tax ii (course oufefefetline)

COURSE OUTLINE

COURSE OUTLINE

Taxation II

Business and Transfer Tax

Academic Year 2015-2016Atty. Alonette S. Ragodo-Perez, CPA, MMM

GENERAL INFORMATION

Class Time /Location: Saturday 1:00 PM to 4:000PM

Contact:

Tel No.: 033 335 1759

E-mail: [email protected]

COURSE MATERIALS

The Text for this course is Other References:

1) Philippine TRANSFER and BUSINESS TAXES, A New Approach by Virgilio D. Reyes 2011 Edition;

2) The Law on Transfer and Business Taxation by De Leon and De Leon Jr., 2009 Edition;

3) Memory Aid in Taxation by San Beda College of Law Bar Operations;4) Cases and Relevant Topics will be assigned on a weekly basis.

OBJECTIVE, METHODOLOGY AND EVALUATION

Objective:

The aim of this class is to give the students a comprehensive knowledge of Philippine Transfer and Business Tax, specific, business, percentage, amusement, and miscellaneous taxes provided for in the National Internal Revenue Code, including general principles on Tariff and Customs Duties and to relate the same with the relevant issues decided by the Supreme Court.

Methodology:

Classes will use more of a lecture format. The students shall be the one to discuss the various topics in this course. Quizzes and graded recitation shall be given every meeting unless announced otherwise. Students should prepare by reading the assigned material.

Evaluation:

Evaluation is based on three (3) major exams, quizzes, topic presentation and graded recitation.

Prelim

25%

Midterm

25%

Finals

25%

Class Standing

25%

100%

Class Standing Component:

Quizzes---------------------- 50%

Graded Recitation ---------- 20%

Case/Topic Presentation---- 30%

COURSE OUTLINE

I. TRANSFER TAXESA. Estate Tax

Tax Formula for computation of Estate Tax

Types of Decedent

Properties to be included in the Gross estate

Valuation of properties to be included in the Gross Estate

Deductions from the Gross Estate

Computation of Tax Estate

Net Taxable Estate

Estate Tax Return, Tax Payment and Administrative Requirements

B. Donors Tax

Tax formula for Computation of Donors Tax

Types of Donors

Exempt donations

Deductions from Gross Gifts

Payment of donors tax, donors tax credit and administrative requirements

II.BUSINESS TAXESA. Value added Tax (VAT)

Who are subject to VAT?

VAT on sale of Goods or properties

VAT on sale of services

VAT on importation

B. Percentage TaxesIII. TAX REMEDIES

Remedies in General

Remedies of the government

Remedies of the taxpayer

IV. JURISDICTION OF THE COURT OF TAX APPEALS

Civil Aspect

Criminal Aspect

V. LOCAL TAXATION

Community Tax

Real Property Taxation

Taxpayers Remedies

VI. TARIFF AND CUSTOM CODE OF THE PHILIPPINES

Jurisdiction

Importation in General

Ordinary /Regular duties

Special Duties

Administrative Proceedings

Judicial Proceedings

Guidelines for the Topic Presentation

Topic shall be assigned to each student at the start of the semester. The student is expected to present a 30-minute power point presentation for the topic assigned. The presentation shall include an outline of the presentation, short introduction, discussion of the topic assigned, cite at least two (2) relevant cases and conclusion.Cases:

ESTATE TAX

DIZON VS. CIR

DONORS TAX

METRO PACIFIC CORPORATION VS. CIR

VAT

1. FORT BONIFACIO DEVT CORP. VS. CIR

G.R. No. 158885 and 170680, April 2, 2009

2. SAN ROQUE POWER CORP. VS. CIR

G.R. No. 180345, Nov. 25, 2009

3. KEPCO PHILIPPINES V. CIR

G.R. No. 179356, Dec. 14, 2009

4. MINDANAO II GEOTHERMAL PARTNERSHIP VS. CIR

5. CIR VS. SONY PHILIPPINES, INC.6. MEDICARD PHILIPPINES, INC. VS. CIR

7. LVM CONSTRUCTIO CORPORATION VS. SANCHEZ

8. ACCENTURE INC. VS. CIR

9. LUZON HYDRO CORPORATION VS. CIR

NIRC REMEDIES

1. CIR VS. PERF REALTY CORP.

G.R. No. 163345 July 4, 2008

2. CIR vs. MENGUITO

G.R. No.167560 September 07, 2008

3. CIR VS. ENRON SUBIC POWER CORPORATION

G.R. No. 166387, January 19, 2009

4. LUCAS ADAMSON, ET AL. VS. CA ET AL.

G.R. NO. 120935 and G.R. NO. 124557, May 21, 2009

5. SILKAIR (SINGAPORE) PTE. LTD. VS. CIR

G.R. NO. 171383 and 172379, Nov. 14, 2008

6. CIR vs. FIRST EXPRESS PAWNSHOP COMPANY INC.

G.R. Nos. 172045-46, June 16, 2009

7. CIR VS. GONZALEZ8. RIZAL COMMERCIAL BANKING CORPORATION VS. CIR

TARIFF AND CUSTOMS CODE

1. Chevron Phil. Inc. vs. Comm. Of the Bureau of Customs

G.R. No. 178759, August 11, 2008

2. Raul Basilio d. Boac et al. vs. Pp. of the Phil.

G.R. NO. 180597, Nov. 7, 2008

3. El Greco Ship Manning vs. COC

G.R. No. 177188, Dec. 04, 2008

4. COC vs. CTA, Las Islas Filipinas Food Corp. & PAT-PRO OVERSEAS Co. LTD.

G.R. No. 171516-17 Feb. 13, 2009

5. Pilipinas Shell Petroleum Corp vs. COC

G.R. No. 176380, June 18, 2009

6. Secretary of Finance vs. Oro Maura Shipping Lines

G.R. No. 156946, July 15, 2009

ESTATE TAX

[G.R. NO. 140944 : April 30, 2008]

RAFAEL ARSENIO S. DIZON, in his capacity as the Judicial Administrator of the Estate of the deceased JOSE P. FERNANDEZ, Petitioner, v. COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, Respondents.

D E C I S I O N

NACHURA, J.:

Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Civil Procedure seeking the reversal of the Court of Appeals (CA) Decision2 dated April 30, 1999 which affirmed the Decision3 of the Court of Tax Appeals (CTA) dated June 17, 1997.4

The Facts

On November 7, 1987, Jose P. Fernandez (Jose) died. Thereafter, a petition for the probate of his will5 was filed with Branch 51 of the Regional Trial Court (RTC) of Manila (probate court).6 The probate court then appointed retired Supreme Court Justice Arsenio P. Dizon (Justice Dizon) and petitioner, Atty. Rafael Arsenio P. Dizon (petitioner) as Special and Assistant Special Administrator, respectively, of the Estate of Jose (Estate). In a letter7 dated October 13, 1988, Justice Dizon informed respondent Commissioner of the Bureau of Internal Revenue (BIR) of the special proceedings for the Estate.

Petitioner alleged that several requests for extension of the period to file the required estate tax return were granted by the BIR since the assets of the estate, as well as the claims against it, had yet to be collated, determined and identified. Thus, in a letter8 dated March 14, 1990, Justice Dizon authorized Atty. Jesus M. Gonzales (Atty. Gonzales) to sign and file on behalf of the Estate the required estate tax return and to represent the same in securing a Certificate of Tax Clearance. Eventually, on April 17, 1990, Atty. Gonzales wrote a letter9 addressed to the BIR Regional Director for San Pablo City and filed the estate tax return10 with the same BIR Regional Office, showing therein a NIL estate tax liability, computed as follows:

COMPUTATION OF TAX

Conjugal Real Property (Sch. 1)

P10,855,020.00

Conjugal Personal Property (Sch.2)

3,460,591.34

Taxable Transfer (Sch. 3)

Gross Conjugal Estate

14,315,611.34

Less: Deductions (Sch. 4)

187,822,576.06

Net Conjugal Estate

NIL

Less: Share of Surviving Spouse

NIL.

Net Share in Conjugal Estate

NIL

x x x

Net Taxable Estate

NIL.

Estate Tax Due

NIL.11

On April 27, 1990, BIR Regional Director for San Pablo City, Osmundo G. Umali issued Certification Nos. 205212 and 205313 stating that the taxes due on the transfer of real and personal properties14 of Jose had been fully paid and said properties may be transferred to his heirs. Sometime in August 1990, Justice Dizon passed away. Thus, on October 22, 1990, the probate court appointed petitioner as the administrator of the Estate.15

Petitioner requested the probate court's authority to sell several properties forming part of the Estate, for the purpose of paying its creditors, namely: Equitable Banking Corporation (P19,756,428.31), Banque de L'Indochine et. de Suez (US$4,828,905.90 as of January 31, 1988), Manila Banking Corporation (P84,199,160.46 as of February 28, 1989) and State Investment House, Inc. (P6,280,006.21). Petitioner manifested that Manila Bank, a major creditor of the Estate was not included, as it did not file a claim with the probate court since it had security over several real estate properties forming part of the Estate.16

However, on November 26, 1991, the Assistant Commissioner for Collection of the BIR, Themistocles Montalban, issued Estate Tax Assessment Notice No. FAS-E-87-91-003269,17 demanding the payment of P66,973,985.40 as deficiency estate tax, itemized as follows:

Deficiency Estate Tax - 1987

Estate tax

P31,868,414.48

25% surcharge - late filing

7,967,103.62

late payment

7,967,103.62

Interest

19,121,048.68

Compromise-non filing

25,000.00

non payment

25,000.00

no notice of death

15.00

no CPA Certificate

300.00

Total amount due & collectible

P66,973,985.4018

In his letter19 dated December 12, 1991, Atty. Gonzales moved for the reconsideration of the said estate tax assessment. However, in her letter20 dated April 12, 1994, the BIR Commissioner denied the request and reiterated that the estate is liable for the payment of P66,973,985.40 as deficiency estate tax. On May 3, 1994, petitioner received the letter of denial. On June 2, 1994, petitioner filed a Petition for Review 21 before respondent CTA. Trial on the merits ensued.

As found by the CTA, the respective parties presented the following pieces of evidence, to wit:

In the hearings conducted, petitioner did not present testimonial evidence but merely documentary evidence consisting of the following:

Nature of Document (sic)

Exhibits

1.

Letter dated October 13, 1988 from Arsenio P. Dizon addressed to the Commissioner of Internal Revenue informing the latter of the special proceedings for the settlement of the estate (p. 126, BIR records);

"A"

2.

Petition for the probate of the will and issuance of letter of administration filed with the Regional Trial Court (RTC) of Manila, docketed as Sp. Proc. No. 87-42980 (pp. 107-108, BIR records);

"B" & "B-1"

3.

Pleading entitled "Compliance" filed with the probate Court submitting the final inventory of all the properties of the deceased (p. 106, BIR records);

"C"

4.

Attachment to Exh. "C" which is the detailed and complete listing of the properties of the deceased (pp. 89-105, BIR rec.);

"C-1" to "C-17"

5.

Claims against the estate filed by Equitable Banking Corp. with the probate Court in the amount of P19,756,428.31 as of March 31, 1988, together with the Annexes to the claim (pp. 64-88, BIR records);

"D" to "D-24"

6.

Claim filed by Banque de L' Indochine et de Suez with the probate Court in the amount of US $4,828,905.90 as of January 31, 1988 (pp. 262-265, BIR records);

"E" to "E-3"

7.

Claim of the Manila Banking Corporation (MBC) which as of November 7, 1987 amounts to P65,158,023.54, but recomputed as of February 28, 1989 at a total amount of P84,199,160.46; together with the demand letter from MBC's lawyer (pp. 194-197, BIR records);

"F" to "F-3"

8.

Demand letter of Manila Banking Corporation prepared by Asedillo, Ramos and Associates Law Offices addressed to Fernandez Hermanos, Inc., represented by Jose P. Fernandez, as mortgagors, in the total amount of P240,479,693.17 as of February 28, 1989 (pp. 186-187, BIR records);

"G" & "G-1"

9.

Claim of State Investment House, Inc. filed with the RTC, Branch VII of Manila, docketed as Civil Case No. 86-38599 entitled "State Investment House, Inc., Plaintiff, v. Maritime Company Overseas, Inc. and/or Jose P. Fernandez, Defendants," (pp. 200-215, BIR records);

"H" to "H-16"

10.

Letter dated March 14, 1990 of Arsenio P. Dizon addressed to Atty. Jesus M. Gonzales, (p. 184, BIR records);

"I"

11.

Letter dated April 17, 1990 from J.M. Gonzales addressed to the Regional Director of BIR in San Pablo City (p. 183, BIR records);

"J"

12.

Estate Tax Return filed by the estate of the late Jose P. Fernandez through its authorized representative, Atty. Jesus M. Gonzales, for Arsenio P. Dizon, with attachments (pp. 177-182, BIR records);

"K" to "K-5"

13.

Certified true copy of the Letter of Administration issued by RTC Manila, Branch 51, in Sp. Proc. No. 87-42980 appointing Atty. Rafael S. Dizon as Judicial Administrator of the estate of Jose P. Fernandez; (p. 102, CTA records) and

"L"

14.

Certification of Payment of estate taxes Nos. 2052 and 2053, both dated April 27, 1990, issued by the Office of the Regional Director, Revenue Region No. 4-C, San Pablo City, with attachments (pp. 103-104, CTA records.).

"M" to "M-5"

Respondent's [BIR] counsel presented on June 26, 1995 one witness in the person of Alberto Enriquez, who was one of the revenue examiners who conducted the investigation on the estate tax case of the late Jose P. Fernandez. In the course of the direct examination of the witness, he identified the following:

Documents/Signatures

BIR Record

1.

Estate Tax Return prepared by the BIR;

p. 138

2.

Signatures of Ma. Anabella Abuloc and Alberto Enriquez, Jr. appearing at the lower Portion of Exh. "1";

-do -

3.

Memorandum for the Commissioner, dated July 19, 1991, prepared by revenue examiners, Ma. Anabella A. Abuloc, Alberto S. Enriquez and Raymund S. Gallardo; Reviewed by Maximino V. Tagle

pp. 143-144

4.

Signature of Alberto S. Enriquez appearing at the lower portion on p. 2 of Exh. "2";

-do -

5.

Signature of Ma. Anabella A. Abuloc appearing at the lower portion on p. 2 of Exh. "2";

-do -

6.

Signature of Raymund S. Gallardo appearing at the Lower portion on p. 2 of Exh. "2";

-do -

7.

Signature of Maximino V. Tagle also appearing on p. 2 of Exh. "2";

-do -

8.

Summary of revenue Enforcement Officers Audit Report, dated July 19, 1991;

p. 139

9.

Signature of Alberto Enriquez at the lower portion of Exh. "3";

-do -

10.

Signature of Ma. Anabella A. Abuloc at the lower portion of Exh. "3";

-do -

11.

Signature of Raymond S. Gallardo at the lower portion of Exh. "3";

-do -

12.

Signature of Maximino V. Tagle at the lower portion of Exh. "3";

-do -

13.

Demand letter (FAS-E-87-91-00), signed by the Asst. Commissioner for Collection for the Commissioner of Internal Revenue, demanding payment of the amount of P66,973,985.40; and

p. 169

14.

Assessment Notice FAS-E-87-91-00

pp. 169-17022

The CTA's Ruling

On June 17, 1997, the CTA denied the said Petition for Review . Citing this Court's ruling in Vda. de Oate v. Court of Appeals,23 the CTA opined that the aforementioned pieces of evidence introduced by the BIR were admissible in evidence. The CTA ratiocinated:

Although the above-mentioned documents were not formally offered as evidence for respondent, considering that respondent has been declared to have waived the presentation thereof during the hearing on March 20, 1996, still they could be considered as evidence for respondent since they were properly identified during the presentation of respondent's witness, whose testimony was duly recorded as part of the records of this case. Besides, the documents marked as respondent's exhibits formed part of the BIR records of the case.24

Nevertheless, the CTA did not fully adopt the assessment made by the BIR and it came up with its own computation of the deficiency estate tax, to wit:

Conjugal Real Property

P 5,062,016.00

Conjugal Personal Prop.

33,021,999.93

Gross Conjugal Estate

38,084,015.93

Less: Deductions

26,250,000.00

Net Conjugal Estate

P 11,834,015.93

Less: Share of Surviving Spouse

5,917,007.96

Net Share in Conjugal Estate

P 5,917,007.96

Add: Capital/Paraphernal

Properties - P44,652,813.66

Less: Capital/Paraphernal Deductions

44,652,813.66

Net Taxable Estate

P 50,569,821.62

============

Estate Tax Due P 29,935,342.97

Add: 25% Surcharge for Late Filing

7,483,835.74

Add: Penalties for-No notice of death

15.00

No CPA certificate

300.00

Total deficiency estate tax

P 37,419,493.71

============

exclusive of 20% interest from due date of its payment until full payment thereof

[Sec. 283 (b), Tax Code of 1987].25

Thus, the CTA disposed of the case in this wise:

WHEREFORE, viewed from all the foregoing, the Court finds the petition unmeritorious and denies the same. Petitioner and/or the heirs of Jose P. Fernandez are hereby ordered to pay to respondent the amount of P37,419,493.71 plus 20% interest from the due date of its payment until full payment thereof as estate tax liability of the estate of Jose P. Fernandez who died on November 7, 1987.

SO ORDERED.26

Aggrieved, petitioner, on March 2, 1998, went to the CA via a Petition for Review .27

The CA's Ruling

On April 30, 1999, the CA affirmed the CTA's ruling. Adopting in full the CTA's findings, the CA ruled that the petitioner's act of filing an estate tax return with the BIR and the issuance of BIR Certification Nos. 2052 and 2053 did not deprive the BIR Commissioner of her authority to re-examine or re-assess the said return filed on behalf of the Estate.28

On May 31, 1999, petitioner filed a Motion for Reconsideration29 which the CA denied in its Resolution30 dated November 3, 1999.

