[2025] KETAT 239 (KLR)

Nastaceen Trading Company Limited v Commissioner of Domestic Taxes (Tax Appeal E1001 of 2024) [2025] KETAT 239 (KLR) (9 May 2025) (Judgment)

Neutral citation: [2025] KETAT 239 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E1001 of 2024

CA Muga, Chair, BK Terer, EN Njeru, E Ng'ang'a & SS Ololchike, Members

May 9, 2025

Between

Nastaceen Trading Company Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a Limited Liability Company incorporated in Kenya. It is involved in importation and wholesale trade of textile, clothing and footwear.

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. The Respondent assessed the Appellant for income tax-company additional assessments and December 2019 to 2021 Value Added Tax Additional Assessments on i-Tax on 9th 22nd and 23rd May 2024. The Appellant objected to the assessments 4th June 2024.

4. The Respondent issued its objection decision dated 2nd August 2024 seeking to recover Kshs 431,024,550. 03

5. The Appellant being dissatisfied with the objection decision, filed this appeal vide notice of appeal dated 15th August 2024 and filed on 24th August 2024.

The Appeal 6. The Appellant lodged Memorandum of Appeal dated and filed on 7th September 2024. The grounds of Appeal were as follows:i.Corporate Tax; the Appellant asserted that there were understated sales to M/s Kenmeat EPZ Limited―Comparison of declared versus export and import customs data. The Appellant noted that the small stock suppliers had no company (sic) with Nastaceen Trading Company Limited as indicated in the agreement between Nastaceen Trading Company Limited and Kenmeat EPZ Limited via letter dated 19th January 2024. The Appellant asserted that this was communicated to Customs as indicate in the aforementioned letter. The Appellant noted that the company does not have any monetary transactions with Kenmeat EPZ Limited as per the bank statements. The Appellant also noted that Kenmeat EPZ Limited is willing to testify and clarify that they will take full responsibility to clear the matter.ii.Understated income in relation to direct exports to United Arab Emirates, Oman, and Ethiopia. The Appellant noted that the face masks in issue were just a returned good during the corona period, which had been rejected by the importer. This resulted to a loss and which Nastaceen Trading Company Limited decided to return the masks to the seller. The Appellant noted that the sales were for trial business whereby payments were not paid in full leading to loss. Return shipping documents including the return shipping are available to prove the above.iii.Understated income in relation to imported rice. The Appellant noted that the imported rice resulted into a big loss from the sale which later agreed to be shared by the both parties.iv.On unsupported expenses claimed in 2022 income tax return, the Appellant noted that the expenses claimed was a result of error of filling and later filled amended return to submit the correct records. It noted that the withdrawals were not related to purchases of goods and they are not subjected to tax.v.On PAYE, the Appellant noted that returns were filled nil returns because the company had not paid any salaries and wages since had not employed any staff who could be entitled to PAYE. The claimed salaries and wages in 2022 were filing error which was amended.vi.On withholding tax, the Appellant asserted that claimed expenses on management fees and audit fees for returns filed 2022 was an error of filing which was later amended.vii.On Value Added Tax; the Appellant noted that since registration of VAT, the company had no sales to declare for VAT the 2022 and that the filing as communicated was an error of filing and was amended. The company was dealing with non-vatable goods. It noted that the Bank deposits relate to exempted goods which should not be charged to VAT.viii.On local suppliers to Nastaceen Trading Co. Ltd; the Appellant noted that the suppliers were the small stock suppliers who supplied the livestock to Kenmeat using the company KRA PIN. It noted that it had submitted the sales because it opted as shall be double entry since the same was declared by Kenmeat Epz Ltd as agreed.

The Appellant’s Case 7. The Appellant filed its Statement of Facts dated 7th September 2024 on even date. By consent, the parties agreed that Appellant would file written submissions on or before 29th April 2025 failure to which the Appellant’s submissions will not be considered. The submissions were not on record as at the time of writing this Judgment.

