[2024] KETAT 1325 (KLR)

Perrot Enterprises Limited v Commissioner of Legal Services & Board Coordination (Tax Appeal E891 of 2023) [2024] KETAT 1325 (KLR) (6 September 2024) (Judgment)

Neutral citation: [2024] KETAT 1325 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E891 of 2023

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, AK Kiprotich & G Ogaga, Members

September 6, 2024

Between

Perrot Enterprises Limited

Appellant

and

Commissioner of Legal Services & Board Coordination

Respondent

Judgment

1. The Appellant is a limited liability Company duly incorporated in Kenya under the Companies Act 2015.

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 issued an assessment dated 31st March 2022 against the Appellant who filed its objection on 12th April 2022 and an objection decision dated 29th August 2022 was issued thereof confirming the Income tax and VAT additional assessment amounting to Kshs. 308,976,027. 00.

4. Aggrieved by the Respondent's decision the Appellant lodged at this Tribunal a Notice of Appeal dated and filed on the 5th of December 2023.

The Appeal 5. The Appeal is based on the Memorandum of Appeal dated and filed on 5th of December 2023 raising the following grounds:i.That the Honourable Commissioner erred in law and fact by failing to consider the request by the Appellant to extend the time to object out time.ii.That the Honourable Commissioner erred in law and fact by failing to extend the time for the Appellant to object.iii.That the Honourable Commissioner erred in law and fact by failing to determine the matter on substantive grounds despite the Appellant having availed all the necessary information to enable the substantive determination of the suit.iv.That the Honourable Commissioner erred in law and fact by failing to accord the Appellant the opportunity to be heard fairly before the determination of the objection in breach of Article 50 of the Constitution of Kenya which guarantees the right to a fair hearing.v.That the Honourable Commissioner erred in law and fact by failing to find that the additional assessment of Kshs 308,976,027. 00 was erroneously and irregularly made.vi.That the Honourable Commissioner erred in law and fact by failing to find that the appellant is not liable for the additional tax assessment of Kshs 308,976,027 since it was erroneously assessed.vii.That the Honourable Commissioner erred in law and fact by failing to find that the Appellant had met the threshold for review of the additional tax assessment of Kshs 308,976,027. 00. viii.That the Honourable Commissioner erred in law and fact by failing to consider the objection purposively and find that the Kenya Revenue Authority had acted irregularly and unprocedurally when making the additional tax assessment of Kshs 308,976,027. 00.

Appellant’s Case 6. In support of the Appeal, the Appellant filed a Statement of Facts dated and filed on 5th December 2023 and written submissions dated 11th June 2023 and filed on the same date.

7. The Appellant stated that the Respondent had failed to consider the grounds provided in the documents accompanying the objection.

8. The Appellant averred that its director Mr. Willis Odhiambo Otieno has been sick and in and out of Hospital in the last few months and as such was not able to lodge this Appeal within the time provided.

9. It asserted that it raised sufficient grounds to warrant a review of the additional assessment and the failure by the Respondent to do so was greatly prejudicial.

10. The Appellant asserted that the additional assessment was done irregularly since the Appellant’s tax declaration was factually correct and procedurally filed. It argued that the additional assessment ought to be set aside since it is not based on a valid statement of income.

11. The Appellant averred that it would be greatly prejudiced if it was not granted a chance to be heard or allowed to avail its evidence and provide the documentation to support its original declaration.

12. It argued that it was denied the right to a fair hearing which is against Article 50 of the Constitution of Kenya and the principles of natural justice that no man shall be condemned unheard.

13. The Appellant submitted that paragraph 1 of the impugned decision was rendered on 29th August 2022, as against an objection decision made by the Appellant on 12th April 2022.

14. The Appellant thus submitted that arithmetically, the decision was made/issued after about 139 days contrary to Section 51(11) of the TPA. It supported this ground with the cases of R vs Commissioner Of Domestic Taxes Ex Parte Unilever (2005) eKLR, cited by Lady Justice Odero in Associated Battery Manufacturers Limited VS- Commissioner of Customs Services [2020] eKLR. and Baus Optical Company Limited-V-Commissioner Investigations and Enforcement TAT 1563 of 2022.

15. It argued that the Respondent having not invalidated the its objection under Section 51(4) of the TPA, the only applicable law was Section 51(11) of the TPA and that the alleged issue of when documents were received does not apply.

