrary to Section 51(3) and 51(10) of the TPA, the Respondent failed to issue any statement of findings or give material facts on the validity of submitted documents.

Income tax Company for Wheat bran for Year 2021 18. The Appellant stated that on 6th January 2023, the Respondent was served with copies of signed service agreement, invoices issued to ABS Trading LLC for the year 2021, NCBA bank statements and that the Appellant’s tax agent marked all deposits in the bank statements to invoices issued for the service. That from the foregoing it was clear that the Appellant was able to provide documentation confirming its service income for the year 2021. That the tax agent also submitted the breakdown of expenses and costs that the Appellant paid for the year 2021.

19. The Appellant averred that since the Respondent did not understand the nature of the Appellant’s transactions, it set aside the explanations and reconciliations provided in the notice of objection when it computed and assessed income tax on the total exported value of the wheat bran of Ksh 112,484,077. 00 as declared in the customs data information.

20. The Appellant stated that the Respondent failed to allow for cost of export value paid by the Principal and instead relied only on customs export information yet the Appellant was a service provider not a supplier of exported wheat bran; and that was why the Respondent did not find detailed invoices issued by the Appellant showing direct and indirect costs. Additionally, transfers were done directly to local wheat millers by ABS Trading LLC not to the Appellant. The Appellant relied on Part 1(2)(1) of the ITA in defining Agency fees as;“agency fees means payments made to a person for acting on behalf of any other person or group of persons, or on behalf of the Government and excludes any payments made by an agent on behalf of a principal when such payments are recoverable.”

21. That despite the Appellant being an agent for wheat bran export from Kenya and did not hold any rights to dispose of goods as an owner, the Respondent in contravention of the Value Added Tax Act No. 35 of 2013 (hereinafter ‘VAT Act) and Section 3(2)(a)(i) of the ITA unjustly and unfairly subjected the whole wheat bran export value to income tax instead of computing tax upon gains or profits generated by the Appellant when providing the service of export of wheat bran resulting in additional principal, penalties and interest income tax of Ksh 30,160,274. 00. Income tax Company and Value Added Tax on import of sugar for the Year 2017

22. The Appellant stated that it imported 10,400 bags of sugar valued at Ksh 34,499,790. 00 on 17th August 2017 from India for which the Appellant incurred costs totaling Ksh 34,520,434. 00 in the process of reselling to its two customers (i.e. Mariam Shariff and Highrise Commodities Limited) in the year 2017 and 2018.

23. That despite the sugar being sold for two periods i.e. 2017 and 2018, the Respondent charged tax on a 10% mark-up of the imported customs value for the year 2017 and failed to account for 2018 sales as documented by the Appellant. Furthermore, despite determining the Appellant’s tax position and vacating a VAT assessment on 4th March 2019, the Respondent again assessed the same sugar sale for December 2017 tax period.

24. It was the Appellant’s assertion that the Respondent’s 10% mark-up estimation was excessive and unfair.

Income tax company on maize for the year 2017 25. The Appellant averred that in 2017, it imported and declared all maize imports at the point of entry valued at Ksh 185,214,310. 00 which is the value the Respondent marked up by 10% for purposes of taxation resulting in tax assessments of Ksh 41,081,602. 00 yet the Appellant realized losses for the consignment as it demonstrated in its notice of objection.

26. The Appellant averred that its importation costs that included storage and handling costs amounted to Ksh 241,956,942. 00 and that the Respondent disregarded the costs paid by the Appellant and confirmed estimated sales variance value of Ksh 136,938,675. 00. Additionally, the Appellant stated that funds from customers supplied were deposited in its bank accounts and that it demonstrated in its objection that it suffered losses in the supply of the imported maize in the year 2017.

Corporation tax on maize import for the year 2019 27. The Appellant averred that it imported maize valued at Ksh 58,879,704. 00 a value the Respondent marked up by 10% without reference to markups of similar importers or food industry market surveys and further ignored the Appellant’s sample invoice data of 1,381,670. 00Kgs used in determining the selling price per kilogram of maize sold to local millers as compared to similar importation per kilogram of maize purchased from Zambia.

