[2023] KETAT 519 (KLR)

Juvice Agencies Ltd v Commissioner of Domestic Taxes (Tax Appeal 512 of 2022) [2023] KETAT 519 (KLR) (Civ) (4 August 2023) (Judgment)

Neutral citation: [2023] KETAT 519 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Tax Appeal 512 of 2022

E.N Wafula, Chair, D.K Ngala, CA Muga, GA Kashindi, AM Diriye & SS Ololchike, Members

August 4, 2023

Between

Juvice Agencies Ltd

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company registered under the Companies Act Cap 486 Laws of Kenya whose principal business is in general supplies.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act (KRA). Under Section 5 (I), 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 with respect to the performance of its functions under subsection (1), it is 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 revenue in accordance with those laws.

3. The Respondent conducted a compliance check on the Appellant arising from observing the IFMIS system that indicated that the Appellant had failed to amend returns for the period 2015 to 2018. The compliance check was also to verify the Appellant‟s compliance with various tax laws including the Income Tax Act and Value Added Tax Act.

4. The Respondent additionally assessed for Income Tax-Company of Kshs 38,652,692. 75 on 10th September, 2019 and Value Added Tax of Kshs 13,454,189. 58 on 21st November, 2019 for the months of January to December of the tax period 2015 to 2019.

5. The Appellant objected to the VAT assessment on 21st February, 2020 and for the income tax on 31st October, 2020. According to the Appellant, the late objection was due to circumstances beyond its control therefore unable to file the sufficient documentation to support the objection.

6. Subsequently, the Respondent confirmed the VAT assessment on 30th October, 2020, and the Income tax assessment on 15th December, 2020.

7. Aggrieved by the Respondent‟s decision, the Appellant filed its Notice of Appeal on 18th May, 2022. It proceeded to file its Memorandum of Appeal and Statement of Facts on 19th May, 2022.

The Appeal 8. The Appeal is premised on the following grounds:a.That the Commissioner of Domestic Taxes erred in law and fact by charging VAT on products which are exempted from VAT amounting to Kshs 10,169,910. 48 for the month of December, 2015, 2016, 2017 and September 2018. b.That the Commissioner of Domestic Taxes erred in law and fact by failing to accord the Appellant the opportunity to deduct expenditure wholly and exclusively incurred by the company in the production of Income for years ending December 2015, 2016,2017 and 2018 in accordance with Section 15(1) of the Income Tax Act.

9. The Appellant therefore prays that the Tribunal sets aside the Respondent‟s decision to assess VAT of Kshs 13,454,189. 58; income tax of Kshs 38,652,692. 78 and accordingly annul the tax decision.

The Appellant's Case 10. The Appellant argued its case by reiterating its grounds of Appeal. It stated further that the Respondent erred in law and fact by failing to accord the Appellant the opportunity to deduct expenditure wholly and exclusively incurred by the company in the production of income for years ending 31st December 2015, 2016, 2017 and 2018 in accordance with Section 15 (1) of the income Tax Act.

11. The Appellant averred that the tax not in dispute for the years above amounted to Kshs 3,062,603. 57, out of which it had already paid to date Kshs 599,987. 00.

