[2024] KETAT 1614 (KLR)

Issack v Commissioner of Domestic Taxes (Appeal E769 of 2023) [2024] KETAT 1614 (KLR) (22 November 2024) (Judgment)

Neutral citation: [2024] KETAT 1614 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal E769 of 2023

E.N Wafula, Chair, G Ogaga, AK Kiprotich & RO Oluoch, Members

November 22, 2024

Between

Abdullahi Ibrahim Issack

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a registered taxpayer involved in the business of selling, distributing and dealing in cereals, legumes and other related products.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act. The Kenya Revenue Authority is an agency of the Government of Kenya mandated with the duty of collection and receipting of all tax revenue, and the administration and enforcement of all tax laws set out in Parts 1& 2 of the First Schedule to the Act, for purposes of assessing, collecting, and accounting for all tax revenues in accordance with those laws.

3. The dispute in this Appeal arose when the Respondent investigated the affairs of the Appellant and subsequently issued him with assessment orders amounting to Kshs 58,601,159. 00 on 31st August 2020.

4. The Appellant objected to the said assessment vide his objection letter dated 30th September 2020 and the Respondent issued its objection decision on 2nd November 2020.

5. Aggrieved by the Respondent’s decision, the Appellant lodged the present Appeal before the Tribunal on 3rd November 2023.

The Appeal 6. The Appellant’s Appeal is premised on his Memorandum of Appeal dated 2nd November 2023 and filed on 3rd November 2023 and which is based on the following grounds:a.That the Respondent erred in law in misinterpreting records picked from the Appellant’s bank deposits and wrongly assuming the amounts to be the Appellant’s trade incomes which is not the case;b.That the Respondent erred in law and in fact in using an unfairly higher margin than that which is used in the normal course of the Appellant’s business dealings in calculating the Appellant’s taxes;c.That the Respondent erred in fact in not appreciating and considering the detailed proof documents sent to the Respondent by the Appellant to confirm the correct status of taxes about the Appellant;d.That the Respondent erred in law by failing to accord the Appellant fair administrative action as mandated by Article 47 of the Constitution;e.That the Respondent erred in law by failing to comply with the directives of the Tribunal vide its Judgment dated 15th December 2021 where the Tribunal had directed the Respondent to consider the documents that had already been supplied by the Appellant; andf.That the Appellant’s notice of objection dated 30th September 2020 was deemed allowed by virtue of Order No. (iii) of the Judgment of the Tribunal dated 15th December 2021.

Appellant’s Case 7. The Appellant set out his case on his Statement of Facts dated 2nd November 2023 and Written Submissions dated 16th July 2024 and filed on 12th August 2024.

8. The Appellant stated that he supplied the Respondent with documents including financial statements and sample copies of invoices on 25th November 2020 which was 2 days before the Objection decision was delivered.

9. That the Appellant filed an Appeal against the assessment vide TAT No 591 of 2020 and the Tribunal’s decision in paragraph 63 thereof was as follows;“The Tribunal cannot agree with the reason proffered by the Respondent in its Objection Decision that the Appellant failed to provide documents. The documents were delivered and acknowledged on 25th November 2020, two days before the decision was rendered. The Respondent’s decision thus fails to communicate correct and accurate facts.”

10. That the Tribunal directed as follows when it partially allowed that Appeal under Order No. (iii) of its Judgment:“The Respondent be and is hereby directed to consider the documents supplied by the Appellant together with any other documents and render an objection Decision within sixty (60) days of the date hereof.”

11. That Tribunal further directed as follows under Order No. (iv) of the Judgment:-“In default of the Respondent complying with Order No. (iii) above, the Appellant’s notice of objection will be deemed to have been allowed.”

12. That in flagrant disregard of that Judgment of the Tribunal, the Respondent failed to consider the evidence as directed by Order No. (iii) of the Judgment and it instead issued the Objection decision on 11th February 2022.

13. The Appellant averred that the Objection decision dated 11th February 2022 merely rehashed the Respondent’s previous Objection decision of 27th November 2020 thus making a mockery of the Judgment in TAT No. 591 of 2020 without giving a clear statement of findings and analysing the evidence tendered by the Appellant in compliance with Section 51(10) of the Tax Procedures Act.

14. That the Respondent’s failure to comply with Orders of the Tribunal amounted to abuse of the law and disregard of the Tribunal and its processes.

15. That the Tribunal should decline the invitation to adjudicate over the same issue twice because both Objection decisions dated 27th November 2020 and 11th February 2022 are similar.

Appellant’s Prayers 16. The Appellant prayed to the Tribunal for orders that:a.The Objection decision dated 11th February 2023 be set aside.b.The Appeal be allowed with costs.

Respondent’s Case 17. The Respondent opposed this Appeal through its Statement of Facts dated 26th November 2023 and filed on 1st December 2023 and Written Submissions dated 12th July 2024 and filed on 17th July 2024.

18. The Respondent stated that it reviewed the Appellant's notice of objection and issued its response to the Appellant's grounds of objection via letter dated 2nd November 2022 as follows: -i.On bank deposits- the Appellant was directed to provide its workings that give the correct position on the bank deposits.ii.On profit margins- the Appellant was directed to provide evidence demonstrating that its profit margins range between 5% - 8% as well as to avail supporting workings for the Commissioner's review.iii.On Director’s deposits – the Appellant was directed to provide workings in the bank that relate to its income.iv.On source documents - the Respondent stated that in commuting the Appellant's tax liability, profit margins of 25% were applied because there was no information on costs for consideration.

19. The Appellant having failed to respond to its letter dated 2nd November 2020 it opted to send him a reminder vide a letter dated 20th November 2020 where it advised the Appellant to provide the supporting documents.

20. That it relied on the information that was available to it in arriving at its assessment considering that it was not provided with the documents it required.

21. That the information from the bank revealed that most of the deposits into the Appellant's account were payments for the supply of cereals from another company.

22. That the Appellant was given a further opportunity by the Tribunal to support his case but he failed to do, and the Respondent was thus compelled to confirm the assessment for tax of Kshs. 87,444,128. 00 against the Appellant.

23. That the Appellant provided unsigned financial statements which it could not rely upon.

24. That the only documents supplied by the Appellant were a table with a list of expenses allegedly incurred by the Appellant but the same did not have any documents to confirm that expenses had been incurred.

25. The Respondent stated that Section 29 and Part VI of the Tax Procedures Act give power to use "information as may be available" to it in coming up with default assessments when necessary.

26. The Respondent stated that it accorded the Appellant a fair opportunity to support its case numerous times before issuing the Objection decision.

27. The Respondent stated that in compliance with the Tribunal’s Judgment of 15th December 2021, the Appellant was given an opportunity to provide supporting documents which it failed to do thereby prompting the Respondent to issue a fresh Objection decision in February 2022.

28. The Respondent further stated that it complied with the Orders of the Tribunal’s Judgment delivered on 15th December 2021, by issuing its Objection decision on 11th February 2022 which was within 60 days of the Tribunal’s Judgment.

29. That the Appellant did not satisfy his burden of proofing that the assessments were excessive as was expected of him under Section 56(1) of the TPA.

30. The Respondent stated that the Appellant’s Appeal is fatally defective as it has not complied with the mandatory provisions of Section 13(2)(c) of the Tax Appeals Tribunal Act because the Appeal is based on the Respondent’s decision issued on 11th February 2023 and not the Appeal dated 2nd November 2020.

31. The Respondent identified the following issues for determination in this Appeal:i.On whether the Appellant lodged a proper notice of objectionii.On whether the Objection decision dated 11th February 2023 is proper in law.

i. On whether the Appellant lodged a proper notice of objection 32. The Respondent averred that the Appellant’s notice of objection did not meet the mandatory provisions of Section 51(3) of the Tax Procedures Act for the following reasons: -a.The Appellant failed to prove that the Respondent used erroneous information in computing his tax liability because it relied on the Appellant’s bank records as well as information received from third parties considering that the information received from the Appellant’s bank account had revealed that most of the Appellant’s deposit was payment for the supply of cereals from another company.b.Upon being served with the investigation findings and assessment, the Appellant failed to provide supporting evidence to prove that the deposits were not income. Without the evidence to support his case, it was compelled to confirm the assessment for tax of Kshs. 87,444,128. 00 against the Appellant.c.Although the Appellant was informed of the Respondent’s tax investigations and an assessment issued on 30th September 2020, the Appellant lodged his objection out of time without first seeking leave to do so contrary to the provisions of Section 51(2) of the Tax Procedures Act.d.Although the notice of objection was lodged, the Appellant failed to provide supporting documents and evidence to support his objection despite receiving the Respondent’s correspondence and reminder to do so.

33. It supported its assertions with the case of In Pearson Vs. Belcher CH.M Inspector of Taxes) tax Cases Volume 38 referred to by Justice D.S Majanja in PZ Cussons East Africa Limited V Kenya Revenue Authority (2013) eKLR.

34. That having failed to lodge a valid objection under the provisions of Section 51(3) of the Tax Procedures Act, the Respondent submitted that it did not err in determining that there was no valid notice of objection lodged.

35. The Respondent maintained that it complied with the directions of the Tribunal issued vide Judgment dated 15th December 2021 by reconsidering the Appellant’s documents which supported the same but none was provided despite numerous reminders sent to the Appellant to amend the issued assessment or vacate the assessment in totality.

