[2024] KETAT 718 (KLR)

Khaki v Commissioner of Domestic Taxes Department (Tax Appeal E473 of 2023) [2024] KETAT 718 (KLR) (Commercial and Tax) (17 May 2024) (Judgment)

Neutral citation: [2024] KETAT 718 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tax Appeal E473 of 2023

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, T Vikiru & AK Kiprotich, Members

May 17, 2024

Between

Mohsin Abdulrasul H.G Khaki

Appellant

and

The Commissioner of Domestic Taxes Department

Respondent

Judgment

Background 1. The Appellant is a registered taxpayer and a partner in Kenya Bonded Warehouse Company.

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. Further, under Section 5(2) of the Act, with respect to 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 issue in dispute arose when the Respondent carried out an investigation on the Appellant’s affairs culminating in the issuance of findings vide a letter dated 5th June 2020 and a subsequent assessment dated 13th August 2020.

4. The Appellant objected to the assessment on 20th August 2020 and 1st October 2020. The Respondent thereafter issued his objection decision 17th November 2020 confirming the assessments.

5. Aggrieved by this decision the Appellant lodged his Notice of Appeal dated 31st July and filed on 14th August 2023.

The Appeal 6. The Appeal was premised on the following grounds as listed in the Memorandum of Appeal filed on 14th August 2023:-a.The Appellant is a partner in Kenya Bonded warehouse Company.b.The Respondent erred in law in issuing Income tax additional assessments for the three (3) years based on VAT additional assessments raised in the partnership without awaiting the result of the Appeal in the partnership.c.Valid objections were lodged on 28th February 2023 objecting to income tax additional assessment orders and objection acknowledgement receipt numbers KRA 202302880909, KRA202302881150 an KRA202302881470 all dated 28th February 2023 were issued.d.Inspite of valid objections, the Respondent went ahead and confirmed the income tax additional assessments vide its letter dated 6th July 2023 disregarding the fact that the Appellant issues had been addressed in partnership as per our letter dated 7th December 2020.

The Appellant’s Case 7. The Appellant’s case was premised on its Statement of Facts dated and filed on 14th August 2023 and the written submissions dated 22nd February 2024 and filed on 6th March 2024.

8. The Appellant stated that the Respondent erred in law in issuing Income tax additional assessments for the three (3) years based on VAT additional assessments raised in the partnership without awaiting the result of the Appeal in the partnership.

9. The Appellant further stated that its objections were acknowledged as received under Receipt numbers KRA202302880909, KRA202302302881150 and KRA202302881470 all dated 28th February 2023.

10. The Appellant opined that inspite of his valid objections, the Respondent went ahead and confirmed the income tax additional assessments vide its letter dated 6th July 2023 disregarding all the explanations, reconciliations, and communications provided to the Respondent on 7th December 2022 concerning the partnership.

11. It was the opinion of the Appellant that no further inquires were raised regarding income tax returns for the 3 years in question and there was therefore, need for the Respondent to accept the said returns as they are.

12. The Appellant asserted that the Respondent:a.Disregarded all his reconciliations, communication and explanation and proceeded to issue Income tax additional assessments on-line after a period of 26 months. That considering that he did not receive any response to its letter dated 7th December 2020 he assumed that the issue was settled only for him to see Income tax additional assessments issued after a period of 26 months.b.Erred in law in issuing demand letter for tax in arrears before raising assessments.c.Erred in law in giving its decision and not taking into consideration the explanation given by the Appellant who is a partner in Kenya Bonded Warehouse Company.

13. The Appellant posited that the explanation provide by the Kenya Bonded Warehouse Company which was the key backbone to all partners sufficiently explained all the assessment raised by the Respondent because such assessments were written off through the partnerships because all the transactions go through the partnership.

Appellant’s Prayer 14. The Appelant’s prayer to the Tribunal is for orders that it directs the Respondent to withdraw the Income tax additional assessments for the three (3) years.

The Respondent’s Case 15. The Respondent’s case is premised on its:-a.Statement of Facts dated and filed on 14th September 2023. b.Written Submissions dated 1st March 2024 and filed on 5th March 2024.

16. The Respondent stated that it issued its additional assessments for the two years on 13th August 2020 based on the Value Added Tax additional assessments issued in the partnership where the Appellant is a partner. That prior to that it had reviewed the Partnership’s tax affairs upon receiving a profiled sector analysis on the operation of bonded warehouses.

17. The Respondent relied on:a.Section 23 of the TPA regarding record keepingb.Section 97 of the TPA regarding fraud in tax matters.c.Section 13 of the TPA regarding procedures for Appeal.d.Section 3 of the ITA regarding charge to tax.e.Section 15 of the ITA regarding deductions allowed.f.Section 16 of the ITA regarding deductions not allowed.g.Section 52 of the ITA regarding deductions from certain income.

18. That the reconciliation provided by the partners were misleading and incorrect.

19. That the Appellant objected to the objection decision on 7th December 2020 and asked the Respondent to review the same.

20. That the Appellant also objected to the updated iTax assessments on 28th February 2023 through iTax System and the Respondent informed him on 7th July 2023 that it had issued its objection decision dated 17th November 2020, and the same cannot be reviewed again.

21. The Respondent posits that the Partnership and the Appellant are two entities separate and distinct from each other in tax law and therefore their tax matters should be separated. That the tax affairs of the Appellant has thus been handled separately from the partnership.

22. It was also its view that the Appellant did not comply with Sections 12 and 13 of the tax Appeals Tribunal Act, 2012 and thus this Tribunal should down its tools as it lacks jurisdiction in this matter.

23. The Respondent affirmed that the Appellants’ notice of objection of 28th February 2023 is not an objection for the purposes of Section 51(1)-(3) of the Tax Procedure Act 2015 and that it is invalid for the following reasons:i.The Respondent confirmed the assessment through an objection decision on 17th November 2020. The Respondent having issued the decision with regard to the Appellant’s objection, which was validated on 1st October 2020, the same cannot be reviewed thereafter again by the Respondent unless as ordered by a judicial authority.ii.In order for the Respondent to effect the manual objection decision dated 17th November 2020 on iTax system, the assessment had to be updated in the system.iii.The amendments of the iTax were merely procedural to enable the Respondent amend the Appellant’s electronic ledger and update the tax liability to reflect the decision of the Respondent dated 17th November 2020 for the purposes of ease of tax administration by the Respondent.iv.To that end therefore, the Appellant’s Appeal herein was incompetent as it was not founded on any known law or procedure; andv.The Appeal herein is bad in law and an abuse of the judicial process and thus should be struck out with costs to the Respondent.

24. The Respondent averred that the Appellant did not discharge his burden of proof as is envisaged in Section 56 of the TPA.

25. The Respondent identified a singular issue for determination in its Submission which was: whether the decision by the Respondent was proper in law.

26. The Respondent submitted on this issue that Section 24(2) of the TPA allows it to assess a taxpayer’s tax liability using any information available to it and it is also not bound by the tax returns of the Appellant. It cited the case of Kisa Jaffar Tenge v Kenya revenue Authority: Cooperative bank of Kenya (Interested party) [2020] eKLR to support this position.

27. That it used its best judgment based on available information to make its decision as is provided in Sections 29 and 31 of the Tax Procedures Act 2015 because it had sought for explanations and documents from the Appellant but the same was not provided.

28. That the reconciliation provided by the Appellant included both deposits of partners (Savings & fixed deposits) and the partnership which in its view was incorrect and was misleading since the two entities are distinct from each other.

29. The Respondent stated that pursuant to Section 56 of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act, the burden of proof lay on the Appellant to demonstrate that he discharged his tax liability. That this burden was never discharged as no documentary evidence was availed to enable it render a meritorious decision in the circumstances.

30. The Respondent further submitted that the Appellant did not provide proof of a charitable organization as provided for in the Income tax (charitable donation) Regulations, 2007 for the donations claimed to be allowed.

31. That the Appellant failed to show that the assessments were incorrect and his allegations are thus mere statements as opposed to grounds of objection meaning that the Respondent’s decision retained its presumption of correctness. This view was supported with cases of Nairobi AT No. 25 of 2016 family Signature Limited Vs. The Commissioner of investigations & Enforcement and TAT No. 28 of 2018- Joycott General Contractors Limited -V- Kenya Revenue Authority.

Respondent’s Prayer 32. The Respondent’s prayer to the Tribunal was for orders that:a.The Respondent’s confirmation of assessment dated 6th July 2023 is proper in law and the same be affirmed;b.The Appellant’s Appeal lacks merit and that it be dismissed with costs to the Respondent.

Issues for Determination 33. Upon perusing the pleadings and documentation produced before it, together with the submissions of the parties, the Tribunal is of the view that the following are the main issues falling for its determination:-a.Whether the Appellant’s Appeal is competent in law.b.Whether the Respondent’s Objection decision was lawful.c.Whether the Appellant’s assessment was justified.

Analysis and Findings 34. The Tribunal wishes to analyse the issues as herein-under:

a.Whether the Appellant’s Appeal is Competent in law. 35. The Respondent argued that the Appelant’s Appeal was incompetent because it was filed out of time. It was its view that whereas the objection decision was issued on the 17th of November 2020 the Appeal herein was filed 1000 days later on 14th August 2023 contrary to Sections 13 and 14 of the TAT Act. That no leave was sought and obtained to file the said Appeal out of time.

36. The Appellant did not offer a rebuttal to this issue both in its Statement of Facts and the written submissions.

37. Section 13(1)(b) provides as follows regarding timelines for filing an appeal before the Tribunal:“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 of the decision of the Commissioner.”

38. It is clear from a reading of Section 13(1)(b) of the TAT Act that an appeal to the Tribunal should be filed within thirty (30) days upon receipt of the objection decision.

39. The objection decision in this matter which was produced by both parties in evidence was dated 17th November 2020.

40. Considering that the Appeal was filed on the 14th August 2023, it is clear that the Appeal was filed late by over 2 years and 9 months. On this premise alone the Appeal was late.

41. Even if the Tribunal was to take the date of 28th of February 2023 which is preferred by the Appellant as the date of decision, the said Appeal would still be late by about 5 months. The Appeal would again fail on this premise.

42. No evidence was presented before the Tribunal to show that the Appellant sought and obtained leave to file this Appeal out of time as is envisaged in Section 13(3) and (4) of the TAT Act, which states as follows:“(3)The Tribunal may, upon application in writing or through electronic means, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).(4)An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from filing the notice of appeal or submitting the documents within the specified period”

43. Accordingly, the Tribunal finds and hold that this Appeal is incompetent as it is time-barred.

44. Given that the Tribunal has determined the Appellant’s Appeal was invalidly lodged the other two issues that fell for determination have been rendered moot and shall not fall for determination.

Final Decision 45. The upshot to the foregoing is that the Appeal is incompetent and unsustainable in law and the Tribunal accordingly proceeds to make the following Orders;-i.The Appeal be and is hereby struck out.ii.Each party to bear its own costs.

46. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 17THDAY OF MAY, 2024ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERDR. RODNEY O. OLUOCH - MEMBERTIMOTHY B. VIKIRU - MEMBERABRAHAM K. KIPROTICH - MEMBER