CTA Case No. 3649 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY MANILA NEW TOWN DEVELOPMENT CORPORATION, Peti t ioner , - ver sus - C.T.A. CASE NO. 3 649 COMMISSIONER OF INTERNAL REVENUE , 1/ 11 K1 Res pondent. X- - - - ------ X D F. C I s I 0 N This is an appeal from the deci sion dated 19B3 of r"f?.spondf?.n t. CDmm is~; i. one 1r� of Internal Reve n ue denying t he protes t of petitiDner Manila New TDwn Development Corporation against the assessment issued against it in the amounts of P1,563~329.10 and P7,643~792.B3 for the year s 1976 l'"e�; pee t .i. ve 1 y, ,,. ~:~ p l'"f:?Sf?.n tin q df:~f .i.e .i.e ncy ( income tax and interest covered by respondent's demand letter dated January 29 , 19B2. r. epPated failLH"e of pE!t.i. tioner.. to prosec ute its action by presenting documentary and/or oral evidence in sup port of its case during 346 J

- DECISION CTA CASE NO. 3649 - 2- the sc he dul e d hearing s thereof, in spite of severa l postponements gran ted by the to give petitioner t he full e s t opportunity to estab l i s h t he m!�:> r-.it.s o �f it~:;; <'='ppeal, th is car::~ e W i':\~:. s uhmi ttE~ d f o r� decision by the par� ti es on the basis of the pleadinqs and t.hr~ lr�ec::nr��d~5. (~net wh i l e the p a rti es were given a mple time t o f ile me mor an d a in suppo rt o �f thE" i r- r� �?-~; p~-:>c t i ve pns i t ion~:; , no memo ran cl a ~�J er- e submitted by them. Th e m.::\ te 1�� i ;;~ l �f c::'\c t.s as s t,:~ teet i n t h e pet .i. t ion for review a nd admitted i n the a n s wer are: .1. Thi':\t pet.i.tionr:.>r- i ~; a c:o r-pol- at..i.on dul y cwqr.~n i zed a nd e:.:ist.i. nq under� t h E! laws o f the Philippines with main office a ddr ess at D & F Buildinq, ClUf?ZOrl Bou l f::>van:1, City, while 1'- e f..:; pondF.~nt:. i~; the duly appointed Co mmi ssio n er� of Internal Reve nue and may he serve d with s ummon s at the BIR Building, Clu ez o n City; 2. That. in a letter dated January 29, .1982, whic: h peti t.i.oner� n~c:ei ved on !"larch .19El2, res pondent assessed a nd demanded from petitioner the aqgregate a moun t of P9,207,.121.97 as d e fi cien cy inc om0~ ta :.: e s �for- t: h e t.a :�:a b 1 e YE~ r.~r-~..; .1. 97 6 a n c:l .1. 977, details of which are as f ollows : 34 7

