[2024] KETAT 283 (KLR)

Sego Investments Company Limited v Kenya Revenue Authority (Tax Appeal 30 of 2023) [2024] KETAT 283 (KLR) (23 February 2024) (Judgment)

Neutral citation: [2024] KETAT 283 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 30 of 2023

E.N Wafula, Chair, RO Oluoch, AK Kiprotich, Cynthia B. Mayaka & T Vikiru, Members

February 23, 2024

Between

Sego Investments Company Limited

Appellant

and

Kenya Revenue Authority

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated under the Companies Act, It is principally involved in building, construction and general supply services.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act. The Kenya Revenue Authority is an agency of the Government of Kenya mandated with the duty of collection and receipting of all tax revenue, and the administration and enforcement of all tax laws set out in Parts 1& 2 of the First Schedule to the Act, for purposes of assessing, collecting, and accounting for all tax revenues in accordance with those laws.

3. The issue in dispute in this Appeal arose when the Respondent investigated the Appellant’s affairs to verify the correctness of its returns for the years 2015 -2020.

4. The Respondent shared its findings vide a letter dated 18th January 2021 wherein it averred that the Appellant had committed an offence of fraud under Section 97(a) and (c) of the TPA. That it also established variances in the Appellant’s income and VAT returns and subsequently issued its assessment vide iTax on the 29th of June 2022.

5. The Appellant objected to this assessment vide its letter dated 20th July 2022.

6. The Respondent issued its objection decision through a letter dated 18th October 2022.

7. The Appellant being dissatisfied with the Respondent’s objection decision lodged its Notice of Appeal on 11th January 2023.

The Appeal 8. The Appellant in its Memorandum of Appeal filed on 11th January 2023 has set out the following grounds of Appeal:-a.Failing to render objection decision within sixty (60) days as prescribed in Section 51(1) of the Tax Procedure Act, 2015 where it argued that the Appellant objected on 8th June 2022 and the Respondent rendered its decisions on 29th November 2022 which was more than five (5) months after the date of the Objection.b.Failure to provide reason and justification for the impugned decisions contrary to Sections 49 and 51 (10) of the Tax Procedure Act, 2015 where it argued that the Commissioner failed, neglected and or deliberately refused to give a reason for its decision after the objection that was raised by the Appellant.c.The Respondent violated the Appellant’s right to access critical information contrary to Article 35 of the Constitution of Kenya, 2010 and Section 5 of the Access to Information Act when the Respondent failed to note that the Appellant had the right to access information held by it thereby denying the Appellant vital information required for the exercise or protection of its rights and fundamental freedom including the right to know what tax to pay or why its objection was rejected.d.Deliberate failure to take into consideration the totality of the reasons given by the Appellant in its objection to the initial assessment because it made its decision without taking into consideration the entire supporting documents, and explanations that the Appellant provided. That the Respondent also erroneously included in its decision payments that were not business income.e.The Respondent violated Article 47 of the Constitution and Section 4 of the Fair Administrative Actions Act by failing to act lawfully, and procedurally and give reasons for its actions.f.The Respondent knew too well and ought to have known that its administrative action as depicted in the decision was certainly going to adversely affect the rights or fundamental freedoms of the Appellant when it failed to:-i.To act lawfully;ii.Give prior and adequate notice of the nature and reasons for the administrative action;iii.Give the Appellant an opportunity to be heard and to make representations in that regard;iv.Give the Appellant information, materials and evidence relied upon in making the decision or taking the administrative action.

Appellant’s Case 9. The Appellant has grounded its Appeal on its Statement of Facts dated 11th January 2023 and filed on 12th January 2023, and written submissions dated 28th July 2023 and filed on 4th August 2023.

10. The Appellant stated that it received a tax assessment of Kshs 24,247,884. 00 covering Corporation tax, VAT and directors income tax on the 20th May 2022.

11. That it filed its objection to this assessment on 8th June 2022 and was served with a letter invalidating its objection after 41 days on the 19th July 2022 on grounds that it had failed to meet the requirements of Section 51(3) of the TPA. That the said invalidation contravened the provisions of Section 51(4) of the TPA which dictates that it ought to have been issued within 14 days after the lodging of the Objection. It relied on the Republic vs Commissioner of Domestic Taxes (Large Taxpayers office) & another Ex-parte British American Tobacco Kenya Limited [2025] eKLR to support this argument.

