[2025] KETAT 127 (KLR)

Isha Label Converters Limited v Commissioner of Investigations and Enforcement (Tax Appeal E485 of 2024) [2025] KETAT 127 (KLR) (Commercial and Tax) (7 February 2025) (Judgment)

Neutral citation: [2025] KETAT 127 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tax Appeal E485 of 2024

CA Muga, Chair, BK Terer, EN Njeru, E Ng'ang'a & SS Ololchike, Members

February 7, 2025

Between

Isha Label Converters Limited

Appellant

and

Commissioner of Investigations and Enforcement

Respondent

Judgment

Background 1. The Appellant is a private limited company registered in Kenya and its principal activity is printing, designing and branding of paper and paper boards.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws (hereinafter “the Act”). Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 2 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 an investigation into the Appellant’s tax affairs following allegations of under declaration of income received for the period 2017 to 2022. The Respondent then issued the Appellant with additional PAYE and VAT assessments dated 24th November 2023, 29th November 2023, and 30th November 2023 amounting to Kshs 20,011,113. 00 for the period 2017 to 2022.

4. The Appellant thereafter lodged a late objection to the assessments on 12th February 2024. On 29th February 2024, the Appellant made an application for extension of time to lodge the objection which application was approved by the Respondent on 7th March 2024. Thereafter, the Appellant lodged its notice of objection on 19th March 2024.

5. Subsequently, the Respondent issued it objection decision dated 9th April 2024 wherein the Respondent fully rejected the Appellant’s objection therefore, confirmed the assessments.

6. Dissatisfied with the Respondent’s objection decision, the Appellant filed this Appeal through the notice of appeal dated 8th May 2024 and filed on 9th May 2024.

The Appeal 7. The Appellant filed its memorandum of appeal dated 8th May 2024 on 9th May 2024 wherein the Appellant raised the following grounds of appeal:a.That the Respondent never communicated the basis of its assessment.b.That assessment was done erroneously and greatly does not reflect the Appellant’s true position of what its books of accounts depicts.c.That all relevant supporting documentation are now available to be provided to the Respondent for a proper review and an amicable solution of the dispute.d.That the Respondent erred in law and fact by raising the assessments and confirming the same despite being provided with reasons for failure for providing the documentation at the review stage on time.e.That the Appellant was sick and had sought treatment outside the country thus was not able to adhere to the invitation for the review of our objection.f.That the assessment is humongous, unfair and such an amount will greatly affect the Appellants business.g.That the Respondent did not accord the Appellant a fair hearing more specifically not considering the substance of the objection and not reviewing the appellant's grounds of objection.

Appellant’s Case 8. In support of the appeal, the Appellant filed its statement of facts dated 8th May 2024 on 9th May 2024.

9. The Appellant averred that the Respondent stated that its decision was based on facts and lack of documents to support the Appellant's objection application. The Appellant was aggrieved by this decision.

10. The Appellant contended that it did not unreasonably fail to provide the documents as during the period as the accountant was sick and had sought medication outside the country thus was not able to adhere to the invitation for the review of our objection.

11. The Appellant further argued that the Respondent’s assessment is humongous, unfair and such an amount will greatly affect its business. It added that the Respondent's demand for the said taxes are unfounded, unreasonable, unjustified and not based on any material facts other than estimates. The Appellant therefore, requested this Tribunal to reverse the Respondent decision and allow the Appellant to provide all the necessary supporting documentation for an amicable solution of the dispute.

Appellant’s Prayers 12. With the above stated reasons, the Appellant prayed that this Tribunal be pleased to set aside the invalidation notice dated 9th April, 2024 and the Applicant be allowed to provide all the necessary supporting documentation in support of their objection for an amicable solution of the dispute.

Respondent’s Case 13. In response to the appeal, the Respondent filed its statement of fact dated 7th June 2024 on even date. The Respondent also filed its written submissions on 19th September 2024.

14. In response, the Respondent stated that it considered all the Appellant’s documents as provided in coming up with the assessments.it stated that the Appellant failed to avail detailed supporting documentation and records to counter the assertions of the Respondent in the various engagements at assessment stage as well as objection stage contrary to Section 59 (1) of the Tax Procedures Act, CAP 469B of the Laws of Kenya (“hereinafter “TPA”).

15. The Respondent averred that the Appellant did not provide any evidence to show or demonstrate that the assessment is erroneous or excessive despite being given several opportunities to support its position. The Appellant at the objection stage failed to avail the detailed support documentation to support its various objection grounds as per the requirements of Section 51(3) of the TPA.

