In a Review Resolution dated 25 July 2013, the Department of Justice resolved the complaint filed by the Bureau of Internal Revenue (BIR) against respondent Atty. Arnel Cortez Manaloto (Manaloto) for violation of Sections 254, 255, 275, in relation to Section 236 (G) of the National Internal Revenue Code (NIRC) of 1997, as amended; and respondent Certified Public Accountant Erwin Sicangco Carreon (Carreon) for violation of Section 257 of the NIRC of 1997.
Based on the records, Commissioner of Internal Revenue Kim S. Jacinto-Henares referred to the Department, via letter dated 20 November 2012, the subject complaint for preliminary investigation and filing of Information in court. Assistant State Prosecutor Ma. Cristina M. Barot issued a resolution dismissing the complaint against respondents. However, the Prosecutor General disapproved the resolution of the investigating prosecutor and issued the Review Resolution.
The Prosecutor General resolved that there is probable cause to hold respondents for trial for the offenses charged. He found that "respondent Manaloto only declared a taxable income of Phpl,495,200.00 in the Income Tax Return (ITR) for taxable year 2011. BIR, however, was able to obtain a deed of absolute sale showing that he bought eight (8) parcels of land in Davao City on 17 January 2011 for Php20,000,000.00. BIR also discovered from the Financial Statement attached to respondent Manaloto's ITR that he had 'deferred revenue' in the amount of Phpl7,501,500.00, which under the generally accepted principles is a 'recognition of advance income payments for services rendered. The said amounts should have been declared as part of his taxable income for 2011 but respondent Manaloto did not report the same in his income tax returns, and his co-respondent Carreon certified that the financial statements of respondent Manaloto give true and fair view of his client's financial statements despite misstatements on the actual taxable income of respondent Manaloto by omitting said amount. The unreported income constitutes substantial under-declaration of more than 30%. There is, therefore, prima facie evidence of a fraudulent return."
As to respondent Manaloto's defense that the Php20,000,000.00 was the proceeds of personal loans from friends and relatives, the BIRwas able to establish that Ms. Teresita Suva, the supposed creditor in one of the promissory notes signed by respondent Manaloto, was actually outside of the country when her supposed personal appearance before the notary public transpired. This circumstance casts doubt on the authenticity of the promissory notes. The Prosecutor General also noted that while the certification submitted by respondent Manaloto purporting to prove that the promissory notes are authentic, speaks of one promissory note notarized on 13 December 2010 as "Doc. No. 161, Page No. 13, Book No. LXXXX, Series of 2010", what respondent Manaloto submitted is promissory note notarized on 13 December 2010 with "Doc. No. 61, Page No. 13, Book No. LXXXX, Series of 2010". In addition, as pointed out by the BIR, no documentary stamp tax was paid on the documents, casting doubts on the admissibility of said documents.
As for the claim of respondents Manaloto and Carreon that the "deferred revenue" covered by contracts for legal services with clients should be booked as liability and should not be included in the taxable income, the said allegation was found untenable.
The evidence submitted by the BIR tends to establish that the entries in the ITR and Financial Statements of respondent Manaloto for the taxable year 2011 were manipulated to make it appear that his taxable income for 2011 is only Phpl,495,200.00 when the true and accurate income is Php37,967,266.26. The justification for the unreported income appears to be a mere afterthought. As the taxable income of respondent Manaloto exceeds the threshold of Php1,500,000.00, he is required by law to register as VAT taxpayer but, as it appears, he did not register nor file VAT returns, neither did he pay VAT, all in violation of the law.
Pursuant to said findings, the Prosecutor General recommended that the corresponding Informations be filed against respondents Manaloto and Carreon.