Center for Training and Development, Inc. vs. Commissioner of Internal Revenue

DECISION

RINGPIS-LIBAN,.£:

The Case

This case involves a Petition for Review1 flied by Center for Training and Development, Inc. seeking the cancellation of the assessments covering deficiency income ta)C and value-added ta)C (y AT) for ta)Cable year 2006 in the aggregate amount of P2,612,858.31, inclusive of interest.

The Facts

Petitioner Center for Training and Development, Inc. is a domestic corporation duly organized and e)Cisting under and by virtue of the laws of the Republic of the Philippines, with principal office at Unit 2207-2208 City land 10 Tower 1, 6815 H.V. Dela Costa, Ayala Avenue, Makati City. It is primarily engaged 1 Docket, pp. 7-17.

r erA CASE NO. 8742 in providing, rendering, and conducting training, development and management education, corporate communication and research, research and development studies, business and management advisory services and other related activities. Petitioner is duly registered with the Bureau of Internal Revenue (BIR) Revenue District Office (RDO) No. SO of Revenue Region No. 8-South Makati City, Philippines. 2 On the other hand, respondent is the duly appointed Commissioner of the Bureau of Internal Revenue vested under the appropriate laws with the authority to carry out the functions, duties and responsibilities of said office, including inter alia, the power to decide disputed assessments and 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. Respondent is being represented in this case by the legal officers of the Legal Division of Revenue Region No. 8-Makati City, with office address at the 2/F Legal Division, BIR Bldg., No. 313 Sen. Gil Puyat Ave., Makati City.3 On August 30, 2007, respondent, through the Revenue Region No. 8, issued Tax Verification Notice (TVN) No. OOOS0279, authorizing Revenue Officers of RDO No. SO to examine or audit petitioner's internal revenue taxes covering taxable year 2006.4 Revenue District Officer Florante R. Aninag issued a Notice of Informal Conference with attached computation of tax deficiencies dated September 1, 2009. 5 Petitioner then submitted its position paper to the preliminary findings in the form of a protest letter dated September 2S, 2009.6 Notwithstanding the series of informal discussions and the submission of the position paper, respondent issued a Preliminary Assessment Notice (PAN) dated December 29, 2009 for alleged deficiency taxes, inclusive of interest and comprorruse penalties, in the total amount of P1,7S7,907.13, broken down as follows: 7

TAX TYPE

AMOUNT

Income Tax

P1, 70S,80S.64

Value-added Tax (VAT)

S0,963.12

EWT

1,138.37

TOTAL

P1,7S7,907.13 r'

Subsequently, respondent issued Assessment Notices for income tax (IT TVN 50279-06-10-0116), VAT (VT TVN 50279-06-10-0116) and expanded withholding tax (WE TVN 50279-06-10-0116), as well as the Formal Assessment Notice (FAN) with the corresponding Details of Discrepancy, all dated January 14, 201 0; which was received by petitioner on the same date, reiterating the alleged deficiency taxes contained in the PAN as follows: 8

TAX TYPE

ASSESSEMENT NO.

AMOUNT

Income Tax

(IT TVN 50279-06-10-0116)

P1, 729,933.02

VAT

(VT TVN 50279-06-1 0-0116)

51,664.13

Expanded

(WE TVN 50279-06-1 0-0116)

1,153.98

Withholding Tax

TOTAL

P1,782,751.13 Petitioner ftled a protest letter against the FAN and paid the assessed expanded withholding tax for taxable year 2006 on February 9, 2010.9 On August 8, 2011, Revenue District Officer Ricardo B. Espiritu issued a Second and Final Notice to petitioner, informing the latter to submit documentary evidence to support its arguments in the protest letter.10 On November 8, 2013, petitioner received an Amended Assessment Notice (IT-TVN 50279/TVN149101-06-13-0410) and Final Decision on Disputed Assessment (FDDA), both dated November 4, 2013,11 with the following deficiency tax assessments:12 I. INCOME TAX

Taxable Income (Loss) per ITR

Add: Adjustments/Disallowance

Undeclared Income

(Schedule 1)

Unsupported Expenses

(Schedule 2)

Taxable Income (Loss) _E_er Audit

Add: Net Operating Loss Carry

Over (NOLCO)

