[2025] KETAT 233 (KLR)

Tabahu Investment Limited v Commissioner of Domestic Taxes (Tax Appeal E979 of 2024) [2025] KETAT 233 (KLR) (Commercial and Tax) (16 May 2025) (Judgment)

Neutral citation: [2025] KETAT 233 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Commercial and Tax

Tax Appeal E979 of 2024

CA Muga, Chair, EN Njeru, E Ng'ang'a & SS Ololchike, Members

May 16, 2025

Between

Tabahu Investment Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited company registered in Kenya on 21st November 2018 and commenced its operations same day. The principal activity of the Appellant is in the sector of wholesale and retail trade, repair of motor vehicles and motorcycles and the clothing trade.

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 conducted a tax audit for the period January 2018 to December 2021 and raised an additional tax liability of Kshs 359,176,753. 00 vide a tax Notice of audit findings dated 30th April 2024. Being dissatisfied with the assessment the Appellant lodged notices of objection dated 27th May 2024.

4. After consideration of the Appellant's objection, the Respondent issued an objection decision on 23rd July 2024 wherein the Respondent rejected the objection fully.

5. Being dissatisfied with the Respondent's decision the Appellant lodged this Appeal through the Notice of Appeal dated 20th day of August 2024, and filed on 21st August 2024.

The Appeal 6. The Appellant lodged its memorandum of appeal dated 3rd September 2024 on even date raising the following grounds of appeal:a.That the Respondent erred in law and fact by subjecting non-existent income to income tax.b.That the Respondent erred in fact and in law by issuing additional assessment without regard to the Appellant’s audited accounts.c.That the Respondent erred in fact and in law by not allowing for expenditure incurred in earning the income contrary to section 15 (1) of the Income Tax Act, CAP 470 of the Laws of Kenya (hereinafter “ITA”).d.That the Respondent erred in law and fact by Subjecting non-existent income to Value Added Tax.e.That the Respondent confirmed the assessments without due regard to all records, documents, explanations and information provided, thereby failing to appreciate all issues presented and raised by the appellant before confirming the assessment.

The Appellant’s Case 7. In support of its Appeal, the Appellant filed its statement of facts dated 3rd September 2024 on even date. The Appellant also filed written submissions dated 23rd April 2025 on even date.

8. The Appellant’s theory was that its nature of business is that of Cargo consolidation. As a cargo consolidator, the Appellant imports goods on behalf of other traders and helps in clearance of the said goods at the port of entry. In return, the Appellant charges a fee for this service based on the space occupied by the respective goods/cargo in a container. This space in the container is technically referred to as Cubic Meters (CBM).

9. The Appellant stated that although the goods are imported in its name, they do not belong to it but to individual traders. It asserted that what constitutes its income is the fees charged for this service based on the cubic meters occupied by the individual cargo and not the entire value of the declared imports.

10. The basis of the assessments was a return review by the Respondent on the Appellant’s VAT and income tax declarations together with import data. The review revealed that the Appellant had not made a full declaration in its VAT and income tax returns. From the identified mismatch, the Respondent issued additional assessments on 30th April 2024 amounting to Kshs 230,783,985. 07 and the Appellant objected to the assessment on 27th May 2024.

11. The Appellant noted that in raising the income tax and VAT assessments, the Respondent applied a markup of 37% on the value of purchases based on what it termed as "industry benchmarks". The Respondent then subjected this figure to income tax and VAT.

12. According to the Appellant, the Respondent erred both in law and fact by assuming that the imports in question were Appellant’s goods.

13. The Appellant affirmed that the Respondent erred in fact and in law by issuing additional assessments non-existent income and asserted that the Respondent erred in fact and in law by disallowing expenditure incurred in earning the income contrary to section 15 (1) of the ITA.

14. It averred that the Respondent's arguments in the tax decision to the effect that the Appellant did not provide relevant documentary evidence in support of the objection is not factual since the Appellant provided relevant explanations including during physical meeting where grounds for objection were discussed.

15. According to the Appellant, the act by the Respondent to confirm the assessment without due regard to all records documents, explanations and information provided is unfair, irrational, malicious, capricious and against the principles of fair administrative action as contained in Article 47 of the Constitution of Kenya, 2010 (hereinafter “the Constitution”).

16. In its written submissions, the Appellant submitted that the Respondent's additional assessment was unreasonable in light of the nature of the Appellant's business as a cargo consolidator. It relied on section 3(2)(a)(i) of the ITA which provides that "income tax is chargeable upon gains or profits from any business, for whatever period of time carried on”. It submitted that only "gains or profits" taxable are those actually derived by the taxpayer from the business carried on in Kenya. It submitted that its sole business activity is cargo consolidation, importing and clearing goods on behalf of third-party traders, for which it earns service fees calculated on a per-cubic-metre (CBM) basis. It submitted that these service fees, and nothing more, constitute the Appellant's gains or profits under Section 3(2)(a)(i) of the ITA.

