REPUBLIC OF KENYA
IN THE HIGH COURT AT NAIROBI
MILIMANI COMMERCIAL & TAX DIVISION
HCCOMMITA NO. E316 of 2024
LYDIA WAMBUI MATHIA …. ……………………………APPELLANT
VERSUS
COMMISSIONER OF DOMESTIC TAXES …………………………………………………………………RESPONDENT
(Being an appeal arising from the judgement of the Tax Appeals Tribunal delivered in Nairobi on 22 nd November 2024 in Tax Appeals Tribunal Appeal No. E048 of 2024)
JUDGMENT
Introduction
1. The Appellant is a Kenya Entrepreneur operating under pin no. A005828169Q and operating a business under the name of ELLEM Ventures whose primary activity was to procure and supply KEMSA with personal protective equipment (PPE) during the period under review
2. The Respondent is The Commissioner of Investigations and Enforcement appointed under section 13 of the Kenya Revenue Authority Act 1995. Under section 51 the Kenya Revenue Authority is an agency of the government for the collection and receipt of all revenue. Under section 52 with respect to the performance of its functions under subsection one the authority is mandated to administer and enforce all provisions of the written tax laws set out in parts 1 & 2 of the first schedule to the Act, for purposes of assessing, collecting and accounting for all tax revenues in accordance with those laws.
3. In the year 2020 the appellant was subcontracted to supply 12,500 units of PPE to KEMSA. The contract was valued at Kenya Shillings 58,500,000. According to the appellant she incurred expenses, took friendly loans to enhance her working capital, utilized the funds to procure PPES from various authorized suppliers incurring direct purchase costs, incurred operational costs in terms of labor wages, startup costs, accounting and other professional fees, freight and transport charges.
4. On 19 th December 2022 the taxpayer was issued with a pre assessment notice of Kenya shillings 18, 708, 300 inclusive of penalties due to inconsistencies of turnover declared in the income tax vis a vis VAT1 3 returns. The appellant amended the 2020 income tax return to capture the correct turnover. She did so on the 29 th of December 2022 and the income tax return resulted in a loss of Kenya shillings 59,193 She was requested to support the expenses claimed in their amended return being the cost of sales, freight and transport legal expenses, startup pre operating expenses, bank charges, bookkeeping /finance costs, labor casual wages.
5. That she provided documents that were requested and on 13 th of September 2023 an assessment was raised where some of the expenses were partially allowed in relation to cost of sales other expenses were disallowed citing the insufficiency of the documents provided the assessment amount was Kenya shillings 15,276,783. 26 inclusive of penalties and interest.
6. Dissatisfied with the assessment she filed a full objection with the independent review of objections on 4 th of October 2023 and after various meetings an objection decision was issued and the assessments were fully confirmed the IRO was of the view that the taxpayer had not disturbed her burden of proof regarding whether the expenses were actually incurred and recommended that the taxpayer engages with the Commissioner of taxes ADR. This did not work out for the tax payer.
7. The taxpayer filed appeal at the TAT which rendered its judgment on 22 nd November 2024 , which partly allowed the appeal accepting payments related to cost of sales but confirmed the disallowance of the casual labor and transport expenses of Ksh 16, 900
8. That the appeal is to challenge the decision of the tribunal confirming the respondent’s decision in disallowing the direct labour costs, transport and freight charges.
9. The appellant filed a memorandum of appeal dated 3 rd January 2024 on the following grounds;
a. that the tribunal erred by disallowing casual wage payment even though they were incurred in the production of taxable income contrary to the provisions of section 15 of the income tax ACT
b. that the tribunal erred by disallowing freight and transport costs even though they were incurred in the production of taxable income contrary to section 15 of the income tax ACT
10. Parties filed written submissions.
11. For their appellant the issue for determination is whether the appellant discharge the burden of proof as per the provisions of section 56 of the tax procedures act TPA as read together with section 30 of the tax appeals tribunal act TATA.
