Sydenham Laboratories, Inc. vs. Commissioner of Internal Revenue

DECISION

~--- ACOSTA, P.J. :

Before Us is a Petition for Review seeking the cancellation and setting aside of the assessment and Formal Letter of Demand issued by respondent against petitioner for the alleged deficiency Income Tax in the amount of P250,955.06, Value-Added Tax (VAT) in the amount of P1 ,572,580.24, D ocumentary Stamp Tax in the amount of P76,339.76, and Expanded Withholding Tax in d1e amount of P156,548.37, for taxable calendar year 2001.

The antecedent facts culled from the records are as follows: Petitioner is a domestic corporation duly organized and existing under and by virtue of the laws of the Republic of d1c Philippines, with principal office at E. Aguinaldo Hi-way cor. Governor's Drive, Dasmari11as, Cavite.1 1 Joint Stipulation of Fact' and Js,ues QSFI), records. p. 100. 74 8 CT.A. CASE NO. 7-/.16 DECJ.I'JOI\' PACE:!

Respondent is a public officer duly appointed by the President of the Philippines and is the head of the Bureau of lntcrnal Revenue (BIR), the government agency officially responsible for the assessment and collection of all national and internal revenue taxes.

For taxable year 2001, petitioner flied its Annual Corporation Incorne Tax Return (JTR) with the Bureau of Internal Revenue (BIR) on April 15, 2002. Petitioner received a Preliminary Assessment Notice (PAN) dated October 27, 2004 from respondent assessing petitioner for alleged deficiency incorne tax, docum.entary stalTJ.P tax, value added tax, and expanded withholding tax for calendar year 2001 . Petitioner contested the said assessment through a letter dated Decen1ber 1, 2004 for lacking of factual and legal basis.

O n December 21, 2004, petitioner received an Assessment Notice and a Formal Letter of Demand (FLD) both dated December 15, 2004; stating that petitioner is liable for deficiency income tax, documentary stamp tax, \'alue added tax, and expanded withholding for taxable calendar year 2001. The FLD2 contains the following details: INCOl\fE TA.X Net Income per income staremenr .'\dd: Over declaration of depreciation Gain on sale of fn.:ed asset Loss corresponding to ITI-I Less: Rental of equipment Adjusted gross income per audit

T"\XDUE

BasiC

.\dd: interest(4/ 16/ 02 - 12/ 15/ 04) comprom1se Total deficiency income tax due DOCUJ\IENT\RY ST.\MP T\X On lease contracts On stock issuance p 281,851.32 1,632,5 70.97 1,439,000.74 (509 ,484.66) p 80,495.74 20 000.00 p ( 2,373,753()0) p p p p 2 843 938.37 470185.37 150,459.32 100495.74 250,255.06 17,974.00 31 104.00 2 Exhibit "D", records, pp. 266-267; Exhibir "2", BIR Records, pp. 302-304. fu.,__

74Q

C T.A. CASE NO. 7+ 16

DECJJJOJ\'

PAGE3

Total haslC tax due Less: tax paid

Deficienc\'

.-\dd:25% surcharge on 1'49,078.00 interest (04/06/ 00-12/ 15/ 04) compromise Total defi ciency DST due

\':\ LUE :\DDED LL\:

Sale of Fixed .<\ssets

T\XDUE

Basic

"\dd:25% surcharge interest(01 / 25/02-12/ 15/04) comprorruse Total deficiency VAT due EXP.\NDED \X!ITHI-IOLDING TAX Professional fees

Rental

Securiry ServiCes

Security Services

Janitorial Serv1ces J ani to rial Services

Brokerage

Director's fees Director's fees

Services

Services

Total

Less: tax paid

Deficiency

~\dd: interest (01 / 25/ 02 - 12/ 15/ 04) compronuse Total deficiency EWT due p 12,269.50 p 33,596.26 12 500.00 211,800.00 488,580.24 ?5 000.00

Gross

867,906.54 3,804,187.43 418,823.49 130,909.08 212,905.51 93,135.81 88,949.76 93,000.00 42,000.00 8,848,800.62 1,392,638.18 p 52,870.58 12,000.00 10% 5% 1% 2% 1% 2% 5% 10% 20% 1% 2% 49,078.00 .11 1(14.00 17,974.00 58 365.76 p 76 ,112...1_6 p 8 472 000.00 p 847200.00 725 380.24 _p 1,572,580.2~

Tax Due

86,790.65 190,209.3 7 4,188.23 2,618.18 2,129.06 1,862.72 4,447.49 9,300.00 8,400.00 88,488.01 27 852.76 426,286.47 334 608.68 91,677.79 64 870.58 ~.54E.TI Petitioner filed its protest to the above assessment on January 18, 2005. Thereafter, petitioner issued a letter dated February 24, 2005" addressed to the BIR Revenue District Office No. 054, subrnitting relevant and pertinent documents in support of its protest.

