SUMISETSU PHILIPPINES, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE HILIPPINES COURT OF TAX J4PPEALS QUEZON CITY ENBANC SUMISETSU PHILIPPINES, INC., CTA EB CASE NO. 993 Petitioner, (CTA Case No. 8076) -versus- Present: DEL ROSARIO, el CASTANEDA, JR., BAUTISTA, UY, CASANOVA, FABON-VICTORINO, MINDARO-GRULLA, COTANGCO-MANALASTAS, and RINGPIS-LIBAN, JJ. COMMISSIONER OF INTERNAL Promulgated: REVENUE, 4/f<J~d'-/~~-' r- Respondent. MAR 0 3 7014 ~,"e~ .;::, � ~. X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISIO DEL ROSARIO, PJ.: This is a Petition for Review filed by petitioner Sumisetsu Philippines, Inc. on April 8, 2013, appealing the Decision dated November 13, 2012 (assailed Decision) and the Resolutio dated March 5, 2013 (assailed Resolution) of the former Third Division1 of this Court in CTA Case No. 8076 entitled Sumisetsu Philippines, Inc. vs. Commissioner of Internal Revenue. The assailed Decision dismissed the petition for review for lack of merit while the assailed Resolution denied petitioner's Motion for Reconsideration also for lack of merit.l1"\ 1 Composed of Associate Justice Lovell R. Bautista, then Associate Justice Olga Palanca- Enriquez and Associate Justice Amelia R. Cotangco-Manalastas.

DECISION SUMISETSU PHILIPPINES, INC. vs. COMMISSIONER OF INTERNAL REVENUE CTA EB NO. 993 (CTA Case No . 8076) Page 2 of9 THE FACTS Petitioner is a corporation duly organized under Philippine laws and engaged in the business of providing eleotrical and mechanical services for electrical transmission and distribution systems, air conditioning and ventilation systems, telephone and communications systems, and other allied services, with principal office located at the 4th/Floor, Glass Tower, 115 C. Palanca St., Legaspi Village, Makati City.2 Respondent, on the other hand, is the duly appointed Commissioner of Internal Revenue, vested with authority to act as such, including, among others, the power to decide, approve and grant refunds or tax credits of erroneously or excessively paid taxes. S e may be served with summons, pleadings and other legal processes at t e BIR National Office Building, BIR Road, Diliman, Quezon City.3 On April 14, 2008, petitioner filed, through the Bureau of Internal Revenue's (BIR) Electronic Filing and Payment System, its Annual Income Tax Return for taxable year 2007 with Reference No. 12080002182860.4 On April 15, 2008, petitioner manually filed with the BIR its Annual Income Tax Return for taxable year 2007.5 On July 30, 2008, petitioner filed a written claim for issuance of a TCC with the BIR 6 in the amount of P18,872,767.00, representing petitioner's excess/unutilized creditable withholding tax (CWT) for the taxable year 2007. On April 14, 2010, in order to preserve its right and to toll the running of the prescriptive period for its judicial claim, petitioner filed a Petition for Review before the Court in Division~ 2 Assailed Decision, Rollo, p. 31. 3 !d. 4 !d. 5 !d., p. 32. 6 !d. 7 !d.

