[2024] KETAT 97 (KLR)

Sidoman Investment Limited v Commissioner of Investigations & Enforcement (Tax Appeal 548 of 2022) [2024] KETAT 97 (KLR) (2 February 2024) (Judgment)

Neutral citation: [2024] KETAT 97 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 548 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, AK Kiprotich, E Ng'ang'a & B Gitari, Members

February 2, 2024

Between

Sidoman Investment Limited

Appellant

and

Commissioner Of Investigations & Enforcement

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya whose business is in clearing and forwarding services.

2. The Respondent is a principal officer appointed pursuant to Section 13 of the Kenya Revenue Authority Act (KRA), Act No. 2 of 1995, and KRA is empowered to enforce and administer provisions of written laws set out in Section 5 as read together with the First Schedule of the KRA Act.

3. The Respondent carried out investigations on the Appellant's tax affairs and subsequently issued its tax investigations findings vide a letter dated 26th January, 2021. The Appellant replied to this letter on 2nd February, 2021 where it requested for 30 days to give a response. The Respondent replied to this letter on 12th February, 2021 and allowed the Appellant additional 14 days.

4. The parties engaged each other through exchange of letters and the Respondent subsequently issued an assessment on 6th August, 2021 for total taxes amounting to Kshs 607,805,388. 00.

5. The parties further engaged in exchange of several letters and subsequently vide a letter dated on 30th November, 2021 and received by the Respondent on 8th December, 2021, the Appellant lodged a notice of objection.

6. The Respondent vide a letter dated 13th January, 2022 invited the Appellant for a meeting scheduled for 17th January, 2022. The Appellant vide a letter dated 14th January, 2022 forwarded to the Respondent some documents.

7. The Respondent issued the objection decision dated 15th April, 2022 confirming the assessments.

8. Aggrieved by the objection decision, the Appellant filed this Appeal on 26th May, 2022.

The Appeal 9. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal dated 24th May, 2022 and filed on 26th May, 2022:-a.That the assessment is based on erroneous grounds, that is, out of assumption that the Appellant is in the trade of importation and resale of goods. The actual position being that, the Appellant is a duly registered clearing and forwarding agent and only cleared consolidated imports belonging to third parties.b.That import data relied upon in raising an additional assessment exclusively related to clearing consolidated cargo belonging to third parties.c.That the Appellant did not keep information in format requested by the Respondent for the individual owners of the consolidated consignment as there was no legal requirement to do so.d.That Appellant duly declared all income earned in the period in question as provided for by the Income Tax Act Cap 476 laws of Kenya a fact that was demonstrated by provision of income tax self-assessment returns for the years under audit.e.That the basis relied upon to charge income tax is not only unconstitutional but also illegal. That Article 210 of the Constitution of Kenya states in part as follows (1) No tax or licensing fee may be imposed, waived or varied except as provided by legislation". That further, Section 3 of Income Tax Act provides for the basis of charging income tax.f.That the Appellant fully declared business income earned in the period in question and alleged under declared income does not fall under any of the above envisioned sources of income reproduced above.g.That the Appellant did not at any given time recognize cost of alleged imports as it would be the norm for any entity involved in trade to claim cost of purchase which would obviously constitute the main cost component.h.That further, VAT can only be charged as provided by the VAT Act of 2013, Section 5. i.That the alleged undeclared amount subjected to VAT does not amount to a supply as provided for by the charging Section. That further, the Appellant did not claim any input VAT associated with the alleged undeclared supplies.j.That the Respondent charged PAYE on the director without giving a basis for its actions especially after the Appellant demonstrated that it had done a correct PAYE self-assessment.k.That the Respondent’s action of charging income tax on what it called “banking's test” without according the Appellant an opportunity to understand the basis, amounts to violation of right to fair administrative action and abuse of power.l.That the Appellant’s only source of income is commission earned for consolidation work. That in support of that position, were samples of the invoices raised by the Appellant to the owners of consignment.m.That the Appellant dealt with clearing consolidated consignment whose clearance was well known and approved by the Respondent’s Customs Department. That in support of that position, were samples of the said letters.n.That the Respondent was and is still aware the business model of the consolidation. That in support of the said position, was a letter done by the Respondent to the Kenya Shipping Agents requesting facilitation of release of consolidated consignments belonging to small scale traders.

Appellant’s Case 10. The Appellant’s case is premised on the following documents:-a.The Appellant’s Statement of Facts dated 24th May, 2022 and filed on 26th May, 2022 together with the documents attached thereto.b.The Appellant’s written submissions date 19th December, 2022 and filed on 22nd December, 2022.

11. The Appellant averred that the Respondent via a letter dated 7th December, 2020 informed the Appellant that it was carrying out investigations against it.

12. That the Respondent communicated its investigation findings via a letter dated 18th January, 2021. The Appellant via a letter dated 18th January, 2021 requested the Respondent for workings relied upon in arriving at the said findings.

13. That the Respondent via a letter dated 26th January, 2021, communicated a summary of workings as requested by the Appellant in the letter dated 18th January, 2021.

14. The Appellant stated that it requested the Respondent for extension of time by 30 days to avail information via a letter dated 2nd February, 2021. That the Respondent via a letter dated 12th February, 2021 granted the Appellant 14 days instead of the 30 days that had been sought.

15. The Appellant averred that via a letter to the Respondent dated 9th April, 2021 it explained its business model that it was a consolidator, no consolidation business regulations existed between 2014 and 2017 and that between 2017-2018, the Respondent’s Customs Department introduced some regulation in regard to consolidation business which it complied with. That further, in 2019 new rules were introduced and it stopped the said business.

16. It stated that the Respondent via a letter dated 20th April, 2021 communicated to the Appellant that it had separated Sidoman Investments Ltd matters from that of Douglas Kathurima and Abdi Abdule Mohamed.

17. That the Appellant via a letter to the Respondent dated 28th April 2021 reiterated its earlier position, that its business model was that of consolidation and not import for resale as alleged by the Respondent. That the Appellant via a letter to the Respondent dated 30th April 2021 emphasized its position in regard to its business model. It further communicated, the prevailing regulatory environment that it was impossible to avail information required including KRA PIN and locations of the third parties who owned the consignment.

18. That the Respondent via a letter dated 6th August 2021 issued a notice of assessment amounting to Kshs. 607,805,388. 00. The Respondent further via a letter dated 31st August 2021 informed the Appellant that its letter dated 23rd August, 2021, in its view does not constitutes on objection.

19. That on 8th December 2021, the Appellant through its tax agent objected the said assessment in total pursuant to the provisions of Section 51 of the Tax Procedures Act.

20. That the Respondent via a letter dated 14th April, 2022 issued an objection decision confirming taxes in total.

21. The Appellant was of the view that the matters under dispute were as follows;a.Whether the Respondents action of raising an assessment based on assumption that consolidated cargo cleared by the Appellant belonged to it has a legal basis especially after being furnished with evidence to the contrary.b.Whether consolidation business model existed legally and was supervised by the Respondent’s Customs Department,c.Whether the Appellant claimed input VAT resulting for consolidated cargo as alleged by the Respondent.d.Whether the Appellant claimed business expenses related to the consolidated cargo.e.Whether the Appellant declared all income earned as consideration for consolidation on behalf of third parties for income and VAT purpose.f.Whether the Respondent ever asked the Appellant to substantiate transaction in its bank accounts.g.Whether the Respondent’s action of raising taxes based on the Appellant's bank credits without asking it to explain the credits is contrary to fair administrative principles.

22. The Appellant stated that the applicable law was VAT Act of 2013 and Income Tax Act Cap 470 of the laws of Kenya.

Appellant’s Prayers 23. The Appellant prayed that:-a.That this Appeal be allowed with costs.b.That the decision of the Commissioner of 14th April, 2022 be set aside with costs to the Respondent.c.That the Commissioner be restrained from undertaking any enforcement measures against the Appellant with a view to collecting the sum of Kshs. 607,805,388. 00 and any penalties and interest relating thereto.d.That the Tribunal grant such other orders as it may deem fit.

