CTA Case No. 5066 (Decision)

_ .... .�- .... -~.,,... ....~ .,,_..,. ~-� �~,. ! ~...._.-4 ...."'r .--.��, ... . . , , . _ , ..._.......,. ... 14. \ "REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY BRAULIO C. PETALVER, Petitioner, - versus - C.T.A. CASE NO. 5066 COMMISSIONER OF Promulgated: INTERNAL REVENUE, SEP 02 1996 Respondent. X- - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISION This refers to the assessments issued against petitioner involving the amounts of P296,985.25, P217,937.50 and P33,000.00 or a total sum of P547,922.75, as deficiency income tax, deficiency business tax (VAT>, and penalties for fal lure . to submit schedule of taxes, audited financial statements and fa i Iure to wi thho Id, respectively, alI for the taxable year 1990. ~ ~' Petitioner was the ~perator/proprietor of the now defunct Mayon Private Detective and Watchman Agency (MPDWA, for short). He is also a lawyer by profession, with residence and postal address at No. 73 Baltazar St., 10th Ave., Kalookan City. As such, he represented himself both In the administrative ,and judicial levels of the case. 956

DECISION - C.T.A. CASE NO. 5066 - 2- Per his narration, and as borne by the B.I.R. records of the case, it all started withthefiling of his 1990 )ncome Tax Return by his wife, Lolita Caasi ~ Petalver (Resp's. Exh. 1, p. 3, B.I.R. records). Based on the income and deductions declared therein, the B. I .R. office in Valenzuela sent to petitioner by m'ail, a Letter of Authority No. OAS 3704, dated May 7, 1993 (Re.sp's. Exh. 2, p. 5, ~), requesting him to present his books of accounts for 1990, and other documents needed in the examination of his return. This triggered an exchange of communications between respondent and petitioner, with the latter alleging that he had ceased operations of his business effective September 1, 1989, and therefore, he had no_more books and other documents to present for the year 1990. . Not having been convinced by petitioner's defense of cessation of business, respondent sent to petitioner an assessment notice and two 'demand I etters, the deta i Is of which are as follows: Assessment/Demand No. Amount Due Year Covered Exhs. 01-21-03B-000075-90/93 P296,985.25 1990 15 Demand No. 14110 217,937.50 1990 14 Demand No. 9130 33,000.00 1990 13 TOTAL P547,922.75' 957

DECISION - C.T.A. CASE NO. 5066 - 3- In a letter, dated December 13, 1993 (Pet's. Exh. N, see also p. 44, BIR reo.), petitioner protested the above-men~ i oned assessment and demand I etters and a I Ieged as fo I Iows: (1) That he failed to renew his I icense to operate his business for 1989 due to incomplete requirements such as lack of the required number of security guard force (200), and his failure to submit SSS clearance; (2) As a result of which a Cease Operation order was issued by the Phi I i pp i ne Constabu Iary-Superv i sory Unit for Security and Investigation Agencies (PC-SUSIA) to petitioner to stop its operations effective September 1, 1989; and (3) That for the year 1990, since it ceased its operations in 1989, he has no tax I iabi I ities to be settled with the Bureau of.. Internal Revenue. In a letter, dated January 7, 1994, Regional Director, Romeo S. Pa.ngan l'ban, denied petitioner's forma I protest, which was received by the latter on January 14, 1994 (Exh. Q, Annex N of the Petition, pp. 23-24, CTA reo.). Hence, the instant Petition for Review filed with this Court on February 10,, 1994. Respondent f i I ed her Answer ( pp. 31-35, CTA reo. ) on Apr I I 4, 1994, alleging several special and affirmative defenses which are summarized hereunder as fo I Iows: 958

DECISION - C.T.A. CASE NO. 5066 4- 1. Petitioner's Income tax return for 1990, filed by his wife as his representative, is presumed to have been filed by him pursuant to Section 44(g) of the Tax Code, as amended; ?� The Bureau of Internal Revenue is empowered to make assessments on t~e basis of the best evidence obtainable pursuant to Section 16 of the Tax Code; 3. The final decision issued by the Re g i o na I Di r e c t o r i s pres ume d I ega I a nd' v a I Id , be I ng aut hor i zed to prom u Igate sa. io-d dec i s i on pursuant to Executive Order No. 132, as implemented by Revenue Administrative Order No. 4-93. Besides, the legality of such decision is an issue not raised by petitioner in the admInistratIve Ieve I. Therefore, he is estopped from raising the same for the first time before this Honorable Court (Aguinaldo Industries vs. Commissioner of Internal Revenue 112 SCRA 136); and 4. AI I presumptions are in favor of the correctness of the tax assessment (Interprovincial Autobus Co., Inc. vs. Commissioner of Internal Revenue, 98 Phi I. 290, Commissioner of Internal Revenue vs. Avel ino, 8 SCRA 538). The taxpayer has the duty to prove otherwise. The issues raised by b"oth parties are the following: 1. Whether or not petitioner has ceased operating his security agency <MPDWAt� business in 1990; and 2. Whether or not the assessments issued against petitioner have legal and factual bases. Petitioner's defense that as early as September 1, 1989 he had ceased o~erating his security agency business, and therefore, he had no tax liabilities for the year 1990 Is untenable. His ' , only proof to support his contention of closure of business, was the letter 959

DECISION - C.T.A. CASE NO. 5066 - 5- dated August 25, 1989 (Pet's. Exh. "A"> of the Commanding Officer of the Supervising Unit for Security and lnvestigatjon Agencies, advising him to cease operations effective September 1, t 1989. The Court believes that this letter is not a conclusive proof of cessation of business. It is highly disputable for it was mere advise .-;... to cease operations. As to whether petitioner actua I I y ceased operation is the real issue which petitioner miserably failed to pursue and prove. Petitioner's self- declaration that he stopped operating his business does not carry weight, it being self-serving and without any corroborating evidence. On the other hand, the Income Tax Return for 1990 of petitiQner, which was marked as Exh. "1" for respondent, sufficiently proved that the former never stopped operating his business up to taxable year 1990. As correct Iy a I I eged by" respondent, this return is presumed ,, valid pursuant to Sect ion 44(g) of the Tax Code as amended by Exec. Order No. 37, stating that: "(g) Signature presumed correct. The fact that an individual's name Is signed to a filed return shall be prima facie evidence for a I I purposes that the return was actua I Iy signed by him." And even in the absence of the above-quoted I ega I provision, the signatures of Lolita Caasi Petalver appearing on the 1990 return filed for and in behalf of 9C()

DECISION - C.T.A. CASE NO. 5066 - 6- petitioner, wl I I nonetheless be considered as genuine for its authenticity was never assai led or questioned by petitioner, Although in the beginning of the trial of the instant case, petitioner denied having filed any return for 1990, he later on admitted that his return was filed by his aforesaid legitimate wife. Thus, during his cross-examination conducted on June 9, 1994 by Atty. Mendoza, respondent's counsel, petitioner's testimony ran as follows: "ATTY. MENDOZA a. For the year 1989 you did not f i Ie any income tax return? A. think fi le[d] but for the year ... ' no, no, 1989 should be f i Ied 1990? a. Yes. A. And 1990 sho~ld be filed 1991? a. 1991. A. 1989 ye~, think I have filed. But (., 1990 the subject matter of this assessment, I think I did not file because I have no source of income." (T.S.N., June 9, 1994 Hearing, pp. 36-37; Underscoring suppl led.) Then during the hea~ing on March 8, 1995, wh i I e conducting his cross examination of respondent's witness, petitioner was Interrogated by this Court relative to the return filed by his wife. In the course of such 961

