[2023] KETAT 131 (KLR)

Look Media Limited v Commisioner of Domestic Taxes (Appeal 433 of 2022) [2023] KETAT 131 (KLR) (Civ) (10 March 2023) (Ruling)

Neutral citation: [2023] KETAT 131 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Appeal 433 of 2022

E.N Wafula, Chair, AK Kiprotich, RO Oluoch, EN Njeru & Cynthia B. Mayaka, Members

March 10, 2023

Between

Look Media Limited

Appellant

and

Commisioner Of Domestic Taxes

Respondent

Ruling

1. The appellant vide in a notice of motion application dated November 17, 2022 and filed under certificate of urgency on the even date sought for the following ordersa.Spent.b.That upon the hearing and determination of this application, an order be and is hereby issued to allow the appellant file additional documents to the appeal in relation to supplier tax reports, supplier tax returns, VAT withholding tax declarations and their payments in relation to the purchases under dispute in this Appeal.c.That upon the hearing and determination of this application, an order be issued allowing the appellant extra 7 days to file submissions from the date issued earlier by this honourable tribunal that is by November 21, 2022 to November 28, 2022 this shall be sufficient to enable applicant include the evidence from additional documents to allow the respondent respond conclusively in interest of time.1. The application which is supported by an affidavit sworn by Dennis Wanyoike Kimani, the Director of the applicant, on the November 17, 2022 is premised on the following grounds:-a.That the main crux of the dispute between it and the respondent was that the transactions leading to its claim were fictitious.b.That it has obtained all the invoices used to claim VAT input tax and expenses which are the subject matter of the dispute.c.That it obtained the certified copies of tax reports/returns from its suppliers confirming that they traded with applicant and declared the same for tax payment purposes.d.That the commissioner had directed it to provide proofs of payment which it has now obtained from the suppliers.e.That filing of these documents will enable it to prove beyond reasonable doubt that it was a compliant taxpayer and that the assessment was not only excessive but unfair.f.That it is in the interest of justice that this application is heard and orders granted to give it a chance prove its case on merits.2. The applicant filed its written submissions on the December 14, 2022 where it submitted that:a.During the objection and ADR process, the commissioner was given all hundreds of supporting documents but he decided to only review the documents related to one “Longonot Agencies”, where he found that purchases amounting to Kshs 28,934,365. 00 were verifiable.b.This confirms that the tax liability could probably have been vacated if the commissioner reviewed all its documents.c.The documents that it wishes to provide via this application relates to tax filings report, tax returns, withholding certificates and cheque images of selected supplier to prove that it indeed had sufficient documents to proof that the commissioner’s decision was erroneous.d.Providing the cheque images certified by the bank will help it prove that it its purchases were genuine.e.The documents it seeks to produce before the tribunal can be obtained in the itax system which the respondent has unlimited access to but it has refused to verify them.f.The documents it seeks to provide are not new. The same are in possession of the respondent and will only help the tribunal to arrive at a fair determination of this dispute.g.Its assertions are supported by the case of KRA v Peral Industries (HCCOMMITA/E086/2020), Shreeji Enterprises K Ltd v Commissioner of Investigations and Enforcement (Tax Appeal No 59,186 of 2019) and Commissioner of Domestic Taxes v Glaxy Tools Ltd 2021 eKLR.h.The suppliers tax reports and withholding tax certificates it seeks to provide will prove that its suppliers were not fictitious.i.Upon receipt of original documents from the applicant, the respondent check its itax system to verify the remainder of the information that is the subject matter of this appeal.j.The documents it seeks to provide will assist the tribunal in the just determination of the dispute.2. The respondent objected to the application through a replying affidavit sworn by Esther Eshiwani, an officer of the respondent, on December 1, 2022 and filed on the same date where she stated that:-a.The additional documents that are sought to be adduced by the appellant at the tribunal were never considered by the respondent at any stage of the objection review process.b.There were endless opportunities given to the appellant to bring forth the said documents to no avail.c.Section 56(3) of the Tax Procedures Act limits a taxpayer to only raise grounds and rely on documents that were stated in the objection.d.Production of the documents is an afterthought and it will deny the Respondent an opportunity to review their authenticity.e.Production of these documents will result in an endless cycle of litigation that ultimately has an effect on the right to fair hearing.3. The respondent filed it written submissions on the 16th of December where it submitted that:a.The additional documents sought to be filed and admitted before tribunal as part of the record of appeal are new evidence adduced at the appeal stage as admitted by the applicant in paragraph 13 of its affidavit.b.The documents in question were never considered by the respondent at any stage either during the assessment or objection review process.c.The respondent submits that the additional documents are prejudicial and amounts to irregular litigation of a new case at an appeal stage so as to patch up weak points in the appeal.d.It relied on the case of Wanjie & others v Saikwa & others(1984) KLR 275 as cited with approval by Hon Justice A. Mabeya in Rahima Traders Limited v Commissioner of Investigations and Enforcement (Income Tax Appeal E042 of 2021) [2021] KEHC440. InWanjie & others v Saikwa (supra) where Hon. Chesoni JA observed as follows:“…This rule is not intended to enable a party who has discovered fresh evidence to import it nor is it intended for a litigant who has been unsuccessful at the trial to patch up the weak points in his case and fill up omissions in the Court of Appeal. The rule does not authorize the admission of additional evidence for the purpose of removing lacunae and filling in gaps in evidence. The appellate court must find it needful. Additional evidence should not be admitted to enable a plaintiff to make out a fresh case in appeal. There would be no end to litigation if the rule were used for the purpose of allowing the parties to make out a fresh case or to improve their case by calling further evidence. It follows that the power given should be exercised very sparingly and great caution should be exercised in admitting fresh evidence.”e.Whereas this honourable tribunal has a discretion under section 56(3) of the Tax Procedures Act, 2015 to allow the appellant to add new grounds in the appeal herein, the discretion doesn’t extend to introducing new evidence that were not considered at either the assessment or objection review stage.f.Section 56(3) dictates that the appellant shall rely only on the grounds stated in the objection to which the decision relates. Therefore, the discretion must be exercised judiciously and not capriciously.g.The respondent further relies on the ruling in the case ofRahima traders Limited v Commissioner of Investigations and Enforcement (supra) where the High Court held that:“That being the case, it would be prejudicial to the respondent to allow the applicant to use this opportunity to patch up and/or fill up the gaps in its case at this second appeal stage. When a party chooses a professional who represents him/it in a negligent manner, sometimes it is fair to let the loss lie where it falls as in this case. The client should seek recourse there other than vex the other litigant and/or the court unnecessarily.”e.The appellant has not proved a case for admission of additional documents as was stated in Tarmohamed &another v Lakhani & Company[1958] EA 567 (as cited with approval by Hon Justice A. Mabeya in Rahima Traders Limited (supra) where the Court of Appeal for Eastern Africa set out three grounds that must be met to justify admission of fresh evidence as follows:“Except in cases where the application for additional evidence is based on fraud or surprise:‘to justify reception of fresh evidence or a new trial, three conditions must be fulfilled: first it must be shown that the evidence could not have been obtained with reasonable diligence for use at the trial; secondly, the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; thirdly, he evidence must be such as is presumably to be believed, or in other words, it must be apparently credible, though it need not be incontrovertible.”

6. The respondent thus prayed that the instant application be dismissed for want of merit.

Analysis And Findings 7. The tribunal has keenly looked at the appellant’s pleadings in this matter and its understanding is that the appellant seeks to adduce documents that are in the possession of the respondent, albeit in in its itax platform. This is clearly elucidated in the appellant’s written submissions.

8. The impression that it has created on the tribunal is that it seeks to produces these documents that were in the respondent’s itax system and which the respondent refused and or ignored to consider in the build up to the issuance of the objection decision. That its intention is to show the tribunal that the respondent’s decision was arrived at in error, or as it graphically puts it:‘…..made by a lazy person who does not want to execute his mandate as required by law’

9. Section 23 of the TPA puts the onerous task of keeping records on the taxpayer and section 56(1) of the TPA puts the burden of proving that a tax decision is incorrect on the taxpayer. This burden placed on the taxpayer does not however mean that the respondent has the liberty to be discharged of the responsibility of ensuring that it treats the taxpayer fairly and equitabl y throughout the process which culminates in the issuance of an objection decision. This position found favour in the case of Okiya Omtatah Okoiti v Attorney General & another Nrb HC petition No 156 of 2017 [2020] eKLR where court stated that:“99. Once again I observe that a section or sections of a law should not be read in isolation of the other provisions of that law. The impugned provisions are only meant to enforce the tax laws after a taxpayer fails to self-assess for tax purposes or once it is evident that a taxpayer is dishonest. The Act as a whole has safeguards that ensures that the taxpayers receive fair administrative action from the tax collector whenever the need arises to put a particular taxpayer through the administrative process” (emphasis added)

10. This means that once the taxpayer has provided documents then the burden of proof shifts to the commissioner to ensure that it fairly considers all the documents presented to it in arriving at its objection. The commissioner at this point even has the chance of casting doubt on the validity of the documents, at which point the burden of proving the validity of such documents would shift to the respondent.

