https://new.kenyalaw.org/akn/ke/judgment/ketat/2026/308

**REPUBLIC OF KENYA** **IN THE TAX APPEALS TRIBUNAL AT NAIROBI** **TAT APPEAL NO E1208 OF 2025** **YARDE PARK LOUNGE LIMITED....................................................…....……APPELLANT** **-VS-** **COMMISSIONER FOR DOMESTIC TAXES.................................................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. 1. On 16th May 2025, the Respondent issued the Appellant with a Notice of Intention to audit into the Appellant’s tax affairs for the period January 2020 to December 2021. The Respondent subsequently issued Notice of Audit Findings and additional tax assessment on 23rd June 2025 of Kshs. 593,481,355.00 for corporation income tax and VAT inclusive of interest and penalties. 2. On 18th July 2025, the Appellant filed its objection to the additional tax assessments. The parties then had email correspondences and meetings wherein the Respondent invited the Appellant to validate its objection by providing supporting documents. 3. On 15th September 2025, the Respondent issued its Objection Decision upholding the additional assessments. 4. Aggrieved by the Respondent’s Objection Decision, the Appellant lodged this Appeal vide Notice of Appeal dated 14th October 2025. **THE APPEAL** 1. In its Memorandum of Appeal dated 27th October 2025, the Appellant raised the following grounds of appeal: - * 1. The Respondent erred in law and fact by raising taxes on incorrect reconciled banking variance. 2. The Respondent erred in law and fact by raising taxes on incorrect computation of additional VAT amount from exempt sales. The Appellant was contracted to supply dry maize for milling to Kingmall Flour Millers Limited, which falls under Cereals of Chapter 10, excluding seeds of tariff heading 1002”. The income was declared properly to save for the VAT which did not have any taxes. 3. The Respondent erred in law and facts by disallowing 40% of the purchases due to the fact that the Appellant did not provide receipts of the same. Buying maize from farmers during harvesting or generally buying agricultural products directly from farmers pose challenges in getting purchases invoices, hence it would not be fair for the cost of production to be disallowed on the basis of missing invoices. 4. The Respondent erred in law and facts by contravening Section 3(2)(i) as read with Section 4 of the Income Tax Act (cap. 470) of the Laws of Kenya. 5. The Respondent erred in fact and law by using speculative approach in raising additional tax even after being given all the documentary evidence by the Appellant. 6. The Respondent acted unreasonably, capriciously and is motivated by malice and extraneous considerations in issuing the various tax demands. * 1. The Respondent has outrightly contravened the doctrine of legitimate expectation that rests a presumption on the Respondent to follow certain procedures at arriving at a tax liability and the benefits that accrue from it. **APPELLANT’S CASE** 1. The Appellant’s case is based on its brief Statement of Facts dated 27th October 2025, and written submissions dated 20th May 2026. 2. The Appellant averred that the Respondent disregarded the information and explanations provided by the Appellant. The Appellant provided various documents and explanation during the Respondent audit and following the issuance of the Respondent’s Pre-Assessment Notice which sufficiently explained the variances identified by the Respondent. 3. The Appellant further averred that the Respondent breached the law of legitimate expectation by disallowing all the expenses incurred in the generation of revenue even after evidence has been adduced to the fact that the Appellant was supplying dry maize to a miller, which fact did not attract any VAT. 4. In its written submissions dated 20th May 2026, the Appellant largely reiterated the above contentions, and cited various case law in support of its appeal. **Appellant’s Prayers** 1. The Appellant prayed to the Tribunal for the following orders: - 2. The Appeal be allowed with costs to the Appellant. 3. The Respondent’s demand for Kshs. 593,481,355 together with interest and penalties be set aside. **RESPONDENT’S CASE** 1. The Respondent filed its Statement of Facts dated 17th December 2026, and Written Submissions dated 4th June, 2026 in opposition to the Appeal. 2. The Respondent averred that the additional income tax assessments were based on disallowed unsupported expenses and undeclared income from variances in the Appellant’s VAT and income tax company declarations. 3. The Respondent further averred that at the objection stage, the Appellant provided only bank statements, audited accounts and contract, but failed to provide additional documents sought, thus the Respondent failed to fully support its objection as required under Section 23, 58 and 59 of the Tax Procedures Act to enable ascertainment of its tax liability. 4. The Respondent asserted that the additional income tax and VAT assessments are proper based on information available to it and its best judgment. 5. In its Written Submissions dated 4th June, 2026, the Respondent largely reiterated the above assertions and cited various case law including ***Ngurumani Traders Ltd -vs- Commissioner of Investigation & Enforcement (2019) eKLR*** to support its case. **Respondent’s Prayer**s 1. The Respondent prayed to the Tribunal for the following orders: - 2. The Appeal be dismissed with costs to the Respondent. 3. The Respondent’s Objection Decision dated 15th September, 2025 be upheld. **ISSUES FOR DETERMINATION** 1. The Tribunal having considered the parties' pleadings, submissions and documents filed before it is of the view that the issue that falls for its determination is ***whether the Respondent’s Objection Decision dated 15th September 2025 is justified.*** **ANALYSIS AND DETERMINATION** 1. The instant Appeal is premised on the Respondent’s Objection Decision dated 15th September, 2025, which confirmed additional VAT and corporation (income) tax assessment of Kshs. 593,481,355.00 for 2020 and 2021 inclusive of penalties and interests. 2. The Respondent submitted that at the objection stage, the Appellant provided only bank statements, audited accounts and contract, but failed to provide additional documents sought, thus did not discharge its burden of proof. 3. On its part, the Appellant submitted that the Respondent disregarded the information and explanations it provided. The Appellant further submitted that it provided various documents and explanations during the Respondent’s audit and following the issuance of the Respondent’s Pre-Assessment Notice which sufficiently explained the variances identified by the Respondent. 4. According to the Appellant, the Respondent breached the law of legitimate expectation by disallowing all the expenses incurred in the generation of revenue even after evidence has been adduced to the fact that the Appellant was supplying dry maize to a miller that does not attract VAT. 5. The Tribunal reviewed rival pleadings and annextures thereto. From the record before the Tribunal, the Respondent, vide its email of 12th August 2025 to the Appellant, sought the following documents, which are also outlined in the Objection Decision: - 6. Bank Statements. 7. Audited accounts foe the period under audit. 8. Expenses ledgers/Schedules for the period under audit. 9. Expenses records for the period under audit. 10. Details sales and purchases ledgers. 11. Sample of sales invoices and agreements, if any. 12. Any other supporting evidence. 13. The Tribunal further notes that in its email correspondence with the Appellant and Objection Decision dated 15th September 2025, the Respondent explicitly stated the relevance of the documents sought in validating the Appellant’s objection, which could have led to variation of the additional assessments. However, there is nothing on record to show that Appellant provided the said documents in accordance with the applicable law. 14. Section 59 of the Tax Procedures Act (cap 469B) provides as follows regarding the Appellant’s duty to produce documents and records as may be sought by the Respondent: - 15. *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 –* 16. *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;* 17. *furnish information relating to the tax liability of any person in the manner and by the time as specified in the notice; or* 18. *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.* 19. Section 56 (1) of the Tax Procedures Act (cap 469B), which 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* 1. Furthermore, Section 30 of the Tax Appeals Tribunal Act (cap 469A) provides as follows on the Appellant’s burden of proof: - *In a proceeding before the Tribunal, the appellant has the burden of proving—(a)where an appeal relates to an assessment, that the assessment is excessive; or(b)in any other case, that the tax decision should not have been made or should have been made differently.* 1. The Honourable Tribunal has also previously reiterated the Appellant’s duty to discharge its burden of proof in the first instance. In **Abyssinia Iron and Steel Ltd -vs- Commissioner of Customs and Border Control** (**TAT No. 435 of 2022)**, the Tribunal held as follows: - *The bottom line is that once the Appellant has provided evidence that the Respondent's assessment was wrong, then the Respondent must push back and show that its assessment was not arbitrary, capricious, or imagined. The onus will then shift back to the Appellant once the Respondent has discharged its burden on a balance of convenience to discharge the prima facie case that has been presented by the Respondent.* 1. Having considered the pleadings and records before it, the Tribunal is constrained to find and hold that the Appellant did not sufficiently support its objection to the Respondent’s additional VAT and corporation tax assessments, and thus it did not discharge its burden of proof. The Respondent’s additional assessments as contained in the Objection Decision dated 15th September, 2025 is therefore justified. **DISPOSITION** 1. The upshot of the foregoing analysis is that the Tribunal find and holds that the Appeal lacks merit and proceeds to issue the following orders: - 1. The Appeal be and is hereby dismissed. 2. The Respondent’s Objection Decision dated 15th September, 2025 be and is hereby upheld. 3. Each Party is to bear its own costs. 1. It is so ordered. **DATED and DELIVERED at NAIROBI this ………7th..……. Day of ……August...…… 2026** **..........................……………………….** **DR. RODNEY ODHIAMBO OLUOCH** **CHAIRPERSON** **.…..….……………………. ..….……………………….** **ABDULLAHI M. DIRIYE DR. ERICK KOMOLO** **MEMBER MEMBER**