[2024] KETAT 1247 (KLR)

Oil v Commissioner of Domestic Taxes (Tax Appeal E546 of 2023) [2024] KETAT 1247 (KLR) (Civ) (9 August 2024) (Judgment)

Neutral citation: [2024] KETAT 1247 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Tax Appeal E546 of 2023

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, AK Kiprotich & T Vikiru, Members

August 9, 2024

Between

Awwal Oil

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company duly incorporated in Kenya and is a registered taxpayer.

2. The Respondent is a principal officer appointed pursuant to Section 13 of the Kenya Revenue Authority Act (KRA), Act No. 2 of 1995, and KRA is empowered to enforce and administer provisions of written laws set out in Section 5 as read together with the First Schedule of the KRA Act.

3. The Respondent audited the Appellant's tax affairs for the period 2016 to 2020 and issued it with additional tax assessments of Kshs. 1,450,024,407. 00 for Corporate income tax and Kshs. 1,075,293,588. 00 for VAT on 28th June 2022 and 29th June 2022, respectively.

4. The Appellant objected to the additional assessments via a letter dated 23rd May 2023.

5. The Respondent issued the Appellant with an Objection decision dated 21st July 2023 confirming the assessments.

6. The Appellant, being dissatisfied with the Respondent’s Objection decision, lodged this Appeal at the Tribunal on 18th August 2023.

The Appeal 7. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal filed on 1st September 2023 that:a.The Respondent erred in law and fact by ignoring Section 50 (1)(a) of the Tax Procedures Act, which provides that an assessment or document under the hand of the Commissioner should be conclusive evidence that the particulars are correct.b.Having previously audited the exact same period and the arising liability settled by the Appellant, the Respondent erred in law and fact by violating the Appellant’s rights to fair administrative action by issuing a subsequent arbitrary assessment in the same manner, which act is unjust, malicious procedurally unfair and in bad faith.c.The Respondent erred in law and fact by violating the Appellant's right to legitimate expectation having issued a final decision on the tax liability status of the Appellant, which decision the Appellant had relied on to believe that the matter was closed; this act is unreasonable, irrational, unconstitutional, capricious and unprocedural.d.The Respondent erred in law and fact by ignoring the principle of certainty while dealing with the tax affairs of the Appellant.e.The Respondent erred in law and fact, by assuming that all credits in the Appellant's bank statements comprised of income of the Appellant, which should be subjected to tax contrary to Section 3 of the Income Tax Act and Section 5 of the Value Added Tax Act.f.The Respondent erred in law and fact, by ignoring Section 29 of the Tax Procedures Act, which places a limit of five years on the period the Respondent can go back to assess a taxpayer's affairs.g.The Respondent erred in law and fact, by failing to consider relevant support documents lodged by the Appellant in support of its objection.

Appellant’s Case 8. The Appellant’s case is premised on the following documents before the Tribunal: -a.Its Statement of Facts dated 31st August 2023 and filed on 1st September 2023. b.Its Written Submission dated 2nd April 2024 and filed on 9th April 2024.

9. The Appellant averred that Section 50 (1) (a) of the Tax Procedures Act provides as follows on the conclusiveness of tax decisions:“1. Except in proceedings under this Part-(a)the production of a notice of an assessment or a document under the hand of the Commissioner shall be conclusive evidence of the making of the assessment and that the amount and particulars of the assessment are correct.”

10. The Appellant submitted that the above provision explicitly states that the production of a notice of assessment or any document under the hand of the Commissioner shall be considered conclusive evidence of both the existence of the assessment and the accuracy of its particulars.

11. The Appellant averred that the provision is aimed at providing definitive and binding authority to the decisions made by the Commissioner in the tax assessment process.

12. The Appellant submitted that the sequence of events outline a series of assessments and objection decisions made by different departments of the Respondent's office.

13. The Appellant averred that the critical question raised being whether these subsequent assessments, issued after an objection decision had been made, adhere to the statutory provision of conclusiveness under Section 50(1)(a) of the Tax Procedures Act.

14. The Appellant submitted that the objection decision dated 28th February 2019, being a document under the hand of the Commissioner, is conclusive evidence that the North of Nairobi TSO assessed the Appellant and made a correct determination of the tax liability payable.

