[2025] KETAT 3 (KLR)

Trueblaq Limited v Commissioner of Domestic Taxes (Appeal E624 of 2024) [2025] KETAT 3 (KLR) (17 January 2025) (Judgment)

Neutral citation: [2025] KETAT 3 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal E624 of 2024

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

January 17, 2025

Between

Trueblaq Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya whose principal business activity is experiential marketing that includes Event Management, Brand Activations and Equipment Rentals.

2. The Respondent is the Commissioner for Domestic Taxes appointed pursuant to Section 13 of the Kenya Revenue Authority Act, (Cap. 469 of the Laws of Kenya). The Respondent is empowered to enforce and administer provisions of written laws set out in Section 5 as read together with the First Schedule to the KRA Act, among them, the Income Tax Act (Cap 470 of the Laws of Kenya) and the Value Added Tax Act, Act No. 35 of 2013.

3. Vide a Demand Notice dated 26th August 2022 the Respondent carried out an audit on the Appellant’s affairs to determine whether all income was declared and reconcile Income/Purchases for the period between January 2020 and December 2021.

4. Upon conclusion of the audit exercise, the Respondent issued the Appellant with a Value Added Tax (VAT) Assessment Notice dated 28th November 2023 in the sum of Kshs. 58,118,719. 39 inclusive of penalties and interest.

5. The Applicant objected to the said Assessment vide a notice dated 23rd February 2024.

6. In addition, the Respondent vide emails requested for documents such as audited financial statements, VAT and Income tax returns and Sales ledgers as supporting documents.

7. The Respondent declined the Appellant’s objection and issued an Objection Decision on 22nd April 2024 indicating an outstanding Value Added Tax (VAT) in the sum of Kshs. 60,879,626. 28 inclusive of penalties and interest.

8. Aggrieved by the Objection Decision, the Appellant instituted the instant Appeal vide the Notice of Appeal filed on 23rd May, 2024.

The Appeal 9. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal dated and filed on 7th June 2024;a.That in arriving at the method used, the Respondent failed to appreciate the Appellant’s business environment, the cyclical nature of the business and its business model;b.That Respondent erred in law and in fact by failing to appreciate that the sales for the year 2021 were less than the amount of stock distributed in the same year in total disregard of the closing stock as accounted for by the Appellant which resulted to an erroneous assessment of Value Added Tax liability of Kshs. 60,879,626. 28 inclusive of penalties and interest;c.That the Respondent erred in law and in fact in its finding that the Appellant underdeclared sales and hence there was a variance between the purchases and sales declared thus resulting to a tax liability of Kshs. 60,879,626. 28 inclusive of penalties and interest;d.That the Respondent erred in its findings that the Appellant did not declare the income in respect of some invoices raised in the year 2021 financial statements thus resulting in a tax liability of Kshs. 60,879,626. 28 inclusive of penalties and interest; and,e.That the Respondent erred in law and fact by disregarding the supporting information and documents provided by the Appellant in making its decision.

The Appellant’s Case 10. The Appellant’s case was also premised on its Statement of Facts dated and filed on 7th June 2024 together with the documents attached thereto.

11. The Appellant averred that vide a Demand Notice dated 26th August 2022 the Respondent informed it of the intention to carry out an audit on the Appellant’s affairs to determine whether all income was declared and reconcile Income/Purchases for the period between January 2020 to December 2021.

12. That upon conclusion of the audit exercise, the Respondent issued the Appellant with a Value Added Tax (VAT) Assessment Notice dated 28th November 2023 in the sum of Kshs. 58,118,719. 39 inclusive of penalties and interest.

13. That the Applicant objected to the said Assessment vide a notice dated 23rd February 2024.

14. That the Respondent declined the Applicant’s objection and issued an Objection Decision on 22nd April 2024 which indicated an outstanding Value Added Tax (VAT) in the sum of Kshs. 60,879,626. 28 inclusive of penalties and interest.

15. The Appellant averred that the Respondent erred in law and in fact in its finding that the Appellant underdeclared sales and hence there was a variance between the purchases and sales declared thus resulting to a tax liability of Kshs. 60,879,626. 28 inclusive of penalties and interest.

Appellant’s Prayers 16. The Appellant prayed for Orders that that;a.This Appeal is allowed;b.The Respondent’s Objection Decision dated 22nd April 2024 be set aside in its entirety;c.That the principal tax and attendant penalties and interest demanded by the Respondent amounting to Kshs. 60,879,626. 28 vide its decision as contained in its letter date 22nd April 2024, be vacated forthwith in their entirety;d.The costs of and incidental to this Appeal be awarded to the Appellant; and,e.Any other orders that the Tribunal may deem fit.

The Respondent’s Case 17. The Respondent’s case is premised on its;a.Statement of Facts dated and 3rd July 2024 together with the documents attached thereto;b.Witness statement of Paul Muchina dated 24th August 2024 and filed on the same dated and adopted on oath as evidence in chief by the Tribunal on 12th November 2024; and,c.Written submissions dated and filed on 14th November 2024.

18. In response to ground 1 of Memorandum of Appeal, the Respondent averred that the assessments were correctly issued and conform to the VAT and Income Tax Acts. That the Appellant did not provide any evidence that would have altered the assessment. That Section 56 (1) of the Tax Procedure Act places the onus of proof in tax objections on the taxpayer who in this case failed to avail evidence that would support a contrary assessment or that would have guided the Respondent at arriving at a different Objection Decision. That the Section reads;“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

19. The Respondent averred that examination of the Appellant’s records, audited accounts and Income Tax returns established that the Appellant failed to declare business income and all incomes for years 2020 - 2021. That the Respondent is empowered under Section 73 (1) of the Income Tax Act 2013 to bring to charge income where the same is established due. That the Section provides;“Save as otherwise provided, the Commissioner shall assess every person who has income chargeable to tax as expeditiously as possible after the expiry of the time allowed to that person under this Act for the delivery of a return of income.”

20. The Respondent averred that an in-depth examination of the records established that there were inconsistencies in the returns filed by suppliers and the invoices claimed by the Appellant and this indicated a variance as per the VAT returns filed and Income Tax returns filed. That further to that, the Appellant provided no explanations requested on the variance hence the same was disallowed.

21. In response to ground 2 of the Memorandum of Appeal, the Respondent averred that the tax was reached at based on the information available and provided by the Appellant. That the Commissioner is empowered by Section 29 (1) of the Tax Procedure Act to make such decisions. That the Section reads;“Where a taxpayer has failed to submit a tax return for a reporting period in accordance with the provisions of a tax law, the Commissioner may, based on such information as may be available and to the best of his or her judgement, make an assessment (referred to as a "default assessment.”

22. The Respondent asserted that the Appellant in lodging its objection failed to state the reasons precisely to be addressed in the assessments raised.

23. That the Appellant failed to provide relevant documentation in support of its allegations in the objection hence failed to support to the satisfaction of the Commissioner why the same should be allowed.

24. In response to ground 3 of Memorandum of Appeal, the Respondent averred that the Appellant despite under declaring its income knowingly continued to declare incorrect returns for the period under review.

25. The Respondent averred that according to Section 54 A (1), of the Income Tax Act, it is the responsibility of any person carrying on business to maintain records of all transactions. The Section states;“A person carrying on a business shall keep records of all receipts and expenses, goods purchased and sold and accounts, books, deed contracts and vouchers which in the opinion of the Commissioner, are adequate for the purpose of computing tax.”

26. The Respondent averred that Section 31 of the Tax Procedures Act provides for amendment of assessments and allows a taxpayer to apply to the Commissioner for amendment of a self-assessment. The amendments must be supported and the Commissioner has power to accept or reject the amendments where the same do not meet the required criteria. The Respondent averred that the objection queries were not adequately supported during objection review stage and hence could not be incorporated in its decision.

27. That the Respondent is empowered by section 31 of the Tax Procedures Act 2015 to carry out amendments on assessments where adjustments are due, to bring to charge the correct amounts. That the Section states;“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 …”

28. The Respondent averred that the Appellant did not file Income Tax returns for the accounting period 2020 -2021 in contravention of the requirements of the Tax Procedures Act and that the estimated assessments were correct.

29. That the Appellant failed to provide signed financial statements and books of accounts to support its allegations. That the Tax Procedure Act empowers the Respondent to carry out assessment based on the information available.

30. The Respondent averred that the assessments were issued based on information provided. That Section 24 (1) of the TPA provides that;“A person required to submit a tax return under a tax law shall submit the return in the approved form and in the manner prescribed by the Commissioner.The Commissioner shall not be bound by a tax return or information provided by, or on behalf of, a taxpayer and the Commissioner might assess a taxpayer’s tax liability using any information available to the Commissioner.”

31. The Respondent averred that the Appellant was uncooperative in the provision of relevant records and failed to respond to request of documents hence no relevant documents or records were provided to support its objection. That as a result, the assessment was made based on the only available information based on the best judgement by the Respondent.

32. The Respondent submitted that the Tribunal should be guided by the following considerations;i.Were any documents provided to justify the Appellant’s objection?ii.Were the annual taxation returns of income as done by the Appellant from time to time correct and complete?iii.Were any transactions omitted from or incorrectly recorded in the Appellant’s books of accounts /banking’s?

33. The Respondent submitted that Section 23 (1) (b) of the Tax Procedures Act makes it an obligation of a taxpayer to maintain any document required under a tax law to enable the person’s tax liability to be readily ascertained. That in the case of TAT NO. 1400 of 2022 Julie Magwi Njue vs. Commissioner of Domestic Taxes the Tribunal held the following in relation to that Section of the Tax Procedures Act;“it was upon the Appellant to keep proper records and produce them as required by law in order for her actual tax liability to be ascertained at any time. In the instant case the Tribunal noted that the Appellant did not provide any evidence in support of its assertion that the Respondent's assessments were unreasonable the provision of documents as evidence is well stated under Section 30 of the Tax Appeals Tribunal Act."

34. The Respondent submitted that the Tribunal should also be guided by the finding in TAT E857 of 2023 Junaina Horticulture Ltd vs. Commissioner of Domestic Taxes where the Tribunal stated;“In this Appeal, the Appellant was obligated to prove that the Objection Decision issued by the Respondent was not correct and or justified by providing documents in support of their allegations, a proper explanation of how the said documents that were submitted would make a difference in the tax demanded and subsequently that the tax demanded was thus erroneous. However, the Appellant did not present evidence to support the objection against the assessment .....Therefore, the Tribunal is of the opinion that the documents submitted do not support the Appellant's case, and the Appellant has failed to discharge its burden of proof in the first instance as provided for by the law.”

35. The Respondent also submitted that the Tribunal should also be guided by the following case laws and find that the Appellant failed to discharge the burden of proof placed upon it in demonstrating that the Respondent erred in confirming the assessments.a.Monaco Engineering Limited vs. Commissioner Domestic Taxes TATN0. 67/2017;b.Osho Drapers Ltd vs. Commissioner of Domestic Taxes, TAT No. 159 of 2018;c.Miao Yi vs. Commissioner of Investigations &Enforcement TAT No. 441 of 2019;d.Ritz Enterprises Limited vs. Commissioner of Investigations & Enforcement TAT No.227 of 2018;e.Kenya Revenue Authority vs. Man Diesel & Turbo Se, Kenya [2021] eKLR;f.Janet Kaphiphe Ouma and another vs. Marie Stopes International (Kenya), HCC No. 68 of 2007;g.Dyer & DyerLimited vs. Commissioner of Domestic Taxes TAT 139 of 2020; and,h.Commissioner of Domestic Taxes vs. Metoxide Limited [2021].

36. The Respondent submitted that in light of the above cases on the “burden of proof,” it is evident that the Respondent did not err in invalidating the Appellant’s objection and issuing a decision as the Appellant failed to discharge its burden of proof and challenge the Respondent’s assessment with evidence to prove the incorrectness of the tax assessments.

