Sakata Limited v Commissioner of Domestic Taxes [2023] KETAT 1012 (KLR)

Sakata Limited v Commissioner of Domestic Taxes (Appeal 3 of 2020) [2023] KETAT 1012 (KLR) (Civ) (8 September 2023) (Judgment)

Neutral citation: [2023] KETAT 1012 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Appeal 3 of 2020

E.N Wafula, Chair, RO Oluoch, AK Kiprotich, Cynthia B. Mayaka, E Ng'ang'a & B Gitari, Members

September 8, 2023

Between

Sakata Limited

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company incorporated under the Company’s Act and is a registered taxpayer.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 of the laws of Kenya and the Authority is a Government agency established for the purposes of assessing, collecting and accounting for tax revenues.

3. The Respondent issued the Appellant with a tax demand dated 30th August 2019 for taxes amounting to Kshs 50,330,125. 72 being Corporation tax inclusive of penalties and interest.

4. The Appellant objected to the assessment vide a letter dated 25th September 2019 and via iTax on the same date. The Respondent subsequently issued its objection decision vide a letter dated 22nd November 2019 confirming the assessments.

5. Being aggrieved by the Respondent’s objection decision the Appellant lodged a Notice of Appeal with the Tribunal on the 19th December, 2019.

The Appeal 6. The Appellant in its Memorandum of Appeal dated and filed on 2nd January, 2020 raised the following grounds of Appeal:-i.The Respondent erred in law and in fact by disallowing the legitimate business purchases incurred by the Appellant amounting to Kshs 140,160,184. 88. ii.The Respondent erred in law and in fact by imposing penalties and interest on the disallowed business purchases.iii.The Respondent erred in law and in fact by imposing the tax reporting obligations of the Appellant's supplier of the purchases in question, Nakumatt Holdings Limited ("the supplier''), on the Appellant, by claiming that because the supplier allegedly did not declare sales to the Appellant in the amount of the above stated disallowed purchases in its own returns, the same were correspondingly suspicious on the part of the Appellant and could therefore not have been incurred as purchases by the Appellant despite the Appellant having provided justification for the same.iv.The Respondent erred in fact by determining that the Appellant's supplier's time of generation of ETR invoices was inconsistent with the operating hours of the supplier, and that consequently, the sales to the Appellant could not have been made as claimed by the Appellant, disregarding the fact that the supplier operated a 24-hour business.v.The Respondent further erred in fact and in law by stating that as the delivery notes signed by the Appellant's customer, the National Youth Service, did not Indicate the means of delivery of the purchased goods, the same cannot be said to have been delivered.vi.The Respondent erred in fact by stating that the purchase of furniture, tiles, steel and other building materials claimed by the Appellant in its tax return for the period covered by the assessment was not related to the income declared in the Appellant's return for the period.vii.The Respondent erred in law and in fact by concluding that for the above reasons, the Objection Notice lodged by the Appellant on 25th September 2019 was not valid.

The Appellant’s Case 7. The Appellant premised its case on the Appellant’s Statement of Facts dated 2nd January 2020 and filed on the same date together with the documents attached thereto.

8. The Appellant submitted that it prepares its books of account in accordance with International Financial Reporting Standards (IFRS). That the Appellant further declares taxable income and computes the tax payable in accordance with the provisions of the Income Tax Act, Chapter 470 of the laws of Kenya (ITA).

9. The Appellant stated that on the 10th May 2017, it was issued with a Local Purchase Order (LPO) Number 2811107 by the National Youth Service (NYS) for the supply and delivery of maize meal. That it was also issued with Local Purchase Order Numbers 2811117 and 2811118 for the supply of corned beef, and canned pineapples, respectively.

10. That the first LPO was for the supply and delivery of bales of maize meal of 12*2 kg worth KShs 96 million. That as part of the conditions for the award of the LPO, the Appellant was to provide a bank guarantee, which it did from Equity Bank, dated 30th June 2017. To enable the Ministry of Public Service, Youth and Gender Affairs State Department of Public Service and Youth (''the Ministry'') process the Appellant's payment as they continued executing the contract entered into by the two parties.

