[2024] KETAT 98 (KLR)

Majesty Construction Limited v Commissioner of Legal Services & Board Coordination (Tax Appeal 1138 of 2022) [2024] KETAT 98 (KLR) (2 February 2024) (Judgment)

Neutral citation: [2024] KETAT 98 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1138 of 2022

RM Mutuma, Chair, M Makau, EN Njeru, W Ongeti & BK Terer, Members

February 2, 2024

Between

Majesty Construction Limited

Appellant

and

Commissioner of Legal Services & Board Coordination

Respondent

Judgment

Background 1. The Appellant is a company duly incorporated in the Republic of Kenya and a registered taxpayer. Its core business engagement is in construction activities and other businesses.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. 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 & 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 dispute in this Appeal arose when the Respondent carried out an analysis of the Appellant and raised additional assessments relating to income tax on 16th April 2022 and 17th April 2022 for the years 2019 and 2020, for VAT for on 1st September 2021 the period March 2020 and January 2021 cumulatively in the amount of Kshs. 7,039,649. 70.

4. The Appellant disputed the Respondent’s additional assessments and lodged its notices of objection on 30th September 2021 relating to VAT and on 20th June 2022 relating to income tax, the late objections relating to income tax were accepted by the Respondent on 14th July 2022.

5. The Respondent issued the objection decision on 29th August 2022 disallowing the Appellant’s objection and confirmed the additional assessments.

6. The Appellant being aggrieved by the decision issued by the Respondent, lodged this Appeal, filing its Notice of Appeal on the 7th October 2022.

The Appeal 7. The Appellant’s Memorandum of Appeal dated the 7th September 2022 and filed on the 7th October 2022 is premised on the following grounds, that;i.The Respondent erred in law and fact by contravening the provisions of Section 51 (11) of the Tax Procedures Act, 2015 while issuing its objection decisions in relation to the Appellant’s notices of objection dated 30th September 2021 and 25th November 2020 against its assessments on VAT and income tax, respectively. The Respondent inordinately delayed in issuing objection decisions in relation to the Appellant’s notices of objection which had validly been lodged in accordance to the provisions of Section 51 (2) of the Tax Procedures Act, 2015 which requires that a taxpayer who feels dissatisfied with the Commissioner’s tax decision do object to the decision within thirty days. By the fact that the Respondent failed to issue its objection decision within the legal timeframe, it was apparent that the Appellant’s objections had been allowed based on the legal provisions of Section 51 (11) of the TPA, 2015. Furthermore, the Respondent’s unlawful objection decision dated 28th October 2021 lacked the content specified in Section 51 (10), which made it even more unlawful and unacceptable. Therefore, the Respondent’s objection decision in relation to the assessments of income tax company for the period 2018 and VAT for the periods March 2020 and January 2021 are both unlawful and misleading.ii.That in furtherance of the grounds of objection, Appellant stated that the Respondent was inconsiderate of its grounds in paragraph one in relation to the assessment of VAT for the periods March 2020 and January 2021. The Appellant stated that the assessed revenue emerged from a single job which had been incompletely done in favour of the County Government of Mombasa as protested by the engineers who had not issued the certificate of completion. As far as the job in question is concerned, several requests for payment of work done from the County Government of Mombasa had been done via the IFMIS platform but all were in vain since the certificate of completion had not been issued by the engineers citing incompleteness in the performance of the awarded contract (job). The Appellant, therefore, submitted that the same was occasioned by lack of sufficient funds majorly caused by the unbearable effects of Covid-19 which made it impossible for the Appellant to satisfactorily complete the contract to the level expected by the engineers. With hope of satisfying the demands of the engineers before issuance of the certificate of completion, the Appellant was in anticipation of issuing a payment requisition note (invoice) to the County Government of Mombasa upon satisfactorily completing the job and afterwards making disclosure of the same to Respondent in the VAT return and income tax company return.iii.That the Respondent’s assessment in relation to income tax company for the period 2019 and 2020 were unfair and lacked due consideration of the material facts in establishing the correct tax position of the Appellant. The variance analysis of sales declarations as per VAT returns and income tax company returns as performed by the Respondent was extremely unlawful and inconsiderate as the same sales in variance were still in dispute as there was an existing objection and that the objection decision had not yet been issued by the very Respondent. The Respondent was not prudent enough in carrying out its assessments as it deliberately contravened the provisions of Sections 51 (11) of the Tax Procedures Act, 2015 which prohibits the Respondent from issuing an objection decision outside the legal timeframe of sixty days. The Respondent’s act to fail in issuing objection decision in relation to VAT objections which had been validly lodged by the Appellant within sixty days meant that the objections had been allowed as per Section 51 (11) of the TPA, 2015 and therefore the variance analysis established in coming up with the assessments on income tax company for the year 2019 and 2020 was illegal and should be set aside.iv.The law dictates that every taxpayer must be subjected to both fair and just tax administration, by considering both taxpayer’s financial and tax positions that reflect his or her operations for a given tax period. The Appellant, therefore, was not subjected to a fair and just tax administration procedures as the Respondent failed in duty to perform due examination of his records and operations in determining the correctness of his sales, despite provision of necessary documents including bank statements, audited accounts and ledger accounts as requested by the Respondents. If the Respondent is not guided by the law in exercising his powers, then significant number of innocent taxpayers will suffer in his hands as a result of such unfair and discriminatory tax administrative processes, which may (in the long run) derail any effort to enhance both economic and social wellbeing of this Country and its citizens.

