Alliance One Tobacco T. Ltd vs Commisioner General (TRA) (Civil Appeal No. 118 of 2018) [2019] TZCA 208 (7 August 2019)

IN THE COURT OF APPEAL OF TANZANIA AT DAR ES SALAAM (CORAM: MWARIIA. 1.A.. MKUYE, J.A. And WAMBALL J.A.) CIVIL APPEAL NO. 118 OF 2018 ALLIANCE ONE TOBACCO TANZANIA LIMTTED VERSUS APPELLANT COMMISSTON ER GENERAL (TRA) RESPONDENT (Appeal from the decision of the Tax Revenue Appeals Tribunal at Dar es Salaam) (Miemmas, Chairman) Dated the 16th day of February, 2018 tn Tax Aopeal No. 16 of 2016 JUDGMENT OF T HE COURT 27th March & 7h August, 2019 WAMBALI J.A.: This appeal is against the decision of the Tax Revenue Appeals Tribunal (the TRAT) in favour of the respondent, Commissioner General of Tanzania Revenue Authority (TRA) against the appellant, Alliance One Tobacco Tanzania Limited delivered on 16th February, 2018 in Tax Appeal No. 16 of 2016. In the impugned decision, the TRAT confirmed the decision of the Tax Revenue Appeals Board (the TRAB) that dismissed with costs the appellant's appeal contesting the respondent's disallowance of i the costs on direct sales incurred by her wholly and exclusively in the production of its income. Dissatisfied with that decision, the appellant has appealed to this Court. The appellant therefore prays for the appeal to be allowed, reversal of the decision of the TRAT on disallowed costs on direct sales and costs of the appeal. However, to appreciate the background which led to the dispute between the pafties, we deem appropriate to briefly restate the facts as found by the TRAB and the TRAT. It is not disputed that on 31't December, 2003; 30s September, 2004 and 30th September, 2008, the appellant filed its income tax returns to the tax returns, the respondent on I't September, 2005 conducted an audit and issued notices of adjusted assessment for the 2003 and 2004 years of income. The respondent also in 2011 conducted another audit for the years of income 2009 and 2010. In that assessment, the respondent disallowed several corporate tax ltems relating to capital expenditure, inventory costs, loss of input stock and bad debt written off. Moreover, a significant transfer pricing adjustment was made on the price from the appellant to its sister company Alliance One International AGA. The 2 for the years of income 2003, 2004 and 2008 respectively. In response respondent also imposed interest for under estimation of chargeable rncome. It is in the record that as a rcsult of that assessment that led to the disallowance of direct costs, among others, the appellant lodged with the respondent a formal notice objecting to the said assessment. She strongly contended that the disallowed costs were deductible as they were wholly and exclusively incurred in the production of the income. However, the respondent did not agree with the explanation of the appellant as the earlier assessment was confirmed. As an immediate reaction to the refusal to reconsider the assessment, the appellant lodged several appeals to the TRAB. These wereAppeals Nos. 120, 121and l22of 2013 and Nos.26 and27 of2014 for the years of incorne 2009 and 2010 respectively which were consolidated at the hearing before the TRAB. Nevertheless, in the end, the TRAB ruled in favour of the respondent. Aggrieved, the appellant appealed to the TRAT which overturned the decision of the TRAB substantially as it allowed the appeal in respect of the li, 2no and 4th grounds of appeal, but confirmed ils decision in respect of the disallowed direct sales costs and therefore dismissed the 3'd ground of appeal. .l Still dissatisfied, the appellant has come to the Couft armed with four grounds of appeal. However, at the hearing of the appeal it was agreed that essentially, the appeal is premised on only one ground, that is, whether the TRAT was right in law and in fact to uphold the decision of the respondent to disallow costs on direct sales. The appellant strongly maintains that it was wrong for the respondent to disallow the costs on income. On the other hand, the respondent defends the decision of the TRAT. When the appeal was called on for hearing, Mr. Alan Kileo assisted by Mr. Norbert Mwaifwani, bottr learned counsel appeared for the appellant while Ms. Gloria Achimpota, also learned counsel appeared for the respondent. Learned counsel for both parties adopted their respective written submissions they filed in Court earlier on for and against the appeal. However, in view of the fact that only one issue is to be resolved by this Couft, not every argument in the written submissions would be applicable in resolving this appeal. 