[2023] KETAT 1002 (KLR)

Intime Stone Age Limited v Commissioner of Domestic Taxes (Appeal 714 of 2022) [2023] KETAT 1002 (KLR) (Civ) (6 October 2023) (Judgment)

Neutral citation: [2023] KETAT 1002 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Appeal 714 of 2022

Grace Mukuha, Chair, E Komolo, Jephthah Njagi, G Ogaga & T Vikiru, Members

October 6, 2023

Between

Intime Stone Age Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited liability company incorporated in Kenya under the Companies Act, carrying on the business of construction.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 460 Laws of Kenya. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all revenue. Under Section 5(2) of the Act with respect to the performance of its function under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part I & II of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Respondent carried out a returns review on the Appellant as part of compliance monitoring process, the review established under declaration of sales for VAT for the periods August 2017 and August 2018.

4. As a result of the review, on 11th February 2022, the Respondent issued the Appellant with a Pre-assessment notice to review its returns and provide explanations/reconciliation for the variances as identified.

5. On 21st February 2022, the Respondent issued the Appellant with VAT additional assessments of Kshs. 718,453. 76 for the period August 2018 and Kshs. 70,815. 20 for the period August 2017.

6. The Appellant lodged objections to the entire assessments on 21st March 2022 via the Respondent’s iTax platform and obtained objection acknowledgement receipt numbers KRA2022023966653 and KRA202203966884.

7. On 27th April 2022 and 13th May 2022, the Respondent requested for additional information from the Appellant to support its objection. The Respondent stated that the Appellant failed to provide the required documents.

8. On 30th May 2022, the Respondent issued its objection decision wherein it rejected the Appellant’s Objection and confirmed the additional taxes as due and payable.

9. The Appellant, dissatisfied with the Respondent’s objection decision of 30th May 2022, lodged a Notice of Appeal dated and filed on 31st May, 2022.

The Appeal 10. The Appellant’s Appeal is premised on the ground stated in the Memorandum of Appeal filed on 12th July 2022 that:-a.The Respondent erred in fact and law by failing to consider all the documents that the Appellant supplied in support of its objection before issuing the objection decision.

The Appellant’s Case 11. The Appellant's case was premised on its Statement of Facts dated 12th July 2022 and filed on even date.

12. The Appellant averred that it was issued with a Return Review Notice dated 11th February, 2022 to review the Appellant’s returns filed pursuant to Section 59 of Tax Procedures Act.

13. The Appellant further stated that the Respondent issued it with a VAT assessment dated 21st February 2022 for Kshs. 1,027,171. 79.

14. The Appellant averred that it objected to the Respondent’s tax assessments on 21st March 2022 on iTax.

15. The Appellant stated the Respondent subsequently issued an objection decision on 30th May, 2022.

16. The Appellant averred that the Respondent erred in fact and in law by failing to consider all the documents that the Appellant supplied in support of its objection before issuing the objection decision.

Appellant’s Prayers 17. The Appellant prays for orders that:a.The Respondent’s Objection decision dated 30th May 2022 be struck out in its entirety.b.Any other remedies that the Honorable Tribunal deems just and reasonable.

Respondent’s Case 18. The Respondent premised its case on the following documents before the Tribunal: -a.The Respondent’s Statement of Facts dated 29th August 2022 and filed on the same date.b.The Respondent’s Written Submissions dated 7th February 2023 and filed on even date.

19. The Respondent submitted that the subject of this Appeal is additional VAT assessments of Kshs. 789,268. 96 arising from undeclared VAT sales for the period August 2017 and August 2018.

20. The Respondent averred that it arrived at the additional assessments by comparing the Appellant’s VAT sales compared to the income tax sales declared as per the income tax returns for the same period.

21. The Respondent stated that it raised the additional assessments based on the information available and that it applied the best judgement using what was available in line with Section 31(1) of the TPA.

22. The Respondent further submitted that via emails sent on 27th April 2022 and 13th May 2022 it requested the Appellant to provide sales invoices and the bank statements for the assessment period, the Appellant failed to provide the requested documents prompting it to issue an objection decision on 30th May confirming the assessments.

23. The Respondent averred that the duty of proving that a tax decision is wrong lies with the Appellant and not the Respondent in accordance with Section 56(1) of the TPA which provides that:“In any proceedings under this part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

24. The Respondent stated that it provided the Appellant with ample time to provide evidence of its position including sending emails specifying documents required, however the Appellant failed to provide the evidence in time.

25. To buttress its position on the burden of proof, the Respondent relied on the case of Grace Njeri Gathua v Commissioner of Investigations & Enforcement (TAT 102 of 2018) where the Tribunal emphasized the fact that the burden is on the Appellant to prove the assessment was wrong by stating thus:“In this appeal, the Appellant has not provided the Tribunal with enough evidence to show that the net income the Respondent has based the tax assessment was not income or is subject to further cost deduction in arriving at a net profit. It is trite law that the burden of proof is on the taxpayer to show that the tax so assessed is not due from her.”

26. Additionally, the Respondent made reference to the case of Mulhedin vs Commissioner of Taxation [2013] FCAFC 115, where the Federal Court of Australia held that in tax disputes the taxpayer must satisfy the burden of proof to successfully challenge the income tax assessments. That the onus is on the taxpayer in proving that the assessment was excessive by adducing evidence which demonstrates the taxable income on which tax ought to have been levied.

27. The Respondent averred that in the absence of the required documents it could not verify the Appellant’s claim that it considered 11 months instead of 12 months in its computations. The Respondent states that the Appellant has not provided the statutory foundation to show that it has a duty to consider 12 months and not less than that.

