Soumak Collections, Inc. vs. The Commissioner of Internal Revenue

DECISION

RINGPIS-LIBAN, J.

STATEMENT OF THE CASE

The Petition for Review seeks to set aside the Final Decision on Disputed Assessment (FDDA) dated July 8, 2013 finding Soumak Collections, Inc. liable for alleged deficiency income tax, value-added tax (VAT), expanded withholding tax (EWT), and documentary stamp tax (DST) in the aggregate amount ofP2,827,881.27 for taxable year 2008.

STATEMENT OF FACTS

Petitioner Soumak Collections, Inc. is a domestic corporation duly organized and validly existing under Philippine laws, with business office at 101 Bormaheco Condominium, Zapote Street cor. Metropolitan Avenu)./

Makati City.1 It engages in, conducts, and carries on the business of buying, selling, distributing, marketing at wholesale and retail insofar as may be permitted by law, all kinds of goods, commodities, wares and merchandise of every kind and description, and enters into all kinds of contracts for the export, import, purchase, acquisition, sale at wholesale or retail and other disposition for its own account as principal or in representative capacity as manufacturer's representative, merchandise broker, indentor, commission merchant, factors or agents, upon consignment of all kinds of goods, wares, merchandise or products whether natural or artificial.2 On the other hand, respondent is the duly appointed Commissioner of the Bureau of Internal Revenue (BIR) vested with the authority to carry out the functions, duties, and responsibilities of said office, including, inter alia, the power to issue assessments, to decide disputed assessments, and to cancel and abate tax liabilities, pursuant to the provisions of the National Internal Revenue Code (NIRC) of 1997, and other tax laws, rules and regulations. She holds office at the BIR National Office Building, Agham Road, Dillman, Quezon City.

On October 13, 2009, respondent issued a Letter of Authority, which petitioner received on October 28, 2009, authorizing the examination of petitioner's books of accounts and other accounting records for all internal revenue taxes covering taxable year 2008.3 Consequently, respondent required petitioner to submit documents pertinent to the investigation.4 Respondent sent petitioner a Final Notice5 dated January 5, 2010 in connection with the subject investigation, which petitioner received on January 14, 2010.6 Thereafter, petitioner transmitted the required documents to respondent. 7 Subsequently, respondent issued a Notice for Informal Conference, which was received by petitioner on October 6, 2011.8 On October 20, 2011, petitioner replied to the said notice for informal conference and submitted additional documents.9 On November 15, 2011, petitioner received a letter dated November 3, 2011 from respondent, stating that certain claimed input taxes were disallow~ 11 Par. 2, Stipulation of Facts, Joint Stipulation of Facts QSF), docket, p. 763. 2 Exhibit "P-2", docket, pp. 529 to 539 3 Exhibits "R-1", "R-1-a" and "R-1-b", BIR records, p. 50 4 Exhibits "R-2", "R-2-a" and "R-2-b", BIR records, p. 49 5 Exhibit "P-3", docket, p. 557; Exhibits "R-4", "R-4-a" and "R-4-b", BIR records, p. 54 6 Par. 3, Stipulation of Facts, ]SF, docket, p. 763 7 Exhibits "P-4", "P-4-A", "P-4-B" "P-4-C" and "P-4-D", docket, pp. 558, 574, 575, 576 and 577, respectively 8 Exhibit "P-5", docket, p. 578; Exhibits "R-5", "R-5-a" and 'R-5-b", BIR records, p. 731 9 Exhibit "P-6", docket, pp. 583 to 586

Income Tax

because some of petitioner's suppliers did not issue receipts, and attached therewith is a revised computation of the deficiency taxes.10 Petitioner replied to the letter dated November 3, 2011 and submitted again additional documents on December 9, 2011.11 However, respondent still disallowed petitioner's input tax through a letter which was received by petitioner on December 13, 2011.12 Respondent issued a Preliminary Assessment Notice (PAN) with Details of Discrepancies both dated December 23, 2011, which was received by petitioner on January 2, 2012.

