[2024] KETAT 839 (KLR)

Ultimate Auto Mart Limited v Commissioner of Domestic Taxes (Tax Appeal 198 of 2023) [2024] KETAT 839 (KLR) (28 June 2024) (Judgment)

Neutral citation: [2024] KETAT 839 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 198 of 2023

RM Mutuma, Chair, M Makau, EN Njeru, B Gitari & AM Diriye, Members

June 28, 2024

Between

Ultimate Auto Mart Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

1. The Appellant is a limited liability company duly incorporated in the Republic of Kenya and a registered taxpayer.

2. The Respondent is the principal officer appointed under the Kenya Revenue Authority Act and mandated with the responsibility of assessing, collecting, and accounting for the tax revenues on behalf of the Government of Kenya. The Respondent is also mandated with the responsibility of the administration and enforcement of the statutes under the schedule to the said Act.

3. The dispute herein arose out of the assessment of the Appellant on Corporation Tax in the sum of Kshs. 14,933,672. 15 and VAT in the sum of Kshs. 2,433,675. 00 for the year 2017.

4. The Appellant lodged an Objection Notice on 8th September 2022, subsequently the Respondent rejected the Objection and confirmed its assessment by issuing an Objection Decision dated 7th November 2022.

5. The Appellant being dissatisfied with the Respondent’s Objection Decision filed the instant Appeal with the leave of the Tribunal granted on 17th February 2023.

The Appeal 6. The Appellant filed its Memorandum of Appeal dated 3rd March 2023 and filed on an even date sets out the following grounds of appeal; -i.That the tax assessed was estimated and excessive and not in accordance with the company audited accounts, returns and invoices for the period under review.ii.That the company was incorporated in the year 2016 with one director and shareholder, Bilal Aslam Musani. The Company was transferred to Mr. Jay Rasikal Gohil and Mr. Nasir Balouch in August 2018.

The Appellant’s Case 7. The Appellant has set out its case on its Statement of Facts dated 3rd March 2023 and filed on an even date; together with the documents annexed thereto.

8. The Appellant stated that it received an assessment from the Respondent on Corporation Tax in the sum of Kshs. 14,933,672. 15 and VAT in the sum of Kshs. 2,433,675. 00 for the year 2017.

9. The Appellant averred that it objected to the assessment vide the notice dated 8th September 2022 to which the Respondent issued its Objection Decision on 7th November 2022, rejecting the Appellant’s Objection and confirmed the assessments.

10. The Appellant contended that the tax was estimated, excessive and not in accordance with the company audited accounts, returns and invoices for the period under review.

11. The Appellant stated that the company was incorporate in the year 2016 with one director and shareholder, Bilal Aslam Musani. The Company was transferred to Mr. Jay Rasikal Gohil and Mr. Nasir Balouch in August 2018.

12. The Appellant stated that it intends to engage the Respondent through the Respondent’s Alternative Dispute Resolution framework with a view of solving the tax dispute amicably.

13. The Appellant did not file its written submissions despite being directed to so do by the Tribunal and therefore its case shall be considered on the basis of its pleadings filed hitherto.

Appellant’s Prayers 14. By reason of the grounds aforesaid the Appellant prayed that;a.The Respondent’s Objection Decision dated 13th February 2023 be struck out in its entirety;b.The costs of this Appeal; and,c.Any other remedies that the Honourable Tribunal deems just and reasonable.

The Respondent’s Case 15. The Respondent filed its Statement of Facts on 29th November 2023 and when the matter came up for hearing on the 30th November 2023, the Tribunal issued orders expunging the Respondent’s Statement of Facts from the record as the same were filed in contravention of the Tribunal’s directions issued on 28th November 2023 and for being filed out of time and without the leave of the Tribunal.

16. The Tribunal further directed that the Appeal was to proceed on the basis of the Appellant’s pleadings.

ISsues For Determination 17. The Tribunal having carefully considered the Appellant’s pleadings is of the considered view that the Appeal distills into a singular issue for consideration as follows;

Whether the Respondent’s assessment on the Appellant was justified.Analysis and Determination 18. The Tribunal shall proceed to analyze and determine the issue as follows;

19. The Appellant lodged its Notice of Objection on 8th September 2022 against the Respondent’s Notice of Assessment relating to Corporation Tax in the sum of Kshs. 14,933,672. 15 and VAT in the sum of Kshs. 2,433,675. 00 for the year 2017.

20. The Appellant submitted that the Respondent issued its Objection Decision on 7th November 2022. The Tribunal upon perusal of the said decision notes that the Respondent confirmed the assessments as follow;a.In relation to VAT for June 2022; May 2022; December 2021; December 2020 and December 2018 in the sum of Kshs. 3,573,898. 50 as principal tax, penalties and interest.b.In relation to Corporation Tax for 2021; 2020 and 2018 in the sum of Kshs. 14,769,162. 46 as principal tax, penalties and interest.

21. The Tribunal noted from the Objection Decision that the basis of the assessment was variances between the Income Tax and VAT for the period under review. Additionally, the assessment was based on undeclared sales.

22. The Appellant in its pleadings provided the following documents to the Tribunal for its perusal and consideration;a.Copy of order issued in Misc. Appl. No. 17 of 2023 dated 27th February 2023;b.Copy of the Respondent’s Objection Decision dated 7th November 2022; and,c.Copy of payment slip towards Tribunal filing fees.

23. The Appellant submitted that the company was incorporated in 2016 and transferred from the initial shareholder/director to two other and shareholders/directors in 2018.

24. It was the Appellant’s further submission that the assessment was estimated and excessive and not in accordance with the company audited accounts, returns and invoices for the period of review.

25. Of interest was that the Appellant, in its grounds of Objection to the assessment raised the issue that it had not carried out any trade during the period between its incorporation in 2016 and resignation/transfer of shares in the company in 2018, in the Tribunal’s view the Appellant contradicts itself.

26. Whereas the position as to the resignation of Bilal Aslam Mohamed Mosani and the allocation/transfer of shares in the company to Jay Rasikal Gohil and Nasir Balouch has not been disputed, the Tribunal notes that the assessment was issued to the Appellant herein, a limited liability company and not the shareholders/directors to the Appellant in their personal capacity.

27. To the Tribunal’s mind, the Appellant and the shareholders/directors exists as separate entities and are to be treated as such in law, the Appellant has failed to demonstrate to what extent or in what manner the transfer of the shares in the company would affect or demonstrate the incorrectness of the assessment made to it by the Respondent.

28. In tax matters, the onus to demonstrate that the assessment was incorrect or excessive is placed on the taxpayer, in this case the Appellant. The Tribunal is guided by the case of Primarosa Flowers Limited vs. Commissioner of Domestic Taxes [2019] eKLR, in which Makau J. referred to the Australian case of Mulherin vs. Commissioner of Taxation [2013] FCAFC 115 and held as thus;“The onus is on the taxpayer in proving that assessment was excessive by adducing positive evidence which demonstrates the taxable income on which tax ought to be levied”

29. The Tribunal is further guided by the case of PZ Cussons East Africa Limited vs. Kenya Revenue Authority [2013] eKLR in which the trial court held;“it is clearly settled by cases such as Norman v. Golder 26 T.C 293, that the onus is upon the Appellant to show that the assessment made upon him is excessive and incorrect and of course, he has failed to do so”

30. The duty and burden of the Appellant in proving its case in tax matter is rehashed under the provisions of Section 30 of the Tax Appeals Tribunal Act, which provides;“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; or(b)in any other case, that the tax decision should not have been made or should have been made differently.”

31. The Appellant therefore had the duty to demonstrate before this Tribunal that the Respondent’s assessment was incorrect, was excessive and could otherwise, been have made differently.

32. The Tribunal upon careful consideration of the Appellant’s pleadings noted that there was no attempt by the Appellant to demonstrate that the assessment was excessive and incorrect, save the averments of the same in its pleadings.

33. The Tribunal reiterates its position above in the case of TAT Appeal No. 115 of 2017 Digital Box Limited vs. Commissioner of Investigations and Enforcement, in which the Tribunal held;“The Tribunal is of the view that the Appellant did not discharge its burden of proof in showing that the Respondent used extraneous considerations and documents other than those prescribed by the law. The averments made by the Appellant did not amount to evidence.”

34. Therefore, flowing from the aforesaid findings, the Tribunal comes to the inexorable conclusion that the Appellant failed to discharge its burden of proof and that the Respondent’s assessment confirmed in its Objection Decision dated 7th November 2022 was justified.

35. The upshot of the foregoing is that the Appellant’s Appeal hereby fails.

Final Determination 36. The Appellant’s Appeal being unmerited, the Tribunal makes the following orders;a.The Appeal be and is hereby dismissed.b.The Respondent’s Objection Decision dated 7th November 2022 be and is hereby upheld.c.Each party to bear their own costs.

37. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 28TH DAY OF JUNE 2024ROBERT M. MUTUMACHAIRPERSONMUTISO MAKAU ELISHA N. NJERUMEMBER MEMBERBERNADETTE M. GITARI ABDULLAHI DIRIYEMEMBER MEMBER