Ibms Technology Phils. Corporation vs. The Commissioner of Internal Revenue

DECISION

RINGPIS-LIBAN, J.

THE CASE

The Petition for RetJiezv prays that the Court:

1. render the Letter of AuthorifJI (LOA) No. 050-2018-00000048 dated August 22, 2018 and/ or the examination, audit and assessment based thereof void; and

2. cancel and/ or withdraw the Fomzal AJJe.r.rment Notice (FAN) dated December 22, 2020, covering deficiency income tax, value-added tax (VA'l), expanded withholding tax (E\VT), improperly accumulated earnings tax (IAET), and compromise penalty, in the amounts of P69,097,592.80, P45,989,801.06, P1,199,233.29, P8,549,483.52 and PSO,OOO.OO, respectively, inclusive of increments for the taxable period 2017, issued by l'viaridur V. Rosario, Regional Director of Revenue Region No. 8~A, l'viaka ti City j/ 1 Statement of the Case, Pre-Trial Order dated .'\ oYember 10, 2022, Docket- \' ol. I, p. 298.

CT\ Case No. 10606 IBlviS Tedl!lolo_f!)' P/Jik Cotp. JJ.\. Commi.,-.rioller o(llllemal ReJJellue

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THE PARTIES

Petitioner IBl\1S Technology Phils. Corporation is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal office address located at Unit 2207 Cityland 10, Tower 2, H.V. Dela Costa St., Salcedo Village, Makati City. 2 Respondent, the Commissioner of Internal Revenue, l\11r. Caesar R. Dulay, is the Chief of the Bureau of Internal Revenue (BIR) who has the power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, among others, under Philippine laws. 3

THE FACTS OF THE CASE

On August 22, 2018, respondent issued the LOA No. LOA-OS0-2018- 00000048/SN:eLA201500088318,4 authorizing Revenue Officer (RO) Angeline Ifurung and Group Supervisor (GS) Praxedio II Tulio of Revenue District No. 050-South l'v1akati, to examine the books of accounts and other accounting records of petitioner for all internal revenue taxes for the period from January 1, 2017 to December 31, 2017.

On August 26, 2020, petltloner received an undated Notice for Injomtal Conference (NIC). 5 In reply to the said NI C, peuuoner wrote the letter dated August 28, 2020,6 addressed to the Regional Director, on September 1, 2020, stating that the NIC emanates from an invalid LOA, as continuing the audit beyond the prescribed period of 180 calendar days without a revalidated LOA renders the conduct of the audit without authority.

Thereafter, respondent issued the Preliminary AJJeSJment Notice (P;\N) dated November 23, 2020, with DetaziJ of DiJtrepamin 1 On December 23, 2020, petitioner received the FAN (Part I and II) /)/ 2 Par. 1, Parties, Petition/or Re11ie11!, vis-;1-vis par. 5, AIZJII!er (1Pill1 Spe(ial alld Afjirmatiw DejimJe.l), Docket- \"ol. I, pp. 10 and 91, respectively.

·1 Par. 2, Parties, Petitio11 Jar ReJ,ien;, vis-iH·is par. 6, AIIJJPer (]]Ji//J Special a11d Affirma!ifle De/ewn), Docket - \' ol. I, pp. 10 and 91, respectivelY.

~Exhibit "P-1", Docket- \'ol. L p. 3/S; Exhibit "R-2", BIR Records (Exhibit "R-1"), p. 462. 5 Par. 1, Statement of the Facts and of the Case Common to .\ll Issues/ Causes of .\ction, Petition/or ReJJieJP, vis- a-vis par. 7, A11.ru,er (!J!i!/J Special alld Af//m;alil'i' Dej'eJue.~), Docket- \'ol. I, pp. 10 and 91, respectively; Exhibits "P-2" and "R-4", BIR Records (Exhibit "R-1"), p. 837. r, Exhibit "P-3", Docket- \'ol. I, p. 29.

7 Exhibit "P-4", Docket- \'ol. I, pp. 376 to 385; Exhibits "R-6" to "R-9", BIR Records (Exhibit "R-1"), pp. 896 to 906.

CT.-\ Case No. 10606 IBlviS Tedwo!ogy Pbik C01p. tJJ. Commi.r.rio11er o(llltema/ Reuenue

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dated December 22, 2020, with DetaiiJ qfDiJcrepamieJ and A.r.re.r.rment NoticeJ. 8 Petitioner then filed a RequeJt for ReinveJtigation against the FAN on January 21, 2021,9 and submitted its supporting documents on March 18, 2021.10 On October 14, 2021, petitioner filed the present Petition for Review. 11 Within the period granted by the Court,12 respondent posted his Amwer (with Special and Ajjin7Jative DefemeJ) on February 10, 2022,13 interposing the following special and affirmative defenses, to wit: (1) the assessment of deficiency taxes of the petitioner emanates from a valid LOA; (2) the non- revalidation of the L01\ does not affect its validity and enforceability, hence, the assessments issued against the petitioner are valid; (3) the assessment notices were issued in accordance with law, rules and jurisprudence; (4) petitioner was informed and afforded opportunity to controvert the findings of deficiency taxes; and (5) the assessment of deficiency income tax, VAT, E\VT, IAET and compromise penalt)' has factual and legal bases. On l\farch 11, 2022, respondent submitted the BIR RecordJ of this case, consisting of one (1) folder and two (2) green envelopes, with 1040 pages, consecutively numbered from pages 1 to 1 040. 1.t In the Resolution dated March 14, 2022,15 the parties were ordered to immediately proceed and to personally appear or through their authorized representative before the Philippine Mediation Center - Court of Tax Appeals (PMC-CTi\) on April 19, 2022. However, the Pl\iC-CT1\ issued the No Agreement to Mediate dated April 27, 2022. 16 The Pre-Trial Conference was initially set on August 2, 2022, 17 but was later reset to, and held on, 1-\ugust 16, 2022. 18 Prior thereto, respondent filed his ~ H Par. 1, ;\Iaterial Dates, Pflilioll(or Ret1iew, \·is-a-vis par. 2, Atutnr (wi!b .ljJecia/ a11d AflltmatitJe De/ett.re.1), Docket - \'ol. I, pp. 9 and 90, respecti\Th-; Exhibit "P-5", Docket \'ol. I, pp. 30 to 43; Exhibits "R-11-a" to "R-15", BIR Records (Exhibit "R-1"), pp. 976 to 990. 9 Par. 4, Statement of the Facts and of the Case Common to .-\11 Issues/ Causes of .-\ction, Petitiolljor RevieJJJ, vis- a-vis par. 10, Atz.rJJJer (IJlitb .Special and A(Jirmatit•e De(etJ.re.i), Docket- \' ol. I, pp. 11 and 92, respectively; Exhibit "P-6", Docket- \'ol. I, pp. 386 to '1Cicl.

111 Exhibit "P-7", Docket- \' ol. I, pp. 'WS to 500 and Docket - \ · ol. 2, pp. 501 to 1234. II Docket- \'ol. I, pp. 9 to 23.

12 Respondent's Alo!ion for F .. .....-!en.rioti o{Ti111e lo hie AtUIPer dated December 31, 2021, Docket-\' ol. I, pp. 82 to 85, and Resolution dated i\Iarch 2, 2022, Docket \'ol. I, p. 89.

l.l Docket- \'ol. I, pp. 90 to 109.

1-1 Complia!lce (undated), Docket-\' ol. I, p. 173. lo Docker- \'ol. I, pp. 171 to 172.

11' Docket- \'ol. I, p. 175.

17 Resolution dated i\Iay 5, 2022, Docket- \'ol. I, pp. 177 to 178. 1 ~ Petitioner's 1\Iotion to Re.re! Pre-Ti1al Con/erenc"e dated July 12, 2022, Docket- \'ol. I, pp. 179 to 180, and Resolution dated Juh· 20, 2022, Docket- \'ol. I, p. 186; .\Iinutes of the hearing held on, and Order dated, ~-\ugust 16, 2022, Docket -- \·ol. I, pp. 21)6 and 208 to 209, respectively.

CT.\ Case No. 10606 IBiVIS 1edl!lo/ogy PIJik (.(}Jp. I!J. Comm1~rJioner o/Intenwl Re!Jemte

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Pre-Trial Briif on ~August 12, 2022,19 while the Pre-Trial Briif (For the Petitione;) was submitted on August 15, 2022.20 During the Pre-trial Conference, the parties were directed to submit their Joint Stip11lation ojFadJ and !JJNeJ QSFI). However, the parties failed to submit the same.21 Thus, in the Resolution dated October 10, 2022,22 the Court resolved that the parties were deemed to have waived the filing of their JSFI, and ordered them to submit a list of all their pre-marked documentary exhibits within five (5) days from notice.

Respondent filed his Compliance (Re: Order dated 10 October 2022) on October 14, 2022,23 while petitioner submitted its Compliance wit!J ManijeJtation on October 19, 2022. 2 -+ The Pre-Trial Order dated November 10, 2022 was then issued. 25 Trial then ensued, with both parties presenting and offering their respective testimonial and documentary evidence. Petitioner offered the testimony of its Finance .Associate, .i\fs. Regine F. Nonato. 26 On lviarch 31, 2023, petitioner filed tJia accredited courier its Formal Offer

of Evidence

with NianffeJtation,27 to which respondent submitted his Comment/ OppoJition (Re: Petitioner'J Formal Offer with JV1anijeJtation) on May 3, 2023.28 In the Resolution dated June 29, 2023,29 the Court admitted petitioner's offered exhibits, except the following:

1. Exhibits "P-8 to P-8-7", "P-9", "P-63" "P-71" "P-72" "P- ' ' ' 73", "P-73-1", "P-75 to P-98", "P-100 to P-123", "P-125 toP- 130" "P-132 to P-134" "P-137 to P-139" "P-141 to P-45" ' ' ' ' "P-147 to P-157", "P-168", "P-170-1", "P-171-1", "P-172-1 to P-172-4" "P-173-1 to P-173-9" "P-17 4-1" "P-17 5-1" "P- ' ' ' ' 176-1", "P-177-1", "P-178-1 to P-178-3", "P-179-1 to P-179-

2" "P-180-1" "P-181-1" "P-182-1 to P-182-5" "P-183-1 to

' ' ' '

P-183-2" "P-184-1" "P-185-1 to P-185-2" "P-186-1" "P-

' ' ' '~ ---------------------- 19 Docket-'/ ol. I, pp. 188 to 195.

211 Docket-\' ol. I, pp. 197 to 203.

21 Records \'erification Report dated September 28, 2022 issued by this Court's Judicial Records Division, Docket- \'ol. I, p. 210.

22 Docket- \'ol. I, pp. 213 to 214.

21 Docket- \'ol. I, pp. 215 to 222.

2~ Docket-\' ol. I, pp. 224 to 230.

2s Docket- \ 7 ol. I, pp. 298 to 307.

2r•Exhibit "P-346" (deemed marked as such per Resolution dated June 29, 2023, Docket- \'ol. III, at p. 1267), Docket- \'ol. I, pp. 357 to 374; .\Iinutes of hearing held on, and Order elated, February 28, 2023, Docket-- \'ol. III, pp. 1237 to 1238.

27 Docket- \'ol. III, pp. 1239 to 125-1.

2x Docket- \'ol. III, pp. 1257 to 1261.

IBMS Technology Phil. Corp. vs. Conrmissioner of Internal Revenue

187-1 to P-187-3”, “P-188-1”, “P-190-1” “P-191-1”, “P-192- 1”, “P-193-1”, “P-194-1”, “P-195-1 to P-195-8”, “P-196-1”’, “P-197-1”, “P-198-1”, “P-200-1 to P-200-5”, “P-201-1”, “P- 202-1 to P-202-2”, “P-203-1”, “P-205-1”, “P-206-1 to P-206- 4” “P-207-1”, “P-208-1”, “P-209-1”, “P-210-1”, “P-211-1”, “P-212-1 to P-212-10”, “P-213-1”, “P-214-1”, “P-215-1”, “P- 216-1”, “P-217-1”, “P-218-1”, ““P-219-1”, ““P-220-1”, “P-222- 1”, “P-223-1”, “P-235-1”, “P-236-1”, “P-237-17, “P-242-1”, “P-247-1”, “P-268-1 to P-268-2”, “P-269-1”, “P-270-1”” “P- 271-1”, “P-272-1”, “P-274-1”, “P-275-1”, “P-276-1”,) “P-277- 1”, “P-278-17, “P-291-17, “P-295-1”, “P-296-1 to P-296-2”, “P-297-177, “P-298-1”, “P-299”, “P-299-1 to P-299-2’’, “P-304- 1, “P-319-1”, “P-326-1”, and “P-331-1”, for failure to present the originals for comparison;

2. Exhibits “P-131”, “P-135”, “P-140”, “P-224”, “P-225”, “P- 226”, “P-227”, “P-228”, “P-229”, “P-230”, “P-2317, “P-232”, “P2233”, “P-234", “P-235”, “P-236”, “P-237”, “P-238”, “P- 239”, “P-240”, “P-241”, and “P-242”, for not being found in the records;

3. Exhibit “P-14”, for failure to identify and for not being found in the records; and 4, Exhibits “P-136” and “P-158 to P-167”, for failure to present the original for comparison and to correspond with the document actually marked.

Petitioner then filed its Motion for Partial Reconsideration With Tender of Excluded Evidence and Manifestation on July 25, 2023,’ to which respondent filed via accredited courier his Comment/ Opposition (Re: Petitioner's Motion for Partial Reconsideration with Tender of Excluded Evidence and Manifestation) on August 24, 2023.7! In the Resolution dated October 12, 2023,°° the Court: (@) noted petitioner’s Tender of Excluded Evidence and Manifestation; and (11) partially granted petitioner’s Motion for Partial Reconsideration, admitung Exhibits “P-8 to P-8-7”, “P-73”, and “P-73-1”, but still denying the admission of the following:

1. Exhibits “P-9”, “P-63”, “P-71”, “P-72”, “P-75 to P-98”, “P- 100 to P-123”, “P-125 to P-130”, “P-132 to P-134”, “P-137 to P-139”, “P-141 to P-45”, “P-147 to P-157”, “P-168”, “P-170- 1”, “P-171-1”, “P-172-1 to P-172-4”, “P-173-1 to P-173-9”, “P_174-1”, “P-175-1”, “P-176-1”, “P-177-1”, “P-178-1 to P- 178-3”, “P-179-1 to P-179-2”, “P-180-1”, “P-181-1”, “P-182-1 to P-182-5”, “P-183-1 to P-183-2”, “P-184-1”, “P-185-1 to P- 135-2”, “P-186-1”, “P-187-1 to P-187-3”, “P-188-1”, “P-190- *® Docket ~ Vol. III, pp. 1269 to 1274.

*! Docket — Vol. III, pp. 1286 to 1289.

** Docket — Vol. I, pp. 1294 to 1298.

IBMS Technology Phils. Corp. vs. Commissioner of Internal Revenue

1°, “P-191-1”, “P-192-1”, “P-193-1”, “P-194-1”, “P-195-1 to P-195-8”, “P-196-1”, “P-197-1”, “P-198-1”, “P-200-1 to P- 200-5”, “P-201-1”, “P-202-1 to P-202-2”, ““P-203-1”, “P-205- 1°, “P-206-1 to P-206-4”, “P-207-1”, “P-208-1”, “P-209-1”, “P-210-1”, “P-211-1”, “P-212-1 to P-212-10”, “P-213-1”, “P- 214-1”, “P-215-1”, “P-216-1”, “P-217-1”, “P-218-1”, “P-219- 17, “P-220-17, “P-222-1”, “P-223-1”, “P-235-1”, “P-236-1”, “P-237-1”, “P-242-1”, “P-247-1”, “P-268-1 to P-268-2”, “P- 269-1”, “P-270-1”, “P-271-1”, “P-272-1”, “P-274-1”, “P-275- 17, “P-276-1”, “P-277-1”, “P-278-1”, “P-291-1”, “P-295-1”, “P-296-1 to P-296-2”, “P-297-1”, “P-298-1”, “P-299”’, “p-299- 1 to P-299-2”, “P-304-1”, “P-319-1”, “P-326-1”, and “P-331- 1”, for failure to present the originals for comparison; and

2. Exhibits “P-136” and “P-158 to P-167”, for failure to present the originals for comparison.

For his part, respondent presented the testimony of RO Angeline S. Ifurung.»” On February 14, 2024, respondent filed wa accredited courier his Formal Offer of Evidence,* to which petitioner submitted its Comment/Opposition (To respondent’s Formal Offer of Evidence) on March 1, 2024. In the Resolution dated June 3, 2024,*° the Court admitted all of respondent’s exhibits.

Respondent's Memorandum was filed via accredited courier on July 8, 2024,’ while petitioner submitted its Memorandum on July 22, 2024.°8 The case was considered submitted for decision on August 5, 2024.”

THE STIPULATED ISSUE

The parties agreed during the Pre-Trial Conference to the following issue for this Court’s resolution, to wit:

“Whether or not petitioner is lable to pay the assessed deficiency income tax, Value-Added Tax, Expanded Withholding Tax and Improperly Accumulated Eatnings Tax and Compromise Penalty, in the amount of PhP69,097,592.80, PRPA5,989,801.06, | 3 Exhibit “R-18”, Docket — Vol. I, pp. 110 to 125; Minutes of the hearing held on, and Order dated, January 30, 2024, Docket — Vol. TI, pp. 1305 to 1306.

+ Docket — Vol. III, pp. 1307 to 1314.

% Docket — Vol. III, pp. 1319 to 1327.

6 Docket — Vol. III, pp. 1329 to 1330.

* Docket — Vol. III, pp. 1333 to 1345.

38 Docket — Vol. III, pp. 1348 to 1369.

* Minute Resolution dated August 5, 2024.

CT.\ Case No. 10606 IBiviS Ted!Jlo!o!!J' Pbil.r. Corp. tJJ. Co!l!l??i.u·ioner of" Tntema! Ret,ettm

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PhP1 ,199,233.29, PhP8,549,483.52, and PhPSO,OOO.OO, respectively, inclusive of increments for the taxable year 2017."40 Petitioner's arguments:

Petitioner argues that the LOA dated August 22, 2018, as well as the NIC, PAN and FAN, were not properly served to the authorized representative of the petitioner, hence, void; that respondent violated his own guidelines and procedures under Revenue l\Iemorandum Order (Rl\10) No. 45-2010, as the latter failed to issue the required Second Notice, Final Notice and Subpoena to petitioner; that respondent's right to assess petitioner of deficiency income tax, E\"'VT, VAT and IAET had already prescribed, except for the last quarter of the income tax, December 2017 of the E\"'VT, and 4rh quarter of the VAT; that respondent violated petitioner's constitutional right to speedy disposition of cases due to the inordinate delay in the issuance of the NIC, the PAN and FAN; that even granting, for the sake of argument, that the LO.A, the examination, audit and assessment are valid, petitioner is not liable for the deficiency taxes as enumerated in the FAN.

Respondent's counter-arguments:

Respondent contends that failure to revalidate petitioner's LOA does not affect its validity nor the assessment made pursuant thereto; that the assessment notices were issued in accordance with law, rules and jurisprudence, as petitioner was informed and afforded opportunity to controvert the findings of deficiency taxes; that petitioner is liable for the deficiency income tax, VAT, E\"'VT, IAET, and compromise penalty, for taxable year 2017; and that the necessity of proving that the tax assessment is invalid lies with the party assailing the validity of the assessment.

