Berringer Marketing Inc. vs. Commissioner of Internal Revenue

DECISION

MODESTO-SAN PEDRO, J.:

The Case

This is a Petition for Review, 1 filed by Berringer Marketing Inc. on 28 January 2015, pursuant to Section 3(a)(2), Rule 4 of the Revised Rules of the Court of Tax Appeals t'RRCTA '').2 1t prays for the Court to declare null and void the Formal Letter of Demand with attached Final Assessment Notices Nos. IT-2010-00016, VT-2010-00016, WE-2010-00013, and WC-2010- 000 12, all dated 22 May 2014. The FLD and FANs found petitioner liable for deficiency Income Tax ("IT"), Value-Added Tax ("VAT"), Expanded Withholding Tax ("EWT"), and Withholding Tax on Compensation ("WTC") in the aggregate amount of P112,572,390.00, inclusive of interest and penalties, for taxable year ("TY") 2010.

The Parties

Petitioner Berringer Marketing Inc. is a corporation organized and existing under the laws of the Republic of the Philippines. It is engaged in, conducts, and carries on the business of buying, selling, distributing, marketing at wholesale and retail insofar as may be permitted by law, all kinds of goods, commodities, wares, and merchandise of every kind and description; to enter into all kinds of contracts for the export, import, purchase, acquisition, :.t

sale at wholesale or retail, and other disposition for its own account as principal or in representative capacity as manufacturer's representative, merchandise broker, indentor, commission merchant, factors or agents, upon consignment of all kinds of goods, wares, merchandise, or products whether natural or artificial. Its principal business address is at Dofia Natividad Bldg., Quezon Avenue, Quezon City.

Respondent Commissioner of Internal Revenue ("CIR") is the duly appointed Commissioner of the Bureau oflnternal Revenue ("BIR") who has the power to decide on disputed assessments, fees or other charges and penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code (hereinafter referred to as the "Tax Code") or other laws or portions thereof administered by the BIR. He holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City.

The Facts

On 26 September 2011, petitioner received Letter of Authority ("LOA") No.

eLA201100002852/LOA-121-2011-00000050, dated 19 September 2011. The LOA authorized Revenue Officers ("RO") Arnalda Ancheta, Ranilo Sy, Mariesol Girang, Dalisay Umlas, and Group Supervisor ("GS") Roberto Castro of the Large Taxpayers Excise Audit Division ("L T Excise") 1 to examine petitioner's books of accounts and other accounting records forTY 2010.3 Likewise, the BIR sent the following Notices to petitioner requiring it to present its books of account and other accounting records in relation to its audit forTY 2010.

Notice

Date of Notice

Date Received by Petitioner

First Notice4

20 September 2011

26 September 2011

Second Notice5

10 April2012

27 April2012

Final Notice6

12 September 2012

12 September 2012

To toll the running of the prescriptive period for the BIR to make an assessment, petitioner executed two (2) Waivers of the Statute of Limitation under the National Internal Revenue Code ("Waivers"). The Waivers were signed by petitioner's President, Carlos Tumpalan, and were accepted by the Officer in Charge ("OIC")-Assistant Commissioner of the BIR Large Taxpayers Services, Alfredo V. Misajon. The Waivers extended the period to assess petitioner, as followsi

Date

Signed by

Petitioner's

Officer

17 January

20137 13

September

20138

Date

Signatory of

Signed by

Petitioner

Respondent

4 February

2013

Carlos

Tum pal an 26

President

September

2013

Extended

Signatory of

Period for

Respondent

Issuance of

Assessment

31 Alfredo V.

December

Misajon

2013

OIC Assistant

Commissioner

Large

30 June

Taxpayers

2014

Service

On 28 February 2013, the Chief of the L T Excise I, Ms. Sarah B. Mopia issued Memorandum of Assignment ("MOA") No. D-02-13-028 replacing the initially assigned ROs and GS handling petitioner's audit.9 The MOA was received by the latter on 22 March 2013 with attached letter, dated 4 March 2013. The said letter was issued by OIC-Assistant Commissioner Alfredo V. Misajon, informing petitioner that its audit investigation had been reassigned to RO Rona B. Marcellano, Dalisay C. Umlas, Thelma 0. Pilar, and Mariesol R. Girang, and GS Herminia C. Cercado. 10 Meanwhile, on 5 July 2013, OIC-Assistant Commissioner Alfredo V. Misajon issued a Subpoena Duces Tecum against petitioner, which the latter received on 5 July 2013. 11 On 12 March 2014, petitioner received an undated Preliminary Assessment Notice ("PAN") with attached Details of Discrepancies. 12 In the PAN, petitioner was assessed for deficiency IT, VAT, EWT, and WTC for TY 2010 in the amount of Pll0,238,417.25, inclusive of interests and penalties.

