[2023] KETAT 947 (KLR)

Stagemarket Limited v Commissioner of Domestic Taxes (Appeal 1236 of 2022) [2023] KETAT 947 (KLR) (24 November 2023) (Judgment)

Neutral citation: [2023] KETAT 947 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal 1236 of 2022

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

November 24, 2023

Between

Stagemarket Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

(An Appeal against the Respondent’s decision dated 28th March 2022)

Judgment

1. The Appellant is a limited liability company incorporated under the Companies Act, under registration reference no. C81192, having been incorporated on 29th May 1998 and carrying on its business in Kenya.

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 collecting and receiving all tax revenue. Further, under Section 5(2) of the Act, concerning 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 Parts 1 & 2 of the First Schedule to the Act to assess, collect and account for all revenues under those laws.

3. The genesis of this case is that the Respondent issued the Appellant with a pre-assessment notice on 20th September 2021 notifying the Appellant of noted variances between turnover declared in its VAT3 and Income tax returns for the years 2016 to 2018 including a preliminary tax computation of the income tax due of Kshs 19,442,470. 00.

4. The Respondent further requested the Appellant to address the discrepancies and contact the Respondent within 7 days but not later than 30th September 2021.

5. The Appellant did not respond to the Respondent’s pre-assessment notice.

6. The Respondent through an Assessment Order on iTax dated 16th November 2021 assessed the Appellant additional VAT and Income tax for the year 2018 of Kshs. 3,936,937. 80 excluding fines, penalties and interest.

7. The Appellant filed a late objection notice with the Respondent on 27th January, 2022.

8. The Respondent replied on 3rd March 2022 requesting the Appellant to provide reasons for filing a late objection as stipulated in Section 51(3),(6), and (7) of Tax Procedures Act 2015.

9. The Respondent sent further reminders on 11th March and 23rd March 2022 informing the Appellant that its late objection notice was not validly lodged.

10. Subsequently on 28th March 2022, the Respondent rejected the Appellant late objection and confirmed the Assessment Order issued on 16th November 2021.

11. The Appellant dissatisfied with the objection decision of the Respondent filed an appeal at the Tribunal on 21st October, 2022.

The Appeal 12. This Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated and filed on 21st October 2022,a.The Appellant stated that the Respondent have occasioned the raising of an additional estimated income tax assessment no. KRA202121385473 for additional assessment of Kshs. 3,936,947. 00 excluding fines, penalties and interest, on 15th November, 2021, which, according to the Appellant was inconsistent with the level of income earned and reported as per the financial statements.b.That the action of the Respondent to confirm the additional tax is unfair, unreasonable and punitive to the taxpayer.c.That the additional assessment raised by the Respondent was based on assumption rather than facts or third- party evidence that would have implied that the taxpayer was in receipt of extra income that had not been disclosed in the iTax return filed for the year under review.d.That the original return was filed as nil due to constraints of time to conclude the auditing process and that by the time the amended return was filed, the Respondent had already raised the additional assessment of Kshs. 3,966,937. 80. 00 being 30% of the VAT turnover of Kshs. 13,223,126. 00;e.That the above implied tax is a fallacy as no business could operate without incurring expenses that are wholly and exclusively incurred to generate such income. The mere assumption that the company’s taxable profit was equal VAT turnover was unfair, unreasonable, and completely out of reality, in real life situations.f.That the Appellant was aggrieved by the Respondent staff to raise an additional tax whose basis was a complete fallacy that cannot stand.g.That the objection was raised by the Appellant as per objection acknowledgement receipt dated 8th March, 2021, and that the decision given by the Respondent staff as per the objection decision is not consistent with real life scenario as no business can trade without incurring expenses which are wholly and exclusively incurred in generating such income, that the application of 30% corporation tax rate on the gross income is unfair, unjustified and punitive. That the action by the Commissioner or his agents is inaccurate and unreasonable as it is based on estimated income that is subjective and loosely “a wild goose chase” which cannot be regarded as income in the strict sense of PART 1V: Imposition of Income: Income from businesses of the Income Tax Act. That Section 3(2)(a)(i) and Part IV- Ascertainment of Total Incomes’ deductions allowed, as detailed in Income Tax Act Cap 470 of Laws of Kenya clearly give direction as to how total income is determined.h.That the total taxable income used by the Commissioner to compute the tax payable did not take into consideration the deductions allowed, which is contrary to the Act as the taxpayer upon receipt of the notification of additional tax, it provided the audited financial statements as evidence to authenticate both the income earned and the expenses that were wholly and exclusively incurred to generate such revenue. The Appellant have never received any correspondences to suggest anything to the extent that the income/expenses so disclosed were not consistent with the nature of business or were not correct;i.That it is therefore logical to regard the additional tax so confirmed as unfeasibly computed, excessive, punitive and erroneous.j.That the additional tax so assessed and confirmed could be amended in accordance with the actual income as disclosed in the financial statements for the year ended 31st December, 2016. k.That although the Appellant had given sufficient ground for filing a late objection, and why the additional tax was inaccurate and excessive, the Respondent declined or ignored its prayer.l.That the Appellant maintains that it filed a nil annual return due to some technical issues that occasioned the delays to finalize the conclusion of the financial statements for the financial income under review, albeit the delays the Respondent raised the additional assessment which inhibited the Appellant to file an amended return to amend its earlier nil returns but this was overtaken by the action of the Respondent when it rejected the objection raised by the Appellant and confirmed the additional tax.m.That the Appellant, had disputed the additional tax, had made an application to the Tribunal to have the matter arbitrated by the ADR Committee to ensure there is equity for both parties.n.That the taxpayer had attached all the necessary documentary evidence in support of its prayer and proof that the additional tax confirmed was excessive, punitive, and unreasonable as it has been determined using incomplete records and assumptions that are unreasonableo.That the Appellant had appealed against the Commissioner’s decision as contained the additional assessment together with its notice to confirm the additional tax, regardless of whether sufficient reason was given or not.p.That the Appellant had disputed the additional tax in the sum of Kshs.3,966,937. 00

The Appellant’s Case 13. The Appellant’s case is set out in the Statement of Facts dated 27th June 2022, and the submissions dated 16th June 2023.

14. The Appellant disputed the additional tax raised by the Respondent, as stated above, and prepared and adduced by way of supporting documentary evidence, which have been annexed to its Statement of Facts, in support of the Appellant assertion that the additional tax confirmed by the Respondent is inaccurate, excessive, punitive, and erroneous, as it is based on estimated income , which , does not take into accounts, expenses that were wholly , and exclusively incurred, in order to generate the said income.

15. That the Appellant who is regular taxpayer feel incriminated by the Respondent staff, who in their endeavour to meet their set tax collection target are unwilling to examine the basic records that would have helped eliminate any doubt that they could have in amending the assessment in light of the objection raised, hence their reluctance to engage the Appellant to resolve this matter, is a denial of the taxpayer's basic right under KRA Charter, and Tax Procedure Act 2015.

16. That the additional tax confirmed, by the Respondent using the assumption that "NO Expenses were incurred to generate the said income is a fallacy, and does not make sense, in real life situation and therefore it cannot be allowed to take precedence as it will negate the spirit of Income Tax Act Cap 470 and the Tax Procedure Act 2015.

17. That in all fairness the Respondent staff should not use their position to perfect un-procedure process to bring to tax incorrect tax determination methodologies which negate natural justice. The resultant tax liability derived from usage of inappropriate tax determination methodologies is incorrect, excessive, and punitive, as it is based on estimated income, rather than the actual income, generated and earned by the Appellant, during the year under review.

18. That the methodology used by the Respondent to determine the additional tax was to apply a 30% rate on income to deduce the additional tax. This method apparently failed to take recognizance of the actual business expenses that were wholly and exclusively incurred to generate the said income.

19. That the apparent notion of 50% proportion of income to expenses is superficial and may not hold water in real economic situation, and hence it's inaccuracy.

20. That the Respondent staff were not proactive in forestalling dispute but failed to, respond to query raised, this matter could have been amicably resolved , by the Station Manager without reverting the matter to ADR , Nonetheless however the Appellant shall endeavour to adduce evidence in pursuance to The Appeal Tribunal Rules & procedure, to demonstrate , the taxpayer’s willingness to resolve tax issues.

21. That the Financial Statement for the year of income 2018, discloses fairly the net profit & the tax thereon, which the Appellant is willing & prepared to pay as stated in the annexes.

