[2024] KETAT 721 (KLR)

Neramo Ltd v Commissioner of Domestic Taxes (Tax Appeal E133 of 2023) [2024] KETAT 721 (KLR) (17 May 2024) (Judgment)

Neutral citation: [2024] KETAT 721 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E133 of 2023

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

May 17, 2024

Between

Neramo Ltd

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited liability company incorporated in Kenya carrying on the business of Information Technology (IT) services in Kenya.

2. The Respondent is a principal officer appointed under Section 13 of the KRA Act, and Kenya Revenue Authority is charged with the responsibility of assessing, collecting, accounting and the general administration of tax revenue on behalf of the Government of Kenya.

3. The Respondent issued a notice of compliance check vide a letter dated 25th November 2020 wherein it requested for some documents.

4. The Appellant through its tax agent replied vide a letter dated 11th December 2020. The Respondent wrote back to the Appellant on 5th January 2021 requesting for the documents that had not been provided. The Appellant replied attaching some documents on 13th January 2021.

5. The parties thereafter engaged through email, meetings and exchange of documents and subsequently the Respondent issued its assessment vide a letter dated 13th December 2022.

6. The Appellant objected to the assessment vide a letter dated 12th January 2023. This was followed by communication between the parties and subsequently the Respondent issued its objection decision vide a letter dated 10th March 2023.

7. Dissatisfied with the Respondent’s objection decision, the Appellant filed a Notice of Appeal on the 6th April 2023.

The Appeal 8. The Appellant’s Memorandum of Appeal filed on 6th April 2023 is premised on the following grounds:i.That the Respondent erred in law and its assessment does not conform to any provision of the Income Tax Act and Tax Procedure Act.ii.That the Respondent erred in law and fact by finding that the Appellant lodged its objection late despite the Appellant having received the manual assessment on 15th December and lodged its claim through its tax representative on 13th January 2023 which was within time.iii.That the Respondent erred in law and fact by purporting to issue a rejection of application to file a late objection in a letter dated 6th February accordingly sent to the Appellant via email on 7th February 2023, yet the objection had been lodged on time.iv.That the Respondent erred in law and fact by on one hand requesting additional documents while on the other hand issuing an objection decision contrary to the rules of fairness and natural justice.v.That the Respondent erred in law and fact by issuing an objection decision confirming assessments that are manifestly excessive, punitive, and unjustifiable.vi.That the Respondent erred in law and facts by failing to issue the concise reasons for its objection decision as required under the law.vii.That the Respondent erred in law and facts by demanding the taxes for the years 2017 to 2020 in its objection decision, yet the Appellant had given reconciliations as per the e-mail dated 12th October 2022. viii.That the Respondent erred in law and facts by demanding withholding taxes when the law clearly states that the Commissioner cannot collect withholding tax that ought to have been deducted by Appellant.ix.That the Appellant does not agree to the additional assessment as the assessment is excessive and estimated and the Appellant does not have any outstanding liability for that period. No basis has also been given for this assessment.

Appellant’s Case 9. The Appellant’s case is premised on the following documents filed before the Tribunal;i.The Appellant’s Statement of Facts dated 4th April 2023 and filed on 6th April 2023 together with the documents attached thereto.ii.The Appellant’s Written Submissions dated 14th December 2023 and filed on 18th December 2023.

10. The Appellant stated that the Respondent issued a notice of compliance check via a letter dated 25th November 2020 requesting for various records to enable it carry out a compliance check.

11. That the Appellant, through its tax representative wrote to the Respondent in a letter dated 11th December 2020 and duly received by the Respondent on the same date delivering the requested information.

12. That the Respondent then wrote to the Appellant on 5th January 2021 acknowledging receipt of the records and requesting for the unprovided record. That further the Appellant through its tax representative delivered the records to the Respondent in a letter dated 12th January 2021 duly received by the Respondent on 13th January 2021 delivering the requested information.

13. That the Respondent sent an e-mail on 7th April 2022 with preliminary workings for reconciliation.

14. It averred that accordingly, the Appellant through its tax representative held a working meeting with the Respondent in the tax representative's office to discuss the preliminary workings. That during the meeting the two parties agreed to have a follow-up meeting within a week once a reconciliation of the preliminary findings was done by the Appellant. That the meeting did not take place as the Appellant's tax representative fell ill.

