[2024] KETAT 456 (KLR)

Kamau v Commissioner of Legal Services & Board Coordination (Tax Appeal E046 of 2023) [2024] KETAT 456 (KLR) (19 April 2024) (Judgment)

Neutral citation: [2024] KETAT 456 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E046 of 2023

Grace Mukuha, Chair, E Komolo, Jephthah Njagi, W Ongeti & G Ogaga, Members

April 19, 2024

Between

Moses Daniel Kamau

Appellant

and

Commissioner of Legal Services & Board Coordination

Respondent

Judgment

Background 1. The Appellant is a resident individual taxpayer whose primary activity is to offer services of quantity surveyors.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all revenue.

3. The Respondent issued the Appellant with income tax additional assessments dated 2nd September 2020 and 17th September 2020 of Kshs. 50,610. 47 and Kshs. 1,139,306. 30, respectively, inclusive of interests.

4. The Appellant objected to the income tax additional assessments vide his letters of 4th September 2020 and 29th September 2020, and further via iTax on 1st October 2020.

5. The Respondent issued confirmation of assessment on 21st December 2022 and issued Objectiond on 4th January 2023.

6. Aggrieved by the Respondent’s Objection decision, the Appellant lodged the instant Appeal vide his Notice of Appeal dated 3rd February 2023 and filed on the same date.

The Appeal 7. The Appeal is premised on the Appellant’s Memorandum of Appeal filed on 17th February 2023, stating the following grounds: -a.That the Respondent erred in law by imposing additional income yet the Appellant did not earn any fees in the two periods even though his offices remained open and that is why there were some VAT inputs claimed. In fact, the Appellant is in the process of closing his offices as he proceeds for his retirement having attained the retirement age of 74 years.b.That the Respondent disallowed the Appellant’s objection application on the basis that supporting documents were not provided despite sending all requested documents via email and in some cases the respective officers confirmed receipt.c.That the Respondent violated the rights to information which the Appellant is entitled to as to date the Appellant is not aware of how the assessed amount was calculated as there were no preliminary findings that were shared before the assessment was issued.

The Appellant’s Case 8. The Appellant’s case is premised on the the Appellant’s Statement of Facts filed on 17th February 2023, together with annextures thereto.

9. The Appellant averred that the Respondent issued additional assessments against him on 2nd September, 2020 and 16th September, 2020 demanding income tax resident individual of Kshs. 1,042,822. 00 for the periods 2018 and 2019.

10. The Appellant further averred that he objected to the assessments via notices of objection. However, the Respondent proceeded to issue objection decision on 4th January 2023 confirming the assessed amounts.

11. Accordingly, the Appellant averred that he filed the instant Appeal against the objection decision.

Appellant’s Prayer 12. The Appellant prayed to the Tribunal for the Appeal to be allowed.

The Respondent’s Case 13. The Respondent’s case is premised on the following documents filed before the Tribunal: -a.The Respondent’s Statement of Facts dated 15th March 2023 and filed on the same date.b.The Respondent’s Written Submissions dated 24th November, 2023 and filed on the same date.

14. The Respondent averred that Section 24 of TPA allows a taxpayer to file returns, but further provides that the Commissioner is not bound by the information provided therein and can assess the tax liability based on any other available information.

15. The Respondent further averred that Section 77 of the Income Tax Act and Section 31 of TPA allows the Respondent to issue additional assessments where a taxpayer has been assessed of a lesser amount based on any additional available information and to the best of the Respondent’s judgement.

16. That the additional income tax assessments on the Appellant for the periods 2018 and 2019 were raised by marking up the total purchases by 10% and charging them to tax.

17. That the Appellant claimed expenses but had no corresponding sales.

18. That at the objection stage, the Appellant stated that he did not earn any professional fees for the tax period under review, but failed to provide the supporting documents despite having been requested to do so.

19. That the Appellant failed to avail documentation as required under Sections 23, 58 and 59 of the TPA to enable the Respondent to ascertain his tax liability.

20. That the confirmation of assessment notices dated 21st December 2022 and Objection decision dated 4th January, 2023 are proper based on the information available to the Commissioner.

Respondent’s Prayers 21. The Respondent prayed to the Tribunal for the following orders: -a.That the confirmation of assessment notices dated 21st December 2022 and the Objection decision dated 4th January, 2023 be upheld.b.That the Appeal be dismissed with costs to the Respondent as the same is without merit.

Issues for Determination 22. Having identified the issues falling for its determination, the Tribunal wishes to analyze them as hereunder.

a. Whether the Appellant’s Objections dated 4th September, 2020 and 29th September 2020 were deemed allowed by operation of the law. 23. From the outset, the Tribunal noted that the instant dispute resolved around the Respondent’s Objection decision dated 4th January, 2023, which triggered the Appellant to lodge his Notice of Appeal on 3rd February, 2023.

24. The Tribunal further noted that there is no dispute between the Appellant and the Respondent as to the dates of additional assessments and confirmation of assessments as filed before the Tribunal.

25. The Respondent submitted that it has an obligation under the law to carryout additional assessments based on information available and the commissioner’s best judgement, and that this is what triggered the impugned additional assessments as the Appellant had claimed expenses without declaring sales.

26. It is also the Respondent’s submission that it asked the Appellant for additional documents and information but the same were not provided. In this regard, the Respondent annexed its email correspondence with the Appellant dated 15th December, 2022 seeking additional documents.

27. On the other hand, the Appellant contended that he had not carried out any business during the period under review and was indeed on the way to retirement.

28. The Appellant further submitted that he provided documents sought by the Respondent via email and this was, in some instances, acknowledged by officers of the Respondent. The Tribunal noted that Appellant, however, did not produce before it any evidence to support this contention.

29. The contentions by both parties notwithstanding, the Tribunal noted from the documents before it that the Appellant filed his objection to the additional income tax resident assessments on 4th September, 2020 and 29th September, 2020. The two objections were acknowledged by the Respondent on 1st October, 2020.

30. On the other hand, the Respondent sought additional documents from the Appellant on 15th December 2022, which is way over two years from the date of the Appellant’s objection. The Respondent subsequently proceeded to confirm the assessments on 21st December, 2022 and issued Objection decision on 4th January 2023.

31. The Tribunal noted that the applicable law during the referenced time was Section 51 (11) of the TPA, which provided as follows:“The Commissioner shall make the objection decision within sixty days from the date of receipt of—(a)the notice of objection; or(b)any further information the Commissioner may require from the taxpayer, failure to which the objection shall be deemed to be allowed.”

32. In the circumstances, the Tribunal noted that the Respondent was way out of the mandatory 60 days to make its objection decision.

33. The Court in the case of Republic vs Commissioner of Domestic Taxes Ex Parte Fleur Investments Limited [2020] eKLR the Honorable Judge John M. Mativo held that:“I find backing in Republic v Commissioner of Customs Services Ex-Parte Unilever Kenya Limited in which the court stated that if the Commissioner does not render a decision within the stipulated period, the objection is deemed as allowed by operation of the law. The act requires that where the Commissioner has not made an objection within 60 days from the date the taxpayer lodged the notice of objection, the decision objection shall be allowed. This means that the issues that the taxpayer had raised in the objection will be accepted”.

34. Accordingly, the Tribunal holds that the Appellant’s objections were allowed by operation of the law.

b. Whether the Respondent erred in Confirming Additional Assessments of the Appellant as per Objection Decision dated 4th January, 2023. 35. Having found that the Appellant’s objections were allowed by operation of the law, the Tribunal did not delve into the second issue for determination as it was rendered moot.

Final Decision 36. The upshot of the foregoing is that the Appeal succeeds and the Tribunal proceeds to make the following orders: -a.The Appeal be and is hereby allowed.b.The Respondent’s Objection decision dated 4th January, 2023 be and is hereby set aside.c.Each party to bear its own costs.

37. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF APRIL, 2024. GRACE MUKUHA - CHAIRPERSONDR. ERICK KOMOLO - MEMBERJEPHTHAH NJAGI - MEMBERDR. WALTER J. ONGETI - MEMBERGLORIA A. OGAGA - MEMBER