[2024] KETAT 1603 (KLR)

Kenric Investments Limited v Commissioner of Domestic Taxes (Appeal E907 of 2023) [2024] KETAT 1603 (KLR) (22 November 2024) (Judgment)

Neutral citation: [2024] KETAT 1603 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal E907 of 2023

Grace Mukuha, Chair, E Komolo, GA Kashindi & AM Diriye, Members

November 22, 2024

Between

Kenric Investments Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a private limited liability company incorporated in Kenya under the Companies Act. Its principal activity is in the business of construction and its based in Embu County.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 Laws of Kenya (KRA Act). Under Section 5 (1) of the Act, KRA is an agency of the Government for the collection and receipt of all revenue. For the performance of its function under Subsection (1), the Authority is mandated under Section 5(2) of the Act to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the KRA Act to assess, collect, and account for all revenues under those laws.

3. The Respondent raised additional assessments on VAT and Income tax against the Appellant based on the audit findings for the period 1st January 2019 to 31st December 2019.

4. The Appellant consequently made a late objection for both taxes and on 11th September 2023 the Respondent issued the Appellant with the Objection Decision rejecting the objection notice and confirming the assessment.

5. Dissatisfied with the Respondent’s objection decision, the Appellant filed its Notice of Appeal on 11th December 2023.

The Appeal 6. The Appeal is premised on the Memorandum of Appeal filed on 11th December 2023 which raised the following grounds: -a.The Respondents erred in law and fact by issuing additional Assessments on Income tax for tax period 1st January 2019 to 31st January 2019 factoring in the cost of sales (Deductible inputs for Construction) expenses incurred for the various sales made in the tax period.b.That VAT withholding credits deducted from source were not considered when computing the final figure for Income Tax, for Tax Period 01/01/2019 to 31/12/2019. c.That the rejected deductible inputs, hire of Machinery and Equipment and Direct wages expenses submitted to the Respondent in support of the Objection were paid by cash, monies withdrawn from the company's Bank Account, which is hereto attached.d.That the Appellant had valid VAT inputs /deductible expenses incurred in the course of doing business which were presented to the Commissioner Domestic Taxes.

Appellant’s Case 7. The Appellant’s case is also premised on its statement of facts dated and filed on 11th December 2023

8. The Appellant averred that the dispute arose as a result of a tax review carried out by the Respondent where additional assessment was raised on VAT returns and Income tax returns based on the audit findings for tax period 1st January 2019 to 31st January 2019.

9. That the Appellant made a late objection in iTax objecting in full to the additional assessments raised.

10. That Pursuant to Section 56 of the TPA and Section 30 of the Tax Appeals Tribunal Act, the burden of proof lies with the Taxpayer to demonstrate that the Commissioner's decision was incorrect. That this burden was discharged at the initial desk Audit review period and documentary evidence was submitted in the form of original copies of purchase invoices and bank statements as documentary evidence to the Commissioner to support the original VAT Returns filed for respective periods in iTax.

11. That on the 11th of September 2023 the Commissioner Legal Services and Board Coordination issued the Taxpayer with the Objection decision fully rejecting the Objection on the basis of lack of support. That the support of documentation (Certified bank statements, Cost of Sales Purchases, Muster roll for Direct Wages and Expenses incurred on hiring of equipment) is in hardcopies and which documents shall be attached to the physical application as an Annexure as the same are bulky.

12. The Appellant averred that the objection decision confirmed the additional assessments.

13. That the invoices submitted by the Appellant in filing of VAT returns were similar in substance and content of the transactions reflected therein to those submitted by the Appellant’s suppliers.

APPELLANT’S PRAYERS 14. The Appellant prayed for orders against the Respondent that:a.The Appeal be allowed.b.The decision of the Respondent to levy additional Income Tax and Additional assessment of principal Kshs. Kshs.2,936,104. 21 and VAT of Kshs.5,574,705 against the Appellant be set aside.c.Each party to bear its costs.d.Such further orders or reliefs as the Tribunal may deem just and expedient.

Respondent’s Case 15. The Respondent’s case is premised on the following documents:a.The Preliminary objection dated 20th August 2024 and filed on 28th August 2024b.The written submissions dated 20th August 2024 and filed on 22nd August 2024.

16. The Respondent submitted through its preliminary objection and its submissions that there is no valid Appeal before the Tribunal. That it is not in dispute that the Objection Decision was issued to the Appellant on 11th September 2023 and the Appellant filed its Notice of Appeal on 23rd October 2023 which was 12 days late.

17. That further the Appellant filed its memorandum of Appeal on 11th December 2023 which is more than a month later and the Appellant did not seek leave to file the Appeal out of time.

18. The Respondent argued that the Tribunal has ruled on various occasions that where an appeal has been filed out of time, the leave to so file must be sought before filing the Appeal. That having failed to seek the leave of the Tribunal, there exists no valid appeal.

19. The Respondent averred that the assessment was conducted against the backdrop of Section 3 of the Income Tax Act which provides for taxation of incomes derived from or accrued in Kenya and Section 29 of the Tax Procedures Act on default assessments.

20. That in addition, for the Notice of Objection to be valid, the taxpayer has to precisely state the grounds of objection and also provide all the relevant documents in support of the objection as provided for in Section 51 (3) of the Tax Procedures Act (TPA).

21. That the Respondent pursuant to Section 24 (2) of the Tax Procedures Act is not bound by a tax return or information provided by, or on behalf of a taxpayer and may assess a taxpayer's liability using any information available to him. That in that regard, the Appellant failed to produce further supporting documents that had been requested for by the Respondent.

22. That the Appellant having failed to provide the necessary documents and information to validate its objection as provided for in Section 51 despite having the burden of proof to do so, the Respondent was proper in exercising its best judgement in issuing the objection decision which was done in this case.

23. The Respondent relied on Section 23(1) of the Tax Procedures Act which requires the Appellant to keep records to enable the Respondent assess its tax liability and on the provisions of Section 59 of the Tax Procedures Act on the production of documents.

24. That from the foregoing, the Respondent stated that the Appellant has not provided any additional evidence to show that the Respondent's confirmed assessment was wrong and therefore the appeal herein is devoid of any merits.

25. The Respondent also maintained that the taxes outlined in the assessment and the decision were in conformity with the provisions of the various tax laws and the same should be upheld.

26. The Respondent in support of its case relied on the holdings in Primarosa Flowers Ltd vs Commissioner of Domestic Taxes [2019] EKLR, KRA vs Man Diesel & Turbo Semenya [2021] EKLR and Boleyn International Ltd vs Commissioner of Domestic Taxes amongst Others.

Respondent’s Prayers 27. The Respondent prayed for the:a.Striking off of the Appeal for being filed out of time without leave of the Tribunal.b.Dismissal of the Appeal as the same lacks merit.c.Upholding of the Respondent's objection decision.d.Costs of the Appeal

Issues for Determination 28. Having carefully reviewed the pleadings and submissions by both parties together with the annexures thereto, the Tribunal is of the considered view that the following issues fall for its determination: -a.Whether the Appeal is Valid.b.Whether the Objection decision issued by Respondent on 11th September 2023 was justified

Analysis And Findings Whether the Appeal is Valid 29. The instant Appeal was precipitated by the Appellant’s Notice of Appeal dated 23rd October 2023 and filed on 11th December, 2023. The Notice of Appeal specifically refers to the Respondent’s Objection Decision dated 11th September, 2023 as the basis of the intended appeal.

30. The Respondent raised a preliminary objection dated 20th August 2024 and also submitted that the Notice of Appeal was lodged out of time and without leave of the Tribunal and that the Appellant having failed to seek the leave of the Tribunal, its appeal is not valid. The Appellant, on the other hand, did not refute the Respondent’s submissions on this issue.

31. The Tribunal has taken into consideration the provisions of Section 13 (1)(b) of the Tax Appeals Tribunal Act, 2013, which provides as follows: -“(1)A notice of appeal to the Tribunal shall - (a)be in writing or through electronic means;(b) be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.”

32. From the record before us, it is apparent that the Appellant filed the Notice of Appeal on 11th December 2023, whilst the Objection Decision was issued on 11th September 2023. This was obviously outside the statutory timeline of 30 days envisaged under Section 13(1) of the Tax Appeals Tribunal Act, 2013.

33. The Tribunal equally noted that the Appellant neither sought nor was it granted leave by the Tribunal to file the instant appeal out of the statutory time.

34. The Tribunal also took into consideration its earlier holdings with reference to the issue of observation of time and in particular the case of W.E.C. Lines Ltd vs. The Commissioner of Domestic Taxes [TAT Case No.247 of 2020] where it was held at paragraph 70 while reiterating the holding in Krystalline Salt Ltd vs KRA [2019] eKLR that: -“Where there is a clear procedure for redress of any particular grievance prescribed by the constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures. The relevant procedure here is the process of opposing an assessment by the Commissioner.”

35. The Tribunal is also guided on the adherence to timelines by the case of Eastleigh Mall Limited -vs- Commissioner of Investigations & Enforcement (Income Tax Appeal E068 of 2020) [2023] eKLR where the court held: -“... Parliament in its wisdom knew that in matters tax, time is very crucial as those in commerce need to make informed decisions. If the Commissioner is allowed to exercise his discretion and stay ad-infinitum before issuing an objection decision, the tax payer would be unable to make crucial decisions and plan his/her business properly. The timelines set are mandatory and not a procedural technicality.”

36. Based on the Statutory law and the case laws cited above, the Tribunal finds that there is no valid appeal before it as the Notice of appeal in the matter was filed out of time and without leave of the Tribunal. In the circumstances the Tribunal did not delve into the other issue set out for determination as the same was rendered moot.

Final Determination 37. Accordingly, it is the determination of the Tribunal that the Appeal is incompetent and proceeds to issue the following orders: -a.The Appeal is hereby struck out.b.Each party to bear its costs.

38. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 22ND DAY OF NOVEMBER 2024. ................................................................GRACE MUKUHA - CHAIRPERSONDR. ERICK KOMOLO - MEMBERGEORGE A. KASHINDI - MEMBERABDULLAHI DIRIYE - MEMBER