[2024] KETAT 567 (KLR)

Mburu v Commissioner Of Domestic Taxes (Tax Appeal 1533 (NRB) of 2022) [2024] KETAT 567 (KLR) (22 March 2024) (Judgment)

Neutral citation: [2024] KETAT 567 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1533 (NRB) of 2022

Grace Mukuha, Chair, Jephthah Njagi, E Komolo, G Ogaga & W Ongeti, Members

March 22, 2024

Between

David Maina Mburu

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is an individual taxpayer who operates a shop which deals in selling basic consumer goods such as maize flour, bread, sugar, cooking fat and snacks among other goods.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, Cap 469 of the laws of Kenya Under Section 5(1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all revenue.

3. The Respondent issued a pre-assessment demand notice dated 15th September 2021 requiring the Appellant to pay Kshs. 1,258,302. 00 being what the Respondent referred to as variances between income turnover and VAT returns.

4. The Appellant wrote to the Respondent on 22nd October 2021 indicating that he had made the requisite amendments to his returns and paid the outstanding tax.

5. On 12th November, 2021, the Respondent requested the Appellant to provide evidence in support of his claim that the goods he dealt in were VAT exempt.

6. The Respondent issued an additional assessment on 18th January 2022 which the Appellant objected to the additional assessment on 28th June 2022.

7. The Appellant contended that the variance noted was a result of omissions of exempt sales while filing monthly VAT returns.

8. On Friday 19th August 2022, the Appellant met the Respondent and it was agreed that the Appellant would provide documents to the Respondent on 22nd August 2022 supporting the contention that he was also dealing in exempt supplies.

9. The Appellant claimed that on 22nd August 2022, he took the requested documents to the Respondent and that there was no one to serve him at the counter in the offices of the Respondent.

10. The Respondent issued its objection decision on 23rd August 2022.

11. Aggrieved by the objection decision, the Appellant filed a Notice of Appeal dated 15th December 2022 on the 16th December, 2022 after seeking and being granted leave from the Tribunal on 2nd December 2022 to file the Appeal out of time.

THE APPEAL 12. The Appeal is premised on the Memorandum of Appeal dated 15th December 2022 and filed on 16th December 2022 raising the following grounds: -a.That whereas the Appellant paid VAT for the years 2018 and 2019 as advised by the Respondent, the Respondent failed to take into account these facts when raising additional assessment orders and eventual objection decision therefore, subjecting the Appellant to double taxation.b.That contrary to Section 51(4) of Tax Procedures Act, the Respondent erred in law for failing to notify the Appellant within a period of fourteen days that the objection had not been validly lodged.c.That whereas on 19th August 2022, the Respondent wrote an email requesting the Appellant to provide additional documents on 22nd August 2022, the Appellant provided the requested documents but upon arrival at the Respondent's office, there was no one to receive the documents and on 23rd August 2022, the Respondent issued its objection decision and one of the grounds for rejecting the objection was “failure to provide supporting documents.”d.That whereas the Appellant provided all necessary documents including sales invoices for the year 2018 and 2019, the Respondent erred in law and fact in failing to consider the availed documents. That the Respondent’s actions amount to unfair administrative action contrary to Article 47 of the Constitution of Kenya.e.That whereas the Appellant made amendments for years 2018 and 2019 as advised by one of the Respondent's officers, the Respondent failed to take into account the amendments made.f.That the Respondent failed to recognise that the alleged variance was a result of inadvertent omissions of exempt sales while filing monthly VAT returns.g.That the Respondent's officer advised the Appellant how to amend the 2018 and 2019 returns and advised on the amounts of tax to be paid. That the Respondent therefore breached the legitimate expectation that once the Appellant complied, the issue would be settled.

THE APPELLANT’S CASE 13. The Appellant’s case was December 2022 and filed attachments thereto premised on its Statement of Facts dated 9th on 16th December 2022 together with the

14. The Appellant averred that upon receipt of the pre-assessment demand notice from the Respondent, he engaged the Respondent's officer who guided him on what to do and how to pay the correct taxes.

15. That after paying the correct tax, the Respondent continued pursuing him yet he had paid taxes as advised.

16. That having been advised to amend returns for the year 2018 and 2019 by the Respondent, the Appellant proceeded and filed amended returns for the said period.

17. That the Appellant paid all taxes as required and attached the payment slips to the Memorandum of Appeal.

18. That whereas that Appellant was compliant with the directions issued by the Respondent, the Respondent still issued additional assessments in January 2022 requiring the Appellant to pay for the years 2018 and 2019.

