Oa Guanzon Lime Development Cos Lncs + vs. C.T.A, et al.

DECISION —

CTA CASE NO. 2649 -— 2 = of his Revenue Examiners, by virtue of Letter of Authority No. 317464 RR, conducted an investigation on the aforesaid income tax returns. (p. 27, BIR rec.) Consequently, it was determined that peti- tioner was liable to pay the folldéwing deficiency income taxes:

Assessment No. Amount 25-ACR~401097-67-62 P4,068.,54 25-ACR~401214-67~63 4,186.64 25-~ACR-280033-67-65 1,930.06 (pp. 17, 18, 31, 32, 45, 46, 49, 50 & 52, BIR rec.) based on the disallowance of the following deductions claimed by petitioner, to wit:

1962

a. representation expenses (unsupperted) e « © BP 6,000,000 be, travelling expenses «o «'s (10,130,49 CC. purchases (unsupported) >i wm ie 1,281.79 1963

a. representation expenses a © fe 6,000.00

b. travelling & miscellaneous expenses ~~» « LO,1L30,49 1965 ae representation expenses <—s « 7,868.22 On March 29, 1968, respondent issued against petitioner the corresponding assessment notices mentioned above which were received by petitioner about the first week of April, 1968. (pp. 24 & 25, CTA rec.; p. 59, BIR rec.)

In a letter dated December 5, 1968, received J;

—— .

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DECISION -

CTA CASE NO. 2649 - 3 - by respondent on January 8 , 1969 1 petitioner, thru counsel, disputed the said asses sments stating in justification for allowance of its claimed deductions, that the exp lanations contained in p etitioner •s letters to its counsel dated July 22 , & 23 , 1968, regarding the disallm,ance of the monthly represen- tation expenses in the amount of P500 . 00 and the travelling expenses appear to be sufficient, and therefore, the same were forwarded to respondent for his consideration.

(pp . 54-59, BIR rec.)

Acco rdingly~ respondent thru the Regional Director of Quezon City, issued Letter of Authority No .. 491797 RR to reinvestigate dated March 4 1 1971, addressed to the petitioner which was duly received on March 5, 1971, by petitioner ' s accountant, Mr . Abelardo G. Espiritu .

(p .. 87 , BIR rec .. )

On May 10, 1971, petitioner submitted and filed a waiver of the St a tute of Limitation ..

(pp . 171-172, BIR r e c~) Subsequently, r espondent 1 s examiner submitted the report of reinvestigation on November 3, 1971, confirming the findings of the original investigation which was the b asis of the assessments in questiono It was discovered that petitioner herein had still been availing of the 10% exemption under Republic Act No .. 901 , which had by that time , already been amended by Republic Act~ No . 2351 , (effective June

DECISION -

CTA CASE NO. 2649

J

- 4 - 20, 1959).

Pursuant to Republic Act 233 1 as imple- mented by General Circular No. V-297• dated July 27~ 1959, petitioner shall be subject to the full income taxp Consequently, the examiner recommended the issuance of revised assessment notices or let- ters of demand for the sum of P6~77lo44 for the year 1962; P5~903ol6 for the year 1963; and 1?01 723.21 for the year 1965 or a total of Pl5t397.81 (pp. 104-107, BIR rec.)

In a memorandum dated August 24 1 1972, the Assistant Regional Director of Quezon City reite- rated the immediate collection of the said amount of Pl5 1 397~81 1 with the information that there was no need to issue new assessment notices as the old assessments were already listed in the IBM delin- quent accounts, and that the issuance of new assess- ments would only result in double assessment.

(Po

128, BIR rec.)

In a letter dated July 16, 1973~ received on July 18, 1973, petition~r# thru counsel, wrote the respondent Commissioner of Internal Revenue, re- garding the former 1 s claim for refund and made men- tion also of the deficiency income tax involved in- voking the defense of prescription on the right of the government to collect the same pursuant to Section 332(c) of the Revenue Code 1 in view of the

DECISION -

CTA CASE NO . 2649 ,.

- 5 - latter' s alleged failure to collec t the said assess- ment s within the period of five year s f r om date of assessmento (p . 143, BIR r ec.)

On August 15, 19 7 3, respondent, thru the Re- g i onal Di rec tor of Revenue Region No . 6 , Quezon City, i ssued a Warrant of Levy on Real Property agains t the pet itioner, whic h was served on August 30, 197 3 1 bu t the same was r eturned by petitioner the next day 1 fo r the r eason that they had already filed with the Tax Accounts Division in t he Nat ional Off i c e 1 a letter asking for the cancellation of the assessments cov e r ed by the Har rant due to prescription.. (pp .

1 44-1 45 , BIR r e co) On Oct ober 22 , 197 3 1 in compl i anc e with t he r equ est of the Head of the Legal Department in her letter of September 24 , 197 3, the Regional Director of Qu ezon City forwarded the entire docket o f the c ase to the Chi e f of the Appellate Divis i on f o r appropriate act ion in pet itioner' s protest on the ground of pr esc ription .

On December 3, 1974, respondent rendered his f i nal decision stating that the defense of prescrip- tion is without mer i t and denied petitioner r s r e - quest for the cancellation and withdrawal of the said assessments (pp,. 17 4- 1 75.r BIR rec.), whic h dec ision was allegedly received by petitioner on December 23 , 19 74 1 hence this appeal .

DECISION

CTA CASE NOo 2649

- 6 -

ISSUES:

1 .

