[2023] KETAT 261 (KLR)

Jitihada Furniture Centre Ltd v Commissioner of Domestic Taxes (Appeal 274 of 2022) [2023] KETAT 261 (KLR) (12 May 2023) (Judgment)

Neutral citation: [2023] KETAT 261 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 274 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, AK Kiprotich & Jephthah Njagi, Members

May 12, 2023

Between

Jitihada Furniture Centre Ltd

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a company registered in Kenya under the Companies Act and a registered taxpayer.

2. The Respondents is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 Laws of Kenya and is mandated to administer and enforce the law for the purposes of assessing, collecting and accounting for all the revenues in accordance with those laws.

3. The case originated from additional income tax and VAT assessments issued on the Appellant based on variances noted between sales declared as per filed income tax company returns and filed VAT returns for the years 2017, 2018 and 2019. The Appellant also had commercial rental property for which it had been declaring nil returns for the period 2016,2017,2018 and 2020.

4. The notice of verification of the records of the Appellant was issued on 8th September 2020 for the period 2017-2020. The verification was to focus on the issues that had been identified from the returns and the Appellant was requested to provide various documents enlisted in the letter.

5. The Appellant was further requested, vide various correspondence, for various documents to facilitate and conclude the verification exercise as per the notice dated 20th September 2020.

6. The Respondent consequently issued assessments to the Appellant on 23rd February 2021 and 24th February 2021 for Income tax and VAT respectively based on the variances.

7. The Appellant lodged its objection notice on 22nd March 2021.

8. The Respondent requested the Appellant to provide various documents to validate its objection. The Appellant provided some documents on 20th May 2021 with respect to the Corporation tax assessment.

9. The Respondent rendered its objection decision vide letters dated 21st April 2021 and 19th July 2021 for VAT and income tax, respectively, disallowing the objections. The Appellant being aggrieved by the objection decision lodged the appeal on the ……….

The Appeal 10. The Appeal is premised on the Memorandum of Appeal dated 30th August 2021 and filed on 16th March 2022 and sets out the grounds of appeal as hereunder:a.The Appellant provided documents which were partly reviewed by the Respondent and the Respondent failed to take into account the explanations provided, the clarification(s) made and therefore failed to resolve the issues.b.The Appellant is of the opinion that the additional assessment was partly done in malice because on the VAT case the Appellant’s bank accounts were frozen and Agency notices sent to the banks even before the appeal was resolved. The enforcement department also started enforcing before the decision on the Income tax was made by the Respondent. The Appellant therefore requests for the documents to be reviewed and the correct tax amount be computed.

The Appellant’s Case 11. The Appellant’s case is premised on the following documents:-a.The Statement of Facts dated 30th August 2021 and filed on 16th March 2022. b.The written submissions dated 25th October 2022 and filed on 28th October 2022.

12. The Appellant averred that it provided all the documents as requested.

13. The Appellant also averred that the declared expenses in the annual returns were duly and exclusively incurred in generating the business income for the years 2017, 2018 and 2019.

14. The Appellant added that the Respondent had no authority to determine how much furniture the Appellant should own as the latter was purporting that the same was excessive. Secondly the Appellant argued that the value of the furniture is determined by its quality and the point of purchase and therefore the depreciation expense should not be an issue as there also exists the issue of wear and tear.

15. The Appellant also averred that it had leased the land portion where it had put up the rent premises. It added that it produced the evidence on the existence of the aforesaid lease relationship, and that the Respondent should not question why there is variation of terms of payment between the Appellant and the third party, because that is based on the mutual agreement between the parties. That therefore this is not an adequate ground to disallow the expense.

16. The Appellant argued that the consumables were some of the items used by the company for the purpose of running the company.

17. The Appellant was of the opinion that the tax liability that the Respondent was claiming did not exist in respect of income tax liability. That the issues raised by the Respondent were explained and enough evidence was provided to support the conclusion of the matter.

Appellant’s Prayers 18. The Appellant prayed that the Tribunal:a.Upholds the Appealb.Sets aside the additional assessments as raised by the Respondent.

The Respondent’s Case 19. The Respondent’s case is premised on:a.The Preliminary Objection dated 7th July 2022 and filed on the same date.b.The Statement of Facts dated 7th July 2022 and filed on the same datec.The written Submissions dated 15th November 2021 and filed on the same date.

