https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/249

 REPUBLIC OF KENYA IN THE TRIBUNAL OF KENYA AT NAIROBI COUNTY COURT NAME: TAX APPEALS TRIBUNAL CASE NUMBER: TATC/E498/2025 MAC HARDWARE LIMITED 1st Appellant - Versus - Kenya Revenue Authority 1st Respondent JUDGMENT # BACKGROUND 1. The Appellant is a private limited company dealing in supply of hardware materials. It is registered for Income Tax Company, PAYE, VAT and VAT Withholding obligations. 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 conducted an audit and issued assessment orders dated 26th February 2025 against the Appellant for Value Added Tax, PAYE and Corporation Tax for various periods from May 2019 to April 2023 for the sum of Kshs 40,688,584.89. it then issued assessment notice dated 27th February 2025. 4. The Corporation Tax and VAT assessments were based on the alleged under-declared income derived from banking test. The PAYE assessments were based on variances between salaries and wages expenses as per Income Tax Company returns and gross remuneration as per filed monthly PAYE returns. 5. The Appellant lodged objection against the assessments on 28th February 2025. Upon considering the application, the Respondent issued an objection decision on 25th April 2025 wherein it vacated Kshs 304,213.90 thereby demanding the Appellant to pay Kshs 47,425,496.03 composed of the principle tax, penalty and interests. 6. Dissatisfied by the decision, the Appellant lodged this appeal by its Notice of Appeal dated 19th May 2025 and filed on 20th May 2025. # THE APPEAL 1. The Appellant lodged the memorandum of Appeal on 20th May 2025 raising the following grounds: 1. That the Respondent erred in law and facts in issuing an invalid objection decision contrary to the Tax Procedures Act 2015 Section 51 (9) which states "The Commissioner shall notify in writing the taxpayer of the objection decision and shall take all necessary steps to give effect to the decision, including, in the case of an objection to an assessment, making an amended assessment". Section 10 further requires the Respondent, in case of an objection decision must include a statement of findings on the material facts and reasons for the decision. * 1. That the Respondent erred in law by assuming all the banking were sales. 2. That Respondent erred in law and facts by demanding tax that is unreasonable and unfair under Article 210 and 201 (b) (i) of the Constitution of Kenya. * 1. That the Respondent erred in law and facts by eliminating certainty as an integral ingredient of the rule of law as stated to be the lifeline of business and business plans. 2. That the respondent actions are contrary to legitimate expectations on the operations of the taxpayer, as per Section 15 of the Income Tax Act Cap 470(ITA), and Article 47(1) (2) of the Kenya Constitution 2010. # THE APPELLANT’S CASE 1. In support of the appeal, the Appellant lodged statement of facts filed on 20th May 2025 together with written submissions dated 1st April 2026. 2. The Appellant stated that it is a hardware trading business. It stated that the Respondent did VAT and Income tax additional assessment against the Appellant amounting to Kshs 40,688,584.89. The Appellant objected to the additional assessment on 28th February 2025 which the Respondent acknowledged receipt on the same day. 3. According to the Appellant, contrary to its legitimate expectation and even before the lapse of the legal period for raising an objection decision the Respondent wrote to the appellant on 25th April 2025 via email, issued an Objection Decisions dated 25th April 2025 partially amending the assessments to Kshs32,526,193.66. 4. The Appellant pointed out that the Respondent issued a decision that was arbitrary, capricious, unreasonable, unfair and contrary to the administration of justice and not legitimate to the taxpayer. 5. It stated that the Respondent’s actions amounted to denial of the right to fair trial as the Appellant was not informed why its objection was declined and on what grounds to support his Appeal. 6. The Appellant contended that the Respondent erred in the method and model used in arriving at the additional assessments where it was assumed a journal entry was a cash outflow and all credits on the bank statement was income. It also argued that the Respondent did not understand the Appellant’s industry and its working models and contractual obligations on the Appellant. 7. It submitted that it availed the documents to the Respondent and that the Respondent has admitted to receiving the information from the Appellant. It submitted that the burden of proof articulated under Section 56(1) of the TPA is not permanently fixated upon the taxpayer. It submitted that upon the production of the requisite supporting documents by a taxpayer, the burden of proof shifts to the Respondent. 