[2023] KETAT 990 (KLR)

Mars Wringley Confectionery v Commissioner of Domestic Taxes (Tax Appeal 820 of 2022) [2023] KETAT 990 (KLR) (Commercial and Tax) (1 December 2023) (Ruling)

Neutral citation: [2023] KETAT 990 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tax Appeal 820 of 2022

E.N Wafula, Chair, M Makau, AK Kiprotich, EN Njeru & E Ng'ang'a, Members

December 1, 2023

Between

Mars Wringley Confectionery

Applicant

and

The Commissioner Of Domestic Taxes

Respondent

Ruling

1. The Appellant moved the Tribunal by way of Notice of Motion dated the 24th August 2023 and supported by an Affidavit sworn by Ismael Bello, a Director of the Appellant, on the even date, seeking for the following Orders:-a.That the Applicant be granted leave to file a Supplementary Statement of Facts to corroborate the earlier filed Statement of Facts for the purposes of adducing relevant documentary evidence supporting its position.b.That upon granting leave, the Tribunal be pleased to admit the Supplementary Statements of Fact annexed hereto as properly on record.c.That the Tribunal be pleased to grant the Respondent leave to file a Supplementary Statement of Facts, if need be, within 14 days of this Order.d.That the Tribunal be pleased to grant any other order as deemed appropriate in connection hereto.

2. The application is based on the following grounds, that;a.There were changes in the management of the company which contributed to the Appellant being unable to retrieve and file all the pertinent evidence in support of its case as the time of filing the Memorandum of Appeal and the initial Statement of Facts.b.The Appellant has since outsourced a third party to support in retrieving physical documentation, which document are now available and now beseeches this Tribunal to permit and admit the same on record.c.The documentation retrieved will give the Tribunal a clearer picture of the issues in contention herein and aid in just determination of this matter.d.The additional documentation will not raise any new ground of Appeal or a new cause of action or issue but rather that the same supplements the pleadings earlier filed herein.e.No prejudice will be suffered by the Respondent, and the Respondent will have leave to file its supplementary Statement of Facts if need be.f.It will be in the interest of justice that the Supplementary Statement of Facts be permitted so that the Tribunal has a full picture and a better appreciation of the issues herein in determining this matter.

3. The Respondent upon being served, opposed the application by filing a Replying Affidavit sworn by Francis Naikuni, an officer of the Respondent, on the 6th September 2023, premised on the grounds , inter alia, that:-a.The Respondent is opposed to the application and noted that the documents attached to the application were new and had never been produced at the first instance of request by the Respondent.b.That since the Respondent did not have the privilege to consider the documents prior to issuance of the decision dated 18th July 2022, the Appellant cannot purport to introduce the same.c.The Respondent is apprehensive that it may suffer prejudice if the said new documents are admitted as the same were not produced prior to issuance of the decision.d.There was a good and sufficient cause for the said new documents to be disallowed as the Respondent’s claim would be necessarily stifled and the Respondent would suffer irreparable loss.e.That the application is misplaced and without merit as the same seeks to introduce new documents with no valid explanations or supporting evidence as to why the same were not produced.f.That the Appellant on 31st May 2022 acknowledged the receipt of the assessments and sought more time to gather all supporting documents, evidence and documentations to support its grounds of objection, the Appellant neither regularized its position by providing documents nor did it explain why it provided part of the documents as requested.g.That the application fails to satisfy the provisions of Rules 9 and 15 of the Tax Appeals Tribunal (Appeals to the High Court) Rules 2015 as read together with Order 42 Rule 27 of the Civil Procedure Rules 2010 as it has not furnished any proof that the Tax Appeals Tribunal failed to admit this additional evidence.h.That Section 54A of the Income Tax Act, Section 30 of the VAT Act and Section 23 of the Tax Appeals Tribunal vests a statutory obligation upon the Appellant to keep records at all times whilst carrying out its business and have the same readily available at the request of the Respondent’s, such failure cannot be sufficient grounds for grant of such an Order.i.The Appellant seeks to invoke the Court’s power in its application, which amounts to abuse of the Court process as there have been two legal processes under two bodies of competent jurisdiction being tax demand and objection and Tax Appeals stage and the Appellant still has failed to prove why the evidence it seeks to admit now will be beneficial in aiding this Court arrive at a just determination of issues.

4. The parties to the Appeal filed their submissions to the application on the 14th September 2023 and the 4th August 2022, respectively.

