[2025] KETAT 247 (KLR)

Madisina Enterprises Limited v Commissioner of Domestic Taxes (Tax Appeal E867 of 2024) [2025] KETAT 247 (KLR) (Civ) (9 May 2025) (Judgment)

Neutral citation: [2025] KETAT 247 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Tax Appeal E867 of 2024

CA Muga, Chair, BK Terer, EN Njeru, E Ng'ang'a & SS Ololchike, Members

May 9, 2025

Between

Madisina Enterprises Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited Liability Company.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws (hereinafter “the Act”). 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 a compliance audit check that was triggered by under-declaration of income for the period 2016-2020 under review. Consequently, the Respondent issued an additional assessment of principal amount of Kshs 8,005,599. 45 on income tax and VAT vide assessment dated 19th October 2021 covering the period 2016 to 2018.

4. The Appellant lodged a late objection, which was allowed on 21st October 2022. The Respondent issued an objection decision dated 1st December 2022 wherein the Respondent fully rejected the notice of objection.

5. Aggrieved by the Respondent’s decision, the Appellant filed this Appeal vide notice of appeal dated 12th July 2024.

The Appeal 6. The Appellant filed its Memorandum of Appeal dated 31st July 2024 and filed on 2nd August 2024 on the following grounds:a.That the learned assessing officer erred in law and in fact in the confirmation of VAT and Income tax company additional assessments against the objections of Appellant while the following facts were clear:i.That the confirmed income tax company additional assessments were raised from a computed tax based on gross income instead of Net Income therefore disregarding allowable costs contrary to Income Tax Act CAP 470 of the Laws of Kenya (hereinafter “ITA”) Part IV Ascertainment of total income Section 15 (1) Deductions allowed.ii.That the confirmed VAT additional assessments are erroneous and in violation of the VAT Act, CAP 476 of the Laws of Kenya (hereinafter “VAT Act”).iii.That the confirmed income tax company additional assessments were made in violation of Section 31 (2) of the Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter “TPA”) on amendments carried out by the taxpayer.b.That the confirmed assessment Notice by the Respondent was made long after the lapse of the stipulated statutory timeliness of sixty (60) days as prescribed under section 51(11) of the TPA.c.That the Appellant's objection dated 7th October 2022 to the confirmation assessment notice issued on 10th May 2023 was deemed to have been accepted by the Respondent by operation of law particularly where the Respondent failed to communicate its decision within sixty (60) days from date of objection.d.By rejecting the Appellant's objection, the Respondent breached the legitimate expectations of the Appellant by failing to afford a fair hearing as per the provisions of the Fair Administrative Actions Act, CAP 7L of the Laws of Kenya (hereinafter “FAAA”) and violated the Appellant's Rights as enshrined Under Article 159 of the Constitution of Kenya, 2010 (hereinafter “the Constitution”).e.That the learned assessing officer erred in law and in fact by not considering information and explanation provided by the Appellant.

Appellant’s Case 7. The appeal was premised on its Statement of Facts dated 31st July 2024. The Appellant did not file written submissions.

8. The Appellant stated that on 19th October 2021, 28th January 2022 and 15th November 2019, the Respondent issued income tax company additional assessments amounting to Kshs 10,641,343. 05. It stated that on 9th October 2022 and 24th April 2024 the Appellant lodged an objection to the Income Tax - Company and VAT additional assessments.

9. According to the Appellant, the Respondent issued confirmation assessment notice on 10th May 2023. It asserted that it filed Notice of Motion seeking leave to appeal out of time which application was filed on 23rd May 2024.

10. The Appellant stated that it submitted documents for consideration pursuant to the provisions of Section 51 (3) (c) of the TPA.

11. The Appellant contended that it requested that the Respondent to stop demanding or taking any further steps towards enforcement or recovery of the principal taxes, penalties and interests in relation to the assessments of confirmation assessment notice.

12. The Appellant also stated that it requested the Respondent to vary, review and set aside income tax company for the period 2016, 2017, 2018, 2019 and 2020 and VAT for the period December 2017, April 2018 and December 2019 and allow computation of tax in compliance with Section 15 of the ITA. According to the Appellant, the confirmed VAT additional assessments are erroneous and in violation of the VAT Act.

