[2025] KETAT 42 (KLR)

Ibangua Investments Limited v Commissioner of Domestic Taxes (Tax Appeal 207 of 2022) [2025] KETAT 42 (KLR) (31 January 2025) (Judgment)

Neutral citation: [2025] KETAT 42 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 207 of 2022

RM Mutuma, Chair, M Makau, Jephthah Njagi, D.K Ngala & T Vikiru, Members

January 31, 2025

Between

Ibangua Investments Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company duly incorporated under the Companies Act of the Laws of Kenya, and engaged in the business of distribution of beer and alcoholic spirits on behalf of Kenya Breweries Ltd and UDV Kenya Limited.

2. The Respondent is the principal officer appointed under Section 13 of the Kenya Revenue Authority Act, and mandated with the Responsibility for the assessment, collection, receipt and accounting for all tax revenue as an agent of the Government of Kenya. The Respondent is also mandated with the responsibility for the administration and enforcement of the statutes set out under the schedule to the said Act.

3. The Respondent conducted an audit on the Appellant’s tax affairs pursuant to an assessment Notice dated 8th December 2020 and thereafter issued additional assessments on 22nd June 2021 for Income Tax and VAT totalling the sum of Kshs. 2,092,644. 00 and Kshs. 97,384,343. 00 respectively.

4. The Appellant lodged an Objection to the Respondent’s additional assessments on 22nd July 2021.

5. The Respondent reviewed the Appellant’s objection and issued its Objection Decision on 28th January 2022.

6. Aggrieved by the Respondent’s said Objection Decision, the Appellant filed its Appeal with the Tribunal vide its Notice of Appeal dated and filed on 25th February 2022.

7. The Tribunal heard the Appeal and pronounced itself on 20th January 2023 in which allowing the Appellant’s Appeal was allowed on the basis that the Objection Decision dated 28th January 2022 was issued beyond the prescribed statutory period, in breach of Section 51 (11) of the Tax Procedures Act.

8. The Respondent appealed the said decision to the High Court on 20th April 2023, which pronounced itself 1st December 2023, the Appeal was therefore allowed and the judgement set aside, with the matter being remitted back to the Tribunal to determine the issue of the Objection Decision raised by the Respondent.

The Appeal 9. The Appellant subsequently filed an Amended Memorandum of Appeal dated and filed on 15th October 2024, and set out the following grounds of appeal;a.That the Respondent erred in law by rendering its Objection Decision on 28th January 2022 outside the mandatory prescribed statutory timeline of sixty (60) days from the date of receipt of the Appellant’s Notice of objection dated 22nd July 2021;b.That the Respondent’s additional tax assessment of Kshs. 99,476,987. 00 on VAT and Income Tax is illegitimate and erroneous as sufficient in formation and explanations were provided before the assessment was made; and,c.That the Respondent erred in law and fact when it declined to consider the amended self-assessment filed by the Appellant within the time limits as provided Section 31 (4) (b) (1) of the TPA Cap 469B the Laws of Kenya.

The Appellant’s Case 10. The Appellant’s case is premised on its;a.Amended Memorandumof Appeal dated and filed on 15th October 2024, andb.Written Submissions dated and filed on 6th November 2024.

11. The Appellant stated that the Respondent’s Objection Decision was not issued within the stipulated timelines as is envisaged in Section 51 (4) of the TPA to the extent that it was made 150 days from the date of receipt of the Appellant’s Objection Decision and about 97 days beyond the statutory period limit.

12. It stated that it provided all the documents that were required of it, and it was only documents that were not in its position like reconciliation report which related to Withholding Taxes which were not supplied because it did not have any withholding tax liabilities.

13. In its submissions, the Appellant submitted that from the record it was evident that the Respondent had issued its Objection Decision on 28th January 2022, and therefore it was issued 130 calendar days from 22nd July 2021 when the Appellant lodged its objection notice to the additional tax assessments of Kshs. 99,476,987. 00.

