FBDC Tax Deficiency Case

THIRD DIVISION
[C.T.A. CASE NOS. 7696 & 7728. July 15, 2015.]
FORT BONIFACIO DEVELOPMENT CORPORATION, petitioner,

vs. COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
RINGPIS-LIBAN, J : p
This is a Petition for Review 1(1) filed by Fort Bonifacio Development

Corporation seeking to set aside and cancel the deficiency tax assessments of the
respondent Commissioner of Internal Revenue in the total amount of
P234,613,502.74, representing its deficiency Value-Added Tax (VAT), Withholding
Tax on Compensation (WTC), Expanded Withholding Tax (EWT), Documentary
Stamp Tax (DST), Final Withholding Tax on Fringe Benefits (FBT) and Income Tax
for taxable year 2003, broken down as follows:
Type of Tax Basic Interest Total
Value-Added Tax P43,599,988.80 P26,446,678.14P70,046,666.94 2(2)

Withholding Tax on 18,359,638.41 11,186,804.3329,546,442.74 3(3)
Compensation
Expanded 24,152,761.91 14,716,641.7838,869,403.69 4(4)
Withholding Tax
Final Withholding 3,938,395.64 2,399,723.81 6,338,119.45 5(5)
Tax on Fringe
Benefits
Documentary Stamp Tax 7,774,970.37 4,780,009.18 12,554,979.55 6(6)
Income Tax 48,302,723.51 28,955,166.8677,257,890.37 7(7)
–––––––––––––– ––––––––––––– ––––––––––––––
Copyright 1994-2016 CD Technologies Asia, Inc. Taxation 2015 1
Total P146,128,478.64 P88,485,024.10 P234,613,502.74
============= ============ =============
STATEMENT OF FACTS
Petitioner Fort Bonifacio Development Corporation (FBDC) is a domestic

corporation duly registered with the Securities and Exchange Commission and
existing under and by virtue of the laws of the Republic of the Philippines, with
principal office address at 2nd Floor, Bonifacio Technology Centre, 31st St., corner
2nd Ave., Bonifacio Global City, Taguig City, Metro Manila. 8(8)
Respondent Commissioner of Internal Revenue (CIR) is the duly appointed

head of the Bureau of Internal Revenue (BIR) empowered, among others, to decide on
disputed deficiency internal revenue tax assessments, with office address at the Office
of the Commissioner of Internal Revenue, BIR National Office Building, Agham
Road, Diliman, Quezon City, Metro Manila. 9(9)
On February 23, 2005, the BIR issued Letter of Authority (LOA) No. 2001
00012957 10(10) to Revenue Officer Joseph Christian B. Santos, authorizing him to
examine FBDC's books of accounts and other accounting records for taxable year
2003. By virtue of the said LOA, respondent sent several requests for presentation of
records/documents 11(11) and letter 12(12) requesting for the submission of
additional documents to FBDC.
On November 30, 2006, the BIR issued a Notice of Informal Conference

13(13) to FBDC and subsequently, the BIR issued a Preliminary Assessment Notice
14(14) (PAN) to FBDC, finding it liable to pay deficiency Value Added Tax (VAT) in
the amount of P70,046,666.93, Withholding Tax on Compensation (WC) in the
amount of P29,546,442.74, Expanded Withholding Tax (EWT) in the amount of
P38,869,403.69, Final Withholding Tax on Fringe Benefits (FBT) in the amount of
P6,338,119.46, Documentary Stamp Taxes (DST) in the amount of P12,554,979.55.
On January 2, 2007, 15(15) the BIR issued to FBDC a Formal Letter of

Demand (FLD) and Assessment Notice Nos. VT-03-00021, 16(16) WC-03-000094,
17(17) EWT-03-000171, 18(18) DST-03-000151, 19(19) and FBT-03-000041 20(20)
for FBDC's deficiency VAT, WC, EWT, DST, and FBT, respectively. Then, on April
13, 2007, 21(21) the BIR issued another FLD with Details of Assessment and the
corresponding Assessment Notice No. INC-03-000186 against FBDC, finding a

deficiency income tax assessment in the amount of P77,257,890.37. 22(22)
The details of the computations for the alleged deficiency tax assessments are
as follows: 23(23)
A. VALUE ADDED TAX
On Leases
Leases LCR Beg P39,491,000.00
Add: Sales 186,226,299.00
Less: Ending 88,832,000.00
Gross Receipts on Leases 136,885,299.00
during the year
Add: Underdeclared P49,349,180.23
receipts SLS vs. CRB
Advancerent per CRB 27,226,990.58 76,576,170.81
On Sales of Real Estate
Collections pertaining to 1,119,084,846.36
principal
Interest Receivable beg. 55,968,000.00
Interest, Inc. — Install Sales 75,558,726.00
per Return
Interest Receivable End 20,634,000.00 110,892,726.00
Others
Realized forex gain 17,274,198.00
Gain on sale of property 830,652.00
Other receivables Beg. 56,810,000.00
Development Control Fees 3,804,675.00
Marketing and
management Fees 1,280,048.00
Miscellaneous 394,209.00 5,478,932.00
Other receivables End 59,617,000.00 2,671,932.00
Gross Receipts subject to VAT 1,464,215,824.17
Output tax per audit 146,421,582.42
Output tax per return 111,167,313.78
Output tax still due 35,254,268.64
Other findings
Disallowed utilization of
Presumptive input VAT
Output VAT 111,167,313.78
Less
Input VAT claimed for 55,140,862.46
the Year
VAT payments for the year 51,281,906.17 106,422,768.63
Amount claimed from 4,744,545.15
presumptive Input
Disallowed
Disallowed Input Tax — 3,552,470.45
invalid taxpayers
Disallowed Input Tax —
FBDC Supp. Per SLP 48,704.56
Amount still due 43,599,988.80
Surcharge
Interest 1/27/2004 to 26,446,678.14
1/31/2007
Compromise
––––––––––––––
Deficiency VAT P70,046,666.93
=============
B. WITHHOLDING TAX — COMPENSATION
Total Expenses subject to withholding P82,164,831.35

tax — compensation
Less: Exempt transactions:
Non-taxable 13th month P684,179.16
SSS, GSIS, Pag-Ibig 381,207.35 1,065,386.51
–––––––––––– ––––––––––––
Total transactions subject to w/tax 81,099,444.84
Less transactions subject to w/tax
Taxable Salaries 23,863,323.51
Taxable 13th Month 519,118.17 24,382,441.68
–––––––––––– ––––––––––––
Transactions not subject to w/tax — 56,717,003.16
compensation
Rate 32%
Withholding tax still due 18,149,441.01
Add: Other findings
Late filing of March 03 return
Base 705,224.01

Surcharge 176,306.00
Interest 8 days 3,091.39
Compromise 20,000.00
Professional Fees received by
JMK Lim
Per 1601 C 569,100.00
Per 1601 E 90,000.00
––––––––––
Taxable Income 659,100.00 175,912.00
Tax Withheld per 1601C 147,112.00
Tax Withheld per 1601E 18,000.00 165,112.00 10,800.00
Amount still due P18,359,638.41
Surcharge
Interest 1-15-04 to 1-31-07 P11,186,804.33
Compromise 11,186,804.33
–––––––––––––
Deficiency W/T Compensation P29,546,442.74
============
C. EXPANDED WITHHOLDING TAX
EWT due on Actual Expenses P30,021,558.86

subject to withholding
EWT due on expenses 13,646,035.55
subjected to withholding
EWT still due based on 16,375,523.31
expenses not subjected to
withholding tax
Add: Other audit findings
b. *(24) Alphalist vs. SLP 7,126,786.67
discrepancy
c. Discrepancy in 119,898.65
taxpayer's Alphalist
(erroneous computation
d. Late filing of the 1601E
March 03
Basic 1,893,167.26
e. Late filing of 1604E 2003 25,000.00
Surcharge
Interest 7 days 14,716,641.78
–––––––––––––
Deficiency EWT P38,869,403.69
============
D. DOCUMENTARY STAMP TAX:
Base Rate DST Due

On Leases (Sales per P3/P2000;
Return) P186,226,299.00 P1/P1000 P186,225.30
On Sale of Properties
New 143,238,190.00 P15/P1000 2,148,572.85
Cash Sales 471,758,685.45 P15/P1000 7,076,380.28
Other Contracted
Agreements
Transfer of Lot to 152,60,000.00 *(25) P15/P1000 2,289,000.00
CWDC
Management P3/P2000;
Agreement w/Related 1,106,000.00 P1/P1000 1,113.00
Parties
Management P3/P2000;
Agreement other than 29,733,000.00 P1/P1000 29,734.00
Related Parties
Advances to Affiliates 579,744,000.00 P0.30/P200 869,616.00
per cash Flows
––––––––––––
Total 12,600,641.43
Payments 4,825,671.06
DST Still Due 7,774,970.37
Surcharge
Interest 1-05-04 to 1-31-07 4,780,009.18
Compromise
–––––––––––––
DST Still Due P12,554,979.55
============
E. FINAL WITHHOLDING TAX — FRINGE BENEFITS

Representation and Entertainment P5,734,965.00
Transportation and Travel 350,399.00
Membership Fees 2,653,534.00
8,738,898.00
0.68
Grossed up value 12,851,320.59
Rate 0.32
Fringe benefits tax due 4,112,422.59
FBT Payments 174,026.94
Surcharge
Interest 1-15-04 to 1-31-07 2,399,723.81
––––––––––––
Deficiency Final Withholding Tax — Fringe Benefits P6,399,723.81
===========
F. INCOME TAX
Revenues Per ITR
Realized revenue on sale of real estate P1,205,596,247.00

Lease of Properties 186,226,299.00
Interest on installment contracts
Sales
Non operating & other income
Dividend from foreign subsidiary 450,000,000.00
Interest in installment sales 75,558,726.00
Development control fees 3,804,675.00
Marketing & management fees 1,280,048.00
Miscellaneous 394,209.00
1,940,965,054.00
Cost and expenses

Cost of real estate sold 938,062,042.00
Total General and Administrative Expenses 805,039,304.00
Marketing and Selling
Commissions 37,961,444.00

Others/(Advertising per ITR) 5,625,871.00
1,786,688,661.00
INCOME FROM OPERATIONS 154,276,393.00
Tax Due 49,368,445.76
payments: Unexpired Payment MCIT 49,368,445.76
a. Disallowed expenses not subjected to withholding tax
On Compensation 56,717,003.16
On Expanded Withholding Tax 16,375,523.31
On Fringe Benefits Tax (Expense) 8,738,898.00
b. Discrepancy in interest income on installment
contract per FS vs. ITR
Per F/S 76,150,000.00
Per ITR 75,558,726.00 591,274.00
c. Overclaimed Retirement expense-per monthly trial balance final
Retirement expenses disallowed 3,379,382.00
(debits to retirement plan expense)
Retirement cost added back to 1,003,000.00 2,376,382.00
taxable income per recon
d. Interest Arbitrage Computation
(Non deductible expense)
Interest Income subject to final tax
Interest, Inc. — ST
Investment TB taken from worksheet aud. 9,861,790.74
Interest, Inc. — ST
Investment TB taken from worksheet aud. 2,927,553.26
Interest, Inc. — Bank Deposits 592,264.48
––––––––––––
TOTAL 13,381,608.48
Grossed Up value at 80% 16,727,010.60
Rate 0.38
Interest Deduction 6,356,264.03
Claimed as non deductible 2,694,884.00
interest exp.
Discrepancy — Additional non
deductible portion of interest expense 3,661,380.03
e. Debit to Miscellaneous Income
(Batch 108747)
Reduction of income account while 62,485,550.46
reducing the advances-metro pacific

(asset) account
–––––––––––––
Total 150,946,010.96
Rate 32%
Still Due P48,302,723.51
Surcharge
Interest (April 16, 2004 to April 15, 2007) 28,955,166.86
Compromise
–––––––––––––
Deficiency Income Tax P77,257,890.36
============
On February 5, 2007, or within the reglementary period, FBDC

administratively protested against the alleged deficiency VAT, WC, EWT, FBT, and
DST assessments by filing a protest letter dated February 2, 2007 with the BIR. 24(26)
Likewise, on May 10, 2007, or within the reglementary period, FBDC
administratively protested against the deficiency income tax assessment by filing a
protest letter dated May 9, 2007 with the BIR. 25(27) ICHDca
On March 30, 2007 and on July 9, 2007, FBDC submitted additional

documents to the BIR in support of its protest against the said deficiency VAT, WC,
EWT, FBT, and DST, 26(28) and income tax 27(29) assessments.
However, respondent CIR did not act upon the protest of FBDC against the
alleged deficiency VAT, WC, EWT, FBT, and DST assessments within the 180-day
period provided for under Section 228 of the National Internal Revenue Code of 1997,
as amended (NIRC of 1997, as amended). The said 180-day period expired on
September 26, 2007. 28(30) Similarly, respondent CIR did not act upon the protest of
FBDC against the alleged deficiency income tax assessment within the 180-day period
which expired on January 5, 2008. 29(31)
Thus, on October 26, 2007 30(32) and February 4, 2008, 31(33) respectively,
FBDC filed the present Petitions for Review.
On February 14, 2008, FBDC filed its "Ex Parte Motion for Consolidation",
32(34) where it prayed for the consolidation of the trial of CTA Case Nos. 7228 and
7696. The Court granted the aforesaid motion in the Resolution 33(35) dated June 4,
2008.

In CTA Case No. 7696, respondent CIR raised the following special and
affirmative defenses: 34(36)
"VALUE-ADDED TAX (VAT)
6. Petitioner derives income primarily on the sale of real estate, lease of

buildings and interest on installment contracts wherein bulk of its operations,
however, are centered on sale of real properties. A gross underdeclaration of
output VAT was arrived at amounting to P35,524,268.64 after identifying items
subject to VAT on its cash receipts module such as advance rent and gross
comparison between items declared per cash receipts module and summary list
of sales for the year. It is worthy to note that petitioner's summary list of sales
coincide with the output VAT declaration it made for the year.
6.1 Collections pertaining to principal on sale of properties were identified as

well as gross receipts on interest thereto which were aptly subjected to output
tax. Other miscellaneous items such as development control fees, marketing
management fees were taken from the company's abstract ledger and subjected
to VAT.
6.2 On input taxes, there was a disallowance of applied presumptive input tax
for the year amounting to P4,744,545.15 arising from a Court of Appeals
decision (CA G.R. No. 615117) affirming the fact that petitioner is not entitled
to presumptive input as this arose from 8% beginning inventory on which real
estate companies are entitled to such on improvements only based on Section
4.105-1 of Revenue Regulations 7-95. Petitioner based its claim on inventory of
lots.
6.3 Another issue on disallowed input taxes were sources of input on which
P3,552,470.45 and P48,704.56 were accounted for as unregistered/invalid
taxpayers. Thus, deficiency VAT were assessed thereon amounting to
P70,046,666.93 inclusive of increments.
WITHHOLDING TAX ON COMPENSATION
7. Discrepancies in withholding tax on compensation were arrived at after an

analysis of petitioner's general ledger. The examiners closely identified items
which have an impact in the computation of its withholding taxes then matched
the figure total with the amount declared per alphabetical listing form 1604CF.
The total transactions not subjected to withholding tax on compensation
amounted to P56,717,003.16 or deficiency exposure of P18,149,441.01.
7.1 Additional findings were late filing of one of its returns in which a
corresponding surcharge was incorporated in the discrepancy. Other
discrepancies include one of petitioner's employees receiving both
compensation and professional income with different application of withholding
taxes. The said employee's compensation being subjected to graduated rates per
Section 24 of the NIRC of 1997 and professional income using expanded
withholding taxes. Both sources of income were treated as part of the
employee's compensation as clearly defined in Section 32 of the NIRC of 1997.
Thus, deficiency withholding taxes on compensation amounted to
P29,546,442.74 inclusive of increments. TCAScE
EXPANDED WITHHOLDING TAXES
8. Expenses subject to expanded withholding taxes per Revenue Regulations

2-98 as amended by Revenue Regulations 17-2003 and clarified by Revenue
Memorandum Circular 72-04 as disclosed by petitioner per returns, financial
statements and general ledger were duly accounted for. The figures were
matched against its alpha list of expanded withholding taxes and any
discrepancies arising therefrom were assessed for deficiency expanded
withholding tax for the year.
8.1 Other audit findings include matching inconsistencies on petitioner's

summary list of purchases and alphabetical list of EWT Form 1604E wherein
unmatched figures (purchases not equal to income payment) were assessed for
non-withholding or a total discrepancy of P7,126,786.87.
8.2 Other findings include computation errors per alpha list amounting to
P119,898.65 and two (2) accounts of late filing of returns and alpha list. Total
deficiency taxes on expanded withholding tax amounted to P38,869,403.69
inclusive of increments.
FINAL WITHHOLDING TAX — FRINGE BENEFITS
9. Transportation and travel expenses, membership fees and representation

and entertainment expenses subject to final withholding tax on fringe benefits
were assessed pursuant to Section 33 of the NIRC of 1997, Revenue
Regulations 2-98 and Revenue Regulations 3-98 or a total deficiency of
P6,338,119.46 inclusive of increments.
DOCUMENTARY STAMP TAX (DST)
10. Certain transactions were subjected to DST which include sale and lease
of real properties entered into during the year. These are subject to DST
pursuant to Sections 180, 194 and 196 of the NIRC of 1997. Other transactions

include management agreement transactions and certain advances treated as
extended loans. Deficiency DST amounted to P12,554,979.55 inclusive of
increments.
11. Petitioner was duly informed of the facts and the law on which the
assessments are based. Contrary to its assertion, the Formal Letter of Demand
did not merely contain the computation of the tax deficiencies and the interest
due thereon rather, the complete details of the assessments were attached to the
Formal Letter of Demand showing the facts and the law on which the
assessments were made. . . . Moreover, in accordance with the policy of
respondent to give taxpayers opportunity to present their side of the case, a letter
dated 30 November 2006 was sent to petitioner and duly received by it on 4
December 2006, inviting it for an informal conference to enable it to go over the
findings and present objections, if any, as well as to submit whatever evidence it
may have.
12. The assessments for deficiency VAT and DST were issued within the
prescriptive period. Examination of petitioner's books of accounts and financial
statements showed substantial underdeclarations of taxable sales and receipts.
Such underdeclaration constitutes prima facie evidence of a false or fraudulent
return as provided under Section 248 (B) thus:
xxx xxx xxx
Therefore, since it has been established that petitioner falsely underdeclared its
returns, the right of the Government to collect the deficiency taxes has not yet
prescribed. The Government is given, in such cases, a period of ten (10) years to
assess and collect taxes under Section 222 (A) which provides thus:
xxx xxx xxx
13. The assessments for deficiency withholding tax on compensation has not
yet prescribed. The corresponding expense portion of the findings was
disallowed through a separate Final Assessment Notice issued to petitioner for
income tax under Assessment Notice No. INC-03-000186 which was received
on 13 April 2007. Furthermore, petitioner cannot raise the issue of prescription
since the assessment was made based on the annual method (all expenses
subject to withholding tax compensation for the entire year were accounted as
one) and not on a monthly basis of computing withholding tax liability. It must
be observed that although monthly withholding taxes are required to be remitted
on the 10th day of the following month, it is not until a final adjustment return
shall have been filed that the taxes paid thereon are considered final. . . .

14. As can be gleaned from petitioner's annual information return (1604CF)
there were certain adjustments made on the last month of the year to correct its
withholding tax liabilities. This is manifested as overwithheld taxes which it
corrected through reduction of remittances for December, its final return. In
other words, petitioner's monthly returns filed from January to November are
not true representations of all its transactions subject to withholding tax for the
year.
15. Finally, the assessment was prepared based on the declarations made by
petitioner on its alphalist of expenses subject to withholding tax (1604CF and
1604 E) and not on petitioner's monthly returns. Since petitioner's declarations
in its alphalist didn't match its declared monthly returns, it is imminent to use
the alphalist data since it is the final declaration of petitioner after considering
all its adjustments for the year. cTDaEH
16. The deficiency assessments for expanded withholding tax and final
withholding tax — fringe benefits have not yet prescribed. Petitioner cannot
raise the defense of prescription since the assessments were made based on the
annual method (all expenses subject to expanded withholding tax for the entire
year were accounted as one) and not on a monthly basis of computing
withholding tax liability. It must be observed that although monthly withholding
taxes are required to be remitted on the 10th day of the following month, it is
not until a final adjustment return has been filed that the taxes paid thereon are
considered final tax due. Neither amount can serve as the final figure to quantify
what is correctly due the government. Finally, the assessments were prepared
based on the declarations made by petitioner on its alphalist of expenses subject
to withholding tax (1604CF & 1604E) and not on petitioner's monthly return.
Since petitioner's declaration in its alphalist didn't match its declared monthly
returns, it is imminent to use the alphalist data since it is the final declaration of
petitioner after considering all of its adjustments for the year. . . ."
On the other hand, in CTA Case No. 7728, respondent CIR raised the
following special and affirmative defenses: 35(37)
"SPECIAL AND AFFIRMATIVE DEFENSES
5. Petitioner was sufficiently informed in writing of the law and facts on

which the deficiency income tax was made.
xxx xxx xxx
6. The assessment issued against petitioner is valid being supported by

factual and legal bases.
xxx xxx xxx
Based on the investigation conducted by revenue officers, petitioner derives

income primarily on sale of real estate, lease of buildings and interest on
installment contracts. Bulk of its operations, however, are centered on sale of
real properties. Details of discrepancies are briefly outlined hereunder:
a. Disallowed expenses not subject to Withholding taxes —

certain expenses claimed by petitioner for the year have been
found to not being subjected (sic) to withholding taxes: On
compensation — P56,717,003.16; on EWT — 16,375,523.31;
on Final withholding tax (Fringe Benefits) — P8,738,898.00.
These items were disallowed pursuant to Section 34(K) of the

NIRC of 1997 which states that any amount paid or payable
which is otherwise deductible from gross income shall be
allowed as a deduction only if it is shown that the tax required to
be deducted and withheld therefrom has been paid to the Bureau
of Internal Revenue and implemented by RR 2-98;
b. Discrepancy in the amount of P591,274.00.
Said amount was found to have been unreported on Interest

income per Income tax against per Audited Financial Statements.
Said unreported income is subject to Income tax pursuant to
Section 32 of the NIRC of 1997;
c. Portion of retirement expenses claimed during the year were

disallowed since there is no BIR letter of approval of the
retirement plan provided by the taxpayer in line with compliance
requirements of RA 4917.
Retirement expenses charged to income amounting to

P2,376,382.00 were disallowed as the net of retirement cost
were added back by petitioner per FS-ITR reconciliation;
d. Understatement on non-deductible portion of interest

expense in the amount of P3,661,380.03.
Such amount was disallowed because the Interest income subject

to final tax was verified to be understated which is used as basis

for the non-deductible portion of interest expense as covered by
the underlying provisions of Section 34(B) of the NIRC of 1997;
e. Debits to Miscellaneous Income in the amount of

P62,485,550.46.
A close scrutiny of their entries per monthly trial balance would

reveal a reduction to miscellaneous income account with a
corresponding decrease to their advances (asset) account
understated the income subject to income tax under Section 32 of
the NIRC of 1997. The amount of P62,485,550.46 was added
back to taxable income under the same provision. cSaATC
7. The unexpired or unapplied Minimum Corporate Income Tax (MCIT) may

only be considered in computing income tax liability if verified and supported
by records and computations.
In the instant case, petitioner failed to substantiate its alleged MCIT, hence the
issuance of the assessment.
xxx xxx xxx
On June 19, 2008, the parties filed their respective consolidated pre-trial briefs
36(38) and on August 4, 2008, the parties filed their Joint Stipulation of Facts and
Issues. 37(39)
In support of its Petitions, FBDC presented the following witnesses: Ms.

Jennifer P. Salvador 38(40) — Financial Analyst for Tax of FBDC; Atty. Rosario S.
Bernaldo 39(41) — Court Commissioned Independent Certified Public Accountant;
Ms. Jenette S. Basister 40(42) — Sales Administrative Assistant of FBDC; and Ms.
Anna Lisa P. Mesina 41(43) — Finance Manager under the comptrollership group of
FBDC.
FBDC likewise filed its Formal Offer of Evidence 42(44) on January 29, 2013.
In the Court's Resolution 43(45) dated March 18, 2013, the Court admitted as evidence
Exhibits "A" to "DDD", "FFF" to "TTT-1", "UUU" to "SSSS-44-a", "SSSS-65" to
"SSSS-68-a", "AAAAA", "AAAAA-1", "BBBBB", "BBBBB-1", "BBBBB-2" to
"BBBBB-11", "CCCCC", "CCCCC-1", "CCCCC-2" to "CCCCC-9", "FFFFF" to
"HHHHH", "JJJJJ" to "MMMMM-11", "OOOOO" to "WWWWW-8",
"WWWWW-10", "WWWWW-12", "WWWWW-13", "WWWWW-14",
"WWWWW-16", "XXXXX" to "DDDDDD", "EEEEEE" to "FFFFFF-3",
"GGGGGG-2" to "MMMMMM", "OOOOOO" to "UUUUUU", "EEE", "EEE-1",
"EEE-3" to "EEE-7-a", "SSSS-50", "SSSS-50-a", "SSSS-51", "SSSS-51-a",
"BBBBB", "BBBBB-1", "CCCCC", "CCCCC-1", "DDDDD", "DDDDD-1",
"EEEEE", "EEEEE-1", and "EEEEE-2" to "EEEEE-4-a". However, Exhibits
"TTT-1-a" to "IIIII", "GGGGGG" and "GGGGGG-1" for failure to have the said
exhibits identified during trial; Exhibits "SSSS-45" to "SSSS-49", "SSSS-51",
"SSSS-51-a" to "SSSS-64-a", "NNNNN", "WWWWW-9", "WWWWW-11",
"WWWWW-15" and "DDDDDD-1", for failure of FBDC submit the original
document for comparison; Exhibits "TTTT-1", "TTTT-2.1" to "TTTT-2.65",
"UUUU-1" to "UUUU-17", "VVVV-1" to "WWWW-3", "XXXX-1", "XXXX-2",
"XXXX-7", "XXXX-8", "XXXX-11", "XXXX-15", "XXXX-18", "XXXX-2.1" to
"XXXX-2.12", "YYYY-1.1" to "YYYY-1.545" and "NNNNNN" for failure of FBDC
to present the duly marked exhibits and for failure to show whether the documents
presented were originals, faithful reproductions of the originals, or mere photocopies;
and Exhibits "XXXX-3" and "XXXX-6", for failure of FBDC to present the duly
marked exhibits, for failure to have the said exhibits identified during trial, and for
failure to show whether the documents presented were originals, faithful
reproductions of the originals, or mere photocopies.
On April 16, 2013, FBDC filed its motion for reconsideration 44(46) and in the
Resolution 45(47) July 25, 2013, the Court admitted Exhibits "NNNNNN" and "IIIII"
but still denied the admission of Exhibits "TTTT-1", "TTTT-2.1" to "TTTT-2.65",
"UUUU-1" to "UUUU-17", "VVVV-1" to "WWWW-3", "XXXX-1", "XXXX-2",
"XXXX-7", "XXXX-8", "XXXX-11", "XXXX-15", "XXXX-18", "XXXX-2.1" to
"XXXX-2.12". Subsequently, on August 14, 2013, FBDC filed its omnibus motion
46(48) which prayed for the admission of the above-denied exhibits, among others. In
the Court's Resolution 47(49) dated January 14, 2014, the Court resolved to admit
Exhibits "TTTT-1", "TTTT-2.1" to "TTTT-2.65", "UUUU-1" to "UUUU-17",
"VVVV-1" to "WWWW-3", "XXXX-1", "XXXX-2", "XXXX-7", "XXXX-8",
"XXXX-11", "XXXX-15", "XXXX-18", "XXXX-2.1", "XXXX-2.12" and
"YYYY-1.1" to "YYYY-1.545". However, Exhibits "XXXX-2.2" to "XXXX-2.11"
were denied admission for failure to present the duly marked exhibits and for failure
to show whether the documents presented were originals, faithful reproductions of
originals, or mere photocopies.
On the other hand, respondent presented her witness Joseph Christian B.

Santos 48(50) — Revenue Officer IV — Regular Large Taxpayers Audit Division II
of the BIR. Moreover, respondent filed its Formal Offer of Evidence 49(51) and in this
Court's Resolution 50(52) dated February 17, 2014, the Court admitted Exhibits "1 to
14, and 20 to 26-A", inclusive of sub-markings. However, Exhibits "15, 16, 16-A, 17,
17-A, 18, 18-A and 19" were denied admission by the Court for failure of respondent
to submit the originals for comparison.
On March 4, 2014, respondent filed her motion for partial reconsideration

51(53) and on May 2, 2014, the Court issued a Resolution 52(54) granting respondent's
partial motion for reconsideration and admitting Exhibits "15, 16, 16-A, 17, 17-A, 18,
18-A and 19".
On August 13, 2014, the respondent filed her memorandum 53(55) while
FBDC failed to file the same. Consequently, in this Court's Resolution 54(56) dated
July 31, 2014, the case was deemed submitted for decision.
Hence, this Decision. cHDAIS
THE ISSUES
The parties submitted the following issues 55(57) for this Court's resolution:
1. Whether or not petitioner is liable for deficiency VAT in the

amount of P70,046,666.93; 56(58)
2. Whether or not petitioner is liable for deficiency Withholding Tax

on Compensation in the amount of P29,546,442.74;
3. Whether or not petitioner is liable for deficiency Expanded

Withholding Tax in the amount of P38,869,403.74; 57(59)
4. Whether or not petitioner is liable for deficiency DST in the

amount of P12,554,979.55;
5. Whether or not petitioner is liable for deficiency Final Withholding

Tax — Fringe Benefits in the amount of P6,399,723.81; 58(60)
6. Whether or not petitioner is liable for deficiency Income Tax for

taxable year 2003 in the amount of P77,257,890.37;
7. Whether or not petitioner was sufficiently informed in writing of

the law and facts on which the assessments were made;

8. Whether or not the right of the respondent to assess has prescribed;
9. Whether or not the deficiency tax assessments have factual and

legal bases; and
10. Whether or not the unexpired Minimum Corporate Income Tax

(MCIT) of petitioner from prior periods should be considered in
determining the actual deficiency income tax liability of petitioner,
if there is any.
11. Whether or not FBDC was sufficiently informed in writing of the

law and facts on the basis of which the alleged deficiency tax
assessments were made.
12. Whether or not the right of the respondent to assess for the alleged
deficiency tax assessments has prescribed.
13. Whether or not the alleged deficiency tax assessments issued

against FBDC has factual and legal bases.
14. Whether or not the unexpired Minimum Corporate Income Tax

(MCIT) of petitioner from prior periods should be considered in
determining the actual deficiency tax income liability of FBDC, if
there is any.
From the foregoing, there are three (3) main issues to be resolved by the Court:
(1) Whether or not the right of the respondent to assess has prescribed; (2) Whether or
not the assessment has factual and legal bases sufficient to inform petitioner thereof;
and (3) Whether or not respondent CIR is correct in assessing petitioner for deficiency
VAT, DST, WTC, EWT, FBT and Income Tax for taxable year 2003 in the aggregate
sum of P234,613,502.74.
THE COURT'S RULING
I. Whether or Not the Right of the

Respondent to Assess
Petitioner's Deficiency VAT and
DST has Prescribed
Deficiency VAT

Petitioner alleges that for taxable year 2003, it filed its Quarterly VAT Returns
on the following dates: 59(61)
Taxable Quarter Date Filed Last Day to File

(2003) Return
1st Quarter April 24, 2003 April 25, 2003
2nd Quarter July 24, 2003 July 25, 2003
3rd Quarter October 27, 2003 October 27, 2003
4th Quarter January 26, 2004 January 26, 2004
With respect to DST, petitioner argues that for purposes of the 3-year
prescriptive period, the counting of the period to assess deficient DST shall be
reckoned from the date the DST return subject of the deficiency tax assessment was
actually filed. 60(62) ISHCcT
On the other hand, respondent argues that her right to assess petitioner's
deficiency VAT and DST has not yet prescribed considering the falsity of petitioner's
returns. Thus, respondent has 10 years after the discovery of the falsity, within which
to assess petitioner, pursuant to Section 222 (a) of the National Internal Revenue Code
of 1997, as amended (NIRC of 1997, as amended). 61(63)
Section 203 in relation to Section 114 (A) of the NIRC of 1997, as amended,
and Section 4 (3) of Revenue Regulations No. 06-01 (RR 06-01), respectively
provide:
"SEC. 203. Period of Limitation Upon Assessment and Collection.

— Except as provided in Section 222, internal revenue taxes shall be assessed
within three (3) years after the last day prescribed by law for the filing of the
return, and no proceeding in court without assessment for the collection of such
taxes shall be begun after the expiration of such period: Provided, That in 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."
"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: . . ."
"(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 xxx xxx
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 25th
day following the end of each quarter." (Emphasis supplied)
Under the afore-quoted provisions, a VAT taxpayer has twenty-five (25) days
following the close of each taxable quarter within which to file a VAT return. In
relation thereto, the CIR has three (3) years from the day the return was filed within
which to assess. Furthermore, it is likewise provided that if 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.
On the other hand, in case of false returns, the CIR has 10 years from the date
of discovery of the falsity of the return within which to assess a taxpayer under
Section 222 (a) of the NIRC of 1997, as amended.
In the leading case of Jose B. Aznar v. Court of Tax Appeals and Collector of
Internal Revenue, 62(64) the Supreme Court characterized a false return as mere
deviation from truth. Hence, to determine whether there is a deviation from what
should have appeared in petitioner's returns vis a vis the application of the 3-year or
10-year prescriptive period of respondent's right to assess, the Court shall examine the
pieces of evidence submitted by petitioner.
Meanwhile, considering that the determination of whether petitioner filed false

returns is intertwined with the correctness of the assessments, the Court shall likewise
proceed to determine the correctness thereof.

Based on the FLD 63(65) dated January 2, 2007, respondent computed the
deficiency VAT assessment as follows:
On Leases
Leases LCR Beg P39,491,000.00
Add: Sales 186,226,299.00
Less: Ending 88,832,000.00
––––––––––––––
Gross Receipts on Leases during the year P136,885,299.00
Add: Underdeclared receipts SLS vs. CRB P49,349,180.23
Advance rent per CRB 27,226,990.58 76,576,170.81
––––––––––––––
Collections pertaining to principal 1,119,084,846.36
Interest Receivable Beg. P55,968,000.00
Interest, Inc. — Install Sales per Return 75,558,726.00
Interest Receivable End (20,634,000.00) 110,892,726.00
–––––––––––––
Others
Other receivables Beg. P56,810,000.00

Development Control Fees P3,804,675.00
Marketing and Management Fees 1,280,048.00
Miscellaneous 394,209.00 5,478,932.00
–––––––––––––
Other receivables End (59,617,000.00) 2,671,932.00
––––––––––––– ––––––––––––––––
Gross Receipts subject to VAT P1,464,215,824.17
Output tax per audit P146,421,582.42
Output tax still due P35,254,268.64
Other findings
Disallowed utilization of Presumptive
input VAT
Output VAT P111,167,313.78
Less
Input VAT claimed for the Year P55,140,862.46
VAT Payments for the year 51,281,906.17 106,422,768.63

––––––––––––– –––––––––––––
Amount claimed from Presumptive 4,744,545.15
Input Disallowed
Disallowed Input Tax — invalid taxpayers 3,552,470.45
Disallowed Input Tax — FBDC Supp. Per SLP 48,704.56
–––––––––––––
Surcharge -
Interest 1/27/2004 to 1/31/2007 26,446,678.14
Compromise - 26,446,678.14
––––––––––––– ––––––––––––––––
Deficiency VAT P70,046,666.94
64(66)
===============
Based from the above computation, the basic deficiency VAT assessment of
P43,599,988.80 arose from the following: CAacTH
A. Output VAT on the discrepancy in gross P35,254,268.64

receipts subject to VAT per audit vs. per returns
B. Disallowed presumptive input VAT 4,744,545.15
C. Disallowed input tax — invalid taxpayers 3,552,470.45
D. Disallowed input tax — FBDC supplier per SLP 48,704.56
–––––––––––––
P43,599,988.80
============
A. Output VAT on the Discrepancy
in Gross Receipts Subject to
VAT per Audit vs. per Returns —
P35,254,268.64
Respondent's verification disclosed that petitioner's taxable gross receipts for

the year 2003 amounted to P1,464,215,824.17, obtained from the following income
accounts:
1. Leases;
2. Sales of Real Estate including Interest Income on Installment Sales

and;
3. Other Income which included:

a. Realized Forex Gain
b. Gain on sale of property
c. Development Control Fees
d. Marketing and Management Fees
e. Miscellaneous
Upon comparison of the P146,421,582.42 output VAT due on the aforesaid

gross receipts with the P111,167,313.78 output VAT reflected per petitioner's VAT
returns, respondent found an output VAT discrepancy in the amount of
P35,254,268.64.
On the other hand, petitioner maintains that the deficiency VAT assessment
lacks factual and legal bases and submitted the following arguments for each item of
incomes: 65(67)
1. Leases
a. According to petitioner, the examiners allegedly included in their

computation of gross receipts on leases subject to VAT those which are not subject
thereto, on account of the entitlement of certain lessees to tax incentives as
PEZA-registered enterprises.
Records show that petitioner presented the following pieces of evidence to

prove that their lessees are PEZA registered:
Name of Corporation Date of PEZA Certificate of

Registration
DATA Horizon Philippines May 3, 2002

(Exhibit "XXXXX")
NEC Telecom Software, Inc. May 17, 2001

(Exhibit "YYYYY")
VOCATIV SYSTEMS, INC. October 22, 2001

(Exhibit "MMMMMM")
Hatchasia.com, Inc. *Denied Admission by the Court in

(Exhibit "NNNNNN") the Resolution Dated March 18, 2013 66(68)
The foregoing pieces of evidence submitted by petitioner show that their

lessees were PEZA-registered on 2001 and 2002, respectively. However, FBDC failed
to show that its respective lessees were, in fact, still PEZA registered during 2003, the
taxable year subject of the present Petitions. Hence, the Court is constrained to accord
no probative value to the said pieces of evidence for being immaterial or irrelevant to
this case.
b. Petitioner alleged that respondent subjected to VAT common area usage

and service area expenses or common area dues and other reimbursable expenses
collected from tenants which are actually not subject to VAT. IAETDc
In this regard, petitioner presented the non-VAT official receipts 67(69) it

issued to lessees for collections of alleged common area allocations in the total
amount of P25,232,429.77 with VAT equivalent of P2,523,242.98.
The Court agrees with petitioner that reimbursements-at-cost (i.e., without any
mark-up or profit element to the lessor) for shared expenses such as utilities and other
maintenance expenses of the leased areas, do not constitute income but are amounts
held in trust by the lessor for the service providers. Thus, they should not form part of
the taxable gross receipts of the lessor. Nevertheless, petitioner has the burden to
prove whether its collections are mere reimbursements-at-cost in order to be excluded
from income and thus, not subject to VAT.
In the case of Commissioner of Internal Revenue vs. Tours Specialists, Inc. and
The Court of Tax Appeals, 68(70) the Supreme Court held that:
"As demonstrated in the above-mentioned case, gross receipts subject

to tax under the Tax Code do not include monies or receipts entrusted to
the taxpayer which do not belong to them and do not redound to the
taxpayer's benefit; and it is not necessary that there must be a law or regulation
which would exempt such monies and receipts within the meaning of gross
receipts under the Tax Code." (Emphasis supplied)
An examination of the non-VAT ORs submitted by petitioner reveals that they

were all dated during the year 2003 and that the collected amounts were for common
area dues, parking fees, electricity and water, among others. However, petitioner
failed to present evidence to prove that the collected amounts were mere
reimbursements-at-cost and that no amount of profit was added or charged by

petitioner. Thus, the Court cannot determine the veracity of the foregoing allegations.
For want of evidence, the alleged common area charges of P25,232,429.77

cannot be deducted from petitioner's taxable gross receipts.
c. The discrepancies between petitioner's Summary List of Sales (SLS) for

2003 and cash receipts book resulting in findings of under-declaration of gross
receipts were the possible results of timing difference.
Petitioner states that it records and remits the output tax due on certain rental
income upon issuance of the billing invoice and not upon receipt of payment, as if
payment was made during the same taxable period, whether the payment was actually
received or not.
It bears stressing that Section 108 (A) of the NIRC of 1997, as amended,
imposes 10% VAT on the use or lease of properties based on the lessor's gross
receipts as follows:
"SEC. 108. Value-added Tax on Sale of Services and Use or Lease of

Properties. —
"(A) Rate and Base of Tax. — There shall be levied, assessed and
collected, a value-added tax equivalent to ten percent (10%) of the gross
receipts, derived from the sale or exchange of services, including the use or
lease of properties.
xxx xxx xxx
The term 'gross receipts' means the total amount of money or its
equivalent representing the contract price, compensation, service fee, rental or
royalty, including the amount charged for materials supplied with the services
and deposits and advanced payments actually or constructively received
during the taxable quarter for the services performed or to be performed
for another person, excluding value-added tax." (Emphasis supplied)
Thus, a lessor's obligation to pay the VAT accrues from the time it received the
rental payment, and not upon issuance of the billing.
In the instant case, petitioner failed to present evidence to show that the under
declaration of gross receipts merely arose from the timing difference in petitioner's
recognition of income and the related output VAT. Thus, the Court finds no merit to

petitioner's argument.
d. The advance rental payments could have constituted security deposits paid
by tenants which are not subject to VAT.
The term gross receipts under Section 108 (A) of the NIRC of 1997, as
amended, states that these include 'deposits and advanced payments actually and
constructively received' during the taxable year. Therefore, the advance rental
payments received by petitioner during the year 2003 are subject to VAT in the
month/quarter of receipt. DcHSEa
e. Not all entries in the cash receipts module represent actual cash
collections subject to VAT.
In this regard, petitioner likewise failed to present evidence to support the

foregoing argument. Thus, the Court cannot consider the same. At any rate, the Court
notes that with regard to the manner by which respondent computed the discrepancy
arising from SLS vs. CRB in the amount of P49,349,180.23, and the advanced rent
per CRB in the amount of P27,226,990.58, the same resulted in petitioner's gross
receipts being subjected twice to deficiency VAT.
The Court observes that respondent's computation with respect to the line item
of "Output Tax per audit", is based on what respondent considers as the "should-be
gross receipts" of petitioner. On the other hand, the line item of "Output Tax per
return" is based on petitioner's VAT returns and SLS. Said comparison led to the
deficiency assessment.
The supplier comparison of SLS vs. CRB and addition of advanced rent per
CRB were unnecessary because the computation of "Leases LCR Beg + Sales -
Leases LCR ending" results in an all-encompassing amount representing the total
collections of petitioner, including the receipts per CRB and the advance rent per
CRB, and the output tax due therefrom already formed part of the "Output tax per
audit" figure.
In fine, respondent's assessment on the P49,349,180.23 discrepancy between

SLS and CRB and on the P27,226,990.58 advance rent per CRB in the total amount of
P76,756,170.81 should be cancelled and withdrawn due to incorrect double taxation.
2. Sales of Real Estate
With regard to the deficiency VAT assessment on real estate sales, petitioner
argued that the VAT discrepancy on the sale of real property is the possible result of
the timing difference inherent in the real estate business in complying with existing
revenue regulations as petitioner already reports and remits the full VAT on the sale
transactions where the buyer has already paid at least 25% of the selling price during
the initial year of sale. Moreover, petitioner states that for administrative convenience,
it remits the full VAT on the sale of its condominium units, regardless of whether
some actually qualify as installment sales.
Furthermore, petitioner points that the income on installment sale could

actually and possibly refer to interest receivables from intercompany advances of
petitioner to its subsidiaries. Some of the advances were intended as additional capital
contribution and/or deposit for future subscription. Since petitioner is not a lending
investor, dealer in securities, or financial institution, its interest receivable, if any,
from intercompany advances is not subject to VAT.
Again, petitioner's assertions are unsupported by documentary proof. Thus, the

Court has no basis to ascertain whether petitioner's assertions are correct.
On the other hand, the Court-commissioned Independent Certified Public

Accountant (ICPA), R. S. Bernaldo & Associates through its Partner, Ms. Rosario S.
Bernaldo, reported that interest income from certain installment sales were included
by the BIR examiners in their computation of gross receipts subject to VAT.
According to the ICPA, examination of the supporting documents provided by

petitioner showed that a certain portion of the collections pertaining to petitioner's sale
of lots amounting to P1,119,084,846.36 used by the BIR was already inclusive of the
interest income on installment sales. This actually refers to the sale of land in favor of
WAFCO Trading Corporation that yielded interest income in the amount of
P5,171,723.00. 69(71)
However, verification of the records shows that the supporting documents

referred to by the ICPA were not formally offered before this Court. Thus, the Court
cannot determine the veracity of the ICPA finding.
3. Other Income
Petitioner avers that the realized foreign exchange gain reported in its AITR is
connected with the intercompany advances it granted to its subsidiaries as these were
stated in foreign currency. Petitioner explained that when these advances were
restated in local currency at year end, foreign exchange gains were accordingly
recorded. It is petitioner's view that these realized foreign exchanges, being non-trade
in nature, are not subject to VAT.
However, petitioner failed to submit supporting documents to prove the actual

nature of its realized foreign exchange gain. In the absence of proof to the contrary,
the said realized foreign exchange gain shall be deemed to have been earned by
petitioner in the ordinary course of its business of leasing and sale of real properties
for the year 2003 and is subject to VAT pursuant to Section 105 in relation to Section
108 (A) of the NIRC of 1997, as amended. SCaITA
As to the development control fees, management and marketing fees, petitioner

stated that it has properly reported and remitted the VAT due thereon. However,
petitioner likewise failed to present evidence to support the same.
With respect to the gain on sale of property and equipment, petitioner did not
refute the findings of the respondent's examiner. Moreover, in the consolidated
Supreme Court (SC) cases of Mindanao I Geothermal Partnership and Mindanao II
Geothermal Partnership vs. Commissioner of Internal Revenue, 70(72) the SC
clarified the term and VAT treatment to an "incidental" transaction, to wit:
"Mindanao II asserts that the sale of a fully depreciated Nissan Patrol is

not an incidental transaction in the course of its business; hence, it is an isolated
transaction that should not have been subject to 10% VAT.
Section 105 of the 1997 Tax Code does not support Mindanao II's
position:
SEC. 105. Persons Liable. — Any person who, in the course

of trade or business, sells barters, exchanges, leases goods or properties,
renders services, and any person who imports goods shall be subject to
the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may
be shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services. This rule shall likewise apply to existing contracts
of sale or lease of goods, properties or services at the time of the
effectivity of Republic Act No. 7716.
The phrase "in the course of trade or business" means the regular
conduct or pursuit of a commercial or an economic activity, including
transactions incidental thereto, by any person regardless of whether or
not the person engaged therein is a nonstock, nonprofit private
organization (irrespective of the disposition of its net income and
whether or not it sells exclusively to members or their guests), or
government entity.
The rule of regularity, to the contrary notwithstanding, services

as defined in this Code rendered in the Philippines by non-resident
foreign persons shall be considered as being rendered in the course of
trade or business. (Emphasis supplied)
Mindanao II relies on Commissioner of Internal Revenue v. Magsaysay

Liner, Inc. (Magsaysay) and Imperial v. Collector of Internal Revenue
(Imperial) to justify its position. Magsaysay, decided under the NIRC of 1986,
involved the sale of vessels of the National Development Company (NDC) to
Magsaysay Lines, Inc. We ruled that the sale of vessels was not in the course of
NDC's trade or business as it was involuntary and made pursuant to the
Government's policy for privatization. Magsaysay, in quoting from the CTA's
decision, imputed upon Imperial the definition of "carrying on business."
Imperial, however, is an unreported case that merely stated that 'to engage' is to
embark in a business or to employ oneself therein.
Mindanao II's sale of the Nissan Patrol is said to be an isolated

transaction. However, it does not follow that an isolated transaction cannot be
an incidental transaction for purposes of VAT liability. Indeed, a reading of
Section 105 of the 1997 Tax Code would show that a transaction "in the course
of trade or business" includes "transactions incidental thereto." Mindanao II's
business is to convert the steam supplied to it by PNOC-EDC into electricity
and to deliver the electricity to NPC. In the course of its business, Mindanao II
bought and eventually sold a Nissan Patrol. Prior to the sale, the Nissan Patrol
was part of Mindanao II's property, plant, and equipment. Therefore, the sale of
the Nissan Patrol is an incidental transaction made in the course of Mindanao
II's business which should be liable for VAT."
The Gain on Sale of Property and Equipment (PE), as held in the above-quoted
case, is also considered incidental to petitioner's business since the said property was
once part of petitioner's PE.
Considering the foregoing, the Court finds that respondent has ample basis in
including in her computation of deficiency VAT, petitioner's other income, net of
receivables as of year-end in the amount of P20,776,782.00 representing the sum of
the realized forex gain of (i.e., P17,274,198 plus P830,652 plus P2,671,932), and the
interest income on installment sales in the amount of P110,892,726.00. aTHCSE

B. Disallowed Presumptive/Transitional
Input Tax — P4,744,545.15
According to petitioner, their presumptive input tax should not be disallowed

because of the favorable decision of the Supreme Court in G.R. No. 158885 dated
April 2, 2009. 71(73) The Court notes, however, that the same is not yet final and
executory as the opposing party submitted a Motion for Reconsideration therefore.
At any rate, the Court agrees with the raison d'être of the High Court in ruling
in favor of petitioner.
The SC stated that there is nothing in Section 105 of the Old NIRC that
prohibits the inclusion of real properties, together with the improvements thereon, in
the beginning inventory of goods, materials, supplies, based on which inventory the
transitional input tax credit is computed. This is based on the contention of
then-respondent that based on Section 4.105-1 of Revenue Regulations (RR) No. 7-95
wherein it was specifically stated that for real estate dealers, only the beginning
inventory pertaining to improvements made on real properties are to be given such
transitional input tax credit.
Accordingly, had Section 100 [of R.A. No. 7716] supplied any differentiation
between the treatment of real properties or real estate dealers and the treatment of the
transactions involving other commercial goods, then such differing treatment would
have constituted the statutory basis for the CIR to engage in such differentiation
which the respondent in the cited case sought to accomplish through Section 4.105-1
of RR 7-95. 72(74) Yet the amendments introduced by R.A. No. 7716 to Section 100,
coupled with the fact that the said law left Section 105 [now Section 111] intact,
reveal the lack of any legislative intention to make persons or entities in the real estate
business subject to a VAT treatment different from those engaged in the sale of other
goods or properties or in any other commercial trade of business.
Moreover, the SC disagreed with the Decisions of this Court and the Court of
Appeals (CA) that there is an underlying presumption that in order to avail of
transitional/presumptive input VAT on the beginning inventory of real estate dealers
who were subjected to VAT in 1996, there should be a sales tax that was previously
paid by petitioner in its purchase of inventory. However, since petitioner acquired the
land from the government in a VAT-exempt sale, this Court and the CA denied its
entitlement to transitional/presumptive input tax credit.

The SC proceeded to state that the transitional input tax credit operates to
benefit newly VAT-registered persons, whether or not they previously paid taxes in
the acquisition of their beginning inventory of goods, materials and supplies. During
that period of transition from non-VAT to VAT status, the transitional input tax
credits serves to alleviate the impact of the VAT on the tax on the taxpayer.
Considering the foregoing, the Court finds the cancellation of respondent's

assessment of deficiency VAT on petitioner's transitional input tax in the amount of
P4,744,545.15, to be in order.
C. Disallowed Input Tax due to Invalid

Taxpayers — P3,552,470.45;
D. Disallowed Input Tax due to Invalid

FBDC Supplier — P48,704.56
Based on petitioner's Summary List of Purchases (SLP) for the year 2003,
respondent disallowed petitioner's claimed input VAT in the amount of P3,552,470.45
because these input taxes were allegedly derived by petitioner on its purchases from
unregistered or invalid taxpayers, to wit: 73(75)
Supplier Input VAT Reason for disallowance

Aurora S. Bautista P6,227.27 Not VAT registered
Conrado S. Realubit 10,499.38 Registered only in 2005
Full Circle Communications 17,203.47 Registered only in 2005
Gligorick C. Garupa 71,061.15 Not VAT registered
I4 Trading & Advertising 3,927.14 Does not exist
JT Zhang & Company, Inc. 117.55 Not VAT registered
Magma Trading, Inc. 4,454.55 Not VAT registered
Makati Development Corp. 1,431.82 Not VAT registered
Manuel V. Pangilinan 24,450.00 Not VAT registered
Melanie Rita Galita 17,382.07 Not VAT registered
Mold Food Corp. 14.73 Percentage tax registered
Pasto Café & Bar, Inc. 69.42 Registered only in 2005
Philippine Health Insurance Corp. 630 Not VAT registered
RJ Calpo & Partners 54,000.00 Does not exist
Ricardo S. Pascua 1,410,459.76 Not VAT registered
Rudy S. Labos & Associates, Inc. 1,396,861.71 2004 Registered
Superfix Auto Concept 79,062.75 Does not exist

Will Decena and Associates 454,617.68 Percentage tax registered
––––––––––––
P3,552,470.45
===========
In its protest letter, 74(76) petitioner stated that it will be presenting VAT
invoices or official receipts to support the disallowed input tax. Further, petitioner
asserted that if indeed the said suppliers are invalid taxpayers, then the BIR should
collect the deficiency taxes from such invalid taxpayers and not from petitioner. To
require petitioner to substantiate its claimed input tax beyond and more than what the
VAT law requires would be unjust, discriminatory and burdensome on the part of
petitioner who has neither the means nor the resources to determine the validity of the
taxpayer's VAT invoices or official receipts, which are otherwise appearing to be
validly BIR approved receipts or invoices. cAaDHT
The Court partially finds for petitioner.
A VAT invoice or official receipt constitutes sufficient proof of creditable

input VAT on domestic purchases of goods or services, respectively, as provided for
under Section 110 (A) of the NIRC of 1997 [prior to its amendment under Republic
Act (RA) No. 9337], which states in part:
"SEC. 110. Tax Credits. —
(A) Creditable Input Tax. —
(1) Any input tax evidenced by a VAT invoice or official receipt

issued in accordance with Section 113 hereof on the following transactions
shall be creditable against the output tax:
xxx xxx xxx
(b) Purchase of services on which a value-added tax has been

actually paid.
(2) The input tax on domestic purchase of goods or properties shall be

creditable:
(a) To the purchaser upon consummation of sale and on

importation of goods or properties; and
xxx xxx xxx

However, in the case of purchase of services, lease or use of properties,
the input tax shall be creditable to the purchaser, lessee or licensee upon
payment of the compensation, rental, royalty or fee." (Emphasis supplied)
The Court observes that the word "or" in Section 110 (A) (1) indicates an
alternative. However, further reading of the above Section 110 (A) (1) (b) and Section
110 (A) (2) (a) reveals that input VAT on domestic purchases of goods or properties
shall be allowed as tax credit to the purchaser upon consummation of sale, which
means upon issuance by the seller of the VAT invoice evidencing the sale of goods
or properties. On the other hand, the input VAT on purchases of services shall be
available as tax credit to the purchaser only upon payment of the compensation or fee,
i.e., upon issuance by the seller of the VAT official receipt evidencing receipt of
the payment for services performed or yet to be performed.
In the case of AT&T Communications Services Philippines, Inc. vs.

Commissioner of Internal Revenue, 75(77) the Supreme Court held that a VAT sales
invoice must support the sale of goods or properties while a VAT official receipt must
substantiate the sale of services, thus:
"For emphasis, even prior to the enactment of R.A. No. 9337, which
clearly delineates the invoice and official receipt, our Tax Code has already
made the distinction.
Section 113 of the NIRC of 1997, as amended, is the focal provision, to

wit:
SEC. 113. Invoicing and Accounting Requirements for

VAT-registered Persons. —
(A) Invoicing Requirements. — A VAT-registered person shall,

for every sale, issue an invoice or receipt. In addition to the information
required under Section 237, the following information shall be indicated
in the invoice or receipt: (Emphasis supplied)
xxx xxx xxx
Although it appears under the above-quoted provision that there is no

clear distinction on the evidentiary value of an invoice or official receipt, it is
worthy to note that the said provision is a general provision which covers all
sales of a VAT registered person, whether sale of goods or services. It does not
necessarily follow that the legislature intended to use the same interchangeably.

The Court therefore cannot conclude that the general provision of Section 113
of the NIRC of 1997, as amended, intended that the invoice and official receipt
can be used for either sale of goods or services, because there are specific
provisions of the Tax Code which clearly delineates the difference between the
two transactions.
In this instance, Section 108 of the NIRC of 1997, as amended, provides:
SEC. 108. Value-added Tax on Sale of Services and Use or

Lease of Properties. — HCaDIS
xxx xxx xxx
(C) Determination of the Tax — The tax shall be computed by

multiplying the total amount indicated in the official receipt by
one-eleventh (1/11). (Emphasis supplied)
Comparatively, Section 106 of the same Code covers sale of goods, thus:
SEC. 106. Value-added Tax on Sale of Goods or Properties.

