[2024] KETAT 716 (KLR)

Opiyo v Kenya Revenue Authority (Tax Appeal E213 of 2023) [2024] KETAT 716 (KLR) (9 May 2024) (Judgment)

Neutral citation: [2024] KETAT 716 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E213 of 2023

RM Mutuma, Chair, EN Njeru, M Makau, B Gitari & AM Diriye, Members

May 9, 2024

Between

John Ochieng Opiyo

Appellant

and

Kenya Revenue Authority

Respondent

Judgment

Background 1. The Appellant is an individual registered taxpayer and sole proprietor carrying on business in the Republic of Kenya in the name of “Top Tier Business Consultants”, which is involved in consultancy to County Governments and farming activities.

2. The Respondent is an agency of the Government of the Republic Kenya established under the Kenya Revenue Authority Act, Chapter 469 Laws of Kenya. Under Section 5 (1) of the Act, the Respondent is an agency of the Government of Kenya for the assessment, collection and receipt of all tax revenue.

3. The Respondent in the year 2020 undertook a compliance check on the Appellant covering VAT for the tax periods January 2018 to December 2019, and Income tax for the period January 2016 to December 2019. To facilitate the compliance checks the Respondent requested for various relevant documents for examination/verification, which were not provided, save the Appellant’s bank statement for 2018-2019 provided by NCBA Bank.

4. The Respondent as a result of the compliance checks assessed the Appellant’s Income tax liability for the period 2016-2020 at Kshs. 2,365,651. 00 and for VAT for the period 2018 to 2019 at Kshs. 486,391. 00.

5. The Respondent pursued the Appellant further on 5th February 2021 to provide the required documents, but failed to respond. Therefore, the Respondent issued an additional VAT assessment of Kshs. 3,511,604. 00 on 9th April 2021 by disallowing the input VAT claimed from the unsupported expenses purchases and income tax.

6. The Appellant lodged an online notice of objection application against the Respondent’s assessment on 2nd May 2021.

7. The Respondent on 4th April 2023 confirmed the assessments and demanded from the Appellant a sum of Kshs. 5,336,852. 00.

8. Being aggrieved by the Respondent’s Objection decision dated 4thApril 2023, the Appellant filed the appeal herein on 10th May 2023.

The Appeal 9. The Appellant filed its Memorandum of Appeal on 10th May 2023 and set out the following grounds of appeal ;i.That Section 51 (11) of the Tax Procedures Act, states, “where the Commissioner has not made an objection decision within sixty days from the date the taxpayer lodged a notice of the objection, the objection shall be allowed.”ii.The online objection application was lodged on 2nd May 2021, but the objection decision was made on 4th April 2023, a total of seven hundred and three (703) days later, which is outside the sixty days provided under the Tax Procedures Act.

The Appellant’s Case 10. The Appellant’s case is set out on its;a.Statement of Facts filed on 10th May 2023 together with the documents attached thereto; andb.Written submissions dated 13th October 2023 and filed on 16th October 2023.

11. The Appellant stated that he made an online objection application on 2nd May 2021, but the objection decision was made on 4th April 2023, a total of seven hundred and three (703) days later, which is outside the period provided for by the Tax Procedures Act.

12. The Appellant further stated that Section 51 (11) of the TPA states that,“Where the commissioner has not made an objection decision within sixty days from the date of the taxpayer lodged a notice of the objection , the objection shall be allowed.”

13. The Appellant stated that his Objection application stated clearly the grounds and reasons for the objection; For instance, in the assessment order for the period 1st January 2018 to 31st December 2018, in the table headed, “ Annexure 1 – summary of changed fields during assessment,” at line Sr No.1 under the name , Gross Turnover of professional / consultancy fees , the amount after Kshs. is 1,845,450. 00. However, in the table headed, “liability Details,” the incremental tax payable is Kshs. 2,569,338. 00, thus meaning that the tax is higher than the gross turnover for the period, the Appellant added.

14. The Appellant further stated that an entry of Kshs. 9,777,995. 00 at lines Sr 39 and 40, which seems arbitrary, was pointed out in the objection application, but the Respondent failed to rectify the anomaly.

15. The Appellant also stated that he supplied the Respondent with a Police Abstract to support his inability to provide receipts for the expenses referenced in the tax returns, on which basis he requested that the returns be accepted as submitted as they were accurate and could have been fully supported had the robbery incident not occurred.

16. The Appellant averred that the Respondent’s representatives who handled the case confirmed receiving the relevant documentation from the Appellant, as attested by a record of the proceedings of a meeting held with the Respondent’s said representatives, and a letter to the Respondent protesting the Objection decision and demand.

