United Coconut Planters Bank vs. Commissioner of Internal Revenue

DECISION

MINDARO-GRULLA, !:

This is a Petition for Review filed on April 15, 2010 by United Coconut Planters Bank (UCPB) as petitioner, against the Commisioner of Internal Revenue (CIR) as respondent, for the Court in Division, pursuant to Section 7(a)(2) of Republic Act (RA) No. 1125, An Act Creating the Court of Tax Appeals, as amended\ as well as Rule 4, Section 3 (a) (2), in relation to Rule£ Sec. 7. Jurisdiction.- The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

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XXX

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period for action, in which case the inaction shall be deemed a denial;

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United Coconut Planters Bank vs. CIR

8, Section 4(a), of the Revised Rules of the Court of Tax Appeals (RRCTA)2. It involves a claim for refund or issuance of a tax credit certificate (TCC) in the amount of P94,349,285.00, allegedly representing its excess or unutilized creditable withholding tax (CWT) for taxable year 2007.( Rule 4. Sec. 3. Cases within the jurisdiction of the Court in Division. - The Court in Division shall exercise:

(a) Exclusive original over or appellate jurisdiction to review by appeal the following:

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(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code or other applicable law provides a specific period for action:

Provided, that in case of disputed assessments, the inaction of the Commissioner of Internal Revenue within the one hundred eighty day-period under Section 228 of the National Internal Revenue Code shall be deemed a denial for purposes of allowing the taxpayer to appeal his case to the Court and does not necessarily constitute a formal decision of the Commissioner of Internal Revenue on the tax case; Provided, further, that should the taxpayer opt to await the final decision of the

Commissioner

of

Internal

Revenue

on the disputed assessments beyond the one hundred eighty day-period abovementioned, the taxpayer may appeal such final decision to the Court under Section 3(a), Rule 8 of these Rules; and Provided, still further, that in the case of claims for refund of taxes erroneously or illegally collected, the taxpayer must file a petition for review with the Court prior to the expiration of the two-year period under Section 229 of the National Internal Revenue Code;

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Rule 8. Sec. 4. Where to appeal,· mode of appeal. -

(a) An Appeal from a decision or ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or claim for refund of internal revenue taxes erroneously or illegally collected ; the decision or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade & Industry, the Secretary of Agriculture, and the Regional Trial Court in the exercise of their original jurisdiction, shall be taken to the Court by filing before it a petition for review as provided in Rule 42 of the Rules of Court. The Court in Division shall act on the appeal.

United Coconut Planters Bank vs. CIR

Petitioner is a domestic banking corporation duly organized to operate as an expanded commercial bank by the Bangko Sentra/ ng Pilipinas (BSP), with principal office address at UCPB Building, 7907 Makati Avenue, Makati City.3 Respondent, on the other hand, is the duly appointed Commissioner of of Internal Revenue (CIR), vested with authority to act as such, including, among others, the power to decide, approve and grant refunds or tax credits of erroneously or excessively paid taxes. She holds office at the BIR National Office Building, BIR Road, Diliman, Quezon City. On April 15, 2008, petitioner, manually and through the Electronic Filing and Payment System (EFPS), filed its Annual Income Tax Return for the taxable year 2007, 4 which showed Minimum Corporate Income Tax (MCIT) in the amount of P3,752,889.00, Creditable Tax Withheld for the First Three Quarters in the amount of P56,544, 195.00, and Creditable Tax Withheld Per BIR Form No. 2307 for the Fourth Quarter in the amount of P37,805,090.00; leaving petitioner a Tax Overpayment in the amount P201 ,769,407.00. The MCIT due was allegedly offset against Prior Year's Excess Credits in the amount of P111 , 173,011.00. Petitioner manifested itsc

United Coconut Planters Bank vs. CIR intention to be issued a tax credit certificate by marking the box "To be issued a Tax Credit Certificate" on the said Tax Return. On April 12, 2010, petitioner filed an administrative claim for refund before the Bureau of Internal Revenue, requesting the issuance of a tax credit certificate or refund of the amount P94,349,285.71 , representing excess or unutilized creditable withholding tax for the taxable year 2007.5 Respondent did not act upon the written claim for refund, hence, petitioner filed the instant Petition for Review before this Court on April 15, 2010.

In her Answer6 filed on June 7, 2010, respondent interposed the following Special and Affirmative Defenses: "SPECIAL AND AFFIRMATIVE DEFENSES 7) Assuming but without admitting that Petitioner filed a claim for refund, the same is still subject to investigation by the Bureau of Internal Revenue;

8) Petitioner failed to demonstrate that the tax, which is the subject of this case, was erroneously or illegally collected; 9) Taxes paid and collected are presumed to be made in accordance with the laws and regulations, hence, not creditable or refundable;

1 0) It is incumbent upon the Petitioner to show that it has complied with the provision of Section 204(C) in relation to Section 229 of the 1997 Tax Code as amended ; 11) In an action for tax credit or refund, the burden is upon the taxpayer to prove that he is entitled thereto, and failure to(

