Goodyear Philippines, Inc. vs. Commissioner of Internal

DECISION

This judicial action involves a claim for refund or issuance of a tax credit certificate in the amount of P6,695,518.00 allegedly representing overpaid income tax for the calendar year ended December 31, 1996. The antecedent facts follow. Petitioner is a domestic corporation duly registered and organized under Philippine laws, with principal office located at Old National Road, Barangay Almanza, Las Pinas, Metro Manila. It is a corporation primarily engaged in the manufacture and sale of tires and rubber products (Stipulated Fact, Item No. 1, CTA docket, p.37). On April 15, 1997, petitioner filed with the Bureau of Internal Revenue its Corporation Annual Income Tax Return for calendar year ended December 31, 1996, paying the corresponding tax due thereon in the amount of P 32,803,360.00 (Stipulated Fact, Item No. 3, CTA docket, p.38), detailed as follows: Gross Income p 909,504,420.00 Less: Deductions 269,408,683.00 Taxable Income p 640,095,737.00 Tax Rate 35% Tax Due p 224,033,508.00 Less: Tax Credits/Payments 191,230,148.00 Tax Payable p 32!803!360.00 On March 30, 1999, Petitioner filed an Amended Corporation Income Tax Return (Exhibit B) for the same calendar year ended December 31, 1996, which reflected a revised income tax payable in the amount of P 26,107,842.00 (Stipulated Fact, Item No. 4, CTA docket, p.38), computed as follows: Gross Income p 909,504,420.00 Less: Deductions 269,408,683.00 Taxable Income p 640,095,737.00 Tax Rate 35% Tax Due p 224,033,508.00 Less: Tax Credits/Payments 197,925,666.00 Tax Payable p 26!107!842.00 Petitioner explained that the discrepancy in the income tax payable was due to the fact that it inadvertently recorded its tax credits or payments for 1996 as P191,230,148.00 instead ofP197,925,666.00 because it failed to recognize the additional creditable income tax withheld on its sale of goods for 1996 in the amount of P6,695,518.00. This made the petitioner pay mcome tax m the amount of P32,803,360.00 instead of only P26,1 07,842.00.

Thus, on April 8, 1999, petitioner, through its tax counsel Sycip, Gorres, Velayo & Co., filed with the Bureau of Internal Revenue a claim for refund of excess or overpaid income tax for the year ended December 31, 1996 in the amount of P6,695,518.00 (Stipulated Fact, Item No. 5, CTA docket, p.38). As the claim of petitioner was not immediately acted upon by the respondent, the former elevated its case to this court by way of petition for review on April 14, 1999 to forestall the running of the two-year prescriptive period. In answer to the instant petition, respondent raised the following special and affirmative defenses, to wit: 1.

"In an action for tax refund, petitioner must show that taxes were paid erroneously or collected illegally. Failure to sustain this burden is fatal to the action for refund; 2.

Claims for refund are construed strictly against the claimants since they are in the nature of exemptions from taxation (Manila Electric Co. vs. Commissioner oflntemal Revenue, 67 SCRA 351); 3.

Taxes are presumed to have been paid and collected in accordance with law."

The issues to be resolved in the case at bar, as stipulated by the parties, (CTA docket, p.39) are as follows:

1.) Whether or not petitioner is entitled to a claim for refund of the excess or overpaid income tax for the calendar year ended December 31, 1996 in the amount of P 6,695,518.00; 2.) Whether or not said excess or overpaid mcome taxes are substantiated by documentary evidence; 3.) Whether or not said excess or overpaid income taxes for the calendar year ended December 31, 1996 was carried forward to the succeeding taxable calendar year and applied against its income tax liability for the said period; and 4.) Whether or not the said excess or overpaid income tax for the calendar year ended December 31,1996 in the amount of P6,695,518.00 was declared as part of the gross income of petitioner. The legal basis relied upon by petitioner in filing a claim for refund is Section 69 (now Section 76) of the National Internal Revenue Code, which provides: "Section 69.

