COMMISSIONER OF INTERNAL REVENUE v. HONDA CARS MAKATI, INC.

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY EN BANC COMMISSIONER OF INTERNAL REVENUE, CTA EB No. 1464 (CTA CASE No. 8638) Petitioner, Present: - versus - DEL ROSARIO, PJ CASTANEDA, JR. HONDA CARS MAKATI, BAUTISTA, INC., UY, CASANOVA, Respondent. FABON-VICTORINO, MINDARO-GRULLA, RINGPIS-LIBAN, MANAHAN, JJ. Promulgated: DEC 0 4 2017 //.'~-<a . ~. C/1- x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --x DE C ISION Fabon- Victorino, J.: Before the Court is the Petition for Review dated June 15, 2016 filed by the Commissioner of Internal Revenue, assailing the Decision dated January 14, 2016 and the Resolution dated May 11, 2016, both rendered by the Court in Division. The assailed Decision of January 14, 2016 partially granted respondent's claim for refund of its excess and unutilized creditable withholding taxes (CWT) to the extent substantiated in the amount of P21,389,498.56. The said Decision was effectively affirmed when petitioner's motion / for reconsideration of the said Decision was denied for lack of merit in the equally assailed Resolution of May 11, 2016.

Decision CTA EB No. 1464 The following fact~ established during trial, as determined by the Court iri Division, are undisputed: i Petitioner is the Comrhissioner of the Bureau of Internal I Revenue (BIR) with aut~ority to act upon and approve claims for refund or tax tredit of overpaid or erroneously paid internal revenue taxe~. He holds office at the sth Floor, BIR National Office Building, Agham Road, Diliman, Quezon City. I Respondent Honda Fars Makati, Inc. (Honda) is a domestic corporation duly 1registered with BIR with Taxpayer Identification Number (tiN) 000-220-239-000. It is engaged in the sale, di~tribution, service, and repair of automobiles with the pdmary purpose, as stated in its Amended Articles of Incorporation, as follows: I "To engage in I the sale and distribution, service and repair ~f automobiles, motor cars, motor trucks, wagolns, buggies, carriages and other mechanically propelled vehicles, and vehicle engines, parts, acce~sories, supplies, and other articles; to operate1' chain stores and general merchandising perta ning to motor vehicles, to build, maintain, leas or otherwise acquire, own, hold and operate war~houses, agencies, structures, services centers an9 showrooms which may be used in connection i with the business of the Corporation; to buy,~lsell and generally deal in all kinds of merchand se, fixtures, and chattels relating to motor v hicles; to acquire and own patents, improvemepts and franchises, and to operate under such I patents, improvements and franchises, any commercial dealings pertaining to the matters and things enumerated herein." On April 15, 2011, relspondent manually filed its Annual Income Tax Return (ITR~I for the year 2010 with the BIR Large Taxpayers-Assistan e Division II. On even date, it filed, through the BIR Ele tronic Filing and Payment System (EFPS), an electronic co y of its Annual ITR for the year / 2010, with filing Referenc~ No. 1211000D4683610. I !

Decision CTA EB No. 1464 On February 18, 20~3, respondent filed with the BIR Large Taxpayers Excise Aydit Division II a letter-request for refund or issuance of Taj< Credit Certificate (TCC) in the amount of P25,812, 793.0~ allegedly representing its excess and unutilized CWT for the! year 2010. I Petitioner failed to aqt on the said administrative claim for refund/tax credit prori'lpting respondent to elevate the matter to the Court thro~gh a Petition for Review filed on April 12, 2013. 1 After trial, the Court in Division rendered the assailed Decision on January 14, 2016, the dispositive portion of which states, as follows: i WHEREFORE, premises considered, the instant Petition for Review isl hereby PARTIALLY GRANTED. Accordingly, (petitioner) is hereby ORDERED TO REFUND !I or TO ISSUE A TAX CREDIT CERTIFICATE in favor of (respondent) in the I amount of P21,389,498.56 representing its exc~ss and unutilized creditable withholding taxes for CY ~010. SO ORDERED. In the Resolution d~ted May 11, 2016, the Court in Division denied petitioner'~ plea for reconsideration, for lack of merit. , Hence, this appeal t~rough a Petition for Review filed before the Court En Band on June 16, 2016, or within the extended period granted. The sole issue raised lby petitioner reads as follows: ' Whether the Secqnd Division of the CTA erred in ordering petitioner to ipartially refund or issue a tax credit certificate in favi' r of respondent in the amount of P21,389,498.56 all gedly representing its excess and unutilized credit ble withholding taxes for CY 2010. ! /

