[2023] KETAT 554 (KLR)

JL Pearl Limited v Commissioner Domestic Taxes (Tax Appeal 973 of 2022) [2023] KETAT 554 (KLR) (19 October 2023) (Judgment)

Neutral citation: [2023] KETAT 554 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 973 of 2022

RM Mutuma, Chair, W Ongeti, M Makau, EN Njeru & BK Terer, Members

October 19, 2023

Between

JL Pearl Limited

Appellant

and

Commissioner Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company duly incorporated and registered under the Companies Act within the Republic of Kenya. Its main form of business is manufacturing and sale of Kitchenware.

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 carried out investigations into the Appellant’s business for 2016 and raised additional assessments in 2017 and 2018 including penalties and interests.

4. The Appellant objected to the additional assessments on iTax and manually on 15th March 2018 after which the Respondent issued an objection decision dated 14th May 2018.

5. On receiving the objection decision and feeling aggrieved, the Appellant filed a Notice of Appeal on 8th September 2022.

The Appeal 6. In its Memorandum of Appeal dated 6th September 2022 and filed on 8th September 2022, the Appellant premised its Appeal on the following grounds:a.The Respondent erred in law and fact by stating that the Appellant had under-declared his output for the month of July 2016 and over claimed input which is not true.b.The Respondent erred in law and fact by issuing an additional assessment on VAT claiming an amount of Kshs. 2,193, 360. 04 as total tax payable which in its case was fictitious.c.The Respondent erred in law and fact by issuing an additional assessment on income tax claiming an amount of Kshs. 917,120. 10 as tax payable by disallowing some of the purchases claimed by the Appellant in his filing.d.The Respondent erred in law and fact in confirming the additional assessment against the Appellant’s Objections while ignoring the precise facts.e.The Respondent erred in law and fact in confirming the additional assessment against the Appellant’s Objections while ignoring the precise facts.f.The Respondent erred in law and fact by issuing two additional assessments on Income tax- Company for the same period.g.The Respondent is estopped from denying the fact that it fabricated and increased the Appellant’s July 2016 turnover to extort additional tax from the Appellant.h.The Respondent erred in law and fact by confirming the assessment and demanding a total tax due of Kshs. 2,951,493. 40 and Kshs. 993,976. 37 in respect to VAT and Income Tax- Company, respectively, from the Appellant, which is excessive and punitive.i.The Respondent erred in law and fact by failing to consider documents and explanations confirming the actual position provided by the Appellant through his Notice of Objection.j.The Tax decision is excessive and punitive.

The Appellant’s Case 7. The Appellant set down its case in;a.Its Statement of Facts dated 6th September 2022 and filed on 8th September 2022.

8. It stated that the Respondent fabricated the sales figure declared by the Appellant from Kshs. 8,954,953. 43 to Kshs. 19,683,720. 43 in its assessment order dated 20th December 2017 with the source of the figures being unknown and no explanation issued on how the sales rose by Kshs. 10,728,767. 00 resulting in the Respondent demanding Kshs. 1,716,602. 72 of VAT.

9. The Appellant averred that the Respondent disallowed some purchases claimed by it in the assessment order dated 20th December 2017 with no reasons for disallowing them and its purchases for July 2016 was Kshs. 8,787,114. 22 as claimed on his original VAT return filing but the Respondent disallowed Kshs. 2,979,737. 08 bringing down the purchase to Kshs. 5,807,377. 14 resulting to disallowed input tax of Kshs. 476,757. 93 and demand of Kshs. 2,193,360. 00 on 20th December 2017 to the Appellant’s expense.

10. Further, the Appellant stated that the Respondent’s Assessment Order dated 1st February 2018 disallowed some of the local purchases claimed by the Appellant through the return of 31st December 2016 from Kshs. 70,595,564. 00 to Kshs. 65,939,592. 00 resulting in the Appellant’s profit to be Kshs. 3,057,067. 00 from the date it started trading on 11th April 2016 which is impossible in its first year/months in business.

11. The Appellant asserted that the Respondent charged tax on the purported profit made by the Appellant adjudging the Appellant liable for income of Kshs. 917,120. 10 net interest and penalties which were made to extort money from the Appellant.

