Judgment summary
The Tax Appeals Tribunal at Nairobi heard an appeal by Mt Longonot Medical Services Limited against a default Income Tax Company assessment of Kshs. 3,678,934.71 for the year 2023, issued after the Appellant failed to file self-assessment returns.
The Respondent had allowed the Appellant to lodge a late objection, requested supporting documentation, and ultimately confirmed the assessment on 30th June 2025 on the basis that the documents submitted were unsigned, unverifiable, or unaccompanied by ledgers and self-assessment returns.
The Tribunal found that the Appellant had not provided sufficient evidence, either to the Respondent or in the appeal record, to displace the presumption of correctness attaching to the Respondent's assessment, and dismissed the appeal.
Background
The Appellant is a private limited company registered in Naivasha whose principal activity is providing health and medical services (paragraph 1).
The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469, mandated under Sections 5(1) and 5(2) of that Act to administer and enforce revenue laws (paragraph 2).
The Respondent audited the Appellant and issued a default assessment of Kshs. 3,678,934.71 for Income Tax Company for the year 2023 on 9th October 2024 (paragraph 3). The Appellant lodged a late objection on 2nd May 2025, which the Respondent admitted on 15th May 2025 (paragraph 4). The Respondent issued its objection decision on 30th June 2025 disallowing the objection (paragraph 5). The Appellant filed a notice of appeal on 9th October 2025 (paragraph 6).
Core dispute
The Appellant contended that the default assessment and objection decision were issued without due regard to records, documents and explanations it had provided, and were vindictive, in bad faith and contrary to Article 47(1) of the Constitution on fair administrative action (paragraphs 7a and 9).
The Appellant argued that the Respondent had applied an arbitrary 30% allowable expense ratio, disallowing 70% of expenses without lawful basis under Section 16 of the Income Tax Act, and had misclassified revenue expenditure on stock as capital in nature (paragraphs 7h, 7i, 7k).
The Respondent maintained that the default assessment was properly issued under Section 29 of the Tax Procedures Act after the Appellant failed to file self-assessment returns, that it had allowed 60% (not 30%) of turnover as expenses, and that the documents submitted by the Appellant at objection stage, including unsigned financial statements without an auditor's report, bulk hardcopy receipts unsupported by ledgers, and no self-assessment return, were incomplete and unverifiable (paragraphs 24, 28, 31, 34).
The central issue for determination was whether the Respondent erred in confirming the taxes assessed upon the Appellant (paragraph 50).
Court findings
The Tribunal reviewed the correspondence between the parties and found that although the Appellant had been given the opportunity to submit documentation to establish its correct tax position, it did not demonstrate that it had in fact submitted sufficient documents to the Respondent, nor did it attach such documents to its appeal at the Tribunal (paragraph 61).
The Tribunal held that the burden of proof in tax cases rests with the taxpayer under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act, and that the Appellant's record of appeal contained only email correspondence, the extension of time letter, and the objection decision, none of which could discharge that burden (paragraphs 62 to 64).
The Tribunal applied the principle that the Respondent's assessment enjoys a presumption of correctness unless displaced by the taxpayer's evidence, citing Kenya Revenue Authority v Maluki Kitili Mwendwa [2021] eKLR, Deep Forest Hardware Limited v Commissioner of Investigation and Enforcement (Tax Appeal E291 of 2023) [2024] KETAT 702 (KLR), and Commissioner of Domestic Taxes v Metoxide Africa Limited (Tax Appeal E121 of 2021) [2022] KEHC 14613 (KLR) (paragraphs 64 to 66).
The Tribunal concluded that the Appellant had not moved it to find that the Respondent erred in confirming the taxes assessed (paragraph 67).
Outcome
The Tribunal found that the appeal lacked merit and dismissed it. The objection decision dated 30th June 2025 was upheld, and each party was ordered to bear its own costs (paragraph 68).
Major issues / areas of contention
- Whether the Respondent erred in confirming the taxes assessed upon the Appellant following a default assessment issued under Section 29 of the Tax Procedures Act.
- Whether the Respondent had exercised best judgement in issuing the default assessment for the year 2023.
- Whether the Appellant had discharged its burden of proof under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act to show the assessment was excessive or incorrect.
- Whether the Respondent's disallowance of a portion of claimed expenses, applying an allowable expense ratio to turnover, was lawful in the absence of filed self-assessment returns and verifiable supporting documents.
- Whether the objection decision was issued in breach of the Appellant's right to fair administrative action under Article 47(1) of the Constitution.