[2024] KETAT 1055 (KLR)

Stephkar Limited v Commissioner of Domestic Taxes (Appeal E497 of 2023) [2024] KETAT 1055 (KLR) (19 July 2024) (Judgment)

Neutral citation: [2024] KETAT 1055 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal E497 of 2023

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

July 19, 2024

Between

Stephkar Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited liability company incorporated and registered under the Companies Act CAP 486 Laws of Kenya and engaged in administrative and support service activities.

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 Appellant was issued with principal assessment orders amounting in the sum total to Kshs. 21,074,429. 52 in relation to corporation tax on 27th October 2022 and 28th October 2022; Kshs. 2,667,191. 07 in relation to Value Added Tax (VAT) rendered on 17th October 2022 and 19th October 2022.

4. On 10th January 2023, the Appellant objected to the assessments and concurrently requested for extension of time to avail supporting documents.

5. Subsequently, the Respondent declined vide an electronic mail of 24th January 2023 the Appellant’s late objection for want of documentation and confirmed the principal tax assessment of Kshs. 23,741,620. 59. Later, on 31st May 2023, the Respondent vide the i-Tax portal issued the Appellant with late objection rejection notices.

6. Aggrieved by the Respondent’s late objection rejection notices dated 31st May 2023, the Appellant filed its notice of appeal dated 8th August 2023 at the Tribunal on even date.

The Appeal 7. The Appeal was predicated upon the following grounds as laid-out in the Memorandum of Appeal dated 10th July 2023 and filed on 8th August 2023;a.That the Respondent erred in its decision to issue the Appellant with additional tax assessment in respect of income tax and VAT of Kshs. 21,074,429. 52 and Kshs. 2,667,191. 07 respectively for various months in 2020, 2021 and 2022. b.That the Respondent did not provide adequate information as to why the VAT assessment for December 2020 was raised since no such incomes were generated to warrant such an assessment.c.That VAT assessment for April and July 2021 should not have been carried out as it was based on disallowed invoices which the Appellant was in possession of.d.That the VAT assessment for November 2021 and March 2022 was done based on withholding tax yet the withholding was made erroneously as it was based on the invoice amount instead of net VAT amount thus was made inclusive of VAT.e.That the February 2022 VAT assessment was made for an invoice that had earlier been declared in a different month.f.That the May 2022 VAT assessment failed to consider allowable expenses that had been incurred in the execution of the contract.g.That income tax assessment for years of income 2020 and 2021 failed to consider audited accounts and expenses thereof when arriving at the assessed tax.

Appellant’s Case 8. In its Statement of Facts dated 10th July 2023 and filed on 8th August 2023 the Appellant averred that the Respondent erred in its income tax and VAT assessments for various months in 2020, 2021 and 2022 years of income and it objected to the assessments on 10th January 2023.

Appellant’s Prayer 9. The Appellant made the following prayers:(a)That the Tribunal directs the Respondent to revise taxes thereof.(b)That the Tribunal directs the Respondent to honor the objection decision as per the revised position regarding VAT assessment for the month of December 2014, June 2017 and August 2017. (c)That the assessments be vacated and the Appellant allowed to to enter into a payment plan for outstanding tax.

THE RESPONDENT’S CASE 10. The Respondent replied to the Appeal through its Statement of Facts dated and filed on 27th October 2023;

11. The Respondent stated that it considered all documents availed by the Appellant and that the same did not support its claim.

12. The Respondent asserted that it disallowed unsupported input double claims, unsupported expenses and brought to charge undeclared income earned on the assumption that expenses could not be supported or verified. The Respondent relied on Section 56(1) of the Tax Procedures Act, CAP 469B of Kenya’s Laws (hereinafter “TPA”) which provides as follows:“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

13. The Respondent averred that the Appellant lodged a late objection and was requested to adduce supporting documents for review but failed contrary to Section 51 of the TPA and that is why the Respondent confirmed the assessments based on available information. The same was communicated to the Appellant.

Respondent’s Prayer 14. The Respondent made the following prayers to the Tribunal:(a)That the Tribunal affirms the objection decision dated 24th January 2023 as proper in law.(b)That the Tribunal finds the additional assessments of short levied taxes totaling Kshs. 23,741,620. 59 and resultant penalty and interest as due and payable.

PARTIES’ SUBMISSIONS 15. The Appellant did not file written submissions whilst the Respondent filed written submissions dated 1st March 2024 on even date. The Respondent submitted on two issues that it had identified for determination as hereinunder:

(i) Whether the Respondent erred in issuing additional assessments. 16. The Respondent asserted that the decision to arrive at the additional assessments and specifically the decision to disallow unsupported input double claims, expenses and charging undeclared income earned was justified and had basis in law as couched under the TPA and relied on Section 23 of the TPA which provides as follows:“(1).A person shalla.Maintain any document required under a tax law, in either of the official languages;b.Maintain any document required under a tax law so as to enable the person’s tax liability to be readily ascertained; andc.Subject to subsection (3), retain the document for a period off five years from the end of the reporting period to which it relates or such shorter period as may be specified in a tax law” ….

17. The Respondent, in its submissions also relied on Section 59 of the TPA in further buttressing the importance of keeping and providing records and documents for purposes of ascertaining the correct tax liability of an Appellant. Further, the Respondnet submitted that while Section 24(1) of the TPA provides that the Respondent shall not be bound by a tax return or information provided by, or on behalf of a taxpayer, Section 31(1) of the TPA provides as follows:“Amendment of assessments(1).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 information and to the best of the Commissioner’s judgement, to the original assessment of a taxpayer for a reporting period to ensure thata.In the case of a deficit carried forward the income tax act (Cap470), the taxpayer is assessed in respect of the correct amount of the deficit carried forward for the reporting period.b.In the case of an excess amount of input tax under the Value Added Tax Act, 2013(No13 of 2013), the taxpayer is assessed in respect of the correct amount of the excess input tax carried forward for the reporting period; orc.In any other case, the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates….”

18. In firming up its position, the Respondent cited the Court decision in the case of Commissioner of Domestic Taxes v Altech Stream (EA) Limited [2021] eKLR where it was held that Section 31(1) of the TPA allows the Respondent to make an assessment based on such information as may be available and to the best of its judgement.

(ii) Whether the Appellant’s objection was proper in law. 19. The Respondent averred that the Appellant failed to object to the assessment orders within 30 days after being notified of the decision as provided for under Section 51(2) of the TPA. Instead the Appellant objected on 10th January 2023 which was 85 days late.

20. Upon receiving the Appellant’s invalid objection, the Respondent notified the Appellant vide electronic mail on 24th January 2023 as provided for by Section 51(4) of the TPA which provides as follows:“(4).Where the Commissioner has determined that a notice of objection lodged by a taxpayer has not been validly lodged, the Commissioner shall immediately notify the taxpayer in writing that the objection has not been validly lodged...”

21. The Respondent further submitted that it rejected the Appellant’s application for extension of time because the Appellant failed to state any grounds for extension as provided for under Section 51(7) of the TPA. The Appellant therefore failed to discharge its burden of proof as couched under Section 56(1) of the TPA as read together with Section 30 of Tax Appeals Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”). To further enhance this position, the Respondent relied on the following cases: Ushindi Exporters Limited vs Commissioner of Investigations and Enforcement (TAT No. 7 of 2015)

“The burden of proving that the tax assessment is excessive or should have been made differently never shifts to the Respondent and is placed squarely on the Appellant as Section 30 (a) and (b) of the TATA states,a.Where an appeal related to an assessment, that the assessment is excessive; orb.In any other case, that the tax decision should not have been made or should have been made differently by purporting to shift the burden of proving that the tax assessment against it was incorrect or should have been different, the Appellant failed in discharging the burden, placed upon it by law.” Tumaini Distributors Company (K) Limited vs Commissioner of Domestic Taxes [2020] eKLR where the High Court in determining the issue as to whether the Commissioner followed the correct procedure or correctly assessed as company’s tax liability found that the Appellant had failed to provide the relevant documents despite several requests by the Commissioner. The High Court upheld the decision of the Tribunal, holding that since the Appellant had not provided all the documents, the Commissioner was right in reaching the assessment based on the material available.

Issues For Determination 22. The Tribunal having carefully considered the parties’ pleadings, documentation and the submissions notes that two issues call for its determination as follows:(a)Whether the Appeal herein is properly before the Tribunal.(b)Whether the Respondent’s decision dated 31st May 2023 was valid.

Analysis And Findings 23. The Tribunal will proceed to analyze the issues identified for determination as follows:

(a) Whether the Appeal herein is properly before the Tribunal. 24. The Tribunal notes that the Respondent’s Preliminary Objection dated 4th April 2024 through which the Respondent queried the Tribunal’s jurisdiction in the Appeal herein on the basis that the letter dated 24th January 2023 rejecting the Appellant’s application for extension of time to lodge an objection notice and the late rejection objection notices were not appealable decisions; and accordingly, the Appeal herein was incurably defective ought to be stuck out with costs.

25. The Tribunal notes that the letter dated 24th January 2023 by the Respondent confirming the assessments was an invalidation notice to the Appellant’s objection dated 10th January 2023 and the same was rendered, by the Respondent within 14 days pursuant to the provisions of Section 51(4) of the TPA which provides as follows:“Where the Commissioner has determined that a notice of objection lodged by a taxpayer has not been validly lodged, the Commissioner shall within a period of fourteen days notify the taxpayer in writing that the objection has not been validly lodged”

26. The Tribunal is of the view that the Appellant, upon receiving the Respondent’s invalidation decision dated 24th January 2023 had 30 days within which to appeal the invalidation decision at the Tribunal. Accordingly, the Appeal ought to have been filed by 24th February 2023 pursuant to the following provisions of section 52 (1) of the TPA:“52. Appeal of appealable decision to the Tribunal(1)A person who is dissatisfied with an appealable decision may appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Tribunal Act, 2013 (No. 40 of 2013).”

27. The Tribunal notes that the Appellant did not appeal against the decisions given by the Respondent dated 24th January 2023 but instead filed appeal against the late rejection objection notice dated 31st May 2023. These late objection notices were not appealable decisions as envisioned by the following provisions of 3(1) of TPA:appealable decision” means an objection decision and any other decision made under a tax law other than—a.a tax decision; orb.a decision made in the course of making a tax decision;

28. The Tribunal further notes that the Appellant never sought the leave of the Tribunal to file the instant Appeal out of time pursuant to the following provisions of Section 13 (3) and (4) of the TATA:“(3)The Tribunal may, upon application in writing, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).”“(4)An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from filing the notice of appeal or submitting the documents within the specified period.”

29. The Tribunal cites the ensuing holding of the Court of Appeal in the case of Felister Wakonyo Waruhiu vs. Joseph Wachira Mwangi, Civil Appeal No. 8 of 2013:“Can the overriding objective of this Court be invoked to save the appeal? We are of the view that the competency of the appeal goes to the jurisdiction of this Court and cannot be cured by the overriding objective of this Court. It is trite that this Court has jurisdiction to entertain appeals filed within the requisite time and/ or appeals filed out of time with leave of the court.”

30. In view of the preceding analysis, the Tribunal hereby allows the Respondent’s preliminary objection dated 4th April, 2024 and downs its tools upon its finding that this Appeal is improperly before it for want of jurisdiction.

(b) Whether the Respondent’s decision dated 31st May 2023 was valid. 31. The Tribunal having established it lacks jurisdiction to entertain the instant Appeal will not delve into the second issue for determination as the same has been rendered moot.

FINAL DECISION 32. The upshot of the foregoing is that the Appeal herein lacks merit and the Tribunal accordingly proceeds to make the following Orders;(a)The Appeal be and is hereby struck out.(b)Each party to bear its own costs.

33. It is so ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 19TH DAY OF JULY, 2024. …………..……………….CHRISTINE A. MUGACHAIRPERSON………………………. …………….……………..BONIFACE K. TERER DELILAH K. NGALAMEMBER MEMBER…………………………..OLOLCHIKE S. SPENCERMEMBER