https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/94

Loysons Invesments Ltd v Commissioner of Domestic Taxes (Tax Appeal E857 of 2025) [2026] KETAT 94 (KLR) (26 June 2026) (Judgment) Neutral citation: [2026] KETAT 94 (KLR) Republic of Kenya In the Tax Appeal Tribunal Tax Appeal E857 of 2025 RO Oluoch, Chair, AM Diriye & E Komolo, Members June 26, 2026 Between Loysons Invesments Ltd Appellant and Commissioner Of Domestic Taxes Respondent Judgment Background 1.The Appellant is a limited company based in Eldoret. 2.The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995 Cap 469 Laws of Kenya and charged with the administration and enforcement of tax laws in Kenya. 3.The Respondent issued Additional Assessments to the Appellant and demanded Kshs 15,595,462.04 for Value Added Tax and Corporation Tax on 23rd October 2024.This was inclusive of interest and penalties. 4.The Appellant wrote to the Respondent on 14th May 2025 seeking an extension of time to object to the assessment, which request was granted by the Respondent. The Appellant then lodged its objection on 27th May 2025. 5.The Respondent reviewed the Appellant’s objection and, vide a letter dated 10th July 2025, issued the Objection Decision. 6.Aggrieved by the Respondent’s decision, the Appellant filed its Notice of Appeal dated 8th August 2025. The Appeal 7.The Appeal is premised on the following grounds of appeal, as stated in the Appellant’s Memorandum of Appeal dated and filed on 8th August 2025.a.That the Commissioner erred in law and in fact by issuing additional CIT assessments for 2019 and 2023 without considering the Appellant’s legitimate expenses incurred in the generation of income.b.The Commissioner acted in error both in law and fact, by including additional sales in the VAT assessment for the months of December 21st August 22, February 23rd, June 23rd, August 23rd and Jan 2024 and Nov 24 without relying on verifiable or substantial evidence. The Appellant’s Case 8.The Appellant’s case is premised on its Statement of Facts dated and filed on 8th August 2025.The Appellant did not file its Written Submissions. As such, its case will be considered on the basis of its pleadings on record. 9.The Appellant stated that it maintained books of accounts for the years 2019 and 2023, which clearly detailed expenses wholly and exclusively incurred in the production of income, thereby substantiating a lower taxable income than that reflected in the assessments. 10.The Appellant averred that it had prepared a detailed and credible bank analysis alongside reconciliations of project receipts and contractual agreements, which accurately reflected the income received for the periods in question and effectively disputed the additional sale alleged by the Respondent. 11.The Appellant further averred that it was issued with an additional assessment for VAT and Corporation Tax on 23rd October 2024 for an amount of Kshs. 15,595,462 inclusive of interest and penalties. 12.The Appellant stated that it wrote to the Respondent on 14th May 2025 seeking an extension of time to lodge a late objection, which the Respondent accepted. It then lodged its Notice of Objection on 27th May 2025. 13.The Appellant further stated that at no time did the Respondent write to it concerning the objection, as required by the Tax Procedures Act in cases where an objection was not validly lodged as required under Section 50(3)(1) of the Tax Procedure Act (TPA); hence its objection was deemed valid. 14.It was the Appellant’s position that the Respondent further confirmed its decision vide the objection decision dated 10th July 2025 after which the Appellant filed its Notice of Appeal on 8th August 2025 as per Section 52 of the Tax Procedures Act 2015. The Appellant’s Prayers 15.The Appellant prayed that the Tribunal would set aside the Respondent’s Tax Decision to assess tax of Kshs 15,595,462 and accordingly annul the Tax decision. The Respondent’s Case 16.The Respondent’s case is premised on its:a.Statement of Facts dated 4th September 2025 and filed on 5th September 2025 together with the documentation attached thereto;b.Written submissions dated 20th April 2025 and filed on 29th April 2026. 17.The Respondent averred that it raised the additional tax assessment against the Appellant following variances identified between the declared tax returns and third-party withholding VAT certificates for the period January 2019 to July 2024.It stated that it sent several emails and made phone call reminders to the Appellant to avail the requested documentation for verification, to which none was availed. The Respondent asserted that the assessments were based on:a.Undeclared sales established through variance analysis between withheld VAT certificates and declared sales.b.A failure to account for legitimate taxable income for 2019 and 2023, as the Appellant did not provide verifiable supporting documents for claimed expenses.c.VAT under-declarations in specific months, including December 2021, August 2022, February 2023, June 2023, August 2023, January 2024 and November 2024. 