—
xxx xxx xxx
(D) Determination of the Tax. — The tax shall be computed by

multiplying the total amount indicated in the invoice by one-eleventh
(1/11). (Emphasis supplied)
Apparently, the construction of the statute shows that the legislature

intended to distinguish the use of an invoice from an official receipt. It is more
logical therefore to conclude that subsections of a statute under the same
heading should be construed as having relevance to its heading. The legislature
separately categorized VAT on sale of goods from VAT on sale of services, not
only by its treatment with regard to tax but also with respect to substantiation
requirements. Having been grouped under Section 108, its subparagraphs, (A) to
(C), and Section 106, its subparagraphs (A) to (D), have significant relations
with each other."
Considering that for the same transaction, the output VAT of the seller
becomes the input VAT of the purchaser, the law requires that the input VAT be
substantiated by the very same document on which the output VAT was based.
Accordingly, the input VAT on purchases of goods must be supported by VAT sales
invoices; while the input VAT on purchases of services must be supported by VAT
official receipts.
In order to be considered as valid VAT invoices or official receipts, the same

must contain all the information required under Section 113 (A) of the NIRC of 1997
[prior to its amendment under RA No. 9337], as amended, to wit:
"SEC. 113. Invoicing and Accounting Requirements for VAT

Registered Persons. —
(A) Invoicing Requirements. — A VAT-registered person shall, for

every sale, issue an invoice or receipt. In addition to the information required
under Section 237, the following information shall be indicated in the invoice or
receipt:
(1) A statement that the seller is a VAT-registered person, followed by

his taxpayer's identification number (TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to
the seller with the indication that such amount includes the value-added tax."
Corollary thereto, the pertinent portions of Section 4.108-1 of Revenue

Regulations No. 7-95, read as follows:
"SECTION 4.108-1. Invoicing Requirements. — All

VAT-registered persons shall, for every sale or lease of goods or properties or
services, issue duly registered receipts or sales or commercial invoices which
must show:
1. the name, TIN and address of seller;
2. date of transaction;
3. quantity, unit cost and description of merchandise or nature of

service;
4. the name, TIN, business style, if any, and address of the

VAT-registered purchaser, customer or client;
5. the word 'zero-rated' imprinted on the invoice covering zero-rated

sales; and
6. the invoice value or consideration.

xxx xxx xxx
Only VAT-registered persons are required to print their TIN followed by

the word 'VAT' in their invoice or receipts and this shall be considered as a
'VAT Invoice'. All purchases covered by invoices other than 'VAT Invoice' shall
not give rise to any input tax."
Such invoice or receipt must be duly registered with the Bureau of Internal
Revenue, as prescribed under Section 237 of the NIRC of 1997, which states: AHCETa
"SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. —

All persons subject to an internal revenue tax shall, for each sale or transfer of
merchandise or for services rendered valued at Twenty-five pesos (P25.00) or
more, issue duly registered receipts or sales or commercial invoices, prepared at
least in duplicate, showing the date of transaction, quantity, unit cost and
description of merchandise or nature of service: . . ."
In the present case, out of the disallowed input VAT of P3,552,470.45,

petitioner was able to substantiate by proper VAT official receipts, input VAT in the
total amount of P1,025,336.57 related to its domestic purchases of services, detailed
as follows:
Exhibit Supplier OR No. Date Amount

"CCCCC-1" Rudy S. Labos & Associates, Inc. 2325 4/4/2003 P7,640,000.00
"CCCCC-2" Rudy S. Labos & Associates, Inc. 2653 12/12/2003 397,766.75
"CCCCC-3" Rudy S. Labos & Associates, Inc. 2551 11/14/2003 95,717.19
–––––––––––––
Subtotal P8,133,483.94
Less: Amt received as w/tax refund (397,766.75)
–––––––––––––
Subtotal, as adjusted P7,735,717.19
"CCCCC-4" Super Fix Auto Concept 5626 3/13/2003 1,816.36
–––––––––––––
Subtotal P22,549.69
"CCCCC-7" Will Decena & Associates 1892 12/19/2003 1,325,724.50
–––––––––––––
Subtotal P3,520,435.44
Total Purchases of Services P11,278,702.32
Allowable Input VAT (1/11) P1,025,336.57
In addition, petitioner, through the Supplemental Judicial Affidavit 76(78) of its

Finance Manager, Ms. Anna Lisa P. Mesina, made the following observation with
regard to the disallowance of the input VAT of P1,410,459.76 (included in the total
input VAT disallowance of P3,552,470.45):
"(205)
Q: ...
A: . . . the input tax reported in the April 2003 VAT returns and SLP of FBDC
pertaining to Ricardo S. Pascua in the amount of P1,410,459.76, which was
disallowed by the BIR examiners for the reason that payee was not VAT
registered was actually corrected by the company in its May 2003 VAT returns
and SLP by adjusting its input tax credit deducting the amount of
P1,410,459.76, which was in fact considered in Exhibit "CCCCC" even by the
BIR examiners under the name of First Pacific Management Services, Inc. of
which Mr. Pascua was also associated with. Therefore, for the 2nd quarter
VAT returns of FBDC and its SLP for the months of April 2003 or Exhibits
"BBBBB-3" and May 2003 or "BBBBB-4", the said disallowed input tax was
already adjusted or taken out by FBDC."
The Court agrees with the petitioner.
A perusal of petitioner's SLP 77(79) for the year 2003 upon which respondent
based her disallowance of the P3,552,470.45 input VAT shows that the amount of
P1,410,459.76 appeared twice: 1) as an addition to petitioner's claimed input VAT
under the name of Ricardo S. Pascua; 78(80) and 2) as a deduction from petitioner's
claimed input VAT under the name of First Pacific Management Services, Inc. 79(81)
In other words, the amount of P1,410,459.76 was not claimed at all as input VAT by
petitioner for the year 2003 as this was zeroed-out by the addition and deduction of
the same amount. Thus, the deficiency VAT assessment in the amount of
P1,410,459.76 should be cancelled.
Based from the foregoing discussion, it appears that petitioner failed to

substantiate all of its claims against the assessment. However, does the failure of
petitioner to substantiate all of its allegations constitute deviation from truth so as to

categorize its returns as false? The Court does not believe so.
In other words, petitioner was able to prove that some of its claims were valid.
However, the fact that it was not able to present all the necessary pieces of evidence to
prove its claims against the assessment does not make its returns, per se, false. These
are evidentiary matters which militate upon the correctness of the assessment and not
upon the truth or falsity of petitioner's returns. ScHADI
Consequently, an examination of FBDC's filing of its quarterly VAT Returns in

relation to the 3-year period to assess by the respondent CIR is shown as follows:
Taxable Quarter Date Filed Last Day to File Last Day of the
(2003) Return 3-year Period to
Assess
1st Quarter 80(82) April 24, 2003 April 25, 2003 April 25, 2006
2nd Quarter 81(83) July 24, 2003 July 25, 2003 July 25, 2006
3rd Quarter 82(84) October 27, 2003 October 27, 2003 October 27, 2006
4th Quarter 83(85) January 26, 2004 January 26, 2004 January 26, 2007
In the instant case, records show that that the respondent CIR issued the FLD
on January 2, 2007. Hence, the Court finds that respondent's right to assess FBDC for
deficiency VAT for the 1st, 2nd and 3rd quarter of taxable year 2003 has already
prescribed.
In sum, petitioner is liable for basic deficiency VAT in the amount of

P28,889,366.59, computed as follows:
On Leases
Lease Contracts Receivable, Beg, net of VAT (P39,491,000.00/110%) P35,900,909.09
Add: Sales 186,226,299.00
Less: Lease Contracts Receivable, End, net of VAT (P88,832,000.00/110%) (80,756,363.64)
––––––––––––––––
Gross Receipts on Leases during the year P141,370,844.45

Collections pertaining to principal 1,119,084,846.36
Interest Receivable, Beg. P50,880,000.00
Interest, Inc. — Install Sales per Return 75,558,726.00
Interest Receivable, End (18,758,181.82) 107,680,544.18
––––––––––––––––
Others
Other receivables, Beg. P56,810,000.00

Development Control Fees P3,804,675.00
Marketing and management Fees 1,280,048.00
Miscellaneous 394,209.00 5,478,932.00
––––––––––––––––
Other receivables, End (59,617,000.00) 2,671,932.00
––––––––––––––––
––––––––––––––––
Gross Receipts subject to VAT

P1,388,913,016.99
––––––––––––––––
Output tax per audit P138,891,301.70
––––––––––––––––
Output tax still due P27,723,987.92
Other findings:
Disallowed Input Tax — invalid taxpayers P3,552,470.45

Less: Input Tax duly supported by VAT ORs (1,025,336.57)
Input Tax not claimed by petitioner 1,410,459.76 1,116,674.12
––––––––––––––––
Disallowed Input Tax — FBDC Supp. Per SLP 48,704.56
––––––––––––––––
Basic Deficiency VAT P28,889,366.59
================
Deficiency DST
On the other hand regarding the time of filing of returns for DST, Section 5 of
RR 06-01 provides:
"Section 5. Time for Filing of Documentary Stamp Tax Returns and the
Payment of Taxes Due Thereon. — . . .

(2) For large taxpayers, Section 4(3.6) of Revenue Regulations No.
1-98 is hereby amended to read as follows:
"Section 4. Filing of Returns and Payment of Taxes. —
3. When to File and Pay
3.6 Large taxpayers shall pay their documentary stamp taxes within five (5)
days after the close of the month when the taxable document was made, signed,
issued, accepted or transferred by the filing of the documentary stamp tax
returns, through purchase or actual affixture or by imprinting the documentary
stamps through a documentary stamp tax metering machine."
Based from the foregoing, petitioner has five (5) days after the close of the
month when the taxable document was made within which to file its DST Return. In
the present case, petitioner's transactions subject to DST, in relation to the 3-year
period to assess, are shown as follows:
Date of Transaction Last Day to File Last Day of the 3- Date of Issuance
Return year Period of FLD
October 27, 2003 November 5, 2003 November 5, 2006 January 2, 2007
(Exhibit "SSSS")
June 16, 2003 July 5, 2003 July 5, 2006 January 2, 2007
(Exhibit "SSSS-9")
(Exhibit "SSSS-16")
(Exhibit "SSSS-23")
November 27, 2003 December 5, 2003 December 5, 2006 January 2, 2007
(Exhibit "SSSS-30")
November 21, 2003 December 5, 2003 December 5, 2006 January 2, 2007
(Exhibit "SSSS-38")
As discussed earlier, the failure of petitioner to substantiate all its claims

against the assessment does not affect the truth or falsity of its returns and does not
constitute deviation from truth per se, though the same affects the correctness of the
assessment. Thus, the Court shall proceed in determining whether respondent's right
to assess deficiency DST had already prescribed and the appurtenant computation of
petitioner's deficiency DST. aICcHA

The Court notes that the reckoning date for counting the prescriptive period vis
a vis FBDC's DST is not from the date of the Deeds of Sale, but from the date of the
respective Contracts to Sell. Section 196 of the NIRC of 1997, as amended, provides:
"SEC. 196. Stamp Tax on Deeds of Sale and Conveyances of Real

Property. — On all conveyances, deeds, instruments, or writings, other than
grants, patents or original certificates of adjudication issued by the Government,
whereby any land, tenement or other realty sold shall be granted, assigned,
transferred, or otherwise conveyed to the purchaser or to any other person or
persons designated by such purchaser or purchasers, there shall be collected a
documentary stamp tax, at the rates herein below prescribed, based on the
consideration contracted to be paid for such realty or on its fair market value
determined in accordance with Section 6(E) of this Code, whichever is higher; .
. ."
In the instant case, FBDC argues that the DST covering its sale of properties
becomes due only upon the execution of its respective Deeds of Sale. 84(86)
However, it has been held that "DST is by nature, an excise tax since it is
levied on the exercise by persons of privileges conferred by law. These privileges may
cover the creation, modification or termination of contractual relationships by
executing specific documents like deeds of sale, mortgages, pledges, trust and
issuance of shares of stock." 85(87)
Considering the foregoing, the Court rules that DST liability attaches upon the
execution of FBDC's respective Contracts to Sell, because the same effectively
conveyed to its buyer certain rights to the property subject of the contract, although by
the very nature of FBDC's Contracts to Sell, the same are subject to the fulfillment of
a suspensive condition which is the full payment of the purchase price.
Thus, based on the table above, with respect to respondent's period within
which to assess, it appears that her right to assess FBDC with respect to the
above-illustrated sales transactions of FBDC had already prescribed.
To continue, respondent invoked Sections 180, 194 and 196 of the NIRC of
1997, as amended, to subject petitioner's DST to certain transactions entered into by
petitioner during the year 2003, which include lease and sale of real properties,
transfer of lot to Crescent West Development Corporation (CWDC), management
agreements and advances to affiliates. Below is the computation of the deficiency
DST assessment:
Base Rate DST Due
On Leases (Sales per Return) P186,226,299.00 P3/first

P2000;
P1/P1000 P186,225.30
On Sale of Properties
New 143,238,190.00 P15/P1000 2,148,572.85
Cash Sales 471,758,685.45 P15/P1000 7,076,380.28
Other Contracted Agreements
Transfer of Lot to CWDC 152,600,000.00 P15/P1000 2,289,000.00
Management Agreement w/ 1,106,000.00 P3/first 1,113.00

related parties P2000;
P1/P1000
Management Agreement other 29,733,000.00 P3/first 29,734.00

than related parties P2000;
P1/P1000
Advances to affiliates per cash flows 579,744,000.00 P0.30/P200 869,616.00

––––––––––––––
Total P12,600,641.43
Payments 4,825,671.06
––––––––––––––
Surcharge
Interest 1-05-04 to 1-31-07 4,780,009.18
Compromise
––––––––––––––
=============
A. Lease Agreements
With regard to petitioner's alleged agreements, petitioner asserts that the DST
due thereon is for the account of the lessee. However, verification of the records
shows that FBDC failed to present any evidence to prove that indeed, the DST

imposable upon its lease agreements were, in fact, for the account of the lessee. As
such, the Court has no basis to confirm the assertion of FBDC and accordingly, the
Court finds the deficiency assessment by the respondent with respect thereto is proper.
EHaASD
B. Sale of Properties
Evidence forwarded to this Court shows that the deficiency DST assessment on
petitioner's sales of properties pertain to the following:
Real property cash
sales 86(88)
Date Per Collections Contract FMV/Tax

Lessee Contract per BIR Price Base per
Exhibit
to Sell schedule 87(89) (Principal) return DST Date Paid
No.
Tecoma - 157,763,230.91 157,763,230.91 167,300,000.00 2,509,500.00 4/1/2003

"SSSS-
Corp. 45" to
"SSSS-
48"
Robinson's 10/27/2003 210,450,000.00 210,450,000.00 420,900,000.00 6,313,500.00 12/5/2003
"SSSS"
Land Corp. to
"SSSS-
8"
FANAL 10/27/2003 43,045,454.55 43,045,454.55 94,700,000.00 1,420,500.00 11/10/2003
"SSSS-
Holdings, 23" to
Inc.
"SSSS-
29"
Prudentialife 10/29/2003 60,500,000.00 60,500,000.00 110,000,000.00 1,650,000.00 6/4/2003
"SSSS-
Bank 16" to
"SSSS-
22"
––––––––––––– ––––––––––––– ––––––––––––– –––––––––––––
Sub-total 471,758,685.46 471,758,685.46 792,900,000.00 11,893,500.00
Real Property Deferred

Sale 88(90)
Date Per Collections Contract

Contract per BIR Price

Exhibit
Buyer to Sell schedule 89(91) (Principal) FMV DST Date Paid
No.
WAFCO 06/16/2003 48,593,440.91 139,760,000.00 174,700,000.00 2,620,500.00 8/2/2003
"SSSS-
Trading 9",
Corp.
"SSSS-
11" to
"SSSS-
14"
Grand 11/27/2003 81,495,635.45 132,550,000.00 265,100,000.00 3,976,500.00 1/20/2006
"SSSS-
Sequoia 30" to
Estate DC
"SSSS-
37"
Cirtek Land 11/21/2003 13,149,113.64 57,255,000.00 104,100,000.00 1,561,500.00 11/24/2005
"SSSS-
Corp. 38" to
"SSSS-
44"
––––––––––––– ––––––––––––– ––––––––––––– –––––––––––––
Sub-total 143,238,190.00 329,565,000.00 543,900,000.00 8,158,500.00
–––––––––––––
TOTAL P20,209,957.00
=============
As stated earlier, the deficiency DST assessment on petitioner's sale of

properties to Robinson's Land Corp., FANAL Holdings, Inc., Prudentialife Bank,
WAFCO Trading Corp., Grand Sequoia Estate DC and Cirtek Land Corp. had already
prescribed.
As regards petitioner's real property cash sale to Tecoma Corporation,

petitioner submitted supporting documents such as Deed of Absolute Sale,
Documentary Stamp Tax Declaration/Return (BIR Form No. 2000), BIR Tax Payment
Deposit Slip, Certificate Authorizing Registration and Tax Clearance Certificate.
However, the said documents which were provisionally marked as Exhibits
"SSSS-45" to "SSSS-49" were denied admission by this Court in the Resolution 90(92)
dated March 18, 2013 for petitioner's failure to submit the originals thereof for
comparison and since then petitioner did not include the said set of documents in its
Motion for Reconsideration.
Since the DST return pertaining to petitioner's sale to Tecoma had been denied
admission by the Court, it cannot be determined whether respondent's right to assess
petitioner of deficiency DST thereon had already prescribed.
However, as to whether or not petitioner had paid the DST due on the said sale,
the answer is in the affirmative.
Petitioner, in a letter 91(93) dated February 25, 2009 requested from the Chief,
Revenue Accounting Division of the BIR, a certification of payment and/or remittance
of DST due on certain sales of real properties located within Bonifacio Global City,
Taguig City, to certain buyers wherein petitioner was the seller thereof. Included in
the mentioned sales transactions was petitioner's sale of real property to Tecoma
Corporation for which an amount of P2,509,500.00 DST was allegedly paid.
A scrutiny of the Certification 92(94) issued by Ms. Evelyn C. De Guzman,

Chief, Revenue Accounting Division of the BIR, shows that the DST of
P2,509,500.00 was indeed paid by Tecoma Corporation and that such payment was in
fact remitted to the BIR.
Since the aforementioned DST payment of P2,509,500.00 is higher than the

assessed amount of P2,366,448.46 (P157,763,230.91 x P15/P1,000.00), it follows that
petitioner is not liable of any deficiency DST on its real property sale to Tecoma
Corporation.
C. Transfer of Lot to CWDC
The ICPA reported that on November 14, 2003, petitioner entered into a Deed
of Transfer with Crescent West Development Corporation (CWDC) for the transfer of
TCT No. 29504 under a tax-free transfer scheme that had been approved by the BIR
under BIR Ruling No. SN-007-2003 dated 24 January 2003. DST on the said
transaction amounting to P3,273,000.00 had been paid by petitioner on 24 November
2003. 93(95)
Records reveal that the aforesaid DST payment of P3,273,000.00 formed part
of the total amount of P4,825,671.06 DST payments deducted by respondent in
arriving at the basic deficiency DST assessment of P7,774,970.37. Below is the
breakdown of the P4,825,671.06 DST payment: 94(96) DaIAcC
Return Period Transaction Date DST Payment

