Philippine National Bank vs. Commissioner of Internal Revenue

DECISION

MINDARO-GRULLA, .}_.:

This is a Petition for Review filed on April 12, 2013 by the

Philippine

National

Bank

as petitioner, against Commissioner of Internal Revenue as respondent, before the Court in Division, pursuant to Section 7(a)(2) of Republic Act (RA) No. 1125, An Act Creating the Court of Tax Ap-peals, as amended 1, as well as Rule 4, Section 3(a)(2), in relation to Rule 8, Section 4(a) of the Revised Rules of the Court of Tax Appeals (RRCTA) 2, as amended.~ 1 Sec. 7. Jurisdiction. - The CTA shall exercise :

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

XXX

XXX

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

XXX

XXX

2 Rule 4, Sec. 3. Cases within the j urisdiction of the Court in Division. - The Court in Division shall exercise:

PNB vs. CIR

Petitioner

seeks the refund of the amount of P289,085,378.91, allegedly representing its excess creditable withholding tax (CWT) for taxable year 2010.

Petitioner Philippine

National

Bank

is a domestic corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal business address at the PNB Financial Center, President Diosdado Macapagal Blvd., Pasay City. On the other hand, respondent is the duly appointed Commissioner of the Bureau of Internal Revenue (BIR), empowered to perform the duties of the said office, (

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

XXX

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 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;

XXX

XXX

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.

XXX

XXX

PNB vs. CIR including, among others, the power to decide, approve, and grant refunds or tax credits of erroneously or excessively paid taxes as provided by law.

He holds office at the BIR National Office Building, BIR Road, Diliman, Quezon City. On April 15, 2011, petitioner filed with the BIR, through the Electronic Filing and Payment System (EFPS), its tentative Annual Income Tax Return (ITR) for taxable year 2010. 3 Petitioner then filed its First Amended ITR4 and its Final Amended ITR5 for taxable year 2010 on May 23, 2011 and on December 26, 2012, respectively. On January 10, 2013, petitioner filed with respondent an administrative claim for issuance of tax credit certificate dated January 8, 2010 in the amount of P289,085,378.91. 6 Due to respondent's inaction on the administrative claim, petitioner filed the instant Petition for Review before this Court on April 12, 2013, which was later docketed as CTA Case No. 8636. 7 Respondent filed an

Answer8

on July 16, 2013, containing the following Special and Affirmative Defenses: "SPECIAL AND AFFIRMATIVE DEFENSES 4.

Respondent

repleads the foregoing allegations, and incorporates the same by reference in this section of her Answer, insofar as they are material and applicable. ~ 3 Par. 3 1 Summary of Admitted Facts/ JSFI 1 Docket1 p. 1332. , Par. 4 1 Summary of Admitted Facts, JSFI 1 Docket1 p. 1332. ~ Par. 5, Summary of Admitted Facts, JSFI, Docket, p. 1332.

PNB vs. CIR

A. This Honorable Court does not have jurisdiction over petitioner's claim for refund.

1.

Petitioner committed a fatal error when it failed to submit the supporting documents necessary to substantiate its administrative claim for tax refund;

2.

Such

failure rendered as to have not

Petitioner

thoroughly administrative available to it;

applied the remedy which was 3.

Petitioner's

failure to exhaust its administrative remedies renders this Honorable Court without jurisdiction over this particular claim.

Page 4 of 34

5. Respondent respectfully maintains that this Honorable Court does not have jurisdiction over Petitioner's claim for refund. To be more precise,

Respondent

contends that

Petitioner's

failure to thoroughly apply the administrative remedy available to it, led to the premature filing of the instant Petition, and ultimately prevented this Honorable Court from acquiring jurisdiction over the same.

6. Respondent also respectfully adds that before this Honorable Court assumes jurisdiction over the substantive issue of whether or not Petitioner is entitled to its claim for tax refund, Petitioner must first establish that it preliminarily complied with all the administrative requirements leading up to the filing of this action. This Honorable Court must first be convinced that Petitioner indeed thoroughly pursued an administrative claim for tax refund, before it proceeds to determine Petitioner's entitlement to the same under substantive law. €

PNB vs. CIR

7.

With respect to this pursuit of an administrative claim for refund, while Respondent concedes that Petitioner initiated the same before her office, Respondent nonetheless submits that her office could not have properly acted upon it, and it had no recourse but to treat it as pro forma, considering

Petitioner's

failure to submit the documentary evidence appurtenant thereto.

8. The essential documentary evidence being referred to here pertains to those enumerated in the checklist of documents prescribed under Revenue Memorandum Order No. 53-98 (hereinafter, 'RMO 53- 98') [which] (sic) identifies the following documents as necessary for the taxpayer to submit so that Respondent's office may properly evaluate his or her application for refund:

8.1. Certified Financial Statements, including comparative

Profit

and

Loss

Statement with Statement of Cost of Goods

Manufactured and Sold, if applicable; 8.2. Proof of claimed tax credit if applicable;

8.3. Proof of the claimed interest expense, if applicable;

8.4. Proof of claimed bad debts, or worthlessness of credits, if applicable; 8.5. Reconciliation of 'Book Income' and 'Taxable Income;' 8.6. Certificate of Registration issued by the appropriate regulatory agency, together with the conditions attached to such registration, if applicable;

8. 7. Proof of exemption under special laws, if applicable; (

PNB vs. CIR

8.8. Certification of the appropriate regulatory agency as to taxpayer's entitlement to tax incentives, if applicable; 8.9. Xerox copy of used Tax Credit Certificate with annotation of issued TOM at the back, if applicable;

8.10. Proof of payment of deficiency tax, if any/applicable, for the current year or period and for previous years or periods; 8.11. Reports submitted to applicable regulatory agency which reflect the financial condition and result of operation of the taxpayer e.g. Annual Statement prepared by insurance companies submitted to the Insurance Commission etc., if applicable.

9. Furthermore, Revenue Regulation No. 2-2006 (hereinafter, 'RR 2-2006') provides for the mandatory submission of an alpha list of withholding agents, to wit:

'XXX XXX XXX Section 2. MANDATORY SUBMISSION OF

SUMMARY

ALPHALIST

WITHHOLDING

AGENTS

OF

INCOME

PAYMENTS

SUBJECTED

TO

CREDITABLE

WITHHOLDING TAXES

(SAWT)

BY

THE

PAYEE/INCOME

RECIPIENT

AND

OF

MONTHLY ALPHALIST OF PAYEES (MAP)

SUBJECTED TO WITHHOLDING TAX BY THE

WITHHOLDING AGENT INCOME PAYOR AS

ATTACHMENT TO THEIR FILED RETURNS. A. XXX XXX XXX B. Persons required to submit Summary

Alphalist

of

Withholding

Agents of C

PNB vs. CIR

Income

Payments

Subject

to

Withholding-Taxes (SAWT)

1. All persons claiming refund or applying their creditable tax withheld at source against the tax due with not more than ten (10) withholding agents-payor of income payment per return period are strictly required to submit SAWT in hard copy ( in triplicate) as attachment to the required tax return;

2. All persons claiming for refund or applying their creditable tax withheld at source against the tax due with more than ten (10) withholding agents-payor of income payment per return period are strictly required to submit SAWT electronically in 3.5 inch floppy diskette following the format to be prescribed by the BIR;

XXX XXX XXX'

10. Petitioner did not submit the complete documents required to substantiate its claim for refund.

Respondent likewise points out that the Petition filed by Petitioner is incomplete as well. A cursory examination of the Petition reveals that nowhere in it is an allegation that Petitioner duly submitted the requisite supporting documents. After all, if Petitioner did not actually submit the documents necessary to substantiate its claim, then it could not have declared otherwise in its Petition.

