' IN THE HIGH COURT OF KENYA AT NAIROBI COMMERCIAL AND TAX DIVISION
INCOME TAX APPEAL NO. E077 of 2024
THE COMMISSIONER OF DOMESTIC TAXES APPELLANT
Versus
CHRYSO EASTERN AFRICA LIMITED RESPONDENT
(Appeal from the Judgement of the Tax Appeals Tribunal delivered on 2ND February 2024)
IN THE REPUBLIC OF KENYA
IN THE TAX APPEALS TRIBUNAL AT NAIROBI, TAX APPEAL NUMBER 1441 OF 2022
CHRYSO EASTERN AFRICA LIMITED APPELLANT
VERSUS
THE COMMISSIONER FOR DOMESTIC TAXES RESPONDER
JUDGEMENT
BACKGROUND OF THE CASE
The Appellant is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act. The Kenya Revenue Authority is responsible for, among other things, Assessment, collection, accounting, and the general administration of tax revenue on behalf of the Government of Kenya. The Respondent is a limited liability company duly incorporated under the Companies Act and carries on the business of manufacturing, transforming, and marketing admixtures and additives for the construction industry.
During the years of income 2016 through 2020, the Respondent duly filed its Value Added Tax (“VAT”) and Income Tax self-assessment returns in full compliance with the VAT Act, 2013, and the Income Tax Act. The Appellant conducted an audit of the Respondent''s tax affairs for the aforementioned period.
On 6 May 2021, the Appellant issued the Respondent with desk review findings, raising an additional assessment totaling KES 97,241,044.00. According to the Appellant''s findings, this additional Assessment stemmed from unspecified sources. Alleged variances between sales as per the accounting ledgers and those declared on the Income Tax Company return (IT2C);
Alleged variances on purchases reported in the VAT3 return (used for monthly VAT declarations) and the Corporate Income Tax IT2C returns.
Disallowed expenses amounting to KES 88,488,042.00.
Additional VAT on “expected sales” (KES 6,259,633.00); and
Withholding tax of KES 2,493,329.00.
Consequently, the Respondent, through its tax representatives, lodged a Notice of Objection dated 1 July 2022 against the Appellant''s additional Assessment. The Respondent also paid the taxes not in dispute in accordance with Section 51(3) of the Tax Procedures Act ("TPA").
In the said Notice of Objection, the Respondent provided elaborate explanations and detailed reconciliations as well as supporting documents addressing the issues emanating from the Appellant’s desk review findings.
In disregard for the Respondent''s explanations and supporting evidence, the Appellant issued the Respondent with an Objection Decision dated 13 October 2022, in which it confirmed the Assessment of KES 97,241,004.00 for the period January 2016 to December. 2020.
Aggrieved by the Appellant''s Objection Decision, the Respondent lodged an Appeal at the Tax Appeals Tribunal seeking the vacation of the Respondent''s additional Assessment.
In lodging its Appeal and in accordance with the provisions of the Tax Appeals Tribunal Act, the Respondent filed a Memorandum of Appeal and a Statement of Facts, both dated 25 November 2022.
Bearing in mind that the burden of proof rested upon it, the Respondent annexed to its Statement of Facts all supporting documents that were provided to the Appellant in the Notice of Objection dated 1 July 2022.
Respondent explanations
In its Statement of Facts and Submissions, filed at the Tribunal, the Respondent reiterated the same explanations for the variances that it had provided the Appellant in its Notice of Objection.
The Respondent explained that some transport fees were included in export ledger accounts but related to local sales, causing the noted discrepancies. Additionally, some export customer details were inadvertently omitted.
A further variance of KES 7,060,271 arose from differences in currency conversion rates between accounting records and VAT declarations, given that most invoices were denominated in foreign currency.
The Respondent clarified that some purchases related to direct sales by Chryso South Africa to customers in other jurisdictions (e.g., Uganda and Tanzania), bypassing Kenya. For VAT purposes, these did not qualify for input tax claims in Kenya as no import VAT was paid.
For income tax purposes, the Respondent stated these purchases were nonetheless claimed as cost of sales in the Respondent’s books, consistent with tax law.
Additional variances were due to: Purchases cleared under the name of Bolloré Logistics, not Respondent;
Purchases VAT claimed in a different year;
Invoices exceeding the 6-month claim window; and
Exempt supplies that did not attract VAT
The Respondent further evidenced that the expenses disallowed by the Appellant were, in fact, incurred wholly and exclusively in the production of income, as required under Section 15 of the Income Tax Act. These included: Relocation fees, which include staff work permits processing fees and startup costs in Kenya when the company was being set up, were all fully supported.
Staff salaries are paid in South Africa but are recharged to the Respondent.
An increase in leave provision of KES 426,538 was added back in the tax computation for the year 2019, which could be confirmed in the tax return that was filed.
The bonus provision of KES 4,793,752 was treated as a specific provision and was not added back into the tax computation. A portion of the provision was actually paid out in bonuses in the year 2020, and the balance was reversed in the same year. and
Other expenses were also fully supported and qualified to be expensed against income, as they were incurred to earn revenue in the respective years.
THE TRIBUNAL JUDGEMENT
The Tribunal perused and analysed the Respondent''s Memorandum of Appeal, Statement of Facts, and supporting documents annexed thereto, including invoices, local purchase orders, and bills of lading. The Honourable Tribunal also perused the Appellant''s Statement of Facts and Objection Decision. Following its perusal and analysis, the Honourable Tribunal expressed dissatisfaction with the Appellant''s responses to the detailed and elaborate explanations that the Respondent provided. Thus, it allowed the Appeal of the Respondent herein, precipitating the instant Appeal.
The Appellant appealed and mounted the following grounds;
THAT the Honourable Tribunal erred in law and in fact in holding that the Respondent''s Objection Decision dated 13 October 2022 was not proper in law.
THAT the Honourable Tribunal erred in law and in fact in holding that the onus of providing evidence lies with the Appellant.