13 On January 11, 2012, a Waiver of the Defense of Prescription was executed by Yolanda P. Johnson, President and General Manager of the petitioner14 On January 12, 2012, respondent issued a Formal Assessment Notice (FAN), informing petitioner of its income tax, VAT, EWT, and DST deficiencies for taxable year 2008, detailed as follows: 15 Taxable income/ (loss) per ITR p

Add:

Unsupported Expenses (Annex B)

Taxable Income per Audit

p

Basic Income Tax Due

p

Less:

Tax Paid _lJ_er ITR Prior year excess tax credit p 849,854.00 Creditable tax withheld -

Total

p 849,854.00

Less:

Deductions/Disallowance

Disallowed prior years excess tax credit p 849,854.00

Excess

tax credit carried over to 787,146.76 succeeding quarter

Basic Deficiency Income Tax

p

Add:

Interest (04/16/09 to 2/20/12)

TOTAL AMOUNT DUE

p

VALUE-ADDED TAX

526,827.00 531,147.72 1,057,974.72 370,291.15 (787,146.76) 1,157,437.91 659,581.06 1,817,018.97

Vatable Sales per Return

p 12,720,419.86

Less:

Creditable Input Tax

p 1,526,450.38

Claimed Input Taxes

696,923.23

Less:

Deductions from Input Tax

Unsupported Input Taxes (Annex B)

p 90,041.65 Disallowed Input Taxes claimed per 102,742.91 192,784.56 504,138.67

Return (Schedule 1)

VAT Payable/ (Excess Input Tax)

p 1,022,311.71

Less:

Tax Paid per Return

720,737.95

Basic Deficiency Value-Added Tax

p

Add:

Interest (01/26/09 to 02/20/12)

TOTAL AMOUNT DUE

p

EXPANDED WITHHOLDING TAX

Basic Tax Due (Schedule 2)

p

Add:

Interest (1/16/09 to 2/20/12)

TOTAL AMOUNT DUE

p

DOCUMENTARY STAMP TAX

Basic Tax Due (Schedule 2)

p

Add:

50% Surcharge

p 15,846.00

Interest (01/06/09 to 02/20/12)

19,796.65

TOTAL AMOUNT DUE

Thereafter, petitioner filed its protest to the FAN. Respondent received the protest letter on January 17, 2012.16 This was followed by another letter sent by petitioner to respondent dated February 8, 2012, stating that it attached thereto a copy of the tally it prepared and photocopies of its January, February, and 1st Quarter of 2008 returns for the latter's appreciation.17 Petitioner paid basic tax due for EWT in the amount of P3,970.39 and interest as of the time of payment on March 27, 2012.18 This is the same basic tax due forming part of the EWT assessed in the FDDA in the total amount ofP7,625.33. 19 Petitioner paid the basic tax due for DST in the amount of P31 ,692.00, surcharge in the amount of P15,846.00, and interest as of the time of payment on March 27, 2012.20 These amounts are the same basic tax due and surcharge forming part of the DST assessed in the FDDA in the total amount of P76,885.66.21 On June 19, 2012, petitioner sent a letter to respondent, manifesting that the disallowed prior year's excess tax credit amounting to P849,854.00 claimed in the income tax return for 2008 did not appear in petitioner's income tax return for 2007, and based on the reported Financial Statement for 2007, the said amount was the balance of Deferred Tax Assets for the year 2007.22 Thereafter, respondent sent petitioner a letter dated November 29, 2012, which was received by petitioner on December 4, 2012. In the said letter, respondent informed petitioner that its case was already forwarded to the Assessment Division for the issuance of the FDDA. 2~

On July 8, 2013, respondent issued the FDDA with Details of Discrepancies, which petitioner received on July 11, 2013.24 In the said FDDA, respondent assessed petitioner for deficiency income tax in the amount of P2,165,835.87, deficiency VAT in the amount of P577,534.41, deficiency EWT in the amount of P7,625.33, and deficiency DST in the amount of P76,885.66, all inclusive of interest. As a result, petitioner filed the instant Petition for Revie~

5 on August

7, 2013.

Respondent filed her Answer6 by registered mail on October 18, 2013. In the Answer, respondent interposed as her special and affirmative defenses the following: that "Assessment are prima facie presumed correct and made in good faith. The taxpayer has the duty of proving otherwise. In the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed; that the Court of Tax Appeals, being a court of special jurisdiction, can take cognizance only of matters that are clearly within its jurisdiction; that Section 3, Rule 4 of the Revised Rules of the Court of Tax Appeals provides that only decisions of the Commissioner of Internal Revenue (CIR) in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code (NIRC) or other laws administered by the Bureau of Internal Revenue can be subject of appeal before this Court. And considering that the petitioner failed to ftle the necessary supporting documents, the assessment in the instant case already became final and executory, and demandable; that the Final Decision on Disputed Assessment issued on July 8, 2013 which adopted the findings embodied in the Formal Assessment Notice (FAN) and its Details of Discrepancies both dated January 12, 2013 for failure of the petitioner to submit any supporting paper/ documents to its protest, reflects the internal revenue liabilities of the petitioner for the taxable year 2008 as a result of its failure to pay Income Tax in the amount of P2,165,835.87, VAT in the amount of P577,534.41, Expanded Withholding Tax in the amount of P7,625.33, Withholding Tax on Compensation in the amount of P15,344.73, and Documentary Stamp Tax in the amount of P76,885.66, exclusive of the 50% surcharges and 20% interest per annum; that the bases of the findings in the aforementioned assessment are enumerated 1n

the Details of

Discrepancies.

