Commissioner of Internal Revenue v. Jardine Pacific Finance, Inc.

NINTH DIVISION [CA-G.R. SP No. 66699. December 12, 2001.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . JARDINE PACIFIC FINANCE, INC. , respondent . D E C I S I O N VILLARAMA , JR. , J p : The central issue in this petition for review under Rule 43 of the 1997 Rules of Civil Procedure , as amended, is whether or not respondent is entitled to a tax credit or refund of excess quarterly income tax payments for taxable year ending December 31, 1997. The facts of the case as found by the Tax Court are as follows: "On May 30, 1997, Petitioner filed its first quarterly income tax return for taxable year ending December 31, 1997, declaring therein a net taxable income in the amount of P8,757,875.59 and a tax due of P3,065,256.00 (Exhibit "A"). Since Petitioner allegedly had creditable withholding taxes for the first quarter of 1997 in the amount of P8,467.07, the latter amount was deducted from the original tax due of P3,065,256.00 and consequently, a tax payable in the amount of P3,056,788.96 was reflected in its first quarterly income tax return for 1997. "On August 29, 1997, Petitioner filed its income tax return for the second quarter of 1997 showing therein a net taxable income in the amount of P18,200,667.46 and an income tax due of P6,370,234.00. Petitioner then carried over its income tax credits/payments for the first quarter in the amount of P3,065,256.00, thus, resulting in Petitioner's tax liability for the second quarter in the amount of P3,304,978.00 (Exhibit "C"). "For the third quarter of 1997, Petitioner declared in its quarterly income tax return, a net taxable income in the amount of P6,095,185.00 and a tax due of P2,133,315.00. After applying the previous income tax payments for the first and second quarters of 1997, Petitioner reflected in its income tax return an overpayment/refundable amount of P4,236,919.00 (Exhibit "D"). "Allegedly, by reason of the region's financial crisis, Petitioner suffered losses at the end of taxable year 1997. Thus, in its 1997 amended annual income tax return filed on April 30, 1998, it reflected a net loss of P55,232,141.00 and an alleged refundable amount of P6,370,212.00 (Section A of Exhibit "F") consisting of its reported quarterly income taxes paid for the first and second quarters of 1997 in the amounts of P3,056,798.00 and P3,304,978.00 and creditable taxes withheld in the amount of P8,445.00 (Section E of Exhibit "F"). "On April 13, 2000, Petitioner filed a claim for refund with the BIR in the amount of P6,370,212.00 anchored on the provisions of Sections 51 (now Section 58), 69 (now Section 76) and 204 of the then Tax Code of 1997. The next day or on April 14, 2000, Petitioner filed an appeal to this Court reiterating its claim for refund filed with the BIR." Petitioner filed its Answer 1 to the petition 2 asseverating that: (1) that the alleged claim for tax refund is subject to administrative investigation/examination by the BIR; (2) respondent failed to show that the taxes subject of the case were erroneously or illegally collected; (3) taxes due and collected are presumed to have been made in accordance with law, hence, not refundable; (4) the burden of proof is on the taxpayer to establish his right to a refund in an action for tax refund. Failure to discharge such duty is fatal to his action; (5) it is incumbent upon the respondent to show that it has complied with the provisions of Section 204, in relation to Section 229 of the Tax Code , as amended; and (6) claims for tax credit/refund are construed strictly against the taxpayer as this is in the nature of a tax exemption. Thus, it is looked upon with disfavor. Accordingly, petitioner prayed for the denial of respondent's petition. AEIcSa On June 15, 2001, the Court of Tax Appeals rendered a Decision 3 , the dispositive portion of which reads: "WHEREFORE, in view of all the foregoing, Respondent is hereby ORDERED to REFUND or in the alternative to ISSUE a TAX CREDIT CERTIFICATE in the amount of P6,361,766.93 in favor of the Petitioner, representing excess quarterly income taxes paid for taxable year 1997. "SO ORDERED." Petitioner filed a motion for reconsideration 4 thereof but the same was denied in a Resolution 5 dated August 31, 2001. Hence, this petition. In challenging the above rulings, petitioner asseverates that the Tax Court erred in granting the refund in favor of respondent despite its failure to fully substantiate its entitlement thereto. Specifically, petitioner questions the reliance of the Tax Court in the final adjustment return submitted by respondent to support its alleged net losses in 1997, averring that the final adjustment return is self-serving as the BIR had no participation whatsoever in the preparation of the same. Moreover, petitioner asseverates that it should have been given ample opportunity to investigate the claimed sharp reduction of respondent's income in six (6) months in connection with the latter's assertion of business losses. On the other hand, in its Comment 6 to the present petition, respondent avers that petitioner failed to present evidence to establish that it irregularly reported a net loss in its 1997 Annual Income Tax Return, as it even submitted the case for decision based on the pleadings. In the absence of contrary evidence, respondent alleged that its 1997 Annual Income Tax Return and its accompanying audited