19. That upon receipt of the additional assessments, the Appellant lodged notices of objection online in June 2022.

20. That the Respondent ignored the notices of objection with total impunity, disregarded the fact that the Appellant had paid VAT for 2018 and 2019 and proceeded to issue its objection decision dated 23rd August 2022.

21. That whereas the Appellant was compliant with the directions issued by the Respondent and paid taxes for the period 2018 and 2019 as advised by the Respondent, the assessment orders did not take into account the fact that the Appellant paid VAT for the years 2018 and 2019. That this will lead to double taxation if the Tribunal does not intervene.

22. That the Appellant provided all documents to the Respondent in support of the notice of objection. That if the Respondent thought that the Appellant had not provided requisite documents, then the Respondent had a statutory duty under Section 51(4) of the Tax Procedures Act to notify him in writing within fourteen (14) days that he had not filed a valid notice of objection and specify what kind of documents the Respondent needed to validate the notice of objection.

23. That since the Respondent did not notify the Appellant within 14 days that the notice of objection was wanting, the Respondent failed to discharge its mandate under Section 51(4) of Tax Procedures Act.

24. That therefore, the Respondent is estopped from asserting that the Appellant did not provide sufficient documents to support his objections.

25. That after the lapse of the 14 days as specified under Section 51(4) of Tax Procedures Act, on 19th requesting the Appellant 2022. August 2022, the Respondent wrote an email to provide additional documents on 22nd August

26. That the Appellant provided the requested documents but upon arrival at the Respondent's office, there was no one to receive the documents and on 23rd August 2022, the Respondent issued its objection decision.

27. That amongst the documents that the Appellant provided on 22nd August 2022 included receipts for items that were exempt from VAT including flour and bread.

28. That despite pointing out to the Respondent that the alleged variance was as a result of inadvertent omissions of exempt sales while filing monthly VAT returns, the Respondent ignored these facts leading to unlawful tax demands.

29. That whereas the Appellant provided all necessary documents including sales invoices for the years 2018 and 2019, the Respondent erred in law and fact in failing to consider the availed documents therefore, the Respondent’s actions amount to unfair administrative action contrary to Article 41 of the Constitution of Kenya, 2010.

30. That even though the Appellant made amendments for years 2018 and 2019 as advised by the Respondent's officers, the Respondent failed to take into account the amendments made and proceeded to confirm the assessments.

31. That the Respondent's officer advised the Appellant on how to amend the 2018 and 2019 returns and advised on the amounts to be paid. That the Respondent has therefore breached the Appellant’s legitimate expectation that once he complied, the issue would be deemed as settled.

32. That logic requires that since the Appellant paid VAT for the years 2018 and 2019, then the said amount should have been deducted from the amounts that the Respondent demanded in the objection decision. But this is not what the Respondent did. That the Respondent refused to deduct the paid taxes. That this reason renders the objection decision dated 23rd August 2022 unlawful, null and void.

Appellant’s prayers. 33. The Appellant made the following prayer to the Tribunal that the Respondent’s objection decision dated 23rd August 2022 be nullified.

THE RESPONDENT’S CASE 34. The Respondent premised its case on the following documents filed with the Tribunal:-a.The Respondent’s Statement of Facts dated 13th January 2023 and filed on 16th January 2023 together with the documents attached thereto.b.The Respondent’s Written Submissions dated and filed on 31st July 2023.

35. In response to the Appeal, the Respondent averred that it requested the Appellant several times to avail documents in support of its objection that the variance that formed the basis of the Respondent's additional assessment was as a result of omission of exempt sales in his returns.

36. The Respondent averred that the Appellant did not provide documents which he was requested to make available to the Respondent.

37. That the Appellant alleged that he visited the Respondent's offices on Monday, 22nd August, 2022 to provide the requisite documents but upon arrival, there was no one to receive his documents. That in response to this allegation, the Respondent averred that this assertion was misleading. That the Respondent's offices are always open on all weekdays with the exception of public holidays. That the assertion that there was no one to receive his documents was unfounded.

38. That Section 51(3) of the Tax Procedures Act mandates the Appellant to support its objection with all relevant documents.

39. That the proof that an assessment is excessive and/or erroneous lay with the Appellant.

40. The Respondent averred that in the absence of documents, it was left with no option but to rely on information available to it. That it was the Respondent's case that its objection decision was not flawed as alleged by the Appellant.

