[2023] KETAT 273 (KLR)

Office Hub Limited v Commissioner of Domestic Taxes (Appeal 477 of 2022) [2023] KETAT 273 (KLR) (19 May 2023) (Judgment)

Neutral citation: [2023] KETAT 273 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 477 of 2022

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

May 19, 2023

Between

Office Hub Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited company and a registered taxpayer whose principal business is in real estates.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, the Authority is charged with the responsibility of among others, assessment, collection, accounting, and the general administration of tax revenue on behalf of the Government of Kenya.

3. The Respondent conducted investigations into the tax affairs of the Appellant and issued a tax investigations findings on 28th April 2021. The Appellant through its tax agent responded vide a letter dated 8th may 2021. Vide a letter dated 18th May 2021, the Appellant through its agent requested for 45 days to compile documents and respond.

4. The Respondent issued its tax assessment orders on 24th September 2021 in the sum of Kshs. 35,930,960. 00 being Corporation tax and VAT.

5. The Appellant objected on 8th November 2021 and vide a letter dated 26th November 2021 the Respondent declared the objection invalid and requested the Appellant to provide documents to validate its objection.

6. On 30th November 2021 the Appellant wrote to the Respondent where it requested to file its objection out of time.

7. Vide an email dated 16th December 2021, the Respondent further requested for documents from the Appellant. Subsequently, the Respondent issued an objection decision on 15th February 2022.

8. Being aggrieved by the Objection decision, the Appellant filed a Notice of Appeal with the Tribunal on the 4th April, 2022.

The Appeal 9. The Appellant in its Memorandum of Appeal dated 7th May, 2022 and filed on the 11th May, 2022 raised the following grounds of appeal:i.That it came to know of the additional assessments in the system late since it did not have access to its email to iTax account as they had forgotten the iTax password and the password to the email address.ii.That it was unable to lodge the objection on iTax platform, instead it was getting error “please enter Valid Assessment Number”iii.THAT the Respondent erred in fact and in law by disallowing input VAT based on investigation of non-compliance of tax by the company suppliers.

Appellant’s Case 10. The Appellant’s case is premised on the hereunder filed documents and proceedings before the Tribunal:i.The Appellant’s Statement of Facts dated 7th May, 2022 and filed on 11th May 2022 together with the documents attached thereto.ii.The Appellant’s written submissions dated 25th January, 2023 and filed on 25th January, 2023.

11. It was the Appellant’s contention that it knew of the additional assessments in the system late since it did not have access to its iTax account as its officers had forgotten the iTax password and the password to the email address.

12. The Appellant stated that the additional assessment was excessive and punitive and not as per the audited accounts.

13. That being dissatisfied with the objection decision, that it would like to avail further supporting documents on the objected amount.

14. The Appellant was also praying that the Tribunal directs the Respondent to allow it to submit additional documents on the objected amounts.

15. The Appellant averred that on 24th September 2021, the Respondent issued it with a tax assessment for Kshs 35,930,960. 00

16. That being dissatisfied with the Respondent’s assessments and pursuant to the provisions of Section 51 of the Tax Procedures Act, it lodged a notice of objection dated 8th November 2021 within the prescribed statutory period.

17. The Appellant submitted that vide a letter dated 26th November 2021, 31 days after issuance of the assessment, the Respondent wrote to the Applicant herein informing it of its decision to invalidate its objection.

18. That the said letter was contrary to the mandatory provisions of Section 51(4) of the Tax Procedures Act.

19. The Appellant stated that the Respondent is mandated under Section 51(4) of the Tax Procedures Act to notify the Applicant immediately in writing if the notice of objection is not validly lodged.

20. That the Respondent failed to notify the Appellant that its notice of objection filed on 8th September 2021 was invalid within reasonable time. It averred that the Respondent communicated its position on the 31st day after issuance of the assessment on 26th September 2021.

21. That arising from the failure, the Appellant was unable to meet the thirty (30) day deadline under Section 51(2) of the Tax Procedures Act to respond to the assessment.

