[2024] KETAT 1059 (KLR)

Viriotech Enterprises Limited v Commissioner of Intelligence, Strategic Operations, Investigations and Enforcement (Appeal E279 of 2023) [2024] KETAT 1059 (KLR) (28 June 2024) (Judgment)

Neutral citation: [2024] KETAT 1059 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Appeal E279 of 2023

E.N Wafula, Chair, RO Oluoch & Cynthia B. Mayaka, Members

June 28, 2024

Between

Viriotech Enterprises Limited

Appellant

and

Commissioner of Intelligence, Strategic Operations, Investigations and Enforcement

Respondent

Judgment

Background 1. The Appellant is a limited liability company that is a registered taxpayer and is in the business of bookshop supplies, Mpesa and Equity agency services.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 of the laws of Kenya. The Authority is an agency established for the purposes of assessing, collecting and accounting for tax revenues.

3. The Respondent issued tax investigation findings vide a letter dated 22nd March 2022.

4. On 5th April, 2022, the Respondent issued Assessment Orders on iTax and on 7th April, 2022, it issued a notice of tax assessment for the years of income 2016 to 2020.

5. On 26th July, 2022, the Appellant lodged a late notice of objection on iTax.

6. The Respondent requested the Appellant to apply for an extension of time to lodge a late objection vide a letter dated 10th February, 2023.

7. On 14th February, 2023, the Appellant applied for an extension of time to lodge a late objection. The Respondent on 17th February, 2023, granted the Appellant approval to lodge the late objection.

8. Subsequently the Respondent issued its objection decision dated 17th April, 2023 confirming the assessments.

9. The Appellant, dissatisfied with the Respondent’s decision, lodged a Notice of Appeal on 16th May 2023.

The Appeal 10. In its Memorandum of Appeal dated 29th May 2023 and filed on 26th May 2023, the Appeal was based on the grounds that:i.The Respondent erred in law and fact by wrongful deeming the bank credits as sales and charging tax.ii.The Respondent is in violation of Income Tax Act Section 3 (1) on charge of tax.iii.The Respondent is in violation of VAT Act First Schedule Section B on exempted services.iv.The Respondent erred in law by ignoring Section 51(7)2 and 51(11) of the Tax Procedures Act on validity of the Objection Decisions.v.The Respondent is in violation of Income Tax Act Section 15(1).vi.The Respondent erred in law by wrongfully ignoring TPA Section 29(1) on the use of best judgementvii.The Respondent is in violation of Section 109 of the Evidence Act which states that the burden of proof as to any particular act lies on the person who wishes the court to believe in its existencevii.The Respondent erred in fact by failing to acknowledge the reconciliations availed by the Appellant which clearly showed how sales were accounted for by the Appellant.

Appellant’s Case 11. The Appellant’s case is premised on the following documents filed before the Tribunal;i.The Appellant’s Statement of Facts dated 29th May 2023 and filed on 26th May, 2023 together with the documents attached thereto.ii.The Appellant’s written submissions filed on 6th March 2024.

12. The Appellant stated that on 22nd March 2022, the Respondent issued a demand letter with its findings resulting to income tax principle tax of 23,526,028. 00 for the year 2016-2020. That further Respondent issued a letter dated 6th July 2022 summoning the Appellant to appear in person at Ushuru Pension Plaza.

13. It stated that on 7th April 2022 the Respondent issued a notice of tax assessment with tax findings. That the Respondent issued an additional assessment on 24th April 2022 which it subsequently objected on 26th July 2022

14. That the Respondent issued the objection decision on 4th August 2022 confirming the assessments.

15. The Appellant averred that it filed self-assessment returns for income tax in the years 2015 to 2020.

16. That it provided the sales ledger z-report and other supporting documents in support of its objection

17. The Appellant was of the view that the issues for determination were as follows;i.Whether the Respondent can deem the entire bank credits as sales and charge tax.ii.Whether the Respondent was right to ignore other Equity bank accounts before raising assessment.iii.Whether the Respondent was right to ignore Section 51(7)2 and 51(11) of the Tax Procedures Act.iv.Whether the Respondent was right to ignore documents presented.v.Whether the Respondent was right to demand taxes above 5 years

18. egarding charge of income tax and VAT the Appellant contended that all the bank credits ought to be the turnover/sales for the income tax.

