Firm Bridge Limited v Commissioner of Investigation & Enforcement [2024] KETAT 654 (KLR)

Firm Bridge Limited v Commissioner of Investigation & Enforcement (Tribunal Appeal 63 of 2023) [2024] KETAT 654 (KLR) (26 April 2024) (Judgment)

Neutral citation: [2024] KETAT 654 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal 63 of 2023

E.N Wafula, Chair, RO Oluoch, AK Kiprotich, Cynthia B. Mayaka & T Vikiru, Members

April 26, 2024

Between

Firm Bridge Limited

Appellant

and

Commissioner Of Investigation & Enforcement

Respondent

Judgment

Background 1. That the Appellant is a company incorporated in Kenya under the Companies Act whose principal activity is that of advertisement.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, 1995. Under Section 5 (1) of the Act, the Kenya Revenue Authority (the Authority) is an agency of the Government for the collection and receipt of all revenue. Further, under Section 5(2) of the Act with respect to the performance of its function under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Parts 1 & 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 upon realization that the Appellant had not been filling returns consistently for the period under review carried a tax investigation into the affairs of the Appellant.

4. The tax investigation revealed variances between the Appellant’s VAT declarations and income tax declarations as compared to its bankings for the years of income 2015 to 2021.

5. The Respondent issued the Appellant with additional estimated assessments on 14th June 2022, 23rd March 2022 and 17th March 2022 amounting to Kshs. 802,399,466. 00.

6. The Appellant lodged a notice of objection dated 24th June 2022 and received an objection application acknowledgement receipt dated 27th June 2022.

7. On 1st July 2022, the Respondent informed the Appellant that its notice of objection was invalid and that the Appellant was required to provide documents within 7 days to validate it.

8. The Respondent issued an objection decision on 26th September 2022 wherein it confirmed tax amounting to Kshs. 376,881,705. 00 as being due and payable, this was followed by a system-generated confirmation of assessments on 20th November 2022.

9. The Appellant, being dissatisfied by the Respondent’s objection decision and confirmation of assessments dated 20th November 2022, lodged the instant Appeal at the Tribunal on the 2nd December 2022.

The Appeal 10. The Appeal is premised on the Memorandum of Appeal dated 11th January 2023 and filed on 19th January 2023 raising the following grounds: -i.That the additional estimated assessment is excessive because of some error or mistake of fact, that it is Punitive and not as per the income.ii.That the Respondent while raising additional estimated assessment (Output VAT) made a substantial error or defect in the procedure provided by VAT Act, 2013 Section 17 and Rules made thereunder which may have produced an error or defect in the decision of the case upon Merit.iii.That by the Respondent disregarding or neglecting credit for input tax against output tax is a decision contrary to the law or usage having the force of law, that the Respondent disregarded fair administrative action as provided under Section 47 of the Constitution of Kenya 2010. That no fair hearing was granted by the Commissioner.iv.That the Respondent erred in law and fact by not according to the Appellant a fair hearing, that no hearing was accorded to the Appellant before the decision was made. That the Respondent overlooked Section 50 of the Constitution of Kenya 2010. v.That the Respondent while raising additional estimated assessment on Corporate income tax made a substantial error or defect in the procedure provided by Income Tax 'Act Cap 470 Section 15 deduction allowed, and rules made thereunder which may have led to an error in the decision of the case upon the merit.vi.That the Respondent while raising Income Tax Additional Assessment ignored expenses wholly and exclusively incurred by the Appellant in the production of that income hence the decision is contrary to law or to some usage having the force of law.vii.That the Commissioner alleged that there were variances between VAT declaration versus banking, that the variances were purely loans and overdrafts hence not taxable or vatable. That the same applies to Income tax versus banking.viii.That the Commissioner deemed the difference between VAT declarations versus banking as expected sales hence the arbitrary decision which is erroneous, contrary to the law leading to a defective estimate.ix.That the Commissioner denied the taxpayer access to information against Section 35 of the Constitution of Kenya. That the Commissioner accessed the taxpayer's documents and without seeking clarification on the documents raised punitive and defective estimates which have no basis.x.That the Respondent's action to demand additional assessment of Kshs.404,090,584. 43 and alleged arrears of Kshs. 398,308,862. 00 is arbitrary, capricious, unreasonable, unfair and contrary to the administration of justice and legitimate expectation of the Appellant, despite fulfilling Section 30 of Tax Appeal Tribunal Act, 2013 as read together with Section 62 of Value Added Tax Act, 2013. xi.That the Commissioner never used the records filed with him while issuing additional assessments.xii.That the Commissioner used the method of banking that was expunged by the Court as a rule of assessing taxpayers.

APPELLANT’S CASE 11. The Appellant’s case is premised on: -(i)Its Statement of Facts dated 17th January 2023 and filed on 19th January 2023. (ii)Its written submissions filed on 19th September 2023.

12. The Appellant averred that the Respondent carried out tax investigations for the years of income from 2015 to 2021 alleging that tax was due as hereunder;-i.Income tax declaration Versus bankings: The comparison between the Appellant’s Income Tax Return and Bankings, the variances were brought to charge in Corporate income tax.ii.VAT declarations versus bankings: A comparison of the Appellant’s VAT 3 returns declarations and bankings resulted in variances which were charged to VAT.iii.Sources of funding for asset addition were not provided hence the amounts were added back.iv.Fraud in relation to tax contrary to Section 97 (a) and (c) of the TPA, for the above allegation the Respondent came up with an estimated additional assessment of Kshs. 802,399,466. 37

13. That following the allegations by the Respondent, it issued the Appellant with additional estimated assessments on 14th June 2022, 23rd March 2022 and 17th March 2022.

14. The Appellant averred that it lodged a notice of objection on 24th June 2022 and obtained an objection application acknowledgement receipt dated 27th June 2022.

15. The Appellant averred that it lodged its objection under Section 51 of the TPA against which the Respondent rendered its decision on 21st July 2022 declaring the objection Invalid and confirming the estimated additional assessments of Kshs. 802,399,466. 00 as due and payable.

16. The Appellant asserted that the additional assessments were erroneous, excessive and punitive, as they were not as per its Income.

17. The Appellant averred that the additional assessment dated 14th June 2022 of Kshs. 40,079,271. 06 was defective in that the Commissioner made a substantial error by not taking into account credit for input tax which is against the procedure provided by the VAT Act 2013, Section 17 and Rules made thereunder.

18. The Appellant contended that the Respondent shouldn’t have raised the additional assessment without taking into account the referred provision of the law, that this was against "fair administrative action" as per Article 47 (i) and (ii) of the Constitution of Kenya 2010.

19. The Appellant averred that the Respondent while raising additional assessment No. KRA 202209731744 of Kshs. 64,554,660. 66 and additional assessment No KRA202209731616 of Kshs. 95,341,788. 81, did not comply with the procedure provided by Income Tax Act Cap 470 Section 15 and the Rules made thereunder by failing to take into account allowable deductions hence the decision was contrary to the law.

20. That the Appellant stated that the Commissioner erred by not allowing purchases that the Appellant legally incurred in the production of income in the year 2020.

21. That the Appellant posited that the unsupported variances the Respondent claimed to exist between VAT declaration versus banking were purely loans and overdrafts hence not vatable or chargeable to tax, that the same being the case with Income tax declarations versus bankings.

22. That the Commissioner deemed the difference between VAT declarations versus banking as expected sales hence the arbitrary decision which is erroneous, contrary to the law leading to a defective estimate.

23. That the Commissioner denied the taxpayer access to information contrary to the provisions of Article 35 of the Constitution of Kenya. That the Commissioner accessed the taxpayer's documents and without seeking clarification on the documents raised punitive and defective estimates which have no basis.

24. The Appellant posited that the Commissioner ought to know that every person has the right to have any dispute that can be resolved by the application of law decided in a fair, reasonable and procedural manner.

25. That the Respondent's action to demand additional assessment of Kshs.404,090,584. 43 and alleged arrears of Kshs. 398,308,862. 00 is arbitrary, capricious, unreasonable, unfair and contrary to the administration of justice and legitimate expectation of the Appellant, despite fulfilling Section 30 of Tax Appeal Tribunal Act, 2013 as read together with Section 62 of Value Added Tax Act, 2013.

26. The Appellant submitted that the Respondent's allegations and the estimated tax thereof were unlawful and against Section 47 (I) of the Constitution of Kenya 2010, which says:“Every person has a right to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair."

27. The Appellant averred that the notice of objection dated 24th June 2022 was received by the Respondent on 20th June 2022 and that Section51 (11) of The TPA which provides that: -“The Commissioner shall make objection decision within sixty days from the date of receipt of:-a.the notice of objection,b.any further information the Commissioner may require from the taxpayer, failure to which the Objection shall be allowed."