14. The Appellant stated that the Respondent had contended that since the Appellant shared the last bundle of documents with the Respondent on 29th November 2021, the 60-day statutory timeline for purposes of issuing an Objection Decision could only start running when a valid objection had been lodged.

15. The Appellant submitted that it disagreed with the Respondent’s forgoing contention, and in support relies on the case of Rongai Tiles & Sanitary Wares Ltd vs. Commissioner of Domestic Taxes (ITA E11 /2020) 2023 KEHC 18546 (KLR), where Justice D. Majanja held;“The Commissioner has argued that it is not bound by this time if an objection is invalidly lodged. I reject this argument and agree with the Tribunal that going by the wording of Section 51 (11) of the TPA above, the objection decision ought to have been made within 60 days regardless of whether the objection was valid. I therefore find that the objection decision was outside the statutory timelines provided by section 51(11) of the TPA.”

16. The Appellant further submitted that indeed the Finance Act 2019 which was the applicable law at the time the Appellant lodged its notice of objection, amended Section 51 (11) of the TPA to read;“The Commissioner shall make the objection decision within sixty days from the date of receipt of:a.The notice of objection; orb.Any further information the commissioner may require from the taxpayer, failure to which the objection shall be deemed to be allowed.”

17. It submitted that the foregoing provision ought to be read together Section 51 (4) of the TPA which at the time of lodging of the Appellant’s objection on 28th January 2022 stipulated as follows;“Where the commissioner has determined that a notice of objection lodged by a taxpayer has not been validly lodged, the commissioner shall immediately notify the taxpayer in writing that the objection has not been validly lodged.”

18. The Appellant submitted that, it is not in dispute that in the instant case, the Respondent’s argument seems to be that the Appellant’s objection dated 22nd July 2021 is invalid contrary to Section 51 (1) of the TPA. However, the Respondent has neither demonstrated nor provided any evidence to the effect that upon receipt of the Appellant’s objection on 22nd July 2021, it immediately notified the Appellant in writing of the invalidity of its objection as mandatorily required under Section 51 (4) of the TPA.

19. It was also submitted that the Appellant lodged its objection to the assessments on 22nd July 2021 and the Objection Decision was issued on 28th January 2022, meaning the said objection was issued 130 days after its ordinary due date from the date of receipt of the notice of objection.

20. It was also submitted that the Respondent has attempted to justify the foregoing delay by the fact that the Appellant requested for 60 days to appoint another director to replace a deceased director who was handling its tax affairs. The Respondent has relied on the Appellant’s letter dated 18th August 2024 to buttress this point. However, it is crystal clear from the record that the Respondent never acceded to this request at all, the Appellant added.

21. The Appellant also submitted that out of abundance of ignorance of the above fact, even the Honourable Tribunal would have taken the approach that, the Respondent allowed the Appellant’s request for extension of time by sixty days; then the timelines would be that the deadline for submission of such documents would have been on 18th October 2021 and as such the Respondent’s deadline for issuing an Objection Decision within sixty days would have lapsed on 17th December 2021.

22. It was further submitted that going by the foregoing proposition, assuming it is the right one as propagated by the Respondent, the Respondent is indeed admitting that its Objection Decision would have still been late by about 42 days.

23. To buttress its submissions, the Appellant cited the case of Eastleigh Mall Ltd vs. Commissioner of Investigation & Enforcement (ITA E068/2020) KEHC 2000(KLR), where the court stated;“It is clear from the foregoing that the provisions of Section 51 (11) of the TPA are mandatory. They are not cosmetic. Parliament in its wisdom knew that in matters tax, time is very crucial as those in commerce need to make informed decisions. If the Commissioner is allowed to exercise his discretion and stay ad-infinitum before issuing an objection decision, the taxpayer would be unable to make crucial decisions and plan his/her business properly. The timelines set are mandatory and not a procedural technicality.”

