https://new.kenyalaw.org/akn/ke/judgment/keca/2026/1606

Mburu v Commissioner of Domestics Taxes (Civil Appeal E275 of 2023) [2026] KECA 1606 (KLR) (31 July 2026) (Judgment) Neutral citation: [2026] KECA 1606 (KLR) Republic of Kenya In the Court of Appeal at Nairobi Civil Appeal E275 of 2023 JM Ngugi, MN Nduma & M Sila, JJA July 31, 2026 Between Michael Ndichu Mburu Appellant and The Commissioner of Domestics Taxes Respondent ((Being an Appeal from the Judgment and Decree of J. W. W. Mong’are, J) dated and delivered on the 27th March, 2023 in Income Tax Appeal E064 of 2021) Judgment 1.The appeal before us was instituted by Michael Ndichu Mburu, director of Singapore Motors Limited (Mburu), arising from a tax dispute that originated before the Tax Appeals Tribunal (TAT). The genesis of the matter lay in investigations conducted by the Commissioner of Domestic Taxes into the appellant’s tax compliance for the years 2013 to 2017. Following the inquiry, the Commissioner issued a tax assessment of Kshs.99,960,190.00 inclusive of penalties and interest. Mburu lodged an objection, and upon review, the Commissioner confirmed a reduced liability of Kshs.20,448,466.00 through an objection decision dated 23rd July 2019. Dissatisfied, Mburu appealed to the Tribunal, which on 9th April 2021 dismissed his appeal and upheld the Commissioner’s objection decision in full. 2.Aggrieved by the Tribunal’s findings, Mburu moved to the High Court (Commercial and Tax Division), challenging the entire judgment. He contended that the Tribunal erred in law and fact by upholding the assessment for the year 2013, which he argued was time-barred under the statutory five-year limit; by treating all credits into his personal bank accounts as taxable income; by computing tax on cash entries contrary to the Income Tax Act; by disregarding supporting documentation he had provided explaining the sources of funds; and by affirming the imposition of penalties and interest. 3.The Commissioner opposed the appeal, maintaining that assessments beyond five years were permissible in cases of fraud, wilful neglect, or evasion, and that Mburu had failed to discharge the burden of proof under section 56 of the Tax Procedures Act. 4.Upon considering the pleadings and submissions, the High Court condensed the issues into four: whether the 2013 assessment was lawful; whether the appellant was obliged to file returns during the period under review; whether he had discharged the burden of proof; and whether the penalties and interest imposed were lawful. 5.On the first issue, the court held that since Mburu had failed to file returns, the Commissioner was entitled under section 29(6) of the Tax Procedures Act to assess tax beyond the five-year period. 6.On the second and third issues, the court found that Mburu had a statutory duty under section 52B of the Income Tax Act to file returns, even nil returns, and that he failed to provide sufficient documentation to prove that the credits in his account were not taxable income. The court noted that although Mburu claimed the deposits were from loans, property sales, and advances to his company, he did not substantiate these claims to the satisfaction of the Commissioner. Consequently, the credits were rightly treated as taxable income. 7.On the fourth issue, the court upheld the imposition of penalties under section 72D of the Income Tax Act and shortfall penalties under section 84 of the Tax Procedures Act, finding them lawful. 8.In the result, the High Court dismissed the appeal, upheld the Tribunal’s judgment, and awarded costs to the Commissioner. 9.Being aggrieved by the decision of the High Court delivered on 27th March 2023, the appellant, Michael Ndichu Mburu, filed a notice of appeal dated 10th April 2023 signifying his intention to challenge the entire judgment before the Court of Appeal. 10.The appellant, through his memorandum of appeal dated 24th April 2023, attacks the judgment of the superior court on grounds that the court erred in law by dismissing the entire appeal against the respondent’s tax assessment dated 23rd July 2019 for Kshs.20,448,466.00. That the court further erred by holding that the assessment for the year of income 2013 was lawful despite being raised outside the statutory five-year period. It erred by upholding the respondent’s treatment of all deposits into the appellant’s personal bank accounts as taxable income, contrary to Section 3 of the Income Tax Act, Cap 470. The court also erred by affirming computation of income tax based on cash entries in bank statements, contrary to the principle that tax is chargeable only on gains or profits. Additionally, the court erred by endorsing the respondent’s failure to consider the appellant’s supporting documentation explaining credits into his personal bank account, despite such documentation having been furnished prior to confirmation of the assessment. The court further erred by upholding the imposition of shortfall penalties and late payment interest as lawful. Lastly, the court erred by failing to appreciate that the respondent’s assessment and enforcement actions were procedurally and substantively flawed, thereby occasioning injustice to the appellant. 