20. The Respondent’s submissions raised 2 issues for determination as hereunder:-

a. Whether the Respondent’s preliminary objection ought to be allowed 21. The Respondent had raised a preliminary objection premised on the fact that the Appellant filed the Appeal without observing the mandatory requirements of law and the rules of the Tribunal on filing an appeal.

22. The Respondent submitted that the Appeal related to an objection decision dated 19th July 2021. The date is also corroborated by the Appellant’s Memorandum of Appeal. The TPA and the Tax Appeals Tribunal Act and the attendant rules specify the procedures for filing an appeal by a dissatisfied taxpayer.

23. Section 52 (1) of the TPA stipulates as follows:“A person who is dissatisfied with an appealable decision may appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Act, 2013”

24. Section 13 (1) and (2) of the TPA provides as follows:“(1)A notice of appeal to the Tribunal shall –(a).............(b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner”It further provides that:-“(2)The appellant shall, within fourteen days of filing the notice of appeal ,submit enough copies, as maybe advised by the Tribunal, of-(a)a memorandum of appeal;(b)statement of facts; and(c)the tax decision.”

25. The Respondent further submitted that equally the procedure under the rules guiding the filing of the appeals at the Tribunal, the Tax Appeals Tribunal (Procedure) Rules 2015 provides at Rule 3 (1) (b) as follows:“A notice of appeal to the Tribunal shall be –a.……….b.submitted to the clerk of the Tribunal within thirty days upon receipt of the decision by the Commissioner”.

26. That where a party fails to lodge an appeal within the legally provided timelines, the law provides for parties to file applications for extension of time within which they can file their appeals as per Section 13 (3) of the Tax appeals Tribunal Act.

27. The Respondent stated that the objection decision being challenged was made on 19th July 2019. The appeal was lodged on 16th March 2022 though the same is dated 30th August 2021. No reason had been brought forth as to why the Appeal was filed out of time.

28. The Respondent further stated that it is clear from the foregoing that there was non compliance with the provided legal timelines and that the Tribunal has emphatically stated in numerous matters that parties have to comply with the prescribed rules. The Respondent on this relied on the cases of Century Feeds Ltd vs. Commissioner of Domestic Taxes [TAT No. 401/2020]; Nicholas Kiptoo Arap Korir Salat VS. IEBC and 6 Others [2013] eKLR and Dilpark Kenya Ltd vs. William Muthama Kitonyi [Civil Appeal No.142/2013].

29. The Respondent urged the Tribunal to dismiss the matter on the preliminary objection.

b. Whether the Respondent’s objection decision was justified. 30. The Respondent argued that as per the objection decision dated 19th July 2022,the reasons why the assessments were confirmed was on the ground that the Appellant failed to satisfy the burden of proof by adducing documents in support of its objection on expenses claimed in its financial statements for the years 2017 and 2019,to which the assessment period relates.

31. The Respondent argued that the Appellant was requested to provide the documents on several occasions and provided some on 20th May 2021 which fell short of justifying the expenses claimed in the Appellant’s financial statement.

32. That the records required by the Respondent were specifically disclosed to the Appellant and the Appellant had not adduced any evidence to support the Appeal.

33. The Respondent averred that the Tribunal has held severally that the burden of proof in tax disputes is on the taxpayer to demonstrate that the tax is excessive or in any way erroneous. The same position is as per Section 56 of the Tax Procedures Act and Section 107 of the Evidence Act.

34. The Respondent also stated that the issue of the burden of proof was settled in the cases of Gashi vs. Respondent of Taxation [2021]FCA 638; KRA v Man Diesel & Turbo Se Kenya [2021] eKLR and Mulheim v Commissioner of Taxation [2013] FCAFC 115.

Respondent’s Prayers 35. On the basis of the submissions, the Respondent prayed that the Appeal be dismissed with costs.

