KRM Commodities Ltd v Commissioner of Legal and Board Service Department (Tax Appeal E1389 of 2025) [2026] KETAT 352 (KLR) (4 September 2026) (Judgment)
The Dispute
KRM Commodities Ltd is a limited liability company engaged in the importation and distribution of rice. The dispute arose when the Kenya Revenue Authority (KRA) conducted an audit covering the period 2021 to 2023, comparing customs import data with the company’s purchase ledgers and income tax returns. KRA identified unreconciled variances between the value of imported rice and the purchases claimed by the Appellant in its income tax returns. The variances amounted to Kshs. 11,267,629 in 2021 and Kshs. 184,573,622 in 2023. KRA further identified five import entries for 2023 that appeared in the Customs Import Data but were not recorded in the Appellant’s purchases ledger. On 31 July 2025, KRA issued an assessment against the Appellant. On 29 August 2025, the Appellant objected to the assessment. On 24 October 2025, KRA issued its objection decision confirming income tax and withholding tax of Kshs. 132,968,499, inclusive of penalties and interest, for the period between 2021 and 2023.
The Appeal and the Appellant’s Argument
Aggrieved, KRM Commodities lodged an appeal with the Tax Appeal Tribunal. The Appellant’s principal argument was that KRA had erred in computing duties and other taxes by disregarding the fact that they were already captured as part of direct expenses in the audited financial statements provided at the objection review stage. The Appellant contended that it had already captured the said duties and other taxes in its direct expenses, and that KRA added them for a second time to derive the expected cost of sales. The Appellant further argued that KRA arbitrarily applied a 20% gross profit margin to unaccounted imports without cogent justification. It asserted that the government had allowed the importation of “duty-free” rice for the income year 2023, as supported by its ledgers and financial statements. The Appellant also maintained that the import entries not captured in its financial statements were not directly linked to it but were allocated to another company, as the Appellant had failed to exhaust the allocated quota fully, and that these imports and duties were fully paid by the other company. Finally, the Appellant claimed it did not get an opportunity to be heard and to avail its supporting evidence and records for consideration of its objection application.
KRA’s Defence
KRA mounted a robust defence of its assessment. It stated that it contacted the Appellant on 8 September 2025 and requested supporting documents and records for its review, including audited accounts, bank statements, LPO/LSO and contract agreements, sales ledgers, purchase ledgers, expense ledgers, proof of payments, and any other information to support the objection. On 23 September 2025, the Appellant responded by only providing bank account statements, ledgers, customs import entries, and a few invoices. The Appellant did not provide the rest of the requested documents even after receiving several reminders. Consequently, KRA issued its objection decision on 24 October 2025 disallowing the Appellant’s objection. KRA explained that it dropped the issue of expenses verification at the audit stage because it was addressed sufficiently. It never raised any additional assessments nor amended the Appellant’s returns on the basis of the disallowed expenses. It never added the Appellant’s expenses in the tax computation of its assessment.
Regarding the figure of Kshs. 156,841,283 for 2023, KRA stated that this comprised the duties and taxes paid by the Appellant on imports of the year 2023, which were added to the CIF value of the imports to enable KRA to arrive at the Appellant’s cost of sales. KRA applied a 20% gross profit margin on the unaccounted imports after the Appellant failed to provide documents to reconcile the variance, based on audited customs import data that could not be traced to the cost of sales declared in the Appellant’s income tax returns, and based on industry benchmarks for rice distributors.
On withholding tax, KRA stated that the Appellant had made various payments for services subject to withholding tax but had failed to withhold. The Appellant’s ledgers indicated payments for audit services (Kshs. 350,000), legal services (Kshs. 400,000), and quota fees (Kshs. 6,000,000), and KRA consequently charged withholding tax at a rate of 5% under section 35(3) of the Income Tax Act.
The Tribunal’s Findings
The Tax Appeal Tribunal delivered its judgment on 4 September 2026, making several crucial findings.
First, the Tribunal identified the issue for determination as whether the Respondent erred in confirming the Corporation Tax and withholding income tax assessments.
Second, the Tribunal reiterated that under Section 30 of the Tax Appeals Tribunal Act, the Appellant has the burden of proving that an assessment is excessive or that the tax decision should have been made differently.
Third, the Tribunal examined the evidence and noted that the objection decision dated 29 August 2025 did not have any documents attached to it. It also noted that an email of 15 September 2025 from the address info@……….com to ……….@kra.go.ke attached several documents. However, the Tribunal found that the Appellant had not stated which specific documents it provided, what tax issues those documents were addressing, and how the decision had ignored the specific documents in issue. The email did not even have a write-up of what it was responding to, what specific document it had been attached, and what assessment head or issue raised by the Respondent the said documents were addressing.
Fourth, the Tribunal held that it was difficult to know whether the Appellant provided some, most, or all of the documents provided. The burden of bringing out this clarity to prove that the Respondent’s assessment was made in error lay with the Appellant, and it failed to discharge that burden. The Tribunal relied on the Court of Appeal decision in Mburu v Commissioner of Domestic Taxes [2026] KECA 1606 (KLR), where the court held that the appellant’s explanations were general in nature and unsupported by verifiable documentation. It also relied on Commissioner of Domestic Taxes v Jakoline Enterprises Limited [2026] KEHC 11141 (KLR), where the court held that the law does not require the Commissioner to play the role of a forensic accountant, and that when a taxpayer is asked to explain why its own declarations do not add up, the taxpayer must provide a clear, specific, and indexed reconciliation. Flooding the revenue authority with unindexed, chronologically mismatched files is not an act of compliance; it is an evasion of a taxpayer’s evidential duty.
Fifth, the Tribunal found that the Appellant’s decision to throw out general explanations based on an email with unverifiable and mismatched attachments was not an act of compliance capable of displacing the Commissioner’s assessment. Accordingly, the Tribunal found that the Respondent did not fall into error when it applied its best judgment in determining the Appellant’s tax liability.
The Determination
The upshot of the foregoing is that the Tribunal found and held that the Appeal lacks merit and made the following orders: (a) The Appeal be and is hereby dismissed. (b) The Respondent’s Objection decision dated 24th October 2025 be and is hereby upheld. (c) Each party is to bear its own costs. It is so ordered. Dated and delivered at Nairobi this 4th day of September 2026.
Key Takeaway
The case of KRM Commodities Ltd v Commissioner of Legal and Board Service Department serves as a powerful reminder that in tax appeals, the burden of proof rests squarely on the taxpayer. It is not enough to assert that documents were provided to the tax authority. The taxpayer must provide clear, specific, indexed, and verifiable evidence showing exactly what was provided, what tax issue the documents address, and how the tax authority failed to reconsider its position in light of that evidence. General explanations, unindexed attachments, and unstructured data dumps do not constitute compliance. A taxpayer who floods the revenue authority with mismatched files cannot expect the Commissioner to act as a forensic accountant. The duty to reconcile and explain lies with the taxpayer.
