Viraj Development Limited v Commissioner of Investigations and Enforcement [2023] KETAT 338 (KLR) | Corporation Tax Assessment | Esheria

Viraj Development Limited v Commissioner of Investigations and Enforcement [2023] KETAT 338 (KLR)

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Viraj Development Limited v Commissioner of Investigations and Enforcement (Appeal 449 of 2022) [2023] KETAT 338 (KLR) (Civ) (9 June 2023) (Judgment)

Neutral citation: [2023] KETAT 338 (KLR)

Republic of Kenya

In the Tax Appeal Tribunal

Civil

Appeal 449 of 2022

E.N Wafula, Chair, Cynthia B. Mayaka, GL Nzioka, AK Kiprotich & Jephthah Njagi, Members

June 9, 2023

Between

Viraj Development Limited

Appellant

and

Commissioner of Investigations and Enforcement

Respondent

Judgment

Background 1. The appellant is a limited liability Company duly incorporated and registered in Kenya under the Companies Act. The appellant’s primary activity is in real estate business and owns Viraj Villas in Kileleshwa, Nairobi.

2. The respondent is a principal officer appointed under section 13 of the Kenya Revenue Authority Act, cap 469 of the laws of Kenya. The Authority is an agency established for the purposes of assessing, collecting and accounting for tax revenues.

3. The respondent vide a letter dated May 15, 2020informed the appellant of investigations relating to non-remittance of taxes. The appellant replied on May 26, 2020.

4. There were various other correspondences in form of emails, letters and telephone conversation between the parties and subsequently a Meeting between the parties on August 19, 2020.

5. The respondent visited Viraj Villa Apartments in Kileleshwa-Nairobi in company of the appellant on September 2, 2020.

6. On August 31, 2020, the respondent wrote to the appellant requesting for documents to which the appellant replied vide a letter dated 7th September 2020.

7. The respondent vide an email on September 15, 2020 requested for additional information and documents. The appellant replied vide a letter dated September 17, 2020.

8. There was a further visit to the appellant’s premises by the respondent officers on September 30, 2020and followed by additional correspondences and exchange of documents between the parties and subsequently a letter of finding by the respondent dated May 24, 2021 and received by the appellant on July 7, 2021.

9. The appellant replied to the letter of findings vide a letter dated August 4, 2021.

10. Vide a letter dated January 26, 2022, the respondent served the appellant with the tax assessment for the period January 2014 to December 2019 for a total Corporation tax liability of Kshs. 76,369,287. 30.

11. The appellant objected to the assessment vide a notice of objection dated February 23, 2022objecting to the entire assessment.

12. The respondent issued its objection decision vide a letter dated March 23, 2022confirming the entire assessments.

13. Aggrieved by the respondent’s decision, the appellant lodged the Notice of Appeal on April 21, 2022and subsequently this Appeal on May 4, 2022.

The Appeal 14. The Appeal is premised on the following grounds as set out in the Amended Memorandum of Appeal dated August 2, 2022 and filed on the same date:i.The respondent erred in law and in fact through its Objection decision that found that the appellant is required to pay an additional tax of Kshs. 76,369,287. 30 (principal taxes due) by ignoring the appellant's submissions throughout the audit, which included the interviews, review meetings, site inspections, document verification meetings, submission of all supporting documents, interviews of tenants, suppliers and workmen.ii.The respondent erred in law and in fact by failing to consider section 3 (2) (a) (iii) of the Income Tax Act. The appellant relied on sections 6 & 15 of the Income Tax Act in preparing its taxable income and declaring such tax computed.iii.The respondent erred in law and in fact through the objection decision that the appellant under declared its rental income by Kshs. 183,195,095. 00 upon disregarding the appellant’s valid supporting documents such as the tenancy agreements, rent receipts, rent schedules, i-Tax rental income returns, which documents meet the threshold ofsections 15 and 54A of the Income Tax Act.iv.The respondent erred in law and in fact through its objection decision that disallowed the appellant’s repairs and maintenance costs to the tune of Kshs. 42,241,160. 00 upon disregarding the appellant’s supporting documents such as the repairs and maintenance schedules, individual repairs and maintenance receipts and petty cash payment vouchers, which documents meet the threshold of section 15 of the Income Tax Act and section 54A of the Income Tax Act.v.The respondent erred in law and in fact by ignoring an earlier finding which confirmed that the appellant had properly declared its rental income and the expenses as was claimed in its filed financial statements.vi.The respondent erred in law and in fact through its objection decision that disallowed the appellant’s salaries and wages costs to the tune of Kshs. 8,583,525. 00 upon disregarding the appellant’s valid supporting documents such as the payment vouchers, salaries and wages monthly schedules, NSSF and NHIF returns plus payment slips, master roll books and P11 payment slips, which documents meet the threshold ofsection 15 of the Income Tax Act.

appellant’s Case 15. appellant’s case is premised on the hereunder filed documents and proceedings before the Tribunal.i.The appellant’s Statement of Facts dated 4th May 2022 and filed on the same date together with the documents attached thereto.ii.The appellant’s list and bundle of documents dated and filed on 4th May 2022 together with the documents attached thereto.iii.The appellant’s Supplementary Statement of Facts dated and filed on the 2nd August 2022. iv.The appellant’s written submissions dated and filed on 28th November 2022.

16. That appellant stated that on the 8th May 2020, the respondent's officers, carried out an impromptu visit to the appellant's premises and spoke to various tenants of the appellant. That some of the information sought from the appellant's tenants included, but was not limited to:i.The size of the houses.ii.The monthly rent being paid by them to the appellant.iii.The offices of the appellant.iv.The total number of apartments/houses at the premises.

17. That on 15th May 2020, the respondent sent a letter of notice to the appellant informing it that it was under investigations for non-remittance of taxes.

18. It averred that on 26th May 2020, the appellant wrote back to the respondent and informed it that it had at all times correctly and accurately declared its rental income and all taxes due were paid as required. That it welcomed the respondent to carry out its investigations and assured it of its full support and cooperation. That in fact, the appellant indicated that it had overpaid its taxes and had even previously written to the Kenya Revenue Authority with this regard on several occasions.

19. The appellant stated that the respondent emailed it the following day, 27th May 2020, to inform it that it shall be arranging a virtual meeting in due course as a result of the Covid-19 Pandemic.