DECISION SUMISETSU PHILIPPINES, INC vs. COMMISSIONER OF INTERNAL REVENUE CTA EB NO. 993 (CTA Case No. 8076) Page 3 of9 In her Answer, respondent alleged the following special and affirmative defenses: (a) petitioner's administrative claim for refund is subject to investigation by the BIR; (b) petitioner failed to demonstrate that the tax sought to be refunded was erroneously or illegally collected; (c) taxes paid and collected are presumed to be made in accordance with law and regulations; (d) petitioner has the burde to show that it complied with Section 204(C) in relation to Section 229 of the National Internal Revenue Code of 1997 (1997 NIRC), as amended; and, (e) claims for refund are construed strictly against the claimant as the same partakes the nature of exemption from taxation and is thus looked upon with disfavor.8 As aforestated, the Court in Div�sion issued the assailed Decision dismissing the petition for review for lack of merit. Aggrieved, petitioner filed a Motion for Reconsideration on December 3, 2012 which was also denied by the Court in Division in the assailed Resolution. Hence, petitioner filed the subjeo Petition for Review 9 before the Court En Bane on April 8, 2013, raising the following issues for the Court En Bane's resolution: 1. Whether petitioner is entitled to the tax credit certificate for its excess and/or unutilized CWT in the amou t ofP18,872,767.00; 2. Whether petitioner is entitled to the tax credit certificate for its excess and/or unutilized CWT in the amount ofP13 ,992,315.80, 10 the related income of which amounts to P685,597,137.67; and, 3. Whether or not the existence of prior year's excess credits Is not relevant in computing petitioner's claim. 11 In the Resolution 12 dated May 14, 2013, the Court En Bane ordered respondent to file her comment on the subject Petition for Review bubw1 8 !d. , pp. 32 to 33. 18 ,872 ,767.00 9 Rollo, pp. 8 to 23. 4,880,451.20 10 13,992,315.80 Amount CWT being claimed for the year 2007 Less: Substantiated CWT for the year 2007 Disallowed CWT for the year 2007 11 Rollo, p. 12.

DECISION SUMISETSU PHILIPPINES, INC vs. COMMISSIONER OF INTERNAL REVENUE CTA EB NO. 993 (CTA Case No. 8076) Page 4 of9 respondent failed to do so within the given period. On July 23, 2013, the Court En Bane gave due course to the subject Petition for Review and required both parties to submit their respective memoranda within thirty (30) days from notice. 13 Petitioner filed its ~emorandum 14 on September 16, 2013. Respondent, on the other hand, failed to file her memorandum within the prescribed period. 15 On October 23, 2013, the Court En Bane submitted the case 1.c0r dect.st.on. 16 THE COURT EN BANC'S RULING Petitioner argues that the Court �n Division erred in disallowing petitioner's claim in the amount of 1!18,872,767.00 as the reports of the Court-commissioned Independent Certified Public Accountant (ICPA) and petitioner's explanation in its Motion for Reconsideration prove that its income pertaining to the claimed excess/unutilized creditable withholding taxes formed part of petitioner's taxable gross income. Petitioner further contends that the subject claim has noth'ng to do with its tax liabilities for prior years (that is, 2005 and 2006) and the existence of petitioner's prior years' excess CWT is not relevant to the subject claim. Invoking the basic principle of solutio indebiti, petitioner avers that it is entitled to a refund or tax credit certificate in the full amount ofP18,872,767.00. The Court En Bane notes that the supporting schedules 17 attached to the subject Petition for Review are substantially similar to the supporting schedules 18 attached to petitioner's Motion for Reconsideration dated December 3, 2013 and which schedules were duly considered by the Court in Division in its assailed Resolution. Nonetheless, the Court En Bane carefully evaluated the supporting documents attached to the petition for review and found the same insufficient to justify a reversal or modification of the assailed Decision and Resolution. To be sure, the supporting schedules attached to the subject petition for review were not sufficient to reconcile the discrepancies noted by the Court in Division. Thus, the Court En Bane finds no cogent reason to depart :Btl from the findings of the Court in Division in its assailed Resolution, viz. 12 Rollo, p. 112 to 113. 13 Resolution dated July 23,2013, Rollo, pp. 116 to 117. 14 Rollo, unpaginated. 15 Records Verification dated October 3, 2013, ollo, unpaginated. 16 Rollo, unpaginated. 17 Rollo, pp. 62 to 110. 18 CTA-Third Division Docket, pp. 412 to 451.

