https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/306

**REPUBLIC OF KENYA** **IN THE TAX APPEALS TRIBUNAL AT NAIROBI** **TAT APPEAL NO E1340 OF 2025** **GRAYAN INVESTMENTS LIMITED..................................................…....……APPELLANT** **-VS-** **COMMISSIONER FOR DOMESTIC TAXES.................................................RESPONDENT** **JUDGMENT** **BACKGROUND** 1. The Appellant is a limited liability company incorporated in Kenya and whose principal activity is in the construction sector. 2. The Respondent is the principal officer appointed under Section 13 of the Kenya Revenue Authority Act. The Kenya Revenue Authority is an agency of the Government of Kenya mandated with the duty of collection and receipting of all tax revenue, and the administration and enforcement of all tax laws set out in Parts 1 & 2 of the First Schedule to the Act, including assessing, collecting, and accounting for all tax revenues in accordance with those laws. 1. On 26th June 2025, the Respondent issued the Appellant with a Notice of Tax Assessment for income tax (company) and VAT. 2. On 22nd July 2025, the Appellant lodged its objection to the additional assessments vide iTax. The Respondent then notified the Respondent of its invalid objection application on 25th July 2025, and the Appellant validated its objection on 29th July 2025 by providing supporting documents. 3. On 17th September 2025, the Respondent issued its Objection Decision. 4. Dissatisfied with the Respondent’s Objection Decision, the Appellant lodged this Appeal vide Notice of Appeal dated 24th November 2025. **THE APPEAL** 1. In its Memorandum of Appeal dated 24th November 2025, the Appellant raised the following grounds of appeal: - * 1. The Respondent erred by failing to appreciate that the Appellant only facilitated loans for a related party and a friend’s company because of the Appellant’s goodwill with lenders and director connections. 2. The Respondent erred by failing to appreciate that the Respondent had done business twice as follows: - on 2nd November 2022 with KeRRA Bungoma of Kshs. 4, 643,741 and March 2023 with the National Cereal Board of Kshs. 568,050, which transactions were declared in its monthly returns. 3. The Respondent erred by failing to appreciate that most of the Appellant’s credit entries are loan repayments from related party companies, which can trace debit entries from the previous period. 4. The Respondent erred by failing to appreciate that the loans were used to finance related parties’ and friends’ businesses. **APPELLANT’S CASE** 1. The Appellant’s case is based on its brief Statement of Facts dated 24th November 2025, and written submissions dated 15th June 2026. 2. The Appellant averred that the additional assessment was brought by the Respondent, treating all bank deposits as income. 3. In this regard, it is the Appellant’s case that the tax charged is punitive and unfair since the Respondent thought that all bank credits were income, yet the construction industry relies a lot on loans from banks and friendly loans to fund operations. 4. In conclusion, the Appellant contended that the additional assessment does not correspond with the Income Tax Act. The Appellant’s written submissions largely reiterated the above contentions. **APPELLANT’S PRAYERS** 1. The Appellant prayed to the Tribunal for the following orders: - 2. The appeal be allowed with costs to the Appellant. 3. Any other orders that the Tribunal may deem fit. **RESPONDENT’S CASE** 1. The Respondent filed its Statement of Facts dated 15th January, 2026 and Written Submissions dated 8th June, 2026 in opposition to the Appeal. 2. The Respondent averred that during the objection review, it requested the Appellant to provide loan agreements and a schedule showing when the loans were advanced, and to link these loans to the corresponding repayments, but the Appellant failed to provide the requested information and records. 3. The Respondent further averred that it is trite law that the burden of proof lies with the taxpayer to demonstrate that an assessment by the Respondent is wrong. In the absence of documents and information to support the loans alleged by the Appellant, the Respondent’s assessment enjoys a presumption of correctness. According to the Respondent, the Appellant failed to discharge its burden in this case by failing to provide records in support of the alleged loans. 4. The Respondent submitted that the basis of the assessment was analysis of bank credits in the Appellant’s bank statements. The Appellant was requested to provide reconciliations of the bank credits relating to credits not attributable to income. 5. The Respondent posited that at the investigation stage, bank credits relating to bank reversals and account-to-account transfers were adjusted. The Appellant did not provide any additional information or records during the objection review to support any further adjustments to the bank credits. 6. The Respondent further posited that Kenya is a self-assessment tax regime, meaning a taxpayer determines what it considers its income, assesses self, and pays. This model depends on the goodwill and honesty of the taxpayer to disclose all the relevant facts and income to the Respondent. As such, since not all taxpayers are truthful and honest, tax laws are couched in a matter that gives the Respondent a wide berth in determining what amounts to the taxes payable *ex post facto* long after the taxpayer has filed returns. 