Collector v Goodrich

FACTS
• Appeal by government of a CTA decision that set aside assessments made
by the Commissioner
• Assessments were based on disallowed deductions consisting of several
alleged bad debts in the sum of P50 k for 1951 and P30K for 1952
• Goodrich appealed initial assessment to the CTA
• CTA rendered a decision allowing the deduction for bad debts but
disallowing the alleged representation expenses
• On MR the CTA amended its decision and allowed deductions for
representation expense
• Appeal by the Government from a decision of the CTA setting aside
assessments made by the CIR as deficiency income taxes due
Goodrich from 1951-1952

ISSUE
• Issue in connection with the debts is W/N the same had been properly
deducted as bad debts for the year 1951

RULING
• Decision appealed from should be modified
• The Respondent’s alleged representation expenses are totally disallowed
• Bad debts allowed up to the sum of P22,626.35

RATIO
Representation Expenses
• Claim for deduction is based upon receipts issued by the officers of
Goodrich who allegedly paid them
• Claim must be rejected
• If expenses had been incurred, receipts would have been issued by the
entities to which the payments had been made, and it would be easy
for the officers to produce such receipts
• Receipts issued by the officers merely attest to their claim that they had
incurred and paid such expenses
• As a result, the CTA erred in allowing the deduction thereof.

Alleged Bad Debts

Claim for deduction of these debts disallowed:
Portillo’s auto seat cover, Visayan Rapid Transit,Bataan Auto seat cover,
Tres Amigos Auto Supply, P.C. Teodoro, Ordinance Service P.A.,
Ordinance Service P.C., National Land Settlement Administration, National
Coconut Corporation, Interior Caltex Service Station

• Claim for deduction of 10 debts should be rejected — Goodrich has not

established either that the debts are worthless or that it had reasonable
grounds to believe them to be so in 1951
• Statute permits the deduction of debts actually ascertained to be worthless
within the taxable year to prevent arbitrary action by the taxpayer,
to unduly avoid tax liability
• Requirement of ascertainment of worthlessness requires proof of two
facts: (1) that the taxpayer did in fact ascertain the debt to be
worthlessness in the year for which the deduction is sought (2) that in
doing so, he acted in good faith
• Good faith is not enough. He must also show that he had reasonably
investigated the relevant facts and had drawn a reasonable inference
from the information obtained by him
• Respondent has not adequately made such showing
• The payments made after these accounts had been characterized as bad
debts merely stresses the undue haste with which the same had been
written off
• No evidence that the debtors can’t pay them

Claim for deduction of the debts allowed

• San Juan Auto supply, Philippine Naval Patrol, Surplus property
commission, Alvarez Auto Supply, Lion Shoe Store, Ruiz Highway
Transit, Esquire Autoseat cover
• Counsel Advised respondent to write off these accounts as bad debts
without going to court for it would be foolish to spend good money
after bad