[2024] KETAT 938 (KLR)

Grastakim Investment Limited v Commissioner of Domestic Taxes (Tax Appeal E869 of 2023) [2024] KETAT 938 (KLR) (12 July 2024) (Judgment)

Neutral citation: [2024] KETAT 938 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E869 of 2023

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

July 12, 2024

Between

Grastakim Investment Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a Private Limited Liability Company duly incorporated in Kenya under the Companies Act whose main business is in the construction of roads and railways.

2. The Respondent is established under the Kenya Revenue Authority Act, Cap 469 Laws of Kenya. The Kenya Revenue Authority (“KRA”) is an agency of the Government of Kenya for assessing, collecting, and accounting for all revenue.

3. The Respondent issued additional assessments to the Appellant on iTax on 5th May 2022 for the period 1t January and 1st December 2019 of Kshs. 982,665. 00.

4. On 31st March 2023, the Appellant lodged a late objection Application for an amount of Kshs. 899,270. 00 against the assessed amount which was acknowledged by the Respondent by the Respondent who requested the Appellant to pay the undisputed amounts and provide documents to validate its objection.

5. On 13th April 2023, the Respondent invalidated the Appellant’s Objection through a decision dated 30th November 2023.

6. Dissatisfied with the Respondent’s Objection Decision, the Appellant filed this Appeal vide the Notice of Appeal dated 30th November 2023 and filed on 1st December 2023.

The Appeal 7. The Appeal is premised on the following grounds listed in the Memorandum of Appeal dated 30th November 2023 and filed on 1st December 2023: -i.The Respondent erred in law and fact by issuing an additional assessment on Income Tax for the period 1st January 2019 to 31st December 2019 by assuming that there were no expenses or deductible inputs incurred by the Taxpayer in the course of doing business for this period.ii.The Respondent erred in law and fact by not considering the expenses in hiring of machinery for the construction work and direct wages for labour incurred during the year.iii.The rejected deductible input and direct wages expenses submitted to the Respondent in support of the Objection were paid by cash, monies withdrawn from the Company’s Bank account which is hereto attached for your examination.iv.Upon Objecting the additional assessment and outlining reasons for the late objection, in the letter dated 31st March 2023, the Respondent went ahead and invalidated the Objection stating that the Appellant failed to settle a proportion of the assessment that was not in dispute whereas the Appellant had objection in full the additional assessment raised on income tax for the tax period 1st January 2019 31st December 2019.

The Appellant’s Case 8. The Appellant’s case was premised on its;i.Statement of Facts dated 30th November 2023 and filed on 1st December 2023 together with the documents attached thereto;

9. The Appellant stated that pursuant to Section 56 of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act, the burden of proof lies with the taxpayer to demonstrate that the Respondent’s Decision was incorrect which was discharged at the initial desk audit review period and documentary evidence was submitted in the form of original copies of purchase invoices and bank statements.

10. The Appellant contended that on 31st March 2023, it raised a late objection in iTax against the full additional assessments raised on Income Tax Returns for the period 1st January 2019 to 31st December 2019.

11. The Appellant averred that Commissioner legal Services and Board Coordination requested to be served with the supporting documentation for the Objection which it forwarded on 13th March 2023 via email.

12. The Appellant further averred that on 13th April 2023, the Respondent issued it with the Objection Decision, invalidating the Objection on the basis of failure to meet the requirements of Section 51 (3) of the Tax Procedures Act, 2015 because the Appellant had failed to settle the proportion of the assessment that was not in dispute whereas the Appellant had objected to the additional assessment in full.

13. The Appellant contended that it submitted the relevant documentation in support of the late Objection and outlined therein the reasons for the late objection and the Respondent is deemed to have granted the Appellant’s prayers to accept the late objection out of statutory timelines as this was not the reason for invalidation the Objection.

14. The Appellant did not file any written submissions with the Tribunal, accordingly, the Tribunal shall consider the Appeal on the basis of the pleadings availed to it and annexed documents to determine the totality of the Appellant’s case.

The Appellant’s prayers. 15. The Appellant prayed for orders that:i.This Appeal be allowed;ii.The Respondent’s decision to invalidate the Objection Application lodged on 31st March 2023 is set aside;iii.Each party to bear its costs; and,iv.Such other further orders or reliefs as the Honourable Tribunal may deem just and expedient.

The Respondent’s Case 16. The Respondent’s case is premised on its;a.Statement of Facts dated and filed on 6th March 2024 together with the documents attached thereto;b.Written Submissions dated 4th April 2024 and filed on 11th April 2024c.Preliminary Objection dated and filed on the 6th March 2024.

