[2024] KETAT 1458 (KLR)

Noorani v Commissioner of Domestic Taxes (Tax Appeal 281 of 2023) [2024] KETAT 1458 (KLR) (13 September 2024) (Judgment)

Neutral citation: [2024] KETAT 1458 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 281 of 2023

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, G Ogaga & AK Kiprotich, Members

September 13, 2024

Between

Schon Noorani

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is an individual duly registered taxpayer who runs rental properties.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority (KRA) Act, and KRA 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 issued the tax assessments on 30th November, 2022.

4. The Appellant objected to the assessments on 21st December, 2022 for rental income and on 30th December, 2022 for Income tax.

5. The Respondent issued an objection decision on 21st February, 2023.

6. Thereafter, the Appellant lodged a Notice of Appeal dated 21st March, 2023 and filed on the same date.

The Appeal 7. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated 4th April, 2023 and filed on the same date:-i.That the Respondent’s claimed assessments amounting to Kshs. 30,001,150. 00 in respect to alleged Income tax for the period 2014 to 2018 and subsequently leading to this Appeal challenging the same pursuant to Section 52 of the Tax Appeals Tribunal Act, 2013. ii.That the Respondent erred in law and by fact by assessing taxes and demanding the production of documents in contravention of Section 23(1)(c) of the Tax Procedures Act No. 29 of 2015 hereinafter called the “Act”“Subject to Subsection (3), retain the document for a period of five years from the end of the reporting period to which it relates or such shorter period as may be specified in tax law”iii.That the Respondent relied on hearsay in estimating alleged rental income, without providing actual evidentiary proof of such fact, even after being given all the documentary evidence by the Appellant which it ignored yet tax law provides that the taxes paid must be factual and just.iv.That the Respondent confirmed the notice of assessment without due regard to all records, explanations and information provided by the Appellant thereby failing to appreciate all issues presented by the Appellant before confirming the assessment, especially regarding the interest income claimed.v.That the amounts confirmed by the Respondent of Kshs. 30,861,159. 00 in respect to taxes for the period January 2014 to 2018 is therefore wrong in law and fact and should be annulled.vi.That the Respondent acted ultra vires by not responding to the Appellant’s issues within the restricted time of 90 days; responded after two years on 30th November 2022.

Appellant’s Case 8. The Appellant’s case is premised on its Statement of Facts dated 4th April, 2023 and filed on the same date together with the documents attached thereto and proceedings before the Tribunal.

9. That the Respondent initially wrote to the Appellant on 24th April, 2019 vide a letter referenced IED/NBI/DT1S/42/2018 requesting for information specifically regarding Mr. Rajendra Sanghani, being the loan agreement schedule amounts and loan repayments. That the sole purpose of the same was disclosed to the taxpayer that the Respondent was undertaking an investigation against him.

10. That the Appellant did not hesitate and the same was provided for on 27th May, 2019; and that the information included various documents and dealings and alleged payments between the Appellant and Mr. Rajendra Sanghani.

11. That the Appellant entered into an agreement with one Mr. Rajendra Sanghani for the advancement of various loans between the period of January 2015 and June 2017. That the same was written down.

12. That the Appellant duly provided information. That even though he had an agreement with Mr. Sanghani, Mr. Sanghani had defaulted on making any form of payments, but however acknowledged that he was in debt to the Appellant.

13. That the Appellant provided the Respondent the various demands and correspondences, to which Mr. Sanghani acknowledged that he had to pay, and that the bulk of pending payments was interest that had been charged on his loan

14. The Appellant averred that indeed Mr. Sanghani filed an insolvency case; Rajendra Ratilal Sanghand vs. Schoon Ahmed Noorani (2018] eKLR Insolvency Cause Misc No. 033 of 2018 prompted by the Appellant’s demand letters to indicate his inability to pay the pending principal amount and entire outstanding interest against the Appellant; information which was fully available to the Respondent

15. That Mr. Sanghani was queried on the same loans as the Appellant, That on 3rd September, 2018, Mr. Sanghani provided further explanations, on the interest expenses paid totaling to Kshs. 117,866,364. 00 and on interest related to the loan of Kshs, 477,100,000. 00 acquired from Mr. Schon Noorani, to the Commissioner.