11.The appeal was heard before us on 4th March, 2026. When the same was called, Mr. Manani was present for the appellant while Ms. Leparasho was present for the respondent. Both counsel informed the court that they had filed written submissions and wished to rely on the same entirely in arguing the appeal. In advancing their case, the appellant relied on his written submissions dated 8th September 2023 and invited the court to consider whether the assessment of tax for the year of income 2013 was lawful, whether he was obliged to file income tax returns under Section 52B (1) (a) of the Income Tax Act, whether the credits reflected in his bank accounts constituted taxable income under the Act, whether he furnished the requisite documents in support of his notice of objection, and whether the shortfall penalty together with late payment interest had been lawfully imposed. 12.On the first issue, he contended that the assessment of tax for the year of income 2013 was unlawful. He argued that the respondent unlawfully treated all credits in his bank accounts, including loan proceeds, repayments, reversals, and other non- income transactions as taxable income. He maintained that this approach was contrary to Section 3 of the Income Tax Act, which defines taxable income narrowly, and that the High Court erred in upholding such an assessment without interrogating whether those credits constituted income within the statutory definition. 13.On the second issue, he submitted that the obligation to file tax returns under Section 52B (1) (a) of the Income Tax Act arises only where an individual is “chargeable to tax.” He emphasized that the High Court wrongly assumed that possession of a PIN automatically imposed a duty to file returns. He argued that Section 12 of the Tax Procedures Act makes clear that PINs are required for numerous transactions unrelated to taxation, and therefore the mere fact of holding a PIN does not render one chargeable to tax. 14.On the third issue, he argued that the credits in his bank accounts did not constitute taxable income under the Income Tax Act. He explained that the entries related to loan repayments from Singapore Motors Limited, advances from family members, dividends, repayments of cash advanced to friends, and proceeds from land sales. The appellant placed reliance on Atya X-Ray Centre Limited vs Commissioner of Domestic Taxes, Tax Appeal No. 70 of 2017 where the Tribunal cautioned that an assessment founded solely on bank deposits may prejudice a taxpayer, since not every deposit necessarily constitutes income of the account holder. He further cited Republic vs Kenya Revenue Authority ex parte Bata Shoe Company (Kenya) Limited (2014), in which the High Court underscored that the obligation to pay tax is statutory and not voluntary, and that while the taxpayer is not obliged to pay more than is due, the Commissioner is entitled to recover all tax lawfully payable.Lastly, reliance was placed on Otieno Joseph Okwach vs Amolo K. T. Wilson, Kakamega High Court Civil Case No. 99 of 2012 [2016] eKLR, where the Court emphasized that even in circumstances where evidence is uncontroverted, the court remains under a duty to scrutinize such evidence and satisfy itself that the cause of action is proved in accordance with the law. 15.On the fourth issue, the appellant maintained that the High Court misdirected itself in finding that he had failed to provide requisite documents in support of his notice of objection. He argued that the respondent’s letter of 6th June 2019 sought information relating to Singapore Motors Limited, not his personal accounts. He emphasized that a company and its directors are distinct legal persons, and the High Court erred in conflating the two. He submitted that he had in fact provided explanations and supporting schedules for all credits in his accounts, which were ignored by the High Court. 16.On the fifth issue, he contended that the shortfall penalty and late payment interest imposed by the respondent were unlawful. He argued that since the credits in his accounts were not taxable income under Section 3 of the Income Tax Act, there was no basis for alleging a tax shortfall. Consequently, the penalties and interest imposed under Section 84 of the Tax Procedures Act were without foundation. 17.In conclusion, the appellant urged the Court of Appeal to set aside the judgment of the High Court dated 27th March 2023, on the grounds that the assessment was unlawful, the credits in his accounts were not taxable income, and the penalties imposed were baseless. He prayed that the appeal be allowed in its entirety. 18.The appeal is opposed by the respondent through written submissions dated 25th October 2023, upon which counsel relied. The respondent argues that the appellant failed to file tax returns despite having credits in his bank accounts that were not declared as income. It is submitted that under sections 24 and 28 of the Tax Procedures Act, every taxpayer must file returns whether or not they have taxable income. 