28. The Appellant posited that the notice of objection dated 24th June 2022 taken together with the objection application acknowledgement receipt dated 27th June 2022 reveals that the objection of tax decision dated 20th November 2022 was made after 150 days instead of within 60 days.

29. In support of its averment that the Respondent's decision was made out of time, the Appellant relied on the hereunder-listed authorities:-i.TAT 656 o/2021, Fasilo Mutua Wambui (A003861055S) Vs Commissioner of DTD.ii.Republic vs Commissioner of Domestic Taxes Ex Parte Fleur Investments Limited 2020] eKLR in which Judge Mativo relied on Republic vs Commissioner of Customs Service Ex- parte Unilever Kenya Limitediii.TAT 127 OF 2020, East Africa Ltd Vs Commissioner of Customs & Border Controliv.Equity Group Holding Limited vs. Commissioner of Domestic Taxes 2021 (eKLR):-v.Eastleigh Mall Ltd vs the (Commissioner of Domestic Taxes) Kenya Revenue Authority where Justice Mabeya relied on the case of Ceanset Air Vs Kenya Shell Ltd (2022) 2 EA 364,vi.Republic vs Commissioner of Customs Service ex-parte Unilever Kenya Limited (2012) eKLR

30. The Appellant submitted that the Respondent's failure to issue an objection decision within the timelines set by statute is not only inexplicable and irrational but also contravened the Appellant's right under Article 47 of the Constitution as read with Section 4 (i) of the Fair Administrative Action Act. The Appellant reproduced the provisions of Article 47 (1) of the Constitution which provides that:-“Every person has the right to administrative action that is expeditious, efficient, lawful, reasonable and procedurally fair."

31. The Appellant proffered that the Commissioner never used the records filed with him while issuing the additional assessments.

32. That the Commissioner used the method of banking that was expunged by the Court as a rule of assessing taxpayers.

33. The Appellant submitted that the Respondent erred by failing to take into account all information, documents and explanations provided by the Appellant in order to appreciate the relevant considerations in the determination of the taxable income.

34. The Appellant submitted that the Respondent erred in law by failing to fairly and objectively consider the objection raised by the Appellant and predisposed its mind to a position in favour of finding that the Appellant owed the amount demanded in the assessment.

35. The Appellant further submitted that the Respondent erred in law and fact by misinterpreting and misappropriating Section 3 (2) (a) (i) of Income Tax Act Cap 470 by imposing it to the difference or variance in Income tax returns and bankings. That deeming the difference as a business of income for whatever period carried on and assessing tax due on it is a decision contrary to law.

36. That the Respondent erred in law and fact by misleading, misappropriating and misinterpreting Section 5 (1) (a) of VAT Act, 2013 by taking a comparison of VAT3 Returns declarations and bankings and imposing VAT on the difference, deeming it expected sales.

37. It was the Appellant’s submission that the Respondent erred by failing to appreciate the distinction between charge to tax - Part III Income under Section 5 of VAT Act, 2013 hence ignored "fair administrative action" under Article 7 (I) of Constitution of Kenya 2010 which provides that:-“Every person has the right to the Administrative action that is expeditious, efficient, Lawful, Reasonable and procedurally fair”.

The Appellant’s Prayer 38. The Appellant made the following prayers to the Tribunal: -i.The aforesaid estimated additional assessments be annulled.ii.The assessments be amended in accordance with the objection and the Appellant be permitted to pay the tax levi-able on its true income ascertainable from evidence.iii.Costs of the Appeal.

THE RESPONDENT’S CASE 39. The Respondent’s case is premised on: -i.Its Statement of Facts dated 15th February 2023 and filed on 16th February 2023. ii.Its written submissions dated and filed on 29th August 2023.

40. The Respondent submitted that the Appeal emanates from its decision dated 26th June 2022 confirming the principal tax liability of Kshs.376, 881,705. 00.

41. The Respondent submitted that it conducted investigations into the Appellant’s tax affairs covering the period between 2015 to March 2022.

42. That the investigation carried out sought to cover the following:-i.To ascertain the accuracy and correctness of Income tax as declared as per the IT2C returnii.To ascertain the accuracy and correctness of VAT declared as per VAT3 returniii.To establish whether the Appellant has contravened any Section of the law with regard to the Tax Procedures Act.