:l Exhibit "J", records, pp. 280-281.

730 C.T.A. C./1.\'E N O. 7-1-16 DECZ.\'10 1\ '

PAGE-l-

On February 1, 2006 4 , petitioner received a letter which in effect denied petitioner's protest on the ground that its alleged supporting documents did not substantiate its protest.

H ence, the instant Petition for Review filed on March 2, 2006. Respondent filed his Answer on April 25, 2006, setting up his defenses, pertinent hereto are:

"6. xxx petitioner was assessed deficiency incmne tax due to over- declaration of depreciation expense but denies the rest of the allegations for being false, the truth being that examination of petitioner's books of accounts and other accounting records disclosed that petitioner committed over-declaration of depreciation;

7. xxx petitioner was assessed for deficiency income tax due to its failure to report its gain on sale of fixed assets but denies the rest of tl1e allegation for being false, tl1e truth being that examination of petitioner's books of accounts and other accounting records disclosed that petitioner failed to include in its taxable income its gain on sale of fL'-'ed assets;

8. xxx petitioner was assessed for deficiency income tax for deducting losses from ITH from its gross income tax in the amount of P1 ,439,000.74 but denies the rest of tl1e allegation for. being erroneous conclusions of fact and law;

XXX

XXX

XXX

10. He denies tl1e allegations under the heading 'Nature of tl1e Petition' for being erroneous conclusion of fact and law, tl1e truth being that petitioner failed to duly protest tl1e assessment issued against it;

XXX

XXX

XXX

12. xxx that investigation disclosed that petitioner failed to remit the corresponding documentary stamp tax on its lease agreement. There was late remittance of documentary stamp tax on its issuance of capital stock amounting to P31, 104.00 in violation of Sections 194 and 176, respectively, of the National Internal Revenue Code of 1997;

13. xxx verification disclosed that petitioner failed to pay the value added tax on tl1e sale of its fixed asset in violation of Section 106 of the N ational Internal Revenue Code of 1997; 4 Exhibir "K", records, p. 282; E::-:hibit "7", BJR Records, p. 394. ..

'i r: ~ IJ.J..

C T A . C.AJh. f\10. N 16

DECJS/01\'

PAGE5

14. xxx [v]erification disclosed that petitioner failed to remit the correct expanded withholding tax on its income payments subject to expanded withholding tax in violation of Sections 80 and 57, respectively, of the National Internal Revenue Code of 1997;

15. xxx that due to deficiency taxes, petitioner is liable to surcharges and interest in accordance with tbe provisions of Sections 248 and 249 of the N IRC of 1997;

16. xxx exam..ination of petitioner's books of accounts and other accounting records d..isclosed that petitioner is liable for deficiency income tax (P250,955.06); docutTlentary stamp tax (P76,339.76); value- added tax (P1,572,580.24); and expanded withhold..ing tax (P156,548.37);

17. All presumptions are in favor of the correctness of tax assessments.

The good faith of tax assessors and the validity of their actions are presumed.

They will be presun1.ed to have taken into consideration all the facts to which their attention was called (CTR IJJ. Con.rtrttdion Re.rource.r qf A.ria, Inc. 145 SCRA 671). It is incumbent upon the taxpayer to prove the contrary (Mindanao Btu Compm?)' IJJ. CIR, 1 SCRA 538; CIR !JS. Tua:;:on, Inc., 173 SCR/] 397) and failure to do so shall vest legality to respondent's actions and assessments." Petitioner and respondent f.tled their respective Formal O ffer of Evidence on February 18, 2008 and September 17, 2008, which were admitted by this Court on April 1, 2008 and October 22, 2008, respectively. In a Resolution dated January 7, 2009, this case was deem ed submitted for decision after the Court considered the parties' Mem oranda. However, the Court issued an O rder on November 10, 2009, requiring petitioner to subnut the previously adnutted exlubits "FF","GG","HH","II","JJ -1 ", and "JJ-2", which were found to be nussing from the records. Petitioner complied with the order of the Court on November 18, 2009. In a Resolution dated November 26, 2009, the case was re-subnutted for decision. The parties jointly submitted tbe following issues for resolution: (tv<- C. T/1. C"A .l E N 0. J./.1 6 OECJ.\"101\ ' PAC:I-'i (;

1. Whether or not, under the facts and the law, petitioner is liable for alleged deficiency income tax, documentarv stamp tax, \'alue added tax, and expanded ·withholding tax for the taxable calendar year 2001;

2. Whether or not petitioner duly protested the assessrnents. Liability for tbe alleged deficiency income tax, docun1enta1y stamp tax, value added tax, and expanded withholding tax for the taxable calendar year 2001

Deficiency Income and Value-Added Tax

A reYicw of the records would show that the assessment for income tax due and value added tax (VAT) are rooted on the alleged sale of fixed assets by petitioner in 2001. Respondent explains, through his witness, Mr. Edwin Aritumba, the Revenue Officer tasked to investigate petitioner's books of accounts; that petitioner entered into a contract of sale with UCPB Leasing and Finance Corporation on August 30, 2001 and . December 11, 2001 but eventually leased them back. What had actually happened was a sale-leaseback transaction. Thus, petitioner is liable for deficiency VAT on the sale of its fixed assets.

Petitioner's deficiency incorne taxes results from a recognition of the sale resulting to the over declaration of depreciation expense for the sold assets, recognition of the rental thereof and identifying sales subject to Income Tax Holiday in accordance with the Board of Investments' (BOI) registration. In sum, the bases for the alleged deficiency incorne tax are as follows:

Net Loss per Income Tax Return

Add: Over-declaration of depreciation Gain on sale of fixed asset Loss corresponding to ITH Less: Rental of fixed assets P(2,373,753.00) 281,851.32 1,632,570.97 1,439,000.74 (509,484.66)

75J

C.TA. CAJE NO. 7-1-16

DECJJJOJ\'

PAGE 7

Petitioner denies entering into any sale transaction for tbe taxable year 2001 and stands firm that the said fL~ed assets arc still intact and form part of its inventory. Petitioner continues that the alleged over declaration of depreciation for taxable year 2001 is a result of the provision for depreciation of its property and equipment using the straight hne method based on the useful hfc of related assets. In other words, the alleged depreciation was in truth and in fact legitimate depreciation incurred in the conduct of its trade or busu1ess.

As to the loss pertaining to petitioner's Income Tax Hohday, petitioner asserted d1.at there is no basis on respondent's position to add back the loss correspondillg to its Income Tax Hohday on the ground d1at petitioner allegedly deducted loss correspondillg to Income Tax Holiday in the amount ofP1,439,000.00. This Court find s for the petitioner.

The various pieces of evidence submitted by the parties to this Court failed to show that petitioner entered illto a contract of sale. The existence o f proofs to this matter is very crucial considering that the assessment was based on the alleged sale of fixed assets.

This Court recognizes that tax assessments by tax exatnmers are presumed correct and made in good faith. The presumption on the correctness of assessments carries with it the assumption that the assessment is not baseless but founded on sufficiently relevant pieces of evidence. The taxpayer has the duty to prove otl1.crwise. In the absence of proof of any irregularities ill the performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. All presumptions are ill favor of the correctn~ss of tax assessments' . O nce petitioner has presented its evidence to rebut the presumption, it becomes illcumbent upon respondent to present controverting e\Tidence to refute petitioner's position. It follows that 5 Sy Po vs. Court of Tax .·\ ppeals, G .R. No. L-81446, .·\ugusr 18. 1988.

CTA. CASE NO. 741{;

DECJSJOJ\'

PAGES

determ.ination of the correct amount of taxes due will still depend on the pieces of cYidence subrnitted to the Court.

Well pronounced is the ruling of the Supreme Court in tbe case of tbc Commissioner of"Jnternal Revenue vs. Hantcx Trading Co., inc. 6: "lf a taxpayer files a petition for review in the CTi\ and assails the assessment, the primafade presumption is that the assessment made by the BIR is correct, and that in preparing the sarne, the BIR personnel regularly performed their duties. This rule for tax initiated suits is premised on several factors other than the normal evidentiary rule imposing proof obligation on the petitioner-taxpayer: the presumption of achn.in.istrative regularity; the likelihood that the taxpayer will have access to the relevant information; and the desirability of bolstering the record- keeping reguirements of the NIRC.