Considering that petitioner did not respond to the PAN, 13 respondent issued the FLD with attached Details of Discrepancies and FANs, which were received by petitioner on 2 June 2014. 14 In the FLD/FANs, petitioner was assessed for deficiency IT, VAT, EWT, and WTC for TY 2010 in the aggregate amount of Pll2,572,390.00, inclusive of interests and penalties, computed as follows:..t

IT ASSESSMENT

Net Income per return Add: adjustments/disallowances

a. Undeclared Income

a. I. Summary List of Sales ("SLS") v.

Summary List of Purchases ("SLP") of Customers

a.2. Analysis of Accounts Receivable

b. Disallowed expenses

b. I. SLP v. SLS of Suppliers b.2. For Non-withholding of tax

b. 3. Unsubstantiated losses Net Income per audit

Tax Due

Less:

Prior Excess Credit

Payments

Creditable Withholding Tax ("CWT")

Unexpired excess Minimum Corporate

Income Tax ("MCIT")

Less: Carried Over

BASIC INCOME TAX DUE

p 3,080,070.88 p 95,758,030.36 3,560,799.73 44,995,825.35 174,330.38 824,144.57 341,244.24 125,862.11 208,893.99 (58,612.04)

INTEREST (16 APRIL 2011 TO 30 APRIL 2014)

COMPROMISE PENALTY

DEFICIENCY INCOME TAX PAYABLE

VAT ASSESSMENT

Sales per Return

Add: adjustments/disallowances

a. Undeclared Income a.l. SLSv. SLPofCustomers a.2. Analysis of Accounts Receivable a.3. Unsupported sales returns/discount Sales subject to VAT per audit

OUTPUT TAX

Less:

Input Tax

Less: Disallowed due to overstated purchases Should be VAT Payable

Less: Payments Made

BASIC DEFICIENCY VAT DUE

p 3,080,070.88 95,758,030.36 95,029,636.07 p 81,262,703.60 (427,295.96)

INTEREST (26 JANUARY 2011 TO 30 APRIL 2014)

COMPROMISE PENALTY

DEFICIENCY VAT PAYABLE

EWT ASSESSMENT

BASIC DEFICIENCY EWT

P

4,805, I 09.56 147,569,056.70 p 152,374,166.26 45,712,249.88 I ,441,532.87 p 44,270,717.01 27,300,275.49 50,000.00 p 71,620,992.50 p 724,551,625.83 193,867,737.31 p 918,419,363.14 p 110,210,323.58 80,835,407.64 p 29,374,915.94 5,683,491.50 p 23,691,424.44 15,662,663.94 50,000.00 p 39,404,088.38 p 793,984.92 ~

INTEREST (16 JANUARY 2011 TO 30 APRIL 2014)

COMPROMISE PENALTY

DEFICIENCY EWT PAYABLE

WTC ASSESSMENT

BASIC DEFICIENCY WTC

INTEREST (16 JANUARY 2011 TO 30 APRIL 2014)

COMPROMISE PENALTY

DEFICIENCY WTC PAY ABLE

TOTAL DEFICIENCY TAX PAYABLE

529,323.28 16,000.00 p 1,339,308.20 p

I'

115,200.55 76,800.37 16,000.00 208,000.92 I' 112,572,390.00 This prompted petitioner to file a Protest to the FLD by way of Request for Reconsideration on 2 July 2014. 15 The Chief of the LT Excise I, Ms. Sarah B. Mopia issued MOA No. D- 07-14-014, assigning the review of petitioner's Protest to the FLD to RO Rona B. Marcellano and GS Herminia C. Cercado. 16 Claiming inaction on the part of respondent, petitioner filed the instant Petition for Review on 28 January 2015. 17 Respondent filed his Answer18 on 26 March 2015, which was within the extended period granted by the Court. 19 Thereafter, petitioner and respondent filed their Pre-Trial Briefs on 7 May 201520 and 27 August 2015,21 respectively.

On 1 September 2015, the Pre-Trial Conference for the case ensued.22 Afterwards, the parties submitted their Joint Stipulation of Facts and Issues on 16 September 2015. 23 On 21 October 2015, the Court issued the Pre-Trial Order, which marked the end of the Pre-Trial Conference.24 Thereafter, trial proceeded where petitioner presented the following witnesses X 15 Exhibit "P-9"; Division Records Vol. 5, pp. 2294-2342. 16 Exhibit "R-15"; BIR Records Folder 2, p. 742. 17 Petition for Review; Division Records Vol. 1-3, pp. 6-1573 with annexes. 18 Answer; Division Records Vol. 3, pp. 1582-1597. 19 Resolution dated 27 February 2015; id., p. 1581. 20 Petitioner's Pre-Trial Brief; id., pp. 1604-1611. 21 Respondent's Pre-Trial Brief; id., pp. 1645-1651.

1. Ms. Roseminda D. Deloria, petitioner's Accountant. She testified on the FLD/F ANs issued against petitioner. She also explained the company's defenses against the FLD/F ANs and identified documents in relation to the instant case; 25 and

2. Mr. Neil U. Sison, the Independent Certified Public Accountant ("ICPA"). His testimony focused on the results of his review of petitioner's pieces of evidence. He also identified relevant documents herein.26 Respondent transmitted the BIR Records on 4 November 2016.27 Subsequently, petitioner filed its Formal Offer of Evidence ("FOE") on 27 December 2016.28 Respondent did not interpose any objection to the admission of petitioner's offered exhibits.29 In a Resolution, dated 12 October 2017, the Court resolved to admit petitioner's offered exhibits, except for certain documents that were not found in the case records, documents offered that did not correspond with the documents actually marked, or exhibits that were not pre-marked.30 Aggrieved, petitioner posted its Motion for Partial Reconsideration [of the Resolution promulgated on October 12, 2017] on 10 November 2017.31 It explained that the denied exhibits were incorrectly marked by the ICPA due to the sheer volume of documents involved. As such, it prayed for the Court in Division to allow it to re-submit a corrected FOE in order to revise the erroneous markings. The Court allowed petitioner to submit its corrected FOE through a Resolution dated 19 January 2018.32 Petitioner then filed its Supplemental FOE on 26 February 2018.33 Again, respondent did not interpose any objection to the Supplemental FOE.3i 25 Exhibit "P-45"; id., pp. 1654-1668; Exhibit "P-46"; Division Records Vol. 4, pp. 2029-2032; Minutes of Hearing; id., p. 2056.

26 Exhibit "P-64"; Division Records Vol. 5, pp. 2205-2228; Minutes of Hearing; id., p. 2233. 27 Compliance (Re: Transmittal ofBIR Records; id., pp. 2229-2332. 28 Formal Offer of Evidence for the Petitioner; id., pp. 2247-2605. 29 Comment (Re: Formal Offer of Evidence for the Petitioner); id., pp. 2608-2611. 30 Resolution dated 12 October 20 17; id., pp. 2646-2658. 31 Motion for Partial Reconsideration [of the Resolution promulgated on October 12, 2017]; id., pp. 2664- 2673.

32 Resolution dated 19 January 2018; id., pp. 2678-2680. 33 Supplemental Formal Offer of Evidence for Petitioner [pursuant to January 19, 2018 Resolution]; Division Records Vol. 6, pp. 2708-2715.

On 16 May 2019, the Court in Division issued a Resolution partially granting petitioner’s Supplemental FOE.*° The Court in Division denied the following exhibits, to wit:

