[2025] KETAT 248 (KLR)

Mburu v Commissioner of Domestic Taxes (Tax Appeal E1003 of 2024) [2025] KETAT 248 (KLR) (9 May 2025) (Judgment)

Neutral citation: [2025] KETAT 248 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E1003 of 2024

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

May 9, 2025

Between

Wilson Gathogo Mburu

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

1. The Appellant is an individual based in Nakuru operating as a sole proprietorship dealing in wholesale of petroleum products, trading under the name Hemason Enterprises.

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 issued Income tax and VAT assessment orders dated 15th May 2024 assessing Kshs 119,629,953. 00 being Value Added Tax and Kshs 40,062,420. 00 Income tax – Resident Individual for the years of income 2020 to 2022. The assessments were based on an audit verification exercise by the Respondent, which established under-declared income and double claimed purchases.

4. The Appellant lodged his objection against the assessments on 14th June 2024. Upon consideration of the objection, the Respondent issued an objection decision on 2nd August 2024.

5. The Appellant being aggrieved by the objection decision lodged his notice of intention to appeal dated 4th September 2024 on 7th September 2024.

The Appeal 6. The Appellant lodged his Memorandum of Appeal dated and filed on 7th September 2024. The Tribunal can infer that the Appellant’s main ground of appeal was that the Respondent erred both in law and fact in its decision to issue the Appellant with additional tax assessment in respect to VAT and income tax.

Appellant’s Case 7. In support of the appeal, the Appellant lodged his Statement of facts dated 7th September 2024. The Appellant failed to file written submission contrary to the directions of the Tribunal.

8. In his pleadings, the Appellant stated that the Respondent conducted an audit through a notice of audit issued on the 6th December 2023 under Section 59 of Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter “TPA”). The extract of the notice intended to carry out the audit for the period from 1st January 2020 to 31 October 2023. As such the Respondent requested to carry out the audit for both income tax and VAT returns. The Appellant stated that the said notices specified the period under review was 01/01/2020 to 31/12/2022 for Income Tax; and the 01/01/2020 to 31/10/2023 for VAT.

9. The Appellant averred that through an electronic mail dated 10th January 2024 the Appellant notified the Respondent of a similar exercise that was carried out through the premier office and findings shared on the same date. Nonetheless, the period covered for the same was from the period from 2016 to 2020.

10. The Appellant also averred that he also made known to the Respondent the preliminary findings that were arrived at and the same shared in the same electronic mail and recommendation to amend the returns from the premier office to reflect the correct position after the findings. According to the Appellant, this was executed on the 8th May 2022. From the general expectation it was expected that the Respondent through this exercise would amend the review assessment for period from January 2021 to the 31 October 2023.

11. The Appellant in his pleadings, stated that the Respondent through a letter dated 3rd May 2024, notified him of its intention to issue an additional assessment for the period from January 2020 to December 2023. The Respondent then issued an additional assessment on the 15th May 2024 which was 12 days late and the Appellant opined that it was not enough time for him to make a response. The Appellant stated that he had patient in hospital and eventually lost the patient and so he did not have time to make an adequate response.

12. The Appellant in its pleadings stated that Respondent proceeded to issue a demand notice of Kshs. 203,813,857. 00 This was after the assessments were issued. This related to a demand of Kshs 49,228,449. 00 for income tax and Kshs. 154,585,408. 00 for VAT.

13. The Appellant proceeded to apply for an objection for the same assessments on the 14th June 2024 for all the tax head indicating that the Appellant was dissatisfied with the assessment. The Appellant stated that it lodged late objection application which was accepted. The Appellant stated that he provided reconciliation of the workings made. The Respondent then issued the objection decision on the 2nd August 2024 with the same being confirmed on the 16th of August 2024. The Appellant stated that he lodged this Appeal on 4th September 2024.

14. The Appellant stated that the Respondent had no grounds to disallow invoices as they were in his possession. The Appellant contended that the incomes which were scaled up are not a reflection of the Appellant’s incomes.

15. According to the Appellant, the Respondent issued an additional assessment inconsistent with Section 15(1) of the Income Tax Act, CAP 470 of the Laws of Kenya (hereinafter “ITA”) setting out the guidelines for the ascertainment of income which ought to be subjected to income tax. The Appellant added that the Respondent issued additional assessment inconsistent with Section 15(1) of the ITA and Section 17 (1) and (2) of the Value Added Tax Act, CAP 476 of the Laws of Kenya (hereinafter “VAT Act”) setting out the guidelines for the ascertainment of the input VAT which is attributable to a taxable supply and in which the Respondent recognized in both its findings and the objection decision.

