CTA Case No. 4315 (Decision)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY JAIME C. ECHEVERRIA, Petitioner, - versus - C.T.A. CASE NO. 4315 BIENVENIDO A. TAN and REYNALDO A. SUAREZ in their o.f.ficial capacit y as COMMISSIONER OF INTERNAL REVENUE and REGIONAL DIRECTOR, RESPECTIVELY, Respondents . X- - - - - - - - - - X D E C :I: S I 0 N This is an pp�a l on th amend d assessment issued by respondent to petitioner for alleged de.ficienc y taxes in the total amount o.f P583,341.56, broken down into de.ficiency income tax o.f P570,966.56 for the period 1978 to 1985 and de.ficiency business tax of P12,375.00 for 1978 to 1986. Petitioner alleged in the Brief Statement of Facts of the petition CC.T.A. records, pp. 1-11> that it received on September 1987 an assessment of ?4,857,863.90 as de.ficiency income tax plus increments thereto and deficiency business tax of P75,150. 00. This was admitted by respondent in

--- DECISION - C.T.A. Case No. 4315 - 2- its "Answer" <Id. , pp. 37-40). However the assessment referred to when ascertained from the records could not have been received on September 1987. The Letter of Authority dated September 1L .) 1987 authorizing the investigation of petitioner's all internal revenue tax liabilities for taxable year 1986 and unverified prior years was received by petitioner on September ~ 1987 <BIR Records p. 147). The report of investigation dated November ~ 1987 was submitted to the Spe c i al Investigation Team on November 24, 1987 and r e ceive d at the BIR Regional Direc t or 's - Qu e z on City o f fice on Jan ua ry ~ 1988 with t h e recomm ndation f or the issuance of Prelimi nary Assessment Notice in the amount of P3,449,676. 0 5 and P73,010.25 as defici ncy income tax for 1978 to 1985 and deficie ncy business tax for 1978 to 1986, respectively <BIR Records, pp. 290-299) . A follow - up report of the revenue officers concerned requesting that the necessary assessment notices be issue d was . submitted on December 1L 1987 <Id., p. 324>. Assessment for deficiency income tax for the pe riod 1978-1986 in the amount of P4,857,863 . 90 was allegedly issued December 20, 1988 <should logically be December

DECISION - C.T.A. Case No. 4315 -3- 20, 1987> with payment due on January 20, 1988 <I d. , p. 577 >. Assessment for deficiency business tax for the period 1978-1986 in the amount of P74,150.00 dated January 13,1988 was also issued with payment due on January 20, 1988 <Id. , / p. 325). There are no records showing when they 1 were received by petitioner. .J Warrants of Distraint of Personal Property and Levy on Real Property both dated February 29, 1988 were received by petitioner on even date. <Id., pp. 305- 307> Petitioner wrote respondent on March ~ 1988 regarding said warrants and his position thereon. <Id. , pp. 318 - 319> In a meeting with the Commissioner on March respondent directed a re-investigation of petitioner's case even without the latter allegedly making a request. <TSN, March 29, 1990, pp. 36-37~ TSN November 6, 1990, p. 35.) The results of the re-investigation conducted by a different revenue officer was reported on ~ ~ 1988 whereby a recommendation to assess the deficiency income tax for 1978 to 1985 of P570,966.56 and for 1986, P4,935.25. The recomputed deficiency business tax for 1978-1986 amounted to P12,357.00. <Id., pp. 463-465> Upon

----- DECISION - C.T.A. Case No. 4315 - 4- review, a report dated August ~ 1988 was submitted for appr oval on August iL 1988 and the aforementioned deficiency assessments were approved by respondents Regional Director and Commissioner of Internal Revenue. <Id., pp. 470-475) Petitioner was informed of the same in a letter dated August 25, 1988 but mailed only on September ~ 1988. A period of <30) days from receipt thereof was given petitioner to settle the aforesteted a ssessments otherwise, Warrants of Distraint of Personal Property and Levy on Real Property will be pursued. <Id., p. 469. ) Upon receipt of the August 25, 1988 letter, petitioner allegedly promptly offered to pay its 1986 defic'ency income tax assessment of P4,935.25 but it was not acc pted. Hence t petitioner wrote the Commie ion~r of Int9rnal R ve nue on September t mp d reo ived on the same date in he Deputy Commiasioner's office and September 29,1988 in the Quezon City Regional Director's of:fice. <I d. , pp. 490-492) . Thereafter, petitioner paid the 1986 deficiency income tax assessment of P5, 96.80 on September per Central Bank Co nfirmation Receipt No. 815722235. < Id., p. 482> Protest letters dated November iLL 1988 were 8 I- {...., )

DECISION - -s- C.T.A. Case No. 4315 ) filed by petitioner's counsel on November ~ 1988 contesting the deficiency income tax assessment for 1978-1985 of P570,966.6S <Id., PP� 496-498) and the deficiency business tax assessment for 1978-1986 of P12,37S.OO <Id., pp. 494-495) Respondent Regional Director denied said protests and informed petitioner of the following : "In line with our policy t o give taxpayer a chance to settle their tax liabili iea, you are requa ted to pay the said amounts of PS70,9GG.55 and P12,375.00 within ten (10) days from receipt hereof and in case of your failu e or omission to pay, the tax case will be referred to the Fiscal's Office, for resolution without further notice." tCTA Recordat pp. 19 - 20> Petitioner allegedly received the aforestated reply on December ~ 1988 and considered the same as the final decision of respondent hence, the instant petition for review was filed with this Court on Decemb r 29, 1988 <CTA Recorda, pp. 1 - 11) The issues for resolution of this Court are: 1. Whether or not the right of respondents to assess petitioner of deficiency taxes for taxable years 1978 to 1986 has prescribed. 2. Whether or not respondents erred in assessing petitioner the amount of P570,966.56 as deficiency income tsx for the years 1978 to 1985 and the amount of P12,375.00 as deficiency business tax for the

DECISION - C.T.A. Case No. 4315 -6- years 1978 to 1986. Respondents claim that their right to assess petitioner of deficiency taxes for the years 1978 to 1986 has not prescribed pursuant to Section 223<a> of the Tax Code, as amended, which states: "Section 223 . Exceptions as to period of limitation of assessment and collection of taxes. - (a) In the case of ~false QL fraudulent return with i n ~nt t o evade tax or of failure to file a return, the tax ma y be assessed, or ~ proceeding in court for the collection of such tax may be begun withou t as sessment, at any time within ten years after the discovery of the falsitY 1 freud, ~ omission: Provided, That in e frau d assessm nt wh ich has become final and executory , the fact of fraud shall be judicially taken cogniz ance of in the civil or criminal action for th collection thereof." X :XX XXX XXX According 0 respondents, "substantial undeclaration of income/ equisitions of real properties for 8 consecutive years, i.e. 1978 to 1985, constitutes fr audulent intent to evade the payment of correct taxes due the Government" ("Ans wer", CTA Records, pp. 37- 40) and "The fact that deficiency income tax and deficiency tax liabilit ies of the petitioner we re u nco vered during the ro tine verification conducted by respondent shows petitioner's returns to be false or fraudulen t with intent to evad payment of /i

DECISION - C.T.A. Case No. 4315 -7- taxes". <"Memorandum of Respondents", CTA Records, pp. 155-160) To fall within the exceptions provided by law, one must clearly and squarely establish that his case is one of those grounds contemplated by law. Otherwise, all fair doubts will � be resolved against him. "Fraud" as exception to the period of limitation to assess and to collect taxes provided in Section 203 of the Tax Code, as amended, must be actual and not constructive. It must be intentional, consisting of deception wilfully and deliberately done or resorted to. Courts never sustain findings of fraud upon circumstances which creates only suspicion and the mere unperstatement of a tax is not itself proof of fraud. <Commissioner of Internal Revenue v. Javier Jr., 199 SCRA 824. ) Fraud must be proven by clear and convinc ing evidence amounting to more than mere preponderance. It cannot be justified by mere speculation. This is because fraud is never lightly to be presumed. Fraud is never imputed.Mere understatement of tax in itself does not prove fraud. <Yutivo Sons Hardware Co. v. Court of Tax Appeal�, 1 SCRA 160. > In the case at the bar, "fraud� was never 83 .1. �'

