[2024] KETAT 1252 (KLR)

Three Rivers Resort Limited v Commissioner of Domestic Taxes (Tax Appeal E451 of 2023) [2024] KETAT 1252 (KLR) (23 August 2024) (Judgment)

Neutral citation: [2024] KETAT 1252 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E451 of 2023

E.N Wafula, Chair, Jephthah Njagi, E Ng'ang'a & G Ogaga, Members

August 23, 2024

Between

Three Rivers Resort Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company incorporated under the Companies Act and a registered taxpayer. The Appellant’s principal activity is hotel business.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1), the Kenya Revenue Authority (the Authority) is an agency of the Government for the collection and receipt of all revenue.

3. The Respondent conducted tax investigations into the business affairs of the Appellant for the tax period 2021 with an intention of confirming if the Appellant was tax compliant.

4. The Respondent stated that the investigations were prompted by the Appellant’s loss declaration in the tax period years 2016, 2018 and 2019.

5. The Respondent notified the Appellant of the intention to carry out the tax investigations vide a letter dated 26th July 2022.

6. The Respondent further requested the Appellant to avail signed audited accounts for the year 2021, general ledgers in soft (excel format) for the year 2021, purchases and sales invoices for the year 2021, bank statements for the year 2021, payrolls for the year 2021 and supporting documents for the expenses highlighted above.

7. On 8th December 2022, the Respondent raised additional income tax assessments for the tax year 2021.

8. On 30th March 2023, the Appellant lodged a late objection to the additional income tax assessments vide a letter dated 15th March 2023.

9. The Respondent allowed the Appellant to lodge a late objection application.

10. On 28th April 2023 vide a letter dated 24th April 2023 the Appellant objected to the additional income tax assessments.

11. The Respondent issued the objection decision dated 26th June 2023 confirming the additional income tax assessments.

12. The Appellant being dissatisfied with the Respondent’s objection decision filed a Notice of Appeal dated 25th July 2023.

The Appeal 13. The Appeal is premised on the Memorandum of Appeal dated 25th July 2023 and filed on 8th August 2023 raising the following grounds:-a.That the capital deductions were not granted.b.That the Appellant wishes to amend its self-assessment returns.

Appellant’s Case 14. The Appellant’s case was premised on the Appellant’s Statement of Facts dated 25th July 2023 and filed on 8th August 2023 and the documents attached thereto.

15. The Appellant averred that it was issued with an Objection decision dated 26th June 2023 by the Respondent where it stated the basis of coming up with the decision on Objection for the income tax additional assessments.

16. That the Respondent proceeded to effect the Objection decision on the iTax system on various dates between 25th July 2023 and upon receiving the credit adjustment, the Appellant moved to file an Appeal through the iTax system.

17. That the decision made by the Respondent to pay a total incremental liability of Kshs. 718,815. 00 was improper unfair and unjust.

18. That the Appellant complied with the provisions of the law and provided the requested documentation to support its claim for investment and capital deductions.

19. That Appellant prays to the Tribunal to find in the Appellant's favor by issuing an order for the Respondent to review documents supporting the disallowed expenses and additionally the Respondent to adjust the Objection decision based on the documents provided.

Appellant’s prayers 20. The Appellant made the following prayers to the Tribunal.a.That the Respondent be allowed to incorporate capital and investment deductions.b.That the Respondent be compelled to revise any penalties and interests payable.c.That the cost of this Appeal is borne by the Respondent.

Respondent’s Case 21. The Respondent premised its case on the following documents:-a.The Respondent’s Statement of Facts dated 12th September 2023 and filed electronically on 13th September 2023 together with the documents attached.b.The Respondent’s Written Submissions dated and filed electronically on 22nd April 2024 together with the authorities attached thereto.

22. The Respondent averred that Section 24 of the Tax Procedures Act, 2015 allows a taxpayer to file returns but further provides that the Commissioner is not bound by the information provided therein and can assess the tax liability based on any other available information.

23. That Section 77 of the Income Tax Act and Section 31 of the Tax Procedures Act, 2015 allow the Respondent to issue additional assessments where a taxpayer has been assessed of a lesser amount based on any additional available information and to the best of his judgement.

24. The Respondent averred that the additional income tax assessments were based on under declaration of purchases in the income tax returns for the tax year 2021 which were construed to mean under declaration of sales.

25. The Respondent averred that the Appellant only provided audited accounts together with the primary records in support of the purchases and expenses claimed in the accounts but failed to provide the sales ledger and bank statements.

26. The Respondent averred that since the Appellant failed to provide the sales ledger and bank statements it was unable to verify the income declared in the financial statement.

