[2023] KETAT 550 (KLR)

Mock Electrical and Electronics Company Limited v Commissioner Domestic Taxes (Tax Appeal 1198 of 2022) [2023] KETAT 550 (KLR) (13 October 2023) (Judgment)

Neutral citation: [2023] KETAT 550 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1198 of 2022

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

October 13, 2023

Between

Mock Electrical and Electronics Company Limited

Appellant

and

Commissioner Domestic Taxes

Respondent

(An Appeal against the Respondent's objection decision of 30th September 2022)

Judgment

Background 1. The Appellant is a private limited company duly incorporated and registered under the Companies Act within the Republic of Kenya. Its main form of business is in the wholesale and retail of electronics including speed limiters and solar systems.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, the Authority is charged with the responsibility of among others, assessment, collection, accounting, and the general administration of tax revenue on behalf of the Government of Kenya.

3. The Respondent reviewed the Appellant’s bank statements for the years 2018 to 2020 and invited the Appellant to analyse its findings on undeclared income and separate chargeable and non-chargeable income.

4. The Respondent issued assessment orders to the Appellant on 29th July 2022 for Income Tax and VAT.

5. The Appellant raised an objection against the assessments on 5th August 2022 and upon further communication between the parties the Respondent issued an objection decision on 30th September 2022.

6. Aggrieved by the objection decision, the Appellant filed a Notice of Appeal on 14th October 2022.

The Appeal 7. In its Memorandum of Appeal dated 8th October 2022 and filed on 14th October 2022, the Appellant premised its appeal on the following grounds.a.The Commissioner of Domestic Taxes erred in fact and law in assessing the tax payable.b.The Commissioner of Domestic Taxes erred in fact and law in failing to consider the Appellant’s nature of business thereon.c.The Commissioner of Domestic Taxes erred in fact and law in failing to consider authentic assessment of taxes for the Appellant.

The Appellant’s Case 8. The Appellant set down its case in its Statement of Facts dated 8th October 2022 and filed on 14th October 2022.

9. It stated that the Respondent did an assessment of its VAT returns for 2018 to 2020 which resulted in the additional sales of ksh 18,653,139. 70 and incremental principal tax liability of ksh 2,647,315. 51 plus penalty and interest for the additional tax liability.

10. It averred that the Respondent did an assessment on its income tax returns for 2018 to 2020 resulting in additional sales of ksh, 14,269,783. 00, 3,760,672. 00, and 299,000. 00 for the years 2020, 2019 and 2018, respectively.

11. It stated that it objected to the assessments providing relevant documents to the Respondent on 5th August 2022 who reviewed the same and issued a decision vide a letter dated 30th September 2022.

12. It asserted that the Respondent erred in the method and model used in arriving at the additional assessment and did not understand its industry, working models, and contractual obligations.

13. Given that the Appellant did not file any submissions with the Tribunal, the Tribunal will rely on the pleadings provided and documents attached thereto to determine its case.

The Appellant’s Prayers 14. The Appellant prayed for orders that:a.This Appeal be allowed with costs;b.The decision of the Respondent regarding the tax payable by the Appellant be discharged and set aside with costs to the Appellant;c.The VAT additional assessments issued by the Respondent together with penalties and interest were unlawful and improperly assessed and as such the same should be set aside;d.The income tax additional assessments were unlawfully and improperly assessed and as such the same should be set aside;e.The Honourable Tribunal be pleased to assess the tax payable by the Appellant to be commensurate with the actual transactions and evidence tendered;f.The additional assessments be vacated so that the going concern of the company is not threatened;g.The objection decisions under review be declared null and void and quashed in its entirety;h.Any other relief that this Honourable Tribunal deems fit.

The Respondent’s Case 15. The Respondent’s case is premised on; -a.The Statement of Facts dated 11th November 2022 and filed on 14th November 2022 together with the documents filed thereto; andb.The Written Submissions dated 17th April 2023 and filed on 20th April 2023.

16. The Respondent relied on Section 5 of the Kenya Revenue Authority Act and stated that it was exercising the powers conferred to it under the Act in assessing the tax payable.

17. It cited Section 23 of the Tax Procedures Act and averred that the Appellant had a duty to provide the missing information and explanation based on the Respondent’s request via email to enable the Respondent to substantiate the assertions.

