https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/218

 REPUBLIC OF KENYA IN THE TRIBUNAL OF KENYA AT NAIROBI COUNTY COURT NAME: TAX APPEALS TRIBUNAL CASE NUMBER: TATC/E784/2025 SKAGA KENNELS LIMITED 1st Appellant - Versus - Kenya Revenue Authority 1st Respondent JUDGMENT # BACKGROUND 1. The Appellant is a private limited liability company duly incorporated in Kenya and engaged in the business of providing dog services, including the sale and training of security dogs, dog boarding, and related security solutions. 2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws (hereinafter “the Act”). 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 issued a letter dated 4th August 2022 notifying the Appellant of its intention to conduct a credit verification exercise pursuant to Section 59 of the Tax Procedures Act, to confirm whether input tax claimed was allowable and whether sales were properly classified and declared under the VAT Act, 2013. 1. The Respondent issued a Pre-Assessment Notice dated 31st October 2022 proposing additional assessments for VAT, PAYE, and Corporation Tax for the years 2017 to 2022 amounting to Kshs. 44,606,267. On 28th February 2024, the Respondent issued additional assessments amounting to Kshs. 15,881,525.50 for VAT and Corporation Tax covering the years 2019 to 2022. 2. The Appellant stated that it lodged a Notice of Objection against the additional assessments on the iTax portal on 26th March 2024, objecting in full to the assessments. 3. The Respondent issued an Objection Decision dated 23rd May 2024, slightly amending the assessments. 4. Dissatisfied by the Respondent’s actions, it filed a Notice of Appeal dated 11th June 2025 pursuant to leave granted on 20th June 2025 in Miscellaneous Application No. TATMISC/E046/2025. # THE APPEAL 1. The Appellant lodged its Memorandum of appeal dated 26th day of June 2025 and filed on 22ND July 2025 raising the following grounds of appeal; 1. **THAT** the Respondent erred in law and in fact by disallowing business expenses duly incurred wholly and exclusively for the production of income, in contravention of the provisions of Sections 15(1) and 16(1) of the Income Tax Act (Cap. 470), despite the Appellant providing sufficient documentation and justification. * 1. **THAT** the Respondent erred in law and in fact by subjecting the sale of dogs to Value Added Tax (VAT), yet the same is expressly exempt under Paragraph 18 of the First Schedule to the VAT Act, 2013, which exempts the sale of live animals from VAT. * 1. **THAT** , the Respondent acted unfairly and irrationally by failing to consider or give due weight to the information, documentation, reconciliation schedules, and clarifications submitted by the Appellant during the objection process, contrary to the *principles of fairness and legitimate expectation* enshrined in Article 47 of the Constitution and Section 4 of the Fair Administrative Action Act. * 1. **THAT,** the Respondent violated the principles of natural justice and procedural fairness by failing to furnish adequate reasons for its decision and failing to respond substantively to the queries and evidence presented by the Appellant in its objection. # THE APPELLANT’S CASE 1. The Appellant case was premised on its Statement of facts dated 26th June, 2025 and filed on 22nd July 2026 together with the Appellant’s submissions dated 3rd March 2026 and filed 10th March, 2026 adopted by the Tribunal on 1st April, 2026 2. The Appellant stated that the Respondent issued a letter dated 4th August 2022 notifying the Appellant of its intention to conduct a credit verification exercise pursuant to Section 59 of the Tax Procedures Act, with the aim of confirming whether input tax claimed was allowable and whether sales were properly classified and declared under the VAT Act, 2013. 3. The Appellant stated that the Respondent indicated it had not received documentation to validate the claimed credits and therefore undertook a return review using data from the iTax portal, comparing VAT returns, income tax returns, withholding tax certificates, and expected sales derived from banking records. 4. The Appellant stated that the Respondent issued a Pre-Assessment Notice dated 31st October 2022 proposing additional assessments for VAT, PAYE, and Corporation Tax for the years 2017 to 2022 amounting to Kshs. 44,606,267. 5. The Appellant stated that following the Pre-Assessment Notice, it held a meeting with the Respondent on 19th December 2022 where it agreed to provide documents including bank statements, audited financial statements for 2017–2021, casual payroll records, and supporting expense documentation, which were to be submitted by 22nd December 2022. 6. The Appellant stated that on 28th February 2024, after several correspondences and meetings, the Respondent issued additional assessments amounting to Kshs. 15,881,525.50 for VAT and Corporation Tax covering the years 2019 to 2022. 7. The Appellant stated that it lodged a Notice of Objection against the additional assessments on the iTax portal on 26th March 2024, objecting in full to the assessments. 8. The Appellant stated that the Respondent, through an email dated 9th April 2024, informed the Appellant that the objection was invalid and required it to provide precise grounds and supporting documentation to validate the objection. 1. The Appellant stated that on 2nd May 2024, it submitted a reconciliation schedule for the disputed taxes, which the Respondent acknowledged on 8th May 2024 and thereafter requested a meeting scheduled for 13th May 2024. 2. The Appellant stated that following a meeting held on 20th May 2024, it submitted a letter dated 22nd May 2024 outlining detailed grounds of objection. 