https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/290

**REPUBLIC OF KENYA** **IN THE TAX APPEALS TRIBUNAL AT NAIROBI** **TAT NO. E479 OF 2025** **NYORO CONSTRUCTION LIMITED** ........................................................... **APPELLANT** **VERSUS** **COMMISSIONER OF DOMESTIC TAXES** ................................................. **RESPONDENT** **JUDGMENT** **BACKGROUND** 1. The Appellant is a limited liability company incorporated in Kenya and involved in the construction industry. 2. The Respondent is the principal officer appointed under Section 13 of the Kenya Revenue Authority Act. The Kenya Revenue Authority is an agency of the Government of Kenya mandated with the duty of collection and receipting of all tax revenue, and the administration and enforcement of all tax laws set out in Parts 1 & 2 of the First Schedule to the Act, including assessing, collecting, and accounting for all tax revenues in accordance with those laws. 1. On 29th January 2024, the Respondent issued the Appellant with additional assessments for VAT and income tax totaling Kshs 211,433,282. 2. On 9th January 2025, the Appellant objected to the Respondent’s assessments. 3. On 1st April 2025, the Respondent issued its Objection Decision, confirming the additional assessments. 4. Aggrieved by the Respondent’s decision, the Appellant lodged its appeal dated 14th May 2025. **THE APPEAL** 1. In its amended Memorandum of Appeal dated 30th September 2025, the Appellant raised the following grounds of appeal: - 1. That the Respondent confirmed the assessments without due regard to the provisions of the Income Tax Act, Section 15, and the VAT Act, Section 17, the explanations and information provided, thereby failing to appreciate all the issues presented and raised by the Appellant. 2. That the Respondent erred in raising assessments out of time, contrary to the provisions of the Tax Procedure Act, Sections 29 and 31, and in violation of the legitimate expectation of the Appellant. 3. The Respondent erred in confirming the tax assessments for the years 2017 and 2018, which were outside the statutory limitation period of five (5) years, at the time the assessments dated 26th January, 5th February, and 4th November 2024 were issued. 4. That by issuing assessments outside the statutory limitation period, the Respondent acted in contravention of Sections 29 and 31 of the Tax Procedure Act, in contravention of Section 5(2) (a) of the Kenya Revenue Authority Act, and ultra vires his powers and the powers of the Kenya Revenue Authority. 5. That the assessments for the years 2017 and 2018, which are outside the statutory limitation period of five (5) years for tax assessments as issued by the Respondent on 26th January, 5th February, and 4th November 2024 and confirmed in the objection decision dated 1st April 2025, are invalid and void ab initio. 6. That the Respondent disallowed purchases and wages paid to casuals, contrary to Section 15 of the income tax act that allows expenses that are wholly and exclusively incurred in the production of that taxable income. 7. The Respondent erred in law and in fact by failing to consider that the Appellant engages casual labourers on a need basis, whose wages are allowable expenses under Section 15 of the Income Tax Act. The Respondent subjected the said wages to PAYE, thereby inflating the Appellant's tax liability of the Appellant. 8. The Respondent subjected variances between the Income Tax Return (IT2C) and VAT 3-declared sales for the years 2019, 2020, and 2021 without considering that the amount declared under work in process does not constitute a supply under the VAT Act. 9. The Respondent erred in law and in fact by failing to take into account losses carried forward amounting to Kshs. 14,671,350 from the year 2016 when computing the taxable income for the year 2017. Under Section 15(4) of the Income Tax Act, such losses are allowable deductions to be set off against profits of the succeeding year, or, where the succeeding year results in a loss, to be carried forward for offset against future profits. The Respondent's failure to apply this provision resulted in an inflated and unlawful tax assessment. 10. The Respondent had already assessed the year 2017 and raised the VAT additional assessment, which the Appellant settled (p. 3). Under the doctrine of legitimate expectation, once a taxpayer has been assessed and complied with the tax obligation for a given year, the taxpayer is entitled to rely on the finality of that assessment. 11. That the additional assessments had been raised prior to the communication to the Appellant regarding the additional assessments, thereby violating the principle of fair administration of justice of the Appellant and denying the Appellant the right to be heard. 