CTA Case No. 2649 (Decision)

I REPUBUC. OF THE PIIILTPPIMU COURT OF TAX APPEALS QU&ZON CITY .. GUANZON LIME DEVELOPMENT co., INC . I Petitioner, - versus - C . T . Ao CASE NO . 2649 COMMISSIONER OF INTERNAL REVENUE -r Respondent. X- - - - ------X DE C I S I 0 N This is an appeal from the decision of res- pondent assessing against and collecting from petitioner the sums of ~4,068.54 , ~4,186 .6 4 and ~1 , 930 .0 6 as deficiency income tax, plus in- t erest, for the years 1962, 1963 and 1965. It appears that petitioner is a domestic corporation engaged in the business of processing and/or manufacturing lime into limestone products , such as quicklime, hydrated lime and slacklimeQ (pp. 33-49 & 104-107, BIR rec.) It filed income tax returns for the years 1962, 1963 and 1965, within the period required by law1 specifically on April 1St 1963, April 15, 1964 and April 15, 1966, r espectively., "B" & "cu, pp" 41 , 26 & 141 respectively, BIR rec .. ) On August 30 , 1967, respondent, thru one of

DECISION - CTA CASE NO o 2649 - 2- of his Revenue Examiners ~ by virtue of Letter of � Au thority No ~ 317464 RR , c onducted an investigation on the afo r esaid income tax r eturns . (p Q 2 7~ BIR rJ"c o) Consequently, it was deter mined that peti- tioner was liable to pay the foll owing deficienc y \ \ income taxes: Assessment Noo Amou n t 25-ACR-401097-67-62 P4 ,068 o54 25-ACR-401214-67-G3 4,186o64 25- ACR-28003 3-67-6 5 1,930.06 (pp .. 17/ 18, 31 , 32, 45 , 46 , 49 , 50 & 52 1 BIR r e c.) based on the disallowance of the following deductions claimed by petitioner, t o wit : 1962 a o rep resent a tion expenses c p 6, 000 . 00 (unsupported) 0 � � 101130.49 bo travelling expenses Co purchases (unsupported) �oo 1 , 28lo 79 1963 a . representation expenses � � 0 6 , 000 . 00 . . . b . travelling & miscellaneous 10,130 .. 49 expenses 1965 a . representation expenses 7, 868 . 22 On March 29 , 1968, respondent issued against petitioner the corresponding assessment notices mentioned above which were received by petitioner about the first week of April, 1968. (ppo 24 & 25 .1 CTA rec.; P o 59 , BIR reco) In a letter dated Dec ember 5, 1968, received

. �~ DECISION - CTA CASE NO. 2649 - 3- by respondent on January 8 , 1969 1 petitioner, thru counsel, disputed the said asses sments stating in justification for allowance of its claimed deductions, that the exp lanations contained in p etitioner � s letters to its c o unsel dated July 22 , & 23 , 1968, regarding the disallm,ance of the monthly represen- tation expenses in the amount of P500 . 00 and the travelling expenses appear to be sufficient, and therefore, the same were forwarded to respondent for his considera tion. (pp . 54-59, BIR rec.) Acco rdingly~ respondent thru the Regional Director of Quezon City, issued Letter of Authority No .. 491797 RR to reinvestigate dated March 4 1 1971, addressed to the petitioner which was duly received on March 5, 1971, by petitioner ' s accounta nt , Mr . Abelardo G. Espiri tu . (p .. 87 , BIR rec .. ) On May 10, 1971, petitioner submitted and filed a waiver of the St a tute of Limitation .. (pp . 171-172, BIR r e c~) Subsequently, r espondent 1 s examiner submitted the report of reinvestigation on November 3, 1971, confirming the findings of the original investigation which was the b a sis of the assessments in questiono It was discovered that petitioner herein had still been av ailing of the 10% exemption under Republic Ac t No .. 901 , which had by that time , already been amended by Republi c Act~ No . 2351 , (effective June

