[2025] KETAT 114 (KLR)

Mwangi v Commissioner of Legal Services & Board Co-ordination (Appeal E856 of 2023) [2025] KETAT 114 (KLR) (7 February 2025) (Judgment)

Neutral citation: [2025] KETAT 114 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal E856 of 2023

CA Muga, Chair, BK Terer, EN Njeru & SS Ololchike, Members

February 7, 2025

Between

Pauline Nyambura Mwangi

Appellant

and

Commissioner Of Legal Services & Board Co-Ordination

Respondent

Judgment

1. The Appellant is a Kenyan citizen and a sole proprietor in the business of selling furniture and fittings and trading as Rodley Furniture.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws (hereinafter “the Act”). 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. Upon review of Appellant’s tax returns, the Respondent on 31st August 2022, issued the Appellant with a Value Added Tax (VAT) assessment order totaling Ksh 1,101,646. 21 in relation to December 2019. The Appellant, vide iTax, lodged an objection against the entire assessment on 11th November 2022 which was acknowledged by the Respondent on even date.

4. In an electronic mail of 22nd December 2022, the Appellant was requested to provide relevant documents in support of their objection grounds.

5. On 10th January 2023, the Respondent rendered an objection decision confirming principal VAT assessment in relation to December 2019 of Ksh 1,101,646. 21.

6. Subsequently, on 22nd March 2022, the Appellant was issued with an assessment orders confirming principal tax of Ksh 6,725,825. 51 in relation to VAT for December 2018 and November 2019, Income tax for 2018, 2019, 2020 and 2021 years of income and PAYE for May 2021.

7. Similarly, on 25th April 2023, vide i-Tax, the Appellant lodged objection against the assessments of VAT for December 2018 and November 2019, income tax for 2018, 2019, 2020 and 2021 years of income and PAYE for May 2021 which was acknowledged by the Respondent on even date.

8. On 23rd March 2023, the Respondent issued a demand letter requiring the Appellant to pay within 30 days an amount of Ksh 11,676,284. 00 comprising principal tax interest and penalties in relation to the following tax heads; corporation tax for 2017, 2018, 2019,2020 and 2021, VAT for November 2019, December 2019, January 2023 and February 2023, PAYE for the month of May 2021 and withholding income tax for 2018 and 2019.

9. The Appellant lodged an application for late objection on 25th April 2023 stating that they could not handle the matter on i-Tax. The Respondent allowed the Application to extend time to lodge a notice of objection on 3rd May 2023.

10. On 20th June 2023, the Respondent issued its objection decision confirming principal tax assessments of Ksh 6,725,825. 51.

11. Aggrieved by the Respondent’s objection decision dated 10th January 2023 and 20th June 2023, the Appellant filed its notice of appeal on 27th November 2023 at the Tribunal.

The Appeal 12. In the Memorandum of Appeal dated 21st November 2023 and filed on 27th November, 2023 the Appellant cited the following as her grounds of appeal:a.That the Respondent erred in its decision to issue the Appellant with additional tax assessment in respect of VAT for December 2018, November and December 2019 based on variances between income tax returns and VAT returns yet the Appellant deals with exempt supplies whereas the Respondent assumed all supplies were to be taxed at the general rate.b.That the Appellant deals in both vatable and exempt supplies.c.That the Respondent erred in its decision to issue the Appellant with additional tax assessment in respect of corporation tax for 2018, 2019, 2020 and 2021 review period based on added back purported unsupported expenses yet the expenses were actually incurred in generation of income and should thus be considered.d.That the Respondent erred in its decision to issue the Appellant with additional tax assessment in respect of PAYE for May 2021 based on added back purported unsupported expenses yet her employees did not meet the threshold for charging PAYE.

Appellant’s Case 13. The Appellant’s statement of facts were dated 21st November 2023 were filed on 27th November, 2023.

14. It was the Appellant’s case that the Respondent erred in the VAT assessment for December 2018, November 2019 and December 2019, income tax assessments for 2018, 2019, 2020 and 2021 together with PAYE assessment for May 2021.

