[2023] KETAT 571 (KLR)

Sungura Samburu Agencies Ltd v Commissioner of Domestic Taxes (Tax Appeal 1192 of 2022) [2023] KETAT 571 (KLR) (19 October 2023) (Judgment)

Neutral citation: [2023] KETAT 571 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1192 of 2022

RM Mutuma, Chair, EN Njeru, M Makau, BK Terer & W Ongeti, Members

October 19, 2023

Between

Sungura Samburu Agencies Ltd

Appellant

and

Commissioner of Domestic Taxes

Respondent

(An Appeal against the Respondent's objection decision dated 29th August 2022)

Judgment

Background 1. The Appellant is a limited liability company duly incorporated under the Companies Act of the laws of Kenya and carrying on business in Maralal – Samburu.

2. The Respondent is the Principal officer appointed under the Kenya Revenue Authority Act and charged with the mandate for the assessment, collection, and accounting for all tax revenue as an agent of the Government of the Republic of Kenya. The Respondent is also charged with the responsibility of the administration and enforcement of the statutes set out in the schedule to the said Act.

3. The Appellant was assessed by the Respondent on the basis that the Appellant was not compliant with regard to Income tax and VAT as there was a variance between sales declared in VAT compared to income declared in the Appellant's income tax returns. The Respondent also indicated that there were discrepancies on the total purchases declared in VAT returns compared to the total purchases declared in the income tax returns leading to the assessment.

4. The Appellant did not lodge a notice of objection to the assessments and was subsequently issued with a demand notice for Kshs. 100,730,915. 00 on VAT and Income tax for the period 2017, 2018, and 2020.

5. The Respondent being dissatisfied with the Respondent's demand letter issued on 23rd June 2022 lodged its notice of objection late vide its letter dated 24th June 2022.

6. The Respondent reviewed the Appellant's objection and allowed the application for extension of time to file a late objection.

7. Subsequently vide its letter dated 16th August 2022 the Appellant lodged its notice of objection to the Corporation tax and VAT assessments.

8. The Respondent reviewed the Appellant's notice of objection and issued its objection decision on 29th August 2022 partially allowing the Appellant's objection and amended the principal tax from Kshs. 103,538,891. 00 to Kshs. 91,007,922. 00, which with the resultant penalties and interest totaled Kshs. 132,425,369. 00.

9. The Appellant being dissatisfied with the Respondent's objection decision preferred the Appeal herein.

The Appeal 10. The Appellant filed its Memorandum of Appeal on 13th October 2022 and set out the following grounds of Appeal;i.The Appellant appeals the amounts assessed on VAT and the computations reconsidered.ii.The Appellant appeals the amounts assessed on Corporation tax and the computations reconsidered.iii.The Appellant appeals on the figure assessed and request to be allowed to set aside the income tax as filed and bring forth correct set of accounts based on the actual data.

The Appellant's Case 11. The Appellant has set out its case on;a.Its Statement of Facts dated 13th October 2022 and filed on the same date, andb.The written submissions dated 3rd April 2023 and filed on 5th April 2023.

12. The Appellant stated that it was issued by the Respondent with a pre- assessment demand notice on 23rd September 2021 for the period 2016 to 2020 for Kshs. 68,564,047. 40.

13. It was further stated by the Appellant's Director that inspite of advancing age at 71 years, and sickness, she tried her best to have the Appellant comply with the Respondent's requirements and that most of the documents requested in the verification process provided and further requested the Respondent to amend the returns.

14. The Appellant stated that on 12th April 2022 the Respondent issued assessment orders for all the assessed amounts as per the findings of 23rd September 2021, and on 23rd June 2022 the Respondent issued a demand notice for Kshs. 100,730,915. 00.

15. The Appellant further stated that it objected on 24th June 2022 albeit belatedly to the assessments of 12th April 2022 and the objections were allowed by the Respondent on 15th July 2022 after provision of the necessary documents.

16. The Appellant further stated that on the 29th August 2022 the Respondent issued an objection decision and raised new assessment of Kshs. 132,425,369. 00.

17. The Appellant contended that it stands to suffer irreparable damage and not able to meet this demand as per the objection decision, as most of the submissions were not taken into consideration, hence the computations are erroneous and scanty.

18. The Appellant submitted that for the VAT assessment, out of the total of Kshs. 25,129,120. 00 assessed and objected to, an amount of Kshs. 12,530,930. 00 was allowed, and it admitted Kshs. 1,243,208. 00 leaving a balance of Kshs 11,560,700. 00 which is subject of this Appeal.

19. The Appellant further submitted that for Corporation tax, a total amount of Kshs. 78,409,730. 75 was assessed and objected to, of which it admitted to a sum of Kshs. 331,214. 51, leaving a balance of Kshs. 78,409,730. 75 which is subject of this Appeal.

20. The Appellant submitted that it provided the required workings, analysis and supporting to the Respondent, and contended that the VAT assessment for the month of November 2017 of Kshs. 11,560,970. 00 is made in error as it is the whole year difference between turnover as per the income tax and VAT, and stated that it only admits to Kshs. 1,243,208. 70.

21. The Appellant also contended that it appealed against the total figure assessed on the Corporation tax and requested to be allowed to set aside the income tax as filed and submit correct set of accounts based on the actual data, arguing that for instance in the year 2017, in five months VAT was not declared.

22. By reason of the submissions aforesaid the Appellant prayed that the Respondent's objection decision be set aside and its Appeal be allowed.

The Respondent's Case 23. The Respondent has set out its case on;a.Its Statement of Facts dated 10th November 2023, filed on 11th November 2023; andb.The written submissions dated 18th May 2023 and filed on 20th June 2023.

24. The Respondent stated that the Appellant had not complied with regard to Income tax and VAT as there were variances between sales declared in VAT compared to income declared- in the Appellant's income tax returns. Further, the Respondent stated that there were discrepancies on the total purchases declared in VAT returns compared to total purchases declared in the income tax returns, leading to the tax liability assessed.

25. The Respondent stated that it issued the Appellant with a pre-assessment demand notice, and gave it seven days to amend its returns to reflect the current position failure to which the Respondent would issue assessment orders.

26. The Respondent further stated that the Appellant failed to respond to the Respondent's pre-assessment notice and only responded vide letter dated 24th December 2021 and that dated 15th February 2022, inter alia arguing that from the sales analysis in the month of May and December 2017 there was no turnover declared. Again, in the year 2018 in the months of June and a July there were no output declared, and lastly in the year 2019, the month of June was also filed as Nil.

27. The Respondent stated that it subsequently issued assessment orders on 12th April 2022 for the years 2020, 2019, 2018 and 2017 for VAT and Income tax (Corporation tax) based on underdeclared income and overstatement of purchases as per the schedules set out in the Respondent's Statement of Facts.

28. The Respondent further stated that the Appellant was dissatisfied with the Respondent's demand letter issued on 23rd June 2022 and lodged its notice of objection late vide a letter dated 24th June 2022.

29. The Respondent averred that it then reviewed the Appellant's application for late objection made vide letter 24th June 2022 with respect to Corporation tax and VAT and allowed the application for extension of time to file the objection where the Appellant was informed that it had to lodge a valid notice of objection in line with the provisions of Section 51 (3) of the TPA, and to provide the following documents;i.A reconciliation of sales, purchases, and salaries and wages expenses as declared in the annual income tax returns and as declared in the monthly VAT/PAYE returns together with the relevant supporting documentation.ii.A copy of audited financial statements.iii.Income and Purchases schedule. iv.Company Bank statements.v.A reconciliation of credits in Bank statements and the declared income.

30. The Respondent reviewed the Appellant's notice of objection and issued its objection decision on 29th August 2022 partially allowing the Appellant's objection and subsequently the principal tax was amended from Kshs. 103,538,891. 00 to Kshs. 91,007,922. 00. The total assessed taxes together with the resultant interest and penalties found due and owing amounted to Kshs. 132,425,369. 00.

31. The Respondent stated that Section 24 of the TPA allows a taxpayer to submit tax returns in the approved form and manner prescribed by the Respondent, the Respondent is not bound by the information provided therein and can assess for additional taxes based on any other available information.

32. The Respondent noted that the assessment for the period under review was based on under declared income and overstatement of purchases.

33. The Respondent further stated that although the Appellant provided banking reconciliations in support of its objection application, the Respondent noted that the KCB bank statements provided was incomplete as it only covered the period January 2018 to 10th April 2018. In addition, the loan advances were not supported.

34. The Respondent further stated that the Appellant had also provided an unsigned offer letter from the bank in support of the bank loans, and that the nature of the deposits/ friendly loans were not explained or supported.

35. The Respondent also averred that for the year 2019, an analysis of sales as per banking yielded more than the assessed income whereas for the year 2020, the Respondent stated that it noted that Appellant had declared Kshs. 259,435,441. 00 in its VAT returns, an amount which is higher than the assessed income as well as the Appellant's reconciled income.

36. It was a further contention of the Respondent that there were inconsistencies in the Appellant's turnover declarations as per the schedules, banking reconciliation and the audited financial statements.

37. The Respondent further averred that the Appellant failed to provide evidence to explain the inconsistencies noted with regard to income received, purchases claimed and the Appellant's VAT returns.

38. The Respondent further stated that it was the Appellant's duty to keep records as provided for in Section 43 of the VAT Act and Section 59 of the TPA having dealt with vatable goods.