The Respondent's Case 12. The Respondent replied to the Appellant‟s grounds of Appeal through its Statement of Facts dated 22nd June 2022 and filed on even date and averred as follows:a.That on the Appellant‟s first ground of Appeal, the Respondent averred that it issued the assessment based on the information that was highlighted in the IFMIS platform that is in congruence with the i-Tax platform. It stated further that it is empowered by Section 24 (I) and 31 of the Tax Procedures Act (TPA) to amend a taxpayer‟s assessment using any information available and to its best judgement. As such upon review of the documentation provided by the Appellant, it noted inconsistencies when it compared the information on the IFMIS system and the Appellant‟s returns which highlighted the possibility that the Appellant had undeclared sales. In regard to the Appellant‟s assertion that it dealt in products which were exempted from VAT, the Respondent averred that the Appellant failed to provide any documentation to support its claim. The Respondent therefore posited that the burden of proof is on the Appellant to avail sufficient documents to counter the Respondent‟s assertion. The Respondent therefore asserted that the Appellant‟s ground of appeal is misguided and should be disallowed.b.In response to the second ground of Appeal where the Appellant stated that it had not been afforded an opportunity to deduct expenditure wholly and exclusively incurred by the company in the production of income, the Respondent averred that the Appellant had an opportunity to amend returns it had provided in the I-Tax platform as provided for under Section 31(2) of the TPA. It however failed to do so. The Respondent therefore averred that indeed the Appellant was afforded a proper opportunity to make the necessary amendments to its earlier assessment to which it failed to do.c.The Respondent averred that the Appellant issued its notice of objection out of time contrary to Section 51 of the TPA and that it advised the Appellant that it had lodged an invalid objection. Further that it failed in its objection to lodge to proper objection that would be valid in order to register its contention to the decision of the Respondent. The Appellant‟s failure therefore means this ground has no basis and should be disallowed.d.The Respondent raised a preliminary objection on the Appeal. It stated that the Appellant, at Paragraph 7 of its Statement of Facts had admitted that the undisputed tax is Kshs 3,062,603. 57 and that it had only paid Kshs 599,987. 00. The Respondent posited that this Appeal is not valid as the Appellant had neither paid undisputed tax nor made an arrangement with the Respondent to pay the undisputed taxes as provided for under Section 52 (2) of the Tax Procedures Act. The Respondent averred that this Appeal is therefore bad in law.

13. The Respondent prayed that this Tribunal finds: -a.The Respondent‟s Objection decision of 15th December 2020 is proper and upholds the same.b.This Appeal be dismissed with costs to the Respondent as the same is without merit.

Submissions of the Parties 14. In its Written Submissions dated 27th February, 2023 and filed on 1st March, 2023, the Appellant submitted that the reason for the late filing of the appeal was due to factors beyond its control and that the delay to lodge the objection was not intentional but due to a combination of facts beyond its control. These factors were: -i.That the objection decision dated 15th December 2020 was served via the Appellant‟s I-Tax electronic mail address. However, the hard copy of the said decision was not served.ii.That the Objection decision was discovered in the “Junk/spam” folder on or about 18th September 2021 by the Appellant‟s secretary.iii.That the Appellant received the said objection decision late when the time for filing the Notice of Appeal had run out.

15. The Appellant contended that it availed all the necessary documents to assist in the computation of income and expenses, however, the Respondent did not consider the said documentation. It cited the case of Silver Chain limited vs Commissioner Income Tax and 3 others NRB JR No.2 of 2016 (2016) eKLR where the Court held that:“the Commissioner must give a taxpayer the opportunity to explain its position before computing the tax due”.

16. The Appellant asserted that in a bid to discharge its burden of proof in accordance to Section 56 (I) of the TPA, it provided its audited financial statements together with its Memorandum of Appeal. It submitted further that the Respondent‟s assessment was irrational and unreasonable in the circumstances as it was absurd that a business earning a turnover of Kshs 71, 997,603. 00 as income would incur nil expenses and the realities of operating a business where it incurred voluminous operating expenses regardless of the fact that they are unsupported. The Respondent‟s decision to allow nil business expenses was irrational and constitutes bad faith and exude unreasonable exercise of power by the Respondent.

17. It was the Appellant‟s submission that while the Respondent has power to assess and demand payment of taxes due, the statutory power bestowed on the Respondent should be exercised reasonably, rationally and properly. It further submitted that the Respondent failed to notify the Appellant the manner of objecting to the assessment contrary to Section 29(2) (f) of the TPA. It did not therefore know what to do next. It therefore prayed that the Appeal be allowed and the Respondent‟s additional assessment be set aside.

18. The Respondent on its part raised three (3) issues for determination through its Written Submissions dated 24th March, 2023 and filed on even date:

a. Whether the filing of the Appellant‟s Notice of Appeal, Memorandum of Appeal and Statement of Facts dated 18th May, 2022 failed to comply with the orders of the Tribunal. 19. The Respondent made reference to the Tribunal‟s ruling dated 19th April, 2022, where the Tribunal ordered the Appellant to file its Notice of Appeal, Memorandum of Appeal, Statement of Facts and the tax decision within 15 days of the date of the ruling. It submitted that the Appellant filed its Appeal on 18th May, 2022, 30 days after the ruling by the Tribunal.

20. The Respondent averred further that vide a Notice of Motion application dated 9th December, 2021 the Appellant sought the Tribunal‟s discretion to allow the Appellant file its appeal documents out of time. That the Tribunal granted the Appellant‟s request and directed that it files and serve its documents within 15 days from the date of the Ruling.

21. The Respondent submitted that the Appellant filed its documents and served the same upon the Respondent on 19th May, 2022.

22. The Respondent stated that the Appellant did not even bother to explain the reason for the late filing considering that the Appellant‟s earlier application leading to the Tribunal‟s Ruling was also due to failing to observe statutory timelines. The Respondent therefore submitted that this Appeal be dismissed on this ground.

b. Whether the Respondent‟s decision to charge VAT on products that were exempted from VAT was proper in law. 23. The Respondent reiterated its position as stated in its Statement of Facts that the assessment was based on the information that was highlighted in the IFMIS platform that is in congruence with the I-Tax platform. Further that upon review of the documentation provided, it noted inconsistencies between Appellant‟s data in the IFMIS system and the Appellant‟s returns which highlighted the possibility that the Appellant had undeclared sales.

24. The Respondent submitted that the Appellant had alleged to have dealt with products exempted from VAT however, it failed to provide any documentation to support its claim. It submitted further that there is a rebuttable presumption in tax matters that an assessment by the Respondent is correct unless the taxpayer can prove otherwise and that the burden was on the Appellant to prove that it indeed dealt with goods or services that were VAT exempt. The Respondent relied on the case of Kenya Revenue Authority vs Man Diesel & Turbo Se, Kenya (2021) eKLR where the Court held that Section 56 of the TPA in peremptory terms places the burden of proof in tax cases on the taxpayer.

25. It was the Respondent‟s submission that the Appellant should have been able to provide evidence of the tax exempt products it deals with. However, these remained mere allegations without any evidence to substantiate its claim thus giving the Respondent the authority to make the assessments.

26. The Respondent cited the holding in the case of Janet Kaphiphe Ouma and another vs Marie Stopes International (Kenya), HCC No. 68 of 2007 where the Court held that: -“In this matter, apart from filing its statement of defence, the defendant did not adduce any evidence in support of assertions made therein. The evidence of the 1st plaintiff and that of the witness remains uncontroverted and the statement in the defence therefore remains mere allegations……section 107 and 108 of the Evidence Act are clear that he who asserts or pleads must support by way of evidence”

27. The Respondent submitted therefore that the Appellant failed to provide evidence to discredit the assessment by the Respondent and thus the same ought to be deemed correct and proper in law.

c. Whether the Respondent rightfully denied the Appellant the opportunity to deduct expenditure wholly and exclusively incurred by the company in the production of income. 28. The Respondent submitted that despite declaring income, the Appellant knowingly continued to underdeclare income for the period under review contrary to the provisions of the Income Tax Act and failed to deduct the expenses at the timelines required. Further the Appellant also failed to provide evidence of its inability to deduct the expenses and to apply for an extension from the Respondent to deduct the alleged expenses. The Respondent submitted further that it is trite law that „he who alleges must prove‟ and the Appellant similarly, failed to prove the delay in deducting the expenses incurred thus the same were rightfully disallowed by the Respondent.

29. To buttress its argument, the Respondent relied on the case of Trust Bank Ltd vs Paramount Universal Bank Ltd and 2 others (2009) eKLR where the Court held that: -“It is trite where a party fails to call evidence in support of its case that Party fails to substantiate its pleadings.” The Respondent associated itself with the averments of the court and submitted that the Appellant‟s request to allow expenses incurred remain to be mere statements with no evidence to substantiate its claim.

Issues for Determination 30. Having carefully considered the pleadings of the parties, documentation availed and the parties‟ submissions, the Tribunal is of the view that this Appeal raises two issues for its determination:a.Whether there is valid Appeal before the Tribunal.b.Whether the Respondent‟s Tax Assessment is due and payable.

Analysis and Finding 31. Having identified issues falling for its determination, the Tribunal proceeds to analyse the issues separately as hereunder.

a. Whether there is Valid Appeal before the Tribunal 32. The Tribunal notes that the additional assessment for income tax and VAT was vide Assessment orders dated 10th September, 2019 and 21st November, 2019. The Appellant lodged its late Objections on 21st February 2020 and 30th October 2020. In its Written submissions, it stated that the reason for the late objection was due to factors beyond its control and that the delay was not intentional but due to a combination of facts beyond its control.

33. Vide a Notice of Motion application dated 9th December, 2021, the Appellant sought the Tribunal‟s discretion to be allowed to file its Appeal out of time. This was granted vide the Tribunal‟s Ruling dated 19th April, 2022 where the Appellant was directed to file its Appeal documents within 15 days from the date of delivery of the Ruling. 15 days would have meant the Appellant was to file the Appeal documents by 24th April, 2022. From the documentation availed, the Appellant filed its documents on 19th May, 2022, 30 days after the Ruling contrary to the express orders of the Tribunal.

34. The Tribunal observes that the Appellant has not been vigilant in its handling of the tax demand and the Appeal. First it was the fact that it objected to Respondent‟s demand out of time. Secondly, even when the Tribunal exercised its discretion and indulged it to file its Appeal documents within 15 days, it also failed to comply with the timelines given. The issue of strict compliance of court orders was made evident in the case of Teachers Service Commission vs Kenya National Union of Teachers & 2 others Petition No 23 of 2013, where the court held as follows: -“Court orders are not meant for cosmetic purposes. They are serious decisions that are meant to be and ought to be complied with strictly.”

35. The Appellant, by conduct has displayed a lack of commitment to prosecute its case even after the indulgence of the Tribunal. It goes without saying that indeed equity aids the vigilant and not the indolent. The Appellant cannot therefore blame or fault the Respondent for demanding the said tax.

36. The Tribunal has also noted at Paragraph 7 of the Appellant‟s Statement of Facts, that the Appellant has admitted to tax not in dispute of Kshs 3,062,603. 57 out of which it admits to have paid Kshs 599,987. 00. Section 52 (2) of the Tax Procedures Act prescribes the procedure of lodging an appealable decision to the Tribunal and what constitutes a valid appeal. The Section reads as follows:-“A notice of appeal to the Tribunal relating to an assessment shall be valid if the taxpayer has paid the tax not in dispute or entered into an arrangement with the Commissioner to pay the tax not in dispute under the assessment at the time of lodging the notice.”

37. As per the above provision, the Appellant ought to have either paid the undisputed tax in full or entered into an arrangement for payment with the Respondent before preferring this Appeal. The Tribunal has neither sighted any such arrangement between the parties nor has evidence been adduced to confirm the already paid taxes. The Appellant‟s action to lodge this appeal therefore offends the provision of Section 52 (2) of the TPA hence invalidates this Appeal.

38. In view of the foregoing, the Tribunal finds that this Appeal is invalid.

b. Whether the Respondent‟s Tax Assessment is due and payable 39. Having determined that the Appeal is not validly lodged, the Tribunal will not proceed with the second issue as the same has been rendered moot.

Final Decision 40. The upshot of the foregoing is that the Appeal is incompetent and unsustainable in law and the Tribunal accordingly proceeds to make the following final Orders:a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

41. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 4TH DAY OF AUGUST, 2023ERIC NYONGESA WAFULA - CHAIRMANDELILAH K. NGALA - MEMBERCHRISTINE A MUGA - MEMBERGEORGE KASHINDI - MEMBERABDULLAHI M. DIRIYE - MEMBERSPENCER S OLOLCHIKE - MEMBER