Decision CTA EB No. 1464 I In his appeal, petititner invokes Section 112 of the National Internal Revenue Code (NIRC), as amended, which pertains to claims for ref~nd/tax credit of creditable input taxes to bolster its stance. I Petitioner claims tha~'respondent failed to comply with the 120/30-day periods m ndated under Section 112 of the NIRC warranting the dis issal of the latter's judicial claim for refund/tax credit. ! Allegedly, Section 12 of the NIRC provides that respondent can only app al to the Court in Division via petition for review within 0 days from receipt of an adverse decision or from the laps of the 120 days for petitioner to act on the administrative laim. In this case however, there is nothing to elevate on a peal to the Court in Division as it is as if no administrative laim has been filed for failure of respondent to submit co plete supporting documents in its administrative claim for r fund/tax credit as required under Section 112 of the NIRC, s amended, giving him no basis to rule or render decision n its administrative claim. By depriving him of the opp rtunity to evaluate and decide on the claim due to inc mplete supporting documents, respondent effectively f iled to exhaust administrative remedies. Without a val d administrative claim to review, and with a condition prec dent not complied with, the Court did not acquire jurisdic ion over the judicial claim of respondent, says petitionelr. ! i In response, 1 I argues that petitioner is resp ndent erroneously invoking Sect on 112 of the NIRC, as amended which covers claims for r fund of unutilized input VAT. It points out that the subj ct of its claim for refund is its excess and unutilized creditable withholding taxes (CWT). Nevertheless, a sle of jurisprudence already holds that judicial claims for re und should not be denied merely on the ground that the t xpayer-claimant failed to submit complete supporting docu ents at the administrative level. ! I / 1 Comment (Re: Petition For Review Dat'd June 15, 2016) dated August 12, 2016.

Decision CTA EB No. 1464 In fact, the taxpayer~claimant is allowed to elevate its claim for refund with the Court even if the petitioner has yet to issue a decision on the administrative claim if the prescriptive periods for filirlg judicial claims is about to lapse. I I I I Even in cases of refu~ds under Section 112 of the NIRC being erroneously invoke11 by petitioner, non-submission of complete supporting docu ents at the administrative level is not fatal to the taxpayer's udicial claim for refund. i Respondent further ~tates that complete supporting documents should be t' nderstood to refer to those documents in support of t e claim to be determined by the taxpayer and not by petiti ner, who may require documents which the taxpayer c~nnot submit, rendering any administrative claim pointl~ss and ineffective. I i The instant Petition was submitted for decision on December 2, 2016. 2 I THE RULI~G OF THE COURT ! I First, it must be erjnphasized that the instant case involves a claim for r~fund of excess and unutilized creditable withholding tax~s (CWT) for the year 2010 filed by respondent under Sectipn 76 of the NIRC, as amended. I I While it appears th~t petitioner erroneously invokes Section 112 of the NIRd, as amended, the Court is not bound to rule solely on th basis of the law cited by a party in a case. Were it otherwi e, the tax court's appellate power of review shall be rende ed useless. An absurd situation would arise leaving the C A with only two options, to wit: (a) affirming the CIR's legal fi dings; or (b) altogether absolving the taxpayer from liabilit~ if the CIR relied on misplaced legal provisions. The fore$oing is not what the law intends. 3 2 Resolution dated December 2, 2016. i / 3 Pilmico-Mauri Foods Corp., vs. Comlmissioner of Internal Revenue, G.R. No. 175651, September 14, 2016. ~