DECISION - C.T.A. Case No. 4315 - a- alleged in both the approved revenue enforcement officers' report of original investigation dated November 16, 1987 and in the approved report of re - investigation dated August 3, 1988. It was only in the "Answer" and the "Memorandum" that respondents made the sweeping conclusion that there was "fraud" which at most is based on questionable findings which petitioner is assailing. Jurisprudence on the matter eloquently tells us that respondents� claim is unfounded. The alleged substantial undeclaration of income/acquisitions of real properties from 1978 to 1985, which was the premise for the charge that there was fraud was debunked by respondents� very own revenue enforcement officers when the original assessments of P4,857,863.90 and P75,150.00 were drastically reduced upon re - investigation to P570,966.56 and P12,375.00, respectively. These amended assessments were likewise being contested by taxpayer. Moreover, the charge of "unexplained wealth" against petitioner based on the records of the New Armed Forces of the Philippines-Anti Graft Board <NAFP-AGB> which were forwarded to the Presidential Commission on Good Government <PCGG>, the Ombudsman and the BIR, was recommended to be withdrawn by Arturo T. De Guia, Deputy Director-PCGG Legal Department

DECISION - C.T.A. Case No. 4315 -9- Records, pp. 247-282. > Verily, respondents �ailed to establish that this case quali�ies as one o� the exceptions. ) Hence, the normal period o� limitation upon assessment and collection applies. Pursuant to Section 318 <now Section 223> o� the Tax Code, as amended, internal revenue taxes shall be assessed within �ive years (now three years starting taxa- ble year 1984 per BP Blg. 700) a�ter the return was �iled. Shown below are the relevant dates pertaining to the income tax assessments at bar: Taxable Last Day Last Day Date Year of Filing to Assess Assessment ITR Issued� 1978 April 15, '79 April 15, '84 Dec. 20, '87 1979 April 15, '80 April 15, '85 Dec. 20, '87 1980 April 15, '81 April 15, '86 Dec. 20, '87 1981 April 15, '82 April 15, '87 Dec. 20, '87 1982 April 15, '83 April 15, '88 Dec. 20, '87 1983 April 15, '84 April 15, '89 Dec. 20, '87 1984 April 15, '85 April 15, '88 Dec. 20, '87 1985 April 15, '86 April 15, '89 Dec. 20, '87 * NOTE: Record do not show when assessment was received by petitioner. It can readily be ascertained :from the �oregoing that the assessments �or taxable years 1978, 1979, 1980 and 1981 were already time barred having been issued beyond the statutory period to assess. We are le:ft to contend with the 83(,

DECISION - C.T.A. Case No. 4315 - 10 - assessments for taxable years 1982, 1983, 1984 and 1985. To be noted likewise are deficiency income tax payments already made by petitioner for taxable years 1978, 1980, 1981 and 1986 per payment orders and confirmation receipts presented by petitioner as evidence. <Exhibits "E", "F", "H", "I", "L", "M", and "0". The letter of authority covers only the verification of petitioner's tax liabilities for 1986 and unverified prior years. <BIR Records, p. 147. ) Evidently, the aforestated years have already been verified as evidenced by the deficiency income tax payments, Section 235 (formerly Section 324> of the Tax Code , as amended provides that for income tax purposes such examination and inspection shall be made only once in a taxable year except in cases allowed by law namely, fraud, irregularity or mistakes as determined by the Commissioner~ the t ~ ayer request for re - investigation~ verificat ion of compliance with withholding tax law and regulations~ verification of capital gains tax liabilities and in the exercise of the Commissioner power under Section 7<b> of the Tax Code to obtain information from other persons. The case at bar does not fall within the excep-