11. The Appellant submitted that it initially delivered to the NYS 27,790 bales of maize meal amounting to KShs 55,580,000. 00, and that this was confirmed by an Inspection and Acceptance Certificate issued by the Ministry dated 2nd June 2017. That accordingly, the Ministry wrote to Equity Bank on 7th August 2017 directing the bank to release to the Appellant Kshs 52,705,172. 40 being KShs 55,580,000 less 6% VAT for the supplies already delivered to the NYS.

12. That the letter further directed the bank to withhold the balance of KShs 38,329,310. 35 until further notification by the Ministry that the remaining goods i.e. 20,210 bales of sifted maize meal had been delivered to the NYS by the Appellant, and a certificate of inspection and acceptance issued confirming the delivery of the goods.

13. That on 12th October 2017, the Ministry, through its Deputy Officer, Supply Chain Management Services, wrote to the Head of Accounting Unit informing it that the Appellant had supplied the balance bales of maize as per the terms of the LPO, and directing them to release the remaining balance to the Appellant as it had satisfied the terms of its engagement. That the subject of this letter was "Release of final payment for Sakata Ltd in respect of supply and delivery of maize meal."

14. That the second and third LPOs were in respect of the delivery of 267,000 and 289,020 units of corned beef and canned pineapples, respectively. It averred that upon delivery of these orders, the Appellant received its full payment from the NYS for fulfilling its part of the LPO.

15. The Appellant stated that Respondent conducted an audit on the Appellant's tax affairs for the year of income 2017. That this is the year during which the Appellant had been making supplies to the NYS.

16. The Appellant stated that on conclusion of the audit, and following several meetings and email correspondences between the parties to discuss the issues raised, the Respondent raised an assessment dated 29th August 2019 raising issues on Corporation tax and VAT. That this letter also requested the Appellant to furnish the Respondent with certain information to aid the completion of the audit process.

17. That the Appellant provided the requested information, but the Respondent maintained its position inspite of the same. That it disputed the findings and filed its notice of objection on 25th September 2019, to which the Respondent replied with an Objection decision dated 23rd July 2019

18. The Appellant stated that the genesis of this dispute was that the Respondent appears to have reconstructed the Appellant’s books of account and fully ignored the Appellant’s audited financial statements and expenses claimed therein. That in arriving at the tax assessment and objection decision, the Respondent simply added back the legitimate business expenses that had been claimed by the Appellant, and charged income tax on the same contrary to the provisions of the Income Tax Act. That this was a fundamental breach of the principles of taxation, as under Kenyan law, tax is charged on taxable income of a person, which is a function of income less allowable expenses.

19. The Appellant further averred as follows;a.That it was not in dispute that the Appellant was awarded a tender for the supply of maize meal to the NYS.b.That it was not in dispute that the Appellant was awarded a tender for the supply of corned beef and canned pineapples to the NYS.c.That it was not in dispute that the Appellant completed its supplies as per the correspondence referred to above.d.That it was not in dispute that the NYS acknowledged receipt of the total order from the Appellant, as set out under the LPO.e.That it was not in dispute that there existed a bank guarantee between the Appellant and Equity Bank, to enable the Appellant fulfil its obligations to the National Youth Service.f.That it was not in dispute that upon making deliveries to the NYS, the same would be signified by the signing of a Delivery Note by two parties: The individual making the delivery; and the individual receiving it. That furthermore, the Delivery Note would be stamped with an official stamp of the National Youth Service.

20. The Appellant asserted that all of the above facts show the following two things:a.Firstly, that the Appellant was mandated to deliver certain goods to the National Youth Service, and the National Youth Service was obligated to make payment upon delivery by the Appellant; andb.Secondly, that the Appellant completed its part of the contract with the NYS, and was entitled to full payment for the same as per the terms of the LPO, which payment it in fact received.

21. The Appellant further averred the following;a.That it is not a manufacturer or producer of any of the products it was required to deliver to the NYS.b.That it was contracted merely as a supplier of the goods to the NYS, and its role was to source for the same and deliver.c.That it would accordingly procure the goods from various suppliers of the same, and thereafter arrange for their collection and delivery to the NYS.d.That these suppliers would of course charge for the supplies, as they were also in business.e.That this means the Appellant would incur a cost for the purchases.f.That to enable the Appellant meet the terms of the LPO, it obtained financing from Equity Bank, as this is the only way it would be able to afford to make the purchases to be delivered to NYS.g.That invoices and receipts were provided by the suppliers upon the Appellant making the purchases, and that the same were provided to the Respondent for review once it raised its assessment.h.That the cost of the purchases was duly entered into the Appellant's audited set of accounts for the year of income 2017, and was arrived at based on the actual cost incurred by the Appellant in making the supplies to the National Youth Service.

22. That consequently, the above set of facts illustrates the following:a.That there is documentary evidence showing that purchases were made by the Appellant from its various suppliers.b.That the same evidence had already been provided to the Respondent. The claim by the Respondent that the Appellant had not provided sufficient information to demonstrate that it indeed incurred the purchases was purely a matter of opinion. That a party can only provide the information it has been requested to provide. Whether or not the requesting party is satisfied with the same is a separate question, and in this case has proven to be entirely subjective.c.That there is no way the Appellant could have supplied the NYS without first making the purchases. Otherwise, it would have nothing to supply in the first place.

23. The Appellant stated that after the aassessment was raised, and during the objection process, it extensively explained to the Respondent the nature of its business. That it appeared that the Respondent was in a hurry to confirm the aassessment, rather than take its time and go through the supporting documentation provided by the Appellant. That there were numerous purchases which were made by the Appellant in order to fulfil its order in the year 2017, and subsequently, there were numerous payment invoices and receipts for the same, and even ETR receipts where applicable.

24. That furthermore, the Respondent had the power to obtain all the information with regard to the Appellant's transactions with the NYS directly from the NYS if indeed it was honest in its intention to confirm the legitimacy of these transactions. It averred that given that the Appellant had already provided all of the information it ccould possibly provide as evidenced, as well as the attached appendices, and the Respondent was still not convinced. That there was nothing to stop the Respondent from using its vast powers to go a step further and verify whatever information it was uncomfortable with, with the NYS. That to expect the Appellant to provide more than it had already provided was in bad faith and setting the Appellant up for failure.

25. The Appellant stated that it has consequently found itself in the awkward position of having to demonstrate to the Respondent the unreasonable standard created by the Respondent, that the receipts and deliveries are in fact, valid, over and above what the Appellant expects is a reasonable standard of expectation.

26. The Appellant submitted that all it can do is provide the receipts as presented to it by its suppliers, suppliers who are well known and large enterprises. That an expectation beyond this simply creates an unfair burden on a taxpayer who is legitimately making purchases for the purposes of its business.

27. That this case against the Appellant was mired with a steady web of unreasonable requests and demands despite the overwhelming evidence to the contrary, all of which had already been made available by the Appellant to the Respondent.

28. The Appellant stated that it had endeavoured to provide all the information that the Respondent had requested in order to put the matter to rest, and had always been very co­ operative. That however, the Respondent had been applying immense opportunistic pressure to the Appellant, thus forcing the parties into this present appeal process over a matter that was mostly factual than legal.

29. With regard to the Respondent's claim that the purchase of furniture, tiles, steel and other building materials claimed by the Appellant in its tax return for the period covered by the assessment were not related to the income declared in the Appellant's return for the period, it averred that this was yet again an unfounded assertion. That the expenses on these items were certainly not incurred by the Appellant for personal use, and were incurred by it for the purpose of its business. That the Appellant's business activities were as provided for in its Memorandum of Association, and the company was allowed to deduct all the expenses it incurs in furtherance of the business objectives for which it was incorporated provided that the deductibility is done in accordance with the provisions of the Income Tax Act. That in addition, it can also claim its input VAT with regard to the same purchases where the purchases were incurred in the furtherance of its business.

30. The Appellant stated that the questions for determination by this Tribunal were as follows:a.Did the Appellant make supplies to the National Youth Service during the year of income 2017?b.Was there evidence that these supplies were indeed made to the National Youth Service?c.Did the Appellant incur purchases in order to make the above mentioned supplies?d.Was the amount disallowed by the Respondent in arriving at its Objection decision among the purchases incurred by the Appellant in order to make the supplies to the NYS?e.Has evidence of these purchases been provided to the Respondent, and does any exist?f.Are all these expenses that have been incurred and claimed by the Appellant for the 2017 year of income business expenses, and thus tax deductible?