24. It was submitted that the Respondent clearly contravened the provisions of Section 51 (11) of the TPA thus its Objection Decision issued beyond the statutory timeline of 60 days from the date of the lodging of a notice of objection, was time barred and thus the Respondent’s objection dated 22nd July 2021 stood allowed by operation of the law.

25. The Appellant also cited the case of Equity Group Holdings Ltd vs. Commissioner of Domestic Taxes (CA E069 & E025 of 2020) [2021] KEHC 25 (KLR), where the court held;“Section 51 (11) of the TPA is couched in peremptory terms. Having found that the decision was made after the expiry of 60 days, the TAT had no legal basis to proceed as it did and to invoke article 159 (2) (d). First there was no decision at all. The decision had ceased to by operation of the law. Second, the provisions of section 51 (11) (b) had kicked in. The objection had by dint of the said provision been deemed as allowed.”

26. On the issue of the Respondent’s assessment in the sum of Kshs. 99,476,987. 00 on VAT and Income Tax, the Appellant submitted that the same was illegitimate and erroneous. It was contended sufficient information and explanations were provided prior to the issuance of the assessment and that the Respondent erred in declining to consider the Appellant’s amended self-assessment submitted within the statutory time limits. It also submitted that the Respondent’s actions contravene both substantive and procedural aspects of the TPA.

27. The Appellant submitted that Section 31 (4) (b) (i) of the TPA allows a taxpayer to amend a self-assessment within a specified period if they discover errors or omissions, within five years from the end of the reporting period to which the self-assessment relates. It submitted that the Appellant’s self-assessment was filed within this statutory timeframe and ought to have been considered as a valid adjustment to the earlier returns.

28. It was submitted that the Respondent’s failure to consider the amended self-assessment conflicts with the TPA’s principles of transparency, fairness and the statutory right of the taxpayer to make amendments as provided under the law, and further stated that such an omission undermines the legislative intent and also creates an unjust financial burden on the taxpayer, effectively penalizing them for legitimate corrections.

29. The Appellant further submitted that it provided comprehensive documentation and explanations to the Respondent before additional assessments were made. Under Section 59 of the TPA the commissioner has the duty to consider the information provided by the taxpayer before making the final assessment. It stated that by ignoring the documents and explanations furnished by the Appellant, the Respondent acted contrary to the principles of natural justice, particularly the right to a fair hearing.

30. The Appellant submitted that the approach by the Respondent contradicts jurisprudence that emphasizes the duty of the Respondent to consider the taxpayer’s explanations before finalizing assessments. It cited the case of Republic vs. Commissioner of Domestic Taxes Ex-parte Bata Shoe Company (Kenya) Ltd [2020], where it was held that Kenya Revenue Authority should ensure that all material provided by the taxpayer is thoroughly considered to avoid arbitrary assessments.

31. It was further submitted that the Appellant’s claim that the assessment is illegitimate is premised on the fact that the Respondent did not take into account the full final disclosures provided. It stated that the omission suggests that the additional assessments lack a factual basis contravening Section 29 of the TPA, which provides that assessments ought to be based on accurate and factual information.

32. It was submitted that given that the Appellant’s disclosures and amended self-assements sufficiently clarified its VAT and Income Tax liabilities, the additional tax assessment of Kshs. 99,476,987. 00 is unwarranted and excessive.

33. The Appellant cited the case of Commissioner of Domestic Taxes vs. Sony Holdings Ltd [2019] eKLR, where the court held that an assessment must be based on substantive evidence and an accurate interpretation of the tax statutes;“However, determination of whether there is clarity or ambiguity in the legislation or whether a tax demand is precise and within the terms of legislation, is not an abstract or pedantic exercise. It must be based on the evidence and the circumstances of each case.”

The Appellant’s Prayers 34. By reason of the foregoing, the Appellant prayed to the Honourable Tribunal;a.That this Appeal be allowed;b.That this Honourable Tribunal be pleased to set aside the Respondent’s Objection Decision dated 28th January 2022 and consequential orders therefrom;c.That the costs of the Appeal be borne by the Respondent; and,d.Any other reliefs as the Honourable Tribunal may deem fit and just to grant.

