[2023] KETAT 540 (KLR)

Goda Investment Limited v Commissioner of Domestic Taxes (Tax Appeal 979 of 2022) [2023] KETAT 540 (KLR) (1 September 2023) (Judgment)

Neutral citation: [2023] KETAT 540 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 979 of 2022

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

September 1, 2023

Between

Goda Investment Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited liability company incorporated in Kenya under the Companies Act. Its principal activity is to supply building materials.

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 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 carried out a returns review on the Appellant as part of compliance monitoring process for the period January 2017 to December 2019.

4. The review established an under declaration of sales whereby the Appellant had declared sales of Kshs 24,788,836. 00 while IFMIS indicated that it had been paid a total of Kshs 83,471,484. 00 during the period.

5. As a result of the review, the Respondent issued the Appellant with an assessment order totaling Kshs 2,742,096. 00 on 19th July 2021.

6. The Appellant lodged a late objection to the entire assessment on 29th July 2022 via the Respondent‟s iTax platform and obtained an objection acknowledgement receipt on even date.

7. The Respondent while stating that the Appellant had failed to give reasons for the late objection and provide documents in support of the objection rejected the Objection and confirmed the tax assessment of Kshs 2,742,096. 00 as due and payable.

8. The Appellant, dissatisfied with the Respondent‟s decision lodged its Notice of Appeal dated and filed on 8th September, 2022.

The Appeal 9. The Appellant‟s Appeal is premised on the grounds as stated in the Memorandum of Appeal dated the 8th September, 2022 as follows:-a.The Respondent erred in law by invalidating the Appellant‟s objection application a mere 14 days from the date of objection.b.The Respondent erred in law and fact by failing to accord the Appellant an opportunity to be heard.c.That the decision being contrary to law or some usage having the force of the law, is that of ignoring or dishonoring Fair Administrative Actions Act and Article 47 of the Constitution of Kenya 2010.

10. The Appellant asks this Honourable Tribunal to allow the Appeal and find its notice of objection to be valid.

The Appellant‟s Case 11. The Appellant's case was premised on its Statement of Facts dated 8th September 2022 and filed on even date.

12. The Appellant averred that it was issued with a Notice of Objection invalidation dated 8th August 2022 by the Respondent where they stated the basis of coming up with the decision on Objection for the Income tax additional assessments.

13. The Appellant further stated that the Respondent proceeded to reject its application for late objection even though the Appellant had clearly cited the reasons why it objected to the assessment late.

14. The Appellant averred that it categorically objected to the Respondent‟s VAT and Income Tax assessments raised but was unfortunately prevented from objecting to all the assessments by the Respondent‟s iTax system „due to ongoing waiver applications‟ as stated by the said system.

15. The Appellant stated that it had experienced technical challenges and was not able to access the iTax registered email since February 2021 and only discovered the existence of the additional assessments when it was informed of the same by its Accounts Manager in July 2022.

16. The Appellant explained that upon realization of the additional assessment on 29th July 2022 it proceeded to object to the said assessment and subsequently proceeded to change its iTax registered email in order to receive any further communication from the Respondent.

17. The Appellant averred that while it was preparing and retrieving the relevant documents in support of its objection it received an objection invalidation notice dated 8th August and an objection rejection notice on 10th August 2022.

18. The Appellant asserted that the Respondent‟s actions were malicious and contemptuous and against the spirit of fair administrative action as the Appellant was not afforded the opportunity to defend itself against the Respondent‟s assessments.

19. The Appellant stated that it is ready and willing to provide invoices and any additional documents that may be required for verification by the Respondent.

20. The Appellant averred that the decision made by the Respondent to compel it to pay a total incremental liability of Kshs 2,742,096. 00 without fair hearing is improper, unfair and unjust.

The Appellant's Prayers 21. The Appellant prays for orders that:i.The Respondent be ordered to review the Appellant‟s documents supporting the objection application and adjust the objection decision based on the findings.

The Respondents Case 22. The Respondent premised its case on the following documents before the Tribunal: -i.The Respondent‟s Statement of Facts dated 5th October 2022 and filed on the same date.ii.The Respondent‟s Written Submissions dated and filed on 15th March 2023.

23. The Respondent submitted that its compliance check on the Appellant revealed that it had underdeclared its sales for the period January 2017 to December 2019 declaring sales of Kshs 24,788,836. 00 yet the IFMIS system showed that it had been paid a total of Kshs 83,471,484. 00 over the period.