16. That Mr. Sanghani being dissatisfied with the objection decision appealed to the Tax Appeals Tribunal on 24th May, 2019; TAT Appeal No.331 of 2019 and applied for ADR on 16th July, 2019 on the same issues being currently raised now with the Appellant.

17. That Mr. Sanghani further had a matter in this Honorable Tribunal and received a Judgment. TAT No. 331 of 2019 - Granada Trading Company Limited vs. Commissioner of Domestic Taxes in which it was stated as follows:“The Appellant avers that the Respondent claimed the interest paid by the Appellant to Mr. Schon Noorani should have been subject to WHT at source at 15%. However, the Appellant contends that the accrual of the interest expense in its books of account did not amount to payment of the same to Mr. Schon and that it was only a recognition of the crystallization of a liability due from it to the creditor and that the Appellant's decision to demand the payment of WHT, in the circumstances was ultra vires.”

18. That it is indeed a fact that Mr. Sanghani admitted to receiving a loan from the Appellant, and was charged interest and had it in his books. That however the same had not crystalized.

19. The Appellant, in the previous case, averred that it could not make a deduction from funds that it was not holding. That furthermore, before a demand for payment can be made, there must be an income and a deduction, and therefore WHT is leviable on the total income.

20. The Appellant further contended that the Directors had not finished paying Mr. Schon Noorani and that the Commissioner cannot claim WHT when the same has not been paid yet as per the agreement.

21. The Appellant submitted that Mr. Rajendra Ratilal Sanghani paid the full loan less the interest income that is subject to WHT.

22. That in his arguments, Mr. Sanghani argued that the Commissioner erred by assuming that the bank deposits were income whereas the interest relied upon were simply interest derived from fixed deposits invested in Prime Bank Limited and the source of funds invested in the fixed deposits were loans borrowed by Mr. Sanghani & Granada Trading Company Limited.

23. That the Appellant was never paid by Mr. Sanghani, and therefore the Commissioner cannot charge interest. In Ahmed Noorani v Schon Ahmed Noorani; Rajendra Ratilal Sanghani (Defendant/Judgement-Debtor) [2021 eKLR it was stated that:“The Judgement-Debtor has adamantly neglected and/or ignored settling of the decree which has at the date hereof accumulated to Kshs. 195,000,000”

24. That all the above stated matters clearly show that the Appellant gave monies to Mr. Sanghani. That however, it was never paid; both the principal, and/ or interest. That therefore, the Respondent is acting in bad faith and ultra vires in claiming interest income.

25. That on 9th January, 2023, further to the objection dated 30th December, 2022, the taxpayer's agent provided an addendum on the objection to notices of assessment on interest income.

26. That despite the above information available to the Respondent, it still proceeded to demand that tax be paid on unpaid interest.

27. That Section 35(3) of the Income Tax Act Cap 470 Laws of Kenya requires a taxpayer to withhold upon making a payment. That the Section provides as follows;“Subject to Subsection (3A), a person shall upon payment of an amount to a person resident or having a permanent establishment in Kenya in respect of;a.a dividend; orb.interest, other than interest paid to a financial institution specified in the Fourth Schedule which is resident or which has a permanent establishment in Kenya, including interest arising from a discount upon final satisfaction or redemption of a debt, bond, loan, claim, obligation or other evidence of indebtedness measured as the original issue discount, other than interest or discounts paid to a person exempt under the First Schedule or a financial institution specified in the Fourth Schedule:…”

28. That the Section thus makes withholding tax to accrue at the point of making a payment. That the circumstances of this particular case are such that even though Mr. Sanghani claimed interest expenses in his books, he did not make actual interest payments on the loan so as to attract withholding tax at the point of payment, to affect Mr. Schon Noorani, the Appellant.

29. That in regard to rental income, the grounds for objection were clear as the years of Income 2014 & 2015 were beyond the five years the Appellant was required to maintain records under Section 23 (1) (c) and when assessment can be amended under Section 31(4).