15. That subsequently, the Respondent sent a follow up e-mail dated 17th May 2022. That the two parties kept engaging for the period May 2022 to September 2022.

16. That the Respondent through his letter dated 14th September 2022 wrote to the Appellant regarding the notice of findings for the compliance review on Corporation tax, Withholding tax, VAT and PAYE for the period 2016-2020. That it sought explanations and additional documents to all the issues raised.

17. The Appellant submitted that the assessment had the following principal taxes which it expounded on:

a. Corporation tax resulting from recomputed sales based on withholding vat 2017 to 2020. 18. That the Appellant had explained in an email dated 12th October 2022 wherein through its tax consultants, it attached an excel sheet of reconciliation. That the Respondent's basis of recomputing the sales is based on Withholding VAT. That the Appellant draws attention to its schedule showing that the Withholding VAT on itax viz a viz the sales on the VAT returns. That in all the years the sales per Withholding VAT were lower than the sales per VAT returns. That it was the Appellant’s stand that there being no variance, then this Corporation tax charge was not payable.

b. Corporation tax because of the disallowed expenses. 19. That the Appellant was unable to support rent expenses because it had a fire outbreak at its premises on 5th August 2018. That the Appellant gave a fire service report which clearly shows the location of the fire at Mombasa Road DTB Centre. That the Respondent declined to write to DTB to obtain confirmation of rent paid, nor check the tax declarations of DTB bank who were the landlords of the Appellant and instead opted to disallow the rent based on unsupported expense. That the Appellant was a tenant of DTB Bank, and the expenses were correctly incurred in the furtherance of its business.

c. VAT on Supply of imported services 20. That the Appellant is a registered taxpayer who is entitled to a full input VAT credit on any VAT payable on imported services, by the fact that the Appellant does not have any exempt sales. It stated that to that end the VAT Act Clause 10 2 (b) states that the value of taxable services of a registered person entitled to a full credit of input VAT will be reduced to zero. It was the Appellant’s stand that once the Appellant's value of imported taxable services are reduced to zero then no VAT on imported services will be charged.

d. VAT on understated sales for the years 2017 to 2020: 21. That the Appellant gave its reconciliation for the understated sales in its letter dated 11th October 2019, which the Respondent had not considered nor responded to. That it was the Appellant’s stand that this variance was fully explained to the Respondent.

e. VAT on prohibited input tax: 22. That the Respondent did not give a breakdown of what it disallowed for input VAT claims. That the Appellant was therefore unable to respond to the same.

f. PAYE on various disallowed expenses: 23. The Appellant averred that it had given its reconciliation for the salaries in its letter dated 11th October 2019, which the Respondent did not consider nor respond to. It was the Appellant’s stand that this variance was fully explained to the Respondent and all salaries were declared correctly on itax and PAYE paid thereon.

g. Withholding Income Tax: 24. That Finance Act 2016 effective 9th June 2016, repealed Section 35 (6) of the ITA. That this was at that time the prevailing tax law that allowed recovery of WHT from the withholder who failed to withhold tax, as if it was due and payable by that person. That the consequence of repealing this Section meant that there was no law allowing the Commissioner to recover WHT from persons who failed to do so.

25. That thereafter, Finance Act 2019 introduced Section 39A of the TPA effective 7th November 2019 the consequence being that the Commissioner now had a right to recover WHT from persons who failed to deduct and pay the same. That the upshot of the foregoing is that between 9th June 2016 and 7th November 2019, there was no legal basis allowing KRA to assess WHT for the period before 7th November 2019.

26. That the same was clarified in Commissioner of Domestic Taxes Department V Pevans East Africa Limited and Shop and Deliver Limited and 5 others in the High Court dated and delivered on 13th May 2022.

27. That the Appellant assertted its ground that the Commissioner cannot collect withholding tax that ought to have been deducted by Appellant between the years 2017 and 7th of November 2019.

28. That surprisingly the Respondent wrote to the Appellant via an email dated 20th January 2023 suggesting that the Appellant had lodged its objection late, yet the Appellant had received the manual assessment on 15th December 2022 and lodged its claim through his tax representative on 13th January 2023 which was within time.

29. That the e-mail sent to the Appellant on 20th January 2023 could not be attended to as the Appellant's director had travelled outside the Country for medical attention and could not access his e-mails, yet the Respondent had not copied the Appellants tax representative who was all along engaged in the matter in the same e-mail.

30. That the Respondent further sent an e-mail requesting the Appellant to Respond to the e-mail of 20th January 2023 before the due date via an e-mail which the tax representative was not in copy and the Appellants director was not on duty yet.

31. That subsequent to the email dated 20th January 2023 and 24th January 2023, the Respondent issued a rejection of application to file a late objection in a letter dated 6th February accordingly sent to the Appellant via email on 7th February 2023,yet the objection had been lodged on time.

32. That the Appellant through his tax representative wrote to the Respondent via a letter dated 14th February 2023 stating that the objection was lodged on time.

33. That accordingly, the Respondent wrote to the Appellant via an e-mail dated 24th February 2023 requesting for the records to support the objection.

34. The Appellant through his tax representative replied to the Respondent via the e-mail dated 3rd March 2023 giving reconciliations and explanations to the queries raised by the Respondent.

35. The Respondent further sent e-mails on 3rd March 2023 and 6th March 2023 asking the Appellant to provide additional documents to support its objection.

36. That accordingly, the Respondent issued an objection decision dated 10th March 2023 without giving room to the provision of requested documents.

37. It was the Appellant’s contention that the amounts payable as per the assessment notice were excessive.

38. The Appellant submitted that the Respondent erred in law by rejecting the objection lodged on time as per Tax Procedures Act, claiming that it was a late objection.

Respondent’s Case 39. The Respondent’s case is premised on the hereunder filed documents before the Tribunal: -i.The Respondent’s Statement of Facts dated 10th May 2023 and filed on 11th May 2023 together with the documents attached thereto.ii.The Respondent’s written submissions dated 12th November 2023 and filed on 22nd November 2023.

40. The Respondent submitted that its compliance check for the period 2016 to 2020 revealed the following:-a.Corporation Tax 2016-2020i.Gross turnover reconciliation; That the Respondent carried out analysis which established that the Appellant's sales were understated. That the total tax due was Kshs. 281,760,187. 00. ii.Overstated purchases; That there were variances noted when the VAT returns were compared to Income tax declared. That the total tax due was Kshs. 548,225,430. 67. iii.Disallowed Expenses; That the Respondent disallowed some of the Appellant's expenses because they had not been properly supported. That the total tax due was Kshs.18,041,575. 18. b.Value Added Taxi.Supply of imported services; the Respondent review on the Appellant's purchase ledged and audited accounts established that VAT on imported services was not accounted for contrary to Sections 5 and 10 of the Value Added Tax Act. That the total tax due was Kshs. 394,379,979. 00. ii.Understated VAT ; That the Respondent noted that there were variances between the vatable sales concluded and what was declared by the Appellant. That the total tax due was Kshs. 55,524,102. 00. iii.Prohibited Input Tax; That the Respondent noted that VAT had been deducted on items prohibited under Section 17(4) of the VAT Act. That the total tax due was Kshs.9,011,079. 15. c.PAYE; That the Respondent noted that the Appellant failed to declare and remit correct taxes under Section 37(1)of the Income Tax Act. That the total tax due was Kshs.91,256,625. 00. d.Withholding Income Taxi.Withholding Tax On Professional Fees ; That the Appellant had not properly accounted for withholding tax on professional fees which resulted in tax amounting to Kshs. 17,163,845. 47;ii.Software license fees – That the Appellant had not properly accounted for withholding tax on software license fees which resulted in tax amounting to Kshs.616,218,717. 00.

41. The Respondent posited that it therefore raised additional assessments of Kshs.1,749,821,355. 00 for the period 2016-2020 on 15th December,2022. The Respondent pleaded that the Appellant lodged an objection to the assessment on 13th January, 2023.

42. The Respondent stated that the Appellant’s objection raised the following issues:-i.That additional assessments cannot be raised after 5 years.ii.That an audit was already carried out by the Respondent's (Investigation &Enforcement Department) which resulted in a notice of assessment dated 25th January 2019 and referenced I&E/NBI/DTIS/66/018 this assessment was also on iTax and already settled and that the Commissioner cannot reopen the same periods again under a normal audit.iii.That the assessments are estimated and excessive.iv.That the amounts payable as per the assessment notice were excessive and the taxpayer incurred a cost as far as the disallowed expenses are concerned.v.That all taxes being demanded Withholding on professional fees had already been paid.vi.That the Appellant had previously explained the gross turnover variance.