24. The Respondent further submitted that it requested the Appellant to provide documents to enable it ascertain the declared sales and reconcile the assessments. The Appellant failed to provide the documents prompting it to issue an assessment order on 19th July 2021 for the period 2019 of VAT and Income tax totaling Kshs 2,742,096. 00.

25. The Respondent stated that the Appellant lodged a late objection application on 29th July 2022 citing not having seen the assessment order.

26. The Respondent averred that the Appellant was uncooperative and failed to provide documents for reconciliation of the taxes and as a result, on 8th August 2022 it invalidated the Appellant‟s objection to additional assessments for the period 2019 of Kshs 2,742,096. 00.

27. The Respondent stated that the Appellant made a late and invalid Objection contrary to Section 51(3) of the TPA compelling the Respondent to reject its Objection pursuant to Section 51(4) of the TPA.

28. The Respondent averred that the Appellant not only filed its objection late without stating precisely its grounds for objection but also failed to adduce sufficient accompanying evidence to support the objection despite several reminders.

29. The Respondent relied on this Honorable Tribunal‟s Judgement in Meera Umoja Kenya Limited v Commissioner of Domestic Taxes Nairobi TAT Appeal No 93 of 2019 where the Tribunal held that:-“17. Additionally … the Appellant‟s objection failed to comply with the validity requirement under Section 51(3)(c) of the TPA as the Appellant did not provide all the supporting documents to contest the assessment. We find the Appellant failed in its duty under Section 56(1) of the TPA which places upon a taxpayer the burden of proving the incorrectness of an assessed tax liability. Even now as the Appellant pleads its case in the Tribunal, there is hardly any evidence to counter the assessed taxes”

30. The Respondent further stated that the Appellant failed to avail documents in support of its application for extension of time as prescribed by Section 51(7) of the TPA which states that:“(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 or other reasonable cause; andb.the taxpayer did not unreasonably delay in lodging the notice of objection.”

31. The Respondent asserted that by failing to produce the requested documents, the Appellant failed to discharge its burden of proof. To buttress its point the Respondent relied on Afya Xray Centre Limited v Commissioner of Domestic Taxes Appeal number 70 of 2017 where this Honorable Tribunal had the following to say:“From the foregoing chain of events, it is our understanding that the Appellant failed in its duty in providing these documents, in order that a comprehensive audit of its affairs be done. Accordingly, the Respondent can hardly be faulted for raising the assessment in accordance with the availed documents.”

32. The Respondent submitted that on matters where the issue is supply of goods it relies on the judgement in Commissioner of Domestic Taxes v Structural International Kenya Ltd (Income Tax Appeal No E089 of 2020) [2021] KEHC 152 (KLR) where the High Court held as follows:“For the avoidance of doubt, the Tribunal is reminded that in matters where the issue is supply of goods, be it for VAT purpose or Corporation Tax, the burden is always on the trader/tax payer to show that, the documentation set out in the statute and in which he relies on arose out of a commercial transaction. Period. If additional documents, which would be reasonably expected to be in his possession is requested for to verify the alleged transactions, he should produce the same to the commissioner. That is what is expected of a keen and diligent trader”

33. The Respondent further averred that it is guided by Section 23 of the TPA which imposes the responsibility on the Appellant to maintain and provide all material documents required by the Respondent in order to ascertain what taxes were due and payable by the Appellant who ought to have been paying the taxes for the years under review. That noting that the Appellant failed to provide the documents, the Respondent relies on Primarosa Flowers Limited v Commissioner of Domestic Taxes (2019) eKLR, the Hon Makau J while making reference to the Australian case of Mulherin v Commissioner of Taxation [2013] FCAFC 115 held that:“……the onus is on the taxpayer in proving that the assessment was excessive by adducing positive evidence which demonstrates that the taxable income on which tax ought to have been levied…..”

34. The Respondent contended that the Appellant had not demonstrated with precision how its rights under Article 47 of the Constitution hadbeen violated and wished the Tribunal to decide on whether the Respondent‟s decision was contrary to Article 47.

35. The Respondent stated that it is trite law that “equity aids the vigilant and not the indolent” the Appellant lodged a late objection on 29th July 2022 one year after an assessment order was issued, it is clear that the Appellant was disregarding its right to object and even after lodging an application did not bother to provide documents to support the objection and therefore cannot purport to have not been accorded fair administration of justice.

36. The Respondent submitted that based on the foregoing, the Tribunal should be guided by the decision of the High Court in Republic v Kenya Revenue Authority Ex-Parte Bata Shoe Company (Kenya) Limited [2014] eKLR, that: “….payment of tax is an obligation imposed by law. It is not a voluntary activity. That being the case, a taxpayer is not obligated to pay a single coin more than is due to the taxman. The taxman on the other hand is entitled to collect up to the last coin that is due from a taxpayer.”