18. It further relied on Sections 31 and 56 of the Tax Procedures Act and reiterated that it was executing its mandate per the law and that the Appellant was indulged severally on phone and email requesting specific records but failed to comply.

19. It stated that it cannot be faulted for relying on the available records to assess and confirm assessments after several failed attempts to acquire all necessary records adding that the Appellant’s objection was an afterthought since the Appellant jointly scrutinized bank statements with the Respondent and established the chargeable variance.

20. The Respondent noted that the Appellant shared its own reconciliation which was considered by the Respondent through the reduction of chargeable variance in the tax computation.

21. The Respondent relied on Sections 23, and 59 of the Tax Procedures Act, and Section 43(1) of the Value Added Tax and submitted that the Appellant is bound to keep records for a period of five years and to produce the same for ascertainment of the correct tax liability.

22. It cited Sections 24 (2) and 31 of the Tax Procedures Act and submitted that it relied on its best judgment based on the information available to it in raising the additional income tax and Value Added tax assessments.

23. The Respondent relied on Sections 56 (1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act and the cases of Commissioner of Domestic Taxes v Altech Stream (EA) Limited [2021] eKLR; Ushindi Exporters Limited v Commissioner of Investigation and Enforcement (Tax Appeals Tribunal no 7 of 2015) Tumaini Distributors Company (K) Limited and Commissioner of Domestic Taxes [2020] eKLR maintained that the Appellant did not discharge its burden of proving that the assessments were erroneous since it did not adduce any evidence to support its Objection.

The Respondent’s prayers 24. The Respondent, therefore, prayed for the Tribunal to:a.Uphold the Respondent’s objection decisionb.Dismiss this Appeal with costs to the Respondent as the same is devoid of any merit.

Issues for Determination 25. Gleaning through the Memorandum of Appeal, the parties’ Statements of Facts, and the Respondent’s submissions, the Tribunal puts forth the following as the main issue for determination:a.Whether the Respondent’s Objection Decision dated 30th September 2022 for Income Tax and VAT was justified.

Analysis and Findings 26. The Tribunal wishes to analyse the issue as herein-under.

27. The Appellant maintained that it objected to the assessments providing relevant documents to the Respondent who reviewed the same and issued a decision therefore making an error on the method and model used in arriving at the additional assessment and did not understand its industry, working models, and contractual obligations.

28. The Respondent contended that it cannot be faulted for relying on the available records to assess and confirm the assessments after several failed attempts to acquire all necessary records, and that the Appellant’s Objection was an afterthought since the Appellant jointly scrutinized bank statements with the Respondent and established the chargeable variance.

29. The Tribunal notes that the Respondent considered and reviewed documents provided by the Appellant after its initial findings and, after substantiating parts of the credits there were adjustments made after the variance was allowed.

30. The Tribunal further notes that the Appellant shared its own reconciliation which was considered by the Respondent through the reduction of chargeable variance in the tax computation.

31. The Respondent has also proved that it attempted to communicate to the Appellant requesting further documentation and information to substantiate the variances that remained but the same was not sufficiently provided.

32. In this Appeal, though the Appellant prayed for the Tribunal to arrive at a different assessment, the Appellant has not provided the Tribunal an alternative method of computation based on its industry which it believes that the Respondent ought to have employed in order to arrive at a different outcome.

33. The need to provide such evidentiary material is set out in Section 56 of the Tax Procedures Act which states that: -"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; orb.in any other case, that the tax decision should not have been made or should have been made differently"

34. It is therefore the Tribunal’s finding that the Respondent was justified in issuing its Objection decision of 30th September 2022 as it used its best judgment based on the information availed to it.

Final Decision 35. The upshot to the foregoing is that the Appeal is not meritorious and the Tribunal consequently makes the following Orders;-a.The Appeal be and is hereby dismissed.b.The Objection decision dated 30th September 2022 be and is hereby upheld.c.Each party to bear its own cost.

36. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 13TH DAY OF OCTOBER, 2023. ROBERT M. MUTUMA - CHAIRPERSONELISHAH N. NJERU - MEMBERMUTISO MAKAU - MEMBERBONIFACE K. TERER - MEMBERDR. WALTER ONGETI - MEMBER