Appellant’s Prayer 15. The Appellant’s prayed for the following Orders:a.That the Tribunal vacates the assessment done for income tax, PAYE and VAT.b.That the Tribunal captures the correct incomes as per the reconciliation made for the samec.That the Tribunal allows the Appellant to provide submissions with the correct expenses and pay the correct taxes thereof.

The Respondent’s Case 16. The Respondent replied to the Appeal through its statement of facts dated 15th March 2024 and filed on even date.

17. It was the Respondent’s case that the issued additional corporation tax assessments were based on disallowed overstated purchase expenses for years 2018 and 2019 based on established variances between purchases claimed in Appellant’s income tax returns and purchases claimed as per their VAT returns for the periods. That the disallowed unsupported expenses claimed related to travelling, depreciation, interest, insurance, taxes, motor vehicle running and maintenance and shop rent as claimed by the Appellant for 2018 to 2021 years.

18. That the VAT additional assessments for December 2019, December 2018 and November 2019 were issued based on noted non-declaration of incomes from established variances between turnover declared in Appellant’s income tax returns and sales as per their VAT returns for the Appellant’s income tax returns and sales as per their VAT returns for the years 2018 and 2019. VAT of Ksh 13,770. 87 was rejected by the system due to inconsistencies.

19. The Respondent held that the PAYE additional assessment for May 2021 emanated from noted variances between salaries and wages expense claimed in the Appellant’s income tax returns and salaries and wages declared as per PAYE returns filed for years 2018 to 2021.

20. According to the Respondent, the corporation tax, VAT and PAYE were confirmed as couched under Section 31 of the Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter “TPA”) on the basis that the Appellant failed to support her objection grounds with relevant documentary evidence; as a result, the Respondent guided by Section 24 of the TPA had no option but to confirm the assessments since the Appellant failed to adduce supportive documents.

21. The Respondent asserted that the Appellant failed to prove that she dealt with exempt supplies despite having been availed the opportunity to do so at the objection stage leading to confirmation of the assessments.

22. Additionally, the Respondent stated that expenses claimed were disallowed because the Appellant failed to provide evidence demonstrating allowability of the same as provided for under the Income Tax Act, CAP 470 of the Laws of Kenya (hereinafter “ITA”) through relevant evidence that the same was wholly and exclusively incurred in the production of that income.

23. The Respondent asserted that May 2021 PAYE arose from noted variances between salaries and wages declared as per the PAYE returns filed for 2018 to 2021 years and the same was brought to charge after the Appellant failed to demonstrate that the same was not subject to PAYE.

24. It was the Respondent’s case that the Appellant has introduced new documents at the Appeal stage which were never provided at the objection stage and the same ought to be expunged from record since the Respondent’s decision and assessment were rendered in accordance with the law.

25. The Respondent was adamant that the Appellant failed to discharge her burden of proving the tax decision was incorrect as couched under Section 56(1) of the TPA and has not provided any additional evidence to show that the Respondent’s confirmed assessment as wrong thus the Appeal herein was devoid of any merits.

Respondent’s Prayer 26. The Respondent prayed that the Tribunal would make the following Orders:i.That the Tribunal deems the Respondent’s objection decision dated 20th June 2023 demanding taxes amounting to Ksh 6,725,825. 51 as proper and in conformity with the provisions of the law.ii.That the Tribunal dismisses the Appeal with costs to the Appellant.

Parties’ Written Submissions 27. On 13th November 2024, the Tribunal adopted the Respondent’s written submissions were dated 10th September 2024 and filed on 12th September 2024. The Appellant’s written submissions were not on record on the date of the hearing.

28. The Respondent submitted on two issues as hereinunder:i.Whether the Respondent was justified in issuing assessments for income tax-resident, income tax-PAYE and VAT.

29. The Respondent asserted that it was justified in issuing assessments with regards to Income tax-resident, income tax-PAYE and VAT for the following reasons;a.Income Tax-Resident

30. The Respondent stated that for expenses to be allowed, they have to be incurred in the year of income as provided for by Section 15(1) of the ITA and that in this Appeal, the Respondent disallowed overstated purchase expenses for the years 2018 and 2019 based on established variance between purchases claimed in the Appellant’s VAT returns. Additionally, that it disallowed unsupported expenses claimed for the years 2018 to 2021. In buffering this position the Respondent relied on the case of Income Tax vs T Ltd (No 2) EA (1971)569 where it was held that for expenditure to be deductible under circulating capital, it must have been incurred for the direct purpose of producing profits.

31. Further, the Respondent cited the case of Hancock vs General Reversionary and Investment Company (1919)1K.B. 25 where it was held as follows:“…the proper test to apply is this, was the expenditure incurred in order to meet a continuing business demand, in which case it should be treated as an ordinary business expense and an admissible deduction or was it an expenditure incurred once and for all in which case it should be treated as capital outlay...”

32. That the Respondent was justified in demanding the resultant income tax as it was the Appellant who failed to support its claimed expensesb.Income Tax-PAYE

33. The Respondent asserted that the Appellant submitted an excel analysis indicating gross salary for October to December 2021 but failed to provide supporting evidence to explain variances which had been established between salaries and wages expenses claimed in the Appellant’s income tax returns and wages declared as per PAYE returns filed for the years 2018 to 2021. c.VAT

34. The Respondent submitted that upon noting a variance between income tax turnover and sales in Appellant’s VAT, the Appellant was requested to avail the following; audited accounts, sales and purchase ledgers, Z-Reports and point of sale reports, schedule of exempt sales and requisite section of law allowing exemption and certified bank statements. That the Appellant however not only failed to provide the requested documents leaving the turnover variance unreconciled, but equally failed to support its VAT computations as provided for under Section 17(2) of the Value Added Tax Act, CAP 476 of the Laws of Kenya (hereinafter “VAT Act”).

35. It was the Respondent’s case that the VAT inputs were disallowed due to inconsistencies noted that the Appellant failed to validate thus there was no proof that the input VAT claimed had actually been incurred. The Respondent relied on the case of Joycott General Contractors Limited vs Kenya Revenue Authority [TAT No. 28 of 2018] where the Tribunal held as follows:“we find that the Appellant seems to forget that it bears the burden of proof, in law, to demonstrate to this Tribunal that the Respondent's assessment was wrong. Especially with regards to the under declarations and variance in respect of VAT and income sales. On the contrary, the Appellant has not bothered to substantially traverse the assessment raised. All it has done is to make sweeping and expansive accusations without substantial support”.

36. It was the Respondent’s holding that it was justified to demand VAT as the Appellant having dealt with vatable goods was expected to account VAT and remit resultant taxes as provided for under Section 5 of the VAT Act.ii.Whether the Appellant lodged a valid objection

37. It was the Respondent’s case that the Appellant’s objection was invalid because it neither lodged a notice of objection within 30 days of assessment nor stated precisely the grounds of objection as provided for under Section 51(3) of the TPA and that the variance noted regarding PAYE and VAT was not supported.

38. Further, that the Appellant failed to comply with the provisions of Section 54A of the ITA in keeping and providing records on request to the Respondent. The Respondent cited the following case law; Cape Brandy Syndicate vs Inland Revenue Commissioner [1921]1KB

Pearson vs Belcher CH.M Inspector of Taxes (Tax Cases Volume 38) referred to by Majanja J in PZ Cussons East Africa Limited vs Kenya Revenue Authority (2013) eKLR

35. The Respondent stated that its assessment orders were issued based on information held in its database, from third parties and based on its best judgement and relied on the case of The Commissioner for her Majesty’s Revenue and Customs TC/2017/02292 Saima Khalid Appellant vs The Commissioners for Her Majesty’s Respondents Revenue & Customs.

39. Further, the Respondent held that the Appellant failed to discharge the burden of proof as couched under Section 56(1) of the TPA in showing the Respondent’s confirmed assessments as wrong whereas the Respondent had detailed the reasons why and its findings. It was the Respondent’s holding that the Appellant was expected to provide evidence to support its assertions at the objection stage thus having failed to do so means the Appeal herein lacks in merit as the Respondent’s assessment were hinged on the letter of the law.