a. Exhibits “IC-56 GSC-A.468” to “IC-56 GSC-A.470”, “IC-56 GSC- A.3774”, “IC-56 GSC-A.4770”, “IC-56 GSC-B.3769”, “IC-56 GSC-B.6566”, “IC-56 GSC-C.1645” to “IC-56 GSC-C.1655”, “IC- 56 GSC-C.2924”, “IC-56 GSC-C.3126” to “IC-56 GSC-C.3127”, “IC-56 GSC-C.3819” to “IC-56 GSC-C.3826”, “IC-56 GSC- C.5758”, “IC-56 GSC-D.2272” to “IC-56 GSC-D.2276”, “IC-56 GSC-D.2297”, “IC-56 GSC-D.2333”, “IC-56 GSC-D.2338”, “IC- 56 GSC-D.2351”, “IC-56 GSC-D.2362” to “IC-56 GSC-D.2365”, “IC-56 GSC-D.2409” to “IC-56 GSC-D.2410”, “IC-56 GSC- D.4380” to “IC-56 GSC-D.4396”, “IC-56 GSC-E.438”, “IC-56 GSC-E.855”, “IC-56 GSC-E.1293”, to “IC-56 GSC-E.1295”, “IC- 56 GSC-E.1967”, “IC-56 GSC-E.1969” to “IC-56 GSC-E.2447”, “IC-56 GSC-E.2936” to “IC-56 GSC-E.2942”, “IC-56 GSC-F.471”, “IC-56 GSC-F.851”, “IC-56 GSC-F.2201”, “IC-56 GSC-G.303”, “IC-56 GSC-G.918” to “IC-56 GSC-G.919”, “IC-56 GSC-G.1460”, “IC-56 GSC-G.2291”, “IC-56 GSC-G.2592” to “IC-56 GSC- G.2623”, “IC-56 GSC-G.2970” to “IC-56 GSC-G.2971”, “IC-56 GSC-G.3294” to “IC-56 GSC-G.3296”, “IC-56 CC-A.461”, “IC-56 CC-A.2895” to “IC-56 CC-A.2896”, “IC-56 CC-B.3600” to “IC-56 CC-B.3609”, “IC-56 CC-D.207”, “IC-56 CC-D.799”, “IC-56 CC- D.933”, “IC-56 CC-E.2927” to “IC-56 CC-E.3189”, “IC-56 CC- F.3330” to “IC-56 CC-F.3625”, “IC-56 CC-G.4260”, “IC-56 CC- H.792”, “IC-56 CC-H.2340” to “IC-56 CC-H.2353”, “IC-56 CC- H.3711” to “IC-56 CC-H.3712”, “IC-56 CC-J.443” to “IC-56 CC- J.679”, “IC-56 CC-J.860” to “IC-56 CC-J.861”, “IC-56 CC-J.1069”, “TC-56 CC-J.2643” “IC-56 CC-K.2333” to “IC-56 CC-K.2341”, “TC-56 ZC-A.3”, “IC-56 ZC-A.1595”, “IC-56 ZC-A.2320”, “IC-56 ZC-A.2349”, “IC-56 ZC-A.2448”, “IC-56 ZC-A.2471”, “IC-56 ZC- A.2576”, “IC-56 ZC-A.2598”, “IC-56 ZC-A.2605”, “IC-56 ZC- A.2609”, “IC-56 ZC-A.2861”, “IC-56 ZC-A.3212”, “IC-56 ZC- A.6175” to “IC-56 ZC-A.6218”, “IC-56 ZC-B.837”, “IC-56 ZC- C.1498”, “IC-56 ZC-D.1904” to “IC-56 ZC-D.1910”, “IC-56 IL- C.2245” to “IC-56 IL-C.2247”, “IC-57.6”, “IC-57.8”, “IC-57.19” to “TC-57.20”, “IC-57.22”, “IC-57.24”, “IC-57.53”, “IC-57.60” to “TC-57.67", “IC-57.130”, “IC-57.174”, “IC-57.232”, “IC-57.235” to “IC-57.250”, “IC-57.271”, “IC-58.104”, “IC-58.204” to “IC- 58.320”, “IC-58.323”, “IC-58.333” to “IC-58.341”, “IC-60B.84” “IC-61A.266”, “IC-61A.640” to “IC-61A.642”, “1C-61A.692”, “IC-61A.695”, “IC-61A.707” to “IC-61A.710”, “IC-61B.874” to “IC-61B.891”, “IC-61.50”, “IC-61.65”, “IC-61.172” to “ICy

61.174", "IC-61.270", "IC-63.3" to "IC-63.5", "IC-63.22" to "IC- 63.31", "IC-63.50", "IC-63.63" to "IC-63.65", "IC-63.77" to "IC- 63.78", "IC-63.88", "IC-63.91", and "IC-63.174" to "IC-63.175" for not being found in the records;

b. Exhibit "IC-56 CC-1.2085", for failure of the exhibit formally offered to correspond with the document actually marked; and

c. Exhibits "P-61B.926" to "P-618.1412", for failure to pre-mark the exhibits.

