https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/260

 REPUBLIC OF KENYA IN THE TRIBUNAL OF KENYA AT NAIROBI COUNTY COURT NAME: TAX APPEALS TRIBUNAL CASE NUMBER: TATC/E673/2025 Systems Hub Limited 1st Appellant - Versus - Kenya Revenue Authority 1st Respondent JUDGMENT # BACKGROUND 1. The Appellant is a limited liability company incorporated in Kenya under the Companies Act and is engaged in offering leading-edge Information Communication Technology 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 carried out a compliance review on the Appellant for the period January 2020 to December 2023. 1. The Appellant objected to the demand via a letter dated 10 th March 2025 through a notice of objection. 2. The Respondent rejected the Appellant’s objection and confirmed principal tax assessment of Kshs. 939,840 of Corporation Tax. 3. Dissatisfied with the Respondent’s tax decision on 30 th April, 2025, the Appellant filed a Notice of appeal dated and filed 11th June 2025. # THE APPEAL 1. The Appellant lodged its Memorandum of appeal dated and filed on 25th June, 2025 raising the following grounds of appeal, That; 1. The Respondent erred in fact and in law in denying the Appellant its right to claim cost of sales wholly and exclusively incurred in the production of its income contrary to the provisions of Section 15 of the Income Tax Act (ITA); and 2. The Respondent violated the Appellant's right to fair administrative action and natural justice by making its decision while disregarding the only information available to the Appellant as proof of expenses incurred and this was without any further reference to the Appellant or without seeking any further clarification. # THE APPELLANT’S CASE 1. The Appellant case was premised on its Statement of facts dated 25th June, 2025 and filed on even date together with written submissions dated and filed on 18th February 2026 adopted on 1st April, 2026, the date of the hearing. 2. The Appellant submitted that the appeal arises from the Respondent’s objection decision dated 30th April, 2025 assessments for Income Tax for the periods under review. 3. The Appellant stated that the Respondent conducted a compliance check review of its tax affairs for the period January 2020 to December 2023 and communicated preliminary findings through a letter dated 8 October 2024, indicating gaps in Corporate Income Tax and Pay As You Earn and requesting additional supporting documentation. 4. The Appellant stated that on Corporate Income Tax, the Respondent alleged variances between purchases declared in VAT 3 returns and those in income tax self-assessment returns filed on iTax for the years 2020, 2021, 2022 and 2023, with significant differences noted across all the years. 5. The Appellant stated that these variances arose from purchases made from non-VAT registered suppliers who did not charge VAT, hence such purchases appeared in the purchases ledger for Corporate Income Tax purposes but not in VAT returns. 6. The Appellant stated that following the preliminary findings, it provided purchases ledgers, sample invoices and bank statements for review, after which the Respondent issued a demand letter dated 27th January 2025 and an assessment order dated 30th January 2025. 7. The Appellant stated that upon reviewing the demand, it noted that all other issues had been dropped except a principal tax demand of Kshs. 939,840 relating to Corporate Income Tax arising from alleged unsupported purchases amounting to Kshs. 3,132,800 for the year 2022, though no breakdown was initially provided. 8. The Appellant stated that it requested a breakdown of the Kshs. 3,132,800 through an email dated 27 February 2025 to enable it respond appropriately, but the Respondent did not provide the requested details at that time. 9. The Appellant stated that despite the absence of the breakdown, it lodged a notice of objection through a letter dated 10th March 2025 challenging the demand. 10. The Appellant stated that in the objection, it provided the 2022 purchases ledger and indicated that it could not adequately respond without the breakdown, following which the Respondent’s Independent Review at the of Objections department, furnished the breakdown via email dated 21st March 2025 and requested supporting documentation including invoices, proof of payment, supplier confirmations and any other relevant records. 11. The Appellant stated that through its letter dated 28 th March 2025, it provided all available supporting documentation including a breakdown of disallowed invoices with explanations, copies of invoices and receipts, and bank statements supporting some transactions. 12. The Appellant stated that thereafter, the Respondent issued an objection decision dated 30th April 2025 rejecting the objection in full on grounds that the information provided was insufficient to warrant revision or vacation of the assessment. 