Whether in Cases of Inability of the Taxpayer to Present Books of Accounts or Other Accounting Records Requested by the Investigating Examiner to Evidence Claims for Deduction for Taxable Year 1991, a Disallowance of 30% or Even More of the Taxpayer's Claim, is Justified

January 31, 1994 BIR RULING NO. 031-94 16-00 000-00 031-94 Mr. Themistocles R. Montalban Neptune Street, Project 6 Quezon City S i r : This refers to your letter dated June 14, 1993, in effect, requesting information on whether in cases of inability of the taxpayer to present books of accounts or other accounting records requested by the investigating examiner to evidence claims for deduction for taxable year 1991, a disallowance of 30% or even more of the taxpayer's claim, is justified. In reply, please be informed that under Section 16 of the Tax Code, the Commissioner is authorized to assess the proper tax based on the best evidence obtainable. If the taxpayer fails to submit the required returns, statements, reports and other documents, the Commissioner shall assess the proper tax, using the correct method of computation in determining the taxpayer's liability; hence, complete and outright disallowance of the taxpayer's claim for deduction of legitimate business expenses appears not warranted. If no documents of any kind are available or presented by the taxpayer, a comparative determination of reasonable business expenses incurred by other taxpayers undertaking similar kind of business should be ascertained to arrive at a reasonable determination of the deductible business expenses. In the instant case, involving taxpayers in Ormoc City who have lost all of their books of accounts and other records during the great flood in 1991, greater leniency in allowing their claims for deduction for reasonable business expenses is justified. One way of manifesting this leniency is to refer to the taxpayers' previous two (2) years deficiency tax assessments, if any. The average of their deficiency tax during the last two years may then be used as the best evidence to impute their deficiency tax liability for 1991. Otherwise, if there is none, then it can be concluded that no deficiency tax is due for 1991. cdtech Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue