Court of Tax Appeals · Second Division

Ithiel Corporation vs. Commissioner of Internal Revenue

CTA Case No. 8872 February 23, 2017

REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

SECOND DIVISION

ITHIEL CORPORATION,

Petitioner,

CTA CASE NO. 8872

-versus-

COMMISSIONER OF INTERNAL

REVENUE,

Respondent.

Members:

CASTANEDA, JR., Chairperson/

CASANOVA, and

MANAHAN, JJ.

Promulgated:

FEB 2 3 Z017 /

1: "'I.,

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CASTANEDA, JR., J,:

THE CASE

In this Petition for Review, petitioner Ithiel Corporation seeks to cancel the Assessment Notices and the corresponding Formal Assessment Notices (FAN), and to set aside the Final Decision on Disputed Assessment (FDDA) issued by respondent Commissioner of Internal Revenue for the alleged deficiency internal revenue taxes for taxable year 2009, in the total amount of P52,513,116.69.

THE FACTS

Petitioner alleges that it is a domestic corporation duly organized and existing under and by virtue of the laws of the 1-

Republic of the Philippines, with principal office at #770 E. Rodriguez Extension Malibay, Pasay City.¹ Respondent is the Commissioner of the Bureau of Internal Revenue (BIR), duly appointed to exercise the powers and perform the duties of her office including, inter alia, the power to decide disputed assessments, refunds of internal revenue taxes, fees, other charges, and penalties imposed in relation thereto, or other matters arising under the Tax Code. She holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City. On May 20, 20102 and September 3, 2010/ the BIR issued

Letters of Authority

Nos.

00043013 and eLA201000004866, respectively, against petitioner, covering petitioner's books of accounts and other accounting records for taxable year 2009. The BIR also issued the First Notice4 and the Second and Final Notice for Presentation of Records5 to petitioner. Petitioner complied thereto as per transmittal letter dated June 17, 2010.6 Consequently, the BIR issued a Notice of Informal Conference.7 On October 5, 2012,8 petitioner received a Preliminary Assessment Notice (PAN) from the BIR dated September 28, 2012, finding petitioner liable for deficiency Income Tax, Value-Added Tax (VAT) and Expanded Withholding Tax (EWT). On October 18, 2012,9 petitioner filed its protest to the PAN dated October 17, 2012. On December 7, 2012,10 petitioner received Assessment Notice Nos. IT-ELA4866-09-12-0892, VT-ELA4866-09-12-0892 and WE- ELA4866-09-12-0892, assessing petitioner for deficiency Income Tax, VAT and EWT, respectively. On January 4, 2013,11 petitioner filed its Protest questioning the timeliness of the FAN, among others. On July 18, 2014,12 petitioner fo-.

received the FDDA denying petitioner's protest. As such, on August 18, 2014,13 petitioner filed the instant Petition for Review. In her Answer, 14 respondent raised the following pertinent

Special and Affirmative Defenses:

"5. Before our disquisition, it is important to stress that petitioner's assertion that the right of the BIR to assess it for deficiency taxes should have been done within the period of three (3) years from the last day of filing of tax return or date of actual filing, whichever is later, is inaccurate. In the Formal Assessment Notice dated December 5, 2012 and as embodied in the Final Decision on Disputed Assessment issued on January 4, 2014, it could be readily seen [that petitioner] was assessed an equivalent to fifty percent (50°/o) surcharge on income tax and value added tax pursuant to the provision of Section 248(8) of the NIRC, as amended, for failure to report receipt in an amount exceeding thirty percent (30°/o) of that declared per return. Indubitably, the tax code provides that in the case of a false or fraudulent return with intent to evade tax or failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (10) years after the discovery [of] the falsity, fraud or omission.

Consequently, the 10 year prescriptive period should apply to the case of petitioner. xxx

XXX

Section 222(a) limits the application of the ten year period to assess in cases of false or fraudulent return or failure to file a return and further provides that failure to report sales, receipt or income by more than 30°/o of that declared per return, and a claim of deductions by more than 30°/o shall make the taxpayer liable for substantial underdeclaration of sales and overstatement of deductions, which are prima facie evidence of false or fraudulent return. As stated, the petitioner was assessed an equivalent to fifty percent (50°/o) surcharge on income tax and value added tax 9&-

pursuant to the provision of Section 248(B) of the NIRC, as amended, for failure to report receipt in an amount exceeding thirty percent (30°/o) of that declared per return.

Further, the 10 year period to assess is also applicable in cases of non-withholding of taxes or non- payment of VAT. If the taxpayer failed to withhold some items of income payment that are subject to withholding taxes [and/or failed to pay the VAT thereon], thus, it failed to declare the same in the withholding tax returns and VAT returns. The withholding tax returns and VAT returns filed by the taxpayer can be considered as false return because it deviated from the truth when no income was declared, when in truth there was an income subject to tax (Aznar vs. Court of Tax Appeals, G.R. No. L -20569, 23 August 1974). Being considered as a false return, the applicable prescriptive period would be ten years from the discovery of falsity. Moreover, the Supreme Court has ruled that the filing of deficient returns, which prevent the Commissioner of Internal Revenue from computing the proper taxes is tantamount to non-filing.

The Commissioner had to determine and assess the taxes on data obtained, not from the return, but from other sources (Commissioner of Internal Revenue vs. Gonzales, L -1949~ 24 November 1966).

XXX

xxx" On December 22, 2014,15 the parties submitted their Joint Stipulation of Facts and Simplification of Issues (JSFSI). On February 3, 2015, the Court issued a Pre-Trial Order.16

During

the hearing, petitioner presented the following witnesses: Ms. Normina B. Simafranca/7 Mr. William M. Ligot, Jr.18 and Mr. Michael L. Aguirre. 19 Petitioner likewise made a Formal Offer of Evidence. 20 Jv

On the other hand, respondent presented witness Ms. Lizette F. Martel and Ms. Kristin J. Villegas. 21 Further, respondent made a Formal Offer of Evidence22 filed through registered mail on August 25, 2015.

On January 28, 2016, the Court issued a Resolution23 directing the parties to submit their memoranda, among others. On March 4, 2016, petitioner submitted its Memorandum, 24 while respondent failed to submit the same.25 On March 21, 2016/6 the Court issued a Resolution submitting the instant case for decision. Hence, this Decision.

THE ISSUES

The parties submitted the following issues for the consideration

of the Court:

"a. Whether or not the Bureau of Internal Revenue's right to assess petitioner for Deficiency Value Added Tax covering the first, second and third quarters of taxable year 2009 has prescribed.

Whether or not the Bureau of Internal Revenue's right to assess petitioner for Deficiency Expanded Withholding Tax for the months January to December of 2009 has prescribed.

Whether or not petitioner is liable for deficiency internal revenue taxes for Income Tax, Value Added Tax and Expanded Withholding Tax, all for taxable year 2009."27

THE RULING

The instant Petition is partly meritorious.~

Part of the FANs with respect to VAT and EWT were issued beyond the 3-year prescriptive period The Court shall first discuss the timeliness of the issuance of the FANs with respect to petitioner's deficiency VAT and EWT. Section 203 of the National Internal Revenue Code (NIRC) of 1997, as amended, states:

"SEC.

203.

Period

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 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 filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day."

Petitioner's VAT

A perusal of the records shows that petitioner filed its return through the Electronic Filing and Payment System (EFPS). In relation to the above-quoted Section 203 of the NIRC of 1997, as amended, Section 114 of the same law pertinently provides: "SEC. 114. Return and Payment of Value- added Tax.-

(A)

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

XXX

XXX ?v

XXX

xxx" Furthermore, Section 4 (3) of Revenue Regulations (RR) No. 06-01 provides:

"(3) SECTION 4(3.3) of Revenue Regulations No. 1- 98 is hereby amended to read as follows: 'SECTION 4. Filing of Returns and Payment of Taxes.-

XXX

3.3 When to File and Pay Monthly VAT declarations of Large Taxpayers shall be filed, and taxes paid, not later than the 10th day following the end of each month; provided, however, that with respect to Large Taxpayers who availed of the electronic filing and payment system (EFPS), the deadline for electronically filing the monthly VAT declaration and paying the tax due thereon via the EFPS shall be five (5) days later than the deadline set above. The quarterly VAT Returns of Large Taxpayers shall be filed, and the taxes paid, not later than the 25h day following the end of each quarter."

Under the afore-quoted provisions, a VAT taxpayer has twenty- five (25) days following the close of each taxable quarter within which to file VAT return. In relation thereto, the CIR has three (3) years from the date the return was filed within which to assess. However, if a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the date the return was filed.

In the instant case, petitioner's quarterly VAT returns were filed on the following dates vis-a-vis the 3-year prescriptive period:

Quarter (Taxable

Date of Filing the

Last day to

Date of Receipt of

Year 2009)

VAT Return

Assess by the BIR the FAN

through EFPS 1st

April 211 200928

April 25, 2012

December 7 2012

2nd July 16, 200929 July 25, 2012 December 7_, 2012 28 Exhibit "P-6-C-ICPA".

3ra 4th Applying the above-quoted provisions, the FAN with respect to petitioner's deficiency VAT for the 1st to 3rd quarters of taxable year 2009 was issued beyond the 3-year prescriptive period.

Petitioner's EWT

To determine whether the FAN pertaining to petitioner's EWT was issued beyond the 3-year prescriptive period, RR 26-02 prescribes the time of filing of the return through EFPS, as follows: "SECTION 2. STAGGERED FILING OF RETURNS. xxx 'Section 7. TIME OF FILING OF RETURN. - For purposes of filing returns under the EFPS, the taxpayers classified under the following business industries shall be required to file the Monthly Withholding Tax Returns, except withholding of Value-Added Tax; Monthly VAT Declarations; and Monthly Percentage Tax returns, on or before the dates prescribed and presented herein-below:

MONTHLY

MONTHLY VAT

BUSINESS

WITHHOLDING TAX

DECLARATIONS

RETURNS EXCEPT

AND MONTHLY

INDUSTRY

WITHHOLDING OF

PERCENTAGE TAX

VALUE ADDED TAX

RETURNS

XXX

Group C

XXX

• Thirteen

(13)

• Twenty

three

Real

Estate

days following (23) days

Activities

end of the month following end of the month"' i Petitioner belongs to Group C, i.e., it is engaged in real estate activities, because its primary purpose is as follows: 32 ft-- 29 Exhibit "P-6-G-ICPA".

30 Exhibit "P-6-K-ICPA".

31 Exhibit "P-6-0-ICPA".

32 See Note 1.

"xxx to build, erect, lease or otherwise, acquire, manage, occupy, maintain operate and deal in market, stalls and slaughterhouses, office buildings and lands, building for market stalls and slaughterhouse and business structures of all kinds for the accommodation of marketers, producers, service providers and the public client, consumers or buyers. xxx" Applying the provisions of RR No. 26-02, the Court shall determine the applicability of the 3-year prescriptive period, as follows:

Period

Date of Filing the

Last Day to

Date of Receipt

(2009)

Return

Assess by the BIR of the FAN

January

February 10, 200933 February 13, 2012 December 7, 2012

February

March 9, 200934 March 13, 2012 December 7, 2012

March

April 7, 200935 April 13, 2012 December 7, 2012

April

May 7, 200936 May 13, 2012 December 7, 2012

May

June 9, 200937 June 13, 2012 December 7, 2012

June

July 9, 200938 July 13, 2012 December 7, 2012

July

August 6, 200939 August 13, 2012 December 7, 2012

August

September 5, 200940

September 13 2012

December 7, 2012

September

October 8, 200941 October 13, 2012 December 7, 2012

October

November 6, 200942 November 13, 2012 December 7, 2012

November

December 8, 200943

December 13 2012

December 7, 2012

December

January 11 201044

January 13 2013

December 7, 2012 Based on the foregoing, the FAN with respect to petitioner's deficiency EWT from January to October 2009 was issued beyond the 3-year prescriptive period. After determining whether the subject FANs were issued by the BIR within the 3-year prescriptive period, the Court shall now determine whether to apply the 10-year prescriptive period with respect to those assessments determined to have prescribed under the 3-year prescriptive period.~

33 Exhibit "P-2-A-ICPA".

34 Exhibit "P-2-C-ICPA".

35 Exhibit "P-2-E-ICPA".

36 Exhibit "P-2-G-ICPA".

37 Exhibit "P-2-1-ICPA".

38 Exhibit "P-2-K-ICPA".

39 Exhibit "P-2-M-ICPA".

40 Exhibit "P-2-N-ICPA".

41 Exhibit "P-2-0-ICPA".

42 Exhibit "P-2-P-ICPA".

43 Exhibit "P-2-Q-ICPA".

44 Exhibit "P-2-R-ICPA".

erA case No. 8872

Applicability of the 10-year prescriptive period Section 222 (a) of the NIRC of 1997, as amended, provides: "SEC.

