Tiffany Tower Realty Corp. v. Commissioner of Internal Revenue

SECOND DIVISION [CA-G.R. SP No. 57878. November 29, 2000.] TIFFANY TOWER REALTY CORP. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N REYES , JR., A. , J p : Before the Court is a Petition for Certiorari under Rule 43 of the 1997 Rules of Civil Procedure assailing the 6 January 2000 Order of the Court of Tax Appeals, the decretal portion of which, reads: "WHEREFORE, in view of the foregoing, this Court finds the instant petition meritorious and in accordance with law. Respondent is hereby ORDERED to REFUND or to ISSUE a TAX CREDIT CERTIFICATE in favor of Petitioner the reduced amount of P1,022,29175 representing overpaid income tax for the calendar year ended December 31, 1994." The antecedent facts: On 24 September 1996, petitioner Tiffany Realty corporation, a domestic corporation engaged in the development, sale and rental of real estate, filed an amendment to its annual income tax return for 1994. In the amended annual income tax return, petitioner adjusted its excess credit from P6,349,991.00 to P2,279,506.00. Petitioner, then, is claiming a refundable amount of P3,752,527.00. The excess tax payment of P3,752,527.00 was carried over to the year 1995. However, as petitioner reported a net loss for said year, this tax credit could not be applied. On 31 March 1997, petitioner lodged a claim with the Bureau of Internal Revenue for refund or issuance of tax credit certificate in the amount of P3,752,527.00. EIaDHS On April 1977, to suspend the running of the two (2) year prescriptive period for the recovery of tax erroneously collected as provided under Section 230 of the National Internal Revenue Code, petitioner instituted a Petition for Review before the respondent Court of Tax Appeals. On January 200, the public respondent issued the assailed Decision granting the refund in favor of herein petitioner. However, the Tax Court reduced the amount of P1,022,291.75 from the petitioner's claim of P3,752,527.00 as it affirmed the BIR's finding that petitioners failed to present supporting documents to substantiate the excess credit of P2,279,506.00 carried over from its 1993 income tax return to the succeeding year, 1994. Specifically, the assailed Decision disposes, as follows: "However, while this Court finds for the Petitioner, We concur with Respondent's finding (Exh. 2) that Petitioner is not entitled to the full amount sought. Except for the amount of P2,344.82 where Petitioner was able to present supporting documents (Exhs. R and R-3), the latter failed to substantiate the rest of its prior year's excess credit of P2,279,506.00 which was applied by Petitioner against its tax liability for 1994. Likewise, the amount of P66,288.00 is disallowed for reasons stated hereunder: REASON EXHIBIT CLIENT AMOUNT (1) Recorded twice BBBBB Sps. Gregory & P42,923.90 Adrienne Torres (2) Denied exhibits CCCCC Pancake House 3,285.72 per Resolution DDDDD Pancake House 3,319.24 dated 11/25/98 EEEEE Pancake House 3,206.00 FFFFFF Excelfoods 6,683.14 GGGGG Cindivic Corp. 6,870.00 TOTAL P16,288.00 ========== Thus, a recomputation of Petitioner's excess income tax payments would show its entitlement to a reduced amount of P1,022,291.75 detailed as follows: TAXABLE INCOME P14,904,925.00 ============ TAX DUE 5,216,724.00 LESS: TOTAL CREDIT (a) Prior years' Excess credit P2,344.82 (b) Creditable Tax Withheld 6,236,670.93 6,239,015.75 AMOUNT REFUNDABLE P1,022,291.75" ============ After the denial of its Motion for Reconsideration , petitioner filed the present Petition for Review, anchoring on the sole issue, to wit: "THE HONORABLE COURT OF TAX APPEALS ERRED IN RULING THAT THE PETITIONER FAILED TO FULLY SUBSTANTIATE ITS RIGHT TO THE REFUND OF THE UNUTILIZED TAX CREDITS FROM THE TAXABLE YEAR 1994." In the Petition,. petitioning corporation argued that the failure of the petitioner to submit pertinent documents is not its fault but that of the public respondent BIR. The BIR issued a Letter of Authority only for the examination of the taxpayer's accounting records for the taxable year 1994. However, proof of the prior year's excess credits declared in 1994 would already constitute the petitioner's accounting records for the taxable year 1993, which is outside the scope of the Letter of Authority issued by the respondent. The petitioner was not legally bound to present such documents to the respondent. On the other hand, it is Commission's duty to conduct the investigation of petitioner's accounting records in relation to the declaration made in its income tax returns relative to its claim for refund. If it fails to do so within three (3) years from the filing of the return, it is deemed to have accepted to declarations as correct pursuant to National Internal Revenue Code. And if the BIR felt it needed to look into the 1993 accounting records of the petitioner, the BIR should have issued the necessary letter of authority. In fact, petitioner's claim for refund was filed with the Bureau of Internal Revenue on 31 March 1997 and this was still within the three (3)-year period for the respondent commissioner to investigate petitioner's claim. The BIR could easily have issued a letter of authority to examine petitioner's accounting records for the taxable year 1993, yet, it did not do so. Thus, BIR's failure to conduct an examination thereto is tantamount to an acceptance of the declarations made in petitioner's annual income tax return for taxable year 1993 ( Petition, p . 