https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/252

 REPUBLIC OF KENYA IN THE TRIBUNAL OF KENYA AT NAIROBI COUNTY COURT NAME: TAX APPEALS TRIBUNAL CASE NUMBER: TATC/E949/2025 SJI VENTURES LIMITED VS KENYA REVENUE AUTHORITY JUDGMENT # BACKGROUND 1. The Appellant is a resident company within Mombasa County. whose principal source of income is rental income. 2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws. 3. The Respondent subjected the Appellant to a verification exercise which revealed that it had under declared its income as established through the comparison of the declared turnover and the turnover established through the banking analysis. 4. The Respondent therefore brought to charge the under declared income and the disallowed expenses. The Respondent proceeded to issue a pre-assessment notice dated 9th April 2025 in the sum of Kshs 98,748,611.76 comprising principal tax. The Respondent then issued the Appellant with income tax assessments orders dated 14th May 2025 for period 2020,2021, 2022, and 2023. 1. The Appellant objected to the said assessment via a notice of objection dated 12th June, 2025.Subsequently, the Respondent issued an objection decision dated 11th August 2025 confirming the assessment and seeking to recover Kshs 117,627,330.98 being principal tax, penalties and interests. 2. Dissatisfied with the objection decision, the Appellant filed a Notice of Appeal dated 2nd September, 2025. # THE APPEAL 1. The appeal is premised on the Memorandum of appeal dated 2 nd September, 2025 and filed on the even date raising the following grounds: 1. That the Respondent erred in law and facts by failing to understand that not all money received in the bank account translated into rental income generated by the Appellant for the periods under dispute. The Appellant further stated that it was wrongful and unlawful for the Respondent to subject the purported under-declared income established from the banking analysis without understanding the nature of the said transactions. The Appellant stated that it holds fixed deposit bank accounts and that the amounts the Respondent claiming to be under- declared income are proceeds and withdrawals from the fixed deposit accounts. The Appellant stated that it did Company inter-bank transfers from savings accounts and the same cannot be termed as income in the receiving accounts. Therefore, the Appellant stated that the Respondents decision contravenes the provisions of section 2 of the Income Tax Act Cap 470 (ITA) whereby qualifying interest on fixed deposits is termed as a final tax. 2. That the Respondent contravened the provisions of Section 15 and 16 of the ITA by disallowing significant genuine expenses, for the year between 2020 and 2023, that were genuinely and legally incurred by the Appellant in realizing the taxable income against which the Respondent collected tax. The Appellant averred that the decision of the Respondent to disallow the expenditure that had been incurred by the Appellant in deriving its revenue amounted to gross violation of the Appellant's right to claim the expenses while adjusting the taxable income against which corporate tax ought to be charged. The Appellant stated that it had incurred the disputed expenses and that it was at liberty to claim the same. It therefore, prayed that this Honourable Tribunal be pleased to allow back the disallowed expenses. * 1. That the Respondent's decision to disregard the information, records and explanations rendered by the Appellant in defence of its grounds of objection amounted to breach of law and lack of good-will in according the Appellant reasonable angle of justice it deserved. The Appellant averred that it was not properly treated by the Respondent in as far as consideration of its sufficient records and information availed to the Respondent is concerned. The Appellant stated that it availed the detailed bank reconciliations as had been requested in aiding review of the objection application but none was considered while issuing its objection decision. The Appellant stated that it maintains proper books of accounts and records and the same were available for review by the Respondent but the Respondent chose to ignore them. The Appellant therefore, prayed that this Honourable Tribunal sets aside the Respondent's objection decision in entirety. # THE APPELLANT’S CASE 1. The Appellant’s case was based on its Statement of facts dated and filed on 2nd September, 2025. 2. The Appellant filed the following documents in support of the appeal: 1. The pre-assessment notice dated 9th April 2025; 2. The assessment orders dated 14th May 2025, 29th May 2025; 3. Notice of objection dated 12th June 2025; 4. Objection application acknowledgment receipts dated 12 th June 2025; 5. Email correspondences; and 6. Objection decision dated 11th August 2025. 3. The Appellant stated that the Respondent issued the pre-assessment notice on 9th April 2025 highlighting bank analysis variances and unsupported expenses cutting across the year 2020 to 2023. On 14th May 2025, the Respondent issued additional assessments to the Appellant for the obligation of Income Tax Company. 1. It contended that the Respondent subjected all the bank deposits to tax without taking into consideration of their sources and movements. 2. The Appellant contended that the Respondent failed to appreciate the guidelines put in place by section 15 and 16 of the ITA by disallowing expenditure that had been genuinely incurred by the Appellant in generating taxable income against which corporation tax had been charged. The Appellant stated that the decision of the Respondent to disallow significant expenditure for the year 2020 to 2023 amounted to prejudice and unfair administration of justice as there is no way one can report income without having incurred costs. 3. The Appellant stated that it incurs various expenditure before arriving at a realized taxable income and that there is no way the Appellant could have realized such taxable income without having incurred related costs/expenditure. It therefore, urged this Honourable Tribunal to find it lawful for the Appellant to claim the disallowed expenditure as the same had been done in accordance with the law. 4. According to the Appellant, the established sales variance, which was thereafter subjected to tax failed the test of validity, practicability and reliability as the same was baseless and unsupported and should be scrapped by this Honourable Tribunal. The Appellant averred that not all bank credits/deposits amount to revenue. The Appellant stated that, although banking analysis method is allowed in computing undeclared sales, the same ought to be done in a manner that does not subject the Appellant to unfair and ambiguous tax assessments. It was the Appellant's prayer that such unsupported and ambiguous findings be set aside. 5. It stated that it objected to the assessment whereupon the Respondent sent an email dated 18th June 2025 stating that the Appellant had issued an invalid notice of objection as per section 51 (3) of the Tax Procedures Act Cap 469B(TPA)and requested some relevant documents. The Appellant contended that it submitted the requested documents to the Respondent and its tax representative kept in touch with the Respondent in order to offer necessary explanations, clarifications and support in the spirit of resolving the dispute in a much more amicable manner. The Appellant stated that it did cooperate with the Respondent's team and availed sufficient evidential records in support of its objection. 1. The Appellant contended that apart from the availed evidential records,its tax representative was readily available for further explanation and clarification in areas that the Respondent needed for clarification and even made regular visits to the Respondents offices. 2. The Appellant contended that its tax representative made several communications with the Respondent in the interest of resolving the matter but all bore no fruits. 3. It asserted that the prejudice conceived by the Respondent in handling the dispute at hand could not guarantee the Appellant justice. It averred that this was evident when the Respondent failed to consider the documents and explanations availed by the Appellant before issuing its objection decision. Subsequently, the Respondent issued its objection decision on 11th August 2025 confirming the assessments in its entirety. 4. The Appellant reiterated that the Respondent’s decision of taxing fixed deposits amounts and proceeds leads to double taxation as the same had already been subjected to withholding tax. It stated that qualifying interest is declared as a final tax in the provisions of Section 2 of the ITA. 5. The Appellant was of the view that the reasons against which the Respondent upheld the assessment amounted to gross violation of the Appellants right to justice and fair administration in the sense that none of the records, explanations and documents availed by the Appellant was considered in issuing the objection decision. 6. The Appellant averred that unless this Honourable Tribunal intervenes in defending it against the unjust and unfair advances by the Respondent, then it stands to suffer irreparable loss in terms of tax payment that shall be resulted from unfair tax administration and process intended to punish and harm the Appellant's business operations. # Appellant’s Prayers 1. The Appellant prayed for the following orders: 2. That this Honourable Tribunal be pleased to allow the Appellant's Appeal in its entirety; 3. That this Honourable Tribunal be pleased to grant orders setting aside and annul the assessments by the Respondent; and 1. That this Honourable Tribunal be pleased to issue any other order favourable to the Appellant as it may find just and expedient to issue. # THE RESPONDENT’S CASE 1. The Respondent’s case was premised on its Statement of facts dated 1st October 2025 and filed on the even date and its written submissions dated and filed on 9th March 2026. 