30. That the Act provides that subject to subsection (3), the taxpayer should retain the document for a period of five years from the end of the reporting period to which it relates, or such shorter period as may be specified in a tax law.

31. That Section 29(5) of the Act limits the period within which the Respondent can issue such an assessment by providing as follows;“Subject to subsection (6), an assessment under subsection (1) shall not be made after five years immediately following…”

32. That rental income was being shared among six members of the same family who were all registered for monthly rental income. That the same rental income to Paa Brothers Ltd, a family-owned company, was also banked in the bank accounts under review. That the same was referenced in the letter by the Appellant’s agent dated 18th August, 2020, which provided an explanation on how the rent was shared among the parties.

33. The Appellant contended that he is a separate individual from the others including the company, and should not be held to account for everyone, despite the information being provided to the Respondent.

34. That the failure to incorporate the declarations of the four members of the family and Paa Brothers Ltd, in the computations, distorted the figures used to assess the incomes of the two members.

35. That further, the tax amnesty declaration by the Appellant for the year 2015 was omitted in the computations

36. The Appellant averred that the only computations allowed to be arguable are assessments of 2016, 2017 and 2018, as per the objection dated 21st December, 2022 and therefore the same ought to be re-assessed.

37. That the Respondent's letter dated 24th April, 2019 was addressed to the Appellant requesting him to provide information in relation to business dealings with one Mr. Rajendra Sanghani,

38. That the same was derived from his business relations with Mr. Rajendra Sanghani for the purpose of investigating Mr. Sanghani which the Appellant readily produced the same.

39. That the data released to the Respondent was to be released under the ambit of taxpayer whistle blower program (i-Whistle). That there was clear mischief on the Respondent’s part by using the same issues raised by the Appellant under the ambit of whistle blowing.

40. That the above notwithstanding, under Fair Administration Act, it was incumbent upon the Respondent to inform the taxpayer that he was under investigation and that his own information would be used to evaluate not only Mr. Rajendra Sanghani, which the Appellant provided, but also the Appellant in his own capacity.

41. That the same cannot be used against the Appellant, given that he was voluntarily used as part of the ambit of whistle blowing under Section 4(1). That in the event the Respondent was not genuine in requesting documents, the Appellant would not have voluntarily provided self-incriminating evidence.

42. That the final correspondence before Appeal was the objection decision dated 21st February, 2023.

Appellant’s Prayers 43. The Appellant prayed that this Appeal be allowed and that the decision by the Respondent be annulled or varied in such a manner as is just and reasonable.

Respondent’s Case 44. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal:-i.The Respondent’s Statement of Facts dated 27th April, 2023 and filed on 28th April, 2023 together with the documents attached thereto.ii.The Respondent’s written submissions dated 22nd July 2024 and legal authorities filed therewith.iii.The Respondent’s witness statement of Kathuure Kamundi dated 21st June, 2024 and filed on 25th June, 2024; admitted in evidence under oath on 16th July, 2024. iv.The Respondent’s Witness statement of Jacklyne Maritim dated 21st June, 2024and filed on the 25th June, 2024; admitted in evidence under oath on the 16th July, 2024.

45. That the Respondent carried out investigations into the business of the Appellant for the period 2014-2018 with a view of confirming its tax compliance under Income tax obligations and VAT with a view to confirm if income was declared under Section 3(2)and Part IV of Income Tax Act.

46. That the information from the iTax data based on non-filers showed that the Appellant had made taxable supplies whose annual value exceeded five million shillings but failed to register for VAT obligation as per Section 34(1)(a) of VAT the Act. That as such, a notice was issued as per Section 8(8) of the Tax Procedures Act to register the Appellant.

47. That in addition, investigations established that the Appellant received commercial rent for the period 2014-2018 which met the threshold for VAT registration under the VAT Act.

48. That further to that, the Appellant responded to a notice for registration on 15th July, 2020 and requested for clarification which the Respondent issued on 28th July, 2020.

49. That in light of the above, the Respondent determined the taxable income on interest on income and rental income and issued assessments on 30th November, 2022 for Kshs. 33,115,895. 00.