222.

Exceptions as to Period of

Limitation of Assessment

and

Collection

of Taxes.- (a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (10) years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof." In Jose B. Aznar v. Court of Tax Appeals and Collector of Internal Revenue,45 the Supreme Court characterized a false return as mere deviation from truth. In order to determine the veracity of respondent's claim, i.e., that petitioner filed a false Return, the Court shall proceed to examine the records relevant to petitioner's deficiency VAT and EWT assessments. The 10-year prescriptive period is not applicable to petitioner's

VAT

deficiency assessment In finding that petitioner filed a false return, respondent alleged in his Answer that:

"xxx In the Formal Assessment Notice dated December 5, 2012 and as embodied in the Final Decision on Disputed Assessment issued on January 4, 2014, it could be readily seen [that petitioner] was assessed an equivalent to fifty percent (50°/o) surcharge on income '1t- 45 G.R. No. L-20569, August 23, 1974.

Advertising

tax and value added tax pursuant to the provision of Section 248(8) of the NIRC, as amended, for failure to report receipt in an amount exceeding thirty percent (30°/o) of that declared per return. Indubitably, the tax code provides that in the case of a false or fraudulent return with intent to evade tax or failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (10) years after the discovery [of] the falsity, fraud or omission. Consequently, the 10 year prescriptive period should apply to the case of petitioner. xxx'r46 Verification of the records shows that the substantial under- declaration alleged by respondent in his Answer pertains to petitioner's alleged undeclared income in the amount of P32,649,322.61. This alleged undeclared income is intertwined to the determination whether petitioner committed falsity in its VAT Returns.

Upon comparison of the claimed income payments per BIR Form No. 1601-E as against financial statements, respondent allegedly found that petitioner had undeclared expenses in the amount of P32,649,322.61, as computed below:

Per Returns/

Undeclared

Income Payments

PeriTR

Alpha list

Income

p 148,387.60

Research and Development

248,864.55

Insurance

95 586.53

Transportation and Travel

694 725.19 Communication, light and water 572 466.16

Direct Charges- Others

3 819 710.85 Purchases of Services by Top 20,000 Corp. p 5,579,740.88 p 35. 464,281.31 p 29,88~540.43

Repairs and Maintenance-Supplies

p 5 635.00

Office Supplies

61849.63

Miscellaneous

639 543.72

MaterialsL SuQplies and Facilities

1 442,795.48 Purchases of Goods by Top 20,000 Corp. p 2,149,823.83 p 4,914,606.01 p 2,764,782.18

Total

p 7,729,564.71 p 40,378,887.32 p 32,649,322.61 The undeclared expenses were treated as unaccounted source of cash considered as undeclared income as per Perez v. CTA and~ 46 See Note 13.

CIR, L-10507 dated May 30, 1958, where unreflected sources of funds not accounted for in the taxpayer's tax returns led to the inference that part of the income was not reported, hence subject to income tax pursuant to Section 32 of the NIRC of 1997, as amended. On the other hand, petitioner asserts that for income tax purposes, a taxpayer is free to deduct from its gross income a lesser amount, or not claim any deduction at all. What is prohibited by income tax law is to claim a deduction beyond the authorized amount. Thus, even assuming that there are undeclared purchases or expenses, the same is not prohibited by law. Further, there are reconciling items that were not considered by respondent, to wit: (a) Non-Trade Receivables, in the amount of P16,668,795.55; (b) Construction-In-Progress, P5,678,933.57;

in the amount of (c) Renovation In-Progress, in the amount of P²,783,572.29; (d) Property & Equipment P2,372,431.14 and (e)

Other

Service

Contractors

in the amount of P8,529,025.93.

Upon careful consideration of the foregoing, the Court agrees with the petitioner.

The imputation of alleged undeclared income is based on a mere presumption that since there were alleged undeclared expenses, there was likewise a corresponding undeclared income. Even if these alleged undeclared expenses are to be considered as income, the same will be offset by recording the equivalent payments as expenses. Hence, no taxable income will result from the said transactions.

While it is axiomatic that all presumptions are in favor of the correctness of tax assessments, the assessment itself should not be based on presumptions no matter how logical the presumption might ~ be. In order to stand the test of judicial scrutiny, the assessment must be based on actual facts.47 Consequently, it necessarily follows that no VAT-able income will result from the said transactions. Therefore, there is no falsity or deviation from truth on the VAT returns submitted by petitioner. It must be stressed that like fraud, falsity also involves a question of fact and must not be presumed.48 In order to be sustained, it must be supported by sufficient evidence. Considering that respondent's allegation of falsity in petitioner's VAT return arose from a mere presumption, the 10-year prescriptive period will not apply.

The 10-year prescriptive period is applicable to petitioner's

EWT

deficiency assessment While petitioner's VAT deficiency assessment is not subject to the 10-year prescriptive period, the Court finds that the same is not true for petitioner's EWT deficiency assessment. Records show that respondent's primary basis for alleging falsity in petitioner's EWT Returns pertains to the account Professional Fees in the amount of P8,511,311.84. Petitioner asserts that respondent failed to consider that in Note 18 of the 2009 Audited Financial Statements (AFS), the account Professional Fees is labeled or designated as "Professional fee and other outside services". This alone proves that the amount of P9,379,916.87 includes not only payment to professionals but other services as well. Petitioner alleges that said amount is composed of

(a) payments to contractors in the amount of P8,529,025.93 with paid withholding taxes in the amount of P217,616.68 and (b) payments as professional fees in the total amount of P609,671.32 subjected to withholding taxes which include P160,000 as payment to general professional partnership (GPP) and P62,399.10 as payment to Market Place Christian, a non-stock, non-profit organization. ~

47 Collector of Internal Revenue v. Benipayo, G.R. No. L-13656, January 31, 1962

48 Commissioner of Internal Revenue v. Mitsubishi Corporation-Manila Branch, CTA EB No. 640, September 16, 2011, penned by Associate Justice Juanito C. Castaneda, Jr.

erA case No. 8872

Based on the report of the Court-commissioned Independent Certified Public Accountant (ICPA), Mr. Michael L. Aguirre49, it can be inferred that the "Professional fee and other outside services" under the 2009 AFS in the amount of P9,379,916.87 may be broken down into: (1) payments to contractors in the amount of P8,770,245.55, and (2) payments to professionals in the amount of P609,671.32. Further, the ICPA report states that the payments to contractors in the total amount of P8,529,025.93 were allegedly fully subjected to withholding tax, while the remaining amount of P241,219.62 (P8,770,245.55 minus P8,529,025.93) was noted as payment to Armadillo Holdings, Inc., which was not subjected to withholding tax. On the other hand, the ICPA found that payments to professionals in the amount of P609,671.32 includes P160,000 as payment to general professional partnership and P62,399.10 as payment to Market Place Christian, a non-stock, non-profit organization, which are not subject to withholding tax under Section 26 and 30 of the NIRC of 1997, as amended. Upon careful examination of the records, however, the Court cannot favorably consider petitioner's allegation as well as the ICPA report that the Professional Fees reflected in the 2009 AFS and declared in the 2009 ITR in the amount of P9,379,916.87 consist of payments to contractors and professionals. First, the schedule provided in the ICPA report as payment made to contractors in the total amount of P8,529,025.93 is substantially different vis-a-vis the payments per Schedule 4 of BIR Form 1604-E50, as shown below:

Per Schedule 4 of BIR Form

Per ICPA Report

1604-E

Amount of

Should be

Withholding

Amount of

Income

Withholding

Tax per BIR

Difference in

Income

Tax

Supplier

Payment

Tax (2%)

1604-E

Withholding

Payment

Withheld

Alemania Allan

p 487.50 p 9.75 p 335.81

(P

326.06) p 16 790.51 p 335.81

Armadillo Holdinqs

8 291 281.70 165 825.63 176 674.64 (10 849.01) 8 833 732.00 176 674.64

Christian

Environment

36 788.60 735.77 8 289.63 (7,553.86) 414 481.50 8 289.63

Collado Rodrigo

9 141.00 182.82 182.82 - 9 141.00 182.82

Comoda Renato

11 887.50 237.75 1,640.48 (1 402.73) 82 024.00 1 640.48

Deita Aireen

Duenas

98 724.79 1974.50 1,974.50 - 98 724.79 1974.50

Jandoc Randy

3 285.31 65.71 65.71 - 3,285.31 65.71 '--Mabborang Adona_ ---- 19,203.52 384.07 463.12 (79.05) 23,156.00 463.12

49 Exhibit P-18

50 BIR Records, pp. 92-96.

I

- Mercado catherine 48 492.32 969.85 969.85 - 48 492.32 969.85

Patriot Security &

Investment

Total

9 733.69 194.67 27,020.13 (26 825.46) 1 351 006.35 27 020.13 P8,529,025.93 P170 580.52 P217,616.69 (P47,036.17) P10,880 833.78 P217,616.69 The ICPA report shows an over-withholding of tax in the amount P47,036.17 considering that petitioner declared a total amount of P10,880,833.78 income payments for the above enumerated suppliers and upon which the corresponding 2°/o taxes of P217,616.69 were withheld. The Court also notes that per Schedule 4 of BIR Form 1604-E, the total income payments made to contractors and the related withholding taxes actually declared by petitioner were P23,795,738.7751 and P475,914.78, respectively. Hence, it is difficult to believe that the "Professional fee and other outside services" per 2009 AFS includes only selected suppliers as enumerated in the ICPA report, when in fact there are other suppliers/contractors, as revealed in the records. Petitioner, as well as the ICPA, failed to show the different expense accounts where the entire payments to contractors of P23,795,738.77 were lodged, other than the professional expense. Consequently, the Court cannot ascertain whether part of the purported payment to contractors indeed formed part of the professional fees as claimed by petitioner. Second, with regard to alleged payments to GPP and non-stock, non-profit organization in the respective amounts of P160,000 and P62,399.10, petitioner presented the Amended Articles of Partnership of RS Bernaldo & Associates52 and the Certificate of Tax Exemption53 and Certificate of Registration54 of Market Place Christian Church Multipurpose Cooperative. While these two entities may not be subject to withholding tax as provided by law, petitioner, however, failed to prove that the amounts of P160,000 and P62,399.10 were indeed paid to RS Bernaldo & Associates and Market Place Christian Church Multipurpose Cooperative, respectively during the year 2009. In other words, petitioner failed to present proof of payment to these entities.

Furthermore, verification of the records show that petitioner failed to withhold and remit the corresponding EWT due on rental jt-- 51 This amount is the sum of income payment made to Corporate (WC 120) and Individual (WI 120) contractors per Schedule 4 of BIR Form 1604-E.

