SOUTHERN LUZON DRUG CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

'' REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ENBANC SOUTHERN LUZON DRUG EB No. 355 CORPORATION, (C.T.A. CASE NO. 7208) Members : Petitioner, ACOSTA, PJ. -versus- CASTANEDA JR., BAUTISTA COMMISSIONER OF INTERNAL REVENUE, UY, Respondent. CASANOVA, and PALANCA-ENRIQUEZ, JJ: Promulgated: '"AUG oszooe ~c---/~~ - - - - - - - -"""a""'?. 'n / ' ~'-' X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISION CASANOVA, J: This is an appeal, by way of a Petition for Review/ filed by the petitioner- Southern Luzon Drug Corporation (SOUTHERN LUZON) from the Decision2 (Assailed Decision) of the Court of Tax Appeals Second Division ( CTA Second Division) dated July 30, 2007 in CTA Case No. 7208 entitled, "Southern Luzon Drug Corporation, petitioner vs. Commissioner of Internal Revenue, respondent' denying SOUTHERN LUZON's Petition for Review therein for insufficiency of evidence, and from the Resolution3 (Assailed Resolution) dated December 13, 2007 denying SOUTHERN LUZON's Motion for Reconsideration. The facts of the case, as culled from the records, are as follows ~ 1 CTA En Bane Rollo, pp. 7-16. 2 Annex "A", Petition for Review, CTA En Bane Rollo, pp. 17-27. 3 Annex "C", Petition for Review, CTA En Bane Rollo, pp. 34-35.

EB CASE NO. 355 (CTA CASE NO. 7208) DECISION ''Southern Luzon Drug Corporation (Petitioner) is a domestic corporation organized and existing under the laws of the Philippines with principal office address at No. 7 Mercury Avenue/ Bagumbayan Quezon City.4 In 200Z it operated seven (7) drug stores which were duly licensed by the Bureau of Food and Drugs (BFADJ the Department of Trade and Industry, the Bureau of Internal Revenue (BIRJ and the local government units where its drugstores are located. On various dates/ during the period from January to December 2002/ petitioner purportedly granted twenty percent (20%) sales discounts in the amount of P7,397,949.35 to qualified senior citizens on their purchases of medicines from petitione~ in compliance with Republic Act No. 7432 and its Implementing Rules and Regulations. In its 2002 Income Tax Return (ITR) filed with the BIR on April 1~ 2003/ petitioner treated the 20% sales discount of P7,397,949.35 as prepaid tax credit by declaring as creditable tax withheld for the first three quarters the amount of P~14ZB45 and creditable tax withheld for the fourth quarter the amount ofPZ25~10~ as shown below: Sales/ Revenues/ Receipts/ Fees (Sch.1) P230,456 ,682 Less: Cost of Sales/ Services (Sch .2/3) 208,178,196 Gross Income from Operation Add: Non-Operating & Other Income (Sch.4) p 22,278,486 Total Gross Income 948 ,241 Less: Deductions (Section E) Taxable Income P23 ,226 ,727 Tax Rate (except MCIT Rate) 23,567 ,707 Income Tax P(340 ,980) Minimum Corporate Income Tax (MCIT) (Section B) 32% Tax Due P(109 ,114) Less: Tax Credits/ Payments p 445,570 P445 ,570 Prior Year's Excess Credits Creditable Tax Withheld for the First Three Quarters p 7,994 ,822 Creditable Tax Withheld Per BIR Form No.2307 for the 5,142,845 Fourth Quarter Total Tax Credits/ Payments 2,255,105 P15 ,392 ,772 On April 1~ 200~ petitioner filed with respondent a request for the issuance of a tax credit certificate in the amount of P7,397,949.3~ 4 Transcript of Stenograph ic Notes (TSN) dated July 2 1, 2005, page 4, CTA Second Division Rollo. 5 Exh ibit "C", CTA Second Division Rollo.

EB CASE NO. 355 (CTA CASE NO. 7208) DECISION equivalent to the 20% sales discounts allegedly granted by petitioner to qualified senior citizens in 2002.6 " (Assailed Decision, pp. 1-3.) After trial on the merits, the CTA Second Division promulgated the Assailed Decisior? on July 30, 2007, the dispositive portion of which reads as follows: ''IN VIEW OF THE FOREGOING, the subject Petition for Review is hereby DENIED for insufficiency ofevidence. SO ORDERED. " Not satisfied with the above decision, SOUTHERN LUZON filed a "Motion for Reconsideration8" on August 22, 2007. During the hearing on October 4, 2007, counsel for the respondent submitted petitioner's motion without further arguments. In the Assailed Resolutiorr dated December 13, 2007, the CTA Second Division denied SOUTHERN LUZON's Motion for Reconsideration for lack of merit. On January 15, 2008, SOUTHERN LUZON filed a "Motion for Additional Time10" with the CTA En Bane. In a Resolution11 dated January 18, 2008, the Court En Bane granted the said motion thereby giving petitioner a final and non- extendible period of fifteen (15) days from January 19, 2008 or until February 4, 2008 (as February 3, 2008 fell on a Sunday), within which to file a Petition for Review. On February 4, 2008, SOUTHERN LUZON filed the instant Petition for Review12 with the CTA En Bane, praying that the Decision dated July 30, 2007 and the Resolution dated December 13, 2007 in CTA Case No. 7208 entitled~ 6 Exhibit "E". CTA Second Division Rollo. 7 Supra, note 2. 8 CTA Second Division Rollo, pp. 358-362. 9 Supra, note 3. �1 CTA En Bane Rollo, p. 3. 11 CTA En Bane Rollo, p. 6. 12 Supra, note I .