20. That on 5th June 2020, as the respondent had not requested for a meeting, the appellant wrote to it pleading to have the matter concluded expeditiously bearing in mind that the management was required to focus on the effective running of its business. That it was suffering from the negative perception created by the respondent and grappling with the economic effects of the Covid-19 pandemic.

21. It stated that on 15th June 2020, the respondent emailed the appellant and informed it that it shall be setting up a meeting as per its request in due course. That on 3rd July 2020, the appellant sent another reminder to the respondent as there was no response and a meeting had not yet been arranged as promised.

22. That on 6th July 2020, the appellant received a phone call and later an email from the respondent and it advised the appellant that, as it was busy with other end of financial year responsibilities, it had been unable to proceed with the audit. That the respondent promised to send communication by the end of the same week. The appellant further averred that it requested that it be given a date when the respondent could visit its offices to carry out the audit. That this would ensure that it has all supporting documents available for the inspection.

23. That on 10th August 2020, as there was still no response from the respondent, the appellant once again wrote to it requesting for a conclusion of the audit, which after four (4) months, was not showing any signs of progress to the appellant’s detriment.

24. That on 13th August 2020, the respondent made a phone call to the appellant with regards to its email of 10th August 2020. That the appellant expressed its displeasure and pleaded with the respondent to complete the investigations expeditiously such that it may engage in the effective running of its business, especially with the difficulties being experienced during the Covid-19 pandemic.

25. The appellant stated that on the same evening, in a turn of events, the respondent summoned the appellant’s directors’ with claims of fraud and culpability of an unknown offence. That the Summons required the appellant’s directors to appear before the respondent on Wednesday, 19th August 2020 at 9. 30 am at its Ushuru Pension Towers, Upper Hill offices in Nairobi.

26. That on 19th August 2020, the appellant’s directors, accountant and manager appeared before the respondent and answered all its queries relating to the appellant and its affiliate/related companies. That the respondent made enquiries, inter alia, with regards to:a.The nature of business it carries out.b.Its directors.c.The properties it owns including their locations and their names.d.The size of houses on each property.e.The monthly rents at which the houses were being offered to the general public.f.The company bankers.g.Details of how the properties were acquired.h.Other miscellaneous information asked for as they conducted the interview.

27. That the appellant answered all the queries raised by the respondent. Some of the responses given during the interview were, inter alia, that:-a.The appellant owned Viraj Villa in Kileleshwa area, which it constructed in the year 2006-2008. b.The appellant was receiving monthly rents ranging between Kshs. 42,000. 00 to around Kshs. 80,000. 00 based on their position and sizes.c.The appellant enters into tenancy agreements with all its tenants, which agreement runs for a term of 11 months.d.That the appellant has sold a number of houses since constructing them several years ago.

28. That on 24th August 2020, the appellant wrote to the respondent and served it with a copy of the Court Order dated 25th March 2015 as requested in the meeting of 19th August 2020.

29. That on 26th August 2020, the respondent called the appellant's director requesting for a date on which it could visit all the properties belonging to the appellant. In response, the appellant requested the respondent to combine all the site visits of all the related companies so that the process can be faster.

30. That on 28th August 2020, the appellant emailed the respondent informing it of its availability for the site inspections on 2nd September 2020 and if need be, could be extended to 3rd September 2020.

31. The appellant stated that on 2nd September 2020, the appellant in the company of the respondent visited Viraj Villa Apartments in Kileleshwa area which is the only property it owns. That during the site visit, which involved the appellant's representatives and the respondent's representatives, the parties engaged in, inter alia:i.Obtaining information on the number of apartments on the property.ii.Obtaining information on the size of apartments.iii.Obtaining information on the number of empty apartments.iv.Obtaining information on the nature of and extent of repairs and maintenance.v.Viewing of empty apartments on each property.vi.Interviewing tenants residing on the properties.vii.Interviewing workmen found at the premises.viii.Taking photos of the properties, assets thereon and on-going renovations.ix.Obtaining information on issues, disputes or challenges that the appellant normally encounters.

32. That on the 31st August 2020, the respondent wrote to the appellant and its related companies requesting for the following documents;i.Bank account details for all the companies and their directors.ii.Audited accounts and tax computation.iii.General ledgers.iv.Sale agreements for all the properties it had sold.v.Rent schedules for all its developments.vi.Breakdown of cost of repairs.vii.Purchase agreements for the properties it purchased.viii.Loan agreements and loan repayments schedules for both local and foreign loans.ix.Fixed assets revaluation/reclassification reports.x.Fixed assets schedules.xi.List of debtors and creditors.xii.School fees (income stream) schedules.

33. That on 7th September 2020, the appellant responded to the respondent’s request for the documents dated 31st August 2020 and attached thereto the following documents;a.The appellant’s bank account details.b.The appellant’s directors bank account details.c.The audited accounts and tax computations from December 2014 to December 2019. d.General ledgers from 2014 to 2019. e.Sale agreements for the properties sold during the audit period.f.Rent schedules from 2014 to 2019. g.Breakdown of costs of repairs from 2014 to 2019. h.Fixed assets schedules from 2014 to 2019. i.List of debtors and creditors from 2014 to 2019.

34. That on 15th September 2020, the respondent wrote an email to the appellant seeking further details including the following;a.Details of tax credit carried forward to 2015 amounting to Kshs. 4,753,037. 00. b.Details of borrowing in 2013 and paid in 2014. c.Details and documentation in regards to addition of investment property in 2014 and 2016. d.Details on receivables from related parties.e.Evidence of the expenses claimed over the years for the items that were listed thereon.

35. That on 17th September 2020, the appellant wrote to the respondent to respond to its further request of 15th September 2020. That it responded to the issues by;a.Providing a clarification that the amount of Kshs. 4,753,037. 00 was carried over to 2015 from the tax overpaid in 2014. b.Clarifying that the company’s borrowings were made before the respondent’s seizure of its documents in 2011 and no borrowings were made during the audit period of 2015-2019. c.That the addition of investment property was incurred as a result of a facial uplift of the property.d.There were no receivables from related parties but the appellant did transfer funds to, Shamji Kalyan Pindoria Limited.e.Requesting that the respondent physically verify the expenses at its offices due to the bulky nature of the documents.

36. That on 30th September 2020 and 1st October 2020, the respondents’ officers, Ms Jackline Mwangi and Eric Riungu visited the offices of the appellant and reviewed all tenancy related documents which included the rent schedules, lease agreements, ID copies, rent payment receipts, tenant’s PIN numbers, tenant’s deposits payments, tenant’s personal profiles, tenant’s deposit refund vouchers upon moving out and all expenses receipts as incurred by the appellant throughout the audit period.

