Manotok Realty, Inc. v. Commissioner of Internal Revenue

SEVENTEENTH DIVISION [CA-G.R. SP No. 56745. February 22, 2001.] MANOTOK REALTY INCORPORATED , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N SALAZAR-FERNANDO , J p : This is a petition for Review from the Decision dated October 18, 1999 of the Court of Tax Appeals in CTA Case No. 5485 entitled "Manotok Realty Incorporated, Petitioner vs. Commissioner of Internal Revenue, Respondent" , the dispositive portion which reads as: "WHEREFORE, premises considered, Petitioner is hereby ORDERED to PAY Respondent the amount of P313,508.23, plus 20% annual interest from December 9, 1993 until fully paid, pursuant to Section 249 of the T ax Co de." 1 The facts are: Petitioner is a corporation duly organized and existing under Philippine laws engaged in the business of leasing apartment units. On April 17, 1989, petitioner filed its Annual Income Tax Return 2 for the taxable year ending December 31, 1988 and paid under the same tax return an income tax in the amount of P182,786.27. On February 3,1992, a Pre-Assessment Notice dated January 20, 1992 3 was received by petitioner from respondent on petitioner's income tax deficiency in the amount of P1,486,710.36 for the tax year 1988. In a letter dated February 10, 1992, 4 petitioner protested the pre-assessment notice and offered explanations and clarifications to support its claim that there was no deficiency income tax due. On March 20, 1992, petitioner received from respondent a demand letter dated March 6, 1992 5 and Assessment Notice No. 22-6-000605-88 dated March 11, 1992 6 demanding the payment of P2,403,736.54 as deficiency income tax inclusive of interest and surcharges for tax year 1988. In a letter dated April 1, 1992, 7 petitioner requested a review of the assessment. It likewise protested the said assessment by stating that its letter dated February 10, 1992 wherein explanations and clarifications were given as a protest to the previous Pre-Assessment Notice, was ignored and set aside. A notice dated September 9, 1992 8 was sent to petitioner demanding the payment of tax deficiency in the amount of P2,403,736.54 for tax year 1988. In another letter dated October 19, 1992, petitioner requested for a re-investigation of the afore-stated notice claiming that it was not given the opportunity to be heard. Petitioner received another assessment, Assessment Notice No. FAN-2-88-93-005890 dated December 9, 1993 which assessed petitioner's income tax deficiency with surcharges and interests based on the disallowed deduction for a loss due to fire in the amount of P313,508.23. In a letter dated January 24, 1994 9 , petitioner requested for a reconsideration and cancellation of Assessment Notice No. FAN-2-88-93-005890 dated December 9, 1993 for the reason that it committed procedural error in not deducting the said loss in 1987 when the fire occurred. Respondent, in a letter dated January 20, 1997 10 , replied that fire losses are generally deductible in the year actually incurred, however, if petitioner can present any documentary evidence purporting to show that a claim for fire insurance was filed, the same shall be considered in reinvestigating the taxes due for 1988. Petitioner, in its letter dated February 3, 1997, 11 stated that the property burned was not insured and had not received compensation therefrom. Attached to the letter was petitioner's income tax return for 1987, comparative 1987 and 1988 Financial Statements and Fire Certificate from the Fire Department of Manila. Respondent denied the request for the cancellation of the assessment notice for failure of the petitioner to comply with the requisites for deductibility of loss. A petition for review 12 was filed before the Court of Tax Appeals alleging that the right of respondent to collect had already prescribed since the collection was enforced more than three (3) years after the Assessment Notice was issued on December 9, 1993; the latest assessment issued by respondent was erroneous because it was not based on actual facts; under Revenue Regulation No. 12-77, the declaration of loss was sufficient proof that will automatically entitle the taxpayer for the deduction of the loss; general rule that losses must be claimed in the year actually sustained is subject to