https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/166

Semberia Enterprises Ltd v Commissioner of Domestic Taxes (Tax Appeal E1031 of 2025) [2026] KETAT 166 (KLR) (13 July 2026) (Judgment) Neutral citation: [2026] KETAT 166 (KLR) Republic of Kenya In the Tax Appeal Tribunal Tax Appeal E1031 of 2025 RM Mutuma, Chair, JM Malla, G Ogaga & T Vikiru, Members July 13, 2026 Between Semberia Enterprises Limited Appellant and Commissioner of Domestic Taxes Respondent Judgment Background 1.The Appellant is a limited liability company incorporated in Kenya operating in Eldoret town whose principal business activity is that of selling consumable products. 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 Respondent conducted an audit in order to verify the Appellant’s compliance status on the income tax, VAT, WHVAT and WHIT for the period 2019 to 2024. The Respondent compared the Appellant’s Income tax self-assessment returns with the Appellant’s suppliers' declarations whereupon it identified variances which were then brought to charge. 4.The Respondent issued the Appellant with additional assessments on 21st May 2025 for taxes amounting to Kshs. 65,342,346.00. 5.Upon receipt of the assessment, the Appellant lodged an objection dated 20th June 2025. 6.The Respondent issued an Objection decision dated 15th August,2025 confirming the assessments fully. 7.Dissatisfied with the Objection decision, the Appellant lodged the instant Appeal on 18th September 2025. The Appeal 8.The Appellant lodged a Memorandum of Appeal dated 17th September 2025 and filed on 18th September 2025 wherein it raised the following grounds of appeal:a)The Respondent erred in law, facts and issued an invalid objection decision contrary to the Tax Procedures Act 2015 Section 51(9) and (10).b)The Respondent erred in law by assessing tax based on alleged purchase figures, which appear to have been derived by applying a mark-up on purported purchases obtained from a third party, despite the fact that the Appellant did not make such purchases, contrary to Section 15(1) of the Income Tax Act.c)The Respondent erred in law by assessing tax despite the Appellant's explanation that the discrepancy primarily the variance between sales declared for VAT purposes and those in the IT2C returns was due to the unintentional omission of non-vatable sales from the initial VAT filings and that the Appellant initially filed vatable sales only. This is contrary to Section I5(I) of the Income Tax Act.d)The Respondent erred in law and facts by demanding taxes that are unreasonable and unfair as per Article 210 and 201(b)(i), of the Kenya Constitution.e)That the Respondents are contrary to legitimate expectations on the operations of the taxpayer, as per Section 15 of the income tax, and Article 47(1)(2) of the Kenya Constitution 2010. Appellant’s Case 9.In support of the appeal, the Appellant lodged statement of facts dated 17th September 2025 and filed on 18th September 2025. The Appellant did not file Written Submissions. 10.The Appellant averred that the Respondent conducted an assessment on the years of income 2019, 2020, 2021, 2022 and 2023 and issued a demand notice requiring it to pay Kshs. 8,293,507 on income tax and Kshs. 54,458,051 on VAT. 11.The Appellant stated that it objected to the assessments and provided documents and explanations on the variances but contrary to its legitimate expectation, the Respondent declined the objection by confirming the estimated assessment in its entirety. 12.The Appellant contended that the Respondent erred in law by assessing Income tax based on assumption on goods purchased, which were derived by applying a mark-up on purported purchases obtained from a third party, despite the fact that the Appellant did not make such purchases. That this treatment was contrary to Section 15(I) of the Income Tax Act (Cap 470). 13.It was the Appellant’s further contention that the Respondent erred by assessing VAT based on assumption on goods purchased contrary to the provisions of Value Added Tax 2013, Sections 6 & 7. That the VAT assessments were derived by applying a mark-up on purported purchases obtained from a third party, despite the fact that the Appellant did not make such purchases. The Appellant averred that it provided a tabulation of purchases, highlighting the alleged undeclared purchases. The Appellant stated that it provided the Respondent with bank statements to support its assertions. 14.The Appellant averred that the Respondent erred in law by assessing tax despite the Appellant's explanation that the discrepancy primarily the variance between sales declared for VAT purposes and those in the IT2C returns was due to the unintentional omission of non-vatable sales from the initial VAT filings and that the Appellant initially filed vatable sales only, That this is contrary to Value Added Tax Act 2013, Section 6 & 7. The Appellant provided a reconciling tabulation of vatable and non-vatable sales giving rise to the variance. 