[2025] KETAT 17 (KLR)

Komu v Commissioner of Legal Services and Board Co-ordination (Tax Appeal E505 of 2024) [2025] KETAT 17 (KLR) (Commercial and Tax) (17 January 2025) (Judgment)

Neutral citation: [2025] KETAT 17 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tax Appeal E505 of 2024

CA Muga, Chair, BK Terer, EN Njeru, E Ng'ang'a & SS Ololchike, Members

January 17, 2025

Between

Jane Wanjiru Komu

Appellant

and

Commissioner Of Legal Services And Board Co-Ordination

Respondent

Judgment

Background 1. The Appellant is a sole proprietor trading under the name Briliance Wine Agencies.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws (hereinafter “the Act”). Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax 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 Part 1 and 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 Respondent carried out a verification exercise with a view to confirm whether the Appellant was tax compliant and this lead to issuance of additional assessments dated 1st February 2024 for VAT and income tax assessments amounting to Kshs. 20,739,356. 00.

4. The Appellant lodged her objection to the assessment on 27th February 2024.

5. On 25th April 2024, the Respondent rendered its objection decision. The Appellant being dissatisfied by the Respondent's decision lodge her Notice of Appeal on 15th May 2024.

The Appeal 6. The Appellant filed her Memorandum of Appeal on 15th May 2024 raising the following grounds of appeal:a.That the Respondent erred in law and in fact by disregarding that the comparison of sales as per bank statement credits and VAT Gross Sales did not factor in non-trade receipts, inter-bankings, reversals/cancellation and debtors settled in current year in determining the Appellant true taxable income.b.That the Respondent erred in law and fact by failing to allow input expenses to arrive at the correct tax position.c.That the assessment was excessive and based on an estimate.d.That the Appellant has all supporting evidence to arrive at an ad rem tax position.

Appellant’s Case 7. The Appellant relied on her statement of facts filed on 15th May 2024 and did not file her written submissions.

8. According to the Appellant, the Respondent amended her VAT and income tax-company self-assessments for the respective periods with the effect of imposing VAT and income tax liability of Kshs. 20,739,356. 00.

9. The Appellant averred that the Respondent erred in law and in fact by disregarding that the comparison of sales and bank statement credits and VAT Gross Sales did not factor non-trade receipts, inter-bankings, reversals/cancellation and debtors settled in current year in determining the Appellant’s true taxable income.

10. The Respondent erred in law and fact by failing to allow input expenses to arrive at the correct tax position. The Appellant also averred that the assessment was excessive and based on estimates.

11. The Appellant stated that she has all supporting evidence to arrive at an ad rem tax position. She also asserted that she wants to take advantage of the amnesty proffered under section 37E of the Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter “TPA”) upon settling the matter amicably and under the maxims of equity with respect to paying what is due to the Respondent.

12. The Appellant expressed apprehension on the imminent agency notices that would be issued on her bankers to the grave detriment of her business and the livelihoods of more than fifty (50) employees unless this Tribunal grants the Orders prayed for herein.

13. The Appellant also accused the Respondent of being insensitive to the Appellant’s circumstances at the time as the Appellant’s recurrent bouts of ill health had incapacitated seamless flow of information as and when it was demanded.

14. The Appellant alleged that she had demonstrated discernible goodwill and resolve to settle the matter amicably and equitably with respect to what is due and payable to the Respondent. The Appellant argued that the appeal raised several arguable issues that should be canvassed before the Tribunal and determined on merit.

Appellant’s Prayers 15. The Appellant urged the Tribunal to make the following Orders:a.That the Respondent’s decision of 26th April 2024 be set aside.b.That the costs of this Appeal be awarded to the Appellant.

Respondent’s Case 16. The Respondent opposed the Appeal by lodging its statement of facts dated 14th June 2024 on even date. The Respondent also filed its written submissions dated 22nd October,2024 on 23rd October 2024.

17. It was the Respondent’s case that it carried out a verification exercise with a view to confirm whether the Appellant is tax compliant. The Respondent alleged that on 19th September 2023 it requested the Appellant to avail documents pursuant to Section 59 of the TPA for verification purposes. It requested the Appellant to avail the following documents for the period 2018-2023: purchase invoices.

sales invoices.

creditors list.

bank statement.

monthly ETR Z reports.

18. The Respondent stated that it noted that there was under declaration of income on the part of the Appellant and that therefore it issued a pre-assessment notice dated 22nd November 2023 in respect of the period between 2019 to 2021 for VAT and income tax. Consequently, on 1st February 2024, the Respondent issued additional assessments VAT and income tax assessments amounting to Kshs 20,739,356. 00 which prompted the Appellant to file an objection on 27th February 2024.

19. The Respondent stated that from 5th March 2024 to 19th April 2024, it requested the Appellant to provide supporting documents to support its objection. The Respondent then rendered its decision on 25th April 2024 upholding the assessment of Kshs 20,739,356. 00 which motivated the Appellant to file this appeal.