DECISION CTA CASE NO. 3649 - 3- Net income ( loss ) per- r-et:urTl (F'5~324~55l.74) Pdd: l..h3llc:)V.Jable cleduct.i.c:ns: Mr."":\n.::\qE'IIlE"n t fa-"' F'l ~ LJ{K), (0). (K) l....os~; nf c.;:~.nce ll at..i.on crf ccx1tracts 5 ~ 249 ~ :3.1_:3. 75 Irlt.f.?n::~::;t �"J.:-:pEnse .1. ~ E:l'!"(l, .1.9El. ~50 R:"":\d debt~; . ........J.9..,J.4.:?..~zz �,_49.�,. 9.~.~-~.<=~~~ Net .i.ncane s;ubject to t,'"\ :-: t:::~_,_ l.:./4. ,JQ~2 ~ :?r~ I nc::orne t..'1:�: duf.? t.her-ecn F'l ~ .l(K) ~ 9~.6. (K) PM:1d: .1A% int. fr-. 9/1.5/76 - 9/15/79 -�������������4�-���6�����2�����' ��3���-9���:��:��;�.��������1����(��-l� TOTAL PM::X..NT DI..E t0tNJ) r..:n...LFCTIH..E f.:..1.~:::~B:;:.~.~~~.~. J,g 1 ..9. ..1... .7 Net incc:xn.-.::~ ( lc.ls.;s) per�� r �etur-n Add: l..h.3l lc)V.Jable deduc:t.i.c:ns: f-l<:",\d de bt.~"; on P 70, 26~'-'. Rl'-?5<�2�;\n::h li( Dev � �"J.:�:p. ~.?, EYI{ l ~ ~190. BO Pr�of~;s.i.cx1a 1 f ees 1.!30, (K)(l. (l(l In t:.en~; t 12:: pens-,c.;! :?.4_!\Jf!.:l, ~--~::::;~ E~!~~:z.., .~.~-~J.,4.~:~:>..�.?:~T, 1\let. I rKCl!T)(:"'? s;ubj ec: t to t.a :-: �. F.::.t~.!\.:::::~~.+. .!1.~:~ ~.::: ~'�'..~ Inc:cxne ta:-: clue then:?on F' ~5 , :352 ~ 5~!~) . (l(l Acid: .1.4% .i.nt.. "fr-. 9 I 1.5177 to 7;::)1./!30 2~ .1. ~5B~ 06 ~3 � .1.6 :?0% in t. �fl'- � !3/ .1. /BO t.o 9/.1.~3/ElO 1 :3:~T,, 1.97. 7;1. ......:?.,;?9.1!\:?.~1.~~~87 TCJT(~.... N"'KJ...NT DI...F PND cn.J....ECTIH...E E:o: Z.,.f:tFi:::.,z~!s~.-~z 3. That. the above- stated assessment ar-ose fr�� nm the d.i.~:;allowa n c:e of the �follnw.i.nq deductions claimed by petition er-: rn anaqerne::mt �f ef.�?s, lo ss , b a d debt.~;, in t.r.-?l'�� es t , r-esear-ch a n c:l clf."'ve 1 Clp rn en t. e :-:pe n se ~ ancl pr-ofessional fee s; 4. That in a letter- elated Apr-il 20, 1982~ p etitioner- pr-otested the afor-esaid assessment; 343

- DECISION CTA CASE NO. 3 649 - 4- T h at i n a letter dated March 1~ v-ihich wa s r�r.:~Cf.'?iVE~d by petitioner � on May :.?4, .1.c1EJ ::~:~ r�p n rlE�' I'"�ed h is fina l dPc::ision on aforementioned assess ment by reiterating his demand for the payment of t h e su m of P9,207~121.93 as deficiency inco me taxes for t h e years 1976 and 1.977. Hence, this appeal. s pecia l and ,3. �f f .i. r� m,3. t i v�-? res pondent a ll eges in his answer t hat: Deductions are a matter of l egislative grace. The taxpayer se�-?king a deduction must point to some spE:~ci �f.i.c pr� nv.i.~;ions of t:.hP ~::;tatut�-? in whic h th,::~t deduction is authorized~ and mu s t be able to prove that he is entit l ed to t he deduction wh ic h t he law allow s (Perez vs. Co~. of Int. Rev. , G.R. No. L- 30403, April 12, 1969); m.:-,\n,3.qemf.'?n t �f ees in thf.~ of P1~400,000.00, aside from bei n g u n reasona b le~ .is not. r.;;u ppo r� tecl by d Clc: umen ta ,.-y f.'?V .i.d E~nc E:�~. the recipient of the alleged manage me n t fees is a f:; .ist.e 1�� company of pf:?t.i t. ionE�~ ~--� ~ t h P M.:,nila Int:.E~r�� -�- public:: Developmen t Corporation; 34 9

DECISION CTA CASE NO. 3649 - 5- The alleged loss in the amount of F'5,249,3l :3.75 is not substantiated by documentar-y evidence. Said loss could not be effected by a mere adjusting e ntry in petitioner's books without supporting documentary evidence; The research and development expenses incurred by petitiorlE?r- in its min ing vent:.Lu-e should have been treated as capital expenditures and a mortized �f or- a per�iod o�f at l east five (5) ye.::~.r� s. The amount of F'2 ~840~ 590.80 was properly disallowed for future amortization ; The pr�ofessi.ona 1 �fee in the amount of F'lBO,OOO.OO al l egedly paid to lawyers~ accou nt ants, and ccmsu 1 tan t s i. s not an cwd inar�y and necessar-y expenses inasmuc h as the same was paid to City Inv e�.;t ment Cor-pnr��ation .in behalf of Manila Int.er-- public Development Corporatio n~ an affiliate of p e t i tic:H1~7?r�� ; Interest expe n se s hould have been distributed~ apportioned and allocated a mong the contro ll e d organizations of petitioner to clearly reflect the actual income of said organizations pursuant to Section 44 of the Tax Code. For�� the yea r- .1.976 ~ 350