28. The Appellant averred that having signed import contracts with a Zambian supplier, it suffered losses on the maize importation after the Kenyan market prices declined below the import costs. That despite this, the Respondent who was already in possession of import costs which were allowed as deductions from sales pursuant to Section 15(1) of the ITA, the Respondent failed to apply this Section in its assessment notices which would have been different had the Respondent taken extra care and steps and implemented the relevant sections of ITA, KRA Act and VAT Act.

29. It was the Appellant’s contention that whereas the function of the Respondent is to assess, collect and account as defined in KRA Act, the Respondent in this instance neither showed any efforts to verify the transactions with the Appellant nor highlighted the same in its objection decision.

30. It was the Appellant’s assertion that the Respondent violated its right to fair administrative action and in particular the Appellant’s legitimate expectation that no agency notices, demands, penalties or interest would be issued against it.

Appellant’s Prayers 31. The Appellant’s prayers to the Tribunal were that;a.The Appeal be allowed with costs; andb.It annuls or varies the Respondent’s objection decision dated 20th February 2023

The Respondent’s Case 32. The Respondent replied to the Appeal through its Statement of Facts dated and filed on 5th May 2023;

33. The Respondent termed the Appellant’s allegations that objection decision was issued out of time as incorrect and misleading since time started running when the notice of objection was validated on 27th December 2022 as the Appellant had not properly lodged its objection pursuant to Section 51(3) of the TPA.

34. The Respondent similarly termed the Appellant’s allegation that it had been subjected to double taxation for VAT on 22nd November 2018 as incorrect and misleading and that the additional VAT assessments issued in the month of February 2018 were in relation to claimed input VAT for that period and not related to underdeclared sugar sales under review.

35. The Respondent asserted that the documents provided by the Appellant did not have any probative value pursuant to Section 59 of the TPA and in particular, the Appellant failed to avail invoices issued in relation to sugar sales to Marriam Shariff and Highrise Commodities Limited and the failure to reconcile variances of Ksh 18,137,722. 00 between what was declared and sold.

36. The Respondent stated that the Appellant failed to reconcile or provide documents relating to sugar closing stock of Ksh 30,539,750. 00 and opening stock of Ksh 28,339,750. 00 as captured in the Audited Financial Statements of 2017 and 2018 respectively. Additionally, the 2017 Audited Financial statements captured unreconciled sale margin for maize of Ksh 14,005,658. 00 compared to Ksh 241,956,942. 00 that was captured in the Appellant’s letter of objection which did not address the huge disparity between figures therefore the Appellant’s assertion of loss in 2017 maize sales was unsupported.

37. Similarly, the Respondent averred that the 2019 maize purchase computation was based on 478,400Kgs yet the Appellant imported 2,099,560. 00Kgs with a custom value of Ksh 59,012,466. 28 implying that 1,621,160. 00Kgs of maize were not factored in by the Appellant. Similarly, the Appellant indicated it sold 1,381,670. 00Kgs of maize valued at 47,590,673. 00 out of the imported 2,099,560Kgs meaning a balance of 717,890Kgs was unsold yet the 2019 audited financial statements showed no closing stock.

38. The Respondent asserted that the computations by the Appellant for 2017 and 2019 were wrong as it did not factor the correct maize import thus the revenue and costs for 2017 and 2019 were not sufficiently supported.

39. In regard to wheat bran, the Respondent averred that the Appellant failed to avail audited financial statements for export, purchase invoices and expenses used to generate income. Moreover, the Appellant received Ksh 19,288,606. 00 in its bank account yet income tax return indicated revenue of Ksh 11,949,831. 00 for the year under review, a disparity that was neither explained not evidence adduced in support.

40. The Respondent disputed the claim by Appellant that it was merely a provider of export services since in the agreement with ABS Trading LLC, the Appellant was on service fee chargeable at 10% mark-up of total costs incurred. Moreover, the invoices availed failed to capture detailed information to enable the Respondent establish income earned. Further, the invoices issued for service fee to ABS Trading LLC and those availed for review had glairing discrepancies between amounts and words which was not explained by the Appellant.

41. That whereas the Appellant claimed to have exported 3,066 metric tonnes of wheat bran, the Respondent’s custom data indicated 58,319. 97 metric tonnes.

42. The Respondent stated that the Appellant failed to discharge its burden of proof pursuant to Section 30 of Tax Appeals Tribunal Act and Section 56 of the TPA by availing sufficient supporting evidence to explain the various discrepancies noted.