11. In view of Petitioner's actual failure to submit the necessary documents supporting its claim, and its subsequent failure to allege such submission in its Petition, the intendment of the law, in prescribing that the taxpayer comply with all the administrative requirements continuing up to judicial review, was not served. Simply put, Petitioner did not exhaust its administrative remedies. 1

PNB vs. CIR

12. Respondent respectfully submits that the requirement to exhaust administrative remedies is not satisfied with the mere filing of an administrative claim.

Rather,

Respondent

contends that an administrative remedy shall only be deemed to have been exhausted if the same had been thoroughly applied, which was not what happened in this case. In support of her position,

Respondent

respectfully invites the attention of this Honorable Court to the case of Atlas Consolidated Mining and Development Corporation v.

Commissioner of Internal Revenue, wherein the Supreme Court ruled that: 'XXX XXX XXX First, a judicial claim for refund or tax credit in the CTA is by no means an original action but rather an appeal by way of petition for review of a previous, unsuccessful administrative claim.

Therefore, as in every appeal or petition for review, a petitioner has to convince the appellate court that the quasi-judicial agency a quo did not have any reason to deny its claims. In this case, it was necessary for petitioner to show the CTA not only that it was entitled under substantive law to the grant of its claims but also that it satisfied all the documentary and evidentiary requirements for an administrative claim for refund or tax credit. Second, cases filed in the CTA are litigated de novo. Thus, a respondent should prove every minute aspect of its case by presenting, formally offering and submitting its evidence to the CTA. Since it is crucial for a petitioner in a judicial claim for refund or tax credit to show that its administrative claim should have been granted in the first place, part of the evidence to be submitted to the

CTA

must necessarily include~

PNB vs. CIR whatever is required for the successful prosecution of an administrative claim. xxx xxx xxx' (emphases and underscoring supplied)

13. The aforecited doctrine clearly requires a tax refund claimant to submit all documents which may be relevant or important in substantiating its administrative claim. Absent compliance with this requisite, the recourse to judicial action merely becomes an attempt by the taxpayer to circumvent the administrative claim and bypass Respondent's office.

14. Equally relevant and noteworthy is the following pronouncement made by the Honorable Supreme Court in Jesus A. Jariol v. Commission on

Elections:

'XXX XXX XXX

A

party aggrieved thereby must not merely initiate the prescribed administrative procedure to obtain relief, but also must pursue it to its appropriate conclusion before seeking judicial intervention in order to give that administrative agency an opportunity to decide the matter by itself correctly and prevent unnecessary and premature resort to the court.

XXX XXX XXX'

15.

Had

Petitioner submitted the complete documents,

Respondent

would have had the opportunity to determine the merits of Petitioner's claim. The failure of Petitioner to submit its documents essentially deprived Respondent of the opportunity to properly exercise her function. Moreover, as it stands, Petitioner filed its administrative and judicial claims, too closely to each other, at a point when the two-<

PNB vs. CIR year period is about to prescribe. Petitioner effectively reduced the filing of the administrative claim to a perfunctory step it had to undertake prior to its filing of a judicial claim for refund before this Honorable Court.

16.

Petitioner

bypassed its administrative remedy, and it is only now at the judicial stage, before this Honorable Court, that Petitioner submits and proposes to present documentary evidence allegedly establishing its entitlement to a tax refund.

Respondent respectfully submits that this should not be allowed as this pernicious practice contravenes the well-established principle that matters not preliminarily raised in the administrative level cannot be raised for the first time upon appeal.

17. The concept and consequences of the non- exhaustion of administrative remedies need not be discussed in detail. Suffice it to say that the Honorable Supreme Court has long and consistently held that if a remedy within the administrative machinery can still be resorted to by giving the administrative officer every opportunity to decide upon a matter that comes within his or her jurisdiction, then such remedy must be exhausted first before the court's power of judicial review can be sought.

18.

Applying

the foregoing jurisprudential guidelines to the case at hand,

Respondent

respectfully maintains that Petitioner's non-exhaustion of its administrative remedies should bar it from seeking judicial recourse. Its failure to exhaust all administrative remedies is fatal to its claim considering that such non-exhaustion is not merely for the purposes of practicality and formality, but is also jurisdictional in nature. Hence, Petitioner's failures, first, in not submitting the complete documents necessary to substantiate its claim, and second, in excluding from its Petition any proof of its compliance with the preceding requirement, warrant a summary dismissal of the instant Petition for Review. B. The burden of proof to establish entitlement to a tax refund rests upon(" PNB vs. CIR Petitioner, and its failure to discharge such burden is fatal to its claim.

19. In an action for refund, the burden of proof is upon the taxpayer to establish his or her right to a refund, and his or her failure to sustain this burden is fatal to the claim.

20. In this particular case, it is upon Petitioner to prove the substantive merits of its claim, as well as its compliance with and satisfaction of all the statutory and administrative requirements pertinent to the issuance of a tax refund. Failure at proving both or either calls for a denial of the claim. The existence of surplus creditable withholding taxes per se does not entitle Petitioner to a refund. In order to be entitled to the refund it seeks, Petitioner must satisfactorily prove that:

19.1. its claim for refund was filed within the two (2)-year prescriptive period set forth in Sections 204 and 229 of the National Internal Revenue Code of 1997 (hereinafter NIRC');

19.2. the fact of withholding 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 taxes withheld; and 19.3. That the income upon which the taxes were withheld was included in the return of the recipient.

21. Furthermore, Petitioner must prove that the alleged refundable taxes were neither automatically applied as tax credit against its tax liability for the succeeding quarters of the succeeding year nor included as creditable taxes declared or applied to the succeeding taxable years. Under Section 76 of the NIRC, Petitioner's excess creditable tax withheld for the year 2010 may either be refunded, claimed as tax credit or carried over to the succeeding taxable years. However, once an option has been made, the same becomes irrevocable for that taxable period and no (

PNB vs. CIR application for cash refund and/or tax credit certificate shall be allowed henceforth.

22.

Petitioner

failed to submit complete documents to support its application for refund. It cannot be emphasized enough that mere filing of an administrative claim for refund without submitting the complete documents in support of the application hereof is not conclusive to sustain its contention that it has the right to claim for refund.

23. Even here, with its Petition before this Honorable Court, Petitioner still failed to substantiate its claim for refund and failed to submit the required documents to prove its entitlement thereto. Hence, the petition must fail.

C. Claims for tax exemption must be justified by the clearest grant of law.

24. It is said that taxes are essential to government's very existence hence, the dictum that 'taxes are the lifeblood of the government.'

25. And because taxes are the lifeblood of the nation, the court has always applied the doctrine of strict interpretation in construing tax exemptions. The right of taxation cannot easily be surrendered, statutes granting tax exemptions are considered as a derogation of the sovereign authority. A claim for exemption from tax payments must be clearly shown and be based upon the language in the law too plain to be mistaken. Otherwise stated, taxation is the rule, exemption therefrom is the exception.

26. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from taxation. Since tax refunds are regarded as tax exemptions, therefore, these are to be construed stictissimi juris against the person or entity claiming the exemption. This means that in an action for refund, the burden of proof is upon the taxpayer who claims the exemption and he must justify his claim by the clearest grant under the<

PNB vs. CIR

Constitutional

or statutory law and cannot be permitted by vague implications. 27.

The

Honorable

Supreme

Court

has confirmed this construction even as early as in 1926, when it decided the case of Asiatic Petroleum Co. vs. Llanes in the following manner: 'XXX XXX XXX

Exemptions

from taxation are highly disfavored in law and he who claims exemption must be able to justify his claim by the clearest grant of organic or statutory law.

