[2023] KETAT 931 (KLR)

Prime Computer Bookshop v Commissioner of Domestic Taxes (Tax Appeal 829 of 2022) [2023] KETAT 931 (KLR) (20 December 2023) (Judgment)

Neutral citation: [2023] KETAT 931 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 829 of 2022

E.N Wafula, Chair, D.K Ngala, CA Muga, GA Kashindi, AM Diriye & SS Ololchike, Members

December 20, 2023

Between

Prime Computer Bookshop

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The appellant is a private limited company incorporated under the provisions of the Companies Act and operating in Moyale, Marsabit County. Its principal business activity is in general supplies.

2. The Respondent is a principal officer appointed under and in accordance with section 13 of the Kenya Revenue Authority Act and the Kenya Revenue 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 carried out a returns review on the appellant by performing an analysis of data for underdeclared income for the years 2017-2019.

4. As a result, the respondent issued an assessment order on September 18, 2020 demanding tax of Kshs. 8,537,769. 79 for the months of January to December for the years 2017- 2019.

5. The Appellant objected to this demand on February 22, 2021 following which the respondent issued on I-Tax a late Objection Rejection Notice on February 26, 2021. The respondent subsequently issued the notice of rejection vide a letter dated May 7, 2021 and proceeded to confirm the additional tax assessment amounting to Kshs 8, 537,769. 79 being principal tax, penalties and interest.

6. Being aggrieved by the respondent’s decision the appellant filed a Notice of Appeal dated June 20, 2022.

The Appeal 7. The appeal as captured in the Memorandum of Appeal dated August 6, 2022 and filed on August 8, 2022 is premised on the ground that the Commissioner erred in fact and law while assessing additional income tax. That the Commissioner, while computing tax subjected the entire income for the respective year to tax in disregard to cost of sales and expenses incurred while generating the income in total violation of the Income Tax Act Cap 470 of the laws of Kenya (hereinafter ‘ITA’) hence arriving at a wrong decision of additional income tax assessment in respect of the Appellant.

The Appellant's Case 8. The appellant on its Statement of Facts dated August 6, 2022 contended that had the respondent reviewed the records/documents relevant to its objection application, this matter could not have reached the tribunal. It stated that the illness of its sole director derailed the review process including filing of returns and sharing of documents.

Appellant's Prayers 9. The appellant prayed that: -(a)The tribunal sets aside the respondent’s tax decision contained in the objection decision dated February 26, 2021 rejecting application for objection against additional income tax assessment for the years 2017, 2018 and 2019 which was further confirmed vide the notice dated May 7, 2021. (b)That the tribunal rules in its favour and that the additional Income tax assessment should not be charged against it.(c)The respondent pays the cost of this appeal if any.

The Respondent's Case 10. In response to the ground of Appeal, the respondent through its Statement of Facts dated September 5, 2022 and filed on September 6, 2022 averred that the appellant did not provide evidence that would have altered the assessment. That section 56(1) of the Tax Procedures Act No 29 of 2015 (hereinafter ‘TPA’) 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 in arriving at a different objection decision.

11. The respondent averred that examination of the appellant’s records established that it had earned income from the general supplies operations in the years 2017-2019 however, these incomes had all not been declared.

12. The respondent submitted that an in-depth examination of the records established that there were inconsistencies in the returns filed by the appellant which indicated a variance as per the Income tax returns filed. Further that the appellant provided no explanation on the variance hence the same was disallowed.

13. It was the respondent’s assertion that the appellant failed to file income tax returns for the period under review contrary to the provisions of the Income Tax Act which obligates any person carrying on business to maintain records of all transactions as per section 54A (1) (4) and 55 (2) of the TPA. The Appellant also contravened sections 94 and 95 of the TPA by failing to file returns.

14. The respondent prayed that the tribunal considers the case and finds that:(a)The respondent’s objection decision be upheld.(b)The outstanding tax arrears of income tax of Kshs 8, 537, 769. 79 is due and payable by the appellant.(c)The confirmed assessment dated September 18, 2020 is proper in law.(d)The appeal herein be dismissed with costs to the respondent.

Submissions of the Parties 15. As at the date of the hearing on July 27, 2023, the appellant had not filed its Written Submissions. The Tribunal will therefore only consider the Respondent’s submissions dated February 10, 2023 and filed on even date.