DECISION SUMISETSU PHILIPPINES, INC. vs. COMMISSIONER OF INTERNAL REVENUE CTA EB NO. 993 (CTA Case No. 8076) Page 5 of9 "While petitiOner provided re erences where the disallowed CWT may be found, such as the page umber on a particular Exhibit, still the same cannot be traced. Likewise, although petitioner attached a schedule of discrepancies with explanation in the instant motion, petitioner failed to provide documents to corroborate such statements and to fully account such discrepancies. For instan[ce] and to illustrate: 1. There were income payments per GL which do not tally with the alleged supporting CWT certificates, thus it cannot be ascertain[ed] if they pertain to one and the same transaction/income payment/s: Income per BIR Form 2307 Income per GL Exhibit Exhibit Disallowed No. Amount No. Amount Discrepancy CWT jl 20,300.00 Cebu Yushin, Inc. W-21 53,500.00 Z, p. 19 33,200.00 (94 ,300.00) P I,070.00 First Sumiden Circuits, 30,000.00 Z, p. 16 156 ,800.00 2 ,250 .00 In c. W-42 82,500.00 Z, p.30 50,000.00 112,500.00 206,800.00 2. There were income payments per schedule which were allegedly traced in the GL but as verified by this Court, the same cannot be found/traced. Although the total i come payments per BIR Form 2307 tallied with the total per schedule, it cannot be surmised that the income payments which cannot be found were lodged in the same total per schedule and that he CWT certificates presented support the said total income payments per schedule: Income per BIR Form 2307 Income r er Schedule Exhibit Amount as traced Amount Remarks Disallowed No. in the GL 945,000.00 100,000.00 The amount of P945,000.00 CWT Philippine W-86 I,067,000.00 Exh Z, p. cannot be traced in the GL Epson 20 22 ,000 .00 (Exh Z), could be a balancing P21 ,340.00 Optical Inc. Exh Z, p. figure to arrive at a total of 20 I ,067,000.00 PI ,067,000.00 to tall y with SDE 1,p5o,ooo.oo the CWT certificate. (P hilippin es) Corp. W-101 I,890,000.00 840,000.00 Not found/traced in the P37 ,800 .00 I ,890,000.00 GL 3. There were income payments recorded in the GL of Contract Price account but were subsequently reversed in the same GL account, thus, it was zeroed out. In effect there were no income reported: Income per BIR Form 2307 Income per Schedule Exhibit as traced in Disallowed No. Amount the GL Amount Remarks CWT Co rrea Exh Z, p. 25 3,050,070.00 Subsequently reversed as jl 138,000.00 Zenitaka, shown in the same GL Inc. W- 150 6,900,000.00 Exh Z, p. 25 3,849,930.00 account (Exh Z, p. 25 ) 6,900,000.00

DECISION S UMISETSU PHILIPPINES, INC vs. COMMISSIONER OF IN TERNAL REVENUE CTA EB NO. 993 (CTA Case No. 8076) Page 6 of9 4. There were several income payme ts per schedule with identical amounts but when traced in the GL, they actually pertain to one and the same transaction: Income per BIR Form 2307 Income per Schedule Exhibit as traced in Di s allow ed the GL CW T No. Amount Amount Remarks 47,005.03 Exh Z, p. 16 I,070,886.60 Per Schedul e, the 24,032.55 amount of I5, 178.69 Exh Z, p. 18 936 ,365 .00 42,956.5 I Jl l 50,000.00 was Exh Z, p. 17 193 ,000.00 referred to Sales I 5,373.40 Invoice nos. 6976, W- 178 2,350,251.60 Exh Z, p. 8 150,000.00 7 185, 7275, 7384 & 7452 but when trace to 2,350,251.60 their respective purported GL page Exh Z, p. 8 150,000.00 number (Exh H, p. 8), only Sales Invo ice 193 ,000.00 with number 6563 was W- 180 1,201,627.50 Exh Z, p. 22 858 ,627 .50 reported as inco me. 1,201 ,627.50 Exh Z, p. 8 150,000.00 Mitsumi 193,000.00 Philippines In c. W-1 8 1 758,934.70 Exh Z, p. 23 4 15,934.70 758,934.70 Exh Z, p. 27 I,804,825.25 W-1 82 2,147,825.25 Exh Z, p. 8 193 ,000 .00 W-1 83 768,670.00 150,000.00 Exh Z, p. 28 2, 147,825.25 Exh Z, p. 8 145 ,000 .00 280,670.00 150,000.00 193 ,000.00 768,670.00 Thus, petitioner's claim shall be denied for the same reason stated in the assailed Decision." (Citation omitted) In the subject Petition for Review, petitioner also avers that the Court in Division erred in comparing the tax due of 2005 and 2006 with the 2005 CWT Certificates alone. According to petitioner, the Court should have considered the excess CWT from prior years 19 which was carried forward to 2005 and 2006. Said excess CWT from prior years was allegedly enough to cover the tax due in 2005 and 2006. The Court disagrees with petitione . Petitioner alleges that the CWT carried forward to 2005 and 2006 amounted to P29,038,665.00 and P21,385,657.00, respectively, and that the same were sufficient to cover the tJax due for 2005 and 2006 of Pll,l83,902.00 and Pl,461,367.00, respectively. Petitioner' s bare allegations were not sufficient to convince this Court that it has sufficient prior years ' excess CWT to cover its ta due for the years 2005 , 2006 and 2007. Absent any supporting documents, such as the CWT Certificates for CY'] 19 2001 , 2002 and 2003 ; See petitioner' s Memorandum, Rollo, unpaginated.