Appellant’s Submissions 5. The Appellant submitted that it had duly disclosed what it seeks to introduce into evidence by annexing its intended Supplementary Statement of Facts and documents sought to be introduced.

6. The Appellant urged the Tribunal to be guided by Article 159 of the Constitution of Kenya, Section 13 (3) & (4) of the Tax Appeals Tribunal Act, Rule 10 of the TAT Procedure Rules and the Finance Act 2023 which introduced Section 13 (2) (d) of the TATA while considering its application.

7. The Applicant submitted that the Tribunal is ceased of the discretion to allow the introduction of additional documents that are necessary to the Appeal and to aid the Tribunal to arrive at a just and fair decision.

8. The Appellant submitted that the Respondent served the Appellant with two CIT Assessments one dated 11th May 2022 in relation to the financial years 2015 and 2018, and the other one dated 12th May 2022 in relation to the financial years 2016 and 2017.

9. The Appellant argued that one of the issues raised by the Respondent in its assessments was the claim for discounts as trade expenditure and in its Appeal the Appellant clarified that the discounts were not sales but rather a trader expenditure which related to the promotions that were performed by the company’s distributors in Kenya.

10. The Appellant submitted that after lodging its Appeal, the Appellant embarked on retrieval of all relevant supporting documentation received in the years under audit and in support of its positions on discounts, the Appellant now wishes to provide the reconciliations together with the copies of the credit notes, debit notes and invoices.

11. It was the Appellant’s submission that it has explained the reasons the documents were not available at the time of filing the Appeal, which was that there was change of management of its Kenyan entity which contributed to the Appellant being unable to retrieve and file all the pertinent evidence in support of its case at the time of filing the Statement of Facts.

12. The Appellant asserted that thereafter it outsourced a third party to support in retrieving physical documentation which documents are now available and the same would give the Tribunal a clearer picture of the issues in contention herein and aid in just determination of this matter.

13. The Appellant submitted that the issues that arose for determination were;a.Whether the Appellant’s application is merited.b.Whether the documents sought to be filed by the Applicant will prejudice the Respondent in any way.

14. The Appellant stated that the further documents which it seeks to file are extremely relevant to this matter and will demonstrate to this Tribunal that it discharged its tax obligations dutifully and in accordance with the law.

15. The Appellant further submitted the said documents were not available at the time of filing the Appeal due to the change of management which affected the retrieval of the same.

16. The Appellant stated that it had to procure the services of a third party in retrieval of the documents, which related to documents beyond the 5 year scope and this took quite some time and upon obtaining the documents and presented the documents at the earliest opportunity without undue delay.

17. The Appellant underpinned the evidential value and necessity of the documents sought to be adduced to aid the Tribunal in reaching a fair and just determination.

18. The Appellant submitted that the Respondent will not be prejudiced in any way if the orders sought are granted.

19. The Appellant asserted that it has not introduced a new issue or ground of Appeal which the Respondent is a stranger to. That in its Statement of Facts, the Appellant stated that it had raised the issue of the discounts not being sales but rather a trade expenditure which related to the promotions that were performed by the company’s distributors in Kenya.

20. The Appellant stated the Appeal is yet to be heard and that the Respondent will have an opportunity to review and interrogate the documents that will be filed ahead of hearing.

21. The Applicant/Appellant in fortifying its position relied on the following authorities;a.TAT Appeal No. 572 of 2021 – Incentro Africa Limited v Commissioner of Domestic Taxes.b.TAT Appeal No. 284 of 2019 - Tullow Kenya BV v Commissioner of Domestic Taxes.c.TAT Appeal No. 304 of 2019 – Pevans East Africa v Commissioner of Domestic Taxes.

Respondent’s Submissions 22. The Respondent urged the Tribunal to re-evaluate the evidence on record and the law, which it contents and find that the demand for taxes were within the law.

23. The Respondent submitted that the application is misplaced and lacks merit as the Appellant had an opportunity to produce all the evidence in support of its objection dated 22nd June 2022 to the additional assessment raised on 11th, 12th and 24th May, 2022.

24. The Respondent contended that it would be highly prejudiced in the event that the proposed amendment of pleadings is allowed and that the said prejudice is incapable of being compensated by way of award of costs and that would not be in the interest of justice.

25. The Respondent submitted that it was the intention of the Appellant to avoid taxes due to the Respondent by adducing all the necessary documents in support of its case.

26. The Respondent stated that the Appellant’s application ought to fail as no proffered explanation to its failure to produce documents at objection stage as demanded was availed and as such the Tribunal should be slow to allow any obstacles that would prevent scrutiny before making an objection decision.

27. The Respondent asserted that the prayer sought by the Appellant would amount to taking the Respondent by surprise through introduction of new documents that they were not given an opportunity to scrutinize before making an objection decision.

28. The Respondent asserted that the burden of proof lies with the taxpayer in accordance with Section 30 of the Tax Appeals Tribunal Act by ensuring that it submits all the documents at the Objection stage.

29. The Respondent urged the Tribunal to find that there was no good reason presented by the Appellant for the need to produce new documents at this stage requiring judicial intervention, nor was there any confusion from the totality of the evidence on record that the Appellant did not understand the basis of the Respondent’s demand for taxes and subsequent demand of documents made.

30. The Respondent further urged the Tribunal to find that the application has no merits and to dismiss the same with costs to the Respondent.

31. The Respondent in fortifying its position relied on the following authorities;a.TAT Appeal No. 223 of 2018 – Knightsbridge Trading Limited v Commissioner of Investigation & Enforcement.b.Dakianga Distributors (K) Ltd v Kenya Seed Company Limited [2015] eKLR.c.Supreme Court of India, Union of India v Ibrahim Uddin & Another (2022) 8SCC 148. d.The Administrator of His Highness the Aga Khan Platinum Jubilee Hospital v Munyambu CA No. 18 of 1983. e.Dorothy Nelima Wafula v Hellen Neilsen and Paul Fredrick Nelson [2017] eKLR.f.Mzee Wanje and 93 others v A.K Saikwa (1982 - 88) 1 KAR 463. g.Nakuru, Civil Appeal No. 191 of 2019 – Dharmagha Patel and Akshar Autospares Ltd v TA ()A Minor suing through the mother and next friend HH).h.National Cereals and Produce Board v Erad Supplies & General contracts Ltd (CA 9 of 2012), The Administrator, H The Aga Khan Platinum Jubilee Hospital v Munyambu (1985) KLR 127. i.Walter Joe Mburu v Abdul Shakoor Sheikh & 3 others Civil Appeal No. 195 of 2002 [2015] eKLR.j.Nairobi, Civil Appeal No. 2 of 2018 Nayan Mansukhlal Salva v Hanikssa Salva.k.Cape Brandy Syndicate v Inland Revenue Commissioners [1920] 1 KB 64. l.T.M Bell v Commissioner of Income Tax [1960] EA 224. m.Republic v Commissioner of Income Tax ex-parte SD Transami.

Analysis and Determination 32. The Appellant in its application relied on Rules 10 & 21 of the Tax Appeals Tribunal (Procedure) Rules 2015 and Article 159 (2) of the Constitution of Kenya, 2010.

33. The Applicant/Appellant premised its application amongst other provisions of the law on Rule 10 of the Tribunal (Procedure) Rules 2015 which provides for the guidelines to any party seeking extension of time to file documents upon lapse of the period prescribe in law.

34. Article 159(2 (d)) of the Constitution of Kenya 2010, guides all Courts and Tribunals on how to administer justice and, it provides that:-“justice shall be administered without undue regard to procedural technicalities;”

35. Rule 21 of the Tax Appeals Tribunal (Procedure) Rules 2015, provides that;“A party may at any time before the closure of the case, orally apply to amend its pleadings and the Tribunal may, at its discretion, allow such application on such terms and conditions including granting leave to the other party to amend its pleadings provided the amendments do not raise new issues”

36. The Respondent whilst opposing the application, placed reliance on Section 30 of the Tax Appeals Tribunal Act, amongst other provisions of the law, which provides as thus:-“In a proceeding before the Tribunal, 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.”

37. It is noteworthy that the Orders sought by the Appellant herein for leave to file a Supplementary Statement of Facts, is not an automatic right of the Appellant, rather is the discretion of the Tribunal, which discretion is to be exercised by the Tribunal judiciously.

38. Section 10 (3) 21 of the Tax Appeals Tribunal (Procedure) Rules 2015 provides for the grounds upon which the Tribunal may be guided by while considering an application of the nature herein, which section provides:“(3)The Tribunal may grant the extension of time if it is satisfied that the applicant was unable to submit the documents in time for the following reasons-(a)absence from Kenya;(b)sickness; or(c)any other reasonable cause.”

39. The Applellant’s application sought for leave to file a Supplementary Statement of Facts, and from the foregoing the ground for consideration by this Tribunal is anchored under Section 10 (3) (c) being any other reasonable cause.

40. The Appellant submitted that it had sufficient and reasonable grounds for the delay and outline the same as follows:a.That there was a change in management which made it difficult to retrieve the documents in a timely manner.b.That the process of retrieving the said document was challenging to the extend that it had to source the services of a third party to retrieve the documents.c.That part of the documents being retrieved were beyond the 5 year limit period.

41. The Respondent, on the other hand, stated that the Appellant was obligated in law to keep and maintain records and the reasons advance for the delay in retrieving the documents had not been sufficiently explained.

42. The principles that guide the Tribunal in determining applications for leave to either amend the Memorandum of Appeal or files a Supplementary Statement of Facts can be analysed from the case of Elijah Kipngeno Arap Bii v Kenya Commercial Bank Limited [2013] eKLR, which principles include;a.The application should be made timeously that is before the conclusion on the matter;b.The amendments or supplementary Statement of Facts ought not introduce new issues to the Appeal or a new cause of action.c.No prejudice ought to be suffered by the other party if the application is granted.d.If granted, the Respondent ought to be given an opportunity to amend its pleadings in view of the Applicant’s amendments.

43. The Appellant advanced explanations to the cause of the delay as alluded hereinabove, upon evaluation of the grounds advanced by the Appellant the Tribunal appreciates the same as reasonable and adequate grounds to justify the delay.

44. The Tribunal has perused record and notes that the application has been brought before the commencement of the hearing of the Appeal, the Tribunal in consideration of the above position, the period and the grounds advanced, is of the view that the application was made timeously.

45. The Tribunal perused the Appellant’s Memorandum of Appeal and Statement of Fact filed on the 4th August 2022, and noted that the Appellant in its proposed Statement of Facts does not seek to introduce any new cause of action or grounds of Appeal. The Supplementary averrments seek to enhance ground number 6 as addressed in the Memorandum of Appeal and Statement of Facts. Further, it neither appears to alter the course of the Appellant’s arguments in this Appeal nor introduce any new prayer or new cause of action or issues for determination by the Tribunal.

46. The proposed averments in the proposed Supplementary Statement of Facts and documents thereof will aid the Tribunal in determining the real questions in issue and/or controversy.

47. The Respondent submitted that it is likely to irreparably suffer prejudice on account of the orders sought being granted, founded on the fact that Commissioner for Domestic Taxes has not reviewed the documents or scrutinized the documents.

48. The Applellant has alluded to the fact that the Appellant was obligated by law to keep and maintain proper records, that the additional documents sought to be produced were or ought to have been in the Appellant’s possession, and therefore, there were no good reasons as to why the same were not produced earlier for inspection and interrogation by the Respondent.

49. The Tribunal observes that no prejudice will be suffered by the Respondent as it shall have an opportunity to peruse the same and an opportunity to respond to the Supplementary Statement of Facts and additional documents.

50. The Tribunal having considered rival submissions finds that there will be no prejudice to be suffered by the Respondent, as the Respondent shall have an opportunity to review and respond to the said amendments and documents.

Disposition 51. In view of the foregoing, the Tribunal makes a finding that the Appellant’s application dated the 24th August 2023 is merited and accordingly proceeds to make the following Orders; -a.The Appellant be and is hereby granted leave to file a Supplementary Statement of Facts restricted to the documents identified in the annextures to the application.b.The Appellant to file and serve the Supplementary Statement of Facts within Fifteen (15) days of date of delivery of this Ruling.c.The Respondent be and is hereby granted a corresponding leave to file a Supplementary Statement of Facts and/or additional documents.d.The Respondent to file and serve the Supplementary Statements of Facts and/or additional documents within Fifteen (15) days of being served with the Appellant’s Supplementary Statement of Facts.e.No orders as to costs.

52. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 1ST DAY DECEMBER, 2023. ERIC NYONGESA WAFULA.........CHAIRMANMUTISO MAKAU.........................MEMBERABRAHAM K. KIPROTICH........MEMBERELISHAH N. NJERU......................MEMBEREUNICE N. NG’ANG’A................MEMBER