16. It averred that every opportunity was extended to the Appellant to present its case and the support for its objection application. In the absence of supporting documents, the Respondent issued an assessment to the Appellant as provided for in Section 24 of the TPA.

17. The Respondent asserted its competence to assess, demand and collect taxes established from the investigation from pursuant to section 24(2) of the TPA which gives the Commissioner the power to assess a taxpayer’s tax liability using information available. It also asserted that its actions are in line with Section 51(3) and 51(4) given that the Appellant’s grounds of objection, although invalid, were considered and consequently invalidated.

18. The Respondent relied on Section 56(1) of the TPA which provides that the burden of proving that the tax assessment is wrong lies with the taxpayer and the Appellant herein failed to prove to the satisfaction of the Commissioner that the assessment was wrong.

19. The Respondent also relied on its written submissions wherein it submitted that save for the notice of objection on i-Tax and the Appellant's objection letter dated 19th March 2024, no other document was adduced in support of the objection application lodged by the Appellant. It cited the case of Kotile General Contractors Company Limited v Commissioner of Domestic Taxes [2020] eKLR the Tribunal held that the Applicant had failed to comply with the provisions set out in Section 51(3) of the TPA and hence there was no valid objection. The Respondent therefore, submitted that there was no valid objection since the Appellant failed to comply with Section 51(3)(c) of the TPA.

20. The Respondent also submitted that whereas the Appellant vide electronic mail correspondence dated 3rd April 2024 gave an undertaking to provide the Respondent with the supporting documentation, the Appellant failed to honour the said undertaking.

21. The Respondent further submitted that the Appeal herein is in contravention of Section 56(3) of the TPA and Section 13(6) of the Tax Appeals Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”) in that the Appellant contravened the above sections by introducing new grounds of appeal that was not part of the objection decision issued by the Respondent. It stated that the new ground is that the Appellant alleged that the Appellant was unwell and had sought treatment outside the country thus was not able to adhere to the invitation for the review of the objection.

22. On whether the additional assessments are legally justified, the Respondent submitted that the Appeal is incurably defective and an abuse of the court process as was stated in the case of Valley Drillers & General Contractor's Ltd v the Commissioner of Domestic Tax Misc. Appl. No. 175 of 2022 and Manchester Outfitters Ltd v Commissioner Of Domestic Taxes Tax Appeals Tribunal Appeal No. 721 of 2021 wherein the Honourable Tribunal held that without a valid objection the Applicant has no basis for bringing its Appeal before the Tribunal.

23. The Respondent also cited the cases of Digital Box Ltd v Commissioner of Investigation & Enforcement (2019) eKLR and Commissioner of Domestic Taxes v Altech Stream (EA) Limited [2021] Eklr where it was held that Section 31 (1) of the TPA allows the Commissioner to make an assessment based on such information as may be available and to the best of his judgement.

24. The Respondent relied on cases of Osho Drapers Limited v Commissioner of Domestic Taxes [2022] eKLR and Commissioner of Domestic Services v Galaxy Tools Limited [2021] eKLR where it was held that section 59 of the TPA empowers the Commissioner to request for more and additional information to satisfy himself on the taxable income declared.

25. Further, the Respondent submitted that the Appellant failed to discharge its burden of proof contrary to section 56(1) of the TPA and section 30 of the TATA. The Respondent cited the cases of Prima Rosa Flowers Limited v Commissioner of Domestic Taxes [2019] eKLR; Ushindi Exporters Limited v Commissioner of Investigation; Enforcement (Tax Appeal Tribunal No 7 of 2015); and Commissioner of Domestic Taxes v Metoxide Limited [2021] where it was held that the burden of proving that the tax assessment is incorrect or excessive falls upon the taxpayer.

Respondent’s prayers 26. The Respondent urged this Tribunal be pleased to:i.Uphold the Respondent's decision dated 9th April 2024 as proper and in conformity with the provisions of the Law.ii.Dismiss the appeal with costs to it.

Issues For Determination 27. The Tribunal having carefully evaluated parties’ pleadings documentation and the Respondent’s submissions is of the view that the three issues that call for its determination are as follows:a.Whether the Respondent complied with section 51(4) of the TPA.b.Whether part of the Respondent’s assessment was statute time barred.c.Whether the Respondent was justified in fully rejecting the Appellant’s Notice of objection.

Analysis And Findings 28. The Tribunal will proceed to analyse the issues identified for determination hereinunder:

Whether the Respondent complied with section 51(4) of the TPA. 29. The genesis of this dispute is the Appellant’s objection to an assessment issued by the Respondent. To support an objection, a taxpayer must provide documents and with regard to provision of documents in support of a notice of objection. More particularly, Section 51(4) of the TPA provides as follows:‘‘(4)Where the Commissioner has determined that a notice of objection lodged by a taxpayer has not been validly lodged, the Commissioner shall within a period of fourteen days notify the taxpayer in writing that the objection has not been validly lodged and request the taxpayer to submit the information specified in the notice within seven days after the date of the notice.’’

30. The Tribunal notes that Section 51(4) of the TPA is the embodiment of a how a taxpayer ought to be granted a fair hearing or fair consideration. A taxpayer has a right to be heard and the Respondent must adhere to the principles of natural justice in carrying out its administrative functions. By applying Section 51(4) of the TPA, the right of a fair hearing is manifested and this section can be read in tandem with Section 4 of the Fair Administrative Action Act, CAP 7L of the Laws of Kenya (hereinafter “FAAA”). The application of the procedure in accordance with section 51(4) of the TPA ensures a taxpayer’s right to present its case. The Tribunal must analyse whether or not the Respondent complied with the section 51(4) of TPA in the instant Appeal.

31. The Tribunal sighted an electronic mail dated 3rd April 2024 sent at 1:17 PM which was attached to the Respondent’s pleadings and adduced as evidence. It was unclear who the recipient of the electronic mail was. The contents of the said electronic mail are as follows:‘‘Good Afternoon Sir,Upon communication of the Commissioner's approval to file your client's late objection, you submitted grounds of objection on 19th March 2024 with an indication that you would provide documents in support of the grounds cited. We note however that to date you are yet to submit the said documents in contravention of the provisions of Section 51(3) of the Tax Procedures Act.By this email you are requested to provide documents in support of your contentions that:-The assessment was done erroneously and that it does not reflect the true position.Please provide the documents latest by 05/04/2024 to enable us progress the review.’’

32. The Tribunal notes that the electronic mail was issued on 3rd April 2024 at 1:17 PM but that however, the Respondent expected the documents to be supplied not later than 5th April 2024. Pursuant to section 51 (4) a taxpayer has 7 days to comply/ supply the documents requested by the Respondent. The Appellant failed to supply the documents on 5th April, 2024 and the Respondent then proceeded to issue its objection decision on 9th April 2024 and fully rejected the Appellant’s notice of objection.

33. The Tribunal finds that the Respondent failed to comply with the provisions of section 51(4) of the TPA. The Tribunal in Sino v Commissioner of Domestic Taxes (Tax Appeal 1243 of 2022) [2024] KETAT 31 (KLR) observed as follows in relation to section 51(4) of TPA:‘‘66. Whereas the decision as to whether a notice of objection is validly lodged or not rests with the Respondent, such power must be exercised in accordance with the law. The Respondent ought to be guided by the provisions of Section 51 (4) of the Tax Procedures Act which provides as thus;“Where the Commissioner has determined that a notice of objection lodged by a taxpayer has not been validly lodged, the Commissioner shall within fourteen (14) days notify the taxpayer in writing that the objection has not been validly lodged.”67. Accordingly, the Respondent having alleged that the Appellant’s objection was invalid, was obligated in law to demonstrate that it notified the Appellant that its objection had not been validly lodged within the period of fourteen days and in default thereof the Appellant’s objection was validated by the operation of law.68. The Respondent has not demonstrated via documentary evidence that the aforesaid notice was issued to the Appellant, the Tribunal is therefore, persuaded that the Appellant was not notified that its Objection was not validly lodged and by the Respondent’s action of failure to notify, the objection was deemed as valid.’’

34. In view of the foregoing, the Appellant is within its rights as a taxpayer to make this Appeal to the Tribunal on the basis that it was not granted a fair hearing and this is contrary to the principles of natural justice. The Tribunal notes that the Respondent did not comply with the provisions of section 51(4) of the TPA in making its objection decision. It ought to have granted the Appellant 7 days within which to submit additional documents to support its objection yet it only gave the Appellant only 2 days to comply contrary to the provisions of Section 51 (4) of the TPA.

35. Having thus determined, that the Respondent failed to comply with the provisions of Section 51 (4) of the TPA, the Tribunal will not delve into the other two issues that fell for its determination as the same have been rendered moot.

Final Decision 36. The upshot to the foregoing is that the Tribunal makes the following Orders:a.The Respondent’s the objection decision dated 9th April 2024 be and is hereby set aside.b.The Respondent to review the Appellant’s notice of objection in strict adherence of Section 51(4) of the TPA.c.Each party to bear its own cost.

37. It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 7TH DAY OF FEBRUARY, 2025. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERELISHAH N. NJERU - MEMBEREUNICE N. NG’ANG’A - MEMBEROLOLCHIKE S. SPENCER - MEMBER