Rules and Regulations Implementing Presidential Decree No. 819

SPECIAL FIRST DIVISION [C.T.A. CASE NO. 7618. March 21, 2011.] MIRANT (NAVOTAS II) CORPORATION , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . RESOLUTION For resolution of this Court is petitioner's Motion for Reconsideration filed on July 29, 2010 assailing this Court's Decision dated July 12, 2010 which denied petitioner's claim for refund or issuance of tax credit certificate in the amount of P2,168,731.85 representing overpaid income taxes or excess creditable withholding taxes for the calendar year ended December 31, 2005. aATHIE In a Resolution promulgated on December 20, 2010, the Court submitted the instant Motion for resolution after denying respondent's Motion for Reconsideration filed on September 8, 2010, and after admitting petitioner's Formal Offer of Evidence filed on September 27, 2010. In the Assailed Decision, the Court found petitioner's 2006 Annual Income Tax Return which reflected no amount of "Prior Year's Excess Credits" insufficient to establish that it did not carry-over the claimed 2005 excess tax credits of P2,168,731.85 to the succeeding first, second and third quarters of 2006. Petitioner asserts that it has not carried-over nor utilized its 2005 excess creditable withholding taxes to the succeeding first, second and third quarters of 2006. In support thereof, petitioner presented and formally offered in evidence its Quarterly Income Tax Returns for the first, 1 second 2 and third 3 quarters of 2006 and Supplemental Judicial Affidavit 4 of petitioner's former Senior Tax Analyst, Mr. Roger B. Quingquing. A careful perusal of these documents 5 shows that no amount of "Prior Year's Excess Credits" was reflected, indicating that petitioner did not actually carry-over the claimed 2005 excess creditable withholding taxes of P2,168,731.85 to the succeeding quarters of taxable year 2006. Moreover, petitioner's Quarterly Income Tax Returns for the first, second and third quarters of 2006 reflected no amount of income tax due against which the claimed creditable withholding taxes may be applied or credited. Petitioner's 2005 excess tax credits in the amount of P2,168,731.85 appears to be refundable pursuant to Section 76 of the National Internal Revenue Code (NIRC) of 1997, as amended. However, in order to be entitled to the refund being sought for, petitioner must satisfy the following requirements: 1. That the claim for refund was filed within the two-year prescriptive period as provided under Section 204 (C) in relation to Section 229 of the NIRC of 1997; 2. That the fact of withholding is established by a copy of a statement 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 income upon which the taxes were withheld were included in the return of the recipient. 6 With regard to the first requirement, the Court finds petitioner to have filed its claim for refund within the two-year prescriptive period. The reckoning of the two-year prescriptive period for the filing of a claim for refund/tax credit of excess income tax paid/withheld commences from the date of filing of the final adjustment return. 7 The claimed excess creditable withholding taxes pertain to calendar year 2005 for which petitioner filed its Annual Income Tax Return on April 10, 2006. 8 Counting from this date, petitioner had until April 10, 2008 within which to file its claim for refund or tax credit certificate both in the administrative and judicial levels. Therefore, petitioner's administrative claim for refund filed on February 5, 2007 9 and the Petition for Review filed on April 18, 2007 are well within the two-year prescriptive period. CSDcTH As to the second requisite, petitioner was able to establish the fact of withholding of the total reported creditable withholding taxes for taxable year 2005 in the amount of P3,672,472.37, which included the claimed amount of P2,168,731.85, through the presentation of the following Certificates of Creditable Tax Withheld at Source [BIR Form No. 2307] issued to it by its lone client, National Power Corporation (NPC), for taxable year 2005: Income Tax Exhibit Period Income Payment Withheld "X" 02/01/05 to 02/28/05 P52,253,933.00 P1,045,078.66 "K" 01/01/05 to 04/30/05 51,974,946.50 1,039,498.93 "L" 05/01/05 to 05/31/05 25,986,281.00 519,725.62 "M" 06/01/05 to 06/30/05 26,539,485.00 530,789.70 "N" 07/01/05 to 07/31/05 26,869,023.00 537,380.46 Total P183,623,668.50 P3,672,473.37 ============= ============ With respect to the question of whether or not the income of P183,623,668.50 upon which the subject taxes were withheld were included and reported by petitioner in its income tax return, the Court finds that petitioner failed to do so. In its 2005 Annual Income Tax Return, petitioner declared a total amount of P190,104,970.00 10 revenues from sales of services. The amount of P190,104,970.00 is the peso value of the Net Fees of $3,457,408.00 reflected per petitioner's 2005 Statement of Income. 