[2024] KETAT 1237 (KLR)

Njiru Building Contractors Limited v Commissioner of Domestic Taxes (Tax Appeal E554 of 2023) [2024] KETAT 1237 (KLR) (Civ) (9 August 2024) (Judgment)

Neutral citation: [2024] KETAT 1237 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Tax Appeal E554 of 2023

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

August 9, 2024

Between

Njiru Building Contractors Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company incorporated under the Companies Act and its principal activity is dealing with construction and engineering projects within the Republic of Kenya.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. 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.

3. The Respondent reviewed the Income tax returns and VAT returns for the tax year 2018 with a view to establishing whether the Appellant was tax compliant for the tax period under review. It noted that there were variances in the declared sales in the Appellant's filed Income tax returns and VAT returns for the tax period.

4. The Appellant was notified vide a letter dated 11th June 2020 of the variances and told to declare the understated income.

5. On the 17th July 2020 the Respondent raised additional VAT assessments for the tax period of December 2018.

6. The Respondent reviewed IFMIS data and Income tax returns for the year 2019 and VAT returns for the tax period January 2019 to August 2020 with a view to establishing whether the Appellant was tax compliant for the tax period under review.

7. The Respondent noted that the Appellant made an exempt supply of Kshs. 9,365,439. 00 as per its VAT returns for the month of November 2019 and also noted undeclared VAT for the tax period of June 2020.

8. The Appellant was requested vide a letter dated 13th October, 2020 to avail documents for verification and consequently on the 27th November 2020 the Respondent raised additional VAT assessments for the tax period November 2019 and June 2020.

9. The Respondent stated that a review of the VAT returns for the tax periods July and October 2015 revealed that the Appellant had undeclared sales made to USAID Kenya and also declared exempt sales made to Embu County.

10. The Appellant was notified vide email dated 30th December 2020 to amend its returns and declare the supply made to USAID and provide sales invoices for the exempt supply made to Embu County.

11. The Respondent stated that a review of the Appellant's filed Income tax returns revealed undeclared income of Kshs. 695,818. 00 and consequently on the 13th April 2021 raised additional VAT assessments for the tax period month of July and October 2015 and Income tax assessment for the year 2015.

12. The Respondent stated that a review of the Appellant's VAT returns for the year 2021 revealed that it had made supplies to Embu County in the month of July 2021 and only declared the withholding amount but not the sales and the Appellant was notified vide a letter dated 29th October 2021 to amend its returns and declare all the income.

13. The Respondent reviewed the Income tax returns for the years 2019, 2020 and 2021 and issued the findings vide a letter dated 10th August, 2022.

14. Further the Respondent vide a letter dated 30th August 2022 informed the Appellant of the review of its VAT declarations and requested for purchase invoices for the tax period July 2022 and the Appellant responded vide a letter dated 20th September 2022.

15. The Respondent issued a notice of assessment and demand for tax dated 29th September 2022 demanding Income tax for the years 2019, 2020 and 2021 and VAT for July 2018, November 2018 and October 2020.

16. The Appellant objected to the additional tax assessments vide a letter dated 11th October 2022 and the Respondent vide an email dated 27th October 2022 sought the Appellant to provide documents in support of the objection and noted that the objection for VAT assessment for December 2018 was late.

17. The Appellant sought for extension of time to avail the documents vide an email dated 23rd November, 2022 and was granted up to 30th November 2022 to avail the documents.

18. The Respondent averred that the Appellant failed to avail the requested documents and the objection decision dated 9th December 2022 was issued confirming the additional tax assessments.

19. Aggrieved by the objection decision the Appellant appealed on 4th September 2023.

The Appeal 20. The Appeal is premised on the Memorandum of Appeal dated 31st August 2023 and filed on 4th September 2023 stating the following grounds:a.The Commissioner of Domestic Taxes erred in fact and in law in assessing the tax payable.b.The Commissioner of Domestic Taxes erred in fact and in law in failing to consider the Appellant's nature of business thereon.c.The Commissioner for Domestic Taxes erred in fact and law by failing to consider the expenses and direct costs incurred by the Appellant to generate the income.d.The Commissioner for Domestic Taxes erred in fact and law by failing to accord the Appellant a fair hearing despite lodging an objection.

The Appellant’s Case 21. The Appellant’s case is premised on its Statement of Facts dated 31st August 2023 and filed on 4th September 2023.

22. The Appellant averred that the Respondent did not understand its industry, its working models and contractual obligations.

23. The documents annexed to the Appellant’s Statement of Facts included objection application acknowledgement receipts and confirmation assessment notices.

24. The Appellant’s Statement of Facts stated what the Respondent had done in relation to the matter before the Tribunal without setting out any facts or law in support of its case.

Appellant’s prayers 25. The Appellant prayed to the Tribunal for the following orders: -a.That the Appeal be allowed with costs.b.The decision of the Commissioner be discharged.c.The additional assessments issued by the Respondent for the periods under review together with penalties and interest were unlawful and improperly assessed and the same should be set aside.d.The Tribunal to assess the tax payable by the Appellant to be commensurate with the actual transactions and the evidence tendered.e.The objection decision under review be declared null and void and be quashed in its entirety.f.Any other relief that this Honourable Tribunal deems fit.

The Respondent’s Case 26. The Respondent’s case is premised on the following documents filed before the Tribunal: -a.The Statement of Facts dated 3rd October 2023 and filed on 4th October 2023. b.The Written Submissions dated 18th March 2024 and filed on the same date.

27. The Respondent raised a preliminary objection as to whether the Appeal herein is valid. The Respondent stated that it issued its decision dated 9th December 2022 and that consequently the Appellant was required to file a Notice of Appeal within 30 days upon receipt of the Respondent's objection decision. That the Appellant had until 9th January 2023 to file an Appeal against the objection decision.

28. That should the Appellant fail to lodge the Appeal within the statutory timelines, the Appellant is required to make an application to file the Appeal out of time as per the provisions of Section 13 (3) of the Tax Appeals Tribunal Act.

29. That the Appellant filed a Notice of Appeal dated 31st August 2023 on 4th September 2023 without seeking leave from the Tribunal to file it out of time and therefore the same is invalid and should be struck out.

30. That Sections 24 and 28 of the Tax Procedures Act allow a taxpayer to file returns and further provides that the Commissioner is not bound by the information provided therein and can assess the tax liability based on any other available information.

31. That Sections 77 of the Income Tax Act and Section 31 of the Tax Procedures Act, allow the Respondent to issue additional tax assessments where a taxpayer has been assessed of a lesser amount based on any additional available information and to the best of his judgement.

32. The Respondent averred that the additional Income tax assessments for the years 2019, 2020 and 2021 and VAT assessments for July 2018, October 2018, November 2018 and December 2018 were based on the Appellant’s undeclared sales as per its VAT and Income Tax returns.

33. The Respondent averred that at the objection stage the Appellant failed to avail the documentation in support of the objections raised.

34. The Respondent further averred that the additional Income and VAT assessments were confirmed due to the Appellant’s failure to avail documentation in support of the objections raised.

35. The Respondent in support of its case relied on the holdings in Oliver Merrick Fowler & Anor vs KRA [2022] eKLR. Commissioner of Investigations and Enforcement vs Pearl Industries Ltd [2022] eKLR and Nguruman Traders Ltd vs Commissioner of Investigations and Enforcement [2019] eKLR amongst Others.

Respondent’s prayers 36. The Respondent prayed to the Tribunal for the following orders: -a.That the Respondent’s decision dated 9th December 2022 be upheld.b.That the Appeal be dismissed with costs to the Respondent as the same is devoid of merit.

Issues For Determination 37. The Tribunal, having carefully reviewed the pleadings and filings made by the parties and the supporting documentation is of the view that the following issues fall for its determination: -a.Whether there is a valid appeal.b.Whether the Respondent’s Objection decision dated 9th December 2022 is justified.

Analysis And Findings a. Whether there is a valid appeal 38. The Respondent raised a preliminary objection in the matter arguing that there was no valid appeal as the Appellant’s Notice of Appeal was filed out of time. There is no rebuttal from the Appellant on this issue.

39. The Tribunal notes that the Appellant upon being dissatisfied with the Objection decision dated 9th December 2022 filed its Notice of Appeal on 4th September 2023.

40. The Tribunal further noted that the procedure for appeal as set out in Section 13 (1) (b) of the Tax Appeals Tribunal Act (TAT Act) requires that a notice of appeal shall be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner. The Section provides as follows:-“(1)A notice of appeal to the Tribunal shall-(a)be…………………(b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.”

41. The Notice of Appeal filed on 4th September 2023 was, according to Section 13 (1) (b) TAT Act, well outside the requisite time and the Tribunal further noted that the Appellant failed to apply for leave to file the Notice of appeal out of time as required in Section 13(3) of the TAT Act which provides as follows:“The Tribunal may, upon application in writing or through electronic means, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).”

42. The Tribunal is of the considered view that the timelines for appealing the Commissioner’s decisions are clearly set out in the law, and taxpayers are liable to comply with the same.

43. The Tribunal reiterates its holding in the case of W.E.C. Lines Ltd vs. The Commissioner of Domestic Taxes [TAT Case No.247 of 2020] where it was held at paragraph 70 while reiterating the holding in Krystalline Salt Ltd vs KRA [2019] eKLR that: -

“Where there is a clear procedure for redress of any particular grievance prescribed by the constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures. The relevant procedure here is the process of opposing an assessment by the Commissioner.” 44. The Tribunal is also guided on the adherence to timelines by the case of Eastleigh Mall Limited v Commissioner of Investigations & Enforcement (Income Tax Appeal E068 of 2020) [2023] KEHC 20000 (KLR) where the court held as thus: -“... Parliament in its wisdom knew that in matters tax, time is very crucial as those in commerce need to make informed decisions. If the Commissioner is allowed to exercise his discretion and stay ad-infinitum before issuing an objection decision, the tax payer would be unable to make crucial decisions and plan his/her business properly. The timelines set are mandatory and not a procedural technicality.”

45. Based on the law and the case laws cited above, the Tribunal finds that there is no valid appeal before it as the Notice of Appeal in the matter was filed out of time and without the leave of the Tribunal. In the circumstances, the Tribunal did not delve into the other issue set out for determination as the same was rendered moot.

Final Decision 46. The upshot of the foregoing analysis is that the Appeal is incompetent and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

47. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF AUGUST, 2024. ERIC NYONGESA WAFULACHAIRMANGLORIA A. OGAGA JEPHTHAH NJAGIMEMBER MEMBEREUNICE N. NG’ANG’AMEMBER