Civil Reference No. 7 of 2004
Alliance One Tobacco Tanzania Limited (the appellant) filed income tax returns for the years 2003, 2004 and 2008. The respondent, the Commissioner General (TRA), conducted audits in 2005 (for 2003–2004) and 2011 (for 2009–2010), disallowing several corporate tax items including capital expenditure, inventory costs, loss of input stock, bad debt written off, and made a transfer pricing adjustment on prices charged to the appellant's sister company, Alliance One International AG. The appellant objected, contending that the disallowed costs (particularly inventory/direct sales costs) were wholly and exclusively incurred in the production of its 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 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 that the appellant had failed to produce supporting invoices and evidence of actual payments. The appellant appealed further to the Court of Appeal, the dispute narrowing to a single issue concerning the disallowed direct sales costs.
Whether the Tax Revenue Appeals Tribunal was right in law and in fact to uphold the decision of the respondent (and the TRAB) disallowing the appellant's costs on direct sales, incurred allegedly wholly and exclusively in the production of its income; and, connected to this, whether the respondent's alleged failure to comply with section 97(c) of the Income Tax Act, 2004 (requiring the Commissioner to state reasons for an assessment) vitiated the assessment or excused the appellant from discharging its burden of proving the assessment erroneous.
The appellant, through counsel Mr. Kileo, argued that the respondent failed to comply with section 97(c) of the Income Tax Act, 2004, which required the Commissioner to provide reasons for the assessment. He contended that this omission left the appellant unable to know what aspects to address or prove, and thus unable to adduce meaningful evidence at the audit, objection, or appeal stages before the TRAB and TRAT. He argued that the issue of the appellant's need to justify the disallowance was raised belatedly by the respondent only at the TRAB hearing, and that the TRAT had wrongly rejected a dissenting member's view favouring the appellant's position on the importance of reasons. He sought reversal of the TRAT's decision on this point. The respondent, through counsel Ms. Achimpota, did not dispute the importance of section 97(c) but argued that once the dispute reached the TRAB on appeal, the burden shifted to the appellant under section 18(2)(b) of the Tax Revenue Appeals Act (TRAA) to prove by documentary evidence (such as tax invoices and proof of payment) that the assessment was erroneous or excessive. She relied on the Court of Appeal's decision in Insignia Limited v. Commissioner General (TRA) for the proposition that the burden of proof in tax matters rests on the taxpayer, since the relevant evidence lies within the taxpayer's own knowledge. She submitted that as the appellant failed to tender such evidence before the TRAB or TRAT, it could not now rely on section 97(c) to escape that burden, and urged dismissal of the appeal.
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 required the Commissioner to give reasons for an assessment, the issue of non-compliance with that provision was never squarely raised or argued before the TRAB (where the framed issue was simply whether the respondent was right to disallow the inventory costs on direct sales), and was only briefly raised for the first time before the TRAT. The Court held that the real question throughout was whether the appellant had discharged its statutory burden under section 18(2)(b) of the Tax Revenue Appeals Act to prove, through cogent evidence such as supporting invoices and proof of payment, that the assessment disallowing the direct sales costs was erroneous or excessive. Since the appellant failed to tender such evidence at any stage—and did not seek leave under section 17(1) and (2) of the TRAA to adduce fresh evidence before the TRAB or TRAT—it could not now invoke section 97(c) to avoid the consequences of failing to discharge its burden of proof. The Court endorsed the principle from Insignia Limited v. Commissioner General (TRA) that the burden of proof in tax matters rests on the taxpayer, as the relevant evidence lies within the taxpayer's own knowledge and competence. Consequently, the TRAT did not err in upholding the TRAB's decision.
The judgment reaffirms the settled principle in Tanzanian tax law that the burden of proving that a tax assessment is erroneous or excessive rests squarely on the taxpayer under section 18(2)(b) of the Tax Revenue Appeals Act, reinforcing the earlier authority of Insignia Limited v. Commissioner General (TRA). It clarifies that a taxpayer cannot belatedly invoke procedural requirements such as section 97(c) of the Income Tax Act (reasons for assessment) to excuse a failure to adduce substantive evidence at the appropriate stages of appeal before the TRAB or TRAT. The decision also underscores the procedural importance of properly framing and raising legal issues (such as non-compliance with statutory reason-giving requirements) at the earliest appellate stage, and of seeking leave to admit fresh evidence under section 17 of the TRAA where necessary, rather than raising such issues for the first time on a further appeal.
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