[2024] KETAT 1260 (KLR)

Mwangi v Commissioner of Legal Services & Board Coordination (Appeal E858 of 2023) [2024] KETAT 1260 (KLR) (9 August 2024) (Judgment)

Neutral citation: [2024] KETAT 1260 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal E858 of 2023

E.N Wafula, Chair, Jephthah Njagi, E Ng'ang'a & G Ogaga, Members

August 9, 2024

Between

Annah Beatrice Nyakoa Mwangi

Appellant

and

Commissioner of Legal Services & Board Coordination

Respondent

Judgment

Background 1. The Appellant is an individual taxpayer trading as a sole proprietor.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and KRA 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. On 30th June 2023, the Respondent issued VAT additional assessments to the Appellant on the iTax platform as follows: Kshs. 276,696. 95 for 2018, Kshs. 290,862. 65 for 2019, Kshs. 753,886. 51 for 2020, Kshs. 663,190. 86 for 2021 and Kshs. 645,761. 29 for 2022.

4. The Appellant objected to the five additional VAT assessments on 5th September 2023 on the iTax system and through a letter sent to the Respondent on 3rd October 2023.

5. The Respondent acknowledged the five objections on the iTax system on the same date.

6. The Respondent also claimed to have requested the Appellant for documents to support the objections to the assessments.

7. The Respondent confirmed the assessments vide confirmation assessment notices dated 31st October 2023 and sent on the iTax platform as follows: Kshs. 263,520. 96 for 2018, Kshs. 230,598. 56 2019, Kshs. 600,600. 00 for 2020, 574,656. 00 for 2021 and Kshs. 597,648. 00 for 2022.

8. Aggrieved by the confirmation of the assessments, the Appellant filed this Appeal on 28th November 2023.

The Appeal 9. The Appeal is premised on the Memorandum of Appeal dated 22nd November 2023 and filed on 28th November 2023 raising the following two grounds:-a.That the Respondent erred in law and fact by failing to review the documents availed by the taxpayer.b.That the Appellant is willing to provide the documents again on time for the Commissioner's review.

Appellant’s Case 10. The Appellant’s case was premised on the Appellant’s Statement of Facts dated 22nd November 2023 and filed on 28th November 2023 together with the documents attached thereto.

11. The Appellant averred that she is ready to provide all the documents for Commissioner's review so that the matter can be resolved amicably.

12. That the Appellant objected to the additional VAT assessments on the iTax platform on 5th September 2023 and vide a letter dated 3rd October 2023 sent to the Respondent.

13. That if all the requested documents were reviewed by the Commissioner on time, this matter could not have reached the Tribunal.

Appellant’s Prayers 14. The Appellant made the following prayers to the Tribunal: -a.That this Appeal be allowed.b.That the Respondent’s demand for VAT additional assessments for period December 2018, December 2019, December 2020, December 2021 and December 2022 be set aside.

Respondent’s Case 15. The Respondent’s case was premised on the following documents filed with the Tribunal:-a.The Respondent’s Statement of Facts dated 20th December 2023 and filed on 21st December 2023 together with the documents attached thereto.b.The Respondent’s Written Submissions dated 29th March 2024 and filed electronically on 2nd April 2024 together with the legal authority attached thereto.

16. The Respondent averred that it relied on Section 23 of the Tax Procedures Act, 2015 that provides for record keeping and mandates the taxpayer to maintain documents for the purpose of tax law.

17. That the Respondent relied on Section 13 of the Tax Appeals Tribunals Act that provides for the procedure of Appeal.

18. That the Respondent also relied on Section 30 of the Tax Appeals Tribunals Act that provides that the burden of proof lies on the Appellant in relation to raised assessments.

19. That the Respondent also relied on Section 5 of the Value Added Tax Act that provides for charge of tax.

20. The Respondent averred that in this regard, the grounds stated by the Appellant were unfounded and ought to be dismissed as baseless and unsupported.

21. The Respondent averred that Section 59 of the Tax Procedures Act empowers the Respondent to seek any information relating to the ascertaining of the correct tax liability of a taxpayer as stated below:-“59. Production of records1. For the purposes of obtaining full information in respect of the tax liability of any person or class of persons, 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 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.”

22. The Respondent averred that the Appellant failed to provide the necessary documentations she relied upon in her objection. That Section 51(3) of the Tax Procedures Act provides as follows:-“A notice of objection shall be treated as validly lodged by a Appellant under subsection (2) if-a.…………….b.……………..c.all the relevant documents relating to the objection have been submitted.”

