Judgment summary
This is a decision of the Tax Appeals Tribunal at Nairobi concerning additional income tax assessments issued to the Appellant, Hon. Mike Mbuvi Sonko, for the period 2013 to 2019. The Respondent, the Commissioner of Domestic Taxes, had used a banking analysis method to determine the Appellant's tax liability after establishing variances between bank deposits and declared income (paragraphs 3, 29 to 32).
The Respondent issued additional assessments of Kshs 407,427,322 on 24th June 2022, and after a late objection was permitted, issued an Objection Decision on 13th December 2024 partially confirming the assessment (paragraphs 4 to 6). The Appellant appealed, arguing that costs incurred in generating income had not been adjusted, that supporting documentation had not been considered, and that supplier declarations had been ignored (paragraph 7).
The Tribunal found that the Appellant had not produced evidence to support his objection and had effectively admitted, in his own submissions, that he did not hold the documents sought by the Respondent (paragraphs 47 and 48). It held that the Appellant had failed to discharge the burden of proof under Section 30 of the Tax Appeals Tribunal Act and Section 56(1) of the Tax Procedures Act, and that the Respondent's assessment retained its presumption of correctness (paragraphs 50 to 53).
Background
The Appellant is a Kenyan citizen involved in various businesses within the Republic of Kenya (paragraph 1). The Respondent is the principal officer appointed under Section 13 of the Kenya Revenue Authority Act, responsible for tax collection and administration (paragraph 2).
The Respondent investigated the Appellant's affairs for the period 2013 to 2019 to confirm compliance with tax laws (paragraph 3). On 24th June 2022, the Respondent issued additional income tax assessments for 2013 to 2019 amounting to Kshs 407,427,322 (paragraph 4).
On 15th October 2024, the Appellant was allowed to file a late objection to the additional assessments (paragraph 5). On 13th December 2024, the Respondent issued its Objection Decision, partially confirming the additional tax assessments, stated in paragraph 6 as Kshs 385,142,611.40, though the recomputation table at paragraph 34 shows a total of Kshs 386,142,611.40.
Core dispute
The Appellant's grounds of appeal were that the Respondent erred in law and fact by disallowing zero rated/exempt purchases incurred wholly and exclusively for business under the Income Tax Act, by failing to consider supporting documentation for purchases, and by refusing to consider declarations made by the Appellant's supplier of goods (paragraph 7).
The Appellant argued that the Respondent had used the banking method to charge tax without accounting for overheads and non-taxable banking, that he could not produce most records due to circumstances beyond his control, and that the assessment period exceeded the five-year record-keeping obligation under Section 23 of the Tax Procedures Act (paragraphs 9, 14, 15, 17). He contended the Respondent could have used its access to the iTax portal to verify supplier declarations and that the banking method used was arbitrary, inconsistent, and violated his constitutional rights and legitimate expectations (paragraphs 19 to 22).
The Respondent maintained that it had analysed the Appellant's bank statements across eleven accounts, applied adjustments for non-income items such as loans, reversals, contra-entries and bounced cheques, and computed net taxable income using the banking analysis method because the Appellant had not provided supporting documentation (paragraphs 28 to 34). It argued the burden of proof lay on the Appellant under Section 56(1) of the Tax Procedures Act and that the Appellant had not demonstrated which inputs or supplier declarations were disregarded (paragraphs 35 to 37).
Court findings
The Tribunal identified the issue for determination as whether the Respondent's Objection Decision dated 13th December 2024 was justified and lawful (paragraph 39).
The Tribunal noted that the Appellant had been granted leave on 19th June 2026 to file additional documents and supplementary submissions but failed to comply with the directions given, so the status quo as at 19th June 2026 was restored and the appeal was determined on the existing record (paragraphs 40 and 41).
The Tribunal referred to Section 59 of the Tax Procedures Act on the duty to produce documents and records, Section 56(1) of the Tax Procedures Act on the burden of proof, and Section 30 of the Tax Appeals Tribunal Act placing the burden of proving that an assessment is excessive on the appellant (paragraphs 44 to 46).
The Tribunal found that the Appellant had made mere assertions that documents were provided, without supporting evidence, and had effectively admitted in paragraphs 24 and 25 of his submissions that he did not have the documents sought, instead suggesting the Respondent use its iTax portal access to fill the gaps (paragraph 47). Relying on its precedent in Mugo v Commissioner of Domestic Taxes and on Commissioner of Domestic Taxes v Dinesh Construction Limited, the Tribunal held that a mere statement in pleadings is not evidence, and that the Appellant had failed to discharge his burden of proof (paragraphs 48, 49). Citing Kenya Revenue Authority v Maluki Kitili Mwendwa, the Tribunal held that the taxpayer must present a minimum amount of information to support his position, which the Appellant had not done (paragraph 51). The Tribunal concluded that the Respondent's assessment retained its presumption of correctness and was justified (paragraphs 52 and 53).
Outcome
The Tribunal held that the appeal lacked merit (paragraph 91).
It ordered that the appeal be dismissed. The disposition also states that the Respondent's Objection Decision dated 13th December 2024 be set aside, which appears inconsistent with the dismissal of the appeal. Each party was ordered to bear its own costs (paragraph 91).
Major issues / areas of contention
- Whether the Respondent ought to have adjusted the costs incurred in the generation of income when computing the additional assessments.
- Whether the Respondent carried out its role of tax administration and governance judiciously, properly, and lawfully towards the Appellant.
- Whether the Respondent violated the Appellant's constitutional rights and freedoms in raising the assessment.
- Whether the banking analysis method used by the Respondent was an arbitrary and unlawful basis for assessment.
- Whether the Appellant discharged the burden of proof under Section 30 of the Tax Appeals Tribunal Act and Section 56(1) of the Tax Procedures Act.
- Whether the Respondent's Objection Decision dated 13th December 2024 was justified and lawful.