[2025] KETAT 195 (KLR)

Regineez Enterprises Ltd v Commissioner of Investigations & Enforcement (Tax Appeal E425 of 2024) [2025] KETAT 195 (KLR) (Civ) (14 March 2025) (Judgment)

Neutral citation: [2025] KETAT 195 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Tax Appeal E425 of 2024

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

March 14, 2025

Between

Regineez Enterprises Ltd

Appellant

and

Commissioner Of Investigations & Enforcement

Respondent

Judgment

1. The Appellant is a private limited liability Company incorporated in Kenya and operates a chain of retail clothing stores.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Parts 1 and 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 investigated the Appellant following inconsistencies noted between VAT and Income tax declarations and purchases claimed from third parties upon which it issued an assessment dated 5th December 2023 covering the period from 2017 to 2022 for a total of Kshs 68,866,930. 00.

4. The Appellant objected on iTax on 5th January 2024. The Respondent confirmed the taxes of Kshs 68,866,930. 00 as assessed vide its Objection decision dated 5th March 2024.

5. The Appellant being dissatisfied with the Respondent’s decision, lodged a Notice of Appeal dated 4th April 2024 and filed on the even date.

The Appeal 6. The Appellant lodged its Memorandum of Appeal dated 18th April 2024 and filed on the even date wherein it raised the following grounds of Appeal:i.That the decision by the Respondent was grounded on fundamental errors of fact and law and was therefore grossly unreasonable, unfair, irrational, manifestly unjust, acting in bad faith, and perpetrating oppressive and gratuitous interference with the fundamental rights of the Appellant.ii.That the Respondent erred in law and fact, perpetrating ultra vires acts, by requiring the Appellant to provide records which were beyond the statutory limits as provided for in the relevant tax laws and further assessing and demanding taxes during the same period.iii.That the Respondent erred in law and fact by requiring the Appellant to provide records for a period when the company did not exist and its legal form had not been established thereby disregarding the separate personality of the company.iv.That the Respondent erred in law and fact by confirming assessments by alleging failure by the Appellant to exhaustively explain and provide workings and supporting schedules and documents in support of the objection. The documents that were necessary to support the Appellant’s assertions and objection were believed to have been seized by other Government agencies and are evidence in an ongoing Court Case, to which the Appellant does not have access. By using the failure as the reason for confirming the assessments it acted contrary to Section 4(2) and (3) of the Fair Administrative Action Act, 2015. v.That the Respondent erred in law and fact by making an assumption that all monies in the Appellant's Family Bank Dollar A/C were not taxed at source when computing the alleged under-declared sales by the company whereas they were inter-bank transfers and thus subjected the same to double taxation.vi.That the Respondent erred in law and fact by failing to consider the money received by the company from the related companies as non-taxable deposits when computing the alleged under-declared sales by the company.vii.That the Respondent erred in law and fact by deliberately treating the cash deposited by the directors to the company received from withdrawals from related company accounts as taxable income even when the information was clearly given in the bank statements and the bank statements of those related companies provided.viii.That the Respondent erred in law and fact by failing to consider the funds advanced to the Appellant to plug cash flow constraints and to obtain a favourable credit score amongst informal business and social circles, in the form of loans and other soft loans as non-taxable deposits when computing the alleged under-declared sales by company, as the company could not obtain necessary financial assistance from mainstream and established financial systems.ix.That the Respondent erred in law and fact by deliberately failing to recognize expenditure incurred and required to be set off against output tax while computing taxes due for VAT while making taxable supplies.x.That the Respondent erred in law and fact by deliberately failing to recognize expenditure incurred and allowed to be deducted from any income made during a calendar year while computing gains or profits chargeable to Income tax.xi.That the Respondent erred in law and fact by deliberately and conveniently failing to recognize and use figures provided in the reconstructed and compiled schedules and statements provided by the Appellant which represented source documents and day-to-day records kept by the company.

Appellant’s Case 7. The Appellant lodged its Statement of Facts dated and filed on 18th April 2024 and the Written submissions dated 11th February 2025 and filed on the 19th February, 2025.

8. The Appellant stated that it objected on 5th January 2024 and also sent to the Respondent the required documents electronically but the Respondent proceeded to issue an Objection decision confirming the assessments alleging failure to support the objection.

9. It alleged that it was cooperative during the investigation process and hence its view that the Respondent acted in bad faith and maliciously by failing to consider representations and explanations it had made.

10. It accused the Respondent of perpetrating ultra vires acts, by asking it to provide records which were beyond the statutory limit as provided for in the relevant tax laws and further assessing and demanding taxes during the same period. It maintained that requesting documents relating to the years 2016 and 2017 and proceeding to assess and confirm assessments for tax for the year 2017 was in violation of its legal mandate as espoused in the case of Republic v Commissioner of Domestic Taxes (Large Taxpayers Office) Ex-Parte Unilever Tea Kenya Limited (2017| eKLR.

