' Introduction
1. This is an appeal from the judgment of the Tax Appeals Tribunal (the Tribunal) delivered on 26th April 2024. The Appellant, being dissatisfied with the Tribunal’s decision partially setting aside its additional tax assessments on grounds of having been issued beyond the statutory timelines.
2. The background to this matter is that the Appellant, the Commissioner of Investigations and Enforcement of the Kenya Revenue Authority (“the Commissioner”), undertook investigations into the tax affairs of the Respondent. Following the said investigations, the Appellant, by a letter dated 11th May 2022, issued an additional assessment against the Respondent in the sum of Kshs. 129,202,360/-, comprising Kshs. 45,693,235/- in Value Added Tax (VAT) and Kshs. 83,509,125/- in Income Tax.
3. The tax investigations covered the period 2015 to 2020. The basis of the additional assessment, according to the Appellant, was the discovery of material variances between the tax declarations submitted by the Respondent on the iTax platform and the findings of the Appellant’s investigations, which entailed a review of the Respondent’s bank transactions with Equity Bank Limited and DTB Bank. The additional assessment was accordingly issued pursuant to Section 31 of the Tax Procedures Act.
4. The Respondent, vide his tax agent’s letter of 27th May 2022, objected to the assessment, arguing that part of the tax assessment by the Commissioner contravened Sections 23(1C) 31 of the Tax Procedures Act 2015 and was therefore time-barred under the five-year limitation period stipulated in the Act. It was also the Respondent’s position that the Commissioner’s determination of the net taxable income was erroneous since it included inter-bankings, related party financings, and loans.
5. The matter proceeded to the Tax Appeals Tribunal, and the Tribunal, in its decision delivered on 19th April 2024, partially allowed the appeal and found that VAT assessments for periods 2015 to March 2017, and Income Tax for the year 2015 were time-barred under Section 31(4)(b) of the Tax Procedures Act, and that no sufficient evidence of willful neglect to justify lifting the five-year limitation.
6. The assessments for the rest of the periods were upheld since, according to the Tribunal, the Respondent had failed to provide sufficient documentation to disprove the additional assessment.
The Appeal
7. Aggrieved by parts of the Tribunal''s decision, particularly the finding on the time-barring of assessments, the Appellant filed the present appeal, advancing five grounds of appeal as detailed in its memorandum of appeal dated 14th June 2024. In particular, the Appellant alleged that: -
i. The Tribunal misapplied the law and facts on the burden of proof, therefore arriving at the wrong decision in setting aside the Appellant''s additional assessments over the five-year limitation period.
ii. The Tribunal erred in law and fact by failing to appreciate the Appellant''s case that the allegations of fraud in the dispute were supported by the Appellant''s averment that the Respondent failed to make all declarations truthfully on all the sales that it had made.
iii. The Tribunal erred in law and fact by contradicting itself by one hand finding that the Respondent failed to bridge the variance that was established by the Appellant, while on the other, failing to appreciate that the errors by the Respondent in his tax returns were not mere accounting or reconciliation errors.
iv. The Tribunal failed to appreciate that the Appellant provided the basis of additional assessment, which the Respondent failed to disprove.
v. That Tribunal erred in law and fact in the computation of timelines as the Appellant''s investigations commenced in the year 2021 and not 2022. The year of income 2016 falls within the five-year limitation.
8. The Respondent did not file any response to the appeal, nor did it place any submissions on record, despite evidence of proper service as shown in the affidavit of service dated 28th May 2025. The appeal shall therefore be determined on the basis of the Appellant’s pleadings and submissions on record, though the Court will also consider the record as it stood before the Tribunal in order to ensure a fair and balanced determination.
Appellant’s Submissions
9. The Appellant, through Ms. Nyakundi, in its submissions dated 25th November 2024, argued its case under two broad headings: (a) Whether the allegations of wilful neglect against the Respondent were substantiated; and (b) Whether the Respondent discharged its burden of proof in rebutting the additional assessments.
10. On the first issue, the Appellant argued that the Tribunal erred in holding that VAT assessed before March 2017 and income tax for the year 2015 were time-barred. In the Appellant’s view, the Respondent’s conduct amounted to wilful neglect, thereby entitling the Commissioner to extend the scope of assessment in line with Section 31(4) of the Tax Procedures Act, which permits the Commissioner to amend an assessment beyond the five-year limitation period in cases of “gross or wilful neglect, evasion or fraud.”
