[2024] KETAT 741 (KLR)

Jaggi Renovators Limited v Commissioner of Domestic Taxes (Tax Appeal 121 of 2023) [2024] KETAT 741 (KLR) (9 May 2024) (Judgment)

Neutral citation: [2024] KETAT 741 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 121 of 2023

RM Mutuma, EN Njeru, M Makau, B Gitari & AM Diriye, Members

May 9, 2024

Between

Jaggi Renovators Limited

Appellant

and

Commissioner Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited company incorporated in Kenya under the Companies Act whose principal activity is in buildings and construction.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, the Authority is charged with the responsibility of among others, assessment, collection, accounting, and the general administration of tax revenue on behalf of the Government of Kenya.

3. The Respondent issued an additional assessment covering VAT and Corporation tax for the period 2016-2018 dated 24th September 2021 with a total principal tax liability of Kshs. 53,637,503. 00. The Appellant objected to the assessments via iTax on 21st October 2021.

4. Upon several communications between the Appellant and the Respondent, the Respondent issued its decision on 27th April 2022 invalidating the Appellant’s objection on the grounds of failure to meet the requirements of Section 51 (3)(c) of the Tax Procedures Act. The Appellant being dissatisfied with the Respondent’s decision, lodged a Notice of Appeal dated and filed on 6th February 2023.

The Appeal 5. The Appeal is based on the Memorandum of Appeal filed on 6th February 2023. The Memorandum raises the following grounds:a.That the Respondent’s iTax system generated income tax - company additional assessment for the period from 1st January 2017 to 31st December 2017, 1st January 2018 to 31st December 2018 and VAT additional assessment.b.That the Appellant objected to the assessments on 13th December 2019, 21st October 2021, 5th January 2022, 12th August 2022 and 13th August 2022. c.That the key issue for determination is whether the Respondent was justified in assessing the Income tax - Company and VAT of Kshs. 53,637,503. 00 for the period 2016 — 2018 without verification of supporting documents and recalculating the banking’s as explained by the taxpayer.d.The Appellant relied on Section 29 to 31 of the Tax Procedures Act.

The Appellant’s Case 6. The Appellant relied on its Statement of Facts filed on 6th February 2023 wherein the Appellant stated that it filed all Income tax returns with the Respondent.

7. The Appellant stated that a valid objection was lodged in accordance with Section 51 of the Tax Procedure Act 2015.

8. The Appellant argued that all the taxes due were paid in accordance with relevant tax laws.

9. The Appellant maintained that for the years of income 2017, 2018 and VAT for the Months January 2016, February 2016, March 2016, September 2016, October 2016, December 2016, December 2017, and January 2018 were not verified or the officers did not correctly verify and therefore the Income tax assessments and VAT are incorrect.

10. The Appellant’s submissions are not on record therefore, the Tribunal relies on the Appellant’s Memorandum of Appeal and its Statement of Facts.

Appellant’s Prayers 11. Consequently, the Appellant prayed that the Honorable Tribunal;i.Directs the Respondent to amend the assessment, carry out audit on VAT for the months in question and issue the Appellant with a revised Income tax assessment.

The Respondent’s Case 12. The Respondent’s case is premised on its;i.Statement of Facts dated and filed on 8th March 2023.

13. The Respondent stated that the Appellant was selected for verification after it lodged a refund application in the year 2018 under Section 42 of the ITA amounting to Kshs 11,099,721. 00. According to the Respondent, the Appellant alleged that the claim was from Withholding taxes that had not been claimed in 2015 and 2016 therefore, the Respondent embarked on ascertaining the correct incomes which ought to have been declared in the periods 2015 to 2018.

14. The Respondent stated that analysis of Withholding taxes and bank analysis was done against the declarations under IT2c and VAT. Sales declared as per IT2C was also compared with sales declarations as per VAT returns. The Respondent also stated that it reviewed Appellant’s bank statement from Giro Bank.

15. The Respondent then issued assessments which the Appellant objected to. Consequently, the Respondent issued its decision dated 27th April 2022 invalidating the Appellant’s objection.

16. In response to the Memorandum of Appeal and Statement of Facts, the Respondent stated that the Appellant’s objection failed to meet the requirements of Section 51 (3) (C) of the Tax Procedures Act which provides that:‘‘(3)A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if—a.The notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments;b.in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay the tax not in dispute under section 33(1); andc.All the relevant documents relating to the objection have been submitted.’’

17. According to the Respondent, the Appellant provided the following documents:i.A reconciliation schedule on the bankings.ii.2016 Giro bank statement displaying bank overdraft in each month.iii.Hire Purchase Agreement, with ASL Credit Limited and repayment schedule.iv.Credit facilities offered by IM bank for the years 2017 and 2018.