19. That the Income Tax Act Cap 470 Section 3(1) of the ITA provides that income tax shall be charged for each year of income upon all the income of a person, whether resident or non-resident, which accrued in, or was derived from Kenya

20. That further, Section 3(2) of the ITA states that;“Subject to this Act, income upon which tax is chargeable under this Act is income in respect of -(a)gains or profits from -(i)a business, for whatever period of time carried on”

21. The Appellant submitted that Value Added Tax means Valued Added Tax imposed under the Value Added Tax Act, 2013. That the VAT Act also outlines how to charge VAT as follows;“A tax, to be known as value added tax, shall be charged in accordance with the provisions of this Act on-a.a taxable supply made by a registered person in Kenya;b.the importation of taxable goods; andc.a supply of imported taxable services.”

22. That therefore, the income tax and VAT should be entirely dependent. That the income tax is charged on gain. That the Respondent charged the bank credits (what he referred to as sales) at the rate of 30% without determining the gain. That this scenario was well explained during the meetings and the supporting documents presented to the Commissioner during objection stage which showed that the taxpayer was dealing in both vatable and exempt services.

23. It averred that the Respondent’s use of bank credits to determine tax was excessive. That bank credits consists of different transactions e.g. loans, personal deposits, customers deposit etc.

24. Regarding the issue of the Respondent’s failure to recognize its Equity Bank Account No. 05902XXXX, the Appellant stated that it provided all the bank statement for the company.

25. It explained that the Appellant had also obtained copies in which the Respondent chose not to rely on. That the Income Tax Act Section 3 clearly outlines the basis of charging tax i.e. income tax shall be charged for each year of income upon all the income of a person.

26. The Appellant contended that it had two Equity accounts namely 0590265294805 and 0590296XXXX. That the Respondent in its objection decision dated 17th April Note 2. 3 clearly states that:-“after close scrutiny by the commissioner we realized that you provided bank statements for Equity A/C no 0590265294805 while during the investigations the commissioner analyzed bank statements for equity A/C no 0590296XXXX. NOTE 2. 4....This QUOTE explains why you were claiming among other things interbank transfers while the investigations team only assessed one bank account Note 2. 5 then states the following.... This was therefore disallowed as the objection review process is strictly limited to the contents of the assessments of which the other bank account no.590296774087 did not form a part of.”

27. That this statement by the Respondent clearly violates the basis of charging income as well contradicts with the general accounting principle on revenue recognition. That the bank letter it attached clearly explains the mandate and roles of each account. That in its course of business it deals with VAT exempted services.

28. The Appellant submitted that the banking analysis was misapplied in arriving at the assessment. That the Respondent requested for the supporting documents and reconciliation analysis which it chose not to rely on i.e. evidenced by Paragraph Note 2. 4 and 2. 5 on the objection decision.

29. To support its case, the Appellant stated that it was guided by Hole v The Queen,2016 TCC 5 where it was stated that:-“there are two primary ways in which a taxpayer can challenge a bank deposits analysis. The first is to prove that his/her records were adequate and thus that his or her income should have been determined using those records....”

30. That this Court in Digital Box Ltd Vs Commissioner of Investigation & Enforcement TAT 115 OF 2017 gave orders compelling the Respondent to consider costs from the Appellant's record for the 2015 and 2016 years of income. That the above case is a clear indication to show that all business records should be considered.

31. On validity of the objection decision, the Appellant stated that it raised late objection application online on 26th July, 2022. That the Respondent in its letter titled “objection Decision” states that;“...we further make reference to our letter dated 17th August 2022 requiring you to validate your objection......we further make reference...extension of time to file an objection letter dated 14th February 2023 which was allowed on 17th February 2023. ”

32. That the above statement is not clear on the timelines on issuance of objection decision. It further stated as follows;a.That the Appellant lodged an application for extension to file an objection on 26th July, 2022 which it was to validate on 17th August 2022 (22 days). That Section 51(7) requires the Commissioner to notify the taxpayer on decision regarding the late objection application within 14 days.b.That the Respondent further states that the Appellant filed a notice to extend time for filing objection on 14th February 2022. That the statement was ambiguous since the taxpayer filed objection notice on 26th July, 2022 and by allowing the application on 17th February 2023 (6 months) violates Section 51(11).

33. Regarding failure to recognize documents availed, the Appellant contended that the Respondent requested list of documents were availed.That the documents were sent via email and the Respondent’s designated recipients did not confirm receiving them. That the TPA Section 76 states on admissibility of documents produced electronically that:-“.... In any proceedings under this Act, a statement contained in a document in electronic form shall be admissible as evidence of any fact stated in that document if the document is produced in the manner prescribed by this Act or any other tax law”

34. The Appellant contended that the additional assessment raised on 4th August 2022 did not follow the due laid out procedures by deeming exempt income and charging. That this was a clear indication that the Respondent acted in bad faith by disregarding the documents presented and the reconciliations. That the Respondent’s action was in violation of Article 47 of the Constitution of Kenya 2010, which states;“1. Every person has the right to administrative action that is expeditious, efficient, lawful, reasonable and procedural fair2. If a right or fundamental freedom of a person has been or is likely to be adversely affected by administrative action,”

35. That the Commissioner, while demanding revenue, should demonstrate sufficiently that a certain payment forms the basis of tax. That it relies on Republic v. Commissioner of Income Tax ex parte SDV Transami (Kenya) Limited which held that taxes must be consistent with the law. That it also relies on Republic v Commissioner of Domestic Taxes Large Tax Payer's Office Ex Parte Barclays Bank of Kenya Ltd for the proposition that the decision to tax must have a legal basis.

36. Regarding demand of tax the Appellant averred that the Respondent issued an assessment on 24th April 2022 assessing from years 2015-2019. That TPA Section 29(1) and (5) states;“(1)Where a taxpayer has failed to submit a tax return for a reporting period in accordance with the provisions of a tax law, the Commissioner may, based on such information as may be available and to the best of his or her judgement, make an assessment5. an assessment under subsection (1) shall not be made after five years immediately following the last date of the reporting period to which the assessment relates.”

37. The Appellant stated that from its detailed explanation it was clear that the Respondent ignored the Appellant’s documents and denied it fair hearing.

38. That the Respondent introduced fraud so as to demand taxes beyond 5 years. That by introducing fraud the burden of proof shifted to the Respondent that is “he who alleges must prove”. That the Respondent failed to discharge the burden of proof hence demanding tax beyond 5 years was against the TPA Section 29(5)1.

39. The Appellant submitted that the Respondent's demand for Corporate taxes for 2016 to 2020 as per the Respondent's objection decision had no basis in fact or in law and the entire assessment was arbitrary and unjust, and it prayed that the Tribunal sets aside the said assessments.

Appellant’s Prayers 40. The Appellant prayed that the Tribunal;i.Allows this Appeal;ii.Annuls the Respondent's confirmed assessment based on the grounds above, as well as the information contained in the Statement of Facts.iii.Awards costs of this Appeal to the Appellant.

Respondent’s Case 41. The Respondent’s case is premised on the hereunder filed documents before the Tribunal:a.The Respondent’s Statement of Facts dated 26th June, 2022 and filed on the same date together with the documents attached thereto.b.The Respondent’s written submissions dated 30th January, 2023.

42. The Respondent stated that it undertook a tax review exercise of the Appellant for the period 2016 to 2020. That on 28th October, 2021, the Appellant was issued with a notice of tax investigations for the period under review.

43. That upon conclusion of the tax investigations, the Appellant was issued with a letter dated 22nd March, 2022 communicating the tax investigation findings.

