[2023] KETAT 948 (KLR)

Faith Cherono t/a Fachela Investments v Commissioner of Domestic Taxes (Tax Appeal 1374 of 2021) [2023] KETAT 948 (KLR) (Commercial and Tax) (24 November 2023) (Judgment)

Neutral citation: [2023] KETAT 948 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tax Appeal 1374 of 2021

Grace Mukuha, Chair, E Komolo, T Vikiru, Jephthah Njagi & G Ogaga, Members

November 24, 2023

Between

Faith Cherono t/a Fachela Investments

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background. 1. The appellant, is a Kenyan resident trading as Fachela Investments duly registered under the registration of Businesses Act with various tax obligations.

2. The respondent is a principal officer appointed under and in accordance with section 13 of the Kenya Revenue Authority Act, and the Kenya Revenue Authority is charged with the responsibility of among others, assessment, collection, accounting and the general administration of tax revenue on behalf of the Government of Kenya.

3. The respondent conducted a system based verification on the tax status of the appellant which involved the review of her returns in order to confirm the accuracy and the correctness of filing of Value Added Tax and income tax.

4. The appellant had made a VAT claim for Kshs. 9,655,172. 41 for which she and her suppliers received inconsistency notices from the respondent to amend returns in order to correct the inconsistencies in their VAT returns.

5. The respondent stated that the system still detected the inconsistencies after the expiry of the days given in the notice and disallowed the input for the month of July 2022 which the appellant had been claimed.

6. The respondent proceeded to issues an assessment and to demand the corresponding taxes amounting to Kshs. 1,544,827. 59 on August 30, 2022.

7. On October 7, 2022 the appellant made an application for extension of time to object but failed to provide documents to support the application.

8. The respondent on October 19, 2022 rejected the application for time extension on the grounds that the application had not been supported and the appellant being dissatisfied with the decision preferred an appeal against the same vide its Notice of Appeal dated November 14, 2022.

The Appeal 9. The appeal is premised on the memorandum of appeal dated November 14, 2022 raising the following grounds:i.The commissioner issued an obiection decision rejecting the late objection on grounds that it was not supported by documents. That also the appellant was unreachable on the telephone number registered in iTax.ii.The commissioner failed to consider that the telephone number registered in iTax was no longer in use till date. Further that during the period of objection the appellant was in remote areas with no access to internet and could not access emails. That also the objection was filed late as the appellant was not aware of the assessment due to the fact that the phone number registered in iTax was no longer in use and due to limited access to emails.iii.The Commissioner rejected the late objection without giving the appellant a chance to review the substance of the matter.iv.That the disallowed purchase invoice related to genuine purchase made for a supply made to Kilifi County.v.That the appellant has in possession of all the supporting documents for verification to proof that the purchase invoice was genuine.vi.That the Tribunal do grant leave for the matter to be resolved through the Alternative Dispute Resolution mechanism for expeditious resolution.

The appellant’s Case 10. The appeal is premised on her statement of facts filed on November 28, 2022.

11. The appellant averred that the respondent issued her with an additional VAT assessment for the period July 2022 of Kshs. 1,544,827. 59 on August 30, 2022.

12. That the additional assessment was based on disallowed purchase invoice of Kshs. 9,655,172. 4 1 claimed in the July 2022 VAT return.

13. That the respondent did not give reasons why the purchase invoice was disallowed.

14. The appellant noted that the purchase invoice claimed was genuine and it related to purchases made which were wholly and exclusively incurred to generate the income. That the supporting documents for the purchase were available for verification.

15. That based on the above the appellant lodged a late objection on iTax on October 7, 2022 and the respondent issued an objection decision on October 19, 2022 rejecting the late objection.

Appellant’s Prayers 16. The appellant prayed that the Tribunal do set aside the objection decision in a just,fair and reasonable manner.

Respondent’s Case 17. The respondent’s case is premised on the hereunder filed documents:-a.The Statement of Facts dated and filed on December 15, 2022b.The Written Submissions dated May 7, 2023 and filed on June 7, 2023.

18. The respondent reiterated the contents of the decision of October 19, 2022 wherein it clearly stated that the appellant had refused to provide documents to support the application to extend time.

