[2024] KETAT 461 (KLR)

Jebobela Trading Limited v Commissioner of Domestic Taxes (Appeal 1340 of 2022) [2024] KETAT 461 (KLR) (5 April 2024) (Judgment)

Neutral citation: [2024] KETAT 461 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 1340 of 2022

CA Muga, Chair, BK Terer, D.K Ngala, GA Kashindi & SS Ololchike, Members

April 5, 2024

Between

Jebobela Trading Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a company incorporated in Kenya and engaged in the business of construction.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 of the 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 tax revenue. Further, under Section 5(2) of the Act concerning 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 Parts 1 & 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 Appellant was issued with a pre-assessment notice on 15th March 2022 notifying it of variances between sales declared in VAT3 and income tax company returns for the year 2020.

4. The Appellant was issued additional assessments on VAT on 16th December 2020 and for income tax on 27th May 2022.

5. The Appellant objected late to income tax on 21st December 2021 while the objection for VAT was on 8th September 2022 both were rejected by the Respondent on 23rd September 2022 via the iTax portal due to unsupported late application.

6. On 13th January 2022 and 12th September 2022, the Respondent in an email explained to the Appellant what constitutes a valid objection pursuant to Section 51 of the Tax Procedures Act No. 29 of 2015 (hereinafter ‘TPA’).

7. On 18th February 2022 and 22nd September 2022, respectively, the Respondent confirmed the assessments for VAT and income tax of Ksh 550,356. 80 and Ksh 936,670. 92, respectively.

8. On 4th November 2022 the Appellant was granted leave by the Tribunal to file its Appeal out of time.

9. Dissatisfied with the Respondent’s confirmation assessments, the Appellant filed its Notice of Appeal at the Tribunal on 9th November 2022.

The Appeal 10. The Appeal was predicated on the Memorandum of Appeal dated 7th November 2022 and filed on 9th November 2022 raising the following grounds;(i)That the Respondent erred in its decision to issue the Appellant with an additional VAT assessment of Ksh 550,356. 80 with respect to the month of August 2020. (ii)That the Respondent erred in its decision to issue the Appellant with an additional income tax assessment of Ksh 936,670. 92 in respect to the month of August 2020. (iii)That the Respondent erroneously assessed VAT for August 2020 yet the Appellant had filed original returns on 10th September 2020 with no income declared for the same period but had two withholding certificates for Ksh 76,236. 00 and Ksh 2,386. 00 respectively.(iv)That the Respondent made assessments based on the variance between income tax and VAT for August 2020 and that the additional assessment was based on gross turnover of Ksh 14,044,430. 31 yet the original assessment was based on gross turnover of Ksh 10,113,310. 35.

Appelant’s Case 11. The Appellant’s case was predicated in its Statement of Facts dated 7th November 2022 and filed on 9th November 2022.

12. The Appellant averred that VAT was based on two withholding certificates;i.That one withholding certificate of Ksh 76,263. 00 was from payment done on 30th June 2018 when the withholding rate was at 2% but the Respondent used a withholding rate of 6% with the gross amount inclusive of VAT being Ksh 1,473,900. 00 yet the correct amount was Ksh 1,270,600. 00 at the rate of 2% which was the prevailing rate when the works were done. That the import of this was that the prevailing rate of 2% when grossed up would result in a gross sum of Ksh 3,811,800. 00 instead of Ksh 1,270,600. 00 meaning that the Respondent overvalued the amount.ii.That the other withholding certificate was for Ksh 2,386. 00 with a gross value of Ksh 138,400. 00. iii.That the income tax of Ksh 936,670. 92 was based on the above-assessed amounts and was thus inaccurate as the gross turnover for August 2020 was Ksh 119,300. 00. iv.The Appellant averred that the Respondent erred in assessing VAT and income tax for August 2020.

13. The Appellant’s prayers to the Tribunal were that;a.The VAT assessment be calculated using gross turnover of Ksh 1,270,600. 00 instead of Ksh 3,931,120. 00. b.The Appellant be allowed to deduct business expenses, ascertain true tax position, and settle tax thereof.c.The Appellant be allowed to enter into a payment plan for total income tax outstanding and be allowed to apply for waiver of penalties and interest.

The Respondent’s Case 14. The Respondent replied to the Appeal through its Statement of Facts dated 28th November 2023 and filed on 30th November 2023.

15. The Respondent averred that the Appellant was assessed on two tax heads i.e. income tax and VAT after the Respondent had established undeclared income based on variances in sales as per VAT withholding certificates received and sales in VAT returns for August 2020; whereas the dispute for income tax arose from turnover variance in declarations between VAT returns and income tax company returns for the 2020 year of income.

16. The Respondent averred that the Appellant indicated the reason for the late objection to the VAT assessment for August 2020 as sickness but failed to avail evidence in support of the same. That the Respondent wrote to the Appellant regarding the late objection and explained to the Appellant what constitutes a valid objection as couched under Section 51 of the TPA and requested the Appellant to provide evidence in support of the late objection.

17. The Respondent stated that the Appellant was non-responsive to the request for documentation leading to the rejection of their late objection.

18. The Respondent contested the instant Appeal as having been filed out of time since the Appeal was filed on 9th November 2022 challenging a decision that was issued on 18th February 2022 and 22nd September 2022 contrary to Section 13 (3) and (4) of the Tax Appeals Tribunal Act, No. 40 of 2013 (hereinafter ‘TAT’) which provides as follows:“(3)The Tribunal may, upon application in writing, extend the time for submitting the documents referred to in subsection (2).(4)An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from giving notice of appeal within the specified period.”

19. Further, the Respondent cited the case of Martha Wambui vs Irene Wanjiru Mwangi & Another Civil Appeal No. 286 of 2014 where the court held that;“This is the position this court has taken when dealing with applications for extension of time. We have always, and we believe lawfully so, deemed as fully filed applications without leave where leave is sought and subsequently granted. Learned counsel for the appellant submitted that this position as found to be untenable by the Supreme Court which pronounced itself as follows in the Nicholas Arap Korir Salat vs Independent Electoral and Boundaries Commission & 7 Others[2014]eKLR (Salat case): “…counsel for the applicant acknowledged having already filed his appeal. He now prays for extension of time and urges that once so granted, the Petition of appeal already filed be deemed to have been duly filed.What we hear the applicant telling the court is that he is acknowledging having file a ‘document’ he calls ‘an appeal’ out of time without leave of the court. Pursuant to Rule 33(1) of the Court’s Rules, it is mandatory that an appeal can only be filed within 30 days of filing the Notice of Appeal. Under Rule 53 of the Courts Rules, this court can indeed extend time. However, it cannot be gainsaid that where the law provides for the time within which something ought to be done, if that time lapses, one needs to first seek extension of that time before he can proceed to do that which the law requires.By filing an appeal out of time before seeking extension of time, and subsequently seeking the court to extend time and recognize such ‘an appeal’, is tantamount to moving the court to remedy an illegality. This, court cannot do.To file an appeal out of time and seek the court to extend time is presumptive and inappropriate. No appeal can be filed out of time without leave of the court. Such a filing renders the ‘document’ so filed a nullity and of no legal consequence. Consequently, this court will not accept a document filed out of time without leave of the court.”

20. The Respondent stated when assessments were issued, the Appellant had thirty days within which to file its objection but failed to do so yet the procedure for filing an objection was well laid down under Section 51 (2) of the TPA which provides as follows;“A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision.”

21. The Respondent asserted that the Appellant citing sickness as the cause of delay without evidentiary documentation could not hold. The Respondent cited Section 51(7) of the TPA as allowing the Appellant leeway to enlarge time to file an objection but with certain parameters to satisfy before being granted leave to file a late objection which in the instant Appeal the Appellant failed to fulfill. The Respondent relied on the case of Far East Connection Limited vs Commissioner of Domestic Taxes [TAT No 223 of 2021] where the Tribunal held that;“The Appellant filed the application seeking to be allowed to lodge a notice of objection out of time after a lapse of a period exceeding one and a half years. Having failed to disclose any reasonable cause that could have possibly prevented it in lodging the notice of objection within the statutory timelines, the Respondent cannot be conceivably faulted in any manner for disallowing the application for lodging a late notice of objection.The Appellant’s application seeking to lodge a late notice of objection having been properly rejected for want of grounds in support of the application, the Respondent could not delve into the determination of the merits, or otherwise, of the intended notice of objection. It is equally not lost on the Tribunal that the Appellant completely ignored the request to provide documents to support the notice of objection.In the absence of an objection decision issued on the part of the Respondent, as a consequence of the self-authored situation by the Appellant, there is no appealable decision to be determined by the Tribunal as relates to the tax assessment served upon the Appellant…”

22. The Respondent averred that the Appellant was the self-author of its own misfortune since it did not provide documents required to satisfy the provisions of Section 51(7) of the TPA.

Respondent’s Prayers 23. The Respondent prayed for the following:i.That the Appeal be dismissed with costs.ii.That the tax be deemed collectable.

Parties’ Submissions 24. Neither party filed their written submissions although they had been directed by the Tribunal to do so by 3rd October, 2023.

Issues For Determination 25. The Tribunal having carefully considered the parties’ pleadings and documentation herein notes that a single issue distills for the Tribunal’s determination i.e.;Whether there is an appealable decision before the Tribunal.

Analysis And Determination 26. The Tribunal notes that the Appellant was assessed on two tax heads i.e. income tax and VAT after the Respondent had established undeclared income based on variances in sales as per VAT withholding certificates received and sales in VAT returns for August 2020. The Appellant rebutted these assertions stating that the Respondent failed to consider the different withholding tax rates prevailing when the assessments were carried out. The Appellant demonstrated what ought to have been levied at the different prevailing withholding rates. The Tribunal is guided by Section 30 of the TAT which provides that;“In any proceeding before the Tribunal, the appellant has the burden of proving-a.Where an appeal relates to an assessment, that the assessment is excessive; orb.In any other case, that the tax decision should have been made or should have been made differently.”

27. The Tribunal reiterates its decision in International Limited vs Commissioner of Domestic Taxes [TAT No. 55 of 2019]“…we find that the Appellant at all times bore the burden of proving that the Respondent’s decision and investigations were wrong. The Tribunal is guided by the provisions of Section 56(1) of the Tax Procedures Act which states “in any proceeding under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

28. The Respondent’s claim that the instant Appeal was filed out of time have not been challenged by the Appellant. The Tribunal notes that Section 13 (3) and (4) of the TAT provides that;“(3)The Tribunal may, upon application in writing, extend the time for submitting the documents referred to in subsection (2).(4)An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from giving notice of appeal within the specified period.”

29. The Tribunal is of the considered view that the Appellant ought to have sought its indulgence to be granted leave to file the Appeal late as this is the correct procedure when a litigant is inexplicably faced with prospects of lodging an Appeal late. The Tribunal reiterates the Court’s decision in the case of Commissioner of Domestic Taxes vs. Lifecare International Brokers Limited [2020] eKLR, where Majanja J observed as follows:“Failure to file an appeal within time and without complying with statutory conditions is not a mere technicality that can be overlooked, it goes to the competence of the appeal. Counsel for the Appellant valiantly addressed the court on why the court should validate the appeal. The issues raised are factual issues that call for the court to exercise its discretion and can only be addressed in an appropriate application which is not before the court.”

30. From the foregoing analysis, it is apparent that the Tribunal lacks jurisdiction to hear the instant Appeal, thus the Tribunal must down its tools because there is no appealable decision before it.

Final Decision 31. The upshot of the foregoing is that the Appeal is not properly before the Tribunal. Accordingly, the Tribunal proceeds to make the following Orders:a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

32. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 5THDAY OF APRIL, 2024CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERDELILAH K. NGALA - MEMBERGEORGE KASHINDI - MEMBERSPENCER S. OLOLCHIKE - MEMBER