44. That on 5th April, 2022, the Appellant was issued with an Assessment order for the period under review.

45. The Respondent explained that the basis of the assessment was hinged on Section 31 of the Tax Procedures Act which gives the Respondent leeway to issue additional assessments based on the available information and best of judgement.

46. That on 7th April, 2022, the Appellant was issued with a notice of tax assessment for the period under review. That on 26th July, 2022, the Appellant lodged a late notice of objection.

47. That upon receipt of the said notice of objection, the Respondent requested the Appellant to validate its notice of objection so as to comply with the provisions of Section 51(3) of the Tax Procedures Act 2015. That particularly, the Appellant was required to provide statutory required documents in support of the objection failure to which its objection would be invalidated.

48. It averred that on 10th February, 2023, the Appellant was requested to apply for an extension of time to lodge a late objection in accordance with Section 51(7) of the Tax Procedures Act.

49. It contended that on 14th February, 2023, the Appellant applied for an extension of time to lodge a late objection. That on 17th February, 2023, the Respondent granted the Appellant approval to lodge the late objection. That consequently, the Respondent proceeded to issue an objection decision dated 1st April, 2023.

50. The Respondent was of the view that issues for determination could be summarized as:a.Whether the assessment is proper in law.b.Whether the Appellant discharged the burden of proof as provided by the law.

a) Whether the Assessment is proper in law. 51. The Respondent posited that the Appellant had challenged the validity of the Respondent's objection decision for non-conformity with Section 51(11) of the Tax Procedures Act. The Respondent averred that the Appellant validated its objection on 23rd February, 2023 and that meant that 60 days contemplated under Section 51(11) of the Tax Procedures Act started running on 23rd February, 2023 when the Appellant validated its objection.

52. The Respondent further averred that following the tax investigations carried out on the Appellant, it was established that the Appellant understated income declared in the income tax returns for 2016 to 2020.

53. That the Respondent analyzed the bank statements from Equity Bank for bank deposits and adjusted them for output VAT, debtors and creditors. The Respondent averred that the summarized taxes from the understated income for the period under review is as shown in the table below;

Tax Head Principal Penalty Interest TOTAL

Income Tax 15,377,028 3,075,406 6,203,945 24,656,379

VAT 8,148,999 - 3,631,892 11,780,892

Total Taxes due 39 855,400 3,075,406 9,835,837 52,766,642 54. That the Appellant alleged that the Respondent did not take into consideration non-income deposits that included of directors’ injections, bankings for agency, interbank transfers and soft loans from friends.

55. The Respondent stated that it scrutinized the bank statements provided by the Appellant in support of its allegation and established that the Appellant had provided bank statements for Equity A/C No.0590265294805 while during the investigations, the Respondent analyzed bank statements for Equity A/c No. 590296774087.

56. The Respondent averred that the claims were disallowed since the review process was strictly limited to the contents of the assessments and bank account no. 590296774087 was not part of the assessment.

57. That it was worthy to note that the Appellant did not provide any additional documents to support other non-income items including but not limited to the soft loans by friends.

58. That the Appellant disregarded Section 23(b) of the Tax Procedures Act 2105 which provides thus;“A person shall-(b)maintain any document required under a tax law so as to enable the tax liability person's to be readily ascertained;”

59. The Respondent stated that it relied on Section 51(3) (c) of further Procedures Act.

60. That the Appellant further alleged that the Respondent disallowed expenses wholly and exclusively incurred in the production of the income contrary to Section 15 of the Income Tax Act.

61. The Respondent averred that Section 15 of the Income Tax Act provides for allowable expenses. That it was a general accounting principle that expenditures must be supported with evidence to ensure they are verifiable.

62. The Respondent further averred that it relied on Section 54(1) of the Income Tax Act which provides that the taxpayer shall keep records of all receipts and expenses, goods purchased and sold and accounts, books,deeds and contracts and vouchers which in the opinion of the Commissioner are adequate for the purpose of computing tax.