18. The Respondent stated that the above highlighted documents were not sufficient evidence/documentation to reconcile the variances established and support the Appellant’s objection. Consequently, on various dates the Respondent issued subsequent reminders and follow ups sent on 10th, 19th November 2021, 15th, 17th, 20th December 2021 and 5th, 27th January 2022 asking the Appellant to provide the relevant documentation.

19. The Respondent maintained that the Appellant did not provide proof that the overdrafts in the period 2016 were financed by Giro bank as reflected in bank statements and that the Appellant also failed to provide I&M bank statements to trace whether the monies hit its accounts and also whether there were any repayments or repayment schedules in place and bank loan agreements as supporting evidence.

20. It is the Respondent’s case that it went above and beyond in following up with the Appellant to provide the necessary documentation to validate its Objection.

21. The Respondent reiterated that in challenging a tax assessment, the burden is on the Appellant to demonstrate that the assessment was excessive and erroneous, a fact that has not been discharged by the Appellant. The Respondent relied on Section 56 (1) of the Tax Procedure Act which provides that:“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

22. The Respondent argued that it invalidated the Appellant’s objection due to noncompliance with the requirements of Section 51 (3) (c) of the Tax Procedures Act, that all the relevant documents relating to the objection have been submitted. Therefore, the Respondent maintained that the allegations in the Appellant’s Memorandum of Appeal and Statement of Facts are unfounded in law and not supported by evidence.

23. In further support of its case, the Respondent lodged written submissions dated 15th day of October 2023 and filed on 16th October 2023 wherein the Respondent highlighted three issues for determination:i.Whether the Appeal was properly before the Tribunal;ii.Whether the objection was valid; andiii.Whether the assessment by the Respondent was valid.

24. On whether the Appeal was properly before the Tribunal, the Appellant filed a Notice of Motion on 15th August, 2022 seeking among other prayers to file an appeal out of time. The Respondent submitted that in a Ruling dated 21st October 2022, the Tribunal granted the Appellant leave to file the Appeal out of time and directed that the Appellant to file and serve its Notice of Appeal, Memorandum of Appeal, Statement of Facts and tax decision within 15 (Fifteen) days of the date of the delivery of the Ruling. The Respondent submitted that the Appellant neglected to adhere to the Ruling since the Appellant filed an appeal on 6th February 2023, almost 4 months after the Ruling by the Tribunal.

25. The Respondent submitted that the Appellant disregarded Section 13 (3) of the Tax Appeal Tribunal Act and did not seek leave to put in an appeal therefore, the Appeal is not valid.

26. The Respondent relied on the case of Nicholas Kiptoo Arap Korir Salat vs. Independent Electoral and Boundaries Commission and 7 others (2014) eKLR wherein the Supreme Court held as follow:-“No appeal can be filed out of time without leave of the court. Such a filling renders the document so filed a nullity and of no legal consequence.”

27. The Respondent also relied on the case of Andrew Mukite Musangi P/A Mukite Musangi and Company Advocates vs. Commissioner of Domestic Taxes in which the Tribunal stated that,“Statutory timelines give rise to substantive rights and obligations and cannot be ignored by the Tribunal on its own motion.” The Respondent also relied on the case of Seven Eleven Construction and 2 others vs. Commissioner of Domestic Taxes where the Tribunal stated that, ‘it is unlawful for the Tribunal to consider documents filed out of time if leave has not been sought and granted...”

28. Apart from the foregoing, the Respondent cited the case of The Owners of the Motor Vessel “Lillian S” vs. Caltex Oil (Kenya) Limited where the Court stated,“Jurisdiction is everything. Without it, a court has no power to make one more step. Where a court has no jurisdiction, there would be no basis for a continuation of proceedings pending other evidence. A court of law downs its tools in respect of the matter before it the moment it holds the opinion that it is without jurisdiction.”

29. Its the Respondent’s submission that the Appeal is defective and incompetent and hence this Honourable Tribunal does not have jurisdiction to entertain the same.

30. On whether the Objection was valid, the Respondent submitted that the Appellant did not provide supporting documentation. Therefore, the Respondent maintained that the Appellant could not prove that the Respondent’s decision was incorrect as required under Section 56 (1) of the Tax Procedures Act. The Respondent relied on the cases of Primarosa Flowers Limited vs. Commissioner Of Domestic Taxes [2019] eKLR and Alfred Kioko Muteti vs. Timothy Miheso & Another [2015] eKLR to support the preposition that the Appellant has an obligation to prove that the Respondent’s decision is incorrect.