Respondent’s Case 24. The Respondent’s case is premised on the following documents:-a.The Respondent’s Statement of Facts dated 24th June, 2022 and filed on 26th June, 2022. b.The Respondent’s written submissions dated and filed on 20th September, 2023. c.The Respondent’s witness statement of Paul Murage Wachiuri admitted as evidence on oath on 5th September, 2023.

25. The Respondent stated that it noted that the Appellant was mis-declaring income for the purpose of reducing the tax liability and/or failed to file returns.

26. That it commenced investigations on August 2020 with the following objectives:a.To establish undisclosed income and the taxes thereof.b.Whether the goods were declared in accordance with Customs Laws & Procedure and verify the consignment to ascertain the actual description, quantity and weight of the goods.c.Determine and recover tax leakages, if any.d.To assess, demand and collect the established taxes.

27. The Respondent averred that the investigations covered period from 2014 to 2019 financial years and it covered the following tax obligations: Pay as You Earn (PAYE), Value Added Tax (VAT) and Corporation tax.

28. It stated that in carrying out the investigations, it examined the following records and information amongst others: Financial statements, bank statements and filed returns.

29. The Respondent stated that the Appellant's director was Saeed Sheikh Abdirahman who holds 100% of share capital. That it noted that the Appellant is a consolidator and not an importer for the years under review.

30. The Respondent stated that it had established that the Appellant had three accounts namely Absa Kenya Plc A/C.no. 2030034999, Absa Kenya Plc AC-no.-0161505595 and KCB A/C.no.1225749077. That although Absa Kenya PLC A/C No. 0161505595 was registered under the name of the director, it was considered as Appellant's bank account due to the nature and description of the transactions.

31. That Absa A/C No. 0324500308 was considered as his salary account because of the nature and description of the transactions; which also were determined as having monthly recurring patterns.Table 1:Sidoman Investment Bankings for 2014 to 2019

Bank name Currency a/c number A/c title Credits

ABSA Bank KES 2030034999 Sidoman Investment Ltd. 918,089,002

ABSA Bank KES 2041252378 Saeed Shekh Abdirahman 8,500,000

ABSA Bank KES 2026264041 Saeed Shekh Abdirahman 9,800,500

ABSA Bank KES 324500308 Saeed Shekh Abdirahman 60,710,953

ABSA Bank USD 227262702 Saeed Shekh Abdirahman. 689,784

ABSA Bank KES 161505595 Saeed Shekh Abdirahman 780,854,700

KCB USD 1225749077 Sidoman Investment Ltd. 192,086

32. The Respondent contended that it observed that the Appellant was declaring business expenses incurred in the course of trade and input VAT claimed without declaring the income earned as a result of consolidation.

33. That income was computed for all the consignments that were consolidated and cleared by the Appellant for the period 2014 to 2019, which comprised of entries. That taxes paid at DPC were put into consideration and also freight and insurance charges.

34. That the Respondent established that for the years under review (2014 to 2019) the Appellant had claimed more input VAT on declared expenses than output VAT declared on sales.

35. The Respondent averred that upon conclusion of the investigations it computed the taxes for income omitted from returns.

36. The Respondent submitted that contrary to the Appellant's allegation, at the investigation stage it treated the Appellant as a consolidator and as a clearing agent based on the information and explanations given by the Appellant.

37. That however, the Appellant neither provided particulars of the clients on whose behalf the Appellant was acting for nor evidence to prove the commission paid to the Appellant for the services rendered. That therefore, there was nothing to demonstrate that the credits in the Appellant's accounts were not the company's taxable income.

38. That in the objection review process and also at the assessment stage the Appellant did not provide a breakdown of cash deposited in its bank account and the purpose. That the Respondent could not assume that all the deposits in the Appellant's accounts were commissions from consolidation and clearing and forwarding services rendered.

39. The Respondent stated that it computed taxes on the basis of all consignments that were consolidated and cleared by the Appellant for the period 2014-2019 comprising 585 entries.

40. The Respondent reiterated that although the Appellant was treated as a consolidator and as a clearing agent there was no proof that the Appellant was dealing with consolidated cargo, and if indeed that was the case, no income was declared as a result of that consolidation.