63. The Respondent averred that the Appellant failed to provide supporting documents for the Company's costs. The Respondent therefore contended that the Appellant's assertions were not supported with documentation and the costs of sales were disallowed on that basis.

64. That the Appellant further averred that its core business of selling stationery is VAT exempt. The Respondent stated that it relied on Section 62 of the VAT Act which provides that the burden of proving that any tax has been paid or that any goods or services are exempt from payment of tax shall lie on the person liable to pay the tax or claiming that the tax has been paid or that the goods or services are exempt from payment of tax.

b.Whether the Appellant discharged the burden of proof as provided by the law 65. The Respondent stated that whereas Section 24 of the Tax Procedure Act, 2015 allows a taxpayer to submit tax returns in the approved form and manner prescribed by the Respondent, the Respondent is not bound by the information provided therein and can assess for additional taxes based on any other available information and to the best of the Commissioner's judgement

66. The Respondent stated that pursuant to Section 56 of the Tax Procedure Act and Section 30 of the Tax Appeals Tribunal Act, the burden of proof lies on the Appellant to demonstrate that it has discharged its tax liability. The Respondent averred that this burden was never discharged to its satisfaction since the Appellant did not adduce the necessary documentary evidence to enable it render a meritorious decision in the circumstances.

67. The Respondent submitted that it relied on the provisions of Section 109 of the Evidence Act.

68. That in light of the foregoing, Appellant's assertion that it had presented supporting documents but were not considered by the Respondent was incorrect and misleading. That on the contrary, the Respondent carefully considered the Appellant's grounds of objection and documentation adduced and issued a decision to the extent supported.

Respondent’s Prayers 69. The Respondent prayed that the Tribunal do find: -a)That the objection decision dated 17th April, 2023 be upheld.b.That this Appeal be dismissed with costs to the Respondent as the same lack merit.

Issues For Determination 70. The Tribunal has framed the issues for determination to be:a.Whether the Respondent’s Objection decision was in contravention of the provisions of Section 51(11) of the TPA.b.Whether the Respondent’s assessments were in contravention of the provisions of Section 29(5) of the TPA.c.Whether the Respondent decision to reject the Appellant’s additional bank statement and thereafter relying on bank deposit analysis in the assessment was proper and justifiable.d.Whether the Respondent erred in confirming the assessments.

Analysis And Findings 71. The Tribunal having ascertained the issues that crystallizes for its determination proceeds to make an analysis on each of the identified issues separately as hereunder:-a.Whether the Respondent’s Objection Decision was in contravention of the provisions of Section 51(11) of the TPA.

72. It was the Appellant’s contention that it raised late objection application online on 26th July, 2022. That the Respondent in its letter titled "objection Decision” stated that;“...we further make reference to our letter dated 17th August 2022 requiring you to validate your objection......we further make reference...extension of time to file an objection letter dated 14th February 2023 which was allowed on 17th February 2023. ”

73. That the above statement was not clear on the timelines on issuance of objection decision. It further stated as follows;a.That the Appellant lodged an application for extension to file an objection on 26th July, 2022 which was validated on 17th August 2022 (22 days). That Section 51(7) requires the Commissioner to notify the taxpayer on decision regarding the late objection application within 14 days.b.That the Respondent further states that the Appellant filed a notice to extend time for filing objection on 14th February 2022. That the statement was ambiguous since the taxpayer filed objection notice on 26th July, 2022 and by allowing the application on 17th February 2023 (6 months) violates Section 51(11).

74. On the other hand, the Respondent stated that the Appellant validated its objection on 23rd February, 2023 and that meant that 60 days contemplated under Section 51(11) of the Tax Procedures Act started running on 23rd February, 2023 when the Appellant validated its objection.

