End to End Limited v Commissioner of Domestic Taxes [2024] KETAT 730 (KLR)

End to End Limited v Commissioner of Domestic Taxes (Tax Appeal E036 of 2023) [2024] KETAT 730 (KLR) (9 May 2024) (Judgment)

Neutral citation: [2024] KETAT 730 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E036 of 2023

Grace Mukuha, Chair, W Ongeti, G Ogaga, E Komolo & Jephthah Njagi, Members

May 9, 2024

Between

End to End Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated in Kenya and its principal business is construction.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, the Authority is charged with the responsibility of among others, assessment, collection, accounting, and the general administration of tax revenue on behalf of the Government of Kenya.

3. The Respondent on 22nd October 2021 issued upon the Appellant additional tax assessments for Value Added Tax (VAT) for the period of May 2018 and April 2019.

4. The Respondent again on 16th November 2021 issued upon the Appellant additional tax assessments in respect to VAT for the period of November 2017.

5. On 30th June 2022 the Respondent issued upon the Appellant additional tax assessments for Income tax for the years 2017, 2018, 2019 and 2020 and Value Added Tax for the period of April 2018, December 2019, November 2020 and

6. That the assessments were raised on the basis of undeclared sales as per a comparative analysis of established sales per IFMIS, sales based on purchases claimed by other PINs and sales declared in Value Added Tax and Income tax returns.

7. The Appellant on 21st September 2022 and 22nd September 2022 lodged late objections to the additional tax assessments in respect to Income tax and Value Added Tax.

8. The Respondent on 23rd September 2022 and 28th September 2022 requested the Appellant to avail supporting documentation in support of the late objections but the Appellant did not comply.

9. The Respondent vide a letter dated 3rd October 2022 issued an invalidation decision to the Appellant rejecting the late objections.

10. Dissatisfied with the Respondent’s decision, the Appellant filed the Appeal through a Notice of Appeal on 10th February 2023.

The Appeal 11. The Appeal is premised on the following grounds listed in the Memorandum of Appeal dated 2nd February 2023 and filed on 10th February 2023:a.That the Appellant was unable to file their tax appeal within prescribed time due to circumstances beyond his control. When the demand was dispatched, the Appellant’s director was just recovering from the financial pressure that tags along with caring for cancer patients. The director’s sister succumbed to Stage 4 cancer and left their family without financial cushion. Business was unusual and rendered the Appellant unable to check their emails, in-tray and conduct usual business affairs. Condemning them to the tax bill without allowing them a chance at appeal simply militates against the tax canon of convenience.b.That the tax bill is utterly excessive and should be reviewed to mirror the canon of productivity, equity and equality. The Respondent should therefore not unfairly endeavor to issue a tax bill that exceeds the income. Moreover, some of the income is exempted but has nevertheless been included in the tax bill.C.That the tax bill reeks of uncertainty and contravenes the canon of simplicity. The uncertainty stems from the fact that the Appellant did not file annual returns for 2021. It therefore beats logic for the Respondent to conjure an uncertain tax bill.e.That the matter can amicably be resolved in an 'out of court' setting like arbitration or such other avenue(s) as may be prescribed by this Honourable Tribunal.f.That the Applicant is apprehensive that if this Honourable Tribunal does not timely intervene, it will suffer irreparable loss, financial harm and face procedural unfairness.g.That In the year 2017 the Respondent disallowed some expenditure, mainly salaries and wages, which are direct costs fixed to the projects the Appellant undertakes, since most workload is labour only maintaining one staff on contract basis.h.That the EU project pays on certificate basis that is measured work. The Appellant has taken over three years with the project. The Appellant has received withholding VAT certificates for a project that is VAT exempt, which clearly goes to say the Respondent should consider reworking on the same for fairness so as to reflect a true position in terms of income tax.i.That the Appellant deposited Kshs. 1,000,000. 00 on 30th January 2023 as a sincere gesture of goodwill of a willing taxpayer.

12. The Appellant’s case was premised on:a.The Appellant’s Statement of Facts dated 2nd February 2023 and filed on 10th February 2023. b.The Appellant’s written submissions filed on 29th September 2023.

13. The Appellant averred that it received the Assessments Orders as from 2nd November 2020 to date as listed herebelow: -i.KRA202019323006 22nd November 2020 Ksh.10,419,611. 00ii.KRA202121308393 16th November 2021 Ksh.3,663,589. 82iii.KRA202120484367 22nd October 2021 Ksh.5,350,081. 00iv.KRA202120484445 22nd October 2021 Ksh.1,336,306. 67v.KRA202212534152 30th June 2022 Ksh.760. 000. 00vi.KRA202212896012 30th June 2022 Ksh.3,932,350. 00vii.KRA202212883335 30th June 2022 Ksh.2,946,470. 00viii.KRA202212891704 30th June 2022 Ksh.21,196,329. 00ix.KRA202212894636 30th June 2022 Ksh.1,744,601. 40x.KRA202212884249 3oth June 2022 Ksh.17,645,466. 75.

14. That the Appellant subsequently made objections to the additional assessments above listed and the default assessments.

15. That the Respondent issued a demand of Kshs. 100,115,005. 00 as tax arrears from 2017 to October 2022 which the Appellant stated is excessive, punitive and beyond its ability to pay and which is contrary to the acceptable canons of taxation.

16. That the Respondent rejected the Appellant's objections without considering the Appellant’s documentation and explanations.

Appellant’s prayers. 17. The Appellant prayed that the Tribunal:a.Sets aside the Respondent’s decision.b.Makes an order for an out of court settlement.c.Reviews the tax bill, the taxable income or such other order aligned to substantive justice.

The Respondent’s Case 18. The Respondent’s case is premised on:a.The Respondent’s Statement of Facts dated 17th March 2023 and filed on 27th March 2023. b.The Respondent’s Written Submissions dated and filed on 6th October 2023.

19. The Respondent averred that the determination of a tax liability depends on the submissions of necessary records by the Appellant.

20. The Respondent further averred that the Appellant failed to provide documentary evidence in support of its late objection despite being requested and reminded.

21. The Respondent submitted that it is allowed to make additional assessments based on the available information to the best of its judgment pursuant to Section 31 of the Tax Procedures Act.

22. The Respondent submitted further that in requesting for further documents from the Appellant in support of its late objections, the Respondent accorded the Appellant a chance to be heard and therefore it should not be faulted for the Appellant's failure to provide the said documents.

23. The Respondent stated that under Sections 56 of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act, the Appellant bears the burden to demonstrate that it has discharged a tax liability.

24. The Respondent relied in support of its case on TAT No. 667 of 2021-Obama Enterprises Ltd V Commissioner Domestic Taxes where the Tribunal held that where the Appellant’s notice of objection was filed late without supporting documentation the same is deemed to be invalid under Section 51(3) of the TPA.

Respondent’s prayers. 25. The Respondent prayed that the Tribunal:a.Upholds the Respondent’s invalidation decision dated 3rd October 2022b.Dismisses the Appeal with costs.

Issue for Determination 26. The Tribunal, having reviewed the evidence in the matter and the pleadings herein identified the following issue for determination: -Whether the Respondent erred in rejecting the Appellant’s application to file late objections.

Analysis and Findings 27. Having identified the issue that fell for its determination, the Tribunal proceeds to analyze it as hereunder.

28. The genesis of the dispute before the Tribunal is the rejection by the Respondent of the Appellant’s application for extension of time to lodge notices of objection to the VAT and Income tax additional assessments amounting to Kshs. 100,115,005. 00.

29. The decision to decline to grant the application for extension of time to file a notice of objection was communicated to the Appellant vide a letter dated 3rd October 2022.

30. The Tribunal notes that both the Appellant and the Respondent do not dispute the chronology of events and dates leading to the rejection of the application for extension of time to file notices of objection.

31. The Respondent submitted that the Appellant failed to lodge objection(s) to the Respondent’s assessments within 30 days of being notified of the assessments as required by Section 51 of the TPA. The notifications were done vide letters dated 22nd October 2021, 16th November 2021 and 30th June 2022.

32. The Appellant subsequently lodged objections to the assessments on 21st September 2022 and 22nd September 2022 and this was well over the requisite 30 days as per the TPA requirements and cited the reasons for the failure as “reasonable cause”.

33. The Respondent further submitted that on 23rd September 2022 and 28th September 2022 it sought supporting evidence from the Appellant in support of its late application but the Appellant failed to provide the same. The email(s) requesting for the sought evidence are annexed to the Respondent’s Statement of Facts. The objection(s) were consequently declared invalid.

34. The applicable law on late objection(s) application is found in Sections 51(6),7 and (7A) of the TPA, which speaks to extension of time to file late objection and provides as follows: -“(6)A taxpayer may apply in writing to the Commissioner for an extension of time to lodge a notice of objection(7)The Commissioner shall consider and allow an application under subsection (6) if–(a)the taxpayer was prevented from lodging the notice of objection within the period specified in subsection (2) because of absence from Kenya, sickness, or other reasonable cause; and(b)the taxpayer did not unreasonably delay in lodging the notice of objection.(7A)The Commissioner shall notify the taxpayer of the decision made under subsection (7) within fourteen days after receipt of the application.”

35. The above laws place the obligation to make an application for late objection(s) on the Appellant and Section 56(1) of the TPA reinforces this obligation as follows: -“…In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

36. The Tribunal reiterates its decision in TAT No. 55 of 2018 Boleyn International Ltd vs Commissioner of Investigations and Enforcement, where the Tribunal held as follows:“We find that the Appellant’s at all times bore the burden of proving that the Respondent’s decisions and investigations were wrong. The Tribunal is guided by the provisions of section 56(1) of the Tax Procedures Act, 2015, which states: In any proceedings under this part, the burden shall be on the tax payer to prove that a tax decision is incorrect.”

37. The Tribunal finds that the Appellant has not discharged its burden of proof that would have triggered the Respondent to allow its late objection application as required by Section 30 of the Tax Appeal Tribunal Act.Consequently, the Respondent did not err in rejecting the Appellant’s application to file late objections.

Final Decision 38. From the analysis above, the Tribunal holds that this Appeal is without merit and consequently, the Tribunal makes the following Orders: -a.The Appeal be and is hereby dismissed.b.The Respondent’s rejection decision dated October 3, 2022 be and is hereby upheld.b.Each party to bear its own costs.

39. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF MAY, 2024GRACE MUKUHA - CHAIRPERSONDR. WALTER ONGETI - MEMBERGLORIA A. OGAGA - MEMBERDR. ERICK KOMOLO - MEMBERJEPHTHAH NJAGI - MEMBER