Appellant’s Prayers 16. The Appellant prayed for the following orders:a.The decision of the Respondent dated 29th August 2022 be quashed or set aside.b.The notice of additional assessment of Kshs 308,976,027. 00 for the year 2018-2020 be quashed or set aside.c.The Appeal herein be allowed in its entirety.d.The costs of this Appeal be borne by the Respondent.

The Respondent’s Case 17. The Respondent's case is premised on its Statement of Facts dated 17th January 2024 and filed on even date and the Written Submissions dated and filed on 3rd June 2024.

18. The Respondent’s case is that it established that the Appellant had under-declared sales in the Income tax returns for the period under review. It, therefore, requested the Appellant to provide audited financial statements together with the supporting documents. The Respondent then issued an assessment on 31st March 2022.

19. The Respondent averred that the Appellant filed a notice of objection on 12th April 2022 which was within 30 days after the assessment was raised. Upon review of the notice of objection, the Respondent found the same not to be in line with Section 51(3) of the Tax Procedures Act.

20. The Respondent alleged that it then notified the Appellant of the same via an email dated 28th April 2022. It is the Respondent’s case that a reminder was sent again on 18th May 2022 requesting the Appellant to validate the objection.

21. According to the Respondent, the Appellant started providing documentation through email on 18th May 2022 and the last document was provided on 10th August 2022. that consequently, it issued its objection decision dated 29th August 2022 which it alleged was 19 days after the last document was provided confirming the Income tTax and VAT additional tax assessment amounting to Kshs. 308,976,027. 00.

22. The Respondent stated that it engaged the Appellant for 4 months and accorded the Appellant more than adequate time to provide relevant documentation to support its case.

23. In response to ground 1 of the Memorandum of Appeal, the Respondent averred that the Appellant filed a notice of objection on 12th April 2022 which was within 30 days after the assessment was raised on 31st March 2022.

24. The Respondent asserted that it did not neglect the extension of time for objection, as it adhered to the specified timelines outlined in Section 51 (1) and (2) of the Tax Procedures Act which provides that:“(1)A taxpayer who wishes to dispute a tax decision shall first object to that tax decision under this section before proceeding under any other written law.(2)A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision.”

25. In response to ground 2 of the Memorandum of Appeal, the Respondent averred that the Appellant had not applied to file a notice of appeal out of time.

26. In response to paragraph 3 of the Memorandum of Appeal, the Respondent stated that in relation to Section 24(2) of the Tax Procedures Act of 2015, it had the mandate to carry out an assessment and was not bound by the information given. Section 24(2) of the Tax Procedures Act 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.’

27. The Respondent averred that it has a wide berth in assessing the correctness or falsity of the returns as stated under Section 31 of the Tax Procedures Act, 2015. According to the Respondent, the Section gives it the liberty to reassess a taxpayer subject to available information and best judgment. The Respondent also averred that the burden to prove that the assessments were wrong rested on the Appellant as provided for under Section 56(1) of the Tax Procedure Act.

28. In response to paragraph 4 of the Memorandum of Appeal, the Respondent asserted that there was no violation of the Appellant's right to a fair hearing, as the Commissioner diligently engaged with the Appellant for a substantial period of four months before reaching the objection determination.

29. The Respondent contended that ample opportunity was provided to the Appellant to present its case and address any concerns during the objection process. The Respondent further contended that it had adhered to all applicable tax statutes and procedures in managing the Appellant's claim up to the point of the objection decision.

30. In response to paragraph 5 of the Memorandum of Appeal, the Respondent stated that it has the mandate under Section 24(2) of the Tax Procedures Act to carry out an assessment and it is not bound by the information given. That from the documents reviewed, the additional assessment is due and payable, and the Appellant had failed to account for taxes properly.

31. In response to ground 6 of the Memorandum of Appeal, the Respondent stated that it has a wide berth in assessing tax under Section 31 of the TPA to verify the correctness or falsity of returns while using the information available to it and its best judgment.

32. In response to ground 7 of the Memorandum of Appeal, the Respondent stated that the Appellant had made taxable supplies of coal to Bamburi Cement and failed to account for and pay Income tax and VAT in accordance with the law. That it issued the additional assessment based on the available information and the documents that were provided since the information provided by the taxpayer was not sufficient.