15. Further, the Appellant contended that upon issuance of the objection decision dated 28th February 2019, the Respondent pronounced itself on the matter of tax liabilities payable by the Appellant for the 2017 and 2018 transactions.

16. The Appellant submitted that the Respondent demonstrated that a conclusive decision was reached and documented in the objection decision dated 28th February 2019, which resulted in a tax liability that the Appellant committed to clear in installments.

17. The Appellant averred that the Respondent, issuing a third subsequent assessment after the objection decision, is disregarding the finality of this settled matter. Further, the Appellant contended that the Respondent’s conduct not only violates the statutory provision of conclusiveness but also goes against the principles of administrative justice and certainty in tax law, which form the foundation of a fair and predictable tax system.

18. The Appellant submitted that pursuant to Section 31 (1) of the Tax Procedures Act, the Respondent may only amend the Original Assessment by making alterations or additions to the Original Assessment of a taxpayer for a reporting period and not to issue totally new assessments for periods already assessed and the tax liabilities of a taxpayer determined.

19. The Appellant submitted that Section 7 (2) of the Fair Administrative Action Act 2015 provides that:-“A court or tribunal under subsection (1) may review an administrative action or decision, if(b)a mandatory and material procedure or condition prescribed by an empowering provision was not complied with;(c)the action or decision was procedurally unfair:(h)the administrative action or decision was made in bad faith:(j)there was an abuse of discretion, unreasonable delay or failure to act in the discharge of a duty imposed under any written law;(k)the administrative action or decision is unreasonable:(m)the administrative action or decision violates the legitimate expectations of the person to whom it relates:(n)the administrative action or decision is unfair:(o)the administrative action or decision is taken or made in abuse of power”

20. The Appellant averred that the principles of fair administrative action, as enshrined in Article 47 of the Constitution and the Fair Administrative Action Act, require public authorities to act fairly. reasonably, and in accordance with the law when making decisions that affect individuals' rights.

21. The Appellant submitted that the Respondent's actions in issuing subsequent assessments for the same period and tax liabilities, despite an earlier objection decision in 2019, are indicative of unfair administrative action. The Appellant further averred that the Respondent's conduct in revisiting concluded tax matters without valid reasons or new evidence undermines the principles of fairness and procedural justice.

22. The Appellant averred that the Respondent's action amounts to a breach of the Appellant’s right to fair administrative action for several reasons:i.The Respondent's failure to adhere to the conclusive nature of the objection decision dated 28th February 2019 constitutes procedural unfairness. The objection decision, being a document under the hand of the Commissioner, should have been regarded as conclusive evidence of the correctness of the assessment particulars, as per Section 50(1)(a) of the Tax Procedures Act. By issuing subsequent new assessments without substantial new evidence or exceptional circumstances and in complete disregard to Section 31 (1) of the Tax Procedures Act, the Respondent failed to follow proper procedure, thus rendering its actions procedurally unfair.ii.The Respondent's conduct of issuing repeated assessments for the same tax liabilities, based on the same transactions and records, demonstrates bad faith. The Respondent's decision to issue new assessments after the objection decision had been made, without any indication of error or fraud in the earlier conclusions or amendments to the same, suggests a lack of good faith in their dealings with the taxpayer. This behavior not only undermines the trust between the taxpayer and the tax authority but also goes against the principles of fairness and transparency in administrative actions.iii.Additionally, the Appellant asserted that the Respondent's actions amount to an abuse of discretion. That the repeated attempts to assess the same tax periods, despite previous objection decisions, reflect an arbitrary exercise of power by the Respondent. That this abuse of discretion not only causes undue hardship to the taxpayer but also undermines the integrity of the tax assessment process.iv.That the absence of any indication in the Respondent's assessment or objection decision that the assessments subject to this Appeal are amended assessments further underscores the lack of transparency and procedural fairness in the Respondent's actions.

23. The Appellant submitted that legitimate expectation arises when a body through its actions or declarations, leads an individual to anticipate a certain outcome, thus creating an assumption that the established procedure or benefit will be followed or conferred and in the realm of tax administration, the doctrine serves as a safeguard against arbitrary or capricious changes in policy, especially when a taxpayer has organized its affairs in reliance upon a tax authority's decision or established practice.

24. The Appellant averred that it had every reason to hold the legitimate expectation that the tax assessment and liability, as resolved by the Respondent's conclusive decision dated 28th February 2019, would be definitive. The Appellant submitted that the expectation was not a mere hopeful aspiration but was grounded in substantive interactions with the Respondent, including an extensive review and a formal objection decision process.

25. The Appellant submitted that the Respondent, having audited the Appellant and having provided a conclusive tax liability amount, which the Appellant has partially settled, led the Appellant to organize its financial obligations around this settlement. That therefore, there existed a justifiable reliance on the Respondent's affirmation of the tax liabilities for the periods 2017 and 2018.

26. The Appellant submitted that allowing a public authority to invalidate such expectations without a significant change in circumstances or without the due process of engaging the affected party, would render the concept of legitimate expectation illusory and our tax administration system arbitrary and unstable.

27. The Appellant relied on the case of Noor Maalim Hussein & 4 Others vs. Minister of State for Planning, National Development and Vision 2030 & 2 Others [2012] eKLR where the court held that:-“if statutory power is exercised in a manner contrary to the drafters or against public interest, the power can be said to have been exercised capriciously, irrationally or unreasonably. Thus irrationality and unreasonableness would play a major role and we shall as courts continue to assert our traditional duty and intervene in situations where authorities like ministers and persons act in bad faith, abuse power, fail to take into account relevant considerations or act contrary to legitimate expectations."

28. The Appellant averred that the Respondent's exercise of statutory power has both overstepped the purpose for which such power is granted and infringed upon the Appellant's protected legitimate expectations. That where power is wielded in a manner that disregards previously established representations or deviates from consistent practices without adequate or legitimate reason and does not conform to the amendment provision in Section 31 of the Tax Procedures Act, it stoops into the realm of unreasonableness.

29. Further, the Appellant submitted that the Respondent's actions exhibit hallmarks of abuse, ranging from the retrospective assessment that seems punitive rather than corrective to the dismissal of legitimate taxpayer expectations without due regard for procedural fairness, thus an obdurate stance of the Respondent in disregarding these issues points towards an exercise of power that contradicts the very principles of objectivity and fairness that ought to govern all administrative actions.

30. The Appellant averred that the question that thus presents itself before this Tribunal is not merely whether the Appellant has an obligation to pay taxes - an obligation which it does not dispute - but whether the exercise of power in demanding payment was made in fair adherence to principles of natural justice, due process, and without abuse of the power conferred by statute

31. The Appellant submitted that Section 3(1) and 3 (2)(a)(i) of the Income Tax Act provides that:-“(1)Subject to, and in accordance with, this Act, a tax to be known as income tax shall be charged for each year of income upon all the income of a person, whether resident or non-resident, which accrued in or was derived from Kenya.(2)Subject to this Act, income upon which tax is chargeable under this Act is income in respect of—(a)gains or profits from—(i)any business, for whatever period of time carried on”

32. The Appellant submitted further that Section 5(1)(a) of the VAT Act provides that:-“(1)A tax, to be known as value added tax, shall be charged in accordance with the provisions of this Act on—(a)a taxable supply made by a registered person in Kenya”

33. The Appellant averred that the law clearly specifies that income tax is based on the profits generated from business operations and not on general banking transactions and that VAT is based on taxable supplies made by registered persons in Kenya and not on general banking transactions.

34. The Appellant submitted that the assessment of taxable income should be conducted with due diligence and in adherence to the principles enshrined in the Income Tax Act and the Value Added Tax Act. The Appellant averred that reliance solely on bank statements without considering the nature and source of the credits therein represents a departure from these statutory requirements.

35. The Appellant averred that during the audit and assessment by the North Nairobi TSO, it provided bank statements together with an analysis that indicated the account was used for purposes of making deposits towards financing the importation and also contained initial deposits from shareholders.

36. The Appellant further submitted that it attached a listing of deposits with each deposit explanation in its Notice of Objection dated 23rd May 2023 and therefore it was wrong for the Respondent to sum up those deposits together with the deposits in the Kenya Shillings account, as all comprising of company income.