37. The Respondent reiterated that the taxpayer had failed to discharge its burden in proving that the Respondent‟s tax decision was incorrect as per the provisions of Section 56(1) of the Tax Procedures Act and therefore the decision was proper in law.

Respondent‟s Prayers. 38. The Respondent prayed that the Tribunal:i.Dismisses this Appeal in its entiretyii.Confirms the assessments and finds that the assessments are due and payable by the Appellant.

Issue for Determination 39. Having considered the pleadings and submissions of the parties and the documentation availed, the Tribunal is of the considered view that this Appeal raises the following issue for determination:Whether the Respondent erred in invalidating the Appellant‟s Objection application.

Analysis and Findings 40. The Tribunal having determined the issue for determination will proceed to analyze it as hereunder.

Whether the Respondent erred in invalidating the Appellant‟s Objection application 41. The Tribunal‟s analysis of the material adduced before it shows that the Appellant lodged its objection application more than one year late. The assessment notice was issued on 19th July 2021 while the Appellant lodged its objection on 29th July 2022.

42. The Tribunal noted that the Appellant‟s reason for filing the objection late is that it could not access its iTax registered email from February 2021 to July 2022 and only learnt of the assessment from its Accounts manager in July 2022.

43. The Respondent on its part stated that the Appellant did not provide any documentation to support its application for extension of time noting that by objecting over one year late, the Appellant was indolent in pursuing its rights.

44. Section 51(6) of the TPA requires a taxpayer to seek leave from the Commissioner in writing to lodge a late objection while Section 51(7) of the TPA provides the basis upon which such a late objection may be allowed by the Commissioner with one of them being that “(b) the taxpayer did not unreasonably delay in lodging the notice of objection.”

45. The Appellant‟s late notice of objection which was filed via its iTax platform indicated not having seen the assessment email as the reason for late objection, it did not provide details of the circumstances that precipitated its failure to see the email. It was expected of the Appellant to then provide evidence to support its reason for late objection.

46. Section 51(6) provides as follows:“a taxpayer may apply in writing to the Commissioner for extension of time to lodge a notice of objection”

47. The foregoing Section envisages a situation where besides raising an application for late objection on the iTax platform, the taxpayer would support its reason for late objection in writing to the Commissioner. The Appellant failed to do so.

48. The Tribunal is cognizant of the fact that the provisions of Section 51(7) of the TPA confer discretion to the Commissioner to determine whether or not the reasons given by a taxpayer for late objection meet the threshold of reasonableness. In the absence of evidence to support the reason given or a detailed explanation in mitigation of the Appellant‟s late action, the Tribunal considers that the Respondent lacked a basis upon which to perform the test of reasonableness.

49. Whereas the Appellant decries it‟s Objection application having been invalidated in a mere 14 days from the date of objection, Section 51(7A) requires the Commissioner to notify the taxpayer of its decision made under subsection (7) within fourteen days after receipt of the application. The Respondent acted within the statutory timelines since an informed decision needed to be made and communicated to the Appellant within 14 days of receipt of the application.

50. The Tribunal is guided by the High Court‟s emphasis on the strict application of statutory timelines. The High Court had this to say in Equity Group Holdings Limited v Commissioner of Domestic Taxes 2021 (eKLR):- “A statutory edict is not procedural technicality. It‟s a law which must be complied with. Parliament in its wisdom expressly and in mandatory terms provided………”

51. In view of the foregoing, the Tribunal is persuaded that the Appellant not only delayed in lodging its objection but also failed to provide documents to persuade the Respondent that the late objection was justified. The Respondent being bound by the statutory 14 days within which to make a decision on the application to file a late Objection did not have the discretion to afford the Appellant more time to comply.

52. The Tribunal, therefore, finds that the Respondent did not err in invalidating the Appellant‟s objection application.

Final Decision 53. In light of the foregoing analysis, the Tribunal makes the following orders:i.The Appeal be and is hereby dismissed.ii.The Respondent‟s invalidation decision dated 8th August 2022 be and is hereby upheld.iii.Each party shall bear its own costs.

54. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 1ST DAY OF SEPTEMBER, 2023. GRACE MUKUHA - CHAIRPERSONDR. ERICK KOMOLO - MEMBERJEPHTHAH NJAGI - MEMBERGLORIA OGAGA - MEMBERTIMOTHY VIKIRU - MEMBER