17. The Appellant submitted that in the case of Eastleigh Mall Ltd vs. Commissioner for Enforcement & Investigations ITA E068 of 2020, the court stated,“It is clear from the foregoing that provisions of Section 51(11) of the Tax Procedures Act are mandatory. They are not cosmetic. Parliament in its wisdom knew that in matters tax, time is very crucial as those in commerce need to make informed decisions. If the commissioner is allowed to exercise his discretion and stay ad-infinitum before issuing an objection decision, the taxpayer would be unable to make crucial decisions and plan his /her business properly. The timelines are mandatory and not a procedural technicality.”

18. It was a submission of the Appellant that the Respondent failed to issue its objection decision within the prescribed sixty days, and that failure meant that the Appellant’s objection application was deemed allowed by operation of the law.

Appellant’s Prayers 19. For the foregoing reasons, the Appellant prayed that;a.The Respondent’s objection decision be set aside; and,b.The Appeal be allowed.

The Respondent’s Case 20. The Respondent’s case is premised on its;a.Statement of Facts dated and filed on 30th May 2023 together with the documents annexed thereto; and,b.Written submissions dated 26th October 2023 and filed on 28th October 2023.

21. The Respondent stated that the Appeal herein is invalid, incompetent and not properly before the Tribunal for the following reasons:i.The Respondent’s decision to reject notices of objection is not an appealable decision within the meaning of Section 52 (1) of the Tax Procedures Act, 2015, and Section 12 of the Tax Appeals Act.ii.The Appeal herein is based on an invalid notice of objection which was lodged contrary to the provisions of Section 51 (3) of the Tax Procedures Act, and the Appellant was advised of the fact on 7th May 2021 via email.iii.The Appellant’s notice of objection failed to state the grounds of objection, the amendments required and the reasons for the amendments. Further the Appellant did not provide any document or information in support of the objection.iv.The Appeal herein does not conform to the requirements of Section 13 of the Tax Appeals Tribunal Act and Rules 4 and 5 of the Tax Appeals Tribunal (Procedure) Rules to the extent that it is not accompanied by a proper statement of facts. Therefore, the grounds enumerated therein are unsupported.v.The failure by the Appellant to comply with the express statutory provisions as stated above is not a procedural technicality curable by application of the overriding objective of the law or the principle espoused in Article 159 (2) of the Constitution of Kenya , 2010. vi.This Honorable Tribunal must never provide comfort and cover to Appellants who exhibit scant respect for procedures hence neither the Appellants nor this Tribunal should invoke Article 159 (2) (d) of the Constitution of Kenya.

22. The Respondent also stated that the Appeal herein is bad in law and an abuse of the judicial process and thus should be struck out.

23. The Respondent further stated that it generally opposes all the grounds of Appeal set out in the Appellant’s Memorandum of Appeal and asserts that the Appellant’s reliance of Section 51 (11) of the TPA is erroneous for the following reasons;i.The Appellant failed to support its notice of objection application by furnishing the Respondent with proper documentation stating precisely the grounds of objection and neither did it state the amendments required and the reasons for the same pursuant to Section 51 (3) of the TPA.ii.Therefore, there was no valid Objection for the purpose of Section 51 to (11) of the TPA and thus there was no Objection decision that could issue for it to be considered that it was allowed by the operation of the law.iii.For all intents and purposes, the Respondent complied with the provisions of Section 51 (4) of the TPA by informing the Appellant on 7th May 2021 that his notice of objection was of 2nd May 2021 was invalidly lodged. The Respondent communicated the invalidity notice within five (5) days and thus the notification was immediate within the precincts of the law.iv.The Appellant did not and has not demonstrated that it subsequently validated his notice of objection or properly lodged his objection application for him to benefit from the provisions of Section 51 (11) of the TPA.iv.This being the case, the provisions of Section 51 (11) of the TPA are not applicable to this case for want of a valid notice of objection determined under Section 51 (8) of the TPA.

24. The Respondent further stated that since the Appellant failed to sanitize/regularize his invalid notices of objection, there was no time limitation imposed by the TPA that attaches to the Respondent’s decision to confirm assessments on 26th April 2023.

25. The Respondent also stated that the Appellant has not discharged its burden of proof as per Section 56(1) of the TPA, Section 30 of the TAT Act and Section 107 of the Evidence Act, and therefore the Respondent’s Objection decision is valid in law, as the Respondent has failed to prove that the same is incorrect.

26. The Respondent also reiterated that the additional assessments of 9th April 2021 and the Objection Rejection Notices are valid and correct as they are grounded in law.

27. In its submissions, the Respondent stated that the Respondent informed the Appellant of the invalidity of his notices of objection on 7th May 2021 through email communication written by Mr Olive A. Onyango at 2. 01 pm. The Respondent communicated the said invalidity to the Appellant within five days in line with the “immediacy test” prescribed under Section 51 (4) of the TPA.

