Sanpet Filling Station v Commissioner of Domestic Taxes [2024] KETAT 30 (KLR)

Sanpet Filling Station v Commissioner of Domestic Taxes (Tax Appeal 1227 of 2022) [2024] KETAT 30 (KLR) (26 January 2024) (Judgment)

Neutral citation: [2024] KETAT 30 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1227 of 2022

Grace Mukuha, Chair, E Komolo, Jephthah Njagi, T Vikiru & G Ogaga, Members

January 26, 2024

Between

Sanpet Filling Station

Appellant

and

Commissioner of Domestic Taxes

Respondent

Judgment

Background 1. The Appellant is a limited liability company duly registered under the Companies Act and is a registered taxpayer. Its principal business is in retail of automotive fuel in Nakuru.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 laws of Kenya. Under Section 5 (1) of the Act, the Kenya Revenue Authority is an agency of the Government for the collection and receipt of all revenue. Under Section 5(2) of the Act with respect to the performance of its function under subsection (1), the Authority is mandated to administer and enforce all provisions of the written laws as set out in Part I & II 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 issued the Appellant with tax assessment order dated 6th September 2021 based on sales variance data on SABS between the Appellant’s income tax returns and VAT returns of Kshs. 9, 489, 138. 13

4. The Appellant lodged a late objection application on 15th March 2022 contending that it was unable to object on time because of sickness.

5. The Respondent then wrote to the Appellant on 29th March 2022 and sent a reminder on 7th April 2022 requesting it to provide reasons and submit evidence of late objection as per provisions of Section 51(7) of the TPA.

6. Vide a letter dated 11th April 2022, the Respondent rejected the Appellant’s late objection application and confirmed its assessment.

7. Aggrieved by the Respondent’s decision, the Appellant lodged the instant Appeal vide a Notice of Appeal dated 26th September, 2022 and filed on the same date.

The Appeal 8. In its Memorandum of Appeal dated 19th October 2022 and filed on the same date, the Appellant premised its Appeal on the following grounds: -i.That the assessing officer erred in law and in fact in confirming additional assessment against objections of the Appellant while the following facts were clear:a.That the additional assessments had been from bank credits all treated as business income.b.That the additional assessment in 2019 to Kshs. 9,489,138. 00 is based on errors specified above and is exaggerated.ii.That the assessing officer erred in law and fact by stating that the Appellant had failed to declare income, whereas the income indicated by the Respondent was defective in amount.iii.That the assessing officer erred in law and fact by not considering the size of the enterprise and even industry index in arriving at the huge profit margin.iv.That the assessing officer erred in law and in fact by not considering the information and explanation provided by the Appellant.v.That the assessing officer erred in law and in fact by failing to put into further consideration documents and explanations provided confirming actual documentation and financial statements provided for income and expenditure for the said period provided by the Appellant.

The Appellant’s Case 9. The Appellant’s case was premised on its Statement of Facts dated 18th October 2022 and filed on 19th October 2022.

10. The Appellant averred that the Appeal raises issues with high probability of success because the Appellant had not received an objection decision, and that it only became aware of the Respondent’s decision after agency notice had been effected.

11. The Appellant averred that its objection ought to be allowed by operation of the law.

12. The Appellant averred that its reason for delay in filing the instant Appeal is not as a result of indolence and that it would be in the interest of justice and pursuant to Article 159 of the Constitution that the Tribunal ignores procedural technicalities and determine the dispute on merit.

Appellant’s prayers 13. The Appellant prays to the Tribunal for the following orders: -a.That the Appeal be allowed.b.That the confirmation of the Commissioner be set aside and it be reviewed.

The Respondent’s Case 14. The Respondent premised its case on the following documents before the Tribunal:a.The Respondent’s Statement of Facts dated 29th November 2022 and filed on the same date.b.The Respondent’s Written Submissions dated 15th June 2023.

15. The Respondent submitted that it undertook additional assessment of the Appellant based on sales variance data provided on SABS between the Appellant’s income tax returns and VAT returns for the year 2019 and issued additional assessment order on 6th September 2021 of Kshs. 9,489,138. 13. 00.