However, the prima fade correctness of a tax assessment does not apply upon proof that an assessment is utterly without founda cion, n1ean.ing it .is arbitrary and capricious. Where the BIR has come out with a 'naked assessment,' i.e., without any foundation character, the detenn.ination of the tax due is without rational basis. In such a situation, the U.S. Court of Appeals ruled that the determination of the Comtn.issioner contained in a deficiency notice disappears. Hence, the determination by the CTA must rest on all the evidence introduced and its ultimate determination must find support in credible evidence." (Emphasi.r .rttpplied.)

In th.i.s case, petitioner subtn.itted to th.i.s Court the following pieces of evidence to contest respondent's assessment for deficiency VAT and income tax brought about by petitioner's alleged sale of fixed assets:

Exhibit P

Exhibit A ... -\ 1' G.R. No. 136975, March 31,2005.

Copy of the .\ udited Financial

Statements

of

Sydenham

Laboratories for taxable years 2002 and 2001 Affidavit of Maria Isabel T.

Bolarion dated N ovember 6, 2006 To prove that the fLxed assets, subject of assessment in the instant case are tntact, and form part of the uwenrory of petitioner for the vear 2001 and 2002. .\s such no sale of fixed assets to speak of contrary to the fmdings of respondent.

To prove that petitioner incurred no defictency income tax, doctunenraty· stamp tax, expanded withholding tax_ and \ ' ... \T due for taxable vear 2001 ., !" r· eJJ C TA. C/IJE NO. 7-m;

DEC!JJON

PAGE 9

E xhibits BB, BB-1, BB-2, BB-3, BB-4, BB-5, and CC Exhibits DD, DD-1, DD-2, DD-3, DD-4, DD-4, DD-5, and DD-6 E xhibit EE

Exhibit FF

E xhibit GG \'arious

Schedule

of

Fixed

_-\ ssers, an .:\nail-sis of Depreciation as o f December 31, 2001 and a Schedule of

Leasehold Improvements

Schedule of Fixed _-\ ssets for D ecember 31, 2000, Schedule of .-\ccumulared D epreciation as of D ecember 31 , 2000, various Lapsing Schedule, and Schedule of Construction ln Progress as of D ecember 31,2000.

_-\ffidavit of Edwin Baysa dared May 30, 2007 Schedule of D epreciation Schedule of Fixed :-\ssets To prove thar the alleged sale o f flxed assets amounting to P8,472,000.00 are Included in the Schedule of Fixed .:\ssers and rhe truth of the matter there were no sale of fixed assets for vear 2001; and to prove that the fixed assets are further classified

as Machinery &

Laboratory

& O ffice Equipment, f.ixmres, and Improvements.

Equipment, G lasswares,

Furniture &

Leasehold

To prove the Schedule of Fixed .-\ssets and

Schedule

of .-\ccumulated Depreciation for vear 2000; and to prove that the Schedule of FiJ.:ed .-\ssets for the calendar year 2000 (ending balance) clearly show tha r the same is intact and the same is the beginning balance for the Schedule. of Fixed .Assets for Calendar \'ear 2001.

To prove that 'petitioner incurred no deficienc-y income tax, documentary stamp rax, \ '_-\ T and expanded withholding tax due for the taxable vear 2001.

To prove that the Independent

Ccrtifled

Public

.'\.ccountant commissioned by d1e Honorable Court has verified tl1e accowlt "Property, Plant, and E quipment" of petitioner and was able to ascertain that the sam.e was stated at cost and the basis of computing the depreciation is on a stra1ghr line method in accordance wirll the Generally Accepted .-\ccounting Principles in relation to Section

34(F)(2)(a)

of the

National

Internal

Revenue

Code, as amended.

To prove the beginning and ending balance of flXed assets of petitioner for taxable vear 2001;

and to prove that there had been an u1crease in the amount of flXed assets from the year 2000 to 2001, contrary to the Endings of the

Bureau of Internal

Revenue that there had been an ., ~ - ,...

.J~ C.TA. CASE NO. 7-1-16 DECJ.\]()1\'

PAGE 10

Exhibit II

Exhibits J.J .1, JJ .2 Exhibit J..J<:

Lease

Contract

with

UCPB

Leasing

and

Finance

Corporation

List of various eguipmenrs Independent CP.-\ Report dared .January 17, 2008 occurrence of sale of fixed assets.

To prove rhar petitioner and

UCPB

Leasing and

Finance

Cotvoration entered into a lease agreement over the properties allegedly subject to \ '_-\T. Said properties wt:re never disposed of and 111 fact and 111 truth are owned br UCPB Leasing and Finance Corporation.

To prove that the propernes subject to \'A.T amounting to P8,472,000.00 has no factual and legal basis at all as the said properties subject to \ '_-\ T are owned by

UCPB

Leasing

Corporation.

The said properties were leased but nor sold to the petitioner.

To prove that l\Ir. E liseo _-\.

_-\urellado has conducted special audit procedures pursuant to being commissioned by the

Honorable

Court

as an

Independent

Certified

Public

_-\ccountant, relative to the allegt:d deficiency tax assessment of petitioner covenng the taxable year ended December 31, 2001;

To prove that he has physically examined the origmal copies of the available supporting documents, such as the books of accounts, sales invoices, official receipts, cash vouchers, contracts and other relevant documents which were served and used as the basts of his report;

To prove that Mr. _-\urellado has performed the necessary procedures in accordance with the

Philippine

Accounting

Standards

and

Generally

_-\ccepted _Accounting Principles:

and To prove that the assessment for the \'ear 2001 has no factual and legal basis and that the principal amount of assessment in the amount of P1,1 07,311.11 ? ~'. 'i ..... J..,

I

I

CTA. CASE NO. 7-/.16 DECJ.)JOJV PAGE'.! 11 should be correspondingly reduced b1 P1 ,098,838.11 , thereh1 leaving the tax clue to only P8,473.00.

The above-mentioned pieces of evidence bolster petitioner's claim. The findings of the Certified Public Accountant (CPA) com.nussioned by this Court to c-:anune petitioner's voluminous documents agree that there are no proofs as to the sale of the fixed assets, to quote:

"A. INCOME TAX

XXX

XXX

XXX

Over-declaration of depreciation Based on the examination of supporting documents, we have verified. the account 'Property, Plant, and Equipment' of SYDENHAM and was able to ascertain that the same is stated at cost and the basis o f computillg the depreciation is on a straight line method in accordance with the Generally Accepted Accounting Principles in relation to Section 34(F)(2)(a) of the National Internal Revenue Code, as amended. Gain on sale of fixed asset SYDENHAM is being assessed by the BIR for the alleged gain on sale of frxed assets; we have ascertained that there had been no occurrence of any sale of frxed assets of the company.

XXX

XXX

XXX

C. VALUE ADDED TAX As discussed above on income tax 2001, our examination showed that there had been no sale of fixed assets for the subject taxable year. We also noted that what has transpired were additions to the schedule of fixed assets."

For his part, respondent offered the affidavit of the Revenue Officer who was authorized to exanune the books of accounts and accounting. records of petitioner (Exhibit 1 ), Formal Letter of Demand (Exlubit 2), Assessment Notices (Exhibits 3-6), and the J .etter from the Bureau of Internal Revenue's (BIR) Assessment Division ordering petitioner to pay the assessed taxes (Exhibit 7). .., ~- ~ .Ju CTA CAfE J\10. J.l.lu DECJ.\JON PAC:F: 1:!

Respondent's exhibits failed to prove the sale of petitioner's fixed assets which is the basis for the alleged deficiency VAT and lncorne Tax, due to o\·cr depreciation and unreported gain on sale. Altl1ough, the BIR Records were forwarded to tl1is Court, yet, it was not formally offered except for the above-mentioned exhibits of respondent. Being so, this Court cannot consider the entire records in resolving the issue on hand u:respectJve of whether they n1ay contain the best evidence to prove respondent's assertJons.

It is well-settled that the courts cannot consider e\Tidence which has not been formally offered. Parties are required to inform tl1e courts of the purpose of introducing tl1eir respective exhibits to assist tl1e latter in mling on tl1eil: admissibility il1 case an objection thereto is made. \"X/itl1out a formal offer of evidence, courts are constrained to take no notice of the evidence even if it has been marked and identified.' Pertinent hereto is Section 34, Rule 132 of the Re,Tised Rules on Evidence, which reads:

"SEC. 34.

Offer of evidence. - The court shall consider no evidence which has not been formally offered. The purpose for which the evidence is offered must be specified."

The Supreme Court had the occas10n to explain tl1e applicability of the afore- quoted provision with respect to the BIR Records in the case of Rqfael Arsenio S. Di:;:_ontJJ. Court if Tax Appeal.r and Commissioner qf I ntenzal Ret;emJl , thusly: "While the CTA is not governed strictly by technical rules of evidence, as rules of procedure are not ends in tl1emselves and are primarily intended as tools in the administration of justice, the presentation of tl1e BIR's evidence is not a mere procedural technicality which may be disregarded considerillg that it is tl1e only means by which the CTA may ascertain and verify the tmth of BIR's claims against the Estate. The BIR's failure to formally offer these pieces of evidence, despite CTA's directives, is fatal to its cause." Taking into consideration the supporting evidence of petitioner in light of respondent's evidence, this Court decides to take petitioner's side and cancel the 7 Far East Bank & Trust Co., vs. Commissioner of Imernal Revenue, G .R. No. 149589, September 15, 2006.

8 G .R. No. 140944, _-\pril 30, 2008.

f h 75 0 C.T.A. CA.I'E NO. 7-f.IC OECJ.)JOJ\'

PACii 13

assessrnents on income tax due to over declaration of depreciation expense and unreported gain on sale of assets and the assessment for V A'l'. Anent the loss corresponcli.ng to income tax holiday, a review of the records would show the loss corresponding to ITH, allegedly deducted by petitioner from its gross incorne, is computed as foll ows:

Ncr h -s per l'I'H .\du: ( )vcr-declarnrion of depreciation I .e~s: Rental-] .case of equipment . \djusted net loss Loss corresponding to ITH period:

Declan:d sales during the lTII period Declared total sales P21.691 .7-18.7'i 1'39,2 13,752.29

X

I'

(2.373.753.00) 281,851.32 509.484 66

I'

(2.601.386.34)

X

:\djustecl net los,;

P(2.601.386.34) 1'(1.439 .000.74) This Court agrees that any loss corresponding to IT H should be added back. The amount, however, is computed based on the actual net loss per ITR instead of the adjusted net loss considering that the over declaration of depreciation expense and the rental expenses should not be recognized in the first place. The loss corresponding to ITH should be computed as follows:

P21.69U48.75

X

1'(2.3 73.753.00) l'(1.313.08153) 1'39,213,752.29 Notwithstanding the foregoing, there is still no basis for the deficiency income tax brought about by the loss corresponding to income tax holiday because petitioner is not in a taxable position, that is, petitioner incurred a net loss of P 1,060,671.47 for 2001 , computed as follows:

Ner Loss per ITR

.-\dd:

Loss corresponding to ITH .-\djusted Ner Loss

Deficiencv Documentary Stamp Tax

p ( 2,373,753.00) 1 313 081.53 p (1 060 671 41) .., r' '1

•OJ

CT./I. C/ 1S"E NO. 7-+1u

DECIJJOI\

PAC/~· 1-1

The Formal Letter of Demand'

1 shows that the assessrnenr for deficiency documentary stamp tax arose from the late remittance of documentary stamp tax (DST) on the issuance of capital stock and failure to remit the corresponding documentary stamp tax on its lease agreement,'" in the total amount of P76,3.39.76, to wit: ( )n lc~se contract:< C )n srock i:.;suance Total DST cl ue 1 ,css tax paid DST still Jue 25% :<urcharge (on 1'49 ,078.00)

Interest (4/ 6/ 00 to 12/ 15/ 04)

Compromise

Total deficiency DST due

I'

I'

]> p 17.974.00 31.10Hl0 49.078.00 31.104.00 17.974.00 12,2(>9.50 33.596.26 12,500.00 76,339.76 Petitioner contends that respondent's assessment for deficiency D ST on lease contracts amounting to P1 7,974.00 is without factual and legal basis.

The Court-

commissioned independent CPA 11 found that the contract stipulated that Real Property Taxes, City and Municipal Licenses shall be for the accou1it of the lessor. Further, in the absence of any express agreement, the payment of the DST shall be for the sole account of the lessor.