19.Reliance is placed on Pili Management Consultants Ltd vs Commissioner of Income Tax [2010] eKLR. The respondent argued that in that case the court held that money in a taxpayer’s bank account is prima facie income, and the taxpayer must declare it and explain why it is not taxable. The respondent therefore contends that in the absence of supporting documents, the Commissioner was justified in deeming the credits as income under section 3 of the Income Tax Act and issuing assessments pursuant to sections 29 and 31 of the Tax Procedures Act. 20.On the issue of the 2013 assessment, the respondent submits that the appellant’s failure to file returns amounted to willful neglect. Reference is made to R vs Turbill and Broadway (2014), where the court defined “wilfully” as deliberately refraining from acting, and to Black’s Law Dictionary, which defines neglect as failure to do something one is bound to do. That Sections 29(6) and 31(4a) of the Tax Procedures Act empower the Commissioner to issue assessments beyond the statutory period in cases of fraud or willful neglect. The respondent therefore maintains that the 2013 assessment was lawful. 21.On the burden of proof, the respondent notes that the appellant claimed the bank credits were borrowings and transfers but failed to produce supporting documents. Section 107(2) of the Income Tax Act, 2018, Cap 470 places the burden on the taxpayer to prove that a tax decision is incorrect. The Court of Appeal in Ally Mohammed Murtaza vs Commissioner of Income Tax EAT No. 102 of 2016 eKLR confirmed the decision of the Tax Appeals Tribunal and the High Court that the taxpayer must show the assessment is excessive, as follows:“The burden of proof is on the taxpayer to demonstrate that the assessment raised by the Commissioner is excessive or decision is erroneous. Mere denial is not enough’’. The Commissioner has the initial evidential burden by making the assessment and laying the basis upon which the evidential burden shifts to the taxpayer to rebut the same. The respondent submits that the appellant, being custodian of his records, failed to discharge this burden. 22.On penalties, the respondent relies on section 72D (now repealed) of the Income Tax Act, which imposed a 20% penalty for unpaid tax, and section 84 of the Tax Procedures Act, 2015 which provides for tax shortfall penalties where false or misleading statements reduce liability. Since the appellant failed to file returns and pay taxes, the respondent argues that penalties and interest were properly imposed. 23.Finally, the respondent challenges the appellant’s attempt to introduce new documents on appeal. It is argued that a party is bound by its pleadings, and introducing evidence not presented before the Tribunal is impermissible. Reliance is placed on Ocean Freight (E.A) Ltd vs Commissioner of Domestic Taxes [2020] eKLR, where Tuiyott, J (as he then was) held that appeals must be confined to the case argued before the Tribunal, and Safe Cargo Ltd vs Embakasi Properties Ltd & 2 Others [2019] eKLR, where the Court of Appeal rejected additional evidence that could have been discovered with due diligence. The respondent submits that the appellant had the opportunity to present all relevant documents at the Tribunal stage and is estopped from introducing them now. In conclusion, the respondent prays that the court dismisses the appeal and upholds the decisions of the High Court and the Tax Appeals Tribunal, as the appellant failed to file returns, did not discharge the burden of proof, was liable for penalties, and improperly sought to introduce new evidence. 24.This Court is mindful that in a second appeal, its duty is circumscribed. The governing principle, codified in Section 72(1) of the Civil Procedure Act (Cap 21, Laws of Kenya), is that a second appeal lies only on matters of law. Section 56(2) of the Tax Procedures Act similarly provides that an appeal to the Court of Appeal shall be on a question of law only. Accordingly, the court does not sit to re-evaluate afresh all the evidence, but rather to interrogate whether the courts below properly directed themselves in law, applied the correct principles, and reached conclusions supported by the record. 25.Errors of law, misapplication of statutory provisions, or failure to appreciate binding precedent are matters squarely within our remit, while findings of fact, unless shown to be based on no evidence or on a misapprehension of the law, are generally not disturbed. This position was affirmed in Kenya Breweries Ltd vs Godfrey Odoyo [2010] eKLR, where the Court held that:“On a second appeal, the Court of Appeal confines itself to matters of law. Findings of fact by the two courts below are binding on this Court unless it is shown that they were based on no evidence at all, or on a misapprehension of the evidence, or that the courts below demonstrably acted on wrong principles in reaching their findings.” 