[2024] KETAT 1576 (KLR)

Modern Lithographic Kenya Limited v Commissioner of Domestic Taxes (Tax Appeal E981 of 2023) [2024] KETAT 1576 (KLR) (Commercial and Tax) (22 November 2024) (Judgment)

Neutral citation: [2024] KETAT 1576 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tax Appeal E981 of 2023

Grace Mukuha, Chair, GA Kashindi, E Komolo & AM Diriye, Members

November 22, 2024

Between

Modern Lithographic Kenya Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a Company based in Industrial Area Nairobi whose principal business is lithography, general printing works and planographic printmaking processes for clients within the Republic of Kenya.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws. 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 Appellant in August 2019, wrote to the Respondent seeking credit claims under the special arrangements tab (C/U S42). The Appellant on interacting with the Respondent's Portal and on its General Ledger encountered a report purportedly made on 24th October 2023 which contained additional Income Tax Assessment for March 2016 to February 2017 for Kshs 2,380,536 and March 2017 to February 2018 for Kshs 2,444,171 respectively.

4. The Appellant sought enlargement of time to file its late notice of objection which the Respondent rejected vide a letter dated 29th November 2023. Consequently, the Appellant filed this appeal vide a notice of appeal dated 22nd December 2023 and filed on 26th December 2023.

The Appeal 5. The Appellant lodged the memorandum of appeal dated 22nd December 2023 and filed on 26th December 2023, raising the following grounds of appeal:a.That the Commissioner failed in fact and in law in failing to provide precise reasons for the refusal of the Appellant's objections and proceeded to issue an Objection Decision for additional income tax that is illegitimate and not payable.b.That The Respondent failed to consider the Appellant's accounts, invoices, audited financial statements, general ledgers, bank statements, reconciliations of the turnover and other related documents provided to it before demanding for additional Income Tax.c.That the Respondent erred in its decision by demanding additional Income Tax of Kshs 4,824,707. d.That the Respondent did not comply with the provisions of the Tax Procedures Act when issuing the Additional Assessment and the same are statute barred.e.That the reasons advanced by the Respondent in confirming its additional assessment are vague, hollow and mere monologues whose objective are chiselled only for purposes of collecting illegitimate Taxes.

Appellant’s Case 6. The Appellant relied on its statement of facts dated 22nd December 2023 and filed on 26th December 2023. The Appellant also relied on its Written Submissions dated and filed on 28th August 2024.

7. The Appellant stated that on August 2019, it wrote to the Respondent seeking credit claims under the special arrangements tab (C/U S42), the said correspondence attracted a bulk of emails exchanged between the Parties herein.

8. It is the Appellant’s case that many working meetings were done and request for and not limited to Appellant's audited accounts, invoices, audited financial statements, general ledgers, bank statements, reconciliations of the turnover and other related documents provided.

9. The Appellant stated that it assumed that the Respondent was contented with the information it provided since business proceeded uninterrupted up until the October 2023 when the Appellant applied for a Tax Compliance Certificate.

10. The Appellant asserted that upon interacting with the Respondent's portal and on its general ledger was a report purportedly made on 24th October 2023 which contained additional Income Tax Assessment for March 2016 to February 2017 for Kshs 2,380,536 and March 20177 to February 2018 for Kshs 2,444,171 respectively. According to the Appellant, the additional assessment claimed is outside scope of the statutory deadlines and the same cannot be claimed under the Law.

11. The Appellant stated that it lodged an application seeking leave to file an objection out of time and the same was rejected, now subject of this instant appeal.

12. According to the Appellant, the Respondent did not comply with the provisions of the Tax Procedures Act (TPA) when issuing the Additional Assessment and the same are statute barred, invalid, and therefore null and void.

13. The Appellant asserted that the Respondent's demand for the said taxes are unfounded, unreasonable, unjustified and not based on any material facts.

14. Apart from the Statement of Facts, the Appellant put in written submissions wherein it submitted that in August 2019, the Appellant wrote to the Respondent seeking credit claims under the special arrangements tab(C/U S42), and many working meetings were held where the Respondent requested for a schedule of manual withholding tax claimed, remittance advises for instalment tax payments and evidence of tax credits for the years of income. The Appellant submitted that all these were supplied to the Respondent.

15. The Appellant submitted that the Respondent issued an assessment on 19th May 2022 where it disallowed the claimed tax credits. The Appellant submitted that it sought enlargement of time to file its late objection which application was denied culminating to an Objection Decision, subject of this instant Appeal.

16. The Appellant submitted that it had technical communication difficulties with the Respondent and occasionally fell out on deadlines resulting to filing an application for leave to file a late Objection which the Respondent disallowed.

17. The Appellant relied on the case of SAJ Ceramics Limited Verses Commissioner of Domestic Taxes TAT No. 531 OF 2020 wherein this Tribunal opined that "as we note from the record, the Tax credits resulted from Advance Tax and Withholding Tax were at the time of fling the returns restricted in the iTax portal leading the Appellant to declare a lesser amount than what was paid. Seeing as this is a technical issue caused by the Respondent's system, it would have been prudent for the Respondent to first consider the Appellant's complaint as opposed to such dismissing as it did in the instant case."

18. The Appellant submitted that the instant Appeal is premised on Section 47 of the TPA as read together with Section 42 of the Income Tax Act (ITA). Whereas the Respondent sought to rely on the case of National Bank of Kenya -vs- TheCommissioner of Domestic Taxes Tax Appeal No.474 of 2020, the Appellant submit that the import of the said Judgement flies on the face of the interpretation of the "self-assessment regime" of taxation. It submitted that if the said judgment was allowed to see the light of day, then the Respondent ought to have devised a way to validate overpayments and refunds. The Appellant further submitted that tax audits by the Respondent is a tool used to delay refunds or scare away taxpayers from applying for refunds.

19. The Appellant relied on Section 47(1) of the TPA provides which provides that:-“Where a taxpayer has overpaid a tax under any Law, the Taxpayer may apply to the commissioner in the prescribed form toa.Offset the overpaid Tax against the Taxpayers outstanding Tax Debts and Future Tax Liabilities orb.For a refund of the overpaid tax within five years or six months in the case of VAT, after the date on which the Tax was paid."

20. The Appellant submitted that the import of Section 47(1) of the TPA is well enunciated in Morgan Air &Sea Freight Logistics Kenya Limited -vs- Commissioner of Domestic Taxes Tax Appeal No. 1023 of 2022.

21. Finally, the Appellant also submitted that the reason why the Respondent disallowed the late Objection was for want of supply of specific documents it had requested for. It submitted that the Appellant should not be denied justice over a procedural matter that is curable in the circumstances. In this regard, the Appellant relied on the case of Kenya Cutting Limited v The Commissioner of Domestic Taxes, Tax Appeal No. 1202 of 2022 wherein this honourable Tribunal held, "Taking into consideration all the foregoing determines that in the best interest of justice the dispute be referred back to the Commissioner to consider the production of documents in issue and make a decision accordingly."

Appellant’s Prayers 22. The Appellant urged this Tribunal to find that:a.The Appellant is not liable to pay any outstanding taxes with regards to the Months of income and tax periods under review; andb.the Objection Decision dated 29th November 2023 be vacated

The Respondent’s Case 23. The Respondent did not file its Statement of Facts and Written Submissions.Issues For Determinationa.Whether the Respondent’s Rejection of the Appellant’s Application for Extension of time to Lodge Objection Notice was Justified.

Analysis And Findings 24. The Appeal before us is one challenging the Respondent’s refusal to extend time within which the Appellant may lodge an objection notice.

25. The Tribunal has reviewed the Respondent’s refusal contained in the letter dated 29th November, 2023 rejecting the Appellant’s application for extension of time. In the said the letter, the Respondent refers to the Appellant’s application dated 15th November, 2023, and subsequent correspondence exchanged between the parties, and indicates that the Appellant failed to provide proper reasons and documentation to support the application in line with provisions of Section 51(7) of the TPA.

26. The jurisdiction of the Tribunal in matters relating to the refusal of the Respondent to extend time for a taxpayer to lodge a notice of objection out of time is limited to interrogating the application for extension of time as well as the Respondent’s decision to determine whether the same is justified.

27. The Tribunal has perused the record and noted that the Appellant has not annexed its application for extension of time to its appeal. In the circumstances, the Tribunal is unable to scrutinise the same vis-à-vis the Respondent’s refusal decision considering the contestations in the appeal herein.

28. The Tribunal is, therefore, constrained to strike out the Appeal because failure to attach the Appellant’s application deprived the Tribunal of the opportunity to interrogate the Respondent’s refusal decision on its merits.

Determination 29. The upshot is that the foregoing is that the Tribunal will proceed to make the following orders: -a.The appeal be and is hereby struck out; anda.Each party to bear its own costs.

30. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 22ND DAY OF NOVEMBER 2024. .............................................GRACE MUKUHACHAIRPERSON……………..…………… ……………………………GEORGE KASHINDI DR. ERICK KOMOLOMEMBER MEMBER…..............……………ABDULLAHI DIRIYEMEMBER