CTA Case No. 3511 (Decision)

~J!POBLIC OF ;HE tJB!LlPPtN~~ ~OURT OF TAX APPE.ALS Q.U.EZON C$ cr LITA ENTERPRISES, INC., Petitioner, - versus - C.T.A. CASE NO. 3511 COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - -----X DE C I S I 0 N This is an appeal from a decision of the Corn- missioner of Internal Re venue, thru his Regional Director Reynaldo A. Suarez, Region No. 4-B of bhe Bureau of Internal Revenue, dated November 19, 1Q80, assessing against and demanding from petitioner Lita Enterprises, I n c., the sum of ~23,463.41 as fixed and common carriers tax for 1974 (Exh. 3, p. 12, BIR rec . ) .cornpu ted a s follows: Gross taxable sales/receipts per return/per audit �l523,526.83 10,470.54 -L=e s-s-:-%TTaxax due thereon Non e already paid 10,470.54 2,617.63 Def i ciency tax� due ~50. 50 9,439.18 25% s urcharge due thereon 12.50 820.00 Interest from 1-21-75 to 3-15-80 53.56 Compromise penalty Total amoun t due & collecti b l e 170

DECISION - CTA CASE NO. 3511 -� 2 - On November 19, 1980, Revenue Service Chief Eufracio D. Santos of the National Assessment Office, Bureau of Internal Revenue, wrote a letter to petitione r confirming the letter of assessment of aforesaid Regional Director Suarez, and demanding the -payment of the said amount of P23,463.4l as fixed and percentage tax (co~mon carriers tax) and interest thereon within fifteen days from receipt thereof. (Exh. 4, p. 14, BIR rec.) On December 9, 1980, Manuel A. Concordia, Presi- dent of petiti~ner, wrote a letter to Revenue Service Chief Eufracio D. Santos a cknowledging receipt on November 24, 1980 (Exh. 5, p. 12, BIR rec.} of the latter's le tter dated November 19, 1980 and stating that he is "not aware of any non-payment of such taxes (fixed and percentage taxes} for the year {1974) and that in view of the fact that this is the first time that we (he) received the demand for such payment to (or no demand pre~ious thereto having been received by petitioner)~ we (he) submit(s) that any action to collect the alleged tax due for 1974 had already pres- cribed." �

DECISION - CTA CASE NO. 3511 - J- On July 5, 19~2, Deputy Commissioner of Internal Revenue Tomas c. Toledo wrote a letter to petitio ner (Exh. ~' p. 16, BIR rec.), in reply to President Manuel Concordia's letter dated December 9, 1980 aforesaid, stating therein that he "k x x could not find any basis, legal or factual, to modify or revise the assessment and, there fore, your (petitioner's) aforesaid protest should be as it is, hereby denied and that this is our final deci sion on the matter ." On August 16, 1982, petitioner, through its said President, Manu_el A. Concordia, wrote a letter to respondent Commissioner of Internal Revenue, recti- fying its letter of December 9, 1980 which acknowledged receipt on November 24, 1980 of Revenue Service Chief Santos� letter and saying that it had received the same instead on December 4, 1980 and that prior thereto it did not receive any assessment or demand for payment �of the alleged taxes due; and acknowledging the receipt on August 2, 1982 9 f .the decision of Deputy Commissioner of Internal Revenue Tomas C. Toledo dated July 5, 1982; that no mention was ever made regarding as to what records were the bases for the assessment; and that respondent had not yet passed upon the question of prescription of the assessment or collection of the J

........ 1 DECISION - CTA CASE NO. 3511 - 4- taxes. (Annex D, pp. 8-9, CTA rec.) Without waiting tor the reply of its letter to the Commissioner of Internal Revenue dated August 16, 1982 above, petitioner appealed from respondent's decision dated July 5, 1982, received by petitioner on August 2, 1982, by filing a petition for review with this Court on September 1, 1982 , well within the 30-day period of appeal. The only issuffipresented for determina tion by Us are the following: 1. Whether or not petitioner filed in 1974 quarterly returns of its gross receipts as common carrier and paid the common carriers tax thereon as well as the annual fixed tax "of fifty pesos (~50.00) .required by l aw; 2. Whether or not the right of respon- dent to assess and collect the fixed and percentage tax for 1974 has already prescribed; 3. Whether or not prior to the filing of the instant petition for review, peti- tioner was deprived or denied due process of law in the assessment of the fixed and percentage tax claimed to be due from . petitioner �. Considering that these issues are interrelated with one another, we will consider them at the same time. Petitioner in this case is confronted with the difficult task of proving that it, through its a gents .1..... 7 J--