37. The Appellant averred that it provided the Respondent with actual sales invoices and bank statements to demonstrate its actual sales, and this is even admitted by the Respondent in paragraphs 3. 1.5 and 3. 1.6 of its Objection decision dated 21st July 2023, that therefore, the actual sales of the company, which amounted to Kes. 3,034,090,598 for the two years, could be easily discernible from the provided documentation.

38. The Appellant averred that the examination of bank statements alone is insufficient to ascertain the nature of transactions and their tax implications accurately and that a comprehensive analysis, taking into account supporting documentation as provided by the Appellant, is necessary to provide a complete picture of the Appellant's financial activities and determine taxable income accurately.

39. The Appellant submitted that subsections 23 (c) of the Tax Procedures Act provides that: -“(1)A person shall—(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”

40. The Appellant submitted further that subsections 29 (1) (5) and (6), of the Tax Procedures Act provide that: -“(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-(a)The amount of the deficit in the case of a deficit carried forward under the Income Tax Act (Cap. 470) for the period;(b)The amount of the excess in the case of an excess of input tax carried forward under the Value Added Tax Act, 2013 (No. 35 of 2013), for the period; or(c)The tax (including a nil amount) payable by the taxpayer for the period in any other case(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 willful neglect, evasion, or fraud by a taxpayer.”

41. The Appellant averred that the Respondent’s assessment was made outside the statutory limitation period prescribed in Section 29(5) of the Tax Procedures Act. The Appellant further submitted that the assessments were based on transactions from the period 2017-2018 and were issued in 2023, well beyond the five-year timeframe stipulated in the Act.

42. The Appellant submitted that the Tribunal should closely scrutinize the burden of proof the Respondent carries in such allegations where there is a claim of fraud, willful neglect, or evasion by the Appellant. Further, the Appellant averred that an assertion of willful neglect or omission does not sufficiently stand on the mere issuance of an additional assessment without concrete evidence substantiating such claims.

43. The Appellant averred that the Respondent's misapplication of Section 23(c) and Section 29 of the Tax Procedures Act demonstrates a lack of adherence to statutory provisions and fairness in tax assessments.

44. The Appellant relied on the case of Keroche lndustries Limited V Kenya Revenue Authority & 5 Others [2007] eKLR, wherein the court pronounced itself as follows: -“it follows, therefore, that the tax demanded by letter of 29TH November 2006 was not based on what was actually due in terms of figure, value, or volume. It was based on a formula other than what was actually produced, and to this extent, it was an illegal tax demand, and I find that it is a nullity. The same position prevails as regards VAT assessment on an input-output formulae because S 2, S 5 and 6 of the VAT Act, make it abundantly clear that tax is due when goods are supplied or delivered. They ought to have been based on actual sales, that is what was actually supplied or delivered. On the other hand, the letter of 23rd October shows that the assessment was based on an input-output ratio - and this is both outside the language and the relevant provisions of the Act the assessment is clearly ultra vires the Act and illegal small wonder, various assessments were made during the period 2001-2002 on the basis of the records availed. Another assessment was done between 2002 to 2004 on the basis of the availed records but records were said to have been unavailable in the year 2006. All the three audits come up with different figures over the same period. It is clear to the court that, in the entire decision-making process the Respondents have acted with incredible negligence. arbitrariness irrationality and in disregard of the applicable law and their powers. The irrationality and unreasonableness in the varying figures is quite evident. All these varying figures were made over the same period on the basis of the availed records. The same position prevails as regards the Income Tax assessment which was also based on expected sales instead of actual gains or profits. Moreover, the impugned decision as per the letter in question, represents an impropriety of procedure in making a composite demand that overlooked the procedural safeguards in each of the Acts. I find that the demands must fail on this ground as well."

45. The Appellant averred that the Respondent’s assessments are unlawful, arbitrary and contrary to statutory requirements for several reasons that:-i.The assessments were issued outside the statutory limitation period prescribed in Section 29(5) of the Tax Procedures Act, exceeding the five­ year timeframe from the last date of the reporting period to which the assessment relate. That the Respondent failed to demonstrate gross neglect, evasion. or fraud by the Appellant to warrant the application of the exception under subsection 29(6).ii.The total sales assessed were based solely on bank statements without due consideration of the nature and source of the credits therein. This approach disregards the statutory framework outlined in the Income Tax Act and the Value Added Tax Act, which emphasize the taxation of gains or profits from business activities and taxable supplies, respectively.iii.The assessments were issued despite earlier objection decisions in 2019, which created a legitimate expectation that the tax matters for the period in question were settled. Revisiting concluded tax matters without valid reasons or new evidence undermines the principles of finality and conclusiveness articulated in Section 50(1)(a) of the Tax Procedures Act.

iv.The assessments were conducted without providing any explanation or justification for departing from earlier decisions and disregarding procedural fairness and legitimate expectations. That the Fair administrative action requires public authorities to act transparently, reasonably, and in accordance with the law when making decisions that affect individuals' rights. 46. The Appellant submitted that all the three audits came up with different figures over the same period. Further, the Appellant averred that the Respondent acted with incredible negligence during the entire decision-making process, arbitrariness, irrationality, and disregard for the applicable law and its powers and that all these varying figures were made over the same period on the basis of the availed records.

47. The Appellant averred that the turnover comparative analysis by the Respondent indicated the sale difference of Kshs. 1,653,872,579 between IT2C and VAT3 in 2018 which was incorrect as the correct value was Kshs. 1,678,118,853 a figure similar to the determination made in the prior audit of 2018.

48. The Appellant submitted that the difference was due to the July 2018 sale, which could not be declared due to additional assessments KRA201809781831, which resulted in the depletion of the entire credit the Appellant is claiming.

Appellant’s Prayers 49. The Appellant prayed the Tribunal that:-a.The Appeal be allowed with costs to the Appellant;b.The decision of the Respondent dated 21st July 2023 be vacated and set aside in its entirety; andc.Any other orders that the Tribunal may deem fit.

Respondent’s Case 50. The Respondent’s case is premised on the hereunder filed documents:-a.The Respondent’s Statement of Facts dated and filed on 4th October 2023. b.The Respondent’s Written Submissions dated and filed on 19th March 2024.

51. The Respondent averred that it is not bound by the returns filed and/or information provided by the Appellant at the time of filing the returns. It relied on Section 24 (2) of the Tax Procedure Act which provides that;''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 available to the Commissioner."

52. The Respondent averred that it carried out a tax audit on the Appellant for the period 2016 to 2020 and established that there were variances between the Income tax return and the VAT return and between imports declared and those actually imported. That in addition, there were bank credits that had not been declared for tax purposes.

53. The Respondent submitted that it wrote to the Appellant requesting for explanations, information, and documents. That the Appellant provided documents that could not adequately determine whether or not the variances and/or the bank credits had been charged to tax.

54. The Respondent submitted that it invited the Appellant to meetings to establish its tax liability, however the Appellant failed to honor the invites.

55. The Appellant submitted that Section 3(1) and 3 (2)(a)(i) of the Income Tax provides that:-“22. Subject to, and in accordance with, this Act, a tax to be known as income tax shall be charged for each year of income upon all the income of a person, whether resident or non-resident, which accrued in or was derived from Kenya.”

56. The Respondent further submitted that Section 5(1)(a) of the VAT Act provides that:-“(1)(1) A tax, to be known as value added tax, shall be charged in accordance with the provisions of this Act on—(a)a taxable supply made by a registered person in Kenya;(b)the importation of taxable goods; and(c)a supply of imported taxable services.”

57. The Respondent averred that it treated the variances and credits as income that was accrued and/or derived from Kenya and, therefore, chargeable to tax and charged the income and variances to tax.

58. The Respondent submitted that Section 31 (1) of the Tax Procedure Act provides that;“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-……………….……………….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."

59. The Respondent averred that the aforementioned Section empowers it to make alterations or additions to an original assessment using the available information and based on the Respondent's best judgment to ensure that the correct amount of tax is paid.

60. The Respondent averred that it is allowed to make additional assessments within five (5) years using the available information and beyond five (5) years in cases of fraud, gross or wilful neglect, or evasions and further, that where new information becomes available to the Respondent it can carry out an audit and issue an additional assessment.

61. The Respondent submitted that Section 29 (5) and (6) of the Tax Procedure Act provides that;“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."

62. The Respondent further submitted that Section 31 (4) of the Tax Procedure Act provides that;“The Commissioner may amend an assessment-a.in the case of gross or wilful neglect, evasion, or fraud by, or on behalf of, the taxpayer, at any time;b.in any other case, within five years ofi.for a self-assessment, the date that the self-assessment taxpayer submitted the self-assessment return to which the self-assessment relates; orii.for any other assessment, the date the Commissioner notified the taxpayer of the assessment."

63. The Respondent submitted that it is mandated to issue default and additional assessments within five (5) years, therefore, an assessment dated and issued on 31st December 2021 covers taxes for the periods 2020, 2019, 2018, 2017, and 2016.

64. The Respondent averred that the issued additional assessments for the periods 2017 and 2020 vide a letter dated 31st December 2021 were taxes assessed and demanded for the periods 2017 and 2020 and were therefore demanded within the statutory timelines.

65. The Respondent relied on the case of R v Turbill and Broadway [2014], the England Wales Court of Appeal which defined the term willfully as:“willfully" means deliberately refraining from acting or refraining from acting because of not caring whether the action was required or not.”

66. The Respondent further relied on The Black's law dictionary, 2nd edition definition of neglect as;“Omission; failure to do something that one is bound to do; carelessness."

67. Therefore, the Respondent submitted that the Appellant willfully neglected and/or omitted to declare part of the income earned because it had the obligation to declare all the income earned during and for the period under taxation.

68. The Respondent relied on the case of Golden Cara Investments Limited v Commissioner of Domestic Taxes wherein the Tribunal held that;“The Tribunal having concluded in issue (b) that the Appellant had omitted to include the turnover as alleged by the Respondent, finds that the Appellant knowingly omitted in its tax returns which should have been included committed. The Respondent was therefore justified in assessing the Appellant for the period beyond 5 years."

69. The Respondent submitted that Section 56 (1) of the Tax Procedure Act provides that;“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect."

70. The Respondent relied on the case of Commissioner of Investigation and Enforcement v Pearl Industries Limited [2022] eKLR held that;“Under section 56 of the TPA, it was incumbent upon the Respondent to prove that the Commissioner's findings above were wrong. How could it do so? By providing evidence and supporting documentation to dislodge the Commissioner's findings."

71. The Respondent submitted that the Appellant can only discharge the burden of proof by providing relevant and competent documents.

72. The Respondent further relied on the case of Commissioner of Investigations and Enforcement v Evans Odhiambo Kidero (2022) eKLR where the Court stated as follows on the burden of proof;“The issue in this appeal is whether and to what extent the taxpayer is able to demonstrate that the money it received was campaign contribution. In line with section 56(1) of the TPA, the taxpayer bears the burden of proving that assessment made by the Commissioner is incorrect. This also fits in with the principles of the law of evidence that he who asserts must prove encapsulated in sections 107 of the Evidence Act which provides, inter alia, that whoever desires any court to give judgement as to any legal right dependent on the existence of facts which he assets, must prove those facts exist.To discharge the burden of proof, the Respondent need to not only prove that the impugned amount was indeed campaign funds as declared but also that the money was expended for political campaign purposes."

73. The Respondent posited that the burden is upon the Appellant to prove that the assessment was unjust, malicious, in bad faith, and procedurally unfair and that some of the credits were not income chargeable to tax.

74. The Respondent averred that the Appellant failed to provide documents in support of its objection and allegations advanced even after several requests and failed to discharge the burden of proof as required in the Income Tax Act and Tax Procedure Act.

75. The Respondent averred that a legitimate expectation can only be created and operate within the confines of the law, then only can it be legitimate. The Respondent relied on the holding of the Court of Appeal in the case of Kenya Revenue Authority & another v Republic (Ex parte) Kenya Nut Company Limited [2020] eKLR when it stated as follows;“It has long been established that legitimate expectation can only operate within the law and it can only be relied on when the law has been complied with."

76. Further, the Respondent relied on the holding of the Supreme Court in the case of Communications Commission of Kenya & 5 others V Royal Media Services Limited & 5 others (2014) eKLR, where the court considered the principle of legitimate expectation that stated that;''No doubt these are clear .and uncontroverted statements of promise from a Government representative, the Permanent Secretary. To constitute a promise into a signal capable of giving rise to a right founded on legitimate expectation, it must be demonstrated that the Permanent Secretary had the lawful capacity to make such representations to the 1st and 2nd Respondents or to their consortium. It falls to this Court to consider whether such representations were predicated upon the relevant law.’’