43. The Respondent contested the Appellant’s allegation relating to legitimate expectation terming the same as incorrect and misleading as there was absence of proper documentation and explanation.

Respondent’s Prayers 44. The Respondent prayed that the Tribunal would:i.Dismiss the Appeal with costs as the same was without merit; andii.Uphold its objection decision dated 20th February 2023.

Parties Written Submissions 45. The Respondent’s written submissions dated 14th December 2023 and filed on 18th December 2023 were stuck out having been filed out of time following the Tribunal’s directive on 21st November 2023 that parties file their submissions by 7th December 2023. Similarly, the Appellant’s supplementary written submissions dated 31st January 2024, were stuck out having been filed without leave of the Tribunal.

46. The Appellant’s written submissions dated 4th December 2023 were filed on 6th December 2024. The Appellant submitted on five (5) issues that it had identified for determination and analysed them hereinunder;(i)Whether the Respondent’s objection decision was issued within 60 days as required by Section 51(11) of the TPA as amended by the Finance Act 2022

47. The Appellant submitted that the Respondent issued two additional assessments i.e. 18th November 2022 and 21st November 2022 through iTax system to which the Appellant validly and wholly objected to on 15th December 2022 (when time started running through) the iTax system pursuant to Section 51(11) of the TPA as amended by Section 44 of the 2022 Finance Act. The Appellant claimed that the said Finance Act amendment meant that there was no room for elongating time for making an objection decision from date a valid notice of objection was lodged.

48. The Appellant asserted that the objection decision was rendered outside statutory timelines as the Respondent had until 14th February 2023 to render its decision i.e. Sixty(60) days as time started running on 15th December 2022 not on 27th December 2022 as alleged by the Respondent because the Appellant had provided relevant information pursuant to Section 51(3) of the TPA on the earlier date but instead claimed that the Respondent failed to comply with Section 51(4) of the TPA as it failed to notify the Appellant within 14 days that its objection had not been validly lodged. The Appellant reiterated the Tribunal’s holding in the case of Dhanjal Brothersv Commissioner of Domestic Taxes (TAT No. 152 of 2021) that;“Furthermore, Section 51 (3) &(4) of the TPA donates to the Respondent, powers and discretion to determine whether the notice of objection is validly lodged. Firstly, upon receipt of the notice of objection, the Respondent must satisfy itself that notice of objection is validly lodged, that is, by satisfying that the notice of objection meets the provisions of Section 51(2) & (3) of the TPA. It is instructive to note that Section 51(4) of the TPA mandates the Respondent to immediately notify the taxpayer in writing, advising the latter to validate the notice of objection, if the notice of objection is not validly lodged.”

49. To further buttress this position, the Appellant quoted Section 51(11) of the TPA and relied on the following authorities;a.Republic vs Commissioner of Domestic Taxes Large Taxpayer’s Office ex-parte Barclays Bank of Kenya Limited[2012]eKLRb.Cape Brandy Syndicate v Inland Revenue Commissioner (1921) 1KB 64c.Kenya Revenue Authority v Republic (ex-parte Fintel Limited)NRB CA Civil Appeal No. 311 of 2013 [2019]eKLRd.Equity Group Limited vs Commissioner of Domestic Taxes H.C.I.T.A No E069 of 2020e.Minizani Entreprises Limited vs Commissioner of Domestic Taxes [TAT No. 56 of 2016]f.APA Insurance Company vs Vincent Nthuka[2018]eKLR(ii)Whether the Respondent’s VAT assessment for the period December 2017 should be set aside.

50. The Appellant submitted that the Respondent issued and confirmed erroneous and illegally adjusted sales/supply of sugar in the 2017 which had previously been issued on 14th March 2019 vacating the whole assessment. This was against the principle of finality in dispute resolution because in vacating the said assessment, the Respondent had created a legitimate expectation that there would be no further assessments. The Appellant restated the courts decision in the case of Communications Commission of Kenya & 5 Others vs Royal Media Services & 5 Others (2014)eKLR that;“…a public body creates a legitimate expectation based on the following principles;i.There must be an express, clear and unambiguous promise given by a public authorityii.The expectation is reasonableiii.The representation is lawfuliv.The legitimate expectation is not against clear provisions of the law or the constitution”(iii)Whether the Respondent’s income tax assessment on export of wheat bran for the period 2021 should be set aside.

