[2024] KETAT 1472 (KLR)

Renova Limited v Commissioner of Domestic Taxes (Tax Appeal 323 of 2024) [2024] KETAT 1472 (KLR) (4 October 2024) (Judgment)

Neutral citation: [2024] KETAT 1472 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 323 of 2024

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

October 4, 2024

Between

Renova Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a registered taxpayer whose principal business activity is provision of interior design solutions to individuals and private companies.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority (KRA) Act, and KRA 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 to the Appellant on 14th November, 2023.

4. On 8th and 31st January, 2024, the Appellant lodged notices of objection against the Respondent’s assessment.

5. On 7th March, 2024, the Respondent issued its objection decision reviewing the initial assessment from Kshs. 2,379,275,834. 00 to Kshs. 505,742,248. 00.

6. Following its dissatisfaction with the Respondent’s decision, the Appellant filed a Notice of Appeal to the Tribunal dated 14th March, 2024.

The Appeal 7. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated and filed on 18th March, 2024:-i.That the Respondent erred in fact and in law in issuing the instant demand notwithstanding its previous and subsisting disputed demand of Corporation tax & VAT covering a similar period of assessment as per its objection decision of 26th March, 2021ii.That the Respondent's disputed objection decision of 26th March, 2021 is the subject matter of ongoing proceedings at the High Court under Income Tax Appeal No. E069 of 2023. iii.That there is a danger of two courts/fora of competent jurisdiction pronouncing themselves differently over the same subject matter, thus embarrassing justice.iv.That in addition to the aforementioned objection decisions against the Appellant, there is a further 'investigation findings' dated 14th December, 2022 that is yet to be vacated, purporting to demand for more Corporation tax & VAT covering the same period under review.v.That the three (3) arbitrary and contradictory demands of the same taxes, over the same period are a clear demonstration of an ongoing witch hunt against the Appellant.vi.That as a further demonstration of the arbitrary nature of the Respondent's demands against the Appellant, the tax assessment of over Kshs. 2 billion which led to the instant objection decision of 7th March, 2024 was bemusingly without any known method, formulae, factual or legal basis reviewed to Kshs. 500 Million as no documents were availed to the Respondent to aid the review.vii.That crucial documents which are relevant to this instant Appeal were confiscated by the Respondent during the raid conducted on the Appellant's business premises in 2021 and have not been returned inspite of the Appellant's incessant demands.viii.That the arbitrary demands by the Respondent outrightly contravene the doctrine of legitimate expectation that rests a presumption on the Commissioner to follow certain procedures in arriving at the tax liability and benefits that accrue from it.ix.That the Respondent’s actions offend the taxation doctrine of certainty in that the Appellant is faced with three conflicting tax demands issued by the same Authority.x.That the Respondent seeks to unjustly enrich itself at the Appellant's expense.xi.That the demand by the Respondent is not based on any material facts that have been provided by the Respondent and has been arrived at in total ignorance of significant provisions of the Income Tax Act and the VAT Act.xii.That the additional taxes inclusive of penalties and interest are grossly exaggerated and were arrived at in total ignorance of significant provisions of the Income Tax Act, Cap. 470 of the laws of Kenya and the VAT Act 2013

Appellant’s Case 8. The Appellant’s case is premised on its Statement of Facts dated and filed on 18th March, 2024.

9. That the Appellant believes that the following issues stand out for determination before this Honorable Tribunal:i.Whether the Respondent can issue a demand for taxes that are under the review of an appellate court of competent jurisdiction.ii.Whether a taxpayer can be issued with several arbitrary and contradictory demands of the same taxes, pertaining to the same period.iii.Whether a tax authority can give an assessment and thereafter review the same without the application of any known method, formulae and without any factual or legal basis.iv.Whether the Respondent's actions contravened the Appellant's right to Fair Administrative Action.

10. That on 26th March 2021, the Respondent issued the Appellant with an objection decision demanding Corporation tax & VAT of Kshs. 148,260,193. 00 for the tax period between 2016 - 2020.

11. That aggrieved by the said decision, the Appellant filed Income Tax Appeal No. 820 of 2021 before this Honorable Tribunal.

