https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/269

**REPUBLIC OF KENYA** **IN THE TAX APPEALS TRIBUNAL AT NAIROBI** **TAX APPEAL NO. E536 OF 2025** **TRANSFLEET (EPZ) LIMITED………………..……………………………..…..APPELLANT** **VERSUS** **COMMISSIONER OF INVESTIGATIONS & ENFORCEMENT………..….RESPONDENT** **JUDGMENT** **BACKGROUND** 1. The Appellant is a limited liability company incorporated in Kenya under the Companies Act, Cap 486, Laws of Kenya. It owns go-downs at the Export Processing Zone Authority, Athi River, and its declared activities include property investments, the sale of quarry aggregates, concrete excavation, related products and transport. 2. The Respondent is the Commissioner of Investigations and Enforcement, an office established under the Kenya Revenue Authority Act, Cap 469, Laws of Kenya. The Kenya Revenue Authority is charged with, among other functions, the assessment, collection, accounting and general administration of tax revenue on behalf of the Government of Kenya. 3. The Respondent carried out an investigation into the Appellant's tax affairs for the period 2016 to 2021. The Respondent averred that in the course of the investigation, it undertook an iTax analysis of the Appellant's declarations for the period, wrote to five tenants for their contracts, tenancy agreements and payment details, and conducted an analysis of the deposits in the Appellant's four bank accounts held at Stanbic Bank Kenya Limited, into which rent was received in United States dollars. 4. Arising from the investigation, the Respondent communicated its tax investigation findings for the period 2016 to 2021 *vide* a letter dated 22nd May 2023, arriving at a total tax due of Kshs. 389,812,700.00, exclusive of penalties and interest. The findings comprised estimated additional assessments on business income and rental income, computed after the Respondent treated the variance between the net income established from its analysis and the turnover declared by the Appellant as undeclared income and brought it to charge at the applicable rates. 5. By a letter dated 6th June 2023, the Appellant, through its tax agents, purported to object to the investigation findings in full, on the grounds, among others, that the additional assessments were estimated, excessive, punitive and erroneous, that no fair hearing had been accorded, and that the Respondent had disregarded the records it had supplied. The Respondent denied ever receiving the said letter. 6. The Respondent proceeded to raise additional estimated assessments in the iTax system in respect of the years of income under review and, upon the Appellant neither settling nor, in the Respondent's view, validly objecting to the assessments, treated the taxes as due and payable and moved to enforce recovery. 7. *Vide* an Agency Notice dated 3rd April 2025, reference RC No. 58310, issued under Section 42 of the Tax Procedures Act, 2015 and addressed to the Managing Director of New Wide Garments (K) EPZ Ltd, with a copy to the Appellant, the Respondent required the said agent to pay to it the sum of Kshs. 389,812,700.00 held for or on account of the Appellant. 8. Aggrieved by the Agency Notice, the Appellant lodged a Notice of Appeal dated 19th May 2025 on even date. **THE APPEAL** 1. The Appeal is premised on the Memorandum of Appeal dated 20th May 2025 and filed on 27th May 2025 wherein the Appellant raised the following grounds of appeal: i. That the Respondent erred in law and in fact by levying additional assessments based on a wrong interpretation of the Income Tax Act. ii. That the Respondent erred in law and in fact by disallowing expenses which were wholly and exclusively incurred in the production of the income, contrary to Section 15 of the Income Tax Act. iii. That the Respondent erred in law and in fact by disregarding the supporting information and documents provided by the Appellant in reaching its decision, in violation of the Appellant's right to fair administrative action. iv. That the estimated additional assessments were punitive, erroneous and did not reflect the Appellant's true income. v. That no fair hearing was accorded to the Appellant, the Respondent having failed to hear the Appellant on its grounds and to consider the substance of the matter before arriving at its decision. vi. That while raising the additional estimated assessment, the Respondent made a substantial error or defect in the procedure provided under the Income Tax Act, which may have occasioned an error or defect in the decision on the merits. viii. That the Respondent denied the Appellant access to information and, having power to access the Appellant's documents, raised punitive and defective estimates without a basis and without seeking clarification from the Appellant. viii. That the additional assessment was estimated, excessive by reason of error or mistake of fact, punitive and not reflective of the Appellant's income. ix. That the Respondent's action in demanding Kshs. 389,812,700.00 was arbitrary, capricious, unreasonable, unfair and contrary to the Appellant's legitimate expectation. x. That the Respondent never used the records filed with it while issuing the additional assessment, and applied a banking analysis method that had been disapproved by the court. **THE APPELLANT'S CASE** 1. The Appellant's case is premised on its Statement of Facts dated 21st May 2025 and filed on 27th May 2025, together with the documents annexed thereto, and its written submissions dated 29th May 2026 and filed on 8th June 2026. 