23. The Respondent averred that the Appellant failed in discharging her burden of proof contrary to Section 56(1) of the Tax Procedure Act which provides that:''In any proceedings under this Part the burden shall be on the Appellant to prove that a tax decision is incorrect.''

24. The Respondent submitted that the burden of proof is always on the Appellant and until the same is discharged to the satisfaction of the Commissioner, this Appeal should be dismissed.

25. The Respondent submitted that the only issue for consideration in this matter is:-Whether the Respondent erred in the computation and confirming the additional assessment?

26. The Respondent submitted that in exercising its mandate under Section 31 of the Tax Procedures Act, it issued additional assessments against the Appellant to ensure that the Appellant’s returns reflected the true tax position of the Appellant.

27. That Section 31(1) provides that:-“Subject to this section, 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 judgement, to the original assessment of a taxpayer for a reporting period to ensure that-a.…………..b.……………c.in any other case, the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates.”

28. The Respondent submitted that upon receipt of the additional assessment, the burden of proof shifted to the Appellant to disprove the Respondent’s position.

29. That ideally, the Appellant is meant to demonstrate that the Respondent erred in coming to the tax position.

30. The Respondent also relied on the case of Grace Njeri Githua V Commissioner Of Investigations & Enforcement (TAT No. 102 of 2018), to emphasize the issue of the burden of proof being with the Appellant. That in that matter, the Tribunal held as follows:-“In this Appeal, the Appellant has not provided the Tribunal with enough evidence to show that the net income the Respondent has based the tax assessment was not income or is subject to further cost deduction in arriving at a net profit. It is trite law that the burden of proof is on the taxpayer to show that the tax so assessed is not due from her."

31. The Respondent also relied on the case of Mulherin vs Commissioner of Taxation [2013] FCAFC 115, where the Federal Court of Australia held that in tax disputes, the taxpayer must satisfy the burden of proof to successfully challenge Value Added tax assessments. That the onus is on the taxpayer in proving that the assessment was excessive by adducing positive evidence which demonstrates the taxable income on which tax ought to have been levied.

32. The Respondent submitted that in order to shift the burden of proof from itself to the Respondent, the Appellant was meant to raise an objection against the assessment as provided for under Section 51 of the Tax Procedures Act.

33. That the objection is subject to legal requirements to ensure validity as provided for under Section 51(3) of the Tax Procedures Act which provides;“A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if-a.the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments;b.in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay the tax not in dispute under section 33(1); andc.all the relevant documents relating to the objection have been submitted.

34. The Respondent submitted that it raised assessments after it established that the Appellant had withholdings and purchases claimed but had not declared the same.

35. That the Respondent requested the Appellant to provide the supporting documents to her objection and the Appellant failed to do so.

36. That due to this failure on the Appellant’s part, the grounds of objection remained mere averments by the Appellant without basis.

37. The Respondent relied on the case TAT No. 55 of 2018 Boleyn International Limited vs Commissioner of Domestic Taxes, where the Tribunal held that:-“... on 8th March 2018, the Appellant lodged an objection with the Respondent. However, the said objection did not reiterate the grounds of objection, the corrections required to be made and the reasons for the amendments. Neither did the Appellant provide the relevant documents in support of its alleged objection. Therefore, there was no conceivable way the Respondent would have considered the Appellant's objection as the same did not place itself within the parameters of Section 51 (3) of the Tax Procedures Act"

38. The Respondent also relied on the case of; TAT No. 70 of 2017 Afya Xray Centre Limited vs Commissioner of Domestic Taxes in which the Tribunal held that:“From the foregoing chain of events, it is our understanding that the Appellant failed in its duty in providing these documents, in order that a comprehensive audit of its affairs be done. Accordingly, the Respondent can hardly be faulted for raising the assessment in accordance with the availed documents. Moreover, the Appellant had an opportunity to counter the Respondent's finding after the preliminary finding and after the confirmation of the assessment. Both are instances, where the Appellant could have produced its books of accounts to counter the Respondent's assessment after all the Appellant by law bears the burden of proof…”

39. The Respondent submitted that even before the Tribunal. The Appellant did not make any attempt to discharge the pending burden of proof as required by Section 107 of the Evidence Act.

Respondent’s Prayers. 40. The Respondent prayed that: -a.The Tribunal upholds the Respondent’s Confirmation of assessment dated 31st October 2023 as proper and in conformity with the provisions of the law.b.That this Appeal be dismissed with costs to the Respondent.