43. The Respondent pleaded that it wrote to the Appellant on diverse dates between 2nd and 6th March,2023 requesting it to avail additional documents for review. That the documents required were as follows;a.Gross turnover reconciliation report.b.Reconciliation to the overstated purchases for the year 2016 and 2017 and supporting documents.c.Rent legder and copies of invoices and proof of payment.d.Repairs and maintenance ledger. Copies of invoices and proof of payment.e.Motor vehicle ledger and copies of logbook.f.Asset schedules.g.Travel expense ledger.h.PAYE reconciliation and relevant support documents.i.Directors account.

44. That it allowed the objection ground contesting the additional assessments of the year 2016 as they were time barred. That the Respondent thus considered the assessment and subsequent objection raised for the years 2017-2020.

45. The Respondent stated that it considered the following issues raised and concluded as follows:-a.Corporation Taxi.Gross Turnover reconciliation. That the Respondent reviewed the Appellant's reconciliation and the supporting documents provided and the variance was not adequately reconciled.ii.Overstated purchases. That after review of the Appellant's reconciliation, the Respondent noted that the variance was not adequately reconciled and confirmed the assessment.iii.Disallowed expenses. That the Respondent reviewed the reconciliations and documents availed and established that:-a.Repairs & maintenance costs. That the repairs and maintenance costs breakdown were not supported by invoices as the Appellant failed to avail them despite requests made by the Respondent.b.Unsupported rent. That the Appellant failed to avail lease agreements, rent receipts/invoices for review.c.Motor vehicle running expenses. That the Respondent requested for motor vehicle list, copies of log books, purchase documents and proof of payment to enable the Respondent to establish proof of ownership. That however, the same was not availed.b.VATi.Supply of imported services; That the Respondent established that the Appellant had imported services during the review period relating to software and they were chargeable to reverse VAT at 16% rate. The Appellant had not declared the VAT on the software and did not adequately demonstrate why the same should not be charged.ii.Understated VAT; That after review of the Appellant's reconciliation the variance was not adequately reconciled.iii.Prohibited Input Tax; That the prohibited input tax as per Section 17(4) of VAT Act 2013 were not sufficiently explained and supportedc.PAYE.That the items indicated under PAYE were not adequately reconciled by the information that the Appellant provided. That further, that he Appellant did not avail the breakdown of prepayments and other receivables as requested.d.Withholding Taxi.Withholding tax on professional fees; That the Appellant did not provide support documentation to demonstrate that they did not qualify for withholding tax deduction under Section 35 of the Income Tax Act Cap 470. ii.Software license fees; That the information that was availed by the Appellant did not reconcile the variances noted.

46. That the Respondent thus partially allowed the objection and confirmed the assessment of Kshs. 719,220,535. 00.

47. The Respondent stated that it relied on the following statutes:-a.Section 51 of Tax Procedure Act 2015. b.Section 35 of Income tax Act Cap 470. c.Section 31 of Tax Procedure Act, 2015. d.Section 37 of Income tax Act Cap 470. e.Section3 (2) (a) (ii) of Income tax Act Cap 470. f.Section 10 of the Income Tax Act Cap 470. g.Section 17 of VAT Act, 2013. h.Section 15 and 16 of Income tax Act Cap 470. i.Section 10 (1) & 5(6) of VAT Act, 2013.

48. It asserted that the crux of the Respondent's decision was that it rejected the objection and upheld the assessment on the basis that the Appellant failed to avail documentation and reconciliation in support of the objection.

49. It was the Respondent's case that upon receiving the Appellant's objection it requested the Appellant to avail documents supporting its grounds of objection. The Respondent referred the Tribunal to its emails dated 2nd March, 2023, 3rd March, 2023 and 6th March, 2023.

50. That Section 51(3) of the Tax Procedures Act mandates the Appellant to support its objection with all relevant documents.

51. The Respondent pleaded that a taxpayer has an obligation to avail documents in support of its objection that are relevant and sufficient. That the Appellant failed to fulfil this obligation.

52. That the burden of proof that an assessment is excessive and/or erroneous lies with the Appellant.

53. The Respondent stated that pursuant to the provisions of Section 24(2) of the Tax Procedures Act, it is not bound by the tax return or information provided by the taxpayer and that it is empowered to assess any taxpayer based on information available to it.

54. The Respondent pleaded that Section 31 of the Tax Procedures Act allows it to make additional assessment based on the information placed before it using its best judgment.

55. That further, Section 56(1) of the Tax Procedures Act places the burden on the taxpayer to proof that a tax decision is incorrect.

56. It averred that further reliance was based on Section 59 of the Tax Procedures Act that empowers the Respondent to seek any information relating to the ascertaining of the correct tax liability of the Appellant.

57. The Respondent submitted that it was within its rights to request for documents from the Appellant and any other taxpayer where necessary.

58. The Respondent pleaded that in the absence of documents it was left with no option but to rely on information available to it. That as such therefore it was the Respondent's case that its decision was not flawed as alleged by the Appellant.

Respondent’s Prayer 59. The Respondent prayed that the Appellant's Appeal be dismissed with costs.

Issues for Determination 60. The Tribunal frames the issues for determination to be:i.Whether the Respondent was justified in assessing the Appellant beyond the statutory five years.ii.Whether the Respondent erred in its assessment of Withholding tax.iii.Whether the Respondent was justified in confirming the assessment for Income Tax, VAT and PAYE.

Analysis and Findings 61. The Tribunal having appropriately ascertained the issues that fell for its determination shall proceed to make analysis separately on each issue as hereunder.

i. Whether the Respondent was justified in assessing the Appellant beyond the statutory five years. 62. It was the Respondent’s case that it allowed the objection contesting the additional assessments for the year 2016 as they were time barred. That the Respondent thus considered the assessment and subsequent objection raised for the years 2017-2020.

63. Section 29(5) of the TPA provides as follows regarding time limits in relation to assessments;“Subject to subsection (6), an assessment under subsection (1) shall not be made after five years immediately following the last date of the reporting period to which the assessment relates.”

64. The Tribunal having perused through the documents presented before it notes that the Respondent issued its assessment on 13th December 2022. It follows therefore that as provided under Section 29(5) of the TPA the Respondent was limited to issue assessments only upto 14th December 2017 except as provided for under Sectio 31(4)(a) of the TPA which was not raised by any party.

65. Section 31(4) of the TPA provides as follows regarding cases where the Respondent may issue assessments beyond 5 years;“The Commissioner may amend an assessment—(a)in the case of gross or wilful neglect, evasion, or fraud by, or on behalf of, the taxpayer, at any time; or(b)in any other case, within five years of—(i)for a self-assessment, the date that the self-assessment taxpayer submitted the self-assessment return to which the self-assessment relates; or(ii)for any other assessment, the date the Commissioner notified the taxpayer of the assessment”(Emphasis added)

66. The Tribunal notes that although the Respondent had considered this and abandoned the assessment for the year 2016, the Tribunal is of the view that that was not the only period that was time barred. Any assessments for VAT prior to November 2017 were time barred.

67. The Tribunal therefore finds that the Respondent could not assess any VAT and PAYE taxes prior to November 2017 as they were time barred.

ii. Whether the Respondent erred in its assessment for Withholding Tax. 68. It was the Appellant’s contention that the Finance Act 2016 which came into effect on 9th June 2016, repealed Section 35 (6) of the ITA. That this was at that time the prevailing tax law allowed recovery of WHT from the withholder who failed to withhold tax, as if it was due and payable by that person. That the consequence of repealing this Section meant that there was no law allowing the Commissioner to recover WHT from persons who failed to do so.

69. That thereafter, Finance Act 2019 introduced Section 39A of the TPA effective 7th November 2019 the consequence being that the Commissioner now had a right to recover WHT from persons who failed to deduct and pay the same. That the upshot of the foregoing is that between 9th June 2016 and 7th November 2019, there was no legal basis allowing KRA to assess WHT for the period before 7th November 2019.

70. The Respondent on the other hand did not address this particular argument in its pleadings. The Tribunal notes that in the confirmed WHT assessment, it covered the period 2016 to 2020.

