[2023] KETAT 110 (KLR)

Odhiambo v Commissioner of Domestic Taxes (Tribunal Appeal 609 of 2021) [2023] KETAT 110 (KLR) (17 March 2023) (Judgment)

Neutral citation: [2023] KETAT 110 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal 609 of 2021

E.N Wafula, Chair, RO Oluoch, RM Mutuma & EK Cheluget, Members

March 17, 2023

Between

Dennis Ochieng Odhiambo

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

BACKGROUND 1. The Appellant is an individual registered taxpayer whose core business is general supplies and installation of water tanks.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revue Authority Act. The Kenya Revenue Authority is an agency of the Government of Kenya for collection, receipt and accounting of tax revenue. The Respondent is also mandated to administer and enforce all provisions of all the written laws set out in Part 1 and 2 of the First Schedule to the Act.

3. The Respondent conducted a system-based verification on the iTax status of the Appellant in August 2020 to December 2020 which reviewed the Appellant’s returns in order to confirm the accuracy and correctness of filing of VAT and income tax.

4. The Respondent stated that the system detected inconsistency in purchases between the invoices declared by the Appellant and its suppliers, mismatching invoice numbers, dates and amounts.

5. The Appellant and its suppliers were issued with inconsistency notices to amend their returns in order to correct the inconsistencies in their VAT returns.

6. On 11th March, 2019, the Respondent issued the Appellant with VAT assessments for the months of August, October, November and December 2020 in the total sum of Kshs 426,120 45.

7. On 7th April, 2021 the Appellant lodge its notice of objection against VAT assessment which was acknowledged by the Respondent.

8. On 15th September, 2021 the Respondent fully rejected the Appellant’sobjection.

9. The Appellant being dissatisfied with the Respondent’s objection decision filed this Appeal with the Tribunal on 1st October, 2021.

THE APPEAL 10. The Appellant filed his Memorandum of Appeal on 1st October, 2021 and set out the following grounds of Appeal;i.That the Respondent erred in law and fact by issuing the decision despite documentary evidence.ii.That the Respondent erred in law and fact by raising the additional assessment yet the Appellant filed the returns on time and paid the taxes due.iii.That the Respondent never wrote to the Appellant to inform him on the steps taken to issue the decision as stipulated in Section 51 of the Tax Procedures Act.iv.That the Respondent erred in law and fact by disallowing the Appellant purchases declared in the VAT returns for the months of August, October, November and December 2020 that resulted in incremental tax.

11. By reason of the foregoing grounds the Appellant prayed that the Tribunal allows the Appeal and sets aside the Appellant’s objection decision

THE APPELLANT’S CASE 12. The Appellant’s case is premised on the Statement of Facts filed on 1st October, 2021.

13. The Appellant stated that he was issued by the Respondent with VAT assessments for the months of August, October, November and December 2020 as follows;-August 2020 – assessed on 11/03/2021 - Kshs 91,086 69- October 2020 – Assessed on 11/03/2021 – Kshs 28,337 06- November 2020 -Assessed on 11/03/2021 – Kshs 214,170. 00-December 2020- Assessed on 11/03/2020 - Kshs 91,806 69

14. The Appellant stated that he lodged a notice of objection against the VAT assessments for the period in issue in line with Section 51(1 & 2) of the Tax Procedures Act which notice of objection was acknowledged by the Respondent on 7th April 2021.

15. The Appellant stated that the Respondent fully rejected the Appellant’s objection without giving notice of its decision and without initiating any further communication with the Appellant either seeking further clarifications or requesting for documentation to prove his case. The confirmation of Assessment Notice is dated 15th September 2021.

16. The Appellant further averred that the Respondent did not issue him with any letter regarding the objection decision made against his notice of objection yet he had provided all the relevant documentation.

17. The Appellant further averred that the Respondent never wrote to him to inform him of the steps taken to issue the decision as stipulated in the Section 51 (9) of the TPA which states that:-“The Commissioner shall notify in writing the taxpayer of the objection decision and shall take all necessary steps to give effect to the decision, including, in the case of an objection to an assessment, making an amended assessment ”

18. The Appellant also submitted that the Respondent erred in disallowing the Appellant’s purchases declared in the VAT returns for the months of August, October, November and December 2020 resulting to incremental tax.

19. The Appellant averred that he can fully support his objection with the relevant documentation thus its objection and appeal and is ready to provide all the relevant supporting documents for review.

20. The Appellant submitted that the assessments are excessive, unfair and contrary to the provisions of the VAT Act.

21. By reason of the foregoing submissions, the Appellant prayed that the Honourable Tribunal sets aside the Respondent’s objection decision and allows the Appeal.