37. The appellant submitted that during the document inspection visit at the appellant's offices, the respondent requested that due to the huge volume of documents, the process of looking at each and every document would be cumbersome and time consuming and it therefore required the appellant to provide it with an item-by-item spreadsheet schedule, which it would review whilst at its own offices, having already perused the originals, in situ.

38. That on 16th October 2020, as requested by the respondent's officers, the appellant emailed all the excel schedules for repair and maintenance expenses towards; masonry expenses, metal works, painting expenses, plumbing expenses, woodwork expenses, electrical expenses, garbage expenses and landscaping expenses

39. The appellant averred that as at 14th December 2020, as the respondent did not make any further communications, the appellant assumed that it was satisfied with the documents provided and the appellant wrote to the respondent asking it to complete the audit as all queries had been adequately addressed.

40. That on 17th December 2020, the respondent wrote back to the appellant asking it to be patient and assured it of its commitment to resolve the issue quickly.

41. The appellant submitted that on 22nd April 2021, the respondent wrote an email to the appellant requesting it for additional information and documents. That the information requested was:i.Audited accounts and ledgers for the year 2011 to 2013. ii.The source of funds for the development/purchase of the property.iii.Movement of the money leading to the foreign exchange loss.iv.All loan and borrowing details from 2011 to 2013.

42. That on 3rd May 2021, the appellant replied to the respondent's email of 22nd April 2021 and responded by:i.Informing the respondent that it was requesting for documents beyond the audit period containing to its undertaking that it would not do so.ii.Informing the respondent that it is only obligated, under the law, to retain documents for a period of 5 years.iii.Informing the respondent that the premises was built several years ago as was indicated during the site visit of 2nd September 2020, and the finding thereof beyond its audit scope.

43. The appellant stated that on 7th July 2021, the appellant's directors had gone to the respondent's offices to discuss preliminary findings of the other related companies when it was served with preliminary findings which letter was dated 24th May 2021. That however, the findings across all the related companies were very similar in nature and the appellant was able to quickly run through the findings, which purported that the respondent:i.Had used a banking method to arrive at a variance of the expected rental income as compared with the declared rental income. The purported variance amounted to Kshs. 145,955,621. 00,ii.Found a variance of the salaries claimed against those indicated in the audited accounts amounting to Kshs. 18,438,525. 00,iii.Tried to contact suppliers and casual workers and only some of them confirmed their engagements with the appellant, the unconfirmed amounts were disallowed and added back. The amount disallowed was Kshs. 42,241,160. 00. iv.Disallowed the finance cost as there were no documents provided to support the same amounting to Kshs. 11,591,341. 00. v.The total corporation tax due would therefore be Kshs. 68,153,945. 00.

44. The appellant stated that it strongly disputed the findings as they were hugely biased, unfair, ignored all the documents, meetings, inspections and interviews. That they were brought about in a haphazard manner seemingly to stop the appellant from pestering it for closure on the long-standing audit.

45. The appellant added that it verbally opposed the findings during the meeting of 7th July 2021 and provided its reasons towards the same. That the respondent asked the appellant to include the details and provide the requested documents as per the resolutions of the meeting, in its written response to the findings upon which the findings would be adjusted and a report made within a time frame of 30 days.

46. That the respondent acted maliciously, in bad faith and in an unfair manner as it made findings on various aspects that were never queried on during the audit period and were arrived at without seeking any clarifications whatsoever from the appellant. That throughout the audit period, the respondent never asked the appellant toi.Provide any clarifications on its bank deposits.ii.Explain how and why not all suppliers and workers could respond to the respondent.iii.Provide any clarifications on its employees and the salaries and wages that it claimed.

47. The appellant submitted that on 4th August 2021, it provided a written response to the preliminary findings which responded to all the findings covering the period 2014 to December 2019. That it disputed the findings and responded that:a.The estimation of rent on an assumption basis was unfair and unnecessary as all supporting documents for the actual rent received were provided and were available.b.The estimated rents overstate and overestimate the rent expected and was practically impossible to achieve in the industry.c.The respondent did not need to use the banking method to arrive at the income as the rental schedules and all supporting documents therefore were provided.d.Although it disagreed with the use of the banking method, the method was still marred with errors, misjudgments and misinformation, which it failed to seek any clarifications on. Some of the errors in the banking method included, inter alia;i.Failing to consider all non-cash expenses. Not all monies received amounted to income, such as tenant's refundable security deposits.ii.Funds injected by the Shareholders/Directors being treated as a taxable income.iii.Funds moved from the banks fixed deposit into the current account.e.Salaries and wages were actual expenses incurred with the relevant supporting documents provided.f.Repairs and maintenance costs were actual expenses incurred with the relevant supporting documents provided.g.The finance cost was as a result of a loan taken before the audit period and moreover was a part of the documents illegally seized by the respondent in 2011. h.It attached the supporting documents as were agreed on at the meeting of 7th July 2021 to address all its queries in the letter of findings. That the documents provided were:i.Copies of payroll/salary schedules from 2015 to 2019,ii.P11 P.A.Y.E payment slips,iii.P10D P.A.Y.E quarterly returns,iv.returns,v.NSSF returns and payment slips,vi.NHIF returns and payment slips,vii.Muster roll books and salary payment vouchers,viii.Renovation permit approvals from the County Government when the renovations were being carried out,ix.Bank statements, andx.Tax overpayment letters and receipts.

48. That the appellant having provided all the documents and the necessary responses to address the findings by the respondent, wrote to it on various dates thereafter asking it for a final nil adjusted report as it was expected that all the issues were duly and properly addressed.

49. That on 26th January 2022, the respondent evidently in a bid to wash its hands from the issue at hand, raised an assessment against the appellant and demanded a total of Kshs. 76,369,287. 30 plus penalties and interest for the accounting period January 2015 to December 2019. ·

50. The appellant asserted that the respondent ignored all the documents provided to it, failed to mention them in its responses and ignored all resolutions of the meeting of 7th July 2021. That the respondent had at all times acted in bad faith and in a demeanour portraying unfair victimisation of the appellant and its related companies.

51. The appellant asserted that the respondent ignored all the documents provided to it, failed to mention them in its responses and ignored all resolutions of the meeting of 7th July 2021. That the respondent had at all times acted in bad faith and in a demeanour portraying unfair victimisation of the appellant and its related companies.

