Hepuhljg of the Philippi Nes Court 0~ Tax Appeals Wijezun City Santlagu S. Ung and V I:Hginla T. Ung vs. Cumrhsslljneh Uf Lntehnal Hevenue, et al.

HEPUHLJG OF THE PHILIPPI NES

COURT 0~ TAX APPEALS

WIJEZUN CITY

SANTlAGU

S.

UNG

and

V I:HGINlA T.

UNG,

Petitioner,

-

versus -

C.T.A. CASE NU. 4648

CUMrHSSllJNEH UF lNTEHNAL

HEVENUE ,

Hesponc:lent.

X

-

-

-·

-

-

-

-

-

-

X

L-:>J::::.:C IS I CJN

Petitiorier spouses

herein seek for the

cancellation

of the aE.:ses.srnent issued .by t .h e

respondent assessing them

for defi ciency incowe tax for the year

1 98b , inclusive of

.

iitcrernents in the total arnount of f-'180 , 4 34 .65 .

The

petitioners herein

are engaged

in business

as

dealers in

grains

~rice and

palay> and real

properties . ·

They availed of thE' ta;-c amnesty under

Executive Order No .

41

(£0 41)

coverin<;;~ unpaid

income ta ;.tes

for the

year-s

HOW E' Vel,

respondent,

on

t he

basis

of

conficlentiaJ

in£ormation that

petitioners

had

acquired

sev.-:•ra l

prior

to

1986,

conducted ·

an

examination on

the books and

records o£ the

petitioners

573

DEGlSHlN

C.T.A. Cuue No. 'lb1B

-

:l -

The inves~igation resulted into

a finding that

the

petitioners are

liable ior

deficiency taxes computed

as

follows:

Ne t Income Per Return--

Add: 1 >

2>

3)

Overstated

cost

sales

arising

overstai..ernent

o:l

from

of

beginning merchandise

inventory

Real property

holdings

not

incl uded

in

the

Statement

of

Assets ,

Liab.

& Net.wo'rth

filed

pursuant

to

EU

#

41

herein

treated

in

accordance with ~ec .

7

o1 t . .he E:aid Ta;.!

AmnE•sty Law

Income

disguised

as

liabilities

no

substantial

reference

as to naturE· and

character and unsupported

T "U TAL

Net

Incomr~ Per rnvestiqation

LESS : Personal & Additional exemptions

Nr:;d : Ta;.:a b 1•? 1 nco me

Income TaJ·: LJue thereon

Less: Tax paid per return

Deficiency ln come Tax

A.rld:

;,n'l. s urcharge

25% surcharge

interest -

4/16/87 to 1111 5 /90

TUT AL AMOUNT DUE & COLLECTll:lL~

After the petitioners h ad file d their

p

b~:. , 1 5b . 88

P

:ro, ooo. oo

p

49,510.00

p 17!:•! oou. 00

p 2541510.00

p 319, 666.88

p

2 11000.00

p 2'3.8r 666. 88

p

6:3,788.00

3,699.00

p

60, 089.00

30, 044 . 50

15,022 . 25

75 , 278.90

p 180,434.65

protest on the

sRirl

assPs~mPnt. the

respo nde n t ,

on November

7 ,

1990,

issued hi s

fina l decision on

the matter, sustaining

his

findi ngs.

Thus. this instant petition.

574

DECISION --

C. T. A. Case No. 4646

-

:J -

The

is:sues:

to

be res olved

in

t .his case

are

1 )

whet h er

or

not

th e

petitioners

are

liable

for

the

deficie n cy

t a:·ces

assessed

b y

the

respondent.,

and

2 >

whet her o r

not the

imposition of the

!::•ll/. fraud

penal t .y

was prope·r .

The

petit:ioi•er E: contend

·that

t !Je

l indings

ctf

th e

r E:•spondent.

holding

th ern

liable

defi ciency

income

t a;-:c?s

d u e to the overstated

cost of sales amounting

to

P :.:IU, UUU . OU Ct'ITI IJC•t be· s u E:tai ned for lailu:ce on

·the part o:f

th e respondent to

present any evidence

tending

to prove

the

same ,

part icu larly

the s tatement

o:f networ-th

which

they file d

pursuarJt t .o t.he req u irement.s

o:f EO 41.

Such

cnnissic•n , accor·dirq;r t o the

petitioners, is due

to Sec .

8

o:f EU

41 which prohibits any

officer or employee o:f

the

Bureau

o:f

lnt.ernal

Revenue

to

inquire,

question

or

a tempt to inquire into th e t .a:x

amnesty declaration filed

b y the ta.:payer .

How e vE·r ,

a

mere peru!:::al of

the Petition for

Review

filed

by th e

hereiiJ

petitioners reveals

the

fol lowing

allegat.ions=

n a ..

~!n__t.]~le t:t·ver sta + ed

c~ost c1£ s ales of· P3Ct , (tOO:

Thi:-1 represents the difference

between the

a mount

oi

invent ories

as

of

Dec.

31,

1'385

n ?f l ect£-o>d

in

U n?

Net

\'lorth

s tate me nt

t-iled

under

EU

41 ,

as

against

the

beqinning

inve nt ories

d ec l ar e d

by

the

Petitione rs

in

t hei r t 9 /Jb in c ome

t ::n: r e t u.1 ·n. Thus:

575

DECISLON -

C.T.A. Case No. 4648

- 4-

Mds. Inventory, Beginning,

per Protit & Loss Statement

atchd. to 1986 income tax

return of Petitioners

(Annex C) P186, 744. 60

Mds. Inventary, Ending,

Dec, 31,1985 per Statement

of Net Werth, atchd. ta Tax

Amnesty Return, under EQ 41

(Annex D-2) Pi56, 744. 60

Variance P 30, 000. 00

This discrepancy, which had the effect of

overstating the cost ot sales and consequently

understating the gross profit of the 1986

income of the Petitioners, was obviously a

cause of oversight on the part of the

Petitioner’s book-keeper, and that there was no

deliberate intention of the Petitioners to

defraud the revenues.

Although the Petitioners da nat dispute

the merit of the discrepancy of P30,000. 00, the

Petitianer availed of the tax amnesty law under

the provisions af EQU41, and Petitioners naw

wish toa inveke their immunity and privilege for

the BIR nat ta use as evidence their

(Petitioners) declaration in EQ 41 af an item

in the Statement of the Net Warth under EQ 41

computing a deficiency tax. x x x" {Italics

supplied).

From the foregoing avermentse, the petitioners

themselves had admitted the fact that there is a

discrepancy in their balance at merchandise inventory in

the years 1985S and 1986 which had an ettect or

understating their gross prafit in 1986 in the tatal sum

of Pad, 000. ad. Consequently, the petitioners had

likewise, in effect, admitted that it was nat able to pay

the carrect and full amount at the incame tax ta which

they are liable.

076

DECISION --

G.T.A . l:aBe No. 'lbiJH

-

5 -

Mule

1~~ ol the Hevised Rules of Court provides :

"SEC.

1.

Judicial

Admissions

An

adrni s t:~

· · ttn ,

vei ·bal

or written ,

made by a

party

in the

course of

the proceedings

in the

same

case ,

does not r eq uire proof.

The admission may

be

co n tt-adicted o nJ y

by

showing that it

was

mad e

Lh1·ough

pAlpable mista~e or that no

such

admission was made." <Underscoring supplied>

ln

acc ordancP with

the

abovequoted rule,

judicial

admis= i on s ,

v e rbal or written. made by the

parties in the

pleadings

or

i n

tht::>

course

of

the

trial

or

other

proceedings are conc.lusive, n o evidence

being required to

prove

the same

<Philippine

American General

Insurance,

lnc.

vs. S weet

Lines Inc. ,

212 SGRA

1'34) .

Hence,

by

vi r· tue of

such admissions , the

respondent or this

Court

n eed not look or inquire into the

tax amnesty declaration

of

the

petitioners

confirm

their

liability

for

deficiency income Lax .

What Sec .

6 of EO

41 pr o hibits is

the inquiry

or admission as evidence

of the tal'.

amnest y

dec laration

i t.self.

It

does

not preclude

this

Court

how e ver ,

from

using

as

evidence

the

taxpayers'

own

declarations

or

admission::;

whic l1

are

binding

and

conclusive upon

th em , even if

they involve matters

that

ar e subjec t o£ their amnes ty d e c larations.

With

r e-:::pe c t

tu

the

pe titioners '

real

property

f' 0 J ri i CHJS

P4':3,5tU . UO

which they

failed

to

rr::-pt_)rt.

:in thsi_r

oJ networth.

the

respondent

J.HU

t."}r~·i~ • must be treated as

57 7

DECIS1UN ·

C.T.A. Case No. 4b4U

-

6 -

income

in

accordance

with

Sec.

7

of

Ell

41 ,

which

provides :

"SEC.

'/.

Treatment

o:f

unexplained

.1..ncrease:· in net ;,•ort h a:[t.er December

31 ,

1985.

The networth of the ta>cpayer as

declared in the

statement filed by him pursuant

to Section 2(a)

hereof s hall b~ considered as

his true networth

as

ctf

January

1,

l'::!e6

for

purposes

o:f

d eterminin g

hi s future

tax

liabilities .

Any

un e;-: pla i ued

increa E:e•

in

his

networth

aft.er

January

1,

1 '::!Bb shRll

be

considered

t .axa ble

income

in

the

year

wh e n

such

increase

was

establi st1ed or di E:c6ve:n-?d."

The pet itioners had

likewis~ made an admission

that

holdings were "inadvertently "

UlniLled i n

their st. a t.e men t

o1 networt.h .

However,

made ·Lhe f 01 _lOW iil£1

CtiTI LE·n ·li OTI S

:

"b.

0 I'L_ ..l.h.fl __ r e al__-"'p'-"r'-'o::..z:p'-'e=-r,__,t::..Yl--.---'}'-!

·l_,O:..:l"-d==-=:i"-'r:C!.l.l;;JQL::S"--__.,n~o

t

included in t _lle Statement o£ Net

Worth under EO

.1.1._____L~t _ d

a t:: unciE•cl ared

income in

accordance

with Sec. 7 of said tax amnesty law-

P4~,510

The:re

is no

legal basis

for

the BlR

to

consider

as

income

any

property

which

the

_t .axpayer f!lay have }_I~C!.d.Y.?~nUx l _§>ft

.J;WJ;. in his

Statement of Net

Worth filed under EO 41.

What

Section

'l

considers

as

income

is

the

unexplained

increase

in his

net

worth

after

January 1, 19e6, in the year

when such increase

had

b een established

or

discovered. The

real

property

holdings

which

the

Petitioners

had

inadveJ tently leit

out from their statement

of

net. w(lrl !J und e r

EU 4.1 were established to

have

.bee!l

j n e J<ti:::"L e•rJce in 1 <:-IB ~J and

not a:!. t.er January

1, 1<:-IB .

F urth ~r more ,

real property

holdings are

asset£:

11 d

tt tE.'Y ax£?

nCJt

ttH? ne·t

worth of

the

Pa+itic.:nr:>r£.

ALE

~·ctrtb iE:

the remainder after

the dPd\1{ t i (I 1

rtf

: i al.ti l'i ties

from asE:ets.

And

t:::1~1crJ i. c-

t ·oiJ::::J ··· ~

'd.

t. tH?.

real

and

perso11al

pr OJter ·I .· PS

0 J.

"J

JI'''I fl(.'tl .. ,

578

they