28. The Respondent submitted that the Appellant has not disputed nor denied the above facts and thus it is admitted that the notices of objection he lodged on 2nd May 2021 were indeed and are invalid.

29. The Respondent also submitted that the Appellant’s reliance on Section 51 (11) of the TPA is erroneous and misconceived.

30. The Respondent further submitted that the Respondent having invalidated the Appellant’s notices of objection of 7th May 2021, and the thirty days of lodging a valid objection (against the Respondent’s assessments of 9th April 2023) having expired on 9th May 2021, an Objection for the purposes of Section 51 ceased to exist, in other words, the Appellant’s invalid objection was extinguished by operation of the law, the Respondent added.

31. It was a further submission of the Respondent that the only recourse the Appellant had was to apply for leave to lodge a late notice of objection under Section 51 (6) of the TPA , and in the absence of such an application and the decision of the Respondent under Section 51 (7) & (7A) of the TPA, the Appeal before the Tribunal is premature.

32. It was further submitted that it would be moot for the Tribunal to consider the Appellant’s Appeal for want of a valid notice of objection. The Respondent relied on the case of Hasus Energy Ltd vs. Commissioner of Domestic Taxes TAT No. 291 of 2021.

33. The Respondent also relied on the case of Vitop Limited vs. Commissioner of Domestic Taxes. In the two cases, the Tribunal stated;“Having concluded that there was no valid objection, the Tribunal will not delve into the other issue that fell for determination as it has been rendered moot.”

34. By appealing against the Respondent’s assessment, the Appellant has improperly and un-procedurally invoked the jurisdiction of the Tribunal to the prejudice of the Respondent because of an invalid objection.

35. It was a further submission of the Respondent that the Appellant has argued new grounds in paragraphs No. 3,4 and 5 of his written submissions dated 13th October 2023, that does not relate to the grounds set out in the Memorandum of Appeal. The said paragraphs being contrary to Section 13 (6) of the TAT Act and Section 56 (3) of the TPA should not be considered, the Respondent added.

Respondent’s Prayers 36. In view of the foregoing, the Respondent urged the Tribunal to find the Appellant’s Appeal to be without merit, incompetent, and dismiss the same with costs.

Issues for Determination 37. The Tribunal having carefully considered the filings and the submissions made by the parties is of the considered view that the Appeal herein distils into three issues which commend for determination as follows: -i.Whether the Appellant’s Notice of Objection was validly lodged;ii.Whether the Appellant’s Notice of Objection was allowed by operation of the Law; and,iii.Whether the Respondent’s assessment against the Appellant was justified.

Analysis and Determination 38. The Tribunal proceeds to analyze and determine the issues as hereunder ;i.Whether the Appellant’s Notice of Objection was validly lodged.

39. The background to the issues giving rise to the dispute subject of this Appeal is set out hereinabove in the introductory part of this Judgment and the Tribunal does not intend to rehash the same here.

40. But suffice it to state briefly that the Appellant was issued with an assessment by the Respondent for the sum of Kshs. 3,511,604. 00 on 9th April 2021, following an audit on the Appellant for the period 2018 to 2019.

41. The Appellant lodged its notice of objection application against the Respondent’s assessment on 2nd May 2021.

42. The Respondent has stated that it reviewed the Objection application and invalidated the same on 7th May 2021 for failure to provide supporting documentation.

43. The Respondent again stated that the Appellant never validated its notice of objection and therefore the Respondent confirmed the assessment and demanded payment of the taxes on 4th April 2023.

44. The Respondent has argued that the Appellant’s notice of objection dated 2nd May 2021 is invalid because it does not state valid and precise grounds of objection and was not accompanied by all relevant documents relating to the objection.

45. The Respondent has not submitted to this Tribunal a copy of its invalidation notices purportedly issued to the Appellant on 7th May 2021, to enable the Tribunal appreciate the contents and import of the purported invalidation, or“notice to validate objection notice”.

46. However, from the letter submitted to this Tribunal by the Appellant dated 11th April 2023, the Respondent’s representatives had a continuous engagement with the Appellant following the lodgment of the notice of objection.

47. In the engagements aforesaid with the Respondent’s representatives, whom the Appellant has named as one Bernard Ondieki, Fredrick Adiel, Olive Onyango, and a Mr Rono. the Appellant had meetings in the Respondent’s offices on an invitation to discuss “Tax objections,” wherein all available documents were provided and signed for.

48. Flowing from the said of events described in the letter aforesaid, it is clear that the Respondent engaged the Appellant in further pursuit of additional documentation to support the notice of objection.

