Case Reference:Lamnas Investors Ltd v Commissioner of Domestic Taxes (Appeal E218 of 2026) [2026] KETAT 333 (KLR) (28 August 2026) (Judgment)
Background
A trader dies, but somehow his KRA PIN resurrects to issue invoices worth millions of shillings years after his burial. This bizarre scenario was at the heart of the Tax Appeal Tribunal’s recent decision in the case of Lamnas Investors Ltd.
Lamnas Investors Ltd, a private company registered in Kenya and engaged in trading business, came under KRA scrutiny through a sector profiling exercise targeting traders in the North Rift region. The investigation initially focused on one Michael Otieno Odhiambo, who traded under the business name Yeyote. His iTax records revealed significant red flags: he had under-declared VAT sales for 2023 and 2024 while filing nil income tax returns despite clear indications of business activity.
When KRA investigators attempted to reach Odhiambo, their notices went unanswered. Bank inquiries proved largely unproductive. It took persistent detective work to trace him to Homa Bay County, where investigators made a startling discovery: Odhiambo had died on 19th February 2021, confirmed by a certified burial permit and corroborating witness statements from the area chief. The taxpayer they were investigating had been in his grave for years.
The investigation then uncovered a classic “missing trader” scheme. Someone had taken Odhiambo’s dormant PIN and weaponized it, using his deceased identity to generate fictitious invoices that allowed active taxpayers to claim bogus VAT input credits and inflate their business expenses.
Lamnas Investors Ltd was among the traders linked to this scheme. KRA attributed to it purported purchases from Odhiambo totalling Kshs. 9,200,869 for the years 2023 to 2025, on which it had claimed input VAT of Kshs. 1,472,139.
KRA’s Assessment
KRA issued a notice of assessment on 2nd December 2025 under Section 31 of the Tax Procedures Act, disallowing both the input VAT and the corresponding business expenses. The total additional tax liability came to Kshs. 3,478,209 covering the years 2023 to 2025.
Lamnas lodged an objection on 20th December 2025. However, KRA declared the objection invalid for non-compliance with Section 51(3) of the Tax Procedures Act, requiring supporting documents to be submitted within seven days.
Following a meeting on 22nd January 2026 where Lamnas undertook to validate its objection, and in the absence of a validated objection, KRA issued its Objection Decision on 28th January 2026, confirming the principal tax liability of Kshs. 3,478,209.
Lamnas’s Position
Lamnas raised several grounds of appeal, including:
- KRA erred by issuing the Objection Decision without properly considering the objection and supporting documentation
- KRA wrongly disallowed genuine purchases wholly and exclusively incurred in the production of taxable supplies
- KRA failed to consider documentary evidence, including tax invoices and payment confirmations
- The disallowance was contrary to the VAT Act and Income Tax Act
- The assessments were excessive, unfair, and unsupported by factual or legal justification
- KRA violated principles of fairness, reasonableness and natural justice
Lamnas argued that the impugned purchases arose from an omission and filing error by its former accountant—a lapse it reported to authorities and supported with a police abstract. It maintained that genuine business transactions were undertaken and that supporting invoices existed.
The company further contended that since KRA accepted its declared sales income, it was commercially illogical to disallow the corresponding purchases, as a trading business cannot generate income without incurring stock costs. Lamnas argued that the income it declared could not have been generated without the corresponding business inputs.
Lamnas also invoked Article 47 of the Constitution and the Fair Administrative Action Act, contending that the Objection Decision was reached without a fair, objective and comprehensive review of the evidence available.
Significantly, in its Reply to the Respondent’s Written Submissions, Lamnas narrowed the dispute considerably. It elected not to pursue the challenge to the disallowed input VAT and accepted the VAT assessment as raised, confining the live contest to whether KRA was justified in wholly disallowing the corresponding business expenses for income tax purposes.
The Tribunal’s Determination
The Tribunal identified a fundamental flaw in Lamnas’s case. Despite making robust assertions, the company failed to provide tangible evidence to support its claims.
Jurisdictional Issue: The Tribunal first declined jurisdiction over Lamnas’s constitutional claim under Article 47, noting that the Tax Appeal Tribunal is a creature of statute with limited jurisdiction. Such claims properly belong before the High Court under Article 165(3)(b) of the Constitution.
VAT Claim: The Tribunal observed that Lamnas had expressly abandoned its challenge to the VAT assessment in its final pleading. On the merits, the disallowance was clearly justified because the input VAT traced directly to invoices from a supplier who had died in 2021—two full years before the earliest of the claimed transactions in 2023. A deceased person cannot supply goods, issue invoices or receive payment as a trading counterparty.
Income Tax Expenses: The Tribunal found that Lamnas’s explanation about an accountant’s misplaced paperwork failed to engage with the fundamental problem. Even if the invoices had been intact, they documented transactions with a person who was legally incapable of participating in them. An accountant’s oversight explains lost documents; it cannot explain how a company transacted with a supplier who had been deceased for two to four years.
The Tribunal applied established legal principles. Under Section 56(1) of the Tax Procedures Act and Section 30 of the Tax Appeals Tribunal Act, the burden of proof rests squarely on the taxpayer to demonstrate that an assessment is incorrect. The Tribunal emphasized that “a mere statement in pleadings is not evidence”.
The Tribunal cited several authorities:
- Alfred Kioko Muteti v Timothy Miheso: a party discharges its burden only upon adducing evidence
- Mulherin v Commissioner of Taxation: a taxpayer disputing an assessment must adduce positive evidence
- Commissioner Investigations and Enforcement v Sangyug Enterprises: once KRA raises concerns of fraud or a missing trader scheme, the onus intensifies on the taxpayer
Critically, Lamnas failed to produce:
- Proof of payment to Odhiambo or his estate
- Delivery or goods-received notes
- Stock records linking purchases to goods actually received
- Any document reconciling the claimed purchases with the supplier’s death
The Tribunal found that Lamnas had fallen short of discharging its burden of proof and that KRA was justified in disallowing the expenses.
Key Takeaways for Taxpayers
This case underscores several critical lessons:
1. Verify Your Suppliers Taxpayers must conduct due diligence on their suppliers. Transactions with dormant or deceased PINs will be disallowed. A supplier who cannot be verified—especially one who has passed away—cannot be a legitimate source of goods.
2. The Importance of Proper Record Keeping Taxpayers must maintain comprehensive and accurate financial records. Section 23 of the Tax Procedures Act requires records to be kept for five years, and failure to produce them when demanded can be determinative in a tax dispute. The Tribunal emphasized that mere assertions without documentary evidence are insufficient to discharge the burden of proof.
3. Burden of Proof in Tax Disputes The burden of proof lies with the taxpayer to establish that an assessment is incorrect. Mere assertions, without supporting documentary evidence, will not suffice. The Tribunal cited the principle that “he who asserts must prove”.
4. “Accountant’s Error” Is Not a Defence Mistakes by accountants or lost paperwork do not justify deductions based on fundamentally impossible transactions with deceased entities. An accountant’s oversight explains missing documents; it cannot explain how a company transacted with a person who had been dead for years.
5. Income Requires Expenses—But You Must Prove Both While it is true that a trading business cannot generate sales without costs, this general proposition does not establish the genuineness of specific disputed purchases. Taxpayers must provide evidence connecting their specific expenses to their income.
Conclusion
The Lamnas case serves as a sobering reminder that in the realm of tax administration, substance prevails over rhetoric. A PIN may appear to resurrect and conduct business, but when the taxpayer behind it is long buried, the invoices it generates will find no protection before the law.
The Tribunal’s decision reinforces the principle that taxpayers must maintain proper records and be prepared to produce them when required. In the absence of adequate documentation, KRA is entitled to utilize recognized assessment methods to determine tax liability.
This judgment underscores the importance of proactive tax compliance and the need for taxpayers to engage professional tax advisors to ensure proper record-keeping and effective management of tax disputes.
The lesson is simple: source documents, delivery notes, payment evidence, and stock records are not merely accounting records; they may become the taxpayer’s principal line of defence. In the words of the Tribunal, “a mere statement in pleadings is not evidence.”