1/30/2003 2/10/2003 102,553.40
2/24/2003 3/5/2003 349,193.64
4/11/2003 4/11/2003 231,439.42
7/8/2003 8/5/2003 234,545.45
8/27/2003 9/5/2003 270,499.24
11/14/2003 11/24/2003 364,439.91
11/14/2003 11/24/2003 3,273,000.00
––––––––––––
Total 4,825,671.06
===========
Inasmuch as the respondent herself recognized petitioner's payment of the DST

amount of P3,273,000.00, the deficiency DST assessment on the transfer of lot to
CWDC shall be cancelled.
D. Petitioner's Management Agreements
FBDC argues that DST may not be imposed upon its management contracts
within the contemplation Section 194 of the NIRC of 1997, as amended, which reads:
"SEC. 194. Stamp Tax on Leases and Other Hiring Agreements. —

On each lease, agreement, memorandum, or contract for hire, use or rent of any
lands or tenements, or portions thereof, there shall be collected a documentary
stamp tax of Three pesos (P3.00) for the first Two thousand pesos (P2,000), or
fractional part thereof, and an additional One peso (P1.00) for every One
thousand pesos (P1,000) or fractional part thereof, in excess of the first Two
thousand pesos (P2,000) for each year of the term of said contract or
agreement."
From the foregoing provision of the law, the phrase "contract for hire" was
used in reference to "any lands or tenements, or portions thereof". Verily, the Court
agrees with FBDC that it does not apply to any other contract aside from what was
contemplated therein.
However, verification of the records also shows that FBDC failed to present
these alleged management agreements upon which respondent imposed deficiency
DST. Hence, the Court cannot ascertain whether FBDC's management agreements
were in reference to any of its lands or tenements, or portions thereof, or in reference
to any other contract. As such, the Court finds the deficiency assessment by the
respondent with respect thereto is proper.
E. Petitioner's Advances to Affiliates per Cash Flows

In Commissioner of Internal Revenue vs. Filinvest Development Corporation,
95(97) the Supreme Court ruled that the intercompany loans, which are evidenced by
instructional letters and memos, are subject to DST under Section 180 of the NIRC of
1997, as amended, in relation to Section 173 of the same Code, to wit:
"On the other hand, insofar as documentary stamp taxes on loan

agreements and promissory notes are concerned, Section 180 of the NIRC
provides follows:
Sec. 180. Stamp tax on all loan agreements, promissory notes,

bills of exchange, drafts, instruments and securities issued by the
government or any of its instrumentalities, certificates of deposit bearing
interest and others not payable on sight or demand. On all loan agreements
signed abroad wherein the object of the contract is located or used in the
Philippines; bill of exchange (between points within the Philippines), drafts,
instruments and securities issued by the Government or any of its
instrumentalities or certificates of deposits drawing interest, or orders for the
payment of any sum of money otherwise than at sight or on demand, or on all
promissory notes, whether negotiable or non-negotiable, except bank notes
issued for circulation, and on each renewal of any such note, there shall be
collected a documentary stamp tax of Thirty centavos (P0.30) on each two
hundred pesos, or fractional part thereof, of the face value of any such
agreement, bill of exchange, draft, certificate of deposit or note: Provided, That
only one documentary stamp tax shall be imposed on either loan agreement, or
promissory notes issued to secure such loan, whichever will yield a higher tax:
Provided however, That loan agreements or promissory notes the aggregate of
which does not exceed Two hundred fifty thousand pesos (P250,000.00)
executed by an individual for his purchase on installment for his personal use or
that of his family and not for business, resale, barter or hire of a house, lot,
motor vehicle, appliance or furniture shall be exempt from the payment of
documentary stamp tax provided under this Section.
When read in conjunction with Section 173 of the 1993 NIRC, the
foregoing provision concededly applies to "(a)ll loan agreements, whether made
or signed in the Philippines, or abroad when the obligation or right arises from
Philippine sources or the property or object of the contract is located or used in
the Philippines." Correlatively, Section 3 (b) and Section 6 of Revenue
Regulations No. 9-94 provide as follows: TAacHE
Section 3. Definition of Terms. — For purposes of these

Regulations, the following term shall mean:

(b) 'Loan agreement' refers to a contract in writing where one
of the parties delivers to another money or other consumable thing, upon
the condition that the same amount of the same kind and quality shall be
paid. The term shall include credit facilities, which may be evidenced by
credit memo, advice or drawings.
The terms "Loan Agreement" under Section 180 and "Mortgage"

under Section 195, both of the Tax Code, as amended, generally refer to
distinct and separate instruments. A loan agreement shall be taxed under
Section 180, while a deed of mortgage shall be taxed under Section
195."
Section 6. Stamp on all Loan Agreements. — All loan

agreements whether made or signed in the Philippines, or abroad when
the obligation or right arises from Philippine sources or the property or
object of the contract is located in the Philippines shall be subject to the
documentary stamp tax of thirty centavos (P0.30) on each two hundred
pesos, or fractional part thereof, of the face value of any such
agreements, pursuant to Section 180 in relation to Section 173 of the Tax
Code.
In cases where no formal agreements or promissory notes have been

executed to cover credit facilities, the documentary stamp tax shall be based on
the amount of drawings or availment of the facilities, which may be evidenced
by credit/debit memo, advice or drawings by any form of check or withdrawal
slip, under Section 180 of the Tax Code.
Applying the aforesaid provisions to the case at bench, we find that the
instructional letters as well as the journal and cash vouchers evidencing the
advances FDC extended to its affiliates in 1996 and 1997 qualified as loan
agreements upon which documentary stamp taxes may be imposed. In keeping
with the caveat attendant to every BIR Ruling to the effect that it is valid only if
the facts claimed by the taxpayer are correct, we find that the CA reversibly
erred in utilizing BIR Ruling No. 116-98, dated 30 July 1998 which, strictly
speaking, could be invoked only by ASB Development Corporation, the
taxpayer who sought the same. In said ruling, the CIR opined that documents
like those evidencing the advances FDC extended to its affiliates are not subject
to documentary stamp tax, . . . ."
In the instant case, petitioner failed to present proof to show that it paid DST
on its advances to affiliates. Thus, the Court finds no reason to overturn respondent's
assessment of deficiency DST on petitioner's advances to its affiliates.
In sum, petitioner is liable for basic deficiency DST in the amount of
P1,086,684.30, as shown in the computation below:
Base Rate DST Due

On Leases (Sales per Return) P186,226,299.00 P3/P2000; P186,227.30
P1/P1000
Other Contracted
Agreements
Management Agreement w/ 1,106,000.00 P3/P2000; 1,107.00
Related Parties P1/P1000
Management Agreement other 29,733,000.00 P3/P2000; 29,734.00
than Related Parties P1/P1000
Advances to Affiliates per cash 579,744,000.00 P0.30/P200 869,616.00
Flows –––––––––––––
Basic Deficiency DST P1,086,684.30
============
Respondent's Period to Assess with

Respect to WTC, EWT, FBT and
Income Tax
Petitioner's WTC
With respect to FBDC's deficiency WTC, it alleges that for taxable year 2003,
it filed its monthly returns of taxes withheld on compensation on the following dates:
96(98)
Period Date Filed

Taxable Year 2003
January February 13, 2003

February March 13, 2003
March April 15, 2003
April May 15, 2003
May June 12, 2003
June July 11, 2003
July August 15, 2003

August September 12, 2003
September October 15, 2003
October November 14, 2003
November December 15, 2003
December January 20, 2004
On the other hand, respondent asserts that FBDC cannot raise the issue of
prescription with respect to FBDC's deficiency WTC assessment since it was made
based on the annual method and not on a monthly basis of computing withholding tax
liability. 97(99) HDICSa
Sections 7 and 8.1 of RR No. 09-01, as last amended by RR 26-02, prescribes

the time of filing and remittance of WTC through the BIR's EFPS, as follows:
"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
WITHHOLDING MONTHLY VAT
BUSINESS TAX RETURNS DECLARATIONS
INDUSTRY EXCEPT AND MONTHLY
WITHHOLDING OF PERCENTAGE
VALUE ADDED TAX RETURNS
TAX
xxx
Group C
xxx • Thirteen (13) days • Twenty three
Real Estate following end of (23) days
Activities the month following end of
the month
"SECTION 8. Time and Place of Payment. —
8.1 Large Taxpayers. — (a) Large Taxpayers who will e-pay shall
enroll with any AAB authorized to serve them and who are capable to accept

e-payments, until such time that private banks are allowed by the Monetary
Board of the BSP to open accounts with the Bureau of Treasury and, provided,
that such private banks are e-banking capable. E-payments (when available as
provided in Section 4 of these Regulations) shall be made within the day the
return was electronically filed following the "pay-as-you-file" principle.
(b) For Large Taxpayers who intend to pay their taxes manually, the
same shall be made at the AABs servicing the aforesaid taxpayers located at the
Ground Floor of the BIR National Office Building with respect to Large
Taxpayers registered with the LTS or at the premises of the AABs servicing the
said taxpayers located within the respective territorial jurisdiction of the LTDOs
with respect to Large Taxpayers registered with the LTDOs. Manual payments
shall be made within banking hours of the day when the return was
electronically filed following the "pay-as-you-file" principle." (Emphasis
supplied)
Records show that FBDC availed of the EFPS with respect to its WTC Returns.
Applying the provisions of Sections 7 and 8.1 of RR No. 09-01, as last amended by
RR 26-02, in relation to Section 203 of the NIRC of 1997, as amended, the 3-year
period of limitation to assess FBDC is as follows:
Period Date Filed Last Day to File 3-year Period of

Taxable Year Return Limitation to
2003 Assess
January (Exhibit February 13, 2003 February 13, 2003 February 13, 2006
"LLLL-1")
February (Exhibit March 14, 2003 March 13, 2003 March 13, 2006
"KKKK-1")
March (Exhibit April 23, 2003 April 13, 2003 April 13, 2006
"IIII-1")
April (Exhibit May 15, 2003 May 13, 2003 May 13, 2006
"HHHH-1")
May (Exhibit June 12, 2003 June 13, 2003 June 13, 2006
"GGGG-1")
June (Exhibit July 11, 2003 July 13, 2003 July 13, 2006
"FFFF")
July (Exhibit August 15, 2003 August 13, 2003 August 13, 2006
"EEEE-1")
August (Exhibit September 12, 2003 September 13, 2003 September 13, 2006
"DDDD-1")
September October 15, 2003 October 13, 2003 October 13, 2006
(Exhibit "CCCC-1")
October (Exhibit November 14, 2003 November 15, 2003 November 13, 2006
"AAAA-1")
November December 15, 2003 December 15, 2003 December 13, 2006
(Exhibit "ZZZ-1")
December January 20, 2004 January 20, 2004 January 13, 2007
(Exhibit "VVV-1")
Based from the foregoing, the respondent's right to assess FBDC for deficiency
WTC for the months of January to November 2003 had already prescribed. IDaEHC
On the other hand, there is no merit in respondent's position that its right to
assess has not yet prescribed because its computation is based on annual method. As
clearly set forth, Section 203 of the NIRC of 1997, as amended, provides the
reckoning date of the 3-year period which is after the last day prescribed by law for
the filing of the return, or from the day the return was filed, as the case may be.
Considering the foregoing, the Court declares that the right of the respondent to
assess FBDC for deficiency WTC for the period January to November 2003 had
already prescribed.
Petitioner's EWT
With respect to FBDC's deficiency EWT, FBDC alleges that for taxable year
2003, it filed its monthly EWT return on the following dates: 98(100)
Period Date Filed

Taxable Year 2003
January February 13, 2003
February March 14, 2003
March April 15, 2003

April May 12, 2003
May June 12, 2003
June July 11, 2003
July August 15, 2003
August September 12, 2003
September October 15, 2003
October November 17, 2003
November December 15, 2003
December January 20, 2004
Similarly, respondent contends that its right to assess FBDC for deficiency
EWT has not yet prescribed since it was based on annual method. 99(101)
Records show that FBDC availed of the EFPS with respect to its EWT Returns.
Applying the provisions of Sections 7 and 8.1 of RR No. 09-01, as last amended by
RR 26-02, in relation to Section 203 of the NIRC of 1997, as amended, the 3-year
period of limitation to assess FBDC is as follows:
Period Date Filed Last Day to File 3-year Period of

Taxable Year Return Limitation to
2003 (RR 06-01 or Section Assess
203 of the NIRC of
1997, as amended)
January (Exhibit February 13, 2003 February 13, 2003 February 13, 2006
"LLLL-1")
February (Exhibit March 14, 2003 March 13, 2003 March 13, 2006
"KKK")
March (Exhibit April 22, 2003 April 13, 2003 April 13, 2006
"FFF")
April (Exhibit May 12, 2003 May 13, 2003 May 13, 2006
"AAA")
May (Exhibit June 12, 2003 June 13, 2003 June 13, 2006
"WW")
June (Exhibit July 11, 2003 July 13, 2003 July 13, 2006
"SS")
July (Exhibit August 15, 2003 August 13, 2003 August 13, 2006
"PP")
August (Exhibit September 12, 2003 September 13, 2003 September 13, 2006
"MM")
September October 15, 2003 October 13, 2003 October 13, 2006
(Exhibit "HH")
October (Exhibit November 17, 2003 November 13, 2003 November 13, 2006
"AA")
November December 15, 2003 December 13, 2003 December 13, 2006
(Exhibit "W")
December January 20, 2004 January 13, 2004 January 13, 2007
(Exhibit "S")
EWT for the months of January to November 2003 had already prescribed. Similar to
the above-discussion regarding FBDC's WTC, there is no merit to respondent's
position that its right to assess has not yet prescribed because its computation is based
on annual method. The reckoning date of the 3-year period is after the last day
prescribed by law for the filing of the return, or from the day the return was filed, as
the case may be.
assess FBDC for deficiency EWT for the period January to November 2003 had
already prescribed.
Petitioner's FBT
With respect to FBDC's deficiency FBT, FBDC alleges that for taxable year
2003, it filed its quarterly remittance return of final income taxes withheld on fringe
benefits on the following dates: DTCSHA
Period Date Filed

Taxable Quarter
(2003)
1st Quarter April 15, 2003
2nd Quarter July 11, 2003
3rd Quarter October 15, 2003

4th Quarter January 15, 2004
On this score, Section 5 of RR No. 04-02 provides:
"SECTION 5. Time for filing of Quarterly Remittance Return of

Final Income Taxes Withheld on Fringe Benefits Paid to Employees Other than
Rank and File. — The tax imposed under Sec. 33 of the Tax Code shall be
treated as a final income tax on the employee that shall be withheld and paid by
the employer, whether a large taxpayer or non-large taxpayer, on or before the
10th day of the month following the calendar quarter in which the fringe
benefits were granted, provided, however that with respect to employers,
whether Large or Non-Large Taxpayers, enrolled with the Electronic Filing and
Payment System (EFPS), the deadline for e-filing the Quarterly Remittance
Return of Final Income Taxes Withheld on Fringe Benefit Paid to Employees
other than Rank and File (BIR Form No. 1603) and e-paying the tax due thereon
shall be five (5) days later than the deadline set herein."
Applying the above-quoted provision in relation to Section 203 of the NIRC of

1997, as amended, the 3-year period of limitation to assess FBDC is as follows:
Last Day to File

Taxable Quarter Return Last Day of the
(2003) Date Filed (RR 06-01 or Section 3-year Period to
203 of the NIRC of Assess
1997, as amended)
1st Quarter 100(102) April 23, 2003 April 15, 2003 April 15, 2006
2nd Quarter 101(103) July 11, 2003 July 15, 2003 July 15, 2006
3rd Quarter 102(104) October 15, 2003 October 15, 2003 October 15, 2006
4th Quarter 103(105) January 15, 2004 January 15, 2004 January 15, 2007
FBT for the 1st, 2nd and 3rd Quarters of 2003 had already prescribed. Thus, there is
no merit to respondent's assertion that its right to assess FBDC for deficiency FBT has
not yet prescribed because the BIR uses the annual method as basis for computation,
for the same reasons stated above.
assess FBDC for deficiency FBT for the 1st, 2nd and 3rd Quarters of 2003 had
already prescribed.
Petitioner's Income Tax
Finally, with regard to the reckoning point of the 3-year prescriptive period
provided for under the above-quoted Section 203 of the NIRC of 1997, as amended,
Section 77 (B) of the same law provides:
"SEC. 77. Place and Time of Filing and Payment of Quarterly

Corporate Income Tax. —
xxx xxx xxx
(B) Time of Filing the Income Tax Return. — The corporate

quarterly declaration shall be filed within sixty (60) days following the
close of each of the first three (3) quarters of the taxable year. The final
adjustment return shall be filed on or before the fifteenth (15th) day of
April, or on or before the fifteenth (15th) day of the fourth (4th) month
following the close of the fiscal year, as the case may be. . . ."
In the instant case, FBDC filed its Annual Income Tax Return on April 15,
2004, 104(106) which is also the last day prescribed by law for filing of the return for
the taxable year 2003. Counting the 3-year prescriptive period therefrom, the BIR had
until April 15, 2007 to assess FBDC. As earlier stated, the BIR issued its FLD on
April 13, 2007, 105(107) which is well within the 3-year prescriptive period.
In sum, the Court finds that there was no falsity with respect to petitioner's
VAT and DST Returns based on the evidence presented by petitioner. Its failure to
provide proof to some of its claims is not synonymous to deviating so far from the
truth so as to constitute false returns. Rather, that circumstance merely affects the
correctness of respondent's assessment. On the other hand, the Court finds that the
respondent's right to assess FBDC for the following types of taxes already prescribed:
Period for which the Respondent's

Type of Tax Right to Assess had Already
Prescribed
VAT 1st, 2nd and 3rd Quarters
DST Prescribed with Respect to Sale of
Properties
WTC January to November 2003

EWT January to November 2003
FBT 1st, 2nd and 3rd Quarters
II. Whether or Not the

Deficiency Assessment has
Factual and Legal Bases
Sufficient to Inform FBDC
Thereof
Considering that not all of the respondent's deficiency tax assessments against
FBDC have prescribed, the Court shall proceed to determine whether the same had
factual and legal bases sufficient to inform FBDC thereof. CScTED
A perusal of the FLDs 106(108) issued by respondent to FBDC reveals that it

sufficiently explained the bases for the deficiency VAT, DST, WTC, EWT, FBT and
Income Tax assessments. In fact, the aforesaid FLDs discussed and explained
piecemeal the respective deficiency tax assessments against FBDC. Thus, the Court
declares that there is no transgression of FBDC's right to be informed of the factual
and legal bases of the respondent's assessment.
III. Whether or Not Respondent

CIR is Correct in Assessing
FBDC for Deficiency WTC,
EWT, FBT and Income Tax
In this regard, the Court has already determined the correctness of respondent's
assessments with respect to petitioner's deficiency VAT and DST, in relation to the
discussion on whether or not petitioner filed false returns. Hence, the Court shall now
proceed to determine the correctness of respondent's assessment with regard to
FBDC's deficiency WTC, EWT, FBT and Income Taxes that did not prescribe.
Withholding Tax on Compensation