49. The import of the Respondent’s actions is that it had accepted the Appellant’s notice of objection, and proceeded to pursue further documentation to facilitate its review and consideration of the objection application. The Respondent no doubt was therefore proceeding to consider the Appellant’s valid notice of objection pursuant to the provisions of Section 51 (8) of the TPA, which states;“Where a notice of objection has been validly lodged within time, the Commissioner shall consider the objection and decide either to allow the objection in whole or in part, or disallow it, and the Commissioner’s decision shall be referred to as an “objection decision”.

50. Indeed, the Respondent issued its Objection decision on 4th April 2023, titled“Objection decision fror additional assessments amounting to Kshs 3,511,604. ”And the opening paragraph states;“Reference is made to your Objection Application dated 2nd May 2021 and other reminder emails in response to tax assessments amounting to Kshs 3,511,604 “

51. The Respondent then proceeds to set out basis of the assessment, statement of findings and reasons for the decision, the decision, and finally reference to file appeal at the Tribunal within 30 days.

52. It is quite clear the foregoing letter amounts to an Objection decision, and not merely confirmation of assessment or demand as the Respondent purports the same to be.

53. The reference is to the Appellant’s notice of objection dated 2nd May 2021 leaving little doubt as the object of the decision. The subject of the letter itself is titled as an “Objection Decision”, if it were an “Invalidation decision” as the Respondent has purported the same to be, the Respondent would have had no difficult naming the same as such. The rest of the contents of the document conform in all respects to the specifications of an objection decision as set out in Section 51 (8) & (10) of the TPA. These facts coupled with the conduct of the Respondent post the Appellant’s lodging of the Objection notice i.e. meetings and presentation of supporting documentation, leave no doubt that the issue of invalidation of the objection was not the intended consequence of the process as described.

54. Consequently, flowing from the foregoing, the Tribunal finds and holds that the Appellant’s notice of objection lodged on 2nd May 2021 was not invalidated by the Respondent and was therefore validly lodged.ii.Whether the Appellant’s Notice of Objection was allowed by Operation of the Law.

55. The Tribunal having determined that the Appellant’s notice of objection was validly lodged will proceed to determine whether the same was allowed by operation of the law.

56. The relevant applicable statutory provision herein is Section 51 (11) of the Tax Procedures Act which provides;“The Commissioner shall make the objection decision within sixty days from the date of receipt of a valid notice of objection failure to which the objection shall be deemed to be allowed.”

57. The Appellant lodged its notice of objection on 2nd May 2021, and therefore sixty days would go up to 3rd July 2021.

58. The Respondent issued its objection decision on 4th April 2023, clearly two years late or as per the Appellant, seven hundred and three (703) days late.

59. The Appellant has submitted that the Respondent’s failure to render its Objection decision within sixty days as prescribed by the TPA rendered the notice of objection to be deemed allowed by operation of the law.

60. In Equity Group Holdings Ltd vs. Commissioner of Domestic Taxes (CA E069/E025 of 2020, the court observed that;“Section 51 (11) of the TPA is couched in peremptory terms. Having correctly found that the decision was made after the expiry of sixty days … the provisions of section 51 (11) kick in. The objection by dint of the said provision had been deemed allowed.”

61. In Vivo Energy Kenya Ltd vs. Commissioner of Customs (2020) eKLR, it was stated,“The provisions of the TPA are clear that where the Commissioner fails to make a decision on an objection within sixty days, the objection shall be allowed …”

62. The Respondent herein having made its Objection decision on 4th April 2023, almost two years after the lodging of the objection, and the provisions of Section 51 (11) of the TPA being mandatory, it goes without saying that the Appellant’s notice of objection application was deemed allowed by operation of the law.

63. The Tribunal therefore finds and holds that the Appellant’s notice of objection application dated 2nd May 2021 was deemed allowed by operation of the law.This therefore means the Respondent’s Objection decision dated 4th April 2023 is of no consequence.iii.Whether the Respondent’s assessments against the Respondent were justified.

64. The Tribunal having found that the Appellant’s notice of objection was allowed by operation of the law, it will not be necessary to delve in the other issue that fell for determination as it has been rendered moot.

65. The upshot of the foregoing is that the Appeal is found to have merit and hereby succeeds.

Final Decision 66. The Appeal having succeeded, the Tribunal accordingly proceeds to make the following Orders;a.The Appeal be and is hereby allowed.b.The Respondent’s Objection decision dated 4th April 2023 be and is hereby set aside.c.Each party to bear its own costs.

67. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF MAY, 2024ROBERT M. MUTUMA - CHAIRPERSONELISHAH N. NJERU - MEMBER.MUTISO MAKAU - MEMBERBERNADETTE M. GITARI - MEMBERMOHAMED A. DIRIYE - MEMBER