CASE DIGEST: CIR v. Cebu Holdings, Inc.

 

G.R. No. 189792, June 20, 2018

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. CEBU HOLDINGS, INC., Respondent

 

FACTS:

Respondent is a registered real estate developer. On 15 April 2003, respondent filed with the BIR its ITR for the year ending 31 December 2002. Respondent indicated in its ITR that it is opting to be issued a tax credit certificate for the alleged overpayment of P18,992,055.00.

Subsequently, respondent filed an amended ITR for taxable year 2002. Respondent likewise indicated in its amended ITR that it is opting to be issued a tax credit certificate for the alleged overpayment of P18,992,055.00.

Respondent filed with the BIR a written claim for a tax credit certificate in the amount of P18,992,055.00. When petitioner failed to act upon respondent's claim, respondent filed a Petition for Review with the CTA First Division.

On 6 June 2006, the CTA First Division granted respondent's request for the appointment of an Independent Certified Public Accountant (CPA).

The CTA First Division agreed with the findings of the Independent CPA, except for the amount of P3,857.33 which the Independent CPA erroneously included as part of the Creditable Withholding Taxes (CWTs) filed out of period in the amount of P2,818,260.83. The CTA First Division found that the certificate supporting the creditable tax of P3,857.33 shows that the same was withheld in taxable year 2002. Thus, the CTA First Division held that only the amount of P2,814,403.50 pertains to "CWTs filed out of period," after deducting the amount of P3,857.33 from P2,818,260.83.

The CTA First Division further held that out of the total creditable tax withheld of P18,992,055.00, only the amount of P15,877,961.02 represents respondent's valid claim for taxable year 2002.

The CTA First Division also found a discrepancy in respondent's revenue from sales of real properties in the amount of P120,964,737.00 as indicated in its ITR, which is lower by P19,999.70 compared to the amount of P120,984,736.70 gross sales stated in its withholding tax remittance returns. For failure of respondent to account for the discrepancy in sales of real properties amounting to P19,999.70, the CTA First Division disallowed CWTs in the amount of P999.99.

The CTA First Division also disallowed the P124,500.00 CWTs pertaining to management fees amounting to P2,490,000.00 for failure of respondent to indicate such amount under "Sales of Services" in its ITR. Although respondent reported a "Miscellaneous" income of P4,205,134.00, it failed to submit documents to prove that the P2,490,000.00 management fees formed part of its Miscellaneous income of P4,205,134.00.

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.

On 26 March 2009, respondent filed an Urgent Motion to Withdraw the Petition for Review in C.T.A. Case No. 7218 on the ground that it shall no longer pursue its claim for a tax credit certificate. Instead, respondent is opting to carry forward the excess creditable income taxes to the succeeding taxable quarters of the succeeding taxable years until the same have been fully utilized.

The CTA First Division denied respondent's motion.

The CTA En Banc agreed with the finding of the CTA First Division that respondent is entitled only to P2,083,878.07 of tax credit certificate representing excess creditable taxes for taxable year 2002. The CTA En Banc further ruled that respondent's claim for refund filed with the BIR on 4 March 2005 and the Petition for Review filed on 15 April 2005 were within the reglementary period.

As regards the unsubstantiated P16,194,108.00 prior year's tax credit which was carried over by respondent for taxable year 2003, the CTA En Banc held that since the refund claim pertains only to the taxable year 2002, the alleged tax deficiency for taxable year 2003 cannot be offset against the excess creditable taxes covered by the refund claim.

Petitioner filed a Motion for Reconsideration which the CTA En Banc denied for lack of merit. Hence, this petition for review.

Petitioner asserts that respondent is not entitled to the P2,083,878.07 refund of excess creditable withholding tax for taxable year 2002. Furthermore, petitioner reiterates that respondent is liable for deficiency income tax for taxable year 2003 because respondent erroneously carried over the amount of P16,194,108.00 as prior year's excess credits, to which it is not entitled, to the succeeding taxable year 2003.

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.

RULING:

The requisites for claiming a refund of excess creditable withholding taxes are: (l) 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.

Respondent complied with all the requisites, albeit the CTA First Division found some discrepancies with the claimed refund and the amount to which respondent is entitled for refund.

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.

Thus, the CTA First Division correctly held that respondent is entitled to a refundable excess tax credits of P2,083,878.07 after deducting the substantiated prior year's excess credits (P288,076.04) and the substantiated CWT (P15,752,461.03) from the total tax due (P13,956,659.00).

However, as pointed out by petitioner, respondent erroneously carried over the amount of P16,194,108.00 as prior year's excess credits, to which it is not entitled, to the succeeding taxable year 2003 as shown in respondent's Annual ITR for the year 2003.14 The fact that respondent carried over the amount of P16,194,108.00 as prior year's excess credits to the succeeding taxable year 2003 was even mentioned in the Decision dated 10 November 2008 of the CTA First Division. It should be stressed that the amount of P16,194,108.00 is the remaining portion of the claimed prior year's excess credits in the amount of P30,150,767.00 after deducting the P13,956,659.00 tax due in respondent's amended ITR for taxable year 2002.

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.