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Collector v Goodrich International Rubber Co.

(G.R. No. L-22265)

Goodrich claimed for deductions based upon receipts issued, not by entities in which the alleged
expenses had been incurred, but by the officers of Goodrich who allegedly paid for them.

The Commissioner disallowed deductions in the amount of P50,455.41 (for the year 1951) for bad debts
and P30,188.88 (for year 1952) for representation expenses.

Goodrich appealed from the said assessment to the Court of Tax Appeals (CTA) which allowed the
deduction for bad debts but disallowing the alleged representation expenses. CTA amended its decision
allowing the deduction of representation expenses.

The Government appealed to the SC. The alleged bad debts are the following:
1. Portillo's Auto Seat Cover 630.31
2. Visayan Rapid Transit 17,810.26
3. Bataan Auto Seat Cover 373.13
4. Tres Amigos Auto Supply 1,370.31
5. P. C. Teodorolawphil 650.00
6. Ordnance Service, P.A. 386.42
7. Ordnance Service, P.C. 796.26
8. National land Settlement Administration 3,020.76
9. National Coconut Corporation 644.74
10. Interior Caltex Service Station 1,505.87
11. San Juan Auto Supply 4,530.64
12. P A C S A 45.36
13. Philippine Naval Patrol 14.18
14. Surplus Property Commission 277.68
15. Alverez Auto Supply 285.62
16. Lion Shoe Store 1,686.93
17. Ruiz Highway Transit 2,350.00
18. Esquire Auto Seat Cover 3,536.94
T O TAL P50,455.41*

Whether or not these bad debts are properly deducted.

The claim for deduction for debt numbers 1-10 is REJECTED. Goodrich has not established either that
the debts are actually worthless or that it had reasonable grounds to believe them to be so.

NIRC permits the deduction of debts actually ascertained to be worthless within the taxable year
obviously to prevent arbitrary action by the taxpayer, to unduly avoid tax liability.

The requirement of ascertainment of worthlessness require proof of 2 facts:

1. That the taxpayer did in fact ascertain the debt to be worthless
2. That he did so, in good faith.

Good faith on the part of the taxpayer is not enough. He must also how that he had reasonably
investigated the relevant facts and had drawn a reasonable inference from the information obtained by
him. In the case, Goodrich has not adequately made such showing.
The payments made, after being characterized as bad debts, merely stresses the undue haste with which
the same had been written off. Goodrich has not proven that said debts were worthless. There was no
evidence that the debtors can not pay them.

SC held that the claim for bad debts are allowed but only up to P22,627.35. (those from Debts 11-18)
GR No. 86785, November 21, 1991
234 SCRA 348

FACTS: Respondent corporation Citytrust filed a refund of overpaid taxes with the BIR by
which the latter denied on the ground of prescription. Citytrust filed a petition for review
before the CTA. The case was submitted for decision based solely on the pleadings and
evidence submitted by the respondent because the CIR could not present any evidence by
reason of the repeated failure of the Tax Credit/Refud Division of the BIR to transmit the
records of the case, as well as the investigation report thereon, to the Solicitor General. CTA
rendered the decision ordering BIR to grant the respondent's request for tax refund
amounting to P 13.3 million.

ISSUE: Failure of the CIR to present evidence to support the case of the government,
should the respondent's claim be granted?

HELD: Not yet. It is a long and firmly settled rule of law that the Government is not bound
by the errors committed by its agents. In the performance of its governmental functions,
the State cannot be estopped by the neglect of its agent and officers. Although the
Government may generally be estopped through the affirmative acts of public officers acting
within their authority, their neglect or omission of public duties as exemplified in this case
will not and should not produce that effect.
Nowhere is the aforestated rule more true than in the field of taxation. It is axiomatic that
the Government cannot and must not be estopped particularly in matters involving taxes.
Taxes are the lifeblood of the nation through which the government agencies continue to
operate and with which the State effects its functions for the welfare of its constituents. The
errors of certain administrative officers should never be allowed to jeopardize the
Government's financial position, especially in the case at bar where the amount involves
millions of pesos the collection whereof, if justified, stands to be prejudiced just because of
bureaucratic lethargy. Thus, it is proper that the case be remanded back to the CTA for
further proceedings and reception of evidence.