Thereafter, the case was set for Pre-Trial Conference on January 23, 2014.

27 Subsequently, petitioner's Pre-Trial Brief8 and the Pre-Trial Brief (foy

the Respondentf9 were flied on January 20, 2014 and January 16, 2014, respectively.

On February 25, 2014, the parties flied with this Court their Joint Stipulation of Facts30• The Pre-Trial Order31 was later issued by the Court on May 19,2014.

During trial, both parties presented their respective documentary and testimonial evidence.

After presentation, marking, identiflcation, and offer of evidence, the Court admitted as part of petitioner's documentary evidence Exhibits "P-1" to "P-22", with the exception of Exhibits "P-21", "P-21-L", "P-21-M", and "P- 21-N", which were denied admission for petitioner's failure to submit the originals for comparison?2 On the other hand, the Court admitted as part of respondent's evidence Exhibits "R-1" to "R-7 -a"; while Exhibits "R-8" and "R-8-a" were denied admission for failure to correspond with the documents actually marked.33 Petitioner flied its Memorandum34 on February 18, 2015. Respondent failed to submit her Memorandum as per Records V eriflcation Repore5 of the Court's Judicial Records Division dated February 20,2015. In the Resolution dated March 9, 2015,36 the Court declared the case submitted for decision.

STATEMENT OF ISSUES

The parties submitted the following issues37 for this Court's disposition: "1. Whether petitioner is liable for the following taxes for the flscal year 2008:

A. income taxes in the total amount ofP2,165,835.8/

B. value-added taxes m the total amount of P577 ,534.41."

DISCUSSION/RULING

JURISDICTION OF THE COURT

Section 228 of the National Internal Revenue Code of 1997, as amended, provides:

"SEC.

228.

Protesting of Assessment.

-

When

the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, that a pre-assessment notice shall not be required in the following cases:

XXX

XXX

XXX

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

Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings.

Such assessment may be protested administratively by filing a request 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.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable/

Respondent issued the FAN on January 12, 2012, which pet1t1oner protested on January 17, 2012.38 On February 8, 2012, petitioner submitted documents such as the tally sheet that petitioner prepared and the photocopies of its January, February, and 1st Quarter of 2008 returns.39 Respondent released the FDDA denying the said protest on July 8, 2013, and petitioner received the FDDA on July 11, 2013.40 Accordingly, petitioner had thirty (30) days from July 11,2013 or until August 10,2013 within which to appeal the adverse decision of respondent. Petitioner filed the instant Petition for Review on August 7, 2013, hence, the Court has jurisdiction over this case. The Court shall now proceed to determine whether petitioner is liable for the assessed deficiency taxes.

Petitioner was assessed for alleged deficiency income tax, VAT, EWT, and DST for taxable year 2008, computed as follows: 41

Basic Tax

Interest

Total

I.

Income Tax

p 1,157,437.91 p 1,008,397.96 p 2,165,835.87 II.

VAT

301,573.76 275,960.65 577,534.41 III.

EWT

3,970.39 3,654.94 7,625.33 IV.

DST

31,692.00 45,193.66 76,885.66

Total

P1,494,674.06 P1,333,207 .21 P2,827 ,881.27 I. DEFICIENCY INCOME TAX- P2,165,835.87 Respondent assessed petitioner for deficiency income tax covering taxable year 2008 amounting to P2,165,835.87, inclusive of interest, computed as follows:42 Taxable income (loss) per ITR

Add: Unsupported Expenses (Annex B)

Taxable Income per Audit

Basic Income Tax Due (35%)

Less: Tax Paid per ITR

Prior year excess tax credit Creditable tax withheld

Total

Less: Deductions/Disallowance

Disallowed prior year's excess tax credit Excess tax credit carried over to succee~g _(luarter

Basic Deficiency Income Tax

Add: Interest (04/16/09 to 08/23/13)

TOTAL AMOUNT DUE

p 849,854.00 - p 849,854.00 P849,854.00 787,146.76 1,637,000.76 (787,146.76) p 1,157,437.91 1,008,397.96 P2,165,835.87 The resolution of whether or not the 2008 deficiency income tax assessment of P2,165,835.87 is correct basically hinges on the propriety of the expenses and tax credits disallowed by respondent, namely: A. Unsupported expenses P531,147.72 B. Disallowed prior year's excess tax credit P849,854.00

c. Amount carried over to succeeding year P787,146.76 A. Unsupported Expenses- P531,147.72 Invoking Section 34(A)(1)(b) of the NIRC of 1997, as amended, respondent disallowed petitioner's claimed expenses in the aggregate amount of P531,147.72 for being unsupported by official receipts or invoices.43 While petitioner concedes to the disallowance of the amount of P63,147.00, petitioner asserts that the remaining amount of P468,000.72 (P531,147.72 less P63,147.00) has been substantiated by official receipts and invoices.44 However, perusal of the evidence submitted would lead to the following unsupported expenses totaling P121,320.10, detailed as follows:

Supporting Documents

Per BIR's Audit"S

(Exhibit Number)

Disallowed

Sales

Official

CV#

Amount

Invoice

Recei}>_t 43 Exhibit "P-1", Details of Discrepancies, docket, p. 526 44 Petitioner's Memorandum, docket, pp. 848 to 851 45 Exhibit "P-1", Annex B, docket, p. 528 Per this Court's Verification

Allowable

Disallowed

Expense

Expense

Deduction

Input VAT

Deduction

Teresa Marble Corp.

[Crispin Lohan | aang | t3e600] [ OsmundoHsguera | 4033 | atgsase| [Toyorcars Mowe Pats | ao78_| 1568000 |

PLDT/BIR Form 2307

under the name of Fibex Phils. Inc. 5,917.19 Eliza Reyes 4031 40,500.00 | "P-21-K" Nanette Kagaoan 4029 5,446.43 pT 25.00 ' : ' 57,946.43 6,953.57 1,386.00 41,852.58 [RomeoRodesico Valizno | 3892 | osm | | | dr 0000 | |Apotinc Maylonjs | _ser_|___ 286600 | vain | warcr | 2aosoof | ApoinaeMayionjc [| 3870_| 1400000] spare | | saso000] asco] [Teresa MatbleCom. [| saor_| saasooot | sts. [oserputn 3053 | satoooof Ps t00.0 | femuioins | | srgarsof | Pras |

Fanaa PY a

Inc. 3816 24,924.21 24,924.21 [Fist imperial Congo |_sm | aasonn| | a J 1,000 90 | crispintotan | s7as_| samo} | stn [Nanete Kagaoan | 940, [euscbioCe | | | Texes Marbie Cop, | 00 wosooo0| | 15,680.00 5,917.19 13,353.75 21-AA" | "P-21-AA" 27,733.03

Best Shipping Lines 1335375 |

Nanette Kagaoan 3787 2,940.00 | "P-21-H" | "P-21-G" 2,625.00 . :

[Best Shipping Lines | |

| BlizaReyes | |

[Nanette Kagaonn | aos | | 5146.43 [Nom Abastilas | 4026 | aao00| [NoraAbasiilas | 3965 | 13,80000| | 13,800.00 jBzaRees | goin | sosaoas| | 30 546.45 |BlizaReyes | go | zpazo8| 7942.08 [jocitiyaa | soo | sts 38,313.00 [liza Reyes | Eliza Reyes 40,095.00 ]| _"P-21-P" P| 40,095.00 vgmo0{ | EE t2200.00 |DaviclRamon Viora | 3907 | aera | | span | zo zaszn | 2420. | [salvdorYasona {3995 | soap | | p20 0 fee pe | mel EP | wl Eliza Reyes 3991 80,190.00 | "P-21-U" 80,190.00 ra Warehouse 3955 3,045.00 3,045.00 fJocrtina fats | sro} 5775000 | | FieseImperial Cayo | atsa | orasnog | | pr z5700 | aos | oof a0 00 | JVivien.smin | ara | tsgoooof ft 860.00 [liaReyes | ato7_| 1950000] sparen | | tosooo0| | pitta | s06 | rae zae.g6 | 212i 320.0 | Thus, the Court will sustain the disallowance of the amount of P121,320.10 as deduction from petitioner’s taxable gross income for the year 2008 in accordance with Section 34(A)(1)(b) of the NIRC of 1997, as amended, which states: /

"SEC. 34. Deductions from Gross Income. - xxx (A) Expenses.-

(1) Ordinary and Necessary Trade, Business or Professional Expenses.-

XXX

XXX

XXX

(b) Substantiation Requirements. - No deduction from gross income shall be allowed under Subsection (A) hereof unless the taxpayer shall substantiate with sufficient evidence, such as official receipts or other adequate records: (i) the amount of the expense being deducted, and (ii) the direct connection or relation of the expense being deducted to the development, management, operation and/ or conduct of the trade, business or profession of the taxpayer.