33. In response to ground 8 of the Memorandum of Appeal, the Respondent stated that the Appellant failed in its duty to account for and pay the correct taxes upon making taxable sales and thus taxable income. It argued that it established that the taxes were due and payable as all documents provided proved that a supply to Bamburi Cement had taken place and that it was the Appellant who had been contracted by Bamburi Cement.

34. Finally, the Respondent averred that the Objection decision outlined clear reasons for the decision reached which included insufficiency of documents and application of its best judgment under the circumstances.

35. In further support of its case, the Respondent identified two issues for determination in its written submissions dated 3rd June 2024:a.Whether the Respondent's additional assessments were proper in law; andb.Whether the Respondent took into consideration the Appellant's objection and all additional information availed before making the decision.

36. The Respondent submitted that the assessments were issued in accordance with the law and that the Respondent did not neglect the extension of time for objection, as the Appellant objected to the assessment within the required timelines under Section 51 (1) (2) of the Tax Procedures Act.

37. The Respondent also submitted that there is a rebuttable presumption in tax matters that an assessment by the Respondent is correct. The Respondent referred to Section 50(1)(a) of the Tax Procedure Act No 29 of 2015 which provides that the production of a notice of assessment or a document under the hand of the Commissioner shall be conclusive evidence of making the assessment and the amount and the particulars of the assessment are correct.

38. It cited the case of Kenya Revenue Authority v Man Diesel& TurboSe, Kenya [2021] eKLR where the court held that:-“Section 56 of the Tax Procedures Act in peremptory terms places the burden of proof in tax cases on the taxpayer. Generally, the taxpayer has the burden of proof in any tax controversy. The taxpayer must demonstrate that the commissioner's assessment is incorrect. The taxpayer has a significantly higher burden. The taxpayer must prove the assessment is incorrect. The shifting of the burden of proof in tax disputes flows from the presumption of correctness which attaches to the Commissioner's assessments or determinations of deficiency. The commissioner's determinations of tax deficiencies are presumptively correct. Although the presumption created by the above provisions is not evidence in itself, the presumption remains until the taxpayer produces competent and relevant evidence to support his position. If the taxpayer comes forward with such evidence, the presumption vanishes and the case must be decided upon the evidence presented, with the burden of proof on the taxpayer.”

39. The Respondent submitted that the Appellant did not provide any evidence that would have altered the assessment. It submitted that Section 56(1) of the Tax Procedure Act places the onus of proof in tax objections on the taxpayer who in this case failed to avail evidence that would support a contrary assessment or that would have guided the Respondent at arriving at a different objection decision.

40. It cited the case of PZ Cussons East Africa Limited v Kenya Revenue Authority [2013] eKLR, where the court quoted the case of Pearson v Belcher which stated as follows:-“there is an assessment made by the Additional Commissioners upon the Appellant; it is perfectly clearly settled by cases such as Norman v Golder, 26 T.C. 293, that the onus is upon the Appellant to show that the assessment made upon him is excessive and incorrect; and of course he has completely failed to do so. That is sufficient to dispose of the appeal, which I accordingly dismiss with costs.”

41. The Respondent submitted that the Appellant failed to provide sufficient documentation to support its objection despite requests from the Respondent hence the Respondent proceeded to make an objection decision based on the documents provided. The Respondent relied on cases of Osho Drappers Ltd V Commissioner of Domestic Taxes TAT No 159 of 2018 and Miao Yiv Commissioner of Investigations & Enforcement TAT No 441 of 2019 where it was held that the taxpayer has to produce documents to discharge its burden of proof.

Respondent’s prayers 42. The Respondent prayed that the objection decision dated 29th August 2022 be upheld and the Appeal be dismissed with costs.

Issues for Determination 43. The Tribunal having considered the Memorandum of Appeal, the parties’ Statements of Facts and the written submissions, puts forth the following issues for determination:a.Whether the Objection decision dated 29th August 2022 was statute barred; andb.Whether the Respondent’s objection decision dated 29th August 2022 is justified in law.

Analysis and Findings 44. The Tribunal having identified the issues falling for its determination proceeds to analyse the same as hereunder.

a. Whether the Objection decision dated 29th August 2022 is statute- barred 45. The Appellant faulted the Respondent for not issuing the objection decision within 60 days as required under Section 51(11) of the Tax Procedures Act. In its response, the Respondent stated that having requested the Appellant to provide additional documents to support its notice of objection, the Appellant provided documents through an email on 18th May 2022 and further documents were provided on 10th August 2022.

