Judgment summary
Romani Outdoor Events Limited, a catering company, appealed against an Objection Decision dated 23rd March 2026 in which the Commissioner of Domestic Taxes confirmed additional taxes of Kshs. 21,194,283.57, comprising VAT, WHVAT and Income Tax, for the years 2021 to 2025.
The assessments arose from a banking analysis which identified under-declared income and unsupported expenses, together with disallowed VAT input claims linked to alleged missing traders.
The Tribunal found that the Respondent had not sufficiently demonstrated, through a detailed reconciliation, how the final Income Tax and VAT figures were derived after accounting for loans, contra entries, inter-company transfers and other non-trade credits acknowledged by the Respondent. The Appeal was partially allowed, with the WHVAT assessment upheld and all other assessments set aside.
Background
The Appellant is a private limited company operating from Eldoret City, Uasin Gishu County, registered for tax and principally engaged in providing catering services (para 1).
The Respondent conducted tax investigations into the Appellant's affairs for the tax period 2021 to 2025 and identified under-declared income from a banking analysis for 2021 to 2024, and unsupported expenses for 2021, 2023 and 2024. Additional tax assessments were issued on 23rd December 2025 in relation to Income Tax, VAT and WHVAT (para 3).
The Appellant objected by letter dated 23rd January 2026. The Respondent issued an Objection Decision dated 23rd March 2026 confirming additional taxes of Kshs. 21,194,283.57, comprising VAT of Kshs. 10,292,288.42, WHVAT of Kshs. 352,955.52 and Income Tax of Kshs. 10,549,039.63 (para 4).
The Appellant, dissatisfied with the Objection Decision, lodged a Notice of Appeal dated 2nd April 2026, filed on 10th April 2026 (para 5).
Core dispute
The Appellant contended that it had declared all income earned for 2021 to 2025 and that the Respondent's treatment of non-trade deposits, including contra entries, internal fund transfers, loans and related-party transfers, as taxable income was contrary to its legitimate expectations (para 6(a) and (b)).
The Appellant also argued that VAT purchases disallowed by the Respondent related to existing traders in the ordinary course of business and were legitimate and supported, and that rejecting invoices on the basis of ambiguous terms such as 'missing traders' and 'special table' was contrary to Section 17(1) of the Value Added Tax Act Cap 476 (para 6(c)).
The Respondent maintained that the Income Tax and VAT assessments were based on undeclared income identified through variances between bankings and declared sales, and on disallowed unsupported expenses and inputs. It contended that the Appellant's business was 80% corporate clients and 20% cash sales, and that proof of payment for disputed VAT inputs had not been provided (paras 31 to 34).
The Respondent asserted that it had reviewed the Appellant's objection and supporting documents, adjusted for loans, contra entries and inter-company transfers where supported, and that the Objection Decision was properly based on the information available (paras 37 to 41).
Court findings
The Tribunal accepted that banking analysis may be used as an assessment methodology, but held that bank credits do not, without more, establish that every credit represents taxable sales, particularly where the taxpayer demonstrates that credits arose from loans, related-party transfers or contra entries (para 51).
The Tribunal noted that the Respondent had acknowledged loans of Kshs. 4,900,000 in 2021, Kshs. 4,000,000 in 2023 and Kshs. 1,000,000 in 2024, and inter-company transfers with 64 Fuels Ltd of Kshs. 4,673,967.75, Kshs. 20,424,969.10, Kshs. 12,944,177.00 and Kshs. 637,290.40 for 2021 to 2024 respectively, but found that the record did not contain a sufficiently detailed transaction-by-transaction reconciliation showing how the final residual banking variance was derived (paras 52 to 55).
The Tribunal held that the statutory burden of proof on the taxpayer must be considered together with the nature of evidence actually placed before the Commissioner, and that the Appellant had supplied financial statements, bank statements, ledgers, invoices, loan documents and related-party records (paras 58 to 60).
On unsupported expenses, the Tribunal found that the Respondent had failed to specifically identify which expenses remained disallowed after documents were reviewed (paras 65 to 67).
On VAT input claims, the Tribunal found that the Respondent had not provided an invoice-by-invoice schedule identifying which invoices were rejected, the specific defect found, or whether payment evidence had been considered, making the general reference to 'missing traders' or a 'special table' insufficient (paras 68 to 72).
On WHVAT, the Tribunal found no substantive evidential challenge from the Appellant and upheld the assessment of Kshs. 352,955.52 (para 73).
The Tribunal concluded that the Respondent had not demonstrated, with sufficient precision, how the remaining Income Tax and VAT liabilities were calculated after acknowledged adjustments, though this did not mean every amount identified was necessarily non-taxable or deductible (para 75).
Outcome
The Tribunal held that the Appeal partially succeeds (para 76 and 77).
The Objection Decision dated 23rd March 2026 was varied: the WHVAT assessment of Kshs. 352,955.52 was upheld, and all other assessments were set aside (para 77(b)).
Each party was ordered to bear its own costs (para 77(c)).
Major issues / areas of contention
- Whether the Respondent erred in assessing the Appellant
- Whether the Appellant discharged its statutory burden of proof