THAT therefore the Honourable Tribunal erred in law and fact by failing to consider the parties'' pleadings and submissions and decide on the merits.
THAT the Honourable Tribunal erred in law and in fact by concluding that the Appellant''s Assessment and Objection Decision was not justified.
The Court directed parties to canvass the Appeal via submissions.
APPELLANT SUBMISSIONS
The Appellant relies on Section 3 of the Income Tax Act, which imposes a tax on all the income of a person, which was accrued and derived in Kenya, by stating; Subject to, and in accordance with, this Act, a tax to be known as income tax shall be charged for each year of income upon all the income of a person, whether resident or non-resident, which accrued in or was derived from Kenya.
Subject to this Act, income upon which tax is chargeable under this Act is income in respect of—gains or profits from—any business, for whatever period of time, carried on;
The Appellant avers that some elements of the local sales and transportation fees charged by the Respondent were recorded in the export customer''s ledger but were not supported by any documents.
The Appellant reiterates that the purchases that relate to sales that were made ought to have been supported by way of;
Bill of lading
Sample sales invoices to countries outside Kenya
Sample pre-export verification of conformity
Sample bill of lading
Proof of payments by clients
Entries from the country of destination
Confirmation from the customers
On the Purchases VAT incurred in one year but claimed in the VAT Returns for another year, the Respondent did not demonstrate how the timing differences affected the variances. Further, the unsupported expenses were not backed by invoices and proof of payment.
The Appellant states that the Respondent herein cannot merely allege that the Appellant erroneously raised an Assessment against the Respondent, as they did not provide sufficient reasons and evidence supporting the declared tax.
The Appellant further submits that it is a taxpayer''s duty to keep records as prescribed in the Income Tax Act, the VAT Act, and the Tax Procedures Act.
Section 54A(1) of the Income Tax Act provides that;
A person carrying on a business shall keep records of all receipts and expenses, goods purchased and sold, and accounts, books, deeds, contracts, and vouchers which, in the opinion of the Commissioner, are adequate for computing tax. [emphasis added]
Section 43(1) of the VAT Act provides that;
A person shall, for this Act, keep in the course of his business, a complete and accurate written record, whether in electronic form or otherwise, in English or Kiswahili of every transaction he makes, and the record shall be kept in Kenya for a period of five years from the date of the last entry made therein. [emphasis added]
Section 23(1) of the Tax Procedures Act requires the Appellant to keep records that enable the Respondent to assess its tax liability. The provision states that;
A person shall—maintain any document required under a tax law, in either of the official languages; maintain any document required under a tax law to enable the person''s tax liability to be readily ascertained; andsubject to subsection (3), retain the document for a period of five years from the end of the reporting period to which it relates or such shorter period as may be specified in a tax law.
The Appellant further relies on the provisions of Section 59 of the Tax Procedures Act on the production of documents, which provides that.
59. Production of Records
For the purposes of obtaining complete information in respect of the tax liability of any person or class of person, or for any other purposes relating to tax law, the Commissioner or an authorised officer may require any person, by notice in writing, to— .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;
furnish information relating to the tax liability of any person in the manner and by the time as specified in the notice; or
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.
The Appellant states that the Respondent had a duty under Section 51(3) (c) of the Tax Procedures Act to provide all relevant documentation in support of their objection. Moreover, Section 23 of the Tax Procedures Act mandates the Appellant to maintain documents required under any tax law and to provide the same upon request by the Respondent. This is to ensure that the Taxpayer’s tax liabilities can be readily ascertained. The Appellant failed to provide the relevant supporting documents to discharge the burden of proving the assessments as incorrect.
The Appellant places reliance on the South African Supreme Court decision in Metcash Trading Limited v. Commissioner for the South African Revenue Services and Another Case CCT 3/2000, which held that: -
“But the burden of proving the Commissioner wrong then rests on the vendor under Section 37. Because VAT is inherently a system of self–Assessment based on a vendor''s own record, it is obvious that the incidence of this onus can be a decisive factor in the outcome of an objection or Appeal. Unlike income tax, where assessments can elicit genuine differences of opinion about accounting practices, legal interpretations, or similar matters, a VAT assessment must inevitably result in an adverse credibility finding by the Commissioner. By way of analogy, such a finding could usually have entailed a rejection of the truth of the vendors'' records, returns, and related averments. Consequently, the discharge of the onus is a most formidable hurdle facing a VAT vendor who is aggrieved by an assessment: unless the Commissioner''s precipitating credibility finding can be shown to be wrong, the consequential Assessment must stand."
Further, in Kachanja Fabricators & Metal Works v Commissioner Domestic Taxes (Tax Appeal E074 of 2023) [2024] KETAT 715 (KLR) (9 May 2024) (Judgment) referred to by Justice D.S. Majanja in PZ Cussons East Africa Limited Vs. Kenya Revenue Authority (2013) eKLR, the court holding was to the extent that: -
“Where there is an assessment made by the Additional Commissioner upon the Appellant, it is perfectly settled by cases such as Norman v. Galder 267C 293, that the onus is upon the Appellant to show that the Assessment made upon him is excessive and incorrect, and of course, he has completely failed to do so. That is sufficient to dispose of the Appeal, which I accordingly dismiss with costs." 57………the Appellant in the present Appeal has manifestly failed to discharge such an onerous burden of proof placed squarely on it…."
In Primarosa Flowers Limited vs. Commissioner of Domestic Taxes (2019) eKLR, the Hon Makau J, whilst referring to the Australian case of Mulherin vs Commissioner of Taxation [2013] FCAFC 115, held that: - “……the onus is on the taxpayer in proving that the assessment was excessive by adducing positive evidence which demonstrates that the taxable income on which tax ought to have been levied…”
The Appellant therefore submits that the onus was on the Respondent to provide all material documents to enable the Appellant to ascertain that the correct tax returns had been filed on iTax.
The Respondent, having failed to provide the necessary documents and information to validate its objection as provided for in Section 51(11) despite having the burden of proof to do so, the Appellant was proper in exercising its best Judgment and thereby the notice of objection which was done in this case.
