Judgment summary
The Appellant, a sole proprietor operating a law firm, was audited by the Respondent, resulting in notices of assessment for VAT and Withholding Income Tax for the periods 2019 to 2022. Following a late objection accepted by the Respondent, the Respondent issued an objection decision on 9th August 2024 confirming the assessments.
The Appellant appealed, arguing that the Respondent had ignored expenses and input VAT and had assessed tax on gross turnover only, and raised further arguments including inconsistencies in withholding VAT rates and an allegedly fictitious transaction included in a default assessment.
The Tribunal found that the Respondent had issued a valid objection decision under Section 51(8) of the Tax Procedures Act, making the appeal properly before it. On the merits, the Tribunal held that the Appellant had not discharged the burden of proof under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act, as none of the documents relied upon (audited accounts, bank statements, trial balances, general ledgers, invoices) were filed with the appeal. The appeal was dismissed and the objection decision upheld.
Background
The Appellant is a sole proprietor registered under the Business Names Act and tax resident in Kenya, operating a law firm under the name Ngulli & Co. Advocates (para 1). The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, mandated to assess, collect and account for tax revenue (para 2).
The Respondent conducted an audit on 4th October 2023 and issued a notice of intention to verify income and expenses under Section 59 of the Tax Procedures Act (para 3). On 28th February and 13th March 2024, the Respondent issued notices of assessment for VAT and Withholding Income Tax for the periods 2019 to 2022 (para 4).
The Appellant lodged a late objection application on 12th June 2024, which was accepted on 21st June 2024 (para 5). The Respondent issued an objection decision on 9th August 2024 confirming the assessments (para 6). The Appellant, dissatisfied, filed its Notice of Appeal dated 26th August 2025 (para 7).
Core dispute
The Appellant contended that the Respondent erred in law and fact by ignoring expenses and issuing additional income tax assessments based on gross turnover only for 2019 to 2022, and by ignoring input VAT and issuing default VAT assessments based on gross turnover only for 2016 to 2020 (para 8).
The Appellant asserted discrepancies between the objection decision figure of Kshs 5,302,087 and the iTax additional assessment figure of Kshs 7,091,246 for income tax, exclusive of interest and penalties (paras 10 to 11). It alleged that audited financial accounts, bank statements, trial balances and general ledgers for 2019 and 2020 were disregarded by the Respondent (para 12).
The Appellant claimed default VAT assessments for 2016 to 2020, amounting to Kshs 18,536,230.14 exclusive of interest and penalties, were issued without prior notice (paras 18 and 20), and that a further additional VAT assessment of Kshs 4,131,465 was raised based on revenue only (para 19). It argued that the Respondent failed to apply the amended withholding VAT rate of 2% (from 6%) under the Finance Act, 2019, and that this resulted in an overstatement of output VAT of Kshs 7,398,856.05 (para 27). It further alleged that a December 2019 default assessment included a fictitious transaction with ICEA Lion General Insurance Company Limited amounting to Kshs 31,866,207 (para 28).
The Appellant also argued a denial of input VAT deductions under Section 17 of the VAT Act (paras 21 to 22, 29) and a breach of fair administrative action and natural justice (para 23). It noted a demand notice dated 18th March 2025 for Kshs 43,946,640 inclusive of interest and penalties (para 25).
The Respondent maintained that variances existed between the Appellant's returns and audited financial statements, that the Appellant was in a tax payable position of Kshs 330,291 for 2019 and a refundable position for 2020, and that bank credits of Kshs 5,268,764.10 were inconsistent with declared withholding credit income (paras 35 to 38). It stated that the Appellant failed to provide invoices, receipts, fee notes and contract documents requested on 31st July 2024 to support expenses (para 41), and relied on Section 112 of the Evidence Act, Sections 24, 31 and 56(1) of the Tax Procedures Act, and Section 51(3) of the Tax Procedures Act to justify the assessments and confirm that the burden of proof lay with the Appellant (paras 42 to 48).
Court findings
On the preliminary issue, the Tribunal held that the Respondent had not issued a notice under Section 51(4) of the Tax Procedures Act declaring the objection invalid. Instead, the Respondent considered the documents availed, requested further information, evaluated the objection on the material before it, and confirmed the assessment. The Tribunal therefore found this to be an objection decision under Section 51(8) of the Tax Procedures Act, appealable under Section 51(12), and held that the appeal was validly before it (paras 76 to 77).
On the merits, the Tribunal noted the presumption of correctness attaching to the Respondent's decision under Section 50(1)(a) of the Tax Procedures Act, which the Appellant bore the burden to rebut under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act (paras 81 to 83, 88).
The Tribunal found that the Appellant had not filed any of the documents it claimed the Respondent had disregarded, namely the audited financial accounts, bank statements, trial balances, general ledgers, invoices or withholding tax certificates, with the appeal before the Tribunal. Only the objection decision, the demand notice, and the ruling granting leave to appeal out of time were filed (paras 89 to 91). The Tribunal was therefore unable to authenticate the Appellant's claim that sufficient documents had been provided to the Respondent (para 94).
Relying on Ushindi Limited v Commissioner of Investigations and Enforcement, Singapore Motors Limited vs. Commissioner of Domestic Taxes, Tumaini Distributors Company (K) Limited vs. Commissioner of Domestic Taxes, and Sagna Holding Ltd vs. Commissioner of Domestic Taxes, the Tribunal held that the burden of proof remains with the taxpayer throughout, including at the appeal stage (paras 92 to 93). The Tribunal concluded that the Appellant had not shown that the Respondent erred in confirming the income tax and VAT assessments (para 95).
Outcome
The Tribunal found that the appeal lacked merit and dismissed it. The objection decision dated 9th August 2024 was upheld, and each party was ordered to bear its own costs (para 96).
Major issues / areas of contention
- Whether the appeal was validly before the Tribunal, given the Respondent's contention that the objection had not been validly lodged under Section 51(3) of the Tax Procedures Act
- Whether the Respondent erred in confirming the Income tax and VAT assessments issued upon the Appellant
- Whether the Appellant discharged the burden of proof under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act
- Whether the Respondent had properly considered expenses and input VAT when computing the assessments
- Alleged inconsistency between the income tax figure in the objection decision and the additional assessment recorded on iTax
- Alleged inclusion of a fictitious transaction with ICEA Lion General Insurance Company Limited in a default VAT assessment
- Alleged failure to apply the amended withholding VAT rate under the Finance Act, 2019