26.Having considered the record and the rival submissions of the parties, the issues that fall for determination may be compressed into a single formulation. They are: whether the assessment of tax for the year of income 2013 was lawful in light of the statutory limitation periods; whether the appellant was under a statutory obligation to file income tax returns pursuant to Section 52B(1)(a) of the Income Tax Act (Cap 470); whether the credits reflected in the appellant’s bank accounts properly constituted taxable income within the meaning of the Act; whether the appellant furnished requisite documents in support of his notice of objection; and finally, whether the shortfall penalty together with late payment interest imposed were lawfully levied under the governing provisions. 27.On the first issue, whether the assessment of tax for the year 2013 was lawful, under Section 29 of the Tax Procedures Act, No. 29 of 2015, the Commissioner is vested with the authority to issue a default assessment where a taxpayer fails to lodge a return of income. The said section provides: -29.Default assessment1)Where a taxpayer has failed to submit a tax return for a reporting period in accordance with the provisions of a tax law, the Commissioner may, based on such information as may be available and to the best of his or her judgement, make an assessment (referred to as a "default assessment") of—a.the amount of the deficit in the case of a deficit carried forward under the Income Tax Act (Cap. 470) for the period;b.the amount of the excess in the case of an excess of input tax carried forward under the Value Added Tax Act, 2013 (No. 35 of 2013), for the period; orc.the tax (including a nil amount) payable by the taxpayer for the period in any other case.2)The Commissioner shall notify in writing a taxpayer assessed under subsection (1) of the assessment and the Commissioner shall specify—a.the amount assessed as tax or the amount of a deficit or excess of input tax carried forward, as the case may be;b.the amount assessed as late submission penalty and any late payment penalty payable in respect of the tax, deficit or excess input tax assessed;c.the amount of any late payment interest payable in respect of the tax assessed;d.the reporting period to which the assessment relates;e.the due date for payment of the tax, penalty, and interest being a date that is not less than 30 days from the date of service of the notice; andf.the manner of objecting to the assessment.3)A written notification by the Commissioner of an assessment under this section shall not alter the due date (referred to as the "original due date") for payment of the tax payable under the assessment as determined under the tax law imposing the tax, and any late payment penalty or late payment interest shall remain payable based on the original due date.4)This section shall not apply for the purposes of a tax that is not collected by assessment.5)Subject to subsection (6), an assessment under subsection (1) shall not be made after five years immediately following the last date of the reporting period to which the assessment relates.6)Subsection (5) shall not apply in the case of gross or wilful neglect, evasion or fraud by a taxpayer. 28.That power, however, is circumscribed by the temporal limitation in Section 29(5), which bars the making of such an assessment after the lapse of five years from the close of the relevant reporting period, save where the exception in subsection (6) applies. The statutory expectation is that the Commissioner must act with expedition and within the prescribed limitation period. 29.The critical question is when time begins to run. The statutory clock commences at the close of the reporting period for the relevant year of income. For the 2013 year of income, the reporting period ended on 31st December 2013. Absent, neglect or fraud, the Commissioner would have been barred from raising an assessment after 31st December 2018. The record shows that the impugned assessment was issued in September 2018, which fell within the five‑year statutory window. Accordingly, even without invoking subsection (6), the 2013 assessment was not time‑barred. 30.Even if the assessment had been raised after the five‑year period, the admitted failure by the appellant to file returns for 2013 may amount to wilful neglect within the meaning of subsection (6). It was incumbent upon the Appellant to demonstrate that, in the circumstances of this case it did not. 31.The High Court correctly applied this principle in holding that the appellant’s failure to file returns for 2013 constituted wilful neglect, thereby permitting assessment beyond the ordinary limitation period. We add that, in any event, the assessment was raised within time, since September 2018 fell before the expiry of the five‑year statutory bar on 31st December 2018. We therefore find no error in the conclusion that the 2013 assessment was lawful, both because it was raised within the statutory period and, alternatively, because the appellant’s wilful neglect lifted the bar under Section 29(6). 