Lamix Enterprises Limited v Commissioner of Domestic Taxes (Tax Appeal E480 of 2024) [2025] KETAT 235 (KLR) (9 May 2025) (Judgment)
Neutral citation:
[2025] KETAT 235 (KLR)
Republic of Kenya
Tax Appeal E480 of 2024
CA Muga, Chair, BK Terer, EN Njeru, E Ng'ang'a & SS Ololchike, Members
May 9, 2025
Between
Lamix Enterprises Limited
Appellant
and
Commissioner of Domestic Taxes
Respondent
Judgment
Background
1.The Appellant is a limited liability company whose principal activity is mixed farming and general supplies of goods and services.
2.The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469 of Kenya’s Laws (hereinafter “the Act”). 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 identified discrepancies in the corporation tax and VAT declaration therefore it raised additional assessment for Income tax vide assessment order dated 29th September 2023 for the period 2018 to 2019 seeking to recover Kshs 23,784,636.00
4.On 28th February 2024, the Appellant lodged its objection on i-Tax. The Respondent vide objection dated 3rd April 2024 confirmed its assessments on the basis that the Appellant failed to provide documents to support the objection.
5.The Appellant being aggrieved by the Respondent's decision filed the instant appeal upon obtaining leave from the Tribunal to file the appeal out of time.
The Appeal
6.The Appellant lodged the Memorandum of Appeal dated 6th May 2024 and filed on 8th May 2024. The Appellant raised the following grounds of appeal:a.That the Respondent erred in law and fact by assessing incorrect and excessive income not earned by the company.b.That the projects relating to the excessive income are not known to the Appellant that it neither got awarded nor undertook the projects that formed the basis of the assessment, further, the Appellant refutes having any dealings with the said organizations.c.That the Respondent erred in law and fact by disallowing all deductible expenses incurred by the company in furtherance of business and generation of revenue.d.That the Appellant fully objects to the assessment in respect of disallowed expenses and confirm that the disallowed expenses were wholly and exclusive expenditure in generation of the company revenue.
Appellant’s Case
7.The Appellant filed its Statement of Facts dated 6th May December 2024 and filed on 8th May 2024. The Appellant was instructed by the Tribunal to file it written submissions on or before 19th March 2025 but failed to comply.
8.The Appellant stated that on 25th January 2024, the Respondent issued the Appellant with income tax and VAT assessment for the years of income 2019 to 2021 demanding Kshs 23,784,636.00 to which the Appellant objected on 28th February 2024. The Respondent then issued its objection decision through a letter dated 3rd April 2024 wherein it fully confirmed the assessments.
9.The Appellant stated that the Respondent erred in law and fact by assessing incorrect and excessive income not earned by the company. The Appellant clarified that the projects relating to the excessive income were not known to the Appellant, neither did the Appellant get awarded nor undertake the projects that formed the basis of the assessment. The Appellant refuted having any dealings with the organizations in issue.
10.The Appellant stated the Respondent erred in law and fact by disallowing all deductible expenses incurred by the company in furtherance of business and generation of revenue. Further, the Appellant confirmed that the disallowed expenses were wholly and exclusive expenditure in generation of the company revenue. The Appellant stated that the company deals with supply of construction materials in addition to the business activities and the disallowed fuel expenses were exclusively used in transportation of the materials to construction sites.
11.The Appellant prayed that its Appeal against the Respondent's decision dated 3rd May 2024 be allowed.
Respondent’s Case
12.In response to the Appeal the Respondent filed its Statement of Facts dated 14th June 2024 and filed on even date and its written submissions dated 18th February 2025 and filed on 19th February 2025.
13.The Respondent averred that in taxing a taxpayer's income, every legally deductible expense that was incurred in generating such income should be deducted from the taxable amounts as per Section 15(1) of the Income Tax Act, CAP 470 of the Laws of Kenya (hereinafter “ITA”).The Respondent averred that it is mandated by law to ensure that any expenditure presented for deductions by a taxpayer meets these conditions. As such any deductions proposed must be analysed to determine whether they are allowed.
14.The Respondent contended that it requested the Appellant to provide the following information and documents to support grounds of objection:a.A sworn affidavit to support the Appellant’s ground of objection that they were neither awarded the said projects nor had dealings with the said Government institutions.b.A list of projects awarded by the Government and undertaken during the period.c.Audited Financial statements for the period under review. General ledger and trial balance for the period under review.d.Certified bank statements; general ledger and trial balance for the period under review.e.Tax computations for the period under review;f.A demonstration that the disallowed expenses were wholly and exclusively utilised.g.Expenses ledgers and the supporting invoices in generation of the company's revenue.
15.The Respondent stated that the Appellant did not provide the following documents:a.list of projects awarded by the Government and undertaken during the period under review.b.Audited Financial statements for the period under review.c.General ledger and trial balance for the period under review.d.Tax computations for the period under review.e.A demonstration that the disallowed expenses were wholly exclusively utilised generation of the company's revenue.f.Expenses ledgers and the supporting invoices.
16.The Respondent asserted that the Appellant failed to provide documents thereby failing to comply with the provisions of Sections 51(3) and 59(1) of the Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter “TPA”) and Section 54A (1) of ITA and accordingly, the Respondent made its decision based on available information under Section 31 of the TPA.
17.The Respondent maintained that it cannot be faulted for failing to deduct the expenses from the understated income as the Appellant failed to provide the necessary documents to show the exact nature and extent of the expenses. The Respondent further contended that the burden of proof is on the Appellant to produce the evidence challenging the Respondent's decision to confirm the assessments. It cited Section 56(1) of the TPA which provides that; “The burden shall be on the taxpayer to prove that a tax decision is incorrect."
18.The Respondent averred that the documents annexed in the Appellant's Memorandum of Appeal and Statement of Facts had been presented before the Tribunal in the first instance and the Respondent had not had an opportunity to review the same. It added that the averments of the Appellant as laid out in its Memorandum of Appeal and Statement of Facts were unfounded in law and not supported by evidence.
19.Respondent maintained that the Additional Income was legally and procedurally charged and the assessment legally and procedurally issued and that the Appellant's objection was duly considered and objection decision made as per the law. The Respondent submitted that the Appellant failed to produce documents as requested.
20.Further, the Respondent submitted that the Appellant having failed to adduce documents requested for meant that the expenses could not have been allowed. It submitted that the Appellant has a duty to demonstrate that the assessments were incorrect. It cited the cases of Leah Njeri Njiru v Commissioner of Investigations and Enforcement Kenya Revenue Authority and Another [2021] eKLR; Boleyn International Limited v Commissioner of Domestic Taxes TAT No. 55 of 2019; Afya X-ray Centre Limited v Commissioner of Domestic Taxes TAT No. 70 of 2017 to submit that the burden of proof lies on the Appellant but the Appellant failed to discharge the burden.
21.Pursuant to the foregoing, the Respondent urged the Tribunal to affirm and declare the decision issued by the Respondent on the 3rd April 2024, demanding Kshs 23,784,636.00 to be due and payable.
Issues for Determination
22.The Tribunal has carefully considered the parties’ pleadings and Respondent’s submissions and has identified the following single issue for determination:Whether the Appellant discharged its burden of proving that the Respondent’s decision dated 3rd April 2024 was incorrect.
Analysis and Findings
23.The Tribunal will proceed to analyse the issue hereinunder:Whether the Appellant discharged its burden of proving that the Respondent’s decision dated 3rd April 2024 was incorrect.
24.In its pleadings, the Appellant raised the issue that the assessments were incorrect and excessive. It further stated that the expenses incurred were allowable but that the Respondent failed to allow them. On the other hand, the Respondent’s case was that the Appellant failed to furnish the requisite documentation to validate their objection which led the Respondent to confirm the assessments.
25.Section 50(1)(a) of the TPA creates a legal presumption that the Respondent’s decision is conclusive and correct. The said section provides as follows:
26.To successfully rebut the legal presumption under Section 50(1)(a) of the TPA, a taxpayer must adduce evidence to demonstrate that the decision is incorrect. Consequently, a taxpayer must adduce positive documentary evidence to support its Appeal and to discharge its burden of proof as provided for by Section 56(1) of TPA and Section 30 of the Tax Tribunal’s Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”).
27.Section 56 (1) of the TPA provides as follows:
28.Further, Section 30 of the TATA provides as follows:
29.In order to discharge its burden of proof as provided for by Section 56(1) of TPA and Section 30 TATA, a taxpayer must keep records to aid in determining tax liability. To this end, Section 23 (1)(b) of the TPA provides as follows:
30.Further, Section 53(3) (c) of the TPA provides as follows:
31.Since the Appellant was issued with income tax and VAT assessments, the Appellant had to demonstrate that the decision was incorrect pursuant to the provisions of the TPA by complying with the provisions of the ITA and VAT Act in keeping the appropriate records. Section 54(A)(1) of the ITA articulates a taxpayer’s role in tax matters as follows:
32.Therefore, in order for the Appellant to prove that it incurred expenses that were allowable deductions pursuant to the provisions of Section 15 of the ITA, it ought to have armed itself with positive and relevant documentary evidence.
33.Section 43 (1) of the VAT Act provides as follows:
34.The call to produce documents aims to ensure that a taxpayer is able to discharge its burden of proof. Therefore, failure to adduce documentary evidence means that a taxpayer cannot succeed in discharging its burden of proof. In the case of Singapore Motors Limited v Commissioner of Domestic Taxes (Income Tax Appeal E039 of 2021) [2024] KEHC 2443 (KLR) the High Court held as follows:
35.The Tribunal is of the view that the provision Section 15(1) ITA provide for deductions of expenses but it also provides the antecedent conditions that must be met before such deductions are made. The first condition is that such a deduction must be allowed under Section 15 of the ITA and the second is that it must be an expenditure wholly and exclusively incurred by the taxpayer in the production of income from which it is to be deducted.
36.The Tribunal examined the Appellant’s pleadings and in particular, the Statement of Facts and the annexes thereto. The Tribunal noted that the Appellant filed the following documents:i.Tax decision dated 25th January 2024.ii.Notice of objection dated 28th February 2024.iii.Objection decision dated 3rd April 2024.iv.Assessment order dated 29th September 2023.v.Objection application acknowledgment receipt dated 13th February 2024.
37.The Tribunal notes that none of the documents adduced as evidence by the Appellant demonstrated that the tax assessment was wrong or excessive. Further, the Tribunal is of the view that the documents that the Appellant placed before the Respondent at the objection stage ought to have also been placed before the Tribunal for reconsideration. A taxpayer who does not place documents before the Commissioner for consideration has no right to place those documents before this Tribunal unless the Tribunal directs otherwise. The taxpayer who adduces documents before the Commissioner at objection stage but fails to adduce those same documents before the Tribunal will be unsuccessful at the appeal stage. The Tribunal reiterates its decision in the case Faisawema Company Limited vs Commissioner of Domestic Taxes, TAT 326 of 2022 which was as follows:
38.Whereas the Appellant in its pleadings stated that the Respondent erred in law and fact by assessing incorrect and excessive taxes, the Appellant failed to demonstrate incorrectness or excessiveness of the decision. The Appellant also failed to file evidence to substantiate its assertions. Further, the Appellant did not adduce evidence to prove that the expenses incurred were allowable. The Tribunal also notes that the Respondent issued a list of documents it needed from the Appellant but the Appellant failed to produce all documents requested contrary to the provisions of Section 54A (1) of the ITA.
39.Consequently, the Tribunal finds and holds that whereas the Appellant had a duty to demonstrate the incorrectness of the Respondent’s decision dated 3rd April 2024 pursuant to Section 56(1) of the TPA and Section 30 of the TATA, the Appellant failed to do so and therefore did not discharge its burden of proving that the said decision was incorrect.
Final Decision
40.The upshot to the foregoing is that the Tribunal finds and holds that the Appeal is lacks merit and proceeds to make the following Orders:a.The Appeal be and is hereby dismissed.b.The Respondent’s objection decision dated 3rd April 2024 be and is hereby upheld.c.Each party to bear its own costs.
41.It is so Ordered.
DATED AND DELIVERED AT NAIROBI ON THIS 9TH DAY OF MAY 2025.CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERELISHAH N. NJERU - MEMBEREUNICE N. NG’ANG’A - MEMBEROLOLCHIKE S. SPENCER - MEMBER