Issue For Determination 41. The Tribunal has considered the facts of the matter and the submissions made by the Respondent and identified the following to be the issue for determination: -

SUBDIVISION - Whether the Respondent erred in confirming the additional VAT assessments for the years 2018, 2019, 2020, 2021 and 2022 on the Appellant.

Analysis And Findings 42. Having identified the issue that fell for its determination, the Tribunal proceeded to analyze it as hereunder.

43. The genesis of this Appeal is the VAT additional assessments for the years 2018, 2019, 2020, 2021 and 2022 issued by the Respondent to the Appellant on the iTax system on 30th June 2023.

44. The Appellant objected to the additional assessments on the iTax system on 5th September 2023 and through a letter sent to the Respondent on 3rd October 2023.

45. The Respondent confirmed the assessments via iTax platform on 31st October 2023, and the Appellant appealed the decisions at the Tribunal.

46. The Tribunal notes that the Appellant’s main ground of Appeal was that the Respondent failed to review the documents provided by her. The Appellant however did not indicate the documents she submitted to the Respondent. Further, the Tribunal notes that she did not provide these documents to the Tribunal for consideration.

47. On the other hand, the Respondent submitted that it requested for documents from the Appellant to support her objection. That the Appellant never provided the documents she was asked to submit to the Respondent and she did not even indicate which the supporting documents she provided to the Tribunal.

48. The Respondent submitted that in the absence of documents to support the objections by the Appellant, it was left with no choice but to confirm the assessments.

49. The Tribunal notes that Section 59(1) of the Tax Procedures Act, 2015 provides that:“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 person;(b)furnish information relating to the tax liability of any person in the manner and by the time as specified in the notice; or(c)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. "

50. The Tribunal also notes that Section 56(1) of the Tax Procedures Act places the burden of proof on the taxpayer. The Section reads as follows: -“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

51. Further, Section 30 of the Tax Appeals Tribunal Act provides as follows: -“In any 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.”

52. In analyzing this matter, the Tribunal relies on its holding in Ushindi Exporters Limited v Commissioner of Investigation and Enforcement (Tax Appeals Tribunal No. 7 of 2015) on the issue of burden of proof where the Tribunal held that:-“The burden of proving that the tax assessment is excessive or should have been made differently never shifts to the Respondent and is placed squarely on the Appellant as Section 30 (a) and (b) of the Tax Appeals Tribunal Act states:a.Where an appeal related 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.By purporting to shift the burden of proving that the tax assessment against it was incorrect or should have been made differently, the Appellant failed in discharging the burden, placed upon it by law.”

53. The Tribunal also relies on its holding in the case of TAT No. 70 of 2017 Afya X-RAY Centre Limited v Commissioner of Domestic Taxes to emphasize the importance of a taxpayer discharging its burden of proof. In the said Appeal, the Tribunal held that: -“From the foregoing chain of events, it is our understanding that the Appellant failed in its duty in providing these documents in order that a comprehensive audit of its affairs be done. Accordingly, the Respondent can hardly be faulted for raising the assessment in accordance with the availed documents. Moreover, the Appellant had an opportunity to consider the Respondent’s finding after the confirmation of the assessment. Both are instances, where the Appellant could have produced its books of accounts to counter the Respondent’s assessment, after all, the Appellant by law bears the burden of proof…”

54. The Tribunal notes that the Appellant came to the Tribunal stating as her main ground of Appeal and in the Statement of Facts, that her documents were not reviewed by the Respondent. But she did not indicate which documents she supplied to the Respondent nor did she file the said documents with the Tribunal.

55. The Tribunal notes that according to the law, it was the duty and responsibility of the Appellant to demonstrate to the Tribunal that she provided all the documents to support her objections and that indeed the Respondent failed to review and consider those documents.

56. After consideration of the documents submitted by the parties, the law and the case laws cited above, the Tribunal finds that the Appellant did not discharge her burden of proof and the Respondent was therefore justified in confirming the additional VAT assessments for the years 2018, 2019, 2020, 2021 and 2022 on the Appellant.

Final Decision 57. The upshot of the foregoing analysis is that the Appeal lacks merit and the Tribunal accordingly proceeds to make the following final Orders:-a.The Appeal be and is hereby dismissed.b.The Respondent’s additional VAT assessments for the years 2018, 2019, 2020, 2021 and 2022 dated 31st October 2023 be and are hereby upheld.c.Each party to bear its own costs.

58. It is so ordered

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF AUGUST, 2024ERIC NYONGESA WAFULACHAIRMANJEPHTHAH NJAGI EUNICE N. NGA’NG’AMEMBER MEMBERGLORIA A. OGAGAMEMBER