Judgment summary
The Appellant, a company providing plumbing, construction and general contracting services, was audited by the Respondent for the period 2018 to 2022 covering corporation tax, VAT and Pay As You Earn (paras 3-4). Following the audit, the Respondent issued additional assessments demanding Kshs. 46,382,896.00 inclusive of penalties and interest (para 5).
The Appellant lodged a late objection which the Respondent admitted, and the Respondent thereafter issued an Objection Decision dated 3rd November 2025 partially allowing the objection and reducing the total to Kshs. 21,778,315.10, comprising principal taxes of Kshs. 14,187,890.50, penalties of Kshs. 709,395.58 and interest of Kshs. 6,881,029.03 (para 6).
The Appellant appealed on multiple grounds, including that the 2018 assessment was time-barred, that lawful expenses had been disallowed, that an agency notice had been issued prematurely and unlawfully, and that the process breached natural justice and the in duplum rule (para 8).
The Tribunal found that the agency notice issue had already been resolved by an earlier order lifting the notice unconditionally (paras 40-42). On the merits, the Tribunal held that the Appellant had not proved the 2018 assessment was time-barred, had not discharged its burden to disprove the variances identified by the Respondent, and had not properly substantiated its expense claims or the in duplum argument. The appeal was dismissed and the Objection Decision upheld, with each party bearing its own costs (paras 49, 71-73).
Background
The Appellant is a private limited liability company incorporated in Kenya, whose principal business is plumbing, construction and general contracting services (para 1). The Respondent is appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 Laws of Kenya, and is mandated under Section 5(1) of that Act to collect and receive revenue (para 2).
By letter dated 24th April 2023, the Respondent notified the Appellant of its intention to verify tax declarations for 2017 to 2022, focusing on corporation tax, VAT and Pay As You Earn (para 3). An audit commencement letter dated 1st February 2024 confirmed a comprehensive audit covering the period January 2018 to December 2022 (para 4).
Following the audit, the Respondent issued additional assessments and, by demand notice dated 4th September 2024, demanded Kshs. 19,404,201.00 in VAT and Kshs. 26,978,696.00 in corporation tax, totalling Kshs. 46,382,896.00 inclusive of penalties and interest (para 5).
The Appellant lodged a late objection on 5th September 2025, admitted by the Respondent on 18th September 2025. The Respondent's Objection Decision dated 3rd November 2025 partially allowed the objection, reducing the demand to Kshs. 21,778,315.10 (para 6). The Appellant then filed a Notice of Appeal on 14th November 2025 (para 7).
Core dispute
The Appellant argued that the Respondent had unlawfully sought to amend self-assessed corporation tax returns for periods outside the five-year window under Section 31(4)(b)(i) of the TPA, absent wilful neglect or manifest fraud (para 8(i)). It also argued that lawful expenses, wholly and exclusively incurred in production of income, had been wrongly disallowed contrary to Section 15 of the Income Tax Act (para 8(ii)).
The Appellant further contended that an agency notice had been issued on its bank prematurely, nine days after the assessment and demand notice and before the thirty-day objection period lapsed, contrary to Sections 42(14)(b) and 51(2) of the TPA, and without according it a hearing, contrary to the audi alteram partem principle (para 8(iii)-(iv)).
Other grounds included allegations of bad faith, unreasonable enforcement, breach of the in duplum rule regarding VAT for December 2019, infringement of the constitutional right of access to justice under Article 48, and defeat of the Appellant's legitimate expectation of fair tax administration under Article 47 and Section 4(1) of the Fair Administrative Action Act (para 8(v)-(xi)).
The Respondent maintained that the assessments were properly raised under Section 31 of the TPA using available information and best judgment, that the objection had in fact been invalidly lodged under Section 51(3)(c) of the TPA for want of supporting documents, and that the Appellant had failed to discharge the burden of proof under Section 56(1) of the TPA and Section 30 of the Tax Appeals Tribunal Act (paras 29-37).
