[2025] KETAT 66 (KLR)

Unicom Limited v Commissioner of Intelligence, Strategic Operations, Investigations & Enforcement (Tax Appeal E013 of 2024) [2025] KETAT 66 (KLR) (24 January 2025) (Judgment)

Neutral citation: [2025] KETAT 66 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E013 of 2024

RO Oluoch, Chair, AK Kiprotich, Cynthia B. Mayaka & G Ogaga, Members

January 24, 2025

Between

Unicom Limited

Appellant

and

Commissioner Of Intelligence, Strategic Operations, Investigations & Enforcement

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated under the Companies Act. Its principal activity is in general wholesale trade.

2. The Respondent is an agent of the Kenya Revenue Authority, appointed under Section 13 of the KRA Act, and the Authority is charged with the responsibility of assessing, collecting, accounting and the general administration of tax revenue on behalf of the Government of Kenya.

3. The Respondent carried out investigations into the tax affairs of the Appellant and subsequently issued a letter of findings through a letter dated 2nd December 2022. The Appellant replied on 15th December 2022.

4. The Respondent replied to the Appellant’s letter of 15th December 2022 vide a letter dated 27th January 2023 wherein it invited the Appellant for a meeting.

5. Following various engagements between the parties, the Respondent issued its notice of assessment vide a letter dated 9th October 2023. The Appellant objected to the assessments vide a letter dated 8th November, 2023.

6. Through a letter dated 8th November 2023, the Respondent informed the Appellant that its objection was invalid and further requested the Appellant to provide supporting documents within 7 days.

7. Through an email dated 20th November 2023, the Respondent further offered the Appellant additional seven days to submit supporting documents.

8. The Appellant replied to the email on the same date referring to its response of 8th November 2023. The Respondent replied to this email on 21st November 2023.

9. The Respondent subsequently confirmed the assessments through a letter dated 30th November 2023.

10. Dissatisfied with the Respondent’s decision of 30th November 2023 the Appellant filed a Notice of Appeal dated 20th December 2023.

The Appeal 11. The Appeal is based on the following grounds of appeal as captured in the Amended Memorandum of Appeal dated 14th March, 2024 and filed on the same date:-i.The Respondent's decision is legally and factually incorrect for holding that the Appellant did not provide supporting documents.ii.The Respondent erred in law and in fact in holding that the Appellant had not provided sufficient supporting documents in support of its objection.iii.The Respondent’s decision is illegal null and void for breaching the clear provisions of the Tax Procedures Act and the Value Added Tax Act.iv.The Respondent’s decision violated the Appellant's legitimate expectation of proper and fair administration of tax law by the Respondents to the detriment of the Appellant.v.The Respondent has continuously violated the Appellant's right to fair administrative action.vi.The Respondent erred in using banking statements analysis as the basis of determining turnover.as it disregards various business practices as well as being prone to error.vii.The Respondent erred in law and in fact in taking into consideration that some of the transactions are inter and intra bank transfers as well as loans from business partners and non-taxable transactions.viii.The Respondents failed to consider the fact that the Respondent's itax system did not allow for filing of income tax returns with negative sales arising from returned goods.ix.The Respondent erred in law and in fact in dismissing the Appellant's VAT input claims which were lawful and valid inspite of the Appellant availing invoices and Electronic Tax Receipts issued by its suppliers.x.The Respondent erred in law and in fact in assessing Director's income yet the Appellant provided P9 forms for the directors.xi.The Respondent never considered the Appellant's Objection at all.

The Appellant’s Case 12. The Appellant’s case is premised on the hereunder documents filed before the Tribunal:i.The Appellant’s Statement of Facts dated 3rd January, 2024 and filed on 5th March, 2024;ii.The Supplementary Statement of Facts dated and filed on 14th March, 2024 together with the documents attached thereto; andiii.The Appellant’s written submissions dated and filed on 25th September 2024.

13. The Appellant stated that on or about 9th October 2023, the Respondent notified it that it had carried out tax investigations on the Appellant resulting in a tax liability of Kshs. 129,491,983. 00.

14. That the Appellant objected to the said assessment vide an objection dated 8th November 2023.

15. That the Respondent wrote to the Appellant on 30th November 2023 alleging that the Appellant had not provided sufficient documentation for purposes of the review.

16. The Appellant stated that it filed a Notice of Appeal dated 20th December 2023 against the said decision. That contrary to the Respondent's assertion that the Appellant's objection was not valid, the Appellant had supplied the Respondent with sufficient documentation to prove its claim.

17. The Appellant contended that the Respondent's aforesaid objection decision was illegal, unconscionable, oppressive and therefore null and void for the following reasons:-a.The Respondent's decision is legally and factually incorrect for holding that the Appellant did not provide supporting documents.b.The Respondent erred in law and in fact in holding that the Appellant had not provided sufficient supporting documents in support of its objection.c.The Respondent’s decision is illegal, null and void for breaching the clear provisions of the Tax Procedures Act and the Value Added Tax.d.The Respondents decision violated the Appellant's legitimate expectation of proper and fair administration of tax law by the Respondent to the detriment of the Appellant.e.The Respondent continuously violated the Appellant's right to fair administrative action.

Appellants Prayers 18. The Appellant prayed that the Tribunal;a.Allows the Appeal in its entirety.b.Sets aside the Respondents' decision dated 30th November 2023 and the subsequent tax demand for Kshs. 129,491,983. 00. c.Awards costs of the Appeal to the Appellant.

The Respondent’s Case 19. The Respondent’s case is premised on the hereunder documents filed before the Tribunal:i.The Respondent’s Statement of Facts dated and filed 5th February 2024 together with the documents attached thereto.ii.The Respondent’s written submissions dated 8th August 2024 and filed on 9th August 2024.

20. The Respondent stated that it carried out investigations into the business of the Appellant for the period year 2016-2021 with a view of confirming its tax compliance under Income tax obligations, Withholding VAT and Income with a view to confirm if Income declared under Section 3(2) and part IV of the Income tax Act and VAT Act.

21. That the information from the Itax data base on non-filers showed that the Appellant had received income and made sales leading to an under declaration of sales turnover with some expenses attracting withholding taxes and a preliminary finding report shared vide letter dated 2nd December, 2022 as tabulated below;Year 2016/2017 2017/2018 2018/2019 2019/2020 2020/2021 Total

Corporation Tax - - 11,545,532 39,212,698 - 50,758,230

VAT 3,532,929 23,634. 01 6,219,370 21,018,280 26,658,115 57,452,328

Income taxdirector 2,975,898 2,967,889 2,967,886 2,575,478 - 11,487,151

Total 6,508,827 2,991,523 20,732,788 62,806,455 26,658,115 119,697,709

22. That further to the investigations, it was established that the Appellant had in year 2016-2021 omitted to declare income paid to one of its directors namely Grishmakunari Indubhai Patel who had received monthly gross salary of ksh.848,892. 00 for years 2016-2020 which was brought to charge since they failed to provide directors' P9 form on the income earned and all other supporting documents to proof the same had been paid from Equip agencies limited and the same was brought to charge as shown below;Year 2017 2018 2019 2020 Total

EstimatedIncome 10,186,704 10,186,704 10,186,704 10,186,70 40,746,816

Tax Due (Graduated) 2,991,258 2,984,782 2,984,782 2,601,302 11,562,124

Personal Relief 15,360 16,896 16,896 25,824 74,986

Tax Payable 2,975,898 2,967,889 2,967,889 2,575,478 11,487,151

23. It added that further to the review, it was established that the Appellant's VAT3 returns revealed that the Appellant filed nil returns for the period 2016-2020 and the purchases claimed were non-existent. That however the Respondent noted that there was a double count on some purchase invoices from suppliers like Bhavesham Traders, Commellx General suppliers, Klain Hardware and Smartex Holdings. That the same was adjusted as below;Suppliers name Purchases claimed by Unicom Limited

Bhavesham Traders 26,539,500

Comellx General Supplies 25,512,500

Klain Hardware 18,000,000

Smartex Holding 15,350,400

Mane International 10,000,000

Total 95,402,400

24. The Respondent submitted that during the said review, it was discovered that there were inconsistencies between the returns filed by the Appellant's suppliers and invoices claimed by the company for the period years 2016-2020.

