[2023] KETAT 324 (KLR)

Shah v Commissioner of Domestic Taxes (Tax Appeal 479 of 2022) [2023] KETAT 324 (KLR) (19 May 2023) (Judgment)

Neutral citation: [2023] KETAT 324 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 479 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, Jephthah Njagi & AK Kiprotich, Members

May 19, 2023

Between

Navinchandra Nathoo Shah

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a resident individual and a registered taxpayer.

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 conducted investigations into the tax affairs of the Appellant and issued a tax assessment on 24th September 2021 in the sum of Kshs. 35,930,960. 00 being Income tax.

4. The Appellant objected on 8th November 2021 and vide a letter dated 26th November 2021 the Respondent declared the objection invalid and requested the Appellant to provide documents to validate his objection.

5. The Appellant replied on 30th November 2021 requesting to file his objection out of time. The Respondent subsequently issued its objection decision on 15th February 2022.

6. Being aggrieved by the objection decision, the Appellant lodged a Notice of Appeal on 4th April 2022.

The Appeal 7. The Appellant in its Memorandum of Appeal dated 7th My, 2022 and filed on 11th May, 2022 raised the following grounds:i.That the Appellant came to know of the additional assessments in the system late since it didn't have access to his iTax account as they had forgotten the iTax password and the password to the email address.ii.That it has already objected to the additional assessments.

Appellant’s Case 8. The Appellant’s case is premised on the hereunder filed documents and proceedings before the Tribunal:i.The Appellant’s Statement of Facts dated 7th May, 2022 and filed on 11th May 2022 together with the documents attached thereto.ii.The Appellant’s written submissions dated 25th January, 2023 and filed on 25th January, 2023.

9. It was the Appellant’s contention that he knew of the additional assessments in the system late since he did not have access to his iTax account as he had forgotten the iTax password and the password to the email address.

10. The Appellant stated that the additional assessment was excessive and punitive and not as per the audited accounts.

11. That being dissatisfied with the objection decision, that he would like to avail further supporting documents on the objected amount.

12. The Appellant was also praying that the Tribunal directs the Respondent to allow him to submit additional documents on the objected amounts.

13. The Appellant averred that on 24th September 2021, the Respondent issued him with a tax assessment for Kshs 63,021,862. 00.

14. That being dissatisfied with the Respondent’s assessments and pursuant to the provisions of Section 51 of the Tax Procedures Act, he lodged a notice of objection dated 8th November 2021 within the prescribed statutory period.

15. The Appellant submitted that vide a letter dated 26th November 2021, 31 days after issuance of the assessment, the Respondent wrote to the Applicant herein informing him of its decision to invalidate his objection.

16. That the said letter was contrary to the mandatory provisions of Section 51(4) of theTax Procedures Act.

17. The Appellant stated that the Respondent is mandated under Section 51(4) of the Tax Procedures Act to notify the Applicant immediately in writing if the notice of objection is not validly lodged.

18. That the Respondent failed to notify the Appellant that his notice of objection filed on 8th September 2021 was invalid within reasonable time. He averred that the Respondent communicated its position on the 31st day after issuance of the assessment on 26th September 2021.

19. That arising from the failure, the Appellant was unable to meet the thirty (30) day deadline under Section 51(2) of the Tax Procedures Act to respond to the assessment.

20. The Appellant stated that the Respondent proceeded to issue its objection decision on 15th February 2022 confirming the tax assessment,

21. That the said objection decision was made beyond 60 days as provided for under Section 51(11) of the Tax Procedures Act from the date of invalidation of the objection on 26th November 2021.

22. The Appellant was of the view that the dispute raises the following issues for determination;a.Whether the objection decision as issued by the Respondent was validly made as per Section 51(11) of the Tax Procedures Act.b.Whether the notice of objection by the Appellant was validly lodged as per Section 51(3) of the Tax Procedures Act.

23. The Appellant submitted that the Respondent erred in fact in issuing the invalidation decision on the objection lodged by the Appellant dated 8th November 2021 without a fair hearing and a proper validation process.

24. That by deciding that the Appellant’s notice of objection dated 8th November 2021 did not fulfil the requirements of Section 51(3) and therefore tainted with illegality, the Respondent misdirected itself in law. That from the onset, he wished to point out that there was no specific format that the notice of objection should conform with, other than comprising of the requirements under Section 51(2) of the TPA.

