The Tax Appeals Tribunal overturned a KSh713 million tax liability after finding KRA mistook a reversal of loan-loss provisions for bad debts written off.
But the tribunal rejected the bank’s separate challenge to the timing and validity of the assessment.
I&M Bank Limited has defeated a KSh713 million tax claim after Kenya’s tax tribunal faulted the revenue authority’s interpretation of its financial statements.
The Tax Appeals Tribunal ruled that the Kenya Revenue Authority (KRA) wrongly treated KSh1.313 billion as bad debts written off during 2019.
The amount instead represented a reversal of an accounting provision against potentially unpaid loans.
In a judgement delivered on October 9, 2026, the tribunal set aside KRA’s objection decision dated September 19, 2025.
It found that the disputed accounting entry had generated neither a tax deduction nor taxable income.
“The sum of Kshs. 1,313,248,000.00 is a write-back of provision and not a bad debt written off,” the tribunal held.
The decision relieved the bank of an additional KSh713,093,664 in principal tax, penalties, and interest.
However, the tribunal rejected the bank’s separate argument that KRA’s assessment was invalid or issued outside the statutory deadline.
The Tax Dispute
The dispute originated from KRA’s compliance review of I&M Bank’s 2019 corporate income tax return.
The bank had filed its self-assessment return on June 17, 2020.
On June 16, 2025, KRA issued an additional assessment through its iTax system. It demanded approximately KSh2.277 billion in additional tax and interest.
A subsequent letter dated July 1 provided detailed explanations for six adjustments. The letter placed the overall liability, including penalties, at approximately KSh2.343 billion.
The bank objected on July 23, challenging both the assessment’s validity and the underlying adjustments.
KRA partially allowed the objection but maintained two disputed items.
One concerned brokerage costs attributed to exempt infrastructure bond income, involving KSh965,742.
The other concerned KSh1.313 billion that KRA claimed could not be traced.
That second adjustment generated KSh393.974 million in principal tax, KSh19.699 million in penalties, and KSh299.421 million in interest.
I&M Bank paid the KSh965,742 associated with the brokerage issue on October 29, 2025.
It lodged its appeal on November 3, seeking to overturn KRA’s remaining decision.
The Deadline Fight
Before examining the accounting dispute, the tribunal considered whether KRA had issued its assessment within time.
Section 31(4)(b)(i) of the Tax Procedures Act permits amended assessments within five years of filing.
Since the bank filed its return on June 17, 2020, that period expired on June 17, 2025.
KRA had issued its assessment through iTax just one day earlier. I&M Bank argued that the order lacked sufficient reasons and could not qualify as valid.
It maintained that the July 1 letter effectively constituted the assessment because it explained the adjustments.
That letter, the bank argued, arrived after the statutory period had expired.
The tribunal rejected that interpretation, finding that the June 16 iTax order satisfied Section 31(8).
It contained the relevant tax liability, reporting period, payment deadline, and instructions for lodging an objection.
The tribunal treated the later letter as an explanation rather than a fresh assessment.
It also found that the June 17 spreadsheet contained preliminary findings, not an independent tax assessment.
“The Tribunal cannot shorten a period which the statute has fixed,” the judgement stated.
The tribunal also declined jurisdiction over the bank’s constitutional challenge concerning fair administrative action.
It held that constitutional interpretation and enforcement belonged within the High Court’s jurisdiction.
The Missing Billions
The bank’s decisive victory emerged from reconciling figures in its audited financial statements.
I&M Bank’s 2019 accounts recorded total loan write-offs of KSh2.918 billion.
Of that amount, KSh906.274 million went directly through the profit and loss account.
The remaining KSh2.012 billion was written off against the provision for bad and doubtful debts.
The bank had already added back the direct profit-and-loss write-offs in its tax computation.
KRA, however, identified only KSh698.298 million in the provision’s write-off line.
It treated the remaining KSh1.313 billion as unexplained and disallowed the amount.
The tribunal found that this interpretation confused a net figure with underlying gross transactions.
Its reconciliation showed that KSh2.012 billion in write-offs, less a KSh1.313 billion write-back, left KSh698.298 million.
That was the precise figure recorded in the financial statement note.
The tribunal concluded that the supposedly missing amount had been disclosed in the very records KRA examined.
“The Respondent’s figure is a net figure,” the tribunal observed, identifying the central accounting error.
The bank traced the reversal to its adoption of International Financial Reporting Standard 9, effective January 1, 2018.
The standard introduced an expected credit loss model for recognising potential loan losses.
Under the bank’s explanation, an accounting reversal restored loans to their gross value while retaining impairment provisions separately.
Crucially, the disputed amount never passed through the profit and loss account.
The tribunal therefore found it was a balance-sheet reclassification, not taxable income.
Evidence Wins
KRA argued that the bank had failed to substantiate the disputed amount adequately. It relied on the taxpayer’s burden of proof under Section 56(1) of the Tax Procedures Act.
The tribunal agreed that taxpayers must produce credible evidence to challenge assessments.
However, it found that I&M Bank had supplied audited statements, reconciliation schedules, and tax returns covering 2018, 2019, and 2020.
That documentation explained the movement in the provision and supported the bank’s accounting treatment.
KRA, meanwhile, offered no competing computation reconciling the disputed figures.
The tribunal concluded that the bank had discharged its evidential burden through credible documentary evidence.
KRA’s continued assertion that the amount remained untraceable could not overcome that reconciliation.
It also noted that taxing provision movements again could result in double taxation.
The tribunal found that the same principle applied to the disputed amount.
“The principle cuts both ways, and no coin is due upon an accounting entry which yielded no deduction and produced no income,” the tribunal stated.
The tribunal ultimately allowed the appeal and set aside KRA’s September 19, 2025 objection decision.
It ordered each party to bear its own costs.
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The judgement draws an important distinction for tax disputes: a valid assessment does not make every adjustment legally correct.
Revenue authorities must still establish that transactions have been properly characterised and taxed.
For I&M Bank, the decisive evidence was the reconciliation showing where the disputed KSh1.313 billion appeared in its financial statements.
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