22. That the Appellant was willing to pay any tax that is properly determined or may culminate from the ADR process.

23. That based on evidence deduced from the information & documents examined as marked and attached in this Statements of Facts , the Appellant feel aggrieved to be denied other services e.g. Tax Compliance Certificate. It would also be critical to stand over the tax plus the accruing interest during the period this case will be under Appeal/ ADR.

24. The Appellant submitted that it was dissatisfied by Respondent to raise an additional tax based on Added Annual Return (VAT) summated VAT turnover of Ksh 13,223,126. 00 for the year of income 2018, derived from monthly VAT filed by the Appellant as required by Cap 476 of the laws of Kenya estimated income

25. That due to logistic challenges in concluding the Annual financial audit, lapse of time occurred between deadline to file annual Income returns and the completion of the audit as required by Tax Procedure Act of 2015. This lapse of time made the Respondent issue additional tax whose basis was the annual VAT turnover. The additional taxes that culminated , and the action by the Respondent to amend the assessment in light of the financial statement submitted necessitated this Appeal .

26. That when the Respondent noted the existence of the disparity between the summated annual VAT turnover of Ksh 13,223,126. 00, and a none filed income annual return , the Respondent Zero summated the income annual return and subjected the summated annual VAT return to a corporation tax rate of 30% , as the basis of the additional tax assessment of Ksh 3,936,947. 00 on 15th November, 2021, which was an assumption and unrealistic as it is very unlikely that a company could generate such level of income without incurring expenses, which are wholly and exclusively incurred to generate such an income .

27. That the Respondent’s decision to penalize the taxpayer with additional tax, denied the Appellant the right to amend the annual return, on conclusion and submission of the financial statements. The Appellant sought leave to file late objection, but this was declined.

28. That the Respondent issued a declined objection decision made 28th March, 2022, hence confirming the additional taxes raised and annual Returns.

29. That the action of the Respondent to confirm the additional tax, albeit the documentary evidence provided, was unfair, unreasonable and punitive to the Appellant hence the reason for this Appeal.

30. The Appellant provided an in-depth analysis of the case as set out in the following paragraphs.

31. That the Respondent action to decline to accept the Appellant application seeking leave to file late objection albeit the documentation that were availed, including the reason given, that the Appellant did not unreasonably delay in raising the objection within the time frame envisaged in Section 51 of the Tax procedure Act of 2015 was quite unreasonable and unfair considering the Appellant had compliance in filing the monthly VAT Returns made as required ,but for the filing of the annual income Return which was not filed within the time frame required .

32. That the Respondent methodology to apply a general rate of 30% of annual VAT turnover to determine the addition is inconsistent with Section 3(2)(a)(i) and Part IV-Ascertainment of total Income, deduction allowed, as detailed in Income Tax Act Cap 470 of the laws of Kenya clearly give direction as to how ascertainment of total income is determined.

33. That the assumption used by the Respondent to raise additional taxes by applying a generalized rate of 30% on the gross income is not only unfair, but punitive and unrealistic .This action by the Commissioner or his agents is inaccurate, and unreasonable, and contestable as has no base as required by Section 3(2)(a)(i) and Part IV-Ascertainment of total income, deduction allowed, as detailed in Income Tax Act Cap 470 of the laws of Kenya.

34. The Appellant quoted Section 3(2)(i)( d) of the said Act as follows;“where in computing gains or profits for a year of income any expenditure or loss has been deducted, or a deduction in respect of any reserve or provision to meet any liability has been made, and in a later year of income the whole or part of that expenditure or loss is recovered, or the whole or part of that liability is released, or the retention in whole or in part of that reserve or provision has become unnecessary, then any sum so recovered or released or no longer required as a reserve or provision shall be deemed to be gains or profits of the year of income in which it is recovered or released or no long''

35. That the simplistic way of applying 30% on the gross VAT annual turnover as basis to raise addition tax is in contravention with the Income Tax Act and no ''baptism in whatever form can reverse this'' invalid decision which is in contravention with the law will always be invalid .

36. The Appellant posited that the assertion made by the Respondent declaring the additional assessment as valid is in contravention with the Act and is also repugnant to natural justice, punitive and inconsistent with the Income Tax Act & Tax Procedure Act 2015. Section 15(1)(2)(3) read together with the subsection 3(2)(i)( d) thereto of Income Tax Act, provide more elaborative guidance as how to determine gain or profit from a legal or individual person(s). That this was however ignored by the Respondent, to impose punitive additional taxes that cannot pass the litmus test of the law.