25. That the grounds to be relied on is not cast in stone but rather a matter of fact dependent on each specific case. To support his arguments, the Appellant relied on the case of Republic vs. Kenya Revenue Authority Ex Parte M-Kopa Kenya Limited [2018] eKLR.

26. The Appellant urged the Tribunal to consider his case and consider the substance rather than the form, as there was no precise format to be used by the Appellant. That his notice of objection substantially covered all the essentials as provided under the law.

27. That the letter dated 26th November 2021, the Respondent wrote to the Appellant informing him of the invalidation of its objection way beyond 30 days period within which the Appellant is required to respond to the assessment as provided for under Section 51(2) of the TPA.

28. That having lodged his objection on 8th November 2021, it was incumbent upon the Respondent where it has determined that a notice of objection lodged, had not been validly lodged, to immediately notify the Appellant in writing that the objection has not been validly lodged pursuant to the provisions of Section 51(4) of the TPA.

29. He averred that the letter dated 26th November 2021 by the Respondent, informing him of its decision to invalidate his objection, 31 days after issuance of the assessment cannot be termed as immediate within the meaning of Section 51(4) of the TPA.

30. That the said invalidation notice was issued way after the 30 days statutory period allowable for the Appellant to rectify any issued the Respondent may have had with the objection, effectively locking out the Appellant from rectifying any issues over his objection.

31. That this action by the Respondent amounted to violation of the Appellant’s right to fair administrative action.

32. The Appellant stated that he is entitled to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair as per Article 47 of the Constitution of Kenya 2010. That the practice by the Respondent to subject the Appellant to such process is not supported by any tax law and does not meet the threshold of Article 47 of the Constitution of Kenya 2010.

33. That further to the foregoing, the Appellant in this application for late objection indicated that he didn’t have access to his iTax account, having forgotten his iTax password and the password to the email.

34. That it was only upon change of the said iTax password and email address that the Appellant came to learn of the assessment and responded to the same on the 8th of November 2021.

35. The Appellant stated that he had been more than willing to avail any documentation required by the Respondent so that the extent of his true tax liability could be ascertained after review of all documentation.

36. That the upshot of the foregoing was that the Appellant was humbly inviting the Tribunal to invoke its powers under Section 29(3)(c)(ii) of the Tax Appeals Tribunal Act by referring the matter to the Commissioner for reconsideration in accordance with any directions of the Tribunal.

37. The Appellant stated that out of abundance of caution, were the Tribunal to be of the eminent opinion that the Appellant’s objection was not validly lodged as enumerated under Section 51(3), he submitted that the Respondent was still under duty to render its objection within 60 days, for the reason that Section 51(11) does not contemplate an objection decision to be based solely on a validly lodged objection.

38. The Appellant stated that as per Section 51(11) the objection decision is to be made within sixty days from the date the taxpayer lodged a notice of objection, not from the date a taxpayer lodged a valid notice of objection.

39. That even after the Respondent was of the opinion that the objection was invalidly lodged and after exhaustion of communication to either have the objection refiled or amended, which allegation the Appellant vehemently deny, the TPA contemplates that in between the proceedings, i.e. after the objection is lodged (not necessarily being a valid objection), the Commissioner must make a decision within 60 days of the notice of objection.

40. The Appellant stated that the validity or otherwise of a notice of objection should be contained in a decision of the Commissioner in the objection decision and to which the Appellant can validly appeal or seek a review from. To support his arguments, the Appellant cited the case of Commissioner of Income Tax vs. Westmont Power (K) Ltd [2006] eKLR.

41. The Appellant submitted that if there be any ambiguity, it should be resolved in favour of the Appellant since it’s the Appellant who will suffer irreparable harm.

42. The Appellant emphasised that his notice of objection having been validly lodged within statutory timelines, it was incumbent upon the Respondent to issue an objection decision within 60 days.

43. That on 30th September 2022, the Respondent issued him with a tax assessment for Kshs. 63,021,862. 00 to which the Appellant filed an objection on 8th November 2021. That vide a letter dated 26th November 2021, 31 days after issuance of the assessment, the Respondent wrote to the Appellant herein informing him of his decision to invalidate his objection.

44. That the said objection decision was made beyond the 60 days as provided for under Section 51(11) of the TPA from the date of invalidation of the objection on 26th November 2021. That the Respondent failed to abide by the mandatory timelines as provided under Section 51(11) of the TPA.

45. That additionally, the contents of the alleged objection decision does not meet the threshold of the law as provided for under Section 51(10) of the TPA.

46. The Appellant asserted that the said objection decision neither had the statement of finding on material facts nor reasons for the decisions. He urged the Tribunal to find that the said decision failed to meet the threshold required and thus null and void.

Appellant’s Prayers 47. The Appellant prayed that the Tribunal sets aside the confirmation and directs the Respondent to amend the assessment as per the objected amounts attached.

Respondent’s Case 48. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal:I. The Respondent’s Statement of Facts dated and filed on 10th June, 2022. II. The Respondent’s written submissions dated 18th January, 2023 and filed on 25th January 2022.

49. It was the Respondent’s submission that it conducted investigations into the Appellant’s tax affairs and established that the Appellant had not been filing Corporation tax and that his VAT obligations varied.

50. The Respondent stated that it proceeded to issue tax assessments of Kshs 63,021,862 on 24th September 2021.

51. That the Appellant alleges to have responded and objected to the assessments on 8th November 2021 but there was no record confirming the same. It averred that the Appellant’s agent, however, had filed notices of objection on behalf of the companies affiliated to the Appellant’s directorship on the said day.

52. The Respondent averred that on 26th November 2021, the Respondent invalidated the objections for failure to meet the requirements of Section 51(3) of the Tax Procedures Act.

53. That on 30th November 2021, the Appellant wrote to the Respondent seeking time to file a late objection. That the Respondent wrote back stating that the letter did not address the substantial issues pointed out on the 26th November 2021 letter (Invalidation notice).

54. That the Respondent gave the Appellant seven days to avail the said documents and there was no further communication from him. That consequently, the Respondent issued a confirmation of assessments on 15th February 2022.

55. The Respondent further averred that the Appellant lodged a time barred notice of objection through iTax without seeking leave from the Respondent.

56. The Respondent was of the view that the only issue for determination was whether the Appellant validly objected to the Respondent’s assessment orders issued on 24th September 2021.

57. The Respondent stated that the Appellant was issued with additional tax assessments dated 24th September 2021 but the Appellant failed to object to the same.

58. That while making his late objection, the Appellant never provided the supporting documents requested leading to his application to object being declared invalid.

59. The Respondent stated that the Appellant was required to object the assessments within the provisions of Section 51(3) of the Tax Procedures Act which provides that;“A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if—(a)the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments;(b)in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay the tax not in dispute under section 33(1); and(c)all the relevant documents relating to the objection have been submitted”

60. The Respondent averred that it was the duty of the Appellant to provide documents whenever required by the Commissioner. That Section 23(1)(a) of the Tax Procedures Act provides that a taxpayer is required to keep documents or records in such a manner that the taxpayer’s tax liability can be readily ascertained.

61. That the Appellant failed to support his objection with relevant documents despite email reminder. It stated that it requested for relevant documents, which were not availed.

62. That the Appellant having not provided documents or explanations capable of making the assessment vacated or amended, the Respondent correctly confirmed the assessment and rejected the objection.

63. That it is trite law that he who alleges must proof, that in this case, the Appellant alleged that the Respondent’s assessments were excessive, punitive and not as per the audited accounts. It averred that it was therefore incumbent upon the Appellant to show how excessive the additional assessment were. That the only way to do so was by way of provision of evidence.

64. On the issue of production of documents, the Respondent stated that the Tribunal had been consistent that the Appellant bears the obligation of providing documents to enable the Respondent accurately compute the tax payable.

65. To support its arguments, the Respondent cited the following cases;i.The case in Tax Appeals Tribunal No. 125 of 2017: Ngurumani Traders Limited vs. The Commissioner of Investigations and Enforcement.ii.That case in Tax Appeals Tribunal No. 163 of 2017: Rongai Tiles and Sanitaryware Limited vs. The Commissioner of Domestic Taxes.iii.The Tribunal’s case in TAT No. 70 of 2017 Afya Xray Centre Limited vs. The Commissioner of Domestic Taxes.iv.The High Court case in Commissioner of Domestic Taxes v Galaxy Tools Limited [2021] eKLR.