19. That the respondent reached out to the appellant on several occasions and by email on October 14, 2022 and 18" October, 2022 requesting her to provide documents to support the Application to extend time.

20. That the appellant was unreachable by the telephone contacts that she had provided in her iTax registration.

21. That it is is important that the Tribunal notes that the contacts email address used: Fxxx(@gmail.com, and the Telephone No. 0702 xxx xxx which was used to reach her is the same one she has provided in her Notice of Appeal.

22. That the respondent found the position taken by the appellant as misleading as the same contacts and email are the same ones she received the decision which she is appealing against.

23. That appellant in her application to extend time merely stated as follows:“other reasonable cause- Lost the purchase invoices and got outdated. The seller did not declare quoting my pin"

24. That section 51 (7) of the Tax Procedures provides as follows:“(7)The Commissioner shall consider and may allow an application under subsection (6) if;(a)the taxpayer was prevented from lodging the notice of objection within the period specified in subsection (2) because of an absence from Kenya, sickness orother reasonable cause; and(b)the taxpayer did not unreasonably delay in lodging the notice of objection.”

25. That the reasons advanced by the appellant do not explain the delay neither was any document provided to support the same.

26. That section 56 (1) of the Tax Procedures Act states that the burden shall be on the taxpayer to prove that a tax decision is incorrect and the respondent having not been provided with the documents to support the application for extension of time proceeded to disallow the application.

27. That the appellant in her Memorandum of Appeal claimed to have availed the documents but she has not even provided them for the Tribunal’s considerartion.

28. The respondent also averred that the objection did not comply with the provisions of section 51 (3) of the TPA.

29. The respondent argued that as per the provisions of section 17 (2) of the VAT Act the appellant bears the burden to prove the legitimacy of the transactions for which she wants to claim input and that the appellant did not attempt to do this either during the objection stage or during the appeal process.

30. That the appellant had a duty to avail the tax invoices that not only match the amounts claimed for the respondent to allow the said claims.That the appellant did not provide any invoices and its suppliers did not declare the said transactions thus causing a gap in the claims sought and the claims were therefore rightly disallowed.

31. The respondent also argued that averments are not evidence and that in the absence of evidence the respondent as per the provisions of section 24 (2) and 31 of the TPA is allowed to use the information available to assess the tax payer.That the assessment was therefore proper having been made on the basis of the information available.

32. The respondent in support of its case relied on the cases of Saima Khalid v The Commissioner for Her Majesty’s Revenue and Customs-Appeal No.TC/2017/02292 and Motex Knitwear Ltd v Gopitex Knitwear Mills Ltd Nairobi (Milimani) HCCC No. 834 of 2002 amongst others.

respondent’s Prayers 33. The respondent prayed that The Tribunal finds:a.That the respondent’s decision of November 19, 2022 and tax demand was properly issued as provided under the provisions of VAT Act and TPA hence properb.That this Appeal be dismissed with costs to the respondent as the same is without merits.

Issue For Determination 34. The Tribunal has carefully studied the pleadings and documentation of both parties and is of the respectful view that only one issue calls for its determination as stated hereunder.Whether the respondent was justified in raising the additional VAT assessments against the appellant

35. The appellant has appealed against the decision dated October 19, 2022 which declined to grant the orders of time extension and further sated that the tax liability of Kshs. 1,544,827. 59 was due and payable by the appellant as per the assessment.

36. The appellant had made the application for time extension on October 7, 2022 in response to the VAT assessments raised on iTax on August 30, 2022. The respondent declined to allow the application stating that the appellant did not provide any documents to support the application.

37. The appellant had given the reasons for the late objection as “other reasonable cause-Lost the purchase invoices and got outdated.The seller did not declare quoting my pin”.

38. The appellant in her memorandum of appeal had also stated that the objection was filed late as she was unaware of the assessment as the phone number registered in iTax was no longer in use and due to limited internet access to emails.

39. The respondent on its part had argued that upon receiving the appellant’s appication for time extension, it had reached out to the appellant through emails on October 14, 2022 and October 18, 2022 which the respondent attached to its statement of facts, and also through her mobile phone requesting the appellant to provide documents in support of her application.