Hence, the instant Petition raising the following issues:

1. Whether or not the admission of evidence which were not formally offered by the respondent BIR by the Court of Tax Appeals which was subsequently upheld by the Court of Appeals is contrary to the Rules of Court and rulings of this Honorable Court;

2. Whether or not the Court of Tax Appeals and the Court of Appeals erred in recognizing/considering the estate tax return prepared and filed by respondent BIR knowing that the probate court appointed administrator of the estate of Jose P. Fernandez had previously filed one as in fact, BIR Certification Clearance Nos. 2052 and 2053 had been issued in the estate's favor;

3. Whether or not the Court of Tax Appeals and the Court of Appeals erred in disallowing the valid and enforceable claims of creditors against the estate, as lawful deductions despite clear and convincing evidence thereof; andcralawlibrary

4. Whether or not the Court of Tax Appeals and the Court of Appeals erred in validating erroneous double imputation of values on the very same estate properties in the estate tax return it prepared and filed which effectively bloated the estate's assets.31

The petitioner claims that in as much as the valid claims of creditors against the Estate are in excess of the gross estate, no estate tax was due; that the lack of a formal offer of evidence is fatal to BIR's cause; that the doctrine laid down in Vda. de Oate has already been abandoned in a long line of cases in which the Court held that evidence not formally offered is without any weight or value; that Section 34 of Rule 132 of the Rules on Evidence requiring a formal offer of evidence is mandatory in character; that, while BIR's witness Alberto Enriquez (Alberto) in his testimony before the CTA identified the pieces of evidence aforementioned such that the same were marked, BIR's failure to formally offer said pieces of evidence and depriving petitioner the opportunity to cross-examine Alberto, render the same inadmissible in evidence; that assuming arguendo that the ruling in Vda. de Oate is still applicable, BIR failed to comply with the doctrine's requisites because the documents herein remained simply part of the BIR records and were not duly incorporated in the court records; that the BIR failed to consider that although the actual payments made to the Estate creditors were lower than their respective claims, such were compromise agreements reached long after the Estate's liability had been settled by the filing of its estate tax return and the issuance of BIR Certification Nos. 2052 and 2053; and that the reckoning date of the claims against the Estate and the settlement of the estate tax due should be at the time the estate tax return was filed by the judicial administrator and the issuance of said BIR Certifications and not at the time the aforementioned Compromise Agreements were entered into with the Estate's creditors.32

On the other hand, respondent counters that the documents, being part of the records of the case and duly identified in a duly recorded testimony are considered evidence even if the same were not formally offered; that the filing of the estate tax return by the Estate and the issuance of BIR Certification Nos. 2052 and 2053 did not deprive the BIR of its authority to examine the return and assess the estate tax; and that the factual findings of the CTA as affirmed by the CA may no longer be reviewed by this Court via a Petition for Review .33

The Issues

There are two ultimate issues which require resolution in this case:

First. Whether or not the CTA and the CA gravely erred in allowing the admission of the pieces of evidence which were not formally offered by the BIR; andcralawlibrary

Second. Whether or not the CA erred in affirming the CTA in the latter's determination of the deficiency estate tax imposed against the Estate.

The Court's Ruling

The Petition is impressed with merit.

Under Section 8 of RA 1125, the CTA is categorically described as a court of record. As cases filed before it are litigated de novo, party-litigants shall prove every minute aspect of their cases. Indubitably, no evidentiary value can be given the pieces of evidence submitted by the BIR, as the rules on documentary evidence require that these documents must be formally offered before the CTA.34 Pertinentis Section 34, Rule 132 of the Revised Rules on Evidence which reads:

SEC. 34. Offer of evidence. - The court shall consider no evidence which has not been formally offered. The purpose for which the evidence is offered must be specified.

The CTA and the CA rely solely on the case of Vda. de Oate, which reiterated this Court's previous rulings in People v. Napat-a35 and People v. Mate36 on the admission and consideration of exhibits which were not formally offered during the trial. Although in a long line of cases many of which were decided after Vda. de Oate, we held that courts cannot consider evidence which has not been formally offered,37 nevertheless, petitioner cannot validly assume that the doctrine laid down in Vda. de Oate has already been abandoned. Recently, in Ramos v. Dizon,38 this Court, applying the said doctrine, ruled that the trial court judge therein committed no error when he admitted and considered the respondents' exhibits in the resolution of the case, notwithstanding the fact that the same were not formally offered. Likewise, in Far East Bank & Trust Company v. Commissioner of Internal Revenue,39 the Court made reference to said doctrine in resolving the issues therein. Indubitably, the doctrine laid down in Vda. De Oate still subsists in this jurisdiction. In Vda. de Oate, we held that:

From the foregoing provision, it is clear that for evidence to be considered, the same must be formally offered. Corollarily, the mere fact that a particular document is identified and marked as an exhibit does not mean that it has already been offered as part of the evidence of a party. In Interpacific Transit, Inc. v. Aviles [186 SCRA 385], we had the occasion to make a distinction between identification of documentary evidence and its formal offer as an exhibit. We said that the first is done in the course of the trial and is accompanied by the marking of the evidence as an exhibit while the second is done only when the party rests its case and not before. A party, therefore, may opt to formally offer his evidence if he believes that it will advance his cause or not to do so at all. In the event he chooses to do the latter, the trial court is not authorized by the Rules to consider the same.

However, in People v. Napat-a [179 SCRA 403] citing People v. Mate [103 SCRA 484], we relaxed the foregoing rule and allowed evidence not formally offered to be admitted and considered by the trial court provided the following requirements are present, viz.: first, the same must have been duly identified by testimony duly recorded and, second, the same must have been incorporated in the records of the case.40

From the foregoing declaration, however, it is clear that Vda. de Oate is merely an exception to the general rule. Being an exception, it may be applied only when there is strict compliance with the requisites mentioned therein; otherwise, the general rule in Section 34 of Rule 132 of the Rules of Court should prevail.

In this case, we find that these requirements have not been satisfied. The assailed pieces of evidence were presented and marked during the trial particularly when Alberto took the witness stand. Alberto identified these pieces of evidence in his direct testimony.41 He was also subjected to cross-examination and re-cross examination by petitioner.42 But Alberto's account and the exchanges between Alberto and petitioner did not sufficiently describe the contents of the said pieces of evidence presented by the BIR. In fact, petitioner sought that the lead examiner, one Ma. Anabella A. Abuloc, be summoned to testify, inasmuch as Alberto was incompetent to answer questions relative to the working papers.43 The lead examiner never testified. Moreover, while Alberto's testimony identifying the BIR's evidence was duly recorded, the BIR documents themselves were not incorporated in the records of the case.

A common fact threads through Vda. de Oate and Ramos that does not exist at all in the instant case. In the aforementioned cases, the exhibits were marked at the pre-trial proceedings to warrant the pronouncement that the same were duly incorporated in the records of the case. Thus, we held in Ramos:

In this case, we find and so rule that these requirements have been satisfied. The exhibits in question were presented and marked during the pre-trial of the case thus, they have been incorporated into the records. Further, Elpidio himself explained the contents of these exhibits when he was interrogated by respondents' counsel...

x x x

But what further defeats petitioner's cause on this issue is that respondents' exhibits were marked and admitted during the pre-trial stage as shown by the Pre-Trial Order quoted earlier.44

While the CTA is not governed strictly by technical rules of evidence,45 as rules of procedure are not ends in themselves and are primarily intended as tools in the administration of justice, the presentation of the BIR's evidence is not a mere procedural technicality which may be disregarded considering that it is the only means by which the CTA may ascertain and verify the truth of BIR's claims against the Estate.46 The BIR's failure to formally offer these pieces of evidence, despite CTA's directives, is fatal to its cause.47 Such failure is aggravated by the fact that not even a single reason was advanced by the BIR to justify such fatal omission. This, we take against the BIR.

Per the records of this case, the BIR was directed to present its evidence48 in the hearing of February 21, 1996, but BIR's counsel failed to appear.49 The CTA denied petitioner's motion to consider BIR's presentation of evidence as waived, with a warning to BIR that such presentation would be considered waived if BIR's evidence would not be presented at the next hearing. Again, in the hearing of March 20, 1996, BIR's counsel failed to appear.50 Thus, in its Resolution51 dated March 21, 1996, the CTA considered the BIR to have waived presentation of its evidence. In the same Resolution, the parties were directed to file their respective memorandum. Petitioner complied but BIR failed to do so.52 In all of these proceedings, BIR was duly notified. Hence, in this case, we are constrained to apply our ruling in Heirs of Pedro Pasag v. Parocha:53

A formal offer is necessary because judges are mandated to rest their findings of facts and their judgment only and strictly upon the evidence offered by the parties at the trial. Its function is to enable the trial judge to know the purpose or purposes for which the proponent is presenting the evidence. On the other hand, this allows opposing parties to examine the evidence and object to its admissibility. Moreover, it facilitates review as the appellate court will not be required to review documents not previously scrutinized by the trial court.