11 For financial statement purposes, petitioner uses the US dollar as its functional currency. 12 Thus, to reconcile the sales figures of P190,104,970.00 and $3,457,408.00, petitioner presented in evidence its Schedule of Sale for Resale Electricity. 13 The Court takes notice that the Certificates of Creditable Tax Withheld at Source reflected a lower amount of P183,623,668.50 income payments. The discrepancy in income of P6,481,301.50 (P190,104,970.00 less P183,623,668.50) , as explained by petitioner's Senior Tax Analyst, Mr. Roger B. Quingquing, in his Judicial Affidavit 14 dated July 18, 2008, was due to: a) sales revenues billed in 2005 but remained uncollected as of December 31, 2005; b) sales revenues billed in 2004 but were only collected in 2005; c) sales revenues billed in 2004 which were written off in 2005; and d) foreign exchange differences between the rate at which the sales were recorded and billed and the rate prevailing at the time collection and withholding was made. In support of Mr. Quingquing's testimony, petitioner presented a reconciliation schedule 15 which reflected the following: DTCSHA Gross Income per 2005 Annual Income Tax Return P190,104,970.00 Add (Less): a) sales revenues billed in 2005 but remained uncollected as of December 31, 2005 P(62,588,059.57) b) sales revenues billed in 2004 but were only collected in 2005 52,253,933.00 c) sales revenues billed in 2004 which were written off in 2005 2,822,695.80 d) foreign exchange differences between the rate at which the sales were recorded and billed and the rate prevailing at the time collection and withholding was made 1,030,129.10 (6,481,301.67) Gross Income per Certificates of Creditable Tax Withheld at Source P183,623,668.33 ============= However, this Court finds the reconciliation schedule insufficient to prove that petitioner declared the income upon which the claimed creditable withholding taxes were withheld. Petitioner should have submitted the source documents such as sales invoices and official receipts issued by petitioner to NPC for the years 2005 and 2004, Annual Income Tax Return for taxable year 2004, general ledger/trial balance for the year 2004 and other documents upon which the figures shown in the schedule were based. Only upon the presentation of the said documents will the Court be able to validate the figures indicated in the reconciliation schedule. Petitioner's non-compliance with the third requisite is fatal to its claim for refund. To reiterate, tax refunds are in the nature of tax exemptions. The same are regarded as in derogation of sovereign authority and shall be construed strictissimi juris against the person claiming such exemption. The taxpayer has the burden of proving that it is entitled to the claim for refund. 16 WHEREFORE , premises considered, petitioner's Motion for Reconsideration is hereby DENIED for insufficiency of evidence. SO ORDERED . Ernesto D. Acosta, P.J., Lovell R. Bautista and Caesar A. Casanova, JJ., concur. Footnotes 1. Exhibits "AA" to "AA-2". 2. Exhibits "BB" to "BB-2". 3. Exhibits "CC" to "CC-2". 4. Exhibits "Z" and "Z-1". 5. Line 29A of Exhibits "AA-1", "BB-1" and "CC-1". 6. Section 2.58, Revenue Regulations No. 2-98, as amended; Citibank N.A. v. Court of Appeals and CIR , 280 SCRA 459: ACCRA Investment Corporation v. CA , 204 SCRA 957. 7. ACCRA Investment Corporation v. CA , 204 SCRA 957. 8. Exhibit "I". 9. Exhibit "C-1". 10. Exhibits "V-7" and "V", line 37. 11. Exhibit "O-2". 12. Exhibit "O", Notes to Financial Statements, Note no. 2 (Summary of Significant Accounting Policies and Impact of the New and Revised Accounting Standards). 13. Exhibits "Q" to "Q-2". 14. Exhibit "Y", Docket, p. 527. 15. Exhibit "U". 16. BPI Family Savings Bank v. Court of Appeals , 330 SCRA 507 (2000).