Ruling on Use of Unregistered Books of Accounts

December 23, 1987 BIR RULING NO. 419-87 272 273 000-00 419-87 S i r : This refers to your letter dated November 24, 1987 requesting a ruling on the following queries, viz: "1. Can entries made in the unregistered General Ledger, General Journal, Purchase Register (Subsidiary Book) be considered valid entries and given due course during tax audit and assessment? "2. What is the effect of non-registration of the General Ledger, General Journal and the Purchase Register (Subsidiary Book)? "3. Does the non-registration of the said books of accounts invalidate the entries made thereat as far as the BIR is concerned?" You have orally represented that your client, Francisco Motors Corporation, of 2235 Pasong Tamo, Makati, Metro Manila, has applied for the registration of its 1984 books of accounts and subsidiary books but failed to comply with the complete requirements; and that nevertheless, your client has kept said unregistered General Ledger, General Journal, and Purchase Register in accordance with generally accepted accounting principles. In reply, please be informed as follows: 1. Your query is answered in the affirmative. Entries in an unregistered book of accounts are not considered incorrect entries simply because of non-registration. [Thomson Shirt Factory vs. Coll. of Internal Revenue, CTA Case No. 377, August 27, 1963.] Accordingly, your client's entries made in its unregistered 1984 books of accounts and subsidiary books are valid for purposes of audit and assessment. It may be stated that, said entries are admissions against your client's interest (Sec. 39, Rule 130, Revised Rules of Court); hence, this Office can use the same against it as basis to ascertain its correct tax liabilities. However, if there is reason to believe that said entries do not correctly reflect the declarations made or to be made in a tax return, this Office shall apply Section 16(c) of the Tax Code, as amended, pertinent portion of which reads as follows: "(c) Authority to conduct inventory taking, surveillance and to prescribe presumptive gross sales and receipts. xxx xxx xxx When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Section 181, or when there is reason to believe that the books of accounts or other records do not correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this Code, the Commissioner, after taking into account the sales, receipt, income or other taxable base of other persons engaged in similar businesses under similar situations or circumstances or after considering other relevant information, may prescribe a minimum amount of such gross receipts, sales and taxable base, and such amount so prescribed shall be prima facie correct for purposes of determining the correct internal revenue tax liabilities of such person." 2. Books of accounts are subject to registration and approval prior to their use. (Sec. 19, Revenue Regulations No. V-1, as amended) Therefore, their non-registration constitutes a violation of the aforesaid regulation and penalized by Section 309 of the Tax Code, as amended. 3. As in question No. 1, non-registration of books of accounts does not invalidate the entries made therein. In fact, they may be made the basis for assessment of appropriate taxes against your client. iatdc Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner