Mamo v Commissioner of Investigation & Enforcement [2025] KETAT 158 (KLR)

Mamo v Commissioner of Investigation & Enforcement (Tax Appeal E287 of 2024) [2025] KETAT 158 (KLR) (14 February 2025) (Judgment)

Neutral citation: [2025] KETAT 158 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal E287 of 2024

CA Muga, Chair, BK Terer, EN Njeru, E Ng'ang'a & SS Ololchike, Members

February 14, 2025

Between

Ahmed Hassan Mamo

Appellant

and

Commissioner of Investigation & Enforcement

Respondent

Judgment

Background 1. The Appellant is a Kenya citizen residing in Nairobi County and the Director of Nakuru Gases Limited Company based in Nakuru County whose principal activity is the sale of gas cylinders and refilling of Liquid Petroleum Gases (LPG).

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 commenced investigations into the Appellant's tax returns upon receipt of information that there was gross under-declaration of income. The Respondent conducted a search on 6th October 2021 pursuant to search warrants obtained on Nairobi MCCR MISC E448 of 2021. Consequently, the Respondent raised the additional assessment on 17th February 2022.

4. The Appellant lodged hi notice of objection on 7th March 2022 and upon considering the objection, the Respondent issued its objection decision dated 24th June 2022 confirming the additional assessment and demanded payment of principal tax of Kshs 32,005,871. 00

5. Being dissatisfied with the Respondent's decision the Appellant lodged this Appeal through the Notice of Appeal filed on 8th March 2024.

The Appeal 6. The Appellant filed his memorandum of appeal dated 7th March 2024 and filed on 8th March 2024 raising the following grounds of appeal:a.That the Respondent erred in law and in fact by issuing its objection decision outside the statutory sixty (60) days provided for under Section 51(11) of the Tax Procedures Act, CAP 469B of the Laws of Kenya (hereinafter “TPA”).b.That the Respondent erred in law and in fact by disregarding the Appellant's explanation that not all deposits in the Appellant's Diamond Trust Bank Account Number 0029002001 were taxable income.c.That the Respondent erred in law and in fact by disregarding the Appellant's explanation that not all credits in his Diamond Trust Bank Account Number 0029002001 were taxable income.d.That the Respondent erred in law and in fact by failing to consider and adopt the breakdown of the taxes payable as computed by the Appellant, despite the same being supported by valid documentary evidence that was adduced by the Appellant.e.That the Respondent erred in law and in fact by carrying out the investigation in a manner that was unfair, unreasonable, and contrary to the principles of fairness and justice, as well as the doctrine of fair administrative action.

Appellant’s Case 7. In support of the appeal, the Appellant filed his statement of facts dated 7th March 2024 and filed on 8th March 2024. The Appellant also filed written submissions dated 27th September 2024 and filed on even date which were adopted by the Tribunal on 13th November, 2024.

8. The Appellant’s case was that he keeps a personal account with Diamond Trust Bank Limited, Account Number 0029002001.

9. On 31st December 2021, the Respondent investigated his Company and demanded Kshs 10,384,706. 00 as the director's additional income tax for years 2015 to 2020. In the investigation findings, the Respondent asked the Appellant to respond to the tax findings within fourteen (14) days and failing which it would confirm the taxes.

10. The Appellant averred that on 16th February 2022, the Respondent issued additional assessments on him in respect to various years as follows: KShs 2,836,968. 00 for the year 2015; KShs 1,404,162. 00 for the year 2016; KShs 2,536. 600. 00 for the year 2017; and KShs 1,474,588. 00 for the year 2019. On 7th March 2022 the Appellant objected to the Respondent's additional assessments and on the same date, the Respondent acknowledged the Appellant's objection by sending objection acknowledgement receipts.

11. On 16th March 2022, the Respondent wrote to the Appellant requesting additional documents within seven (7) days from the date of the letter said letter for purposes of reviewing the objection. The Appellant stated that on 24th June 2022, the Respondent issued an objection decision for the Appellant's income tax amounting to KShs 10,384,706. 00 and that the Respondent confirmed its tax investigation findings dated 31st December 2021 for the years 2015, 2016, 2017, 2018, 2019 and 2020.

12. The Appellant asserted that the objection decision rendered on 24th June 2022 is thus issued outside the sixty (60) day statutory period and purporting to confirm taxes which had been validly objected to on 7th June 2022 is therefore invalid, null and void.

13. Further, the Appellant argued that the objection decision rendered on 24th June 2022 was also defective as it purported to confirm taxes for the year 2018 and 2020 which were not objected to and for which parties had agreed on a payment plan.

14. As a result of the foregoing, he asserted that the notice of objection dated 11th April 2022 and the further documents said to have been presented on diverse dates between 24th May 2022 and 9th June 2022 could not replace the notices of objection of 7th March 2022 as the Respondent had already began the review of his objection on the 16th March 2022 when it sought additional documents from the Appellant.

15. The Appellant stated that the law does not envisage two objection decisions to the same tax liability, he averred that there can never be two notices of objection for the same taxes. The Appellant further asserted that the Respondent did not explain in the objection decision what happened to his objections dated 7th March 2022 and which tax liability the Appellant was objecting to on 11th April 2022.

16. According to the Appellant, the Respondent's request for further documents within seven (7) days from the Appellant as indicated in its letter of 16th March 2022 was equally without any justification because of the following reasons:a.The Respondent had as far back as 5th October 2021, successfully sought and obtained a Court Order to search his premises where it carted away tax related documents. They therefore had all documents needed to review his objection.b.The Appellant provided his bank statements, bank analysis summaries for the years under review and there were no other documents that were requested from him that were not in the custody and/or hands of the Respondent.

17. He maintained that the Respondent’s failure to render a decision within the stipulated period, deemed his objection as allowed by operation of the law.

18. The Appellant, in his submissions identified two issues for determination. First, whether the Respondent was justified in asking for further documents from the him when it had already raided the Appellant's premises and carted away original tax related documents; and second, whether the objection decision was issued outside the statutory (60) sixty days hence null and void.

19. With regard to the first issue, the Appellant asserted that the Respondent carted away all the documents and that in a letter dated 16th March 2022 the Respondent did not specify the documents that it needed. The Appellant cited the case of Kenya Revenue Authority v Man Diesel& Turbo Se Kenya [2021l eKLR, wherein the Court held as follows:“..Whereas the said section obliges a tax payer to avail records, the flip side of this position is that a party can only produce documents in his possession."

20. The Appellant also cited the case of Kenya Revenue Authority & 2 others v Doshi Iron Mongers Limited (Civil Appeal 66 of 2020) [2024] KECA 640 (KLR) the Court of Appeal held as follows:“Under section 60(3) (b) of the Tax Procedures Act, the appellants' authorised officers are only permitted to seize documents that, in the opinion of the Commissioner or authorised officer, may be material in determining the tax liability of a taxpayer. The presumption therefore is that the documents, equipment and data seized from the respondent were material for determining the respondent's tax liability."

21. Therefore, the Appellant submitted that the letter dated 16th March 2022 ought to have stated specific documents to be produced and which could be obtained or were in the custody of the Appellant.

22. On whether the objection decision was issued outside the statutory sixty (60) days timeline and was hence null and void, the Appellant relied on the provisions of Section 51(11) of the TPA as amended by the Finance Act, 2019 and cited the case of Eastleigh Mall Limited v Commissioner of Investigations & Enforcement (Income Tax Appeal E068 of 2020) [2023] KEHC 20000 (KLR) in submitting that the Respondent must issue its objection decision within 60 days.

Appellant’s Prayers 23. The Appellant made the following prayers:a.That this appeal be allowed;b.That the Appellant's objection to the taxes be deemed allowed by operation of the law as provided for under Section 51 (11)(b) of the TPA;c.That the Respondent's objection decision be set aside and be fully vacated for being issued outside the sixty (60) days statutory period; andd.That the Respondent meets the costs of this appeal.

Respondent’s Case 24. In opposition of the appeal, the Respondent filed a statement of facts dated 11th April 2024 on 17th April 2024. The Respondent also filed written submissions dated 11th October 2024 on even date. The Respondent’s written submissions were adopted.

25. The Respondent’s case theory was that it cconducted a search on 6th October 2021 pursuant to search warrants obtained on Nairobi MCCR MISC E448 of 2021. The records reviewed included documents obtained from the search, data from internal databases including Tax, DWBI and Japersoft, third party data from Appellant's bankers, Safaricom, suppliers and EPRA. The Respondent noted from i-Tax system that the Appellant was filing NIL returns for the period under investigation that is January 2015 to December 2020. It analysed the Appellant's bank statements from the director's personal account at Diamond Trust Bank and noted that there was undeclared income of 36,085,540 for the period under review.

26. The Respondent also obtained information from NTSA TIMS which indicated that the Appellant and his company owned four motor vehicles out of which one is in the name of the Appellant.

27. The Appellant's deposit was then subjected to income tax resulting to income tax of 10,384,706 for the period from 2015 to 2020. The Respondent then raised the additional assessment on 17th February 2022 which prompted the Appellant to lodge the objection on 11th April 2022.

28. The Respondent stated that it considered the objection and informed the Appellant that the same was not supported by relevant documents vide an electronic mail of 10th May 2022.

29. The Respondent asserted that the Appellant submitted a payment plan vide a letter dated 11th April 2022 which was approved by the Respondent on 10th May 2022 for payment of tax arrears of Kshs 4,342,456 .00 whose first instalment was to be on 1st June 2022. The Respondent further stated that the Appellant requested two weeks to provide documents and the same was granted and that the Appellant finally availed documents on various dates including 24th May 2022 and 9th June 2022.

30. Subsequently, the Respondent issued the objection decision on 24th June 2022 confirming the additional assessment and demanding the Appellant to pay principal tax of 10,384,706. 00.

31. In response to the appeal, the Respondent asserted that the objection decision was issued within the timelines under section 51(11) of the TPA. The Respondent stated that the Appellant lodged his objection on 11th April 2022 and that it informed the Appellant that of the requirements of a valid objection on 10th May 2022 therefore, the Respondent asserted that it complied with the provisions of section 51(4) of the TPA as was at the material time.

32. It stated that Section 44 of the Finance Act 2022 amended Section 51(4) of the TPA came into force on 1st July, 2022 and that it is then that the current law that required an objection invalidation be communicated within 14 days was introduced.

33. Further, the Respondent maintained that the invalidation was communicated within 29 days of the objection notice. It also reiterated that the Appellant's objection is dated 11th April 2022 and the Respondent notice of validly lodged objection 10th May 2022. It therefore asserted that the timelines of the invalidation was proper within the law of the time.

34. It affirmed that it is bound to issue a decision where a validly lodged notice of objection has been lodged pursuant to the provisions of Section 51(11) of the TPA. The Respondent averred that the Appellant lodged the objection on 24th April 2022 but failed to state grounds of appeal or provide documents in support of the objection therefore, it informed the Appellant to validate its objection on 10th May 2022. It also stated that the Appellant promised to provide the requested documents within two weeks.

35. According to the Respondent, the Appellant provided documents on 24th May 2022 and time only began running from then leading to issuance of the objection decision on 24th June 2022.

36. The Respondent stated that the banking analysis method is one of the recognised methods of tax administration. It added that the onus is upon the Appellant to demonstrate entries which do not constitute income but the Appellant failed to provide documents to support costs of sales or otherwise any expense that was used in the generation of income.

37. In the absence of supporting records, the Appellant's objection failed and the Respondent invoked the provisions of Section 31(1) of the TPA in holding that the assessments were correctly issued on the basis on information available to the commissioner and to the best of his judgement.

38. On whether the Respondent failed to consider the Appellant's documents and explanations, the Respondent maintained that it was incumbent upon the Appellant to demonstrate which documents were not taken into account, the desired effect of documentation and logical conclusion that ought to have been arrived.

39. The Respondent asserted that it enjoys presumption of correctness and the Appellant filed to discharge the evidentiary burden of demonstrating that the assessment is wrong.

40. In addition to the statement of facts, the Respondent submitted that its objection decision was valid. In further support of this position, the Respondent reiterated that the Appellant lodged the objection on 11th April 2022 and on 10th May 2022 the Respondent informed the Appellant that the objection was improper as no grounds had been provided. It submitted the Appellant provided documents on 24th May 2022 therefore, time under section 51(11) of TPA started from that date.

41. The Respondent cited the case of Commissioner of Income Tax v Pan African Paper Mills (E.A) Limited [2018] eKLR to support the position that taxing acts are strictly construed in the sense that one looks at what is said; there is no room for intendment.

42. The Respondent submitted that it notified the Appellant of invalidity of its objection within the timeframe under section 51(4) of the TPA before its amendments. In simple terms, the Respondent was urging the Tribunal to apply section 51(4) of the TPA prior to its amendment. The Respondent cited the case of Samuel Kamau Macharia & Another v Kenya Commercial Bank Ltd &2 Others [2012] eKLR wherein the Supreme Court held as follows:‘‘As for non-criminal legislation, the general rule is that all statutes other than those which are merely declaratory or which relate only to matters of procedure or evidence are prima facie prospective, and retrospective effect is not to be given to them unless, by express words or necessary implication it appears that this was the intention of the legislature."

43. On Whether the Respondent erred in assessing bank deposits in determining taxable income during the assessment period, the Respondent submitted that it is allowed under section 29 and 31 of the TPA to issue an assessment based on best judgement relying on all the information that is at disposal.

44. The Respondent also submitted that the Appellant did not provide required documents therefore the objection was rejected. The Respondent relied on the case of TAT 551 of 2021 Atronix Limited vs Comm DTD to submit 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.

45. The Respondent also relied on the case of Commissioner Investigations and Enforcement v Kidero (Income Tax Appeal E028 of 2020) [2022] KEHC 52 (KLR) (Commercial and Tax) to submit that in line with section 56(1) of the TPA, the taxpayer bears the burden of proving that assessment made by the Commissioner is incorrect.

46. On whether the Respondent erred in disallowing expenses incurred by the Appellant during the assessment period, the Respondent cited section 15 and Section 54A (1) of the Income Tax Act, CAP 470 of the Laws of Kenya (hereinafter “ITA”) to submit that the expenses can only be allowed if records are provided but the Appellant failed to provide them. It relied on the case of Leah Njeri Njiru v Commissioner of Investigations and Enforcement Kenya Revenue Authority & another [2021] eKLR where the Court held that the only way the Commissioner could have allowed deductions of expenses as pursuant to the provisions of Section 15(1)of the ITA is if they were supported to its satisfaction in line with section 54A(1) of ITA

Respondent’s prayers 47. The Respondent urged the Tribunal to uphold the Respondent's decision dated 24th June 2022 as proper and in conformity with the provisions of the Law and dismiss the appeal with costs.

Issues for Determination 48. The Tribunal having considered the parties’ pleadings, documentary evidence and written submissions is of the view that the following four issues call for its determination:a.Whether the appeal is properly before the Tribunal.b.Whether the objection decision dated 24th June 2022 was time barred.c.Whether the assessments are statutorily time barred.d.Whether the Respondent erred in confirming the assessments.

Analysis and Findings 49. The Tribunal, having identified the four issues for determination will proceed to analyse them and make its findings as hereinunder.

a. Whether the appeal is properly before the Tribunal. 50. In the celebrated case of Owners of the Motor Vessel “Lillian S” – v – Caltex Oil (Kenya) Ltd [1969] KLR, Nyarangi JA held, inter alia as follows:‘‘…Jurisdiction is everything. Without it, a court has no power to make one more step. Where a court has no jurisdiction, there would be no basis for a continuation of the proceedings pending other evidence. A court of law downs its tools in respect of the matter before it the moment it holds the opinion that it is without jurisdiction.”

51. The Respondent issued its objection decision on 24th June 2022 whilst the Appellant filed its notice of appeal on 8th March 2024. The Tribunal must therefore determine whether the Appeal is properly before it. Section 13 (1) of the Tax Appeals Tribunal Act, CAP 469A of the Laws of Kenya (hereinafter “TATA”) provides as follows:‘‘13. Procedure for appeal(1)A notice of appeal to the Tribunal shall—(a)Be in writing or through electronic means;(b)Be submitted to the Tribunal within thirty days upon receipt of the decision of the Commissioner.’’

52. The Tribunal notes that the Appellant filed an appeal in contravention of the provisions of Section 13(1)(b) of TATA. Whereas the TATA provides that the appeal must be filed within 30 days, the TATA also recognizes that some taxpayers may be unable to comply with the timeline and therefore it provides a cure for this pursuant to the following provisions of Section 13(3) and (4) of TATA:‘‘(3)The Tribunal may, upon application in writing or through electronic means, extend the time for filing the notice of appeal and for submitting the documents referred to in subsection (2).(4)An extension under subsection (3) may be granted owing to absence from Kenya, or sickness, or other reasonable cause that may have prevented the applicant from filing the notice of appeal or submitting the documents within the specified period.’’

53. The Court of Appeal in Speaker of National Assembly v Njenga Karume [2008] 1 KLR 425 held as follows:“Where there is clear procedure for the redress of any particular grievance prescribed by the Constitution or an Act of Parliament, that procedure should be strictly followed.”

54. Further the Tribunal cites the following holding in the case of W.E.C. Lines Ltd v The Commissioner of Domestic Taxes [TAT Case No. 247 of 2020] as outlined at paragraph 70 which reiterated the holding in Krystalline Salt Ltd vs. KRA [2019] eKLR:“Where there is a clear procedure for redress of any particular grievance prescribed by the constitution or an Act of Parliament, that procedure should be strictly followed. Accordingly, the special procedure provided by any law must be strictly adhered to since there are good reasons for such special procedures. The relevant procedure here is the process of opposing an assessment by the Commissioner.”

55. The Tribunal notes that the Appellant did not indicate in his record of Appeal, that he made an application as provided for by Section 13(3) of TATA whereupon he sought leave to file his appeal out of time. Further, there was no record of such leave having been obtained by the Appellant pursuant to the provisions of Section 13(4) of TATA.

56. In County Executive of Kisumu v County Government of Kisumu & 8 others (Civil Application 3 of 2016) [2017] KESC 16 (KLR) the Supreme Court held as follows regarding filing appeals out of time, without leave of a Court:“We are in total agreement with the respondent that an appeal filed in this Court out of time without leave of this Court is irregular and this Court will not invoke such ‘novel’ principles as urged by applicant so as to validate that petition and deem it as properly filed.’’

57. The Tribunal finds that the Appellant failed to adhere to the dictates of the law and as a consequence the Tribunal lacks jurisdiction to hear and determine the matter and downs its tools. Consequently, the Tribunal finds and holds that the appeal herein is improperly before it and ought to be struck out.

58. Having so that the Appeal is improperly before it and having so downed its tools, the Tribunal finds it moot to delve into the other issues for determination.

Final Decision 59. The upshot of the foregoing is that the Appeal herein fails and accordingly the Tribunal proceeds to make the following Orders:a.The Appeal be and is hereby struck out.b.Each party to bear its own costs.

60. It is so Ordered.

DATED AND DELIVERED AT NAIROBI ON THIS 14TH DAY OF FEBRUARY, 2025. CHRISTINE A. MUGA - CHAIRPERSONBONIFACE K. TERER - MEMBERELISHAH N. NJERU - MEMBEREUNICE N. NG’ANG’A - MEMBEROLOLCHIKE S. SPENCER - MEMBER