United Coconut Planters Bank vs. CIR discharge the said burden is fatal to the claim (Emmanuel & Zenaida Aguilar v. Commissioner, CA-GR No. Sp. 16432, March 30, 1990 cited in Aban, Law of Basic Taxation in the Philippines, 1st Edition, p. 206);

12) Claims for refund are construed strictly against the claimant, the same partake the nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95) and as such, they are looked upon with disfavor. (Western Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 121)." Thereafter, on June 21, 2010, notice was issued for a pre-trial conference which was set for July 22, 2010. Petitioner filed its Pre-trial Brief on July 19, 201 0; while respondent filed her Pre-trial Brief on July 21, 2010. On August 11, 2010, the parties filed with this Court their Joint Stipulation of Facts and Issues, which was later approved in a Resolution dated August 16, 2010. In the same Resolution, the pre-trial conference was deemed terminated.

During trial, petitioner presented three (3) witneses, namely: Ms.

Jennifer Anne Z. Coronel, Mr. Emmanuel Y. Mendoza, and Ms. Cynthia Almirez.

On July 18, 2011, petitoner filed its Formal Offer of Documentary Evidence, offering Exhibits "A" to "KKK". In a Resolution dated August 26, 2011, this Court admitted Exhibit "A" to "0" and "Q" to "KKK", inclusive of their subu-markings.

In another Resolution dated October 24, 2011, (upon{

United Coconut Planters Bank vs. CIR petitioner's Motion for Partial Reconsideration of the Resolution dated 26 August 2011 ), this Court admitted Exhibit "P". Thereafter, petitioner was deemed to have formally rested its case. The documentary evidence formally offered and admitted are as follows:

Exhibits

A

B

c

C-1

C-2

C-3

D

E

F

F-1

F-2

Description

2006 Annual Income Tax Return (BIR Form No. 1702) of UCPB filed on 16 April 2007 through the Electronic Filing and Payment System ("EFPS") ( 7 pages) 2006 Annual Income Tax Return (BIR Form No. 1702) of UCPB duly stamped received by the Bureau of Internal Revenue (" BIR" ) on 17 April 2007 with attachments (11 pages) 2007 Quarterly Income Tax Return (BIR Form No. 1702Q) of UCPB for the first quarter filed on 30 May 2007 through EFPS with attachments duly stamped received by the BIRon 31 May 2007 ( 7 pages) UCPB SAWT for the month of January 2007 (1 page) UCPB SAWT for the month of February 2007 (1 page) UCPB SAWT for the month of March 2007 ( 1 page) 2007 Quarterly Income Tax Return (BIR Form No. 1702Q) of UCPB for the first quarter duly stamped received by the BIRon 31 May 2007 (1 page)

2007 Amended Quarterly Income Tax Return (BIR

Form No. 1702Q) of UCPB for the first quarter filed on 19

November

2007 through

EFPS

with attachments (4 pages) 2007 Quarterly Income Tax Return (BIR Form No. 1702Q) of UCPB for the second quarter filed on 29 August 2007 through EFPS with attachments (8 pages) UCPB SAWT for the month of April 2007 (1 page) UCPB SAWT for the month of May 2007 (1 page){

United Coconut Planters Bank vs. CIR

F-3

UCPB SAWT for the month of June 2007 (1 page)

G

2007 Amended Quarterly Income Tax Return (BIR

Form No. 1702Q) of UCPB for the second quarter filed on 19 November 2007 through EFPS with attachments (4 pages)

H

2007 Quarterly Income Tax Return (BIR Form No. 1702Q) of UCPB for the third quarter filed on 29 November 2007 through EFPS with attachments (11 pages)

H-1

UCPB SAWT for the month of July 2007 (3 pages)

H-2

UCPB SAWT for the month of August 2007 (1 page)

H-3

UCPB SAWT for the month of September 2007 (2 pages) 2007 Annual Income Tax Return of UCPB filed on 15 April 2008 through EFPS with attachments (12 pages) 1-1 UCPB SAWT for the month of October 2007 (2 pages) 1-2 UCPB SAWT for the month of November 2007 (2 pages) 1-3 UCPB SAWT for the month of December 2007 (1 page) 1-4 For overpayment, UCPB's choice of "To be issued a

Tax Credit Certificate" in 2007

J

2007 Annual Income Tax Return of UCPB duly stamped received by the BIR on 15 April 2008 (8 pages)

J-1

For overpayment, UCPB's choice of "To be issued a

Tax Credit Certificate" in 2007

K

2008 Quarterly Income Tax Return (BIR Form 1702Q)

of UCPB for the first quarter filed on 30 May 2008 through EFPS ( 7 pages)

K-1

UCPB SAWT for the month of January 2008 (1 page)

K-2

UCPB SAWT for the month of February 2008 (1 page)

K-3

UCPB SAWT for the month of March 2008 (1 page)

L

2008 Quarterly Income Tax Return (BIR Form 1702Q)

of UCPB for the second quarter filed on 29 August 2008 through EFPS with attachments (8 pages){

United Coconut Planters Bank vs. CIR

L-1

UCPB SAWT for the month of April 2008 (1 page)

L-2

UCPB SAWT for the month of May 2008 (1 page)