12. The Appellant asserted that whereas its objection was stamped as received on 8th May 2022, it was received on 8th June 2022. That the said objection was subsequently lodged onto the iTax system upon the insistence of the Respondent.

13. The Appellant affirmed that it informed the Respondent vide email on 9th August 2022 that it had physically presented all the documents that it had requested to its Eldoret Office. That among the documents that were presented to the Respondent included insurance claim vouchers, a bank statement for payment received from insurance, summary of all the credit to be omitted from bank receipts among others.

14. That contrary to the Respondent’s allegation it did not have any communications or deliver any documents to the Respondent on 8th September 2022.

15. The Appellant posited that its documents and objection sought to prove to the Respondent that:a.The disputed taxes touched on the same issues raised between 2016 to 2018 and which tax issues had been fully settled.b.The Respondent had sought to raise taxes against it by referring to monies and individuals who were not shareholders, directors or employees of the Appellant.c.The Respondent categorised and included some invoices like Cyden General Enterprises invoice as a sale when it was a beer supply invoice.d.The Respondent erroneously took 31st December as the financial year while the correct financial year for the Appellant was 31st March. That this had the effect of rendering the banking test and turnover test relied on by the Respondent to be erroneous.

16. The Appellant averred that the Respondent opted to issue its objection decision on 29th November, 2022, more than three (3) months after objecting. That the said Objection decision was delivered via iTax. That the alleged objection decisions did not contain reasons or justification whatsoever and it was also issued 112 days after the lodging of the objection contrary to the mandatory provision of Section 51 of the TPA which required it to issue the decision within 60 days.

17. That even if the Tribunal were to deem:a.9th of August 2022 as the date when the documents were confirmed as received, and also adopt 7th November 2022 as the date when the objection was sent, then the time lapse to the issuance of the objection was about 90 days which is beyond the 60 days statutory limit period.b.2nd September 2022 as the date of validity and 29th November 2022 as the date of the objection, then the objection decision would still have been issued after 88 days.c.2nd September as the date when documents were received and 7th November 2022 as the date when the objection was served then the objection decision would still have been issued after 66 days.

18. The Appellant supported its argument that the objection decision was invalid under Section 51(10) of the TPA by relying on the case of Republic vs Kenya Revenue Authority exparte M-Kopa Kenya Limited [2018]eKLR and Keroche Industries Ltd vs Kenya Revenue Authority and 5 others.

19. The Appellant asserted that contrary to Section 49 of the TPA, the objection decision did not provide reasons for the decision. That the words ‘set off’, ‘partial accept ‘ and ‘fully reject’ contained in the decision did not amount to reasons and findings on material issue raised in the objection.

20. That the decision dated 7th November 2022 should be ignored by the Tribunal as it had never been presented to it.

21. The Appellant averred that it filed its Notice of Appeal vide e-mail on 28th December 2022 but the same was stamped as received on 11th January 2023 when the Memorandum of Appeal was filed. That it’s Notice of Appeal was thus filed in time.

22. The Appellant took the position that it had never received the letter of 7th November 2022 which had been attached to the Respondent’s Statement of Facts. That the said letter was sent to an address known as reservations@eldoretwagonhotel.co.k instead of its known domain which is reservations@eldoretwagonhotel.co.ke. That its official e-mail address as contained in its PIN Certificate which was generated by the Respondent is accounts@eldoretwagonhotel.co.ke.

Appellant’s Prayers 23. The Respondent urged this Honourable Tribunal to grant it the following orders:-a.That the Appeal herein is allowed.b.That the Respondent’s decisions as contained in Confirmation Assessment Notice Number KRA202219063651 dated 29th November, 2022; Confirmation Assessment Notice Number KRA202219063712 dated 29th November, 2022; Assessment Order Number KRA202219064498 dated 29/11/2022; Set off Order for Advance Payment Transfer Number KRAATOS220151245 dated 29th November, 2022; Amended Assessment Notice Number KRA202219065067 dated 29th November, 2022; Amended Assessment Notice Number KRA202219065581 dated 29th November, 2022; Assessment Order Number KRA202219065430 dated 29th November, 2022; Amended Assessment Order Number KRA202219065430 dated 29th November, 2022; Amended Assessment Notice Number KRA202219066178 dated 29th November, 2022, and; Assessment Order Number KRA202219065861 dated 29th November, 2022 be set aside.c.That the Respondent be stopped from demanding the tax, interest and penalties in respect of the said decision;d.The cost of this Appeal.e.Any other remedies that the Honourable Tribunal deems just and reasonable.