11. The foregoing position was affirmed in the case of Commissioner of Investigations and Enforcement v Pearl Industries Limited (Tax Appeal E086 of 2020) [2022] KEHC 51 (KLR) (Commercial and Tax) (31 January 2022) (Judgment) where the court stated thus:“In this case, the pendulum of proof swung three times; the first was upon the respondent, which it did by providing the documents requested by the commissioner; the second shifted the commissioner, who after reviewing the documents challenged their authenticity and validity. This meant that the burden of proof finally swung back to the respondent to prove that the commissioner was wrong in its position and overall finding.”

12. The issue of the swinging pendulum of proof means that the issue of whether the respondent discharged its responsibility when the applicant supplied it with the documents that it had required is significant to this appeal. Such that if the same was not considered in the crafting of the objection decision then the applicant maybe entitled to share such documents with the tribunal so that the tribunal can view its case in a wholesome manner and more so whether such indiscretion may have led to imposition of a tax liability that it should not bear.

13. This request has a ring of fairness to it. It also aligns with the often cited tax maxim, which though it may sometimes be overstressed yet ought not to be forgotten. It is that the subject is not to be taxed unless the words of the taxing statute unambiguously impose tax upon him. It is necessary that this maxim should on occasion be reasserted and this is such an occasion because the appellant is of the view that it has documents which demonstrate that it ought not to brought within the tax bracket.

14. The tribunal has also noted that the respondent has not specifically disputed that the material documents are not in its itax platform. It would thus be fair for the tribunal to also have a look and analyse the same documents that guided the commissioner in arriving at its tax decision. This way it shall be able to decide and give a judgment on this dispute from a balanced position- where it is seized with all the facts of the dispute.

15. In addition to the foregoing, the fact that the substantive documents in contention were in the respondent’s ITax platform implies that these are not new documents that are proscribed under section 56(3) of the TPA.

16. Section 73(1) of the TPA states that:“73. Manner of submitting documents to the commissioner(1)A person required under a tax law or by the commissioner under section 75 to submit or lodge a tax return, application, notice, statement, or other document with the commissioner electronically shall do so unless authorised by the commissioner by notice in writing to submit in accordance with subsection (2)”

17. It is thus clear that the digital model used by the applicant in serving the commissioner with documents that it now seeks to produce before this tribunal was sanctioned by law.

18. Finally, considering that:a.The respondent has not disputed the existence of these documents in its itax platform,b.The respondent has had these documents in its possession since the commencement of this dispute and it has therefore had ample chance to analyse and verify their authenticity.c.The respondent shall have the chance to verify the validity and authenticity of the documents in contention by filing further documents or supplementary statement of facts.d.The applicant has sufficiently proved that it is likely to suffer prejudice if its compelled to pay tax that is based on documents that it had supplied to the respondent.e.The respondent will not suffer any prejudice in this matter because the documents that are the subject matter of this application are in its possession, albeit in its iTax platform.f.The respondent will have the chance to show that it indeed relied on these documents.g.The applicant shall still bear the burden of proofing that the commissioner ignored these documents.h.The production of these documents shall give the tribunal a full picture of all documents shared between the parties and how the commissioner arrived at its decision1. This tribunal finds merit in the application and proceeds to allow the appellant to file the documents under such circumstances that affords the respondent an opportunity to appropriately address the import of the additional documents to the tax dispute.

Disposition 20. The tribunal accordingly makes the following orders: -i.The appellant be and is hereby granted leave to file the additional documents in relation to supplier tax reports, supplier tax returns, VAT withholding tax declarations and payments in relation to the purchases under dispute in this appeal.ii.The appellant to file and serve the additional documents and any supplementary statements of facts within fourteen (14) days of the date of delivery of this ruling.iii.The respondent is hereby granted a corresponding leave to file any additional documents and/or a supplementary statement of facts within fourteen (14) days of being served by the appellant.iv.The matter to be mentioned on the April 17, 2023 to confirm compliance and for pre-trial directions.v.No orders as to costs.

DATED AND DELIVERED AT NAIROBI ON THIS 10TH DAY OF MARCH, 2023. ERIC N. WAFULA CHAIRMANABRAHAM KIPROTICH RODNEY ODHIAMBO MEMBER MEMBERELISHAH NJERU CYNTHIA MAYAKAMEMBER MEMBER