https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/132

Muthija v Commissioner of Domestic Taxes (Tax Appeal E627 of 2025) [2026] KETAT 132 (KLR) (2 June 2026) (Judgment) Neutral citation: [2026] KETAT 132 (KLR) Republic of Kenya In the Tax Appeal Tribunal Tax Appeal E627 of 2025 RM Mutuma, Chair, JM Malla, G Ogaga & T Vikiru, Members June 2, 2026 Between Godwin Kinyua Muthija Appellant and Commissioner of Domestic Taxes Respondent Judgment Background 1.The Appellant is a sole proprietor business of harvesting, transporting, and selling sand within Kenya. 2.The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws. 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 Part 1 and 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 Respondent on 11th September, 2024 raised additional income tax assessments for various periods between 2019 and 2021. On 25th February 2025, the Appellant objected to the assessments. 4.The Respondent on 2nd May 2025, rejected the Appellant's objection and issued an objection decision confirming the tax liability of Kshs. 16,617,562.07. 5.The Appellant being dissatisfied with the decision of the Commissioner lodged the instant Appeal vide notice of appeal dated and filed on 2nd June 2025. The Appeal 6.The Appellant in his memorandum of appeal filed on 16th June 2025, raised the following grounds of appeal:a.That the Respondent erred in both law and fact by rejecting the Appellant's objection on the basis that the documentation submitted was insufficient. The Appellant provided bank statements, purchase schedules, payment vouchers, and petty cash records, which are acceptable accounting records under Section 23 of the Tax Procedures Act Cap 469B (TPA); and the Income Tax Act Cap 470 (ITA). These records are consistent with the nature and scale of the Appellant's business in the sand trade and were submitted in good faith.b.That the Respondent failed to consider that the Appellant operates in the informal sand supply sector which predominantly uses cash transactions and lacks standardized invoicing systems. The insistence on M-PESA statements and formal invoices shows a disregard for the commercial realities and operational structure of informal businesses. This approach is not only unreasonable but discriminatory against small-scale traders.c.That the Respondent erroneously dismissed valid business expenses due to the absence of specific documentation forms (e.g., signed invoices or electronic receipts). This is contrary to the well-established tax principle of "substance over form," whereby the economic and commercial reality of a transaction prevails over its documentary form. Numerous Tax Appeals Tribunal decisions (e.g., TAT NO. 88 of 2019) have held that informal records, if consistent and verifiable, are sufficient.d.That while Section 56(1) of the TPA places the initial burden of proof on the taxpayer, the Appellant discharged this burden by submitting all requested documentation. Once this was done, the burden shifted to the Respondent to show why such evidence was inadequate. The Respondent failed to do so and instead offered generalized reasons without engaging with the specifics of the Appellant's business model.e.That the Respondent failed to issue any written notice under Section 51(4) of the TPA requesting additional information or clarification prior to making the objection decision. This procedural omission denied the Appellant the opportunity to rectify or supplement his evidence and amounts to a denial of fair administrative action.f.That the Respondent disallowed depreciation expenses allegedly claimed by the Appellant. However, the Appellant had not included depreciation in the computation of taxable income. This indicates a misreading of the tax returns or a blanket rejection of the expenses without thorough review.g.That the assessments issued by the Respondent appear to be based on estimated turnover projections and assumptions rather than the financial documents and transactional records submitted. This violates the requirement under Section 31 of the TPA that assessments must be reasonably based on available information.h.That the Respondent's decision-making process lacked transparency, reasonableness, and fairness, thereby infringing the Appellant's constitutional right to fair administrative action as enshrined in Article 47 of the Constitution of Kenya.i.That the penalties and interest imposed, totaling nearly 43% of the principal tax, are punitive and disproportionate considering that the Appellant attempted to comply and provided supporting documentation. The Appellant further seeks relief under the tax amnesty window available until 30th June 2025, as provided under Section 37E of the TPA. The Appellant’s Case 7.In support of the appeal, the Appellant lodged statement of facts dated and filed on 16th June 2025, wherein the Appellant stated that he duly filed income tax self-assessment returns for the years 2019, 2020, and 2021, accurately reporting turnover and claiming relevant business expenses as permitted under the ITA. He stated that he had a good tax compliance history before the audit. 8.He noted that following a routine audit, the Respondent issued additional assessments totalling to Kshs. 16,617,562.07 comprising principal tax of Kshs. 11,655.637.21, penalty of Kshs. 582.781.86, and Interest of Kshs 4.379,143.00. 