Respondent then presented his witness, RO Rona B. Marcellano, on 22 August 2019.36 She testified on the events that transpired during the audit investigation of petitioner as well as the procedures she performed in coming up with the assessments. She attested as to the veracity of the FLD/F ANs issued against the same.37 She also stated that the BIR issued a Final Decision on Disputed Assessment ("FDDA"),38 which she alleged was received by petitioner on 7 August 2015.

Respondent filed his FOE on 29 August 2019.39 Thereafter, petitioner filed its Comment [On the Respondent's Formal Offer of Evidence] on 10 September 2019. 40 On 27 September 2019, the Court in Division issued a Resolution denying respondent's exhibits for failure to pre-mark the same. 41 Hence, respondent filed his Omnibus Motion for Reconsideration and Motion to Set the Case for a Commissioner's Hearing on 18 October 2019.42 In the said Omnibus Motion, respondent asked the Court in Division to set the case for Commissioner's Hearing in order to have his exhibits marked and to be allowed to refile his FOE. The Court granted the Omnibus Motion through its Resolution dated 6 December 2019.43 Respondent refiled his FOE on 21 January 2020.~ 36 Minutes of Hearing; id., p. 2733.

37 Exhibit "R-17"; Division Records Vol. 5, 2624-2632. 38 Exhibit "R-16''; BIR Records Folder 2, pp. 779-785. 39 Respondent's Formal Offer of Evidence; Division Records Vol. 6, pp. 2736-2742. 4° Comment [On the Respondent's Formal Offer of Evidence]; id., pp. 2744-2751. 41 Resolution dated 27 September 2019; id., pp. 2755-2756. 42 Omnibus Motion for Reconsideration and Motion to Set the Case for a Commissioner's Hearing; id., pp. 2757-2761.

43 Resolution dated 6 December 20 19; id., pp. 2770-2772. 44 Respondent's Formal Offer of Evidence; id., pp. 2776-2782.

On 3 March 2020, the Court in Division admitted all of respondent's offered exhibits. Likewise, the parties were ordered to file their respective Memoranda.45 Petitioner filed its Memorandum on 30 June 2020.46 As for respondent, he posted his Manifestation on 1 July 2020, stating that he would adopt his Answer as his Memorandum.47 Thereafter, the case was submitted for decision on 14 July 2020.48 Hence, this Decision.

The Issue49

WHETHER

RESPONDENT'S

FINDINGS

HAVE

FACTUAL AND LEGAL BASES PURSUANT TO SECTION

228 OF THE TAX CODE;

WHETHER

PETITIONER

WAS

SUFFICIENTLY

INFORMED IN WRITING OF THE LAW AND FACTS ON

WHICH

THE

ALLEGED

DEFICIENCY

TAX

ASSESSMENTS WERE BASED;

WHETHER

PETITIONER

IS

LIABLE

FOR

COMPROMISE PENALTY;

WHETHER THE RIGHT OF RESPONDENT TO

ASSESS PETITIONER FOR DEFICIENCY INTERNAL

REVENUE TAXES HAS PRESCRIBED; AND

WHETHER PETITIONER IS

LIABLE TO PAY

RESPONDENT

P112,572,390.00

REPRESENTING

DEFICIENCY IT, VAT, EWT, AND WTC, INCLUSIVE OF INTERESTS AND COMPROMISE PENALTY FORTY 2010.

Arguments of the Parties

Petitioner's Arguments50

Petitioner argues that the assessments issued against it are void. It explains that the ROs who conducted its audit and recommended the issuance of the FLD/F ANs, specifically, RO Rona B. Marcellano and GS Herminia C:..t

Cercado, are not authorized pursuant to an LOA but only through an MOA. It argues that the MOA cannot replace the LOA in conferring authority to the investigating ROs.

Likewise, it posits that the assessments lack factual and legal bases, since the same are only based on presumptions and/or estimates. It opines that the discrepancies are only due to timing differences, errors made in the invoices (e.g. incorrect input of TIN, name of customer, or amount recorded on the invoice), differing accounting methods used by the petitioner and its customers, erroneous treatment of its sales discounts as taxable sales, and improper application of the provisions of the Tax Code, among others. Considering this, it contends that it should not be held liable for deficiency taxes since it can easily explain or reconcile the said findings and that the same do not correspond to a taxable event. It also notes that the third- party information on which the VAT assessment is based was not verified and, therefore, should be declared void.

