Case reference: Riana Properties Limited v Commissioner of Legal Services & Board Coordination (Tax Appeal E316 of 2025) [2026] KETAT 41 (KLR)
Background of the Dispute
Riana Properties, a company operating rental services, was audited by the Commissioner of Legal Services & Board Coordination for the income years 2019 to 2023. Following the audit, KRA issued a Notice of Preliminary Findings on September 19, 2024, and subsequently a Notice of Assessment on October 31, 2024, demanding Kshs 117,122,019 covering corporation tax, Value Added Tax (VAT), and Pay As You Earn (PAYE), inclusive of penalties and interest.
The company filed an objection on December 5, 2024. On January 31, 2025, the Commissioner issued an Objection Decision partially allowing the objection but confirming additional assessments of Kshs 73,308,854. Dissatisfied, Riana Properties lodged an appeal with the Tax Appeal Tribunal on March 14, 2025.
The Appellant’s Arguments
Riana Properties raised five main grounds of appeal:
- The Commissioner erroneously included non-income items as taxable, contrary to Section 3(2)(a)(iii) of the Income Tax Act
- Tax was assessed based on lease agreements rather than actual amounts received, violating Section 6(2) of the Income Tax Act
- Operating expenses were arbitrarily disallowed at 50% without legal basis
- VAT was imposed on “variances” rather than actual taxable supplies
- PAYE assessments for directors’ remuneration for 2020 and 2022 were incorrect
The company argued that the Commissioner failed to account for deferred income, advance billings, exchange rate differences, and pandemic-related rent discounts. It further contended that it had provided ledgers and requested the Commissioner to specify a sample of expenses for review, but received no response before the 50% disallowance.
The Respondent’s Position
The Commissioner maintained that an analysis of lease agreements and tax returns revealed undeclared income of Kshs 46,079,531 for corporation tax purposes and Kshs 38,589,557 for VAT purposes. Unpaid PAYE totaling Kshs 18,804,000 was also identified for 2020 and 2022.
Crucially, the Commissioner asserted that although Riana Properties provided various documents – including lease agreements, invoices, audited financial statements, and bank statements – the records were insufficient. The total net amounts from invoices did not match the reconciliation figures, and ledgers only showed category totals without transaction-level breakdowns.
Tribunal’s Analysis
In a judgment delivered by a three-member panel chaired by Dr. Rodney Odhiambo Oluoch, the Tribunal emphasized the burden of proof provisions under Kenyan tax law:
- Section 56(1) of the Tax Procedures Act places the burden on the taxpayer to prove that a tax decision is incorrect
- Section 30 of the Tax Appeals Tribunal Act requires the appellant to prove that an assessment is excessive or that a decision should have been made differently
The Tribunal cited its previous decision in Abyssinia Iron and Steel Ltd v Commissioner of Customs and Border Control (TAT No. 435 of 2022), noting that once a taxpayer provides evidence that an assessment is wrong, the Commissioner must then demonstrate the assessment was not arbitrary. However, the initial burden remains with the taxpayer.
Quoting the High Court decision in Commissioner of Domestic Taxes v Trical and Hard Limited (Tax Appeal E146 of 2020), the Tribunal stated:
“A presumption of correctness arises from the Commissioner’s determination/assessment. The presumption remains until the taxpayer produces competent and relevant evidence to support his/her position. When the taxpayer comes forward with such evidence, the presumption vanishes, and the case must be decided upon the evidence presented.”
The Tribunal found that Riana Properties failed to discharge this burden. The documents supplied at the objection stage – and again before the Tribunal – were the same insufficient records. The company did not address the specific issues raised by the Commissioner regarding mismatched figures and lack of transaction-level detail.
The Takeaway for Taxpayers
This judgment reinforces several critical lessons for Kenyan taxpayers regarding record-keeping and evidentiary requirements when challenging tax assessments. Detailed records with transaction-level detail are essential, as summaries and ledgers without such detail are insufficient. Invoice totals must tie directly to reconciliation tables, and documents must be traceable and verifiable. Taxpayers are required to produce complete documentation during the objection stage, not merely at appeal. Moreover, the taxpayer bears the active burden to rebut the Commissioner’s findings with competent evidence rather than relying on generalized explanations.
The Tribunal’s decision underscores that the mere provision of documents is not enough – they must be organized, verifiable, and directly responsive to the specific discrepancies identified by KRA.
Final Orders
The Tribunal ordered:
- The appeal is dismissed
- The Commissioner’s Objection Decision dated January 31, 2025, is upheld
- Each party shall bear its own costs
