Central Cement Corporation vs. Bienvenido Tan

DECISION -

- 2 - Petitioner seasonably responded to respondent's letter on March 18, 1988 Cor 9 days £rom receipt of letter) by disputing the proposed assessment.

<Annex "8", C.T.A. Records, p. 10. > There was no reply to petitioner's March 18, 1988 letter instead, another letter from the BIR dated May 13, 1988 was received by petitioner on May 19, 1988.

This time the proposed assessment amount d to P5,404,339.SO, including a 251. surcharge and 207.

per annum interest .

Comprising the aforesaid assessment are deficiency income tax of P5,400,847.99 and deficiency expanded withholding tax of P3, 491. 62.

<Annex "C", C.T.A .

Records, pp.

11-14. )

Again petitioner was granted ten ( 10 L days from receipt thereof to dispute the p'roposed assessment otherwise, it becomes "final and executory".

On May 27, 1988 Cor 8 days from receipt of · letter>, petitioner through a letter of ' even date expressed vehement objections to the proposed assessment and requested that it be reviewed, reconsidered and thereafter withdrawn. <Exhibits "D", " D-1", "D-2".

Instead o£ a reply thereto, petitioner received on September 20, 1988 from the BIR a £inal assessment notice < Extlibi t £or alleged 89

- 3 - deficiency income tax and expanded withholding tax computed as of August 15, 1988 shown .below: Basic Tax Surcharge Interest Compromise Penalty TOTAL INCOME P3,954,053.00 988,513.25 946, 501. 42 1,000.00 P5,890,067.67"' EWT P2, 081. 48 520.37 1,749.22 300.00 P4, 651. 07 ...

•Detailed computation shown in Exhibit "4". A protest was seasonably lodged by petitioner with the respondent Commissioner of Internal Revenue on September 23, 1988. <Exhibit "F".)

While awaiting resolution of the protest, an undated Warrant of Levy on Real Property <Exhibit "G") and an undated Warrant of Distraint of Personal Property <Exhibit "H") 1ere served on petitioner on Decembe r 1, 1988.

Undated Warrants of Garnishment were likewis e erved on two of petitioner's de posi tory ba nks na me ly, Phi lippine Commercial Inte rnational Bank, PCI Bank Towers, Makati <Exhibit "I"> a nd Intern tion 1 Cor porate Bank, 111 Paseo de Roxas, Maka ti <Exhibit "J") on December 6, 1988 and December 7, 1988, respectively.

All the foregoing warrants were issued under the signature of respondent.

Petitioner assailed the issuance of the warrants and sought their recall in a letter filed 882 ) I'

- 4 - vi th respondent on December 12, 1988 on t he ground that the warrants are null and void £or having been issued prematurely and in violation o£ the taxpayer 's right to due process, t he protest £iled not having been acted upon by respondent. <Exhibits "K", "K-1", "K-2" and "K-3" . > The warrants were not recalled by respondent despite the petitioner's insis tence and t he £oregoing contentions. In view thereof, petitioner £iled with this Court on December 15, 1988 the instant petition £or ) review vi th urgent motion for injunction. It is respectfully prayed that the assessment be set aside for lack of legal and factual basis and that respondent be r strained £rom enforcing the warrants in question for being null and void. This Court :found the is uance o:f warr ants o£ distr int nd l vy nd warrants of garnishment in violation of Section 207 of the N tiona! Internal Revenue Code which only authorizes the issuance o£ warrants "not earlier than three months nor later than six months from receipt of the demand".

<"Resolution", C. T. A Records, pp.

31-38.)

The dispositive portion of said resolution promulgated on December 21, 1988 provides:

- 5 -

WHEREFORE, finding the motion for injunction of petitioner Central Cement Corporation well founded a nd meritorious, and there being no objection on the part of respondent, the said mot ion is GRANTED. Respondent Commissioner of Internal Revenue and his agents are hereby enj oined from enforcing the warrants o:f distraint and levy served upon petitioner and warrants of garnishment upon petitioner's depository banks without necessity of filing surety bond pending :final determination of the case.

