G.R. No. 206362 , August 1, 2018
RHOMBUS ENERGY, INC., Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent.

FACTS

Rhombus Energy, Inc. filed its Annual Income Tax Return (ITR) for taxable year 2005, reporting an overpayment of ₱1,500,653.00 representing excess creditable withholding tax (CWT). In that return, it indicated the excess was “To be refunded.” However, in its Quarterly ITRs for the first three quarters of 2006, Rhombus carried over and reported this same ₱1,500,653.00 as “prior year’s excess credits.” Subsequently, on December 29, 2006, Rhombus filed an administrative claim for a refund of this amount. When the Commissioner of Internal Revenue (CIR) did not act, Rhombus filed a Petition for Review before the Court of Tax Appeals (CTA). The CTA First Division granted the refund, finding Rhombus had sufficiently proven its claim.
The CIR appealed to the CTA En Banc, which reversed the First Division’s decision. The CTA En Banc applied the irrevocability rule under Section 76 of the National Internal Revenue Code (NIRC). It ruled that by electing to carry over the excess credits in its 2006 quarterly returns, Rhombus made an irrevocable choice, thereby forfeiting its right to claim a refund for the same amount. The CTA En Banc held the actual utilization of the carried-over credit was irrelevant; the mere act of reporting it in the quarterly returns constituted a binding election.

ISSUE

Whether Rhombus Energy, Inc. is barred by the irrevocability rule from claiming a refund for its excess creditable withholding tax for the year 2005, given its act of reporting the excess as a credit in its quarterly income tax returns for 2006.

RULING

The Supreme Court reversed the CTA En Banc and reinstated the CTA First Division’s decision, ordering the refund. The Court clarified that the irrevocability rule in Section 76 of the NIRC applies only when a taxpayer makes a formal and categorical election on its final annual income tax return. The quarterly returns filed during a taxable year are merely interim or preliminary in nature. The definitive choice between carrying over excess credits or claiming a refund is made only upon the filing of the annual return for that succeeding year.
In this case, Rhombus’s 2005 annual return explicitly stated the excess was “To be refunded,” constituting its initial election. While it reported the credit in its 2006 quarterly returns, its final 2006 annual return ultimately reported “prior year’s excess credits” as “0.00,” demonstrating it did not actually utilize the credit. This final annual return superseded the interim quarterly figures. The Court emphasized that the irrevocability rule is meant to prevent taxpayers from shifting between options to the detriment of tax administration after a final choice has been made on the annual return. Since Rhombus’s final 2006 return showed no carry-over was utilized, and it had timely filed its claim for refund within the two-year prescriptive period, it was entitled to the refund. The Court also upheld the CTA First Division’s factual finding that Rhombus had adequately substantiated its claim.