43. The Respondent submitted that it analyzed the Appellant's Withholding tax certificates which revealed that the company earned income amounting to Kshs. 1,088,144,189. 00 in the period under review.

44. The Respondent submitted further that a comparison of income declared in Income tax returns and VAT returns yielded a difference of 1,170,001. 00 in the year 2020.

45. The Respondent stated that it carried out an analysis of the Appellant's bankings whereupon the computed expected income summed up to Kshs. 3,059,952,861. 00. That income as per this test was adopted by the assessing team because it yielded the highest computed turnover.

46. The Respondent submitted that it compared the computed expected sales against self-assessed income in submitted returns, the variances established were brought to charge yielding Corporate tax of Kshs. 441,891,862. 00 and VAT of Kshs. 177,786,467. 00 total tax payable being Kshs. 619,678,329. 00.

47. That upon conclusion of the tax investigations, the Respondent communicated its findings to the Appellant through a notice of tax assessment on 14th June 2022 with a tax liability of Kshs 619,678,329. 00 in principal taxes under the tax heads of Corporation tax and VAT.

48. The Respondent submitted that the Appellant disputed the Respondent's finding and lodged a notice of objection dated 24th June 2022 which was received on 28th June 2022.

49. That on 1st July 2022 the Responded informed the Appellant that its notice of objection dated 24th June 2022 was not in compliance with the provisions of Section 51(3) (c) of the Tax Procedure Act.

50. The Respondent submitted that on 13th July 2022, the Appellant sent a letter highlighting its bank reconciliations and amendments. That these engagements culminated in the provision of documents objecting to the assessments on 28th July 2022 effectively validating the objection.

51. The Respondent stated that it considered the grounds raised in the notice of objection, the documentation and further information provided in support and issued its objection decision on 26th September 2022 confirming the principal tax liability of Kshs. 376,881,705. 00 as due and payable.

52. That the Appellant being dissatisfied with the Respondent's decision lodged this instant appeal.

53. The Respondent submitted that Section 31 of the TPA provides that;“The Commissioner may amend an assessment (referred to in this section as the "original assessment'') by making alterations or additions, from the available information and to the best of the Commissioner's judgment, to the original assessment of an Appellant for a reporting period to ensure that- the Appellant is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates."

54. That the provisions of this law allow the Respondent to assess with reliance on the best judgment principle and the documentation that it has.

55. The Respondent propounded that it carried out an analysis on the Appellant's bankings, its income tax return as compared to its VAT return and the Appellant's withholding tax certificates. That the indicated variances were brought to charge.

56. The Respondent posited that the Appellant therefore under Section 56 of the TPA bears the burden of proving that the tax decision/additional assessment was an estimate.

57. The Respondent stated that where explanations and reconciliations were provided, the necessary adjustments were made. That the Appellant failed to provide explanations and support for the understated total annual gross bank credits in its reconciliations, it was the Respondent's position that only bounced cheques were adjusted in the amended bank reconciliations.

58. The Respondent submitted that in the computation of Corporation tax for the year 2021, the assessing team indicated that no sales had been declared by the Appellant. That Income tax return for that year was filed by the Appellant on 23rd June 2022 and the self-assessed income amounted to Kshs. 593,873,627. 00, that the declared income was taken into account in the amended bank reconciliations.

59. The Respondent asserted that it issued its decision after reviewing the Appellant's objection and documentation and making necessary adjustments.

60. It was the Respondent's position that, under the provisions of Section 56 of the TPA, the onus of proving that a tax assessment was wrong lies with the Appellant. That the Appellant failed to provide evidence to substantiate its assertion hence adjustment for alleged incurred expenses was not justified.

61. The Respondent stated that as evidenced by Paragraph 2. 1.7 of the objection decision where the Respondent detected variances, sought information and realized that the variances subjected to income tax and output VAT were VAT inclusive, adjustments were made to the bank reconciliations.

62. In asserting that the banking analysis test is an acceptable method of arriving at an assessment, the Respondent relied on the case of Digital Box v. Commissioner of Investigations and Enforcement further supported by the case of Bachmann v. The Queen, 2015 TCC 51 where the court stated that:-“This Court has recognized that in an appropriate case, a bank deposit analysis is an acceptable method to compute income."

63. The Respondent explained that it did not only use the banking analysis test but also considered the Appellant's filed Income tax, VAT returns and a test of the Appellant's Withholding taxes.

64. The Respondent submitted that it is empowered by tax laws to conduct an assessment against any taxpayer should there be a need to do so. That Section 24(2) of the Tax Procedures Act states;“The Commissioner shall not be bound by a tax return or information provided by, or on behalf of, a taxpayer and the Commissioner may assess a taxpayer's tax liability using any information available to the Commissioner.”

65. The Respondent submitted that in regards to the assessment, the test set out is not whether it was excessive or punitive but whether it was reasonable. That every taxpayer has a duty to pay the correct taxes as and when they are due. That it is the failure to pay the correct taxes that leads the Commissioner to assess the taxpayer showing the amount the taxpayer should have paid.

66. The Respondent stated that the Tribunal has highlighted the requirements for what is to be deemed as a reasonable assessment in the case of Digital Box Limited v Commissioner of Investigations and Enforcement (TAT 115 of 2017) wherein the Tribunal stated;“The Tribunal is guided by the test set out in CA McCourtie LON/92/191 where it was stated:"In addition to the conclusions drawn by Woolf Jin Van Boeckel earlier tribunal decisions identified three further propositions of relevance in determining whether an assessment is reasonable. These are, first that the facts should be objectively gathered and intelligently interpreted: secondly, that the calculations should be arithmetically sound: and, finally that any sampling technique should be representative and free from bias."

67. The Respondent submitted that the assessment met all the set conditions for a reasonable assessment, which pointed out to the Appellant the basis of the assessment.

68. That the assessment order issued to the Appellant fully complied with Section 31(8) of the TPA on amended assessments and what the assessment should specify.

69. The Respondent asserted that it is allowed under Sections 29 and 31 of the TPA to issue an assessment based on its best judgment relying on all the information that is at its disposal.

70. That the Respondent in the current case used the information available to him through third-party engagements (i.e. the Appellant's bankers) and to the best of its judgment in making amendments to the original assessment of the Appellant for the periods under investigation. That this is provided for under Section 31(1) of the TPA, 2015.

71. The Respondent further stated that a tax investigation program must embrace a range of methods and techniques for determining and verifying a taxpayer's income if it is to be an effective component of a balanced compliance management strategy. That detecting and deterring non-compliance requires more than a mere examination of a taxpayer's books and records and necessitates an analysis of the taxpayer's financial affairs to correctly assess tax liabilities.

72. That indirect methods like the use of bank deposits involve the determination of tax liabilities through an analysis of a taxpayer's financial affairs utilizing information from a range of sources beyond the taxpayer's declaration and formal books and records. That assessments are often based on circumstantial evidence indicating a reasonable estimate of the taxpayer's correct liability.

73. The Respondent propounded that the bank deposit method is based on the premise that money received must either be deposited or spent. That this approach is particularly useful if an analysis of bank accounts and a taxpayer's cash expenditure indicates a likelihood of undeclared income and the taxpayer makes regular payments into bank accounts that appear to be from a taxable source.

74. The Respondent submitted that a detailed analysis of all bank deposits into accounts established several deposits from the customers of the Appellant and payments to the suppliers, clearly showing a person in trade.

75. The Respondent submitted that having used the banking analysis to raise the assessment, the burden of proof shifted to the Appellant to explain which of the deposits that had been included in the assessments was not from a taxable source, was already taxed or was not income.

76. The Respondent relied on this Tribunal’s finding in TAT 551 of 2021 Atronix Limited-vs- Comm DTD where it was held that:“...upon the Appellant failing to provide sufficient documents to prove its objection it gives the Respondent the leeway to invoke and take into consideration and rightly so the provisions of Section 24(2) of the TPA. The Tribunal finds that the Appellant failed to provide material information for the Respondent to determine the appropriate taxes payable on its part and to that extent the Respondent appropriately resorted to alternative information for taxation. The Tribunal therefore finds that the Respondent did not misapply the law in making the assessments in issue..."

77. The Respondent submitted that in its Statement of Facts, it provided a breakdown on how the Commissioner arrived at the additional tax assessment, that the Respondent made adjustments based on the bank statements availed by the Appellant.