L-3

UCPB SAWT for the month of June 2008 (1 page)

Page 8 of 27

M

2008 Quarterly Income Tax Return (BIR Form

17020) of UCPB for the third quarter filed on 28 November 2008 through EFPS with attachments (9 pages)

M-1

UCPB SAWT for the month of July 2008 (2 pages)

M-2

UCPB SAWT for the month of August 2008 (2 pages)

M-3

UCPB SAWT for the month of September 2008 (2 pages)

N

2008 Annual Income Tax Return (BIR Form 1702) of UCPB duly stamped received by the BIRon 15 April 2009 with attachments. (13 pages) 0 2008 Annual Income Tax Return (BIR Form 1702) of UCPB filed on 17 April 2009 through EFPS with attachments (13 pages) 0-1 UCPB SAWT for the month of October 2008 (2 pages) 0-2 UCPB SAWT for the month of November 2008 (2 pages) 0-3 UCPB SAWT for the month of December 2008 (2 pages)

P

Certified True Copy of Memorandum dated 13 April 2009 issued by the BIR re: Advice on EFPS unavailability (4 pages)

Q

2008 Amended Annual Income Tax Return (BIR

Form 1702) of UCPB filed on 17 June 2009 through the EFPS with attachments (7 pages)

R

2008 Amended Annual Income Tax Return (BIR

Form 1702) of UCPB duly stamped received by the BIRon 17 June 2009 (3 pages)

S

2008 Amended Annual Income Tax Return of UCPB

filed on 14 September 2009 through EFPS with attachments duly stamped received by the BIRon 14 September 2009 (11 pages)

T

2008 Amended annual Income Tax Return of UCPB duly stamped received by the BIR on 14 September 2009 (3 pages)c

United Coconut Planters Bank vs. CIR u v w

W-1

X

X-1

y

Z-1 to

Z-1099

AA-1 to

AA-643

88-1 to 88-569

CC-1 to

CC-27

DO

EE

MM-1 to

MM-17

NN-1 to

NN-31

Letter dated 06 April 2010

Amended Articles of Incorporation of United Coconut

Planters Bank

Affidavit of Jennifer Anne Z. Coronel Signature of Jennifer Anne Z. Coronel

Judicial

Affidavit

dated 3

December 2010

of Emmanuel Y. Mendoza Signature of Emmanuel Y. Mendoza

2009 Annual Income Tax Return of UCPB

Certificates of Creditable Tax Withheld at Source

(SIR Form Nos. 2307) issued to UCPB by its various withholding agents for the year 2007 UCPB's Contracts to Sell, Deeds of Absolute Sale, Trial Balance Summary, Transaction Sheets, General Ledger (" GL") of Real and Other Properties Acquired (" ROPA") with related income payments booked in 2007 UCPB's Contracts to Sell, Deeds of Absolute Sale, Trial Balance Summary, Transaction Sheets, GL of ROPA with related income payments booked in other taxable year UCPB's Contracts to Sell, Deeds of Absolute Sale, Trial Balance Summary, Transaction Sheets. GL of ROPA with related income payments booked in other taxable year

Creditable Withholding Tax on ROPA Schedule

GL of Miscellaneous Assets - Creditable Withholding

Tax on ROPA

Additional Contracts to Sell, Deeds of Absolute Sale, Trial Balance Summary, Transaction Sheets, GL ROPA with related income payments booked in 2007 Additional Contracts to Sell, Deeds of Absolute Sale, Trial Balance Summary, Transaction Sheets, GL ROPA with related income payments booked in 2007 (.

United Coconut Planters Bank vs. CIR

FF-1 to

FF-9a

GG-1

GG-2

GG-3

GG-4

GG-5

GG-6

GG-7

GG-8

GG-9

GG-10

GG-11

HH-1

HH-2

Hl-1-3

11-1 11-2

JJ-1

,JJ-2

JJ-3

KK-1 to

KK-13

Schedule and GL of Branches

Schedule

of

Creditable

Withholding

Tax

on

Commercial

Loans

Processing

and

Operations

Department

GL Accrued Interest Receivable -5% Gross Receipts

Tax ("G RT")

GL Accrued Interest Receivable - Loans & Discounts

GL

Miscellaneous

Assets

2%

Creditable

Withholding Tax - Loans Processing Department

GL Interest Income Time Loan -- 5% GRT

GL Interest Income Time Loan - 5% GRT

GL Interest Income Time Loan - 1% GRT

GL Interest Income Restructured Loan - 5% GRT

GL Interest Income Restructured Loan - 1% GRT

GL Interest Income Restructured Loan - 1% GRT

Service Charge - Loans

Schedule of Creditable Withholding Tax on Treasury

GL

Miscellaneous

Assets

2%

Creditable

Withholding Tax - Local Money Market Department

GL Fees and Commission - Treasury

Schedule

of

Creditable

Withholding

Tax

on

Consumer Finance Department

GL Miscellaneous Asset - 2% Creditable Withholding

Tax - Consumer Finance Department

Schedule of Creditable Withholding Tax - Trust

GL Miscellaneous Asset - 2% Creditable Withholding

Tax - Trust

GL Fees and Commission - Trust Banking Division

Schedules of Creditable Withholding Tax -

Trade

Services Department(

United Coconut Planters Bank vs. CIR

KK-14 to

KK-15

KK-16to

KK-34

LL-1

LL-2 to

LL-3

FF-1 to

FF-9a

LL-1

LL-4 to

LL-5

LL-1

LL-6

LL-7 to

LL-9

00 00-1

QQ

QQ-1

CCC-1 to

CCC-2

DDD-1 to

DDD-26

EEE

GL of Miscellaneous Assets -

2% CWT Trade

Services Department

Various GL Related to Income Payments on Trade

Services Department

Schedule of Financial Accounting Department (Rent, Int. , Outsourcing and Professional Fees)

