CTA Case No. 5041 (Decision)

. .,.. REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY PHILIPPINE APPLIANCE CORPORATION, Petitioner, - versus - C.T.A. CASE NO. 6041 COMMISSIONER OF INTERNAL Promulgated.. ~ REVENUE, NOV 1119SS Respondent. X- - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISION This Is a judlolal olalm for the refund of alleged overpaid Income tax In the amount of P9,334,250.00 for the flsoal year ooverlng the period August 1, 1990 to .July31, 1991. Petitioner Is a domestic corporation organized and existing under and by virtue of Phil lpplne laws. It Is engaged In the manufacture and sale of household appliances particularly refrigerators and freezers and Is registered with the Board of Investments as a preferred non-pioneer enterprise, prlmarl ly for the purpose of avat 1 lng of the Incentives granted to suoh registered enterprises for the export and sale of a substantial part of their production. In k.eeplng Its books of aooounts and fl I tng of Its tnoome tax returns, pettttoner�adopted the flsoat year

DECISION C.T.A. CASE NO. 6041 -2- method beginning August 1. 1990 and ending on July 31, 1991. With this period as c reference, petitioner flied Its final corporate income tax return on November 11, 1991 showing a net loss of P6,113,175.00 (Exhibit �A"). On August 24, 1992, petitioner f�lled with respondent's offloe a olalm for refund In the amount of P9,334,250.00, representing alleged overpaid Income tax for the per lod ended July 31, 1991, alleging that It made Income tax payments for the first and second quarters of said period whloh eventually became excess payments as the resulting overall period netted a loss. It also averred that t.he payments made during the first and second quarters remained unutl I lzed even for the next suooeedlng taxable year as such period similarly resulted In a net loss. The accumulated overpaid Income tax In the amount of P9,334,250.00 Including creditable taxes withheld Is computed as fol lowsa Quarterly Payments of lnoome Tax First Quarter P4,465,838.00 Second Quarter 4,817,299.00 Creditable Tax Withheld 49,680.00 First Quarter .1 � 433.00 Seoond Quarter P9,334,250.00 TOTAL CLAIM FOR REFUND This olalm for refund remained unaoted upon until suoh time that petitioner decided to transform this administrative olalm to a judicial one by filing a .:'! .' ;

-�24 DECISION C.T.A. CASE NO. 5041 - 3- petition for review with thla court on November 10, 1993, before the lepte of the two-year period p~etorlbed by law to olalm for a refund of taxes. In answer to the allegations fOund In the petition, respondent asserted the following Special and Affl~m~tlve Defenses, thus� 7. She reiterates and repleads the preceding paragraphs of this Answer as part of her Special and Affirmative Defenses. B. Wei !-settled Is the rule that mere at legations or Indications of net operating toss In the Corporate Annual Income Tax Return (In the amount of P6,113,175.00 for flsoal year ending July a1, 1991) do not Ipso facto merIt a tax refund or oredlt In the sum of P9,334,250.00 and the absence of evidence supporting the same must necessarily work against the granting of suoh olatm; 9. Any amount olatmed to have been withheld must be shown to have been paid to the govern~~nt. In this case, no showing has been made; 10. The total amount of P9,364,2BO.OO claimed by the petitioner as overpaid Income tax for the fiscal year 1991 was not property documented; 11. Taxes paid and oolleoted are presumed to have been made In aooordanoe with law and regulations; henoe, not refundable. 12. In an aotton for tax refund/credit the burden or proof Ia on the taxpayer to establish Its right to re~und and failure to sustain the burden Is fatal to the aotton for tax oredlt; ''";rlf, ~~�? f � _L',,

DECISION C.T.A. CASE NO. 8041 - 4- 13. It Is Incumbent upon the petitioner to show that It has complied with the provisions of Seotlon 204 In relation to Seotlon 230 of the Tax Code as amended; 14. Well-settled Is the rule that claims for refund are construed strlotly against olalmants, slnoe It partakes of the nature of an exemption from taxation <ResIns, I no. vs. AudItor Genera I 1 25 SCRA 754 [19681)). The Issue before Us Is whether or not petitioner Is entitled to the refund of P9,334,250.oo representing overpaid Income tax for the fiscal year ended July 31, 1991. The Instant oase does not present any jarring legal controversy but puts forward a dispute based on facts contained In petitioner's Income tax returns. Petitioner offers the simple argument that as a result of the net loss It suffered during the flsoal period ended July 31, 1991, the prior payments It made during the first and $econd quarters should be refunded because such amount r�malned unapplied even for the suooeedlng taxable year as It likewise suffered a net loss. To fortify this argument, petitioner offered as evldenoe, Its annual Income tax return for the period ended July 31, 1991 <Exhibit "A") which shOwed the following flguresa Gross Income P337,209,923.00 lessa Deductions 343,323,098.00 TOTAL Net lnoome p 6,113,175.00 11.8(1