41. That the Appellant bears the burden to prove that the additional assessments were excessive or improper and from the documents adduced in support of his Appeal, the same was not evident and therefore the Appellant failed to discharge this burden as required by Section 56 (1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act.

42. The Respondent averred that the documents provided by the Appellant did not offer any compelling justification for the reported variances in the taxable income and it was therefore justified in its conclusion and made the correct decision based on the limited documents provided by the Appellant.

43. That the burden of proof that an assessment is excessive and/or erroneous rested with the Appellant.

44. The Respondent stated that the objection decision was valid and anchored in law.

45. The Respondent averred that it acted at all times in pursuant to the relevant tax law.

46. The Respondent averred that the Appellant failed to prove that the assessment was excessive and/ or the Respondent's objection decision ought to have been made differently.

47. The Respondent submitted that no fault was proved to have been found on the part of the Respondent.

48. The Respondent submitted that the assessments were based on variances noted between income tax turnover and sales declared in Value Added Tax returns for the period 2018 and 2019.

49. The Respondent further submitted that it is at liberty to make assessments based on information available to it in accordance with Section 24(2) of the Tax Procedures Act.

50. That Section 24(2) of the Tax Procedures Act states that:-“The Commissioner shall not be bound by a tax return or information provided by, or on behalf of a taxpayer and the Commissioner may assess a taxpayer's tax liability using any information available to the Commissioner."

51. That Section 31 of the Tax Procedures Act empowers the Respondent to make alterations or additions to original assessments from available information for a reporting period based on the Commissioner's best judgement. That this Section provides:-“Subject to this section, the Commissioner may amend an assessment (referred to in this section as the "original assessment'') by making alterations or additions, from the available information and to the best of the Commissioner's judgement, to the original assessment of a taxpayer for a reporting period to ensure that-a.In the case of a deficit carried forward the Income Tax Act (Cap 470), the taxpayer is assessed in respect of the correct amount of the deficit carried forward/or the reporting periodb.In the case of an excess amount of input tax under the Value Added Tax Act, 2013 (No 35 of 2013), the taxpayer is assessed in respect of the correct amount of the excess input tax carried forward for the reporting period; orc.In any other case, the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates."

52. The Respondent submitted that it relied on its best judgement based on information available to it in compliance with Section 31 of the Tax Procedures Act while raising the additional VAT assessment. That the Court in Commissioner of Domestic Taxes v Altech Stream (Ea) Limited [2021] eKLR stated that Section 31(1) of the Tax Procedures Act allows the Commissioner to make an assessment based on such information as may be available and to the best of his judgement.

53. That Section 59 of the Tax Procedures Act empowers the Respondent to seek any information relating to the ascertaining of the correct tax liability of a taxpayer.

54. The Respondent submitted that where an Appellant makes an objection to the assessments issued by the Commissioner, the Appellant is obligated to provide all the relevant documentation it relies on in making the objection.

55. That Section 51 (3) of the Tax Procedures Act provides that:-“A notice of objection shall be treated as validly lodged by an Appellant under subsection (2) if-a.............b............c.all the relevant documents relating to the objection have been submitted.”

56. The Respondent submitted that the Courts have abided by the provisions of Section 51(3) (c) of the Tax Procedures Act in the following cases:-a.Boleyn International Limited versus Commissioner of Investigations & Enforcement (Tax Appeals Tribunal No 55 of 2019).b.Rongai Tiles and Sanitary Ware Limited versus Commissioner of Domestic Taxes (Tax Appeals Tribunal No 163 of 2017).

57. The Respondent submitted that despite requesting the Appellant to provide documentation in support of its claims, he failed to do so.

58. The Respondent submitted that the Appellant contended that the variance noted was as a result of exempt sales. That however, the Appellant failed to demonstrate its contention by way of documentary evidence.

59. That it is not in dispute that as at the time the Respondent issued the objection decision, the Appellant had not availed the documents in support of his objection.

60. That the Court in Osho Drapers versus Commissioner of Domestic Taxes [2022] eKLR, held that Section 59 of the Tax Procedures Act empowers the Commissioner to request for more and additional information to satisfy himself on the taxable income declared.

61. The Respondent submitted that it diligently applied the provisions of Section 59 and requested for the Appellant to avail more information.

62. That Section 56(1) of the Tax Procedures Act places the burden on the taxpayer to proof that a tax decision is incorrect. That the Section states that:-“In any proceedings under this Part, the burden shall be on the Appellant to prove that a tax decision is incorrect."