15.The Appellant stated that the Respondent erred in law and facts by demanding taxes that are unreasonable and unfair as per Article 210 and 20I(b)(i) of the Kenya Constitution. That the Respondent’s decisions are contrary to legitimate expectations on the operations of the taxpayer, as per section 15 of the income tax, and Article 47(1)(2) of the Kenya Constitution 2010. Appellant’s Prayers 16.The Appellant prayed as follows:a)That the Tribunal declare that, the Respondent Objection decision is invalid, incorrect, and unfair and failed to meet the legitimate expectations of the taxpayer as per Section 47 of the Kenya constitution 2010, and Article 20l (b)(i), 2l0.b)Upon determination that the Objection decision of the Respondent is invalid, wrong and unreasonable the appellant objection be upheld and the Respondent demand and confirmation be quashed entirely.c)That the Respondent’s demand for additional taxes and confirmation of the estimated assessment be struck out in entirety.d)That the Tribunal declares the Respondent’s actions are arbitrary, capricious, subjective, unfair and contrary to the fair administration of justice and to the legitimate expectations of the taxpayer.e)That the Respondent and its agent be stopped from demanding or taking further action or steps to ensure recovery of the alleged principal tax, penalties and interests.f)Cost of the appeal and any other remedies that this Tribunal may determine. The Respondent’s Case 17.The Respondent’s case was premised on its Statement of Facts dated 17th February, 2025 and filed on 18th February 2025. 18.The Respondent averred that the Appellant was selected for an audit in order to verify the compliance status of the income tax, VAT, WHVAT and WHIT for the period 2019 to 2024. 19.The Respondent averred that it compared the purchases claimed in the Appellant’s Income tax self-assessment returns with the Appellant’s suppliers' declarations (Adopted purchases) which revealed variances which were communicated to the Appellant. 20.The Respondent averred that:i.The Income Tax additional assessment for 2019 to 2023 was premised on understated sales established by applying a mark-up on the noted unclaimed purchases.ii.The VAT additional assessment was based on understated VAT sales and the marked up unclaimed purchases for the year 2019 to 2023.iii.The WHVAT additional assessment was based on non-compliance with WHVAT requirements while making purchases.iv.The WHIT assessment was based on failure to withhold on payments made in respect to professional fees for the period 2019 to 2023. 21.The Respondent stated that the Appellant provided the audited financial statements, purchase invoices, sales invoices and bank statements for 2019 to 2024, which were examined to determine whether they supported the assertions made in the financial statements and tax returns filed. 22.The Respondent averred that the Appellant failed to provide a reconciliation to address the variance hence the Respondent treated the variance as under stated purchases that were marked up based on the mark up declared in the income tax returns filed for the respective years and charged to tax accordingly. 23.The Respondent averred further that the Appellant was registered as a withholding VAT agent effective 6th November 2023 that however a check as to whether the Appellant correctly accounted for withholding VAT on taxable purchases revealed that the Appellant failed to withhold VAT on those purchases. 24.The Respondent stated that it reviewed the returns filed to determine whether there was any professional fee expensed and established that the Appellant incurred audit fee expense that was subject to withholding tax but failed to withhold tax on this expense contrary to Section 35 of the income Tax Act. 25.The Appellant also failed to provide records to support the objection on the WHVAT hence the assessment was confirmed. 26.The Respondent stated that the Appellant provided the following records for review:i.Objection application letter with grounds of objectionii.Copies of purchase invoicesiii.Bank statementiv.Sales Invoices 27.The Respondent submitted that the additional assessment for withholding VAT was based on non-compliance on withholding VAT agency notices that required the Appellant to withhold VAT on behalf of the Respondent as per Section 42(A) of the Tax Procedure Act. 28.The Respondent relied on Section 24 of the Tax Procedures Act which enjoins that Appellant to submit a tax return in the approved form and manner prescribed by the Respondent. 29.The Respondent asserted that it raised assessment and informed the Appellant of the same in accordance with the provisions of Section 29 of the Tax Procedures Act. 30.The Respondent underscored that it is empowered by Section 31 of the Tax Procedures Act to amend the assessment based on the information available to it and to the best of its judgement. 31.The Respondent maintained that the assessment was raised after it found gaps in the records provided by the Appellant and upon review of the provided documents, revised the assessment as per the provisions of the TPA. 32.The Respondent averred that during the reconciliation, it considered the documents provided by the taxpayer to revise the assessments and its findings were limited to the information available during the review and reconciliation exercise. 33.The Respondent further averred that even before the Tribunal, the Appellant has not placed any form of evidence challenging the conclusion by the Respondent on the under declared income. That having failed to avail their banking statement before this Tribunal, their pleadings are reduced to mere statements not supported by evidence. 34.The Respondent relied on the provisions of Section 59 of the Tax Procedures Act, 2015 on the production of documents. 35.The Respondent further submitted that pursuant to Section 56 of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act, the onus is on the Appellant to discharge the burden of proof that the tax decision is incorrect which the Appellant herein has failed to discharge. 36.The Respondent maintained that it reviewed and considered all the documentation availed to it by the Appellant and adjusted the assessment to the best of its judgment. Respondent’s Prayers 37.The Respondent prayed that the Tribunal:a.Finds that the assessment raised against the Appellant was proper and within the confines of the various tax laws.b.Upholds the Objection decision.c.Dismisses the Appeal with costs to the Respondent as it lacks merit. Issue For Determination 38.Upon careful evaluation of the parties’ pleadings the Tribunal was of the respectful view that the issue that calls for its determination is Whether the Respondent was justified in confirming the assessments in its Objection decision dated 15th August 2025. Analysis And Findings 39.Having identified the issue for determination, the Tribunal proceeded to analyse it as hereunder. 40.The issue giving rise to the dispute subject of this Appeal arose from the compliance audit conducted by the Respondent on the Appellant for the period 2019 to 2024, whereon the Respondent indicated that it had noted variances between the Appellant’s Income tax self-assessment returns with the Appellant’s suppliers' declarations. The Respondent therefore raised additional income tax assessments pursuant to Section 24(2) and 31(1) of the Tax Procedures Act, which empowers the Respondent to amend tax returns filed by taxpayers and assess the taxpayer using any other available information. 41.The Respondent averred that the Appellant had been registered as a withholding VAT agent on 6th November 2023 and that withholding VAT assessments were raised for the period after its registration for sales on which it failed to withhold VAT. The Respondent, however, did not provide any document to show that the Appellant had been appointed as an agent and duly informed or made aware of its registration and attendant obligations. 42.The Appellant contended that the Respondent raised assessments based on adopted purchases allegedly obtained from the Appellant’s suppliers, the Appellant disowned the purchases asserting that it did not make the said purchases. 43.The Appellant averred that it provided the Respondent with a tabulation of purchases, highlighting the alleged undeclared purchases that the Respondent classified as the adopted purchases for purposes of estimating sales, and that it provided the Respondent with bank statements to support its assertion that it had declared all its purchases and thus there were no understated purchases. 44.The Respondent admitted that indeed the Appellant had provided the audited financial statements, purchase invoices, sales invoices and bank statements for 2019 to 2024, which were examined to determine whether they supported the assertions made in the financial statements and tax returns filed. 45.The Appellant averred that the Respondent in arriving at the income tax variances for 2019 -2024, failed to consider and disregarded the information, documents, and explanations provided and charged to tax the variance arising from the said adopted purchases which were unbeknown to the Appellant. 46.The Tribunal perused the Appellant’s notice of objection and noted that the Appellant categorically disowned the adopted purchases relied upon by the Respondent in raising the impugned assessment. The Appellant stated that “the purchases used as the basis for this mark-up leading to the assessed figure were not for Semberia Enterprises limited”. The Appellant then proceeded to provide the Respondent with its bank statements detailing the actual purchase transactions for the periods in question. 47.The Tribunal observed that upon the Appellant denying knowledge of the adopted purchases, being the custodian of third-party data the Respondent ought to have demonstrated the source of the alleged adopted purchases before proceeding to declare the same as the Appellant’s understated purchases and premise its assessments entirely upon the disputed adopted purchases. The Respondent’s failure to establish a proper basis of an assessment amounts to plucking figures from the air. Courts have frowned upon assessments that lack proper basis as was stated in the case of KRA & 2 Others vs. King Bird (Kenya) Ltd, where the court held;“What the Respondents are doing is plucking figures from the air and inserting them on their documents. Their alleged assessment of extra duty from the Appellant has not been done in accordance with the law.” 48.The Tribunal notes that the Respondent admitted to have received supporting documents from the Appellant to wit: bank statements, purchase invoices, sales invoices and financial statements. In its objection the Appellant also tabulated the disputed amounts for alleged purchase figures along with an analysis of vatable and non-vatable sales to which the variance in VAT returns was attributable. 49.It is trite law that the burden of proof in tax cases rests squarely on the taxpayer as encapsulated in Sections 56(1) of the TPA and Section 30 of the TATA however courts have long established that the burden of proof in tax cases is not stationary, it swings like a pendulum. This burden may shift to the Respondent if the Appellant has made a prima facie case. In this case, the onus may then shift to the Respondent to rebut the prima facie case failure to which the taxpayer succeeds. 