Judgment summary
Ladybird Advertising Limited appealed against additional VAT and Income Tax assessments issued by the Kenya Revenue Authority on 17th February 2025, following an objection decision dated 23rd May 2025 that rejected the Appellant's objection.
The Appellant argued that fictitious sales and input claims generated by a dishonest accountant through the eTIMS system should not form the basis of taxable income or VAT liability, and that the tax burden should fall on beneficiaries of the fictitious invoices rather than on the Appellant.
The Respondent maintained that the assessments were properly raised under the Tax Procedures Act, that the Appellant failed to provide supporting documentation, and that the objection was validly rejected for non-compliance with Section 51(3) of the Tax Procedures Act.
The Tribunal found that the Notice of Appeal was filed outside the statutory thirty-day period under Section 51(12) of the Tax Procedures Act and Section 13 of the Tax Appeals Tribunal Act, and that no extension of time had been sought or granted. The Tribunal held the Appeal to be incompetent and struck it out, without considering the substantive issues.
Background
The Appellant is a private limited company incorporated in Kenya, engaged in advertising (paragraph 1). The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469, responsible for tax collection and enforcement of tax laws under Sections 5(1) and 5(2) of the Act (paragraph 2).
On 17th February 2025, the Respondent issued additional VAT and Income Tax assessments after a return review revealed discrepancies for the periods 2019 to 2024, including VAT adjustments of approximately Kshs. 120,399,625.54 in declared principal and income tax disallowances of about Kshs. 60,799,106.00 (paragraph 3).
The Appellant lodged a formal objection on 15th April 2025, which the Respondent rejected in an Objection decision issued on 23rd May 2025 (paragraph 4). The Appellant then filed a Notice of Appeal dated 15th July 2025 and filed on 16th July 2025 (paragraph 5).
Core dispute
The Memorandum of Appeal, dated 5th November 2025 and filed on 7th November 2025, disputed that a fraudulent self-assessment could form the basis of a tax assessment, disagreed with the Respondent's finding that fraud allegations were unsubstantiated, and challenged the additional assessments for 2019, 2020 and 2021 as erroneous (paragraph 6).
The Appellant contended that an accountant it had engaged had fraudulently generated fictitious sales invoices through the eTIMS system, which were used by other taxpayers as input VAT claims, and had also entered fictitious input claims to reduce the Appellant's VAT payable (paragraphs 8 to 10). The Appellant argued that fictitious sales could not constitute taxable income or chargeable supplies under the Income Tax Act and VAT Act, and that liability should instead fall on the beneficiaries of the fictitious invoices (paragraphs 13 to 15, 22 to 26).
The Respondent maintained that it was not bound by the Appellant's returns and was entitled under Sections 24(2) and 31 of the Tax Procedures Act to assess liability using available information and its best judgment (paragraphs 19, 42, 50, 51). The Respondent further argued that the Appellant's objection was properly rejected under Section 51(3) of the Tax Procedures Act for failure to provide relevant supporting documents, and that the burden of proof under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act lay with the Appellant to show the assessments were incorrect (paragraphs 43 to 45, 53, 63 to 65).
Court findings
The Tribunal identified three issues for determination: whether the Appeal was competent, whether the additional assessments were based on taxable income and chargeable supplies founded on fictitious transactions, and whether the Objection decision was incorrect (paragraph 68).
On competency, the Tribunal noted that under Section 51(12) of the Tax Procedures Act, a person dissatisfied with the Commissioner's decision must appeal to the Tribunal within thirty days of being notified. As the Objection decision was made on 23rd May 2025, the Notice of Appeal ought to have been filed on or before 8th July 2025 (paragraphs 70 to 73). The Notice of Appeal was instead filed on 16th July 2025, some 37 days late (paragraph 71).
The Tribunal observed that under Section 13(3) and (4) of the Tax Appeals Tribunal Act, it has power to extend time for filing a notice of appeal upon written application, where absence from Kenya, sickness, or other reasonable cause is shown (paragraph 74). The Appellant had not adduced any evidence that it sought or was granted an extension of time to file the Appeal out of time (paragraph 75).
Relying on Commissioner of Domestic Taxes vs. Lifecare International Brokers Limited [2020] eKLR, W.E.C. Lines Ltd v. The Commissioner of Domestic Taxes [TAT Case No. 247 of 2020], and Khaki v Commissioner of Domestic Taxes [2024] KETAT 1031 (KLR), the Tribunal held that failure to file an appeal within time and without complying with statutory conditions is not a mere technicality but goes to the competence of the appeal (paragraphs 76 to 78).
The Tribunal found the Appeal incompetent and held that, as a result, it would not delve into the other two issues, which were rendered moot (paragraphs 79 to 80).
Outcome
The Tribunal held that the Appeal was incompetent and struck it out. Each party was ordered to bear its own costs (paragraph 81).
Major issues / areas of contention
- Whether the Appeal was competent, given that the Notice of Appeal was filed 37 days after the statutory 30-day deadline under Section 51(12) of the Tax Procedures Act.
- Whether the Appellant had sought or been granted an extension of time under Section 13(3) and (4) of the Tax Appeals Tribunal Act to file the Notice of Appeal out of time.
- Whether the additional VAT and income tax assessments were based on taxable income and chargeable supplies founded on transactions the Appellant alleged were fictitious (issue raised but not determined as the appeal was struck out).
- Whether the Respondent's Objection decision was correct, including whether the objection was validly rejected under Section 51(3) of the Tax Procedures Act for lack of supporting documentation (issue raised but not determined as the appeal was struck out).