11. The Appellant asserted that the Respondent erred by asking it to provide records for a period when the company did not exist and thereby disregarding the separate personality of the company. The Appellant cited a number of provisions under the Companies Act 2015 including Section 17 which provides for the registration and provision of a unique identifying number called Incorporation Number upon which registration rights as provided for in Section 19 of the Companies Act, 2015 are provided.

12. The Appellant stated that it gained incorporation status on 4th February 2019 and was issued with its unique identifying number. That it applied for registration on 7th February 2019 and was issued with a single Personal Identification Number (PIN).

13. The Appellant contended that for the Respondent to construe that the Appellant existed in a different form and therefore can be assessed for taxes and owe taxes in a manner, form and status different from that provided for in the Companies Act 2015, would amount to a misapprehension and wrongful interpretation of the law. It relied on the case of Holdings Limited v City Council of Nairobi & 4 others [2019] eKLR and Salomon & Co Ltd V Salomon [1897 A.C. 22 HL to support the theory of separate legal entity.

14. The Appellant stated that the Respondent breached the law by confirming assessments on grounds that the Appellant failed to provide supporting documents and workings to support the objection. It asserted that the documents that were necessary to support its assertions and objection were seized by other Government Agencies and as such it lacked access to these documents. That this handicap should not have been used against it in denying it the right to defend the assessment against it.

15. The Appellant stated that in the initial meeting, the Respondent requested signed audited statements; copies of tender documents for all tenders awarded to the company, including the specific details of the supplies made; details of the till number registered to the company and the bank accounts in which the funds are deposited; and analysis of bank statements for bank accounts registered under the company.

16. The Appellant alleged that it provided through email, schedules of a detailed analysis of the bank statements, invoices for all local purchases which had also been claimed for VAT input, invoices for foreign purchases, Consolidator’s/Clearing Agent's Documentation (Delivery Notes), and a list of items dealt with. It also alleged that it was agreed that only the relevant documents which were specific to the company's business activities and available were to be provided.

17. It asserted that prior to the period for the request for documents, the presentation of documents through electronic mail and the issuance of the assessments, the company's offices and the director's residence had been raided by officers from the Ethics and Anti-Corruption Commission (EACC) and from the Directorate of Criminal Investigations (DCI). The Appellant alleged that the said officers seized company documents, personal documents and electronic devices to conduct their investigations over alleged economic crimes.

18. It noted that in response to their investigations, the Chief Executive Officer of EACC issued a notice referenced EACC.6/15/47 Vol. VII (180) to provide an explanation for the disproportion between the company's assets and its known legitimate sources of income.

19. The Appellant alleged that to access the seized documents would have required an application to the court whose timelines could not be estimated. It further alleged that the same documents would have required the Appellant to peruse them and present them in an orderly and sensible manner. The Appellant also maintained that the same documents are still subject to a court case Ethics and Anti-Corruption Commission v Kanani & 4 others (Miscellaneous Application E059 of 2022) (2023].

20. That failure to provide the requested documents during the investigation and the independent review was not intentional, disrespectful or out of negligence but by an impediment of circumstantial and legal constructs. It added that the needed documents were seized but it tried to give explanations but the Respondent ignored the explanations which amounted to a violation of its rights as enshrined in the Constitution of Kenya and provided for in Section 4(2) and (3) of The Fair Administrative Action Act.

21. It cited the following cases to support the position that administrative bodies ought to adhere to Article 47 of the Constitution of Kenya and should not exploit its handicap:a.Samura Engineering Limited and Others v Kenya Authority, Nairobi Petition No. 54 of 2011(2012] eKLRb.Geothermal Development Company Limited v Attorney General & 3 others [2013] eKLRc.Judicial Service Commission v Mbalu Mutava & Another [2015] eKLR.d.Silver Chain Limited v Respondent Income Tax & 3 others (2016] eKLR

22. The Appellant stated that the Respondent erred by making an assumption that all monies in the Appellant's Family Bank dollar account were not taxed at source when computing the alleged under-declared sales yet according to the Appellant, they were inter-bank transfers and thus the Respondent subjected the monies to double taxation.

23. The Appellant averred that it held a Family Bank dollar account that was not an operational account and was being primarily used to settle funds for overseas supplies. It alleged that funds in this account were transfers from the primary KES account or from related party accounts.

24. The Appellant also stated that since the account had cash deposits the Respondent erred in its assumption that these deposits were not taxed at source. Because there were various methods of handling funds available and at the disposal of the Appellant.