78. The Respondent stated that its investigation, findings and Objection decision were based on information available as provided under Section 24(2) of the TPA which states that:“The Commissioner shall not be bound by a tax return or information provided by, or on behalf of, a taxpayer and the Commissioner may assess a taxpayer's tax liability using any information available to the Commissioner”

79. That it is upon the Appellant to disprove the Respondent's analysis with evidence before this Tribunal.

80. The Respondent noted that the Appellant did not claim the alleged VAT input within six months after the supply, therefore the same cannot be allowed after the prescribed period.

81. The Respondent submitted that the Appellant cannot claim input VAT when it was statutorily time-barred. The Respondent referred to Section 17(2) of the VAT Act which provides that:-“If, at the time when a deduction for input tax would otherwise be allowable under subsection (1)-(a)the person does not hold the documentation referred to in subsection (3), or(b)the registered supplier has not declared the sales invoice in a return, the deduction for input tax shall not be allowed until the first tax period in which the person holds such documentation:Provided that the input tax shall be allowable for a deduction within six months after the end of the tax period in which the supply or importation occurred.”

82. The Respondent referred to the case of Highland Mineral Water versus Commissioner of Domestic Taxes where the High Court pronounced itself and stated that;“...the other hand Section 17 does not provide a carte blanche for claiming input tax whenever the return is filed late. A taxpayer can only claim input tax within a specific and prescribed period after the end of the tax period in which the supply or importation occurred. Any claim outside the 6 months is time barred and cannot be allowed under the express terms of section 17 hence the fear that a taxpayer will make a claim merely by paying the penalty is not borne out by the express statutory language.I therefore find and hold that sections 17(1) and (2) of the VAT Act, permit the taxpayer to claim input tax at any time provided the claim falls within 6 months from the period which the supply or importation occurred notwithstanding that the VAT Return is filed late. In other words, the fact of late filing does not preclude a taxpayer from claiming input VAT and that this claim ought to be allowed as long as the Return is filed and claimed within six months from the date of supply or importation. "

83. The Respondent submitted that Section 56(1) of the TPA provides as follows:-“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”

84. The Respondent relied on Commissioner of Domestic Services v Galaxy Tools Limited [2021] eKLR where it was stated that:-“the tax laws reverse the well-known principle of evidence of "he who alleges must proof'. "In this regard, the tax authorities would assess what it considers to be the tax due from a taxpayer and the tax laws would burden the taxpayer to disprove that the assessment or tax demanded is wrong or incorrect.This is borne by the fact that the assessment and demand is ordinarily made way after the taxpayer has assessed himself and made a declaration of what according to him is the tax payable and has already paid such tax. The burden is therefore shifted to the taxpayer because the tax authority has to rummage through the documents of the taxpayer years after the taxpayer assessed himself and paid what he considered to be his tax liability."

85. It was the Respondent's position that pursuant to the provisions of Section 56 of the TPA, the onus of proving that a tax assessment was wrong lies with the Appellant. That the Appellant failed to provide evidence to substantiate its assertion hence adjustment for alleged incurred expenses was not justified.

86. The Respondent submitted that as evidenced by Paragraph 2. 1.7 of the objection decision where the Respondent detected variances, sought information and realized that the variances subjected to income tax and output VAT were VAT inclusive, adjustments were made to the bank reconciliations.

87. The Respondent reiterated that the Appellant had failed to disprove the Respondent's position and the so-called evidence has not even been submitted for perusal and reconsideration before this Tribunal. That the Appellant had therefore not adduced compelling evidence before this Tribunal to controvert the Respondent's decision.

Respondent’s Prayers 88. The Respondent prayed that the Tribunal finds that:-i.The Respondent's additional assessments, demand and objection decision dated 26th September 2022 be upheld.ii.The Appeal be dismissed with costs

Issues For Determination 89. The Tribunal has carefully studied the pleadings and documentation filed by both parties and is of the view that the issues falling for its determination are as follows:-a.Whether the objections filed by the appellant on June 24, 2022 were allowed by operation of the law.b.Whether the objection decision made by the respondent on November 20, 2022 was justified.

Analysis And Findings a. Whether the objections filed by the Appellant on 24th June 2022 were allowed by operation of the law. 90. The Respondent issued the Appellant with additional estimated assessments on 14th June 2022 amounting to Kshs. 802,399,466. 00.

91. The Appellant lodged a notice of objection to all the assessments on 24th June 2022 and received objection application acknowledgements on 27th June 2022.

92. On 1st July 2022, the Respondent informed the Appellant that its notice of objection was invalid and required the Appellant to provide documents within 7 days to validate it.

