[2024] KETAT 1440 (KLR)

Idime Enterprises Limited v Commissioner of Domestic Taxes (Tax Appeal E062 of 2024) [2024] KETAT 1440 (KLR) (4 October 2024) (Judgment)

Neutral citation: [2024] KETAT 1440 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E062 of 2024

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

October 4, 2024

Between

Idime Enterprises Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a private limited liability company duly incorporated in Kenya under the Companies Act and whose principal activity is that of rent collection agency service provider.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act Cap 469 Laws of Kenya. Under Section 5 (1) of the said Act, the Respondent is also an Agency of the Government for the assessment, collection and receipt of all its tax revenue.

3. The Respondent conducted a returns review audit on the Appellant for the period January 2015 to December 2019 for Corporation Tax, Income Tax, PAYE and Value added tax (VAT). Vide Assessment Notices dated 25th and 26th May 2021, the Respondent demand tax of Kshs. 40,162, 246. 17 inclusive of penalties and interest.

4. The Appellant objected to the assessment through iTax on 28th May 2021. Thereafter the Respondent informed the Appellant of the invalidation of its Notices of Objection vide an email of 3rd June 2021 and requested the Appellant to provide its grounds of objection and documents to support its objection within seven days.

5. The Appellant failed to validate its objection. The Respondent thereafter issued confirmation notices on 30th November and informed the Appellant that the tax was due.

6. Aggrieved by the decision, the Appellant filed its Notice of Appeal dated 24th December 2023 and filed on 22nd January, 2024.

The Appeal 7. The Appeal is premised on the following grounds of Appeal as stated in the Appellant’s Memorandum of Appeal dated 24th December 2023 and filed on 22nd January, 2024. a.That the Respondent erred in the additional Income Tax assessment;b.That the Commissioner did not verify actual transactions; and,c.That the Commissioner did not recognize withheld Income Tax.

The Appellant’s Case 8. The Appellant’s Memorandum of Appeal was supported by its Statement of Facts dated 24th December 2023 and filed on 22nd January 2024.

9. The Appellant stated that the Respondent assessed the Appellant for the year’s 2015 to 2019 relating to Income Tax.

10. The Appellant asserted that its principal business was that of rent collection agent and that it had declared the correct financial statements.

11. The Appellant stated that it objected to the assessment as it was incorrect.

12. The Appellant did not file any written submissions despite being directed by the Tribunal to do so on 15th August 2024. Its case will therefore proceed and be determined on the basis of its pleadings on record.

The Appellant’s Prayers 13. The Appellant therefore prayed that;a.This Honourable Tribunal be pleased to set aside the additional assessment;b.This Honourable Tribunal be pleased to substitute the assessment under review here in line with the Appellant’s audited accounts;c.This Honourable Tribunal be pleased to order the Respondent to pay costs of this Appeal; and,d.This Honourable Tribunal be pleased to issue any other order favourable to the Appellant as it may find just and expedient to issue.

The Respondent’s Case 14. The Respondent’s case is premised on the following;a.Statement of Facts dated 22nd April 2024 and filed on 24th April 2024 together with the documents thereto;b.Written submissions dated 16th August 2024 and filed on 19th August 2024; and,c.Preliminary Objection dated 16th August 2024 and filed on 30th August 2024.