27. The Respondent averred that the Appellant failed to avail documentation to enable the Respondent ascertain its tax liability as required under Sections 23, 58 and 59 of the Tax Procedures Act.

28. The Respondent averred that it is empowered under Section 31 of the Tax Procedures Act, 2015 to review filed returns and issue additional assessments based on available information and its best judgement.

29. The Respondent averred that the objection decision dated 26th June 2023 is proper based on the information available to the Commissioner.

30. The Respondent submitted that the following should be the issues for consideration in this matter.a.Whether the Respondent’s additional Income tax assessments issued on 8th December 2022 were proper in law?b.Whether the objection decision dated 26th June 2023 was proper in law?

31. The Respondent submitted that Section 24 of the Tax Procedures Act, 2015, allows a taxpayer to submit tax returns in the approved form and manner prescribed by the Respondent but the Respondent is not bound by the information provided therein and can assess for additional taxes based on any other available information.

32. That the additional income tax assessments were issued based on the under declaration of purchases in the income tax returns for tax period 2021 which were construed to mean under declaration of sales.

33. The Respondent submitted that its mandate to conduct a tax audit and assess taxes was stated in Anne Wanjiku Kahwai Vs Kenya Revenue Authority & Another (2019) eKLR where the Court found that:“In summary, I find that the Respondents were and are, entitled to carry out investigations and utilize the information obtained in the fulfilment of their statutory mandates. Further, the Respondents were and are, entitled to inform the Petitioners of the outcome of their investigations insofar as such outcome will affect the Petitioners. This would include identifying unpaid or apparently unpaid taxes, and requiring the Petitioners, by notice to appear before the 2nd Respondent to produce records and information in respect of the tax liability or for any other purposes relating to a tax law, pursuant to sections 61 and 59 of the Tax Procedures Act,"

34. That the Appellant failed to avail documentation to enable the Respondent ascertain its tax liability as required under Sections 23, 58 and 59 of the Tax Procedures Act.

35. That since the Appellant failed to show that the assessments were incorrect, the allegations are just but mere statements as opposed to grounds of objection and thus the Respondent retains its presumption of correctness.

36. The Respondent further submitted that under Section 51(3) of the Tax Procedures Act, a notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if-(a)the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments; and(b)in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute.”

37. That further under Section 51(8) of the Tax Procedures Act, 2015, where a notice of objection has been validly lodged within time, the Commissioner shall consider the objection and decide either to allow the objection in whole or in part, or disallow it, and Commissioner's decision shall be referred to as an "objection decision".

38. The Respondent submitted that Section 51(3) of the Tax Procedures Act, 2015 enjoins the Appellant to provide all documents in support of the objection. That the Section reads:“51. Objection to tax decision (1) ...(3)A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if-(a)...(c)all the relevant documents relating to the objection have been submitted."

39. The Respondent submitted that the Appellant has not provided evidence before this Tribunal that that the said documents requested were presented to the Respondent.

40. That the Appellant is duty bound to keep and maintain proper records for purposes of computation of tax according to Section 23 of the Tax Procedures Act (TPA).

41. The Respondent submitted that the Appellant in its Appeal has not challenged the assessment on grounds that the Respondent failed to review the documents submitted. That this fact gives credence to the Respondent's position that the Appellant never submitted all the documentation required to support its objection.

42. The Respondent also relied on the Judgment in Commissioner of Domestic Taxes v Structural International Kenya Ltd (Income Tax Appeal No. E089 0£2020) [2021] KEHC 152 (KLR) where the High Court held as follows at Paragraph 48:-“For the avoidance of doubt, the Tribunal is reminded that in matters where the issue is supply of goods, be it for VAT purposes or Corporation Tax, the burden is always on the trader/taxpayer to show that, the documentation set out in the statute and in which he relies on arose out of a commercial transaction. Period. If additional documents, which would be reasonably expected to be in his possession is requested for to verify the alleged transactions, he should produce the same to the commissioner. That is what is expected of a keen and diligent trader."

43. The Respondent also relied on the following two cases:-a.Kenya Revenue Authority V Man Diesel & Turbo Se, Kenya [2021] eKLR Nairobi High Court Income Tax Appeal No. E125 of 2020. b.Commissioner of Domestic Taxes Vs Golden Acre Limited (2021) eKLR the learned judged cited Sheria Sacco Society Limited V Commissioner of Domestic Taxes (2019) eKLR.

Respondent’s prayers 44. The Respondent prayed that the Tribunal finds that:-a.The Objection decision dated 26th June, 2023 confirming Income tax for the tax period year 2021 amounting to principal of Kshs 718,814. 96 together with the interest and penalty therein be upheld.b.That this Appeal be dismissed with costs to the Respondent as the same is without merit.

