[2023] KETAT 514 (KLR)

Muremba Mines Limited v Commissioner of Domestic Taxes (Tax Appeal 555 of 2022) [2023] KETAT 514 (KLR) (13 October 2023) (Judgment)

Neutral citation: [2023] KETAT 514 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 555 of 2022

E.N Wafula, Chair, E Ng'ang'a, RO Oluoch, Cynthia B. Mayaka, AK Kiprotich & B Gitari, Members

October 13, 2023

Between

Muremba Mines Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited company incorporated in Kenya and operating in Thika, Kiambu County and its primary business activity is quarrying of stone, sand and clay.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. 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.

3. The Respondent conducted a tax return review analysis upon the Appellant for the period between January 2017 to October 2020. The analysis was for Corporation and VAT returns which established that the Appellant had under declared its income. The under-declared income was brought to charge and the Corporation tax and VAT computed at 30% and 16%, respectively.

4. The Respondent subsequently issued the Appellant with a demand notice for Kshs. 30,950,352. 00 inclusive of interest and penalties.

5. On 18th August 2021, the Appellant applied for an extension of time to lodge an objection coupled with the substantive objection to the additional assessment tax for the year 2017.

6. On 13th May 2022, the Appellant lodged the respective objections to the additional assessment for Income tax from 1st January, 2018 to 31st December, 2018 for Kshs. 5,140,191. 60 together with additional assessment for Income tax from 1st January, 2019 to 31st December, 2019 for Kshs. 9,498,828. 90.

7. The Appellant being aggrieved with the Respondent’s decision dated 9th November 2021 rejecting its late objection lodged an Appeal at the Tribunal.

The Appeal 8. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated on 6th May 2022 and filed on 9th May 2022: -a.That the Respondent erred in fact and law by arbitrarily and unreasonably rejecting the Appellant’s application to lodge its objection out of time.b.That the Respondent erred in fact and law by failing to consider the reasons adduced by the Appellant in its decision to reject the Appellant’s application out of time.c.That the Respondent arrived at the decision without considering that there was no inordinate delay in lodging the Application to lodge the objection out of time.d.That the Respondent misapplied and misinterpreted the law and thereafter arrived at an erroneous conclusion.

Appellant’s Case 9. The Appellant’s case is supported with the following documents:a.The Appellant’s Statement of Facts dated 6th May 2022 together with the documents attached thereto.b.The Appellant’s written submissions dated and filed on 14th April 2023.

10. That the Respondent issued an assessment to the Appellant which was coincidentally communicated to the Appellant on 14th June 2021 through an email identified as Gladys@benvar.co.ke

11. That the said email address did not belong to the Appellant as it belonged to its employee identified as Gladys Wanjira, who had since ceased employment services for the Appellant. That accordingly, the Appellant was not in control of the communication through the email address and was not aware of the assessment issued by the Respondent.

12. That the Applicant only became aware of the assessment when agency notices were issued on 11th August 2021 to its bankers and thereafter when the Respondent’s Thika Tax office informed it through telephone conversation of the outstanding liability with respect to the assessments on 17th August 2021, during which the period for lodging the objection had already lapsed.

13. That when the Appellant was made aware of the assessment, it immediately lodged an objection and made an application to the Respondent on the 18th August 2021 to be allowed to lodge the late objection.

14. That despite this fact, the Respondent unreasonably and arbitrarily rejected the application vide a letter dated 9th November 2021.

15. That consequently, the Respondent had proceeded to demand the taxes in dispute which taxes are of monumental figures amounting to Kshs. 31,036,869. 00 and had further issued agency notices dated 11th August 2021 to the Appellant’s bank accounts, thereby crippling its business and operations.

16. That the Appellant had severally engaged the Respondent in order to lift the agency notices and vide a letter dated 24th August 2021, made an advance payment of Kshs. 1,500,000. 00 with respect to the disputed taxes but such engagements have come to naught.

17. That consequently the Appellant is therefore highly prejudiced with the action by the Respondent to reject its application to lodge an objection out of time and insists on the enforcement of collection of disputed taxes as the same is unreasonable since there was valid reason for lodging the late objection and in any case, the delay was not inordinate.

Appellant’s Prayers 18. The Appellant prayed for the Appeal as per the Memorandum of Appeal and further to stop all enforcement measures against the Applicant.

Respondent’s Case 19. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal: -a.The Respondent’s Statement of Facts dated and filed on 27th June, 2022 together with the documents attached thereto.b.The Respondent’s written submissions dated and filed on 12th April, 2023 together with the legal authorities filed therewith.

20. That the Respondent conducted a tax return review analysis upon the Appellant for the period between January 2017 to October 2020. That the analysis was for Corporation and VAT returns which established that the Appellant had under declared its income. That consequently, the under - declared income was brought to charge and the Corporation tax and the VAT computed at 30% and 16%. That the Respondent as a consequence issued the Appellant with a demand notice for Kshs. 30,950,352. 00 inclusive of interest and penalties.