15. In response to the three grounds of Appeal as stated in the Appellant’s Memorandum of Appeal, the Respondent stated as follows;a.That Kenya is a self–assessment tax regime where a taxpayer (the Appellant herein) determines what it considers to be the correct income, assesses self and pays the taxes therefrom;b.That the self-assessment system is based on the fact that the taxpayer/Appellant herein possesses the objective evidence/documents/information and relevant knowledge relating to its tax liability;c.That on the other hand, the Respondent is in a poor/disadvantaged position to establish an affirmative case and that it is for this reason that the laws place the burden of proof on the Appellant to prove that the Respondent’s Assessment is wrong;d.That Section 23 of the Tax Procedures Act and Section 54A of the Income Tax Act requires the Taxpayer/Appellant to keep records relating to its business and financial transactions;e.Further, that Section 29 of the Tax Procedures Act, 2015 requires the Appellant to declare the correct income and pay taxes therefrom whereas Section 59 requires the Appellant to produce records and information whenever requested by the Respondent;f.That the system of self-reporting depends on the good will and the honesty of the taxpayer (the Appellant) to disclose all the relevant facts and income to the Commissioner/Respondent;g.That the tax law recognises that not all taxpayers are truthful and honest and this has given the Respondent the mandate to determine the taxpayers’ liability using his best judgement and the information available, notwithstanding that the taxpayer has filed returns and declared what the taxpayer considered to be due to the government as taxes;h.That the Respondent’s mandate to determine the taxpayers/Appellant’s tax liability is derived from Sections 24 (2), 31 (1) and 59 of the Tax Procedures Act 2015;i.That it is not in doubt that the Commissioner/Respondent is clothed with the requisite powers to audit a self-assessment or declaration and issue amended assessment where it is established that a taxpayer has failed to make complete and accurate declaration;j.That with the above background the Respondent reserves the right to audit the accounts of the taxpayer/Appellant and the returns as well as demanding for documents and where applicable, employ the available methods in arriving at the tax due;k.That in this case, the Respondent reviewed the Appellant’s tax returns and sought to establish whether the Appellant’s expenses were supported by requisite evidence. In doing so the Respondent sought several documents from the Appellant to ascertain if the expenses met the threshold set out under Section 15 of the Income Tax Act;l.That this was done through a Notice dated 24th March 2021 communicating the Respondent’s intention to carry out a returns review under Sections 58 and 59 of the Tax Procedures Act, 2015;m.That the Appellant failed to respond to the Respondent’s request for documents of 24th March, 2021. Consequently the Respondent issued the Appellant with a pre-assessment notice on 15th April 2021 which invited the Appellant to prove the validity of the expenses claimed;n.That the Respondent in the Pre-Assessment Notice informed the Appellant that should it fail to provide explanation, reconciliation or documentary evidence, the Respondent would proceed to issue additional assessment as guided by Section 37 (4) (3) of the Tax Procedures Act, 2015;o.That despite being served with the Pre-Assessment Notice, the Appellant never bothered to respond or even provide the requested documents. Having been given sufficient opportunity and having failed to utilize the same, the Appellant does not deserve to be given another audience.p.That since no sufficient reason has been given, the Appellant’s allegations that the Respondent erred in issuing additional assessments, failed to verify actual transactions and/or to recognize withheld income tax are without merit and should be dismissed;q.That even in this Appeal, the Appellant has not presented any evidence to the Tribunal to prove that the assessments were erroneous. Further that the purported grounds of Appeal and the allegations therein are unsupported and remain mere statements;r.That it is trite law, especially Section 56 (1) of the Tax Procedures Act,2015, that the burden of proof lies on the Appellant since Kenya is based on a system of self-assessment regime; and,s.That the Appellant failed to provide documents to support its alleged grounds of objection and or expenses, hence it did not discharge its burden of proof.

16. The Respondent further argued that the grounds set out in the Appellant’s Statement of Facts were unfounded and were not supported by any evidence for the following reasons;i.The Appeal herein is based on an invalid notice of objection as the said notice did not conform to the requirements of Section 51 (3) of the Tax Procedures Act, 2015 to the extent that it failed to precisely state the grounds of objection and the Appellant did not provide documents in support of the objection;ii.The Appeal herein is based on an invalid Notice of Appeal which was lodged contrary to Section 12 and 13 (1) of the Tax Appeals Tribunal Act, 2013 and Section 51 (12) and 52 (1) of the Tax Procedures Act 2015. iii.This Honourable Tribunal therefore lacks jurisdiction to entertain this Appeal;iv.The Appeal herein does not conform to the requirements of Section 13 (2) of the Tax Appeals Tribunal Act, 2013 to the extent that it is not accompanied by the impugned tax decision.v.The failure by the Appellant to comply with the express statutory provisions as stated above is not a procedural technicality curable by application of the overriding objective of the law or the principle espoused in Article 159 (2) of the Constitution of Kenya, 2010; andvi.This Honourable Tribunal must never provide comfort and cover to the Appellant herein who exhibit scant respect for the rules and timelines hence neither the Appellant nor this Tribunal should invoke Article 159 (2) of the Constitution to oust mandatory rules of procedure.