2. The Respondent’s case was that an analysis of the Appellant's bank statements indicated unsupported and unexplained withdrawal transactions and expenditure payments whose sources the Respondent could not establish as to whether they are taxed. The Respondent further brought to charge unsupported, unexplained and unreconciled amounts. The Respondent then issued an objection decision dated 2nd April, 2025. 3. The Respondent averred that all actions were taken in accordance with the provisions of the TPA, the ITA, Value Added Tax Act Cap 476(VATA), and related regulations. 4. The Respondent stated that the Appellant was granted an opportunity to respond to the audit findings and object to the assessment in line with due process. 5. The Respondent averred that the assessments were issued based on available information during assessment and that the information available to the Respondent was the taxpayer's bank statements. It therefore contended that the use of banking method to arrive at the assessment was correctly applied. It contended that the assessment was not excessive and based on available information. 6. The Respondent relied on Section 24(2) of the TPA which provides that the Respondent has the mandate to carry assessment and is not bound by the information given as follows: *(2) 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.* 1. The Respondent relied on the provisions of Section 56 of the TPA and Section 30 of the Tax Appeals Tribunal Act Cap 469A(TATA) which establish that the responsibility to prove compliance with tax obligations rests solely with the Appellant in all circumstances. 1. According to the Respondent, the Appellant did not provide documents in support to the objection. It asserted that vide a letter dated 18th June, 2025 and reminders sent on 10th July 2025 and 30th July 2025. It stated that it requested for the following documents i.e. Audited accounts, bank accounts, sales invoices and ledgers, expense ledgers for the period assessed/SLO Contract agreements, VAT monthly analysis on vatable and exempt supplies, proof of payment and any other documents in support of the objection. 2. The Respondent pointed out that the Appellant did not avail any documents to support the objection. It averred that the burden to prove the assessments were rested on the Appellant in line with Section 56(1) of the TPA. 3. The Respondent maintained that the Appellant having failed to provide the documents, it relied on the available documents to make its decision. 4. The Respondent submitted that the assessments were valid; and that the Appellant failed to discharge its burden of proof. 5. The Respondent cited the cases of **Digital Box Ltd v Commissioner of Investigation & Enforcement (2019) eKLR**; and **Commissioner of Domestic Taxes v Altech Stream (EA) Limited [2021] eKLR** to submit that the Respondent is allowed to use any information that is available to it and use the best of his or her judgment in making the assessment. 1. The Respondent cited the case of **Ushindi Exporters Limited v Commissioner of Investigation and Enforcement (Tax Appeals Tribunal No 7 of 2015; and Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR** to submit that the taxpayer has to prove that the assessment was incorrect but the Appellant herein failed to do so. 1. The Respondent submitted that whereas it requested for documents, the Appellant did not adduce them. It cited the case of **Osho Drapers Limited** **versus Commissioner of Domestic Taxes [2022] eKLR**, where it was held that Section 59 of the TPA empowers the Commissioner to request for more and additional information to satisfy himself on the taxable income declared. 1. The Respondent also relied on the cases of **Boleyn International Limited versus Commissioner of Investigations & Enforcement (Tax Appeal Tribunal No 55 of 2019); Rongai Tiles and Sanitary Ware Limited v** **Commissioner of Domestic Taxes (Tax Appeals Tribunal No 163 of 2017); and Simon Kahinga Mbura v Commissioner of Domestic Taxes TAT No.561 of 2020** to submit that the taxpayer has a duty to avail documents to support the objection and to ensure that the notice of objection is validly lodged. The Respondent submitted that the Appellant failed to provide the documents even after being requested to provide them. 1. The Respondent therefore, maintained that the Appellant failed to discharge the burden of proof. # Respondent’s prayers 1. The Respondent prayed as follows: 2. That the appeal be dismissed with costs to the Respondent; and 3. The Tribunal be pleased to uphold the tax assessment as confirmed by the objection decision dated 11th August, 2025. # ISSUES FOR DETERMINATION 1. The Tribunal having considered the pleadings, puts forth the following issues for determination: # Whether the Respondent erred in relying on banking analysis method to raise the assessment; and 1. **Whether the Respondent erred in disallowing expenses incurred by the Appellant in production of income.