Judgment summary
Sultana 53 Limited, a hardware business, appealed against a Kenya Revenue Authority objection decision confirming income tax and VAT assessments. The Respondent had profiled the Appellant as a loss filer and identified unreconciled variances in VAT, opening stock, purchases and PAYE, leading to assessments of Kshs. 9,801,981 in income tax and Kshs. 65,305 in VAT.
The Appellant argued that it had provided detailed explanations and supporting documentation for the variances, including a schedule analysing salary and wage variances due to a director's bonus. The Respondent maintained that the Appellant failed to submit supporting documents despite reminders, and therefore failed to discharge its burden of proof.
The Tribunal found that although the Appellant asserted it had supplied supporting documents, none were attached to the record of appeal. The Tribunal held that the Appellant did not discharge its statutory burden of proof and dismissed the appeal, upholding the objection decision.
Background
The Appellant is a company registered in Kenya under the Companies Act, operating a hardware business (para 1). The Respondent is a principal officer appointed under Section 13 of the Kenya Revenue Authority Act, CAP 469, mandated to collect and administer revenue laws under Sections 5(1) and 5(2) of the Act (para 2).
The Respondent profiled the Appellant as an income tax loss filer for 2022 and 2023 and carried out a return review to ascertain the validity of the losses claimed (para 3). The review established unreconciled variances relating to VAT, opening stock, purchases and PAYE, resulting in an assessed total income tax liability of Kshs. 9,801,981 and VAT of Kshs. 65,305 (para 4).
The Appellant objected on 24th July 2025, but the Respondent confirmed the assessments via an objection decision dated 19th September 2025 (para 5). The Appellant, dissatisfied, filed the appeal on 15th October 2025 (para 6).
Core dispute
The main issue for determination was whether the Respondent erred in confirming the assessment (para 28).
The Appellant contended that the Respondent disregarded its audited financial statements and full disclosures, and that it had provided detailed explanations, with supporting documentation, for variances in purchases, sales and salaries and wages, the latter attributed to a director's bonus (paras 11-14, 29).
The Respondent contended that the Appellant failed to avail the requested documents in support of its objection and failed to sufficiently reconcile the established variances, relying on Sections 23, 24(2), 31 and 56(1) of the Tax Procedures Act, 2015, Section 54A of the Income Tax Act, and Section 30 of the Tax Appeals Tribunal Act (paras 19-26).
Court findings
The Tribunal held that Section 50(1)(a) of the TPA creates a rebuttable presumption that the Respondent's decision is conclusive and correct, placing the burden on the Appellant to prove otherwise (para 30). Section 56(1) of the TPA places the burden of proof on the taxpayer to show that a tax decision is incorrect (para 31).
The Tribunal noted the taxpayer's statutory obligations to maintain records under Section 23(1)(b) of the TPA, Section 54A(1) of the Income Tax Act, and Section 43(1) and (2) of the VAT Act, and to submit relevant documents when objecting under Section 51(3)(c) of the TPA and Section 13(2)(d) of the Tax Appeals Tribunal Act (paras 32-37).
The Tribunal found that the burden to adduce documentary evidence is continuous and does not terminate at the objection stage, extending to the appeal under Section 30 of the Tax Appeals Tribunal Act (para 38). Although the Appellant asserted it had provided supporting documents, including for variances in purchases, sales and salaries, the Tribunal noted that the record of appeal showed no such documents were attached (paras 40-41).
The Tribunal held that the Appellant did not make sufficient effort as a diligent taxpayer to support its position and failed to discharge its burden of proof (para 42). Relying on Kenya Revenue Authority v Maluki Kitili Mwendwa [2021] eKLR and Singapore Motors Limited v Commissioner of Domestic Taxes (Income Tax Appeal E039 of 2021) [2024] KEHC 2443 (KLR), the Tribunal reaffirmed that the burden of proving an assessment wrong or excessive rests on the taxpayer (paras 43-44). The Tribunal concluded that the Appellant failed to demonstrate that the Respondent erred in confirming the assessment (para 45).
Outcome
The Tribunal found the appeal not meritorious. It dismissed the appeal, upheld the Respondent's objection decision dated 19th September 2025, and ordered each party to bear its own costs (para 46).
Major issues / areas of contention
- Whether the Respondent erred in confirming the assessment of income tax liability of Kshs. 9,801,981 and VAT of Kshs. 65,305.