Santram Hardware Wholesaler Limited v Commissioner of Investigation and Enforcement [2024] KETAT 349 (KLR)

Santram Hardware Wholesaler Limited v Commissioner of Investigation and Enforcement (Tax Appeal 1279 of 2022) [2024] KETAT 349 (KLR) (8 March 2024) (Judgment)

Neutral citation: [2024] KETAT 349 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Tax Appeal 1279 of 2022

E.N Wafula, Chair, D.K Ngala, CA Muga, GA Kashindi, AM Diriye & SS Ololchike, Members

March 8, 2024

Between

Santram Hardware Wholesaler Limited

Appellant

and

Commissioner Of Investigation And Enforcement

Respondent

Judgment

Background 1. The Appellant is a registered company under the Companies Act and contracted to carry on the business of wholesale ~mainly hardware materials having its offices at Santram House, Uganda Road, Eldoret.

2. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 of the 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 Parts I and 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 carried out an estimated assessment on the Appellant for the years of income 2016, 2017, 2018, & 2019, and issued a demand notice for the Appellant to pay Kshs. 116,951,782. 20 as principal income tax liability.

4. The Appellant objected to the said assessment on 16th July, 2022 and the Respondent acknowledged receipt of the objection on the same day. Subsequently, the Appellant’s Objection was rejected vide an Objection decision dated 5th October, 2022 wherein the Respondent confirmed the estimated assessment.

5. Being dissatisfied with the Respondent’s objection decision, the Appellant filed a Notice of Appeal dated 26th October, 2022.

The Appeal 6. The Appeal as contained in the Appellant’s Memorandum of Appeal filed on 28th October 2022 is premised on the following grounds: -i.The Respondent erred in law, facts and issued an invalid objection decision contrary to the section 51 (11) of the Tax Procedures Act No. 29 of 2015 (hereinafter ‘TPA’)which states that the Commissioner is given up to (60) sixty days from the date when the taxpayer lodged a notice of objection to decide on the objection failure to which the objection by the taxpayer shall be allowed.ii.The Respondent erred in law and facts by his averments that the Appellant did not provide supporting documentation as per Section 51(1) of the TPA.iii.The Respondent erred in law and fact by not communicating to the Appellant as promised in the email sent on the 25th July, 2022 contravening Section 59(1) of the TPA.iv.The Respondent erred in law, facts and issued an invalid objection decision contrary to the TPA Section 51 (9) of the Tax Procedures Act.ii.The objection decision dated 5th October 2022 had a tax liability that was different from the objected amounts and there is no statement of reasons on how the amounts were arrived at.iii.The Respondent erred in law and facts by his averments that the Appellant does not maintain proper books in accordance to Section 23(c) of the TPA thus opting to use bank deposit method in arriving at the estimated assessment without testing the maintained books/records in the custody of the Appellant and supplied during the objection period and audit/investigation period.iv.The Respondent erred in law and facts by using arithmetically biased method and model in arriving at the estimated assessments contrary to the provision under Section 73 of the Income tax Act Cap 470 of Kenya’s laws (hereinafter ‘ITA’) and contrary to Edmund Biber who in the Article “Revenue Administration: Taxpayer Audit- Use of indirect method, at Page 9 which states that:“In general, it can be said that courts have ruled that administrations1. May use any method to reconstruct income that is reasonable under the circumstances;2. May not be arbitrary in the use of this authority; _3. ---4. Must investigate all reasonable evidence presented by the taxpayer refuting the computation of income…”ii.The Respondent erred in law and fact by assuming that there are no cash payments for purposes of settlements of suppliers;iii.The Respondent erred in law and fact by assuming that other debtors do not bank the money to the Appellant’s bank accounts thus he did not factor in his adjustments on bank deposit method;iv.The Respondent erred in law and in fact by assuming by misinterpreting the treatment of opening debtors in adjustments i.e. adding back to the incomes of a financial year instead of having it subtracted and also treatment of closing debtors subtracting it instead of adding back to the financial year expected incomes.v.The Respondent erred in law and fact by excluding cash at hand and at bank in his adjustments.ii.The Respondent erred in law and facts by not objectively gathering his facts and data and making errors in the arithmetic computations and the sampling technique used in arriving at the estimated assessment thus indicating biasness.iii.The Respondent erred in law and facts by conducting investigation on periods that had already been investigated without providing valid reasons as to why they had to conduct another investigation on the periods 2017 and 2016. iv.The Respondent erred in law and fact by demanding tax that is unreasonable and unfair as per Articles 210 and 201 (b) (i) of the Kenya Constitution, 2010 (hereinafter ‘the Constitution’)v.The Respondent erred in law and facts by eliminating certainty as an integral ingredient of the rule of law as stated to be the lifeline of business and business plans.vi.That the Respondent’s actions are contrary to legitimate expectations on the operations of the taxpayer, as per Section 15 of the ITA and Article 47 (1) & (2) of the Constitution.

