LIMITATION PERIOD FOR TAX ASSESSMENT AND INVESTIGATION – TAT DECIDES IN ECOBANK NIG LTD V DELTA STATE BOARD OF INTERNAL REVENUE
June 12, 2021
On 28 May 2021, the Tax Appeal Tribunal (TAT) South-South Zone, sitting in Benin, delivered a judgment in a matter between Ecobank Nig. Ltd (“the Bank”) v Delta State Board of Internal Revenue (“the Revenue”). The matter bordered on the legality or otherwise of the Revenue carrying out tax audit or investigation on tax payers beyond six (6) years, without establishing a case of fraud, wilful default or neglect, on the part of the taxpayer.
Highlights of the Case
The Revenue via a demand notice dated 28 October 2019, issued a Best of Judgment (BOJ) assessment on the Bank, as additional PAYE tax liability for an 11-year period, spanning 2000 to 2010. The Bank objected on the ground that no case of fraud, wilful default nor neglect has been established against it by the Revenue, and as such, cannot carry out an audit or investigation beyond the statutorily recognised six-year period. The Bank further buttressed that since equity aids the vigilant and not the indolent, waiting twenty (20) years to raise an additional assessment was a clear case of acquiescence on the part of the Revenue.
In its response, the Revenue maintained that it reserved the right to conduct a tax investigation beyond the six-year period, further to the provisions of Section 55(1) of PITA, if it is discovered that a taxpayer is fraudulent, or has neglected or wilfully defaulted on his tax obligations. The Revenue argued that a discovery has been made through her Intelligence and Enforcement Unit, that the Bank had wilfully defaulted and neglected to disclose the income of its employees according to the law, hence the need to carry out the tax investigation.
Upon hearing the arguments of both parties, the TAT held that:
- According to section 55(1) of PITA the Revenue has the right to conduct an audit or investigation and raise an additional assessment, where it discovers that the taxpayer was not properly assessed to tax.
- It is lawful for the Revenue to raise BOJ assessment where a taxpayer fails to submit returns and/or where there is a disagreement between the taxpayer and the tax authority, according to Sections 54(3) and 58(3) of PITA.
- It is however lackadaisical of the Revenue to wait 20 years after the relevant year, to issue additional assessments, despite having carried out tax audit previously on the same years.
- Section 332 of Companies and Allied Matters Act 1990 (now Section 375(2) of CAMA 2020), mandates companies to keep their accounting records for only six years, after which it becomes discretionary for companies to keep such records.
- Statutory limitation of six (6) years provided in section 54(5) of PITA applies only to PAYE tax, and does not stop the tax authority from going beyond six (6) years with respect to other taxes such as WHT, VAT Act, Stamp Duty and other taxes as prescribed by the applicable laws.
- Assuming without conceding that Section 55(2) supersedes Sections 54(5), 81 & 82 of PITA, the onus is on the Revenue to prove that the taxpayer has committed fraud, wilfully defaulted or neglected its tax obligations, before raising additional tax assessments beyond the 6 year limitation period.
- The allegation of wilful default against the Bank by the Revenue is an afterthought as it was not contained in any prior notice by the Revenue and as such, cannot be upheld by the Tribunal.
- The Revenue’s demand notice to the Bank is caught by the statutory limitation period of six (6) years and the proviso to Section 55(2) of PITA, which allows for investigation beyond this period, has not been triggered in this case.
- The BOJ assessment being additional PAYE liability for 2000 – 2010 is null and void.
- The Revenue is restrained from carrying out any further audit or investigation on the company in respect of these years.
There have been diverse judgments on the interpretation and application of Section 55(2) of PITA. Worthy of note is the recent case of Polaris Bank v. Abia State Board of Internal Revenue where the decision of the Tribunal which was initially granted in favour of Polaris Bank, was upturned by the Federal High Court.
The TAT in this case has reiterated that there has to be an end to raising additional tax assessments on tax payers in respect of the same tax years. This is not intended to go on in perpetuity. To trigger a tax investigation, the tax authority must have established that there was fraud, willful default or neglect committed by the taxpayer. This has to be established with proof and not based on speculations or assumptions.
Finally, since equity will not aide the indolent, the tax authority should ensure that tax audit exercises are carried out within the prescribed period. Only when there is evidence of fraud, willful default or neglect on the part of the taxpayers, can there be a tax investigation. We do align with the reasoning of the TAT in this case and until this judgment is appealed, it remains binding on both taxpayers and tax authorities.