16. That the assessment order was issued after a pre-assessment notice that the Respondent issued to the Appellant, but which was not responded to.

17. That the Appellant lodged an objection on 15th March 2022, wherein it contended that it was unable to object on time on grounds of ‘other reasonable cause’, but neither was any evidence provided nor other objection grounds addressed.

18. That the Respondent wrote to the Appellant on 29th March 2022 and a reminder on 7th April 2022 informing it that its objection was late and requesting it to provide reasons and evidence of late objection as per Section 51(7) of the Tax Procedures Act, 2015 as its objection was late by 160 days.

19. That the Appellant having not responded to the aforesaid emails by the Respondent and provided evidence and reasons for late objection application, the Respondent rejected the application on 12th April 2022, which was within a period of 14 days, and confirmed the additional assessment.

Respondent’s prayers 20. The Respondent prayed to the Tribunal for the following orders: -a.That the additional assessment confirmation dated 7th June 2022 be upheld.b.That the Appeal be dismissed with costs to the Respondent.

Issues for Determination 21. The Tribunal, having reviewed the Memorandum of Appeal, Statements of Facts filed by both parties, and the Respondent’s written submissions, identified the following issue for determination:Whether the Respondent erred in rejecting the Appellant’s application to file an objection late.

Analysis and Findings 22. The Tribunal notes that from the totality of pleadings and documents before it, the gist of the dispute between the parties is whether the Respondent erred in confirming additional assessment against the Respondent, and if so, what remedies should the Tribunal proffer.

23. The Tribunal further notes that both the Appellant and the Respondent do not dispute the chronology of events and dates leading to confirmation of additional assessment on 11th April 2022.

24. In the instant case, both the Appellant and the Respondent submitted that the Appellant filed a late objection application on 15th March 2022, which was more than 160 days after assessment order was issued on 6th September 2021. The Appellant indicated sickness as the reason for late objection.

25. The Respondent further submitted that despite reminders, the Appellant failed to produce additional materials or evidence to support its late objection application.

26. The Tribunal notes that the applicable law on late objection application is to be found in Section 51 (6) and (7) of the TPA, which speak to extension of time to file late objection as follows: -“(6)A taxpayer may apply in writing to the Commissioner for an extension of time to lodge a notice of objection(7)The Commissioner shall consider and allow an application under subsection (6) if–(a)the taxpayer was prevented from lodging the notice of objection within the period specified in subsection (2) because of absence from Kenya, sickness, or other reasonable cause; and(b)the taxpayer did not unreasonably delay in lodging the notice of objection.”

27. The above law places the obligation to make an application for late objection and provide reasons thereto on the Appellant.

28. Section 56 (1) of the TPA reinforces this obligation as follows: -“…in any proceedings under this Part, the burden shall be on the tax payer to prove that a tax decision is incorrect’.

29. The Respondent submitted that it requested the Appellant to provide reasons and evidence for its late objection application. The Respondent’s emails dated 29th March 2022 and 7th April 2022 are annexed to its Statement of Facts as filed before the Tribunal.

30. The Tribunal further notes that despite these reminders, the Appellant did not provide any evidence to support his application for late objection, especially coming over 160 days from the date the assessment order was issued. There are no records before the Tribunal to support the allegation of sickness on the part of the Appellant’s officers.

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

32. Accordingly, the Tribunal finds that the Appellant has not sufficiently discharged its burden of proof that would have triggered the Respondent to allow its late objection application as required by Section 30 of the Tax Appeals Tribunal Act.

Final Decision 33. From the totality of the analysis above, the Tribunal proceeds to make the following Orders: -a.The Appeal be and is hereby dismissed.b.The Respondent’s additional assessment of the Appellant dated 11th April 2022 be and is hereby upheld.c.No order as to costs.

34. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 26TH DAY OF JANUARY, 2024GRACE MUKUHA - CHAIRPERSONDR. ERICK KOMOLO - MEMBERJEPHTHAH NJAGI - MEMBERTIMOTHY VIKIRU - MEMBERGLORIA OGAGA - MEMBER