Strict adherence to the said rule is not a trivial matter. The Court in Constantino v. Court of Appeals ruled that the formal offer of one's evidence is deemed waived after failing to submit it within a considerable period of time. It explained that the court cannot admit an offer of evidence made after a lapse of three (3) months because to do so would "condone an inexcusable laxity if not non-compliance with a court order which, in effect, would encourage needless delays and derail the speedy administration of justice."

Applying the aforementioned principle in this case, we find that the trial court had reasonable ground to consider that petitioners had waived their right to make a formal offer of documentary or object evidence. Despite several extensions of time to make their formal offer, petitioners failed to comply with their commitment and allowed almost five months to lapse before finally submitting it. Petitioners' failure to comply with the rule on admissibility of evidence is anathema to the efficient, effective, and expeditious dispensation of justice.

Having disposed ofthe foregoing procedural issue, we proceed to discuss the merits of the case.

Ordinarily, the CTA's findings, as affirmed by the CA, are entitled to the highest respect and will not be disturbed on appeal unless it is shown that the lower courts committed gross error in the appreciation of facts.54 In this case, however, we find the decision of the CA affirming that of the CTA tainted with palpable error.

It is admitted that the claims of the Estate's aforementioned creditors have been condoned. As a mode of extinguishing an obligation,55 condonation or remission of debt56 is defined as:

an act of liberality, by virtue of which, without receiving any equivalent, the creditor renounces the enforcement of the obligation, which is extinguished in its entirety or in that part or aspect of the same to which the remission refers. It is an essential characteristic of remission that it be gratuitous, that there is no equivalent received for the benefit given; once such equivalent exists, the nature of the act changes. It may become dation in payment when the creditor receives a thing different from that stipulated; or novation, when the object or principal conditions of the obligation should be changed; or compromise, when the matter renounced is in litigation or dispute and in exchange of some concession which the creditor receives.57

Verily, the second issue in this case involves the construction of Section 7958 of the National Internal Revenue Code59 (Tax Code) which provides for the allowable deductions from the gross estate of the decedent. The specific question is whether the actual claims of the aforementioned creditors may be fully allowed as deductions from the gross estate of Jose despite the fact that the said claims were reduced or condoned through compromise agreements entered into by the Estate with its creditors.

"Claims against the estate," as allowable deductions from the gross estate under Section 79 of the Tax Code, are basically a reproduction of the deductions allowed under Section 89 (a) (1) (C) and (E) of Commonwealth Act No. 466 (CA 466), otherwise known as the National Internal Revenue Code of 1939, and which was the first codification of Philippine tax laws. Philippine tax laws were, in turn, based on the federal tax laws of the United States. Thus, pursuant to established rules of statutory construction, the decisions of American courts construing the federal tax code are entitled to great weight in the interpretation of our own tax laws.60

It is noteworthy that even in the United States, there is some dispute as to whether the deductible amount for a claim against the estate is fixed as of the decedent's death which is the general rule, or the same should be adjusted to reflect post-death developments, such as where a settlement between the parties results in the reduction of the amount actually paid.61 On one hand, the U.S. court ruled that the appropriate deduction is the "value" that the claim had at the date of the decedent's death.62 Also, as held in Propstra v. U.S., 63 where a lien claimed against the estate was certain and enforceable on the date of the decedent's death, the fact that the claimant subsequently settled for lesser amount did not preclude the estate from deducting the entire amount of the claim for estate tax purposes. These pronouncements essentially confirm the general principle that post-death developments are not material in determining the amount of the deduction.

On the other hand, the Internal Revenue Service (Service) opines that post-death settlement should be taken into consideration and the claim should be allowed as a deduction only to the extent of the amount actually paid.64 Recognizing the dispute, the Service released Proposed Regulations in 2007 mandating that the deduction would be limited to the actual amount paid.65

In announcing its agreement with Propstra,66 the U.S. 5th Circuit Court of Appeals held:

We are persuaded that the Ninth Circuit's decision...in Propstra correctly apply the Ithaca Trust date-of-death valuation principle to enforceable claims against the estate. As we interpret Ithaca Trust, when the Supreme Court announced the date-of-death valuation principle, it was making a judgment about the nature of the federal estate tax specifically, that it is a tax imposed on the act of transferring property by will or intestacy and, because the act on which the tax is levied occurs at a discrete time, i.e., the instance of death, the net value of the property transferred should be ascertained, as nearly as possible, as of that time. This analysis supports broad application of the date-of-death valuation rule.67

We express our agreement with the date-of-death valuation rule, made pursuant to the ruling of the U.S. Supreme Court in Ithaca Trust Co. v. United States.68 First. There is no law, nor do we discern any legislative intent in our tax laws, which disregards the date-of-death valuation principle and particularly provides that post-death developments must be considered in determining the net value of the estate. It bears emphasis that tax burdens are not to be imposed, nor presumed to be imposed, beyond what the statute expressly and clearly imports, tax statutes being construed strictissimi juris against the government.69 Any doubt on whether a person, article or activity is taxable is generally resolved against taxation.70 Second. Such construction finds relevance and consistency in our Rules on Special Proceedings wherein the term "claims" required to be presented against a decedent's estate is generally construed to mean debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime, or liability contracted by the deceased before his death.71 Therefore, the claims existing at the time of death are significant to, and should be made the basis of, the determination of allowable deductions.

WHEREFORE, the instant Petition is GRANTED. Accordingly, the assailed Decision dated April 30, 1999 and the Resolution dated November 3, 1999 of the Court of Appeals in CA-G.R. S.P. No. 46947 are REVERSED and SET ASIDE. The Bureau of Internal Revenue's deficiency estate tax assessment against the Estate of Jose P. Fernandez is hereby NULLIFIED. No costs.

SO ORDERED.

DONORS TAX

VAT

EN BANC

[G.R. NO. 158885 : October 2, 2009]

FORT BONIFACIO DEVELOPMENT CORPORATION Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, REGIONAL DIRECTOR, REVENUE REGION NO. 8, and CHIEF, ASSESSMENT DIVISION, REVENUE REGION NO. 8, BIR, Respondents.

[G.R. NO. 170680]

FORT BONIFACIO DEVELOPMENT CORPORATION Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, REVENUE DISTRICT OFFICER, REVENUE DISTRICT NO. 44, TAGUIG and PATEROS, BUREAU OF INTERNAL REVENUE. Respondents.

R E S O L U T I O N

LEONARDO-DE CASTRO, J.:

Before us is respondents' Motion for Reconsideration of our Decision dated April 2, 2009 which granted the consolidated petitions of petitioner Fort Bonifacio Development Corporation, the dispositive portion of which reads:

WHEREFORE, the petitions are GRANTED. The assailed decisions of the Court of Tax Appeals and the Court of Appeals are REVERSED and SET ASIDE. Respondents are hereby (1) restrained from collecting from petitioner the amount of P28,413,783.00 representing the transitional input tax credit due it for the fourth quarter of 1996; and (2) directed to refund to petitioner the amount of P347,741,695.74 paid as output VAT for the third quarter of 1997 in light of the persisting transitional input tax credit available to petitioner for the said quarter, or to issue a tax credit corresponding to such amount. No pronouncement as to costs.

The Motion for Reconsideration raises the following arguments:

I

SECTION 100 OF THE OLD NATIONAL INTERNAL REVENUE CODE (OLD NIRC), AS AMENDED BY REPUBLIC ACT (R.A.) NO. 7716, COULD NOT HAVE SUPPLIED THE DISTINCTION BETWEEN THE TREATMENT OF REAL PROPERTIES OR REAL ESTATE DEALERS ON THE ONE HAND, AND THE TREATMENT OF TRANSACTIONS INVOLVING OTHER COMMERCIAL GOODS ON THE OTHER HAND, AS SAID DISTINCTION IS FOUND IN SECTION 105 AND, SUBSEQUENTLY, REVENUE REGULATIONS NO. 7-95 WHICH DEFINES THE INPUT TAX CREDITABLE TO A REAL ESTATE DEALER WHO BECOMES SUBJECT TO VAT FOR THE FIRST TIME.

II

SECTION 4.105.1 AND PARAGRAPH (A) (III) OF THE TRANSITORY PROVISIONS OF REVENUE REGULATIONS NO. 7-95 VALIDLY LIMIT THE 8% TRANSITIONAL INPUT TAX TO THE IMPROVEMENTS ON REAL PROPERTIES.

III

REVENUE REGULATIONS NO. 6-97 DID NOT REPEAL REVENUE REGULATIONS NO. 7-95.

The instant motion for reconsideration lacks merit.

The first VAT law, found in Executive Order (EO) No. 273 [1987], took effect on January 1, 1988. It amended several provisions of the National Internal Revenue Code of 1986 (Old NIRC). EO 273 likewise accommodated the potential burdens of the shift to the VAT system by allowing newly VAT-registered persons to avail of a transitional input tax credit as provided for in Section 105 of the Old NIRC. Section 105 as amended by EO 273 reads:

Sec. 105. Transitional Input Tax Credits. - A person who becomes liable to value-added tax or any person who elects to be a VAT-registered person shall, subject to the filing of an inventory as prescribed by regulations, be allowed input tax on his beginning inventory of goods, materials and supplies equivalent to 8% of the value of such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher, which shall be creditable against the output tax.

RA 7716 took effect on January 1, 1996. It amended Section 100 of the Old NIRC by imposing for the first time value-added-tax on sale of real properties. The amendment reads:

Sec. 100. Value-added-tax on sale of goods or properties. - (a) Rate and base of tax. - There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to 10% of the gross selling price or gross value in money of the goods, or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor.

THIRD DIVISION

[G.R. NO. 180345 : November 25, 2009]

SAN ROQUE POWER CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

In this Petition for Review on Certiorari, under Rule 45 of the Revised Rules of Court, petitioner San Roque Power Corporation assails the Decision1 of the Court of Tax Appeals (CTA) En Banc dated 20 September 2007 in CTA EB No. 248, affirming the Decision2 dated 23 March 2006 of the CTA Second Division in CTA Case No. 6916, which dismissed the claim of petitioner for the refund and/or issuance of a tax credit certificate in the amount of Two Hundred Forty-Nine Million Three Hundred Ninety-Seven Thousand Six Hundred Twenty Pesos and 18/100 (P249,397,620.18) allegedly representing unutilized input Value Added Tax (VAT) for the period covering January to December 2002.

Respondent, as the Commissioner of the Bureau of Internal Revenue (BIR), is responsible for the assessment and collection of all national internal revenue taxes, fees, and charges, including the Value Added Tax (VAT), imposed by Section 1083 of the National Internal Revenue Code (NIRC) of 1997. Moreover, it is empowered to grant refunds or issue tax credit certificates in accordance with Section 112 of the NIRC of 1997 for unutilized input VAT paid on zero-rated or effectively zero-rated sales and purchases of capital goods, to wit:

SEC. 112. Refunds or Tax Credits of Input Tax. -

(A) Zero-rated or Effectively Zero-rated Sales'Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales.

(B) Capital Goods'A VAT-registered person may apply for the issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locally purchased, to the extent the such input taxes have not been applied against output taxes. The application may be made only within two (2) years after the close of the taxable quarter when the importation or purchase was made.

On the other hand, petitioner is a domestic corporation organized under the corporate laws of the Republic of the Philippines. On 14 October 1997, it was incorporated for the sole purpose of building and operating the San Roque Multipurpose Project in San Manuel, Pangasinan, which is an indivisible project consisting of the power station, the dam, spillway, and other related facilities.4 It is registered with the Board of Investments (BOI) on a preferred pioneer status to engage in the design, construction, erection, assembly, as well as own, commission, and operate electric power-generating plants and related activities, for which it was issued the Certificate of Registration No. 97-356 dated 11 February 1998.5 As a seller of services, petitioner is registered with the BIR as a VAT taxpayer under Certificate of Registration No. OCN-98-006-007394.6

On 11 October 1997, petitioner entered into a Power Purchase Agreement (PPA) with the National Power Corporation (NPC) to develop the hydro potential of the Lower Agno River, and to be able to generate additional power and energy for the Luzon Power Grid, by developing and operating the San Roque Multipurpose Project. The PPA provides that petitioner shall be responsible for the design, construction, installation, completion and testing and commissioning of the Power Station and it shall operate and maintain the same, subject to the instructions of the NPC. During the cooperation period of 25 years commencing from the completion date of the Power Station, the NPC shall purchase all the electricity generated by the Power Plant.7

Because of the exclusive nature of the PPA between petitioner and the NPC, petitioner applied for and was granted five Certificates of Zero Rate by the BIR, through the Chief Regulatory Operations Monitoring Division, now the Audit Information, Tax Exemption & Incentive Division. Based on these certificates, the zero-rated status of petitioner commenced on 27 September 1998 and continued throughout the year 2002.8

For the period January to December 2002, petitioner filed with the respondent its Monthly VAT Declarations and Quarterly VAT Returns. Its Quarterly VAT Returns showed excess input VAT payments on account of its importation and domestic purchases of goods and services, as follows9 :

Period Covered

Date Filed

Particulars

Amount

1st Quarter

(January 1, 2002 to

March 31, 2002)

April 20, 2002

Tax Due for the Quarter (Box 13C)

P 26,247.27

Input Tax carried over from previous qtr (22B)

296,124,429.21

Input VAT on Domestic Purchases for the Qtr

(22D)

95,003,348.91

Input VAT on Importation of Goods for the Qtr

(22F)

20,758,668.00

Total Available Input tax (23)

411,886,446.12

VAT Refund/TCC Claimed (24A)

173,909,435.66

Net Creditable Input Tax (25)

237,977,010.46

VAT payable (Excess Input Tax) (26)

(237,950,763.19)

Tax Payable (overpayment) (28)

(237,950,763.19)

2nd Quarter

(April 1, 2002 to

June 30, 2002)

July 24, 2002


P blank


237,950,763.19


(22D)

65,206,499.83


(22F)

18,485,758.00


321,643,021.02


237,950,763.19


83,692,257.83


(83,692,257.83)


(83,692,257.83)

3rd Quarter

(July 1, 2002 to

September 30, 2002)

October 25, 2002


P blank


199,428,027.47


(22D)

28,924,020.79


(22F)

1,465,875.00


229,817,923.26


Blank


229,817,923.26


(229,817,923.26)


(229,817,923.26)

4th Quarter

(October 1, 2002 to

December 31, 2002)

January 23, 2003


P 34,996.36


114,082,153.62


(22D)

18,166,330.54


(22F)

2,308,837.00


134,557,321.16


83,692,257.83


50,865,063.33


(50,830,066.97)


(50,830,066.97)

On 19 June 2002, 25 October 2002, 27 February 2003, and 29 May 2003, petitioner filed with the BIR four separate administrative claims for refund of Unutilized Input VAT paid for the period January to March 2002, April to June 2002, July to September 2002, and October to December 2002, respectively. In these letters addressed to the BIR, Carlos Echevarria (Echevarria), the Vice President and Director of Finance of petitioner, explained that petitioner's sale of power to NPC are subject to VAT at zero percent rate, in accordance with Section 108(B)(3) of the NIRC.10 Petitioner sought to recover the total amount of P250,258,094.25, representing its unutilized excess VAT on its importation of capital and other taxable goods and services for the year 2002, broken down as follows11 :

Qtr

Involved

Output Tax

Input Tax

Domestic Purchases

Importations

Excess Input Tax

(A)

(B)

(C)

(D) = (B) + (C) '(A)

1st

P 26,247.27

P95,003,348.91

P20,758,668.00

P115,735,769.84

2nd

-

65,206,499.83

18,485,758.00

83,692,257.83

3rd

-

28,924,020.79

1,465,875.00

30,389,895.79

4th

34,996.36

18,166,330.54

2,308,837.00

20,440,171.18

P61,243.63

P207,300,200.07

P43,019,138.00

P250,258,094.44

Petitioner amended its Quarterly VAT Returns, particularly the items on (1) Input VAT on Domestic Purchases during the first quarter of 2002; (2) Input VAT on Domestic Purchases for the fourth quarter of 2002; and (3) Input VAT on Importation of Goods for the fourth quarter of 2002. The amendments read as follows12 :

Period Covered

Date Filed

Particulars

Amount

1st Quarter

(January 1, 2002 to

March 31, 2002)

April 24, 2003


P 26,247.27


297,719,296.25


(22D)

95,126,981.69

(22F)

20,758,668.00


413,604,945.94


175,544,002.27


175,544,002.27


(238,060,943.67)


(238,034,696.40)

2nd Quarter

(April 1, 2002 to

June 30, 2002)

April 24, 2003


P blank


238,034,696.40


(22D)

65,206,499.83


(22F)

18,485,758.00


321,643,021.02


237,950,763.19


83,692,257.83


(83,692,257.83)


(83,692,257.83)

3rd Quarter

(July 1, 2002 to

September 30, 2002)

October 25, 2002


P blank


83,692,257.83


(22D)

28,924,020.79


(22F)

1,465,875.00


114,082,153.62


Blank


114,082,153.62


(114,082,153.62)


(114,082,153.62)

4th Quarter

(October 1, 2002 to

December 31, 2002)

January 23, 2003


P 34,996.36


114,082,153.62


(22D)

17,918,056.50


(22F)

1,573,004.00


133,573,214.12


83,692,257.83


49,880,956.29


(49,845,959.93)


(49,845,959.93)

On 30 May 2003 and 31 July 2003, petitioner filed two letters with the BIR to amend its claims for tax refund or credit for the first and fourth quarter of 2002, respectively. Petitioner sought to recover a total amount of P249,397,620.18 representing its unutilized excess VAT on its importation and domestic purchases of goods and services for the year 2002, broken down as follows13 :

Qtr

Involved

Date Filed

Output Tax

Input Tax

Domestic Purchases

Importations

Excess Input Tax

(A)

(B)

(C)

(D) = (B) + (C) '(A)

1st

30-May-03

P 26,247.27

P95,126,981.69

P20,758,668.00

P115,859,402.42

2nd

25-Oct-02

-

65,206,499.83

18,185,758.00

83,692,257.83

3rd

27-Feb-03

-

28,924,920.79

1,465,875,00

30,389,895.79

4th

31-Jul-03

34,996.36

17,918,056.50

1,573,004.00

19,456,064.14

P61,243.63

P207,175,558.81

P42,283,305.00

P249,397,620.18

Respondent failed to act on the request for tax refund or credit of petitioner, which prompted the latter to file on 5 April 2004, with the CTA in Division, a Petition for Review, docketed as CTA Case No. 6916 before it could be barred by the two-year prescriptive period within which to file its claim. Petitioner sought the refund of the amount of P249,397,620.18 representing its unutilized excess VAT on its importation and local purchases of various goods and services for the year 2002.14

During the proceedings before the CTA Second Division, petitioner presented the following documents, among other pieces of evidence: (1) Petitioner's Amended Quarterly VAT return for the 4th Quarter of 2002 marked as Exhibit "A," showing the amount of P42,500,000.00 paid by NTC to petitioner for all the electricity produced during test runs; (2) the special audit report, prepared by the CPA firm of Punongbayan and Araullo through a partner, Angel A. Aguilar (Aguilar), and the attached schedules, marked as Exhibits "J-2" to "J-21"; (3) Sales Invoices and Official Receipts and related documents issued to petitioner for the year 2002, marked as Exhibits "J-4-A1" to "J-4-L265"; (4) Audited Financial Statements of Petitioner for the year 2002, with comparative figures for 2001, marked as Exhibit "K"; and (5) the Affidavit of Echevarria dated 9 February 2005, marked as Exhibit "L".15

During the hearings, the parties jointly stipulated on the issues involved:

1. Whether or not petitioner's sales are subject to value-added taxes at effectively zero percent (0%) rate;

2. Whether or not petitioner incurred input taxes which are attributable to its effectively zero-rated transactions;

3. Whether or not petitioner's importation and purchases of capital goods and related services are within the scope and meaning of "capital goods" under Revenue Regulations No. 7-95;

4. Whether or not petitioner's input taxes are sufficiently substantiated with VAT invoices or official receipts;

5. Whether or not the VAT input taxes being claimed for refund/tax credit by petitioner (had) been credited or utilized against any output taxes or (had) been carried forward to the succeeding quarter or quarters; andcralawlibrary

6. Whether or not petitioner is entitled to a refund of VAT input taxes it paid from January 1, 2002 to December 31, 2002 in the total amount of Two Hundred Forty Nine Million Three Hundred Ninety Seven Thousand Six Hundred Twenty and 18/100 Pesos (P249,397,620.18).

Simply put, the issue is: whether or not petitioner is entitled to refund or tax credit in the amount of P249,397,620.18 representing its unutilized input VAT paid on importation and purchases of capital and other taxable goods and services from January 1 to December 31, 2002.

After a hearing on the merits, the CTA Second Division rendered a Decision16 dated 23 March 2006 denying petitioner's claim for tax refund or credit. The CTA noted that petitioner based its claim on creditable input VAT paid, which is attributable to (1) zero-rated or effectively zero-rated sale, as provided under Section 112(A) of the NIRC, and (2) purchases of capital goods, in accordance with Section 112(B) of the NIRC. The court ruled that in order for petitioner to be entitled to the refund or issuance of a tax credit certificate on the basis of Section 112(A) of the NIRC, it must establish that it had incurred zero-rated sales or effectively zero-rated sales for the taxable year 2002. Since records show that petitioner did not make any zero-rated or effectively-zero rated sales for the taxable year 2002, the CTA reasoned that petitioner's claim must be denied. Parenthetically, the court declared that the claim for tax refund or credit based on Section 112(B) of the NIRC requires petitioner to prove that it paid input VAT on capital goods purchased, based on the definition of capital goods provided under Section 4.112-1(b) of Revenue Regulations No. 7-95 i.e., goods or properties which have an estimated useful life of greater than one year, are treated as depreciable assets under Section 34(F) of the NIRC, and are used directly or indirectly in the production or sale of taxable goods and services. The CTA found that the evidence offered by petitioner the suppliers' invoices and official receipts and Import Entries and Internal Revenue Declarations and the audit report of the Court-commissioned Independent Certified Public Accountant (CPA) are insufficient to prove that the importations and domestic purchases were classified as capital goods and properties entered as part of the "Property, Plant and Equipment" account of the petitioner. The dispositive part of the said Decision reads:

WHEREFORE, the instant Petition for Review is DENIED for lack of merit.17

Not satisfied with the foregoing Decision dated 23 March 2006, petitioner filed a Motion for Reconsideration which was denied by the CTA Second Division in a Resolution dated 4 January 2007.18

Petitioner filed an appeal with the CTA En Banc, docketed as CTA EB No. 248. The CTA En Banc promulgated its Decision19 on 20 September 2007 denying petitioner's appeal. The CTA En Banc reiterated the ruling of the Division that petitioner's claim based on Section 112(A) of the NIRC should be denied since it did not present any records of any zero-rated or effectively zero-rated transactions. It clarified that since petitioner failed to prove that any sale of its electricity had transpired, petitioner may base its claim only on Section 112(B) of the NIRC, the provision governing the purchase of capital goods. The court noted that the report of the Court-commissioned auditing firm, Punongbayan & Araullo, dealt specifically with the unutilized input taxes paid or incurred by petitioner on its local and foreign purchases of goods and services attributable to its zero-rated sales, and not to purchases of capital goods. It decided that petitioner failed to prove that the purchases evidenced by the invoices and receipts, which petitioner presented, were classified as capital goods which formed part of its "Property, Plant and Equipment," especially since petitioner failed to present its books of account. The dispositive part of the said Decision reads:

WHEREFORE, premises considered, the instant petition is hereby DISMISSED. Accordingly, the assailed Decision and Resolution are hereby AFFIRMED.20

The CTA En Banc denied petitioner's Motion for Reconsideration in a Resolution dated 22 October 2007.21

Hence, the present Petition for Review where the petitioner raises the following errors allegedly committed by the CTA En banc:

I

THE COURT OF TAX APPEALS EN BANC COMMITTED SERIOUS ERROR AND ACTED WITH GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION IN FAILING OR REFUSING TO APPRECIATE THE OVERWHELMING AND UNCONTROVERTED EVIDENCE SUBMITTED BY THE PETITIONER, THUS DEPRIVING PETITIONER OF ITS PROPERTY WITHOUT DUE PROCESS; AND

II

THE COURT OF TAX APPEALS COMMITTED SERIOUS ERROR AND ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN RULING THAT THE ABSENCE OF ZERO-RATED SALES BY PETITIONER DURING THE YEAR COVERED BY THE CLAIM FOR REFUND DOES NOT ENTITLE PETITIONER TO A REFUND OF ITS EXCESS VAT INPUT TAXES ATTRIBUTABLE TO ZERO-RATED SALES, CONTRARY TO PROVISIONS OF LAW.22

The present Petition is meritorious.

The main issue in this case is whether or not petitioner may claim a tax refund or credit in the amount of P249,397,620.18 for creditable input tax attributable to zero-rated or effectively zero-rated sales pursuant to Section 112(A) of the NIRC or for input taxes paid on capital goods as provided under Section 112(B) of the NIRC.

To resolve the issue, this Court must re-examine the facts and the evidence offered by the parties. It is an accepted doctrine that this Court is not a trier of facts. It is not its function to review, examine and evaluate or weigh the probative value of the evidence presented. However, this rule does not apply where the judgment is premised on a misapprehension of facts, or when the appellate court failed to notice certain relevant facts which if considered would justify a different conclusion.23

After reviewing the records, this Court finds that petitioner's claim for refund or credit is justified under Section 112(A) of the NIRC which states that:

SEC. 112. Refunds or Tax Credits of Input Tax.'

(A) Zero-rated or Effectively Zero-rated Sales'Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales.

