[2025] KETAT 71 (KLR)

Ur Home International (Kenya) Limited v Commissioner of Domestic Taxes (Tribunal Appeal E350 of 2024) [2025] KETAT 71 (KLR) (31 January 2025) (Judgment)

Neutral citation: [2025] KETAT 71 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal E350 of 2024

RO Oluoch, Chair, G Ogaga & AK Kiprotich, Members

January 31, 2025

Between

Ur Home International (Kenya) Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a private limited liability company incorporated in Kenya whose principal activity is manufacture and sale of baby diapers.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 Laws of Kenya (KRA Act). Under Section 5 (1) of the Act, KRA is an agency of the Government for the collection and receipt of all revenue. For the performance of its function under Subsection (1), the Authority is mandated under Section 5(2) of the Act to administer and enforce all provisions of the written laws as set out in Parts I and II of the First Schedule to the KRA Act to assess, collect, and account for all revenues under those laws.

3. The Respondent stated that it conducted a returns review and issued to the Appellant assessments in the notice of assessment dated 7th December 2023. The taxes assessed were Corporation tax, Value Added Tax (VAT), Pay As You Earn (PAYE) and Withholding tax (WHT) for the period 2018 to 2023.

4. The Appellant objected to the additional assessments and the Respondent issued an Objection decision dated 16th February 2024 partially allowing the Appellant’s Objection.

5. The Appellant, being dissatisfied with the Respondent’s Objection decision, lodged its Notice of Appeal dated and filed on 14th March 2024.

The Appeal 6. The Appeal is premised on the Memorandum of Appeal dated 14th March 2024 and filed on 27th March 2024 which raised the following grounds: -a.That the Respondent erred in law and in fact by bringing to charge all lumped sales as undeclared sales revenue and charging VAT and Corporation tax.b.That the Respondent erred in law and in fact by also failing to acknowledge additional evidence and explanations provided by the Appellant in the form of additional invoices and reconciliations.c.That the Respondent also erred in law and in fact by failing to acknowledge VAT and Corporation tax payments that had already been made in regard to the declared invoices.d.That the Respondent gravely erred in law and in fact by wrongly stating that Appellant underdeclared the 2022 sales figures as per the VAT returns. That the Respondent averred that the Appellant declared only Kshs. 395,670,644 yet in the Appellant’s VAT return, the amount declared was Kshs. 915,471,391. e.That the Respondent erred in law and fact by computing an erroneous variance of Kshs. 83,168,119. 48 on the above underdeclared sales.f.That the Respondent erred in law and in fact by ignoring the Appellant’s communication regarding the above matter by bringing to charge the variance and charging VAT of Kshs 83,168,119,48. g.That the Respondent erred in law and in fact by failing to acknowledge a debt owed to an agent.h.That the Respondent erred in law and in fact by failing to acknowledge an accrual in the Appellant’s books of the aforementioned debt.i.That the Respondent erred in law and in fact by failing to acknowledge the principal of accrual accounting which is recognized and applied in the Income Tax Act and practised in the Republic of Kenya.j.That the Respondent erred in law and in fact by failing to recognize an agent despite evidence of an agency agreement and actual transactions on the records showing that the agency relationship existed.k.That the Respondent erred in law and in fact by failing to recognize that the first set of audited accounts covered a time frame of eighteen (18) months which is allowable as per the Income Tax Act.l.That the Respondent proceeded to compute a variance against the annual VAT turnover in 2019 and proceeded to charge the variance to tax despite knowing that the two figures were covering different periods.m.That despite the above facts, the Respondent computed a variance of Kshs. 22,415,793. 00 and proceeded to charge VAT thereon of Kshs. 3,586. 526. 85. n.That the Respondent in 2022 proceeded to declare an erroneous general rated sales figure of Kshs. 395,670,644. 00. That the correct figure should have been 915,471,392. 30. o.That the Respondent further proceeded to compare the erroneous figure against the declared general rated sales of Kshs. 915,471,391. 00. That the Respondent then computed an erroneous variance of Kshs. 519,800,747. 00 and brought to tax a charge of Kshs 83,168,119. 48p.That the Respondent erred in law and in fact by failing to recognize expenditure incurred in the cost of manufacturing.q.That the Respondent erred in law and in fact by failure to recognize manufacturing cost of tissue and washing powder incurred for obsolete stock that was later disposed.r.That the Respondent erred in law and in fact by bringing to charge, expenses incurred wholly and exclusively in manufacturing the above stock and bringing to charge for both Corporation tax and VAT.s.That the Respondent erred in law and in fact by using a much lighter weight in estimating the bills of materials (BOM) used to manufacture the diapers.t.That the Respondent erred in law and in fact by imposing his own weight of 19. 2g for a diaper, contrary to what the Appellant provided evidence of.u.That the Respondent erred in law and in fact because the Respondent has no expertise in the manufacture of diapers and has no business imposing its own BOM on the Appellant.v.That the Respondent erred in law and in fact by disallowing the capital cost incurred in buying machinery for production of washing powder and toilet paper.w.That the Respondent erred in law and in fact by contradicting itself by bringing to charge revenues from washing powder production and toilet paper production yet disallowing the capital cost of production equipment and charging Corporation tax.x.That the Respondent erred in law and in fact by failing to recognize the receipts showing disposal of the production machinery listed above.y.That the Respondent erred in law and in fact by rejecting proof showing purchases of stocks from the Appellant’s suppliers (Hilalium and Sons and Benco Investment) in the amount of Kshs. 387,742,811. 00. z.That the Respondent erred in law and in fact by contradicting itself by accepting the input claimed by the Appellant and disallowing it as a business expense despite all the evidence adduced to the contrary.aa.That the Respondent erred in law and in fact by bringing the amount to charge for both Corporation tax and VAT.ab.That the Respondent erred in law and in fact by arbitrarily charging PAYE for an amount that was not in the payroll.ac.That the Respondent erred in law and in fact by rejecting the accrued salary figure of Kshs. 230,000. 00 per month provided in the payroll and instead, arbitrarily, assigning an amount of Kshs. 1,150,000. 00 per month.ad.That the Respondent erred in law and in fact by refusing to acknowledge the Appellant’s responses regarding its salaries. That the Respondent disregarded the payrolls during the Objection process.ae.That the Respondent erred in law and in fact by bringing the amount to charge under PAYE.

APPELLANT’S CASE 7. The Appellant’s case is premised on the following documents filed before the Tribunal:a.The Appellant’s Statement of Facts filed on 27th March 2024; andb.Its Written Submissions dated and filed on 11th November 2024.

8. The Appellant stated that on 7th December 2023, the Respondent issued assessment orders on iTax.

9. The Appellant further stated that it responded through a letter dated 21st December 2023 and formally objected to the assessment and incremental tax in total.

10. The Appellant asserted that on 16th February 2024 the Respondent issued an Objection decision partially accepting its Objection and confirming Corporation tax of Kshs. 706,217,303. 00 principal tax plus penalty and interest, Value Added Tax (VAT) of Kshs. 562,666,974. 00 principal tax plus penalty and interest and Pay As You Earn (PAYE) of Kshs. 20,379,781. 00 principal tax plus penalty and interest.

11. The Appellant appealed the Respondent’s decision to the Tribunal and addressed the impugned taxes under the tax heads assessed.

Corporation tax Undeclared sales 12. The Appellant stated that the Respondent established undeclared sales of Kshs. 686,871,553. 00, being Kshs. 182,440,467. 00 in 2019, Kshs. 67,685,603. 00 in 2020, Kshs. 6,874,787. 00 in 2021, Kshs. 20,437,984. 00 in 2022 and Kshs. 409,432,712. 00 in 2023.

13. That the Respondent provided a list of several invoices that it claimed were the Appellant’s clients and they are not the Appellant’s clients. The Appellant stated that it would wish the Respondent to note the missing trader invoices and remove them from its assessment. The Appellant further stated that it had provided a list of all these invoices attached and marked as Annex 1.

14. The Appellant argued that the Respondent erred in its decision to uphold the amounts that were originally assessed and that the Respondent failed to consider the additional invoices that were provided.

15. The Appellant averred that out of the invoice breakdown provided by the Respondent, Kshs. 54,245,517. 79 were false invoices (missing trader) while the balance Kshs. 223,193,323. 74 were invoices that it had already declared.

Turnover variances 16. The Appellant stated that in the Objection decision, the Respondent came up with a turnover variance of Kshs. 64,018,227. 00 in 2019 and a variance of Kshs. 293,987. 00 in 2021 following variances established after reconciliation between the audited financial accounts and the sales ledger was done.

17. That the Respondent noted that the Appellant’s agent, Hilalium and Sons Limited was depositing "huge amounts of cash" in the Appellant’s bank account.

18. The Appellant averred that the Respondent acknowledged its explanation that the agent had charged processing fees. That however, the Respondent stipulated that there was no contract agreement provided to support the processing fees charged. That the Respondent further stipulated that there was no evidence of payment of the Kshs. 64,018,227 to the agent.

19. The Appellant admitted that it does indeed have an agency agreement with Hilalium and Sons. It stated that it had attached the copy of the agreement for the Respondent’s perusal.

20. The Appellant submitted that the Act recognizes the accrual concept in accounting and refers to it repeatedly. That the amount owed to the agent had been accrued in the Appellant’s books but had not been settled. The Appellant stated that it has attached excerpts of the ledgers from both itself and the agent to confirm this.

21. That the Appellant has also attached excerpts of the accounts showing that the amounts had been accrued as part of accounts payable in the books of the Appellant.

Input-output analysis 22. The Appellant stated that the Respondent conducted an input-output analysis of production and established variances of sales (in kgs) when compared to production (kgs), then converted the variances to Kshs. amounting to Kshs. 1,978,414,015. 00 then subjected the amounts to Income tax and VAT.

23. That the Respondent stated there was no evidence that 70% of the washing powder was donated or utilised for self-use, and also noted there was no verifiable evidence what the ratio of donation or self-use was.

24. That the Respondent also stated in line 34 of the Objection decision that the bills of materials (BOM) adduced for the manufacture of diapers was not verifiable proof of the weight and quantities of materials needed to produce the different diaper sizes.

25. The Appellant argued that the Respondent erred by failing to realise that the production cost of the obsolete stock had been incurred wholly and exclusively for the production of the same.

26. That the Respondent also erred while computing the weights of the input raw materials used in manufacturing diapers in kgs. That the Respondent used a weight of 19. 2g which is erroneous because the minimum weight in the BOM for a small diaper is 27. 92g, for a medium diaper 34. 47g and a large diaper will weigh 38. 09g.

27. The Appellant further argued that the Respondent erred in law and in fact by imposing its own weight of 19. 2g for a diaper, contrary to what the Appellant provided evidence of.

28. That the Respondent erred in law and in fact because the Respondent has no expertise in the manufacture of diapers and has no business imposing its own BOM on the Appellant.

29. The Appellant stated that for the purposes of this Tribunal and for the avoidance of doubt, it has attached images of different diaper sizes and their weights. That it has also benchmarked with different brands to show the standard weights across different sizes in the industry.

Disallowed capital allowances 30. The Appellant averred that the Respondent only recognised the capital cost of machinery used for manufacture of baby diapers in the amount of Kshs. 401,694,390, and failed to recognise the capital cost of machinery used for production of washing powder and toilet paper in the amount of Kshs. 20,333,598. 00.

31. The Appellant argued that the Respondent erred in law and in fact by failing to recognise the capital cost incurred for the purchase of the machinery used to manufacture toilet paper and washing powder despite there being irrefutable proof of documentary evidence showing the purchase of the machinery and the customs entry documentation.

32. That the Respondent erred in law and in fact by further contradicting itself by bringing to charge revenues generated by sales of washing powder and toilet paper, yet it does not want to acknowledge the manufacture of the same by disallowing the cost of the manufacturing machinery.

33. The Appellant maintained that the Respondent violated the fundamental principle in accounting known as the matching concept by failing to recognise the existence of the production machinery and yet still wanting to recognise revenue generated by the disallowed machinery and charging tax on the same.

34. The Appellant contended that the Respondent further erred in law and in fact by denying it the right to claim the investment deduction for the machinery used to manufacture washing powder and toilet paper yet the Respondent wants to tax the revenue generated in sales of the same.

35. That the Respondent also erred in law and in fact by disregarding the sales invoices provided showing the machinery had been sold despite being provided with invoices.

36. The Appellant stated that for the purposes of this Tribunal, it has attached the sales invoices for the machinery sold to Nigeria, the customs documentation showing entry into Nigeria and all the other shipping documentation of the machinery.

Value Added Tax (VAT) Turnover variances 37. The Appellant stated that the Respondent assessed a principal VAT amount of Kshs. 86,754,646. 33 based on a variance analysis conducted by the Respondent between the sales as per VAT returns and as per audited financial statements which showed that there was a sales variance of Kshs. 22,415,793. 00 in the year 2019 and Kshs. 519,800,747. 00 in the year 2022.

38. The Appellant argued that the Respondent erred gravely by asserting that the turnover declared in 2022 as per VAT returns was Kshs. 395,670,644. 00. That the Appellant’s actual turnover was Kshs. 915,471,391. 00. That the Respondent also erred by computing a variance by comparing this figure versus the general rated sales figure declared in the audited financial statements and bringing to charge the difference of Kshs. 83,168,119. 48.