THE COURT'S RULING

The present Petition for Rez1ieu; is partly meritorious. The LOA, NIC, PAN and FAN issued by respondent were prope1-Jy served to petitioner.

Petitioner argues that the LO.t\., NIC, PAN and FAN were not properly served to the authorized representative of petitioner and, thus, should be considered void and produces no effect./ ~~~Statement of Issue, Pre-Trial Order dated '\'o\·ember 10, 2022, Docket-\' ol. I, p. 299. +I Discussion/.-\rguments, petitioner's ,\le!llorandm;;, Docket- \'ol. III, p. 1351.

CT\ Case No. 10606 I ElviS Tedl!lol!{l!)' P/Jdr. Corp. IJ.r. Commi .. ·.riomr o/I11temal lZe!Je/1//f

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The Court disagrees.

Section 228 of the National Internal Revenue Code (NIRC) of 1997, as amended mandates the following, viz.:

"SEC. 228.

ProteJting

of AJJeJJment.

When

the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: xxx

XXX

XXX

XXX

The taxpayer shall he informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void.

XXX

XXX

xxx." (EmphaJeJ added) Under the foregoing provision, it is explicitly required that the taxpayer be informed in writing of the law and of the facts on which the assessment is made; otherwise, the assessment shall be voidY· The requirement that the taxpayer must be informed of the factual and legal bases of the assessment is mandatory. It cannot be presumed. As a requirement of due process, this rule allows the taxpayer to make an effective protest.-+3 To be sure, the requirement set by law to state in writing the factual and legal bases for the assessment is not a hollow exhortation. The law imposes a substantive, not merely a formal requirement.++ Furthermore, it must be emphasized that failure to comply with Section 228 does not only render the assessment void, but also finds no validation in any provision in the Tax Code.-+5 In this regard, Section 3.1.7 (formerly Section 3.1.6) of Revenue Regulations (RR) No.

12-99,-~ 6 as amended by RR No. 18-2013,+7 and renumbered by RR No. 7-2018,+8 state~ .J2 Commi.!'..-io11er o{lll!enw/ Re!Jfl!ue I!J. A!IOII Produd.r. Ha;mfc~<lurill,~, Ill<' .. et .req., C .R. Nos. 201398-99 and 20141 8-19, October 3, 2018.

·11 Commi.r.riomr o/ !11/ema/ Re!lf!IIIe /JJ. jjJOII . .-e.r TZemi,gio P. 1\1agaclll am/ Le!ida L 1\.fa,gaal!, G.R. No. 232663, iiiay 3, 2021.

H Commi.r.rio11er olfntemal Re?Jemte IJJ·. U!lioi! Corporatioll, G.R. No. 204405, .-\ugust 4, 2021 . .J5 Id., citing Commi.uiomr olfntemal Rew11ue IJ.f. Reye.r, 516 Phil. 176, 191 (2006) . .Jr, SUBJECT: Implementing the ProYisions of the National Internal Revenue Code of 1997 Governing the Rules on .-\ssessment of National Internal Re,·enue Taxes, Civil Penalties and Interest and the Extra-Judicial Settlement of a Taxpm·er's Criminal \-iolation of the Code Through PaYment of a Suggested Compromise Penalty .

.J" SUBJECT:

.\mending Certain Sections of Revenue Regulations No. 12-99 Relative to the Due Process Requirement in the Issuance of a Dcficicnc;· Tax. \ssessment.

IR SUBJECT:

.-\mending Certain Sections of Revenue Regulations "'o. 12-99, as .-\mended by Revenue Regulations No. 18-13, Relative to the Due Process Requirement in the Issuance of a Deficienn· Tax .\ssessment.

CT\ Case No. 10606 IBlvJS Tetb!lolog)' P/Ji!r. Cotp. tJY. Co;;;mi.•:rioner o/fntemal Retletme

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"3.1. 7+9 Modes of Service.

The notice (PAN/FLD/FAN/FDDA) to the taxpayer herein required may be served by the Commissioner or his duly authorized representative through the following modes:

(i) The notice shall be served through personal service by delivering personally a copy thereof to the party at his registered or known address or wherever he may be found. A known address shall mean a place other than the registered address where business activities of the party are conducted or his place of residence.

In case personal service is not practicable, the notice shall be served by substituted service or by mail. (ii) Substituted service can be resorted to when the party is not present at the registered or known address under the following circumstances:

The notice may be left at the party's registered address, with his clerk or with a person having charge thereof. If the known address is a place where business activities of the party are conducted, the notice may be left with his clerk or with a person having charge thereof.

If the known address is the place of residence, substituted service can be made by leaving the copy with a person of legal age residing therein.

If no person is found in the party's registered or known address, the revenue officers concerned shall bring a barangay official and two (2) disinterested witnesses to the address so that they may personally observe and attest to such absence. The notice shall then be given to said barangay official. Such facts shall be contained in the bottom portion of the notice, as well as the names, official position and signatures of the witnesses.

Should the party be found at his registered or known address or any other place but refuse to receive the notice, the revenue officers concerned shall bring a barangay official and two (2) disinterested witnesses in the presence of the party so that they may personally observe and attest to such act of refusal. The notice shall then be given to said barangav official. Such facts shall be contained in the ---------- ~ 4 ~ :\s renumbered pursuant to Section 2 ofRR .\:o. 7-2018.

CT\ Case No. 10606 IBivlS 'ledlllo!ogy P/Jil.r. C01p. IJJ. Commi.uioner o/lntemal Re1;enue

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bottom portion of the notice, as well as the names, official position and signatures of the witnesses.

'DiJintereJted JvitneJJd refers to persons of legal age other than employees of the Bureau of Internal Revenue. (ii) Service by mail is done by sending a copy of the notice by registered mail to the registered or known address of the party with instruction to the Postmaster to return the mail to the sender after ten (1 0) days, if undelivered. A copy of the notice may also be sent through reputable professional courier service. If no registry or reputable professional courier service is available in the locality of the addressee, service may be done by ordinary mail.

The server shall accomplish the bottom portion of the notice. He shall also make a written report under oath before a Notary Public or any person authorized to administer oath under Section 14 of the NIRC, as amended, setting forth the manner, place and date of setvlce, the name of the person/barangay official/ professional courier setvice company who received the same and such other relevant information. The registry receipt issued by the post office or the official receipt issued by the professional courier company contmmng sufficiently identifiable details of the transaction shall constitute sufficient proof of mailing and shall be attached to the case docket.

XXX

XXX

xxx." (EmphaJeJ and zmder.rcoring added) From the foregoing, BIR notices may be setved through certain modes:

(1) primarily, through personal setvice by delivering personally to the party a copy of the notice; and in case personal setvice is not practicable, the notice shall be setved either: (2) by substituted service, or (3) by mail. Further, substituted setvice may be availed of only when it is shown that personal setvice is not practicable. It is further provided that substituted setvice can be resorted to when the party is not present at the registered or known address by leaving the assessrnent notices at the party's registered address, with 1 " ' l l " . 1 " l .

l " 1 f I t 1e party s c er <. or w1t 1 a person 1avmg c 1arge t 1ereo . n case no person is found in the address or if the party refuses to receive the notice, the ROs concerned shall bring a barangay official and two (2) disinterested witnesses to the address so that they may personally observe and attest to such absence or refusal; and that such fact shall be contained in the bottom portion of the notice, as well as the names, official position and signatures of the witnesses. / CT"\ Case No. 10606 IBJviS Tedlllology P/Jik Corp. IJJ. Commi.r.rio11er olfntemal Re;;enue

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In this case, pet1t1oner insists that the LOA, NIC, PAN and FAN respectively received by Mr. John Anthony Hagosojos, Mr. Rogie J arnot, Ms. Agnes Modio, and l\fr. Rico G. Cano, were not properly served as they are not authorized representative/ s of petitioner to receive the same and, thus, said notices should accordingly be considered void and without effect. For easy reference, a table is herein provided showing the recipients and the date of receipt of the said documents:

·-·---····-·~·-----·-- ----------- Date ofReceipt

Domment

Receiz;ed by

PoJition

!--······-··----~---

LOA

dated John Anthony

September

10, August 22, 201850 H~osojos 2018 t---· ----- .

·- undated NIC)1 _B:ogie 1~1?2()~-- A~gust 26, 2020 ..

---------~· ..

PAN

dated Ma

Agnes Purchasing

November

26,

November

23, Modio

Officer

2020 202052 ··--- -· . ·--------·- ---------- -~---- ··--

FAN

dated Rico G. Cano Asst. Logistic

December

23,

December

22, 2020 202053 Considering that the said documents were received by pet1t1oner through the above-mentioned individuals, there is no doubt that the service of the same was done through substituted service. As pointed our earlier, such service may be done by leaving the notice at the party's registered address, with the latter's clerk or with person having charged thereof. But in this case, despite the receipt of the said notices by an unauthorized individual, petitioner's witness, l\Is. Nonato, admitted that the same were still received by petitioner. Pertinent portions of l'vfs. Nonato's testimony are quoted hereunder: 5+ "Atty. Rosario:

Witness:

Atty. Rosario:

Witness:

Thank you, Your 1--Ionor. Good 1norning l'vis. Nonato. Sa sagot mo sa Question No. 9 ng yung Judicial Affidavit sinabi mo dito na naka-receive kayo ng Notice of Informal Conference, tama po ba?

'fama po.

Okay, at sinabi mo rin sa sagot mo sa Question No.6 ng yung Judicial "-\ffidavit na may pinadala sa inyong Letter of Authority, tama po ba?

Tama po./ '"Exhibit "R-2", BIR Records (Exhibit "R-1"), p. -1-62. >I Exhibits "P-2" and "R-4", BIR Records (Exhibit ''R-1"), p. 837. ' 2 Exhibits "R-6" to "R-9", BIR Records (Exhibit "R-1"), pp. 896 to 90(J. ''Exhibits "R-11-a" to "R-1 5", BIR Records (Exhibit "R-1 "), pp. 977 to 990. 'i.J Transcript of the Stenographic )'.;ores (TSN) during the hearing held on February 28, 2023, pp. 10 to 13, and 15to16.

CT"-\ Case No. 10606 IBiVIS Tedmology Pbi!r. Co!J!. /IJ. Cot11111i.r.riomr oj'l!l!ema! Rt!Je/1/fe

Page 12 of 57

Atty. Rosario:

Witness:

Atty. Rosario:

Witness:

Atty. Rosario:

\V'itness:

XXX

XXX

Atty. Rosario:

Witness:

Atty. Rosario:

Witness:

Atty. Rosario:

Witness:

Atty. Rosario:

Witness:

Atty. Rosario:

Witness:

Atty. Rosario:

Witness:

XXX

At ito ay para sa audit ng inyong books of accounts and accounting records for taxable year 2017, tama po?

Opo.

So ibig sabihin natanggap ng petitioner itong Letter of Authority, tama po:J Opo.

Alam mo ba kung kailan ito natanggap ng petitioner? September 2018 po.

~Ialiban sa Letter of Authority meron pa bang ibang dokumento pina-receive ang B IR sa petitioner? Meron pa bang ibang dokumento maliban sa Letter of "-\uthority?

Pagkatapos po ng Letter of Authority po yung notice po yun na po yung na-recei\"C.

I\Is. \'Vitness kasama ng Letter of Authority meron pa bang iba11g doku111e11tot1g pinadala or pit1a-recei\re si BIR?

\\!ala na po pagkatapos po nun 2020 na po yung next na pinadala po.

Sa iyong sagot sa Question No. 5 ng iyong Judicial Affidavit sinabi mo dito na ikaw ang n1ay kustodiya ng mga financial records ng IBMS tama po ba? Opo.

At maari ko bang n1alaman Ms. \V'itness if tnay partisipasyon ka sa mga pagsulat ng petitioner kay BIR?

Ang ginawa po kasi namin is yung pagre-ready po nung mga kuwan po mga kailan na ni-request ng BIR po.

So nag request ang BIR kay petitioner ng mga dokumento, tama po?

Opo nagpadala din po kami pagkatapos po nung Notice for Informal Conference po.

Pagkatapos ng Notice for Informal Conference?

Opoj/

CT~-\ Case No. 10606 IBlviS Tedlllo!o._!!)' P/Jik Corp. IJJ. Col!lmix.rio11er olf11temal Re!JeiZNe

Page 13 of 57

XXX

XXX

XXX

Atty. Rosario:

Witness:

Atty. Rosario:

Witness:

Atty. Rosario:

\'\fitness:

"tvis. Witness sinabi mo rin sa iyong Judicial Affidavit na nakatanggap ang petitioner ng Preliminary Assessment Notice, tama po ba?

Tama po.

At ito ay nasa inyong records, tama po?

Yes or no Ms. Witness?

Nandito po.

At sinabi rno nn sa iyong Judicial £\ffidavit na nakatanggap ang petitioner ng Formal AssesstTJ.ent Notice, tama po ba?

TatTla po."

Evidently, petitioner received the subject LOA, NIC, PAN and FAN, notwithstanding the fact that the same were allegedly not received by its duly authorized representative/ s.

Further, RO Ifurung testified that petitioner did not "raise the issue that it did not receive the LOA, NI C, and the PAN in this case", and that "there is no issue on the receipt of the LOA, NIC, PAN and FAN". 55 Thus, it is of no moment if the persons who received the said notices are not the duly authorized representative of petitioner.

Moreover, no evidence was presented by petitioner to prove the fact that they are not duly authorized to receive any letters or communications on behalf of petitioner. Thus, petitioner's bare allegations, unsubstantiated by evidence, are not equivalent to proof. 5c' The foregoing facts clearly demonstrate that petitioner was not deprived of due process, as it was fully apprised of the legal and factual bases of the assessments issued against it.

The absence of the issuance of the First Notice, Second Notice and Final Notice, and Subpoena does not render the subject assessments void.

Petitioner argues that the conduct of the exmmnatlon, audit and assessment are void due to respondent's failure to issue the required Second ~ 55 TSN during the hearing held on January 30,2024, p. 41. ;r, Si11g.ron I'J. Spotue.r LCIIJlio, G.R. No. 238714, c\ugnst 30, 2023.

CT-\ Case No. 10606 !Biv1S Tedmology P/Ji!r. Corp. 11.r. Commi.uiomr o/IIltenw! Rel'etllle

Page 14 of 57

Notice,

Final

Notice

and

Subpoena

to petltloner for the submission/presentation of its books of accounts, records and documents as enumerated in respondent's own Checklist of Requirements and as required under IUvfO No. 45-2010. 57 The Court again disagrees.

RMO No. 45-201058 was issued to prescribe the policies and guidelines in cases where the taxpayer refuses to produce documents or records requested and the issuance of subpoena d1tces fettlm (SOT) to compel non-cooperative taxpayers to comply, to wit:

"1. If the taxpayer, upon receipt of the (1) Letter of Authority (LA) and checklist of presentation of the requirements for the audit, or (2) access to records request, the Revenue Officer (RO) concerned shall send a First Notice, signed by himself and/ or his group supervisor, to the taxpayer, after ten (1 0) calendar days from receipt of the LA and checklist of requirements/ access to records request, demanding the taxpayer to furnish to the RO the requirements previously requested.

2. However, if the taxpayer ignores the First Notice and continues to disregard the demand for the submission of the required documents, a Second and Final Notice, signed by the Head of Office concerned, shall be sent to the taxpayer after ten (1 0) calendar days from receipt of the First Notice.

3. If, after the taxpayer's receipt of the Second and Final Notice, said taxpayer still refuses to comply with the requirements of the notice, the Head of Office shall request for the issuance of a subpoena duces tecum (SDT) from the Legal Service (National Office), Legal Division (Regional Office), or any other authorized office, after ten (1 0) calendar days from receipt of the Second and Final Notice.

xxx xxx xxx" (E17rphme.r and tmderJcoring added) Based on the foregoing, it is clear that the issuance of a First Notice, Second and Final Notice and SDT, as the case may be, is prescribed when the taxpayer refuses to produce documents or records requested, hence, the issuance thereof is not required all the time during an audit.;¥' 57 Pars. 12 and 16, Discussion/. \rgumcnts, petitioner's :HemoraJJdNm, Docket -- \' ol. III, pp. 1353 to 1355. ;~ SUBJECT: Revised guidelines in the l"Cllucsts for the production of the books of accounts and/ or other records and document,; ·,md in the issuance of Subpoena Duces Tecum for failure of taxpayers to Comply with the requests.

CT.\ Case No. 10606 IBMS Techllology Phi!r. Cotp. tJ.r. Commi.r.rio11er oj'IIltema/ l<..etJetzue

Page 15 of 57

In this case, there is no showing that petitioner ignored, disregarded or refused to produce the documents or records requested by the BIR that would necessitate the issuance of a First Notice, Second and Final Notice and SDT to compel petitioner to comply with such request. In fact, after the issuance of the LOA, 59 together with CheckliJ-t of Reqttirements,60 petitioner submitted documents to respondent, which was confirmed by petitioner's witness, to wit: 61 "'

R

.

r ... tty.

osano:

\Vitness:

Atty. Rosario:

Witness:

XXX

XXX

XXX

.Atty. Rosario:

XXX

XXX

XXX

At maari ko bang malaman Ms. Witness if may part1s1pasyon ka sa mga pagsulat ng petitioner kay BIR?

Ang ginawa po kasi namin is yung pagre-ready po nung mga kuwan po mga kailan na ni- requcst ng BIR po.

So nag-request ang BIR kay petitioner ng mga dokumento, tama po?

Opo nagpadala din po kami pagkatapos po nung Notice for Informal Conference po.

I'vieron kayaong pina-receive na mga books of accounts and other accounting records sa RIR, tama po?

Justice San Pedro: Overruled, the witness may answer. Repeat the question please.

Nagpadala kayo ng mga dokumento sa BIR?

Atty. Rosario:

Tama po?

Witness:

1 ~ " ama po.

J\Ioreover, there are documents found in the BIR Records.62 Although there was no transmittal letter included therein, hence, there was no proof whether these documents were submitted by petitioner or from the BIR's records,63 the fact remains that there are documents or records of petitioner in the BIR Records, and as explained by respondent's witness, there is no need to 59 Exhibit "P-1", Docket- \-ol. I, p. 375; Exhibit "R-2", BIR Records (Exhibit "R-1"), p. 462. w Exhibit "R-3", BIR Records (Exhibit "R-1"), pp. ·f60 to ·lC>l. 61 TSN during the hearing held on February 28, 2023, pp. 13 to 15. 61 BIR Records (Exhibit "R-1 "), pp. 463 to 793. 61 TSN during the hearing held on JanuarY 30, 2024, p. 19. ,/1/ CT.\ Case No. 10606 IBiVIS Tedl!lo!og)' pf,ik Co1p. IJJ. Commi.r.rioner o/111tenw/ 1Zel!f11ue

Page 16 of 57

----------------------------------------------------- send another notice to the taxpayer if the documents are already substantial to make an assessment. 64 Even granting that petitioner refused or failed to comply with the rec1uest to produce documents, Section 6(B) of the NIRC of 1997 authorizes respondent to assess proper tax on the best evidence available, to wlt:

"SEC. 6. Pmver qf the Commissioner to Make Assessments and

PreJtribe

Additional Reqttirement.r for Tax Admini.rtration and Enforcement. -

(A)

XXX

XXX

XXX

(B)

Pailmll to Submit Required RetHrm, S tatementJ, Reports and other Documents. - When a report required by law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time fixed by laws or rules and regulations or when there is reason to believe that any such report is false, incomplete or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable.

XXX

XXX

XXX"

Hence, it was erroneous for pet1t1oner to state that issuance of the

Second

Notice,

Final

Notice

and

Subpoena

to petltloner for the submission/presentation of its books of accounts, records and documents as mandated under RMO No. 45-2010 is part of the entire process.

Correspondingly, there was no blatant violation of petitioner's constitutional right to due process.

Petitioner was not and was never deprived of its constitutionally protected right to speedy disposition of cases when the subject NI~ PAN and FAN were issued more than two (2) years tram the date of the issuance of the LOA.

Petitioner alleges that under ~\110 No. 19-2015, the report of investigation/verification of cases covered by electronic Letter qf Authorities ( eLAs) shall be submitted by the RO within 180 calendar days only. But in the present case, respondent accordingly served the LOA on September 10, 2018, the NIC on August 26, 2020, the PAN on November 26, 2020, and the FAN on December 23, 2020. These alleged services of the NIC, PAN, and FAN were only made after more than two (2) years from the issuance of the LOA on August 22, 2018. Thus, petitioner is of the considered view that the inordinate /!/' 1 ·~ TSN during the hearing held on JanuatT ~0. 202cl, p. 12.

CT.\ Case No. 10606 IBiVIS Ted11zolo!!)' P/Jil.r. Co1p. P.r. CoJJ/ll?l~rJio~~er o(Intema/ IZew1111e

Page 17 of 57

delay in the conduct of the examination, audit and the issuance of the NIC, PAN and FAN violates its right to due process of law and the speedy disposition of cascs.65 Respondent, on the other hand, argues that the failure to revalidate petitioner's LOA does not affect its validity nor the assessment made pursuant to the same.

The Court agrees with respondent.

While it is true that in Rl'/IO No. 19-2015,66 there is indeed a prescribed 180-day period for regional cases within which to submit a report of investigation/verification,67 there is nothing, however, therein that states that in case the 180-day period to submit the said report of investigation is not observed, the LOA issued will be a nullity. In fact, in the same issuance, it was clearly stated that the failure to render a report of investigation/verification within the time frame shall not nullify the eLA, to wit: "28.

Failure on the part of the RO to render a report of investigation/verification within the time frame prescribed above shall not nullify the eLA. The eLA is enforceable even if it remains outstanding beyond the time frame for submission of report of investigation/verification by the RO assigned to the case, subject to the period of limitation under Sections 203 and 222 of the Tax Code of 1997, as amended. However, the RO who fails to submit the report investigation/verification shall be subject to any applicable administrative sanction." (EmphaJes added) It should likewise be noted that the requirement of revalidation of LOAs for failure to complete audit was already withdrawn beginning June 1, 2010, pursuant to lu\10 No. 44-2010,68 the pertinent portion of which reads: "8.

Beginning June 1, 2010, the rule on the need for revalidation of LAs for failure of the revenue officials to complete the audit within the prescribed period shall be withdrawn. Accordingly, there is no need for revalidation of the LA even if the prescribed audit period has been exceeded. However, the failure of the RO to complete the audit within the prescribed period sh~ r,s Pars. 30 to 33, Discussion/.-\rguments, petitioner's "\Iemrmmrlum, Docket-- \'ol. III, pp. 1359 to 1360. r,r, SUBJECT:

BIR .-\uclit Program 1•7 Item III.25, Revenue i\Iemoranclum Order (Ri\IO) No. 19-2013. r.H SUBJECT:

Electronic Issuance of Letters of .-\uthority CT\ Case No. 10606 IBivfS Tedwo!O!!J' Pbik Cotp. IJJ. CommL~(riomr o/l11tema/ Re!Jmue

Page 18 of 57

be subject to the applicable administrative sanctions." (Emphasis added) :Moreover, the above provision was reiterated in Rl\10 No. 19-2015 in this wise:

"29.

As stated in Item Number IV.8 of RMO No. 44-2010, it is reiterated that pending eLAs as of the effectivity of the said Order shall no longer be revalidated. In case the report of investigation cannot be rendered within the prescribed period, the concerned RO shall prepare a monthly progress report starting from the time such audit report should have been rendered stating therein the reason for the delay in the submission of the report of investigation duly noted by his GS and approved by the RDO/LTD/LL-\D. The said progress report/s shall be attached to the docket of the case." (Emphasis added) Thus, as correctly argued by respondent, the lapse of the 180-day period under fuyfQ No. 19-2015, and the failure to revalidate the LO.A, are of no moment, as the same will not have the effect of nullifying the subject tax assessments. Consequently, petitioner's claim that it was deprived of its constitutionally protected right to speedy disposition of cases when the subject NIC, PAN and FAN were issued two (2) years from the date of the issuance of the LOA has no leg to stand on.

Respondent's

right to assess petitioner has already prescribed for the deficiency VAT for the pr to Jd quarters of taxable year 2017, and the deficiency EWT for the months of January to November of taxable year2017.

Petitioner claims that respondent's right to assess petitioner's income tax, EWT, VAT and L-\ET had already prescribed, except for the last quarter of the income tax, December 2017 of the E\'vT and 4rh quarter of VAT for 2017. Section 203 of the NIRC of 1997, provides:

"SEC. 203.

Period if Limitation

Upon

Assessment and

Collection. - Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such perio~ CT"'\. Case No. 10606 IBi'viS TedJ!tOiog)· P/Ji/.r. C"o!JJ. IJJ. Commi,·.rioller o/llltenzal Ret'e!lue

Page 19 of 57

----------------------------------------------------- Provided, That in a case where a return is filed beyond the period prescribed by law, the three-year period shall be counted from the day the return was filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day." (Emphases and tmdeJ:rcori.ng added) Based on the foregoing provision, it is clear that except as provided in Section 222 of the NIRC of 1997, internal revenue taxes must be assessed within three (3) years from the last day prescribed by law for the filing of the tax return or the actual date of filing of such return, whichever comes later.69 As a corollary, an assessment notice issued after the three (3)-year prescriptive period is not valid and effective. 70 By way of an exception, under Section 222 of the NIRC of 1997, there are instances when the government may assess pertinent taxes against taxpayers even beyond the said three (3)-ycar prescriptive period. Said provision reads as follows:

"SEC. 222.

Exapti.om as to Period if Limitation if AsseJSment and Collection ifTaxes.-

(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed or a proceeding in court for the collection of such tax may be flied without assessment, at any time within ten (10) years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof.

(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon.

XXX

XXX

" XXX.

In view thereof, the Court shall refer to the specific provisions of the law or regulations prescribing the period within which to file the pertinent tax returns vis-a-vis the actual date of filing of the said tax returns by petitioner, td W Refer to Co171171i.r.rio11er oj"IIllenzal Rn'ell!te /'J·. K11do.r Aletcd Corpo;~;tioll, C .R. ]'..j o. 178087, ;\Iay 5, 2010. 711 Commi.uiolleroj"IIllemal Re!Jetltfe !!.1·. ;Ye.\."t 1\fobi/e, 111(., G.R. No. 212825, December 7, 2015.

CT\ Case No. 10606 IB1VIS Ted111ology P/1i/.r. Corp. t'J. C.ommiJJio11er o/lll!emal Rewnue

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----------------------------------------------------- adjudge the commencement and end of the three (3)-year prescriptive period under Section 203 of the NIRC of 1997 for the present case. Pursuant to Section 77 (B) of the NIRC of 1997, the filing of corporate income tax final adjustment return shall be on or before the 15th day of April, or on or before the 15th day of the 4th month following the close of the fiscal year, as the case may be, to wit:

"(B) Time if Filing the Income Tax Return. - The corporate quarterly declaration shall be filed within sixty (60) days following the close of each of the first three (3) quarters of the taxable year. The final adjustment return shall be flied on or before the fifteenth (15th) day of April, or on or before the fifteenth (15th) day of the fourth (4th) month following the close of the fiscal year, as the case may be."

Notably, petitioner's final adjustment return or Annual Income Tax Return (ITR) for taxable year 2017, must have been filed on or before April 15, 2018.

\'Vith respect to the filing of VAT returns, Section 114(A) of the NIRC of 1997, as amended, and as implemented by Section 4.114-1 of RR No. 16- 2005,71 provides that every person liable to pay VAT shall file a return of its quarterly gross sales or receipts within twenty-five (25) days following the close of the taxable quarter. Said Section 114(A) provides: "SEC 114. Ret11rn and Pcryment if Value-added Tax.-

(A)

In General. - Every person liable to pay the value- added tax imposed under this Title shall file a quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the close of each taxable quarter prescribed for each taxpayer:

PrmJided, however, That V1\T-registered persons shall pay the value-added tax on a monthly basis." (EmphaJiJ added) Moreover, Section 4.114-1 of RR No. 16-2005 states: "SECTION 4.114-1.

f<zii11g if Return and Pcryment if VAT.-

(A)

Filing if Return. - Every person liable to pay VAT shall file a quarterly return of the amount of his quarterly gross sales or receipts within twenty five (25) days following the close of taxable quarter using the latest version of ;./

71 SUBJECT:

Consolidated \'aluc-.-\dded Tax Regulations of 2005, September 1, 2005.

CT\ Case No. 10606 IBJvJS Tedmology Pbik CrJJp. IJ.I. Co17117lic..-iomr oj"llllemal 1\.e!Je//Ne

Page21 of 57

Quarterly VAT Return. The term 'taxable quarter' shall mean the quarter that is synchronized to the income tax quarter of the taxpayer (i.e., the calendar c1uarter or fiscal quarter). Amounts reflected in the monthly V"'-\ T declarations for the first two (2) months of the quarter shall still be included in the quarterly VAT return which reflects the cumulative figures for the taxable quarter. Payments in the monthly VAT declarations shall, however, be credited in the quarterly VAT return to arrive at the net VAT payable or excess input tax/ over-payment as of the end of a quarter." (Empbmis added) Based on the foregoing provisions, petitioner's Quarter!J VAT Returns for the four ( 4) quarters of taxable year 2017 should have been flied on or before:

(1) April 25, 2017, for the pr quarter; (2) July 25, 2017, for the 2"0 quarter; (3) October 25, 2017, for the 3ru quarter; and ( 4) January 25, 2018, for the 4rh quarter, respectively.

\'Vith regard to withholding taxes, Section 2.58 of RR No. 2-98/2 as amended by RR No. 17-2003,73 provides that the filing of withholding tax returns shall be made within ten (1 0) days after the end of each month, except for taxes withheld for the month of December, the return for which must be filed by January 15 of the following year. However, for taxpayers who availed of the electronic filing and payment system (EFPS), the deadline for electronically filing the applicable withholding tax returns and paying the taxes due thereon via the El:.;'PS shall be five (5) days later than the abovementioned deadlines, unless the EFPS regulations provide for different deadline dates. The relevant provisions of RR No. 2-98, as amended, read: "Sec. 2.58.

RETURNS AND P.A YJ\!IENT OF TAXES WITHHELD AT SOURCE. - n SUBJECT:

7-1 SUBJECT:

("'-\) Month!J ret11rn and pC!)mtent of taxes withheld at sottrce. - (1)

XXX

XXX

XXX

(2) JV.HE1\J TO FILE - / Implementing Republic ~\ct No. 8424, "An ~\ct ~\mending the National Internal Revenue Code, as ~-\mended" RelatiYe to the \\(ithholding on Income Subject to the Expanded Withholding Tax and Final \'?ithholding Tax, Withholding of Income Tax on Compensation, \Vithholding of Creditable \'alue-.\dded Tax and Other Percentage Taxes. ~\mending Further Pertinent Provisiom of Revenue Regulations No. 2-98, as ~\mended,

Providing for

~\dditional Transactions Subject to Creditable \Vithholding Tax; Re- Establishing the Policy that the Ctpital Gains Tax on the Sale, Exchange or Other Disposition of Real Property Classified as Capital .\ssets Shall be Collected as a Final \\"ithholding Tax, Thereb1· Further ~\mending Revenue Regulations :Nos. 8-98 and 13-99, as ~-\mended lA Re,•enue Regubriom '\o. 1-1-2000; and for Other Purposes.

CT-\ Case No. 10606 IBivlS Tedl/lolo!!J· P/Ji/.r. Corp. l'J. LOJ?IIlt/,·_~io))er o/l))!emal ReJJmlfe

Page 22 of 57

(a) For both large and non-large taxpayers, the withholding tax return, whether creditable or final (including final withholding taxes on interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements) shall be filed and payments should be made, within ten (10) days after the end of each month, except for taxes withheld for the month of December of each year, which shall be filed on or before January 15 of the following year; xxx.

XXX

XXX

XXX

(b) With respect, however, to taxpayers, whether large or non-large, who availed of the electronic filing and payment system (EFPS), the deadline for electronically filing the applicable withholding tax returns and paying the taxes due thereon via the EFPS shall be five (5) days later than the deadlines set above, unless the EFPS regulations provide for different deadline dates and except for the final capital gains tax on the sale, barter or exchange of real property where the law fixes a definite deadline for the payment thereof." (Emphases added) Relative thereto, Section 7 of RR No. 9-2001/4 as amended by RR No. 26-2002/5 provides for the staggered filing of returns of taxpayers enrolled in the EFPS based on industry classification.

For petitioner, whose Line of Business is "OTHER COl'viPUTER RELATED ACTIVIES" ,76 and thus, classified under Group C, its monthly E\'VT Returns shall be flied thirteen (13) days after the end of each month, to wit:

"Section 7.

TIME OF FILING OF RETURl'\f. - For purposes of filing returns under the EFPS, the taxpayers classified under the following business industries shall be required to file the Monthly Withholding Tax Returns, except withholding of \T aluc-~-\dded Tax; i\i!onthly VAT Declarations; and 1\!Ionthly Percentage Tax Returns, on or before the dates prescribed and presented herein-below:

BUSINESS INDUSTRY

tviONTHLY

\'VITHHOLDING

T .. r\X RETURNS n SUBJECT: Electronic Filing of Tax Returns and Payment of Taxes.

XXX

-----·/V"'

7o SUBJECT:

_\mending Further Rcncnue Regulations No. 9-2001, as _\mended by Revenue Regulations :\:a. 2-2002 and Re,·emlc Regulations ~o. 9-2002, Providing for the Staggered Filing of Returns of Taxpm·ers Enrolled in the Electronic Filing and Payment System (EFPS) Based on Indus try Classification.

7!, Refer to Exhibits "P-15" to "P-26-3", Docket- \'ol. I, p. 1160 to Docket-· \'ol. 2, p. 536.

CT\ Case No. 10606 !ElviS TedJJlo!ogy P/Ji!r. Co1p. !J.i". CommiJ"J"ioner oj"ln!emal Re~JeJJ!Ie

Page 23 of 57

EXCEPT

\'VITHHOLDING

OF VALUE

ADDED TAX

------------- -~-----~----l-~---

XXX

XXX

XXX

1----------~--- --- -----------·- --~------ ------1----!

Group C

Retail Sale

\'\/holes ale

Trade

Commission Trade

and Sale, Maintenance, Repair of

Motor

Vehicle,

Sale

of

Automotive Fuel

Collection,

Purification

and

Distribution of\'Vater

Computer

and

Related

Activities

Real Estate Activities

• Thirteen

(13) xxx days following end of the month.

xxx xxx xxx" (Emphases added) However, Revenue 1\Iemorandum Circular (RNIC) No. 2-200377 clarified that RR No. 26-2002 speaks only of eji!ing and, therefore, due dates on the payment of taxes remain unaffected by the said regulations.78 Hence, for December E\'VT Returns which are due fore-filing on January 11-15 shall no longer have an additional five (5)-day grace period. Nonetheless, since RR No. 26-2002 speaks only of e-filing of returns, the payment of the tax due thereon shall still follow the deadline set [i.e., additional five (5) days from due date, which is on January 20 of the following year]. 79 Thus, petitioner's E\'VT returns for the twelve (12) months of taxable year 2017 should be flied within thirteen (13) days after the end of each month, but payment thereof should be made fifteen (15) days after the end of each month, except for taxes withheld for the month of December, which shall be filed on or before January 20, 2018.

Moreover, the assessment contemplated in Sections 203 and 222 of the NIRC refers to the service of the FAN upon the taxpayer. 80 Correspondingly, for purposes of the subject tax assessments of deficiency income tax, "VAT and E\'vT against petitioner for taxable year 2017, the end of the three (3)-year prescriptive period under Section 203 of the 1997 NIRC, as amended, is respectively determined as followsy n SUBJECT:

Clarifying Certain Issues Relati\·e to the Staggered Filing of Returns Pursuant to Revenue Regulations No. 26-2002.

7 ~ Q&.\ No.4, R:\IC ~o. 2-2003.

79 Refer to Q&.-\ No.3, Ri\IC No. 2-2003.

Ho CommiJ"J"iomr o/ln!emal ReJ!f/J!Ie ,,_,._ Trclll.i"!/iun.r Op!iml P/JilipjJineJ. lit<'., G.R. No. 2275~f4, November 22, 2017.

IBMS Technology Phils. Corp. vs. Commussioner of Internal Revenue

Last Day Three (3

BIR Form rere Period Date of Actual | Prescribed by Law ee C ) year Date of Receipt Exhibit No. we was Prescriptive No. Covered Filing for Filing the . of FAN

Period to Assess

Return _

Income Tax ee - ee

82 “P-10" to “P- Taxable Year

1702-RT 3983 84

10-2 2017 Apr. 16, 2018 Apr. 16, 2018 Apr. 16, 2021 Value-Added Tax (VAT) 7 ee __.

“p-517% 1st Quarter Apr. 22, 2017 Apr. 25, 2017 Apr. 25, 2020 “e > / ~ 2550-Q® P-52 _ 24 Quarter July 25, 2017 25, 2017 Jul. 25, 2020 7 “P53” _| 34 Quarter Oct. 19,2017 | Oct. 25,2017 | Oct. 25, 2020 “ 489 - 4p .

. P-54 | 4 Quarter. Jan. 25, 2018 Jan. 25, 2018 Jan. 25, 2021

Expanded Withholding Tax (EWT)

“P_15” to “P- aI I 15-37" | January Feb. 13, 2017 Feb. 13,2017 | Feb. 13, 2020 “P_16” to “P- 16-37? February | Mar. 10,2017 | Mar. 13, 2017 Mar. 13, 2020 “P-17” to “P- = 493 Cone 49 9n1 794 17-3 March Apr. 11, 2017 Apr. 17, 2017 Ape. 17, 2020 Dec. 23 29208! “P_18” to “<p. ™” 18.3795 April | May 13,2017. | May 15, 2017 May 15, 2020 “p.19” to “p_ 97 19-3 May June 13, 2017 June 13, 2017 June 13, 2020 0 20.3778 June_ July 12, 2017 | July 13, 2017 July 13, 2020 “P-21” to “P- »99 = 47100 21-3 July — Aug. 10,2017 | Aug. 14, 2017 Aug. 14, 2020 “P22” to “P- 99.37 101 August Sept. 11,2017 Sept. 13, 2017 Sept. 13, 2020 “P.23” to “P- 2 102 . SAAS 23.3710 September | Oct.10,2017 | Oct. 13, 2017 | Oct. 13, 2020 | “P24” to “P- 24-37! | October Nov. 10, 2017 Nov. 13, 2017 Nov. 13, 2020 “P-25” to “P- | November _ Dec. 6, 2017 | Dec. 13, 2017 Dec. 13, 2020 _ 8! Exhibits “R-11-a” to “R-1l-e” and “R-15”, BIR Records (Exhibit “R-1”), pp. 986 to 990 and 976, respectively. ;

82 _4unual Income Tan Return.

8 Docket — Vol. I, pp. 438 to 446.

8 April 15, 2018, fell on a Sunday.

85 Quarterly Walue-Added Tan Return.

86 Docket — Vol. 2, pp. 597 to 598.

7 Docket — Vol. 2, pp. 599 to 600.

88 Docket — Vol. 2, pp. 601 to 602.

* Docket — Vol. 2, pp. 603 to 604.

” Monthly Remittance Return of Creditable Income Taxes Withheld (Expanded).

°! Docket — Vol. I, pp. 460 to 461.

% Docket — Vol. I, pp. 469 to 471.

% Docket — Vol. I, pp. 472 to 474.

“4 April 13 and 1+, 2017 are holidays (Holy Thursday and Good Friday).

> Docket — Vol. 1, pp. +78 to 480.

% May 13, 2017 fell on a Saturday.

°7 Docket — Vol. I, pp. 484 to 486.

°8 Docket — Vol. I, pp. 493 to 495.

” Docket — Vol. 2, pp. 502 to 504.

100 August 13, 2017 fell on a Sunday.

4 Docket — Vol. 2, pp. 509 to 511.

"2 Docket — Vol. 2, pp. 515 to 517.

3 Docket — Vol. 2, pp. 521 to 523.

CT.\ Case No. 10606 IB1\1S Tedl!lo!ugy P/Ji/.1. Corp. tl.i'. Commix.riumr o/lntemal RetJenue

Page 25 of 57

25-3" 10+ "P-26" to "P-

26 "" 1 OS

- .

T

1- 2018106 '----------'--.. ___ -_? ________ December ____ b!.::_~~. ~_1~------ an. ____ ::J __ ' ______ L,_-'J"-a_n_. _15-'-,_20_2_1_L__ ____ _ Correspondingly, since the FAN dated December 22, 2020 was received by petitioner on December 23, 2020,107 the assessments for the 1st to 3ru quarter VAT, and the EWT for the months of January to November, for taxable year 2017, have already prescribed. Thus, respondent's assessments thereon are considered void on the ground of prescription. It is noted that while the assessment covering the months of January to November for taxable year 2017 had already prescribed, petitioner was unable to point out which portion of the assessment pertains thereto, hence, the entire E\"VT assessment shall be considered as pertaining to the month of December 2017.

Petitioner is still liable for deBcienLy income tax, VAT, EWT and IAET, for taxable year 2017.

As pointed out earlier, respondent assessed peuuoner of deficiency income tax, VAT, E\X!'T and lAET, in the respective amounts of P69,097,592.80, P45,989,801.06, P1,199,233.29, and P8,549,483.52, inclusive of increments, and compromise penalty of PSO,OOO.OO for failure to file and pay IAET for the taxable vear 2017, summarized as follows: " ------ ------- ------ --- ------- . r---- --------

Tax Type

Basic Deficiency

Interest

Total

Tax

___ ?ut:,cha~~---- _ ----------· ····-· ------

Income Tax

p 51,757,965.38 - p 17,339,627.42 p 69,097,59

VAT

----- 33,78},)iJ2.96- - 12,206,438.10 45,989,80 -- --------------- ------ -- -- . --------

EWT

878,814.95 - ---·---------------- 320,418.34 ------------- 1,199 ,_~_3_ 2.80 1.06 3.:29 3.52

0. 00 0.67

IAET

5,720,238.09 p 1,430,059.52 1,399,185.91 8,549,4g --

Compromise

1-- 50,00

Total

----- -· --------------- -----------~- P92,140,381.38 __ P1,430,059 .52 p 31,265,669.77 p 124,886,11 I.

Income Tax

Petitioner was assessed of deficiency mcome tax 1n the amount of P69,097,592.80, computed as follows:

Taxable Income (Loss) per return Add: Adjustments/ disallowances 1114 Docket- \'ol. 2, pp. 527 to 529.

lllo Docket- \'ol. 2, pp. 534 to 536.

wr. January 13,2018 fell on a Saturday.

Ill' Exhibits "R-11-a" to "R-11-e" and respectively.

p 58,242,537.00 / "R-15", BIR Records (Exhibit "R-1"), pp. 986 to 990 and 976 CT~\ Case No. 10606 IBlviS Tedi!lo!ogy Pbik Cotp. !JJ. Commi.r.riomr o/flllemal E.e!!enue

Page 26 of 57

Disallowed Expenses due to Non- withholding

Undeclared Receipts

Disallowed Purchases

Gain on sale not subjected to Income Tax

Overclairned Depreciation Expense

Disallowed Representation and

Entertainment Expense

Adjusted Taxable Income

Income Tax Due

Less: Tax Credits/Payments

Payments

Creditable Tax Withheld

Basic Tax Due

Add: Interest 12% (04.16.18 to 01.29.21)

TOTAL AMOUNT DUE

p 29,067,239.34 119,811,294.00 21,731,187.86 335,000.00 807,907.79 773,921.95 14,118,130.00 3,354,631.00 172,526,550.94 p 230,769,087.94 69,230,726.38 17,472,761.00 p 51,757,965.38 17,339,627.42 P69,097 ,592.80 The deficiency income tax was based on the following grounds: ------- ----- ...

------ A. Disallowed expenses due __ ~C?_non-withholding p 29,067,239.34 1--- ..

.

---- B. Undeclared Receipts 119,811,294.00 .

c. Disallowed Purchases 21,731,187.86 --------------------------- D. Gain on~~e not subjected_~~) __ I~~c_<2~1!~_Iax ___ -· 335,000.00 E. Overclaimed Depreciation Expense 807,907.79 F. Disallowed Representation and Entertainment

Expense

773,921.95 The merits of the above-mentioned grounds are addressed one by one below.

A.

Disallowed expenses due to non-withholding According to respondent, a comparison of the expenses reported in the Financial S tatementJ (l"S) and ITR with those listed in the petitioner's Alpba!iJt of withholding tax returns revealed discrepancies totaling P29,067,239.34 in expenses that were not subjected to withholding tax, 108 as computed below: 109

Income Payments

Per FS/ITR

Per Alphalist

Discrepancy

EWT

EWT due

Commission

Director's Fee

Purchase of Goods -- Top

20,000 Corporation

Materials

Office Supplies

Fuel and Oil

Additions to PPE

____ _!~,935,600:9_0_ 666,667.00 101 ,Cll /1,292.00 966,713.00 248,386.00 367,52"1.55 P478,556.30 P5,457,043.70 666,667.00 79,285,862.36 21,728,429.64 966,713.00 248,386.00 367,524.55 ill~ Par. 37.1' respondent's AII.O/ler (!l'"it/J c\j>e,ial [///{/ A{limhlll!'f Delel!.re.l), Docket-\' ol I, p. 101. ill~ Exhibit "P-5-1", Docket \'ol. I, p. 33.

rate 10°/o P545,701.3 7 15% 100,00(1.( l5 1% 217,281.3() 1% 9,667.13 1% 2,-f83Nl 1'1o 3,675.25

N'

Total

CT.\ Case No. 10606 IBA1S Tedlllology P/Jik Co1p. JJ.>. Commi.uio11er o{I11tema/ Re11mm

Page 27 of 57

P109,199,182.55 P79,764,418.68 P878,811.9')

Less: Additions to PPE

P29,434,763.89 367,524.55 P29,067 ,239.34 Disallowed Expense due to Non-Withholding Consequently, respondent disallowed the above-stated expenses for alleged failure to withhold and remit the tax due thereon under Section 34(K) of the NIRC, as amended.

Petitioner, however, avers that it religiously withheld and remitted the withholding taxes for Commissions, Director's Fees and Purchase of Goods (Materials, Office Supplies, Fuel and Oil). To prove the said expenses, petitioner claims that it submitted the appropriate BIR Form No. 2307 and/ or other competent pieces of evidence (e.g., BIR Form No. 1604-E, Official Receipts, Check Vouchers & Ledger of Expenses, et&:), when it filed its Request for Reinvestigation with the BIR.

Tvioreover, petitioner posits that considering that the disallowed expense amounting to P29,067 ,239.34 are ordinary and necessary expenses paid or incurred by petitioner during the taxable year 2017 in carrying out company operations, and the tax required to be deducted and withheld has been paid, the said disallowed expense should instead be allowed as deduction, and any assessment attributed thereto should be cancelled. 110 To substantiate that it properly withheld the applicable withholding tax on its income payments, petitioner submitted its A1.ontbjy Remittance Return if Creditable Income Taxes TJ7itbbe!d Expanded (BIR Form No. 1601-E),111 and Amzua! Information Retzmz of Creditable Income Ta.Yes Withheld (BIR Form No. 1604-E), 11 :? along with attached Alpbalist ~fPqyees 113 for taxable year 2017.

\XIith respect to the director's fees assessed in the amount of P666,667 .00, the Court notes an excerpt from the AlpbaliJ·t rf Pqyees114 reflecting the names of individual payees under i\TC Code [WI01 0], 115 with a total amount of P666,666.01, 116 listed below:

Sequence

unt of

Amount of

No.

Nameo fPayee

Amo

in come

Rate

Tax Withheld

26 90 101 ·- 102 ~---~------- ~- De Guz1nan, E -----------· ---------

_I~~12_& Tiat~

Vicente, Jeffrey dwin F.

ment --

_R~Y

p 1 1,111.10 -------- 1 1,111.10 ----------- S.

1 1,111.10 ____ _.:. -----···--·---- -·---·~-------- Vicente,_Myra 1,111.10 --- R.

1 ------- 10% ----~--- 10% r------ 10% 10% ------ IIo Par 7.1(.\), Grounds/Discussion, Petition/or Ret,ieJJ!, Docket- \'ol. I, pp. 13 to 1-f. p 1,111.11 -- 1,111.11 1,111.11 1,111.11 111 Exhibits "P-1 S" to "P-26-4", Docket- \'ol. I, pp. 460 to SOO and Docket- \' ol. 2, pp. 501 to 540. 11 2 Exhibit "P-66", Docket- \' ol. 2, pp. 617 to 619. ILl Exhibit "P-66-1", Docket- \"ol. 2, PP· (j2() to o68. II~ Id., at pp. 667 to 668.

115 E\'\'T- professional/talent fees paid to juridical persons/individuals 0awyers, CP.\s, ek.) IJr, There is a P0.99 discrepancy noted \Vhich can be considered immaterial.

IBMS Technology Phils. Corp. vs. Commissioner of Internal Revenue

103 Vicente, Ornan S. 11,111.10 10% 1,111.11 136 | De Guzman, Edwin F. | 11,111.10 | 10% 1,111.11 242 Teng, Tian ; 14,114.10 | 10% | 1,111.11 260 | Vicente, Jeffrey S. : 11,111.10 10% 1,111.11 261 Vicente, Myra R. __ —| 11,111.10 | 10% 1,111.11 262 Vicente, OrnanS. 14,111.10 | 10% 1,111.11 309 | De Guzman, Edwin F. 14,111.10 | 10% 1,111.11 411 Teng, Tian 4a at0} 10% ~~ 1111.11 422 | Vicente, Jeffrey S. 11,111.10 | 10% | 1,111.11 | 423 Vicente, Myra R. 11,111.10 10% 1,111.11 424 | Vicente, OrnanS. «| —«iiA 11.10] 10% 1111.11 663 De Guzman, Edwin F. ji 111. 10 10% 1,111.11 664 De Guzman, Edwin F. 11,111. 10 | 10% 1,111.11 [890 _| Teng, Tian ~ 11,111.40 [10% 1111.1 891 Teng, Tian . 11 111, 10 10% 1,111.11 | 904 Vicente, Jeffrey S. 11 ill. 10 10% 1,111.11 905 Vicente, Jeffrey S. : 44,111.10 | 10% 1,111.14 906 Vicente, Myra R. 11,111.10 10% 1,111.11 907 ___[ Vicente, Myra R. 11,111.10 | 10% 1111.11 908 Vicente, Ornan S. 11,111.10 | 10% 1,111.11 909 Vicente, Ornan S. aia 10 10% 1,111.11 | | «1042 | De Guzman, Edwin F. ; 11,111. 10 10% 1,111.11 | 1253} Teng, Tian Mt “111.10 | 10% 1,111.11 | 1265 Vicente, Jeffrey Se “1 111.10} 10% 1,414.11 | | 1266 Vicente, Myra R. a 11,111. 10 | 10% 1,111.11 1267 Vicente, Ornan S. 11 111. 10 10% 1,111.11 1331 De Guzman, Edwin F. 11,111.10 10% 1,111.11 1489 Teng, Tian 11,111.11 10% 1,111.11 1505 __| Vicente, Jeffrey S. 41,111.10 | 10% 1111.11 1506 Vicente, Myra R. ; 11,111. 10° 10% 1,111.11 1507 | Vicente, Ornan S._ A110 | 10% 1,111.11 | 1546 | De Guzman, Edwin FO 11,11 111.10 | 10% 1,111.11 1633 Teng, Tian | 7 11,111. 10 | 10% 1111.11 | __: 1648 Vicente, Jeffrey S _ Zs 111, 10 10% 1,111.11 1649 Vicente, Myra R 11,111.10 10% 1,111.11 | 1650 Vicente, Ornan S. | 11,111.10 10% 1,111.11 I 1692 De Guzman, Edwin F. 11,111.10 10% 1111.11 | 1795 Teng, Tian _ 14,111.10 10% 1,111.11 1807 Vicente, Jeffrey S. 14,111.10 10% 1,111.11 1808 [| Vicente, Myra R. ~ | 11,111.10 [10% 1111.11 | 1809 Vicente, Ornan S. ; ol 111.10 10% 1,111. 11 | 1847 | De Guzman, Edwin FL _ 11 111. 10 7 10% 1,111. 11 | 1932 Teng, Tian 14, 111. 10] 10% : 1,111.11 | 1948 | Vicente, feffrey S. ; 11,111.10} 10% | 1,111.11 1949 Vicente, Myra R. 11,111.10 10% 1,111.11 1950 _{_-Vicente, Ornan S. 11,111.10 10% 1,111.11 2001 | De Guzman, Edwin F. 14,110.10 | 10% 4,111.11 2144 | Teng, Tian ; 11,111.10 | 10% 1111411 2155 Vicente, Jeffrey S. | ss L10.10 | 10% =| 011 2156 Vicente, MyraR. | 1,111.10} 10% seebeel 2157 Vicente, | Ornan Ss. : 11 111.10 | 10% 4 wt11. 11 | 2204 De Guzman, Edwin. FE — cl 111.10 10% 11i1.11_ 2305 Teng, Tian 11,111.10} 10% 1111.11 2318 | Vicente, Jeffrey S 11,111.10] 10% 1,111.11 ~~ CT.-\. Case :\Jo. 10606 IBLvlS Tedmology pf,ik Cotp. tJ.!". Commt~f.•io11er o/flllenzal Re11mNe

Page 29 of 57

2320 'licente, I\Iyra R.

11,111.10 2321 Vicente, Ornan S.

---- ___ _l_1_J__ll_1_0 ~-··-·· ·--·----

Total

P666,666.01 10% 1,111.11 10% 1,111.11 P66,666.60 Given that the assessed amount can be sufficiendy traced to the submitted Alphali.rt qf Pqyee.r,117 the Court finds that the cancellation of the assessment pertaining to the director's fees amounting to P666,667.00 is appropnate.

On the other hand, although petitioner submitted its Alpha!iJt if Pqyee.r and BIR Form Nos. 1601-E and 1604-E, it failed to provide any explanation or supporting documents to reconcile the discrepancies concerning commission, materials, office supplies, and fuel and oil expenses. Thus, in the absence of sufficient substantiation, the assessed amount ofP28,400,572.34118 still stands. B.

Undeclared Receipts

Respondent assessed petitioner for undeclared receipts by comparing the grossed-up value of creditable taxes withheld at the 1% rate, totaling P3,354,631.00, 119 against the sales reported in the ITR, 120 which amounted to P215,651 ,806.00, 121 as shown in the computation below: 122

Creditable Taxes \'Vithheld

Divided by_ E\'V_I_:R_~~~- ___ ______ _____ ___ _ __________ _ P3,354,631.00 1% 335,463,100.00 215,651,806.00 Total Sales per BIR Form No. 2307 Le_?s:_ Sales per FS/T£R _ _ ____ _ ------- ·---

Undeclared Receipts

P119,811,294.00 - - Petitioner argues that it had religiously declared its income or receipts for the taxable period 2017, and that its income for taxable year 2017 is only P215,651 ,806.00. Petitioner likewise claims that its creditable withholding tax per BIR Form No. 2307 amounting to P3,354,631.00 were withheld by 1ts diverse clients based on various rates of 1%, 2%, 3%, and 10%. Petitioner further claims that the appropriate and other competent pieces of evidence (e.g., BIR Form No.

2307,

Contracts/Purchase

Orders/Statement of Accounts, Official Receipts, etc.) were submitted to the respondent when it filed its Reque.rt for Reinve.rtigation/ 117 Exhibit "P-66-1", Docket- \'ol. 2, at pp. 667 tu 668. II~ Sum of discrepancies for commission of f>S,.t57 ,043. 70, materials of f>21 ,728,429.64, office supplies of f>966,713.00, and fuel and oil of f>2-18,386.00. 11 <J Schedule 7, Lines 5 and 6, Exhibit "P-10", Docket-· \' ol. I, p. 4A3. 1211 Par. 37.2, respondent's AIIY!IJer (lr"it/1 Sjmial a11d A(lirmalit;e De{etl.l'eJ), Docket-\' ol I, p. 101.

IBMS Technology Phils. Corp. vs. Commissioner of Internal Revenue

Hence, petitioner believes that any assessment attributable to the alleged undeclared receipts amounting to P119,811,294.00 should be cancelled as there were no such undeclared receipts.'” Based on records, petitioner’s total creditable taxes withheld amounting to P3,354,631.00,'™ as declared in the petitioner’s Annual ITR, were supported by Certificate of Creditable Tax: Withheld at Source (BIR Form No. 2307), reflecting the related total income payments of P190,582,432.91, as shown below:

13 Par. 7.2(A), Grounds/Discussion, Petition for Review, Docket ~ Vol. I, p. 17.

'24 Schedule 7, Lines 5 and 6, Exhibit “P-10”,

Docker —

Vol. I, p.

443, Exhibit Reference Payor’s Name Amount ofincome | poze | Amount of Tax payment Withheld

BIR Records (Green | \TENEO DE MANILA

“R-1” Envelope 2), p. 442 UNIVERSITY P111,607.14 2% P2,232.14 |

BIR Records (Green ATENEO DE MANILA

“R-1”__ | Envelope 2), p. 441 UNIVERSITY |. 3,895,089.11 77,901.78

BIR Records (Green CASTLETOWN HOUSE |

“R-1? Envelope 2), p. 440 BUSINESS CORP 3,214,625.86 2% 64,292.52 |

BIR Records (Green

“R-1” | Envelope 2), p.439 | CHBCNET 634,826.28 | 2% | 12,696.53

CONCENTRIX DAKSH

BIR Records (Green SERVICES PHILIPPINES

“R-1” Envelope 2), p.438 a ; 817,500.00 2% 16,350.00

NCENTRIX DAKSH

BIR Records (Green SERVICES PHILIPPINES

“R-1”__| Envelope 2), p. 437 CORP. ___ 5,546,802.00 | 2% 110,936.04,

/CONCENTRIN DAKSH

BIR Records (Green SERVICES PHILIPPINES

“R-1” Envelope 2), p. 436 CORP. 1,8-18,473.50 2% 36,969.17

CONCENTRIX DARKSII

BIR Records (Green SERVICES PHILIPPINES

“R-1” Envelope 2), p. 436 CORP. 100,000.00 1% 1,000.00

DATALEC

BIR Records (Green TECHNOLOGY

“Rl” | Envelope 2), p. 435, CORPORATION 55,357.17 | 2% 1,107.14

DHLGLOBAL

BIR Records (Green FORWARDING

“Rl” | Envelope 2), p. 434 _ PHILIPPINES, INC. 26,770.41 | 2% 535-41

- - DHL GLOBAL

BIR Records (Green FORWARDING

“R-1”__ | Envelope 2), p. 434 PHILIPPINES, INC. | 42,857.14 | 1% | _ 428.57

BIR Records (Green

“R-1” | Envelope 2), p. 433 FILINVEST LAND, INC. 803,571.00 | 1% 8,035.71

HEVA MANAGEMENT

BIR Records (Green & DEV'T CORP.

“RA” | Envelope 2), p. 432 (GAISANO SORSOGON 1,031,250.00 | 2% 20,625.00.

HEVA MANAGEMENT

BIR Records (Green & DEV'T CORP.

“Rl” | Envelope 2), p. 431. (GAISANO SORSOGON) | __ 883,928.50 | 2% | 17,678.57

HEVA MANAGEMENT

BIR Records (Green & DEV"T CORP.

“RA” | Envelope 2), p. 130 | (G-AISANO SORSOGON)_|_ __.136,607.00 | 14,732.14

BIR Records (Green HOLY CROSS OF

“R-1” Envelope 2), p. 429 | DAVAO COLLEGE INC. | _ 267,857.14 3,357.14

BIR Records (Green | HOLY CROSS OF

“Rl” __| Envelope 2), p.423 | DAVAO COLLEGE ING. | 91,071.43 | 9,821.13

BIR Records (Green

“R-1” Envelope 2), p. 422 TBM PHILIPPINES, INC. | _ 5,253,571.50 105,071.43

BIR Records (Green MANULIFE DATA

“R-1” | Envelope 2), p. 428 | SERVICES,INC. | 784,705.00 | 2% 15,694.10

Aw

IBMS Technology Phils. Corp.

vs. Commissioner of Internal Revenue

BIR Records (Green MICROSOFT -

“R-1” Envelope 2), p. 427 ____| PHILIPPINES INC, 2,559,279.44 1% 25,592.79

BIR Records (Green MICROSOFT

“R-1” | Envelope 2), p. 426 | PHILIPPINES INC. - 472,969.06 | 2% 9,459.38

BIR Records (Green MULTISTYLE

“R-1”__| Envelope 2), p. 425 _| SPECIALIS!INGC. 41,872,435.54 | 1% 418,724.36

SAMSUNG - a

ELECTRONICS

BIR Records (Green PHILIPPINES

“R-1”? Envelope 2), p. 424 CORPORATION 29,500.00 | 1% 295.00

SAMSUNG

ELECTRONICS

BIR Records (Green PHILIPPINES

“R-1” | Envelope 2), p. 424 C CORPOR:Y TION 285,000.00 | 2% 5,700.00

BIR Records (Green ANDZ SOLUTIONS —

“R-1” Envelope 2), p. 421 | PHILIPPINES 1 INC. 114,952.79 | 2% 2,299.06

BIR Records (Green OO

“R-1” Envelope 2), p. 420 TPPH-FHCS, INC. 408,783.90 2% 8,175.68 _

WPP MARNETING |

COMMUNICATIONS, BIR Records (Green INC. - MILLWARD “R-1” Envelope 2), p. 419 BROWN PHILIPPINES © _ 572,418.85 | 2% 11,448.38 | Subtotal — 1st Quarter P72,861,809.76 P1,003,159. 77

BIR Records (Green ATENEO DE MANILA

“R-1” Envelope 2), p. 417 UNIVERSITY 285,714.28 | 2% 9,714.29

BIR Records (Green ATENEO DE MANILA

“R-1” Envelope 2), p. 416 UNIVERSITY 23,204.73 2% 464.09 -

BIR Records (Green ATENEO DE MANILA

“R-1” Envelope 2), p. 415 UNIVERSITY 13,210.64 | 2% 264.21

BIR Records (Green ATENEO DE MANILA

| “R-1” Envelope 2), p. 414 UNIVERSITY — { 111,607.14 | 2% 2,232.14

BIR Records (Green ATENEO: DE MANILA

BU SINFSS PROCESS”

BIR Records (Green OUTSOURCING INT'L

“R-1” Envelope 2), p. 412 INC. 7,700.00 | 2% 154.00

BIR Records (Green CASTLETOWN HOUSE

“R-1” Envelope 2), p.411 | BUSINESS CORP. fo 1,348,202.54 | 2% 26,964.05 - BIR Records (Green C. ASTLET OWN HOUSE “R-1” Envelope 2), p. 410 _ 1,825,131.65 | 2% ___ 36,502.63

BIR Records (Green SERY ICES PHILIPPINES

“R-1” Envelope 2), p. 409 CORP. _ ft 249,034.00 | 2% 4,980.68

CONCENTRIX DAKSH

BIR Records (Green SERVICES PHILIPPINES

“R-1” | Envelope 2), p. 408 | CORP. ; _ 5,439,742.00 | 2% 108,794.8-1

CONCENTRIX DAKSH

BIR Records (Green SERVICES PHILIPPINES

“R-1” Envelope 2), p. 407 CORP. 715,879.50 | 2% 14,317.59 _

DB SCHENKER

BIR Records (Green GLOBAL SERVICES

“R-1” Envelope 2), p. 406 ASIA PACIFIC INC 1,480,000.00 | 2% 29,600.00

DB SCITENKER

BIR Records (Green GLOBAL SERVICES

“R-1? Envelope 2), p. +05 | ASIA PACIFIC INC | _1,110,000.00 | 2% 22,200.00

BIR Records (Green

“R-1” Envelope 2), p. 404 FILINVEST LAND, INC. 1,651,785.50 | 2% 33,035.71 BIR Records (Green HONDA PHILIPPINES, “R-1” Envelope 2), p. 403 INC. 17,000.00 | 2% 340.00

BIR Records (Green MANULIFE DATA

“R-1” Envelope 2), p. 402 SERVICES, INC. 379,464.50 | 2% 7,989.29

BIR Records (Green MICROSOFT

“R-1? Envelope 2), p-400 = | PHILPPINES INC. _ {94,593.81 2% _1,891.88

BIR Records (Green MULTISTYLE

“R-1” Envelope 2), p. 401 | SPECIALIST INC. 38,607,097.99 | 2% 772,141.96 “R-1” BIR Records (Green | TELEPHILIPPINES INC. | 2%

IBMS Technology Phils. Corp. vs. Co monssioner of Internal Revenue Envelope 2), p. 399 5,593,613.00 111,872.26 BIR Records (Green i oo : oO “R-1”__| Envelope 2), p. 398 | TELEPHILIPPINES INC. 909,141.50 | 2% 18,182.83

BIR Records (Green THAKRAL INFOTECH | -_

“R-1” Envelope 2), p. 397 _ LINC. — 150,000.00 2% 3,000.00

TOWERS WATSON ASIA | —_

BIR Records (Green PACIFIC SHARED

“Rl” | Envelope 2), p. 396 SERVICE CENTER 41,780.90 | 2% 835.62

TOWERS WATSON ASIA _

BIR Records (Green PACIFIC SHARED

“R-1” | Envelope 2), p. 395 | SERVICE CENTER 41,781.00 | 2% 835.62

TOWERS WATSON OO

BIR Records (Green GLOBAL BUSINESS

“R-1” | Envelope 2), p. 394 SERVICES INC. a ____44,353.01 | 2% 887.07

BIR Records (Green TOWERS WATSON

Envelope 2), p. 418, Item GLOBAL BUSINESS “R17 | 34 SERVICES INC. 44,353.61 | 2% _ 887.07

BIR Records (Green

348,873.33 | 2% 6,977.47 “R-1” Envelope 2), p. 392 ‘TPPH-FHCS, INC.

Subtotal — 2"¢ Quarter P60,604,693.80 P1,212,093.87

BIR Records (Green SINFINITY BUILDERS

“R-1” Envelope 2), p. 389 CORP. 8,474.49 2% 169.49

BIR Records (Green

Envelope 2

BIR Records (Green

Envelope 2),

BIR Records (Green

“R-1” Envelope 2), p. 386

“R-4”

“R1”

BIR Records (Green

“R-1” Envelope 2), p. 385

BIR Records (Green

“R-1” Envelope 2), p. 384

8INFINITY BUILDERS

CORP.

ATENEO DE MANILA

UNIVERSITY

ATENEO DE MANILA

CONCENTRIX DAKSH

SERVICES PHILIPPINES

CORP.

133,928.57 2,678.57 527,142.85 11,377,765.24 | 2% 1,393,377.00 | __2% 27,867.54

CONCENTRIX DAKSH

SERVICES PHILIPPINES

CORP.

1,693,420.00 | _2% 33,868-10.

BIR Records (Green

CONCENTRIS DAKSH

SERVICES PHILIPPINES

CORP.

2,964,452.00 2% “R-1” Envelope 2), p. 383

DATALEC

BIR Records (Green TECHNOLOGY

| “R-1” Envelope 2), p. 382 _ CORPORATION | _ 13,839.25 2% 276.79

BIR Records (Green

“R-1” Envelope 2), p. 381 _ FILINVEST LAND, INC. 16,518.00 2% 330.36

“R-1” BIR Records (Green

Envelope 2), p. 380 IBM PHILIPPINES, INC. 1,753,697.50 | 2% 35,073.95.

BIR Records (Green MANULIFE DATA

“R-1” Envelope 2), p. 379 SERVICES, INC. 683,571.50 2% 13,671.43

BIR Records (Green MANULIFE DATA

“R-1” Envelope 2), p. 378 SERVICES, INC. 330,357.00 | 2% 6,607.11

BIR Records (Green MANULIFE DATA

“R-1” Envelope 2), p. 377 SERVICES, INC. 2,128,500.00 2% 42,570.00

BIR Records (Green MANULIFE DATA |

“R-1” Envelope 2), p. 376 SERVICES, INC. 269,242.00 2% 5,384.84

| BIR Records (Green MANULIFE DATA

“R-1” Envelope 2), p. 375 SERVICES, INC. 81,619.50 2% 1,632.39

BIR Records (Green MANULIFE DATA

“R-1” Envelope 2), p. 374 SERVICES, INC. | __ 273,958.00 2% 5,179.16

NCR CEBU

BIR Records (Green DEVELOPMENT

“R-1” Envelope 2), p. 373 CENTER, INC. _ 40,000.00 | 2% 800.00

POINTWEST

BIR Records (Green INNOVATIONS

“R-1” Envelope 2), p. 372 CORPORATION 1,394.28 | 2% | 27.89

BIR Records (Green RONACO-VANGUARD

“R-1? Envelope 2), p. 371 HOTEL CORP. 2,450,000.00 2% 49,000.00 7 IBMS Technology Phils. Corp. vs. Commissioner of lnternal Revenue Subtotal — 3" Quarter P26,141,257.18 P522,825.15

BIR Records (Green SINFINITY BUILDERS | _

"R-1" | Envelope 2),p.369 = | CORP, 44,642.86 | 2% 892.86 BIR Records (Green SINFINITY BUILDERS, :

"R-1" | Envelope 2), p. 368 CORP. 125,000.00 | 2% 2,500.00

BIR Records (Green 8INFINITY BUILDERS | —

"R-1" | Envelope 2), p. 367 CORP. 267,857.14 | 2% 5,357.14

BIR Records (Green 8INFINITY BUILDERS -

"R-1" | Envelope 2), p. 366 CORP. 23,000.00 | 2% 460.00

BIR Records (Green ATENEO DE MANILA /

"R-1" Envelope 2), p. 365 UNIVERSITY 865,764.80 2% 17,315.30

BIR Records (Green ATENEO DE MANILA :

"R-1" | Envelope 2), p. 364 _| UNIVERSITY 2,127,182.29 | 2% 42,543.65

CONCENTRIX DAKSH

BIR Records (Green SERVICES PHILIPPINES

"R-1" | Envelope 2), p. 363 CORP. 2,286,677.50 | 2% 45,733.55 |

CONCENTRINX DAKSH

BIR Records (Green SERVICES PHILIPPINES

"R-1" | Envelope 2), p. 362 CORPORATION 1,408,520.00 | 2% 28,170.40.

CONCENTRIX DAKSH

BIR Records (Green SERVICES PHILIPPINES

| "R-1" | Envelope 2), p.361_ CORPORATION

BIR Records (Green

"R-1" Envelope 2), p. 360 _2,132,989.50 | 2% 42,659.79 | IBM PHILIPPINES, INC. 8,639,180.00 172,783.60

BIR Records (Green INTELENET GLOBAL

"R-1" Envelope 2), p. 359 PHILIPPINES, INC. 69,177.83 | 2% 1,383.56 _

SAMSUNG

ELECTRONICS

BIR Records (Green PHILIPPINES

"R-1" Envelope 2), p.358 CORPORATION —__ 29,500.00 | 1% 295.00

SAMSUNG

ELECTRONICS

BIR Records (Green PHILIPPINES

"R-1" Envelope 2), p. 357 _| CORPORATION _ 35,000.00 | 2% 700,00

BIR Records (Green | CASTLETOWN HOUSE

SINESS CORP.

DATALEC

2,737,697 .23 "R-1" Envelope 2), p. 356

BIR Records (Green TECHNOLOGY

"R-1" Envelope 2), p. 355 CORPORATION ff 71,428.58 1,428.57

DB SCHENKER

BIR Records (Green GLOBAL SERVICES

"R-1" Envelope 2), p. 354 ASIA PACIFIC INC 740,000.00 2% 14,800.00.

EM-AMEN

BIR Records (Green COMMUNICATORS, "R-1" Envelope 2), p. 353 INC. ee 22,321.43 1% 223.21 BIR Records (Green HONDA PIIILIPPINES, "R-1" Envelope 2), p. 352 INC. 86,754.51 2% 1,735.09 BIR Records (Green HONDA PHILIPPINES, "R-1" | Envelope 2), p. 351 _ ING. — | 173,509.01 2% 3,470.18

BIR Records (Green

"R-1" Envelope 2), p. 350 ___| IBM PHILIPPINES, INC. | 8,705,000.00 | 2% 174,100.00

MICROSOFT

BIR Records (Green PHILPPINES

"R-1" Envelope 2), p. 349 INCORPORATION 242,322.69 1% 2,423.23

BIR Records (Green NENUS

"R-1" Envelope 2), p. 348 TECHNOLOGIES, INC. 34,311.50 2% 686.23

TOWERS WATSON ASIA

BIR Records (Green PACIFIC SHARED

"R-1" Envelope 2), p. 347 SERVICES CENTER 106,835.31 2% 2,136.71 Subtotal] — 4 Quarter _P30,974,672.18 P616,552.01_ Grand Total P190,582,432.92 P3,354,630.80 | yw CT"-\ Case No. 10606 IBiVIS Tedmology P/Ji!r. Cr!lp. /!.!". CommiJ.rioner o/f11temal Rel!emte

Page 34 of 57

Respondent's assessment arose by taking the grossed-up value of petitioner's tax credits during the year presuming that the income payments were subject to a uniform rate of 1%, automatically resulting to a higher tax base amount, then compared it with the income declared by petitioner in its Annual ITR. Based on the certificates found in the records of the case, petitioner's tax credits were withheld by its clients using the tax rates of 1% and 2%, as correctly pointed out by petitioner, thereby reflecting the actual income payments of P190,582,432.92.

Apparently, the income payments per certificates, as used by respondent in its comparison and as basis of its assessment, is actually lower than the income payments declared by petitioner in its Annual ITR. As such, the Court finds that petitioner had no undeclared income subject to income tax and that respondent's assessment lacks factual basis and, thus, must be cancelled.

C.

Disallowed Purchases

The alleged disallowed purchases amounting to P21,731,187.86 resulted from the respondent's comparison of the petitioner's purchase of materials recorded under Cost of Sales in the ITR with the total purchases reported in the VAT returns, computed as follows: 125 Purchases of l\faterials per FS /ITR P1 01,014,292.00 Less: Purchase of ~!aterials per_y .A IE_et_u_r_n_s ______ 7_9~,_2_83--',:.....1_0_4_.1_4_ 12 ('

Disallowed Purchases

P21,731,187.86 Petitioner avers that the purchases of materials claimed as cost of sales per ITR are ordinary and necessary expenses paid or incurred by the petitioner in carrying out its operations for taxable year 2017, and that the tax required to be deducted and withheld had been paid.

Petitioner also claims that the VAT returns are only among the many bases for the expenses of the petitioner.

Similarly, petitioner claims that the appropriate BIR Form No. 2307 and other competent pieces of evidence (e.g., BIR Form No. 1604-E, BIR Form No. 2307, BIR Form No. 2550-M, BIR Form No. 2550-Q, Official Receipts, Check Vouchers & Ledger of Expenses, etc.) were submitted to respondent when it filed its Request for Reinvestigation. Thus, petitioner believes that considering that the disallowed purchases amounting to P21,731,187.86 are ordinary and necessary expenses paid or incurred during taxable year 2017 in carrying out its operations, and that the tax ~ 125 Exhibit "P-5-4", Docket- \'ol. I, p. 34. 121> Exhibit "P-68", Docket- \'ol. 2, pp. 673 to 703.

CT"\ Case No. 10606 IBlvfJ Tedmology P/Jik Co!p. !J.r. CommZ:r.rio11er o{llltema/ RePe!lm

Page 35 of 57

required to be deducted and withheld has been paid, therefore, the said amount should be allowed as deduction, and any assessment attributed thereto should be cancelled. 127 \Vhile the Court agrees with the petitioner's posltlon that the VAT returns are not the sole basis for determining purchases, it remains incumbent upon petitioner to substantiate and account for the discrepancy identified by the respondent, amounting to P21,731,187.86, through the submission of supporting documents.

Records show that the pet1Uoner submitted its general ledger of expenses 128 related to purchases of goods other than capital goods, totaling P79,283,104.14, which aligns exactly with the amount declared in its VAT returns. However, petitioner failed to account for or reconcile the remaining discrepancy off>21,731,187.86.

It bears emphasis that, for business expenses to be deductible for income tax purposes, they must comply with the substantiation requirements set forth under Section 34(A)(1)(b) of the NIRC of 1997, which states: "(b) SttbJtantiation ReqztirementJ. - No deduction from gross income shall be allowed under Subsection (J\) 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."

In fine, it is proper to sustain the disallowance of purchases amounting to P21,731,187.86, due to petitioner's failure to account and substantiate the said amount.

D.

Gain on Sale not subjected to Income Tax According to respondent, a gain on sale was reported by the petitioner in its audited FS amounting to P335,000.00, but was not reported in its annual ITR. Respondent opined that such gain is considered taxable income under Section 31, in relation to Section 32 of the NIRC of 1997, as amended. 129 / 117 Par. 7.1(C), Crounds/Discussion, Petilirlllji;r Refrie/1!, Docket-- \'ol. I, pp. 15 to 16. 11x Exhibit "P-68", Docket- \'ol. 2, pp. 6~3 to 7U3. 12~ Par. 3 7.4, respondent's An.r!JJer (lr'it/; cljJe(!'a/ a11rl /l(jirlllafi!Je De/ei!Se.i), Docket- \' ol I, p. 101.

CT-\ Case 1\Jo. 10606 IBiviS Ted11!ology P/Ji!r. Corp. tJJ. Co;;;;m:rJioller o/I11tema/ RetJelllle

Page 36 of 57

.

On the other hand, petitioner argues that the alleged gain on sale amounting to P335,000.00 is a sale of capital asset subject to 6% capital gains tax as provided under Section 39 of the NIRC, as amended. Petitioner posits that the alleged non-reporting of the said gain on sale in the Annual ITR does not mean that the appropriate tax has not been paid. Hence, petitioner avers that the assessment attributed to such gain on sale should be cancelled. 130 It is worth noting that Section 2.57(i\) of RR No. 2-98-provides that, under the final withholding tax system, the amount of income tax withheld by the withholding agent shall constitute the full and final payment of the income tax due from the payee on such income. Furthermore, the said regulations states that the payee is not required to file an ITR with respect to income that has been subjected to final withholding tax. In this case, considering that the alleged gain arose from the sale of a capital asset, which is classified as income subject to final tax, such income need not be reported in the petitioner's ITR. However, records show that petitioner failed to present competent evidence to substantiate its claim that the transaction involved a capital asset and that the corresponding capital gains tax was duly paid and remitted. At the very least, petitioner should have submitted proof of payment and remittance of the capital gains tax (i.e., BIR Form Nos. 1706 or 1 707) to support its assertion. Indeed, allegations are not evidence, and without evidence, bare allegations do not prove facts. 131 Accordingly, the assessment on the gain from sale not subjected to income tax in the amount of P335,000.00 is sustained. E.

Overclaimed Depreciation Expenses

According to respondent, a verification disclosed that petitioner claimed depreciation expense in excess of the ceiling prescribed by the RR No. 12-2012. Hence, the excess depreciation expense amounting to P807,907.79 is disallowed pursuant to Section 34(F) of the NIRC, as amended. 13 :>. The computation of the overclaimed depreciation expense is shown below: 133 Cost of Transportation Equipment as of 12.31.2017 P7 ,827,645.09 Less: Threshold allowedE_I._!\.R_No .. l~}012~----· ·--~- ·------- 2,400,000.00

Excess Transportation Equipment

P5,427,645.09

Depreciation on Transportation Equipment

Multiplied by:_f.~,427_,645.09L~7 ,~2_7 ,645.09~- _____ -~-·-· Overclaimed ~~:e~~.<:~~~ti?~l1 ~~-p~~~e~~- --,~ --~~-· .-= = -~= 1111 Par. 7.1 (D), Grounds/Discussion, Petitio11jor Re!,ieiJJ, Docker- \' ol. I, p. 16. l.ll Sabelli11a IJJ·. Buray eta!, G.R. ;\Jo. 187727, September 2, 2015. P1, 165,149.04 69.34°/cJ P807 ,907. 79 / 132 Par. 37.4, respondent's AllJUJer (IF'it/1 Special a11d A{llrmati1'e Dej'enJe.1), Docket-\' ol I, p. 102. l.l.l Exhibit "P-5-5", Docket-- \~ol. I, p. 3-1.

CT~~ Case No. 10606 IBNIS 'Ted!/lolor!J' Pbi!r. Cotp. IJ.r. Com;?tl~r.riomr o/llllemal Re!JeJ/7/e

Page 37 of 57

Petitioner argues that it has five (5) vehicles reported in its audited FS. Further, petitioner posits that Section 3(B) of RR No. 12-2012 allows a threshold of P2,400,000.00 per official or employee. According to petitioner, its reported vehicles are being used by at least five (5) of its officials and/ or employees to carry out its business operation. Thus, the allowable threshold for these vehicles should be P12,000,000.00.

Petitioner likewise claims it submitted competent pieces of evidence (e.g., Certificate of Registration and Official Receipts, etc.) when it filed its Reqttest for Reinvestigation. 134 Pursuant to Section 3(B) of RR No. 12-2012,135 only one (1) vehicle for land transportation is allowable for depreciation per official or employee, provided that the acquisition cost of the said vehicle does not exceed P2,400,000.00.

For easy reference, Section 3 of RR No. 12-2012 which sets forth the guidelines on the deductibility of depreciation expenses for vehicles used in business operations, is reproduced below:

"I\.

No deduction from gross income for depreciation shall be allowed unless the taxpayer substantiates the purchase with sufficient evidence, such as official receipts or other adequate records which contain the following, among others:

1. Specific l\1otor Vehicle Identification Number, Chassis Number, or other registrable identification numbers of the Vehicle;

11. The total pnce of the specific V chicle subject to depreciation; and 111. The direct connection or relation of the Vehicle to the development, management, operation, and/ or conduct of the trade or business or profession of the taxpayer; B.

Only one Vehicle for land transport is allowed for the use of an official or employee, the value of which should not exceed Two Million Four Hundred Thousand Pesos (Php2,400,000.00);" (EmphasiJ added) / 134 Par. 7.1 (E), Grounds/Discussion, Petilionji;r Ret;ietP, Docket- \'ol. I, p. 16.

133 SUBJECT:

Deductibility of Depreciation Expenses as it Relates to Purchase of '{ ehicles and Other Expenses Related Thereto, and Input Taxes c\llowed Therefor CT-\ Case No. 10606 IBiviS Ted111ology P/Jik Corp. IJ.i". Cimmll~~;,ioner olfn!enwl Rel'elil!e

Page 38 of 57

Based on the above-cited regulations, in order for a vehicle to qualify for depreciation, petitioner must establish the following: (1) that the purchase of vehicle is duly substantiated; (2) that the cost of each vehicle assigned to its employees must not exceed the P2,400,000.00 threshold; and (3) that only one

(1) vehicle for land transport per official or employee may be claimed for depreciation.

To support its claim, petitioner submitted before this Court CertijitateJ rif Registration (CRs), showing the specific identification details of the vehicle (i.e., the engine number, chassis number, and plate number) and the corresponding Official RereiptJ (0Rs),136 issued by the Land Transportation Office, reflecting the payment details of the registration fees corresponding to the vehicles. Notwithstanding the presentation of the said documents, petitioner still failed to present proof that the acquisition cost of the subject vehicles did not exceed the P2,400,000.00 threshold, and that only one (1) vehicle was assigned per official or employee. Petitioner should have at least submitted a sales invoice or deed of sale to prove the vehicle's purchase price. Without such evidence, petitioner cannot prove that there is no overclaimed depreciation expense under RR No. 12-2012.

Accordingly, the Court finds that the disallowance of the overclaimed depreciation expense amounting to P807 ,907. 79 is proper for failure of petitioner to substantiate its claim.

F.

Disallowed Representation and Entertainment Expense

Respondent disallowed petitioner's representation and entertainment expenses amounting to P773,921.95 on the ground that it exceeded the allowable limit of one percent (1 %) of net revenue, in accordance with Section 34(A)(1)(a)(iv) of the NIRC, as implcrnented by RR No. 10-2002, computed as follows: 137

Representation and Entertainment per JTR

Less: Allowable Representation and Entertainment

Net Sales

____ l'vi_u_lu_.~.·p~l)'-' by: Allowa~le_ Ra~~__!_ 0;oSet~'ices __ _

Disallowed

Representation

and

Entertainment

Expense

P2,930,440.00 P215,651 ,805.00 .01 2,156,518.05 ~-·--·---~--·--· -· P773,921.95 Petitioner posits that the representation and entertainment expense were incurred by petitioner during the taxable year 2017 under Section 34(A) (1) (a) (iv) of the NIRC and that it is within the maximum allowance. Thus, ~ ur, Exhibits "P -8-1" to "P -8-7", Docket - \' ol. III, pp. 127 8 to 1281. 1.17 Exhibit "P-5-6", Docket- \'ol. I, p. 35.

CT"-\ Case No. 10606 IBiVJS Ted111olo,gJ' Pbik Corp. !JJ. Commt~rJioner o/llllenwl Rn;mue

Page 39 of 57

the disallowed representation and entertainment expense should be allowed as deduction and any assessment attributed thereto should be cancelled, especially so that it submitted competent pieces of evidence such as Official Receipts, Check Vouchers, Disbursement Journals, etc. when it flied its Request fir Reinvestigation. 138 The Court is not convinced with petitioner's contention. Section 34(A)(1 )(a)(iv) of the NIRC of 1997 authorizes the imposition of a ceiling on the deductibility of entertainment, amusement, and recreation expenses. This is implemented by Section 5 of RR No. 10-2002,139 which prescribes the following ceilings: (1) for taxpayer engaged in sale of goods or properties, the deduction for entertainment, amusement, and recreation expense should not exceed 0.50 percent of net sales (i.e., gross sales less sales returns/ allowances and sales discounts); and (2) for taxpayers engaged in sale of services, including exercise of profession and use or lease of properties, the deduction for entertainment:, amusement:, and recreation expense should not exceed 1% of net: revenue (i.e., gross revenue less discounts). Records show that: the petitioner failed to explain its claim or provide supporting documents to justify the representation and entertainment expense. 1\.!fere assumptions that: the claimed amount falls within the allowable ceiling are insufficient.

To reiterate, bare allegations, unsubstantiated by evidence, are not equivalent to proof; in short, mere allegations are not evidence. 140 Accordingly, the disallowance ofP773,921.95 is hereby sustained. In fine, petltloner 1s liable for basic deficiency mcome tax of P15,614,577.08, computed as follows:

Taxable Incom.e (Loss) per ~etur~---- __ _ ___________________ f---!_ 58,2~2,537_.(~( Add: Adjustments/ disallowances_______ _ _ ---------- Disallowed Expenses due to non-withholding P28,400,572.34 1---------~---------- ------------- --,---~--'----'------1-------------- Disallowed Purch~ses _ ------ ____________ __11_,7_3_1._,1_8_7_.8_6_1 _____________ _ Gain on sale not subjected to Income Tax 335,000.00

0\Terclaimed Depreciation Expense

807,907.79 Disallowed Reprcs~~tion a11_d_ Entt;rtainm_ent ______ '--------- 773,921.95 52,048,589.94 Adjusted Tax~ble _Inc_ome _________ -------- ____ _____ P110,291,126._2_4 IVIultiplied by Inc(')_n~~-'!'ax ~~~ _____ _ ____________________________________ 20°/o

Income Tax Due

_____ _____ ____ _ __________ --------- _______ ------- __________ ___[ ___ P_3~3_!_,087,338:98 ~-------- ~ LlH Par. 7.1 (F), Grounds/Discussion, Petilion(or Rm.e!JJ, Docket- \-ol. I, pp. 16 to 17. "~SUBJECT:

Implementing the Provisions of Section 34("-\)(l)(a)(iv) of the Tax Code of 1997 , .-\uthori:-:ing the Imposition of a Ceiling on "Entertainment, ~-\musement and Recreational

Expenses"

I-III Emtelillda c ;\lallalo!o, e/ a/. /IJ. hmael L ce!O.i'O III, G.R. No. 171365, October 6, 2010.

CT-\ Case No. 10606 IBi'viS Tedl!lo!og)' P/Jik Corp. tJJ. ComllliJ".Iiomr ojlntenwl Rewnue

Page 40 of 57

Less: Tax Credits/Payments

___________ ·-· Income tax payments -------·· -----------· ----- 14,118,130.00 --

Creditable Tax Withheld

--------------- __________ 3,354,631.00 ..

--------·-------·

Basic Deficiency Income Tax

II.

VAT

-------- -- 1 7 '4 72,7_6_1· ()() p 15,614,577.08 Petitioner was assessed of deficiency V1\ T m the amount of P45,989,801.06, 141 computed as follows:

Taxable sales/ receipts per Y AT return Add: Adjustments/ disallowances

Undeclared Receipts

Unsupported Zero-rated sales Taxable sales/receipts as adjusted

Output Tax Due

Less: Allowable input tax per audit Input tax from current period Input tax carried over from previous period

Total

Less: Input tax carried forward to succeeding period

Disallowed Input Taxes

'lr\T Payable Less: VAT payments per audit

Basic Tax Due

Add: Interest 12% (01.26.18 to 01.29.21)

TOTAL AMOUNT DUE

P119,811,294.84 56,844,265.21 p 11,933,378.33 18,261,516.03 p 30,194,894.36 12,135,122.79 p 158,807,539.95 176,655,560.05 ..

P335,463,100.00 p 40,255,572.00 1~~5s4:,_~95.z:l: __ ~ 5,4~5,oz~~?

p 34,780,496.18 997,133.22 p 33,783,362.96 12,206,438.1_9 __ P45,989,801.06 The assessment of deficiency value added tax was based on the following grounds:

A. Undeclared receipts ?119,811,294.84 B. UnsuE_ported Zcro-r~tc9_ sales ____ 56,844,265.21 -----------·-- ---

c. Input tax carried forward to the succeeding period 12,135,122.79 ------------ ------------ ----- -~--------·--- ·--------- D. Disallowed ~nput taxes 12,584,695.74 ----------·--·-----·- ·- A.

Undeclared Receipts

Respondent, upon verification, alleged that petitioner failed to declare the amount of P119,811,294.84 as gross sales, and consequently, such gross sales were not subjected to V ~-iT pursuant to Section 108 of the NIRC, as amended. The computation of the total undeclared receipts is shown below: 14 :' / 1~1 Exhibit "P-5", Docket-\" ol. I, at p. 31. 1-12 Exhibit "P-5-3", Docket- \'ol. I, p. 35.

CT~\ Case No. 10606 IBlvfS Ted71lology P!Ji!r. Corp. 11.r. Comnu~,·.rio11er o/lntema! Reliemte

Page 41 of 57

Total Sales per BIR Form 2307

P335,463,100.00

Less:_Sales _

_I~er_VA'l~B:etu!E~-----------~--215,651,805.16

Undeclared Receipts

P119,811,294.84 To reiterate, in the above discussion under Part I, Section B, petitioner claims the following: (1) it had religiously declared its income or receipts for the taxable period 2017; (2) its income for taxable year 2017 is only P215,651,806.00; (3) its creditable withholding tax per BIR Form No. 2307 amounting to P3,354,631.00 were withheld by its diverse clients based on various rates of 1%, 2%, 3%, and 10%; and (4) the appropriate and other competent pieces of evidence (e.g., BIR Form No. 2307, Contracts/Purchase Orders/Statement of Accounts, Official Receipts, etc.) were submitted to the respondent when it filed its Reqmst for Rei11veJtigatio11. As discussed under Part I, Section B, \'Ve find that petitioner had no undeclared income and that respondent's assessment is void for lack of factual basis, thus the deficiency VAT assessment pertaining thereto must likewise be cancelled.

B.

Unsupported Zero-rated Sales

Respondent alleged that petltloner failed to present evidence or supporting documents to substantiate its claimed zero-rated sales amounting to P56,844,265.21, as required under Section 108(B)(2) of the NIRC, as amended. On the contrary, petitioner argues that its sales amounting to P56,844,265.21 pertains to zero-rated transactions/ sales as these are transactions made to Philippine E·:conomic Zone Authority (PEZA) -registered ecozone IT (Export) Enterprises, such as Concentrix Daksh Services Philippines Corporation (with Registration Certificate No. 03-25-IT), DB Schenker Global Services .A.sia Pacific, Inc. (with Registration Certificate No. 15-195), NCR Cebu Development Center, Inc. (with Registration Certificate No. 04-05-IT), and Towers \'Vatson Global Business Services, Inc. (with Registration Certificate No. 11-110-I'I), among others, in accordance with Sections 4.106-6 and 4.108-6 ofRR No. 16-2005, as amended. Moreover, petitioner claims that it likewise submitted PEZA Certificates, Contracts/Purchase Orders, Official Receipts, and the like, when it filed its ReqmJt for ReinveJtigation. I-n To prove that its clients are PEZA.-registered entities, petitioner submitted relevant PEZ1-\ Certifications as enumerated below: _/'/ 1-n Part. 7.2(B), Grounds/Discussion, Pelilioll{or RePiew, Docket-\" ol. I, pp. 17 to 18.

CT~\ Case No. 10606 !Bi'·v!S Tedl!lology P/Ji!r. Co1p. IJ.r. CotJtllli.,·.rioller o/llllema/ Rtl!e!//le

Page 42 of 57

Exhibit

Customer N arne ~---~-----~-"-- -------------

Concentrix Daksh Services Philippines

"P-55"1-H

Corporation formerly IBTvi Daksh Business -+-Process Services Pl~~E_ines~.<:_~l}lorated Concentrix Services Corporation formerly

"P-56"145

Synnex-Conccntrix Corporation;

Link2support, Inc.

"P-57" 146

Concur (Philippines), Inc.

1-------- --~- ------ ---~ ------~----~----1-

"P-58"147

DB Schenker Global Services Asia Pacific, Inc.

----

"P-59"148

NCR Cebu Development Center, Inc.

-----~------------- ----- ----··--- ------------- --~-

"P-60"

14 ~

Certificate

Validity

No.

2017-1651

Year2017

-- 2017-2158 update No.

Year 2017

0027 2017-2446

Year2017

2017-1366

Year 2017

2017-1952

Year2017

2017-1406

Year 2017

t------- Pointwest Innm·ations Corporation -~- ---------------- ------- ----------------t-· -~

"P -61 "150

Telco Services International Pty. Ltd. - 2017-0422

Year 2017

Branch Office

"P -62" 151

· felephilippines Incorporated 2017-0839

Year2017

---------·--··----------~---- ·-

"P-64" 152

TPPH -C~\1, Inc. formerly Aegis Services 2017-0840

Year2017

Philippines, Inc.

~----~------

"P -65" 153

TPPH-FHCS, Inc. formerly .Aegis People 2017-0861

Year 2017

Support, Inc.

"R-1 ,Js4 Towers Watson Global Business Sen-ices, 2017-0649

Year2017

Inc.

~----------------------- ---------- ------- Consequently, based on the evidence submitted, the petitioner's sale should be properly classified as either "considered export sale" under Section 106(A)(2)(a)(5) (for sale of goods) or Section 108(B)(3) (for sale of services) of the NIRC of 1997, as amended, rather than as "effectively zero-rated sale of services to non-resident affiliates" under Section 1 08(B) (2) of the same code. To determine whether petitioner's sales are subject to V[\ T at zero percent (0%) under Section 106(A)(2)(a)(5) or Section 108(B)(3) of the NIRC of 1997, as amended, and as implemented by Sections 4.106-5 and 4.108-5 of RR No. 16-2005, as amended by RR No. 04-07, the following essential elements must be present, to wit:

1. the sale was n1ade by a VAT registered person; and

2. there was sale of goods or services to an entity entitled to incentives under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws./ II~ Docket- \-ol. 2, p. 605.

1 ~ 5 Docket - \ T ol. 2, p. 606.

1 ~ 1 ' Docket - \-ol. 2, p. 607.

I-17 Docket - \-ol. 2, p. 608.

IIH Docket- \To!. 2, p. 609.

~~~Docket- \-ol. 2, p. 610.

1511 Docket- ~-ol. 2, p. 611.

151 Docket- \-ol. 2, p. 612.

152 Docket- \-ol. 2, p. 615.

151 Docket- \T ol. 2, p. 616.

15 ~ BIR Records (Green Em-elope 2), p. ·118.

CT'I. Case No. 10606 IBkiS Ted111olog)' P/1ik Cotp. l'.r. Commi_~~,'foller o/lll!ema/ RetNII!It

Page 43 of 57

With respect to the first essential element, the Court notes that petitioner did not submit its Certificate of Registration (BIR Form No. 2303) to establish that it is a VAT-registered person. However, a review of the ORs and Billing Statements155 submitted to the Court reveals that a VAT Registration Taxpayer Identification Number (TIN) 213-004-699-000 is indicated therein. The same TIN number appears on the FAN issued by respondent. As such, petitioner qualifies as a VAT-registered person for purposes of this determination. As for the second essential element, a VAT-registered person asserting VAT zero-rating on its sales must submit, among others, the following documentary evidence:

1. the sales invoice or official receipts as proof of sale of goods or services; and

2. proof of entitlement to zero-rating under the Omnibus Investment Code or other special laws.

As shown in the table above, pet1t1oner submitted various PEZA Certification.~ issued to its customers, thereby satisfying the requirement for the suond type of supporting document. 1\ccordingly, only sales made to customers with valid PEZA Certifications may be classified as sales subject to VAT zero- rating.

\'Vith respect to the _first type of supporting document, petltloner presented various ORs with the corresponding Billing Statements156 to support its alleged zero-rated sales.

A review of the submitted ORs and corresponding Billing Statements shows that petitioner was able to substantiate only P50,058,398.01 of its claimed zero-rated sales, out of the total reported amount of P56,844,265.21. Accordingly, the unsubstantiated portion amounting to P6,785,867.20 is sustained.

Further examination shows that the sales 111 the amount of P4,252,762.82 must be disallowed due to the absence of PEZ.1\ Certijic:atiom, as itemized below:

Sales not supported by PEZA Certifications to validate zero-rating eligibility ISS Exhibits "P-170" to "P-3"f4", Docket - \"oL 2, pp. 79"1 to 1233. (Except those denied as per Resolutions dated June 29, 2023 and October 12, 2023, Docket - \'oL III, pp. 1265 to 1268 and 1294 to 1298, respectively).

!51> ld.

IBMS Technology Phils. Corp. vs. Commissioner of Internal Revenue

/ [ms ae:

Exhibit

No. Reference _ Customer Name Amount of Sales Docket - Vol. 2, | Concentrix Services Phils. “p.491” , p- 856 —___| (Minacs Group Inc) _ P 14,500.00 D et - Vol. 2 .

“P.193” p _ ob 2, Results Manila, Inc. 12,500.00 D - Vol. 2 «P194” nt Ol 2, | Results Manila, Inc. 12,500.00 Docket - Vol. 2,/.... 1. :

“P_208” > O04. Vol. 2, | ro1 Global Inc. 12,500.00 Docket - Vol. 2,/ “D.253” p.990- Vol 2.) DPE Phils. Inc. 226,973.23 “P_254” "092, ol. 2, | pt. Sentosa Agung Mulya 1,357,525.00 - \/ 2 ia | “P.257” » oo Vol. 2, | Results Manila, Inc. 12,500.00 “P_286” 1069 Volk 2.) Oceana Gold 1 (Phils) Inc. 28,000.00 “P2989” ti? Vol. 2, | ro Global Inc. 25,000.00 . 2 7 9 Ty ; > ; .

«P_306” Docket Vol. 2, | KMC Mag Solutions, 10,000.00 _p. 1129 ___| Incorporated 7 2 “p.309” ee Vol. 2.) segs (Malay sia) SDN BHD 1,173,088.62 “P-328” re Vol 2,] sccg (Malaysia) SDN. BHD 1,137,686.81 “P_338” mare ne Vol 2, | ts mitates 18,297.60 «p.339” |! ot Vol. 2.1 Gigbe 17,049.85 “p_340” "1232 ~ Vol. 2, | 4 telenet Global Phils, Inc. 69,177.83 a a _ _ “p341” pad Nol 2.) segs 3 (Malaysia) 8 SDN BHD 94,213.88 “p_344” ree ol 2, | <1 Global Ine. 31,250.00 - ‘Total | ; | P4,252,762.82 | In addition, the amount of P25,466,216.93 must also be disallowed for failure to comply with the invoicing requirements prescribed under Section 113 (A) and (B) of the NIRC, as amended, and as implemented by Section 4.113-1 of RR No. 16-2005, as amended. The specific grounds for disallowance are detailed below:

1. Zero-rated sales supported by ORs that fail to specify the nature of the service, which is non- compliance to invoicing requirements - io

Exhibit | Reference Customer Name Amount of Zero-

No. | (QWocket) (| rated Sales “P_-170” Vol. 2, p. 794 Telephilippines Inc. P —-1,007,239.87 “P_171” Vol. 2, p. 796 | Concentrix Daksh Serv. Phils. Corp. 157,500.00 “P-172? | Vol. 2,p- 798 | Concentrix Daksh Serv. Phils. Corp. - 91,000.00 “P-173” | Vol. 2, p. 803 _ LC oncenttix Daksh Serv. Phils. Corp. 764,235.02 “p.474” Vol. 2, p. 813 omnes Corporation/C oncentrix Serv 60,867.55 ~~

IBMS Technology Phils. Corp. vs. Commissioner of Internal Revenne

Vol. 2, p. 815 Concentrix Services Corp. 200,000.00 | “P-176” Vol. 2, p. 817 Concentrix Services Corp. 35,000.00 | “P-177” | Vol. 2, p. 819 Concentrix Services Corp. 120,000.00 “P-178” Vol. 2, p. 821 Concentrix Services Corp. 340,000.00 [ «p.179” Vol. 2, p. 825 | Telephilippines Inc. —__ ; 425,000. 00. | “P-180” | Vol. 2, p. 828 | Telephilippines Inc. ai 42,500.00. “P-181” Vol. 2, p. 830 | Telephilippines Inc. 76,089. 57 “P-182” | Vol. 2, p. 832 | Concentrix Daksh Services Phils. Corp. 924,082. 73. “P-183” Vol. 2, p. 838 Concentrix Services Corp. 552,000. 00 | “P-184” Vol. 2, p. 841 NCR Cebu Development Center Inc. 12,172.00 “P-185” Vol. 2, p. 843 Concentrix Services Corp. 642,000.00 “P16” Vol. 2, p. 846 TPPH FHCS INC. (Formerly Aegis 408,783.90

Peoples Support Inc)

“P-187” Vol. 2, p. 848 Concentrix Daksh Serv. Phils. Corp. 71,891.06 “P-188” Vol. 2, p. 852 Pointwest Innovations Corporation 19,111.27 “P.190” Vol. 2, p. 855 Concentrix Daksh Services Phils. Corp. 42,500. 00_ “Pp-192” Vol. 2, p. 858 Concentrix Daksh Services Phils. Corp. | 100, 000. 00° “P-195” Vol. 2, p. 865 ‘Concentrix Daksh Services Phils. Corp. 4,660, 000. 00 | “P-196” Vol. 2, p. 874 | elephilippines Inc. 64,208.19 “Pp-197” Vol. 2 2,p-876 | Pointwest Innov ations Corporation 140,000.00 | “P-200” | Vol. 2,p- 881 Concentrix Daksh Serv ices Phils. Corp. 886,802.05 | “<P-201” Vol. 2, p. 887 Concentrix Daksh Serv ices Phils. Corp. 90,000.00 | “P-202” Vol. 2, p. 889 Concentrix Daksh Serv ices Phils. Corp. 360,000.00 _ «p_203” Vol. 2, p. 891 ae FHCS INC. (Formerly Aegis 122,000.00 - _| Peoples Support Inc) ;

“P-205” Vol. 2, Pp. 894 Concentrix Daksh Services Phils. Corp. 94,577.56 “P-206" | Vol. 2 2,p. 896 Concentrix Daksh Services Phils. Corp. 171,302.05 _ “P-207” Vol. 2, p. 902 Towers Watson Global Business Services 44,353.61 “p_209” Vol. 2, p. 906 Ine Schenker Global Services Asia Pacific 335,000.00 “p_210” Vol. 2, p. 908 Db Schenker Global Services Asia Pacific | 1,480,000.00 “po441> Vol. 2, P 910 Ine Schenker Global Services Asia Pacific 1,110,000.00 “P-212” 2” | Vol. 2 »p. 912 | Concentrix Daksh Services Phils. Corp. 2,762,500.00 “P.213” | Vol. 2, p- 923 | Concur (Philippines) Inc 61,658.75 | “P-214” Vol. 2, p. 925 Concentrix Daksh Services Phils. Corp. 86,000.00 ec o> Yowers Watson Global Business Services, P-215 Vol. 2, p. 927 Tac. 44,353.61 “P-216” | Vol. 2, p.929 | Concentrix Daksh Services Phils. Corp. _ 70,000.00 “—P.217” | Vol. 2, p. 931 Concentrix Daksh Services Phils. Corp. 478,000. 00 | “P-218” Vol. 2, p. 933 Pointwest Innovations Corp. 19,141.27 “P-219” | Vol. 2, p. 935 Velephilippines Inc. 105,369.86 “P-220” Vol. 2, p. 937 | Telephiltppines Inc. 109,876.93 | “P-222” Vol. 2, p. 940 | Concentrix Daksh Services Phils. Corp. 94,577.56 | “P.223” | Vol. 2, p.942 | Concentrix Daksh Services Phils. Corp. | 35,402.99 “P-268” | Vol. 2, p. 1029 | | Concentrix $ Servi ices Corporation 102,177.53 “P-269” | _ Vol. 2, p. 10 32, Concentrix Servi ices Corporation 381. 61 6. 34. “P- 270” ~ Vol. 2 2, p: 1034. -Concentrix Services C orporation 480, 000.00 “P_271” |_ Vol. 2, Pp. 1036 _| Concentrix Services Corporation 30,240. 00 “P_272” | Vol. 2, p. 1038 | Concentrix Services Corporation 30,240.00 “P-273” | Vol. 2, p. 1040 | Concentrix Services Corporation 15,507.69 | “P-274” | Vol. 2, p. 1041 | Concentrix Services Corporation 15,507.69 “P-275” | Vol. 2, p. 1043__| Concentrix Services Corporation 14,206.51 ~~ IBMS Technology Phils. Corp. vs. Commissioner of Internal Revenue [ <P-276” | Vol. 2, p. 1045 | Concentrix Services Corporation 115,000.00 “P-277” Vol. 2, p. 1047 | Concentrix Services Corporation 42,000.00 “P-278” | Vol. 2, p. 1049 | Concentrix Services Corporation __ 17,000. 00 “P-291” | Vol. 2, p. 1085 _ Pointwest Innovations Corporation _ 25,000.00 | > a «p.295 | Vol. 2, p. 1095 TPPH FHCS INC. (F ormerly Aegis 745,539.60

Peoples Support Inc) |

«p.296” | Vol. 2, p. 1097. | [PPE PHS ING. (Formerly \egis 523,969.08 fo Peoples Support Inc) - “P-297” Vol. 2, p. 1100 | Concentrix Daksh Servi ices Phils. Corp. 10,828.50 “p.304” | Vol. 2, p. 1121 DB Schenker Global Services Asia Pacific 370,000.00 “P-326” | Vol. 2, p.1181_| Concentrix Daksh Services Phils. Corp. | 4,500.00 |

Subtotal

P 22,440,400.34 |

2. Sales supported by Official Receipts (ORs) that fail to indicate the transactions as zero-rated, which is non-compliance to the invoicing requirements

Exhibit Reference Customer Name Amount of Zero-

No. rated Sales | “P-330” | Vol. 2, p. 1194 | Concentrix Daksh Services Phils. Corp. _ P 49,500. 00 “P-331” Vol. 2, pe 1196 | Concentrix Daksh $ Services Phils. Cotp. 7 729 778. 69 “P-332” Vol. 2, p- 1201. | Concentrix Daksh Services Phils. Corp. 105,968.78 | “P-333” | Vol. 2, p. 1204 | Concentrix Daksh Services Phils. Corp. 20,000.00 “P-334 Vol. 2, p. 1206 | Concentrix Daksh Services Phils. Corp. | 67,500.00 | “P-335” | Vol. 2, p. 1208 | Concentrix Daksh Services Phils. Corp. _ ___ 1,092,688. 77 | L “P-336” | Vol. 2, p.1212 | Concentrix Daksh Services Phils. Corp. 123,730. 35 |_“P-337” | Vol. 2, p.1214 | Concentrix Services Corporation | 656,500.00 “P-342” | Vol. 2, p. 1227 a PHCS INC. (Formerly Aegis 139,650.00 eoples Support Inc) «p.343” | Vol. 2, p. 1230 a PHCS INC. (Formerly Aegis 40,500.00

__-__ Peoples Support Inc) | —

ee _____ Subtotal P 3,025,816.59 Grand Total P 25,466,216.93 In sum, of the claimed zero-rated sales amounting to P56,844,265.21, only the amount of P20,339,418.26 is eligible for VAT zero-rating.

"This amount is supported by valid ORs and corresponding PEZA Certifications, computed as follows:

Total reported zero- -rated sales - - — per ‘VAT returns P56,844,265.21 | Less: Unaccounted/unsupported ZCYO- rated sales (6,785,867.20) Substantiated zero-rated sales _ P50,058,398.01 Less: Exceptions noted Sales not supported “by PEZA Certifications to validate zero-rating eligibility Zeto-rated sales “supported “by ORs that fail to specify the nature of service, which is non-compliance to invoicing requirements (22,440,400.34) a Sales supported by ORs that fail to indicate the transactions as zero-rated, | _ _(29,718,979.75) nw CT-\ Case No. 10606 IBJ'v1J Tedillo!ogy P/Ji!r. Co!J!. I'·'·· CrJ!l!Jlll:,-_,·ioller o/fl!!emal Re!Jf/1//e

Page 47 of 57

to

the J

which 1s non-compliance ____ __j_ll:\TOlcmg req~ir~me!~s_ Total valid zero-rated sales

_ _____ L _________ ------~---

---- pzo,339,4ts.z6 ·----- _________________ --.L_ ___ __:__..:___ _

___J

Consequently, due to lack of proper substantiation, the total amount of disallowed zero-rated sales is reduced to P36,504,846.95. 157 C.

Input tax Carried Forward to the Succeeding Period According to respondent, the excess input tax amounting to P12,135,122.79 was not applied against the allowable input tax in computing the deficiency VAT since it will be carried over to the succeeding quarters as provided under Section 11 O(B) of the NIRC, as amended. Petitioner argues that the alleged excess input tax was applied against the allowable input tax in accordance with Section 11 O(B) of the NIRC, as amended, which allows carry over of excess input tax to the succeeding quarters. 158 Section 110(B) of the NIRC of 1997, as amended, provides that if the input tax exceeds the output tax, the excess can be carried over to the succeeding quarter(s). Since the excess input tax may be used to offset the petitioner's output tax in subsequent periods, it may redound to the benefit of the petitioner in such future periods. Accordingly, it is incumbent upon the petitioner to prove that the excess input tax was not utilized in the succeeding quarter(s).

In this case, however, petitioner failed to provide clear and convincing evidence to establish that the excess input tax was not carried over or applied in the succeeding periods. Thus, respondent is correct in disallowing petitioner's input tax carried over to the succeeding taxable period. This is to ensure that petitioner will not benefit twice from the same input tax credits: (1) as deduction from the assessed deficiency VAT; and (2) as credit against its output tax liability in the succeeding taxable quarters/periods. D.

Disallowed Input Tax

Respondent disallowed the input tax of P651 ,317.41, 159 which pertains to the alleged excess transportation equipment earlier discussed under Part I, Section E of the income tax assessment amounting to P5,427,645.09./V" IS7 Unsupported zero-rated sab; per F.-\~ of f'5(J,8'14,265.21 less valid zero-rated sales of P20,339,418.26; Sum of unaccounted/unsupported zero-rated sales of P6,785,867.20 and total exceptions noted of f'29,718,979.75.

ISH Par. 7 .2(C), Grounds/Discussion, Pe!ition(or 1\e!!ie/ll, Docket-~-ol. I, p. 18. IS~ Excess transportation equipment off'S,-l-27,6,15.()9 multiplied by 12% 1·.-\"T.

CT"-\ Case No. 10606 IBlvfS Ted111o!o!!J' P/Ji!r. Cotp. P.r. Commi.r.riomr o/llltemal RetJeJzue

Page 48 of 57

Also, respondent disallowed petitioner's input tax for the current period amounting to P11 ,933,378.33 due to the petitioner's failure to present evidence or supporting documents to substantiate the claim, in accordance with Section 110 of the NIRC, as amended, in relation to Sections 113 and 237 of the same Code, computed as follows: 160 Cost of Transportation Ec1uipment as of 12.31.2017 Less: Threshold allowed by RR No. 12-2012

Excess Transportation Equipment

Multiplied_Ej_r: _\lA T_ rate __ m _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Disallowed input tax on excess transportation equipment Add: Unsupporte_9 input tax clain~_eci_i_o_~ they_ear _____________ _ Disallowed lnpu! T~){~~~~~~--0--~~- -~-~--~~~-~~o~-~-~·o== P7 ,827,645.09 2,400,000.00 P5,427,645.09 12% --- P651,317.41 11,933,378.33 P12,584,695. 7'!_= To reiterate, petltloner argues that Section 3(B) of RR No. 12-2012 provides a threshold of P2,400,000.00 per official or employee. Accordingly, the allowable threshold should be P12,000,000.00, considering that at least five

(5) vehicles were utilized by its officials and/ or employees in the conduct of its business operations.

J\!Ioreover, petltloner claims that based on its records all input taxes claimed were supported by appropriate documents such as BIR Form No. 2550-J\!I, BIR Form No. 0605, BIR Form No. 1604-E, BIR Form No. 2307, ORs, and Check Vouchers & Ledger of Expenses, etc., which were all submitted to respondent when it filed its Request for Reinvestigation. 161 Notably, the excess transportation equipment amounting to '?5,427,645.09, as reflected in the above computation, pertains to the portion of the acquisition cost that exceeds the P2,400,000.00 threshold. Thus, the depreciation expense attributable to said excess is not allowable as a deductible expense, pursuant to the provisions of RR No. 12-2012. l'vforeover, as previously discussed in Part I, Section E, petitioner failed to substantiate its compliance with these two (2) requirements: (1) that the acquisition cost of the vehicle did not exceed P2,400,000.00; and (2) that only one vehicle was assigned per official or employee. In the absence of such substantiation, the depreciation expense attributable to the excess cost is not allowable as a deductible expense under the provisions of RR No. 12-2012. Likewise, the input taxes on the purchase of non-depreciable vehicles - P5,427,645.09 in this case- and all input taxes on maintenance expenses incurred thereon are likewise disallowed for taxation purposes, pursuant to Section3(E) ofRR No. 12-2012. Accordingly, the assessment is sustained~ IW Exhibit "P-5-8", Docket- \"ol. I, p. _)6. lr>l Par. 7 .2(D), Grounds/Discmsion, Pe!ilioJljiH RePieJP, Docket - \' ol. I, pp. 18 to 19.

CT"-\ Case ]\jo. 10606 IBiVIS Tedmology P/Jil.r. C..otp. /J.r. Commi_,._,ioller o/]lltemal Rewtme

Page 49 of 57

Therefore, in view of the petitioner's failure to provide sufficient documentation, the disallowance of input taxes amounting to P651,317.41 is likewise sustained.

As to the alleged unsupported mput tax claim amounting to P11,933,378.33, petitioner submitted its VAT Reconciliation if Li.J"ting for

Enforament (VAT RELIEF) 16

:> for taxable year 2017, covering purchases of goods other than capital goods, which reflected a total input tax of P9,513,974.37. However, aside from this subrnission, petitioner failed to provide supporting documents to fully reconcile and substantiate the total input tax claimed in its \T1\T returns. In view of this failure to sufficiently substantiate the claimed amount, the disallowance of the input tax remains warranted.