1. DeficifDOJ withholding tax

2. Bonus ~aid to PICC 3, Une~plained diff~renoe in cost of ealPB

4. Unreported proceeds fro• sales of property and equip~ent

5. Incoae payaents to contractors not subj~t to EVT

6. Deficiency docuaentary sta1p tax Add: Unexplained increase in net worth Taxable let Inco1e Per Investigation lnco~e Tax due thereon (3511 Surcharge ( 2511 Interest fro• 10/16/87 to 9/30/88 (19. 1511 Co•pro•ise penalty for lat~ filing TOTAL AIIOOIT OOE and al.LECTIBLE p 39,564.00 100,000.00 3,694,580.00 1,235,453.00 CP 3,080,940.00) 208,14~.~ 5,274,745.00CSICJ 6,600.00 9,096,889.!00 P11,297,294.00(SICI 3,954,053.00 988.513.25 946,501.42 _ __,1,._,, 000. 00 p 5,~·~!·6..?

DECISION -

C.T.A. CASE MO. 4312 - 6 - II. Deficiency Expanded Withholding Tax Parking Fee Kooler Industries ftetro car rental Various branch contractors Incow paJ~~ents not subjected to m m due thereon ( 1l, Surcharge 12511 Interest up to 9/J0/88 Coapro ise penalty TOTAl AIIOOWT DUE and COU.ECTIBU: (BIR records, p. 189. l p 3,217.20 2,880.00 40,520.00 161.~31.63 208,148.83 2,081.48 520.37 1,749.22 300.00 p !t6S1.07 The evidence offered by petitioner <Exhibits "A" to "X" - with sub-markings> in the hearing o:f this case were all admitted by this Court in its resolution dated Febru ry 20, 1991.

<C. T. A.

Records, pp. 99-100. ) Petitioner also presented as its witness Antonio Dumaliang, the company's comptroller.

On the other hand, respondent's evidence marked as Exhibits "1" to "G" <with sub-markings> were likewise admitted by this Court in its resolution dated December 3 ,

1991 .

(C.T.A.

Records, pp.

126-127.)

For its witness, respondent presented Raul Magtagnob, a member of the BIR investigation team.

The issue of the cas to be resolved by the Court are the :following: 1.

Whether or not this Court has jurisdiction over this case. 8 q .

v i

- 7 - 2.

Whether or not the assessment o:f the petitioner for deficiency income tax of PS,890,067.67 and deficiency expanded withholding tax o:f P4,651.07 for taxable year 1987 is correct. The contention of respondent is that this Court has not acquired jurisdiction to act on this petition.

He claims there is no decision yet on petitioner's protest. His issuance o:f the warrants of distraint , levy and garnishment allegedly does not conati tute a decision on the protest which is appealable to the Court of Tax Appeals. However, the matter of jurisdiction was neither raised by respondent in his "Answer• <C. T . A.

Records, pp.

46- 50 ) nor in the trial on the merits of this case.

In f act. respondent through c ounsels actively participated in t he proceedings be:fore this Court which run for over two years without being heard to question the Court's jurisdiction. It was only when the case was submitt d for decision that respondent raised first time in its memorandum that this Court is wi thout jurisdiction. < Id., pp. 171 -204.) Jurisdictio n is the authority to hear and determine a cause the right to act in a c ase •• <Herrera vs.

Barretto and .Joaquin, 25 Phil., 245;

888

- 8 - Conchada vs. Director o:f Prisons, 31 Phil.

4 ~ U.S vs. LiMsiongco, 41 Phil., 523. > It is the power and authority conferred on a court by the constitution and laws to hear and determine causes between parties and to carry its judgments into effect. <21 C.J.S., 29.)

In determining whether a case lies within or outside the jurisdiction of a court resort to the consequent statutory enactment is indispensable.

[Francisco, The Revised Rules of Court in the Philippines, Vol.

1 ( 2d ) p.

1 06. J Towards this end, what is crucial in the determination of the jurisdiction of the court is the averments in the pleadings taken as a whole.

Once jurisdiction is acquired it continues until the case is finally terminated. <Pa•intuan vs. Tiga1o, 53 Phil.

1~ Phi1ippine Land Air Sea Labor Union <PLASLU), Inc., vs. CIR, 93 Phil. 747~ Tuvera vs. de GuzMan, L- 20547, April 30,1965. > While lack of jurisdiction may be assailed at any stage, a party • s active participation in the proceedings before the court without jurisdiction will estop such party from assailing such lack of jurisdiction.

(Garcia vs.

Court o:f Appea1s, 202 SCRA 228~ Sa1en vs. Ding1asan, 198 SCRA 623.> One who subjects himself to the jurisdiction of a court, even where he would not otherwise be subject to 8 9'"( - 9 - suit, becomes subject to any valid claim asserted against him directly relating to the subject of his voluntarily initiated proceeding. To permit one to invoke the exercise of jurisdiction within the general powers of the court and then to reverse its orders upon the ground that it had no jurisdiction would be to allow one to trifle with courts. The principle is one of ~stoppel in the interest of a sound administration of the laws. <Young ften Labor Union Stevedores vs. Court of lndustria1 Re1ations, et al., No.

L- 20307, February 26, 1965 citing Perkins vs. Benguet Conso1idated Mining Co•pany, et al., No. L- 1981 - 82, May 28, 1954>. In the case at bar, the warrants of distraint, levy and garnishment were issued by respondent knowing fully well that the deficiency assessments were under protest by petitioner. Even when the issuance of the warrants were objected t o by petitioner £or being i n vio l a t i on of the Tax Code, respondent did not l ift said WfU''rl!m t 6 .

I t i s by r e spondent's o wn doing t h t dminis trative reme dies avai lable to pet i t i oner were effectiv e l y s hut-off ther e by, leaving petitioner with no recour se but to seek relief -from this Court. Taking c o g ni~ance of th petition f or review with u r gent motion for injunction, t his Cour t found -

- 10 - the aforesaid motion meritorious and granted the same.

<"Resolution•, C.T.A.

Records, pp.

31-38. > Respondents were enjoined from enforcing the warrants pending "final determination" of the case. <Ibid. > At this time, there was no objection on the part of respondent.

In its "Answer" it :rei te:rated its assessments and prayed that this Court order petitioner to pay the sam~ .

In the subsequent pr oceedings bGfo:re this Court ~hie h la ted for over a couple o£ years nd where respondent actively participated, the que tion o! j urisdiction was never raised.

By its oyn acta, pondents at the very least recognized this court's ju:risdietion over the case and voluntarily submitted to it~ authority. It is therefore stopp d from aeaailing this court's jurisdiction over the cas • Accordingly, it cannot be allowed now to deny this court's jurisdiction, for do so would be to make a mockery of the law and judicial process.

) We now proceed to look into the merits of the deficiency income tax assessment of P5, 890, 067. 67. This was principally on account of the alleged unexplained increase in net worth of P9, 096, 889. 00 and disallowed expenses of P5,281,345.00. 8 0, --,, ...., ' .. - -

- 11 - The BIR examiners arrived at the above- stated amount as follows: Paid-in Capital Per Financial Statewent 6/30/86 Less: Additional Stockholders contribution to the capital accounts as provided under Section 4Cdl of Rem~ue Regulations llo. 14-86 Adjusted Capital Add: Retained Earnings Total Add: Reserve for Doubtful Accounts let worth as of 6/30/86 Reported llet Worth per E. 0. llo. 41 Unexplained increase in net worth CBIR Records, p. 1351 Pl4, 300,000.00 ~..J!!IO. 00 Pl0,300,000.00 _jQ,_624,0~.!00 P20, 924, 022. 00 -~ 431,_496. ~ P23, 358, 158. 00 ~1.629.00 p 9,~,889.l!J Petitioner availed of the one-time tax amnesty covering unpaid income taxes for the :fiscal years ending June 30, 1981 to June 30 1986 pursuant to Executive Order No.