39. The Respondent also contended that the Appellant having admitted to taxes due and agreed to pay some taxes as set out in the Statement of Facts, has not paid the same prior to the filing of the appeal as provided under Section 52 (2) of the TPA, which provides as follows:-“(2)A notice of appeal to the Tribunal relating to an assessment shall be valid if the taxpayer has paid the tax not in dispute or entered into an agreement with the Commissioner to pay the tax not in dispute under the assessment at the time of lodging the notice.”

40. The Respondent therefore averred that in view of the foregoing reason, there is no proper Appeal for determination and prayed that the same be dismissed with costs.

41. The Respondent also stated that in making the assessment order and confirming the assessment, it relied on available information that it had as well as the Commissioner's best judgement as provided for in Section 31 (1) of the TPA.

42. The Respondent submitted that from the foregoing facts the assessment and demand were properly issued by the Respondent considering that the same was issued based on the information available to the Commissioner as provided for in Section 24 (2) of the TPA, the Appellant having failed to amend its returns or provide information to resolve the inconsistencies noted, which provides as follows;-“(2)The Commissioner shall not be bound by a tax return or information provided by, or on behalf of, a taxpayer and the Commissioner may assess a taxpayer 's tax 's tax liability using any information available to the Commissioner.”

43. The Respondent relied on the case of Holland vs. United States 121 (1954), where the Supreme court stated that:-“To protect the revenue from those who do not render true accounts, the Government must be free to use all legal evidence available to it in determining whether the taxpayer's books and records accurately reflect his financial history and that the indirect method used need not be exact, but must be reasonable in the light of the surrounding facts and circumstances.”

44. The Respondent submitted that it was therefore proper in issuing the assessments for reasons that; the sales analysis for the months of May and December 2017, there was no return ever declared; in the months of June and July 2018, there were no outputs declared; and in the month of June 2019, they also filed nil returns. That despite being given an opportunity to justify the inconsistencies noted or to amend its returns, the Appellant failed to do so and by that doing, the Appellant failed to prove that the Respondent's assessment order was either erroneous, excessive or illegal.

45. It was therefore a submission of the Respondent that the assessment issued by the Respondent was justified, in line with the relevant tax laws and was purely based on information that was available to the Respondent and prays that the Tribunal finds that the assessment was properly issued.

46. On the validity of the objection decision, the Respondent submitted that for an objection to be considered as valid, the taxpayer ought to lodge a notice of objection within 30 days of receipt of an assessment. In addition, for an objection to be valid, the taxpayer has to precisely state the grounds of objection, has to pay all taxes not in dispute and provide all the relevant documents in support of the objection as provided for in Section 51 (3) of the TPA.

47. The Respondent cited the case of The Commissioner for Her Majesty's Revenue and Customs TC/2017/02292 Saima Khalid Appellant vs. The Commissioners for Her Majesty's Respondents Revenue & Customs, where what constitutes the Commissioner's best judgement was extensively dealt with.

48. It was a further submission of the Respondent that the Appellant being dissatisfied with the assessment of the Commissioner had the burden of proof to show that the assessment was either excessive, unreasonable or unlawful as provided for in Section 30 of the TAT Act and Section 56 of the TPA.

49. It cited the case of Mulherin vs. Respondent for Taxation (2013) FCAFC 115 where the Federal Court of Australia held that; -“in taxation disputes, the taxpayer must satisfy the burden of proof to successfully challenge income tax assessments. The onus is on the taxpayer in proving that the assessment was excessive by adducing positive evidence which demonstrates the taxable income on which tax ought to have been levied.”

50. The Respondent submitted that it partially allowed the Appellant's notice of objection upon consideration and confirmed the unsupported assessment based on detailed analysis and the reasons set out in its Statement of Facts.

51. The Respondent also submitted that it's objection decision partially allowing the supported objection was proper and issued within the law and prays that the same be upheld.

52. In addition, the Respondent submitted that its objection decision was properly issued according to the information that was available to it having applied the best judgement principal and the Appellant having failed to prove that the Respondent's decision was excessive, the Respondent prays that the Tribunal finds and upholds that the Respondent's decision was justified and proper in law and uphold the same.

53. The Respondent further submitted that it has demonstrated before the Tribunal what was considered in arriving at the assessment and subsequently the objection decision which are within the law, and explained in detail reasons why and its findings and prays that the Tribunal upholds the objection decision.

54. The Respondent further submitted that the Appellant has failed to discharge its burden of proof in proving that the Respondent's tax decision is incorrect as per the provisions of Section 56 (1) of the TPA, stating that it was upon the Appellant to provide evidence to support its assertions against the assessment at the objection stage, a fact it did not admittedly consider.

55. Against the foregoing background, the Respondent submitted that its assessment was hinged on the letter of the law.

56. By reason of the foregoing the Respondent prayed that its objection decision be upheld and the Appellant's Appeal be dismissed with costs.