75. The Tribunal gleaned through the documents and pleadings and noted the following undisputed facts in this case;i.On 5th April, 2022, the Appellant was issued with an assessment order.ii.On 7th April, 2022, the Appellant was further issued with a notice of tax assessment.iii.On 26th July, 2022, the Appellant lodged a late notice of objection.iv.On 10th February, 2023, the Appellant was requested to apply for an extension of time to lodge a late objection.v.On 14th February, 2023, the Appellant applied for an extension of time to lodge a late objection.vi.The Respondent on 17th February, 2023, granted the Appellant approval to lodge the late objection.vii.The Respondent issued its objection decision dated 17th April, 2023.

76. Section 51(11) of the Tax Procedures Act provides as follows regarding issuance of an objection decision where a valid objection has been lodged by a taxpayer;“The Commissioner shall make the objection decision within sixty days from the date of receipt of a valid notice of objection failure to which the objection shall be deemed to be allowed.”

77. In the instant case the Appellant’s objection was considered valid on 17th February, 2023 when the Respondent granted approval of the Appellant’s application for late objection. It follows therefore that the Respondent was to render an objection decision on or before 18th April 2023 when the 60 days were to lapse.

78. From the above analysis therefore the Tribunal finds that the Respondent’s objection decision rendered on 17th April 2013 was proper in law.

b.Whether the Respondent’s assessments were in contravention of the provisions of Section 29(5) of the TPA. 79. It was the Appellant’s submission that the Respondent introduced fraud so as to demand taxes beyond 5 years. That by introducing fraud the burden of proof shifted to the Respondent that is “he who alleges must prove”. That the Respondent failed to discharge the burden of proof hence demanding tax beyond 5 years was against the Section 29(5)1 of the TPA.

80. Although the Appellant had indicated that the Respondent had alleged fraud, the Tribunal notes that the Respondent did not directly address this issue in its pleadings and in the objection decision.

81. Section 29(5) and (6) of the Tax Procedures Act provides as follows regarding time limitation during assessment;“(5)Subject to subsection (6), an assessment under subsection (1) shall not be made after five years immediately following the last date of the reporting period to which the assessment relates. 6. Subsection (5) shall not apply in the case of gross or wilful neglect, evasion of fraud by a taxpayer. ”

82. Given that the notice of assessment was issued on 7th April 2022, the last date for Corporate tax reporting as of that date was the 30th June, 2021 for the year of income 2020. The Respondent could as at the date of the assessment issue a tax assessment for the years relating back from the years of income 2020 to 2016.

83. In the instant case the Tribunal notes that the tax assessment covers the period 2016 to 2020 years of income, it therefore follows that the tax assessment was in conformity with Section 29(5) of the TPA.

84. The Tribunal thus finds that the Respondent’s tax assessments was proper.

c)Whether the Respondent’s decision to reject the Appellant’s additional bank statements and thereafter relying on bank deposit analysis in the assessment was proper and justifiable? 85. It was the Appellant’s contention that the Respondent failed to recognize its Equity Bank Account No. 0590265294805. The Appellant stated that it provided all the bank statements for the company.

86. It explained that the Appellant had also obtained copies in which the Respondent chose not to rely on. That Section 3 of the Income Tax Act clearly outlines the basis of charging tax i.e. income tax shall be charged for each year of income upon all the income of a person

87. The Appellant contended that it had two Equity bank accounts namely 0590265294805 and 0590296774087.

88. The Respondent on its part stated that it scrutinized the bank statements provided by the Appellant in support of its objection and established that the Appellant had provided bank statements for Equity A/C No. 0590265294805 while during the investigations, the Respondent analyzed bank statements for Equity A/c No. 590296774087.

89. The Respondent averred that the claims were disallowed since the review process was strictly limited to the contents of the assessments and bank account no. 590296774087 was not part of the assessment.

90. The Tribunal notes that upon being requested by the Respondent to validate its objection by providing supporting documents the Appellant replied and provided some documents. From the Appellant’s response letter dated 23rd February 2023 it stated in part as follows;“…REASONS FOR OBJECTION1. That all bankings are not income for the business.2. …3…4).That in your assessment you used gross bankings.5…..6).That some of the bankings are contra entries and soft loans from friends.7….”