50. That the Appellant filed an objection on 30th December, 2022 which was duly acknowledged by the Respondent stating that the Appellant was denied an opportunity to provide information and that the years 2014 and 2015 were beyond the five year period required to maintain records.

51. That the Respondent thereafter issued a demand, however, the Appellant failed to provide all supporting documents for his objection as requested within stipulated timelines.

52. That in the light of the above, the Respondent upon considering the Appellant’s objection letter issued a decision based on the documents provided and reviewed the rental tax due to Kshs. 30,861,159. 00.

53. The Appellant filed a Notice of Appeal against the decision of the Commissioner on 21st March, 2023 against the decision of the Commissioner confirming the assessment of Kshs. 30,861,159. 00.

54. That in response to grounds 1-2 of the Appellant’s Memorandum of Appeal and ground 19-26 of the Appellant’s Statement of Facts, the Respondent averred that the assessments were correctly issued and conformed to the Income Tax Act.

55. That the Appellant did not provide any evidence that would have altered the assessment. That the Tax Procedure Act places the onus of proof in tax objections on the taxpayer who in this case failed to avail evidence that would support a contrary assessment or that would have guided the Respondent at arriving to a different objection decision. That the referenced Section 56(1) provides as follows:“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

56. That in further response to grounds 1-2 of the Appellant’s Memorandum of Appeal, the Respondent averred that examination of the Appellant's records, audited accounts and Income tax returns established that the Appellant failed to declare rental income and all his incomes for the years of income 2014-2018, respectively. That the Respondent is empowered under the Income Tax Act to bring to charge income where the same is established due. That the relevant Section 73 provides as follows:1. Save as otherwise provided, the Commissioner shall assess every person who has income chargeable to tax as expeditiously as possible after the expiry of the time allowed to that person under this Act for the delivery of a return of income.2. Where a person has delivered a return of income, the Commissioner may:a.if he has reasonable cause to believe that the return is not true and correct, determine, according to the best of his judgement, the amount of the income of that person and assess him accordingly…”

57. That in response to ground 3 of the Appellant’s Memorandum of Appeal and grounds 1-10 of his Statement of Facts, the Respondent averred that the tax was reached at based on the information available and provided by the Appellant and the Commissioner is empowered by the Tax Procedures Act to make such decisions. That the assessment was based on the information provided. That the relevant Section provides as follows:“29(1) Where a taxpayer has failed to submit a tax return for a reporting period in accordance with the provisions of a tax law, the Commissioner may, based on such information as may be available and to the best of his or her judgement, make an assessment (referred to as a “default assessment”)”

58. That in response to ground 4 of the Appellant’s Memorandum of Appeal and grounds 11-18 of his Statement of Facts, the Respondent asserted that the Appellant in lodging his objection failed to state the reasons precisely to be addressed in the assessments raised. That in addition, the Appellant failed to properly lodge his objection as provided by the Tax Procedures Act. That the relevant Section 51(3) of Tax Procedures Act 2015 provides as follows;“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; andb.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.”

59. That in response to the Appellant’s grounds 5-6 of his Memorandum of Appeal, and grounds 27-36 of his Statement of Facts, the Respondent submitted that the taxpayer, despite declaring some income knowingly, continued to under declare rental income for the period under review contrary to the provisions of the Income Tax Act. That according to the Income Tax Act, it is the responsibility of any person carrying on business to maintain records of all transactions. That the relevant Sections provide as follows:54A(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;”and55(2) “A person carrying on a business shall preserve every book of account, and every document which is essential to the explanation of any entry in any book of account, relating to the business for a period of not less than ten years after the year of income to which that book of account or document relates.”