66. It was the Respondent’s submission that the Appellant was issued with additional Income tax assessment for un declared income on 24th September 2021 which the Appellant objected on 8th November 2021. That on 26th November 2021, the Respondent wrote to the Appellant invalidating the objection for none compliance with Section 51(3) of the TPA.

67. That the Respondent thereafter had several engagements with the Appellant to no avail, culminating into objection decision dated 15th February 2022, confirming the taxes amounting to Kshs. 63,021,862. 00. That being aggrieved by the Respondent’s decision the Appellant subsequently filed this Appeal.

68. That the Appellant’s Memorandum of Appeal before the Tribunal does not raise any triable issue/ground as against the impugned objection decision.

69. That the Appellant in his Statement of Facts vindicates the Respondent for invalidating the objection for not availing the supporting documents during the objection proceedings.

70. The Respondent reiterated that its objection decision and refuted the allegations by the Appellant to the effect that the additional assessment was excessive and punitive.

71. That the Appellant fatally failed to validate the objection despite several indulgence. It added that the Appellant fatally failed to demonstrate that the Respondent’s decision was not proper.

72. The Respondent stated that it relies on Section 51 of the Tax Procedure Act 2015 among other enabling provisions of the law.

Respondent’s Prayers. 73. The Respondent made the prayers that:i.This Appeal be dismissed in its entirety for lack of merit.ii.The Respondent’s tax objection decision dated 15th February 2022 for Kshs 63,021,862 be upheld.iii.The Respondent be awarded the costs of the Appeal

Issues for Determination 74. Having carefully studied the parties’ pleadings and all the documents attached to the Appeal and after considering the submissions, the Tribunal was of the view that the issues falling for determination were as follows:a.Whether the Respondent’s objection decision dated 15th February 2022 was in contravention of the law.b.Whether the Respondent was justified in confirming the assessment for Income tax on the Appellant.

Analysis and Findings 75. Having identified the issues falling for its determination, the Tribunal wishes to analyse as hereunder.

a. Whether the Respondent’s objection decision dated 15th February 2022 was in contravention of the law 76. The genesis of this dispute is the Respondent’s objection decision dated 15th February 2022 which confirmed principal income tax liability of Kshs. 63,021,862. 00.

77. The Appellant averred that the objection decision was made beyond the 60 days as provided for under Section 51(11) of the TPA from the date of invalidation of the objection on 26th November 2021. That the Respondent failed to abide by the mandatory timelines as provided under Section 51(11) of the TPA.

78. The Commissioner is enjoined under Section 51(11) of the Tax Procedures Act to make an objection within 60 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.”(Emphasis added)

79. The Tribunal noted that though the parties did not attach the Appellant’s notice of objection, it was not in dispute that the Appellant objected to the tax assessment on 8th November, 2021. Subsequent to the Appellant’s objection of 8th November 2021, the following correspondences followed;a.Vide a letter dated 26th November 2021, the Respondent declared the Appellant’s objection application to be invalid and requested the Appellant to provide documents in support of the objection.b.The Appellant replied to the Respondent vide a letter dated 30th November 2021. c.The Respondent issued its objection decision on 15th February 2022.

80. From the provision of Section 51(11) of the TPA, the Respondent is required by law to issue an objection decision within sixty days of either the date of receipt of the notice of objection or the date it receives the documents it may have requested from a taxpayer.

81. In the instant case, the Tribunal noted that prior to the objection decision was the Appellants’ letter dated 30th November 2021 which was replying to the Respondent’s letter of 26th November 2021. The Tribunal further noted that whereas the Respondent’s letter of 26th November 2021 was clear that the Appellant’s objection was invalid for failure to provide relevant documents in support of its objection, the Appellant’s reply of 30th November 2021 did not address the issue of documents at all.

82. That the Respondent in its Statement of Facts stated that the Appellant fatally failed to validate the objection despite several indulgences. That the Respondent had several engagements with the Appellant to no avail, culminating into the objection decision dated 15th February 2022, confirming the taxes amounting to Kshs. 63,021,862. 00. Although the dates of the engagements with the Appellant were not provided, the Tribunal noted that the Appellant did not deny there having been any engagements with the Respondent prior to the issuance of the objection decision.