37. The Respondent submitted that the Appellant failed to provide documentary evidence to demonstrate the actual rental income earned. The Respondent averred that all documentation provided were looked at, analyzed and communicated to the Appellant clearly under each tax head in the Objection Decision. The Respondent submitted that the objection decision was made based on the documentation provided.

38. The Respondent prayed that there is a rebuttable presumption in tax matters that an assessment by the Respondent is correct and the burden lies on the Appellant to prove that an assessment is excessive or a tax decision should have been made differently.

Respondent’s Prayers 39. The Respondent prayed that this Tribunal finds that;a.That the Respondent's Objection Decision be upheld;b.The outstanding tax arrears of Kshs. 60,879,626. 28 are due and payable by the Appellant;c.The confirmed assessments dated 24th January, 2024 were proper in law; and,d.That the Appeal herein be dismissed with costs to the Respondent.

Issue For Determination 40. After perusing the Memorandum of Appeal and parties’ Statements of Facts together with the submissions of the Respondent and documentation attached therewith, the Tribunal is of the considered view that the issue for determination is:Whether the Appellant has discharged its burden of proof.

Analysis And Findings 41. Having identified the issue that falls for its determination, the Tribunal wishes to analyze it as hereinunder.

42. The genesis of this dispute is the additional assessments dated 24th January 2024 for VAT totaling Kshs. 58,118,718,719. 39 sent by the Respondent to the Appellant. This figure included penalties and interest.

43. The Appellant objected to this additional VAT assessment on 23rd February 2024.

44. The Respondent averred that it asked for documents via email such as audited financial statements, VAT and Income Tax Returns and sales ledgers as supporting documents. The Respondent averred that the Appellant only provided sales ledgers and purchase ledgers.

45. The Respondent further averred that it considered the objection and the documents provided and made its Objection Decision on 22nd April 2024 confirming the said VAT taxes as assessed for Kshs. 60,879,626. 28.

46. The Appellant filed this Appeal on 7th June 2024 citing five grounds of Appeal.

47. The Appellant attached the following documents to its Statement of Facts.a.Letter of objection dated 23rd February 2024;b.Letter of Intent from Kenya Breweries Limited to the Appellant dated 11th November 2024;c.Distribution agreement between Kenya Breweries Limited and TB Distributors;d.Distribution agreement between UDV(Kenya) Limited and TB distributors Limited; and,e.Respondent’s Objection Decision dated 22nd April 2024.

48. The Tribunal notes that the documents attached by the Appellant to the Statement of Facts did not in any way address the dispute before the Tribunal.

49. The Tribunal notes that Section 56(1) of the Tax Procedure Act places the onus of proof in tax matters on the taxpayer. The section provides;“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

50. In the instant Appeal, the Appellant did not provide any evidence to show that the tax decision made by the Respondent was incorrect. It made averments but provided no evidence to support those averments or grounds of Appeal.

51. The Appellant also tendered no evidence that documents were provided to the Respondent and that the Respondent failed or refused to review or consider them in making its Objection Decision.

52. In determining this issue, the Tribunal is guided by the Court of Appeal holding in CMC Aviation Ltd vs. Kenya Airways Ltd (Cruisair Ltd) [1978] eKLR where the Court faulted the reliance on averments as evidence in arriving at a decision. The Court stated as follows;“The pleadings contain the averments of the parties concerned. Until they are proved, or disproved, or there is admission of them or any of them by the parties, they are not evidence and no decision could be founded upon them. Proof is the foundation of evidence. As stated in the definition of “evidence” in section 3 of the Evidence Act, evidence denotes the means by which an alleged matter of fact, the truth of which is submitted to investigation, is proved or disproved. Averments are matters the truth of which is submitted for investigation. Until their truth has been established or otherwise they remain unproven. Averments in no way satisfy, for example, the following definition of “evidence” in Cassell’s English Dictionary, p 394:Anything that makes clear or obvious; ground for knowledge, indication or testimony; that which makes truth evident, or renders evident to the mind that it is truth.The pleadings in a suit are not normally evidence. They may become evidence if they are expressly or impliedly admitted as then the admission itself is evidence. Evidence is usually given on oath. Averments are not made on oath. Averments depend upon evidence for proof of their contents.”

