[2024] KETAT 1078 (KLR)

Mwema Steel Company Limited v Commissioner of Investigation and Enforcement (Appeal E199 of 2023) [2024] KETAT 1078 (KLR) (12 July 2024) (Judgment)

Neutral citation: [2024] KETAT 1078 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal E199 of 2023

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, T Vikiru & AK Kiprotich, Members

July 12, 2024

Between

Mwema Steel Company Limited

Appellant

and

Commissioner of Investigation and Enforcement

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated under the Companies Act and whose principal activity is the purchase and supply of scrap metal.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority (KRA) 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. The issue in dispute in this Appeal arose when the Respondent carried out investigations into the affairs of the Appellant for the years 2020 and 2021 culminating in the issuance of a notice of additional assessments dated 30th December 2022 of a tax liability of Kshs 16,942,548. 00 for Corporation tax and Kshs 151,120,173. 00 for VAT, all totalling Kshs 168,062,721. 00.

4. The Appellant objected to the assessment vide a letter dated 26th January 2023 and the Respondent issued its objection decision on 23rd March 2023 confirming the additional assessments.

5. Aggrieved by the Respondent’s decision the Appellant lodged its Appeal vide a Notice of Appeal dated and filed on 20th April 2023.

The Appeal 6. The Appellant’s Appeal was premised on its Memorandum of Appeal dated 2nd May 2023 and filed on 4th May 2023 which itemised the following as its grounds of Appeal:a.That the Respondent erred in law and fact by raising additional assessment for VAT based on a report of purchases claimed from the Appellants’ PIN contrary to the provisions of Section 17 of the VAT Act, 2013. b.That the Respondent erred in law and fact by raising additional; assessments for VAT-based inputs claimed by the Appellant from the suppliers who had not declared the corresponding sales in their VAT return, contrary to the provisions of Section 17 of the VAT Act, 2013. c.That the Respondent erred in law and fact by not considering the 6-month timing difference in VAT Input claim when they used the “Purchases Claimed from PIN” report in raising additional Assessment for VAT.d.That the Respondent erred in law and fact by charging VAT on the variance between sales as per Income tax return and sales as per the VAT returns, without allowing input VAT, contrary to the provisions of Section 31(1) & Section 31(4)(b) of the Tax Procedures Act, 2015 and Section 17 of the VAT Act 2013. e.That the Respondent erred in law and fact by charging Corporation tax on gross established income contrary to the provision of Section 15(1) of the Income Tax Act, CAP 470. f.That the Respondent erred in law and fact by disregarding all the material facts presented before it by the Appellant during the objection review process and confirming the assessments in their entirety in the Objection decision.

Appellants Case 7. The Appellant supported its Appeal with the following:a.Statement of Facts dated 28th April 2023 and filed on 4th May 2023 and the documents attached theretob.Written submissions dated 2nd February 2024 and filed on 5th February 2024.

8. The Appellant argued its case under itemized headings as follows;I.Failure by the Respondent to consider Section 17 of the VAT Act, 2013.

9. The Appellant contended that the Respondent erred when it disallowed input VAT on its purchase because it had complied with the following requirements under Section 17 of the VAT Act for an input claim:i.It was registered for VAT.ii.The purchase was to make a taxable supply.iii.The input tax did not relate to the excluded purchases as set out in Section 17 (4) of the VAT Act or exempt supplies.iv.The input tax was claimed within 6 months of receiving the supply.

10. That it also availed all these documents that were requested by the Respondent to support its input claims.

11. It was the Appelant’s position that failure by the Respondent to allow its input claims after it had complied with the provision of Section 17 of the VAT Act meant that the Respondent had acted arbitrarily, illegally and in violation of its right to a fair administrative action protected under Article 47(1) of the Constitution of Kenya, 2010.

12. The Appellant averred that it had a legitimate expectation that the Respondent would allow its input VAT claims because it had provided all the documents required.