qualification; respondent is mandated to assess the correct amount of the tax, and by himself modify or change the return filed by filing another amended return; and to follow the literal letter of Rev. Reg. No. 12-77 meant that the 1987 income was overstated for failure of the petitioner to deduct the fire loss that year. In the assailed decision, 13 the Court of Tax Appeals ruled that: 1. the claim of petitioner that its request for reinvestigation was not granted and therefore, did not suspend the period to collect, lacks merit since in the letter of respondent dated January 20, 1997, the request for reconsideration of the assessment was granted. Hence, it has the effect of suspending the running of the statutes of limitation; and 2. the respondent correctly disallowed the fire loss deduction for tax year 1988 since the loss occurred in 1987 and the same should have been deducted on that year. For failure of petitioner to declare its loss within 45 days after the occurrence of the fire as provided in Revenue Regulation 12-77, the deduction should not be allowed. AaSTIH The motion for reconsideration was denied in the Resolution dated December 14, 1999 of the Court of Tax Appeals. Hence, this petition with the following grounds: 'THE COURT OF TAX APPEALS GRAVELY ERRED AND COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING LACK OF JURISDICTION IN RENDERING THE QUESTIONED DECISION NOTWITHSTANDING THAT: I ASSESSMENT NOTICE NO. 22-6-000605-88 AND ASSESSMENT NOTICE NO. FAN 2-88-93-005890 ARE VOID AS THEY WERE ISSUED IN VIOLATION OF PETITIONER'S RIGHT TO DUE PROCESS II EVEN ASSUMING THAT ASSESSMENT NOTICE NO. FAN 2-88-93-005890 DATED 9 DECEMBER 1993 IS VALID, (A) THE RIGHT OF RESPONDENT TO ASSESS THE TAX HAD ALREADY PRESCRIBED (B) THE RIGHT OF RESPONDENT TO COLLECT THE TAX HAD ALREADY PRESCRIBED III PETITIONER SHOULD BE ALLOWED TO DEDUCT THE FIRE LOSS FROM ITS 1988 GROSS INCOME (A) SO AS NOT TO PENALIZE PETITIONER FOR THE FAULT OF BIR AND ITS AGENT AND (B) TO PREVENT THE UNJUST ENRICHMENT OF THE GOVERNMENT. Petitioner maintains that Assessment Notice No. 22-6-000605-88 dated March 16, 1992 and Assessment Notice No. FAN 2-88-93-005890 did not set forth the reason for the assessment. It was categorically admitted by petitioner that Assessment Notice No. 22-6-000605-88 dated March 16, 1992 was received together with a demand letter dated March 6, 1992. In the said demand letter, the basis for the deficiency income tax being collected was specified as follows: "Net Income disclosed by the return as audited 1,017,287.89 Add: discrepancies: Undeclared Income 1,038,617.20 Taxes & licenses unsupported 303,877.97 service fee unsupported 282,894.40 fire loss unsupported (sic) not properly presented to BIR 361,254.28 salaries & Bonus overstated 142,131.35 legal audit EWT 59,586.60 depreciation no lapsing schedule 643,467.12 Total Adjustment 2,831,828.92 Net Income per investigation 3,849,116.81 Less: personal & additional exemption Amount subject to tax 3,849,116.81 Income tax due thereon 1,347,191.00 Less: amount already assessed 356,050.76 BALANCE 991,140.24 Add: 20% interest per annum from ________ 892,026.18 to __________ Compromise 25,000.00 surcharge 495,570.12 TOTAL INCOME TAX DUE 2,403,736.54 ========== Obviously, the above computation detailed the items enumerated in the Assessment Notice No. 22-6-000605-88 dated March 16, 1992. It clearly stated the deficiency tax sought to be collected based on the discrepancies found by the respondent in the petitioner's tax return filed for the tax year 1988. On the other hand, as a result of the request for reinvestigation of the aforementioned assessment, Assessment Notice No. FAN 2-88-93-005890 was issued lowering the assessment to only P313,508.23. It is therefore inconceivable for the petitioner to claim that the two (2) assessment notices were without legal and factual basis. The allegation of the petitioner that the respondent's right to assess had prescribed since the three (3) year period to assess the tax deficiency expired on April 17, 1992 and Assessment Notice No. FAN 2-88-93-005890 was issued only on December 9, 1993, is without merit. As previously stated and it is crystal clear from the facts of the case, Assessment Notice FAN 2-88-93-005890 was a result of petitioner's request for reinvestigation of its previous P2,403,736.54 assessed tax deficiency contained in Assessment Notice No. 22-6-000605-88. In fact, the same was clearly stated in the letter dated February 26, 1997 of respondent wherein it was stated: "In consideration of your said letter, a careful perusal of the records of the case was undertaken, wherein it was ascertained that the case was already referred to the BIR, National Office, for review. After recomputation on the deficiency taxes was made, only the fire loss of P361,254.28 was disallowed thereby reducing the tax liability to P305,658.42 as of October 25, 1993. . . . . 15 (Emphasis ours) To make matters clear, it is imperative at this point to trace the events that led to the issuance of Assessment Notice No. FAN 2-88-93-005890. On March 20, 1992, petitioner received Assessment Notice No. FAN 2-88-93-005890 and disputed the same in the letter dated April 1, 1992. Another demand from the respondent dated September 9, 1992 was received by petitioner assessing the amount contained in Assessment Notice No. 22-6-000605-88. Petitioner again requested for a reinvestigation in its letter dated October 19, 1992. This time, respondent issued Assessment Notice No. FAN 2-88-93-005890 assessing petitioner's tax deficiency to P313,508.23. Hence, Assessment Notice No. FAN 2-88-93-005890 is a mere revision of the Assessment Notice No. 22-6-000605-88. Petitioner cannot treat Assessment Notice No. FAN 2-88-93-005890 separately and independently from the first assessment received unless it perceives itself to be still liable under the first assessment. The Court of Tax of Appeals correctly ruled that the request for reinvestigation/reconsideration and the granting of the same by the respondent effectively suspended the running of the statute of limitations in accordance with Sec. 224 of the Tax Code, which provides that: SECTION 224. Suspension of the running of statute . The running of the statute of limitations provided in Sections 203 and 223 on the making of assessments and the beginning of distraint or levy or a proceeding in Court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in Court and for sixty days thereafter, when the taxpayer requests for a reinvestigation which is granted by the Commissioner. . . . The request for reinvestigation made by the taxpayer, which petitioner did several times, suspends the running of the prescriptive period provided in Sec. 203 of the Tax Code for the assessment and collection of taxes. 16 In like manner, if the assessment is revised after a request for reconsideration by the taxpayer, the period used in the determination is excluded from the total prescriptive period for collection. 17 Petitioner's adamant stand that the request for reinvestigation was not granted by the Commissioner, hence, did not toll the running of the prescriptive period, is totally baseless. The Commissioner directed the petitioner to submit proof that a claim for a fire insurance was filed in order to reconsider the disallowance of the claim for fire loss. The failure of the petitioner to submit the same cannot be attributed to anybody else but the petitioner's. The allegation of petitioner that it relied in good faith on a BIR officer's information to first obtain a certificate of loss to support its fire loss claim, is totally out of context. Petitioner was not totally misguided since the letter dated January 20, 1997 of respondent directed the petitioner to submit documentary evidence to show proof of claim for fire insurance to substantiate its fire loss claim in its tax return. Likewise, in the letter dated February 26, 1997 of respondent, petitioner was informed that it had not complied with the requisites for deductibility of loss. With or without the alleged advise/information of the BIR officer, it is clear that: 1. there was no claim for fire insurance; 2. the loss due to the fire was not actually sustained or suffered during the taxable year (1988) when the fire loss was claimed; and 3. no sworn declaration of loss with the nearest Revenue Office was filed within 45 days after the occurrence of the loss (Revenue Regulation 12-77). WHEREFORE, foregoing premises considered, the Decision dated October 18, 1999 of the court of Tax Appeals is hereby AFFIRMED. SO ORDERED Brawner and Enriques, Jr . , JJ . , concur.