An exemption from the common burden cannot be permitted to exist upon vague implications.

XXX XXX XXX'

28. Finally, In the case of The City of Iloilo v. Smart Communications, Inc., the Honorable Supreme Court held that:

'XXX XXX XXX The right of taxation is inherent in the State. It is a prerogative essential to the perpetuity of the government; and he who claims an exemption from the common burden, must justify his claim by the clearest grant of organic or statute law ...

XXX XXX XXX

When exemption is claimed, it must be shown indubitably to exist. At the outset, every presumption is against it. A well- founded doubt is fatal to the claim; it is only when the terms of the concession are too explicit to admit fairly of any other<'

PNB vs. CIR construction that the proposition can be supported.

XXX XXX XXX II

The Pre-Trial Conference was set on August 23, 2013. 9 Petitioner filed its Pre-Trial Brief10 on August 16, 2013. Respondent, on the other hand, filed a Pre-Trial Brief11 on August 23, 2013.

The parties filed their Joint Stipulation of Facts and Issues12 on September 26, 2013. The Court likewise issued a Pre-Trial Order on January 16, 2014. 13 During trial, petitioner presented Heherson U. Butuc and Fredieric B. Landicho as its witnesses. On May 16, 2014, petitioner filed its Formal Offer of Evidence14 . In a Resolution 15 promulgated on August 7, 2014, the Court admitted as petitioner's evidence Exhibits

"P-1" "P-1-1" "P-2" "P-2-1" "P-3" "P-3-1" "P-4" "P-5"

I

I

I

I

I

I

I

I

"P-6" "P-7" "P-9" "P-11" "P-12" "P-13" "P-15" "P-16"

I

I

I

I

I

I

I

I

"P-16-1"1 "P-17", "P-25.1" to "P-25.8"1 "P-26"1 "P-32" and "P-32-1"· denied the admission of Exhibits "P-8" "P-10" "P-

I

I

I

14"1 "P-18.1" to "P-18.1587"1 "P-18.1589" to "P-18.4544"1 "P-18.4551" to "P-18.6259"1 "P-18.6280" to "P-18.8120"1 "P-18.8123" to "P-18.10354", "P-19.1" to "P-19.719", "P- 20.1" to "P-20.2185", "P-21.1" to "P-21.28", "P-22.1" to "P- 22.8", "P-23.1" to "P-23.2", "P-24.1" to "P-24.59280", "P- 27.1" to "P-27.480", "P-27.482" to "P-27.598", "P-28.1" to "P-28.8", "P-29.1" to "P-29.32", "P-30.1" to "P-30.499", "P- 18.1588"1 "P-18.4545" to "P-18.4550"1 "P-18.6260" to "P- 18.6279"1 "P-18.8121" to "P-18.8122"1 "P-27.481"1 "P- 18.4174"1 "P-23.3" to "P-23.4"1 "P-31" and "P-31-1"; and( 9 Notice of Pre-Trial Conference, Docket, p. 237. 10 Docket, pp. 769-775.

11 Docket, pp. 776-779.

1/ Docket, pp. 1331-1341.

PNB vs. CIR noted that Exhibit "P-18.317" described as "Certificate of Creditable Withholding Taxes Supported with Original CWTs,

Transaction Tickets/Input Sheets and Deed of Sale Dated

2010 with

Income

Reported

in 2010" is actually a "Certificate of Creditable Withholding Tax Withheld at Source (BIR Form No. 2307) with a period of 4/1/20 to 6/1/10", and that Exhibits "P-18.4250", "P-18.4896", "P-18.7025", "P-

18. 7097", and "P-18. 7331" were marked on two different documents.

On August 26, 2014, petitioner filed a Motion for Partial Reconsideration (Of the Resolution dated 7 August 2014) 16 . In a Resolution 17 dated November 5, 2016, the Court partially reconsidered its August 7, 2014 Resolution, admitting as petitioner's evidence Exhibits "P-8", "P-10", "P- 14", "P-18.4174", "P-23.3" to "P-23.4", "P-31", and "P-31- 1"; and again denying "P-18.1" to "P-18.1587", "P-18.1589" to "P-18.4544", "P-18.4551" to "P-18.6259", "P-18.6280" to "P-18.8120", "P-18.8123" to "P-18.10354", "P-19.1" to "P- 19.719", "P-20.1" to "P-20.2185", "P-21.1" to "P-21.28", "P- 22.1" to "P-22.8", "P-23.1" to "P-23.2", "P-24.1" to "P- 24.59280", "P-27.1" to "P-27.480", "P-27.482" to "P- 27.598", "P-28.1" to "P-28.8", "P-29.1" to "P-29.32", and "P-30.1" to "P-30.499."

On November 21, 2014, petitioner filed an Urgent Motion to Re-Open Proceedings18, which the Court granted in a Resolution 19 dated March 10, 2015. Pursuant to the said Resolution, the Court ordered the recall of Fredieric B. Landicho and Heherson U. Butuc for the identification of Exhibits "P-18.1" to "P-18.1587", "P-18.1589" to "P- 18.4544", "P-18.4551" to "P-18.6259", "P-18.6280" to "P- 18.8120", "P-18.8123" to "P-18.10534", "P-19.1" to "P- 19.719", "P-20.1" to "P-20.2185", "P-21.1" to "P-21.28", "P- 22.1" to "P-22.8", "P-23.1" to "P-23.2", "P-24.1" to "P-

24. 59280", "P-27 .1" to "P-27 .480", "P-27 .482" to "P- 27.598", "P-28.1" to "P-28.8", "P-29.1" to "P-29.32", and "P-30.1" to "P-30.499.".(

PNB vs. CIR

In the hearing dated April 28, 2015, Fredieric B. Landicho was again presented as witness for petitioner. The Court granted the manifestation made by petitioner's counsel that the testimony of Heherson U. Butuc be dispensed with. 20 On May 8, 2015, petitioner filed its Supplemental Formal Offer of Evidence21 .

In a Resolution dated June 22, 2015, the Court admitted Exhibits "P-18.1" to "P-18.1587", "P-18.1589" to "P-18.4544", "P-18.4551" to "P-18.6259", "P-18.6280" to "P-18.8120", "P-18.8123" to "P-18.10354", "P-19.1" to "P-19.19713", "P-20.1" to "P-20.2185", "P-21.1" to "P-21. 28", "P-27 .1" to "P-27 .480", "P-27 .482" to "P- 27.559, "P-28.1" to "P-28.8", "P-33", and "P-33-1" as evidence for petitioner; and denied Exhibits "P-19. 714" to "P-19.719", "P-21.1" to "P-21.28", "P-22.1" to "P-22.8", "P- 23.1" to "P-23.2", "P-24.1" to "P-24.59280", "P-27.560" to "P-27.598", "P-29.1" to "P-29.32", "P-30.1" to "P-30.499", and "P-24.59281" to "P-24.59820". On July 13, 2015, petitioner filed a Motion for Partial Reconsideration (Of the Resolution dated 22 June 2015) 22 , which the Court granted in a Resolution 23 promulgated on September 22, 2015. Accordingly, the Court admitted, as petitioner's evidence, Exhibits "P-19. 714" to "P-19. 719", "P- 21.1" to "P-21.28", "P-23.1" to "P-23.2", "P-24.1" to "P- 24.59280", "P-27.560" to "P-27.598", "P-29.1" to "P-29.32", and "P-30.1" to "P-30.499".

Petitioner's documentary exhibits are as follows:

Exhibits:

\-

Description:

P-1

PNB's Original Annual Corporate Income

Tax Return (BIR Form No. 1702) for taxable year 2010, electronically filed on

15 April

2011, with

Reference

No.