77. The Respondent submitted that the Appellant failed to declare the correct amount of income and pay the correct amount of taxes, thus creating a legitimate expectation not to charge income to tax and/or pay the correct amount of taxes would be against the law and the very spirit of legitimate expectation.

Respondent’s Prayers 78. The Respondent prayed that this Tribunal:-i.Dismiss the Appeal with costs for lack of merit.ii.Uphold the assessments and the Objection decision dated 21st July 2023.

Issues for Determination 79. The Tribunal having considered the pleadings and submissions of both parties is of the considered view that the issues that call for determination are:a.Whether the Respondent’s assessments were in contravention of the provisions of Section 29(5) of the TPA.b.Whether the Respondent was justified in confirming the additional assessments.

Analysis And Determination 80. The Tribunal having identified the issues falling for its determination proceeds to analyze the same as hereunder.

a. Whether the Respondent’s assessments were in contravention of the provisions of Section 29(5) of the TPA. 81. The Appellant contended that the Respondent’s assessments were based on transactions from the period 2017-2018 and were issued in 2023, well beyond the five-year timeframe stipulated in the Act.

82. Section 29(5) and (6) of the Tax Procedures Act provides as follows regarding time limitation for tax assessment;“(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.”

83. Whereas the Appellant contended that the assessments were received in 2023, the Tribunal in its analysis of documents tabled by both parties did not sight the alleged assessments issued in 2023.

84. The Respondent stated that it issued assessments via i-tax on 28th June 2022, although neither party attached a copy of the said assessment, the Appellant in its pleadings confirmed receiving assessments through i-tax on 28th and 20th June 2022.

85. To determine whether the Respondent’s assessments contravened Section 29(5) of the TPA, the Tribunal undertook a cursory count of five years from the date of assessment and established that:a.VATVAT returns being monthly returns, the last date of the reporting period to which the assessment related was 20th June 2017, hence VAT assessments for periods prior to May 2017 was out of the five year period.b.Income TaxThe last date of reporting for Income tax for year 2017 was June 2018 hence the Respondent’s assessments on 29th June 2022 was within the five year limit.

86. The Tribunal therefore finds that save for the Respondent’s VAT assessments for periods prior to May 2017 which contravened Section 29(5) of the TPA, the VAT assessments from May 2017 to 2020 and the income tax assessments for the years 2017 to 2020 were within the five year limit.

b. Whether the Respondent was justified in confirming the additional assessments. 87. Having determined that VAT from May 2017 to 2020 and income tax assessments for 2017 and 2020 were within the five year limit, the Tribunal shifted its focus to determining whether the Respondent’s confirmation of the assessments was justified.

88. To dispense of with this issue of determination the Tribunal analysed it under the two subheadings below:-

i. Whether the impugned assessment related to tax heads, periods and transactions already assessed and settled. 89. It was the Appellant’s contention that the tax assessments in question related to taxes that had been settled via earlier assessments. That the Respondent had in two earlier assessments targeted the Appellant using different departments to issue assessments upon the Appellant for the same taxes, covering the same periods and transactions hence the Respondent had gone against the import of Section 50(1) of the TPA on conclusiveness of the Respondent’s assessment as well as against the Appellant’s legitimate expectation of certainty in tax administration.

90. The Tribunal analysed the Appellant’s submissions and the documents it attached to support its claim that the taxes being demanded by the Respondent had been settled via a previous assessment, objection decision and payments it had made in that regard.

91. The Tribunal found that as per the attached correspondence, the tax earlier assessed and settled via the objection decision of 28th February 2019 was VAT for the period May 2018 whose evidence of partial payment the Appellant attached.

92. The assessment and objection decision in the instant Appeal cover a wider period being the entire years of income 2017 and 2018. The Tribunal observed that the Respondent in conducting a fresh audit and subsequently assessing VAT for the entire year 2018 without indicating that it had excluded VAT for May 2018 occasioned double taxation of the Appellant for the period May 2018.