DECISION CTA CASE NO. 3649 - 6- petitioner was allowed as interest expense the amount of P3~310~843.71 after deducting the amount of P1~8 3 0~198.50 as di s allowance from i t s clai m in the amount o �f P5~1.41,042.21. For the year� 1977 ~ peti ticmer was allowed as inter�est e:-:pense deduction the a mou nt of P11~766, 223.3 1 out of i t s claim in the amount of P 35,926~7 67.66. The amount of P24~160~544.35 should be di s allowed as interest expense fer the year 1977; Th!:? d��~c:luction n �f' the amount n �f Pf:39~ 4 07.85 allegedly r�epr�esen tinq bad debts was pr��oper 1y disa ll owed in.:~smuc: h <-"S the c:laim was not duly s upported by pertinent documents . The alle!]ed bad debts s hnuld have been ascertained tn be worthless before it cnuld be claimed as deduction s ; The as!sess ment issu�?.d .in the in sta nt c:ase is in ac:c:ordance with law and regu l ation s. The ba s ic: issue of cour-!s e is whether nr not petitioner Manila New Tnwn Development Corporatio n .is li able fnr the amounts of P1~563~329.10 a nd P7~643~79 2.83 representinq deficiency income ta x and inter-est f or� the 1976 and 1977~ r.. espec: ti ve 1y. 35 1

DECISION CTA CASE NO. 3 649 - 7- There is no showing in the pleadings or in the records that petitioner questioned the computation of the deficiency in co me tax asse ss ed against it by respondent. We take it that this is not an issue in thi s case. Wh i le petitioner pray s in its petition for review filed with thi s Court that ~.:t.t.~r:..._... ....J�u?9.r.:.l.:ng ~ this Cour� t judgment withdrawing r-espondent' s ta:�: cancelling and t asse~;smen the that thE'~ sa me is arbitrary and without any legal . and factual basis~ petit io ner- utte1,.. ly fa i led to pl'�esent evidence at the sc heduled hearings to s ubstantiate the nullity and .illegality of the assess ment. The Court recognizes that the burden of proof .is on the taxpayer contes ting the validity or correc tness of an assessment to prove not only that the Commi s sioner- o �f Internal !:;: ~?.ve nue is li'WDn!J but that he (taxpayer-) is r-ight. (Lin o Gut i errez v s. Co l l ector of Intern al Reven u e , CTA Ca .:;: e No � .'504, ,7 an u a r y .2 8 �' .t '.':J 6 2 .: :~ e e a .l :;: o Tan Gu an v s � Co u r t o f t ax Appea l s, Apr.i.l ., ... .t'.':Jf...7 .� .t '.'9 SC RA 90.3.) -':I �' And if the ta:�:payer fails to present r.:~vidence or- proof in su pport of hi s allegations in hi s petition 352

DECISION CTA CASE NO . 3649 - 8- for review~ or to prosecute his action~ as in this case~ to the doctr-�i ne of t h e presumption in f avor of the correctness of the ta x assessment ( Interprovincial Autobus Co., Inc. v s . Co II e c tor of In tern a I Revenue , L -6 7 4.1 .� ,7 an u ar y .3 .t� .t�.?.56 .� 98 Ph.i .l � .:? �_?r); Co lle c tor of Internal Revenue v s . Bo hol Land Tran s portation Co. , l.. -.1 .3099 and L-- .1.3'46.3' .� .Apr.i.l :?'.? _� .t'.?60 _� .t07 Ph.i .l. '.?6.5) ~ the Cour-t will merely s ustai n the assessment against the taxpayer. (Care $ OS a v s . Bureau o f Internal Revenue .� CT A Ca :..=:e No. .37 .t 3. ,7an uar y .198.5 .� cert .iora r .i den.ied .in G.(\. No. L --70 7.58 .� Auq � .30 .� .t �.?8.5.) Since no evidence was presented by petitioner to substan tiate the errors that are claimed to have beE"~n c:ommi t ted by the Commissioner of Internal Revenue in making the assessment in que s tion~ thi s Cour-�t ha s no other-� alternative than to r-esor-t to the lega l tnJis m that "all ~H- es um ptions an::! .in f avo 1~ of the c:orrec:tness of ta :-: assessments." The bur-den cJ'f pn::>o �f if..; on thE~ ta:-:payer to show the c: on t r-�a r-y. Petitioner utterly failed to do s o. This ac:tion find s support in the �f o l 1 ow in q 353