DECISION CTA CASE NO. 3511 - 5- or employees, had actually filed its privilege and percentage tax retu r~ s for the year 1974 because of the circumstance c.f' the apparent destruction of its records. There was uncontradicted testimony of petitioner's President, Manuel Concordia, that he allegedly knew of the fact ~ of filing of the fixed and percentage tax returns and payment of the taxes due thereon in 1974 by his employees. However, he reasoned out that h~ does not have � the fixed and percentage tax returns anymore because the law (purportedly petitioner's President referring to Section 3J4(Af later as Section 337 of the National Internal Revenue Code, as amended by PD 69, etc.) .requi,es these records and documents be kept only within a five year period (p. l 7, tsn, Oct. 18, 1983) �.. When there is testimony that the returns were in fact filed, it was bounden upon him who so testify to show by other records in his possession or that of his'agents that there was in reality the fact of the filing of the returns referred to and also the fact of payment of the fixed and percentage taxes thereon. Taxpayer is thereafter subject to the general 11-14 ...t...f

DECISION - CTA CASE r10. 3~11 - 6- r ule that "when a party fails to produce documentary e v idence pursuant to a notice to produce and no satis- factory explanation for such failure is given, an interence may properly be recognized against the party failing to produce it." (Capento Securities Corp . , 47 BTA 691; Pelhan G. \"lodehouse, 8T c 637, 641, E_itin9 Jones on Evidence , Pars. 1~.2u & case cited therein.) It was theretore incumbent at this instance upon President Manuel Concordia, to show, by way of cerro- borative evidence, and present a duplicate original copy of the fix and percentage tax ret ~.1rns which were allegedly actually filed and the receipts which will definitely evidenced the fact of payment of the fix and percen tage taxes due thereon for the year 1974. Petitioner cannot seek refuge under Section 33 of the National Internal Revenue Code and simply assert that i t did not keep or preserved its books ot accounts and subsidiary records which probably includes the tax returns referred to and the receipts of payment of the taxes due beyond five year period. The fact 1s tha~under said law , the keeping or preservation of the cooks ot accounts and subsid1ary records within five years, exc ept in case of fraud , mistake or irre- gularity, is conveniently provided for the purpose of

-; DECISION - CTA CASE NO . j51L - 7- reasonable i n spection and examination within the said period of five years, or once every year within the span of five years, counted from the last entry of the business transaction in its books of account. How- ever, the said law does not appar e ntl~ to the extent where taxpayer will be rendered non- culpable, excuse it from its responsibility of presenting real or docu- mentary evidence to sustain the de fenses against the assessment issued against it. Petitioner, thru its President Manuel Concord i a, had testified In open court that since its employees were the ones who filed the tix and percentage tax returns in question for 1974 and had paid the taxes therein, it was then necessary for him to present his employees to testify on tne fact of'filing the returns and paid the taxes thereon. But not one ot these employees were ever presented in court to testify in collaboration to the testimony of Pres- ident Concordia. No fix and percentage tax returns, which were allegedly tiled for 1~74, were ever presented in eviaence. With the solitary testimony of President Concordia, without accompanying corroborative creditable testi- monial or documentary evidence, we are not convinced

DECISION - CTA CASE NO. 351~ - 8- that fix~and percentage tax returns were filed for petitioner ~r ~974 and that the taxes due thereon paid for said year. The assessmen t of respondent against petitioner having been based upon a financial statement attached to the income tax return of petitioner filed for 1~74, we take it that the intormation concerning taxable gross receipts as common carrier for percent,age tax purposes entered therein is correct, and is the gross receipts of petitioner as common carrier and can there- fore be taken as evidence against it. The said assess- ment having been issued and based upon actual fa cts , its presumption of correctness is very strong, and can stand the test of our judicial scrutiny. (Benipayo vs: Cell., G.R. L-136~6, Jan . 31, l9b2.J The negative testimony of Examiner Julita Batoon t hat no percentage tax returns for 1974 were filed and no fixed and per- centage tax were paid stands. Th1s negative testimony needs no further proof. It was brought about by her effor th in good faith of finding out from petitioner these facts when she invited pet1tioner ' s President Concordia to go to her office for investigation but to no avail. These apparent failure by President Concordia 17i

