Philippine Mining Service Corp. v. Commissioner of Internal Revenue

SPECIAL FIFTH DIVISION [CA-G.R. SP No. 76144. July 22, 2005.] PHILIPPINE MINING SERVICE CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . D E C I S I O N REYES, R.T. , J p : TAXES are the lifeblood of the Government. Deductions, on the other hand, minimize a taxpayer's liability. Consequently, the burden of proof is upon him who claims the deduction in his favor. And if a revenue officer commits an error in favor of a taxpayer, Government is not bound by the mistake. Assailed in this petition for review under Rule 43 are the following: a. Decision of the Court of Tax Appeals (CTA) promulgated on July 25, 2002 1 ; and b. Resolution of the CTA promulgated on February 26, 2003 2 . Antecedent Facts On July 7, 1980, petitioner Philippine Mining Service Corporation (PMSC) entered into a service contract with Dolomite Mining Corporation (DMC). DMC is a grantee of certain lease rights pursuant to a mining lease contract entered into by the former and the Philippine Government on March 5, 1980. On December 5, 1997, the Bureau of Internal Revenue (BIR) sent petitioner a letter informing the latter that a report of an investigation on its income and business tax returns has been submitted to Revenue District Officer Hernani S. Arboleda for appropriate action. Attached to the letter was a memorandum of Revenue Officer Celestino Mejia. In his memorandum, Mejia recommended the issuance of an assessment notice against petitioner for the following deficiency taxes: a. Deficiency income tax Basic Tax Due P43,315,584.48 Surcharge 10,828,896.12 Interest 26,621,036.29 P80,765,516.89 b. Deficiency output tax 1.) On collection of reimbursements Basic Tax Due P4,701,347.99 Surcharge 1,175,337.00 Interest 3,246,092.59 2.) On understated revenues Basic Tax Due P7,940,530.12 Surcharge 1,985,132.53 Interest 5,128,259.03 P24,176,699.26 3.) Deficiency excise tax Basic Tax Due P2,714,672.63 Surcharge 1,357,336.31 Interest 2,103,871.28 P6,175,880.22 P111,118,096.37 ============ Hence, on April 8, 1998, petitioner received Pre-Assessment Notices indicating the following assessments: A. Deficiency Income Tax Basic Tax Due P51,672,590.06 Surcharge 12,918,147.51 Interest 31,165,030.87 P95,755,768.44 B. Deficiency Excise Tax Basic Tax Due P2,714,672.63 Surcharge 1,357,336.31 Interest 2,134,954.28 P6,206,963.22 C. Deficiency VAT Basic Tax Due P12,641,878.11 Surcharge 3,160,469.53 Interest 8,567,803.43 P24,370,151.07 P126,332,882.73 ============= Petitioner likewise received various assessment notices on April 13, 1998 all dated April 6, 1998. Said notices contained petitioner's deficiency income tax, value added tax and excise tax for the fiscal year ending April 30, 1995 in the aggregate amount of P130,305,575, inclusive of surcharge and interest, computed as follows: A. Deficiency Income Tax Basic Tax Due P51,672,590.06 Surcharge 12,918,147.51 Interest 34,233,090.91 P98,823,828.48 B. Value-Added Tax Basic Tax Due P12,641,878.11 Surcharge 3,160,469.53 Interest 9,279,544.59 P25,081,892.23 C. Excise Tax Basic Tax Due P2,714,672.63 Surcharge 1,357,336.31 Interest 2,327,845.35 P6,399,854.29 P130,305,575.00 ============= On May 12, 1998, petitioner protested before the BIR the alleged deficiency income tax, value-added tax and excise tax assessments. Petitioner further filed a supplemental protest on June 4, 1998. Later, Revenue Officer Mejia modified his findings as to the amount of petitioner's liability. However, he reiterated his previous recommendation for the issuance of an assessment notice. No subsequent notice of Formal Assessment was issued incorporating said findings and modifying the earlier assessments. cEaSHC The BIR failed to act on the protest lodged by petitioner. Hence, on January 29, 1999, petitioner filed a petition for review before the Court of Tax Appeals (CTA), docketed as CTA Case No. 5725. Several months later, the CTA rendered the assailed decision 3 with the following disposition: "WHEREFORE, in view of all the foregoing, the deficiency excise tax assessment of P6,399,854.29 for FY 1995 is hereby cancelled and/or withdrawn. However, petitioner is hereby ORDERED TO PAY to respondent the deficiency income tax of P3,833,677.53 and deficiency VAT of P340,147.00 in the aggregate sum of P4,173,824.53 for FY 1995, inclusive of surcharge and deficiency interest, computed as follows: Deficiency Tax Income VAT Total Basic Tax Due P2,006,873.14 P174,588.60 Surcharge 501,718.29 43,647.15 Interest 1,325,086.10 121,911.25 P3,833,677.53 P340,147.00 P4,173,824.53 In addition, petitioner is ORDERED TO PAY to respondent 20% delinquency interest on P4,173,824.53 computed from May 9, 1998 until fully paid pursuant to Section 249(a)(c)(3) of the 1994 Tax Code. SO ORDERED." 4 Petitioner moved for a reconsideration contending that its realized foreign exchange loss for the fiscal year 1995 was already jointly stipulated by the parties, hence, it is no longer an issue in the case. Petitioner's motion was denied by the CTA in its assailed resolution. 