37. That the additional assessment is a 'wild goose chase 'and should be declared invalidly determined. That equally it has not met the threshold of Section 3(2)(a)(i) (d) and Part IV­ Ascertainment of total Income, Deduction allowed, as detailed in Income Tax Act.

38. That the tax in dispute of Kshs 3,966,937. 80, is a fallacy as it ignored very critical factors ''Did the company incur expenses, which were wholly and exclusively incurred to generate the said gross income, the Answer is No.''The Respondent did not take into consideration the deductions allowed.

39. That the facts as contained in the Appellant's Statement of Facts, clearly demonstrate that the Respondent prayer that the tax in dispute be declared valid and reasonable has not met the basic real-life business situation and the assertion is based on a thin -line which is skewed , subjective and reasonable and therefore cannot be proved beyond reasonable doubt, 'even under common sense approach.

40. That the Financial Statement for the year of income 2018, discloses fairly the net profit & the tax thereon, which the Appellant is willing and prepared to pay.

41. The Appellant submitted that it is willing to pay any tax that is properly determined or may culminate from this Appeal process.

42. That the summated facts analysed above clearly demonstrate that: -a.The Objection decision made was not fair and reasonableb.The process used and applied to decline/reject the Appellant's late objection was not fair.c.The additional assessment raised was not fairly determined and computed and is tilting toward repugnant to natural justice.

The Appellant’s Prayers 43. The Appellant prayed that this Tribunal determine the following:a.Declare the Appeal validly lodged.b.Declare the Objection decision made by the Respondent as unfair and unreasonablec.Declare the additional tax assessment and the methodology used to determine the tax in dispute as invalid and unfairly determined.d.Declare the additional tax assessed as none compliance with Tax Procedure Act 2015 and Income Tax Act more specifically Section 3(2)(a)(i) and Part IV­ Ascertainment of total Income, Deduction allowed, as detailed in Income Tax Act.

The Respondent’s Case 44. The Respondent’s case is premised on its Statement of Facts dated 23rd November, 2022 filed on 25th November, 2022 and the submissions dated 5th June 2023 and filed on 6th June 2023 as set out hereunder:

45. That on 20th September, 2021, the Respondent issued the Appellant with a pre-assessment notice notifying it of noted variances between turnover declared in its VAT 3 and income tax returns for the year 2018 including a preliminary tax computation of the income tax due. The Appellant was further requested vide the same pre- assessment notice to address the discrepancy and contact the Respondent for further clarification.

46. The Respondent stated that the Appellant did not provide a response to the pre-assessment notice. Consequently, the Respondent on 16th November 2021 issued an Income Tax additional assessment in the period Year 2018 based on the unexplained variances.

47. The Respondent averred that the Appellant filed a late objection on 27th January 2022, to which it responded to on 3rd March 2022, with reminders on 11th and 23rd March 2022, informing the Appellant that its objection failed to satisfy the requirements under Section 51 of the Tax Procedures Act, in addition to being filed out of time. Nevertheless, the Respondent requested the Appellant to provide evidence and reasons in support of its late objection.

48. The Respondent stated that it rejected the Appellant's late objection application on 28th March 2022, the Appellant being non-responsive to the Respondent's email of 27th January 2022.

49. That it confirmed the assessment of 16th November 2021 on 28th March 2022, via the Appellant's registered email on iTax within the 60-day timeline as required in law because of Appellant failure to provide cogent evidence rebutting the Commissioner's analysis and findings.

50. That it is the Respondent’s position that an analysis of the Appellant’s declared VAT returns vis a vis its Income tax returns revealed that the Appellant underdeclared its income for the year 2018.

51. That on 20th September 2021, the Respondent issued the Appellant with a pre-assessment notice granting the Appellant the opportunity to address the assessed variances. The Appellant was further requested (vide the same pre-assessment notice) to address the variance, and provide the requested documentation with an option to contact the Respondent for further clarification. That unfortunately, the Appellant was non-responsive constraining the Respondent to assess the unexplained variances as computed and issue an additional assessment pursuant to Section 73 (1) of the Income Tax Act.

52. That on 27th January 2022, the Appellant lodged a defective objection, failing to furnish the Respondent with evidence of reasons for late objection as envisaged in Section 51 (7) of the Tax Procedures Act, 2015.