What constitutes the Commissioner''s best Judgment was been dealt with extensively in The Commissioner for Her Majesty''s Revenue and Customs TC/2017/02292 Saima Khalid Appellant Vs The Commissioners for Her Majesty''s Respondents Revenue & Customs at paragraph 29 therein, where the Tribunal set out the following requirements for a decision to be to the best of HMRC''s Judgment as follows: - “…the very use of the word ''judgment'' makes it clear that the commissioners are required to exercise their powers in such a way that they make a value judgment on the material which is before them…
Secondly, clearly, there must be some material before the commissioners on which they can base their Judgment. If there is no material at all, it would be impossible to form a judgment as to what tax is due.
Thirdly, it should be recognised, particularly bearing in mind the primary obligation, to which I have referred, of the Taxpayer to make a return himself, that the commissioners should not be required to do the work of the Taxpayer in order to form a conclusion as to the amount of tax which, to the best of their Judgment, is due. In the very nature of things, the relevant information will often be readily available to the Taxpayer. However, it will be difficult for the commissioners to obtain that information without conducting exhaustive investigations. The use of the words ''best of their judgment'' does not envisage placing a burden on the commissioners to carry out exhaustive investigations. What the words ''best of their judgment'' envisage, in my view, is that the commissioners will reasonably consider all material placed before them and, on that material, come to a decision which is reasonable and not arbitrary as to the amount of tax which is due. As long as there is some material on which the commissioners can reasonably act, then they are not required to carry out investigations which may or may not result in further material being placed before them.”
In the instant case, the Respondent failed to prove that the Commissioner''s tax decision was inconsistent in any way, based on extraneous factors, excessive, or incorrect.
The Appellant submits that it demonstrated before the Tribunal what was considered in arriving at the Assessment and subsequently the objection decision, which are within the law.
It is upon this backdrop that the Appellant submits that its Assessment was hinged on the letter of the law. It was upon the Respondent to provide evidence to support its assertions against the Assessment at the objection stage—a fact which admittedly was not considered.
From the foregoing, the Appellant submits that the Tribunal erred in its Judgment by failing to dismiss, and the Appeal herein should be allowed.
RESPONDENT SUBMISSIONS
The Respondent, in opposing the Appellant''s Appeal, submits on the following issues. Whether the Appellant’s Appeal is proper before the Court.
Whether the Honorable Tribunal erred in law and fact in holding that the Appellant’s Objection Decision dated 13 October 2022 was not proper in law.
Whether the honorable Tribunal erroneously placed the evidentiary burden of proof on the Appellant.
The Respondent submits that the instant Appeal is a thinly veiled attempt by the Appellant to invite this Honorable Court to reconsider factual issues (specifically, whether Respondent provided supporting documentation), to improperly introduce submissions that were never filed before the Tax Appeals Tribunal, and to evade the burden of proof which it similarly failed to discharge before the Tribunal.
The instant Appeal does not raise any issue of law for determination by this Honorable Court. On the contrary, it raises a factual issue for determination, that is, whether the Respondent adduced supporting documentation to substantiate its case regarding the incorrectness of the Appellant’s tax decision. The Honorable Tribunal conclusively settled this question of whether the Respondent provided supporting documentation.
In its Judgment, the Honorable Tribunal acknowledged that the Respondent had provided reconciliation and supporting documentation, which included invoices, local purchase orders, and bills of lading.
The Appellant, however, in the instant Appeal, maintains that these documents were not provided. Furthermore, the Appellant goes on to list additional documents it claims were not produced—namely, pre-export verifications, proofs of payment by clients, entries from the country of destination, and confirmations from customers. Notably, these documents were never requested at the Objection stage.
The Appellant thus cannot at this stage require the Respondent to produce these additional documents, which it never requested in the first place.
Besides that, the question of whether supporting documentation was adduced is a factual issue, not a legal one (despite the Appellant''s attempt to frame it as a legal issue concerning record-keeping obligations under the Income Tax Act, Value Added Tax Act, and the TPA).
The Respondent respectfully submits that the jurisdiction of this Honorable Court in the present Appeal is confined to questions of law only, as stipulated under Section 56(2) of the TPA, which provides: "An appeal to the High Court or to the Court of Appeal shall be on a question of law only. See also Kenya Revenue Authority vs Man Diesel & Turbo Se, Kenya [2021] KEHC 13347 (KLR), where the Court stated as follows: "28. Before considering the issues raised in this Appeal, it is important to point out that the jurisdiction of this Court is circumscribed by statute. In this regard, section 56 of the TPA is relevant, and because the said provision stipulates a pertinent jurisdictional question, it is only proper that I reproduce the entire section below…….
(2) An appeal to the High Court or to the Court of Appeal shall be on a question of law only….
An appeal limited to matters of law does not permit the appellate Court to substitute the Tribunal’s decision with its own conclusions based on its own analysis and appreciation of the facts.
The Appellant, through its submissions in the instant Appeal, raises a question of fact, that is, whether the Respondent provided supporting documentation to disprove the Appellant’s tax decision.
The Respondent submits that this is purely a factual issue, which the Tribunal conclusively determined. It does not amount to a legal issue, which is the threshold for appeals to the High Court.
In advancing its position, the Respondent further relies on the decision of the Court of Appeal in the case of John Munuve Mati vs Returning Officer Mwingi North Constituency, Independent Electoral and Boundaries Commission and Paul Musyimi Nzengu [2018] KECA 700 (KLR), which was reiterated in the Man Diesel Case (supra), wherein the Court explained the limitation of the appellate Court in determining appeals 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. We 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."