71. The Tribunal notes that prior to 2016, Section 35(6) of the ITA provided that the Commissioner could demand taxes from a taxpayer who fails to make a deduction as though the taxes were due from them.

72. However, the amendment introduced by the Finance Act, 2016 deleted the said Section 35(6) of the ITA meaning that the Commissioner could no longer demand taxes not withheld from the person who should have withheld the same. This position remained until the enactment of the Finance Act, 2019 which came into force on 7th November 2019 when the previously deleted provisions of Section 35(6) of the ITA was now reintroduced and reproduced as a new Section 39A under the TPA.

73. Section 39A of the TPA provides as follows regarding WHT:“39A.Penalty for failure to deduct or withhold taxWhere a person who is required under a tax law to deduct or withhold tax and remit the tax to the Commissioner fails to do so, the provisions of this Act relating to the collection and recovery of tax, and the payment of penalties and interest thereon, shall apply to the collection and recovery of that tax not deducted or withheld as if it were tax due and payable by that person and the due date for the payment shall be the date on which the amount of tax should have been remitted to the Commissioner.”

74. Section 39A of the TPA provides that everyone who is required to withhold and remit tax must do so, failure to which it would be liable to pay for the tax that it failed to withhold as if it was a tax that is due and payable by it. Section 39A of the TPA is therefore only applicable from 7th November 2019 when it came into force.

75. It was the position of the Tribunal that the Respondent could therefore not demand for WHT from the Appellant in the period prior to 7th November 2019 when the law which allowed the Commissioner to demand taxes not withheld from the person who should have withheld the same had been deleted.

76. This position was affirmed in Commissioner of Domestic Taxes v Pevans East Africa Limited & 6 others (Tax Appeal E003 of 2019) [2022] KEHC 10392 (KLR) (Commercial and Tax) (13 May 2022) (Judgment) where the Courts stated thus:“Consequently, I therefore find and hold that during the subject years of 2018 and 2019, the Commissioner could not collect the WHT that ought to have been deducted by the Respondents from the punters and that all the Commissioner could do was seek the same from the punters directly.”

77. For the reasons set out above, the Tribunal finds that the Respondent erred in assessing WHT for the period prior to 7th November 2019 when the Appellant could not be held liable.

78. The Tribunal then looked at the WHT assessed after 7th November 2019. The Tribunal notes that there were confirmed assessment for WHT that covered the years 2017 to 2020.

79. The Respondent submitted that regarding Withholding tax on professional fees the Appellant did not provide support documentation to demonstrate that they did not qualify for withholding tax deduction under Section 35 of the Income Tax Act Cap 470. Further on software license fees it averred that the information that was availed by the Appellant did not reconcile the variances noted.

80. The Tribunal notes that the Appellant neither pleaded anything on this nor provided any evidence in support of its objection to the WHT assessment.

81. Further, from the Respondent’s objection decision it was noted that there were variances established which related to excess expenses relating to management and professional fees that the Appellant did not provide support documentation to demonstrate that the same did not qualify for WHT. From the communication provided it was demonstrated that the Appellant defaulted in providing material documents and verifiable information that prompted the Respondent to disregard the objection and confirm the assessment. The Appellant has also not provided this information in this Appeal.

82. It is the Tribunal’s position that a taxpayer served with an assessment is enjoined to provide the necessary documents and information that suggest that such an assessment is erroneous, misplaced and not justifiable in the circumstances. Section 56(1) of the Tax Procedures Act squarely places the burden of proof upon a taxpayer to discredit any tax assessment or decision.

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

84. The Tribunal is further guided by the finding in Nicholson v Morris 51TC95 where it was held that:“Even supposing that I were myself to think that the amounts were wrong – and, as I have freely conceded, and as [Counsel for the Revenue] has freely conceded, they probably are wrong – what on earth could I or anybody else at this stage, in the total absence of evidence, substitute for them? The answer is that it is a complete and utter impossibility; and that is why, of course, the Taxes Management Act throws upon the taxpayer the onus of showing that the assessments are wrong. It is the taxpayer who knows and the taxpayer who is in a position (or, if not in a position, who certainly should be in a position) to provide the right answer, and chapter and verse for the right answer, and it is idle for any taxpayer to say to the Revenue, “Hidden somewhere in your vaults are the right answers: go thou and dig them out of the vaults.” That is not a duty on the Revenue. If it were, it would be a very onerous, very costly and very expensive operation, the costs of which would of course fall entirely on the taxpayers as a body. It is the duty of every individual taxpayer to make his own return and, if challenged, to support the return he has made, or, if that return cannot be supported, to come completely clean, and if he gives no evidence whatsoever he cannot be surprised if he is finally lumbered with more than he has in fact received. It is his own fault that he is so lumbered.”

