[2024] KETAT 1305 (KLR)

Voghjiyani Enterprises Limited v Commissioner of Domestic Taxes (Appeal 417 of 2023) [2024] KETAT 1305 (KLR) (Civ) (26 July 2024) (Judgment)

Neutral citation: [2024] KETAT 1305 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Appeal 417 of 2023

CA Muga, Chair, BK Terer, D.K Ngala & SS Ololchike, Members

July 26, 2024

Between

Voghjiyani Enterprises Limited

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

1. The Appellant is a private limited company with operations in Kenya having been incorporated under the Companies Act CAP 486 of Kenya’s Laws.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all tax revenue. Further, under Section 5(2) of the Act with respect to the performance of its functions under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part 1 and 2 of the First Schedule to the Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The Respondent conducted investigation against the Appellant’s affairs resulting in the issuance of an assessment order on 9th October 2018.

4. The Appellant objected to the assessment on 12th October 2018 vide the i-Tax portal and delivered a physical letter for the same on even date.

5. The Respondent rendered its confirmation assessment notice on 23rd February 2023 demanding Ksh 43,076,909. 12 relating to income tax for the year 2016.

6. Aggrieved by the Respondent’s confirmation assessment notice dated 23rd February 2023, the Appellant was granted leave to file its Notice of Appeal dated 8th June, 2023 by the Tribunal on 26th May 2023.

The Appeal 7. The Appeal was premised on the following grounds as laid-out in the Memorandum of Appeal dated 8th June 2023 and filed on 4th August 2023;i.That the objection decision by the Respondent was made well after the sixty (60) days period granted by law had already lapsed.ii.That the Appellant’s objection dated 12th October 2018 in respect to a notice of assessment was deemed accepted by operation of the law on lapse of 60 days.iii.That the Respondent’s demand for Ksh 43,076,909. 12 from the Appellant for the year 2016 was not only excessive but was contrary to and not couched in law.iv.That the Respondent failed to consider Appellant’s audited accounts and did not exercise its best judgement in assessing the Appellant’s corporation income tax.v.That contrary to provisions of Fair Administrative Actions Act, CAP 7L of Kenya’s Laws (hereinafter “FAAA”) the Respondent erred in law and fact by breaching the legitimate expectations of the Appellant.vi.That in issuing its objection decision dated 23rd February 2023, the Respondent ignored evidence, explanations and supporting documentation.

Appellant’s Case 8. The Appellant’s Statement of Facts made through the Managing Director Mr. Hiten Valji Vaghjiyani were dated 8th June 2023 and filed 4th August 2023. The Statement of Facts had a missing page 2 and had not been uploaded on the Judiciary Case Tracking System (herein after “CTS”).

9. That after engaging the Respondent, the Appellant was granted leave prior to issuance of assessment notice to submit comprehensive returns for income tax covering 1st January 2016 to 31st December 2016.

10. The Appellant contended that the Respondent’s demand for the impugned taxes were not based on any known law, an action that was only aimed at disrupting the Appellant’s business.

11. The Appellant contested, through its objection, the accounting concept adopted by the Respondent in its assessment stating that the Respondent failed to comprehensively consider all items including but not limited to revenue purchases and salaries yet the Appellant had many other administrative and operating expenses during the year as indicated in the audited financial statements.

12. That the Appellant failed to file its returns for the year due to the additional assessment by the Respondent. Moreover, the Respondent failed to consider that the Appellant had incurred a loss of Ksh 124,194,348. 00 in the year 2016 when rendering its decision.

13. The Appellant was therefore convinced that the Respondent’s actions were erroneous because the Respondent disregarded material evidence and documentation presented. The only recourse being penalty fees in relation to Appellant’s late filing of return.

14. The Appellant further implored the Tribunal to strike out the Respondent’s notice of assessment dated 9th October 2018 and objection decision dated 23rd February 2023 in their entirety.

Appellant’s Prayer 15. The Appellant’s prayers to the Tribunal were as follows:a.That the notice of assessment dated 9th October 2018 and objection decision dated 23rd February 2023 for the year of income 2016 be struck out in entirety with costs.b.That the demanded taxes be declared arbitrary, unreasonable, unfair and contrary to administration of justice.c.That the Respondent’s employees, agents or other person purporting to act on its behalf be estopped from demanding or taking further steps towards enforcement or recovery of principal tax, penalties and interest against the Appellant.d.The Costs of the Appeal.

The Respondent’s Case 16. The Respondent replied to the Appeal through its Statement of Facts dated and filed on 8th September 2023 as hereinunder:

17. The Respondent through its Preliminary Objection averred that the instant Appeal was fatally defective since it contradicted the Tribunal’s orders of 26th May 2023 wherein the Appellant was directed to file and serve the Respondent with documents within 15 days from the date of Application.

18. The Respondent confirmed that it issued additional assessments after the Appellant failed to file their returns for income tax for the 1st January 2016 to 31st December 2016 period. This was informed by the Respondent’s best judgement and available information in absence of Appellant’s returns.

19. The Respondent stated that the Appellant’s notice of objection dated 12th October 2018 in relation to additional assessments was lodged late. Further, that the Appellant’s request for extension to lodge objection on 24th August 2018, 27th September 2018, and 12th October 2018 were not supported by reasons for late objection.

20. The Respondent refuted all averments made in the Appellant’s Memorandum of Appeal and Statement of Facts stating that there was no valid objection upon which the Respondent could decide upon. The Respondent relied on Section 51(3) of the TPA which provides that;“A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if-a.The notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision and the reasons for the amendments;b.In relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay the tax not in dispute under Section 33(1); andc.All the relevant documents relating to the objection have been submitted.”