121100004685916 ------------------

P-1-1

I PNB's

Original

Annual

Income

Tax

Return (BIR Form No. 1702) for taxable 1 ~ 70 Minutes of Hearing dated April 28, 2015, Docket, pp. 1564-1567. 21 Docket, pp. 1573-1583.

n. Docket, pp. 1598-1612.

PNB vs. CIR

P-2

P-2-1

P-3

P-3-1

P-4

P-5

P-6

P-7

Page 17 of 34

year 2010, filed on 15 April 2011, with

Reference

No.

121100004685916:

Below Line 33, Option "To be issued a tax credit certificate" - --·- --

PNB's

Amended

Annual

Corporate

Income Tax for taxable year 2010 filed on 23 May 2011, with Reference No. 121100004792931

PNB's

Amended

Annual

Corporate

Income Tax Return

(BIR Form

No.

1702) for taxable year 2010 filed on 23

May

2011, with

Reference

No.

121100004792931:

Below Line 33, Option "To be issued a tax credit certificate''

PNB's Final Annual Corporate Income

Tax Return (BIR Form No. 1702) for taxable year 2010 filed on 26 December 2012, with

Reference

No.

121200006713558

PNB's Final Annual Corporate Income

Tax Return (BIR Form No. 1702) for taxable year 2010 filed on 26 December 2012, with

Reference

No.

121200006713558:

Below Line 33, Option "To be issued a tax credit certificate"

PNB's

Schedule

of

Creditable

Withholding Taxes for the taxable year 2010

PNB's Original Annual Corporate Income

Tax Return (BIR Form No. 1702) for taxable year 2011, electronically filed on 14 August 2012 which was previously filed manually on 26 March 2012, with Reference No. 121200006249275

PNB's

Amended

Annual

Corporate

Income Tax Return

(BIR Form

No.

1702), for taxable year 2011, filed on 14 August 2012 with Reference No. 121200006249375

PNB's Final Annual Corporate Income

Tax Return (BIR Form No. 1702) for the taxable year 2011 filed on 26 December 2012, with

Reference

No.

121200006713626 -----+-

P-8

Independent

Auditor's

Report

to

Accompany

Income Tax

Return

for taxable year 2011, filed on 26 March 2012 <

PNB vs. CIR

P-9

P-10

P-11

P-12

P-13

P-14

P-15

P-16

P-16-1

P-17

P-18.1 to P- 18.10534 P-19.1 to P- 19.719

Page 18 of 34

Letter Claim for Issuance of a Tax Credit

Certificate dated 08 January 2013

PNB's Audited Financial Statement for

the year 2010, with

BIR

stamp

"Received" on 15 April 2011

PNB's Original Annual Corporate Income

Tax Returns (BIR Form No. 1702) for taxable year 2009, filed on 15 April 2010, with

Reference

No.

121000003722681

PNB's

Amended

Annual

Corporate

Income Tax Returns (BIR Form No. 1702) for taxable year 2009, filed on 19

April

2010, with

Reference

No.

121000003729393

PNB's Final Amended Annual Corporate

Income Tax Returns (BIR Form No. 1702) for taxable year 2009, filed on 23

May

2011 with

Reference

No.

121100004792660

PNB's Audited Financial Statement for

the year 2009, with

BIR

stamp

"Received" on 15 April 2010

Judicial Affidavit of Atty. Fredieric B. Landicho, dated 14 October 2013 for

Commissioning

and

Appointment

as Independent Certified Public Accountant .. Judicial Affidavit of Mr. Heherson U. Butac, dated 16 September 2013 Signature of Mr. Heherson Butac as duly identified and encircled

Independent Certified Public Accountant

report of Atty. Fredieric B. Landicho for CTA Case No. 8636 Philippine National

Bank

vs.

Commissioner of Internal

Revenue, submitted and dated 23 December 2013 on the results of the audit procedures with respect to the application for issuance of a tax credit certificate or refund of

Philippine

National Bank

--- -

Certificates of Creditable Withholding

Taxes Supported with Original CWT's

Transaction Tickets/Input Sheets and

Deed of Sale Dated 2010 With Income

Reported in 2010

Certificates of Creditable Withholding

Taxes Supported with Original CWT's

Transaction Tickets/Input Sheets and

Deed of Sale Dated 2010 With Loss or 1 (

PNB vs. CIR

P-20.1 to P- 20.2185 P-21.1 to P-21.1793 P-22.1 to P- 22.8 P-23.1 to P- 23.4 P-24.1 to P-24.59280 P-25.1 to P- 25.8

P-26

P-27 .1 to P- 27.598 P-28.1 to P- 28.8

Page 19 of 34

No Income Recognized in 2010

Certificates of Creditable Withholding

Taxes Supported with Original CWT and

Deed

of

Sale

Dated

2010 and

Transaction Ticket/Input Sheets Dated

Outside 2010 With Income Reported

Outside 2010

Certificates of Creditable Withholding

Taxes Supported

with

Original

CWT

Dated 2010 and Deed of Sale and

Transaction Ticket/Input Sheets Dated

Outside 2010 With Income Reported

Outside 2010

PNB's Final Amended Annual Income

Tax Return (BIR Form No. 1702) for the taxable year 2012, filed on 29 August 2013, with

Reference

No.

121300007736695 --------

PNB's Quarterly Income Tax Returns

(BIR Form No. 1702Q) for the taxable year 2013, filed on 29 May 2013, with Reference No. 131300007347439 and on 29 August 2013 with Reference No. 131300007736686 General Ledger for the year 2010

Petition for Review with the Court of Tax

Appeals, CTA Case No. 8636 Philippine

National Bank

vs.

Commissioner of

Internal Revenue

Independent Certified Public Accountant

report of Atty. Fredieric B. Landicho for CTA Case No. 8636 Philippine National

Bank

vs.

Commissioner of Internal

Revenue

submitted and dated 26 February 2014 on the results of the audit procedures with respect to the application for issuance of a tax credit certificate or refund of Petitioner PNB

Certificates of Creditable Withholding

Taxes Supported with Original CWTs

dated 2010 with Income not traced to General Ledger and Original CWTs dated

2010 with Partly Supported and Partly

Unsupported Transaction Tickets/Input

Sheets

------------------~

Certificates of Creditable Withholding

Taxes Supported

with

Original

CWT

dated outside 2010, Undated CWT and

with Unsupported CWT

c

PNB vs. CIR

P-29.1 to P- 29.32 P-30.1 to P- 30.499

-" P-31

P-31-1

P-32

P-32-1

P-33

r-" P-33-1

Page 20 of 34

Trial Balance for year 2010

Schedule

of

Creditable

Withholding

Taxes (CWT) for the years 2000 to 2009 and 2011 to 2013 Judicial Affidavit of Atty. Fredieric B. Landicho dated 23 December 2013 in lieu of his direct testimony on his report submitted on 23 December 2013 Signature of Atty. Fredieric B. Landicho as duly identified and encircled Judicial Affidavit of Atty. Fredieric B. Landicho dated 26 February 2014 in lieu of his direct testimony on his report submitted on 26 February 2014 Signature of Atty. Fredieric B. Landicho as duly identified and encircled. Judicial Affidavit of Atty. Fredieric B. Landicho dated 17 April 2015 in lieu of his direct testimony on his report submitted on 26 February 2014 Signature of Atty. Fredieric B. Landicho as duly identified In the hearing dated July 7, 2015, the counsel for respondent manifested that respondent would not be presenting evidence. 24 The Court declared the case submitted for decision on November 26, 2015, 25 taking into consideration the filing of respondent's Memorandum26 on October 21, 2015 and petitioner's Memorandum 27 on November 17, 2015. The parties submitted the following issue28 for this Court's disposition:

Whether petitioner is entitled to a refund, by way of issuance of a tax credit certificate, in the amount of P289,085,378.91, allegedly representing petitioner's excess payment of.('

PNB vs. CIR creditable withholding taxes for taxable year 2010.

Based on relevant jurisprudence and BIR Revenue Regulations, in order for a taxpayer to be entitled to a refund of or an issuance of tax credit certificate for its unutilized creditable withholding tax, the following requisites must be sufficiently established:

1. The claim for refund must be filed within the two-year prescriptive period as provided under Sections 204(C) and 229 of the NIRC of 1997, as amended;

2. The income upon which the taxes were withheld must be declared as part of the gross income of the recipient; and

3. The fact of withholding must be 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. 29 Anent the first requisite, Sections 204(C) and 229 of the National Internal Revenue Code (NIRC) of 1997, as amended, provide as follows:

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

XXX

XXX

XXX(

79 Citibank N.A. vs. Court of Appeals, et. a/., G.R. No. 107434, October 10, 1997; ACCRA Investments Corporation vs. The Honorable Court of Appeals, et. a!., G.R. No. 96322, December 20, 1991; United International Pictures AB vs. Commissioner of Internal Revenue, G.R. No. 168331, October 11, 2012; Republic of the Philippines, represented by the Commissioner of Internal Revenue vs. Team (Phils.) Energy Corporation (formerly Mirant (Phi/s.) Energy Corporation), G.R. No. 188016, January 14, 2015; Section 2.58, Revenue Regulations No. 2-98, as amended.

PNB vs. CIR

(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 value 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." (Emphasis supplied) "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, 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." (Emphasis supplied)( PNB vs. CIR The second and third requisites are anchored on Section 2.58.3(B) of Revenue Regulations (RR) No. 2-98, as amended, which states:

"SECTION 2.58.3. Claim for Tax Credit or Refund. -

XXX

XXX

XXX

(B) Claims for tax credit or refund of any creditable income tax which was deducted and withheld on income payments shall be given due course only when it is shown that the income payment has been declared as part of the gross income and the fact of withholding is established by a copy of the withholding tax statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld therefrom."

The prevailing rule in this jurisdiction is that the reckoning of the two-year prescriptive period for the filing of a claim for refund or issuance of tax credit certificate for excess income tax paid/withheld, both in the administrative and judicial levels, starts from the date of filing of the Final Adjustment Return. 30 Applying the foregoing principle, records show that petitioner filed its Annual Income Tax Return for taxable year 2010 on April 15, 2011. 31 Counting two (2) years therefrom, petitioner had until April 15, 2013, within which to file its claim for refund or issuance of tax credit certificate, both in the administrative and judicial levels. Here, petitioner's administrative claim dated January 8,c 30 ACCRA Investments Corporation vs. The Honorable Court of Appeals, et. a/. G.R. No. 96322, December 20, 1991; Commissioner of Internal Revenue vs. TMX Sales, Inc. and the Court of Tax Appeals, G.R. No. 83736, January 15, 1992; Commissioner of Internal Revenue vs. The Philippine American Life Insurance Co., et. a!., G.R. No. 105208, May 29, 1995.

PNB vs. CIR

2013 was received by respondent on January 10, 2013, 32 thus, well within the prescriptive period provided by law. Likewise, the instant petition was filed before the Court on April 12, 2013.

Clearly, petitioner's judicial claim was also timely filed. It is in this light that petitioner has sufficiently complied with the first requisite. Anent the second requisite, petitioner adduced in evidence its Trial Balance for 201033,

Audited Financial

Statements34 , General Ledgers35 , various Certificates of Creditable Tax Withheld at Source (BIR Form No. 2307) with Transaction Tickets/Input Sheets and Deeds of Sale36, and the Independent Certified Public Accountant (CPA) Report37 . On the basis of the procedure performed by the Independent CPA, as shown in his Report, the Court finds petitioner's income upon which the taxes were withheld was properly reported as forming part of its gross income declared in the Annual ITR for taxable year 2010. The income payments appearing in each of the CWT certificates (BIR Form No. 2307) were verified against the relevant documents such as the Transaction Tickets/Input Sheets and Deeds of Sale. Said income payments appearing in the said documents were individually traced to the specific General Ledger of the relevant income account to ascertain whether the same were properly posted. The ending balances of the General Ledger of income accounts from which the taxes were withheld correspond with the amounts reported in the Trial Balance.

Thereafter, the income accounts in the Adjusted Trial Balance were compared against the amounts reported in the

2010 Audited

Financial

Statements.

Upon

comparison, minimal discrepancies appeared due to rounding off, to wit:< 37 Exhibit "P-9"; Par. 8, Summary of Admitted, Facts, JSFI, Docket, pp. 1332-1333. J:J Exhibits "P-29.1" to "P-29.32". J'l Exhibit "P-10".

3 ~ Exhibits "P-24.1" to "P-24.59280". J6 Exhibits "P-18.1" to "P-18.10534", "P-19.1" to "P-19.719", "P-20.1" to "P- 20.2185", "P-21.1" to "P-21.28", "P-27.1" to "P-27.598", and "P-28.1" to "P-28.8".

PNB vs. CIR

Revenue

Interest Income on:

Amount per General

Amount per Audited

Ledger I Trial Balance

Financial Statements

Difference

Loans and Recejvables

P

6,927,564,943.16 6 927 565 000.00

P

56.84 ' ! Investment Securities 4,347,708,784.19 4,347,709,000.00 215.81 I

Interbank Loans Receivable

31,013,475.35 I 31,013,000.00 I (475.35) Deposit with Banks and others

I

870,438,638.721 870,439,ooo.oo 1 361.28 Subtotal i P12, 176,725,841.42 P12,176,726,000.00 :

p 158.58

Non-Interest Income:

i

I

Service Charges, Fees and Commissions p 1,754,461143.88 1 754 461 000.00 (143.88)

Foreign Exchange

587,461,042.03 587,461,000.00 ( 42.03)

Trading and Investment Securities Gains

2,933Jl1,357.43 2,933,711,000.00 (357.43)

Net Gain on Sale or Exchange of Assets

2,109,643,655.53 2,109,644,000.00 344.47

• Miscellaneous Income

610,377,522.79 610 377 000.00 (522.79) c------

Subtotal

p 7,995,654,721.66 p 7,995,654,000.00 P{721.66) ' ' i

1 Total

P20,172,380,000.00 p 563.08_j

I

I

I

I

Moreover, a comparison of the gross income reported in the 2010 Audited Financial Statements against the gross income reported in the Final Amended ITR38 shows a difference of ~9,222,129,881.00, to wit:

I

Amount per Income

Revenue

Financial Statements

Tax Return

Difference

i Amount per Audited

I Interest Income on:

i

I

Loans and Receivables

I

I

p 6,927,565,000.00

I

1

Investment Securities

4,347J09,000.00

Interbank Loans Receivable

31,013 000.00 l_Q_eposit with Banks and others 870,439,000.00

I

' i i -~

I

'

Sub-total

P12,1761 726,000.00 p 6,776,996,382.00 P5,399,729,618.00 j

I Non-Interest Income

I

I

I Service Charges, Fees and Commissions p 1J54,461,000.00 p 1J76,645,534.00

(P

22,184,534.00)

I Foreign Exchange

587,461,000.00 965,288,083.00 (377,827,083.00) LJ:"rading and Investment Securities Gains 2,933,711,000.00 - 2,933, 711,000.00 ! Net Gain on Sale or Exchange of Assets 2,109,644,000.00 - 2,109 644,000.00

Miscellaneous Income/Other Income

610,377,000.00 I 1,431,320,120.00 I (820,943,120.00)

Sub-total

P 7,995,654,000.00 1 P 4,173,253,737.00 1 P3,822,400,263.00

Total

; P20,172,380,000.00 I P10,950,250,119.00 I P9,222,129,881.00 In his Report, the Independent CPA ascertained that the said difference of ~9,222,129,881.00 represents valid reconciling items due to the differences in the rules of< 38 Exhibit "P-3".

Interest

Income

PNB vs. CIR reporting of income between the Final Amended ITR, which complies with the NIRC of 1997, as amended, and Audited Financial Statements, which complies with the Philippine Financial Reporting Standards (PFRS). The reconciling items are accounted as follows:

Service Charges,

Trading &

Net Gain on Sale

Fees and

Foreign

Investment or Exchange of

Miscellaneous

Interest Income

Commissions

Exchange

Securities Gains

Assets

Income

Total

Income per AFS I P12,176,726,000.00 P1,754,461,000.00 P587,461,000.00 P2,933,711,000.00 P2,109,644,000.00 p 610,377,000.00 p 20,172,380,000.00 Add (deduct)

I

I

reconciling

I

I

items:

(2 1 11,o26 869.11) (2'1 /So, I09.2o l ( 106 183 /~9.09) ( 1,108,263 /99.49) i

I

(3,111 ,168 '189.8'!2_

I CDU Income

(108 3o2.ol) 1 Collection from

01'1\L

I nvcstments for JO I 0 recorded in 2011 28,~18,100.00 28,:,/8,100.00

Interest Income

1 from tax exempt investments (39),857 759.00)

(39) 857,259.00)

Interest Income

subject to )0% final tax (2 6~8,1 19,216.00) (2 6~8,1 /9,216.00)-

Accretion Interest

Income from impaired loans (3,9/1,1 /9.2'1) (3,914,1 /9.21)

Interest

component of : loan amortuat tOn reported under

I

"Interest Tncorne"

i per 1\1 S, while !

"Other Income"

I

per TTR

(201,1 /0,3~2.90) 201,110,3~2.90 1 ees collected 1 reported as "Mtscellaneous Income" per 1\1 S, while "Service Chilrges, I ees

and Commrssrons"

L ~er TTR '16 910 38/.13 Revaluatior-,-------

~JLJstments

366,013,3/0.J)QL ' rrading gains classified as "I radrnq & 1 nvcstment

Securities Gains"

per 1\1 S, whrle "foreign rxchange" per

IIR

880,123,364.08 (880,123,361.08) C~atns on currency swaps classtfted under 'T orei~}n rxchangc" per

I

--~- --- "'""' ..... , I_r:JS:orne" p~~ __j_ 269 930 890.01 ~"' '·"'•"·"''",

Mark to Market of '

Investments

( '""' '"' ,.,.,,.vv) ( '""' "" 'vv""") Gain from Investment. wtl h maturity date of more than 5 ~

Gains on Sale

classified under "Net riarn on Sale or rxchange of Assets" per AFS, while "Other

Income" per ITR

Loan Commrtment

fee rccogni7cd dS rJeferred rncome

per GMI'

increase 1n 1 a1r Value ol

Investment

-

I

I

(J, 109,644,314.97) ), 109,644,314.97 46,9/0,100.00 46,910,100.00 (461 ,464,812.00) (461 ,464,81/.00) <

Properties

PNB vs. CIR

I

I

Advance Rentals

I

on Uank Prem1ses

I

and Safety

I

I

~ _f)~osit boxes (547 339.00) (54/ ,339.00)

Recovery of

I

Charged off (86 /86,6~1.00) (86,186 6~1.00)

Assets

i

Dividends/Share

i 1n net 1ncome of i

I

I

subsidiary and

I

I

I

JSSOCidtCS

i i

I

(:107 515,257.00) (:107,515 /57.00)

Accounting

i

Income on

i

I

Installments sale

I

I

I

of Rca I Property

(468,;1;13,591.00) (468,//3,591.00L Rounding off i difference 158.~8 (113.88) (12.03) (3~/.13) 311.9/ 631.8/ ~62.08 lolal i I' (~,399 !29 618.00)

I'

22 181,~31.00 I' 311,821,083.00 I' (2,933 /11 000.00) I' (2 109 614 000.00)

I'

820 943 120.00 P(9 222,129,881.00)

Income per ITR

p 6,776,996,382.00 I P1.776,645,534.00 I P965,288,083.00 ! -

I

- P1.431.320.120.00 p 10.950.250,119.00 Clearly, petitioner was able to establish that the income payments upon which the taxes were withheld were properly reported and formed part of the gross income declared in its Final Amended ITR for taxable year 2010. However, as found by the Independent CPA, not all the income payments per CWT certificates were traced to the General Ledger.

Also, there are CWTs supported by certificates which are undated or dated outside the period of claim, and CWTs which are totally not supported by certificates.

The findings of the Independent CPA are summarized as follows:

Findings a) Summary of Creditable Withholding Taxes

Supported with Original CWTs, Transaction

Tickets/Input Sheets and Deeds of Sale

Dated 2010 with Income Reoorted in 2010

b) Summary of Creditable Withholding Taxes Supported with Original CWTs, Transaction

Tickets/Input Sheets and Deeds of Sale

Dated 2010 with Loss or No Income

Recognized in 2010

1 c) Summary of Creditable Withholding Taxes

Supported with Original CWT and Deeds of

Sale Dated 2010 and Transaction

Tickets/Input Sheets Dated Outside 2010

With Income Reported Outside 2010

I d) Summary of Creditable Withholding Taxes

Supported with Original CWT Dated 2010 and Deeds of Sale and Transaction Tickets/

Input Sheets Dated Outside 2010 With

Income Reported Outside 2010

e) Summary of Creditable Withholding Taxes

CWT

P 234,433,190.06 I 20,352,717.22 27,863,769.31 2,724,000.00 3,574,592.38

Exhibit

P-18.1 to P-18.10534 P-19.1 to P-19.719 P-20.1 to P-20.2185 P-21.1 to P-21.28 P-27.1 to

Reference to ICPA

Report

Annex B

Annex C

Annex D

Annex E

Annex F

< !

PNB vs. CIR

Supported with Original CWTs and Deeds

of Sale Dated 2010 with Income not traced

To General Ledger and Original CWTs and

Deeds of Sale Dated 2010 with Partly

Supported and Partly Unsupported

Transaction Tickets/Input Sheets

f) Summary of Creditable Withholding Taxes

Supported with Original CWT Dated

Outside 2010, Undated CWT and with

Unsupported CWT

Total

137,109.94 P289,085,378.91

Page 28 of 34

P-27.598 P-28.1 to P-28.8

Annex G

Considering the above findings together with the submitted documents, schedules and reconciliation, the Court finds the Independent CPA Report to be in order. Consequently, only the

CWTs

in the amount of P285,373,676.59 which are duly supported by certificates and of which the related income payments were traced to the General Ledger and thereafter reported in the Audited

Financial Statements and Final Amended Annual ITR for

taxable year 2010 may be refunded, to wit:

Findings a) Summary of Creditable Withholding Taxes

Supported with Original CWTs, Transaction

Tickets/Input Sheets and Deeds of Sale

Dated 2010 with Income Reported in 2010

b) Summary of Creditable Withholding Taxes Supported with Original CWTs, Transaction

Tickets/Input Sheets and Deeds of Sale

Dated 2010 with Loss or No Income

CWT

p 234,433,190.06

Exhibit

P-18.1 to P-18.10534

Reference to ICPA

Report

Annex B

I

Recognized in 2010

~) Summary of Creditable Withholding Taxes

20,352,717.22 1 P-19.1 to P-19.719

Annex C

1

Supported with Original CWT and Deeds of

!