EB CASE NO. 355 (CTA CASE NO. 7208) DECISION "Southern Luzon Drug Corporation, petitioner vs. Commissioner of Internal Revenue, respondent' be reversed and set aside and that the petitioner's claim for tax credit be granted. Petitioner raised the sole issue13 in the instant Petition for Review, to wit: WHETHER OR NOT THE HONORABLE COURT OF THE SECOND DIVISION GRAVELY ERRED AND HAS COMMffiED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR IN EXCESS OF JURISDICTION IN DISMISSING PETITIONER'S CLAIM FOR FAILURE TO SHOW THAT ITS GROSS SALES TO SENIOR CffiZENS WERE DECLARED AS PART OF ITS TAXABLE INCOME. The CTA En Bane promulgated a Resolution14 on February 27, 2008, ordering the respondent-CIR to file a Comment on the said Petition for Review, within ten (10) days from receipt of the said Resolution. No comment was filed by the respondent. Hence, this decision. After a careful and thorough evaluation and consideration of the records of the case, the Court En Bane finds no new matters which have not yet been considered and passed upon by the CTA Second Division in its assailed Decision and Resolution. Petitioner argues that it was able to prove that its gross sales in the amount of P230,456,682.27 included all its sales including the sale to senior citizens. The documents and the witnesses presented by the petitioner were able to show that it really granted the discount. The amount of discount forms part of the Annual Income Tax Return and Audited Financial Statement of petitioner. To require more than this is already beyond the issue of the instant case. We are not persuaded.~ 13 Ibid, p. 12. 14 CTA En Bane Ro llo, p. 37-38.

EB CASE NO. 355 (CTA CASE NO. 7208) DECISION As aptly discussed by t he CTA Second Division, and We quote, to wit: "Having settled the legal issue, the next question posed is whether petitioner was able to sufficiently prove the factual aspect of its claim for tax credit. To prove that it actually granted the 20% sales discounts to qualified senior citizens, petitioner presented its Summary of Sales (Net) for 2002, 15 Summary of Sales Discount for 2002,16 cash slips evidencing the purchases ofmedicines by senior citizens for 2002, 17 and sample BIR and BFAD Special Record Books prepared by petitioner's drug stores for 2002, consisting of twenty-eight (28) volumes. 18 The auditing firm, Tato, Gison, Tan & Co., CPA's, through its Partner, Ms. Laura Gison, was commissioned by this Court pursuant to CTA Circular 1-95, as amended, to verify petitioner's claim. The total sales discounts given to senior citizens for the year 2002 are summarized as follows: Branch Amount ~er Book Amount ~er Audit Variance 1 581 Ultimart San Pablo 1,976 ,617 .53 1,965,468.49 11 ' 149.04 2 592 Caedo, Batangas 2 ,310 ,854 .74 1,745 ,197.96 3 615 Bauan, Batangas 1,283 ,796 .81 1,446,418 .34 565 ,656.78 4 619 Lopez, GV Vera 437 ,468 .66 440 ,633 .51 (162 ,621 .53) Nasugbu, 546 ,699.44 512 ,794 .79 (3 ,164.85) 5 629 Satang as 325 ,092 .04 321 ,909.12 6 630 Puerto Princesa 346 ,892 .98 340,434 .38 33 ,904.65 7 634 Pinamalayan 7,227,422.19 6, 772,856.58 3,182.92 6,458 .60 Total 454,565.61 After a thorough examination of the various cash slips, in relation to petitioner's Summary of Sales and Discounts for Senior Citizens and the Special Record Books for 2002, the Court finds the report of the commissioned independent CPA to be in order. It is observed though that in the said report, 19 the 20% sales discount granted to qualified senior citizens for the years 2002 wherein the required details for the issuance of cash slips are complete, amounted only to P6,772,856.58. Likewise'./2J._ 15 Exhibit "M", CTA Second Division Rollo. 16 Exhibit "N", CTA Second D ivision Rollo. 17 Exhibit "S", CTA Second Division Rollo. 18 Exhibit "R", CTA Second Division Rollo. 19 Exhibit "T", CTA Second Division Rollo.

EB CASE NO. 355 (CTA CASE NO. 7208) DECISION the audited amount of 20% sales discount exceeded the amount per books by P16~786.38 coming from the following branches: Branch Amount per Book Amount per Audit Variance 3 615 Bauan, Batangas 1,283 ,796 .81 1,446,418.34 (162,621.53) 4 619 Lopez, GV Vera 437,468 .66 440 ,633.51 1'721 ,265.46 1,887,051.84 (3 ,164.85) Total ( 165, 786.38) Such being the case, the substantiated amount of ?6,772,856.58 should be reduced by P16~786.38, thus, leaving only ?6,607,070.20 as the proper subject ofpetitioner's claim. To be entitled to the claim sought, however, petitioner must first establish that the gross sales made to senior citizens (inclusive of the 20% sales discount) were declared as part of its taxable income. After a careful review of the available documents, the Court finds that petitioner failed to prove that the gross sales to senior citizens were actually declared in its 2002 Annual Income Tax Return. For taxable year 2002, petitioner reported in its Annual Income Tax Return as sales the amount of ?230,456,682.00,20 which were likewise reflected in its Audited Financial Statements for the same tax year. 21 However, petitioner neglected to present a detailed breakdown of its daily net sales, as reflected in its detailed General Ledger, Sales Book and Cash Receipts Book to show which part of the reported sales comprised of the Gross Sales to senior citizens. The detailed breakdown would have enabled the Court to verify or trace whether the daily gross sales to senior citizens as recorded in the Special Record Books actually formed part of the gross sales reported in the Annual Income Tax Return." (Assailed Decision, pp. 7-9.) Furthermore, the CTA Second Division held in the assailed Resolution and We quote: '1n claiming a tax credit certificate allegedly arising from its grant of the 20% sales discount to senior citizens, petitioner is duty-bound to prove its entitlement to the claim. As consistently ruled by this Court, a~ 20 Item 14, Sales/Revenues/Receipts/Fees (Sch.I), CTA Second Division Rollo. 21 Exh ibit "D", CTA Second Division Rollo.

EB CASE NO. 355 (CTA CASE NO. 7208) DECISION taxpayer must prove that sales to senior citizens must be declared in its income tax return for that taxable year/ and a taxpayer is duty-bound to submit all the required documents to prove its entitlement to the claim. This is in order to verify whether the sales to senior citizens were indeed declared as part thereot.22 Even though the same was not stipulated as an issue by the partie~ this Court is not bound to decide only on stipulated issues. The Court may rule upon related issues necessary to achieve an orderly disposition of the case. " (Assailed Resolution, p. 1-2.) To reiterate, it must be emphasized that petitioner is claiming a tax credit certificate representing the 20% sales discounts it granted to its qualified senior citizen clients. A claim for refund or issuance of tax credit certificate, being in the nature of a claim for exemption, is construed strictissimi juris against the taxpayer. 23 Accordingly, it is necessary for petitioner to show that its sales to senior citizens (inclusive of the 20% sales discounts) were indeed reported as part of its taxable income. In as much as petitioner failed to discharge its burden of proof, its claim must necessarily fail. In sum, the Court En Bane finds no cogent justification to disturb the findings and conclusion spelled out in the assailed July 30, 2007 Decision and December 13, 2007 Resolution of the CTA Second Division. What the instant petition seeks is for the Court En Bane to view and appreciate the evidence in their own perspective of things, which unfortunately had already been considered and passed upon. WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and DISMISSED for lack of merit. Accordingly, the July 30, 2007 Decision and December 13, 2007 Resolution of the CTA Second Division in CTA~ 22 Central Luzon Drug Corp. v. Commissioner ofInternal Revenue, C.T.A. Case No. 7206, September 12, 2007; and Bicolandia Drug Corp. v. Commissioner ofInternal Revenue, C.T.A. Case No. 7210, October 3, 2007. 23 Anno Domini Drug, Inc. vs. Commissioner oflntemal Revenue, CTA Case No. 6929, July 20, 2006.

EB CASE NO. 355 (CTA CASE NO. 7208) DECISION Case No. 7208 entitled, "Southern Luzon Drug Corporation, petitioner vs. Commissioner ofInternal Revenue, respondent' are hereby AFFIRMED in toto. SO ORDERED. CAESAR A. CASANOVA Associate Justice WE CONCUR: q~\.t � Q~ ERNESTO D. ACOSTA Presiding Justice ~~o.a::t-~ Q \ .:fUANITCfc. CASTANEDJ(,cfR..' Associate Justice AEsR~~~~t.iceUY ~~- ~ OLGA PALANCA-ENRIQUEZ Associate Justice CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. L~ - oc,A_ ERNESTO D. ACOSTA Presiding Justice