8. The Appellant stated that the Respondent via a letter dated 15th September 2023 indicated inconsistencies in the company's declarations in regards to corporation tax, withholding tax and Value Added Tax (VAT). The Respondent further requested for signed audited accounts for year 2022, Trial Balance for year 2022 and Bank statements for the years 2018 to 2022.

9. The Appellant stated that the Respondent wrote a notice of intention to issue assessments under Section 31 (1) of the TPA via letter dated 30th November 2023. The Appellant then filed its response to the matter with supporting documents via letter dated 19th January 2024.

10. The Respondent then issued a Notice of Tax Assessment via a letter dated 7th May 2024. The Appellant then filed objection applications on the Income Tax - Company and Value Added Tax additional assessments on 12th June 2024. The Respondent then issued an Objection Decision via letter dated 2nd August 2024, rejecting the Appellant’s objection. The Appellant then filed this appeal.

11. The Appellant prayed for the Tribunal to allow the appeal.

The Respondent’s Case 12. The Respondent lodged a Statement of Facts dated 24th September 2024 and filed on even date. The Respondent also filed written submissions dated and filed on 16th April 2025.

13. In response to the appeal, the Respondent stated that it requested for the following documents:i.Full reconciliations of the variances highlighted in the assessment notification for all income tests conducted namely the banking test and the customs export data test.ii.Banking analysis reconciliation categorising income and non-income items in the period 2018 to 2022. iii.Bank Statements and Analysis highlighting the various transactions referred to in the objection application for 2018-2022. iv.2018-2022 Financial Statements linked to the above reconciliations.v.Detailed ledgers, trial balances and copies of the source documents highlighting the revenues declared in the period 2018-2022. vi.Payroll records 2018-2022 and any other supporting documents that no employee had attained the PAYE threshold.vii.Evidence of amendments of management and audit fees claimed in 2022. viii.Detailed purchase ledgers for the periods 2018-2022 that link to the trial balances and audited financial statements for the same periods.

14. According to the Respondent, the Appellant availed the following records:i.Equity Bank statements for the period 2018-2023ii.Unsigned financial statements for the years 2022 and 2023. iii.2022 amended return and a C17 sample.

15. The Respondent proceeded to review the objection application in light of the availed records and documentation in line with the provisions of the ITA, TPA and VAT Act in making the assessments. The Respondent observed as follows:Corporation Tax

16. The Appellant provided bank statements which were not certified while the audited accounts shared were for the period 2022 and 2023 which were unsigned. The Appellant did not provide what the Commissioner requested for which was 2018-2022 Financial Statements. The Respondent therefore, averred that the Appellant did not sufficiently support its ground of objection and thus the Respondent fully rejected the ground.

PAYE, WHT and VAT 17. The Respondent stated that the Appellant only provided equity bank statement for the period 2018-2023; unsigned financial statements for the years 2022 and 2023; 2022 amended return and a sample of C17. The Respondent asserted that these documents do not reconcile the Appellant’s objection to PAYE, WHT and VAT assessments.

18. According to the Respondent, the Appellant did not provide any supporting documents to support its grounds of objection and therefore, the Respondent rejected the ground.

19. In view of the foregoing, the Respondent fully rejected the Appellant's objection and confirmed the additional assessments and demanded the Appellant to pay Kshs. 431,024,550. 03.

20. The Respondent relied on its written submissions wherein it insisted that the Appellant failed to file documents to support the objection. It therefore submitted that the Appellant failed to discharge its burden of proof under Section 56(1) of the TPA.

21. The Respondent relied on the cases of Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR; William 0'Dwyer and Sloan O'Dwyer v Commissioner of Internal Revenue 266 F.2d 575; and Mulherin v Commissioner of Taxation [2013] FCAFC 115 to support the position that the Appellant has a duty to prove that the assessment was incorrect.

Issues for Determination 22. Having carefully evaluated parties’ pleadings, documentation and submissions, the Tribunal is of the respectful view that the matter distilled into a single issue for its determination as follows:Whether the Appellant discharged its burden of proving the Respondent’s decision dated 2nd August 2024 was incorrect.