9.The Appellant asserted that he lodged a Notice of Objection and submitted extensive documentation including bank statements for the audit period, petty cash records and purchase schedules, payment vouchers, and summary ledgers showing business expenses and income. According to the Appellant, these were provided pursuant to Section 51(3) c) of the Tax Procedures Act. 10.The Appellant pointed out that the sand trade is heavily cash-oriented. Most suppliers and transporters do not issue formal invoices or accept mobile/bank payments. He asserted that payments are made on-site and documented internally. The Appellant asserted that the internal records, though informal, are detailed and consistent with normal business practice in this sector. Despite this, the Respondent rejected the objection, citing lack of verifiable documents, inconsistencies in records, and a supposed depreciation claim. The Appellant thus asserted that the Respondent did not engage with the contextual nature of the business or provide an opportunity for clarification under Section 51(4) of the TPA. 11.He stated that the applicable legal framework that supports his position includes Section 23 of the ITA which permits deduction of expenses incurred wholly and exclusively for business; Section 31 of the TPA which requires assessments to be based on reasonable evidence; Section 56(1) of the TPA which shifts the burden to the Commissioner once documentation is presented; Article 47 of the Constitution which guarantees fair administrative action; and that the Tribunal precedents such as TAT No. 92 of 2021 recognize that informal records are admissible when they show a consistent transaction history. 12.The Appellant averred that he was not given an opportunity to address any inconsistencies or provide additional documentation before the objection decision. He asserted that this omission violated procedural fairness. 13.He contended that the tax demand has imposed an unfair and disproportionate burden on the him, threatening the continuity of a legitimate small-scale business and undermining voluntary tax compliance efforts. Appellant’s Prayers 14.The Appellant prayed that:i.The Objection decision dated 2nd May, 2025 be set aside;ii.The additional income tax assessments for 2019, 2020, and 2021 be vacated or appropriately amended; andiii.The Respondent bears the costs of this Appeal. The Respondent’s Case 15.In response to the appeal, the Respondent lodged a statement of facts dated 11th September, 2025 and filed on 12th September, 2025. 16.The Respondent contended that it considered all the available information from the documents availed by the Appellant and its findings were limited to the information available during the review and verification. It averred that the Appellant failed to provide sufficient supporting records. 17.The Respondent averred that it requested the Appellant to provide the following records:i.Audited accounts for the period under reviewii.Bank & MPESA statementsiii.Expense ledgersiv.Primary documents in support of claimed expensesv.Proof of payment. 18.According to the Respondent, the Appellant provided the following records;i.Bank statements;ii.Payment vouchers;iii.Petty cash schedules; andiv.Purchases schedules. 19.The Respondent averred that the Appellant only provided petty cash schedules and bank statements with highlighted withdrawals in support of sand purchases. The largest expense item claimed by the Appellant was purchases. According to the Respondent, the Appellant contended that he purchases sand from Kajiado and sells it to various sites in Nairobi and that the purchases were made in cash or Mpesa and was given to truck drivers and no invoice numbers provided by the Maasai community sand harvesters. 20.The Respondent averred that the variances observed between purchases claimed and the Appellant's returns while compared with the purchase schedules provided with the returns having higher amounts. Therefore, the Respondent asserted that it could not verify the accuracy of the purchase schedules provided. 21.The Respondent also stated that the Appellant failed to provide MPESA statements to indicate the remittance of funds to the truck drivers. Lastly the petty cash schedules did not have the ID numbers, phone numbers and signatures of the truck drivers and could therefore not be verified. 22.The Respondent posited that depreciation is not a tax-deductible expense. It added that the Appellant did not provide objection grounds or records to support direct wages, direct expenses, rent and rates, repairs of machinery, staff welfare expenses, depreciation, interest expense, sand permits, motor and machine fuel, oil and maintenance costs. 23.The Respondent posited that contrary to allegations by the Appellant, all the documents availed by the Appellant were considered which resulted in rejection of the Appellant's Objection. 24.It contended that the burden of proof that the tax decision is incorrect is on the Appellant as per the provisions of Section 56(1) of the TPA. The Respondent also relied on Section 24(2) of the TPA which states that 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. 