52. That the respondent's assessment failed to consider the meeting of 7th July 2021, discussions, meetings and documents submitted throughout the audit and moreover against the resolutions of 7th July 2021. That the respondent had never explained why the appellant’s valid documents were ignored.

53. That the respondent's letter of assessment was similar to its letter of findings dated 24th May 2021 and ignored the earlier sentiments, supporting evidence, documents and discussions between the parties in toto. That the respondent failed to give any reasons as to why its documents were ignored and how it concluded the exercise on a departure from the discussions it was having for close to two years.

54. The appellant stated that it filed a notice of objection on 23rd February 2022, objecting to the entire assessment amount of Kshs. 76,369,287. 30. That it cited the reasons of objection, attached documents and referred to documents previously submitted to the respondent.

55. That on 23rd March 2022, the respondent reviewed the appellant’s objection, dismissed its entire objection and made a decision against the appellant for additional income tax amounting to Kshs. 76,369,287. 30.

56. The appellant stated that it was aggrieved by the respondent's objection decision as the decision was grossly biased, generalised, arbitrary, excessive, unfair and against the rules of natural justice.

57. That it was evident from the chronology of events stated herein-above which portray a clear picture of the appellant's willingness, support and co-operation throughout the audit. That it had on numerous occasions provided to the respondent all the documents in support of its income and tax affairs but the respondent had made an arbitrary objection decision and failed to consider the appellant’s submissions and further failing to explain what information was missing if any. That the objection decision was made under duress and therefore haphazard and marred with misjudgments and errors.

58. The appellant further expounded on its explanations regarding specific items in the Audit as hereunder

i. Under declared Rental Income 59. That it was aggrieved by the respondent's objection decision finding that it understated its rental income by a total of Kshs. 45,287,108. 00 and wished to rely on the following grounds:-a.That the respondent arrived at its conclusion based on the "expected rental income," and not on the, "actual," rental income in contradiction to the appellant's filed accounts and further in contravention of section 6(1) of the Income Tax Act, which specifies that rental income is taxed on receipt and not on assumptions or estimations. That the appellant's declared rental income, is supported by the tenancy agreements and rent receipts.b.That the actual rental income is the true rental income earned by the appellant and the same was supported by the rent schedules, tenancy agreements rent payment receipts and other tenant documents.c.That the respondent in attendance with the appellant visited its rental property on 2nd September 2020 and the same were compared to the filed returns. That the appellant had no other sources of income to generate the alleged understated income. That the appellant provided a tabulation summary of the actual rental income it earned.d.That the respondent in its assessment and subsequent objection decision claims to have used the appellant's cash receipts method and adding bank deposits thereon to arrive at an alleged variance. That the said variance is marred with errors, misjudgments and unfair assumptions for the following reasons:i.The cash receipts method assumes that every cash receipt constituted a taxable rental income. The respondent failed to consider a sale of apartment in 2014, for which a cash payment amounting to Kshs. 5,500,000. 00 was received by the appellant in 2015. The payments received towards the sale of apartment was duly captured as other income (sale of asset) in the financial statements.ii.The cash method assumes that every cash receipt constitutes a taxable rental income. The respondent failed to consider that all its tenants are required to maintain and keep a 2-month equivalent refundable security deposit. The total refundable security deposit amounted to Kshs. 14,638,000. 00 over the period 2015 to 2019 and is not an income of the appellant.iii.The cash receipts method failed to consider that monies withdrawn from the bank for petty cash, which were earlier declared when the income was received, cannot constitute a rental income. The total withdrawals from bank to cash amounted to Kshs 6,846,802. 00 over the period 2015 to 2019 and the respondent treating the same as a rental income would amount to double taxation.iv.When adding bank deposits, a bank received (deposits) analysis failed to consider payments towards sale of flats amounting to Kshs. 56,040,000. 00 between the period 2015-2019. The payments received towards the sale of apartments were duly captured as other income (sale of asset) in the financial statements and do not constitute a taxable rental income and should have been deducted from the respondent’s rental income analysis. The sales were properly declared and Capital Gains Tax thereon was duly remitted on all the sales in line with the Eighth Schedule of the Income Tax Act which is a final tax.v.The appellant receives its rent in cash and makes cash expenditures thereon. Any balances/surpluses are deposited into the company account. The rent received in cash having already been properly accounted for cannot therefore amount to an additional taxable income by virtue of it now being deposited into the bank. Considering such entries as rental income would therefore amount to double taxation. The appellant deposited a total of Kshs. 94,523,000. 00 which sum was deposited into its bank account from rent received in cash.vi.The bank received (deposits) analysis failed to consider bank transfers which were initially fixed deposits with the bank and transferred to the current account and therefore cannot constitute income. The appellant transferred a total of Kshs 73,877,368. 00 from its fixed deposit to the current account.vii.The bank received (deposits) analysis failed to consider re-banked payments which were bankers cheques initially drawn then re-banked by the appellant for cancellation. The re-banked cheque deposits amounted to a total of Kshs.s 25,050. 00 and cannot constitute an income. The entries as indicated in the bank statements.viii.The bank received (deposits) analysis failed to consider funds received from its sister company/related party, Shamji Kalyan Pindoria Limited amounting to Kshs. 30,357,358. 00 as remitted on 15th February 2017. The entry as indicated in the bank statement and the transaction advise slip.ix.The bank received (deposits) analysis failed to consider funds received from its shareholders/director which should not constitute a taxable rental income. The shareholder, Vijaykumar Shami Patel transferred Kshs 2,700,000 on 24th February 2018. The entries as indicated in the bank statements.x.The bank received (deposits) analysis failed to consider refund of deposit held with the Kenya Power and Lighting Company Limited which was later refunded to the appellant. The appellant received a total of Kshs 4,654. 00 on 27th January 2016 and the amount cannot constitute a rental income. The amounts as indicated in the bank statements.xi.The correct banking method adjustments were provided vide the appellants objection to assessment letter dated 23rd February 2022. xii.Had the respondent made all the above considerations, it would have found that there were no variances between the cash and bank deposit analysis vis -à-vis the appellant’s declared income.e.That the expected income finding by the respondent was grossly overstated and was not in tandem with the site inspection of 2nd September 2020, where the respondent found that not all the apartments can be fully occupied over the 5-year audit period.f.That the expected income finding by the respondent was grossly overstated and was not in tandem with the legally binding tenancy agreements which provides for the monthly rent payable and runs for an 11-month term.g.That the expected income finding by the respondent was grossly overstated and was not in tandem with the site inspection of 2nd September 2020 where the respondent held interviews with the tenants and found that not all the houses can have the same rent and that they vary based on situations, negotiations and the market forces.h.That the respondent's Domestic Taxes Department, Real Estate Section looked at the appellant’s records and made enquiries of the same nature and on 6th December 2018 confirmed that the appellant's declaration of rental income was correct and that there was no under-declared income for the period 2015 to 2017. i.That the appellant had at all times submitted on the respondent's iTax portal, details of its tenants as required by law and the details included the tenant's names, KRA PIN numbers, Land Reference Numbers, physical address, postal address and the gross annual rent.j.That sometime around August 2018, the Government of Kenya through the National Environmental Management Authority, visited the appellant's rental property and earmarked its perimeter wall constructed along the adjacent river for demolition on allegations of being on the riparian reserve. That at the time of marking the appellant's boundary wall, the Authority did not seek any clarifications or question the appellant and carried out the exercise haphazardly. That as a result of the said actions, the appellant lost a large number of its tenant's for fear of having the property destroyed. That the appellant even wrote to the respondent on 27th August 2018 to inform it that it has lost revenue due to these actions and would therefore have a reduced profit for that year.k.That the appellant has further in support of the declared rental income attached the receivables ledger indicating the rental income and sale of apartments funds received during the audit period from January 2015 to December 2019. l.That the appellant in support of the rent received in the bank, amounted to Kshs.500,000. 00 and Kshs.267,000/= in 2015 and 2016, respectively. That these were the only rent payments made by tenants to the appellant through its bank account.m.That the true and correct gross rental income earned by the Company from January 2015 to December 2019 is therefore Kshs. 201. 598,768. 00 as was declared on its filed returns.