17. The Appellant reiterated that the 37% margin used by the Respondent is not only arbitrary but also wholly inapplicable to the Appellant's business model. It relied on Section 3(2)(a)(ii) of the ITA, income tax is chargeable on gains or profits from business actually earned or accrued. The Appellant submitted that its income consists solely of service fee charged to customers for freight and logistical services, fees that are determined by the cubic meter (CBM) of space occupied, not the value or nature of the goods being shipped.

18. The Appellant submitted that the Respondent's conduct in issuing the assessment and rendering the objection decision breached the principles of fair administrative action, Judicial Service Commission v Mbalu Mutava and another [2015] eKLR; and Republic v Kenya Revenue Authority Ex Parte Style Industries Limited [2019] KEHC 11965 (KLR) to submit that administrative action should be carried out in a fair manner.

Appellant’s prayers: 19. The Appellant prayed to the Tribunal for the following reliefs:a.That the Appeal be allowed; andb.That the additional assessments and the objection decision be set aside with costs to the Appellant.

Respondent’s Case 20. In opposition of the Appeal, the Respondent relied on its Statement of facts dated and filed 13th November 2024. The Respondent also filed its written submissions dated 22nd day April 2024 on even date.

21. The Respondent stated that it reviewed customs data which revealed that the Appellant made the imports for the period under review. From the customs import data, sales were deduced by marking up the cost of sales by 37% in accordance with the industry benchmarks.

22. On corporation tax, the Respondent averred that it compared the reported sales per the Income Tax (IT2C) returns, VAT returns and the expected sales computed as per the customs import data. The highest sales amongst the three were then compared with the sales declared in the Income Tax (IT2C) returns filed on i-Tax. This comparison established the variances. The variances were not supported and therefore the amounts were subjected to corporation tax.

23. With regard to VAT, the Respondent averred that it compared the Sales declared in the VAT returns, income tax returns, and the expected sales computed as indicated in the customs import data. The highest sales among the three were then compared with the sales declared in the VAT returns filed on i-Tax. This comparison established the variances. The variances were not supported; thus, the amounts were subjected to VAT.

24. Whereas the Appellant stated that the Respondent confirmed assessments without due regard to all records/documents and information provided, the Respondent stated that vide email dated 30th May 2024, the Appellant was requested to validate the objection by providing the following documents:i.Bank statements for the years 2019 to 2021ii.Audited Accounts for the year 2019 to 2021iii.Sales ledgers and supporting sales invoices for the period assessediv.Purchases ledgers and supporting purchases invoices for the period assessedv.Sales breakdown between taxable sales and exempt salesvi.Any other relevant documents to support the objection.

25. The Appellant responded to the electronic mail on 10th June 2024 requesting an additional time of 14 days in order for it to provide the requested documents. The Respondent averred that it sent a reminder on 18th June 2024 where it expected the delivery of the documents by 20th June 2024. The Respondent averred that the Appellant failed to provide any of the requested documents despite electronic mail request and reminders.

26. The Respondent noted that the Appellant failed to comply with the provisions of Section 51 (3) of the Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter “TPA”) requiring the Appellant to supply the Respondent’s documents. The Respondent reiterated that that the Appellant failed to submit the documents requested therefore, it made its decision based on available information. The Respondent maintained that it acted within the provisions of section 31(1) of the TPA.

27. Whereas the Appellant averred that the Respondent erred subjecting non-existent income and VAT, the Respondent maintained that for it to amend the assessment and arrive to tax payable, it applied the provisions of Section 24(2) of the TPA which provides that the Commissioner is 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 liability using any information available to the Commissioner.

28. Whereas the Appellant averred that the Respondent erred in disallowing expenditure incurred in generation of income contrary to Section15(1) of the ITA, the Respondent noted that provision of the documents would have enabled it to establish whether the expenditure met conditions for allowability pursuant to the provisions of Section 15(1) of the ITA.

29. The Respondent added that the Appellant's assertions were arbitrary untrue and unreasonable since the burden of proving the contrary lies with the Appellant as provided for under Section 56(1) of the TPA. Further, the Respondent averred that whoever alleges must prove as provided for under Section 107 of Evidence Act, CAP 80 of the Laws of Kenya which provides as follows:1. Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.2. When a person is bound to prove the existence of any fact it is said that the burden of proof lies on that person.”

30. The Respondent asserted that the Appellant did not provide any evidence to demonstrate that the Respondent’s assessment was wrong. Therefore, the Respondent stated that the Appeal had no basis and the Respondent complied with law in place to govern tax.

31. The Respondent, in its written submissions avowed that it was justified in issuing the additional assessment. It relied on section 24 (2) and 31(1) of the TPA to submit that the provisions enable it to make assessments based on available information. It relied on the case of Oliver Merrick Fowler & another v Kenya Revenue Authority [2022] eKLR to submit that the very use of the word judgement makes it clear that the commissioners are required to exercise their power in such a way that they make a value judgement on the material that is before them.