— P29,546,442.74
FBDC maintains that the separation pay it paid to its separated employees due
to redundancy are not subject to withholding tax on compensation pursuant to Section
32 (B) (6) (b) of the NIRC of 1997, as amended, which provides as follows:
"SEC. 32. Gross Income. —

xxx xxx xxx
(B) Exclusions from Gross Income. —
xxx xxx xxx
(6) Retirement Benefits, pensions, Gratuities, etc. —
xxx xxx xxx
(a) Any amount received by an official or employee or by his heirs

from the employer as a consequence of separation of such official or employee
from the service of the employer because of death, sickness or other physical
disability or for any cause beyond the control of the said official or employee. . .
."
Section 32 (B) (6) (c) of the NIRC of 1997, as amended, provides that any
amount received by an employee as a consequence of his separation from employment
for any cause beyond his control, i.e., retrenchment, is excluded from the gross
income of the taxpayer-employee. Accordingly, since the same is excluded from the
employee's gross income, the employer is not mandated to withhold the taxes
therefrom.
However, Revenue Regulations No. 2-98 (RR 2-98) provides that the cash
equivalent of vacation leaves exceeding 10 days, monetized sick leave credits,
separated employee's salaries, 13th month pay and other benefits in excess of
P30,000.00 are not excluded from the exemption and hence, subject to tax.
In the instant case, Respondent arrived at the deficiency WTC in the amount of
P29,546,442.74 as follows:
Total Expenses subject to withholding tax — compensation P82,164,831.35

Less: Exempt transactions:
Non-taxable 13th month P684,179.16
SSS, GSIS, Pag-Ibig 381,207.35 1,065,386.51
–––––––––––––– ––––––––––––––
Total transactions subject to w/tax P81,099,444.84
Less transactions subjected to w/tax
Taxable Salaries P23,863,323.51
Taxable 13th Month 519,118.17 24,382,441.68
–––––––––––––– ––––––––––––––
Transactions not subjected to w/tax-
compensation P56,717,003.16
Rate 32%
––––––––––––––
Withholding tax still due P18,149,441.01
Add: Other findings
Late filing of March 03 return
Base P705,224.01
Professional Fees received by
JMK Lim
Per 1601C P569,100.00
Per 1601E 90,000.00
–––––––––––
Taxable Income P659,100.00 P175,912.00
–––––––––––
Tax Withheld per 1601C P147,112.00
Tax Withheld per 1601E 18,000.00 165,112.00 10,800.00
––––––––––– –––––––––––––– ––––––––––––––
Surcharge -
Interest 1-15-04 to 1-31-07 P11,186,804.33
Compromise - 11,186,804.33
–––––––––––––– ––––––––––––––
Deficiency W/T Compensation P29,546,442.74
==============
The deficiency WTC assessment resulted from the following:
A. Transactions not subjected to WTC P56,717,003.16

B. Increments for late filing of March 2003 return 199,397.39
C. Underwithheld tax on professional fees received by JMK Lim 10,800.00
Discrepancies in withholding tax on compensation were arrived at after an

analysis of petitioner's general ledger. The examiners closely identified items which
have an impact in the computation of its withholding taxes then matched the figure
total with the amount declared per alphabetical listing form 1604CF. The total
transactions not subjected to withholding tax on compensation amounted to

P56,717,003.16 or deficiency exposure of P18,149,441.01. 107(109)
In disagreeing with the deficiency WTC assessment, petitioner contends that

the figures and computation made by the respondent to support her assessment
findings are not accurate and do not have factual bases. Specifically, petitioner raised
the following arguments: cDCEIA
(a) Certain items included in the assessment findings of the respondent

are not subject to withholding tax, such as separation pay received
by retrenched employees of the petitioner, pursuant to Section 32
(B) (c) of the 1997 Tax Code, as amended.
Petitioner submitted before the Court its various Notices 108(110) of

Employment Termination due to Redundancy to several of its employees. A reading
of the said Notices similarly shows the following terms:
"1. You will be paid your salary up to _____________.
2. You will be paid a redundancy pay of one (1) month basic monthly pay
per year of service, with a fraction of six or more month treated as 1
year, as and by way of separation pay.
3. You will be paid the 100% company contribution to the FBDC

Retirement Plan including gains/losses.
4. All unused vacation and sick leaves shall be commuted to cash.
5. Pro rata 13th and 14th month based on the number of months served for
the year 2003 shall be paid."
Applying the provisions of Section 32 (B) (6) (c) of the NIRC of 1997, as
amended, in relation to RR 2-98, the Court declares that FBDC is not liable for WTC
with respect to its separated employees, except for their respective cash equivalent of
vacation leaves exceeding 10 days, monetized sick leave credits, separated employee's
salaries, 13th month pay and other benefits in excess of P30,000.00 which are taxable
under RR 2-98.
Likewise, from the above statements in the Notices of Employment

Termination, numbers 1, 4, and 5 are taxable, with the unused vacation leaves
exempted up to the first 10 days, while numbers 2 and 3 are exempt from WTC.
The amount of total separation pay as verified by the ICPA is P15,051,979.63,

which is summarized under Annex "B-1" of the report. 108(111)
From the aforesaid summary, it appears that the ICPA correctly distinguished
the tax-exempt items, which are the redundancy pay, the retirement pay (the
reimbursement of retirement contributions shouldered by the former employees to the
tax-exempt fund, which will be discussed in the deficiency income tax assessment
portion), and the monetized amount of VL credits not exceeding 10 days.
However, the Court cannot ascertain the correctness of the amounts indicated
in the ICPA-prepared summary because the same do not tie-up with those reflected in
the Quit Claims. 110(112) Thus, the Court finds that the ICPA summary as well as the
Quit Claim forms and/or Termination letters are insufficient to prove the truthfulness
of the amounts of non-taxable redundancy pay, retirement pay and exempt VL credits.
The Court simply cannot rely on the ICPA's report, without the presentation of the
actual basis of the amounts. Petitioner could have provided the Court with the actual
final pay computations where the proper breakdown of the amounts could be found,
and the check payments to prove the actual amounts paid out to the terminated
employees that tie up with the Quit Claims.
Considering the foregoing, the Court finds that petitioner failed to substantiate
the amounts of non-taxable redundancy pay, retirement pay, and exempt VL credits in
the alleged amount of P15,051,979.63. Thus, respondent's assessment should be
upheld with regard thereto.
(b) The respondent's indiscriminate imposition of the 32% withholding

tax rate is unjustified inasmuch as the applicable rate of
withholding depends on the payment of taxable compensation less
allowable exemption to each individual employees of petitioner.
The Court agrees with petitioner. Following the ICPA's computation of the
reasonable withholding tax rate that respondent should have applied instead of the
maximum rate of 32%, the Court has determined the average WTC rate for taxable
year 2003 to be 21.068090%, as computed below:
Alphalist Taxable Tax Withheld

Compensation
No previous employer (Exh. "UUU-4")
13th month & other benefits P519,118.17
Salaries and other forms of compensation 12,918,378.42 P3,254,413.39

Terminated before December 31, 2003 (Exh.
"UUU-3")
13th month & other benefits -
Salaries and other forms of compensation 10,631,128.03 1,864,233.90
With more than one (1) employer within
2003 (Exh. "UUU-5")
13th month & other benefits -
Salaries and other forms of compensation 786,994.43 117,956.89
–––––––––––––– ––––––––––––
Total P24,855,619.05 P5,236,604.18
–––––––––––––– ––––––––––––
Average WTC Rate 21.068090%
===========
This is contrary to the computation of the ICPA resulting to 20.45%, 111(113)

since the figures used by the ICPA in the report, which allegedly were from BIR Form
No. 1604-CF, do not coincide with the amended BIR Form No. 1604-CF filed on
March 19, 2004. 112(114) The ICPA also failed to include in the computation,
amounts attributable to compensation of employees with more than one (1) employer
within the same taxable year. DHESca
In addition to the above arguments, the ICPA pointed out additional errors on
the part of respondent, as narrated in the Supplemental Judicial Affidavit of the ICPA:
113(115)
(3)
"Q: What was the basis of your findings for that particular item?
A: We noted that the BIR examiners in computing for the alleged 2003 deficiency
tax liability for withholding tax on compensation of FBDC, deducted from
their findings of alleged total expenses subject to withholding the non-taxable
items: 1) on alphalist of employees terminated before December 31, 2003 —
the amount of SSS, Phil. Health, and Pag-ibig contributions of employees
amounting to P150,657.35; (2) on the alphalist of employees with no previous
employer within the year — the amount of the amount of SSS, Phil. Health,
and Pag-ibig contributions of employees amounting to P218,950.00 and the
amount of 13th month pay and other benefits amounting to P658,670.82; (3)
on the alphalist of employees with previous employee(s) within the year — the
amount of SSS, Phil. Health, and Pag-ibig contributions of FBDC employees
amounting to P11,600.00 and the amount of 13th month pay and other benefits
amounting to P25,508.34, were all deducted.
However, BIR examiners may have overlooked and thus failed to consider on
the alphalist of employees terminated before December 31, 2003, the amount
of 13th month pay and other benefits the amount of P495,407.40, which was
reflected in the said alphalist as other forms of non-taxable compensation."
Upon scrutiny of the alphalist 114(116) attached to the amended BIR Form No.
1604-CF, 115(117) The Court agrees with the findings of the ICPA. The amount of
P495,407.40 was the total of Column 5 (c) entitled in the alphalist as Non-Taxable
Salaries and Other Forms of Compensation. Thus, this amount of P495,407.40 shall
be excluded from the compensation subject to withholding tax.
In addition, the Court notes that the total amount of P82,164,831.35

compensation subject to withholding tax as found by respondent included employer's
contributions for SSS/Medicare premiums in the amount of P487,862.65 and Pag-ibig
contributions in the amount of P44,000.00, as shown below: 116(118)
Salaries P21,661,914.49
Overtime 138,978.88
Office Subsidy Fund (OSF) 3,614,370.50
Allowances 1,971,409.14
Bonuses 1,140,324.27
Leave pay 1,027,357.21
SSS premiums Medicare 487,862.65
Pag-ibig contributions 44,000.00
Medical and Dental 725,764.03
Hospital/Medical Insurance 1,187,528.89
Accident Insurance 39,504.70
Gratuity and Separation Pay 48,604,751.59
Parties and Gifts 938,500.00
Meal Subsidy 579,390.00
Other Employees Welfare 3,175.00
–––––––––––––
Total P82,164,831.35
============
Pursuant to Section 32 (B) (7) (f) of the NIRC of 1997, as amended, the said
SSS/Medicare premiums and Pag-ibig contributions should be excluded from taxable
compensation.

A. Increments for Late Filing of
WTC Return for March 2003 —
P199,397.39
For the belated filing of its WTC return for March 2003, petitioner was
assessed deficiency increments in the amount of P199,397.39, as computed below,
pursuant to Sections 248 and 249 of the NIRC of 1997, as amended:
Tax base P705,224.01

Surcharge P176,306.00
Interest 3,091.39
–––––––––––
Total P199,397.39
==========
According to petitioner, it was able to manually file its WTC return for March
2003 and remitted the corresponding withholding tax due thereon with notice to and
approval of the BIR Large Taxpayers Assistance Division. TEHIaD
Records reveal that Exhibit "JJJJ" with sub-markings served as proof of the
manual filing and payment of the March 2003 WTC tax due, which were both made
on April 15, 2003. On the other hand, Exhibit "IIII" with sub-markings was presented
to show that petitioner e-filed its WTC return on April 23, 2003.
However, the Court rules that taxpayers who are enrolled in the Electronic
Filing System (EFPS) are covered by the rules and regulations of EFPS, and therefore,
the e-filed return prevails over the manual return. Moreover, the relevant EFPS rules
provide that manual filing is allowed only if there has been a crash in the system on
the deadline of filing. Proof of this circumstance was not alleged nor presented by
petitioner to the Court.
In relation to Sections 7 and 8.1 of RR No. 09-01, as last amended by RR

26-02 as quoted above, petitioner should have e-filed the WTC return for March 2003
and paid the corresponding WTC on April 14, 2003 (April 13, 2003 being a Sunday)
instead of April 23, 2003. Thus, petitioner's WTC return for March 2003 was filed
nine (9) days late and the corresponding WTC taxes were paid one (1) day late.
Consequently, petitioner ought to pay the surcharge and interest related to the late
filing of return and remittance of WTC for March 2003 as provided for under Sections

248 and 249 of the NIRC of the 1997, as amended, computed as follows:
Tax base P705,224.01

Interest (P705,224.01 x 20% x 10/365 days) 3,864.24
–––––––––––
Total increments for late filing of
return/remittance of WTC for March 2003 P180,170.24
==========
Meanwhile, the assessment portion pertaining to the compromise penalty of

P20,000.00 should be cancelled. Pursuant to Revenue Memorandum Order (RMO)
No. 01-90, as amended by RMO No. 19-07, compromise penalties are only suggested
in settlement of criminal liability, and may not be imposed or exacted on the taxpayer
in the event that a taxpayer refuses to pay the same. Clearly, the compromise penalty
implies a mutual agreement between the parties in respect of the thing or subject
matter which is so compromised. The imposition of the compromise penalty without
the conformity of the taxpayer is illegal and unauthorized. In this case, there was
nothing in the records which would show that petitioner consented to the compromise
penalty. Consequently, the compromise penalty should not be imposed and must be
cancelled.
B. Underwithheld Tax on
Professional Fees Received
by JMK Lim — P10,800.00
The deficiency WTC assessment included one of petitioner's employees

receiving both compensation and professional income with different application of
withholding taxes. The said employee's compensation was subjected to graduated
rates per Section 24 of the NIRC of 1997 and professional income using expanded
withholding taxes. Both sources of income were treated as part of the employee's
compensation as clearly defined in Section 32 of the NIRC of 1997.
Petitioner did not refute the examiner's finding on this assessment item. Section
2.57.2 of RR No. 02-98, as last amended by Section 2 of RR No. 30-03, states:
"Sec. 2.57.2. Income payments subject to creditable withholding

tax and rates prescribed thereon. — . . .
(A) Professional fees, talent fees, etc., for services rendered by

individuals. — . . .
xxx xxx xxx
Notwithstanding the foregoing, if an individual recipient receives

professional fees/talent fees/directors fees in addition to salaries from the
same payor, the said fees shall be considered as supplemental compensation
and, thus be subject to the withholding tax on compensation. (Emphasis
supplied)
Based therefrom, both the compensation and professional fees paid by

petitioner to JMK Lim shall be treated as compensation subject to WTC.
Consequently, the assessed deficiency WTC in the amount of P10,800.00 shall be
upheld.
In sum, petitioner failed to prove that it properly withheld and remitted the
taxes on the amount of P55,730,198.12 employees' compensation for the year 2003,
computed as follows: DETACa
Total Compensation P82,164,831.35

Less: Exempt transactions (Exhibits "UUU-2"
to "UUU-5" and "FFFFF-1")
Non-taxable 13th month P1,179,586.56
SSS, GSIS, Pag-Ibig 381,207.35
SSS premiums Medicare (employer's share) 487,862.65
Pag-ibig Contributions (employer's share) 44,000.00 2,092,656.56
–––––––––––––– ––––––––––––––
Total Compensation subject to withholding tax P80,072,174.79
Less: Transactions subjected to withholding tax
(Exhibits "UUU-2" to "UUU-5")
Taxable Salaries P23,863,323.51
Taxable 13th Month 519,118.17 24,382,441.68
–––––––––––––– ––––––––––––––
Compensation not subjected to withholding tax P55,689,733.11
Add: Other findings
Compensation related to the P10,800.00 40,465.01
underwithheld taxes from JMK Lim
(P10,800.00 ÷ 26.6897284%*)
*Tax Due ÷ Total Taxable Income
P175,912.00 ÷ P659,100.00 = 26.6897284%
––––––––––––––
Total Compensation not subjected to withholding tax P55,730,198.12
=============
Since prescription had already set-in for the months of January to November
2003, respondent's deficiency assessment for late filing of petitioner's WTC return for
the month of March 2003 shall be cancelled.
With regard to the under-withheld taxes from JMK Lim, the related
compensation in the amount of P40,465.01 shall be considered to have been paid in
December 2003 because no details were provided as to date of recording and/or
payment thereof.
Thus, only the following compensation items in the total amount of

P2,840,015.00, which were included in respondent's assessment but pertaining only to
the month of December 2003, shall be considered in determining petitioner's
deficiency WTC liability:
Account Title
Account No. GL Date Amount
Salaries 117(119)
75101 12/31/2003 512,315.00
75101 12/31/2003 569,960.00
75101 12/31/2003 144,395.00
–––––––––––
Sub-total 1,226,670.00
Overtime 118(120)
75103 12/31/2003 1,713.00
75103 12/31/2003 31,737.00
75103 12/31/2003 2,298.00
–––––––––––
Sub-total 35,748.00
Office Subsidy Fund 119(121)

75104 12/31/2003 52,200.00
75104 12/31/2003 12,000.00
–––––––––––
Sub-total 64,200.00
Allowances 120(122)
75105 12/31/2003 14,100.00
75105 12/31/2003 12,400.00

75105 12/31/2003 3,100.00
–––––––––––
Sub-total 29,600.00
Bonuses 121(123)
75106 12/31/2003 161,296.00
75106 12/31/2003 177,052.00
75106 12/31/2003 60,833.00
–––––––––––
Sub-total 237,885.00
SSS Premiums 122(124)

75201 12/31/2003 9,575.00
75201 12/31/2003 16,550.00
75201 12/31/2003 4,180.00
–––––––––––
Sub-total 30,305.00
Pag-ibig Contributions 123(125)

75202 12/31/2003 800.00
75202 12/31/2003 1,700.00
75202 12/31/2003 400.00
–––––––––––
Sub-total 2,900.00
Medical and Dental 124(126)

75203 12/31/2003 2,699.00
75203 12/31/2003 6,929.00
75203 12/31/2003 805.00
75203 12/31/2003 14,703.00
75203 12/31/2003 34,451.00
75203 12/31/2003 26,869.00
75203 12/31/2003 10,778.00
75203 12/31/2003 88,774.00
75203 12/31/2003 340.00
75203 12/31/2003 12,646.00
75203 12/31/2003 21,397.00
75203 12/31/2003 2,712.00
75203 12/31/2003 6,013.00
–––––––––––

Hospital/Medical 125(127)
75204 12/16/2003 19,015.00
75204 12/16/2003 11,387.00
–––––––––––
Sub-total 30,402.00
Accident 126(128)
75206 12/22/2003 (583.00)
75206 12/22/2003 (188.00)
–––––––––––
Sub-total (771.00)
Meal Subsidy 127(129)

75212 12/31/2003 12,000.00
75212 12/31/2003 18,000.00
75212 12/31/2003 3,000.00
–––––––––––
Sub-total 33,000.00
Parties & Gifts 128(130)

75211 12/31/2003 888,500.00
75211 12/15/2003 8,000.00
75211 12/15/2003 11,000.00
75211 12/15/2003 1,000.00
75211 12/18/2003 3,345.00
75211 12/18/2003 6,355.00
75211 12/22/2003 507.00
75211 12/22/2003 880.00
75211 12/22/2003 556.00
75211 12/22/2003 817.00
–––––––––––
–––––––––––
TOTAL 2,840,015.00
==========
From the above total amount of P2,840,015.00, the tax-exempt items, namely,
SSS premiums Medicare in the amount of P30,305.00 and Pag-ibig Contributions in
the amount P2,900.00, shall be excluded. On the other hand, the compensation of
P40,465.01 related to the under-withheld taxes from JMK Lim shall be added. The
resulting amount of P2,847,275.01 when compared with that subjected to WTC per
petitioner's amended Monthly Remittance Return of Income Taxes Withheld on
Compensation (BIR Form No. 1601-C) in the amount of P5,626,784.30, shows that
petitioner has no deficiency WTC liability for the month of December 2003, as
computed below: TaDCEc

Compensation related to JMK Lim 40,465.01
––––––––––––––
Less: Exempt transactions
SSS premiums Medicare (employer's share) P30,305.00
Pag-ibig Contributions (employer's share) 2,900.00 33,205.00
–––––––––– ––––––––––––––
Total Compensation subject to withholding tax P2,847,275.01
Less: Compensation subjected to withholding tax 129(131) 5,626,784.30
––––––––––––––
Difference P(2,779,509.29)
=============
Deficiency Expanded Withholding

Tax — P38,869,403.69
Respondent's computation of the deficiency EWT is shown below:
EWT due on Actual Expenses subject to withholding P30,021,558.86

EWT due on expenses subjected to withholding 13,646,035.55
EWT still due based on expenses not subjected to withholding tax P16,375,523.31
Add: Other audit findings
b. *(132) Alphalist vs. SLP discrepancy
7,126,786.67
c. Discrepancy in taxpayer's Alphalist
(erroneous computation) 119,898.65
d. Late filing of the 1601E March 03
Basic P1,893,167.26
e. Late filing of 1604E 2003 25,000.00
Surcharge

Interest P14,716,641.78
Compromise P14,716,641.78
–––––––––––––
Deficiency EWT P38,869,403.69
============
A. EWT Still Due Based on

Expenses Not Subjected to
Withholding Tax — P16,375,523.31
Records reveal that respondent listed down all the expense accounts/income
payments subject to EWT as found in the Annual Income Tax Return (AITR), Trial
Balance (TB) and Audited Financial Statements (AFS) of petitioner for the taxable
year 2003, and imposed a specific EWT rate based on the nature of the
expense/income payment. 130(133)
Petitioner alleged that respondent made a mistake in applying the correct tax
rates which were based on the nature of the accounts in the books of petitioner.
Moreover, petitioner argued that respondent failed to differentiate those expenses
which are actually not subject to EWT, such as payments to general professional
partnerships, non-resident foreign corporations on services performed outside the
Philippines, payments to tax-exempt entities or other entities enjoying tax incentives,
among others.
On the other hand, the ICPA noted that professional fees paid to general
professional partnerships which are exempted from EWT amounted to P1,650,848.65,
with EWT equivalent of P165,084.87. Said expenses were properly booked and
supported by statements of accounts and/or petitioner's checks that cleared through the
respective depositary banks. 131(134)
Section 22 (B) of the NIRC of 1997, as amended, defines general professional

partnerships (GPPs) as partnerships formed by persons for the sole purpose of
exercising their common profession, no part of the income of which is derived from
engaging in any trade or business. Corollary thereto, Section 26 of the said law
provides that a general professional partnership shall not be subject to income tax. Its
partners are the ones liable in their individual capacity for the payment of income tax.
In relation thereto, Section 2.57.5 of RR No. 2-98, as amended by RR No.

