https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/97

Virgin Estate Ltd v Commissioner of Investigation and Enforcement (Appeal E920 of 2025) [2026] KETAT 97 (KLR) (26 June 2026) (Judgment) Neutral citation: [2026] KETAT 97 (KLR) Republic of Kenya In the Tax Appeal Tribunal Appeal E920 of 2025 RO Oluoch, Chair, Cynthia B. Mayaka, E Komolo & AM Diriye, Members June 26, 2026 Between Virgin Estate Ltd Appellant and Commissioner Of Investigation And Enforcement Respondent Judgment Background 1.The Appellant is a limited liability company incorporated in Kenya. 2.The Respondent is the principal officer appointed under Section 13 of the Kenya Revenue Authority Act. The Kenya Revenue Authority is an agency of the Government of Kenya mandated with the duty of collection and receipting of all tax revenue and the administration and enforcement of all tax laws set out in Parts 1 & 2 of the First Schedule to the Act, including assessing, collecting, and accounting for all tax revenues in accordance with those laws. 3.On 26th June 2024, the Respondent issued the Appellant with additional VAT and income assessments for 2019 to 2022. 4.On 25th July 2024, the Appellant objected to the Respondent’s additional assessments. 5.On 20th September 2024, the Respondent issued its Objection Decision confirming the additional VAT and income tax assessments of Kshs 86,989,440. 6.On 9th July 2025, the Appellant lodged this Appeal, with leave of the Tribunal, vide its Notice of Appeal dated 13th June 2025. The Appeal 7.In its Memorandum of Appeal dated 23rd August 2025, the Appellant raised the following grounds of appeal: -a.The Respondent erred in law and fact by failing to consider additional documents presented by the Appellant that substantiated its claims for investment deduction under the Income Tax Act.b.The Respondent erred in law and fact by disallowing qualifying investment deductions relating to the construction of a commercial mall, which is the Appellant’s principal investment project.c.The Respondents erred by failing to carry forward the corporation tax loss and VAT credits for the years 2018, which have significantly reduced the tax liability. Appellant’s Case 8.The Appellant’s case is based on its Statement of Facts dated 16th June 2025. It did not file submissions in support of its appeal. 9.The Appellant stated that the Respondent failed to carry forward the Corporation Tax loss of Kshs 9,745,846/- for the year 2018 and the VAT credit amounting to Kshs 1,755,162/- for the same year. That this should have reduced the overall Tax Liability by Kshs 11,501,008/- made up as follows: Year 2018 Net taxable Income/Loss -32,486,153 Corporate Tax (30%) -9,745,846 Expected sales -10,969,764 VAT (16%) -1,755,162 Total -11,501,008 10.It stated that its investment deduction was not fully allowed because it was still securing documents from the co-operative bank, which was the financier for the mall construction. That it was also putting together the other additional documents that were not provided during the first round. 11.It alleged that it received the documents that vindicated its position from the Co-operative Bank on 11th April 2025 and 22nd May 2025. 12.That the said documents affirmed that the following capital allowances were omitted by the Respondent in arriving at the final investments tax liability.a.Mortgage - direct disbursement to suppliers: Kshs 181,245,435.78b.Interest cost incurred during the construction period: Kshs 22,629,386.30c.Directors’ capital contributions: Kshs 11,197,199.23 13.The Appellant averred that the additional investment deduction was computed at a rate of 10% on straight- line basis amounting to Kshs 215,072,021/- per annum, with a cumulative total of Kshs 129,043,213 for the five years under assessment. 14.That once the amount of Kshs 129,043,213 is subtracted from the net taxable income of Kshs 129,557,650 assessed by the Respondent, the net taxable income is reduced to a net loss of Kshs -2,485,563, leading to a credit tax balance of Kshs -745,669/-. 15.It was its position that the said documentation from the bank showed that a substantial amount of capital allowances from the mortgage facility of Kshs 181,245,435/- and interest costs of Kshs 22,629,386.36/- had been left out in computing the tax liability since the documents were not in the Appellant’s possession at the time when assessments were done and therefore could not be provided. 16.Flowing from the above arguments, the Appellant asserted that the demand by the Respondents lacks merit, is unlawful, gravely unjust, and that, that, if the same is allowed, it will impose an illegal burden and/or otherwise occasion injustice and harm to the Appellant’s business. 17.The Appellant submitted that the Respondent’s objection decision dated 20th September, is 2024 was:a.Was unjustified and premature.b.Was in violation of the provisions of Article 210(1) of the Constitution of Kenya.c.Failed to take into account relevant factors and thus reached an incorrect assessment of the applicant’s tax liability.d.Was irrational, unreasonable, capricious, and unlawful;e.Was substantially unfair and amounted to an abuse in the exercise of the powers and discretion conferred by statute;f.Was an unlawful breach of the Appellant’s legitimate expectations.g.Was not intended to secure any legitimate overriding public interest or statutory objective and is thus for an improper motive and purpose. Appellant’s Prayers 18.The Appellant prays that the Tribunal;a.Allows the appeal;b.Sets aside the Respondent’s objection decision dated 20th September 2024;c.Awards the Appellants the costs of this appeal;d.Any other relief that the Tribunal may deem just and appropriate. Respondent’s Case 19.The Respondent filed its Statement of Facts dated 19th September 2025 in opposition to this appeal. It did not file any submissions thereof. 20.The Respondent identified the following issues for determination:i.Whether the Respondent’s objection decision dated 20th September 2024 was proper in law?ii.Whether the appeal herein should be allowed? 21.The Respondent stated that:a.It noted that the Appellant filed income tax returns for the years 2017 and 2018 and VAT returns for the tax periods from 2017 to 2022.b.The investigation applied a banking analysis method to establish the Appellant’s income.c.A total income of Kshs 377,376,927 was established for the years 2017 to 2022.d.It made adjustments for operating expenses, finance costs, and capital allowances to arrive at the taxable income.e.In the computation of the VAT liability, it compared the established income, as per the banking analysis, against the sales declared by the Appellant in its VAT returns to arrive at the undeclared income.f.The Appellant did not avail documents to support the Director’s capital injections; thus, no adjustments were made. 22.The Respondent stated that the documents availed by the Appellant to support the investment deduction claims were the same provided at the investigation stage; thus, no adjustment was made. 23.The Respondent averred that the deductible interest payments were adjusted for in the revised tax computations at the investigation stage; hence, no adjustments were made at the objection stage. 24.The Respondent averred that the interest payments for the year 2017 had already been claimed by the Appellant, and that the interest deducted at the investigation stage was from 2019 onwards. 25.On the issue of statute-barred assessments, the Respondent stated that its assessment was issued on 27th June 2024 for the period 2017 to 2022 and was therefore justified. 26.The Respondent further averred that the Appellant’s contention that the Respondent disallowed qualifying investment deduction is erroneous, because no capital allowance was disallowed in the Income Tax returns filed for the years 2017 and 2018. Respondent’s Prayers 27.The Respondent prayed that the Tribunal find that:i.That the objection decision, vide a letter dated 20th September, 2024, confirming additional taxes of Kshs 86,989,440, being Income Tax of Kshs 46,692,103 and VAT of Kshs 40,297,337, be upheld.ii.That this appeal be dismissed with costs to the Respondent, as the same is without merit. Issues for Determination 28.The Tribunal having considered the parties' pleadings and the documents filed before it is of the view that the issue that falls for its determination are:a.Whether the assessments are time-barredb.Whether the Respondent’s Objection Decision dated 20th September 2024 is justified. Analysis and Determination A. Whether the assessments are time-barred. 29.It is now trite that the respondent can audit, amend, or issue tax assessments within five years from the date a taxpayer submits their self-assessment return. That once this window closes, the tax becomes time-barred and irrecoverable unless there is clear evidence of fraud, willful neglect, or tax evasion. 30.This position is set out in Section 31(4) of the TPA, which provides as follows in relevant part:“Section 31(4)(b)(ii) of the Tax Procedures Act provides:The Commissioner may amend an assessment—(b)in any other case, within five years of—(ii)for a self-assessment, the date that the self-assessment taxpayer submitted the self-assessment return to which the self-assessment relates” 31.Section 23 provides as follows regarding record keeping:“A person shall—(a)maintain any document required under a tax law, in either of the official languages;(b)maintain any document required under a tax law so as to enable the person's tax liability to be readily ascertained; and(c)subject to subsection (3), retain the document for a period of five years from the end of the reporting period to which it relates or such shorter period as may be specified in a tax law.” 32.The law is thus clear that an assessment can only go back 5 years, and a taxpayer is also only required to keep records for a period of 5 years from the end of the reporting period. 33.VAT is a monthly tax assessment, due and declared on the 20th of each succeeding month. The assessment in this appeal was issued on 25th July 2024 covering the years 2017 to 2022. 34.Consequently, computation of time for VAT assessments would commence in June, considering that the VAT assessments for June 2024 were due at the date of assessment. This means that lawful VAT assessments could only run backward to June 2019. Similarly, the Appellant could only be lawfully assessed on income tax for the years 2019 to 2023. 35.Accordingly, the income tax assessments for the years 2018 and 2017 and VAT assessments for May 2019 to 2017 are unlawful and statute-barred unless fraud, willful neglect, or tax evasion was pleaded and proved. In this appeal, these three items of fraud, willful neglect, or tax evasion were neither pleaded nor proved. This was clarified in Fabro Ltd v Commissioner [TAT Appeal No. 132 of 2023] where the following was emphasized:“The reopening of assessments outside the limitation period must not be whimsical. Without demonstrable fraud or willful neglect, the taxpayer’s position becomes immutable after five years.” 36.The fact that an assessment ought not be issued beyond five years was also discussed in Patel v Commissioner for Legal Services & Board Co-ordination Services (Tax Appeal E628 of 2025) [2025] KETAT 420 (KLR) (28 November 2025) (Judgment) where the Tribunal held as follows.“The Tribunal is of the considered view pursuant to the provisions of Section 31(4) of the TPA that the Respondent is prohibited from amending assessments for taxes the period whereof is beyond 5 years.” 37.Consequently, it is the finding of the Tribunal, as supported by the cases of Patel and Fabro, that the respondent’s assessments for income tax for the years 2018 and 2017 and VAT May 2019, running backward to 2017, are unlawful, contravening Section 31(4)(b)(ii) and Section 23 of the Tax Procedures Act. B. Whether the Respondent’s objection decision dated 20th September 2024 is justified. 38.This Appeal is premised on the Respondent’s Objection Decision dated 20th September 2024, which confirmed additional income tax and VAT assessments of Kshs. 86,989,440. The Respondent justified its Objection Decision on the singular ground that the Appellant did not support its grounds of objection by providing the requested documents. 39.In opposition to the additional assessments, the Appellant submitted that it did not have these documents at the time of the objection review process because it was sourcing some documents from Cooperative Bank and others from other sources. 40.The Appellant further submitted that these documents were finally available on 11th April 2025 and 22nd May 2025, from where it proceeded to file the additional documents at the Tribunal without seeking leave to file the same. 41.Section 13(6) of the TAT Act provides as follows regarding the remit of the Tribunal’s jurisdiction:“(6)The Appellant shall, unless the Tribunal orders otherwise, be limited to the grounds stated in the appeal or the documents to which the decision relates.” Emphasis ours. 42.The jurisdiction of the Tribunal is thus limited to hearing and determining disputes regarding issues that were raised before the Commissioner. The Tribunal cannot entertain or consider new grounds of appeal or documents that are introduced in a taxpayer’s appeal if the same were never raised or presented to the Commissioner for consideration when it was making its decision. 43.This means that the statutory role of the Tribunal is to hear appeals that emanate from decisions made by the Commissioner. It can only hear and determine disputes that were canvassed before the Commissioner. To do otherwise would convert the role of the Tribunal to that of the Commissioner instead of retaining its statutory role of only hearing appeals that emanate from decisions made by the Commissioner. 44.When presented with a similar situation, the High Court in the recent decision of Commissioner of Investigation & Enforcement v Wamunyinyi [2026] KEHC 379 (KLR) held as follows”“Guided by the above, I find that the Tribunal erred in law by admitting and relying on evidence that was not placed before the Commissioner at the objection stage. This error goes to the heart of the objection review process and undermines the Commissioner’s statutory mandate to assess tax based on information provided by the taxpayer.” 45.The court similarly held in Commissioner of Investigations & Enforcement v Doshi Enterprises Limited [2025] KEHC 4501 (KLR) as follows:“The tribunal should resist attempts to seek documents that were not provided to the Commissioner during objection proceedings, as in doing so it will not be acting as an appellate tribunal but as a trial tribunal.” The drafters of the Tax Appeals Tribunal Act must have foreseen situations where loopholes like the one in this matter may occur, and that is, in my view, the reason the law gave powers to the tribunal to refer matters back to the Commissioner for reconsideration. In view of this, I agree with the Appellant that the correct decision would have been the exercise of the tribunal’s powers under Section 29(2)(c) of the Tax Appeals Tribunal Act, although the Appellant cited a nonexistent Section 29(2)(c)(ii) of the Tax Procedures Act.” 46.The court emphasized that the burden of proof in tax disputes lies squarely with the taxpayer, who must present all relevant documentation and explanations to the Commissioner during the objection stage. The court cautioned that introducing documents or evidence for the first time before the Tribunal, though indicative of their relevance, amounts to shifting the statutory function of tax assessment from the Commissioner to the Tribunal. (See also Spread Marketing Consultancy Ltd v Commissioner of Domestic Taxes [2025] KEHC 11487 (KLR)]. 47.The Appellant admitted that the documents that support its appeal were not produced at the objection stage. Presenting the said documents to the Tribunal without seeking leave to be allowed to provide them to the Commissioner to consider and issue a decision thereof would amount to transferring the mandate of assessing tax, which belongs to the Commissioner, to the Tribunal. This is plainly illegal as explained in the above cited cases of Spread, Wamunyiniyi, and Doshi. 48.To put it as plainly as possible, the Appellant failed to provide the eloquent explanations that it has now provided before the Tribunal to the Commissioner at the objection stage. Additionally, it also failed to supply the Commissioner with the volumes of documents that it has now submitted before the Tribunal at the appellate stage. 49.Additionally, the Appellant was also required under Section 59 of the Tax Procedures Act (Cap 469B) to produce documents and records as may be sought by the Respondent. It provides as follows:1.For the purposes of obtaining full information in respect of the tax liability of any person or class of persons, or for any other purposes relating to a tax law, the Commissioner or an authorised officer may require any person, by notice in writing, to –a.produce for examination, at such time and place as may be specified in the notice, any documents (including in electronic format) that are in the person's custody or under the person's control relating to the tax liability of any person;b.furnish information relating to the tax liability of any person in the manner and by the time as specified in the notice; orc.attend, at the time and place specified in the notice, for the purpose of giving evidence in respect of any matter or transaction appearing to be relevant to the tax liability of any person. 50.Besides, Section 30 of the TAT Act provides as follows regarding the Appellant’s burden of proof: -In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect. 51.Flowing from the above analysis, it is the finding of the Tribunal that it is prohibited by case law and Section 13(6) of the TAT from considering the documents provided by the Appellant after the objection decision was issued on 20th September 2024. 52.Additionally, the Appellant also failed to discharge its duty under Section 30 of the TAT Act and Section 23 of the TPA to show that the Respondent fell into error when it issued the Objcetion decision dated 20th September 2024, based on the information that was availed to it. 53.Accordingly, the Respondent was justified in disallowing the Appellant’s objection as outlined in its Objection Decision dated 20th September 2024. Disposition 54.The upshot of the foregoing analysis is that the Tribunal finds and holds that the Appeal is partially meritorious and proceeds to issue the following orders:a.The Appeal be and is hereby partially allowed.b.The Respondent’s Objection Decision dated 20th September 2024 be and is hereby varied as follows:i.The income tax assessments for the years 2018 and 2017 be and are hereby set aside.ii.VAT assessments for May 2019 running backward to 2017 be and are hereby set aside.iii.Income tax assessment for the years 2019 to 2022 be and are hereby upheld.iv.VAT assessments for June 2019 to 2022 be and are hereby upheld.c.Each Party is to bear its own costs. 55.It is so ordered. DATED AND DELIVERED AT NAIROBI THIS ……… 26TH ...……. DAY OF …… JUNE ..…… 2026………………………………DR. RODNEY ODHIAMBO OLUOCHCHAIRPERSON………………………………CYNTHIA B. MAYAKAMEMBER………………………………DR. ERICK KOMOLOMEMBER………………………………ABDULLAHI DIRIYEMEMBER