40. The Tribunal has noted that the appellant failed to provide any documents in support of her late objection despite the respondent requesting for the same. The appellant stated in her memorandum of appeal that her mobile number was no longer in use and that she did not have internet access due to the remote areas she was in during the objection time.

41. The Tribunal further noted that the appellant’s mobile number used by the respondent to reach the appellant as per paragraph 17 of the respondent’s statement of facts and which the appellant stated was no longer in use,is the same number that the appellant provided in her notice of appeal.

42. The Tribunal has noted that there is no evidence to the effect that the appellant’s email address was inaccessible.

43. Section 51 (7) of the TPA provides as follows:“The Commissioner shall consider and may allow an application under subsection (6) if-(a)the taxpayer was prevented from lodging the notice of objection within the period specified in subsection (2) because of an absence from Kenya, sickness or other reasonable cause; and(b)the taxpayer did not unreasonably delay in lodging the notice of objection.”

44. The Tribunal notes that the appellant failed to offer any documents to support her late objection and the respondent therefore refused to allow the same.

45. The appellant had also made a VAT refund claim for Kshs. 9,655,172. 41 and she also failed to provide documents to support the same. Section 17 (3) of the VAT Act provides that for any inputs to be allowed the appellant must provide documentation in terms of the original tax invoice issued for the supply or a certified copy.

46. The appellant bore the burden to prove that she was entitled to the refund claim and that the tax assessment was incorrect,wrong or excessive. This is always the burden of the tax payer as laid out in the provisions of sections 56 (1) of the TPA which provides as follows:“In any proceedings under this part,the burden shall be on the tax payer to prove that a tax decision is incorrect”.

47. The Tribunal took into consideration,on the issue of the burden of proof, the holding in the case of Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2o21] eKLR Nairobi High Court Income Tax Appeal No. E125 of 2020,where the court said:“32. The shifting of the burden of proof in tax disputes flows from the presumption of correctness which attaches to the Commissioner's assessments or determinations of deficiency. [10] The commissioner's determinations of tax deficiencies are presumptively correct. Although the presumption created by the above provisions is not evidence in itself, the presumption remains until the taxpayer produces competent and relevant evidence to support his position. [11] If the taxpayer comes forward with such evidence, the presumption vanishes and the case must be decided upon the evidence presented, with the burden of proof on the taxpayer.”

48. A similar holding was made in TAT No. 28 of 2018 Joycott General Contractors Limited v Kenya Revenue Authority, where the Tribunal in dismissing the appeal held that: -“We find that the appellant seems to forget that it bears the burden of proof; in law, to demonstrate to this Tribunal that the respondent's assessment was wrong. Especially with regards to the under declarations and variance in respect of VAT and income sales. On the contrary, the appellant has not bothered to substantially traverse the assessment raised. All it has done is to make sweeping and expansive accusations without substantial support”

49. Where the taxpayer fails to prove their case, the law under sections 24 (2) and 31 of the TPA allows the Commissioner to use the information available to assess the taxpayer.The Sections provide as follows :“24 (2) The Commissioner shall not be bound by a atx return or information provided by,or on behalf of,a tax payer and the Commissioner may assess a tax payer’s liability using any information available to the Commissioner”(31)(1)”Subject to this section, 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 to ensure that...the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessmnent relates.”

50. The Tribunal finds that the appellant failed to prove that the Commissioner had made the wrong decision in disallowing her late objection and that the consequential assessment was incorrect or excessive.The assessment therefore made was in order in the circumstances.

Final Decision 51. The upshot of the foregoing is that the appeal fails as the same lacks merit and the Tribunal makes the following orders:-a.The appeal be and is hereby dismissedb.The respondent’s tax assessments issued on 19th October 2022 be and are hereby upheldc.Each Party to bear its own costs.

52. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 24TH DAY OF NOVEMBER, 2023GRACE MUKUHA.........CHAIRPERSONDR ERICK KOMOLO........MEMBERTIMOTHY VIKIRU............MEMBERJEPHTHAH NJAGI............MEMBERGLORIA A. OGAGA.........MEMBER