39. The Appellant maintained that its VAT declarations for 2022 and all its correspondence to the Respondent indicate that its turnover declared as per its VAT returns was Kshs. 915,471,391. 00. That therefore, there was no variance of Kshs. 519,800,747. 00 and the VAT charge of Kshs. 83,168,119. 48 is erroneous.

40. The Appellant asserted that the Respondent erred in assessing the VAT of Kshs. 3,586,526. 85 in 2019. That the Respondent compared the 2019 VAT returns against the 2019 audited financial statements and computed a variance of Kshs. 22,415,793.

41. The Appellant stated that the Respondent failed to realise that the general rated sales as per the audited financial statements covered 18 months, while the VAT returns only covered 12 months. That this is why there was a variance in 2019. That if the Respondent had been diligent enough, it would have realised this discrepancy.

42. The Appellant requested the VAT assessment above of Kshs 86,754,646. 33 to be vacated.

Input verification 43. The Appellant stated that in the assessment, the Respondent requested proof of inputs claimed. That the Respondent requested for invoices, delivery notes and proof of payments for the following suppliers:a.Hilalium & Sons (UR Home) – Kshs. 239,766,756. 00 in 2019 and Kshs. 108,370,474. 00 in 2020. b.Benco Investment – Kshs. 25,560,850. 00 in 2019, Kshs. 10,848,810. 00 in 2020 and Kshs. 3,195,920. 00 on 2021.

44. That in the Objection decision, the Respondent further declared that the Appellant had not provided mapped certified bank statements showing payment for each invoice.

45. The Appellant maintained that the Respondent erred in law and in fact by failing to acknowledge proof provided by the Appellant in the Objection decision yet this was requested in the original assessment. That the proof provided was invoices, delivery notes and copies of cheques.

46. The Appellant argued that the Respondent erred in law and in fact by once again failing to recognise the fundamental accounting principal of matching concept. That there can never be revenue without matching expenses in the same accounting period.

47. The Appellant insisted that the Respondent erred in law and in fact by further contradicting itself by disallowing inputs that had been claimed despite documentary proof being provided. That the Respondent was quick to recognise revenue generated from the stock and bring it to charge yet it does not want to recognise the purchase price of the stocks.

PAYE 48. The Appellant stated that it has provided Mr. Smith’s contract of employment showing his monthly salary and benefits.

49. That Mr. Smith is its employee and earns Kshs 230,000. 00 per month. That this is contrary to the Respondent’s claim.

Appellant’s prayers 50. The Appellant prayed for the following orders:a.The Respondent’s Objection decision dated 16th February 2024 and its assessment dated 7th December 2023 be struck out in its entirety.b.The Respondent, its employees, agents or other persons purporting to act on its behalf be barred and/or estopped from demanding or taking further steps towards enforcement or recovery of principal tax, penalties and interest on the Respondent's demand as stipulated above.c.The costs of the Appeal.d.Any other remedies that the Honourable Tribunal deems just and reasonable.

Respondent’s Case 51. The Respondent’s case is premised on the following documents:a.The Respondent’s Statement of Facts dated and filed on 18th June 2024; andb.Its Written Submissions dated 4th November 2024 and filed on 6th November 2024.

52. The Respondent stated that conducted a return review of the Appellant’s returns, identified variances and proceeded to issue tax assessments on Corporation tax, Value Added Tax (VAT), Pay As You Earn (PAYE) and Withholding tax (WHT).

53. That the Appellant objected to the assessments vide an undated notice of objection where it challenged all the assessments apart from PAYE where it admitted to not paying PAYE for Mr. Smith.

54. The Respondent stated that upon receipt of the Objection, it reviewed it and issued the Objection decision dated 16th February 2024 upholding the assessments with adjustments being made on Corporation tax. That the assessment on Withholding tax WHT was vacated since the Appellant had shown evidence of payment of the taxes due.

55. That the Appellant, aggrieved by the Objection decision, appealed to the Tribunal vide the Notice of Appeal dated 15th March 2024.

56. In response to ground one of the Appeal, the Respondent stated that the Appellant failed to provide a detailed breakdown of the lumped sales showing the name of the person who bought the goods, the invoice amount, date of invoice and description of the items sold. That these details would have enabled the Respondent to identify the lumped sales from the purchases claimed from a PIN as per the tax decision.

57. The Respondent further stated that during the Objection stage, the Appellant stated that its customers did not provide their KRA PIN hence the lumped sales. That the Appellant attached documents to its Objection letter, which were reviewed, and the Respondent summarised per pages 2-7 and an Excel summarising the same per page 7 of the Objection decision.

58. The Respondent averred that even if it were to accept the lumped sales on a without prejudice basis, the lumped-up sales for the period under review, that is 2019-2022, was Kshs. 108,279,601. 00, which is less that the total of undeclared sales per table one of the Objection decision for the same period, that is, Kshs. 277,438,842. 00. That the Respondent consequently charged the difference to tax amounting to Kshs. 50,747,772. 00 based on the available information.

59. The Respondent stated that a review of the Appellant’s bank statements established that its customers had actually paid it as evidenced by cash deposits, RTGS and cheque payments.

60. The Respondent submitted that the Appellant bears the burden of proof to controvert the Respondent’s action of charging VAT and Corporation tax on the lumped-up sales.

61. In response to ground 2 of the Appeal, the Respondent stated that the Appellant did not specifically point out which additional invoices and reconciliation were provided and not considered. That the Respondent considered the Appellant’s Objection and all supporting documents it provided. That the Objection decision clearly shows the Respondent responded to the various averments raised by the Appellant.

62. In response to ground 3 of the Appeal the Respondent stated that the Appellant has not specifically stated the taxes that were paid but not credited in the tax decision or Objection decision. The Respondent reiterated that it considered the grounds and documents that the Appellant presented during the Objection stage.

63. In response to grounds 4, 5, 6, 14 and 15 of the Appeal, the Respondent stated that the Appellant seems to have misinterpreted the tax decision as it is clear that the sales declared in the VAT for 2022 are Kshs. 915,471,392. 00.

64. The Respondent further stated that the Objection decision did not confirm the tax assessment, therefore, the assessment for Kshs. 83,168. 119. 48 was dropped and the error is highly regretted.

65. In response to grounds 7 and 8 of the Appeal, the Appellant failed to prove the existence of debt. That further, the debt would not have affected any variance reconciliation as a debt owned by an agent does not form part of the sales ledger. That the basis of assessment was never disallowance of a debt but undeclared sales and therefore an agent debt cannot be a sale.

66. In response to ground 9 of the Appeal, the Respondent stated that the Appellant failed to demonstrate how this was not considered by the Respondent both in the Appellant’s notice of objection and this Appeal.