25.The Respondent further averred that the Appellant was informed of the assessment and the objection decision pursuant to the provisions of Section 29 and Section 51(9) and (10) of the TPA. 26.It stated that it acted within the confines and provision of the law in issuing the tax decision and Objection decision. It also averred that the information relied upon in making the Objection decision was that which was furnished by the Appellant as explained above. 27.The Respondent contended that its Objection decision clearly enumerated the grounds for each assessment after consideration of the documents availed by the Appellant. It asserted that the Objection decision issued was within the provisions of the law and in consideration of the quantum of records availed by the Appellant. 28.Consequently, the Respondent asserted that it did not violate any provisions of the law, but rather issued decisions with thorough conscience of the laws and statutes governing tax as well as the bill of rights. Respondent’s Prayers 29.The Respondent prayed that the appeal be dismissed; and that the Objection decision be upheld. Parties’ Written Submissions Appellant’s Written Submissions 30.Upon obtaining leave of the Tribunal to file its submissions out of time, the Appellant filed its written submission dated 13th April 2026 and filed on 14th April 2026. 31.The Appellant submitted that he maintained all the records of his business transactions as required by law, specifically section 23 of the TPA. It was the Appellant’s submission that the law and precedence on this obligation is to the effect that this obligation extends only to the documents in possession of the taxpayer. The Appellant relied on the Holding of the High Court in Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] KEHC 13347 (KLR) at paragraph 46 where the Court stated as follows when construing section 23 of TPA;“Whereas the said section obliges a tax payer to avail records, the flip side of this position is that a party can only produce documents in his possession. It could not have been the intention of the law to compel tax payers to produce documents in the hands of a third party and more so, if the transactions were undertaken by third parties. “[Emphasis added]That furthermore, the court noted at paragraph 43 as follows;“… a tax payer can only produce documents in his custody and relating to transactions undertaken by him/her.” 32.The Appellant also relied on the case of Commissioner of Domestic Taxes v Block International Limited (Income Tax Appeal E103 of 2023) [2024] KEHC 8889 (KLR) 33.The Appellant submitted that the Respondent’s insistence that the Appellant needs to provide other records apart from the ones submitted, is placing the Appellant’s burden of proof so high that it becomes unrealistic and unachievable. That the contention by the Respondent that these do not constitute sufficient records to ascertain the tax liability of the Appellant is not justiciable. The Appellant can only furnish documents in his possession. 34.The Appellant posited that the obligation imposed upon a taxpayer under section 23 of Tax Procedures Act, and Section 54A (1) of the Income Tax Act may not be viewed to unnecessarily impose upon the taxpayer the obligation of maintaining documents which in the ordinary course of the Appellant’s business may not be kept by the Appellant. That such a construction would be in contravention of the article 47 of the Constitution that regards all statutory powers to be validly exercised if they are exercised reasonably, rationally and properly. 35.To buttress his submission, the Appellant relied on the case of Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) [2022] KEHC 9927 (KLR). 36.The Appellant submitted that the Commissioner’s assessment was arbitrary, vindictive, and failed the test of ‘Best of Judgment’ under Section 29 of the Tax Procedures Act. The Appellant cited the recent High Court decision in Avery Lounge Limited v Commissioner of Domestic Taxes (Income Tax Appeal E213 of 2024) [2026] KEHC 769 (KLR) at paragraph 36 referred to the UK VAT decision of Boeckel v. Customs & Excise Commissioners STC 290, where Woolf J stated as follows;“The commissioners will fairly consider all material placed before them and, on that material, come to a decision which is one which is reasonable... As long as there is some material on which the commissioners act then they are not required to carry out investigations which may or may not result in further material being placed before them." 37.The Appellant also relied on the following cases:a.Commissioner of Investigation & Enforcement v Asea Brown Boverthe Court (Abb) Limited (Income Tax Appeal E073 of 2023) [2025] KEHC 2798 (KLR) (Commercial and Tax)b.Commissioner of Domestic Taxes v Block International Limited (Income Tax Appeal E103 of 2023) [2024] KEHC 8889 (KLR) Respondent’s Written Submissions 38.The Respondent filed its written submissions dated 30th March, 2026 wherein it submitted that the Objection decision was proper. 39.It submitted that under Section 51(4) of the TPA, the Respondent is entitled to request additional information to validate an objection. It submitted that the Appellant's failure to comply with this request justified the Respondent's decision to reject the objection. 