Cagayan Valley Drug vs.

CIR
GR 151413
February 13, 2008
Velasco, J.:
FACTS:
Petitioner filed with BIR a claim for tax refund of the full amount of the 20% sales discount it
granted to senior citizens for the year 1995. BIR inaction prompted petitioner to file petition for review
before CTA in order to forestall the 2-year prescriptive period. CTA dismissed/rejected refund as discount
extended to Senior Citizens in granted as tax credit and not refund. CTA reasoned that while petitioner may
be qualified for a tax credit, it cannot be so extended on account of its net loss in 1995. CA dismissed
petition on procedural grounds.
ISSUE:
Whether or not petition is entitled to a tax refund or tax credit of 20% sales discount granted to
senior citizens under RA 7432 or whether the deduction should be treated as a deduction from gross
income.
RULING:
Appellate Tax Court correctly ruled that the 20% sales discounts petitioner granted to qualified
senior citizens should be deducted from petitioners income tax due and not from gross sales as
erroneously provided in RR 2-94. However, CTA erred in denying the tax credit to petitioner on the ground
that petitioner had suffered net loss in 1995, and ruling that the tax credit is unavailing.
The fact that petitioner suffered a net loss in 1995 will not make the tax credit due to petitioner
unavailable. This is the core issue resolved in Central Luzon (case) where it was ruled that the net loss for
a taxable years does not bar the grant and of the tax credit to a taxpayer pursuant to RA 7432 and the prior
tax payments are not required for such grant.