52 Exhibits "P-14-A-ICPA" to "P-14-G-ICPA"

53 Exhibit "P-14-H-ICPA"

54 Exhibits "P-14-I-ICPA" to "P-14-J-ICPA"

expense and professional fees amounting to P867,496.87, as computed below, in violation of Section 2.57.2(E) of RR No. 2-98, as amended:

Income

Per Returns/

Payments

Per ITR

Alpha list

Not Subjected Rate

Tax Due

Rental

p 6,471,409.55 p 6,144,095.85 p 327,313.70 5% p 16,365.69

Professional

9,379,916.87 868,605.03 8,511,311.84 10% 851,131.18

Total

P15,851,326.42 P7,012,700.88 P8,838,625.54 lt867,496.87 Considering that petitioner failed to withhold the subject taxes, it is proper to disallow the above income payments as deduction from petitioner's gross income. Verily, these circumstances constitute falsity in petitioner's EWT Returns. As such, the 10-year prescriptive period shall apply.

In sum, petitioner's VAT deficiency assessment for the 1st to 3rd quarters of 2009 had already prescribed, for failure of respondent to show before the Court that petitioner filed false VAT Returns. However, the Court agrees with respondent that the 10-year prescriptive period should be applied with respect to petitioner's deficiency EWT assessment. After properly determining which assessments properly remain against those which had already prescribed, the Court shall now proceed to determine the correctness of the assessments that did not prescribe.

A. DEFICIENCY INCOME TAX Petitioner was assessed by respondent for deficiency income tax for the taxable year 2009 amounting to P31,815,870.62, inclusive of penalties, detailed as follows:

Taxable Income (Loss) per Return

p 12,754,872.54

Add: Adjustments

Disallowed due to non-withholding (Schedule 1) p 9,489,123.79

Undeclared Income (Schedule 2)

32,649,322.61

Undeclared Revenue (Schedule 3)

1,393,525.14 43,531,971.54

Total Taxable Income

56,286,844.08

Tax Due (30%)

p 16,886,053.22

Less: Tax Credits/Payments

~·

Prior Year's Excess Credits

Creditable Tax Withheld

Payments per Return

Total

Less: Unsupported Creditable Tax Withheld

Basic Deficiency Tax

Add: 50% Surcharge

Interest (4.16.10 to 9.5.14)

Total Amount Due

p 1,343,855.24 317,660.90 2,164,945.62 3,826,461.76 317,660.90 3,508,800.86 p 13,377,252.36 p 6,688,626.18 11,749,992.08 18,438,618.26 - - - __ _ _P 31,815,870.62 _ As provided in the Details of Discrepancies attached to the FDDA55, respondent alleges that petitioner is liable to pay income tax deficiencies pertaining to the following items:

1. Disallowed Expenses due to non-withholding

2. Undeclared Income

3. Undeclared Revenue

4. Unsup_ported Creditable Withholding Tax at Source

1. Disallowed Expenses due to non-withholding 1'9,489,123.79 P 9,489,123.79 I 32,649,322.61 I 1,393,525.14 I 317,660.90 Respondent alleges that in view of petitioner's failure to withhold and remit the corresponding withholding taxes due on the following income payments, pursuant to Revenue Regulations (RR) No. 2-98, as amended, the same were disallowed as deduction from its gross income pursuant to Section 34(K) of the NIRC of 1997, as amended:

Income

Per Returns/

Not Subjected to

Pa_yments

Per ITR

Alpha list Withholdin_g_ Tax

Rentals

p 6,471,409.55 p 6,144,095.85 p 327,313.70

Professional Fees

9,379,916.87 868_{605.03 8_l_51l_L311.84

Salaries and Wages

14,543,453.74 13,892,955.49 650,498.25 Total _______ p 30,394,780.16 jt 20,905,656.3I_ L_ ~ 9,489,123.79_

a. Rentals- 1'327,313.70 Petitioner alleges that out of the discrepancy of P327,313.70, the amount of P292,784.67 pertains to advance rental paid to lessor, ?v

55 Exhibit "P-13".

erA case No. 8872 as determined below, in taxable year 2008, the withholding taxes of which were already paid and remitted in the year 2008:

Quezon City Treasurer's Office

p 66,315.79

Manolito/Procesa de Castro

226,468.88

Total

p 292,784.67 According to petitioner, said amount was reflected as rent expense in the books of accounts in the months of January and May of 2009. In support thereto, petitioner submitted the purported Sales Invoice56, Official Receipt57, A/P Batch Listing-Invoice,S8 2008 Monthly Remittance Returns of Creditable Income Taxes Withheld (Expanded) (BIR Form 1601-E)59 and Alphalist of Payees Subject to Expanded Withholding Tax60 to prove that the amount of P292,784.67 was reflected as rent expense in the books of accounts in the months of January and May of 2009.

However, a careful analysis by the Court shows that said documents do not clearly establish that the amount of P292,784.67 pertains to advance rental made in the year 2008 and that the corresponding withholding taxes were indeed remitted to the BIR. First, the amount of P66,315.79 was not really paid in advance to the Quezon City Treasurer's Office since the official receipt issued clearly indicates that it was issued on January 10 of year 2009. As to the amount of P226,468.88, no evidence was presented to show that the alleged payment was made in 2008 for rent expenses pertaining to the succeeding period/year. Besides, the A/P Batch Listing-Invoice shows that in the year 2008, the amount of P226,468.88 was already recognized as rent expense, and not as prepaid expense. As to petitioner's allegation that the corresponding withholding taxes were already paid and remitted in the year 2008, the BIR Forms 1601-E presented by petitioner only show that it withheld taxes in 2008. However, the Court cannot ascertain whether the corresponding taxes of the rental expense subject of the present assessment were included therein. ft-

56 Exhibit "P-15-1-A.1-ICPA".

57 Exhibit "P-15-1-A.2-ICPA".

58 Exhibit "P-15-1-B-ICPA".

59 Exhibits "P-15.2-A-ICPA" to "P-15.2-L-ICPA"

60 Exhibits "P-15.2-M.1-ICPA" to "P-15.2-M.³-ICPA".

Thus, for petitioner's failure to prove its claim, the disallowance of the rental expense of P327,313.70, as deduction from its gross income, is in order.

b. Professional

Fees

P8,511,311.84 This item was already discussed in relation to the applicability of the 10-year prescriptive period to petitioner's deficiency EWT. Thus, for petitioner's failure to support its allegations, the findings of respondent shall be sustained.

c. Salaries and Wages - /#650,498.25 Petitioner alleges that out of the discrepancy of P650,498.25, the amount of P441,486.11 is related to non-taxable employer's contribution to government agencies such as SSS, PHIC, and HDMF. On the other hand, the allowances given to employees in the amount of P209,012.14 are generally classified as de minimis benefits, hence, not subject to withholding tax. The Court is not convinced. Based on the Alphalist of Employees, respondent computed the salaries and wages of P13,892,955.4961 as follows: 7.1 With Employees Terminated before Dec. 31,2009

Taxable

Basic Salaries

p 551,132.33

Salaries & Other Forms of Compensation

727,846.22 13th Month Pay and Other Benefits 57,687.04

Non-Taxable

13th Month Pay and Other Benefits 55,885.75

Salaries & Other Forms of Compensation

24,360.72

SSS Philhealth Pag-ibig

19 132.90

De Minimis Benefits

25,733.67 p 1,461,778.63 7.3 With No Previous Employer within the year

Taxable

Basic Salaries

p 7,101,304.90

Salaries & Other Forms of Compensation

952,137.29 61 BIR Records, p. 220.

I

13th Month Pay and Other Benefits

Non-Taxable

13th Month Pay and Other Benefits

Salaries & Other Forms of Compensation

sss_L Phil health Pag-ibig 2,023,420.00 864,418.32 225,695.13

I

332,443.20

I

De Minimis Benefits

486,833.98 11,986,252.82 I 7.⁴ With Previous EmQioy_erjs within the)'_ear

Taxable

Basic Salaries

p 298,731.05

Salaries & Other Forms of Compensation

42,177.92 13th Month Pay and Other Benefits 55,000.00

Non-Taxable

13th Month Pay and Other Benefits 2,758.50

Salaries & Other Forms of Compensation

21,088.96 SSS, Philhealth, Pag_-ibig 11 265.00

De Minimis Benefits

13,902.61 444,924.04

Total Salaries and Wages per Alphalist

p 13,892,955.49 The Court notes that respondent already considered the de minimis benefits in the aggregate amount of P526,470.26 (P25,733.67 + P486,833.98 + P13,902.61) in his computation. Thus, the discrepancy could not be partly attributed to the allowances given to employees in the amount of P209,012.14, as claimed by petitioner, which it classified as de minimis benefits. Besides, petitioner did not explain why it failed to include the amount of P209,012.14 to the amount of P526,470.26 already declared as de minimis benefits. At any rate, petitioner failed to present evidence to substantiate the alleged de minimis benefits of P209,012.14 for the Court to ascertain whether the said amount indeed qualify as de minimis benefits. Thus, the Court gives no credence to petitioner's claim. On the other hand, respondent failed to consider the SSS, Philhealth and Pag-ibig contributions pertaining to employer's share in the amount of P466,846.50, as determined below:

Contribution Type

Exhibit

Amount

HDMF

Total Contributions

Less: Employees' Share

7.1 - SSS, Philhealth, Pag-ibig 7.3 - SSS, Phil health, Pag-ibig 7.4 - SSS, Philhealth, Pag-ibig

Employer Contributions

P-16-L-ICPA

14 615.72

P-16-M-ICPA

13,675.00

P-16-N-ICPA

12 800.00

P-16-0-ICPA

12 775.00

P-16-P-ICPA

13 050.00

P-16-Q-ICPA

13 050.00

P-16-R-ICPA

13 375.00

P-16-S-ICPA

13,225.00.

P-16-T-ICPA

13,7oo.oo I P-16-U-!CPA 13,650.00

P-16-V-ICPA

12,975.00 P-16-W-!CPA 13,375.00 P-16-X-!CPA 13,450.00

P-16-Y-ICPA

42,730.00

P-16-Z-ICPA

40,724.00 P-16-AA-!CPA 40,724.00 P-16-AB-!CPA 41,878.00

P-16-AC-ICPA

41 878.00

P-16-AD-ICPA

43 188.00

P-16-AE-ICPA

42 908.00

P-16-AF-ICPA

43,344.00

P-16-AG-ICPA

43,136.00

P-16-AH-ICPA

41,858.00

P-16-AI-ICPA

43,448.00 P-16-AJ-!CPA 43,656.00 p 829,687.60 p 19,132.90 332 443.20 11 265.00 362,841.10 p 466,846.50 Thus, only the unsupported discrepancy between the claimed salaries and wages per ITR/FS and per alphalist in the amount of P183,651.75 shall be disallowed from petitioner's claimed deductions, computed as follows:

Salaries and Wages per ITR/FS

p 14,543,453.74

Salaries and Wages per BIR

p 13,892 955.49 Add: SSS Philhealth, Pagibig Contributions - Employer Share 466/846.50 14r_359L801.99 Salaries and Wages not subjected to withholding p 183,651.75 For petitioner's failure to withhold and remit the corresponding withholding taxes due on the following income payments of P9,022,277.29, the same shall be disallowed as deduction from its gross income, pursuant to Section 34(K) of the NIRC, as amended: ft.-

EWT

Rental

Professional

Total

WTC

Salaries & Wages

Grand Total

2. Undeclared

Income

P32,649,322.61

Not Subjected

p 327/313.70 8,511,311.84 p 8,838,625.54 183,651.75 p 9,022,277.29 This item was already discussed in relation to the applicability of the 10-year prescriptive period to petitioner's deficiency VAT. For lack of factual basis, the deficiency income tax assessment arising from petitioner's alleged undeclared income from unaccounted source of cash of P32,649,322.61 is cancelled.

