Philippine Oil Development Co., et al. vs. ~ the Commissioner of Internal | —, et al.

DECISION —

iment -e2- No income was derived from its principal bis ined since nothing was produced from the sapintat ion of oil.

For the first. secnand and third quarters of t97h. abi grer Filed with the Bureau of Internal Revenue its Quarter!iv Income Tax Return each showing "NIL" as tax cha for the quarters. fExhs. A, A-1, and A-@.] On April 19, 1976, metitioner filed its Annual Income Tax Return for the vear endina December 31, 1975. CExh. B.J Petitioner reported a total income of Fi,502,354.00 [See Schedule I, Exh. B-21. “The — of PL, 796, 780. 00 as gaeneral = and administrative expenses (See Schedule II, Exh. B-3] were deducted from its income. A Joss af PF94,426.00 was reflected in the: income tax return for 1975. | Having suffered a item. Setitiens® ay not may any tax due the government. the dneohe and expenses for the year 1975 are eBgizsd beLoUy to wit:

Sehedule I

(Exhibit B-3)

PHILIPPINE OL DEVELNPMENT COMPANY, INC.

1975 INCOME TAX RETURN

INCOME (LOSS) FROM OTHER SOURCES

Interest Income

Honokono and Shanohai Bankinn Coro. P 147,877 Avala Tnvestment. and Develonment Corn. 171, 520 FPhiliooine American Investment Coron. .61,539 . Cee Securities Corn. 33.875" Phil. Pacific Capital Corn. 300, 877 Pancom Develonment Corn. 163, AAO AEA Develonment Corn. 233, 084 NMthers 177s 334 : ; Pl. 289, 986 14,

DECISION —

CTA CASE NO. 3405 | Income from Rent 32,275 Sale of scrap materials, SSS commissions, Income from Tiwi Project etc. : 101, 938 84 195.

Total

ie Wee PRe ibd

Schedule IT

(Exhibit B-3)

PHILIPPINE OFF DEVELOPMENT COMPANY, INC.

1975 INCOME TAX RETURN

GENERAL AND ADMINISTRATIVE EXPENSES

Mananement Fees

GSalaries.and Wanes.-.. -i* - Postane, Telephone and Teleoram

Stationary and Supplies

Taxes and Licenses

Medical and Hospital Expenses

legal and Audit Fee

Travelling Expenses

Freinht and Handling Exnenses

Donation and Reoresentation

Fower, Light and Water

Rentals and Leasehold Improvements

Renairs and Maintenance

Interest Exnenses

Insurance and Bonds

Bonus

Depreciation

Advertisements and Annual Reports

Hotel FExnenses

Mans, Blueorints and Reproduction

Sundry Bank Charnes

Canital Increase Renistration &

Other Exnenses

SSS Fremium, Medicare and ECC

Sundry Stark Exnenses

Miecellaneous Expenses

TRM Service Charnes

Nffice Exnenses ane

Sports and Recreation

Total

146 P 120,000 -. 426,959 61, 362 40,077 1,187 15,811 25,970 51,922 3,265 70, 154 14, 758 139, 063 37, 229 6,935 7, 708 33, 900 60,411 (242, 424 11.639 8,745 5, 240 115,638 .

19, 427 22, 4A) 219,194 19, 661 13,986.

11 634

at ELPA

oe On April #2, 1981, petitioner received from . respondent an assessment notice and letter dated April 13, 1981 for alleged deficiency income tax of P428, 697.60, deficiency withholding taxes of F18,787.14 and P300.00 as compromise penalty for non-filing of audvtariy returns for the first, second and third quarters all for the year: 1975. [CExhs. C, C-1, Gee’ and’ 0-37 However on April 28, 1981, petitioner received from the BIR a letter dated: ‘April 15, 1981 informing the former that it had no deficiency fixed and percentane taxes for 1975. (CExh. D. J Respondent disallowed some items of deductions and .

added as part of .petitioner’s income those alleged to have been underdeclared or unreported. The alleged deficiency income tax for 1975 was based on the “following computations: TExh. C.J]

AER-04B-32-002900-75/81

Net loss per return ssccsesceseesscesssssees (P294, 426,00) Add: Unatlowable Deductions & additional

Incose:

(a) Accts, Rec’ ble on rental of sachinery & equiosent P 30,000.00 Mobilization cost fros Tloilo to Tiwi, Albay... 33,000.00

(b) Sales of Carbonate Studies 466,290.00

(c) Undeclared inc. frow sales of scrap saterials:

con _ Total incowe..P103,028.96 ok. Ant. reoorted cer return ... 101,938.90 1,090.9 {d) Various unsuoported expenses 359, 259, 02 {e} Donations & reoresentation 1435 DECISION. - :

eR eee malo Jae. len ee pe ae = Net income’per investigation... ivieredsveees PHBG, 514, 48 Income tax due thereon weccaccsiervereceseves Peday CH. 00 Add: 30% surcharge ...scssecsesessessanecses 111,640.00 14% int. fir, 4/16/76 to 4/15/79 weeceee _ 93,777.60 Likewise, for the alleged failure of petitioner to remit the correct amount of withholding taxes on wages for _the second quarter of 1975, respondent assessed the amount of F168, 787.14, representing alleged deficiency withholding taxes for 1975, inclusive of surcharge and interest, comguted as follows: CExh. Cl] Total tax withheld for the quarter ending June 30, 1975 wsecccccsccessrccenss P 24, 682.72- — e Less: Resittance for the quarter | under OR# 795618 on 6/9/75 vesstecncecseperce Ply Oded . 7 OR¥796105 on 7/8/75 .. +2." 6,810.15 _ 13,862.70 a Deficiency withholding tax ...seesceasess P 10,820.00 ogee Nic Seen Add: 5% Surcharge ceevesadistaseeaiceesd 541.00 ; 12% int. fr. 7/26/75 to 4/15/81 ... _ 7, 426,12 AMOUNT DUE AND COLLECTIBLE ..ceciececseee P 18, 787.14 ¢ On April 30, 1981, petitioner protested the assessments. [CExh. E.]° On December 22, 1981, petitioner received fron res pandert a letter datéd September 15, 1981 stating that a Avinvestigatinh of the case cannot be had due to its refusal Ao evesute and sign the Waiver of the Statute of Limitations. deepoteent therefore demanded payment of the assessments above-mentioned. [Exh. F.]

On Jafuard 5S, 1982, petitioner filed a detition for review seekino the cancellation of the assessments issued by respondent.

150

/ ~~s · · an · ·aff· ir mat-i.v ~ · defe-ns-e, re-spondent cl<aimed that +; h r.> .::\ssess ments wer~e issued in accor~danc e with law.

He

added that the amount of PEA, 000.00, representing accr·ued r··enta_l income fr~om the lease of machinery and equipment, were no t - ~eported as income by petitioner.

In like income fr~om the sales of cal·~bonate stltdies and sc l·~ao materials were unr~eoorted and underdeclar~ed.

The deductions claimed by oetitioner must be justified ~nd s ubstantiated otn'suant to

Section

30'(a) <1> ·of the

Tax

Co d e.

The expenses incur~red in the United States by the parent company and later c~arged to petitioner by ~ · debit memo are not deductible under Section 30( a) <2> of the same Code.

As t"eqar~d the deficiency withholding tax for _1'375, respondent all~ged that petitioner failed to pay the ' correct amount of P24,682.72 givino rise to the assessment of P18, 787. 14, inclusive of and surcharge.

Petitione1-~ was chat~ged ·to pay the compt'omise penalty of P300.00 for its failur~e to file its first, second a nd thit··d quat'ter~s in c ome ta.x r~eturns for~ 1'375, - iry v iolation of Pr~e sidential Decree No.

