NORKIS TRADING Co., Inc. won a P285.93-million refund at the Court of Tax Appeals (CTA) after the court denied the claim by the Bureau of Internal Revenue that the Mandaue City-based motorcycle company committed under-declaration of taxable income.

The CTA’s Second Division, in a decision dated Aug. 16, 2017, ordered the refund of P285,927,070.68 to Norkis Trading and canceled the BIR’s assessment for an alleged deficiency income tax of the same amount for fiscal year 2006-2007.

The BIR alleged that there was “substantial under-declaration of taxable income” from Norkis Trading as the company did not declare an indemnity fee (compensation for damage or loss) worth $6 million or P290.88 million, which should be taxable.

Norkis Trading assailed the FInal Assessment Notice (FAN) dated April 10, 2014 before the tax court. It claimed that the BIR’s deficiency tax assessment has no factual basis since “there is no proof, not even prima facie, that it received indemnity fee.”

The petitioner argued the amount “does not constitute income because there is no gain or profit from the receipt of any proceeds arising from an indemnity agreement.”

Norkis Trading added: “The amounts that would have been received under the alleged Indemnity Agreement would have been meant to reimburse and recompense for damages and losses arising from the termination of the exclusive arrangements for the distribution of Yamaha motorcycles.”

In weighing in on the merits of the case, the court sided with the petitioner. It held: “Records indicate that respondent (BIR) failed to provide any evidence showing that petitioner received such amount as indemnity fee.”

The court pointed out that the BIR even requested the indemnity agreement between the petitioner and Yamaha Motors Co. Ltd on July 12, 2016, “but which was denied and expunged from the records by the Court.”

“Considering that respondent failed to prove that there was an Indemnity Agreement and/or that petitioner received the amount of $6,000,000 as indemnity fee, there is no proof to the alleged substantial under-declaration and/or commission of fraud in the present case,” the CTA added.

The 13-page decision was penned by Associate Justice Juanito C. Castañeda, Jr. Concurring are Associate Justices Caesa A. Casanova and Catherine T. Manahan. — Kristine Joy V. Patag

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