[2024] KETAT 357 (KLR)

Robimart Petroleum Company Limited v Commissioner of Domestic Taxes (Tax Appeal 1080 of 2022) [2024] KETAT 357 (KLR) (23 February 2024) (Judgment)

Neutral citation: [2024] KETAT 357 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1080 of 2022

RM Mutuma, Chair, EN Njeru, M Makau, B Gitari & AM Diriye, Members

February 23, 2024

Between

Robimart Petroleum Company Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a private limited company duly incorporated under the Companies Act and a registered taxpayer. The Appellant principal activity is trade in Liquefied Petroleum Gas (LPG).

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 Income tax additional assessments for the period 1st January, 2019 to 31st December, 2019 and 1st January, 2020 to 31st December, 2020 dated 28th March, 2022. The Appellant lodged notice of objection on 25th April 2022. However, the Respondent rejected the objection and issued confirmation notices dated 9th June 2022 and 26th June 2022.

4. The Appellant, being dissatisfied with the Respondent's decision filed a Notice of Appeal filed on 29th September 2022.

The Appeal 5. The Memorandum of Appeal dated 28th September 2022 and filed 29th September 2022 raises the following grounds of appeal:a.That the Commissioner of Domestic Taxes erred in law and fact by assessing income tax of Kshs. 18,255,603. 50 by partly disallowing expenses which were exclusively incurred by the company in the generation of income in the year 2019 and 2020. b.That the Commissioner of Domestic Taxes erred in law and fact by introducing additional sales in his Income tax additional assessment of Kshs. 28,856,515. 00 for the year 2019 which were not earned by the company.c.The Appellant therefore prays that the Tax Appeals Tribunal sets aside Commissioner's Tax Decision to assess Income tax of Kshs. 18,255,603. 50 and accordingly annul the tax decision.

The Appellant’s Case 6. The Appellant set down its case in its;a.Statement of Facts dated 29th September 2022 together with documents attached thereto; andb.Written submissions dated and filed on 25th April 2022.

7. It is the Appellant’s case that the Respondent did an estimated assessment on the Appellant’s income tax for the years 2019 and 2020 and issued an assessment notice dated 28th March 2022 requiring it to pay a sum of Kshs. 18,255,603. 50.

8. The Appellant stated that whereas it wrote to the Respondent on 25th April 2022 objecting to the Respondent's assessment, the Respondent never wrote to the Appellant concerning the objection as required by the Tax Procedures Act in case an objection is not validly lodged. Therefore, the Appellant asserted that the objection was valid as per Section 50 (3) (4) of the TPA.

9. The Appellant stated that the Respondent confirmed the assessments vide confirmation notices dated on 9th June 2022 and 24th June 2022.

The Appellant’s Prayers 10. The Appellant urged this Honorable Tribunal to allow the Appeal with costs.

The Respondent’s Case 11. The Respondent’s case is premised on its Statement of Facts dated and filed 28th November 2022 together with all the documents attached thereto;

12. Written submissions dated 11th August 2023, were expunged from the record vide the order dated 21st November 2023 for non-compliance with the Tribunal’s directions.

13. According to the Respondent, it conducted audit on the Appellant which revealed undeclared income for the years of income 2019 and 2020 based on unexplained capital reserves and retained earnings and unsupported expenses such as repairs of building and fuel. The audit revealed that the Appellant had undeclared income of Kshs. 28,856,515. 00 and unsupported expenses for repairs of building amounting to Kshs. 2,807,320. 00 for year 2019. For year 2020, the Respondent asserted that the unsupported fuel expenses amounted to Kshs. 24,391,392. 00. Consequently, the Respondent raised additional assessments on 28th March 2023.

14. According to the Respondent, whereas the Appellant lodged its objection to the assessment on 25th April 2022, the Appellant failed to provide supporting records to support ground of objection as required under Section 51 (3) of Tax Procedures Act. Therefore, the Respondent invalidated the objections vide confirmation of assessments dated 9th June 2022. The Appellant was aggrieved by the Respondent’s decision leading to filing the instant Appeal.

