When Can the Commissioner Apply Best Judgment? The Doshi Enterprises Ruling

Case reference: Doshi Enterprises Ltd v Commissioner of Investigation and Enforcement (Tax Appeal No. E775 of 2025) [2026] KETAT 350 (KLR)

The KRA Audit and Initial Assessment

The dispute began when the Commissioner of Investigation and Enforcement conducted an audit of Doshi Enterprises Limited, a Kenyan company involved in the manufacture and supply of steel, electrical, water hardware, and telecommunications solutions, for the income years 2017 to 2020. During the audit, the revenue authority employed a banking analysis method, treating unexplained credits in the company’s bank accounts as taxable revenue and vatable sales. The Commissioner also disallowed foreign exchange losses claimed by the company and applied a 30% corporate tax rate for the 2020 year of income. Applying this approach, the Commissioner issued an objection decision dated 23 September 2022, demanding Kshs 87,720,963.

The Objection and First Tribunal Appeal

Doshi Enterprises did not accept the assessment. The company appealed to the Tax Appeals Tribunal in Tax Appeal No. 1316 of 2022. In a judgment delivered on 22 March 2024, the Tribunal ruled entirely in favour of Doshi Enterprises, allowing the appeal in full and setting aside the Commissioner’s objection decision dated 23 September 2022. The Commissioner was ordered to bear its own costs.

The High Court Appeal and Remittal

Unwilling to accept the Tribunal’s decision, the Commissioner appealed to the High Court in Income Tax Appeal No. E112 of 2024. On 8 April 2025, the High Court delivered judgment in Commissioner of Investigations & Enforcement v Doshi Enterprises Limited [2025] KEHC 4501 (KLR). The High Court set aside the part of the Tribunal’s judgment that had allowed the entire appeal. It upheld the setting aside of the objection decision only to the extent that the matter was referred back to the Commissioner for reconsideration, taking into account all relevant documents produced before the Tribunal. The Commissioner was directed to issue a fresh objection decision within sixty days. Doshi Enterprises later sought a review of the judgment, but no review order was issued.

The Fresh Objection Decision

Complying with the High Court’s orders, the Commissioner issued a fresh objection decision on 5 June 2025. The revised assessment was Kshs 73,669,642, comprising corporation tax of Kshs 45,976,662 and VAT of Kshs 27,692,980. The Commissioner stated that it had reconsidered a refund received in the wrong year, the documents on foreign exchange losses, and the Kshs 65,887,500 from a related party, which was adjusted as debt repayment.

The Core Legal Issues

Doshi Enterprises remained aggrieved and filed a Notice of Appeal on 4 July 2025. The appeal raised five grounds, which the Tribunal condensed into four core issues:

• Whether the Respondent’s objection decision aligned with the High Court judgment delivered on 8 April 2025.
• Whether the Respondent breached section 51(10) of the Tax Procedures Act by failing to give reasons.
• Whether the Respondent applied the correct corporate tax rate in its tax demand for 2020.
• Whether the Respondent’s tax assessment was justified.

The Tax Appeals Tribunal Judgment – 11 September 2026

The Tribunal delivered its judgment, partially allowing the appeal. The key holdings were as follows:

1. The Objection Decision Aligned with the High Court Orders

The Tribunal rejected Doshi’s argument that the High Court had only referred back the interbank and related-party loan repayment of Kshs 65,887,500 for reconsideration. Reading the High Court orders plainly, the Tribunal found that the whole matter had been referred back to the Commissioner for reconsideration. There was no limitation to a single item. The fresh objection decision therefore aligned with the High Court judgment.

2. No Breach of Section 51(10) of the Tax Procedures Act

The Tribunal held that the Commissioner had provided a statement of findings and reasons in the objection decision. Section 51(10) does not require the Commissioner to identify every document reviewed, every document rejected, why each document was rejected, or what additional documents would have been required. The Tribunal declined to read additional requirements into the statute and found no breach.

3. The Correct Corporate Tax Rate for 2020

The normal corporate tax rate in Kenya is 30%. However, a temporary rate of 25% applied from 25 April 2020 to 31 December 2020 under the Tax Laws (Amendments) Act, 2020, as a COVID-19 economic relief. The Commissioner had applied 30% for the whole of 2020. The Tribunal held that this was unlawful for the period from 25 April 2020 to 31 December 2020.

4. The Tax Assessment Was Largely Justified

The Tribunal largely upheld the Commissioner’s assessment because Doshi Enterprises failed to discharge its burden of proof on many items. The company provided ledgers instead of bank advice or contra entries for reversed transactions. It gave documents for 2017 and 2018 when the dispute concerned 2018 and 2019. It failed to support payments to more than one director. It did not provide a loan agreement or repayment evidence for Manav Foundation credits. For 2020, it supplied only financial statements without primary documents. The Tribunal emphasised that a taxpayer must provide a clear, specific, and indexed reconciliation, not merely flood the Commissioner or the Tribunal with unindexed and mismatched documents.

5. Foreign Exchange Losses Were Allowed

The one area where Doshi Enterprises succeeded was foreign exchange losses. The company had provided bank statements and RTGS documents showing that its foreign exchange losses were realised. The Commissioner had ignored those documents without explanation. The Tribunal held that the realised foreign exchange losses should be allowed. Because the VAT assessment was pegged to the sales and banking details from the corporation tax assessment, the VAT had to be recomputed to exclude the realised forex losses from the vatable under-declared sales.

Final Orders

The Tribunal made the following orders:

• The appeal was partially allowed.
• The corporation tax assessment for the period between 25 April 2020 and 31 December 2020 was set aside.
• The corporation tax assessment for the period 2017 to 24 April 2020 was upheld.
• The Respondent was directed to recompute the Appellant’s VAT liability to exclude its realised forex losses from the vatable under-declared sales.
• Each party was ordered to bear its own costs.

Key Takeaways for Tax Professionals and Businesses

This judgment offers several important lessons:

• The burden of proof lies with the taxpayer. It is not enough to provide documents. The taxpayer must explain them, link them to the specific issue, and present a clear reconciliation. A pile of bank statements and ledgers is not a legal argument.
• Banking analysis is a legitimate assessment method. The Commissioner may use banking analysis to determine taxable income, but it must apply its best judgment reasonably and consider all material placed before it.
• Taxpayers must be surgical, not voluminous. Flooding the revenue authority with unindexed, chronologically mismatched files is not compliance. The taxpayer must be specific and precise in relating explanations to the documents provided.
• Realised foreign exchange losses are deductible. Where a taxpayer provides evidence that foreign exchange losses were realised, the Commissioner cannot ignore that evidence without explanation. The losses must be excluded from vatable under-declared sales.
• Section 51(10) does not require exhaustive reasons. The Commissioner must provide a statement of findings and reasons, but the law does not dictate that every document reviewed or rejected must be itemised.