53. That the Appellant premised its application as "other reasonable cause" being that a wrongful email address was registered and thus was not aware of the notification of the demand and subsequent additional assessment, hence the late filing of the late objection application.

54. That on 3rd March 2022, with reminders on 11th and 23rd March 2022, the Respondent wrote to the Appellant appraising it on the elements of a valid late objection application under the provisions of Section 51 of the Tax Procedures Act.

55. In its pleadings the Respondent submitted that it reviewed the Appellant's grounds and information supporting the application for late objection and noted that the pre-assessment notices including a preliminary tax computation of the income was sent to its registered email address on iTax system which had remained unchanged. Furthermore, the email address was the same address indicated on the Appellant's objection application.

56. The Respondent further submitted that on 28th March 2022 it rejected the Appellant’s objection application. In any event, had the Respondent not rejected the Appellant's application, the Appellant was non-responsive to the Respondents' request for further particulars and did not avail any of the requested documentation from the notice of 20th September 2021.

57. The Respondent submitted on the following issues for determinationa.Whether the Appellant's notice of objection is valid?b.Whether the Respondent's charge to tax of the Appellant is erroneous or excessive

58. The Respondent anaysed the above issues for determination as follows;

Whether the Appellant's notice of objection is valid? 59. The Respondent averred that the right of Appeal under the Tax Procedures Act is not absolute; it is conditional on the Appellant firstly lodging a valid appeal pursuant to Section 51(1) of the Tax Procedures Act (TPA). The Section reads:-“A taxpayer who wishes to dispute a tax decision shall first lodge an objection against that tax decision under this section before proceeding under any other written law.”

60. A valid objection under Section 51(3) of the TPA, "states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments" and "all relevant documents relating to the objection have been submitted."

61. The Respondent referred the Tribunal to Transfix Limited -Vs- Commissioner of Domestic Taxes: Misc. No. 178 Of 2022 in which the Tribunal noted in the absence of a valid objection by taxpayer “there was no decision issued by the Commissioner that could possibly form a basis for an appeal before the Tribunal .... In the circumstances the Tribunal finds that there is no conceivable appeal with merit that could be possibly filed by the Applicant for appropriate determination by the Tribunal."

62. The Respondent argued that from the foregoing the existence of a valid objection before the Respondent is sine qua non to an appeal before the Honorable Tribunal.

63. The Respondent stated that the Appellant filed an invalid objection, as the Appellant failed to precisely state the grounds of Objection, the amendments required to correct/ change the decision and the supporting documents of the objection. The objection notice was a mere denial. That no evidence was provided at the time of the objection decision in support of the objection.

64. The Respondent also averred that the Appellant having failed to validate its objection decision, despite being repeatedly advised on the irregularity, it dismissed the objection on 28th March 2022.

65. The Respondent submitted that in light of the foregoing, the Appeal before the Honourable Tribunal is irreparably incompetent.

Whether the Respondent's charge to tax of the Appellant is erroneous or excessive 66. The Respondent submitted that moreover, Section 23 of the Tax Procedures Act and 43 of the VAT Act mandates the Appellant to maintain documents required under any tax law and to provide the same upon request by the Respondent. This is to ensure that the taxpayer's tax liabilities can be readily ascertained. That the Appellant failed to provide the relevant supporting documents to discharge the burden of proving the assessments as incorrect.

67. The Respondent averred that pursuant to Section 24(2) of The Tax Procedures Act 2015, the Respondent is not bound by a tax return or information provided by, or on behalf of, a taxpayer and may assess a taxpayer's tax liability using any information available to him. That in that regard, the Respondent relied on customs data to assess the Appellant for Income tax and VAT.

68. The Respondent submitted that the assessment was conducted against the backdrop of Section 3 of the Income Tax Act which provides for taxation of incomes derived from or accrued in Kenya and Section 5 of the Value Added Tax which is the charging Section for vatable imports.

69. The Respondent quoted Section 31 (1) of the Tax Procedures Act which provides that: -“Subject to this section, the Commissioner may amend an assessment (referred to in this section as the "original assessment") by making alterations or additions, from the available formation and to the best of the Commissioner's judgement, to the original assessment of a taxpayer for a reporting period to ensure…”.

70. The Respondent quoted the case of Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR where the court stated;-“The shifting of the burden of proof in tax disputes flows from the presumption of correctness, which attaches to the Commissioner's assessments or determinations of deficiency. The commissioner's determinations of tax deficiencies are presumptively correct. Although the presumption created by the above provisions is not evidence in itself, the presumption remains until the taxpayer produces competent and relevant evidence to support his position. If the taxpayer comes forward with such evidence, the presumption vanishes and the case must be decided upon the evidence presented, with the burden of proof on the taxpayer”

71. The Respondent also quoted Pearson Vs. Belcher CH.M Inspector of Taxes) Tax Cases Volume 38 referred to by Justice D.S. Majanja in PZ Cussons East Africa Limited Vs. Kenya Revenue Authority (2013) eKLR to the extent that:-“Where there is an assessment made by the Additional Commissioner upon the Appellant; it is perfectly settled by cases such as Norman Vs. Galder 267C 293, that the onus is upon the Appellant to show that the assessment made upon him is excessive and incorrect and of course he has completely failed to do. That is sufficient to dispose of the appeal, which I accordingly dismiss with costs." Paragraph 57 states …. the Appellant in the present appeal has manifestly failed to discharge such an onerous burden of proof placed squarely on it ...”

72. The Respondent submitted that in this regard, its assessment is per the Appellant's filed returns on income and VAT returns.

73. It further averred that in the instant case, an analysis of the Appellant's declared VAT returns vis a vis its Income tax returns for the year 2018 revealed variance between the two returns. That the Respondent's analysis demonstrated that the Appellant under-declared its income for the tax period.

74. In conclusion, the Respondent submitted that the Appellant had failed to prove that the Commissioner's tax decision was in any way inconsistent, based on extraneous factors, excessive or incorrect.

Respondent Prayers 75. The Respondent prayed that this Tribunal consider the following;a.Upholds the Respondent's decision to invalidate the objection notice dated 16th November 2022, as proper and in conformity with the provisions of the lawb.That this Appeal be dismissed with costs to the Respondent as the same is devoid of merit

Issues For Determination 76. Upon considering the pleadings, and the submissions made by the parties, the Tribunal has framed the following issue for determination:a)Whether the Respondent was justified in rejecting the Appellant notice of objection

Analysis And Findings 77. In its pleadings the Appellant maintained that it lodged a valid objection whose rejection by the Respondent was whimsical, unreasonable and in violation of the rules of natural justice. On the other hand, the Respondent maintained that the objection lodged by the Appellant was a nullity and failed to be on all fours with the provisions of Section 51 of the Tax Procedures Act.

78. The Tribunal has analysed the chronology of events as stated by both the Appellant and the Respondent as follows;a.The Respondent issued a pre-assessment notice letter to the Appellant using the email address stagemaket3@gmail.com registered on the Appellant ITax portal on 20th September 2021. b.The Appellant did not respond to the Pre-Assessment Notice.c.The Respondent issued an Assessment Order of Kshs 3,936,937. 80 as incremental tax, excluding all fines, penalties and interests on the Appellant iTax Portal on 16th November 2021. d.The Appellant did not respond to the Respondent Assessment Order within the stipulated timelines of thirty days provided under Section 51(2) of Tax Procedure Act 2015. e.The Appellant lodged a late objection on iTax on 27th January 2022 approximately 41 days outside the stipulated timelines.f.The Respondent informed the Appellant via an email dated 3rd March 2022 that the notice of objection was not validly lodged as required in Section 51(3),(6) and (7) of Tax Procedure Act 2015. g.The Respondent sent reminder emails to the Appellant on 11th March and 24th March 2022 requesting for more information to support the late objection notice as provided in Section 51(7) of TPA 2015. h.The Appellant denied receipt of the above emails by alleging that the emails were sent to the wrong email address.i.The Respondent submitted that the email address used to send all the emails is stagemaket3@gmail.com and has attached copies of all the emails relating to this Appeal.j.The Respondent further submitted that the email address above is the same email used by the Appellant to lodge the notice of objection dated 27th January 2022. k.The Respondent declined the late objection application on 28th March 2022 and confirmed the Assessment Order dated 16th November 2021

79. In addition to the above the Tribunal has also perused the documents submitted together with the pleadings by both the Appellant and the Respondent and noted that the Respondent provided the correspondences between it and the Appellant. However, the Appellant did not provide any documents to prove that it lodged a late objection and that the same was acknowledged by the Respondent as stated in the Appellant’s Memorandum of Appeal.

80. In its pleadings the Respondent averred that the right of Appeal under the Tax Procedures Act is not absolute; it is conditional on the Appellant firstly lodging a valid appeal pursuant to section 51(1) of the Tax Procedures Act 2015 which states as follows;“A taxpayer who wishes to dispute a tax decision shall first lodge an objection against that tax decision under this section before proceeding under any other written law.”

81. The Respondent further stated that a valid objection under Section 51(3) of the Tax Procedure Act, must “state precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments" and "all relevant documents relating to the objection have been submitted."

82. In support its pleadings the Respondent quoted the Tribunal case of Transfix Limited -Vs- Commissioner of Domestic Taxes: Misc. No. 178 of 2022.

83. The Appellant, on the other hand, confirmed that it lodged a late objection on 27th January 2022 and that the same was acknowledged on 8th March 2022. In its pleadings, it also alleges that it submitted enough grounds and supporting documents in support of its late objection notice to the Assessment Order dated 16th November 2021. However, the Appellant did not provide any proof or evidence before the Tribunal other than to state in its pleadings that the decision of the Respondent to reject its late objection was “quite unreasonable and unfair”.

84. Section 51(6) of the Tax Procedure Act 2015 provides as follows regarding the procedure of lodging a late objection to a tax decision.“A taxpayer may apply in writing to the Commissioner for an extension of time to lodge a notice of objection”.

85. Section 51(7) of the TPA provides as follows on the remedial procedure of lodging a late objection decision:“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; and(b)the taxpayer did not unreasonably delay in lodging the notice of objection.”

86. The above citations of the law assert that the discretion to extend time for a late objection lies with the Commissioner in the first instance and that an application fro late objection shall be allowed if the applicant meets the conditions set in Section 51(7) of the TPA.

87. It is evident from the Respondent’s letter to the Appellant dated 28th March, 2022, and emails dated 03rd March, 2022, 11th March, 2022 and 23rd March, 2022, that the Appellant was afforded an opportunity to provide evidence in support of the reasons for the late objection but it failed to do so.

88. Having failed to substantiate its reasons in compliance with Section 51(7) of the Tax Procedures Act, 2015, the Respondent had no other option other than to decline the application for late objection as the same did not meet the threshold of a valid objection notice.

89. Further, the Appellant never responded to any of the emails from the Respondent. The reason given for the failure to do so is that the wrong email was used on iTax. However, this is not persuasive because as submitted by the Respondent, the same email was used in lodging the application for late notice of objection. The net effect of the Appellant’s failure to respond to the Respondent’s emails is that it failed to validate its notice of objection.

90. The Tribunal finds that the Appellant failed to demonstrate that the late objection it lodged before the Respondent was a proper one and that its rejection on account of being filed late and without sufficient reason being given, was unjustified.

91. It is now settled law that “he who alleges must proof” and in this case the burden of proof that a valid late objection was filed or that it had provided documents to support its late objection notice lay with the Appellant.

92. The Commissioner was left with very little space other than to arrive at the decision that it did because the Appellant failed to validate its objection.

93. The Appellant has thus failed to prove its case on a balance of convenience. It has also failed to prove that the Commissioner erred in arriving at its present decision. In the circumstances the Tribunal is inclined to hold that the Appeal must fail for failure to discharge its burden of proof as was held in the case of Alfred Kioko Muteti vs. Timothy Miheso & Another [2015] eKLR where the court held that:-“Thus, the burden of proof lies on the party who would fail, if no evidence at all were given by either party…. Pleadings are not evidence....”

Final Decision 94. The upshot of the foregoing analysis is that the Appeal lacks merit and the Tribunal accordingly proceeds to make the following Orders:-a.The Appeal be and is hereby dismissed in its entirety;b.The Respondent’s decision dated 28th March 2022 be and is hereby upheld;c.Each party to bear its own costs.

95. It is so ordered

DATED AND DELIVERED AT NAIROBI THIS 24TH DAY OF NOVEMBER, 2023. ERIC NYONGESA WAFULACHAIRMANDR RODNEY O. OLOUCHMEMBERCYNTHIA B. MAYAKAMEMBERABRAHAM K. KIPROTICHMEMBEREUNICE NG’ANG’AMEMBERBERNADETTE GITARIMEMBER