DEC I SI ON CTA CAS E NO. 3 649 - 9- authorities: (See Co lle c t or o f Internal Revenue v s . Bo h o l Land Tran s portation Co . ; Bo h o l Land Tran s portat i on Co. v s . Co lle c tor of Internal Revenue .� L-�1.30'.':?'.':? ~~ L-1.346:? .� April 29 .� 19f:.�. o .� 107 Phil. 96.5.) "All p t�-esumptions ar� e in 'favor o�f the c:or-r-ec tnes s o'f ta:-: assessments. The good faith of tax assessors and the va 1 id i ty o f th ei r- actions are pr-esumed. They will be pre s u med to have taken into consideration all t he f ac t s to which their attention was called. No ~>r-es umption can be indulged that all of the public offi cia ls of the s t a te in the v a rious counties who have to do with the assessment of property for taxation will knowingly violate the duties imposed upon them by law. "A ~; a logi ca l o u t:.qr� owth of thE? pr�es u mptio n in f i!:\Vo r- of the validity o �f assessments~ when s uch assessments are assailed~ the burden of proof is upo n the complaining party. It is incumbent upon thf:? pr-oper- ty nwrH?r c le;,:u� l y to s how t h at the assess ment wa s erroneous~ in order to r� eU.F.?Ve hi mself 'from i t . ' ( .5 1 Am. Ju r. page:...=: 62t)-f:.',2.t) . " (Interprovincial Auto b us Co., Inc. v s . Colle c tor of Inte rn al Revenu e .� 98 P/?.i.l � .� .2'.'90; .5.2 Off. Ga z � .� /... .'~?/ 79 1 � ) "When an i mporter c hallenges by 1ega 1 s teps the corn2c tness of the assessment of a duty by the Collector o f Custom~;~ the que s tion to be decided i s not whet h er th e Collector� 1-'Ja s wt�-ong b u t wh et her the impor�ter was r� iq ht ~ the burden being r..m the latter� to e s tablish the co rT ec: tnes s of hi s own c:ont:.E~ntion. " (Beh n , Neyer & Co. vs. Colle ctor of Cu s t o ms, 26 P/?i.l . , 64 7 ) 354

DEC ISION CTA CASE NO. 3 649 - 10 - "That the deter.. m.i.n a tio n o�f theta:�: def ic ien c:y by t h e Gove nHnen t h as prima facie va l idity and the burden re sts upon the ta~payer to overco me this presumption and to s h ow to the satis�f action of the Tax Court t h at the d eter mination was not cor-r-ect. " (Perez vs. Court of' Ta x Appeal s , et al � .� G.R. No. L--10507, Nay .'30 .� .1'.~58 )" And again i n the r-ecent case o �f Co��issioner of In tern a I Re venue v s � An ton i o T u as on , Inc � , e t .ts. al. , G.R. No. 85749, Nay 1'.~89~ the Supr-e me Cou r- t st1r� es se d that all pr-es umption s are in f avo r- o �f the c O l'" l'"f.:~c tn ess o �f r.. e s ponden t C<:.lfTHTl.i. ss i one r- of I nternal Revenue 's assessment against the taxpayer. I t is incu mbent upon the taxpayer to prove the contrary ( Hindanao Bus CoMpany vs. Co��issioner of' Internal Revenue , 1 SCRA 5.'38). Unfor- t.u n atel y ~ petitioner �f ai 1ed to overco me the pre s umption of correctness o f t h e Com missioner's assessment. Accord i n <;.} 1 y ~ pet .i. t ..i. o n e r- 1'1a n i l a New Town Development Corporation is hereby ordered to pay to respondent Commissioner of Internal Reven ue the .::~ mount s of F' 1 ~ 563 ~ 32 9. 10 and P7~6 4 3~792.87 a s de �f ic:iency .income ta:�: .:~nd interest for- t h e year-s .1976 and .1977~ r� e~:;pect.ively~ p l us sur.. c:har�ges and intel~est incident tel del inquenc:y pur�suant to the 35 3

DECISION CTA CASE NO. 3649 - 11 - provisions of Section 51(e) of the applicable National Internal Revenue Code. WHEREFORE, the decision appealed from is hereby affirmed at petitioner's costs. SO ORDERED. Quezon City, Metro Manila, July 14, 1989. F'residi WE CONCUR: (on leave) CONSTANTE C. ROAQUIN Associate ,Judge CERTIFICATION I hereby certify 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. F'resid �ng ~lu dge Court of Tax Appeals 356