40.The Respondent submitted that in compliance with Section 51 (4) of the TPA, it informed the Appellant to provide additional documents to support its objection but the Appellant failed to validate its objection making it difficult for the Respondent to revise or amend the assessments. 41.According to the Respondent, pursuant to Section 59(1) of the TPA, the Respondent is empowered to request for documents from the Appellant for purposes of determination of their true tax liabilities. 42.It cited the cases of Commissioner of Domestic Services v Galaxy Tools Limited [2021] KEHC 5530 (KLR); Karsbon Supplies Limited v Commissioner of Legal Services and Board Coordination [2026] KETAT5(KLR); Ushindi Exporters Limited v Commissioner of Investigation and Enforcement (Tax Appeals Tribunal No.7of 2o15); and Singapore Motors Limited v Commissioner of Domestic Taxes (Income Tax Appeal E039 of 2021) [2024] KEHC2443to submit that the taxpayer has a duty in law to adduce documents to support objection and to demonstrate that the Respondent’s decision was incorrect but the Appellant failed to do so. 43.The Respondent also cited the case of Rebecca Fashion (Kenya) Limited v Commissioner Investigations & Enforcement [2025] KETAT 278 (KLR) where the Court quoted the holding in Kenol Kobil Limited v Commissioner of Domestic Taxes (Tax Appeal No. 226 of 2021) [2022] KETAT, where the Tribunal affirmed that best-judgment assessments are permissible where a taxpayer fails to provide reliable records. Issue for Determination 44.The Tribunal identified the following issue for determination:Whether the Respondent erred in confirming the assessment. Analysis and Findings 45.The Tribunal analysed the issue that calls for its determination as hereunder, having reviewed all the pleadings and submissions filed by the Parties concerning the impugned decision. 46.The Appellant argued that he works as a sand vendor and that his business is purely in informal sector where traders do not issue formal receipts. He argued that he provided documents in his possession but the Respondent rejected them on the basis that they were not verifiable. 47.Conversely, the Respondent argued that the Appellant failed to adduce documents even after being requested by the Respondent. Therefore, the Respondent disallowed the notice of objection and confirmed the assessment. The Respondent pointed out that it issued the assessment and considered the objection within the law. 48.The Tribunal notes that whereas the Respondent in its statement of facts averred that it requested the Appellant to provide the following records: audited accounts for the period under review, bank & MPESA statements, expense ledgers, primary documents in support of claimed expenses, and proof of payment, the Respondent did not provide any evidence to confirm that it requested for those documents. 49.The Respondent submitted that in compliance with section 51 (4) of the TPA, it informed the Appellant to provide additional documents to support notice of objection but the Appellant failed to validate its objection making it difficult for the Respondent to reverse or amend the assessments. Section 51 (4) of the TPA that the Respondent relied upon provides as follows:(4)Where the Commissioner has determined that a notice of objection lodged by a taxpayer has not been validly lodged, the Commissioner shall within a period of fourteen days notify the taxpayer in writing that the objection has not been validly lodged and request the taxpayer to submit the information specified in the notice within seven days after the date of the notice. 50.Section 51 (4) of the TPA mandates the Respondent to notify the taxpayer in writing that the objection has not been validly lodged and request the taxpayer to submit the information specified in the notice within seven days after the date of the notice. The Respondent did not adduce evidence showing that it discharged the mandated under section 51(4) of the TPA. 51.The Respondent also submitted that it is empowered by section 59(1) of the TPA to seek for additional documents. The said section provides thus:- 59.Production of records (1)For the purposes of obtaining full information in respect of the tax liability of any person or class of persons, or for any other purposes relating to a tax law, the Commissioner or an authorised officer may require any person, by notice in writing, to—a.produce for examination, at such time and place as may be specified in the notice, any documents (including in electronic format) that are in the person's custody or under the person's control relating to the tax liability of any person. 52.The Respondent did not adduce a notice in writing as contemplated under section 59(1) showing that it requested for documents. 53.Whereas the Respondent asserted that it requested for documents, there was no proof that the Respondent did so. The Tribunal is moved by way of evidence. 54.The Appellant claimed that the Respondent rejected its documents on the basis that the documents were not verifiable. The Appellant claimed that there are expenses that it incurred but the Respondent failed to consider them. In this regard, the Appellant filed bank statements, a number of records and receipts. Some of the formal receipts from VIVO energy showed dates, amounts, and the supplier. 