3. Undeclared

Revenue

P1,393,525.14 Upon verification of the revenues per VAT Returns against revenues per FS, respondent noted a discrepancy of P1,393,525.14. Respondent presumes the existence of revenues which were not recorded, hence, the taxable income of P1,393,525.14, as herein computed, was added to gross income pursuant to Section 32 of the NIRC of 1997, as amended.

Gross Receipts per VAT Returns

p 81,380,273.72 Less: A/R beg. (net of output tax) 7,088,484.82

Total

p 74,291,788.90 Add: A/R, end (net of output tax) 10,845 035.71 p 85,136,824.61

Less: Revenue per Income Tax

81,915,009.22

Other Income

1,828/290.25 83,743,299.47

Undeclared Revenues

p 1,393,525.14 Petitioner alleges that respondent failed to consider or segregate non-trade receivables from trade receivable in the computation of the accounts receivable. The ICPA also noted that respondent's analysis erroneously includes the "non-trade receivable" as part of the Account Receivable in its beginning and ending balances. Further, the provision of credit losses for the year 2009 was excluded from the computation of ending receivables. Taking into consideration the alleged "non-trade receivables" and "allowance r;v for credit losses", an overage of P218,888.00 exists, computed as follows:

Particulars

Amount

Exhibit

Revenue per Analysis

Gross receipts per VAT Return p 81,380,273.72 P-6 to P-6-0-ICPA Less: AR, beg. (net of output tax) 3,055,819.64 P-10-V-ICPA

Total

78,324,454.08 Add: AR, end (net of output tax) 5,199,957.14 P-10-ICPA

Total Revenue per Analysis

p 83,524,411.22

Revenue per ITR

Revenue per Income Tax

p 81,915,009.22 P-9-A-ICPA

Other Income

1,828,290.25 P-9-A-ICPA

Total Revenue per ITR

p 83,743,299.47

Discrepancy

{P

218,888.25) A perusal of petitioner's 2009 Audited Financial Statements, particularly Note 7, explicitly shows that the account "Trade and Other Receivables" consists of Trade Receivables, Advances to Officers and Employees, Non-trade Receivables and Allowance for Credit Losses, to wit:

2009 2008

I

Trade Receivables

p 6,921,694.00 p 3,422,518.00 Advances to officers and employees 111,032.00 216,761.00

Total

7,032 726.00 3,639,279.00 Non-trade receivables 6,277,099.00 4,299,824.00 Less: Allowance for credit losses ( 1,0971 742,00) -

Total

5,179,357.00 4,299,824.00

Net Trade and Other Receivables

P12,212,083.00 p 7,939,103.00 The movements in the allowance for credit losses:

Balance at January 1

p - p - Provision for credit losses (Note 18) 1,097,742.00 -

Balance at December 31

p 1,097,742.00 p - --·· - - - - - - - - - - - - - - - - In the re-computation provided by the ICPA, the beginning balance of Accounts Receivable of P3,055,819.64 was computed by taking the amount of Trade Receivable for the year 2008 of P3,422,518.00 and by deducting the corresponding 12°/o VAT of P366,698.36. With respect to the ending balance of Account Receivable of P⁵,199,957.14, it was computed by taking the Trade 1v i

Receivable for the year 2009 of P⁶,921,694.00 minus the Allowance for Credit Losses of P1,097,742.00, and thereafter by deducting the 12°/o VAT of P623,994.86, to wit 2009 2008

Trade Receivables

p 6 921,694.00 p 3,422,518.00

Less: Allowace for Credit Losses

1,097,742.00 -

Net Trade Receivables

5,823 952.00 3 422,518.00

Less: 12% Output VAT

623,994.86 366,698.36 Accounts Receivable, ending PS,199,957.14 P3,055,819.64 As much as the Court agrees with petitioner that the Advances to Officers and Employees in the amounts of P111,032.00 and P216,761.00, as well as the Non-trade Receivables of P6,277,099.00 and P4,299,824.00 for the years 2009 and 2008, respectively, should be excluded in the computation of its Total Revenue, the Court disagrees with petitioner that the whole amount of the Allowance for Credit Losses of P1,097,742.00 be considered as deduction against its Trade Receivable for the year 2009 to come up with the ending balance of Accounts Receivable, since the said amount was clearly subtracted from Non-trade Receivables which connotes that the said Allowance for Credit Losses relate to Non-trade Receivables. Hence, disregarding the said allowance for credit losses, the Court finds that petitioner has undeclared revenue amounting to P761,238.54, as computed below:

Particulars

Amount

I

Revenue per Analysis

I

Gross receipts per VAT Return p 81,380 273.72 I Less: AR, beg. _(net of output tax) 3,055,819.64

Total

78,324,454.08 !

Add: AR, end (net of output tax) 6, 180,083.93

Total Revenue Qer Analysis

p 84,_504,_538.01

Revenue per ITR

Revenue per Income Tax

p 81,915,009.22

Other Income

1_L828_L290.25

Total Revenue per ITR

p 83,743,299.47

Discrepancy

-----------------------L_p 761[238.54 Consequently, petitioner shall be held liable for the corresponding deficiency income tax on the said undeclared revenue. pc erA case No. 8872

4. Unsupported Creditable Tax Withheld- P317,660.90 Respondent's verification disclosed that petitioner claimed unsupported tax credits in the amount of P317,660.90, hence disallowed pursuant to Section 2.58.3 of RR No. 2-98, as amended. Petitioner claims that all of its creditable withholding taxes for the subject year had been duly and properly supported contrary to the allegation of the respondent. The Court finds petitioner's contention partially meritorious. Based on the examination of the ICPA, out of the claimed creditable withholding taxes of P317,660.90, only P228,209.17 was supported by individual cwr certificates, as summarized in the Summary of Alphalist of Withholding Taxes (SAWT).62 However, upon further scrutiny of the submitted CWT certificates together with the report of the ICPA, the Court finds that the amount of P24,357 .07 was not properly supported by valid certificates, as determined below:

Payor's Name

CWT

Exhibit

Certificates issued not in the name of the petitioner

Aldaba Maricris Roque

p 536.15

"P-20-C-ICPA"

Aldaba, Maricris Roque 471.65

"P-20-D-ICPA"

Aldaba, Maricris Roque 487.35

"P-20-E-ICPA"

Aldaba, Maricris Roque 518.85

"P-20-F-ICPA"

Suki Market

1,227.62

"P-20-AS-ICPA"

Encomienda Emelita Mandrique

866.59

"P-20-DC-ICPA"

Encomienda, Emelita Mandrique 593.83

"P-20-DD-ICPA"

Manuel, Jinky M 999.36

"P-20-FN-ICPA"

Manuel Jinky M

999.36

"P-20-FO-ICPA"

Manuel Jinky M

1,010.34

"P-20-FP-ICPA"

Quinto, Gladys Grace 2,271.46

"P-20-HV-ICPA"

Subtotal p 9,982.56 Certificates issued were not signed by the payor/payor's authorized representative Bacani, Marlyn p 330.75

"P-20-R-ICPA"

De Leon, Reynaldo 194.89

"P-20-BT-ICPA"

De Leon, Reynaldo 268.80

"P-20-BU-ICPA"

62 Annex E of the ICPA Report. )?c_

De Leon, Reynaldo De Leon, Reynaldo De Leon, Reynaldo De Leon, Reynaldo De Leon, Reynaldo De Leon, Reynaldo

De Leon Reynaldo

Moises, Josephine Pagosa, Flora Jacinto Pagosa, Flora Jacinto Peralta, Jimmy

Ranchez Roberto

Ranchez, Roberto Ranchez, Roberto Ranchez, Roberto Ranchez, Roberto

Ranchez1 Roberto

Ranchez, Roberto Ranchez, Roberto Ranchez, Roberto Ranchez, Roberto Reyes, Jesus Reyes, Jesus Reyes, Rosita G Reynaldo, Salvador 210.00 268.80 268.80 210.00 210.00 268.80 268.80 268.80 268.80 268.00 195.00 1,533.96 1,533.96 391.31 194.89 210.00 210.00 210.00 210.00 210.00 210.00 210.00 268.80 268.80 268.80 882.09 225.99 194.60 92.75 Subtotal p 10,826.19 Petitioner's name as payee is not indicated in the certificates Encomienda, Emelita Mandrique p 857.18 Ramos, Imelda 272.63 Ramos, Imelda 263.84 Subtotal p 1,393.65 Payee's TIN indicated in the certificate is not that of the petitioner Ramos, Imelda p 2,154.67

TOTAL

p 24,357.07

"P-20-BV-ICPA"

"P-20-BW-ICPA"

"P-20-BX-ICPA"

"P-20-BY-ICPA"

"P-20-BZ-ICPA"

"P-20-CA-ICPA"

"P-20-CB-ICPA"

"P-20-CC-ICPA"

"P-20-CD-ICPA"

"P-20-CE-ICPA"

"P-20-GH-ICPA"

"P-20-HD-ICPA"

"P-20-HG-ICPA"

"P-20-HM-ICPA"

"P-20-IU-ICPA"

"P-20-IV-ICPA"

"P-20-IW-ICPA"

"P-20-IX-ICPA"

"P-20-IY-ICPA"

"P-20-IZ-ICPA"

"P-20-JA-ICPA"

"P-20-JB-ICPA"

"P-20-JC-ICPA"

"P-20-JD-ICPA"

"P-20-JF-ICPA"

"P-20-KG-ICPA"

"P-20-KI-ICPA"

"P-20-KN-ICPA"

"P-20-KQ-ICPA"

"P-20-DB-ICPA"

"P-20-IQ-ICPA"

"P-20-IR-ICPA"

"P-20-IP-ICPA"

Since petitioner was able to establish that its creditable taxes withheld for taxable year 2009 in the amount of P203,852.10 (P228,209.17 minus P24,357.07) are properly supported by CWT certificates, petitioner may validly claim the same as tax credit from its income tax liability.9t-'

In sum, petitioner shall be held liable for basic deficiency income tax in the amount of P3,048,863.55, computed as follows:

Taxable Income (Loss) per Return

p 12,754,872.54

Add: Adjustments

Disallowed due to non-withholding p 9,022,277.29

Undeclared Revenue

761,238.54 9,783,515.83

Total Taxable Income

p 22,538,388.37

Tax Due (30%)

p 6,761,516.51

Less: Tax Credits/Payments

Prior Year's Excess Credits

p 1,343,855.24

Creditable Tax Withheld

203,852.10

Payments per Return

2,164,945.62 3,712 652.96

Basic Deficiency Income Tax

p 3,048,863.55 B. DEFICIENCY VALUE-ADDED TAX Respondent computed the deficiency VAT for CY 2008 as follows:

Sales subject to VAT per VAT Returns p 81,380,273.72

Add: Undeclared Income (Schedule 2)

32,649,322.61 Total Revenues subject to VAT p 114,029,596.33

Output Tax

p 13,683,551.56

Less: Input Tax Carry Over

p 20,024.56

Claimed Input Tax

6,503,365.23

Total

p 6,523,389.79 Less: Input Tax on purchases of capital goods exceeding 1M deferred for the succeeding period p 748,024.24

Disallowed Input Tax (Schedule 4)

3,936,536.69 Excess input tax carried over to the next quarter 690 857.89 5,375,418.82 1147,970.97

VAT Payable

p 12,535,580.59

Less: Payments per Return

4,681,125.19

Basic Deficiency Tax

p 7,854,455.40

Add: 50% Surcharge

p 3,927,227.70 Interest (1.26.10 to 9.5.14) 7,243,314.21 11,170,541.91

Total Amount Due

P19,024,997.31 The deficiency VAT assessment of respondent is based on the following: ~

1. Undeclared Income

2. Disallowed input tax on purchases of capital goods exceeding 1M deferred for the succeeding period

3. Disallowed Input Tax

4. Excess input tax carried over to the next_guarter ---

1. Undeclared

Income

P32,649,322.61 p 32,649,322.61 748,024.24 3,936,536.69 690,857.89 --- This assessment is based on the same finding under the deficiency income tax assessment that petitioner had an undeclared income from undeclared expenses based on the comparison of claimed income payments per BIR Form No. 1601-E as against the 2009 AFS.