25. The Appellant averred that in the primary account, the KES A/C, several narrations can be seen referring to purchase dollar currency. It contended that the Respondent did not invest any time or attention to peruse the bank statement provided or the schedule thereof and as such treating the adjusted banking in the Family Bank Dollar A/C No. 0460000xxxx0 as an income amounted to an erroneous recognition of income contrary to Section 3 (2) (a) of ITA.

26. The Appellant contended that the Respondent erred in law by failing to consider the money received by the company from the related companies as non-taxable deposits when computing the alleged under-declared sales. The Appellant stated that it has developed several relations which can be interpreted as being related entities as follows:i.Fab Kids Kenya - A partnership owned by the Director Regina Munyiva Mutinda.ii.Bridge Side Farm - A partnership owned by the Director Regina Munyiva Mutinda.iii.Golden Crest Agencies Limited -Owned by a Co-partner in Bricdge Side Farm.iv.Willy Walla International Limited - Co-owned/owned by the Director Regina Munyiva Mutinda.v.Wilson Nashon Kanani - Spouse to the Director Regina Munyiva Mutinda.vi.Retro-Tech Agencies -Owned by a business partner to the Director Regina Munyiva Mutinda.vii.Dee and Manor Limited - Owned by a business partner to the Director Regina Munyiva Mutinda.viii.Wilcoreg Limited -Co-owned/owned by the Director Regina Munyiva Mutinda.

27. The Appellant averred that it reviewed the letter of tax investigation findings and found that the Respondent lumped the amounts in an ambiguous term called "Transfers". That a breakdown of the same was not provided and thus inconclusive to determine such an assertion.

28. The Appellant stated that it provided the information in its bank statements to show that the funds were from those related companies. That in normal operations of the business, the company received monies from related companies and persons in other forms such as cash deposits. It stated that these were deposited by the director and the narrations are as such.

29. The Appellant maintained that these are not sales by the company and they ought to be considered as non-revenue items and adjusted for in the computation. It argued that treating these intercompany transfers as revenue items amounted to double taxation as intercompany transfers had already been charged to tax in the company’s books.

30. The Appellant argued that the Respondent failed to give a clear explanation for its decision to categorize non-taxable items such as intercompany transfers as taxable items chargeable to tax despite being provided with the source company's bank statement to support such arguments.

31. The Appellant also raised the issue that when computing the alleged under-declared sales, the Respondent erred in law and facts by failing to consider the funds advanced to the Appellant to plug cash flow constraints to obtain a favourable credit score amongst informal business and social circles. The Appellant asserted that the cash flow was in the form of loans and other soft loans as non-taxable deposits because it could not obtain necessary financial assistance from mainstream and established financial systems.

32. The Appellant posited that it received friendly soft loans from related parties and at the same time extended similar advancements to such parties to finance operations and projects. It alleged that these loans were at arm's length and verbal as such.

33. It was its position that having not reduced a verbal agreement into writing and the same not being in contention by either party, does not nullify the existence of such an agreement. That it would be erroneous and a misapprehension of all established precedence for the Respondent to adduce and require extrinsic evidence based on narrations in the bank statements.

34. The Appellant stated that the Respondent ought to have considered the narrations in the banks statement before arriving at its decision.

35. The Appellant averred that the Respondent erred by failing to recognize expenditure incurred and required to be set off against output tax while computing taxes due for VAT was contrary to Section 17 of the VAT Act and that the Appellant complied with the said law.

36. The Appellant alleged that the Respondent erred in law and fact by deliberately failing to recognize expenditure incurred and allowed to be deducted from any income made during a calendar year while computing gains or profits chargeable to Income tax as provided in Section 15 of the ITA.

37. The Appellant argued that under the Loose Cargo Consolidation Regime, the Appellant was required to pay Kshs 200 per Kilogram to the consolidator. That this was thus a valid and recognised expenditure incurred for the furtherance of business and thus allowable.

38. Further, the Appellant stated that having incurred the expenses claimed for under the VAT Act, the same should be allowed while ascertaining taxable gains or profits from the business. It also submitted that other expenses such as salaries and wages should also be allowed.

39. The Appellant contended that the Respondent deliberately and conveniently failed to recognize and use figures provided in the reconstructed and compiled schedules and statements which represented source documents and day to day records kept by the company. In this regard, it relied on the case of Family Signature LTD v The Respondent of Investigations & Enforcement Nairobi TAT No. 25 of 2016 to assert that the Respondent ought to have acted reasonably by exercising best judgement informed by pragmatic and reasonable considerations.

Appellant’s Prayer 40. The Appellant prayed for the following orders:a.That the Appeal be allowed.b.That the Tribunal finds the Respondent to have acted ultra vires and in gross violation of the Appellant's fundamental rights and freedom.c.That the demand for documents for the years 2016 and 2017 which are statutorily time barred be deemed illegal.d.That the demand for documents and taxes for periods before the Appellant gained legal form and status under the Laws of Kenya be deemed illegal.e.The objection decision dated 5th March 2024 be set aside:f.The Tribunal be pleased to direct the Respondent to allow for time to apply for remission of penalties if the Appellant is found culpable.g.Costs of this Appeal be borne by the Respondent.

The Respondent’s Case 41. In opposition to the Appeal, the Respondent relied on its Statement of Facts dated and filed on 26th July 2024 and Written Submissions dated 11th February 2025.

42. The Respondent stated that it compared income as per IT2C and VAT3 declarations; income as per bankings; income derived from withholding VAT certificates; and purchases claimed from the taxpayer to determine the Appellant's expected income.

43. That it subsequently established that the Appellant's expected income from bankings yielded the highest amount each year amounting to Kshs 173,121,545 and it thereafter computed Corporation tax which amounted to Kshs 4,779,943. 00, VAT was assessed at Kshs 24,086,987. 00 all totaling to Kshs 68,866,930. 00.

44. That it invalidated the Appellant’s objection because it did not comply with Section 51 (3) (c) of the TPA. That the notice of invalidation was communicated vide a letter dated 9th January 2024.

45. The Respondent stated that the Appellant thereafter provided supporting documentation for the objection via emails dated 16th January 2024, 23rd January 2024 and 25th January 2024 thereby validating its objection. That the Respondent was of the view that the documents were not sufficient and it hence confirmed the assessments vide objection decision dated 5th March 2024.

46. In response to first ground of Appeal, the Respondent stated that the Appellant was made aware of the investigations, the status of the investigations and was equally given opportunities to respond and provide evidence in support of its position. That the burden of proof thus lay on the Appellant as was stated in the case of Domestic Services v Galaxy Tools Limited [2021] eKLR.

47. In response to second ground of Appeal, the Respondent stated that tax investigation is an ongoing exercise and may take a number of years to be concluded. That for this reason Section 29(5) and Section 31(4) of the TPA have to be read purposively rather than strictly as is the norm with tax statutes, which are normally interpreted narrowly. That the 5-year limit can be exceeded in case of wilful neglect, evasion or fraud by the taxpayer.

48. That it was the duty of the Appellant to keep its records in place until the conclusion of investigations and to provide the same for purposes of tax audit.

49. The Respondent asserted that it was guided and complied with Section 29 as read with Section 31 of the TPA and Section 43 of the Value Added Tax Act, 2013 (VATA). Consequently, it contended that the five-year limitation cannot be read in isolation and has to be read together with other provisions of the law on the keeping of records.

50. In response to the third ground of Appeal, the Respondent stated that before the Appellant changed into a limited liability company, it was operated as a sole proprietorship with the same persons acting as directors. The Respondent therefore argued that the Appellant was seized of the operations as well as the records from the said entity for the period under review.

51. In response to the fifth ground of Appeal, the Respondent stated that the dollar account was not an operational account and was primarily used to settle funds for overseas supplies. That the funds in the said account were transfers from the KES account and transfers from related parties according to the Appellant.

52. The Respondent stated that transfers from the KES account into the USD account were mostly happening in the years 2017-2019 and that no inter-account transfers happened in the years 2021-2022. That apart from inter-account transfers the only other method of deposit seen in the account statement was cash deposits.

53. The Respondent stated that it could therefore not confirm the source of the deposits and whether these deposits were taxed at source. That consequently, it thus made adjustments to the deposits in the USD account.

54. The Respondent posited that the Appellant did not provide new and additional documents different from the ones provided at the point of investigation and hence its confirmed decision.

55. In response to the sixth ground of Appeal, the Respondent stated that it confirmed from its internal systems that the director of Appellant is also a director of Bridge Side Farm, Willy Walla International Limited, Wilcoreg Limited and Pitstone Enterprises Limited. That it also made adjustments to the deposits at the assessment stage to cater for the relationships.

56. In response to the seventh ground of Appeal, the Respondent stated that the Appellant failed to confirm the source of directors' deposits and whether these amounts were taxed at source and hence its decision not to make further adjustments for director's deposits.

57. In response to the eighth ground of Appeal, the Appellant contended that it received loans from groups where the director is a member of as well as from other businesses. It asserted that the Appellant failed to provide supporting documentation for the same and hence no adjustments were made.

58. In response to the ninth ground of Appeal, the Respondent noted that the Appellant failed to file its IT2C and VAT3 returns for the years 2017, 2018 and 2022. The Respondent stated that since the Appellant failed to file returns for these years, any expenses incurred in those years would have to be verified to confirm whether they were legitimately incurred in the production of business income.