41 as implemented by Revenue Regulation No. 14-86. The immunities and privileges enjoyed by petitioner upon compliance with the conditions of the tax amnesty and the rules a nd regulations issued pursuant thereto are below:

RSection 6. Immunities and Privileges.- XXX XXX XXX a) The taxpayer shall be rt;>...l .~.!?Vf?_~­ Q_! __ ~.!!Y_ income_ t~lL-.l.!..~J>_ili_i;y on any untaxed income from Januaa h_ 1981 to .Q~gember 3L___J. 98..9._, including increments thereto and penalties on account of the non- payment of the said tax. Ciyilt_ 900 quoted ----

- 12 - cr~~~n~l or ~dministr ative li.~ _ _p_.:h_J,_j,.j:_y arising from the non- payment of the said tax, whic h are actionable under the National Internal Revenue Code, As amended, are likewise deemed ext~ished.

b> The taxpayer's tax amnesty dec~~tion shall not be admissible in evidence in all proceedings before judicial, quasi - judicial or administrative bodies, in which he is a defendant or respondent, and the same sh~ll not be exam ~.JL_ inquj,,LE;>_g_g_r_ l:_Qoked into by ~nY P-~-:r.~9.0.t overnme t official, bu~eau or office.

c > The bQ9...k!L-2i_~Q..Q..Q~.ni__!!n d other ~~ords of the taxpayer for the period from J_~n.y_acr_ 1, 1981 t_Q.

De_p~mb_!:?r 31, 1985 --~ha.l,l not be ~xamined for income tax R.I!J"-P.9.~~~:

Provided, That the Commissioner of Internal Revenue may authorize in writing the examination of the said books of ccounts and other records to verify the validity or correctness of a claim f or grant of any t x refund, tax credit <other than refund on credit of withheld taxes on wages), tax ince ntives, and/or exemptions under e xisting laws.

<Undersc oring supplied. > XXX XXX xxx .• In relation to the foregoing, any officer or employee of the Bureau of Internal Revenue or any government entity who inquires, questions or attempts to inquire into the tax amnesty declaration filed by any taxpayer pursuant to Executive Order 90

- 13 - No. 41 shall be guilty of grave misconduct for which he may summarily be dismissed. <Section 8~ E.O. No.

41. ) The net worth of the taxp yer as declared in the sworn statement filed shall be considered as his true net worth as of January 1, 1986 for the purpose of determining his future tax liabilities. Any unexplained increase in his net worth after January 1, 1986 sh ll be considered taxable income in the year when such inore s w a etablished or discovered. <Section 7, E.O No.4!.) In the case of a corporate entity on the fiscal year basis, the increase in net worth shall mean the excess of net worth as of the end of his 1985 fiscal year over the net worth as of the beginning of his 1981 fiscal year.

For this purpose all fiscal years beginning on or after August 1, 1980 shall be considered as fiscal year 1981 and all fiscal years ending on or before June 30, 1986 shall be considered as f iscal ye r 1985.

[Section 4 <c)~ Revenue Regulations No. 14-86. l A consider tion of all th provisions of E. 0 ' No.

41, taken as a whole, will evidently show that ) there is no leg 1 basis for respondent to assess petitioner for deficiency income tax on account of the discrepancy arising from a r e computation of the 902

- 14 - net worth as of June 30, 1986.

The same is still covered by the immunity granted by said tax amnesty law.

Violations thereof cannot be countenanced.