1. The Appellant relied on the case of **Commissioner Investigation & Enforcement v Marylebone Properties Limited [2025] KEHC 3314 (KLR) to support the assertion that** the burden of proof in tax matters is not stationary but it is like a pendulum swinging between the Taxpayer and Taxman at different points. # Appellant’s Prayers 1. The Appellant prayed for the following orders: 2. The Objection decision be declared invalid, incorrect, unfair, time barred and failed to meet the legitimate expectations of the taxpayer as per Section 47 and article 201(6) (i), 210 of the constitution of Kenya. 3. the Appellant objection be upheld and the respondent demand and confirmation be quashed entirely. 4. The Respondent's demand for additional taxes and confirmation of additional assessment be struck out entirely. 5. The Respondent's actions be declared arbitrary, capricious, subjective, unfair and contrary to the fair administration of justice and to the legitimate expectations of the appellant. 6. The Respondent and its agent be estopped from demanding or taking further action or steps to ensure recovery of the alleged principal tax, penalties and interests. 7. Cost of appeal; and 8. Any other remedies that this Tribunal may determine. # THE RESPONDENT’S CASE 1. In response to the Appeal, the Respondent lodged its Statement of Facts dated 23rd July 2025 and filed on 24th July 2025 and written submissions dated 26th February 2026 and filed on even date. 2. The Respondent stated that the basis of raising the additional assessments was because the Appellant failed to support the grounds in its objection with relevant supporting documents. 3. The Respondent relied on Section 24 and 31 of the TPA to argue that it has legal authority to make assessment based on available information by applying best judgment. 4. The Respondent pleaded that it requested the Appellant on 14 th April 2025 to provide documents in support of its objection but the Appellant failed to do so therefore failing to rebut the assessments issued and properly support its objection as provided under Section 51(3) of the TPA. It stated that it was upon the Appellant to prove that the Respondent erred in exercising the best judgment. The Respondent asserted that the Appellant failed to discharge that burden, therefore, the Respondent upheld its assessment. 5. The Respondent stated that it is upon the Appellant to discharge the burden of proof under Section 56(1) of the TPA. It pleaded that it requested the Appellant to provide records in support of its objection vide an email dated 14th April 2025. The Respondent contended that despite the Appellant being accorded an opportunity failed and neglected to do so thus failing to discharge the burden of proof as provided under Section 56 of the TPA. 6. The Respondent also stated that the Appellant has a duty to keep and maintain records as provided under Section 23 of the TPA. 7. Whereas the Appellant contended that the Respondent erred in law and fact in issuing an invalid objection decision contrary Section 51 (9) the TPA, the Respondent stated that the Appellant’s claim is incorrect on the basis that the Appellant objected to the assessments on 28th February 2025, then the Respondent issued an objection decision on 25th April 2025, 56 days after the date of the objection application. It asserted that the decision was issued within the 60 days as per the provisions of Section 51(11) of TPA. 8. The Respondent averred that the Objection Decision was effected on iTax 2nd May 2025 and amended assessment notices/vacation notices issued as applicable dated 2nd May 2025. It stated that the Objection Decision clearly highlighted statement of findings on materials fact as well as the reasons for the decision. The Respondent therefore contended that the objection decision was validly issued. 9. On whether the Respondent assumed that all banking were sales, the Respondent pleaded that on 3rd March 2025, the Appellant was required to provide all relevant documents in support of the objection application including a reconciliation of the bank credits and sales as per Audited Financial Statements, clearly specifying any non-income credits together with supporting transaction documents, a reconciliation of bank debits and payments made for purchases, creditors and other expenses among others. The Respondent argued that the Appellant chose not to provide a reconciliation of the reconciliation of the bank credits and sales as per AFS together with supporting transaction documents despite an email reminder sent on 14th April,2025. 1. The Respondent asserted that the Appellant failed to prove that the Respondent erred in assessing income as per bank deposits/credits for the year 2022/2023 as required under Section 56 of the TPA. 2. On whether the Respondent erred in law and fact by demanding tax as contrary to Article 210 of the Constitution, The Respondent pleaded that it issued the Income Tax and VAT assessments based on noted under-declared income as derived from banking test. It stated that the banking test was computed using the Appellant's self-assessed returns and the deposits and withdrawals in the Appellant's bank statements provided by the Appellant to the Respondent. On this basis, the Respondent contended that the assessments were issued as provided for under Section 31 of the TPA. 3. On whether the Respondent actions was contrary to legitimate expectations on the operations of the Appellant under Section 15 of the ITA and Section 47 of the Constitution, the Respondent stated that its action was in tandem with the law. It contended that the Appellant was granted an opportunity to provide all the relevant documents in support of the objection application but the Appellant provided part of the required documentation which was used to arrive at the Objection Decision issued. 