The Appellant’s Case 7. The Appeal is anchored on the Appellant’s Statement of Facts lodged with the Tribunal on 28th October 2022.

8. The Appellant stated that the Respondent carried out an assessment on it for the years of income 2016, 2017, 2018, & 2019, and issued an assessment order numbers/notices dated 2nd July 2022 as a demand notice requiring the Appellant to pay Kshs 116,951,782. 20 as principal tax Corporation tax.

9. The Appellant objected to the said assessment on 16th July, 2022 and the Respondent acknowledged receipt of the objection on the same day. However, contrary to the provisions of Section 51 (11) of the TPA which provides as follows:“the Commissioner is given up to (60) sixty days from the date when the taxpayer lodged a notice of objection to decide on the objection failure to which the objection by the taxpayer shall be allowed”The Respondent did not issue an Objection decision within the statutory timelines of 60 days but instead decided to issue it on the 79th date after objection being lodged.

10. That contrary to the principle of legitimate expectation and even after the lapse of the legal period for issuing an objection decision, the Respondent wrote to the Appellant on 5th October 2022 via electronic mail and informed it of its decision to decline the objection and confirm the estimated assessment, without giving any reason or statement of facts as per Section 51(9) & (10) of the TPA. Thereafter, the Appellant lodged an appeal against the said decision.

Appellant’s Prayers 11. The Appellant prayed that: -i.The Respondent Objection decision is invalid, incorrect, unfair, time barred and failed to meet the legitimate expectations of the taxpayer as per Articles 47, 201(b)(i) and 210 of the Constitution.ii.Upon determination that the objection decision of the Respondent is invalid, wrong and unreasonable the Appellant’s objection be withheld and the Respondent demand and confirmation be quashed entirely.iii.The Respondent’s demand for additional taxes and confirmation of estimated assessment be struck out entirely.iv.That Respondent’s actions be declared arbitrary, capricious, subjective, unfair and contrary to the fair administration of justice and to the legitimate expectations of the Appellant.v.That the Respondent and its agent be estopped from demanding or taking further action or steps to ensure recovery of the alleged principal tax, penalties and interests.vi.Cost of Appeal; andvii.Any other remedies that the Tribunal would determine.

Respondent’s Case 12. The Respondent opposed the instant Appeal vide its Statement of Facts dated 28th November, 2022 and filed on even date.

13. The Respondent stated that it self-generated the investigation to establish the compliance of the Appellant in declaration of income and expenses. The investigations covered Value Added Tax (VAT) for the period of 2016, Director’s income tax for the period of 2016 to 2020 and Corporation tax for the period of 2017 to 2021.

14. That the aim of the investigation was to establish if all income received by the Appellant was declared for both income tax and VAT purpose and confirm if there were any disallowable expenses claimed. Further, the investigations sought to facilitate the enforcement and recovery of taxes not paid by the Appellant and establish if the Appellant had contravened any Sections relating to tax law and prosecute any offences committed.

15. The Respondent stated that it reviewed the Appellant’s bank statements, i-tax ledgers and returns, and data from Jaspersoft and Insight.