32.On the second issue, whether the appellant was bound to file tax returns, the Tribunal and the High Court were unanimous that possession of a Personal Identification Number (PIN) imposes a statutory duty to file returns. This Court has carefully examined the governing provisions.24)Submission of tax returns1)A person required to submit a tax return under a tax law shall submit the return in the approved form and in the manner prescribed by the Commissioner.2)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.28)Self-assessment1)A taxpayer who has submitted a self- assessment return in the prescribed form for a reporting period shall be treated as having made an assessment of the amount of tax payable (including a nil amount) for the reporting period to which the return relates being the amount set out in the return.2)If a taxpayer liable for income tax has submitted a self-assessment return in the prescribed form for a year of income and the taxpayer has a deficit for the year, the taxpayer shall be treated as having made an assessment of the amount of the deficit for the year being the amount set out in the return.3)If a registered person has submitted a self- assessment return in the approved form for a tax period and the taxpayer's total input tax for the period exceeds the taxpayer's output tax for the period, the registered person shall be treated as having made an assessment of the amount of the excess input tax for the period being that amount set out in the return.4)A tax return in the approved form completed and submitted electronically by a taxpayer shall be a self- assessment return despite—(a)the form containing pre- entered information provided by the Commissioner; or(b)the tax payable being computed electronically as information is being entered into the form. 33.The obligation is reinforced by Section 52B of the Income Tax Act (Cap 470), which stipulates:52B.Final return with self-assessment1)Notwithstanding any other provision of this Act– (a)every individual chargeable to tax under this Act shall for any year of income commencing with the year of income 1992, furnish to the Commissioner a return of income, including a self-assessment of his tax from all sources of income, not later than the last day of the sixth month following the end of his year of income; and(b)every person, other than an individual chargeable to tax under the Act, shall for any accounting period commencing on or after 1st January, 1992, furnish to the Commissioner a return of income, including a self-assessment of his tax on such income, not later than the last day of the sixth month following the end of the year of income.2)The return of income together with the declared self-assessment of tax on the declared income, shall be prepared on such a form or forms as shall be prescribed by the Commissioner.3)The declared self-assessment shall be calculated by reference to the appropriate relief and rates of tax in force for the year of income.4)Every company liable to tax under this Act shall also include with the self-assessment and return of income, an assessment and return of any dividend distributed out of untaxed gains or profits due with respect to such tax year and the tax so calculated shall be payable at the due date for the self- assessment. 34.The statutory scheme is therefore unequivocal: once a person is registered for tax and issued with a PIN, they are under a continuing obligation to file annual returns, including nil returns where no income is chargeable. Failure to comply amounts to wilful neglect within the meaning of Section 29(6) of the Tax Procedures Act, thereby permitting the Commissioner to assess tax outside the ordinary five-year limitation period. We accordingly uphold the concurrent findings of the Tribunal and the High Court that the appellant was bound to file returns, and his omission constituted wilful neglect. 35.On the third issue, on the treatment of Credits in Bank Accounts, the appellant maintains that credits represented loans, repayments, and other non-income transactions, and therefore could not be treated as taxable income under Section 3 of the Income Tax Act, which, in his opinion, defines income narrowly as gains or profits from business, employment, or property. The respondent counters that in the absence of supporting documents, deposits are prima facie income. The High Court found that the appellant failed to substantiate his claims, and we agree. In our view, the matters raised under this issue are quintessentially factual in nature, requiring an evaluation of the probative value of the evidence tendered before the Tribunal and subsequently re-examined by the first appellate court. Although the appellant has invoked Section 56(1) of the Tax Procedures Act, the controversy essentially turns on whether the evidentiary burden was discharged in relation to the pleaded facts. That inquiry is one of fact, not law, and properly fell within the province of the Tribunal and the High Court as the primary and first appellate courts. This Court, being seized of a second