4. It maintained that the Appellant has not demonstrated which legitimate expectation was breached. The Respondent further stated that all the documents provided by the Appellant were taken into account in arriving at the Objection decision issued. 5. The Respondent submitted that the assessment was lawful and that the Appellant did not discharge the burden of Proof. 6. The Appellant cited the case of **Digital Box Limited v Commissioner of Domestic Taxes Tax Appeal No. 115 of 2017** to support the position that the the Respondent is required to exercise its powers in such a way that its make a value judgment on the material which is before it and that there must, some material before the commissioners on which it can base its judgment. 1. It submitted that the Appellant did not avail documents therefore, it was not able to discharge the burden of proof. It reiterated that the burden of disputing the Respondent's assessment lies on the taxpayer and in so doing relied on the cases of **Boleyn International Ltd v Commissioner of** # Investigations and Enforcement, Nairobi TAT Appeal no. 55 of 2018; and Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal EL46 of 2020) [2022] KEHC 9927 (KLR) wherein it was held that the burden of proving that the Respondent's decisions and investigations were wrong falls on the taxpayer. # Respondent’s Prayers 1. The Respondent prayed for the following orders: 1. The Appeal be dismissed in its entirety 2. The tax assessment as confirmed by the Objection decision be upheld 3. Orders the Appellant to pay the costs of the Appeal # ISSUE FOR DETERMINATION 1. The Tribunal having considered the parties’ pleadings and submissions puts forth the following issues for determination: **Whether the objection** # decision was justified. **ANALYSIS AND FINDINGS** 1. Having identified the issues for determination, the Tribunal proceeds to analyse them as hereunder; # Whether the Objection decision was justified 1. The Appellant contended that the Respondent erred in law facts and issued an invalid objection decision contrary to Section 51 (9) and (10) of the TPA, the statement of facts was silent on this issue. 2. Rule 5 of the Tax Appeals Tribunal (Procedure) Rules, 2015 guides taxpayer on what constitutes a good statement of facts. The said rule 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****.’’* (Emphasis is ours)*.* 1. Whereas the Appellant contended that the Respondent erred in law fact and issued an invalid objection decision contrary to Section 51 (9) and (10) of the TPA, it did not explain how the Respondent breached the said provisions. The Tribunal examined the Objection decision in light of Section 51 (9) and (10) of the TPA. 2. Section 51 (9) and (10) of the TPA provides as follows: 3. *The Commissioner shall notify in writing the taxpayer of the objection decision and shall take all necessary steps to give effect to the decision, including, in the case of an objection to an assessment, making an amended assessment.* 4. *An objection decision shall include a statement of findings on the material facts and the reasons for the decision.* 5. With regard to Section 51 (9), the Respondent submitted that it notified the Appellant of the objection decision in writing through iTax on 2nd May 2025. 6. The Tribunal noted that the objection decision was in writing, and the Respondent issued amended assessment notice indicating assessment that had partially accepted. The Tribunal notes that the Appellant in did not indicate how the Respondent breached Section 51 (9) of the TPA. 7. Section 30 of the Tax Appeals Tribunal Act provides that: *In a proceeding before the Tribunal, the appellant has the burden of proving—* 1. *Where an appeal relates to an assessment, that the assessment is excessive; or* 2. *In any other case, that the tax decision should not have been made or should have been made differently.* 3. On the other hand, Section 56 (1) of the Tax Procedures Act provides as follows: *‘In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.’* 4. The Appellant argued that the Respondent erred by assuming all the banking were sales. In statement of facts, it stated that the Respondent erred in the method and model used in arriving at the additional assessments where it was assumed a journal entry was a cash outflow and all credits on the bank statement was income. 