financial statements provide sufficient proof of the losses it sustained in said taxable year. As to the assertion of petitioner that BIR was not given ample opportunity to investigate respondent's case, the latter stated that petitioner's failure to conduct a routine investigation of its 1997 Annual Income Tax Return despite having the opportunity to do so is due to its own fault and that the same may be considered as an implied admission that the contents of the return are true and correct. This Court has carefully examined the assailed Decision and found no reversible error on the part of the Tax Court in granting the contested tax refund of respondent's excess quarterly income tax payments for the taxable year of 1997. The Supreme Court in the case of Commissioner of Internal Revenue vs. Court of Tax Appeals 7 disallowed a refund on the ground that the contents of a tax return cannot be presumed to be true and correct considering the existence of a deficiency assessment issued by the BIR. Thus, the High Court held: "The grant of a refund is founded on the assumption that the tax return is valid, that is, the facts stated therein are true and correct. The deficiency assessment, although not yet final, created a doubt as to and constitutes a challenge against the truth and accuracy of the facts stated in said return which, by itself and without unquestionable evidence, cannot be the basis for the grant of the refund." Considering the foregoing, it is then proper to conclude that the contents of a tax return, unchallenged by the BIR, can be presumed to be true and correct and may be the basis of a tax refund. In the present case, petitioner, from the time the subject 1997 Annual Income Tax Return was filed by respondent on April 30, 1998 up to April 30, 2001, did not take measures to investigate the sharp decline in the latter's business losses which led to its claim for tax refunds as there was no income from which its unutilized excess quarterly income payments for the said year may be applied or credited. Respondent was then correct in averring that since petitioner did not investigate/examine its 1997 Annual Income Tax Return despite having the opportunity and the power to do so, it can be presumed that the contents thereof are accurate and regular for purposes of a tax refund. Moreover, petitioner failed to mention in this petition that the 1997 Annual Income Tax Return filed by respondent was accompanied by an audit reports 8 of its financial statements as certified by an independent auditor, Joaquin Cunanan & Co., showing respondent's net business losses in 1997. Thus, the declaration of business losses in the final adjustment return or the amended 1997 Annual Income Tax Return in the amount of P55,232,141.00 was not just a mere allegation. Besides, as already discussed above, petitioner could have challenged the said business losses after the filing of the final adjustment return or during the hearing of the case before the Tax Court if it found said claim to be irregular notwithstanding the audit report submitted to support its claim. Although petitioner opposed the claim of respondent before the Tax Court, he did not present a deficiency assessment or an investigation report debunking the findings of the independent auditor to counter respondent's claim that it had no tax liability for the taxable year of 1997. Perforce, there being no real challenge to the truthfulness and accuracy of respondent's entries in its annual tax return for 1997, the same may be the basis of a claim for a tax refund. Respondent could very well apply for refund or tax credit of the subject excess quarterly income tax payments upon compliance with the requisites therefor. At this juncture, it is well to point out that the Tax Court, after verifying the documents submitted by respondent and those submitted by an independent certified public accountant (Joaquin Cunanan & Co.) and thereafter disallowing transactions that it found to have been made before taxable year 1997, ruled that insofar as those accounts it found in order, respondent complied with the procedural and substantiation requirements in order for a claim for refund be favorably acted upon. The subject excess quarterly income tax payments were indeed paid by respondent; the same were not applied against any tax liability for the succeeding years; and that the claim and the petition were filed within the two (2)-year prescriptive period under Section 229 of the 1997 Tax Code , as amended. Indeed, it is a basic rule in taxation that factual findings of the Court of Tax Appeals, when supported by substantial evidence, will not be disturbed on appeal unless it is shown that the said court committed gross error in the appreciation of facts. 9 As earlier stated, We find no such error committed in the present case. WHEREFORE, premises considered, the present petition for review is hereby DENIED DUE COURSE, and accordingly DISMISSED, for lack of merit. The Decision dated June 15, 2001 and the Resolution dated August 31, 2001 of the Court of Tax Appeals in CTA Case No. 6081 are hereby AFFIRMED and UPHELD. No pronouncement as to costs. SO ORDERED. CSTEHI Carpio-Morales and Pestao, JJ . , concur. Footnotes 1. Rollo , p. 104 2. Rollo , p. 33 3. Rollo , p. 24 4. Rollo , p. 109. 5. Rollo , p. 32 6. Rollo , p. 119 7. 234 SCRA 348. 8. Rollo , p. 53. 9. Commissioner of Internal Revenue vs. Court of Appeals , 298 SCRA 83.