Republic of the Philjppimu Court of Tax Appeals Ouizon City J. Roiv1ero & Associates, Inc. vs. The Cq\1missioner of Intl:Rnal Revenue

DECISION -

CTA CASE NO, 2670 oo 2 x in the amount of $21,362.55 on account of the afore- said unallowable deductions, and advised petitioner -to present its objections in én informal conference.

(p. 17, BIR rec.)

On June 4, 1968, Revenue Examiner Ricardo T. Ca- unan prepared a memorandum to the Revenue Listrict No.- 29, :iakati, Rizal, recommending the disallowance of the aforesaid claimed deductions on the ground that these were not supported by proper documents and re- ceipts and that these.deductions are not ordinary but are extraordinary,, unusual and extravagant and recom- mending the approval of the proposed notice. (pp. 2)- 22, BIR rec.)

Petitioner, through counsel, presented its objec- tions to the proposed assessment in its letter dated June 25, 1968, particulerly on the proposed unallowa- ble deductions, claiming that the expenses “are not xxx extraordinary, unusual and extravagant" and that these expenses are "ordinary and necessary" and asking that the proposed disallowénces in the amount cf 174,794.15 be set aside and cancelled.(pp. 27-28, Uh rec.) On February 15, 1969, respondent, through Regio- nell Director Leonardo L. Cabafiero, issued Assessment No. 29-ACR-600745-68-66 against petitioner and asking | it to pay on or before March 15, 1969 the sum of £23,126.15 as deficiency income tax for 1966,inclusive of 12,961.15 as interest and F200.00 as compromise penalty.(p. 23, BIR rec.) | .

Cn May 28, 1969 (p.24, BI: rec.) Regional Director Jose E. Consunji of Region 6, Lureau of Internal Revenue,

Co

“J

DECISION -

CTA CASE NO, 2670 Quezon City, wrote a letter to petitioner as fol- lows:

Please be informed that the examiner who conducted the investigation of your 1966 income tax return recommended to this Cffice that there is due from you the amount of $23,126.15, as deficiency income tax for the said year.

In view thereof and pursuant to Revenue ndministrative Order No. 1-67, this Office would like to invite you to an informal con- ference in order to hear your side of the aforementioned tax deficiency on June 27, 1969 at 9:00 o'clock in the morning, AsSess- ment Branch, Bureau of Internal Revenue, 3rd Floor, Prudential Bank building, Cubao, Que- zon City.

Your failure to appear and disrrove the findings of our examiner on the date set for the conference shall mean that you have wai- ved your right to the same and have accepted our findings. This Office would then ,roceed with the issuance of a formal notice of assessment subject, however, to the adminis trative remedies provided for under the Swe (0. 24, BIR rec.)

On October 5, 1972, Assistant Regional Director Marcelo IM. Lingao of Region No. 6, in a memorandum

to the Revenue District Officer of Revenue District

No. 29, directed the rcinvestigation of the case and structed him to request the taxpayer to execute a waiver of limitation or prescriytion before con- ducting the reinvestigation. (p. 29, BIR rec.)

On Jovember 17, 1972, Revenue “xaminer Ricardo T. Cauna of Revenue District No. 29, to “hom the Case was again assigned, reported that he reiterates the same stand taken previously by him and urged his superior - Asst. Director Lingso, that the request for reinvestigation be denied and the assess- ment against the taxpayer be immediately collected on the following grounds DECL:JIO!·J - CTA ChSE NL. 2670 - 4 -

1. The ta xp<ryer, despite? the? opportunity gr0ntcd him to disprove the examiner's findings, first , in the notice to taxp~yer dated June 3 , 1968 and second, letter of the He rji0na 1 Director, Quezon City, dated L1ay 28, 1969 hc1s failed crnd still fails to substantiote his cloi~ for his deductions. The letter adverted to in the ~sst .

Heaional Director's I~morandun of Cctober 5 , 19i2 , was possibly a reply to our notice to tax- payer men~ioned above , as the d~te indicates . but after the? rep ort of examinotion together Vii th all its enclusures VJC?rc submitted a nc~ apr'roved lly the pror;er officers , the Bec:;ionCJJ uircctor on ; .ay 23, l9G9 sent him another le t ter inviting their attention to t he o sses sn:ent .:md to present their (JbjecLions. Cut d:?spite this , tz.n:payer hc1 s re~r:alned to keep si l ent .:md has neve?r protestccl the findings and subsequent assessment . 2 . Thot the letter of the ta;.:pcJyer ' s accoun · tant of June 25 , 1968 do not conL1in su~ricient grounds ·to of f·set o:::- rcl. ut U:c findirigs of L'c L ~na de by the? unde?rs igned e xarniner. The ta xpaye?r n ::_serc.Jbly failed to compl·ehe?nd the ::;a in <H1d ir::- port~nt point in the findin~~ of f~cts - th J t is , deductions v1erc no·t duly SUi~i orted by p:::-o- pcr do cur:1ents o:;:· re ce i pts. TL(-c ta::}'2ye r 3tter:!p-- ted to cite and quote o rulinu of our off ic e(DIJ Ruling 66 - 66 dated D0cer:1be r 1 , 1966) v·;hich , sad to say , is not squar~ly Jnd explicitly in point. J. That the taxpayer h;:-:s \i!clivcd his riCJht to reinvestigation . The l<..egional uir,:ctor , ·~ ue ­ zon City , per his letter of , .cJy ::--:·. , l <}6'} hr3 ~~ ]ivcn taxpayer suffi c ient tii:ie to ;;rc:sent his objections to t lie findinc~s of the C):an:ine:c ond the cssessment but frort: U1 c'! t date to the prcscn~. t a x: a y e r h a s not o f f i c L ) 11 ''/ r ,~ d c o ::: c v (; n t r i c d to ans1.·Iere the lette?:c OL- the ile~jional Direct.: r r.1he.rc' it vi<~s express l y sta te?d therclri th"t fuilure to Bf'l·ea r and c':i.S;1rO'/C? the r·i~1cli n( ' S of the: exami nc:r on tLc da te and place set forth shall c1e cm t.hat the t axrayer has wa ivct 1 l'i::; riCJht and have accepted the c' :< <'~ll incr ' s find i ngs .

On February :_::, , 1975 , r e s pondent , th .:·ou<Jfl :cr:;ion .i J Dir ect or felino C . C2s~r ~ , Jr .

~erved warrant of levy on r eal prurerty und \'cJrLL .. ~ ... ·::; r ,'4..::-trDint of r e rsonal property against petit:ione?r .1nri 1:,·cci\-c:r' '/ it:; LJVJ'fCT .

( pp. 36 - 38 , BI R rec.)

On February J.l , 197~ , r etiti oner, through counsel , 39

DECISION -

CTA CaS# NU. 2670 ~5- wrote the Revenue District Officer of Revenue District No. 6, Quezon City, and had drawn the latter's atten- tion to its letter of protest dated June 25, 1968 add- ressed to the Revenue District No. 29, at wiakati, Rizal and attaching thereto a copy of said letter and marked as onnex "a" and stating that it had not received from the isureau of Internal Revenue any reply to said pro- test and therefore, reiterating said protest. (p. 42, BIR rec.; see pp. 27-28, Bik rec.)

Cn February 18, 1975, petitioner, through counsel, again followed up its previous letter of rebruary ll, 1975 (p. 44, BIR rec.), and, this time, asserted that the authority to collect by respondent under Section 331 of the Nationel Internal ievenue Vode had already prescribed noting as follows:

“ie note that the assessinent in question was dated June 4, 1968. ‘Jnen the warrant was served on February 5, 1975, more than five

(5) years had already lapsed from the date of its assessment. The filing of the letter pro- testing said assessment alone, did not suspend the running of the prescriptive period. From the records of the case, it would aprear that there was no reinvestigation made, nor was there a waiver of the statute of limitations,

S

executed by J. Komero & ..ssociates.

In view of the foregoing, we reauest that subject warrant be lifted and cancelled.

The stand of petitioner, through counsel, is that the right of the government to collect the amount of deficiency income tax for 1966 in the said assessment had already prescribed and this was again reiterated in a letter of eounsel dated December 18, 1975. (:. 51, bIn rec.)

DEC IS ICJf\j - C T,\ CASE i~O . 26 70 - 6 - .Jithout o reply coming fro •. ~ the Cc-.'crnrncnt on the t wo (2) mos t recent let ters filed by it , namely , februory 11 , 1975 a nd February 13 , l97j , petit:.oner fil ed the insta nt petition fo r review .

•;:i th unJe nt motion for pn:limi na.ry injunction '.'Ji t h this Court on i·.;cJrch G, 197 ~) .