11. The Appellant explained that variances identified between the Respondent’s tax declarations on iTax and its actual income as established in its bank records, prima facie demonstrated deliberate omission of taxable sales. This, it was urged, could not reasonably be dismissed as mere accounting errors.
12. To fortify this argument, the Appellant relied on Section 24(1) of the TPA, which obliges taxpayers to make full and accurate declarations in approved form and in the manner prescribed by the Commissioner. It further relied on the House of Lords decision in R v Sheppard [1980] UKHL J1127-1, where the term “wilful neglect” was defined as neglect accompanied by mens rea or a conscious failure to act. In the Appellant’s view, wilful neglect under Kenyan tax law encompasses a taxpayer’s deliberate failure to disclose all taxable income, thereby misleading the Commissioner.
13. The Appellant further cited Stefanutti Stocks Kenya Limited v Commissioner of Domestic Taxes (Tax Appeal E117 of 2021), where the High Court emphasized that tax legislation must be interpreted strictly, and that the only basis upon which the Commissioner may amend assessments beyond the statutory five-year period is the presence of gross or wilful neglect, evasion, or fraud. In the present matter, the Appellant submitted, the Tribunal failed to properly apprehend this test and erroneously excluded certain tax years from the assessment window.
14. On the second issue, the Appellant submitted that both section 56(1) of the TPA and section 30 of the Tax Appeals Tribunal Act place the burden of proof squarely on the taxpayer to disprove an assessment. Once an assessment is issued, it enjoys a presumption of correctness until rebutted by the taxpayer through documentary evidence. Counsel asserted that Section 23(1)(b) of the TPA further imposes a statutory duty on taxpayers to keep sufficient records to enable verification of their tax position.
15. Counsel argued that the Appellant having established variances in the Respondent’s self-declarations, it was incumbent upon the Respondent to provide reconciliations supported by proper source documents, a burden the Respondent failed to discharge.
16. It was submitted that the Tribunal having acknowledged at paragraphs 56 to 60 of its judgment that: (i) the Respondent did not provide sufficient supporting documents to show that the under-declared income did not constitute revenue; and (ii) the Respondent failed to adduce documents evidencing its dealings with related parties or loan agreements to substantiate its claims that certain credits were non-taxable inflows, ought to have led to a conclusion in favour of upholding the assessments rather than setting them aside.
17. It was therefore the Appellant’s submissions that the Tribunal’s decision to relieve the Respondent of tax liability despite these evidentiary gaps was, in the Appellant’s submission, a misdirection in law and fact.
18. In the premises, the Appellant urged this Court to find that the additional assessments were validly issued and that the Respondent had failed to discharge its burden of proof. It therefore prayed that the appeal be allowed, that the Tribunal’s judgment be set aside in its entirety, and that costs of the appeal be awarded to the Appellant.
Analysis and Determination
19. Having considered the submissions of the Appellant and the Record of Appeal and the applicable law, the Court finds that the only legal issue requiring determination is whether the Tribunal erred in partially allowing the appeal by setting aside the additional Income tax assessment for the years 2015 and VAT assessment for the period 2015 to March 2017 on account of being time-barred.
20. In determining this appeal I am well guided by the decision in Selle & another v Associated Motor Boat Co Ltd & others [1968] EA 123 and Peters v Sunday Post Limited [1958] on the duty of the appellate court to re-evaluate the evidence before the trial court as well as the judgment and arrive at its independent conclusion bearing in mind that it did not have the opportunity of seeing and hearing the witnesses first hand.
21. In the case of Mursal & another v Manese (suing as the legal administrator of Dalphine Kanini Manesa) (Civil Appeal E20 of 2021) [2022] KEHC 282 (KLR) (6 April 2022) (Judgment) Hon Mativo J (as he then was) further enunciated on the role of the appellate court as follows:
“A first appellate court has jurisdiction to reverse or affirm the findings of the trial court. A first appeal is a valuable right of the parties and unless restricted by law, the whole case is therein open for rehearing both on questions of fact and law. The judgment of the appellate court, must, therefore, reflect its conscious application of mind and record findings supported by reasons, on all the issues arising along with the contentions put forth, and pressed by the parties for decision of the appellate court. While reversing a finding of fact the appellate court must come into close quarters with the reasoning assigned by the trial court and then assign its own reasons for arriving at a different finding. This would satisfy the court hearing a further appeal that the first appellate court had discharged the duty expected of it.”