Final Adjustment Return. Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net income for the preceding calendar or fiscal year. If the sum of the quarterly payments made during the said taxable year is not equal to the total tax due on the entire taxable net income of that year the corporation shall either: (a) Pay the excess tax still due; or (b) Be refunded the excess amount paid, as the case may be. In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the refundable amount shown on its final adjustment return mat be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding year." In the case at bar, the alleged overpayment of income tax was brought about by the inadvertence committed by the petitioner in failing to declare the correct amount of creditable income taxes withheld in its original income tax return. As can be gleaned from the records of the case, petitioner for taxable year 1996 declared the following in its original annual income tax return (Exhibit A): Taxable Income Tax Due Less: Tax Credits Quarterly Payments Creditable Tax Withheld Amount Payable Pl82,277,704.00 8.952,444.00 P640.095.737.00 P224,033,508.00 191,230, 148.00 p 32.803.360.00 On March 30, 1999, petitioner amended its 1996 income tax return (Exhibit B) to include the amount of P6,695,518.00 as 1996 creditable withholding taxes which were not declared in the original 1996 return. After considering all the taxes withheld, petitioner would only be liable for the lesser income tax of P26, 107,842.00, computed as follows:

Taxable Income Tax Due Less: Tax Credits Quarterly Payments Creditable Tax Withheld Amount Payable Pl82,277,704.00 15,647,962.00 P640.095.737.00 P224,033,508.00 197.925.666.00 p 26.107.842.00 Hence, petitioner allegedly made an overpayment of P 6,695,518.00, which is being claimed in the instant petition for review, to wit: 1996 Income Tax Paid Less: Should be payment 1996 Overpaid Income Tax p 32,803,360.00

26. I 07.842.00 p 6.695.518.00

However, as oft-cited by this court in a number of similar cases, in order to be entitled to a refund of excess creditable withholding taxes, the petitioner must prove: 1.) That the claim for refund was filed within the two-year prescriptive period provided under Section 204( c) in relation to Section 229 of the Tax Code; 2.) That the fact ofwithholding is established by a copy of a statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom; and 3). That the income upon which the taxes were withheld were included in the return of the recipient [Section 2.58.3(B) of Revenue Regulations No. 2-98; Citibank, NA vs. Court of Appeals and CIR, 280 SCRA 459; ACCRA Investments Corporation vs. Court of Appeals, 204 SCRA 957]. That both the administrative and judicial claims for refund were timely filed is conceded (Stipulated Fact, Item No. 6, CTA Docket p. 38). The written claim for refund filed with respondent's bureau on April 8, 1999 and the Petition for Review filed with this court on April 14, 1999 are both within the two-year period reckoned from the date when petitioner filed its final adjustment return which is April 15, 1997. As to the second requirement, the independent CPA in his report dated June 29, 2000 noted the following (Exhibit KKKKKKK): "We noted a difference between the total amount of EWT base as indicated in the Certificates of Creditable Withholding Tax issued by the Company 's customers and the total amount of sales for the said customers as recorded in the Company 's books/ITR (See Annex 1):

Total Amount of EWT Base indicated in the Certificate Total Amount of Sales (for the said customers) per Books/ITR Difference- Sales per Books/ITR is over by p 1,564, 796,224.00 I. 755.310.214.53 p /90.5/3.990.53

We understand that the above difference amounting to P 190,513,990.53 is accounted for as follows:

a. Sales recorded in prior years but collected only in 1996 were subjected to EWT by the customers in 1996 and the corresponding Certificates of Creditable Withholding taxes therefrom were received also in 1996 upon collection, thereby resulting in higher EWT base per Certificates than the amount of sales per books/ITR in the year 1996;

b. Sales recorded in 1996 but still uncollected as of the end of that year were not yet subjected to EWT by the customers, thereby resulting in higher amount of sales per books!JTR than the EWT base per Certificate. c.

In certain cases, adjustments to the sales (e.g. , sales return, sales discounts) by way of credit memos are issued only after collection and receipt of Certificates of Creditable Withholding Taxes.

Thus, the total EWT base indicated in the certificates corresponding to the same sale is still gross of adjustments while the total amount of sales recorded in the books is already net of the aforementioned adjustments, thereby, resulting in higher EWT base per certificate than the net sales recorded in the books!JTR. Adjustments to EWT pertaining to the same sale are effected in sales for the subsequent year. Thus, resulting in lower EWT base per Certificate than the net sales recorded in the books!JTR ". While we take note of the foregoing explanation given by the independent auditor on how the difference between the total amount of EWT base as indicated in the certificates of creditable withholding tax issued by the company's customers and the total amount of sales for the said customers as recorded in the company's books/ITR was arrived at, this court is still not convinced to grant the refund of the full amount claimed. The independent CPA failed to reconcile the difference between the amount declared as PageS income in the income tax return and the total EWT base as appearing in the certificates. Petitioner likewise failed to present the prior year's income tax return, which allegedly included the corresponding income of 1996 taxes withheld. As to the second reason advanced by the independent CPA, this court found that only those from FB Ladao Sales and Tire King & Rubber Products have adjustments based on the documents submitted. The rest have none. Thus, we deem it proper to disallow the following creditable taxes withheld corresponding to these income, which cannot be verified to have been declared in the income tax return, to wit: UNDECLARED CORRESPONDING

WITHHOLDING AGENT

SALES

TAX WITHHELD

CJ FERNANDEZ ENTRP

p 9,135,570.47 p 91 ,355.70

DURATRAK CORP

8,136,308.57 81 ,363.09

FRANCISCO MOTORS

892,706.19 8,927.06

HERSAN TRDG CORP

45,293.61 452.94 PETRONCORP 10,915,137.12 109,151.37

TOYOTA MOTORS

677,166.47 6,771 .67

NEW BIAN YEK COMML

23,189.47 231 .89 YY &CO.

5 828.79 58.29 p 29 831 200 69 p 29831201 As to the third requirement, the findings of the independent CPA in his report dated May 25, 2000 (Exhibit IIIIIII) are: A. Creditable Withholding Taxes Supported by Certificates of Taxes Withheld Issued for the Year 1995 I. Supported by Original Certificates

2. Supported by Photocopied Certificates with Original Stamp "Received" by Banks p 75,061.63 1,063,717.13 p 1,138,778.76 B. Creditable Withholding Taxes Supported by Original Certificates 8,485,870.49 C. Creditable Withholding Taxes Supported by Original Certificates without Stamp "Received" by Banks 3,213,035.25 D. Creditable Withholding Taxes Supported by Photocopied Certificates with Original Stamp "Received" by Banks and Stamped "Certified True Copy" and Signed by the Banks 2.810.267.74 TOTAL - Creditable Withholding Taxes per Schedule Pl5,647,952.24 Unaccounted difference-passed due to immateriality I 0.00 TOTAL - Creditable Withholding Taxes per 1996 lncome Tax Return Pl5.647.962.24 However, we do not give evidentiary weight to the photocopied certificates of creditable taxes withheld in the amount of P1,063,717.13. Although they bear the original stamp "Received" by banks, we are left in quandary as to why petitioner was able to procure certified true copies of the other certificates but not of these disallowed documents.

As we are left in doubt, we are constrained to disallow the photocopied documents that were not compared with their respective originals or were not certified as true and correct. Considering that the success of a claim for tax refund depends on the accuracy of the pertinent documents, we frown upon reception of photocopied documents especially ifthe subject of the inquiry is its very contents. Other than the said observations, we find the findings of the independent CPA to be in order, as petitioner was able to present the various certificates of creditable tax withheld at source to prove the fact of withholding, to wit: CUSTOMER EXHIBIT PERIOD COVERED WITHHOLDING TAX PER CERTIFICATE

Page I0 C.J. FERNANDEZ ENTERPRISE

COLUMBIAN AUTOCAR CORP

COMMERCIAL MOTORS CORP

DASHER MKTG CORP

DURATRAK CORP

FB LADAO SALES

H7-15 H7-35 H7-36 H7-37 H7-59 H7-60 H7-61 H7-81 H7-62 H7-80 H7-149 H7-16 H7-38 H7-151 H7-3 H7-17 H7-~40 H7-39 H7-63 H7-64 H7-65 H7-84 H7-85 H7-86 H7-20 H7-19 H7-18 H7-41 H7-42 H7-82/3 H7-122/3 H7-120/1 H7-21 H7-22 H7-23 H7-93 H7-94 Jan-Mar 96 ~P Apr-96 May-96 Jun-96 Jul-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 Jan-Dec 96 Jan-Mar 96 P Apr-Jun 96 Jul-Sep 96 Dec-95 Pp Jan-Mar 96 Apr-96 May-96 Jul-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 Jan-Feb 96 P Feb-96 Mar-96 Apr-96 May-Jun 96 Jun-96 Jul-Sep 96 Oct-Dec 96 Jan-96 P Feb-96 Mar-96 Apr-96 May-96 288,371.61 65,123.16 158,167.53 50,852.75 121,471.81 119,878.33 107,040.76 93,854.57 138,130.81 58,027.49 5,291.87 5,227.07 9,413.73 75,061.63 307,946.57 46,516.69 97,815.88 94,270.21 115,069.54 87,015.02 105,308.54 140,274.17 135,140.63 353,014.15 4,146.99 151,808.84 121,478.18 143,572.99 73,886.89 288,412.96 488,582.72 90,258.58 74,688.86 100,315.34 76,314.33 95,052.35 P 1,200,918.82 12,050.00 19,932.67 1,204,418.88 1,624,903.72

Page Il

FRANCISCO MOTORS CORP

HERSAN TRDG CORP

MARCOPPER MINING

NEW BIAN YEK COMML

NEW CAPITOL TIRE TRDG

H7-95 H7-87 H7-88 H7-89 H7-90 H7-91 H7-92 H7-142 H7-147 H7-153 H7-152 H7-14 H7-43 H7-44 H7-45 H7-66 H7-67 H7-68 H7-96 H7-97 H7-98 H7-4 H7-154 H7-99 H7-155 H7-26 H7-25 H7-24 H7-46 H7-47 H7-48 H7-69 H7-70 H7-71 H7-156 H7-157 H7-100/4 Jun-96 Jul-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 Jan-Mar 96 Apr-Jun 96 Jul-Sep 96 Oct-Dec 96 Jan-Mar 96 Apr-96 May-96 Jun-96 Jul-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 Dec-95 Oct-96 Nov-96 Dec-96 Jan-96 Feb-96 Mar-96 Apr-96 May-96 Jun-96 Jul-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 27,101.18 83,527.09 76,849.53 82,715.48 73,127.28 44,607.65 28,841.23 P 41,647.78 43,724.15 37,971.21 30,223.17 P 50,713.88 19,686.23 21,454.66 20,224.22 17,994.67 18,340.56 13,519.22 17,266.88 19,881.30 8,628.68 P 65.97 49.03 110.30 P 117,853.00 93,600.83 66,235.94 37,484.79 94,667.37 38,735.28 60,373.28 90,217.86 73,853.47 95,682.40 108,315.47 26,154.56 853,398.90 153,566.31 207,710.30 9,738.25 225.30 903,174.25

