Pitfalls To Avoid When Lodging An Objection To Kra's Tax Assessments: Taxpayer Losses Appeal Worth Kes 525 Million Due To The Failure To Lodge A Valid Objection As Stipulated Under Section 51 (3) Of The Tpa.

Section 51 (3) of the Tax Procedures Act (TPA) provides that: -

A Notice of Objection shall be treated as validly lodged by a taxpayer under subsection (2) if—

(a) the notice of objection states precisely the grounds of objection, the amendments required to be made to correct the decision, and the reasons for the amendments; and

(b) in relation to an objection to an assessment, the taxpayer has paid the entire amount of tax due under the assessment that is not in dispute or has applied for an extension of time to pay the tax not in dispute under section 33 (1).

(c) all the relevant documents relating to the objection have been submitted.

This article delves into how the failure to lodge a valid Objection as stipulated under section 51 (3) of the TPA, turned what had the potential to be a significant victory into a considerable defeat, despite the Objection having been lodged within the statutory timeframe.

ELLE KENYA LIMITED VS COMMISSIONER OF INVESTIGATIONS &ENFORCEMENT DEPARTMENT (HIGH COURT INCOME TAX APPEAL NO. E024 OF 2024) (JUDGMENT MARCH 2025) EKLR

Facts of the Case

The Commissioner investigated the Appellant on suspicion that the Appellant had underdeclared Excise Duty, VAT and Income Tax for the period 2015-2019. Upon conclusion of the investigations, the Commissioner issued the Appellant with a notice of assessment dated 13 October 2021 totaling to KES. 525,653,847/-.

The Appellant objected to the assessment vide a letter dated 10 November 2021. The Commissioner subsequently issued an email dated 16 December 2021 invalidating the Objection and thereafter issued a letter confirming the assessment on 30 September 2022.

The Appellant argued that its Objection was valid and that the Commissioner was not justified in invalidating the Objection and in confirming its assessment.

The Tribunal delivered the judgment on 20 December 2023 in which it dismissed the Appellant’s appeal on grounds that the Appellant’s objection breached the express provisions of section 51 (3) (c) of the TPA. The Tribunal held that the objection was not accompanied by all relevant documents in support of the Objection and therefore the same was not validly lodged.

The Appellant being dissatisfied with the Tribunal’s decision appealed to the High Court seeking for the Court to set aside the Tribunal’s Judgment.

The Appellant’s submissions in support of the Appeal

The Appellant argued that the Commissioner’s Objection Decision dated 30 September 2022 was null and void because it was issued outside the timeframe contrary to section 51 (11) of the TPA. It argued that the above provision provides that an Objection must be allowed where the Commissioner had not issued an Objection Decision within sixty (60) days from the date that the taxpayer lodged the Objection.

The Appellant further argued that it lodged its Objection on 10 November 2021 but it received the Commissioner’s Objection Decision on 30 September 2022, which was 10 months after the lodge of Objection. It submitted that its Objection had been allowed by operation of law.

Lasty, the Appellant argued that the Commissioner was wrong to invalidate its Objection on grounds that the Appellant had not discharged its burden of proof. The Appellant submitted that at the time of the Objection review, it had provided all relevant documents in regards to the reconciliation and supporting documents.

The Commissioner’s submissions in opposition to the Appeal

The Commissioner argued that the Tribunal was right in its finding that the Appellant had not filed a valid Objection. It submitted that for an Objection to be valid, it must meet all the requirements of section 51 (3) of the TPA, which require the grounds to be precisely stated and documents submitted in support of the said grounds.

KRA submitted that the Appellant’s Objection was not a valid Objection because the Appellant’s grounds of objection were not supported by documents, and thus did not meet the requirements under section 51 (3) of the TPA.

Lastly, KRA argued that the Tribunal was correct in finding that the Appellant had not discharged its burden of proof by not availing supporting documents as requested by the Commissioner.

The Court’s determination on the validity of the Appellant’s Objection

The Court quoted with authority the case of Kenya Revenue Authority v Man Diesel & Turbo Se, Kenya [2021] eKLR wherein the Court held that the provision of section 51 of the TPA places an obligation on the taxpayer to persuade the Appellant that its assessment is incorrect. Generally, the taxpayer has the burden of proof in any tax controversy. The taxpayer must demonstrate that the commissioner's assessment is incorrect.

The Court further observed that it had analyzed the contents of the Notice of Objection which stated the grounds of objection in a numbered format and to some extent, it also gives reasons

for the objections. However, it does not include the amendments required to be made to correct the decision. The Notice of Objection also stated that it has attached several documents to support the grounds of objection. The Court observed that it relooked at the Record of Appeal and it could not find the documents said to be attached to the Objection.

The Court concluded that the failure of a taxpayer to provide documents to support its Objection vitiates the validity of the Notice of Objection. The Court observed that Courts have consistently held that a Notice of Objection that had not been supported by necessary documents is invalid as was held in the case of Builders Junction Limited v Commissioner of Investigations and Enforcement (Income Tax Appeal E073 of 2021) [2023] KEHC 24805 (KLR) (Commercial and Tax), where the court held that:

“In the present appeal, it was Builders Junction’s duty to provide documents when objecting to the assessment to enable the Commissioner review, reconsider, amend or allow the objection. In the absence of evidence that documents were provided at the time of the objection which the Commissioner ignored and the TAT failed to appreciate such anomaly, this court is unable to fault the finding of fact by the TAT, that Builders Junction did not provide documents to support its objection.”

The Court therefore found that indeed the Appellant had failed to submit the relevant documents in support of its Objection and therefore the said Objection had not been validly lodged as specified in section 51 (3) of the TPA.

Key Takeaways

The Crucial Procedural Hurdle: Failure to lodge a valid Objection

A critical aspect of the tax dispute was the Appellant’s failure to lodge a valid Objection as stipulated under section 51 (3) of the TPA.

Objections to tax assessments must be validly lodged and they must state precisely the grounds of objection, the amendments required to be made to correct the decision, the reasons for the amendments and must be accompanied by all relevant documentations in support of the objection.

Burden of Proof in tax matters rests with the Taxpayer

The High Court in Commissioner of Domestic Taxes vs. Galaxy Tools Limited [2021] eKLR reinforced this position, stating that, tax laws differ from other legal proceedings where the general rule of “he who alleges must prove” applies. Similarly, in Republic vs. Kenya Revenue Authority; Ex-parte Proto Energy Limited (JR Application E023 of 2021) [2022] KEHC 5 (KLR), the court upheld the principle that the burden of proof rests with the taxpayer noting that the Commissioner does not possess the necessary evidence to meet the burden of proof in these cases.

However, this burden of proof is not stationary but is like a pendulum swinging between the taxpayer and taxman at different points. Once the taxpayer provides all the relevant documents in its custody then the burden shifts on the Commissioner to disapprove such evidence as was held in the case of Commissioner Investigation & Enforcement v Marylebone Properties Limited (Income Tax Appeal E204 of 2023) [2025] KEHC 3314 (KLR) (Commercial and Tax) (18 March 2025) (Judgment) wherein the High Court held that: -

“In this case, as rightly pointed out by the Tribunal, the Respondent had provided sufficient evidence in the form of documentation to support its averment that the tax decision was wrong. Therefore, the Respondent had satisfied the provisions of Section 56(1) of the TPA. The Respondent provided the Appellant with all the documentation in its custody…. This is documentation which the Appellant does not dispute receipt thereof. For the reasons given here before, it is this Court’s finding that the Respondent discharged its burden of proof.”

Similarly, in the case of Africa’s Talking Limited v Commissioner of Domestic Taxes (Appeal E733 of 2023) [2024] KETAT 1455 (KLR) (4 October 2024) (Judgment) the Tax Appeal Tribunal held that: -

“Indeed, the Tribunal during proceedings presumes that the Respondent’s assessment is correct until the taxpayer produces competent and relevant evidence to support his position. To discharge this burden, the taxpayer must furnish sufficient evidence to satisfy the required standard of proof and it is only then that the burden can shift. The Tribunal finds that the Appellant discharged its burden of proof, as required under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act.”

Therefore, once the taxpayer discharges its burden of proof, the onus lies on the KRA to review the documents provided in making a decision as to what taxes are due and owing from the taxpayer.

The vital role of meticulous record keeping

Proper documentation often serves as a crucial factor in resolving many tax disputes as it is a taxpayer’s greatest defence. A key element in dispensing the burden of proof in tax disputes is the availability of adequate documentation. Taxpayers are required to maintain records that can be easily referenced to determine their tax liability. Section 23 of the Tax Procedures Act provides that a taxpayer must keep tax records for at least five years. In the absence of such documentation, Section 31(1) of the Tax Procedures Act empowers the KRA to use its best judgment when making a tax assessment. This could lead to an assessment based on incomplete or estimated information. It is important to note that the presumption of

correctness attached to the KRA’s decision remains until the taxpayer provides competent and credible evidence to the contrary.

Conclusion

The above case highlights the importance of not only understanding the substance of tax laws but also adhering strictly to the procedural requirements. When dealing with tax matters, it’s vital to seek professional guidance and ensure compliance with procedures are met to avoid costly mistakes that could have long-term financial repercussions.

HOW WE CAN ASSIST

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Contributor: Purity Mwangi