DECISION C.T.A. CASE NO. 6041 - 6- The annual Income tax return for the suooeedlng ftaoat period ended ~uly 31, 1992 was likewise offered showing a net loss of P67,S06,694.00 <Exhibit "M�), preventing the application of the excess payments made during the previous year to the next taxable year. The quarterly payments made by the petitioner was evidenced by Central Bank Confirmation Reoelpte and BIR payment orders (ExhIbIts "C", "D", "F", and "G"). An additional amount of P51,113.00 was also Included In the total amount being olalmed as they correspond to the creditable taxes withheld by Its various payors during the first and second quarters of the period Involved. Respondent did not present any substantial opposition to the claim for refund save that of asserting that the entries made by petitioner In the ~noome tax returns for the concerned periods have not yet been subjected to audit/Investigation by Ita revenue enforcement officers, thus the veraolty of suoh figures remain In question, and that the alleged quarterly payments have not yet undergone verification by Its Offlo&rs. We find the aforesaid arguments of respondent unsatisfactory beoause � suoh defense will eventually backfire and reveal her officials' laok of dlllgenoe In pursuing an Investigation on the said olalm. Records 1181

DEGISION C.T.A. CASE NO. 8041 - 8- show that as early as August 24, 1992, petitioner� haa oalled the attention of the BIR by filing a olalm for refund� This olalm was not acted upon by respondent so on November 10, 1993, more than a year after the filinG of the olalm for refund, petitioner deotded to elevate Its oase to this court via a petition for review. In fine, respondent and her revenue enforcement officers were given ample time to oonduot an Investigation from the time the claim for refund was flied In their offloe but this they fat ted to do. Furthermore, during the hearings of this oase, untt I suoh time that this oase was submltte~ for decision, respondent did not present any evidence to controvert petitioner's olalm or to show to this Court any document to refute the entries found In the Income tax returns offered by the petitioner. Moreover, respondent did not submit any memorandum to amplify the arguments found In her answer. What we have before Us are the facts .as presented by the petItIoner by means of the evidence submitted to prove Its otalm. To explain some of the entries made particularly In the flnanotal statement whloh showed a net Income of P68,666,859.00 contrary to that which Is reflected on the Income tax return for the same period declaring a net loss, petitioner at leges that a part of the net Income particularly P50,436,987.00 Ia non-taxable as It pertains

--.,........ 't DECISION C.T.A. CASE NO. 5041 - 7- to the tax oredlt granted to It by virtue of the export sates It made. As a non-pioneer preferred enterprise registered with the Board of Investments <exhibit "W">, petitioner alleges that It Ia entitled to tax credits on Its export sales, and that for the flaoal period ended '-'uly 31, 1991 It had aooumulated a tax credit In the amount of P50,436,987,00 as evldenoed by the schedule of tax oredlt on Export sales <Exhibit "D"> whloh was certified true and correct by the Audit Manager of SGV, Mr. Jerome Constantino (Exhibit "N"), This evidence was accompanied by photocopies of Export Commercial lnvoloes corresponding to the export sales made during the said period <Exhibit "0-1" to "0-138"). In addition to the amount of tax oredlt of P50,436,987.00 whloh petitioner olalms not to be a part of the net Income, Is the sum of P33,000,839.00 whloh corresponds to the Interest expense whloh was capitalized, henoe deduotlble for lnoome tax purposes. To substantiate the said amount, petitioner pointed out an entry found In the final corporate Income tax return whloh declared that the amount of P33,000,839.00 aotual ly pertains to the Interest expense on notes payable capital I zed as part of the construction In progress (Exhibit "A-3-b"), Petitioner also presented the Schedule of Interest Expense Capital lzed for the flsoal

"~iiO:Qb DECISION C.T.A. CASE NO. 6041 - 8- year 1990 to 1991 <Exhibit "P"), as welt as photoooples of Bank Debit Memoranda of Loan Payments to prove that It paid Interest In the total amount of P33,000,839.00 (EXhibit "P-1" to "P-164"). Respondent, In the faoe of this barrage of evidence offered by the petitioner did not pose any serious objections but merely reiterated the lame position that no Investigation has been oonduoted by her office to verify the accuracy of the entries found In the documents submitted by petitioner. In the light of the hearings conducted and the records of the case, this court Is lnol lned to grant petitioner's olalm for refund but with some modification. The legal basis for the grant of the refund In the Instant oase Is found In Section 69 of the Tax Code whloh provides for the following, thus. Sec. 89. Final adjustment return.- Every corporation liable to tax under Seotlon 24 shall fl le a final adjustment return ocverlng th~ total taxable Income for the preceding calendar or flsoal year. If the sum of the quarterly tax payments made during the said taxable year Is not equal to the total tax due on the entire taxable Income of that year the corporation shall elthera (a) Pay the excess tax st I I I due i or (b) Be refunded the exoess amount paid, as the oase may be

DECISION C.T.A. CASE NO. 6041 - 9- In case the corporation Ia entlt1ed to a refund of the excess estimated quarterly Income taxes paid, the refundable amount shown on Its final adjustment return may be credited against the estimated quarterly Income tax I labl I ltles for the taxable quarters of the suooeedlng taxable year. CAs amended by BP Big. 41 and PO 1705) (see Seo. 24, EO 3"1) Petitioner has sattsfaotort ly shown that quarterly payments were made during the first and second quarters of the �rtsoal year ended July 31, 1991 <see Exhibits "C", "0", "F", "G"). The final adjustment return however, for the same period revealed a net loss making such payments refundable <see Exhibit "A"). The next suooeedlng taxable year also ended In a net loss for the petitioner, thus preventing the excess taxes to be appl led or utt I tzed pursuant to the aforeolted Section 69 of the Tax Code. In the absence of any detal led results of audit/Investigation made by the officials of the respondent refuting that which was presented by the petitioner, this court declares said petitioner to be entitled to the excess payments made covered by CB Confirmation Receipts and BIR Payment Orders <Exhibits "C", "0", "F" and "G"). This Court however excludes the amount of P51,113.00 In the total amount to be refunded beouase this amount 1185

;,! DECISION O.T.A. CASE NO. 5041 - 10 - corresponds to the creditable taxes withheld under the expanded withholding system for the same period. Wet 1-settled Is the rule that for a valid refund of creditable taxes withheld In excess of the amount of the tax due, certain baste requirements have to be met. Section 10 of Revenue Regulations No.6-85 provides the following, thusa Section 10. Claims for tax credit or refund.-Cialms for tax oredlt or refund of Income tax deducted and withheld on Income payments shal I be given due course only when It Is shown on the return that the Income payment received was declared as part of the gross Income and the faot ~f withholding Is established by a oopy of the statement duty Issued by the payor to the payee <BIR Form No.1743.1) showing the amount paid and the amount of tax withheld therefrom. (Underscoring supplied) In the oase entitled Cltytrust Finance Corporation vs. Commissioner of Internal Revenue. CTA Case No. 4134 dated November 11, 1991, this Court came up with the three requirements based on the aforementioned Revenue Regulation In correlation with pertinent provisions of the Tax Code thusr An analysts of the provisions of law Involved wl I I show that the grant of tax refund When the creditable withholding tax Is In excess of the amount of the tax due, depends on three faotorsa 1) that the olalm Is flied with the Commissioner of Internal Revenue within the two-year period from the date of payment of the tax as required under Seotlon 296 of the Tax "'6' l...,-. H\f_'.t1�..~ j�.tJ

DECISION C.T.A. CASE NO. 5041 - 11 - shown on the return of the recipient that the Income payment reoelved was declared as part of the gross lnoome, and 3) the faot of withholding Ia established by a copy of the statement duty Issued by the payor to the payee showing the amount paid and the amount of tax withheld therefrom. Petitioner In the Instant case failed to submit copies of the statement duly Issued by the withholding agents showing the amount paid and the amount of taxes withheld therefrom commonly known as BIR Form No. 1743.1. This oversight proved fatal to a portion of Its claim corresponding to the creditable taxes for the fiscal year ended July 31, 1991. WHEREFORE, In view of the foregoing, respondent Is hereby ordered to refund or grant a tax credit to petItIoner In the reduced amount of P9,283,137.00 representing exoess Income tax payments for the flsoal period ended July 31, 1991. ~~J.~� SO OHOEREO. RAMON 0. DE A Associate Ju e CONCURr I ~~-~� ERNESTo�o. ACOSTA Presiding Judge

DECISION C.T.A. CASE NO. 5041 - 12 - CER-riFICATION hereby certify that thla deolston was reached after due consultation with the member of the Court of Tax appeals In accordance with Section 13, Article VI I I of the Constitution. ~lSl�~ ERNESTO 0. ACOSTA Presiding Judge Court of Tax Appeals - t' �."11-.. o.., ur: