[2024] KETAT 22 (KLR)

Lamsy Investments Limited v Commissioner of Domestic Taxes (Tax Appeal 604 of 2022) [2024] KETAT 22 (KLR) (26 January 2024) (Judgment)

Neutral citation: [2024] KETAT 22 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 604 of 2022

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

January 26, 2024

Between

Lamsy Investments Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited liability company incorporated in Kenya under the Companies Act. Its main activity is in the construction business.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1) of the said 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 function under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 & 2 of the First Schedule to the Act for purposes of assessing, collecting, and accounting for all revenues in accordance with those laws.

3. The Respondent carried out a returns review of the Appellant and analyzed purchases claimed by purchasers and sales declared by suppliers on the iTax system for the month of December 2017, and raised additional assessments of Kshs. 429,651. 08 on 24th March, 2021.

4. The Appellant lodged a late objection application to the additional assessment on 28th March, 2022 vide the iTax system, which was acknowledged by the Respondent.

5. On 28th April 2022, the Respondent rejected the Appellant’s late objection application on grounds that it did not comply with the threshold set under Section 51(7) of the Tax Procedures Act 2015, and confirmed its additional assessment. The Respondent specifically indicated that the Appellant had filed its late objection 369 days late, which amount to unreasonable delay in terms of Section 51(7) (b) of the TPA, 2015.

6. Aggrieved by the Respondent’s decision, the Appellant lodged the instant Appeal via Notice of Appeal filed on 10th June, 2022.

The Appeal 7. The Appeal is premised on the Memorandum of Appeal filed on 10th June, 2022 stating the following grounds: -a.That the ITC2 return for the period in dispute was declared based on gross sales instead of amount exclusive of VAT, therefore resulting in a variance of Kshs. 1,918,093. 00 under assessment.b.That based on the Appellant’s records as per bank statements for the period of income received corresponds to VAT declaration for the year.

The Appellant’s Case 8. The Appellant’s case is also premised on the Appellant’s Statement of Facts dated 10th June 2022 and filed on the same date.

9. The Appellant averred that the Respondent did VAT additional assessment on it for the month of December 2017, and issued additional assessment order dated 24th March 2021 demanding a total of Kshs. 489,161. 00 inclusive of interests.

10. That the Appellant objected the Respondent’s additional assessment on 28th March 2022, which was duly acknowledged by the Respondent.

11. That the Appellant gave due explanation to the Respondent by providing necessary documents including bank statements and VAT analysis tabulation for the period January to December 2017.

12. That the Appellant demonstrated well to the Respondent that the variance under assessment was due to declaration of income tax return (ITC2) based on gross sales rather than amount exclusive VAT for the period as per VAT analysis tabulation form- provided then, and therefore resulting into variance of Kshs. 1,918,093. 00, which is equivalent to VAT for the period.

13. That the objection was fully rejected on 28th April 2022 and the additional tax confirmed by the Respondent, which is incorrect, excessive, and punitive.

14. That the Respondent issued a decision that is arbitrary, capricious, unreasonable, unfair and contrary to administration of justice, and not legitimate to the tax payer’s expectations.

15. That the Appellant is willing to pay any tax that is properly determined and has done so in the past, and more specifically to any tax that may arise from the Tribunal’s decision.

Appellant’s prayers. 16. The Appellant prayed that the Tribunal issues the following order: -a.That the Appeal be allowed.

The Respondent’s Case 17. The Respondent’s case is premised on the following documents filed before the Tribunal: -a.The Respondent’s Statement of Facts dated 15th September 2022 and filed on the same date, together with the documents annexed thereto.b.The Respondent’s written submissions dated 22nd February 2023 and filed on the same date, together with authorities attached thereto.

18. The Respondent averred that the assessments were correctly issued and conform to VAT Act as the Appellant did not provide any evidence that would have altered the assessment, as TAT Act places onus of proof on the Appellant.

19. That the Appellant lodged an objection on 28th March 2022 on iTax and the same was acknowledged and treated as invalidly lodged as it did not have grounds of objection. This was notified to the Appellant who was requested to provide documents but ignored.

20. That the Appellant filed all necessary returns and paid what it had assessed itself, but was uncooperative in providing relevant records and failed to respond to requests for documents or records. As a result the additional assessment was made based on available information and best judgement of the Respondent.

21. That an in-depth examination of the records established that there were inconsistencies in the returns filed by suppliers and invoices claimed by the Appellant and this indicated a variance as per the VAT return filed and income tax returns filed, and the Appellant provided no explanations requested on the variance.

22. That the Appellant was selected for returns review following a variance analysis of its returns in VAT, and the Respondent disallowed the direct purchase amount and instead relied on the invoice value as used in determination of VAT payable.

23. That accordingly, the Respondent averred that the objection decision provided a precise and clear breakdown of the workings used to reach at the assessments.

24. That the assessment was issued based on information provided and in light of inconsistencies within the Appellant’s VAT ledgers, and that the TPA empowers the Respondent to make alterations or additions to original assessments from available information for a reporting period based on best judgement.

25. That the Appellant failed to provide documents requested in support of its objection hence input VAT was disallowed.

26. That an examination of the Appellant’s records established that the Appellant earned income from construction business in the period of audit, however these incomes were not declared for tax purposes for the year earned, and therefore the Appellant carried out business contrary to provisions of TPA which require such documents be maintained for purposes of taxation.

27. That the Appellant has not paid all taxes due to it and owes the Respondent Kshs. 489,161. 00 in tax liability.

Respondent’s prayers. 28. The Respondent prayed to the Tribunal for the following orders: -a.That the Respondent’s objection decision be upheld.b.That outstanding tax arrears of Kshs. 489,161. 00 be deemed due from the Appellant.c.That the Respondent’s confirmation of assessment dated 24th March 2022 be deemed proper in law.d.That the instant Appeal be dismissed with costs to the Respondent.

Issues for Determination 29. The Tribunal having carefully reviewed the filings made by the parties, the supporting documentation and the submissions made, is of the view that the following issues fall for its determination: -a.Whether the Instant Appeal is Validb.Whether the Respondent’s Additional Assessment of the Appellant is Justified and Proper in Law.

Analysis and Findings 30. Having identified the issues falling for its determination, the Tribunal wishes to analyze them as hereunder.

a. Whether the Instant Appeal is Valid. 31. The Tribunal noted that although neither of the parties raised the issue of validity of the instant Appeal, it is an important preliminary issue that we must address ourselves to suo moto.

32. Records before the Tribunal and that are not disputed by the Appellant and the Respondent show that the instant Appeal was filed on 10th June 2022 vide an undated Notice of Appeal.

33. The uncontested records also indicate that the Respondent made its decision on validity of the Appellant’s late objection application on 28th April 2022.

34. The law governing late objection application and procedures thereto are Section 51 (6) and (7) of the TPA.

35. Section 52 (1) of the TPA and Sections 13(1)(b) of the TAT require the Appellant to file the Notice of Appeal within 30 days of receiving the Commissioner’s decision.

36. The Tribunal notes that the documents filed before it shows that the Appellant lodged its Notice of Appeal on 10th June 2022, which is well over 40 days after the Respondent’s decision. There is nothing on the record to show that the Appellant applied and obtained leave to file its Appeal out of time. Accordingly, the Appellant filed its Notice of Appeal out of time.

37. The question of observing timelines in tax disputes has been reaffirmed by this Tribunal and Superior Courts on many occasions. It is now settled law. In Equity Group Holdings Limited vs Commissioner of Domestic Taxes [2021] eKLR, Mativo J. reaffirmed the question of timelines in tax statutes as follows:“60. Section 51(11) of the TPA is couched in peremptory terms. Having correctly found that the decision was made after the expiry of 60 days, the TAT had no legal basis to proceed as it did and to invoke article 159(2) (d). First, there was no decision at all. The decision had ceased to exist by the operation of the law. Second, the provisions of section 51 (11)(b) had kicked in. The Objection had by dint of the said provision been deemed as allowed. Third, the TAT had no discretion to either extent time or to entertain the matter further. Fourth, discretion follows the law and a Tribunal cannot purport to exercise discretion in clear breach of the Law.63. The TAT manifestly erred in law by confusing substantive with procedural law. Article 159(2)(d) of the Constitution in clear terms talks about procedural technicality. A Statutory edict is not procedural technicality. It is a law which must be complied with. Parliament in its wisdom expressly and in mandatory terms provided the consequence of failing to render a decision within 60 days. The Objection is deemed to be allowed. That being the law, the Appellant’s Objection stood allowed as a matter of law the moment the Commissioner of Domestic Taxes failed to render his decision within the 60days. This being the correct legal position, it is my finding that the 1st appeal succeeds.”

38. Accordingly, the Tribunal holds that having been filed out of time and without leave of the Tribunal, the instant Appeal is invalid.

b. Whether the Respondent’s Additional Assessment of the Appellant is Justified and Proper in Law. 39. Having found that the instant Appeal is invalid, the Tribunal holds that the second issue for determination is rendered moot.

Final Decision 40. The upshot of the foregoing is that the Tribunal proceeds to make the following orders: -a.This Appeal be and is hereby struck out.b.Each party to bear its own costs.

41. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 26TH DAY OF JANUARY, 2024GRACE MUKUHA - CHAIRPERSONDR. ERICK KOMOLO - MEMBERJEPHTHAH NJAGI - MEMBERTIMOTHY VIKIRU - MEMBERGLORIA A. OGAGA - MEMBER