[2023] KETAT 974 (KLR)

Mule v Commissioner of Domestic Taxes (Tribunal Appeal 568 of 2022) [2023] KETAT 974 (KLR) (Commercial and Tax) (15 September 2023) (Judgment)

Neutral citation: [2023] KETAT 974 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tribunal Appeal 568 of 2022

Grace Mukuha, Chair, G Ogaga, T Vikiru, Jephthah Njagi & E Komolo, Members

September 15, 2023

Between

Benson Nzioka Mule

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background. 1. The Appellant is an individual with a tax registration having income tax and Value Added Tax obligations.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 460 laws of Kenya (KRA Act). Under Section 5 (1) of the Act, KRA is an agency of the Government for the collection and receipt of all revenue. Under Section 5(2) of the Act with respect to the performance of its function under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the KRA Act for the purposes of assessing, collecting, and accounting for all revenues in accordance with those laws.

3. Vide a demand notice dated 5th November 2021, the Respondent issued the Appellant with income tax arrears assessment for the period 2016 - 2020 of Kshs. 1,768, 592. 96, to which the Appellant objected on 14th January 2022.

4. The Respondent issued an objection decision dated 26th January 2022 reaffirming tax demand of Kshs. 1,277,824. 00

5. The Appellant consequently appealed the objection decision on 31st January 2022.

The Appeal 6. The Appeal is premised on the Memorandum of Appeal dated 21st March, 2022 and filed on 2nd June 2022, which raised the following grounds: -a.That the Respondent erred in law and facts by relying on its imaginations and not on any source document and/or material evidence to deduce and/or assess income to justify the said demand of Kshs. 1,768,592. 96. b.That the Respondent erred in law and facts that the action taken by him does not conform with Section 43(1) of the Tax Procedure Act and more so after the Appellant herein had supplied all the documents and communicated as demanded by the officer.c.That the Respondent was biased towards the Appellant that inspite of several communications and letters from the Appellant indicating and informing the said officer the chronology of the Appellant’s transactions as a taxpayer, and his business journey which is quite different from the perception being held by the Kisii Tax Service Officer, the said information was never responded to and or acted upon.d.That the Respondent erred in law and fact by having known that the Appellant herein was not a tax expert, issued conflicting figures as on what the Appellant should be paid with the Tax Service Officer demanding payment of Kshs. 100,000. 00 upfront to scale the demanded tax down, an act which the Appellant declined.e.That inspite of the material evidence presented by the Appellant herein to the Tax Service Officer to confirm that the situation on the ground was different from the perception they had, the Tax Service Officer failed, refused, neglected, and ignored the documents and relied fully on his perception.f.That the Respondent erred in law and in fact that even as this Appeal is being registered, already the Appellant had been cleared and tax compliance certificate issued on the same tax certificate number KRAKSII256333122. g.That the Respondent erred in law and in fact by failing to give the Appellant an opportunity to be heard.

Appellant’s Case 7. The Appellant’s case is premised on the Appellant’s Statement of Facts filed on 2nd June, 2022 and annexures thereto.

8. The Appellant stated that on 24th September, 2021, he received an email from Kenya Revenue Authority giving him a notice of intention to issue assessment under Section 31 of the Tax Procedures Act, 2015.

9. That the said notice had indicated that for clarification, the Appellant should contact Faith Chepkirui whose telephone number was listed as 0709542350.

10. That the Appellant made contact and the said Faith Chepkirui informed him that she could only meet the Appellant on Sunday because on other days she was busy.

11. That the Appellant travelled to Kisii on Sunday and met the said Faith Chepkirui at Kamel Park Hotel. The Appellant was informed that he owed taxes amounting to Kshs. 5 Million. The Appellant asked the basis of the information and was told that was what was indicating in the system.

12. That the Appellant informed the said Faith Chepkirui that he was not a tax expert and she agreed to send one of their staff to verity the Appellant’s documents and see how to help.

13. That the Appellant was subsequently called by an individual called Omondi who came to Isebania, Migori County, and demanded the Appellant’s bank statements, which he obliged and gave including other relevant materials.

14. That the Appellant again received a call from the said Faith Chepkirui to visit Kisii office immediately. That the Appellant obliged and met a person who introduced himself as Omondi’s boss who indicated that he could help the Appellant sort the Kenya Revenue Authority matter provided the Appellant gave Kshs. 100,000. The Appellant was warned that if he does not pay then the demanded tax would be escalated to Kshs. 15 Million.

15. That the Appellant was shocked and decided to acquire services of a tax expert, one Gaylord Ameheno Jumbah of Nyada & Company, who agreed to assist the Appellant and proceeded to visit several offices and write letters to no response.

16. That to the Appellant’s dismay, to actualise their threats, on 15th December, 2021, the Tax Service Officer issued a letter to the Appellant’s banks declaring them as their collection agents, an act that froze the Appellant’s accounts.

17. That on 20th December 2021, the Appellant wrote a letter to the Regional Commissioner requesting assistance in the dispute and provided the grounds on which he was opposing the taxes demanded by the Respondent.

18. That the matter was referred to Kisii, which had listed the Appellant as difficult because he was demanding documents.

19. That the Appellant again wrote to the Deputy Commissioner on 28th January 2022 and received no response. The Appellant then visited Times Tower but was again referred to Kisii Tax Service Office.

20. That the Appellant cooperated with the Tax Service Officer in Kisii up to the point Kshs. 100,000 was demanded as a bribe. Subsequently, the Appellant was listed as a defaulter.

21. That the Appellant understands that taxes should not be punitive and one of the core values of Kenya Revenue Authority is to ensure taxes are fair and justifiable before demands for payments and enforcements are applied.

SUBDIVISION -Appellant’s PrayersPARA 22. The Appellant prays to the Tribunal for the following orders: -SUBPARA a.The decision of the Tax Service Officer be set aside.SUBPARA b.The Appeal be allowed.SUBPARA c.Costs.

Respondent’s Case 23. The Respondent case is premised on the following documents:a.The Respondent’s Statement of Facts filed on 30th June, 2022b.The Respondent’s Written Submissions filed on 14th March, 2023

24. The Respondent averred that it conducted an audit on the Appellant for the period 2016 - 2018 upon establishing that he was a nil filer for the period 2016 - 2018, and having declared tax losses of Kshs. 121,600. 00 and Kshs. 1,320. 00 in years of income 2019 and 2020, respectively.

25. That this was despite the fact data from customs indicated that the Appellant had made imports on goods for the tax period 2016-2018. Fox example, for the year 2018 the Appellant imported goods worth Kshs. 27,802,166. 00

26. The Respondent further averred that upon conclusion of the audit, the Appellant was considered for a voluntary tax disclosure and a notice thereof was issued to the Appellant on 25th February 2021, requiring the Appellant to disclose the unaccounted taxes within 60 days.

27. That the Appellant failed to take advantage of the voluntary tax disclosure and therefore the Appellant was subsequently served with a further notice of compliance check vide a letter dated 27th May, 2021, wherein he was required to provide various documents including audited accounts with regard to tax compliance checks being undertaken.

28. That the Appellant failed to provide the requested documents.

29. That on 24th June 2021, the Appellant through a physical visit requested to be given three weeks to prepare and submit financial statements as the same had in fact not been prepared.

30. That the Appellant submitted his financial statements and bank statements on 13th July 2021, wherein the accounts were discussed and parties agreed on a net profit ration margin (NPR) of 4%.

31. That the findings of the review of the documents was then shared with the Appellant on 20th August 2021, wherein he was required to provide further supporting documents to the accounts to address the issues raised in the tax findings arising from the reviewed documents.

32. That the Appellant failed to provide the additional documents required and subsequently, vide a letter dated 24th September, 2021, the Respondent issued the Appellant with a notice to issue additional assessments based on revised findings.

33. That having failed to provide the required documents, the Respondent issued an assessment to the Appellant for the period 2016 - 2020 in variance dated 6th October, 2021.

34. That a further demand was issued to the Appellant on 5th November, 2021 demanding payment with respect to the assessed taxes and subsequently agency notices issued on 15th December, 2021 to recover taxes.

35. That the Appellant lodged his late notice of objection on 14th January, 2022 with respect to assessments issued in October 2021, and the application for late objection was allowed.

36. That the Appellant failed to provide any documents to support the objection and consequently an objection decision was issued vide a letter dated 26th January 2022 disallowing the Objection.

Respondents Prayers 37. The Respondent prays to the Tribunal for orders that: -a.The Respondent’s objection decision be upheld.b.The Appeal be dismissed with costs to the Respondent.

Issues For Determination 38. The Tribunal, upon reading the pleadings and written submission together with supporting authorities filed by the Appellant and the Respondent identified the following issue for determination: -Whether the Respondent erred in issuing and confirming additional income tax assessment.

Analysys and Findings 39. The Tribunal notes that both the Appellant and the Respondent do not dispute filed documents and dates therein.

40. The Tribunal further takes judicial notice that the Appellant did not participate in the proceedings and did not file written submissions.

41. The Appellant has additionally contended that he has a valid tax clearance certificate in respect of the disputed periods issued by the Respondent. This averment has not been controverted by the Respondent.

42. The primary contention of the Appellant is that the Respondent failed to take into consideration documents he produced in objection to the additional assessments.

43. The Respondent, on the other hand, submitted that it gave the Appellant ample opportunity to provide documents and has annexed correspondences between the parties in that regard.

44. The Tribunal notes that this raises the question of burden of proof in tax matters as envisaged in Sections 56 and 59 of the Tax Procedures Act (No. 29 of 2015).

45. Section 56 (1) of the Tax Procedures Act provides as follows:“in any proceedings under this part, the burden shall be on the tax payer to prove that a tax decision is correct”

46. On the other hand, Section 59 (1) of the Tax Procedures Act provides as follows:“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 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.”

47. Furthermore the Tribunal notes that Section 30 of the Tax Appeals Tribunal Act provides as follows regarding burden of proof:“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, the tax decision should not have been made or should have been made differently.”

48. The Tribunal notes that the Appellant did not provide any documents that he alleges to have supplied to the Respondent.

49. On the other hand, the Respondent has annexed correspondences with the Appellant leading up to the additional assessments.

50. In the circumstances, the Tribunal finds that the Appellant has not discharged his burden of proof as envisaged under Section 56(1) of the Tax Procedures Act.

51. This position was reiterated by the High Court in Kenya Revenue Authority vs Man Diesel & Turbo Se, Kenya (2021) eKLR at paragraph 32 as follows:“…The shifting of the burden of proof in tax disputes flows from the presumption of correctness which attaches to the Commissioner's assessments or determinations of deficiency. The commissioner's determinations of tax deficiencies are presumptively correct. Although the presumption created by the above provisions is not evidence in itself, the presumption remains until the taxpayer produces competent and relevant evidence to support his position. If the taxpayer comes forward with such evidence, the presumption vanishes and the case must be decided upon the evidence presented, with the burden of proof on the taxpayer…”

52. The Tribunal reiterates that in the absence of evidence from the Appellant that he supplied the relevant documents to the Respondent, a fact that is apparent on the face of the record, then the burden of proof is not discharged.

53. The Tribunal upon taking into consideration of all the pleadings and evidence presented to it by the parties concluded that the Appeal is unmerited and therefore must fail.

Final Decision 54. The Tribunal finds that the accordingly makes the following orders:-a.The Appeal be and is hereby dismissed.b.The objection decision dated 26th January 2022 be and is hereby upheld.c.Each Party to bear its own costs.

55. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 15THDAY OF SEPTEMBER, 2023GRACE MUKUHA..........CHAIRPERSONGLORIA OGAGA..........MEMBERTIMOTHY VIKIRU.........MEMBERJEPHTHAH NJAGI...........MEMBERDR. ERICK KOMOLO.........MEMBER