[2024] KETAT 16 (KLR)

My Way Bar & Restaurant Limited v Commissioner of Domestic Taxes (Tax Appeal 326 of 2022) [2024] KETAT 16 (KLR) (26 January 2024) (Judgment)

Neutral citation: [2024] KETAT 16 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 326 of 2022

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

January 26, 2024

Between

My Way Bar & Restaurant Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The appellant is a limited liability company duly registered under the Companies Act and is a registered taxpayer. Its principal business is offering hospitality services in Malindi, Kenya.

2. The respondent is a principal officer appointed under section 13 of the Kenya Revenue Authority Act, cap 469 laws of Kenya. Under Section 5 (1) of the Act, the Kenya Revenue Authority 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 Part I & II of the First Schedule to the Act for the purposes of assessing, collecting, and accounting for all revenues in accordance with those laws.

3. The respondent conducted VAT returns review on the appellant for the periods january 2016, January 2017, January 2018 and January 2020, and company income tax review for years 2016, 2017, 2018 and 2020.

4. The respondent noted that the appellant had undervalued sales for the tax period and issued additional assessments (with respect to company income tax) of Kshs. 3,478,321. 20 (2016), Kshs. 3,225,585. 20 (2017), Kshs. 2,058,333. 30 (2018) and Kshs 754,227. 30 (2020); and (with respect to VAT) Kshs. 873,440 (January 2020), Kshs. 1,349,974. 46 (January 2018), Kshs. 1,711,332. 90 (January 2017) and Kshs. 1,870,147. 29 (January 2016).

5. The appellant, being dissatisfied with the additional assessment orders, lodged late notice of objection on December 9, 2021, which was allowed by the respondent.

6. The respondent issued its objection decision on February 28, 2022, and outlined its reasons therein, and confirmed the assessment orders of Kshs. 15,271,348. 00 together with resultant penalties and interests.

7. The appellant, being dissatisfied with the objection decision, lodged the instant appeal.

The Appeal 8. In its memorandum of appeal dated March 29, 2022 and filed on March 30, 2022, the appellant premised its appeal on the following grounds:-i.That the manner its objection was rejected by the Commissioner is irregular and in contravention of section 51(11) of the TPA, which requires the Commissioner to make an objection decision within 60 days.ii.That the appellant is based in Malindi and its tax station is in Malindi yet the respondent was sorting its documents in Mombasa thereby occasioning it unwarranted financial obligation.iii.That the respondent acted in bad faith by issuing an assessment without giving the appellant primary data and the source.iv.That the respondent infringed on the appellant’s right by issuing an additional assessment without giving background or origin.

The Appellant’s Case 9. The appellant premised its case on the following documents before the Tribunal:a.The appellant’s statement of facts dated March 29, 2022 and filed on March 30, 2022, and annexures thereto.b.The appellant’s written submissions dated January 12, 2023.

10. The appellant averred that it had paid and filed taxes for the periods for which the respondent has issued additional assessments.

11. That the respondent’s additional assessments were issued without the respondent conducting due diligence or audit on the appellant, and no additional information was shared with the appellant to justify additional assessment.

12. That the respondent based its additional assessments on undeclared sales for periods 2016, 2017, 2018 and 2020, and which the appellant is unaware of.

13. That the appellant’s director lives abroad taking care of young kids who are in school and at no point did she receive notification of audit or impending assessment.

14. That the respondent nevertheless raised additional assessments on August 16, 2021, whilst the appellant filed a late objection on December 5, 2021, which was admitted.

15. That the respondent issued an objection decision on February 28, 2022, which the Appellant avers was out of time in terms of section 51(11) of the TPA.

16. That the appellant produced enough evidence to show that it does not have capacity to accrue such volume of sales, which was ignored by the respondent.

Appellant’s Prayers. 17. The appellant prays to the Tribunal for the following orders: -a.That the additional assessments by the respondent be dismissed.b.That the cause be referred for Alternative Dispute Resolution.

The respondent’s Case 18. The respondent premised its case on the following documents before the Tribunal:a.The respondent’s statement of facts filed on June 24, 2022. b.The respondent’s Written Submissions dated November 18, 2022 and filed on November 23, 2022.

19. The respondent averred that it reviewed the appellant’s objection and issued its objection decision on February 28, 2022 outlining the following reasons: -i.That the assessment was raised on the basis that there was under declaration of sales for both VAT and income tax purposes.ii.That the notice of intention to audit had been sent to the appellant on June 6, 2021 through the taxpayer’s registered email and a subsequent reminder sent on June 25, 2021, but no response was received thereby prompting the respondent to rely on information within its custody and its best judgement to issue the additional assessment.iii.That at the objection stage, no supporting records were provided for the respondent’s review and at a virtual meeting held on February 17, 2022, it was agreed that the appellant would provide supporting documents by February 24, 2022, which was never done.iv.That the appellant was sent reminders on 1st, 10th, and 23rd February 2022 to support its notice of objection but it failed to do so.

20. That section 31(1) of the Tax Procedures Act permits the Commissioner to amend original assessments by making alterations or additions from available information to the best judgement of the Commissioner.

21. That the appellant failed to provide supporting documents to support its case.

22. That section 17 (3) (a) of VAT Act 2013 requires the appellant to possess original tax invoices for supply or certified copied, and the appellant herein had not complied.

23. That the appellant failed to lodge a valid objection in terms of section 51(3) of the TPA, as the appellant failed to precisely state the grounds of objection, amendments required to provide correct or change the decision.

