CTA Case No. 716 (Decision)

( / -/ / I &IEP'VBLIC OP' T'Fil!: PHlLIPPfNI!ia COURT OF fAX APPEAL!- ~u... THE CITY LUMBER (Dumaguete} c.T.A. INC., represented by its Manager, CRESCENCIO DY, CASE NO. 716 Petitioner, - versus - HON. MELECIO R. DCMINGO, Commdssioner of Internal Revenue, Respondent. x---------- --x DECISION On March 26, 1954, the petitioner filed its income tax return for the year 1953, reporting a Qet taxable in- COJ!le of P3,273,48, ~ the tax 9ue on which was P655.00, which was paid in two installments. Upon investigation__by an ;!.ncome tax ex~mil}~r._ a defici~ncy income tax, plus . 50% - . surcharge, was assess~d again~t petitioner in the sum of P5,028,00, computed as follows: ANdedts inDcoemduect~ieorns- rdetisuarlnlo_w-e-d-:----------- 3,273.48 (al Misc. ~XBenses - ---- P 9,20 (b Office supplies --- 106,70 (c Purch?ses ---:----- 460. 4_0 (d Donat1ons & � contributions ---- 30.00 (e) Repairs _.& m~in- Undectleanraendcesa-le-s-:------- 356,25 (a) (l) Ply- _ wood - 5,300,00 (2) Nails- 2,563.57 (3) G. I. - sheets- 38,50 P7,g;:Q.07 (b) Total cash creait . Qalance represent- ing unrecorded ~ales ----------- 7,896.20 ~6.760,82 Total net 1ncome --------------------- p 0,034,30 Tax -due on P20,034.30 ---------------- 4,CX)7,00 Less: Tax already paid --------------- .. 6g5.00 I <. 3

DECISION � C.T.A. CASE NO. 716 - 2- p 3,352.00 Deficiency tax �----------- 1,676,00 D50e%fiscuiernchcyargtaex a-n-d---s-u-r-------- P Ra028,00 charge --~--~----------- Petitioner requested reinvestigation of the as- sessment, which was granted after petitioner had paid the sum of P2,514.00 and filed a bond for the balance of the deficiency assessment. After reinvestigation,. the Regional Director of Regional District No. 7 (Cebu), re- vised the assessment by sustaining the claim of petition- er in regard to the alleged undeclared sales and allow- ing partly the disallowance of the deductions of certain expenses previously disallowed. The decision of said Regional Director reads: �In connection with your letter pro- testing our original income tax assess- ment for the year 1953 in the amount of P5,028,00, please be info~ed that upon re- investigation conducted by Examiner Jose T. Dy, it was found that some items of ex- penses like miscellaneous expenses, of- fice supplies, repairs and maintenance, and donations and contributions which were dis- allowed in the former investigation are legally deductible. Further, the amount of P7.902.00 which was formerly considered as undeclared sales was found to be an actual loss by the company in the total amount of �10,657,07 due to looting during the fire that occurred in Dumaguete City on December 23, 1953. The cash credits in the amount of P7 ,896. 20 which were also considered un- declared sales in the first investigation was found to be actual loans received from two persons. �In view of the foregoing, inclosed is our _amended assessment notice 36-AC-1~3, calling for the payment of the sum of Pl76,00, with the request that you pay the said sum of Pl76,00 on or before July 11, 1958 to avoid penalty incident to late pay- ment, and in order that this csas, epamgeay1b8e2, closed and terminated.� (Exh. B. I. R. records. ) / I l/

DECISION - C.T.A. CASE NO. 716 - 3- Pursuant to the aforesaid request of the Regional Director of Cebu, petitioner paid the sum of Pl76,00 on June 27, 1958, However, since it had previously paid the sum of P2,514.00 as a condition to the granting of petitioner's request for reconsideration, a written re- quest for refund of said amount was filed, which request for refund was transmitted to respondent for considera- tion. After a review of the records of the case, res- pondent denied the request for refund, and, instead, demanded payment of the deficiency income tax in the sum of P645,00 after taking into account all previous pay- ments made by petitioner, including the sum of P2,514.00, computed as followss ANdedts inDcoismcereppaenr crieetsurannd-/-o-r-d--i-s-------- p 3,273.48 allowancess 1. Miscellaneous 3.70 2, Ofefxicpeenesequip-m--e-n-t---- P 96.03 3. Purchases -------- 460.00 45.. URehpdaeicrlsared--s-a--le-s--- 320.63 of plywood, nails, and G. I. sheets -------- 7,902,07 6, Cash credit bal- ance ---------- 7.896,20 Taxable net income ---------------- Tax due on net income ------------- Lessl Total amount paid ----------- Balance still due ----------------- In effect, respondent sustained the decision of the Regional Director of Cebu in disallowing the deduction of certain expenses claimed by petitioner, but reversed said decision as regards the undeclared sales. In rejecting petitioner's claim that the supposed undeclared sales IO ""