5. On the other hand, the Respondent stated that on 3 rd March 2025, the Appellant was required to provide all relevant documents in support of the objection application including a reconciliation of the bank credits and sales as per audited financial statements, clearly specifying any non-income credits together with supporting transaction documents, a reconciliation of bank debits and payments made for purchases, creditors and other expenses among others. The Respondent asserted that the Appellant did not provide a reconciliation of the reconciliation of the bank credits and sales as per audited financial statements together with supporting transaction documents despite an email reminder send on 14th April 2025. 6. The Tribunal examined the email correspondences between the Appellant and the Respondent and noted indeed the Respondent requested the Appellant to provide specified documents. In particular, the Tribunal examined the emails of 3rd, 8th, 10th, 20th March 2025, 9th, and 14th April 2025 and noted that the Appellant did not file those documents to support the appeal. 7. The Appellant in its written submissions stated that it submitted an extensive body of documents including: Audited Financial Statements for the relevant years; Company Bank Statements; A reconciliation letter dated 9th April 2025 detailing PAYE variances, bank debits and payments for purchases, creditors and other expenses; Summary of sales (in Excel); Expenses analysis (in Excel); Petty cash analysis (in Excel) and petty cash vouchers; Monthly ETR Z-reports; Daily cash analysis (manual books and Excel) and Manual cashbook. However, the Appellant did not file these documents to support this appeal. 8. It is vital to reiterate that this being an appeal, it is upon the taxpayer to adduce all documents that it lodged with the Respondent. It is not sufficient to merely assert that documents were submitted to the Respondent at objection stage. It is upon the taxpayer to file the documents that it submitted to the Respondent to demonstrate that the Respondent erred. 1. The bank deposit analysis method is a recognised method for tax assessment wherein the Respondent in the process of tax administration can use in the determination of taxes *ex post facto* in a self-assessment regime. The Taxpayer has a duty to demonstrate that the method was not applied properly. 2. In the case of **Hole v The Queen, 2016 TCC 55** a Canadian Court had the following to say about bank deposit analysis method: *‘‘A bank deposit analysis is an alternative method of determining income that is sometimes used by the Minister when the Minister believes that a taxpayer's records are an inadequate means of verifying the taxpayer's income.* ***In simple terms, a bank deposit analysis assumes that all deposits that have been made to a taxpayer's bank account are income unless the taxpayer is able to show otherwise.*** *(Emphasis is ours).* *[27] There are two primary ways in which a taxpayer can challenge a bank deposit analysis. The first is to prove that his or her records were adequate and thus that his or her income should have been determined using those records. The second, and more common, method is to challenge the actual determination of income made by the Minister under the bank deposit analysis.’’* 1. This Tribunal in the case of **Digital Box Limited v Commissioner Investigations and Enforcement Appeal No. 115 of 2017** stated as follows in relation to banking analysis method: *‘‘The onus then was on the Appellant to prove its averment that the banking analysis was misapplied in arriving at the assessment.* *…The Tribunal notes that in disputing the Respondent’s analysis the Appellant did not specify the entries in the bank statement which the Respondent has used wrongly/misapplied or which should not have been included in the assessment and the reasons why the entries should not be included.’’* 1. Considering the foregoing, the Appellants assertion that the Respondent erred in law by assuming all the banking were sales, It did not demonstrate what were sales and what did not constitute sales. The Appellant also did not provide evidence to explain its position, not even the bank statement. 2. It is therefore the Tribunal’s considered view that the Appellant failed to demonstrate how the Respondent erred in the application of the banking analysis method and consequently, the Tribunal finds and holds that the Objection decision was justified. # FINAL DECISION 1. The upshot to the foregoing is that the Appeal lacks merit and proceeds to make the following orders: - 2. The Appeal be and is hereby dismissed; 3. The Objection decision dated 25th April 2025 be and is hereby upheld; 4. Each party to bear its own cost. 5. It is so ordered. # DATED AND DELIVERED AT NAIROBI THIS 29TH DAY OF MAY 2026 SIGNED BY/FOR: **★ TH E JUDICIAR Y O F KENY A ★** **HON. ROBERT MUGAMBI MUTUMA (CHAIRPERSON)** **HON. EUNICE NJERI NGANGA HON. BONIFACE KIBIY TERER DOMINIC KIPKEMOI RONO HON. BILLY GRAHAM OKUMU MIJUNGU** Tax Appeals Tribunal Tribunal Date: 2026-05-29 14:41:01