63. That Section 30 of the Tax Appeals Tribunal (TAT) Act provides that when appealing to the Tribunal, the Appellant has the burden of proving that where an appeal relates to an assessment, that the assessment is excessive or in any other case, the tax decision should not have been made or should have been made differently.

64. The Respondent submitted that the Appellant did not discharge its burden of proof under Section 56(1) of the TPA and Section 30 of the TAT Act.

65. The Respondent submitted that owing to the failure of the Appellant to avail documents, it was right to confirm the assessment raised.

Respondent’s prayers. 66. The Respondent prayed that the Tribunal:-a.Dismisses the Appealb.Upholds the objection decision.c.Awards costs of the Appeal to the Respondent.

ISSUE FOR DETERMINATION 67. The Tribunal has reviewed the Memorandum of Appeal, Statements of Facts filed by both parties and the Respondent’s submissions, and has identified the following to be the single issue for determination.Whether the Respondent was justified in issuing additional assessment.

ANALYSIS AND FINDINGS 68. Having identified the issue for its determination, the Tribunal proceeds to analyze it as hereunder.

69. The genesis of this Appeal is the pre-assessment demand notice dated 15th September 2021 issued by the Respondent requiring the Appellant to pay Kshs 1,258,302. 00 being what the Respondent referred to as variance between income turnover and VAT returns.

70. The Appellant wrote to the Respondent on 22nd October, 2021 indicating that he had made the requisite amendments to his returns and paid the outstanding tax.

71. On 12th November, 2021, the Respondent requested the Appellant to provide evidence in support of the fact that the goods he had claimed in his VAT returns on were exempt.

72. The Respondent issued an additional assessment on 18th January, 2022 while the Appellant objected to the additional assessment on 28th June, 2022.

73. The Appellant and the Respondent met on 19th August 2022. At that meeting, it was agreed that the Appellant would provide documents to the Respondent on 22nd August 2022 to support the contention that he was involved in exempt supplies.

74. The Appellant claimed that on 22nd August 2022, he took the requested documents to the Respondent and that there was no one to serve him at the counter.

75. The Respondent issued its objection decision on the following day, 23rd August 2022.

76. Aggrieved by the objection decision, the Appellant filed this Appeal on 15th December 2022 after seeking and getting leave from the Tribunal to file the Appeal out of time.

77. There is no dispute that the parties agreed at the Meeting held on 19th August 2022 that the Appellant would provide the documents to prove that he was dealing in exempt supplies on 22nd August 2022.

78. The Appellant claimed that he took the required documents to the Respondent on the agreed date and that there was no one at the offices of the Respondent to receive the documents.

79. The Appellant averred that it provided all documents to the Respondent in support of the notice of objection. That if the Respondent thought that the Appellant had not provided requisite documents, then the Respondent had a statutory duty under Section 51(4) of the Tax Procedures Act to notify him in writing within fourteen (14) days that he had not filed a valid notice of objection and specify what kind of documents it needed to validate the notice of objection.

80. The Tribunal notes that the requirement for the Respondent to inform the Appellant of the invalidity of an objection came into effect on 1st July 2022 and was therefore not applicable when the Appellant filed its objection on 28th June 2022. The Tribunal also finds that that issue was not relevant to the instant case as the Respondent did not invalidate the objection of the Appellant.

81. The Respondent on the other hand disputes this averment and submitted that as a public organization, its offices are always open during the working hours.

82. The Tribunal has checked and found that 22nd August 2022 was on a Monday.If there was no one to receive the documents on that day, then the logical thing would have been for the Appellant to go back on 23rd August 2022 and lodge the requested documents.

83. The Respondent submitted that since the requested documents were not provided by the Appellant, it had no choice but to make an objection decision based on the information that it had in its possession.

84. The Tribunal notes that Section 59(1) of the Tax Procedures Act provides that; "For the purposes of obtaining full information in respect of the tax liability of any person or class of persons, or for any other purposes relating to a tax law, the Commissioner or an authorized officer may require any person, by notice in writing, to-a.produce for examination, at such time and place as may be specified in the notice, any documents (including in electronic format) that are in the person's custody or under the person's control relating to the tax liability of any person;(b)furnish information relating to the tax liability of any person in the manner and by the time as specified in the notice; orc.attend, at the time and place specified in the notice, for the purpose of giving evidence in respect of any matter or transaction appearing to be relevant to the tax liability of any person. "

85. The Tribunal notes that the Appellant expressly stated that he did not provide the documents requested by the Respondent but went ahead to file those documents in his Statement of Facts.