12. It avowed that the Respondent issued another additional assessment through an assessment order dated 6th August 2018 bringing back the Appellant’s initial original filing which ought to be upheld by law and facts and the Respondent should be estopped from denying the validity of the same and that the initial assessment order dated 1st February 2018 is null and void and should not be considered.

13. It stated that it objected to the assessments dated 20th December 2017 and 1st February 2018 through a letter dated 15th March 2010 serving the same to the Respondent and later via a letter dated 4th April 2018 and served on 6th April 2018, explaining why the Objection was lodged late.

14. Seeing as the Appellant did not file its submissions with the Tribunal, its case will be determined on the basis of its pleadings filed and documents attached therein on behalf of the Appellant.

The Appellant’s Prayers 15. The Appellant prayed for;a.The matter be referred back to the station for Alternative Dispute Resolution (ADR) after the due process is concluded.

The Respondent’s Case 16. The Respondent’s case is premised on its;a.Statement of Facts filed on 28th September 2022 together with the documents attached thereto.b.Written submissions dated 3rd April 2023 and filed on 4th April 2023.

17. The Respondent stated that it carried out a return review and during the process, it performed an analysis of purchases claimed by purchasers and sales declared by suppliers were run through the KRA iTax system for the month of July 2016.

18. The Respondent stated that the assessments were correctly issued and conformed to the VAT Act and Income Tax Act as the Appellant did not provide any evidence that would have altered the assessment.

19. The Respondent reiterated that an in-depth examination of the records established that there were inconsistencies in the output declared and that the input for July 2016 had been over claimed indicating a variance between the VAT returns filed and the income tax returns filed with no explanation provided as requested therefore the same was disallowed and additional assessments carried out.

20. It stated that it carried out a review of the Appellant’s records due to inconsistencies in the VAT3 returns. It further relied on Section 24 (1) of the Tax Procedures Act and added that not all income earned by the Appellant was declared thus the variances were brought to charge.

21. Further, the Respondent cited Section 31 of the Tax Procedures Act and contended that the assessment was issued based on the information provided and in light of the inconsistencies within the Appellant’s VAT ledgers.

22. It further cited Section 17 of the VAT Act and stated that the Appellant failed to provide the documents requested in support of its Objection hence some purchases were disallowed.

23. It relied on Section 42 of the Tax Procedures Act and averred that the examination of the Appellant’s records established that the Appellant earned income in the period under audit but the income was not declared for tax purposes for the year earned and that the Appellant carried on business in contravention of the Tax Procedures Act.

24. It denied that the Appellant has paid all its tax dues and because of its under declaration, the Appellant is in debt of Kshs. 3,945,469. 77.

25. The Respondent averred that this suit was lodged out of time without leave of the Tribunal.

26. The Respondent relied on Section 50 (1) (a) of the Tax Procedures Act and the case of Kenya Revenue Authority vs. Man Diesel & Turbo Se, Kenya [2021] eKLR and submitted that there is a rebuttable presumption in tax matters that an assessment by the Respondent is correct and that the Appellant did not provide any evidence that would have altered the assessment contrary to the Tax Procedures Act.

27. It cited Section 73 of the Income Tax Act and asserted that the Appellant was uncooperative in the provision of relevant records and failed to respond to requests of documents thus no relevant information was provided to support the Objection and an assessment was made based on the only available information based on the Respondent’s best judgment.

28. It relied on the case of Janet Kaphiphe Juma and Another vs. Marie Stopes International (Kenya), HCC No. 68 of 2007 and submitted that the Appellant failed to provide evidence to discredit the assessments and the same ought to be deemed correct and proper in law.

29. The Respondent submitted that the Appellant was selected for a return review following a variance from the analysis of its returns in VAT which established that there were inconsistencies in the output declared and that the input for July 2016 had been over claimed indicating a variance between the VAT returns filed and the income tax returns filed with no explanation provided as requested, therefore the same was disallowed and additional assessments carried out.

30. It relied on Section 31 of the Tax Procedures Act and the case of Trust Bank Ltd vs. Paramount Universal Bank Ltd and 2 Others (2009) eKLR reiterating that the Appellant failed to prove that all income earned was declared hence the variances were found by the Respondent and brought to charge and the assessment was issued based on the information provided and in light of the inconsistencies within the Appellant’s books of accounts.

31. The Respondent submitted that contrary to the Appellant’s assertions, it did not receive the stock records, audited accounts, cash books, purchase ledgers and sales ledgers as requested for reconciliation and verification and the Appellant failed to provide signed financial statements and books of accounts to support its objection and the allegations that it availed all relevant documents is false and unfounded.

32. It maintained that the Appellant failed to file income tax returns for 2016 which is an offence under tax laws and cited Sections 93, 94, and 95 of the Tax Procedures Act and Section 43 of the Tax Procedures Act together with the cases of Osho Drappers Ltd vs. Commissioner of Domestic Taxes, TAT No. 159 of 2018 and the case of Miao Yi vs. Commissioner of Investigations and Enforcement TAT No. 441 of 2019.

33. The Respondent submitted that the Appellant failed to prove that the assessments were excessive thus the burden of proof lies with them to prove otherwise per Section 30 of the TAT Act, Sections 56 and 59 of the Tax Procedures Act and Section 43 of the VAT Act.

34. It relied on the case of Okiya Omtatah Okoiti vs. Attorney General & Another [2020] eKLR and Kenya Revenue Authority vs. Man Diesel & Turbo Se, Kenya [2021] eKLR and Dyer & Dyer Limited vs. Commissioner of Domestic Taxes TAT 139 of 2020 and maintained that it did not err in determining the tax assessments as the Appellant failed to discharge its burden of proof and challenge the Respondent’s assessment with unchallenged and uncontraverted evidence to prove the correctness of the tax assessment.

The Respondent’s prayers 35. The Respondent therefore prayed that:a.The Respondent’s objection decision be upheld;b.The confirmed assessments dated 20th December 2017 and 1st February 2018 were proper in law;c.This Appeal be dismissed with cost to the Respondent.

Issues For Determination 36. Gleaning through the Memorandum of Appeal, the parties’ Statements of Facts, and the Respondent’s submissions, the Tribunal puts forth the following issue for determination:Whether there was a competent Appeal on record.

Analysis And Findings 37. The Tribunal wishes to analyze the issue as herein under.

38. The Respondent averred that this suit was lodged out of time without leave of the Tribunal.

39. The Tribunal noted that the Notice of Appeal was lodged on the 8th September 2022 stemming from the grievance with the objection decision issued on 14th May 2018.

40. For a Notice of Appeal to be deemed as competently lodged, the same ought to be made and/or lodged within the prescribed timelines as set out under Section 13 (1) (b) of the Tax Appeals Tribunal Act, which provides as follows:-A notice of appeal to the Tribunal shall—(b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.

41. Section 13 (3) of the Tax Appeals Tribunal Act, provides the remedy to any party who wishes to lodge an Appeal out of time, being that any such intended Appellant may seek leave of the Tribunal in writing seeking extension of time and leave to file an appeal out of time. Section 13 (3) reads;(3)The Tribunal may, upon application in writing, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).‖

42. The Tribunal observed that the Appellant ought to have lodged within thirty days of the Respondent’s objection decision, which would have been on or before the 13th June 2018.

43. The Appellant’s Appeal was lodged 1548 days late and it did not seek leave of the Tribunal to file the Appeal out of time, the Appeal is therefore not validly and properly before the Tribunal.

44. The Tribunal finds that the Appeal herein was lodged beyond the statutorily prescribed period and is therefore incompetent and untenable in law.

Final Decision 45. The upshot to the foregoing is that the Appeal is incompetent, and the Tribunal consequently makes the following orders; -a.The Appeal be and is hereby struck out.b.Each party bears its own costs.

46. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF OCTOBER, 2023ROBERT M. MUTUMA - CHAIRPERSONDR. WALTER ONGETI, Ph.D. - MEMBERMUTISO MAKAU - MEMBERELISHAH N. NJERU - MEMBERBONIFACE K. TERER - MEMBER