51. The Appellant asserted that the Respondent misconstrued the character of its business thereby imposed erroneous income tax on wheat bran yet the Appellant was a mere agent of ABS Trading LLC providing export services as indicated in their service agreement adduced. The Appellant further submitted that it only received agency fee for services provided not income from the entire export of wheat bran as alleged by the Respondent in its customs data and subsequent assessments. This was because ABS Trading LLC paid directly to wheat millers once the Appellant had collected the wheat bran from wheat millers who were the owners and thus exporters of the bran not the Appellant.

52. The Appellant averred that had the Respondent considered the agreement entered into with ABS Trading LLC, it would have arrived at an outcome that the Appellant was only entitled to service fee. The Appellant asserted that it discharged its burden as provided for by Section 56 of the TPA and stated that the pendulum had swung to the Respondent to disprove the Appellant’s assertions and relied on the Court’s judgement in the following authorities;a.Commissioner of Domestic Taxes vs Trical and Hard Limited (TAT No. E146 of 2020[2022] KEHC 9927 (KLR)(Commercial and Tax)(8 July 2022)b.Nizaba International Trading Company Limited vs Kenya Revenue Authority [2000] eKLR(iv)Whether the Respondent’s income tax assessment on import of sugar for the period 2017 should be set aside.

53. The Appellant submitted that the Respondent’s assessments were wrong because there was neither scientific or known market / industry margins basis nor law or fact to impose a 10% mark-up on sales and insisted the margins were plucked from the air. The Appellant relied on the case of R vs Kenya Revenue Authority ex-parte Jaffer Mujtab Mohammed (2015)eKLR

54. The Appellant averred that the margins were irrational yet the Respondent had been furnished with sufficient documentation detailing the Appellant’s computations but failed to consider them in the assessments. Specifically, the letter of 4th January 2023 was accompanied by the following documentation;i.Maize purchase documents per consignment.ii.All relevant custom entries.iii.All other cost documents and statements to support claim for costs incurred.iv.Sales summary.v.Various sales sample invoices and cargo release orders.vi.Bank statements from cooperative bank for the year 2018. vii.Warehouses Storage and maize handling statements and invoices.

55. The Appellant averred that the Respondent failed to adhere to Section 51(4) of the TPA and never provided reasons why it failed to consider the availed documents.(v)Whether the Respondent’s income tax assessment on import of maize for the period 2019 should be set aside.

56. The Appellant reiterated the lack of basis upon which the Respondent applied the 10% mark-up and sufficiently demonstrated how it accounted for its income on importation of maize as shown in the letter of 14th January 2023. The Appellant restated the case of R vs Kenya Revenue Authority Ex-parte Jaffer Mujtab Mohammed (2015)eKLR.

Issues For Determination 57. The Tribunal having carefully considered the parties’ pleadings, documentation and submissions notes three issues call for its determination as follows;a.Whether the Respondent issued its objection decision dated 20th February, 2023 beyond the statutory time limit of sixty (60) days as provided for under Section 51(11) of the TPA.b.Whether the Appellant discharged its burden of proofc.Whether the Respondent’s objection decision was justified

Analysis And Determination 58. The Tribunal will proceed to analyse the issues it has identified for determination as follows:(a)Whether the Respondent issued its objection decision dated 20th February, 2023 beyond the statutory time limit of sixty (60) days as provided for under Section 51(11) of the TPA.

59. The Tribunal notes that the Appellant was profiled for a returns review of VAT credit, imports and income tax for the September 2017 to August 2022 review period. On 18th November 2022 and 21st November 2022, the Respondent issued iTax notices for additional assessments for VAT and Corporation tax pursuant to Section 31 of the TPA which provides as follows:“…the Commissioner may amend an assessment by making alterations or additions, from the available information and to the best of the Commissioner’s judgement, to the original assessment of a taxpayer for a reporting period…”.

60. The Tribunal has sighted and reviewed Appellant’s notice of objection dated 15th December 2022 where the Appellant stated its grounds of opposition. This was approximately 24 days after the assessment date because days started running on 21st November 2022. The Tribunal relies on Section 51 (2) of the TPA which provides as follows;“A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision.”

