[2024] KETAT 1591 (KLR)

Wangaruro v Kenya Revenue Authority (Tribunal Appeal E072 of 2024) [2024] KETAT 1591 (KLR) (22 November 2024) (Judgment)

Neutral citation: [2024] KETAT 1591 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal E072 of 2024

E.N Wafula, Chair, G Ogaga, RO Oluoch & AK Kiprotich, Members

November 22, 2024

Between

Paul Githogori Wangaruro

Appellant

and

Kenya Revenue Authority

Respondent

Judgment

Background 1. The Appellant is an individual and duly registered taxpayer as per the laws of Kenya. He is in the business of supply of services.

2. The Respondent is established under the Kenya Revenue Authority Act, Cap 469 Laws of Kenya (KRA Act). Under Section 5(1) of the Act, the Respondent 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 carried out investigations into the business of the Appellant for the period 2017-2021 for Income tax and VAT obligations.

4. The Respondent issued a notice of intention to raise assessments and subsequently issued additional assessments on 26th May 2021 and 16th March 2022 for VAT and Income tax for the period 2017-2021 totaling to Kshs. 26,269,344. 00.

5. The Appellant lodged an Objection on 7th April 2022 on iTax.

6. The Respondent wrote to the Appellant in a letter dated 26th May 2022 notifying the Appellant that his Objection application was invalid for failing to meet the requirements of Section 51(3) of the Tax Procedures Act.

7. The Appellant, being dissatisfied with the Respondent’s decision, on 24th January 2024 filed its Notice of Appeal dated 23rd January 2024.

The Appeal 8. The Appeal is premised on the Memorandum of Appeal dated 23rd January 2024 and filed on 24th January 2024 which raised the following grounds: -a.That the Appellant is dissatisfied with the tax assessed by the Commissioner through notice of intention to raise an assessment letter raised on 24th October 2022 and the Objection invalidation decision dated 26th May 2022. b.That the chronology of events related to this case is detailed in the Statement of Facts attached to this Memorandum of Appeal.

Appellant’s Case 9. The Appellant’s case is premised on its Statement of Facts filed on 24th January 2024 and the documents attached to it.

10. The Appellant stated that in the year 2022, an auto assessment was done and results thereof requested that he pays some principal VAT amounts clearly stipulated on the emails dated 12th April 2022 and 23rd April 2022.

11. That after receipt of the above, he objected to the same and received the Respondent’s invalidation of the Objection through a letter dated 26th May 2022.

12. The Appellant further stated that he is appealing the Objection invalidation decision.

13. The Appellant noted that the invalidation of the Objection was not to his favour due to the delay in submitting the required documents.

14. The Appellant averred that he felt that this matter can be handled with ease, and that he is willing to avail supporting documents.

Appellant’s prayers 15. The Appellant prayed for the following Orders:-a.That the Respondent’s decision be set aside.b.That the matter be referred back to the Respondent for ADR.

Respondent’s Case 16. The Respondent’s case is premised on the following documents:a.The Respondent’s Statement of Facts dated 30th January 2024 and filed on 2nd February 2024; andb.The Respondent’s written submissions dated and filed on 6th August 2024.

17. The Respondent stated that it carried out investigations into the business of the Appellant for the period 2017-2021 with a view of confirming his tax compliance under Income tax and VAT obligations and to confirm if income was declared under Section 3(2) and Part IV of the Income Tax Act and VAT Act.

18. The Respondent further stated that the information from the iTax database on non-filers showed that the Appellant had received deposits of Kshs. 1,985,837. 92 for VAT and Kshs. 3,121, 671. 15 for income between the years 2017 and 2021 as payment for services provided.

19. That during the said review, it was discovered that there were inconsistencies between the returns filed by the Appellant’s suppliers and invoices claimed by the Appellant for the years 2017-2021.

20. That the Appellant was informed on the inconsistency of the VAT3 returns, and the Appellant was requested to resolve the same however, he failed to resolve the said inconsistencies within the stipulated timeframe.

21. That further to the review, it was established that the Appellant had transacted with several companies namely East African Malting Limited, Kenya Breweries Limited and Greenspot Gardens Limited but failed to declare the business income. The Respondent stated that it issued a notice of intention to raise assessments.

22. That as a result, the Respondent, based on the existing inconsistencies, raised additional assessments on 26th May 2021 and 16th March 2022 for VAT and Income tax for period 2017-2021 totaling to Kshs. 26,269,344. 00.

23. The Respondent averred that the Appellant lodged an objection on 7th April 2022 on iTax which it duly acknowledged.

24. The Respondent affirmed that it notified the Appellant that the objection as lodged was invalid as it did not meet the requirements of Section 51(3) of the Tax Procedures Act 2015.