15. The Respondent’s case is that under Section 24 (2) of the Tax Procedures Act, the Respondent is not bound by a tax return or information provided by, or on behalf of a taxpayer and the Respondent may assess a taxpayer's tax liability using any information available to the Respondent.

16. The Respondent relied upon Section 31(1) of the Tax Procedures Act which allows the Respondent to amend an assessment. Apart from that, the Respondent stated that the Appellant's objection did not conform to the requirements under Section 51 (3) of the Tax Procedures Act.

17. The Respondent relied upon Section 56 (1) of the Tax Procedures Act which provide that: -“in any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

18. According to the Respondent, the Appellant failed to avail relevant documents in support of grounds for objection thus the Appellant did not meet the burden of proof contrary to Section 56(1) of the Tax Procedures Act.

The Respondent’s Prayers 19. In view of the foregoing, the Respondent urged this Honorable Tribunal to;a.Confirm the additional assessment and find that the assessed taxes are due and payable by the Appellant.b.Dismiss the Appeal with costs to the Respondent.

Issues for Determination 20. The Tribunal having considered the Memorandum of Appeal, the parties’ Statements of Facts, and submissions, puts forth the following issues for determination:a.Whether the Appellant complied with Section 51 (3) (c) of the Tax Procedures Act 2015; andb.Whether the Respondent complied with the provisions of Section 51 (4) of the Tax Procedures Act 2015.

Analysis and Findings 21. The Tribunal wishes to analyse the issues as herein-under.a.Whether the Appellant complied with Section 51 (3) (c) of the Tax Procedures Act 2015

22. The Appellant submitted that it filed notice of objection and provided all documents in support of the objection. The Appellant at paragraph 10 of its written submissions submitted as follows: ‘“Section 15(1) of the ITA is applicable to an expenditure that has been incurred in the production of an income. As already demonstrated herein, the Respondent was provided with evidence in support of the expenses and has without any reasonable factual or legal justification opted to ignore the same.’’

23. On the other hand, the Respondent has alleged that the Appellant did not provide documents in support of the objection. Consequently, it is vital to find out whether the Appellant provided documents in support of its Objection as required under Section 51 (3) (c) of the Tax Procedures Act 2015.

24. Section 51 (3) of the Tax Procedures Act 2015 provides as follows:‘‘A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if—(a)...(b)….(c)All the relevant documents relating to the objection have been submitted.’’

25. The Tribunal has examined the bundle of documents that the Appellant filed in support of this Appeal. The Appellant filed the following documents: Assessment Orders dated 31st August, 2022 and 28th March 2022 as annex 1, Objection acknowledgment Receipts dated 25th April, 2022 as annex 2, Confirmation Assessment Notice dated 9th June, 2022 and 24th June, 2022 as annex 3, notice of intention to appeal dated 8th July, 2022 as annex 4, and an application for alternative dispute resolution.

26. Taxpayers have an opportunity to be heard on matters of fact and matters of law when they lodge their appeals to this Tribunal. That is why Section 13 of the Tax Appeals Tribunal Act requires the taxpayer to file Memorandum of Appeal and Statement of Facts. In addition, Rule 5 of the Tax Appeals Tribunals (Procedure) Rules, 2015 provides further guidance to the taxpayers on how to deal with Statement of Facts. The said Rule provides as hereunder:“Statement of facts of appellant(1)Statement of fact signed by the appellant shall set out precisely all the facts on which the appeal is based and shall refer specifically to documentary evidence or other evidence which it is proposed to adduce at the hearing of the appeal.(2)The documentary evidence referred to in paragraph (1) shall be annexed to the statement of fact.”

