IN a case involving a claim for tax refund, the taxpayer declared in its 1989 Income Tax Return that it would apply the excess withholding tax as a tax credit for the following year. However, the taxpayer did not in fact apply the excess withholding tax as tax credit. Hence, it applied for a refund.
Both the Court of Tax Appeals and Court of Appeals denied the taxpayer’s claim. The reason is that since the taxpayer declared in its return that is would apply the excess withholding tax as credit, it was presumed to have done so. Because of its failure to present the 1990 return which would have shown that it did not apply the claimed amount as tax credit, taxpayer was not able to overcome the presumption.
However, the Supreme Court ruled that the taxpayer is entitled to a refund. The Court held that petitioner presented evidence to prove its claim that it did not apply the claimed amount as tax credit.
For its part, the Bureau of Internal Revenue (BIR) presented no evidence at all. The Court stressed that the BIR could have easily disproved petitioner’s claim because it ought to know the records of all taxpayers. (G.R. No. 122480)
In a more recent case also involving a claim for tax refund, the Court ruled that since the claimant sufficiently established its entitlement for refund with the BIR offering no contradictory evidence or objections to claimant’s allegations despite an opportunity to do so, claimant is rightfully entitled to refund. The High Court reiterated the principle that the BIR could have easily disproved claimant’s assertion because it ought to know the records of all taxpayers. That the BIR chose not to disprove claimant’s allegations amounts to a waiver of that right. (G.R. No. 180042)
This very same principle was applied lately by the Court of Tax Appeals in CTA EB Case No. 1054. To justify its assessment, the BIR blamed the taxpayer for its failure to submit the required invoices/official receipts and schedule of purchases. The BIR claimed that because of this non-submission, the discrepancies noted in the Letter Notice were not reconciled. The Court En Banc pronounced that the BIR cannot feign ignorance of respondent’s records because it ought to know the records of all taxpayers. To the mind of the Court En Banc, the principle that the CIR ought to know the records of all taxpayers emanates from the fact that the CIR has been vested ample powers to know the records of taxpayers and assess the correct amount of taxes.
For one, pursuant to Section 5 (a) and (b) of the National Internal Revenue Code of 1997, the CIR has the power to obtain information. The CIR is authorized to examine any book, paper, record, or other data which may be relevant in determining the tax liability of any person. She is even allowed to obtain data from any person other than the person whose internal revenue tax liability is subject to audit or investigation. To further strengthen this power to obtain information, the CIR is also empowered to summon the person under audit or investigation, or any officer or employee of such person, or any person having possession, custody, or care of accounting records relating to the business of the person under audit or investigation to appear before the CIR and/or to produce such records. Moreover, the CIR is authorized to take testimonies under oath. To make this summoning power more effective, the NIRC penalizes one’s failure to obey the summons. Under Section 266 of the Code, failure to obey summons shall, upon conviction, is punishable by a fine of not less than P5,000 but not more than P10,000 and imprisonment of not less than one year but not more than two years.
Though there are still limits to this power to obtain information, such as inquiring into bank accounts which is allowed only in specific instances as provided under the NIRC, with these broad powers conferred upon the CIR, the CIR or its duly authorized representatives could easily obtain practically all the information it needs. Thus, as said by the Supreme Court, the CIR ought to know the records of all taxpayers.
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Atty. Ayesha Hania Guiling-Matanog is a junior associate of Du-Baladad and Associates Law Offices (BDB Law), a member firm of World Tax Services (WTS) Alliance. The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. Atty. Guiling-Matanog can be reached via ayesha.matanog@bdblaw.com.ph.