3. The Appellant stated that by an email dated 21st May 2024, it had shared additional documents including financial statements for 2019–2020, a revised reconciliation schedule, expense schedules, and bank statements highlighting drawings used in company purchases. 4. The Appellant stated that upon reviewing the documents, the Respondent issued an Objection Decision dated 23rd May 2024, slightly amending the assessments. 5. The Appellant stated that being aggrieved by the Respondent’s actions, it filed a Notice of Appeal dated 11th June 2025 pursuant to leave granted on 20th June 2025 in Miscellaneous Application No. TATMISC/E046/2025. 6. The Appellant stated that the Respondent erred in fact and law in issuing the additional assessments and the Objection Decision and challenged the same on several grounds. 7. The Appellant stated that the Respondent failed to consider all material facts and documents presented during the objection review, including audited financial statements, bank records, reconciliation schedules, and expense reports. 8. The Appellant stated that Article 47 of the Constitution of Kenya, 2010 guarantees the right to fair administrative action that is expeditious, lawful, reasonable, and procedurally fair, which includes consideration of explanations and documentation provided by a taxpayer. 9. The Appellant stated that despite submitting reconciliation schedules and critical documents during the objection review, the Respondent failed to consider them in making the Objection Decision. 10. The Appellant stated that the Objection Decision dated 23rd May 2024 condemned it unheard, contrary to Article 47 of the Constitution of Kenya and Section 4(1) of the Fair Administrative Action Act. 11. The Appellant stated that in ***Nizaba International Trading Company Limited v Kenya Revenue Authority [2000] eKLR****,* the High Court held that failure to consider material facts renders an assessment invalid. 12. The Appellant stated that in ***Republic v Kenya Revenue Authority ex- parte Amsco Kenya Limited [2014] eKLR****,* the Court held that administrative action cannot be procedurally fair if based solely on one party’s version of facts. 13. The Appellant stated that the Court affirmed that failure to consider a party’s case violates the rules of natural justice, 14. The Appellant stated that the Respondent’s partial adjustment of assessments without addressing all submitted documentation demonstrated a superficial and procedurally unfair review. 15. The Appellant stated that the Tribunal should find that the assessments and Objection Decision violated principles of natural justice and fair administrative action and should be set aside. 16. The Appellant stated that the Respondent erred in law and fact by disallowing legitimate expenses wholly and exclusively incurred in generating income contrary to Sections 15(1) and 16(1) of the Income Tax Act, CAP 470. 17. The Appellant stated that the law permits deduction of expenses wholly and exclusively incurred in producing income when determining taxable income. 18. The Appellant stated that it provided sufficient evidence of expenses including bank statements, invoices, and records of purchases, wages, transport, and other operational costs. 19. The Appellant stated that despite this evidence, the Respondent disallowed the expenses without justification, thereby inflating taxable income and resulting tax liabilities. 20. The Appellant stated that under Section 31 of the Tax Procedures Act, 2015, the Commissioner may apply reasonable methods such as industry averages where records are insufficient, but in this case sufficient documentation had been provided. 21. The Appellant stated that the Respondent erred in law and fact by imposing VAT on the sale and distribution of security dogs. 22. The Appellant stated that it had explained during the review that discrepancies between VAT and income tax returns arose from exempt sales relating to the sale of dogs not captured in VAT returns. 23. The Appellant stated that the sale of live dogs qualifies as exempt supplies and that the omission in VAT returns was a technical oversight supported by reconciliation documents. 24. The Appellant stated that despite the explanation, the Respondent imposed VAT based on variances between income tax and VAT figures, thereby misinterpreting the nature of the discrepancy. 1. The Appellant stated that the VAT assessments were unlawful as they sought to tax exempt supplies and failed to consider reconciled explanations, amounting to an error of fact and law. 2. The Appellant submitted that it challenged the additional assessments and Objection Decision dated 23rd May 2024 relating to VAT, Corporation Tax, and PAYE for the years 2017–2022 on grounds of illegality, factual error, misapplication of law, and breach of constitutional and statutory requirements of fair administrative action. 3. The Appellant submitted that the issues for determination are whether the Appellant discharged its burden of proof, whether the Respondent was justified in disallowing legitimate business expenses, and whether the Respondent acted fairly in imposing VAT on the sale of dogs. 4. The Appellant submitted that Section 56(1) of the Tax Procedures Act, 2015 places the burden on the taxpayer to prove that a tax decision is incorrect. 5. The Appellant submitted that it discharged this burden when it supplied documents in support of its Notice of Objection. 6. The Appellant submitted that once a taxpayer tenders credible documentation and reconciliation evidence, the evidential burden shifts to the Commissioner to objectively consider the material and justify why it is insufficient or unreliable. 