[2024] KETAT 1015 (KLR)

Garashi t/a Garash Tours v Commissioner of Legal Services and Board Coordination (Tax Appeal E362 of 2023) [2024] KETAT 1015 (KLR) (12 July 2024) (Judgment)

Neutral citation: [2024] KETAT 1015 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E362 of 2023

RM Mutuma, Chair, B Gitari, M Makau, AM Diriye & EN Njeru, Members

July 12, 2024

Between

Mwamasi Hamisi Garashi T/A Garash Tours

Appellant

and

Commissioner of Legal Services and Board Coordination

Respondent

Judgment

Background 1. The Appellant is a resident Taxpayer whose principal activity in the transport business

2. The Respondent is a Principal Officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 460 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 revenue. Under Section 5(2) of the Act with respect to the performance of its function under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part I & II 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 Respondent undertook a tax review of the Appellant’s tax affairs for the month of March 2022 wherein it was established that there was undeclared income in regards to withholding VAT certificates, purchases claimed from the Appellant’s PIN by its customers and unsupported input VAT claimed from various suppliers between the years 2017 to 2022.

4. On 14th July 2022 and 1st November 2022, the Respondent issued the Appellant with assessment orders for VAT and Income Tax amounting to Kshs. 2,635,719. 00.

5. The Appellant lodged an objection via iTax on 15th November 2022 and the Respondent acknowledged the said late objection on 18th November 2022 and requested the Appellant to validate the objection by submitting further documents in support of their objection as provided in Section 51 (3) of Tax Procedures Act.

6. The Appellant having failed to validate the objection by submitting the necessary documents the Respondent proceeded to issue an Objection Decision dated 16th January 2023 confirming the assessment for Kshs. 2,635,719. 00.

7. Being dissatisfied with the Respondent's Objection Decision dated 16th January 2023 the Appellant filed a Notice of Appeal with the Tribunal filed on 3rd July 2023.

The Appeal 8. The Appeal is premised on the Memorandum of Appeal dated 23rd June 2023 and filed on 3rd July 2023 on following grounds:a.The Commissioner issued an Objection Decision rejecting the late objecting on the grounds that it was not supported by the documents forwarded to the office, but also the Appellant was unreachable on telephone number and email (the phone number issued was 070xxxxxx) as the email documents were sent to [Particulars witheld]but the Appellant used different contact which he was unable to get information until to date.b.The Commissioner failed to consider that the email and telephone number registered in itax was no longer in use till date further that during of objection the Appellant was unwell and was unable to follow up and he gave out the above email and telephone number until to date.c.The Commissioner rejected the late Objection without giving the Appellant a chance to review the substances of the matter after handing over all the original documents even bank statements.d.That the Appellant provided services only Kwale County and he has no other job and all the filing procedures of VAT was through the KRA staff on 2018 when the iTax was taking place.e.That the Appellant having submitted all the documents for verification to a KRA staff for proof and all documents was genuine and now we have no any documents to show all are still with the staffs.

The Appellant’s Case 9. The Appellant’s case is premised on his;a.Statement of Facts filed on 3rd July 2023.

10. The Appellant provided a chronology of events that the Respondent issued and additional ITR assessments for the period 2015 to 2027. The additional assessment was based on the number of their projections for the years to come the year 2024, 2025, 2026 and 2027 which the Appellant did not know when he will be providing the services to County.

11. The Appellant stated that the Respondent did not give reasons why the ITR provided and disallowed covered the additional years of 5 years.

12. The Appellant noted that the documents provided were total proof of the genuine and it related invoices which were wholly and exclusively incurred to support his allegations which were available for verification. The Respondent issued an objection as per what they say since he didn’t get even a single email of a call from it.

13. The Appellant stated that the VAT 2015 TO 2022 amount of Kshs. 2,576,517. 00 is of higher side since the Respondent failed to correct the error earlier, he did accept that there was an undercast in some months due the fact that the tax payer was not educated on earlier days to avoid repeating the same mistakes that was on a monthly basis.

14. The Appellant averred that the Respondent should have understood that this was the first-time people were awarded tenders and it was the responsibility of the Respondent to educate this taxpayer to correct and avoid such mistakes to occur.

Appellant’s Prayer 15. The Appellant Prayed that the aforementioned Objection Decision be set aside and annulled in a manner that is just and fair and reasonable.

Respondent’s Case 16. The Respondent’s case is premised on the following documentsa.Statement of Facts dated and filed on 13th October 2023 together with the documents attached herewith; and,b.Written Submissions filed on 27th February 2024.