83. Following from the provision of Section 51(11) of the TPA, the Respondent is required by law to issue an objection decision within sixty days of either the date of receipt of the notice of objection or the date it receives the documents it may have requested from a taxpayer. From the evidence adduced in this case it was clear to the Tribunal that in all the instances where the Appellant was requested for documents to support its objection, the Appellant failed to provide a relevant response.

84. The Tribunal further noted from the Appellant’s documents that the Appellant made online objection applications dated 29th March 2022. It was the Tribunal’s view that the same cannot be deemed to be in any way part of the current dispute as the objection decision had already been issued.

85. The Tribunal therefore determined that the Respondent had demonstrated that it had engaged the Appellant prior to the objection decision without any success in eliciting any positive response and therefore for the interest of justice the matter is best determined on its merits.

86. Under the circumstances, the Tribunal determined that the Respondent’s objection decision was not in contravention of the law.

b. Whether the Respondent was justified in confirming the assessment for Income Tax on the Appellant. 87. The Tribunal noted that through its objection decision dated 15th February 2022, the Respondent confirmed the assessments amounting to Kshs. 63,021,862. 00. The Appellant stated that the additional assessment was excessive and punitive and not as per the audited accounts.

88. The Respondent on its part submitted that the Appellant failed to support his objection with relevant documents despite email reminder. It stated that it requested for relevant documents, which were not availed.

89. That it was the duty of the Appellant to provide documents whenever required by the Commissioner. That Section 23(1)(a) of the Tax Procedures Act provides that a taxpayer is required to keep documents or records in such a manner that the taxpayer’s tax liability can be readily ascertained.

90. The Respondent added that the Appellant having not provided documents or explanations capable of making the assessment vacated or amended, the Respondent correctly confirmed the assessment and rejected the objection.

91. The Tribunal noted that the Respondent was consistent in all its communication to the Appellant in requesting for documentation to support the objection. In all the responses from the Appellant it was noted that the Appellant neither addressed the issue of supporting documents nor attached any to his responses to the Respondent. The Tribunal has further noted that the Appellant has not attached any document relevant to the assessment to this Appeal to demonstrate that the Respondent was wrong.

92. A taxpayer served with an assessment which it disputes, is enjoined to provide the necessary documents and information that suggest that such an assessment is erroneous, misplaced and not justifiable in the circumstances. Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act squarely places the burden of proof upon a taxpayer to discredit any tax assessment or decision.

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

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

95. The objection decision was an unequivocal as to the Appellant’s default in providing material documents and verifiable information that prompted the Respondent to confirm the assessments.

96. The Appellant’s averments that the assessments were excessive and punitive were not enough as set out in Section 107 of the Evidence Act which provides that:“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.”

97. This position was upheld in Kenya Power & Lighting Co Ltd v Rassul Nzembe Mwadzaya [2020] eKLR where the court stated as thus:“Since no evidence was adduced in support of the defence case, the defence on record therefore remained as a mere allegation. This is the position in law and was restated in the case of Edward Muriga through Stanley Muriga…Vs…Nathaniel D. Schulter, Civil Appeal No.23 of 1997, where the Court of Appeal stated: -“In this matter, apart from filing its statement of defence the Defendant did not adduce any evidence in support of assertions made therein. The evidence of the 1st Plaintiff and that of the witness remain uncontroverted and the statement in the defence therefore remains mere allegations. “

98. The Court in Alfred Kioko Muteti v Timothy Miheso & Another [2015] eKLR held as follows regarding evidence;“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....”

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

100. Accordingly, the Tribunal finds that the Respondent was justified in confirming the income tax assessments on the Appellant.

Final Decision 101. Based on the foregoing analysis the Tribunal determined that the Appeal lacks merit. The Orders that accordingly recommend themselves are as follows: -i.The Appeal be and is hereby dismissed.ii.The Respondent’s objection decision dated 15th February, 2022 be and is hereby upheld.iii.Each party to bear its own costs. 102. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 19TH DAY OF MAY, 2023. ERIC N. WAFULA - CHAIRMANCYNTHIA B. MAYAKA - MEMBERGRACE MUKUHA - MEMBERJEPHTHAH NJAGI - MEMBERABRAHAM K. KIPROTICH - MEMBER