Adjusted Taxable Income

Basic Income Tax Due (35%)

Less: Tax Credit/Paid per return 8 Par. 7, Stipulation of Facts, JSFSI, docket, p. 160. 9 Par. 8, Stipulation of Facts, JSFSI, docket, p. 160. 10 Par. 9, Stipulation of Facts, JSFSI, docket, p. 160. 11 Par. 10, Stipulation of Facts, JSFSI, docket, p. 160. 12 Exhibit "P-15", docket, pp. 237-241.

p (273,032.001 P1,212,181.14 1,818,134.70 3,030,315.84 p 2,757,283.84 273,032.00 p 3,030,315.84 p 1,060,610.54

Prior Year's Excess Credits

Creditable Tax Withheld

Total

Less: MCIT Carry Over

Amount Carried Over to

Succeeding Year

Unsupported Creditable

Tax Withheld

Basic Deficiency Income Tax

Add: Interest(04.16.07 to 12.09.13)

TOTAL AMOUNT DUE

II. VALUE-ADDED TAX

Taxable Receipts per VAT Returns

Output Tax Due per Returns

_(Schedule 4)

Less: Creditable Tax/Payment

Creditable Input Tax

Less: Disallowed Input Tax

(Schedule 5)

Input Tax Allocable to

Exe!I!I'_t Sales

VAT Payable

Less: Payment

Basic Deficiency VAT

Add: Interest (01.26.07 to 12.09.13)

TOTAL AMOUNT DUE

p 830,824.59 391,845.41 P1,222,670.00 p 47,070.31 1,175,599.69 27,741.69 1,250,411.69 (27, 7 41.69) p 1,088,352.23 1, 448,552.10 P2,536,904.33 p 8,759,946.36 p 1,046,633.56 p 284,205.67 p 12,297.49 1,636.45 13,933.94 270,271.73 p 776,361.83 744,378.44 p 31,983.39 43,970.59 p 75,953.98 On December 5, 2013, petltloner flied the present Petition for Review before the Court of Tax Appeals.

Respondent flied her Answer13 on January 30, 2014, interposing the defense that during the administrative investigation, petitioner failed to substantiate or submit supporting evidence against the BIR findings specified in the Details of Discrepancies attached to the PAN, the FAN and the FDDA of the following amounts:

I. Income Tax

1. Undeclared Income P1 ,212,181.14

2. Unsupported Expenses 1,818,134.70

3. NOLCO 273,032.00

4. MCIT 47,070.31

5. Amount Carried Over to the

Succeeding Year

6. Unsupported Creditable Taxes

Withheld

II. VAT

1. Total Output Tax Due

2. Disallowed Input Tax

3. Input Tax Allocable as Exempt Sales 1,175,599.69 27,741.69 P1 ,046,633.56 12,297.49 1,636.45 Respondent also claimed that petitioner duly executed a Waiver of Defense of Prescription under the Statute of Limitations of the National Internal Revenue Code, thereby making Section 222(b) of the NIRC applicable. 14 The case was then set for a pre-trial conference on March 27, 2014.15 After both parties flied their Pre-Trial Briefs16 on March 20, 2014, they entered into a Joint Stipulation of Facts and Simplification of Issues17• The Court then issued the Pre-Trial Order18, which terminated the pre-trial and set the initial presentation of petitioner's evidence on June 9, 2014. Petitioner presented Mr. Enrico T. Pizarro, the Court-commissioned Independent Certified Public Accountant (ICP A), as its lone witness, who by way of Judicial Affidavit19 testified on the procedures undertaken such as checking, verifying and examining the pertinent documents relative to these assessments. Thereafter, petitioner submitted its Formal Offer of Evidence20 on June 27, 2014. The Court admitted all the formally offered exhibits of petitioner in the Resolution21 issued on July 23, 2014.

On the other hand, respondent presented Revenue Officer Ofelia L. Metrillo22 and Revenue Officer Carlomar L. Frilles.23 Respondent flied her Formal Offer of Evidence24 on December 18, 2014. The Court admitted all the formally offered evidence of respondent via Resolution25 dated January 14,2015. r

The case was declared submitted for decision on March 10, 201526, after petitioner flied its Memorandum, 27 sans a memorandum from respondent.