THE RESPONDENT’S CASE 22. The Respondent has grounded its response on the Statement of Facts filed on 20th December, 2021 and the Written Submissions filed on 17th February, 2022.

23. The Respondent stated that the iTax system detected inconsistencies on the purchases between the invoices declared by the Appellant and his suppliers, mismatching invoice numbers, dates and amounts.

24. The Appellant and his suppliers were given notice asking them to amend their returns in order to correct the inconsistencies in their VAT returns.

25. The Respondent stated that the system still detected inconsistencies after the expiry of the days given in the notice and disallowed all inputs that were inconsistent and remained unsupported by proof of payment and consistent invoices.

26. The Respondent averred that it issued VAT automated assessment on 11th March 2021 covering the period August to December 2020 The assessment was automatically generated from a comparison between the Appellant’s input VAT deducted in its filed monthly VAT returns against output VAT declared by various suppliers for similar periods.

27. The Respondent stated that it demanded the said VAT automated assessment covering the periods August 2020, September 2020, November 2020, and December, 2020.

28. The Respondent also stated that the Appellant lodged his objection application against all the assessments vide iTax and was issued with objection acknowledgement receipts on 7th April 2021 Thereafter the parties engaged in several correspondences wherein the Appellant was requested to avail documents in support of his objection.

29. The Respondent averred that the Appellant failed to support his claim and consequently the Respondent issued its objection decision on 15th September 2021 confirming the Assessments as raised, which gave rise to this Appeal.

30. The Respondent has contended that its action is justified in law. The Respondent submitted that Section 31 of the Tax Procedures Act grants the Commissioner power to amend assessments according to the information available to it, in ensuring that a taxpayer is only liable for the correct tax that the Section provides as follows:-“(1) Subject to this section, the Commissioner may amend an assessment (referred to 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 –a.…b.…c.in any other case, the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates”

24. That the foregoing being so and because the regime in Kenya is that of self- assessment, the Respondent submitted that it is only the taxpayer who knows his tax liability.

25. The Respondent stated that the Appellant was requested severally for documentation in support of the Appellant’s input VAT claim but the same was never availed. The Respondent stated that the input VAT was inconsistent in purchases between the invoices declared by the Appellant and his suppliers which included mismatching invoice numbers, dates and amounts in the VAT return hence disallowed the same.

26. The Respondent however stated that the Appellant in a bid to salvage his objection availed various purchase receipts from different suppliers but failed to attach evidence of payment.

27. The Respondent stated that it relied on Section 59 of the TPA that requires a taxpayer to furnish any information relating to a tax liability of any person in a specified manner.

28. The Respondent submitted that Section 56(1) of the TPA places the burden on the taxpayer to prove that a tax decision is incorrect that:-“(1)In any proceedings under this part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

29. The Respondent further submitted that Section 30 of the Tax Appeals Tribunal Act buttresses the position by placing the burden on the taxpayer to prove that an assessment is excessive or that a tax decision should have been made differently.

30. The Respondent cited the case of Mulherin -vs- Commissioner of Taxation (2013) FCAAFC 115 where 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.

31. By reason of the foregoing submissions, the Respondent prayed that the Appeal be dismissed for lack of merit and its objection decision be upheld.

ISSUES FOR DETERMINATION 32. The Tribunal having carefully considered the pleadings filed and the submissions made by the parties is of the considered view that the Appeal herein distils into one issue for determination to wit;i.Whether the Respondent’s decision to confirm the assessment against the Appellant was justified.

ANALYSIS AND DETERMINATION 33. The dispute herein arose out of the Automated VAT inconsistences assessment arising out of the Appellant’s declared invoices and those of his suppliers, which inputs were disallowed by the Respondent on the basis that they remained unsupported by proof of payment and consistent invoices with matching invoice numbers, dates and amount.

34. The Respondent issued a VAT Automated assessment on 11th march 2021 covering the period August to December 2020. The assessment was automatically generated from a comparison between the Appellant’s input VAT deducted in its filed monthly VAT returns against output VAT declared by various suppliers for similar periods.

35. The Respondent submitted that the Appellant failed to support his objection and consequently the Respondent issued its objection decision on 15th September 2021 confirming the assessment.

36. Section 51 (3) (c ) of TPA in regard to validity of notices of objection provides that:-“A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if –a)……………………..b)…………………….(c)all the relevant documents relating to the objection have been submitted ”

37. The foregoing legal provision enjoins the taxpayer who has lodged an objection notice to support the notice of objection with all the relevant documents.