Issues For Determination 40. The Tribunal having carefully considered the parties’ pleadings, documentation and Respondent’s submissions notes that two issues fall for its determination as follows:i.Whether the Appeal is properly before the Tribunal.ii.Whether the Respondent was justified in confirming the VAT assessment.

Analysis And Findings 41. The Tribunal having established two issues for determination will proceed to analyze the same as follows;i.Whether the Appeal is properly before the Tribunal.

42. The Tribunal notes that the dispute herein arose from corporation tax, VAT and PAYE additional assessments issued on 31st August 2022 and 22nd March 2023 for various periods. Additionally, the Tribunal notes that the Respondent’s assertion that the Appellant neither responded to an electronic mail request for documentation nor provided the requested documentation was never challenged by the Appellant in her pleadings.

43. The Tribunal notes that Section 56(1) of the TPA as read together with Section 30 of Tax Appeals Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”) provides as follows:“56(1) In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.30 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.”

44. The Appellant herein failed to defend her position regarding tax assessments issued by the Respondent even at the Tribunal. It is worth noting that the tax burden is one that is not shared but must be discharged by the taxpayer as it is couched in mandatory terms by the law. The Tribunal has on numerous occasions held that documentation challenging the Respondent’s decision must also be produced before it. The Tribunal having carefully perused through the Appellant’s pleadings did not sight any supportive documentation attempting to challenge the Respondent’s assessments. As such the Appellant’s statements without concrete evidence remained mere averments.

45. The Tribunal reiterates its position in the case of John Githua Njogu Vs. Commissioner Investigation and Enforcement TAT Appeal No. 101 of 2018 which was as follows:“...where a taxpayer does not provide supporting documentation with regard to tax affairs; it gives the Respondent the power to make a judgement to the best of its knowledge with available information.”

46. The Tribunal notes that in the instant Appeal, the Appellant was seeking to challenge 2 objection decisions issued by the Respondent on 10th January 2023 and 20th June 2023 respectively which confirmed the additional assessments as earlier issued. The Tribunal however notes that the law under Section 56(11) of the TPA affords the Appellant 30 days within which to lodge an Appeal against the Respondent’s objection decision. In the case at hand, the Appellant having been served with 2 objection decisions bearing different dates i.e. on 10th January 2023 and 20th June 2023 meant that she had up to 10th February 2023 and 10th July 2023 respectively to file an Appeal the Respondent’s decision. The Appellant instead lodged her Appeal against both objection decisions on 27th November, 2023.

47. The Tribunal notes that the law at Section 13 (3) and (4) of the TATA contemplates a situation where the Appellant is unable to lodge an Appeal against the Respondent’s decision on time by affording the Appellant the opportunity to lodge an application with the Tribunal for grant of extension of time to lodge such an Appeal. The law however does not contemplate aiding the indolent but the vigilant.

48. The Tribunal having not granted such leave to the Appellant to lodge the Appeal herein out of time, is of the firm view that the Appeal is not properly before it as it offends mandatory provisions of the law relating to statutory timelines. The Tribunal associates with the following holding in the case of Commissioner of Domestic Taxes v Ukwala Supermarket Limited[2018]eKLR:“…the statutory period for lodging an appeal is mandatory and that allowing appeals beyond this period without stringent reasons would undermine tax administration efficiency.”

49. Accordingly, the Tribunal finds that the Appeal herein is improperly before the it and must down its tools at this instance. The second issue for determination has been rendered moot.

Final Decision 50. The upshot of the foregoing is that the Appeal herein fails and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby struck outb.Each party to bear its own costs.

It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 7TH DAY OF FEBRUARY, 2025. ………………………………….CHRISTINE A. MUGACHAIRPERSON………………………….. …………….……………..BONIFACE K. TERER ELISHAH N. NJERUMEMBER MEMBER……….……..…………….OLOLCHIKE S. SPENCERMEMBER