DECISION - C.T.A. CASE NO. 5066 - 7- interrogation, petitioner finally admitted the fi I ing of his 1990 Income Tax Return by his wife. Thus: "JUDGE ACOSTA ' t That is why you are disowning the fi I ing of the income tax return. So in effect you did not f i Ie any return? ATTY. PETALVER No, I cannotdisownthe filing. [Mly wife filed this but as to the contents of the return I did not authorize her. JUDGE DE VEYRA You are legally married to the one who filed the income tax return? ATTY. PETALVER Yes, your Honor. <TSN, March 8, 1995 Hearing, p. 31.) XXX XXX X X X� . JUDGE DE VEYRA You Qetter make that clear. ATTY. PETALVER She is my wife and she was not authorized to make such entries here. JUDGE GRUBA Why not authorized, no basis, the entries has nq. basis? JUDGE ACOSTA But is she authorized to file the return? 962

DECISION - C.T.A. CASE NO. 5066 - 8- ATTY. PETALVER No, not even authorized to file the return. JUDGE ACOSTA ' ~ So you did not file any return. ATTY. PETALVER No, I consider this already ha'ving [been] filed." (Ibid., pp. 3'4-35.) In resolving the first issue, the Court observes the Immateriality of whether or not petitioner has authorized his wife to file his 1990 Income Tax Return. It is I ikewlse not material whether or not he has authorized his wife to make the entries In the said return. The Court believes that for Section 44(g) of the Tax Code to apply, .it Is sufficient that petitioner admits that it was his wife who filed his 1990 income tax return. The authority of the husband, allowing his legal wife either to file his lncom~ Tax Return or to make the entries ,., thereIn, is of no moment. __ No legal wife in hef sane mind, wi I I file an Income Tax Return which is not lawfully due to be filed, and much more to declare entries therein that wi II incriminate her husband. The return f i I ed by petitioner's wife showed income real lzed and expenses incurred in 1990 from operating the security agency

DECISION - C.T.A. CASE NO. 5066 - 9- business of petitioner. Such return has comp I i ed substantially with the Jaw because: }1> it was made in good faith and was not false or fraudulent; ~ ( 2) it covered the entire period involved; and (3) it contained information as� to the various items of income, deduction.-;...and credit with such definiteness as ~o permit the computation and assessment of the tax (Commissioner of Internal Revenue vs. Gonzales and the Court of Tax Appeals, L-19495, November 24, 1966, 18 SCRA 757, 766). By reason of its substantial compliance with law, the 1990 Income Tax Return of petitioner is accorded more weight by this Court, as evidence that petitioner has not ceased operation of his business In 1990. Relative to the second issue, petitioner contends that respondent has no basi.s in Jaw and in fact in making the questioned tax assessment for it was merely based on a non-existing or d�funct b,, usiness entity. This wi II not hold water. As previously discussed in this case, the return itself filed by his wife is the best evidence that petitioner's business was sti I I existing or in operation In 1990. Such return has substantially complied with the requirements of law for three (3) reasons, namely: (a) It was not proven, to be false or fraudulent as petitioner himself admitted during the hearing that his 1990 Income Tax Return was filed by his legal wife. Because of

DECISION - C.T.A. CASE NO. 5066 - 10 - this admission, there was no more need for respondent to identify or prove that the signature appearing In said return was that of his wife. (b) The return f i Ied was intended for the year 1990, the taxable year invol~ed in this case. (c) The return provided alI the necessary Information required by law that enabled the respondent's examiner to compute and assess the tax due based on the best evidence�~obtainable pursuant to Section 16(b) of the Tax Code. Petitioner failed, despite several requests made upon him by the SIR Chief, Assessment Branch, to present his books of accounts for said year and other related documents necessary for examination. On account of the unaval labi I ity of his book of accounts, respondent proceeded to make an assessment on the basis of the return fl led by petitioner's wife, which in the instant case was the best evidence obtainable. This Is legally permissible pursuant to Section 16(b) of the Tax Code, which states: "< b > Fa II ure to submit required returns, statements, rep~rts and other documents. When a report requ i re'd by I aw as a basis for the assessment of any nat i ona I i nterna I revenue tax shal I not be forthcoming within the time fixed by law or regulation or when there is reason to be I i eve that any such report is false, incomplete or erroneous, the Commissioner shal I assess the proper tax on the best evidence." Thus, in one case it'was held by the Supreme Court that: "The law Is specific and clear. The rule on the 'best evidence obtainable' applies when 985