This coso \'Jus submitted by the p,l ctie s f or d~cision bosed upon the pl e~di ngs and the record s of tl ie 1 ur c<J U of Inte rn o:L :,('Vc:we . :he issues pr ese nted fo r resolution arc os fellows:

l .. /lle t her or not this (...:ourt has j uris - diction over tho c <,s~.:

;

? . '.ihcthc r or not the Cortll·•iss ioner of Intcr:lcJ l Hc venuc' s right to collec t h.Jcl ~ lready pr oscribed;

~nct 3 • . :hether rJr not Lhc respondent l s jus tificd in discJ llm.'in<J t:1c clc.i t·'c~cl C: )q >c ns ~::s .

. :c will novJ consider -'c.l-1(' f irst ::1uc stion of j u ~, .i s d i :: t i or 1 • It is the contention of pctit ionel' that it considered the w~ r r-ant s of levy on r eCil jJropo2:'ty M1d distraint of personn l 11ropcrty is~.; uecl a gainst it on l:cbruary 5 , 1975 as t he decisions of the Commissione r cf Internal ,{ev c: nue , dcnyinr; 1 ctitiono r ' s · l'C(;uest for the c onccllation and •·Jithd:ci.l':Ju l of U1c: ~:SSe SSJ-:-;C nt , \.'hie h it be J.:i.cvc:J to be the r rO[)OSC'd review having bc?en fi le d on l.\orch 6 -' l 975, said peti tio n was filed within the 30- day rcri od provided under :..:;ec tion 7 of the P.cp ubli c i1ct r lo . 1125 - t he chorter of t hi s Court .

On the othcr hand, respondent conte nd s th a t 4 1

DECISION -

CTA CASE NO, 2670 Assessment No. 29-ACR-600745-68-66 dated February 15, 1969, not having been appealed to the court within the aforesaid period, had become final, demandable and executory, citing as nis authority the cases of Aepublic of the Philippines vs. Juana b&b. Vda. del sosario, etc., 105 Fhils. 277; Uy Ham vs. Nepublic of the :hils., Gi No. L-13809, Cctober 20, 1959, 106 “thal. 1162-1163; Republic of the Philip; ines vs. nwlbert, 3 SCs 717, 113 Phil. 691; Republic of the Fhilip: ines vs. Enrique wagalona, Jr., 109 Phil. 723; and Vanqgasinan Transportation Co. vs. Blaquera, 107 shil. O75. Me asserted that the “assessment” havinc been issued on February 15, 1969, and the instant petition for review having been filed on fiarch 6, 1975, the latter was filed beyond the thirty (30) day pericd to appeal under said Section 7 of Aepullic act Mo. 1125. we find the position of both petitioner and respondent erroneous. On the question of jurisdiction of this Court, it had been the ruling of our Su rene Court in later controlling decisions, or in decisions other than those cited by respondent, that this Court is a court of special jurisdiction. that jurisdiction is, is defined in Section 7 of Nepublic act No. 1125 which provides that it can exercise only exclusive Spp&l ets jurisdiction to review ly appeal only deci- sions of the Commissioner of Internal Aevenue, in cases involving disputed assessments and refunds of internal ‘revenue taxes, etc. The word "decision" in paragraph 1, Secticn 7 of “Nepublic Act No. 1125 has been finally

ECISION -

CTA CASE NO. 2670 segs interorcted to mean the decision of the Commissioner of Internal Revenue upon the protest of the taxpayer against the assessments. The Supreme Court also said that definitely, said word does not signify the assess- ment itself. (Comaissioner of Intesnal Revenue vs. | Leonardo S. Villa, etc., 22 SCha 3, 5-6, citing st. ° Stephen's Association, etc., vs. Collector of Internal Revenuc, 104 Phil. 314, 137.) The law has used the word "assessments" - and this indicates the legislative intention to subject to judicial review only the deci- sion of the Commissioner of Internal K.venue on the protest made against the assessment and not the assess- nent wetseld. CCammigstoner of Internal Revenue vs. Leo-~ nardo S. Villa, etc., ibid., p. 7, citing Villamin vs. CTA, 109 Phil. 897.)

In this case, there was a proposed assessmene on June 3, 1965 which was made by respondent ana made known through a notice to petitioner. This proposed assessment however, is not the assessment contemplated in Section 7 of Republic Act No. 1125 as it did not yet definitely fixed the tax, or recuired petitioner to pay definitely said amount of +23,126.15 but instead advised petitioner to present his objections ta the pro- posed assessment in an informal conference.(Dionisio R. Lantin vs. Commissioner of Internal ievenue, CTs. Case No, 1951, april 10, 1969 and Brixton Investment Corp. vs. Tabios, CTA Case No. 1681, April 18, 1967 cited in amado , Colon, Court of Tax appeals Wigest of Internal peewee os am a ae cama Revenue Tax Cases, 1971 Ed., pp. 505-506). when petitioner

DECISION - °

CTA CASE NO. 2670 -9- ;

therefore, protested, it was not a protest which will bring ebout a disputed assessment as conten. plated in Section 7 of said law.

It was only on February 15, 1969, when an assesu- ment was truly and properly issued’by Kegional UVirec- tor Leonardo Cabafiero, by his issuance of Assessment - No. 29-ACR-600745-68-66 against petitioner and asking the latter te pay the deficiency income tax for 1966 in the amount of $23,126.15, inclusive of 12,961.15 as interest and 12C0.00 as compromise penalty, on or before March 15, 1969. No formal protest or request for reconsideration was considered to have been filed against this assessment until afier rebruary 5, 1975, the date respondent issued warrants of distraint and. levy against the properties of petitioner. (pp.36-3°, BiR rec.)

It was only after the warrants of distraint and levy or when petitioner had filed a letter dated veb- ruary ll, 1975 drawing attention of respondent's Revenue District Office to its letter of protest dated June 25, 1968, that a protest is deemed made.

THETS weal ae no protest or dispute filed after the assessment of February 15, 1969 was issued, ex- cept the letters of June ll, and 18, 1975 of peti- Q.

tioner, and the latter not havinc been decided or acted upon properly by respondent or his subordinates, there cannot be any decision on a disputed assessment which can be appealed to this Court. The warrants of distraint and levy served on February 5,1975 cannot be

DECISICXJ -

CTi

• r\ C/\SE rJ(J • 2670 -· 10 - considered as the decision on a disp uted ossessn1ent as no formJl protest was fil ed previously ogainst said assessment by retitioner .

This Court , in its decision in the case c~ l!ahns vs. Commissioner of Internal llcvcnue , CL, Cu se l·io. 1987, .'.pril 30 , 19G() , said th o t V·Jhere there is a protest or request for reco;1sidcrot:l.on of an assessment , and a warrJnt of distroint and levy is issued subsequuntly , which is the most drastic action of all media of cnforcinq collection of o tax, it is "tantamount,~ to .:m ou~.ri.(]ht denial thereof ond will ma ke the protest or request for reconsidcra tion "deemed r ejected" . l .. ut t!d.s is not so in the cose ot bar .

It Das only after the service• of the warrunts o::

Jis tr ~·ir.L one\ le-vy that petitioner filed a letter doted february ll , 1975, reiterating , in effect , its protest <1gainst the assc:ssment of Febr uary lS, 1969 , a nd fo].lovl(?O up by its letter dGted fcbrcary l G, 1975 , which U! to th0' present , no action or decision •:-·!OS Ld: c.· n thereon ~y res0ondent Com~issioner of .r nternal Hevenue . Eased upon the fac ts or this case , and there being no decision as yet on the disputed assessment , or no partic ular oction hoving beE:·n token by r espondent or his duly aut horize,,_] rcrn·e- sentative on pet itioner's letters of protes t dated February 11, ·and 18 , 1975, and considering this Court as a court of sre ci~l jurisdiction and os such can take cognizance only on ma·tters clearly wit hin i t s jurisdiction , the aprxa l in this case v:as prematurely filed

DECISIOr-J

CTA CASE NO. 2670 - 11 - and this court has no jurisdiction to entertain the same. (Commissioner of Internal Revenue vs. Villa, etc., QJ2. ci-t., p. 7.)

Having come to the conclusiorl that this Court has no jurisdiction over this case, the disposition of the two other issues is moot and academic. VJ!-IEHEFOH!:: , for being prematurely filed and for lack of jurisdiction, this ap~eal is hereby dismissed. ~ith costs against petitioner.

so cnf;:::u:o . · Quezon City, February 27 , 1979 .

r cor,cuH:

~~ci-} AL1AI\J'Ti..: F- LLEL.

;\ctinc_; Presiding Judge .

,l

COI~~RCJAQUIPI

1\ss oc ia to Judge