DECISION - C.T.A. Case No. 4315 - 11 - tions. Accordingly, taxable years 1978, 1980, 1981 and 1986 shall be considered closed. Petitioner's deficiency business tax assessment was allegedly on account of the non-payment of fixed tax as real estate lessor. All fixed taxes shall be payable annually, on or before the last day of the first month of the taxable year adopted by the taxpayer. <Section 190. 1977 NIRC, as amended. > Let us consider the timeliness of the deficiency business tax assessment on this case, to wit: Taxable Last D y L at Day Date of Year of Filing to Assess Assessment� -- ----- Return ---- ----- ---------- 1978 --------- Jan. 31, '83 Jan. 13, '88 1979 Jan . 31, '84 J;~m. 13, '88 1980 Jan. 31, '78 Jan. 31, '85 J n. 13, '88 1981 Jan. 31, '79 Jan. 31, '86 Jan. 13, '88 1982 Jan. 31, '87 Jan. 13, '88 1983 J a n. 31. �eo Jan. 31, '88 Jan. 13, '88 1984 Jan. 31, '87 Jan. 13, '88 1985 Jan. 31, '81 Jan. 31, '88 Jan . 13, '88 1986 Jan. 31, '82 Jan. 31, '89 Jan. 13, '88 Jan. 31, '83 Jan. 31. '84 Jan. 31, '85 Jan. 31, '86 * NOTE: Records do not show when assessment was received by petitioner. It can be seen from the foregoing that the assessments for taxable years 1978, 1979, 1980, 1981, 1982, and 1984 have already prescribed pursuant to Section 223 <formerly Section 318) of the Tax Code, as amended. Moreover, petitioner has proven that through his wife he has paid the ' �-�r~ � 8 u) d

DECISION - C.T.A. Case No. 4315 - 12 - fixed tax as real estate lessor for 1984, 1985, and 19B6 as manifested in business (fixed) tax returns filed and confirmation recei pts submitted as evidence. <Exhibits "P", "Q", " R" , " S " , "T" and "u", respectively). Proof of payment of deficiency business (fixed> tax for was also presented by petitioner <Exhibits "J" and "K". > Based on the foregoing only the 1983 business (fixed> tax l iability remains. We now go into merits of the subsisting deficiency inco me ta x assessments by scrutinizing the bases thereof . The results of the original investigation of this case showed de�iciency income tax for 1978 to 1985 of P3,4 9,676.05~ broken dow n into basic tax of ?3,104,959.00 ~nd inter st of P344,716.75. <See compu tion in B R Records, p . 2 1. > When the formal assessm nt dated December 20, 198<7> was issued, the interest ballooned to P1,752,904.60 for a total deficiency of ?4,857,863.90. <Id., p. 577.) It was by utilizing the cash flow method of discovering tax liabilities that the revenue officers were able to arrive at the aforestated deficien cy income tax for 1978 to 1985. No ted in the report of investigation was that the 835

DECISION - C.T.A. Case No. 4315 - 13- mathematical computations o� the taxable income per investigation were derived substantially �rom petitioner's Statement o� Assets and Liabilities and o��icial documents �rom the NAFP-GHQ. It was also pointed out in said report that the PCGG is "inclined to withdraw the "hidden wealth" charges against subject o��icer". Upon re-inventigation o� the case by another revenue o��icer, the de�iciency income tax �or 1978 to 1985 was drastically cut down to P570,966.56. A breakdown is shown below: Year De�iciency Interest TOTAL Income Tax 1978 p 52, 951. 77 p 31, 771. 06 p 84,722.83 ) 1979 56,939.88 34,163.28 91,103.16 1980 48,473.18 29,083.91 77,557. 09 1981 25,443.00 15,265.80 40,708.80 1982 7,484.47 4,490.68 11,975.15 1983 8,324.60 4,994.76 13,319.36 1984 33,928.47 21 , 201. 4 2 55,129.89 1985 137,870.89 58, 5 79.38 196,450.27 TOTAL P371,416.27 P199,550.29 P--5-7-0-,9--6-6-. -5-6 ---- -- --- -- --------------- <See detailed computation in Exhibit "EE"> The de�iciency income tax assessment was recomputed by the assigned revenue o��icer based on the net - worth expenditure method applied on a ca J~�low yearly basis in contrast to the method applied �or the entire period by the previous ~

DECISION - C.T.A. Case No. 4315 - 14 - examiners. The net worth method of determining taxable income is based upon the general theory that money and other assets in excess ox liabilities ox a taxpayer <axter an accurate and proper adjustment ox non-deductible items> not accounted xor by his income tax returns, leads to the inxerence that part of hie income has not been reported. <Eugenio Perez v. CTA and Collector of Internal Revenue, No. L-10507, May 30, 1958, 103 Phil. 1167. ) Its application in our jurisdiction has been upheld by the Supreme Court in a number ox cases. <Ibid.; Jose Aveline v. Collector o� the Internal Rev nue, No. L-17715, J uly 31, 1963, 8 SCRA 5 72. > Before the increased net worth method ox proof is effective, the net worth of the taxpayer at the beginning of the year must be clearly and accurately established by competent evidence. (us v. Fenwick, 177F<2d> 488 <CA 7th 1949>~ West v. Henslee, 52 APTR 1828<D.C.M.D. Cal., 1956)~ W.A Shaw, 27TC561<1956>, aff'd 252 F<2d> 681<CA 6th 1958>; Vincent Cexalu, TC Memo, 1958-37, Axf'd 276f<2d> 122<CA 5th, 1960>; Estate of William Frank Schenck, TC Memo, 1961-24>~ William J. Rowers, TC Memo 1962- 5, Estate ox Sam Maceo , TC Memo 1964-46. > The importance of /&

DECISION - C.T.A. Case No. 4315 - 15 - J establishing a definite net worth at the start of the net worth period is emphasized. <Thomas v. Commissioner, 223 F <2d> 297 <CA 6th, 1959), on remand TC Memo. 1956-185, rev'd 266 F <2d > 197 <CA 6th, 1959>; Harp v. Commissioner, 263F <2d > 139<CA Gth,l959>. A larger net wo~th at the start of the net worth period will, of course, mean a smaller increase in net worth and less taxable income <Mertens , The Law of Federal Income Taxation, Vol. 2. S 12. 12.) Evidence supporting the opening net worth must be both competent and trustworthy. <Coll&ctor of Internal Revenue v. Li Yao, No.L -1 1861, December 27 , 1963, 9 Phil. 789. ) Relevant to the proper valuation of the opening net worth is that the cost of the a sets, not the fluctuating market value should be used in the net worth method since the pertinent question is what part of the taxpayer's income was used to purchase the assets. <Herman Epslei n~ TC Memo 195 9-103 ~ Schultz v. Commi ion r, 278 Fed 927 <CA 5th, 1960> ; Ollie W. Kelly, TC Memo 1964-267: Carnien v. Commissioner, 420 F2d 283 <CA 8t h, 1970>, Adell D. Cox, 54 TC 1735 <1970>. Once the determination of the Commissioner <of the opening net worth> is found to be wrong, it is not incumbent on the taxpayer to prove that he owes no tax, or what tax .J

DECISION - C.T.A. Case No. 4315 - 16 - he did owe. <Grubb v. Commissioner, 315 F2d 753 <CA 6th,1963), revg and remanding on this ground TC Memo 1961-153. > As mentioned earlier, heavily relied on by the revenue officers in computing petitioner's alleged deficiency income tax liability for 1978 t o 1985 are the Statement of Assets and Liabilities submitted by petitioner to the military chain of command and documents compiled by the NAFP -GHQ which includ e the addi tional supporting papers presented by petitioner to rebut the charges of ill-gotten wealth against him. These are substantially the same documents on which Arturo de Guia, Dep uty Direct o r, PCGG LEgal Department baaed his recommendation that the unexplained wealth case <Sandigan Case NO. 38) against petitioner be withdrawn <BlR Records, p. 274 - 282>. The errors assigned by petitioner in respondents' assessment were exhaustively expounded in the hearings of t his case, with petitioner taking the witness stand and submitting t o cross examination. Corroborating documents, when available, were presented as evidence. In contrast, respondents did not even file comment on petitioner's formal offer of e vidence and fa iled to present any witness, not even the ~

DECISION - C.T.A. Case No. 4315 - 17 - revenue officer who conducted the investigation and made the report. Other than the BIR Records of the case, no other evidence was submitted. J Number one of the errors is that petitioner's statement of assets were interpreted wrongly by respondents. The values reported were not acquisition costs. Pertinent portions in the transcript are reproduced below: XXX XXX XXX Q. Do you mean to say that t he amount you plac ed in your sworn statement of assets and liabilities are not the acquisition costs? A. These are not basic ally the acquisition costs. These are fair market values. <T. S. N. p. 12, Ma rch 29, 1990> Q. So do you mean to say that the amount stated in your sworn statement of assets and liabilities are just approximation or based on your recollection? A. Yea, sir. <T.S.N. > p. 14, March 29, 1990> XXX XXX XXX In the cross examination of petitioner, the following were noted: Q. Now Mr. Witness, when you reported these items in your assets and liabilities, did you include there the acquisition cost or was i t t he market~- value? / ~ 84~

DECISION - C.T.A. Case No. 4315 - 18 - A. When the acquisition cost was available on record, I used the acquisition cost. But in the absence of this, I went to the assessed value or fair market value or even the stipulated market value. Q, Aside from the market value, speculated value? A. No. It's the estimated value. In the absence of all those records, we made estimation. <T.S.N., pp. 8-9. November 6, 1990) XXX XX X XXX Q. And this sworn statement of assets and liabilities, that is where you place the fair market value of the properties you allegedly acquired during the period in question? A. Acquisit io n cost, fair market value, assessed value, estimated value, whichever is the most available to me. We were in the field all the time. <T.S.N., p. 12, November 6, 1990) � XXX XXX XXX Petitioner would like to impress upon us that the statements of assets and liabilities he submitted to the military chain of command were not reliable bases of determining his net worth for taxation purposes in as much as the valuation used were mixed up. Since he was most of the time in the field, he did not give much thought as to the accuracy of the amounts stipulated therein as he even allowed hie aide de camp to prepare them

DECISION - C.T.A. Case No. 4315 - 19 - �or him. ( T. S. N. p. 40, November 6, 1990. ) To illustrate the methodology �allowed in its preparation, petitioner specif"ically mentioned how the motor vehicles and jewelries were valued. There were increases in their reported values when ) in �act there were no new acquisitions. <T.S.N. pp. 24 - 25, March 29, 1990> Other errors pointed out by petitioner are as �allows: 1. A duplex house constructed in 1965 in Carmen, Cagayan de Oro with Tax Declaration No. 39848 costing P62,834.00 was not included in the opening net worth but included as having been acquired during the period 1978-1985. <T.S.N., pp. 18-19, March 29, 1990> 2. Respondents' revenue of"f"icers �ailed to include in the beginning inventory the assets of" petitioner's wif"e but included the same in the ending inventory. <T.S.N., pp. 3-4, September 6, 1990. ) 3. A Valley Vista, Paranaque property with TCT No. 92686 coating P409,890.00 <Exhibit "GG-1", "2"> was listed as owned by petitioner when the listed owner is a certain Charita Gonzales while the previous owner is petitioner's brother Francisco Echeverria. 4. A Valley Vista, Paranaque property with Tax Declaration No.00308395 costing P633,000.00 <Exhibit "GG-2"> put up by his wif"e �rom her inheritance and only occupied af"ter his retirement in 1988 was included during its construction as investment but was again included as part a� the inventory of" real property �or its f"ull value upon completion - a case of" double counting. <T.S.N., pp. 19-20~ pp. 26-27, March 29, 1990) 5. Two duplex houses in Carmen, Cagayan de Oro with Tax Declaration No. 60998 <Exhibit "GG-3"> and No. 60999 <Exhibit "GG-4"> costing

DECISION - C.T.A. Case No. 4315 - 20 - P54,080.00 each were acquired by petitioner's wife using her inheritance money <T.S. N., pp. 21-22, March 29,1990.) XXX XXX XXX Substantiation requirement as to the other items alleged by respondents as unexplained increases in net worth were submitted by petitioner and fully explained. Moreover, an expert witness by the name of Mr. Danilo T. Alas, a partner of Alas Company a fi r m which provides .) auditig and tax services among others, testified for the petitione r and computed the net worth of Br igadier General Jaime C. Echeverria <Ret. > as well a s m d a c omp rison with the BIR computation . Pertinent portions of the cross- examinati on are reproduced below: Q . Mr . Wi tness, you claimed that in preparing the computation of the net worth for petitioner you found out that the computation made by the BIR is erroneous. How did you arrive at that conclusion? A. In our examination of the net worth of General Echevarria we found that several items that are not in accordance with the result of the examination that we are namely in the beginning balances of the net worth which shows a difference of about ?954,266.00. The s e c ond item there is the item in invest - ment, there's also a difference there also.

DECISION - C.T.A. Case No. 4315 - 21 - Q. Will you point to us in the exhibit that was presented? A. x x x In our own computation we show that the BIR shows P608,580.00 while we show a P1,560,840. 00, that's only net worth beginning. x x x <T. S. N. , pp. 3 - 4. October 4, 1991. > XXX XXX XXX Q. So you want to impress before us that instead petitioner being liable for this deficiency income tax in the amount of P570,966.56 from 1978 to 1985 he should now be refunded. Is that what you are trying to clai m? A. Right. We can say in 1978 instea d of being liable as per BIR computation of P52,952.00 his tax due is only P2 ,034.00. In 1979, the BIR claimed that his net taxes due is P56,940.00 our own computation is P3,051.00. In 1980, his tax per BIR computation is P48,473.00 when � our computation is P2,640.00, you see. And in 1981 his BIR tax computation is P25,443.00 whil~ our tax computation is P3,006.00. In 1982, the BIR compu tation is he's only liable .I to pay P7,484.00our computation is that it is refundable of P4,984.00. And in 1983, the BIR tax computation is P8,325.00 while our tax computation is refund of P3,909.00. And in 1984, the BIR computation is P33,928.00 our computation is refund of P5,268.00. And in 1985 the BIR while our tax c omputation is a refund of P7, 334.00. <T.S.N. pp. 6 - 8, October 4, 1991 > XXX XXX XXX It is evident from the foregoing discussions that the opening net worth used by the BIR in

DECISION - C.T.A. Case No. 4315 - 22 - computing petitioner's alleged deficiency income tax assessment for 1978 to 1985 is erroneous at the very onset thereby, making the subsequent years' beginning net worth likewise wrong. The error is compounded when the values of subsequent acquisitions were based not on acquisition costs but on mixed amounts. Taken together, the accuracy of the assessments become highly questionable leaving us no recourse but to scrap the same. ) WHEREFORE, petitioner~ deficiency income tax assessment for 1978 to 1985 in the amount of P570,966.56 is hereby cance ~d for lack of merit. The deficiency business tax assessment for 1975 to 1986 in the amount of P12,375.00 is hereby modified to P1,250.00, inclusive of basic (fixed) tax of PSOO.OO, surcharge of P125.00 and interest of P625.00 <Exhibit "BB" - TY 1983. >. SO ORDERED. Quezon City, Metro Manila, August 13, 1993. ~L Associate Judge 84G

DECI S ION - C.T.A. Case No. 4315 .I - 23 - WE CONCUR: Q ~ Q~ ERNESTO D. ACOSTA ~P~~~ RAMON 0. DE VEY Associ ate Judge CERTIFICATION I hereby cert i fy t hat t he ab ove dec i s ion was reached after d ue cons u ltation among the members of t he Court o� Tax Appe als in accorda nc e with Section 13 Artic l e VII I of the Const i tution. ~Q._~ ERNESTO D. ACOSTA Presidi ng Judge Co urt of Ta x Appe als .)