Respondent’s Case 24. The Respondent has set out its case on the Statement of Facts dated 2nd February 2023 and filed on 3rd February 2023 together with documents attached thereto, and the written submissions dated 19th July 2023 and filed on the same date.

25. The Respondent submitted that it received an intelligence report that the Appellant had under-declared its business income and also failed to declare rental income from Jambo Casino a tenant to its premises.

26. That it sought and considered information and documents including the following:-a.Appellant’s filed tax returns and other tax records as maintained by the Respondent;b.Appellant’s copies of bank statements sought by the Respondent from ABC Bank Limited and Kenya Commercial Bank Limited.

27. That it undertook several tests during the investigations including:a.Analysis of the returns filed and declared by the Appellant;b.Bank deposits analysis test;c.An analysis of the Appellant’s direct costs, expenses and salaries; andd.Comparison of the investigation findings with the declarations in the tax returns.

28. Regarding the banking test, the Respondent stated that:a.It analysed the Appellant’s banking for years beginning 2013 onwards. That the analysis revealed that the Appellant declared more income in its tax returns as compared to banked amounts suggesting a possibility that the Appellant had additional bank accounts.b.The Respondent declined to share the details of the additional bank accounts.c.There also existed unexplained variances for the years of 2017 and 2018 where it undeclared income and thereafter brought these under-declarations to charge under the tax heads of Income Tax and VAT.

29. Regarding its analysis of the Appellant’s declared invoices to purchases claimed the Respondent stated that:a.It reviewed the invoices the Appellant had declared in its VAT returns to the purchases claimed by the Appellant.b.The review revealed that the Appellant had failed to declare an invoice from Cyden General Enterprises Limited with a taxable value of Kshs. 12,815,080. 75.

30. Regarding analysis of the Appellant’s direct costs, it stated that:a.It carried out an analysis of the Appellant’s direct costs and noted that the Appellant had over-claimed costs in its audited accounts and had also over-claimed input VAT to suppress taxes payable.b.The tax years of 2017 and 2018 contained over-claimed purchases. That it disallowed the purchases and brought them to charge under VAT.

31. Regarding the expensed salaries analysis test, the Respondent stated that:a.It carried out a comparison of what the Appellant had expensed as salaries and wages to the financial statements and gross pay the Appellant declared in their PAYE returns.b.It disallowed the salaries and wages which were over-claimed in the Appellant’s financial statements.

32. The Respondent further stated that:a.It communicated its findings to the Appellant through a letter dated 20th May 2022. b.The Appellant acknowledged the said letter on 8th June 2022 wherein it denied having any tax liability.c.It issued the notice of tax assessments under Section 31 of the Tax Procedures Act, 2015 on 29th June 2022 for the years 2013 to 2020. d.The Appellant lodged its notice of objection on 7th July 2022 in the iTax System.e.It requested the Appellant to validate its objection on 19th July 2022 in compliance with the provisions of Section 51(3) (c) of the Tax Procedures Act and gave the Appellant seven (7) days to lodge a valid notice of objection.f.The Appellant wrote a letter dated 25th July 2022 stating the grounds of objection but it did not provide the documentation in support of the Objection.g.Parties engaged each other and the Appellant provided the documents in support of the objection on 8th September 2022 accompanied by additional explanations and information for review.h.This latter communication effectively validated its objection and that the sixty (60) days contemplated under Section 51 of the Tax Procedures Act, 2015 started running on 8th September 2022.

33. Regarding the argument that it erred by assuming that the Appellant’s financial year ends on 31st December, whereas the accounting period ends on 31st March. The Respondent stated that it amended the tax computations to mirror the correct accounting period.

