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    CIR v. Isabela Cultural Corporation

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    thirdy demaisip
    The Commissioner of Internal Revenue appealed a decision allowing deductions claimed by Isabela Cultural Corporation (ICC) for professional and security services. The Court affirmed the disallowance of deductions for these expenses because ICC, which used the accrual method of accounting, failed to prove the expenses were incurred during the tax year in question as required. While a demand letter can be a final decision appealed to the tax court, ICC did not establish it had incurred or could accurately calculate the liability for the disputed expenses, as required under the accrual method. The petition was partially granted to disallow those expense deductions claimed by ICC.

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    CIR v. Isabela Cultural Corporation

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    thirdy demaisip
    81 views1 page
    The Commissioner of Internal Revenue appealed a decision allowing deductions claimed by Isabela Cultural Corporation (ICC) for professional and security services. The Court affirmed the disallowance of deductions for these expenses because ICC, which used the accrual method of accounting, failed to prove the expenses were incurred during the tax year in question as required. While a demand letter can be a final decision appealed to the tax court, ICC did not establish it had incurred or could accurately calculate the liability for the disputed expenses, as required under the accrual method. The petition was partially granted to disallow those expense deductions claimed by ICC.

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    The Commissioner of Internal Revenue appealed a decision allowing deductions claimed by Isabela Cultural Corporation (ICC) for professional and security services. The Court affirmed the disallowance of deductions for these expenses because ICC, which used the accrual method of accounting, failed to prove the expenses were incurred during the tax year in question as required. While a demand letter can be a final decision appealed to the tax court, ICC did not establish it had incurred or could accurately calculate the liability for the disputed expenses, as required under the accrual method. The petition was partially granted to disallow those expense deductions claimed by ICC.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    81 views1 page

    CIR v. Isabela Cultural Corporation

    Uploaded by

    thirdy demaisip
    The Commissioner of Internal Revenue appealed a decision allowing deductions claimed by Isabela Cultural Corporation (ICC) for professional and security services. The Court affirmed the disallowance of deductions for these expenses because ICC, which used the accrual method of accounting, failed to prove the expenses were incurred during the tax year in question as required. While a demand letter can be a final decision appealed to the tax court, ICC did not establish it had incurred or could accurately calculate the liability for the disputed expenses, as required under the accrual method. The petition was partially granted to disallow those expense deductions claimed by ICC.

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    of 1

    COMMISSIONER OF INTERNAL REVENUE v.

    ISABELA CULTURAL CORPORATION


    G.R. No. 172231, 2007

    FACTS: ​Petitioner, assailed the decision of the CA that affirmed the decision of the CTA that
    cancelled the assessment notices for deficiency income tax and expanded withholding tax
    that was issued by BIR against the respondent. ICC, a domestic corporation, received an
    assessment notice for deficiency income worth P 333,196.86 and for deficiency expanded
    withholding tax for P4,897.79 from the BIR for the taxable year 1986. The DIT (for brevity)
    arose from the disallowance of ICC’s claim for expense deduction for professional and
    security services; expenses for auditing services, legal services, security services. Alleging
    the understatement of ICC’s interest income on three promissory notes due. The DEW (for
    brevity) is due to the failure of ICC to withhold 1% expanded withholding tax on its claimed
    P244,890.00 deduction for security services.
    ICC sought for reconsideration of the assessments. However, it received a final
    notice before seizure that demands payment. They brought to CTA and it was held that the
    petition is premature explained that the final notice of assessment cannot be considered as a
    final decision appealable to the tax court. CA reversed the decision and held that a demand
    letter demanding payment amounts to a final decision and maybe questioned before the
    CTA, it was remanded for further proceedings. CTA cancelled the assessment against ICC,
    it held that the claimed deductions for the services were properly claimed and it was only in
    1986 were the bills demanding payment were sent and ICC did not understate its interest
    income, that it was the BIR that made an overstatement when it compounded the interest
    income receivable by ICC from the promissory note. ICC also withheld the 1% of expanded
    withholding tax. CA affirmed the decision of the CTA.

    ISSUE:​ Whether ICC did not understate its interest income.

    RULING: ​The requisites for the deductibility of ordinary and necessary trade, business, or
    professional expenses are: (a) expense must be ordinary and necessary, (b) must have
    been paid or incurred during the taxable year, (c) paid or incurred in carrying on the trade or
    business and (d) supported by receipts, records or other pertinent papers. The ICC used the
    accounting method of accrual method. It is provided that the accrual method is an expenses
    not claimed as deductions by a taxpayer in the current year when they are incurred cannot
    be claimed as deduction from income for the succeeding year. Relying upon the right of the
    taxpayer to receive the amounts or its obligation to pay them that opposes the actual receipt
    of payment that characterizes the cash method of accounting.
    It is seen in the expenses for the professional fees, auditing fees and security fees.
    As previously stated, the accrual method presents a question of fact and the taxpayer bears
    the burden of establishing the accrual of an expense or income. Here, the ICC failed to
    discharge this burden. The questions of fact whether it exercised diligence to inquire about
    their liability or possess the information necessary to compute the liability with reasonable
    accuracy which ICC never established. It relied on delayed billing by the firm and company.
    ICC failed to prove the claimed expense deductions for professional services were allowable
    deductions. They cannot be deducted from its gross income and was properly disallowed by
    the BIR. The petition is PARTIALLY GRANTED. CA decision is Affirmed that disallowed the
    expense deduction of ICC for professional and security services.

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