Analysis and Findings Whether the Appellant discharged its burden of proving the Respondent’s decision dated 2nd August 2024 was incorrect. 23. The Respondent submitted that it rejected the notice of objection on the basis that the Appellant failed to provide documents that the Respondent requested for.

24. The Tribunal examined the Memorandum of Appeal vis a vis the statement of facts and noted that the assertions in the Memorandum of Appeal have no connection to the contents of the Statement of Facts. The expectation was that the statement of facts would expound and justify the grounds of appeal. However, the contents of the two documents do not speak to each other. The statement of facts merely gives an account of the documents that the Respondent issued from initial assessment to objection decision. It does not shed light on why the assessments were incorrect.

25. The law creates a legal presumption that the Respondent’s decision is conclusive and correct. Section 50(1)(a) of the TPA creates the presumption in the following terms:‘‘50. Conclusiveness of tax decisions(1)Except in proceedings under this Part—(a).the production of a notice of an assessment or a document under the hand of the Commissioner shall be conclusive evidence of the making of the assessment and that the amount and particulars of the assessment are correct.’’

26. Consequently, taxpayers in their pleadings ought to work towards rebutting the presumption under Section 50(1)(a) of the TPA. To successfully rebut it, taxpayers must adduce positive and relevant evidence to demonstrate that the decision is incorrect.

27. The law requires taxpayers to discharge the burden of proof as provided for under Section 56(1) of TPA and Section 30 of the TATA which reads;Section 56 (1)“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.’’In addition, Section 30 of the TATA provides as follows:‘‘In a proceeding before the Tribunal, the appellant has the burden of proving—Where an appeal relates to an assessment, that the assessment is excessive; orIn any other case, that the tax decision should not have been made or should have been made differently.’’

28. In Commissioner of Domestic Taxes v Gitere (Income Tax Appeal E011 of 2022) [2023] KEHC 25421 (KLR) (Commercial and Tax) (20 November 2023) (Judgment) the High Court stated as follows:‘‘Section 56 of the TPA places the burden of proof in tax cases on the tax payer. The above section is reinforced by section 30 of the Tax Appeals Tribunal Act.’’

29. To discharge the burden of proof under Section 56(1) of TPA and Section 30 TATA, the taxpayer must have kept records and produce them when called upon to do so. Section 23 (1)(b) of the TPA provides as follows:‘‘a person shall— maintain any document required under a tax law so as to enable the person's tax liability to be readily ascertained.’’

30. Section 23 of the TPA is not the only law that mandate the taxpayer to keep records. A perusal of the assessments and the objection decision indicates that the Appellant was assessed for VAT liability. This means that the Appellant had to demonstrate that the VAT assessment was incorrect by adducing documents to prove that fact. To that end, section 43 (1) of the Value Added Tax Act, 2013 (VATA) provides as follows:‘‘43. Keeping of records1. A person shall, for the purposes of this Act, keep in the course of his business, a full and true written record, whether in electronic form or otherwise, in English or Kiswahili of every transaction he makes and the record shall be kept for a period of five years from the date of the last entry made therein.’’

31. Similarly, the Tribunal noted that the Appellant was assessed for income tax. That means that the Appellant had to demonstrate by way of evidence that the income tax assessment was incorrect. Section 54(A)(1) of the ITA provides as follows:‘‘54A. Keeping of records of receipts, expenses, etc.(1)A person carrying on a business shall keep records of all receipts and expenses, goods purchased and sold and accounts, books, deeds, contracts and vouchers which in the opinion of the Commissioner, are adequate for the purpose of computing tax.’’

32. The Tribunal notes that the taxpayer cannot succeed in challenging the Respondent’s assessment without relevant evidence unless, the taxpayer is raising a pure point of law that does not need evidentiary proof. Having noted the foregoing provisions of the law, it was vital to determine whether the Appellant measured up to the statutory requirements. The Tribunal noted that the Appellant relied on appendices i, ii, iii, iv, v, vi, and, annex 1 to annex 5.