II. The Appellant has no administrative control over returns filed by their Customers. 13. The Appellant stated that the Respondent erred by raising additional assessments on it for VAT based on the “Claims from Pin’ report, contrary to the provisions of Section 5(1) and Section 17 of the VAT Act, 2013 which provide that VAT is levied on a taxable supply by a registered person.

14. That it did not have control over how its customers file their VAT returns because its responsibility ends at the the point when it is issued with an original tax invoice. That it was thus not in control of the value of the input claim that that its customers would file after the transaction between them.

III. Failure by the Respondent to Allow Input VAT contrary to the provisions of Section 31(1) & Section 31(4)(b) of the Tax Procedures Act, 2015 and Section 17 of the VAT Act, 2013. 15. The Appellant averred that the Respondent acted in error when it declined to allow its input VAT for the determined sales contrary to the provisions of Section 31(1) & Section 31(4) of the Tax Procedures Act, 2015 as read together with Section 17 of the VAT Act, 2013.

16. That whereas the law under Section 31(1) and (4) (b) of the Tax Procedures Act, 2015 allows the Respondent to amend the taxpayer's self-assessments within 5 years from the date of filing, this does not mean that the Respondent is at liberty to ignore the information that it had supplied to it.

17. That consequently, when amending the self-assessment for the year 2021, where the income as per VAT returns was lower than income as per income tax return, the Respondent ought to have allowed all the input VAT claimable by the Appellant as per the available documents.

IV. Taxation of Gross Established Income Contrary to the Provision of Sections 15(1) & 16(1) of the Income Tax Act, CAP 470. 18. The Appellant further averred that the Respondent erred in law and fact by charging income tax on the gross established income contrary to the provisions of Sections 15(i) and 16(i) of the Income Tax Act, CAP 470 which allowed it the opportunity to claim all the expenses and or cost incurred wholly and exclusively for purposes of earning an income, in the determination of its taxable incomes.

19. It invoked the case of Afya-X-Ray-Center-Ltd-v- Commissioner –of-Domestic-Taxes (2019) eKLR, to support its narrative that the Respondent's additional tax assessments were grossly exaggerated as the same did not factor the provisions of Section 15 (1) of the Income Tax Act.

20. The Appellant in its written submissions dated 2nd February, 2024 and filed on 5th February, 2024 affirmed that it provided all the documents that it was required to supply but the Appellant determined that some of those documents were fictitious invoices and it disallowed them.

21. That the decision to disallow the invoices was done arbitrarily and without adherence to due process. That the Respondent did not write to it to question the authenticity of the document and to also allow it to defend itself. It relied on the case of Shreeji Enterprises (k)Limited –Vs- Commissioner of Investigations & Enforcement (Tax Appeals No. 58 & 186 of 2019), to support this argument.

22. The Appellant further posited that it has no control, duty or obligation over tax returns filed by its customers, legally or administratively.

23. The Appellant asserted that the timing differences could have contributed to the differences in the VAT returns of the supplier and the customer. That Section 17(2) of the VAT Act allows a customer incurring input VAT to claim the VAT within six months after the end of the tax period in which the supply or importation occurred.

24. That on the other hand, Section 12 of the VAT Act specifies that the time of supply to be the earlier of:a.the date on which the goods are delivered or services performed;b.the date a certificate is issued by an architect, surveyor or any other person acting as a consultant in a supervisory capacity:c.the date on which the invoice for the supply is issued; ord.the date on which payment for the supply is received, in whole or part.

25. It was thus its view, that the taxpayer making the supply may have accounted for the output tax in the VAT return of the following month after the supply was made in its VAT return 5 months later. That the Respondent did not consider this timing difference when it disallowed the Appellant’s input VAT.

26. The Appellant cited the case of Northern Auto Dealers Ltd –vs- Commissioner of Investigation & Enforcement (TAT Appeal no. 453 of 2002) to argue that the Respondent ought to have allowed all the input VAT due and claimable as per the available documents that were provided.

Appellant’s Prayers 27. The Appellant prayed to the Tribunal for the following relief:a.The Appeal be allowedb.The Tribunal to forthwith withdraw and cancel the objection decision letter dated 23rd March 2003. c.In the alternative, the Tribunal should allow the deduction of input VAT that meets the threshold of the provisions of Section 17 of the VAT Act, 2013. d.The Tribunal to order the Respondent to allow all the expenses incurred in earning any established income under the provision of Section 15(1) of the Income Tax Act, CAP 470. e.The Tribunal to order the Respondent to stay the enforcement of assessed taxes until the matter is conclusively determined.f.The Tribunal to issue any other orders favourable to the Appellant as it may deem just and expedient to issue.

Respondent’s Case 28. The Respondent has opposed this Appeal through its Statement of Facts dated and filed on 2nd June 2013 and written submissions dated 2nd February 2024 and filed on 5th February 2024.

29. The Respondent stated that its investigations on the Appellant’s affairs had sought to establish the following:-a.Whether the Appellant declared all taxable income earned for the period under review.b.Whether the Appellant accounted for all taxes due for the reviewed period.c.Whether the Appellant and its directors deliberately engaged in a scheme to evade payment of tax and or under-declaration of income contrary to the law.

30. That its investigations thus established that the Appellant had not paid its due tax.

31. That the Appellant failed to discharge its evidential burden of proof under Section 107(1) of the Evidence Act in demonstrating that the assessment by the Respondent was in any reasonable manner incorrect or excessive.

32. The Respondent stated that the Appellant’s under-declaration of tax constituted a tax offence of knowingly omitting from its tax returns an amount that should have been included contrary to Section 97 (a) of the Tax Procedures Act, 2015 and hence its reason to amend the Appelant’s assessment.

33. That it exercised its best judgment based on available information to determine the Appelant's tax liability as supported in the cases of Nairobi TAT No. 25 of 2016 family Signature Limited V. The Commissioner of Investigations & Enforcement and TAT No. 28 of 2018- Joycott General Contractors Limited-Vs- Kenya Revenue Authority.

34. That it is the Appellant’s under-declaration of its income as confirmed by third-party sources which led to the confirmation of the additional assessment against it.

35. The Respondent stated that it had requested for documents to be availed by the Appellant before issuing the tax investigations finding letter, which the Appellant failed to do.

36. That it sought and considered information and documents supplied by the Appellant that included the following: -a.Appellant’s filed tax returns for the period under review.b.Third-party information from the Appellant clients.c.Copies of bank statements.

37. The Respondent postulated that while computing for the taxes:a.It compared the Appellant’s income from banking with its self-declarations from both income tax and VAT and the variances charged accordingly.b.Established that for VAT, the Appellant claimed some fictitious invoices for VAT which were disallowed and charged accordingly.c.Compared the Appellant’s income with its declaration for income tax in the year 2021 and noted variance which was charged to tax as shown below: -Year 2020 2021 Totals

Established Income 50,487,405 1,044,847,306 1,095,334,711

Income Declared 50,487,405 988,372,146 1,038,859,551

Chargeable Income - 56,475,160 56,475,160

Tax @ 30% - 16,942,548 16,942,548

38. The Respondent stated in response to ground 2 of the Appellant’s Memorandum of Appeal, that the Appellant did not provide the requisite documents in support of the input VAT claim but only provided copies of the company’s bank account statements and the audited financial statements which did not support the contentions made as far as the input VAT claim was concerned.

39. That it is the Appellant who was obligated to ensure the integrity of the purchase transactions by having the requisite documents outlined in Section 17 (3) of the VAT Act.

40. The Respondent averred that its analysis of the supplier returns was only corroborative of the findings which led it to disallow input VAT claims.

41. The Respondent’s response to grounds 1 and 3 of the Appellant’s Memorandum of Appeal was that: -a.It issued a public notice in August 2015 after automating the VAT return filing process, making it mandatory for taxpayers to file returns online vide iTax in the manner prescribed in the online form; which includes proper declaration of invoice details for transactions made between business entities or for business purposes;b.Thereafter the iTax system auto validated invoice declarations in the respective buyer's returns and flushed out inconsistencies.c.The inconsistency report is sent to the taxpayers concerned who are given fifteen (15) days to reconcile the inconsistencies sent to them so that it can amend its return to capture the proper invoice details;d.Once the initial 15 days lapsed, the system ran a check to confirm whether the identified inconsistencies had been resolved. That if any of the inconsistencies were still unresolved, a reminder notice would be sent automatically to both parties;e.When the second set of 15 days expired, 30 days after the initial inconsistency notice was sent, the system would disallow inputs based on the unresolved inconsistencies;f.The Appellant was given adequate time and opportunity to address the inconsistencies noted but the same were not addressed leading to the disallowed input VAT claims;g.It is the Appellant who failed to comply with the VAA guidelines leading to the disallowed input VAT claims.

42. The Respondent's response to the issue of Corporation tax and ground 5 of the Appeal was that the Appellant failed to provide any documents in support of the contention made and as such no adjustments were made to the established income. That Section 4A (1) of the Income Tax Act provides that the taxpayer should keep records of all receipts and expenses, goods purchased and sold and accounts, books, deeds and contracts and vouchers which in the opinion of the Respondent are adequate for the purposes of computing tax.

43. It was the Respondent’s view that in the absence of documentary evidence to support the expenses, there was no justification for the Appellant’s grounds of objection to be allowed for purposes of computing tax.

44. That in the absence of documents, it was guided by Section 31 of the Tax Procedures Act which allowed it to use its best judgement and all information available such as deposits in the Appellant’s account, the Appellant’s customers’ declarations as well as the Appellant’s declarations.

45. Regarding fair administrative action, the Appellant stated that it abided by Article 47 of the Constitution and Section 51 of the Tax procedures Act because it engaged the Appellant at every stage of the process up to when the objection decision was issued. That the Appellant was requested to avail documents, records and any other information for purposes of verifying the self-assessment before the assessment was issued.

46. That pursuant to Section 56 of the Tax Procedures Act, the onus was on the Appellant to produce records for the purposes of obtaining full information in respect of its tax liability.

47. That Section 30 of the Tax Appeals Tribunal Act and Section 56 of the Tax Procedures Act imposed the burden of proof on the taxpayer to prove that an assessment was excessive or a tax decision was incorrect.

Respondent’s Prayers 48. The Respondent's prayer to the Tribunal was for orders that:a.The Appeal lacks merit and should be dismissed.b.The Objection decision dated 23rd March 2023 be upheld.c.The Respondent be awarded costs of the Appeal.

Issues for Determination 49. Having gleaned through the parties’ pleadings, submissions and all the documents attached to the Appeal, the Tribunal was of the view that the issues falling for determination in this Appeal were:i.Whether the Respondent erred in its decision to disallow Input VAT.ii.Whether the Respondent erred in its assessment of the resultant Corporation tax after disallowing input VAT

Analysis and Finding 50. The Tribunal having identified the issues falling for its determination proceeds to analyze the same as follows:-

i. Whether the Respondent erred in its decision to disallow Input VAT. 51. The Appellant took the position it had furnished the Respondent with invoices supported by delivery notes as proof of purchase as is required of it under Section 17 of the VAT Act. It stated that it had thus furnished all the documents that were needed to support its claim for input VAT.

52. The Respondent on the other hand asserted that its investigations had revealed that the Appellant’s input VAT claims were premised on fictitious invoices and hence the reason why those claims were disallowed. That the documents provided by the Appellant were also not sufficient to support its VAT input claims.

53. Section 17(1) of the VAT Act provides as follows regarding input VAT claims:“Subject to the provisions of this section and the regulations, input tax on a taxable supply to, or importation made by a registered person may, at the end of the tax period in which the supply or importation occurred, be deducted by the registered person, subject to the exceptions provided under this section, from the tax payable by the person on supplies by him in that tax period, but only to the extent that the supply or importation was acquired to make taxable supplies.”

54. This provision embodies the well-established principle of VAT law that a taxable person who makes transactions in respect of which VAT is deductible may deduct the VAT in respect of the goods or services acquired by him, provided that such goods or services have a direct and immediate link with the output transactions in respect of which VAT is deductible.

55. There is no dispute in this Appeal that the Appellant had engaged in a taxable supply. What is in dispute is whether the transactions were supported by fictitious invoices and whether the Appellant failed to provide documents to support its input VAT claim. The Tribunal has determined these two issues as hereunder:

a. Whether the Appellant’s transactions were premised on fictitious invoices, 56. The Respondent contended that the Appellant’s transactions were premised on fictitious invoices from its suppliers and hence its reason to levy additional assessments against it.

57. The Appellant on its part held the view that it was involved in legitimate transactions culminating in the issuance of invoices. That it was not its responsibility to verify the genuineness or otherwise of those transactions as long as those invoices emanated from a legitimate transaction.

58. The Tribunal notes that the particulars and or the exact details of what made the said invoices to be declared fictitious by the Respondent have not been particularised in this Appeal. The Respondent was behoved to provide detailed particulars of the fraud or fiction that it had unearthed in the said invoices so that the Appellant would be clear on what it was required to respond to as it discharged its burden of proof. The said particulars were also crucial in helping the Tribunal to appreciate the basis upon which the said conclusion was arrived at and whether the Appellant was aware or took part in the said fraud.

59. The Tribunal has previously held that whereas the burden of proof in tax matters lies with the Appellant. The Respondent should at the very least provide the details of alleged fraud in cases where it is alleging that the Appellant had relied on fictitious invoices. This is because it is not fair to expect a taxpayer to discharge this burden based on scanty and indeterminate information. In any event, the details of such alleged fraud are always in the knowledge of the person alleging fraud, that knowledge is not always in the custody of the taxpayer. It is thus only fair that the Respondent should be compelled or required to share sufficient information regarding fraud that it has unearthed to enable the Appellant respond and discharge its burden of proof regarding the assessment that has been issued against it.

60. The foregoing position was affirmed by the Tribunal in Karshan Limited -vs- Commissioner of Domestic Taxes, TAT No.123 of 2018 when it stated as follows:“…While the list is not exhaustive on the documents that must be furnished as proof of purchase, the Tribunal was of the view that the Respondent should have furnished information to prove that the invoices submitted by the Appellant to support its claims were fictitious. It was not enough to just allege that the documents presented were not sufficient to prove the purchase and delivery of the goods.”

61. The Tribunal holds that nothing has been tabled before it to cause it to depart from this position.

62. Secondly, having alleged that the Appellant’s transactions were premised on fictitious invoices, the Respondent ought to have indicated whether the Appellant knew or ought to have known that there was fraud.

63. Section 17 of the VAT Act has not clothed the Appellant with the responsibility of verifying the invoices that are issued on each purchase that it makes. On the face of it, the law merely requires the Appellant to take the invoices provided by third parties and present them for its input VAT claims as genuine invoices.

64. As a consequence, to deny the Appellant its statutory right to claim its input VAT on grounds of fraud and yet it was neither a party to such fraud and or aware of the said fraudulent activities would not only be unfair but it would also be contrary to the provisions of Section 17 of the VAT Act.