As discussed earlier, the assessment lacks factual basis because it was based on a mere presumption that since there were alleged undeclared expenses, there was likewise a corresponding undeclared income. Even if these alleged undeclared expenses are to be considered as income subject to output VAT, the same will be offset by treating the equivalent payments as purchases for which input tax credits may be claimed. Hence, no VAT-able income will result from the said transactions. Accordingly, the deficiency VAT assessment on this item shall be cancelled.

2. Disallowed Input Tax on

Capital Goods Exceeding P1

Million Deferred for the

Succeeding

Period

P748,024.24 Respondent did not apply the input tax on capital goods deferred to succeeding period amounting to P748,024.24 against the allowable input tax in computing deficiency VAT, since this shall spread evenly over the month of acquisition and the fifty-nine (59) succeeding months pursuant to Section 110{A) of the NIRC of 1997, as amended.

Petitioner alleged that contrary to a mere estimate or speculation made by respondent, records would show that the input VAT of P748,024.24 was properly and correctly applied in the quarterly VAT Returns. Jv

The Court finds for petitioner. Based on records, the amount of P748,024.24 was taken from petitioner's Quarterly VAT Return for the fourth63 quarter of 2009 captioned as "Input Tax on Purchases of Capital Goods exceeding PlMillion deferred for the succeeding period"64•

Contrary to

respondent's claim, petitioner properly deducted the input tax on capital goods exceeding PlMillion deferred for the succeeding period from its total available input tax, which prove that petitioner claimed as input tax credit only the amortized portion of the said input tax. To illustrate:

lstQTR 2nd QTR 2009 2009 3rd QTR 2009 4th QTR 2009

P-6-D-ICPA

P-6-G-ICPA

P-6-L-ICPA

P-6-0-ICPA

Output VAT

P2 472,346.81 P2 416 684.26 p 2,521 120.81 p 2 355 480.97

Less:

Allowable InR_ut Tax Input Tax Carried Over from 171,557.26 I

Previous Period

p 20,024.56 p 20 024.56 p

Amortization of Input Tax on Capital

I

Goods:

I

Input Tax Deferred on Capital

Goods Exceeding P1Million from

Previous Quarter

p 367,401.43

Add: Input Tax on Purchases of

Capital Goods exceeding

P1Million

p 373 628.57 408 705.28

Total

- - p 373,628.57 p 776 106.71

Less: Input Tax on Purchases of

Capital Goods exceeding P1Million deferred for the succeeding period 367 401.43 748 024.24

Amortization of Input Tax on

Capital Good' exceeding

PlMillion

- - p 6,227.14 p 28,082.47 Add: Input Tax on Purchases from

Current Transactions

Input Tax on Domestic

Purchases of Goods other than

Capital Goods

874 680.35 1 042,431.98 1 645 795.80 2 158 123.25

Total Allowable Input Tax

p 894 704.91 P1,062,456.54 p 1 652 022.94 p 2 357,762.98

Net VAT Payable

P1,577L641.90 P1,354,_227.72 p 869,097.87 p (2,282.01)

Less:

Tax Credits/Payments

Monthly VAT Payments-Previous 2

Months

P1173 496.91 p 964 235.58 p 957 931.29 p 688 575.88 VAT Paid in Return previously filed, if this is an amended Return 424 169.55 82,723.84

Total

P1 597 666.46 p 964 235.58 p 1,040 655.13 p 688 575.88

Tax Still Payable/(Overpayment)

P(20,024.56) P389,992.14 P(171,557.26) P(690,857 .89) 63 Exhibit "P-6-0-ICPA".

64 Line 23A of Exhibit "P-6-0-ICPA". 1"- Moreover, the Court notes that petitioner's claimed input tax for the taxable year 2009 actually amounts to P5,755,340.99 and not the entire input tax of P6,503,365.23, detailed as follows: lstQTR 2009 2nd QTR 2009 3rd QTR 2009 4th QTR 2009

P-6-D-ICPA

P-6-G-ICPA

P-6-L-ICPA

P-6-0-ICPA

Total

Amortization of Input Tax on Capital Goods:

Input Tax Deferred on

capital

Goods Exceeding

P1Million

from Previous Quarter p 367,401.43 p 367 401.43

Add: Input Tax on

Purchases

of capital Goods exceeding

P1Million

p 373,628.57 408 705.28 782,333.85

Total

- - p 373,628.57 p 776 106.71 p 1149,735.28

Less: Input Tax on

Purchases

of capital Goods exceeding

P1Million

deferred for the succeeding period 367 401.43 748,024.24 1,115 425.67

Amortization of Input Tax

on capital Goods exceeding P1Million - - p 6 227.14 p 28 082.47 p 34 309.61

Add: Input Tax on

Domestic

Purchases of Goods

other than capital Goods p 874 680.35 p 1,042 431.98 1 645,795.80 2,158,123.25 5 721 031.38

Total Claimed Input

Tax

P874,680.35 P1,042,431.98 P1,652,022.94 P2,186,205.72 P5,755,340.99 Clearly, the input tax on purchases of capital goods exceeding Pl Million was already subjected to amortization, in compliance with Section llO(A) of the NIRC of 1997, as amended. Consequently, respondent's assessment is without basis and accordingly, should be cancelled.

3. Disallowed Input Tax - P3,936,536.69 Out of the P6,503,365.23 input tax on current purchases of goods, respondent disallowed the amount of P3,936,536.69 due to non-presentation of VAT invoices and official receipts to support input tjv tax claimed, pursuant to Section llO(A)(l) of the NIRC of 1997, as amended.

Petitioner asserts that the schedule of purchases and related supplier's documents show that input taxes in the total amount of P6,119,400.08 were validated and substantiated. The report of the ICPA supports petitioner's averments that the total amount of P6,119,400.08, as summarized in the Schedule of Input Tax65, is properly supported by related supplier's documents66• The ICPA, however, noted that input taxes included therein in the amount of P2,630,7541.22 is supported by Sworn Statements duly executed by the suppliers. Considering that respondent's right to assess petitioner for deficiency VAT for the first, second and third quarters of 2009 have already prescribed, the Court will only determine whether the input VAT declared in the fourth quarter is supported by proper documents.

An examination of the quarterly VAT Return for the fourth quarter of 200967 shows that petitioner incurred input VAT in the amount of P2,566,828.53, which arose from purchases of capital goods exceeding Pl million (P408,705.28) and purchases of goods other than capital goods (P2,158,787.25). However, the Schedule of Input Tax (Annex F of the ICPA Report) shows only the amount of P2,417,010.07, hence, the difference of P149,818.4668 should be disallowed outright for failure of the petitioner to submit supporting documents.

The said amount of P2,417,010.07 is determined as follows:

Exhibit

Date

Supplier

Input VAT on purchases of capital goods exceeding P1 Million

"P-17-ALN-ICPA"

19-Nov-09

Nissan North EDSA

"P-17-AKQ-ICPA"

7-Dec-09

Metro Construction Inc.

sub-total Input VAT on purchases of good other than capital goods "P-17-J-ICPA" I 8-0ct-09 I Alaminos City Water District 65 Annex F of the !CPA Report. 66 Exhibits "P-17-A-ICPA" to "P-17-ARQ-ICPA". 67 Exhibit "P-6-0-ICPA".

68 P2,566,828.53 minus P2,417,010.07. Input VAT.

p 155,357.14 253,348.14 p 408,705.28

I P

6,245.30 fo--

"P-17-K-ICPA" 12-Nov-09 | Alaminos City Water District 6,336.18

"P-17-DR-ICPA"

Ie

erA case No. 8872

"P-17-DV-ICPA"

"P-17-DY-ICPA"

"P-17-DZ-ICPA"

"P-17-EA-ICPA"

"P-17-EG-ICPA"

"P-17-EH-ICPA"

"P-17-EI-ICPA"

"P-17-EJ-ICPA"

"P-17-EK-ICPA"

"P-17-GY-ICPA"

"P-17-GZ-ICPA"

"P-17-HA-ICPA"

"P-17-HB-ICPA"

"P-17-HF-ICPA"

"P-17-HJ-ICPA"

"P-17-HP-ICPA"

"P-17-HQ-ICPA"

"P-17-HY-ICPA"

"P-17-HZ-ICPA"

"P-17-IA-ICPA"

"P-17-IB-ICPA"

"P-17-IC-ICPA"

"P-17-ID-ICPA"

"P-17-IE-ICPA"

"P-17-IF-ICPA"

"P-17-IG-ICPA"

"P-17-IH-ICPA"

"P-17-IN-ICPA"

"P-17-IP-ICPA"

"P-17-IQ-ICPA"

"P-17-IR-ICPA"

"P-17-IS-ICPA"

"P-17-JP-ICPA"

"P-17-JQ-ICPA"

"P-17-JR-ICPA"

"P-17-JS-ICPA"

"P-17-JT-ICPA"

"P-17-JU-ICPA"

"P-17-JV-ICPA"

"P-17-KI-ICPA"

"P-17-KJ-ICPA"

"P-17-KK-ICPA"

"P-17-KT-ICPA"

"P-17-KU-ICPA"

"P-17-KV-ICPA"

"P-17-KW-ICPA"

"P-17-LG-ICPA"

"P-17-LH-ICPA"

L__IIP-17-LI-ICPA"

31-Dec-09

17-Nov-09

31-Dec-09

15-0ct-09

19-Nov-09

15-Dec-09

17-Dec-09

31-Dec-09

23-Nov-09

26-Nov-09

10-Dec-09

28-Dec-09

31-Dec-09

14-0ct-09

26-Nov-09

3-Dec-09

20-0ct-09 30-0ct-09

10-Nov-09

13-Nov-09

27-Nov-09

11-Dec-09

14-Dec-09

28-Dec-09

31-Dec-09

14-0ct-09 12-0ct-09 12-0ct-09

6-Nov-09

7-Dec-09

19-0ct-09 29-0ct-09

23-Nov-09

30-Nov-09

31-Dec-09

1-0ct-09

3-Nov-09

1-Dec-09

16-0ct-09 15-0ct-09

9-Nov-09

9-Dec-09

30-0ct-09

23-Nov-09

22-Dec-09

Armadillo Holdings Inc.

558,472.53 Asian Dynasty Import-Export Corp. 9,642.86 Asian Dynasty Import-Export Corp. 3,214.29 Asian Dynasty Import-Export Corp. 964.29 Atty. Raul L. Lambino 6,024.00 Atty. Raul L. Lambino 1,968.00 Atty. Raul L. Lambino 720.00 Atty. Raul L. Lambino 4,176.00 Atty. Raul L. Lambino 6,054.00 Cesar L. Hulleza Jr.

160.71 Cesar L. Hulleza Jr.

306.43 Cesar L. Hulleza Jr.

9,107.14

ESP General Merchandising

9,107.14

ESP General Merchandising

9,107.14 -- ---- ?z.-

"P-17-LO-ICPA" Euva Trading

Fairdeal Chemical Industry

Globe Telecom Inc.

0 9 "P-17-PA-ICPA" 15-Oct-09 | Globe Telecom Inc.

1,715.25 260.36 148.73 191.80 91.07 231.15 163.37 123.21 156.48 "P-17-PB-ICPA" 15-Oct-09 | Globe Telecom Inc. 109.24

30-Nov-09

"P-17-SL-ICPA" 26-Oct-09 | Imeson Hardware & Construction 990.00

"P-17-SR-ICPA"

"P-17-YK-ICPA"

"P-17-YX-ICPA"

"P-17-ZK-ICPA"

Jesus Gabriel N. Bufet Jesus Gabriel N. Bufet Jesus Gabriel N. Bufet i

CfA Case No. 8872

"P-17-ZR-ICPA"

"P-17-ZS-ICPA"

"P-17-ZT-ICPA"

"P-17-ZU-ICPA"

"P-17 -ZV-ICPA"

"P-17-ZW-ICPA"

"P-17-ZX-ICPA"

"P-17-ZY-ICPA"

"P-17-ZZ-ICPA"

"P-17-AAA-ICPA"

"P-17-AAB-ICPA"

"P-17-AAC-ICPA"

"P-17-AAD-ICPA"

"P-17-AAE-ICPA"

"P-17-AAH-ICPA"

"P-17-ADE-ICPA"

"P-17-ADF-ICPA"

"P-17-ADG-ICPA"

"P-17-ADH-ICPA"

"P-17-ADI-ICPA"

"P-17-ADJ-ICPA"

"P-17-ADK-ICPA"

"P-17-ADL-ICPA"

"P-17-ADM-ICPA"

"P-17-ADN-ICPA"

"P-17-ADO-ICPA"

"P-17-ADP-ICPA"

"P-17-ADQ-ICPA"

"P-17-ADR-ICPA"

"P-17-ADS-ICPA"

"P-17-ADT-ICPA"

"P-17-ADU-ICPA"

"P-17-ADV-ICPA"

"P-17-ADW-ICPA"

"P-17-ADX-ICPA"

"P-17-ADY-ICPA"

"P-17-ADZ-ICPA"

"P-17-AEA-ICPA"

"P-17-AEB-ICPA"

"P-17-AEC-ICPA"

"P-17-AED-ICPA"

"P-17-AEE-ICPA"

"P-17-AEW-ICPA"

"P-17-AEX-ICPA"

"P-17-AEY-ICPA"

"P-17-AEZ-ICPA"

"P-17-AFA-ICPA"

"P-17-AFB-ICPA"

"P-17-AHJ-ICPA"

7-Dec-09

15-Dec-09

17-Dec-09

22-Dec-09

28-Dec-09

29-Dec-09

31-Dec-09

7-0ct-09 26-0ct-09 26-0ct-09 26-0ct-09 26-0ct-09

10-Nov-09

King JR Security Agency

2,457.14

Macro Vision Management

7,110.01 1<--

CfA case No. 8872

"P-17-AHK-ICPA"

"P-17-AHL-ICPA"

"P-17-AHM-ICPA"

"P-17-AHN-ICPA"

"P-17-AHO-ICPA"

"P-17-AHP-ICPA"

"P-17-AHQ-ICPA"

"P-17-AHR-ICPA"

"P-17-AJB-ICPA"

"P-17-AJC-ICPA"

"P-17-AJO-ICPA"

"P-17-AJE-ICPA"

"P-17-AJF-ICPA"

"P-17-AJG-ICPA"

"P-17-AJH-ICPA"

"P-17-AJI-ICPA"

"P-17 -AJJ-ICPA"

"P-17-AJK-ICPA"

"P-17-AJL-ICPA"

"P-17-AKC-ICPA"

"P-17-AKO-ICPA"

"P-17-AKL-ICPA"

"P-17-AKM-ICPA"

"P-17-AKP-ICPA"

"P-17-AKZ-ICPA"

"P-17-ALA-ICPA"

"P-17-ALB-ICPA"

"P-17-ALC-ICPA"

"P-17-ALO-ICPA"

"P-17-ALZ-ICPA"

"P-17-AMA-ICPA"

"P-17-AMB-ICPA"

"P-17-AMU-ICPA"

"P-17-AMV-ICPA"

"P-17-AMW-ICPA"

"P-17-APE-ICPA"

"P-17-APF-ICPA"

"P-17-APG-ICPA"

"P-17-APH-ICPA"

"P-17-API-ICPA"

"P-17-APJ-ICPA"

"P-17-APK-ICPA"

"P-17-APL-ICPA"

"P-17-APM-ICPA"

"P-17-APN-ICPA"

"P-17-APO-ICPA"

"P-17-APP-ICPA"

"P-17-APQ-ICPA"

"P-17-APR-ICPA"

30-0ct-09

11-Nov-09

17-0ec-09 17-0ec-09 19-0ec-09 30-0ct-09 31-0ct-09

13-Nov-09

28-0ct-09 28-0ct-09 31-0ct-09

30-Nov-09

23-Nov-09

MERALCO

21,214.99

MERALCO

3,252.88 i Manuel S. Santos 222.86 Marina Sales, Inc.

987.97

Maynilad Water Service

31,222.92

Maynilad Water Service

PLOT

604.10 ~

CfA Case No. 8872

"P-17-APS-ICPA"

"P-17-APT-ICPA"

"P-17-APU-ICPA"

"P-17-AQO-ICPA"

"P-17-AQP-ICPA"

"P-17-AQQ-ICPA"

"P-17-AQR-ICPA"

"P-17-AQS-ICPA"

"P-17-ARM-ICPA"

"P-17-ARN-ICPA"

"P-17-ARO-ICPA"

"P-17-ARP-ICPA"

"P-17-ARQ-ICPA"

Total

31-Dec-09

16-Dec-09

12-0ct-09 26-0ct-09

12-Nov-09

27-Nov-09

11-Dec-09

11-Nov-09

93,535.71 Toyota Shaw Inc.

918.92

YUSC Commercial

181.07

YUSC Commercial

163.93

YUSC Commercial

264.54 sub-total p 2,008,304.79 p 2,417,010.07 Upon further scrutiny of the related documents of the above input VAT, the Court finds that the total amount of P1,990,855.56 is supported by invoices and/or official receipts which do not comply with the invoicing and accounting requirements under Sections 110(A) and 113(A) and (B) of the NIRC of 1997, as amended by RA 9337, and as implemented by Sections 4.110-2, 4.110-8 and 4.113-1 of Revenue Regulations No. 16-05, to wit:

Exhibit

Date

Supplier's Name

Input VAT

A. Input VAT on purchase of capital goods exceeding P1 Million Input VAT supported by VAT Official Receipt but the amount of Input VAT is not separately indicated

"P-17-AKQ-ICPA"

7-Dec-09

Metro Construction, Inc.

p 253,348.14 subtotal 253,348.14 B. Input VAT on purchases of goods other than capital goods

6,548.24 subtotal p 25,561.11

2. Input VAT supported by VAT Official Receipts/Invoices but issued not in the name of the

10-Nov-09

Crisanto M. Ferreria (Liquidation) 4.5

"P-17-SJ-ICPA"

12-0ct-09 !meson Hardware & Construction Supply 840.32

"P-17-SK-ICPA"

23-0ct-09 !meson Hardware & Construction Supply 392.14

I

"P-17-SL-ICPA"

26-0ct-09 !meson Hardware & Construction Supply 990 - ~

"P-17-SN-ICPA"

31-0ct-09

"P-17-SP-ICPA"

14-Dec-09

"P-17-YV-ICPA"

31-0ct-09

"P-17-YW-ICPA"

6-Nov-09

"P-17-YX-ICPA"

6-Nov-09

"P-17-YY-ICPA"

6-Nov-09

"P-17-YZ-ICPA"

6-Nov-09

"P-17-ZA-ICPA"

12-Nov-09

"P-17-ZB-ICPA"

12-Nov-09

"P-17-ZC-ICPA"

12-Nov-09

"P-17-ZD-ICPA"

16-Nov-09

"P-17-ZE-ICPA"

16-Nov-09

"P-17-ZF-ICPA"

16-Nov-09

"P-17-ZG-ICPA"

16-Nov-09

"P-17-ZH-ICPA"

18-Nov-09

"P-17-ZI-ICPA"

23-Nov-09

"P-17-ZJ-ICPA"

23-Nov-09

"P-17-ZK-ICPA"

24-Nov-09

"P-17-ZL-ICPA"

26-Nov-09

"P-17-ZM-ICPA"

30-Nov-09

"P-17-ZN-ICPA"

30-Nov-09

"P-17-ZO-ICPA"

30-Nov-09

"P-17-ZP-ICPA"

30-Nov-09

"P-17-ZQ-ICPA"

30-Nov-09

"P-17-ZR-ICPA"

7-Dec-09

"P-17-ZS-ICPA"

15-Dec-09

"P-17-ZT-ICPA"

15-Dec-09

"P-17-ZU-ICPA"

17-Dec-09

"P-17-ZV-ICPA"

17-Dec-09

"P-17-ZW-ICPA"

22-Dec-09

"P-17-ZX-ICPA"

22-Dec-09

"P-17-ZZ-ICPA"

28-Dec-09

"P-17-AAA-ICPA"

28-Dec-09

"P-17-AAB-ICPA"

29-Dec-09

"P-17-AAC-ICPA"

29-Dec-09

"P-17-AAD-ICPA"

31-Dec-09

"P-17-AAE-ICPA"

31-Dec-09

"P-17-AAH-ICPA"

7-0ct-09

"P-17-AKC-ICPA"

22-0ct-09 !meson Hardware & Construction Supply 414.64 !meson Hardware & Construction Supply 326.79 !meson Hardware & Construction Supply 347.68 Jesus Gabriel N. Bufet (Liquidation) 119.14 Jesus Gabriel N. Bufet (Liquidation) 968.67 Jesus Gabriel N. Bufet (Liquidation) 1,144.66 Jesus Gabriel N. Bufet (Liquidation) 389.78 Jesus Gabriel N. Bufet (Liquidation) 1,037.17 Jesus Gabriel N. Bufet (Liquidation) 257.14 Jesus Gabriel N. Bufet (Liquidation) 296.47 Jesus Gabriel N. Bufet (Liquidation) 516.2 Jesus Gabriel N. Bufet (Liquidation) 299.25 Jesus Gabriel N. Bufet (Liquidation) 400.18 Jesus Gabriel N. Bufet (Liquidation) 353.01 Jesus Gabriel N. Bufet (Liquidation) 139.29 Jesus Gabriel N. Bufet (Liquidation) 308.57 Jesus Gabriel N. Bufet (Liquidation) 294.14 Jesus Gabriel N. Bufet (Liquidation) 801.76 Jesus Gabriel N. Bufet (Liquidation) 592.5 Jesus Gabriel N. Bufet (Liquidation) 228.35 Jesus Gabriel N. Bufet (Liquidation) 85.39 Jesus Gabriel N. Bufet (Liquidation) 122.14 Jesus Gabriel N. Bufet (Liquidation) 960.78 Jesus Gabriel N. Bufet (Liquidation) 197.89 Jesus Gabriel N. Bufet (Liquidation) 158.04 Jesus Gabriel N. Bufet (Liquidation) 162.11 Jesus Gabriel N. Bufet (Liquidation) 64.34 Jesus Gabriel N. Bufet (Liquidation) 299.25 Jesus Gabriel N. Bufet (Liquidation) 808.29 Jesus Gabriel N. Bufet (Liquidation) 181.45 Jesus Gabriel N. Bufet (Liquidation) 182.14 Jesus Gabriel N. Bufet (Liquidation) 259.18 Jesus Gabriel N. Bufet (Liquidation) 250.68 Jesus Gabriel N. Bufet (Liquidation) 114.91 Jesus Gabriel N. Bufet (Liquidation) 637.98 Jesus Gabriel N. Bufet (Liquidation) 390.87 Jesus Gabriel N. Bufet (Liquidation) 112.59 Jesus Gabriel N. Bufet (Liquidation) 391.29 Jesus Gabriel N. Bufet (Liquidation) 105.08 Jesus Gabriel N. Bufet (Liquidation) 623.46 Jesus Gabriel N. Bufet (Liquidation) 157.61 Jesus Gabriel N. Bufet (Liquidation) 454.71 Jesus Gabriel N. Bufet (Liquidation) 79.82 Jesus Gabriel N. Bufet (Liquidation) 298.85 Jesus Gabriel N. Bufet (Liquidation) 113.69 Jesus Gabriel N. Bufet (Liquidation) 632.85 Jesus Gabriel N. Bufet (Liquidation) 535.58 Jesus Gabriel N. Bufet (Liquidation) 200 Jesus Gabriel N. Bufet (Liquidation) 227.25 K&l Petron Service Center 411.06

Manuel L Santos (Liquidation)

222.86 subtotal p 23,715.17 ~

3. Input VAT supported by Documents other than VAT Official Receipts/VAT Invoices

30-Nov-09

PLDT

PLOT

PLDT

| 368.78 | "P-17-APT-ICPA" PLDT 617.46 "P-17-APU-ICPA" PLDT 631.09 "P-17-AHN-ICPA" Macro Vision Management & Gen. Services Co. 828.4 subtotal | P 9,460.35

4. Input VAT supported by VAT Official Receipts/Invoices but the amount of Input VAT is not separately indicated "P-17-APS-ICPA" | 31-Dec-09 | PLDT 368.78

"P-17-KW-ICPA"

"P-17-QU-ICPA" 15-Oct-09 | Globe Telecom, Inc.