NISSAN MOTOR PHILS INC

PETRON CORP

PAMCOR

PILIPINAS HINO

RICHWELL TRDG CORP

SUN MASSTER SALES CORP

H7-49 H7-72 H7-102 H7-27 H7-50 H7-29 H7-28 H7-51 H7-52 H7-53 H7-73 H7-74 H7-75 H7-103 H7-104 H7-105 H7-5 H7-6 H7-7 H7-8 H7-9 H7-30 H7-54 H7-143 H7-144 H7-145 H7-55 H7-56 H7-57 H7-148 H7-76 H7-77 H7-106 H7-158 H7-124 Jan-Mar 96 Apr-Jun 96 Jul-Sep 96 Jan-96 Jan-96 Feb-96 Mar-96 Apr-96 May-96 Jun-96 Jul-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 1995 1995 1995 1995 1995 Jan-Mar 96 Apr-Jun 96 Jan-96 Feb-96 Mar-96 Apr-96 May-96 Jun-96 Jul-96 Aug-96 Sep-96 Oct-96 Nov-Dec 96 Jan-96 P 84,278.42 93,679.63 69,699.28 P 295,948.69 1,185.78 222,427.24 214,949.15 258,521.51 135,720.51 149,138.01 110,029.52 224,599.50 208,916.96 194,233.09 85,020.19 168,069.41 P 216,295.44 394,243.29 416,605.49 P 7,158.63 19,676.03 15,812.47 20,711.83 P 37,819.69 54,013.44 64,438.47 33,280.53 54,389.71 82,806.01 24,365.47 69,754.40 71,223.47 48,001.06 107,406.07 P 83,442.55 247,657.33 2,268,759.56 1,027,144.22 63,358.96 647,498.32 4S Vv

CTA Case No. 578]

TIMOG TIREHAUS CORP

TIRE KING & RUBBER PROD

TIREWORLD SALES

TOYOTA MOTORS

UNIVERSAL MOTORS CORP

YY & CO.

H7-125 H7-126 H7-127 H7-128 H7-129 H7-130 H7-131 H7-132 H7-133 H7-134 H7-135 H7-136 H7-137 H7-138 H7-139 H7-31 H7-32 H7-33 H7-107 H7-108 H7-109 H7-110 H7-111 H7-112 H7-113 H7-114 H7-115 H7-116 H7-146 H7-159 H7-161/2 H7-~163/4 H7-34 H7-58 H7-78 H7-117 H7-79 Feb-96 Mar-96 Apr-96 May-96 Jun-96 Jul-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 Jan-Mar 96 Apr-Jun 96 Jul-Sep 96 Oct-Dec 96 Jan-96 Feb-96 Mar-96 Apr-96 May-96 Jun-96 Jul-96 Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 Jan-Dec 96 Jan-Mar 96 Apr-Jun 96 Jul-Sep 96 Oct-Dec 96 Jan-Mar 96 Apr-Jun 96 Jul-Sep 96 Oct-Dec 96 Jul-Sep 96 116,460.23 89,158.46 31,124.84 91,131.68 90,336.67 50,174.13 91,501.93 72,508.17 57,168.48 82,137.44 25,644.25 374,768.01 460,434.28 424,238.44 295,809.91 64,953.65 32,741.44 32,303.90 21,503.73 57,946.73 32,717.82 41,316.26 49,167.70 30,370.02 37,282.00 48,750.15 11,634.28 596,185.78 545,913.25 §39,011.22 461,910.17 22,348.66 21,726.37 25,529.59 49,336.97 880,788.83 1,555,250.64 460,687.68 44,748.90 2,143,020.42 118,941.59 58.29

TOTAL TAXES WITHHELD PER CERTIFICATES

Less: Disallowances

(a) Taxes withheld with undeclared income

(b) Taxes withheld supported by certificates p 298,312.01 that are not certified true copies 1.063.717.13

TOTAL ALLOWABLE CREDITABLE TAXES WITHHELD

p 15,647,952.14 1 ,362.029.14 p 14 285 923 00 As to whether or not the excess creditable withholding taxes were carried over to the succeeding year, we answer in the negative. As shown in 1997 annual income tax return (Exhibits MMMMMMM & MMMMMMM-2), petitioner left blank the space provided for prior year's excess credit. Hence, it was clearly shown that petitioner did not utilize the 1996 excess credit of P6,695,518.00 for the succeeding taxable year. In fact, petitioner even incurred a net operating loss. Based on the foregoing, this court is convinced that petitioner is entitled only to the reduced amount ofP 5,333,479.12, computed as follows: 1996 Taxable .Income Tax Due Less: Tax Credits Quarterly Payments 1 sl Quarter (Exhibit E-7) 2nd Quarter (Exhibit F-7) 3rd Quarter (Exhibit G-7) Creditable Tax Withheld P65, I 04,702.25 66,012,962.91 51,160,038.96 Pl82,277,704.12 14,285,923.00 P640.095.73 7.00 P224,033,508.00 196,563,627.12 Amount Payable P 27,469,880.88 Less: Amount Paid 32,803,360.00 Amount Refundable P 5.333.479.12

WHEREFORE, the instant petition for review IS hereby PARTIALLY GRANTED. Accordingly, respondent is hereby ORDERED to REFUND or, in the alternative, ISSUE A TAX CREDIT CERTIFICATE in favor of the petitioner in the reduced amount of P5,333,479.12 representing its overpaid income tax withheld for taxable year 1996.

I CONCUR:

a_~e.~/~.

~ANITO C. CASTANEDA,~ Associate Judge CERTIFICATION ~----~ r Q~ ERNESTO D. ACOSTA Presiding Judge I hereby certify that the above decision was reached after due consultation with the members ofthe Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution.

~ ~ . . ~ ERNESTO D. ACOSTA Presiding Judge

CUSTOMER C.J. FERNANDEZ ENTRP

COLUMBIAN AUTOCAR

COMML MOTORS CORP

DASHER MKTG CORP

DURATRAK CORP

FB LADAO SALES

FRANCISCO MOTORS

HERSAN TRDG CORP

MARCOPPER MINING

NEW BIAN YEK COMML

NEW CAPITOL TIRE

NISSAN MOTOR PHILS

PETRON CORP

PAMCOR

PILIPINAS HINO

RICHWELL TRDG CORP

SUN MASSTER SALES

TIMOG TIREHAUS CORP

TIRE KING & RUBBER

TIREWORLD SALES

TOYOTA MOTORS

UNIVERSAL MOTORS

YY &CO.

TOTALS EWT per Certificate (A) p 1,200,918.82 p 12,050.00 19,932.67 1 ,204,418.88 1 ,624,903. 72 853,398.90 153,566.31 207,710.30 9,738.25 225.30 903,174.25 247,657.33 2,268,759.56 1 ,027,144.22 63,358.96 647,498.32 880,788.83 1,555,250.74 460,687.68 44,748.90 2,143,020.42 119,009.88 p 15,647,962.24 p Annex 1 EWTBase Sales per Difference-sales per Certificate BooksiiTR per BooksiiTR is [(A)/0.01] (Over) Under 120,091 ,882.00 p 120,859,752.93 p (767,870.93) - 1 ,205,000.00 74,293,742.76 (73,088, 7 42. 76) 1 ,993,267.00 2,551 '140.75 (557,873.75) 120,441 ,888.00 131 ,565,829.20 (11 '123,941 .20) 162,490,372.00 158,564,130.15 3,926,241.85 85,339,890.00 83,691 ,487.43 1 ,648,402.57 15,356,631 .00 14,463,924.81 892,706.19 20,771 ,030.00 21 '1 07,469.43 (336,439.43) 973,825.00 973,825.00 22,530.00 22,530.00 90,317,425.00 100,205,345.62 (9,887,920.62) 24,765,733.00 37,847,667.58 (13,081 ,934.58) 226,875,956.00 215,960,818.88 _J 0,915,137.12 102,714,422.00 186,793,253.56 (84,078,831 .56) 6,335,896.00 10,003,446.10 (3,667 ,550.1 0) 64,749,832.00 68,069,801 .40 (3,319,969.40) 88,078,883.00 91 ,735,114.69 (3,656,231 .69) 155,525,074.00 162,017,898.70 (6,492,824. 70) 46,068,768.00 43,597,215.62 2,471 ,552.38 4,474,890.00 4,596,758.92 (121 ,868.92) 214,302,042.00 213,624,875.53 677,166.47 11 ,900,988.00 13,760,540.47 (1 ,859,552.47) 1,564,796,224.00 p 1,755,310,214.53 p (190,513,990.53)