Judgment summary
The Tribunal at Nairobi heard an appeal by Premier Caterers and Events Limited against additional VAT and Income Tax (company) assessments raised by the Commissioner of Domestic Taxes following a tax audit.
The audit covered VAT returns for December 2023, February 2024, April 2024, September 2024, October 2024, November 2024 and December 2024, and Income Tax (company) returns for the financial years 2023 and 2024 (para 3).
The Respondent issued an additional VAT assessment of Kshs 1,287,013.29 and additional Income Tax of Kshs 3,136,754.85 by letter dated 27th May 2025 (para 4). The Appellant objected on 27th June 2025, and the Respondent partially allowed the objection on 21st August 2025 (para 5).
The Appellant appealed, seeking to have the Objection Decision set aside and disallowed expenses of Kshs 6,920,498.88 reinstated. The Tribunal found that the Appellant failed to substantiate the disputed expenses and bank credit variances with adequate documentation, and dismissed the appeal, upholding the Objection Decision (paras 56-58).
Background
The Appellant is a limited company incorporated in Kenya engaged in catering and events management (para 1). The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act Cap 469, responsible for administering domestic taxes (para 2).
The Respondent conducted a tax audit focussing on the Appellant's VAT returns for December 2023, February 2024, April 2024, September 2024, October 2024, November 2024 and December 2024, and Income Tax (company) returns for 2023 and 2024 (para 3).
By letter dated 27th May 2025, the Respondent issued an additional VAT assessment of Kshs 1,287,013.29 (excluding March 2025, which the Appellant had agreed to pay) and demanded additional Income Tax (Company) of Kshs 3,136,754.85 for 2023 and 2024 (para 4).
The Appellant objected by letter dated 27th June 2025. The Respondent issued an objection decision on 21st August 2025 partially allowing the objection (para 5). The Appellant submitted additional documents on 28th August 2025, which the Respondent could not consider as they were furnished after the Objection Decision (para 6). The Appellant filed its Notice of Appeal dated 16th September 2025 on 23rd September 2025 (para 7).
Core dispute
The Appellant argued that the additional tax assessment of Kshs 4,432,079.36 was excessive, erroneous and unfounded, unfairly disallowing genuine business expenses totalling Kshs 6,920,498.88 that were wholly and exclusively incurred for the production of income under the Income Tax Act (Cap 470) (para 8(a)-(b)).
It contended that the Respondent failed to consider reconciliations and concessions it had made, disregarded supporting documentation including invoices, expense schedules, lease and rental agreements, and petty cash vouchers, and acted contrary to fairness, proportionality and legitimate expectation under the Constitution of Kenya, 2010, and the Tax Procedures Act, 2015 (para 8(c)-(f)).
The Respondent maintained that the VAT assessment arose from disallowed input VAT claims unsupported by adequate documentation, while the Income Tax assessments arose from under-declared income identified through banking analysis, disallowed storage expenses lacking substantiation under Section 15 of the Income Tax Act, and disallowed unsupported input tax computations (para 17).
The Respondent asserted that it had requested specific documents on 10th July 2025 and issued a reminder on 15th August 2025, but the Appellant provided only partial documentation, resulting in only the November 2024 input VAT of Kshs 322,139.25 being allowed (paras 18, 32, 35). It argued that the Appellant failed to discharge its burden of proof to substantiate the disallowed expenses and bank credit variances.
Court findings
The Tribunal identified a single issue for determination: whether the Respondent's additional assessments were justified (para 42).
The Tribunal noted that the Appellant's own bank statements showed a total variance of Kshs 7,268,442.00 for 2023 and 2024 between gross banking and declared VAT turnover, which the Appellant neither reconciled with the Respondent nor explained before the Tribunal. In the absence of such evidence, the Tribunal held that the Respondent could not be faulted for treating the bank credits as taxable income (para 47).
On the disallowed expenses, the Tribunal found that proof of payment is important evidence to corroborate that an expense was actually incurred and to render it deductible (para 48). It listed the documents the Appellant had been asked to provide, including reconciliation of bank credits, proof of payment for disputed purchases, delivery notes or supplier declarations, schedules and supporting documents for storage expenses of Kshs 2.4 million, and sales ledgers and non-business credit evidence (para 49).
The Tribunal considered these requested documents ordinary and readily available in the course of the Appellant's business. It noted that documents provided on 28th August 2025 came after the Objection Decision of 21st August 2025, and that there is no provision under the Tax Procedures Act to accommodate documents submitted after the Objection Decision (para 50). It observed that the Appellant could have applied to the Tribunal by Notice of Motion to have these documents considered before the hearing, but failed to do so (para 51).
The Tribunal referred to Section 54A of the Income Tax Act and Section 23(1) of the Tax Procedures Act on the obligation to maintain adequate records (paras 52-53). It relied on Grace Njeri Githua vs Commissioner of Investigations and Enforcement (TAT No. 102 of 2018) and Commissioner of Domestic Taxes vs Structural International Kenya Ltd (Income Tax Appeal No E089 of 2020) [2021] KEHC 152 (KLR), which affirm that the burden lies on the taxpayer to substantiate transactions with documentation reasonably expected to be in its possession (paras 54-55).
The Tribunal concluded that the Respondent's additional assessments were justified (para 56).
Outcome
The Tribunal dismissed the Appeal for lacking merit. It upheld the Respondent's Objection Decision dated 21st August 2025 in its entirety. Each party was ordered to bear its own costs (paras 57-58).
Major issues / areas of contention
- Whether the Respondent's additional VAT and Income Tax assessments totalling Kshs 4,432,079.36 were justified.
- Whether the Appellant substantiated disallowed expenses of Kshs 6,920,498.88 as wholly and exclusively incurred for the production of income.
- Whether unexplained variances between the Appellant's gross banking and declared VAT turnover could lawfully be treated as taxable income.
- Whether the Respondent could consider documents submitted by the Appellant after the Objection Decision had already been issued.
- Whether the Respondent's process complied with principles of fairness, proportionality and legitimate expectation under the Constitution and the Tax Procedures Act, 2015.