Whether or not the right of the respondent to collect the deficiency assessments has already prescribed, and 2.

vihether or not the items of deductions disallowed by respondent in petitioner ' s income tax returns for the years 1962 1 1963 and 1965, respec- tively, are allowable under Section 30 (a) (1) of the Tax Code.

The law involved are Sections . 331 and 332 of the National Internal Revenue Code which are quoted hereunder fb~ ready reference, to wit: usee. 33lo Period of limitation upon assessment and collection. -Except as pro- vided in the succeeding section, internal revenue taxes shall be assessed within five years after the return was filed, and no' proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period . For the purposes of this section a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day:

Provided, That this limi tation shall not apply to cases already investigated prior to the approval of this Code. 1' "Sec. 332.

Exceptions as to period of limitation ef assessment and collection of taxes. -(c) Where the assessment of any in- ternal revenue tax has been made within the period of limitation above-prescribed suc h t~ may be collect~d by distraint or levy or by a proceeding in court, but only if begun (1) within five years after the assess- ment of the tax, or (2) prior to the expi- ration of any period for collection agreed upon in writing by the -Commissioner of Inter- nal Revenue and the taxpayer before the •

DECISION -

CTA CASE NCo 2649

- 7 - expi ration of such five- year periodo The peri od so agr eed upon may be extended by subsequent agr eements in writing made be- fore the expiration of the period previous- ly agr eed upon., 11 Petitioner maintains that the right of the r espondent to collec t the tax in this case has al- r eady prescribed while respondent maintains the opposite view ..

We find the view of petitioner well takeno

A

per usal of the records of this case will show that although the right of the governmen~ t o assess ' made on March 29 , 1968 1 for the years 1962, 1963 and 1965 was made wi thin five (5 ) years from the date the returns were filed on April 15 1 1963 1 Apr i l 1 5 ~ 1964 and Apr il 151 1966 1 respectively, the r ight of the government t o collec t the same has alr eady pr es cr ibed ~ Under Section 331 of the Tax Code, the govern- ment has the right to assess income tax against petitioner; or institute an action in Court with- out assessment within five (5) years after April 15 1 1963,. April 15"' 1964 and April 15 1 1966 or up to April 151 1968 1 April 15 1 1969 and April 15r 1971 1 respectivelyG / And under Section 332 (c ) of the Tax Code which provides an exception as to the period of assessment and collection , it is provided tha t where the assess-

DECISION -

CTA CASE NOo 2649

- 8 - ment of any internal revenue tax has been made within the period of limitation (five years) such tax may be collected by distra int or levy or a proceeding in Court but only if begun (1) within five years after the assessment of the tax, or

(2) prior to the expiration of the period agreed upon in writing by the Commissioner of Internal Revenue; and the taxpayer before the expiration of the five year period~ and the period agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agr eed upono In the case at bar, the assessments were i ssued by respondent on March 29, 1968, so that the right of the government to collect com- mences from that date to March 29, 1973.

When the

warrant of levy on real property was issued on August 15 1 1973, five (5) years four (4) months and sixteen (16) days 5ave already elapsed, whrch is actually beyond the five (5) year period with- in which the Commissioner of Internal Revenue may collect the tax.

While it is noted that on May 10~ 1971 1 peti- tioner filed a signed waiver of the statute of li- mitation within a period of six months , it does not however appear on record that respondent ac- cepted or agreed to· this waiver, which acceptance

DECISION -

CTA CASE NO . 2649 - 9 or agr eement is r equired under Section 332(c) of the Nat ional Internal Revenue Code i n order to eff~ ct the suspension of the running of the period to collect the tax assessed.

The filed waiver did not, therefore, suspend the running of the period of limitation to collect the tax- assessed against petitioner for the years 1962 , 1963 and 1965 . / ~ We cannot adhere to the position of r espondent that the right of the government to collect the t ax has not yet prescribed on account of the vigorous protests and requests for reinvestigation lodged by petitioner against the deficiency assessment . The records will show that petitioner merely disputed or questioned the legality of the assessment which pertains to the disallowanc es of its claim for de- ductions by giving r easons why the deductions should be allowed and why it should not pay sai d deficiency t ax .

(Limjoco , Jr. v s . Domingo , CTA Case No. 1191 1 I.

May 29 , 1964; Cell. of Into Rev., vs. Pineda, G. R. No . L-14522 , May 31, 1961; Cell. of Int . Revo v sQ Solano 1 G.R . No . L-11475, July 31 , 1958 ~) ~ And 1 although petitioner filed a signed waiver of the statute of limitation for a period of six months , which as aforesaid has not been agreed upon by respondent, petitioner herein has not been found to have , by his positive acts ( induced respondent t o suspend the collection of the tax assessed against

DECISION -

CTA CASE NOo 2649

- 10 - it after the expiration of the six months period 1 or from November 11, 197lo Respondent should have been vigilant an the collection of the assess- ment after the expiration of the waiver but did no such thing.

It was only on August 15 1 1973 that respondent thought of serving petitioner the warrant of distraint and levy 1 which was as afore- said beyond the five (5) year period within which to collect ..

With respect to the second issue 1 we deem it unnecessary to decide the same~ it having become moot and academic .

~lliEREFORE, the decision appealed from is hereby reversed and respondent Commissioner of Internal Revenue is hereby enjoined from collecting the deficiency income taxes for the years 1962, 1963 and 1965 assessed against petitioner . Without pro- nouncement as to costs.

SO ORDEREDo

Quezon City, November 28,

I CONCUR:

( CO~;oAQUIN ;(ssociate Judge /