18.In response to the first ground of Appeal, the Respondent averred that the additional CIT assessments were lawfully raised based on discrepancies identified from third-party withholding VAT data compared to the Appellant’s declared returns. It averred further that despite several requests, the Appellant failed to provide verifiable supporting documentation for the claimed expenses. 19.The Respondent stated that it had requested for the following documents which the Appellant never availed: -a.Invoicesb.Bank statementsc.Rent payment schedules and proof of rent payment 20.It asserted that Section 15 of the Income Tax Act provides that deductible expenses must be wholly and exclusively incurred in the production of income and that the burden of proof rests on the taxpayer as provided for under Section 56 of the Tax Procedures Act. It therefore contended that in the absence of proof, it acted within the law in disallowing the purported expenses and raising the additional assessments. 21.On the second ground of appeal, the Respondent contended that the additional VAT assessments were properly raised based on verified third-party withholding VAT Certificates which demonstrated undeclared sales amounting to Kshs 27,035,164.00. 22.It averred that it is empowered under Sections 24(2) and Section 31 of the TPA to amend assessments relying on third-party data where the taxpayer fails to keep proper records. It averred that the burden of proof is on the Appellant to produce evidence challenging the Respondent’s decision as per Section 56(1) of the TPA. 23.The Respondent further averred that the Appellant was given an opportunity to present its case by way of documentary evidence, which it squandered prior to its objection decision. It stated that the Appellant is bound by Section 51(3) (c) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act to provide all necessary evidence in support of its objection. However, the Appellant failed to avail the invoices, reconciliations or other supporting evidence to dispute the third-party information. 24.The Respondent stated that the allegation that it relied on unverifiable evidence is unfounded, as the assessments were informed by credible, independently verifiable third-party records; therefore, the Confirmed Assessments issued were proper and ought to be upheld. 25.In its Written Submission, the Respondent raised three issues for determination: Whether the Respondent erred by issuing additional CIT assessments for 2019 and 2023. 26.The Respondent submitted that the Appellant’s claim that the Respondent erred by issuing additional CIT assessments for 2019 and 2023 without considering the Appellant’s legitimate expenses incurred in the generation of income was unsupported, and that the assessment was properly rejected during the verification and objection review stages. 27.It further submitted that the additional CIT assessments were lawfully raised based on discrepancies identified from third-party withholding VAT data compared to the Appellant’s declared returns. It stated that it had requested specific documents from the Appellant and, despite several requests, the Appellant failed to provide verifiable supporting documentation for the claimed expenses. 28.The Respondent relied on the case of SB1 International Holdings AG Kenya vs Commissioner of Domestic Taxes (TAT No. E888 of 2022) where the Tribunal affirmed that where a taxpayer fails to provide documentation for expenses during an audit, the Commissioner is justified in issuing additional assessments by disallowing those expenses. 29.The Respondent further relied on the case of Raghubar Mandal Harihar Mandal vs The State of Bishar AIR 1952 Pat 235 where the Court held:“The officer is to make an assessment to the best of his judgement against a person who is in default as regards supplying information” 30.It submitted that Section 15(1) of the Income Tax Act provides that expenses are deductible only if incurred wholly and exclusively in the production of income, the operative word being “incurred”. It asserted that the taxpayer must demonstrate through contemporaneous documentary evidence that the expenses were actually incurred. It argued that a mere assertion or the existence of audit accounts produced for litigation purposes was insufficient. 31.It was the Respondent’s submission that the burden of proof rests on the taxpayer who, in this case, failed to discharge its burden as per Section 56(1) of the TPA. It therefore had no choice but to disallow the unsubstantiated expenses and raise additional CIT assessments accordingly, since the Appellant could not sufficiently support its claim. 32.The Respondent reiterated that the Appellant failed to provide verifiable supporting documentation and therefore the Respondent acted within the law in disallowing the purported expenses and raising additional assessments. Whether the Respondent erred by including additional sales in VAT assessments for the months of Dec 2021, Aug 2022, Feb 2023, Jun 2023 Aug 2023 Jan 2024 and Nov 2024 without relying on substantiated evidence. 33.The Respondent submitted that the additional VAT assessments were properly raised based on verified third-party Withholding VAT Certificates, which demonstrated undeclared sales amounting to Kshs 27,035,164.00, and that it is empowered under Section 24(2) and 31 of the Tax Procedures Act to amend assessments relying on third-party data where the taxpayer fails to keep records. 34.The Respondent relied on the case of Abeid Mohamud Iqbal t/a Abid Paint vs Commissioner of Domestic Taxes (TAT No 14 of 2021 where the Tribunal upheld assessments based on bank statements when the taxpayer failed to produce proper sales ledgers supporting the use of third-party data. 35.It further relied on the case of Taimon Company Limited vs Commissioner of Dometic Taxes (2023) eKLR which supported the Commissioner’s right to issue additional assessments where documents were insufficient to ascertain the correct tax liability. It submitted that the burden of proof lies with the Appellant to produce evidence challenging the Respondent’s decision as provided for under Section 56(1) of the Tax Procedures Act. Whether the Appellant discharged its burden of proof under Section 56 of the Tax Procedures Act 36.The Respondent submitted that the Appellant was accorded an opportunity to present its case by way of documentary evidence, which it squandered prior to its Objection. Further, that the Appellant is bound by Section 51(3) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act to provide all necessary evidence in support of its objection. 37.It was the Respondent’s submission that the Appellant failed to avail invoices, reconciliations or other supporting evidence to dispute the third-party information; hence, in failing to provide the supporting documents, the Appellant failed to exercise its statutory burden of proof as per Section 56(1) of the TPA. 38.It relied on the case of George V Federal Commissioner of Taxation, where it was held;“The burden lies upon the taxpayer of establishing affirmatively that the amount of taxable income for which he has been assessed exceeds the actual income which he has derived during the year of income” 39.The Respondent submitted further that the Appellant had the burden to prove that the assessments made by the Respondent was incorrect and or that the documents or information relied upon by the Respondent in raising the assessment was wrong. To buttress its argument, the Respondent further relied on the following cases:a.Ushindi Limited vs Commissioner of Investigations and Enforcement (2020) eKLRb.Republic vs KRA; Proto Energy Limited (2022) eKLR 40.It was the Respondent’s submission that the Appellant has the responsibility to maintain records and to avail the same when requested to do so, and that in this case the Appellant failed to discharge its burden of proof by failing to provide any documents in support of its objection despite documents being requested by the Respondent. 41.The Respondent further relied on the following cases in buttressing the fact that the Appellant bears the burden of proof in tax mattersa.Osho Drappers Limited vs Commissioner of Domestic Taxes (TAT No 159 of 2018.)b.Kenya Revenue Authority vs Man Diesel &Turbo Se,Kenya(2021)c.PZ, Cussons East Africa Ltd vs Kenya Revenue Authority (2013) eKLRd.Miao Yi vs Commissioner of Investigations & Enforcement TAT No 441 of 2019. The Respondent’s Prayers 42.The Respondent prayed that:a.Its Objection Decision issued on 10th July 2025 be found to be proper in law and upheld.b.The appeal is devoid of merit and ought to be dismissed with costs to the Respondent. Issues For Determination 43.The Tribunal has considered the parties’ pleadings, documentation, and the Respondent’s submission and is of the view that this appeal raises one issue for determination: Whether the Respondent’s Additional Assessments were justified. Analysis And Findings 44.Having identified the sole issue for determination, the Tribunal will proceed to analyse it as hereunder. 45.The dispute arose after the Respondent conducted a return review on the Appellant for the period January 2019 and July 2024 and established a tax gap in Income Tax and VAT. 46.The Appellant had faulted the Respondent for issuing Corporate Income Tax, arguing that it maintained audited books of accounts for the years 2019 and 2023, which clearly detailed expenses wholly and exclusively incurred in the production of income. 