21. That the Respondent issued the Appellant with additional assessment for Corporate tax and VAT as hereunder;i.Additional assessment for VAT from 1st June, 2017 to 30th June, 2017 for Kshs. 704,403. 67. 00ii.Additional assessment for VAT from 1st June, 2018 to 30th June, 2018 for Kshs. 2,511,432. 00. 00iii.Additional assessment for VAT from 1st June, 2020 to 30th June, 2020 for Kshs. 460,663. 98iv.Additional assessment for VAT from 1st June, 2017 to 31st December, 2017 for Kshs. 1,395,756. 90v.Additional assessment for VAT from 1st January, 2018 to 31st December, 2018 for Kshs. 5,140,191. 60vi.Additional assessment for VAT from 1st January, 2019 to 31st December, 2019 for Kshs. 9,498,828. 90

22. That on 18th August 2021, the Appellant herein applied for an extension of time to lodge an objection coupled with the substantive objection to the additional assessment on income tax for the year 2017 as shown in the table below;Period Assessment Number Assessed Amount forIncome Tax Amount objected to

Year2017 KRA202117880660 1,395,756. 90 1,395,756. 90

23. That for the avoidance of doubt, no objections were lodged with respect to the following assessments; additional assessment for VAT from 1st June, 2017 to 30th June 2017 for Kshs 704, 403. 67, additional assessment for VAT from 1st June 2018 to 30th June, 2018 for Kshs 2,511,432. 00, additional assessment for VAT from 1st June, 2020 to 30th June, 2020 for Kshs 460, 663. 98. In light of the foregoing, the Respondent averred that the said assessments for Kshs. 3,676,499. 65 are unchallenged and that they are therefore due and outstanding.

24. That on 13th May 2022, the Appellant lodged the respective objections to the additional assessments for Income tax from 1st January, 2018 to 31st December, 2018 for Kshs.5,140,191. 60 together with additional assessment for Income Tax from 1st January, 2019 to 31st December, 2019 for Kshs. 9,498, 828. 90.

25. That the Appellant being aggrieved with the Respondent's decision dated 9th November 2021 rejecting its late objection, lodged an Appeal at the Tribunal.

26. The Respondent isolates the following sole issue for determination by the Honorable Tribunal; Whether the Appellant's application to lodge the objection outside the statutory timelines was justifiably declined

27. The Respondent relied on the following laws to support it’s case;a.Section 59 of the Tax Procedures Act,2015b.Section 31(1) of the Tax Procedures Act,2015c.Section 51(2) of the Tax Procedure Act 2015

28. The Respondent stated that the major issue for determination is whether the Appellant's Objection was validly lodged.

29. That upon consideration of the Appellant's application to lodge an objection out of time dated 18th August 2021; the Respondent declined the Appellant's application on the grounds that the Appellant failed to advance reasonable cause for late lodging of the objection and due to the fact that there was inordinate delay of seven (7) months in lodging the objection. That the Appellant therefore failed to satisfy the conditions of Section 51 (7) (a) & (b) of the Tax Procedures Act, 2015.

30. That despite various emails to the Appellant dated 30th August 2021, 31st August 2021, 16th September 2021, 5th October 2021, and 14th October 2021, the Appellant failed to provide explanations or supporting documentation for consideration by the Respondent.

31. That the Appellant's explanation for the late objection was that the email used to channel the same was gladys@benvar.co.ke, which the Appellant alleged that it belonged to one of its employees. That however, the said email had been captured as the taxpayer's email on the iTax profile. That Section 74 of the Tax Procedures Act, 2015 provides thus;“Except as otherwise provided in a tax law, a notice or other document required to be served on, or given to, a person by the Commissioner under a tax law may be served or given by-(c)transmitting it in electronic form.”

32. That the Appellant has not changed its email address and neither was the Respondent aware of such. That in this regards, the Appellant's contention of the notice of objection invalidation being channeled to the wrong email address was indefensible and misleading.

33. That it is the Respondent's contention that the Appellant failed to demonstrate that it had a reasonable cause for lodging the objection late and that there was inordinate delay of more than seven (7) months in filing the objection. That the Respondent consequently rejected the late objection.

34. The Respondent further averred that the additional assessment was valid as it had a statutory obligation to issue an amended assessment under Section 31 of the Tax Procedure Act,2015 which states that;-“......the Commissioner may amend an assessment (referred to in this section as the "original assessment") by making alterations or additions, from the available information and to the best of the Commissioner's judgment, to the original assessment of a Appellant for a reporting period to ensure that. "

35. The Respondent further averred that at the onset, the Appellant had failed in its statutory obligation as under Section 59 of the Tax Procedure Act 2015 by failing to produce the records for examination by the Commissioner as requested by the Respondent. That the Section reads as follows:-“(1)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 in electronic format) that are in the person’s custody or under the person’s control relating to the tax liability of any personb.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.”

36. The Respondent subsequently averred that based on the discussed provisions of the Tax Procedure Act, 2015, the Respondent's decision was properly issued as required by law to the Appellant as it failed to advance reasonable cause for late lodging of an objection.