28. The Respondent asserted that by the Appellant failing to provide the specific relevant documents relating to the objection, its grounds of objection remained mere averments without basis.

29. To support its assertion, the Respondent relied on this Honorable Tribunal’s Judgement in the case of Boylen International Ltd vs Commissioner of Investigations and Enforcement, Nairobi TAT Appeal No. 55 of 2018, where it was held as follows:-“….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, 2015”

30. Furthermore, the Respondent relied on the case of Afya xray Centre Ltd -vs- Commissioner of Domestic Taxes TAT 70 of 2017, where it was stated,“From the foregoing chain of events, it is our understanding that the Appellant failed in its duty in providing these documents, in order that a comprehensive audit of its affairs be done. Accordingly, the Respondent can hardly be faulted for raising the assessment in accordance with the availed documents. Moreover, the Appellant had an opportunity to counter the Respondent’s findings after the preliminary finding and after the confirmation of the assessment. Both are instances, where the Appellant could have produced its books of accounts to counter the Respondent’s assessment after all the Appellant by law bears the burden of proof.”

31. The Respondent pointed out that the Appellant even before this Tribunal has not made any attempt to discharge the pending burden of proof. The Respondent made reference to Section 107 of the Evidence Act.

Respondent’s Prayers. 32. The Respondent prayed that the Tribunal:a.Finds in favor of the Respondentb.Upholds the Respondent’s assessmentc.Dismisses the Appeal with costs to the Respondent.

Issue for Determination 33. Having considered the pleadings and submissions of the parties and the documentation availed, the Tribunal is of the considered view that this Appeal raises the following issue for determination:Whether the Respondent’s tax assessment was justified.

Analysis and Findings 34. The Tribunal having determined the issue for determination analyzed it as indicated hereunder.

35. According to the Respondent, the Appellant lodged its notice of objection dated 21st March 2022, and provided grounds without relevant and specific supporting documentation.

36. Section 56(1) of the TPA provides as follows with regard to burden of proof in tax disputes:-“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

37. The Respondent requested the Appellant to provide specific documents including the sales invoices and bank statements for the period under review but despite reminders, it failed to provide the said documents which were very crucial to verify the Appellant’s tax declaration and grounds of objection.

38. Although the Appellant has stated in its Statement of Facts that it provided the requested documentation and claimed that the Respondent failed to consider all the documents it supplied, it has not stated the nature or listed the documents provided, thus has not satisfactorily rebutted the Respondent’s contention that it failed to provide relevant and specific documents to support its grounds of objection.

39. Section 56(3) of the Tax Procedures Act enjoins the taxpayer to provide all documentation in support of its objection. The Section reads as follows:-“A notice of objection shall be treated as validly lodged by a taxpayer under Subsection (2) if –(c)all the relevant documents relating to the objection have been submitted.”

40. By failing to provide the requested documents, the Appellant failed to discharge its burden of proof. In Commissioner of Domestic Taxes -vs- Structural International Kenya Ltd ITA E089 of 2020 (2021) KEHC 152 (KLR), the High Court held,“For the avoidance of doubt, the Tribunal is reminded that in matters where the supply of goods, be it for VAT purposes or Corporation Tax, the burden is always on the trader / taxpayer to show that, the documentation set out in the statute and in which he relies on arose out of a commercial transaction. Period. If additional documents, which would reasonably expected to be in his possession is requested for to verify the alleged transactions, he should produce the same to the Commissioner. That is what is expected of a keen and diligent trader.”

41. The burden was thus on the Appellant to prove that the assessed tax was not correct. The fact that the Respondent erred in the issuance of its tax assessment could only have been proved by production of documents that had been requested by the Respondent and having the same filed before the Tribunal for appropriate consideration.

42. The Appellant has not disputed the fact that the Respondent requested it to supply additional documents neither has it specifically denied the Respondent’s submissions that it had made reminders to be supplied with documents without success.

43. Section 30 (a) of the TAT Act places the burden of proving that an assessment is excessive on a taxpayer. It states that:-“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.”

44. The Appellant has not only failed to provide evidence that it supplied the additional documents that were requested of it, it has also not filed any supporting documents with the Tribunal other than the assessment, objection and the objection decision.

45. This Tribunal has previously held as follows in TAT No 195 of 2021 Wilken Telecommunications Limited vs Commissioner of Domestic Taxes:“Once the assessment was issued, it was upon the Appellant to provide evidence to show that the assessment was wrong”

46. Whilst the Appellant averred that the Respondent did not consider all the documents it provided, it has neither listed the said documents nor pointed out the Respondent’s omissions in specific terms so as to inform the Tribunal’s analysis.

47. It follows that the Appellant in this Appeal did not provide evidence to prove that the Respondent’s assessment was wrong. In the circumstances, the Tribunal finds that the Respondent did not err in making its assessment on the basis of documents that were in its possession.

48. Nothing has been presented before the Tribunal to show that the Respondent exercised its best judgment capriciously, unfairly and or illegally.

49. In view of the foregoing, the Tribunal finds that the Appeal lacks merit.

Final Decision 50. In light of the foregoing analysis, the Tribunal makes the following orders:a.The Appeal be and is hereby dismissed.b.The Respondent’s Objection decision dated 30th May 2022 be and is hereby upheld.c.Each party shall bear its own costs.

51. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 6TH DAY OF OCTOBER 2023. …………………………GRACE MUKUHACHAIRPERSON………………………DR. ERICK KOMOLOMEMBER………………………JEPHTHAH NJAGIMEMBER………………………GLORIA OGAGAMEMBER………………………TIMOTHY VIKIRUMEMBER