Judgment summary
Anper Limited, a company dealing in importation and sale of second-hand items and clothing, appealed against an objection decision of the Commissioner of Legal Services and Border Cordination dated 25th April 2025 (paragraph 3). The dispute concerned disallowed input VAT claims for December 2020 to December 2021 and income tax for 2020 and 2021, as well as allowable expenses and treatment of interbank credits (paragraphs 5-6).
The Respondent contested the Tribunal's jurisdiction, arguing the Appellant's objections were lodged out of time under Section 51(2) of the TPA without leave under Section 51(6) and (7) (paragraphs 17, 25-26). The Tribunal found that the letter dated 28th August 2024, relied on by the Respondent, was a pre-assessment notice and not a tax decision, so the objections could not be said to be late (paragraphs 28-30). The Tribunal therefore held that it had jurisdiction (paragraph 31).
On the merits, the Tribunal found that the Appellant had not proven it supplied the documents requested by the Respondent, including sales ledgers, purchase ledgers, expense records, employee records and contracts/LSOs (paragraphs 33-36). The Tribunal held that the Appellant had failed to discharge its burden of proof under Section 56(1) of the Tax Procedures Act (paragraphs 38-39). The appeal was dismissed and the objection decision upheld, with each party bearing its own costs (paragraph 41).
Background
The Appellant is a limited liability company incorporated in Kenya under the Companies Act, dealing in importation and sale of second-hand items and clothing, mainly from the United Kingdom (paragraph 1). The Respondent is the principal officer appointed under section 13 of the Kenya Revenue Authority Act, responsible for collection and administration of tax laws (paragraph 2).
The Appellant was audited and issued with a notice of additional assessment. It objected via notices dated 26th February 2025 and 7th March 2025. The objections were disallowed by an objection decision dated 25th April 2025 (paragraph 3). The Appellant then appealed to the Tribunal (paragraph 4).
Core dispute
The Appellant argued that the Respondent erred by disallowing its input VAT claims for December 2020 to December 2021 and income tax for 2020 and 2021 despite provision of documentation, by failing to consider allowable expenses at a rate of 50% on gross profit as unrealistic, by failing to consider expenses in the audited financial statements, by failing to consider interbank credits and transactions between directors and the company, by failing to allow adequate time for evidence submission, and by breaching Article 47 of the Constitution and Section 4(1) of the Fair Administrative Action Act, No. 4 of 2015 (paragraph 5).
The Appellant also argued that under Section 17(2) of the VAT Act, No. 35 of 2013, satisfying either condition (furnishing documentation or the supplier declaring corresponding sales) sufficed for input VAT deduction, and that it had met the first condition through submission of invoices (paragraph 7).
The Respondent maintained that it relied on bank credit analysis, ICMS customs data, and iTax returns to determine turnover, applied an estimated profit margin of 25% based on industry margins, and allowed cost of sales plus 50% of gross profit as a fair share of expenses given the Appellant's failure to provide invoices (paragraph 12). The Respondent also raised a jurisdictional objection, contending the Appellant's objections were filed out of time under Section 51(2) of the TPA without leave under Section 51(6) and (7) (paragraph 17).
Court findings
The Tribunal found that the letter dated 28th August 2024, on which the Respondent relied to allege late objections, was titled a 'pre-assessment notice' and stated that an additional or default assessment would be issued within seven days pursuant to Sections 31 and 29 of the Tax Procedures Act, 2015 (paragraph 28). The Tribunal held that this was not an assessment or a tax decision under Section 51(2) of the TPA, so the Respondent's assertion of late objection lacked evidential basis (paragraphs 29-30). Accordingly, the Tribunal held it had jurisdiction to hear the appeal (paragraph 31).
On the merits, the Tribunal noted the Respondent's letter of 17th May 2022 requested sales ledgers, purchase ledgers, company and directors' bank statements, expense records, employee records, and contracts/LSOs, but that only bank statements and financial statements for 2021 and 2022 were provided (paragraphs 33-34). The Tribunal found the Appellant had not proven it supplied sales ledgers, purchase ledgers, expense records, employee records, or contracts/LSOs (paragraph 36).
Citing Section 59 of the TPA on the Commissioner's power to require documents, and Section 56(1) of the TPA placing the burden of proof on the taxpayer, the Tribunal held that the Appellant failed to discharge its burden of proving the tax decision was incorrect (paragraphs 37-39). The Tribunal relied on Mugo v Commissioner of Domestic Taxes (TAT E918 of 2024) KETAT 374 (KLR) in support of this finding (paragraph 38).
Outcome
The Tribunal held that the appeal lacked merit and dismissed it. The Respondent's Objection Decision dated 25th April 2025 was upheld. Each party was ordered to bear its own costs (paragraph 41).
Major issues / areas of contention
- Whether the Tribunal had jurisdiction to hear and determine the dispute, given the Respondent's contention that the Appellant's objections were filed out of time under Section 51(2) of the TPA without leave under Section 51(6) and (7).
- Whether the letter dated 28th August 2024 constituted a valid tax decision or was merely a pre-assessment notice.
- Whether the Respondent's assessment, disallowing input VAT and certain expenses, and applying a 50% expense rate on gross profit, was justified.
- Whether the Appellant discharged its burden of proof under Section 56(1) of the Tax Procedures Act by showing it had supplied the documents requested by the Respondent.