34. On the issue that it did not take into account non-trade bank credits in the computation of the Appellant’s income, the Respondent stated that:a.There were bounced payments amounting to Kshs. 3,078,419. 00 and interbank transfer amount to Kshs. 4,250,000. 00 established from the KCB and ABC bank accounts, respectively. That it adjusted the same in the amended banking analysis.b.It adjusted the insurance compensation as per the provided discharge voucher and domestic funds transfer from the Fidelity insurance amounting to Kshs. 11,724,271. 00 as credited to the Appellant’s KCB account.c.It allowed the compensation for capital items in the VAT computation but the insurance consideration relating to stock was brought to charge.

35. Regarding the ground of objection that it raised assessment based on assumptions and not actual documentation, the Respondent stated that it established that Cyden General Enterprise Limited had claimed VAT input on a purchase from the Appellant with Invoice No. 6952 of the taxable value of Kshs 12,815,080. 75 in the VAT return for May 2017 but the Appellant failed to declare the said invoice and thus was treated as undeclared income.

36. On the ground that the Respondent disallowed the casual wages in the computation of income tax; the Respondent submitted that in the year 2015/2016 the Appellant's casual wages amounted to Kshs. 889,873. 00. That income tax computation was thus adjusted to reflect the wages.

37. The Respondent submitted that upon conclusion of the review of the objection and the assessment, it issued its decision on 7th November 2022 confirming the tax assessment of Kshs. 8,328,832. 00 exclusive of penalties and interest.

38. The Respondent submitted that:a.The Appellant was guilty of non-disclosure and concealment of material facts.b.Its Objection decision dated 7th November 2022 was valid and also issued within the timelines envisaged in Section 51(11) of the TPA for the following reasons:i.It issued the assessment on 29th June 2022 and the Appellant objected on the 7th July 2022. ii.It invalidated the objection on 19th July 2022 because it required more information and supporting documents through a letter that was sent to the Appellant’s registered mail.iii.The Appellant provided grounds of objection vide a letter dated 25th July 2022. That, however, the Appellant failed to provide supporting documents hence the reason why it sent the Appellant a reminder on 2nd September 2022. iv.The Appellant provided documents in support of the objection on 8th September 2022. That these documents formally validated the notice of objection and the sixty days within which the Respondent was required by law to render the decision started running upon receipt of the Appellant’s documents from 8th September 2022. c.The Appellant’s objections of 7th July 2022 and 25th July 2022 were validly lodged on 8th September 2022 and not 8th June 2022 as alleged and its objection decision was issued on 7th November 2022 and not 29th November 2022 as alleged by the Appellant.

39. The Respondent took the position that its objection decision complied with the provision of Sections 49 and 51(10) of the Tax Procedures Act, 2015 because it aptly captured the Appellant’s grounds of objection and provided the corresponding responses. That it also provided a statement of finding on each ground raised in Paragraphs 1. 0 and 2. 0 and its notice of investigation findings dated 20th May 2023.

40. The Appellant posited that it made adjustments on issues relating to the accounting period, allowable capital items in the Appellant’s VAT computation and non-trade bank credits including insurance compensation credited to its KCB account.

41. That the Appellant has made mere allegations and has not provided proof of how its rights under Article 47 of the Constitution were violated or why the Respondent’s assessment and objection decision were erroneous.

42. The Respondent contended that the Appeal was incompetent and as it did not conform to the provisions of Section 13(1) of the Tax Appeals Tribunal Act, 2013. That the Appellant was required by law to lodge its Notice of Appeal with the Tribunal not later than 9th December 2022 but the same was lodged on 11th January 2023 after the expiry of the thirty’s statutory period.

43. That it is trite law that a Notice of Appeal invokes the jurisdiction of the court to hear and determine an appeal. That in the absence of a valid Notice of Appeal, it followed that the Tribunal did not have jurisdiction to entertain the Appeal herein. This argument was supported by the case of Nicholas Kiptoo Arap Korir Salat v Independent Electoral and Boundaries Commission & 7 others [2014] eKLR.

44. The Respondent also argued that the Appellant did not serve the Appeal as per Section 13(5) of the Tax Appeal Tribunal Act, 2013. That there was an unexplained inordinate delay of not less than eleven (11) days in filling and serving the Notice of Appeal contrary to provisions of Section 13(5) of the Tax Appeal Tribunal Act, 2013 and Rule 11 of the Tax Appeals Tribunals (Procedure) Rules, 2015.