61. The Tribunal has reviewed a request by the Respondent dated 21st December 2022 (six days after notice of objection) requesting the Appellant for further information and documents. The same was honored by the Appellant and was the Appellant continued to honor the Respondent’s requests in four instances each accompanied by letters bearing the following dates; 27th December 2022, 4th January 2023, 6th January 2023 and 14th January 2023. The Tribunal notes that Section 51(4) of the TPA provides the Respondent a 14-day window period to inform the Appellant whether its objection has been validly lodged. Additionally, the Tribunal takes cognizance of Section 51(11) of the TPA which provides that;“The Commissioner shall make the objection decision within sixty from the date of receipt of;-i.The notice of objection: orii.Any further information the Commissioner may require from the taxpayer, failure to which the objection shall be deemed allowed”1. The Tribunal notes that the Respondent’s objection decision was issued on 20th February 2023 implying that it was rendered 36 days after the last letter accompanying documents was sent to the Respondent. The Tribunal reiterates the court holding in the case of Commissioner of Domestic Taxes V Mayfair Insurance Company Limited [2017] where the court held that;“each case is to be viewed sui genesis and on its own circumstances and facts. To reinforce this position, the Appellant cited Article 159(2)(d) of Constitution of Kenya 2010 that; “justice shall be administered without undue regard to procedural technicalities.”

63. The Appellant’s assertion that the objection decision was rendered beyond the sixty (60) days statutory timeline falls flat on its face, does not hold water and is not backed by any law or evidence. The Tribunal observes that the objection decision was rendered well within the legal timeframe pursuant to Section 51(11) of the TPA.(b)Whether the Appellant discharged its burden of proof.

64. The Tribunal notes that the basis of additional assessments were variances between the sales declared as per income tax and VAT returns vis-à-vis derived from import and export custom data. The bone of contention herein being Corporation tax for sugar import in the year 2017, maize import for years 2017 and 2019 and wheat bran for the year 2021 whereas VAT was in relation to sugar imports for year 2017.

65. The Tribunal reviewed Appellant’s letters dated 27th December 2022, 4th January, 6th January and 14th January 2023 and accompanying documentation as requested by the Respondent attached in the pleadings herein. The Tribunal notes that Section of 15(1) of the ITA and Section 43(1) of the VAT Act, respectively, provide as follows;“15(1). For the purpose of ascertaining the total income of a person for a year of income there shall, subject to section 16, be deducted all expenditure incurred in that year of income which is expenditure wholly and exclusively incurred by him in the production of that income, and where under section 27 any income of an accounting period ending on some day other than the last day of that year of income is, for the purpose of ascertaining total income for a year of income, taken to be income for a year of income, then the expenditure incurred during that period shall be treated as having been incurred during that year of income”43 (1) “…Every registered person shall, for the purposes of this Act, keep in the course of his business, a full and true written record, whether in electronic form or otherwise, in English or Kiswahili of every transaction he makes and the record shall be kept in Kenya for a period of five years from the date of the last entry made therein.”

66. The Tribunal notes that the Respondent asserted that the Appellant failed to adduce invoices to support the sale of sugar, more specifically, to Marriam Shariff and Highrise Commodities Limited, the Appellant did not defray the Respondent’s assertion that;“…a variance of Ksh 18,137,722. 00 between what was declared and sold was not reconciled or explained and was treated as underdeclared VAT on sugar sale for 2017 period. Further, opening stock for 2018 of Ksh 28,339,750. 00 was different from closing stock of 30,539,750. 00 which was not reconciled or explained even the difference of unsold of 6 bags of sugar was not explained...”

67. The Tribunal notes that on one hand the Appellant stated that it was a mere agent for ABS Trading LLC; on the other hand, the Respondent stated that the Appellant was an exporter, the service agreement notwithstanding. The Tribunal has sighted the Appellant’s documentation alluding to direct payments made to the Kenyan wheat millers implying that the Appellant was not involved in the payments but was indeed a facilitator. The Tribunal has however noted that the Appellant failed to dislodge the Respondent’s assertion that it received Ksh 112,484,077. 00 in its NCBA bank account as no explanations were availed to explain or account for the funds. The Tribunal associates itself with the court holding in the case of Miller v Minister of Pensions [1947] 2ALL ER 372 where it was held that;“The…{standard of proof}…is well settled. It must carry a reasonable degree of probability…if the evidence is such that the tribunal can say: ‘we think it more probable than not’ the burden is discharged, but, if the probabilities are equal, it is not.”