The Respondent’s Case 35. The Respondent’s case is premised on its;a.Statement of Facts dated and filed on 18th March 2022 together with the documents attached thereto;b.Supplementary Statement of Facts dated 22nd October 2024 and filed on 24th October 2024 together with the documents attached thereto;.and,c.Written submissions dated and filed on 24th November 2022.

36. The Respondent stated that it issued additional assessments on 22nd June 2021, to which the Appellant lodged a notice of objection on 22nd July 2021, and the Respondent acknowledged receipt on 12th August 2021, and advised the Appellant to provide supporting documentation.

37. It was averred that the Appellant requested for time to avail additional documents as one of the directors was deceased.

38. The Respondent further averred that there was further correspondence between the Appellant and the Respondent between the period 18th August 2021 until 14th January 2022 as follows;i.On 18th August 2021, the Respondent informed the Appellant that its request would be considered within five days;ii.On 24th August 2021 the Respondent informed the Appellant that they are granted 30 days up to 24th September 2021 to provide the documents;iii.On 24th September 2021 the Appellant was reminded to provide the documents;iv.On 14th October 2021 and 15th October 2021, the Appellant provided invoices;v.On 29th November 2021 the Appellant availed audited financial statements for the year 2017, 2018, and 2019. In the email correspondence, the Appellant indicated that the 2016 and 2020 audited financial statements would be availed in due course;vi.The Respondent informed the Appellant to avail the remaining documents by 3rd December 2021. The Respondent sent other reminders on 11th January 2022 which elicited the Appellant’s response on 14th January 2022; and,vii.The Respondent received the last bundle of documents from the Appellant on 29th November 2021 which is evidenced by email correspondence acknowledging receipt.

39. The Respondent stated that the Objection Decision dated 28th January 2022 was issued within the statutory timelines.

40. The Respondent further relied on the audited financial statements for the years 2017, 2018, and 2019 in issuing the Objection Decision dated 28th January 2022, and in so doing it considered the Appellant’s explanations and documents.

41. The Respondent further stated that the issue of amended self-assessments is an afterthought as the Appellant has not supported the averments with documentation.

42. The Respondent also stated that by virtue of Section 24 (1) of the TPA, the Appellant is under statutory obligation to file returns indicating its correct tax position. It was inconsistencies in the Appellant’s return which led it to use its best judgement in raising the additional assessment against the Appellant.

43. It was also stated that Section 24 of the TPA empowers it to raise assessment based on the information available to it, and this is what it did in this case. The confirmation assessment was arrived at after comparing the Appellant’s VAT returns with its income tax returns.

44. The Respondent also stated that the Appellant failed to keep proper records to prove that it was dealing in exempt supplies or that the tax assessed against it was not due.

The Respondent’s Prayers 45. By reason of the foregoing, the Respondent prayed the Honourable Tribunal for orders, that;a.The Objection Decision dated 28th January 2022 be upheld as true reflection of the Appellant’s tax liabilities; and,b.The Appeal herein be dismissed with costs to the Respondent.

Issues For Determination 46. The Tribunal having carefully considered the Parties’ pleadings and submissions is of the considered view that the appeal distils into two issues for determination as follows;i.Whether the Respondent’s Objection Decision issued on 28th January 2022 against the Appellant was validly issued; and,ii.Whether the Respondent’s additional assessment for Income Tax and VAT for the period 2017-2019 issued against the Appellant was justified.

Analysis And Determination 47. The Tribunal having identified the issues for determination, it shall proceed to analyse the same as herein under;

i. Whether the Respondent’s Objection Decision issued on 28th January 2022 against the Appellant was validly issued; 48. The substratum of the dispute subject of this issue is the Appellant’s contention which is grounded to the core of its Appeal that the Respondent’s Objection Decision dated 28th January 2022 was not validly issued, as it was issued beyond the sixty (60) days period allowed by Section 51 (11) of the TPA.

49. The Respondent has opposed the Appellant’s contention on the basis that that there a request for further supporting documentation, and exchange of correspondence between the parties and that by the time the last documentation was submitted by the Appellant, it issued its Objection Decision within the stipulated period.

50. The relevant provision of Section 51 (11) of the TPA at the time of the objection notice provided;“(11)The commissioner shall make the objection decision within sixty days from the date of receipt of –a.A valid notice of objection; orb.Any further information the commissioner may require from the taxpayer,

Failure to which the objection shall be deemed to be allowed.” 51. From the foregoing provision it is clear that Section 51 (11) (b) provides an intervention mechanism to kickstart the statutory timeline from the time the requested documents are provided.

52. Hence it is pertinent to establish the chronology of the activities from the time the objection notice was lodged to the time the Objection Decision was issued;i.It is not in dispute that the Respondent issued the additional assessments on 24th June 2021;ii.The Appellant lodged its objection notice on 22nd July 2021;iii.The Respondent made a request for further documents on 12th August 2021, requesting that the same be submitted by 19th August 2021;iv.On 18th August 2021, the Appellant requested for extension of time by a further 60 days enable to avail the requested documentation, reason being that one of the shareholders who was also the Chief Executive had passed on;v.On 18th August 2021 the Respondent acknowledged the Appellant’s request and advised that feedback on its request would be given in by 23rd August 2021 (i.e., in 5 days time).vi.On 24th August 2021 the Respondent wrote to the Appellant confirming that it had allowed them an extension of 30 days to avail the requested documents from 24th August 2021, and noted that it was required to conclude the objection review within the set timelines in line with Section 512 of the TPA;vii.On 24th September 2021, the Respondent again wrote to the Appellant and informed them that the extended period to submit documents had lapsed. It further requested the Appellant to provide; sales invoices and receipts, bank statements, audited financial statements, and credit notes; as its objection notice was still not valid. The request for provision of documents was further extend ed to 27th September 2021, failure to which the objection would be invalidated;viii.On 27th September 2021 the Appellant wrote to the Respondent and provided a bundle of the requested bank statements;ix.On 14th October 2021 and 15th October 2021, the Appellant wrote to the Respondent providing the requested invoices;x.On 29th November 2021 the Appellant again wrote to the Respondent and provided the requested audited financial statements for the years 2017, 2018, and 2019, and indicated that the audited statements for the years 2016 and 2020 would be provided in due course;xi.On 2nd December 2021 the Respondent wrote to the Appellant and requested that the remainder of the documents being the 2016 & 2020 financial statements and the general ledger be provided by 3rd December 2021; and,xii.The Respondent sent other reminders on 11th January 2022 and 14th January 2022 and advised that it will proceed to issue the Objection Decision based on the information provided.

53. From the foregoing sequence of chronology of exchange of documentation and correspondence between the Appellant and the Respondent, it is quite clear that the Appellant submitted to the Respondent its last bundle of the requested documentation on 29th November 2021, and that is the date the 60-day statutory period kicked in by dint of the provisions of Section 51 (11) (b) of the TPA, hence the Respondent was required to issue its Objection Decision by the 29th January 2022.

54. In light of the foregoing, the Tribunal’s is persuaded view is that the Objection Decision issued by the Respondent on 28th January 2022 was issued within the statutory timeline of 60 days in line with the provisions of then prevailing Section 51 (11) (b) of the TPA.

55. The consequence of the foregoing is that the Tribunal finds and holds that that the Respondent’s Objection Decision issued against the Appellant on 28th January 2022 was validly issued and in accordance with the provisions of Section 51 (11) (b) of the TPA.

ii. Whether the Respondent’s additional assessment for Income Tax and VAT for the period 2017- 2019 issued against the Appellant was justified. 56. The dispute subject of this issue is the Appellant’s contestation of the Respondent’s additional assessment for Income Tax and VAT issued for the period 2017-2019, premised on the grounds that sufficient information and explanations were provided before the assessment was made, and that the Respondent declined to consider the amended self-assessment filed by the Appellant within the specified timelines, thereby arriving at an erroneous decision.

57. The Respondent averred that whereas Section 24 (1) of the TPA, the Appellant is under a statutory obligation to file returns indicating their correct tax position, the Respondent cannot be in raising assessments on the Appellant due to the inconsistencies established.

58. It was further averred that a comparison of the income declared in the Income Tax and VAT returns for the years 2016 to 2019 established that there were variances between the incomes declared and consequently, the undeclared income for income tax purposes was also construed to be undeclared for VAT purposes.i.On income tax, the Respondent brought the variance in the year 2017 to charge for Income Tax in the sum of Kshs. 1,742,871. 00; and,ii.On VAT, the Respondent brought the variances in the years 2016, 2018, and 2019 to charge for VAT in the sum of Kshs. 64,008,290. 00.

59. It was further averred that the Appellant provided some of the requested documents to support its objection with a view to reconciling the variances, however it failed to provide further documentation requested such as ledgers to support the reconciliations.

60. The Tribunal takes cognizance of the cardinal provisions of the TPA and indeed even the Tax Appeals Tribunal Act, that the Appellant bears the burden of proof in contesting the Respondent’s decision as wrong or excessive, and therefore bears the statutory mandate of to provide documents in support of its contestation. This obligation thus imposes on the taxpayer the obligation to maintain their tax records and produce the same as when required.

61. It is apparent from the Objection Decision and the Appellant’s own statement of facts that the assessment was confirmed and Objection Decision issued due to lack of supporting documentation, and the Appellant kept requesting for more time to trace their documentation, implying they were aware the documentation submitted was not sufficient to support its objection.

62. Having in mind the chronology of the correspondence on submission of requested documents enumerated under Issue (i) hereinabove, which is not necessary to rehash hereunder, the Tribunal is inclined to conclude that the Appellant did not avail sufficient documentation required to prove that the Respondent’s assessment was erroneous or excessive in order to result to a different tax decision.

63. Indeed, in the case of Kenya Revenue Authority vs. Man Diesel & Turbo Se, Kenya [2021] eKLR, it was held;“...the shifting of the burden of proof in tax disputes flows from the presumption of correctness which attaches to the commissioner’s assessments or determinations of deficiency. The Commissioner’s determinations of tax deficiencies are presumptively correct. Although the presumption created by the above provision is not evidence in itself, the presumption remains until the taxpayer produces competent and relevant evidence to support its position. If the taxpayer comes forward with such evidence, the presumption vanishes and the case must b e decided the evidence presented, with the burden of proof on the taxpayer.”

64. The foregoing buttresses the Tribunal’s position that the Appellant did not provide the Respondent with competent and sufficient documentation as required to support its position and thereby did not shift the burden to the Respondent.

65. The foregoing being so, the Tribunal comes to the inescapable conclusion that the Appellant did not discharge its burden of proof as required by providing competent and sufficient documentation to prove the Respondent’s assessment and objection decision wrong, excessive or erroneous.

66. In light of the foregoing the Tribunal holds that the Respondent’s additional assessment against the Appellant for Income Tax and VAT for the period 2017 - 2019 was justified.

67. The upshot of the foregoing is that the Appellant’s Appeal is not merited and therefore does not succeed.

Final Determination 68. The Appellant’s Appeal having failed, the Tribunal makes the following orders;a.The Appellant’s Appeal be and is hereby dismissed;b.The Respondent’s Objection Decision dated 28th January 2022 be and is hereby upheld; and,c.Each party to bear its own costs.

69. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 31ST DAY OF JANUARY 2025ROBERT M. MUTUMA - CHAIRPERSONMUTISO MAKAU - MEMBERJEPHTHAH NJAGI - MEMBERDELILAH K. NGALA - MEMBERDR. TIMOTHY B. VIKIRU - MEMBER