53. In tax matters, the onus to demonstrate whether the tax decision was improperly made rests upon the taxpayer, the Appellant in the instant case. This is provided for under Section 56 (1) of the Tax Procedures Act.

54. In addition, Section 30 of the Tax Appeals Tribunal Act also places the burden of proof in tax cases on the taxpayer. The Section states;“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”

55. The Tribunal is guided by the holding of the Court in Kenya Revenue Authority vs. Man Diesel & Turbo Se, Kenya [2021] eKLR wherein the Court stated that;“The import of the above provisions is that the party with the obligation of persuasion (what Wigmore termed the risk of non-persuasion) is said to bear the burden of proof.[9] The flip side of the foregoing is the effect of non-persuasion on a party with the burden of proof which is that the particular issue at stake in the litigation will be decided against him/her. Generally, the taxpayer has the burden of proof in any tax controversy.The taxpayer must demonstrate that the commissioner's assessment is incorrect. The taxpayer has a significantly higher burden. The taxpayer must prove the assessment is incorrect. The shifting of the burden of proof in tax disputes flows from the presumption of correctness which attaches to the Commissioner’s assessments or determinations of deficiency. The commissioner’s determinations of tax deficiencies are presumptively correct. Although the presumption created by the above provisions is not evidence in itself, the presumption remains until the taxpayer produces competent and relevant evidence to support his position.”

56. The Tribunal also relies on Section 107 (1) of the Evidence Act (Cap 80 Laws of Kenya) which states as follows;“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.”

57. Section 109 of the Evidence Act also provides;“The burden of proof as to any particular fact lies on the person who wishes the court to believe in its existence, unless it is provided by any law that the proof of that fact shall lie on any particular person”

58. The Tribunal is also guided by the case of Republic vs. Kenya Revenue Authority; Proto Energy Limited (Ex-parte) (Judicial Review Application E023 of 2021) [2022] KEHC 5 (KLR), in which the court observed;“The most significant justification for placing the burden of proof on the taxpayer is the practical consideration that the Commissioner cannot sustain the burden because he does not possess the needed evidence. Under the system of self-reporting tax liability, the taxpayer possesses the evidence relevant to the determination of tax liability. It is simply fair to place the burden of persuasion on the taxpayer, given that he knows the facts relating to his liability, because the commissioner must rely on circumstantial evidence, most of it coming from the taxpayer and the taxpayer's records. The taxpayer must present a minimum amount of information necessary to support his position. This safety valve seems to place the burden of production on the taxpayer without relieving the Commissioner of the overall burden of proof. The tax payers’ evidence must meet this minimum threshold. A presumption of correctness arises from the Commissioner’s determination/assessment. The presumption remains until the taxpayer produces competent and relevant evidence to support his/her position. When the taxpayer comes forward with such evidence, the presumption vanishes and the case must be decided upon the evidence presented.”

59. Since the Appellant did not adduce evidence of the documents that it may have furnished to the Respondent which were not considered in arriving at the decision to issue additional VAT assessments, the Tribunal finds the Respondent’s Objection Decision issued on 22nd April 2024 was justified.

60. After the review of the documents submitted by the parties, the law and the case laws cited above, the Tribunal also finds and holds that the Appellant did not discharge its burden of proof and the Respondent was therefore justified in confirming the additional VAT assessment.

61. Consequently, the Appellant’s Appeal is unmeritorious, thus fails.

Final Decision 62. The upshot to the foregoing is that the Appeal is unmerited, the Tribunal consequently makes the following Orders; -a.The Appeal be and is hereby dismissed;b.The Respondent’s Objection Decision dated 22nd April 2024 be and is hereby upheld; and,c.Each party to bear its own costs.

63. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 17TH DAY OF JANUARY 2025ROBERT M. MUTUMA - CHAIRPERSONJEPHTHAH NJAGI - MEMBERMUTISO MAKAU- MEMBERDR. TIMOTHY B. VIKIRU- MEMBERDELILAH K. NGALA- MEMBER