17. The Respondent stated that it undertook a review of the Appellant tax return review based on IFMIS for March 2022 and from therein established undeclared income in regards to withholding VAT certificates, purchases claimed from the Appellant’s PIN by customers and unsupported input VAT claimed from various suppliers between the years 2017 to 2022.

18. The Respondent averred that on 14th July 2022 and 1st November 2022, the Appellant was issued with assessment orders for VAT and Income Tax Act and worthy to note is the fact that, the basis of the aforementioned assessment was hinged on Section 31 of the Tax Procedures Act which gave the Respondent a leeway to issue an additional assessment based on the available information and best judgment.

19. The Respondent posited that the Appellant lodged an objection to the said assessment and as a response, the Respondent requested the Appellant to provide the statutory required documents in support of the objection failure to which his objection would be invalidated. The Appellant did not support his case and an Objection Decision was issued by the Respondent on 16th January 2023.

20. In its submission the Respondent coined the following issues for determination, which is;i.Whether the assessment was proper in law; and,ii.Whether the Appellant discharged its burden of proof.

21. The Respondent submitted that, without prejudice, it has the power to assess any tax payer’s liability by virtue of Section 24 (2) of the Tax Procedures Act, 2015 (TPA) which provides that the Respondent shall not be bound by a tax return or information provided for, or on behalf of, a tax payer and the Respondent may assess a tax payer’s tax liability using any information available to the commissioner. Further the Respondent stated that the same powers were placed on it by Section 31 (1) of the Tax Procedures Act.

22. It argued that the information available showed that the Appellant had undeclared income in regards to withholding VAT certificates, purchases claimed from the Appellant’s PIN by its customers and unsupported input VAT claimed from various suppliers between 2017 to 2022. That based on the foregoing information, the Respondent applied the best judgment in computing the income tax assessment while subjecting the same to the provisions of the Income Tax Act and the Tax Procedures Act. Having noted that the Appellant failed to offer any explanation for the disparities flagged, the respondent thus ought not be condemned for having executed its work.

23. The Respondent contended that some of the disparities noted inter alia were that the Appellant filed a nil return for the year 2017 despite having a taxable income of Kshs. 2,301,965. 00 that was undeclared. The Appellant did not provide invoices issued to it concerning withholding VAT certificates and further, it failed to match the invoices to VAT declarations.

24. Further the Respondent submitted that the Appellant did not declare sales made to Tenga enterprises Limited for the period of January 2017.

25. The Respondent submitted that the Appellant claimed purchases from various suppliers in February 2021 amounting to Kshs. 776,510. 00 but upon review, the Respondent found that invoices to support the fact that indeed it had acquired the taxable supplies were not provided.

26. Reliance to that end was placed in the case of TAT Appel No. 538 of 2021 Greenroad Kenya Limited vs. Commissioner of Domestic Taxes where the Tribunal held the view that failure by the appellant to avail the documents requested granted the respondent the power to use its best judgment as provided for under Sections 31 (1), 23 (1), 56 (1) and 59 (1) of the Tax Procedures Act. Additionally, reliance was drawn from the case of Nick Kikalos and Helen Kikalos vs. United States of America No. 2:98 CV 618, 313 F. sup. 2d876(200) where the court held that courts routinely accord deference to the Commissioner in the reconstruction of a tax payer’s income noting that the Commissioner may use any reasonable method of calculation where the tax payer fails to produce or maintain adequate records from which actual income may be ascertained.

27. The Respondent urged that its assessment was based on the letter of the law as it was upon the Appellant to provide evidence to support its assertions against the assessment at the objection stage, a burden he terribly failed to discharge.

Respondent’s Prayers 28. The Respondent thus prayed that the Honourable Tribunal do find;a.The Objection Decision dated 16th January 2023 be upheld; and,b.That this Appeal be dismiss with costs to the Respondent as the same lacks merit.

Issues For Determination 29. The Tribunal upon due consideration of the pleadings and submissions of the parties is of the considered view that the issues for determination are;i.Whether the Appeal has been validly lodged before the Tribunal; and,ii.Whether the Objection Decision dated 16th January 2023 is justified.

Analysis And Findings 30. The Tribunal having identified the issues for determination it shall analyse the same as herein under.i.Whether the Appeal has been validly lodged before the Tribunal;

31. The Appellant is challenging the Objection Decision of the Respondent which was issued dated 16th January 2023.

32. Before dwelling on the substantive matters before the Tribunal, The Tribunal wishes to analyse the Appeal before it to determine whether the Appeal is proper before it. In order to do this the Tribunal will review the chronology of events from the date the Appellant was issued with the Tax Assessment.