17. In its Preliminary Objection, the Respondent cited the following grounds in objection of the same.i.The Appeal offends Sections 52 (2) and 51 (3) and (b) of the Tax Procedures Act and is thus fatally defective; and,ii.Pursuant to the foregoing, the Honourable Tribunal lacks jurisdiction to entertain the claim;

18. In its Statement of Facts, the Respondent stated that the Appellant’s Appeal is misconceived as it does not relate to the basis of the Respondent’s decision i.e whether the Appellant paid taxes not in dispute prior to lodging the Objection.

19. The Appellant averred that an objection lodge needs to be related to the basis of the decision thus ground 1 to 3 of the Memorandum of Appeal needs to be related to the basis of the decision that is subject to an appeal and in any case, the Appellant did not provide the documents requested by the Respondent in order to support its objection.

20. The Appellant contended that ground four of the Appellant’s Memorandum lacks any merit and it shall raise a preliminary objection contesting the validity of the appeal as the Appellant failed to settle taxes not in dispute as required by Section 52 (2) of the Tax Procedures Act. it added that the Appellant objected to an amount of Kshs. 899,207. 00 against the total assessment/tax liability of Kshs. 982,665. 00.

21. On whether the Respondent’s preliminary Objection has merit, the Respondent in its written submissions, submitted that the Appeal has not satisfied the requirement of a valid Appeal prescribed under Section 52 (2) of the Tax Procedures Act, 2015 which provides that an Appeal would only be valid if among others a taxpayer has paid the tax not in dispute under the assessment at the time of lodging the Notice of Appeal.

22. The Respondent asserted that the Appeal has been filed outside the timelines required by law and therefore the Appeal is invalid.

23. The Respondent relied on Section 52 (2) of the Tax Procedures Act and contended that in lodging the Notice of Appeal, the Appellant still had not settled taxes not in dispute as required by the law. It added that the Appellant objected to Kshs. 899,207. 00 against an assessment of Kshs. 982,665. 00 therefore the tax amounting to Kshs. 83,458. 00 is undisputed and for its Notice of Appeal to be valid, it is required to pay the differential tax not in dispute or enter into an arrangement with the Respondent to pay the same.

24. The Respondent argued that there were correspondences with the Appellant requesting the Appellant to settle the undisputed taxes or enter into an arrangement with the Respondent to settle tax not in dispute but the Appellant ignored it.

25. The Respondent reiterated that the Notice of Objection was consequently invalidated and at the appeal, the Appellant has not addressed itself to the basis of the invalidation decision but purports to address its grounds of appeal on the substance of the dispute which is misconceived.

26. The Respondent asserted that the Appellant had filed an Appeal without adhering to the mandatory rules of the Tribunal on filing the Appeal.

27. The Respondent submitted that the Appellant is challenging the Respondent’s decision dated 13th April 2023 and a Notice and Memorandum of Appeal were filed on 30th November 2023 without adhering to timeline prescribed in law.

28. The Respondent reiterated that the Tax Procedures Act, the Tax Appeals Tribunal Act and the attendant rules specify the procedure for filing an Appeal when a taxpayer is satisfied with the Objection Decision.

29. The Respondent cited Section 13 (3) of the Tax Appeals Tribunal Act and argued that where a party fails to lodge the Appeal within the timelines, provisions exist that allow a party to make an application for the appeal to be admitted out of time and the Tribunal may admit the late Appeal if the conditions for granting the same are met per Section 13 (4) of the TAT Act which are absence from Kenya, sickness, or other reasonable cause that may prevent a person from lodging the Appeal.

30. The Respondent asserted that no reason has been disclosed by the Appellant why there was an inordinate delay and further, despite the delay, the Appellant did not find it necessary and proper to make an Application to admit the Appeal out of time or allow more time to put in its Appeal. It added that with the lapse of the 7 days granted by the Tribunal, no valid Appeal can be construed to have been filed and properly on record.

31. The Respondent contended that there was non-compliance with the timelines required for lodging the Appeal.

32. The Respondent relied on the case of Nairobi H.C. Misc. Civil Application No. 81 of 2011; Republic vs. The Commissioner of Customs Services; Ex-Parte: SDV Transami and maintained that the Appellant is guilty of inordinate delay, chooses to ignore directions of the Tribunal and deliberately fails to seek an enlargement of time to put its appeal thus such an appeal is invalid and is not properly before the Tribunal.

33. The Respondent further relied on the decision in the case of Nicholas Kiptoo Arap Korir Salat vs. IEBC & 6 Others [2013] eKLR and urged the Tribunal to uphold the procedural rules that guide it in the Application of substantive justice and find that there is no Appeal before it as the Appellant has been indolent in prosecuting its Appeal and thus the Tribunal ought not to aid them any further.

34. The Respondent argued that even if the Tribunal were to find that the delay is not inordinate, and being clothed with the discretion to admit Appeals out of time, a further question must be asked whether there exists reasonable cause that has been disclosed by the Appellant explaining the reasons for the delay and none exists.