21. That since Section 51(3) of the TPA employs a conjunctive term ‘and,’ it was incumbent upon the taxpayer to check each box under Section 51(3)(a) to (c) of the TPA to successfully lodge a valid notice of objection. Thus, the instant Appeal was not merited as there was no valid objection. The Respondent cited Section 24(2) of the TPA which provides as follows:“Commissioner shall not be bound by a tax return or information provided by, or on behalf of, a taxpayer and the Commissioner may assess a taxpayer’s tax liability using any information available to the Commissioner.”In buttressing this position, the Respondent also relied on Section 31(1)(a),(b),(c) and Section 31(2) of the TPA.

22. The Respondent was categorical that the Appellant was informed of the assessment and objection decision pursuant to the provisions of Section 29 and Section 51(9) and (10) of the TPA and that the onus of burden of proof rested with the Appellant to show that a tax decision was incorrect as provided for by Section 56(1) of the TPA a burden that was never discharged by the Appellant as no documentary evidence of probative value was adduced to the Respondent.

23. The Respondent asserted that the objection decision dated 29th May 2023 was validly raised and grounds for each assessment were clearly enumerated after consideration of documents availed by the Appellant. Further that the Appellant was informed of the assessment and the objection decision as provided for under Section 29 and Section 51(9) and (10) of the TPA both of which provide as follows:“29(2). The Commissioner shall notify in writing a taxpayer assessed under subsection (1) of the assessment and the Commissioner shall specify-a.The amount assessed as tax or the amount of a deficit or excess of input tax carried forward, as the case maybe;b.The amount assessed as late submission penalty and any late payment penalty payable in respect of the tax, deficit or excess input tax assessed;c.The amount of any late payment interest payable in respect of the tax assessed;d.The reporting period to which the assessment relates;e.The due date for payment of the tax, penalty, and interest being a date that is not less than 30 days from the date of service of the notice; andf.The manner of objection to the assessment.”“51(9) The Commissioner shall notify in writing the taxpayer of the objection decision and shall take all necessary steps to give effect to the decision, including, in the case of an objection to an assessment, making an amended assessment.(10) An objection decision shall include a statement of findings on the material facts and the reasons for the decision.”

24. The Respondent asserted that no documents were availed and denied the contents of paragraph 6 and 7 of the Appellant’s Memorandum of Appeal insisting that it acted within the confines and provision of the law in issuing tax assessment and the objection decision as no documents were availed by the Appellant.

Respondent’s Prayer 25. The Respondent prayed that the additional assessment dated 9th October 2018 be upheld and further that the instant Appeal be dismissed with costs.

Parties’ Written Submissions 26. Neither party filed their submissions as directed by the Tribunal on 29th February 2024.

Issues For Determination 27. The Tribunal having carefully considered the parties’ pleadings and documentation adduced before it and notes that two issues distill for its determination as follows;i.Whether the Respondent’s Preliminary Objection dated was merited.ii.Whether the Respondent’s assessment notice dated 23rd February 2023 was valid.

Analysis And Determination 28. The Tribunal having established two issues for determination proceeds to analyze them as follows:(i)Whether the Respondent’s Preliminary Objection dated was merited.

29. The Tribunal notes that while the Respondent lodged a preliminary objection stating that the instant Appeal was fatally defective since it contradicted the Tribunal’s Orders of 26th May 2023 wherein the Appellant was directed to file and serve the Respondent with documents within 15 days from the date of Application, the Appellant offered no rebuttals to the Preliminary Objection.

30. The Tribunal notes that a Preliminary Objection was well defined in pursuant to the following holding in the case of Mukisa Biscuit Manufacturing Co. Ltd v West End Distributors ltd [1969] EA 696:''So far as I’m aware, a preliminary objection consists of a point of law which has been pleaded, or which arises by clear implication out of pleadings, and which if argued as a preliminary point may dispose of the suit.”

31. The Tribunal notes that the Respondent’s confirmation assessment notice of Ksh 43,076,909. 12 dated 23rd February 2023 was in relation to income tax for the year 2016 and that the Appellant was granted leave by the Tribunal on 26th May 2023 to file its Notice of Appeal dated 8th June, 2023 within 15 days which was to be 11th June 2023. As at 11th July 2023, the Tribunal notes that there was no such filing on CTS.

32. The Tribunal in an electronic mail dated 4th August 2023, acknowledged receipt of the Appeal and allocated the file number to the case. Accordingly, the record of Appeal was filed outside the timelines as directed in the Tribunal’s Orders dated 26th May 2023. This being the case, the Tribunal finds that the Respondent’s Preliminary Objection is merited as the Appellant never complied with the Tribunal’s Orders. The Tribunal reiterates the following holding in the case of Salsa Global Investment Co. Limited v Commissioner of Domestic Taxes [254 of 2021]:“53. Flowing from the above, this Tribunal finds that this Appeal was filed out of time without seeking and obtaining prior leave of the Tribunal. The Appeal is thus found to be defective for being in contravention of the law and hence the Tribunal lacks the requisite jurisdiction to hear and determine the same.”

33. The Tribunal having established that the Respondent’s Preliminary Objection was merited, will not proceed to analyze the second issue for determination as the same has been rendered moot.

Final Decision 34. The upshot of the foregoing is that the Appeal herein lacks merit and the Tribunal accordingly proceeds to make the following Orders:a.The Appeal be and is hereby struck outb.Each party to bear its own costs.

35. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 26TH DAY OF JULY, 2024. ...........................................CHRISTINE A. MUGACHAIRPERSON.............................................BONIFACE K. TERER DELILAH K. NGALAMEMBER MEMBER...............................................OLOLCHIKE S. SPENCERMEMBER