2. The Appellant's principal contention was that the Agency Notice dated 3rd April 2025 was issued to enforce recovery of taxes that had not lawfully crystallised, the underlying estimated additional assessments having been objected to but never determined by a valid objection decision. It took the position that the Respondent's act of proceeding to enforcement, in those circumstances, was itself the appealable decision against which it had moved the Tribunal. 3. It was the Appellant's position that it lodged a Notice of Objection on 6th June 2023 against the confirmed additional estimated assessment, but that the Respondent did not render any objection decision within sixty days as required by law. 4. Relying on Section 51(11) of the Tax Procedures Act, which provides that the Commissioner shall make the objection decision within sixty days from the date of receipt of a valid notice of objection, failing which the objection shall be deemed to be allowed, the Appellant contended that its objection stood allowed by operation of law, and that the Respondent could not thereafter treat the assessments as due and payable or enforce them through an agency notice. 5. The Appellant took issue with the years brought into charge, pointing out that the year 2016 had been the subject of an earlier matter, Tax Appeal No. 359 of 2020 between the same parties, and that reopening it offended the doctrine of res judicata. It added that it had not been served with any objection decision within sixty days of its objection. 6. On the substance of the assessments, the Appellant maintained that the income assessed did not represent its true income under the law relating to rental income. It explained that deposits into its accounts had been taxed indiscriminately, which accounted for the heaping of income across various months, and that the lease agreement governing the arrangement had been set aside by the Respondent. It further contended that the computation of rental income ought to have been addressed through withholding tax paid by the tenant, who had been appointed a withholding agent, and that this had been ignored. 7. The Appellant argued that in raising the estimated additional assessment the Respondent failed to grant it the deductions and reliefs to which it was entitled, including withholding tax under Sections 6A and 35(3)(j) and paragraph 5(ja) of the Third Schedule, and advance tax under Section 12A of the Income Tax Act, and thereby arrived at a figure that did not reflect deductions allowable under the Act. 8. The Appellant contended that the Respondent's use of the banking analysis, without reference to the returns, audited accounts and tax computations it had furnished, produced punitive and defective estimates. It maintained that it had supplied the Respondent with its income tax returns, audited accounts and tax computations for the years of income up to 2021 to enable the assessment to be amended in line with its audited accounts, yet the Respondent neither used those records nor served an objection decision within the statutory period. 9. The Appellant further contended that the Respondent's conduct denied it a fair hearing and access to information, and that the resulting demand was arbitrary, capricious, unreasonable and in breach of its legitimate expectation of fair treatment, contrary to Article 47 of the Constitution and the Fair Administrative Action Act, 2015. **APPELLANT'S PRAYERS** 1. The Appellant prayed that the Tribunal grants the following orders: a) The aforesaid assessments be annulled with costs; b) The Appellant be permitted to pay the tax leviable on its true income, ascertainable from the evidence which has always been available and which will be adduced at the hearing. **THE RESPONDENT'S CASE** 1. The Respondent's case is premised on its Statement of Facts dated 4th February 2026, together with the documents annexed thereto, and its written submissions dated 18th May 2026. 