Industrial Textiles Manufacturing Corforation of the Fphilifpines, Inc., et al.

DECISION -

CTA CASE NO. 2805 to THAT db dbs a arid oircparcd wneader care fay xed of the Fhilipoirie yy Mle (ED

ALY ONC»

‘eathires Mara da ito may be served with nobkic wire ls Pe Ce ame) erh hese leqal i JER ER arc sappopeery cb the incanbent head of the Bureau of CLAS with office at bhes hional Oe fa BIR Bleleps « Diliman. Cites aor Cibbty, Metre Mand la val hee may Mee wo 0 Umman rob mare s Proce arc ober legal ap we THAT petitioner is engaged ino the busine hordme ob beiad Maapyl freon Lime arc ote Lora Laine:

s for Oe oe THAT ak filed its L??4 ancome bax return cry bime, decueoting fram 4) are income, amang a, the following "misc ? ‘ BCs

DECISION —

CTA CASE NO. 2805 be 4, THAT or Noy enn tre 1979 it received a deficiency income tax assessment dated Oetaber 29, 1¢79 demanding fram petitioner payment af alleged income tax liability of PFiIO8,443.98 computed hy respondent by disallowing the expenses enumerated in par. Sa ahove, resulting ino a "net income per anvestigatian" of Fa,489,597 1453 tla THAT petitianer cantestecd the said amento oan December 19, 1979s Ga THAT respondent made a final decision an pret by allowing deduction af “cloubt ful accaunts written oof f" in the amount of FS6,292,13 bot reat abing the digallowance af the ather two items, mamelys Accelerated depreciation, eee Lam ee a AAC Share in salaries in a new demand for payment of FOR, S54.15 tangy anecane tax for (974 inelueive of Alleging that the reduced assegament of Pet ,994,.15 16 without any basis in Jaw and in fact, petitioner appealed ta this Court.

It was established during the trial that in L¢?74 petitioner wag alreadvy reqistered with the DECISION CTA CASE ND. 3805 - 4 - Investments as a n em--pi on E-e r· the production/manufacture of bags unciE?r·· F~f·? publ ic (~c t No.

51B6.

(F :-:h. B.)

f':)nd in "'' l ('01 t tE? I'" d i:':\ tr:>d February 2, 1969 (Exh. F), petitioner Zoi l o c;,,,,,,-:;tr-i llo~ Jr., Management s~rvices Man ager of A.

Sor'· iano y C:i..:,, (An s;c:or· i'or· s hor·t) ''to conduct ::, pE~c::ial study or- re v iew of It:emc:op 's (petitioner's) present policies and methods with the end in attc:1i nin cJ optimum effic::ienc::y in its operations at the l east i::: u~::; t" .

(.)s [.J r- p~::;r::-!n ted b y tha parties, the i.s•:::,ues ·for· ,, .. e~::;o 1 1...1 t ion a r~t-?: 1.

Whether or not the disallowance by respondent of P60,392.74 as excess c:lep Y"E'C: i. at. ion P71,507.69 as share was proper a nd legal. 2.

Whether or not the assessment had enterprise under Republic Act No. 5186, petition er claimed in .its 40J

- 5 - income tax return tor 1974, accelerated depreciation on its fixed a ssets in the total amount P673,601.00, pursuant to the provisions of Section 27(b) of said Act.

However, upon verification of petitio~er's 1974 income tax return, the investigating examiner recomputed the accelerated depreciation allowable based on the schedule of machinery and equipment (Exhs. E & E- 1) furnished by petitioner and found the deduction for e accelerated depreciation overlaimed by P60,392. 74. (See pp. 67 & 68, BIR ~ecord s.

) In a letter dated October 21, 1976 (Exh. 6, pp. 97 to 1r)1, BIR record s ), petitioner's counsel, averring that the above findings of respondent's examiner '' coul d have been due to the failure of the worksheets submitted to him to.indicate accurate ly the repairs and modification s mad e on the mac hineries '', attached therewith an a nal ysis of the accelerated depreciation charged for 1974 showing that petitioner underclaimed by P10.04 the maximum accelerated depreciation deduction it was entitled to under Republic Act No. 5186.