Decision CTA EB No. 1464 I Thus, the need to r~le on the merits of the present appeal filed by petitioner qrR. i' Jurisprudence has lo~g held that under Section 8 of RA 1125, the CTA is describe~ as a court of record. Given that cases filed with the CTA a1e litigated de novo, party litigants must prove every minute aspect of their cases. Evidence submitted to substantiate , dministrative claim for refund/tax credit, but not presented, identified and formally offered in evidence during the trial f the case in Court shall not be considered and given evi entiary weight. 4 In other words, only evidence presented efore the Court, and not those at the administrative leve, which will be taken into consideration in ruling the !present judicial claim for refund of excess and unutilized CWT!. ' ' It is in keeping witrl this principle that the Supreme Court held that the Cour1 of Tax Appeals is not precluded from accepting responden 's evidence assuming these were not presented at the adm nistrative level. xxx xxx. Thus, respondent "should prove ~very minute aspect of its case by presenting, formally offeri~g and submitting ...to the Court of Tax Appeals [all evidenqe] ... required for the successful prosecution of [its] admini~trative claim."5 i Further, petitioner lailed to name or identify the particular document(s) an its purpose(s) necessary for him to act on and determine t e merits of respondent's claim for refund/tax credit filed wi~h the BIR. To be sure, without specifics, the Court has no way of determining the relevance of the document(s) to the claim for refund/tax credit, thus, it cannot simply accept the unsubstantiated argument of petitioner. As held by the !Supreme Court in one case where it refused to entertain a~y argument by petitioner on an alleged lack of supporting documents without specifying the same, thus: The Court cannot ~imply accept the allegation of the CIR that Metrobank failed to submit the relevant 4 Commissio_ner of Internal Revenue vs. iManila Mining Corporation, G.R. No. 153204, August 31, 2005; D1zon vs. CTA, G.R. No. 140944, April 30, 2008; Commissioner of Internal Revenue vs. United Salvage and Towage (Phils.), Ilnc., G.R. No. 197515, July 02, 2014. / 5 Commissioner of Internal Revenue vs. ~hilippine National Bank, G.R. No. 180290, September , / 29, 2014. I

Decision CTA EB No. 1464 supporting documents w!'thin 60 days from the filing of its protest on 17 January 2 03, when the CIR does not even identify what these documents are. If the Court does not know what particular d cuments Metrobank purportedly failed to submit in supp rt of its protest, then the Court likewise cannot make a etermination on the relevance of such documents. In addi ion, there appear to be sufficient documents submitted b Metrobank to the CIR to have enabled the latter to ren er on 2 March 2004 a Decision on the protest of the former)6 In addition, it is th~ taxpayer who determines what documents to submit to sybstantiate its administrative claim. For "the BIR can only inform the taxpayer to submit 1 additional documents. Th~ BIR cannot demand what type of supporting documents sh$1d be submitted. Otherwise, a taxpayer will be at the m rcy of the BIR, which may require the production of docu ents that a taxpayer cannot submit."7 ! Moreover, not a hirt appears on the record that petitioner found responde~t's documents inadequate for him to make ruling, and that re required respondent to submit additional documents. Again, the Final Arbiter, in one case ruled that if the BIR find the documents submitted by a taxpayer at the administ ative level insufficient, it should inform the taxpayer about it and request for the submission of additional documents. I Otherwise, once the matter is elevated to the Court, oqly the evidence submitted to the Court, pursuant to the R~les of Court, will determine the outcome of the claim. Th~s: ! i Granting that the BIR found that the documents 1 submitted by Total Gas were inadequate, it should have notified the latter of the inadequacy by sending it a request to produce the necessary documents in order to make a just and expediti?us resolution of the claim. i i Indeed, a ta~payer's failure with the requirements listed u der RMO No. 53-98 is not fatal to its claim for tax credit or refund of excess unutilized excess VATr This holds especially true when 6 Metropolitan Bank and Trust Co. vs. cbmmissioner of Internal Revenue, G.R. No. 178797, / August 04, 2009. ! 7 Commissioner of Internal Revenue vs. !First Express Pawnshop, G.R. Nos. 172045-46, June 16, 2009, I

Decision CTA EB No. 1464 i I ' ! the application for tax cr dit or refund of excess unutilized excess VAT has arrived t the judicial level. After all, in the judicial level or when the case is elevated to the Court, the Rules of Court gove ns. Simply put, the question of whether the evidence su mitted by a party is sufficient to warrant the granting of its prayer lies within the sound 1 discretion and judgment ?f the Court. 8 i While the foregoing j~~risprudence do not all pertain to claims for refund of CW as in this case, the principle involved finds equal applic. tion in the instant Petition. Evident from all the j~risprudence cited that there must be a notice from petitio1er about the inadequacy of the documents submitted to h m and the request for submission of additional supporting documents to substantiate the administrative claim. !Otherwise, what was actually submitted, at the discretion of the taxpayer, would be deemed complete. I i I ! i I In this case, the ma~ter was elevated to the Court in Division because petitione failed to act on the claim at his level. Further, there is nothing in the record that even suggests that respondent y..tas notified of the insufficiency of the documents it submitte and that it should submit further documents for the purpos . It is therefore not remote that the administrative remed resorted to by respondent was not at all considered for a tion by petitioner. i This is precisely the I reason that the High Court held that the evidence, or the llack thereof at the administrative level will not matter, one~ the case has reached the Court, especially when such ap eal was due to the inaction of petitioner, as held in the p eviously cited case, as follows: I I A distinction m st, thus, be made between administrative cases ap ealed due to inaction and those dismissed at the admini trative level due to the failure of the taxpayer to submi supporting documents. If an administrative claim wa dismissed by the CIR due to the taxpayer's failure to su mit complete documents despite / notice/request, then th judicial claim before the CTA I 8 Pilipinas Total Gas, Inc. vs. Commissio~er of Internal Revenue, G.R. No. 207112, December 8, 2015. !