Sale Dated 2010 and Transaction

Tickets/Input Sheets Dated Outside 2010

With Income R~_orted Outside 2010 d) Summary of Creditable Withholding Taxes

Supported with Original CWT Dated 2010

and

Deeds

of

Sale

and

Transaction

Tickets/

Input Sheets Dated Outside 2010 With

Income Reported Outside 2010

Total

27,863,769.31 2,724,000.00 P285,373,676.59 P-20.1 to P-20.2185 P-21.1 to P-21.28

Annex D

Annex E

Notwithstanding compliance with the said requisites, there is a need to determine whether or not petitioner made an option to carry over its excess CWTs to the succeeding(

PNB vs. CIR quarters. In this regard, Section 76 of the NIRC of 1997, as amended, reads:

"SEC. 76. Final Adjustment Return. -

Every

corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either: (A) Pay the balance of tax still due; or (B) Carry-over the excess credit; or (C) Be credited or refunded with the excess amount paid, as the case may be. In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of tax credit certificate shall be allowed therefor."

Pursuant to the afore-quoted provision, a corporation entitled to a tax credit or refund of the excess income taxes paid in a given taxable year has two options: (1) to carry over the excess credit or (2) to apply for the issuance of a tax credit certificate or to claim a cash refund. If the option to carry over the excess credit is exercised, the same shall be irrevocable for that taxable period and no application for cash refund or issuance of tax credit certificate shall be (

PNB vs. CIR allowed therefor. 39 The phrase "for that taxable period" merely identifies the excess income tax, subject of the option, by referring to the taxable period when it was acquired by the taxpayer. 40 In exercising its option, the corporation must signify in its Annual Corporate Adjustment Return (by marking the option box provided in the BIR Form) its intention, whether to carry over the excess credit or to claim a refund. The two options are alternative and not cumulative in nature, that is, the choice of one precludes the other. 41 A thorough perusal of petitioner's Annual ITR for taxable year 2010 filed with the BIRon April 15, 2011 shows that petitioner had a Minimum Corporate Income Tax (MCIT) due of ~75,036,131.92.

The said amount was applied against its total tax credits of ~439,260,400.49, which consisted of prior year's excess credits other than MCIT and CWTs for the four quarters of taxable year 2010 in the respective amounts of ~150,175,021.58 and ~289,085,378.91, 42 leaving the CWTs in the aggregate amount of ~364,224,268.57 unutilized as of December 31, 2010, as shown below:

~ Tax Due (MCIT)

p 75,036,131.92

: Less: Tax Credits/Payments

I ·

Prior Year's Excess Credits other than MCIT p 150,175,021.58

CWT for the First Three Quarters

12,258,168.58

CWT for the Fourth Quarter

276,827,210.33

Total Tax Credits

p 439,260,400.49!

lTotal Amount Payable/ (Overpayment) (P364,224,268.57}j Furthermore, petitioner chose the issuance of a tax credit certificate for its CWTs for taxable year 2010 by marking the box corresponding to the option "To be issued a(' 39 Systra Philippines, Inc. vs. Commissioner of Internal Revenue, G.R. No. 176290, September 21, 2007.

-1o Commissioner of Internal Revenue vs. Bank of the Philippine Islands, G.R. No. 178490, July 7, 2009.

41 Republic of the Philippines, represented by the Commissioner of Internal Revenue vs. Team (Phils.) Energy Corporation (formerly Mirant (Phils.) Energy Corporation), G.R. No. 188016, January 14, 2015. 47 Sum of ~12,258,168.58 and ~276,827,210.33.

PNB vs. CIR

Tax Credit Certificate"43 ; and as evidenced by petitioner's Annual ITR for taxable year 2011 44 , only the prior year's excess credits in the amount of P75, 138,889.6645 were carried over.

Clearly, the claimed CWTs for the year 2010 amounting to P289,085,378.91 were not carried over to the succeeding quarters or taxable year.

Thus, the substantiated CWTs for taxable year 2010 in the amount of ~285,373,676.59 may be refunded pursuant to Section 76 of NIRC of 1997, as amended.

However, petitioner failed to substantiate its Prior

Year's

Excess

Credits

of ~150,175,021.58 with the corresponding CWT certificates.

The Certificates of Creditable Tax Withheld at Source

issued by the withholding agents of the government are prima facie proof of actual payment to the government through the agents. 46 In Commissioner of Internal Revenue vs. Philippine National Bank47, the Supreme Court stressed the importance of presenting the pertinent CWT certificates in this wise:

"The certificate of creditable tax withheld at source is the competent proof to establish the fact that taxes are withheld. It is not necessary for the person who executed and prepared the certificate of creditable tax withheld at source to be presented and to testify personally to prove the authenticity of the certificates.

In Banco Filipino Savings and Mortgage Bank

v. Court of Appeals, this court declared that a certificate is complete in the relevant details that would aid the courts in the evaluation of any claim for refund of excess creditable withholding taxes:< <'~J Exhibits "P-1-1", "P-2-1", and "P-3-1". ~<'~Exhibit "P-5-1".

4 ~ P150,175,021.58 less P75,036,131.92. <'~G Commissioner of Internal Revenue vs. Asian Transmission Corporation, G.R. No. 179617, January 19, 2011.

PNB vs. CIR

In fine, the document which may be accepted as evidence of the third condition, that is, the fact of withholding, must emanate from the payor itself, and not merely from the payee, and must indicate the name of the payor, the income payment basis of the tax withheld, the amount of the tax withheld and the nature of the tax paid. At the time material to this case, the requisite information regarding withholding taxes from the sale of acquired assets can be found in BIR

Form

No.

1743.1.

As described in Section 6 of Revenue Regulations No. 6- 85, BIR Form No. 1743.1 is a written statement issued by the payor as withholding agent showing the income or other payments made by the said withholding agent during a quarter or year and the amount of the tax deducted and withheld therefrom. It readily identifies the payor, the income payment and the tax withheld. It is complete in the relevant details which would aid the courts in the evaluation of any claim for refund of creditable withholding taxes.

(Emphasis supplied, citations omitted)" Here, the subject claim pertains to excess tax credits, i.e., undiminished by any income tax liability.

Petitioner

only proffered as evidence its Schedule of Creditable Withholding Taxes for the years 2000 to 2009 and 2011 to 2013.

The said Schedule, standing alone, does not constitute proof that petitioner had prior year's excess credits. Without the corresponding CWT certificates to support petitioner's claim, the said amount cannot be applied against the reported income tax liability of petitioner for taxable year 2010 amounting to P75,036,131.92. Hence, a portion of the substantiated CWT in the amount('

PNB vs. CIR

P285,373,676.59 shall be applied against the said income tax liability. Consequently, petitioner's refundable excess

CWTs

for taxable year 2010 amount only to P210,337,544.67, computed as follows:

Substantiated Creditable Withholding Taxes

Less: MCIT Due

. Refundable Excess CWTs p 285,373,676.59 75,036,131.92 P210,337,544.67 The general rule is that claimants of tax refunds bear the burden of proving the factual basis of their claims. This is because tax refunds are in the nature of tax exemptions, the statutes of which are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. 48 So, when exemption is claimed, it must be shown indubitably to exist, for every presumption is against it, and a well-founded doubt is fatal to the claim. 49

WHEREFORE, premises considered, the instant Petition for Review is PARTIALLY GRANTED. Accordingly, respondent is hereby ORDERED TO ISSUE A TAX CREDIT CERTIFICATE in the amount of P210,337,544.67 in favor of petitioner, representing petitioner's excess creditable withholding taxes for taxable year 2010.

WE CONCUR:

(with Dissenting' Opinion)

ROMAN G. DEL ROSARIO

Presiding Justice

Associate Justice

4 ER~P.UV

Associate Justice

PNB vs. CIR

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.

Presiding Justice

Chairperson, 1st Division ·•.

REPUBLIC OF THE PHILIPPINES

Court of Tax Appeals

QUEZON CITY

FIRST DIVISION

PHILIPPINE NATIONAL BANK, Petitioner, -versus-

COMMISSIONER OF INTERNAL

REVENUE, Respondent.

CT A CASE NO. 8636

Members:

Del Rosario, Chairperson, Uy, and Mindaro-Grulla, JJ.

o mulqated:

.

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DISSENTING OPINION

DEL ROSARIO, P.J.:

With due respect, I dissent in the ponencia in holding that petitioner's total refundable excess creditable withholding tax (CWT) amounts only to Php21 0,337,544.67 after deducting petitioner's income tax liability for the year 2010 in the amount of Php75,036, 131.92. I am of the humble opinion that petitioner is entitled to the issuance of a tax credit certificate in the amount of Php285,373,676.59, representing its duly substantiated excess and unutilized CWT for the year 2010 which is undiminished by its 2010 income tax liability.

It is settled that in order to be entitled to a refund or issuance of a tax credit certificate representing any excess or unutilized CWT, a claimant must prove that it has complied with the following essential requirements set forth under pertinent provisions of the National

Internal

Revenue

Code

(NIRC)

of 1997, as amended, its implementing revenue regulations, and existing jurisprudence, viz.:

(1) The claim is filed with the Commissioner of Internal Revenue (CIR) within the two-year period from the date of payment of the tax;c1

Dissenting Opinion

(2) It is shown on the return of the claimant that the income payment received was declared as part of its gross income; and,

(3) The fact of withholding is established by a copy of a statement duly issued by the payor to the payee (claimant) showing the amount paid and the amount of the tax withheld therefrom.

As stated in the ponencia, petitioner has complied with the foregoing requirements in so far as the excess CWT for the year 2010 - - the subject of the claim - - is concerned, albeit in the reduced amount of Php285,373,676.59. The ponencia, however, ruled that in view of petitioner's failure to substantiate its excess credits prior to 2010 with CWT certificates, a portion of petitioner's substantiated

CWT

for the year 2010 in the amount of Php285,373,676.59 should be applied against petitioner's 2010 income tax liability amounting to Php75,036, 131.92. Thus, petitioner is entitled only to the refundable excess CWT for the year 2010 in the amount of Php210,337,544.67.

In requiring petitioner to substantiate its prior year's excess credits with CWT certificates, the ponencia cites as basis Commissioner of Internal Revenue vs. Philippine National Bank1 where the Supreme Court stressed the importance of presenting the pertinent CWT certificates to substantiate a claim for refund. A plain reading of PNB case reveals that it did not, however, declare that the claimant's prior year's excess credits against which the income tax liability during the year of the claim may be applied must be substantiated with CWT certificates. Truth to tell, in the PNB case, the issue on the substantiation of prior year's excess credits was not raised at all. Thus, since said issue was not submitted for resolution, the pronouncement in said case as to the importance or absolute necessity of presenting CWT certificates in substantiating prior year's excess credits cannot be relied upon. To my mind, the presentation of CWT certificates is not indispensable in proving the existence of prior year's excess credits since aforesaid credits are not the actual subject of the claim for refund. In the present case, I submit that the 2009 Annual Income Tax Return2 (ITR) and the Schedule of Creditable Withholding Taxe~ 1 G.R. No. 180290, September 29, 2014. 2 Exhibits P-11, P-12, P-13.

Dissenting Opinion

(CWT) for the years 2000 to 2009 and 2011 and 20133 specifically offered by petitioner to prove the existence of its prior year's excess credits against which its income tax liability for the year 2010 may be applied are sufficient.

Notably, respondent never refuted or questioned the truthfulness and existence of petitioner's prior year's excess credits. Since respondent ought to know the tax records of all taxpayers, respondent could have easily disproved petitioner's claim that it has prior year's excess credits in the amount of Php150, 175,021.58.4 Instead, respondent chose not to question or disprove the same. In fact, respondent failed to make any objection to petitioner's offer of 2009 Annual ITR. and the Schedule of Creditable Withholding Taxes (CWT) for the years 2000 to 2009 and 2011 to prove the existence of petitioner's prior year's excess credits despite the opportunity given him. Respondent's failure to object to the evidence offered by petitioner renders the same admissible, and this Court cannot, on its own, disregard such evidence. 5 It may not be amiss to state that while petitioner's 2009 Annual ITR was prepared under penalties of perjury, the figures indicated therein (which necessarily include the amount of its prior year's excess credits of Php150, 175,021.58) should be presumed true and correct in the absence of any evidence to the contrary. The pronouncement of the Supreme Court in Citibank N.A. vs. Court of Appea/s6 is most enlightening:

"A refund claimant is required to prove the inclusion of the income payments which were the basis of the withholding taxes and the fact of withholding. However, detailed proof of the truthfulness of each and every item in the income tax return is not required. That function is lodged in the Commissioner of

Internal

Revenue

by the

NIRC

which requires the Commissioner to assess internal revenue taxes within three years after the last day prescribed by law for the filing of the return. In San Carlos Milling Co., Inc. vs. Commissioner of Internal Revenue, the Court held that the internal revenue branch of government must investigate and confirm the claims for tax refund or credit before taxpayers may avail themselves of this option. The grant of a refund is founded on the assumption that the tax return is valid; that is, the facts stated therein are true and correct.

In fact, even without petitioner's tax claim, the Commissioner can proceed to examine the books, records of the petitioner-bank, or any data which may be relevant or material in(){) 3 Exhibits P-30.1 to P-30.499.

4 Commissioner of Internal Revenue vs. lroncon Builders and Development Corporation, G.R. No. 180042, February 8, 2010.

5 Asian Construction and Development Corporation vs. COMFAC Corporation, G.R. No. 163915, October 12, 2006 6 G.R. No. 107434, October 10, 1997.

Dissenting Opinion

accordance with Section 16 of the present NIRC." (Emphasis supplied) Since petitioner's prior year's excess credits are duly reported in its 2010 Annual ITR and further supported by figures indicated in its 2009 Annual ITR, as corroborated by the Schedule of Creditable Withholding Taxes (CWT) for the years 2000 to 2009 and 2011 and 2013, the said prior year's excess credits in the amount of Php150, 175,021.58 may be utilized and applied against petitioner's 2010 income tax liability in the amount of Php75,036, 131.92. Finally, Section 235 of the NIRC of 1997, as amended, requires the preservation of the books of account and records of taxpayers only "for a period beginning from the last entry in each book until the last day prescribed by Section 203." Section 203 of the NIRC of 1997, as amended, provides that internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return, and no proceeding in Court without an assessment for the collection of such taxes shall begin after the expiration of such period. To require a taxpayer to produce all CWT certificates in support of its prior year's excess credit (which may include all CWT certificates from the start of its commercial operations) will be excessively burdensome, unreasonable and violative of Section 235 in relation to Section 203 of the NIRC of 1997, as amended. All told, I VOTE to PARTIALLY GRANT the Petition for Review. Respondent must be ordered to issue a tax credit certificate in the amount of Php285,373,676.59 in favor of petitioner, representing petitioner's excess and unutilized CWT for the taxable year 2010.

Presiding Justice