https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/301

**REPUBLIC OF KENYA** **IN THE TAX APPEALS TRIBUNAL AT NAIROBI** **TAX APPEAL NO E1371 OF 2025** **PANCRAS INJENGA AVUTAGA ................................................................... APPELLANT** **VERSUS** **COMMISSIONER OF DOMESTIC TAXES……………………………….….... RESPONDENT** **JUDGEMENT** **BACKGROUND** 1. The Appellant is a trader who operates a branded shop for Airtel Network Kenya Ltd and earns commission from the Network. 2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act 1995 Cap 469 Laws of Kenya. Under Section 5(1), the Respondent is an agency of the Government for the collection and receipt of all revenue. Further under Section 5(2) with respect to the performance of its functions under subsection (1), the Respondent is mandated to administer and enforce all provisions of the written laws as set out in Part 1 & 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws. 3. The Respondent conducted a review of the Appellant’s returns for the period January 2019 to December 2023 and vide a letter dated 9th June 2025, issued an additional assessment for Kshs 16,948,698.01. 4. The Appellant objected to the assessment out of time on 15th August 2025 after applying to the Respondent to be allowed to object late. The Respondent reviewed the Appellant’s request and accepted it on 29th August 2025. 5. The Respondent reviewed the Appellant’s objection and adjusted the additional assessment vide an Objection Decision of 14th Octoberb2025 demanding tax of Kshs 69,067,019.00 6. Aggrieved by the Respondent’s decision, the Appellant filed its Notice of Appeal on 27th November 2025. **THE APPEAL** 1. The Appeal is premised on the following grounds of appeal as stated in the Appellant’s Memorandum of Appeal dated and filed on 27th November 2025: 1. The additional assessment issued does not reflect the true position of the company, which has not engaged in any trading activity or generated any income. 2. The Respondent disregarded expenses incurred to generate taxable income, which is against the spirit of fair taxation matching concept, whereby expenses incurred to generate taxable income should be allowed as expenses. 3. The Respondent assumed that, as an agent of Airtel Network Kenya Limited, you could operate without expenses such as rent and other administrative costs. 4. The Respondent did not understand or appreciate that by Airtel Network Kenya Limited supplying you with scratch cards, it upon you, as the Agent to push those scratch cards to the market and sell them for you to earn commission. 5. The Respondent did not understand the fact that once Airtel Network Kenya Limited has given you scratch cards, it upon yourself, as the agent to ensure that they are safe and secured; otherwise, the supplier (Airtel Network Kenya Limited) will not be held responsible for any loss, therefore, expenses like rent, direct labour, sales commission, and other distribution expenses are very key in business and cannot be ignored. * 1. The Respondent did not understand the nature of business and its operations that we operate in both towns and villages across the county, whereby cash payment is the order of the day, our payments are paid by cash, and we have petty cash vouchers for all expenses incurred and paid by cash. **Appellant’s Case** 1. The Appellant’s case is premised on its Statement of Facts, dated and filed on 27th November 2025, together with the documentation attached thereto. The Appellant did not file its written submissions. As such, its case will be considered on the basis of its pleadings on record. 2. The Appellant’s Statement of Facts rehashed its grounds of appeal as stated in his Memorandum of Appeal. 3. The Appellant stated that it operated a branded shop for Airtel Network Kenya Limited and earns commission from Airtel Network Kenya Limited. It stated further that the Respondent issued an additional assessment on the basis of disallowing expenses and adjusting the income declared. **Appellant’s Prayer** 1. The Appellant prayed: 1. That the appeal be allowed 2. That the Respondent’s Objection Decision on Income Tax for the period 1st January 2021 to 31st December 2023 be quashed/set aside; * 1. That the Respondent’s assessments on Income Tax for period 1st January 2021 to 31st December 2023 be set aside in their entirety. 2. The Honourable Tribunal give other or further relief as it may deem fit to grant. **THE RESPONDENT’S CASE** 1. The Respondent’s case is premised on its: - 1. Statement of Facts dated 26th December 2025 and filed on 6th January 2026 together with the documentation attached thereto; 2. Written submissions dated and filed on 13th April 2026. 2. The Respondent averred that it did not err in issuing the additional assessment as it is empowered under Section 24(2) to conduct an assessment against any taxpayer should there be a need to do so. It averred further that it is also empowered under Sections 29 and 31 of the Tax Procedures Act to issue and/or amend an assessment based on its best judgment, where it may rely on all the information that is at its disposal. 