Judgment summary
The Tax Appeals Tribunal considered an appeal by Future Smart Office Solution Limited against an objection decision of the Commissioner Investigation and Enforcement dated 2 March 2026, which upheld an income tax and VAT assessment of Kshs 2,350,787 for the years 2020 to 2024.
The Tribunal examined whether the Respondent was justified in invalidating the Appellant's notice of objection and confirming the assessment. It found that the Respondent had not produced evidence of a written notice of invalidation under Section 51(4) of the Tax Procedures Act (TPA), nor evidence that the Appellant had conceded a Kshs 159,521 VAT liability for 2022.
The Tribunal held that the Respondent erred in invalidating the notice of objection and confirming the assessment, and allowed the appeal, setting aside the objection decision and remitting the matter to the Respondent for reconsideration.
Background
The Appellant is a private limited liability company incorporated under the Companies Act CAP 486, carrying on the business of sale and servicing of office equipment (para 1).
The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469, with the Kenya Revenue Authority mandated under Sections 5(1) and 5(2) of that Act to assess, collect and account for revenue (para 2).
The Respondent commenced investigations in 2025 after receiving a complaint from Tripple Five Spares Limited, which alleged it had received a demand letter for sales it had not made to the Appellant for October to December 2022, with a taxable value of Kshs 997,005 (para 14). The Respondent issued notices to produce records and invitations to meetings on 9th, 16th, 18th and 22nd September 2025, requesting supplier statements, contracts, invoices and bank account details (paras 15 to 17).
Following preliminary tax findings dated 18 November 2025 and the Appellant's response dated 24 November 2025, the Respondent made adjustments relating to inheritance, sale of land, dividends, loans, and medical and business expenses, and issued a notice of tax assessment dated 24 December 2025 for the years 2020 to 2024 amounting to Kshs 2,350,787 (paras 3, 18).
The Appellant objected on 15 January 2026. On 21 January 2026, the Respondent informed the Appellant by email that the objection did not meet the requirements of Section 51(3) of the TPA and invalidated it, advising the Appellant to lodge a valid objection (para 4). The Respondent asserted the Appellant conceded a Kshs 159,521 VAT liability for 2022 on 22 January 2026, but maintained the objection remained invalid because the undisputed amount had not been paid or a payment plan agreed (para 23). The Appellant was given seven days by email dated 16 February 2026 to lodge a valid objection but, according to the Respondent, failed to do so (para 24). The Respondent issued an objection decision dated 2 March 2026 upholding the assessment (para 25). The Appellant filed a notice of appeal dated 6 May 2026 (para 5).
Core dispute
The issue for determination was whether the Respondent was justified in invalidating the notice of objection and confirming the assessment (para 37).
The Appellant argued that the assessment and objection decision were punitive and made in bad faith, that the Respondent failed to consider supporting documents and evidence, that the objection decision would result in double taxation as the Appellant had amended its returns, that the objection decision was issued without proper invalidation or request for specific additional documents, that the Respondent disregarded the nature of the Appellant's business, that genuine revenue expenses were wrongly disallowed contrary to Section 15 of the Income Tax Act CAP 480, and that the Respondent breached Article 47 of the Constitution of Kenya and Section 4 of the Fair Administrative Action Act 2015 (para 6).
The Respondent contended that the assessments were properly made under Section 31(1) of the TPA using best judgment based on available information, that the objection was invalidly lodged under Section 51(3) of the TPA because the Appellant failed to pay the undisputed amount or provide supporting documentation, and that the burden of proof under Section 56 of the TPA and Section 30 of the Tax Appeals Tribunal Act Cap 469A rested on the Appellant, who failed to discharge it (paras 27 to 35).
Court findings
The Tribunal set out the requirements for a validly lodged notice of objection under Section 51(3) of the TPA, namely that the notice states the grounds of objection precisely, that undisputed tax has been paid or an extension applied for, and that relevant documents have been submitted (para 41).
The Tribunal noted that Section 51(4) of the TPA requires the Commissioner to notify the taxpayer in writing within fourteen days where an objection has not been validly lodged, and to request further information within seven days, failing which the Commissioner may issue an objection decision under Section 51(4A) (paras 42 to 43).
Referring to Commissioner of Domestic Taxes v Imperial Industry Park Company Limited [2025] KEHC 4475 (KLR), Mreri v Commissioner of Domestic Taxes [2025] KEHC 1074 (KLR), and Commissioner of Domestic Taxes v WEC Lines Limited [2025] KEHC 12589 (KLR), the Tribunal emphasised that the Commissioner must communicate invalidity in writing within the prescribed period, failing which the objection may be deemed valid, and that fair administrative action under Article 47 of the Constitution must be respected (paras 44 to 46).
The Tribunal found that the Respondent did not file evidence showing that the written notice under Section 51(4) was issued, and did not prove that the Appellant had conceded the Kshs 159,521 VAT liability for 2022 (paras 47, 50).
On the burden of proof, the Tribunal held that while Section 56(1) of the TPA places the burden on the taxpayer, this burden is not static and may shift to the Respondent, citing Republic v Kenya Revenue Authority; Proto Energy Limited (Exparte) [2022] KEHC 5 (KLR) and Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) [2022] KEHC 9927 (KLR) (paras 51 to 52).
The Tribunal concluded that the Respondent failed to demonstrate that it fairly dealt with the notice of objection, and that the Appellant demonstrated the Respondent erred in invalidating the notice of objection and confirming the assessment (paras 53 to 54). Having erroneously invalidated the objection, the Respondent had not considered it on its merits, and the Tribunal declined to consider the substance of the objection itself, as this would interfere with the Respondent's mandate under Section 51(8) of the TPA (para 55).
Outcome
The Tribunal found the appeal meritorious and made the following orders: the appeal was allowed; the objection decision dated 2 March 2026 was set aside; the matter was remitted to the Respondent for consideration of the objection and issuance of an objection decision in accordance with Section 51(8) of the TPA within sixty (60) days of the judgment; and each party was to bear its own costs (para 57).
Major issues / areas of contention
- Whether the Respondent was justified in invalidating the notice of objection and confirming the assessment.
- Whether the Respondent complied with the written notification requirements of Section 51(4) of the Tax Procedures Act when declaring the objection invalid.
- Whether the Appellant had conceded a Kshs 159,521 VAT liability for 2022, affecting the validity of the objection under Section 51(3)(b) of the TPA.
- Where the burden of proof lies between the taxpayer and the Commissioner regarding the validity of an objection.