Whether the Assessments were time-barred.
22. The principal contention advanced in the Appellant’s submissions is that the Tribunal erred by failing to appreciate that the Respondent’s omission to declare all its income, contrary to Section 24(1) of the Tax Procedures Act, amounted to fraud or wilful neglect. In the Appellant’s view, such circumstances entitled the Commissioner to issue an assessment outside the ordinary five-year limitation period, as permitted under Section 31(4)(b) of the Act.
23. The Appellant maintains that the variances between the Respondent''s iTax declarations and the outcome of the Appellant’s tax investigations constituted wilful neglect, thereby necessitating assessments beyond the five-year period.
24. To support this position, the Appellant cited R v. Sheppard [1980] UKHL J1127-1, where “wilful neglect” was defined as requiring mens rea, or an intention to act or omit to act truthfully. Further reliance was placed on Stefanutti Stocks Kenya Limited v Commissioner of Domestic Taxes (Tax Appeal E117 of 2021), where the Court held that the burden rests on the Commissioner to prove gross or wilful neglect, evasion, or fraud in order to justify an assessment beyond the statutory five-year limitation, and that this is essentially a question of fact.
25. The Tribunal, however, found that the assessments for the periods specified under paragraph 19 above (Income tax assessment for the years 2015 and VAT assessment for the periods 2015 to March 2017) were time-barred. In so holding, the Tribunal held that it did not find sufficient evidence of wilful neglect as would displace the five-year limitation under Section 31(4)(b). The Appellant contends that the Tribunal erred in this finding, particularly in light of its own acknowledgment that the Respondent had failed to adduce adequate evidence to explain the variance.
26. Section 31 of the Tax Procedures Act provides in part as follows:
“ 31. Amendment of assessments
(1) Subject to this section, the Commissioner may amend an assessment (referred to in this section as the “original assessment") by making alterations or additions, from the available information and to the best of the Commissioner''s judgement, to the original assessment of a taxpayer for a reporting period to ensure that—
(a) in the case of a deficit carried forward under the Income Tax Act (Cap. 470), the taxpayer is assessed in respect of the correct amount of the deficit carried forward for the reporting period;(b)in the case of an excess amount of input tax under the Value Added Tax Act (Cap. 476), the taxpayer is assessed in respect of the correct amount of the excess input tax carried forward for the reporting period; or(c)in any other case, the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates.
(2) ………
(3) …………
(4) The Commissioner may amend an assessment—
(a) in the case of gross or wilful neglect, evasion, or fraud by, or on behalf of, the taxpayer, at any time; or
(b) in any other case, within five years of—
(i) for a self-assessment, the date that the self-assessment taxpayer submitted the self-assessment return to which the self-assessment relates; or
(ii) for any other assessment, the date the Commissioner notified the taxpayer of the assessment:
Provided that in the case of value-added tax, the input tax shall be allowable for a deduction within six months after the end of the tax period in which the supply or importation occurred.”
27. From the foregoing, it is evident that the Act establishes two distinct timelines within which the Commissioner may, in the exercise of his powers, amend assessments. The first, under Section 31(4)(b), is the ordinary (tax audit-initiated) amendment of assessments, subject to a five-year limitation period. The second, under Section 31(4)(a), permits extraordinary (tax investigations initiated) amendment of assessments at any time where gross or wilful neglect, evasion, or fraud by, or on behalf of, the taxpayer is established.
28. With respect to ‘tax audit-initiated’ amendments under Section 31(4)(b), the five-year period begins to run from the date on which the taxpayer files the self-assessment return (in cases involving self-assessment), or for other forms of assessments (such as default or advance assessments) the 5-year limitation period is to be reckoned from the date on which the Commissioner notifies the taxpayer of the assessment.
