Court blocks KRA’s Sh208m claim against real estate firm

“In this case, as rightly pointed out by the tribunal, the respondent had provided sufficient evidence in the form of documentation to support its averment, that the tax decision was wrong," the court said in its March 18, 2025 decision.

"Therefore, the Respondent had satisfied the provisions of Section 56 (1) of the TPA. Accordingly, the court is not persuaded that the tribunal erred. To that extent the Appeal fails."

The dispute arose from an investigation launched by KRA in May 2020 into allegations that Marylebone Properties had failed to remit taxes.

Despite the company’s repeated requests for a timely resolution, KRA continued its inquiry, summoning the firm’s directors and conducting inspections of its rental properties.

Nearly a year later, on May 11, 2021, the tax authority issued preliminary audit findings, accusing the company of tax fraud and computing a liability of Sh311 million.

Marylebone Properties responded on June 2, 2021, disputing the findings and submitting supporting documents. However, instead of concluding the matter, KRA proceeded to issue a tax assessment on March 24, 2022, revising the amount owed to Sh272 million in corporate income tax and stamp duty.

The company again objected to this assessment in April 2022, explaining its tax treatment for the period between 2015 and 2019. Following a review, KRA reduced the liability to Sh140 million.

Read:  KBL suffers setback in Sh486m tax fight with KRA

Aggrieved with this determination, Marylebone Properties took the matter to the Tax Appeals Tribunal, which ruled in its favour in October 2023 and overturned KRA’s tax assessment.

Unhappy with the tribunal’s ruling, KRA challenged the decision in the High Court, where it was seeking Sh208 million from the real estate firm, arguing that the tribunal had misapplied tax laws and failed to appreciate key accounting principles.

The taxman insisted that Marylebone Properties had not provided sufficient documentation to verify its expenditures, as required under the Tax Procedures Act. It further contended that the tribunal had ignored crucial evidence showing that the company had failed to meet tax compliance requirements.

KRA also argued that the tribunal was wrong for concluding that Marylebone Properties was subjected to double taxation and by allowing certain business expenses as tax-deductible.

In its defence, Marylebone Properties said that it had fully complied with the law and had submitted all necessary documents to support its tax declarations.

The company argued that KRA had failed to prove any wrongdoing and had arbitrarily dismissed its records without explaining how they were inadequate. According to the company, once a taxpayer provides relevant documents, the burden shifts to the tax authority to prove that those records are insufficient.

The court ruled that under the Tax Procedures Act, the burden of proof in tax matters is not fixed. It noted that while it initially rests on the taxpayer, it shifts to the tax authority once the taxpayer provides supporting documents.

“It shifts to the appellant to demolish with precision the evidence availed. Having heard the parties, the tribunal had the benefit of assessing the evidence and the documents before it, it weighed the credibility of the evidence. The evidence met the threshold of discharging the burden placed upon the Respondent by the law," Justice Njoroge ruled.

"It followed, therefore, that the tribunal made the finding. This finding was to the effect that the appellant herein, did not provide evidence that the documents that were provided by the respondent herein or the results of other information which the appellant obtained by itself or relayed to it by the appellant were not authentic.”

→ [email protected]