59. The Respondent asserted that the Appellant did not discharge its burden of proof under Section 56(1) of TPA.

Respondent’s Prayer 60. The Respondent prayed for orders that the Tribunal:a.Upholds the Respondent's assessments dated 5th March 2024 andb.Dismisses the Appeal with costs to the Respondent as the same is devoid of any merit.

Issues For Determination 61. Having considered the parties’ pleadings, documents and Submissions the Tribunal puts forth the following issues for determination:a.Whether the assessments are time-barred under Sections 29(5) and 31(4)(b) of the TPA.b.Whether the Respondent was justified to issue an assessment against the Appellant prior to its incorporation.c.Whether the Respondent’s assessment was justified.

Analysis And Findings 62. Having identified the issues falling for its determination, the Tribunal shall proceed to analyse each separately as hereunder.

a. Whether the assessments are time-barred under sections 29(5) and 31(4)(b) of the TPA. 63. The Respondent issued a notice of tax assessment dated 5th December 2023 covering the period from 2017 to 2022 for a total of Kshs 68,866,930. 00. The Appellant protested that these assessments were time-barred. On the other hand, the Respondent submitted that the Appellant did not file returns for the year 2017 and that it was also involved in wilful neglect and fraud and therefore, it was justified to issue the assessments.

64. Section 31(4) (b) of the TPA requires assessments to be issued within five years. It provides as follows:‘‘The Commissioner may amend an assessment——(b)In any other case, within five years of—(i)For a self-assessment, the date that the self-assessment taxpayer submitted the self-assessment return to which the self-assessment relates; or(ii)For any other assessment, the date the Commissioner notified the taxpayer of the assessment.’’

65. Section 23 of the TPA provides for timelines for keeping records. In particular, Section 23(1) (c) requires documents to be kept for five years or lesser period. The said Section provides as follows:“(1)A person shall—(a)maintain any document required under a tax law, in either of the official languages;(b)maintain any document required under tax law to enable the person's tax liability to be readily ascertained; and(c)subject to subsection (3), retain the document for 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.’’

66. The implication of Section 23 and 31(4) (b) of the TPA is that the Respondent has no basis in law to request a taxpayer for documents and by extension carry out any assessment beyond five years.

67. Provisions on how timelines for assessments are determined are contained in Section 52B (1) (b) of the ITA Provides as follows:-‘‘52B. Final return with self-assessment(1)Notwithstanding any other provision of this Act—(b)every person, other than an individual chargeable to tax under the Act, shall for any accounting period commencing on or after 1st January 1992, furnish to the Commissioner a return of income, including a self-assessment of his tax on such income, not later than the last day of the sixth month following the end of the year of income.’’

68. Under Section 52B (1) (b) of the ITA and in the absence of any other date when the Appellant may have filed its returns, in law, the Appellant is required to file its returns by 30th June.

69. The assessment order in this case was issued on 5th December 2023 relating to assessments of 2017 to 2022. The assessments for 2022 were due by 30th June 2023 and would thus be included in the computation of time.

70. Accordingly, the Corporation tax assessment for 2017 falls outside the 5-year limit period and was thus assessed lawfully unless the Respondent demonstrates gross or wilful neglect, evasion or fraud by a taxpayer as required under Sections 29(6) and 31(4)(a) of the TPA.

71. On the other hand, VAT is due on or before the 20th day of the following month. This includes both the return and payment. In this regard, Section 19 of the VATA provides as follows:“19. When tax is due(1)Tax shall be due and payable at the time of supply.(2)Notwithstanding the provision of subsection (1), a person may defer payment of tax due to a date not later than the twentieth day of the month succeeding that in which the tax became due.”

72. In this Appeal, the Respondent assessed VAT for the period from January 2017 to December 2022 as indicated in the assessment notice dated 5th December 2023. The assessments for November 2022 were due on 20th December 2022 and would thus be included in the computation of time in this Appeal. The 5-year limit period would thus start running from November 2023.

73. Accordingly, the VAT assessment for the period between November 2022 and November 2019 was lawful. Any assessment beyond that period is unlawful unless the Respondent demonstrates gross or wilful neglect, evasion or fraud by a taxpayer as required under Section 29(6) and 31(4)(a) of the TPA and as was stated in the case of Commissioner of Domestic Taxes v Airtel Networks Kenya Limited (Income Tax Appeal E062 of 2022) [2023] KEHC 25059 (KLR) where the High Court stated as follows regarding the issue on timeframe:“In this regard, under section 31(4) of the Tax Procedures Act, an amendment outside the 5 years can only be permitted if there is evidence of willful neglect, evasion, or fraud by or on behalf of the taxpayer…The legal position is that all assessments ought to be made within 5 years except when there is evidence of gross or willful neglect, evasion or fraud on the part of the taxpayer. This also goes hand in hand with the provisions of section 23 of the Tax Procedures Act, which requires a taxpayer to retain documents for the same period. The implication is that, after 5 years, since no assessment can be made, the taxpayer is absolved of his burden of maintaining such records.”

