CTA Case No. 3649

DECISION -

CTA CASE NO. 3649 Net income (loss) per return (FS, 324, 051.74) Add: Unallowable deductions: Me anart fee Fl. 400, 000,00 Loss of cancellation of contracts Interest expense 1,820, 198.00 Net income subject to tax Income tax due thereon Add: 114A int. fr.

Q/VEST 4 -- GSVSES79

Net inceme (loge) per return . CFL. 99 , BE 7) Add: Unallowable decuctions: FE Prof sional fees Net Income subject ta tax Tncene tax due thereon Acids 14% ark. fr. 9/15/77 to 7/7 / BO ee TBE O65, 16 2% ant. fr. 871/780 ta 9/18/80 cmndceat a LPT 9 ZA TOTAL. AMOUNT DUE AND COLLECTIBLE oe tn That the above-stated assessment arase from the disallowance of the following deductions claimed by petitioner: management fees, loss, bad debts, interest, research and development expense, and professional feess 4, That in a letter dated April 20, i982, petitioner protested the aforesaid assessment;

346 -

- 4 - That i n a letter dated March 1~ v-ihich was r·r.:~Cf.'?iVE~d by petitioner· on May :.?4, .1.c1EJ ::~:~ r·pn rlE·' I'"·ed his fina l dPc::ision on aforementioned assess ment by reiterating his demand for the payment of t he sum of P9,207~121.93 as deficiency income taxes for t he years 1976 and 1.977.

Hence, this appeal.

s pecia l and ,3. ·f f .i. r··m,3. t i v£-? res pondent a ll eges in his answer t hat: Deductions are a matter of l egislative grace. The taxpayer se£-?king a deduction must point to some spE:~ci ·f.i.c pr· nv.i.~;ions of t:.hP ~::;tatut£-? in whic h th,::~t deduction is authorized~ and mus t be able to prove that he is entit l ed to t he deduction wh ic h t he law allows (Perez vs.

Co~. of Int.

Rev. , G.R.

No.

L- 30403, April 12, 1969); m.:-,\n,3.qemf.'?n t ·fees in thf.~ of P1~400,000.00, aside from bei n g u n reasona b le~ .is not. r.;;u ppo r· tecl by d Clc: umen ta ,.-y f.'?V .i.d E~nc E:·~. the recipient of the alleged manageme n t fees is a f:; .ist.e1··· company of pf:?t.i t. ionE·~ ~--· ~ t hP M.:,nila Int:.E~r · · -·- public:: Developmen t Corporation; 34 9

- 5 - The alleged loss in the amount of F'5,249,3l :3.75 is not substantiated by documentar-y evidence.

Said loss could not be effected by a mere adjusting e ntry in petitioner's books without supporting documentary evidence; The research and development expenses incurred by petitiorlE?r- in its min ing vent:.Lu-e should have been treated as capital expenditures and a mortized ·f or- a per·iod o·f at l east five (5) ye.::~.r· s.

The amount of F'2 ~840~ 590.80 was properly disallowed for future amortization ; The pr·ofessi.ona 1 ·fee in the amount of F'lBO,OOO.OO al l egedly paid to lawyers~ accountants, and ccmsu 1 tan ts

i. s not an cwd inar·y and necessar-y expenses inasmuc h as the same was paid to City Inve£.;tment Cor-pnr· ation .in behalf of Manila Int.er-- public Development Corporatio n~ an affiliate of peti tic:H1~7?r·· ;

Interest expense s hould have been distributed~ apportioned and allocated a mong the contro ll e d organizations of petitioner to clearly reflect the actual income of said organizations pursuant to Section 44 of the Tax Code. For·· the yea r- .1.976 ~ 350

- 6 - petitioner was allowed as interest expense the amount of P3~310~843.71 after deducting the amount of P1~8 3 0~198.50 as di s allowance from its clai m in the amount o ·f P5~1.41,042.21.

For the year· 1977 ~ peti ticmer was allowed as inter·est e:-:pense deduction the a mount of P11~766, 223.3 1 out of its claim in the amount of P 35,926~7 67.66.

