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.