3. The Respondent averred that it requested the Appellant to provide the following documents for verification through the return review notice: - 4. Sales invoices for the period January 2019 to date 5. Bank statements for period January 2019 to date 6. Purchases invoices for the period January 2019 to date 7. Purchases invoices for the period January 2019 to date 8. Monthly ETR Z-reports 2019 to date 9. Audited Financial Statements 10. It stated that during its objection, the Appellant provided the following documents which it subsequently reviewed; 11. Commission statements 12. M-pesa statements for 2022 13. Equity bank statements for 2022 14. Rent lease agreement for Kakamega, Bungoma, Umoja -Nairobi and Commerce House in Nairobi 15. Fuel receipts 16. Commission schedules 17. Transport receipt 18. Expense schedules 19. Contract Agreement with Airtel Networks Kenya Limited 20. On the issue of the Income Tax Resident variances, the Respondent noted that the assessment was raised on the variance between incomes in the Appellant’s commission statements as compared to the declared income tax turnover for the year 2023.It averred that during the objection review, the Appellant had provided commission statements for the period 2023, where it was noted that the assessing Commissioner had included an invoice of Kshs1,929,923 (Kshs 1,663,727 net of VAT) that was declared by the Appellant in February 2024.The Respondent therefore adjusted the commission statements income and charged tax on the unreconciled variances. 21. The Respondent stated that the VAT assessment issued was raised on the variance between incomes in the Appellant’s commission statements as compared with the declared turnover in aggregated VAT3 returns for the year 2023. For the income tax the variance, the Respondent averred that it also adjusted the invoice amounting to Kshs 1,929,923.00 which had been declared in 2024 and adjusted the commission statements income and charged tax on the unreconciled variances. 22. The Respondent asserted that it disallowed all purchases from Airtel Networks during the review amounting to Kshs 276,174,357.26 with a VAT payable of Kshs 44,187, 897.15 for reasons that a review of the contract agreement revealed that the Appellant did not incur purchases as it acted as an agent on behalf of Airtel Networks and earned a commission instead. It therefore disallowed the purchases claimed in the VAT return. 23. The Respondent averred that the duty to discharge the burden of proof lies with the Appellant as per Section 56(10 of the Tax Procedures Act and Section 109 of the evidence Act. 24. On the issue of Purchases from Airtel Networks, the Respondent asserted that it requested the Appellant to provide supplier confirmation from Airtel Networks to confirm its claim that only a part of its purchases from Airtel Networks correctly related to them and that Airtel Networks was in the process of rectifying the error by issuing credit note to rescind the purchase. However, the Appellant failed to provide the same. 25. The Respondent contended that the contract which the Appellant had provided during the objection stage was different from the one shared with the Respondent during the assessment stage. Further that the Appellant failed to provide any supporting documents to prove that he had incurred the alleged purchases from Airtel Networks. As such the Respondent sustained the additional assessments was issued in line with Section 17 of the VAT Act 2013 and Section 56(1) of the Tax Procedures Act 2015. 26. The Respondent stated that it disallowed rent for a shop in Nairobi for the period 2023 as the Appellant could not provide proof of payment to support the fact that rent for the shop was Kshs 210,000.00 per month. Similarly, the Appellant failed to provide proof of payment for rent for the year 2022. 27. The Respondent averred that the Appellant also failed to show proof of payment with regard to commissions and agent commission expenses. The Appellant only provided the expenses schedules without proof of payment. Further that no payments relating to the expense’s schedules could be tracked on the M-pesa statements and bank statements that the Appellant provided. It therefore upheld the assessment as a result. 28. The Respondent asserted further that the Appellant had claimed that he hired vehicles to transport agents to various destinations in Western Kenya. However, when requested for corresponding lease agreements for the hired vehicles, the Appellant only provided fuel receipts. It asserted that there was no proof to show that the vehicles in question were based or private, hence it upheld the assessment as issued. 