85. Additionally, the Tribunal reiterates its position in the case of Boleyn International Ltd Vs Commissioner of Investigations and Enforcement, Nairobi TAT Appeal no.55 of 2018 where it held that:-“We find that the Appellant’s at all times bore the burden of proving that the Respondent’s decisions and investigations were wrong. The tribunal is guided by the provisions of Section 56(1) of the TPA, 2015 which states: “In any proceedings under this part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

86. Based on the analysis, the Tribunal finds that the Respondent did not err in its assessment for subsequent to the 7th November 2019 when the Appellant was required by law to withhold and remit tax.

iii. Whether the Respondent was justified in confirming the assessment for Income Tax, VAT and PAYE. 87. The Respondent submitted that the crux of its decision was that it rejected the objection and upheld the assessment on the basis that the Appellant failed to avail documentation and reconciliation in support of the objection. It was the Respondent's case that upon receiving the Appellant's objection it requested the Appellant to avail documents supporting its grounds of objection.

88. The parties in the pleadings stated as follows regarding each of the taxheads;

a. Corporation Tax 89. Regarding gross turnover reconciliation, the Respondent stated that it reviewed the Appellant's reconciliation and the supporting documents provided and the variance was not adequately reconciled.

90. On overstated purchases in the Appellant's reconciliation, it averred that the variance was not adequately reconciled and it confirmed the assessment. While on disallowed expenses that the Respondent reviewed the reconciliations and documents availed and established that:-a.Repairs & maintenance costs; That the repairs and maintenance costs breakdown were not supported by invoices as the Appellant failed to avail them despite requests made by the Respondent.b.Unsupported rent; That the Appellant failed to avail lease agreements, rent receipts/invoices for review.c.Motor vehicle running expenses; That the Respondent requested for motor vehicle list, copies of log books, purchase documents and proof of payment to enable the Respondent to establish proof of ownership. That however, the same was not availed.

91. The Appellant on the other hand stated that it had explained in an email dated 12th October 2022 wherein through its tax consultants, it attached an excel sheet of reconciliation. That the Respondent's basis of recomputing the sales is based on withholding VAT. That the Appellant draws attention to its schedule showing that the withholding VAT on itax viz a viz the sales on the VAT returns. That in all the years the sales per withholding VAT were lower than the sales per VAT returns. That it was the Appellant’s stand that there being no variance, then this Corporation tax charge was not payable

92. On disallowed expenses, the Appellant averred that it was unable to support rent expenses because it had a fire outbreak at its premises on 5th August 2018. That it gave a fire service report which clearly showed the location of the fire at Mombasa Road DTB Centre. That the Respondent declined to write to DTB to obtain confirmation of rent paid, nor check the tax declarations of DTB bank who were the landlords of the Appellant and instead opted to disallow the rent based on unsupported expense.

b. VAT 93. The Respondent stated that on supply of imported services the Appellant had imported services during the review period relating to software and they were chargeable to reverse VAT at 16% rate. That the Appellant had not declared the VAT on the software and did not adequately demonstrate why the same should not be charged.

94. Regarding understated VAT it averred that after review of the Appellant's reconciliation the variance was not adequately reconciled.

95. On prohibited input tax the Respondent contended that as per Section 17(4) of VAT Act 2013 these were not sufficiently explained and supported.

96. The Appellant on the other hand stated that it is a registered taxpayer and is entitled to a full input VAT credit on any VAT payable on imported services, by the fact that the Appellant does not have any exempt sales. It stated that to that end the VAT Act Clause 10 2 (b) states that the value of taxable services of a registered person entitled to a full credit of input VAT will be reduced to zero.

97. On understated sales it averred that the Appellant gave its reconciliation in its letter dated 11th October 2019, which the Respondent had not considered nor responded to. That it was the Appellants stand that this variance was fully explained to the Respondent.

98. Regarding prohibited input VAT the Appellant contended that the Respondent did not give a breakdown of what it disallowed for input VAT claims. That the Appellant was therefore unable to respond to the same

c. PAYE. 99. The Respondent stated that the items indicated under PAYE were not adequately reconciled by the information that the Appellant provided. That further, that the Appellant did not avail the breakdown of prepayments and other receivables as requested.

100. The Appellant on its part averred that it had given its reconciliation for the salaries in its letter dated 11th October 2019, which the Respondent did not consider nor responded to. It was the Appellant’s stand that this variance was fully explained to the Respondent and all salaries were declared correctly on iTax and PAYE paid thereon.

101. In all the tax heads analysed above the Tribunal notes that the Respondent was consistent in its argument that the Appellant failed to provide documents and information in support of its objection. In particular the Tribunal notes the Respondent requested for some specific documents in support of the objection vide an emails dated 2nd March 2023 and further on 3rd March 2023. In particular the Tribunal notes that after the objection, in its email to the Appellant dated 3rd March 2023 the Respondent stated in part as follows;“…Further to what we had requested earlier the following records are vital for objective review.1. Rent Agreement with (i) Song Rim Choi, (ii) Norfork Towers, (iii) Jalaram Industries, (iv) Magana Holdings, (v) Lexis Guest house.2. Samples of Rent invoices and proof of payment.3. List of Motor Vehicles4. General ledger for year 2017 to 2020 preferably in soft copy”

102. Although the Appellant attached a copy of this email communication to its Appeal, the Tribunal notes it did not provide any evidence of a response or any information on the specific documents requested by the Respondent.

103. The Tribunal further perused through the documents attached to this Appeal by the Appellant and notes that apart from the communication between the parties during the assessment and objection process, the Appellant only attached a table of comparison between sales as per WVAT Vs iTax declarations and a listing of payments to staff.

104. None of the documents requested by the Respondent or explanation on the same was provided. It was the view of the Tribunal that the Appellant ought to have provided the documents requested or the documents it is required by law to keep under the Income Tax Act or VAT Act in support of its objection and failure to which means its arguments cannot be verified.

105. The provision of documents as evidence is well stated under Section 30 of the Tax Appeals Tribunal Act which provides as thus:“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.”

106. The Tribunal was of the view that the Appellant failed to meet the obligation placed on it under Section 30 of the Tax Appeals Tribunal Act to discharge its burden of proof by providing supporting documents.

107. The Tribunal reiterates its decision in TAT 1296 of 2022 James Finlay (Kenya) Limited V Commissioner Legal Services And Board Coordination where it held as follows at paragraph 83;“In the instant case the Tribunal found that the Appellant failed to address the specific documents mentioned by the Respondent in the objection decision and therefore failed to discharge the burden of proof.”

108. Consequently, the Tribunal finds that the Appellant failed to discharge the burden of proof placed upon it in demonstrating that the Respondent erred in confirming the assessments in relation to Corporation tax, VAT and PAYE.

Final Decision 109. The Tribunal finds that the Appeal is partially merited and makes the following final Orders:i.The Appeal be and is hereby partially allowed.ii.The Respondent’s Objection decision dated the 10th March, 2023 be and is hereby varied in the following terms;a.The Respondent’s confirmed assessments for VAT and PAYE for the period prior to November, 2017 be and are hereby set aside.b.The Respondent’s confirmed assessment for Corporation tax for 2017 and for both VAT and PAYE for the period subsequent to November, 2017 be and are hereby upheld.c.The Respondent’s assessment for WHT subsequent to 7th November 2019 be and is hereby upheld.d.The Respondent is hereby directed to recompute and issue WHT, Corporation Tax, VAT and PAYE assessments as per the Tribunal’s Orders under (a), (b), and (c) above within Thirty (30) days of the date of delivery of this Judgment.iii.No orders as to costs.

110. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 17TH DAY OF MAY, 2024ERIC NYONGESA WAFULA - CHAIRMANDR. RODNEY O. ODHIAMBO - MEMBERCYNTHIA B. MAYAKA - MEMBERABRAHAM K. KIPROTICH - MEMBERTIMOTHY B. VIKIRU - MEMBER