a. Unsupported Repairs & Maintenance 60. That the appellant was aggrieved by the respondent's Objection decision finding that its entire claim for expenses were unsupported, as they were not confirmed by the suppliers/workmen and wishes to rely on the following grounds:i.That the appellant's claims for expenses were fully supported with an official receipt, cheque payment copies (where applicable), national identity card numbers and PIN numbers as required by law. That the respondent had notice of the sameii.That the respondent was supplied with a schedule and copies of every single receipt or voucher in support of its claim for expenses. That the respondent has notice of the same and allegations that the suppliers and workmen never responded are hearsay, not anchored in any law of the land and cannot therefore be a qualifying condition for claiming expenses under the Income Tax Act, Tax Procedures Act or any other provision of the law.iii.That the expenditure incurred by the appellant were necessary to maintain the property in a habitable and marketable status and critical in enabling the appellant maintain its income.iv.That the appellant, in support of the expenses claimed, has provided the respondent the following;a.Spreadsheets of schedules of each individual expense incurred totalling to 4,979 entries of expenses,b.Physical verification of the individual receipts, vouchers and contracts at the appellants offices,c.Bank statements showing payments towards expenses paid by cheque.d.Renovation permits applied and obtained from the county governments as the works were being carried out from time to time.v.That the respondent in disallowing the appellant's claimed expenses was grossly misinformed and is not in tandem with the site inspection of 2nd September 2020, where the respondent saw and took photographs of the repair and maintenance works being carried out at appellant's rental premises.vi.That the respondent's claim that the suppliers and workers carrying out the works did not provide responses/confirmations that they worked for the appellant are neither here nor there, as the respondent's failure to receive a confirmation does not negate the fact that the expenses were actually incurred. That the same cannot be a basis of disallowing the expenditure and are based on several factors as detailed in the minutes of the meeting of 7th July 2020 and as reiterated through its communications to the respondent.vii.That the respondent in disallowing the appellant's claimed expenses is grossly misinformed and is not practically possible as no rental property can be maintained without the services of waste collection, plumbing repairs, electrical repairs, woodwork repairs and other day to day repairs of the premises in order to keep it serviceable for the general market.viii.That the respondent's Domestic Taxes Department, Real Estate Section looked at the appellant’s records and made enquiries of the same nature and on 6th December 2018 confirmed that the appellant's claimed expenses were verified against the invoices and contracts and found to be fully supported for the period 2015 to 2017. ix.That the appellant has incurred and has supporting documents towards its claim of repairs and maintenance expenses amounting to Kshs.45,387,870. 00 for the period 2015 to 2019 and should therefore not be disallowed.

iii. Unsupported Salaries & Wages 61. The appellant was aggrieved by the respondent's objection decision finding that it had claimed for salaries and wages which were unsupported and wished to rely on the following grounds:-i.That the appellant's claims for salaries & wages were fully supported and the respondent had notice of the same.ii.That the appellant, in support of the salaries and wages claimed has provided the respondent the following.a.Schedules of the employee schedules from 2015 to 2019,b.Duly signed petty cash vouchers on payment of the salaries,c.Payment of NSSF and NHIF for its employees from 2015 to 2019,d.Copies of the Master roll books from 2015 to 2019,e.P11 & P10D payment slips for 2015 where employees payments were erroneously omitted from its findings.iii.That the appellant filed its PAYE returns through the manual filing system up to July 2015 upon introduction of the iTax system thereafter. That the respondent does not have any grounds of disallowing the same.iv.That the respondent had only made consideration for employees within the PAYE tax bands of Kshs, 24,000. 00 and above and had omitted those below the same and therefore arriving at an erroneous finding.v.That the respondent disallowing the appellant's claimed salary and wages expenses were grossly misinformed and were not in tandem with the site inspection of 2nd September 2020 where the respondent saw and took photographs of the said workers at each premises.vi.That the appellant incurred and have supporting documents towards its claim of salaries and wages expenses amounting to Kshs. 99,553,525. 00 for the period 2015 to 2019.

