Chekimu Wood Mart Limited v Commissioner, Investigations and Enforcement (Tax Appeal E406 of 2024) [2025] KETAT 198 (KLR) (Civ) (14 March 2025) (Judgment)
Neutral citation:
[2025] KETAT 198 (KLR)
Republic of Kenya
Tax Appeal E406 of 2024
E.N Wafula, Chair, Cynthia B. Mayaka, RO Oluoch, AK Kiprotich & G Ogaga, Members
March 14, 2025
Between
Chekimu Wood Mart Limited
Appellant
and
Commissioner, Investigations And Enforcement
Respondent
Judgment
1.The Appellant is a limited liability company incorporated in the Republic of Kenya and its principal business is that of logging and supply of timber and wood products.
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 Parts 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 issued a notice of additional assessments dated 30th November 2022 seeking to recover Income tax and VAT totaling to Kshs 73,421,498.00.
4.The Appellant objected to the assessment vide a letter dated 27th February 2023.
5.The Respondent issued an objection decision dated 8th June 2023 confirming the assessments of Kshs 73,421,498.00.
6.Aggrieved by the Respondent’s decision, the Appellant appealed to this Tribunal vide a Notice of Appeal dated 10th April 2024 and filed on 12th April 2024.
The Appeal
7.The Appellant lodged the Memorandum of Appeal dated 10th April 2024 and filed on 12th April 2024 wherein it raised the following grounds, that:a.The Respondent erred in law and in fact by raising assessments that were outside the five (5) year statutory period contrary to Section 31(4)(b) of the Tax Procedures Act, and as such the said assessments were null and void.b.The Respondent erred in law and in fact by failing to distinguish the process as governed by Section 51 of the Tax Procedures Act and the pre-assessment audit process that governs Section 31 of the Tax Procedures Act by referring to communications in the latter process to arrive at its decision instead of relying on the correspondences that had been made after the assessment as required by Section 51(4) of the Tax Procedures Act.c.The Respondent erred in law and fact by disallowing wages paid to Casual laborers that worked at the sawmills despite the explanations and documentation provided to support the same, contrary to the provisions of Section 31(1) of the Tax Procedures Act.d.The Respondent erred in law and in fact by misapplying the banking deposit analysis test by failing to adjust for non-income bank deposits such as inter-bank transfers, reversals, friendly loans and receipts from sale of assets, and assuming that every deposit is income contrary to Section 3(2) of the Income Tax Act.e.The Respondent erred in law and fact by taxing the gross established sales contrary to the provisions of Sections 15(1) and 16(1) of Income Tax Act which allows the Appellant to claim all the costs wholly and exclusively incurred in earning income for a particular period.f.The Respondent erred in fact and law by disregarding the explanations, documents and information provided by the Appellant in the objection contrary to the provisions of Article 47 of the Constitution of Kenya and Section 4 of the Fair Administrative Action Act.g.The Respondent erred in law and fact by disallowing expenses that had been wholly and exclusively incurred in the process of earning income contrary to the provisions of Section 15(1) & 16(1) of the Income tax Act, CAP 470.h.The Respondent erred in law and in fact in failing to appreciate that the Appellant’s notice of objection dated 27th February 2023 had been allowed by operation of law under Section 51(11) of the Tax Procedures Act when the Respondent failed to communicate its decision within sixty (60) days from the date of receipt of the Appellant’s Objection to the assessments and instead issued a confirmation of assessments on 8th June 2023 (more than three months from the date of the objection).
Appellant’s Case
8.In support of the Appeal, the Appellant lodged a Statement of Facts dated 10th April 2024 and filed on 12th April 2024 together with documents attached thereto. The Appellant also relied on its Written Submissions dated 7th November 2024 and filed on 12th November 2024.
9.The Appellant averred that the Respondent raised additional assessments against it in the i-tax portal vide Assessment Orders dated 30th November, 2022 for taxes amounting to Kshs 73,421,498.00 for both VAT and Income tax.