Petitioner insists that it was not sufficiently informed in writing of the laws and the facts on which the assessments were based. It explains that respondent failed to inform it on how the assessment items were computed and that it was forced to determine by itself the reason for the alleged discrepancies.

Further, petitioner counters the imposition of the compromise penalty against it. It explains that compromise penalty is for settlement of criminal liability which is only paid upon mutual agreement of the taxpayer and respondent. Here, since it refuses to pay the same, it contends that it should not be made liable to pay the said penalty.

Finally, petitioner points out that the assessments issued against it had already prescribed, rendering the same without effect.

Respondents' Counter-Arguments51

Respondent argues that he observed both procedural and substantive due process in issuing the assessments. He insists that petitioner was well informed of the factual and legal bases of his findings. He opines that his assessments are a product of the ROs' comprehensive audit of petitioner's books of accounts and other accounting records. He states that the audit conducted is in line with the mandate of the Tax Code, including the matching of petitioner's SLS and SLP with that of its customers and suppliers, respectively. He insists that petitioner failed to present sufficient evidence and valid argument to rebut the discrepancies he had noted).

Further, respondent contradicts petitioner's claim that the assessments had already prescribed. He explains that petitioner executed 2 Waivers which validly extended the assessment period until30 June 2014. Respondent emphasizes that the assessments issued against petitioner are presumed valid and were made in good faith. Thus, absent proof of any irregularities in the performance of the RO's official duties, he argues that the same must be upheld.

The Ruling of the Court

The Court in Division can rule on related issues necessary to achieve an orderly disposition of the case.

Section 1, Rule 14 ofthe RRCTA is clear that the CTA is empowered to resolve related issues, even those not raised by the parties, in order to achieve an orderly disposition of the case, to wit: "SECTION I. Rendition of judgment. - x xx In deciding the case, the Court may not limit itself to the issues stipulated by the parties but may also rule upon related issues necessary to achieve an orderly disposition of the case. " 52 The said rule was affirmed by the Supreme Court in Commissioner of Internal Revenue v. Lancaster Philippines, Inc. (hereinafter referred to as "Lancaster Case"), 53 to wit:

"On whether the CT A can resolve an issue which was not raised by the parties, we rule in the affirmative.

Under Section I, Rule 14 of A.M. No. 05-11-07-CTA, or the Revised Rules ofthe Court of Tax Appeals, the CT A is not bound by the issues specifically raised by the parties but may also rule upon related issues necessary to achieve an orderly disposition of the case. The text of the provision reads:

SECTION 1. Rendition of judgment. - x xx In deciding the case, the Court may not limit itself to the issues stipulated by the parties but may also rule upon related issues necessary to achieve an orderly disposition of the case.

The above section is clearly worded. On the basis thereof, the CTA Division was. therefore. well within its authority to consider in its :.l 52 Emphasis supplied.

decision the question on the scope of authority of the revenue officers who were named in the LOA even though the parties had not raised the same in their pleadings or memoranda. The CT A En Bane was likewise correct in sustaining the CTA Division's view concerning such matter 5 4 Based on the foregoing law and jurisprudence, it is clear that the CT A has the requisite authority to rule upon related issues necessary to achieve an orderly disposition of the case.

Here, the focal point of the issues raised by the parties boils down to the validity of the assessments. In Commissioner of Internal Revenue v. Ale Mart Corporation,55 the CTA En Bane explained that the question as to the propriety of the assessment necessarily includes the resolution on whether the same contains a definite due date/demand for payment. The relevant pronouncement of the Court is hereby quoted, to wit: "Section I, Rule 14 of the Revised Rules of the Court of Tax Appeals definitely provides that this "Court may not limit itself to the issues stipulated by the parties but may also rule upon related issues necessary to achieve an orderly disposition of the case." This was affirmed in Commissioner oflntemal Revenue v. Lancaster Philippines, Inc., where the Supreme Court categorically declared that this Court could resolve an issue not raised by the parties. Consequently, it is well-settled that this Court, in deciding a case, is not limited by the issues raised or agreed upon by the parties in their respective pleadings. It may also consider other related matters to dispose of a case on the merits.

