Judgment summary
The Tribunal heard an appeal by IM Bank Limited against an Objection Decision of the Kenya Revenue Authority dated 19th September 2025, which arose from a compliance review of the Appellant's 2019 year of income (paras 1-14).
The Appellant challenged the validity of the underlying assessment process, comprising an iTax Assessment Order of 16th June 2025, excel workings of 17th June 2025, and a letter of 1st July 2025, and also challenged the disallowance of Kshs. 1,313,248,000.00 treated by the Respondent as untraceable bad debts written off (paras 15, 84).
The Tribunal found that the iTax Assessment Order of 16th June 2025 was a valid amended assessment satisfying Section 31(8) of the Tax Procedures Act and issued within the five-year period prescribed by Section 31(4)(b)(i), one day before expiry (paras 93-94, 114).
The excel workings were found not to be an assessment, and the letter of 1st July 2025 was found to communicate reasons for an assessment already made rather than to constitute a fresh, time-barred assessment (paras 101, 108-114).
On the bad debts issue, the Tribunal reconciled the allowance and gross exposure columns of Note 5(a)(iii) of the Appellant's audited financial statements and found that the disputed sum of Kshs. 1,313,248,000.00 was a write-back of provision rather than a bad debt written off, that it yielded no deduction, and that the Respondent had erred in disallowing it (paras 118-139).
The Appeal was allowed, the Objection Decision of 19th September 2025 was set aside, and each party was ordered to bear its own costs (para 140).
Background
The Appellant is a limited liability company licensed to carry on banking business under the Banking Act and regulated by the Central Bank of Kenya (para 1). The Respondent is established under the Kenya Revenue Authority Act to assess, collect and account for revenue (para 2).
The Appellant filed its self-assessment return for the year of income 2019 on 17th June 2020 (para 3). The Respondent conducted a compliance review, sharing preliminary findings on 14th March 2025 and holding reconciliation meetings with the Appellant (para 4).
An iTax Assessment Order dated 16th June 2025 raised additional Income Tax – Company of Kshs. 1,316,267,093.64 incremental tax and Kshs. 960,874,978.36 interest, totalling Kshs. 2,277,142,071.99 (para 5). On 17th June 2025 the Respondent transmitted excel 'Preliminary Findings 2019' showing a different total of Kshs. 1,963,329,959.00 (para 6).
A letter dated 1st July 2025 titled 'Notice of Assessment for the Period 2019' set out six adjustment heads totalling Kshs. 4,602,491,460.00, with resultant taxes of Kshs. 2,342,955,426.00 (paras 7-8). The Appellant objected on 23rd July 2025 (para 9).
The Objection Decision dated 19th September 2025 partially allowed the objection, leaving only two adjustments: a brokerage cost of Kshs. 1,670,834.00 (Kshs. 965,742.00 inclusive of penalty and interest) attributable to exempt infrastructure bond income, and Kshs. 1,313,248,000.00 treated as untraceable bad debts written off, generating further tax, penalty and interest of Kshs. 713,093,664.00 (paras 10-12). Overall liability was placed at Kshs. 714,000,927.00 (para 12).
The Appellant paid the undisputed tax of Kshs. 965,742.00 on 29th October 2025 under Section 52(2) of the Tax Procedures Act, reserving its rights on the remainder, and filed its Notice of Appeal on 3rd November 2025 (paras 13-14).
Core dispute
The Appeal distilled into two issues: whether the Respondent issued a valid amended assessment for the year of income 2019 within the period prescribed by Section 31(4)(b)(i) of the Tax Procedures Act, and whether the Respondent erred in disallowing Kshs. 1,313,248,000.00 as bad debts written off (para 84).
On the first issue, the Appellant argued that the iTax Assessment Order was too bare to constitute a valid assessment, that the excel workings were a draft document, and that the letter of 1st July 2025, which first carried reasons, was issued outside the five-year limitation and therefore time-barred, null and void (paras 18-27, 44-47).