13. The Appellant stated that being aggrieved by the objection decision, it filed a Notice of Appeal to the Tax Appeals Tribunal on 11th June 2025. 14. The Appellant stated that the appeal is premised on several grounds challenging the Respondent’s findings and decision. 15. The Appellant stated that the Respondent erred in fact and in law by denying it the right to claim cost of sales wholly and exclusively incurred in the production of income contrary to Section 15 of the Income Tax Act. 16. The Appellant stated that the Respondent’s preliminary findings again highlighted variances between VAT 3 returns and income tax returns for the years 2020 to 2023, with notable differences across all the periods. 17. The Appellant stated that these variances were attributable to purchases from non-VAT registered suppliers, which were properly recorded for Corporate Income Tax purposes but excluded from VAT returns due to absence of VAT. 18. The Appellant stated that after reviewing the information, the Respondent raised a Corporate Income Tax demand based on disallowed purchases of Kshs. 3,132,800 for the year 2022, resulting in a principal tax demand of Kshs. 939,840. 19. The Appellant stated that the Respondent confirmed this demand in its objection decision on grounds that the documentation provided was insufficient to prove the purchases. 20. The Appellant stated that upon eventually receiving the breakdown of the disallowed purchases, it compiled and submitted all available supporting documents including invoice breakdowns, receipts and bank statements for the Respondent’s review. 21. The Appellant stated that despite providing this information, the Respondent disregarded the same and upheld the assessment of Kshs. 939,840. 22. The Appellant stated that it has since attached a detailed listing of the disallowed invoices with updated comments and references to supporting documents which the Respondent ought to have considered in reviewing the assessment. 23. The Appellant stated that under Section 15(1) of the Income Tax Act, expenses are deductible if incurred wholly and exclusively in the production of income, and that the disallowed purchases related to computers and peripherals which formed part of its cost of goods sold and income-generating activities. 24. The Appellant stated that had the Respondent properly considered the documentation provided, the unsupported amount would have been reduced by Kshs. 2,800,350 leaving only Kshs. 332,450, and that failure to consider the evidence was unfair and unprocedural. 1. The Appellant stated that the Respondent’s actions amounted to unfair administrative action and disregard of legitimate expectation. 2. The Appellant stated that it had provided all available documentation including invoice breakdowns, receipts and bank statements in support of the disallowed expenses. 3. The Appellant stated that the Respondent dismissed this information as insufficient without seeking further clarification or engaging the Appellant. 4. The Appellant stated that such conduct was contrary to the principles of fair administrative action as the documentation and explanations provided were reasonable and sufficient to demonstrate the incurrence and purpose of the expenses. 5. The Appellant stated that by rejecting the documentation without further engagement, the Respondent violated Section 23 of the Tax Procedures Act and Article 47 of the Constitution as read with Section 4 of the Fair Administrative Action Act. 6. The Appellant stated that the Respondent’s blanket rejection of the evidence without justification was procedurally unfair and legally unsustainable. 7. The Appellant stated that it urges the Tribunal to find that the Respondent acted contrary to established legal principles and to allow the expenses based on the evidence provided. 8. The Appellant submitted that the Respondent conducted a compliance check review of its tax affairs for the period January 2020 to December 2023 and issued preliminary findings through a letter dated 8 October 2024 highlighting gaps in Corporate Income Tax and Pay As You Earn and requesting further documentation. 9. The Appellant submitted that the Respondent alleged variances between purchases declared in VAT 3 returns and those declared in income tax self- assessment returns for the years 2020, 2021, 2022 and 2023, with significant differences noted across the periods. 10. The Appellant Submitted that these variances arose from purchases made from non-VAT registered suppliers who did not charge VAT, and therefore such purchases were recorded for Corporate Income Tax purposes but excluded from VAT returns. 11. The Appellant submitted that it provided purchases ledgers, sample invoices and bank statements to the Respondent, following which a demand letter dated 27th January 2025 and an assessment order dated 30th January 2025 were issued. 