Results o f clearly prohibited acts should be thrown out, never to be given due course. Even then, the alleged unexplained increase in net worth of P9, 096, 889. 00 has been accounted as well as amply explained and substantiated by petitioner as fol lows <Exhibit "L">: a> Customs duties and taxes paid on imported machineries and equipment for plant upgrading which were already claimed as deduction in the Income Tax Return <ITR) for fiscal year ended June 30, 1984 but capitalized £or financial accounting pur pose .••••••.••••••.• .. ...•.•••• P8,996,889.00 <Exhibits "N",

"N-9 "

and Exhibits "0", "0-2" , "0-5" and "0-7". > b) Differ nc in llowance fo r doubtful account. ... .. ... . . .. ... .. 100~000.00 <Exhibit "M - 4". > TOTAL . ••. ••.• • P9,096,889.00 Fully diselo ed in pe titioner's audited financial statements for fi c year ended 1984 is the treatment of the P8, 996, 889. 00 c ustoms duties and taxes.

Provided in Note 7 thereof is the following :

- 15 - The company r e ported as de duction f r om income for tax pur pose s cus toms duties and taxe s amounting to P8,996,889.00 i nc urre d in 1984 on the importation of a certain machinery and equipment which were c apitalized for f inancial r porting purposes. Accordingly, no income tax for 1984 has been provided in the accounts. " <Exhibit "N-9") The aforestated amount w a l ikewise r eported in its Schedul of Taxes and Licenses for f i s c a l year ended June 30, 1984 which we r e c laime d a s deduc tions <Exhibit "0-2" > and the same a mount was added to the loss per return i n the Reconciliation of Net Income and Analysis of Changes in Retained Earnings/ Computation of Tax Due <Exhibit "0 - 7•) . The company's comptrol l er testified under oath on the foregoing and expl i ne d i n detai l the discrepancy noted referring a t t he same time t o the evidence presented, to wit: Q.

M •

Witness, pparently, bas e d on your tax amnesty ret urn and the computation of the BIR , t here i s a difference of .,9, 096, 889. 00. How do you account for or reconc ile s uch difference?

A.

As I h ve et t d Q whi le a -o, t he BI R computation was made on the basis of the financ'al accounting report of the company which i s !ound on Exhi bits M-3 and M-4 wherein under the net worth method computati on , tha t is current assets lees t he ..J ..

XXX - 16 - c u r rent liabil i ties a nd inc luding the l ong t erm debt.

We also have to de duc t the capital stock which e xc lude the additional increase in capitalization dur ing the year, and we have to a dd back the allowance for doubtful a ccounts.

The BIR resulted to a ne t wor th computation of P23, 259, 518. 00 whic h is computed in accordance with the financial accounting purposes and not on t a x accounting purposes.

<T. S. N. October 9, 1989 pp. 11 - 12. >

XX X

XXX Q.

For t x purposes, Mr.

Witness, What was the net worth of your c or poration for t he fisca l year ended 1986? A.

For fisca l yea r e nded

1986 ,

consider 'ng the beginning of 1981 which is the c overage of the t a x amnesty, i t would be P14, 261,629.00. <!d. , pp. 19-20 . > XXX XXX XXX Q.

How did you arrive at suc h a mount, ttr. Wi tn .. s?

A.

Be ed on t he computat ion of net worth, give n all the formulas a s I have stated in the fi nancial reporting purposes, the re is only a diff renee t h t you have t o t ke into consider tion.

Tha t is t he deduc tion of the ouatom duties and taxes paid on pl nt p op rties nd eaqui pment which incl udes. • • • • n 1984 we paid the taxes nd duties a moun ing t o P8,996,S89.00 and under this compu ation we deduct d i n the 1984 the a me mount as one-t ime expenses for the fiscal year.

Q.

Mr.

Witness can you g o over the document a nd refer exactly to t he particul ar document wherein you ma de that one-tim deduction of the P8,996,889.00 represent ing customs

90 Z)

- 17 - duties and taxes paid on machineries and equipment.

A.

It is found in Exhibi ta 0, 0 -2, 0-5, and 0 - 7.

<I d . ,

p. 20 > XXX XXX XXX Q.

How do you account for the remaining difference of PlOO,OOO.OO? A.