12. It is submitted for the appellant that since inception the appellant has provided sufficient information requested by the respondent to illustrate the expenses claimed and incurred in production of taxable income; that the appellant provided a schedule of direct labor costs showing the name, number of days worked and the amounts paid additionally that the taxpayer provided the payment voucher in the name of the person who was contracted to provide transport services and the amounts paid. Responding to the submission on requirement by the respondent that the appellant did not provide identity numbers or acknowledgement of receipt of payment the appellant argues that in direct labor sector particularly for casual or unskilled labor it is not standard practice to record identity numbers or secure signatures for every payment as the laborers often do not report consistently or regularly as such providing formal identification of signatures may not be practical in the circumstances since it was during the COVID 19 pandemic. The appellant posits that if the respondent had doubted the authenticity of the payments, it could have sought to verify the same by contacting a sample of the persons indicated; And that if the labor expenses were not incurred how then were the PPES parked and delivered to Kemsa?.
13. The appellant relies on Onyango versus Commissioner of Domestic Taxes E942 of 2023 where the High Court stated that the burden imposed on the taxpayer under section 56 (1) of the tax procedures act is discharged once the taxpayer adduces relevant and positive evidence to support their position. It is submitted that the court emphasized that the commissioner must then actively challenge or counter that evidence to sustain the assessment. That in the present case the appellant submitted structured schedules, payment vouchers and detailed written explanations of the expenses incurred; all of which constituted positive evidence in the meaning of that judgment
14. The appellants cited paragraph 81 and 82 of the tribunal’s judgment where the tribunal stated;
The other expense disallowed by the respondent relates to freight and transport costs amounting to Kenya shillings 6.9 million. The appellant explained to a great detail how this expense arose and that PPE items were assembled and parked in 625 cartoons with each carton containing 20 sets. These cartons were then transported in 25 separate trips with each trip incurring a cost of Kenya shillings 26,000. The appellants stated that freight in transport costs are substantially supported by payment vouchers paid to different transporters and packagers.
The Tribunal has considered this matter and scrutinized the evidence presented by the appellant to support the expenditure and is of the view that the payment voucher adduced by their appellant does not did not sufficiently discharge the burden of proof to demonstrate the expenditure was indeed incurred. The real proof of expenditure would be for the various transporters who were contracted to have acknowledged that indeed they received the payments and any other documents to support that the expenditure was indeed incurred. The Tribunal is of the considered view that the respondent was justified in disallowing this particular expense of Kenya shillings 6.9 million on the ground that the same was not sufficiently supported
15. Their appellant argues that the position taken by the tribunal is impractical given the nature of the transactions that payments were made in cash and other than the signature on the payment voucher it would be unreasonable to expect further confirmation from the recipient. They submit that for the record only one individual was contracted to provide transport services and that the payment voucher submitted to the respondent clearly identifies the individual and details the amount paid; that the respondent did not dispute the identity of the payee neither did it raise any contention that the income was not declared by the recipient. This also applies to the question of transport and it is argued that the position taken by the tribunal unjustly prejudices the appellant as then how would the delivery of the PPEs to the KEMSA be explained?
16. The court was urged to take notice that the requirement for documentation to be submitted through the electronic invoicing management system came into force following the amendment to section 23 of the TPA by the Finance Act 2023. That these expenses were incurred in 2020 the said provisions were not applicable at the time.
17. This court is urged to find that the appellants provided sufficient evidence as was held in Asea Brown Boveri (ABB) Limited vs Commissioner of Investigations and Enforcement Tribunal Appeal 854 of 2021 [2023] KETAT 92 KLR where the court stated that once documentary evidence is availed and reasonably explains the nature and purpose of an expense the tribunal must evaluate such evidence contextually and not rigidly .
18. The court is urged to find that the appeal has merit and to set aside the decision of the tribunal to the extent that it disallowed the aforementioned expenses particularly by the fact that the appellants operating environment in 2020 was during the peak of the COVID 19 pandemic and it required flexibility documentation of expenses.
19. For the Respondent the issue framed for determination iss whether the Tribunal erred in disallowing the casual wages payments and the freight and transport charges.
20. The Respondent cites s. 15 and 54 of the ITA and submits that for expense to be allowed they must not only be claimed but they must be supported. The appellant also relies on Republic vs Commissioner of Income Tax &another ex parte Stockman Rozen Limited [2015] eKLR where it was held;
…taxable income is that income which has accrued minus allowable deductions in that the said deductions from the accrued income must be those that are allowable under sections 15 (1) and (2 ) of the Act which includes bad debts at section 15 (2)(a) .However for these to be deductible (i) they must be bad or have become bad (ii) they must have been incurred in the production of gains of profits and (iii) they must be estimated to the satisfaction of the Commissioner to have been bad .
21. The respondent submits that the appellant’s claim for freight and transport was Kenya shillings 6.9 million and labor and casual wages was Kenya shillings 10 million. However during its review on labor casual wages the respondent found that the appellant had provided schedules of the labor cost as claimed but the schedule only contained two names of the apparent employees ,the rate of payment and number of days worked and the total cost incurred. However, it did not provide other details for the employees which were their identity numbers and confirmation documents that the employees had received the said payments .Further that the schedules could not prove that the entire Ksh shillings 10 million was actually incurred by the appellant as labor costs and as such the claim was justly disallowed. On freight and transport it is submitted that the appellant provided payment vouchers but did not sufficiently discharge the burden of proof to demonstrate the expenditure was incurred and that there was need to demonstrate the movement of funds which the respondent did not see at the point of review. It was submitted that the appellant had not provided corroborative and positive evidence to show that the respective expense items were wholly and exclusively incurred in generating business income.
22. The respondent relies on section 56 of the Tax Procedures Act and section 30 of the Tax Appeals Tribunal Act to argue that the burden of proof shall be on the taxpayer to prove that a tax decision is incorrect and that in proceedings before the tribunal the appellant has the burden of proving where an appeal relates to an assessment that the assessment is excessive or in any other case that the tax decision should not have been made or should have been made differently.
23. It is submitted that the Appellant did not provide proper tax documents that is purchased invoices did not provide delivery notes to show that goods were actually delivered did not provide bank statements or cash reconciliation statements to show movement of money did not provide any source documents to support expenses. In addition, that the said suppliers had not declared the sales to the appellant in their tax returns.
24. The respondents submitted that it had complied with the terms of the judgment of the tribunal issued on 22 nd November 2024 and recomputed the taxes taking into consideration the costs of sale and thereafter issuing the objection decision of 17 th December 2024 that the appeal before this court lacked merit and should not be allowed to see the light of day. Further that the respondents had explained in itself before the tribunal the reasons for their assessment and the subsequent objection decision. The respondent urges the court to uphold the decision of the tribunal dated 22 nd November 2024 to find that the respondent has complied with the orders of the tribunal issued on the 22 nd May 2024 and that the objection decision of 17 th December 2024 upon re- I computation of the allowed costs of sale demanding for taxes amounting to 4,234, 979/17 plus penalties and interest be found to be justified and valid and the same be upheld.
25. I have carefully considered the ground of appeal, the submissions, and the entire record.
26. Section 56(2) of the Tax Procedures Act provides that an appeal to the High Court from the decision of the Tax Appeals Tribunal or to the Court of Appeal is on a question of law only. In John Munuve Mati -vs- Returning Officer Mwingi North Constituency & 2 others [2018] eKLR , the Court of Appeal summarized what amounts to “matters of law” as follows;
“The interpretation or construction of the Constitution , statute or regulations made thereunder or their application to the sets of facts established by the trial Court. As far as facts are concerned, our engagement with them is limited to background and context and to satisfy ourselves, when the issue is raised, whether the conclusions of the trial judge are based on the evidence on record or whether they are so perverse that no reasonable tribunal would have arrived at them. We cannot be drawn into considerations of the credibility of witnesses or which witnesses are more believable than others; by law that is the province of the trial court.”
27. Before the Tribunal the grounds were premised on its Memorandum of Appeal dated 16 th January 2024 raising the following grounds:
i. That the Respondent erred in fact and law by disallowing deductible business expenses amounting to Kshs.45,937,756.32 in the Appellant’s tax computation which were incurred in the generation of taxpayer’s income; and
ii. That the Respondent erred in fact and law by imposing withholding tax on expenses that the Appellant did not incur for the assessed period .
28. The tribunal found and held that the appeal was partly successful and made orders
a. The Respondent’s Objection Decision dated 5 th December, 2023 is varied to the extent that the expenses relating to the cost of sales for which the Appellant has provided documentation is allowed.
b. The matter is referred to the Respondent to review its Objection Decision taking into consideration the Tribunal’s Order in (a) above within 30 days of delivery of this Judgment.
c. For the avoidance of doubt, the rest of the Respondent’s Objection Decision dated 5 th December, 2023 be and is hereby upheld.
d. Each party to bear its own costs.
29. The issue that the appellant brings is for this court to determine whether she discharged the burden of proof with respect to labor, freight and transport costs.
30. On objection or appeal Section 56(1) of the Tax Procedures Act provides that , the burden shall be on the taxpayer to prove that a tax decision is incorrect .
31. Before the TAT Section 30 of the Tax Appeals Tribunal Act, provides that the Appellant has the burden of proof to show that the assessment was excessive, incorrect, or illegal, and therefore there was no basis for the Respondent to amend it.
32. Under Section 59 of the Tax Procedures Act it is clear that the duty to maintain records of transactions rests with the taxpayer. The law states;
Production of records (1) For the purposes of obtaining full information in respect of the tax liability of any person or class of persons, or for any other purposes relating to a tax law, the Commissioner or an authorised officer may require any person, by notice in writing, to—
(a) produce for examination, at such time and place as may be specified in the notice, any documents (including in electronic format) that are in the person's custody or under the person's control relating to the tax liability of any person;
(b) furnish information relating to the tax liability of any person in the manner and by the time as specified in the notice; or
(c) attend, at the time and place specified in the notice, for the purpose of giving evidence in respect of any matter or transaction appearing to be relevant to the tax liability of any person.
33. Whether the appellant discharged the burden of proof is a matter of both law and fact. This is because it is a legal requirement to do so, and one does so by providing the factual evidence.
34. Looking at the TAT decision, appellant was asked for supporting documents and supplied the same.
35. It is the position of the appellant that regarding transport costs the appellant provided a document to show that one person was given the contract to provide the transport. The amount of the involved was Ksh 6.9M. The argument is that one person was given the contract and was paid. That payment was in cash. That the respondent does not contest the identity of the person or that he did not declare the sum.
36. The position of the respondent is that there is no proof that any money passed into the hands of the alleged payee. That even if it was payment in cash, there is no evidence of movement of funds from the appellant, either from the bank or anywhere and finally to the alleged payee. Is this unreasonable and prejudicial?
37. The sum involved is Ksh 6.9million. It would be expected that the appellant would provide proof of the movement of this money from itself to the said payee. That money trail in my view is important as it goes to establish that the appellant actually spent the money. I have to agree with the Tribunal that a payment voucher with a signature without any other supporting document would not be sufficient proof that the money was paid.
38. On casual employees, it is averred that the sum of Ksh 10M was incurred. Instead of answering the questions on how this was incurred the appellant posed questions to this court. How did the respondent think the kits were delivered ? How did the respondent think they were packaged? The fact that the appellant is posing the questions- how were the kits packed, and delivered is evidence that the appellant expected the respondent to speculate without the appropriate evidence. The law clearly requires proof.
39. The appellant cites the Asea Brown Boveri case. However, a search indicated it was the TAT decision not the High Court one. Be that as it may I am of the view that the request by the respondent for supporting and corroborative documents was not unreasonable or prejudicial. If the appellant claimed to have paid Ksh 10m to someone, it was upon the appellant to do support that averment with requisite documentation, and in my view the appellant did not provide sufficient evidence. There ought to have been evidence that the appellant took out the money from her accounts or wherever it was, to make the cash payment.
40. I also did not find evidence of delivery of the kits hence there was no proof that the kits were transported to KEMSA as alleged. There was also no evidence of movement of this money from the appellant to the payee.
41. The tribunal settled the factual issues on the evidence before it. And in my view that settles the burden of proof issue.