47.On the issue of VAT assessment, the Appellant had stated that it had prepared detailed and credible bank analysis, alongside reconciliations of project receipts and contractual agreements, which accurately reflected the income received for the periods under review. 48.The Respondent, on its part, had stated that it made several requests for supporting documentation for the claimed expenses; however, the Appellant failed to avail the same. Further that even for the case of VAT assessment, the Appellant failed to provide any evidence to challenge the Respondent’s decision. 49.The Tribunal has sighted the Respondent’s communication to the Appellant requesting the following documents to support the claimed expenses.a.Invoicesb.Bank payment schedules;c.Proof of rent payment. 50.However nowhere in the Appellant’s appeal documents does the Tribunal sight any evidence that the Appellant provided the requested documents. Further that the Appellant has not controverted the Respondent’s assertion that it never received the requested documents. 51.Section 23 (1)(a)(b) of the Tax Procedures Act provides as follows in the case of record keeping:“A person shall –a).Maintain any documents required under a tax law, in either of the official languages;b)Maintain any document required under a tax liability to be readily ascertained” 52.The Tribunal notes that although the Appellant had stated that it maintained books of accounts for the period under review, it not only failed to avail them, but also failed to avail the requested documents, which it is ordinarily expected to maintain. 53.Section 56(1) of the TPA and Section 30 of the Tax Appeals Tribunal Act place the burden on the Appellant to prove that the Respondent’s assessment is erroneous. That burden requires the Appellant to avail documents or other proof to challenge the Respondent’s demand. The said Sections provide as follows; 54.Section 56(1) TPA.“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect”Section 30 TATA“In a proceeding before the Tribunal, the appellant has the burden of proving-a.Where the appeal relates to an assessment, that the assessment is excessive;b.In any other case that the tax decision should not have been made or should have been made differently.” 55.The Tribunal relies on its holding in the case of Kirim Pipes Limited, vs Commissioner Intelligence Strategic Operations Investigations and Enforcement (TAT No. E1116 of 2024 (2025) KETAT 259 where it held:“It is trite law that once the Respondent has made the objection decision, the burden becomes that the Appellant to prove that the decision of the Respondent is erroneous. This is pursuant to the provisions of Section 56 of the TPA which provides as thus; “In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect”The Tribunal also notes the following provisions of Section 30 of the TATA, 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. It is the firm view of the Tribunal that the burden of proving that the Respondent’s assessment was erroneous or inaccurate lies on the Appellant. This burden is statutorily mandated as outlined by provisions of statute…” 56.The Tribunal further relies on the High Court case of Eldama Technologies Limited vs Commissioner of Customs & Border Control (Tax Appeal E200 of 2021 (2023) KEHC 20762(KLR) which stated as follows: -“This means that it is the Appellant, as the taxpayer who is expected to surmount the burden of proving that the Commissioner was wrong in its statement. In this case, the Commissioner raised the assessment due to the failure by the Appellant to produce all documents and records necessary for audit. I have already found that indeed, the Appellant did not provide all the documents requested by the Commissioner, meaning that it failed to discharge its burden of proof as requested by Section 30 the Tax Appeals Tribunal Act,2013” 57.Flowing from the above analysis and case laws, it is the Tribunal’s considered view that failure by the Appellant to provide documentation during the review stage, or documentation to support its averment meant that the Respondent could not be faulted for raising the assessment as it did. 58.Consequently, the Tribunal finds and holds that the Respondent’s Additional Assessments were justified. Final Decision 59.The upshot of the above is that the Appeal lacks merit and the Tribunal proceeds to issue the following orders:a.The Appeal be and is hereby dismissed.b.The Respondent’s Objection Decision dated 16th July 2025 be and is hereby upheld.c.Each party to bear its own costs. 60.It is so ordered. DATED AND DELIVERED AT NAIROBI THIS 26TH DAY OF JUNE 2026DR, RODNEY ODHIAMBO OLUOCH - CHAIRMANABDULLAHI M. DIRIYE - MEMBERDR ERICK K’OMOLLO - MEMBER