31. On whether the assessment by the Respondent was valid, the Respondent submitted that it acted within the confines of Section 24 (2) of the Tax Procedures Act which allows the Respondent to assess a taxpayer’s tax liability using any information availed to it. The Respondent submitted that despite request for documents, the Appellant failed to provide documents.

32. The Respondent submitted that the assessment were valid and urged the Tribunal to rely on the High Court decision in Republic vs. Kenya Revenue Authority Ex-parte Bata Shoe Company (Kenya) Limited [2014] eKLR, where it was stated that,“Payment of tax is an obligation imposed by the law. It is not a voluntary activity. That being the case, a taxpayer is not obligated to pay a single coin more than is due to the taxman. The taxman on the other hand is entitled to collect up to the last coin that is due from a taxpayer.”

Respondent’s prayers 33. The Respondent prayed that this Honourable finds that:i.The Appeal is defective contrary to the provisions of the law.ii.The Commissioner’s decision dated 27th April 2022 confirming the assessment of Kshs 53,637,503. 00 be upheld.iii.The Appeal be dismissed with costs to the Respondent

Issues for Determination 34. The Tribunal having considered the Memorandum of Appeal, the parties’ Statements of Facts and submissions, puts forth the following issues for determination:a.Whether the Appeal is statutorily time barred;b.Whether part of the assessments are statutorily time barred;c.Whether the Respondent’s decision dated 27th April 2022 is proper in law.

Analysis and Findings 35. The Tribunal wishes to analyse the issues as hereunder. a. Whether the Appeal is statutorily time barred;

36. Section 13 of the Tax Appeals Tribunal Act provides for the procedure for filing an appeal. It provides as follows:‘‘(1)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.(2)The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the Tribunal, of—a.A memorandum of appeal;b.Statements of facts;c.The appealable decision; andd.Such other documents as may be necessary to enable the Tribunal to make a decision on the appeal.(3)The Tribunal may, upon application in writing or through electronic means, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).’’

37. At the onset of this Appeal, the Appellant had delayed to lodge an Appeal and thus filed a Notice of Motion on 15th August, 2022 seeking among other prayers to file an Appeal out of time. In a Ruling dated 21st October 2022, the Tribunal granted the Appellant leave to file the Appeal out of time and directed that the Appellant to file and serve its Notice of Appeal, Memorandum of Appeal, Statement of Facts and tax decision within 15 (Fifteen) days of the date of the delivery of the Ruling. Contrary to the direction of the Tribunal, the Appellant filed the Appeal on 6th February 2023.

38. The Respondent submitted that the Appellant neglected to adhere to the Ruling by filing an Appeal on 6th February 2023, almost 4 months after the Ruling by the Tribunal.

39. The Tribunal takes notice of the Appellant’s email dated 6th February 2023 wherein it sought to be excused for filing the Notice of Appeal, Memorandum of Appeal and Statements of Facts out of time. In this email, the Appellant indicated that the delay was occasioned by sickness.

40. Upon review of the email and the bundle of documents attached to the Appellant’s Appeal, the Tribunal notes that the Appellant did not provide any support to enable the Tribunal ascertain its claim that the Appellant’s Director was unwell.

41. That being the case, the Tribunal disregards this email and proceeds to hold that the Appellant did appropriately move the Tribunal in seeking leave to file an appeal out of time as envisaged under Section 13 (3) of the TAT Act.

42. In Kenya Hotel Properties Limited vs.Attorney General & 5 others (Application 2 (E004 of 2021) of 2021) [2021] KESC 49 (KLR), the Supreme Court found that an Appeal filed out of time without leave of Court is irregular and the Court ought not to invoke ‘novel’ principles so as to validate such a petition and deem it properly filed.

43. The impact of filing pleading out of time without leave is that it denies the Tribunal the jurisdiction to entertain the Appeal as Nyarangi J stated in The Owners of the Motor Vessel “Lillian S” vs. Caltex Oil (Kenya) Limited,“jurisdiction is everything. Without it, the court must down its tools.”

44. The Tribunal finds and holds that the Appeal is null and void having been filed out of time and without leave. Consequently, this Tribunal downs its tools at this point.

45. Having established that the Appeal is not properly before it, the Tribunal shall not analyse the remaining issues as they have been rendered moot.

Final Decision 46. The Tribunal having found the Appeal to be incompetent and untenable in law makes the following Orders:-i.The Appeal be and is hereby struck out; andii.Each party to bear its own costs.

47. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF MAY, 2024ROBERT M. MUTUMA - CHAIRPERSONELISHAH N. NJERU - MEMBERMUTISO MAKAU - MEMBERBERNADETTE M. GITARI - MEMBERMOHAMED A. DIRIYE - MEMBER