24. That the allegations of the appellant as set out in the memorandum of appeal and statement of facts are unfounded in law and unsupported by evidence.

25. That the respondent has failed to discharge its burden of proof to confirm that the respondent’s tax decision is incorrect as envisaged under Section 56(1) of the TPA.

26. The respondent further averred that the additional confirmed assessments are proper and should be upheld.

27. To buttress its points, the respondent relied on several authorities including TAT No. 331/2018 Geoffrey Mwanjoria Mwangi v Commissioner of Domestic Taxes; Alfred Kioko Muteti v Timothy Miheso &another (2015) eKLR; TAT No. 141/2017, Tumaini Distributors Co Ltd v Commissioner of Domestic Taxes; Kenya Revenue Authority v Man Diesel & Turbo Kenya (2021) eKLR amongst others.

respondent’s Prayers. 28. The respondent prays to the Tribunal for the following orders: -a.That the assessment orders issued on March 5, 2021 and the respondent’s confirmed assessment issued on June 25, 2020 are valid, proper in law and be upheld.b.That the Appeal be dismissed with costs to the respondent as the same lack merit.

Issues For Determination 29. Having reviewed the memorandum of appeal, statements of facts and written submissions filed by both parties, the tribunal identified the following two issues for determination:a.Whether the respondent’s objection decision is proper and lawful.b.Whether the respondent erred in confirming appellant’s additional tax assessments.

Analysis And Findings 30. Having established the issues for determination, the Tribunal will proceed to analyse them as hereunder.

Whether the respondent’s Objection Decision is proper and lawful. 31. The Tribunal notes that the gist of dispute between the parties relates to additional income and VAT tax assessment conducted by the respondent on the appellant for tax periods from 2016 to 2020.

32. From the averments and evidence on record and filed by both parties, the appellant filed a late objection application with respect to assessment orders on December 9, 2021.

33. The appellant gave the reason for late objection application as being absent from Kenya and provided evidence in support, which resulted in the late application being allowed by the respondent.

34. The respondent then issued its objection decision on February 28, 2022, which the appellant averred is out of time, being more than 60 days from the date of filing its objection.

35. The appellant submitted that the objection decision, having been rendered out of time is null and void as its objection is deemed to have been allowed by operation of the law.

36. Section 51(11) of the Tax Procedures Act 2015 provides as follows regarding rendering of objection decisions.“The Commissioner shall make the objection decision within sixty days from the date of receipt of—(a)the notice of objection; or(b)any further information the Commissioner may require from the taxpayer, failure to which the objection shall be deemed to be allowed.”

37. The Tribunal noted that this factual position of the objection decision having been rendered outside the statutory timelines is not contested by the respondent.

38. The respondent, instead, submitted extensively on the validity of the late objection application as filed by the appellant and relied on sections 51(3), (6) and (7), and 56(1) of the TPA.

39. The Tribunal, however, further notes that the respondent having allowed appellant’s late objection application, proceeded to render an objection decision as envisaged under section 51(11) of the TPA.

40. The Tribunal finds that having opted to render an objection decision, the respondent was bound by mandatory provisions of section 51(11) of the TPA including timelines embedded therein.

41. The question of statutory timelines in tax matters is now settled and reiterated in Equity Group Holdings Limited v Commissioner of Domestic Taxes [2021] eKLR, where the High Court Mativo J. stated that:“60. Section 51(11) of the TPA is couched in peremptory terms. Having correctly found that the decision was made after the expiry of 60 days, the TAT had no legal basis to proceed as it did and to invoke article 159(2) (d). First, there was no decision at all. The decision had ceased to exist by the operation of the law. Second, the provisions of section 51 (11)(b) had kicked in. The Objection had by dint of the said provision been deemed as allowed. Third, the TAT had no discretion to either extent time or to entertain the matter further. Fourth, discretion follows the law and a Tribunal cannot purport to exercise discretion in clear breach of the Law.

63. The TAT manifestly erred in law by confusing substantive with procedural law. Article 159(2)(d) of the Constitution in clear terms talks about procedural technicality. A Statutory edict is not procedural technicality. It is a law which must be complied with. Parliament in its wisdom expressly and in mandatory terms provided the consequence of failing to render a decision within 60 days. The Objection is deemed to be allowed. That being the law, the appellant’s Objection stood allowed as a matter of law the moment the Commissioner of Domestic Taxes failed to render his decision within the 60days. This being the correct legal position, it is my finding that the 1st appeal succeeds.”

42. Accordingly, the Tribunal finds that the respondent, having rendered its objection decision, more than 60 days from the date of appellant’s objection, was outside time and the appellant’s objection stood allowed by operation of the law.

Whether the respondent erred in Confirming appellant’s Additional Tax Assessments. 43. Having found that the appellant’s objection was allowed by operation of the law, the Tribunal holds that the second issue for determination was rendered moot.

44. The upshot of the above is that the appeal succeeds.

Final Decision 45. Consequently, the Tribunal proceeds to make the following orders: -a.The Appeal is be and hereby allowed.b.The respondent’s objection decision dated February 28, 2022 be and is hereby set aside.c.Each party to bear its own costs.

46. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 26TH DAY OF JANUARY, 2024GRACE MUKUHA - CHAIRPERSONDR. ERICK KOMOLO - MEMBERJEPHTHAH NJAGI - MEMBERTIMOTHY VIKIRU - MEMBERGLORIA OGAGA - MEMBER