[2024] KETAT 731 (KLR)

Siunwa v Commissioner of Domestic Taxes (Tax Appeal E228 of 2023) [2024] KETAT 731 (KLR) (17 May 2024) (Judgment)

Neutral citation: [2024] KETAT 731 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E228 of 2023

Grace Mukuha, Chair, Jephthah Njagi, W Ongeti, G Ogaga & E Komolo, Members

May 17, 2024

Between

Emily Mutonyi Siunwa

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a sole proprietor trading as Nonsuch Printers in Bungoma County. The Appellant is in the business of large-scale printing and general supplies.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5(1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all revenue.

3. On 17th March 2020, the Respondent raised additional assessment of Kshs. 916,200. 00 in respect of Income tax against the Appellant for the year of income 2018.

4. On 28th December 2020, the Appellant filed an objection to the assessment on iTax.

5. On 16th April 2022, the Respondent rejected the late objection via the iTax platform.

6. On 19th April 2022, the Respondent issued its objection decision rejecting the Appellant’s objection on grounds that it was late and disallowing the capital expenditure for purchase of a printer.

7. The Appellant being dissatisfied with the objection decision of 19th April 2022, lodged a Notice of Appeal against that decision on 3rd April 2023 with the Tribunal.

The Appeal 8. The Appeal is premised on the Memorandum of Appeal dated and filed on 3rd April 2023 raising the following grounds:-a.That the Manager Tax Service Office -Bungoma erred in holding that the objection to the assessment of income tax was lodged late and without supporting documentary evidence.b.That the Manager erred in fact in failing to appreciate the documentary evidence supplied to him, leading to miscarriage of justice.c.That the Manager Tax Service Office- Bungoma erred in failing to appreciate the right of the Appellant to fair and just administrative justice by not requesting for any additional documentary proves if needed, leading to a biased decision.d.That the Manager Tax Service Office- Bungoma erred in failing to appreciate that indeed a printer bought under the relevant year and subject of the disputed assessment was a capital expenditure erroneously treated as revenue expenditure by the then (now deceased), accountant of the Appellant.e.That Manager Tax Service Office- Bungoma erred in failing to appreciate the need for substantive justice as protected and provided in the Kenya constitution thereby leading to miscarriage of justice.f.That the Manager Tax Service Office- Bungoma was generally biased, unfair and unjust when he dismissed the Appellant’s objection which was merited.

Appellant’s Case. 9. The Appellant’s case was also premised on its Statement of Facts filed on 16th May 2023 together with the attachments thereto.

10. The Appellant averred that additional assessment under Order Number KRA2020xxxxx20 was raised against her on 17th March 2020 in respect Income Tax returns of 2018 year of income.

11. That the assessment order under liability details directed that the incremental tax of Kshs. 916,200. 00 was due for collection.

12. That the Appellant learnt of the assessment 9 months after the date of assessment.

13. That unlike in other notices from KRA where a follow up phone is done to ask the taxpayer to either collect a physical notice or check mail, this was not done on this particular notice.

14. That in mid November 2020 the Appellant visited local Tax Service Office in Bungoma for a Tax Compliance Certificate which could not be provided online as the system indicated that there were unpaid tax balances.

15. That on inquiring of the liability, the Appellant was surprised by a huge balance included there as it was Kshs. 916,200. 00 in respect of an additional assessment.

16. That on learning of the additional assessment, the Appellant objected verbally pending online objection registration.

17. That the online objection took time as the Appellant did not have the burial permit of the Accountant who had done all the returns to the Respondent.

18. The Appellant averred that it was not true that she lodged an objection without supporting documentary evidence.

19. That on lodging the objection, she supplied the following documentary evidence:a.A letter, explaining the reason why she filed out of time and further delay after learning of the assessment. That the Appellant could not get a burial permit of the deceased Accountant quick enough to enable proof his demise.b.The burial permit of the late Accountant.c.Financial report of the year 2018 of income.

20. That on making the objection online plus the documents required, there was no further communication from the Respondent until 9th April 2021, when the Appellant received a letter informing her of having filed the objection late under Section 51 of the Tax Procedures Act.

21. That the Respondent accepted to look at the Appellant’s objection if she submitted supporting documentary evidence.

22. The Appellant averred that the Respondent did not specify the documents it wanted to be provided by the Appellant.

23. That the Appellant had every reason to believe that the documents supplied while filing the objection online together with the initial documents supplied by the late Accountant were sufficient for the office to arrive at a fair decision.