7. The Appellant submitted that the Respondent’s assertion that the Appellant failed to provide requested explanations and documents is misleading and inconsistent with the record before the Tribunal. 8. The Appellant submitted that following the Pre-Assessment Notice, the parties held a meeting on 19th December 2022 where the Respondent requested documents including bank statements, audited financial statements, payroll schedules, and expense records. 9. The Appellant submitted that during the objection stage, the Respondent required additional particulars which the Appellant complied with by submitting reconciliation schedules, detailed grounds, and supporting documents which were acknowledged and used to convene meetings and amend assessments. 10. The Appellant submitted that on 26th March 2024 it lodged a Notice of Objection; on 9th April 2024 the Respondent required validation under Section 51(4) of the Tax Procedures Act; on 2nd May 2024 the Appellant submitted reconciliations; and on 21st May 2024 it submitted further financial documents, expense schedules, and bank statements. 11. The Appellant submitted that the Objection Decision dated 23rd May 2024 expressly acknowledged documents including bank statements, invoices, reconciliation schedules, expense schedules, and draft financial statements. 12. The Appellant submitted that the Respondent’s claim that no documents were provided is contradicted by its own conduct, acknowledgments, and meeting invitations. 13. The Appellant submitted that the amendment of the assessment demonstrates that the Appellant’s documentation had probative value. 14. The Appellant submitted that at that stage the evidential burden shifted to the Respondent to demonstrate why reconciliations were incorrect, identify disallowable expenses under Section 15 of the Income Tax Act, and prove that VAT variances related to taxable supplies. 15. The Appellant submitted that the Court held that once a taxpayer produces documents and explanations, the evidential burden shifts to the Commissioner to disprove or discredit them. 16. The Appellant submitted that statutory decision-makers must conduct genuine and objective evaluation of all relevant material before making a determination. 17. The Appellant submitted that “consideration” requires careful and attentive evaluation of the entire matter and that failure to consider material facts renders a decision legally flawed. 18. The Appellant submitted that under Article 47 of the Constitution of Kenya, 2010 the Respondent was required to fairly, lawfully, and reasonably consider all documentation provided. 19. The Appellant submitted that it therefore discharged its burden under Section 56 of the Tax Procedures Act and the Respondent failed to discharge the shifted evidential burden and the continued confirmation of assessments was unreasonable, disproportionate, and contrary to statutory and constitutional obligations. 20. The Appellant submitted that the Tribunal should find that it discharged its burden of proof and that the assessments should be vacated in full and that the Respondent erred in disallowing legitimate business expenses relating to dog feed, veterinary care, transport, wages, training, and kennel operations. 21. The Appellant submitted that under Section 15(1) of the Income Tax Act expenditure is deductible where wholly and exclusively incurred in production of income, subject to Section 16 and deductibility requires proof that expenditure was incurred and that it was wholly and exclusively for income generation. 22. The Appellant submitted that “wholly and exclusively” requires a direct nexus between expenditure and income generation and not perfect documentation and that Section 15(1) of the Income Tax Act, Cap 470 allows deduction of all expenditure wholly and exclusively incurred in producing income. 1. The Appellant submitted that the law does not require a rigid list of documents but focuses on economic substance and purpose and under Section 56(1) of the Tax Procedures Act the burden is discharged where primary records and reconciliations are provided, after which the Respondent must disprove them specifically. 2. The Appellant submitted that the Respondent wrongly classified expenses as “unsupported withdrawals” without distinguishing between business and non-business transactions, contrary to accounting principles and such withdrawals were used for essential kennel operations including feed, veterinary care, transport, and wages. 3. The Appellant submitted that it provided bank statements, expense schedules, and reconciliations during objection review and it is therefore incorrect for the Respondent to claim lack of verifiable evidence. 4. The Appellant submitted that disallowing dog feed and veterinary expenses is equivalent to disallowing raw materials in manufacturing and that the Respondent failed to show that the expenses fall under prohibited categories in Section 16 of the Income Tax Act. 5. The Appellant submitted that costs settled through withdrawals remain deductible so long as they are wholly and exclusively incurred in production of income. 6. The Appellant submitted that the blanket disallowance of expenses as “unsupported withdrawals” is unlawful and inconsistent with Section 15(1) of the Income Tax Act and Tribunal should allow all legitimate expenses and vacate the assessments. 7. The Appellant submitted that Paragraph 18 of Part I of the First Schedule to the VAT Act, 2013 exempts “Live animals of Chapter 1.” And that Chapter 1 of the EAC Common External Tariff includes live animals, and therefore dogs fall within the exemption category. 