[2023] KETAT 505 (KLR)

Wamai v Commissioner of Domestic Taxes (Tax Appeal 425 of 2022) [2023] KETAT 505 (KLR) (1 September 2023) (Judgment)

Neutral citation: [2023] KETAT 505 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 425 of 2022

Grace Mukuha, Chair, G Ogaga, Jephthah Njagi, E Komolo & T Vikiru, Members

September 1, 2023

Between

Charles Wanjuki Wamai

Appellant

and

Commissioner Of Domestic Taxes

Respondent

Judgment

Background 1. The appellant is an individual with a tax registration and income tax and value added tax obligations.

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. 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 Parts I and II of the First Schedule to the KRA Act for the purposes of assessing, collecting and accounting for all revenues in accordance with those laws.

3. The respondent issued the appellant with an income tax additional assessment for the tax period January 1, 2019 to December 31, 2019 and Value Added Tax (VAT) additional assessments for the periods December 2017, December 2018 and January 2019 which arose when the respondent charged income tax and VAT on the sales turnover variance determined after an income tax and VAT returns review for the years 2017, 2018 and 2019.

4. The appellant made applications for extension of time to file Notices of Objection to the assessments, which the respondent rejected in its objection decision letters dated January 29, 2021 and July 2, 2021 for the reasons that the appellant failed to give a valid reason for objecting out of time, and also failed to provide documentary evidence to support its grounds for objection.

5. The Appellant consequently filed an Appeal on April 26, 2022.

The Appeal 6. The Appeal is premised on the Memorandum of Appeal dated February 14, 2022 and filed on April 26, 2022 which raised the following grounds: -a.That the respondent erred in the decision to issue the Appellant with additional tax assessments in respect of income tax and VAT on income that the appellant did not earn. Additional assessment number KRA20XXXX08 for 2019 was on Kshs 65,485,053. 00, the appellant‟s gross turnover for the year had already been declared in the 2019 return of income. That VAT additional assessments for December 2017 KRA20XXXX50, December 2018 KRA20XXXX32 and January 2019 KRA20XXXX12 were issued on unexplained income.

b.That the respondent rejected the appellant‟s income tax objection on the ground that the appellant‟s reason for objecting was not satisfactory. That the Appellant objected for the reason that it had been assessed twice on the same income. That the appellant had asked the respondent to explain how it arrived at the additional income, but the respondent confirmed the assessment instead.c.That the respondent charged income which had already been assessed.d.That the respondent confirmed additional assessments instead of amending them.

Appellant‟s Case 7. The appellant‟s case is premised on the Statement of Facts dated February 14, 2022 and filed on April 26, 2022.

Appellant‟s prayers. 8. The appellant prays for:a.The assessments to be based on the actual income.b.The assessments be amended to NIL as the income in question has been assessed elsewhere.

Respondent‟s Case 9. The respondent‟s case is premised on the Statement of Facts dated on April 26, 2022 and filed on June 20, 2022 and its Written Submissions dated and filed on January 18, 2023.

10. The respondent stated that the additional assessments KRA references KRA20XXXX08, KRA20XXXX50, KRA20XXXX32, and KRA20XXXX12 arose from variances between Income tax and VAT declarations for the periods 2017, 2018 and 2019.

11. The respondent adduced the pre-assessment demand notice that it issued to the appellant on August 24, 2020 wherein it advised the appellant to amend his income tax return for the year of income of 2019, following the variances it noted between his income tax and VAT returns and the audited accounts for the period of January 2019 to December 2019.

12. The respondent submitted that it issued the appellant with additional VAT assessments on October 28, 2020 for the periods December 2017 and December 2018 and on February 18, 2021 for the period January 2019, and an additional income tax assessment on October 28, 2020 for the year of income of 2019.

13. The respondent averred that the appellant lodged an objection application against the assessments on December 4, 2020 and on May 4, 2021 and failed to give valid reasons for objecting out of time.