93. The Respondent stated that on 13th July it received a letter from the Appellant highlighting its bank reconciliations and amendments.

94. The Respondent in a letter dated 21st July 2022 stated that the Appellant had not provided documents to support its objection hence the Respondent declared the Appellant’s Objection invalid. The Respondent allowed the Appellant a further 7 days to provide documents.

95. The Tribunal has noted from the foregoing that the Respondent requested the Appellant to validate its objection on the 1st of July 2022 and the Appellant validated its objection by providing documents on 13th July 2022 as confirmed by the Respondent.

96. Crucially, the Respondent did not tell the Appellant the specific documents that it was required to provide to validate its objection. Under the circumstances, the Appellant’s action in providing bank reconciliations was sufficient to validate its objection.

97. It was the place of the Respondent to state that the bank reconciliations provided were not sufficient by stating the specific documentation that is required. Put another way, the Appellant addressed the request of the Respondent to validate its objection by providing documents but the Respondent opted to request further documents without specifying the documents it required and or the insufficiency in the document that had been supplied.

98. Under the circumstances, the Appellant could not have known what was required of it to validate its objection. It is for this reason that the Tribunal finds and holds that the Appellant's objection was valid and the Respondent was thus required to issue its objection decision within 60 days from 13th July 2022 when the Appellant validated its objection as is provided in Section 51(11) of the TPA which states as follows:-“The Commissioner shall make the objection decision within sixty days from the date of receipt of-a.the notice of objection; orb.any further information the Commissioner may require from the taxpayer.failure to which the objection shall be deemed to be allowed.”

99. The only way through which the Respondent could sustain the invalidation at this point was by being specific on the additional documents that it required from the Appellant.

100. The Respondent submitted that it issued its objection decision on 26th September 2022 and annexed the said letter to this Appeal. To the contrary, the Appellant does not refer to the said objection decision of 26th September 2022 and only dwelt on the confirmation of assessments issued via Itax on 20th November 2022.

101. Considering that the Appellant’s objection was validated on 13th July 2022, it follows that the objection decision should have been issued within 60 days which fell on or before the 12th September 2022. This objection decision was thus late by about 14 days and hence invalid.

102. This conclusion is aligned with the decision of the High Court in 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 Justice D.S Majanja stated as thus in paragraph 16 of the judgment:“The Commissioner's delay in delivering the Objection Decision within sixty days of receiving the objection meant that the objection was allowed by operation of law. Failure to render the Objection Decision in time was fatal and the Commissioner could not demand any taxes therein.”

103. The Appellant premised its Appeal on the system-generated confirmation of assessments dated 20th November 2022. In its view, these assessments were the decisions of the Respondent upon which its Appeal emanated.

104. A cursory count of the days from the 13th July 2022 when the objection was validated to the 20th November 2023 when the assessments were confirmed is approximately 97 days, which is 37 days beyond the statutory limit period of 60 days under Section 51911) of the TPA.

105. Even if the Tribunal were to place reliance on the Respondent’s letter of 26th September 2022 conveying the objection decision in computing timelines, it would mean that the decision was rendered approximately 73 days from the date of validation of the objection which still falls beyond the 60 days provided for in Section 51(11) of the TPA

106. Whichever way one looks at it, both decisions that were issued by the Respondent in this Appeal fall foul of Section 51(11) and are thus invalid.

107. Accordingly, the Tribunal finds that the Appellant’s objection having been validly lodged and the Respondent having issued its objection decision outside the statutory period the Appellant’s notice of objection is to that extent deemed to have been allowed by operation of law.

108. Having found that the Appellant’s notice of objection was deemed allowed by operation of law the Tribunal did not delve into the other issue that fell for its determination as it has been rendered moot.

Final Decision 109. The upshot of the foregoing is that the Appeal is merited and the Tribunal accordingly proceeds to make the following orders: -i.The Appeal be and is hereby allowed.ii.The confirmation of assessments dated November 20, 2022 be and is hereby set aside.iii.Each party is to bear its own costs.

110. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 26THDAY OF APRIL, 2024. ERIC NYONGESA WAFULA..........................CHAIRMANDR. RODNEY O. OLUOCH ...................... MEMBERABRAHAM K. KIPROTICH.....................MEMBERCYNTHIA B. MAYAKA ........................MEMBERTIMOTHY B. VIKIRU.......................... MEMBER