12. That the Tribunal delivered its Judgment on 17th March, 2023, quashing the assessment in dispute, in favor of the Appellant.

13. That aggrieved by the Tribunal's Judgment, the Respondent proceeded to the High Court under High Court Income Tax Appeal No. E609 of 2023. The Appellant averred that the said proceedings at the High Court are pending determination.

14. That in an illegal and mischievous attempt to collect the same taxes quashed by the Tribunal in the objection decision of 26th March, 2021, the Respondent issued the objection decision of 7th March, 2024, which it slightly varied so as to purport that this new assessment covered a wider period than that of the previous objection decision of 26th March, 2021.

15. The Appellant submitted that the objection decision of 7th March, 2024 has been slightly varied so as to purport to cover a different tax period as that under the High Court's review, but is in actual fact a mischievous attempt by the Respondent to illegally bypass the ongoing proceedings in High Court Income Tax Appeal No. E609 of 2023 and forcefully collect taxes that are still under review by a court of competent jurisdiction.

16. That Section 6 of the Civil Procedure Act expressly prohibits the trial of a suit in which the matter directly and substantially in issue has been directly and substantially in issue in a former suit between the same parties.

17. That the actions of the Respondent to demand taxes that are currently under the determination of a court of competent jurisdiction has forced the Appellant to file the instant Appeal and thus offend the provisions of Section 6 of the Civil Procedure Act.

18. That a demand for taxes that are under judicial consideration is both immoral and illegal.

19. That the three (3) contradictory assessments of the same tax headings, covering similar tax periods, are a clear demonstration of an ongoing witch hunt against the Appellant.

20. The Appellant averred that across all jurisdictions, it is a mandatory requirement that a tax system should be certain. That the principle of certainty of taxation includes a number of interrelated imperatives, namely: preciseness and clarity of tax norms; understandability and accessibility of the tax rule for an “average” taxpayer; reasonable balance of abstract and concrete completeness (no fragmentation); internal consistency and coherence (at least the absence of obvious contradictions) in the system of tax norms.

21. That the aforementioned principle demands that a taxpayer cannot be issued with three contradicting assessments of the same taxes over a similar period.

22. That the Respondent's actions of bombarding the Appellant with conflicting assessments are direct contradictions to the aforementioned aspects of completeness and coherence required under the principle of certainty.

23. That the principle of certainty demands that the Appellant has a right to know with certainty, what taxes it owes to the Respondent at any given period of time.

24. That, based on its objection decision, the Respondent essentially slashed Kshs. 1,873,533,686. 00 from the initial assessment, to arrive at its revised assessment of Kshs. 505,742,248. 00. That in this regard, it should be noted that at no point in time between the initial assessment and its revision thereof, did the Appellant avail any documents to the Respondent that would legally or factually justify the Respondent’s change of tact.

25. That the Appellant had no documents to provide due to a fact well within the Respondent's knowledge; that a different team had raided the Appellant's offices in 2021 and confiscated all of the Appellant’s documents.

26. That the revision of the initial assessment was arbitrarily arrived at without the application of any known method, formulae and without any factual or legal basis and this action by the Respondent alludes to the arbitrary nature of the initial assessments conducted against the Appellant.

27. That according to Section 4(1) of the Fair Administrative Action Act, every person has the right to administrative action which is expeditious, efficient, lawful, reasonable and procedurally fair.

28. That the lack of coordination by the Respondent's departments has culminated to unlawful, unreasonable and procedurally unfair administrative actions against the Appellant.

29. That based on all the grounds quoted herein, which led to exaggerated taxes, all penalties and interest computed by the Respondent are excessively inflated.

Appellant’s Prayers 30. The Appellant prayed that the Tribunal holds:i.That the Appeal be allowed, the assessment quashed, the demand set aside, and the Respondent be ordered to vacate all pending assessments.ii.That the Respondent's actions to demand additional taxes be declared arbitrary, unreasonable, unfair, and contrary to the fair administration of justice and legitimate expectation of a taxpayer.iii.That the Respondent, its employees, agents or any other persons purporting to act on behalf of the Respondent be barred and estopped from demanding or taking any further steps towards enforcement or recovery mechanisms of the principal tax, penalties and interest on the Respondent’s demand as stipulated above.iv.That the Honorable Tribunal awards the costs of this Appeal and any other remedies that it deems just and reasonable to the Appellant.

