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Nathallie H.

Cabaluna
BSA - 3
PILMICO-MAURI FOODS CORP. VS. COMMISSIONER OF INTERNAL REVENUE

C.T.A. EB No. 97 (C.T.A. Case No. 6151)


Date Promulgated: August 29, 2006

Petitioner: Pilmico-Mauri Foods Corp.


Respondent: Commissioner of Internal Revenue

FACTS:
Pilmico-Mauri Foods Corporation, the petitioner, is a manufacturing company engaged in
manufacturing and selling yeast, bakery ingredients, and wheat related products. The company
is based in Cebu City with additional offices in Makati and Iligan City. Pilmico-Mauri Foods
Corporation is also operating as a subsidiary of AB Mauri Food, Inc.
As a result of the examination of the petitioners books of accounts in 1996, Revenue
Officer Eugenio D. Maestrado issued assessments for deficiency income, value-added tax
(VAT) and withholding tax liabilities.

Assessment notices were issued as follows:


(1) Assessment Notice No, 81-IT-13-9698-11-128 - deficiency income tax for the year 1996
in the sum of P4,359,046.96 (inclusive of interest and other penalties);
(2) Assessment Notice No. 81-VAT-13-96-98-11-127 - deficiency value-added tax in the
sum of P5,017,778.01 (inclusive of interest and other penalties);
(3) Assessment Notice NO. 81-WT-13-96-98-11-126 - deficiency withholding taxes for the
year 1996 in the sum of P348, 925.05 (inclusive of interest and other penalties).

These deficiency tax liabilities totaled P9, 761, 750.02 was decided on December 15, 2004.

A Motion for Partial Reconsideration was filed by the petitioner on January 21, 2005 for the
reconsideration of the final decision of the respondent based on the assailed decision affirming
the disputed assessments (dated last July 3, 2000 wherein the deficiency tax liabilities of the
petitioner were reduced from P9, 761,750.02 to P3, 020,259.30) which is now in the reduced
amount of P 2, 804, 920.36 (inclusive of surcharge and deficiency interest). However, this

Motion for Partial Reconsideration was denied. Thus, motion is subsequently made through a
Petition for Review.

On June 17, 2005, the corporation motioned for extension of time to file petition for review
en banc. On the 5th of July 2005, the Petition for Review En Banc was filed.

ISSUES:
For its petition, these were the following issues raised:
General Issue: To reverse the decision promulgated on December 15, 2004 by the First Division
of the Court of Tax Appeals and the resolution dated May 19, 2005 affirming the assailed
decision.
(a) Whether or not Pilmico-Mauri Foods Corporation has the liability to pay a deficiency in
income, value-added, expanded withholding, final withholding and withholding tax on
compensation.
(b) With regards to the deficiency income tax of P1,180,382.84:
a. Whether or not the purchases of raw materials are unsupported
b. Whether or not the cancelled invoices and expenses for taxes, repairs and
freights are unsupported.
c. Whether or not commission, storage and trucking charges claimed are
deductible.
d. Whether or not the alleged deficiency income tax for the year 1996 was correctly
computed.
(c) With regards to the deficiency value-added tax of P1,642,145.79:
a. Whether or not the input taxes claimed are unsupported.
b. Whether or not the petitioner has claimed non-vatable transportation expenses.
(d) With regards to the deficiency withholding taxes, whether or not the petitioner wasnt
able to observe the withholding tax laws on payments subject to expanded withholding
tax, final withholding tax and withholding tax on compensation.
(e) Whether or not an expense is deductible when it is clearly shown that what is being
claimed is an ordinary and necessary expense.
(f) Whether or not the Cohan Rule, as adopted in the case of Visayan Cebu Terminal vs.
Collector, is applicable in the consideration of the substantiation of documents.

RULINGS OF THE COURT:


The petitioners motion for partial reconsideration of the assailed decision in December
15, 2004 was denied due to lack of merit in a resolution dated May 19, 2005.
The petitioner was not in compliance of Section 238 of the 1977 National Internal
Revenue Code which is with regards to the issuance of receipts or sales or commercial
invoices.
The official receipts and sales invoices are considered as the best evidences to prove
the deductibility of ordinary and necessary expenses. The Honorable Court of Tax Appeals First
Divisions factual findings presented that the official receipts presented by the petitioner did not
conform to the requirements of Section 238 of the 1977 NIRC. As discovered, the official
receipts presented by the petitioner during the trial were also not in the name of the petitioner
but in the name of Golden Restaurant and that such official receipts were issued by Pilmico
Foods Corporation, the parent company, and not by the alleged seller Jose Tan Enterprises. Of
course, seeing the irregularities in these official receipts, these cannot be used as evidence for
the petitioners claimed deductions. The petitioner is still under the burden of proving the
deductibility of their expenses.
Factually, the best evidence that the petitioner should have presented to support its
claimed deductions were the invoices and official receipts issued by the Register of Deeds. The
petitioner did not only fail to present such evidences in court, but they have also failed to explain
the loss of such documents.
It is not enough that an expense is proved to be an ordinary and necessary expense.
The expenses should also be substantiated with the required documents or evidences in order
to claim such deductions.
The petitioners stand with regards to the use of the Cohan Rule is inapplicable
because in the Visayan Cebu Terminal case, the fire that broke out destroyed some of the
supporting documents to be used in claiming allowable deductions. On the other hand, the
petitioner committed a violation in the provision of the Tax Code wherein the fire that destroyed
the supporting documents took place in the house of the treasurer. This is an unsatisfactory act
because records, such as the supporting papers, are to be kept in the offices and not in the
residence of employees.
Wherefore, having no more issues left unanswered, the court dismissed the petition for
review on July 5, 2005 due to lack of merit.

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