[2024] KETAT 1360 (KLR)

Teamtop Holdings Limited v Commissioner of Domestic Taxes (Tax Appeal E980 of 2023) [2024] KETAT 1360 (KLR) (20 September 2024) (Judgment)

Neutral citation: [2024] KETAT 1360 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E980 of 2023

RM Mutuma, Chair, T Vikiru, Jephthah Njagi, M Makau & D.K Ngala, Members

September 20, 2024

Between

Teamtop Holdings Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited company duly incorporated in Kenya and a registered taxpayer whose principal activity is in the service industry.

2. The Respondent is a principal officer appointed pursuant to Section 13 of the Kenya Revenue Authority Act (KRA), Act No. 2 of 1995, and KRA is empowered to enforce and administer provisions of written laws set out in Section 5 as read together with the First Schedule of the KRA Act.

3. On or about June 2020, the Respondent amended the Appellant’s self-assessed returns and issued it with additional assessments for principal taxes of Kshs. 11,668,856. 74.

4. The Appellant objected to the additional assessments on 10th December 2020.

5. The Respondent issued the Appellant with Objection Rejection Notices dated 30th December 2022 and an Objection Decision dated 3rd January 2023.

6. The Appellant, being dissatisfied with the Respondent’s Objection Decision, lodged this Appeal at the Tribunal on 23rd December 2023 with leave of the Tribunal granted on 7th December 2023.

The Appeal 7. The Appeal is premised on the following grounds as stated in the Appellant’s Memorandum of Appeal dated 22nd December 2023 filed on 27th December 2023:a.That the Respondent erred in law and fact by amending the taxpayer's self-assessed December 2017 VAT return, December 2018 VAT return, April 2020 VAT return, 2017 lncome Tax return, and 2019 Income Tax return through additional assessments on or about June 2020;b.That the additional assessments by the Respondent were done in bad faith and in contravention of the respective provisions of the law;c.That these additional income tax and VAT assessments are fundamentally incorrect and has led to demand of unproven taxes;d.That the Appellant not even duly informed as to the basis of the assessments and were not issued with a pre-assessment notice;e.That these additional assessments/amendments arbitrarily added more unsubstantiated sales in our Income and VAT accounts for the respective periods;f.That the Appellant had filed its Income tax and VAT returns for the respective periods and declared all the sales thereof accordingly and this was acknowledged by the Respondent;g.That the Appellant nonetheless objected to these Income and VAT Assessments on 10th December 2020 and provided all the requisite documentation on iTax as required;h.That after lodging the said objections on 10th December 2020, the Appellant did not receive any formal communication from the Respondent in reference to these objections on whether the objection applications had been allowed, partially allowed, disallowed, or rejected within the stipulated sixty days;i.That these objections are being done on 10th December 2020, and no Objection Decision issued/communicated through the Appellant’s information on email within the stated timelines, the Appellant took it that the objections were allowed by operation of law.j.That the Appellant was shockingly informed by the Respondent that there were Objection Rejection Notices dated 30th December 2022, which rejected the objection applications dated 10th December 2020, and this led to the issuance of an agency notice;k.That further to the above, there was an Objection Decision dated 3rd January 2023 which ultimately rejected these objection applications and notably this Objection Decision does not have a Statement of Findings as required in law;l.That these objection rejection notices and the apparent Objection Decision are in clear contravention of Section 51 of the Tax Procedures Act;m.That the law accords taxpayers a legitimate expectation to be issued with a decision within sixty days and where no objection is issued, the objection is deemed to be allowed by operation of the law; and,n.That the Respondent erred in law and fact, by applying the wrong principles in issuing the Objection Decision and the Rejection Notices.

The Appellant’s Case 8. The Appellant’s case is premised on its Statement of Facts dated 22nd December 2023 and filed on 27th December 2023.

9. The Appellant averred that it filed its original December 2017 VAT return, December 2018 VAT return, April 2020 VAT return, 2017 Income Tax return, and 2019 Income Tax return VAT return for the period March 2018 and April 2018 on respective diverse dates.

10. The Appellant averred that on or about June 2020, the Respondent issued additional assessments where it amended the above-stated original and self-assessed returns, which led to the demand for taxes thereof.

11. The Appellant submitted that the Respondent amended these returns by increasing the gross turnover in the income tax account and increasing the sales output in the VAT accounts.

12. The Appellant averred that upon further engagements, it fully objected to the additional assessments on 10th December 2020, where it filed its late objection reasons, grounds of objection, and amendments requited thereto and provided the relevant evidence on iTax in accordance with Section 51 of the TPA.

13. The Appellant submitted that even after the lapse of 60 days, i.e. 10th February 2021 thereof, the Respondent had still not communicated to the Appellant as to the progress or as to the finality of the Objection applications.

14. The Appellant averred that on or about November 2023, it sought services at the Respondent’s offices when it was shockingly informed that there was an agency notice that had been issued to its prime client i.e. Bidco Africa in relation to the additional assessments earlier issued in June 2020 thereof.

15. The Appellant submitted that the Respondent further informed the Appellant that it had issued Objection Rejection Notices dated 30th December 2022 and an Objection Decision dated 3rd January 2023, which ultimately rejected the objection applications dated 10th December 2020.

16. The Appellant posited that the Respondent was in contravention of Section 51 (11) of the TPA since it did not act within the stipulated time of sixty days, that further the Respondent’s Objection Decision did not contain a Statement of Finding on the material facts as required under Section 51 (10) of TPA.

Appellant’s Prayers 17. The Appellant prayed the Tribunal for orders that;a.The Respondent be and is hereby compelled to set aside the Objection Decision and the rejection notices and vacate the additional assessments issued;b.The Respondent be compelled to revise any penalties and interests’ payable; and,c.The cost of this Appeal is borne by the Respondent.

Respondent’s Case 18. The Respondent’s case is premised on its;a)The Respondent’s Statement of Facts dated 20th May 2024 and filed on 28th May 2024 together with the documents attached thereto; and,b)Written Submissions dated 20th May 2024 and filed on 28th May 2024.

19. The Respondent submitted that it is at liberty to make assessments based on the information available to it in accordance to Section 24(2) of the Tax Procedures Act which provides:“(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 liability using any information available to the Commissioner.”

20. The Respondent submitted further that Section 31 of the Tax Procedures Act empowers the it to make alterations or additions to original assessments from available information for a reporting period based on the Commissioner’s best judgement. This Section provides:“(1)Subject to this section, the Commissioner may amend an assessment (referred to in this section as the “original assessment") by making alterations or additions, from the available information and to the best of the Commissioner's judgement, to the original assessment of a taxpayer for a reporting period to ensure that—(a)………………(b)………………(c)in any other case, the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates.”

21. The Respondent averred that the Appellant did not discharge its burden of proof under Section 56 (1) of the TPA and Section 30 of the Tax Appeals Tribunal Act. Section 56 (1) of the TPA provides as follows:“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

22. While Section 30 of the Tax Appeals Tribunal Act provides that:“In a proceeding before the Tribunal, the appellant has the burden of proving—a.where an appeal relates to an assessment, that the assessment is excessive; orb.in any other case, that the tax decision should not have been made or should have been made differently.”

23. The Respondent submitted further that in accordance with Section 23 of the Tax Procedures Act, the Appellant is bound to keep records for a period of five years, the Section provides that:“(1)A person shall—(a)maintain any document required under a tax law, in either of the official languages;(b)maintain any document required under a tax law so as to enable the person's tax liability to be readily ascertained; and(c)subject to subsection (3), retain the document for a period of five years from the end of the reporting period to which it relates or such shorter period as may be specified in a tax law.”

24. The Respondent also relied on Section 59 of the Tax Procedures Act which provides:“(1)For the purposes of obtaining full information in respect of the tax liability of any person or class of persons, or for any other purposes relating to a tax law, the Commissioner or an authorised officer may require any person, by notice in writing, to—(a)produce for examination, at such time and place as may be specified in the notice, any documents (including in electronic format) that are in the person's custody or under the person's control relating to the tax liability of any person;(b)furnish information relating to the tax liability of any person in the manner and by the time as specified in the notice; or(c)attend, at the time and place specified in the notice, for the purpose of giving evidence in respect of any matter or transaction appearing to be relevant to the tax liability of any person.”

25. The Respondent submitted that Section 43(1) of the Value Added Tax Act provides:“A person shall, for the purposes of this Act, keep in the course of his business, a full and true written record, whether in electronic form or otherwise, in English or Kiswahili of every transaction he makes and the record shall be kept for a period of five years from the date of the last entry made therein.”

26. To buttress the averment that it is mandated to amend taxpayer’s assessments, the Respondent relied on the case of Commissioner of Domestic Taxes vs. Altech Stream (EA) Limited [2021] eKLR, where the court stated that:“section 31 (1) of the Tax Procedures Act allows the Commissioner to make an assessment based on such information as may be available and to the best of his judgement.”

27. With regard to burden of proof, the Respondent relied on the case of Ushindi Exporters Ltd vs. Commissioner of Investigation and Enforcement (Tax Appeals Tribunal (NO 7 of 2015) where the Tribunal held that:“The burden of proving that the tax assessment is excessive or should have been made differently never shifts to the Respondent and is placed squarely on the Appellant as Section 30 (a) and (b) of the Tax Appeals Tribunal Act states,a.Where an appeal related to an assessment, that the assessment is excessive; orb.In any other case, that the tax decision should not have been made or should have been made differently.By purporting to shift the burden of proving that the tax assessment against it was incorrect or should have been different the Appellant failed in discharging the burden, placed upon it by law.”

28. The Respondent further relied on the case of Tumaini Distributors Company (K) Limited vs. Commissioner of Domestic Taxes [2020] eKLR,“the High Court in determining the issue as to whether the Commissioner followed the correct procedure or correctly assessed a company’s tax liability found out that the Appellant had failed to provide the relevant documents despite several requests by the Commissioner. The High Court upheld the decision of the Tribunal, holding that since the Appellant had not provided all the documents, the Commissioner was right in reaching the assessment based on the material available.”

29. The Respondent averred that the Appellant did not provide any documentation to support its Objection and that the Commissioner was right in confirming the Income Tax and VAT assessments.

Respondent’s Prayers 30. The Respondent prayed that the Tribunal: -a.Upholds the Respondent’s Objection Decision dated 3rd January 2023 as proper and in conformity with the provisions of the law; and,b.Dismisses the Appeal with costs to the Respondent as the same is devoid any merit.

Issues for Determination 31. The Tribunal having considered parties’ pleadings and the Respondent’s submissions, identified the following to be the issues for determination in this matter;i.Whether the Appellant’s objection was deemed as allowed by operation of the law; and,ii.Whether the Respondent erred in confirming the Income Tax and VAT assessments.

Analysis and Findings 32. Having identified the issues that fell for its determination, the Tribunal proceeded to analyze them as hereunder.

i. Whether the Appellant’s objection was deemed as allowed by operation of the law; 33. The genesis of this Appeal is the additional assessments raised by the Respondent based on what it referred to as variances between the Appellant’s sales as per the VAT returns, and the sales as per the income tax returns.

34. The Appellant contended that the Respondent arbitrarily added unsubstantiated sales to its income and VAT accounts for the respective periods.

35. The Respondent submitted that having established unsupported expenses claimed in the income Tax Returns of the Appellant, it acted within its mandate in amending the Appellant’s returns as provided for in Sections 24 (2) and 31 of the TPA.

36. The Appellant averred that its objection had been allowed by operation of the law since the Respondent had failed to issue an Objection Decision within the statutory timeline as provided by Section 51 (11) of the TPA.

37. The Respondent on its part did not address the issue of timelines but instead anchored its response on the burden of proof required of the Appellant under Section 56 (1) of the TPA and Section 30 of the TAT Act.

38. To determine whether the Appellant’s Objection had been allowed by operation of the law, a rehash of the chronology of events is necessary. The Tribunal identified the events leading to the dispute as follows;i.The Respondent issued the Appellant with additional assessments on 30th June 2020;ii.The Appellant objected on 10th December 2020;iii.The Respondent issued objection rejection notices on 30th December 2022;iv.The Respondent issued an objection decision on 3rd January 2023; and,v.Aggrieved by the decision of the Respondent, the Appellant filed a Notice of Appeal on 23rd November 2023.

39. At the time the Appellant objected to the Respondent’s assessments on 10th December 2020, Section 51 (11) of the TPA provided that;“The Commissioner shall make the objection decision within sixty days from the date of receipt of -a.The notice of objection; orb.Any further information the Commissioner may require from the taxpayer.

Failure to which the objection shall be deemed to be allowed.” 40. The Tribunal notes that whereas the Appellant objected to the assessments on 10th December 2020, the Respondent issued Objection Rejection Notices on 30th December 2022 and eventually rendered an Objection Decision on 3rd January 2023. Both the Objection Rejection Notices and the Objection Decision were issued more than two years after the Appellant objected to the assessment, well beyond the sixty-day timeline allowed by Section 51 (11) of the TPA.

41. The Tribunal has pronounced itself on the need to adhere to statutory timelines. In TAT 127 of 2020, BIC East Africa Ltd vs. Commissioner of Customs & Border Control, the Tribunal held that;“Additionally, the Tribunal finds the Respondent's late response to the review application to be in gross violation of Section 229 (5) of the EACCMA 2004 which stipulates that the where the Respondent had not communicated his or her decision within the specified time of 30 days, the review application shall be deemed to have been allowed by the Respondent. To contextualize this, as of 7th June 2019 the Appellant's review application was deemed allowed meaning that it had not tax liability in the eyes of the law. It also meant that the Appellant was well within its right to apply for a refund of the taxes paid earlier under protest. Our resolve in this regard is further cemented in light of the fact that Section 229 (4) & (5) of the EACCMA are cushioned in mandatory terms, hence the Respondent was not allowed to extend the same timelines. (See Associated Battery Manufacturers limited versus Respondent of Customs Services (TAT Appeal No 1 of 2015).

42. The Courts have also emphasized the need to be bound by the statutory timelines. In Nicholas Kiptoo Arap Korir Salat vs. IEBC & 6 Others [2013] eKLR, the court held;-“This Court, indeed all courts, must never provide succor and cover to parties who exhibit scant respect for rules and timelines. Those rules and timelines serve to make the process of judicial adjudication and determination fair, just, certain and even-handed. Courts cannot aid in the bending or circumventing of rules and a shifting of goal posts for, while it may seem to aid one side, it unfairly harms the innocent party who strives to abide by the rules. I apprehend that it is in the even-handed and dispassionate application of rules that courts give assurance that there is a clear method in the manner in which things are done so that outcomes can be anticipated with a measure of confidence, certainty and clarity where issues of rules and their application are concerned…”

43. Further the High Court in emphasizing the strict application of statutory timelines had this to say in Equity Group Holdings Limited vs. Commissioner of Domestic Taxes 2021 (eKLR);“A statutory edict is not procedural technicality. It’s a law which must be complied with. Parliament in its wisdom expressly and in mandatory terms provided………”

44. Guided by statute and the authorities cited herein, the Tribunal finds that the objection made by the Appellant on 10th December, 2020 was allowed by operation of the law. In effect, the Respondent’s Objection Decision conveyed in the letter dated 3rd January 2023 cannot stand.

45. Having found that the objection by the Appellants was allowed by operation of the law, the Tribunal did not delve into the other issue that fell for its determination as it had been rendered moot.

Final Decision 46. The upshot of the foregoing is that the Appeal succeeds. Consequently, the Tribunal makes the following Orders: -a.The Appeal be and is hereby allowed;b.The Respondent’s Objection Decision dated 3rd January 2023 be and is hereby set aside; and,c.Each Party to bear its own costs.

47. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 20TH DAY OF SEPTEMBER 2024ROBERT MUTUMA MUGAMBI - CHAIRMANDR. TIMOTHY B. VIKIRU - MEMBERJEPHTHAH NJAGI - MEMBERMUTISO MAKAU - MEMBERDELILAH K. NGALA - MEMBER