74. The Respondent alleged that the Appellant was involved in gross or wilful neglect, evasion or fraud and hence the assessment beyond the 5-year limit.

75. The Tribunal notes that a suit was filed against the Appellant regarding the issues of fraud and tax evasion under the Anti-Corruption and Economic Crimes Act (Act No. 3 of 2003) at the Ethics and Anti-corruption Court in the case of Ethics and Anti-Corruption Commission v Kanani & 5 others (Anti-Corruption Case E022 of 2023) [2024] KEHC 16638 (KLR) (Anti-Corruption and Economic Crimes) (7 November 2024) (Judgment). The Appellant was listed thereof as the 6th Respondent.

76. The Tribunal notes that Judgment in this matter was delivered on 7th November 2024 by Justice Nixon Sifuna who dismissed the suit when he stated as follows:“in consequence, this suit is for dismissal, and I hereby dismiss it accordingly. Each party shall bear its own costs. With this dismissal, the interlocutory injunctive preservatory orders hitherto in force, are hereby discharged and the impugned assets and bank accounts are hereby unfrozen forthwith.”

77. It is hence obvious that issues of fraud, evasion, gross or wilful neglect, against the Appellant as is envisaged in Section 29(6) and 31(4)(a) of the TPA have been held to be unproven. The Respondent’s assessments issued beyond the statutory time limit and which were based on this premise are thus unfounded.

b. Whether the Respondent was justified to issue an assessment against the Appellant prior to its incorporation. 78. The Appellant asserted that it was incorporated on 4th February 2019 but the Respondent issued an assessment against it as from the year 2017. On the other hand, the Respondent argued that before the Appellant changed into a limited liability company, it was operated as a sole proprietorship with the Appellant acting as director. The Respondent therefore argued that the Appellant was seized of the operations as well as the records from the said entity for the period under review.

79. The Tribunal is in agreement that a company can only be taxed from the date when it was incorporated. Indeed it is not possible for the Respondent to tax an entity that does not exist, on what basis would such an entity be taxed when it was not trading and did not therefore generate any income.

80. However, this is not the case in this Appeal. The Respondent asserted that it taxed the Appellant prior to the date of its incorporation of 4th February 2019 because it was carrying out the same business prior to this date and the incorporation of the Appellant merely facilitated it in the continuity of its business under a new name and style but with the same directors/owners.

81. The Appellant did not deny the fact that:a.its business existed prior to the incorporation,b.it carried out the same business prior to the incorporation and post-incorporation;c.the directors of its business prior to incorporation were the same directors of the incorporated entity.

82. In the same vein, the Appellant did not assert or provide evidence to show that it settled all its taxes before it transformed its business into an incorporated entity. In fact, the Tribunal notes the Appellant to be asserting that the tax liabilities that related to its trade prior to its incorporation into the new entity belonged to the bygone era and were hence not collectable under its new name and style of trade.

83. It is for this reason that the Appellant did not bother to assert, aver or even provide evidence to at the very least show that its tax liabilities prior to the incorporation were settled. It is for this reason that the Tribunal has taken the position that the Respondent’s failure to provide evidence that it had settled its tax liability that was owed before the incorporation means that the Respondent’s assertion that the said tax has not been paid stands proved.

84. The Tribunal also adopts the position that incorporation of an entity is a noble concept that is intended to facilitate business. It was, however, not intended to be used as a vehicle for avoiding tax. It thus finds that these actions of the Appellant in trying to use the noble concept of incorporation of a company to avoid tax falls within the remit of Section 23 of the ITA which provides as follows regarding transactions designed to avoid tax:-“23. (1)Where the Commissioner is of the opinion that the main purpose or one of the main purposes for which a transaction was effected (whether before or after the passing of this Act) was the avoidance or reduction of liability to tax for a year of income or that the main benefit which might have been expected to accrue from the transaction in the three years immediately following the completion thereof was the avoidance or reduction of liability to tax, he may, if he determines it to be just and reasonable, direct that such adjustments shall be made with respect to liability to tax as he considers appropriate to counteract the avoidance or reduction of liability to tax which could otherwise be affected by the transaction.(2)Without prejudice to the generality of the powers conferred by subsection (1), those powers shall extend –(a)to the charging to tax of persons who, but for the adjustments, would not be charged to the same extent;(b)to the charging of a greater amount of tax than would be charged but for the adjustments.(3)A direction of the Commissioner under this section shall specify the transaction or transactions giving rise to the direction and the adjustments with respect to liability to tax which the Commissioner considers appropriate."

85. Section 66 of the VAT Act has a similar provision regarding tax avoidance schemes, it provides as thus:“(1)Notwithstanding anything in this Act, if the Commissioner is satisfied that –(a)a scheme has been entered into or carried out;(b)a person has obtained a tax benefit in connection with the scheme; and(c)having regard to the substance of the scheme, it would be concluded that a person, or one of the persons, who entered into or carried out the scheme did so for the sole or dominant purpose of enabling the person referred to in paragraph (b) to obtain a tax benefit, the Commissioner may determine the tax liability of the person who obtained the tax benefit as if the scheme had not been entered into or carried out.(2)If a determination is made under subsection (1), the Commissioner shall issue an assessment giving effect to the determination.(3)A determination under subsection (1) shall be made within five years from the last day of the tax period to which the determination relates.”

86. Having held that the Appellant’s action was designed to help it avoid the pre-incorporation tax, then it follows that the Respondent’s assessment of the Appellant for the transactions before its incorporation so as to ensure that it pays its fair share of tax was justified.

87. The Tribunal is emboldened in its finding by its previous decision in Judgment Tat E-267 Of 2023 China Communications Construction Company Limited v The Commissioner of Intelligence, Strategic Operations, Investigations & Enforcement wher it held as follows regarding transactions intended to avoid tax:“...the Tribunal finds that the Respondent’s testimony showed that the totality of the Appellant’s transactions did not support a reasonable commercial transaction. It was instead an elaborate scheme to avoid payment of tax in Kenya. The Appellant’s failure to discharge the burden of proof that had shifted back to it to show that it was not involved in a tax avoidance scheme was not discharged. The testimony of the Respondent 's witness, Mr. John Ekadah, regarding the elaborate tax evasion scheme on the part of the Appellant thus stood proved.”

88. The Tribunal stated further as follows in the Judgment in Tat E-267 Of 2023 China Communications Construction Company Limited v The Commissioner of Intelligence, Strategic Operations, Investigations & Enforcement :“Tribunal is persuaded to arrive at under the circumstances and based on the proven facts of this case is that the main purpose or one of the main purposes for which the Appellant restructured its business operations to deal with non-existent third parties who were not aware that they were even trading with the Appellant was for purpose of avoidance or reduction of tax liability.”

89. Guided by the provisions of Section 23 of the ITA, Section 66 of the VAT Act and the decision in Judgment Tat E-267 Of 2023 China Communications Construction Company Limited v The Commissioner of Intelligence, Strategic Operations, Investigations & Enforcement, the Tribunal finds and holds that the Appellant’s action of restructuring its business to incorporate the Appellant company and thereafter neglecting to settle the tax liabilities incurred prior to the incorporation was an action that was intended to avoid pre- incorporation tax or reducing its tax liabilities thereof. The Respondent was thus justified to issue an assessment against the Appellant for its tax liabilities prior to its incorporation.

c. Whether the Respondent’s assessment was justified. 90. The Respondent’s biggest premise for confirming the remainder of the taxes is that the Appellant had failed to provide it with the documents required. That under the circumstances it was left with no option other than to confirm the assessment.

91. The Appellant on its part admitted that it had indeed failed to provide the documents required. It was its further view that this failure was attributed to the fact that the documents that were necessary to help support its objection were seized by Government agencies as evidence of an ongoing case being Ethics and Anti-Corruption Commission v Kanani & 4 others (Miscellaneous Application E059 of 2022) [2023].

92. It posited that making an application in court to obtain these documents would have taken it a long time but it nevertheless gave sufficient explanations to explain away the tax liabilities. That these explanations were ignored by the Respondent in breach of Section 4(2) and (3) of the FAAA and Article 47 of the Constitution.

93. It is trite law that once the Respondent has made a tax assessment or decision, the burden is on the Appellant to prove that the said assessment or decision is erroneous. This is supported by Section 56 (1) of the TPA which provides thus;“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

94. Additionally, Section 30 of the TAT Act provides as follows regarding the burden of proof in tax cases:“In a proceeding before the Tribunal, the appellant has the burden of proving—(a)where an appeal relates to an assessment, that the assessment is excessive; or(b)in any other case, that the tax decision should not have been made or should have been made differently.”

95. The burden was thus on the Appellant to prove that the Respondent’s assessment was erroneous. The easiest way to discharge this burden would have been by sharing, with the Tribunal, the documents that it supplied to the Respondent to prove that the Respondent’s assessments were inaccurate, excessive or generally disregarded the documents that it has supplied.