To claim refund or tax credit under Section 112(A), petitioner must comply with the following criteria: (1) the taxpayer is VAT registered; (2) the taxpayer is engaged in zero-rated or effectively zero-rated sales; (3) the input taxes are due or paid; (4) the input taxes are not transitional input taxes; (5) the input taxes have not been applied against output taxes during and in the succeeding quarters; (6) the input taxes claimed are attributable to zero-rated or effectively zero-rated sales; (7) for zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations; (8) where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume; and (9) the claim is filed within two years after the close of the taxable quarter when such sales were made.24

Based on the evidence presented, petitioner complied with the abovementioned requirements. Firstly, petitioner had adequately proved that it is a VAT registered taxpayer when it presented Certificate of Registration No. OCN-98-006-007394, which it attached to its Petition for Review dated 29 March 2004 filed before the CTA in Division. Secondly, it is unquestioned that petitioner is engaged in providing electricity for NPC, an activity which is subject to zero rate, under Section 108(B)(3) of the NIRC. Thirdly, petitioner offered as evidence suppliers' VAT invoices or official receipts, as well as Import Entries and Internal Revenue Declarations (Exhibits "J-4-A1" to "J-4-L265"), which were examined in the audit conducted by Aguilar, the Court-commissioned Independent CPA. Significantly, Aguilar noted in his audit report (Exhibit "J-2") that of the P249,397,620.18 claimed by petitioner, he identified items with incomplete documentation and errors in computation with a total amount of P3,266,009.78. Based on these findings, the remaining input VAT of P246,131,610.40 was properly documented and recorded in the books. The said report reads:

In performing the procedures referred under the Procedures Performed section of this report, no matters came to our attention that cause us to believe that the amount of input VAT applied for as tax credit certificate/refund of P249,397,620.18 for the period January 1, 2002 to December 31, 2002 should be adjusted except for input VAT claimed with incomplete documentation, those with various and other exceptions on the supporting documents and those with errors in computation totaling P3,266,009.78, as discussed in the Findings and Results of the Agreed-Upon Audit Procedures Performed sections of this report. We have also ascertained that the input VAT claimed are properly recorded in the books and, except as specifically identified in the Findings and Results of the Agreed-Upon Audit Procedures Performed sections of this report, are properly supported by original and appropriate suppliers' VAT invoices and/or official receipts.25

Fourthly, the input taxes claimed, which consisted of local purchases and importations made in 2002, are not transitional input taxes, which Section 111 of the NIRC defines as input taxes allowed on the beginning inventory of goods, materials and supplies.26 Fifthly, the audit report of Aguilar affirms that the input VAT being claimed for tax refund or credit is net of the input VAT that was already offset against output VAT amounting to P26,247.27 for the first quarter of 2002 and P34,996.36 for the fourth quarter of 2002,27 as reflected in the Quarterly VAT Returns.28

The main dispute in this case is whether or not petitioner's claim complied with the sixth requirement the existence of zero-rated or effectively zero-rated sales, to which creditable input taxes may be attributed. The CTA in Division and en banc denied petitioner's claim solely on this ground. The tax courts based this conclusion on the audited report, marked as Exhibit "J-2," stating that petitioner made no sale of electricity to NPC in 2002.29 Moreover, the affidavit of Echevarria (Exhibit "L"), petitioner's Vice President and Director for Finance, contained an admission that no commercial sale of electricity had been made in favor of NPC in 2002 since the project was still under construction at that time.30

However, upon closer examination of the records, it appears that on 2002, petitioner carried out a "sale" of electricity to NPC. The fourth quarter return for the year 2002, which petitioner filed, reported a zero-rated sale in the amount of P42,500,000.00.31 In the Affidavit of Echevarria dated 9 February 2005 (Exhibit "L"), which was uncontroverted by respondent, the affiant stated that although no commercial sale was made in 2002, petitioner produced and transferred electricity to NPC during the testing period in exchange for the amount of P42,500,000.00, to wit:32

A: San Roque Power Corporation has had no sale yet during 2002. The P42,500,000.00 which was paid to us by Napocor was something similar to a more cost recovery scheme. The pre-agreed amount would be about equal to our costs for producing the electricity during the testing period and we just reflected this in our 4th quarter return as a zero-rated sale. x x x.

The Court is not unmindful of the fact that the transaction described hereinabove was not a commercial sale. In granting the tax benefit to VAT-registered zero-rated or effectively zero-rated taxpayers, Section 112(A) of the NIRC does not limit the definition of "sale" to commercial transactions in the normal course of business. Conspicuously, Section 106(B) of the NIRC, which deals with the imposition of the VAT, does not limit the term "sale" to commercial sales, rather it extends the term to transactions that are "deemed" sale, which are thus enumerated:

SEC 106. Value-Added Tax on Sale of Goods or Properties.

x x x

(B) Transactions Deemed Sale. The following transactions shall be deemed sale:

(1) Transfer, use or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business;

(2) Distribution or transfer to:

(a) Shareholders or investors as share in the profits of the VAT-registered persons; or

(b) Creditors in payment of debt;

(3) Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were consigned; andcralawlibrary

(4) Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation. (Our emphasis.)

After carefully examining this provision, this Court finds it an equitable construction of the law that when the term "sale" is made to include certain transactions for the purpose of imposing a tax, these same transactions should be included in the term "sale" when considering the availability of an exemption or tax benefit from the same revenue measures. It is undisputed that during the fourth quarter of 2002, petitioner transferred to NPC all the electricity that was produced during the trial period. The fact that it was not transferred through a commercial sale or in the normal course of business does not deflect from the fact that such transaction is deemed as a sale under the law.

The seventh requirement regarding foreign currency exchange proceeds is inapplicable where petitioner's zero-rated sale of electricity to NPC did not involve foreign exchange and consisted only of a single transaction wherein NPC paid petitioner P42,500,000.00 in exchange for the electricity transferred to it by petitioner. Similarly, the eighth requirement is inapplicable to this case, where the only sale transaction consisted of an effectively zero-rated sale and there are no exempt or taxable sales that transpired, which will require the proportionate allocation of the creditable input tax paid.

The last requirement determines that the claim should be filed within two years after the close of the taxable quarter when such sales were made. The sale of electricity to NPC was reported at the fourth quarter of 2002, which closed on 31 December 2002. Petitioner had until 30 December 2004 to file its claim for refund or credit. For the period January to March 2002, petitioner filed an amended request for refund or tax credit on 30 May 2003; for the period July 2002 to September 2002, on 27 February 2003; and for the period October 2002 to December 2002, on 31 July 2003.33 In these three quarters, petitioners seasonably filed its requests for refund and tax credit. However, for the period April 2002 to May 2002, the claim was filed prematurely on 25 October 2002, before the last quarter had closed on 31 December 2002.34

Despite this lapse in procedure, this Court notes that petitioner was able to positively show that it was able to accumulate excess input taxes on various importations and local purchases in the amount of P246,131,610.40, which were attributable to a transfer of electricity in favor of NPC. The fact that it had filed its claim for refund or credit during the quarter when the transfer of electricity had taken place, instead of at the close of the said quarter does not make petitioner any less entitled to its claim. Given the special circumstances of this case, wherein petitioner was incorporated for the sole purpose of constructing or operating a power plant that will transfer all the electricity it generates to NPC, there is no danger that petitioner would try to fraudulently claim input tax paid on purchases that will be attributed to sale transactions that are not zero-rated. Substantial justice, equity and fair play are on the side of the petitioner. Technicalities and legalisms, however, exalted, should not be misused by the government to keep money not belonging to it, thereby enriching itself at the expense of its law abiding citizens.

Substantial justice, equity and fair play are on the side of petitioner. Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it, thereby enriching itself at the expense of its law-abiding citizens. Under the principle of solutio indebiti provided in Art. 2154, Civil Code, the BIR received something "when there [was] no right to demand it," and thus, it has the obligation to return it. Heavily militating against respondent Commissioner is the ancient principle that no one, not even the State, shall enrich oneself at the expense of another. Indeed, simple justice requires the speedy refund of the wrongly held taxes.35

It bears emphasis that effective zero-rating is not intended as a benefit to the person legally liable to pay the tax, such as petitioner, but to relieve certain exempt entities, such as the NPC, from the burden of indirect tax so as to encourage the development of particular industries. Before, as well as after, the adoption of the VAT, certain special laws were enacted for the benefit of various entities and international agreements were entered into by the Philippines with foreign governments and institutions exempting sale of goods or supply of services from indirect taxes at the level of their suppliers. Effective zero-rating was intended to relieve the exempt entity from being burdened with the indirect tax which is or which will be shifted to it had there been no exemption. In this case, petitioner is being exempted from paying VAT on its purchases to relieve NPC of the burden of additional costs that petitioner may shift to NPC by adding to the cost of the electricity sold to the latter.36

Section 13 of Republic Act No. 6395, otherwise known as the NPC Charter, further clarifies that it is the lawmakers' intention that NPC be made completely exempt from all taxes, both direct and indirect:

Sec. 13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees, Imposts and Other Charges by Government and Governmental Instrumentalities. - The corporation shall be non-profit and shall devote all its returns from its capital investment, as well as excess revenues from its operation, for expansion. To enable the corporation to pay its indebtedness and obligations and in furtherance and effective implementation of the policy enunciated in Section 1 of this Act, the corporation is hereby declared exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in any court or administrative proceedings in which it may be a party, restrictions and duties to the Republic of the Philippines, its provinces, cities, municipalities, and other government agencies and instrumentalities;

(b) From all income taxes, franchise taxes, and realty taxes to be paid to the National Government, its provinces, cities, municipalities and other government agencies and instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax and wharfage fees on import of foreign goods, required for its operations and projects; andcralawlibrary

(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of the Philippines, its provinces, cities, municipalities and other government agencies and instrumentalities, on all petroleum products used by the corporation in the generation, transmission, utilization, and sale of electric power.

To limit the exemption granted to the NPC to direct taxes, notwithstanding the general and broad language of the statute will be to thwart the legislative intention in giving exemption from all forms of taxes and impositions, without distinguishing between those that are direct and those that are not.37

Congress granted NPC a comprehensive tax exemption because of the significant public interest involved. This is enunciated in Section 1 of Republic Act No. 6395:

Section 1. Declaration of Policy. Congress hereby declares that (1) the comprehensive development, utilization and conservation of Philippine water resources for all beneficial uses, including power generation, and (2) the total electrification of the Philippines through the development of power from all sources to meet the needs of industrial development and dispersal and the needs of rural electrification are primary objectives of the nation which shall be pursued coordinately and supported by all instrumentalities and agencies of government, including its financial institutions.

The ability of the NPC to provide sufficient and affordable electricity throughout the country greatly affects our industrial and rural development. Erroneously and unjustly depriving industries that generate electrical power of tax benefits that the law clearly grants will have an immediate effect on consumers of electricity and long term effects on our economy.

In the same breath, we cannot lose sight of the fact that it is the declared policy of the State, expressed in Section 2 of Republic Act No. 9136, otherwise known as the EPIRA Law, "to ensure and accelerate the total electrification of the country;" "to enhance the inflow of private capital and broaden the ownership base of the power generation, transmission and distribution sectors;" and "to promote the utilization of indigenous and new and renewable energy resources in power generation in order to reduce dependence on imported energy." Further, Section 6 provides that "pursuant to the objective of lowering electricity rates to end-users, sales of generated power by generation companies shall be value-added tax zero-rated.

Section 75 of said law succinctly declares that "this Act shall, unless the context indicates otherwise, be construed in favor of the establishment, promotion, preservation of competition and power empowerment so that the widest participation of the people, whether directly or indirectly is ensured."

The objectives as set forth in the EPIRA Law can only be achieved if government were to allow petitioner and others similarly situated to obtain the input tax credits available under the law. Denying petitioner such credits would go against the declared policies of the EPIRA Law.rl

The legislative grant of tax relief (whether in the EPIRA Law or the Tax Code) constitutes a sovereign commitment of Government to taxpayers that the latter can avail themselves of certain tax reliefs and incentives in the course of their business activities here. Such a commitment is particularly vital to foreign investors who have been enticed to invest heavily in our country's infrastructure, and who have done so on the firm assurance that certain tax reliefs and incentives can be availed of in order to enable them to achieve their projected returns on these very long-term and heavily funded investments. While the government's ability to keep its commitment is put in doubt, credit rating turns to worse; the costs of borrowing becomes higher and the harder it will be to attract foreign investors. The country's earnest efforts to move forward will all be put to naught.

Having decided that petitioner is entitled to claim refund or tax credit under Section 112(A) of the NIRC or on the basis of effectively zero-rated sales in the amount of P246,131,610.40, there is no more need to establish its right to make the same claim under Section 112(B) of the NIRC or on the basis of purchase of capital goods.

Finally, respondent contends that according to well-established doctrine, a tax refund, which is in the nature of a tax exemption, should be construed strictissimi juris against the taxpayer.38 However, when the claim for refund has clear legal basis and is sufficiently supported by evidence, as in the present case, then the Court shall not hesitate to grant the same.39

WHEREFORE, the instant Petition for Review is GRANTED. The Decision of the Court of Tax Appeals En Banc dated 20 September 2007 in CTA EB Case No. 248, affirming the Decision dated 23 March 2006 of the CTA Second Division in CTA Case No. 6916, is REVERSED. Respondent Commissioner of Internal Revenue is ordered to refund, or in the alternative, to issue a tax credit certificate to petitioner San Roque Power Corporation in the amount of Two Hundred Forty-Six Million One Hundred Thirty-One Thousand Six Hundred Ten Pesos and 40/100 (P246,131,610.40), representing unutilized input VAT for the period 1 January 2002 to 31 December 2002. No costs.

SECOND DIVISION

[G.R. NO. 179356 : December 14, 2009]

KEPCO PHILIPPINES CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

D E C I S I O N

CARPIO MORALES, J.:

Korea Electric Power Corporation (KEPCO) Philippines Corporation (petitioner) is an independent power producer engaged in selling electricity to the National Power Corporation (NPC).

After its incorporation and registration with the Securities and Exchange Commission on June 15, 1995, petitioner forged a Rehabilitation Operation Maintenance and Management Agreement with NPC for the rehabilitation and operation of Malaya Power Plant Complex in Pililia, Rizal.1

On September 30, 1998, petitioner filed with the Commissioner of Internal Revenue (respondent) administrative claims for tax refund in the amounts of P4,895,858.01 representing unutilized input Value Added Tax (VAT) payments on domestic purchases of goods and services for the 3rd quarter of 1996 and P4,084,867.25 representing creditable VAT withheld from payments received from NPC for the months of April and June 1996.

Petitioner also filed a judicial claim before the Court of Tax Appeals (CTA), docketed as CTA Case No. 5765, also based on the above-stated amounts.

Petitioner filed before respondent on December 28, 1998 still another claim for refund representing unutilized input VAT payments attributable to its zero-rated sale transactions with NPC, including input VAT payments on domestic goods and services in the amount of P13,191,278.00 for the 4th quarter of 1996. Petitioner also filed the same claim before the CTA on December 29, 1998, docketed as CTA Case No. 5704.

The two petitions before the CTA for a refund in the total amount of P22,172,003.26 were consolidated.

In his report, the court-commissioned auditor, Ruben R. Rubio, concluded that the claimed amount of P20,550,953.93 was properly substantiated for VAT purposes and subject of a valid refund.

By Decision of March 18, 2003, the CTA granted petitioner partial refund with respect to unutilized input VAT payment on domestic goods and services qualifying as capital goods purchased for the 3rd and 4th quarters of 1996 in the amount of P8,325,350.35. All other claims were disallowed.

Petitioner filed an urgent motion for reconsideration, claiming an additional amount of P5,012,875.67.

By Resolution of July 8, 2003,2 the CTA denied petitioner's motion, it holding that part of the additional amount prayed for ? P1,557,676.13 ? involved purchases for the year 1997, and with respect to the remaining amount of P3,455,199.54, it was not recorded under depreciable asset accounts, hence, it cannot be considered as capital goods.

Petitioner appealed under Rule 43 of the Rules of Court before the Court of Appeals,3 praying only for the refund of P3,455,199.54, claiming that the purchases represented thereby were used in the rehabilitation of the Malaya Power Plant Complex which should be considered as capital expense to fall within the purview of capital goods.

The appellate court, by Decision of December 11, 2006, affirmed that of the CTA. In arriving at its decision, the appellate court considered, among other things, the account vouchers submitted by petitioner which listed the purchases under inventory accounts as follows:

1) Inventory supplies/materials

2) Inventory supplies/lubricants

3) Inventory supplies/spare parts

4) Inventory supplies/supplies

5) Cost/O&M Supplies

6) Cost/O&M Uniforms and Working Clothes

7) Cost/O&M/Supplies

8) Cost/O&M/Repairs and Maintenance

9) Office Supplies

10) Repair and Maintenance/Mechanics

11) Repair and Maintenance/Common/General

12) Repair and Maintenance/Chemicals

Reconsideration of the appellate court's decision having been denied by Resolution of August 17, 2007, the present Petition for Review on Certiorari was filed.

In the main, petitioner faults the appellate court for not considering the purchases amounting to P3,455,199.54 as falling under the definition of "capital goods."

The petition is bereft of merit.

Section 4.106-1 (b) of Revenue Regulations No. 7-95 defines capital goods and its scope in this wise:

x x x

(b) Capital Goods. - Only a VAT-registered person may apply for issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locally purchased. The refund shall be allowed to the extent that such input taxes have not been applied against output taxes. The application should be made within two (2) years after the close of the taxable quarter when the importation or purchase was made.

Refund of input taxes on capital goods shall be allowed only to the extent that such capital goods are used in VAT taxable business. If it is also used in exempt operations, the input tax refundable shall only be the ratable portion corresponding to taxable operations.

"Capital goods or properties" refer to goods or properties with estimated useful life greater that one year and which are treated as depreciable assets under Section 29 (f), 4 used directly or indirectly in the production or sale of taxable goods or services. (underscoring supplied)

For petitioner's purchases of domestic goods and services to be considered as "capital goods or properties," three requisites must concur. First, useful life of goods or properties must exceed one year; second, said goods or properties are treated as depreciable assets under Section 34 (f) and; third, goods or properties must be used directly or indirectly in the production or sale of taxable goods and services.

From petitioner's evidence, the account vouchers specifically indicate that the disallowed purchases were recorded under inventory accounts, instead of depreciable accounts. That petitioner failed to indicate under its fixed assets or depreciable assets account, goods and services allegedly purchased pursuant to the rehabilitation and maintenance of Malaya Power Plant Complex, militates against its claim for refund. As correctly found by the CTA, the goods or properties must be recorded and treated as depreciable assets under Section 34 (F) of the NIRC.

Petitioner further contends that since the disallowed items are treated as capital goods in the general ledger and accounting records, as testified on by its senior accountant, Karen Bulos, before the CTA, this should have been given more significance than the account vouchers which listed the items under inventory accounts.

A general ledger is a record of a business entity's accounts wh