7. The Respondent stated that it took into account the Appellant’s self-assessments in two obvious instances: - 8. In netting it off against the expected income established from the self-assessments; and 9. In employing vatable versus non-vatable profit ratios from the Appellant’s assessments in apportioning the ratio of vatable and non-vatable goods. 10. The Respondent further stated that it also took into account documents supplied and thereby validated the Appellant’s objection that had previously been invalidated on the insufficiency of documents. 11. On the objection to VAT assessments, the Respondent stated that the Appellant failed to provide any supporting documentation to support the objection, leading to the confirmation of the additional VAT assessments. 12. In its Written Submissions dated 8th June, 2026, the Respondent largely reiterated the above assertions. **RESPONDENT’S PRAYERS** 1. The Respondent prayed to the Tribunal for the following orders: - 2. The Appeal be dismissed with costs. 3. The Respondent’s Objection Decision dated 17th September, 2025 be upheld. **ISSUES FOR DETERMINATION** 1. The Tribunal having considered the parties' pleadings, submissions and documents filed before it is of the view that the issue that falls for its determination is ***whether the Respondent’s Objection Decision dated 17th September, 2025 is justified.*** **ANALYSIS AND DETERMINATION** 1. The instant Appeal is premised on the Respondent’s Objection Decision dated 17th September, 2025, which confirmed additional VAT and corporation (income) tax assessments of Kshs. 84,580,437.00. 2. In confirming the additional VAT assessments, the Respondent stated that the additional assessments were premised on a banking analysis that revealed undeclared/under-declared income, and that the Appellant was required to provide loan agreements, income schedules and banking reconciliation of deposits/credits in its bank statements, and income per the income schedules/declared income, as well as VAT computations and supporting transaction documents. According to the Respondent, these documents were critical in verifying the completeness of declared income, but were not provided. 3. On its part, the Appellant submitted that the additional assessment was brought by the Respondent, treating all bank deposits as income, and that the tax charged is punitive and unfair because the Respondent thought that all bank credits were income, yet the construction industry relies a lot on loans from banks and on friendly loans to fund operations. 4. The Tribunal reviewed rival pleadings and annexures thereto, and noted that there is no evidence that the Appellant provided the documents sought by the Respondent as per the Objection Decision, and that would have led to a variation of the additional VAT and corporation tax assessment. 5. Section 59 of the Tax Procedures Act (cap 469B) provides as follows regarding the Appellant’s duty to produce documents and records as may be sought by the Respondent: - 6. *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 –* 7. *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;* 8. *furnish information relating to the tax liability of any person in the manner and by the time as specified in the notice; or* 9. *attend, at the time and place specified in the notice, for the purpose of giving evidence in respect of any matter or transaction appearing to be relevant to the tax liability of any person.* 10. Section 56 (1) of the Tax Procedures Act (cap 469B), which provides as follows regarding the Appellant’s burden of proof: - *In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.* 1. Furthermore, Section 30 of the Tax Appeals Tribunal Act (cap 469A) provides as follows on the Appellant’s burden of proof: - *In a proceeding before the Tribunal, the appellant has the burden of proving—(a)where an appeal relates to an assessment, that the assessment is excessive; or(b)in any other case, that the tax decision should not have been made or should have been made differently.* 1. The Honourable Tribunal has also previously reiterated the Appellant’s duty to discharge its burden of proof in the first instance. In **Abyssinia Iron and Steel Ltd -vs- Commissioner of Customs and Border Control** (**TAT No. 435 of 2022)**, the Tribunal held as follows: - *The bottom line is that once the Appellant has provided evidence that the Respondent's assessment was wrong, then the Respondent must push back and show that its assessment was not arbitrary, capricious, or imagined. The onus will then shift back to the Appellant once the Respondent has discharged its burden on a balance of convenience to discharge the prima facie case that has been presented by the Respondent.* 1. Having considered the pleadings and records before it, the Tribunal is constrained to find and hold that the Appellant did not sufficiently support its objection to the Respondent’s additional VAT and corporation tax assessments, and thus it did not discharge its burden of proof. The Respondent’s additional assessments as per the Objection Decision dated 17th September, 2025 are therefore justified. **DISPOSITION** 1. The upshot of the foregoing analysis is that the Tribunal finds and holds that the Appeal lacks merit and proceeds to issue the following orders: - 1. The Appeal be and is hereby dismissed. 2. The Respondent’s Objection Decision dated 17th September, 2025 be and is hereby upheld. 3. Each Party is to bear its own costs. 1. It is so ordered. **DATED and DELIVERED at NAIROBI this ………7th..……. Day of ……August...…… 2026** **..........................……………………….** **DR. RODNEY ODHIAMBO OLUOCH** **CHAIRPERSON** **.…..….……………………. ..….……………………….** **ABDULLAHI M. DIRIYE DR. ERICK KOMOLO** **MEMBER MEMBER**