[2024] KETAT 485 (KLR)

Sigey v Commissioner of Legal Services & Board Coordination (Tax Appeal 196 of 2023) [2024] KETAT 485 (KLR) (5 April 2024) (Judgment)

Neutral citation: [2024] KETAT 485 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 196 of 2023

CA Muga, Chair, BK Terer, D.K Ngala, SS Ololchike & GA Kashindi, Members

April 5, 2024

Between

Paul Kipruto Sigey

Appellant

and

Commissioner of Legal Services & Board Coordination

Respondent

Judgment

Background 1. The Appellant is an individual and a registered taxpayer dealing in petroleum products.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of the laws of Kenya. Under Section 5(1) of the Act, the Respondent 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 function under subsection (1), it is mandated to administer and enforce all provisions of the written laws as set out in Parts 1 & 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 issued additional assessments on 22nd March 2022 for Income tax resident individual for Kshs 1,994,990. 00 inclusive of interest and penalties.

4. The Appellant filed a late objection on 13th June, 2022 which was allowed by the Respondent. The Appellant was requested to provide supporting documents vide the Respondent’s electronic mail dated 27th July 2022. Vide an electronic mail dated 3rd August 2022, the Appellant provided some attached documents not specified in the electronic mail correspondence.

5. The Respondent reviewed the documentation and vide a letter dated 11th August 2022 issued its objection decision confirming the additional assessment of Kshs 1,994,990. 00.

6. Aggrieved by the Respondent’s decision the Appellant filed his Notice of Appeal dated 3rd February, 2023 on 6th March 2023.

The Appeal 7. The Appeal is premised on the following grounds of appeal as stated in the Appellant’s Memorandum of Appeal dated 3rd March 2023 and filed on 6th March, 2023:-a.That the Respondent erred in law and fact by rejecting the Appellant’s objection dated 13th June without giving reasons contrary to Section 51(10) of the Tax Procedures Act No. 29 of 2015 (hereinafter ‘TPA’).b.That the Respondent erred in law and fact by disregarding the input purchases incurred by the Appellant before raising the additional assessments.c.That the Respondent erred in law and fact by applying 40% of the turnover as input expenses while disregarding the fact that the Appellant was a dealer in petroleum products where profit margins are dictated by its Regulator the Energy Petroleum Regulatory Authority (hereinafter ‘EPRA’).d.That the Respondent erred in law and fact by failing to acknowledge an admitted filing error on the part of the Appellant as explained in the objection wherein the Appellant requested to be allowed to correct the return in question.e.That the Respondent erred in law and fact by failing to rely on the Appellant’s physical documents which included the financial statements that showed the correct state of affairs for the period 2019.

Appellant’s Case 8. In his Statement of Facts dated 3rd March, 2023 and filed on 6th March, 2023, the Appellant stated that despite the peremptory terms provided for under Section 51 (10) of the TPA, the Respondent failed to adhere to the statutory edict that require the Respondent to provide reasons for the decision. He reiterated that the Respondent blatantly ignored his objection and went ahead to give its statement of finding which only rehashed grounds of objection he provided without providing a reasoning or basis for rejecting the objection and subsequently confirming the additional assessments.

9. He stated further that the Respondent failed to acknowledge that statutory edict is not procedural technically but a law which must be complied with as the Legislative in its wisdom expressly and in mandatory terms provided that an objection decision shall include a statement of findings on the material facts and the reasons for the decision.

10. The Appellant asserted that despite the fact that he had already declared the subjective invoices as input VAT on I-tax, the Respondent went ahead to disregard the same and instead assumed 40% of VAT turnover as input purchases. He reiterated that despite providing all necessary documents supported by the financial statement and tax computations, the Respondent failed to consider the same in rejecting his objection.

11. The Appellant stated that he is engaged in selling petroleum products as a dealer in a petrol station whose profit margin is very minimal and regulated by EPRA whose functions are provided for by Section 10 of the Energy Act, No. 1 of 2019 (hereinafter ‘Energy Act’) which includes regulation of supply and sale of petroleum and petroleum products.

12. It was the Appellant’s assertion that the Respondent failed to appreciate the nature and type of products his business was engaged in as it ought to have appreciated that the profit margins of the Appellant’s business were regulated by EPRA and as such should not have applied 40% of the turnover as the basis of its assessment. Further that the Respondent’s basis was not only erroneous but also excessive and done without any reasonable justification.

13. The Appellant contended that although he inadvertently made an erroneous filing with regards to sales in the returns for 2019, the Respondent erred by failing to acknowledge this admitted filing error on the part of the Appellant where he had requested to be allowed to correct the return in question .He stated that despite his plea, the Respondent went ahead to disregard the same contrary to the principles of natural justice that call for procedural fairness.

Appellant’s Prayers 14. The Appellant prayed that the Tribunal considers his grounds and find that: -a.This Appeal be allowed.b.The Respondent’s decision dated 11th August 2022 be set aside and reversed.c.The costs of and incidental to this Appeal be awarded to the Appellant, andd.Any other orders the Tribunal may deem fit.

Respondent’s Case 15. The Respondent addressed the Appellant’s grounds of Appeal through its Statement of Facts dated 10th March, 2023 and filed on even date.

16. In response to ground (a) of the Appeal, the Respondent averred that the assessments were correctly issued and confirmed in accordance to the Value Added Tax Act No. 35 of 2013 (hereinafter ‘VAT Act’) and that the Appellant failed to provide any evidence that would have altered the assessment. It argued that Section 56(1) of the TPA places the onus of proof in tax objections on the taxpayer who in this case failed to avail evidence that would have supported a contrary assessment or that would have guided the Respondent at arriving to a different objection decision.

17. In further response to ground (a) of the Appeal, the Respondent asserted that the Appellant lodged the objection on 13th June 2022 on i-Tax which was received and acknowledged. However, the same was treated as invalidly lodged as it did not have grounds of objection. It asserted further that the TPA empowers it to notify a party where an objection as lodged is invalid and that it notified the Appellant accordingly and requested him to provide documents. However, the Appellant failed to provide the documents as requested.

18. The Respondent insisted that the Appellant filed all necessary returns, paid what he had assessed himself to be payable. However, it averred that the Appellant was uncooperative in the provision of relevant records and failed to respond to request for documents hence no relevant documents or records were provided to support his objection. It averred that the law empowers it to make an assessment based on its best judgement.

19. In response to grounds (b), (c) and (d) of the Appeal, the Respondent averred that the Appellant filed his income tax resident individual self-assessment return for year 2019 on 10th June 2022 and declared gross turnover from business of Kshs 211,904. 00 but did not indicate any purchases or expenses. Further that it assessed additional turnover based on noted unexplained variance between turnover as per the Appellant’s Income tax return and VAT returns for the year 2019.

20. The Respondent asserted that it took cognizance of the fact that the Appellant must have incurred some costs in the form of purchases and other business expenses to generate the income and went ahead and allowed expenses at 40% of the turnover based on the available information and to the best of its judgement as the Appellant had neither provided not supported the actual expenses incurred. It therefore relied on Section 31 of the TPA to make alterations or additions to original assessment form available information for a reporting period based on its best judgement.

21. In response to ground (e) of the Appeal, the Respondent averred that the Appellant’s claim was inaccurate as the physical documents he had provided were considered and were found insufficient in supporting his objection grounds. It averred further that whereas the purchases and expenses figures were quoted in the financial statements, no documents in support of the same were availed for review and verification contrary to Section 24(1)(2) of the TPA which empowers the Respondent to carryout assessment based on the information available.

Respondent’s Prayers 22. The Respondent averred that the Appellant was underserving of the prayers sought due to the foregoing reasons and prayed that the Tribunal considers the case and find that: -a.The Respondent’s objection decision be upheld.b.The outstanding tax arrears of Kshs 1,994,990. 00 are due and payable by the Appellant.c.The Appeal herein be dismissed with costs to the Respondent.

Parties’ Submissions 23. The Appellant did not file his Written submissions and the Tribunal will only consider his pleadings. The Respondent on the other hand filed its Written submissions dated 11th October, 2023 on 29th November, 2023 wherein it raised three issues for determination.a.Whether the Respondent took into consideration all additional information availed before making the decision.b.Whether the Respondent erred by raising an assessment for the period of income year 2019. c.Whether the assessments issued were excessive.

24. The Respondent addressed these issues jointly and submitted that the assessments were correctly issued and conformed to the Income Tax Act, CAP 470 of the laws of Kenya (‘hereinafter ‘ITA’). Further that Section 56(1) of the TPA places the onus of proof in tax objections on the taxpayer who in this case failed to avail evidence that would support a contrary assessment or that would have guided the Respondent at arriving to a different objection decision.

25. It was the Respondent’s submission that the Appellant lodged a late objection on 13th June 2022 on i-Tax which the Respondent acknowledged and requested the Appellant to provide document. However, no evidence was provided to address issues raised hence the said assessment was confirmed vide the objection decision.

26. The Respondent asserted that the tax was arrived at based on the information available and provided by the Appellant and that it is empowered under Section 29(1) of the TPA to make decisions based on available information and its best judgement.

27. The Respondent submitted that the Appellant underdeclared the income for the period under review contrary to the provisions of the ITA. Further that Section 54A (1) of the same Act places the responsibility of any person carrying on business to maintain records of all transactions. It submitted that the Appellant failed to provide signed financial statements and books accounts to support its allegations

28. It was the Respondent’s assertion that the Appellant supplied insufficient documents and that it assessed additional turnover based on noted unexplained variances between turnover as per the Appellant’s income tax return and VAT returns for the year 2019. It also considered the Appellant’s physical documents provided by the Appellant. However, the same were found to be insufficient in supporting the objection grounds contending that the Appellant’s claim was inaccurate.

29. The Respondent relied on the following cases to buttress its casea.Metoxide vs Commissioner of Domestic taxes 2021b.Monaco Engineering Ltd vs Commissioner Domestic Taxes TAT Appeal No.67/2017c.John Githua Njogu vs Commissioner Investigation & Enforcement TAT 101/2018d.Osho Drappers Ltd vs Commissioner of Domestic Taxes TAT No.159 of 2018e.Miao YI vs Commissioner of Investigations & Enforcement TAT No.441of 2019f.Ritz Enterprises Ltd vs Commissioner of Investigation & Enforcement TAT No.227 of 2018.

Issues For Determination 30. Having carefully considered the parties’ pleadings, documentation and Respondent’s written submissions, the Tribunal is of the view that this Appeal raises two issues for determination.a.Whether the Appeal is properly before the Tribunal.b.Whether the Respondent erred in raising the Assessment.

Analysis And Findings 31. The Tribunal will proceed to analyze the two issues for determination as follows:

a. Whether the Appeal is properly before the Tribunal. 32. A chronology of events that culminated to this Appeal follows that after the Appellant objected to the Respondent’s assessment on 13th June, 2022, he was requested for documents through the Respondent’s letter dated 27th July,2022. The Appellant provided these documents on 3rd August, 2022 thereafter the Respondent issued the Objection decision on 11th August,2022. Section 13 (1)(b) of the Tax Appeals Tribunal Act outlines the procedure and timelines within which to file an appeal to the Tribunal when aggrieved by the Respondent’s decision. It provides as follows;“A notice of appeal to the Tribunal shall-b)be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner…”

33. The Tribunal notes that from the documentation availed, the Appellant ought to have filed his Notice of Appeal by 11th September,2022. However, the Appellant filed the Notice of Appeal dated 3rdMarch, 2023 on 6th March, 2023, way outside the mandatory timelines and without leave of the Tribunal.

34. The Tribunal relies on the holding in the Court of Appeal case of Speaker of the National Assembly vs James Njenga Karume(1992) eKLR where it was held as follows: -“Where there is a clear procedure for redress of any particular grievance prescribed by the Constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedure….”

35. In view of the foregoing, the Tribunal finds that this Appeal is not properly before it.

b. Whether the Respondent erred in raising the Assessment. 36. Having established that the Tribunal lacks jurisdiction to entertain the Appeal, it will proceed to down its tools and not proceed with this issue as the same has been rendered moot.

Final Decision 37. The upshot of the above is that the Appeal is incompetent and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and hereby struck outb.Each party to bear its own costs.

38. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 5TH DAY OF APRIL, 2024CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER DELILAH K. NGALA - MEMBER MEMBERSPENCER S. OLOLCHIKE GEORGE KASHINDI - MEMBER MEMBER