[2024] KETAT 593 (KLR)

Joleek Investments Limited v Commissioner of Domestic Taxes (Tax Appeal 1453 of 2022) [2024] KETAT 593 (KLR) (5 April 2024) (Judgment)

Neutral citation: [2024] KETAT 593 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1453 of 2022

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

April 5, 2024

Between

Joleek Investments Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

1. The Appellant is a Kenyan limited liability Company located in Nairobi whose principal activity is construction and registered for Value Added Tax (VAT), Income Tax-Company and Income Tax-PAYE.

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 Value Added Tax (VAT) assessment order dated 9th December 2019 via the iTax platform for the January 2018 to May 2018 period disallowing VAT input claim amounting to Ksh 913,774. 32 based on invoices claimed without corresponding sales declaration by the suppliers.

4. On 18th December 2021 the Appellant objected to the assessment order issued on 17th December 2021 which was acknowledged by the Respondent on 4th January 2022.

5. The Appellant’s objection was invalidated by the Respondent on 25th January 2022 vide the objection decision which confirmed the VAT assessment of Ksh 913,774. 32.

6. Aggrieved by Respondent’s decision, the Appellant filed its notice of appeal dated 29th November 2022 at the Tribunal on an even date.

7. On 16th December 2022, the Appellant was granted leave by the Tribunal to file its Appeal out of time.

The Appeal 8. The Appeal was premised on the Memorandum of Appeal dated and filed on 29th November 2022. i.That the Respondent erred in law by failing to allow some of the claimable purchases as stipulated under Section 17 of the Value Added Tax Act No. 35 of 2013 (hereinafter ‘VAT Act’).ii.That the Respondent erred in demanding tax on the claimed input tax credits under Section 17 of the VAT Act.

Appelant’s Case 9. The Appellant’s case was predicated on its Statement of Facts dated and filed on 29th November 2022.

10. The Appellant averred that upon being issued with an assessment order on 9th December 2019 amounting to Ksh 913,774. 32, it objected via i-Tax and provided all supporting documents as demanded by the Respondent. That however, the Respondent debited the Appellant’s account with an equal amount (Ksh913,774. 32) meaning that the Respondent reduced the Appellant’s claimable amount which could be utilized for payment of future VAT liabilities.

11. The Appellant asserted that its VAT input claim was legitimate and conformed to Section 17(3) of the VAT Act yet the Respondent proceeded to disallow the claims duly incurred by the Appellant despite providing purchase invoices and bank statements as proof of purchase during the objection review process.

12. The Appellant stated that the Respondent’s decision was improper, unfair, and unjust and prayed that the Respondent reviewed supporting documents, and the disallowed invoices and adjust the objection decision based on the documents provided.

Appellant’s Prayer 13. The Appellant’s prayers to the Tribunal were that:a.The Respondent be compelled to vacate the invalidation notice and allow fresh review of available documents.b.The Respondent be compelled to review any penalties and interest payable.c.The Respondent bears the costs of the Appeal.

The Respondent’s Case 14. The Respondent replied to the Appeal through its Statement of Facts dated and filed on 20th January 2023.

15. The Respondent asserted that whereas Section 24(2) of the Tax Procedures Act, No. 29 of 2015 (hereinafter ‘TPA’) allows the Appellant to submit tax returns in the approved form and manner prescribed by the Respondent, the Respondent was not bound by the information provided therein and could assess for additional taxes based on any other available information. The Respondent relied on Section 17(2) and (3) of the VAT Act to further buffer its position. Further, the Respondent cited the Tribunal’s holding in the case of Highlands Mineral Water Limited v The Commissioner of Domestic Taxes [TAT Appeal E026 of 2020]“34. I agree with the Appellant and I hold that the plain and unambiguous language of Section 17 of the VAT Act is clear that the only conditions provided for a taxpayer to qualify for input VAT are;That the input tax was incurred on a taxable supply made to or on importation made by a taxpayer at the end of the tax period,That the input tax is deducted by a registered person on taxable supplies made by him; andThat the input tax is to be allowable for deduction within six months after the end of the tax period in which the supply or importation occurred.”

16. The Respondent averred that the Appellant failed to provide proper documentation for the Respondent to establish that transactions took place and prove the said suppliers were genuine. The Respondent further stated that the Appellant failed in their duty to provide invoices mapped to prove payments that demonstrate they incurred the expense that would have enabled the Respondent to follow up on the purported suppliers. Moreover, the Respondent claimed that the Appellant failed to provide invoices mapped to payments that demonstrate purchases and subsequent sale of goods. The Respondent relied on Section 31(c) of the TPA which provides as follows;“(c)in any other case, the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates.”

17. The Respondent asserted that in exercise of its mandate, it issued its objection decision allowing purchases of Kshs 400,089. 00 that had been supported and disallowed Ksh 192,675. 52 that had not been supported and were found to be double claims. The Respondent relied on Sections 5 and 12 of the VAT Act that provide for the time of supply of goods. Further, the Respondent cited Sections 15 and 16 of the Income Tax Act CAP 470 of Kenya’s Laws (hereinafter ‘ITA’) as providing for allowable deductions.

18. In justifying the invalidation and the subsequent objection decision, the Respondent relied on Section 51(8) of the TPA which provides that;“Where a notice of objection has been validly lodged within time, the Commissioner shall consider the objection and decide either to allow the objection in whole or in part or disallow it, and Commissioner’s decision shall be referred to as an “objection decision…”

19. The Respondent maintained that the Appellant was informed of the basis for which the assessment was issued and how the Respondent arrived at its decision as outlined in the objection decision. The Respondent invited the Appellant to disapprove the decision and relied on Section 56(1) of the TPA which states as follows;“(1)In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect..”

Respondent’s Prayers 20. The Respondent made the following prayers:i.That the objection decision dated 10th November 2022 be upheld.ii.The Appeal be dismissed with costs.

Parties Written Submissions 21. Whereas the Appellant did not file submissions, the Respondent’s written submissions dated 21st August 2023 were filed on 22nd August 2023. The Respondent identified a single issue for determination which it proceed to analyse in its submissions as stated hereinunder:Whether the Respondent erred in the computation and confirming the additional assessment.

22. The Respondent submitted that in exercising its mandate under Section 31 of the TPA, it issued an additional assessment against the Appellant to ensure that the Appellant’s returns reflected the true tax position. At this juncture, the burden of proof shifted to the Appellant to disprove the Respondent’s position as required by Section 56(1) of the TPA; the Respondent relied on the case of Grace Njeri Githua v Commissioner of Investigations & Enforcement [TAT No 102 of 2018] where the Tribunal held that;“In this Appeal, the Appellant has not provided the Tribunal with enough evidence to show that the net income the Respondent has based the tax assessment was not income or is subject to further cost deduction in arriving at a net profit. It is trite law that the burden of proof is on the taxpayer to show that the tax so assessed is not due from her.”

23. It was the Respondent’s submission that to shift the burden of proof, the Appellant was meant to object to the assessment as provided under Section 51 of the TPA. The Respondent relied on the case of Mulherin vs Commissioner of Taxation [2013] FCAFC 115 where it was held that a taxpayer must satisfy the burden of proof to successfully challenge income taxes since the onus was upon the taxpayer to prove that an assessment was excessive by adducing positive evidence demonstrating the taxable income on which tax ought to have been levied.

24. The Respondent asserted that the Appellant failed to provide specific relevant documents relating to the objection and thus Appellant’s grounds remained mere averments without basis. Further, that there was communication from the Respondent seeking documents but the Appellant was non-compliant and as such the Respondent was forced to confirm the assessments and invalidate the objection application. The Respondent relied on the case of Boleyn International Limited vs Commissioner of Domestic Taxes [TAT No. 55 of 2018] where the Tribunal held that;“…on 8th March 2018, the Appellant lodged an objection with the Respondent. However, the said objection did not reiterate the grounds of objection, the corrections required to be made and the reasons for the amendments. Neither did the Appellant provide the relevant documents in support of its alleged objection. Therefore, there was no conceivable way the Respondent would have considered the Appellant’s objection as the same did not place itself within the parameters of Section 51(3) of the TPA.”

25. The Respondent submitted that the Appellant neither made any attempt to discharge the pending burden of proof as provided under Section 107 of the Evidence Act CAP 80 of Kenya’s Laws (the ‘Evidence Act’) nor provided the statutory foundation that the Respondent must consider 12 months and not less than that in amendment of assessments. The Respondent quoted the Tribunal’s decision in Afya X-ray Centre Limited vs Commissioner of Domestic Taxes [TAT No 70 of 2017] where it was held as follows:“From the foregoing chain of events, it is our understanding that the Appellant failed in its duty in providing these documents, in order that a comprehensive audit of its affairs be done. Accordingly, the Respondent can hardly be faulted for raising the assessment in accordance with the availed documents. Moreover, the Appellant had an opportunity to counter the Respondent’s findings after the preliminary finding and after the confirmation of the assessment. Both are instances, where the Appellant could have produced its books of accounts to counter the Respondent’s assessment after all the Appellant by law bears the burden of proof…”

26. The Respondent asserted that both the assessment and objection decision were right in law.

Issues For Determination 27. The Tribunal having carefully considered the parties’ pleadings, documentation, and Respondent’s written submissions notes that the issue that calls for determination is the following;

Whether the Respondent’s objection decision dated 25th January, 2022 was valid. Analysis And Determination 28. Having identified this single issue for determination, the Tribunal will proceed to analyse it as hereunder.

29. The dispute herein arose when the Respondent issued the Appellant with an assessment order for January 2018 to May 2018 disallowing input VAT amounting to Ksh 913,774. 32 based on invoices claimed without corresponding sales declaration by the suppliers. The Appellant has not challenged this assertion by the Respondent in its pleadings. The Tribunal notes that both Section 30 of TAT Act and Section 56 of the TPA place the burden of proof upon the Appellant in all tax matters.

30. The Tribunal observes that the Respondent claimed that the Appellant failed to provide proper documentation for the Respondent to establish that transactions took place and to prove that the said suppliers were genuine whereas the Appellant contested this position stating that it provided purchase invoices and bank statements as proof of purchase during the objection review process. The Tribunal notes that Section 24(2) of the TPA provides as follows:“(2). The Commissioner shall not be bound by a tax return or information provided by, or on behalf of, a taxpayer and the Commissioner may assess a taxpayer’s tax liability using any information available to the Commissioner.”

31. The Tribunal notes that the Respondent’s assertion that the Appellant failed in its duty to provide invoices mapped to prove payments that demonstrate they incurred the expense that would have enabled the Respondent to follow up on the purported suppliers remain uncontroverted by the Appellant. Additionally, the Appellant did not offer rebuttals to the Respondent’s claim that it failed to provide invoices mapped to payments that demonstrate purchases and subsequent sale of goods. The Tribunal reiterates its position as held in Osho Drappers Limited vs Commissioner of Domestic Taxes Appeal No. 159 of 2018, which was as follows:“…the documentation must be supported by an underlying transaction and the taxpayer must furnish that there was an actual purchase.”

32. Further, the Tribunal notes that the Appellant’s pleadings did not have any attachments in support of its grounds opposing the assessment or the decision of the Respondent. This duty is upon the Appellant to show that an assessment was incorrect or should have been done differently. The Tribunal restates its position as held in the case of Bemarc Limited v Commissioner of Domestic Taxes [TAT No. 101 of 2016] that;“The Appellant in its Statement of Facts at paragraph 14 claims that it provided records for the Commissioner’s examination. Again, no evidence of this was availed before the Tribunal. In fact, we find it interest telling that for an individual facing a hefty assessment of Ksh 31,489,319. 89, the Appellant does not substantively dispute the specific tax issues raised in the additional assessment or the objection decision. This, coupled with the burden placed on the taxpayer by the provision of Section 56(1) of the Tax Procedures Act, 2015 only serves to buttress our position that the Appellant failed in its responsibility to provide its records and documents for examination by the Respondent.”

33. From the foregoing the Tribunal is convinced that the Appellant failed to discharge its burden of proof and thus the Respondent’s invalidation decision dated 25th January, 2022 and assessments therein were valid.

Final Decision 34. The upshot of the foregoing is that the Appeal lacks merit and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby dismissed.b.The Respondent’s invalidation decision dated 25th January 2022 be and is hereby upheld.c.Each party to bear its own costs.

35. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 5TH DAY OF APRIL,2024CHRISTINE A. MUGACHAIRPERSONBONIFACE K. TERER DELILAH K NGALAMEMBER MEMBERGEORGE KASHINDI SPENCER S. OLOLCHIKEMEMBER MEMBER