41. The Respondent submitted that whereas the Appellant alleged that it did not maintain the information in the format sought by the Respondent, the Appellant is obligated in law to keep information and such records that will enable the Respondent to determine the taxes payable.

42. That the information sought by the Respondent is within the Appellant's peculiar knowledge and hence under Section 112 of the Evidence Act, the proper person to produce the requested documents.

43. It added that the burden imposed on the Appellant is also buttressed by its obligation to maintain records. That Section 54A of the Income Tax Act (ITA) imposes a duty on a taxpayer to keep records, required under any law to enable the person's tax liability to be readily ascertained.

44. That as a result of the Appellant's failure to keep records of transactions to assist in tax assessment, the Respondent resorted to third party data including the Appellant's bankers and its internal systems.

45. The Respondent contended that contrary to the Appellant's assertions, the Appellant was actually claiming business expenses incurred in the course of trade and input VAT without declaring the income earned as a result of consolidation.

46. That for Corporation tax, the Respondent established that the Appellant had only declared sales amounting to Kshs. 25,985,879. 00 out of the income established from the bankings of Kshs. 1,309,041,369. 00.

47. The Respondent asserted that in light of the above, the Appellant did not sufficiently prove that it declared alI the income earned for the purposes of tax assessment. That the variance of Kshs. 1,283,055,490. 00 was to be treated as income not declared and thus charged to tax.

48. The Respondent stated that in line with Section 56(1) of the Tax Procedures Act, 2015 the Appellant bears the burden of proving that assessment made by the Respondent was either incorrect or unlawful. That this also augurs well with the principle of law of evidence which states that he who asserts existence of a fact has to prove. The Respondent referred the Tribunal to the provisions of Section 107 of the Evidence Act.

49. It was the Respondent's position that the investigations revealed that the Appellant did not declare all its income from business of consolidation for the period the Appellant carried out business. That in the absence of the quantified commission earned from consolidation and clearing of goods as alleged by the Appellant, the Respondent was justified in treating the vatable value of the imports as income for purposes of assessing taxes.

50. The Respondent stated that its investigations established that for the years under review (2014 to 2019,) the Appellant had claimed more input VAT on declared expenses than output VAT declared in sales.

51. That this formed the basis of the investigations into the Appellant's business to establish the actual income earned in the period under review.

52. The Respondent submitted that the expenses claimed in the Appellant's returns included costs associated with insurance and freight for both imports and cargo the Appellant cleared as well as taxes paid at the DPC which were all allowed in the determination of the Appellant's net business income.

53. That further, the Appellant did not discharge the burden of proving that the assessment made by the Respondent was incorrect or cost incurred in line with Section 56(1) of the Tax Procedures Act, 2015 for the Respondent to make necessary adjustment.

54. The Respondent asserted that the investigations carried out established that the Appellant dealt with supply of imported taxable/vatable services which are chargeable to VAT in compliance with the provisions of Section 5(1)(c) of the VAT Act, 2013.

55. The Respondent further contended that it relied on Section 5(1)(c) of the VAT Act, 2013 in raising the assessment. That the Appellant had admitted that it was in the business of and is a registered clearing and forwarding agent and only cleared consolidated imports. That this business of the Appellant falls squarely within the meaning of “a supply of imported taxable services” as provided by Section 5(1)(c) of the VAT Act, 2013. That it was therefore a supply contrary to what the Appellant had alleged.

56. The Respondent submitted that the assessment against the director of the Appellant was done separately and has no nexus with the Appeal contrary to the Appellant’s assertions. That therefore, any comment on the same was prejudicial to the assessment issued to the director of the Appellant. It added that the Appellant and its director are separate legal entities for the purposes of assessment and thus should be treated as such.

57. Regarding the Appellant’s assertion that the use of banking test violated its rights, the Respondent contended that the Appellant had been afforded sufficient time and opportunity to respond to the Respondent's tax assessment and all along the Appellant never raised any issue that it had not been afforded sufficient time. That on 1st April 2021, the Respondent communicated its tax investigations findings and invited the Appellant to respond to the same. That the Appellant responded on 9th April. 2021.