The Appellant’s Case 8. The Appellant’s case is premised on the herein under filed documents before the Tribunal, it’s;i.Statement of Facts dated 29th September 2022 and filed on the 7th October 2022 together with the documents attached thereto; andii.Written submissions dated 5th April 2023 and filed on 18th May 2023.

9. That the Appellant stated that it was issued with Assessment Orders for income tax dated 2nd November 2020, for VAT dated 1st September 2021, for income tax dated 16th April 2022 and 17th April 2022.

10. That the Appellant stated being aggrieved by the additional assessments it filed distinct notices of objection on the 25th November 2020 against the assessment of 2nd November 2020, on 30th September 2021 against the two (2) assessments of 1st September 2021 and on 20th June 2022 against the two (2) assessments of 16th & 17th April 2022.

11. The Appellant averred that upon notifying the Respondent of the valid Objection in accordance with the provisions of Section 51 (1), (2) and (3) of the Tax Procedures Act, various engagements ensued between the parties herein and the Appellant availed supporting documents to justify the grounds of Objection.

12. The Appellant identified four (4) issues for determination in this Appeal, namely;a.Whether the Appellant’s Objection applications were validly lodged in accordance with the provisions of Section 51 (1). (2) and (3) of the Tax Procedures Act, 2015. b.Whether the Respondent’s assessments on Income Tax Company for the period 2019 and 2020 are binding and lawful as per Section 31 (8) of the Tax Procedures Act, 2015. c.Whether the Respondent’s Objection Decision and confirmation assessment notices met the legal requirements of Section 51 (9), (10) and (11) of the Tax Procedures Act, 2015. d.Whether the Respondent erred in law and fact by disregarding the Appellant’s grounds of objection and supporting documents (and explanations) submitted by the Appellant.

13. The Appellant submitted that the notices of objection were validly lodged within the stipulated legal framework of thirty (30) days of the Respondent’s tax decision dated 2nd November 2020, 1st September 2021 and 16th April 2022 in accordance with Sections 50 (2) and 51 (1), (2) and (3) of the TPA, which notices state precisely the grounds of objection, amendments required and the reasons for the amendments required to be made to correct the decision.

14. The Appellant averred that all legal requirements in relation to the objection to the Respondent’s assessments were met and that the objections were validly lodged before the Respondent.

15. The Appellant averred that the Respondent’s assessments on income tax for the period 2019 and 2020 are neither binding nor lawful as per Section 31 (8) of the Tax Procedures Act, 2015 premised on the fact that they were carried out as result of sales variance analysis between those declared in the VAT returns and income tax company returns. The Respondent wrongfully carried out variance analysis on disputed sales as assessed by itself in the VAT returns for the period February 2019 and March 2020 and the purported sales in the assessed returns were still in dispute and the Respondent did not therefore, exercise prudence and caution in coming up with the additional assessments.

16. The Appellant contended that the Respondent did not act in good faith by issuing another assessment on an existing assessment, the Appellant having lodged objections to the assessments the Respondent did not issued any objection decision with the stipulated period of sixty (60) days in accordance with Section 51 (11) of the TPA, it therefore, meant that the objections were allowed and the assessments should be disallowed.

17. The Appellant asserted that the Respondent’s objection decisions in relations to the Appellant’s objection applications of income tax for 2018, VAT for March 2020 and January 2021 fell short of the provisions of Sections 51 (9), (10) and (11) of the Tax Procedures Act, 2015 as no objection decision was rendered within the statutorily prescribed period, the same being delivered four (4) months and eleven (11) days late, and did not state any findings on material facts and the reasons for the decision as the same was delivered via the iTax portal.

18. The Appellant stated that none of the documentary evidence that was submitted to the Respondent was taken into account while considering and making of the objection decision.

19. The Appellant relied on the following case law;i.Saalah Mohamed Hussein vs. Commissioner for Domestic Tax [2022] eKLR.ii.Haret Construction Ltd vs. Commissioner Domestic Taxes [2021] eKLR.

