Judgment summary
The Tribunal considered an appeal by Lyput Ventures Ltd against assessments and an Objection Decision issued by the Commissioner of Domestic Taxes covering income tax for 2020 and 2021 and VAT for 2022.
The Tribunal first found that the appeal was properly before it, since the Appellant had filed a Notice of Appeal, Memorandum of Appeal, and Statement of Facts, all dated 23 June 2025, and the tax decision formed part of the record (paras 29 to 31).
On the merits, the Tribunal found that the Appellant had not discharged its burden of proof under Section 56(1) of the Tax Procedures Act to show that the Respondent's assessments were incorrect, and dismissed the appeal, upholding the Objection Decision dated 20 June 2025 (paras 36 to 38).
Background
The Appellant is a company registered in Kenya whose principal activity is the supply of clean water. In 2022 it ventured into the sale of petroleum products (para 1).
The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, Cap 469, Laws of Kenya, mandated under Section 5(1) and 5(2) to collect and account for tax revenue in Kenya (para 2).
The Respondent issued assessments dated 10th April 2025, 17th April 2025, and 6th May 2025, demanding tax of Kshs 11,932,382.17, comprising income tax for the years 2020 and 2021 and VAT for 2022 (para 3).
The Appellant objected to the assessment on 12 May 2025. The Respondent partially accepted the objection and confirmed total tax of Kshs 7,365,914.24 by way of an Objection Decision dated 20th June 2025 (para 4).
Aggrieved by the decision, the Appellant filed its Notice of Appeal dated 23rd June 2025 (para 5).
Core dispute
The Appellant argued that the Respondent had erred in disallowing its forecourt ledgers, sample invoices, account statements, invoices and expenses ledgers, and audited financial statements, resulting in a wrong income tax and VAT assessment (para 6a).
It further argued that the Respondent had confirmed the assessment without due regard to records and explanations provided, had omitted vital information relating to invoices and expenses, and had erred in its VAT assessment by disregarding timing differences and selling prices (para 6b to 6d).
The Appellant also contended that the Respondent had acted arbitrarily, relied on estimates rather than a proper audit, and infringed its legitimate expectation and constitutional right to fair administrative action under Article 47 of the Constitution of Kenya and Section 4(1) of the Fair Administrative Act, 2015 (para 6e to 6h).
The Respondent maintained that its assessments arose from an audit that identified variances in the Appellant's Income Tax Company (IT2C) and VAT3 returns for 2019 to 2022, variances in declared purchases, variances between salaries and wages subjected to PAYE and those declared for income tax, and under-declared income from purchases of whole products (para 14).
The Respondent stated it had requested forecourt ledgers, sample invoices, the Returns Account Statement, invoices and expenses ledgers, and audited financial statements, but the Appellant only provided unsigned copies of financial statements (para 15).
On the 2021 VAT assessment, the Respondent accepted that VAT sales were more by Kshs 477,403.43 and that the assessment ought to have been raised on Corporation Tax rather than VAT, and it vacated that assessment on the basis that it was on the wrong tax head (para 16).
The Respondent submitted that the burden of proof lay with the Appellant under Section 56(1) of the Tax Procedures Act and Section 30 of the TAT Act, and that the Appellant had failed to reconcile the variances or provide the requested documentation (paras 17, 24, 25). It also raised a preliminary argument that the Appellant's pleadings were improperly filed (paras 18 to 20).
Court findings
The Tribunal reviewed the record and found that the Appellant had filed a Notice of Appeal, Memorandum of Appeal, and Statement of Facts, all dated 23 June 2025, and confirmed that the Appellant's tax decision formed part of the record. It therefore held that the appeal was competently before it and proceeded to determine it on the merits (paras 29 to 31).
On the substantive issue, the Tribunal noted that the Respondent's assessments arose from variances identified during an audit, and that the Appellant did not dispute that the requested documents had been sought. The Tribunal found that the Appellant had not placed sufficient evidence before it showing that the documents were duly furnished to the Respondent and considered before the objection decision (paras 32 to 34).
The Tribunal observed that, apart from general assertions that the Respondent had disregarded records and explanations, the Appellant did not tender evidence to reconcile the variances or to show that the assessments were excessive, erroneous, or unsupported (para 35).
Applying Section 56(1) of the Tax Procedures Act, which places the burden on the taxpayer to prove that a tax decision is incorrect, the Tribunal found that the Appellant had failed to discharge that burden. It held that the Respondent had acted within its statutory mandate and that the assessment was justified (paras 36 and 37).
Outcome
The Tribunal found that the appeal lacked merit and dismissed it.
The Respondent's Objection Decision dated 20th June 2025 was upheld.
Each party was ordered to bear its own costs (para 38).
Major issues / areas of contention
- Whether the appeal was properly before the Tribunal, given the Respondent's contention that the Appellant had failed to file its Statement of Facts and the impugned tax decision as required by law.
- Whether the Respondent's assessment of income tax for 2020 and 2021 and VAT for 2022 was justified.
- Whether the Appellant discharged its burden of proof under Section 56(1) of the Tax Procedures Act to show the tax decision was incorrect.
- Whether the Respondent had properly considered the records, explanations and documentation provided by the Appellant before confirming the assessment.
- Whether the VAT assessment for 2021 was correctly raised, given the Respondent's acknowledgement that the variance related to Corporation Tax rather than VAT.