DECISION � C.T.A. CASE NO. 716 - 4 .. were in reality losses sustained when its establishment was looted during the fire in Dumaguete on December 23, 1953, and loans secured from two friends of petitioner's manager, respondent stateds �. � � However, this Office dis~ agrees with the allowance for deduction of ~10,657.07 as underdeclared sales be~ cause of the insuficiency of the evidence to prove the losses by pilferage of ply- wood, nails and galvanized iron sheets as .result of the fire which devastated Dumaguete City on December 23, 1953. �According to the certificate issued by the ~ Acting Chief of Police of that city, Mr. Julian o. Aspilla, dated October 26, 1955, your alleged letter reporting the losses by pilferage of plywood, nails, and galvanized iron sheets on December 23, 1953 cannot be found among the records of the Police Department. The losses alleged by you were not even corroborated by your in- come tax return for 1953; they were not re~ corded in your books of accounts; and they were not recorded in the Police Blotter of that city notwithstanding the alleged re~ port of said losses to the Police Depart- ment. Moreover, considering the bulk and quantity of materials allegedly lost, it is indeed strange and doubtful whether the same could have been removed easily from your establishment during the fire and car~ ried to a safe place only to be pilfered or looted without your knowledge and with- out any investigation immediately conduct- ed thereafter by responsible officials of that city. Consequently, your defense on this point cannot be admitted by this Ofiice. �With respect to your cash credit bal- ances _or your excess disbursements of cash over cash receipts in 1953, this Office be~ lieves that your explanations and evidences are unreliable, insufficient, and uncorro- borated. The affidavits of Messrs. Lito E. Dominado and Teodorico Dominado, evidencing a total loan of Pa,ooo.oo given to you with- out any interest, are self-serving, unusual and unrecorded in your books of accounts. These loans which would wipe out your un- explained credit balances in 1953 cannot be entertained or favorably considered by this Office, in line with the decision of the Court of Tax Appeals in the case of Aurelio P. Reyes v. Collector of Internal Revenue, I

DECISION - C.T.A. CASE NO. 716 -5- C.T.A. Case No. 42, dated July 26, 1956, which was concurred in by the Supreme Court in the ease entitled Collector of Intemal Revenue v. Aurelio P. Reyes , G. F. No. L-11534 and L-11558, dated November 25, 1958 � � � � (Exh. Xi Exh. 13; PP� 252-256, B.I.R. , records.) The deficiency income tax in the sum af P645.00 demanded by respondent was paid by petitioner under protest on June 8, 1959. At the same time, petitioner sought a reconsideration of respondent's decision. The request for reconsideration having -been denied, petitioner has appealed. In this appeal, no question has been raised as to the legality of the disallowance of the expenses. The only issue� raised by petitioner relates to the correctness of respondent's dete~ination concerning the alleged undeclared sales. We are fully in agreement with the findings and conclusion of respondent as regards the unreliability of petitioner's evidence in support of its alleged losses sustained as a result of the fire that occurred in Dumaguete City on December 23, 1953, and the supposed loans. If merchandise worth 1:10,657.07 were actually looted from its establishment on December 23, 1953 and 1 ans in the aggregate amount of a,ooo.oo were really obtained by it, they should have been recorded in pe- titioner's books and recorde. No entry appears in its books and records concerning said amounts, and no at- tempt has been made either during the investigations conducted by the Bureau of Internal Revenue or in this I

DECISICN � C.T.Ae CASE NO. 716 appeal to explain why no record was made of said transactions. Specially significant is the fact that the alleged looting took ,place en December 23, 1953, and, although its income tax return for said year was filed only a few months thereafter, the al- leged loss sustained as a result of the looting was not claimed as a deduction in said return. Such loss, involving a substantial amount, could not have been easily forgotten. If petitioner's claims for losses sustained and loans obtained appear unbelievalae, it alone is to blame. It should have taken the neces- sary precautions to insure that all its transactions are faithfully and accurately recorded in its books and records as required by law. (See Sees. 334, et seq., National Internal Revenue Code.) Petitioner questions the authority of res- pondent to review the decision of the Regional Di.. rector of Cebu. It is alleged that by virtue of Memorandum Order No. V-634, dated July 3, 1956, a regional director of the Bureau of Internal Revenue is empowered to �exercise jurisdiction to close tax � cases involving deficiency assessments not exceed- ing PlO,ooo.oo in taxes and penalties.� We find nothing in said memorandum order or in any law which precludes the Commissioner of Internal Revenue from reviewing, or otherwise revising, decisions of

� DECI ION - C. T. A. CASE NO. 716 - 7- regional directors. FOR THE FOREGOING CONSIDERATION , the decision appealed from is affirmed , with costs against petition- . er. SO ORDERED. Manila , January 31 , 1961. I CX)NCUR: ~~ MARIMO NABLE Presiding Judge Associate Judge AUGU TO M. LUCIANO did not take part.