To recapitulate, the assessment for basic deficiency VAT is sustained but in the reduced amount of P16,965,277.38, as computed below: Taxable sales/ receipts per ·vAT return Add: Adjustments/ disallowances Unsupported Zero-rated sales Taxable sales/receipts as adjusted

Output Tax Due

Less: Allowable input tax per audit Input tax from current period Input tax carried OYer from pre,·ious period

Total

Less: Input tax carried forward to succeeding period

Disallowed Input Tax

VAT Payable

Less: VAT payments per audit Basic deficiency VAT due III.

EWT

p 158,807,539.95 36,504,846.95 36,504,846.95.

11,933,3 78.33 18,261,516.03 30,194,894.36 12,135,122.79 12,584,695.74 P195,312,386.~_Q_ p 23,437,486.43 5,475,075.83 p 17,962,410.60 997,133.22 p 16,965,277.38 As earlier discussed, respondent finds that petitioner failed to withhold and remit the correct withholding tax due on income payments disallowed as deductions from gross income, computed as follows: 163

Income Payments

Per FS/ITR

Per Alphalist

11.2 Exhibit "P-68", Docket~ \"ol. 2, pp. 6~3 to /()3. 11•1 Exhibit "P-5-1", Docket~ \"ol. I, p. 33.

Discrepancy

EWT

rate --- EWT due CT.-\ Case ~o. 10606 IBJ\.15 Ted111ology P!J!k Corp. 11.r. Commi..-..-ioner o(fnlenwl Rewll!te

Page 50 of 57

Commission

Director's Fee

Purchase of Goods -

Top 20,000

Corporation

P5,935,600.00 _____ 6§__02667~0- P4 78,556.30 P5,457,043.70 666,667.00 10% 15% P545,7CH.37 1 00,000.(}5

Materials

101,014,292.00 79,285,862.36 21,728,429.64 1% 1% 1% 1% 217,28"UO 9,667.13 2,183.1)6 3,675.25

Office Supplies

Fuel and Oil

Additions to PPE

966,713.00 966,713.00 248,386.00 248,386.00 367,524.55 367,524.55

Total

------'-------------- ---- __ P109,l_9_9_)~~.55 ____ !_79,~4,:J-18._68 ___ P29,434,763.89 ___ P=~?8,~~~.95 As discussed in Part I, Section .A, the Director's Fee amounting to P666,667.00 can be traced to the submitted Alphalist. 164 Accordingly, the assessed EWT on the said director's fee amounting to P100,000.05, should be cancelled.

However, petitioner failed to explain or submit supporting documents to reconcile the discrepancies relating to commission, materials, office supplies, fuel and oil expenses, and additions to PPE. As a result, the assessed E\VI amounting to P778,814.90 should be sustained. In sum, petitioner is liable for basic deficiency E\"(!T in the amount of P778,814.90, computed as follows:

Income Payments

Amount

Tax

EWTDue

Rate

--~----~ ----

Commission

p 5,457,043.70 10% fl545,704.37 --------·- Purchase of Goods -Top 10,000

Corporation

Materials

21,728,429.64 1% 217,284.291('5

Office Supplies

966,713.00 1% 9,667.13

Fuel & Oil

248,386.00 1% 2,483.86 ---- -

Additions to PPE

367,524.55 1% 3,675.25 -~----- -

Total

P29,434,769.89 P778,814.90 IV.

IAET

Respondent alleged that verification revealed that petitioner's retained earnings exceeded one hundred percent (100%) of its paid-up capital, indicating an accumulation of earnings beyond the reasonable needs of the business, purportedly to avoid tax liability on its shareholders. As a result, petitioner was assessed a ten percent (1 0%) IAET amounting to P5,720,238.09, pursuant to Section 29 of the NIRC, as amended, and RR ~ 11'~ Exhibit "P-66-1 ", Docket- \' ol. 2, at pp. 667 to 668. tr.s Not rounded-off to the nearest peso, since the total basic E\\'T assessment of PS78,814.95 less cancelled EWT assessment for Director's Fee ofP100,000.05 is P77S,Sl.:J.90.

CT~\ Case No. 10606 IBJvlS Ted111ology P/Jils. Corp. IJ.r. Commi.rsiomr o/llltenitil H.el!etme

Page 51 of 57

No. 2-2001, as clarified by Revenue l\!Iemorandum Circular (RMC) No. 35- 2011, computed as follows: 166 Taxable Income for the taxable year Less: Income tax paid P17,472,761.10 --~ 7,000,000.00 p 58,242,537.00 Dividends paid

Total

.Add: Retained earnings from prior years Accumulated Earnings as of taxable year Less: Amount that may be retained

Improperly Accumulated Earnings

Multiply by: IAET Rate

34,472,761.10 p 23,769,775.90 43,592,605.00 p 67,362,380.90 10,160,000.00 p 57,202,380.90 10%

Improperly Accumulated Earnings Tax

p 5,720,238.09 Petitioner contends that its prior years' retained earnings were duly appropriated for the acquisition of land or property to be used as office space, citing the high cost of rentals in Makati City, as well as for its planned business expansion. Such appropriation was accordingly made in line with the reasonable and/ or immediate needs of the corporation, as recognized under RR No. 2-2001, Rl\!IC No. 35-2011, Section 29 of the NIRC, the Corporation Code, and applicable jurisprudence (CTA Case No. 8295; G.R. No. 108067, January 20, 2000).

Moreover, petitioner asserts that the subject assessment has already been addressed in the assessments for taxable years 2014 and 2015, which are the subject ofCTA Case Nos. 9970 and 10177. 167 Section 3 of RR No. 2-2001 168 provides the basis for determining the reasonable needs of the business and enumerates the instances in which the accumulation of earnings is deemed to be for the reasonable needs of the business, as quoted below:

"SEC 3. Determination ~~ ReaJ·onab!e Needs if t!Je BmineH. - An accumulation of earnings or profits (including undistributed earnings or profits of prior years) is unreasonable if it is not necessaty for the purpose of the business, considering all circumstances of the case. To determine the 'reasonable needs' of the business in order to justify an accumulation of earnings, these Regulations hereby adhere to the so-called 'Immediacy Test' under American jurisprudence as adopted in this jurisdiction. Accordingly, the term 'reasonable needs of the business' are hereby construed to mean the immediate needs of the business, including reasonably anticipated needs. In either case, the corporation should be able to / tr.r, Exhibit "P-5", Docket- \"ol. I, at p. 3o. Ir.7 Par. 7.4, Grounds/Discussion, Petiliolljor Ret•ieJJJ, Docket- \'ol. I, pp. 19 to 20.

16X SUBJECT:

Implementing the Provision on Improperly .\ccumulated Earnings Tax Under Section 29 of the Tax Code of 1997.

CT\ Case No. 10606 IBiVJS Tedillo!ogy pj,j/r. CotJ!. tJJ. Commi . .:rio11er o/l!llemal Ret;enue

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prove an immediate need for the accumulation of the earnings and profits, or the direct correlation of anticipated needs to such accumulation of profits. Otherwise, such accumulation would be deemed to be not for the reasonable needs of the business, and the penalty tax would apply. For purposes of these Regulations, the following constitute accumulation of earnings for the reasonable needs of the business:

a. Allowance for the increase in the accumulation of earnings up to 100% of the paid-up capital of the corporation as of Balance Sheet date, inclusive of accumulation taken from other years;

b. Earnings reserved for definite corporate expansion projects or programs requiring considerable capital expenditure as approved by the Board of Directors or equivalent body;

c. Earnings reserved for building, plants or equipment acquisition as approved by the Board of Directors or equivalent body;

d. Earnings reserved for compliance with any loan covenant or pre-existing obligation established under a legitimate business agreement;

e. Earnings required by law or applicable regulations to be retained by the corporation or in respect of which there is legal prohibition against its distribution;

f. In the case of subsidiaries of foreign corporations in the Philippines, all undistributed earnings intended or reserved for investments within the Philippines as can be proven by corporate records and/ or relevant documentary evidence." (EmphaJeJ added) To support its claim, petitioner submitted the following documents: (1) Board Resolution No. 2014-01 dated April 25, 2014,169 authorizing the appropriation of P20,321 ,708.00 for future expansion and asset acquisitions, such as the purchase of land or property for office space, transportation or vehicles for mobility of personnel and logistics, and/ or office equipment; (2) a duly notarized Secretary's Certificate dated N!arch 18, 2021, 170 attesting to the approval of Board Resolution No. 2014-01; and (3) a Market Value Appraisal Report dated February 17, 2016./ IW Exhibit "P-69", Docket- \'ol. 2, p. 7 0-1. 1711 Exhibit "P-70", Docket- \'ol. 2, p. 705. 1'1 Exhibit "P-73", Docket- \'ol. 2, pp. 708 to 709.

CT"\ Case ~o. 10606 IBi'viJ Ted111olo!!J' P/Jik Cotp. I!J. Commi.uiomr o{fl!temal Re!Jet!ue

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A review of the foregoing documents reveals that as early as 2014, petitioner appropriated its retained earnings without presenting clear and convincing evidence of the implementation of its intended land acquisition. While a market value appraisal report exists for the prospective property, there is no evidence that the acquisition was actually consummated. Additionally, no evidence was presented to show that vehicles or office equipment were actually acquired for the said purpose.

Notably, Section 7 of RR No. 2-2001 provides that "a speculative and indefinite purpose will not suffice. Definiteness of plan/ s coupled with action/ s taken towards its consummation are essential." On the basis of the foregoing, petltloner failed to pass the so-called "Immediacy Test", which construed the words 'reaJonable medJ if the bmineJl to mean the immediate needs of the business. Consequently, petitioner is liable to pay the deficiency IAET of P5,720,238.09.

To recapitulate, petitioner is liable for the following basic deficiency taxes for the taxable year 2017:

Type ofTax Incorne tax

VAT

EWT

IAET

TOTAL

Basic Deficiency

p 15,614,577.08 16,965,277.38 778,814.90 5,720,238.09 P39,078,907.45 In addition to the foregoing basic deficiency taxes, petitioner is liable to a penalty of 25% surcharge imposed on the basic deficiency taxes pursuant to Section 248(A)(3) of the NIRC of 1997, which provides: "SEC. 248. Civil PenaitieJ. -

(A)

There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent (25%) of the amount due, in the following cases:

XXX

XXX

XXX

(3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment; xxx." l'v1oreover, in accordance with Section 249(B) of the NIRC of 1997, petitioner is liable to pay deficiency interest at the rate of 20% per annum computed from the date prescribed for its payment until the full payment thereof. However, with the cffectivitv of Republic .Act (RA) No. 10963, ;

~ CT\ Case No. 10606 IBJVIS Tedmology P/Jik Corp. tJJ. Commi~:•io11er o/flltemal RetJei/Ne

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othetwise known as the "Tax Reform for Acceleration and Inclusion (TRAIN)" Law, on January 1, 2018, the 20% deficiency interest shall be computed until December 31, 2017 only, while the rate of 12% per annum shall be imposed starting January 1, 2018 until full payment of the deficiency taxes due.

Notably, the TRAIN Law amended (1) the interest rates in Section 249 of the NIRC, (2) the computation of deficiency interest from the date prescribed for its payment until the full payment thereof, or upon issuance of a notice and demand by the CIR, whichever comes earlier, and (3) provides that the deficiency and delinquency interest prescribed under Subsections (B) and (C) thereof shall not be imposed simultaneously. In the present case, the AJJeJJmel1t NoticeJ attached to the FAN indicate the date January 29, 2021 172 as the time prescribed to pay the total amount due found in respondent's assessment.

Likewise, pursuant to Section 249(C) of the NIRC of 1997, petitioner is liable to pay delinquency interest at the rate of 12% per annum computed from January 29, 2021 until full payment thereof. Consequently, peuuoner is liable to pay the aggregate amount of P61,898,607.80, consisting of basic deficiency taxes, surcharges, and deficiency interest computed as of January 29, 2021, detailed as follows:

Income Tax

VAT

EWT

IAET

Total

. "-- ~ -----

Basic Tax Due

15,614,577.08 16,965,277.38 778,814.90 5,720,238.09 39,01 8,CJ(I...,_ h ~\dd: 25'% Surcharge 3,903,(J-i'l.27 j,2-11 ,319.35 t-- 194,703.73 1,430,059.52 9,7 69 '72(J.i~

Subtotal

___12,5J8,22ps__ -~1,206,5()6_.73 C)?}_,5_!8.63 ·- 7,150,297.61 . _":_8,84!5,634.32 ---f-- - ------- ~\dd: 12% Deficiency

Interest

- --· IT: from ~\pr. 17, 2018 to Jan. 29,2021 5,231,097.22 5,231,09".2::2 (P15,614,577.08 X 12% X 1,019 davs/365) -----·-·- --- -- - ....

-------- -- -----·---· - ---------------- ------ VAT: from Jan. 26, 2018 to Jan. 29, 2021 6,135,387.98 6,135,3:)"7. 9:)

(P16,965,277.38 X 12% X 1,100 davs/365) ----~--·- - -- -- ·-··· ----------·- ----f---·-·- ----- -- ·------- EWT: from Jan. 23, 2018 to Jan. 29, 2021 282,421.75 282,-121.-5 (P778,814.90 X 12% x 1,103 dan/365) ·---. -------------- ----- --.

- -- -··--··----- --- ---------------r---· -~---- IAET: fromJan. 16, 2019 to Jan. 29, 2021 1,401,066.53 1,401,066.:J.)

(P5,720,238.09 X 12% x 745 dan/365)

Total Amount Due

J>24, 749,318.57 P27 ,341,984. 71 J>1,255,940.38 P8,551,364.14 P61,898,607 .80 112 Exhibit "P-5", Docket ... \"ol. I, pp. 39 to 13.

I

I

CT\ Case No. 10606 IB}viJ Tedlllolo!!J' Pbik CliiJ!. IJJ. Commi.r.rio11er o{lntenwl Rel!enue

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In addition, petitioner is liable for delinquency interest at the rate of 12% per annum on the respective total amounts still due on January 29, 2021, computed from January 30, 2021 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended by TRr\.IN Law and implemented by RR No. 21-2018.

Petitione~

pay the penalty.

howeve~ is not liable to subject coLDproLnise Petitioner cannot be held liable to pay the compromise penalty in the amount of PSO,OOO.OO as stated in FAN (Part II) dated December 22, 2020. 173 It must be stressed that a compromise is, by its nature, mutual in essence. 174 It implies agreement.

One party cannot impose it upon the other. 175 Compromise penalties are only amounts suggested in settlement of criminal liability and may not be imposed or exacted on the taxpayer in the event of refusal to pay the suggested amount. 176 Considering that there is no indication that petitioner consented to the subject compromise penalty, the said amount cannot be sustained.

ACCORDINGLY, the present Petition for Revie1v 1s PARTIALLY GRANTED.

The subject compromise penalty being imposed amounting to PSO,OOO.OO, as reflected in the FAN (Part II) dated December 22, 2020 issued against petitioner for taxable year 2017 is CANCELLED and SET ASIDE. However, respondent's assessments for deficiency income tax, VAT, EWT and IAET, as stated in the FAN (Part I) dated December 22, 2020, for taxable year 2017 are UPHELD WITH MODIFICATIONS. Accordingly, petitioner is 0 RDERED TO PAY respondent the amount of P61,898,607 .80, representing deficiency taxes for taxable year 2017, inclusive of the 25% surcharge and the 12% deficiency interest computed as of January 29, 2021, respectively imposed under Section 248(-t\)(3) and Section 249(B) of the NIRC of 1997, as amended by TRAIN Law, as follows:

Tax Type

Basic

Surcharge

Deficiency

Interest

Total

Income Tax

VAT

p 15,614,577.08 16,965,277.38 p 3,903,644.27 4,241,319.35 p 5,231,097.22 6,135,387.98 p 24,749,318.57 27,341,984.71 m Exhibit "P-5", Docket- \'ol. 2, at p. 32.

1' 4 Refer to 1. 'da. De Sa11 Agu.rlin ,, .... Com!71i .. ·.cioner o/lntenhil Re!Jf/1//e, G .R. '\:o. 138485, September 10, 2001. 175 Commi.r.rioner o{lnlemal Rel'tlllte 1>.1·. A bad, eta!, G .R. ~ o. L-19627, June 27, 1968. l7!, Refer to Part III.S, Ri\IO l:'!o. 7-2015. ,/V CT-\ Case No. 10606 IBiVIS Technology P/1/!r. C'01p. Jl.i. Commi.r.riomr o/lntema! RetJemte

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EWT

IAET

Total

778,814.90 5,720,238.09 P39,078,907 .45 194,703.73 1,430,059.52 ¥9,769,726.87 282,421.75 1,401,066.53 ¥13,049,973.48 1,255,940.313 8,551,364.14 P61,898,607 .80 In addition, petitioner is ORDERED TO PAY respondent delinquency interest at the rate of 12% per annum on the total amount due of P61,898,607.80 as of January 29, 2021, as determined above, or equivalent to P20,350.23 177 per day, from January 30, 2021 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended by TRAIN Law and implemented by RR No. 21-2018.

WE CONCUR:

~. ~ ..,.'-- MA. BELEN M. RINGPIS-LIBAN

Associate Justice

CORAZON G. FERRER-FLORES

Associate Justice

ATTESTATION

I attest that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

177 P61,898,607.80 multiplied br 12% di,·idec! by 365 dars.

CT-\ Case No. 10606 IBlviS Tedlllology P/Jil.r. Cotp. 11.r. Commi.uiotzer o/llltenzal Ret'etz!le

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~ ~~'-- MA. BELEN M. RINGPlS-..LIBAN

Associate Justice

Chairperson

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairperson's Attestation, is it hereby certified that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.

Presiding Justice