CIR v. CEBU HOLDINGS GR No. 189792, Jun 20, 2018

FACTS:
Respondent filed with the BIR a written claim for a tax credit certificate in the amount of P18,992,055.00. Basis for the amount follows:

On 15 April 2003, respondent filed with the Bureau of Internal Revenue (BIR) its Income Tax Return (ITR) for the year ending 31 December 2002. Tax due is derived as follows:

Sales/Revenues/Receipts/Fees Less: Cost of Sales/Services Gross Income from Operation Add: Non-Operation and Other Income Total Gross Income Less: Deductions Taxable Income Tax Rate Income Tax MCIT Tax Due

395,529,877 213,551,009 181,978,868 9,170,916 191,149,784 147,535.224 43,614,560  32.00% 13,956,659 4,377,937  13,956,659

Claimed over-payment of tax is derived as follows, thus, the claim for the tax credit certificate for the said amount.

Prior Year’s Excess Credits	33,468,076.00
CTW for the First Three Quarters	12,130,450.00
CTW for Fourth Quarter	6,861,605.00
Total Tax Credits/Payments		52,460,131.00
Less: Tax Payable/(Overpayment)-prior year’s tax credit		19,511,417.00
Balance; Excess Credits			32,948,714.00
Tax due as above computed			13,956,659.00
Claimed  overpayment			18,992,055.00

Respondent filed an amended ITR for taxable year 2002, which states CIR failed to act upon respondent’s claim, respondent filed a Petition for Review with the CTA First Division on 15 April 2005.

On 6 June 2006, the CTA First Division granted respondent’s request for the appointment of an Independent Certified Public Accountant (CPA) under Rule 13 of the Revised Rules of the Court of Tax Appeals. The Court­ commissioned Independent CPA filed his Final
and Consolidated Report on 3 August 2006.

The report of the Independent CPA states “In summary, based on the procedures performed to verify the accuracy of the amount of overpaid income tax/excess Creditable Withholding Taxes (CWTs) as of the year ended December 31, 2002 amounting to PhP18,992,054.91 and the propriety of the documents supporting the claim for refund or tax credit of the Company on the present case at hand.

The Ruling of the CTA First Division; Adjustments of CTA

The CTA agreed with the findings of the Independent CPA except for the following:
1. Disallowed Creditable Withholding Taxes(CWT)  P3,114,093.89
2. Disallowed CWT (Revenue from sale of real properties )   P 999.99
3. Disallowed CWT (Revenue from sale of real properties ) P 124,500.00

Hence, [respondent] complied with the third requisite but only to the extent of P15,752,461.03, out of the total claimed creditable withholding taxes of P15,877,961.02 with valid proofs of withholding, to wit:.

Claimed creditable withholding taxes w/ valid proofs of withholding	P 15,877,961.02
Creditable taxes withheld pertaining to the discrepancy in sales of real properties per income tax return and per withholding tax remittance return	999.99
Creditable taxes withheld pertaining to the management fees of P2,490,000.00	124,500.00
Claimed creditable taxes withheld pertaining to [respondent’s] declared income in its 2002 income tax return	P 15,752,461.03
[P 15,877,961.02] [P 15,877,961.02] = P18,992,054.91 (Ind. CPA’s computation) less CTA’s adjustment (3,114,093.89)

THE CTA FIRST DIVISION FURTHER RULED THAT RESPONDENT FAILED TO SUBSTANTIATE THE P30,150,757.00 PRIOR YEAR’S EXCESS CREDITS, EXCEPT FOR THE AMOUNT OF P288,076.04. THE REFUNDABLE TAX CREDITS IS COMPUTED AS FOLLOWS:

Tax Due (32%)	P13,956,659.00
Less: Prior year’s excess credits	288,076.04
Tax Still Due	P13,668,582.96
Less: Substantiated Creditable Taxes Withheld	15,752,461.03
Refundable Excess Tax Credits	P 2,083,878.07

ISSUES:
1. WHETHER RESPONDENT IS ENTITLED TO A TAX CREDIT CERTIFICATE IN THE AMOUNT OF P2,083,878.07, REPRESENTING RESPONDENT’S EXCESS CREDITABLE TAXES FOR TAXABLE YEAR 2002; AND

2. WHETHER RESPONDENT IS LIABLE FOR DEFICIENCY INCOME TAX FOR TAXABLE YEAR 2003.

HELD:

The requisites for claiming a refund of excess creditable withholding taxes are:
(1) the claim for refund was filed within the two-year prescriptive period;

(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 of tax withheld therefrom; and

(3) the income upon which the taxes were withheld was included in the income tax return of the recipient as part of the gross income

EXPLANATION for complying the requisites:

First, respondent filed the claim for refund within the two-year prescriptive period. As found by the CTA First Division and CTA En Banc, respondent filed its claim for refund with the BIR on 4 March 2005 and the Petition for Review before the CTA on 15 April 2005, which both fell within the two-year prescriptive period counting from the date respondent filed its ITR on 15 April 2003.