58. That similarly, the Respondent had engagements with the Appellant through letters of 26th January, 2021 and 30th April, 2021 culminating to the tax assessment of 6th August, 2021. That subsequently on 23rd August 2021, 31st August 2021, 2nd September 2021 and 30th November 2021 the Appellant had an opportunity to challenge the banking test.

59. That further, on 17th January, 2022, the Appellant had a meeting with the Respondent to respond to the issues raised and challenge the use of banking test in calculation of the Appellant's tax liability. That since the Appellant had never raised the issue before the Respondent, raising the same at this stage was not only curious but also inappropriate as the issue had been overtaken by events.

60. The Respondent submitted that the highlight of the engagements shows that the Appellant had perfect and sufficient opportunity to challenge and put to scrutiny the issues relating to use of "banking test" in tax assessment. That therefore, the Appellant cannot turn around and claim that it was not afforded an opportunity.

61. Regarding the Appellant’s source of income, the Respondent contended that the Appellant neither provided particulars of the clients it acted for nor evidence of the commission it was paid for the services rendered and thus the allegation cannot suffice.

62. That Section 56(1) of the Tax Procedures Act, 2015 places the burden on the Appellant to proof that the commission earned and the percentage applicable. That in the absence of valid evidence to prove the amount of commission earned by the Appellant, the Respondent was justified in holding that the Appellant was in the trade of importation and resale of goods.

63. The Respondent reiterated that the Appellant was treated as a consolidator and as a clearing agent based on the information and explanations given by the Appellant even though no income was declared as a result of that consolidation. That this therefore had already been considered in raising the assessment during the investigations stage and even at the objection review stage.

64. The Respondent averred that it took into account the explanations given by the Appellant and treated the income established as having been realised from the consolidation business.

65. The Respondent invited the Tribunal to find that the Appellant's Appeal lacks merit and the same be dismissed for the above reasons.

66. That the allegations of the Appellant as laid out in its Memorandum of Appeal and Statement of Facts unless where in agreement by the Respondent were unfounded in law and not supported by evidence.

Respondent’s Prayers 67. The Respondent prayed that:-a.The Appeal be dismissed with costs.b.The assessments and objection decision raised by the Respondent be confirmed and the principal taxes, interest and penalties be found due and payable as per the objection decision.

Issues For Determination 68. The Tribunal has carefully studied the pleadings and documentation of both parties and is of the considered view that the issues that call for its determination are as follows:-a.Whether the Respondent was justified in assessing the Appellant beyond the five years.b.Whether the Respondent was justified in its decision to confirm the assessment of taxes on the Appellant.

Analysis And Findings 69. Having identified the issues for determination, the Tribunal proceeds to analyse the same as follows:-

Whether the Respondent was justified in assessing the Appellant beyond the five years. 70. The genesis of this dispute is the Respondent’s objection decision dated 14th February 2022 which confirmed the assessments for Corporation tax, VAT and PAYE. The Respondent’s tax assessment was issued on 31st August, 2021 and it covered the period of years 2014 to 2019.

71. The Tribunal notes that the Respondent while raising the tax assessments placed reliance on the provisions of Section 31 of the TPA. Under Section 31(4)(b) of the TPA the law provides as follows regarding time limitations of raising amended assessments;“(4)The Commissioner may amend an assessment—(a)in the case of gross or wilful neglect, evasion, or fraud by, or on behalf of, the taxpayer, at any time; or(b)in any other case, within five years of—(i)for a self-assessment, the date that the self-assessment taxpayer submitted the self-assessment return to which the self-assessment relates; or(ii)for any other assessment, the date the Commissioner notified the taxpayer of the assessment:”(Emphasis added)

72. The law as cited above limits the Respondent to assess the Appellant five years unless issues of wilful neglect, evasion or fraud is proven. Given that the notice of assessment was issued on 31st August, 2021, the law allowed the Respondent to assess the Appellant only up to 1st September, 2016.