Decision CTA EB No. 1464 would be dismissible, n t for lack of jurisdiction, but for the taxpayer's failure t substantiate the claim at the administrative level. W en a judicial claim for refund or tax credit in the CTA is an appeal of an unsuccessful administrative claim, the taxpayer has to convince the CTA that the CIR had no re son to deny its claim. It, thus, becomes imperative for the taxpayer to show the CTA that not only is he entitled u der substantive law to his claim for refund or tax credit, but also that he satisfied all the documentary and evi entiary requirements for an administrative claim. It is, thus, crucial for a taxpayer in a judicial claim for refun or tax credit to show that its administrative claim sho ld have been granted in the first place. Consequently, a axpayer cannot cure its failure to submit a document quested by the BIR at the administrative level by fi ing the said document before the CTA. I In the present ca e, however, Total Gas filed its judicial claim due to the inaction of the BIR. Considering that the administrative c aim was never acted upon; there was no decision for the CTA to review on appeal per se. Consequently, the CTA ay give credence to all evidence presented by Total Gas, ncluding those that may not have been submitted to the C R as the case is being essentially decided in the first inst nee. The Total Gas must prove every minute aspect of i s case by presenting and formally offering its evidence to lthe CTA, which must necessarily include whatever is required for the successful prosecution of an administrative claim. 9 I I As to the completen ss of the documents presented as evidence before the Cou t, let it be stressed that "in the judicial level or when the case is elevated to the Court, the Rules of Court governs. S1mply put, the question of whether the evidence submitted y a party is sufficient to warrant the granting of its prayer I es within the sound discretion and judgment of the Court." i Based on the eviden~e presented, respondent was able to meet all the requir ments that will entitle it to a refund/tax credit albeit, p rtially. I I On a final note, sinclthe finding and ruling of the Court in Division pertaining to r spondent's entitlement to its claim,/ including the substantiati, n aspect and the computation of I

Decision CTA EB No. 1464 the final amount to be ref nded as contained in the assailed Decision dated January 1 , 2016 and the Resolution dated May 11, 2016, are unc ntested, they will no longer be discussed nor reiterated, ursuant to Section 8, Rule 51 of the 1997 Rules of Civil Pro edure which expressly provides: i I SEC. 8. Questions jthat may be decided. -- No error which does not affect he jurisdiction over the subject matter or the validity o the judgment appealed from or the proceedings therein ill be considered unless stated in the assignment of er ors, or closely related to or dependent on an assigne error and properly argued in the brief, save as the court ~ass upon plain errors and clerical errors. 10 ! In the instant case, as petitioner never bothered to make any argument on th merits of the claim aside from its general allegation on he alleged inadequacy of the documents submitted at t e administrative level, the ruling on the matter is deemed final, as pertains to both parties, who never appealed this spect of the ruling of the Court in Division. WHEREFORE, the Pbtition for Review dated June 15, qf 2016 filed by the Com~issioner of Internal Revenue is hereby DENIED, for lack merit. SO ORDERED. . FABON-VICTORINO ciate Justice We Concur: i 10 PNB vs. Spouses Rabat, G.R. No. 1344b6, November 15, 2000. I

Decision CTA EB No. 1464 ~~~ac.~~/ Q.l LOVELL~ BAUTISTA Associate Justice JUAi<iiTO C. CASTANEDA, tf"~. Associate Justice ON LEAVE CAESAR~SANOVA Associate Justice ERLINDA P. UY Associate Justice ~~.Ml.�~.c~. CM.-f. ~ ../ L__, CIELITO N. MINDARO-GRULLA , MA. BELEN M. RINGPIS-LIBAN Associate Justice Associate Justice ~~jr/11~ CATHER! E T. MANAHAN Assoc ate Justice ! �I CERfiFICATION I Pursuant to Article VIIII, Section 13 of the Constitution, it is hereby certified th~t the conclusions in the above Decision were reached in jconsultation before the case was assigned to the writer oft, ~e opinion of the Court. Presiding Justice