The amount of P24~160~544.35 should be di s allowed as interest expense fer the year 1977; Th!:?

d£·~c:luction n ·f' the amount n ·f Pf:39~ 4 07.85 allegedly r·epr·esen tinq bad debts was pr··oper 1 y disa ll owed in.:~smuc: h <-"S the c:laim was not duly s upported by pertinent documents . The alle!]ed bad debts s hnuld have been ascertained tn be worthless before it cnuld be claimed as deduction s ; The as!sessment issu£?.d .in the instant c:ase is in ac:c:ordance with law and regu l ations. The bas ic: issue of cour-!se is whether nr not petitioner Manila New Tnwn Development Corporation .is liable fnr the amounts of P1~563~329.10 a nd P7~643~79 2.83 representinq deficiency income ta x and inter-est f or· the 1976 and 1977~ r .. espec: ti ve 1 y. 351 - 7 - There is n o showing in the pleadings or in the records that petitioner questioned the computation of the deficiency income tax assessed against it by respondent.

We take it that this is not an issue in thi s case.

Wh i le petitioner prays in its petition for review filed with thi s Court that ~ .:t.t .~r:. .. _ ........ J·u?9.r.::.l.:ng ~ this Cour·· t judgment cancelling and withdrawing r-espondent' s ta:·:

asse~;smen t the that thE'~ same is arbitrary and without any legal . and factual basis~ petitioner- utte1,.. ly fa i led to pl'·esent evidence at the sc heduled hearings to s ubstantiate the nullity and .illegality of the assess ment. The Court recognizes that the burden of proof .is on the taxpayer contes ting the validity or correc tness of an assessment to prove not only that the Commi s sioner- o ·f Internal !:;: ~?.ve nue is li'WDn!J but that he (taxpayer-) is r-ight. (Lin o Gut i errez v s. Coll ector of Intern al Reven u e , CTA Ca .:;: e No • . '504, ,7 an u a r y .2 8 ·' .t '.':J 6 2 .:

:~ e e a .l :;: o Tan G u an v s • Co u r t o f t ax Appea l s, Apr.i.l . , ...

-':I ·'

.t'.':Jf...7 .• .t '.'9 SCRA 90.3.)

And if the ta:·:payer fails to present r.:~vidence or- proof in su pport of hi s allegations in hi s petition 352 DECISION CTA CASE NO . 3649 - 8 - for review~ or to prosecute his action~ as in this case~ to the doctr-·i ne of t he presumption in f avor of the correctness of the ta x assessment ( Interprovincial Autobus Co., Inc.

v s .

Co II e c tor of In tern a I Revenue , L -6 7 4.1 .• ,7 an u ar y .3 .t • .t·.?.56 .• 98 Ph.i .l • . :?·_?r);

Co lle c tor of Internal Revenue v s .

Bo hol Land Tran s portation Co. , l .. -.1 .3099 and L-- .1.3'46.3' .• . Apr.i.l :?'.? _ • .t'.?60 _ • .t07 Ph.i .l. '.?6.5) ~ the Cour-t will merely s ustai n the assessment against the taxpayer.

(Care $ OS a v s .

Bureau o f Internal Revenue .•

CT A

Ca :..=:e No.

.37 .t 3.

,7an uar y .198.5 .• cert .iora r .i den.ied .in G.(\. No. L --707.58 .• Auq • .30 .• .t ·.?8.5.)

Since no evidence was presented by petitioner to substan tiate the errors that are claimed to have beE"~n c:ommi t ted by the Commissioner of Internal Revenue in making the assessment in que s tion~ thi s Cour-·t has no other-· alternative than to r-esor-t to the lega l tnJism that "all ~H- es um ptions an::! .in f avo 1~ of the c:orrec:tness of ta :-: assessments." The bur-den cJ'f pn::>o·f if..;

on thE~ ta:-:payer to show the c: on t r-· a r-y.

Petitioner utterly failed to do s o.

This ac:tion find s support in the ·f o l 1 ow in q 353

- 9 - authorities:

(See Co lle c t or o f Internal Revenue v s .

Bo h o l Land Tran s portation Co . ;

Bo h o l Land Tran s portat i on Co.

v s .

Co lle c tor of Internal Revenue .• L-·1.30'.':?'.':?

~~ L-1.346:? .• April 29 .• 19f:.·. o .• 107 Phil. 96.5.)

"All p t·-esumptions ar·e in 'favor o·f the c:or-r-ec tness o'f ta:-: assessments. The good faith of tax assessors and the va 1 id i ty o f thei r- actions are pr-esumed. They will be pres u med to have taken into consideration all t h e f ac t s to which their attention was called.

No ~>r-es umption can be indulged that all of the public officia ls of the s t a te in the v a riou s counties who have to do with the assessment of property for taxation will knowingly violate the duties imposed upon them by law.

"A ~;

a logi ca l o u t:.qr·owth of thE?

pr·esu mption in f i!:\Vo r- of the validity o ·f assessments~ when s uch assessments are assailed~ the burden of proof is upon the complaining party.

It is incumbent upon thf:? pr-oper-ty nwrH?r c le;,:u· l y to s how t hat the assessment wa s erroneous~ in order to r·eU.F.?Ve hi mself 'from it.' ( .51 Am.

Ju r.

page:...=:

62t)-f:.',2.t) . "

(Interprovincial Auto b us Co., Inc.

v s .

Colle c tor of Inte rn al Revenue .• 98 P/?.i.l • . • .2'.'90;

.5.2 Off.

G a z • . • /.. .. .'~?/ 79 1 • ) "When an i mporter c hallenges by 1 ega 1 s teps the corn2c tness of the assessment of a duty by the Collector o f Custom~;~ the ques tion to be decided i s not whet her the Collector· 1-'Ja s wt·-ong bu t whether the impor·ter was r· iq ht ~ the burden being r..m the latter· to e s tablish the co rT ec: tnes s of hi s own c:ont:.E~ntion.

" (Beh n , Neyer & Co.

vs.

Collecto r of Cu s t o ms, 26 P/?i.l . , 647 ) 354

- 10 - "That the deter .. m.i.n a tion o·f theta:·:

def ic ien c:y by t h e Gove nHnen t h as prima facie va l idity and the burden rests upon the ta~payer to overcome this presumption and to s h ow to the satis·f action of the Tax Court t h at the d etermination was not cor-r-ect. "

(Perez vs.

Court of' Ta x Appeal s , et al • .• G.R.

No.

L--10507, Nay .'30 .• .1'.~58 )" And again i n the r-ecent case o ·f Co••issioner of In tern a I R e venue v s • An ton i o T u as on , Inc • , e t al. , G.R.

No.

85749, Nay .ts.

1'.~89~ the Supr-e me Cou r-t st1r·essed that all pr-esumption s are in f avo r- o ·f the c O l'" l'"f.:~c tn ess o ·f r .. e s ponden t C<:.lfTHTl.i. ss i one r- of I nternal Revenue 's assessment against the taxpayer. It is incumbent upon the taxpayer to prove the contrary ( Hindanao Bus CoMpany vs. Co••issioner of' Internal Revenue , 1 SCRA 5.'38).

Unfor-t.un atel y ~ petitioner ·f ai 1 ed to overcome the pres umption of correctness o f t h e Commissioner's assessment. Accord i n <;.} 1 y ~ pet .i. t .. i. o n e r- 1'1an i l a New Town Development Corporation is hereby ordered to pay to respondent Commissioner of Internal Reven ue the .::~ mount s of F' 1 ~ 563 ~ 329. 10 and P7~6 4 3~792.87 a s de ·f ic:iency .income ta:·:

.:~nd interest for- t h e year-s .1976 and .1977~ r· e~:;pect.ively~ p l us sur .. c:har·ges and intel~est incident tel del inquenc:y pur·suant to the 353

- 11 - provisions of Section 51(e) of the applicable National Internal Revenue Code.

WHEREFORE, the decision appealed from is hereby affirmed at petitioner's costs.

WE CONCUR:

(on leave) CONSTANTE C. ROAQUIN Associate ,Judge F'residi CERTIFICATION I hereby certify that this decision was reached after due consultation among the members of the Court of Tax Appeals in accordance with Section 13~ Article VIII of the Constitution. F'resid ±ng ~lu dge Court of Tax Appeals 356