Substantiation Requirements CRM & POS 102
Petitioner argues that the deductions from its gross income for the taxable year 1997 were duly substantiated with sufficient evidence in accordance with Section 34(A)(1 )(b) of the National Internal Revenue Code of 1997, to wit: "(b) Substantiation Requirements - no deduction from gross income shall be allowed under Subsection (A) hereof unless the taxpayer shall substantiate with sufficient evidence, such as official receipts or other adequate records: (i) the amount of the expense being deducted, and (ii) the direct connection or relation of the expense being deducted to the development, management, operation and/or conduct of the trade, business or profession of the taxpayer." It further asserts that based on the afore-quoted provision of law, the legislature did not intend to limit the manner of substantiating deductions through official receipts or invoices but also by means of other adequate records. To bolster its stance, petitioner cited the case of Paper Industries Corporation vs. Commissioner of Internal Revenue\ where this Court, sitting as a Division, set the basic principles governing deductions, to wit:1. The taxpayer seeking a deduction must point to some specific provision of the statute in which that deduction is authorized; 2. He must be able to prove that he is entitled to the deduction which the law allows; and 3. Adequate records should be kept to support deductions. Petitioner contends that the documents adduced in support of the deductions for ordinary and necessary expenses are more than sufficient to substantiate its claimed deductions. The cash vouchers submitted in evidence by petitioner were accompanied by other documents like certifications, lease contracts, showing beyond doubt that the deductions claimed by petitioner are bona fide business expenses incurred in the conduct of its trade or business. In addition to the aforesaid documents, petitioner avers that the expenses claimed by petitioner as deductions were subjected to the applicable expanded withholding taxes duly remitted to the Bureau of Internal Revenue. These certificates of remittance give credence if not prove beyond doubt that the questioned/disallowed deductions are bona fide expenses of petitioner. Furthermore, petitioner argues that in a number of cases, this Court allowed deductions for ordinary and necessary business expenses on the basis of cash vouchers issued by the taxpayer and/or certifications issued by the payee evidencing receipt of interest on a loan as well as agreements relating to the imposition of interest.