Moreover, we agree with respondent's argument that since the crux of the controversy in the present case is the validity of the subject deficiency tax assessments, the issue on whether the FAN/FLD contains a definite date of payment of deficiency tax liabilities is a related issue that should be resolved by this Court regardless if the same was particularly raised by the parties in their pleadings or during trial. The rationale for this is that the existence of a definite date of payment in an FLD/FAN complies with the "demand for payment" requirement in deficiency tax assessments. As such, the existence of such definite date of payment in an FLD/F AN is necessary for the validity of a deficiency tax assessment. Hence, this Court is duty bound to find if a definite date of payment is present in an FLD/FAN, a sub-issue requisite to the resolution of the main issue, which is the validity of a deficiency tax assessment.

In other words, the factual issue on the presence of a definite date of payment in an FLD/F AN is already subsumed under the general issue in the present case. i.e., the validity of the deficiency tax assessments issued against respondent, such that there is no more need to specifically identify the same in the pleadings filed by the parties or to manifest the same during trial. On this note, petitioner cannot claim that he was denied due process since by agreeing in the Joint Stipulation of Facts and Issues that the main issue to be tried in the present case is whether respondent is liable for the subject deficiency tax assessments, he impliedly :,l 54 Emphasis supplied.

agreed that other matters that would go into the validity of the deficiency tax assessments, which include the issue on whether the subject FLD/F AN contains a definite date for payment, would be considered by this Court."56 Given the foregoing, it is clear that the Court in Division has the necessary authority to resolve the issue pertaining to the validity of the assessments, specifically, on whether the same constitutes a definite demand for payment within the prescribed period.

The FLD and its corresponding FANs issued against petitioner lack a definite date for payment.

Section 3.¹.3 of Revenue Regulation ("RR'') No. 12-99, as amended by RR No. 18-1357 defines the FLD/F AN as an issuance "calling for payment of the taxpayer's deficiency tax or taxes" and where "the facts, the law, rules and regulations, or jurisprudence on which the assessment is based" are stated. The Supreme Court went on further to emphasize in Commissioner of Internal Revenue v. Pascor Realty and Development Corporation, et. a/. 58 that the assessment must contain "not only a computation of tax liabilities, but also a demand for payment within a prescribed period". Succinctly, in Commissioner of Internal Revenue v. Fitness By Design, Inc. (hereinafter referred to as "Fitness Case''),59 the High Court ruled that an assessment without a definite demand for payment is considered invalid. It discussed certain instances when the FLD/F AN may be considered defective due to the said reason, to wit:

"A final assessment notice provides for the amount of tax due with a demand for payment. This is to determine the amount of tax due to a taxpayer. However, due process requires that taxpayers be informed in writing of the facts and law on which the assessment is based in order to aid the taxpayer in making a reasonable protest. To immediately ensue with tax collection without initially substantiating a valid assessment contravenes the principle in administrative investigations "that taxpayers should be able to present their case and adduce supporting evidence."

XXX

XXX

XXX

The disputed Final Assessment Notice is not a valid assessment). 56 Emphasis supplied.

57 Amending Certain Sections of Revenue Regulations No. 12-99 Relative to the Due Process Requirement in the Issuance of a Deficiency Tax Assessment, 28 November 2013.

Page 14 ofl7 First, it lacks the definite amount of tax liability for which respondent is accountable. It does not purport to be a demand for payment of tax due, which a final assessment notice should supposedly be. An assessment, in the context of the National Internal Revenue Code, is a "written notice and demand made by the [Bureau of Internal Revenue] on the taxpayer for the settlement of a due tax liability that is there definitely set and fixed." Although the disputed notice provides for the computations of respondent's tax liability, the amount remains indefinite. It only provides that the tax due is still subject to modification, depending on the date of payment. Thus: The complete details covering the aforementioned discrepancies established during the investigation of this case are shown in the accompanying Annex I of this Notice. The 50% surcharge and 20% interest have been imposed pursuant to Sections 248 and 249 (B) of the [National Internal Revenue Code], as amended. Please note, however, that the interest and the total amount due will have to be adjusted if prior or beyond April15, 2004.

Second, there are no due dates in the Final Assessment Notice. This negates petitioner's demand for payment. Petitioner's contention that April 15, 2004 should be regarded as the actual due date cannot be accepted. The last paragraph of the Final Assessment Notice states that the due dates for payment were supposedly reflected in the attached assessment:

In view thereof, you are requested to pay your aforesaid deficiency internal revenue tax liabilities through the duly authorized agent bank in which you are enrolled within the time shown in the enclosed assessment notice. However, based on the findings of the Court of Tax Appeals First Division, the enclosed assessment pertained to remained unaccomplished.