65. This view has previously been affirmed by the Tribunal in TAT Judgement Appeal No 116 of 2018 Pearl Industries Limited vs Commissioner of Investigations and Enforcement, when it adopted, with approval the decision of the court of justice of the European Union Optigen (Taxation) [2006] EUECJ C-354/03 (12 January 2006) where the he ECJ held that:“Under the common system of VAT, ………, the entitlement of a trader to credit for payment in respect of VAT under a transaction should be judged by reference to the particular transaction to which the trader was a party. Transactions of which he has no knowledge and the fraudulent acts or intentions of other persons in the chain of supply whose involvement he is unaware do not affect his entitlement.”

66. The court further held that“a taxable person cannot be denied the right to deduct input VAT only because he was, without knowing or having any means of knowing, participating in a carousel fraud.”

67. Based on the above, the Tribunal affirms that there is no obligation on Appellant or any legitimate business seeking to recover VAT to verify the genuineness of the VAT invoices that have been issued to it by its suppliers who are also VAT registered by the Respondent.

68. On the contrary, it is the the Respondent who is clothed with the power to carry out such investigations under Sections 58 to 61 of the TPA. It cannot thus transfer its statutory powers and responsibilities to the Appellant without petitioning Parliament to amend the law.

69. A legitimate business person, like the Appellant in this case, ought not to be punished and or denied its legitimate tax claims based on alleged fraud that it was neither aware of nor was it part of. This position was upheld in TAT Judgement Appeal No 116 of 2018 Pearl Industries Limited vs Commissioner of Investigations and Enforcement when the Tribunal stated that:“The Tribunal reiterates that the current tax legislation in Kenya only requires taxpayers to investigate whether their suppliers are registered for VAT and they have valid PINs and therefore the issue of whether the Appellant knew or ought to have known that it was participating in a fraudulent evasion was for the Respondent to prove.”

70. Accordingly, the Tribunal holds that the evidence before it shows that the Appellant has discharged its duty by producing the relevant document required to justify its input VAT claims under Section 17 of the VAT Act.

71. Having failed to prove that the Appellant was involved and or was aware of the alleged fraudulent scheme of processing fictitious invoices, then it follows that the Respondent acted in error when it disallowed the Appelant's input VAT claim on grounds that it was premised on fictitious invoices.

b. Whether the Appellant failed to provide relevant documents 72. The Appellant averred that it had furnished the Respondent with invoices which were supported by delivery notes as proof of purchase. It stated that it had furnished all the documents that were needed to support its claim for input VAT.

73. On its part, the Respondent stated that its verification found that the Appellant’s suppliers held fictitious invoices and were thus not entitled to claim input tax.

74. VAT systems provide for the deduction of input tax against output tax in Kenya, this was operationalised in Section 17 of the VAT Act 2013.

75. Section 17(3) of the VAT Act provides for the following documentation that is required for purposes of the credit on input tax:a.An original tax invoice issued for the supply or a certified copyb.Customs entry duly certified by the proper officer and receipt for payment of tax.c.Customs receipt and a certificate signed by the proper officer stating the amount of tax paid, in the case of goods purchased from a customs auction; stating the amount of tax paidd.a credit note in the case of input tax deducted under section 16(2); ore.a debit note in the case of input tax deducted under section 16

76. It is clear from the above citation that the statutory document that the Appellant was required to possess was an original invoice. The Respondent confirmed that invoices were provided but they were fictitious.

77. The fact that the Appellant had supplied its invoices as required under Section 17(3) of the VAT Act meant that it had supplied the documents that it was required to supply under the law. It had hence proved its case and was not therefore obligated to provide any other document that the Respondent may have required.

78. This view was affirmed in the High Court decision of Darwine Wholesalers Limited v Commissioner of Investigations and Enforcement (Income Tax Appeal E051 of 2021) [2023] KEHC 23537 (KLR) (Commercial and Tax) (13 October 2023) (Judgment) when it stated thus;“Once the appellant provided the documents set out in section 17(3) of the Act as it did, this amounted to prima facie evidence of purchase. The evidentiary burden of proof then shifted to the Commissioner. It was incumbent on the Commissioner to prove that its decision was right.”

