[2024] KETAT 565 (KLR)

Hajo Communications Limited v Commissioner Of Domestic Taxes (Tax Appeal E024 (NRB) of 2023) [2024] KETAT 565 (KLR) (22 March 2024) (Judgment)

Neutral citation: [2024] KETAT 565 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E024 (NRB) of 2023

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, AK Kiprotich & T Vikiru, Members

March 22, 2024

Between

Hajo Communications Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited company incorporated in Kenya and conducting business as such.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and KRA is charged with the responsibility of among others, assessment, collection, accounting and the general administration of tax revenue.

3. The Respondent issued an assessment on 6th October, 2021.

4. The Appellant objected to the Respondent's assessment on 24th June, 2022

5. On 26th July, 2022, the Respondent issued a decision rejecting the Appellant's late objection application.

6. The Respondent commenced recovery measures through a final demand notice dated 20th December, 2022

7. The Appellant being dissatisfied with the Respondent's decision to invalidate its objection, lodged a Notice of Appeal dated and filed on 1st February, 2023.

The Appeal 8. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal dated and filed on 1st February, 2023:-i.That the Respondent erred in its decision to issue the Appellant with additional tax assessment in respect of VAT and Income Tax Company.ii.That the assessment is erroneous and non-factual as no allowable expenses were deducted from the derived turnover as per the provision of Section 15 of the Income Tax Act in determining the taxable income.iii.That the Respondent rejected all of the Appellant’s objections for Income Tax.

Appellant’s Case 9. The Appellant’s case is premised on its Statement of Facts dated and filed on 1st February, 2023.

10. That the Respondent failed to consider allowable VAT input in each year of income incurred in the production of income; which if considered would have reduced the tax assessed significantly.

11. That the assessment was based on gross banking and no adjustments were done for non-business income, reversals, inter account transactions, opening and closing debtors, etc. That further, the Commissioner charged taxes on all bank deposits contrary to Section 3(1) that specifies that taxes are payable only on "gains and profits".

12. That the grounds of rejecting the objection to the assessments is erroneous and non-factual and that the basis of the computation of the taxes is not clear.

13. That the supporting documents presented in support of the Appellant’s objection were never considered in reviewing the erroneous assessments.

14. That the Appellant suspects that the taxes to be computed on wrong premise and proper explanations were not received to this effect. That therefore, the assessment is misleading and non-factual.

15. That the assessment is exorbitant, punitive and unrealistic for a business undertaken by a taxpayer as this. That this kind of assessment is intended to punish taxpayers and kick them out of business.

16. That no proper and reasonable engagements were made with the Appellant before the assessments thereby contravening Section 47 of the Constitution of Kenya, and fair administrative action; which provides as follows“Every person has the right to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair”

17. That therefore, if a right or fundamental freedom of a person has been or is likely to be adversely affected by administrative action, the person has the right to be given written reasons for the action.

18. That the Commissioner failed to appreciate the Appellant’s nature of business and computed the assessment merely on assumptions. That the taxpayer is a middleman who facilitates businesses and earns commission from its clients. That this is a material fact that needed to be considered in arriving at the correct tax position of the taxpayer.

19. That Section 31(1) of the TPA on amendment of returns dictates that the taxpayer is only liable for the correct amount of tax payable. It states as follows:“In any other case, the tax payer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates.”

20. That the Appellant seeks that the Commissioner applies the fundamental principles of taxation; neutrality, efficiency, certainty & simplicity, effectiveness & fairness, flexibility and allows its plea.

Appellant’s prayers 21. The Appellant made the following prayers:-i.That the additional VAT & Income tax assessed be vacated.ii.That any accrued interest and penalty as a result of the assessments to be waived.iii.That no enforcement measures to be taken till final determination of this matter.

Respondent’s Case 22. The Respondent’s case is premised on the hereunder filed documents:-a.The Respondent’s Statement of Facts dated and filed on 28th February, 2023 together with the documents attached thereto.b.The Respondent’s written submissions dated and filed on 26th September, 2023 together with the legal authorities filed therewith.

23. The Respondent raised a Preliminary Objection on the following bases:i.That the Respondent's decision dated 20th December, 2022 is not an appealable decision within the ambit of Section 51(12) of the TPA and under provisions of Section 52(1) of the TPA and this Honourable court lacks jurisdiction to grant the orders sought therefrom.ii.That the Respondent's rejection of the Appellant's late objection was issued on 26th July, 2023, the Notice of Appeal was filed on 1st February, 2023. The Appellant has not invoked leave of the Tribunal to extend time to lodge an appeal as provided under Section 13(1) and 13(2) of the Tax Appeals Tribunal Act as read with Rule 10 of the Tax Appeals Tribunal (procedure) Rules 2015.

24. That Section 31 of the Tax Procedures Act provides that;“The Commissioner may amend an assessment (referred to in this section as the “original assessment") by making alterations or additions, from the available information and to the best of the Commissioner's judgement, to the original assessment of an Appellant for a reporting period to ensure that the Appellant is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates.”