32. It submitted the Appellant failed to adduce documents to support its objection and maintained that the Appellant failed to discharge the burden of proof contrary to the provisions of Section 56(1) of the TPA.

33. It relied on the cases of Ushindi Limited v Commissioner of Investigation and Enforcement Kenya Revenue Authority [2020] eKLR; Republic v KRA Proto Energy Limited; Commissioner of Domestic Taxes v Golden Acre Limited (2021) eKLR; Rongai Tiles and Sanitary ware Limited v the Commissioner Domestic Taxes Tax Appeals No. 163 of 2017; and Afya Xray Centre Limited vs Commissioner of Domestic Taxes to submit that a taxpayer has a duty to keep records and avail them to discharge the burden proof.

34. The Respondent prayed for the following reliefs from the Tribunal:a.That it upholds the Respondent’s decision dated 23rd July 2023 confirming the assessment.b.The Respondent also urged the Tribunal to dismiss the Appeal with costs to the Respondent as the same was devoid of any merit.

Issues For Determination 35. The Tribunal having carefully considered parties’ pleadings, documentary evidence and submissions is of the respectful view that the issue that calls for its determination is as follows:

Whether the Respondent erred in confirming its assessment.Analysis And Findings 36. Having so identified the issue for determination, the Tribunal will proceed to analyse the same as follows:

Whether the Respondent erred in confirming its assessment. 37. The Appellant’s case was that the Respondent confirmed the assessments without due regard to all records documents, explanations and information provided thereby failing to appreciate all issues presented and raised by the Appellant before confirming the assessment. On the other hand the Respondent stated that the Appellant failed to avail supporting documents and that vide an electronic mail of 30th May 2024 it informed the Appellant to validate the notice of objection.

38. The view of the Tribunal which is emphasised by its previous pronouncements is that in tax matters a taxpayer has the duty to demonstrate that the commissioner’s decision is incorrect. Section 50(1)(a) of the TPA provides a rebuttable presumption that the Respondent’s decision is conclusive and correct. it provides as follows:‘‘50. Conclusiveness of tax decisions1Except in proceedings under this Part—a.the production of a notice of an assessment or a document under the hand of the Commissioner shall be conclusive evidence of the making of the assessment and that the amount and particulars of the assessment are correct.’’

39. Further, section 56(1) of TPA expressly places the burden of proof upon a taxpayer. It provides as follows:“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.’’

40. In the case of Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) [2022] KEHC 9927 (KLR) the High Court at paragraph 26 of its judgment observed as follows:“From the above, it is clear that the evidential burden of proof rests with the taxpayer to disprove the Commissioner and that once competent and relevant evidence is produced, then this burden now shifts to the Commissioner. I have emphasized and underlined ‘competence’ and ‘relevance’ because it is only evidence that meets these two tests that demolishes presumption of correctness and swings the burden to the Commissioner. This means that even if one avails evidence but then it is found that the same is incompetent or irrelevant, then the burden continues to remain with the taxpayer.”

41. The Tribunal notes the Appellant’s averment that the Respondent erred in fact and in law by disallowing expenditure incurred in earning the income contrary to Section 15 (1) of the ITA. The Appellant also averred that it imports goods on behalf of other traders and helps in clearance of the said goods at the port of entry charge a fee for this service based on the space occupied by the respective goods/cargo in a container and that in support of these contentions, the Appellant did not adduce evidence to demonstrate that it consolidates cargo and imports on behalf of other traders nor did it file documents to support that expenditure.

42. The Tribunal also examined the Respondent’s pleadings and notes that the Respondent requested the Appellant to validate its objection, through an electronic mail dated 30th May 2024, by providing the following documents: Bank statements for the years 2019 to 2021;

Audited Accounts for the year 2019 to 2021;

Sales ledgers and supporting sales invoices for the period assessed;

Purchases ledgers and supporting purchases invoices for the period assessed;

VAT Sales breakdown between taxable sales and exempt sales; and

Any other relevant documents to support the objection.

43. The Tribunal observes that from its pleadings, the Appellant averred that on 10th June 2024 it responded to the said electronic mail of 30th May 2024 and requested additional time of 14 days to provide the requested documents. The Respondent stated that it sent a reminder on 18th June 2024 expecting the delivery of the documents by 20th June 2024 and the Appellant did not provide the documents.

44. Consequently, the Tribunal finds and holds that the Respondent did not err in confirming its assessment.

Final Decision 45. The upshot to the foregoing is that the Tribunal finds and holds that the Appeal is lacks merit and makes the following Orders:a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision dated 23rd July 2024 be and is hereby upheld.c.Each party to bear its own cost.

46. It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 16TH DAY OF MAY, 2025. CHRISTINE A. MUGA - CHAIRPERSONELISHAH N. NJERU - MEMBEREUNICE N. NG’ANG’A - MEMBEROLOLCHIKE S. SPENCER - MEMBER