79. The Respondent aided the Appellant in proving its case when it conceded that it had indeed been supplied with invoices. It cannot, therefore, fault or issue an additional assessment against the Appellant for the reason that it failed to provide any other documents that it may have preferred when such documents are not known to Section 17 of the VAT Act.

80. Having held that the Respondent’s argument that the invoices supplied by the Appellant were fictitious does not hold water and having confirmed that the Appellant had provided invoices and ETR receipts when it claimed for its VAT input claim as is required of it under Section 17(3) of the VAT Act, it thus follows that the main reason that caused the Respondent to disallow the Appelant’s VAT input tax claims has failed.

81. For the reasons set out above the Tribunal finds and holds that the Respondent erred in disallowing the Appellant’s input tax claims.

ii. Whether the Respondent erred in its assessment of the resultant Corporation Tax after disallowing input VAT 82. The Appellant argued under this issue that it had supplied Respondent with all the requisite documents to enable it support its self assessment returns and also explained away the error made by the Respondent in its additional Corporation tax assessment.

83. The Respondent on its part stated that it was not supplied with the relevant documents to enable it to reconsider its additional assessments on the Appellant’s Corporation tax liabilities. That it also considered copies of bank statements and self-declarations of the Appellant in determining its income tax liability. That furthermore the information from third parties showed that the Appellant’s deductions were premised on fictitious invoices.

84. The Tribunal has looked at the documents filed by both parties and notes that the Respondent acknowledged in its objection decision dated 23rd March 2023 that the Appellant had supplied it with the supporting documents that it had requested. The relevant portion of the letter read as thus:-“we further make reference to your request for an extension of time to provide supporting documents dated 14th February 2023, which was approved and the documents subsequently provided on 6th March 2023”

85. The Respondent was thus speaking from both sides of its mouth when it stated that its decision was premised on the fact that the Appellant did not provide documents. How could that be when it had conceded in its objection decision that it was supplied with documents.

86. The Tribunal has also noted that the Respondent unfairly tried to move goal posts in its objection decision by requesting for documents which the Appellant had not been requested to supply at the assessment or objection stage. This practice is not only unbecoming, unfair and contrary to the tenets of fair administrative action, but it is also illegal as it contravenes the tax objection process as contained Section 51 of the TPA.

87. The Tribunal had cautioned against this ad infinitum model of tax assessment which puts the taxpayer at a disadvantage when it held such action to be unlawful in its Judgment in Tax Appeal No. 1316 Of 2022-Doshi Enterprises Limited -vs- Commissioner Of Investigation And Enforcement, when it stated as follows:“Asking for further documents where an objection is deemed not to be validly lodged ensures that the Appellant is accorded a fair administrative process as required by Article 47 of the Constitution in all aspects. The Respondent ought to have written to the Appellant calling for records where it noted they were missing, specifically the bank statements or other supporting documents. By dint of the above analysis, the Tribunal finds that the Appellant discharged its burden of proof and the tax assessment and by extension, the objection decision issued by the Respondent were therefore not lawfully done.”

88. The Tribunal thus finds and holds that the Appellant discharged its burden of proof by providing relevant documents in its notice of objection to the additional assessment. Moreover, the objection decision issued by the Respondent which demanded for new documents at a penultimate point when the Appellant did not have a right of reply and or to be heard was unlawfully done.

Final Decision 89. The upshot of the foregoing analysis is that the Appeal is merited and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby allowed.b.The Respondent's objection decision dated 23rd March 2023 be and is hereby set aside.c.Each party to bear its own costs

90. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 12TH DAY OF JULY, 2024. ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERDR. RODNEY O. OLUOCH - MEMBERDR. TIMOTHY B. VIKIRU - MEMBERABRAHAM K. KIPROTICH - MEMBER