22. The Appellant stated that the Respondent proceeded to issue its objection decision on 15th February 2022 confirming the tax assessment,

23. That the said objection decision was made beyond 60 days as provided for under Section 51(11) of the Tax Procedures Act from the date of invalidation of the objection on 26th November 2021.

24. The Appellant was of the view that the dispute raises the following issues for determination;a.Whether the objection decision as issued by the Respondent was validly made as per Section 51(11) of the Tax Procedures Act.b.Whether the notice of objection by the Appellant was validly lodged as per Section 51(3) of the Tax Procedures Act.

25. The Appellant submitted that the Respondent erred in fact in issuing the invalidation decision on the objection lodged by the Appellant dated 8th November 2021 without a fair hearing and a proper validation process.

26. That by deciding that the Appellant’s notice of objection dated 8th November 2021 did not fulfil the requirements of Section 51(3) of the TPA and therefore tainted with illegality, the Respondent misdirected itself in law. That from the onset, it wished to point out that there was no specific format that the notice of objection should conform with, other than comprising of the requirements under Section 51(2) of the TPA.

27. That the grounds to be relied on is not cast in stone but rather a matter of fact dependent on each specific case. To support its arguments, the Appellant relied on the case of Republic v Kenya Revenue Authority Ex Parte M-Kopa Kenya Limited [2018] eKLR.

28. The Appellant urged the Tribunal to consider its case and consider the substance rather than the form, as there was no precise format to be used by the Appellant. That its notice of objection substantially covered all the essentials as provided under the law.

29. That vide letter dated 26th November 2021, the Respondent wrote to the Appellant informing it of the invalidation of its objection way beyond 30 days period within which the Appellant is required to respond to the assessment as provided for under Section 51(2) of the TPA.

30. That having lodged its objection on 8th November 2021, it was incumbent upon the Respondent where it has determined that a notice of objection lodged, had not been validly lodged, to immediately notify the Appellant in writing that the objection had not been validly lodged pursuant to the provisions of Section 51(4) of the TPA.

31. It averred that the letter dated 26th November 2021 by the Respondent, informing it of its decision to invalidate its objection, 31 days after issuance of the assessment cannot be termed as immediate within the meaning of Section 51(4) of the TPA.

32. The Appellant submitted that the said invalidation notice was issued way after the 30 days’ statutory period allowable for the Appellant to rectify any issues that the Respondent may have had with the objection, effectively locking out the Appellant from rectifying any issues over its objection.

33. That this action by the Respondent amounted to violation of the Appellant’s right to fair administrative action.

34. The Appellant stated that it is entitled to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair as per Article 47 of the Constitution of Kenya 2010. That the practice by the Respondent to subject the Appellant to such process is not supported by any tax law and does not meet the threshold of Article 47 of the Constitution of Kenya 2010.

35. That further to the foregoing, the Appellant in this application for late objection indicated that it didn’t have access to its iTax account, having forgotten its iTax password and the password to the email.

36. That it was only upon change of the said iTax password and email address that the Appellant came to learn of the assessment and responded to the same on the 8th of November 2021.

37. The Appellant stated that it had been more than willing to avail any documentation required by the Respondent so that the extent of its true tax liability could be ascertained after review of all documentation.

38. That the upshot of the foregoing was that the Appellant was humbly inviting the Tribunal to invoke its powers under Section 29(3)(c)(ii) of the Tax Appeals Tribunal Act by referring the matter to the Commissioner for reconsideration in accordance with any directions of the Tribunal.

39. The Appellant stated that out of abundance of caution, were the Tribunal to be of the eminent opinion that the Appellant’s objection was not validly lodged as enumerated under Section 51(3), it respectfully submitted that the Respondent was still under duty to render its objection within 60 days, for the reason that Section 51(11) does not contemplate an objection decision to be based solely on a validly lodged objection.

40. The Appellant stated that as per Section 51(11) the objection decision is to be made within sixty days from the date the taxpayer lodged a notice of objection, not from the date a taxpayer lodged a valid notice of objection.