1. The Appellant submitted that upon review of the demand, the Respondent had dropped all other issues and retained only a principal tax demand of Kshs. 939,840 relating to Corporate Income Tax arising from alleged unsupported purchases amounting to Kshs. 3,132,800 for the year 2022, without initially providing a breakdown. 2. The Appellant submitted that it requested a breakdown of the Kshs. 3,132,800 through an email dated 27 February 2025 but the Respondent did not immediately provide the same. 3. The Appellant submitted that notwithstanding the lack of breakdown, it lodged a notice of objection dated 10th March 2025 challenging the demand. 4. The Appellant submitted that it provided the 2022 purchases ledger and indicated that it could not fully respond without the breakdown, after which the Respondent’s Independent Review of Objections department provided the breakdown on 21st March 2025 and requested supporting documents including invoices, proof of payment, supplier confirmations and other records. 5. The Appellant submitted that through its letter dated 28 th March 2025, it provided all available supporting documentation including a breakdown of disallowed invoices with explanations, supporting invoices and receipts, and bank statements. 6. The Appellant submitted that despite this, the Respondent issued an objection decision dated 30th April 2025 rejecting the objection in full on grounds of insufficiency of evidence. 7. The Appellant submitted that being dissatisfied with the objection decision, it filed a Notice of Appeal on 11th June 2025 and subsequently filed the Memorandum of Appeal and Statement of Facts on 25th June 2025. 8. The Appellant submitted that the issues for determination are whether the Respondent erred in denying the Appellant the right to claim cost of sales under Section 15 of the Income Tax Act and whether the Respondent infringed the Appellant’s right to legitimate expectation. 9. The Appellant submitted that the Respondent erred in fact and in law by denying its claim for cost of sales despite the explanation that the variances arose from purchases from non-VAT registered suppliers. 10. The Appellant submitted that the Respondent raised a Corporate Income Tax demand on alleged disallowed purchases of Kshs. 3,132,800 for the year 2022, resulting in a principal tax demand of Kshs. 939,840. 1. The Appellant submitted that the Respondent confirmed the demand in the objection decision on grounds that the documentation provided was insufficient. 2. The Appellant submitted that upon receiving the breakdown of the disallowed purchases, it compiled and submitted all available supporting documentation including invoice breakdowns, receipts and bank statements. 3. The Appellant submitted that despite providing this information, the Respondent disregarded the same and confirmed the assessment of Kshs. 939,840.00 4. The Appellant submitted that the Respondent failed to consider the listing of disallowed invoices with detailed explanations and references to supporting documents, which should have informed a decision to vacate or vary the assessment. 5. The Appellant submitted that under Section 15(1) of the Income Tax Act, expenses are deductible if incurred wholly and exclusively in the production of income, and that the disallowed purchases related to computers and peripherals forming part of its Cost of Goods Sold. 6. The Appellant submitted that had the Respondent properly considered the evidence, the unsupported amount would have been reduced by Kshs. 2,800,350 leaving only Kshs. 332,450, and failure to do so was unfair and unprocedural. 7. The Appellant submitted that the Respondent infringed its right to legitimate expectation by disregarding the documentation provided without seeking clarification or further engagement. 8. The Appellant submitted that it had provided all available documentation including invoice breakdowns, receipts and bank statements in support of the disallowed expenses. 9. The Appellant submitted that the Respondent dismissed this information as insufficient without requesting further clarification or engaging the Appellant. 10. The Appellant submitted that such conduct was contrary to fair administrative action and violated Section 23 of the Tax Procedures Act which obligates taxpayers to maintain records, as well as Article 47 of the Constitution read together with Section 4 of the Fair Administrative Action Act. 11. The Appellant submitted that in **Mathia v Commissioner of Domestic Taxes (TAT E048 of 2024)**, the Tribunal held that once a taxpayer provides reasonable evidence, the burden shifts to the tax authority to challenge it with objective grounds. 1. The Appellant submitted that the Respondent’s blanket rejection of the evidence without justification was procedurally unfair and legally unsustainable. 2. The Appellant submitted that it urges the Tribunal to find that the Respondent acted contrary to established legal principles and to allow the expenses based on the evidence provided. 3. The Appellant submitted that it therefore prays that the appeal be allowed, the objection decision dated 30th April 2025 be set aside or varied, costs be awarded to the Appellant, and such other orders be granted as the Tribunal may deem fit. 4. The Appellant Prayed: 1. This Appeal be allowed; 2. The Objection decision dated 30th April 2025 be annulled and set aside in its entirety or be varied as the Tribunal deems fit; 3. The costs of and incidental to this appeal be awarded to the Appellant; and 4. Any other orders that the Honourable Tribunal may deem fit. # THE RESPONDENT’S CASE 1. In response to the appeal, the Respondent filed its Statement of facts dated 23rd July, 2025 and filed on even date together with written submissions dated and filed 12th March 2026 adopted on 1st April 2026 the date of hearing. 2. The Respondent stated that it carried out a compliance review on the Appellant for the period January 2020 to December 2023 and noted variances between Income Tax and VAT return declarations for both sales and purchases. 3. The Respondent stated that it issued a notice to produce documents to the Appellant on 29th August 2024 for purposes of the compliance audit. 4. The Respondent stated that the Commissioner disallowed unsupported purchases amounting to Kshs. 3,132,800 claimed in the Income Tax return for the year 2022 and issued a demand notice dated 27th January 2025 for Kshs. 1,315,776 Corporation Tax inclusive of penalty and interest. 5. That variances were noted between their Income Tax and VAT returns declarations both for sales and purchases where the Commissioner thus disallowed unsupported purchases amounting to Kshs.3,132,800 claimed in the Income Tax return for the year 2022 and issued a demand notice on 27th January 2025 for Kshs. 1,315,776 Corporation Tax inclusive of penalty and interest and communicated its preliminary findings through a letter dated 8 October 2024 1. The Respondent stated that the Appellant failed to provide all requisite supporting documents as requested through the Respondent’s email dated 21st March 2025, including copies of disallowed invoices or ETRs or delivery notes, corresponding proof of payment linked to bank statements, supplier confirmations and any other supporting records. 2. The Respondent stated that the Appellant only provided a purchases ledger for the year 2022, copies of some invoices and receipts, and copies of bank statements in support of its objection. 3. The Respondent stated that it provided the Appellant with a schedule of disallowed invoices, but the Appellant only submitted 9 out of the 23 invoices listed in the schedule. 4. The Respondent stated that most of the payments for the invoices presented were made in cash and linked to various cash withdrawals, but the Appellant failed to provide supporting documentation such as cash payment vouchers, cashbook records, cash withdrawal authorizations and related correspondence. 5. The Respondent stated that due to the insufficiency of documentation, the Appellant’s objection was fully rejected and the principal tax assessment of Kshs. 939,840 Corporation Tax was confirmed. 6. The Respondent stated that in response to Ground 1 of the Appeal, it properly disallowed the claim for cost of sales due to lack of sufficient supporting documentation as earlier outlined. 7. The Respondent stated that Section 23(1) of the Tax Procedures Act requires a taxpayer to maintain documents necessary to enable their tax liability to be readily ascertained. 8. The Respondent stated that the said provision mandates every taxpayer to maintain proper records to facilitate determination of tax liability. 9. The Respondent stated that Section 54A of the Income Tax Act requires a person carrying on business to keep records of all receipts, expenses, goods purchased and sold, and other documents necessary for computation of tax. 10. The Respondent stated that the law obligates the Appellant to maintain and produce records when required and that failure to do so justifies the Respondent’s assessment. 11. The Respondent stated that until all required documents are provided, an assessment made by the Respondent remains valid and correct, and the Appellant cannot fault the Respondent for failing to consider documents that were not availed. 1. The Respondent stated that the Appellant failed to discharge its burden of proof under Section 56 of the Tax Procedures Act, which requires the taxpayer to prove that a tax decision is incorrect. 2. The Respondent stated that discharging the burden of proof requires adducing sufficient evidence to support the claimed expenses and demonstrate that they were wholly and exclusively incurred in the production of income. 3. The Respondent stated that the Appellant failed to meet this burden and did not demonstrate any error on the part of the Respondent in rejecting the objection. 