25. That in light of the above, the Respondent issued a demand for documents in line with the Objection lodged through email for audited financial statements, supplier statements, proof of expenses incurred and certified bank statements.

26. The Respondent asserted that the Appellant failed to provide the relevant supporting documents, records and invoices for the period 2017-2021 in support of his Objection. That the Appellant’s VAT and income was therefore estimated, as this was the only reasonable basis of assessing the VAT and Income tax.

27. That a notice invalidating the Objection was issued on 26th May 2022 confirming the said assessments.

28. The Respondent stated that the Appellant filed a late Notice of Appeal which was allowed against the decision of the Commissioner on 11th October 2023 confirming the assessment of Kshs. 26,269,344. 00.

29. The Respondent asserted that in response to ground 1 of the Memorandum of Appeal and the Statement of Facts, the assessments were correctly issued and conform to the Income Tax Act. That the Appellant did not provide any evidence that would have altered the assessment.

30. The Respondent submitted that Section 56(1) of the Tax Procedures Act places the onus of proof in tax objections on the taxpayer who in this case failed to avail evidence that would support a contrary assessment or that would have guided the Respondent at arriving to a different decision.

31. That in further response to ground 1 of the Memorandum of Appeal, the Respondent averred that examination of the Appellant’s records, audited accounts and Income tax returns established that the Appellant failed to declare business income and all his incomes for years 2017-2021.

32. The Respondent stated that it is empowered under Section 73(1) and (2) of the Income Tax Act to bring to charge income where the same is established as due.

33. That in further response to ground 1 of the Memorandum of Appeal, the Respondent averred that the tax was reached at based on the information available and provided by the Appellant and the Commissioner is empowered by Section 29(1) of the Tax Procedures Act to make such decisions.

34. The Respondent, in further response to ground 1 of the Memorandum of Appeal, asserted that the Appellant failed to properly lodge his Objection and failed to state the reasons precisely to be addressed in the assessments raised as provided by Section 51(3) of the Tax Procedures Act.

35. The Respondent averred that the taxpayer despite declaring some income knowingly continued to under-declare income for the period under review contrary to the provisions of the Income Tax Act.

36. The Respondent submitted, in support of its assertions, that it is the responsibility of any person carrying on business to maintain records of all transactions according to Sections 54A(1) and 55(2) of the Income Tax Act.

37. In further response to ground 2 of the Memorandum of Appeal, the Respondent averred that the it is empowered by Section 31 of the Tax Procedures Act 2015 to carry out amendments on assessments where adjustments are due, to bring to charge the correct amounts.

38. The Respondent averred that the Appellant was uncooperative in the provision of relevant records and failed to respond to request for documents hence no relevant documents or records were provided to support his Objection. That as a result, the assessments were made based on the only available information and on the best judgement by the Respondent.

39. That in further response to ground 2 of Memorandum of Appeal, the Respondent submitted that the Appellant did not file income tax returns for the accounting period 2017-2021 in contravention of the requirements of Sections 94 and 95 of the Tax Procedures Act and that the estimated assessments were correct, based on the best judgement where the Appellant’s audited accounts and records were analyzed and adjustments made for, income declared and withheld tax deducted at source.

40. The Respondent further averred that the Appellant failed to provide the documents requested in support of his Objection hence the input VAT was disallowed. The Respondent insisted that Section 17 Value Added Tax (VAT) Act empowers it to disallow such input VAT where the necessary documents are not provided.

41. The Respondent asserted that examination of the Appellant’s records established that the Appellant earned income from partnership business in the period under audit, however, these incomes were not declared for tax purposes for the year earned.

42. The Respondent asserted further that the Appellant carried on business in contravention of Section 93 of the Tax Procedures Act which requires such documents be maintained for purposes of taxation. The Respondent also cited Sections 42 and 43 of the Value Added Tax (VAT) Act in support of its argument.

43. The Respondent relied on the following cases to support its arguments, and urged the Tribunal to find that the Appellant failed to discharge the burden of proof placed upon it in demonstrating that the Respondent erred in confirming the assessments:a.Monaco Engineering Limited -V- Commissioner Domestic Taxes TAT Appeal No.67/2017. b.Osho Drappers Ltd Vs Commissioner of Domestic Taxes, TAT No. 159 of 2018. c.Miao Yiv Commissioner of Investigations & Enforcement TAT No. 441 of 2019. d.Ritz Enterprises Limited vs Commissioner of Investigations & Enforcement TAT No. 227 of 2018. e.Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLRf.Janet Kaphiphe Ouma and another v. Marie Stopes International (Kenya), HCC No. 68 of 2007g.Dyer & Dyer Limited v Commissioner of Domestic Taxes TAT 139 of 2020. h.Commissioner of Domestic Taxes v Metoxide Limited [2021].i.Ken Iron and Steel Limited v Commissioner Investigations and Enforcement (2021).j.Commissioner of Domestic Services v Galaxy Tools Limited (2021) eKLR