67. In response to ground 10 of the Appeal, the Respondent stated that the Appellant failed to provide evidence to demonstrate the agency relations. That the company being referred to, that is, Hilalium & Sons, is considered to have an agency relationship with the Appellant and no contract was provided to the Respondent.

68. In response to grounds 11, 12 and 13 of the Appeal, the Respondent stated that the aggregate VAT turnover is for the periods 2018 and 2019 as clearly shown in the notice of tax assessment and not per the Appellant’s averments. That the Appellant has not provided arguments to prove its averments.

69. The Respondent further averred that for the year 2019, the Appellant failed to demonstrate why the sales turnover as per accounts was Kshs. 571,852,870. 00 while the VAT turnover was Kshs. 549,437,077. 00, after deducting the zero-rated sales. That the Respondent, therefore partially amended the assessments for VAT as declared in the sales ledger.

70. In response to grounds 16, 17 and 18 of the Appeal, the Respondent stated that the basis of the assessment was not disallowance of manufacturing cost. That the Appellant had claimed the cost without showing the corresponding sales and had failed to provide documents to demonstrate how the goods were disposed of. That moreover, the Respondent did not add a margin but only used the cost element.

71. The Respondent stated in the absence of evidence of sale, then the cost ought to have been disallowed per Section 15(1) of the Income Tax Act as the same was not incurred in furtherance of trade.

72. In response to grounds 19, 20 and 21 of the Appeal, the Respondent stated that the cost was extracted from the Appellant’s ledger and the same was matched per customs data and thus the cost was not less than what had been claimed by the Appellant.

73. The Respondent stated that it did not disallow the costs for diapers and the averment that a weight of 19. 2 grams was used is incorrect and the Appellant has not demonstrated the same in its pleadings.

74. In response to grounds 22, 23 and 24 of the Appeal, the Respondent stated that the Appellant failed to provide export documentation to show that the machinery was exported from Kenya. That the documents that should have proved this were: a sales invoice, proof of receipt of money from a Nigerian customer, export entry and other relevant documents to prove that the sale took place. That due to the lack of these, the Respondent confirmed the assessment.

75. The Respondent stated that the Appellant had enjoyed an investment deduction, hence on disposal of the production line the verified selling price should have been treated per Paragraph 2 of the Second Schedule to the Income Tax Act.

76. The Respondent further stated that the failure of the Appellant to show how the production line was disposed of confirmed the Respondent’s assessments.

77. In response to grounds 25, 26 and 27 of the Appeal, the Respondent stated that the Appellant only provided invoices and delivery notes for the two companies, that is, Benco Investment and Hilalium and Sons (UR Home). That the Appellant failed to provide evidence of payment accompanied by bank statements showing payment of each invoice.

78. The Respondent noted that although the Appellant stated that it was a sales agent, it did not provide any documentation to prove that it was provided with stock. The Respondent stated that since the Appellant failed to prove the costs incurred, the Respondent confirmed the taxes assessed.

79. In response to grounds 28, 29, 30 and 31 of the Appeal, the Respondent stated that it determined that Mr. Smith was in employment from 2019 and not from 2023. That moreover, although the Appellant averred that Mr. Smith was paid Kshs. 230,000. 00 per month (which the Respondent stated that it disputes), there was no evidence at Objection stage of how and when the payments were made, that is, a salary payment schedule and PAYE payments.

80. The Respondent stated that its Objection decision was justifiable and reasonable from the facts as stated and the law as it provides.

Respondent’s prayers 81. The Respondent prayed that the Tribunal: -a.Dismisses the Appeal.b.Upholds the Respondent’s Objection decision dated 16th February 2024. c.Awards the Respondent the costs of the Appeal.

Issues For Determination 82. By consent of the parties, as documented in the Partial Consent entered by the parties dated 17th October 2024, filed on 18th October 2024 and adopted as a Part Judgment of the Tribunal on 23rd October 2024, the Respondent reviewed the PAYE assessment from Kshs. 20,379,781. 00 to Kshs. 726,570. 00 comprising principal tax of Kshs. 621,000. 00, penalty of Kshs. 31,050. 00 and interest of Kshs. 74,520. 00 under term 1 of the Partial Consent. PAYE will therefore not be part of the issues for determination by the Tribunal.

83. The Tribunal has considered the facts of the matter and the submissions made by the parties, and considers the issues for determination as follows:a.Whether the Respondent was justified in issuing Corporation tax assessments for the years 2019, 2020, 2021 and 2022. b.Whether the Respondent was justified in issuing Value Added Tax (VAT) assessments for the periods 2019, 2020, 2021, 2022 and 2023.

Analysis And Findings 84. The Tribunal analysed the issues that call for its determination as hereunder, having reviewed all the pleadings, information and documents adduced by the Appellant and the Respondent concerning the impugned Objection decision.

a. Whether the Respondent was justified in issuing Corporation tax assessments for the years 2019, 2020, 2021 and 2022. 85. The Respondent determined additional taxable income for the years 2019, 2020, 2021 and 2022 from unsupported purchases, undeclared sales invoices (purchases claimed from PIN), input-output analysis (undeclared manufactured goods) and disallowed capital allowance.

86. By consent of the parties, as documented in the Partial Consent entered by the parties dated 17th October 2024, filed on 18th October 2024 and adopted as a Judgment of the Tribunal on 23rd October 2024:a.The Respondent vacated the Corporation tax assessments relating to undeclared invoices and turnover variances apart from Kshs. 54,245,518. 00 and Kshs. 395,765,544. 77 worth of invoices which matter has been referred back to the Tribunal for determination under Term 2 of the Partial Consent.b.The parties referred back the whole assessment of input-output analysis to the Tribunal for determination after adjustment for price per kg of washing powder under Term 3 of the Partial Consent.

87. The Tribunal will proceed to analyse and determine the following issues under Corporation tax which were not settled during the Alternative Dispute Resolution process:a.Unsupported purchases.b.Undeclared sales invoices (purchases claimed from PIN) of Kshs. 54,245,518. 00 in the years 2019, 2020 and 2021 and Kshs. 395,765,544. 77 in the year 2023. c.Input-output analysis (undeclared manufactured goods) after adjustment for price per kg of washing powder.d.Disallowed capital allowances.

Unsupported purchases 88. The Respondent assessed tax on unsupported stocks of Kshs. 387,742,811. 00 from Benco Investments and Hilalium & Sons for the years 2019 to 2021. The Respondent stated that it requested for invoices, delivery notes and proof of payments for the mentioned suppliers.

89. The Respondent stated in its Objection decision that the Appellant only provided invoices and delivery notes for the two suppliers, but failed to attach any evidence of payment accompanied with mapped certified bank statements showing when the invoices were paid for. The Respondent added that due to lack of adequate supporting documentation that could be verified, and that for avoidance of doubt, an image of a cheque is not verifiable evidence of payment, it was unable to determine if the costs had been incurred in furtherance of business.

90. The Appellant maintained that the Respondent erred in law and in fact by failing to acknowledge proof provided by the Appellant in the Objection decision yet this was requested in the original assessment. That the proof provided was invoices, delivery notes and copies of cheques.

91. The Tribunal reviewed the information and documents adduced by the Appellant and determined that it provided to the Respondent at the Objection stage and to the Tribunal in its Appeal, copies of invoices, tax invoices, delivery notes and copies of account payee cheques to prove that it had purchased goods from Hilalium & Sons (UR HOME) Limited and Benco Investment Limited in the years assessed by the Respondent.

92. The Appellant’s onus under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act, was to prove that the Respondent’s assessment is incorrect or excessive with substantive grounds and competent evidence.

93. Section 54A(1) of the Income Tax Act enumerates the relevant documents which the Tribunal believes are in the possession of the Appellant which could have buttressed its various arguments against the Respondent’s assessment. The Section provides as follows: -“A person carrying on a business shall keep records of all receipts and expenses, goods purchased and sold and accounts, books, deeds, contracts and vouchers which in the opinion of the Commissioner, are adequate for the purpose of computing tax.”

94. The Tribunal finds that the Respondent’s averment that the copies of cheques that the Appellant provided it as proof of payment are not verifiable evidence of payment, is unreasonable as the Respondent was in possession of the Appellant’s bank statements for the years assessed and had sufficient opportunity to verify the authenticity of the payments in the cheques provided from the bank statements but chose not to undertake the verification.

95. Based on the foregoing, Tribunal finds that the Appellant discharged its burden of proof by furnishing the Respondent with the information that the Respondent requested it to provide according to Section 17 and Section 43 of the VAT Act. Therefore, the Tribunal finds that the Respondent was not justified in disallowing supported purchases amounting to Kshs. 387,742,810 in the years 2019, 2020 and 2021 and assessing Corporation tax on the amount.

Undeclared sales invoices (purchases claimed from PIN) of Kshs. 54,245,518 in the years 2019, 2020 and 2021 and Kshs. 395,765,544. 77 in the year 2023. 96. The Respondent averred that it established that the Appellant made sales to various customers and failed to declare the same. That these customers claimed the sales as part of their purchases while filing their VAT returns. The Respondent stated that a review of the Appellant’s bank statements established that its customers had actually paid the Appellant as evidenced by cash deposits, RTGS and cheque payments.

97. The Appellant argued that the Respondent’s list of the purported undeclared sales invoices had customers that are not the Appellant’s clients. That the Kshs. 54,245,517. 79 undeclared sales invoices established by the Respondent for the years 2019, 2020 and 2021 were false invoices (missing trader) and the Appellant wished the Respondent to note the missing trader invoices and remove them from its assessment.

98. The Tribunal reviewed the evidence that the Appellant presented to rebut the Respondent’s claim that the Appellant failed to disclose sale invoices declared by other entities as purchases, and notes that the Appellant presented a schedule of customer names and invoice numbers with amounts totaling Kshs. 54,245,517. 79 covering the years 2019, 2020 and 2021 which it claimed are not its customers.

99. The Respondent doubted the Appellant’s completeness of its sales income declared in the Appellant’s tax returns upon determining that purchases declared by other entities were the Appellant’s undeclared sales income. The Appellant on the other hand contended that the sales determined by the Respondent did not pertain to its customers.

100. Under Section 3 of the Income Tax Act business income is assessible to income tax. The occurrence and completeness of income are a question of fact and it was the onus of the Appellant, having denied that the income assessed by the Respondent pertained to it, to prove that the income it declared as assessible to it was completely declared.

101. Section 54A(1) of the Income Tax Act obligates a person carrying on a business to keep records of, among other documents, all receipts, accounts and books which in the opinion of the Commissioner, are adequate for the purpose of computing tax. The Appellant’s presentation of such crucial source documents, especially bank statements, could have enabled the Tribunal to confirm the verity of its assertion that the Respondent erred in assessing tax on the Appellant on income that did not pertain to the Appellant.

102. The law in Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act places upon the Appellant the obligation to prove that the Respondent’s assessment is incorrect or excessive, which should be supported by the documentation that the taxpayer relied upon to prepare the amounts that it included in its tax returns and asserted as its tax position.

103. The Tribunal notes that the Appellant only presented a schedule with business names and amounts and claimed that the names therein are not of its customers. The Tribunal further notes that the Appellant, however, glaringly failed to present its bank statements for the Tribunal’s review, despite the Respondent having cited that a review of the same showed that these customers had actually paid the Appellant as evidenced by cash deposits, RTGS and cheque payments.

104. The Tribunal observes that the Appellant expected the Tribunal to verify the completeness of its sales income using a schedule it submitted as evidence. The Appellant’s presentation of this schedule as the only evidence was not just a manifestation of indolence on the part of the Appellant, but also of failure to discharge the burden of proof.

105. It is clear to the Tribunal that the Appellant made averments of its correct tax position, but failed to support the same with sufficient documentation.

106. Due to the Appellant’s failure to discharge its burden of proof regarding the completeness of its sales income in the years assessed, the Tribunal finds that the Respondent was justified in establishing that Kshs. 54,245,518. 00 was undeclared sales invoice amounts in the years 2019, 2020 and 2021 and assessing Corporation tax on the amount.

Input-output analysis (undeclared manufactured goods) after adjustment for price per kg of washing powder. 107. The Respondent conducted an input-output analysis of the Appellant’s baby diapers, washing powder and toilet paper manufacturing process and established variances between the sales in kilograms declared by the Appellant in its sales ledgers as compared with the production quantities in kilograms (kgs). The Respondent treated the variances translated to Kshs. as underdeclared sales in the years 2019, 2020, 2021 and 2022.

108. The Respondent stated in its Objection decision that the Appellant did not provide any verifiable evidence to demonstrate the following:a.The washing powder that was donated or utilised for self-use.b.The ratio of donation and self-use to determine the tax treatment of the same.

109. The Respondent also stated in its Objection decision that for the diapers, the Excel sheet presented by the Appellant is not verifiable proof of the Appellant’s Objection grounds. That the Respondent was not able to substantiate what the Appellant wanted to achieve by the same.

110. The Appellant made the following arguments against the Respondent’s assessments in its Objection and Appeal:a.That the Respondent erred by failing to realise that the production cost of the obsolete stock had been incurred wholly and exclusively for the production of the stock. It was the Appellant’s argument that for washing powder, it produced 1,118,668 kgs but sold only 30% since the quality was not good and was rejected by the market. The Appellant stated that it disposed the rest by self-use and donating them to its own staff.b.That the Respondent also erred while computing the weights of the input raw materials used in manufacturing diapers in kgs. That the Respondent used a weight of 19. 2g which is erroneous because the minimum weight in the bills of materials (BOM) for a small diaper is 27. 92g, for a medium diaper 34. 47g and a large diaper will weigh 38. 09g. That the Respondent erred in law and in fact by imposing its own weight of 19. 2g for a diaper, contrary to what the Appellant provided evidence of.c.That for tissue production, the Respondent claimed that the Appellant did not declare any sales for 2018/2019. The Appellant stated that it declared sales of 9,235,957. 50 rolls of tissue and utilised the rest by self-use.

111. The Tribunal reviewed the parties’ assertions and arguments to establish if the Respondent was justified in determining that the production versus sales variances were undeclared sales.

112. Based on the evidence before the Tribunal, it is not disputed that the Respondent received information from the Appellant, by way of the bills of materials (BOM) for diaper production, citing inaccuracies in the Respondent’s computation of the variances. It is also not disputed by the parties that the Respondent applied an incorrect selling price per kilogram (kg) when computing the variance in washing powder. The Tribunal finds that the Respondent should apply the weights of diapers as presented by the Appellant and apply the correct price per kilogram of washing powder as presented by the Appellant in in the input-output analysis.

113. The Tribunal also notes that besides the averments by the Appellant on obsolescence, self-use and donations of its production, the Appellant failed to present any evidence of the purported obsolescence, self-use and donations of its washing powder production and well as of the sales declarations of tissues in 2018/2019 and self-use of its tissue production.

114. Contrary to the Appellant’s requirement under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act to prove that the Commissioner’s assessments are incorrect or excessive, the Appellant neglected to present to the Tribunal for review the documents that it is required to keep under Section 54A(1) of the Income Tax Act and Section 23(1) of the Tax Procedures Act to substantiate some of its claims about its tax position.

115. Based on the foregoing, the Tribunal finds that the Respondent was justified in establishing that the input-output variances were undeclared sales in the years 2019, 2020, 2021 and 2022 and assessing Corporation tax on the variances, save for the errors in computation of the variances arising from incorrect weights of diapers and incorrect price per kilogram of washing powder.

Disallowed capital allowances. 116. The Respondent disallowed the Appellant’s investment deduction of Kshs. 32,479,649. 00 in the year 2019, being 150% of the Kshs. 21,653,099. 00 that the Appellant claimed to be cost of purchase of machinery for the manufacture of toilet paper and washing powder. The Respondent’s basis of assessment was:a.That the purported sale of the machinery to a buyer in Nigeria was not accompanied by the export entry and evidence of receipt of payment from the buyer in Nigeria.b.That a motor forklift does not qualify for investment deduction.

117. The Respondent further stated in its Objection decision that had the documentation been provided and verified that the items were disposed of at the alleged Kshs. 18,681,230. 00 as per the Appellant’s analysis, the Respondent would have allowed the investment deduction in the year 2019 and at the same time assessed the Appellant on the balancing charge of Kshs. 18,681,230. 00 according to Paragraph 2 of the Second Schedule to the Income Tax Act. The Respondent subsequently cited that due to limitation of scope it could not determine if indeed the production lines were disposed of and at how much.

118. The Appellant objected to the Respondent’s assessment by making the following averments:a.That the washing powder equipment was bought in 2019 and production started in the same year. That washing powder was sold as per its invoices and sales ledger. That due to poor quality of the washing powder and too much competition, production was stopped in the year 2020. That the equipment, due to not being used, became rusty and was disposed in 2023. b.That the Appellant bought the toilet paper machine in 2019 and started production in the same year. That due to competition, it stopped production in 2020 as evidenced by its toilet paper sales invoices and ledgers. That the toilet paper machine was disposed of in 2022.

119. The Tribunal notes that the Appellant conceded to the disallowing of investment deduction on the forklift in the year 2019, but disputed the disallowing of investment deduction of the tissue paper machine and washing powder machine.

120. The Tribunal has reviewed the Appellant’s evidence in support of its assertions and established that the Appellant attached to its Appeal the following documents to prove that it had disposed of the machines:a.A waybill dated 9th December 2021 issued by Maersk showing a tissue paper machine and tissue paper raw material were to be shipped by the Appellant to from Kenya to Bordar Industrial FZE in Nigeria.b.A packing list dated 17th November 2021 appended to the waybill showing 3 items of tissue paper machines and 1 item of tissue paper raw material.c.A packing list dated 30th November 2021 appended to the waybill showing 2 units of tissue paper machines, 1 item of tissue paper machine accessories and 1 item of tissue paper raw material.d.A commercial invoice dated 17th November 2021 issued by the Appellant to Bordar Industrial FZE showing a sale of 3 sets of tissue paper machine amounting to USD 121,000 and 3,271 kgs of tissue paper raw material.e.A commercial invoice dated 30th November 2021 issued by the Appellant to Bordar Industrial FZE showing a sale of a tissue paper machine with accessories amounting to USD 21,000 and 3,200 kgs of tissue paper raw material.f.Import declaration by Bordar Industrial FZE and assessment of the tissue paper machines stamped by Nigeria Customs Service on 17th January 2022. g.Import entry of the tissue paper machines and tissue paper machine accessories stamped by Nigeria Customs Service on 14th February 2022.

121. Based on the above, the Tribunal finds that the Appellant sufficiently demonstrated that it exported the production machines to a buyer in Nigeria at the price of Kshs. 18,681,230. 00 as shown in the Appellant’s workings presented to and acknowledged as received by the Respondent and the commercial invoices that were presented with the proof of export of the machine.

122. The Tribunal, therefore, finds that the Appellant discharged its burden of proof that it correctly deducted investment deduction in the year 2019.

123. The Tribunal further notes that the Respondent had all the information it required to compute the balancing charge and assess the same, but failed to assess the balancing charge.

124. Consequently, the Tribunal finds that the Respondent was not justified in disallowing the investment deduction on the tissue paper machine and washing powder machine in the year 2019.

b. Whether the Respondent was justified in issuing the VAT assessments on turnover variances for the years 2019, 2020, 2021 2022 and 2023. 125. The Respondent averred that it determined additional taxable supplies for the years 2019, 2020, 2021 and 2022 from unsupported purchases, undeclared sales invoices (purchases claimed from PIN), input-output analysis (undeclared manufactured goods) and turnover variances.

126. By consent of the parties, as documented in the Partial Consent entered by the parties dated 17th October 2024, filed on 18th October 2024 and adopted as a Judgment of the Tribunal on 23rd October 2024:a.The Respondent vacated the VAT assessments relating to undeclared invoices and turnover variances apart from Kshs. 54,245,518 and Kshs. 395,765,544. 77 worth of invoices which matter has been referred back to the Tribunal for determination under Term 2 of the Partial Consent.b.The parties referred back the whole assessment of input-output analysis to the Tribunal for determination after adjustment for price per kg of washing powder under Term 3 of the Partial Consent.

127. The Tribunal will proceed to analyse and determine the following issues under VAT which were not settled during the Alternative Dispute Resolution process:-a.Unsupported purchases.b.Undeclared sales invoices (purchases claimed from PIN) of Kshs. 54,245,518. 00 in the years 2019, 2020 and 2021 and Kshs. 395,765,544. 77 in the year 2023. c.Input-output analysis (undeclared manufactured goods) after adjustment for price per kg of washing powder.

Unsupported purchases 128. The Respondent assessed tax on unsupported stocks of Kshs. 387,742,811 from Benco Investments and Hilalium & Sons for the years 2019 to 2021. The Respondent stated that it requested for invoices, delivery notes and proof of payments for the mentioned suppliers.

129. The Respondent stated in its Objection decision that the Appellant only provided invoices and delivery notes for the two suppliers, but failed to attach any evidence of payment accompanied with mapped certified bank statements showing when the invoices were paid for. The Respondent added that due to lack of adequate supporting documentation that could be verified, and that for avoidance of doubt an image of a cheque is not verifiable evidence of payment, it was unable to determine if the costs had been incurred in furtherance of business.

130. The Appellant maintained that the Respondent erred in law and in fact by failing to acknowledge proof provided by the Appellant in the Objection decision yet this was requested in the original assessment. That the proof provided was invoices, delivery notes and copies of cheques.

131. The Tribunal reviewed the information and documents adduced by the Appellant and determined that it provided to the Respondent at the Objection stage and to the Tribunal in its Appeal, copies of invoices, tax invoices, delivery notes and copies of account payee cheques to prove that it had purchased goods from Hilalium & Sons (UR HOME) Limited and Benco Investment Limited in the years assessed by the Respondent.

132. The Appellant’s onus under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act, was to prove that the Respondent’s assessment is incorrect or excessive with substantive grounds and competent evidence.

133. The Tribunal is guided by the provisions of Section 17(1), (2) and (3) of the VAT Act to establish whether the Appellant discharged its burden of proving that the Respondent’s assessment was incorrect. The provision reads as follows: -“(1)Subject to the provisions of this Act and the regulations, input tax on a taxable supply to, or importation made by, a registered person may, at the end of the tax period in which the supply or importation occurred, be deducted by the registered person in a return for the period, subject to the exceptions provided under this section, from the tax payable by the person on supplies by him in that tax period, but only to the extent that the supply or importation was acquired to make taxable supplies.(2)If, at the time when a deduction for input tax would otherwise be allowable under subsection (1),(a)the person does not hold the documentation referred to in subsection (3), or(b)the registered supplier has not declared the sales invoice in a return,the deduction for input tax shall not be allowed until the first tax period in which the person holds such documentation.Provided that the input tax shall be allowable for a deduction within six months after the end of the tax period in which the supply or importation occurred.(3)The documentation for the purposes of subsection (2) shall be—(a)an original tax invoice issued for the supply or a certified copy;(b)a customs entry duly certified by the proper officer and a receipt for the payment of tax;(c)a customs receipt and a certificate signed by the proper officer stating the amount of tax paid, in the case of goods purchased from a customs auction;(d)a credit note in the case of input tax deducted under section 16(2); or(e)a debit note in the case of input tax deducted under section 16(5).”

134. The Tribunal also refers to Section 43 of the VAT Act which provides as follows regarding the obligation of a registered person to keep records and avail them to the Commissioner: -“(1)A person shall, for the purposes of this Act, keep in the course of his business, a full and true written record, whether in electronic form or otherwise, in English or Kiswahili of every transaction he makes and the record shall be kept in Kenya for a period of five years from the date of the last entry made therein.(2)The records to be kept under subsection (1) shall include—(a)copies of all tax invoices and simplified tax invoices issued in serial number order;(b)copies of all credit and debit notes issued, in chronological order;(c)purchase invoices, copies of customs entries, receipts for the payment of customs duty or tax, and credit and debit notes received, to be filed chronologically either by date of receipt or under each supplier’s name;(d)details of the amounts of tax charged on each supply made or received and in relation to all services to which section 10 applies, sufficient written evidence to identify the supplier and the recipient, and to show the nature and quantity of services supplied, the time of supply, the place of supply, the consideration for the supply, and the extent to which the supply has been used by the recipient for a particular purpose;(e)tax account showing the totals of the output tax and the input tax in each period and a net total of the tax payable or the excess tax carried forward, as the case may be, at the end of each period;(f)copies of stock records kept periodically as the Commissioner may determine;(g)details of each supply of goods and services from the business premises, unless such details are available at the time of supply on invoices issued at, or before, that time; and(h)such other accounts or records as may be specified, in writing, by the Commissioner.(3)Every person required under subsection (1) to keep records shall, at all reasonable times, avail the records to an authorised officer for inspection and shall give the officer every facility necessary to inspect the records.”

135. As clearly provided under Section 17(1) of the VAT Act, the right to deduct input VAT is based on the premise that a registered taxpayer acquired a supply or importation to make taxable supplies subject to provisions of the VAT Act and VAT Regulations.

136. The Tribunal finds that the Respondent’s averment that the copies of cheques that the Appellant provided it as proof of payment are not verifiable evidence of payment, is unreasonable as the Respondent was in possession of the Appellant’s bank statements for the years assessed and had sufficient opportunity to verify the authenticity of the payments from the bank statements but chose not to undertake the verification.

137. It is the Tribunal’s considered view that the Appellant was required to prove that it satisfied the parameters set in Section 17 of the VAT Act to deduct input VAT in its VAT returns. The Tribunal’s review of the evidence presented by the Appellant showed that the Appellant indeed met the parameters in Section 17 of the VAT Act and demonstrated that it purchased goods in a commercial transaction by availing proof of the same to the Respondent.

138. Based on the foregoing, Tribunal finds that the Appellant discharged its burden of proof by furnishing the Respondent with the information that the Respondent requested it to provide. Therefore, the Tribunal finds that the Respondent was not justified in disallowing the input VAT on supported purchases amounting to Kshs. 387,742,810 in the years 2019, 2020 and 2021.

Undeclared sales invoices (purchases claimed from PIN) of Kshs. 54,245,518 in the years 2019, 2020 and 2021 and Kshs. 395,765,544. 77 in the year 2023. 139. The Respondent stated that it established that the Appellant made sales to various customers and failed to declare the same. That these customers claimed the sales as part of their purchases while filing their VAT returns. The Respondent stated that a review of the Appellant’s bank statements established that the customers had actually paid the Appellant as evidenced by cash deposits, RTGS and cheque payments.

140. The Appellant argued that the Respondent’s list of the purported undeclared sales invoices had customers that are not the Appellant’s clients. That the Kshs. 54,245,517. 79 undeclared sales invoices established by the Respondent for the years 2019, 2020 and 2021 were false invoices (missing trader) and the Appellant wished the Respondent to note the missing trader invoices and remove them from its assessment.

141. The Tribunal reviewed the evidence that the Appellant presented to rebut the Respondent’s claim that the Appellant failed to disclose sale invoices declared by other entities as purchases, and notes that the Appellant presented a schedule of customer names and details of invoices amounting to Kshs. 54,245,517. 79 covering the years 2019, 2020 and 2021 which it claimed are not its customers.

142. The Respondent doubted the Appellant’s completeness of its sales income declared in the Appellant’s tax returns upon determining that purchases declared by other entities were the Appellant’s undeclared sales income. The Appellant on the other hand contended that the sales determined by the Respondent did not pertain to its customers.

143. Under Section 5 of the VAT Act a tax, to be known as Value Added Tax, shall be charged in accordance with the provisions of the VAT Act on a taxable supply made by a registered person in Kenya. The occurrence and completeness of income are a question of fact and it was the onus of the Appellant, having denied that the income assessed by the Respondent pertained to it, to prove that the income it declared as assessible to it was completely declared.

144. The Tribunal refers to Section 43 of the VAT Act which provides that a person carrying on a business must keep certain records and documents and avail the same to the Commissioner for inspection, as follows: -“(1)A person shall, for the purposes of this Act, keep in the course of his business, a full and true written record, whether in electronic form or otherwise, in English or Kiswahili of every transaction he makes and the record shall be kept in Kenya for a period of five years from the date of the last entry made therein...”

145. The Appellant’s presentation of such crucial source documents, especially bank statements, could have enabled the Tribunal to confirm the verity of its assertion that the Respondent erred in assessing tax on the Appellant on income that did not pertain to the Appellant.

146. The law in Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act places upon the Appellant the obligation to prove that the Respondent’s assessment is incorrect or excessive, which should be supported by the relevant documentation that the taxpayer relied upon to prepare the amounts that it included in its tax returns and asserted as its tax position.

147. The Tribunal notes that the Appellant only presented a schedule with business names and amounts and claimed that the names therein are not of its customers. The Tribunal further notes that the Appellant, however, glaringly failed to present its bank statements for the Tribunal’s review, despite the Respondent having cited that a review of the same showed that these customers had actually paid the Appellant as evidenced by cash deposits, RTGS and cheque payments.

148. The Tribunal observes that the Appellant expected it to verify the completeness of its sales income using a schedule it submitted as evidence. The Appellant’s presentation of this schedule as the only evidence was not just a manifestation of indolence on the part of the Appellant, but also of failure to discharge the burden of proof.

149. It is clear to the Tribunal that the Appellant made averments of its correct tax position, but failed to support the same with sufficient documentation contrary to its obligation under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act.

150. Due to the Appellant’s failure to discharge its burden of proof regarding the completeness of its sales income in the years assessed, the Tribunal finds that the Respondent was justified in establishing that Kshs. 54,245,518. 00 was undeclared sales invoice amounts in the years 2019, 2020 and 2021 and Kshs. 395,765,544. 77 was undeclared sales invoice amounts in the year 2023.

Input-output analysis (undeclared manufactured goods) after adjustment for price per kg of washing powder. 151. The Tribunal has already analysed the input-output analysis under the heading of Corporation tax above, therefore wishes not to rehash the analysis under this heading.

152. Based on the evidence before the Tribunal, it is not disputed that the Respondent received information from the Appellant, by way of the bills of materials (BOM) for diaper production, citing inaccuracies in the Respondent’s computation of the variances. It is also not disputed by the parties that the Respondent applied an incorrect selling price per kilogram (kg) when computing the variance in washing powder. The Tribunal finds that the Respondent should apply the weights of diapers as presented by the Appellant and apply the correct price per kilogram of washing powder as presented by the Appellant in in the input-output analysis.

153. The Tribunal also notes that besides the averments by the Appellant on obsolescence, self-use and donations of its production, the Appellant failed to present any evidence of the purported obsolescence, self-use and donations of its washing powder production and well as of the sales declarations of tissues in 2018/2019 and self-use of its tissue production.

154. Contrary to the Appellant’s requirement under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act to prove that the Commissioner’s assessments are incorrect or excessive, the Appellant neglected to present to the Tribunal for review the documents that it is required to keep under Section 43 of the VAT Act and Section 23(1) of the Tax Procedures Act to substantiate some of its claims about its tax position.

155. Based on the foregoing, the Tribunal finds that the Respondent was justified in establishing that the input-output variances were undeclared sales in the years 2019, 2020, 2021 and 2022 and assessing VAT on the variances, save for the errors in computation of the variances arising from incorrect weights of diapers and incorrect price per kilogram of washing powder.

Final Decision 156. The upshot of the above analysis is that the Tribunal finds that the Appeal partially succeeds and accordingly proceeds to make the following Orders:a.The Appeal be and is hereby partially allowed.b.The Respondent’s Objection decision dated 16th February 2024 be and is hereby varied in the following terms:-i.The Corporation tax assessments on unsupported purchases in the years 2019, 2020 and 2021 be and are hereby set aside.ii.The Corporation tax assessments on undeclared sales invoices of Kshs. 54,245,517. 79 in the years 2019, 2020 and 2021 be and are hereby upheld.iii.The Corporation tax assessments on the input-output analysis variances in the years 2019, 2020, 2021 and 2022 be hereby recalculated by applying the correct weights of diapers and the correct price per kilogram of washing powder.iv.The Corporation tax assessment on the disallowed capital allowances for the year 2019 be and is hereby set aside.v.The Value Added Tax (VAT) assessments on unsupported purchases in the years 2019, 2020 and 2021 be and are hereby set aside.vi.The Value Added Tax (VAT) assessments on undeclared sales invoices of Kshs. 54,245,517. 79 in the years 2019, 2020 and 2021 and Kshs. 395,765,544. 77 in the year 2023 be and are hereby upheld.vii.The Value Added Tax (VAT)assessments on the input-output analysis variances in the years 2019, 2020, 2021 and 2022 be recalculated by applying the correct weights of diapers and the correct price per kilogram of washing powder.c.The Respondent is hereby directed to recompute the VAT assessments based on the Tribunal’s findings under Orders b) (i), (ii), (iii), (iv), (v), (vi) and (vii) above within Thirty (30) days from the date of delivery of this Judgment.d.Each party to bear its own costs.

157. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 31ST DAY OF JANUARY, 2025. DR. RODNEY O. OLUOCH..............................CHAIRPERSONGLORIA A. OGAGA ...................................MEMBERABRAHAM K. KIPROTICH ..............................MEMBER