8. The Appellant submitted that the VAT exemption is statutory and automatic and cannot be restricted by administrative interpretation. 9. The Appellant submitted that in ***Commissioner of Domestic Taxes v Total Touch Cargo Holland****,* tax statutes must be interpreted strictly according to their clear wording. 10. The Appellant submitted that its reliance on variances between VAT returns and bank-derived figures is legally flawed because variance alone do not prove taxable supply. 11. The Appellant submitted that variances may arise from exempt supplies, timing differences, or non-supply receipts such as loans or capital injections. 12. The Appellant submitted that it provided reconciliations and bank statements to explain the variances. 13. The Appellant submitted that the Respondent failed to properly test or rebut the reconciliation evidence and that treating variances as taxable turnover reverses the burden of proof under Sections 2 and 5 of the VAT Act. 14. The Appellant submitted that imposing VAT on exempt supplies without proof is ultra vires to the VAT Act and contrary to Article 47 of the Constitution. 15. The Appellant submitted that once it demonstrated that the supplies were live animals under Chapter 1, VAT could only be imposed upon proof of separate taxable supplies and that no such proof was provided. 16. The Appellant submitted that the Respondent acted unfairly and unlawfully by disregarding exemptions, treating variances as taxable supplies, and failing to consider reconciliation evidence and that the Tribunal should find that VAT was wrongly imposed on exempt sales of dogs and vacate the assessments. 17. The Appellant submitted that the Respondent unlawfully disallowed expenses contrary to Sections 15 and 16 of the Income Tax Act and improperly subjected exempt supplies to VAT contrary to Paragraph 18 of the VAT Act. # The Appellant Prayed: * 1. THAT this Appeal be allowed in its entirety; 2. THAT the entire Objection Decision dated 23rd May 2024 be set aside in its entirety; 3. THAT the assessments made by the Respondent be declared unlawful, erroneous, and invalid; 4. THAT the Honourable Tribunal do find and hold that the sale of dogs by the Appellant is exempt from VAT under the First Schedule of the VAT Act, 2013; 5. THAT costs of this Appeal be awarded to the Appellant; and 6. Any such other or further reliefs that this Honourable Tribunal may deem just and fit to grant in the circumstances # THE RESPONDENT’S CASE 1. In response to the appeal, the Respondent filed its Statement of facts dated 25th September 2025 and filed on 24th February 2026 together with written submissions dated and filed on 10th March, 2025. 2. The Respondent Stated that the issues in dispute arising from the Memorandum of Appeal include whether it was justified in disallowing business expenses claimed under the Income Tax Act, whether the sale of security dogs is an exempt supply under the First Schedule of the VAT Act, 2013, and whether it complied with the principles of natural justice and fair administrative action in issuing the Objection Decision dated 23rd May 2024. 3. The Respondent Stated that on 4th August 2022 it notified the Appellant of its intention to carry out a credit verification under Section 59 of the Tax Procedures Act to ascertain the allowability of input tax and proper classification of sales under the VAT Act, 2013. 4. The Respondent stated that despite several reminders dated 4th August 2022, 9th September 2022, and 20th September 2022, the Appellant failed to provide the requested explanations and supporting documents. 5. The Respondent stated that it consequently issued a Pre-Assessment Notice dated 31st October 2022 based on information from the iTax system and bank statements, identifying a total tax liability of Kshs. 44,606,267 across VAT, PAYE, and Corporation Tax for the years 2017 to 2022. 6. The Respondent stated that following subsequent engagements and a limited review of documents provided, it raised additional assessments on 28th February 2024 amounting to Kshs. 15,881,525.50 for VAT and Corporation Tax. 7. The Respondent stated that the disallowance of various expenses was proper in law since under Section 15(1) of the Income Tax Act (Cap 470), only expenditure wholly and exclusively incurred in the production of income is deductible. 8. The Respondent stated that under Section 56(1) of the Tax Procedures Act, the burden of proof lies on the taxpayer to demonstrate that a tax decision is incorrect. 9. The Respondent stated that during verification it identified unsupported withdrawals and variances where expenses claimed as salaries in Income Tax returns did not correspond with PAYE declarations in iTax, and the Appellant failed to provide verifiable evidence to support such costs, thereby not meeting the threshold under Section 16(1) of the Income Tax Act. 10. The Respondent stated that it observed significant variances between turnover declared in VAT returns and expected sales derived from bank statements and withholding tax certificates. 1. The Respondent stated that under Section 5 of the VAT Act, 2013, VAT is chargeable at 16% on taxable supplies made by a registered person in Kenya. 2. The Respondent stated that although Paragraph 18 of the First Schedule to the VAT Act exempts live animals, Section 62 of the VAT Act places the burden of proving exemption on the taxpayer claiming it. 3. The Respondent stated that the Appellant failed to provide a credible reconciliation or proof that the undeclared turnover for the years 2019 to 2022 consisted entirely of exempt sales of live animals. 