Respondent’s prayers 44. The Respondent prayed that the Tribunal finds:a.That the its decision of invaliding the Objection be upheld.b.That the outstanding tax arrears of Kshs. 26,269,344. 00 are due and payable by the Appellant.c.That the confirmed assessments dated 16th March 2022 and 26th May 2021 were proper in law.d.That the Appeal herein be dismissed with costs to the Respondent.

Issues For Determination 45. 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 there is a valid Appeal on record.b.Whether the Respondent was justified in invalidating the Appellant’s Objection.

Analysis And Findings 46. 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 decision.

Whether there is a valid Appeal on record 47. The Respondent carried out investigations into the business of the Appellant for the period 2017-2021 for Income tax and VAT obligations.

48. The Respondent issued a notice of intention to raise assessments and subsequently issued additional assessments on 26th May 2021 and 16th March 2022 for VAT and Income tax for the period 2017-2021 totaling to Kshs. 26,269,344. 00.

49. The Appellant lodged an Objection on 7th April 2022.

50. The Respondent wrote to the Appellant in a letter dated 26th May 2022 notifying the Appellant that his Objection application was invalid for failing to meet the requirements of Section 51(3) of the Tax Procedures Act.

51. The Appellant, being dissatisfied with the Respondent’s decision, on 24th January 2024 filed its Notice of Appeal dated 23rd January 2024.

52. The Tribunal refers to the procedure for appeal provided in Section 13(1)(b) of the Tax Appeals Tribunal (TAT) Act which requires that a Notice of Appeal be submitted to the Tribunal within thirty (30) days upon receipt of the decision of the Commissioner if a taxpayer wishes to appeal that decision.

53. Section 13(3) of the TAT Act provides the remedy to any party who wishes to lodge an Appeal out of time, being that any such intended Appellant may in writing to the Tribunal in writing, seek an extension of time and leave to file an Appeal out of time. The provision reads as follows: -“The Tribunal may, upon application in writing, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).”

54. The Tribunal’s position is that the Appellant ought to have lodged its Notice of Appeal within thirty (30) days from 26th May 2022. The Tribunal observes from the documents on record that the Appellant filed his Notice of Appeal on 24th January 2024, which was on a date later than thirty (30) days of receiving the Respondent’s decision of 26th May 2022.

55. The Tribunal is of the considered view that the timelines for appealing the Commissioner’s decisions are clearly set in the law, and all parties are liable to comply with the timelines, save for when unavoidable circumstances prevent a party from fulfilling its obligations as envisioned in Section 13(4) of the TAT Act which provides as thus: -“(4)An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from filing the notice of appeal or submitting the documents within the specified period.”

56. The Tribunal further notes that the Appellant failed to apply for leave to file hiss Notice of Appeal out of time as required under Section 13(3) of the TAT Act, which states: -“The Tribunal may, upon application in writing or through electronic means, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).”

57. The Tribunal refers to 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.”

58. The Tribunal is further guided by TAT Appeal No. 1321 of 2022 CKL Africa Limited v Commissioner of Domestic Taxes where it was held: -“63. The law makes provisions under Section 13 (3) of the Tax Appeals Tribunal Act for any party who lodges its appeal out of time and with reasonable grounds, to seek leave of the Tribunal to file its appeal out if time, the Appellant did not move the Tribunal seeking such Orders.

64. The timelines provided under Section 47 (13) of the Tax Procedures Act and Section 13 (1) of the Tax Appeals Tribunal Act demand strict adherence and are not discretional to any party lodging an appeal before the Tribunal.

65. It is the Tribunal’s position that there is no proper and valid Appeal before the Tribunal for the exercise of its jurisdiction.”

59. The Tribunal finds that the Notice of Appeal herein was lodged beyond the statutorily prescribed period and is therefore incompetent and unsustainable in law. The Appeal is therefore not validly and properly before the Tribunal.

Final Decision 60. The upshot of the foregoing analysis is that the Tribunal finds that the Appeal is incompetent and accordingly proceeds to make the following Orders:a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

61. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 22ND DAY OF NOVEMBER, 2024. ERIC NYONGESA WAFULACHAIRMANGLORIA A. OGAGAMEMBERDR. RODNEY O. OLUOCHMEMBERABRAHAM K. KIPROTICHMEMBER