Appellant’s Prayers 20. The Appellant prayed for the Tribunal to set aside and annul the assessments by the Respondent.

Respondent’s Case 21. The Respondent’s case is premised on the herein under filed documents before the Tribunal, its;a.Statement of Facts dated and filed on 28th October 2022 together with the documents attached thereto; andb.Written submissions dated and filed on 8th May 2023.

22. The Respondent stated that the Appellant filed on iTax its returns relating to income tax and VAT for the periods 2019 and 2020, which did not accurately capture its tax positions, necessitating the Respondent to undertake a review on the Appellant’s tax affairs.

23. The Respondent stated that pursuant to the review it issued a pre-assessment demand notice on 22nd November 2021, which was not responded to by the Appellant. Further it raised additional assessments on 16th and 17th April 2022 for the periods 2019 and 2020, respectively, relating to income tax.

24. The Respondent stated that the Appellant objected out of time to the additional assessments on 20th June 2020, which late objection was allowed on the 14th July 2022 by the Respondent.

25. The Respondent averred that it requested the Appellant to provide documents in support of its Objection to which the Appellant provided; audited accounts for the year 2019 and 2020; bank statements for the year 2019 and 2020; and, Sales and Purchases ledger 2019 and 2020.

26. The Respondent contented that there were inconsistencies which did not address the variation as between the amounts in bank statements for the year 2019 and the audited accounts, further the Appellant did not include the income from Mombasa County Government as per the IFMIS data.

27. That the Respondent upon review, it issued an objection decision on 29th August 2022 confirming the assessments, the Appellant being aggrieved preferred the Appeal to the Tribunal on the 7th October 2022.

28. The Respondent avowed that the Appellant’s validated it’s Objection on the 25th August 2022, when it provided documents in support of the Objection, which documents included; Sales and Purchases ledger 2019 and 2020; bank statements for the year 2019 and 2020; and, audited accounts for the year 2019 and 2020.

29. The Respondent further stated that it was important to note that the objection was treated as valid on 14th July 2022 when the Respondent accepted the late objection and the objection decision was therefore issued within 60 days.

30. The Respondent considered the documentary evidence presented by the Appellant which did not address the objection grounds, neither the audited accounts and sales & purchases ledger provided by the Appellant, account for the income from Mombasa County Government and Mombasa County Assembly.

31. That the Appellant’s Memorandum of Appeal, notably highlighted that the assessed revenue emerged from a single job which had been incompletely done in favour of the County Government of Mombasa and protested by the Engineers who had not issued the certificate of completion.

32. The Respondent stated that the Appellant had made several requests for payment via IFMIS platform but the same had not been paid, however, these grounds were not presented or argued in the objection review process.

33. The Respondent contented that on the contrary, the Appellant disputed having a contract with Mombasa County Government and provided documents which excluded the income, that is sales and purchases ledgers and the audited accounts. In the ordinary cause of business, a request for payment through IFMIS platform would only be done upon issuing an invoice for work done in full or in part.

34. That the Respondent’s assessment on income tax for the years 2019 and 2020 are binding as per the Independent Sources and were within the provisions of the law and the amended assessments were issued to capture the Appellant’s tax liability as provided for in law. The Respondent placed reliance on Section on 31 (8) of the TPA.

35. The Respondent relied on Sections 24 and 31 of the Tax Procedures Act and submitted that based on the documentary evidence provided by the Appellant in its objection, the Respondent would not have made a different decision other than that issued on 29th August 2022.

36. That the Appellant is duty bound to keep and maintain proper records for the purposes of computation of tax in accordance with Sections 23 of the Tax Procedures Act and 43 of the VAT Act.

37. The Respondent submitted that despite the Appellant providing the audited accounts and sales & purchases ledger, it excluded the income from Mombasa County Government and Mombasa County Assembly. Further that there was no illustration of reconciliations or even explanations to the Respondent’s assessments.

38. That the Respondent invited the Honourable Tribunal to note that the Appellant in its Appeal did not challenge the assessment on grounds that the Respondent failed to review the documents submitted.

39. The Respondent further contended that since the Appellant failed to properly declare income, the Respondent was without choice but to issue an assessment based on available documents and best judgement.

40. The Respondent submitted that the Appellant had failed in discharging its burden of proof that the assessment was wrong or could have been made differently in accordance with Section 56 (1) of the TPA, the Appellant’s Appeal should therefore fail.