B. Disallowed Prior Year's Excess Tax Credit- P849,854.00 Pursuant to Section 76 of the NIRC of 1997, as amended, respondent disallowed the prior year's excess tax credit in the total amount of P849,854.00 as per evaluation of petitioner's 2007 Annual Income Tax Return (ITR) which does not have excess tax credit to be carried over to the succeeding taxable year 2008.46 Records reveal that petitioner did not submit evidence such as the prior year's ITR and Certificates of Creditable Tax Withheld at Source (BIR Form No. 2307) to refute the afore-mentioned disallowance. Moreover, petitioner did not contest the disallowance since the filing of its Petition for Review up to the submission of its Memorandum. Thus, being an erroneous claim of tax credit on the part of petitioner, respondent's disallowance thereof should be upheld. C. Amount Carried Over to Succeeding Years - P787 ,146. 76 Respondent disallowed excess tax credit carried over to succeeding taxable years in the amount of P787,146.76 in order to allegedly recapture the tax benefit realized by petitioner. 47 The Court opines that it is improper for respondent to add back such amount. Respondent failed to state her basis in establishing the allegation thy

petitioner used the excess tax credit in the succeeding years. Since the tax benefit will be in the succeeding years, at most, petitioner may only be assessed in the said succeeding years.

In sum, petitioner is liable to pay basic deficiency income tax for taxable year 2008 in the amount ofP105,169.28, computed as follows: Taxable income/ (loss) per ITR p 526,827.00

Add: Unsupported Expenses

121,320.10

Taxable Income per Audit

p 648,147.10

Basic Income Tax Due

p 226,851.49 Less: Tax Payments for the fttst three quarters 121,682.21

Basic Deficiency Income Tax

P105,169.28 II.

DEFICIENCY VALUE-ADDED TAX- P577 ,534.41 Respondent computed the deficiency VAT assessment in the amount of P577,534.41, inclusive of interest, as follows: 48

Vatable Sales per Return

P12,720,419.86

Output Tax (12%)

p 1,526,450.38

Less: Creditable Input Tax

Claimed Input Taxes

P696,923.23 Less: Deductions from Input Tax

Unsupported Input Taxes (Annex B)

p 90,041.65

Disallowed Input Taxes Claimed per Return

(Schedule 1)

102,742.91 192,784.56 504,138.67

VAT Payable/ (Excess Input Tax)

p 1,022,311.71

Less: Tax Paid per Return

720,737.95

Basic Deficiency Value-Added Tax

p 301,573.76

Add: Interest (01/26/09 to 08/23/13)

275,960.65

TOTAL AMOUNT DUE

p 577,534.41 Two items of the assessment are vital in the determination of whether or not petitioner is liable of any deficiency VAT for taxable year 2008, namely:

1. Unsupported Input Taxes p 90,041.65

2. Disallowed Input Taxes Claimed per Return P102,742.91 A. Unsupported Input Taxes - P90,041.6Y

Pursuant to Sections 110 and 113 of the NIRC of 1997, as amended, respondent disallowed unsupported input tax credits claimed by petitioner in the amount ofP90,041.65, detailed as follows: 49

CV#

Input VAT

Best Shipping Lines

4032 p 1,430.75

Nanette Kagaoan

4029 653.57

Ramon Daniel Viloria

3997 2,451.28

Marina Nabejet/Office Warehouse

3955 326.25 p 4,861.85

Eliza Reyes

3896 p 7,118.44 loel Tiyad 3895 39,618.86

Nanette Kagaoan

3894 8,522.40 J oselito Roxas 3878 1,446.43 Apolinar Maylon, Jr.

3872 343.93 Apolinar Maylon, Jr.

3870 1,500.00

Joel Tiyad

3834 2,571.43

Eliza Reyes

3832 6,463.89

Eusebio Cruz

3821 4,350.00

Luminaire Printing

3819 803.57

First Imperial Cargo

3799 4,560.90

Nanette Kagaoan

3792 3,328.08

Nanette Kagaoan

3939 1,467.86

Crispin Lohan

3918 428.51

Sobair Comilao

3911 330.00

Toyota Motor Parts

4078 1,680.00 PLDT /BIR From 2307 under Fibex Phils 645.51 p 85,179.80

Total Unsupported Input Tax

p 90,041.6550 Petitioner asserts that out of the total disallowance of P90,041.65, P55,863.67 was not claimed as input tax and P29,768.15 was properly supported by official receipts and/ or sales invoices; thus, only the balance of P4,409.83 should be disallowed.51 The Court finds petitioner's contention of unclaimed input taxes in the amount of P55,863.67 meritorious. The schedules of input taxes52 for the months of January to December 2008 disclose that the said input taxes were not claimed by petitioner as input tax credits for the subject year. Therefore, ~ 49 Exhibit "P-1", Annex B, docket, pp. 526 and 528 50 P90,071.66 instead of P90,041.65, (P4,861.85 + 85,179.81 = P90,071.66), computational error on the part of respondent 51 Petitioner's Memorandum, docket, pp. 852 to 856

is erroneous on the part of respondent to disallow the amount of P55,863.67, detailed below, since petitioner did not derive any tax benefit therefrom:

CV#

Input VAT

Eliza Reyes

3896 p 7,118.44

Joel Tiyad

3895 39,618.86 J oselito Roxas 3878 1,446.43

Joel Tiyad

3834 2,571.43

Eusebio Cruz

3821 4,350.00

Crispin Lohan

3918 428.51

Sobair Comilao

3911 330.00

Total

P55,863.67 With regard to the input taxes claimed by petitioner as being supported by proper documentation totalling P29,768.15, perusal of the evidence submitted shows that only the amount of P14,999.21 represents petitioner's valid creditable input VAT as duly supported by VAT invoices/ official receipts pursuant to Section 110(A)(1) in relation to Section 113(A)(1) and (2) of the NIRC of 1997, as amended.

Below is the breakdown of the amount of P14,999.21:

Supporting

INPUT

Documents (Exhibit

VAT

Number)

Disallowed

Disallowed

per this

Per BIR's

Claimed Per

Creditable

Court's

Official

CV#

Audit

VAT Return

Per Inv/OR

verification

Invoice

Receipt

Nanette Kagaoan

3894 p 8,522.40 p 8,522.40 p 8,380.41 P141.99

"P-23-A"

"P-23-B"

Nanette Kagaoan

3792 3,328.08 3,328.08 3,328.07 0.01

"P-23-C"

"P-23-C"

Nanette Kagaoan

3939 1,467.86 1,467.86 1,446.80 21.06

"P-23-I"

"P-23-J"

Apolinar Maylon, Jr.

3872 343.93 343.93 343.93

"P-23-F"

"P-23-G"

Apolinar Maylon,Jr.

3870 1,500.00 1,500.00 1,500.00

"P-23-M"

P15,162.27 P15,162.27 P14,999.21 P163.06 As indicated in the above table, petitioner's claimed input VAT per returns amounted to P15, 162.27 instead of the creditable input VAT of P14,999.21.

Thus, the discrepancy in the amount of P163.06 representing over-claimed input VAT shall be disallowed. Included in the P29, 7 68.15 input VAT claimed by petlt.loner to be properly supported is the amount of P4,560.90, pertaining to petitioner's alleged payment to First Imperial Cargo per CV#3799. A scrutiny of CV#379953 and the related Bureau of Customs Import Entry and Declaratio~

Form54, Bill of Lading5S, Temporary Assessment Notice56 and Assessment Notice57 shows petitioner's payment for customs duties (CUD) in the amount of P42,068.00 and import processing fees (IPF) in the amount of PSOO.OO totalling P42,568.00 and VAT in the amount of P37,687.00 in the aggregate sum of P80,255.00 on its importation of bedding products and fabric in January 2008. While the amount of VAT paid by petitioner on the importation was P37,687.00, respondent disallowed the amount of P4,560.90 representing 12% of P42,568.00, the sum of the CUD and IPF. Since the VAT due on the importation in the amount ofP37,687.00 was paid, it was erroneous on the part of respondent to disallow the amount ofP4,560.90. As to the remaining disallowed input VAT of P10,044.98, included in the P29, 7 68.15 input VAT claimed by petitioner to be properly supported, the same shall be disallowed for petitioner's failure to substantiate by proper VAT invoices or official receipts in accordance with Sections 11 O(A) in relation to Section 113(A)(1) and (2) of the NIRC of 1997, as amended, detailed as follows:

Disallowed

Input VAT per

this Court's

CV#

verification

Reason for Disallowance

Although supported by VAT OR, it cannot be determined from the OR whether the input VAT claim pertains to

Ramon Daniel Viloria

3997 p 2,451.28 goods or services Input VAT claim on purchase of goods supported by tape receipt instead of

Marina Nabejet/Office Warehouse

3955 326.25 VAT invoice Input VAT claim on purchase of services supported by VAT invoice

Luminaire Printing

3819 803.57 instead of VAT OR Input VAT claim merely supported by a

Eliza Reyes

3832 6,463.89 receiving form

Total

P10,044.99 In sum, petitioner's unsupported input VAT that should be disallowed amounted to P14,617.87, computed as follows: Unsupported Input VAT per BIR's audit

Less: Properly Supported Input VAT

Unclaimed input VAT Erroneously disallowed input VAT on importation Unsupported Input VAT per this Court's verification

B. Disallowed Input Taxes Claimed per Return- P102,742.91 Respondent's verification disclosed that petitioner's claimed input tax per VAT returns for the four quarters of taxable year 2008 amounting to P696,923.23 was in excess of the allowable input tax of twelve percent (12%) of purchases for the same period. As a result, pursuant to Sections 110 and 113 of the NIRC of 1997, as amended, respondent disallowed the excess amounting to P102,742.91, computed as follows:58

Purchases per

Input Tax per

VAT Return

Return

Should be

Discrepancy

1st Quarter p 1,753,789.82 p 320,407.50 p 210,454.78 p 109,952.72 2nd Quarter 1,629,311.04 194,392.77 195,517.32 (1,124.55) 3rd Quarter 1,109,457.30 127,105.07 133,134.88 (6,029.81) 4th Quarter 458,944.51 55,017.89 55,073.34 (55.45)

Total

p 4,951,502.67 p 696,923.23 p 594,180.32 p 102,742.91

January

Petitioner contends that it made a typographical error or miscalculation in filling out the VAT return for the first quarter of taxable year 2008 and that instead of the declared purchases of P1,753,789.82, the correct amount should be P2,665,811.06, composed of domestic purchases in the amount of P722,017.40 and imported goods in the amount of P314,067.07 for January, domestic purchases in the amount of P631,047.84 for February and domestic purchases in the amount of P998,678. 7 5 for March. With this adjusted first quarter purchases, petitioner posits that it even overpaid input taxes in the amount ofP6,699.64.

This Court agrees with petitioner.

Following the correct computation of the total amount of purchases for the first quarter of taxable year 2008, petitioner actually had under-claimed its input tax per returns for the entire year 2008 in the amount of P6,699.64, as shown below:

Discrepancy -Input

Should be Tax Per Return is

Purchases per Return

Input Tax per Return

Input Tax

higher/ (lower) Domestic purchases p 722,017.40 p 86,375.1959 Imported purchases February (Domestic purch.)

ss Exhibit "P-1", docket, p. 526

March (Domestic purch.)

1st Quarter 998,678.75 P2,665,811.07 121,269.9862 p 320,407.50 P319,897.33 p 510.17 2nd Quarter 1,629,311.04 194,392.77 195,517.32 (1,124.55) 3rd Quarter 1,109,457.30 127,105.07 133,134.88 (6,029.81) 4th Quarter 458,944.51 55,017.89 55,073.34 (55.45)

Total

P5,863,523.92 p 696,923.23 P703,622.87 P(6,699.64) Consequently, the deficiency VAT assessment on the P102,742.91 input tax disallowance should be cancelled.

In sum, petitioner is liable to pay basic deficiency VAT for taxable year 2008 in the amount ofP123,407.07, computed as follows:

VA Table Sales per Return

P12,720,419.86

Output Tax

p 1,526,450.38

Less: Creditable Input Tax

Claimed Input Taxes

P696,923.23

Less: Unsupported Input Taxes

14,617.87 682,305.36

VAT Payable (Excess Input Tax)

p 844,145.02

Less: Tax Paid per Return

720,737.95

Basic Deficiency Value-Added Tax

p 123,407.07 III.

EXPANDED WITHHOLDING TAX- P7 ,625.33 Pursuant to Section 2.57.2 of Revenue Regulations No. 02-98, as amended, respondent assessed petitioner for deficiency EWT for taxable year 2008 in the aggregate amount of P7 ,625.33, including interest, breakdown of which is as follows: 63

Basic Tax Due (Schedule 2)

P3,970.39

Add: Interest (01/16/09 to 08/23/13)

P3,654.94

Total Amount Due

P7,625.33 Based on Schedule 2 of the Details of Discrepancies attached to the FDDA, respondent computed the basic deficiency EWT due as follows: 64

Goods

Additions to Property and Equipment

62 Exhibit "P-6", docket, p. 617 63 Exhibit "P-1", docket, pp. 525 and 526 64 Exhibit "P-1", docket, p. 527 l jP

Amount

Tax Rate

EWT

37,978.00 l

I

Inventory Purchases

Office and Store Supplies

Gas and Oil Lubricants

Subtotal

Services

Communication, Light and Power

Dues and Subscriptions

Repairs and Maintenance

R~resentation and Entertainment

Insurance Expense

Advertising and Promotional Expense

Transportation and Travel

Subtotal

Rentals

Professional Fees

Audit Fees

Professional and Le~ Fees

Commission Expenses

Subtotal

TOTAL

Less: Amount Remitted

Basic Tax Due

6,184,788.99 75,812.61 79,449.59 p 6,378,029.19 1% p 63,780.29 p 543,019.00 94,615.00 70,639.00 18,384.00 62,081.66 29,435.00 18,647.39 p 836,821.05 2% 16,736.42 p 1,436,341.00 5% 71,817.05 p 20,000.00 177,601.00 78,878.10 p 276,479.10 10% 27,647.91 p 179,981.67 176,011.28 p 3,970.39 Petitioner states that it paid the said assessment on March 27, 20126\ even before the FDDA was issued, in the total amount of P6,513.64 consisting of the basic tax of P3,970.39 and the deficiency interest of P2,543.25. Also, respondent did not dispute this assertion of petitioner. Verily, it is not one of the issues jointly stipulated by the parties for the resolution of the Court. Considering the foregoing, the said assessment should be set aside for having been duly paid by petitioner.

IV.

DOCUMENTARY STAMP TAX- P76,885.66 Citing the case of Commissioner of Internal &venue vs. Filinvest Development Corporation66, respondent assessed petitioner for deficiency DST for taxable year 2008 in the total amount of P76,885.66, including increments, computed as follows:67

Basic Tax Due

Add: 50% Surcharge

Interest (01/06/09 to 08/23/13)

Total Amount Due

In Schedule 3 of the Details of Discrepancies attached to the FDDA, respondent computed the basic deficiency DST due as follows: Advances from Stockholders P6,392,370.00

Multiply by: DST Rate

P1/P200

Tax Due

p 31,962.00 Petitioner points out that it paid the above-stated assessment on March 27, 201268, even before the FDDA was issued, in the total amount of P68,011.90 consisting of the basic tax of P31,692.00, surcharge of P15,846.00 and deficiency interest of P20,473.90. Respondent did not refute this assertion of petitioner. Further, it is not one of the issues jointly stipulated by the parties to be resolved by the Court. Therefore, this assessment should be set aside for having been duly paid by petitioner.

WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED.

The deficiency EWT and DST assessments are CANCELLED in view of petitioner's payment of the same. The deficiency income tax and VAT assessments for taxable year 2008 are UPHELD in the modified amount of TWO HUNDRED EIGHTY-FIVE

THOUSAND SEVEN HUNDRED TWENTY PESOS AND 44/100

(P285,720.44). Accordingly, petitioner is ORDERED TO PAY the amount of P285,720.44, inclusive of the twenty-five percent (25%) surcharge imposed under Section 248(A)(3) of the NIRC of 1997, as amended, computed as follows:

TYPEOFTAX

BASIC TAX

SURCHARGE

TOTAL

Income Tax

, 105,169.28 , 26,292.32 , 131,461.60

Value-added Tax

123,407.07 30,851.77 154,258.84

Total

P228,576.35 P57,144.09 P285,720.44 In addition, petitioner is ORDERED TO PAY:

(a) Deficiency interest at the rate of twenty percent (20%) per annum on the basic deficiency income tax and value-added tax computed from the dates indicated below until full payment thereof pursuant to Section 249(B) of the NIRC of 1997, as amended:

DEFICIENCY INTEREST

TYPE OF TAX

BASIC TAX

COMPUTED FROM

Income Tax

P105,169.28 April 15, 2009

Value-added Tax

P123,407.07 January 25, 2009

(b) Delinquency interest at the rate of 20% per annum on the total amount of P285, 720.44 and on the 20% deficiency interest which have been accrued as afore-mentioned in (a), computed from August 23, 2013 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended.

WE CONCUR:

LOVELL R. ~ISTA Associa:t;~~ce ...A ~ - ..,&, .. '- Oh4. 7~ MA. BELEN M. RINGPIS-LIBAN

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.

LOVE~AUTISTA

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