16. The Appellant stated that the Respondent carried out an analysis from the banking derived from the bank statements. The Appellant asserted that the Respondent assumed after minor adjustment that the banking made were all from incomes and ignoring some of the banking. It stated that not all banking were incomes. The Appellant added that with such an assumption the Respondent’s assessment is contrary to the ITA of the laws of Kenya and the VAT Act.

17. The Appellant stated that the Respondent assertions are malicious and intended to harm the Appellant business as they are excessive and not in line with any of the Appellant’s ability or position in regard to that tax position.

18. Based on the above, the Appellant prayed for the following reliefs:a.That this Tribunal be pleased to set aside the assessment under review herein.b.That the Tribunal be pleased to set aside the demand letter made on the 16th May 2024 and substitute the tax demand in line with the Appellant’s position.c.The Appellant be granted leave to supply any further evidentiary documents that may be needed by the Respondent in arriving at a fair and just assessment.d.That the Tribunal based on its wisdom may issue an alternative to vary the tax demand in absence of granting (a) above and or (b) above

Respondent’s Case 19. In response to the appeal, the Respondent lodged a Statement of facts dated 13th November 2024 on even date. The Respondent also filed written submission dated 22nd April 2025 and filed on even date.

20. According to the Respondent, a Notice of Audit was issued to the Appellant on 6th December 2023 whereby the Appellant was requested to provide records for the verification exercise. The Respondent wrote to the Appellant on 15th January 2024 reminding him that he had not provided the requested records. On 3rd May 2024, the Respondent issued the Appellant with a notice of findings upon review of the available information that is bank statements for the years of income 2020-2023 and the Appellant's filed returns.

21. The Respondent averred that the Appellant was given a 7-day timeline to respond to the said notice. Upon the Appellant's failure to respond, the Respondent issued the assessments on 15th May 2024.

22. The Respondent stated that the assessments were issued in accordance with the provisions of Section 31 of the TPA which empowers the Respondent to amend the Appellant's self-assessment returns based on available information that is bank statements for the period 2020 to 2023 and filed tax returns period covering January 2020 to December 2023.

23. Whereas the Appellant stated that the Respondent issued an assessment that was inconsistent with Section 15(1) and Section 17(1) and (2) of the VAT Act, it was the Respondent's position that during the returns review exercise, the Respondent identified double claimed inputs in the Appellant's VAT returns hence the decision to disallow those amounts.

24. In response to the Appellant's assertion that the Respondent assumed after minor adjustment that the banking were all made from incomes, the Respondent stated that during the objection review stage, the Appellant was provided with an opportunity to provide a reconciliation of bank credits and the declared income, clearly indicating non-income credits. Nevertheless, the Appellant failed to provide these records despite being issued with an electronic mail reminder.

25. The Respondent stated that it wrote to the Appellant on 28th June 2024 requesting for supporting documents which included financial statements, income and purchases schedules, reconciliation of assessed variances together with supporting transaction documents, reconciliation of bank credits and the declared income clearly indicating non-income credits together with supply transaction documents, tax computation together with supporting transaction documents. The Respondent asserted that these records were critical in disputing the Respondent's assessments. However, the Appellant only availed excel reconciliations on 9th July 2024 and 15th July 2024. The Respondent then issued an electronic mail reminder to the Appellant for the records requested for on 28th June 2024. The Respondent noted that the Appellant failed to provide these records.

26. From the foregoing, the Respondent argued that the Appellant failed to discharge his burden of proving that the Respondent’s assessment was incorrect as required under Section 56 of the TPA. The Respondent submitted that the Appellant failed to table his documents to support the objection despite being reminded to do so. The Respondent submitted that this was contrary to Section 51(3) of the TPA.

27. The Respondent also submitted that since the Appellant failed to adduce documents, the Appellant could not discharge his burden of proof. It relied on the case of Commissioner of Domestic Services v Galaxy Tools Limited [2021] eKLR; and Commissioner Investigations and Enforcement v Kidero (Income Tax Appeal E028 of 2020) [2022] KEHC 52 (KLR) (Commercial and Tax) to submit that a taxpayer must adduce documents to support the notice of objection.

28. In view of the foregoing, the Respondent prayed that the it decision be upheld and the Appeal be dismissed with costs.