"P-17-PF-ICPA"

"P-17-PK-ICPA"

"P-17-SA-ICPA"

Katong Lights General Mdse. & Hardware Katong Lights General Mdse. & Hardware crA case No. 8872

"P-17-ADR-ICPA"

31-Dec-09

"P-17-ADS-ICPA"

31-Dec-09

"P-17-ADT-ICPA"

31-Dec-09

"P-17-ADU-ICPA"

31-Dec-09

"P-17-ADV-ICPA"

31-Dec-09

"P-17-ADW-ICPA"

31-Dec-09

"P-17-ADX-ICPA"

31-Dec-09

"P-17-ADY-ICPA"

31-Dec-09

"P-17-ADZ-ICPA"

31-Dec-09

"P-17-AEA-ICPA"

31-Dec-09

"P-17-AEB-ICPA"

31-Dec-09

"P-17-ALA-ICPA"

6-Nov-09

"P-17-ALB-ICPA"

7-Dec-09

"P-17-ALZ-ICPA"

30-0ct-09

"P-17-AMA-ICPA"

11-Nov-09

"P-17-AMB-ICPA"

8-Dec-09

"P-17-APH-ICPA"

30-0ct-09

"P-17-AQO-ICPA"

12-0ct-09

"P-17-AQP-ICPA"

26-0ct-09

"P-17-AQQ-ICPA"

12-Nov-09

"P-17-AQR-ICPA"

27-Nov-09

"P-17-AQS-ICPA"

11-Dec-09

"P-17-ARO-ICPA"

23-Nov-09

"P-17-ARP-ICPA"

23-Nov-09

"P-17-ARQ-ICPA"

23-Nov-09

Katong Lights General Mdse. & Hardware 60.54 Katong Lights General Mdse. & Hardware 17.46 Katong Lights General Mdse. & Hardware 10.07 Katong Lights General Mdse. & Hardware 66.11 Katong Lights General Mdse. & Hardware 70.39 Katong Lights General Mdse. & Hardware 6.21 Katong Lights General Mdse. & Hardware 121.39 Katong Lights General Mdse. & Hardware 103.18 Katong Lights General Mdse. & Hardware 27.96 Katong Lights General Mdse. & Hardware 52.07 I Katong Lights General Mdse. & Hardware 138.32 1 Katong Lights General Mdse. & Hardware 69.32 Katong Lights General Mdse. & Hardware 71.25 I Katong Lights General Mdse. & Hardware 51.64 Kings JR Security Agency & Gen. Services 2,457.14 Kings JR Security Agency & Gen. Services 2,428.57 Kings JR Security Agency & Gen. Services 2,171.21 Kings JR Security Agency & Gen. Services 2,171.43 Kings JR Security Agency & Gen. Services 1,828.57 Kings JR Security Agency & Gen. Services 2,457.14 Macro Vision Management & Gen. Services Co. 7,110.01 Macro Vision Management & Gen. Services Co. 813.38 Macro Vision Management & Gen. Services Co. 745.13 Macro Vision Management & Gen. Services Co. 6,211.50 Gap Graphix and Print Corp. 83.57

C Dot Nova Enterprises

474.86 Gap Graphix and Print Corp. 116.14

MERALCO

YUSC Commercial

163.93

YUSC Commercial

264.54 subtotal p 276,834.00

s. Input VAT supported by VAT Official Receipts/Invoices but issued not in the name of the Petitioner and the amount of Input VAT is not separately indicated

"P-17-0-ICPA"

14-0ct-09

Alex's Construction and Supply

p 857.14

"P-17-P-ICPA"

14-0ct-09

Alex's Construction and Supply

857.14

"P-17-UZ-ICPA"

3-Dec-09

Jeciadryl Trading

171.43 subtotal p 1,885.71 - - · - - -

I~

6. Input VAT supported by Sworn Statements executed by the Supplier

"P-17-CG-ICPA" to

Various

Various Suppliers

"P-17-DV-ICPA"

Dates

"P-17-ARM-ICPA"

11-Nov-09

Toyota Shaw, Inc.

"P-17-ARN-ICPA"

18-Nov-09

Toyota Shaw, Inc.

subtotal

7. Input VAT supported by documents not found in the records 12-0ct-09

Dinlys Industrial Sale

6-Nov-09

Dinlys Industrial Sale

7-Dec-09

Dinlys Industrial Sale

19-0ct-09

EFF Builders Corporation

subtotal

TOTAL

GRAND TOTAL

p 1,299,920.46 93,535.71 918.92 p 1,394,375.09 p 96.11 209.14 90.21 5,280.53 p 5,675.99 p 1,737,507.42 p 1,990,855.56 Consequently, for petitioner's failure to meet the substantiation requirements provided by law, the input VAT of P1,899,993.29, as computed below, shall be disallowed as input tax credits: Without supporting documents (representing the difference between the amount declared in the quarterly VAT Return and per Schedule i of In_Q_ut VAll p 149 818.46 Input VAT on purchases of goods other than capital goods 1 737 507.42 Input VAT on purchases of capital goods exceeding P1Million p 253,348.14 Less: Unamortized input VAT on purchases of capital goods

Total

exceeding P1Million (P253,348.14/60 months x 57 months) 240,680.73 12,667.41 p 1,899,993.29

4. Excess Input Tax carried over to the next quarter - P690,857.89 Respondent disallowed petitioner's excess input tax carried over to succeeding quarter of P690,857.89 considering that the said amount has been credited against the estimated quarterly tax liabilities for the taxable quarter of the succeeding taxable years pursuant to Section 110(8) of the NIRC of 1997, as amended. However, the Court finds that it is improper for respondent to disallow the excess input tax carried over to the next quarter, because said amount has been credited against the estimated quarterly tax liabilities for the taxable quarter of the succeeding taxable years. As such, it is beyond the scope of the present assessment. Since the tax benefit will be in the succeeding year, at most, petitioner may only be assessed in the succeeding year. Thus, said amount should be removed from the computation of deficiency VAT. r

In sum, petitioner shall be held liable for basic deficiency VAT in the amount of P1,209,135.40, computed as follows: Sales subject to VAT per VAT Returns p 81,380,273.72

Output Tax

p 9,765,632.85

Less: Input Tax Credits

Input Tax Carry Over

p 20,024.56

Claimed Input Tax

5,755,340.99

Total

5,775,365.55

Less: Disallowed Input Tax

1,899,993.29 3 875,372.26

VAT Payable

5,890,260.59

Less: Payments per Return

4,681,125.19

Basic Deficiency VAT

p 1,209,135.40 ~-~ .

C. DEFICIENCY

EXPANDED

WITHHOLDING

TAX

- P867 ,496.87 As discussed in the applicability of the 10-year prescriptive period vis-a-vis the EWT deficiency assessment, the Court finds it proper to disallow the above income payments as deduction from petitioner's gross income for its failure to withhold taxes thereon. Consequently, the deficiency EWT assessment of respondent against petitioner shall be sustained. In view thereof, the Petition for Review is PARTIALLY GRANTED.

Accordingly, petitioner is liable to PAY the adjusted total amount of P6,406,869. 78, inclusive of the 25°/o surcharge imposed under Section 248(A)(3) of the NIRC of 1997, as amended, computed as follows:

25°/o

Tax Type

Basic

Surcharge

Total

Income Tax

p 3,048,863.55 p 762,215.89 p 3,811 079.44

Value Added Tax

1,209,135.40 302,283.85 1,511,419.25

Expanded Withholding Tax

867,496.87 216,874.22 1,084,371.09

TOTAL

p 5,125,495.82 p 1,281,373.96 p 6,406,869.78 In addition, petitioner is liable to pay: a) Deficiency interest at the rate of twenty percent (20°/o) per annum on the basic deficiency taxes computed from the dates r- erA case No. 8872 indicated below until full payment thereof pursuant to Section 249(8) of the NIRC of 1997, as amended: 20°/o Deficiency Interest

Tax Type

Basic Tax Due

Computed from:

Income Tax

p 3,048,863.55

15-Apr-2010

Value-Added Tax

1,209,135.40

25-Jan-2010

Expanded Withholding Tax

867,496.87

13-Jan-2010

b) Delinquency interest at the rate of twenty percent (20°/o) per annum on the total deficiency taxes of P6,406,869.78 and on the deficiency interest which have accrued as aforementioned in (a), computed from August 26, 2014 until full payment thereof pursuant to Section 249(C)(3) of the NIRC of 1997, as amended.

SO ORDERED.

WE CONCUR:

~ CAESAR A. CASANOVA

CfA Case No. 8872

CERTIFICATION

Pursuant to Article VIII, Section 13 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.

Presiding Justice

REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

SECOND DIVISION

ITHIEL CORPORATION, CTA Case No. 8872 Petitioner, -versus-

Members:

CASTANEDA, JR. , Chairperson CASANOVA, and MANAHAN, JJ.

COMMISSIONER OF INTERNAL Promulgated:

REVENUE, Respondent.

FEB 2 3 2017 /

x-- - - - - - - - --- - - - - - - - --- - - - - -- - - - - -r⁷- J:_~ t -"x.

CONCURRING AND DISSENTING OPINION

MANAHAN,J.:

I concur with the ponencia's conclusion that the assessment for deficiency Value-Added Tax (VAT) for the 1st to 3rd quarters of taxable year 2009 was issued beyond the three- year prescriptive period. Further, I concur that the ten-year prescriptive period for falsity does not apply to the VAT assessment.

I also concur that the assessment for deficiency Expanded Withholding Tax (EWT) for January to October 2009 was issued beyond the three-year prescriptive period. However, I dissent on the ponencia's conclusion that the ten-year prescriptive period applies to the assessment for EWT. The Court, on the basis of finding that petitioner failed to withhold EWTon certain income payments, found that there is falsity in petitioner's EWT returns, thereby justifying the application of the ten-year prescriptive period.

It is my position that the applicability of the ten-year period does not apply to every "false" return and that the definition of a "false" return should be revisited. The differentiation of "fraudulent" return from "false" return was elucidated in the Supreme Court case of Aznar v.