12 Furthermore, on the assessment for late remittance of D ST on stock issuance of P31,104.00, petitioner maintains that petitioner already paid the DST thereof as shown by its DST D eclaration/ Return' ' . Furthermore, the right of respondent to assess it of deficiency DST had already prescribed pursuant to Section 203 of the ' IRC of 1997. This Court agrees with petmoner that the assessm ent for deficiency DST has already prescribed.

Section 203 of the N IRC of 1997, provides as follows: "SEC. 203. Perzod of Limitation Upon As.rmmen/ 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 ~Ex hibit "D", records, pp. 266-267; Exhibit "2", BIR Record s, pp. 302-304. 11 ' JSFI, records, p. 102.

'' Mr. Eliseo .-\ . . -\urellado.

12 Exhibit " K.I....:", SummatT of Findings (13), records, p. 383. "Exhi))it "L", records, p. 283.

C.T.A. CASE J\~0. 7-116 DI-£1.\'10!\'

PACE 15

period: ProYided, That in a case where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return was flied. For purposes of thi~ Section, a return filed before the la ~t day prescribed by law for the filing thereof shall be considered as filed on such last day."

Corollary thereto, Section 200(B) of the NIRC of 1997 prm,ides that: "SEC. 200. Payment qfDoctrmenta:y Stamp Ta.'\·.- (B) Time f or Filing and Pqymen! q/ the Tax. - Except as provided by rules and regulations promulgated by the Secretary of Finance, upon recommendation of the Conunissioner, the tax return prescribed in this Section shall be flied within ten (1 0) days after the close of the month when the taxable docw11ent was made, signed, issued, accepted, or transferred, and the tax thereon shall be paid at the same time the aforesaid return is flied."

Pursuant to the aforecited Section 203 of the NIRC of 1997, the three-year period to assess conunences from the date of actual filing of the return or from tbe last date prescribed by law for the filing qf such return, whichever comes later. In the case of DST, it is within ten (1 0) days after the close of the month when the taxable docurnent was made, signed, issued, accepted, or transferred. Hence, if the return was flied earlier than the last day allowed by law, the period to assess shall still be counted from the last day prescribed for filing of the return. However, if the return was flied beyond the period prescribed by law, the three-year period shall be counted from the day tbe return was flied.

Tberefore, respondent bad until tbe following dates widlin which to assess petitioner for deficiency DST or for late remittance of DST:

Last Day to

Last Da)' to

Reference

Particulars

Date

Date Filed

File Return

Assess

Lease con tract -

1 0-Mar-00

1 0-.\pr-00 1 0-t\ pr-03 b hibit llll

TC:T360374

- Lease contract -

1 0-Mar-00

10-,\pr-00 1 0-.\pr-03

Exhibit Ill J

TCT360373

Exhibit] , DST Dcclaration/ lkturn

12-Mar-01

12-1\!ar-03 . .

C.T.A. CASE NO. 7-1-16 DECJ.\"JOI\ '

PAGe 16

Clearly, the D ST assessment is aL:eady barred by prescription since the Preliminary ;\ sscssment Notice 0)AN) 14 , and the Assessment Notice

15 and Formal Letter of Demand

1r' for deficiency DST covering the year 2001 were issued only on October 27, 2004 and December 15, 2004, respectivclv. D eficien c_v Expanded Withholding Tax Respondent assessed petitioner of deficiency Expanded Withholding Tax (EWT) for taxable year 2001 in the amount of P156,548.37, computed as follows: 17

Gross Amount

Tax Rate

Tax D ue Professional fees

I'

867.90654 10% p 86,790 65

Rental

3.804,187.43 5% 190.209.37 Sccu riry serv i ce~ 418.823.49 1% 4.1 88.23 Securi ty services 130.909 08 2% 2.61 818 .J anit<>rial st:n'ices 212,905.51 1% 2.129.06 Janirorial services 93.13S.81 2°10 1.862.72

Brokerage

88.949.76 5% 4.447.49 Director',; fees 93,000.00 10% 9.300 00 Director's fees 42.000.00 20% 8.400 00

Services

8.848.800 62 1 0 ' / 0 88.488.01

Services

1.392.638.18 2% 27.852 76

TOTt\L

p 15.993.25642

I'

426.286.47 Less tax paid 334.608 68 1 ~\X 'T still due p 91,677.79

Interest (1/25/ 02 to 12/ 15/ 04)

52.870.58

Compromise

12.000.00 Total deficiency EWT p 156,548.37 Petitioner contends that the assessment has no leg to stand on. It points out that some of the payments made to suppliers of goods and services are not subject to withholding taxes for the reason that income recipients are exempt from income taxes. This explains the difference or the discrepancy as regards to the expanded withholding taxes.

14 .J SFI, paragraph 4, records, p. 101. IS Exhibit "F", record s, p. 269.

Jr. Exh.ibir "D ", records, pp. 26CJ-267; Exhibit "2", BIR Records, pp. 30:2-304 17 ld.

C.T.A CAJE I'm. J./. 16 DE Cl.\10 1\'

PACE 17

The independent CIJ r\ found that the alleged discrcpanc\' is merely a result of the timing difference considering that expenses were charged against the income tax prior to the rcrn.ittance of the corresponding expanded withholding tax. 1 ~ H owcYer, a verification of the records disclosed that petitioner failed to prove its allegations.

Considering that all presumptions arc in favor of the correctness of tax assessments, the Court upholds respondent's assessrnent of deficiency EWT. Petitioner is liable to pay deficiency E\XIT in the arn.ount of P144,548.37, computed below: Total 1·:\X/J' per ;\ udit J ·'" " 1·:\X' J' paid l"X' J' ,;till due lntere,;r (1nS/ 02 to 12/ 15/ 04) Total E\XIT deficiency

Due Protest to the

Assessments

I'

I'

I'

426.28647 334 608.68 91.67779 52 870.58 144 5.48..31 Respondent in his Memorandum stands that petitioner's adm.inistrative protest is rnerely pro-forma because the documents subrnitted by petitioner did not serve to substantiate its protest. Failure on the part of the taxpayer to submit relc,rant supporting documents on the administrative leYel, such as in the instant case, renders such protest pro forma and shall be construed as if no administrative protest was filed at all and thus, renders the assessn1ents final, executory, and demandable. We are uncom-inced. Section 228 of the 1997 Tax Code provides: "Section 228. Protesting an Assessment. - ...

Such assessment may be protested administratively by filing a reguest for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. .. " (Emphasis supplied.)

This Court believes that what are "relevant supporting documents" lies on the sound discretion of the taxpayer filing the protest. The purpose is to prevent the BIR from abusing its power by always declaring insufficient the documents that petitioner will IX Exhibit J:..J(., Summary of Findings (D), record s, p. 384. .., ,., " • b t CTA. CAS.E J\'0. 7+16

DECISJOI'\

PAGE 18

subm..it.

This will lead to an unending cvcle and the taxpayer's protest will never be decided.

In the case at bar, the February 26, 2004 letter 1 'J of petitioner showed that it subrn.itted documents which it deerned relevant to support its protest. Thus, respondent cannot say that petitioner did not submit docurnents in accordance to Section 228 of the 1997 Tax Code.

WHEREFORE, the instant Petition for review is PARTIALLY GRANTED. Respondent's assessment for deficiency Income Tax, VAT, and DST in the amounts of P250,955.06, P1,572,580.24, P76,339.76, respectively, inclusive of interest, surcharge and comprom..ise penalty for taxable year 2001 is hereby ordered CANCELLED. H owever petitioner is ORDERED TO PAY the deficiency Expanded Withhold..ing Tax in the amount of P144,548.37, computed as follows:

Basic

Interest

TOTAL

p 91 ,677.79 52,870.58 p 144.548.37 The compromise penalty of P12,000, imposed by respondent is excluded, there being no compromise agreement between the parties. In add..ition, petitioner is liable to pay 20% delinguency interest on the amount of P144,548.37, computed from January 14, 2005 until full payn1.ent thereof pursuant to Section 249(c)(3) of the 1997 Tax Code, as amended.

L

1 ~ Exhibit.] .

L--:~ . CLA_ ERNESTO D. ACOSTA

Presiding Justice

0

LEAVE

CAESAR A. CASANOVA

Associate Justice

C T.A . CASE NO. 7+ 16

OECTSJOJ\ "

PA GE 19

CERTIFICATION

Pursuant to Section 13, Article VIIJ of the Constitution, it is 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's Division.

Lvr~

ERNESTO D. ACOSTA

Presiding Justice