Civil Reference No. 7 of 2004
The appellant, Alliance One Tobacco Tanzania Limited, filed income tax returns for the years 2003, 2004 and 2008. The Commissioner General (TRA) conducted audits in 2005 (for 2003/2004) and 2011 (for 2009/2010), issuing adjusted assessments that disallowed several corporate tax items, including inventory/direct sales costs, and made transfer pricing adjustments. The appellant objected, contending the disallowed direct sales costs were wholly and exclusively incurred in production of income, but the respondent maintained the assessment. The appellant appealed to the Tax Revenue Appeals Board (TRAB) in several consolidated appeals; the TRAB ruled in favour of the respondent. On further appeal, the Tax Revenue Appeals Tribunal (TRAT) allowed the appeal on some grounds but upheld the TRAB's decision disallowing the direct sales costs, finding the appellant had not produced sufficient evidence (invoices, proof of payment) to substantiate the claimed costs. The appellant then appealed to the Court of Appeal, the dispute being narrowed to a single ground: whether the TRAT correctly upheld disallowance of the direct sales costs.
Whether the Tax Revenue Appeals Tribunal was right in law and fact to uphold the decision of the Commissioner General (as affirmed by the TRAB) disallowing the appellant's costs on direct sales, particularly considering the appellant's argument that the respondent failed to comply with section 97(c) of the Income Tax Act, 2004, which requires the Commissioner to state reasons for an assessment.
The appellant, through counsel, argued that the respondent never provided reasons for disallowing the direct sales costs as required under section 97(c) of the Income Tax Act, and that this failure was fatal because it deprived the appellant of the opportunity to know what to prove and to object meaningfully to the assessment. Counsel contended that the burden-of-proof requirement under section 17(1)(b) of the Tax Revenue Appeals Act could not fairly be applied against the appellant absent such reasons, and that the issue of the appellant's need to justify the disallowance was raised only belatedly at the TRAB hearing. The appellant asked the Court to allow the appeal and reverse the TRAT's decision on this point.
The respondent, through counsel, acknowledged the importance of section 97(c) but argued that once the assessment was issued and appealed, the burden shifted to the appellant under section 18(2)(b) of the Tax Revenue Appeals Act to prove that the assessment was erroneous or excessive by producing documentary evidence (invoices and proof of payment) substantiating the claimed costs. The respondent maintained that the appellant failed to discharge this burden at any stage — during audit, objection, or before the TRAB/TRAT — and relied on the Court of Appeal's earlier decision in Insignia Limited v. Commissioner General (TRA) for the principle that the burden of proof in tax matters lies with the taxpayer.
The Court of Appeal dismissed the appeal with costs, holding that the TRAT properly confirmed the TRAB's decision disallowing the direct sales costs. The Court found that although section 97(c) of the Income Tax Act requires the Commissioner to state reasons for an assessment, the appellant did not raise non-compliance with section 97(c) as a distinct ground before the TRAB; rather, the issue framed and argued before the TRAB (and subsequently before the TRAT) was whether there was sufficient evidence (invoices and proof of payment) to show the assessment disallowing the direct sales costs was erroneous. Since the appellant bore the burden of proof under section 18(2)(b) of the Tax Revenue Appeals Act to show the assessment was erroneous or excessive, and failed to tender cogent evidence at any stage — including failing to seek leave to adduce fresh evidence under section 17(1)(a) and (2) of the Tax Revenue Appeals Act before the TRAT — she could not now rely on the alleged lack of reasons under section 97(c) to succeed on appeal. The Court held that the appellant, having chosen to litigate on the evidentiary sufficiency issue rather than squarely raising the section 97(c) point at the appropriate stage, could not belatedly invoke it before the Court of Appeal.
This judgment reaffirms and applies the established principle, drawn from Insignia Limited v. Commissioner General (TRA), that in tax disputes the burden of proving that an assessment is erroneous or excessive rests squarely on the taxpayer under section 18(2)(b) of the Tax Revenue Appeals Act, because the relevant evidence of actual costs and liability lies within the taxpayer's own knowledge and control. The case also clarifies that a taxpayer who wishes to challenge an assessment on the ground of the Commissioner's non-compliance with the statutory duty to state reasons (section 97(c) of the Income Tax Act) must raise that specific ground clearly and at the appropriate stage before the Board or Tribunal; failure to do so, coupled with failure to seek leave to adduce fresh evidence under section 17 of the Tax Revenue Appeals Act, will preclude the taxpayer from relying on that ground on further appeal. The decision underscores the procedural discipline required in tax appeals regarding the framing of issues and the timely presentation and admission of evidence.
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