In arriving at the adjusted taxable income for the year 2003, the BIR added back the net
operating loss carry-over (NOLCO) incurred in the same year. This is to recapture the tax
benefit purportedly realized by the taxpayer in carrying this amount to the succeeding taxable
year. The Court did not agree with this assessment. According to the Court, the BIR failed to
prove that the taxpayer used its 2003 NOLCO in the succeeding year. Granting that the
taxpayer actually deducted the 2003 net loss as NOLCO in the succeeding year 2004 and the
said deduction is not proper as the taxpayer did not incur a net loss, the same can only be the
subject of assessment, when it was claimed as deduction in the year 2004 and not in the year
2003. Hence, adding back the net loss to the taxpayer’s taxable income for 2003 is erroneous.
(Philippine Aerospace Development Corporation vs. Commissioner of Internal Revenue,
CTA Case No. 7830, December 11, 2012)
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