36. That the said Judgment directed the Respondent to consider the documents supplied which it did and issued its Objection decision on 11th February 2023.

37. That even after the Tribunal granted the Appellant the opportunity to provide additional documents, the Appellant did not bother to provide verified and signed accounting documents for consideration by the Respondent.

38. It also submitted that the Appellant did not seek for an extension of time to lodge a valid objection under Section 51(6) of the TPA.

39. That the Appellant was indolent and is thus undeserving of the orders sought.

ii. On whether the Objection decision dated 11th February 2023 is proper in law. 40. The Respondent reiterated that the Appellant had failed to discharge his burden of proof in proving that the Respondent’s tax decision is incorrect as per the provisions of Section 56(1) of the tax Procedures Act. It supported this argument with the case of TAT No. 331 of 2018: Geoffrey Mwanjoria Mwangi versus Commissioner of Domestic Taxes.

41. That the evidence requested for but not provided included: -i.Proof and justification of what the cash and cheque deposits as well as inward swift transfers received in the Appellant’s bank accounts represented.ii.Explanation of the amounts received by the Appellant totalling Kshs. 782,865,036 through Gulf African Bank account No. 0130163302; whether income or not.iii.Evidence to support the profit margin adopted by the Appellant.

42. That its Objection decision issued on 11th February 2022 was thus proper, and valid and should be upheld on the basis that the Appellant failed to provide proof and evidence to support his case.

Respondent’s prayers 43. The Respondent prayed for orders that the Tribunal do find: -i.That the Respondent’s Objection decision issued on 11th February 2022 demanding taxes amounting to Kshs. 87,444,128. 00 is proper in law and be upheld.ii.That this Appeal be dismissed with costs to the Respondent as it lacks merit.

Issue For Determination 44. The Tribunal has considered the Memorandum of Appeal, the parties' Statements of Facts and written submissions on record and it is of the view that the issues falling for its determination are as follows:a.Whether the Appellant’s Appeal was invalidb.Whether the Objection decision was unlawful for contravening Section 51(11) of the TPA.c.Whether the objection decision dated 11th February was justified.

Analysis and Determination 45. The Tribunal having appropriately ascertained the issues that falls for its determination shall proceed to analyse the same as hereunder.

a. Whether the Appellant’s Appeal was invalid 46. The Appellant’s view of this Appeal is that the Respondent had failed to comply with orders of the Tribunal as contained in the Judgment delivered in TAT No 591 of 2020 to the extent that it failed to issue its objection decision within the prescribed time and that it also failed to consider his documents in arriving at the said decision.

47. The Respondent on the other hand held the view that it had complied with these orders and that it was compelled to issue its decision because the Appellant had failed to supply it with documents as had been directed by the Tribunal.

48. The Respondent’s alternative argument was that the Appeal was fatally defective and in contravention of Section 13(2) (c) of the TAT Act because the Appellant had appealed against the Appeal dated 2nd November 2020 and not the Objection decision dated 11th February 2023.

49. The Respondent’s argument on the incompetence of the Appeal does not amount to much because the Appellant’s Memorandum of Appeal is clear that its Appeal is against the Objection decision dated 11th February 2023. It reads as follows in the relevant part:“…the Appellant being dissatisfied with by the Objection decision dated 11th February 2023…appeal to this Honourable Tribunal against the whole of the said objection decision on the following grounds”

50. The Appellant’s Appeal was thus against the decision dated 11th February 2023 and not the one dated 2nd November 2020. The assertion that the Appeal is fatally defective is unsupported by the pleadings of the Appellant and is thus dismissed for lack of merit.

b. Whether the Objection decision was unlawful for contravening Section 51(11) of the TPA. 51. The gravamen that remains for the determination of the Tribunal is on who between the two parties had complied with the orders contained in the Judgment of the Tribunal delivered on 15th December 2021.

52. Both parties seem to agree that the Tribunal issued a Judgment in TAT No 591 of 2020 and that the said Appeal involved both parties.

53. The Tribunal has perused a copy of the said Judgment and it has confirmed as follows:a.The Appeal, TAT No. 591 of 2020, indeed involved both parties.b.The Judgment in that Appeal was delivered on 15th December 2021. c.No stay orders emanating from the superior court have been issued staying the orders of the Tribunal.

54. The final order of the Tribunal in TAT No. 591 of 2022 read as thus:-“a)The Appeal be and is hereby allowed in part.b.The Respondent’s objection decision dated 27th November 2020 be and is hereby set aside.c.The Respondent be and is hereby directed to consider the documents supplied by the Appellant together with any other documents and render an objection decision within sixty (60) days of the date hereof.d.In default of the Respondent complying with order No (iii) above, the Appellant’s notice of objection will be deemed to have been allowed.”

