CTA favors DMCI in P103.68-M tax appeal

THE Court of Tax Appeals (CTA) ruled in favor of DMCI Holdings, Inc. in the company’s appeal against the Bureau of Internal Revenue (BIR) regarding over P103.68 million in deficiency income tax assessment for 2014, citing erroneous audit calculations and a lack of substantial evidence.

The tax court’s first division, in a decision publicized on Sept. 23, rejected the BIR’s computation of the company’s taxable income for 2014.

“Finding that petitioner has no more deficiency income tax liability for [the] calendar year 2014, the Formal Letter of Demand dated 01 September 2020 and the Final Decision on Disputed Assessment dated 27 December 2021 are canceled and set aside,” the 35-page ruling penned by Associate Justice Jean Marie A. Bacorro-Villena read.

DMCI initially faced a P159.18-million assessment from the BIR, which was eventually reduced to P103.68 million.

The assessment covered alleged deficiencies in income tax, value-added tax (VAT), and other tax categories for the 2014 fiscal year.

In ruling in favor of DMCI, the tribunal said that there was no factual basis for the BIR to determine and set DMCI’s taxable income per income tax return (ITR) as zero, as records showed DMCI suffered a net loss of over P159 million.

The tribunal added that DMCI was correct in arguing that the BIR’s method of computation would result in double disallowance.

Based on the report of the independent certified public accountant, DMCI arrived at a net loss of over P159 million.

DMCI also claimed stock issuance costs of over P92 million as part of its other deductions, arriving at a net loss of more than P159 million.

The court noted that if the stock issuance costs were disallowed, DMCI’s net loss would decrease to more than P66 million, but this would not create any taxable income for a deficiency.

However, under the BIR’s method, disallowing the stock issuance costs would generate a taxable income of P92,922,746, resulting in a deficiency of P27,876,823.80.

“This tax liability is expectedly arrived at since the respondent used zero as the tax base, and again deducted the same expense based on the finding of his or her disallowance,” it said.

“However, in this method, the respondent had seemingly disallowed all the expenses that the petitioner had claimed as deductions for [year] 2014 without any evidence to support its action. Simply put, this transgresses the petitioner’s right to due process.” — Chloe Mari A. Hufana