4. The Respondent stated that it did not violate principles of natural justice as it issued multiple requests for documents and held meetings with the Appellant on 19th December 2022, 13th May 2024, and 20th May 2024 to address the variances. 5. The Respondent stated that upon the Appellant lodging an objection on 26th March 2024, it issued a notice under Section 51(4) of the Tax Procedures Act indicating that the objection was invalid due to missing information and documentation. 6. The Respondent stated that the Objection Decision dated 23rd May 2024 was made after considering documents submitted by the Appellant and resulted in a slight amendment of the assessments, demonstrating fair consideration of the material provided. 7. The Respondent submitted that the appeal arises from the Objection Decision dated 23rd May 2024 which finalized an assessment of Kshs. 15,881,525.50 in VAT and Corporation Tax for the years 2017–2022. 8. The Respondent submitted that on 4th August 2022 it initiated a credit verification under Section 59 of the Tax Procedures Act and despite multiple reminders the Appellant failed to provide sufficient documentation to support input tax claims and expenses. 9. The Respondent submitted that a Pre-Assessment Notice dated 31st October 2022 was issued identifying a liability of Kshs. 44,606,267, which was later reduced following meetings and partial document review to the current disputed amount. 10. The Respondent submitted that the issues for determination are whether disallowance of expenses was justified under the Income Tax Act, whether sale of dogs is an exempt supply under the VAT Act, and whether principles of natural justice were complied with. 11. The Respondent submitted that disallowance of expenses was justified under Section 15(1) of the Income Tax Act which only allows deductions for expenditure wholly and exclusively incurred in production of income, and that under Section 56(1) of the Tax Procedures Act the burden of proof lies on the taxpayer. 12. The Respondent submitted that it identified unsupported withdrawals and variances between claimed salaries and PAYE records. 13. The Respondent submitted that the Appellant failed to provide verifiable evidence such as invoices or corroborated bank entries to meet the statutory threshold, and that assessments must be grounded on available records where reconciliation is not provided. 14. The Respondent submitted that the Appellant failed to prove that the sale of dogs was an exempt supply, noting that while Paragraph 18 of the First Schedule to the VAT Act exempts live animals, Section 62 of the VAT Act places the burden of proving exemption on the taxpayer. 15. The Respondent submitted that there was a significant variance between declared turnover and expected sales derived from bank statements and withholding tax certificates. 16. The Respondent submitted that the Appellant failed to provide a credible reconciliation to show that the undeclared turnover consisted solely of exempt sales and that charging VAT on such unexplained variances was a proper exercise of its mandate under Section 5 of the VAT Act. 17. The Respondent submitted that it complied with principles of natural justice and fair administrative action and did not violate Article 47 of the Constitution of Kenya or the Fair Administrative Action Act. 18. The Respondent submitted that it provided multiple opportunities for the Appellant to be heard through working meetings held on 19th December 2022, 13th May 2024, and 20th May 2024, as well as repeated document requests before issuing its decision. 19. The Respondent submitted that the Objection Decision reduced the assessment from Kshs. 44 million to Kshs. 15.8 million, demonstrating that it considered the Appellant’s documents and amended the figures accordingly. 20. The Respondent submitted that the present case is distinguishable from ***Republic v Kenya Revenue Authority ex parte Amsco Kenya Limited eKLR*** *and* ***Kenya Medical Association Housing Co-operative Society Limited v Attorney General eKLR*** because in this case the Respondent engaged the Appellant and adjusted the tax liability based on evidence received. 1. The Respondent submitted that a party must be given an opportunity to present its case and the Respondent fulfilled this obligation through consultative meetings. 2. The Respondent submitted that it acted within its statutory mandate and in accordance with fair administrative action principles and that the Appellant failed to discharge the burden of proof required to invalidate the assessments. 3. The Respondent submitted that the Tribunal should dismiss the Appeal in its entirety, uphold the Objection Decision dated 23rd May 2024, and award costs to the Respondent. # Respondent’s Prayers 1. The Respondent prayed: 2. That the Tribunal finds that the additional assessments were lawfully raised and 3. That the Appellant has failed to discharge its burden of proof to warrant setting aside the assessments. # ISSUES FOR DETERMINATION 1. The Tribunal having considered the parties’ pleadings and submissions, puts forth the following issues for determination: # Whether the Respondent was justified in disallowing the Appellant’s claimed business expenses. * 1. **Whether the Appellant’s sales of dogs, including supplies qualify as exempt supplies.** 2. **Whether the Appellant discharged its burden to proof that the Objection Decision dated 23rd May 2024 was erroneous.** **ANALYSIS AND FINDINGS** 1. Having identified the issues for determination, the Tribunal proceeds to analyse the same as hereunder; # Whether the Respondent was justified in disallowing the Appellant’s claimed business expenses 1. The dispute starts from a series of tax verification and assessment processes spanning the period between 4th August 2022 and 23rd May 2024. It commenced when the Respondent issued a credit verification notice on 4th August 2022 under Section 59 of the Tax Procedures Act, 2015, followed by repeated requests for documentation. 2. The Respondent thereafter conducted a return review using iTax data, bank statements, and withholding tax records, culminating in a Pre-Assessment Notice dated 31st October 2022 raising a total tax exposure of Kshs. 44,606,267 for VAT, PAYE, and Corporation Tax covering the years 2017–2022. 3. Following a working meeting held on 19th December 2022, where additional financial records were requested, the Respondent eventually issued revised additional assessments on 28th February 2024 amounting to Kshs. 15,881,525.50. The Appellant subsequently lodged a formal objection on 26th March 2024, which triggered further exchanges, including a request for validation on 9th April 2024, submission of reconciliations on 2nd May 2024, and supporting documents on 21st May 2024, before the Respondent issued its Objection Decision on 23rd May 2024, slightly amending but largely affirming the assessments. 4. Arising from these events, the dispute crystallizes around whether the Appellant sufficiently discharged its statutory burden of proof by producing credible documentation during both the verification and objection stages, and whether the Respondent properly considered that material before confirming the tax liabilities. 5. Closely linked to this is the question of whether the Respondent was justified in disallowing the Appellant’s claimed business expenses for purposes of Corporation Tax under the Income Tax Act, and whether it lawfully imposed VAT on the Appellant’s sales of dogs between 2017 and 2022, in light of the Appellant’s contention that such sales constitute exempt supplies under Paragraph 18 of the First Schedule to the VAT Act, 2013. 6. These issues fall for determination against the backdrop of prolonged engagement between the parties, multiple document exchanges, and competing interpretations of the financial records relied upon in the assessments. 7. The Tribunal has carefully considered the pleadings, documents, evidence, and submissions by both parties. The Tribunal notes that the Respondent disallowed various expenses claimed by the Appellant on grounds that the same were unsupported and could not be verified as having been wholly and exclusively incurred in the production of income. 8. The Tribunal observes that the Appellant consistently maintained that the impugned expenses related to its ordinary business operations involving dog breeding, training, security services, transport, veterinary care, kennel maintenance, wages, and purchase of feeds. The record before the Tribunal further demonstrates that the Appellant furnished bank statements, reconciliation schedules, expense schedules, financial statements, and supporting explanations during both the review and objection stages. 9. The Tribunal further notes that the Respondent itself acknowledged receipt of documentation from the Appellant and even revised the assessments downward from Kshs. 44,606,267 to Kshs. 15,881,525.50. This adjustment is, in the Tribunal’s respectful view, evidence that the material supplied by the Appellant had evidential and probative value. The Tribunal is guided by **Section 15(1) of the Income Tax** **Act, Cap 470**, which provides as follows: ## *“For the purpose of ascertaining the total income of a person for a year of* income there shall, subject to Section 16, be deducted all expenditure wholly and exclusively incurred by him in the production of that income.” The Tribunal is equally guided by **Section 56(1) of the Tax Procedures Act, 2015,** which provides: ## *“In any proceedings under this Part, the burden shall be on the taxpayer to* prove that a tax decision is incorrect.” 1. The Tribunal finds that the Appellant discharged the statutory burden placed upon it by providing documentation, reconciliations, explanations, and supporting records relating to the disputed expenses. Once the Appellant placed before the Respondent primary accounting records and explanations supporting the expenditure, the evidential burden shifted to the Respondent to specifically demonstrate why the documents were insufficient, unreliable, or incapable of verification. 2. However, the Tribunal notes that the Respondent merely made generalized assertions that the expenses were unsupported withdrawals without identifying with specificity which documents were deficient, what gaps remained outstanding, or why the reconciliations provided were incapable of verification. The Respondent did not place before the Tribunal any detailed analysis rebutting the Appellant’s reconciliatory schedules or demonstrating that the expenses fell within the prohibited deductions under Section 16 of the Income Tax Act. 3. The Tribunal also adopts the reasoning in **Nizaba International Trading Company Limited v Kenya Revenue Authority [2000] eKLR**, where the Court emphasized that a tax assessment must be grounded on proper consideration of the material presented by the taxpayer and that failure to evaluate relevant evidence renders the assessment flawed. 1. Further, the Tribunal is persuaded by the holding in **Republic v Kenya Revenue Authority ex parte Amsco Kenya Limited [2014] eKLR**, where the Court stated that procedural fairness requires a genuine and attentive consideration of all material supplied by a taxpayer before an adverse tax decision is made. 1. Having evaluated the material placed before it, the Tribunal finds that the Respondent failed to undertake a comprehensive and objective evaluation of the Appellant’s records and explanations. The blanket disallowance of expenses merely on the basis that they constituted unsupported withdrawals, without a specific analytical rebuttal of the records supplied, was unreasonable, disproportionate, and contrary to the statutory framework governing deductibility of expenses. 2. Therefore, the Tribunal finds and holds that the Respondent was not justified in disallowing the Appellant’s claimed business expenses and that the disallowance was contrary to **Sections 15(1) and 16(1) of the Income Tax Act.** # Whether the Appellant’s sales of dogs, including supplies, qualify as exempt supplies. 1. The Tribunal has considered the Appellant’s contention that the sales in issue related to live dogs and therefore constituted exempt supplies under the VAT Act, 2013. 2. The Tribunal notes that the Appellant explained that the variances between VAT declarations and income tax returns arose because proceeds from sale of live dogs were exempt supplies and therefore not reflected as taxable supplies in VAT returns. The Appellant further provided reconciliations and banking records in support of this explanation. 3. The Tribunal is guided by **Paragraph 18 of Part I of the First Schedule to the VAT Act, 2013,** which expressly provides: ## *“Live animals of Chapter 1.”* The Tribunal further notes that Chapter 1 of the East African Community Common External Tariff covers live animals, including dogs. Consequently, the sale of live dogs falls within the statutory exemption contemplated under the VAT Act. 1. The Tribunal is equally guided by **Section 5(1)(a) of the VAT Act, 2013**, which provides: ## *“A tax, to be known as value added tax, shall be charged in accordance with* the provisions of this Act on taxable supplies made by a registered person in ***Kenya.”*** 1. The Tribunal observes that VAT is only chargeable on taxable supplies and cannot lawfully be imposed upon supplies expressly exempted by statute. 2. The Tribunal further notes that while **Section 62 of the VAT Act** places the burden upon a taxpayer claiming exemption to demonstrate entitlement thereto, the Appellant in the present matter supplied explanations, reconciliations, financial records, and supporting documents showing that part of the impugned turnover related to sale of live dogs. 1. The Tribunal finds that once such explanation and documentation were availed, the Respondent was under a duty to carefully examine, interrogate, and specifically rebut the reconciliations tendered by the Appellant. Instead, the Respondent merely relied on variances between VAT returns and bank derived figures without demonstrating that the impugned sums specifically related to taxable supplies as opposed to exempt supplies. 2. The Tribunal finds persuasive the holding in **Commissioner of Domestic Taxes v Total Touch Cargo Holland [2018] eKLR**, where the Court affirmed that tax statutes must be interpreted strictly according to their wording and that tax cannot be imposed outside the clear language of the statute. 1. The Tribunal is also persuaded by **Republic v Kenya Revenue Authority ex parte Amsco Kenya Limited [2014] eKLR**, where the Court held that administrative bodies are obligated to genuinely evaluate explanations and material supplied by affected parties before arriving at a decision. 1. The Tribunal therefore finds that the Respondent failed to sufficiently consider the Appellant’s explanations and reconciliation records regarding exempt sales of live dogs. The Tribunal further finds that the Respondent improperly treated unexplained variances as automatically constituting taxable turnover without undertaking a proper inquiry into the nature of the supplies. 2. Accordingly, the Tribunal finds and holds that the Appellant’s sale of live dogs constitutes exempt supplies under **Paragraph 18 of Part I of the First Schedule** **to the VAT Act, 2013**, and that the VAT assessments founded on the impugned variances were erroneous in law and fact. # Whether the Appellant discharged its burden of proving that the Objection Decision dated 23rd May 2024 was erroneous. 1. The Tribunal has considered whether the Appellant discharged the burden imposed under the tax statutes to demonstrate that the Respondent’s Objection Decision were erroneous. 2. The Tribunal is guided by **Section 56(1) of the Tax Procedures Act, 2015,** which provides: ## *“In any proceedings under this Part, the burden shall be on the taxpayer to* prove that a tax decision is incorrect.” 1. The Tribunal notes that the Appellant lodged an objection, supplied reconciliation schedules, bank statements, audited financial statements, expense schedules, and explanatory correspondence during the objection process. The record further demonstrates that the Respondent acknowledged receipt of such documentation and held consultative meetings with the Appellant before issuing the Objection Decision. 2. The Tribunal finds that the Appellant sufficiently discharged the legal burden imposed under Section 56(1) of the Tax Procedures Act by placing before the Respondent documentary material and explanations challenging the basis of the assessments. 3. The Tribunal further finds that upon receipt of the Appellant’s documentation and explanations, the evidential burden shifted to the Respondent to specifically identify deficiencies, inconsistencies, or inaccuracies in the records supplied. However, the Respondent failed to demonstrate with precision what further documents were required or why the documents supplied were insufficient. 4. The Tribunal finds persuasive the decision in **Kenya Revenue Authority v Man Diesel & Turbo SE [2021] eKLR**, where the Court held that once a taxpayer provides supporting documentation, the evidential burden shifts to the Commissioner to rebut the taxpayer’s evidence through proper analysis and contrary proof. 1. The Tribunal is also guided by **Republic v Kenya Revenue Authority ex parte Amsco Kenya Limited [2014] eKLR**, where the Court emphasized that fairness in administrative action requires actual and meaningful consideration of a taxpayer’s representations and documentation. 1. Similarly, in **Kenya Medical Association Housing Cooperative Society Limited v Attorney General & another [2016] eKLR**, the Court reaffirmed the importance of procedural fairness and observance of the rules of natural justice, citing **Ridge v Baldwin [1963] 2 All ER 66**. 1. The Tribunal finds that although the Respondent engaged the Appellant through meetings and correspondence, the resulting Objection Decision did not demonstrate a substantive evaluation of the explanations and reconciliations supplied by the Appellant. The Tribunal is therefore satisfied that the Respondent failed to properly discharge the evidential burden that shifted to it after the Appellant tendered supporting material. 1. The Respondent’s admission that it indeed received the requisite documentation shifted the burden of proof to the Respondent to rebut the evidence so provided by the Appellant with precision. The High Court in affirming the Tribunal’s position on the shifting burden of proof in tax cases stated as follows in ***Commissioner Investigation & amp; Enforcement v Marylebone Properties Limited (Income Tax Appeal E204 of 2023) [2025] KEHC 3314 (KLR)*** *“The burden of proof articulated under Section 56(1) of the Tax Procedures Act is not permanently fixated upon the taxpayer. Upon the production of the requisite supporting documents by a taxpayer, the Burden of proof shifts. It shifts to the Appellant to demolish with precision the evidence availed.”* 1. The Respondent in the instant case failed to discharge the burden of proof that had been swung to when the Appellant produced documentation. 2. This position was explained in the case of ***Kenya Revenue Authority v Maluki Kitili Mwendwa [2021] eKLR, where Mativo J ( as he then was)*** adopted the doctrine in the Canadian Supreme Court case of ***Johnston v Minister of National Revenue where the court {1948} S.C.R. 486*** where the court decided that: *“… the onus is on the taxpayer to “demolish the basic fact on which the taxation rested.” Again, the Supreme Court of Canada provided guidance on this issue in Hickman Motors Ltd. v Canada which held that the onus is met when a Taxpayer makes out at least a prima facie case. Prima facie is another legal term that literally means “on its face.” To prove a case “on its face” you must provide evidence that, unless rebutted, would prove your position. According to the said decision, a prima facie case is made when the taxpayer can produce unchallenged and uncontradicted evidence. Once the taxpayer has made out a prima facie case to prove the facts, the onus then shifts to the Revenue Authority to rebut the prima facie case. If the Revenue Authority cannot provide any evidence to prove their position, the taxpayer will succeed”* 1. The Tribunal wishes to reiterate its holding in ***Tax Appeal No. 435 Of 2022 Abyssina Iron and Steel Ltd Vs Commissioner of Customs and Border Control*** wherein it stated that: *“From the foregoing decision of the superior court, it is apparent that the Appellant was required to present a minimum amount of information necessary to support its position. This safety valve seems to place the burden of proof on the Appellant without completely relieving the Respondent of its fair share of the burden of proof.* *The bottom line is that once the Appellant has provided evidence that the Respondent’s assessment was wrong, then the Respondent must push back and show that its assessment was not arbitrary, capricious or imagined. The onus will then shift back to the Appellant once the Respondent has discharged its burden on a balance of convenience to discharge the prima facie case that has been presented by the Respondent.”* 1. The Tribunal observes that the Respondent failed to demonstrate that it considered the documents provided by the Appellant before making its objection decision, in effect it failed to discharge the burden of proof that had been swung to it when the Appellant provided the documents in objection of the assessment, documents which the Respondent admitted to have received. 2. In totality. Tribunal observes that the Respondent invited documents, received reconciliations, held meetings, and even revised its own assessments, yet ultimately retreated into broad conclusions unsupported by any meaningful analysis of the material presented. 3. Accordingly, the Tribunal finds and holds that the Appellant discharged its burden of proving that the Objection Decision dated 23rd May 2024 was erroneous. # FINAL DECISION 1. The upshot to the foregoing is that the Tribunal finds and holds that the Appeal is merited and makes the following Orders: 2. The Appeal be and is hereby allowed. 3. The Objection Decision dated 23rd May 2024 be and is hereby set aside 4. Each party to bear its own cost. 5. It is so Ordered. # DATED AND DELIVERED AT NAIROBI ON THIS 3RD DAY OF JUNE 2026. SIGNED BY/FOR: **★ TH E JUDICIAR Y O F KENY A ★** **HON. ROBERT MUGAMBI MUTUMA (CHAIRPERSON) HON. EUNICE NJERI NGANGA HON. BONIFACE KIBIY TERER DOMINIC KIPKEMOI RONO HON. BILLY GRAHAM OKUMU MIJUNGU** Tax Appeals Tribunal Tribunal Date: 2026-06-03 15:55:48