https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/257

Ladybird Advertising Ltd v Kenya Revenue Authority (Tax Appeal E1274 of 2025) [2026] KETAT 257 (KLR) (6 July 2026) (Judgment) Neutral citation: [2026] KETAT 257 (KLR) Republic of Kenya In the Tax Appeal Tribunal Tax Appeal E1274 of 2025 E Ng'ang'a, SS Ololchike, B Gitari & B Mijungu, Members July 6, 2026 Between Ladybird Advertising Limited Appellant and Kenya Revenue Authority Respondent Judgment Background 1.The Appellant is a private limited company duly incorporated in Kenya under the provisions of the Companies Act and has operations in Kenya engaged in advertising 2.The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws. 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 issued additional VAT and Income Tax assessments against the Appellant on 17th February 2025 after a return review revealed significant discrepancies between declared VAT outputs, input claims, and income tax returns for the periods 2019 to 2024, including VAT adjustments totaling approximately Kshs. 120,399,625.54 in declared principal and income tax disallowances amounting to about Kshs. 60,799,106.00 4.Appellant lodged a formal objection on 15th April 2025 challenging the adjustments. The Respondent considered the objection but rejected it through an Objection decision issued on 23rd May 2025 5.Dissatisfied by the Respondent’s decision, the Appellant filed this appeal vide the Notice of appeal dated 15th July 2025 and filed on 16th July 2025. The Appeal 6.The Appeal is premised on the Memorandum of Appeal dated 5th November 2025 and field on 7th November 2025. The memorandum raised the following grounds of appeal:i.That as per the respondent’s objection decision dated 23rd may 2025 (statement of findings paragraph 8), the Appellant disputes that a fraudulent self-assessment qualifies to be considered as a basis of assessment of payable taxes.ii.That as per the respondent’s objection decision (statement of findings paragraph 9 & 10), the Appellant does not agree that the assertions of fraud were entirely unsubstantiated by any credible evidence and that the documentary evidence provided were found to be non-compliant with the tax regulations.iii.That the Appellant does not agree with the additional assessments for the year 2019, 2020 and 2021. The same were done erroneously and without due consideration of the tax assessment procedures as per the Value Added Tax (VAT) and Income Tax Act (ITA).iv.That the Appellant requests that the matter be reviewed and the correct tax position be determined. The Appellant’s Case 7.In support of the appeal, the Appellant relied on its Statement of facts dated 5th November 2025 and field on 7th November 2025 and written submissions dated and filed on 4th April 2026. 8.The Appellant stated that the additional tax assessments issued by the Respondent were erroneous and ought to be vacated and that it had engaged an accountant to file its tax returns, but the accountant allegedly abused the company’s trust by engaging in fraudulent activities through the company’s eTIMS system. According to the Appellant, the accountant generated fictitious sales invoices which were then used by other taxpayers as input VAT invoices. 9.The Appellant further stated that after declaring fictitious sales in the company’s VAT returns and eTIMS system, the accountant allegedly entered fictitious input claims in the company’s VAT returns in order to reduce the VAT payable by the Appellant. 10.The Appellant stated that after receiving the additional assessment notices, it investigated the matter and established that the Respondent had disallowed the fictitious input claims, thereby giving rise to the additional VAT and income tax assessments. 11.The Appellant provided a schedule of VAT transactions and contended that a substantial portion of the declared sales between 2022 and 2025 consisted of fictitious sales generated by the accountant. The Appellant maintained that only a small portion of the declared sales represented genuine business transactions. 12.The Appellant also provided a schedule of income tax adjustments and stated that the additional corporate income tax assessments arose from fictitious sales and income that were unlawfully recorded in its tax system. 13.The Appellant objected to the principal tax liabilities contained in the additional assessments and argued that the declared income was fictitious and therefore did not constitute taxable income under the provisions of the Income Tax Act. 14.The Appellant further contended that any tax liability arising from the fraudulent scheme should be borne by the beneficiaries who utilized the fictitious invoices as input tax claims rather than by the Appellant itself. 15.The Appellant stated that it had already initiated investigations and legal action against the persons involved, arguing that the alleged conduct amounted to criminal activity. And urged the Respondent to disallow both the fictitious sales and the corresponding fictitious input claims and to transfer the tax liability to the taxpayers who allegedly benefited from the fraudulent invoices. The Appellant stated that it had attached a list of the affected taxpayers. 16.The Appellant disputed the Respondent’s finding that the self-assessments constituted a valid basis for tax assessment and maintained that fraudulent self- assessments could not lawfully form the basis of tax liability and disagreed with the Respondent’s finding that the allegations of fraud were unsupported, asserting that the evidence produced was sufficient and that the Respondent had improperly rejected the documentary evidence. 17.The Appellant challenged the additional assessments for the years 2019, 2020, and 2021, contending that the assessments were issued erroneously and without due regard to the procedures prescribed under the VAT Act and the Income Tax Act. The Appellant further argued that the Respondent failed to consider allowable business expenses in computing the corporation tax liability 18.The Appellant stated that additional periods from November 2024 to February 2025 also involved similar fictitious transactions and requested that these periods be included in the investigation and consideration of the dispute and that the Appellant called upon the Respondent to undertake further investigations into the alleged fraud and indicated its willingness to provide documents and cooperate fully in order to facilitate the resolution of the matter. 19.The Appellant submitted that the Respondent relied on Sections 24(2) and 31 of the Tax Procedures Act, 2015 to justify the additional assessments. The Appellant noted that Section 24(2) provides that the Commissioner is not bound by a taxpayer’s returns and may assess tax liability using any information available, while Section 31 empowers the Commissioner to make alterations or additions to assessments based on the Commissioner’s best judgment. 20.The Appellant submitted that the powers under the Tax Procedures Act permit both upward and downward adjustments to tax returns based on available information. The Appellant argued that the phrase “best judgment of the Commissioner” should not be interpreted to mean only the issuance of additional assessments. 21.The Appellant submitted that where the Commissioner determines that figures contained in the original return do not qualify as income, the Commissioner has the power to alter the return and report the correct income. 22.The Appellant submitted that it had proved that the sales reported in the VAT 3 returns were fictitious and therefore could not qualify to be treated as income. 23.The Appellant submitted that under Part III of the Value Added Tax Act, VAT is chargeable only on a taxable supply made by a registered person in Kenya. 24.The Appellant further submitted that under Section 3 of the Income Tax Act, income tax is chargeable on gains or profits arising from a business carried on by a taxpayer. 25.The Appellant submitted that for VAT to be chargeable there must be an actual supply, while for income tax to arise there must be an actual business transaction and a gain or profit realized. 26.The Appellant submitted that the Respondent had both the responsibility and the opportunity to determine whether an actual supply or business transaction had taken place. 27.The Appellant submitted that an illegal transaction cannot be considered as income and that the Respondent, in the objection decision, had requested audited financial statements for the years 2019 to 2023, bank statements for the same period, and an investigation report to support the claims of fictitious transactions. 28.The Appellant submitted that the Respondent stated that the additional income tax assessments arose from variances between VAT returns and income tax returns, failure to file income tax returns for the years 2019 to 2023, and disallowed VAT input claims. 29.The Appellant submitted that at the time the additional assessments were raised, the Appellant had not filed income tax returns for the years 2019 to 2023 and was still in the process of preparing those returns. The Appellant therefore argued that the objection decision was erroneous because there were no income tax returns available for purposes of comparing variances. 30.The Appellant submitted that it had provided bank statements to the Respondent and had attended meetings with the objection review team at the Corporate Business Centre. 31.The Appellant submitted that it was unable to provide audited accounts because the audit process was still ongoing and further submitted that it could not provide supporting invoices because the invoices in question were products of illegal activities and the taxpayer did not have access to such information. 32.The Appellant submitted that the Respondent did not issue any request or notice requiring the filing of audited financial statements before issuing the additional assessments. 33.The Appellant submitted that it had communicated the discrepancies to the Respondent through its objection letter dated 7th April 2025 and had requested the Respondent to undertake investigations and institute legal action in accordance with the Tax Procedures Act. 34.The Appellant submitted that the Respondent bears the responsibility for carrying out investigations and possesses the necessary resources and machinery to conduct such investigations. The Appellant questioned whether any evidence gathered by the taxpayer independently would have been accepted by the Respondent. 35.The Appellant submitted that the additional assessments were erroneous because the sales figures in question could not qualify to be considered as income and further submitted that the figures used in arriving at the additional assessments were fictitious and erroneous and that the application of the Commissioner’s best judgment should have resulted in a reduction of turnover and a corresponding reduction in tax liabilities. 36.The Appellant submitted that it had not filed any original income tax returns upon which the Respondent could have made alterations or additions under Section 31 of the Tax Procedures Act. 37.The Appellant submitted that the Respondent had initiated the process of disallowing the disputed sales from the beneficiaries of the VAT inputs objected to by the Appellant. According to the Appellant, this demonstrated that the Respondent agreed that the disputed sales were fictitious and incapable of verification. 38.The Appellant therefore prayed that the Tribunal dismiss the Respondent’s objection decision in its entirety, uphold the Appellant’s objection, and award costs and refunds to the Appellant. Appellant’s Prayers 39.The Appellant prayed for the following reliefs:a)That this appeal be allowed and the decision by the Respondent be set aside in full.b)Such further or other orders that this Tribunal may deem just and expedient. The Respondent’s Case 40.The Respondent’s case was premised on its Statement of facts dated 28th January 2026 and filed on 29th January 2026 and its written submissions dated 26th March 2026 and filed on 30th March 2026. 41.The Respondent stated that the law imposes mandatory obligations upon taxpayers to maintain records and averred that it did not err in fact or law in confirming the VAT and Income Tax assessments owing to the Appellant’s failure to provide supporting documentation. 42.The Respondent stated that Sections 31(1)(b) and 29 of the Tax Procedures Act empower the Commissioner to amend assessments using the information available and to the best of the Commissioner’s judgment and that Section 24(2) of the Tax Procedures Act permits the Commissioner to assess a taxpayer’s liability using any information available and maintained that it acted within the confines of the law by relying on the available data obtained during the return review process. 43.The Respondent cited Section 51(3) of the Tax Procedures Act and stated that a valid objection requires a taxpayer to precisely state the grounds of objection, indicate the amendments sought, pay the undisputed tax or seek an extension of time, and submit all relevant documents relating to the objection 44.The Respondent stated that the Appellant’s objection was rejected pursuant to Section 51(3) of the Tax Procedures Act because the Appellant failed to provide all the relevant documents necessary to support the objection. 45.The Respondent stated that it is guided by Section 56(1) of the Tax Procedures Act, which places the burden upon the taxpayer to prove that a tax decision is incorrect and that it reserves the right to adduce further oral and documentary evidence during the hearing in support of its position. 46.The Respondent stated that it would rely on the objection decision dated 23rd May 2025 together with the applicable provisions of the Income Tax Act, the VAT Act, the Tax Procedures Act, and KRA guidelines and regulations and that all its actions were undertaken in accordance with Section 51 of the Tax Procedures Act. 47.The Respondent further stated that its actions were guided by Sections 17(3) and 43 of the VAT Act. The Respondent also stated that Sections 24, 29, and 31(1) of the Tax Procedures Act empowered it to undertake the impugned assessments and decisions and stated that the Appellant was accorded an opportunity to respond to the audit findings and to object to the assessments in accordance with the requirements of due process. 48.The Respondent maintained that the tax assessments were properly founded both in fact and in law and that the objection decision was fair, reasonable, and made in accordance with the applicable statutory provisions. 49.The Respondent submitted that the appeal raises two issues for determination, namely whether the additional assessments issued by the Respondent were justified and whether the objection decision was proper and that it is not bound by the Appellant’s tax returns and that it is entitled to assess a taxpayer’s liability using any information available to it pursuant to Section 24(2) of the Tax Procedures Act. 50.The Respondent submitted that Section 31 of the Tax Procedures Act empowers the Commissioner to make alterations or additions to original assessments using available information and based on the Commissioner’s best judgment so as to ensure that the taxpayer is assessed for the correct amount of tax. 51.The Respondent submitted that it relied on its best judgment and the information available to it when issuing the income tax assessments in compliance with Section 31 of the Tax Procedures Act. In support of this position, the Respondent relied on Commissioner of Domestic Taxes v Altech Stream (EA) Limited [2021] eKLR, where the Court stated that Section 31(1) of the Tax Procedures Act permits the Commissioner to make assessments based on available information and to the best of the Commissioner’s judgment. 52.The Respondent submitted that the Appellant failed to rebut or explain the discrepancies identified during the review and that such failure necessitated the issuance of the additional assessments and that the law imposes mandatory obligations upon taxpayers to maintain records and averred that it did not err in law or fact in confirming the VAT and Income Tax assessments due to the Appellant’s failure to provide supporting documentation. 53.The Respondent submitted that the Appellant bears the duty of demonstrating which aspects of the Respondent’s analysis failed to reflect the correct tax position and that the Appellant’s objection was rejected because the Appellant failed to provide adequate documents in support of the grounds raised in the objection. 54.The Respondent relied on Mulherin v Commissioner of Taxation [2013] FCAFC 115 and submitted that in tax disputes the burden lies upon the taxpayer to demonstrate that an assessment is excessive by producing positive evidence showing the correct taxable income upon which tax should have been levied. 55.The Respondent further relied on Intime Stone Age Limited v Commissioner of Domestic Taxes (Appeal No. 714 of 2022) [2024] KETAT 44 (KLR) and submitted that the Tribunal emphasized the necessity for taxpayers to provide relevant and specific documents in support of their objections. 56.The Respondent submitted that it requested the Appellant to provide specific documents for review in order to verify the issues raised in the objection and that the Appellant failed to provide sufficient documentation to explain the variances identified in the assessments. 57.The Respondent submitted that it was justified in rejecting the objection because the Appellant had failed to furnish the required documents. In this regard, the Respondent relied on Osho Drapers Limited v Commissioner of Domestic Taxes [2022] eKLR, where the Court held that Section 59 of the Tax Procedures Act empowers the Commissioner to request additional information necessary to verify the taxpayer’s declared income. 58.The Respondent submitted that the Appellant had a statutory obligation to maintain records for a period of five years in accordance with Section 23 of the Tax Procedures Act, which requires taxpayers to maintain records that enable their tax liabilities to be readily ascertained. 59.The Respondent submitted that Sections 23 and 59 of the Tax Procedures Act impose an obligation upon taxpayers to maintain records and to produce those records whenever requested by the Commissioner. 60.The Respondent submitted that where a taxpayer objects to an assessment, Section 51(3) of the Tax Procedures Act requires the taxpayer to submit all relevant documents relating to the objection for the objection to be valid. 61.The Respondent relied on Boleyn International Limited v Commissioner of Investigations & Enforcement (Tax Appeal Tribunal No. 55 of 2019) and submitted that the Tribunal held that an objection that is unsupported by documents does not satisfy the requirements of Section 51(3) of the Tax Procedures Act. 62.The Respondent further relied on Rongai Tiles and Sanitary Ware Limited v Commissioner of Domestic Taxes (Tax Appeal Tribunal No. 163 of 2017) and submitted that the Tribunal affirmed that a notice of objection is only valid where the statutory requirements under Section 51(3) have been satisfied. 63.The Respondent submitted that it made follow-up communications with the Appellant and reminded the Appellant to submit documents in support of the objection and that Section 56(1) of the Tax Procedures Act places the burden upon the taxpayer to prove that a tax decision is incorrect. 64.The Respondent further submitted that Section 30 of the Tax Appeals Tribunal Act places the burden upon an appellant to prove that an assessment is excessive or that the impugned tax decision should not have been made or should have been made differently. 65.The Respondent submitted that the Appellant had failed to discharge the burden of proof imposed by Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act and that the failure to provide proper documentation justified the rejection of the objection and that the Appellant could not allege that the Respondent ignored its documents during the objection process when those documents had not been supplied. 66.The Respondent maintained that the tax assessments were properly founded in fact and in law and that the objection decision was fair, reasonable, and made in accordance with the applicable statutory provisions. Respondent’s Prayers 67.Based on the above grounds, the Respondent prayed that:a.Tribunal dismiss the Appeal in its entiretyb.Uphold the tax assessments as confirmed by the objection decision, and;c.order the Appellant to pay the costs of the Appeal. Issues For Determination 68.The Tribunal has considered the parties’ pleadings and submissions, and has identified the following issues for determination:a.Whether the Appeal is competent.b.Whether the additional assessments were based on taxable income and chargeable supplies were founded on fictitious transactions incapable of taxation.c.Whether the Respondent’s Objection decision was incorrect. Analysis And Findings 69.Having identified the issues for determination, the Tribunal proceeds to analyse the same as hereunder: -a.Whether the Appeal is competent. 70.A Notice of Appeal ought to be lodged at the Tribunal within (30) thirty days after a taxpayer is notified of the said decision pursuant to the provision of Section 51(12) of the TPA which provides as follows:“A person who is dissatisfied with the decision of the Commissioner under subsection (11) may appeal to the Tribunal within thirty days after being notified of the decision.” 71.Pursuant to the provisions of Section 51(12) of the TPA, the Appellant ought to have filed its Notice of Appeal on or before 8th July 2025, therefore the Notice of Appeal was 37 days late without leave of the Tribunal. 72.From the record, the Appellant lodged its Notice of Appeal dated 15th July 2025 and filed on on 16th July 2025 against the decision together with its Memorandum of Appeal and Statement of Facts dated 5th November 2025 and field on 7th November 2025. The Tribunal notes that pursuant to Section 13 (1) and (2) of the TATA the procedure of Appeal is outlined as follows:“ 1)A notice of appeal to the Tribunal shalla)be in writing or through electronic means;b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner. 1)The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the Tribunal, of a)a memorandum of appeal;b)statements of facts; andc)the tax decision.” 73.The Tribunal notes that whereas the decision appealed against was made on 23rd May 2025 the Notice of Appeal ought to have been filed on or before 8th July 2025 therefore the Notice of Appeal was filed outside the statutory timelines. 74.The Tribunal, pursuant to Section 13 (3) and (4) of the TATA, has the mandate to extend time within which a taxpayer can lodge its appeal against the decision of the Commissioner. This section provides as follows:“ (1)….. (2)…… (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.” 75.The Appellant herein has not adduced any evidence to demonstrate that it sought extension of time within which to file its Notice of Appeal against the Respondent’s decision, and whether it was granted leave by this Tribunal to file the Appeal herein out of time. As a result, the Tribunal finds that there the Appeal before it is incompetent. 76.The Tribunal reiterates the Court’s decision in Commissioner of Domestic Taxes vs. Lifecare International Brokers Limited [2020] eKLR, where Justice D.S Majanja (as he was then) observed as follows:“Failure to file an appeal within time and without complying with statutory conditions is not a mere technicality that can be overlooked, it goes to the competence of the appeal. Counsel for the Appellant valiantly addressed the court on why the court should validate the appeal. The issues raised are factual issues that call for the court to exercise its discretion and can only be addressed in an appropriate application which is not before the court.” 77.The Tribunal has, on innumerable occasions, emphasized the necessity of the parties to observe due process set by the law. The Tribunal relies on the case of W.E.C. Lines Ltd v. The Commissioner of Domestic Taxes [TAT Case No. 247 of 2020] where it was held 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”. 78.Further the Tribunal reiterates its decision in Khaki v Commissioner of Domestic Taxes [2024] KETAT 1031 (KLR), where it held as follows:“...the Appellant did not abide by the provisions of Section 13 of the Tax Appeals Tribunal Act by filing a late Appeal without seeking leave of the Tribunal to file the same, the Tribunal finds that the Appeal before it is invalid.” 79.Consequently, the Tribunal finds and holds that the Appeal is incompetent and is ripe for striking out. 80.In view of the foregoing, the Tribunal shall not delve into the other two issues for determination as the same have been rendered moot. Final Decision 81.The upshot of the foregoing is that the Appeal is incompetent and the Tribunal proceeds to make the following orders:(a)The Appeal be and is hereby struck out.(b)Each party shall bear its own costs. 82.It is so ordered DATED AND DELIVERED AT NAIROBI THIS 6TH DAY OF JULY, 2026Signed by/for:THE JUDICIARY OF KENYAHON. EUNICE NJERI NGANGAHON. SANKALE SPENCER OLOLCHIKEHON. BERNADETTE MUTHIRA GITARIHON. BILLY GRAHAM OKUMU MIJUNGU