** **ANALYSIS AND FINDINGS** 1. Having identified the issue for determination, the Tribunal proceeds to analyse the same as hereunder: - # Whether the Respondent erred in relying on bank analysis method to raise the assessment 1. Whereas the Appellant acknowledged that the banking analysis method is one of the methods of assessment, the Appellant’s case was that the Respondent subjected all the bank to tax without taking into consideration their sources and movements. The Appellant also argued that the Respondent’s decision of taxing fixed deposits amounts and proceeds leads to double taxation as the same had already been subjected to withholding tax. On the other hand, the Respondent’s case was that it relied on the bank statement because the Appellant failed to provide the documents that it requested for. 1. The Tribunal notes that pursuant to Section 56(1) of the TPA and Section 30 of the Tax Appeals Tribunal Act, the burden of proving that a tax decision is incorrect rests squarely upon the taxpayer. Consequently, once the Respondent demonstrated that the assessment was derived from an analysis of the Appellant’s banking records, the evidentiary burden shifted to the Appellant to demonstrate, through cogent evidence, that the deposits subjected to tax did not constitute taxable income. 2. The Tribunal further notes that the Appellant’s case is founded on the assertion that not all deposits reflected in its bank accounts represented rental income. Specifically, the Appellant contended that certain deposits constituted inter-account transfers, proceeds from fixed deposit accounts, and amounts already subjected to withholding tax. While these assertions may, in principle, constitute valid explanations for bank deposits, they remain matters of fact which require evidentiary substantiation. 3. The law is settled that mere assertions, however forcefully made, do not amount to proof. Where a taxpayer disputes an assessment founded on banking analysis, it must identify the specific deposits alleged to have been wrongly treated as income, provide supporting documentary evidence explaining the nature of those deposits, and demonstrate why such deposits should be excluded from taxable income. 4. The Court has long recognised the principles governing banking deposit analysis method. In the case of **Hole v The Queen, 2016 TCC** 55 a Canadian Court had the following to say about banking deposit analysis method: *‘‘A bank deposit analysis is an alternative method of determining income that is sometimes used by the Minister when the Minister believes that a taxpayer's records are an inadequate means of verifying the taxpayer's income.* ***In simple terms, a bank deposit analysis assumes that all deposits that have been made to a taxpayer's bank account are income unless the taxpayer is able to show otherwise.*** *[27] There* ***are two primary ways in which a taxpayer can challenge a bank deposit analysis. The first is to prove that his or her records were adequate and thus that his or her income should have been determined using those records. The second, and more common, method is to challenge the actual determination of income made by the Minister under the bank deposit analysis****.’’ (Emphasis is ours).* 1. This Tribunal has also had an opportunity to pronounce itself on banking analysis method. In particular, in the case of **Digital Box Limited v Commissioner Investigations and Enforcement Appeal No. 115 of 2017** this Tribunal stated as follows in relation this method: *‘‘The onus then was on the Appellant to prove its averment that the banking analysis was misapplied in arriving at the assessment.* *…The Tribunal notes that in disputing the Respondent’s analysis the Appellant did not specify the entries in the bank statement which the Respondent has used wrongly/misapplied or which should not have been included in the assessment and the reasons why the entries should not be included.’’* 1. The question then, is whether, the Appellant satisfied the tests in **Hole v The Queen, 2016 TCC** 55 and **Digital Box Limited v Commissioner Investigations and Enforcement.