96. The fact that its documents were seized by Government agencies does not suspend the law under Section 30 of the TAT Act or Section 56(1) of the TPA. This burden has to be discharged. In this case, therefore, the Appellant was behoved to show that this alleged action handicapped it completely in complying with its statutory obligation to provide documents showing its tax affairs. This could have been done by:-a.Providing evidence to show that it had written letters to the said Government agencies requesting copies of these documents.b.Providing evidence that the refusal of the said Government agencies to provide the documents had caused it to file an active application in court seeking an order to compel the Government agencies to supply the documents.c.Sharing a schedule of the documents that had allegedly been confiscated by the Government agencies to enable the Tribunal and the Respondent to note that these are the same documents that were crucial in helping it defend this assessment. The supply of such a schedule would have also helped the Tribunal affirm whether the documents in issue were sui generis or that they fell under a category of documents whose duplicate copies could be obtained from alternative sources like banks, utility companies or other similar entities.d.Providing an explanation on why it had not shared the schedule of documents that are often issued by Government agencies and signed by an accused person anytime it confiscates any documents from the premise of an accused person. Alternatively, it could have been explained that this schedule was never executed or shared with it.e.Explaining why it could not provide the following documents demanded by the Respondent which it could easily obtain from its traders, partners, bankers and relevant sources even if the originals were confiscated by Government agencies :i.Copies of loan forms or agreements which could be obtained from the lenders.ii.Source of directors’ deposits which could be obtained from the directors’ financial institution or their business records.iii.Evidence that the cash deposits were taxed at the source

97. The Appellant did not even invoke Section 20(2) of the TAT Act so that the Tribunal could compel the attendance of these Government officers to either produce the documents mentioned in the summons or to at the very least confirm that it had confiscated these documents and the reasons why they could not release them to the Tribunal or the Appellant to help it in its case.

98. These indolences, inadequacies, omissions and failures have led the Tribunal to find that the reason provided by the Appellant for its failure to supply the requested documents was not plausible and or capable of excusing it from obliging with its statutory obligation of providing documents when requested by the Commissioner.

99. The general conduct of the Appellant portrayed a party who was indolent and nonchalant in doing nothing to seek and obtain these alleged documents from Government agencies. Instead of using the legal avenues available to it of filing relevant applications in court or Tribunal, the Appellant instead opted to make mere averments about its handicap in obtaining these documents. This feebleness and lack of vigilance, when it was a party that was represented by Counsel, fell way short of the minimum duty that was expected of it under Section 30 of the TAT Act to show that the Respondent had erred in its assessment.

100. Moreover, the documents that have been identified in the Objection as not having been provided were documents which it could have easily accessed from alternative sources and shared with the Respondent even if the original copies were confiscated.

101. It thus follows that failure to adduce documentary evidence and providing a slippery excuse for its failure means that the Appellant has not succeeded in discharging its burden of proof as was laid down in the case of Singapore Motors Limited v Commissioner of Domestic Taxes (Income Tax Appeal E039 of 2021) [2024] KEHC 2443 (KLR) where the High Court held that:“This Court has remained emphatic that under section 30 of the Tax Appeals Tribunal Act (TATA) and section 56 of the Tax Procedures Act (TPA), the burden of proving that an assessment is wrong or excessive remains upon the taxpayer.’’

102. The outcome of the Appellant’s failure is that the Respondent’s assessment which often assumes a notion of presumptive correctness has not been challenged successfully by the Appellant and it is thus affirmed.

103. Accordingly, the Tribunal finds and holds that the Respondent was justified in confirming the assessment relating to the period after the incorporation of the Appellant.

Final Decision 104. The upshot to the foregoing analysis is that the Tribunal finds and holds that the Appeal is partially meritorious and makes the following Orders: -i.The Appeal be and is hereby partially allowed.ii.The Respondent’s Objection decision is hereby varied in the following terms;a.The Respondent’s assessment for Corporation tax for 2017 be is and hereby set aside.b.The Respondent’s assessment for Corporation tax for 2018 to 2022 be and is and hereby upheld.c.The Respondent’s assessment for VAT between November 2019 to November 2022 be and is hereby upheld.d.The Respondent’s assessment of VAT from October 2019 and backwards to 2017 be and is hereby set aside.iii.The Respondent is hereby directed to recompute the Income tax and VAT assessments based on the Tribunal’s findings under Orders (ii) (a) to (d) above within Thirty (30) days from the date of delivery of this Judgment.iv.Each party to bear its own costs.

105. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 14TH DAY OF MARCH, 2025ERIC NYONGESA WAFULACHAIRMANCYNTHIA B. MAYAKA DR. RODNEY O. OLUOCHMEMBER MEMBERABRAHAM K. KIPROTICH GLORIA A. OGAGA MEMBER MEMBER