12. That the assessments as contained in the notice of assessments dated 26th January, 5th February, and 4th November 2024 and confirmed in the objection decision dated 1st April 2025 are unlawful, unjustifiable, and excessive in any event. **APPELLANT’S CASE** 1. The Appellant’s case is based on its: 1. Statement of Facts dated 30th September 2025 and documents attached thereto. 2. Written submissions dated 25th March 2026. 3. Supplementary Statement of Facts dated 25th March 2026. 2. The Appellant stated that the additional assessments issued by the Respondent on 26th January 2024 were made before the Appellant was informed of the issues giving rise to the said assessments, thereby violating the principles of fair administrative justice and denying the Appellant the right to be heard. 3. That the Respondent erred in law and in fact by subjecting the variances between the Income Tax Return (IT2C) and VAT 3 declared sales for the years 2019, 2020, and 2021 to VAT. 4. The Appellant is engaged in the construction business, undertaking contracts which ordinarily extend over several years before their completion, thereby having substantial investments in work in progress (WIP) at any given time. 5. The Appellant stated that WIP: 6. Represents costs already incurred, especially for labour and raw materials utilized in ongoing projects, which have been captured as costs in the financial year in which payment or accrual occurs. 7. The jobs related to the spendings are usually not billed, or are neither billed nor paid for. 8. Does not constitute a supply. 1. It was its view that, upon assessment and approval of the project, billing is effected, and it is at this point that the corresponding VAT becomes due and payable under Section 12 (1) of the VAT Act. That the amount, however, remains non-billable in the event that the project is assessed and fails to meet the requisite standards. 2. It stated that the amounts declared under WIP were as follows for 2019 to 2021: | | | | | | --- | --- | --- | --- | | **2019** | | | | | **Contract** | **Invoiced** | **Work in Progress (WIP)** | **Total declared** | | Kaseve Road (RWC152) | - | 39,172,414.00 | 39,172,414.00 | | Muranga-Gitugi | 159,508,648.65 | 54,625,947.00 | 214,134,595.65 | | Elementaita-Mau Narok (RWC188) | 124,666,812.35 | 120,850,725.00 | 245,517,537.35 | | **Total** | **284,175,461.00** | **214,649,086.00** | **498,824,547.00** | | | | | | | --- | --- | --- | --- | | **2020** | | | | | **Contract** | **Invoiced** | **Work in Progress (WIP)** | **Total declared** | | Kaseve Road (RWC152) | 190,702,714.00 | 160,086,665.42 | 350,789,379.42 | | Muranga-Gitugi | 43,534,372.35 | 124,898,929.58 | 168,433,301.93 | | Elementaita-Mau Narok (RWC188) | 121,307,901.65 | 56,606,921.00 | 177,914,822.65 | | **Total** | **355,544,988.00** | **341,592,516.00** | **697,137,504.00** | | | | | | | --- | --- | --- | --- | | **2021** | | | | | **Contract** | **Invoiced** | **Work in Progress (WIP)** | **Total declared** | | Kaseve Road (RWC152) | 68,704,398.00 | 126,419,885.77 | 195,124,283.77 | | Muranga-Gitugi | 11,861,563.00 | 115,532,455.23 | 127,394,018.23 | | Elementaita-Mau Narok (RWC188) | 46,649,694.00 | 37,200,000.00 | 83,849,694.00 | | **Total** | **127,215,655.00** | **279,152,341.00** | **406,367,996.00** | 1. The Appellant averred that the Respondent erred in law and in fact by failing to take into account losses/carried forward amounts of Kshs. 14,671,350 from the year 2016 when computing the taxable income for the year 2017. 2. That, under Section 15(4) of the Income Tax Act, such losses are allowable deductions to be set off against the profits of the succeeding year, or, where the succeeding year results in a loss, to be carried forward for offset against future profits, resulting in an inflated and unlawful tax assessment. 3. The Appellant asserted that the Respondent had already assessed the year 2017 and issued VAT additional assessments, which it settled. That under the doctrine of legitimate expectation, once a taxpayer has been assessed and has complied with the tax obligation for a given year, the taxpayer is entitled to rely on the finality of that assessment. 4. It was also its position that, by disallowing purchases and input VAT, the Respondent failed to observe the provisions of Section 15 of the Income Tax Act, which allows expenses wholly and exclusively incurred for the purposes of generating the taxable income, and Section 17 of the VAT Act, which allows for credit input tax against output tax. 5. The Appellant asserted that the Respondent acted contrary to Section 130 of the ITA by subjecting casual wages to tax. 6. The Appellant identified and discussed the following issues for determination: **Whether the Assessments Are Time-Barred** 1. That there is no evidence from the Respondent indicating willful neglect, tax evasion, or fraud on the part of the Appellant; hence, the assessment ought to be restricted to the five-year period. As was the case in ***Cellnet Limited v Commissioner of Domestic Taxes*** and ***Awwal Oil v Respondent of Domestic Taxes,*** where the assessment for the period out of 5 years was set aside by the court. 