CONCURRING AND DISSENTING OPINION

Court of Tax Appeals (Aznar) 1. In Aznar, the taxpayer was assessed with deficiency income tax for six consecutive taxable years due to his gross under-declaration of taxable income. These substantial under-declarations were noted by the Supreme Court and were made the indicia of the falsity of income tax returns. The Supreme Court went on to state that the "very substantial under-declarations of income for six consecutive years eloquently demonstrate the falsity or fraudulence of the income tax returns with an intent to evade the payment of tax." Furthermore, the Supreme Court expounded on the concept of false returns as being distinct from fraudulent returns with intent to evade taxes, as follows: We believe that the proper and reasonable interpretation of said provision should be that in the three different cases of (1) false return, (2) fraudulent return with intent to evade tax, (3) failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the ( 1) falsity, (2) fraud, (3) omission. Our stand that the law should be interpreted to mean a separation of the three different situations of false return, fraudulent return with intent to evade tax, and failure to file a return is strengthened immeasurably by the last portion of the provision which segregates the situations into three different classes, namely - 'falsity,' 'fraud[,]' and 'omission.' That there is a difference between 'false return' and 'fraudulent return' cannot be denied. While the first merely implies deviation from the truth, whether intentional or not, the second implies intentional or deceitful entry with intent to evade the taxes due. (Underscoring supplied) Based on this decision, the Supreme Court and the Court of Tax Appeals (CTA) has categorized wrongful entries, intentional or unintentional, or mistakes made, whether in good faith or in bad faith, appearing on the face of tax returns, as "falsity" which constitutes a legal ground for the imposition of the ten-year period of prescription. Almost 25 years later, the Supreme Court promulgated Commissioner of Internal Revenue v. B.F. Goodrich Phils. Inc. (Goodrich)2, which shows a softening of the Supreme Court's 1 G.R. No. L-20569, August 23, 1974. 2 G.R. No. 104171, February 24, 1999.

CONCURRING AND DISSENTING OPINION

stance on the scope and coverage of "false return" as compared to the position in Aznar.

In Goodrich, the taxpayer sold a piece of real property at a price which was lower than its declared fair market value. The Bureau of Internal Revenue (BIR) insisted that "falsity" was committed thereby justifying the issuance of the assessment beyond the normal three-year prescriptive period. In finding that the assessment had prescribed, the Supreme Court commented on the issue of falsity, as follows:

Petitioner

insists that private respondent committed "falsity" when it sold the property for a price lesser than its declared fair market value. This fact alone did not constitute a false return which contains wrong information due to mistake, carelessness or ignorance. It is possible that real property may be sold for less than adequate consideration for a bona fide business purpose; in such event, the sale remains an "arm's length" transaction. In the present case, the private respondent was compelled to sell the property even at a price less than its fair market value, because it would have lost all ownership rights over it upon the expiration of the parity amendment. :xxx Furthermore, the fact that private respondent sold its real property for a price less than its declared fair market value did not by itself justify a finding of false return. Indeed, private respondent declared the sale in its 197 4 return submitted to the BIR. Within the five-year prescriptive period [now, three-year prescriptive period], the BIR could have issued the questioned assessment, because the declared fair market value of the said property was of public record. This it did not do, however, during all those five years. Moreover, the BIR failed to prove that respondent's 197 4 return had been filed fraudulently. Equally significant was its failure to prove respondent's intent to evade the payment of the correct amount of tax. (Underscoring supplied) While Aznar and Goodrich have radically different factual milieus, both these cases impacted on how "false returns" are defined. From the broad Aznar definition that a false return is any deviation from the truth, Goodrich provided an instance wherein a "deviation" from the truth as found by the BIR, did not automatically render the return as a "false return" which would justify the application of the ten-year prescriptive period.

CONCURRING AND DISSENTING OPINION

Furthermore, in Goodrich, the Supreme Court required that the BIR prove the presence of fraudulent intent or intent to evade payment of the correct amount of tax on the part of the taxpayer. The Supreme Court also found that the BIR could have issued the assessment within the ordinary prescriptive period considering that the declared fair market value was in the public record. In Goodrich, the "deviation" did not put the BIR at a disadvantage in issuing its assessment, as opposed to the situation in Aznar which involved exorbitant under- declarations for six consecutive years which could not have been easily traced from the returns itself. This is consistent with the statement in Aznar: The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of the NIRC should be applicable in normal circumstances, but whenever the government is placed at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities due to false returns, fraudulent return intended to evade payment of tax or failure to file returns, the period of ten years ... from the time of the discovery of the falsity, fraud or omission ... should be the one enforced. (Underscoring supplied) Thus, as early as Aznar, a qualification had been made that there should be a disadvantage to the government agents resulting from falsity, fraud or omission, which would prevent said agents from assessing the tax within the ordinary period of prescription. Without such disadvantage, the normal three-year prescriptive period should apply. It is interesting to note that even prior to Goodrich, the CTA, in 1995, had also recognized this limitation in Aznar, to wit:

Respondent also contends in the alternative, that petitioner's omission of its sales of bottled and tetra- packed milk from its sales tax return rendered said returns "false" within the meaning of Section 223 of the Tax Code. In support of this, reliance is placed on the ruling in the case of Aznar vs. Court of Tax Appeals (58 SCRA 519), wherein it was held that the term "false return" merely implied a deviation from truth, irrespective of whether such omission is intentional or not. Thus, respondent argues, since petitioner's sales tax returns did not disclose the "truth" regarding its sales of

CONCURRING AND DISSENTING OPINION

bottled and tetra-packed milk to outlets other than the

Armed Forces of the Philippines Commissary and

Exchange Services (AFPCES) and the US Military

Installations (USMI), such omission rendered said returns "false" within the contemplation of Section 223 of the Tax Code.

We find respondent's reliance on Aznar misplaced. There is nothing in the said case which establishes a hard and fast rule that every "deviation" from the truth necessarily brings a particular return under the coverage of Section 223 of the Tax Code. As pointed out by the petitioner, it is only where the falsity or "deviation" would place the government at a disadvantage so as to prevent the assessment and collection of the correct amount of taxes that the ordinary prescriptive period ... should not be applied.3 (Underscoring supplied) The application of Aznar and Goodrich must always be in light of the purpose and rationale for providing a prescriptive period.

It must be kept in mind that the very reason why the law provided for prescription is to give taxpayers peace of mind, that is, to safeguard them from unreasonable examination, investigation, or assessment. The law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed. 4 Guided by the foregoing, the application of Aznar should not be one of unbridled discretion. 5 This is especially true considering that taxes are self-assessed, as discussed by the

Supreme Court:

Taxes are generally self-assessed. They are initially computed and voluntarily paid by the taxpayer. The government does not have to demand it. If the tax payments are correct, the BIR need not make an assessment.

3 San Miguel Corporation v. Commissioner of Internal Revenue, CTA Case No. 4675, January 6, 1995.

4 Commissioner of Internal Revenue v. Standard Chartered Bank, G.R. No. 192173, July 29, 2015, citing CIR v. B.F. Goodrich Phils., Inc. 5 Ayala Hotels, Inc. v. Commissioner of Internal Revenue, CTA Case No. 6002, January 10, 2002.

CONCURRING AND DISSENTING OPINION

The self-assessing and voluntarily paying taxpayer, however, may later find that he or she has erroneously paid taxes.6 Upon finding that a tax has been paid erroneously, the taxpayer is allowed to file a claim for refund. On the reverse side, should the taxpayer find that there is an error on its return, the taxpayer may file an amended return, or should the BIR be the one to detect the error, then an assessment shall be issued.

The very meaning of deficiency assessment is that there was an error or omission on the part of the taxpayer in the preparation of its return or the payment of its tax. But each and every error, as discussed previously, does not and should not result to the operation of the ten-year prescriptive period. Otherwise, on the strength of the Aznar doctrine, BIR examiners conducting regular tax audits, who, logically as a matter of course, would always come up with tax findings of either under- declaration of income or over-declaration of deductions, or both, could mercilessly and arbitrarily raise the argument of false return giving rise to the ten-year prescriptive period. The result would be a lackadaisical implementation of the statutory principle that the statute of limitations is a remedial measure and should be strictly construed against the taxing authority and liberally in favor of the taxpayer. This situation was considered by the Court of Appeals in Commissioner of Internal Revenue v. Ayala Hotels, Inc.7, where it described the effect of a sweeping application of Aznar, as follows: Reliance on the Aznar Case with regard to the issue of prescription is misplaced. Although in the said case, the Supreme Court ruled that a "false return" merely implies a deviation from the truth, whether intentional or not, such pronouncement should not be given a sweeping application in all cases where a mistake in ITR entries are made by taxpayers. Otherwise, any mistake, however slight, in a return filed by a taxpayer in good faith would justify the application of the ten-year prescriptive period for assessment. Consequently, the protection provided for under Section 203 of the 1997 NIRC is rendered nugatory. Logically therefore, not all "false returns" would call for an application of Section 222 of the 1997 NIRC. Only "false returns" which are filed by a taxpayer with 6 SMI-ED Phils. Technology, Inc. v. Commissioner of Internal Revenue, G.R. No. 175410, November 12, 2014.

7 CA-G.R. SP No. 70025, April 19, 2004.

CONCURRING AND DISSENTING OPINION

intent to evade tax should warrant an application of the ten-year prescriptive period. In order to render a return made by a taxpayer a "false return" within the meaning of Section 222, of the Tax Code, there must appear, a design to mislead or deceive on the part of the taxpayer, or at least culpable negligence. A mistake, not culpable in respect of its value would not constitute a false return. (Underscoring supplied) Notwithstanding, there is sufficient basis provided by Aznar and Goodrich to limit the application of the ten-year period to certain factual circumstances. Thus, in the instant case ( 1) there was no design to mislead or deceive on the part of petitioner, since it argues that respondent failed to consider that the basis of the assessment for deficiency EWT included income payments for other services and that respondent failed to account for timing differencess; (2) that the alleged deviation was not an intentional mistake or omission so as to put the BIR at a disadvantage in the investigation since the BIR was not prevented from issuing a deficiency EWT assessment based on the comparison of petitioner's Audited Financial Statements (AFS), BIR Form 1604-E, and Annual Income Tax Return (ITR); and (3) there was no fraudulent intent or intent to evade the payment of the correct amount of tax. Since the foregoing circumstances did not place the government at a disadvantage so as to prevent it from assessing the correct taxes within the three-year prescriptive period, hence, the application of the ten-year prescriptive period is devoid of legal basis. Considering the foregoing, the assessment for deficiency income tax should also be modified accordingly. Wherefore, I concur with the decision to partially grant the petition for review, but with the modification that the assessment for deficiency EWT for January to October 2009 has likewise prescribed.

/M~· {-/!~~ CATHERINE T. MANAHAN

Associate Justice

8 Docket, Vol. 1, Petition for Review, pp. 13-14; Vol. 2, Petitioner's Memorandum, pp. 667-669.

Footnotes

1
The Parties, Petition for Review, Docket, Vol. I, p. 7.
2
Exhibit "R-1", BIR Records, p. 1.
3
Exhibit "R-2", BIR Records, p. 2.
4
Exhibit "R-3", BIR Records, p. 4.
5
Exhibit "R-4", BIR Records, p. 5.
6
Exhibit "P-2".
7
Exhibit "R-5", BIR Records, p. 208.
8
Exhibit "R-7", BIR Records, pp. 226-227.
9
Exhibit "P-6".
10
Exhibit "R-8", BIR Records, pp. 283-285.
11
Exhibit "P-11".
12
Exhibits "P-12-A-ICPA" to "P-12-D-ICPA".
13
Docket, Vol. I, pp. 6-22.
14
Docket, Vol. I, pp. 62-70.
15
Docket, Vol. I, pp. 222-225.
16
Docket, Vol. I, pp. 234-238.
17
Minutes of the Hearing dated February 4, 2015, Docket, Vol. I, p. 239.
18
Minutes of the Hearing dated March 4, 2015, Docket, Vol. I, p. 336.
19
Minutes of the Hearing dated April 29, 2015, Docket, Vol. I, p. 356.
20
Docket, Vol. I, pp. 362-546.
21
Minutes of the Hearing dated August 12, 2015, Docket, Vol. II, p. 582.
22
Docket, Vol. II, pp. 617-620.
23
Docket, Vol. II, pp. 649-650.
24
Docket, Vol. II, pp. 651-673.
25
Records Verification, Docket, Vol. II, p. 674.
26
Docket, Vol. II, p. 675.
27
Issues, JSFSI, Docket, Vol. I, p. 224.