iv. Unsupported Finance Cost 62. The appellant was aggrieved by the respondent's objection decision finding that it had claimed finance costs which were not supported by any documents or evidence. That the same was untrue and the appellant wished to oppose the same as follows:i.That the respondent found that the appellant brought forward a loss of Kshs.37,428,655. 00 in 2015 and only Kshs. 25,837,308. 00 be allowed. The purported adjustment was made through the "back door," as the same was beyond the scope of the respondent's audit which only covered the period 2015 to 2019. ii.That the finance was acquired many years ago to fund the construction of the appellant's rental property (the property herein) and the finance cost is brought forward from the financial year 2014 and does not constitute a part of the audit.iii.That the appellant had clearly indicated to the respondent in the meetings and vide its communication that it had no loans for the audit period as it was acquired before the audit period.iv.That the respondent was well aware that the finance was acquired many years back and the documents in support of the acquisition were illegally in the possession of the respondent. That the said issue had already been deliberated on by the courts of Kenya vide Civil Suit no. 1108/2011 and the respondent was yet to abide by the orders of the Honourable Court. That the respondent had never appealed against the order and as such remains in force and valid.v.That the appellant in line with section 23(1)c of the Tax Procedures Act was not obligated to retain documents for a period exceeding Five (5) years and as such the respondent did not have the mandate to request for the same.vi.That the respondent was attempting to use the "back door" to disallow the finance cost and it was why the respondent adjusted the loss brought forward, which is an adjustment to the derivative and did not adjust the actual expense.vii.That the appellant capitalised the foreign debt in favour of the lender prior to the audit period and an exchange loss was realized. The expense claimed was as a result of the loss on capitalisation of the debt. A stamp duty payment of Kshs. 1,000,000. 00 was paid and despite the respondent's allegations that no documents were provided in support, copies of the stamp duty payment, the annual company returns for 2014 and the board resolutions were provided to the respondent despite its reservations.viii.That the appellant had therefore justified and was entitled to the claim of finance cost.

63. That therefore the respondent's tax computation misstated the loss brought forward in 2015 which should have amounted to Kshs. 37,428,655. 00 and not Kshs. 25,837,308. 00 as erroneously indicated.

64. That Ground 2. 1.4 of the respondent's decision is erroneous as it claims to have adjusted its findings where the appellant provided documents and responses. That the chronology of events clearly shows that the letter of findings, letter of objection and Objection decision are all based on the same narrative and arrive at the same erroneous conclusion.

65. The appellant stated that the objection decision by the respondent was fatally defective as it did not provide the statement of findings as required by the Tax Procedures Act, 2015.

66. The appellant stated that the objection decision by the respondent was fatally defective as it did not provide the statement of findings as required by the Tax Procedures Act, 2015.

67. That the appellant had neither refused to provide documents to the respondent nor had it failed to cooperate with the respondent and puts the respondent to strict proof thereof.

68. The appellant averred that the respondent had a legal obligation to, but had at all times failed to keenly complete the audit and the appellant had to always prompt the respondent to complete the audit and the respondent had only responded to the appellant haphazardly and without consideration of the detailed information and documents it had always provided.

69. That it is trite law that the respondent should always act in a fair manner and justify its actions and demands. That however, the respondent had proceeded to make unfair and unjustifiable demands then hand the baton over to the appellant in a manner such as to frustrate the appellant.

Appellant’s Prayers 70. The appellant prayed that:a.The objection decision by the respondent dated 23rd March 2022 be annulled and set aside in its entirety.b.That pending the hearing and determination of this Appeal, there be a stay affecting the implementation of the objection decision.c.That the Appeal be allowed with costs to the appellant.d.The Honourable Tribunal makes any other order as it deems just and reasonable.

Respondent’s Case 71. The respondent’s case is premised on the hereunder filed documents and proceedings before the Tribunal:1. The respondent’s Statement of Facts dated 31st May 2022 and filed on the same date together with the documents attached thereto.2. The respondent’s Supplementary Statement of Facts dated 15th August, 2022 and filed on 16th August, 2022 together with the documents attached thereto.3. The respondent’s written submissions dated 13th January 2023 and filed on the same date together with the authorities attached thereto.

72. The respondent stated that it commenced investigations against Viraj Development Limited on or about May 2020 seeking to establish the following:-i.Whether the appellant declared all taxable income earned for the period under review.ii.Whether appellant accounted for all taxes due for the period under reviewiii.Assess, demand and collect taxes established from the investigations.

73. That the investigations covered the period between January 2015 and December 2019 for Corporation tax and PAYE.

74. The respondent averred that in carrying out the investigations, it sought and considered information and documents including the following:a.appellant's filed tax returns, ledgers and data generated from Jaspersoft for analysis for the period under reviewb.appellant's registration details (CR12) from the Registrar of Companiesc.Copies of bank statements from various banks (Prime Bank -Hurligham Branch Acc. No. 3000157415 and Prime Bank - Hurligham Branch Acc. No. 3000071112) to establish taxable income.

75. The respondent stated that the appellant earns rental income from Viraj Villas located in Kileleshwa, Nairobi. That the development was started in 2005 and completed in 2008. That the respondent's officers visited the appellant's property and they established the appellant’s ownership apartments in the property.

76. That the respondent considered the appellant's banking information from the bank account statements obtained from Prime Bank Limited and established bank deposits amounting to Kshs. 314,408,857. 00.

77. That the respondent compared the amount received in the bank and the amounts declared in the Corporation tax returns.

78. That a review of the deposits made at Prime Bank revealed that the appellant earned Kshs. 257 Million for the period January 2015 to December 2019.

79. That however, this figure differed from the turnover and proceeds or sales declared in the income tax returns for the same period. That the total income declared in the income tax returns and proceeds from disposal of assets for the same period was Kshs. 269 Million, therefore, the variance established was (Kshs. 11 Million).

80. The respondent contended that to determine the accuracy of income declared in the income tax returns, it adopted the cash expense approach and the number of units approach.

81. The respondent stated that in this approach, it assumed that the appellant paid for the expenses from the cash received from the tenants then banked the balance. That therefore, to arrive at the annual rent income earned, the investigating team added the cash expenses to the bank deposits.

82. It averred that adjustments were made for net debtors, proceeds from disposal of property and interest income and non-cash expenses like depreciation and bad debts. That expected rental income was then compared to income declared in the income tax returns.

83. That the variance established was treated as under declared and was added back in computing corporation tax due.

84. On Capital Gains Tax, the respondent stated that the appellant sold a total of eight apartments between the 2014 and 2018. That in the period where CGT is chargeable, that is 2015 onwards, four apartments were sold between 2015 and 2018.

85. That data extracted from the DWBI tool and from iTax match the sale agreements provided. That the data also show that the appellant accounted for and made payments for CGT.

86. That upon conclusion of the tax investigations, the respondent communicated its findings on 7th July 2021 to the appellant through a letter dated 24th May 2021 which established tax due as Kshs. 68,153,945. 00.

87. That the appellant, based on ten grounds, disputed the respondent's findings through a letter dated 4th August 2021 objecting the respondent's investigations findings in totality.

88. The respondent submitted that it considered the appellant’s objection to the findings and made the necessary adjustments. That in order to determine expected income, income received in cash was added to bank deposits and adjustments made. That computed expected income was then compared with turnover declared, to obtain undeclared income.

89. That consequently, on 26th January 2022, the respondent issued a tax assessment of Kshs. 76,369,287. 30 on Corporation tax only. That in response, the appellant lodged its notice of objection on 23rd February 2022.

90. The respondent averred that it considered the grounds raised in the notice of objection, the documentation and further information provided in support and issued its objection decision on 23rd March 2022. That the appellant being dissatisfied with the respondent’s decision lodged this Appeal.

91. In response to the appellant’s grounds of Appeal, the respondent contended that it considered all of the appellant’s submissions in interviews, review meetings, site inspections, document verification meetings and documentation provided.

92. That even though the appellant alleged that these submissions were not considered, it failed to provide the list of the documents or submissions which the respondent ignored. That this ground as it is, is very vague and thus not valid because it was not backed by any proof or evidence.

93. Regardingsection 6(1) of the Income Tax Act, the respondent stated that during investigations it noted that there was a variance between the bankings and the income declared as per the rental income tax returns. That this was due to the under declared number of units and the cash received from the tenants which were not deposited in the appellant's bank accounts.

94. That to determine the appellant's actual income, the respondent used cash receipt approach (respondent's best judgment based on information available) to determine the appellant's rental income.

95. That in the circumstances, the cash receipts as captured in the petty cash ledgers and as corroborated further by transfers from petty cash to the bank as captured in the bank statements, the respondent added rent received in cash to bank deposits and made appropriate adjustments in order to ascertain taxable income.

96. The respondent averred that to arrive at the appellant's rental income, the respondent considered amongst other things provided; the tenancy agreements, rent receipts, rent schedules and audited accounts. That it also visited the appellant Apartments which upon study noted that the appellant had under declared the number of units indicated in the rental income tax returns.

97. That in order to determine expected income, the respondent added income received in cash to bank deposits and adjustment made. That the respondent then compared computed expected income with turnover declared to obtain undeclared income.

98. On disallowed loss brought forward, the respondent stated that in the 2014 audited accounts, the appellant claimed a finance cost of Kshs. 11,591,347. 00 under net foreign exchange loss on borrowings.

99. The respondent averred that it requested for documentation supporting the loan and the appellant responded in a letter dated 7th September 2020 stating that it had no external loans.

100. That the respondent therefore added back the expense claimed and charged for income tax. That in the absence of the supporting documents, the respondent was justified to disallow the expenses claimed.

101. Regarding unsupported repairs and expenses, the respondent stated that it established that the alleged expenses on repairs and maintenance were not wholly supported. That for the supported expenses the respondent allowed it in calculating the taxable income.

102. That the alleged payments to suppliers and labourers were made in cash and the respondent could not trace any payments from the bank statements.

103. The respondent stated that it therefore concluded that the appellant over claimed expenses so that it can reduce tax payable. The respondent therefore disallowed the total cost claimed as building repairs and only allowed the amounts confirmed by its suppliers and allowed for 11% of casuals extrapolated.

104. That the disallowed costs amounting to Kshs. 42,241,160. 00 were added back in computing corporation tax due as shown in the tax computation

105. On unsupported salaries and wages, the respondent contended that it considered the appellant's objection. That the respondent adjusted salaries and wages to capture amounts paid for the period January to July 2015 when the returns were being filed manually.

106. That the adjustment made saw the review of unsupported expenses from Kshs. 18,438,525. 00 in the tax investigations findings to Kshs. 8,583,525. 00 in the final assessment.

107. On under declared rental income amounting to Kshs. 183,195,095. 00 the respondent stated that it considered all the documentations and information provided by the appellant. That the allegation that it didn’t consider all and ignored others was without any proof.

108. That section 56 of the Tax Procedures Act, 2015 requires the appellant to prove that the respondent's decision is incorrect and the appellant has not discharged that burden.

109. The respondent insisted the appellant did not support its expenses wholly and that it did not declare the whole of its income. That similarly, there were under declared number of units in the appellant's apartment which resulted to under declared income and thus under declared tax payable.

110. That in the circumstances, it cannot be said that the appellant had properly declared its rental income and expenses.

111. The respondent further stated that it reviewed the appellant's PAYE returns in order to establish the accuracy of the amount claimed as salaries and wages expense.

112. That it then compared the salaries paid to the figures claimed in the audited accounts and then treated the variance noted as over claimed expenses, which were then added back in computing the tax payable.

113. The respondent therefore urged the Tribunal to find that the Appeal is without merit and the same should be dismissed with costs to the respondent.

114. The respondent relied on the following provisions of the law:a.Sections 31 and 56 of The Tax Procedures Act, 2015b.Sections 3, 6, 15 and 16 of the Income Tax Act

respondent’s Prayers 115. The respondent prayed that the Tribunal finds that:i.The respondent's objection decision dated 23rd March, 2022 be upheld.ii.The Appeal be dismissed with costs

Issues for Determination 116. The Tribunal upon due consideration of the pleadings and the written submissions filed on the separate parts of the parties was of the considered view that the Appeal herein raises only one issue for its determination namely; Whether the respondent was justified in confirming the Assessments.

Analysis and Findings Whether the respondent was justified in confirming the Assessments. 117. The genesis of this dispute was the respondent’s investigations, assessments and the subsequent objection decision dated 23rd March 2022 confirming tax liability totalling Kshs 76,369,287. 30 being Corporation tax. According to the respondent, the investigations covered the period between January 2015 and December 2019 for Corporation tax and PAYE.

118. It was not in dispute that the appellant was in the business of real estates and during the audit period it earned rental income from Viraj Villas located in Kileleshwa, Nairobi.

119. The respondent stated that it compared the amount received in the bank and the amounts declared in the Corporation tax return. That a review of the deposits made at Prime Bank revealed that the appellant earned Kshs. 257 Million for the period January 2015 to December 2019.

120. That however, this figure differed from the turnover and proceeds or sales declared in the income tax returns for the same period. That the total income declared in the income tax returns and proceeds from disposal of assets for the same period was Kshs. 269 Million, therefore, the variance established was for a sum of Kshs. 11 Million.

121. The respondent further stated that during investigations it noted that there was a variance between the bankings and the income declared as per the rental income tax returns. That this was due to the under declared number of units and the cash received from the tenants which were not deposited in the appellant's bank accounts.