2. The Appellant submitted that the assessments for the years 2017 and 2018 are statutorily time-barred under Section 31 (4) of the Tax Procedures Act (TPA) as affirmed in ***Imara Steel Mills Ltd v. Commissioner of Investigations and Enforcement (2025).*** 3. That the Respondent did not prove that it has a right to assess beyond the time limit for 2017 to 2019, as stated in ***Commissioner of Domestic Taxes v. Metoxide Limited (2021).*** **Violation of Fair Administrative Action** 1. The Appellant argued that the Respondent acted contrary to fair administrative action because it issued a blanket assessment without considering the evidence provided. **Disallowed Expenses** 1. That the Respondent disregarded the documentation provided and proceeded to disallow the purchases, giving reasons contrary to the facts, and that there was a lack of supporting documents. **VAT on Work-in-Progress (WIP)** 1. The Appellant submitted that: 2. In construction contracts, a supply is only consummated upon the formal certification of a milestone or completion. 3. Until such a certificate is issued, there is no "performance of service" to warrant VAT. 4. The Respondent cannot "imply" or "deem" a taxable event simply because a cost has been recorded in the Appellant's books for IFRS compliance. 5. The "substance" of a transaction, rather than its "form" in a ledger, dictates VAT liability. 6. As established in ***Commissioner of Domestic Taxes v. Sendy Limited (2025)***, VAT liability is only triggered when a party exercises "decisive control" over a transaction, characterized by the finality of setting prices and issuing invoices. 7. The Appellant averred that: 8. Unlike the circumstances in Sendy case, WIP represents an internal process in which the Appellant has not yet exercised the right to bill the customer. 9. There is no transfer of risk, value, or "possession" of the service to the client at the WIP stage. 10. In construction projects, the “commercial reality” is that no supply exists until the work is inspected and certified by the government engineer. 11. Until this “finality” is reached, the costs remain internal to the Appellant and are not “consumed” by the client. 12. It was the view of the Appellant that the Respondent lacks the jurisdiction to invent a supply where the statutory triggers are absent. 13. That subjecting WIP to VAT effectively attempts to tax the Appellant’s internal production process rather than the client’s actual consumption, which is contrary to the basic tenets of Value Added Tax. **Disallowance of Input Vat** 1. The Appellant asserted that it provided documents/invoices to support its input tax claim, but the same were disallowed or ignored by the Respondent. **PAYE Assessments** 1. That the Respondent disregarded the fact that, apart from salaried employees, no other personnel were salaried; therefore, there were no taxable benefits. **Legitimate Expectation** 1. The Appellant reasserted that the Respondent reopened and reassessed the year 2017, whose tax matter had earlier been concluded. **Burden of Proof** 1. The Appellant stated that it discharged its burden of proof by providing all requested documentation together with any other documents that the Appellant deemed necessary in the determination of the matter. **Appellant’s Prayer** 1. The Appellant prays that the Tribunal: 2. Allows the appeal. 3. Sets aside the Objection decision dated 1st April 2025. 4. Vacates the additional assessments issued on 26th January, 5th February and 4th November 2024. 5. Finds that the 2017 and 2018 assessments are time-barred. 6. Awards costs of the appeal. 7. Grants any other relief it deems fit. **RESPONDENT’S CASE** 1. The Respondent opposed the appeal with the support of its Statement of Facts dated 13th June 2025 and Written Submissions dated 3rd June 2026. 2. The Respondent stated that: 3. Its assessment was based on the banking test; as such, the issue of legitimate costs does not arise in this case. 4. It did not apply the banking test as the basis for established income; therefore, the question of double taxation of rental income deposits does not arise. 5. The basis for disallowing the purchases was the failure to provide supporting documents to demonstrate that the costs were actually incurred. 6. The copies of the invoices and delivery notes from Radheshyam Transport Limited and Cola East Africa Limited, which the Appellant provided, did not cause any adjustments to the disallowed purchases because they did not form part of the disallowed purchases. 7. The Appellant did not demonstrate that the variances in issue were a result of the casual labour costs as alleged to warrant further consideration. 8. It stated that it considered all the expenses and explanations provided by the Appellant when it confirmed the assessments. 