Judgment summary
The Tax Appeals Tribunal considered an appeal by Legacy La Relance E.A. Limited against an Objection decision of the Respondent dated 28th April 2025 that confirmed Income tax and VAT additional assessments for the periods 2022 and 2023 [3, 5, 46].
The Tribunal framed the issue for determination as whether the Respondent was justified in confirming the Income tax and VAT additional assessments [44].
The Tribunal found that the Appellant did not present the supporting documents required to explain the variances, either during the objection review or before the Tribunal, and so did not discharge its burden of proof [54, 55]. The Tribunal dismissed the appeal and upheld the Objection decision [60, 61].
Background
The Appellant is a company registered in Kenya [1]. The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469 Laws of Kenya [2].
The Respondent issued the Appellant with Income tax and Value Added Tax (VAT) additional assessments for the periods 2022 and 2023 on 28th October 2024 [3]. The basis of the assessments was purported undeclared sales arising from positive turnover variances between Income tax and VAT returns sales declarations [46]. The Respondent stated that in 2022 the VAT sales were lower so the variance was charged VAT, whereas in 2023 the income tax turnover was lower so the variance was charged income [25].
The Appellant objected to the assessments on 7th March 2025, lodging a late objection application citing sickness of the director as the reason [4, 27]. The Respondent accepted the late objection application on 21st March 2025 and requested the Appellant to provide relevant supporting documents by 28th March 2025 [27, 52].
The Respondent sent a reminder on 17th April 2025 and attempted to reach the Appellant by phone, but no documents were provided [30, 32, 52]. The Respondent issued an Objection decision dated 28th April 2025 confirming the assessments [5, 16].
The Appellant filed its Notice of Appeal dated 29th September 2025 on the same date, having been granted leave to file out of time [6].
Core dispute
The Appellant contended that the assessments of Kshs. 13,475,132.58 were erroneous and excessive, relying on a flawed banking analysis that mischaracterised non-business income as taxable, and that the Respondent failed to disclose or justify the rationale for the additional assessments [7c, 7b]. The Appellant argued it was unable to submit supporting documents due to limited time to prepare ledger accounts, make bank reconciliations and conduct the auditing process [15, 47].
The Respondent contended that it established variances between the turnover declared for income tax and the aggregate of sales declared in the monthly VAT returns for 2022 and 2023, and that the Appellant failed to provide the requested records to validate its objection [25, 39]. The Respondent maintained that the burden of proof rests with the Appellant and that its actions complied with the Tax Procedures Act, 2015, the Income Tax Act and the VAT Act [36, 40].
The issue for determination was whether the Respondent was justified in confirming the Income tax and VAT additional assessments [44].
Court findings
The Tribunal noted that the appeal was against an Objection decision that confirmed tax assessments, and that the burden lay on the Appellant to demonstrate that the assessments were excessive or incorrect under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act [49].
The Tribunal referred to Section 54A(1) of the Income Tax Act and Section 43 of the VAT Act, which require a person carrying on business to keep records and make them available to the Commissioner [50, 51].
The Tribunal compared the Respondent's document request of 21st March 2025 with the documents the Appellant presented, and found that the Appellant, even before the Tribunal, did not present any of the documents ordinarily expected to be in a taxpayer's possession and required to be maintained under Section 54A of the Income Tax Act, Section 43 of the VAT Act and Section 23 of the Tax Procedures Act [54]. The Tribunal noted the Appellant had not presented any substantive transactional record to support its case and had not explained the failure [54].
The Tribunal held that it was not enough for the Appellant to claim it could not produce the documents, and that the absence of the records was fatal to its case. Mere averment of a substantive tax position does not discharge the statutory burden of proof [55]. The Tribunal cited CMC Aviation Ltd v Cruisair Ltd (1) [1978] KLR 103 on the distinction between pleadings and evidence [56].
The Tribunal noted that under Section 51(11) of the Tax Procedures Act the Commissioner must make an objection decision within sixty days of a valid notice of objection, with no provision permitting the Commissioner to postpone the decision, so it found no merit in the Appellant's desire that the Respondent should have extended time [57, 58]. The Tribunal referred to W.E.C. Lines Ltd vs. The Commissioner of Domestic Taxes [TAT Case No.247 of 2020] and Krystalline Salt Ltd vs KRA [2019] eKLR on strict adherence to prescribed procedures [59].
The Tribunal found that the Respondent was justified in confirming the Income tax and VAT additional assessments [60].
Outcome
The Tribunal found that the appeal was not merited. It ordered that the appeal be dismissed, that the Objection decision dated 28th April 2025 be upheld, and that each party bear its own costs [61].
Major issues / areas of contention
- Whether the Respondent was justified in confirming the Income tax and VAT additional assessments [44].
- Whether the Appellant discharged its burden of proving that the assessments were excessive or incorrect under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act [49].
- Whether the Appellant's failure to provide supporting records, as required under Section 54A of the Income Tax Act, Section 43 of the VAT Act and Section 23 of the Tax Procedures Act, was fatal to its case [54, 55].
- Whether the Respondent was obliged to extend time for the Appellant to adduce records before issuing the Objection decision under Section 51(11) of the Tax Procedures Act [57, 58].