Contrary to petitioner's view, April 15, 2004 was the reckoning date of accrual of penalties and surcharges and not the due date for payment of tax liabilities. The total amount depended upon when respondent decides to pay. The notice, therefore, did not contain a definite and actual demand to pay.

Compliance with Section 228 of the National Internal Revenue Code is a substantive requirement. It is not a mere formality. Providing the taxpayer with the factual and legal bases for the assessment is crucial before proceeding with tax collection. Tax collection should be premised on a valid assessment, which would allow the taxpayer to present his or her case and produce evidence for substantiation." To recapitulate, jurisprudence, the Tax Code, and Tax Regulations all highlight that, in order to be valid, an assessment must, at the very least, contain 1) a computation of the tax liability, 2) an explanation narrating respondent's factual and legal bases, and 3) a definite demand for payment.)

As for the third requirement, it is imperative that the assessment contains a definite amount of tax liability for which the taxpayer will be held accountable in paying and a due date.

In this case, a perusal of the FLD/F ANs60 issued to petitioner proves that the same do not constitute a definite demand for payment for lack of due date. The relevant portion of the FLD is hereby quoted, to wit: "FORMAL LETTER OF DEMAND BERRINGER MARKETING, INC.

I 0 Dona Natividad Bldg.

Quezon A venue

Quezon City

TIN: 000-078-229

Gentlemen:

Please be informed that after investigation there has been found due from you deficiency income tax value added tax, expanded withholding tax and withholding tax on compensation for calendar year 20 I 0, as shown hereunder:

XXX

XXX

XXX

*Please note that the interest and the total amount due will have to be adjusted if paid beyond Apri130, 2014.

The complete details covering the aforementioned discrepancies established during the investigation of this case are shown in the accompanying ANNEXA-I.

XXX

XXX

XXX

In view thereof, you are requested to pay your aforesaid deficiency tax liabilities through the duly authorized agent bank in which you are enrolled within the time shown in the enclosed assessment notice."61 As can be gleaned above, the FLD does not have a due date. The FLD merely states respondent's request for petitioner to pay the deficiency tax liabilities through the authorized agent bank within the time shown in the FANs.

However, the portion of each FAN where the due dates were supposed to be indicated were all left blank. Even the Details of Discrepancies enclosed with the FLD/F ANs has no specific period when the payment should be made :A- 60 Exhibits "P-3" to "P-8" and "R-13" to "R-14"; BlR Records Folder 2, pp. 728-740. 61 Emphasis supplied.

The date found in the FLD, 30 April2014, cannot be considered as the due date to pay the assessments. Consistent with the Supreme Court's ruling in the Fitness Case, the said date only serves as the end date for respondent's computation of the interest and penalty.

Considering that there are no due dates in the FLD/F ANs, it follows that the said assessments do not constitute a valid demand for payment as required under the Tax Code, Tax Regulations, and jurisprudence. As such, petitioner's obligation to pay the subject deficiency taxes did not legally accrue.

Having found the FLD/F ANs void, the Court will no longer discuss the other issues raised in the present petition.

WHEREFORE, premises considered, the Petition for Review ts hereby GRANTED.

Accordingly, the Formal Letter of Demand and Final Assessment Notices Nos. IT -2010-00016, VT -2010-00016, WE-20 10-00013, and WC- 20 10-00012 finding petitioner liable for deficiency Income Tax, Value-Added Tax, Expanded Withholding Tax, and Withholding Tax on Compensation in the aggregate amount of Pll²,572,390.00, inclusive of interest and penalties, for taxable year ("TY") 2010, and the resulting Final Decision on Disputed Assessment, are hereby CANCELLED and SET ASIDE. Consequently, respondent is hereby ENJOINED and PROHIBITED from collecting the said amount against petitioner.

WE CONCUR:

MARIA

ER~P.UY

Associate Justice

{At. ,J,t.. - 4 <...__

Justice

MA. BELEN M. RINGPIS-LIBAN

Associate Justice

•

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the

Court's Division

ER~P.UY

Associate Justice

Chairperson

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...t