14. The respondent stated that it acted pursuant to the Tax Procedures Act, 2015 (TPA) requesting the appellant to provide reasons for objecting late with the relevant supporting documents within seven (7) days, and further stated that in compliance with the provisions of articles 47 and 50 of the Constitution of Kenya , and section 4 (1) and (2) of the Fair Administrative Actions Act, 2015, it gave the appellant ample time and further followed up with a phone call, where the appellant promised to revert on the request.

15. The respondent issued its decisions in letters dated on January 29, 2021 and July 2, 2021 confirming the additional assessments of income tax and VAT citing its finding that the appellant lodged late objections, and its reason for the decisions that the appellant failed to provide documentary evidence in support of its objection ground contrary to section 51 (3)(c) of the TPA and failed to give a valid reason for objecting out of time.

16. The respondent stated that the appellant contravened sections 31, 59 and 78 of the TPA and was not compliant with the general principles of accounting.

17. The respondent averred that section 56 (1) of the TPA provides that the burden of proving that a tax assessment is wrong lies with the taxpayer, and that in this case, the appellant failed to prove to the satisfaction of the Respondent that the assessment was wrong.

18. The respondent further relied onDigital Box Limited v Commissioner of Domestic Taxes (TAT No 115 of 2017), Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya (2021) eKLR, and Kenya Revenue Authority v Maluki Kitili Mwendwa [2021] eKLR to submit that the appellant bore the burden of proving that the tax decision was incorrect but failed to prove his claim that the gross turnover had already been declared.

19. The respondent further stated that despite it requesting the appellant to support his objection, the appellant did not furnish the information and for that reason, it confirmed the assessment.

20. The respondent submitted that it is empowered to assess any taxpayer should there be a need, pursuant to section 24 (2) of the TPA which states that:-“(2)The 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.”

21. The respondent explained that every taxpayer has a duty to pay the correct taxes as and when they are due and that the assessment contained the amount of tax the appellant should have paid. It further argued that the appellant‟s ground that the assessment was excessive, punitive or unjustified was unsubstantiated.

22. The respondent buttressed its argument on the requirements for what is deemed as a reasonable assessment by citing Digital Box Limited v Commissioner of Investigations and Enforcement (TAT No 115 of 2017) where the Tribunal stated that: -“The Tribunal is guided by the test set out in CA McCourtie LON/92/191 where it was stated: -„In addition to the conclusions drawn by Woolf J in Van Boeckel earlier tribunal decisions identified three further propositions of relevance in determining whether an assessment is reasonable. These are, first that the facts should be objectively gathered and intelligently interpreted; secondly, that the calculations should be arithmetically sound; and, finally, that any sampling technique should be representative and free from bias‟.”

23. The respondent submitted that the assessments met all the set conditions for a reasonable assessment in relation to the variances noted between the sales declared in the appellant‟s VAT and income tax returns and the audited accounts for the period of January 2019 to December 2019, and averred that the calculations were sound and correct, thus the Appellant was liable to pay the taxes as per the assessments issued.

Respondent‟s prayers. 24. The respondent prays that the Tribunal:a.Upholds the Objection decisions dated January 29, 2021 and July 2, 2021. b.Dismisses the appeal with costs to the respondent.

Issues for Determination 25. 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 erred in rejecting the appellant‟s applications for extension of time to lodge his notices of objection in its objection decisions dated January 29, 2021 and July 2, 2021. b.Whether the additional assessments were lawful and justified.

Analysis and Findings 26. Having identified the issues that call for its determination, the Tribunal proceeded to analyze them as hereunder:-a)Whether the respondent erred in rejecting the appellant‟s applications for extension of time to lodge his notices of objection in its Objection Decisions dated January 29, 2021 and July 2, 2021.

27. On December 4, 2020 and May 4, 2021, the appellant applied to the respondent for extension of time to lodge his notices of objection to income tax and VAT additional assessments.

28. The respondent rejected the applications in objection decisions dated January 29, 2021 and July 2, 2021 and confirmed the additional assessments of income tax and VAT, citing its finding that the appellant lodged late objections, and its reasons for the objection decisions being that the appellant failed to give a valid reason for objecting out of time and failed to provide documentary evidence in support of his objection ground contrary to section 51 (3) (c) of the TPA.

