Goodyear Philippines, Inc. v. Commissioner of Internal Revenue

[C.T.A. CASE NO. 5923. May 5, 2003.] GOODYEAR PHILIPPINES, INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N This Petition for Review involves a claim for refund or issuance of tax credit certificate in the amount of P71,397,270.00, allegedly representing overpaid income tax for the calendar year ended December 31, 1997. The antecedent facts of the case are as follows: Petitioner is a domestic corporation duly registered and organized under Philippine laws, with principal office located at Old National Road, Barangay Almanza, Las Pias, Metro Manila. It is a corporation primarily engaged in the manufacture and sale of tires ( par 1, Joint Stipulation of Facts and Issues, CTA Records, p. 66 ). For the taxable year 1997, petitioner filed with the Bureau of Internal Revenue, through the Union Bank of the Philippines, Muntinlupa Branch, its Quarterly Income Tax Returns with the following details: Creditable Tax Quarter Date Filed Tax Due Withheld Tax Paid Exhibits 1st May 30, 1997 P22,169,843.85 P4,746,568.82 P17,423,275.03 C & D 2nd August 29, 1997 49,838,186.86 23,505,799.04 26,332,387.82 E & F 3rd December 1, 1997 63,635,125.86 51,121,710.77 12,513,415.09 G & H On April 15, 1998, petitioner filed its Corporation Annual Income Tax Return for the year ended December 31, 1997 ( Exhibit I ), reflecting an overpaid income tax of P63,635,126, computed as follows: Gross Income P386,526,992.00 Less: Deductions 401,659,670.00 Net Income (Loss) (P15,132,678.00) Tax Rate 35% Income Tax Due NIL Less: Tax Credits/Payments 63,635,126.00 (P63,635,126.00) ============= On March 30, 1999, petitioner amended its 1997 Annual Income Tax Return ( Exhibit J ) to correctly reflect its refundable income tax for the year. It computed the refundable tax as follows: Gross Income P386,526,992.00 Less: Deductions 401,659,670.00 Net Income (Loss) (P15,132,678.00) Tax Rate 35% Income Tax Due NIL Less: Tax Credits/Payments 71,397,270.00 (P71,397,270.00) ============= On May 7, 1999 petitioner filed with the Bureau of Internal Revenue its written claim for refund in the amount of P71,397,270.00 ( par. 3, Joint Stipulation of Facts and Issues, CTA Records, p. 67 ). However, due to the inaction of the respondent, petitioner elevated the case to this court through a Petition for Review on August 16, 1999. Respondent filed his Answer and raised the following Special and Affirmative Defenses: 4. The petition states no cause of action as it does not allege the dates when the taxes sought to be refunded were actually paid; 5. Claims for refund are construed strictly against the claimant, the same being in the nature of exemption from taxes ( Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95; Manila Electric Co. vs. Commissioner of Internal Revenue, 67 SCRA 35) ; 6. One who claims to be exempt from payment of a particular tax must do so under clear and unmistakable terms found in the statute ( Asiatic Petroleum vs. Llanes, 49 Phil 466; Union Garment Co. vs. Court of Tax Appeals, 4 SCRA 304 ); 7. In action for refund, the burden is upon the taxpayer to prove that he is entitled thereto, and failure to sustain the same is fatal to the action for tax refund, 8. It is incumbent upon petitioner to show compliance with the provisions of Section 229 of the NIRC, and 9. Taxes paid and collected are presumed to have been made in accordance with law and regulations, hence, not refundable. In their Joint Stipulation of Facts and Issues, the parties submitted the following issues for this court's resolution: 1. Whether or not petitioner is entitled to a claim for refund of the excess or overpaid income tax for the calendar year ended December 31, 1997 in the amount of P71,397,270.00. 2. Whether or not said excess or overpaid income taxes are substantiated by documentary evidence. 3. Whether or not said excess or overpaid income taxes for the calendar year ended December 31, 1997 remained unapplied and was not carried forward to the succeeding taxable calendar year and applied against its income tax liability for the said period. Petitioner maintains that it is entitled to the refund of its overpaid income tax for the taxable year 1997 in the amount of P71,397,270.00, claiming that this is the result of its excess quarterly income taxes paid and its unutilized creditable withholding taxes over the zero tax position for the same year. Petitioner based its claim for refund on Section 69 ( now 76 ) of the National Internal Revenue Code, which provides: Section 69. Final Adjustment Return . Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of the year the corporation shall either: a) Pay the excess tax still due; or b) Be refunded the excess amount paid, as the case may be. In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year. In addition, petitioner asserts that it has complied with the requirements for entitlement to a refund of excess creditable income taxes withheld at source as enumerated in the case of Tiffany Tower Realty Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5495, promulgated on January 6, 2000 and other similar case, which are as follows: 1. That it was shown on the return of the recipient that the income payment received was declared as part of the gross income or, stated otherwise, were included in the return of the recipient (Section 10, Revenue Regulations No. 6-85, ACCRA Investment Corp. vs. Court of Appeals, 204 SCRA 957); 2. That the fact of withholding is established by a copy of statement (BIR Form No. 1743.1 (now BIR Form No. 2307) duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom; and 3. That the claim for refund was filed within the two (2) year period prescribed under Section 229 (then Section 230) of the National Internal Revenue Code. To prove compliance with the first requirement, petitioner submitted its 1997 Annual Income Tax Returns, both original and amended ( Exhibits I and J ), declaring therein the income from which the creditable income taxes were withheld at source. Petitioner explained that the amount of income stated in the income tax return is not exactly the same as the total amount of income payments per certificates of creditable withholding tax at source as a result of timing differences. TAECaD As regards the second requirement, petitioner allegedly proved compliance thereof by offering in evidence the certificates of creditable income tax withheld at source ( Exhibits O-1 to O-196 ). Furthermore, according to petitioner, it fully complied with the two-year period as its administrative claim for refund filed with the Bureau of Internal Revenue, Revenue District Office on No. 53 on May 7, 1999, and this Petition for Review filed on August 16, 1999, are both within two years from the date of filing of its 1997 Annual Income Tax Return on April 15, 1998. Lastly, petitioner claims that it was not able to utilize its 1997 excess income tax credits for the succeeding taxable years. In its amended Corporate Annual Income Tax Return for the calendar year ended December 31, 1998 it did not reflect any prior year's excess tax credit ( Exhibit K ). Respondent, in contrast, argues that petitioner's claim for refund should not be given due course. First, petitioner fell short of the requirements in claiming for refund under Revenue Regulations No. 6-85, as amended. According to respondent, petitioner underdeclared its income in its 1997 Annual Income Tax Return. A comparison of petitioner's 1997 Corporate Annual Income Tax Return and the Certificate of Income Taxes Withheld at Source covering the same taxable year shows that the total withholding taxes reported by petitioner in the return is lesser than what should have been actually withheld by the agents. Second, upon investigation and verification of petitioner's claim for refund, the Bureau of Internal Revenue, through its Revenue Officer, found out that petitioner is liable for deficiency Value-Added Tax (VAT) assessment in the total amount of P799,756.79. Respondent alleged that this constitutes a challenge to the truth and accuracy of the facts stated in its 1997 Corporation Annual Income Tax Return. Finally, respondent argued that petitioner failed to prove with the required quantum of evidence its entitlement to the claim for refund. After considering the arguments of the parties, the evidence presented as well as the applicable laws and jurisprudence, we find the petition meritorious. We shall resolve the first and second issues jointly as they are interrelated. As earlier mentioned, the total claim for refund filed by petitioner amounted to P71,397,270.00. This consists of the excess or overpaid quarterly income tax payments of P56,269,078.00 (over the nil income tax liability due to net loss position for the calendar year ended December 31, 1997) and creditable withholding taxes in the total amount of P15,128,192.00. Petitioner incurred net loss from operations for the calendar year ended December 31, 1997. This is shown in its amended Annual Income Tax Return for that taxable year ( Exhibit J ). Such being the case, petitioner was not liable to pay income tax. The income taxes paid during the first, second and third quarters of 1997 of P17,423,275.03 1 , P26,332,387.82 2 , and P12,513,415.09 3 , respectively ( Exhibits C, E and G ) or a total of P56,269,078.00 are considered excess or overpayments. Thus, they are legally refundable. With regard to the amount claimed of P15,128,192.00 representing creditable taxes withheld at source, we shall discuss petitioner's compliance with the requirements set forth earlier. Anent the first requirement, petitioner appropriately declared the corresponding income from which the 1997 creditable income taxes were withheld in its amended Corporate Annual Income Tax Return ( Exhibit J ) for the calendar year ended December 31, 1997. While respondent pointed out that there is an apparent discrepancy of income appearing in the income tax return for calendar year ended December 31, 1997 and that of the total amount of income payments reflected in the certificates of creditable withholding tax at source, this was reconciled and explained in the amended report dated August 23, 2000 of the commissioned independent CPA ( Exhibit V ), to wit: Findings and Observation Based on the procedures we performed, we present below our findings and observation: We noted a difference between the total amount of CWT base as indicated in the Certificates of Creditable Withholding Tax issued by the Company's customers and the total amount of sales for the said customers as recorded in the Company's books/ITR (See Annex B): Total Amount of Sales (for the said customers) per Books/ITR P1,548,194,633.36 Total Amount of CWT Base indicated in the Certificate 1,512,860,609.00 Difference CWT Base per Certificate is under by P35,334,024.36 ============= We understand that the above difference amounting to P35,334,024.36 is accounted for as follows: a. Sales recorded in prior years but collected only in 1997 were subjected to CWT by the customers in 1997 and the corresponding Certificates of Creditable Withholding taxes therefrom were received also in 1997 upon collection, thereby resulting in higher CWT base per Certificates than the amount of sales per books/ITR in the year 1997; b. Sales recorded in 1997 but still uncollected as of the end of that year were not yet subjected to CWT by the customers thereby resulting in higher amount of sales per books/ITR than the CWT base per Certificate. c. In certain cases, adjustments to the sales (e.g., sales returns, sales discounts) by way of credit memos are issued only after collection and receipt of Certificates of Creditable Withholding Taxes. Thus, the total CWT base indicated in the certificates corresponding to the same sale is still gross of adjustments while the total amount of sales recorded in the books is already net of the aforementioned adjustments, thereby, resulting in higher CWT base per certificate than the net sales recorded in the books/ITR. Adjustments to CWT pertaining to the same sale are effected in sales for the subsequent year. Thus, resulting in lower CWT base per Certificate than the net sales recorded in the books/ITR. With respect to the second requirement, petitioner, in order to prove the fact of withholding, presented the various certificates of creditable income tax withheld at source ( Exhibit O ). These certificates were examined by the commissioned independent CPA, Mr. Ruben R. Rubio. In his initial report dated May 19, 2000 ( Exhibit N ), the commissioner found and observed the following: A. Creditable Withholding Taxes Supported by Original Certificates (See ANNEX 1) P6,205,558.93 B. Creditable Withholding Taxes Supported by Original Certificates without Stamp Received by Banks (See ANNEX 2) 7,582,630.25 C. Creditable Withholding Taxes Supported by Photocopied Certificates with Original Stamp Received by Banks and Stamped "Certified True Copy" and Signed by the Bank (See ANNEX 3) 268,586.58 D. Creditable Withholding Taxes Supported by both (a) Original Certificates without Stamp Received by Banks and (b) Photocopied Certificates with Original Stamp "Received" by Banks and Stamped "Certified True Copy" by the Bank (See ANNEX 4) 1,050,370.75 E. Creditable Withholding Taxes Supported by Original Certificates where Period of Issue has been Changed from Oct-Dec '98 to Oct-Dec '97 but such revision was not initialed by the Signatory/Payor (See ANNEX 5) 21,459.58 TOTAL Unapplied Creditable Withholding Taxes per Schedule P15,128,606.09 Unaccounted difference passed due to immateriality (414.09) TOTAL Unapplied Creditable Withholding Taxes per 1997 Income Tax Return P15,128,192.00 =========== A careful scrutiny of the above report as well as petitioner's 1997 amended Income Tax Return and letter claim for refund with the respondent reveals the following: 1. The total unapplied creditable withholding taxes per schedule is P15,128,606.09; 2. The amount reflected in the 1997 amended income tax return is P15,128,192.00, which is also the same amount of creditable taxes withheld sought to be refunded by petitioner in the administrative level; and 3. The creditable taxes withheld in the sum of P21,459.58, the date appearing in the certificate had been altered and was not counter-signed. Based on the foregoing observations, the court rules to disallow the amount of P21,459.58 ( Exhibit O-195 ) from the sum of P15,128,606.09. We are not satisfied as to the veracity of the period covered stated in the document. As correctly observed by the commissioned CPA, the period of issue appearing on the said exhibit has been changed from Oct-Dec '98 to Oct-Dec '97 but such revision was not even initialed by the signatory/payor. Thus, it creates a cloud of doubt as to the truthfulness of the fact provided in the document. Petitioner also failed to explain to the court the circumstances leading to the alteration of the period covered. Consequently, the Certificate of Withholding Tax is not admissible in evidence. Section 31, Rule 132 of the Rules of Court provides: Rule 132 Section 31. Alteration in document, how to explain . The party producing a document as genuine which has been altered and appears to have been altered after its execution, in a part material to the question in dispute, must account for the alteration . He may show that the alteration was made by another, without his concurrence, or was made with the consent of the parties affected by it, or was otherwise properly or innocently made, or that the alteration did not change the meaning or language of the instrument. If he fails to do that, the document shall not be admissible in evidence . ( Emphasis supplied ) Going now to the third requirement, petitioner filed its administrative and judicial claims on May 7, 1999 ( Exhibit L ) and August 16, 1999 ( CTA records, p. 1 ), respectively. Both dates are well within the two-year prescriptive period provided by law for the filing of a claim for refund reckoned from the time of the filing of its original Corporate Annual Income Tax Return for the calendar year 1997, which was on April 15, 1998 ( Exhibit I-1 ). DHATcE On the third issue, the court finds that petitioner's excess income tax credits for the taxable year 1997 remained unutilized and were not carried-over to the succeeding taxable year. Petitioner's Corporate Annual Income Tax Return for the calendar year ended December 31, 1998 does not reflect any "Prior Year's Excess Tax Credits" ( Exhibit K ). This clearly means that petitioner did not carry over to taxable year 1998 any excess income tax credits pertaining to the previous taxable year. Finally, as earlier mentioned, respondent opposed petitioner's claim for refund alleging that upon investigation and verification of the Revenue Officer, it was found out that petitioner is liable to pay deficiency VAT assessment in the amount of P799,756.79, inclusive of P222,159.17 increments, due to overclaimed input taxes of P577,597.62 for the taxable year 1997. This constitutes, according to respondent, a challenge against the truth and accuracy of the facts stated in petitioner's 1997 Annual Income Tax Return. We cannot subscribe to the view of the respondent. Upon careful scrutiny of the evidence submitted by respondent, the court found no evidence that petitioner was assessed deficiency value-added tax. The Revenue Officer, Constancia G. Dimagiba, issued a Memorandum on November 10, 1999 to the Revenue District Officer, which states thus: On November 10, 1999, after verifying all the necessary records, documents and papers, the taxpayer was assessed of Php799,756.79 inclusive of Php222,159.17, increments on deficiency value-added tax due to over claimed input taxes of Php577,597.62 ( BIR Record's, p. 641 ). Again, on even date, the same Revenue Officer issued a Memorandum to the Revenue District Officer, the pertinent part of which reads: "In view of the foregoing, it is respectfully recommended that an assessment notice be sent to the taxpayer to protect the interest of the government ( BIR Records, p. 635 ). We believe that both memoranda are merely self-serving statements and are not relevant evidence to show that there was indeed a deficiency assessment on petitioner. The best evidence that respondent should have presented is the Notice of Assessment, but he failed to do so. This finding is even buttressed by petitioner's witness Mr. Joseph Magparangalan, who testified during the hearing on July 23, 2002, that petitioner did not receive any Notice of Assessment from the BIR pertaining to the taxable year 1997. The pertinent portion of the direct examination is hereunder quoted thus: ATTY. CELICIOS Q. In any case, did the Petitioner, Goodyear Philippines Incorporated, receive any Assessment Notice from the BIR pertaining to the taxable year 1997? MR. MAGPARANGALAN A. No. ATTY. CELICIOS Q. Do you have any personal knowledge in order to say that no Assessment Notice has ever received (sic) by Goodyear Philippines? MR. MAGPARANGALAN A. Based on our record, we did not receive any Assessment Notice from the BIR and I can say this because I keep the records of BIR correspondence in our office regarding the taxable year 1997 Income Tax Return ( TSN, p. 6 ). WHEREFORE, in the light of the foregoing, petitioner's claim for refund hereby GRANTED but in the reduced amount of P71,376,224.45, computed as follows. Quarterly Income Tax Payments: 1st Quarter 1997 (Exhibit C) P17,423,275.03 2nd Quarter 1997 (Exhibit E) 26,332,387.82 3rd Quarter 1997 (Exhibit G) 12,513,415.09 P56,269,077.94 1997 Creditable Withholding Taxes (P15,128,606.09 P21,459.58) 15,107,146.51 Amount Refundable P71,376,224.45 =========== SO ORDERED. (SGD.) ERNESTO D. ACOSTA Presiding Judge WE CONCUR: (SGD.) JUANITO C. CASTAEDA, JR. Associate Judge (SGD.) LOVELL R. BAUTISTA Associate Judge Footnotes 1. Rounded off to P17,423,275.00 per Annual Income Tax Return. 2. Rounded off to P26,332,388.00 per Annual Income Tax Return. 3. Rounded off to P12,513,415.00 per Annual Income Tax Return.