https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/313

REPUBLIC OF KENYA IN THE TAX APPEALS TRIBUNAL AT NAIROBI TAX APPEAL NO E1014 OF 2025 JOHN SANGUTEI HOLDINGS ................................................................... APPELLANT VERSUS COMMISSIONER OF DOMESTIC TAXES……………………………….….... RESPONDENT JUDGMENT BACKGROUND 1. The Appellant is a registered taxpayer. 2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469, Laws of Kenya. Under Section 5(1) the Respondent is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) with respect to the performance of its functions under subsection (1), the Respondent mandated to administer and enforce all provisions of the Written Laws as set out in Part 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 appeal arose from the Respondent’s Objection Decision dated 13th August 2025. After which, the Appellant filed the Notice of Judgement TAT No. E1014 of 2025 John Sangutei Holdings -vs- Commissioner of Domestic Taxes Page 1 of 9 Appeal dated 13th September 2025, and filed it on 15th September 2025. THE APPEAL 4. The Appeal is premised on the following grounds of appeal, as stated in the Appellant’s Memorandum of Appeal dated 13th September 2025 and filed on 15th September 2025. 5. The Appellant contends that the Respondent’s decision is erroneous in law and fact, based on, inter alia, the following grounds: a. That the Respondent misapplied Section 16(2)(j) of the Income Tax Act as the interest was paid to a local commercial bank for a loan used to generate rental income and should not have been subjected to the same restrictions as interest paid to parties for the purpose of thin capitalization. b. That the Respondent misapplied the guidelines in Legal Notice No. 37 of 2011. This is because it provided a rent and occupancy schedule demonstrating that debts were unrealizable due to commercial vacancy, which constitutes a valid reason for writing off a bad debt under the principles of commercial reality. c. That the Respondent failed to consider the evidence it submitted, including the loan purpose and the building occupancy schedule. d. That the decision to disallow the expenses in their entirety was excessive, disproportionate, and unreasonable in the circumstances of the Appellant’s business. Judgement TAT No. E1014 of 2025 John Sangutei Holdings -vs- Commissioner of Domestic Taxes Page 2 of 9 THE APPELLANT’S CASE 6. The Appellant’s case is premised on its Statement of Facts dated 13th September 2025 and filed on 15th September 2025. The Appellant did not file its written submissions and as such, his case will be considered on the basis of his pleadings on record. 7. The Appellant stated that this Appeal arises from the Respondent’s Objection Decision dated 13th August 2025 which confirmed an additional income tax assessment of KES 4,712,834.00 (inclusive of penalties and interest) for the years of income 2022 and 2023. 8. The Appellant averred that the Respondent issued a pre-assessment notice on 14th March 2025, leading to a final additional assessment. The Appellant argued that the assessment was premised on disallowed interest expense and Bad Debt write-off. 9. The Appellant further argued that the Respondent disallowed a portion of interest expenses paid to KCB on a mortgage loan, citing a breach of the thin capitalization rules under Section 16(2)(J) of the Income Tax Act. The disallowance was calculated as the amount by which interest expense exceeded 30% of the Appellant’s Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). 10. The Appellant contended that the Respondent disallowed a bad debt write-off of Kshs 5,449,792.00 for the year 2023 for failure to demonstrate compliance with the guidelines stipulated in Legal Notice No. 37 of 2011. The Appellant’s Prayers 11. The Appellant prayed that the Tribunal will be pleased to: - Judgement TAT No. E1014 of 2025 John Sangutei Holdings -vs- Commissioner of Domestic Taxes Page 3 of 9 a. Set aside the additional assessment of Kshs 4,712,834.00 and allow the deduction of bad debts and interest expense. b. Delete the consequential additional penalties and interest levied. c. Grant such other and further relief as this Honourable court may deem fit and proper in the interest of justice. THE RESPONDENT’S CASE 12. The Respondent neither filed its Statement of Facts nor its Written Submission, it raised a Preliminary Objection dated and filed on 6th February 2026, objecting to the Appellant’s Appeal on points of law on grounds that, among others, the Memorandum of Appeal and Statement of Facts were served on the Respondent on 6th October, 2025, therefore invalid, null and void abinitio having offended the mandatory provisions of Section 52 of the Tax Procedures Act and Sections 12 and 13 of the Tax Appeals Tribunals. 13. The Respondent prayed that the purported Appeal be struck out, with costs in the first instance. ISSUES FOR DETERMINATION 14. The Tribunal has considered the Appellant’s pleadings and the Respondent’s Preliminary Objection and is of the view that this Appeal raises two issues for determination. a. Whether the Appeal is valid b. Whether the Respondent’s Objection Decision dated 13th August 2025 is justified. Judgement TAT No. E1014 of 2025 John Sangutei Holdings -vs- Commissioner of Domestic Taxes Page 4 of 9 ANALYSIS AND FINDINGS 15. Having established the issues for determination, the Tribunal will proceed to analyse them as hereinunder. a) Whether the Appeal is valid 16. The Respondent raised a Preliminary Objection on a point of law stating that the Memorandum of Appeal and Statement of Facts were served on 6th October 2025 and were therefore invalid, null and void ab initio, having offended the mandatory provisions of Section 52 of the Tax Procedures Act and Sections 12 and 13 of the Tax Appeals Tribunal Act. 17. The Respondent raised a Preliminary Objection contending that the Appellant served the Memorandum of Appeal and Statement of Facts on 6th October 2025, contrary to the provisions of Section 52 of the Tax Procedures Act and Sections 12 and 13 of the Tax Appeals Tribunal Act. According to the Respondent, the alleged delay in service rendered the Appeal invalid, null and void ab initio. 18. The Tribunal has considered the record before it. It is not disputed that the Appellant lodged the Notice of Appeal dated 13 th September 2025 on 15th September 2025, thereby instituting the appeal within the statutory framework. The Respondent's objection is directed solely at the timing of service of the pleadings. 19. The purpose of the procedural requirements relating to service is to ensure that a respondent is notified of the proceedings and afforded an opportunity to respond. In the instant case, the Respondent acknowledged having been served with the Memorandum of Appeal and Statement of Facts on 6th October 2025. There is no evidence before the Tribunal demonstrating that the Respondent suffered any prejudice as a result of the alleged Judgement TAT No. E1014 of 2025 John Sangutei Holdings -vs- Commissioner of Domestic Taxes Page 5 of 9 delay in service. Indeed, the Respondent was able to enter appearance in the proceedings and subsequently file a Preliminary Objection challenging the competence of the Appeal. 20. The Tribunal further notes that procedural rules are intended to facilitate the fair and expeditious determination of disputes and should not be applied in a manner that defeats substantive justice where no prejudice has been occasioned. The Respondent has not demonstrated that the alleged procedural lapse impaired its ability to defend the appeal or occasioned any miscarriage of justice. 21. Further, striking out an appeal is a draconian remedy that should only be resorted to where the defect goes to the jurisdiction of the Tribunal or is incapable of being cured. In the circumstances of this case, the Tribunal finds that the alleged delay in service does not affect the validity of the appeal, nor does it deprive the Tribunal of jurisdiction to hear and determine the dispute. 22. Therefore, the Tribunal finds that the Appeal is competent and properly before it. Consequently, the Tribunal shall proceed to determine the Appeal on its merits. b) Whether the Respondent’s Objection Decision dated 13th August 2025 is justified. 23. The Tribunal notes that the Appellant argued that the Respondent wrongly invoked Section 16(2)(j) of the Income Tax Act to disallow interest expense incurred on a mortgage facility obtained from Kenya Commercial Bank that was used exclusively in generating rental income. Judgement TAT No. E1014 of 2025 John Sangutei Holdings -vs- Commissioner of Domestic Taxes Page 6 of 9 24. In addition, the Appellant disputed the Respondent's disallowance of a bad debt write-off amounting to Kshs. 5,449,792.00 and contended that it had furnished the Respondent with a rent and occupancy schedule demonstrating that the outstanding debts had become irrecoverable owing to prolonged commercial vacancies. 25. It is incumbent upon a taxpayer challenging an assessment or an objection decision to produce sufficient documentary evidence demonstrating that the assessment is excessive or incorrect and that the claimed deductions satisfy the requirements of the applicable tax laws. The burden of proof in tax disputes rests with the taxpayer as provided for under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act. 26. In the present Appeal, beyond mere averments regarding the purpose of the loan and the occupancy levels, the Appellant failed to place before the Tribunal sufficient documentary evidence to substantiate its claims. 27. In particular, the Appellant did not produce adequate documentation demonstrating that the impugned interest expense qualified for deduction under the Income Tax Act or that the bad debt write-off met the requirements prescribed under Legal Notice No. 37 of 2011. 28. Equally, the alleged loan purpose and occupancy schedule were not supported by sufficient evidence capable of enabling the Tribunal to interrogate the Respondent's position. 29. It is the Tribunal's position that pleadings alone do not constitute evidence. Mere allegations that the Respondent failed to consider Judgement TAT No. E1014 of 2025 John Sangutei Holdings -vs- Commissioner of Domestic Taxes Page 7 of 9 certain documents cannot discharge the statutory burden placed upon a taxpayer where the relevant supporting documentation is either not produced or is insufficient to prove entitlement to the deductions claimed. 30. Accordingly, the Appellant has not established any basis upon which the Tribunal can interfere with the Respondent's Objection Decision since the Appellant failed to rebut the Respondent's findings or demonstrate that the additional assessment was erroneous. 31. In view of the foregoing, the Tribunal finds that the Appellant failed to produce sufficient documentary evidence in support of its case and consequently failed to discharge its burden of proof. FINAL DECISION 32. The upshot of the foregoing is that this appeal lacks merit and the Tribunal proceeds to issue the following orders: a. The appeal be and is hereby dismissed. b. The Respondent's Objection Decision dated 13th August 2025 is hereby upheld. c. Each party to bear its own costs. 33. It is so ordered. DATED and DELIVERED at NAIROBI this…………10th ……..…..day of…..… July………..…2026 Judgement TAT No. E1014 of 2025 John Sangutei Holdings -vs- Commissioner of Domestic Taxes Page 8 of 9 ..........................………………………. DR. RODNEY ODHIAMBO OLUOCH CHAIRPERSON .…..….……………………. ..….………………………. ABDULLAHI DIRIYE DR. ERICK KOMOLO MEMBER MEMBER Judgement TAT No. E1014 of 2025 John Sangutei Holdings -vs- Commissioner of Domestic Taxes Page 9 of 9