https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/98

Sealand Company Ltd v Commissioner of Legal & Board Services (Tax Appeal E022 of 2026) [2026] KETAT 98 (KLR) (30 June 2026) (Judgment) Neutral citation: [2026] KETAT 98 (KLR) Republic of Kenya In the Tax Appeal Tribunal Tax Appeal E022 of 2026 RM Mutuma, Chair, T Vikiru, JM Malla & G Ogaga, Members June 30, 2026 Between Sealand Company Limited Appellant and Commissioner Of Legal & Board Services Respondent Judgment Background 1.The Appellant is a resident limited liability Company with a registered office in Kericho and whose principal business is that of contractual and general supplies services. 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 Part 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 Appellant was assessed for Income Tax Company for the years 2019, 2020, 2021, 2022 amounting to Kshs. 1,418,511.88 and for Value Added Tax for the months of February 2022 and December 2022 amounting to Kshs. 440,452.29. The assessments were raised on 26th May 2021, 30th June 2022, 24th March 2023 and 29th January 2024. 4.The Appellant lodged late objection against the Income Tax Company assessments for the years 2019, 2020, 2021 on 27th June 2023. Vide a letter dated 10th July 2023, the Respondent granted leave to the Appellant to file late objections against the assessments for the years 2019, 2020, 2021. 5.The Respondent having considered the objection application, issued the objection decision dated 24th August 2023 in relation to income tax assessment for years 2019, 2020, 2021 wherein it confirmed the assessments. 6.The Appellant lodged late objection applications to the Income Tax Company assessment for the year 2022 and Value Added Tax for the months of February 2022, December 2022 on 13th December 2025. Vide a letter dated 23rd December 2025, the Respondent declined to grant leave to object out of time on the basis that the Appellant failed to meet requirements of section 51(7) of the Tax Procedures Act 2015 Cap 469B(TPA). 7.Dissatisfied with the decision, the Appellant filed notice of appeal dated 12th January 2026. The Appeal 8.The Appellant lodged the memorandum of appeal dated 12th January 2026 and filed on the even date seeking to appeal against the decision contained in letters dated 23rd December 2025 and 24th August 2023 on the following grounds:a.That the Respondent erred in law and fact by contravening the provisions of section 15 of the Income Tax Act Cap 470 (ITA) whereby the expenditure incurred in generating the established sales variance between VAT and ITC returns were not taken into consideration in charging corporation tax. The law allows for the allowance of expenses incurred in generating taxable income in arriving at the correct tax position and remitting the tax due to the Respondent by the Appellant. Disregarding expenditure incurred in computing the taxable income renders the Respondent's assessment incorrect and unreliable as they do not reflect the correct tax position of the Appellant.b.That the Respondent deliberately ignored and disregarded documentary evidence and explanation rendered by the Appellant at the objection review stage, hence arriving at the incorrect tax position.c.That the Respondent failed in its duty of reasonableness in disclosing the source of the purported sales subjected to VAT at the rate of 16%, despite the Appellant having disclosed all the sales revenue in its VAT returns. The revenue that it realized in the year 2022 had been fully declared in its VAT returns and that the Respondent was not right in coming up with unsupported sales that was subjected to VAT and the Appellant tasked to remit the tax due to the Respondent. The Appellant’s Case 9.The Appellant lodged its statement of facts dated 12th January 2026 and filed on the even date. 10.The Appellant stated that the Respondent issued Assessment Orders to the Appellant dated 29th January 2024, 24th March 2023, 30th June 2022 and 26th May 2021 with assessment numbers KRA202423411005, KRA202423410864, KRA202423410791, KRA202210023151, KRA202210023052 and KRA202109748016, requiring it to pay the sum of Kshs1,858,967 being principal tax charged on account of alleged Value Added Tax and Income Tax Company for the periods between January 2019 and December 2022. 11.The Appellant contended that there was violation of section 15 of the TPA whereby the Respondent disregarded expenditure incurred by the Appellant in generating the sales revenue and failed to allow for the incurred allowable expenses in computing the taxable income. 12.According the Appellant, the Respondent simply subjected the sales revenue established to tax as a result of the sales variance between VAT and ITC returns. The Appellant averred that it was yet to file its ITC returns as per the audited financial statements as it was still responding to the pending audit queries and was awaiting for the completion of the audit process before filing its returns as per the audited accounts. 13.It asserted that the Responded also failed to demonstrate how it arrived at the sales revenue that were subjected to VAT at the rate of 16% despite the Appellant having declared all the sales revenue generated during the periods under review. The Appellant averred that it declared all its income in the VAT returns as they had been realized during the periods under review. 14.The Appellant stated that it lodged its objection application to the assessments on 13th December 2025 and 27th June 2023 and that the same were acknowledged by the Respondent vide objection application acknowledgement receipts. 15.It argued that the Respondent's tax decision does not reflect the true tax liability and financial position of the Applicant as revenue generated and declared had been derived from the incurred expenditure that should have been allowed in arriving at the correct tax liability. 16.It also argued that it availed its explanations to the Respondent in regards to all the issues that had been established in leading to the additional assessments. The Appellant maintained that it expressed total willingness in resolving the issues that were raised in the assessments despite its managing director having undergone medical challenges. 17.The Appellant maintained its position that the assessments do not reflect its correct tax position for the periods in dispute. It contended that its audited financial statements do not align with the Respondent's assessments and that the audited account should be taken into consideration in establishing the correct tax position of the Appellant. 18.It pointed out that the Respondent then issued its objection decision on 23rd December 2025 and 24th August 2023, setting aside the Appellant's objection application and confirming the assessments in entirety. 19.The Applicant asserted that it stands to suffer substantial loss and damage if the Respondent's objection decision is enforced, owing to the fact that the assessments in themselves do not reflect the correct financial position of the Appellant. 20.The Applicant prayed that this Honourable Tribunal be pleased to allow this appeal and that it is ready to avail sufficient evidential records. The Appellant’s Prayers 21.Based on the foregoing, the Appellant prayed for the following reliefs:a.The Tribunal be pleased to allow the Appeal and set aside the Respondent's objection decisions dated 23rd December 2025 and 24th August 2023.b.The Tribunal be pleased to issue any other Order favourable to the Appellant as it may find just and expedient to issue.c.That the matter be referred to the Alternative Dispute Resolution panel-(ADR) pursuant to section 55 of the TPA to enable resolving the Additional Assessment issues. The Respondent’s Case 22.In opposition to the appeal, the Respondent filed statement of facts dated 29th January 2026. 23.The Respondent averred that the additional assessments for VAT and Income tax were lawful and issued on the basis that the Appellant failed to provide records to reconcile variances between sales declared in the VAT returns and turnover declared in the income tax returns. 24.The Respondent pleaded that the Appellant failed to support its expenses and that the assessments were raised as provided under Section 15 of the ITA, which allows deduction of expenses wholly and exclusively incurred in the production of income. It stated that the Appellant was requested to provide audited financial statements, tax computations, certified bank statements, and detailed ledgers to substantiate the claimed expenditures. 25.It pointed out that despite reminders, the Appellant failed to provide the required documentation. Without verifiable evidence, the Respondent asserted that it could not allow deductions against the established variances between VAT and Income Tax turnover. 26.The Respondent relied on Section 24 of the TPA which provides that;“A person required to submit a tax return under a tax law shall submit the return in the approved form and in the manner prescribed by the Commissioner. The Commissioner shall not be bound by a tax return or information provided by, or on behalf of, a taxpayer and the Commissioner may assess a taxpayer's tax liability using any information available to the Commissioner.” 27.The Respondent contended that the Appellant has the obligation of filing tax returns but the Respondent is not bound by the said return and/or information provided. 28.It cited Section 31(1) of the TPA which provides that the Commissioner may amend an assessment (referred to in this section as the “original assessment") by making alterations or additions, from the available information and to the best of the Commissioner's judgement. 29.The Respondent pleaded that it was upon the Appellant to prove that the Respondent erred in exercising the best judgment and raising the additional assessments but the Appellant failed to discharge the burden of proof contrary to the provisions of section 56(1) of the TPA. 30.The Respondent also relied on the provisions of section 23 of the TPA which mandates the taxpayer to keep and adduce documents when needed. 31.The Respondent contended that the Appellant did not provide the documentary evidence requested during the objection review stage. It stated that the Appellant was requested on 10th July 2023 and a reminder on 10th August 2023, to submit audited financial statements, tax computations, bank statements, and ledgers but none of these records were provided by the Appellant. 32.In the absence of evidence, the Respondent stated that it was unable to verify the Appellant's claims and was compelled to confirm the assessments. It maintained that the claim that the Respondent deliberately ignored evidence is unmerited and misleading as no substantive documents were submitted for consideration. 33.The Respondent pleaded that the Appellant failed to discharge the burden of proof as required by law. 34.The Respondent also filed written submissions dated 7th April 2026 wherein it submitted that the tax assessments were valid and that the Appellant failed to discharge the burden of Proof. 35.It cited the case of Digital Box Limited v Commissioner of Domestic Taxes Tax Appeal No. 115 of 2017 to submit that the Respondent is allowed by law to make assessment based on the available information and best on best judgment. 36.It relied on the case of Boleyn International Ltd v Commissioner of Investigations and Enforcement, Nairobi TAT Appeal no. 55 of 2018; and Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) [2022] KEHC 9927 (KLR) (Commercial and Tax) to submit that the taxpayer has a duty to provide documents to discharge the burden of proof. Respondent’s Prayers 37.The Respondent prayed as follows:i.The appeal be dismissed with costs; andii.The tax assessment as confirmed by the objection decision be upheld; and Issue for Determination 38.The Tribunal notes that the Appellant made pleadings on the Respondent’s objection decision dated 24th August 2023. However, upon perusal of the Notice of Appeal, the Tribunal notes that the Appellant appealed against the decision contained in the Respondent’s letter dated 23rd December 2025. For this reason, the Tribunal shall restrict its analysis and determination to the appealed decision dated 23rd December 2025. 39.The Tribunal identified the following issue for determination.Whether the Tribunal has jurisdiction to hear and determine decision issued through the letter dated 23rd December 2025 Analysis and Findings 40.The Appellant lodged late objection applications to the Income Tax assessment for the year 2022 and Value Added Tax for the months of February 2022, December 2022 on 13th December 2025. However, the Respondent vide a letter dated 23rd December 2025 declined to grant leave to the Appellant to object out of time on the basis that the Appellant failed to meet requirements of section 51(7) of the Tax Procedures Act 2015 Cap 469B(TPA). 41.A taxpayer has thirty (30) days from the date of being notified of the assessment to object to assessments. Section 51(2) of the TPA provides as hereunder:(2)A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision. 42.Where a taxpayer delays to object within 30 days, section 51(6) of TPA has a solution as follows:A taxpayer may apply in writing to the Commissioner for an extension of time to lodge a notice of objection. 43.Suffice to note that the taxpayer has a mandate to demonstrate why it delayed in filing the objection. Section 51(7) of the TPA provides that:(7)The Commissioner shall consider and may allow an application under subsection (6) if—(a)the taxpayer was prevented from lodging the notice of objection within the period specified in subsection (2) because of an absence from Kenya, sickness or other reasonable cause; and(b)the taxpayer did not unreasonably delay in lodging the notice of objection. 44.The Appellant made an application seeking leave to object out of time. However, the Respondent declined to grant leave. The Tribunal does not have jurisdiction to entertain decisions made under Section 51(7) of the TPA on the basis that those are not appealable decisions. 45.The High Court in Commissioner of Investigations & Enforcement v Vyas t/a Rocon Enterprises (Income Tax Appeal E144 of 2021) [2022] KEHC 16027 (KLR) stated that the Tribunal does not have jurisdiction to entertain decisions under section 51(7) of the TPA for the reason that the decision is not appealable decision, but are decisions subject to judicial review proceedings. 46.Section 51(1) of the TPA provides that, ‘‘a taxpayer who wishes to dispute a tax decision shall first lodge an objection against that tax decision under this section before proceeding under any other written law.’’ This provision operates as a condition precedent in that the taxpayer cannot invoke the jurisdiction of this Tribunal under Tax Appeals Tribunal Act without first, objecting to the tax assessments. 47.The Appellant having failed to obtain leave to object out of time, the consequence is that the Appellant did not object to Income Tax assessment for the year 2022 and Value Added Tax for the months of February 2022, December 2022. As such, an appeal cannot be filed in relation to those assessments. 48.The Appellant argued that the Responded failed to demonstrate how it arrived at the sales revenue that were subjected to VAT at the rate of 16% despite the Appellant having declared all the sales revenue generated during the periods under review. The Appellant averred that it did declare all its income in the VAT returns as they had been realized during the periods under review. However, the Appellant having failed to object to VAT assessment, the issue of VAT is moot. It cannot arise. 49.Consequently, the Tribunal finds and holds that it does not have jurisdiction to hear and determine decision issued through the letter dated 23rd December 2025. Final Determination 50.The upshot to the foregoing is that the Tribunal finds and holds that the Appeal is incompetent and accordingly makes the following orders:-a.The Appeal be and is hereby struck out; andb.Each party to bear its own cost. 51.It is so ordered. DATED AND DELIVERED AT NAIROBI THIS 30TH DAY OF JUNE 2026.……………………………ROBERT M. MUTUMACHAIRMAN……………………………JIMMY M. MALLAMEMBER……………………………DR. TIMOTHY B. VIKIRUMEMBER……………………………GLORIA A. OGAGAMEMBER