CTA Case No. 7853 dated February 16, 2012 Under-declaration of Purchases

Facts:

►   Respondent Commissioner of Internal Revenue assessed Petitioner Philippine Daily Inquirer (PDI) for alleged deficiency income tax and VAT for taxable year 2004 Based on a computerized matching of information provided by third party sources against PDI's VAT returns, the CIR claimea that PDI under-declared its purchases for 2004 which resulted in undeclared income that is subject to income tax and VAT.

►   PDI protested the assessment and argued, among others, that it did not under-declare its gross income for 2004. As the CIR failed to act on the protest within the prescribed penod, PDI filed a Petition for Review with the Court of Tax Appeals (CTA).

Issue:

►    Is PDI liable for deficiency VAT and income tax?

Ruling:

►  No. The CIR's theory that under declaration of purchases translates to taxable income for income tax purposes and taxable gross receipts for VAT purposes has no basis.

►  The three elements on the imposition of income tax are (a) there must be gain or profit, (b) the gain or profit is realized or received, actually or constructively, and (c) it is not exempted by law or treaty. Income tax is assessed on income received from any property, activity or service. In assessing income tax, it must be clear that there was an income which was received by the taxpayer, not when there is an under-declaration of purchases.

CTA Case No. 7853 dated February 16, 2012

Under-declaration of Purchases