33. As per the Respondent Statement of Facts the Notice of Assessment was issued on 14th July 2022 and 1st November 2022, the Appellant lodged a late objection on 18th November 2022 stating that he was sick. The Respondent accepted the late objection notice on 18th November 2022 and requested the Appellant to validate the objection as per Section 51 (3) of the Tax Procedures Act.

34. The Respondent stated that the Appellant did not validate the objection and subsequently it issued the Appellant with the Objection Decision on 16th January 2023. The Appellant filed the Notice of Appeal filed with the Tribunal on 3rd July 2023

35. The Tribunal noted that in the Appellant Notice of Appeal, he refers to a decision of the Respondent dated 23rd May 2023, which he intended to appeal against, but the said decision is not on record as contemplated under Section 13 of the Tax Appeals Tribunals Act.

36. Section 13 (1) and (2) of Tax Appeals Tribunal Act, which provides;(1)A notice of appeal to the Tribunal shall—(a)be in writing or through electronic means;(b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.(2)The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the Tribunal, of—(a)a memorandum of appeal;(b)statements of facts;(c)the appealable decision; and(d)such other documents as may be necessary to enable the Tribunal to make a decision on the appeal.”

37. It is not lost on the Tribunal, and which is cardinal principle in law, that parties are bound by their pleadings and the Tribunal ought to consider matters that have been pleaded by parties, in the instant Appeal the Appellant places its grievances on the decision of 23rd May 2023 and not on any other decision.

38. The Tribunal has perused the documents submitted by the Appellant in relation to this Appeal and noted that the following documents were attached to the appeal documents;a.Notice of Appeal filed on 3rd July 2023b.Memorandum of Appeal dated 21st June 2023 and filed on 3rd July 2023c.Statement of Facts filed on 3rd July 2023The Tribunal notes that the Appeal did not contain the following documentsd.the appealable decision; ande.such other documents as may be necessary to enable the Tribunal to make a decision on the appeal.

39. From the documents above and pursuant to the provisions of Section 13 (2) (c) of the Tax appeals Tribunal Act, the Appellant is obligated to file the tax decision where the tax grievances are drawn from before the Tribunal, in the instant case, the Appellant did not place on record the alleged Respondent’s decision issued on 23rd May 2023 or any decision whatsoever, thus the Appeal contravenes the provisions of the said section.

40. Even if the Appellant had placed on record the said decision made on 23rd May 2023, this would not have diminished his challenges as the Tribunal noted that the Notice of Appeal was filed on 3rd July 2023 and which time offended the provisions of Section 13 (1) (b) of the Tax Appeals Tribunal Act.

41. Further, the provisions of Section 13 (3) allow the Tribunal to extend the time for filing an Appeal and it states as follows;(3)The Tribunal may, upon application in writing or through electronic means, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).(4)An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from filing the notice of appeal or submitting the documents within the specified period.”

42. The Tribunal noted that there was no application on record by the Appellant seeking leave to allow the Appeal to be filed out of the statutory timelines. The principle regarding procedures is well articulated by the Court of Appeal in Speaker of National Assembly vs. Njenga Karume [2008] 1 KLR 425, where it held that;“In our view there is considerable merit that where there is clear procedure for the redress of any particular grievance prescribed by the Constitution or an Act of Parliament, that procedure should be strictly followed.”

43. The Tribunal noted that the Appellant filed the Appeal on 3rd July 2023 and did not make any efforts to either make an application for extension of time to file the Notice of Appeal out of time nor attach the relevant statutory documents as provided in Section 13 of Tax Appeal Tribunal Act

44. In view of the above findings by the Tribunal that there was no valid Appeal before it, thus the Tribunal shall not delve on the other issue for determination as the same has been rendered moot.

45. Consequently, the Appellant’s Appeal is incompetent.s

Final Decision 46. The Tribunal finds that the Appeal is incompetent and accordingly makes the following Orders:a)The Appeal be and is hereby struck out; and,b)Each Party to bear its own costs.

47. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 12TH DAY OF JULY 2024ROBERT M. MUTUMA - CHAIRMANBERNADETTE M. GITARI - MEMBERMUTISO MAKAU - MEMBERABDULLAHI DIRIYE - MEMBERELISHAH N. NJERU - MEMBER