41. The Respondent relied on the following case law;i.Commissioner of Domestic Taxes vs. Structural International Kenya Ltd (Income Tax Appeal No. E089 of 2020) [2021] KEHC 152 (KLR).ii.Kenya Revenue Authority vs. Man Diesel & Turbo Se, Kenya [2021] eKLR, Nairobi High Court Income Tax Appeal No. E125 of 2020. iii.Nairobi TAT Appeal No. 25 of 2016 Family Signature Limited vs. The Commissioner of Investigations and Enforcement.iv.TAT Appeal No. 28 of 2018 Joycott General Contractors Limited vs. Kenya Revenue Authority.

Respondent’s Prayers 42. The Respondent prayed that this Honourable Tribunal;i.Dismisses the Appeal for lack of merit.ii.Upholds the Respondent’s assessment and confirmed assessment of Kshs. 7,663,649. 97. iii.Awards the Respondent the costs of the Appeal.

Issues for Determination 43. The Tribunal upon the careful consideration of the pleadings, Statements of Facts and written submissions made by the parties, was of the view that the issues that commend themselves for its determination are;a.Whether there is a proper Appeal before the Tribunal.b.Whether the Objection Decision of 29th August 2022 herein was validly issued.c.Whether the Respondent’s assessments on VAT and Income Tax were justified.

Analysis and Findings 44. The Tribunal having identified the issues for its determination proceeds to analyse the same as herein under;

a. Whether there is a proper Appeal before the Tribunal. 45. The tax dispute before the Tribunal drifts from the objection decision by the Respondent issued to the Appellant on the 29th August 2022.

46. The Respondent contented that it issued the Appellant with additional assessments relating to VAT on the 16th and 17th April 2022 for the period 2019 and 2020, the Appellant lodged its application for leave to lodge the Objection out of time on the 20th June 2022.

47. That Respondent upon consideration of the application accepted and/or allowed the same on 14th July 2022 and requested the Appellant to furnish it with documents to support the objection. The Respondent issued the objection decision on 29th August 2022.

48. The Appellant then lodged a Notice of Appeal on 7th October 2022, which fact was reiterated by the Respondent.

49. For an appeal before the Tribunal to be deemed as properly instituted and/or lodged, the Appellant ought to present the appeal in conformity with the provisions of Section 13 (1) of the Tax Appeals Tribunals Act as read together with Section 52 (1) of the Tax Procedures Act, which Sections provide;“13(1)A notice of appeal to the Tribunal shall –a.be in writing or through electronic means;b.be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner”“52(1)A person who is dissatisfied with an appealable decision may appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Tribunal Act, 2013”

50. A perusal of the documentation presented by the Appellant, particularly the Notice of Appeal, the Memorandum of Appeal and Statement of Fact, the Tribunal noted that although the Appellant dated its Notice of Appeal the 7th September 2022 and paid the filing fees on the same date, the Appellant filed its Notice of Appeal together with its Appeal documents on the 7th October 2022.

51. With regard to the Appellant’s above actions, of greatest importance was the lodging of the Notice of Appeal within the statutory timelines.

52. Accordingly, the Appellant ought to have instituted its Appeal by lodging a Notice of Appeal within thirty days of the Respondent’s decision and filed the documents outlined under Section 13 (2) of the TAT Act within fourteen (14) days of lodging such an Appeal.

53. The Appellant ought to have lodged its Appeal on or before the 28th September 2022, but failed to do so.

54. There exist provisions of law that offer remedy to an Appellant who intends to lodge an Appeal beyond the statutory timelines, under Section 13 (3) of the TAT Act, which makes such provisions and such an Appellant could seek leave of the Tribunal to regularize such lateness, the Appellant has however failed to do so.

55. The Tribunal is further guided by the case of Cape brandy Syndicate vs. LR. Commissioners [1921] 1KB (cited by the appellants), expressed the common law position in this area when he stated;“In a taxing Act one has to look at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used”.“…This common law position is what pertains here and has been adopted by our courts as good law. In our view there cannot be an equitable construction of income tax legislation. The norm is that a taxing legislation must be construed with perfect strictness whether or not such construction is against the State or against the person sought to be taxed.”

56. The Tribunal’s holds that there is no proper Appeal before to exercise its jurisdiction as the instant Appeal was filed out of time and without leave.

57. The Tribunal having established that there is no valid Appeal on record, it shall not delve into the other issues for determination as the same have been rendered moot.

58. Consequently, the Tribunal finds that the Appeal herein is incompetent and untenable in law.

Final Decision 59. The upshot to the foregoing is that the Appeal is incompetent and the Tribunal consequently makes the following Orders; -a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

60. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 2ND DAY OF FEBRUARY, 2024ROBERT M. MUTUMA - CHAIRPERSONMUTISO MAKAU - MEMBERELISHAH N. NJERU - MEMBERDR. WALTER ONGETI - MEMBERBONIFACE K. TERER - MEMBER