GL on Miscellaneous Assets - Financial Accounting

Department

Schedule and GL of Branches

Schedule of Financial Accounting Department (Rent, Int., Outsourcing and Professional Fees) GL related to income payments - Rental Schedule of Financial Accounting Department (Rent, Int., Outsourcing and Professional Fees)

GL on Miscellaneous Assets - Creditable Withholding

Tax on income payments subjected to 10% and 15%

Expanded Withholding Tax

GL related to income payments subjected to 10%

and 15% Expanded Withholding Tax

ICPA Progress Report dated 12 November 2010 Signature of Emmanuel Y. Mendoza ICPA Final and Amended Report dated 03 December 2010 Signature of Emmanuel Y. Mendoza

Head Office and Branches Trial Balance for the

taxable year 2007 GL of interest income, bank commission and fee, and other income accounts for taxable year 2007 Supplemental Report dated 25 April 2011 to the Report dated 3 December 201 0~

United Coconut Planters Bank vs. CIR

EEE-1

FFF

FFF-1

pp

RR

RR-1

RR-2

RR-3

RR-4

ss

SS-1

SS-2

SS-3

SS-4

TT

Signature of Emmanuel Y. Mendoza Judicial Affidavit dated 27 April 2011 of Emmanuel Y.

Mendoza

Signature of Emmanuel Y. Mendoza UCPB letter to the ICPA dated 12 November 2010 2007 Quarterly Income Tax Return (BIR Form No. 1702Q) of UCPB for the first quarter electronically filed ("e-filed") on 30 May 2007 with Filing Reference No. 130700001639520, certified by the Bureau of

Internal Revenue (" BIR")

UCPB Summary of Alpha List of Withholding Taxes

("SAWT") for the month of January 2007, certified by

the BIR

UCPB Summary of Alpha List of Withholding Taxes

("SAWT") for the month of February 2007, certified

by the BIR

UCPB Summary of Alpha List of Withholding Taxes

("SAWT") for the month of March 2007, certified by

the BIR

2007 Amended Quarterly Income Tax Return (BIR

Form No. 1702Q) of UCPB for the first quarter e--filed on 19 November 2007 with Filing Reference No. 130700001897557, certified by the BIR 2007 Quarterly Income Tax Return (BIR Form No. 1702Q) of UCPB for the second quarter e-filed on 29

August

2007 with

Filing

Reference

No.

130700001772893, certified by the BIR UCPB SAWT for the month of April 2007, certified by

the BIR

UCPB SAWT for the month of May 2007, certified by

the BIR

UCPB SAWT for the month of June 2007, certified by

the BIR

2007 Amended Quarterly Income Tax Return (BIR

Form No. 1702Q) of UCPB for the second quarter e- filed on 19 November 2007 with Filing Reference No. 130700001897581, certified by the BIR 2007 Quarterly Income Tax Return (BIR Form No. 1702Q) of UCPB for the third quarter e-filed on 29£

United Coconut Planters Bank vs. CIR

November

2007 with

Filing

Reference

No.

130700001915605, certified by the BIR

TT-1

UCPB SAWT for the month of July 2007, certified by

the BIR

TT-2

UCPB SAWT for the month of August 2007, certified

by the BIR

TT-3

UCPB SAWT for the month of September 2007, certified by the BIR

UU

2007 Annual Income Tax Return of UCPB e-filed on 15

April

2008 with

Filing

Reference

No.

120800002188823, certified by the BIR

UU-1

UCPB SAWT for the month of October 2007, certified

by the BIR

UU-2

UCPB SAWT for the month of November 2007, certified by the BIR

UU-3

UCPB SAWT for the month of December 2007, certified by the BIR

VV

2008 Quarterly Income Tax Return (BIR Form 1702Q)

of UCPB for the first quarter e-filed on 30 May 2008 with

Filing

Reference

No.

130800002268867, certified by the BIR

WW

2008 Quarterly Income Tax Return (BIR Form 1702Q)

of UCPB for the second quarter e-filed on 29 August 2008 with Filing Reference No. 130800002434823, certified by the BIR

XX

2008 Quarterly Income Tax Return (BIR Form 1702Q)

of UCPB for the third quarter e-filed on 28 November 2008 with Filing Reference No. 130800002604190, certified by the BIR

YY

2008 Annual Income Tax Return (BIR Form 1702) of UCPB e-filed on 17 April 2009 with Filing Reference No. 120900002906606, certified by the BIR

ZZ

2008 Amended Annual Income Tax Return (BIR

Form 1702) of UCPB e-filed on 17 June 2009 with Filing Reference No. 120900003040311 , certified by

the BIR

AAA

2008 Amended Annual Income Tax Return (BIR

Form 1702) of UCPB e-filed on 14 September 2009 with

Filing

Reference

No.