8 ; Rollo, p . 35 ) We are not persuaded. In Magsaysay Lines Inc. vs. Court of Appeals, 260 SCRA 513 (1996) , the Supreme Court explicitly declare the legal implications of tax refund, thus: "Tax exemptions ( and, we might add, refunds in the nature of exemptions ) must be strictly construed against the taxpayer and liberally construed in favor of the State." Thus, as a claim for refund is in the nature of a claim for exemption, it should be construed strictissimi juris against the taxpayer. Consequently, the claimant or taxpayer has the burden of proof of establish the factual basis of its claim for tax refund. Hence, when the Bureau of Internal Revenue conducts its investigation to determine the correctness of the return and the tax amount to be credit/refunded, it is incumbent upon petitioner's to substantiate its claim for refund. But, petitioning corporation failed to do. The responsibility of submitting all the pertinent records falls upon petitioner. Petitioner must prove not only its excess credit for the year being reported it must also substantiate the excess credit carried over from the previous year. In other words, petitioner was duly bound to submit the records relating to its reported excess credit for the year 1993, which it had carried over in its income tax return for 1994. Even if the Letter of Authority issued by the BIR did not cover the records pertaining to the excess credits for the year 1993, petitioner was obliged to submit the same during the investigation. The burden of proving entitlement to the refund or credit clearly rests upon petitioner. Petitioner cannot validly shift the blame for its failure to substantiate the excess credit for 1993 to public respondent BIR when it had the primary duty to submit for audit all pertinent accounting records. CDHaET The requirements for a refund as stated in the Decision of the Court of Tax Appeals and quoted by petitioner on page 6 of its petition, does not exempt petitioner from its duty to prove its claim for refund when audited by the BIR. As correctly stated by the Court of Tax Appeals in its Resolution dated 3 March 2000. ". . . (The) requirements laid down in CTA Case No. 4134 entitled Citytrust Finance Corporation vs. the Honorable Commissioner of Internal Revenue, November 11, 1991, are basic requirements in order that a claim for refund may be given due course by the Commissioner or his authorized officers and that this does not requiring (sic) other evidence which will once and for all erase all doubts to the claim for refund." Moreover, the investigation conducted by the BIR is not limited to verifying the veracity of the excess credit. It is tasked to verify all the statements in the return. Therefore, petitioner was likewise under the obligation to substantiate all its statements in the return. Petitioner also contends that the presumption of validity of the income tax returns must be considered in its favor. Such argument is untenable. The presumption has been effectively rebutted by the findings of the BIR that the excess credit from 1993, carried over in the 1994 income tax return, in the amount of P2,279,506.00, was not properly documented. Neither can we discern any tenability to the petitioner's theory that respondent BIR's answer to the petition filed before the Court of Tax Appeals 1 equates to a general denial and must therefore be considered as an admission. Such argument must fail for lack of merit. At the time of the filing of the petition filed before the Court of Tax Appeals, the BIR had not, as yet, conducted its audit of petitioner's book. Thus, it had correctly stated such fact in its answer. The statements as stated in the income tax returns are still subject to verification by the BIR; it cannot be considered as correct, accurate or true before the verification is actually performed. Consequently, the answer by respondent BIR is a specific denial. Assuming ex gratia argumenti , in Commissioner on Internal Revenue vs. Court of Appeals, 257 SCRA 200 [1996] , the Highest Magistrate ruled that "it is hornbook law that the Government is not bound or estopped by the mistakes, inadvertence . . . of its officials and employees." Finally, the decision of the Court of Tax Appeals must be respected on appeal. As a matter of principle, even the Supreme Court will not set aside the conclusion reached by the Court of Tax Appeals which is, by the very nature of its function, dedicated exclusively to the study and consideration of tax problems and has necessarily developed an expertise of the subject unless there has been an abuse or improvident exercise of authority. ( Commissioner of Internal Revenue vs. Court of Tax Appeals , 271 SCRA 605) WHEREFORE, premises considered, the petition is hereby DISMISSED for lack of merit. No costs. STIcaE SO ORDERED. Garcia and Brawnes, JJ . , concur. Footnotes 1. To the effect that it does not have sufficient knowledge to a form a belief as to the truthfulness of petitioner's tax credits for 1994.