The Issues

The parties submitted the following issues28 for this Court's resolution:

1. Whether or not the BIR's right to assess petitioner for taxable year 2006 has prescribed; and

2. Whether or not petitioner is liable for deficiency mcome tax and deficiency VAT for taxable year 2006.

The Court's Ruling

The petition is partly meritorious.

On the Issue of Prescription

Section 203 of the National Internal Revenue Code of 1997 provides: SEC. 203. Period of 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 period: Provided, That in case where a return is flied beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return was flied. For purposes of this Section, a return flied before the last day prescribed by law for the filing thereof shall be considered as flied on such last day.

None of the exceptions provided under Section 222 of the NIRC of 1997 are availing in this case. In particular, respondent's claim that petitioner executed a Waiver of Defense of Prescription under the Statute of Limitations of the National Internal Revenue Code deserves no consideration as the same is not supported by evidence. r

For the filing of ITRs, the relevant provision is Section 77(B) of the NIRC of 1997, which provides that the Annual ITR shall be filed on or before the fifteenth (15th) day of April, or on or before the 15th day of the fourth (4th) month following the close of the fiscal year, as the case may be. As regards VAT Returns, Section 114(A) of the NIRC of 1997 provides that the Quarterly VAT Returns shall be filed within twenty-five (25) days following the close of each taxable quarter.

Below is a summary of the dates when petitioner filed its 2006 Annual ITR and Quarterly VAT Returns/9 and the corresponding deadlines for respondent to assess petitioner:

DATE OF

TAX

REQUIRED

ACTUAL

LASTDAYTO

RETURN

FILING DATE

FILING

ASSESS

AnnualiTR

April 16, 200730 April 16, 200731 April16, 2010

Quarterly VAT

Return

1st Quarter April 25, 2006 April 25, 200632 April 27, 200933 2nd Quarter July 25, 2006 July 25, 200634 July 27, 200935 3rd Quarter October 25, 2006 October 25, 200636 October 26, 200937 4th Quarter January 25,2007 January 25, 200738 January 25, 2010 An assessment notice issued after the three (3)-year prescriptive period is not valid and has no effect.

Based on the parties' stipulation and the evidence presented, the F AN39 and the Assessment Notices40 were issued by respondent and were received by petitioner on January 14, 2010. Indubitably, respondent's right to assess petitioner for deficiency VAT for the first, second, and third quarters of taxable year 2006 had already prescribed. This warrants the cancellation of the assessments for the first, second, and third quarters of taxable year 2006. The Court shall now resolve the issue of whether or not petitioner is liable for the assessed deficiency income tax and deficiency VAT for the fourth quarter of taxable year 2006.

29 Petitioner employs thtalendar year.

30 April 15, 2007 fell on a Sunday.

31 Exhibit "P-17", docket, pp. 264-266.

32 Exhibit "P-22.3", docket, pp. 786-788.

33 April 25, 2009 fell on a Saturday.

34 Exhibit "P-22.6", docket, pp. 793-795.

35 July 25, 2009 fell on a Saturday.

36 Exhibit "P-22.9", docket, pp. 800-802.

37 October 25, 2009 fell on a Sunday.

On the Computation of Deficiency Income Tax

Petitioner was assessed for basic deficiency income tax amounting to P1 ,088,352.23, arising from the following items:

1. Undeclared income P1,212,181.14

2. Unsupported expenses 1,818,134.70

3. NOLCO 273,032.00

4. MCIT 47,070.31

5. Amount carried over to the succeeding year 1,175,599.69

6. Unsupported creditable taxes withheld 27,741.69

1. Undeclared income- P1,212,181.14 Respondent's audit disclosed that petitioner had service fees for taxable year 2006 in the amount of P11 ,055,17 4.14 compared to that declared in its Annual ITR41 in the amount of P9,842,993.00. Thus, pursuant to Section 32 of the NIRC of 1997, petitioner was assessed for alleged undeclared income of P1,212,181.14, computed as follows: 42 Gross receipts per VAT return p 8,770,446.36 Add: Trade receivable, end- net ofVAT 2,456,140.18