68. The Tribunal is of the considered view that the Appellant’s assertions were mere averments that were not backed by any evidentiary proof as couched under Section 107 of the Evidence Act CAP 80 of Kenya’s Laws (hereinafter ‘Evidence Act’) which provides as follows:“Burden of proof1. Whoever desires any court to give judgement as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.2. When a person is bound to prove the existence of any fact it is said that the burden of proof lies on that person.”

69. Obtaining from the preceding analysis is that the Tribunal is convinced that the Appellant squandered its opportunity to controvert the Respondent’s assertions thus failed to discharge its burden of proof.(c)Whether the Respondent’s objection decision was justified.

70. The Tribunal notes the Appellant’s averments that the Respondent failed to communicate within 14 days after receiving the iTax objection though the Respondent did not understand the Appellant’s nature of operations, transactions and business yet proceeded to use customs data to issue the objection decision. The Tribunal observes that Section 24 of the TPA provides as follows;“(2). The Commissioner shall not be bound by a tax return or information provided by, or on behalf of, a taxpayer and the Commissioner may assess a taxpayer’s tax liability using any information available to the Commissioner.”

71. The following assertions by the Respondent were neither controverted by the Appellant nor demonstrated how they would have been done differently in the prevailing circumstances:(i)The Respondent’s assertion that Appellant had undisclosed income from sugar sales of Ksh 14,811,656. 00 and Ksh 66,797,022. 00 relating to maize sales in the year 2017 while maize sales of Ksh 7,970,469. 00 was not disclosed in the year 2019. (ii)The Respondent’s assertion that only Ksh 11,949,831. 00 was disclosed as wheat bran export yet 112,484,077. 00 received in the Appellant’s NCBA bank account was alleged to be from ABS Trading LLC.(iii)The Respondent’s assertion that Audited Financial Statements for year 2017 had closing stock of sugar valued at Ksh 30,539,750. 00 whereas the opening stock of sugar for year 2018 was valued at Ksh 28,339,750. The Appellant failed to provide explanation for the Ksh 2,200,000. 00 variance. Similarly, the Appellant did not controvert Respondent’s assertion why maize sales reported at Ksh 14,005,658. 00 for the year 2017 differed with total cost of sales of Ksh 241,956,942. 00 indicated in the Appellant’s letter of objection.(iv)The Respondent’s assertion that the Appellant imported 2,099,560 Kgs of maize but only declared 478,400Kgs in the year 2019 in the same year, the Appellant indicated sales of 1,381,670Kgs suggesting a remainder of 717,890Kgs yet the Audited Financial Statements for the year 2019 indicated there was no closing stock of maize.”

72. The Tribunal observes that both Section 30 of the Tax Appeals Tribunal Act No. 40 of 2013 (hereinafter ‘TAT’) and Section 56(1) of the TPA places the burden of proof in tax disputes upon the taxpayer who has to demonstrate why a tax assessment is excessive or incorrect. The Tribunal reiterates the court holding in Republic v Commissioner of Domestic Taxes Large Tax Payer’s Office Ex-Parte Barclays Bank of Kenya Ltd [2012] eKLR where the court held that;“for the proposition that the decision to tax must have a legal basis and that section 56(1) does not empower the appellant to make speculative assessments (citing Johnson v Scott (Inspector of Taxes)) nor was it the intention of the legislature to put the taxpayer in a position where he would be required to produce any documents that the taxman requires.”

73. The upshot of the foregoing is that the Tribunal is persuaded that the Respondent’s objection decision dated 20th February, 2023 was grounded in law and justified in the circumstances.

Final Decision 74. The upshot of the foregoing is that the Appeal herein lacks merit and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision dated 20th February 2023 be and is hereby upheld.c.Each party to bear its own costs.

75. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 5TH DAY OF APRIL, 2024CHRISTINE A. MUGACHAIRPERSONBONIFACE K. TERER DELILAH K. NGALAMEMBER MEMBERGEORGE KASHINDI SPENCER S. OLOLCHIKEMEMBER MEMBER