16. In its Written Submissions, the respondent submitted on the following issues:-(a)Whether the respondent erred in law and fact while computing tax because they subjected the entire amount for the respective year to tax in disregard to cost of sales and expenses incurred while generating income in total violation of the Income Tax Act hence arriving at a wrong decision.(b)Whether the respondent failed to review the records/documents relevant to the appellant’s objection application.

17. The respondent reiterated the facts it stated in its Statement of Facts and submitted in addition that the appellant failed to provide signed financial statements and books of account to support its allegations. It submitted that it is empowered under section 24(1) (2) of the TPA to carryout assessment based on the information available and that the assessment was issued based on information availed. The respondent asked the tribunal to be guided by the following considerations:-(a)Were any documents provided to justify the appellant’s objection?(b)Were the annual taxation returns of income as done by the Appellant from time to time correct and complete?(c)Were any transactions omitted from or incorrectly recorded in the appellant’s books of accounts/ banking?

18. It submitted that the appellant’s objection dated February 22, 2021 was devoid of substance and failed to include any supporting records to validate the Appellant’s claims as required under Section 51 of the TPA. It argued that it was left with no option but to issue on objection decision confirming the assessment pursuant to section 51(9) of the TPA in order to comply with timelines.

19. The respondent relied on the following cases to buttress its argument:(a)Cape Brandy Syndicate v Inland Revenue Commissioner (1921) I KB 64(b)Monaco Engineering Limited vs Commissioner Domestic Taxes TATAppeal No 67/2017(c)John Githua Njogu vs Commissioner Investigations & Enforcement TAT 101/2018

Issues for Determination 20. The tribunal has considered the parties’ pleadings, submissions and documentation and is of the considered view that this Appeal raises a single issue for determination:Whether the respondent’s demand via its objection decision dated May 7, 2021 is due and payable.

Analysis and Findings 21. Having established the single issue for determination, the tribunal will analyse it as hereunder:

22. In its Statement of Facts, the appellant had stated on one hand that the sickness of its sole director had derailed the review process including filing of returns and sharing of documents and on the other hand that had the respondent reviewed the records and documents relevant to its objection, the matter would not have reached the Tribunal. The respondent on its part argued that the burden of proof was on the appellant 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.

23. The Tribunal observes that the Appellant has not been vigilant in prosecuting its case. First it was the fact that after receiving the Respondent’s Assessment order dated 18th September, 2020, it objected to this demand on 22nd February, 2021. Secondly, in the same letter of objection it admits to some tax liability by seeking to be given a payment plan for the outstanding arrears and promises to comply and pay all its taxes and settle the issue amicably.

24. Section 51 (3) of the TPA stipulates the conditions of a valid notice of objection. It provides as follows:“A notice of objection shall be treated as validity lodged by a taxpayer under subsection (2) if -(a)The notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments.(b)In relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay the tax not dispute under section 33 (1) and(c)All the relevant documents relating to the objection have been submitted."

25. The appellant in this case alleged that the reason it was not able to provide some documents or object in time was due to the sickness of its sole director. The tribunal notes that no evidence was adduced to ascertain this allegation. In its letter of objection, it alleged that it had done its self-assessment return which showed its actual tax liability. It neither stated its grounds of objection nor provided documentation to support its objection.

26. Further the Tribunal notes that no proof of payment or repayment plan was adduced for the tax not in dispute. The Tribunal will rely on the case of Trust Bank Ltd v Paramount Universal Bank Ltd and 2 others (2009) eKLR where the Court held as follows:-“It is trite where a party fails to call evidence in support of its case, that party fails to substantiate its pleadings."

27. The Tribunal has observed that the appellant in this case has not made any meaningful attempt to appropriately prosecute its Appeal, and the Respondent cannot therefore be faulted for demanding the tax due.

28. In view of the foregoing, the tribunal finds that the respondent’s demand via its objection decision dated May 7, 2021 is due and payable.

Final Decision 29. The upshot of the above is that the appeal lacks merit and therefore fails. The tribunal accordingly proceeds to make the following final orders:(a)The appeal be and is hereby dismissed(b)The respondent’s late Objection Rejection Notice dated May 7, 2021 be and is hereby upheld.(c)Each party to bear its own costs.

30. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 20TH DAY OF DECEMBER, 2023. ERIC NYONGESA WAFULACHAIRMAN.........................................................DELILAH K. NGALAMEMBER.........................................................CHRISTINE A. MUGAMEMBER.........................................................GEORGE KASHINDIMEMBER.........................................................MOHAMED A. DIRIYEMEMBER.........................................................SPENCER S. OLOLCHIKEMEMBER.........................................................