Respondent’s Prayers 37. That the Respondent prayed that this Honourable Tribunal to:-a.Uphold the Respondents’ assessment for VAT for Kshs. 3,676,499. 65b.Dismiss the Appeal with costs to the Respondent.c.Uphold the Respondent decision dated 9th November 2021 for recovery of the sum of Kshs. 1,395,756. 90

Issues For Determination 38. The Tribunal having evaluated the pleadings and submissions of the parties is of the view that there is a single issue that calls for its determination being;Whether the Respondent’s decision of rejecting the Appellant’s application for late objection is justified

Analysis And Findings 39. The Tribunal having determined the issue falling for its determination proceeds to analyse the same as hereunder.Whether the Respondent’s decision of rejecting the Appellant’s application for late objection is justified

40. The Appellant averred that the Respondent issued an assessment to the Appellant which was coincidentally communicated to the Appellant on 14th June 2021 through an email identified as Gladys@benvar.co.ke.

41. The Appellant posited that the said email address did not belong to it as it belonged to its employee identified as Gladys Wanjira, who had since ceased employment services for the Appellant. The Appellant averred that it was not in control of the communication through the email address and was not aware of the assessment issued by the Respondent.

42. The Appellant contended that it only became aware of the assessment when agency notices were issued on 11th August 2021 to its bankers and thereafter when the Respondent’s Thika Tax office informed it through a telephone conversation of the outstanding liability with respect of the assessments on 17th August 2021, during which the period for lodging the objection had already lapsed.

43. The Appellant asserted that as soon as it was made aware of the assessment, it immediately lodged an objection and made an application to the Respondent on 18th August 2021 to be allowed to lodge the late objection.

44. The Appellant submitted that despite this fact, the Respondent unreasonably and arbitrarily rejected its application vide a letter dated 9th November 2021.

45. Pursuant to Section 51 (6) and (7) of the Tax Appeals Tribunal Act, extension of time to file an objection out of time is conditional on demonstrable reasonable grounds by an Appellant seeking refuge under the provisions. Section 51 (7) of the TPA is an unequivocal on the allowable parameters as absence from Kenya, sickness, or reasonable cause.

46. The Supreme Court in Nicholas Kiptoo ArapKorir Salat vs. Independent Electoral and Boundaries Commission and 7 others [2014] eKLR summarized and elaborated the applicable guiding principles when a court considers an application to appeal out of time, by stating as thus:-“It is incumbent upon the Applicant to explain the reasons for delay in making the application for extension and whether there are any extenuating circumstances that can enable the Court to exercise its discretion in favour of the Applicant.”

47. The Tribunal takes note of the decision in Commissioner of Domestic Taxes vs. Mayfair Insurance Company Limited (2017) eKLR where the court held that:-“A court may extend time where there is reasonable cause for the delay. Effectively, the court's powers and discretion to extend time is unlimited. It is however not to be capriciously exercised. Time, in other words, is not to be own circumstances and facts. The starting point is that the Applicant ought to advance sufficient and reasonable grounds for any delay on its part.”

48. The Respondent averred that the Appellant’s application to challenge the assessment issued on 3rd August 2022 was more than 7 (seven) months after the issuance of the objection decision.

49. The Tribunal noted that in the Appellant’s iTax application the Appellant claimed that it was unable to access its email and therefore were unable to lodge the objection on time. However, no explanations or supporting documentation was lodged in support of the claim.

50. The Tribunal takes cognizance of the fact that the Respondent wrote to the Appellant on various occasions asking for support documents and a meeting to discuss the application. The Respondent sent emails on 30th August 2021, 31st August 2021, 16th September 2021, 5th October 2021 and 14th October 2021 but regrettably the Appellant did not respond.

51. The Appellant did not also provide sufficient information to confirm that the said Gladys Wanjira, was no longer in its employment. This may have been done by production of resignation letters, dismissal letter, current payroll etc. This was not done and it did not even explain or provide the current email that it uses to handle its tax issues. The Appellant, therefore failed in its obligation to prove that the said employee was not in its employment and hence the justification that it could not access and respond to the impugned assessment in time.

52. In the circumstances, the Tribunal is therefore persuaded that the Respondent did not err in invalidating the Appellant’s objection as the same was inordinately late and the Appellant did not provide valid grounds to enable the Respondent consider its late objection.

53. Consequently, the Tribunal finds that the Respondent’s decision of rejecting the Appellant’s application for late objection was justified.

Final Decision 54. In view of the foregoing, the Tribunal finds that the Appeal is unmeritorious and accordingly makes the following orders;a.That the Appeal be and is hereby dismissed.b.The Respondent’s decision dated 9th November 2021 be and is hereby upheld.c.Each Party to bear its own cost.

53. It is so ordered.

DATED and DELIVERED at NAIROBI this 13th day of October, 2023ERIC NYONGESA WAFULA - CHAIRMANEUNICE NG’ANG’A - MEMBERDR RODNEY OLUOCH - MEMBERCYNTHIA B. MAYAKA - MEMBERABRAHAM K. KIPROTICH - MEMBERBERNADETTE GITARI - MEMBER