35. The Respondent cited the case of Civil Appeal No. 142 of 2013: Diplack Kenya Ltd vs. William Muthama Kitonyi [2018] eKLR where the court approvingly cited the case of Daphne Parry vs. Murray Alexander Carson [1963] EA 546.

The Respondent’s prayers 36. The Respondent prayed for the Tribunal to dismiss the Appeal entirely with costs to the Respondent.

Issues For Determination 37. After perusing the Memorandum of Appeal and parties' Statements of Facts, and the submissions and gleaning through the documentation attached therewith, the Tribunal finds the following to be the issues for determination:i.Whether the Appellant’s Appeal is properly before the Tribunal; and,ii.Whether the Respondent was justified in its Invalidation Decision dated 13th April 2023.

Analysis And Findings 38. The Tribunal wishes to analyse the issue as hereunder.

i. Whether the Appellant’s Appeal is properly before the Tribunal; 39. The Respondent averred that the Appeal has been filed outside the timelines required by law and therefore the Appeal is invalid.

40. The Respondent further averred that the Appeal has not satisfied the requirement of a valid Appeal would only be valid if among others a taxpayer has paid the tax not in dispute under the assessment at the time of lodging the Notice of Appeal.

41. The Respondent contended that in lodging the Notice of Appeal, the Appellant still had not settled taxes not in dispute as required by the law as the Appellant objected to Kshs. 899,207. 00 against an assessment of Kshs. 982,665. 00 therefore the tax amounting to Kshs. 83,458. 00 is undisputed.

42. The Appellant averred that the Respondent issued its Objection Decision invalidating the Objection for failure to settle the proportion of the assessment that was not in dispute whereas the Appellant had objected to the additional assessment in full.

43. Section 52 of the Tax Procedures Act states the following:“52. (1)A person who is dissatisfied with an appealable decision may appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Tribunal Act (Cap. 469A).(2)A notice of appeal to the Tribunal relating to an assessment shall be valid if the taxpayer has paid the tax not in dispute or entered into an arrangement with the Commissioner to pay the tax not in dispute under the assessment at the time of lodging the notice.”

44. The Tribunal has perused the documents tabled before it and noted that, in the Objection Application filed by the Appellant, the assessment amount provided is Kshs. 982,665. 00 while the Objected amount is put down as Kshs. 899,207. 00.

45. It therefore follows that the Appellant implicitly conceded to the variant amount of Kshs. 83,458. 00, not objected to. The Appellant did not object to the assessment in full neither had it paid the amount before filing the instant Appeal. The Appellant has also not shown that it entered into a payment agreement with the Respondent before it approached the Tribunal for the instant Appeal.

46. The Respondent further asserted that the Appeal has been filed outside the timelines required by law and therefore the Appeal is invalid since the Appellant is challenging the Respondent’s decision dated 13th April 2023 and through a Notice and Memorandum of Appeal filed on 30th November 2023 without adhering to timeline prescribed in law.

47. The Appellant did not address itself on the issue of timelines.

48. Section 51 (12) of the Tax Procedures Act provides thus: -“A person who is dissatisfied with the decision of the Commissioner under subsection (11) may appeal to the Tribunal within thirty days after being notified of the decision.”

49. Further, Section 13 (3) of the Tax Appeals Tribunal Act mandates that;“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).”

50. The Tribunal notes that the timelines as prescribed by the Respondent match the documentation before the Tribunal. The Appellant has thus not followed the procedure provided by the law for lodging an appeal out of time and to that end, the Appeal is rendered invalid. The Appellant should therefore apply for leave to file an appeal out of time giving reasons and evidence supporting its reasoning before the same can be entertained by the Tribunal.

51. It is therefore the Tribunal’s position that the Appellant’s Appeal is not valid thus improperly filed before the Tribunal until and unless the Appellant pays for the undisputed tax.

b. Whether the Respondent was justified in its Invalidation Decision dated 13th April 2023 52. Having found as above, the Tribunal shall not delve into the substance of the appeal by analysis the second issue for determination as the same has been rendered moot by the Tribunal’s lack of jurisdiction.

Determination 53. The upshot to the foregoing is that the Appeal is invalid and the Tribunal consequently makes the following orders; -a.The Appeal be and is hereby dismissed;b.The Respondent’s Objection Decision dated 13th April 2023 be and is hereby upheld; and,c.No orders as to costs.

54. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 12TH DAY OF JULY 2024ROBERT M. MUTUMACHAIRMANABDULLAHI DIRIYE MUTISO MAKAUMEMBER MEMBERBERNADETTE M. GITARI ELISHAH N. NJERUMEMBER MEMBER