appeal, is therefore constrained from re-assessing the factual record save where it is demonstrated that the findings below were based on no evidence at all, or were reached on a misapprehension of the law. 36.On the fourth issue, whether the appellant furnished requisite documents to rebut the assessment, the appellant asserts that he provided explanations and schedules to account for the deposits in his personal bank accounts. The respondent counters that the documents were either insufficient or related to the company, not his personal accounts. Upon scrutiny, we note that the appellant’s explanations were general in nature and unsupported by verifiable documentation such as loan agreements, sale contracts, or bank statements capable of displacing the Commissioner’s assessment. The High Court was therefore correct in finding that the appellant failed to furnish the requisite documents to rebut the assessment. 37.It bears emphasis that under Section 56(1) of the Tax Procedures Act, the burden of proof lies squarely on the taxpayer to demonstrate that a tax decision is incorrect. Mere assertions or schedules without primary evidence cannot discharge this statutory burden. In the context of a second appeal, this Court’s jurisdiction is confined to matters of law. The question whether the appellant furnished sufficient documents is essentially one of fact, involving evaluation of the probative value of evidence presented before the Tribunal and re-examined by the High Court. Unless it is shown that the findings below were based on no evidence, or on a misapprehension of the law, such factual determinations are binding on this Court. This principle was affirmed in Kenya Breweries Ltd vs Godfrey Odoyo [2010] eKLR where the Court of Appeal underscored that on a second appeal, the Court does not re-evaluate evidence afresh but interrogates whether the courts below properly directed themselves in law. 38.Applying that standard, we find no error of law in the concurrent findings of the Tribunal and the High Court. Both courts correctly held that the appellant’s explanations were unsupported by verifiable documentation and therefore insufficient to rebut the Commissioner’s assessment. The evidential burden imposed by statute was not discharged. Accordingly, this Court upholds the finding that the appellant failed to furnish requisite documents and affirms the assessment as lawful. 39.Lastly, on the 5th issue namely penalties and interest, the appellant challenges the imposition of shortfall penalties and late payment interest, arguing that since the credits were not taxable income, there was no basis for penalties. Having found that the credits were rightly treated as taxable income, the penalties under Section 72D (repealed) of the Income Tax Act and Section 84 of the Tax Procedures Act were properly imposed. 40.Under the Income Tax Act (Cap 470), as amended by Act No. 8 of 1997, Section 72D introduced a penalty of 20% on unpaid tax. This provision was in force during the relevant tax years under review (2013–2017). In addition, Section 94 imposed late payment interest at 2% per month, capped at 100% of the principal tax due. These provisions are self-executing: once liability is established, penalties and interest accrue by operation of law, not at the discretion of the Commissioner. They are statutory consequences, not discretionary sanctions. 41.The law elsewhere is not dissimilar. In India, for instance, in Commissioner of Income Tax vs Eli Lilly & Co (India) Pvt Ltd [2009] 312 ITR 225 (SC, India), where the Supreme Court held that interest and penalties are compensatory in nature and arise by operation of law, not discretion. Accordingly, the imposition of penalties and interest in this case was lawful and inevitable once the appellant’s liability was established. 42.In the result, and upon a careful evaluation of the record, the submissions of Counsel, and the concurrent findings of the Tribunal and the High Court, we are satisfied that the appeal is wholly unmeritorious. The statutory framework governing assessments, the obligation to file returns, the evidential burden on taxpayers, and the automatic accrual of penalties and interest is both clear and settled. 43.The appellant’s failure to comply with these obligations, coupled with his inability to furnish verifiable documentation, placed him squarely within the ambit of wilful neglect contemplated under the Tax Procedures Act. The courts below properly directed themselves in law, applied the correct principles, and reached conclusions supported by the record. No error of law has been demonstrated to warrant interference. We therefore affirm the decision of the High Court and the Tribunal. Accordingly, the appeal is dismissed in its entirety with costs to the respondent. DATED AND DELIVERED AT NAIROBI THIS 31ST DAY OF JULY, 2026.JOEL NGUGI………………...............JUDGE OF APPEALNDUMA NDERI………………...............JUDGE OF APPEALMUNYAO SILA………………...............JUDGE OF APPEALI certify that this is a true copy of the original.SignedDEPUTY REGISTRAR