Mount Kenya Mechanical Works Ltd v Commissioner of Domestic Taxes [2023] KETAT 122 (KLR)

Mount Kenya Mechanical Works Ltd v Commissioner of Domestic Taxes (Tribunal Appeal 270 of 2021) [2023] KETAT 122 (KLR) (17 March 2023) (Judgment)

Neutral citation: [2023] KETAT 122 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tribunal Appeal 270 of 2021

E.N Wafula, Chair, Cynthia B. Mayaka, Grace Mukuha, Jephthah Njagi & AK Kiprotich, Members

March 17, 2023

Between

Mount Kenya Mechanical Works Ltd

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company registered within the Republic of Kenya under the Companies Act.

2. The Respondent is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act, and the Authority is an agency 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 dispute arose from Income Tax assessments issued for the year 2017 amounting to Kshs 5,241,271. 30.

4. The Appellant lodged an objection to the assessment on 9th October 2018.

5. The Respondent sent a letter to the Appellant requesting it to furnish documents to support the objection.

6. The Respondent stated that it did not receive the documents from the Appellant and therefore confirmed the assessment on 10th December, 2018.

7. After the confirmation of the assessment, the Respondent issued two tax demand letters dated 30th January 2019 and 15th June 2020.

8. Being aggrieved by the confirmation of assessment notice dated 10th December 2018, the Appellant filed a Notice of Appeal on 3rd June 2021.

The Appeal 9. The Appeal is premised on the following grounds as stated in the Memorandum of Appeal dated 26th May 2021 and filed on 3rd June 2021:-a.That the Commissioner erred in law and in fact by failing to consider the amended returns for the year 2017 as filed by the Appellant.b.That the Commissioner erred in law and in fact by failing to give due regard to the Appellant's audited accounts as filed with the Nyeri office.c.That the Appellant has already paid the tax due amounting to Kshs. 87,857. 00. d.That the Commissioner erred in law and in fact by issuing the confirmation of the assessment notice without proper application of the rules of natural justice.e.That the Commissioner erred in law and in fact by upholding the disputed tax without proper consideration of the prevailing circumstances peculiar to this case.

Appellant’s Case 10. The Appellant’s case is premised on the following documents and proceedings before the Tribunal: -a.Appellant’s Statement of Facts dated 26th May 2021 and filed on 3rd June 2021 together with the documents attached thereto.b.The witness statement of Anthony Maina dated 2nd August, 2022 and filed on 3rd August, 2022 that was admitted in evidence in chief on 24th August, 2022. c.The Appellant’s written submissions dated 1st November 2022 and filed on 3rd November 2022 together with the authorities attached thereto.

In the Statement of Facts, the Appellant states as follows:- 11. That the Appellant is a diligent taxpayer that respects its honorable duty to pay taxes due to the Respondent.

12. That the Appellant has continually paid its tax obligations dutifully since inception as can be shown by records held by the Respondent.

13. That the Appellant faithfully filed the monthly VAT returns as a diligent taxpayer.

14. That out of no fault of the Appellant, the auditor inadvertently filed nil returns for the year 2017 without the knowledge of the Appellant. The Respondent used the monthly returns to compute the disputed tax.

15. That to the Appellant’s surprise, the Respondent issued income tax assessment order for the period between 17th May, 2017 and 31st December, 2017 against the Appellant, amounting to Kshs. 5,241,271. 30 which was followed by a demand letter dated 10th October, 2018.

16. That the Respondent ignored the Appellant’s objection, basing their computations on the declared annual vatable sales (VAT3) i.e. Kshs. 16,638,956. 00 and subjecting the same to 30% income tax, ignoring deductible expenses in line with the Income Tax Act Section 15.

17. That upon realization that the said assessment order was not only inaccurate but also erroneous, the Appellant lodged an objection as required by the law. During pendency of the objection, the Appellant could not file the audited accounts on the iTax platform. The Appellant filed amended annual tax returns to cure the inadvertent filing of Nil returns on the Respondents iTax system.

18. That upon finalization of the audited accounts, the Appellant paid the final tax dues amounting to Kshs 87,857. 00 on 20th February, 2019 as evidenced by the KCB Bank Payment Slip attached to the Appellant’s Statement of Facts. That additionally, the Appellant submitted the audited accounts to the Nyeri office of the Respondent.

19. That despite having paid the tax due in its entirety, the Respondent has continued to demand more taxes based on the erroneous tabulations highlighted above. That the Appellant is unable to concentrate and take care of the business owing to the numerous demands and threats from the Respondent.

20. In submissions, the Appellant states that the Appeal challenges the Respondent's confirmation of Assessment Notice dated 10th December, 2018. That the Appellant’s application to lodge its Appeal out of time was allowed by Consent on 24th September, 2021.

21. The Appellant submitted that the following ought to be the issues of determination in this Appeal:-a.Whether the assessment dated 10th September, 2018 and subsequent confirmation notice dated 10th December, 2018 is merited.b.Whether the Respondent accorded the Appellant fair hearing and considered its objection and legitimate business expenses; andc.Whether the Respondent's confirmation notice/ objection decision is proper.

a. Whether the assessment dated 10th September, 2018 and subsequent confirmation notice dated 10th December, 2018 is merited. 22. The Appellant submitted that from the facts disclosed in this case, the basis of the assessment was premised on the variance between the VAT returns and the income tax returns for the year 2017.

23. That from the pleadings filed and the Appellant's witness statement, the Appellant explained the reasons of the variance and went ahead to correct the same as per the law with the concurrence of the Respondent.

24. That the Tribunal will note that from the Appellant's pleadings that the variance was attributed to erroneous filing of nil returns in order to beat the filing deadlines allowed by law.

25. That subsequent to that, the Appellant corrected the same in the Respondent's iTax system and paid the taxes due for the said year 2017. That the evidence of payment of the taxes was placed before the Tribunal.

26. That for this to be done, the Appellant made an application to amend the erroneous tax returns filed, which application was allowed by the Respondent, pursuant to Section 31(2) read together with Section 31(3) of the Tax Procedures Act. That the said Section provides as follows:2. A taxpayer who has made a self-assessment may apply to the Commissioner, within the period specified in subsection (4)(b)(i), to make an amendment to the taxpayer's self-assessment.3. Where an amended self-assessment return has been submitted under sub-section (2) the Commissioner may accept or reject the amended self-assessment return and where he rejects, he shall furnish the taxpayer with the reasons for such rejection within thirty days of receiving the application.

27. That if the Respondent did not allow the application and subsequent amended self-assessment returns, then nothing would have been easier than stating so in its pleadings. That the Respondent would have, as a matter of fact, refused the application pursuant to Section 31(3) of the TPA aforestated and immediately communicate the decision to the Appellant. This was not done and therefore it is irrefutably presumed that the amount of taxes disclosed by the Appellant in its subsequently amended self-assessment returns was correct.

28. That when the initial self-assessment was filed and upon the Appellant making an application to amend its assessment pursuant to the aforestated Section of the law, the Respondent has not disputed that the amended assessment was in any way erroneous. That the law allows a taxpayer to amend its self-assessment and where the same has been made as per the law, and the application not being contested, then any position which had been taken by the Respondent prior to the amendment being allowed is automatically overtaken by events.

29. The Appellant submitted that in the circumstances, an assessment if any, can only be based on the Appellant's amended assessment, should the Respondent be dissatisfied with the amended self-assessment by the Appellant. That this is clear from Section 31 (5) and (6) of the Tax Procedures Act. The same provides as follows:-“(5)Despite subsection (4)(b) (i) the Commissioner shall make an amended assessment on an application of a self-assessment taxpayer under subsection (2) if the application was submitted within the time specified in subsection (4)(b)(i).5. Where an assessment has been amended, the Commissioner may further amend the original assessment-a.five years after-i.for a self-assessment, the date the taxpayer submitted the self- assessment return to which the self-assessment relates: orii.for any other assessment, the date the Commissioner served notice of the original assessment on the taxpayer: orb.one year after the Commissioner served notice of the amended assessment on the taxpayer, whichever is the later.”

30. The Appellant submitted that in the present case immediately the Appellant successfully amended its self-assessment, upon the application being made within the timelines and the application being allowed, the Respondent's assessment communicated on 10th September, 2018 and subsequent confirmation notice dated 10th December, 2018 automatically lapsed.

31. That if the Respondent were to be allowed to maintain its position of the assessment and the objection decision communicated through the confirmation notice, then what the Respondent ought to have done was to reject the application by the Appellant to amend its self-assessment returns.

32. The Appellant submitted that in Republic vs. Commissioner of Domestic Taxes Large Taxpayer's Office ex-parte Barclays Bank of Kenya Ltd, [2012] eKLR the Court held inter alia as follows:“that if a person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however, apparently within the spirit of the law the case might otherwise appear to be.”

33. That in the case of Cape Brandy Syndicate V Inland Revenue Commissioner (1921) 1KB 64 fortifies the Appellant’s proposition that:“In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to implied. One can only look at the language used. Thus, when the language of a taxing statute is clear, if a person being assessed falls within the four corners of the statute, he is to be taxed; if not, no tax is to be levied."

34. That this position is further fortified by the Court of Appeal in Kenya Revenue Authority v Republic (ex-parte Fintel Ltd) NRB CA Civil Appeal No. 311 of 2013[2019] eKLR cited with the approval the sentiments of Lord Atkinson in Inland Revenue Commissioners v Duke of Westminster (1936) AC 1 where he stated that:“If is well established that one is bound in construing Revenue Act to give a fair and reasonable construction to their language without leaning to one side or the other, that no tax can be imposed on a subject by Act of Parliament without words in it clearly showing an intention to lay the burden upon him, that the words of a statute must be adhered to, and that so-called equitable constructions of them are not permissible.”

35. The Appellant submitted that the Tribunal is bound by the express texts of the Act and once it has expressed its intention in words which have a clear significance and meaning, the Tribunal is precluded from speculating. That if the provision is unambiguous and if from that provision the legislative intent is clear, the other rules of construction of statutes need not be called into aid.

36. That the upshot of the foregoing is that the Respondent's attempt to enforce the taxes as per the assessment and confirmation notice, in a case where it has not disagreed and refused the Appellant's application for amendment of self- assessment returns is a clear violation of the law and is intended to collect taxes more than what is allowed by law.

37. That this position finds support in the case of Republic v Kenya Revenue Authority Ex parte Bata Shoe Company (Kenya) Limited [2014] eKLR where the court stated as follows:“This brings me to the role and interpretation of tax laws. Payment of tax is an obligation imposed by the law. It is not a voluntary activity. That being the case, a taxpayer is not obliged to pay a single coin more than is due to the taxman. The taxman on the other hand is entitled to collect up to the last coin that is due from a taxpayer. In the Malaysian case of COLGATE PALMOLIVE MARKETING SDN BHD v KETUA PENGARAH KASTAM CASE NO. R2-25-259-2008 (Malaysia, Unreported) Mohd Zawani Sal/eh, J quoted with approval the decision of Gopal Sri Ram, JCA (as he then was) in PALM OIL RESEARCH AND DEVELOPMENT BOARD MALAYSIA & ANOTHER v PREMIUM VEGETABLE OILS SDN BHD [2004] 2 CLJ 265 in which he stated the principles governing the interpretation of taxing statutes as follows:"The correct approach to be adopted by a court when interpreting a taxing statute is that set out in the advice of the Privy Council delivered by Lord Donovan in Mangin v Inland Revenue Commissioner [1971] AC 739: First, the words are to be given their ordinary meaning. They are not to be given some other meaning simply because their object is to frustrate legitimate tax avoidance devices. As Turner; J said in his (albeit dissenting) judgment in Marx v Inland Revenue Commissioners [1970] NZLR 182 at 208, moral precepts are not applicable to the interpretation of revenue statutes.Secondly, '.....one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption so to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.' (Per Rowlett, Jin Cape Brandy Syndicate v Inland Revenue Commissioners [1921] 1 KB 64 at 71 approved by Viscount Simons LC in Canadian Eagle Oil Co. Ltd v Regeim [1945] 2 All ER 499, [1946] AC 119. Thirdly, the object of the construction of a statute being to ascertain the will of the legislature, it may be presumed that neither injustice nor absurdity was intended. If therefore a literal interpretation would produce such a result, and the language admits of an interpretation which would avoid it, then such an interpretation may be adopted.Fourthly, the history of an enactment and the reasons which led to its being passed may be used as an aid in its construction.................Hence, the governing principle is this. When construing a taxing or other statute, the sole function of the court is to discover the true intention of Parliament. In that process, the court is under a duty to adopt an approach that produces neither injustice nor absurdity: in other words, an approach that promotes the purpose or object underlying the particular statute albeit that such purpose or object is not expressly set out therein.”

b. Whether the Respondent accorded the Appellant fair hearing and considered its objection and legitimate business expenses. 38. The Appellant submitted that the Respondent's assessment was based on the wrong premise as it failed to consider Appellant's allowable deductions disclosed in its financial statements thereby overstating the taxes in dispute.

39. That in arriving at the assessment, the Respondent merely concluded and took sales as the Appellant's business profit without first taking into account expenses allowable for tax purposes pursuant to Section 15 of the Income Tax Act.

40. That at no point were the business expenses ever considered before arriving at the assessment or subsequently issuing the confirmation notice.

41. That the upshot of the forgoing is that the Appellant's right to fair hearing and legitimate expectation that its genuine business expenses, as clearly stated in the financial statements were never considered.

42. That in the case of J N N, (a Minor) MN M, suing as next friend v Naisula Holdings Limited t/a N School [2018] eKLR, the Court observed as follows: -“Though the short title to Section 6 is entitled "Request for reasons for administrative action", the subject of the section is really access to information on administrative action. To this end, the section entitles persons affected by any administrative action to be supplied with information necessary to facilitate their application for appeal or review. The information, which must be supplied in writing within three months, may include reasons for the administrative action and any relevant documents relating to the matter." This conforms with the provisions of section 10 of the Act which tasks the Respondent with a responsibility to concisely state why they have rejected a decision. The reason as in this case must be due to the action or inaction of the taxpayer and not the Respondent as in this case. In this regard, the objection decision made without input from the Appellant herein was irregular and goes against the doctrines of Legitimate Expectation.”

c. Whether the Respondent's confirmation notice/objection decision is proper. 43. The Appellant submitted that the Respondent's objection decision was not proper as it failed to conform to the requirements of section 51 of the Tax Procedures Act. That Section 51 (10) provides that "an objection decision shall include a statement of findings on the material facts and the reasons for the decision."

44. That the objection failed to conform to this standard and thus it is difficult to state the basis/reasons upon which the decision was arrived at. This has denied the Appellant its right to properly mount its defense in the Appeal before this Tribunal.

45. That Article 47(2) of the Constitution and Section 4(2) of the Fair Administrative Action Act, 2015 provides that every person has the right to be given written reasons for any administrative action that is taken against him. That further, Section 4(3) (d) of the Fair Administrative Action Act, 2015 requires the giving of a statement of reasons as one of the hallmarks of fair administrative action.

46. That admittedly, every person materially or adversely affected by any administrative action has a right to be supplied with such information as may be necessary to facilitate his or her application for an appeal or review of the reasons for which the action was taken.

47. That equally, a decision can be reviewed under Section 7(2)(a)(v); (c) and (0) respectively, of the Fair Administrative Action Act, 2015, if the action or decision was procedurally unfair; the administrator denied the person to whom the administrative action or decision relates, a reasonable opportunity to state the person's case; or the administrative action or decision is itself unfair.

48. The Appellant relied on the case of Martin Nyaga Wambora vs Speaker of the Senate [2014] eKLR at 151 where it was held that Article 47 of the Constitution elevates the rules of natural justice and duty to act fairly in administrative, judicial or quasi-judicial decisions into a Constitutional right capable of enforcement by an aggrieved party in appropriate cases. That this position was further reiterated in the case of Judicial Service Commission vs. Mbalu Mutava [2015] eKLR at para 23 thereof.

49. That no reason was stated by the Respondent for confirming the assessment, despite the same being a specific requirement of the law.

50. That reasons are such an ingrained part of fair administrative action that Section 6(4) of the Fair Administrative Action Act, 2015 creates the presumption that if an Administrator fails to furnish the applicant with the reasons for the administrative decision or action, the administrative action or decision is in any proceedings for review of such action or decision and in the absence of proof to the contrary, presumed to have been taken without good reason.

51. The Appellant relied on the case of Priscillah Wanjiku Kihara vs. Kenya National Examination Council (KNEC) [2016] eKLR in which this court held that where an Administrator fails to give reasons, the court can infer that there were no good reasons. Further, if the reasons given are not the ones the Administrator is lawfully and justifiably entitled to rely upon, the Court is entitled to intervene.

Appellant’s prayers 52. The Appellant makes the following prayers:-a.This Tribunal be pleased to set aside the assessments under review herein.b.Thereafter, this Tribunal be pleased to replace the assessments under review and replace the same with the computations provided in the Appellant's Statement of Facts.c.This Honorable Tribunal be pleased to order that due tax be computed based on audited accounts provided to the Commissioner.d.In the alternative to (a) and (b), that this Tribunal be pleased to vary the assessment in its wisdom.e.This Honorable Tribunal be pleased to order the Respondent to pay the costs of this Appeal to the Appellant.f.This Tribunal be pleased to issue any other order it deems just and fit in the prevailing circumstances.

Respondent’s Case 53. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal: -a.The Respondent’s Statement of Facts dated and filed on 2nd July 2021 together with the documents attached thereto.b.Witness statement of Edward Mekenye Nyakwama filed on 23rd February 2022 and admitted in evidence in chief on the 12th September, 2022. c.The Respondent’s written submissions dated 25th October, 2022 and filed on 26th October 2022 together with the legal authorities filed therewith.

54. The Respondent stated that the dispute arose from Income Tax additional assessments issued for the year 2017 amounting to Kshs. 5,241,271. 30.

55. That the Appellant lodged an objection to the additional assessment on 9th October 2018 but failed to comply with the law by providing documents in support of its objection.

56. That the Respondent requested for specific documents in support of the objection application vide a letter dated 16th November 2018 namely:a.Bank Statements for the company and directorsb.Debtors and creditors listingc.Stock recordsd.Sales agreements/Contracts of service or subcontracts servicese.VAT3A and VAT3f.Directors Accountsg.Sales and purchases invoicesh.General ledgers.

57. That the Appellant failed to submit the requested documents and the Respondent went ahead and confirmed the additional assessments on 10th December 2018.

58. That subsequently there were two tax demands by the Respondent dated 30th January 2019 and 15th June 2020.

59. That the Respondent relied on the following laws in arriving at the decision:-a.Sections 73 (2) (b) of the Income Tax Act.b.The Tax Procedures Act section 31 (4) (a) (b).c.Tax Procedures Act section 51 (11) (a) and (b).

60. That further, Section 56 (1) of the Tax Procedures Act, 2015 as regards objections and appeals provides that:-“56 (1) In any proceedings under this part the burden shall be on the taxpayer to prove that a tax decision is incorrect."

61. In its submissions, the Respondent stated that there is only one issue for determination in this Appeal as follows:-Whether the Appellant discharged the burden of proof as provided by law.

62. The Respondent submitted that the Appellant objected to the assessment but did not avail any supporting documentation as to why the same was improper neither did it provide the amendments that needed to be adopted.

63. 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.”

64. That Section 30 of the Tax Appeals Tribunal Act states as follows with regard to burden of proof:-“In a proceeding before the Tribunal, the Appellant has the burden of proving-a.where an appeal relates to an assessment, that the assessment is excessive; orb.in any other case, that the tax decision should not have been made or should have been made differently.”

65. That further Section 107 of the Evidence Act states that:“a)Whoever desires any court to give judgment as to any legal right or liability dependent on the existence of facts which he asserts must prove that those facts exist.b)When a person is bound to prove the existence of any fact it is said that the burden of proof lies on that person."

66. That this was reiterated in Pearson Vs. Belcher CH.M Inspector of Taxes) Tax Cases Volume 38 referred to by Justice D.S. Majanja in PZ Cussons East Africa Limited vs. Kenya Revenue Authority (2013) eKLR when the court held that:“There is an additional assessment made by the Commissioner upon the Appellant; it is perfectly settled by cases such as Norman vs. Calder 267C 293 that the onus is upon the Appellant to show that the assessment made upon him is excessive and incorrect and of course he has completely failed to do. That is sufficient to dispose of the appeal, which I accordingly dismiss with costs."

67. That it is worth noting that under Section 23 of the TPA, the Appellant has an obligation to maintain documents and records, which would enable the ascertainment of his tax status. That Section 23of the Act provides as follows:-“(1)A person shall-a.maintain any document required under a tax law, in either of the official languages;b.maintain any document required under a tax law so as to enable the person's tax liability to be readily ascertained; andc.subject to subsection (3), retain the document for a period of five years from the end of the reporting period to which it relates or such shorter period as may be specified in a tax law.”

68. That the Appellant failed to proof that the Respondent's assessment of tax based on available evidence, was in any way improper and invalid. That the Appellant neither filed a valid objection nor provided additional documents as had been requested.

69. That in Primarosa Flowers Ltd v Respondent of Domestic taxes [2019] eKLR, where the court cited with approval Mulherin vs Respondent of Taxation [2013] FCAFC 115 the Federal Court of Australia held that in tax disputes,“the taxpayer must satisfy the burden of proof to successfully challenge income tax assessments. The onus is on the taxpayer in proving that assessment was excessive by adducing positive evidence which demonstrates the taxable income on which tax ought to have been levied."

70. That also in the case of Nairobi TAT Appeal No. 55 of 2018 Boleyn International Limited Vs. Commissioner of Investigations and Enforcement, theTribunal cited with endorsement: - Pierson V Belder (H.M. Inspector of Taxes) (1956 -1960) 38 TC 387 and Norman V Golder 26 T.C 293, “that the onus is upon the Appellant to show that the assessment made upon him is excessive or incorrect; and of course he has completely failed to do so. That is sufficient to dispose of the Appeal, which is I accordingly dismiss with costs."

71. That Section 51 (3) of the TPA provides that: - “A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if..a.the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments: andb.in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay the tax not in dispute under Section 33 (1); andc.all the relevant documents relating to the objection have been submitted.”

72. That a cursory glance at the Appellant's objection in question exhibits the fact that the Appellant failed to precisely state the grounds of objection, the amendments required to be made to correct the decision, reasons for the amendments and documentation backing the same.

Respondent’s prayers. 73. The Respondent prays that this Tribunal considers the Appeal and proceeds to:-a.Dismiss this Appeal for lack of merit/ and or in the alternative for being way out of time.b.Uphold the Respondent's confirmation dated 10th December 2018. c.Award costs of the Appeal to the Respondent.

Issues For Determination 74. The Tribunal has carefully studied the pleadings and documentation of both parties and is of the respectful view that that the only issue that calls for its determination is:-Whether the assessment dated 10th September, 2018 and subsequent confirmation notice dated 10th December, 2018 is merited.

Analysis And Findings 75. The Appellant’s first ground of Appeal is that the Commissioner erred in law and in fact by failing to consider the amended returns for the year 2017 as filed by the Appellant.

76. The Appellant submitted that the assessment was premised on the variance between the VAT returns and the income tax returns for the year 2017.

77. The Appellant further submitted that from its pleadings and witness statement, it was able to demonstrate to the Tribunal that the variance was attributed to the filing of Nil returns to beat the filing deadlines.

78. The Appellant further submitted that it applied to amend the erroneous tax returns and the application was allowed by the Respondent pursuant to Section 31(3) of the TPA. The Appellant submitted that it corrected returns in the Respondent’s iTax system and paid the taxes due for year 2017.

79. Sections 31(2) and 31(3) of the Tax Procedures Act provide that:-“(2)A taxpayer who has made a self-assessment may apply to the Commissioner, within the period specified in subsection (4)(b)(i), to make an amendment to the taxpayer's self-assessment;(3)Where an amended self-assessment return has been submitted under subsection (2), the Commissioner may accept or reject the amended self-assessment return and where he rejects, he shall furnish the taxpayer with the reasons for such rejection within thirty days of receiving the application.”

80. The Appellant submitted that the Respondent allowed its application and the amended self-assessment returns which was the basis of paying the taxes due.

81. The Appellant further submitted that the law allows a taxpayer to amend his self-assessment and where the same has been made as per the law, and the application not being contested, then any position which had been taken by the Respondent prior to the amendment being allowed is overtaken by events.

82. The Appellant further submitted that in the circumstances, an assessment if any, can only be based on the Appellant's amended assessment should the Respondent be dissatisfied with the amended self-assessment by the Appellant. That this is clear from Section 31 (5) and 31 (6) of the Tax Procedures Act.

83. The Appellant further submitted that, immediately the Appellant successfully amended its self-assessment, upon the application being made within the timelines and the application being allowed, the Respondent's assessment communicated on 10th September, 2018 and subsequent confirmation notice dated 10thDecember, 2018 automatically lapsed.

84. Although the issue of the amended returns not being considered was the first ground of this Appeal, the Respondent did not address it either in its Statement of Facts or in the submissions filed before the Tribunal.

85. The Respondent submitted that upon receipt of the objection, they wrote a letter requesting for documents to support the objection. As no documents were provided, the Respondent submitted that they had no choice but to confirm the assessment.

86. The Respondent submitted that it is the responsibility of the Appellant to proof that the assessment is wrong or excessive as spelt out in Section 56(1) of the TPA.

87. In analyzing the issue of objection to a tax decision, the Tribunal is guided by Section 51 of the Tax Procedures Act which provides that:-“51. Objection to tax decision1…………………..2. A taxpayer who disputes a tax decision may lodge a notice of objection to the decision, in writing, with the Commissioner within thirty days of being notified of the decision.3. A notice of objection shall be treated as validly lodged by a taxpayer under subsection (2) if-a.The notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments;b.In relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay for the tax not in dispute under section 33(1); andc.All the relevant documents relating to the objection have been submitted.”

88. The Appellant lodged its objection on the Respondent’s iTax system on 9th October 2018. If for any reason the Commissioner decides that the objection is not validly lodged, Section 51(4) of the TPA states as follows:-“Where the Commissioner has determined that the notice of objection lodged by a taxpayer has not been validly lodged, the Commissioner shall immediately notify the taxpayer in writing that the objection has not been validly lodged”

89. The law makes it mandatory for the Commissioner to inform the taxpayer that its objection is not validly lodged. It is at this stage that the Respondent would have invalidated the objection. Where this is not done, it means that the objection is validly lodged. The Respondent cannot at this stage submit that the objection was not validly lodged yet they failed to do so notify the Appellant immediately upon receipt of the objection as required by the law.

90. The Respondent submitted that no supporting documents were provided and the objection was therefore not validly lodged. It was their duty and responsibility to follow the law as stipulated in Section 51(4) of the TPA to notify the Appellant that the objection was not validly lodged.

91. The Tribunal has pronounced itself on the issue of the Respondent informing the Appellant of the invalidity of its objection. In Tax Appeal No 271 of 2020, SAMPESA Agency Limited v Commissioner of Domestic Taxes at paragraph 19, the Tribunal stated that:-“In addition to the foregoing, it is important to look into the reasons given by the Respondent for rejecting the Appellant’s notice of objection. In the first paragraph of his objection decision, the Respondent informed the Appellant its objection notice was fully rejected on account of lack of supporting documents. With respect, we think the Respondent is conflating its functions under Sections 51 (4) and 51 (11) of the TPA. Under Section 51 (4), the Respondent is enjoined in mandatory terms to inform a taxpayer immediately of any invalidity in its objection notice. The operative term therein is immediately. It cannot be that the Respondent does not inform the taxpayer of any invalidity in the objection notice, and then purport to issue an objection decision that violated the provisions of Section 51 (11) of the TPA, 2015. ”

92. Turning to the issue of amended self-assessment returns, the Tribunal notes that the Respondent did not address this issue although the Appellant raised it in its Statement of Facts and in the witness statement. In the witness statement of Antony Maina for the Appellant at paragraph 10, stated that:-“The Appellant filed amended annual tax returns to cure the inadvertence filing of NIL returns on the iTax.”

93. During the cross examination of the Appellant’s witness, the Respondent did not deny or contradict the fact that they allowed the Appellant to file an amended self-assessment on their iTax system.

94. Since the Respondent did not dispute the issue of having allowed the Appellant to file amended returns as provided for in Section 31(2) of the TPA, the Tribunal finds that the amended self-assessment return rendered the assessment of 10th September 2018 and the subsequent confirmation notice dated 10th December 2018 irrelevant and superfluous. A merited assessment could only be made on the basis of the amended self-assessment return allowed by the Respondent.

Final Decision 95. The upshot of the foregoing analysis is that this Appeal is merited and the Tribunal makes the following Orders: -a.The Appeal be and is hereby allowed.b.The Respondent’s Confirmation Assessment Notice dated 10th December, 2018 be and is hereby set aside.c.The matter is hereby referred back to the Commissioner for re- calculation of the Appellant’s tax liabilities based on the amended self- assessment return.d.Each party to bear its own costs.

96. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 17TH DAY OF MARCH, 2023………………………………………………………ERIC N. WAFULACHAIRMAN………………………………………………………CYNTHIA B. MAYAKAMEMBER………………………………………………………GRACE MUKUHAMEMBER………………………………………………………JEPHTHAH NJAGIMEMBER………………………………………………………ABRAHAM K. KIPROTICHMEMBER