5 Hence, the present recourse. Issue Petitioner contends that the CTA "erred in ruling that the joint stipulation of facts and issues, dated August 24, 1999, in so far as the amount of petitioner PMSC's realized foreign exchange loss is concerned does not bind respondent Commissioner of Internal Revenue." 6 Our Ruling A Stipulation Of Facts, Although Binding Upon The Parties, May Be Contradicted By Showing That It Was Made Through Palpable Mistake OR That No Such Admission Was Made . Petitioner argues that the amount of P8,196,348.00 as its realized foreign exchange loss for fiscal year 1995 "was already jointly stipulated by the parties and, therefore, petitioner PMSC need not present further evidence on the same" 7 ; that the Court of Tax Appeals "should have honored the stipulation entered into between petitioner PMSC and respondent CIR as to the amount of the realized foreign exchange loss." 8 Respondent, on the other hand, contends that the joint stipulation of facts is not binding since it is evident from the records that respondent's counsel inadvertently committed a mistake in stipulating the fact that petitioner incurred realized foreign exchange loss in the amount of P8,196,348.00; that taxes are the lifeblood of the government, hence, the government cannot be bound by the errors committed by its agents. 9 The CTA disregarded the stipulation made by the petitioner and the respondent. According to it, the joint stipulation between petitioner and respondent's counsel cannot bind the Commissioner for having been entered under mistake. We agree with the CTA. Stipulations of facts constitute judicial admissions by both parties. 10 Being judicial admissions, they do not require proof. 11 However, they may be contradicted by showing that it was made through palpable mistake or that no such admission was made . 12 It is evident from the conduct of respondent's counsel that she mistakenly stipulated the amount of P8,196,348 as petitioner's realized foreign exchange loss for the fiscal year 1995. We concur with the following findings of the CTA: "While it is true that the respondent's counsel, Ms. Ana Rhia V. Largo, stipulated the fact that petitioner incurred realized foreign exchange loss of P8,196,348.00 for FY 1995 as can be read from paragraph 13 of the parties' Joint Stipulation of Facts, thus: '13. Petitioner PMSC incurred the following expenses during its operations in fiscal year ending April 30, 1995: interest expense P6,225,703.00 realized foreign exchange loss 8,196,348.00 Alcoy branch administration expense 19,929,056.68' such stipulation is not binding to this court. It is quite evident from the records that the respondent's counsel inadvertently committed a mistake in stipulating so. It must be recalled that the realized foreign exchange loss of P8,983,712.00 (not P8,196,348.00 as stipulated) declared by petitioner as deduction in its FY 1995 income tax return was one of petitioner's reported expenses disallowed by the respondent that resulted to the deficiency income tax assessment of P98,823,828.48. As mentioned in the examiner's investigation/memorandum report (Exhibit 2, page 430, BIR records), the disallowance of the claimed realized foreign exchange loss of P8,983,712.00 was based on the findings that: one, the actual realized foreign exchange loss amounted only to P3,249,790.59 and that the remaining amount of P5,733,921.41 was a mere provision and has not been actually realized ; and two, the entire amount of P8,983,712.00 should be disallowed as this expense was derived from loans used in petitioner's mining operations, thus, reimbursable under Chapter III, section 16(g) of the notarized mining services contract between petitioner and DMC. The respondent's counsel, Ms. Ana Rhia V. Largo, reiterated the aforesaid factual findings in her memorandum (pages 374 & 375, CTA records) and formally offered in evidence the examiner's investigation report (Exhibit 2, pages 425-433, BIR records) in asserting the validity of the deficiency income tax assessment of P8,823,828.48 . "Evidently, the foregoing indicates that an error was committed by the respondent's counsel, Ms. Ana Rhia v. Largo , in stipulating that petitioner incurred realized foreign exchange loss of P8,196,348.00 for FY 1995. Had the respondent's counsel intended to actually, admit such statement she could not have reiterated in her memorandum the factual findings of the revenue examiner regarding petitioner's realized foreign exchange loss. Moreover, the realized foreign exchange loss of P8,983,712.00 is one of the very bases of the subject deficiency income tax assessment of P98,823,828.48 and to disregard the examiner's factual findings would create an undue prejudice to the interest of the government . It bears stressing that taxes are the lifeblood of the Government and their prompt and certain availability are imperious need ( Atlas Consolidated Mining and Development Corp. v. Commissioner of Internal Revenue , G.R. Nos. L-26911 and L-26924, January 27, 1981, 102 SCRA 246). Further, it is a long and firmly settled rule of law that the Government is not bound by the errors committed by its agents . In the performance of its governmental functions, the State cannot be estopped by the neglect of its agent and officers ( Commissioner of Internal Revenue vs. Court of Appeals, Citytrust Banking Corporation and Court of Tax Appeals , G.R. No. 106611, July 21, 1994)." 