16. That the investigation involved a comparative analysis of the Appellant to establish its true income.

17. That in carrying out these investigations, it carried out a banking analysis. This was for the sole purpose of comparing the trade amount banked to the declarations in the filed tax returns. The Respondent therefore proceeded to compare the adjusted deposits to the income declaration in the Appellant’s self-assessments returns. The analysis indicated the presence of variances between the expected and the declared income.

18. The Respondent averred that its analysis also indicated that there existed variances in the year 2017 and 2018, which it computed to be charged for Income tax and VAT at 30% and 16%, respectively.

19. That it noted that there existed negative variances which was an indication that the Appellant dealt in another account or in the alternative, not all the income of the Appellant was banked but used directly to acquire more stock.

20. The Respondent also carried out a turnover analysis to compare the income tax declared and the Income declared for VAT purposes. The test revealed variances amounting to Kshs. 13,347,788. 00.

21. The Respondent’s analysis of the turnover of the Appellant basically revealed that the Appellant had underdeclared income for VAT purposes. As such, the Respondent charged the same as VAT at 16% and the negative variance for Corporation tax at 30%.

22. The Respondent carried out an investigation of the Appellant’s costs and expenses for the sole purpose of investigating the accuracy of the costs and expenses claimed in income tax returns and Value Added Tax returns. The Respondent noted instances where the input claimed in VAT returns was more than the costs claimed in the income tax returns and vice versa. The Respondent realized that this indicated that the costs claimed were not accurate and were aimed at reducing the tax payable as seen below:

23. The Respondent further noted that there were instances of negative variances, which indicated that the Appellant had over claimed costs and expenses to reduce income tax payable. The instances where there is a positive variance indicated that the Appellant had over claimed Input for VAT purposes. The Respondent therefore charged Income Tax and VAT variances at 30% and 16% respectively.

24. That the Respondent also noted with concern that the Appellant had claimed expenses not wholly and exclusively incurred in the production of income contrary to the provisions of Section 15 of the Income Tax Act (ITA), which is clear that expenses were allowable if wholly and exclusively incurred in the production of Income.

25. That the Respondent further examined the rental income of the Appellant as they were engaged in commercial renting, had Block 170 Chemalal Farm, and Block 5/505 Santram Wholesalers Limited. The Respondent cross checked the rent declarations with the rent claims by the companies and individuals and noted that the rent was fully declared.

26. That from the investigations and subsequent assessment, the taxes due were Kshs. 32,640. 996. 00 in respect of Income tax and Kshs. 32,998,805. 00 in respect of VAT. The Respondent served the Appellant with an additional assessment on 23rd June 2022 with tax liability of Kshs. 73,952,363. 00 in principal tax.

27. The Appellant responded via the iTax platform on 16th July 2022 objecting to the taxes assessed. On 19th July 2022, the Respondent requested the Appellant to provide documents within 7 days in support of its objection. The Appellant provided the required documents via email to which the Respondent confirmed receipt of via an email dated 25th July, 2022.

28. The Respondent after reviewing the documentation provided by the Appellant and finding the same invalid on the basis that the Appellant did not provide the required documentation proceeded to confirm its additional assessment of Kshs 73,952,363. 00 via a letter dated 5th October, 2022.

29. Responses to specific issues raised by the Appellant:a.The Respondent erred in law, facts and Issued an invalid Objection decision contrary to the Tax Procedures Act 2015 Section 51(11) which states, “The Commissioner is given up to 60 days from the date the Appellant lodged a notice of objection to decide on the objection failure to which the objection by the Appellant shall be allowed.”

30. That the Respondent issued the Appellant with notice of tax assessment requiring the Appellant to pay the taxes established of Kshs. 73,952,363. 00 (in principal taxes).

31. That the Appellant responded vide a letter dated 16th July 2022 objecting to the taxes assessed. The Appellant was requested to provide documents in support of the Objection to which it did via an email dated 20th July 2022. The law explicitly says that the Respondent is required to issue an objection decision within 60 days however; the same can only be when the Respondent has received a valid notice of objection.

32. That the Respondent did not receive a valid notice of objection as the Appellant did not provide documentation and when they did, the same was not relevant in the support of its objection.