86. The Tribunal notes that Section 56(1) of the Tax Procedures Act places the burden of proof on the taxpayer. The Section reads as follows:-“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

87. Further, Section 30 of the Tax Appeals Tribunal Act provides as follows:-“In any proceeding before the Tribunal the Appellant has the burden of proving-a.where an appeal relates to an assessment, that the assessment is excessive; orb.in any other case, that the tax decision should not have been made or should have been made differently.”

88. In analyzing this matter, the Tribunal relied on its holding in Ushindi Exporters Limited V Commissioner of Investigation and Enforcement (Tax Appeals Tribunal No. 7 of 2015) on the issue of burden of proof where the Tribunal held that:-“The burden of proving that the tax assessment is excessive or should have been made differently never shifts to the Respondent and is placed squarely on the Appellant as Section 30 (a) and (b) of the Tax Appeals Tribunal Act states:a.Where an appeal related to an assessment, that the assessment is excessive; orb.In any other case, that the tax decision should not have been made or should have been made differently.By purporting to shift the burden of proving that the tax assessment against it was incorrect or should have been made differently, the Appellant failed in discharging the burden, placed upon it by law.”

89. The Tribunal also relied on its holding in the case of TAT No. 70 of 2017 Afya X-RAY Centre Limited v Commissioner of Domestic Taxes to emphasise the importance of a taxpayer discharging its burden of proof. In the said Appeal, the Tribunal held that: -“From the foregoing chain of events, it is our understanding that the Appellant failed in its duty in providing these documents in order that a comprehensive audit of its affairs be done. Accordingly, the Respondent can hardly be faulted for raising the assessment in accordance with the availed documents. Moreover, the Appellant had an opportunity to consider the Respondent’s finding after the confirmation of the assessment. Both are instances, where the Appellant could have produced its books of accounts to counter the Respondent’s assessment, after all, the Appellant by law bears the burden of proof…”

90. The Tribunal was also guided by the holding of the Court of Appeal in CMC Aviation Ltd v Kenya Airways Ltd (Cruisair Ltd) [1978] eKLR where the Court faulted the reliance on averments as evidence in arriving at a decision. The Court stated as follows:-“The pleadings contain the averments of the three parties concerned. Until they are proved, or disproved, or there is admission of them or any of them by the parties, they are not evidence and no decision could be founded upon them. Proof is the foundation of evidence. As stated in the definition of “evidence” in section 3 of the Evidence Act, evidence denotes the means by which an alleged matter of fact, the truth of which is submitted to investigation, is proved or disproved. Averments are matters the truth of which is submitted for investigation. Until their truth has been established or otherwise they remain unproven. Averments in no way satisfy, for example, the following definition of “evidence” in Cassell’s English Dictionary, p 394:Anything that makes clear or obvious; ground for knowledge, indication or testimony; that which makes truth evident, or renders evident to the mind that it is truth.The pleadings in a suit are not normally evidence. They may become evidence if they are expressly or impliedly admitted as then the admission itself is evidence. Evidence is usually given on oath. Averments are not made on oath. Averments depend upon evidence for proof of their contents.”

91. It was the Appellant’s responsibility to proof that it had given the Respondent the documents to prove that it was dealing in exempt supplies which was the cause of the variance between the VAT and Income tax returns.

92. After meeting with the Respondent on 19th August 2022, the Appellant did not tender evidence that it provided the agreed documents on the agreed date of 22nd August 2022. The Respondent therefore had no choice but to do what the law expected of it and made the objection decision on 23rd August 2022.

93. After consideration of the documents submitted by the parties, the law and the case laws cited above, the Tribunal finds that the Appellant did not discharge its burden of proof and the Respondent was therefore justified in issuing the additional VAT assessment.

Final Decision 94. The upshot of the foregoing is that the Tribunal finds that the Appeal is without merit and therefore fails. Consequently, the Tribunal makes the following Orders: -a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision dated 23rd August 2022 be and is hereby upheld.c.Each party to bear its own costs.

95. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 22ND DAY OF MARCH, 2024. GRACE MUKUHA...................................CHAIRPERSONJEPHTHAH NJAGI...................................MEMBERDR ERICK KOMOLO...................................MEMBERDR WALTER J. ONGETI ................................MEMBERGLORIA A. OGAGA.......................................MEMBER