122. The respondent contended that to determine the appellant's actual income, the respondent used cash receipt approach (respondent's best judgment based on information available) to determine the appellant's rental income.

123. The appellant on its part submitted that the respondent arrived at its conclusion based on the "Expected Rental Income," and not on the, "Actual," rental income in contradiction to the appellant's filed accounts and further in contravention of section 6(1) of the Income Tax Act, which specifies that rental income is taxed on receipt and not on assumptions or estimations. That the appellant's declared rental income, is supported by the tenancy agreements and rent receipts

124. The appellant in its pleadings explained that the cash method used by the respondent assumed every cash in the bank constituted a taxable rental income. The appellant cited entries in the bank that were not rental income and for which the respondent failed to give due consideration while tabulating rental income. Among these included the following;a.Kshs. 5,500,000. 00 received in the year 2015 being proceeds of sale of apartment.b.Kshs. 14,368,000. 00 being refundable security deposit by its tenants.c.Kshs. 6,846,802. 00 being monies withdrawn from the bank as petty cash that had earlier been declared when income was received.d.Kshs. 56,040,000. 00 being payment towards sale of flats between 2015-2019 to which CGT had been accounted for and duly paid.e.Rent received in cash and accounted for and spent then the balance banked. That this amounted to Kshs. 94,523,000. 00 during the audit period and cannot be considered taxable rental income

125. The appellant added that expected income finding by the respondent was grossly overstated and was not in tandem with the site inspection of 2nd September 2020, where the respondent found that not all the apartments had been fully occupied over the 5-year audit period.

126. The Tribunal noted that to support its arguments, the appellant attached, inter alia, a bundle of copies of tenancy agreements with its tenants, cash receipts for the rents received, rent schedules, bank statements. In particular, the Tribunal noted from the tenancy agreements that at Clause 1. 3 it states as follows:“1. 3To deposit with the landlord and thereafter to maintain deposited a sum equivalent to Two (2) months of rent, which at the time of executing this agreement will be the sum of Kenya Shillings……./= (Hereinafter called “the deposit sum”) deposit as security against the tenant’s compliance with the terms of this Agreement”

127. From the above provision in the tenancy agreements and the payment receipts attached by the appellant it was clear to the Tribunal that the tenants in the appellant’s apartment were required to make a refundable deposit equivalent to two month’s rent upon execution of the agreements. The respondent however did not explain how these amounts were treated given that clearly they were not income to the appellant for purposes of tabulating of Corporation tax.

128. The appellant further raised issue with the treatment as income on amounts it received from its fixed deposit accounts, cash from its directors and related parties, in respect of which it attached the bank transfer slips and bank statements to support its arguments.

129. Regarding unsupported repairs and expenses, the respondent stated that it established that the alleged expenses on repairs and maintenance were not wholly supported.

130. That the alleged payments to suppliers and labourers were made in cash and the respondent could not trace any payments from the bank statements.

131. The respondent stated that it concluded that the appellant over claimed expenses so that it can reduce tax payable. The respondent therefore disallowed the total cost claimed as building repairs and only allowed the amounts confirmed by the suppliers and allowed for 11% of casuals extrapolated.

132. That the disallowed costs amounting to Kshs. 42,241,160. 00 were added back in computing corporation tax due as shown in the tax computation.

133. On unsupported salaries and wages, the respondent contended that it considered the appellant's objection. That the respondent adjusted salaries and wages to capture amounts paid for the period January to July 2015 when the returns were being filed manually.

134. That the adjustment made saw the review of unsupported expenses from Kshs. 18,438,525. 00 in the tax investigations findings to Kshs. 8,583,525. 00 in the final assessment.

135. The appellant on its part averred that expenditure incurred by the appellant were necessary to maintain the property in a habitable and marketable status and critical in enabling the appellant maintain its income.

136. Further, on salaries and wages the appellant stated that the respondent had only made consideration for employees within the PAYE tax bands of Kshs, 24,000. 00 and above and had omitted those below the same and therefore arriving at an erroneous finding.

137. To support its arguments, the appellant attached copies of payroll, muster roll, National Identity cards and PIN for workers, NSSF and NHIF payment slips, Receipts, petty cash vouchers, bank statements, renovation permits, and details of payments by cheques to explain the expenditures made on its part.

138. The Tribunal notes that under the current legislation, the obligation placed on the appellant is to provide proof of expenditure in form of documentary evidence. This is provided for under section 56(1) of the Tax Procedures Act which provides as follows:“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect”

139. In the instant case the Tribunal noted that although the respondent had averred that some of the suppliers and workers in the list provided by the appellant did not confirm working for the appellant, it did not dispute the authenticity of the bulky documents attached by the appellant in support of this Appeal. These are some of the documents the appellant averred and demonstrated the date on which and manner in which it had served the respondent with the documents during investigations, assessments and objection process.

140. 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 the 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 it 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.”

141. It is not in doubt that under section 56 of the Tax Procedures Act and section 30 of the Tax Appeals Tribunal Act the burden of proof in an Appeal lies on the taxpayer. It is however the understanding of the Tribunal, that once the taxpayer puts forward the relevant facts, circumstances and documents, the burden must shift to the respondent to rebut the proof put forward by the appellant.

142. In Mbuthia Macharia vs. 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”?

143. It was the Tribunal’s view that the appellant had provided sufficient evidence in form of documentation in support of its averments that the tax assessments were wrong.

144. Consequently, the Tribunal finds that the respondent was not justified in confirming the tax assessments.

Final Decision 145. The upshot of the foregoing is that the Appeal is merited and the Tribunal accordingly proceeds to make the following orders:-a.The Appeal be and is hereby allowed,b.The Objection decision dated March 23, 2022be and is hereby set aside,c.Each party to bear its own costs.

146. It is so ordered.

DATED AND DELIVERED AT NAIROBI THIS 9TH DAY OF JUNE, 2023. ……………………………………ERIC NYONGESA WAFULACHAIRMAN…………………………………..CYNTHIA B. MAYAKAMEMBER.................................GRACE MUKUHAMEMBER…………………………………..ABRAHAM KIPROTICHMEMBER.....................................JEPHTHAH NJAGIMEMBERJUDGMENT- APPEAL NO. 449 OF 2022 – VIRAJ DEVELOPMENT LIMITED–VS- COMMISSIONER OF INVESTIGATIONS AND ENFORCEMENT PG 54 OF 54