Respondent’s Case 31. The Respondent’s case is premised on its Statement of Facts dated and filed on 28th August, 2024.

32. That a compliance check was conducted on the Appellant to establish the correctness of tax declarations in respect to Corporation tax, VAT and WHT-IT which indicated:i.Under-declared sales for the years 2019-2020. ii.Failure by the Appellant to support purchases as declared /claimed in VAT3 returns.iii.Variance in professional fees expensed in the IT2C as compared to withholding tax deducted on iTax.iv.Data sets indicating under declaration of sales as compared to sales on VAT returns.

33. That a notice of intention to conduct a compliance audit was issued on 17th August, 2023 which was acknowledged by the Appellant on 30th August, 2023 requesting more time to avail the documents since all the accounting records were seized by the Investigation & Enforcement Department of the Kenya Revenue Authority.

34. That on 6th September, 2023, the assessing team (Large Taxpayers’ Office - LTO) visited the Appellant's premises where the parties had an engagement with the Finance & Administration Manager and could not receive any documents as requested in the audit notice.

35. That further, the assessing team requested the Appellant to furnish the team with documents to support input VAT claimed from various traders vide a letter dated 20th September, 2023 which the Appellant responded to on 9th October, 2023 seeking more time to allow it finalize an audit that was being handled by the Investigation and Enforcement Department (I&ED).

36. That on 23rd October, 2023, the LTO team shared with the Appellant the preliminary findings to which the Appellant responded to, citing that I&ED had raised similar issues identified by LTO in the preliminary findings. That the Appellant proposed that LTO should wait until I&ED finalizes on the investigations.

37. That on 14th November, 2023, the LTO issued additional assessments after the Appellant failed to provide the documents requested. That the Appellant objected to the assessments on 8th and 31st January, 2024.

38. The Respondent averred that it refutes all the allegations by the Appellant.

39. That the objection decision in question covers the periods between 2019 - 2023. That the Appellant's failure to show up for meetings as well provide documents made it impossible for the Respondent to substantiate the issues raised on the assessment whether they were of similar or same period.

40. That the subject matter at the High Court is of a different period from the date of the assessment of 26th March, 2021. That there is no way issues of 2021 - 2023 were tackled in a prior period especially Income tax when the Appellant's financial year ends on 31st December.

41. That this is an assumption on the part of the Appellant. That both courts have their jurisdiction and if they were to determine each case before them, it would be on facts and law. That there is no way pronunciation of the two can be embarrassing.

42. The Respondent averred that the Appellant should be aware that the Commissioner has a right to assess, investigate and demand taxes where he has information that the taxpayer is not compliant. That it is the onus of the Appellant to furnish the Respondent with all the required documents and explanations to avoid duplication of work and effort on the side of both parties. That further, from the series of demands, it can be projected that either the Appellant is non-cooperative, non-responsive in terms of communication and documentation which leave the different units/arms of the Commissioner with no choice but to issue assessments/demand the taxes.

43. The Respondent stated that it has many ways of getting information about the Appellant as empowered by the law. That the allegations that the objection of 7th March, 2024 was bemusing is misplaced. That secondly, the Appellant provided part of the documents, like audited financial statements, third party information/data which helped in aiding in the objection decision review.

44. That from the inventory of the documents confiscated in 2021 during the raid, it is very clear that they were not the only documents to help in the review of the objection decision. That purchases and sales ledgers, bank statements and audited financial statements can be provided at any time. That this was echoed by a request made to the Appellant and it still remained non-responsive.

45. The Respondent submitted that it followed all the procedures in arriving at the assessments. That the Appellant was accorded all the time, notices and explanations before demands were issued. That all taxes demanded were supported by law.

46. That the additional taxes are not grossly exaggerated. That they were arrived at upon the review of the audited financial statements, suppliers’ declarations on iTax as well as the Appellant’s returns declaration in iTax.