2. The Respondent gave the background to the dispute, explaining that the Appellant had been assessed for the period 2016 to 2021 and issued with an additional assessment dated 22nd May 2023 in the sum of Kshs. 389,812,700.00, as reflected in the demand letter annexed to its pleadings. It maintained that the Appellant did not object to the additional assessments within the thirty-day statutory window or at all, so that the taxes in issue crystallised. 3. The Respondent disputed having been served with the objection dated 6th June 2023 relied upon by the Appellant, indicating that it first encountered that document when the Appellant's pleadings were served upon it, and it put the Appellant to strict proof of service. Having not received an objection and the taxes remaining unpaid, it commenced enforcement by issuing the Agency Notice dated 3rd April 2025. 4. On a preliminary point, the Respondent contended that the Appeal was bad in law and incompetent for having been filed out of time, contrary to Section 13(1)(b) of the Tax Appeals Tribunal Act, which requires a notice of appeal to be lodged within thirty days upon receipt of the decision of the Commissioner. 5. It computed that, the Agency Notice being dated 3rd April 2025, the Appellant ought to have moved the Tribunal by 3rd May 2025, whereas the Memorandum of Appeal was filed on 27th May 2025, a period of twenty-four days late, without leave to appeal out of time having been sought or obtained. On that footing, the Respondent urged that the Appeal was null and void *ab initio*. 6. On the merits, the Respondent placed reliance on the banking analysis as a recognised method for determining tax payable, whose results, it argued, enjoy a presumption of correctness that it was for the Appellant to displace. 7. It relied on **Digital Box Limited v Commissioner, Investigations and Enforcement, TAT Appeal No. 115 of 2017** for the manner in which the application of a banking analysis may be challenged, namely by providing alternative documentation that the taxpayer is statutorily required to keep so as to render the method inappropriate, and by pointing out from the analysis the specific credits that do not constitute income. It maintained that the Appellant had done neither. 8. The Respondent contended that the Appellant had not kept the documentation required of it under Section 23 of the Tax Procedures Act and, having failed to supply supporting documents at the investigation stage, could not benefit from its own default. 9. It relied on Section 31 of the Tax Procedures Act as entitling the Commissioner to use best judgment in determining the taxes due, and pointed out that it had, in arriving at the Appellant's net income, adjusted for non-income credits in respect of loans, reversals, related-party deposits and directors' deposits, applied a profit margin of fifteen per cent to the gross credits, and allowed expenses at fifteen per cent under Section 15 of the Income Tax Act, thereby ensuring that only profits were taxed. 10. The Respondent argued that the ground faulting the assessment was generic and did not demonstrate how the assessment was erroneous or excessive, whereas its own computation was logical and disclosed how the taxes were arrived at. It added that it had confined the years ultimately assessed to 2019 to 2021, which negated the assertion that the assessment was punitive and excessive, and that it had proceeded in conformity with Sections 29 and 31 of the Tax Procedures Act. 11. On the Appellant's invocation of legitimate expectation and fair administrative action, the Respondent countered that legitimate expectation must be founded on a clear, unambiguous and lawful representation and cannot be relied upon to shield a taxpayer from paying tax or to operate against clear statutory provisions. 12. It relied on **Kenya Revenue Authority & Commissioner of Domestic Taxes v Republic (Ex parte Kenya Nut Company Limited), Civil Appeal No. 58 of 2015**, **Pevans East Africa Limited & another v Chairman, Betting Control and Licensing Board & 7 others [2017] eKLR**, and **Pharmaceutical Manufacturing (K) Co Ltd & 3 others v Commissioner General of Kenya Revenue Authority & 2 others [2017] eKLR** for the proposition that estoppel and legitimate expectation cannot be raised against clear provisions of the law. 13. On the burden of proof, the Respondent relied on Sections 24, 28, 29, 56 and 59 of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act for the position that the Commissioner is not bound by the information supplied by a taxpayer, may assess liability on the basis of any available information and to the best of its judgment, and that the burden rests on the taxpayer to prove that a tax decision is incorrect. 14. It cited **Kenya Revenue Authority v Maluki Kitili Mwendwa [2021] eKLR**, **Mbuthia Macharia v Annah Mutua Ndwiga & another [2017] eKLR** and **Primarosa Flowers Limited v Commissioner of Domestic Taxes [2019] eKLR**, together with Section 107 of the Evidence Act, in support of the proposition that a taxpayer who challenges an assessment must adduce positive evidence demonstrating that the assessment is excessive or erroneous. 