4 direct sales incurred by her rvholly and exclusively in the production of its In his submission in support of the appeal, Mr. Kileo strongly criticized the TRAT for supporting rhe decision of the TRAB which, in his view, failed to realize that the respondent did not comply with the provisions of section 97 (c) of the Income Tax Act, 2004 (the ITA) which requires provision of reasons ior any assessment made by the reasons that were given by the respondent for disallowing direct sales costs, the appellant could not provide any meaningful evidence during the audit, assessment and even at the hearing of the appeal before the TRAB and the TRAT as required under section 17 (1) (b) of the Tax Revenue Appeals Act, Cap. 408 (the TRAA). He argued that absence ofthe reasons for the assessment left the appellant not knowing what aspects she was required to prove to challenge the assessment made by the respondent. The learned counsel for the appellant maintained that absence of the respondent's reasons for the disallowance of direct sales costs was fatal as the appellant was deprived of the oppoftunity to object to the assessment on specific matters. He stated further that even the issue of importance of the appellant to provide evidence to the respondent to justify that the disallowance of those costs was improper was raised by lr Commissioner General. Mr. Kileo {irmly submitted that as there were no the respondent for the first time at the hearing of the appeal before the TRAB. Accordlng to his submission, as a result of lack of reasons from the respondent for the disallowed costs, the appellant was left unprepared to provide the relevant evidence to discharge the burden of proof properly. He added that the appellant reminded the respondent on the need to provide her with the reasons for the disallowed costs but there was no argued that unfortunately, in its decision on appeal, the TRAT wrongly differed with the opinion of one nrenrber who supported the appellant's stand on the importance of the respondent's reasons for the assessment. In the circumstances, Mr. Kileo prayed for the Court to allow the appeal with costs and overturn the decision of the TRAT that confirmed the decision of the TRAB on that issue. In response, Ms. Achimpota for the respondent supported the decision of the TRAT that confirmed the findings and decision of the TRAB on the disallowed costs by the respondent. She argued that the burden of proof lied on the appeilant to show directly by documentary evidence how she arrived at those costs which she wanted to be allowed as direct sales as required by law. While she did not disregard the importance of L response hence she lodged an appeal before the TRAB. Moreover, he the provisions of section 97 {c) of the ITA, she quickly submitted that as the disputed assessment was issued by the respondent, the appellant was supposed to tender relevant evidence at that stage to show that the same was erroneous. She argued further that the requirement to substantiate the claim is in line with the provision of section 18 (2) (b) of the TRAA which imposes a legal duty on a person disputing the assessment to prove that the same is erroneous or excessive at the hearing before the TRAB or the TRAT to secure thc decision in her favour. To support her contention, she referred us to the decision of this Couft in Insignia Limited v. Commissioner General (TRA), Civil Appeal No. 14 of 2007 (unreported). The learned advocate for the respondent, therefore, concluded that as the appellant did not utilize the opportunity provided by the law to adduce sufficient evidence to neither the TRAB nor the TRAT, she cannot seek refuge under section 97 (c) of the ITA before this Court as the assessment has been finally determined substantially with only one issue left. She thus urged us to dismiss the appeal with costs. I the dispute between the pariies was referred on appeal to the TRAB after respective submissions, we think the issue to be determined is whether the TRAT was right in law to uphold the decislon of the TRAB in support of the respondent who disallowed the appellant's costs on direct sales. We note that the center of complaint of the appellant in supporting the sole ground of appeal to be deterrnined by this Court is on the failure of the respondent to comply with the provision of section 97 (c) of the ITA. At this juncture, wc deenr appropriate to reproduce the relevant provisions of section 97 (c) hereunder: - "Where the Comrnissioner makes an assessment under section 94 (3) and (4). 95 (2) or 96, the Commissioner shall serve a written notice of the assessment on the person stating: - (a) N/A; (b) N/A; (c) The reasons why the commissioner has made the assessrnent; ri (d) N/A; Having heard the counsel for the parties and considering their (e) N/A. It is not doubted thar Ms. Achimpota for the respondent did not disregard the requiremerrt rn rposed by law under section 97 (c) of the ITA, However, she argued thal since the appellant appealed to the TRAB bound to tender sufficicnr evidence betore the TRAB or the TRAT on appeal to show why shrr urought tlre respondent allegedly improperly disallowed the said direct sales costs. She argued that the onus to prove that the disallowance of the direct sales cos[s was erroneous lied on the appellant's door. In this reQdrd, she supported the decision of the TRAB and that of the TRAT which confirnred ttre disallowed direct sales costs. In order to appreciare the decision of the TRAB in respect of this issue, we reproduce the relevant passages thus:- "... Therefore, tailure to subntit those docurnents created difficult to respondent to determine taxable income for both AOTTL and AOIG, which mean that AOTTL did not show which cosis .ire related ta direct costs of goods sold against the respondent's assessment as required by the law, she was hence lack of evioence of actual costs incurred and corresponded pa yrnant. In claiming invc,ntory cosls on direct sales the claimant must produce propcr tax invctic'es against each costs and evidence or actual payment made by the Appellant. Therefore since the itppellant did not produce evidence of a proper tax invoit't' on each costs and evidence of actual payments made its claim for inventory costs on direct sales was propcrly r.yected". The TRAB concluded furth.:r that "...it goes witltout saying that it was proper for the respondent to disai/ow the appellantb costs on direct sales due to lack of supporting invoices against each costs and evidence of actual payments made by the appellant." Admittedly, the issue or adherence to section 97 (c) of the ITA which requires provision of riie r easons {or the assessment made by the respondent was not raisco :s one of the grounds in the statement of 10 appeal at the TRAB. The rel.-vant issue which was framed and agreed by the parties before the hearir,g arrd dealt upon by the TRAB in respect of the disallowed costs was; "v! hether the Respondent was right in law in disallowing the inventury costs on direct sales". This was issue number six which was supp,Jsed to be determined at the end after the submissions of the parties orr the sanle. However, at the hearing before the TRAB, the appellant corrs,stently subrnitted that there were no reasons provided by the respondeirl fcr the disallowed costs. Nevertheless, no evidence was tendered in support of the appellant's position that the disallowed costs on direc[ s.rli.s werc incurred wholly and exclusively in production of its incorne. As a resulr, the TRAB found in favour of the respondent as stated above. On its part, the TRAt.rpheld the finding and decision of the TRAB on that issue when it disnris:ed grourrd [hree of the appellant's appeal in respect of the disallowed costs. For avoidance of doubt we have to point out that ground three of the appeal was to the effect that:- "That the Boarcj err"-d tn law and fact when it held that the Respondent vvas correu to disallow the Appellant's costs on direct sales due to lack of supporting invoices." In its decision, the TRAT agreed with the counsel for the respondent that the appellant failed to producc the required evidence to substantiate her claim. The TRAT crrrpri:sized ihat trre appellant could have provided that evidence during the audit stage, during the objection or during the hearing of the case at ttre level of the I RAB. We have to observc Lh3t wflite ttle ,-ornplaint oF the appellant before the TRAB on this issue was vrhether the respondent rightly disallowed the said direct sales costs orr production of its income, at the TRAT the complaint remained substarrrially the s;arne as reflected in the reproduced ground three above. Houvcver, we entertain no doubt that the need for the TRAB to address and drcrde upon the respondent's non-compliance with the provisions of secticn 97 (c) of the ITA was not vividly presented by the appellant during tirc subrriissiorr oi the argument in support of issue number six. For purpose rrf clariry, vve better reproduce the relevant submission of Mr. Kibuta, tlie appellant's counsel in respect of this issue: "Issue number six ilso related rn the income year 2008 which inventory costs were disallowed in deduction. There are no clear reasons provided by TRA for disallowing the irtw'ntory costs. And the failure to state the reasons for clis',iloiuing is on itself an act of arbitrary. There is a secon(i tedsort why you should find in favour of the tax payt:r tn this point. In making the transfer pricing adjustment lhe costs ot' invcntory is automatically adjusted. When 7ou disailo'uv the costs of inventory separately you are doing a double disallowance which is not proper in acct unring pt'rspective. For those two reasons we submit t'nat disallovving the inventory cosB is wrong." In response to the s-rornission of Mr. Kibuta, Mr. Adelard, Legal Officer for the respondent sratcd as follows: - "Issue number six regarding disallowance of inventory costs on direct sai,:;, the disallowance of this item was based on l;;ck of evidence on actual costs alleged to have t;tert incurred and torrespondent payments. TRA ruas in neecl af appropriate invoice against each cosls artd evidence of actual payment made by the a,tpt,llant- They have failed to discharge that ubligation. The allegations that there was no cle;r rcason fttr disallowing this item is unfounded. l-r:e reason for disallowance was based on lack of evidt:nce on actual costs incurred. With regard to atictl.trion ti;ac pricing adjustments automatically adjus|; the inventory costs from accounting perspective is nc.tr rrue, because transfer pricing is on related part arrailgi:rnents where direct sales in this item is [sicJ relates to s.lics rnade locally. 5o the two cannot be/go together.'' [emphasis addetll. we also think that it i-- iror out o[ prace to point out that in his rejoinder to the subrnission of Mr. Adelard, as reflected at page 1185 of the record of appcal, Mr. Kbuta emphasized, among others, that: - "...lf the reasol for disallowing for failure to provide evioenca this sht-tuld have been said by 1ii TRA by the 0i;,.' and tltc cotnpany would have provided t/i,::t From the above qui.'ti..l subniissi-ns oi counsel for the pafties, it is clear that the issue that rhe r I..riB was c.rllcd upon to determine is whether the appellant proved tit.r ,ri,- iii costs i,-r. urred on inventory costs on direct sales to be entitled to tti,-' , qursrlc ti.;. rclict as required by law. As we have demonstrated througr, LnJ quol(rd paragraphs above, it is conceded that there was no direct r.,lcr-ence to :,ection 97 (c) of the ITA when counsel for the parties rri.rr:. ii;eir rd,,l)....tivc subrnissions at the TRAB. In this regard, no one can dor, )r tiie facr rtral in view of the submissions of the parties, the TRAB !i/.rs i-alled uporr to decide whether there was sufficient evidence to Jl).:, ; th3t tl)r assessiTlent in respect of the disallowed costs was uiru.,,jur.ls. I'rr.:rciore, l-o come to a different conclusion other than the o;.e Ltre Ttuirl arrived at, the appellant had the onus to prove to the cor iir;i .. On the other harrci, Lr , rr is l..r J.-,uDt r.ilat ttre first reference to the provisions of section 97 (c) ir rire ITA vli.is rnadc by Mr. Alan Kileo, learned advocate for the appellant ii, lris subnrissron in support of ground three of appeal before the TRAI ..,t:.,: iic br:.lil,' slated as follows; "... You will ftr,it mat in section 97 of the Income Tax Act, 2CC,t -,;i ;tssessinutt wttfiout reasons is not assessnri:i. In terirts ol the law the assessment tit{' {espondenL issued ought to have explained why titis costs '//.ts disallowed. Further the appellaitL turing tiit: oDJCCtior] stage sought explanatiort lrottt the rt'spondent why this costs was disallowed sc that tle dppellant could respond positively On her part, the rcsirrnder)t's counsel, Ms. Achimpota responded and emphasized that the .ippellanr had a burden of proving that she incurred the expenditLri(: L.; fc crrlir.l.i Lo [tte tax deductions she sought as it had a significant irnpalr on tiicir iax liability. In this regard, we tiiulk that as during the submisslon of counsel before the TRAB it was. i;:-,.,, r-ir;t tr,.r (:;:;pute bctwcen the parties on the issue was on the lack or .r.,ideirce urr :.upporting invoices of which the appellant had claimed [o piissess, it is only the requisite evidence which could have guided the prr,pi,i dccisiorr ur-r the issue. in the circumstances, the appellant would l,;v:,.rquc:;rrr1 irri: TIIAB to take fresh evidence '16 I concerning the actual ,-{,:.ir.i:l)c incurr..,'.l to prove that the respondent's assessment on the oi.,.i;'i,,,-:i ilirect irlci costs was erroneous as the burden of proof wos stiii :;;,-i.rrely on lr(:r part. In the event, she could have urged the TRAB to ij:iJW her tr-r rendcr that evidence under the provisions of section t,/ i t; 2) ot ttic .lrilv\ rvtrich provides as follows:- "(1) The Boaro aikt lhe Tribunal shatl respectively have the powcr: - 1t (2) NotwithstLrtilr;,:l subsecrion (1), the Board or the Tribunal sr]Jii l,-:'/e thc power to sumrnon and hear any witne., .:,i)-. itae;vL' i i JLIrce in rhe manner and the same (-'{ir-'; jr ;ls if r:f vti:re a Lourt exercising civil jurisdiction ,rt a ctvil case and the provisions of the Civil Procedure Lbtl;, telating to sumfitoning of witnesses, the takiry ct! {,:..i,n;criy c,t .,nLh, arri ncn-compliance with a witness sufiilnon shall apply in relation to an appeal befort, t,:: Boaftl but the Tribunal may not admit atl, tTesh er;tle ce save in the 11 circumstairc.. ,,tt tvltici4 the tliglt Court may admit fresh tr:tlence or] a fitst appeal in a civil case." [emphasis ?di-l-i.r., Thus since the app,.,i,.r,;'- did i)crr uiEe llie -IRAB to take the relevant evidence after the leSpon.Ju, ri's subrriis'ion arrd her rejoinder in respect of issue number six, but :jrir, ,rlSte3d, .rirpcaled to the TRAT against the finding and decision oi r,,: iil:.ij rii i(ripc.L of the same issue, her complaint on that grounl , . urriounrlc.d. She could have applied under section 17 (1) (a)and (2) .;r i,:e l-RA,\ fcr the TRAT to admit fresh evidence in respect of the said (.:,:;:i.'. ,r..'i: (:'-rsi', .rs the iitlirJen of proof still rested on her shoulder. As sl r,.: Ll,.r ,ruL do ii-,. tfic C.irirrtjt complain at this stage of the second appeal. vvl -iie scttlcd that thc relevant question before the TRAT was whethcr it., .ippell.:nr. oricred rangible evidence on the actual costs she incurrt,:.1 .,, -lri.'.t:,ri.',. [o br'crrtrtled to the tax reliefs. We are of the firm opinrcirr iir:t a[ that srage rf the -[RAT could have been properly moved to grarrt ir,, rcLluis,li' li;ave, iL could have legally invoked the provisions of sectiui; (lj (a) -:ii:l (2) ul rtre-[[(AA to take fresh evidence as it was dealirrq; ,. th [ire tir;L eppeal trom the TRAB. 1ii It follows that as Lf rr' , -,UC ol' rh:' irtcei:jrry of provision of evidence to prove that the respOri-1i.,:r : ..rS:jcsSrriirr-lL w.is eri'oneous arose clearly at the TRAB and later at tiri- -i i'rAT, the appellaril trad the burden of showing that the respondent itr,;...,,riy disallJv.c0 [frc said costs as required by section 18 (2) (b) of ri,... I llAA. Fr,, iiie sake of emphasis, we feel compelled to reproduce L[r.: >aid section hereunder: - "(b) the ofius of !;: L,v.i;g rhat tlrc assesrrnent or decision in respect ol htt,ri, <)t) ippeal it pieiarred is excessive or erroneous sit;tlt :)e on the appcllant." We are thus of tiir settled cpirrion that as the appellant had preferred an appeal iri ,,.ri,-lr trle cri-,.-',,1 r:sue Lefore the TRAB and the TRAT was whether tht: rc:pondent irLrproperly disallowed the costs on direct sales, and whether'ttie assessrnent was erroneous/ she was duty bound to prove the sit.:-r.. iior ai ti-iJi- it,jqe tlle assessment had been finally issued by the re5pur,ient arid [i,lrefore rro longer into her hands for further consideraticrr. ri is irr ttris rcgard rhat we subscribe to the decision of this Courl r,i rnsignia i,irnited v. The Commissioner General (TRA), (supr,,.: ,. .:ic i[ ;/.: . ',iilrjiizt:d that: - "The burden of proof in tax maffers has often been placed on the tax-payer ... The evidence which seffles the final liability lies solely within the knowledge and competence of the aggrieved tax-payer." Therefore, in the circumstances obtaining in this appeal, as the appellant had appealed to TRAB and later to the TRAT contesting the provisions of the law referred above to seek to be given leave to adduce evidence in support of her claim and to challenge the alleged improper assessment, she cannot currently take refuge under the provisions of section 97 (c) of the ITA. We are fully satisfied that after the respondent had issued the final determinatlon on the disputed assessment, the appellant legally contested it through an appeal before the TRAB as required under section 16 (1) of the TRAA. Similarly, the appellant also rightly appealed to the TRAT against the decision of the TRAB as required by section 16 (4) of the TRAA. It was therefore her duty to show that the assessment made by the respondent in respect of the disallowed costs on direct sales was erroneous. 20 entire assessment made by the respondent, but did not utilize the In the circumstances, if the intention of the appellant from the outset was to challenge the assessment of the respondent in respect of the disallowed direct sales costs based on the issue of non-compliance of the respondent with section 97 (c) of the ITA, she would have indicated so directly in her statement of appeal at the TRAB and later at the TRAT to enable them to deliberate and decide upon that legal question. As that was not done and the issue before the TRAB or TRAT remained that of whether there was evidence on actual costs incurred on direct sales, the appellant was duty bound to prove through cogent evidence (supporting Otherwise, we think that the TRAB and the TRAT cannot be blamed as the question which they were called upon to adjudicate required sufficient proof and the burden lied on the appellant as provided under section 18 (2) (b) of the TRAA. In the event, we agree with the learned counsel for the respondent that the TRAT properly confirmed the decision of the TRAB on the issue of disallowance of the direct sales costs as no cogent evidence was tendered by the appellant to the contrary. We do not therefore, think, 21 invoices) that the disallowance of the said costs was erroneous. with respect, that the TRAT wrongly held against the appellant on this point as stated by her learned counsel. In the final analysis, in view of the reasons we have stated above with respect to the sole ground of appeal, we have to conclude that this appeal is bound to fail. The consequence that follow is to dismiss it in its entirety with costs. DATED at DAR ES SALAAM this 26s day of July, 2019. A. G. MWARIJA JUSTICE OF APPEAL R. K. MKUYE JUSTICE OF APPEAL F. L. K. WAMBALI JUSTICE OF APPEAL The judgment delivered this lh day of August, 2019 in the presence of Mr. Wilson Mukebezi counsel for the Appellant and Mr. Leyan Sabore, counsel for the Respondent, is hereby certified as a true copy of the original. COURT OF APPEAL E 22 RA