45. That the provisions of Section 13(5) of the Tax Appeal Tribunal Act, 2013 use the word “shall” meaning that it is mandatory and must be complied with. That therefore, the failure by the Appellant to file and serve the Notice of Appeal and the appeal documents within the statutory period of two days was a grave/fatal statutory violation which rendered the Notice of Appeal incompetent. It supported this assertion with the case of Commissioner of Domestic Taxes v Scania East Africa Limited [2020] eKLR.

46. The Respondent submitted that the Appellant failed to provide documents in support of its objection, failed to prove that the assessments were erroneous or excessive and also did not proffer any explanation or proof to rebut the Respondent’s assessment other than making spurious allegations. That the burden of proof in tax disputes to show that the assessment is either excessive or erroneous lay with the Appellant who failed to discharge that burden. It supported the argument on the burden of proof with the case of Commissioner of Domestic Services v Galaxy Tools Limited [2021] eKLR.

Respondent’s Prayers 47. Flowing from the above arguments the Respondent’s prayers to the Tribunal were for orders that the Tribunal:a.Upholds its objection decision of 7th November 2022 as valid and in conformity with the provisions of the law; andb.Finds that the Appeal is without merit and dismisses it with costs to the Respondent.

Issues For Determination 48. The Tribunal having considered the pleadings filed and the submissions made by the parties is of the view that the Appeal herein distils into two issues for determination, namely;-i.Whether the Appeal was valid.ii.Whether the Respondent was justified in confirming the tax assessment?

Analysis And Determination 49. The Tribunal shall now proceed to analyse the identified issues for determination as follows:

i. Whether the Appeal was valid. 50. The Respondent averred that this Appeal was incompetent on two grounds. First, that it contravened Section 13(1) of the Tax Appeals Tribunal Act, 2013. That the Appellant was required by law to lodge its Notice of Appeal with the Tribunal not later than 9th December 2022 but the same was lodged on 11th January 2023 after the expiry of the thirty days statutory period.

51. Secondly, it argued that the Appellant did not serve the Notice of Appeal as per Section 13(5) of the Tax Appeal Tribunal Act, 2013. That the delay of 11 days in filing and serving the Notice of Appeal contravened the provisions of Section 13(5) of the Tax Appeal Tribunal, 2013 and Rule 11 of the Tax Appeals Tribunals (Procedure) Rules, 2015.

52. The Appellant did not provide a specific response to this assertions.

53. Section 13(1) of the TAT Act provides as follows regarding timelines for filing an Appeal:“(1)A notice of appeal to the Tribunal shall—(a)be in writing or through electronic means;(b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.”

54. Having gleaned through the pleadings herein the Tribunal has noted that the Respondent did not raise these issues in its Statement of Facts nor did it if file a Preliminary Objection to raise these issues so that the Appellant could have a chance to specifically respond thereto.

55. Moreover, the Tribunal has gleaned through the pleadings, documents and submissions of both parties and it has noted that the date of service of the objection decision which is the fulcrum that has been used by the Appellant to tabulate the days required to file an Appeal under Section 13(1) of the TAT Act is a contested issue.

56. The Respondent stated that the objection decision was served upon the Appellant on 7th November 2022, while the Appellant averred that it is a stranger to this document as it has never been served upon it. The Appellant further stated that the email used to serve the said objection decision was not its known email address or domain name.

57. The fact that Parties are not agreed on when the objection decision dated 7th November 2022 was served means that it would not be possible for the Tribunal to determine when or how to tabulate the days prescribed under Section 13(1) of the TAT Act and hence the validity of the Appeal if it does not interrogate the facts of the case so as to decipher the correct date of service.

58. Secondly, the Respondent did not file its stamped copy of the Notice of Appeal to guide the Tribunal in confirming the date of service. It did not also share the email, courier receipt or an affidavit of service to help the Tribunal affirm the date when the Notice of Appeal was served.

59. The Respondent also pleaded that the Appellant contravened Section 13(5) of the TAT Act by failing to serve it with the Notice of Appeal within the prescribed statutory limit period.

