County Employee Fails to Prove Bank Deposits Were Not Income

Case Study: Oteba v Commissioner of Domestic Taxes (Tax Appeal E861 of 2023) [2024] KETAT 1673 (KLR) (Commercial and Tax) (21 November 2024) (Judgment)

Background

KRA issued an initial assessment of Ksh 14,060,150 and, after an objection, amended it to Ksh 8,690,756 for the years 2017-2020.

The assessment was based on a “bank analysis” method. KRA identified significant cash deposits and withdrawals in Oteba’s bank accounts (KCB and DTB) that were not declared as income.

Oteba objected, arguing the funds were not income but reimbursements for work-related expenses (transport, trainings, seminars) and proceeds from loans.

Oteba appealed to the TAT

KRA’s Arguments:

• KRA analyzed two of Oteba’s bank accounts: a KCB account (salary) and a DTB account.
• They discovered total bank receipts of Ksh 36,828,824.60 over the five-year review period (2017-2021).
• After deducting his known net salary and declared rental income, a large surplus remained unexplained.
• KRA treated this surplus as “undeclared income” and issued an assessment based on it

Oteba’s Arguments:

• the extra funds were not income but reimbursements from his employer, the County Government of Busia. He stated these were for facilitation, transport, lunch, and organizing trainings/seminars for agricultural topics. Under Section 3(2)(a)(iii) of the Income Tax Act, such reimbursements for necessary business expenses are not considered taxable income.
• He also claimed that some of the deposits were proceeds from loans from both financial and non-financial institutions.

Tribunal’s Decision:

Oteba provided some documents from the County Government. The documents showed that Oteba himself was a beneficiary of the funds, receiving Ksh 84,000 directly into his Co-operative Bank account for “training and facilitation.” Other beneficiaries were paid directly into their own account. This contradicted his claim that he was merely a “conduit” channeling money for others. It appeared the funds were paid to him for his own role or participation.

Oteba failed to provide crucial evidence like:

• A detailed list of all beneficiaries.
• Evidence that he paid out the full amounts to third parties.
• Official documentation clearly stating the funds were accountable imprests for specific official duties.

It would have been “easy for a diligent taxpayer” to provide the below to prove loans:

• Loan agreements.
• Bank statements showing the loan disbursements.
• Loan repayment schedules.

In the absence of reliable records from the taxpayer, the KRA is justified under Sections 24(2), 29, and 31 of the TPA to use the best information available to it—in this case, bank statements.

As such Oteba lost.

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