55. A plain reading of the above orders of the Tribunal meant as follows:a.The Respondent was to consider the documents that it had received from the Appellant plus any other documents in helping it render its decision.b.The Respondent was required to issue its Objection decision based on the documents that had been provided by the Appellant.c.The Respondent was at liberty to issue a decision confirming, amending and or setting aside its assessment provided that this decision was arrived at in consideration of the document in its possession.d.The Objection decision was to be issued within 60 days from 15th December 2021. It was thus to be issued by 13th February 2022. e.Failure to issue the said decision by the 13th of February would result in the Appellant’s notice of objection being deemed to have been allowed.

56. There was thus no order directing the Appellant to supply the Respondent with documents as alleged by the Commissioner. The Respondent was instead required to make a decision based on documents which were already in its possession.

57. If the Respondent needed additional documents from the Appellant, then the same ought to have been requested. This request appears not to have been made.

58. As it is, time began to run for the Respondent to issue its Objection decision from the date of delivery of the Tribunal’s Judgment. The strictures of this Judgment thus required the Respondent to issue its Objection decision on or before the 13th of February 2022.

59. The Respondent issued its Objection decision in this matter on 11th February 2022 which was within the timelines that had been decreed by the Tribunal. The Appellant’s assertion that the said Objection decision contravened Section 51(11) of the TPA is thus bereft of merit.

iii. Whether the Objection decision dated 11th February was justified. 60. The issue that now remains for determination, as raised by the Appellant is whether the impugned Objection decision considered the documents that had been presented to it as directed by the Tribunal.

61. The Respondent’s Objection decision reads as follows in the relevant part:-“However, your agent has yet to submit the documents requested and or make any proposal on the settlement of the taxes assessed.We have reviewed your letter of 25th November 2020 and established that there were no attachments as indicated herein. No documents and or invoices were attached to enable the Commissioner to reach a different conclusion on the assessment. In the circumstances, the Commissioner’s decision on the assessment (objection decision) remains as communicated in the letter dated 27th November 2020, a copy of which is attached.

62. Herein lay the Respondent's Waterloo.

63. The tenor of the Tribunal's Judgment was that the Appellant had already provided the documents that were required of it. It is these documents that the Respondent was required to consider and issue its objection decision.

64. Put another way. The Tribunal had shut the door allowing the Respondent to rely on the excuse that it had not been supplied with documents as a basis for confirming its assessment.

65. The fact that the documents in issue were indeed handed over to the Respondent was captured in paragraph 63 of the Judgment where the Tribunal stated as thus:“The documents were delivered and acknowledged on 25th November 2020. ”

66. Having held that the Respondent had acknowledged receipt of the documents on 25th November 2020, the Respondent was required to issue its decision based on and in consideration of these documents that had been provided by the Appellant. The excuse that it had not been supplied with documents was thus not available to it unless it had requested for other additional documents that were different and separate from the ones that had been supplied.

67. The Respondent’s action of ignoring or failing to consider documents that it had acknowledged as having been received on 25th November 2020 and instead reaffirming its Objection decision dated 27th November 2020 without showing that it had considered the documents that the Appellant had provided for its consideration was not justified.

68. Indeed, it amounted to the re-issuance of the Objection decision of 27th November 2020 which the Tribunal had set aside in its Judgment of 15th December 2021 without providing a basis or justification for re- affirming an Objection decision that had been set aside.

69. This latter Objection decision dated 11th February 2022 must thus suffer the same fate as the previous Objection decision dated 27th November 2020 to the extent that it was premised on grounds upon which the Tribunal had already pronounced itself when it directed the Respondent to consider the documents supplied by the Appellant.

70. The Respondent’s utter disregard of the Tribunal's directions to issue an objection decision upon due consideration of the Appellant’s documents by proceeding to aver that it had not been supplied with the documents when the Tribunal had held that it had already been supplied with the documents amounted to an open and flagrant disregard of the Tribunal’s order. The Tribunal would thus not be enjoined in upholding an objection decision that has openly disregarded its clear orders and directions.

Final Decision 71. The upshot of the foregoing analysis is that the Tribunal finds and holds that the Appeal is merited and consequently makes the following Orders;-a.The Appeal be and is hereby allowed;b.The Respondent’s Objection decision dated 11th February 2022 be and is hereby set aside.c.Each party is to bear its own costs.

72. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 22ND DAY OF NOVEMBER, 2024. ERIC NYONGESA WAFULACHAIRMANGLORIA A. OGAGAMEMBERABRAHAM K. KIPROTICHMEMBERDR. RODNEY O. OLUOCHMEMBER