** 2. In the present appeal, the Appellant failed to provide the Tribunal with the very documents necessary to interrogate the correctness of the Respondent’s banking analysis. No bank reconciliation schedules were produced identifying the disputed entries. No fixed deposit statements were availed to demonstrate that particular deposits represented maturity proceeds or transfers from investment accounts. Equally, no withholding tax certificates were produced to substantiate the allegation that certain amounts had already suffered final withholding tax. 3. The Tribunal finds that without such documentary evidence, it is impossible to ascertain whether the disputed deposits represented taxable receipts, capital movements, inter-account transfers, loan proceeds, investment redemptions or any other non-taxable transactions. The Tribunal cannot merely assume the correctness of the Appellant’s assertions in the absence of supporting evidence. 4. The Tribunal further observes that although the Appellant repeatedly asserted that the Respondent failed to appreciate the nature of the deposits reflected in its accounts, it did not identify a single specific transaction that had allegedly been mischaracterised by the Respondent. Neither the Memorandum of Appeal nor the Statement of Facts isolated the disputed entries or quantified the amount allegedly assessed in error. 1. The Tribunal therefore finds that the Appellant failed to challenge the substantive accuracy of the Respondent’s banking analysis. In the absence of evidence demonstrating specific errors in the analysis undertaken, the Tribunal has no basis upon which to interfere with the Respondent’s findings. 2. The Tribunal additionally notes that the Respondent requested the Appellant to provide audited accounts, ledgers, contracts, invoices, supporting schedules and other accounting records capable of explaining the discrepancies noted during the verification exercise. These requests were communicated through correspondence dated 18th June 2025 and subsequent reminders. 3. The Tribunal further notes that the Respondent had initially questioned the validity of the Appellant’s objection on account of failure to provide supporting documentation required under Section 51(3) of the Tax Procedures Act. While the Respondent ultimately proceeded to issue an objection decision on the merits, the Tribunal finds that the Appellant’s continued failure to provide the requested supporting documentation significantly undermined its ability to challenge the assessment and deprived both the Respondent and the Tribunal of material necessary for verification of its claims. 4. Although the Appellant asserted that it supplied the requested information, the documentary record before the Tribunal only demonstrates the transmission of bank statements. No evidence was produced showing that the remaining documents requested by the Respondent were supplied. More importantly, the Appellant did not place such documents before the Tribunal during the hearing of this appeal. 5. The Tribunal finds that where a taxpayer alleges that sufficient records existed and were provided to the Commissioner, the taxpayer bears the responsibility of producing those same records before the Tribunal so that their evidential value may be independently evaluated. The Tribunal cannot speculate on the contents of documents that have neither been produced nor identified. 6. Having failed to produce adequate accounting records, identify disputed transactions, provide reconciliation schedules, or substantiate its assertions regarding fixed deposits and previously taxed income, the Appellant failed to discharge the burden imposed by Section 56(1) of the Tax Procedures Act. 7. Accordingly, the Tribunal finds that the Respondent did not err in relying on the banking analysis method and that the Appellant failed to demonstrate any error in the Respondent’s application of that methodology. # Whether the Respondent erred in disallowing expenses incurred by the Appellant in production of income. 1. The Appellant argued that the Respondent contravened the provisions of Section 15 and 16 of the ITA by disallowing significant genuine expenses, for the year between 2020 and 2023, that were genuinely and legally incurred by the Appellant in realizing the taxable income against which the Respondent collected tax. Conversely, the Respondent maintained that the Appellant failed to table documents that would have facilitated variation of the assessment. 2. Section 15(1) of the ITA provides for deduction of expenses properly incurred. It provides as follows: ***15. Deductions allowed*** *(1) For the purpose of ascertaining the total income of any person for a year of income there shall, subject to section 16 of this Act, be deducted all expenditure incurred in such year of income which is expenditure wholly and exclusively incurred by him in the production of that income…* 1. Suffice to state that pursuant to Section 15(1) of the ITA, the burden is on the taxpayer to prove, first, that it incurred deductible expenditure; and second, that the expenditure was incurred wholly and exclusively in the production of that income. The Court in **Income Tax v T Ltd (No 2) EA (1971) 569**, held that for expenditure to be deductible, it must have been incurred for the direct purpose of producing profits. 1. Consequently, substantiating a claim for expenditure is a rigorous process. The taxpayer must keep documents to aid in determining tax liability as required under Section 54A(1) of the ITA. 2. In the case of **Leah Njeri Njiru v Commissioner of Investigations and Enforcement Kenya Revenue Authority & another [2021] KEHC 8118 (KLR),** the High Court stated as follows in relation to Section 15(1) and Section 54A(1) of the ITA at paragraph 28 of the judgment: *‘‘The only way the Commissioner could have allowed deductions of* *expenses as per section 15(1) of the ITA is if they were supported to its satisfaction. This is in line with Section 54A(1) of ITA which provides as follows:* ***54A Keeping records of receipts, expenses, etc*** *(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.’’* 1. In the English case of **Hancock v General Reversionary and Investment Company [1919] KB 5, 37** Lush J., had the following to say as far as expenses of a business are concerned: *‘‘[T]he proper test to apply in tax computation is; was the expenditure incurred in order to meet a continuing business demand, in which case it should be treated as an ordinary business expense and an admissible deduction ...’’* 1. Having laid down the foregoing legal basis, the question then is whether the Appellant proved that it incurred deductible expenditure, and that the expenditure was incurred wholly and exclusively in the production of that income. 2. The Tribunal has carefully considered the Appellant’s complaint that the Respondent wrongly disallowed expenses incurred in generating rental income. However, beyond making a general assertion that genuine expenses were incurred, the Appellant neither identified the specific expenses that were allegedly disallowed nor quantified the amounts attributable to each category of expenditure. 3. The Tribunal notes that deductibility under Section 15(1) of the Income Tax Act is not automatic a taxpayer must demonstrate not only that expenditure was incurred but also that the expenditure was wholly and exclusively incurred in the production of taxable income. This necessarily requires documentary evidence capable of establishing both the existence and purpose of the expenditure. 4. The High Court in ***Darwine Wholesalers Limited v Commissioner of Investigations and Enforcement (Income Tax Appeal E051 of 2021) [2023] KEHC 23537 (KLR)*** held as follows: *Under section 59 of the TPA and section 43 of the VAT Act the* *Commissioner is expressly empowered to ask for additional information to ascertain the tax chargeable. This legal position is in consonance with section 107 and 112 of the Evidence in that the balance of proof lies with the party with the knowledge of facts. Further section 30 of the Tax Appeals Tribunal Act (TATA) and section 56 of the TPA imposes the burden of proof on the tax payer to prove that an assessment was wrong or that it was excessive.* 1. In the present matter, the Appellant failed to produce invoices, contracts, payment vouchers, receipts, bank payment confirmations, ledgers, supplier statements or any other primary accounting records capable of demonstrating that the disputed expenses were actually incurred. Consequently, there is no evidential basis upon which the Tribunal can determine whether the expenditure meets the deductibility threshold prescribed under Section 15(1) of the Income Tax Act. 2. The Tribunal rejects the Appellant’s argument that expenses should be presumed merely because income was earned. While every business ordinarily incurs expenses in generating income, the tax treatment of such expenditure depends upon proof of the nature, amount and purpose of the expenditure. Tax deductibility is therefore a matter of evidence rather than presumption. 3. In the absence of documentary support and specific particulars regarding the allegedly disallowed expenses, the Tribunal finds that the Appellant has failed to discharge the burden imposed by Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act. The Respondent was therefore justified in declining to allow the claimed deductions. # FINAL DECISION 1. The upshot to the foregoing is that the Tribunal finds and holds that the Appeal lacks merit and consequently makes the following orders; - 2. The Appeal be and is hereby dismissed; 3. The Objection decision dated 11 th August 2025 be and is hereby upheld; and 4. Each party to bear its own costs. 5. It is so ordered. # DATED AND DELIVERED AT NAIROBI THIS 26TH DAY OF JUNE 2026 SIGNED BY/FOR: **★ TH E JUDICIAR Y O F KENY A ★** **HON. EUNICE NJERI NGANGA HON. SANKALE SPENCER OLOLCHIKE** **HON. BERNADETTE MUTHIRA GITARI** **HON. BILLY GRAHAM OKUMU MIJUNGU** Tax Appeals Tribunal Tribunal Date: 2026-06-26 15:42:58