15. The Respondent maintained that the Appellant had not provided sufficient documentary evidence to support its objection, that the burden of proof had accordingly not been discharged, and that it had amended the assessments on the basis of available information pursuant to Section 29 of the Tax Procedures Act. **RESPONDENT'S PRAYERS** 1. The Respondent prayed that the Tribunal dismisses the Appeal with costs to the Respondent as the same is as the same is null and void. **ISSUES FOR DETERMINATION** 1. The Tribunal has considered the Parties' pleadings, documentation and submissions and is of the considered view that the Appeal distils into the following issues for its determination: **A. Whether the Appeal is properly before the Tribunal;** **B. Whether the Appellant’s notice of objection dated 6th June 2023 was allowed by operation of law; and** **C. Whether the Respondent was justified in issuing the Agency Notice dated 3rd April 2025 to recover the sum of Kshs. 389,812,700.00 from the Appellant.** **ANALYSIS AND FINDINGS** 1. The Tribunal proceeds to analyse the issues sequentially as hereunder: **A. Whether the Appeal is properly before the Tribunal** 1. The Respondent presented a twofold challenge to the competence of the Appeal: first, that an agency notice issued under Section 42 of the Tax Procedures Act is a mere enforcement measure and not a decision from which an appeal lies to the Tribunal; and secondly, that even if the notice were appealable, the Appeal was filed twenty-four days out of the thirty days prescribed by Section 13(1)(b) of the Tax Appeals Tribunal Act, without leave, and was therefore incompetent. Both limbs go to jurisdiction and must be resolved before the merits. 2. On the first limb, the jurisdiction of the Tribunal is conferred by Section 12 of the Tax Appeals Tribunal Act, which permits a person who disputes the decision of the Commissioner on any matter arising under a tax law to appeal to the Tribunal, and by Section 52(1) of the Tax Procedures Act, which entitles a person dissatisfied with an appealable decision to appeal to the Tribunal. 3. An appealable decision is defined in Section 3(1) of the Tax Procedures Act as an objection decision and any other decision made under a tax law, other than a tax decision or a decision made in the course of making a tax decision. 4. An agency notice is issued under Section 42 of the Tax Procedures Act, which empowers the Commissioner, where a taxpayer is or will become liable to pay tax and the Commissioner has reasonable grounds to believe the tax will not be paid by the due date, to require by notice in writing a person owing or holding money for or on account of the taxpayer to pay the specified amount to the Commissioner. 5. Being a decision made under a tax law, and being neither a tax decision nor a step in the making of a tax decision, an agency notice falls squarely within the definition of an appealable decision. 6. This position is settled. In **Krystalline Salt Limited v Kenya Revenue Authority [2019] KEHC 6939 (KLR)**, the High Court (Mativo J, as he then was) held that a decision made under any other tax law, including the exercise of the power to issue an agency notice under Section 42 of the Tax Procedures Act, is an appealable decision, observing that: *“The impugned notice (under section 42 of the TPA) falls under the above definition. To hold otherwise would amount to intellectual dishonesty given the clarity of the provision.”* 1. The same reasoning was adopted by the High Court in **Commissioner of Domestic Taxes v Pevans East Africa Limited & 6 others (Tax Appeal E003 of 2019) [2022] KEHC 10392 (KLR)**, where the court expressed little doubt that the Commissioner's decision to demand and issue agency notices was an appealable decision within the meaning of Section 3(1) of the Tax Procedures Act. The Tribunal, respectfully associating itself with these authorities, holds that the Agency Notice dated 3rd April 2025 was an appealable decision, and the Respondent's contention to the contrary is without merit. 2. On the second limb, the contention that the Appeal was filed out of time fails on the facts. The Respondent computed the thirty days from the date the Agency Notice bore, being 3rd April 2025, and arrived at a deadline of 3rd May 2025. Section 13(1)(b) of the Tax Appeals Tribunal Act, however, runs the thirty (30) days from the receipt of the decision of the Commissioner, not from the date the decision is made. 3. The Agency Notice was addressed in the first instance to the appointed agent, New Wide Garments (K) EPZ Ltd, with the Appellant copied, and the Respondent placed no evidence before the Tribunal establishing the date on which the Appellant received it. 4. The Appellant lodged its Notice of Appeal on 19th May 2025 and filed its Memorandum of Appeal and Statement of Facts on 27th May 2025. In the absence of proof of the date of receipt, the Tribunal is not persuaded that the Appeal was demonstrably late. The Tribunal, therefore, finds that since the Respondent has not substantiated its assertion that the Appeal was filed late, the preliminary objection on limitation accordingly fails. 5. Having found that an agency notice is an appealable decision and that the Respondent’s contention on timeliness is not made out, the Tribunal is satisfied that it is clothed with jurisdiction and that the Appeal is properly before it. **B. Whether the Appellant’s notice of objection dated 6th June 2023 was allowed by operation of law** 1. The Appellant's case is largely anchored on its contention that it validly objected to the additional assessments on 6th June 2023 and that, no objection decision having been issued within sixty days, its objection was allowed by operation of law under Section 51(11) of the Tax Procedures Act. If that contention is substantiated, the assessments never crystallised into a debt capable of enforcement, and the Agency Notice founded upon them cannot stand. The issue is therefore logically anterior to the validity of the Agency Notice. 2. Section 51(11) of the Tax Procedures Act provides that the Commissioner shall make the objection decision within sixty days from the date of receipt of a valid notice of objection, failing which the objection shall be deemed to be allowed. The provision operates automatically, but it is triggered only by a valid notice of objection that has in fact been received by the Commissioner. Two questions of fact therefore arise: whether the Appellant lodged the objection it asserts, and whether that objection was received by the Respondent so as to set time running. 3. The record discloses a direct conflict on this question. The Appellant produced a letter of objection dated 6th June 2023 and a copy of the Respondent’s “Tax Investigations Findings for the period 2016 to 2021” letter dated 22nd May 2023 bearing a handwritten “OBJECTED 06/06/2023” endorsement. The Respondent, on its part, denied ever having been served with that objection, averred that it first saw the document when the Appellant’s pleadings were served upon it, and required the Appellant to prove that service had in fact taken place. It therefore fell to the Appellant, upon whom the burden lay, to establish that its notice of objection was in fact delivered to, and received by, the Respondent. 4. The Tribunal has combed the Appellant’s entire documentary bundle for proof of service and has found none. The letter of 6th June 2023 bears no receipt stamp of the Respondent, no official acknowledgment and no iTax acknowledgment slip. The handwritten “OBJECTED 06/06/2023” endorsement is an annotation by the Appellant and is not evidence of delivery to, or receipt by, the Respondent. No delivery email, courier record, postal stamp or affidavit of service was exhibited. Self-generated markings on a party’s own document cannot, without more, establish that the document reached the opposite party. 5. The Tribunal further notes that the email correspondence of 5th June 2023 exhibited by the Appellant works against it, not for it. In that email, an officer of the Respondent’s Investigation and Enforcement Department expressly confirmed that the Respondent had not received any response from the Appellant and invited the Appellant to resend the same by email. No evidence of any subsequent transmission, whether by email or otherwise, and no acknowledgment of receipt thereafter, was placed before the Tribunal. The correspondence therefore establishes non-receipt as at 5th June 2023, and the record is silent thereafter. 6. Under Section 56(1) of the Tax Procedures Act, Section 30 of the Tax Appeals Tribunal Act and Section 107 of the Evidence Act, the burden lay on the Appellant to demonstrate that its notice of objection was received by the Respondent. Service being the very fact in contest, the Appellant was obliged to tender cogent proof of delivery. It tendered none. The Tribunal accordingly finds that the Appellant has not proved, on a balance of probabilities, that the Respondent received the notice of objection dated 6th June 2023. 7. The deeming provision in Section 51(11) of the Tax Procedures Act is triggered by the Commissioner’s receipt of a valid notice of objection; it is from that receipt that the sixty days run. Receipt not having been proved, time never began to run against the Respondent, and no obligation to render an objection decision arose. The Respondent had no duty to determine an objection it never received, so it is unsurprising that no objection decision appears on the record. 8. It follows that the Appellant’s objection dated 6th June 2023 was not, and could not have been, allowed by operation of law under Section 51(11) of the Tax Procedures Act. The additional assessments communicated on 22nd May 2023, not having been shown to have been objected to within the statutory window or at all, crystallised into taxes due and payable upon the lapse of that window. 9. The Tribunal has considered the Appellant’s substantive contentions against the assessments, including the treatment of deposits, the deductions claimed and the banking analysis employed. Those contentions are matters for the objection and appeal machinery under Sections 51 and 52 of the Tax Procedures Act, which the Appellant failed to engage by effecting, and proving, service of a valid objection. Having bypassed that machinery, the Appellant cannot now raise the merits of the assessments by challenging a recovery measure, and the assessments keep the presumption of correctness under Section 56(1) of the Tax Procedures Act. 10. The Tribunal accordingly finds that the Appellant has not proved that the Respondent received its notice of objection dated 6th June 2023, that the objection was consequently not allowed by operation of law under Section 51(11) of the Tax Procedures Act, and that the additional assessments crystallised into taxes due and payable by the Appellant. **C. Whether the Respondent was justified in issuing the Agency Notice dated 3rd April 2025 to recover the sum of Kshs. 389,812,700.00 from the Appellant** 1. The power to issue an agency notice under Section 42 of the Tax Procedures Act is a recovery power. By Section 42(1) of the TPA, it is exercisable where a taxpayer is, or will become, liable to pay a tax and either the tax is unpaid, under paragraph (a), or the Commissioner has reasonable grounds to believe that the taxpayer will not pay the tax by the due date, under paragraph (b). The agency notice is an instrument of collection, not of assessment, and it presupposes a tax liability lawfully established. 2. The finding on Issue B is dispositive of this question. The Tribunal finds and holds that the additional assessments having crystallised into taxes due and payable, and the taxes remaining unpaid, the conditions for exercising the power under Section 42(1) of the Tax Procedures Act were met. The taxes were unpaid within paragraph (a); and the Appellant’s sustained default, from the lapse of the objection window in 2023 to April 2025, gave the Respondent reasonable grounds, within paragraph (b), to believe that the taxes would not be paid by the due date. 3. Additionally, the Tribunal finds that the recovery power under Section 42(14) of the Tax Procedures Act, cited below, was properly invoked by the Appellant’s failure to prove that it had objected to the assessment. *“42. (14) The Commissioner shall not issue a notice under this section unless— (a) …; (b) the Commissioner has raised an assessment and the taxpayer has not objected to or challenged the validity of the assessment within the prescribed period;”* 1. To the extent that the Appellant invoked Article 47 of the Constitution and the Fair Administrative Action Act, 2015 as standalone challenges to the fairness of the process by which the Respondent proceeded, the Tribunal reiterates that the supervision of administrative action on judicial review grounds is the preserve of the High Court. The Tribunal's mandate is to determine the correctness of the decision appealed against, and has confined itself to that inquiry. 2. The Tribunal is conscious that these conclusions turn on the Appellant’s failure to prove service of its notice of objection and not on any conclusive vindication of the Respondent’s computations. This Judgment does not stop the Appellant from pursuing other lawful options that may remain open to it, including applying for an extension of time to lodge an objection under Section 51(6) of the Tax Procedures Act. What the Appellant could not do was resist a recovery measure on the strength of an objection it never proved to have served. 3. Consequently, the Tribunal finds that the Respondent was justified in issuing the Agency Notice dated 3rd April 2025 to recover the sum of Kshs. 389,812,700.00 from the Appellant. **FINAL DECISION** 1. The upshot of the foregoing analysis is that the Appeal lacks merit, and accordingly, the Tribunal proceeds to issue the following Orders: a) The Appeal be and is hereby dismissed; b) The Agency Notice dated 3rd April 2025, reference RC No. 58310, be and is hereby upheld; and c) Each party to bear its own costs. 1. It is so ordered. **DATED AND DELIVERED AT NAIROBI THIS 27TH DAY OF JULY 2026.** **……………………………..….** **ROBERT M. MUTUMA** **CHAIRMAN** **……………………………… …………..….……..………..** **GLORIA A. OGAGA DR. TIMOTHY B. VIKIRU MEMBER MEMBER** **……………………………..….** **JIMMY M. MALLA** **MEMBER**