Issues for Determination 36. The Tribunal upon considering the pleadings, documentations and the submissions of the parties determined that there are two issues for its determination as hereunder:a.Whether there is a valid Appealb.Whether the Objection Decision was justified

Analysis and Determination 37. The Tribunal having ascertained the issues for determination as set out above proceeds to deal with the same as hereunder.

a. Whether there is a valid Appeal 37. The Respondent had lodged a preliminary objection in the matter dated 7th July 2022 and filed on the same date stating that the Appeal as filed is in contravention of Rule 13 (2) read together with Rule 10 of the Tax Appeals Tribunal Rules as the Appeal was filed inordinately late with no corresponding leave to file the same and the Appeal therefore amounts to an abuse of the process of the Tribunal.

38. The process of lodging an appeal is well laid out in the TPA and the Tax Appeals Tribunal’s Act. The Section 52 (1) of the TPA lays down as hereunder:“A person who is dissatisfied with an appealable decision may appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Act, 2013”

39. Section 13 (1) and (2) of the Tax Appeals Tribunal Act ,2013 provides as follows:“(1)A notice of appeal 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.” (Emphasis added)

40. Section 13(2) of the Tax Appeals Tribunal Act further provides that:-“(2)The Appellant shall, within fourteen days of filing the notice of appeal ,submit enough copies, as maybe advised by the Tribunal, of-(a)a memorandum of appeal;(b)statement of facts; and(c)the tax decision .”

40. The law also provides that a taxpayer who is not able to file an appeal within the timelines provided, has the option of making an application for enlargement of time within which the appeal could be filed .This is as per the provisions of Section 13 (3) of the Tax Appeals Tribunal Act which states that:-“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).”

41. The Respondent made the decision being appealed against on 19th July 2021. The Appellant lodged its Notice of Appeal on 17th August 2021. The Appellant was therefore legally required to file the Appeal within 14 days of filing the Notice of Appeal. The Appellant filed the Appeal on the 16th March 2022. This was about five months outside the statutory timelines.

42. The Appellant did not seek leave to file its appeal out of time or offer any reasons as to why it was late in the circumstances.

43. On the basis of the chronology of the events above-stated, the Appeal was clearly filed out of time as per the Preliminary Objection filed by the Respondent in the matter. The Tribunal has on innumerable occasions emphasized the necessity of the parties to observe the timelines set by the law. The issue has also been determined by the courts as being one of high importance as was held in the case of Nicholas Kiptoo Arap Korir Salat v IEBC & 6 Others [2013] eKLR, where the court held that;-“This Court, indeed all courts, must never provide succor and cover to parties who exhibit scant respect for rules and timelines. Those rules and timelines serve to make the process of judicial adjudication and determination fair, just, certain and even-handed. Courts cannot aid in the bending or circumventing of rules and a shifting of goal posts for, while it may seem to aid one side, it unfairly harms the innocent party who strives to abide by the rules. I apprehend that it is in the even-handed and dispassionate application of rules that courts give assurance that there is a clear method in the manner in which things are done so that outcomes can be anticipated with a measure of confidence, certainty and clarity where issues of rules and their application are concerned.”

44. The same position was upheld in the case of W.E.C. Lines Ltd v The Commissioner of Domestic Taxes [TAT Case No.247 of 2020] where it was held in Paragraph 70 and reiterating the holding in Krystalline Salt Ltd v KRA [2019] eKLR that:“Where there is a clear procedure for redress of any particular grievance prescribed by the constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures”. The relevant procedure here is the process of opposing an assessment by the Commissioner.”

45. The upshot of the above is that the Tribunal finds that the Appeal as filed is invalid for breach of a mandatory statutory provision.

46. The Tribunal having determined that the Appeal is invalid did not deal with the other issue raised in the matter as it had been rendered moot.

Final Decision 47. On the basis of the foregoing analysis the Appeal as filed is incompetent and unsustainable in law and the Tribunal accordingly proceeds to make the following orders:-a.The Appeal be and is hereby struck outb.Each party to bear its own cost.

48. It is so ordered.

DATED and DELIVERED at NAIROBI this 12th day of MAY, 2023. ERIC N. WAFULACHAIRMANCYNTHIA B. MAYAKA GRACE MUKUHAMEMBER MEMBERABRAHAM KIPROTICH JEPHTHAH NJAGIMEMBER MEMBERJUDGMENT- APPEAL NO. 274 OF 2022 – JITIHADA FURNITURE CENTRE LTD –VERSUS- COMMISSIONER OF DOMESTIC TAXES PG 14 OF 14