30 dated October 27, 1'372, as by

Revenue

Re g ulations No.

d ate d Dece m be r~ 1 , t '372.

T~e fssues raised are:

1.

Whet h et' or~ n ot oet it i onet" is liabJP.

rlr.:>fjripp ry incom e and withhol. rli n g taxes for~ 1'375 in t h e a mot..mts of P 1~;:: 8 . E.97.60 and P1B.787 . 1.4-! r e spective lv:

15.i

- 7 ·..:· Wh ethe r o t~ not petitioner is liable to oay the 1- - 5()':,{.

fl ·~aud s tn~ch at~[] e; and ·,· -~ .

Whethet~ or n ot petit i onet~ is liable to tJay the '•, co mot•o mise penalty of P300. 00.

Un

the first question, petitioner clai ms t hat the ass e ssments lack leqal and factual basis to stand on. We sha ll first discuss the disouted Deficiencv Ihco me rax f-lsses sm e nt fot~ the year 1'37:'i in acc ordan ce with t h e item s aooeari na in the assessment of responde nt.

J

1975 Deficiency Inco•e Tax Assess•ent: <a > Accounts Receiva~le on rental of mac hinerv & equipment Mo bi li z ation cost from Iloi l o to riwi , Albay

I

P30, 000.00 P33~ ooo.oo .. ·····-·-····-·-···· ...... --- ·-··- -~ -- ... ..... ·-······ ·--··--·- ·-·· " ~ - -·- ~-... -·----·-··-·-- -- - -·- ---·--- ~--.. ---·-..

!3ometime in January 1'375, petitionet', s u bcontractot', .L er.~s ed and equipment in favor Lo r ooration , contractor~ u::xh .:

G. J Th e parties aqreed that the machi nery and equipment l ocated i n Ceb u and Iloilo shall be delivered to Tiwi, ~llbay f o t" the acc ount -rhe subcontract aqreeme n t to o k e ffect uoon a c ceptan ce of the eouipme n t appt"oximately July 15, 1'375.

J.t was that petitioner-subcontractor sha J. l b<:' nal.d the amoun t of P30 . 000.00 mobi 1 izat ion cost f c• r~ th e tt~.::msoortat ion of the equipme n t an cl its r.~ cces sot~ ies.

LExh.

G-3. J

It

was further aqree d that 152 .. DECISION - “ CTA CASE NO. 3405 one-half of one month’s rent (P33,000.00) shall he paid upon satisfactory delivery of the equipments leased. CExh. G-31.7 On July 4, 1975, «petitioner sent. Debit Note No. 75—~ . 10, dated July 24, 1975. to Farson’s esprovhetien- chamaihe the Jatter for the following amounts: LExh. H-1,.1 Mobilization cost from Iloilo to Tiwi, > RAibay per Article 3 of Subcontract No. . 1-SC-5451-4 eee ee ee eee ee eo ee P30, 000. 00 fa 5O% Advance Rental for Items 3.1, G.

| 3.3 and 3.4 per Exhibit "B" No. 1.5 | 33,000.00 Total -263s0002.00 On July 3i, 1975, Journal Entry No. 159 was entered Meer mnesecene s a eveeneenstnn cannes seve wanamaeeayecrete ante in the books of petitioner, as follows: CExh. HI Debit Credit.

Acraunts Receivable PES, O00, OO Other Income-Tiwi Proj. P33, 000. 00 BD-1 P13, 9000. 00 AD-Z 9,000, 00 FT-1 6,000. 00 ° CT-4 = ___ Fh, O00. OO P33, 000, 00.

Suspense Account 30, 000, 00 _.. To record Dehit Note sent to Parson's Corporation representino 502 Advance Rentals for Machineryv/Eaninment and Mobilization Cost from Tloilo to Tiwi. Albay as per attached.

