CTA Case No. 4071 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ANTONIO TAMBUNTING Y HIJOS, INC., Petitioner-, - ver-sus - C.T.A. CASE NO. 4071 COMMISSIONER OF INTERNAL REVENUE, ~<---� ��- Respondent. - - - - � - ..-~{ DEC I I0N The case involves the di s allowance of cer-tain expenses clai med in petitioner-' s income tax r-etur-n for- the taxable year- 1976. F'~titioner domestic corporation engaged in pawnshop bu si ness ~o.J as assessed under� r-espondent� s letter- of demand dated Mar-ch 25, 1982 for- the sum o �f F' 2 12, 967. :3 4 as deficiency income ta>: for- the year- 1976, to wit: M?t incrnlE:'~ (loss) per r-eturn (F' 12,622.00) Add: Di:,.alla.o.Jar1Ces: Inter�est and bank char-ges F':3'48 1256. <X> r;

DECISION �-- CTA CASE NO. 4071 2 Inventory loss 5,323 .. ()() Salaries~ wages 14,885 .(X) 8~ allowances 5,962.00 Rent: e:�:pense Depreciation 17,860.00 Professional & 26,399.50 t ec: h1ical fees Repairs /!~ main- 24,840. 50 10,466.50 tenance Of'fice SLtpplies 9,864.00 Comrunication 11 ,075 . (X) fee 1 ,186.(X) t1edical expense Trans p:::w�tation 1,287 .(X) Janitorial ex- 2 ,f.l(X) . (X) pe nses A1nrtiza tion 4,819.00 gcx:xjwill Miscellaneo...ts Ta:�:able incCJI'T1E.' ATot..tnt of ta:-: due therecn P155,061. (X) Less : Ta:�: paid per return 0 8 4 "1 - --- -~ !l.: =----'!.I.Y.=-:l- Deficiency i ncCJI'T1E.' ta:�: F'149,977 . (X) 14/. int. ( 42"1. ma:drrum) __, 1;?.~-'-~2-~. ; 1 Total amo...trl ... due and collec tibl e F212,967. ::::4 On May 5, 1982 petitioner protested/requested for the rec on s ideration of the assessment but was d e nied by the respondent in a 1et ter dated May 5, 1986 due to the petitioner' s fai 1ure to meet the s ubs t a ntiation requirements. Hence, this petition for review filed on June 13, 1986. It appears t h at the ta:~ 1 i tiga tion arose out of the respondent Co mm issioner ' s disallowance of claimed deduction s for an aggregate amount of P484,223.50, resulting in the reduction of the tax Cfd

DECISION ��- CTA CASE NO. 4071 �-�"'!" bas e and cons equential deficiency income tax of P212~967.34, inclusive of interests. Turning to the case at t1and ~ petitioner or c otm s; e 1 repeated 1 y fai 1 ed to appear in the three ( 3) consec u ti. ve sc hedu 1ed hearings in this court and ~3s a consequence the case, upon respondent� s motion, was s ubmitted for decision on the basis of the pleadings and records obtaining. The s how that the controverted asse ssment had for its basis- �the revenue examiner's report of investigation relevantly summarized as 'foll o ws : The claimed interests and bank charges totalling P348, 2 56.00 were not s ubs tantiated and there-fore disallowed. The c on tJ-�ac ted 1oan s wh i.c h appro:-: ima ted four- times mor�e than the stockholder� � s el:lu.ity were but mean s increasing c apital, s uch that Lo a ns s eetH-ed by a thin 1 y capitalized corporation could cml~' mean additional capital and if each loan had been s ecured under the names of its affiliates/principal officers collateralized also by them, then it is tantamount to investing additional capital to the corporation. Hence, each amount of capital disguised as loans should not be interest-� bearing. Likewise, payments c e ~-

DECISION CTA CASE NO. 4071 - 4 �- o"f i nterest on each disguised loans even qualify as dividends being distributed to the affiliates/officers (supposedly lending loans to the corporation instead of being regular investors/stockholders). Some of the e:�:penses were totally disallowed, i.e. , inventory loss of P5,323.00 and the amortization-goodwill of P2,000.00 for failure of petitioner to substantiate the same. Other e:�: penses deducted in the Income Statement were allowed only to the extent of 50% of the amount claimed such as the following: ~JI...lflt. deducted One-half in tt-e Incrne ( 1/2) Statement Disallowed Professional 1!~ F'52, 799. (X) P26, 399. ~..iO Tt?dTlical fees 49 ,t.Bl.OO :20,933.00 24, 84(l. ~-o F\'epairs 8~ 1'"1aintenace 1.9,728.00 Of"f ice suppl i.es 9 ' 6.~8 � 00 10,466. ~..o Corrm..rr�licat.ion e:�q:::ense 9,864.(X) Mi.scel J.anet.."1l.t~; e:�q::x:nse 4 ,81c1. oo The rest of the remaining disallowed e:�:penses were computed on the basis of the difference of the amounts claimed as deductible expenses for the year 1976 as compar-ed to the previous year 1975, tel wit: Disallo,.ed ..CQiit~CE!.l.�!?1. Salaries, wages 8~ al 101.-k<.nces P120, 492. (X) P105,607 .(X) P14,885.00 6.3, 004. (X) 5, 962.(X) Rent e:�:pe:nse 69,846.00 :!o,471.(X) 17,860.00 Depr"'E'C i . a t.i.on 54, 331 �(X)

DECISION -- CTA CASE NO. 4071 - 5 -�- 1'1edica l e :q:Jense 12,128.00 1 ,o5.2:.oo 11 ~ 075, (X) Tr��ansportatia1 4,157 .00 1,186.00 J cm . i tol"�ial e:-.- � 2,971.00 2,410.00 1,287 . <X> pense 1,123.00 T h e pr-esu mption is the e:.:penses incurred in 1975 remained the same for the s ucceeding year, considering that the accounting record for�� the year 1976 was not pr-�ese n ted for e:�:a m.ina t.ion, them any increase in the amount claimed cannot be accounted for. Apparently the examiner's report made as close as a n appr-o:�: ima t.ion as i t can, bearing heav i 1 y if i t chooses upon petitioner ~ho se inexactitude is of .i. ts m-.Jn making. As s u c h~ the report de s erve s the c r-e d e nce that s hould nor-mally be accorded in the <.' :\bsemce? of co n tr�ar� y evidence. And, not. that the e:�:a rnin er- � s <� red <~ n t.ia 1 s a r e irnpec:cab 1 e but to hi s �f avo r��. mu st b e c:o n c:e ded the pr-es umption of n~gul a 1�� i ty i n the perfor-�rn a n ce of off ic ia 1 duties (Sec . m- 5, Rev ised Rules of Court ; u.s . v. Esca l a nte, 3 6 F' h i 1. 743)' which has not been d i s p r-o v e d by any affirmative evidence of irregu l arity or u nlawful conduct. (Prima Business Machines, Inc. v. Commissioner of Internal Revenue , CTA Case No. 2990, August 31, 1981 . ) Thus, s .i.m.i.la,~ ly h eld, ta:�: asse ss ments by ta:~, e:�:a mi n ers

DECISION -�� CTA CASE NO. 4071 -��� 6 -��� a t-e presumed correct and made in good faith. The ta:-:payet"- has the duty to prove otherwise ( Commissioner of Internal Revenve v. Construction Resources of Asia, Inc., 145 SCRA 67.1); and an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. (Gutierrez v. Villegas~ 8 SCRA 527.) Accor-dingly, we fc-,?el compe 11 eci to a f finn the import and force of '... he r�� epor- t o"f findings which may not be suffered to petrify in futility. In the case at bar, petitioner failed to dischat"�� qe ad minis tr� a ti ve 1y and judicially, having waived i~s right to present evi dence .in s upport of its claimed deductible e � :-~ pen se~:; Thi s Court c.:\rH1ot be e :-: pee: ted to ~::;anc: t i o n e:-~ ped ien t un sus t..3 inab 1 e either by operation of law or applicable settled principles. ThE~ pr-ose r� .i. pt :... 1ns of sect..w ing the in tegr-� i ty of the c:ol J.ec::ticm of lawful dues are no mer-e ingenuous sophistr-�ies conjured rJut o�f some quir-ky insights but are tinged with strong issues of public policy to fr-aud upon the r�~venue l e s t the c:o r-net"-stone of effective collection be placed in

.I DE C ISION CTA CASE NO. 4071 -�� 7 - thE~ qu.i.ck s,:~nd of self - �.i.nter�est. ( Samhwa Co. Ltd. v. Commissioner of Customs~ CTA Case No . 3099, July 31' 1981.) It may be necessary to repeat what the Supr�eme Court said in the P.P.!J.!...f~~j,_~ -�--���.Y.... J=:.9... -....~. 9..2.E:?. (G.R. L - 81446, August 18~ 1988) which so plainly apply to the case at bar, that - Where the ta:�: payer is appealing to the tax court on the ground that the Collector's assessment is et-roneous, it is in c umbent upon him to prove there what is the corTec t and just 1iabi 1i ty by a full and fair di sc losure of all pertinent d a ta i n his possessi on. Otherwise, if, the tax pa yer confines himse lf to proving that the assess ment is wrong~ the tax court. rwoc:eed ings would set tle nothing, a nd the way would be left open for s ubsequent assessments and appeals in interminable succession. By ;:;~. 11 of th e 'for��egoing ~ We hesitate t.o furthe r fa s hion and issue i nto a sat i s f a torily se ttled l ega l situation. WHEREFORE~ petition is hereby dismissed at petitioner's c osts. SO ORDEF~EO. Quezon City, Metro Manila, October 28 , 1988. Associate Judge

DECI�3ION ���� CTA CASE NO. 4071 .... B - � ~JE CONCUR~ CERT I F I CAT I 0 N I that this decision was reached after due consultation among the members of the Court of Tax Appeals in accordance with Section 13~ Article VIII of the Constitution. AMANT FILLER Presiding Judge Court of Tax Appeals