Judgment summary
The Appellant, trading as Palmac Agricultural Services, appealed against an Objection Decision dated 29th October 2025 by the Kenya Revenue Authority confirming additional income tax and VAT assessments for the years 2020 to 2023 (para 1, 4, 10).
The Tribunal considered whether the assessments were validly issued under Section 31 of the Tax Procedures Act (TPA) and whether the Respondent was justified in confirming them in the Objection Decision (para 60).
The Tribunal found the assessments validly issued and held that the Appellant had failed to discharge the statutory burden of proof under Section 56(1) of the TPA and Section 30 of the Tax Appeals Tribunal Act. The Appeal was dismissed and the Objection Decision upheld, with each party to bear its own costs (para 104, 105).
Background
The Appellant is a Kenyan resident trading as Palmac Agricultural Services, engaged in large-scale farming, horticultural infrastructure services and labour outsourcing (para 1). The Respondent conducted a verification exercise on the Appellant's tax deductions for 2020 to 2023 and identified inconsistencies, omissions and unsupported declarations in his returns (para 3).
By notice dated 27th March 2025, the Respondent communicated additional assessments for Income Tax - Resident Individual and VAT, raised on iTax on 23rd July 2025 (para 4). The assessments comprised income tax principal of Kshs. 124,150,958.00 and VAT principal of Kshs. 45,614,036.00, together with penalties of Kshs. 8,488,250.00 and interest of Kshs. 53,349,363.00, totalling Kshs. 231,602,607.00 (para 5).
The income tax assessments rested on disallowed expenses, unsupported cash drawings, under-declared sales from VAT/income tax turnover variances, unsupported related-party amounts, and undeclared sales from a fund test (para 6). The VAT assessments rested on the related-party amounts, the turnover variance, and the fund test (para 7).
The Appellant lodged notices of objection on 2nd September 2025 (para 8). The Respondent requested specific documents and the parties engaged in correspondence and a meeting (para 9). By Objection Decision dated 29th October 2025, the Respondent rejected the objection in its entirety, recording that the absence of requested records had limited its review (para 10). The Appellant then lodged this Appeal (para 11).
Core dispute
The Appellant argued that the assessments lacked proper computation, reasons or legal basis contrary to Section 31 of the TPA, that uploading them onto iTax without prior notice breached Section 54 of the TPA, and that the Respondent failed to consider his horticultural infrastructure business model, his audited accounts and his explanations (para 12).
He contended that the fund test was wrongly applied despite the existence of reliable books and audited financial statements, that bank deposits were erroneously treated as taxable income, that turnover variances stemmed from the flawed fund test and incorrect treatment of proprietor injections, and that legitimate business expenses and related-party balances were wrongly disallowed or reclassified (para 12).
He further argued the Objection Decision was unreasoned and procedurally unfair, breaching Article 47 of the Constitution and the Fair Administrative Action Act, 2015 (para 12).
The Respondent maintained that the assessments were validly amended under Section 31 of the TPA within the five-year limitation period, that the burden of proof lay on the Appellant under Section 56(1) of the TPA, and that despite a request for specific documents, a working meeting, extensions and reminders, the Appellant furnished only audited accounts and never the balance of the requested material, so the objection was properly rejected under Section 51 of the TPA (para 33-40).
Court findings
On the first issue, the Tribunal found the amendments fell within the five-year limitation under Section 31(4)(b)(i) of the TPA, and that the Appellant neither produced the notice dated 27th March 2025 nor identified any missing particular under Section 31(8) (para 64-66). The Objection Decision set out the bases for the assessments with specificity, and the Appellant's own objection engaged directly with those bases, so the complaint of lack of reasons failed, reinforced by Section 78 of the TPA (para 67-68).
The Tribunal held reliance on Section 54 of the TPA was misconceived, as that provision concerns appeals to the Court of Appeal and not service of assessments (para 69). The complaint of lack of notice was undermined by the Appellant's timely objection within the Section 51(2) period (para 70). The Tribunal held the additional assessments were validly issued under Section 31 of the TPA (para 71).
On the second issue, the Tribunal applied Section 56(1) of the TPA and Section 30 of the Tax Appeals Tribunal Act, placing the burden of proof on the Appellant, and noted that the evidential burden passes to the Commissioner only once competent and relevant evidence is produced (para 75-78).
The Tribunal found the Appellant's explanation for the fund test deposits (capital injections, client advances, supplier refunds, mobilisation funds, crop proceeds, farmer support advances, inter-account transfers) was not tied to any specific credit entry, date or figure (para 79). The bank and loan statements produced on appeal were never placed before the Respondent during the objection, and arrived without reconciliation or analysis (para 80-82).
Examining the audited accounts, the Tribunal identified four defects: the accounts for 2020, 2021 and 2022 named a different proprietor (Elizabeth Wanjiku Ngera) rather than the Appellant (para 87-88); the auditor's reports were unsigned and the 2023 report was dated before the period it covered (para 89); the 2022 figures were internally inconsistent with the comparative figures shown in the 2023 accounts, with net assets diverging by over Kshs. 83 million (para 90-91); and the 2022 cash flow statement recorded a Kshs. 49,000,000.00 capital injection and Kshs. 70,010,000.00 asset purchase untraceable in the balance sheet, the former figure matching the unsecured liabilities the Respondent had queried (para 92-93).
The Tribunal concluded the accounts could not displace the assessments and in fact supported the Respondent's approach (para 94). The complaint about the fund test's aptness failed since the premise of reliable books was not established (para 95). On disallowed expenses, the Tribunal found the Appellant's acknowledgement of informal suppliers and missing invoices amounted to an admission of non-compliance with the record-keeping obligation under Section 23 of the TPA (para 98). Section 59 of the TPA was found to empower document requests rather than impose an evaluative duty as contended (para 99), and Section 30 of the TAT Act was found inapplicable, concerning advance assessments (para 100).
The Tribunal held the turnover variance arose from the Appellant's own declarations and lay within his own knowledge (para 101), and that the drawings and related-party balances required documentary support such as loan agreements, contra entries and reconciliations, none of which was produced (para 102-103). The Tribunal found the Appellant did not discharge his burden under Section 56(1) of the TPA and Section 30 of the TAT Act (para 104).
Outcome
The Tribunal dismissed the Appeal, upheld the Respondent's Objection Decision dated 29th October 2025, and ordered each party to bear its own costs (para 105-106).
Major issues / areas of contention
- Whether the additional assessments were validly issued under Section 31 of the Tax Procedures Act
- Whether uploading the assessments onto iTax without prior notice breached Section 54 of the TPA
- Whether the Respondent properly considered the Appellant's audited accounts and business model
- Whether the fund test was appropriately applied in light of the records available
- Whether turnover variances between VAT and income tax returns were correctly attributed to undeclared sales
- Whether disallowed business expenses were properly evaluated under Section 15 of the Income Tax Act and Section 59 of the TPA
- Whether proprietor injections and related-party balances were correctly treated as unsupported liabilities or income
- Whether the Objection Decision was reasoned and procedurally fair under Article 47 of the Constitution and the Fair Administrative Action Act, 2015
- Whether the Appellant discharged the burden of proof under Section 56(1) of the TPA and Section 30 of the Tax Appeals Tribunal Act