93. The Tribunal therefore finds that VAT for the period May 2018 having been earlier settled should be excluded from the current assessment.

ii. Burden of Proof 94. Having found that VAT, Income tax and WHT for years 2017 & 2018 had not been assessed previously save for VAT for May 2018, the Tribunal proceeded to determine whether the Appellant had discharged its burden of proof to disproof the Respondent’s assessments.

95. It is trite law that the burden of proof in tax disputes rests with the Appellant to disprove the Commissioner’s assessments. Sections 56(1) of the TPA and 30 of the TAT Act are an unequivocal that a taxpayer has the duty to show that the Respondent’s assessments are erroneous or inaccurate. The Sections state:Section 56(1) of the TPA: -“In any proceedings under this part, the burden of shall be on the taxpayer to prove that a tax decision is incorrect.”Section 30 of the TAT Act:“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.”

96. The Appellant averred that the Respondent erred by assuming that all credits in the Appellant’s bank statements comprised of income of the Appellant which should be charged contrary to Section 3 of the ITA and Section 5 of the VAT Act.

97. The Appellant propounded that the Respondent erred by failing to consider relevant supporting documents lodged by the Appellant in support of its objection.

98. The Appellant had an evidential burden to discharge in demonstrating that the Respondent disregarded any material documents and information made available to it thereby arriving at an inaccurate assessment of the Appellant’s tax liability.

99. The Tribunal notes that the Appellant did not attach evidence to show that it indeed provided the said documents to the Respondent for consideration, the Tribunal further noted that the Appellant did not provide the said documents at the Appeal stage to discharge its burden to proof at the Tribunal as provided for in Section 30 of the TAT Act.

100. The Tribunal has held in numerous decisions that the burden of proof in tax disputes rests with the Appellant, the same can only shift to the Respondent once the Appellant adduces evidence which the Respondent will then be required to demolish so as to sustain its case. The Tribunal reiterates its position in the case of TAT Appeal No. 537 of 2019 Mugo Macharia Kigo Vs Commissioner of Domestic Taxes where it held as follows;“52. The Tribunal equally notes that the Appellant failed to specifically address the identified variances between the disclosed sources of income and the bank deposits as highlighted in the Objection Decision during the proceedings for the determination of the Appeal before the Tribunal but rather opted to generally challenge the Respondent’s use and application of the bank deposit analysis test in its situation.

53. The Tribunal finds that the Appellant failed to discharge the burden of proof placed upon it in demonstrating that the Respondent’s use and application of the bank deposit analysis yielded in an unfair and unreasonable tax assessment based on the documents made available by the Appellant both at the objection and appeal processes. There is no evidence adduced on the part of the Appellant to demonstrate that the tax assessment was incorrect and/or excessive. The Respondent’s use of officers from a different branch to carry out investigation was entirely an administrative decision within its exclusive prerogative and no discernible procedural prejudice was thereby occasioned to the Appellant in the manner the investigation was carried out and the tax assessment made and confirmed.”

101. The Appellant having failed to discharged its burden of proof, the Tribunal finds that the Respondent was justified in confirming the additional assessments except for those excluded under the determination in (i) above.

Final Decision 102. In view of the foregoing analysis, the Tribunal finds that the Appeal is partially merited and accordingly proceeds to make the following Orders: -a.The Appeal be and is hereby partially allowed.b.The objection decision dated 21st July 2023 be and is hereby varied in the following terms:i.The Respondent to recompute the assessment to exclude VAT for periods prior to May 2017. ii.The Respondent to recompute the assessment to exclude VAT for the period May 2018 already settled in accordance with the Respondent’s objection decision dated 28th February 2019. iii.The VAT assessments from May, 2017 to 2020 (Save for May, 2018) are hereby confirmed.iv.The Income tax assessments for the years 2017 to 2020 are hereby confirmed.c.Each party to bear its own costs.

103. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF AUGUST, 2024ERIC NYONGESA WAFULACHAIRMANCYNTHIA B. MAYAKA DR. RODNEY O. OLUOCHMEMBER MEMBERABRAHAM K. KIPROTICH DR. TIMOTHY B. VIKIRUMEMBER MEMBERF INVESTIGATION AND ENFORCEMENT Page 32