G.R. No. 118794 May 8, 1996
REGALADO, J.
Lessons Applicable: deductibility of bad debts, penalties of 25% surcharge, interest of 20, civil penalties are compensatory (not penal), civil penalties and interest are automatic
Laws Applicable:
FACTS:
- Petitioner Philippine Refining Company (PRC) was assessed by respondent Commissioner of Internal Revenue (Commissioner) to pay a deficiency tax for the year 1985 in the amount of P1,892,584
- PRC protested that the amounts are bad debts and interest expense which are allowable and legl deductions. But, CIR ignored it and issued a warrant of garnishment against PRC's deposits at City Trust Bank.
- PRC filed a Petition for Review with the CTA who reversed the interest expense disallowance but maintained the 13 bad debts disallowance.
- PRC elevated the case to CA who dismissed the case for failing to satisfy the requirements of worthlessness of a debt:
- (1) there is a valid and subsisting debt
- (2) debt must be actually ascertained to be worthless and uncollectible during the taxable year
- (3) debt must be charged off during the taxable year
- (4) debt must arise from the business or trade of the taxpayer
- (5) uncollectible even in the future
- (6) exerted diligent effort to collect
1. W/N bad debts requirements are met to be deductible as assessed by the CA
2. W/N PRC should be liable for penalties and interests
HELD: petition at bar is DENIED
1. NO.
- Furthermore, there are steps outlined to be undertaken by the taxpayer to prove that he exerted diligent efforts to collect the debts, viz: (1) sending of statement of accounts; (2) sending of collection letters; (3) giving the account to a lawyer for collection; and (4) filing a collection case in court.
- The only evidentiary support given by PRC for its aforesaid claimed deductions was the explanation or justification posited by its financial adviser or accountant. Not a single document was offered to show that the Remoblas Store and CM Variety Store were burned, even just a police report or an affidavit attesting to such loss by fire. The account of Tomas Store in the amount of P16,842.79 is uncollectible, claims petitioner PRC, since the owner thereof was murdered and left no visible assets which could satisfy the debt. Withal, just like the accounts of the two other stores just mentioned, petitioner again failed to present proof of the efforts exerted to collect the debt, other than the aforestated asseverations of its financial adviser. The accounts of Aboitiz Shipping Corporation and J. Ruiz Trucking in the amounts of P89,483.40 and P69,640.34, respectively, both of which allegedly arose from the hijacking of their cargo and for which they were given 30% rebates by PRC, are claimed to be uncollectible. Again, petitioner failed to present an iota of proof, not even a copy of the supposed policy regulation of PRC that it gives rebates to clients in case of loss arising from fortuitous events or force majeure, which rebates it now passes off as uncollectible debts.
- Findings of the CTA having recognized expertise will not ordinarily be reviewed absent a showing of gross error or abuse on its part.
- Sec. 248 and 249 of the tax code clearly provides that civil penalty is imposed in case of failure to pay the tax within the prescribed time for its payment and deficiency tax or any surcharge or interest on the due date appearing in the notice and demand of the commissioner. Thus, penalties of 25% surcharge and interest of 20% shall accrue from April 11, 1989.
- Tax laws imposing penalties for delinquencies, so we have long held, are intended to hasten tax payments by punishing evasions or neglect of duty in respect thereof. If penalties could be condoned for flimsy reasons, the law imposing penalties for delinquencies would be rendered nugatory, and the maintenance of the Government and its multifarious activities will be adversely affected.