[2023] KETAT 298 (KLR)

Njoroge v Commissioner of Domestic Taxes (Appeal 78 of 2022) [2023] KETAT 298 (KLR) (26 May 2023) (Judgment)

Neutral citation: [2023] KETAT 298 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 78 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, AK Kiprotich & Jephthah Njagi, Members

May 26, 2023

Between

William Mburu Njoroge

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is an individual taxpayer whose main business is transport services and supplies.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and the Kenya Revenue Authority 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 Respondent conducted tax investigations into the business affairs of the Appellant for the tax period years 2017 and 2018.

4. The Respondent alleged that an analysis of the filed VAT and Income tax returns revealed that there was variance in the VAT and Income tax turnover declared for the tax period.

5. The Appellant was issued with a demand notice on 8th October, 2020 and requested to provide a reconciliation explaining the variances.

6. The Appellant availed the documents namely the monthly Z-reports and audited accounts on the 24th November, 2020.

7. On the 4th January, 2021 the Respondent issued additional assessment for additional Income tax for the years 2017 and 2018 and VAT for the month December 2017 and 2018.

8. The Appellant objected to the additional assessments on 27th January, 2021.

9. The Respondent issued its objection decision dated 1st April, 2021 confirming the additional tax assessments and confirmed the assessments on iTax on 3rd May, 2021.

10. The Appellant being dissatisfied with the objection decision, filed the notice of appeal on 28th January 2022.

The Appeal 11. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal dated 27th January 2022 and filed on 28th January 2022:-a.That the Respondent erred in law and fact by failing to amend its assessments in full despite the Appellant having lodged valid objection applications under Section 51 of Tax Procedure Act 2015. b.That the Respondent erred in law and fact by failing to deduct allowable expenses in ascertaining the total income and tax liability of the Appellant.c.That the Respondent further erred in law and fact by failing to deduct input tax to arrive at the correct tax liability with respect to the VAT assessments.d.That the Respondent erred in law and fact by confirming assessments KRA202021649144, KRA202021649171, KRA202021648341 and KRA202021648389 refusing to amend the same on ground that the Appellant had failed to provide evidentiary documents to support the objections.e.That the Respondent erred in law and fact by failing to consider and/or completely disregarding the Appellant's right to notification of any errors in the filed returns and its subsequent right to amend the filed returns to reflect the correct position.f.That the Respondent erred in law and fact by holding that the Appellant had allegedly failed to provide the relevant documentary evidence to support his Objections yet the said evidentiary documents had been provided by the Appellant to the Respondent.

Appellant’s Case 12. The Appellant’s case is premised on the Appellant’s Statement of Facts dated 27th January 2022 and filed on 28th January 2022 together with the documents attached thereto.

13. That on 8th October 2020, the Respondent wrote to the Appellant requiring the Appellant to provide reconciliation of variances between turnover declared and aggregate VAT for 2017 and 2018 amounting to Kshs. 58,589,735. 00.

14. That the Appellant complied and submitted the following documents in support of his case: -a.Input VAT documents for January 2017 to December 2020;b.Bank statements from January 2017 to December 2018 for NIC Bank, Co-op Bank, and Stanbic Bank;c.Hire purchase and or loan documents for motor vehicles; andd.Loan statements for January 2017 -December 2018.

15. That the Respondent issued the Appellant with additional assessments. Upon receipt of the assessments, the Appellant raised his objections to the said assessments on 2nd February 2021 on grounds that;-a.The Respondent in its assessments failed to deduct allowable expenses in ascertaining the total income of the Appellant.b.The Respondent further failed to deduct input tax to arrive at the correct tax liability with respect to the VAT assessment.

16. That Respondent issued the Objection Decision dated 1st April 2021 confirming the assessments and informing the Appellant that it was not willing to amend the assessments as per the Appellant's objection on claims that the Appellant did not provide the documents to support his objections.

17. That the Respondent already had possession of the said documents as the Appellant had delivered them to the Respondent on 24th November 2020 and the Respondent acknowledged receipt of the same by stamping on the Appellant's delivery copy.

18. That the Appellant observes that the Respondent violated Section 15 of the Income Tax Act CAP 270 by not deducting allowable expenses in ascertaining total income of the Appellant.

19. Further that, the Respondent violated Section 17 (i) of the VAT Act 2013 by not allowing the deductions of input tax on taxable supplies.

20. That the Respondent erred in law and fact by failing to consider and/or completely disregarding the Appellant's right to notification of any errors in the filed returns and his subsequent right to amend the filed returns to reflect the correct position.

21. The Appellant submitted that the following should be the issues for determination by the Tribunal:-a.Whether the Respondent's Additional Income tax Assessments were lawful.b.Whether the Respondent made errors in its computation of the additional Value Added Tax (VAT).c.Whether the Objection Decision of the Commissioner of Domestic Taxes on 1st April 2021 should be set aside and the Appellant discharged from paying Kshs. 25,871,925. 28.

22. The Appellant submitted that the assessments made by the Respondent fall into two parts, Income tax and VAT. On each of these issues, the Appellant submitted as follows:-

Income Tax 23. The Appellant submitted that the Respondent's Additional Income tax Assessment were not proper as they breached the provisions of Section 15 of Income tax Act CAP 470.

24. The Appellant submitted that the Respondent violated Section 15 of Income tax Act CAP 470 by not deducting allowable expenses despite the Respondent being aware of the same and having the relevant documents in his possession and VAT 3 returns as provided by the Appellant for ascertaining total taxable income of the Appellant.

25. The Appellant submitted that Section 15(1) of Income Tax Act CAP 470 in mandatory terms provides that:-“For the purpose of ascertaining the total income of any person for a year of income, there shall, subject to section 16 of this Act, be deducted all the expenditure incurred in such year of income which is expenditure wholly and exclusively incurred by him in the production of that income, and where under section 27 of this Act any income of an accounting period ending on some day other than the last day of such year of income is, for the purpose of ascertaining total income for any year of income, taken to be income for any year of income, then such expenditure incurred during such period shall be treated as having been incurred during such year of income.”

26. That Appellant submitted that the Respondent failed to consider the expenditure wholly and exclusively incurred by the Appellant as shown in the submissions.

27. That, it is trite law that parties are bound by their own pleadings as was stated in David Sironga Ole Tukai vs. Francis Arap Muge & 2 others Civil Appeal No. 76 of 2014 [2014] eKLR.“And it is for the purpose of certainty and finality that each party is bound by its own pleadings ...The court, on its part, is itself bound by the pleadings of the parties. The duty of the court is to adjudicate upon the specific matters in dispute, which the parties themselves have raised by their pleadings.'

28. That in Paragraph 6 of Respondent's Statement of Facts dated 23rd February 2022, the Respondent admits part of the claimed expenditure as Accounts Purchases worth Kshs. 24,046,526. 00 for 2018 and Kshs. 32,297,721. 00 for 2017 while establishing the variances that the Respondent proceeds to use the same to determine the VAT payable.

29. That the Account Purchases are a part of the expenditure claimed by the Appellant and include vatable purchases and part of motor vehicle running expenses but fails to include the rest of the expenditure including but not limited to the rest of motor vehicle running expenses, salaries, capital allowances, interests, and insurance.

30. That the admitted Accounts Purchases worth Kshs. 24,046,526. 00 for 2018 and Kshs. 32,297,721. 00 for 2017 are a part of the purchases in income tax. as claimed by the Appellant, nonetheless the same have not been factored in by the Respondent in his assessment of the income tax payable. That the Respondent approbates the said Accounts Purchases in establishing the alleged VAT but reprobates the same with respect to income tax.

31. That in the Republic vs. Institute of Certified Public Secretaries of Kenya Ex-Parte Mundia Njeru Geteria [2010] eKLR the High Court held that:- 'It is obvious that Mundia is approbating and reprobating which is an unacceptable conduct.”

32. That the Respondent must not be allowed to approbate and reprobate at the same time as was held in R vs. Kenya Revenue Authority Ex Parte Aberdare Freight Services Ltd Hdwc App. 9410/04, otherwise also referred to as 'blowing hot and cold at the same time' as was established by the Court of Appeal in Behan & Okero Advocates vs. National Bank of Kenya (2007).

33. The Appellant submitted that the admitted Accounts Purchases worth Kshs. 24,046,526. 00 for 2018 and Kshs. 32,297,721. 00 are undisputed by Respondent and that the same should be treated as expenditure in the assessment of income tax.

34. That further and based on the above, the variance of Kshs. 4,370,990. 00 relates to invoice number NKU-VIN+002914 dated 28th August 2017 for a purchase of a commercial motor vehicle. That the same was not considered by the Respondent despite it being a commercial motor vehicle hence a capital item.

35. Similarly, that the variance of Kshs. 16,427,717. 00 relates to:a.Purchase of motor vehicles KCS 069D and KCS 083D from Automobile Warehouse in January 2018, which are capital items.b.Motor vehicle running expenses.

36. The Appellant submitted that under VAT, the Respondent admitted at paragraphs 10 and 20 of its Statement of Facts dated 23rd February 2022 to having compared the VAT return purchases and income tax purchases, revealing inconsistencies not supported. The Appellant submitted that Vatable purchases are guided by the Value Added Tax Act, 2013 whereas taxable income is guided by the Income Tax Act Cap. 470.

37. That Section 17 of the Value Added Tax Act, 2013 provides credit for input tax against output tax on taxable supply (which includes the supply of capital goods, e.g. motor vehicles). While Section 15 of the Income Tax Act CAP 470 provides for allowable deductible expenses. That under Section 16 of the Income Tax Act CAP 470, expenditure of capital items such as motor vehicle are not allowable hence the variances as submitted under Paragraphs 18 and 19 of the Statement of Facts. Similarly, that Section 15 of the Income Tax Act CAP 470 includes purchases which are non-vatable.That Section 16 of the Income Tax Act CAP 470 reads;“Deductions not allowed1. Save as otherwise expressly provided, for the purposes of ascertaining the total income of a person for any year of income, no deduction shall be allowed in respect of-a.any expenditure or loss which is not wholly and exclusively incurred by him in the production of the income;b.any capital expenditure, or any loss. diminution or exhaustion of capital.”

38. That based on the foregoing, it is clear that the Respondent made errors in its computation of both the additional Value Added Tax (VAT) as illustrated above as well as additional Income tax.

39. The Appellant submitted that the objection decision of the Respondent dated 1st April 2021 is not proper as it does not meet the criteria established under the Income Tax Act CAP 470 and the Value Added Tax Act, 2013.

40. That the Respondent in its objection decision dated 1st April 2021 allege at the last paragraph that the Appellant failed to provide the relevant supporting documents thus forcing the Respondent to refuse to amend the assessment and to issue the said objection decision.

41. The Appellant submitted that the said allegation was misleading and/or a misrepresentation by the Respondent since the Appellant had delivered the said documents as averred under Paragraph 6 of the Appellant’s Statement of Facts dated 27th January 2022 and as per the Appellant's Delivery Note duly stamped by the Respondent on 24th November 2020 as an acknowledgement of receipt.

42. That the Objection Decision by the Respondent is neither just nor proper as it was issued without considering the Appellant’s supporting documents despite the same having been provided.

Appellant’s Prayers. 43. The Appellant makes the following prayers:-a.That this Appeal be allowed.b.That the Tribunal sets aside the Objection Decision dated 1st April 2021. c.That the Tribunal sets aside the assessment orders KRA202021649144, KRA202021649171, KRA202021648341 and KRA202021648389. d.That the Appellant be discharged from paying the additional VAT and income tax amounting to Kshs. 25871925. 28 plus any penalties and interest thereof arising from the subject assessment orders and the Objection Decision.e.Any other orders that the Honorable Tribunal may deem fit.

Respondent’s Case 44. The Respondent’s case is premised on the hereunder filed documents:-a.The Respondent’s Statement of Facts dated and filed on 23rd February 2021 together with the documents attached thereto.b.The Respondent’s written submissions dated 14th October, 2022 and filed on 17th October 2022 together with the legal authorities filed therewith.

45. The Respondent reiterated its position as stated in the objection decision communicated to the Appellant in the letter dated 1st April, 2021.

46. The Respondent stated that the Appellant earned income in the years 2017 and 2018 but failed to declare in its filed income tax returns as required under Section 52B of the Income Tax Act Cap 470 of the laws of Kenya as read together with Sections 24 and 28 of the Tax Procedures Act, 2013.

47. The Respondent averred that the additional income tax assessments were based on the variance between the turnover declared in the income tax returns and the turnover in the VAT returns.

48. That the Respondent issued additional income tax assessments for income earned in the years 2017 and 2018 in line with Sections 73 and 77 of the Income Tax Act Cap 470 of the laws of Kenya as read with Section 29 of the Tax Procedures Act, 2013.

49. The Respondent avers that the additional VAT assessments were based on the variance in the purchases declared in the VAT returns vis a vis purchases in the audited accounts.

50. The Respondent avers that during the objection, the Appellant provided Z reports and audited accounts which confirmed the variance.

51. The Respondent averred that the objection decision dated 1st April, 2021 was issued in compliance with the law based on the information available to the Respondent and to his best judgement.

52. The Respondent averred that the Objection Decision dated 1st April, 2021 is proper in law and should be affirmed.

53. In its submissions, the Respondent indicated that there are two issues of determination as follows:-i.Whether the Respondent’s objection decision dated 1st April 2021 is proper in law.ii.Whether the Appellant has met the burden of proof in the Appeal herein.

i. Whether the Respondent’s objection decision dated 1st April 2021 is proper in law. 54. The Respondent averred that the tax investigations covered the tax period years 2017 and 2018 wherein an analysis of the filed VAT and income tax returns revealed a variance tabulated as follows:-Period Income tax turnover VAT Variances

2018 8,474,667 39,302,551 30,827,884

2017 9,071,024 36,832,875 27,761,851

Total 17,545,024 76,135,426 58,589,735

55. The Respondent averred that there were inconsistencies in the purchases and sales declared in the VAT returns vis a vis the purchases and sales declared in the audited accounts tabulated as follows;Period 2017 2018

Sales as per Z report 36,832,875 39,302,551

Sales as per the VATReturns 36,832,875 39,297,550

Variance 0 5,001. 00 Period VAT Return Purchases Accounts Purchases Variance

2018 40,474,243 24,046,526 16,427,717

2017 36,668,261 32,297,271 4,370,990

Totals 77,142,504 56,343,797 20,798,707

56. The Respondent submitted that the additional VAT and income tax assessments were based on the variances in the turnover in the Income tax and VAT returns which was confirmed by the Appellant's Z-reports and audited accounts.

57. The Respondent submitted that in Tumaini Distributors Company (K) Limited vs. Commissioner of Domestic Taxes [2020] EKLR the High Court stated that:-“The Commissioner clearly explained that it based its decision the statement of accounts and returns the Company had filed. The Tribunal appreciated this fact when it concluded that it was the duty of the Company to provide all the documents and that the Commissioner was entitled to rely on the self-assessments and returns lodged by the Company in the absence of any other documents."

58. The Respondent averred that the basis of the additional VAT and income tax assessments was explained to the Appellant vide the letter dated 5th January, 2021 and the Appellant was given 30 days to raise an objection.

59. The Respondent averred that at the objection stage the Appellant provided Z­ reports and audited accounts which confirmed the variance in the VAT and income tax returns.

60. The Respondent submitted that under Sections 58 and 59 of the Tax Procedures Act, 2013 the Appellant is under a legal obligation to produce documents and allow for inspection to enable the Respondent determine the Appellant's tax liability.

61. That in Tax Appeals Tribunal No. 117 of 2017 Digital Box Limited vs. Commissioner of Investigations and Enforcement the Tribunal referred to the case of Van Boeckel v C & E QB Dec 1980, [1981] STC 290 Woolf J where it was stated that:“the very use of the word Judgment' makes it clear· that the commissioners are required lo exercise their powers in such a way that they make a value judgment on the material which is before them. Secondly, clearly there must be some material before the commissioners on which they can base their judgment. If there is no material at all it would be impossible to form a judgment as to what tax is due ... What the words 'best of their judgment' envisage in my view is that the commissioners will fairly consider all material placed before them and on that material, come to a decision which is one which is reasonable and amount of tax which is due as long as there is some material on which the Commissioner’s act then they are not required to carry out investigations which may or may not result in further material being placed before them.”

ii. Whether the Appellant has met the burden Appeal herein? 62. The Respondent submitted that the burden of proof is upon the Appellant to prove that the tax assessment was wrong or excessive.

63. That in Primarosa Flowers Ltd vs. Respondent of Domestic taxes [2019] eKLR it wa stated that:-“In the instant case, the Appellant has not produced any documentary evidence, that the currency of the transaction or export documents were in Dollars or payments were received in Dollars. I find the Appellant has not discharged the burden of proof to the required standard of proof. In Mulherin vs. Respondent of Taxation [2013] FCAFC 1. 15 the Federal Court of Australia held that in tax disputes, the taxpayer must satisfy the burden of proof to successfully challenge income tax assessments. The onus is on the taxpayer in proving that assessment was excessive by adducing positive evidence which demonstrates the taxable income on which tax ought to have been levied."

64. That this position was affirmed by the Tribunal in the case of Nairobi TAT Appeal No. 55 of 2018- Boleyn International Limited vs. Commissioner of Investigations and Enforcement, when the Tribunal 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 Tax Procedures Ac, 2015 which states: In any proceedings under this part, the burden shall be on the taxpayer to prove that a tax decision is incorrect. Further the Tribunal finds the following paragraphs from Pierson V Belde1 (H.M. Inspector of Taxes)(1956-1960) 38TC 387 to be instructive; but the matter may be disposed of, I think even more shortly in this way: there is an assessment made by the Commissioner upon the Appellant; it is perfectly clearly settled by cases such as in the case of Norman V Golder 26 T.C.293, that the onus is upon the Appellant to show that the assessment made upon him is excessive or incorrect; and of course he has completely failed to do so. That is sufficient to dispose of the Appeal, which I accordingly dismiss with costs."

65. The Respondent submitted that the burden of proof is upon the Appellant to prove that there were supported input tax claims and expenses which were disallowed.

66. The Respondent submitted that input tax claims and expenses have to be supported with documentation.

67. The Respondent averred that the Appellant cannot contend that there were errors in his filed returns yet he has never applied to make amendments of his returns which is well within his legal rights as provided for under Section 31 of the Tax Procedures Act, 2015.

68. The Respondent submitted that the Objection Decision dated 1st April, 2021 is proper and the same be upheld.

Respondent’s prayers. 69. The Respondent prays that The Tribunal considers the case and finds that:a.That the objection decision dated 1st April, 2021 confirming VAT of Kshs. 4,943,445. 28 and Income Tax of Kshs. 20,928,480 for the tax period years 2017 and 2018 was proper in law and in conformity with the provisions of the Income Tax Act and Value Added Tax Act, 2013;b.That the additional tax of Kshs 25,871,925. 28 is due and payable by the Appellant to the Respondent; andc.That this Appeal be dismissed with costs to the Respondent as the same is without merit.

Issues For Determination 70. The Tribunal has carefully studied the pleadings and documentation of both parties and is of the respectful view that the issues that call for its determination are as follows:-a.Whether the Respondent’s Objection Decision dated 1st April 2021 is proper in law.b.Whether the Appellant has discharged the burden of proof in the Appeal herein.

Analysis And Findings a) Whether the Respondent’s Objection Decision dated 1st April 2021 is proper in law. 71. In the Objection Decision dated 1st April 2021, the Respondent wrote the following to the Appellant:-“We hereby give you notice that the assessment is confirmed as we are not prepared to amend in accordance with your objection. Take note that you failed to provide relevant documentary evidence as requested in support of your objection ground contrary to the amended Tax Procedures Act No 29 of 2015 Section 51(3)c.”

72. In regard to objection to a tax decision, Section 51 of the Tax Procedures Act provides as follows:-“(2)A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision.(3)A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if-(a)The notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments;(b)In relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay for the tax not in dispute under section 33(1); and(c)All the relevant documents relating to the objection have been submitted.”

73. If for any reason the Commissioner decides that the Objection is not validly lodged, Section 51(4) of the TPA states as follows:-“Where the Commissioner has determined that the notice of objection lodged by a taxpayer has not been validly lodged, the Commissioner shall immediately notify the taxpayer in writing that the objection has not been validly lodged”

74. The law makes it mandatory for the Commissioner to inform the taxpayer that its objection is not validly lodged. It is at this stage that the Respondent would invalidate the objection, Where this is not done, it means that the Objection is validly lodged and the Commissioner would proceed to make the objection decision in line with Section 51(8) of the TPA which states that;-“Where a notice of objection has been validly lodged within time, the Commissioner shall consider the objection and decide either to allow the objection, in whole or in part, or disallow it, and the Commissioner’s decision shall be referred to as an ‘objection decision’.”The Commissioner can only make an Objection Decision in a situation where the objection is validly lodged.

74. Section 51 (10) of the TPA st6ates as follows with regard to objection decision:-“An objection decision shall include a statement of findings on the material facts and the reasons for the decision”

74. The Respondent in its Objection decision stated that:-“Take note that you failed to provide relevant documentary evidence as requested in support of your objection ground contrary to the amended Tax Procedures Act No 29 of 2015 Section 51(3)c.”

74. The Tribunal finds that if Section 51(3)c of the TPA had not been complied with by the Appellant, then the Objection by the Appellant would not have been validly lodged. It would then have been the duty and responsibility of the Respondent to immediately inform the Appellant of this fact at the instance of receipt of the notice of objection as provided for in Section 51(4) of the TPA. The Respondent went ahead and made the Objection Decision on the 60th day after the notice of objection was lodged because it was deemed to have been validly lodged in compliance with Section 51(3) of the TPA. By making the decision, the Respondent validated the notice of objection and cannot subsequently invalidate what it has already been deemed to have validated.

75. The Tribunal addressed itself on the validity of an objection in Appeal No 271 of 2020, SAMPESA Agency Limited V Commissioner of Domestic taxes at Paragraph 19 where it held that:-“The Respondent informed the Appellant that its objection notice was fully rejected on account of lack of supporting documents. With respect, we think the Respondent is conflating its functions under section 51(4) and 51(11) of the TPA. Under Section 51 (4), The Respondent is enjoined in mandatory terms to inform a taxpayer immediately of any invalidity in its objection notice. The operative term therein is ‘immediately’. It cannot be that the Respondent does not inform the taxpayer of any invalidity in the objection notice and then purport to issue an objection decision”

74. From the pleadings and documents filed before the Tribunal, no evidence was tendered that there were specific documents requested from the Appellant that were not provided. The fact that the Respondent validated the objection means that it was satisfied that the objection met all the requirements of the law. In view of this, the Tribunal finds that the Respondent’s Objection Decision dated 1st April 2021 is not proper in law as it invalidates what the Respondent had already been deemed to have validated.

b). Whether the Appellant has discharged the burden of proof in the Appeal herein. 74. In the second paragraph of Statement of Facts, the Appellant stated that on 8th October 2020, the Respondent wrote to it requiring the Appellant to provide reconciliation of variances between turnover declared and aggregate VAT for 2017 and 2018 amounting to Kshs. 58,589,735. 00.

75. The Appellant complied and indicated that it submitted the following documents to the Respondent: -a.Input VAT documents for January 2017 to December 2020;b.Bank statements from January to 2017 to December 2018 for NIC Bank, Co-op Bank, and Stanbic Bank;c.Hire Purchase and or Loan documents for motor vehicles; andd.Loan Statements for January 2017 -December 2018.

74. The documents were submitted to the Respondent vide a letter dated 24th November 2020. A copy of the letter was stamped by the Respondent as having been received on the same date. The documents were also attached to the Statement of Facts of the Appellant filed at the Tribunal.

75. In paragraph 8 of its Statement of Facts, the Respondent also stated that;-“The Appellant availed the documents namely monthly Z report and audited accounts on 24th November, 2020. ”

74. The Respondent submitted that the burden of proof is upon the Appellant to prove that there were supported input tax claims and expenses which were disallowed. The Respondent further submitted that input tax claims and expenses have to be supported with documentation.

75. The Tribunal is guided by its holding in TAT No 139 of 2018, Bhai Company Limited vs Commissioner of Domestic where in Paragraphs 60 and 61 where it held that:-“60. Once the taxpayer adduces evidence that discharges his burden, the burden shifts to the Commissioner who must demolish such evidence. This view was held in Supreme Court of Canada’s decision in Hickman Motors Ltd. v. Canada, [1997] 2 S.C.R. 336 the Court stated that:“The taxpayer’s initial onus of “demolishing” the Minister’s exact assumptions is met where the appellant makes out at least prima facie case… Where the Minister’s assumptions have been “demolished by the appellant, “the onus…. shifts to the Minister to rebut the prima case” made out by the appellant and to prove the assumptions…The law is settled that unchallenged and uncontradicted evidence “demolishes” the Minister’s assumptions; …Where the burden has shifted to the Minister, and the Minister adduces no evidence whatsoever, the taxpayer is entitled to succeed; and even if the evidence contained “gaps in logic, chronology, and substance”, the taxpayer’s Appeal will be allowed if the Minister fails to present any evidence as to the source of income.”61. The Tribunal notes that the Appellant furnished the Respondent with the documents detailing the transactions as provided by Section 17 of the VAT Act. The Appellant further provided bank records, delivery notes and payment records. This evidence established prima facie that it indeed purchased the said goods. The Respondent on its part did not demolish this evidence.”

87. The Tribunal finds that the Appellant has filed before the Tribunal documents that explain the variances between the VAT returns and the income tax returns. He has also tendered all the documents that he submitted to the Respondent to proof that the tax decision is incorrect and should have been made differently. The Tribunal therefore finds that the Appellant has discharged the burden of proof in the Appeal herein.

Final Decision 87. The upshot of the foregoing is that this Appeal is merited and succeeds. Consequently, the Tribunal makes the following Orders: -a.The Appeal be and is hereby allowed.b.The Respondent’s Objection Decisions dated 1st April 2021 be and is hereby set aside.c.Each Party to bear its own costs.

87. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 26TH DAY OF MAY, 2023………………………ERIC N. WAFULACHAIRMAN………………………CYNTHIA MAYAKA………………………GRACE MUKUHAMEMBER………………………ABRAHAM KIPROTICHMEMBER………………………JEPHTHAH NJAGIMEMBER