CTA Case No. 3713 (Decision)

irtPUBLIC 0 F THE PHU.�IPI'INE.:t COURT OF TAX APPEALS QUEZON CITY /~WILFREDO L . CARESOSA, C~T.A . CASE NO. 3713 Petitioner, - versus - BUREAU OF INTERNAL REVENUE AND CESAR M. VALDEZ , IN HIS CAPACITY AS BIR REGIONAL DIRECTOR, REVENUE REGIONAL OFFICE NO . 7, CEBU CITY, Responden t . X- - - - - - - - - - - - X DEC I S I 0 N This appeal involves the income tax of petition er Wilfreda L. Caresosa for the year 1980. The basic question is whether petitioner is entitl ed to deduct from gross income his (1) claime d expenses of gasoline and r epa ir of his personal jeep; and ( 2) loss of j eep tires, ti re ri ms and one pair of shoes, wh i ch were disallowe d by respondent Commissioner� of Internal Revenue resulting, as a consequence thereof, in the issuance of an assessment dated March 31 , 1982 in the amount of Pl , 090 . 86 as def i ciency income tax for 1980, inclusive o f interest. Petitioner now seeks a reversal of respondent's dec i sion dated October 25 , 1983 denying petitioner ' s request fo r reconsideration of the assessment. The f acts are no t disputed . After the issues were joined with the fi ling of responde nt's answer to pet i- tioner ' s petit i on for review , the parties, withou t 11

DECISION - CTA CASE NO. 3713 - 2- presenting evidence to prove or support the i r respective all egations , submitted the case for dec i s i on on the basis o f their pleadings and the records of the Bureau of Internal Revenue of the case after fi ling their memorandums . As borne out by the pleadings and summa- dzed by respondent : Petitioner is the municipal mayor of Loon , Bohol. For taxable year 1980 , he fi l ed an i temized income tax return declaring f ive (5) deductible expenses (p. 3 , BIR rec. ) '� � Wh en the return was audited by r espondent ' s '' examiner , two o f petitioner ' s claimed expenses , namely : 1 . Loss of jeep t i res , tire rims and one pair of shoes �� Pl , 230.00 2 . Gasoline and repair of jeep - personal � � � � � 4,055.64 T 0 T A L ��� �� �.�� P5,255.64 (p . 4 , BIR rec .) vvvvvvvvv were d i sallowed because petitioner ~as not entitled t o these deductions . Disal l owance o f the expenses resulted in the i ssuance of subject assessment dated March 31 , 1982 (p . 5, BIR rec .) in the amount of Pl , 096 . 86 repre senting deficiency i ncome tax for 1980 , i n- clus i ve o f i nterest. I n a letter dated April 26, 1982 (pp . 7-9, BIR rec. ) , petitioner requested f or reconsideration of the assessment . His request was denied by r espondent ' s office in Cebu City in a letter dated September 17, 1982 (p . 12, BIR rec . ) �. Petitioner reiterated his request for reconsideration in two separate letters , dated October 7, 1982 (pp . 13- 14 , BIR rec .) and June 1~ , 198~ (pp. 22-23, BI R rec.) , stating the same grounds mentioned i n his previous protest. The r eques ts were agai n denied by respondent 1 0'

DECISION - CTA CASE NO. 371 3 ~ 3- in a letter dated October 25, 1983 (Po 49 , BIR rec .) o Petitioner fil e d a notice of appeal wiih this Honorable Courtal leging that he received respondent ' s final decision only on November 7, 1983 . Parti es submitted the case based on the pleadings and records of the case . Invok ing Section 319-A of the 1977 National Internal Revenue Code as inserted by Presidential Dec ree No . 17 73, respondent in his memor andum dated October 3, 1984 raises lack of jurisdiction of this ! Cour t over the case on the ground that the petition for review was mailed on December 7, 1983 beyond the 30-day reglementary period for appeal . To quot e Section 319-A of t he Tax Code : " SEC . 319-A . Protesting of as sessment . - When the Commis- sioner of Internal Revenue or his duly authorized representative finds tha t proper taxes should be assessed , he shall first notify the taxpayer of his findings. Within a period to be prescribed by implementing r egulations , the taxpayer shall be required to res- pond to said notice. If t he t ax- payer fa i ls to respond, the Commis- sioner shall issue an assessment based on his findings. Such assessment ma y be pro- tested administratively by filing a request for reconsideration or reinvestigation in such f orm and manner as may be prescribed by implementing regulations within thirty (30) days from receipt of the assessment; otherwise, the assessment shall become final and unappealable.

DECISION - CTA CASE NO. 3713 - 4- If the protest is denied in whole or in part, the individual, association or corporation adversely affected by the decis ion on the pro- test may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said&cis i on; other- wise, the decision shall become final, executory and demandable." Respondent contends that the decision appealable to this Court is his letter dated September 17, 19 82 , denying petitioner 1 s request for reinvestigation , which, under the law, is deemed to have been received by peti- ti oner on or about Septe~be r 22, 1982. The request of petitioner for further investi gation per his l etters dated Oc tobe r 7, 1982 and June 14 , 1983 were merely pro forma, there being no new grounds advanced. They did not therefore interrupt the period to appeal to this Court. Pursuant to Section ll of Republic Act No. 1125 , petitioner had thirty ( 30) .days from receipt of the denial of his request for reinvestigation to appeal to the Court of Tax Appea+s . Since petitioner i s deemed to have received respondent 's decision on or about September 22, 1982 , and the records show that the peti- tion for review was mailed on December 7, 1983, beyond the 30-day reglementary period for appea l , respondent now submits that this Court has no jurisdiction to entertain the case . 20

DECISION - CTA CASE NO. 3713 - 5- We hold that the petition for review was filed on time . The reviewable decision is that contained in the letter d ated October 25, 1983 of Regional Director Cesar M. Valdez to petitioner which explicitly states that: "Accordingly, you may appeal the said decision to the Court of Tax Appeals in accordance with the provisions of Republic Ac t No . ll25e 11 (p. 49 I BIR records.} No amount o f quibbling or sophistry can blink the fact tha t said letter , as i ts tenor shows , embodies the respondent's final decision within the meaning of Section 7 of Republic Act No. 1125. Respondent said so. He even directed the taxpayer to appeal it to the Court of Tax Appeals in accordance with the prov.isions of � Republic Act No . 1125. That was the same situ ation in Sto Stephen's Association and St. Stephen ' s Chinese Girl's School v s . Collector of Internal Revenue, 104 Phil. 314 , 317-318. (Advertising Associates, Ince vs. Court of Appeals and C9mmissioner of Internal Revenue, G.R . No. 59758 , Deco 26 , 1984.} The directive is in consonance with t he Supreme Court ' s dictum that the Commissioner of Internal Revenue should always indica te to the t axpayer in clear and unequivocal language what constitutes his final deter- mination of the disputed assessment. That procedure

DECISION - CTA CASE NO. 3713 - 6- is demanded by the pressing need for fair play, regu- larity and orderliness in administrative action. (Su- rigao Electric Co., Inc. vs . Court of Tax Appeals, L-25289, June 28 , 1974 , 57 SCRA 523; Advertising As s o- ciates, Inc e vs. Court of Appeals and Commissioner of Inte rnal Revenue, G.R. No. L-59758, Dec. 26, 1984 . } On the merits of the case, we note , as stated in the special and affirmative defenses of respondent in his answer to petitionerus petition for review, that l deductions for losses in the amount of ~1 , 230 . 00 and expenses for gasoline and repairs of jeep in t he sum of ~4,055.64, were disallowed bec ause petitioner fa� i led to comply with the requirements for their deductibility . To quote the special and affirmative defenses of res.pondent: - SPECIAL AND AFFIRMATIVE DEFENSES 4 . Disallowed deductions were the bases for the assessment of deficiency income tax for the year 1980 in the amount of ~1,096.86; 5. Deductions are a matter of legislative grace. They are allowed only where there is a clear provision in the statute for the deduction claimed. And the taxpayer mu s t be able to prove that he is entitlted to the deduction; 6. Deductions for losses in the amount of ~1,230.00 and expenses for gasoline and repairs of jeep in the amount of ~4,055.64 , were dis- allowed because petitioner failed to comply with requirements for their deductibility ;

DECISION - CTA CASE NO . 3713 - 7- 7 . For the expense deduct i on to be allowed petitioner. must mow tha t the exp ense is : ( a ) _or - dinary a nd necessary ; (b) i ncurred during the taxable year in carry i ng on t rade or business and (c) ~uly suppo r ted ; 8. Losses , to be allowe d as deduction, must be shown t ha t: ( a) the loss was that of th e tax- payer ; ( b ) .that it �was su sta in ed during the taxable yeaT ; (c) evidenced by a c lose transact ion ; (d) not compensated for by insu rance or otherwise , and� {e) in case of casualty l oss, the same was reported not �less than 30 days nor mor e than 90 days from date of l oss by casuaty, robbery , theft or emb ezz l ement ; 9. Expe nses f or repair are deduct i ble when shown that (a) such repairs are mad e to keep the property used 1n business in an ordinarily effi- cient opera ting condition ; and they do not mate- ri a lly add to the value of the pr operty nor appreciably prolong its life; 10. The assessment aga inst petitione r was made in accordance with law and regulations ; and 11 . All presumptions are in favor of the correctness o f tax assessmen ts (I n t erprovincial Autobus Co. , Inc . vs . Comm . o f Int. "Rev. , G. R. No . L-6741, Jan . 31, 1959, 98 Ph i l . 290; Comm. of Int. Rev. vs. Avelino, G.R . No . L-17715, July 31, 19 6 3 , 8 SCRA 572; Mi ndanao Bus Co . vs. Comm. of Int. Rev., G.R . No . L-14 078 , Feb. 24 , 1961 , 1 SCRA 538) �. The pr i nciple i s recognized that when a taxpaye r claims a deduction , he must point to some specific provision of the statute i n which that deduct i on i s authorized and mus t be able to p rove that he is entitled to the deduction which the law allows. The l aw allowing expenses as deduct ion from gross income for purposes of the income tax is Section 30(a ) {1) _of the National Internal Revenue Code wh ich allows a deduction of "all

I. DECISION - CTA CASE NO . 3713 - 8- the ordinary and necessar y expenses paid or incurred during the taxable year i n carrying on any trade or business. " An item of expenditure, in order to be de- ductible under this section of the statute , must fall squarely within the language . (Atlas Consolidated Mining Corp . vs. Commissioner of Internal Revenue, L- 26911 and Commissioner of Internal Revenue vs. Atlas Consolidated Mini ng Corp., L- 26924 , Jan. 27, 1981, 102 {p SCRA 24{.) . We come, then, to the statutory test of deductibility of the expenses f o r gasoline and repairs of personal j eep in the amount of P4,055.64, where it is axiom~tic that to be deductible as a business expense, three (3) conditions are imposed, namely : (1) .the expense must be ordinary and necessary, (2) .it must be� paid or incurred within the taxable yea r , and (3) .it must be paid or incurred in carrying on a trade or business. (Collector of Internal Revenue vs. Phi l ippine Education Co., May 30, 1956, 99 Phil. 319 .�) ,rn addition, not only must the taxpayer meet the business test , he must substantially prove by evidence or records the deductions claimed under the law, otherwise, the same will be disallowed. The bare statement of a t axpayer that an item of expense is ordinary and necessary, unaccompan i ed by adequate evidence, has no weight with the Commissioner or with

DECISION - CTA CASE NO. 3713 - 9- the courts. ( De Vera vs . Col l ector, CTA Case No. 164, March 23, 1959; Basilan Estates , I nc. vs. Commissioner of Internal Revenue, September 5 , 1957, 21 SCRA 17; Atlas Consol i dated Mining Corp . vs. Commissioner of I nternal Revenue, L- 26911 , and Commissioner of Internal Revenue vs. Atlas Consolidated Mining Cor p . L-26924, J a n . 24, 1981, 102 SCRA 245 . ) As requ1red by Sect i on 66 , Revenue Regulations No . 2, any cla i m for deduction must be substan tiated by record show i ng i n detai l the amount and nature of the expenses i ncurred . Here, in the case at bar, except the bare statement of pet i tion e r in his le t~ers to the Bureau of I nt~rnal Revenue and memo r andum d ated J u ly 1 1, 1 984 that as mu - ni c i pal may or of a town, the expenses incident to the exerc i se of h i s functions as such are orainary and necessary, and incurred in "carrying on a trade or bus i ness", no evidence whatsoever was adduced by him to prove or support this a l legation. Then , as pre- v i ously adverted to, the law requ i res that the expense to be deduc t i ble must be paid or i ncurred during the taxable year bu t no proof of payment was presented by petiti oner to this effect. It is hardly necessa ry to add thaf he burden of proof is on the taxpayer contest i ng the val i dity or correctness of an assessment t o prove not only that the

DECISION - CTA CASE NO. 3713 - 10 - Commiss ion e r of I nterna l Revenue is wrong but that he (taxpayer ) .i s r i ght. (Lino Gutierrez vs. Collec tor of Internal Revenu e , CTA Case No. 504 , January 28, 1 96 2; See also Tan Guan vs . Cour t of Tax App ea ls, L-23676 , Ap ril 27 , 19 6 7, 19 SCRA 903 .) . And if the taxpayer f a ils to p resent evidence or proof in suppor t of hi s allegations in his petition f or review , as in th i s case, conformably to the doc trine of the p resumption in f avor of the c orrectness of tax assessment (I nter-prov i ncial Auto-bus Co. , Inc . vs . Collector of Internal Revenue , L-674 1, January 31 , 1956 , 98 Phil . 290; Collector of Internal Revenue vs . Bohol Land Transportation Co ., L-13 09 9 and L-13462 , Apr il 29, 1960 , 107 Phil . 965 ) ~ the Court of Tax Ap peals will mere ly sust a in the assessment against // the t axpayer � ? Ag ai n , petiti oner alleges tha t ~4,055 . 6 4 was spent f or gasoline and repairs of his jeep but no evidence was presented as to what portion was s pent for gasoline and the p~rtion corresponding to rep a i rs. It is true that the cost of incidenta l repairs wh i ch ne ither materially add t o the value of the proper ty nor appreciably prol ong i ts life but keep it in an ordinarily efficient oper at ing condit i on may be de- ducted as expense provided the property account is not i ncreased by the amount of such expenditure. But it

DECISION - CTA CASE NO. 3713 - 11 - is well to note that repairs in the nature of replace- ment to the e xtent th at they arrest deter ioration and appreciably prolong the life of the property should be charged again st the depreciation reserve if such account is kept . (S ees . 68 & 120, Rev . Regs . No. 2; Gancayco vs. Collector of Internal Revenue 6 L-13325, April 20, 1961, 1 SCRA 980; Brinker vs. Collector of Internal Revenue, CTA No. 366, July 17 , 1959.) Consequently, how can the Court possibly determine the exact cost of repairs and its deductibility without competent evidence presented by petitioner to this effect? Respondent's disallowance of petitioner's claimed expense of ~4,055.64 repre sent ing all eged gasoline and repairs of j eep should therefore be sustained. An ent petitioner ' s claimed ded uctiorr for losses of j eep tires , tire rims and one pair of shoes in the amount of ~1,230.00 which respondent disallowed because of the failure of petitioner to prove that he is entitled to the deduction and tG comply with the requirements for their deductibility, respondent's ruling should also be sustained. Just like petitioner ' s claimed expenses for gasoline and repairs of jeep, absolutely no ev idence was adduced by petitioner to prove or support these losses. As contended by respondent, losses, to be allowed as deduction , must be shown that: (a) the loss

DEC ISION - CTA CASE NO. 3713 - 12 - was that of the taxpayer; (b) .that it was actually sustained during the taxable year ; (c) the loss must be evidenced by a closed and com p leted transaction~ (d) .the loss must not have been compensated for by i nsurance or otherwise; a nd (e ) in case of casualty loss, t he same must be reported not less than 30 d a y s nor more than 90 days from the date of the loss by casualty, robbe r y , theft or e mbezzlemen t. (Sec. 30 (d ) (1) ( c )~ National Internal Revenue Code.) No evidence whatsoever wa s prese nted by petitioner t o the effect that the aforesaid requ i rements for the deductibi l ity . of his claime d losses hav e be en compli ed with. And with more reason that pet itione r should prove that he is enti tled to t he deduct i on of hi s losses because it is sub ject to the qualification that losses , to be deducti ble, must be ev i denced by a closed and completed transaction. According ly, the Court finds petitioner Wilfreda L. Caresosa liable to the paymen t of the amount of ~ 1, 096.86 as deficiency income tax for the yea r 1980 , plus 1 0% surcharge and 2 0% annual inte rest from March 31, 1982 unt i l ful ly p a i d pursuant to Sect ion Sl(e) .of the 197 7 National I nternal Revenue Code, as amended by Presiden t i a l Decree No. 1705 , provided that the max i mum amount tlct. ma y be collected as intere st on deficiency

DECISION - CTA CASE NO. 3713 - 13 - shall in no case exceed the amount corresponding to a period of three (3) .Years. WHEREFORE, the decision appealed from is hereby aff irmed at petitioner's costs. SO ORDERED. Quezon City, Metro Manila, January 25, 1985. AHAl'�1TE F Pr esidin .....__ . ROAQUIN Associa~e Jud ge ~(~(_ Associate Judge