Respondent contends that petitioner failed to declare and inthe as part of its income the mobilization cost of PS0,000,0O0 and the 50% advance rental of F33,000,00, Petitioner should have renorted as income the accounts ldo ia he on te sn a

He

a a receivable Cin Journal Entry No. 159), having adooted the acerual basis of accounting. In the acerual method, all income and expenses are recorded the moment the right to receive and the obligation to pay arises. | Fetitioner stressed that the rental income of F33.000.00 (not F30,000.00 as deciayed by respondent in his assessment) was actually declared to form part of oross income, During the hearing of this case, petitioner was able to adduce evidence to prove that indeed the apeant of P33,000.00 rental income was actually declared and reported in its gross income.

On August 14, 1975, metitioner sent a Credit Note to Farsons creditinn the amount of P33,000.00, representing 50% Advance Rental, in its favor. (Exh. H-3.] Journal Entry No. 209 was entered in the books of petitioner to Fe 7 . rr ren. ors - = 9 bo!

reverse the previous entry, as follows: CExh. H-2.]

Debit Credit

_ Other Tneome-Tiwi Project P33, 000, 00 \ Aecounts Receivable oe ~- Others. P33, 000.00 To record Credit Note sent to Parsons

Corporation for 50% Advance Rentals of

Machinery/Eauioment as per attached. On August 6, 1975. petitioner sent Debit Note No. 75- 14 CExh. H-SJ to Parson’s in the amount of P50, 099. 20. On the same date, netitioner recorded the transaction in its

DECISION —-

CTA CASE NO. 3405" boclke onder Taurnal Entry No. £12. the followinns [Feh. H- 4)

Debit Credit

Aecaunts Receivahto PSO, O99, 80 Other Incane- Tiwi Proient F48,640, 00 TDA AD) PO. 440. 00 1)--7P+-AD-S IAL TO, OO Roped OG, 930,00 CT --4 &, 900, OO LAP pet &. 400, 90.

frpea 1,000, OM BES FO. OO Radio 1,000, OO Montractert« Tax Pavable 1,459, 20 Te need Debit Note to Parsons Corn. for Foaudoment “Mochi nervy Rentals for the neriod July PFT. TIM ae mor akbkachert, Tt seens that resnondent failed to consider Journal Entry Nos, 09 UCbxh. H-Gd and 2182 Exh. H-4! when it jesued the assassment in auastion. RPacnandent edict nak internose any oahiections to the admission af Feiss. H (JE# PS), Hee (JEU @O9)., He4 (JER F1B), H-1 (Debit Motes # 75- 19), HS (Credit Note dated August 14, 1975) and H-S (ehit Nate No. 75-14) . which were all offered by metitsaner ain. sunport of its claim that the amount of MIRON. 00 was recorded in its income, contrary to the aninion of reaenondent that the same was unreported, Journal Entry No. #99 reversed the original entry in Tenn snied Entry Wo, 159. But the amount of rental income of PSS, OO, OF aethuallv forms nart of other income from Tiwi Maen perk porsypdad gm Journal Entry No. 1G. All alenn the 7 amount af ESE, OOO, 00 was in fact recorded in the hooks ancl renmoarted as sther income, The mobilization cost of F3O,000.00 (nat PRS. 900, 0) renveseant the anpat of transportation of the ennuinment leased by netitioner to Farsons. The amount af FE, 017.908 wae paid to charter the enuipments from Tehn to NAton, lloilo to Tiwi, Albay. [LExhs. I-1, I-f, J-3, [1-4 and I-5.1] Petitioner also pnaid for the insurance of the eanioments shioned -as well as the salaries and wanes of the crew resnonsibte for the delivery of the machinery anel edauinments. Parsons reimbursed the amount of FPSO, 900. 00 in favor of petitioner. LExh. I-7, Cash Receint Rook Since the mobilization cost was an expense by petitioner and later reimbursed by Farsons, the amount of P30, 000.00 does not form part of income but rather a Seducesdn from metitioner’s expense. © The mobilization cost represents merely reimbursement for the transnorbabion cost of said eanipments.

Pesnondent therefore should not Have cHmeddensd this ac greome bemausce the same was never claimed by netitioner an aA deduction. , Ini. Faety - the reimbursement of this aymence Was Cdearuched from the exnense account of nebrhbpener, Nothing was nained from this transaction.

(b) Sales of Carhonate Studies P466.,290.00 Recioendent™: axyaminer who conducted an investigation en the hooks of matitioner has this to saves LExwh. 1, BIR yes ryprceth OF "Th annmeared from the record that in 1975, PADCN sald its marbonate studies to Phillins Meta beum Comnanyv Foe A total amount of $66. QO, OO ar FMaG6E, #90, OO, This total amount was maid by Philtins Petroatenm Comnany on June So 9975 evidenced by FODCO’S Official Receint No. VASA cated Tune SS, 1975, This transaction was entered in the cash receint jinurnal nane #5 and ain the General Lecger under the account titted “ther Incame ~ Sales of Serans Materiate., etc....- » F466.°90.00.% 9 For datails, see worksheet marker Exhihit -— &.

; Fer income tax nurnoses, FODCA failed ta dermtarea the said sales as vart af its income in the total amount of P4666. 290,00" Sometime ain 1970, petitioner hired Dr. Albert Vv. Carorri of the University of Tllinnis, an expert in the skucty of carbonates or limestones. The contract was for a five year term beninnina 1970. ta 1975. Two chief neolonist were assinned to assist the Senennbmirey Dr. _Carorzi alsn hired and trained a first-class mirscanslaankoatlantiaebk, ~~ Q micranaleontatanist is a neolonist snecializinn in Paleontogy or the study of fossils in relation to the determination of the ane of a rock. fy lahorakoryvy and library was created to assist him in his Field oneyatians, lo.

DECISION —

CTA CASE NO. 2405 Qe exynlained to tis hy netitioner’s witness, the aareen att atudv or nentonical study is the first nhase in the ail exnloration used hy oil companies. The second is the seismic exoloration. The study will eventually lead to the nrecdiction of of) pnossihilities beinn present in the Philtonines. From 1970-1975, petitioner incurred exmenses in its carbonate study program conducted by Dr. Carozzi. texts. Fane P1049 The expenses related to this. J gtudy were all sunported hv evidence consistinn of the Official Receints. Cash Vouchers, Cash Disbursements Book and Jouenal Books from 1970 to 1974. [CExhs. P-1-a uo to F- L-Vv¥VVVVVVYN NNN, inclusive of their submarkinos, which were not obiected to by respondent. 4 A summary report of that study was prepared and submitted Pre sevisinney. fExhs, O. O-1, O-8, O-3, 0-4. 0-5 and 0-6. 13 On April 8&4, 1975, oetitioner entered in ai joint venture anreement with Phillips Fetroaleum Company Fhilinpnines (Phillinos for short), a Delaware, U.S.A. eornaration, to conduct a nrooram of seismic anerations in the Philinnines oarticularly in the Central Visayas (within the "Area of Mutual Interest") in connection with its oi! exploration. CExhs. N and N-t. 4 The narties anree to share the costs and expenses in carrying out the progeem ab the ratio of 7OHaa, Petitioner shall shoulder 30% of the expenses and Chillins 70% thereof, ([CExh. N-2, Sh dabked Semt, 2, ISAS, nm, ti.)