DECISION - C.T.A. CASE NO. 5066 - 11 - a tax report required by law for the purpose of assessment is not ava i Iab Ie or when the tax report is incomplete or fraudulent. In the instant case, the persistent failure of the late Po Bien Sing and the herein petitioner to present their books ~f accounts for examination for the taxable years involved left the Commissioner of Internal Revenue no other Iega I option except to resort to the power conferred upon him under Section 16 of the Tax Code." (Bonifacio Sy Po vs. Hdn. Court of Tax Appea Is and Hon. Comm i.~ i oner of Internal Revenue, L-81446, Aug. 18, 1988, 164 SCRA 524, 528) Respondent's assessments issued against petitioner find legal bases in alI the provisions of the Tax Code herein before quoted or cited. Their factual bases are the entries declared in the return itself filed by petitioner's legal wife. Above alI, of utmost importance is the we I 1- entrenched rule in taxation upholding the correctness of tax assessments. To that . effect, the Supreme Court has held in several cases that: "A I I preaumpt Ions are in favor of the correctness of tax assessments. The good faith of tax assessors a�nd the validity of their actions are presumed. They wi I I be presumed to have taken Into consideration all the facts to which their attention was cal led." (Collector of Internal Revenue v. Bohol Land Trans. Co., L-13099 and L-13462, Apri I 29, 1960, 107 Phi I. 965, 974; cited in Commissioner of Internal Revenue vs. Construction Resources of Asia, Inc., and The Court of Tax Appeals, L-68230, Nov. 25, 1986, 145 SCRA 671, 679). "In the absence of'� proof of any Irregularities in the performance of duties, an assessment duly made by a Bureau of Internal 966

DECISION - C.T.A. CASE NO. 5066 - 12 - Revenue examiner and approved by his superior officers wi I I not be disturbed." (Gutierrez vs. Villegas, L-17117, July 31, 1963, 8 SCRA 527) On th~ whole, petitioner's evidence both documentary ~ and testimonial, failed to rebut the above-mentioned presumption of the correctness of tax assessment. They did not serve the purpose of proving 'petitioner's .-;... allegation of cessation of business in 1989. Petitioner is therefore I iable to pay the deficiency Income tax and 10% VAT for the year 1990, Inclusive of surcharge. The compromise penalties for the extrajudicial settlement of the deficiency income tax due and deficiency 10% VAT, in the amounts of P16,000.00 and P12,000.00, respectively, cannot be imposed without the agreement and conformity of petitioner. (Wonder Mechanical Engineering Corp. vs. Court of Tax Appeals, L- 22805 and L-27858, June 30; 1975, 64 SCRA 559.) Per our computation, petitioner is liable to pay the following deficiency taxes~and penalties: 10% VAT for 1990, Inclusive of P123,562.50 surcharge 184,276.77 Def. Income tax for 1990, Inclusive P307,839.27 of surcharge 33,000.00 Penalties for: <Exh. 12-b, p. 34, BIR reo.) , Fal lure tow/hold P12,000.00 No schedule of taxes 7,500.00 No CPA cert. 6,000.00 No comparative 1/S 7 ,'500. 00 TOTAL P340,839.27

DECISION - C.T.A. CASE NO. 5066 - 13 - WHEREFORE, in the I ight of all the foregoing, the Court finds the instant petition for review without merit and there)ore, DENIES the same. Petitioner is hereby t ORDERED to PAY the respondent the amounts of P33,000.00, representing penalties imposed under Sections 250 and 251 of the Tax Code; and P307,839.27 deficienc'y income tax ....... and VAT, Inclusive of surcharge, ~ 20% interest from the date prescribed for payment unti I the amount is fully paid pursuant to Section 249 of the same Code. SO ORDERED. (f~t:2 .. Q~ ERNESTO D. ACOSTA Presiding Judge CONCUR: 7~~~~ RAMON 0. DE VEY Associate Judg ,, CEATfFICATION t hereby certify that this decision was reached after due consultation with the members of the Court of Tax Appeals in accordance with Section 13, Article VI I I of the Constitution. Q_z(D.(].~ ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals 960