DECISION - CTA CASE NO. 3511 - 9- to heed her invitation had caused her to report a finding for fixed and percentage tax liability for 19'74 to respondent, based on the financial statement of petitioner itself attached to its 1974 income tax return, who affirmed her finding; hence, respondent's assessment in the amount ot ~L3,463.41 as fixea and percentage taxes for 19t4. The good faith of tax assessors and the validity of their actions are pre- sumed, and the burden to show their invalidity belongs to taxpayer. (Interprovincial Autobus Co., Inc. vs. Coll., G. R . L-6 -/41, Jan. 31, 1956, 52 OG No. 2, p. 791.) The assessment by respondent against petitioner was not controverted by substantive, con- vincing and trustworthy evidence. When President Concordia requested for a recon- sideration of the assessment, and a period of time was given to him during the investigation by Examiner Julita Batoon, to present his case before she made her report, and that considering the presumption that public'officers have acted lawfully in the performance of their duties ( R.H. Stearns Co. vs. US, ~91 US 3q; 78 .L. Ed. 647), there is, we think, sufficient conferment upon petitioner of the due process of law. It never 178

DECISION - CTA CASE NO . 3511 - .lO - occurred,to our mind, at any stage of the administrative proc~edings in respondent's office, that petitioner received a treatment less than substantial due process for the only evidence that should have been presented, if there were actually any, to overcome the presumption of correctness of assessment , which evidence definitely must be substantial, trustworthy and conclusive evidence , are the facts that fi~ed and percentage tax returns were filed and that payment of said taxes due thereon were made. It cannot, therefore, be seriously charged that respondent did not afford pet j. tioner substantial due p rocess of law. There being no percentage tax retur n s filed for 1974 . and, . similarly , no payment of the fixed and per- cetitage taxes hav ing been made for that year, respondent has within 10 years from the discovery of the non-filing of the return and/or non-payment of the taxes or from the date of Examiner Batoon's report (Exh. 1 & 1-BJ on December 12, 1Y79 (p. H, BIR records) to the date the assessment (p. 12, BIR records) was issued, thru / Director Reynaldo Suarez on February 4, 1Y80, which 1s only less than one (lJ year. The assessment is issued well within the period of 10 years under Section 332(a) of the National Inte rnal Revenue Code. The right of

DECISION - CTA CASE NO. J51L ~ lL - respondent commissioner of Internal Revenue to assess and demand the payment of the fix and percentage taxes for 1974 against petitioner has not therefore pres- cribed. Finally, there being no conclusive, reliable ana convincing e vidence presented, which are corroborative to, or other than, the uncorroborated testimony given by petitioner's President Conco r dia, the said testimony becomes unsunstant1al, not convincing, and, hence, the tes t irnon1al eviaence presented shouLd be, as it 1s hereby, disregarded. tBurka vs. comm. ot Internal Rev., l/9 F ~d 4H3.J We are of the opinion and so hold that the assessment issued against pet1tioner, being unrebutted, 1s presump tively correct ana valid (F~d. Tax Practice, par. 8-b, p. 201~ Coll. vs. Bonol Lana Transp. Co., G.R. L-L30~9, April 2~, 1~60) with the exception of the imposition of P~20.00 compromise penalty wnicn is 1llegal because a compromise penalty is not imposable in the absence of an agreement freely entered into between herein petitioner and respondent. (Call. vs. UST, G.R. L-11274 & L-11280, Nov. 28, L958~ M~R. Ar1ck vs. Comm., CTA 1679, May 30, 1969.) WHEREFOHE, the aec1sion ot the Commissioner of Internal Revenue appealed from is hereby modified. 180

t. DECISION - CTA CASE NO. J51~ - 1~ - Petitioner is hereoy ordered to pay respondent com- missioner of Internal Revenue the sum of ~22,64J .4l as fix and percentage taxes for ~974. W1th costs against petitioner. SO ORDERED. Quezon City, Metro Manila, April l98 I. WE CONCUR: AMANT ' FILLEH Presid1ng Juage ,z~ A sociate Judge 18