[2023] KETAT 559 (KLR)

Kariiyu v Commissioner of Domestic Taxes (Tax Appeal 625 of 2022) [2023] KETAT 559 (KLR) (29 June 2023) (Judgment)

Neutral citation: [2023] KETAT 559 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 625 of 2022

RM Mutuma, Chair, RO Oluoch, EN Njeru & D.K Ngala, Members

June 29, 2023

Between

Mercy Muthoni Kariiyu

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a partner in the partnership - Masada Hotel, which is the hospitality business.

2. The Respondent is a principal Officer appointed under Section 13 of the Kenya Revenue Authority Act, and the Authority is mandated with the responsibility of assessing, collection, receipting and accounting for all the tax revenues as an agent of the Government of Kenya and is also mandated to administer and enforce all the statutes set out in the schedule to the Act.

3. The Appellant was issued with income tax additional assessments for the tax periods 2015, 2016, 2017 and 2018, due to undeclared business income earned from the partnership – Masada Hotel. The Respondent consequently issued the Appellant with a demand for taxes amounting to Kshs 7,870,662. 00 for the period 2015 -2017 on 9th June, 2020.

4. The Appellant lodged an online objection application on 1st October 2020 and the Respondent issued the Appellant with its Objection Decision on 8th December, 2020, which was based on failure by the Appellant to avail sufficient documents to support the objection application.

5. The Appellant being dissatisfied with the Respondent’s decision filed the Appeal herein on 16th June, 2022.

The Appeal 6. The Appellant filed its Memorandum of Appeal on 16th June, 2022, and set out the following grounds of Appeal;i.That the Respondent erred in law and fact in their interpretation and application of Section 51(2), Section 51(3) (a) & (b) and Section 93(1) of the Tax Procedures Act and Section 15(1) of the Income Tax Act with respect to the Appellant lodging of objection, stating grounds of objection, lodging the same in a timely fashion, failing to provide, produce and or maintain proper documentation.ii.That the Appellant validly filed and or lodged a notice of objection within the time, the same stating clearly, precisely grounds of objection and reasons for the amendment.iii.That the Appellant lodged a notice of objection within time meeting the threshold of Section 51(2 & 3) of the Tax Procedures Act, the Commissioner failed, neglected or ignored to consider the objection and or evidence and documents submitted for consideration.iv.That the Respondent erred in law and fact in their interpretation and final determination by failing to consider the documentation presented by the Appellant.v.That the Appellant fully complied with the provisions of section 51(2), (3)(a) & (b), and section 93(1) of the Income Tax Act.

7. By reason of the aforesaid grounds, the Appellant prayed that her Appeal be allowed and the Respondent’s objection decision be set aside.

The Appellant’s Case 8. The Appellant has set out her case in her Statement of Facts filed on 16th June, 2022.

9. The Appellant stated that it was issued with a demand for underpaid tax by the Respondent’s office in Nairobi vide a letter dated 23rd March, 2020, which was procedurally, timely and duly responded to by Vatcon Consultants Ltd on the Appellant’s behalf, with an attached computation displaying the errors and or correction which ought to have been adopted prior to the assessment.

10. The Appellant further stated that as the parties were undertaking negotiations and computations, the Appellant was again served with a demand notice from the Respondent’s office in Meru on the same tax declarations as the demand from the Nairobi office.

11. The Appellant averred that through Vatcon Consultants Ltd, the aforementioned letter in paragraph 3 was responded to and objections raised. The Respondent’s office in Meru were duly, timely and procedurally informed of the conundrum and were thus duly notified of the duplicity of the claim and that the same was still under negotiations in Nairobi.

12. It was also a contention of the Appellant that despite being fully informed and aware of the contrary and or contradictory circumstances of the case, the Respondent’s office in Meru went ahead to issue or deliver an assessment on 8th December, 2020.

13. The Appellant averred that the assessment is incorrect, it failed to consider submissions and or objections before it and further the Respondents agent in Meru failed to collaborate with his counterpart in Nairobi in order to participate in negotiations or even indeed consolidate the said files.

14. The Appellant prayed that by reason of the foregoing, its Appeal herein be allowed and the Respondent objection decision be set aside.

The Respondent’s Case 15. The Respondent’s case is set out in the Statement of Facts filed on 30th June, 2022, and the written submissions filed on 18th January, 2023.

16. The Respondent stated that the Appellant was issued with income tax additional assessments for the tax periods 2015, 2016, 2017, and 2018 due to undeclared business income earned from the partnership– Masada Hotel.

17. The Respondent stated that its demand letter for underpaid tax dated 23rd March, 2020, was based on preliminary information that the Appellant failed to declare income derived from Masada Hotel for the years of income 2014 to 2018. However, taxable income from the partnership attributed to the Appellant that was subjected to income tax at 30 % was for the years 2017 and 2018 totaling to Kshs. 3,513,901. 00 as the partnership made losses in 2014, 2015 and 2016.

18. The Respondent also stated that upon concluding a review of the Appellant’s tax declarations, then sent a demand notice dated 9th June, 2020, informing the Appellant that she also has outstanding tax arrears of Kshs. 7,870,662. 00 for the years of income 2015 to 2017.

19. The Respondent further averred that the Appellant then lodged an online objection application on 1st October, 2020, which was five months after the Respondent issued the demand letter for unpaid tax dated 23rd March, 2020, and also three months after the Respondent issued the demand notice dated 9th June, 2020.

20. The Respondent issued the Appellant with an objection decision dated 8th December 2020 in which the Appellant‘s notice of objection was rejected on the grounds that the Appellant failed to avail sufficient documents to support its objection application which was time barred.

21. The Respondent submitted that it was guided by section 51(2) and (3) of the Tax Procedures Act which states as follows;“(2)A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision.(3)A notice of objection shall be shall be treated as validly lodged by a taxpayer under section (2) if –a.the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, ant the reasons for the amendments;b.in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under assessment that is not in dispute or has applied for an extension of time to pay the tax not in dispute under section 33(1); andc.all the relevant documents relating to the objection have been submitted.”

22. The Respondent also relied on section 56(1) which provides as follows;“(1)In any proceedings under this part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

23. It was a submission of the Respondent that the Appellant was issued with demand notices dated 23rd March 2020, and 9th June 2020 but did not provide evidence challenging the Respondent’s decision.

24. The Respondent also submitted that the Appellant has failed to discharge his evidential burden of proof under Section 107(1) of the Evidence Act, in demonstrating that the assessment by the Respondent was in any reasonable manner incorrect or excessive.

25. The Respondent also submitted that the Appellant’s under-declaration constitutes a tax offence of knowingly omitting from its tax returns an amount that should have been included contrary to Section 97 (a) of the TPA.

26. The Respondent also submitted that although the law recognizes the self-assessment regime, the Respondent is empowered by Section31 of the TPA to amend such assessment if it has available information.

27. To buttress its case, the Respondent cited the case of Family Signature Ltd -vs- The Commissioner of Investigations and Enforcement TAT 25 of 2016, where the Tribunal held that;“When the Respondent is prompted to resort to an alternative method of determining the income and in assessing the tax liability of a taxpayer, it has a onerous responsibility to act reasonably by exercising best judgement informed by pragmatic and reasonable considerations that do not in any manner result in ridiculously high income margin.”

28. The Respondent submitted that it exercised its best judgement appropriately in the circumstances thereby arriving at the tax assessment it did.

29. The Respondent also cited the case of Joycott General Contractors Ltd -vs- Kenya Revenue Authority TAT 28 of 2018, where the Tribunal held;“We find that the Appellant seems to forget that it bears the burden of proof, in law to demonstrate to this Tribunal that the Respondent’s assessment was wrong. Especially with regard to the under declarations and variance in respect of VAT and income sales. On the contrary, the Appellant has not bothered to substantially traverse the assessment raised. All it has done is to make sweeping and expansive accusations without substantial support.”

30. The Respondent submitted that the Appellant having under declared her tax obligations, leading to additional assessment confirmed on third party documents, and having fatally failed to demonstrate the same to be erroneous, then the said assessment and subsequent objection decision dated 8th December 2020, remains valid in law and ought to be upheld.

31. The Respondent reiterated that the Appellant failed to support her objection with the requisite documents to prove any of the amounts and particulars of the assessment incorrect.

32. By reason of the foregoing submissions, the Respondent prayed that the Appellant ‘s Appeal be dismissed and the Respondent’s objection decision upheld.

Issues for Determination 33. The Tribunal having carefully considered the filings and submissions made by the parties is of the view that the Appeal herein distils into two issues for determination; -i.Whether the Appellant ‘s Objection Notice was validly lodged.ii.Whether the Respondent was justified in its assessment against the Appellant.

Analysis and Determination i. Whether the Appellant’s Objection Notice was validly lodged. 34. The Appeal herein arises out of the Respondent’s assessment against the Appellant on undeclared business income accruing from Masada Hotel where the Appellant is a partner. The Appellant objected to the assessment and the Respondent upheld its assessment in its Objection decision on the basis that the Appellant lodged its objection notice outside the prescribed statutory period and also did not submit the required documentation to support the objection notice.

35. The relevant provisions guiding the process of objection to a tax decision can be found in Section 51 (2& 3) of TPA which provides as follows;“(2)A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, to the Commissioner within thirty days of being notified of the decision.(3)A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if –a.the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments;b.in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay the tax not in dispute under section 33(1); andc.all the relevant documents relating to the objection have been submitted.”

36. The Respondent has averred that the Appellant was issued with the demand notices for the assessed taxes on the 23rd March, 2020, and 9th June, 2020 but only lodged her objection notice on 1st October 2020 which was 5 months and 3 months late for the two demand notices, clearly outside the statutory prescribed 30 days period within which to file an objection notice.

37. The Appellant’s objection notice was lodged more than three months outside the thirty days prescribed under Section 51 (2) of the Tax Procedures Act and there was therefore inordinate delay in the lodging.

38. The Respondent has also averred that the Appellant failed to submit the requisite documents to support the objection notice.

39. Section 51 (3) c of the TPA is quite clear that, all the relevant documents relating to the objection have to be submitted. The burden of proof is on the Appellant to produce evidence challenging the Respondent‘s decision as incorrect or excessive, in accordance with Section 56(1) of the TPA.

40. A perusal of the Appellant’s Statement of Facts evidently demonstrates that the Appellant did not traverse the assessment raised but only dwelt on unrelated logistical explanations on the handling of the assessment without substantiating the particulars of dispute in the assessment with relevant evidence in support.

41. The onus is upon the Appellant to show that the assessment made upon her is excessive or incorrect, and the Appellant failed to discharge that burden by providing evidence that the Respondent ‘s assessment and demand was excessive and wrong.

42. The case of Boleyn International ltd -vs- Commissioner of Investigations and Enforcement TAT 55 of 2018 buttresses the foregoing position.

43. Section 107 (1) of the Evidence Act provides that;“Whoever desires any court to give judgement as to any legal right or liability dependent on the existence of facts which he asserts must prove that these facts exist.”

44. In failing to demonstrate that the assessment by the Respondent was in any reasonable manner incorrect or excessive, the Appellant failed to discharge this evidential burden of proof.

45. In view of the foregoing, the Tribunal finds and holds that the Appellant failed to avail records and supporting documents in support of her objection notice application, which was also time barred.

46. Consequently the Tribunal comes to the conclusion that the Appellant’s objection notice was filed outside the statutory prescribed period and was not supported, and determines that the Appellant’s objection notice was not validly lodged.

ii. Whether the Respondent was justified in its assessment against the Appellant. 47. The Tribunal having determined that the Appellant’s objection notice was not validly lodged, the issue at hand becomes moot and the Tribunal has no jurisdiction to substantively consider the same.

Final Decision 48. The upshot of the foregoing is that the Appeal fails and the Tribunal proceeds to make the following Orders;a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision dated 8th December 2020 be and is hereby upheld.c.Each party to bear its own costs.

49. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 29TH DAY OF JUNE 2023. ...............................ROBERT M. MUTUMA - CHAIRPERSON...............................RODNEY O. OLUOCH - MEMBER...............................ELISHAH N. NJERU - MEMBER*...............................DELILAH K. NGALA - MEMBER