29. The Respondent stated that the Appellant provided lease agreements for shops in Kakamega, Bungoma, Umoja and Nairobi. The Appellant had averred that the expenses claimed were incurred for business. However, the Appellant did not provide any proof of payment. The Appellant also failed to provide any supporting documents relating to a shop in Kisumu. The Respondent therefore sustained the assessment. 30. The Respondent stated that the Appellant provided expense schedules for electronic fuel and commissions paid. The Respondent requested for primary records indicating proof of payments which the Appellant again failed to provide. The Respondent averred therefore that the Appellant failed to discharge the burden of proof by not providing the records as required. 31. In wishing to determine whether the Appellant discharged its burden of proof and whether the Assessments were proper in law, the Respondent rehashed the arguments as stated in its Statement of Facts. To buttress it argument, the Respondent relied on the following cases: 32. **Commissioner for Her Majesty’s Revenue and Customs TC/2017/02292 Saima Khalid Appellant vs The Commissioner for Her Majesty’s Respondents Revenue & Customs** 33. **TAT Appeal No.538 of 2021 Greenroad Kenya Limited vs Commissioner of Domestic Taxes.** 34. **Nick Kikalos and Hellen Kilos vs United States of America, No.2.98 CV 618.313 F.Supp 2d 876(2003)** 35. **TAT No.70 of 2017 Afya X-Ray Centre vs Commissioner of Domestic Taxes** **THE RESPONDENT’S PRAYERS** 1. The Respondent prayed: 1. That the Respondent’s objection decision dated 14th October 2025 be upheld 2. That this Appeal be dismissed with costs to the Respondent as the same lacks merit. **ISSUES FOR DETERMINATION** 1. The Tribunal has carefully considered the parties pleadings, documentation and Respondent’s submissions and is of the view that this appeal raises one issue for determination: **Whether the Respondent’s Objection Decision dated 14th October 2025 is justified.** **ANALYSIS AND FINDINGS** 1. Having established the issue for determination, the Tribunal will proceed to analyse it hereunder. 2. The Respondent argued that it reviewed the Appellant’s VAT and Income Tax returns and issued Additional Assessments on 9th June 2025, demanding demanded tax of Kshs 16,948,698.01. The Appellant applied to the Respondent to be allowed to object out of time, which the Respondent accepted on 29th August 2025. After a review of the Appellant’s Objection, the Respondent issued its Objection Decision on 14th October 2025, confirming tax of Kshs 69,067, 019.00. 1. Section 51(8) of the Tax Procedures Act outlines the options available to the Commissioner when the notice of objection has been validly lodged. It provides as follows: *“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 Commissioner’s decision shall be referred to as an objection decision”* 1. It is worth noting that the additional assessment dated 9th June 2025 which the Appellant objected to was Kshs 16,948,698.01. However, after review of the Appellant’s objection, the Objection Decision dated 14th October 2025 confirmed the additional assessment of Kshs 69,067,019.00. 2. The Tribunal’s understanding of Section 51(8) of the TPA is that the Respondent was either to allow the Appellant’s objection in whole or in part or disallow it in full. Allowing the notice of objection in part means that the amount demanded may be revised downwards. 3. The Respondent, at paragraph 12 of its Statements of Facts, stated as follows: *“Upon review of the Appellant’s grounds of objection, the Respondent issued an objection decision dated 14th October 2025.The Respondent partially accepted the Appellants application…”* 1. The Tribunal notes that if the Respondent partially accepted the Appellant’s objection for the amount of Kshs 16,948,698.01 this implied that the amount would be varied downwards, depending on what amount had been partially allowed. Reviewing the assessment upwards after the Appellant’s objection is introducing new issues that the Appellant has not been granted an opportunity to object to this upward revised assessment. 2. It is the Tribunal’s considered view that the objection decision should address the matter arising from the assessment and objection, not create a fresh dispute. Section 51(8) of the Tax Procedures Act is limited to allowing in whole or in part, or disallowing the objection and not reviewing the assessment upwards. 1. In view of the foregoing, the Tribunal finds and holds that the Respondent’s Objection Decision dated 14th October 2025 was not justified. **FINAL DECISION** 1. The upshot of the foregoing is that the Appeal is merited and the Tribunal proceeds to issue the following orders: 1. That the Appeal be and is allowed. 2. The Respondent’s objection Decision dated 14th October 2025 is a nullity and is hereby set aside. 3. Each party to bear its own costs 2. Orders accordingly. **DATED and DELIVERED** at **NAIROBI** this……**10th** ………..day of..…**July**……..…2026 **..........................……………………….** **DR. RODNEY ODHIAMBO OLUOCH** **CHAIRPERSON** **.…..….……………………. ..….……………………….** **ABDULLAHI DIRIYE DR. ERICK KOMOLO** **MEMBER MEMBER**