73. The Tribunal notes that in the whole process of investigations and assessments there was no issue raised regarding wilful neglect, evasion, or fraud on the part of the Appellant. It follows therefore that as provided by law, the assessment ought to have been limited to five years (by 1st September 2016).

74. Following from the above provisions of the law and analysis, and given that income tax returns are filed annually by 30th June of the subsequent year, the assessments can therefore only apply up to the annual returns for the period ending 31st December, 2016 while VAT whose returns are done monthly by 20th of the subsequent month the assessments can only apply up to returns filed in September 2016.

75. The Tribunal is bound to strictly enforce the provisions of taxing statutes as was stated in the case of Partington vs. AG [1869] LR 4 HL as follows:“As I understand the principle of all fiscal legislation it is this: if the person sought to be taxed, comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be. In other words, if there be admissible in any statute what is called an equitable construction, certainly such a construction is not admissible in a taxing statute, where you simply adhere to the words of the statute.”

76. Accordingly, the Tribunal finds that any income tax assessed prior to 31st December, 2016 and VAT assessed prior to September 2016 were in contravention of the law.

Whether the Respondent was justified in its decision to confirm the assessment of taxes. 77. It was the Appellant’s contention that the assessment was based on erroneous grounds, that is, out of assumption that the Appellant was in the trade of importation and resale of goods. That the actual position being that, the Appellant is a duly registered clearing and forwarding agent and only cleared consolidated imports belonging to third parties.

78. The Appellant averred that import data relied upon in raising the additional assessment, exclusively related to clearing consolidated cargo belonging to third parties.

79. The Respondent on the other hand submitted that it observed that the Appellant was declaring business expenses incurred in course of trade and input VAT claimed without declaring the income earned as a result of consolidation.

80. That income was computed for all the consignments that were consolidated and cleared by the Appellant for the period 2014 to 2019, which comprised of entries. That taxes paid at DPC were put into consideration and also freight and insurance charges.

81. That the Respondent established that for the years under review (2014 to 2019) the Appellant had claimed more input VAT on declared expenses than output VAT declared in sales.

82. The Respondent further contended that contrary to the Appellant's allegation, at the investigation stage it treated the Appellant as a consolidator and as a clearing agent based on the information and explanations given by the Appellant.

83. That however, the Appellant neither provided particulars of the clients on whose behalf the Appellant was acting for nor evidence to proof the commission paid to the Appellant for the services rendered. That therefore, there was nothing to demonstrate that the credits in the Appellant's accounts were not the company's taxable income.

84. The Tribunal perused through the pleadings and noted that the key issue in contention in the dispute was the documents presented in support of the objection.

85. The Appellant had stated that it did not keep information in the format requested by the Respondent for the individual owners of the consolidated consignment as there was no legal requirement to do so.

86. That Appellant duly declared all income earned in the period in question as provided for by the Income Tax Act Cap 476 laws of Kenya a fact that was demonstrated by provision of income tax self-assessment returns for the years under audit.

87. In support of the Appeal, the Tribunal noted that some of the documents attached by the Appellant in support were its filed corporation returns, VAT analysis and invoices to some of its clients.

88. The Respondent however asserted that the Appellant did not sufficiently prove that it declared alI the income earned for the purposes of tax assessment. That the variance of Kshs. 1,283,055,490. 00 was treated as income not declared and thus charged to tax.

89. It was not in dispute that the Appellant was in the business of clearing and forwarding and was also handling consolidated imported cargo from clients. The Tribunal further noted that the Respondent had relied on information from the Appellant’s bank to assess the taxes. It was therefore upon the Appellant to provide the relevant documents in support of the entries in its bank accounts.

90. Section 23 of the Tax Procedures Act provides as follows regarding record keeping;“(1)A person shall—(a)maintain any document required under a tax law, in either of the official languages;(b)maintain any document required under a tax law so as to enable the person's tax liability to be readily ascertained; and(c)subject to subsection (3), retain the document for a period of five years from the end of the reporting period to which it relates or such shorter period as may be specified in a tax law.(2)The unit of currency in books of account, records, paper registers, tax returns or tax invoices shall be in Kenya shillings.”

91. Further, Section 54A of the Income Tax Act provides as follows regarding keeping of records;“(1)A person carrying on a business shall keep records of all receipts and expenses, goods purchased and sold and accounts, books, deeds, contracts and vouchers which in the opinion of the Commissioner, are adequate for the purpose of computing tax. (1A) For the purposes of this section, the carrying on of business includes any activity giving rise to income other than employment income.”

92. Additionally, under Section 17(3) of the VAT Act provides as follows regarding record keeping:-“(3)The documentation for the purposes of subsection (2) shall be—(a)an original tax invoice issued for the supply or a certified copy;(b)a customs entry duly certified by the proper officer and a receipt for the payment of tax;(c)a customs receipt and a certificate signed by the proper officer stating the amount of tax paid, in the case of goods purchased from a customs auction;(d)a credit note in the case of input tax deducted under section 16(2); or(e)a debit note in the case of input tax deducted under section 16(5)”

93. From the documents presented to the Tribunal it was noted that the Appellant forwarded its bank statement to the Respondent attached to a letter received by the Respondent on 15th February 2022. It was the Tribunal’s view that since the Respondent had relied on the transactions from the Appellant’s bank accounts to raise the assessments, the Appellant ought to have provided documentary evidence to support the transactions in its own bank accounts. In addition, although the Appellant had provided some invoices it did not demonstrate any nexus between these invoices and the entries in its bank account.

94. It is further the Tribunal’s position that the Appellant having been served with an assessment arrived at based on the bank statements it provided, it was 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.

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

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

97. In the instant case, the Tribunal noted that the Appellant had only averred that it was a consolidator and stated that it did not provide documents in the format required by the Respondent. The Appellant did not provide the documentation as required by law in support of the transactions in its bank account including any agreements with the clients stating the terms of their engagements which would have explained the transactions in its bank account.

98. It is the Tribunal’s position that it was upon the Appellant to furnish evidence to prove its case. This was the finding in Nicholson v Morris 51TC95 where it was held that:“Even supposing that I were myself to think that the amounts were wrong – and, as I have freely conceded, and as [Counsel for the Revenue] has freely conceded, they probably are wrong – what on earth could I or anybody else at this stage, in the total absence of evidence, substitute for them? The answer is that it is a complete and utter impossibility; and that is why, of course, the Taxes Management Act throws upon the taxpayer the onus of showing that the assessments are wrong. It is the taxpayer who knows and the taxpayer who is in a position (or, if not in a position, who certainly should be in a position) to provide the right answer, and chapter and verse for the right answer, and it is idle for any taxpayer to say to the Revenue, “Hidden somewhere in your vaults are the right answers: go thou and dig them out of the vaults.” That is not a duty on the Revenue. If it were, it would be a very onerous, very costly and very expensive operation, the costs of which would of course fall entirely on the taxpayers as a body. It is the duty of every individual taxpayer to make his own return and, if challenged, to support the return he has made, or, if that return cannot be supported, to come completely clean, and if he gives no evidence whatsoever he cannot be surprised if he is finally lumbered with more than he has in fact received. It is his own fault that he is so lumbered.”

99. Based on the analysis, provisions of the law and the case laws, the Tribunal finds that the Respondent, save for the assessments beyond five years, did not err in confirming the assessments.

Final Decision 100. The upshot of the foregoing is that the Appeal is partially merited and the Tribunal accordingly proceeds to make the following Orders: -a.The Appeal be and is hereby partially allowed.b.The objection decision dated 15th April, 2022 is varied in the following terms:i.The Income tax assessments for the years 2014 and 2015 be and are hereby set aside.ii.The VAT assessment for the period prior to September 2016 be and is hereby set aside.iii.The Respondent is hereby directed to re-computes income tax and VAT as per (i) and (ii) above within Thirty (30) days of the date of delivery of this Judgement.c.Each party to bear its own costs.

101. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 2ND DAY OF FEBRUARY, 2024ERIC NYONGESA WAFULA -CHAIRMANCYNTHIA B. MAYAKA - MEMBEREUNICE NG’ANG’A MEMBER MEMBERBERNADETTE GITARI - MEMBER