29. As regards ‘tax investigations initiated’ amendment of assessments under Section 31(4)(a), the law expressly removes any temporal limitation. Where an assessment arises from gross or wilful neglect, evasion, or fraud, the Commissioner may amend it at any time. This provision, which generally applies in tax investigation cases (as opposed to normal tax audits) was recently considered in Stefanutti Stocks Kenya Limited v Commissioner of Domestic Taxes [2023] KEHC 2322 (KLR), where Majanja J observed:
“The obvious question that follows is whether the Appellant was guilty of gross or wilful neglect, evasion, or fraud for the Commissioner to amend its self-assessment beyond the five-year period as required by law. This is a question of fact that was within the province of the Tribunal and this court, dealing with only matters of law can only make a determination whether the Tribunal correctly apprehended the evidence and came to the right conclusion. The Tribunal was correct to state that the TPA does not define ‘gross or wilful neglect’ and in the circumstances, it could not be faulted for seeking and finding its ordinary meaning in the Black’s Law Dictionary which defines gross negligence as "a severe degree of negligence taken as reckless disregard. Blatant indifference to one''s legal duty, others safety, or their rights, are examples."
30. It is trite that in tax matters, the burden of proof generally rests on the taxpayer to demonstrate that an assessment is excessive or erroneous, as provided under Section 56(1) of the Tax Procedures Act. However, where the Commissioner purports to issue an assessment beyond the ordinary five-year limitation, the burden shifts to the Commissioner to first establish the existence of gross or wilful neglect, evasion, or fraud on the part of the taxpayer so as to justify reliance on Section 31(4)(a).
31. The safeguard requiring the Commissioner to first lay the basis for assessments beyond the 5-year period is necessary, particularly in view that under Section 23(1)(c) of the Tax Procedures Act, which requires taxpayers to retain records for a maximum of five years.
32. Once the Commissioner elects to issue an assessment beyond the five-year period on the basis of alleged wilful neglect, fraud, or evasion, it then falls to the Tribunal, and ultimately the courts on appeal, to interrogate whether the reasons advanced by the Commissioner are sufficiently supported in fact and law to justify displacement of the statutory limitation. In this way, the safeguard under Section 31(4)(a) is preserved.
33. In the present case, the Appellant contends that its decision to issue additional assessments beyond the statutory five-year period was justified by the variances identified from the Respondent’s tax declarations on iTax and the results of its investigations.
34. However, upon careful consideration, I note that the amended assessment forming the subject of these proceedings was issued under Section 31 of the Tax Procedures Act. The Commissioner’s letter dated 11th May 2022, which communicated the assessment, simply described it as “a formal notice assessment under Section 31 of the Tax Procedures Act, 2015,” without reference to subsection (4)(a).
35. By failing to ground the assessment in Section 31(4)(a)—the sole provision authorising amendment beyond the statutory five-year period—the Commissioner deprived himself of the legal foundation to later invoke that subsection. His attempt, in the Objection Decision dated 16th August 2022, to rely on Section 31(4)(a) only after the Respondent had raised the issue of limitation in his Objection, was, in my view, untenable in law.
36. The proper course would have been for the Commissioner to notify the Respondent, at the earliest opportunity and in any event no later than the date of the assessment, that the assessment was being made pursuant to Section 31(4)(a). The notice should specify the precise period being covered and set out the reasons necessitating a departure from the ordinary five-year limitation. It is not sufficient to merely cite the enabling provision without contextual justification, as was the case herein.
37. The Appellant’s contention that the Respondent’s non-disclosure was per se fraudulent is therefore untenable. As already demonstrated, an assessment under Section 31(4)(a) on grounds of fraud, evasion, or wilful neglect can only be justified if, at the time of issuing the assessment, the Commissioner expressly informs the taxpayer that the assessment covers a period beyond five years and clearly states the basis, which the Commissioner failed to do in the present case.
38. Accordingly, the Tribunal was correct in holding that the assessment, having been raised outside the ordinary five-year period, could not stand in the absence of demonstrable proof of wilful neglect, evasion, or fraud by the Respondent.
Disposition
39. For the reasons set out above, this Court finds no merit in the appeal, and the same is hereby dismissed. However, as the Respondent did not participate in the proceedings, I make no order as to costs.
40. It is so ordered.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT THIS
11TH SEPTEMBER 2025
ADO MOSES
JUDGE
In the presence of: -
C/A – Moses
Lemiso
h/b for Ms. Nyakundi………..for the Appellant
N/A…..……………….…..... for the Respondent
'
1. This is an appeal from the judgment of the Tax Appeals Tribunal (the Tribunal) delivered on 26th April 2024. The Appellant, being dissatisfied with the Tribunal’s decision partially setting aside its additional tax assessments on grounds of having been issued beyond the statutory timelines.
2. The background to this matter is that the Appellant, the Commissioner of Investigations and Enforcement of the Kenya Revenue Authority (“the Commissioner”), undertook investigations into the tax affairs of the Respondent. Following the said investigations, the Appellant, by a letter dated 11th May 2022, issued an additional assessment against the Respondent in the sum of Kshs. 129,202,360/-, comprising Kshs. 45,693,235/- in Value Added Tax (VAT) and Kshs. 83,509,125/- in Income Tax.
3. The tax investigations covered the period 2015 to 2020. The basis of the additional assessment, according to the Appellant, was the discovery of material variances between the tax declarations submitted by the Respondent on the iTax platform and the findings of the Appellant’s investigations, which entailed a review of the Respondent’s bank transactions with Equity Bank Limited and DTB Bank. The additional assessment was accordingly issued pursuant to Section 31 of the Tax Procedures Act.
4. The Respondent, vide his tax agent’s letter of 27th May 2022, objected to the assessment, arguing that part of the tax assessment by the Commissioner contravened Sections 23(1C) 31 of the Tax Procedures Act 2015 and was therefore time-barred under the five-year limitation period stipulated in the Act. It was also the Respondent’s position that the Commissioner’s determination of the net taxable income was erroneous since it included inter-bankings, related party financings, and loans.
5. The matter proceeded to the Tax Appeals Tribunal, and the Tribunal, in its decision delivered on 19th April 2024, partially allowed the appeal and found that VAT assessments for periods 2015 to March 2017, and Income Tax for the year 2015 were time-barred under Section 31(4)(b) of the Tax Procedures Act, and that no sufficient evidence of willful neglect to justify lifting the five-year limitation.
6. The assessments for the rest of the periods were upheld since, according to the Tribunal, the Respondent had failed to provide sufficient documentation to disprove the additional assessment.
The Appeal
7. Aggrieved by parts of the Tribunal''s decision, particularly the finding on the time-barring of assessments, the Appellant filed the present appeal, advancing five grounds of appeal as detailed in its memorandum of appeal dated 14th June 2024. In particular, the Appellant alleged that: -
i. The Tribunal misapplied the law and facts on the burden of proof, therefore arriving at the wrong decision in setting aside the Appellant''s additional assessments over the five-year limitation period.
ii. The Tribunal erred in law and fact by failing to appreciate the Appellant''s case that the allegations of fraud in the dispute were supported by the Appellant''s averment that the Respondent failed to make all declarations truthfully on all the sales that it had made.
iii. The Tribunal erred in law and fact by contradicting itself by one hand finding that the Respondent failed to bridge the variance that was established by the Appellant, while on the other, failing to appreciate that the errors by the Respondent in his tax returns were not mere accounting or reconciliation errors.
iv. The Tribunal failed to appreciate that the Appellant provided the basis of additional assessment, which the Respondent failed to disprove.
v. That Tribunal erred in law and fact in the computation of timelines as the Appellant''s investigations commenced in the year 2021 and not 2022. The year of income 2016 falls within the five-year limitation.
8. The Respondent did not file any response to the appeal, nor did it place any submissions on record, despite evidence of proper service as shown in the affidavit of service dated 28th May 2025. The appeal shall therefore be determined on the basis of the Appellant’s pleadings and submissions on record, though the Court will also consider the record as it stood before the Tribunal in order to ensure a fair and balanced determination.
Appellant’s Submissions
9. The Appellant, through Ms. Nyakundi, in its submissions dated 25th November 2024, argued its case under two broad headings: (a) Whether the allegations of wilful neglect against the Respondent were substantiated; and (b) Whether the Respondent discharged its burden of proof in rebutting the additional assessments.
10. On the first issue, the Appellant argued that the Tribunal erred in holding that VAT assessed before March 2017 and income tax for the year 2015 were time-barred. In the Appellant’s view, the Respondent’s conduct amounted to wilful neglect, thereby entitling the Commissioner to extend the scope of assessment in line with Section 31(4) of the Tax Procedures Act, which permits the Commissioner to amend an assessment beyond the five-year limitation period in cases of “gross or wilful neglect, evasion or fraud.”
11. The Appellant explained that variances identified between the Respondent’s tax declarations on iTax and its actual income as established in its bank records, prima facie demonstrated deliberate omission of taxable sales. This, it was urged, could not reasonably be dismissed as mere accounting errors.
12. To fortify this argument, the Appellant relied on Section 24(1) of the TPA, which obliges taxpayers to make full and accurate declarations in approved form and in the manner prescribed by the Commissioner. It further relied on the House of Lords decision in R v Sheppard [1980] UKHL J1127-1, where the term “wilful neglect” was defined as neglect accompanied by mens rea or a conscious failure to act. In the Appellant’s view, wilful neglect under Kenyan tax law encompasses a taxpayer’s deliberate failure to disclose all taxable income, thereby misleading the Commissioner.
13. The Appellant further cited Stefanutti Stocks Kenya Limited v Commissioner of Domestic Taxes (Tax Appeal E117 of 2021), where the High Court emphasized that tax legislation must be interpreted strictly, and that the only basis upon which the Commissioner may amend assessments beyond the statutory five-year period is the presence of gross or wilful neglect, evasion, or fraud. In the present matter, the Appellant submitted, the Tribunal failed to properly apprehend this test and erroneously excluded certain tax years from the assessment window.
14. On the second issue, the Appellant submitted that both section 56(1) of the TPA and section 30 of the Tax Appeals Tribunal Act place the burden of proof squarely on the taxpayer to disprove an assessment. Once an assessment is issued, it enjoys a presumption of correctness until rebutted by the taxpayer through documentary evidence. Counsel asserted that Section 23(1)(b) of the TPA further imposes a statutory duty on taxpayers to keep sufficient records to enable verification of their tax position.
15. Counsel argued that the Appellant having established variances in the Respondent’s self-declarations, it was incumbent upon the Respondent to provide reconciliations supported by proper source documents, a burden the Respondent failed to discharge.
16. It was submitted that the Tribunal having acknowledged at paragraphs 56 to 60 of its judgment that: (i) the Respondent did not provide sufficient supporting documents to show that the under-declared income did not constitute revenue; and (ii) the Respondent failed to adduce documents evidencing its dealings with related parties or loan agreements to substantiate its claims that certain credits were non-taxable inflows, ought to have led to a conclusion in favour of upholding the assessments rather than setting them aside.
17. It was therefore the Appellant’s submissions that the Tribunal’s decision to relieve the Respondent of tax liability despite these evidentiary gaps was, in the Appellant’s submission, a misdirection in law and fact.
18. In the premises, the Appellant urged this Court to find that the additional assessments were validly issued and that the Respondent had failed to discharge its burden of proof. It therefore prayed that the appeal be allowed, that the Tribunal’s judgment be set aside in its entirety, and that costs of the appeal be awarded to the Appellant.
Analysis and Determination
19. Having considered the submissions of the Appellant and the Record of Appeal and the applicable law, the Court finds that the only legal issue requiring determination is whether the Tribunal erred in partially allowing the appeal by setting aside the additional Income tax assessment for the years 2015 and VAT assessment for the period 2015 to March 2017 on account of being time-barred.
20. In determining this appeal I am well guided by the decision in Selle & another v Associated Motor Boat Co Ltd & others [1968] EA 123 and Peters v Sunday Post Limited [1958] on the duty of the appellate court to re-evaluate the evidence before the trial court as well as the judgment and arrive at its independent conclusion bearing in mind that it did not have the opportunity of seeing and hearing the witnesses first hand.
21. In the case of Mursal & another v Manese (suing as the legal administrator of Dalphine Kanini Manesa) (Civil Appeal E20 of 2021) [2022] KEHC 282 (KLR) (6 April 2022) (Judgment) Hon Mativo J (as he then was) further enunciated on the role of the appellate court as follows:
“A first appellate court has jurisdiction to reverse or affirm the findings of the trial court. A first appeal is a valuable right of the parties and unless restricted by law, the whole case is therein open for rehearing both on questions of fact and law. The judgment of the appellate court, must, therefore, reflect its conscious application of mind and record findings supported by reasons, on all the issues arising along with the contentions put forth, and pressed by the parties for decision of the appellate court. While reversing a finding of fact the appellate court must come into close quarters with the reasoning assigned by the trial court and then assign its own reasons for arriving at a different finding. This would satisfy the court hearing a further appeal that the first appellate court had discharged the duty expected of it.”
