KRA Must Justify It’s Tax Decisions

Case Study: Fleur Investments Limited v Commissioner of Domestic Taxes (Income Tax Appeal E006 of 2025) [2025] KEHC 10433 (KLR) (Commercial and Tax) (17 July 2025) (Judgment)

Background

The case originated from a tax refund claim filed by Fleur Investments Limited in May 2019 for Kshs 2,274,145.00. The company, which had been non-operational in real estate since 2012, argued that this amount represented a tax overpayment. KRA, however, rejected the refund claim and, subsequently, issued an additional tax assessment for the very same amount for the year 2018.

Fleur Investments challenged the assessment at the TAT, arguing that it was baseless and procedurally flawed. Fleur contended that it had not earned any income in 2018 and that KRA was acting unlawfully by issuing a new assessment on a matter that was already the subject of a separate appeal.

The TAT, in its judgment on November 21, 2024, sided with KRA. The Tribunal’s decision hinged on a strict interpretation of the law regarding refund claims. It found that the overpayment in question had its origins in the year 2011. Both the repealed Income Tax Act (ITA) and the current Tax Procedures Act (TPA) set clear time limits for claiming refunds: seven years and five years, respectively. Since the claim was lodged in 2019, it was deemed to be outside the statutory deadline. The Tribunal ruled that Fleur had failed to be “vigilant” in pursuing its rights and, therefore, KRA’s decision to reject the claim and issue the assessment was justified. The appeal was dismissed.

Appeal To High Court

Unsatisfied with the Tribunal’s ruling, Fleur appealed to the High Court. Fleur’s appeal was anchored on a point of law: that the Tribunal had failed to address the core legal question of whether the additional tax assessment was lawful. Fleur’s legal team argued that the entire process was flawed from the outset because KRA’s objection decision, which confirmed the assessment, lacked the mandatory reasons required by law.

The High Court, in its judgment on July 17, 2025, agreed with Fleur. The High Court, while acknowledging KRA’s power to issue assessments, delivered a crucial ruling on the importance of procedural justice. The court held that KRA’s objection decision of January 29, 2024, was “bad in law” because it explicitly violated Section 51(10) of the Tax Procedures Act, which requires that such decisions must include reasons.

The High Court emphasized that the duty to provide reasons is not a mere technicality but a constitutional imperative under Article 47 of the Constitution of Kenya, which guarantees the right to fair administrative action. The court reasoned that without a properly reasoned decision, it was impossible to justify the assessment. The High Court’s ruling, therefore, set aside not only the Tribunal’s judgment but also KRA’s objection decision and the additional tax assessment itself.

You Can Book Consultation with me through

https://cal.com/hisibati/consulting-session