Q.

The difference corx- spond to doubtful aocounte?

of the PlOO,OOO. OO llowanoe :for In the documents which were previously marked as exhibits, would you refer to the specific document where the PlOO,OOO.OO is being mentioned.

A.

Exhibit L and Exhibit H-4. <I d. ,

p. 15) XXX Q.

Would there ne worth of ending C)f comp ed o o.f 1987?

XXX XXX b any inereaee in the your cor po ation for the fiscal y ar 1986 as the beginning net worth A.

None.

Q.

So .fa Witrl a incre a you a r c oncern d , Mr.

th re is no unexplained in net worth?

A.

Yes, th re is none?

< Id., pp. 20-21) XXX XXX XXX In contrast, respondent's examiner revealed during the erose-examination by petitioner's counsel the follo wing:

908

- 18 - Q.

Mr.

Witness, in arriving at this alleged net worth :f.or tax purposes, did you take into · consideration the amount o:f P8,996,889.00 which was capitalized :for :financial reporting purposes but was reported as one-time deduction :from income :for tax purposes?

A.

W wei not m d aware o:f that during our investigation, that is why the same was not taken into consideration.

As a matter o:f :fact, i:f I may add when the taxpayer's r@presentative request :for a reconsideration o:f our preliminary assessment, the same thing as being cit d here by the counsel o:f the taxpayer have !ready been alleged in their letter praying :for reconsideration.

But the same was not al o given due course because they were not proven, and the y were not documented, and they were not even substantiated.

Q.

But, Mr.

Witness, do I take it to mean that this particular position was brought into your attention? A.

It was brought to our atte ntion after the preliminary investigation. It was brought to our attention only during the reconsideration period, and the same was not taken into consideration also because o:f lack o:f substantiation that woul d prove contrary to th report.

Q.

Mr. Witness, going over page 3 o:f the memorandum which you prepared personally, is it not a :fact that you were apprised even prior to the reconsideration o:f uch position specifically the statement "The allegation :forwarded by the taxpayer's representative that the net worth as of June 30, 1986 appearing in the tax amnesty return was arrived at using the tax accounting approach and not the 907 _, A.

financial irrelevant effect, Kr apprised by petitioner position?

- 19 - accounting approach, is to discussion. • So, in Witness, you have been the representative of the of this particular They were saying another thing during our investigation but the same cannot be considered because, you know, in the BIR as in the courts, we go by the appraisal of evidences, and mere statements cannot be given consideration.

Because they were saying this thing and they were saying another thing, and ve cannot verify.

<T.S.N.

September 13, 1991, pp.

20- 23) The unyielding stance of respondent do not impress Us since it is not anchored on solid ground but strikes Us as rather whimsical in the light of the clarity of petitioner's explanation, substantiated by documentary evidence. The correct net worth for tax purposes of P14,261,629.00 as reflected in petitioner's tax amnesty return <Exhibit •tt•>, not the net worth for financial statement purposes of P23, 358, 518. 00 <Exhibit •L •) would have been arrived at by respondent had it properly taken cognizance of petitioner's contention and evidence.

Accordingly, there vas no unexplained increase in net worth which can give rise to a deficiency income tax assessment. 905 . I

- 20 - The items comprising the above arranged according to their materiality are as follows: (1) u~~xrul~in~d difference in cost of ~~l~~-=-E~~94,580.00 This vas arrived at by respondent's examiners I through the following computation:

<BIR records,

p. 136, par. 3. > Cost of sales per Manufacturing Statement Cost of sales per I.T.R. Difference P140,662,893.00 144,357,4\.73.00 p 3,694,580.00 Petitioner's explanation of the discrepancy vas not given credence by respondent allegedly on account of its failure to substantiate the same. The records of the case belie such allegation as petitioner has in fact submitted proof supporting its accounting of the difference noted, to wit: Cost of sales per Kanufacturing State~ent Cost of Sales per 1. T. R. Less: Unrecognized depreciation on capitalized foreign exchange loss deducted fro• cost of sales for inco~~e tax purposes. (Exhibits •o-t•, and •o-2•) Discrepancy Purchases of ce.ent fro• Ri-Celeftt Corp.: Exhibit •1-2• Exhibit •R-3• Exhibit •R-4• Exhibit •R-s• Exhibit •R-6• Exhibit •s-1• Discrepancy 80D P140,662,893.00 P144, 357,473.00 1, 559,987.00 _1~2, 797,486.00 2, 134, 593. 00 p 707,256.00 35,853.82 507,888.57 439,766.46 m,168.1o _ _1(,_~.~ -~lo.z.m.Jz ~.760.83

- 21 - The difference of P26,760.83 vas claimed by petitioner under "Others" but failed to present evidence to established the same unlike the other items.

Consequently, We have to disallow the amount of P26,760.83 .

In the testimony o the comp ny' comptroller, the following v re lik wise disclosed: )()()( XXX Q.

Mr .

Wi tnes , regarding the amount of depreciation and capita lized foreign exchange loss, did th BlR have any question regarding this ? A.

None.

Q.

How bout your treatment of t hat amount?

Did the BIR made any comment on that?

A.

None also.

Q.

Also regarding the purchases o:f cement amounting to P2,134,593.00, did t he BIR question whether such purchase were made or not? A.

B.

Non .

In fact, £urni h d th m thea their examination.

( T. S. N. , October 9, ( 2) I have already documents during 1989, p. 26> from sa .t,_,e'---=o,_:f The BIR came out with the aforestated :figure in \ the follo wing manner <BIR records, p. 2, par. 4):

9J )

.)

- 22 - Net proceeds from disposal of property and equipment per Statement of Changes in Financia l Position for FY ended June 30, 1987 <Exhibit "Q- 13"> P1,385,000.00 Gross sales price from sale of transportation equipment per I.T.R.

<Exhibit "Q-1"> 149,_.Q.;37 ._OQ Unreported Proceeds from sales of equipment P1,235,453.00 In assailing the BIR findings, petitioner merely presented an analysis of the proceeds .from disposal of property and equipment <Exhibit "T-1• > sans any corroborating evidence.

Petitioner's explanation of the difference, quoted below, is by itself hard to believe compounded by the absence of any supporting document: Q.

How would r eondil the diff rene e of Pl,235,~53.00. Hr. Witne$s ? A.

Th bul~ af this mount r e fer red to h equ"pm~nt whic h v a acquired l at fieoal y ar pr tH" to y e; r 1987 from a company Cent ral Cement Marketing Cor poration.

This is distinct from our company , Central Cement Corporation, in which we acquired this equipment for purposes of payment of their account with us.

And the following fiscal year, knowing that the company has been making a profitable operation, we decided to return the equipment, and therefore, there is no gain or loss realized for this transaction. And that is why, the only report that was reflected in the ITR or the income tax return under Schedule 2 - a, found on Exhibit Q-1, the amount of 911 _,

- 23 - P149,637.00 reflects only the other company other than the Cement Marketing Corporation. October 9, 1989 pp. 27- 28 > sale to Central <T.S.N.

The dieallowano by respondent of the discrepancy found in the r ported proceeds from the disposa l of prop rty and equipment amounting to P1,235, 453.00 is therefore proper. B.

( 3) subjected to This particular disallowanc wa not contested by petitioner in ita protest letter to the BIR. Based on the concept of e xhaustion of administ rative remedies, a question not previously brought up in the administrative forum cannot be raised for the first time in court .

<Aguina~do Industries Corporation vs.

Co••isaioner of Intern ~ Revenue, No.

L-29790, February 25, 1982, 112 SCRA 136 >. In the petition for review and the memorandum :filed with this Court, the hove-mentioned item was not di pu e d .

Aooord 'ngly, r spondent' :finding that various income payments amounting to P208,148.83 have to be disallowed for not being subjected to the expanded withholding tax pursua nt to Section 30 < j > [now Section 29<j >J of the Tax Code, is sustained. 912 _, --

- 24 - The basis in disallowing the above is that they allegedly pertain to bonuses paid to PNOC employees and there is no justification for it. Revenue Officer Raul Magtagnob in his testimony categorically stated in court that: Q.

A.

Are you sure about that, that these bonuses were paid to PNOC employees?

Mr. Witness, specifically Our verification states that these were paid because the vouchers were addressed to them?

( T. S. N. September 13, 1991, p. 10. > As rebuttal, petitioner referred to the Coal Supply Agreement by and between PNOC and Central Cement Corporation <Exhibit "X"> whereby Article XII.2 thereof provides: If the heating value of specification coal as analyzed under Article X of this Agreement is between 9,500 BTU/Lb.

<As Received> and 9,600 BTU/Lb.

<As Received>, no bonus with respect to heating value shall be made.

If the heating value of specification coal as analyzed under this Agreement is above 9, 600 BTU/Lb.

<As Received>, a bonus shall be applied as follows:

Bonus = !!.._.::. ... 9..'-.. -~.QQ 9,500 X Selling Price

XXX - 25 - Where = Heating value in BTU/ Lb. <As Received ) as analyzed under Articl e X of this Agreement . XXX

X XX

The best evidence which under the c i rcumstances affords the greatest certainty o:f establ i s hing the fact in question are the vouchers alluded t o by the BIR examiner.

However, petitioner who has possession of said documents did not produce the m instead, it cap·talized on t he su ppl y contra c t whic h does not even suffice t o overcome the presumption of correctness of th BIR findings.

Hence, the disallowance of t he PlOO.OOO.OO is valid. The other expenses disallowed namely, deficiency withholding tax of P39, 564.00 and de.ficiency documentary stamp tax of PG, GOO. 00 were not disputed by petitioner in its protest l etter t o BIR.

They were neit her raised i n t he petition for review nor in the memorandum fi l e d in this c our t. We t herefore find i n favor of respondent. In summary, comput ed below is petitione r' s i ncome tax liability for fiscal year ended J une 30, 1987:

._,._.

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- 26 - let loss per return Add: Disallowed expenses

1. Deficiency withholding tax

2. Bonus paid to PIOC e ployees

3. Unexplained difference in cost of sales

4. Unreported proceeds fro• sale of property and equipwnt

5. Incow pay nts not subjected to withholding tax

6. Deficiency docuwntary sta•p tax let loss per investigation p 39,564.00 100,000.00 26,760.83 1,235,453.00 208,148.83 ( P3, 080, 940. 0()) --~!...® _j.~_~16 5.~. 66 CP1,~,413.34l As to the deficiency expanded vi thholding tax assessment of P4, 651. 07 (inclusive o:f increments>, the same has already become :final, executory and demandable :for failure of petitioner to :file a protest vi th the Commissioner o:f Internal Revenue within thir ty < 30 > days from receipt of the :final assessme nt pursuant to Section 229 o:f the Tax Code, as amended.

WHEREFORE, the deficiency income tax assessment issued to Central Cement Corporation in the amount. o:f PS, 890, 067. 67 is hereby cancelled :for lack of merit.

However, petitioner is ordered to pay respondent Commissioner of Internal Revenue the .r- de:ficiency expanded withholding tax of P4,651.07 (inclusive of incrementa> plus delinquency interest of 20X per annum :from September 15, 1988 until paid pursuant to Section 249(c)(3) o:f the National Internal Code of 1988. 915 .)

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- 27 -

WE CONCUR:

• GRUBA

Judge 7 ~. ~ . .L~ ' RA~ 0. bE A Associate Jud e

CERTIFICATI ON

I hereby certify that this decision was reached after due consultation among the members of t he Court of Tax Appeals in accordance with Section 13 Article VII of the Constitution. Q~v.z.~ ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals