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Hon. Caesar R. Dulay Bureau of Internal Revenue: Commissioner

The document is a protest letter submitted by Michaelmar Phils. Inc. to the Bureau of Internal Revenue regarding a formal assessment notice for tax year 2012. The three main points are: 1. The formal assessment notice incorrectly concluded that a purchase amount declared by a supplier was undeclared income of Michaelmar. Documents show it was actually part of a real property acquisition. 2. Even if undeclared purchases were found, this does not automatically mean undeclared income since income is only taxed when realized. 3. Prescription has set in since more than 3 years have passed since the tax return was filed, extinguishing the right to further assessment and collection. Michaelmar requests reinvestigation and

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Patrice Noelle Ramirez
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9K views

Hon. Caesar R. Dulay Bureau of Internal Revenue: Commissioner

The document is a protest letter submitted by Michaelmar Phils. Inc. to the Bureau of Internal Revenue regarding a formal assessment notice for tax year 2012. The three main points are: 1. The formal assessment notice incorrectly concluded that a purchase amount declared by a supplier was undeclared income of Michaelmar. Documents show it was actually part of a real property acquisition. 2. Even if undeclared purchases were found, this does not automatically mean undeclared income since income is only taxed when realized. 3. Prescription has set in since more than 3 years have passed since the tax return was filed, extinguishing the right to further assessment and collection. Michaelmar requests reinvestigation and

Uploaded by

Patrice Noelle Ramirez
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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15 August 2017

HON. CAESAR R. DULAY


Commissioner
BUREAU OF INTERNAL REVENUE
BIR National Office Bldg.
BIR Road, Diliman, Quezon City

Through: HON. GLEN A. GERALDINO


Regional Director
BUREAU OF INTERNAL REVENUE
Revenue Region No. 8
BIR Regional Office Building,
313 Sen. Gil Puyat Ave., Makati City
 

Subject: PROTEST LETTER

Taxpayer: MICHAELMAR PHILS. INC.


TIN No. 200-624-047-000
Registered Address: 4723 Arellano Ave. Cor Zobel Roxas St.
Brgy. Palanan, Makati City

Dear Honorable Commissioner:

We humbly submit to your good office this Formal Protest to the 12


July 2017 Formal Assessment Notice issued against our client
MICHAELMAR PHILS. INC. (MICHAELMAR for brevity) for the taxable
year 2012. On 18 July 2017, our client received the following documents
pertaining to this case:

 Formal Assessment Notice


 Details of Discrepancies

MICHAELMAR comes now to this Honorable Office to request that


the final assessment served upon it be cancelled and withdrawn on the
basis that the Formal Assessment Notice failed to indicate the complete
facts and laws from which it is based. In addition, there is a factual basis
that prescription has already set in.

I. Formal Assessment Notice is without basis

A. Income tax:
Alleged Undeclared Income of Php 26,658,795.35
Schedule 1:
Purchases per Summary List of Sales submitted by supplier P 26, 658,795.35
1
Less: Purchases per VAT Returs filed ____________
Undeclared Purchases 26,658,795.35
Divide by: Cost of Sales ratio 100.0000%
Undeclared Sales Receipts 26,658,795.35
Multiply by: GP rate 100.0000%
Undeclared Income P 26,658,795.35

*Attached herein as Annex 1 is the Details of Taxpayer’s


Suppliers’ Records which gives light to the alleged Discrepancy
that appears in the BIR Details of Discrepancies against
MICHAELMAR.

On the first page of Annex 1, under 2nd Quarter on date after 04 April
under the line occupied by Seller named OCEAN STAR REALTY INC.,
with a TIN 005034280 and RDO Code of 033, the Gross Sales of Seller
amount to Php 22,321,429.48.

The formal assessment notice erroneously concluded and considered


this amount as part of an alleged undeclared income. The records however
clearly indicate that this amount declared by seller OCEAN STAR REALTY
INC. is part of the total amount paid for the purchase/ acquisition of a real
property covered by Transfer Certificate of Title No. 206813. In fact, this
purchase is undeclared vis-a vis the Deed of Absolute Sale which states
that the purchase price is Php25,000,000.00.

*Attached as Annex 2 is the Deed of Absolute Sale dated 23


April 2012.

The Court of Tax Appeals has held in Commissioner of Internal Revenue


vs. Agrinurture, Inc. ( CTA EB No. 1054 , January 13, 2015) thus:

“According to the CTA en banc, income tax is imposed, not when there
is an undeclared purchase, but only when there was an income, and such
income was received or realized by the taxpayer. Even granting that
there was an undeclared purchase, the same is not prohibited by law.
After all, for income tax purposes, a taxpayer is free to deduct from its
gross income a lesser amount, or not claim any deduction at all. What is
prohibited by the income tax law is to claim a deduction beyond the
amount authorized. “

To allow the BIR to collect on income tax from MICHAELMAR, the


former has to predicate such action on the fact that there was a realization
of gain or profit. This is absent in this case.

Moreover, the Court in CIR vs. Court of Appeals, Court of Tax Appeals
and A. Soriano Corp. (G.R.No. 108576) held that in order for a taxpayer to be
validly assessed for deficiency income tax, the following elements should
be present: a) clear proof of gain or profit, b) the gain or profit was
received by the taxpayer, actually or constructively, and c) the income is
not exempted by law or treaty from income tax. In the present case,

2
MICHAELMAR made no realization of gain or profit and thus the
assessment is lacking in legal and factual basis.
Even assuming that MICHAELMAR has undeclared purchases it
does not warrant the conclusion that it has undeclared income. This is the
pronouncement of the Court in the cases G&W Architects, Engineers and
Project Consultants Co. v. Commissioner of Internal Revenue, (CTA Case No.
8604, December 2, 2016); Mt. Blanc Motors, Inc. v. Commissioner of Internal
Revenue,( CTA Case No. 8588,January 4, 2017). In these cases, the BIR
assumed that the purchases are costs incurred to produce goods or render
services from which additional income is derived. The Court however
struck down the position of the BIR saying that assessments must be based
on actual facts, in order to stand the test of judicial scrutiny. The
presumption of the correctness of an assessment cannot be made to rest on
another presumption.

B. Value Added Tax


In relation to the Value Added tax assessment of MICHAELMAR, a
visit of the provision in the Tax Code, specifically Section 105 will
illuminate the issue. According to the Code, VAT is imposed on the seller
of goods and assessed on the “gross selling price or gross value in money
of the goods or properties sold.”
When BIR makes an assessment over a taxpayer, it must prove that
the taxpayer, was or ought to be paid in consideration for a sale, and not
when said taxpayer purchases or disburses cash to purchase goods or
properties. It is therefore, wrongful to impose a deficiency VAT on the
basis of an undeclared purchase made by MICHAELMAR.

II. Prescription has already set in.

MICHAELMAR humbly states that the period in which the


Assessment and collection of income tax and VAT has likewise been
extinguished by virtue of prescription. Under section 203 of the NIRC it
states:
“Period of Limitation Upon Assessment and Collection – Except as
provided in Section 222, internal revenue taxes shall be assessed
within three (3) years after the last day prescribed by law for filing
of the return, and no proceeding in court without assessment for
the collection of such taxes shall be begun after the expiration of
such period.”

MICHAELMAR has not falsely or fraudulently filed a return with


intent to evade tax. As discussed, the alleged undeclared income is in fact
illusory and not applicable in this case, there being a dutiful and lawful

3
filing of income tax return on the part of MICHAELMAR on the taxable
year 2012.

The BIR is equipped with enough powers to obtain information from


its taxpayers as granted by Sec. 5 of the 1997 NIRC and it ought to know
the records of all its taxpayers (see case BPI-Family Savings Bank vs. CA,
April 12, 2000). Hence, the BIR can easily reconcile discrepancies from its
taxpayers by utilizing such powers provided for by law instead of
declaring such discrepancies immediately as “undeclared income”.
With all this in view, MICHAELMAR respectfully asks this
Honorable Office that the Formal Assessment Notice and Letter of Demand
be withdrawn for lack of factual bases to which to stand on. The FAN is not
properly supported with schedules as well as the details of discrepancy are
not elaborated sufficiently to provide a correct and conclusive assessment.
Notwithstanding, MICHAELMAR is willing to exhaust all efforts to
participate, cooperate and substantiate any further assessments that the
Bureau would conduct by virtue of its duty and it prays for a
REINVESTIGATION of this assailed assessment for the taxable year 2012.

Respectfully,

ATTY. VICTOR D. RODRIGUEZ


Managing Partner

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