Court findings
The Tribunal first clarified that the agency notice issue had already been resolved at an earlier inter-partes hearing on 11th December 2025, where the notice dated 13th September 2024 was lifted unconditionally, rendering that ground superfluous (paras 40-42).
On time-bar, the Tribunal held that the five-year window under Section 31(4)(b)(i) of the TPA runs from the date the taxpayer submitted its self-assessment return. The Appellant did not exhibit its return, filing acknowledgement, or the additional assessment orders to establish the relevant dates, and the burden of proving a time bar rested on the Appellant. The Tribunal found that the additional assessments related to 2018 to 2022, not 2017, and that the 2018 assessment appeared to fall within the five-year window absent contrary evidence (paras 43-49).
On the objection's validity, the Tribunal rejected the Respondent's contention that the objection was invalidly lodged under Section 51(3)(c) of the TPA, holding that the Respondent could not approbate and reprobate having admitted and reviewed the objection on its merits (para 50).
On the merits of the Objection Decision, the Tribunal found that the Respondent's methodology, comparing VAT and corporation tax declarations and grossing up WHVAT certificates, was a rational analytical approach anchored on the Appellant's own declarations and third-party records, shifting the evidential burden to the Appellant (paras 51-53). For 2019 and 2021, the Appellant's own reconciliations agreed with the Commissioner's computations. For 2018, the Commissioner had already reduced the assessment, and the residual variance of Kshs. 710,481.00 was not reconciled. For 2020, an unsupported claim regarding an overstated WHVAT certificate was properly rejected. For 2022, the Appellant did not dispute the income of Kshs. 18,221,941.00 but failed to substantiate claimed expenses with audited financial statements, ledgers or primary documents (paras 55-60).
The Tribunal found that financial statements and bank statements submitted on appeal, not previously placed before the Commissioner and unaccompanied by reconciliations or submissions linking them to specific variances, did not discharge the Appellant's burden, applying the reasoning in Commissioner of Domestic Taxes v Jakoline Enterprises Limited [2026] KEHC 11141 (KLR) that a taxpayer must provide a clear, specific and indexed reconciliation rather than a document dump (paras 61-67).
On the in duplum ground, the Tribunal held that Section 38(3) of the TPA caps aggregate interest at the principal tax liability, not fifty per centum thereof, and found that interest confirmed in the Objection Decision, including for VAT December 2019 and corporation tax 2018, fell below the corresponding principal tax (paras 68-69).
On natural justice, the Tribunal found that the Appellant was notified of the verification and audit, had its late objection admitted, participated in the objection review, and secured a substantial downward adjustment, but failed to place the necessary documents before the Commissioner or the Tribunal to dislodge the residual variances (para 70).
Outcome
The Tribunal held that the Appellant failed to discharge the burden cast upon it by Section 56(1) of the TPA and Section 30 of the Tax Appeals Tribunal Act, and found that the Respondent's Objection Decision dated 3rd November 2025 was justified (para 71).
The Appeal was dismissed, the Objection Decision dated 3rd November 2025 was upheld, and each party was ordered to bear its own costs (para 72).
Major issues / areas of contention
- Whether the additional assessments for the year of income 2018 were time-barred under Section 31(4)(b)(i) of the Tax Procedures Act.
- Whether the Respondent's Objection Decision dated 3rd November 2025 was justified.
- Whether the Appellant's objection was validly lodged under Section 51(3) of the TPA.
- Whether expenses claimed by the Appellant were wrongly disallowed contrary to Section 15 of the Income Tax Act.
- Whether the agency notice issued on the Appellant's bank was lawful (rendered moot by an earlier order).
- Whether the interest charged breached the in duplum rule and Section 38(3) of the TPA.
- Whether the Appellant was condemned unheard in breach of natural justice and its legitimate expectation of fair administrative action.