24. That on 5th October 2021, the Appellant visited the offices of the Respondent seeking a Tax Compliance Certificate.

25. The Appellant averred that she delivered the documentary evidence requested as follows:a.Equipment (Printing machine) Payment Voucher for Kshs. 2,950,000. 00 plus bank statement indicating how it was paid for.b.Salaries vouchers totaling Kshs. 1,850,000. 00. c.Repairs & Maintenance vouchers totaling Kshs. 382,880. 00. d.Rent payment vouchers Totaling Kshs. 240,000. 00 plus bank slips although all of them were defaced.

26. That being aggrieved by deliberate actions meant to deny her the Tax Clearance Certificate, she appealed to the Regional KRA office in Kisumu and explained her problems with the Bungoma office.

27. That on the intervention of Western Regional office, the Appellant was called by the local office and asked to pay Kshs. 121,911. 49 being all the tax arrears pending the determination of the objection.

28. That as the Appellant did not have the money at the time. That she late found out that the amount had risen from Kshs. 121,911. 49 to Kshs.157,275. 79 after a short period.

29. That the Appellant paid Kshs. 50,000. 00 via payment slip No. 202022xxxxx40 for Kshs. 15,000. 00 via Payment slip No. 202022xxxxx82 and a further Kshs. 35,000. 00. The Appellant averred that she made a payment plan to pay the balance in six (6) equal instalments of Kshs.17,879. 30.

30. That the said installments were paid vide the following payment slips.a.202022xxxxx35b.202022xxxxx01c.202022xxxxx42d.202022xxxxx22e.202022xxxxx36f.202022xxxxx79

31. That not being satisfied with salary vouchers, the Respondent asked for salary schedule which the Appellant submitted on 4th of March 2022.

32. That the then Accountant was sick at the time he was preparing the accounts.

33. That owing to the health condition, the then Accountant now deceased, made erroneous judgement and treated an expenditure of capital nature as a revenue expenditure which lowered the profitability of the business which affected the tax liability negatively.

34. That given that there are capital and investment allowances taxpayers have to enjoy when declaring income, the Appellant was aggrieved by the Respondent’s decision to dismiss her case and assume that the printing machine being a capital expenditure is written back to income without any investment allowances which would have reduced incremental tax to a lower amount.

35. The Appellant submitted that she was heavily punished for the error of the ailing Accountant without considering the fact that a sick person was not in the right state of mind to make proper decisions.

Appellant’s prayers. 36. The Appellant made the following prayers to the Tribunal:-a.That the decision of the Manager Tax Service Office- Bungoma dated 19th April 2022 in relation to objection No. KRA2020xxxxxX57 dated 28th December 2020 against assessment No. KRA2020xxxxx20 of 17th March 2020 be set aside.b.That the Manager Tax Service Office- Bungoma or such other person as by Law empowered be ordered to allow the taxpayer to amend the year 2018 returns by correcting the error that led to the assessment and enjoy capital or investment allowance as provided for by the law.c.That costs of this Appeal be provided for.

Respondent’s Case 37. The Respondent premised its case on the following documents:-a.The Respondent’s Statement of Facts dated and filed on 15th June 2023. b.The Respondent’s Written Submissions dated and filed on 7th February 2024.

38. The Respondent averred that Section 24(2) of the Tax Procedures Act allows the Commissioner to assess a taxpayer's liability using any information available to him.

39. That to this extent, the Respondent confirmed to have operated within the confines of the law by using the data available. That the Section states:-“The Commissioner shall not be bound by a tax return or information provided by or on behalf of a taxpayer and the Commissioner may assess a taxpayer's tax liability using any information available to the Commissioner.”

40. The Respondent also averred that Section 31(1) of the Tax Procedures Act, 2015 states“The Commissioner may amend an assessment referred to in this section as the ‘original assessment' by making alterations or additions, from the available information and to the best of the Commissioner's judgement, to the original assessment of a taxpayer for a reporting period to ensure that-(c)in any other case, the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates."

41. That further, Section 31(2) of the Tax Procedures Act, 2015 states“A taxpayer who has made a self-assessment may apply to the Commissioner, within the period specified in subsection (4)(b)(i), to make an amendment to the taxpayer's self­ assessment."

42. The Respondent averred that the Appellant admitted in her Statement of Facts that the objection was filed late. That the Commissioner was never furnished with documents to merit validation of the objection. That this contrary to Section 51 of the Tax Procedures Act, 2015 which provides:“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; and(c)all the relevant documents relating to the objection have been submitted.'

43. That further, Section 51(7) states:-“The Commissioner may allow an application for the extension of time to file a notice of objection if-a.the taxpayer was prevented from lodging the notice of objection within the period specified in subsection (2) because of an absence from Kenya, sickness or other reasonable cause; andb.the taxpayer did not unreasonably delay in lodging the notice of objection.'

44. The Respondent averred that the Appellant has a duty to keep and maintain proper records for purposes of computation of tax. That Section 23 of the Tax Procedures Act, 2015 provides that:-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; andsubject 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 sho1·ter period as may be specified in a tax law.”

45. The Respondent stated that the Appellant failed to provide sufficient supporting documents as required.

46. That Section 59 of the TPA on production of records states:-1. For the purposes of obtaining full information in respect of the tax liability of any person or class of persons, or for any other purposes relating to a tax law, the Commissioner or an authorized officer may require any person, by notice in writing, to-a.produce for examination, at such time and place as may be specified in the notice, any documents (including in electronic format) that are in the person's custody or under the person's control relating to the tax liability of any person;b.furnish information relating to the tax liability of any person in the manner and by the time as specified in the notice; or(c)attend, at the time and place specified in the notice, for the purpose of giving evidence in respect of any matter or transaction appearing to be relevant to the tax liability of any person.”

47. The Respondent relied on the High Court case of Commissioner of Domestic Services v Galaxy Tools Limited [2021] eKLR where the Judge at paragraph 30 held that a reasonable business is expected to keep all transactional details of a transaction.“I reiterate the foregoing here in toto. The appellant had demonstrated that there was loss of VAT in the subject transactions. There having been no supply of any goods, the respondent cannot be said to have been innocent in the transactions. As a reasonable businessman, it was expected of it to keep all the transactional details of the subject transactions. It is only then it would have satisfied the appellant and the Court that it was innocent in the fraud perpetrated by the missing traders whom the appellant had concluded were in the business of selling air and invoices to colluding traders."

48. The Respondent submitted that the Appellant having failed in her duty of keeping the requisite documents to support its business transactions, she automatically failed in her burden of proof as provided in Section 56(1) of the Tax Procedures Act. That Section 56(1) of the Tax Procedures Act states,“(1)In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect."

49. In emphasizing the issue of the burden of proof, the Respondent relied on the South African case of Metcash Trading Limited -vs- Commissioner for the South African Revenue Service and Another Case CCT 3/ 2000 where the learned judge conversed the issue of burden of proof as follows;“But the burden of proving the Commissioner wrong then rests on the vendor under section 37. Because VAT is inherently a system of self-assessment based on a vendor's own records, it is obvious that the incidence of this onus can have a decisive effect on the outcome of an objection or appeal. Unlike income tax, where assessments can elicit genuine differences- of opinion about accounting practice, legal interpretations or the like, in the case of a VAT assessment there must invariably have been an adverse credibility finding by the Commissioner and by like token such a finding would usually have entailed a rejection of the truth of the vendor's records, returns and averments relating thereto.Consequently, the discharge of the onus is a most formidable hurdle facing a VAT vendor who is aggrieved by an assessment unless the Commissioner's precipitating credibility finding can be shown to be wrong, the consequential assessment must stand"

50. The Respondent submitted that this Appeal is defective since the Appellant filed the Appeal almost a year after the Respondent gave its objection decision.

51. The Respondent submitted that it gave its decision on 19th April, 2022 and the Appellant filed its Notice of Appeal on the 16th April, 2023. That this was almost a year after the Respondent's decision.

52. The Respondent submitted that Section 13(1)(b) of the Tax Appeals Tribunal states that a Notice of Appeal is to be submitted to the Tribunal within 30 days after the decision has been given.

53. The Respondent submitted that the Tribunal has dealt with the issue of filing a Notice of Appeal out of time in the Andrew Mukite Musangi V. Commissioner of Domestic Taxes Tax Appeal No. 229 of 2018 where it stated that:-“In the instant case, the Notice of Appeal was filed after expiry of 30 days after issuance of the objection decision. The Appellant did not apply for extension of time and therefore the Tribunal cannot contemplate extending the time to file a Notice of Appeal suo moto.It was instructive that the Appellant did not demonstrate due diligence in the observance of timelines set in law for filing of appeal processes or even apply for extension to file its notice of appeal out of time.”

54. The Respondent submitted that the Appeal ought to be struck out since it offends the mandatory provisions of the law for filing appeals at the Tribunal.

55. The Respondent submitted that the Appellant failed to object as required by the Law and neither did she seek leave of the Tribunal to file the Appeal out of time.

Respondent’s prayers 56. The Respondent made the following prayers to the Tribunal:-a.That this Appeal be dismissed with costs to the Respondent.b.That the Tribunal upholds the Respondent's objection decision dated 19th April 2022.

Issues for Determination 57. The Tribunal, having reviewed the Memorandum of Appeal, Statements of Facts filed by both parties, and the Respondent’s written submissions, identified the following issues for determination: -a.Whether there is a valid Appeal before the Tribunal.b.Whether the Respondent erred in rejecting the Appellant’s late objection.

