[2023] KETAT 516 (KLR)

Kimurgong v Commissioner of Domestic Taxes (Tax Appeal 467 of 2022) [2023] KETAT 516 (KLR) (19 October 2023) (Judgment)

Neutral citation: [2023] KETAT 516 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 467 of 2022

Grace Mukuha, Chair, G Ogaga, Jephthah Njagi, E Komolo & T Vikiru, Members

October 19, 2023

Between

Musa Kipchebii Kimurgong

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a registered taxpayer and a sole proprietor who operates a hotel and transport business which has its operations in Eldoret town.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and is charged with the responsibility of among others, assessment, collection, accounting and the general administration of tax revenue on behalf of the Government of Kenya.

3. The Appellant filed self-assessment returns for income tax for the year of income 2015, 2016, 2017 and 2018.

4. The Respondent thereafter raised additional assessments after a review of income tax returns and the assessment orders were sent to the Appellant on 24th March 2020 through iTax System and also via email provided by the Appellant in the iTax profile.

5. The Appellant lodged objections to the assessments on 7th April 2020 through the iTax system vide objection acknowledgment numbers KRA20*4910348, KRA20200-4*691, KRAX02004*156 and KRA20200*8S68.

6. The Respondent confirmed the assessments on 25th January 2022 and the Appellant aggrieved by the decision lodged its Appeal by filing its Notice of Appeal on 27th April 2022.

The Appeal 7. The Appeal is premised on the Memorandum of Appeal dated 6th May 2022 and filed on 16th May 2022 setting out the grounds as hereunder.a.That the Commissioner of Domestic Taxes erred in law and fact by determining income tax on the additional assessments issued and confirmed.b.That the Commissioner of Domestic Taxes erred in law and fact by rejecting expenses incurred genuinely in furtherance of the business objectives.c.That there are some expenses e.g. depreciation and loan interest expenses that were not correctly classified in the books of accounts in determining the taxable income.d.That the Appellant was not requested to bring the source documents to ascertain the expenses disallowed.e.That the Commissioner went ahead and closed all the Appellant's bank accounts which action had a huge setback in the smooth running of the business given that he operates on an overdraft which cannot be serviced.

Appellant’s Case 8. The Appellant’s case is premised on the Statement of Facts filed on 16th May 2022 and attachments thereto.

9. The Appellant averred that the Respondent did an additional assessment on him for the years of income 2015, 2016, 2017 and 2018 and issued an assessment notice on 24th March 2020 requiring the Appellant to pay Kshs 15,492,411. 11 in principal tax plus interests arising from disallowing some of the expenses.

10. That the Appellant raised an objection after which the Respondent, contrary to the expectation of the Appellant, wrote to the Appellant vide objection rejection notices dated 25th January 2022 and informed him of the decision to fully reject the objections.

11. That at no time did the Respondent write to the Appellant concerning the objection as required by the Tax Procedures Act (TPA) in case an objection is not validly lodged and therefore as per Section 50(3)(4) the objection was valid.

12. That the Commissioner of Domestic Taxes erred in law and fact by failing to consider that the Respondent filed the income tax returns as per Section 21 of the Income Tax Act.

13. That the Respondent erred in not allowing the Appellant to bring the source documents and that the Appellant endeavors to pay the balance of income tax of Kshs 388,514. 19.

Appellant’s Prayers 14. The Appellant prayed for: -a.The Respondent’s tax decision confirming the additional assessments be set aside.b.Allowance of the amendment of the returns to reflect the right position of the business.

Respondent’s Case 15. The Respondent’s case is premised on the hereunder filed documents: -(a)The Respondent’s Statement of Facts dated and filed on 15th June 2022. (b)The Respondent’s Written Submissions dated 8th December 2022 and filed on 9th December 2022.

16. The Respondent raised a Preliminary Objection under the following points of law:a.That the Appeal is fatally detective as it is contrary to the provisions of the Tax Procedures Act under Section 52(2) as the Appellant failed to pay the tax not in dispute of Kshs. 388,514. 19 as admitted in paragraph 8 of the Appellant's Statement of Facts.b.That the Memorandum of Appeal dated 6th May 2022 against the Respondents decision of 25th January 2022 is fatally detective having being filed outside the mandatory provisions of Section 13(b) of the Tax Appeals Tribunal Act (No. 40 of 2013).

17. The Respondent refuted each and every one of the allegations by the Appellant in the Memorandum of Appeal and Statement of Facts and reiterated that the Appellant's objection lodged on 7th April 2020 was invalid for non-compliance with the provisions of Section 51(3) of the TPA.

18. The Respondent also averred that its empowered by Section 37 A(2) of the Tax Procedure Act to allow forty percent deduction of expenditure where a person has no documentation to support expenditure. That the five percent estimated profit margin was based on analysis of the other taxpayers operating in the same sector.

19. The Respondent stated that the TPA allows it to assess tax based on the available information in the event the taxpayer fails to amend returns and provide the documents necessary for the determination of the due tax liability.

20. That the Respondent is empowered by law to review, amend and alter an original assessment by dint of Section 31 of the TPA and that determination of tax liability depends on submission of necessary records by the Appellant.

21. The Respondent submitted that the Appellant lodged objections on the 7th April 2022 but the said objections were invalid for non-compliance with Section 51(3)(a) of the TPA which sets out the threshold for a valid objection.

22. The Respondent also submitted that the assessments issued were in accordance with Section 29(1) of the TPA and thus were in conformity with the law.

23. The Respondent stated that the Appellant did not avail any evidence to support his claim that the assessments were erroneous and as a result the Respondent confirmed the assessments on the 25th January 2022.

24. The Respondent also submitted that the burden is on the taxpayer to prove that a tax decision is incorrect as is the position in Section 56 of the TPA and Section 30 of the TAT Act.

25. That the Appellant failed to adequately demonstrate that the tax assessments carried out by the Respondent were incorrect and therefore the Appellant should not be granted the reliefs sought in the Appeal.

26. The Respondent in support of its case has relied on the cases of Mulheim v Commissioner of Taxation [2013] FCAFC 115; Commissioner of Domestic Taxes v Golden Acre Ltd and Hewlett Packard East Africa Ltd v Commissioner of Domestic Taxes [2019]Eklr amongst others

Respondent’s prayers 27. The Respondent prayed for the Tribunal to:a.Confirm the assessment dated 25th January 2022b.Dismiss the Appeal with costs

Issues For Determination. 28. After perusing the pleadings, submissions and documentation produced before it, the Tribunal is of the view that the issues that calls for its determination are:-a.Whether there is a valid Appeal.b.Whether the Respondent’s assessment on the Appellant was justified.

Analysis And Findings 29. Having identified the issues that call for its determination, the Tribunal proceeds to analyse them as hereunder.

a.Whether there is a valid Appeal 30. The Respondent raised a preliminary objection in the matter arguing that the Appeal as filed by the Appellant is invalid as the Memorandum of Appeal was filed on 16th May 2022 against the decision of 25th January 2022. That this is against the provisions of Section 13 (b) of the Tax Appeals Tribunal (TAT) Act.

31. The Appellant did not refute the arguments of the Respondent in the preliminary objection in any way.

32. A scrutiny of the documents filed by the Appellant shows that the Notice of Appeal was filed on 27th April 2022 and this was more than ninety (90) days after the Respondent made its decision.

33. Section 13 (1)(b) of the TAT Act provides as follows: “(1)A notice of Appeal to the Tribunal shall-a)……………..b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.”

34. The Appellant obviously failed to comply with the law on the applicable statutory timelines and procedures for filing Appeals. This is against the Tribunal’s holding in many matters where the issue of compliance with timelines has been held to be an integral ingredient of the appeal process. This was the holding in the case of Eastleigh Mall Limited v Commissioner of Investigations & Enforcement (Income Tax Appeal E068 of 2020) [2023] KEHC 20000 (KLR) 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.”

35. Similarly the Tribunal is further guided by 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.”

36. The Tribunal on the basis of the above cited law and the evidence in the matter concluded that the Appeal is invalid.

37. Having found that the Appeal is invalid, the second issue for determination was not analyzed as it was rendered moot.

Final Decision 38. The upshot of the foregoing is that the Appeal is incompetent and the Tribunal accordingly proceeds to make the following final Orders: -a.The Appeal be and is hereby struck outb.Each party to bear its own costs.

39. It is so ordered

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF OCTOBER, 2023. GRACE MUKUHA -CHAIRPERSONGLORIA A. OGAGA - MEMBERJEPHTHAH NJAGI - MEMBERDR. ERICK KOMOLO - MEMBERTIMOTHY VIKIRU - MEMBER