55.Section 15(1) of the TPA provides for deduction of expenses. It provides inter alia:- 15.Deductions allowed (1)For the purpose of ascertaining the total income of any person for a year of income there shall, subject to section 16 of this Act, be deducted all expenditure incurred in such year of income which is expenditure wholly and exclusively incurred by him in the production of that income… 56.The Tribunal notes that the Appellant provided documents supporting the expenses. Whereas the Respondent rejected the Appellant’s records on the basis that they were not verifiable, the Respondent did not state why it disallowed the other documents such as those from VIVO energy. 57.Further, the Respondent stated as follows at paragraph 4 of its written submissions:‘‘The Appellant only provided petty cash schedules and bank statements with highlighted withdrawals in support of sand purchases. The largest expense item claimed by the Appellant was purchases…’’ 58.The Respondent also admitted at paragraph 3 of the written submissions that the Appellant provided the following records: bank statements, petty cash schedules, payment vouchers and purchases schedules. 59.If the Respondent admitted that the Appellant provided petty cash schedules and bank statements with highlighted withdrawals in support of sand purchases and that the largest expense item claimed by the Appellant was purchases, one wonders why the Respondent fully rejected the notice of objection when the Respondent could have at least allowed the notice of objection partially based on the available documents in line with Section 51(8) of the TPA which provides that:“(8)Where a notice of objection has been validly lodged within time, the Commissioner shall consider the objection and decide either to allow the objection in whole or in part, or disallow it, and Commissioner's decision shall be referred to as an "objection decision." 60.There is no doubt that the Taxpayer has a burden to prove that the Respondent’s decision is incorrect. Section 56 (1) of the TPA provides that ‘in any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.’ 61.In the case of Primarosa Flowers Limited vs. Commissioner of Domestic Taxes (2019) eKLR, the Hon Makau J whilst making reference to the Australian case of Mulherin vs 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." 62.We note that whereas Section 56(1) of the TPA and Section 30 of the Tax Appeals Tribunal Act Cap 469A (TATA) places the burden of proof upon the Taxpayer, this does not in any way, mean that the Respondent is just a spectator in the appeal proceedings. We reiterate that once the taxpayer establishes a prima facie case, the burden shifts to the Respondent to justify its decision. In the case of Commissioner of Domestic Taxes v Trical and Hard Limited [2022] KEHC 9927 (KLR) the Court observed thus:‘‘I agree with the Tribunal’s holding that the burden of proof in tax matters is not stationary but is like a pendulum swinging between the taxpayer and taxman at different points but more times than not swings towards thetaxpayer....the evidential burden of proof rests with the taxpayer to disprove the Commissioner and that once competent and relevant evidence is produced, then this burden now shifts to the Commissioner...’’ 63.Further, whereas the Respondent admitted that the Appellant provided bank statements, petty cash schedules, payment vouchers and purchases schedules, bank statements with highlighted withdrawals in support of sand purchases and that the largest expense item claimed by the Appellant was purchases, the Tribunal is at a loss as to why the Respondent fully rejected the entire objection when section 51(8) of the TPA allows the Respondent to partially allow an objection based on available documents. The Tribunal is not persuaded that the Respondent carried out its mandate as required under the law. 64.The Tribunal also wishes to point out that the mere fact that some records are not in the form desired by the Respondent does not automatically mean that they not competent or that they should be rejected, otherwise, it would mean that taxpayers in the informal sector are not auditable, which is not the case. The Respondent should be alive to the conditions under which its clients—who are the taxpayers, operate. The Tribunal further observes that where the Respondent rejects a document, it has a duty to give reasons why such a document cannot be admitted, a blanket rejection of documents amounts to unfair administrative action. 65.Under the circumstances, the Tribunal is satisfied that the Appellant has demonstrated that the Respondent erred in confirming the assessment. Final Determination 66.The upshot to the foregoing is that the Tribunal finds and holds that the Appeal is meritorious and makes the following orders:-a.The appeal be and is hereby allowed;b.The Respondent’s Objection decision dated 2nd May 2025 be and is hereby set aside; andc.Each party to bear its own cost. 67.It is so ordered. DATED AND DELIVERED AT NAIROBI THIS 2ND DAY OF JUNE 2026.……………………………..….ROBERT M. MUTUMACHAIRMAN……………………………… ……JIMMY M. MALLA.MEMBER..….……..……………..GLORIA A. OGAGAMEMBER………………………………DR. TIMOTHY B. VIKIRUMEMBER