10.That its director was indisposed and it was thus allowed to file its notice of objection dated 27th February, 2023 late.
i. Income Tax Assessment
Late objection
11.That the Respondent issued a decision dated 8th June, 2023 confirming the Assessments in its entirety upon which it was granted leave by the Tribunal on 27th March 2024 vide Miscellaneous case TATMISC/E020/2024 Chekimu Wood mart Limited Vs Kenya Revenue Authority to file its Appeal out of time.
12.It is the Appellant’s averment that the Respondent erred in law and fact by issuing an Objection decision against its notice of objection that had been allowed by operation of law under Section 51(11) of the TPA when the Respondent failed to communicate its decision within sixty (60) days from the date of receipt of the Objection.
13.That it had filed its notice of Objection on the 27th February, 2023, which compiled fully with the provisions of Section 51 (3) (a) of the TPA. That it was its legitimate expectation that the Respondent would render its decision within 60 days as provided for by law but the same was rendered late on 8th June, 2023. It supported this argument with the case of Cape Brandy Syndicate v Inland Revenue Commissioners [1921] EWCA Civ 1 (11 February 1921), which holds that there is no room for intendments when it comes to tax law.
14.The Appellant held the view that its notice of objection was allowed by dint of operation of the law as the 60th day lapsed on the 27th of April 2023. That the Objection decision issued by the Respondent was thus null and void.
Failure to adjust for Non-revenue items in the Banking Analysis.
15.The Appellant averred that the assessments as communicated through the notice of assessment were excessive and were not based on any materials facts or provisions of the law.
16.The Appellant contended that, in determining the taxable income, the Respondent failed to adjust for non-income items such as; money received from sale of assets, reversals, friendly loans, bounced cheques, director’s deposits among others, thus arriving at an erroneous finding on the taxable income that was subsequently subjected to tax.
17.That the Respondent erred in law and fact by subjecting all the money received in the Appellant’s bank accounts to taxation contrary to the provisions of Section 3(2) of the Income Tax Act.
18.That the Respondent acted on the assumption that all the monies received in the Appellant’s bank accounts were gains and/or profits from the business carried out by the Appellant, contrary to the facts presented to the Respondent during the investigation process and vide its letter dated 17th November, 2022. It supported this position with the case of Afya-X-ray-Centre- Ltd v commissioner- of- domestic- Taxes [2019] eKLR.
Failure to allow Legitimate Costs
19.It was the Appellant’s contention that the Respondent erred in law and fact by disallowing costs wholly and exclusively incurred in earning the income of the company contrary to the provisions of Sections 15(1) and 16(1) of the Income Tax Act, which allows it to claim for deductible expenses in the determination of its taxable income.
20.The Appellant stated that it provided information to prove that it had indeed done business with the suppliers, and went ahead to request for copies of the response from the suppliers so that they could independently contact the Respondent.
Assessment outside the Five (5) Year Period
21.The Appellant posited that the Respondent erred in law and fact by issuing a demand for Income tax for the years 2014 to 2017 which were outside the five-year statutory limitation as set out in Section 31(4)(b) of the Tax Procedures Act and as such the said assessments were null and void.
22.The Appellant averred that the Respondent therefore erred in law and fact by raising additional assessments for years 2014-2017 since by the time the assessments were issued, the five-year period had passed and therefore the additional assessments for the years 2014-2017 should be vacated in entirety.
ii. VAT Assessment
Failure to Adjust for Non-Revenue items in the banking Analysis.
23.It is the Appellant’s averment that Respondent erred in law and fact by raising additional taxes for VAT on non-revenue bank deposits received in the Appellant’s bank account.
24.The Appellant contended that in determining the taxpayer’s taxable income the Respondent failed to adjust for non-income items such as friendly loans, reversals, bounced cheques, director’s deposits among other thus arriving at an erroneous finding on the taxable income that was subsequently subjected to tax.
25.The Appellant averred that the Respondent acted ultra vires the law by raising additional assessments for VAT on non-revenue items contrary to the provisions of Section 5 of the VAT Act, 2013.
Assessment outside the 5-year period.
26.That the Respondent erred in law and fact by issuing additional assessments for VAT for the years 2014-2017 which were outside the five -year statutory limitation set out in Section 31(4)(b) of the Tax Procedures Act and as such the said assessments were null and void.
iii. Fair Administrative Action
27.The Appellant submitted that Article 47 of the Constitution of Kenya 2010 guarantees it a right to a fair administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair. That the right to a fair administrative action entails taking into consideration explanations and information availed by the party against whom an assessment is made.
28.It is the Appellant’s position that additional assessments were raised on 30th November, 2022, without giving due consideration to the explanations given via the letter of response dated 17th November, 2022.
29.In the circumstances, it is the Appellant’s position that the additional assessments left it condemned unheard contrary to its right under the Fair Administrative Action Act, Article 47 of the Constitution of Kenya and Section 4(1) of the Fair Administrative Action Act. It supportted its postion with the cases of:a.Nizaba international Trading company Limited v Kenya Revenue Authority [200] eKLRb.Republic v Kenya revenue authority ex-parte Amsco kenya Limited [2014] eKLR.c.Kenya medical Association housing Cooperative society Limited v Attorney General & another [2016] eKLR, Ridge V Baldwin [1963].
Appellant’s Prayers
30.The Appellant prayed for the following orders:a.The Appeal herein be allowed, and the Respondent’s Objection decision dated 8th June 2023 be struck out in its entirety;b.This Honourable Tribunal orders the Respondent to stay the enforcement of assessed taxes until the matter is conclusively determined; andc.The Tribunal be at liberty to grant any other or further remedies as it deems fit, just and reasonable in the circumstances.
The Respondent’s Case
31.In response to the Appeal, the Respondent lodged its Statement of Facts dated and filed on 26th April 2024 and equally filed its Written Submissions dated and filed on 12th November 2024.
32.The Respondent stated that it carried out investigations for the years 2014 to 2019 and obtained the Appellant’s bank statements from ABSA Account No. 202xxxx461 and 027xxxx75 and it analysed the bank credits as follows:
| Description /year | 2014/15 | 2015/16 | 2016/17 | 2017/18 | 2018/19 | Total |
| ABSA-202xxxx461 | 25,908,864 | 35,192,138 | 49,208,408 | 42,962,982 | 6,461,051 | 159,733,443 |
| ABSA-0271XXX75 | 10,413,949 | 5,877,812 | 6,025,295 | 5,565,515 | 6,566,980 | 34,449,551 |
| Total Banking | 36,322,813 | 41,069,950 | 55,233,703 | 48,528,497 | 13,028,031 | 194,182,994 |
| Less: Opening debtors | 0 | 0 | 0 | 0 | 232,892 | 232,892 |
| Add: Closing debtors | 0 | 0 | 0 | 232,892 | 0 | 232,892 |
| Expected sales Inclusive VAT-16% | 36,322,813 | 41,069,90 | 5,233,703 | 48,761,389 | 12,795,139 | 194,182,994 |
| Less: VAT output-16% | (5,010,043) | (1,163,270) | (2,473,890) | (1,424,862) | (62,896) | (10,134,961) |
| Expected net taxable sales(VAT excl-100%.) | 31,312,770 | 39,906,680 | 52,759,813 | 47,336,527 | 12,732,243 | 184,048,033 |
33.The Respondent alleged that it received intelligence information that the Appellant was claiming fictitious inputs from existing suppliers that had not traded with the company. That it requested for third party business transactions confirmation with the suppliers to confirm if indeed they sold goods to the Appellant.
34.That its investigations noted discrepancies between salaries as claimed in the financial statements versus the salaries declared in the PAYE returns as shown below: -
| Year | 2015/16 | 2016/17 | 2017/18 | 2018/19 | Total |
| Salaries claimed in audited accounts | 6,152,170 | 4,911,974 | 5,891,740 | 1,176,000 | 18,131,884 |
| Salaries declared for PAYE (P10) | 490,000 | 1,176,000 | 1,176,000 | 1,176,000 | 4,018,000 |
| Variance | 5,662,170 | 3,735,974 | 4,715,740 | - | 14,113,884 |
35.That based on the tests, the income taxes were computed below: -
| Year | 2014/15 | 2015/16 | 2016/17 | 2017/18 | 2018/19 | Total |
| Declared taxable Business Income | (491,541) | (5,802,871) | (4,951,187) | (8,214,560) | (3,258,626) | (22,718,785) |
| Add overstated salaries | 5,662,170 | 3,735,974 | 4,715,740 | - | 14,113,884 | |
| Disallowed purchases | 2,444,798 | 4,324,724 | 15,253,813 | 10,314,746 | 371,080 | 32,709,161 |
| Under declared Income | 0 | 29,102,842 | 36,177,784 | 37,935,087 | 10,269,108 | 113,484,821 |
| Adjusted taxable income | 1,953,257 | 33,286,865 | 50,216,384 | 44,751,013 | 7,381,562 | 137,589,081 |
| Income Tax @ 30% | 585,977 | 9,986,060 | 15,064,915 | 13,425,304 | 2,214,469 | 41,276,724 |
| Tax paid | 0 | 564,518 | 156,140 | 720,658 | ||
| 585,977 | 9,421,542 | 14,908,775 | 13,425,304 | 2,214,469 | 40,556,066 |
36.That based on the tests, VAT was computed below: -
| Year | 2014/15 | 2015/16 | 2016/17 | 2017/18 | 2018/19 | Total |
| Disallowed purchases | 2,444,798 | 4,324,724 | 15,253,813 | 10,314,746 | 371,080 | 32,709,161 |
| Under declared Income | 38,033,786 | 29,102,842 | 35,453,023 | 37,935,087 | 10,269,108 | 150,793,846 |
| Adjusted taxable income | 40,478,584 | 33,427,566 | 50,706,836 | 48,249,833 | 10,640,188 | 183,503,007 |
| VAT @16% | 6,476,573 | 5,348,411 | 8,113,094 | 7,719,973 | 1,702,430 | 29,360,481 |
37.The Respondent stated that it also analyzed Fred Chege Ndogo bank statements from KCB Account No. 115XXXX759 and its banking analysis was as below: -
| Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | Total |
| Cash Deposit | 1,145,000 | 1,425,000 | 2,204,000 | 1,751,000 | 1,300,000 | 1,218,800 | 9,043,800 |
| Cheque Deposit | 90,000 | 140,000 | 321,000 | 140,000 | 651,000 | 555,320 | 1,897,320 |
| In-house cheque | - | 135,000 | - | 150,500 | - | - | 285,500 |
| Mpesa | - | 160,000 | 65,000 | 13,000 | - | - | 238,000 |
| Transfer | - | 200,000 | 18,234 | - | 101,000 | 100,000 | 419,234 |
| Inward Swift | - | - | 624,000 | - | - | - | 624,000 |
| Salary payment | - | - | 137,000 | - | - | - | 137,000 |
| Ag deposit | - | - | - | - | 219,000 | 475,000 | 694,000 |
| Total | 1,235,000 | 2,060,000 | 3,369,23 | 2,054500 | 2,271,000 | 2,349,120 | 13,338,854 |
38.That it computed the director’s Income tax as shown below:
| Year | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | Total |
| Expected Income as per Table 9 | 1,235,000 | 2,060,000 | 3,369,234 | 2,054,500 | 2,271,000 | 2,349,120 | 13,338,854 |
| Less declared Income | - | - | - | - | - | - | - |
| Variance | 1,235,000 | 2,060,000 | 3,369,234 | 2,054,500 | 2,271,000 | 2,349,120 | 13,338,854 |
| PAYE @ graduated scale | 290,386 | 537,886 | 930,657 | 536,236 | 593,175 | 616,611 | 3,504,952 |
39.The summary of PAYE was charged as shown in the table below:
| Details/ Year | 2014 | 2014/15 | 2015/16 | 2016/17 | 2018 | 2019 | Total |
| Expected Income as per Table 9 | 1,235,000 | 2,060,000 | 3,369,234 | 2,054,500 | 2,271,000 | 2,349,120 | 13,338,854 |
| Less declared Income | - | - | - | - | - | - | - |
| Variance | 1,235,000 | 2,060,000 | 3,369,234 | 2,054,500 | 2,271,000 | 2,349,120 | 13,338,854 |
| PAYE @ graduated scale | 290,386 | 537,886 | 930,657 | 536,236 | 593,175 | 616,611 | 3,504,952 |
40.The Respondent provided its chronology of events regarding this dispute thus:a.The Appellant lodged an objection on 27th February 2023.b.It invalidated the Objection via an email on 8th March 2023 in line with the provisions of Section 51(3) of the Tax Procedures Act, 2015.c.It held a meeting with the Appellant’s representative on 5th April 2023 with the view of validating the objection.d.It sent a reminder to the Appellant’s representative on 5th April 2023 with the view of validating the objection.e.The Appellant thereon provided the supporting documents and a notice of objection on 22nd May 2023 in effect validating the objection.f.The objection having been validated, the Respondent proceeded to consider the objection and on 8th June 2023 rendered its objection decision.