The Respondent maintained that the iTax Assessment Order issued on 16th June 2025 was the operative assessment, complied with Section 31(8) of the Tax Procedures Act, and fell within the five-year period, with the subsequent correspondence merely clarifying that assessment (paras 53-56, 68-70).
On the second issue, the Appellant contended that the disputed sum was a write-back of provision rather than a bad debt written off, relying on Note 5(a)(v) of its audited financial statements and the transitional effect of IFRS 9, and argued that taxing it would amount to double taxation (paras 31-42).
The Respondent maintained that only Kshs. 698,298,000.00 of the write-offs from provision could be traced through the profit and loss account, and that the balance of Kshs. 1,313,248,000.00 remained unsupported and disallowed, placing the evidential burden on the Appellant under Section 56(1) of the Tax Procedures Act (paras 58-82).
Court findings
The Tribunal found that the iTax Assessment Order dated 16th June 2025 corresponded to every particular required by Section 31(8) of the Tax Procedures Act, including the amount of tax, penalty, interest, reporting period, due date and manner of objecting, and that it was issued one day before the five-year period under Section 31(4)(b)(i) expired (paras 89-94).
The Tribunal declined jurisdiction over the Appellant's argument based on Article 47 of the Constitution and the Fair Administrative Action Act, holding that such constitutional questions lie with the High Court, and confined itself to the requirements of Section 31(8) of the Tax Procedures Act, which does not include a standalone statement of reasons (paras 96-98).
The excel workings of 17th June 2025 were found not to be an assessment, being preliminary findings with blank remarks columns (para 101). The discrepancies in total figures across the three documents were found to be immaterial, arising mainly from the late payment penalty under Section 83(1) of the Tax Procedures Act and protected by Section 78(2)(d) of that Act, since the Appellant was neither deceived nor misled (paras 102-106).
The letter of 1st July 2025 was found to communicate the reasons for an assessment already made rather than to create a new assessment, raising no new liability, altering no reporting period and creating no fresh payment obligation (paras 109-114). The first three grounds of appeal accordingly failed (para 114).
On the bad debts issue, the Tribunal reconciled the allowance and gross exposure columns of Note 5(a)(iii) of the audited financial statements and found that the sum of Kshs. 1,313,248,000.00 represented a write-back of provision connected to the transition to IFRS 9, not a bad debt written off, and that it was traceable within the Appellant's own financial statements (paras 120-129).
The Tribunal found that the Appellant had discharged the burden under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act, shifting the evidential burden to the Respondent, which failed to produce a competing computation or reconcile the figures (paras 137-138). The Tribunal held that the Respondent erred in law and in fact in disallowing the sum and in confirming the resultant tax of Kshs. 713,093,664.00 (para 139).
Outcome
The Tribunal held that the Appeal was merited. It ordered that the Appeal be allowed, that the Respondent's Objection Decision dated 19th September 2025 be set aside, and that each party bear its own costs (para 140).
Major issues / areas of contention
- Whether the iTax Assessment Order of 16th June 2025 constituted a valid amended assessment under Section 31(8) of the Tax Procedures Act.
- Whether the assessment was issued within the five-year limitation period prescribed by Section 31(4)(b)(i) of the Tax Procedures Act.
- Whether the excel workings of 17th June 2025 or the letter of 1st July 2025 constituted a fresh, separate assessment.
- Whether discrepancies in figures across the three documents invalidated the assessment under Sections 78 and 79 of the Tax Procedures Act.
- Whether constitutional and Fair Administrative Action Act arguments on reasons for the assessment fell within the Tribunal's jurisdiction.
- Whether the sum of Kshs. 1,313,248,000.00 was a bad debt written off or a write-back of provision.
- Whether disallowing the sum would result in double taxation of an amount already accounted for in the provision movement.
- Which party bore the burden of proof regarding the deductibility and traceability of the disputed sum.