The Appellant’s Prayer 31. The Appellant prayed that Tribunal set aside the assessment and the Objection decision.

THE RESPONDENT’S CASE 32. The Respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal;i.The Respondent’s Statement of Facts dated and filed on 31st January 2020. ii.The Respondent’s written submissions dated and filed on 28th April, 2023 together with the authorities annexed thereto.

33. The Respondent stated that it carried out investigations on various companies/taxpayers that benefited from payments made by National Youth Service (herein after NYS) among them being the Appellant.

34. That it was established that the Appellant was offered a tender to supply and deliver foodstuff to NYS amounting to Kshs. 929,472,000. 00

35. That from the IFMIS data, the Appellant had consistently received payments but there were no corresponding income declarations in its ledger report on itax.

36. It was the Respondent’s contention that Appellant had for instance received Kshs. 246,125,460. 00 from the state Department of Public Service and Youth Affairs in the year 2017 but declared nil return.

37. That the Appellant supplied maize flour, corned beef and canned pineapples to the NYS. That the flour was said to have been imported from Tanzania and some were locally purchased from Mama Millers in Thika, whose invoices were availed.

38. That from the customs data provided there was no evidence of importation from Tanzania and upon inquiry, it was established that the Appellant had a verbal agreement with Monohan Trading & Farming Co. Ltd based in Arusha to directly supply and deliver flour to NYS units e.g Ruaraka, Yatta and Gilgil and invoice the Appellant.

39. The Respondent submitted that the Appellant also had purchases of Kshs.27,888,397. 00 for corned beef and canned pineapples allegedly made from Nakumatt Holdings Limited in the month of September 2017.

40. That the Appellant provided all the invoices for the purchases which during the review it was discovered among others that the time of the generation of the ETR invoice was inconsistent with the operating hours of the said supplier as it was out of the trading hours and all the transactions were paid in cash. That this made such payments suspicious in view of the values involved.

41. The Respondent averred that the payments to the Tanzanian Monohan Trading & Farming Limited were also allegedly made in cash, which was withdrawn in huge sums ranging from Kshs. 10m to 31m at any one time. That the Appellant filled large transaction reporting form at equity bank to withdraw the huge amounts.

42. That the Appellant alleged that purchases in the month of October 2017 of Kshs. 53,137,700. 00 were made towards constructing an Eco-Lodge in Naivasha, before being awarded the NYS tender. That the same were however not traced to the returns of the supplier making such supplies suspicious.

43. That the Appellant claimed to have abandoned the construction of eco-lodge in Naivasha but the information from the website indicated that the project is complete and in use and available for booking.

44. The Respondent contended that the means of delivery of goods was also not evident from the delivery notes availed.

45. The Respondent stated that in September an assessment of Kshs. 50,330,125 was raised as tabulated below:-YEAR 2017 Amount (Ksh)

Disallowed Purchases 140,160,184. 88

Loss B/F 2017 4,864,147. 00

Adjusted Income 135,296,037. 88

Tax@30% 40,588,811. 36

Penalty@5% 2,029,440. 57

Interest 7,711;874. 00

Total payable 50,330,1. 25. 93

46. That the taxpayer objected to the assessment via Itax dated 25th September 2019 and thereafter the Respondent after considering the objection, reached at a decision to confirm hence this Appeal.

47. In response to the Appellant’s averments, the Respondent stated as follows;i.That the purchases were disallowed as they did not provide copies of purchase invoices for the period September 2017. Those availed for the period October ­ November, December appeared to be suspicious.ii.That the law allows the Respondent to impose penalties as per Section 83 (c) of the TPA and interest as per Section 34 of the TPA.iii.That the onus was on the Appellant to proof alleged purchases if at all any.iv.That the invoice serial numbers from Nakumatt were inconsistent with the time they were allegedly generated. That they were as below sampled;TABLETRTC{style border-top: 1. 5pt solid #000; border-bottom: 1. 5pt solid #000; border-left: 1px solid #000; border-right: 1px solid #000; width: 32%}INVOICE NO.TC{style border-top: 1. 5pt solid #000; border-bottom: 1. 5pt solid #000; border-left: 1px solid #000; border-right: 1px solid #000; width: 24%}AMOUNTTC{style border-top: 1. 5pt solid #000; border-bottom: 1. 5pt solid #000; border-left: 1px solid #000; border-right: 1px solid #000; width: 15%}TIMETC{style border-top: 1. 5pt solid #000; border-bottom: 1. 5pt solid #000; border-left: 1px solid #000; border-right: 1px solid #000; width: 27%}DATETRTC{style border-top: 1. 5pt solid #000; border-bottom: 1. 5pt solid #000; border-left: 1. 5pt solid #000; border-right: 1px solid #000; width: 32%}725418TC{style border-top: 1. 5pt solid #000; border-bottom: 1. 5pt solid #000; border-left: 1px solid #000; border-right: 1. 5pt solid #000; width: 24%}1217580TC{style border: 1. 5pt solid #000; width: 15%}09:36TC{style border-top: 1. 5pt solid #000; border-bottom: 1. 5pt solid #000; border-left: 1. 5pt solid #000; border-right: 1px solid #000; width: 27%}21/06/2017TRTC{style border: 1. 5pt solid #000; width: 32%}725419TC{style border: 1. 5pt solid #000; width: 24%}978900TC{style border: 1. 5pt solid #000; width: 15%}11:20TC{style border-top: 1. 5pt solid #000; border-bottom: 1. 5pt solid #000; border-left: 1. 5pt solid #000; border-right: 1px solid #000; width: 27%}21/06/2017TRTC{style border: 1. 5pt solid #000; width: 32%}725421TC{style border: 1. 5pt solid #000; width: 24%}936000TC{style border: 1. 5pt solid #000; width: 15%}04:44TC{style border: 1. 5pt solid #000; width: 27%}21/06/2017TRTC{style border: 1. 5pt solid #000; width: 32%}725424TC{style border: 1. 5pt solid #000; width: 24%}1040000TC{style border: 1. 5pt solid #000; width: 15%}02:33TC{style border: 1. 5pt solid #000; width: 27%}21/06/2017TRTC{style border: 1. 5pt solid #000; width: 32%}725428TC{style border: 1. 5pt solid #000; width: 24%}924300TC{style border: 1. 5pt solid #000; width: 15%}03:19TC{style border: 1. 5pt solid #000; width: 27%}21/06/2017v.That the delivery notes availed were very casual and do note indicate mode of delivery, loading order, vessel registration Numbers despite NYS being a high security zone and the metric tones involved.vi.That the Appellant failed to provide copies of purchase invoices for the construction materials as well as proof of payment for the same.vii.That based on the foregoing, the objection was found to be invalid. That the amounts rightfully disallowed brought about a tax liability of Kshs. 50,330,125. 93.

The Respondent’s Prayers 48. The Respondent prayed that the Tribunal be obliged to arrive at the following findings:a.That the assessment as issued, together with the resultant penalties and interest, is upheld and is collectable by the Respondent from the Appellant.b.That this Appeal is dismissed with costs to the Respondent.

Issues for Determination 49. Having carefully studied the parties’ pleadings and all the documents attached to the Appeal and upon consideration of the submissions, the Tribunal is of the view that the issues falling for its determination are as follows:-a.Whether the Respondent erred in its decision to disallow the Appellant’s input costs.b.Whether the Respondent erred in its assessment of Corporation tax after disallowing the input costs.

Analysis and findings a. Whether the Respondent erred in its decision to disallow Appellant’s input costs. 50. The genesis of this dispute is the Respondent’s assessment for Corporation tax following an audit of the Appellant and the subsequent decision to disallow the Appellant’s input costs in relations to supplies to NYS.

51. It was the Respondent’s contention that its audit had established that the Appellant was offered a tender to supply and deliver foodstuff to NYS amounting to Kshs. 929,472,000. 00.

52. That from the IFMIS data, the Appellant had consistently received payments but there were no corresponding income declarations in its ledger report on itax.

53. It was the Respondent’s submission that the Appellant had for instance received Kshs. 246,125,460. 00 from the State Department of Public Service and Youth Affairs in the year 2017 but declared nil return.

54. The Appellant on its part stated that the Respondent erred in law and in fact by disallowing the legitimate business purchases incurred by the Appellant amounting to Kshs 140,160,184. 88.

55. The Appellant stated that on the 10th May 2017, it was issued with a Local Purchase Order (LPO) Number 2811107 by the National Youth Service (NYS) for the supply and delivery of maize meal. That it was also issued with Local Purchase Order Numbers 2811117 and 2811118 for the supply of corned beef, and canned pineapples, respectively.

56. The Appellant submitted that it initially delivered to the NYS 27,790 bales of maize meal amounting to KShs 55,580,000. 00, and this was confirmed by an Inspection and Acceptance Certificate issued by the Ministry dated 2nd June 2017. That accordingly, the Ministry wrote to Equity Bank on 7th August 2017 directing the bank to release to the Appellant Kshs 52,705,172. 40, being KShs 55,580,000 less 6% VAT for the supplies already delivered to the NYS.

57. That the letter further directed the bank to withhold the balance of KShs 38,329,310. 35 until further notification by the Ministry that the remaining goods i.e. 20,210 bales of sifted maize meal had been delivered to the NYS by the Appellant, and a certificate of inspection and acceptance issued confirming the delivery of the goods.

58. The Appellant stated that on conclusion of the audit, and following several meetings and email correspondences between the parties to discuss the issues raised, the Respondent raised assessment dated 29th August 2019 raising issues on Corporation tax and VAT. That this letter also requested the Appellant to furnish the Respondent with certain information to aid the completion of the audit process.

59. The Appellant stated that it provided the requested information, but the Respondent maintained its position inspite of the same. That it disputed the findings and filed its notice of objection on 25th September 2019, to which the Respondent replied with an objection decision dated 23rd July 2019.

60. Section 15(1) of the Income Tax Act provides as follows regarding allowable deductions;“For the purpose of ascertaining the total income of any person for a year of income there shall, subject to section 16 of this Act, be deducted all expenditure incurred in such year of income which is expenditure wholly and exclusively incurred by him in the production of that income, and where under section 27 of this Act any income of an accounting period ending on some day other than the last day of such year of income is, for the purpose of ascertaining total income for any year of income, taken to be income for any year of income, then such expenditure incurred during such period shall be treated as having been incurred during such year of income.”(Emphasis added)

61. In addition, Section 54A(1) of the Act provides as follows regarding keeping of records;“A person carrying on a business shall keep records of all receipts and expenses, goods purchased and sold and accounts, books, deeds, contracts and vouchers which in the opinion of the Commissioner, are adequate for the purpose of computing tax.”

62. In the instant case, the Tribunal perused the documents attached to the Appeal and noted the Appellant had provided copies of the following;i.Cash sale receipts and ETR receipts from Nakumatt for various items purchased.ii.Delivery notes from suppliers acknowledged by NYSiii.Invoices from Mama Millers Limited and Monaban Tradersiv.The Appellant’s own delivery notes acknowledged by NYS.

63. The Tribunal further noted that the Appellant provided letters by the concerned Government Ministry of Public Service, Youth and Gender Affairs (State Department of Public Service and Youth) confirming receipt of the supplies from the Appellant. One of the letters dated 12th October 2017 attached by the Appellant titled ‘release Of Final Payment For Sakata Ltd In Respect of Supply and Delivery of Maize Meal’ stated in part as follows:-“M/s Sakata Ltd of P O Box 12670-00100 Nairobi was contracted by National Youth Service to supply 48,000 bales (12x2 kg) of maize meal at a contract price of Kshs 96,000,000. 00 in the financial year 2016/2017. They were further required to provide a bank guarantee for the same amount to enable processing of their payment as they continued executing the contract.The supplier had already supplied 27,790 bales of maize meal amounting to Kshs 55,580,000. 00 which was paid leaving a balance of 20,210 bales of maize meal amounting to Kshs 40,420,000. 00 which he has now fully supplied as per the attached stores documents.This is therefore, to request you to facilitate releasing of the remaining balance of Kshs 40,420,000. 00 to the supplier.”

64. The Tribunal noted that although the Respondent had challenged the Appellant’s purchase documents in relations to items supplied to NYS and the mode of delivery of the items to NYS, the delivery notes were stamped as received by NYS and the payments for the same subsequently made to the Appellant for the items supplied.

65. From the documentary evidence adduced by the Appellant therefore it was clear to the Tribunal that the Appellant indeed made the purchases and subsequently made the supplies to NYS.

66. It is the Tribunal’s position that the Respondent had an obligation to demolish any evidence furnished by the Appellant. This view was held in Supreme Court of Canada’s decision in (Hickman Motors Ltd. v. Canada, 1997 CanLII 357 (SCC), [1997] 2 S.C.R. 336 at paragraphs 92 to 94; House v. Canada, 2011 FCA 234 (CanLII), 2011 FCA 234, 422 N.R. 144 where at paragraph 30 when the Court stated, inter alia, that:-“the taxpayer’s initial onus of “demolishing” the Minister’s exact assumptions is met where the appellant makes out at least prima facie case;where the Minister’s assumptions have been “demolished” by the appellant, “the onus … shifts to the Minister to rebut the prima facie case” made out by the appellant and to prove the assumptions; …the law is settled that unchallenged and uncontradicted evidence “demolishes” the Minister’s assumptions;….where the burden has shifted to the Minister, and the Minister adduces no evidence whatsoever, the taxpayer is entitled to succeed; and even if the evidence contained “gaps in logic, chronology, and substance”, the taxpayer’s appeal will be allowed if Minister fails to present any evidence as to the source of income.”

67. The law under Section 56 of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act places the burden of proof in an Appeal on the taxpayer. It is however the understanding of the Tribunal, that once the taxpayer puts forward the relevant facts, circumstances and documents, it discharges the burden.

68. In the instant case, the Tribunal is persuaded that the Appellant had discharged the burden once it provided evidence of purchases through documents such as invoices, ETR payment receipts, and subsequently the delivery notes acknowledged by NYS together with the letters from the relevant Ministry confirming that the goods had been received prior to the payment being made to the Appellant. On the other hand the Respondent did not demonstrate that the evidence adduced by the Appellant were either factitious or fake.

69. In Mbuthia Macharia v Annah Mutua Ndwiga & another Civil Appeal No. 297 of 2015 [2017] eKLR, the Court of Appeal when dealing with the issue of burden of proof observed as follows;“The legal burden is discharged by way of evidence, with the opposing party having a corresponding duty of adducing evidence in rebuttal. This constitutes evidential burden. Therefore, while both the legal and evidential burdens initially rested upon the Appellant, the evidential burden may shift in the course of trial, depending on the evidence adduced. As the weight of evidence given by either side during the trial varies, so will the evidential burden shift to the party who would fail without further evidence?”

70. It was the Tribunal’s view that the Appellant had provided sufficient evidence in form of documentation in support of its averments that the Respondent erred in disallowing its input costs.

71. Consequently, the Tribunal finds that the Respondent erred in disallowing the input costs of the Appellant.b.Whether the Respondent erred in its assessment of Corporation Tax after disallowing the Appellant’s Input costs.

72. Having found that the Respondent erred by disallowing the Appellant’s input costs, the Tribunal found that the Respondent erred in assessing the resultant Corporation tax.

Final Decision 73. Based on the foregoing analysis the Tribunal finds that the Appeal is merited and the Tribunal accordingly makes the following Orders:-i.The Appeal be and is hereby allowed.ii.The Respondent’s objection decision dated 22nd November 2019 be and is hereby set aside.iii.Each party to bear its own costs.

DATED AND DELIVERED AT NAIROBI THIS 8TH DAY OF SEPTEMBER, 2023. ERIC NYONGESA WAFULA CHAIRMANDR. RODNEY O. OLUOCH MEMBERABRAHAM KIPROTICH MEMBERCYNTHIA MAYAKA MEMBEREUNICE NG’ANG’A MEMBERBERNADETTE GITARI MEMBER