[2025] KETAT 173 (KLR)

Tarkoks Investments Limited v Commissioner of Domestic Taxes (Tax Appeal E764 of 2024) [2025] KETAT 173 (KLR) (21 March 2025) (Judgment)

Neutral citation: [2025] KETAT 173 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E764 of 2024

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

March 21, 2025

Between

Tarkoks Investments Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited company incorporated in Kenya in the building and construction industry.

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. On 21st April 2021 the Respondent issued a Notice of Intention to Audit the affairs of the Appellant under Section 59 of Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter “TPA”) and subsequently, raised an assessment on 15th June 2021.

4. The Appellant lodged its objection to the assessments on 14th July 2021 which the Respondent acknowledged receipt through objection application acknowledgment receipt dated 14th July 2021.

5. The Respondent confirmed the assessments vide its objection decision dated 13th September 2021 and demanded of Kshs 3,726,506. 00 from the Appellant on the basis that the Appellant failed to provide documents to support the objection.

6. Being dissatisfied, the Appellant filed the instant Appeal vide Notice of Appeal dated and filed on 24th June 2024.

The Appeal 7. The Appellant filed Memorandum of Appeal dated 5th July 2024 and filed on 12th July 2024 raising the following grounds of appeal:a.That the Respondent erred in law and fact by issuing the Objection decision outside statutory timelines contrary to Section 51(11) of the TPA.b.That the Respondent erred in law and fact by disregarding the expenses incurred by the Appellant when raising the impugned Income Tax assessment.c.That the Respondent erred in law and fact by asserting that it had not been given inadequate documents by the Appellant, whereas the Appellant had supplied all relevant documentary evidence to support the expenses claimed.d.That the Respondent erred in law and fact by confirming 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.

Appellant’s Case 8. The Appellant contended that the objection decision is in contravention of the provisions of Section 51(11) of the TPA on the basis that it lodged its objections on 14th July 2021 but the Respondent issued its objection decision on 13th September 2021. It asserted that the objection Decision ought to have been issued on or before the 12th of September 2021, unless there were n intervening actions that fall under Section 51(11) (b) of the TPA but there were no intervening factors.

9. The Appellant relied on the cases of ESL Forwardersvs Commissioner of Domestic taxes Nairobi TAT No. 255 of 2020 and Equity Group Holdings Limited v Commissioner of Domestic Taxes (Civil Appeal E069 & E025 of 2020) [2021] KEHC 24 (KLR) (Commercial and Tax) (23 August 2021) to state that the Respondent has to issue its decision within 60 days failure to which the objection is deemed as allowed.

10. The Appellant averred that the Respondent erred in stating that the Appellant failed to provide relevant documentary evidence in support of its Objection, whereas the Appellant had supplied all relevant documentary evidence to support the expenses claimed. The Appellant contended that the Respondent failed to consider its objection and the supporting documentary evidence which included the Appellant's bank statements, audited financial statements and relevant invoices and receipts to support the expenses claimed.

11. It stated that the document provided by the Appellant demonstrated that the deposits in the Appellant's bank accounts included loans, contra entries, bounced cheques and director's capital injections which could not constitute taxable income within the confines of Section 3(2) of the Income Tax Act, CAP 470 of the Laws of Kenya (hereinafter “ITA”). It argued that despite the foregoing, the Respondent erred by considering the loans, contra entries, bounced cheques, overdrafts and director's injections as taxable income for the period in question.

12. The Appellant stated that the Respondent is bound by the express text of the ITA and is precluded from speculating as was established by the Superior court in the case of Republic v Kenya Revenue Authority Ex parte Bata Shoe Company (Kenya) Limited (2014] eKLR.

13. It contended that failure of the Respondent to take into consideration the documents provided and the expenses incurred by the Appellant during the periods in question was not only prejudicial but also excessive and arbitrary.

14. The Appellant submitted that the Respondent's decision dated 13th September 2021 was not justified on the basis that that the Respondent did not use the available information as provided by the Appellant. It asserted that failure to rely and consider the documents provided in essence denied the Appellant the rights provided by Section 15 of the ITA which provides a list of deductions that qualify for deduction before assessment of the tax payable.

15. According to the Appellant, had the Respondent restricted itself to the provisions of Section 3(2) (a) (i) [of ITA] and taking into account the allowable deductions under Section 15 of the ITA, the Respondent would not have made the impugned decision.