13 Likewise, We agree with the respondent that the Government is never estopped from collecting taxes because of mistakes or errors on the part of its agents. 14 Although respondent's counsel mistakenly agreed to the amount of P8,196,348 as petitioner's realized foreign exchange loss, the Government cannot be bound by said mistaken admission. The rule of estoppel will not apply. A taxpayer cannot invoke the said rule in order to preclude collection of taxes that are rightfully due the Government. A taxpayer seeking a deduction must point to some specific provision of the statute authorizing the deduction. 15 Furthermore, he must be able to prove that he is entitled to the deduction claimed by him. 16 In sum, in order that losses may be deductible, the following conditions must be complied with: "a. the loss must be that of a taxpayer; b. it must be actually sustained 17 and charged off within the taxable year; c. it must be evidenced by a closed and completed transaction; 18 d. it must not be compensated for by insurance or other form of indemnity ; 19 e. in case of casualty loss, a sworn declaration of the loss must be filed within 45 days after the date of the occurrence of casualty or robbery, theft or embezzlement; 20 f. the taxpayer must prove the elements of the loss claimed such as the actual nature and occurrence of the event and amount of the loss; 21 g. the loss must be connected with the trade, business, or profession of the taxpayer; 22 and h. the loss must not have been previously claimed as a deduction for estate tax purposes in the estate tax return." 23 In view of the above findings of the CTA, We agree that petitioner is not entitled to claim the entire amount of P8,196,348 stipulated by petitioner and respondent's counsel as petitioner's realized foreign exchange loss. We quote with approval pertinent portions of the CTA Resolution: "It must be recalled that the realized foreign exchange loss of P8,983,712.00 (not P8,196,348.00 as stipulated) declared by petitioner as deduction in its FY 1995 income tax return was one of petitioner's reported expenses disallowed by the respondent that resulted to the deficiency income tax assessment of P98,823,828.48. As mentioned in the examiner's investigation/memorandum report (Exhibit 2, page 430, BIR records), the disallowance of the claimed realized foreign exchange loss of P8,983,712.00 was based on the findings that: one, the actual realized foreign exchange loss amounted only to P3,249,790.59 and that the remaining amount of P5,733,921.41 was a mere provision and has not been actually realized ; and two, the entire amount of P8,983,712.00 should be disallowed as this expense was derived from loans used in petitioner's mining operations, thus, reimbursable under Chapter III, section 16(g) of the notarized mining services contract between petitioner and DMC." 24 Considering that petitioner failed to prove its entitlement to the claimed deduction, it cannot be allowed. WHEREFORE, the petition is DENIED for lack of merit. SO ORDERED. Reyes * and Peralta, JJ., concur. Footnotes * Vice Justice Salonga, on leave, per Office Order No. 154-05-RB dated July 1, 2005. 1. In CTA Case No. 5725, Rollo , pp. 25-47. 2. Ibid , pp. 48-57. 3. Promulgated on July 25, 2002, Rollo , pp. 25-47. 4. Rollo , pp. 46-47. 5. Promulgated on February 26, 2003, Rollo , pp. 48-57. 6. Rollo , p. 12. 7. Rollo , p. 13. 8. Rollo , p. 15. 9. Ibid , pp. 201-202. 10. Pedro Lim vs. Perfecto Jabalde , G.R. No. 36786, April 17, 1989. 11. Section 4, Rule 129, Rules on Evidence. 12. Ibid . 13. Rollo , pp. 55-57, emphasis supplied. 14. Visayan Cebu Terminal Co., Inc. vs. Commissioner of Internal Revenue , 13 SCRA 357 (1965); Zamora vs. Court of Tax Appeals , 36 SCRA 77 (1970); Balmaceda vs. Corominas & Co., Inc ., 66 SCRA 555 (1975); ABS-CBN Broadcasting Corporation vs. Court of Tax Appeals and the Commissioner of Internal Revenue , G.R. No. L-52306, October 12, 1981; Commissioner of Internal Revenue vs. Court of Appeals, et al ., G.R. No. 107135, February 23, 1999. 15. Basilan Estates, Inc. vs. CIR , L-22492, Sept. 5, 1969. 16. 1955 PH. Fed. Tax Course, par. 1801. 17. Section 34(D)(1), National Internal Revenue Code of the Philippines. 18. Alhambra Cigar & Cigarette Mfg. Co. vs. Commissioner of Internal Revenue , L-12026, May 29, 1959. 19. Ibid . 20. Section 34 (D) 1, NIRC. 21. Section 21, Revenue Regulations No. 12-77. 22. Section 34 (D) 1, NIRC. 23. Teodoro & De Leon, The Law on Income Taxations, Eleventh Edition 2001, citing Section 34 (D) 1, NIRC; Section 21, Revenue Regulations No. 12-77 and Section 93 (C) Regs. 24. Rollo , pp. 55-56, underscoring supplied.