120900003223008, certified by the Bl R'

United Coconut Planters Bank vs. CIR

BBB

BBB-1

GGG

HHH

Ill

JJJ

KKK

KKK-1

Affidavit of Jennifer Anne Z. Coronel dated 1

February 2011

Signature of Jennifer Anne A. Coronel Bangko Sentral ng Pilipinas (BSP) letter dated 29 May 2008 re: Monetary Board Resolution No. 590 dated 15 May 2008

2007 Audited Financial Statements of UCPB

2008 Audited Financial Statements of UCPB

2009 Audited Financial Statements of UCPB

Judicial Affidavit of Cynthia A. Almirez Signature of Cynthia A. Almirez Respondent then presented her lone witness in the person of Mr. Junely Ivanhoe S. Fernandez.

On November 28, 2011, respondent filed her Formal Offer of Evidence, offering Exhibits "1 ", "2" and "3". On December 26, 2011 , this Court resolved to admit said exhibits. Furthermore, it was noted that the Exhibit formally offered as Exhibit "3" is actually marked as Exhibit "2-a". Thereafter, respondent was deemed to have formally rested her case. Respondent's documentary evidence are as follows:

Exhibits

1 2 3

Description

Progress Report dated September 12, 2011 Judicial Affidavit of Junely Ivanhoe S. Fernandez Signature of Junely Ivanhoe S. Fernandez (

United Coconut Planters Bank vs. CIR

On February 23, 2012, the case was submitted for decision, considering respondent's Memorandum filed on February 3, 2012 and petitioner's Memorandum filed on February 20, 2012. The parties submitted the following issues7 for the Court's resolution: "2.01 . Whether or not petitioner has complied with the provisions of Sections 204 (c) and 229 of the National Internal Revenue Code of 1997, as amended, relative to the prescriptive period for filing of administrative and judicial claims for refund and/or issuance of a tax credit certificate. 2.02. Whether or not petitioner has established the withholding of the amount of Ninety Four Million Three Hundred Forty Nine Thousand Two Hundred Eighty Five Pesos (P94,349,285.00) with copies of the withholding statements duly issued by the various payors of petitioner, showing the amount paid and the amount of tax withheld therefrom;

2.03. Whether or not petitioner's alleged unutilized creditable withholding taxes in the amount of Ninety Four Million Three Hundred

Forty

Nine

Thousand

Two

Hundred

Eighty

Five

Pesos

(P94,349,285.00) has been utilized or carried over to the succeeding years;

2.04.

Whether or not petitioner is entitled to refund and/or issuance of tax credit certificate in the amount of Ninety Four Million Three Hundred Forty Nine Thousand Two Hundred Eighty Five Pesos (P94,349,285.00) representing unutilized withholding tax credits for the calendar year 2007; and 2.05. Whether or not the respondent Commissioner of Internal Revenue erred when it failed to act on petitioner's claim for refund/credit of its excess and unutilized creditable withholding taxes in 2007 through the issuance of a TCC." The foregoing issues may be summarized as - "Whether or not petitioner is entitled to a refund or issuance of tax credit certificate for its alleged excess creditablec

United Coconut Planters Bank vs. CIR withholding tax in the amount of P94,349,285.00 for taxable year 2007."

But necessarily, the timeliness of petitioner's claim for refund is to be determined.

The pertinent provisions are Sections 204(C) and 229 of the National Internal Revenue Code (NIRC) of 1997, as amended, which are quoted hereunder for ready reference:

"SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. -The Commissioner may -

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XXX

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their va:ue upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund ." "SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, (

United Coconut Planters Bank vs. CIR even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid." The above provisions mandate that the administrative and the judicial remedies of filing a claim for refund of erroneously or excessively paid tax must be done within two (2) years from the date of payment of the tax. For actions for refund of excess corporate income tax, the Supreme Court held that the two-year prescriptive period should be counted from the filing of the final adjustment return, because it is only during that date that the exact tax liability or the refundable amount of tax can be determined.a Suffice it to say that the instant case involves the taxable year 2007. Petitioner filed its Annual Income Tax Return (BIR Form No. 1702) on April 15, 2008.9 Counting from this date, the administrative claim filed by petitioner on April 12, 201010 and the subsequent appeal by way of a Petition for Review filed before this Court on April 15, 2010 11, both fell within the two-year prescriptive period allowed by law. On the issue of whether or not petitioner is entitled to the refund or issuance of tax credit certificate in the amount of P94,349,285.00, representing unutilized CWT for taxable year 2007, it is well-settled that a, 8 Commissioner of Internal Revenue vs. TMX Sales, Inc. and the Court of Tax Appeals, G.R. No. 83736, dated January 15, 1992; ACCRA Investments Corporation vs. The Honorable Court of Appeals, et. al., G.R. No. 96322, December 20, 1991 . 9 Exhibits "I" and "J".

10 Exhibit "U".

11 Docket, pp. 5-30.

I.

12

United Coconut Planters Bank vs. CIR taxpayer claiming a tax credit or refund of CWT must comply with the following requisites:12

1. The claim must be filed with the BIR Commissioner within the two-year period from the date of payment of the tax;

2. The fact of withholding must be established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld; and

3. It must be shown on the return that the income received was declared as part of the gross income. As stated earlier, the first requisite has been satisfied. With regard to the second requisite, petitioner through Mr. Emmanuel Y. Mendoza, the Court-commissioned Independent CPA (ICPA), presented a summary of verified BIR Form No. 2307 or Certificate of Creditable Tax Withheld at Source, the details of which are presented below:

CWTon

CWTon

CWTon

Income

CWT on I nco me

Income

Income

payments payments payments payments subjected to subjected to 6% subjected to 2% subjected to 10% and

Findings

Annex

EWT

EWT

5%EWT

15% EWT

Supported with BIR Forrn

A-1, A-2, No.

2307 with no A-3 and

Total

exceptions noted

A-4

p 86,804,752.75 P3,619,742.48 p 183,658.49 p 39,141 .57 P90,647,295.29

Supported by BIR Form

No.

230"/ but covering periods outside the taxable year of claim

A-5

97,661 .62 12 Commissioner of Internal Revenue vs. Far East Bank and Trust Company (now Bank of the Philippine Islands), G.R. No. 173854, March 15, 2010. 97,661 .G2 3.

4.

5.

United Coconut Planters Bank vs. CIR

Supported by BI R Form

No. 2307 wherein the tax base used in computing the amount of CWT is the lower amount between the FMV and SellinQ price

A-6

3,383,381 .91

Supported by BIR Form

No. 2307 with no payor's signature

A-7

Supported by BI R Form

No.

2307 wherein the amount of CWT is not tie- up compared to the bank's lisUschedule of CWT

A-8

Page 19 of 27

3,383,381.91 221 .15 221.15 209,021 .88 209,021 .88

Sub-total

P90,188,134.66 P3,926,647.13 P183,658.49 P39,141 .57 P94,337,581 .85 CWT with no supporting BIR Form No. 2307

A-9

1,976.50 8,236.02 10,212.52

TOTAL

P90,188,134.66 P3,928,623.63 P191 ,894.51 P39,141.57 P94,347,794.37 A perusal of the I CPA Reports 13 and the presented certificates 14 shows that out of the total claimed CWT of P94,349,285.00, only the amount of P94,337,581 .85 is supported by the required BIR Form No. 2307. The difference of P11 , 703.15 has no supporting certificates; thus, shall be deducted outright from petitioner's claim. Moreover, the certificates which were dated outside the period of claim with the corresponding CWT of P97,661 .62 and the certificate without the payor's signature amounting to P221.15 should also be disallowed, details of which are as follows:

Certificates covering period outside the period claim

Exhibit

Payor

Z-1068

Bistro Americana

Z-1069

Lepanto

Z-1070

Stepan Philippines

Z-1071

Aldiz Incorporated

Z-1072

i

Aldiz Incorporated

13 Exhibits "00", "QQ", and "EEE". 14 Exhibits "Z-1 " to "Z-1099".

Period Covered

01-0ct-06

31-Dec-06

01 -0ct-06

31-Dec-06

01 -Dec-06

31 -Dec-06

01 -Jun-06

30-Jun-06

01 -Jun-06

30-Jun-06

Tax Withheld

p 29,629.75 7,013.66 9,497.42 3,873.73 6,772.30

United Coconut Planters Bank vs. CIR

Z-1073

Aldiz Incorporated

Z-1074

Aldiz Incorporated

Z-1075

Aldiz Incorporated

Z-1076

Aldiz Incorporated

Z-1077

Aldiz Incorporated

Z-1078

Aldiz Incorporated

Z-1079

Aldiz Incorporated

Z-1080

Aldiz Incorporated

Z-1081

Aldiz Incorporated

Columbian Autocar

Z-1082

Corp.

Z-1083

Aldiz Incorporated

Total

01-Jul-06

31-Jul-06

01 -Jul-06

31-Jul-06

01-Aug-06

31-Aug-06

01-Aug-06

31-Aug-06

01-Sep-06

30-Sep-06

01-0ct-06 31-0ct-06 01-0ct-06 31-0ct-06

01-Nov-06

30-Nov-06

01 -Dec-06

31-Dec-06

01-Dec-06

31 -Dec-06

01-Dec-06

31 -Dec-06

Certificate without the payor's signature

Exhibit

Payor

Period Covered

Z-1091

MD Express Manila, Inc.

28-Dec-07 I 28-Dec-07

Page 20 of 27

275.05 9,223.46 1,003.76 8,171 .38 1,567.97 7,409.06 1,313.53 528.42 660.18 1,967.18 8,754.77 P97,661 .62

Tax

Withheld

p 221 .15 In fine, petitioner complied with the second requisite but only to the extent of P94,239,699.08 out of the total claim of P94,349,285.00, computed as follows:

Claimed CWT for taxable year 2007 p 94,349,285.00 Less: Unsupported by certificates 11,703.15 CWT supported by certificate dated outside the period claim 97,661 .62 C'vVT supported by certificate without the payor's siQnature 221.15 CWT validly supported by SIR Form No. 2307 P94,239,699.08 The CWT amounting to P94,239,699.08, which are validly supported by certificates, can be brokendown as follows: CWT on Income Pa1'ments Subjected to 6% EWT p 90,188,134.66

CWT on Income Payments Subjected to 2% EWT

3,828,764.36

CWT on Income Payments Subjected to 5% EWT

183,658.49 CWT on Income Pa1'ments Subjected to 10% and 15% EWT 39,141 .57

I TOTAL

P94,239,699.08 (

United Coconut Planters Bank vs. CIR

Anent the third requisite, the Court verified through the ICPA findings and observations as stated in his Reports whether the income payments were part of the total income declared in the 2007 Annual ITR. The CWT on income payments subjected to six percent (6%) pertains to sales of real property and other properties acquired (ROPA).

ROPA

includes real and other properties, other than those used for banking purposes or held in the investment portfolio, acquired by the bank judicially or extra-judicially in settlement of loans.15 Based on the ICPA findings, of the P90,188,134.66 total CWT from sale of ROPA, the CWT of P62,546,248.64 the related loss of which in the amount of P759,777,881.06 was verified to have been included in petitioner's General Ledger, P68,751,167.34 of which was declared in petitioner's 2007 Annual Income Tax Return, while the remaining P691 ,026,713.72 was charged as deferred losses of petitioner in 2007. Petitioner defers the booking of some of its losses incurred from the sale of ROPA because according to the Management, the bank is currently under rehabilitation of the BSP and the Philippine Deposit Insurance Corporation (PDIC) and such losses are to be staggered for ten (10) years.16( 1s Exhibit "EEE", page 2.

United Coconut Planters Bank vs. CIR

On the other hand, the related loss on the remaining P27,641 ,886.0217 CWT was either recorded in petitioner's General Ledger in taxable years other than year 2007 or it cannot be traced in petitioner's General Ledger in any taxable year.

The net loss from assets sold or exchanged reported in petitioner's General Ledger1a and Trial Balance19 for the taxable year 2007 amounted to P212,401,216.67.

The said amount includes net loss of P68,751 ,167.34 arising from the sale of ROPA that were subjected and related to creditable withholding taxes amounting to P62,546,248.64. The net loss during the year amounting to P212,401 ,216.67 was reported in the Annual Income Tax Return for the taxable year 2007.

The CWT on income payments subjected to two percent (2%) refers to interest income collected from loans and fees from trade services.

Interest

income is recognized as they are earned. As found by the ICPA, the interest income collected from petitioner's loans and fees from trade services in 2007 related to the claimed 2% CWT of P3,928,623.63 (inclusive of the disallowed

CWT)

amounts to P182,255, 132.4'1, detailed as follows:( 17 Annexes "A-8" and "A-9" of ICPA Report dated April 25, 2011 1a Exhibits "OD0-1 " to "000-26".

United Coconut Planters Bank vs. CIR

FINDINGS

1.

Related income payments recorded in taxable year 2007 are equal to the amount reported (as tax base) in SIR Form No. 2307 2.

Related income payments recorded in taxable year 2006 but are equal to the amount reported (as tax base) in SIR Form No. 2307 3.

Related income payments recorded in taxable year 2007 are lower compared to the amount reported (as tax base) in SIR Form No. 2307 4.

Related income payments recorded in taxable years 2007 and 2006 are lower compared to the amount reported (as tax base) in SIR Form No. 2307 (out of the total P633,573.55 related income payment of Aldiz Inc., P15,704.96 were booked in 2006 and remaining P617,868.59 were booked in 2007) 5.

Related income payments recorded in taxable year 2007 are higher compared to the amount reported (as tax base) in SIR Form No. 2307 6.

Related income payments recorded in taxable years 2007 and 2006 are higher compared to the amount reported (as tax base) in SIR Form No. 2307 (out of the total P2,053, 188.98 related income payment of Aldiz Inc., P1,851,189.60 were booked in 2006 and remaining P201 ,999.38 were booked in 2007) 7.

Related income payments not reported in bank's books and Annual Income Tax Return for taxable year 2007

TOTAL

ANNEX

A-10

A-10

A-11

A-11

A-12

A-12

A-13

Page 23 of 27

TOTAL AMOUNT

OF RELATED

AMOUNT OF

INCOME

CWT

PAYMENT

p 2,795,269.55 p 139,764, 149.2'1 15,704.48 785,224.04 470,939.43 11,189,759.56 13,892.51 617,868.59 553,728.18 27,794,442.28 41 ,055.72 201 ,999.38 P3,890,589.87 P180,353,443.15 38,033.76 1,901,689.26 i P3,928,623.63 P182,255, 132.41 As ascertained by the ICPA, the total interest income and other income of petitioner for the taxable year 2007 amounted to P4,297,811 , 186.95 and P·l ,732,031 ,877.87, respectively. As verified, out of the total income payments related to interest income and fees from trade services that were subjected to CWT amounting to P182,255, 132.41 , P1 06,800,262.65 was reported as interest income and fees from trade services (under Interest<" United Coconut Planters Bank vs. CIR Income and Other Income accounts) in petitioner's General Ledger and Trial Balance for the taxable year 2007 and 2007 Annual Income Tax Return . The CWT on income payments subjected to five percent (5%) pertains to rental income. The total amount of rental income that was subjected to CWT amounted to P3,837,744.74; while the CWT withheld on the said income amounted to P191 ,894.51.

The total other income of petitioner for the taxable year 2007 amounted to P1 ,732,031 ,877.87.

The I CPA verified that the total rental income that was subjected to creditable withholding taxes amounting to P3,837,744.74 was reported as rental income (under Other Income account) in petitioner's General Ledger and Trial Balance for the taxable year 2007 and Annual Income Tax Return for taxable year 2007. The CWT on income payments subjected to ten percent (1 0%) and fifteen percent (15%) pertains to income arising from outsourcing and professional fees.

The total amount of income from outsourcing and professional fee that was subjected to CWT amounted to P271 ,943.83 and the same was reported in petitioner's General Ledger and included in the 2007 Annual ITR of petitioner.

Based on the above findings and observations, petitioner's claim substantiated by CWT and the related income payments/loss declared in the AnnuaiiTR may be summarized as follows:(

United Coconut Planters Bank vs. CIR

FINDINGS

Income payments subjected to 6%

CWT

properly supported with BIR Form No. 2307 Income payments subjected to 2% CWT properly supported with BIR Form No. 2307 Income payments subjected to 5%

CWT

properly supported with BIR Form No. 2307 Income payments subjected to 10% and 15% CWT properly supported with BIR Form No. 2307

TOTAL

Page 25 of 27

INCOME

TAXES

PAYMENTS/LOSS

WITHHELD

(P68,751 ,167.342_ p 62,546,248.64 106,800,262.65 3,828,764.36 3,673,169.80 183,658.49 271,943.83 39,141 .57 P66,597,813.06 As stated by petitioner and as verified by the ICPA, the income payments related to the CWT of P66,597,813.06 formed part of the declared income/loss in the Annual ITR of 2007; nevertheless, the Court cannot ascertain its veracity.

The total other income amounting to P1, 147,598,768.00 and the net loss from asset sold/exchanged amounting to P212,401 ,216.67 reported in the Annual ITR that includes the income payments or loss from which the P66,597,813.06 CWT were withheld, has no breakdown as to its components. Although petitioner submitted before this Court documents like General Ledger,2o Trial Balance,21 Audited Financial Statements for 200'7,22 2008 23 and 2009,24 Annual Income Tax Returns for 200725 and 2008,26 Quarterly( 2o Exhibits "DDD-1'' to "DDD-26".

United Coconut Planters Bank vs. CIR

Income Tax Returns for 200727 and 2008,28 Schedules and other supporting documents; however, petitioner failed to present detailed General Ledger, reconciliation schedules or any other documents whereby the Court can trace the discrepancy and can determine with certainty that the income payments related to the claimed CWT formed part of its taxable gross income in its 2007 AnnuaiiTR. Failure to present the foregoing documents is fatal to petitioner's claim.

Notwithstanding the Report of the ICPA, the Court is not bound by his findings.

The Report submitted by the ICPA is but a tool or guide to aid the Court in the resolution of the case. The determination of the merit or the probative value of such Report is still within the province of the Court. In addition, the Court is free to adapt or disregard, completely or partially, the findings of the ICPA.

It can even make its own audit and evaluation of the documents pertinent to the case presented during the trial in order to intelligently resolve the conflict brought before it.29 It bears stressing that a claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund. 3D Tax refunds are in the nature of tax exemptions. As such, they are regarded as in derogation( 27 Exhibits "RR-4", "SS-4" and "TT". 28 Exhibits "W", "WW", and "XX".

29 First Lepanto Taisho Insurance Corporation vs. Commissioner of Internal Revenue, CTA EB Case No. 563, March 1, 2011.

3° Citibank, N.A. vs. Court of Appeals and the Commissioner of Internal Revenue, G.R. No. 107434. October 10, 1997.

United Coconut Planters Bank vs. CIR of sovereign authority and to be construed strictissimijuris against the person or entity claiming the refund.31

WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED for lack of merit.

WE CONCUR:

~4-W-£% C. Qt-~ ;if .

JfJANITO C. CASTANEDA, JR.

Associate Justice

~ ~-M~M4. C~ CIELITO N. MINDARO-GRULLA

Associate Justice

CAESA~SANOVA

Associate Justice

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

~~14 c_ a;t-~ /:A.

JUANITO C. CASTANEDA, ~R.

Acting Presiding Justice

Chairperson, 2 nd Division 31 Commissioner of Internal Revenue vs. S.C. Johnson & Son, Inc., et. al., G.R. No. 127105, June 25, 1999.