17. The Respondent stated that in the foregoing, the Appellant had not discharged its burden of proof as per Section 56 (1) of the Tax Procedures Act, 2015, Section 30 of the Tax Appeals Tribunal Act, 2013 and Section 107 of the Evidence Act Cap 80 Laws of Kenya. Therefore, the Respondents decision is valid in law as the Appellant has failed to prove that the same is incorrect.

18. The Respondent thus reiterated that the additional assessments of 25th and 26th May 2021 as confirmed in the Respondents letter of 15th June 2021 are valid and correct as they were grounded in law.

19. In its submissions, the Respondent raised four issues for determination: -i.Whether the Appellant’s Appeal is competent

20. In arguing that the Appeal herein is incompetent, the Respondent submitted that the Appellant did not file and serve the Appeal documents on the Respondent within the statutory timelines, a fact the Appellant has not disputed. It argued further that whereas the Appellant filed the Notice of Appeal dated 24th December 2023 on 22nd January, 2024, the Appellant served the Respondent with the said Notice of Appeal and Appeal documents on 28th March 2024, almost a two months delay after filing of the Notice of Appeal and Appeal documents contrary to the provisions of Section 13 (5) of the Tax Appeals Tribunal Act and Rule 13 of the Tax Appeals Tribunal (Procedure) Rules 2015. Therefore, the failure by the Appellant to serve the Notice of Appeal and Appeal Documents within the statutory period of two days is a grave/fatal statutory violation which nullifies the Notice of Appeal herein and thus rendering the Appeal herein incompetent.ii.Whether the Honourable Tribunal has jurisdiction

21. It was the Respondent’s submission that the Appellant did not file the Appeal herein within the statutory timelines. Further that whereas the Appellant is appealing against the Respondent’s Confirmation Assessment Notices of 30th November 2023, the said Notices are neither an Objection Decision nor an appealable decision as the said notices were not the product of an objection review but an administrative adjustment to the Appellants iTax system ledgers for a decision already made.

22. The Respondent submitted that this Appeal was filed on 15th January 2024 and as required by law, the Appellant ought to have lodged the Notices of Appeal with the Tribunal not later than 17th July 2021. However, the notice was not filed until 15th January 2024, more than two (2) years after the decision was issued contrary to Sections 12 and 13 of the Tax Appeals Tribunal Act, Cap 469A. It argued therefore that the Memorandum of Appeal and Statement of Facts dated 24th December 2023 and filed on 15th January 2024 are invalid and ought to be struck out as they were filed out of time.iii.Whether the Appellant’s Notices of Objection are valid

23. The Respondent submitted that the Appeal was based on an invalid notice of objection as the notices did not conform to the requirements of Section 51 (5) of the Tax Procedures Act Cap 469B to the extent that they failed to precisely state the grounds of objection and that the Appellant also did not provide documents in support of the objection. The Respondent stated further that it communicated the invalidity of the Notices of Objection to the Appellant on 3rd June 2021 through an email of even date in conformity with Section 51 (1) of the TPA, hence the Appellant’s Appeal was incompetent to that extent that it was founded on invalid notices of objection.iv.Whether the Respondent’s Objection Decision is valid

24. The Respondent submitted that it issued the Corporation Tax assessments of Kshs 40,162,246. 17 on 28th April 2021 for the period 2015 and 2016 which were not statutory time barred. It reiterated that it derives its mandate to determine the Appellant’s tax liability from Sections 24 (2), 31 (1) and 59 of the Tax Procedures Act, Cap 469B which grants it the requisite powers to audit a self-assessment or declaration and issue amended assessment where it is established that the Appellant failed to make complete or accurate declarations.

25. The Respondent submitted that it carried out an audit of the Appellants returns which disclosed the following;i.The Appellant did not file any VAT tax returns for the period under review;ii.The Appellant claimed expenses amounting to Kshs. 170,553,604. 00 in its Corporation Tax returns which were neither accounted for nor supported by any document/evidence;iii.The Appellant despite being given an opportunity on 15th April 2021, failed to provide any documents to support the expenses claimed in the Corporation Tax returns;iv.The Respondent concluded that the Appellant claimed unsupported expenses contrary to Section 15 of the Income Tax Act. Only forty percent (40%) of the expenses claimed were allowed and the rest disallowed; and,v.The Respondent treated the disallowed expenses amounting to Kshs. 119,387,522. 80 as under declared income and charged to Corporation Tax as per Section 37A (2) of the TPA (now repealed)

26. It was the Respondent’s submission that the Appellant bears the burden of proof in tax matters pursuant to Section 56 (1). Therefore, having failed to produce documents and grounds of objection even at the Appeal stage, the Appellant failed to discharge its burden of proof.

27. The Respondent noted that the Appellant filed a document entitled “ADR Process Report (TAT NO. E062/2024)” on 15th August 2024. The Respondent reviewed the “Report” and submitted as follows on the same;a.The Appellant did not seek leave of the Tribunal to produce or adduce the new documents and grounds of appeal set out in the said Report and thus the contents therein are not only inadmissible but also liable to be struck out.b.To the extent that the said “Report” referred to what was produced, transpired and/or discussed at the Alternative Dispute Resolution (ADR) mechanism, they are inadmissible since the ADR deliberations are done always on a without prejudice basis.c.The Appellant’s letters dated 2nd April 2024, 22nd May 2024 and 29th July 2024, the ADR Progress Report and the Reconciliations/ledgers all attached to the said “Report” are new documents adduced at the appeal stage and without leave of the Tribunal thus inadmissible.d.The Respondent denied and reiterated that the Appellant never produced any documents during the objection review and thus the allegations in the “Report” dated 30th July 2024 are an afterthought and not supported. Further that they are contrary to Section 56 (3) of the Tax Procedures Act.

28. The Respondent submitted that Section 56 (3) of the TPA is further fortified by Section 13 (6) of the Tax Appeals Tribunal Act Cap469(A) which provides that;“The Appellant shall, unless the Tribunal orders otherwise, be limited to the grounds stated in the Appeal or documents to which the decision relates.”

29. It submitted further that having failed to seek any leave of the Tribunal, it followed that the Appellant cannot rely on any ground or any document since there was none produced during the objection review and that any reliance on any document or introduction of grounds of Appeal will be and is inadmissible.

30. The Respondent relied on the following authorities in buttressing its case;i.Commissioner of Domestic Taxes vs. Scania East Africa Limited (2020) eKLR;ii.Mohammed Jaffer Hassan Khaki vs. Commissioner of Domestic Taxes (Tax Appeal E468 of 2023) (2024) KETAT 752(KLR) (17th May 2024).iii.Hashi Energy Limited vs. Commissioner of Domestic Taxes, Nairobi TAT Appeal No. 291 of 2021. iv.Republic vs. Kenya Revenue Authority Ex-Parte Funan Construction Limited (2016) eKLR.v.Vitop Limited vs. Commissioner of Domestic Taxes, Nairobi TAT Appeal No 484 of 2022. vi.Kenya Revenue Authority vs Maluki Kitili Mwendwa (2021) eKLR.vii.Millicent Wambui vs. Nairobi Botanica Gardening Limited (2013) eKLR.viii.Sea-TechLimited vs. Commissioner of Domestic Taxes (Income Tax Appeal E134 of 2023(2024) KEHC 7343 (KLR) (Commercial and Tax) (14June 2024).

The Preliminary Objection 31. The Respondent raised a Preliminary Objection dated 16th August 2024 and filed on 30th August 2024 on points of law on the following grounds;a.That the Tax Appeals Tribunal lacks jurisdiction to entertain the Appeal herein since the Appellant has not invoked its jurisdiction through filing of a valid Notice of Appeal on time pursuant to Sections 12 and 13 of the Tax Appeals Tribunal Act 2013;b.That the Appeal herein does not conform to the requirements of Section 13 (2) of the Tax Appeals Tribunal Act 2013 to the extent that it is not accompanied by the impugned tax decision;c.That the Appellant’s Notice of Appeal and the Appeal documents dated 24th December 2023 and served on 28th March 2024 does not conform to the requirements of Section 13 (5) of the Tax Appeals Tribunal 2013 and Rule II of the Tax Appeals Tribunal (Procedures Rules 2015).d.That these are statutory violations and not procedural technicalities/issues; and,e.That the Appeal herein is bad in law and on abuse of the judicial process and thus should be struck out in the first instance with costs to the Respondent.