42. Having found the foregoing, I find no reason to disturb the decision of the tribunal.
43. The same is upheld . The appeal in not merited and the same is dismissed.
44. Orders accordingly.
Dated, signed and delivered via CTS this 14 th January 2026
Mumbua T Matheka
Judge
CA Chrispol
IN THE HIGH COURT AT NAIROBI
MILIMANI COMMERCIAL & TAX DIVISION
HCCOMMITA NO. E316 of 2024
LYDIA WAMBUI MATHIA …. ……………………………APPELLANT
VERSUS
COMMISSIONER OF DOMESTIC TAXES …………………………………………………………………RESPONDENT
(Being an appeal arising from the judgement of the Tax Appeals Tribunal delivered in Nairobi on 22 nd November 2024 in Tax Appeals Tribunal Appeal No. E048 of 2024)
JUDGMENT
Introduction
1. The Appellant is a Kenya Entrepreneur operating under pin no. A005828169Q and operating a business under the name of ELLEM Ventures whose primary activity was to procure and supply KEMSA with personal protective equipment (PPE) during the period under review
2. The Respondent is The Commissioner of Investigations and Enforcement appointed under section 13 of the Kenya Revenue Authority Act 1995. Under section 51 the Kenya Revenue Authority is an agency of the government for the collection and receipt of all revenue. Under section 52 with respect to the performance of its functions under subsection one the authority is mandated to administer and enforce all provisions of the written tax laws set out in parts 1 & 2 of the first schedule to the Act, for purposes of assessing, collecting and accounting for all tax revenues in accordance with those laws.
3. In the year 2020 the appellant was subcontracted to supply 12,500 units of PPE to KEMSA. The contract was valued at Kenya Shillings 58,500,000. According to the appellant she incurred expenses, took friendly loans to enhance her working capital, utilized the funds to procure PPES from various authorized suppliers incurring direct purchase costs, incurred operational costs in terms of labor wages, startup costs, accounting and other professional fees, freight and transport charges.
4. On 19 th December 2022 the taxpayer was issued with a pre assessment notice of Kenya shillings 18, 708, 300 inclusive of penalties due to inconsistencies of turnover declared in the income tax vis a vis VAT1 3 returns. The appellant amended the 2020 income tax return to capture the correct turnover. She did so on the 29 th of December 2022 and the income tax return resulted in a loss of Kenya shillings 59,193 She was requested to support the expenses claimed in their amended return being the cost of sales, freight and transport legal expenses, startup pre operating expenses, bank charges, bookkeeping /finance costs, labor casual wages.
5. That she provided documents that were requested and on 13 th of September 2023 an assessment was raised where some of the expenses were partially allowed in relation to cost of sales other expenses were disallowed citing the insufficiency of the documents provided the assessment amount was Kenya shillings 15,276,783. 26 inclusive of penalties and interest.
6. Dissatisfied with the assessment she filed a full objection with the independent review of objections on 4 th of October 2023 and after various meetings an objection decision was issued and the assessments were fully confirmed the IRO was of the view that the taxpayer had not disturbed her burden of proof regarding whether the expenses were actually incurred and recommended that the taxpayer engages with the Commissioner of taxes ADR. This did not work out for the tax payer.
7. The taxpayer filed appeal at the TAT which rendered its judgment on 22 nd November 2024 , which partly allowed the appeal accepting payments related to cost of sales but confirmed the disallowance of the casual labor and transport expenses of Ksh 16, 900
8. That the appeal is to challenge the decision of the tribunal confirming the respondent’s decision in disallowing the direct labour costs, transport and freight charges.
9. The appellant filed a memorandum of appeal dated 3 rd January 2024 on the following grounds;
a. that the tribunal erred by disallowing casual wage payment even though they were incurred in the production of taxable income contrary to the provisions of section 15 of the income tax ACT
b. that the tribunal erred by disallowing freight and transport costs even though they were incurred in the production of taxable income contrary to section 15 of the income tax ACT
10. Parties filed written submissions.
11. For their appellant the issue for determination is whether the appellant discharge the burden of proof as per the provisions of section 56 of the tax procedures act TPA as read together with section 30 of the tax appeals tribunal act TATA.
12. It is submitted for the appellant that since inception the appellant has provided sufficient information requested by the respondent to illustrate the expenses claimed and incurred in production of taxable income; that the appellant provided a schedule of direct labor costs showing the name, number of days worked and the amounts paid additionally that the taxpayer provided the payment voucher in the name of the person who was contracted to provide transport services and the amounts paid. Responding to the submission on requirement by the respondent that the appellant did not provide identity numbers or acknowledgement of receipt of payment the appellant argues that in direct labor sector particularly for casual or unskilled labor it is not standard practice to record identity numbers or secure signatures for every payment as the laborers often do not report consistently or regularly as such providing formal identification of signatures may not be practical in the circumstances since it was during the COVID 19 pandemic. The appellant posits that if the respondent had doubted the authenticity of the payments, it could have sought to verify the same by contacting a sample of the persons indicated; And that if the labor expenses were not incurred how then were the PPES parked and delivered to Kemsa?.
13. The appellant relies on Onyango versus Commissioner of Domestic Taxes E942 of 2023 where the High Court stated that the burden imposed on the taxpayer under section 56 (1) of the tax procedures act is discharged once the taxpayer adduces relevant and positive evidence to support their position. It is submitted that the court emphasized that the commissioner must then actively challenge or counter that evidence to sustain the assessment. That in the present case the appellant submitted structured schedules, payment vouchers and detailed written explanations of the expenses incurred; all of which constituted positive evidence in the meaning of that judgment
14. The appellants cited paragraph 81 and 82 of the tribunal’s judgment where the tribunal stated;
The other expense disallowed by the respondent relates to freight and transport costs amounting to Kenya shillings 6.9 million. The appellant explained to a great detail how this expense arose and that PPE items were assembled and parked in 625 cartoons with each carton containing 20 sets. These cartons were then transported in 25 separate trips with each trip incurring a cost of Kenya shillings 26,000. The appellants stated that freight in transport costs are substantially supported by payment vouchers paid to different transporters and packagers.
The Tribunal has considered this matter and scrutinized the evidence presented by the appellant to support the expenditure and is of the view that the payment voucher adduced by their appellant does not did not sufficiently discharge the burden of proof to demonstrate the expenditure was indeed incurred. The real proof of expenditure would be for the various transporters who were contracted to have acknowledged that indeed they received the payments and any other documents to support that the expenditure was indeed incurred. The Tribunal is of the considered view that the respondent was justified in disallowing this particular expense of Kenya shillings 6.9 million on the ground that the same was not sufficiently supported
15. Their appellant argues that the position taken by the tribunal is impractical given the nature of the transactions that payments were made in cash and other than the signature on the payment voucher it would be unreasonable to expect further confirmation from the recipient. They submit that for the record only one individual was contracted to provide transport services and that the payment voucher submitted to the respondent clearly identifies the individual and details the amount paid; that the respondent did not dispute the identity of the payee neither did it raise any contention that the income was not declared by the recipient. This also applies to the question of transport and it is argued that the position taken by the tribunal unjustly prejudices the appellant as then how would the delivery of the PPEs to the KEMSA be explained?
16. The court was urged to take notice that the requirement for documentation to be submitted through the electronic invoicing management system came into force following the amendment to section 23 of the TPA by the Finance Act 2023. That these expenses were incurred in 2020 the said provisions were not applicable at the time.
17. This court is urged to find that the appellants provided sufficient evidence as was held in Asea Brown Boveri (ABB) Limited vs Commissioner of Investigations and Enforcement Tribunal Appeal 854 of 2021 [2023] KETAT 92 KLR where the court stated that once documentary evidence is availed and reasonably explains the nature and purpose of an expense the tribunal must evaluate such evidence contextually and not rigidly .
18. The court is urged to find that the appeal has merit and to set aside the decision of the tribunal to the extent that it disallowed the aforementioned expenses particularly by the fact that the appellants operating environment in 2020 was during the peak of the COVID 19 pandemic and it required flexibility documentation of expenses.
19. For the Respondent the issue framed for determination iss whether the Tribunal erred in disallowing the casual wages payments and the freight and transport charges.
20. The Respondent cites s. 15 and 54 of the ITA and submits that for expense to be allowed they must not only be claimed but they must be supported. The appellant also relies on Republic vs Commissioner of Income Tax &another ex parte Stockman Rozen Limited [2015] eKLR where it was held;
…taxable income is that income which has accrued minus allowable deductions in that the said deductions from the accrued income must be those that are allowable under sections 15 (1) and (2 ) of the Act which includes bad debts at section 15 (2)(a) .However for these to be deductible (i) they must be bad or have become bad (ii) they must have been incurred in the production of gains of profits and (iii) they must be estimated to the satisfaction of the Commissioner to have been bad .
21. The respondent submits that the appellant’s claim for freight and transport was Kenya shillings 6.9 million and labor and casual wages was Kenya shillings 10 million. However during its review on labor casual wages the respondent found that the appellant had provided schedules of the labor cost as claimed but the schedule only contained two names of the apparent employees ,the rate of payment and number of days worked and the total cost incurred. However, it did not provide other details for the employees which were their identity numbers and confirmation documents that the employees had received the said payments .Further that the schedules could not prove that the entire Ksh shillings 10 million was actually incurred by the appellant as labor costs and as such the claim was justly disallowed. On freight and transport it is submitted that the appellant provided payment vouchers but did not sufficiently discharge the burden of proof to demonstrate the expenditure was incurred and that there was need to demonstrate the movement of funds which the respondent did not see at the point of review. It was submitted that the appellant had not provided corroborative and positive evidence to show that the respective expense items were wholly and exclusively incurred in generating business income.
22. The respondent relies on section 56 of the Tax Procedures Act and section 30 of the Tax Appeals Tribunal Act to argue that the burden of proof shall be on the taxpayer to prove that a tax decision is incorrect and that in proceedings before the tribunal the appellant has the burden of proving where an appeal relates to an assessment that the assessment is excessive or in any other case that the tax decision should not have been made or should have been made differently.
23. It is submitted that the Appellant did not provide proper tax documents that is purchased invoices did not provide delivery notes to show that goods were actually delivered did not provide bank statements or cash reconciliation statements to show movement of money did not provide any source documents to support expenses. In addition, that the said suppliers had not declared the sales to the appellant in their tax returns.
24. The respondents submitted that it had complied with the terms of the judgment of the tribunal issued on 22 nd November 2024 and recomputed the taxes taking into consideration the costs of sale and thereafter issuing the objection decision of 17 th December 2024 that the appeal before this court lacked merit and should not be allowed to see the light of day. Further that the respondents had explained in itself before the tribunal the reasons for their assessment and the subsequent objection decision. The respondent urges the court to uphold the decision of the tribunal dated 22 nd November 2024 to find that the respondent has complied with the orders of the tribunal issued on the 22 nd May 2024 and that the objection decision of 17 th December 2024 upon re- I computation of the allowed costs of sale demanding for taxes amounting to 4,234, 979/17 plus penalties and interest be found to be justified and valid and the same be upheld.
25. I have carefully considered the ground of appeal, the submissions, and the entire record.
26. Section 56(2) of the Tax Procedures Act provides that an appeal to the High Court from the decision of the Tax Appeals Tribunal or to the Court of Appeal is on a question of law only. In John Munuve Mati -vs- Returning Officer Mwingi North Constituency & 2 others [2018] eKLR , the Court of Appeal summarized what amounts to “matters of law” as follows;
“The interpretation or construction of the Constitution , statute or regulations made thereunder or their application to the sets of facts established by the trial Court. As far as facts are concerned, our engagement with them is limited to background and context and to satisfy ourselves, when the issue is raised, whether the conclusions of the trial judge are based on the evidence on record or whether they are so perverse that no reasonable tribunal would have arrived at them. We cannot be drawn into considerations of the credibility of witnesses or which witnesses are more believable than others; by law that is the province of the trial court.”
27. Before the Tribunal the grounds were premised on its Memorandum of Appeal dated 16 th January 2024 raising the following grounds:
i. That the Respondent erred in fact and law by disallowing deductible business expenses amounting to Kshs.45,937,756.32 in the Appellant’s tax computation which were incurred in the generation of taxpayer’s income; and
ii. That the Respondent erred in fact and law by imposing withholding tax on expenses that the Appellant did not incur for the assessed period .