9. That it requested the taxpayer to provide supporting documentation to support its objection, but the Appellant failed to provide the said evidence, thereby failing in its duty to discharge its burden of proof under Section 56 of the TPA. 10. It was its view that the impugned assessment relates to the period 2017 -2021 and that the notice of assessment was adduced on 29th January 2024, and that the Appellant filed its 2018 Income Tax returns on 26th June 2019. That this makes the assessments from 2018 lawful. 11. With regard to the year 2017, it is the Respondent's case that the Appellant is guilty of willful neglect, and as such, the Respondent is allowed to go back beyond five years. 12. That its assessment complied with the law and was, as such, lawful. 13. The Respondent identified the following issues for determination in this appeal: 14. *Whether the Appellant discharged the burden of proof imposed by law.* 15. *Whether the Respondent lawfully disallowed unsupported purchases and salary expenses.* 16. *Whether the assessments were issued within the statutory timelines prescribed under the Tax Procedures Act.* 17. *Whether the Appellant's rights to fair administrative action and right to be heard were violated.* 18. *Whether the Objection Decision should be upheld.* 19. On issue one, the Respondent stated that the Appellant had failed to discharge its burden of proof as required under Section 30 of the Tax Appeals Tribunal Act. It supported its case with the following authorities: 20. ***Kenya Revenue Authority v Man Diesel & Turbo SE, Kenya (2021) eKLR***, 21. ***PVH Kenya Limited v Commissioner of Domestic Taxes (Appeal 845 of 2022)*,** 22. It stated that the Appellant merely made allegations without proof that: 23. legitimate costs were not allowed; 24. rental income was double taxed; 25. purchases were wrongly disallowed; and 26. casual labour expenses were not considered. 27. It asserted that it lawfully disallowed unsupported purchases and salary expenses while supporting its position with the cases of 28. ***Mbuthia Macharia v Annah Mutua Ndwiga & another (2017) eKLR*.** 29. **Ushindi Limited V Commissioner of Investigations and Enforcement Kenya Revenue Authority [2020] eKLR**. 30. **Republic v KRA: Proto Energy Limited (supra)**: 31. On issue two, the Respondent stated that it lawfully disallowed purchase expenses when the Appellant failed to provide invoices, receipts, delivery notes, or other supporting records relating to the purchases from: 32. Harmony Enterprises Limited; 33. Gosteen Enterprises Limited; 34. Dakimah Hardware & Paints; 35. Super Ideal Hardware Limited; and 36. Bedmak Holdings Limited. 37. That the total unsupported purchases amounted to Kshs. 163,560,992. 38. That the documents later produced by the Appellant, relating to different entities, namely Radhe Transport Limited and Colas East Africa Limited, which were not among the suppliers whose purchases had been disallowed, did not address the basis of the assessment. 39. On the disallowed salary, it was its view that the variance amounted to Kshs. 26,956,169 was confirmed because no payroll records, attendance registers, payment schedules, contracts, vouchers, bank transfers, or acknowledgements from the alleged casual employees were provided. 40. That in the absence of supporting documentation, it correctly disallowed the expenses. 41. On Issue Three, the Respondent reasserted that the assessments for the years 2018 to 2021 were clearly within the statutory five-year period. 42. Regarding the year 2017, the Respondent stated that it established significant undeclared income, unsupported expenditure, and inconsistencies in the Appellant’s declarations, which amounted to gross or willful neglect within the meaning of section 31(4) of the Tax Procedures Act, thereby causing it to issue assessments beyond the five-year period where there is gross or willful neglect, evasion, or fraud. 43. It supported its position with **Tax Appeal No. 1053 of 2022**, to prove that it is legally entitled to issue assessments beyond five years where gross or willful neglect, evasion, or fraud is established. 44. On Issue Four, the Respondent stated that it afforded the Appellant every opportunity to present its case. That the Commissioner cannot be faulted where the taxpayer fails to produce documentation necessary to verify its claims. 45. On Issue Five, the Respondent stated that the evidence before the Tribunal demonstrates that it employed multiple independent verification tests to arrive at a fair assessment, including: 46. banking analysis; 47. IFMIS analysis; 48. withholding tax certificate analysis; 49. VAT return analysis; and 50. Income Tax return analysis. 51. That the allegation of double taxation of rental income is equally unsupported because no evidence was produced showing that such rental income had already been separately declared and taxed. **Respondent's Prayers** 1. The Respondent prayed for orders that: 2. The Appellant's Appeal be dismissed for lack of merit. 3. The Respondent's Objection Decision contained in its letter dated 1st April, 2025 be upheld. 4. The Respondent be awarded the costs of the Appeal. **ISSUES FOR DETERMINATION** 1. The Tribunal has considered the parties’ pleadings, documentation, and submissions by the parties and is of the view that this appeal raises the following issues for determination: 2. *Whether the Respondent’s assessments were time-barred* 3. *Whether the Respondent’s Objection Decision dated 14th October 2025 is justified.* **ANALYSIS AND FINDINGS** 1. Having established the issue for determination, the Tribunal will proceed to analyze the identified issues as hereunder. 2. **Whether the Respondent’s assessments were time-barred** 3. It is now trite that the Respondent can audit, amend, or issue tax assessments within **five years** from the date a taxpayer submits their self-assessment return. That once this window closes, the tax becomes **time-barred** and irrecoverable unless there is clear evidence of **fraud, willful neglect, or tax evasion.** 4. This position is set out in Section 31(4) of the TPA, which provides as follows in relevant part: “*Section 31(4)(b)(ii) of the Tax Procedures Act provides:* *The Commissioner may amend an assessment—* *(b)in any other case, within five years of—* *(ii)for a self-assessment, the date that the self-assessment taxpayer submitted the self-assessment return to which the self-assessment relates”* 1. Section 23 provides as follows regarding record keeping: *“A person shall—* *(a) maintain any document required under a tax law, in either of the official languages;* *(b) maintain any document required under a tax law so as to enable the person's tax liability to be readily ascertained; and* *(c) 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 a tax law.”* 1. The law is thus clear that an assessment can go back only 5 years, and a taxpayer is also required to keep records for a period of 5 years from the end of the reporting period. 2. VAT is a monthly tax assessment, due and declared on the 20th of each succeeding month. The assessment in this appeal was issued on 29th January 2024 covering the years 2017 to 2021. 3. Consequently, the computation of time for VAT assessments would commence in December 2023, considering that the VAT assessments for January 2024 were not due at the date of assessment. This means that lawful VAT assessments could only run backward to December 2018. 4. Similarly, the returns due for the year 2023 were not submitted as at the date of the assessment in January 2024. Accordingly, the Respondent could only issue assessments from the year 2022 backward, running to the year 2018. The Appellant could only be assessed on income tax for the years 2022 to 2018. 5. The outcome of the above analysis is that the income tax assessment for 2017 was time-barred, and the VAT assessments for 2018 and 2017 were time-barred. 6. The Respondent justified the time-barred assessments on the grounds that it had established significant undeclared income, unsupported expenditure, and inconsistencies in the Appellant’s declarations, which amounted to gross or willful neglect within the meaning of Section 31(4) of the Tax Procedures Act, thereby causing it to issue assessments beyond the five-year period where there is gross or willful neglect, evasion, or fraud. 7. The Respondent was, in this case, obliged to show, or at the very least, to table evidence to support its claim of fraud, negligence, or evasion. This way, the Tribunal would have seen the basis of its assertion, after which, based on the evidence tabled before it, the Appellant would be required to discharge its statutory burden of proof to show that it was not engaged in the things that it had been accused of. This is premised on the basic principle that a party can only respond to accusations that have been made clear and discernible before it. It would be most unfair to cause a party to respond to mere averments and accusations not supported by any thread of evidence. 8. The foregoing conclusion by the Tribunal was supported by the Court in [***National Social Security Fund Board of Trustees v. Commissioner of Domestic Taxes, Kenya Revenue Authority***](http://kenyalaw.org/caselaw/cases/view/128762) ***[2016] eKLR*** where it held:- “*There is a world of difference between an assertion and proof. That which a party states to be his case is an assertion. The party needs to adduce evidence to support his said assertion, with a view to proving his case… 39. As there was no evidence to support the allegations or assertions of willful neglect, I find that there was no basis upon which the 7-year period for the assessment of tax could have been extended. Accordingly, the appeal is well merited.”* 1. The High Court has also recently held as follows in [***Commissioner of Investigation & Enforcement v Asea Brown Boverthe Court (Abb) Limited [2025] KEHC 2798 (KLR)***](https://new.kenyalaw.org/akn/ke/judgment/kehc/2025/2798/eng%402025-03-07) *“The duty to prove willful neglect or evasion was upon the Appellant.”* 1. The Commissioner in this case opted to make mere averments and allegations regarding the fact that the Appellant was engaged in tax evasion, willful neglect, and fraud without providing any evidence. No evidence was provided to prove these claims, considering the legal status of mere averments as was asserted in **Commissioner of Domestic Taxes v Dinesh Construction Limited (Income Tax Appeal E220 of 2024) [2025] KEHC 17058 (KLR) (Commercial and Tax) (21 November 2025) (Judgment)** where it was stated that; *“A mere statement in pleadings is not evidence.”* 1. Having failed to tender any evidence in support of its argument that there was willful neglect, evasion, or fraud by the Appellant, the Tribunal finds and holds that the VAT assessments for 2018 and 2017 and the Income tax assessments for 2017 were time-barred for **contravening** Section 31(4)(b)(ii) and Section 23 of the Tax Procedures Act. 2. **Whether the Respondent’s Objection Decision dated 14th October 2025 is justified.** 3. Perusing through the objection decision and the parties’ pleadings, it is clear that the issues that led to the confirmation of the assessment rest on the following sub-heads: 4. ***Disallowance of Input VAT*** 5. The VAT assessments in this appeal were for the period 2017 to 2021. It is instructive to note that the law that changed the applicability of input VAT under Section 17(2) of the VAT Act and which was introduced by the Finance Act of 2023 had not taken effect as at the date of this assessment. 6. Accordingly. the applicable version of Section 17(2) of the VAT Act, prior to the 2023 amendments, provided as follows, on the treatment of VAT input: *(2) If, at the time when a deduction for input tax would otherwise be allowable under subsection (1), the person does not hold the documentation referred to in subsection (3), the deduction for input tax shall not be allowed until the first tax period in which the person holds such documentation*. 1. It is clear that Section 17(2) of the VAT Act (before the amendment) provided that input tax is only deductible when a registered person is in possession of a valid document stipulated in Section 17(3) of the VAT Act. 2. The evidence before the Tribunal shows that the Appellant provided invoices from Harmony, Gosteen, Dakimah, Super Deal, and Colas East Africa in its Supplementary statement of Facts. And yet the Respondent has submitted, in paragraph six (6) of its Statement of Facts, that such documents were never provided. 3. The Respondent was granted leave by the Tribunal to file a supplementary statement of facts on 21st April 2026 to respond to the issue and documents filed by the Appellant. The Respondent, however, spurned this opportunity as it failed to file a supplementary statement of facts to respond to the bundle of documents that had been filed by the Appellant. 4. Under the circumstances, the Tribunal finds that the Appellant discharged its burden of proof by showing that it provided the documents that were expected from it under Section 17(3) of the VAT Act. And that, in the absence of a plausible cause, it was entitled to the input tax that it had claimed. At this point, the burden of proof shifted back to the respondent. 5. The Respondent’s failure to provide a plausible reason why it disregarded these invoices meant that the Appellant had discharged its burden of proof to show that the Commissioner’s VAT assessment was erroneous for failing to consider its invoices, as was expected of it under sections 17(1)(2) (amended) and (3) of the VAT Act. Accordingly, the Respondent’s assessment that disregarded the law in disallowing the Appellant’s VAT input cannot stand. stand. 6. ***Disallowance of expenses*** 7. The Appellant pleaded that its expenses were wrongfully disallowed. It was thus behooved to particularise and share the receipts that supported expenditure incurred in the lawful conduct of its business, which was disallowed. 8. The Respondent pleaded that it applied its best judgment to arrive at a fair assessment because the documents that support allowable expenses were not provided by the Appellant. 9. Having established that the Appellant had proved that it had provided the documents, including receipts, which showed that it had purchased items that were used wholly and exclusively in its business, the question whether the Appellant’s right to be denied legitimate expenses will also fall in favour of the Appellant. 10. This is more because the Respondent applied other tests to determine the Appellant’s tax liability in a case where the Appellant had provided relevant receipts to support its expenses, and the same was ignored without a plausible reason. 11. In cases where the Respondent has relied on its best judgment, then it is obliged to ensure that the taxpayer is liable for the correct amount of tax. The bottom line, however, is that such an alternative method can only be applied in cases where the Appellant has failed to provide documents or has provided irrelevant or inapplicable documents. Such a conclusion must be made clear in the objection decision. 12. The Tribunal’s finding aligns with its previous decision in ***JUDGMENT TAT E931 OF 2023, Superserve Limited vs. Commissioner of Investigation and Enforcement,*** where it stated as follows: on when the Commissioner *can resort to its best judgment.* *“The Respondent is, however, not at liberty to invoke and apply its best judgment option arbitrarily and in a manner that suits it.”* 1. In this case, the Appellant provided invoices and receipts from all the companies cited by the Respondent to support its objection; the Respondent was therefore not justified in ignoring the said documents and applying its best judgment. 2. **PAYE assessments.** 3. The contention under this issue by the Appellant was that the Respondent applied its best judgment in a case where it had provided evidence to show that it had paid wages to its employees. 4. The Respondent argued that there was no evidence to show that its assessment did not consider the casual costs to warrant a reconsideration. 5. It’s not in dispute between the parties that the nature of the Appellant’s work of road construction requires casual workers. The issue is whether the said costs were considered in arriving at the assessment. 6. It is clear that the assessment proceeded on the basis that the Appellant had not provided the relevant documentation and was therefore concluded on the basis of alternative assessment methods available to the Respondent. 7. While this mode of assessment is lawful, it is clear from the decision in ***Superserve Limited (supra)***, that such an assessment method can only be applied where the Appellant has not provided relevant documents. 8. The Tribunal has noted that the Appellant provided evidence of a casual wage bill signed by the respective labourers in its list of documents running from pages 420 to 1175, which is over 755 pages of evidence of wage bill expenses incurred in the execution of its road contract, which was ignored by the Respondent without providing a plausible reason for its decision. 9. It is possible that the documents covering the wage bill were too many and cumbersome to allow consideration by the Respondent, given the possible work demands. Unluckily, that is what the law requires of the Respondent to ensure that it serves justice on the Appellant and causes it to only pay its fair share of tax where the same is due. Not an approximation of tax. 10. Accordingly, it is the finding of the Tribunal that the Respondent erred when it failed to consider the Appellant’s casual labourer’s costs when it issued its Objection decision dated 1st April 2025. 11. **Double taxation of rental income** 12. The dispute over the taxation of residential income and whether it was exempt from VAT was raised by the Appellant, and that the Respondent had subjected it to double taxation in its assessment. 13. The Tribunal has looked at the documents presented by the Appellant in support of its objection, and it noted that the Appellant declared net rental income and charged a tax at the rate of 30% on the said income in its Financial Statement for 2017. 14. Clearly, therefore, tax was paid on this rental income, considering the fact that the Respondent has not disputed the payment of tax by the Appellant arising from its financial statement of 2017. 15. Naturally, therefore, causing it to pay tax, inclusive of rental income tax that had already been accounted for and paid, would amount to double taxation of the same income. 16. In any event, the Tribunal has already repeated itself in the foregoing paragraphs that the mode of assessment adopted by the Respondent for the Appellant’s tax assessment affairs was erroneous, and it is what has led it to this situation. 17. Its decision to use its best judgment when it had been provided with sufficient documents led it to the erroneous assessment, in which it ended up charging VAT on the said rental income because it relied on a variance that included the rental income to charge VAT. It also taxed the rental income based on the variance when the net rental income was clearly elucidated in the financial statement. A document that was not contested by the Respondent. 18. The Respondent thus fell into error when it used its established variances to charge VAT on rental income and also charged tax on rental income which had already been paid and accounted for, as can be discerned from the Appellant’s iTax system. **DISPOSITION** 1. In the end, the income tax assessments for the years 2018 to 2021 that are not statute-barred have been tainted by the assessment method adopted by the Appellant, which double-taxed rental income and also failed to consider, or to provide plausible reasons for its decision to ignore, the deductible expenses, such as wages and receipts, which supported lawful expenditure by the Appellant. 2. Whereas the Appellant extensively submitted on the issue of Work-in-Progress (WIP). The Tribunal noted that this issue was not raised in the Appellant’s objection to the assessment. It just popped up at the appeal stage. The same was therefore not identified as an issue for determination in this appeal because it did not form part of the Appellant’s objection before the Commissioner, as required under Sections 12, as read with 13(6) of the TAT Act. 3. The mandate of the Tribunal is to analyze the evidence, documents, information, and material produced for the Commissioner. It has no power to analyze and issue a determination on a new issue that arose at the appeal stage and was not raised during the objection process. 4. When presented with a similar situation, the High Court in the recent decision of ***Commissioner of Investigation & Enforcement v Wamunyinyi [2026] KEHC 379(KLR)*** held as follows” *“Guided by the above, I find that the Tribunal erred in law by admitting and relying on evidence that was not placed before the Commissioner at the objection stage. This error goes to the heart of the objection review process and undermines the Commissioner’s statutory mandate to assess tax based on information provided by the taxpayer.”* 1. In line with this decision, the Tribunal did not analyze the issue of WIP as raised by the Appellant because, in doing so, it would not be acting as an appellate tribunal but as a trial one. 2. Finally, considering the volume of documents the Appellant provided, addressing all the issues raised in the objection decision, and further considering that the Respondent opted not to file a supplementary affidavit to rebut, or to proffer an explanation regarding, the persuasive documents presented to the Tribunal, It follows that the Appellant has proved its case on a balance of probabilities, albeit largely because of the Respondent’s omission or failure to file a reply to the Appellant’s supplementary affidavit, which filled the gaps that had been raised in its case by the Respondent in the impugned objection decision. 3. It is settled that once a taxpayer has discharged its burden of proof, then the pendulum swings to the Commissioner to show that its assessment was not erroneous. The Respondent’s failure to file a supplementary affidavit in this case meant that it failed to provide any reasons or evidence to enable the pendulum to swing back to the taxpayer. Under such circumstances, the taxpayer must succeed because it has proved its case. 4. This fact that the burden of proof in tax cases is not stationary was best explained in **Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) [2022] KEHC 9927 (KLR) (Commercial and Tax) (8 July 2022) (Judgment)** where Justice Majanja stated thus: *“I agree with the Tribunal’s holding that the burden of proof in tax matters is not stationary but is like a pendulum swinging between the taxpayer and taxman at different points but more times than not swings towards the taxpayer.”* 1. The effect of this is that the pendulum of the onus of proof that had been swung to the Respondent by the Appellant has stuck with it; it was never swung back to the Appellant. The consequence of this is that the presumption of correctness of the Respondent’s assessment must therefore vanish now that the Appellant has provided sufficient evidence to support its position. 1. This High Court agreed with this conclusion by the Tribunal in **Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) [2022] KEHC 9927 (KLR) (Commercial and Tax) (8 July 2022) (Judgment)** when it stated thus *“A presumption of correctness arises from the Commissioner’s determination/assessment. The presumption remains until the taxpayer produces competent and relevant evidence to support his/her position. When the taxpayer comes forward with such evidence, the presumption vanishes and the case must be decided upon the evidence presented.”* 1. Consequently, for the reasons aforesaid, the Tribunal finds and holds that the appeal is meritorious and shall proceed to make the following Orders: 2. The appeal be and is hereby allowed. 3. The objection decision dated 1st April 2025 be and is hereby set aside. 4. Each party shall bear its own costs. 5. It is so ordered. **DATED and DELIVERED at NAIROBI this ………7th..……. Day of ……August...…… 2026** **..........................……………………….** **DR. RODNEY ODHIAMBO OLUOCH** **CHAIRPERSON** **.…..….……………………. ..….……………………….** **CYNTHIA B. MAYAKA DR. ERICK KOMOLO** **MEMBER MEMBER** **………………………………** **ABDULLAHI DIRIYE** **MEMBER**