Judgment summary
The Appellant, a resident taxpayer whose principal business is real estate rental of godowns, appealed against an Objection Decision of the Commissioner for Domestic Taxes dated 12th September 2025, which confirmed VAT and income tax assessments of Kshs. 29,719,291.00 and Kshs. 34,856,479.00 respectively, inclusive of penalties and interest, for the period 2017 to 2021 (paras 3, 5).
The Tribunal considered whether the Objection Decision was justified. It found that the Appellant had not sufficiently supported his objection with documentary evidence, as required documents were belatedly annexed only to Written Submissions rather than properly pleaded, and were in any event too general to enable a conclusive determination (paras 36-37, 42).
The Tribunal further found that the Respondent's assessments for the 2017 year of income and VAT periods before December 2018 were time-barred under Section 29(5) of the Tax Procedures Act, as the assessment was issued on 13th December 2023, more than five years after those periods (paras 43-44). The appeal was therefore partially allowed.
Background
The Appellant is a resident of Kenya and a registered taxpayer whose principal business is real estate, specifically rental of godowns (para 1). The Respondent is the principal officer appointed under Section 13 of the Kenya Revenue Authority Act, responsible for assessment and collection of tax revenue (para 2).
On 13th June 2023, the Respondent's Regional Audit Centre issued an audit notice indicating its intention to verify the Appellant's business affairs, and an audit was conducted for the years 2017 to 2021 (para 9). On 19th September 2023, the Respondent issued additional income tax assessments, and on 13th December 2023 issued audit findings totalling Kshs. 64,056,501, comprising Kshs. 32,584,439 (income tax) and Kshs. 31,508,062 (VAT) (paras 3, 11). The Respondent alleged the Appellant had not declared income tax and VAT on rental income and used tenant schedules supplied by the Appellant to raise assessments (paras 11-12).
On 15th January 2024, the Respondent issued a payment demand of Kshs. 9,500,000 to I&M Bank as partial payment of tax due, an Agency Notice being in place (para 13). On 11th October 2024, the Respondent issued VAT assessments and amended the earlier income tax assessment, raising a new additional assessment number KRA202320563284 totalling Kshs. 34,578,608.90 (paras 3, 14).
The Appellant objected to the additional assessments in their entirety on 18th July 2025 (para 4). On 12th September 2025, the Respondent issued its Objection Decision confirming VAT and income tax assessments of Kshs. 29,719,291.00 and Kshs. 34,856,479.00 respectively, inclusive of penalties and interest (para 5). The Appellant lodged this appeal by Notice of Appeal dated 3rd October 2025 (para 6).
Core dispute
The Appellant's Memorandum of Appeal dated 9th October 2025 raised several grounds, including that the assessments for 2017 were time-barred under Section 29 of the Tax Procedures Act, that the Respondent overstated taxable rent because premises were not fully occupied, that the 40% allowance for expenses was too low, that a customer payment of Kshs. 3,279,192.00 withheld and remitted by a customer was wrongly treated as unsupported, that documentation was in fact furnished on 12th September 2025, and that a payment of Kshs. 3,616,000 recovered from the Appellant's bank account was misallocated to January 2023, a period outside the assessment (para 7).
The Respondent maintained that the Appellant neither declared income tax nor VAT on rental income for the period, that it used the Appellant's own rent schedules to raise assessments and allowed 40% as expenses, and that the Appellant failed to provide requested supporting documents (Certified Audited Financial Statements, invoices and receipts, certified bank statements, general ledgers and trial balances) during the objection review, rendering proper review impossible (paras 25-28).
The issue for determination was whether the Respondent's Objection Decision dated 12th September 2025 was justified (para 31).
Court findings
The Tribunal noted that the Objection Decision listed specific documents sought from the Appellant but not provided: Certified Financial Statements, copies of invoices and receipts, certified bank statements, general ledgers (purchases and sales) and trial balances (para 33). Although the Appellant claimed to have provided these on 12th September 2025, there was nothing on record to show this, and the documents were instead belatedly annexed to the Written Submissions dated 24th April 2026 (para 36).
The Tribunal held that Written Submissions are not pleadings and are not a proper means of introducing documents, and that the annexed documents were in any event too general to allow a conclusive determination on whether they sufficiently supported the objection (para 37).
Citing Section 59 of the Tax Procedures Act on the Commissioner's power to require production of documents, Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act on the taxpayer's burden of proof, and the Tribunal's earlier decision in Abyssinia Iron and Steel Ltd v Commissioner of Customs and Border Control (TAT No. 435 of 2022), the Tribunal held that the Appellant did not sufficiently support his objection and thus did not discharge his burden of proof, so the Respondent's additional assessments per the Objection Decision were justified (paras 38-42).
On time-bar, the Tribunal applied Section 29(5) and (6) of the Tax Procedures Act, which provides that an assessment shall not be made after five years immediately following the last date of the reporting period, save for gross or wilful neglect, evasion or fraud. As the Respondent issued its tax assessment on 13th December 2023 for the period 2017 to 2021, the income tax assessment for 2017 was time-barred. Since VAT is due monthly on the 20th, VAT assessments for periods before December 2018 were also time-barred (paras 43-44).
Outcome
The Tribunal held that the appeal partially succeeds. The Objection Decision dated 12th September 2025 was partially varied: the income tax assessment for 2017 and VAT assessments for December 2018 and earlier were set aside, while the income tax assessment for 2018 to 2021 and VAT assessments from January 2019 onwards were upheld. Each party was ordered to bear its own costs (para 45).
Major issues / areas of contention
- Whether the Respondent's Objection Decision dated 12th September 2025 confirming additional income tax and VAT assessments was justified.
- Whether the Appellant discharged his burden of proof by providing sufficient supporting documentation during the objection process.
- Whether documents annexed only to Written Submissions could properly be relied upon before the Tribunal.
- Whether the Respondent's assessments for the 2017 year of income and related VAT periods were time-barred under Section 29(5) of the Tax Procedures Act.
- Whether the 40% expense allowance granted by the Respondent was adequate given the Appellant's claimed actual expenses.
- Whether the Respondent correctly treated a payment of Kshs. 3,279,192.00 as unsupported when it was allegedly remitted by a tenant/customer.