20. With regard to the ground that the Respondent erred by failing to allow input expenses to arrive at the correct tax position, the Respondent cited Section 17 of the Value Added Tax Act, CAP 476 of the Laws of Kenya (hereinafter “VAT Act”) which provides that input tax shall be allowable for deduction if the claim is made within six months after the end of the tax period in which the supply or importation occurred.

21. The Respondent stated that this provision enjoins taxpayers to make claims for input tax in a timely manner, thus facilitating efficient tax administration and compliance.

22. The Respondent averred that the Appellant failed to provide sufficient evidence to substantiate that such claims were made within the prescribed timeframe. Consequently, the Respondent maintained that the Appellant's claim for input tax deductions falls outside the allowable period, rendering it inadmissible under the governing tax provisions.

23. In response to whether the assessments were proper or not, the Respondent maintained that the assessment was based on the Appellant’s under declaration of income. It relied on the provisions of Section 24(2) of the TPA to state that it is empowered to assess any taxpayer based on the available information.

24. The Respondent stated that the provisions of section 43 of the VAT Act and Section 54A of the Income Tax Act, CAP 470 of the Laws of Kenya (hereinafter “ITA”) as read together with Section 23 of the TPA enjoins a taxpayer to maintain records for inspection by the Commissioner. It also stated that Section 59 (1) of the TPA provides that a taxpayer shall produce records when required to do so by the Commissioner.

25. According to the Respondent, the assessments were made on the basis that the Appellant failed to avail documentation in support of her objection. It noted instances where the Appellant was directed to avail documents to the Respondent for examination and review. Some of the instances alluded to included:a.On 19th September 2023 in the notice of verification the Appellant was requested to produce records;b.On 22nd November 2023 in the pre- assessment notice, the Appellant was directed to avail documentation to the Respondent; andc.Between 5th March 2024, 19th March 2024 and 19th April 2024 the Respondent made two (2) request and several reminders to the Appellant to provide documents in support of the objection.

26. The Respondent pleaded that as a result of the Appellant’s failure to avail documents rendered the Respondent in a position where it was unable to consider all of the claims raised in the objection. It relied on section 51(3) of the TPA which mandates the Appellant to support her objection with all relevant documents.

27. The Respondent also averred that the burden of proof that an assessment is excessive and/or erroneous lies with the Appellant and pleaded that in the absence of documents it was left with no option but to rely on information available to it.

28. The Respondent also relied on its written submissions wherein it submitted that its additional assessments were justified. It relied on section 24 and 31 of the TPA to support the position that it is not bound by tax return or information provided by, or on behalf of, a taxpayer and the Commissioner may assess a taxpayer's tax liability using any information available to the Commissioner and that it used the best judgment in arriving at the assessments.

29. The Respondent relied on the case of Commissioner of Domestic Taxes v Altech Stream (EA) Limited [2021] eKLR where the court stated that Section 31(1) of the TPA allows the Commissioner to make an assessment based on such information as may be available and to the best of his judgement.

30. It submitted that whereas section 17 of the VAT Act provides that input tax shall be allowable for deduction if the claim is made within six months after the end of the tax period in which the supply or importation occurred, the Appellant failed to adhere to the provision because the Appellant’s claim is beyond six months.

31. The Respondent also submitted that it was justified in relying on banking analysis method since the Appellant failed to provide documents in support of the objection. It submitted banking analysis method was approved in the case of Digital Box Limited v Commissioner of Domestic Taxes TAT Appeal No. 115 of 2017.

32. The Respondent submitted that the objection decision was justified because the Appellant did not provide proper documents in support of the grounds raised in the objection raised therefore, the objection was disallowed. The Respondent cited the case of Intime Stone Age Limited v Commissioner of Domestic Taxes (Appeal 714 of 2022) [2024] KETAT (44 KLR) (2 6 January 2024) (Judgment), Osho Drapers Limited v Commissioner of Domestic Taxes [2022] eKLR, Rongai Tiles and Sanitary Ware Limited v Commissioner of Domestic Taxes (Tax Appeals Tribunal No 163 of 2017), and Boleyn InternationalLimited versus Commissioner of Investigation and enforcement (Tax Appeal Tribunal No 55 of 2019) where it was emphasized that the taxpayer has to provide relevant and specific documents to support its grounds of objection.

33. Finally, the Respondent relied on the case of Mulherin v Commissioner of Taxation [2013] FCAFC 115 to submit that a taxpayer has the duty to prove that the Respondent’s decision is incorrect. The Respondent submitted that the Appellant failed to discharge the burden of proof.

Respondent’s prayers 34. The Respondent prayed for this Tribunal to uphold the Respondent’s findings and dismiss the appeal with costs to the Respondent.