(See Annexes A & A-1, pp. 95 & 96, BIR records.) 41G

DECISTON --

is A comparisan oaf the computations submitted hy bath “hies, summarized to project the differenc hetweern them, i6 attached herewith as Annas "A", relevant to mate that the differences hetween the two camputatians lig anly in the Accelerated depreciatian Allowable an the machinera and repaies ain the Extrusian Milis Bec tc « Insofar as the accelerated depreciation en thes fixed S$ in the ather five shians are concernead, the Beaming Section, the Cops Winding ction, the Twisting Sectian, the Weaving Millis and the Finishing Section. petitioner adoanted the findings of respandent.

pondent coankencds that the averclaimed deduchiorn of accelerated depreciation an the machineries and repairs in the Extrusion Mills Section in the amount of PhO, 292.74 was disallowed far failure oft petitioner to dispute the correctness af the computation of the investigating examiner based an the first schedule submitted by petitioner. (Exhe., E & see alsa pp. 68-446, RFS recarcdsa, ) The revised scihechile in the Sik computa t quently submi by petitioner 4 42d

- 7 - pp.

95-96~ BIR r·ecor-ds) modifications not in the which wer-e not duly s ubstantiated I:Jy Fur-ther-mor-e~ petitioner failed to notify respondent whi ch depreci ation r-ate it would Ll S€:~ ~.S pr-escr-ibed in Section 27( b) of Republic Act No .

5186~ as follows:

''(b) (-)cc:elr.-:~t-·a tec:l Depr·ec:ie:\tion. -- At the option of taxpayer a nd in accor-dance with the procedure established by the Bur-eau of Internal Revenue~ fixed assets mc:\Y bF~~ (1.)

dE~pr·ec: iat:.E~d to the E?:·:tr.->nt of not more tha n twice as fast the normal rate of depr-eciation or depreciated at normal rate of depreciation if expected lif e is ten year-s or- less ; (2) depreciated over any number of year-s between five years and expected life if the l a l. t F~r·· :i.s · rnor ·· <;~ t.l·l,::\n tr:~ n ( .1.0) year·s ,:~nd the depreciation thereon a llowed as a deduction from taxable income;

Provided, That the taxpaye r notifies the Bureau of Intern a l Revenue at t~e~b egi nning nf the period which depreciation rate thi •:;

~~. f.:?c::t.ion ~·.l."i.lJ bP u sed by it." F'<·:·~ tit .i.. on e.,,. m,::\into':\i.ns that t h E' deduc:t:ion dE~ pt-ec .i.a ti on C."\].]. OWf.~d by depreciation is not due to lack of not :i.C:E·~ to the Internal ~-.,Jhi c:: h <"'r·gurnen t.

,,..r.~r.:..; pond<-:z.n t has .:J. bandoned ~ but only PI? t. .it. i. one t- allec.:~edly did not dispute the c:omput.i::\tion of the e:·:<::l.minf.::>r· . It is asser ted that th£·~ comput c:ttion petitioner filed with respondent 412

DECISION ~

contained "all the infarmatian needed ta campute the accelerated depreciation", thereby shifting the burden of proaf to respondent to justify the cigallowance he made. But since respondent failed to dascharqe this burden, his determination must he raversed.

The position af petitianer is untenable. The rule 13 we U1 settled that the Commissioner's ames is prima facie or presumptively correct and the burden af praaf ois an the taxpayer ta show the coanmtrary. To meet the burden of avercaming the prima f af the Commissioner’ s determination, (he taxpayer is required to da more Ehan | come forward with the best evidence obtainable, Her oo murs t es hic the Cammiasioaner’ s if doeterncntioatioan ta be ain ere Cr . (Steel or Bronze An poinked cut rlier, the discrepancies be hiweery re rondenk’o sa and petitioner’ s computations for the accelerated depreciation allowable an same fixed as pertained only toa those in the acce@lerated depreciation on the fixed assets in the other sec hians « petitianer adapted in Lts aos Saad

DECISION ~

CTA CASE NO. 2805 bian thie FLQUP ES in, respondent’ s mputati ony in effect conceding the validity of the fancdings spandent therean. Mo explanation was offered by petitianer to accent for the above mentioned discrepancies the hug compubtatians. To contravert pondent’ as camputatioan, petitioner merely relied an its computation with the bare statement that "all the informats oy ne clect ky respondent’ examiner tao verify the correctness af the deductian taken was supplied to them", (Petitioner ’s MeMOorancdum, Pa 44, OTA re rads), but introduced na Ldenices whiaks bo prove thi Said computation, shanding alone, is aife-agerving and ine wf ficient te CY @ OC CUTE: bhe pe Um pt Lan of = coo ene bypass whieh atheaches to the determination of ra noncernt , It ote pepeateci iy that the hue cer af prank ts oon the taxpayer contesting the validity or correc: tre of an as sament to prave nat only that Mid mer af Internal Revenue is wrong but that he (haxpayer) is right, (laine Guta IPP VE.

Collector of Internal Revenue y CTA ¢ Ho. O04, Jariutary [Ry Lees Tan Guan ve. Court of

DECISION ~

we i 8) cone Jan Aapmeale, Le &7& « mT a April And aif the taxpayer fails ta proof in support af hig for review, as oin this case, doactrine af Khe LAM carrec tne Autobkues Co. a Inc. Vee Collector af tnvernal Transportation Co., L-1Laoogs 1960,, 107 Fhil. 45), the wid mest an the Et !@ ly LAX payer.

Frga RTA i PYLE y No.

cerkiorari denied tin GF ponder tk 7s ai TAdned., alleqatiangs presumptian ABSeaameannt Collector LORS Revenue and Court Buireratr vllowance of FSO, 292. 74.

1967, 19 SCRA FOR.)

present evidence ar in hie petitian confarmably ta the an favor of the (Inter-provincial of Internal % 98 Fhil.

BOC)» VSa Bohol Land Lobt4aée, April 29, of Tax Appeals amen t against the cf Internal J anwary L985, Lo FOF SRR. Auguaek TAO a of overcilaimed iG therefore of The amount repre “ehare ain an baine E74, salaries, oO? . 6&8 allegedly ANSCOR" ,

DECISION ~

CTA CASE NO. 2805 disallowed hy respondent not onl because it is é ' ned ther ordinary nar meceseary, but also because Lhe Gxpe was oaincurred mot in (era but in previgue years.

Qn the ather hand, petitioner claims that the eum of F71,507,68 was ano ardinary and necessary husiness expense deductible under Section 2O(a) of the Tax Code because it was the cost of a praject prap Joby ans oro and accepted by petitioner in Lea, Under the agreement, Aanscar canducted, an a cankbintuing haggis, etudies of the management systems and oproacecdires ooaf petitioner to reduce cast of qperation by improving ef f Pie y » The aubthoriby oof Angsear te conduct special sa brichy rays review ct pehkitiarre 6 policies and mesh fee under bthe February &, L969 agreement (Exh, F)oameldeded "the power to inauqurate or inplement the results oof the study whether this will mean retention, madifiratian oor change in temcop'’s present polictes and methods of conducting its Jtemcap sheulel be furnished with detailed reports of the said studies conducted and modi ficatians oe changes made aif any. Your compensation shall he he sec mr hhe number of mean Fy 440

DECISION ~-

can te conduct the atudy and the length of Te ney furnished dn advance he mainte: eo men whoa wild chute par hieubar mbhuchy".

Moke that Comper eat cn ae cn byes riumbyes re tye Ede i ne C

LAL CAPYE

cabo Leb bre fur oiehed in ards see thes mum ook yey vibver tea dd sch boa garb ieilar at Ariel the acm edespi b beg oan heed wre im F Pape adiraagayy b hhere tore oof peek laemer thhak the peter boogpea Pde bere are) fem heeyorc, anc ri bhi: rsprctesr bok bev Oey ° withe hamsdineg iodide ko avaidence as ho the ty abieari pieric. maucnkyes Ceprresct tb pies tore? home cloyeahec te dar ombuechy amet nied yon no eeehoht « yea eons dete y coc A WL Level reporek oof comcucted and modifications or charade rerpe te in Ee A orepor kh sufi hted ar Lares ce Lae A by oo any oetreteh of the imacdtriahkicri ine _s maf CTA CASE NO. 2805 wird concede hech, meacla fie re cork im Lieve, aed showing Wie a cLadimecd Larch wid be di are] ryere Live.

g Comeaodicabert ining ct Tiytieecria ly Frere rites y | (rom t s Are SSE LY CY that tbhye oF thes horses iy he the cuir bho whether hypaes d pps

AIS TOM

of ihre esnmencdihuire at choanm hurm depends can complished anc permanency of the wert Iry hire rvprenedd tree. Cet Mandira & Lye re af rit Cloae pcd Treberr Peeve riuies , Grr bhak ay Ler cames hae Thien Coe & recom dre deduction 18 4& mather af leaqi “@ grace and that thie fauorcherd of ole wreririq) the raght ke the acLmecl part oaf the Se Ceomina P44 cE A deduction as of khe spect fale preyed whet that decuethiorn o6 aubhorived, and thak Me a embikdec to the deduction able ote: prave which the daw ad dow Cage wn le Jeg aa Lae. The apolic ation, peirie ipl af law ooare clear amd oto aur mined, petitianer Industrial Textil Manu fac turing Cormporahiorn oof the Fhilippines, Tricia» has nat tffacs enmtiy guetained, the burden which is placed wpa tb ote te entitled ta the claimed deductian of an

% A &

DECISION Cri hives cy tan oof prescription, suffice ak ta the record of tine Rare of Internal SAE RTECS orn the C pein beac cndernt. bhatt oan dure A wai hao exgire on Dec made ar Maar hy PRA, ab wd oceoutbhk that Sim ie pee arid aoe rpeay by pebhibionmer., Vue runing of the PICO Ee ONY SLC Lipean mart cane mod de Ton cof thie + Yer, the right eolgeion tal Seamer ary ook, Meet oof Tas Oopeades, dol Frid. a.)

tnoduestrisadl Tesxkhiles Pharyuf aie (or pe cahaoan of the FRilippin ere cheese ber pray hear (" ayn a Lotenricad Bie cep ne: the ameniik oof cha fiieieaye sy bree be eve thie

DECISION -

CTA CASE NO. 2808 eee argos apie interest incident te ce danguency poesmanh hoe hhe pire LOWTES of GHecbhion Slee) (ROS) of the apmlicahle National Tnternal Revenue Cocde.

as camerpehect,

WHEREFORE , the Court hereby denies the petition for review for lack of merit and affirms the decision appealed from at petitioner’s costs, S50 ORDERED.

Murcer (aby, Pe hrccs von Meamida, dume IO, Tee, Ourada

AMANTE FILLER

WE CORMCA I: s rey mit tedat STANTE C. ROAQUTN cay dae Jarcdepes seurdachbes Jercleype fe aod Mh tow

CERT IF TCA TION

1 yea pres bay certity that this decitedqan wae reachec! afher cue consultation amang the maeanbers of thre Court of Tax Anpea ano accerdance with eq tian & fy @ehkiede VEITIT of the Conetitubian, , Cee d AEN a Btw fre f, Extrusion Hilis Accelerated dgegracti hate _. quisition Depreciation Clai Acquired cast AOI ~ 1374 BQ] - 1 Extrusion Line 4 Extrusion Line Major Repairs Nylon Cams & Followers I], easing Section Til. Cops Winding Section yarigus 483 323,28 Bee worksheet tots TY. Tsisting Section yar ious i24,891,99 See sorksheet tata ¥. Weaving Mills yarious 8,440,520, 58 See worksheet tota VI. Printing & Fini { Hayashi Prin Machine Jan. i343 00,993,416 B,977.30) 8,977, Other printing & finishing aachines yarious 371,207.73 summarized + H i otal overclaised a a wr wu » a oo a ool ' ' ' 1 1 ' Pane t ne nee + ee st vet a3 ene ~~ a] <> om ad Tr Cd = 'r Cr re ir 2 2 4 “ ar’ . * * « Crd aed t = —- urs Ana ea ho o- uri ad Poe x71 ro rem t o- a oO: “2 of = ” —_ une te mm aed ca ay Fn rae ne nee x os a > or +o mo ed ced ED Fn arog “Od ~ Saal oe ~ Soll cal + a oF « “ . ” a a a qa a os et 4 Or ar ou au mw q q a gq t ret et a no 0 in tn Ri may aad oe Pr ss) 1 La at Tos uw wn ut in un wots. “et Os ” ~ w. ~. ad that ata! ard et oe oP be CD re med Th oes uu. = ~~ he he ec ee I en mM ~4 nT ot a a mm a ca Oo weed a pay Fo = cd mm m x oh on am) OL. _ Ce exe IX. ia Orn crs = ui ol ce) mH — ol wee Ok ee aie ory 1) pel ra ery wT Lang | re tT sme .

co CC) Lr 9) wre ED uw. i [ be he . Ty oo 1) oe ME Gated ” . . rS Du a ae ae qa goes os St a oe i a 4 mm. ra. ca. on eh, cw. m1 Hh ITs oe oe ee: a “othe ae bet Ce | ot “e aq el) q ee) qa a .c om Lo mw Ceo en et e en ex Bort 4. vo oy co ee] a ed ” 73 a) ol m Cn ed oh Choo ow oo wi wa ers en e- Lt @ th ug m4 Oo.

“<—oen ae ae * rtd ced = rer cy 7 te cae tr ct ce 2) cae a Te « * - .

a hog aa =t oe ' ea ot ~~ ot to 4 to om tr wre em ws om bho res co bey Cre our L. 4 ae .. w - ao mas ol 4 tr. om Tr. tn = bey ' wont tee aoa (Zu aa ™ ch 1 ay ay = op red red ED ts aod a4 oF wow om mo FB oe poo ts — —_ ——— ae