41. That even after the Respondent was of the opinion that the objection was invalidly lodged and after exhaustion of communication to either have the objection refiled or amended, which allegation the Appellant vehemently deny, the TPA contemplates that in between the proceedings, i.e. after the objection is lodged (not necessarily being a valid objection), the Commissioner must make a decision within 60 days of the notice of objection.

42. The Appellant stated that the validity or otherwise of a notice of objection should be contained in a decision of the Commissioner in the objection decision and to which the Appellant can validly appeal or seek a review from. To support its arguments, the Appellant cited the case of Commissioner of Income Tax vs. Westmont Power (K) Ltd [2006] eKLR.

43. The Appellant submitted that if there be any ambiguity, it should be resolved in favour of the Appellant since it’s the Appellant who will suffer irreparable harm.

44. The Appellant emphasised that its notice of objection having been validly lodged within statutory timelines, it was incumbent upon the Respondent to issue an objection decision within 60 days.

45. That on 30th September 2022, the Respondent issued it with a tax assessment for Kshs. 35,930,960. 00 to which the Appellant filed an objection on 8th November 2021. That vide a letter dated 26th November 2021, 31 days after issuance of the assessment, the Respondent wrote to the Appellant herein informing it of its decision to invalidate its objection.

46. That the Respondent proceeded to issue its objection decision on 15th February 2022 confirming the tax assessment.

47. That further, the said objection decision was made beyond the 60 days as provided for under Section 51(11) of the TPA from the date of invalidation of the objection on 26th November 2021.

48. That additionally, the contents of the alleged objection decision does not meet the threshold of the law as provided for under Section 51(10) of the TPA.

49. The Appellant asserted that the said objection decision neither had the statement of finding on material facts nor reasons for the decisions. It urged the Tribunal to find that the said decision failed to meet the threshold required and thus null and void.

Appellant’s Prayer 50. The Appellant prayed that the Tribunal sets aside the confirmation and directs the Respondent to amend the assessment as per the objected amounts attached.

Respondent’s Case 51. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal:I.The Respondent’s Statement of Facts dated and filed on 3rd June, 2022 together with the documents attached thereto.II.The Respondent’s written submissions dated 18th January, 2023 and filed on the same date.

52. It was the Respondent’s submission that on or around December 2020, it conducted investigations into the general affairs of the Appellant with the aim to establish non-disclosure and understatement of sales in its tax returns.

53. Respondent submitted that it examined the Appellant’s bank statements and its tax filing history covering a period between the years 2016 and 2020. That the Respondent established that the Appellant had not been filing Corporation tax and its VAT obligations varied.

54. That the investigations conducted on the Appellant established the existence of a bank account held at Guardian Bank Limited. That the account had a net banking amounting to Kshs. 108,271,029. 00 received from deposits from various customers within the period between the years 2016 and 2020.

55. The Respondent averred that a probe into the declared general rated sales to customers registered for VAT was compared with purchases claimed by the Appellants’ customers for the period 2015 to 2022. The Commissioner established under declared VAT and Corporation tax amounting to Kshs. 35,930,960. 00.

56. That on 28th May 2021, the Respondent communicated the tax investigation findings to the Appellant through its director Navichandra Nathoo Shah and welcomed a response.

57. The Respondent averred that on 8th May 2021, the Appellant responded to the Commissioner’s tax finding of 28th April 2021 through its tax agent and requested for time to analyse, reconcile and respond to the same.

58. That subsequently, on 18th May 2021, the Appellant’s tax agent requested for 45 days to compile the documents requested and respond to the issues raised.

59. The Respondent stated that the Appellant did not communicate any further substantive response to the matter and as a result, the Respondent issued a tax assessment of Kshs. 35,930,960. 00 to the Appellant on 24th September 2021 (Default Assessment for Corporation Tax and additional assessment for VAT).

60. That the Appellant alleges to have responded and objected to the assessments on 8th November 2021 but even so, there is no record as to the objection. That however, the Appellant’s tax agent filed notices of objection in other companies affiliated to the Appellant (by directorship) on the said day of 8th November 2021.