16. Further, the Appellant averred that the Respondent in its decision failed to consider the nature of the business the Appellant is involved in by subjecting it to an arbitrary decision premised on assumptions and not the documentary evidence provided. It asserted that in the building and construction industry where the Appellant is based, profit margins are dictated by several factors and most importantly the operating expenses.

17. It argued that in not considering the documents provided to justify the expenses incurred in the periods in question amounts to an illegality under the ITA and the general fair administrative action contrary to Article 47 of the Constitution of Kenya, 2010 (hereinafter “the Constitution”).

18. In its written submissions, the Appellant reiterated that the Respondent’s decision was contrary to section 51(11) of the TPA. To support this position, the Appellant cited the cases of Koibos General Contractors Limitedv Commissioner of Domestic taxes TAT NO. 373 of 2023; Farmers WellsLimited v Commissioner Domestic Taxes TAT No. 179 of 2021; Cyka Manpower Services Limited v Commissioner Domestic Taxes TAT No. 21 of 2022; and Equity Group Holdings Limited v Commissioner of Domestic Taxes (Civil Appeal E069 & E025 of2020) [2021] KEHC (KLR) wherein emphasis was placed on the need to issued objection decision within 60 days.

19. It submitted that the Respondent did not properly consider its expenses in issuing its assessment. In support of its position, the Appellant relied on case of Republic v Kenya Revenue Authority Ex parte Bata Shoe Company (Kenya) Limited [2014] eKLR.

20. The Appellant sought the following reliefs:a.That the the appeal be allowed;b.That the Respondent's decision dated 13th September 2021 be set aside; andc.That the costs of this appeal be awarded to it.

Respondent’s Case 21. The Respondent’s case was premised on its Statement of Facts dated and filed on 23rd August 2024 and its written submissions dated and filed on 22nd January 2025.

22. The Respondent stated that the Appellant was selected based on an intelligence summary from the Intelligence and Strategic Operations (I&SO) department, which indicated significant discrepancies between the VAT turnover and the combined totals of IFMIS turnover and withholding certificates. This suggested that the Appellant was under declaring VAT sales therefore, on or about 21st April 2021, the Respondent issued a Notice of Intention to Audit under Section 59 of TPA. The Respondent alleged that the Appellant failed to respond nor provide the records requested. Thereafter, the Respondent issued the assessments dated 15th June 2021.

23. According to the Respondent, the Appellant filed an objection 14th July 2021 and on 23rd August 2021, the Respondent engaged with the Appellant regarding the objection, notifying it that the objection was invalid due to the lack of relevant documentary evidence.

24. It stated that despite the objection being deemed invalid, the Respondent was willing to review the case provided that the Appellant submitted the following documents on or before 31st August 2021: audited accounts, sales and purchase ledgers, VAT Control accounts, VAT Z-reports, and bank/M-Pesa statements.

25. The Respondent stated that on 31st August 2021, the Appellant responded to the Respondent stating it was unable to provide the requested documents by the agreed date citing that its external accountant filling returns on its behalf disappeared with the documents and declined to help. Additionally, the Respondent noted that the Appellant requested more time, which the Respondent granted, extending the deadline by an additional 7 days until 6th September 2021. The Appellant having failed to honour the new date nor communicate, the Respondent confirmed the assessments 7 days later hence this appeal.

26. In response to the appeal, the Respondent contended that it engaged the Appellant on the objection application as stated above thus it maintained that it issued the objection decision within the statutory timelines pursuant to the provisions of Section 51(11) of the TPA.

27. The Respondent stated that the Appellant failed to provide documentation in support of audit queries raised in the audit submission. The Respondent also averred that during the objection review, the requested records were not submitted therefore, the Respondent confirmed the assessments.

28. The Respondent submitted that it confirmed the assessments according to the law. It also submitted that the Appellant failed to adduce documents to support the objection which according to the Respondent was contrary to Section 59 of the TPA.

29. The Respondent also submitted that the Appellant failed to discharge its burden of proof under section 56(1) of TPA and section 30 of the Tax Appeals Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”). The Respondent submitted that the taxpayer has a burden of proof and has to prove that the Respondent’s decision is incorrect but the Appellant failed to do so. In support of this position, the Respondent cited the case of Boleyn International Limited v Commissioner and Enforcement, Nairobi TAT Appeal No. 55 of 2018.