46. The assessment having been issued in March 2022 and the Appellant having filed its objection in April 2022, the Applicable law in this Appeal is the Tax Procedures Act as it was before the commencement date of Finance Act No. 22 of 2022.

47. At the material time in 2022, Section 51(11) of the Tax Procedures Act provided as follows:“The Commissioner shall make the objection decision within sixty days from the date of receipt of –(a)The notice of objection; or(b)Any further information the Commissioner may require from the taxpayer, failure to which the objection shall be deemed to be allowed.”

48. From the foregoing, what applies to this Appeal is Section 51(11) (b) of the Tax Procedures Act since the Respondent asserted that it requested additional documentary evidence from the Appellant.

49. The Respondent referred this Tribunal to an annexure marked as 'KRA 2' of its bundle of documents. The said annexure 2 is its email of 28th April 2022 to the Appellant wherein the Respondent notified the Appellant to provide financial statements, schedule of expenses, proof of expenses, and ledgers of bank statements to ascertain the taxable income of the company. In the same email, the Respondent notified the Appellant to provide the requested documents within 7 days.

50. It was the Respondent's case that the Appellant provided some documents on 18th May 2022 and further documents on 10th August 2022. The Appellant did not dispute the fact that it indeed provided further document on these respective dates. The Tribunal also sighted the two emails forwarding these documents to the Respondent. This issue of dates of supply of documents has thus been proved.

51. Though the Respondent in this case imposed a deadline of 7 days within which documents were to be provided it is manifestly clear that the Respondent proceeded to accept from the Appellant documents submitted subsequent to the deadline that lapsed on the 5th of May 2022. With the documents having been supplied on the 18th May, 2022 the Respondent was expected to have delivered its objection decision within 60 days of this date, which was by the 17th July, 2022.

52. There is no indication made or evidence adduced by the Respondent to attest to any request made on its part to request for any further documents from the Appellant prior to the 17th July, 2022 and to that extent there was no enhanced period to issue the objection decision subsequent to the 17th July, 2022 by dint of the provision of Section 51(11)(b) of the Tax Procedures Act.

53. The Respondent’s failure to issue its objection decision within 60 days after the receipt of the documents from the Appellant on 18th May, 2022 meant that the Appellant’s objection had been allowed by dint of Section 51(11) of the TPA. The delay in invalidating the objection or delivering the objection decision to the Appellant’s objection within the prescribed timelines was fatal. At this point it did not matter whether the objection in question was valid or not.

54. The foregoing conclusion was also adopted by the Court in Rongai Tiles & Sanitary Wares Limited v Commissioner of Domestic Taxes (Tax Appeal E011 of 2020) [2023] KEHC 18546 (KLR) (Commercial and Tax) (16 June 2023) (Judgment) where the Court held that:“Further, once it was determined that the Objection Decision was made late, this also meant that the issue of whether the objection was valid or not was immaterial. There is no provision in the TPA that stipulates that only validly lodged objections have to be determined within 60 days. The Commissioner’s delay in delivering the Objection Decision within sixty days of receiving the objection meant that the objection was allowed by operation of law. Failure to render the Objection Decision in time was fatal and the Commissioner could not demand any taxes therein.”

55. The Tribunal affirms this position. The laches by the Respondent means that the Appellant’s objection stood allowed on the 18th July 2022 upon the lapse of 60 days statutory limit period. Anything that was done after this date including the supply of further documents and issuance of objection decision were immaterial, trifling and academic exercise which amounted to nothing.

56. Having determined that the Appellant’s objection had been allowed by operation of law under Section 51(11) of the TPA, it follows that the other issue that fell for determination and which fell on the validity of the impugned objection has become moot and no utilitarian value would be obtained by its determination.

Final Decision 57. The upshot to the foregoing analysis is that the Appeal is meritorious and the Tribunal consequently makes the following Orders; -a.The Appeal be and is hereby allowed;b.Respondent’s objection decision dated 29th August 2022 be and is hereby set aside;c.Each party is to bear its own costs.

58. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 6TH DAY OF SEPTEMBER, 2024. ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERDR. RODNEY O. OLUOCH - MEMBERABRAHAM K. KIPROTICH - MEMBERGLORIA A. OGAGA - MEMBER