38. In the instant Appeal, the Respondent has averred that the Appellant’s VAT input invoices and those of his suppliers were inconsistent in that the invoices had mismatched invoice numbers, dates and amounts and also lacked proof of payment.

39. The Respondent averred that it gave the Appellant the opportunity to support his objection with the relevant documents during their engagement, but the same remained unsupported.

40. It was therefore incumbent upon the Appellant to support his objection in terms of Section 51(3)(c) of the TPA Section 51(3)(c) for the same to be deemed to be validly lodged, failing which the Respondent is entitled to confirm the assessment.

41. In addition thereto, Section 31(1) of the TPA grants the Commissioner power to amend assessments, as it provides as thus;-“(1)Subject to this section, the Commissioner may amend an assessment (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 –(c)in any other case, the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates.”

42. The foregoing is so as the tax assessment and returns regime in Kenya is one of self-assessment and therefore the taxpayer knows his true tax position at any one time The Commissioner is therefore not bound by the returns filed by the taxpayer and Section 24(2) of theTPA grants the Commissioner power to assess a taxpayer’s tax liability using the information available to him. The Section reads as follows:-“24(2) The Commissioner shall not be bound by a tax return or information provided by, or on behalf of a taxpayer, and the Commissioner may assess a taxpayer’s tax liability using any information to the Commissioner ”

43. The Respondent has submitted that its iTax system detected inconsistencies in purchases between the invoices declared by the Appellant and his suppliers, with mismatching invoice numbers, dates and amounts and lack of proof of payment The Respondent averred that it gave the Appellant and his suppliers notice requiring them to amend their returns in order to correct the inconsistencies in their VAT returns.

44. The Respondent further submitted that it disallowed all the inputs that were inconsistent and remained unsupported by consistent invoices and proof of payment, after the expiry of the period given in the notice.

45. It is also noteworthy that Section 56 (1) of the TPA places the burden of proof on the taxpayer to prove that a decision is incorrect. The Section reads as follows: -“56(1) In any proceedings under this part, the burden shall be on the taxpayer to prove that a tax decision is incorrect ”

46. Section 30 of the Tax Appeals Tribunal Act buttresses the foregoing provision by placing the burden on the taxpayer to prove that an assessment is excessive or that a tax decision should have been made differently. The Section provides as follows:-“In a proceeding before the Tribunal, the Appellant has the burden of proving –a.where an appeal relates to an assessment, that the assessment was excessive; orb.in any other case, that the tax decision should not have been made or should have been made differently.”

47. In this regard, as the Appeal relates to an assessment, the Appellant had the burden of proving that the assessment was excessive, by the production of the relevant documents, which have already been specified by the Respondent. The Appellant by not producing the said required documents failed to discharge this burden.

48. The foregoing position was upheld in the case of Mulherin -vs- Commissioner of Taxation FCAFC 115, where the Federal Court of Australia held that in tax disputes the taxpayer must satisfy the burden of proof to successfully challenge income tax assessments.

49. The onus is on the taxpayer in proving that an assessment was excessive by adducing positive evidence which demonstrates the taxable income on which tax ought to have been levied.

50. The Tribunal having regard to the foregoing is satisfied that the Appellant was accorded adequate and fair opportunity to avail and produce the specified documentation to support his notice of objection but failed to do so. The Appellant was enjoined in law to produce the required supporting documentation in order to discharge his burden of proof.

51. The Tribunal is also satisfied that the Appellant having failed to submit and produce the required supporting documentation for his notice of objection failed to discharge his burden of proof to the required threshold.

52. Consequently this Tribunal finds and holds that the Appellant failed to provide to the Respondent the required supporting documentation to support his notice of objection and therefore failed to discharge his burden of proof and the Respondent was therefore justified in confirming the assessment in the objection decision.

FINAL DECISION 53. The upshot of the foregoing analysis is that the Appeal lacks merit and the Tribunal accordingly proceeds to make the following Orders: -i.The Appeal be and is hereby dismissed.ii.The Respondent’s objection decision dated 15th September, 2021 be and is hereby upheld.iii.Each party to bear its own costs.

54. It is so ordered.

DATED and DELIVERED at NAIROBI this 17th day of March, 2023………………………….ERIC N. WAFULA CHAIRMAN………………………… ………………..…………RODNEY O OLUOCH ROBERT M. MUTUMA MEMBER MEMBER………..…………………EDWIN K. CHELUGET MEMBERJUDGEMENT APPEAL NO. 609 OF 2021 DENNIS OCHIENG ODHIAMBO VS. COMMISSIONER OF DOMESTIC TAXESPage | 1