27. The Tribunal has already specified the documents hereinabove that the Appellant filed in support of its Appeal. The said documents do not speak to incorrectness of the decision of the Respondent. The Appellant did not file documents to demonstrate that it incurred expenses deductible under Section 15 (1) of the Income Tax Act. How is this Tribunal supposed to make a decision in favour of the Appellant if material documents which are supposed to be adduced in evidence are not adduced? How is this Tribunal supposed to review Respondent’s decision if the Appellant has failed to file documentary evidence that it alleges it tendered before the Respondent?

28. In absence of documentary evidence, how is this Tribunal supposed to determine whether the Respondent acted intra vires or ultra vires?

29. Section 107 (1) of the the Evidence Act CAP 80 provides as follows:“Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.’’ On the other hand, section 108 Evidence Act provides: ‘‘The burden of proof in a suit or proceeding lies on that person who would fail if no evidence at all were given on either side.’’

30. The Appellant has the burden of proof and has to prove that the Respondent’s decision is wrong.

31. Apart from the Evidence Act, Section 56 (1) of the Tax Procedures Act provides as follows:‘‘In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.’’

32. Section 30 of the Tax Appeals Tribunal Act has a similar provisions.

33. In the case of Primarosa Flowers Limited vs. Commissioner of Domestic Taxes (2019) eKLR, Hon Makau J whilst making reference to the Australian case of Mulherin vs Commissioner of Taxation [2013] FCAFC 115 held that: -“... the onus is on the taxpayer in proving that the assessment was excessive by adducing positive evidence which demonstrates that the taxable income on which tax ought to have been levied.”

34. Additionally, in PZ Cussons East Africa Limited vs. Kenya Revenue Authority (2013) eKLR the court had the following to say at Paragraphs 9 and 10 with regards to burden of proof:‘‘9. In the case of Pearson v Belcher (supra) it was 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.”’‘’10. I agree with the KRA that the burden would be upon the Company to show that the amounts taxed was excessive. But to that extent only.’’

35. A taxpayer cannot discharge the burden of proof under Section 56 (1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act without filing relevant documentary evidence.

36. Due to the foregoing reasons, the Tribunal finds and holds that the Appellant failed to demonstrate to this Tribunal that it complied with the provisions of Section 51 (3) (c) of the Tax Procedures Act.b.Whether the Respondent complied with the provisions of with Section 51 (4) of the Tax Procedures Act 2015

37. Section 51 (4) of the Tax Procedures Act 2015 provides as follows:“Where the Commissioner has determined that a notice of objection lodged by a taxpayer has not been validly lodged, the Commissioner shall within a period of fourteen days notify the taxpayer in writing that the objection has not been validly lodged.”

38. The Tribunal notes that the Respondent did not avail evidence indicating that it notified the Appellant about invalidity of the notice of objection. The Tribunal agrees with the Appellant that the Respondent ought to have discharged this mandate but it failed.

39. Whereas the Respondent failed to notify the Appellant about insufficiency of the notice of Objection, the Appellant is on record stating that it provided all documents to the Respondent which the Respondent rejected. However, the Appellant never filed those documents for this Tribunal to determine whether the documents were sufficient or not. The Appellant did not file a document that would mandate the Tribunal to arrive at a deferent finding than that of the Respondent.

40. Considering the totality of the foregoing, the Appeal fails.

Final Decision 41. The upshot to the foregoing is that the Tribunal finds that the Appeal is not meritorious and consequently makes the following orders:-a.The Appeal is hereby dismissed.b.The Respondent’s Invalidation Objection Rejection Notice dated 9th June 2022 be and is hereby upheld;c.Each party to bear its own cost.

42. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 23RD DAY OF FEBRUARY, 2024ROBERT M. MUTUMACHAIRPERSONELISHAH N. NJERU MUTISO MAKAUMEMBER MEMBERBERNADETTE GITARI MOHAMED A. DIRIYEMEMBER MEMBERJUDGMENT - APPEAL NO. 1080 OF 2022 ROBIMART PETROLEUM COMPANY LIMITED VS. COMMISSIONER OF DOMESTIC TAXES PAGE 10