25. That the provisions of this law allow the Respondent to make an assessment with reliance on the best judgment principle and the documentation that it has. That the assessment was communicated vide a letter dated 6th October, 2021.

26. That the Appellant filed a notice of late objection through the tax agent on 24th June, 2022 whereas the assessments were issued on 6th October, 2021. That it was a late objection.

27. That Section 51(2) provides for the time line of lodging an objection as follows:-“(2)A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision.”

28. That as read with Section 51(7) the Commissioner may extend the time subject to:“(7)The Commissioner may allow an application for the extension of time to file a notice of objection 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.”

29. The Appellant stated that one of its main directors was unwell, but did not provide evidence of medical records for acceptance of a late objection as envisioned under Section 51(7) above upon request.

30. That Section 51(3) of the Tax Procedures Act stipulates that:“(3)A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if-a.the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments; andb.in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay the tax not in dispute under section 33(1)c.all the relevant documents relating to the objection have been submitted.”

31. That the Appellant failed to submit relevant documents therefore the Commissioner could not even delve into the substantive issues of the additional assessments.

32. That it is for the aforementioned reasons that the Respondent issued the notice rejecting the Appellant's late objection.

33. The Respondent made reference to the case of Ngurumani Traders Limited v Commissioner of Investigations and Enforcement (TAT No 125 of 2017) where this Tribunal held that at Paragraph 40 of its judgement:“From the foregoing, the Appellant's failure to lodge a proper objection meant that the Respondent was at liberty to confirm the assessment.....”

34. That in TAT No 55 of 2019 Boleyn International Limited v Commissioner of Domestic Taxes, it was held:“..on 8th March 2018, the Appellant lodged an objection with the Respondent. However, the said objection did not reiterate the grounds of objection, the corrections required to be made and the reasons for the amendments. Neither did the Appellant provide the relevant documents in support of its alleged objection. Therefore, there was no conceivable way the Respondent would have considered the Appellant's objection as the same did not place itself within the parameters of Section 51 (3) of the Tax Procedures Act”

Respondent’s Prayers. 35. The Respondent prayed that:-a.The Respondent's additional assessments be upheld.b.The Appeal be dismissed with costs.

Issues For Determination 36. The Tribunal has carefully studied the pleadings, submissions and documentation of both parties and is of the view that the issues that call for its determination are:-i.Whether there is a valid Appeal before the Tribunalii.Whether the Respondent was justified in invalidating the Appellant’s objection

Analysis And Findings 37. The Tribunal having established the issues for its determination, proceeded to analyse them as hereunder.i.Whether there is a valid Appeal before the Tribunal

38. This dispute arose from the Respondent’s action of rejecting the Appellant’s objection to a tax assessment.

39. The Respondent, in its Preliminary Objection, noted that that the Respondent's decision dated 20th December, 2022 is not an appealable decision within the ambit of Section 51(12) of the TPA and under provisions of Section 52(1) of the TPA and this Honourable Tribunal lacks jurisdiction to grant the orders sought therefrom.

40. The Preliminary Objection raised a second issue that the Appellant filed a late appeal but did not invoke leave of the Tribunal to extend time to lodge an appeal as provided under Section 13(1) and 13(2) of the Tax Appeals Tribunal Act as read with Rule 10 of the Tax Appeals Tribunal (procedure) Rules 2015.

41. The Tribunal gleaned through the parties’ pleadings and established that the Respondent issued its rejection of objection on 26th July, 2022.

42. The Tribunal further noted that the Appellant did not take any further action after the letter of 26th July, 2022.

43. The Respondent thereafter issued a final demand notice on 20th December, 2022 to which the Appellant acted by filing a notice of appeal on 1st February, 2023.

44. Section 13 of the Tax Appeals Tribunals Act provides as follows regarding timelines for filing a notice of appeal:“(1)A notice of appeal to the Tribunal shall—a.be in writing;b.be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.”

45. From the above chronology of events, the Appellant should have filed its Notice of Appeal within 30 days from 26th July, 2022. It is apparent to the Tribunal that this time line was not adhered to.

46. The Tribunal relies on the case of W.E.C. Lines Ltd v The Commissioner of Domestic Taxes [TAT Case No 247 of 2020] where it was held that:“Where there is a clear procedure for redress of any particular grievance prescribed by the Constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures”.

47. As a result of the foregoing, the Tribunal finds that there is no valid appeal before it.i.Whether the Respondent was justified in invalidating the Appellant’s objection

48. The Tribunal, having found that the Appeal before it is invalid, did not delve into the second issue for its determination as it was rendered moot.

Final Decision 49. The upshot of the foregoing is that the Appeal is without merit and the Tribunal accordingly proceeds to make the following Orders: -a.The Appeal be and is hereby dismissed.b.The rejection notice issued by the Respondent on 26th July, 2022 be and is hereby upheld.c.Each party to bear its own costs.

50. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 22ND DAY OF MARCH, 2024ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERDR. RODNEY O.OLUOCH - MEMBERABRAHAM K. KIPROTICH - MEMBERTIMOTHY B. VIKIRU - MEMBER