156

- 14 - MY. Gt is Phillins yveconnizes the completed carbonate study conducted by petitioner. By the terms of the Joint Venture Aoreement LTExh. N-3i, Phillips paid the amount of USSE6, 000.009 of P466.290.00, representing its share (70%), ae coamolete compensation to noetitioner for the cost of "said study. The amount of PAGE, 290; 00 did net fore part of metitionert’s income hecause the same was never claimed as a deduction. The 70% of the exmenses incurred for the “garhshate study was reimbursed by Phillios. And eines the reimbursement of this amnunt never formed nart of the PY NENSeES of petitioner no gain should therefore be reported, sot Undeclared income from sales of scrap materials:

Total Income P103, 028. 96 Amount reoorted ;

per return 101, 938. 00. P1,090.96 Resmondent claims that petitioner under declared its income Aen Reras materials, $85 Geek oe lense ete. thru mathematical error an the amount of P1,090, 96. Reannmdeit he examiner affixed his workinn paper [CExh. S-c, RAR reeord. 7 showing .a total income from sale of scrap in the amount of FL1O3,0288.96 per General Ledger Account No. GOP, Petitioner in its onentest stated that -it shall reserve the rinht to disnoroeve the amount of FP1,9090.96 in 1o9 DECISION —- ;

Court since this amount is too insinnificant to justify a thorounh review of the records to reconcile the same. However, petitioner in its petition for -review merely Allened that the amount of F101,938.00 was the correct amount of sales of scrap materials. It did not present any evidence to show that indeed it was the’ correct athe, In. fact no mention whatsoever was made in the memorandum of metitioner. Tt is therefore safe to assume that petitioner is foregoing its right to contest this amount.

‘For farrare to overcome the burden of onroof, the presumnt ion of correctness lies with respondent. As gathered by resoondent’s examiner a mathematical error was the result of the discrepancy of P1,090. 96. in view of this findinn, We see no fraud being committed on the nart of petitioner, As itis, error in computation is not sufficient to detect fraudulent intent. No willful act can be discern from an error committed in computation. Still We find the amount of P1,090.96 insignificant to finally sav there vas Preind in under declaring as part of oetitioner’s income said enGuint> In fact, the revenue examiner admits there was a mathematical error committed. This, an errar cannot be a state of mind 1 peta vet tre fraud since it was not willful act in the first ‘place. Therefore, the SOK fraud oenalty should not be imnosed aneinsk netitioner.

160

(qd) Various unsupported expenses P359, 359.02 » om avleis eign eee soweres ste om Sem wh we «.ssmerwentremenitee esemnrerwsennrestenseesiatienre sarantiet. qseretoves Resnoandent: disallowed the total eee ed of PBS. RD, Oe reorvesentinn total PaMiaes for canital increase renistration, . sundry. stock, advertisement and annual nepirk, trave Vint nostane. iwlenhone and telenramse,. freiohbt and handlinn and miscellaneous expenses in 1975 which were nok evidenced by invoices or receints showinn the names we th persons by whom the same were incurred and/or naid by ANSOR Corp., N.Y... U.S.A. for and in behalf of FODCO ar to show that the same were incurred and/or paid hy FPODCO durina the year 1975.

The main trust af the disallowance was the failure of petitianer to show the invoices or official receints for said exnences, | QM Goriano Corporation. as mananer of petitioner, entered into an anreement on July i, 1973 with ANSOR Cornoration, A corooration ornanized and existinn under the laws of the State of Delaware, U.S.A., in order to avail the services of the later to fullv service the ecernorations it mananes in the Philippines. _ By the terms of anreement, ANSOR shall nravide the followinn services in the U.S... and Uanada to ANSCOR and its mananed- affiliate ecomnanies in the Fhilinoines.. pertinent 161i

DECISION —-

nroaviecion is auoted hereunder. to with: CExh. Q-23 "Cod Asejist in the renistration of the carurities af SURTANQ's . managed-and-affiliate eomnmanies with the U.5. and/or Canada SFT. and the listing of such securities in the U.S.

and/or Canada stock exchanness: handle gkoeckholder relations for these comnanies which have shares traded in the U.S. and/or Canada:

arranne dividend naymentss: resolve stockholders’ queries and oroeblems: draft, edit and distribute the necessarv annual, quarterly and special reports: liaise with the U.S. and Canadian stock transfer anants. "

Tt was further anreed that a service fee shall he collected by ANSOR Corn. which fee shall he exclusive of out-of-nocket exnenses incurred by ANSOR and the prafessional fees payable to third narties shall be billed For the vear in oanestion, ANSOR advanced pnpavments of printing costs of subscription certificates and books, postane,. labor cost of typing and labellinn materials, transfer fees for stock transfer, research charges, air fFreinht charges, transportatian expenses, proxy soliciting materials and annual renerts. The. corresnonding xerox conies of payment requests and invoices and rhecks issued ane paid by ANSOR were sent to petitioner for reimbursement.

During the trial, petitioner presented documentary evidence tn sthatantiate the disallowed expenses of PREF, BAS OF, The evidence consist primarily af returned 16¢ checks of ANSOR Corp. with the attached payment requests or billinos of third narties addressecl to ANSCOR all for the account of oetitioner an others xerox copies of invoices and proxy invoices in the name of onetitioner. [LExh. R. Rel to Rte, GS and S-1, 7; T-1 and T-2, U, U-1i and Ue, Vy, Vel to V-17, W, W-1t to W-93, X, X-1 to X-44, Y, vot to Y-33, Z. @%-1 and Z-&, AA, BB and BB-1 to BA-5, inclusive ‘of their submarkinns. Resnancdent’?s counsel did not object to the formal offer of evidence in fact he admits: the SAME.

_ We are convinced that netitioner has nresented proof as stieBaitaats the exnenses above-mentioned except the Miscellaneous Expenses.

With resnect to the Miscellaneous Exnenses related to the above-transactions, no proof was ever presented by petitioner to rebut the findings of respondent. No pavment reanests, billinos or checks issued by ANSOR were sant og netitioner with respect to the miscellaneous axnenses incurred by the latter. Thus, the Fal ioninG entries in the Journal Book which formed part of the Miscellaneous Expenses in the sum of P86, 547. B81, itemized below: CExh. S-a. BIR record. ]

Journal Gen. & Adn.

1975 Fntry Mos. Account Nebited . Expenses April 30o ve Miscellaneous exnenses Fo. 2 7) Aug. 31 190 Miscellaneous expenses 8, 361.70 Dec, Jt 31s Miscellaneous expenses 76, 750. 00 Dec, 21 286 Miscellaneous expenses 1,435.68 Total Unsunnoorted expenses FH6. 547. 81 165

DECISION -

CTA CASE NN. 3405 were pronertlv disallowed hv revenie examiner, fe) Donations and reoresentation expenses (unsupported) ° P 71,200.50 The revenue examiner who conducted an investination an the hoaks of natitioner P71. 200, 50. itemized as follows: FExhs. BIR record. 7 (A) Total expenses for donation & renresentation, incidental and miscellaneous exnenses, whitch were accounted from advances to Staff and Emnlovees, butt which were not evidenced hy invoices or -- receints .

(h) Accomnts mavable set up in the books of accounts renresantinn exnenses for travelling BXNEeNSES.« not sunported by invoices or receints to shaw the names of -the persons to-whom the same were incurred during 1975 Co). Tokal donation and representation expenses deducted as nart of neneral and administrative exnenses in. 1975 which. were unsunoported by invoices or receiots

Tokal Disallowed Donation and

Representation Expenses

164 disallowed the sium of

1. G-e and 3-f, P5,179°59 777.60

DECISION - “4

CTA CASE NO. 3405_ Febitioner on the other hand failed to present anv evidence to Susman ie ath that this amount reoresents advances to its leader-emolovees for athletic and reereaktional activities such as howling, excursion, disco and fellowship ninhts. — The advances were liquidated and receints. whenever available, — were surrendered. Bus or taxi fares, tips to waiters, snacks and small restaurant bills were not recetoted but were approved by oetitianer and claimed as a deduction to its income.

Deductions are matters of lenislative grace. One who claims entitlement thereto mast point to some snecific provisions of the statute in which that deduction is authorized and must prove that he is entitled to the deductions which the law allows. (C1955 PH Fe. Tax Course, ~ . i mar. 2AOV. 7 The reaunisites for deductibility of business exnenses ; .

arer [Sees 30a). NIRCI

a. ~The expenses must be ordinary and necessary$

h. Tt must be oaid or incurred during the taxable year necessary in carrvino on any trade or business; and

i. Adeanate records must be kept to support the

- Heduetian

Fatitioner failed to show the third, reanuirement.

Thies. the Court anrees to the examiner’s findings relative to the donation and renresentation exmense of P71, 200.50.

165

- 21 -— To recanitulate, after considering the unallowable deductions and unrenorted income, the Court has arrived at the followinn momnoutations Net Loss ner return (P294, 426. 00)

Add: Unallawable Deductions &

Additional Tneomes

(a) Undeclared income sales of scram materials Total income P1003, 028.96 Amount renorted 101,938.00 FP 4.090, 96

(b) Various unsunnorted expenses 86,547. 81

(c) Donations & reoresentation expenses (unsttnported) 21,200.50 ~ 158,839.27 Net Loss (P135, 538. 73)

Tax Due NIL

After takinn into consideration the Court’s findings, ‘it apnears from the forenoinn comonutation that petitioner Still aineurred ai loss. Thus, no deficiency income tax shall be due from netitioner.

1975 Deficiency Withholding Tax on Wages

For the second quarter ending June 30, 1975, reenondent atlened that although petitioner had deducted and withheld the total amount oF P24,682.72 it only remitted the amount of P13, 8628. 72. The difference of Pid, BRO, OO ranresents the unremitted withholding. taxes for the second quarter of 1975. CExh. S-o, BIR record. ]

pariin the trial, noetitioner presented the following documentary evidence to orove° actual remittance of ) withholdinn taxes:

A. Returned hyaysvet of natshioner showing the Commissioner of Internal Revenue as oayee [Exhs. J, J-i,

J-e and J-31:

b. “Tax Payment Acceptance order all in the name of netitioner fully peep iver by respondent’s office CExhs. KH, K-11, Koz and K-S)l: and Cc. Cash Vouchers to support said payments in favor of resmondent Lexhs. LL. L-1l. L-2@ and L~-3i.

Respondent for his part did not present any evidence to refute. the same. .. Tn Fact, respondent eoncedes to the admission of metitioner’s evidence. Having accomplished its goal, We are convinced that petitioner has actually remitted to the respondent the withholding taxes due the povernment, - The withholding tax assessment should therefore be cancelled.

Since: no deficiency income and withholding taxes are die o from petitioner, the discussion of the second and third issue is moot. Still to refute: the contention of respondent “that petitioner failed to file its first, second and third auarters income tax return, petitioner presented in evidence said returns shobing- the BIR stamp receints and the date when resnondent’s oaffice received the same. CExh. a. At and A-2.1 ‘It is therefore, apnarent that vetitioner did not violate the provisions of Presidential Decree No. 30, dated October 27, 1972 as 16.

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i. mnJ r> mE•nt·:p ri b y Re ve n _te Heoulatio n s No .

d a t ed D e r.' P m h ~" t ' 1 •

WHEREFORE ~ in view of th~ foregoing, respondent's decision is hereby SET ASIDE.

The Deficiency Income and

Withholdinq Tax Assessments in the amounts of P42B,697.60 and P18, 787. 14, respectively, for the yeal'"' ending December 31, 1975 and t he P300.00 compromise penalty issued and i mposed by respo ndent are hereby CANCELLED. No costs of suits.

Associate Judge

I

I

DECISlnN

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CERTIFICATION

I

het~eby certify that this decision was t~eached after due consultation a monQ the members of the Com~t of Tax Aopeals in accordance with Section 13, Article VIII of the Con~t _itution.

~.'i:;Q ... ~ ERNESTO D. ACOSTA Pt~esiding Judqe

Court of Tax Appeals