25. That further to that, the Appellant was informed on the inconsistency of the VAT3 returns invoices for the Appellant to resolve the same. That however, the Appellant failed to resolve the said inconsistencies within the stipulated timeframe. That hence expected income established was compared to turnover as declared by the Appellant in the VAT returns and the variance was charged at 16% as shown below;Year 2016/2017 2018/2018 2018/2019 2019/2020 212020/20 Total

ExpectedIncome 24,183,510 106,787,179 50,536,811 149,418,559 590,166,366 921,091,425

VAT3Returns 2,102,703 106,639,466 11,665,750 18,054,311 580,556,06 719,018,290

Underdeclared Income 22,010,807 147,713 38,871,061 131,364,249 9,610,306 202,074,135

FictitiousInvoices - - - - 95,402,400 95,402,400

Total 22,080,807 147,713 38,871,061 131,364,249 105,012,706 297,476,535

Tax@16% & 14% 3,532,929 23,634 6,219,370 21,018,280 14,701,779 45,495,992

26. That moreover, a further analysis of the Appellant declared income in comparison to the financial statements established that the Appellant failed to declare income for the period 2016-2020 despite accruing income from supplies of goods resulting in an under declarations tabulated below;Year 2018/2019 2019/2020 2020/2021 Total

Profit/Loss Declared - 631,066 - 631 066

Under declared 38,485,106 131,340,058 0 169,825,164

Add Back: F. Purchases - - 95,402,400 95,402,200

AdjustedTaxable Income 38,485,106 130,708,992 95,402,400 264,596,498

Tax@30% 11,545,532 39,212,698 28,620,720 79,378,949

Taxes Paid/Withheld 84,000 42,000 208,660 334,660

Tax Due 11,461,532 39,170,698 28,412,060 79,044,289

27. That further to this, the Appellant vide a letter dated 15th December, 2022 raised concerns on the letter of findings dated 2nd December, 2022 stating that the Respondent failed to consider intra banks transactions, negative sales and expenses incurred by the Appellant. That the Respondent thereby addressed the said issue vide a letter dated 27th January 2023.

28. That as a result, the Respondent based on the existing inconsistencies and under declaration on income raised additional assessments on 9th October,2023 for VAT and Income tax for the period 2016-2021 totaling to Kshs. 129,491,983. 00 excluding penalties and interest, respectively.

29. The Respondent stated that the Appellant lodged an objection on 8th November, 2023 on Itax and vide a letter which was duly acknowledged by the Respondent stating that the Respondent failed to take into account some banking transactions and documents provided by the Appellant among other queries

30. The Respondent added that on 8th November 2023, it informed the Appellant that the objection was invalidly lodged as per Section 51(3)(c) of the Tax Procedures Act and advised the Appellant to submit documents in support of its objection.

31. That in light of these, the Respondent issued a demand for documents vide email in line with objection lodged through email for; audited financial statements, payroll schedule, proof of expenses incurred and certified bank statements.

32. The Respondent stated that the Appellant however failed to provide the relevant supporting documents of records and bank statements for the period 2016-2021 in support and validation of its objection. It averred that the Appellant's Corporation tax and Income tax was estimated, as this was the only reasonable basis of assessing the VAT and Income tax.

33. That the Appellant filed its Notice of Appeal on 20th December, 2023 against the decision of the Commissioner confirming the assessment of Kshs. 129,491,983. 00.

34. In response to the Appellant’s grounds of Appeal the Respondent averred that the assessments were correctly issued and conform to the Income Tax Act. 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 to a different objection decision.

35. The Respondent stated that examination of the Appellant's records, audited accounts and Income tax returns established that the Appellant failed to declare business income and all its incomes for years of income 2015-2020, respectfully. 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.

36. The Respondent asserted that the Appellant lodged the objection on Itax and the same was received and acknowledged. That however, the same was treated as invalidly lodged as it did not have grounds of objection. It submitted that Section 51 of the Tax Procedures Act empowers the Respondent to notify a party where an objection as lodged is invalid and the Appellant was notified and requested to provide documents. That however, the Appellant failed to provide documents as requested.

37. The Respondent further 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 assessment was based on the information provided.

38. The Respondent submitted that the taxpayer despite declaring some income knowingly continued to under declare income for the period under review contrary to the provisions of the Income Tax Act. The Respondent averred that according to Section 54A(1) of the Income Tax Act it is the responsibility of any person carrying on business to maintain records of all transactions.