The Court of Appeal in the case of Mohamed Abdi Mahamud vs Ahmed Abdullahi Mohamad and three others [2018] KECA 677 (KLR) also distinguished a question of law from a question of fact when it cited with approval the reasoning of the Supreme Court of the Philippine''s decision in New Rural Bank Of Gumba vs Fermina S. Abad And Rafael Susan G.R. No. 16818 [2008]. In the said decision, the Court stated, The petitioner would have us delve into the veracity of the documentary evidence and truthfulness of the testimonial evidence presented during the trial of the case at bar …We reiterate the distinction between a question of law and a question of fact. A question of law exists when the doubt or controversy concerns the correct application of law or jurisprudence to a particular set of facts, or when the issue does not call for an examination of the probative value of the evidence presented, the truth or falsehood of facts being admitted. A question of fact exists when the doubt or difference arises as to the truth or falsehood of facts being admitted, or when the query invites calibration of the whole evidence considering mainly the credibility of the witness, the existence and relevancy of specific surrounding circumstances, as well as their relation to each other and to the whole, and to the probability of the situation. This Court cannot adjudicate which party told the truth… by reviewing and revising the evidence adduced at the trial court. Neither verbal sophistry, nor artful misinterpretations of supposed facts can compel this Court to re-examine findings of fact which the trial court made…. absent any showing that there are significant issues involving questions of law."
The determination of whether the Respondent provided supporting documentation to reconcile the variances established during the audit is therefore a matter within the exclusive jurisdiction of the Tribunal and not this Honourable Court sitting in an appellate capacity.
In light of the above, it is evident that the Tribunal correctly analyzed the factual and documentary evidence to arrive at its decision and prays that this Court uphold the same.
The Respondent further submits that in its Statement of Facts dated 19 June 2025, at Paragraphs 31- 40, pointed to the impropriety of the instant Appeal for reasons that the same was filed in violation of the provisions of Rules 3 and 5 of the Tax Appeal Tribunal Act (Appeals to the High Court) Rules.
The Appellant further submits that the Appellant has mischievously attempted to introduce into the Court''s records submissions which were not admitted into the Tribunal''s record. This is evidenced by the typed proceedings, where the Appellant failed to file its submissions as directed by the Tribunal. On 28 September 2023, the Tribunal directed that the Appeal would be determined based solely on the pleadings filed.
Additionally, the Appellant''s Record of Appeal omits the Respondent''s submissions as well as the supporting documents adduced before the Tribunal for this Court''s appreciation. The same is in contravention of Order 42, Rule 13 (4) of the Civil Procedure Rules, which provides as follows; (4) Before allowing the Appeal to go for hearing, the judge shall be satisfied that the following documents are on the court record, and that such of them as are not in the possession of either party have been served on that party, that is to say—
The memorandum of Appeal;
the pleadings;
The notes of the trial magistrate made at the hearing;
the transcript of any official shorthand, typist notes, electronic recording, or palantypist notes made at the hearing;
all affidavits, maps, and other documents whatsoever put in evidence before the magistrate;
the Judgment, order or decree appealed from, and, where appropriate, the order (if any) giving leave to appeal:
Provided that—
A translation into English shall be provided of any document not in that language;
The judge may dispense with the production of any document or Part of a document which is not relevant, other than those specified in paragraphs (a),
(b) and (f).
Noting the proviso of the provision highlighted above, pleadings are vital documents of the Record of Appeal for the Court’s appreciation and determination. The Respondent thus submits that this Court ought not to adjudicate the matter based on an incomplete Record of Appeal.
In urging this, the Respondent relies on the finding of the Supreme Court in the case of Bwana Mohamed Bwana vs Silvano Buko Bonaya & 2 others [2015] eKLR held as follows at Paragraph 41: "Without a record of Appeal, a Court cannot determine the appeal cause before it. Thus, if the requisite bundle of documents is omitted, the Appeal is incompetent and defective, for failing the requirements of the law. A Court cannot exercise its adjudicatory powers conferred by law or the Constitution, where an appeal is incompetent. An incompetent appeal divests a Court of the jurisdiction to consider factual or legal controversies embodied in the relevant issues."
The Respondent submits that the instant Appeal is an attempt by the Appellant to invite this Honourable Court to determine issues of fact contrary to the provisions of the TPA and the TATA. The Respondent urges this Honourable Court to decline the Appellant''s invitation to revisit issues of fact, to reject the Appellant''s improper attempt to introduce material that does not form Part of the Tribunal''s official record, and to dismiss this Appeal as it shuns the appellate process.
Further, the Tribunal, in its findings in the Judgment dated 2 February 2024, held that the Appellant''s Objection Decision was not proper in law because the Appellant upheld the Assessment without considering the supporting documents provided by the Respondent during the Objection stage.
The Appellant, in paragraph 23 of its submissions dated 19 June 2025, affirms that its Assessment was hinged on the letter of the law and that the Respondent failed to provide evidence to support its assertions against the Appellant''s Assessment at the objection stage.
Contrary to the Appellant’s assertion, the Respondent reiterated the same explanations for the noted variances as those provided to the Appellant at the Objection stage before the Tribunal. These explanations were substantiated by supporting documents, which were also reproduced before the Tax Appeals Tribunal. The Respondent explained that some transport fees were included in export ledger accounts but related to local sales, causing the noted discrepancies. Additionally, some export customer details were inadvertently omitted.
A further variance of KES 7,060,271 arose from differences in currency conversion rates between accounting records and VAT declarations, given that most invoices were denominated in foreign currency.
The Respondent clarified that some purchases related to direct sales by Chryso South Africa to customers in other jurisdictions (e.g., Uganda and Tanzania), bypassing Kenya. For VAT purposes, these did not qualify for input tax claims in Kenya as no import VAT was paid.
For income tax purposes, the Respondent stated these purchases were nonetheless claimed as cost of sales in the Respondent’s books, consistent with tax law.
Additional variances were due to: Purchases cleared under the name of Bolloré Logistics, not the Respondent;
Purchases VAT claimed in a different year due to the time of clearance. Invoices exceeding the 6-month claim window, which are not claimable for VAT purposes, yet the same are allowable for income tax purposes; and Exempt supplies that did not attract VAT.
Disallowed expenses: The Respondent further evidenced that the expenses disallowed by the Appellant were, in fact, incurred wholly and exclusively in the production of income, as required under Section
[...truncated]
INCOME TAX APPEAL NO. E077 of 2024
THE COMMISSIONER OF DOMESTIC TAXES APPELLANT
Versus
CHRYSO EASTERN AFRICA LIMITED RESPONDENT
(Appeal from the Judgement of the Tax Appeals Tribunal delivered on 2ND February 2024)
IN THE REPUBLIC OF KENYA
IN THE TAX APPEALS TRIBUNAL AT NAIROBI, TAX APPEAL NUMBER 1441 OF 2022
CHRYSO EASTERN AFRICA LIMITED APPELLANT
VERSUS
THE COMMISSIONER FOR DOMESTIC TAXES RESPONDER
JUDGEMENT
BACKGROUND OF THE CASE
The Appellant is a principal officer appointed under and in accordance with Section 13 of the Kenya Revenue Authority Act. The Kenya Revenue Authority is responsible for, among other things, Assessment, collection, accounting, and the general administration of tax revenue on behalf of the Government of Kenya. The Respondent is a limited liability company duly incorporated under the Companies Act and carries on the business of manufacturing, transforming, and marketing admixtures and additives for the construction industry.
During the years of income 2016 through 2020, the Respondent duly filed its Value Added Tax (“VAT”) and Income Tax self-assessment returns in full compliance with the VAT Act, 2013, and the Income Tax Act. The Appellant conducted an audit of the Respondent''s tax affairs for the aforementioned period.
On 6 May 2021, the Appellant issued the Respondent with desk review findings, raising an additional assessment totaling KES 97,241,044.00. According to the Appellant''s findings, this additional Assessment stemmed from unspecified sources. Alleged variances between sales as per the accounting ledgers and those declared on the Income Tax Company return (IT2C);
Alleged variances on purchases reported in the VAT3 return (used for monthly VAT declarations) and the Corporate Income Tax IT2C returns.
Disallowed expenses amounting to KES 88,488,042.00.
Additional VAT on “expected sales” (KES 6,259,633.00); and
Withholding tax of KES 2,493,329.00.
Consequently, the Respondent, through its tax representatives, lodged a Notice of Objection dated 1 July 2022 against the Appellant''s additional Assessment. The Respondent also paid the taxes not in dispute in accordance with Section 51(3) of the Tax Procedures Act ("TPA").
In the said Notice of Objection, the Respondent provided elaborate explanations and detailed reconciliations as well as supporting documents addressing the issues emanating from the Appellant’s desk review findings.
In disregard for the Respondent''s explanations and supporting evidence, the Appellant issued the Respondent with an Objection Decision dated 13 October 2022, in which it confirmed the Assessment of KES 97,241,004.00 for the period January 2016 to December. 2020.
Aggrieved by the Appellant''s Objection Decision, the Respondent lodged an Appeal at the Tax Appeals Tribunal seeking the vacation of the Respondent''s additional Assessment.
In lodging its Appeal and in accordance with the provisions of the Tax Appeals Tribunal Act, the Respondent filed a Memorandum of Appeal and a Statement of Facts, both dated 25 November 2022.
Bearing in mind that the burden of proof rested upon it, the Respondent annexed to its Statement of Facts all supporting documents that were provided to the Appellant in the Notice of Objection dated 1 July 2022.
Respondent explanations
In its Statement of Facts and Submissions, filed at the Tribunal, the Respondent reiterated the same explanations for the variances that it had provided the Appellant in its Notice of Objection.
The Respondent explained that some transport fees were included in export ledger accounts but related to local sales, causing the noted discrepancies. Additionally, some export customer details were inadvertently omitted.
A further variance of KES 7,060,271 arose from differences in currency conversion rates between accounting records and VAT declarations, given that most invoices were denominated in foreign currency.
The Respondent clarified that some purchases related to direct sales by Chryso South Africa to customers in other jurisdictions (e.g., Uganda and Tanzania), bypassing Kenya. For VAT purposes, these did not qualify for input tax claims in Kenya as no import VAT was paid.
For income tax purposes, the Respondent stated these purchases were nonetheless claimed as cost of sales in the Respondent’s books, consistent with tax law.
Additional variances were due to: Purchases cleared under the name of Bolloré Logistics, not Respondent;
Purchases VAT claimed in a different year;
Invoices exceeding the 6-month claim window; and
Exempt supplies that did not attract VAT
The Respondent further evidenced that the expenses disallowed by the Appellant were, in fact, incurred wholly and exclusively in the production of income, as required under Section 15 of the Income Tax Act. These included: Relocation fees, which include staff work permits processing fees and startup costs in Kenya when the company was being set up, were all fully supported.
Staff salaries are paid in South Africa but are recharged to the Respondent.
An increase in leave provision of KES 426,538 was added back in the tax computation for the year 2019, which could be confirmed in the tax return that was filed.
The bonus provision of KES 4,793,752 was treated as a specific provision and was not added back into the tax computation. A portion of the provision was actually paid out in bonuses in the year 2020, and the balance was reversed in the same year. and
Other expenses were also fully supported and qualified to be expensed against income, as they were incurred to earn revenue in the respective years.
THE TRIBUNAL JUDGEMENT
The Tribunal perused and analysed the Respondent''s Memorandum of Appeal, Statement of Facts, and supporting documents annexed thereto, including invoices, local purchase orders, and bills of lading. The Honourable Tribunal also perused the Appellant''s Statement of Facts and Objection Decision. Following its perusal and analysis, the Honourable Tribunal expressed dissatisfaction with the Appellant''s responses to the detailed and elaborate explanations that the Respondent provided. Thus, it allowed the Appeal of the Respondent herein, precipitating the instant Appeal.
The Appellant appealed and mounted the following grounds;
THAT the Honourable Tribunal erred in law and in fact in holding that the Respondent''s Objection Decision dated 13 October 2022 was not proper in law.
THAT the Honourable Tribunal erred in law and in fact in holding that the onus of providing evidence lies with the Appellant.
THAT therefore the Honourable Tribunal erred in law and fact by failing to consider the parties'' pleadings and submissions and decide on the merits.
THAT the Honourable Tribunal erred in law and in fact by concluding that the Appellant''s Assessment and Objection Decision was not justified.
The Court directed parties to canvass the Appeal via submissions.
APPELLANT SUBMISSIONS
The Appellant relies on Section 3 of the Income Tax Act, which imposes a tax on all the income of a person, which was accrued and derived in Kenya, by stating; Subject to, and in accordance with, this Act, a tax to be known as income tax shall be charged for each year of income upon all the income of a person, whether resident or non-resident, which accrued in or was derived from Kenya.
Subject to this Act, income upon which tax is chargeable under this Act is income in respect of—gains or profits from—any business, for whatever period of time, carried on;
The Appellant avers that some elements of the local sales and transportation fees charged by the Respondent were recorded in the export customer''s ledger but were not supported by any documents.
The Appellant reiterates that the purchases that relate to sales that were made ought to have been supported by way of;
Bill of lading
Sample sales invoices to countries outside Kenya
Sample pre-export verification of conformity
Sample bill of lading
Proof of payments by clients
Entries from the country of destination
Confirmation from the customers
On the Purchases VAT incurred in one year but claimed in the VAT Returns for another year, the Respondent did not demonstrate how the timing differences affected the variances. Further, the unsupported expenses were not backed by invoices and proof of payment.
The Appellant states that the Respondent herein cannot merely allege that the Appellant erroneously raised an Assessment against the Respondent, as they did not provide sufficient reasons and evidence supporting the declared tax.
The Appellant further submits that it is a taxpayer''s duty to keep records as prescribed in the Income Tax Act, the VAT Act, and the Tax Procedures Act.
Section 54A(1) of the Income Tax Act provides that;
A person carrying on a business shall keep records of all receipts and expenses, goods purchased and sold, and accounts, books, deeds, contracts, and vouchers which, in the opinion of the Commissioner, are adequate for computing tax. [emphasis added]
Section 43(1) of the VAT Act provides that;
A person shall, for this Act, keep in the course of his business, a complete and accurate written record, whether in electronic form or otherwise, in English or Kiswahili of every transaction he makes, and the record shall be kept in Kenya for a period of five years from the date of the last entry made therein. [emphasis added]
Section 23(1) of the Tax Procedures Act requires the Appellant to keep records that enable the Respondent to assess its tax liability. The provision states that;
A person shall—maintain any document required under a tax law, in either of the official languages; maintain any document required under a tax law to enable the person''s tax liability to be readily ascertained; andsubject to subsection (3), retain the document for a period of five years from the end of the reporting period to which it relates or such shorter period as may be specified in a tax law.
The Appellant further relies on the provisions of Section 59 of the Tax Procedures Act on the production of documents, which provides that.
59. Production of Records
For the purposes of obtaining complete information in respect of the tax liability of any person or class of person, or for any other purposes relating to tax law, the Commissioner or an authorised officer may require any person, by notice in writing, to— .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;
furnish information relating to the tax liability of any person in the manner and by the time as specified in the notice; or
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.
The Appellant states that the Respondent had a duty under Section 51(3) (c) of the Tax Procedures Act to provide all relevant documentation in support of their objection. Moreover, Section 23 of the Tax Procedures Act mandates the Appellant to maintain documents required under any tax law and to provide the same upon request by the Respondent. This is to ensure that the Taxpayer’s tax liabilities can be readily ascertained. The Appellant failed to provide the relevant supporting documents to discharge the burden of proving the assessments as incorrect.
The Appellant places reliance on the South African Supreme Court decision in Metcash Trading Limited v. Commissioner for the South African Revenue Services and Another Case CCT 3/2000, which held that: -
“But the burden of proving the Commissioner wrong then rests on the vendor under Section 37. Because VAT is inherently a system of self–Assessment based on a vendor''s own record, it is obvious that the incidence of this onus can be a decisive factor in the outcome of an objection or Appeal. Unlike income tax, where assessments can elicit genuine differences of opinion about accounting practices, legal interpretations, or similar matters, a VAT assessment must inevitably result in an adverse credibility finding by the Commissioner. By way of analogy, such a finding could usually have entailed a rejection of the truth of the vendors'' records, returns, and related averments. Consequently, the discharge of the onus is a most formidable hurdle facing a VAT vendor who is aggrieved by an assessment: unless the Commissioner''s precipitating credibility finding can be shown to be wrong, the consequential Assessment must stand."
Further, in Kachanja Fabricators & Metal Works v Commissioner Domestic Taxes (Tax Appeal E074 of 2023) [2024] KETAT 715 (KLR) (9 May 2024) (Judgment) referred to by Justice D.S. Majanja in PZ Cussons East Africa Limited Vs. Kenya Revenue Authority (2013) eKLR, the court holding was to the extent that: -
“Where there is an assessment made by the Additional Commissioner upon the Appellant, it is perfectly settled by cases such as Norman v. Galder 267C 293, that the onus is upon the Appellant to show that the Assessment made upon him is excessive and incorrect, and of course, he has completely failed to do so. That is sufficient to dispose of the Appeal, which I accordingly dismiss with costs." 57………the Appellant in the present Appeal has manifestly failed to discharge such an onerous burden of proof placed squarely on it…."
In Primarosa Flowers Limited vs. Commissioner of Domestic Taxes (2019) eKLR, the Hon Makau J, whilst referring to the Australian case of Mulherin vs Commissioner of Taxation [2013] FCAFC 115, held that: - “……the onus is on the taxpayer in proving that the assessment was excessive by adducing positive evidence which demonstrates that the taxable income on which tax ought to have been levied…”
The Appellant therefore submits that the onus was on the Respondent to provide all material documents to enable the Appellant to ascertain that the correct tax returns had been filed on iTax.
The Respondent, having failed to provide the necessary documents and information to validate its objection as provided for in Section 51(11) despite having the burden of proof to do so, the Appellant was proper in exercising its best Judgment and thereby the notice of objection which was done in this case.
What constitutes the Commissioner''s best Judgment was been dealt with extensively in The Commissioner for Her Majesty''s Revenue and Customs TC/2017/02292 Saima Khalid Appellant Vs The Commissioners for Her Majesty''s Respondents Revenue & Customs at paragraph 29 therein, where the Tribunal set out the following requirements for a decision to be to the best of HMRC''s Judgment as follows: - “…the very use of the word ''judgment'' makes it clear that the commissioners are required to exercise their powers in such a way that they make a value judgment on the material which is before them…
Secondly, clearly, there must be some material before the commissioners on which they can base their Judgment. If there is no material at all, it would be impossible to form a judgment as to what tax is due.
Thirdly, it should be recognised, particularly bearing in mind the primary obligation, to which I have referred, of the Taxpayer to make a return himself, that the commissioners should not be required to do the work of the Taxpayer in order to form a conclusion as to the amount of tax which, to the best of their Judgment, is due. In the very nature of things, the relevant information will often be readily available to the Taxpayer. However, it will be difficult for the commissioners to obtain that information without conducting exhaustive investigations. The use of the words ''best of their judgment'' does not envisage placing a burden on the commissioners to carry out exhaustive investigations. What the words ''best of their judgment'' envisage, in my view, is that the commissioners will reasonably consider all material placed before them and, on that material, come to a decision which is reasonable and not arbitrary as to the amount of tax which is due. As long as there is some material on which the commissioners can reasonably act, then they are not required to carry out investigations which may or may not result in further material being placed before them.”
In the instant case, the Respondent failed to prove that the Commissioner''s tax decision was inconsistent in any way, based on extraneous factors, excessive, or incorrect.
The Appellant submits that it demonstrated before the Tribunal what was considered in arriving at the Assessment and subsequently the objection decision, which are within the law.
It is upon this backdrop that the Appellant submits that its Assessment was hinged on the letter of the law. It was upon the Respondent to provide evidence to support its assertions against the Assessment at the objection stage—a fact which admittedly was not considered.
From the foregoing, the Appellant submits that the Tribunal erred in its Judgment by failing to dismiss, and the Appeal herein should be allowed.
RESPONDENT SUBMISSIONS
The Respondent, in opposing the Appellant''s Appeal, submits on the following issues. Whether the Appellant’s Appeal is proper before the Court.
Whether the Honorable Tribunal erred in law and fact in holding that the Appellant’s Objection Decision dated 13 October 2022 was not proper in law.
Whether the honorable Tribunal erroneously placed the evidentiary burden of proof on the Appellant.
The Respondent submits that the instant Appeal is a thinly veiled attempt by the Appellant to invite this Honorable Court to reconsider factual issues (specifically, whether Respondent provided supporting documentation), to improperly introduce submissions that were never filed before the Tax Appeals Tribunal, and to evade the burden of proof which it similarly failed to discharge before the Tribunal.
The instant Appeal does not raise any issue of law for determination by this Honorable Court. On the contrary, it raises a factual issue for determination, that is, whether the Respondent adduced supporting documentation to substantiate its case regarding the incorrectness of the Appellant’s tax decision. The Honorable Tribunal conclusively settled this question of whether the Respondent provided supporting documentation.
In its Judgment, the Honorable Tribunal acknowledged that the Respondent had provided reconciliation and supporting documentation, which included invoices, local purchase orders, and bills of lading.
The Appellant, however, in the instant Appeal, maintains that these documents were not provided. Furthermore, the Appellant goes on to list additional documents it claims were not produced—namely, pre-export verifications, proofs of payment by clients, entries from the country of destination, and confirmations from customers. Notably, these documents were never requested at the Objection stage.
The Appellant thus cannot at this stage require the Respondent to produce these additional documents, which it never requested in the first place.
Besides that, the question of whether supporting documentation was adduced is a factual issue, not a legal one (despite the Appellant''s attempt to frame it as a legal issue concerning record-keeping obligations under the Income Tax Act, Value Added Tax Act, and the TPA).
The Respondent respectfully submits that the jurisdiction of this Honorable Court in the present Appeal is confined to questions of law only, as stipulated under Section 56(2) of the TPA, which provides: "An appeal to the High Court or to the Court of Appeal shall be on a question of law only. See also Kenya Revenue Authority vs Man Diesel & Turbo Se, Kenya [2021] KEHC 13347 (KLR), where the Court stated as follows: "28. Before considering the issues raised in this Appeal, it is important to point out that the jurisdiction of this Court is circumscribed by statute. In this regard, section 56 of the TPA is relevant, and because the said provision stipulates a pertinent jurisdictional question, it is only proper that I reproduce the entire section below…….
(2) An appeal to the High Court or to the Court of Appeal shall be on a question of law only….
An appeal limited to matters of law does not permit the appellate Court to substitute the Tribunal’s decision with its own conclusions based on its own analysis and appreciation of the facts.
The Appellant, through its submissions in the instant Appeal, raises a question of fact, that is, whether the Respondent provided supporting documentation to disprove the Appellant’s tax decision.
The Respondent submits that this is purely a factual issue, which the Tribunal conclusively determined. It does not amount to a legal issue, which is the threshold for appeals to the High Court.
In advancing its position, the Respondent further relies on the decision of the Court of Appeal in the case of John Munuve Mati vs Returning Officer Mwingi North Constituency, Independent Electoral and Boundaries Commission and Paul Musyimi Nzengu [2018] KECA 700 (KLR), which was reiterated in the Man Diesel Case (supra), wherein the Court explained the limitation of the appellate Court in determining appeals 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. We 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."
The Court of Appeal in the case of Mohamed Abdi Mahamud vs Ahmed Abdullahi Mohamad and three others [2018] KECA 677 (KLR) also distinguished a question of law from a question of fact when it cited with approval the reasoning of the Supreme Court of the Philippine''s decision in New Rural Bank Of Gumba vs Fermina S. Abad And Rafael Susan G.R. No. 16818 [2008]. In the said decision, the Court stated, The petitioner would have us delve into the veracity of the documentary evidence and truthfulness of the testimonial evidence presented during the trial of the case at bar …We reiterate the distinction between a question of law and a question of fact. A question of law exists when the doubt or controversy concerns the correct application of law or jurisprudence to a particular set of facts, or when the issue does not call for an examination of the probative value of the evidence presented, the truth or falsehood of facts being admitted. A question of fact exists when the doubt or difference arises as to the truth or falsehood of facts being admitted, or when the query invites calibration of the whole evidence considering mainly the credibility of the witness, the existence and relevancy of specific surrounding circumstances, as well as their relation to each other and to the whole, and to the probability of the situation. This Court cannot adjudicate which party told the truth… by reviewing and revising the evidence adduced at the trial court. Neither verbal sophistry, nor artful misinterpretations of supposed facts can compel this Court to re-examine findings of fact which the trial court made…. absent any showing that there are significant issues involving questions of law."
The determination of whether the Respondent provided supporting documentation to reconcile the variances established during the audit is therefore a matter within the exclusive jurisdiction of the Tribunal and not this Honourable Court sitting in an appellate capacity.
In light of the above, it is evident that the Tribunal correctly analyzed the factual and documentary evidence to arrive at its decision and prays that this Court uphold the same.
The Respondent further submits that in its Statement of Facts dated 19 June 2025, at Paragraphs 31- 40, pointed to the impropriety of the instant Appeal for reasons that the same was filed in violation of the provisions of Rules 3 and 5 of the Tax Appeal Tribunal Act (Appeals to the High Court) Rules.
The Appellant further submits that the Appellant has mischievously attempted to introduce into the Court''s records submissions which were not admitted into the Tribunal''s record. This is evidenced by the typed proceedings, where the Appellant failed to file its submissions as directed by the Tribunal. On 28 September 2023, the Tribunal directed that the Appeal would be determined based solely on the pleadings filed.
Additionally, the Appellant''s Record of Appeal omits the Respondent''s submissions as well as the supporting documents adduced before the Tribunal for this Court''s appreciation. The same is in contravention of Order 42, Rule 13 (4) of the Civil Procedure Rules, which provides as follows; (4) Before allowing the Appeal to go for hearing, the judge shall be satisfied that the following documents are on the court record, and that such of them as are not in the possession of either party have been served on that party, that is to say—
The memorandum of Appeal;
the pleadings;
The notes of the trial magistrate made at the hearing;
the transcript of any official shorthand, typist notes, electronic recording, or palantypist notes made at the hearing;
all affidavits, maps, and other documents whatsoever put in evidence before the magistrate;
the Judgment, order or decree appealed from, and, where appropriate, the order (if any) giving leave to appeal:
Provided that—
A translation into English shall be provided of any document not in that language;
The judge may dispense with the production of any document or Part of a document which is not relevant, other than those specified in paragraphs (a),
(b) and (f).
Noting the proviso of the provision highlighted above, pleadings are vital documents of the Record of Appeal for the Court’s appreciation and determination. The Respondent thus submits that this Court ought not to adjudicate the matter based on an incomplete Record of Appeal.
In urging this, the Respondent relies on the finding of the Supreme Court in the case of Bwana Mohamed Bwana vs Silvano Buko Bonaya & 2 others [2015] eKLR held as follows at Paragraph 41: "Without a record of Appeal, a Court cannot determine the appeal cause before it. Thus, if the requisite bundle of documents is omitted, the Appeal is incompetent and defective, for failing the requirements of the law. A Court cannot exercise its adjudicatory powers conferred by law or the Constitution, where an appeal is incompetent. An incompetent appeal divests a Court of the jurisdiction to consider factual or legal controversies embodied in the relevant issues."
The Respondent submits that the instant Appeal is an attempt by the Appellant to invite this Honourable Court to determine issues of fact contrary to the provisions of the TPA and the TATA. The Respondent urges this Honourable Court to decline the Appellant''s invitation to revisit issues of fact, to reject the Appellant''s improper attempt to introduce material that does not form Part of the Tribunal''s official record, and to dismiss this Appeal as it shuns the appellate process.
Further, the Tribunal, in its findings in the Judgment dated 2 February 2024, held that the Appellant''s Objection Decision was not proper in law because the Appellant upheld the Assessment without considering the supporting documents provided by the Respondent during the Objection stage.
The Appellant, in paragraph 23 of its submissions dated 19 June 2025, affirms that its Assessment was hinged on the letter of the law and that the Respondent failed to provide evidence to support its assertions against the Appellant''s Assessment at the objection stage.
Contrary to the Appellant’s assertion, the Respondent reiterated the same explanations for the noted variances as those provided to the Appellant at the Objection stage before the Tribunal. These explanations were substantiated by supporting documents, which were also reproduced before the Tax Appeals Tribunal. The Respondent explained that some transport fees were included in export ledger accounts but related to local sales, causing the noted discrepancies. Additionally, some export customer details were inadvertently omitted.
A further variance of KES 7,060,271 arose from differences in currency conversion rates between accounting records and VAT declarations, given that most invoices were denominated in foreign currency.
The Respondent clarified that some purchases related to direct sales by Chryso South Africa to customers in other jurisdictions (e.g., Uganda and Tanzania), bypassing Kenya. For VAT purposes, these did not qualify for input tax claims in Kenya as no import VAT was paid.
For income tax purposes, the Respondent stated these purchases were nonetheless claimed as cost of sales in the Respondent’s books, consistent with tax law.
Additional variances were due to: Purchases cleared under the name of Bolloré Logistics, not the Respondent;
Purchases VAT claimed in a different year due to the time of clearance. Invoices exceeding the 6-month claim window, which are not claimable for VAT purposes, yet the same are allowable for income tax purposes; and Exempt supplies that did not attract VAT.
Disallowed expenses: The Respondent further evidenced that the expenses disallowed by the Appellant were, in fact, incurred wholly and exclusively in the production of income, as required under Section
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