Whether the Assessments were time-barred.
22. The principal contention advanced in the Appellant’s submissions is that the Tribunal erred by failing to appreciate that the Respondent’s omission to declare all its income, contrary to Section 24(1) of the Tax Procedures Act, amounted to fraud or wilful neglect. In the Appellant’s view, such circumstances entitled the Commissioner to issue an assessment outside the ordinary five-year limitation period, as permitted under Section 31(4)(b) of the Act.
23. The Appellant maintains that the variances between the Respondent''s iTax declarations and the outcome of the Appellant’s tax investigations constituted wilful neglect, thereby necessitating assessments beyond the five-year period.
24. To support this position, the Appellant cited R v. Sheppard [1980] UKHL J1127-1, where “wilful neglect” was defined as requiring mens rea, or an intention to act or omit to act truthfully. Further reliance was placed on Stefanutti Stocks Kenya Limited v Commissioner of Domestic Taxes (Tax Appeal E117 of 2021), where the Court held that the burden rests on the Commissioner to prove gross or wilful neglect, evasion, or fraud in order to justify an assessment beyond the statutory five-year limitation, and that this is essentially a question of fact.
25. The Tribunal, however, found that the assessments for the periods specified under paragraph 19 above (Income tax assessment for the years 2015 and VAT assessment for the periods 2015 to March 2017) were time-barred. In so holding, the Tribunal held that it did not find sufficient evidence of wilful neglect as would displace the five-year limitation under Section 31(4)(b). The Appellant contends that the Tribunal erred in this finding, particularly in light of its own acknowledgment that the Respondent had failed to adduce adequate evidence to explain the variance.
26. Section 31 of the Tax Procedures Act provides in part as follows:
“ 31. Amendment of assessments
(1) Subject to this section, the Commissioner may amend an assessment (referred to in this section as the “original assessment") by making alterations or additions, from the available information and to the best of the Commissioner''s judgement, to the original assessment of a taxpayer for a reporting period to ensure that—
(a) in the case of a deficit carried forward under the Income Tax Act (Cap. 470), the taxpayer is assessed in respect of the correct amount of the deficit carried forward for the reporting period;(b)in the case of an excess amount of input tax under the Value Added Tax Act (Cap. 476), the taxpayer is assessed in respect of the correct amount of the excess input tax carried forward for the reporting period; or(c)in any other case, the taxpayer is liable for the correct amount of tax payable in respect of the reporting period to which the original assessment relates.
(2) ………
(3) …………
(4) The Commissioner may amend an assessment—
(a) in the case of gross or wilful neglect, evasion, or fraud by, or on behalf of, the taxpayer, at any time; or
(b) in any other case, within five years of—
(i) for a self-assessment, the date that the self-assessment taxpayer submitted the self-assessment return to which the self-assessment relates; or
(ii) for any other assessment, the date the Commissioner notified the taxpayer of the assessment:
Provided that in the case of value-added tax, the input tax shall be allowable for a deduction within six months after the end of the tax period in which the supply or importation occurred.”
27. From the foregoing, it is evident that the Act establishes two distinct timelines within which the Commissioner may, in the exercise of his powers, amend assessments. The first, under Section 31(4)(b), is the ordinary (tax audit-initiated) amendment of assessments, subject to a five-year limitation period. The second, under Section 31(4)(a), permits extraordinary (tax investigations initiated) amendment of assessments at any time where gross or wilful neglect, evasion, or fraud by, or on behalf of, the taxpayer is established.
28. With respect to ‘tax audit-initiated’ amendments under Section 31(4)(b), the five-year period begins to run from the date on which the taxpayer files the self-assessment return (in cases involving self-assessment), or for other forms of assessments (such as default or advance assessments) the 5-year limitation period is to be reckoned from the date on which the Commissioner notifies the taxpayer of the assessment.
29. As regards ‘tax investigations initiated’ amendment of assessments under Section 31(4)(a), the law expressly removes any temporal limitation. Where an assessment arises from gross or wilful neglect, evasion, or fraud, the Commissioner may amend it at any time. This provision, which generally applies in tax investigation cases (as opposed to normal tax audits) was recently considered in Stefanutti Stocks Kenya Limited v Commissioner of Domestic Taxes [2023] KEHC 2322 (KLR), where Majanja J observed:
“The obvious question that follows is whether the Appellant was guilty of gross or wilful neglect, evasion, or fraud for the Commissioner to amend its self-assessment beyond the five-year period as required by law. This is a question of fact that was within the province of the Tribunal and this court, dealing with only matters of law can only make a determination whether the Tribunal correctly apprehended the evidence and came to the right conclusion. The Tribunal was correct to state that the TPA does not define ‘gross or wilful neglect’ and in the circumstances, it could not be faulted for seeking and finding its ordinary meaning in the Black’s Law Dictionary which defines gross negligence as "a severe degree of negligence taken as reckless disregard. Blatant indifference to one''s legal duty, others safety, or their rights, are examples."
30. It is trite that in tax matters, the burden of proof generally rests on the taxpayer to demonstrate that an assessment is excessive or erroneous, as provided under Section 56(1) of the Tax Procedures Act. However, where the Commissioner purports to issue an assessment beyond the ordinary five-year limitation, the burden shifts to the Commissioner to first establish the existence of gross or wilful neglect, evasion, or fraud on the part of the taxpayer so as to justify reliance on Section 31(4)(a).
31. The safeguard requiring the Commissioner to first lay the basis for assessments beyond the 5-year period is necessary, particularly in view that under Section 23(1)(c) of the Tax Procedures Act, which requires taxpayers to retain records for a maximum of five years.
32. Once the Commissioner elects to issue an assessment beyond the five-year period on the basis of alleged wilful neglect, fraud, or evasion, it then falls to the Tribunal, and ultimately the courts on appeal, to interrogate whether the reasons advanced by the Commissioner are sufficiently supported in fact and law to justify displacement of the statutory limitation. In this way, the safeguard under Section 31(4)(a) is preserved.
33. In the present case, the Appellant contends that its decision to issue additional assessments beyond the statutory five-year period was justified by the variances identified from the Respondent’s tax declarations on iTax and the results of its investigations.
34. However, upon careful consideration, I note that the amended assessment forming the subject of these proceedings was issued under Section 31 of the Tax Procedures Act. The Commissioner’s letter dated 11th May 2022, which communicated the assessment, simply described it as “a formal notice assessment under Section 31 of the Tax Procedures Act, 2015,” without reference to subsection (4)(a).
35. By failing to ground the assessment in Section 31(4)(a)—the sole provision authorising amendment beyond the statutory five-year period—the Commissioner deprived himself of the legal foundation to later invoke that subsection. His attempt, in the Objection Decision dated 16th August 2022, to rely on Section 31(4)(a) only after the Respondent had raised the issue of limitation in his Objection, was, in my view, untenable in law.
36. The proper course would have been for the Commissioner to notify the Respondent, at the earliest opportunity and in any event no later than the date of the assessment, that the assessment was being made pursuant to Section 31(4)(a). The notice should specify the precise period being covered and set out the reasons necessitating a departure from the ordinary five-year limitation. It is not sufficient to merely cite the enabling provision without contextual justification, as was the case herein.
37. The Appellant’s contention that the Respondent’s non-disclosure was per se fraudulent is therefore untenable. As already demonstrated, an assessment under Section 31(4)(a) on grounds of fraud, evasion, or wilful neglect can only be justified if, at the time of issuing the assessment, the Commissioner expressly informs the taxpayer that the assessment covers a period beyond five years and clearly states the basis, which the Commissioner failed to do in the present case.
38. Accordingly, the Tribunal was correct in holding that the assessment, having been raised outside the ordinary five-year period, could not stand in the absence of demonstrable proof of wilful neglect, evasion, or fraud by the Respondent.
Disposition
39. For the reasons set out above, this Court finds no merit in the appeal, and the same is hereby dismissed. However, as the Respondent did not participate in the proceedings, I make no order as to costs.
40. It is so ordered.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT THIS
11TH SEPTEMBER 2025
ADO MOSES
JUDGE
In the presence of: -
C/A – Moses
Lemiso
h/b for Ms. Nyakundi………..for the Appellant
N/A…..……………….…..... for the Respondent
'