60. The Respondent was thus naturally required to provide proof of late service either through email that had the date of receipt of the Notice of Appeal, a copy of its stamped Notice of Appeal confirming that it was stamped late or similar evidence to support late service. It instead opted to plead without evidence. This handicap could perhaps be attributed to the fact that it found itself pleading on this issue in its submissions when pleadings had closed.

61. The Tribunal is thus of the considered view that the two issues raised by the Respondent questioning validity of this Appeal relies on facts that are contested. The Respondent was thus required to raise these issues in its Statements of Facts or through a Preliminary Objection application to allow the Appellant an opportunity or a chance to file its response and or explain its side of the story in regard to the contested issues.

62. The Respondent’s decision to raise these issues in its Submission at a point when the Appellant did not and could not have an opportunity to provide a rebuttal meant that the Respondent had journeyed beyond its pleadings by introducing new evidence through its submissions.

63. The Tribunal holds the view that introduction of new facts in an appeal at the submission stage is unprocedural as it amounts to trial by ambush. It is was thus out of order for the Respondent to introduce new facts and evidence at a point when the Appellant could not provide a rebuttal. This went against the settled legal principle that parties are bound by their pleadings.

64. Simply put, evidence and new issues can never be submitted through submissions. Submissions are intended to be used to summarize, focus, clarify and concretize each side’s case to win the Tribunal’s decision their way. Submissions are not vehicles through which new evidence or issues can be introduced in the course of a trial.

65. The Court of Appeal affirmed this position in Avenue Car Hire & Another vs. Slipha Wanjiru Muthegu Civil Appeal No. 302 of 1997 when it held that no judgement can be based on written submissions and that such a judgement is a nullity since written submissions are not a mode of receiving evidence.

66. This decision of the Court of Appeal is true to date and was approved by the Supreme Court in Raila Amolo Odinga & Another -vs- IEBC & 2 Others [2017] eKLR when it stated that:“In the absence of pleadings, evidence if any, produced by parties cannot be considered. It is also a settled legal proposition that no party should be permitted to travel beyond its pleadings and parties are bound to take all necessary and material facts in support of the case set up by them................. therefore, it is not desirable or permissible for a court to frame an issue not arising on the pleadings."

67. The Tribunal also holds the view that it can only make a determination on a point of law if the facts in issue are not contested. That the facts in issue in this Appeal were contested and it could thus not make a determination on a point of law that is arising from contested facts as it would be required to first of all make a finding on the contested facts. A decision that it could not make in this this case because the Appellant was not given a chance to respond to the mixed and contested issues of fact and law that had been raised by the Respondent in its written submissions.

68. It follows from the above analysis that the Respondent ought to have pegged its legal arguments on validity of the Appeal on common and uncontested facts. It decision to rely on contested facts which required a determination of the Tribunal to argue a point of law went against the settled dicta that was laid by Sir Charles Newbold, P in the celebrated case of Mukisa Biscuit Manufacturing Co. Ltd Vs. West End Distributors LTD [1969] EA 696 where the court stated as thus:-“The first matter relates to the increasing practice of raising points, which should be argued in the normal manner by way of preliminary objection. A preliminary objection is in the nature of what used to be a demurrer. It raises a pure point of law which is argued on the assumption that all the facts pleaded by the other side are correct. It cannot be raised if any facts have to be ascertained or if what is sought is the exercise of judicial discretion. The improper raising of points by way of preliminary objection does nothing but unnecessarily increase costs and, on occasion, confuse the issues. This improper practice should stop.”

69. It is quite surprising that the clear sentiments expressed so long ago seem to have fallen on deaf ears and parties still insist on the unhealthy and often time-wasting penchant of introducing new evidence through submissions or raising points of law when they clearly do not lie, as in the case before us. The Tribunal urges the parties to stop this improper practice.

70. Based on the above analysis, the Tribunal hereby arrives at the conclusion that the Appellant’s decision to introduce new issues through its submission to impeach this Appeal was not only impermissible but it was also improper.

ii. Whether the Respondent was justified in confirming the tax assessment? 71. The Appellant argued that the Respondent’s objection decision was not justified because:a.It was issued 5 months after it raised its objection.b.It was also its position that it provided the Respondent with documents which fully supported its objection but the documents were ignored by the Appellant.c.It contravened Section 49 of the TPA to the extent that it did not provide reasons for the decision.

72. The Respondent on its part asserted that its objection decision was valid because it was issued within the timelines considering the Appellant provided documents in support of the objection on 8th September 2022. That these documents formally validated the notice of objection and the sixty days within which the Respondent was required by law to render its decision started running upon receipt of the Appellant’s documents from 8th September 2022.

73. The Respondent also affirmed that it provided reasons for its objection in Paragraphs 1. 0 and 2. 0 of its objection decision and its notice of investigation findings dated 20th May 2023.

74. It was also its position that it considered all the documents that were provided by the Appellant in arriving at its objection decision on 7th November 2022 confirming the tax assessment of Kshs. 8,328,832. 00 exclusive of penalties and interest.

75. Section 51(11) provides as follows regarding timelines within which an objection decision should be issued:“(11)The Commissioner shall make the objection decision within sixty days from the date of receipt of—a.the notice of objection; orb.any further information the Commissioner may require from the taxpayer, failure to which the objection shall be deemed to be allowed.”

76. The Tribunal has perused the pleadings of the parties and it has discerned the following as the chronology of events in this Appeal:a.The Appellant lodged its objection on 8th June 2022 and it was received on the same day.b.The Respondent invalidated the objection on 19th July 2022 requesting for information and documents to support the objection.c.The Appellant provided its grounds of objection vide a letter dated 25th July 2022. d.The Appellant informed the Respondent vide email on the 9th August 2022 that it had supplied all the documents required at the Respondent’s Eldoret office.e.The Respondent requested documentation again via e-mail on 2nd September 2022. f.The Respondent issued its Objection decision on 7th November 2022.

77. Based on the above chronology of events, the Respondent was required to issue its objection decision within 60 days from the 2nd September 2022 when it received the last communication from the Appellant informing it that it had delivered all the documents that the Respondent had asked for.

78. Section 51(11) (b) of the TPA provides that the Respondent should issue its information 60 days from the date when it received further information from the Appellant. The last date when the Respondent requested information from the Appellant was on 2nd September 2022 and not on 7th November 2022 as has been proposed by the Respondent.

79. The Respondent was thus required to issue its decision on or before the 1st of November 2022. The impugned objection decision was thus late by 6 days.

80. The Tribunal therefore holds that the impugned objection decision is invalid because it was made beyond the statutory period that is prescribed in Section 51(11) of the TPA.

81. This position has been upheld by the Tribunal in Judgment- Appeal No. 105 Of 2021 – Gama Systems Ltd –vs- Commissioner of Domestic Taxes, where it stated that:“It thus follows, that the objection decision dated the 23rd December 2021 is invalid and unlawful for contravening the mandatory provisions of Section 51(11) of the TPA. The effect of which is that the Appellant’s notice of objection is deemed to have been allowed by operation of the law.”

82. This position also found favour with the High Court in Equity Group Holdings Limited v Commissioner of Domestic Taxes (Civil Appeal E069 & E025 of 2020) [2021] KEHC 25 (KLR) (Commercial and Tax) (23 August 2021) (Judgment) where the court stated as follows regarding the issue of timelines:“Section 51 (11) of the TPA is couched in peremptory terms. Having correctly found that the decision was made after the expiry of 60 days, the TAT had no legal basis to proceed as it did and to invoke article 159(2) (d). First, there was no decision at all. The decision had ceased to exist by operation of the law. Second, the provisions of section 51 (11) (b) had kicked in. The Objection had by dint of the said provision been deemed as allowed. Third, the TAT had no discretion to either extend time or to entertain the matter further. Fourth, discretion follows the law and a tribunal cannot purport to exercise discretion in clear breach of the law.”

Final Decision 83. The upshot of the foregoing analysis is that the Appeal is merited and the Tribunal accordingly proceeds to make the following Orders:-a.The Appeal be and is hereby allowed.b.The Respondent’s Objection decision dated 7th November 2022 be and is hereby set aside.c.Each party is to bear its own costs.

84. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 23RD DAY OF FEBRUARY, 2024. ERIC NYONGESA WAFULA - CHAIRMANDR. RODNEY O. OLUOCH - MEMBERABRAHAM K. KIPROTICH - MEMBERMEMBER MEMBER - MEMBERCYNTHIA B. MAYAKA - MEMBERTIMOTHY B. VIKIRU - MEMBER