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Refining Company Vs CIR

This case involves Philippine Refining Company (PRC) appealing a tax assessment by the Commissioner of Internal Revenue for unpaid taxes in 1985. The Court of Tax Appeals reversed the disallowance of some interest expenses as deductions but upheld the disallowance of 13 bad debt deductions. The Court of Appeals then dismissed the case, finding PRC did not satisfy all the requirements to claim the debts as worthless. The Supreme Court denies PRC's petition and upholds the disallowance of the bad debt deductions and assessment of penalties and interest, as PRC did not provide sufficient documentary proof of the debts' worthlessness or efforts to collect as required. Civil penalties and interest for late tax payments are also deemed compulsory under the tax code.

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RICKY ALEGARBES
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98 views2 pages

Refining Company Vs CIR

This case involves Philippine Refining Company (PRC) appealing a tax assessment by the Commissioner of Internal Revenue for unpaid taxes in 1985. The Court of Tax Appeals reversed the disallowance of some interest expenses as deductions but upheld the disallowance of 13 bad debt deductions. The Court of Appeals then dismissed the case, finding PRC did not satisfy all the requirements to claim the debts as worthless. The Supreme Court denies PRC's petition and upholds the disallowance of the bad debt deductions and assessment of penalties and interest, as PRC did not provide sufficient documentary proof of the debts' worthlessness or efforts to collect as required. Civil penalties and interest for late tax payments are also deemed compulsory under the tax code.

Uploaded by

RICKY ALEGARBES
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Refining Company v.

CA
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 legal 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
ISSUES:
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.
2.  YES.
 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.

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