29. The Tribunal perused the evidence presented before it and found that the reason the appellant provided for applying for extension of time to lodge its notice of objection was that „he gave the work to an auditor but the auditor failed to object in time‟. The respondent found this reason not be valid and rejected the appellant‟s application for extension of time to lodge his notices of objection.

30. The Tribunal finds that the appellant did not discharge his burden of proof when he failed to adduce evidence to support his appeal against the impugned objection decisions to reject the applications for extension of time to lodge notices of objection, as required under section 30 (b) of the Tax Appeals Tribunal (TAT) Act which provides that: -“30. In a proceeding before the tribunal, the appellant has the burden of proving—(b)in any other case, that the tax decision should not have been made or should have been made differently.”

31. Notwithstanding the failure of the appellant to provide evidence for his reason for lodging his objections out of time, it is the Tribunal‟s considered view that the reason the appellant provided for lodging his objections out of time was insufficient and unreasonable. When a party selects a professional, who fails to represent him/it as instructed, sometimes it is fair to let the consequences fall on the party, as in this case. Such a party should seek recourse for the failed performance from that professional. This observation is cemented in section 16 (8) of the TPA on the responsibilities or obligations of a tax representative, which states that: -“(8)This section does not relieve a taxpayer from performing any obligation imposed on the taxpayer under a tax law that the tax representative of the taxpayer has failed to perform.”

32. Further, the tribunal considers that the respondent is expected to resolve tax disputes expeditiously to enable taxpayers to make informed decisions. Any delay in the dispensation of tax disputes has the effect of delaying the issuance of an objection decision. The timelines for objecting to tax assessments are clearly set in the law, and all taxpayers are liable to comply with the timelines, save for when unavoidable circumstances prevent a taxpayer from fulfilling its obligations as envisioned in section 51 (7) of the TPA which states that: -“(7)The Commissioner may allow an application for the extension of time to file a notice of objection if—a.the taxpayer was prevented from lodging the notice of objection within the period specified in subsection (2) because of an absence from Kenya, sickness or other reasonable cause; andb.the taxpayer did not unreasonably delay in lodging the notice of objection.”

33. The tribunal buttresses its observation of the importance of adherence to timelines by referring to Eastleigh Mall Limited v Commissioner of Investigations & Enforcement (Income Tax Appeal E068 of 2020) [2023] KEHC 20000 (KLR) where the court stated as thus: -“... Parliament in its wisdom knew that in matters tax, time is very crucial as those in commerce need to make informed decisions. If the Commissioner is allowed to exercise his discretion and stay ad-infinitum before issuing an objection decision, the taxpayer would be unable to make crucial decisions and plan his/her business properly. The timelines set are mandatory and not a procedural technicality.”

34. The tribunal is further guided by the case of W.E.C. Lines Ltd vs The Commissioner of Domestic Taxes [TAT Case No.247 of 2020] where it was held at paragraph 70 while reiterating the holding in Krystalline Salt Ltd vs KRA [2019] eKLR that:“Where there is a clear procedure for redress of any particular grievance prescribed by the Constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures. The relevant procedure here is the process of opposing an assessment by the Commissioner.”

35. Based on the foregoing, the Tribunal finds that the Respondent correctly rejected the extension of time to lodge notices of objection in its decisions dated January 29, 2021 and July 2, 2021. (b)Whether the additional assessments were lawful and justified.

36. Having determined that the respondent‟s decisions to reject the appellant‟s applications to lodge notices of objection out of time were correct, the tribunal did not address this second issue as it has been rendered moot.

Final Decision 37. The upshot of the foregoing is that the appeal fails and the tribunal accordingly proceeds to make the following orders:a.The appeal be and is hereby dismissed.b.The respondent‟s decisions dated January 29, 2021 and July 2, 2021 be and are hereby upheld.c.Each party to bear its own costs.

38. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 1ST DAY OF SEPTEMBER, 2023. GRACE MUKUHA CHAIRPERSONGLORIA A. OGAGA MEMBERJEPHTHAH NJAGI MEMBERERICK KOMOLO MEMBERTIMOTHY VIKIRU MEMBER