CTA Case No. 4259 (Decision)

- - Republic o~ the Philippines COURT OF TAX APPEALS QUEZON CITY KAPATIRAN REALTY CORPORATION, C.T.A. CASE NO. 4259 COMMISSIONER OF INTERNAL l v )/.2-4 REVENUE, )( - - - - - - - - - - )( D E C XS X0 N a11ounting to P38,343.39, inclusive 0~ interest <EKhibit "A"' p. 31, C. T. A. records>, be cancelled and that the warrant o~ d i s t r a i n t <Ann eM "C", p. 6, C. T. A. records) issued to en~orce collection thareo~ be likewise enjoined f'or allegedly having no ~actual or legal basis and that the sa�� have prescribed. The ~acts as borne by the records - disclosed the ~ollowing1

DECISION CTA CASE NO. 4259 - 2- 1. On 25 November 1983, petitionet" received from respondent a letter- assessment, dated 15 Novembet" 1983, assessing petitioner a deficiency income tax and interest of P38,343.39 for taxable year 1978; The de~iciency assessment was due to the disallowance, as a deduction ~ro� the gross income, o~ P65, 691.00 loss on the sale o~ real property. <See Exhibit A 11 11 p. 31, C.T.A. records.) , 2. On 19 December 1'383, petition et" filed a letter-protest on the above- .) assessment with the Assessment Branc h, BIR Revenue Region No. 4 - A, Manila. It was claimed that the losses were incurred .in the ordinary course o~ the taxpayer's business and that the same were actually su!ltained and charged off by said taxpayer in 1978 and were not co�pen!lated for by insurance or otherwi!le. <See Exhibit 8 11 11 p. 32, C.T.A. records.) , 3. On 23 March 1988, responde nt set"ved petitioner a warrant of dist raint of personal property relative to the 1978 assessment of P38,343.39 <Annex c. C 11 11 , p. 33, T. A. t~ecords) 4. On 20 April 1988, petitionet" filed with this Court the instant petition for review (p. 1-3, C.T.A. records.) Sub�itted for the resolution of this Court are the ~allowing issues, to wit:

DECISION CTA CASE NO. 4259 - 3- 1. Whethet~ or not the disallowance, as deduction of the P65,691.00 loss on the sale of real property, is proper. 2. Whether the assessment as well as the warrant of distraint have prescribed. Deductions are a �atter of= legislative grace and the � taKpayer in every instance has the burden off justif=ying the allowance f=or any deduction clai�ed. Only those deduct ions which are eKpressly provided by law are to be allowed. Generally, however, bef=ore an eKpense is allowed as deduct ion f=ro� gross inco�e, it �ust sat i sf=y three <a> The expense must be both ordinary and necessaryJ (b) � The expense must be paid or incurred within the taxable year; and (c) The expenses must be incln"t"ed in carrying on a trade or business. ) <Aranas, Updated National Intet"nal Revenue Code (7th ed. 1989>, p. 75> Losses are a�ong other eKpenses allowed as deduct ion f=ro� gross inca��� The t�r� 11 losses," as used in inco�e taM law, is not sp�ci f=ie. However, it is li�ited to losses not covered under other headings such as bad debts. Only losses whieh are not 4 O(. v

DECISION CTA CASE NO. 4259 - 4- general or nor mal to the or d i n a ry co urse of business are within the Meaning o~ that term in the incoMe tax law (1955 CCH Fed. Tax Course, par. 598). In the case a corporation, all losses actually sustained and charged o~f within the taxable year, and not compensated for by insurance or otherwise, shall be allowed as deductions in co�putin�g taxable (Section 30 (d) (2) now Section 29 (d) (2)' NI RC>. In general, losses deductible are losses in the taxpayer's trade or business; losses in pro~it-seeking transactions; and casualty losses. The loss on the sale o~ real property aMounting to P65,691.00 claimed by petitioner as a deduction ~roM its 1978 gross incoMe was disallowed by the revenue examiner because it was not duly supported by evidence <MeMorandum, p. 109, BIR records). On the other hand, petitioner averred that it constituted a valid deduction <"Protest 11 , P� 32, C. T. A. records>. No� evidence, however, was presented by petitioner in support o~ said

DECISION CTA CASE NO. 4259 - 5- loss even when it could easily have produced the sa11e if it wanted to. The records of the case do not also show proof of the loss incurred. Since all are in favor of the correctness of tax it is incumbent on the taxpayer to show clearly that the � assess�ent is erroneous, in order to be relieved of it <Collector v. Bohol Land Transportation Co., 107 Phi 1. 965). Failing to do so, the assess�ent necessarily stands. As to the timeliness of the assess�ent, as well as of the warrant of distraint, quoted below are the pertinent provisions of the 1977 Tax Code: "Section 318. <now Section 203>. Period of limitation upon assessment and collection. - Except as pt~ ovided in the s �..tcc e e d i n g s e c t i on , _ in~_{t:t:D~.l _t'...e..Y~..D..!J_~ ~-CA-~~-1!.b.~J_.LJ?.~--~-li s_~_$_~-!..~---~.i.!b.ln.__f_ly_~-Y--~-~ t~ s J.nQ_~____j:;..!Jr~~---Y.-.!!!'_ars > ~_f_t er --~..!JJL~~ '-~!~n__~.E..l! fj_led, and no proceeding in com""t witho Ltt assessment for the collection of such taxes shall be begun after the expiration of such period. For the pLlt"" poses of this section, a ret�..trn filed befot""e the last day prescribed by law for the filing thereof shall be considered as filed on such last day: Pt"" ovided, That this limitation shall not apply to cases already investigated prior to the approval of this Code. <Underscoring s �..t p p 1 i e d � >

DECISION CTA CASE NO. 4259 - 6- Section 319 <now Section 223. > Exceptions as to period of limitation of assessment and collection of taxes. X X X X <c > h'J::te ~-~.--!..tL!1!__~_?...~. ~~..?..I!L~J:'l_t___Q_f___..~n.~ i..n.t..tJ'.:'.JJ_..1 _ X: ! .Y..! .JL':.\..'lL..t.J~J.L..b. .~..~...--Q~..~.n.. ..!I!..~..Q.!LW.J..:!;_bj._lJ. t..bJL..P.! l'" .LQ.Q__Q.f__llm. tt~~-t.!U1._~Q.9..Y...~::~-~-?.J;..~Jj:)_IJtd., .~Lt.,t!;.b_ t i\.?.LJ!L<!il.'__b..!L...~Q_U..!tt;i,_g___b.Y......Jt!...~.~ l'" a i .n:!:... ol'" __ l~.Y._y c;:> r ___b..Y_. J!..___P-~.P-~~!..~Hn_g___tt.L....J;.Q_W"t, 9.1\.t.. P...nJ..Y......:.if__I;?..~.Q.!J.D.......J.JJ_~dj;_h i..D.._.f_!~~---Y..!...~.l'.:?___t!LO W ~J::n" e.ct yea r-~.l..J_f t ~r........t.tut_~_!L~_E.U~.J!. !!!.en t . .P..f.._ t.b.J! ~-~K, or <2> prior to the exph--ation of any period for co 11 ect ion agl'"eed upon in writing by the Commissioner and the taxpayer before the expiration of such five-year period. The pn'iod so agl'"eed tJpon may be extended by subsequent agreements in writing made before the expiration of the period pl'"eviously agreed tJpon. " <Underscoring supplied. ) Fro� petitioner's filing of its 1978 Annual Inco�e TaK Ret urn on Apri 1 16, 1979 to the date respondent �ade the assess�ent on Nove�ber 15, 1983, a period of four (4) years and seven (7) �onths has lapsed. This is still within the five (5) year p�riod allowed under Section 318, NIRC, within which the assess�ent shall be �ade. The period counted fro� the date respondent �ade the assess�ent on NoveMber 15, 1983 to the date the warrant of distraint on personal property was served on March 23, 1988 to petitioner was only four <4> years,

DECISION CTA CASE NO. 4259 - 7- four <4> �onths and eight <S> days. Again, the five (5) years liMitation provided under Section 319, NIRC, within which the assessed tax �ay be collected by distraint In view of the foregoing, we find no basis ~or petitioner's allegation that the as well as the warrant of distraint have prescribed. The f"acts undisputedly show that the sa�e were issued well within the period prescribed by law. WHEREFORE, the petition for revi�w is disMissed for lack of ��rit. Petitioner is hereby ordered to pay respondent CoMMissioner of Internal Revenue its 1978 def"iciency inco�e tax assess�ent of P3S, 343.39, inclusive of interest. SO ORDERED. Quezon City, Metro Manila, May 26, 1993. ~J p(._L~ RAMON 0. DE V. A Associate ..Ju e

DECISION CTA CASE NO. 4259 - 8- WE CONCUR: Q~Ul_. ~ ERNESTO D. ACOSTA Presiding Judge GRUBA Judge CE RT I F I CAT I 0 N I hereby certify that this decision was reached after due consultation among the members of the Cour-t of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. ~v-L: Q-~ ERNESTO D. ACOSTA Presiding Judge Court o~ Tax Appeals 4Su