28. The tribunal found and held that the appeal was partly successful and made orders
a. The Respondent’s Objection Decision dated 5 th December, 2023 is varied to the extent that the expenses relating to the cost of sales for which the Appellant has provided documentation is allowed.
b. The matter is referred to the Respondent to review its Objection Decision taking into consideration the Tribunal’s Order in (a) above within 30 days of delivery of this Judgment.
c. For the avoidance of doubt, the rest of the Respondent’s Objection Decision dated 5 th December, 2023 be and is hereby upheld.
d. Each party to bear its own costs.
29. The issue that the appellant brings is for this court to determine whether she discharged the burden of proof with respect to labor, freight and transport costs.
30. On objection or appeal Section 56(1) of the Tax Procedures Act provides that , the burden shall be on the taxpayer to prove that a tax decision is incorrect .
31. Before the TAT Section 30 of the Tax Appeals Tribunal Act, provides that the Appellant has the burden of proof to show that the assessment was excessive, incorrect, or illegal, and therefore there was no basis for the Respondent to amend it.
32. Under Section 59 of the Tax Procedures Act it is clear that the duty to maintain records of transactions rests with the taxpayer. The law states;
Production of records (1) For the purposes of obtaining full information in respect of the tax liability of any person or class of persons, or for any other purposes relating to a tax law, the Commissioner or an authorised officer may require any person, by notice in writing, to—
(a) produce for examination, at such time and place as may be specified in the notice, any documents (including in electronic format) that are in the person's custody or under the person's control relating to the tax liability of any person;
(b) furnish information relating to the tax liability of any person in the manner and by the time as specified in the notice; or
(c) attend, at the time and place specified in the notice, for the purpose of giving evidence in respect of any matter or transaction appearing to be relevant to the tax liability of any person.
33. Whether the appellant discharged the burden of proof is a matter of both law and fact. This is because it is a legal requirement to do so, and one does so by providing the factual evidence.
34. Looking at the TAT decision, appellant was asked for supporting documents and supplied the same.
35. It is the position of the appellant that regarding transport costs the appellant provided a document to show that one person was given the contract to provide the transport. The amount of the involved was Ksh 6.9M. The argument is that one person was given the contract and was paid. That payment was in cash. That the respondent does not contest the identity of the person or that he did not declare the sum.
36. The position of the respondent is that there is no proof that any money passed into the hands of the alleged payee. That even if it was payment in cash, there is no evidence of movement of funds from the appellant, either from the bank or anywhere and finally to the alleged payee. Is this unreasonable and prejudicial?
37. The sum involved is Ksh 6.9million. It would be expected that the appellant would provide proof of the movement of this money from itself to the said payee. That money trail in my view is important as it goes to establish that the appellant actually spent the money. I have to agree with the Tribunal that a payment voucher with a signature without any other supporting document would not be sufficient proof that the money was paid.
38. On casual employees, it is averred that the sum of Ksh 10M was incurred. Instead of answering the questions on how this was incurred the appellant posed questions to this court. How did the respondent think the kits were delivered ? How did the respondent think they were packaged? The fact that the appellant is posing the questions- how were the kits packed, and delivered is evidence that the appellant expected the respondent to speculate without the appropriate evidence. The law clearly requires proof.
39. The appellant cites the Asea Brown Boveri case. However, a search indicated it was the TAT decision not the High Court one. Be that as it may I am of the view that the request by the respondent for supporting and corroborative documents was not unreasonable or prejudicial. If the appellant claimed to have paid Ksh 10m to someone, it was upon the appellant to do support that averment with requisite documentation, and in my view the appellant did not provide sufficient evidence. There ought to have been evidence that the appellant took out the money from her accounts or wherever it was, to make the cash payment.
40. I also did not find evidence of delivery of the kits hence there was no proof that the kits were transported to KEMSA as alleged. There was also no evidence of movement of this money from the appellant to the payee.
41. The tribunal settled the factual issues on the evidence before it. And in my view that settles the burden of proof issue.
42. Having found the foregoing, I find no reason to disturb the decision of the tribunal.
43. The same is upheld . The appeal in not merited and the same is dismissed.
44. Orders accordingly.
Dated, signed and delivered via CTS this 14 th January 2026
Mumbua T Matheka
Judge
CA Chrispol