The Respondent’s Prayers 32. The Respondent therefore prayed that this Tribunal;a.Upholds the additional assessment of 25th and 26th May 2021 as confirmed in the Respondents letter of 15th June 2021 as valid and in conforming with the provisions of the law; andb.Finds that the Appeal herein is without merit and dismiss it with costs to the Respondent.

Issues For Determination 33. The Tribunal has considered the parties pleadings, documentation, Respondents submissions and Preliminary Objection (P.O) and is of the view that the Appeal and the Respondent’s P.O raises two issues for determination.i.Whether the Appellant’s Notice of Appeal is valid; andii.Whether the Respondent’s assessment was justified.

Analysis And Findings 34. Having established the three issues, the Tribunal will now analyse them as hereinunder;i.Whether the Appellant’s Notice of Appeal is valid;

35. A chronology of events indicate that the Appellant was issued with tax assessments through the iTax system on 25th and 26th May 2021, which the Appellant objected to through iTax on 28th May 2021.

36. The Tribunal noted that the Appellant neither stated the grounds of objection nor availed documents in support of the same. Subsequently, the Respondent invalidated the Notice of Objection on 3rd June 2021 and after failure by the Appellant to validate its objection, the Respondent issued confirmation Notices dated 30th November 2023. To which the Appellant then filed its Notice of Appeal dated 24th December 2023 on 22nd January 2024.

37. Section 13 (I) of the Tax Appeals Tribunal Act guides on the procedure of filing an Appeal. It provides as follows;“A notice of appeal to the Tribunal shall –a.Be in writing or through electronic means;b.Be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.”

38. From the chronology of events, the confirmation Notices having been issued on 30th November 2023, the Appellant had up to 30th December 2023 to file the Notice of Appeal. However, the Appellant filed its Notice of Appeal dated 24th December 2023 on 22nd January 2024 which was beyond the statutory timelines as prescribed under Section 13 (1) of the Tax Appeals Tribunal Act, 2013.

39. The Tribunal guided by the position held in the case of Equity Group Holdings Ltd vs. Commissioner of Domestic Taxes (Civil Appeal E069 & 025 of 2020) KEHC 25 eKLR (Commercial and Tax) (23 August 2021) where the Court held that;“The word “shall” when used in a statutory provision imported a form of command or mandate. It was not permissive, it was mandatory. The word “shall” in its ordinary meaning was a word of command which was normally given a compulsory meaning as it was intended to denote obligation. “Shall” was used to express a command or exhortation or what was legally mandatory”

40. The provisions of Section 13 (I) of the Tax Appeals Tribunal Act, 2013 therefore behoves upon the Appellant the mandatory obligation to file the Notice of Appeal within the statutory timelines to grant the Appeal the legitimacy to proceed with the Appeal, which it failed to do.

41. Whereas the law makes provisions for parties to seek leave to file their Appeals out of time as envisaged under Section 13 (3) and (4) of the Tax Appeals Tribunal Act, the Tribunal noted that the Appellant did not seek such leave, thus leave was not granted to do so.

42. In view of the foregoing the Tribunal finds that the Notice of Appeal was filed out of time, the Appeal was not validly lodged, for being filed beyond the statutory time lines and without leave first sought and granted.

43. Consequently, the Tribunal finds that there is no valid Appeal for it to exercise its jurisdiction, thus the Appellant’s Appeal is incompetent.ii.Whether the Respondent’s assessment was justified.

44. Having found that the Notice of Appeal was filed at the Tribunal out of time and without leave of the Tribunal, the Tribunal shall not delve into the other issue for determination as the same has been rendered moot.

45. Accordingly, the Respondent’s Preliminary Objection dated 16th August 2024 is upheld.

Final Decision 46. The upshot of the foregoing is that the Respondent’s Preliminary Objection is upheld and the Tribunal proceeds to make the following final ordersa.The Appeal be and is hereby struck out;b.Each party to bear its own costs

47. Orders accordingly.

DATED AND DELIVERED AT NAIROBI THIS 4TH DAY OF OCTOBER 2024ROBERT M. MUTUMACHAIRMANDELILAH K. NGALA JEPHTHAH NJAGIMEMBER MEMBERMUTISO MAKAU DR TIMOTHY B. VIKIRUMEMBER MEMBER