39. The Respondent averred that it 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.

40. The Respondent insisted that the Appellant filed all necessary returns and paid what it had assessed themselves to be payable. The Respondent averred that the Appellant was uncooperative in the provision of relevant records and failed to respond to request for documents hence no relevant documents or records were provided to support its objection. That as a result, the assessments were made based on the only available information based on the best judgement by the Respondent. That Section 59(1) of the Tax Procedure Act empowers the Respondent or require production of such documents vide issuance of notice as deemed necessary in determination of tax liability.

41. The Respondent submitted that the Appellant did not file income tax returns for the accounting period 2016-2021 in contravention of the requirements of Sections 94 and 95 of the Tax Procedures Act and that the estimated assessment were correct.

42. The Respondent further submitted that the tax assessments were correct and the same were based on the best judgement where the Appellant's audited accounts and records were analysed and adjustments made for, income declared at source. Hence, they were brought to charge.

43. The Respondent averred that examination of the Appellant's records established that the Appellant earned income from supply of services in the period under audit. That however, these incomes were not declared for tax purposes for the year earned. The Respondent asserted that the Appellant carried on business in contravention of Sections 42, 43 and 93 of the Tax Procedure Act which requires such documents to be maintained and for purposes of taxation.

44. The Respondent reiterated that the Appellant failed to provide signed financial statements and books of account to support its allegations. That Section 24 of the Tax Procedure Act empowers the Respondent to carry out assessment based on the information available. The Respondent averred that the assessment was issue based on information provided.

45. The Respondent denied that the Appellant had paid all its tax due and reiterated that because of its under-declaration, the Appellant was in debt of Kshs.129,491,983. 00.

Respondent’s Prayers 46. The Respondent prayed that the Tribunal considers the case and finds:a.That the Respondent's objection decision be upheld.b.The outstanding tax arrears of Kshs. 129,491,983. 00 were due and payable by the Appellant.c.The confirmed assessments dated 9th October,2023 were proper in law.d.That the Appeal herein be dismissed with cost to the Respondent.

Issue For Determination 47. The Tribunal upon due consideration of the pleadings, documents and the written submissions filed on the part of both parties was of the view that the only issue that crystalizes for its determination is as follows: -Whether the Respondent was justified in invalidating the Appellant’s objection and subsequently confirming the assessments.

Analysis And Determination 48. The Tribunal having ascertained the sole issue that falls for its determination shall proceed to make an analysis on the issue as hereinafter.

49. Before delving into the issue in this dispute, the Tribunal established the chronology of key events in this case to be as follows;i.The Respondent carried out investigations into the tax affairs of the Appellant and issued a letter of findings through a letter dated 2nd December 2022. ii.The Appellant replied on 15th December 2022. iii.The Respondent replied to the Appellant’s letter of 15th December 2022 vide a letter dated 27th January 2023 wherein it invited the Appellant for a meeting.iv.Following various engagements between the parties, the Respondent issued its notice of assessment vide a letter dated 9th October 2023. v.The Appellant Objected to the assessments vide a letter dated 8th November, 2023. vi.Through a letter dated 8th November 2023, the Respondent informed the Appellant that its objection was invalid. In the letter the Respondent asked the Appellant to provide supporting documents within 7 days.vii.Through an email dated 20th November 2023, the Respondent reminded the Appellant that the seven days for submission of documents had lapsed and further offered the Appellant additional seven days to submit supporting documents.viii.The Appellant replied to the email on the same date referring to its response of 8th November 2023. ix.The Respondent replied to the Appellant’s email on 21st November 2023 informing the Appellant that the email was not accompanied by supporting documents.x.The Respondent subsequently confirmed the assessments through a letter dated 30th November 2023. xi.Thereafter the Appellant filed a Notice of Appeal dated 20th December 2023 challenging the Respondent’s decision of 30th November 2023.

50. The Respondent in its Confirmation of assessment decision dated 30th November 2023 informed the Appellant that its objection had been invalidated for failure to comply with the provisions of Section 51(3)(b) and (c), inter alia, stating in part as follows: -“… 2. 0.Objection Review

2. 1.The Commissioner reviewed your aforementioned objection together with the grounds as outlined in your objection letter dated 8th November 2023 and noted that you failed to comply to Section 51(3)(b) and (c) of the Tax Procedures Act which states that;…

2. 3The Commissioner notified you of your objection vide his letter dated 8th November 2023 and granted you with 7 days to provide the supporting documents. The Commissioner further via an email dated 20th November 2023 granted you an additional 7 days to comply with the provisions of Section 51(3)(c) of the Tax Procedures Act, 2015…

2. 5The Commissioner notes that you have failed to validate your objection as provided under Section 51(3) of the Tax Procedures Act.

3. 0The Decision

3. 1In this regard, and in the absence of a valid objection, the Commissioner hereby fully rejects your objection and proceeds to confirm the assessments as per your Notice of Assessment.… ”

51. It is manifestly clear on the face of the Respondent’s decision that the rejection of the objection lodged by the Appellant against the tax assessment was informed by the Appellant’s failure to provide documents to explain the variances between the bank deposits and the sources of income established by the Respondent during the assessment process.

52. Section 51 (3) of the Tax Procedures Act provides the legal threshold of what constitutes a validly lodged notice of objection. The Section reads as follows:-“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; andb.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, or has applied for an extension of time to pay tax not in dispute under Section 33(1).c.all the relevant documents relating to the objection have been submitted.” (emphasis added).

53. The Commissioner upon receipt of a notice of objection that he considers not to have been validly lodged is required by law to notify the taxpayer of such fact within 14 days to allow the taxpayer have an opportunity to lodge a valid objection in time for the Respondent’s due consideration of the objection on its proper merits. This is well immortalised under Section 51(4) of the Tax Procedures Act which provides as follows: -“Where the Commissioner has determined that a notice of objection lodged by a taxpayer has not been validly lodged, the Commissioner shall within a period of fourteen days notify the taxpayer in writing that the objection has not been validly lodged.” (Emphasis added)

54. The Tribunal notes that the Respondent in discharge of its statutory obligation with regard to handling of any notices of objection it considers invalidly lodged, notified the Appellant of the invalidity of the objection notice on 8th November 2023, upon receipt of the notice of objection dated the same day. The Respondent further in the same letter requested the Appellant to provide documents in support of the notice of objection within seven days.

55. Subsequent to the above correspondence, the Tribunal notes that the Respondent further through an email dated 20th November 2023 informed the Appellant that it had not validated its objection and additionally offered seven more days for the Appellant to provide supporting documents.

56. As evidenced by the correspondences enumerated above, the Respondent gave the Appellant extension of time stretching from 8th November 2023 to 27th November, 2023, to produce documents to support its objection but the Appellant failed to do so leading to the confirmation of the assessment on 30th November 2023.

57. Although the Appellant in its pleadings had averred that it had supplied the Respondent with sufficient documentation to prove its claim, nothing was placed before the Tribunal by the Appellant to support this assertion. The Tribunal was of the view that the Appellant failed to meet the obligation placed on it under Section 51(3) of the TPA to validate its objection by providing supporting documents.

58. Additionally, the Tribunal wish to rely on Section 56(1) of the Tax Procedures Act which places the burden of proof upon a taxpayer to discredit any tax assessment. The Section reads as follows: -“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

59. The Tribunal further reiterates its decision in TAT E171 of 2024 Deira Commodities VS Commissioner Investigations and Enforcements where it held at paragraph 61 as follows; 1“Accordingly, the Appellant’s failure to validate its objection meant that the said notice of objection remained invalid. The Respondent’s assessments which often assume a presumption of correctness unless proved otherwise by the Appellant stood proved. The Respondent did not therefore fall into error when it confirmed the Appellant’s assessments.”

60. Consequently, and with due consideration to the fact that the Respondent had on several occasions allowed extension of time for the Appellant to provide its supporting documents, the Tribunal finds that the Respondent was justified in invalidating the Appellant’s objection and subsequently confirming the assessments.

Final Decision 61. Based on the foregoing analysis the Tribunal determines that the Appeal lacks merit and the Orders that accordingly recommend themselves are as follows: -i.The Appeal be and is hereby dismissed.ii.The Respondent’s Confirmed assessments dated 30th November 2023 be and is hereby upheld.iii.Each party to bear its own costs.

62. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 24TH DAY OF JANUARY, 2025. RODNEY O. OLUOCH - CHAIRPERSONABRAHAM K. KIPROTICH- MEMBERCYNTHIA B. MAYAKA - MEMBERGLORIA A. OGAGA - MEMBER