61. That on 26th November, 2021, the Respondent invalidated the objections filed on 8th November 2021 for the affiliate companies including that of the Appellant on the grounds that the objections failed to meet the requirements of Section 51(3) of the Tax Procedures Act.

62. That subsequently, the Appellant sent a letter to the Respondent dated 30th November 2021 in which it did not categorically address the issues raised by the Respondent’s letter dated 26th November 2021 but instead sought time to file a late objection.

63. The Respondent stated that it reviewed the Appellant’s letter and on 16th December 2021, wrote to the Appellant communicating that the substantial issues raised were not addressed in its letter, that the Appellant was given seven days to provide all the. relevant documents in support of its application for the Respondent’s consideration.

64. It averred that there was no further communication by the Appellant after the Respondent’s letter dated 16th December 2021. That consequently, on 15th February 2022, the Respondent issued its objection decision confirming the assessment of Kshs 35,930,960. 00.

65. It was the Respondent’s contention that the Notice of Objection filed by the Appellant was invalid for being time barred for failing to conform to the requirements of Section 51(3) of the TPA as it was not accompanied by the relevant documents in support of the objection. That this was communicated to the Appellant on 26th November 2021.

66. That the Appellant was given ample time and specifically on the dates of 26th November 2021 and 16th December 2021 to regularize and validate the notice of objection but did not do so. That the Appellant had until 15th February 2022 to rectify its invalid objection which it did not utilize.

67. The Respondent stated that the issue of forgotten password to the iTax account and the linked email address or change thereof is not a formidable ground of Appeal.

68. That the Appellant had not depicted any reasonable steps taken to communicate the technical challenges it was facing with the iTax System and had not given any documents to show a change of email address to the Respondent.

69. That similarly, the Appellant had all along been filing its monthly VAT returns on time and never past the deadline in the year 2021 and specifically in November 2021 when it was required to file a notice of objection. That it was illogical for the Appellant to allege that it could file its tax returns but could not lodge its notice of objection.

70. The Respondent asserted that the tax assessment on the Appellant could not be set aside simply because the Appellant failed to lodge a notice of objection on iTax. That the Appellant would have lodged a valid notice of objection by writing a letter to the Respondent.

71. The Respondent stated that it was relying on Sections 29, 31, 51 and 56 of the Tax Procedures Act among other enabling provisions of the law.

72. The Respondent was of the view that the only issue for determination in this dispute is whether the Appellant validly objected to the Respondent’s assessment orders issued on 24th September 2021.

73. The Respondent stated that the Appellant was issued with additional assessments dated 24th September 2021 but failed to object to the same.

74. That the fact that the Appellant did not object to the additional assessment was not in dispute as the Appellant admitted in its Memorandum of Appeal dated 7th May 2022 in the following words “… Our client was unable to lodge an objection on iTax Platform instead we were getting error “please enter the valid assessment number”.”

75. The Respondent submitted that if at all the Appellant was unable to object on iTax platform as alleged, then the Appellant ought to have sought assistance from the Respondent’s officers. That the Appellant never sought help from the Respondent’s offices to resolve the alleged error. That instead, the Appellant made an application to be allowed to object late, which application was allowed and was requested to supply supporting documents.

76. That while making its late objection, the Appellant never provided the supporting documents requested leading to its application to object being declared invalid.

77. The Respondent averred that the Appellant was required to object the assessments within the provisions of Section 51(3) of the Tax Procedures Act 2015.

78. That it was the duty of the Appellant to provide documents whenever required by the Commissioner. That Section 23(1)(a) of the Tax Procedures Act provides that a taxpayer is required to keep documents or records in such a manner that the taxpayers tax liability can be readily ascertained.

79. The Respondent insisted that the Appellant failed to support its objection with relevant documents despite email reminder. That the Respondent requested for relevant documents which were not availed.