Issues For Determination 29. The Tribunal having considered the parties’ pleadings puts forth the following issues for determination:a.Whether the Appeal is properly before the Tribunal.b.Whether the unsigned pleadings render the Appeal invalid.c.Whether the Appellant discharged burden his burden of proving that the decision of the Respondent dated 2nd August, 2024 was incorrect.

Analysis And Findings 30. The Tribunal wishes to analyse the issues as hereunder.a.Whether the Appeal properly before the Tribunal.

31. It was not disputed that the Respondent issued its objection decision on 2nd August 2024. Upon perusals of the Appellant’s pleadings, the Tribunal noted that the Appellant filed several notices of intention to appeal dated 4th September 2024. The Tribunal also perused the undated and unsigned notice of appeal and noted that it was lodged on 7th September 2024 being outside the 30 days statutory timeline. The issue then is whether the appeal was valid as provided for under Section 13(1)(b) of the Tax Appeals Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”).

32. Section 13 of TATA provides for the procedures to be followed when filing an appeal. In particular Section 13(1) of TATA provides as follows:‘‘Procedure for appeal1. A notice of appeal to the Tribunal shall—a.…b.Be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.’’

33. From the foregoing, the Appellant filed the notice of appeal in contravention of Section 13(1) (b) of TATA because he filed his notice of appeal beyond the statutory thirty days. Whereas section 13(1) of TATA provides that the notice of appeal has to be filed within 30 days upon receipt of the decision of the Commissioner, the Act makes provision for a taxpayer who may be unable to comply with the said timeline. Section 13(3) of TATA allows a taxpayer with valid reason(s) to seek leave to file an appeal out of time.

34. In particular, Section 13(3) and (4) of TATA provides as follows:‘‘(3) The Tribunal may, upon application in writing or through electronic means, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).(4) An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from filing the notice of appeal or submitting the documents within the specified period.’’

35. The Appellant did not file an application under the provisions of Section 13(3) of TATA seeking leave to file the appeal out time. Further, there was nothing on record indicating that the Appellant obtained leave to file the appeal out of time under Section 13(4) of TATA. It is therefore the view of the Tribunal that the Appellant filed this appeal out time and without leave.

36. Filing an appeal out of time without leave is detrimental to the Appellant’s case and no court can entertain such an omission. In Commissioner of Domestic Taxes v Lifecare International Brokers Limited [2020] eKLR Majanja J (as he was then) observed as follows at paragraph 14:“Failure to file an appeal within time and without complying with statutory conditions is not a mere technicality that can be overlooked, it goes to the competence of the appeal. Counsel for the Appellant valiantly addressed the court on why the court should validate the appeal. The issues raised are factual issues that call for the court to exercise its discretion and can only be addressed in an appropriate application which is not before the court."

37. Further, failure to seek leave to file appeal out of time negatively affects jurisdiction of this Tribunal. The Court of Appeal in Patrick Kiruja Kithinji v Victor Mugira Marete MRU CA Civil Appeal No. 48 of 2014 [2015] eKLR held as follows:‘‘It is our view, whether or not an appeal is filed on time goes to the jurisdiction of this Court. It is trite that this Court has jurisdiction to entertain appeals filed within the requisite time and/or appeals filed out of time with leave of the Court. To hold otherwise would upset the established clear principles of institution of an appeal in this Court. Consequently, we find that an appeal filed out of time is not curable under Article 159. ’’

38. It is also the Tribunal’s view that it does lacks jurisdiction to determine this case. In the locus classicus case of Owners of the Motor Vessel “Lillian S” v Caltex Oil (Kenya) Ltd [1969] KLR, Nyarangi JA held, inter alia as follows:‘‘…Jurisdiction is everything. Without it, a court has no power to make one more step. Where a court has no jurisdiction, there would be no basis for a continuation of the proceedings pending other evidence. A court of law downs its tools in respect of the matter before it the moment it holds the opinion that it is without jurisdiction.”

39. Pursuant to the foregoing analysis, the Tribunal finds that Appellant failed to comply with the clear provisions of the law pursuant to the provisions of Section 13(3) as read in tandem with Section 13(4) of the TATA. Therefore, the jurisdiction of the Tribunal to hear and determine the matter is vitiated. Consequently, the Tribunal finds and holds that the appeal is invalid and ought to be struck out.

40. Having established the foregoing, the remaining issues are rendered moot.

Final Decision 41. The upshot to the foregoing is that the Tribunal finds and holds that the Appeal is incompetent and makes the following Orders:a.The Appeal be and is hereby struck out.b.Each party to bear its own cost.

42. 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