33. The Respondent stated that this effectively meant that the 60 days contemplated under Section 51(11) (b) of the TPA started running on 20th July 2022 when the Respondent received the last set of documents from the Appellant.b.The Respondent erred in law and facts by his averments that the Appellant did not provide supporting documentation as per Section 51(1) of the Tax Procedures Act;

34. That the provisions of Section 51 of the TPA, 2015 guided the Respondent’s objection decision after carefully considering the Appellant’s grounds of objection. However, the Respondent noted that the documentation that was provided by the Appellant was not relevant to support its objection.

35. The Respondent stated that it had unearthed a scheme to defraud the Authority of Income tax, VAT, and knowingly making incorrect statements that affected the Appellant’s liabilities and as such, the taxpayer needed to provide documentation that would give clarification on the above issues. The Respondent however did not receive such documentation.c.The Respondent erred in law and fact by not communicating to the Appellant as promised in the mail sent on the 25th July 2022 contravening section 59(1)c of the TPA;

36. That the Respondent on 19th July 2022 via a letter informed the Appellant that its application was invalid as it failed to meet the requirements of Section 51 (3) of the TPA specifically that of providing relevant documents.

37. The Respondent averred that it allowed the Appellant to provide documentation however; the Appellant provided documents that were not relevant to its objection.

38. The Respondent therefore properly communicated in its letter dated 5th October 2022 where it was able to conclusively show that they requested for documentation and the same was never provided thereby causing the confirmation of the assessment.d.The Respondent erred in law and fact in issuing an invalid Objection decision contrary to Section 51(9) of the TPA;

39. In answering this issue, the Respondent reiterated its response as captured in issue number 1 above.e.The Respondent erred in law and fact by his averments that the Appellant does not maintain proper books in accordance with Section 23 (c) of the TPA thus opting to use Bank Deposit method in arriving at the estimated assessment without testing the maintained books and records in the custody of the Appellant;

40. The Respondent had unearthed a scheme that the Appellant had set up a scheme to defraud the Respondent of Income tax and VAT by knowingly making incorrect statements that affected their liabilities.

41. As such, the Respondent proceeded to use their powers under section 59 of the TPA where they could seek assistance with banks to get access to the Appellant’s Bank records and carry out the banking analysis.f.The Respondent erred in law and facts by conducting investigation on periods that had already been investigated without providing valid reasons as to why they had to conduct another investigation on the periods 2016 and 2017;

42. In response to the contention that the Respondent carried out investigations on a period already investigated, investigations carried out covered different issues that were not covered under any previous audit or investigation.

43. Nonetheless, if there were any overlaps, it was incumbent on the taxpayer to demonstrate with evidence that the issues had been raised and addressed previously. This, was not done in the course of the investigations nor the objection review process.g.The Respondent erred in law and facts by demanding tax that is unreasonable and unfair as per article 210 and 201 (b) (i) of the Constitution;

44. That the Respondent after reviewing and investigating the records of the Appellant was of the understanding that the tax demand made by the Respondent was neither unreasonable nor is it unfair.

45. The Respondent stated that its review indicated that the Appellant had claimed expenses which were unsupported, the Appellant’s returns in their Income tax returns and VAT returns were inconsistent and further, the Appellant’s bank statements indicated negative variances in the year 2016 and 2018 and variances between expected and declared income.

46. That the Respondent as such carried out the issuing of the additional assessments in a fair and reasonable manner.h.The Respondent erred in law and facts by eliminating certainty as an integral ingredient of the rule of law as stated to be the lifeline of business and business plans;i.The Respondents actions are contrary to legitimate expectations on the operations of the Appellant, as per section 15 of the Income Tax Act, and Article 47(1) (2) of the Kenya Constitution 2010;

47. The Respondent stated that the legitimate expectation of the taxpayer that any allowable costs would be considered in the determination of taxable income, the legitimate expectation could not stand in view of the non-compliance by the taxpayer, who failed to provide documents in support of the costs claimed.

48. It was the Respondent’s view that legitimate expectation does not arise since there cannot be legitimate expectation which is in contravention of the law. In support of this position, the Respondent relied on the case of Republic vs. Kenya Revenue Authority Exparte Shake Distributors Limited [2012] eKLR.