33. The Tribunal examined each piece of evidence in detail and noted that all documents under appendices i to vi were not documentary evidence but were correspondences between the Appellant and the Respondent. The said correspondences included the assessment, the notice of objection and the objection decision.

34. On the other hand, annex 1 to annex 5 contained some evidence as follows;a.Annex 1 was a one-page letter which was not legible.b.Annex 2 was a two-page single administrative document (SAD).c.Annex 3 was what appeared to be test messages.d.Annex 4 was a half-page excel sheet; whilee.Annex 5 was copy of company return.That’s all that the Appellant filed to support an appeal where the sum demanded was Kshs 431,024,550. 03.

35. The Appellant in its pleadings did not explain the relevance of the documents adduced in this Appeal pursuant to Rule 5 of the Tax Appeals Tribunals (Procedure) Rules, 2015 which provides as follows:‘‘5. Statement of facts of appellant(1)Statement of fact signed by the appellant shall set out precisely all the facts on which the appeal is based and shall refer specifically to documentary evidence or other evidence which it is proposed to adduce at the hearing of the appeal.(2)The documentary evidence referred to in paragraph (1) shall be annexed to the statement of fact.’’

36. Further, the Tribunal notes that pursuant to provisions of Section 13(2)(d) of the TATA, a taxpayer is required to file documents to enable the Tribunal to make an informed decision. It provides as follows:‘‘(2) The appellant shall, within fourteen days from the date of filing the notice of appeal, submit enough copies, as may be advised by the Tribunal, of—(a)…(d)such other documents as may be necessary to enable the Tribunal to make a decision on the appeal.’’

37. The Tribunal notes that discharging burden of proof is not a matter of filing notice of appeal, memorandum of appeal, statement of facts and attaching evidence thereon. The Appellant ought to have gone the extra mile to demonstrate how those documents were relevant to the Appeal by demonstrating how the Respondent erred in dealing with them. The Appellant ought to have guided the Tribunal through the documents pointing out how the Respondent erred. The Appellant herein adduced in evidence Single Administrative Documents and its company returns but there was nothing in its Statement of Facts explaining how the Respondent erred.

38. In Ingala Building & Construction Limitedv Commissioner of Domestic Taxes (Income Tax Appeal E094 of 2023) [2024] KEHC 7675 (KLR) (Commercial and Tax) (27 June 2024) (Judgment), the Court held as follows at paragraphs 25, 26 and 27:‘’25In this case, I agree with the tribunal’s finding that although the appellant provided the relevant records as requested, it was incumbent upon it to prove through those documents that the respondent’s assessment was incorrect.26Although the appellant provided documents and the respondent reviewed them before partially accepting/rejecting the appellant’s objection notice, it did not specify the particulars of the said documents and issues omitted or not considered by the respondent so as to prove that the respondent was incorrect. Further, the appellant had the opportunity to prove this before the tribunal and also in this appeal but has failed to do so.27. I find that the appellant has failed to discharge its burden of proof as stipulated under Section 56(1) of the Tax Procedures Act.’’

39. The Tribunal also noted that the Appellant in Memorandum of Appeal referred to a letter dated 19th January 2024, bank deposits, yet the Appellant did not file those documents in evidence.

40. Pursuant to the foregoing, the Tribunal finds and holds that whereas the Appellant had a burden of demonstrating incorrectness of the Respondent’s decision dated 2nd August 2024 pursuant to Section 56(1) of the TPA and Section 30 of the TATA, the Appellant failed to discharge that burden.

Final Decision 41. The upshot to the foregoing is that the Tribunal finds and holds that the Appeal is not meritorious and makes the following Orders:a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision dated 2nd August 2024 be and is hereby upheld.c.Each party to bear its own cost.

42. It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 9TH DAY OF MAY, 2025. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERELISHAH N. NJERU - MEMBEREUNICE N. NG’ANG’A - MEMBEROLOLCHIKE S. SPENCER - MEMBER