Issues For Determination 45. The Tribunal upon considering the pleadings, facts of the matter and the submissions of the parties has determined that there are two issues falling for its determination as hereunder:-a.Whether there is a valid Appeal before the Tribunal.b.Whether the Objection decision dated 26th June 2023 was justified.

Analysis And Determination 46. The Tribunal having ascertained the issues crystallizing for its determination as set out above proceeds to deal with the same as hereunder.a.Whether there is a valid Appeal before the Tribunal.

47. The genesis of the dispute herein is a letter to the Appellant dated 26th July 2022 in which the Respondent indicated that it wanted to carry out tax investigations on the Appellant.

48. After the investigations, the Respondent issued additional income tax assessments for the year 2021.

49. The Appellant was allowed to lodge a late objection to the assessments and did so vide a letter dated 24th April 2023 but received by the Respondent on 28th April 2023.

50. The Respondent issued its Objection decision on 26th June 2023.

51. Aggrieved by the Objection decision, the Appellant filed this Appeal on 8th August 2023.

52. The Tribunal notes that the process of lodging an appeal is well laid out in the TPA and the Tax Appeals Tribunal’s Act. The TPA in Section 52(1) lays down as hereunder:-“A person who is dissatisfied with an appealable decision may appeal the decision to the Tribunal in accordance with the provisions of the Tax Appeals Act, 2013”

53. Section 13(1) (b) and (2) of the Tax Appeals Tribunal Act, 2013 provides as follows:-1. A notice of appeal shall –a.…………..b.Be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.”

54. The Section further provides:-2. The Appellant shall, within fourteen days of filing the notice of appeal, submit enough copies, as maybe advised by the Tribunal, of-a.a memorandum of appeal;b.statement of facts; andc.the tax decision .”

55. The law also provides that a taxpayer who is not able to file its appeal within the timelines provided, has the option of making an application for time extension within which the appeal could be filed. This is as per the provisions of Section 13(3) of the Tax Appeals Tribunal Act which states:-“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).”

56. The Respondent made the decision being appealed on 26th June 2023. The Appellant was required to file its Notice of Appeal within 30 days. The Appellant filed its Notice of Appeal and the Appeal itself on 8th August 2023.

57. The Appellant did not seek leave of the Tribunal to file its Appeal out of time or offer any reasons as to why it was late in the circumstances.

58. On the basis of the chronology of the matter above-stated, the Appeal was clearly filed out of time.

59. The Tribunal has on innumerable occasions emphasized the necessity of the parties to observe the timelines set by the law. The issue has also been determined by the courts as being one of high importance as was held in the case of Nicholas Kiptoo Arap Korir Salat vs. IEBC & 6 Others [2013] eKLR, where 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.”

60. The same position was upheld in the case of W.E.C. Lines Ltd vs. The Commissioner of Domestic Taxes [TAT CASE No. 247 of 2020] where it was held in Paragraph 70 and reiterating the holding in Krystalline Salt Ltd vs KRA [2019] eKLR that:“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.”

61. The Tribunal is also guided by its holding in TAT Appeal No. 1321 of 2022 CKL Africa Limited v Commissioner of Domestic Taxes where at paragraphs 63 to 65 it held as thus:-63. The law makes provisions under Section 13 (3) of the Tax Appeals Tribunal Act for any party who lodges its appeal out of time and with reasonable grounds, to seek leave of the Tribunal to file its appeal out if time, the Appellant did not move the Tribunal seeking such Orders.64. The timelines provided under Section 47 (13) of the Tax Procedures Act and Section 13 (1) of the Tax Appeals Tribunal Act demand strict adherence and are not discretional to any party lodging an appeal before the Tribunal.65. It is the Tribunal’s position that there is no proper and valid Appeal before the Tribunal for the exercise of its jurisdiction.”

62. Based on the law and the case laws cited above, the Tribunal finds that the Appeal as filed is not valid as it was filed out of time and without leave of the Tribunal.

63. The Tribunal having determined that the Appeal is invalid will not deal with the other issue for determination in this matter as it has been rendered moot.

Final Decision 64. On the basis of the foregoing analysis the Tribunal finds that the Appeal is incompetent and unsustainable in law and accordingly proceeds to make the Orders as hereunder:a.The Appeal be and is hereby struck outb.Each party to bear its own costs.

65. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 23RD DAY OF AUGUST, 2024. ERIC NYONGESA WAFULACHAIRMANJEPHTHAH NJAGI EUNICE N. NGA’NG’AMEMBER MEMBERGLORIA A. OGAGAMEMBER