49. Similarly, in the case of Republic vs. Kenya Revenue Authority Exparte Shake Distributors Limited [2012] eKLR, the court held that:“...for the proposition that the cornerstone of legitimate expectation is a promise made to a party by a public body that it will act or not act in a certain manner and for the promise to hold, the same must be made within the confines of law since a public body cannot make a promise which goes against the express letter of the law...”

Respondent’s Prayers 50. The Respondent prayed that this the Tribunal;a.Finds that there is no dispute before it for determination.b.Without prejudice to (i) above uphold the Respondent’s decision as proper and in conformity with the provisions of the law.c.Dismiss this Appeal with costs to it as the same is devoid any merit.

Parties’ Written Submissions 51. The Appellant’s submissions dated 15th February, 2023 were filed on same date.

52. The Appellant relied on the case of Morgan Air and Seafreight Logistics Kenya Limited v Commissioner of Domestic Taxes TAT No. 286 of 2020 and Section 51(11) of the TPA and submitted that the procedures culminating in the objection decision dated 5th October 2022 were not well placed and not compliant with the provisions of the aforementioned TPA provisions with respect to the strict rules attendant to taxation of a taxpayer.

53. It further submitted that the jurisdiction of this Tribunal cannot be properly invoked pursuant to Section 51(11) of the TPA which provides that the Commissioner’s failure to make an objection decision within sixty days deems the taxpayer’s notice of objection allowed by operation of the law. That this means that any action taken or decision made by the Respondent thereafter is a matter of unfair administrative action and not an Objection decision.

54. The Appellant also relied on the case of Keroche Industries Ltd v The Kenya Revenue Authority & Five Others Misc. Civ. Appl. No.743 of 2006 and maintained that taxation must be based strictly on the law, and cannot be by implication or assumption. It further relied on the case of Family Signature Ltd v The Respondent of Investigations & Enforcement Nairobi TAT No. 25 of 2016 and asserted that the procedures culminating in the assessment dated 16th July 2022 was not well placed and not compliant with the provisions of Section 73 of the ITA, the strict rules attendant to taxation of a taxpayer and legitimate expectation of a taxpayer.

55. It was stated by the Appellant that the Respondent failed to differentiate the adjustments for debtors and creditors in its method of arriving at the estimated incomes contrary to generally accepted accounting principles thus arriving at a biased estimated income. Further, the Appellant contended that it provided the Respondent with all supporting documents and explanation to all the entries in the bank statements during the objection period in compliance with the provisions of Section 51(3) of the TPA vide objection letter dated 16th July 2022 and email dated 20th July 2022.

56. In light of the foregoing, the Appellant submitted that it discharged itself from the tax burden placed upon it under Section 56 of the TPA. To this end, the Appellant cited the Federal Court of Australia case of Mulherin v Commissioner of Taxation [2013] FCAFC 115.

57. On its part, the Respondent filed its written submissions dated 2nd March 2023 which were filed on even date submitting that the aim of the investigation was to establish if all income received by the Appellant was declared for both Income tax and VAT purpose and confirm if there were any disallowable expenses claimed.

58. Further, that the investigations sought to facilitate the enforcement and recovery of taxes not paid by the Appellant and establish if the Appellant had contravened any Sections relating to tax law and prosecute any offences committed.

59. The Respondent further submitted that in as much as the Appellant objected to its assessment, it did not comply with the mandatory provisions of Section 51(3) of the TPA.

60. The Respondent asserted that in view of the fact that there was no valid objection for failure of the Appellant to provide documents in accordance with the mandatory provisions of Section 51(3) of the TPA the Appeal herein should be dismissed and the taxes collected.

Issues For Determination 61. The Tribunal having carefully considered the parties’ pleadings, documentation and submissions notes that two issues calling for its determination are as follows:-i.Whether the Appellant’s Notice of Objection dated 16th July, 2022 was validly lodged.ii.Whether the Respondent’s Objection decision dated 5th October, 2022 was made within the statutory timelines.

Analysis And Findings 62. The Tribunal having identified the issues falling for its determination proceeds to analyze the same as hereunder.i.Whether the Appellant’s Notice of Objection dated 16th July, 2022 was validly lodged.

63. The validity of a notice of objection is provided for under Section 51(3) of the TPA, 2015 which states as hereunder –“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 the tax not in dispute under section 33(1); andc.all the relevant documents relating to the objection have been submitted.”

64. Notably, upon receipt of the additional assessment for Kshs. 73,952,363. 00 issued to the Appellant by the Respondent on 23rd June, 2022, the Appellant lodged its notice of objection to the said assessment on 16th July, 2022 via the i-tax platform. However, upon perusal of the documents filed by the parties herein, it is evident that neither the Appellant nor the Respondent attached a copy of the said notice of objection to give this Tribunal an opportunity to peruse it and determine whether it conforms to the provisions set out under Section 51(3) of the TPA.

65. Nonetheless, it is noteworthy that the Respondent responded to the Appellant’s notice of objection lodged on 16th July, 2022 vide a letter dated 19th July, 2022 declaring the said notice invalid for failure to meet the requirements of Section 51(3) of the TPA. The Respondent further stated in the said letter that the information and documents should be provided within 7 days from 19th July, 2022 pursuant to the provisions of Section 51(4) of the TPA which states as hereunder:-“Where the Commissioner has determined that a notice of objection lodged by a taxpayer has not been validly lodged, the Commissioner shall within a period of fourteen days notify the taxpayer in writing that the objection has not been validly lodged and request the taxpayer to submit the information specified in the notice within seven days after the date of the notice.”

66. In compliance with the Respondent’s letter dated 19th July, 2022, vide an email sent on 20th July, 2022 the Appellant sent the Respondent its letter of objection for the period under review and the Appellant’s reconciliation for income purposes, and stated that it shall mail the debtors list and other documentation in support of its objection.

67. The Tribunal notes that on 22nd July, 2022, the Appellant mailed the Respondent its audited books from 2016 to 2021. Vide an email sent on 25th July, 2022, the Appellant wrote to the Respondent confirming if the Respondent had received the documents mailed to it and asked the Respondent to provide it with a list of any other additional documents needed in this case.

68. The Respondent responded to that email vide an email sent on 25th July, 2022 acknowledging receipt of the documents in support of the Appellant’s objection and informed it that it shall review and revert, and incase it needed more documents it shall communicate. It is however noteworthy that the Respondent never communicated to the Appellant again till 5th October, 2022 when it informed the Appellant that it did not provide relevant documents in support of its objection and confirmed its assessment of Kshs. 73,952,363. 00.

69. This Tribunal is of the view that in as much as the Respondent in its letter dated 19th July, 2022 found that the Appellant’s notice of objection lodged on 16th July, 2023 was invalid, it granted the Appellant an opportunity to rectify the situation by providing documentation in support of its Objection. It is evident from the above analysis that the Appellant rectified the situation by sending the Respondent documentation that in its view was sufficient to support its Objection within the timelines set by the Respondent. The Appellant went further in its email sent to the Respondent on 25th July, 2022 to request the Respondent to provide it with a list of any other additional documents needed in this case.

70. It is not disputed that the Respondent acknowledged receipt of the said documents and indicated that it shall communicate incase it needed additional documents. However, the Respondent never provided the Appellant with a list of additional documents it needed (if any) to aid in its determination of the Appellant’s objection. All it did was issue the Appellant with a letter dated 5th October, 2022 stating that after reviewing the documents supplied by the Appellant, it found them to be invalid on the basis that the Appellant did not provide the required documentation, and thereby confirming the assessment of Kshs. 73,952,363. 00.

71. This Tribunal finds that by the Appellant sending documents in support of its objection to the Respondent vide emails sent on 20th & 22nd July, 2022, the Appellant not only complied with the requirements contained in the Respondent’s letter dated 19th July, 2022 but it also discharged its burden under Section 51(3) of the Tax Procedures Act as regards lodging of a valid objection.

72. In Commissioner of Taxes v Galaxy Tools Ltd [2021] eKLR, the Court held: -“With greatest respect, the Tribunal got it wrong. What the respondent had done by producing the invoices, the delivery notes and payment schedules was only prima facie evidence of purchase. On producing the said documents, the evidentiary burden of proof shifted to the appellant. The appellant in answer not only queried the said documents but informed the Tribunal that; he had carried investigations on the alleged suppliers and concluded that they never existed, that there was no supply of any goods at all. That the documents produced did not contain critical details to support any reasonable commercial transaction. All this was laid before the Tribunal.”

73. From the foregoing, it is evident that the Appellant had discharged its burden of proof so it was up to the Respondent to demonstrate and/or proof that the documents provided by the Appellant were not sufficient or did not prove the Appellant’s case as contained in its letter of objection. Further, if the Respondent felt like they were other specific documents that ought to have been provided by the Appellant in support of its objection, it should have requested for them from the Appellant but it did not do so.

74. In light of the foregoing, this Tribunal finds that the Appellant’s notice of objection to the Respondent’s additional assessment for Kshs. 73,952,363. 00 issued on 23rd June, 2022, was valid.b.Whether the Respondent’s Objection decision dated 5th October, 2022 was made within the statutory timelines.

75. It is trite law that an Objection decision should be issued within sixty days from the date that the taxpayer lodged a notice of the objection as provided for under Section 51(4A) of the TPA which states that –“Despite subsection (3), where a taxpayer fails to provide the information required under subsection (4) or fails to provide the information within the specified period, the Commissioner may make an objection decision within sixty days after the date on which the notice of objection was lodged.”

76. Further, Section 51(11) of the TPA provides that –“The Commissioner shall make the objection decision within sixty days from the date of receipt of a valid notice of objectionfailure to which the objection shall be deemed to be allowed.”

77. In this case, the Appellant lodged a notice of objection on 16th July, 2022 thereafter, vide a letter dated 19th July, 2022 the Respondent notified it that its objection does not conform to the provisions of Section 51(3) of the TPA, 2015 and requested the Appellant to provide documentation in support of its objection. From the record, it is evident that the Appellant provided the said documentation vide emails sent on 20th & 22nd July, 2022. For this reason, time within which the Appellant ought to have made its Objection decision started running on 23rd July, 2022. Accordingly, the Respondent was required to make its objection decision on or before 20th September, 2022.

78. It is noteworthy that whether the Appellant provides the additional information as requested by Respondent or not, the Respondent is still under a duty to make an objection decision within sixty days after the date on which the notice of objection was lodged pursuant to the provisions of Section 51(4A) of the TPA reproduced hereinabove. The Court in the case of Rongai Tiles & Sanitary Wares Limited v Commissioner of Domestic Taxes (Tax Appeal E011 of 2020) [2023] KEHC 18546 (KLR) held as hereunder when faced with a similar question:-“The Commissioner has argued that it is not bound by this time if an objection is invalidly lodged. I reject this argument and agree with the Tribunal that going by the wording of section 51(11) of the TPA above, the Objection Decision ought to have been made within 60 days regardless of whether the objection was valid. I therefore find that the Objection decision was outside the statutory timelines provided by section 51(11) of the TPA.”

79. In the circumstances this Tribunal finds that the Respondent’s objection decision dated 5th October, 2022 is invalid for being made and/or issued outside the statutory timelines. This means that the provisions of Section 51(11) of the TPA take effect.

Final Decision 80. The upshot of the foregoing analysis is that the appeal is merited and the Tribunal makes the following orders: -a.The Appeal be and is hereby allowedb.The Respondent’s objection decision dated 5th October, 2022 be and is hereby set aside;c.Each party to bear its own costs.

81. Orders accordingly.

DATED AND DELIVERED AT NAIROBI ON THIS 8TH DAY OF MARCH, 2024ERIC NYONGESA WAFULA - CHAIRMANDELILAH K. NGALA - MEMBERCHRISTINE A. MUGA - MEMBERGEORGE KASHINDI - MEMBERMOHAMED A. DIRIYE - MEMBERSPENCER S. OLOLCHIKE - MEMBER