60. That in further response to the Appellant’s grounds 5-6 of the Memorandum of Appeal, the Respondent averred that it is empowered by Section 31 of the Tax Procedures Act, 2015, to carry out amendments on assessments where adjustments are due to bring to charge the correct amounts. That the section provides as follows:“(1)Subject to this section, the Commissioner may amend an assessment (referred to in this section as the "original assessment") by making alterations or additions, from the available information and to the best of the Commissioner's judgement, to the original assessment of a taxpayer for a reporting period to ensure that-…”

61. That in further response to the Appellant’s grounds 5-6 of his Memorandum of Appeal, the Respondent submitted that the Appellant did not declare rental income for the accounting period 2014-2018 in contravention of the requirements of the Tax Procedures Act and that the estimated assessments were correct. That the relevant Sections provide as follows:“94. Failure to submit tax return or other document

A person commits an offence if the person without reasonable cause fails to submit a tax return or other document required under a tax law by the due date.”and;“95. Failure to pay taxA person commits an offence if that person fails to pay tax by the due date.”

62. That in response to the Appellant’s grounds 1-6 of his Memorandum of Appeal and grounds 1-36 of his Statement of Facts, the Respondent submitted that the tax assessments are correct and the same were based on the best judgement where the Appellant's audited accounts and records were analyzed and adjustments made for rental income declared. That hence, they were brought to charge.

63. That in further response to the Appellant’s ground 1-6 of his Memorandum of Appeal, the Respondent reiterated that the Appellant failed to provide signed financial statements and books of account to support his allegations. That the Tax Procedure Act empowers the Respondent to carry out assessment based on the information available. The Respondent averred that the assessment was issue based on information provided. That the relevant Section 24 provides as follows:1. A person required to submit a tax return under a tax law shall submit the return in the approved form and in the manner prescribed by the Commissioner.2. The Commissioner shall not be bound by a tax return or information provided by, or on behalf of a taxpayer and the Commissioner might assess a taxpayer's tax liability using any information available to the Commissioner.”

64. That in response to the Appellant’s ground 12 of his Statement of Facts, the Respondent denied that the Appellant has paid all his tax dues and reiterated that because of his under-declaration, the Appellant is in debt of Kshs. 30,861,159. 00.

65. The Respondent averred that the Appellant is undeserving of the prayers sought due to the foretasted reasons.

66. The Respondent relied on the authority in TAT E072 OF 2023 - Joyce Mwende Titus vs. Commissioner of Domestic Taxes and Commissioner of Investigations and Enforcement vs. Kidero (Income Tax Appeal E028 of 2020 eKLR where it was held that:“...the duty imposed on the taxpayer to keep records and the provisions on the burden of proof all go to support the Kenyan tax collection regime which is centered on a system of self-assessment. This system relies on the taxpayer making full and good faith disclosures in their tax declaration and affairs and hence empower the Commissioner to demand documents from time to time when investigating the affairs of a taxpayer...”

67. The Respondent submitted that the Tribunal should be guided by the following considerations;a.Were any documents provided to justify the Appellant's objection?b.Were the annual taxation returns of income as done by the Appellant from time to time correct and complete?c.Were any transactions omitted from or incorrectly recorded in the Appellant's books of accounts/banking's?

68. The Respondent further relied on the following authorities to buttress its case:i.TAT No. 1400 of 2022 Julie Magwi Njue vs. Commissioner Of Domestic Taxes.ii.Monaco Engineering Limited vs. Commissioner Domestic Taxes; TAT Appeal No. 67/2017. iii.Osho Drapers Ltd vs. Commissioner of Domestic Taxes; TAT No.159. iv.Miao Yi vs.Commissioner of Investigations & Enforcement; TAT no 441 of 2019. v.Ritz Enterprises Limited vs. Commissioner of Investigations & Enforcement; TAT No. 227 of 2018. vi.Kenya Revenue Authority vs. Man Diesel & Turbo Se, Kenya [2021] eKLR.vii.Janet Kaphiphe Ouma and another vs. Marie Stopes.viii.Dyer & DyerLimited vs. Commissioner of Domestic Taxes; TAT 139 of 2020. ix.Commissioner of Domestic Taxes vs. Metoxide Limited [2021].x.Ken Iron and Steel Limited vs. Commissioner Investigations and Enforcement (2021).xi.Commissioner of Domestic Services vs. Galaxy Tools Limited (2021) eKLR.

Respondent’s Prayers 69. The Respondent prayed that this Tribunal considers the case and finds:i.The Appellant’s Appeal lacks merit.ii.That the Respondent's objection decision be upheld.iii.The outstanding tax arrears of Kshs. 30,861,159. 00 are due and payable by the Appellant.iv.The confirmed assessments dated 30th November, 2022 were proper in law.v.That the Appeal herein be dismissed with costs to the Respondent.

Issues For Determination 70. The Tribunal upon due consideration of the pleadings and the written submissions of the parties is of the considered view that the Appeal raises the following issues for its determination:a.Whether the Respondent issued assessments that were time barredb.Whether the assessments by the Respondent were justified

Analysis And Determination 71. The Tribunal having established the issues falling for its determination proceeds to analyse the same as hereunder.a.Whether the Respondent issued assessments that were time barred

72. The dispute at hand originated from the issuance of assessments on Income tax and VAT by the Respondent.

73. The Appellant argued that certain assessments were time barred while others were not justified as it provided all the requisite information to the Respondent.

74. The Respondent on its part, argued that the Appellant’s case was one of gross or wilful neglect as well as evasion or fraud. That further, the Appellant did not provide documents to dispel the case against it.

75. The Tribunal has gleaned through the Respondent’s pleadings and established that the assessments issued by the Respondent related to the years 2014 to 2018.

76. Section 29 of the Tax Procedures Act provides as follows regarding the issuance, by the Respondent, of a default assessment beyond 5 years:1. Where a taxpayer has failed to submit a tax return for a reporting period in accordance with the provisions of a tax law, the Commissioner may, based on such information as may be available and to the best of his or her judgement, make an assessment (referred to as a "default assessment") of—….5. 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.6. Subsection (5) shall not apply in the case of gross or wilful neglect, evasion or fraud by a taxpayer.”

77. The Tribunal seeks to clarify the provisions of Section 29 which relate to the statutory limit of the issuance of a default assessment by the Commissioner. Section 29(5) and (6) expressly state that the timeline is directly related to last date of the reporting period to which the assessment relates.

78. The law as cited above limits the Respondent to assess the Appellant five years unless issues of wilful neglect, evasion or fraud is proved. The Respondent did not provide documentation to prove that fraud, gross or wilful neglect, evasion or fraud by the Appellant was established to warrant assessments beyond the 5 year timeline. Although the Respondent averred in its Objection decision that there was fraud, etc, it did not provide documentation to prove the same.

79. The Tribunal further notes as follows regarding the statutory timelines in relation to the instant assessments and based on the assessment date:i.Income Tax – The compliance date for Income tax is the 6th month of the subsequent year after the financial year of a company. This is provided for under Section 52B(1)(b) of the Income Tax Act which states as follows regarding the filing of final return with self-assessment:“every person, other than an individual chargeable to tax under the Act,shall for any accounting period commencing on or after 1st January, 1992 furnish to the Commissioner a return of income, including a self-assessment of his tax on such income, not later than the last day of the sixth month following the end of his accounting period:”

80. It follows therefore that a 5 year timelines per the date of assessment and as per Section 29(5) would cover the month of June 2022 back 5 years; in which case the period that complies with Section 29(5) of the TPA is 2017 to 2021 years of income. Any Income tax assessment relating to any period prior to January 2017 would therefore be void.i.VAT – Section 2(1) definition of tax period VAT is accounted for by the 20th of the subsequent month. This is as per Sections 19 and 44 of the VAT Act, 2013 which provide as follows:“19. When tax is due1. Tax shall be due and payable at the time of supply.2. Notwithstanding the provision of subsection (1), a person may defer payment of tax due to a date not later than the twentieth day of the month succeeding that in which the tax became due.44. Submission of returns1. Every registered person shall submit a return, in the prescribed form and manner, in respect of each tax period not later than the twentieth day after the end of that period.”

81. It follows therefore that a 5 year timelines per the date of assessment and as per Section 29(5) would cover the month of September, 2022 back 5 years; in which case the period that complies with Section 29(5) of the TPA is October 2017 to September 2022 VAT periods. Any VAT assessment relating to any period prior to October 2017 would therefore be void.

82. Following from the above provisions of the law and analysis, and given that Income tax returns are filed annually by 30th June of the subsequent year, the assessments can therefore only apply up to the annual returns for the period between the year ending 31st December, 2017 and the year ending 31st December, 2021 while for VAT, whose returns are done monthly by 20th of the subsequent month, the assessments can only apply to returns filed between October 2017 and September 2022.

83. As a result of the foregoing, the Tribunal finds that Income tax assessments for periods prior to 1st January, 2017 and VAT assessments pertaining to VAT for periods prior to October, 2017 were time barred.b.Whether the assessments by the Respondent were justified

84. The Appellant argued that it provided all requisite documents to the Respondent while the Respondent argued that the Appellant did not extinguish its burden of proof in relation to the assessments raised by the Respondent.

85. The Tribunal notes that, to its pleadings, the Appellant attached a demand for payment of outstanding amounts in respect of loans advanced by Schon Noorani. This letter was addressed to Rajendra Sanghani.

86. The Appellant further attached a Deed of Acknowledgement of debt between Schon Noorani and Rajendra Sanghani made in 2017. This Deed was signed by both parties in the presence of two Advocates; a Notary Public and a Commissioner of Oaths.

87. The Tribunal further notes that while the Appellant, in his Statement of Facts, stated that the Respondent did not take into account rental income being declared by ten other family members as well Paa Brothers Limited, he did not provide documentation to support this averment.

88. Further, the Appellant averred that the Respondent grossly understated expenses allowed but did not provide documentation to support his actual expenses.

89. It is the Tribunal’s position that the Appellant having been served with the assessments by the Respondent was enjoined to provide the necessary documents and information that suggests that such an assessment is erroneous, misplaced and not justifiable in the circumstances.

90. Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act squarely place the burden of proof upon a taxpayer to discredit any tax assessment or decision.

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

92. Additionally, Section 30 of the tax Appeals Act provides as follows:-“In any proceeding before the Tribunal the Appellant has the burden of proving-where an appeal relates to an assessment, that the assessment is excessive; or in any other case, that the tax decision should not have been made or should have been made differently.”

93. The Appellant did not provide the documentation as required by law in support of its averments.

94. It is the Tribunal’s position that it was upon the Appellant to furnish evidence to prove its case. This was 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.”

95. Further, the Tribunal posits that failure by the Appellant to discharge its burden of proof would result in the confirmation of the tax assessed against it as was stated in the Kenya Revenue Authority vs. Man Diesel & Turbo Se, Kenya [2021] eKLR where it was stated as follows:“The party that carries the burden of proof must produce evidence to meet a threshold or “standard” in order to prove their claim. If a party fails to meet their burden of proof, their claim will fail. “Burden of Proof” at the Tax Court is somewhat unique. At the Tax Court, a taxpayer is required to disprove an assessment by the Commissioner. In other words, a Taxpayer challenging a tax assessment will need to collect and present evidence in order to disprove the Commissioner’s position. This is the basic principle.”

96. The Appellant in the instant Appeal failed to discharge its burden of proof to show that the Respondent erred in its assessments.

97. As a result of the foregoing, the Tribunal has arrived at the inevitable conclusion that the Appellant’s Appeal is partially merited.

Final Decision 98. The Tribunal having found that the Appeal is partially merited, accordingly makes the following Orders:a.The Appeal be and is hereby partially allowed.b.The Respondent’s objection decision dated 21st February, 2023 be and is hereby varied in the following terms:i.Assessments made for Income tax for periods prior to 1st January 2017 and VAT for periods prior to October 2017 be and are hereby set aside.ii.Assessments made for Income tax for periods subsequent to 1st January 2017 and VAT for periods subsequent to October 2017 be and are hereby upheld.iii.The Respondent is hereby directed to recompute the tax assessment based on the Tribunal’s findings under (i) and (ii) above within Thirty (30) days of the date of delivery of this Judgment.c.Each Party to bear its own costs.

99. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 13TH DAY OF SEPTEMBER, 2024ERIC NYONGESA WAFULACHAIRMANCYNTHIA B. MAYAKA DR. RODNEY O. OLUOCHMEMBER MEMBERGLORIA A. OGAGA ABRAHAM K. KIPROTICHMEMBER MEMBER