41.In relation to the banking analysis, the Respondent stated the Appellant did not provide a schedule or reconciliation to confirm its assertion that it had taxed non-income items such as proceeds from the disposal of machinery.
42.On the issue of adding back the disallowed purchases, the Appellant contended that the Appellant did not provide evidence to show that its expenses were incurred in the course of generation of income and was thus disallowed.Additional assessments beyond the five (5) year statutory period
43.The Respondent provided the following schedule to show the time the Appellant had filed its returns:
| No. | Financial Period / Accounting Period | Date of Filing of Return |
| 01/09/2014 – 31/08/2015 | 16/12/2015 | |
| 01/09/2015 – 31/08/2016 | 16/12/2015 | |
| 01/09/2016 – 31/08/2017 | 05/01/2018 | |
| 01/09/2017 – 31/08/2018 | 01/02/2019 | |
| 01/09/2018 – 31/08/2019 | 26/02/2020 | |
| 01/09/2019 – 31/08/2020 | 23/02/2021 |
44.That the Appellant was notified of the tax investigations vide a letter dated Monday 14th March 2022 and ordinarily time begins running from the period that the Appellant filed the returns and not from the year that the Appellant failed or ought to have filed the returns as was stated in Nakuru Cement Suppliers Limited v Commissioner, Investigations and Enforcement - HCCOM ITA No. E038 of 2021).
45.That in this case the Appellant was informed of non-compliance vide a letter dated 14th March 2022 and that the Respondent was also contemplating the prosecution of the Appellant in relation to offences relating to tax in effect enlarging the assessment period.
46.That it is this wilful neglect or under-declaration in terms of the fictitious, unsupported purchases and gross under-declaration that caused it to issue the assessments.
47.The Respondent stated that it is trite law that the assessments enjoy the presumption of correctness in all cases where the Appellant has failed to discharge its burden of proof as was explained in Kenya Revenue Authority Vs Maluki Kitili Mwendwa [2021] eKLR).
48.That considering the proceedings herein and the existence of criminal proceeding justified its decision to issue the assessment and the Tribunal would engage in judicial overreach if it interferes with that assessment.
Whether the Respondent erred by failing to distinguish the objection process as governed by Section 51 of the Tax Procedures Act, No. 29 of the 2015 and the pre-assessment audit process governed by Section 31 of the Tax Procedures Act, No. 29 of 2015.
49.The Respondent stated that it served a notice of tax investigations on 14th March 2022 informing the Appellant of the tax investigations and the fact that criminal prosecution was being contemplated owing to the gross under-declaration of income. That it was thus entitled to issue assessment or amend assessment beyond the five-year limit envisioned by the provisions of Section 31(4) of the TPA.
Whether the Respondent erred in law and fact by disallowing wages paid to casual labourers contrary to the provisions of Section 31(1) of the Tax Procedures Act, No. 29 of 2015.
50.The Respondent stated that its disallowance of wage expenses came about as a result of the variance between the expenses claimed in the monthly PAYE and those claimed in the annual declarations.
51.That where the PAYE claimed is lower than the labour claim in the annual returns, then the variance has to be explained and the supporting documentation given. That it was entitled to treat the excess claim as overdeclared and accordingly charge tax on it in the absence of the supporting documentation.
Whether the Respondent erred in law and fact by misapplying the Banking Analysis Deposit test by failing to adjust for non-income bank deposits.
52.Regarding banking analysis, the Respondent averred that banking analysis method is one of the recognized methods which it can use in the determination of taxes ex post facto in a self-assessment regime as was stated in the case of Digital Box Limited v Commissioner, Investigations and Enforcement (Tax Appeal Tribunal Act 115 of 2017.
53.That since the banking analysis method is recognized as one of the means of determining the taxes due, what avails to the Appellant are only two ways of challenging the application of the method, which are to: -
54.The Respondent stated that in this particular case, the Appellant failed to provide any supporting documentation to support the alleged non-income items and thus its contention is wholly baseless and ought to be disregarded.
Whether the Respondent erred by taxing the gross established sales contrary to the provisions of Section 15(1) and 16(1) of the Income tax Act, Cap. 470 Laws of Kenya
55.The Respondent averred that the Appellant failed to demonstrate the costs by way of documentation in order to allow it make the adjustments. That having failed to provide the documentation, the Respondent cannot therefore be faulted for making its assessment based on best judgment as envisaged under the provisions of Section 29 of the TPA.
56.That the Appellant’s contention is baseless and it cannot benefit from its failure to keep records under the provisions of Section 23 of the Tax procedures Act, 2015 and Section 3 of the income tax Act.
Whether the Respondent erred by disregarding the explanations, documents, and information provided by the Appellant in the objection.
57.The Respondent affirmed that the infringement of the Appelant’s Constitutional rights has not been particularly pleaded and demonstrated with sufficient clarity as required by the authority in Anarita Karimi Njeru v Republic [1979] eKLR.
58.That moreover, it is trite law that the Respondent being a body exercising judicial or quasi-judicial function is the master of its own procedure provided that the Appellant was accorded an opportunity to be heard.
Whether the Respondent erred in Law and fact in failing to appreciate that the Appellant’s Notice of Objection dated 27th February 2023 had been allowed by operation of law under Section 51(11) of the Tax Procedures Act, No. 29 of 2015
59.Regarding breach of Section 51(11) of the TPA, the Respondent alleged that the Appellant is not being truthful on the existence of engagements with the Respondent and the correspondence culminating to the issuance of the objection decision and as such, seeks to mislead the Tribunal.
60.That its chronology of events leading to the objection confirms that the objection was lodged on 27th February 2023 but the same was invalidated under the provisions of Section 51(3) of the Tax Procedures Act, No. 29 of 2015 on 8th Mach 2023.
61.That this effectively meant that there was no valid objection capable of giving rise to the obligation to issue an objection decision under the provisions of Section 51(11) of the Tax Procedures Act, No. 29 of 2015 as was stated in TAT Appeal No. 1288 of 2022- Moto Commodities Limited v Commissioner of Domestic Taxes .
Respondent’s prayers
62.The Respondent prayed for the following reliefs:i.Uphold the Respondent’s Objection decision.ii.That this Appeal be dismissed with costs to the Respondent as the same is devoid of any merit.
Issues For Determination
63.The Tribunal having considered the Memorandum of Appeal, the parties’ Statements of Facts, and written submissions, puts forth the following issues for determination:i.Whether the Respondent’s Objection decision was validly issued pursuant to the provisions of Section 51 of the Tax Procedures Act, 2015.ii.Whether the Respondent’s additional assessments were issued beyond the 5 years statutory limit period.iii.Whether the Respondent’s additional assessments were validly raised pursuant to the provisions of Section 31 of the Tax Procedures Act, 2015.
Analysis And Findings
64.The Tribunal shall proceed to analyse the issue that calls for its determination as hereunder.
i. Whether the Respondent’s Objection decision was validly issued pursuant to the provisions of Section 51 of the tax Procedures Act, 2015.
65.The parties are in agreement that the Appellant’s objection was lodged on 27th February 2023 and that a letter confirming the assessments was issued on 8th June 2023. The disagreement arises on whether the objection was validated on 22nd May 2023 as alleged by the Respondent and whether this alleged fact re-calibrated the point when time for the limitation period started running under Section 51(11) of the TPA.
66.Section 51(11) of the TPA provides as follows regarding timelines for issuing objection decisions:
67.The evidence on record in this Appeal shows that the Appellant lodged its objection on 27th February 2023 and the same was acknowledged as received by the Respondent on the same day. Subsequently an objection decision was issued on 8th June 2023.
68.The Respondent alleged that it had invalidated this objection on 8th March 2023 and that the Appellant validated the objection vide its letter dated 22nd May 2023 when it supplied the documents that had been requested. It was thus the Respondent’s view that time under Section 51(11) of the TPA started running from the 22nd May 2023 effectively making its decision to fall within the 60 days’ timelines.
69.The Appellant has denied knowledge of this invalidation letter. The Respondent was hence behooved to share the said letter with the Tribunal to show that it had indeed invalidated the notice of objection. This would have in turn laid the ground for the Appellant to discharge its burden of proof to show that time did not start running on the 22nd of May 2023.
70.The Tribunal takes the view that the said invalidation notice should ordinarily be in the custody of the Respondent who was its author. The Respondent was thus under an obligation to share it with the Tribunal to confirm its existence and also lay bare the minimum information that would then require the Appellant to discharge its evidential burden.
71.No reason has been provided as to why the Respondent who sought to rely on the said invalidation notice could not share it so that the Tribunal could verify its existence and also see its contents. Herein lay the Respondent’s error as it sought to rely on a crucial and yet ‘non-existent’ document which it was relying on to prove its entire case and yet it never bothered to share it.
72.The Tribunal is obliged to be guided by evidence presented by the parties and it cannot make assumptions, conclusion or issue favorable decision pegged on a document that it has not sighted. In the absence of the said invalidation notice, the Respondent was required to issue its Objection decision on or before the 26th of April 2023 which was within the 60 days time limit upon receipt of the Appellant’s objection on 27th February 2023. This was not done and hence the invalidity of the Objection decision dated 8th June 2023.
73.Moreover, the Tribunal has noted that prior to 1st July 2022 Section 51 (11) (b) of the TPA, empowered the Respondent to request for the supply of the supporting documentation and relevant information from the Appellant, and the statutory timelines could be reset upon the supply of information and documents by the Respondent.
74.This situation however changed on 1st July 2022 and henceforth the Respondent was required to issue its Objection decision within 60 days of receipt of a valid objection. Supply of further documents on the 22nd May 2023, if at all this was done, would not have reset the time lines for the Respondent to issue an objection decision.
75.The Respondent was thus under a misapprehension of the applicable version of the TPA in its view that supply of further documents in the absence of an express invalidation of the Appellant’s objection would help it reset time for compliance.
76.Considering that the Tribunal has held that there was no evidence of invalidation of the Appellant’s objection, it follows that the Appellant’s objection was deemed valid on the date it was lodged on the 27th February 2023. The Respondent was thus obliged to issue its decision on it within 60 days of its receipt and in any case on or before the 26th April 2023. Failure to do so meant that the impugned Objection decision issued after the due date was invalid.
77.This conclusion of the Tribunal is supporrted by the case of Rongai Tiles & Sanitary Wares Limited v Commissioner of Domestic Taxes (Tax Appeal E011 of 2020) [2023] KEHC 18546 (KLR) (Commercial and Tax) (16 June 2023) (Judgment) where the court stated thus on the consequence of failure to abide by the timelines prescribed under Section 51(11) of the TPA.
78.Having determined that the Objection decision was not proper in law for being issued beyond the statutory timelines, the Tribunal shall not delve into the other issue for determination as the same have been rendered moot.
Final Decision
.The Tribunal on the basis of the foregoing analysis finds the Appeal to be merited and accordingly proceeds to make the following Orders;a.The Appeal be and is hereby allowed.b.The Respondent’s Objection decision dated 8th June 2023 be and is hereby set aside.c.Each party to bear its own costs.
.It is so ordered.
DATED AND DELIVERED AT NAIROBI THIS 14TH DAY OF MARCH, 2025ERIC NYONGESA WAFULA CHAIRMANCYNTHIA B. MAYAKA MEMBERDR. RODNEY O. OLUOCH MEMBERABRAHAM K. KIPROTICH MEMBERGLORIA A. OGAGA MEMBER