DECISION SUMISETSU PHILIPPINES, INC vs. COMMISSIONER OF INTERNAL REVENUE CTA EB NO. 993 (CTA Case No. 8076) Page 7 of9 the prior years, there is no way for this Court to determine the veracity of petitioner's claim. As correctly found by the Court in Division, petitioner was able to substantiate its prior year's excess CWT in the amount of 1:!6,662,857.36 only (representing CWT from year 2005), which is not even sufficient to cover its tax due for the years 2005 and 2006 in the amount of P11,183,902.00 and P1,461,367.00, respectively. Petitioner's tax due in the year 2007 amounts to 1:!6,654,501.35 and 'ts substantiated CWT for the year 2007 amounts only to 1:!4,880,451.20. Clearly, petitioner has no excess/unutilized CWT in the year 2007 as the amount of its substantiated 2007 CWT was even less than its 2007 tax due. Thus, there is no basis to grant petitioner's claim for refund or issuance of a tax credit certificate of excess/unutilized CWT for the year 2007 in the amount ofP18,872,767.00. Settled is the rule that tax refu ds partake of the nature of tax exemptions, and are construed strictissimi juris against the taxpayer. Thus, evidence in support of a claim must likewise be strictissimi scrutinized and duly proven.20 The taxpayer has the burden to present convincing evidence to substantiate a claim for refund. 21 For all the foregoing, the Court En Bane finds no compelling reason that will justify the reversal or modification of the Court in Division's assailed Decision and assailed Resolution. WHEREFORE, premises considered, the Petition for Review filed by petitioner Sumisetsu Philippines, I c. on April 8, 2013 is hereby DENIED for lack of merit. The Decision dated November 13, 2012 and the Resolution dated March 5, 2013 of the f<Drmer Third Division of this Court in CTA Case No. 8076 entitled umisetsu Philippines, Inc. vs. Commissioner ofInternal Revenue are hereby AFFIRMED()tl �2 Commissioner of Internal Revenue vs. Far East Bank & Trust Company (Now Bank of the Philippines Islands), G.R. No. 173854, March 15, 2010, citing Philippine Long Distance Telephone Company v. Commissione of Internal Revenue, G.R. No. 157264, January 31 , 2008, 543 SCRA 329, 33. 21 Philam Asset Management, Inc. vs. Commissioner of Internal Revenue, G.R. Nos. 156637/162004, December 14,2005.

DECISION SUMISETSU PHILIPPINES, INC. vs. COMMISSIONER OF INTERNAL REVENUE CTA EB NO. 993 (CTA Case No. 8076) Page 8 of9 SO ORDERED. Presiding Justice WE CONCUR: LOVEL ro~A;N;iio,c.ccA~ sTAN..~E~n.l\r\L.m. Associate Justice E~.UY CAESAR~ASANOVA Associate Justice Associate Justice A4/-~,L-- i!liJ; N. M'-'~-6~ AMELIA R. COTANGCO-MANALASTAS CIELITO N. MINDARO-GRULLA Associate Justice Associate Justice , . ~--~~- MA. BELEN M. RINGPIS-LIBAN Associate Justice

DECISION S UMISETSU PHILIPPINES, INC vs. COMMISSIONER OF IN TERNAL REVENUE CTA EB NO. 993 (CTA Case No. 8076) Page 9 of9 CERTIFICA 10N Pursuant to Section 13 of Article viii of the Constitution, it is hereby certified that the conclusion in the above Decision were reached in consultation before the case was assigne to the writer of the opinion of the Court En Bane. ~~ G.-D-._.. Presiding Justice