Issues For Determination 57. The Tribunal having carefully reviewed and considered the pleadings and submissions filed by the parties is of the considered view that the Appeal herein distils into two issues for determination, to wit;i.Whether the Appeal is competently before the Tribunal.ii.Whether the Respondent's Objection Decision dated 29th August 2022 was justified.

Analysis And Determination Whether the Appeal is competently before the Tribunal. 58. The dispute subject of this Appeal arose as a result of a compliance check conducted by the Respondent on the Appellant's returns, out of which the Respondent made two conclusions;i.That the Appellant was not compliant with regard to income tax and VAT as there were variances noted between sales declared in the Appellant's VAT returns as compared to the income declared in the Appellant's Income Tax Returns.ii.There were discrepancies on total purchases declared in the income tax returns leading to the tax liability becoming due.

59. The Appellant was requested by the Respondent to amend its returns to reflect the correct position failure to which the Commissioner would issue an assessment order. The Appellant responded to the Respondent through its letters dated 24th December 2021 and 15th February 2022 stating that;i.The sales analysis for the month of May and December 2017, there was no returns declared.ii.In the months of June and July 2018, there were no inputs declared.iii.In the month of June 2019, the Appellant had filed nil returns.

60. Following the response, the Respondent reviewed and issued its assessment orders on 12th April 2022 for the years 2020, 2019, 2018 and 2017 on VAT and Corporation tax, based on the under declared income and overstated purchases.

61. Upon being issued with the aforesaid assessment orders and demand notice, the Appellant lodged a notice of late objection dated 24th June 2022 and an application for extension of time to lodge an objection which the Respondent considered, and advised the Appellant to lodge a valid notice of objection in line with the provisions of section 51 (3) of the TPA.

62. Through its letter of 15th July 2022, the Respondent requested the Appellant to furnish it with the following documents;i.A reconciliation of sales, purchases, and salaries and wages, and expenses as declared in the annual income tax returns and as declared in the monthly VAT & PAYE returns together with the relevant supporting documentation.ii.A copy of the audited financial statements.iii.Income and Purchase schedules. iv.Company's bank statements.v.A reconciliation of credits in the bank statements and the detailed income.

63. The Respondent reviewed the Appellant's objection notice and on 29th August 2022 partially allowed the objection and amended the principal tax from Kshs. 103,538,891. 00 to Kshs. 91,007,922. 00, thereby making the total sum assessed with the resultant interest and penalties to Kshs. 132,425,369. 00. On its part, the Appellant admitted a sum of Kshs. 898,675. 50 as due and payable.

64. The Appellant subsequently filed its Notice of Appeal with the Tribunal on 29th September 2022, and it's Memorandum of Appeal on 13th October 2022.

65. The Respondent has asserted that the Appellant having admitted to taxes due and owing, and agreed to pay the said taxes, however failed to pay the same prior to filing of the Appeal contrary to Section 52 (2), and contended that there is no proper Appeal before the Tribunal and prayed for its dismissal.

66. Indeed, it is noteworthy from the Appellant's Statement of Facts that it admitted to the sum of Kshs. 898,675. 50 which was undisputed.

67. Section 52(2) provides;“(2)a notice of Appeal to the Tribunal relating to an assessment shall be valid if the taxpayer has paid the amount not in dispute or has entered into an arrangement with the Commissioner to pay the tax not in dispute under the assessment at the time of lodging the notice.”

68. The Appellant lodged its Notice of Appeal with the Tribunal on 29th September 2022 and the evidence availed indicates that the undisputed amount under the subject assessment had not been paid by the Appellant contrary to the provisions of Section 52 (2) of the TPA.

69. The Tribunal observes that this is a mandatory provision of law which the Appellant failed to comply with before lodging its Appeal as required. There is no evidence tendered to confirm if the amount was thereafter paid.

70. In light of the foregoing, the Tribunal finds and holds that there is no competent appeal before the Tribunal for its determination.

71. The foregoing being the case the Tribunal cannot proceed with the consideration of the second issue as the same is consequently rendered moot.

72. The upshot of the foregoing is that the Appeal fails for being incompetently lodged before the Tribunal.

Final Decision 73. The Appeal having failed the Tribunal proceeds to issue the following Orders;a.The Appeal be and is hereby struck out.b.The Respondent's objection decision dated 29th August 2022 be and is hereby upheld.c.The parties to bear their own costs.

74. It is so ordered.

DATED AND DELIVERED THIS 19TH DAY OF OCTOBER, 2023. ROBERT M. MUTUMA - CHAIRPERSONELISHAH N. NJERU - MEMBERMUTISO MAKAU - MEMBERBONFACE K. TERER - MEMBERDR. WALTER ONGETI - MEMBER