4. The Respondent stated that it relies on documentary evidence including the notice to produce dated 29th August 2024, the demand notice dated 27th January 2025, the objection dated 10th March 2025, email correspondence dated 21st March 2025 and the objection decision dated 30th April 2025. 5. The Respondent stated that all actions taken were in accordance with the provisions of Section 15(4) of the Income Tax Act and Sections 23(1), 31(4)(b), 51 and 59 of the Tax Procedures Act, 2015. 6. The Respondent stated that the additional Income Tax assessments issued were proper and in accordance with statutory provisions. 7. The Respondent stated that the Appellant failed to discharge its burden of proving that the assessments were erroneous as required under Section 30 of the Tax Appeals Tribunal Act and Section 56 of the Tax Procedures Act. 8. The Respondent stated that the law places the burden of proof on the Appellant to produce evidence challenging the Respondent’s decision confirming the assessments. 9. The Respondent submitted that the issue for determination before the Tribunal is whether the Respondent’s demand for Kshs. 939,840 principal tax together with the resultant penalty and interest is justified. 10. The Respondent submitted that Section 56 of the Tax Procedures Act places the burden of proof on the taxpayer to demonstrate that a tax assessment issued by the Commissioner is erroneous or incorrect, particularly in a self-assessment regime where discrepancies exist. 11. The Respondent submitted that the evidentiary burden lies with the Appellant to provide all relevant and sufficient tax records to enable the Respondent determine the correct tax liability. 12. The Respondent submitted that it relies on Section 59 of the Tax Procedures Act which empowers the Commissioner to require any person to produce documents or furnish information necessary to ascertain tax liability. 13. The Respondent submitted that further reliance is placed on Section 43 of the Value Added Tax Act, 2013 which obligates a taxpayer to maintain full and accurate records of all transactions for a period of (5) five years, including invoices, receipts, tax accounts and other relevant documentation. 14. The Respondent submitted that this jurisprudence applies in the present case as the Appellant failed to provide the requisite documents to support its objection. 15. The Respondent submitted that as indicated in its Statement of Facts, it requested documents from the Appellant on 21st March 2025 including disallowed invoices, proof of payment and supplier confirmations, which were not availed. 16. The Respondent submitted that the Appellant therefore failed to discharge its burden of proof by not providing the requested documentation. 17. The Respondent submitted that the issue of failure to produce supporting documents has been addressed in various decisions of the Tribunal and the High Court. 18. The Respondent submitted that the Court emphasized that evidence must meet the threshold of competence and relevance, failing which the burden remains with the taxpayer. 19. The Respondent submitted that in the absence of sufficient documentation, the Respondent was justified under Section 31(1) of the Tax Procedures Act to apply its best judgment in making an additional tax assessment, including amounts relating to Income Tax and VAT. 20. The Respondent submitted that the Court further emphasized that whether the taxpayer has discharged the burden of proof depends on the nature of evidence provided and the circumstances of the case. 21. The Respondent submitted that a similar position was upheld in **Osho Drapers Limited v Commissioner of Domestic Taxes [2022] eKLR**, where the Court held that a taxpayer must produce documents to discharge its burden under Section 56(1) of the Tax Procedures Act. 1. The Respondent submitted that the Appellant failed to discharge its burden under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act. 2. The Respondent submitted that the assessments issued for Income Tax and VAT are therefore justified and ought to be upheld by this Honourable Tribunal. 1. The Respondent submitted that in conclusion, it prays that the Tribunal upholds the Objection decision dated 30th April 2025 confirming the demand for Kshs. 939,840 principal tax together with penalty and interest. 2. The Respondent prayed that: 3. The Tribunal upholds the Objection decision dated 30th April 2025 4. Tribunal confirms the demand for Kshs. 939,840 principal tax together with the resultant penalty and interest. 5. The Appeal be dismissed with costs as it is without merit. # ISSUE FOR DETERMINATION 1. The Tribunal having carefully evaluated parties’ pleadings it is of the respectful view that the single issue that call for its determination is as hereunder: # Whether the Appellant discharged the burden of proofing that the **Objection Decision dated 30th April 2025 was incorrect** **ANALYSIS AND FINDINGS** 1. Having identified the issue for determination the Tribunal proceeds to analyse the same as hereunder: # Whether the Appellant discharged the burden of proofing that the Objection Decision dated 30th April 2025 was incorrect 1. The dispute traces its origin to a compliance intervention initiated by the Respondent on 29th August 2024, it issued a notice to produce documents to the Appellant for purposes of conducting a compliance review of its tax affairs for the period spanning January 2020 to December 2023. Following this, the Respondent undertook a review and subsequently communicated its preliminary findings to the Appellant through a letter dated 8th October 2024, highlighting discrepancies in Corporate Income Tax and Pay As You Earn and requesting further supporting documentation. 2. Upon receipt of the preliminary findings, the Appellant furnished the Respondent with documentation including purchases ledgers, sample invoices and bank statements in an effort to reconcile the noted variances, particularly those arising between VAT 3 returns and Income Tax self-assessment returns. 3. Notwithstanding this engagement, the Respondent proceeded to issue a demand notice dated 27th January 2025, followed by an assessment order dated 30th January 2025 disallowing purchases amounting to Kshs. 3,132,800 for the year 2022 and raising a Corporation Tax demand inclusive of penalties and interest. 1. Aggrieved by the assessment and in an effort to understand the basis thereof, the Appellant, through an email dated 27th February 2025, requested a detailed breakdown of the disallowed purchases. The Respondent did not immediately furnish the requested breakdown. Consequently, and within the statutory timelines, the Appellant lodged a Notice of Objection dated 10th March 2025 challenging the assessment while indicating that it was constrained in fully responding due to the absence of the breakdown. 2. Subsequently, the Respondent, through its Independent Review of Objections function, provided the requested breakdown via email dated 21st March 2025 and at the same time required the Appellant to submit additional supporting documentation including invoices, proof of payment, supplier confirmations and related records. 3. In response, the Appellant, by a letter dated 28th March 2025, submitted documentation comprising invoice breakdowns, receipts, and bank statements in support of the impugned purchases. 4. Upon review of the objection and the materials submitted, the Respondent rendered its Objection decision dated 30th April 2025, wherein it rejected the objection in its entirety on grounds of insufficiency of supporting documentation and confirmed the principal tax assessment of Kshs. 939,840 together with applicable penalties and interest. 5. The Tribunal notes that the Respondent’s case was anchored on alleged variances between VAT returns and Income Tax declarations. While the Respondent is empowered under **the Tax Procedures Act** to review and assess tax compliance, such variances must be interrogated within the framework of deductibility under **the Income Tax Act**. In particular, **Section 15(1) of the** **Income Tax Act** permits deduction of expenses wholly and exclusively incurred in the production of income. 1. The Tribunal finds that the Respondent did not sufficiently demonstrate that the impugned purchases failed this statutory test. This position is supported by ***Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020, Judgment 8 July 2022),*** where it held as follows: *“The test for deductibility is whether the expenditure was wholly and exclusively incurred in the production of income, and such determination must be grounded on evidence placed before the Commissioner and not merely on inconsistencies in tax* *declarations.”* 1. The Tribunal further observes that the Appellant provided purchases ledgers, invoices, receipts, and bank statements both during the compliance review and at the objection stage. This was in line with its obligations under **Section 23 of the** **Tax Procedures Act** and **Section 54A of the Income Tax Act,** which require taxpayers to maintain and avail records necessary to ascertain tax liability. 1. Having done so, the Tribunal finds that the Appellant discharged its initial evidentiary burden. In the case of Boycott General Contractors Limited v Kenya Revenue Authority ( **TAT No. 28 of 2018)**, The Tribunal held that, *“It is not* *sufficient for the Commissioner to merely state that documents are insufficient; the Commissioner must interrogate the documents provided and give reasons why they do not meet the required threshold.”* 1. The Tribunal acknowledges that under **Section 56(1) of the Tax Procedures Act**, the burden lies on the taxpayer to prove that a tax decision is incorrect. However, the Tribunal finds that this burden is not static. Upon the Appellant providing prima facie evidence in the form of invoices, receipts, and bank statements, the evidentiary burden shifted to the Respondent to rebut that evidence with cogent reasons. 1. This principle was affirmed in the case of Commissioner of Investigations and Enforcement v Evans Kidero [2022] KECA (Court of Appeal), where the court held, *“The evidentiary burden initially rests with the taxpayer; however, once credible evidence is presented, the burden shifts to the Commissioner to disprove the same through cogent and objective analysis.”* Similarly, in Mathia v Commissioner of Domestic Taxes **(TAT Appeal No. E048 of 2024)**, *“Where a taxpayer places* *before the Commissioner reasonable documentation supporting a claim, the Commissioner cannot disregard the same without demonstrating, through analysis, why such evidence is unreliable or insufficient.”* 1. The Tribunal has considered the manner in which the Respondent exercised its powers under **Section 31 of the Tax Procedures Act,** which allows the Commissioner to make assessments based on best judgment. While the Respondent is entitled to rely on best judgment, such discretion must be exercised reasonably and based on available evidence. 1. In the present case, the Respondent issued a blanket disallowance of Kshs. 3,132,800 without demonstrating a transaction-specific analysis of the Appellant’s documentation. In **TAT No. E796 of 2023** *Acrowood Imports and Exports Limited* *v Commissioner of Domestic Taxes*, *“The Commissioner’s power to make a best judgment assessment must be exercised judiciously and be anchored on available* *material; it cannot be arbitrary or based on generalized conclusions.”* 1. The Tribunal further finds that the Respondent failed to accord the Appellant procedural fairness. The record shows that the Respondent issued the assessment before providing a breakdown of the disallowed purchases, only furnishing the same during the objection stage. 2. Additionally, the Tribunal notes that the Respondent rejected the Appellant’s objection in its entirety on grounds of insufficiency of documentation without specifying which documents were deficient or why. This failure to provide reasons renders the decision opaque and incapable of proper scrutiny. 3. Finally, the Tribunal has observed that despite evidence being provided in respect of some transactions, the Respondent proceeded to disallow the entire amount without considering partial allowance. This approach is inconsistent with the principle of proportionality. In ***Primarosa Flowers Limited v Commissioner of Domestic Taxes [2019] eKLR (Income Tax Appeal 19 of 2017****)* the court held, *“Where a taxpayer provides evidence in respect of part of a claim, the Commissioner is obligated to make proportionate adjustments rather than disallow the entire claim wholesale.”* 4. The Tribunal consequently finds that had the Respondent properly considered the documentation and explanations provided by the Appellant, the unsupported purchases amounting to Kshs. 3,132,800 would have been substantially reduced by Kshs. 2,800,350, thereby leaving only Kshs. 332,450 unsupported. The Respondent’s failure to evaluate the evidence on a transaction by transaction basis and its decision to maintain a blanket disallowance of the entire amount was therefore unfair, disproportionate, and procedurally improper. 5. The blanket disallowance of expenses, absent transaction-specific scrutiny or proportional consideration, betrayed the Respondent’s discretion which is inconsistent with the principles of reasonableness. Equally, the delayed disclosure of the breakdown underpinning the assessment deprived the Appellant of a meaningful opportunity to respond and this undermined procedural accountability. 6. The Tribunal therefore holds that the Respondent’s Objection Decision dated 30th April 2025 cannot stand to the extent that it failed to properly consider and give effect to the Appellant’s supporting documentation and explanations relating to the impugned purchases. # FINAL DECISION 1. The upshot to the foregoing is that the Tribunal is partly merited. The Tribunal accordingly proceeds to make the following Orders: 1. The Appeal be and is hereby Partially Allowed; 2. The Respondent’s Objection decision dated 30th April 2025 be and is hereby varied in the following terms: 1. The Respondent is directed to amend the assessment by allowing purchases supported by the documentation availed by the Appellant; 2. The Respondent shall thereafter recalculate the Corporation Tax, together with any applicable penalties and interest, strictly on the basis of the remaining unsupported amounts. 3. Each party to bear its own cost; 4. It is so Ordered. # DATED AND DELIVERED AT NAIROBI ON THIS 29TH DAY OF MAY 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: 2026-05-29 14:48:27