1. This is an appeal from the judgment of the Tax Appeals Tribunal (the “Tribunal”) delivered on 21st November 2024 in Tax Appeal No. E937 of 2023. The Appellant challenges the Tribunal’s dismissal of its appeal against additional income tax and VAT assessments issued by the Respondent (Kenya Revenue Authority) for the years 2020–2022.
2. The background of the dispute is that the Respondent conducted an audit of the Appellant’s tax affairs and, on 9th June 2023, issued additional tax assessments totaling Kshs. 9,530,913 for VAT and income tax. The assessments were primarily based on a bank deposit analysis, which revealed discrepancies between deposits into the Appellant’s account and its declared income.
3. The Appellant, aggrieved by the assessment, filed a Notice of Objection dated 8th July 2023, which the Respondent considered. An Objection Decision was issued by the Respondent on 31st August 2023, confirming the assessments.
4. Dissatisfied with the Objection Decision, the Appellant lodged an appeal with the Tribunal. Upon hearing the matter, the Tribunal, through its judgment of 21st November 2024, dismissed the Appellant's appeal and upheld the Respondent's assessment. The Tribunal found that the Appellant had not discharged its burden of proof and failed to demonstrate why the Respondent’s decision was incorrect.
5. Aggrieved by the said judgment of the Tribunal, the Appellant filed the present appeal to this Court vide a memorandum of appeal dated 17th December 2024, raising the following grounds of appeal: -
i. That the Tribunal erred in fact and law by upholding the Objection decision of the Respondent, on the basis that the Appellant allegedly failed to discharge its burden of proof pursuant to Section 56(1) of the Tax Procedures Act.
ii. That the Tribunal erred in law and fact by failing to interrogate whether the documents requested by the Respondent were relevant in the process of determining if the VAT and Income tax assessments raised were due and payable.
iii. That the Tribunal erred in failing to consider that the Appellant had delivered the documents in its possession and those relevant to the assessment to the Respondent together with its notice of Objection.
iv. That the Tribunal erred in erroneously finding that the Appellant had not dislodged their duty to prove that the objection decision was incorrect despite the Appellant having delivered the documents in its possession and those relevant to the assessment in question together with its notice of Objection.
v. That the Tribunal erred in law by disregarding the fact that the burden of proof had shifted to the Respondent to discharge after the Appellant had provided the requisite documents at the Objection stage.
vi. That the Tribunal erred in law and fact by failing to consider all the material facts, evidence, and legal arguments presented by the Appellant and ultimately arrived at an erroneous decision.
6. Based on the foregoing, the Appellant prayed to have its appeal allowed with costs and to have the judgment of the Tribunal set aside.
7. In opposition, the Respondent filed a statement of facts dated 4th April 2025. The Respondent opposed the appeal, maintaining that the Tribunal correctly dismissed the Appellant’s case. It contended that the Appellant failed to discharge the burden of proof as required under section 56(1) of the Tax Procedures Act and section 30 of the Tax Appeals Tribunal Act.
8. According to the Respondent, the Appellant neither filed tax returns nor maintained proper records as required under Sections 23 and 54A of the Tax Procedures Act and Income Tax Act, respectively.
9. The Respondent maintained that the banking method is a lawful and globally recognized method for reconstructing taxable income where no returns or reliable records exist. In this case, the Appellant failed to provide sufficient evidence to rebut the assessments or to explain the nature of the bank deposits.
10. The Respondent therefore urged this Court to dismiss the appeal with costs and uphold the Tribunal’s decision delivered on 21st November 2024.
11. The appeal proceeded by way of written submissions. The Appellant filed its submissions dated 8th April 2025, whilst the Respondent’s submissions are dated 21st May 2025.
Analysis and determination
12. Having considered the Appellant's submissions, the core question for determination by this Honourable Court is whether the Tribunal erred in law in finding that the Appellant had failed to discharge its burden of proof and in upholding the tax assessments.
13. Under the Kenyan tax regime, the burden is on the taxpayer to prove that an assessment is excessive or incorrect. This is provided for under section 56(1) of the Tax Procedure Act, which states:
“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”
14. Further section 30 of the Tax Appeals Tribunal Act provides as follows:
“ In a proceeding before the Tribunal, the Appellant has the burden of proving—
(a) where an appeal relates to an assessment, that the assessment is excessive; or
(b) in any other case, that the tax decision should not have been made or should have been made differently.”
15. In the case of Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) [2022] KEHC 9927 (KLR) the court held;
“ …. .it is clear that the evidential burden of proof rests with the taxpayer to disprove the Commissioner and that once competent and relevant evidence is produced, then this burden now shifts to the Commissioner. I have emphasized and underlined ‘competence’ and ‘relevance’ because it is only evidence that meets these two tests that demolishes presumption of correctness and swings the burden to the Commissioner. This means that even if one avails evidence but then it is found that the same is incompetent or irrelevant, then the burden continues to remain with the tax payer.”
16. In the present case, the Appellant vehemently argues that the Tribunal erred by failing to interrogate the validity of the Respondent's assessments and the Objection Decision. Central to this argument is the Appellant's contention that the Respondent's assessment was based on a flawed application of the "banking analysis test," which assumed that the Appellant's entire bank deposits represented its turnover.
17. According to the Appellant, the Respondent "cherry-picked" apparent variances between estimated turnovers from bank deposits and actual turnovers, without recognizing that these variances stemmed from differences in accounting treatment and reconciliation items. Specifically, the Appellant highlights that the Respondent failed to take into account inter-bank transfers, loans, contra entries, bounced cheques, and capital injections, erroneously treating every deposit as income, contrary to Section 3(2) of the Income Tax Act.
18. This Court notes that apart from the general assertions by the Appellant that the Respondent failed to consider the documents provided by the Appellant, no details have been provided by the Appellant to this Court on the specific details of the “inter-bank transfers, loans, contra entries, bounced cheques, and capital injections” that the Appellant failed to adjust.
19. Indeed, I note that even the Tribunal, in its judgment (paragraphs 78 and 89), found that the Appellant failed to demonstrate that the deposits constituted exempt income or that expenses claimed were deductible.
20. It is trite law that a taxpayer must provide credible, relevant, and cogent evidence to displace an assessment. In Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020), this Court has emphasized that only competent and relevant evidence can shift the burden from the taxpayer to the Commissioner. The same applies in the case in Kenya Revenue Authority v Maluki Kitili Mwendwa [2021] eKLR, the Court upheld assessments where the taxpayer failed to explain deposits or prove the amounts were not taxable.
21. From the record of appeal, I note that the Respondent, vide its letter of 12th July 2023, requested the Appellant to validate its objection by providing certain documents. On 18th July 2023, the Appellant wrote back to the Respondent requesting an extension period of 7 days to share the documents requested. On 24th August 2023, the Respondent sent a reminder to the Appellant to provide the required documents. However, it is evident from the record that the documents were not provided by the Appellant. The aforementioned emails were produced by the Appellant in its supplementary record of appeal on pages 34-35.
22. While the Appellant correctly articulates the principle of the "swinging pendulum" regarding the burden of proof in tax matters, as espoused in Commissioner of Domestic Taxes v Trical and Hard Limited (supra), it is trite law that for the pendulum to shift, the taxpayer produces competent and relevant evidence to support his/her position.
23. To discharge the burden of proof imposed under Section 56(1) of the Tax Procedures Act and Section 30 of the TAT Act, it is not enough for a taxpayer merely to allege that they provided documents; it must also be demonstrated which particular evidence in those documents the Commissioner failed to consider. A general statement, as in the case herein, is not sufficient.
24. I note from the record that the Appellant only provided bank statements to support its objection. The Appellant has not demonstrated in this appeal what evidence from the bank statement the Respondent and the Tribunal failed to consider, and how such evidence, had it been considered, would have led to a different result.
25. The provision of a bank statement does not in itself mean that the burden of proof has shifted to the Respondent. The Appellant ought to have demonstrated, even to this Court, in this appeal, how the information in the bank statement served to dispel the Respondent’s assessment; it is only then that the burden is shifted to the Respondent.
26. It is not sufficient for a taxpayer to assert that deposits represent transfers or loans. Evidence such as loan agreements, cashbooks, or correspondence must be adduced to support such claims.
27. Further, the Appellant also asserted that the Respondent should have allowed deductions for expenses. However, in the absence of any evidence of such expenses, the Respondent was not obligated to infer or assume deductions. The obligation to retain sufficient records to enable the Commissioner to determine their tax liability is imposed on the taxpayer pursuant to the provisions of Section 23 of the Tax Procedures Act.
28. For the foregoing reasons, the Court finds no merit in the instant appeal and therefore dismisses the same with costs.
29. Accordingly, the Judgment of the Tax Appeals Tribunal delivered on 21st November 2024 is hereby upheld.
30. It is so ordered.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT THIS
31ST DAY OF JULY 2025
ADO MOSES
JUDGE
In the presence of: -
C/A – Moses
………………………..for the Appellant
……………….…..... for the Respondent
2. The background of the dispute is that the Respondent conducted an audit of the Appellant’s tax affairs and, on 9th June 2023, issued additional tax assessments totaling Kshs. 9,530,913 for VAT and income tax. The assessments were primarily based on a bank deposit analysis, which revealed discrepancies between deposits into the Appellant’s account and its declared income.
3. The Appellant, aggrieved by the assessment, filed a Notice of Objection dated 8th July 2023, which the Respondent considered. An Objection Decision was issued by the Respondent on 31st August 2023, confirming the assessments.
4. Dissatisfied with the Objection Decision, the Appellant lodged an appeal with the Tribunal. Upon hearing the matter, the Tribunal, through its judgment of 21st November 2024, dismissed the Appellant's appeal and upheld the Respondent's assessment. The Tribunal found that the Appellant had not discharged its burden of proof and failed to demonstrate why the Respondent’s decision was incorrect.
5. Aggrieved by the said judgment of the Tribunal, the Appellant filed the present appeal to this Court vide a memorandum of appeal dated 17th December 2024, raising the following grounds of appeal: -
i. That the Tribunal erred in fact and law by upholding the Objection decision of the Respondent, on the basis that the Appellant allegedly failed to discharge its burden of proof pursuant to Section 56(1) of the Tax Procedures Act.
ii. That the Tribunal erred in law and fact by failing to interrogate whether the documents requested by the Respondent were relevant in the process of determining if the VAT and Income tax assessments raised were due and payable.
iii. That the Tribunal erred in failing to consider that the Appellant had delivered the documents in its possession and those relevant to the assessment to the Respondent together with its notice of Objection.
iv. That the Tribunal erred in erroneously finding that the Appellant had not dislodged their duty to prove that the objection decision was incorrect despite the Appellant having delivered the documents in its possession and those relevant to the assessment in question together with its notice of Objection.
v. That the Tribunal erred in law by disregarding the fact that the burden of proof had shifted to the Respondent to discharge after the Appellant had provided the requisite documents at the Objection stage.
vi. That the Tribunal erred in law and fact by failing to consider all the material facts, evidence, and legal arguments presented by the Appellant and ultimately arrived at an erroneous decision.
6. Based on the foregoing, the Appellant prayed to have its appeal allowed with costs and to have the judgment of the Tribunal set aside.
7. In opposition, the Respondent filed a statement of facts dated 4th April 2025. The Respondent opposed the appeal, maintaining that the Tribunal correctly dismissed the Appellant’s case. It contended that the Appellant failed to discharge the burden of proof as required under section 56(1) of the Tax Procedures Act and section 30 of the Tax Appeals Tribunal Act.
8. According to the Respondent, the Appellant neither filed tax returns nor maintained proper records as required under Sections 23 and 54A of the Tax Procedures Act and Income Tax Act, respectively.
9. The Respondent maintained that the banking method is a lawful and globally recognized method for reconstructing taxable income where no returns or reliable records exist. In this case, the Appellant failed to provide sufficient evidence to rebut the assessments or to explain the nature of the bank deposits.
10. The Respondent therefore urged this Court to dismiss the appeal with costs and uphold the Tribunal’s decision delivered on 21st November 2024.
11. The appeal proceeded by way of written submissions. The Appellant filed its submissions dated 8th April 2025, whilst the Respondent’s submissions are dated 21st May 2025.
Analysis and determination
12. Having considered the Appellant's submissions, the core question for determination by this Honourable Court is whether the Tribunal erred in law in finding that the Appellant had failed to discharge its burden of proof and in upholding the tax assessments.
13. Under the Kenyan tax regime, the burden is on the taxpayer to prove that an assessment is excessive or incorrect. This is provided for under section 56(1) of the Tax Procedure Act, which states:
“In any proceedings under this Part, the burden shall be on the taxpayer to prove that a tax decision is incorrect.”
14. Further section 30 of the Tax Appeals Tribunal Act provides as follows:
“ In a proceeding before the Tribunal, the Appellant has the burden of proving—
(a) where an appeal relates to an assessment, that the assessment is excessive; or
(b) in any other case, that the tax decision should not have been made or should have been made differently.”
15. In the case of Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020) [2022] KEHC 9927 (KLR) the court held;
“ …. .it is clear that the evidential burden of proof rests with the taxpayer to disprove the Commissioner and that once competent and relevant evidence is produced, then this burden now shifts to the Commissioner. I have emphasized and underlined ‘competence’ and ‘relevance’ because it is only evidence that meets these two tests that demolishes presumption of correctness and swings the burden to the Commissioner. This means that even if one avails evidence but then it is found that the same is incompetent or irrelevant, then the burden continues to remain with the tax payer.”
16. In the present case, the Appellant vehemently argues that the Tribunal erred by failing to interrogate the validity of the Respondent's assessments and the Objection Decision. Central to this argument is the Appellant's contention that the Respondent's assessment was based on a flawed application of the "banking analysis test," which assumed that the Appellant's entire bank deposits represented its turnover.
17. According to the Appellant, the Respondent "cherry-picked" apparent variances between estimated turnovers from bank deposits and actual turnovers, without recognizing that these variances stemmed from differences in accounting treatment and reconciliation items. Specifically, the Appellant highlights that the Respondent failed to take into account inter-bank transfers, loans, contra entries, bounced cheques, and capital injections, erroneously treating every deposit as income, contrary to Section 3(2) of the Income Tax Act.
18. This Court notes that apart from the general assertions by the Appellant that the Respondent failed to consider the documents provided by the Appellant, no details have been provided by the Appellant to this Court on the specific details of the “inter-bank transfers, loans, contra entries, bounced cheques, and capital injections” that the Appellant failed to adjust.
19. Indeed, I note that even the Tribunal, in its judgment (paragraphs 78 and 89), found that the Appellant failed to demonstrate that the deposits constituted exempt income or that expenses claimed were deductible.
20. It is trite law that a taxpayer must provide credible, relevant, and cogent evidence to displace an assessment. In Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020), this Court has emphasized that only competent and relevant evidence can shift the burden from the taxpayer to the Commissioner. The same applies in the case in Kenya Revenue Authority v Maluki Kitili Mwendwa [2021] eKLR, the Court upheld assessments where the taxpayer failed to explain deposits or prove the amounts were not taxable.
21. From the record of appeal, I note that the Respondent, vide its letter of 12th July 2023, requested the Appellant to validate its objection by providing certain documents. On 18th July 2023, the Appellant wrote back to the Respondent requesting an extension period of 7 days to share the documents requested. On 24th August 2023, the Respondent sent a reminder to the Appellant to provide the required documents. However, it is evident from the record that the documents were not provided by the Appellant. The aforementioned emails were produced by the Appellant in its supplementary record of appeal on pages 34-35.
22. While the Appellant correctly articulates the principle of the "swinging pendulum" regarding the burden of proof in tax matters, as espoused in Commissioner of Domestic Taxes v Trical and Hard Limited (supra), it is trite law that for the pendulum to shift, the taxpayer produces competent and relevant evidence to support his/her position.
23. To discharge the burden of proof imposed under Section 56(1) of the Tax Procedures Act and Section 30 of the TAT Act, it is not enough for a taxpayer merely to allege that they provided documents; it must also be demonstrated which particular evidence in those documents the Commissioner failed to consider. A general statement, as in the case herein, is not sufficient.
24. I note from the record that the Appellant only provided bank statements to support its objection. The Appellant has not demonstrated in this appeal what evidence from the bank statement the Respondent and the Tribunal failed to consider, and how such evidence, had it been considered, would have led to a different result.
25. The provision of a bank statement does not in itself mean that the burden of proof has shifted to the Respondent. The Appellant ought to have demonstrated, even to this Court, in this appeal, how the information in the bank statement served to dispel the Respondent’s assessment; it is only then that the burden is shifted to the Respondent.
26. It is not sufficient for a taxpayer to assert that deposits represent transfers or loans. Evidence such as loan agreements, cashbooks, or correspondence must be adduced to support such claims.
27. Further, the Appellant also asserted that the Respondent should have allowed deductions for expenses. However, in the absence of any evidence of such expenses, the Respondent was not obligated to infer or assume deductions. The obligation to retain sufficient records to enable the Commissioner to determine their tax liability is imposed on the taxpayer pursuant to the provisions of Section 23 of the Tax Procedures Act.
28. For the foregoing reasons, the Court finds no merit in the instant appeal and therefore dismisses the same with costs.
29. Accordingly, the Judgment of the Tax Appeals Tribunal delivered on 21st November 2024 is hereby upheld.
30. It is so ordered.
SIGNED, DATED, and DELIVERED IN VIRTUAL COURT THIS
31ST DAY OF JULY 2025
ADO MOSES
JUDGE
In the presence of: -
C/A – Moses
………………………..for the Appellant
……………….…..... for the Respondent