91. From the Appellant’s pleadings and the above mentioned letter, the documents provided including the additional Equity bank account no. 0590265294805 was partly to explain the entries in its Equity bank account No. 590296774087 which the Respondent had analyzed in the process of assessment.

92. Section 51(8) of the TPA provides as follows regarding the issuance of objection decision:-“Where a notice of objection has been validly lodged within time, the Commissioner shall consider the objection and decide either to allow the objection in whole or in part, or disallow it, and Commissioner's decision shall be referred to as an "objection decision".”

93. The Respondent in its pleadings confirmed that it did not consider the additional bank account held at Equity bank presented to it by the Appellant prior to rendering the objection decision with the excuse that it had not initially analysed it during the investigation process.

94. The Tribunal notes that even though it was not disputed that this was not part of the documents that the Respondent analysed during the investigations, the Appellant indicated that it had provided the same in order to explain some entries in the specific bank account that the Respondent had analysed. The Tribunal thus finds the reason given for the failure to consider all the documents provided at the time of validation of the objection was not backed by the law.

95. This position was held by the Tribunal in the case of Afya X-ray Centre Limited –versus- The Commissioner of Domestic Taxes, Appeal No. 70 of 2017 where it was held that:“Be it as it may, this Tribunal notes disappointingly that this issue has become a rich source of monotonous and unintelligent litigation. Given, the Appellant bears the duty of availing records and books of accounts. The Respondent is required to undertake the assessment using all the records provided. This Tribunal’s hands are tied insofar as intendment and implications into tax statutes are concerned. However, we would be remiss if we did not point this conduct of the Respondent relying solely on bank statements is likely to cause prejudice of untold measures to all taxpayers…This Tribunal is concerned with the status, better yet, the validity of an assessment that has relied only on bank statements. It is common knowledge that every deposit in an account is not necessarily income to the account owner.…That being the case, we find that the assessment as it currently stands is in breach of the basic accounting principles that if allowed will be prejudicial to the Appellant. Secondly, the Respondent has to be put on notice because it has become habitual to rely on bank statements and raise an assessment against taxpayers. This in our humble opinion is unacceptable if at all we are concerned with giving to Caesar only what is due.”

96. The Tribunal further reiterates its decision in TAT 212 of 2023 Modesty Medical Center Limited V Commissioner Of Domestic Taxes where the Tribunal held as follows at paragraph 42;“The Tribunal, taking into consideration all the foregoing, determines that the dispute be referred back to the Respondent to consider the information provided by the Appellant in the email of 27th January 2023 to decide on the objection according to Section 51(8) of the TPA.”

97. Consequently, the Tribunal holds that the Respondent’s decision to reject the Appellant’s bank statements for Equity account no. 0590265294805 and thereafter resorting to bank deposit analysis in confirming the assessment was not proper and justifiable. This was more so significant in determining the taxability of any interbank transfer transactions.

98. Under the circumstances it will be expedient to refer this matter to the Respondent to revisit and undertake afresh determination of the notice of objection taking into consideration the bank statement of the Appellant’s Equity Account No. 0590265294805 alongside the other documents which were provided by the Appellant at the objection stage. The confirmed assessments and demand ought to be accordingly referred back to the Respondent.

Final Decision 99. Based on the foregoing analysis the Tribunal determines that the Appeal is partially merited and the Orders that accordingly recommend themselves are as follows: -i.The Respondent’s Objection decision be and is hereby varied in the following terms;a.The Appeal be and is hereby partially allowed.b.The matter is hereby referred back to the Respondent to review all the additional documents provided by the Appellant in support of its notice of objection and accordingly issue a fresh objection decision within Sixty (60) days of the date of delivery of this Judgment.ii.Each party to bear its own costs.

100. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 28TH DAY OF JUNE, 2024ERIC NYONGESA WAFULACHAIRMANDR. RODNEY O. OLUOCHMEMBERCYNTHIA B. MAYAKAMEMBERABRAHAM K. KIPROTICHMEMBERTIMOTHY B. VIKIRUMEMBER