Respondent’s Prayers 47. The Respondent prayed that the Tribunal holds that:i.The Respondent's Objection decision dated 4th March, 2024 was proper in law and the same be affirmed.ii.This Appeal be dismissed with costs to the Respondent.

Issue For Determination 48. The Tribunal has evaluated the pleadings and documentation filed by both parties and is of the view that the singular issue for its determination is: Whether the Respondent’s objection decision was justified.

Analysis And Determination 49. The Tribunal having ascertained the issue falling for its determination as set out above proceeds to deal with the same as hereunder.

50. This dispute arose from the Respondent’s action of confirming, by way of an objection decision, additional tax assessments amounting to Kshs. 505,742. 248. 00 on the Appellant.

51. The Appellant argued that it was unable to provide documents to support its objection as the same were seized by the Respondent’s I&E Department during an investigation. That further, there was an ongoing dispute at the High Court by the parties covering the same period under assessment.

52. The Respondent on its part averred that it was very clear that the documents taken by I&E were not the only documents to help in the review of the objection decision. That purchases and sales ledgers, bank statements and audited financial statements can be provided at any time. That this was echoed in a request made to the Appellant and the Appellant still remained non-responsive.

53. The Respondent further submitted that the subject matter at the High Court is of a different period and that there was no way issues of 2021 - 2023 were tackled in a prior period.

54. A review by the Tribunal of the pleadings submitted by the parties reveals that while the Appellant claimed that the tax periods covered in the instant dispute were subject to an appeal at the High Court, it did not provide any documentation to support this averment. The Tribunal further notes that the Appellant did not provide any documentation to demonstrate that the Respondent’s I&E Department had taken its documentation in relation to an investigation that was undertaken covering the same period as the instant Appeal.

55. It is the Tribunal’s position that the Appellant having been served with an assessment was enjoined to provide the necessary documents and information that suggest that such an assessment is erroneous, misplaced and not justifiable in the circumstances.

56. Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act squarely place the burden of proof upon a taxpayer to discredit any tax assessment or decision.

57. Section 56(1) of the Tax Procedures Act reads as follow regarding burden of proof:-“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

58. Additionally, Section 30 of the Tax Appeals Act provides as follows:-“In any proceeding before the Tribunal the Appellant has the burden of proving-where an appeal relates to an assessment, that the assessment is excessive; orin any other case, that the tax decision should not have been made or should have been made differently.”

59. In the instant case, the Tribunal notes that the Appellant had only averred that it provided information to the Respondent but did not provide any evidence to show that it indeed submitted the said documents to any of the KRA offices to prove that the Respondent’s decision was not justified. Further, the Appellant did not provide any documentation to prove that there was an ongoing dispute at the High Court that covered the tax periods covered in the instant Appeal.

60. It is the Tribunal’s position that it was upon the Appellant to furnish evidence to prove its case. This was the finding in Alfred Kioko Muteti vs. Timothy Miheso & Another [2015] eKLR where the court held that:-“a party can only discharge its burden upon adducing evidence. Merely making pleadings is not enough”. In reaching its findings, the Court stated that: “Thus, the burden of proof lies on the party who would fail if no evidence at all were given by either party…. Pleadings are not evidence....”

61. Further, the Tribunal buttresses the issue of burden of proof through the case of Boleyn International Limited vs. Commissioner of Investigations & Enforcement (Tax Appeals Tribunal No 55 of 2019) where the Appellant failed to provide documents, and the Tribunal held that there was no conceivable way the Respondent would have considered the objection as the same did not place itself within the parameters of Section 51(3) of the Tax Procedures Act.

62. Based on the aforementioned provisions of the law and the case law, the Tribunal finds that the Respondent’s objection decision was justified.

Final Decision 63. In view of the foregoing, the Tribunal finds that the Appeal lacks merit and accordingly makes the following Orders: -i.The Appeal be and is hereby dismissed.ii.The Respondent’s objection decision dated the 7th March, 2024 be and is hereby upheld.iii.Each Party to bear its own costs.

64. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 4THDAY OF OCTOBER, 2024ERIC NYONGESA WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERDR. RODNEY O. OLUOCH - MEMBERGLORIA A. OGAGA - MEMBERABRAHAM K. KIPROTICH - MEMBER