Issues For Determination 35. The Tribunal, having carefully perused the parties pleadings and submissions and is of the view that the following is the single issue that calls for its determination:Whether the Appellant discharged her burden of proof .

Analysis And Findings 36. The Tribunal having determined the issue falling for its determination proceeds to analyse the same as hereinunder.

Whether the Appellant discharged her burden of proof . 37. The Tribunal examined the Appellant’s pleadings and noted that the Appellant did not file documentary evidence to support its Appeal. Whereas the Appellant stated that the focal issue for determination in this Appeal is whether the Respondent erred in disallowing the inputs expenses claimed by the Appellant, whether the Respondent failed to factor non-trade receipts, inter-bankings, reversals/cancellation and debtors settled in current year in considering the true income of the Appellant and whether the Respondent accorded a fair hearing to the Appellant, the Appellant did not adduce a single document to substantiate her assertions.

38. Section 43 (1) of the VAT Act provides as follows regarding the keeping of records:“(1)A person shall, for the purposes of this Act, keep in the course of his business, a full and true written record, whether in electronic form or otherwise, in English or Kiswahili of every transaction he makes and the record shall be kept for a period of five years from the date of the last entry made therein.’’

39. The Tribunal further notes that section 17(3) of the VAT Act makes provision on the some of the documents that the Appellant is supposed to adduce. They include but not limited to an original tax invoice issued for the supply or a certified copy; a customs entry duly certified by the proper officer and a receipt for the payment of tax, a credit note and a debit note just to mention but a few examples. The documents enumerated under section 17(3) of the VAT Act are not on record.

40. The Tribunal is of the view that whereas the Respondent stated that the Appellant’s claim was beyond six months and therefore contrary to section 17(2) of the VAT Act, the Appellant did not challenge this claim. As such, this Tribunal cannot fault the Respondent’s decision on matters of fact if a taxpayer fails to adduce as evidence before it, all documents that are filed in support of a notice of objection. In this particular case, the Appellant failed to adduce documentary evidence to support her case.

41. Rule 5 of the Tax Appeals Tribunal (Procedure) Rules, 2015 provides as hereunder:‘‘(1)Statement of fact signed by the appellant shall set out precisely all the facts on which the appeal is based and shall refer specifically to documentary evidence or other evidence which it is proposed to adduce at the hearing of the appeal.(2)The documentary evidence referred to in paragraph (1) shall be annexed to the statement of fact.’’

42. In Katebes Enterprises Limited v Commissioner of Domestic Taxes (Tax Appeal E332 of 2023) [2024] KETAT 1293 (KLR), this Tribunal emphasised that a taxpayer must produce documentary evidence to support the objection. The Tribunal is of the view that the instant Appeal does not comply with the provisions of Rule 5 of the Tax Appeals Tribunal (Procedure) Rules, 2015 which affects the Appellant’s ability to discharge its burden of proof.

43. The Tribunal cites the following provisions of Section 56(1) of the TPA:‘in any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

44. The Tribunal also cites the following provisions of Section 30 of TATA:‘‘In a proceeding before the Tribunal, the appellant has the burden of proving—(a)Where an appeal relates to an assessment, that the assessment is excessive; or(b)In any other case, that the tax decision should not have been made or should have been made differently.’’

45. In Singapore Motors Limited v Commissioner of Domestic Taxes (Income Tax Appeal E039 of 2021) [2024] KEHC 2443 (KLR), the High Court held as follows:‘‘This Court has remained emphatic that under section 30 of the Tax Appeals Tribunal Act (TATA) and section 56 of the Tax Procedures Act (TPA), the burden of proving that an assessment is wrong or excessive remains upon the taxpayer.’’

46. Further, in Katambo v Attorney General & another (Petition E532 of 2022) [2023] KEHC 19949 (KLR) the Court stated as follows:‘‘Section 56(1) falls within Part VIII which provides for Tax Decisions, Objections and Appeals. The provision is applicable in proceedings where a decision has been made and the taxpayer objects to, or appeals against such decision. This being the case, it then falls upon the tax payer challenging a decision or assessment to provide proof that the assessment is not correct. It cannot therefore be argued that placing the burden of proof contravenes the provisions of Articles 49(1) (b) and (d) and 50(2)(a) and (l) of the Constitution.’’

47. The view of the Tribunal is that this Appeal offends the express provisions of the law. Consequently, the Tribunal finds and holds that the Appellant failed to discharge her burden of proving that the Respondent’s decision confirming the assessments was incorrect.

Final Decision 48. The upshot to the foregoing is that the Tribunal finds and holds that the Appeal fails and proceeds to make the following Orders:a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision dated April 25, 2024 be and is hereby upheld.c.Each party to bear its own cost.

49. It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 17TH DAY OF JANUARY, 2025. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERELISHAH N. NJERU - MEMBEREUNICE N. NG’ANG’A - MEMBEROLOLCHIKE S. SPENCER - MEMBER