13. The Appellant sought the following reliefs:a.That the Appeal be allowed;b.The Respondent be barred and/or stopped from demanding or taking any further steps towards enforcement or recovery of the principal taxes, penalties and interests in relation to the assessment and objection decision stated above; andc.That the confirmation of the Respondent’s assessment be set aside, reviewed or varied.

Respondent’s Case 14. The Respondent’s case is premised on its Statement of Facts dated 29th August 2024 and filed on 30th August 2024. The Respondent filed its written submissions dated 3rd March 2025 and filed on 4th March 2025.

15. In response to the appeal, the Respondent stated that it was justified in issuing the assessment made. It stated that pursuant to the provisions of Section 24 of the TPA the Appellant has the obligation of filing tax returns but the Respondent is not bound by the said return and/or information provided. It also relied on the provisions of Section 31 (1) of the TPA to argue that it has an obligation to assess and issue additional assessments where no return and/or an incorrect return are filed to ensure that the correct amount of tax is paid.

16. The Respondent averred that the Appellant's objection failed to meet the requirements pursuant to the provisions of Section 51 (3) of the TPA since the Appellant did not provide additional information according to the provisions of Section 59 (1) of the TPA.

17. The Respondent contended that the assessment was issued in accordance with the law and the Respondent cannot be faulted for excising its mandate when the same is done within and in accordance with the law. Further, the Respondent submitted that the Appellant failed to rebut the additional assessments because no records were provided.

18. The Respondent also stated that the Appellant failed to discharge the burden of proof contrary to the provisions of Section 56 (1) of the TPA.

19. The Respondent also put in written submissions wherein it cited the case of Afya X-ray Centre Limited v Commissioner of Domestic Taxes TAT Appeal No. 70 of 2017 and Meera Umoja Kenya Limited v Commissioner of Domestic Taxes Nairobi TAT Appeal No. 93 of 2019 to support the proposition that the taxpayer has an obligation to adduce documents to facilitate determination of payable tax. It submitted that the Appellant failed to discharge this duty.

20. On whether the objection decision dated 1st December 2022 was out of time, the Respondent submitted that it rendered its objection decision on 1st December 2022 which was within the statutory timelines given that the Appellant made its objection application on 19th October 2022 which was reviewed and approved on 21st October 2022. The Respondent submitted that the Appellant misconstrued the i-Tax confirmation of assessment as an objection decision. The Respondent also submitted that the i-Tax generated confirmation was merely an enforcement mechanism but the objection decision which is the appealable decision was issued on 1st December 2022.

21. It submitted that the Appellant failed to discharge its burden of proof since the Appellant was requested to avail all the relevant documents relating to the objection but could not avail them. It therefore, submitted that the Appellant failed to discharge the burden of proof. Under the provisions of Section 56 (1) of the TPA. It relied on the case of Halinto General Distributors Ltd v Commissioner of Investigations & Enforcements Ltd TẠT No. 221 of 2018 and Mohegan Limited v Commissioner of Domestic Taxes [Nairobi TAT Appeal No. 1358 of 2022], to submit that the Appellant had to furnish sufficient proof to defend its position and to rebut the assessment and the objection decision.

22. The Respondent sought prayers that the Tribunal would:i.Uphold the Respondent's decision dated 1st December 2022 as proper in law and in conformity with the provisions of the law; andii.Dismiss the Appeal with costs to the Respondent as the same was devoid of any merit.

Issues For Determination 23. The Tribunal having considered the parties pleadings and submissions puts forth the following two issues for determination:a.Whether the Appellant’s notice of objection was deemed as allowed by operation of law.b.Whether the Appellant discharged its burden of proving that the Respondent’s Decision dated 1st December, 2022 ought to be set aside, reviewed or varied.

Analysis And Findings 24. The Tribunal having established two issues for determination will proceed to analyse them as hereunder:

a. Whether the Appellant’s notice of objection was deemed as allowed by operation of law. 25. The Appellant contended that it lodged a late objection application on 7th October 2022 which the Respondent allowed on 21st October 2022 whereupon the Respondent issued confirmation of assessment notices on 10th May 2023. According to the Appellant, the Respondent delayed in communicating its decision within 60 days pursuant to the provisions of Section 51(11) of the TPA.

26. The Tribunal notes the Respondent’s argument that it issued its objection decision on 1st December 2022 which was well within the required timelines and that the Appellant was wrong in construing the i-Tax generated confirmation of assessment as an objection decision and that the confirmation of assessment was merely an enforcement mechanism.The Tribunal observes that the Respondent provided a copy of the objection decision dated 1st December 2022 and with it a copy of the email of the same date where it communicated the same to the Appellant.

27. At the time when the Appellant objected to the assessment, Section 51(11) of the TPA provided as follows:“(11) The Commissioner shall make the objection decision within sixty days from the date of receipt of a valid notice of objection failure to which the objection shall be deemed to be allowed.’’

28. The Tribunal having established that the Respondent issued an objection decision dated 1st December 2022 which was within the 60 day statutorily mandated timeline pursuant to the provisions of Section 51(11) of the TPA, finds that the Appellant’s claim that its notice of objection was deemed as allowed by operation of the law, fails.

b. Whether the Appellant discharged its burden of proving that the Respondent’s Decision dated 1st December, 2022 ought to set aside, reviewed or varied. 29. The Appellant prayed for the Tribunal to set aside, review or vary the Respondent’s confirmation of assessments arguing that the Respondent arrived at the confirmed income tax assessment by disregarding allowable costs contrary to Section 15 (1) of ITA and the VAT assessment were erroneous and a violation of the VAT Act. In support of this, the Appellant attached copies of the assessment.

30. Section 51(3) (c) of the TPA requires a taxpayer to adduce documents in support of the objection. It provides as follows:“a notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if—all the relevant documents relating to the objection have been submitted.’’

31. Section 56(1) of TPA places the burden of proof upon the taxpayer. It provides as follows:“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.’’

32. To discharge its/his/her burden of proving that a decision by the Commissioner is incorrect, before the Tribunal, a taxpayer must adduce positive and relevant evidence to support its Appeal and thereby enable the Tribunal to make its determination on the Appeal. Section 13(2) of the Tax Appeals Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”) provides as follows:“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;(c)The appealable decision; and(d)Such other documents as may be necessary to enable the Tribunal to make a decision on the appeal.’’ (Emphasis ours).

33. The Tribunal examined the Appellant’s pleadings and the evidence adduced by the Appellant which included assessment orders. The Appellant neither adduced in evidence documents that proved that it had incurred expenses as provided for by Section 15 of the ITA nor did it file documents to support its claims under VAT Act. As such, the Tribunal had no evidence to examine.

34. The Tribunal cites the case of Kenya Revenue Authority v Maluki Kitili Mwendwa [2021] eKLR, where Mativo J (as he then was) held as follows:“The pertinent issue in this appeal as I see it is the question of the taxpayer's burden of proof in tax cases. The party with the obligation of persuasion - what Wigmore termed the risk of non-persuasion - is said to bear the burden of proof. [14] The effect of non-persuasion on a party with the burden of proof is that the particular issue at stake in the litigation will be decided against the party. Generally, the taxpayer has the burden of proof in any tax controversy. The taxpayer must demonstrate that the commissioner's assessment is incorrect. The taxpayer has a significantly higher burden. The taxpayer must prove the assessment is incorrect. This position enjoys statutory backing courtesy of section 56 (1) of the TPA which provides that in any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect. As if to underscore the import of the above provision, the legislature deployed the word “shall'' in the said section meaning that the provision is couched in peremptory terms.”

35. The Tribunal finds that the Appellant did not adduce documents to support its the Appeal and accordingly the Appellant failed to discharge its burden of proving that the Respondent’s Decision dated 1st December, 2022 ought to be set aside, reviewed or varied.

Final Decision 36. The upshot to the foregoing is that the Tribunal finds and holds that this Appeal lacks merit and it proceeds to make the following Orders:a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision dated 1st December 2022 be and is hereby upheld.c.Each party to bear its own cost.

37. It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 9TH DAY OF MAY 2025. ………………………………….CHRISTINE A. MUGACHAIRPERSON………………………….. …………….……………..BONIFACE K. TERER ELISHAH N. NJERUMEMBER MEMBER………….…..…………… ……….……..…………….EUNICE N. NG’ANG’A OLOLCHIKE S. SPENCERMEMBER MEMBER