50.This position was explained in the case of Kenya Revenue Authority v Maluki Kitili Mwendwa [2021] eKLR, where Mativo J ( as he then was) adopted the doctrine in the Canadian Supreme Court case of Johnston v Minister of National Revenue where the court {1948} S.C.R. 486 where the court decided that: -“… the onus is on the taxpayer to “demolish the basic fact on which the taxation rested.” Again, the Supreme Court of Canada provided guidance on this issue in Hickman Motors Ltd. v Canada which held that the onus is met when a Taxpayer makes out at least a prima facie case. Prima facie is another legal term that literally means “on its face.” To prove a case “on its face” you must provide evidence that, unless rebutted, would prove your position. According to the said decision, a prima facie case is made when the taxpayer can produce unchallenged and uncontradicted evidence. Once the taxpayer has made out a prima facie case to prove the facts, the onus then shifts to the Revenue Authority to rebut the prima facie case. If the Revenue Authority cannot provide any evidence to prove their position, the taxpayer will succeed” 51.From the foregoing decision of the superior court, it is apparent that the Appellant was required to present a minimum amount of information necessary to support its position. This safety valve seems to place the burden of proof on the Appellant without completely relieving the Respondent of its fair share of the burden of proof. The bottom line is that once the Appellant has provided evidence that the Respondent’s assessment was wrong, then the Respondent must push back and show that its assessment was not arbitrary, capricious or imagined. The onus will then shift back to the Appellant once the Respondent has discharged its burden on a balance of convenience to discharge the prima facie case that has been presented by the Respondent. 52.It is seen and undisputed by the Parties that the Appellant had disowned the alleged/adopted purchases and provided the documents and records ordinarily expected to be in its possession in support of its position. The Respondent on the other hand, after receipt of this information, failed to rebut the Appellant’s defence by providing additional information on the alleged suppliers. 53.In the instant case, upon adduction of the documents stated hereinabove, the analysis and explanations, the Appellant had established a prima facie case that effectively swung the pendulum of the burden of proof back to the Respondent. It behoved the Respondent at this point to push back the burden to the Appellant by demolishing the Appellant’s evidence and explanations with specificity by shining to light the solid basis upon which its assessment was anchored. The Tribunal notes that the Respondent did not demonstrate in its Objection decision that it had applied itself in analysing the documents and information that the Appellant had provided it at the objection stage to arrive at an informed decision. 54.The fact that the burden of proof in tax cases is not stationary was explained in Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) [2022] KEHC 9927 (KLR) (Commercial and Tax) (8 July 2022) (Judgment) where Justice Majanja stated thus:“I agree with the Tribunal’s holding that the burden of proof in tax matters is not stationary but is like a pendulum swinging between the taxpayer and taxman at different points but more times than not swings towards the taxpayer.” 55.Based on the foregoing, it is evident that the Appellant made out a prima facie case by providing the evidence and explanations showing that it did not make the alleged purchases, the Respondent failed to rebut the Appellant’s assertions. In effect, the presumption of correctness ascribed to the Respondent’s assessment vanished and there was no basis for the confirmation of the assessments whose basis has been found wanting. 56.Where the Respondent has relied on third party data which may not be in the Appellant’s domain as in the instant case, it is obliged to exercise best judgement to ensure that the taxpayer is liable for the correct amount of tax. TAT Appeal No. 508 of 2021 Moses Kiarie Kuria vs. Commissioner of Domestic Taxes restated the principles regarding what constitutes best judgement as were clearly set out in the decision in Van Boeckel vs. C&E QB (1981) STC 290; VAEC1420: -“The Respondent is not required to do the work of the taxpayer; must perform its duties honesty and above board; must consider all material facts put before it and based on that material make a decision that is reasonable and not arbitrary; must be in possession of some material upon which it can base its best judgement.” 57.Drawing from the above, the Tribunal finds and holds that the Respondent was not justified in confirming the assessments in its Objection decision dated 15th August 2025. Final Determination 58.The upshot of the foregoing analysis is that the Tribunal finds that the Appeal is merited. Accordingly, the Tribunal issues the following orders:a)The Appellant’s Appeal be and is hereby allowed;b)The Respondent’s Objection decision dated 15th August 2025 be and is hereby set aside; andc)Each party to bear its own costs. 59.It is so ordered. DATED AND DELIVERED AT NAIROBI THIS 13TH DAY OF JULY 2026ROBERT M. MUTUMA - CHAIRMANJIMMY M. MALLA - MEMBERGLORIA A. OGAGA - MEMBER DR. TIMOTHY B. VIKIRU - MEMBER