DECISION - CTA CASE NO. 2649 J - 4- 20, 1959). Pursuant to Republic Act 233 1 as imple- mented by General Circular No. V-297� dated July 27~ 1959, petitioner shall be subject to the full income taxp Consequently, the examiner recommended the issuance of revised assessment notices or let- ters of demand for the sum of P6~77lo44 for the year 1962; P5~903ol6 for the year 1963; and 1?01 723.21 for the year 1965 or a total of Pl5t397.81 (pp. 104-107, BIR rec.) In a memorandum dated August 241 1972, the Assistant Regional Director of Quezon City reite- rated the immediate collection of the said amount of Pl5 1 397~81 1 with the information that there was no need to issue new assessment notices as the old assessments were already listed in the IBM delin- quent accounts, and that the issuance of new assess- ments would only result in double assessment. (Po 128, BIR rec.) In a letter dated July 16, 1973~ received on July 18, 1973, petition~r# thru counsel, wrote the respondent Commissioner of Internal Revenue, re- garding the former 1 s claim for refund and made men- tion also of the deficiency income tax involved in- voking the defense of prescription on the right of the government to collect the same pursuant to Section 332(c) of the Revenue Code1 in view of the

DECISION - CTA CASE NO . 2649 ,. - 5- latter' s alleged failure to collec t the said assess- ment s within the period of five yea r s f r om date of assessmento (p . 143 , BIR r e c.) On August 15 , 19 7 3 , respondent , thru the Re - g i onal Di re c tor of Re v enue Region No . 6 , Quezon City , i ssued a Warrant of Levy on Real Property agains t the pet itioner, whic h was served on August 30, 197 31 bu t the same was r eturned by petitioner the next day 1 fo r the r eason that they had already filed with the Ta x Accounts Division in t he Nat iona l Of f i c e 1 a letter asking for the cancellation of the assessments c ov e r ed by the Har rant due to prescription.. (pp . 1 44-1 45 , BIR r e co) On Oc t ober 22 , 19 7 3 1 in compl i anc e with t he r equ es t of the Head of the Legal Department in her letter of September 24 , 1973, the Regional Dire c tor of Qu ezon City forwarded the entire docke t o f the c ase to the Ch i e f of the Appellate Divis i on f o r appropriate act ion in pet itioner' s protest on the ground of pr esc ription . On December 3 , 19 7 4 , respondent rendered his f i nal decision stating that the defense of prescrip- tion is without me r i t and denied petitioner r s r e - quest for the cancellation and withdrawal of the said assessments (pp,. 1 7 4- 1 7 5 .r BIR rec.), whic h dec ision was allegedly received by petitioner on December 23 , 19 74 1 hence this appeal .

DECISION CTA CASE NOo 2649 - 6- ISSUES: 1 . Whether or not the right of the respondent to collect the deficiency assessments has already prescribed, and 2. vihether or not the items of deductions disallowed by respondent in petitioner ' s income tax returns for the years 1962 1 1963 and 1965, respec- tively, are allowable under Section 30 (a) (1) of the Tax Code. The law involved are Sections . 331 and 332 of the National Internal Revenue Code which are quoted hereunder fb~ ready reference, to wit: usee. 33lo Period of limitation upon assessment and collection. -Except as pro- vided in the succeeding section, internal revenue taxes shall be assessed within five years after the return was filed, and no' proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period . For the purposes of this section a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day: Provided, That this limi tation shall not apply to cases already investigated prior to the approval of this Code. 1 ' "Sec. 332. Exceptions as to period of limitation ef assessment and collection of taxes. -(c) Where the assessment of any in- ternal revenue tax has been made within the period of limitation above-prescribed suc h t~ may be collect~d by distraint or levy or by a proceeding in court, but only if begun (1) within five years after the assess- ment of the tax, or (2) prior to the expi- ration of any period for collection agreed upon in writing by the -Commissioner of Inter- nal Revenue and the taxpayer before the �

DECISION - CTA CASE NCo 2649 - 7- expi ration of such five- year periodo The peri od so agr eed upon may be extended by subsequent agr eements in writing made be- fore the expiration of the period previous- ly ag r eed upon., 11 Petitioner maintains that the right of the r espondent to c ollec t the tax in this case has al- r eady prescribed while respondent maintains the o pposite view .. We find the view of petitioner well takeno A per usal of the records of this case will show that although the right of the governmen~ t o assess ' made on Ma rc h 29 , 1968 1 for the years 1962, 1963 and 1965 was made wi thin five ( 5 ) years from the date the returns were filed on April 151 19631 Apr i l 1 5 ~ 1964 and Apr il 151 1966 1 respectively, the r ight of the government t o collec t the same has al r eady p r es cr ibed ~ Under Section 331 of the Tax Code, the govern- ment has the right to assess income tax against petitioner; or institute an action in Court with- out assessment within five (5) years after April 151 1963,. April 15"' 1964 and April 151 1966 o r up to April 151 1968 1 April 15 1 1969 and April 15r 19711 respectivelyG / And under Section 332 (c ) of the Tax Code which provides an exception as to the period of assessment and c ollection , it is provided tha t where the assess-

DECISION - CTA CASE NOo 2649 - 8- ment of any internal revenue tax has been made within the period of limitation (five years) such tax ma y be collected by distr a int or levy or a proceeding in Court but only if begun (1) within five years after the assessment of the tax, or (2) prior to the expiration of the period agreed upon in writing by the Commissioner of Internal Revenue; and the taxpayer before the exp iration of the five year period~ and the period agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agr eed upono In the case at bar, the assessments were i ssued by respondent on March 29, 1968, so that the right of the government to collect com- mences from that date to March 29, 1973. When the warrant of levy on real property was issued on August 151 1973, five (5) years four (4) months and sixteen (16) days 5ave already elapsed, whrch is actually beyond the five (5) year period with- in which the Commissioner of Internal Revenue may collect the tax. While it is noted that on May 10~ 1971 1 peti- tioner filed a signed waiver of the statute of li- mitation within a period of six months , it does not however appear on record that respondent ac- cepted or agreed to� this waiver, which acceptance

DECISION - CTA CASE NO . 2649 -9 or agr eement is r equired under Section 332(c) of the Na t ional Internal Revenue Code i n order to eff~ ct the suspension of the running of the period to collect the tax assessed. The filed waiver did not, therefore, suspend the running of the period of limitation to collect the tax- assessed against petitioner for the years 1962 , 1963 and 1965 . / ~ We cannot adhere to the position of r espondent that the right of the government to collect the t ax has not yet prescribed on account of the vigorous protests and requests for reinvestigation lodged by petitioner against the deficiency assessment . The records will show that petitioner merely disputed or questioned the legality of the assessment which pertains to the disallowanc es of its claim for de- ductions by giving r easons why the deductions should be allowed and why it should not pay sai d deficiency t ax . (Limjoco , Jr. v s . Domingo , CTA Case No. 1191 1 May 29 , 1964; IC. ell. of Into Rev ., vs. Pineda , G. R. No . L-1 4522 , May 31 , 1961; Cell. of Int . Revo v sQ Solano 1 G.R . No . L-11 4 7 5 , July 31 , 1958 ~) ~ And1 although petitioner filed a signed waiver of the statute of limitation for a period of six months , which as aforesaid has not been agreed upon by respondent, petitioner herein has not been found to have , by his positive acts ( induced respondent t o suspend the collection of the tax assessed against

DECISION - CTA CASE NOo 2649 - 10 - it after the expiration of the six months period1 or from November 11, 197lo Respondent should have been vigilant an the collection of the assess- ment after the expiration of the waiver but did no such thing. It was only on August 151 1973 that respondent thought of serving petitioner the warrant of distraint and levy1 which was as afore- said beyond the five (5) year period within which to collect .. With respect to the second issue 1 we deem it unnecessary to decide the same~ it having become moot and academic . ~lliEREFORE, the decision appealed from is hereby reversed and respondent Commissioner of Internal Revenue is hereby enjoined from collecting the deficiency income taxes for the years 1962, 1963 and 1965 assessed against petitioner . Without pro- nouncement as to costs. SO ORDEREDo Quezon City, November 28, CO~;oAQUIN ;(ssociate Judge / I CONCUR: (