Second, as proof of taxes withheld, respondent submitted the Certificate Authorizing Registration, Withholding Tax Remittance Returns, and Certificates of Creditable Tax Withheld at Source, upon which the Independent CPA based his report. Third, respondent submitted its amended 2002 ITR to show that the income upon which the taxes were withheld was included in its ITR. However, upon comparison with the Certificates of Creditable Tax Withheld at Source and Withholding Tax Remittance Returns, the CTA First Division and the CTA En Banc found certain discrepancies and held that out of the total claimed CWT of P15,877,961.02, respondent was only able to provide valid proofs of withholding for the amount of P15,752,461.03.

Third, respondent submitted its amended 2002 ITR to show that the income upon which the taxes were withheld was included in its ITR. However, upon comparison with the Certificates of Creditable Tax Withheld at Source and Withholding Tax Remittance Returns, the CTA First Division and the CTA En Banc found certain discrepancies and held that out of the total claimed CWT of P15,877,961.02, respondent was only able to provide valid proofs of withholding for the amount of P15,752,461.03.

effect fot the next taxabl year (2003)

Respondent’s filed ITR 2003:

Aggregate Income Tax Due Less:Tax Credits/Payments		P 25,567,685
Prior Year’s Excess Credits	16,194,108
Creditable Tax Withheld for the First Three Quarters	6,472,176
Creditable Tax Withheld Per BIR Form No. 2307 for the Fourth Quarter	10,555,327
Total Tax Credits/Payments		33,221,611
Total Tax Payable/(Overpayment)		(P 7,653,926)

Considering that respondent’s prior year’s excess credits have already been fully applied against its 2002 income tax liability, the P16,194,108.00 unsubstantiated tax credits in taxable year 2002 could no longer be carried over and applied against its income tax liability for taxable year 2003. Thus, the amount of P16,194,108.00 as prior year’s excess credits should be deleted, making respondent liable for income tax in the amount of P8,540,182.00 for taxable year 2003 as computed below:

Aggregate Income Tax Due Less: Tax Credits/Payments		P 25,567,685
Prior Year’s Excess Credits	0
Creditable Tax Withheld for the First Three Quarters	6,472,176
Creditable Tax Withheld Per BIR Form No. 2307 for the Fourth Quarter	10,555,327
Total Tax Credits/Payments		17,027,503
Total Tax Payable/(Overpayment)		P      8,540,18

Respondent’s argument: The alleged deficiency income tax for taxable year 2003 has no bearing on the case which merely involves a claim for a tax credit certificate for taxable year 2002.

Court’ contention:

We cannot subscribe to respondent’s reasoning. The ruling of the CTA First Division and the CTA En Banc clearly affects respondent’s income tax liability for taxable year 2003 precisely because respondent carried over the amount of P16,194,108.00 as prior year’s excess credits, to which it is not entitled. Respondent is once again trying to evade the adverse effect of the ruling of the CTA First Division that respondent (petitioner therein) failed to substantiate almost all of its claimed prior year’s excess credits, especially since respondent already carried over and applied the amount of P16,194,108.00 as prior year’s excess creditable tax against the income tax due for the succeeding taxable year 2003.

it is incumbent upon petitioner to issue a final assessment notice and demand letter for the payment of respondent’s deficiency tax liability for taxable year 2003. Section 228 of the National Internal Revenue Code provides that:

Section 228. Protesting Assessment. – When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayers of his findings: Provided, however, That a pre-assessment notice shall not be required, among others, in the following case:

(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or

In this case, no pre-assessment notice is required since respondent taxpayer carried over to taxable year 2003 the prior year’s excess credits which have already been fully applied against its income tax liability for taxable year 2002.

WHEREFORE, the petition is PARTIALLY GRANTED. We AFFIRM with MODIFICATION the 29 July 2009 Decision and the 9 October 2009 Resolution of the Court of Tax Appeals En Banc in C.T.A. EB No. 478. Petitioner Commissioner of Internal Revenue is ordered to: (a) issue a tax credit certificate to respondent Cebu Holdings, Inc. in the amount of P2,083,878.07, representing excess creditable taxes for taxable year 2002; and (b) issue a final assessment notice and demand letter for the payment of respondent’s deficiency tax liability in the amount of P8,540,182.00 for taxable year 2003.

Credit to: Eden Puntual Puspus