80. That the Appellant having not provided documents or explanations capable of making the assessment to be vacated or amended, the Respondent correctly confirmed the assessment and rejected the objection.

81. That it is trite law that he who alleges must proof, that in this case, the Appellant alleged that the Respondent’s assessments were excessive, punitive and not as per the audited accounts. It averred that it was therefore incumbent upon the Appellant to show how the additional assessment were excessive. That the only way to do so was by way of provision of evidence.

82. On the issue of provision of documents, the Respondent stated that the Tribunal had been consistent that the Appellant bears the obligation of providing documents to enable the Respondent accurately compute the tax payable.

83. To support its arguments, the Respondent cited the following cases;i.The case in Tax Appeals Tribunal No. 125 of 2017: Ngurumani Traders Limited V The Commissioner of Investigations and Enforcement.ii.That case in Tax Appeals Tribunal No. 163 of 2017: Rongai Tiles and Sanitaryware Limited V The Commissioner of Domestic Taxes.iii.The Tribunal’s case in TAT No. 70 of 2017 Afya Xray Centre Limited vs. The Commissioner of Domestic Taxes.iv.The High Court case in Commissioner of Domestic Taxes v Galaxy Tools Limited [2021] eKLR.

The Respondent’s prayers. 84. The Respondent made the following prayers:i.That the Appeal be dismissed with costs.ii.That the objection decision dated 15th February 2022 be upheld.

Issues for Determination 85. Having carefully studied the parties’ pleadings and all the documents attached to the Appeal and after considering the submissions, the Tribunal was of the view that the issues falling for determination were as follows:-a.Whether the Respondent’s objection decision dated 15th February 2022 was in contravention of the law.b.Whether the Respondent was justified in confirming the assessments.

Analysis and Findings 86. Having identified the issues falling for its determination, the Tribunal wishes to analyse the same as hereunder.

a. Whether the Respondent’s objection decision dated 15th February 2022 was in contravention of the law. 87. The genesis of this dispute it the Respondents objection decision dated 15th February 2022 which confirmed principle tax liability of Kshs. 35,930,960. 00.

88. It was the Appellant’s contention that the Respondent’s objection decision was made beyond 60 days as provided for under Section 51(11) of the Tax Procedures Act from the date of invalidation of the objection on 26th November 2021.

89. The Commissioner is enjoined under Section 51(11) of the Tax Procedures Act to make an objection within 60 days from the date of receipt of :-“a)the notice of objection; orb)any further information the Commissioner may require from the taxpayer, failure to which the objection shall be deemed to be allowed.”(Emphasis added)

90. The Tribunal noted that though the parties did not attach the Appellant’s notice of objection, it was not in dispute that the Appellant objected to the tax assessment on 8th November, 2021. Subsequent to the Appellant’s objection of 8th November 2021, the following correspondences followed;i.Vide a letter dated 26th November 2021, the Respondent declared the Appellant’s objection application to be invalid and requested the Appellant to provide documents in support of the objection.ii.The Appellant replied to the Respondent vide a letter dated 30th November 2021. iii.On 16th December 2021 vide an email to the Appellant’s agents, the Respondent further requested for documents.iv.The Respondent issued its objection decision on 15th February 2022.

91. From the provision of Section 51(11) of the TPA, the Respondent is required by law to issue an objection decision within sixty days of either the notice of objection or the date it receives the documents it may have requested from a taxpayer.

92. In the instant case, the last correspondence prior to the objection decision was from the Respondent where it was requesting for documents from the Appellant on 16th December 2021. The Tribunal noted that in the letter, the Respondent had allowed the Appellant seven (7) days to submit documentation in support of the objection application in order to enable the Commissioner to determine the validity of the Appellant’s objection.

93. It follows from the said email communication of 16th December 2021 that the Appellant was to provide the documents by 23rd December 2021. Going by the provisions of Section 51(11) of the TPA and in absence of any other communication, the 60 days started running from the 23rd December 2021 being the last day the Appellant was given to validate its objection. Following from this therefore, the Respondent ought to have issued an objection decision on or before 21st February 2022. The Respondent’s objection decision was issued on 15th February 2022 which was within time.

94. Consequently, the Tribunal finds that the Respondent’s objection decision was issued within time and therefore lawful.

b. Whether the Respondent was justified in confirming the assessments. 95. The Tribunal noted that through its objection decision dated 15th February 2022, the Respondent confirmed the assessments amounting to Kshs. 35,930,960. 00 which comprised of Kshs. 32,481,309. 00 being Corporate tax and VAT of Kshs. 3,449,651. 00.

96. The Appellant had stated that the additional assessment was excessive and punitive and not as per the audited accounts.

97. The Respondent on its part averred that the Appellant failed to support its objection with relevant documents despite a reminder by email. That the Respondent requested for relevant documents which were not availed.

98. That the Appellant having not provided documents or explanations capable of making the assessment to be vacated or amended, the Respondent correctly confirmed the assessment and rejected the objection.

99. The Tribunal noted that the Respondent was consistent in all its communication to the Appellant in requesting for documentation to support the objection. In all the responses from the Appellant it was noted that the Appellant neither addressed the issue of supporting documents nor attached any to its responses to the Respondent. The Tribunal has further noted that the Appellant has not attached any document relevant to the assessment to this Appeal to demonstrate that the Respondent was wrong.

100. A taxpayer served with an assessment which it disputes, is enjoined to provide the necessary documents and information that suggest that such an assessment is erroneous, misplaced and not justifiable in the circumstances. Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act squarely places the burden of proof upon a taxpayer to discredit any tax assessment or decision.

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

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

103. The objection decision was an unequivocal as to the Appellant’s default in providing material documents and verifiable information that prompted the Respondent to confirm the assessments.

104. The Appellant’s averments that the assessments were excessive and punitive were not enough as set out in Section 107 of the Evidence Act which provides that:“Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.”

105. This position was upheld in Kenya Power & Lighting Co Ltd vs. Rassul Nzembe Mwadzaya [2020] eKLR where the court stated as thus:“Since no evidence was adduced in support of the defence case, the defence on record therefore remained as a mere allegation. This is the position in law and was restated in the case of Edward Muriga through Stanley Muriga…Vs…Nathaniel D. Schulter, Civil Appeal No.23 of 1997, where the Court of Appeal stated: -“In this matter, apart from filing its statement of defence the Defendant did not adduce any evidence in support of assertions made therein. The evidence of the 1st Plaintiff and that of the witness remain uncontroverted and the statement in the defence therefore remains mere allegations. “

106. The Court in Alfred Kioko Muteti vs. Timothy Miheso & another [2015] eKLR held as follows regarding evidence;“a party can only discharge its burden upon adducing evidence. Merely making pleadings is not enough. “In reaching its findings, the Court stated that: “Thus, the burden of proof lies on the party who would fail if no evidence at all were given by either party…. Pleadings are not evidence....”

107. Similarly, in the case of Primarosa Flowers Limited vs. Commissioner of Domestic Taxes (2019) eKLR, whilst making reference to the Australian case of Mulherin vs. Commissioner of Taxation [2013] FCAFC 115 the Court held that: -“……. 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….”

108. Accordingly, the Tribunal finds that the Respondent was justified in confirming the tax assessments on the Appellant.

Final Decision 109. Based on the foregoing analysis the Tribunal determined that the Appeal lacks merit. The Orders that accordingly recommend themselves are as follows: -i.The Appeal be and is hereby dismissed.ii.The Respondent’s objection decision dated 15th February, 2022 be and is hereby upheld.iii.Each party to bear its own costs.

110. It is so ordered.

DATED and DELIVERED at NAIROBI this 19th day of May, 2023. …………………………………………ERIC N. WAFULACHAIRMAN…………………………………………CYNTHIA B. MAYAKAMEMBER…………………………………………GRACE MUKUHAMEMBER…………………………………………JEPHTHAH NJAGI…………………………………………MEMBER…………………………………………ABRAHAM K. KIPROTICHMEMBER