Issues for Determination 30. Having considered the parties’ pleadings, the Tribunal puts forth the following issues for determination:a.Whether the appeal is properly before the Tribunal.b.Whether the Respondent’s decision was time barred pursuant to the provisions of Section 51(11) of the TPA.c.Whether Respondent erred in confirming the assessments.

Analysis and Findings 31. Having established three issues for determination, the Tribunal will proceed to analyse as hereinunder;

a. Whether the appeal is properly before the Tribunal. 32. The Respondent issued its objection decision dated 13th September 2021 and the Appellant, being aggrieved by the objection decision, filed its Notice of Appeal on 24th June 2024. The Tribunal must first establish whether the Appellant is properly before it because this would affect its adjudicatory powers to consider the matter on its merits.

33. Section 13 of the TATA provides for the procedures of filing an appeal. In particular, Section 13(1) of TATA provides as follows:‘‘Procedure for appeal(1)A notice of appeal to the Tribunal shall—(a)Be in writing or through electronic means;(b)Be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.’’

34. The Appellant filed an appeal in contravention of section 13(1) (b) of TATA in that the notice of appeal was filed 990 days late. The statutorily mandated timeline for filing a notice of Appeal is 30 days after being issued with an objection decision and in any case, the tax statutes being cognisant that in certain circumstances, taxpayers may not be able to comply with the requisite statutorily mandated timelines, provide a remedy for enlargement of time pursuant to the following provisions of Section 13(3) and (4) of TATA:‘‘(3)The Tribunal may, upon application in writing or through electronic means, 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.’’

35. The Tribunal notes that there is no record of the Appellant having sought its leave for the enlargement of time pursuant to Section 13(3) and (4) of TATA. The Appellant squandered its opportunity to seek enlargement of time and furthermore, it failed to adhere to the express provisions of the law as regards the time within which a Notice of Appeal ought to be filed. The Court of Appeal in Speaker of National Assembly v Njenga Karume [2008] 1 KLR 425 held as follows:“Where there is clear procedure for the redress of any particular grievance prescribed by the Constitution or an Act of Parliament, that procedure should be strictly followed.”

36. In W.E.C. Lines Ltd v TheCommissioner of Domestic Taxes [TAT Case No. 247 of 2020] the Tribunal held as follows, at paragraph 70, whilst reiterating the holding in Krystalline Salt Ltd vs. KRA [2019] eKLR:“Where there is a clear procedure for redress of any particular grievance prescribed by the constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures. The relevant procedure here is the process of opposing an assessment by the Commissioner.”

37. Pursuant to the forgoing persuasive precedents, the Appellant ought to have adhered to the express provisions of Section 13 of TATA. The Appellant’s failure to comply with the said provisions of the TATA meant that the Appellant filed its notice of appeal out of time and without leave of the Tribunal. In County Executive of Kisumu v County Government of Kisumu & 8 others (Civil Application 3 of 2016) [2017] KESC 16 (KLR) the Supreme Court had held as follows regarding filing appeals out of time without leave:‘‘We are in total agreement with the respondent that an appeal filed in this Court out of time without leave of this Court is irregular and this Court will not invoke such ‘novel’ principles as urged by applicant so as to validate that petition and deem it as properly filed.’’

38. The Tribunal while striking out a similar appeal in the case of Sirrom Trading Company Limitedv Commissioner of Domestic Taxes [Tax Appeal 405 of 2023] held that a taxpayer must obtain leave from the Tribunal before filing an appeal out of time.

39. The Tribunal notes that the Appellant herein failed to abide by the express provisions of the law and the impact of this failure is that the jurisdiction of the Tribunal to exercise its adjudicatory powers is vitiated. In Owners of the Motor Vessel “Lillian S” – v – Caltex Oil (Kenya) Ltd [1989] KLR, Nyarangi JA held that where a court has no jurisdiction, it must down its tools.

40. Consequently, the Tribunal finds and holds that the appeal is improperly before it and is available for striking out.

41. Having established the foregoing, the other issues for determination remain moot.

Final Decision 42. The upshot to the foregoing is that the Tribunal finds and holds that the Appeal is invalid and consequently makes the following Orders:a.The Appeal is hereby struck out.b.Each party to bear its own cost.

43. It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 21ST DAY OF MARCH, 2025. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERELISHAH N. NJERU - MEMBEREUNICE N. NG’ANG’A - MEMBEROLOLCHIKE S. SPENCER - MEMBER