Subtotal

p 11,226,586.54 Less: Trade receivable, beg- net of VAT 171,412.40 Service fees per audit p 11,055,174.14 Service fees per ITR 9,842,993.00 Undeclared income P1,212,181.14 Respondent's assessment is erroneous. A perusal of the Notes to Financial Statements43, as well as the general ledgers 44 , for the period covering January to December 2005 reveals that the beginning balance of "Trade receivables" for taxable year 2006 amounted to P1,714,124.42, and not P171.412.40, as detailed below:

EXHIBIT

ACCOUNT

"P-24", p. 3

1020 Accounts Receivable- Trade

"P-25", p. 2

1023 Accounts Receivable - Billed OPE

41 Exhibit "P-17", docket, pp. 264-266.

42 Exhibit "P-15", Details of Discrepancies, docket, p. 239. 43 Exhibit "P-16", docket, p. 256.

44 Exhibits "P-24", "P-25", and "P-26", docket, pp. 896-923.

AMOUNT

p 1,521,188.35 82,706.79 r

"P-26", p. 24

1021 Accounts Receivable- Unbilled OPE

110,229.28

TOTAL

Pt,714,124.42 Respondent committed an accounting slide ansmg from an erroneous positioning of the decimal point. Moreover, following respondent's computation of petitioner's "Trade receivable, end - net of VAT", the amount of P1,714,124.42 shall be divided by 1.1045• The resulting amount of P1,558,294.93 represents petitioner's "Trade receivable, beg. - net of VAT". Consequently, petitioner has no undeclared income for the said year:

Gross receipts per VAT return p 8,770,446.36 Add: Trade receivable, end - net of VAT (f>2,750,877.oo I 1.12) 2,456,140.18

Subtotal

p 11,226,586.54 Less: Trade receivable, beg- net of VAT (f>1,714,124.42 I 1.10) 1,558,294.93 Service fees per audit p 9,668,291.61 Service fees per ITR 9,842,993.00

Overdeclaration of Service Fees

P(174,701.39) Evidently, respondent's assessment should be cancelled for lack of merit.

2. Unsupported expenses- P1,818,134.70 Respondent posits that the claimed expenses in the total amount of P1,818,134.70 should be disallowed for failure of petitioner to substantiate the same with sufficient evidence, as required under Section 34(A)(1)(b) of the NIRC of 1997.46 The expenses are detailed as follows: 47

PARTICULARS

AMOUNT

a. Billing Association dues p 17,702.97

b. Light and water 54,697.50

c. Consulting fees 569,201.45

d. Representation and entertainment 12,500.00

e. Telephone 16,494.78

f. Professional/Reviewers' fees 1,147,538.00 Total unsupported expenses Pt,818,134. 70 45 The applicable VAT rate in 2005 was 10%. 46 Section 34(A)(1)(b) of the Tax Code states, "xxx No deductions from gross income shall be allowed under this Subsection (A) hereof, unless the taxpayer shall substantiate with sufficient evidence, such as official receipts or adequate records; (i) the amount of expenses being deducted ... xxx."

CTA CASE NO, 8742

(a) Association dues

(b) Light and water Records show that petitioner entered into Contracts of Lease“* dated May 30, 2003 and July 7, 2006 with AR Realty Holding Co., Inc. for the lease, covering the year 2006, of Unit 1814, Cityland 10 Tower I, 6815 Ayala Avenue, Makati City. Petitioner, as the lessee, agreed to answer and pay for the necessary expenses appurtenant thereto, particularly:

“Section 3. WATER, ELECTRIC CURRENT, ETC. — All expenses for water, electricity, telephone, and association dues shall be for the account of the LESSEE during the period of the occupancy. All payments of said bills shall be paid directly by the LESSEE to concerned companies.”

Based on the summary of expenses submitted by petitioner, the association dues of P17,702.97,° and light and water of P54,698.60" are comprised of the following:

MONTH

COVERED (CY

EXHIBITS 2006 AMOUNT

‘Assocation dues —————[

P0018

April 1,785.86 “P_18.2”, “P-18.2.1”, “P-18.2.1.1” “P.18.3”, “P-18.3.1”, “P-18.3.1.1” 1,857.29 1,785.86 “P-18.6”, “P-18.6.1”, “P-18.6.1.1” 2,104.13 “P-18.7”, “P-18.7.1”, “P-18.7.1.1” 2,104.13 “P-18.4”, “P-18.4.1”, “P-18.4.1.1” | June “P-18.5”, “P-18.5.1”, “P-18.5.1.1” “P-18.8”, “P-18.8.1”, “P-18.8.1.1” 2,104.13 une ul “P-18.9”, “P-18.9.1”, “P-18.9.1.1” December 2,104.13 Total 17,702.97 Light and water “P-19.1, “P-19.1.1” January P 4,023.80 “P-19.2”, “P-19.2.1” Februa 4,568.80 “P-19.3”, “P-19.3.1” 4,728.90 “P-19.4”, “P-19.4.1” 5,281.50 “P-19.5”, “P-19.5.1” 5,091.35 48 Exhibits “P-27” and “P-28", docket, pp. 924-931. ft “Exhibits “P-27” and “P-28”, docket, p. 924 and p. 928.

° Exhibit “P-18”, docket, pp. 267-294.

5! Exhibit “P-19”, docket, pp. 295-319. As per respondent’s audit, the amount of light and water amounted to P54,697.50.

"P-19.6", "P-19.6.1" "P-19.7", "P-19.7.1" "P-19.8", "P-19.8.1" "P -19. 9", "P -19.9.1" "P -19.1 0", "P -19.1 0.1" "P-19.11", "P-19.11.1" "P-19.12", "P-19.12.1"

TOTAL

June

4,872.30

July

4,907.55

August

4,381.65

September

4,596.35

October

4,267.50

November

4,030.15

December

3,948.75 p 54,698.60 These expenses were supported by cash disbursement journals, official receipts, statements of account, and invoices. 52 However, the official receipts and statements of account (for association dues) were issued in the name of AR Realty Holding Co., Inc., and the invoices (for light and water) were issued in the name of Sitaldas Bhagkian. While the Contracts of Lease53 prove that the subject expenses were for the account of petitioner-lessee, these contracts do not certify that the lessor AR Realty Holding Co., Inc. or Sitaldas Bhagkian did not avail of these expenses as its/his own deductions in its/his 2006 ITR. Thus, respondent's disallowance of association dues and light and water is proper. (c) Consultancy fees Based on petitioner's allegations, the consultancy fees in question were incurred for some professional and technical needs in handling bookkeeping client's issues and concerns. 54 In support of its consultancy fees in the amount of P569,201.45, petitioner submitted cash disbursement journals55 and checks56 issued to various payees. Upon examination of these documents, the Court-commissioned ICP A, Mr. Enrico T. Pizarro, found that: 57 xxx [t]he cash disbursement journal vouchers used to record the payments made to consultants are listed in Exhibit P-20. From the cash disbursement journals, I accounted a total of P572,161.33 consultancy fees for the year 2006.

The said vouchers were in support of the payments made to each consultant for the year 2006. Most of the vouchers were supported by corresponding checks issued to each consultant. Since the amount I accounted is greater tha[n] the alleged unsupported 52 Docket, pp. 268-319.

53 Exhibits "P-27" and "P-28", docket, pp. 924-931. 54 Exhibit "P-10", docket, p. 229.

55 Exhibits "P-20.1" to "P-20.48", docket, pp. 322 to 369. r

expenses, I am of the opinion that the BIR findings lacked factual bases.

We are not convinced. The checks simply establish the fact of payment, while the cash disbursement journals merely indicate the authorization/approval for payment and the corresponding accounting entries to be made. With only these documents at hand, the Court cannot ascertain the nature of the payments made by petitioner to various payees named in the checks. (d) Representation and entertainment (e)

Telephone

The details of the representation and entertainment expenses of P12,500.00, and the telephone expense of P16,494.78, based on the cash disbursement journals,58 are as follows:

EXHIBIT

PARTICULARS

AMOUNT

ReR_resentation and entertainment Honorarium fee for Atty. Casasola

"P-29"

(SeminarJanuary17,2006) p 4,000.00 Representation of Atty. Casasola

"P-30"

(Seminar March 2, 2006) 4,500.00 Honorarium fee for Atty. Casasola

"P-31"

(October 11-12, 2006) 4,000.00

Total

Pt2,500.00

Telephone

Telephone expenses statement as of

"P-32"

February 17, 2006 P16,494.78 For want of corroborative evidence, the cash disbursement journals are self- serving. Petitioner should have presented additional documentary evidence from which it can be verified and ascertained that the amounts in question indeed pertained to representation and entertainment expenses and telephone expenses. (f) Professors' I reviewers' fees According to petitioner, these fees were paid to reviewers for CPA review classes in its Recto, Manila and Makati branches.59 Based on the summary60 prepared by the ICPA, petitioner paid professors' fees amounting to P1,147,606.50 58 Docket, pp. 932-935.

r

for 2006. The appointment of the professors” is evidenced by the Appointment Letters” duly accepted and signed by petitioner’s President, Mr. Angelo D. Bernaldo, and the professors concerned.

However, the payments in the amount of P83,975.00, allegedly representing professors’ fees, are not supported by checks” issued by petitioner. Hence, the following are disallowed as deduction from petitioner’s gross income:

Cash

Disbursement

Professor / Reviewer Period __ Journal

ipe Cahayo an 12 — 29, 2006 “P-21.10” P 8,850.00

Rico Pefiamante

usto Jude Uro, Jr Jan 12 — 29, 2006 Patricia Empleo an 12 — 29, 2006 Ma. Cecilia Mercado Virgilio Litonjua an 12 — 29, 2006 “P-21.16” 1,500.00 Luis Sabado an 30 — Feb 13, 2006 “P-21.17” 3,300.00 Rommel Valdez an 12 — 29, 2006 “P-21.15” 9,625.00 Felipe Cahayon an 30 — Feb 13, 2006 “P-21.18” 1,100.00 Rico Pefiamante an 30 — Feb 13, 2006 “P-21.19” 4,950.00

Patricia Empleo

Ma. Cecilia Mercado

Rommel Valdez

Rico Pefiamante

Rommel Valdez

Louisita Aristorenas Oct 1 — 15, 2006 Ma. Cecilia Mercado Dec 1 — 15, 2006 “P-21,189” Nenita Robles Dec 1 — 15, 2006

Total

As a tesult, only in the amount of ?1,063,631.50 (P1,147,606.50 less P83,975.00) is allowed as deduction from petitioner’s taxable gross income for 2006.

usto Jude Uro an 30 — Feb 13, 2006 “P-21.20” 4,550.00

3. NOLCO - P273,032.00 Petitioner’s operations for taxable year 2006 resulted in a net taxable loss in the amount of P273,032.00%. Respondent added back the said amount to the 61 Exhibit “P-33”, docket, p. 936.

8 Exhibits “P-33.1” to “P-33.16”, docket, pp. 937-952. Docket, pp. 416-780.

Exhibit “P-17”, line 21B, docket, p. 264.

28 adjusted taxable income of petitioner, claiming that the tax benefit thereof has already been forwarded to succeeding periods as provided for under Section 34(D)(3) of the NIRC of 1997,65 which states: "SEC. 34. Deductions from Gross Income. - xxx

XXX

XXX

XXX

(D) Losses.-

XXX

XXX

XXX

(3) Net Operating Loss Carryover. - The net operating loss of the business or enterprise for any taxable year immediately preceding the current taxable year, which had not been previously offset as deduction from gross income shall be carried over as a deduction from gross income for the next three (3) consecutive taxable years immediately following the year of such loss: xxx" However, respondent failed to present evidence to prove that petitioner used its 2006 net loss as NOLCO in the succeeding years. Furthermore, said NOLCO is beyond the scope of the present assessment as it can only be the subject of assessment in the taxable year when it is claimed as a deduction. Thus, respondent was wrong to add back the net loss in the amount of P273,032.00 to petitioner's taxable income.

4. MCIT - P47 ,070.31 Respondent avers that the MCIT was not allowed as tax credit against the computed deficiency income tax, considering that the said amount shall be carried over and credited against the normal income tax for the three (3) immediately succeeding taxable years in compliance with the provision under Section 27 (E) (2) of the NIRC of 1997,66 to wit:

"SEC. 27. Rates of Income Tax on Domestic Corporations.-

XXX

XXX

XXX

(E) Minimum Corporate Income Tax on Domestic Corporations.- 65 Exhibit "P-15", Details of Discrepancies, docket, p. 239. 66 Exhibit "P-15", Details of Discrepancies, docket, p. 239. r

XXX

XXX

XXX

(2) Carry Fonvard if Excess Minimum Tax.- Any excess of the minimum corporate income tax over the normal income tax as computed under Subsection (A) of this Section shall be carried forward and credited against the normal income tax for the three (3) immediately succeeding taxable years."

It was improper for respondent to disallow said MCIT, as any tax benefit derived by petitioner from the carry-over of the said amount redounds to the succeeding year.

Since the tax benefit will be in the succeeding year, at most, petitioner may only be assessed then.

5. Amount carried over to the succeeding year- P1,175,599.69 Respondent contends that the excess credit of P1,175,599.69 cannot be credited against the deficiency income tax since said amount was already carried forward to the succeeding year 2007 pursuant to Section 76 of the NIRC of 1997, as amended. 67 As previously discussed, the benefit of excess tax credit carry-over will redound to the succeeding year. It is inappropriate to disallow the same as it is beyond the scope of the present assessment

6. Unsupported creditable tax withheld- P27,741.69 Respondent found that the CWT claimed by petitioner in the amount of P27,741.69 was unsupported, hence, disallowed pursuant to Section 2.58.3 of Revenue Regulations No. 2-98.68 A perusal of the 2006 ITR69 discloses that petitioner had CWT in the total amount of P391 ,845.41.70 In support thereof, petitioner presented CWT certificates (BIR Form No. 2307) 71 which were summarized in Exhibit "P-23"72• The summary indicates a total CWT amounting to P395,566.86. However, further scrutiny of the certificates reveals that only the amount of P392,631.15 represents petitioner's valid CWT for 2006, computed as follows:

r'

Total creditable withholding_ taxes _Qer summary

Add(Deduct):

1) Discrepancies between the creditable withholding taxes per summary and per certificate

CWTPer

Summary is

CWTPer

CWTPer

Under/

Withholding Agent

Exhibit

Summary

Certificate

(Over)

MIMIR Holding, Inc.

"P-23.51" P1,000.00 P1,500.00 p 500.00 MIMIR Holding, Inc.

"P-23.81" 1,500.00 1,000.00 (500.00) JP Frances Holdings, Inc.

"P-23.78" 2,500.00 1,500.00 (1,000.00) JP Frances Holdings, Inc.

"P-23.80" 1,500.00 2,500.00 1,000.00 FusionSolutions, Inc.

"P-23.32" 4,000.00 3,000.00 (1,000.00) 2) Creditable withholding taxes pertaining to taxable year 2007

Withholding Agent

Exhibit

CWT

Caterpillar Financial

Services Phils Inc

"P-23.5" p 700.00

Caterpillar Financial

Services Phils Inc

"P-23.6" 700.00

Caterpillar Financial

Services Phils Inc

"P-23.74" 535.71 Properly supported creditable withholding taxes for taxable year 2006 ~ 395,566.86 (1,000.00) (1,935.71) P392,631.15 The amount duly supported by CWT certificates, P392,631.15, is greater than P391,845.41, which is the amount reflected in petitioner's 2006 ITR. Hence, respondent's disallowance of the CWT ofP27,741.69 is without factual basis. In fine, notwithstanding petitioner's unsupported expenses of P754,571.70, the income tax due thereon shall be offset against petitioner's total tax credits in the amount of P1,222,670.00. Therefore, petitioner is not liable for any deficiency income tax for taxable year 2006, as in fact it has excess tax credit computed below: Taxable income Ooss) per ITR p (273,032.00) Add: Unsupported expenses Association dues p 17,702.97 Light and water 54,697.50 Consultancy fees 569,201.45 Re_presentation and entertainment 12,500.00

Telephone

16,494.78 Professors'/ reviewers' fee 83,975.00 754,571.70 Taxable income Ooss) per audit p 481,539.70 (

Basic income tax due (35%) p 168,538.90 Less: Tax credit paid per return Prior year's excess credits other than

MCIT

p 830,824.59 Creditable tax withheld 391,845.41 1,222,670.00

Excess Tax Credits

P(1,054,131.11)

On the Computation of the Deficiency VAT

Respondent assessed petitioner for basic deficiency VAT in the amount of P31 ,983.39 based on the following findings: (1) total output tax due in the amount of P1,046,633.56, using the tax rate of 12%; (2) disallowed input tax in the amount of P12,297.49; and (3) input tax allocable to exempt sales in the amount of P1,636.45.

We find it unnecessary to discuss in detail respondent's computations of these amounts since the same pertain to only the first and second quarters of the taxable year 2006. In particular:

BIR Finding

Total output tax due 1n the amount of P1 ,046,633.56 Disallowed input tax 1n the amount of P12,297.49 Input tax allocable to exempt sales in the amount of P1 ,636.45

Discussion

The discrepancy in the computation of output tax was caused by the respondent's use of 12°/o VAT rate for January 2006 and petitioner's use of 10% VAT rate for February 2006. Per RMC No. 7-2006, the VAT rate was increased from 10% to 12% effective February 1, 2006. Hence, only the first quarter assessment is affected by this finding.

The discrepancy in the computation of input tax was caused by the respondent's use of 12% VAT rate for purchases made in January 2006 and petitioner's use of 10% VAT rate for purchases made in February 2006. Again, only the first quarter assessment is affected by this finding.

Exempt receipts claimed by petitioner for the first quarter of 2006 73 cannot be directly attributed to any particular transaction. The zero-rated receipts claimed by petitioner for the second quarter of 2006 74 are not corroborated by evidence.

We reiterate that the assessments for the flrst, second and third quarters of 2006 are void for being issued beyond the period prescribed by law. Hence, respondent may validly assess petitioner for deflciency VAT only for the fourth quarter of taxable year 2006.

Taxable

Quarter

CY2006

An examination of the VAT returns 75 discloses the following details:

Vatable

Zero-

Rated

Exempt

There is a deflciency in the fourth quarter VAT payment. There appears to be a miscalculation of the output VAT. Multiplying the total VA Table receipts for the fourth quarter by 12% will yield the amount P303,221.46, and not P296,812.76. Hence, petitioner is liable for the basic deflciency VAT for the fourth quarter of2006 in the amount ofP6,408.69, as follows:

4THQTR

Output tax p 303,221.46 Less: Input tax 76,899.29

Less: Attributable to

exempt sales - Net VAT payable P226,322.17

Less: Payments

219,913.48 Basic deficiency VAT p 6,408.69

WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED. The deficiency income tax assessment issued by respondent against petitioner for taxable year 2006 in the amount of P2,536,904.33 is CANCELLED AND SET ASIDE. However, the deficiency VAT assessment for taxable year 2006 is UPHELD IN PART. Accordingly, petitioner is ORDERED TO PAY respondent the amount of EIGHT THOUSAND TEN PESOS AND EIGHTY-SIX CENTAVOS (P8,010.86) 75 Docket, pp. 782-809.

76 Exhibit "P-22.3", docket p. 786-788.

77 Exhibit "P-22.6", docket p. 793-795.

78 Exhibit "P-22.9", docket p. 800-802.

79 Exhibit "P-22.12", docket p. 807-809.

( representing deficiency VAT for the fourth quarter of taxable year 2006, inclusive of the twenty-five percent (25%) surcharge imposed under Section 248(A)(3) of the NIRC of 1997, computed as follows:

Basic VAT Due

P6,408.69 25°/o Surcharge P1,602.17

Total Amount Due

P8,010.86 In addition, petitioner is ORDERED TO PAY:

(a) Deficiency interest at the rate of twenty percent (20%) per annum on the basic deficiency VAT of P6,408.69 computed from January 25, 2007 until full payment thereof pursuant to Section 249(B) of the NIRC of 1997, as amended; and (b) Delinquency interest at the rate of 20% per annum on the total amount of P8,010.86 and on the deficiency interest which have accrued as afore- stated in (a), computed from December 4, 2013 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended.

WE CONCUR:

~~4--- MA. BELEN M. RINGPIS-LIBAN

Associate Justice

LOVE~UTISTA

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.

LOVELL duTISTA

Associate Justice

Chairperson

CERTIFICATION

Pursuant to Section 13 of Article VIII of the Constitution and the Division Chairperson's Attestation, 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.

OSARIO

Presiding Jus rice