Analysis and Findings 58. Having determined the issues that fell for its determination, the Tribunal proceeds to analyze them as follows.

a. Whether there is a valid Appeal before the Tribunal. 59. The genesis of this Appeal is the additional assessment raised against the Appellant on 17th March 2020 for the year of income 2018.

60. The Appellant objected to the assessment on 28th December 2020.

61. The Respondent rejected the late objection on 16th April 2022 and issued its objection decision on 19th April 2022.

62. Aggrieved by the objection decision, the Appellant lodged a Notice of Appeal against the decision on the 3rd April 2023.

63. The Respondent submitted that the Appeal was filed out of time, without leave of the Tribunal. That the Appellant filed the Appeal herein against the decision made on 19th April 2022. The Appeal was filed on 16th April 2023. That no leave to file the Appeal out of time was sought from the Tribunal.

64. The Respondent submitted that for a Notice of Appeal to be deemed as competently lodged, the same ought to be made and/or lodged within the prescribed timelines as set out under Section 13(1)(b) of the Tax Appeals Tribunal (TAT) Act.

65. The Respondent further submitted that Section 13(3) of the TAT Act, provides the remedy to any party who wishes to lodge an Appeal beyond the statutory timeline, that such a party may seek leave of the Tribunal in writing.

66. The Tribunal notes that the procedure for appeal as set out in Section 13(1)(b) of the TAT Act requires that a Notice of Appeal shall be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.

67. The Tribunal observes that the Appellant received the Respondent’s decision on 19th April 2022 but filed its Notice of Appeal on 16th April 2023, almost one year after receiving the decision.

68. The Tribunal notes that in the objection decision letter, the Respondent advised the Appellant as follows:-“If you are not satisfied by this decision, you may appeal on-line to the Tax Appeals Tribunal within 14 days of this decision in accordance with the provisions of the Tax Appeals Tribunal Act, 2013. ”

69. The Tribunal notes that the Appellant never acted on the advice of the Respondent and instead appealed the Respondent’s decision almost one year after being notified on the decision.

70. The Tribunal further notes that the Appellant failed to apply for leave to file its Notice of Appeal out of time as required in Section 13(3) of the TAT Act which provides: -“The Tribunal may, upon application in writing or through electronic means, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).”

71. The Tribunal is of the considered view that the timelines for appealing the Commissioner’s decisions are clearly set out in the law, and all taxpayers are liable to comply with the timelines, save for when unavoidable circumstances prevent a taxpayer from fulfilling its obligations as envisioned in Section 13(4) of the TAT Act which provides: -“An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from filing the notice of appeal or submitting the documents within the specified period.”

72. The Tribunal has dealt with a similar matter in TAT Appeal No 299 of 2018, Andrew Mukite Musangi v Commissioner of Domestic Taxes where from Paragraphs 27 to 30 the Tribunal stated: -“27. Statutory timelines give rise to substantive rights and obligations and cannot be ignored and extended by the Tribunal on its own motion. If the Tribunal on its own motion extends the time provided, it would amount to judicial legislation which is not within the function of the Tribunal.28. In the instant case, the Notice of Appeal was filed after expiry of 30 days after issuance of the objection decision. The Appellant did not apply for extension of time and therefore the Tribunal cannot contemplate extending the time to file a Notice of Appeal suo moto.29. It was instructive that the Appellant did' not demonstrate due diligence in the observance of timelines set in law for filing of appeal processes or even apply for extension to file its notice of appeal out of time.30. The Tribunal therefore finds that the instant Appeal was fatally defective and therefore not properly before the Tribunal as it was filed out of time.”

73. The Tribunal is also guided by the case of W.E.C. Lines Ltd vs. The Commissioner of Domestic Taxes [TAT Case No. 247 of 2020] where it was held at paragraph 70 while reiterating the holding in Krystalline Salt Ltd vs KRA [2019] eKLR that: -“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 procedures. The relevant procedure here is the process of opposing an assessment by the Commissioner.”

74. Based on the law and case laws cited above, the Tribunal finds that there is no valid Appeal before it and therefore, the Tribunal does not have the jurisdiction to determine the matters in the Appeal.

75. Having determined that there is no valid Appeal before it, the Tribunal did not delve into the second issue for determination as it was rendered moot.

Final Decision 76. The upshot of the foregoing is that the Appeal is incompetent and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

77. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 17TH DAY OF MAY, 2024. GRACE MUKUHA - CHAIRPERSONJEPHTHAH NJAGI - MEMBERDR. WALTER ONGETI - MEMBERGLORIA A. OGAGA - MEMBERDR. ERICK KOMOLO - MEMBER