14-02, states:

"Sec. 2.57.5. Exemption from Withholding. — The withholding
of creditable withholding tax prescribed in these Regulations shall not apply to
income payments made to the following:
xxx xxx xxx
(B) Persons enjoying exemption from payment of income taxes

pursuant to the provisions of any law, general or special, such as but not limited
to the following:
(4) General professional partnerships
xxx xxx xxx"
Petitioner has satisfactorily shown that it made payments to GPPs in the

amount of P1,650,848.65, hence the related EWT of P165,084.87 must be deducted
from the assessed amount.
The ICPA also observed that upon arriving at the assessment, respondent
doubly subjected to EWT certain expenses amounting to P2,025,992.22, with EWT
equivalent of P86,691.08. According to the ICPA, these items were included both in
the per account basis and the comparison between SLP and 1604-CF, as follows:
132(135) cDEHIC
Per SLP vs. Alphalist Per FBDC account basis

Additional EWT
Assessments by Purchases Input VAT Withholding Account Amount
Equivalent
BIR
Abello 10% 518,681.00 51,868.10 51,868.10 Professional 480,000.00

48,000.00
Concepcion Fees
Regala
Banco De Oro 2% 35,891,975.50 3,589,197.55 717,839.51 Professional 3,000.00 60.00

Fees
Citibank Visa 1% 1,777.30 177.73 17.77 Rep. & 2,122.27 21.22

Entertainment
De Borja 1% 20,000.00 2,000.00 200.00 Professional 90,000.00

900.00
Medialdea Fees

Equitable Card 2% 10,451.90 1,045.19 209.04 Rep. & 25,975.32
519.51
Networks, Inc. Entertainment
Fort Bonifacio 2% 487,045.60 48,704.56 9,740.91 Various 36,580.63

731.61
Dev't. Corp.
Lim Ocampo & 10% 200,000.00 20,000.00 20,000.00 Professional 250,840.00

25,084.00
Candelaria Fees
Mannasoft 1% 2,336,550.00 233,655.00 23,365.50 Professional 476,177.00

4,761.77
Techonology Fees
Corp.
Nera Philippines, 1% 661,290.90 66,129.09 6,612.91 Building 661,297.00

6,612.97
Inc.
–––––––––––– ––––––––––– –––––––––– –––––––––––
–––––––––
TOTAL 40,127,772.20 4,012,777.22 829,853.74 2,025,992.22
86,691.08
============ =========== ========== ===========
=========
However, the ICPA failed to illustrate how the amounts and corresponding
payees and expense classifications were arrived at No documentary evidence was
presented to show that these specific amounts were indeed included in both
computations and subjected twice by respondent to EWT.
At any rate, based on the Supplemental Judicial Affidavit 133(136) of Ms. Anna
Lisa P. Mesina, Tax Accountant of petitioner, respondent doubly subjected two
accounts to deficiency EWT — Communication, Light and Water; and Director's
Fees/Management Fees, based on respondent's working papers. 134(137)
i. Communication, Light and Water (P112,437,313.00)
According to Ms. Mesina, respondent used the same expense item of

Communication, Light and Water per FS in the amount of P112,437,313.00 to the
respondent's per account basis of finding EWT discrepancies twice. 135(138)
From respondent's computation, 136(139) it can be gleaned that for the line
item 'Utilities and water subsidy', the amount of P110,141,000.00 under the per FS

column was assessed, while for the line item entitled 'Communication', the amount of
P112,437,313.00 under the per ITR column was assessed, upon comparison with the
amount of P2,296,000.00 under the per FS column.
According to petitioner, if the amount of Utilities and Water per FS is added to

Communication per FS, the total amount would also be P112,437,000.00. Evidently,
both P110,141,000.00 and P112,437,313.00 were considered by respondent in arriving
at the EWT due on Actual Expenses subject to Withholding.
Upon this Court's verification, the figures mentioned in the affidavit can be
found under Note 14 of the AFS 137(140) and AITR 138(141) for the year 2003 of
petitioner. Moreover, petitioner presented a GL run that bear the descriptions
'Electricity and Power' with account no. 75402 and payee of Manila Electric Co.,
'Water' with account no. 75403 and payee of Bonifacio Water Corp. and 'Telephone
and Fax' with account no. 75506 and payees Smart Communications, Inc. and
Philippine Long Distance Tel. Co., 139(142) which sum up to P112,437,761.00.
As such, the Court finds that there was double imposition of deficiency EWT
by respondent.
The question that remains, however, is whether "Communication, Light &

Water" in the amount of P112,437,313.00 was indeed subjected to EWT. Upon
verification of this Court, petitioner failed to present evidence to show that the
corresponding EWT was already withheld from the billing statement, or that income
payments relating to such expenses were reported. Thus, the Court was unable to
ascertain if the entire expense attributable to "Communication, Light & Water" was
indeed subjected to EWT.
Considering the foregoing, the assessment should be decreased by

P2,202,820.00 (computed as P110,141,000.00 x 2% EWT).
ii. Director's fees (P30,839,104.00)
Another account that was allegedly subjected twice to EWT per respondent's
audit pertains to management fees/director's fees in the amount of P30,839,104.00 per
AITR. ISCDEA
Portion of the witness' testimony reads as follows: 140(143)
(36)

"Q: What other items have you determined to have been subjected twice to the
expanded withholding tax based on the computation and assessment findings
of the BIR?"
A: We have noted that the amount of P30,839,000.00 for management fees taken
from the 2003 audited F/S of FBDC and the same amount of P30,839,104.00
taken from the amended ITR of FBDC under the expense item "Director's
Fees" which the difference of P104.00 due to the rounding off of the figures in
the audited F/S to the nearest thousands relate or pertain to the same
transaction and therefore, by imposing or subjecting the same to expanded
withholding tax, although at different rates, effectively subjected the said
expense item to tax twice.
(37)
Q: How could these items, which are management fees on one hand and director's
fees on the other, although having the same amount except for a minimal
difference, refer to the same item or transactions?
A: Based on the assessment findings of the BIR examiners, the figures or amount
of P30,839,000.00 refer to management fees subjected by the BIR examiners
to 10% expanded withholding tax on professional fees were taken from the
2003 audited F/S of FBDC, particularly on page 16, Note 14 of the Notes to
F/S, which is part of the items comprising general and administrative account.
And the figures or amount of P30,839,104.00 referring to director's fees,
which were subjected by the BIR examiners to 20% expanded withholding
tax, were taken from the amended ITR of FBDC, particularly on Section D on
deductions under item no. 79. We verified the breakdown of these two account
and we have determined that actually the amounts or the accounts for both
were comprised of director's fees with GL account no. 75804 and estate
management fees with GL account no. 63015."
In this regard, Ms. Anna Lisa Mesina provided the Court with the GL
extractions of Account Nos. 75804 and 63015, representing Director's fees
(P3,300,000.00) and estate management fees (P27,539,099.00) which, when added
together, total to P30,839,104.00. The same was marked as Exhibit "LLLLL".
In the same Affidavit, 141(144) Ms. Mesina proceeded to explain to the Court
the nature of the estate management fees. According to her, estate management fees
are being paid to Bonifacio Estate Services Corporation (BESC) for development
control functions that BESC performs on petitioner's owned or controlled areas, and to
Bonifacio Global City Estate Association (BGCEA), Inc. for the estate or association
dues.
In this regard, petitioner alleged that development control fees and association
dues paid to BESC and BGCEA, respectively, are not subject to expanded
withholding tax, invoking BIR Ruling No. DA-008-200 dated January 5, 2000
wherein it was ruled that assessments or charges collected by BGCEA from its
members to be used for administrative expenses, utilities and amenities for public use,
and maintenance do not form part of the gross income of BGCEA and not subject to
income tax and consequently to expanded withholding tax.
Consequently, this Court has ruled that "association/condominium dues,

membership fees and other assessment/charges collected from the members, which are
merely held in trust and which are to be used solely for administrative expenses in
implementing their purpose(s), viz., to protect and safeguard the welfare of the
owners, lessees and occupants; provide utilities and amenities for their members, and
from which the corporation could not realize any gain or profit as a result of their
receipt thereof, must not be included in said corporation's gross income. This means
that the same are not subject to income tax and to withholding tax". 142(145)
To prove that its income payments to BESC and BGCEA are indeed
association dues and development control fees, petitioner provided official receipts
which are summarized as follows:
Payee OR No. OR Date Amount Exhibit No.

Bonifacio Estate Services 3400 08/01/2003 P200,000.00 "O5"
Corporation
Bonifacio Estate Services 3526 10/24/2003 400,000.00 "O5-1"
Corporation
Bonifacio Global City Estate 0952 11/28/2003 10,980,701.99 "G6-2"
Association
–––––––––––––
Total P11,580,701.99
============
The Court traced the above amounts to the general ledger and found that these
were booked under "Estate Management Fees" account. Moreover, it was noted that
the amount of maintenance dues paid to BGCEA per books totals P10,992,148.00,
which leaves a discrepancy of P11,446.01. Nonetheless, what will be taken into
account is the amount per OR No. 0952. EDCTIa

Based on these supporting documents, the Court is not convinced that the
account "Director's Fees" per petitioner's AITR actually pertains to maintenance fees
and development control fees that qualify for exemption from income tax, and
consequently, to EWT, save for the substantiated amount of P11,580,701.99.
As to whether petitioner is correct in alleging the double taxation on these

director's/management fees, the Court is convinced that "Director's Fees" per AITR
and "Management Fees" per AFS refer to one and the same set of expenses.
Considering the foregoing, the Court declares that the 10% EWT assessment,
imposed on "Management Fees" per BIR computation, should be cancelled
completely on the ground of double taxation. On the other hand, the 20% deficiency
EWT imposed on Director's Fees should likewise be cancelled, but only up to the
extent of the related expense for which substantiation was presented in the amount of
P11,580,701.99 with an EWT equivalent of P2,316,140.40.
In sum, the Court rules that respondent's assessment on the EWT due on Actual
Expenses subject to withholding should be reduced by a total amount of
P7,767,955.66, broken down as follows:
Expense
Amount EWT Rate EWT Due
Professional fees paid to GPPs P1,650,848.65 10% P165,084.87
Expenses doubly subjected to
EWT by respondent:
Utilities & Water Subsidy 110,141,000.00 2% 2,202,820.00
Management fees 30,839,104.00 10% 3,083,910.40
Association Dues and
Development Control Fees
included in the "Director's
Fees" account 11,580,701.99 20% 2,316,140.40
–––––––––––––– ––––––––––––
P154,211,654.64 P7,767,955.66
============= ===========
B. Alphalist vs. SLP Discrepancy —

P7,126,786.67
Upon scrutiny, the Court finds that respondent arrived at the discrepancy by
taking the input VAT reported per SLP, and grossing up the input tax by 10%, in

order to get the tax base which respondent then subjected to the EWT rate based on
the Alphanumeric Tax Code (ATC) assigned to the income payee per alphalist.
With respect thereto, the ICPA reported that a certain P23,019.36 (representing
deficiency tax assessed on total expenses in the amount of P1,865,802.00) pertains to
EWT on income payments already declared in the 2003 alphalist. The summary is
presented in the ICPA Report 143(146) as Annex "C2", as follows:
Expenses not withheld per BIR Per FBDC Alphalist

Income payee ATC Amount Rate Withholding Amount Rate
Withholding
Canon Marketing Phils., Inc. WC158 321,078.70 1% 3,210.79 3,600.00 1% 36.00

E-Plus Stationery, Inc. WC158 466,165.80 1% 4,661.66 40,972.00 1% 409.72
Elizabeth B. Ancaja WI120 11,493.80 10% 1,149.38 14,210.00 2% 284.20
Elizabeth B. Ancaja WC158 - 4,391.00 1% 43.91
Gracepark International WC158 1,380,705.20 1% 13,807.05 1,380,705.00 1%
13,807.05
Mannasoft Technology WC120 2,336,550.00 1% 23,365.50 217,772.50 2%
4,355.45
Corporation
Manpower Outsourcing WC160 1,404,087.50 2% 28,081.75 134,964.00 2%
2,699.28
Services, Inc.
Super Fix Auto Concept WC120 790,627.50 2% 15,812.55 69,187.50 2%
1,383.75
––––––––––– ––––––––– –––––––––––
–––––––––
TOTAL 6,710,708.50 90,088.68 1,865,802.00
23,019.36
=========== ========= ===========
=========
The contested amounts are found at the latter part 144(147) of respondent's
EWT working papers. Relative thereto, it can be observed that income payments
found therein were only subjected to VAT and reported through the SLP, and not
subjected to EWT. Hence, the discrepancies.
The Court find for petitioner.
The Court observes that the procedure of respondent in considering all

expenses of petitioner for the year 2003 in the ITR or FS, or both, in the computation
of deficiency EWT, is already all-encompassing. Therefore, it would be prejudicial to
the petitioner if the assessment of deficiency tax is allowed based merely on the
discrepancies in reporting.
C. Discrepancy in Taxpayer's
Alphalist (erroneous
computation) — P119,898.65
Again, the Court observes that the assessment on erroneous computation has no
effect because the procedure wherein all expenses in the FS and ITR of petitioner
were subjected to EWT has already covered any mistake in reporting in the Alphalist.
Hence, the Court finds that this assessment should be canceled. ADCIca
D. Late Filing of 1601-E March 2003

and Late filing of 1604-E for CY
2003
Petitioner argued that it was able to manually file the EWT return for March
2003 and pay the corresponding tax due for the said period on April 15, 2003, with
notice to and approval of the BIR Large Taxpayers Assistance Division (LTAD). The
Annual Information Return of Creditable Income Taxes Withheld 145(148) (1604-E)
was likewise manually filed with the BIR on March 1, 2004, which is within the
deadline provided by existing regulations.
Upon scrutiny of the pieces of evidence presented, petitioner manually filed the
1601-E for March 2003 with the Large Taxpayers Division 146(149) and subsequently
manually paid the tax due on April 15, 2003. 147(150) There was a notation on the
face of the manually filed return stating "for e-filing up to 4/30/03". However, the
Court cannot ascertain if the notation was indeed from the LTAD, as there was no
signature, name and position title of the person from LTAD who indicated such
notation.
Consequently, taxpayers who are enrolled in the Electronic Filing and Payment
System (eFPS) of the BIR are covered by the rules and regulations of eFPS.
Therefore, the e-filed return prevails over the manual return. Moreover, the eFPS rules
provide that manual filing is allowed only if there has been a crash in the system on
the deadline of filing. Proof of this circumstance was not alleged nor presented by
petitioner to the Court.
Nevertheless, the Court disagrees with respect to the amounts assessed by

respondent for late filing. The portion pertaining to the compromise penalty of
P25,000.00 should not be included, as previously discussed. Also, pursuant to
Sections 7 and 8.1 of RR No. 09-01, as last amended by RR No. 26-02, petitioner
should have e-filed the EWT return for March 2003 on April 14, 2003 (April 13, 2003
being a Sunday) instead of April 22, 2003 and paid the corresponding EWT on the
same date of April 14, 2003 instead of April 15, 2003. Hence, petitioner should pay
the surcharge and interest related to the late filing of EWT return for March 2003, as
follows:
Tax base P1,893,167.26
–––––––––––––
Interest (P1,893,167.26 x 20% x 9/365 days) 9,336.17
––––––––––––
Total increments for late filing of
return/remittance of EWT for March 2003 P482,627.98
===========
On the other hand, petitioner's 1604-E was manually filed on March 1, 2003,
and electronically filed on March 2, 2003 (late), as discussed above. However, the
compromise penalty in the amount of P25,000.00 imposed on the late filing should be
cancelled.
EWT due on the amount of P303,527,056.86 expenses subject to withholding:
Actual Expenses not subjected to withholding as found P457,738,711.50

by respondent
Less: Adjustments
Professional fees paid to GPPs P1,650,848.65
Expenses doubly subjected to EWT by respondent
Utilities & Water Subsidy 110,141,000.00
Management fees 30,839,104.00
Association Dues and Development Control Fees 11,580,701.99 154,211,654.64
included in the "Director's Fees" account
––––––––––––––
Actual expenses not subjected to withholding P303,527,056.86
=============
Since prescription had set in, respondent's right to assess petitioner of

deficiency EWT shall only be limited to December 2003. Thus, after taking into
account all the December expense transactions for which petitioner provided detailed
breakdown per general ledger (GL), petitioner is liable for deficiency EWT in the
amount of P6,815,989.95, broken down as follows:
Income Payments EWT Rate EWT Due

Purchases of Goods 1% P54,182.02
Purchases of Services 2% 3,138,194.53
Professional Fees 10% 400,141.70
Director's Fees 20% 3,050,551.40
Rentals 5% 172,920.30
–––––––––––––
Total P6,815,989.95 148(151)
============
Deficiency FBT — P6,399,723.81
Respondent found that there were expense items, i.e., representation and
entertainment, transportation and travel and membership fees, which petitioner failed
to subject to FBT pursuant to Section 33 of the NIRC of 1997, RR 2-98 and RR-38.
Hence, respondent assessed petitioner of the corresponding deficiency FBT in the
amount of P6,399,723.81, computed as follows: 149(152)

––––––––––––––
P8,738,898.00
0.68
––––––––––––––
Grossed up value P12,851,320.59
Rate 0.32
Fringe benefits tax due P4,112,422.59
FBT payments 174,026.94
––––––––––––––
Surcharge
Interest 1-15-04 to 1-31-07 P2,399,723.81
––––––––––––––
Deficiency Final Withholding
Tax — Fringe Benefits P6,399,723.81
=============

Petitioner, on the other hand, maintains that the deficiency FBT assessment
was computed on erroneous presumptions, citing Collector of Internal Revenue v.
Benipayo 150(153) as basis. Particularly, petitioner raised the following arguments:
ACTIHa
(a) The treatment by the respondent of the representation and

entertainment expense of the petitioner as fringe benefits granted to
its employees other than rank and file is erroneous and unjustified.
These expenses, included expenses for transportation and travel,
are incurred by the petitioner in connection with the conduct of its
trade or business.
Also according to petitioner, the nature of its business as a real

estate developer, which deals with not only prospective buyers and
tenants but also with brokers, agents and contractors among others,
will necessitate actual representation expenses.
Petitioner cited Section 33 (A) of the NIRC of 1997 in relation to

Section 2.33 of RR No. 03-98, which prescribe the following
conditions in order that fringe benefits shall not be subject to FBT:
(1) The fringe benefit is required by the nature of or necessary

to the trade or business of the employer;
(2) The fringe benefit is for the convenience or advantage of the

employer.
(b) With regard to the deficiency FBT imposed on the alleged

membership fees and dues, the same allegedly pertain to
condominium dues paid by petitioner on the condominium units it
held for sale. No employee or officer of the petitioner ever
benefitted from these condominium units as these units were
intended for sale to third party buyers. As such, the payment of said
dues is not subject to FBT.
As to the allegation that respondent's assessment was only based on erroneous

presumptions, the Supreme Court, in the case of Commissioner of Internal Revenue
vs. Hantex Trading Corporation, 151(154) ruled:
"We agree with the contention of the petitioner that, as a general rule, tax
assessments by tax examiners are presumed correct and made in good faith. All
presumptions are in favour of the correctness of a tax assessment. It is to be
presumed, however, that such assessment was based on sufficient evidence.
Upon the introduction of the assessment in evidence, a prima facie case of
liability on the part of the taxpayer is made. If a taxpayer files a petition for
review in the CTA and assails the assessment, the prima facie presumption is
that the assessment made by the BIR is correct, and that in preparing the same,
the BIR personnel regularly performed their duties. This rule for tax initiated
suits is premised on several factors other than the normal evidentiary rule
imposing proof obligation on the petitioner-taxpayer: the presumption of
administrative regularity; the likelihood that the taxpayer will have access to the
relevant information; and the desirability of bolstering the record-keeping
requirements of the NIRC.
However, the prima facie correctness of a tax assessment does not apply
upon proof that an assessment is utterly without foundation, meaning it is
arbitrary and capricious. Where the BIR has come out with a "naked
assessment," i.e., without any foundation character, the determination of the tax
due is without rational basis. 152(155) In such a situation, the U.S. Court of
Appeals ruled that the determination of the Commissioner contained in a
deficiency notice disappears. Hence, the determination by the CTA must rest on
all the evidence introduced and its ultimate determination must find support in
credible evidence."
In view of the above discussion, the Court shall scrutinize the pieces of
evidence submitted by petitioner.
A. Representation and Entertainment (P5,734,965.00)
According to petitioner's witness, Ms. Anna Lisa P. Mesina, Representation

and Entertainment expense is comprised of three accounts per books: (1) "meetings",
with GL account no. 75603; (2) "parties and gifts" with GL account no. 75211; and
(3) "representation and entertainment" with GL account no. 75602. 153(156)
The said schedule was presented as Exhibit "HHHHH". The GL entries under
the individual accounts were congruent with the account titles, although some entries
were for petty cash fund (PCF) replenishment, while other entries had no descriptions
on them.
However, petitioner did not present any other proof besides the
above-mentioned schedule which was supposedly extracted from the actual general

ledger. Thus, the Court finds this document insufficient to prove that representation
and entertainment account is composed of expenses that are not supposed to be
subject to FBT, since the schedule was internally produced by petitioner and
therefore, highly self-serving.
Considering the foregoing, the Court finds that the deficiency FBT imposed on
representation and entertainment account should be sustained, save for the deficiency
FBT pertaining to the amount of P938,500.00 154(157) classified under general ledger
account "Parties and Gifts", which was already subjected to deficiency WTC by
respondent. HCSAIa
B. Transportation and Travel (P350,399.00)
Transportation and Travel is comprised of the following GL accounts: (1)

"fare-local travel" with GL account no. 75701; (2) "other travel expenses" with GL
account no. 75704; (3) "registration of vehicles" with GL account no. 75904; and (4)
"tires batteries and accessories" with GL account no. 75903. 155(158) The said
schedule was presented as Exhibit "IIIII".
However, for the same reasons cited in the immediately preceding discussion,
the Court finds that the deficiency assessment imposed on transportation and travel
account also be upheld.
C. Membership Dues (P2,653,534.00)
According to petitioner, membership dues are booked into two (2) different
accounts, which are "membership dues" with GL account no. 75301 and
"subscriptions" with GL account no. 75303. 156(159) Petitioner provided Exhibit
"JJJJJ" which is the GL schedules for both accounts.
The Court notes that the entries made in the "membership dues" account were
mostly sports and country club membership fees, some are named after management
officers of petitioner, as evidenced by some official receipts in the table above.
In her Supplemental Judicial Affidavit, 157(160) petitioner's witness, Ms. Anna

Lisa P. Mesina, mentioned the last three entries in the GL run for account no. 75301,
which reflects the amounts recorded on November 30, 2003 as follows: P479,347.00,
P525,194.00 and P737,054.00. According to her, these expenses represent association
dues paid to Regent Parkway Corporation, where petitioner owns several

condominium units.
Meanwhile, Ms. Mesina clarified that these units are part of the inventory of
real properties for sale of petitioner, and that none of petitioner's officers or
employees lived in these condo units.
In support thereof, petitioner provided several Deeds of Sale between petitioner

and third-party buyers to prove that units in Regent Parkway Condominium are part of
their inventory, and not for use of their employees. The same were presented as
Exhibits "WWWWW" to "WWWWW-16".
However, the Court finds that these documents do not prove the veracity of
petitioner's claim that the payments actually pertain to association dues. It bears
stressing that basic is the rule that mere testimonies are self-serving if they are not
supported by documentary evidence within his reach, and it is the settled rule that the
presumption is always and inevitably against a litigant who fails to furnish evidence
within his reach, and it is stronger when documents, writings, etc., would be
conclusive in establishing his case. 158(161)
On the other hand, in the "subscriptions" account, Ms. Mesina pointed out GL
record made on 02/18/03 in the amount of P248,167.00, which pertains to petitioner's
payment to J.D. Edwards computerized accounting system adopted and used by the
company at the time.
However, petitioner failed to present supporting documents to prove that a

transaction transpired between petitioner and J.D. Edwards, and payment was made in
consideration therefore. Hence, the Court is unable to ascertain the truthfulness
thereof.
The same holds true with the alleged subscription fees paid to Bloomberg in
the amount of P272,420.00, as petitioner failed to substantiate such payment.
Again, the Court cannot simply give credence to the testimonies of Ms. Mesina
without presenting supporting evidence, as above-discussed. Therefore, respondent's
assessment on membership dues should be upheld.
According to the Court-commissioned ICPA, she obtained BIR Form No.

1604-CF that petitioner filed for taxable year 2003 to verify if the fringe benefits
furnished to managerial and supervisory employees declared and recorded in the
books of accounts were subjected to FBT. 159(162)
Furthermore, the ICPA stated that out of the protested amount, her verification
revealed that expenses amounting to P55,477.67 are supported by official receipts
proving that expenses relating to the said amount should not be subject to FBT.
160(163) The same is summarized under Annex "D" of the ICPA Report. Below is the
summary of the exhibits presented, with modifications deviating from the Annex "D"
prepared by the ICPA based on verification of this Court: CaSAcH
Supporting Exhibit
Supplier Amount Date document Doc. No. No.
Alabang Country Club, Inc. P22,000.00 January 2003 Statement of None "XXXX-1"
Account
Capitol Hills Golf & 1,227.67 16-Feb-03 Official Receipt 261382 "XXXX-2"
Country Club
Personnel Management 5,500.00 02-Apr-03 Official Receipt 54266 "XXXX-6"
Association
Sta. Elena Golf Club, Inc. 3,000.00 26-Mar-03 Official Receipt 79471 "XXXX-7"
Sta. Elena Golf Club, Inc. 6,000.00 06-Mar-03 Official Receipt 79472 "XXXX-8"
Ana Maria G. Bondoc 11,250.00 19-Dec-03 Official Receipt 30064 "XXXX-11"
Nature's Touch 1,500.00 21-Mar-03 Official Receipt 73790 "XXXX-15"
Nature's Touch 4,000.00 22-Dec-03 Official Receipt 77154 "XXXX-18"
Henry L. Yap 2,000.00 18-Feb-03 Official Receipt 596 None
–––––––––
TOTAL P56,477.67
=========
The Court notes that most supporting documents were issued in the name of
petitioner, except for the following: Statement of Account from Alabang Country
Club, Inc. in the amount of P22,000.00 which was issued in the name of Mr. Mariano
Galicia Jr.; OR from Capitol Hills Golf & Country Club in the amount of P1,227.67
which was issued in the name of Atty. Luis B. Pangilinan, petitioner's Assistant
Corporate Secretary; and OR from Sta. Elena Golf Club, Inc. in the amount of
P3,000.00 which was issued in the name of Vicente C. Tinsay, petitioner's SVP for
Commercial Operations.
The Court further notes that some of the expenses as described in the payment
request attached, were incurred for celebrations such as petitioner's office blessing and
Bonifacio Day decorations. Specifically, payment to RRL Nature's Touch in the
amount of P4,000.00 was for a wreath displayed during Bonifacio Day, and payment
to Ana Maria Bondoc in the amount of P11,250.00 was for the catering services

rendered during the office blessing.
Finally, the Court likewise observes that Exhibit "XXXX-6" and supporting
document to the payment to Henry L. Yap are not in the records.
FBT due on the following expenses totaling P7,777,648.00:

–––––––––––––
Total Fringe Benefits Per Assessment P8,738,898.00
Less: Adjustments
"Parties and Gifts" under the "Representation and
Entertainment" account had already been subjected 938,500.00
to deficiency WTC by respondent
Duly supported expenses not subject to FBT 161(164) 22,750.00
–––––––––––––
Total Fringe Benefits as Adjusted P7,777,648.00
============
To reiterate, however, respondent's right to assess petitioner for deficiency FBT

had already prescribed for the first three quarters of taxable year 2003, pursuant to
Section 5 of RR No. 04-02, in relation to Section 203 of the 1997 NIRC, as amended.
Hence the Court determined the amount of Representation and Entertainment,

Travel and Transportation, and Membership expenses recorded in the last quarter of
2003, and compared the same to the expenses subjected to FBT per BIR Form No.
1603 for the fourth quarter of 2003, as follows:
October November December Total

Representation and P19,064.00 P12,845.00 P12,616,042.00 P2,647,951.00
Entertainment 162(165)
Transportation and 3,225.00 2,670.00 244,432.00 250,327.00
Travel 163(166)
Membership Dues 164(167) - 1,742,665.00 - 1,742,665.00
Total 4th quarter expenses P4,640,943.00
subject to FBT
Expense amount 3,900.00

subjected to FBT by
petitioner in the 4th
Quarter 165(168)
––––––––––––
Difference P4,637,043.00
===========
Since prescription had already set in, out of the valid supporting documents in
the amount of P22,750.00, 166(169) only the amount of P15,250.00 167(170)
pertaining to the un-prescribed fourth quarter will be considered in the Court's
computation. IaHDcT
Considering the above discussions, petitioner is liable for basic deficiency FBT
in the amount of P2,173,126.12, computed as follows:
October November December Total

Representation and P19,064.00 P12,845.00 P2,616,042.00 P2,647,951.00
Entertainment
Transportation and Travel 3,225.00 2,670.00 244,432.00 250,327.00
Membership Dues - 1,742,665.00 - 1,742,665.00
Total 4th quarter expenses P4,640,943.00
subject to FBT
Less: Expense amount 3,900.00
subjected to FBT
by petitioner in the
4th Quarter
Difference P4,637,043.00
Less: Duly supported 15,250.00
expenses not subject
to FBT
Unsupported expenses P4,621,793.00
subject to FBT
Gross Up Value (68%) P6,796,754.41
Deficiency FBT per P2,174,961.41
this Court's verification
(32%)
Less: FBT payment in 1,835.29
the 4th Quarter
––––––––––––
Basic deficiency FBT P2,173,126.12
still due ===========

Deficiency Income Tax —
P77,257,890.36
Finally, Respondent computed the deficiency income tax assessment as

follows: 168(171)
Revenues Per ITR

Realized revenue on sale of real estate P1,205,596,247.00
Lease of Properties 186,226,299.00
Interest on installment contracts
Sales
Non-operating & other income
Dividend from foreign subsidiary 450,000,000.00
Interest in installment sales 75,558,726.00
Development control fees 3,804,675.00
Marketing & management fees 1,280,048.00
Miscellaneous 394,209.00
––––––––––––––––
P1,940,965,054.00
Cost and expenses
Cost of real estate sold 938,062,042.00
Total General and Administrative Expenses 805,039,304.00
Marketing and Selling

Commissions 37,961,444.00
Others/(Advertising per ITR) 5,625,871.00
––––––––––––––––
P1,786,688,661.00
––––––––––––––––
INCOME FROM OPERATIONS P154,276,393.00
––––––––––––––––
Tax Due P49,368,445.76
Less: Unexpired Payment MCIT 49,368,445.76
––––––––––––––––
-
On Compensation P56,717,003.16

b. Discrepancy in interest income on installment contract per
FS vs. ITR
Per F/S P76,150,000.00
Per ITR 75,558,726.00 591,274.00
c. Over-claimed Retirement expense-per monthly trial balance final
Retirement expenses disallowed (debits to P3,379,382.00
retirement plan expense)
Retirement cost added back to taxable 1,003,000.00 2,376,382.00
income per recon
d. Interest Arbitrage Computation (Non-deductible expense)
Interest, Inc. — ST Investment TB taken 9,861,790.74
from worksheet aud.
Interest, Inc. — ST Investment TB taken 2,927,553.26
from worksheet aud.
––––––––––––
TOTAL 13,381,608.48
Rate 0.38
Claimed as non-deductible interest exp. 2,694,884.00
Discrepancy — Additional non-deductible
portion of interest expense 3,661,380.03
e. Debit to Miscellaneous Income (Batch 108747)

Reduction of income account while reducing 62,485,550.46
the advances-metro pacific (asset) account
–––––––––––––––
Total P150,946,010.96
Rate 32%
Still Due P48,302,723.51
Surcharge
Interest (April 16, 2004 to April 15, 2007) P28,955,166.86
Compromise
–––––––––––––––
Deficiency Income Tax P77,257,890.36
==============
Based on the above computation, it could be gleaned that the assessment arose
from the following findings of respondent:

A. Disallowed Expenses Not Subject to Withholding Tax on: (a)
Compensation; (b) Expanded Withholding Tax and; (c) Fringe
Benefits Tax — P81,831,424.47
Based on the computation of deficiency income tax reflected in the FLD, the
Court finds that respondent erred in the amount she considered as disallowable
expenses not subjected to EWT, because the amount of P16,375,523.31 is the EWT
still due, not the related expenses.
However, this error results in the disallowable expenses being exponentially

greater than what has been assessed. Considering that the power to assess is lodged in
the respondent and is not within the province of this Court, the Court is constrained to
limit its findings based on respondent's assessment, albeit the erroneous computation
per FLD.
Furthermore and as previously discussed, the following discrepancies as to

expenses not subject to tax should be upheld for the other taxes, as follows:
a. WTC — P55,730,198.12
b. FBT — P7,777,648.00
Under Section 34 (K), expenses could be deducted from taxable income only if
the corresponding withholding has been imposed and remitted therefrom, to wit:
"SEC. 34. Deductions from Gross Income. — Except for taxpayers

earning compensation income arising from personal services rendered under an
employer-employee relationship where no deductions shall be allowed under
this Section other than under subsection (M) hereof, in computing taxable
income subject to income tax under Sections 24(A); 25(A); 26; 27(A), (B) and
(C); and 28(A), there shall be allowed the following deductions from gross
income:
(A) Expenses. —
(1) Ordinary and Necessary Trade, Business or Professional

Expenses. —
xxx xxx xxx
(K) Additional Requirements for Deductibility of Certain Payments. —

Any amount paid or payable which is otherwise deductible from, or taken into
account in computing gross income or for which depreciation or amortization
may be allowed under this Section, shall be allowed as a deduction only if it is
shown that the tax required to be deducted and withheld therefrom has been paid
to the Bureau of Internal Revenue in accordance with this Section, Sections 58
and 81 of this Code." DEIHAa
Considering that petitioner did not refute this finding of respondent and it
likewise failed to substantiate its claim, the Court rules that the assessment with
regard thereto should be upheld.
B. Discrepancy in Interest Income on Installment Contract per FS vs. ITR —

P591,274.00
Based on the records, the discrepancy computed by respondent was as follows:
Per FS P76,150,000.00
Per ITR 75,558,726.00 P591,274.00
Basing from the Protest Letter dated May 9, 2007, 169(172) petitioner stated
that it has yet to verify the amount and submit supporting documents. However,
petitioner failed to do the same. Moreover, the ICPA also made no mention of this
assessment item. 170(173)
Considering that respondent's bases for the amounts in the computation were
accurate, the Court rules that the same be upheld.
C. Over Claimed Retirement Expense — per Monthly Trial Balance —

P2,376,382.00
According to respondent, the retirement expense was disallowed because there

was no BIR letter of approval of the retirement plan provided by taxpayer in line with
the compliance requirements of R.A. 4917. Retirement expenses charges to income
amounting to P2,376,382.00 were disallowed — net of retirement cost added back by
petitioner per FS-ITR reconciliation. 171(174)
The ICPA noted that petitioner's contribution to the retirement fund is actually
exempt from tax under Republic Act No. 4917, as it is supported by BIR Ruling No.
ERP-013-98 dated March 27, 1998. 172(175)
Considering that petitioner was able to prove that it was actually able to secure
a BIR letter of approval certifying the validity of its retirement plan, the Court rules
that the amount of P2,376,382.00 assessed should be cancelled.
D. Additional Non-Deductible Portion of Interest Expense — P3,661,380.03
Based on the FLD, respondent made the assessment on this item because
petitioner's Interest Income subject to final tax were verified to be understated, which
was used as the basis for computing the non-deductible portion of interest expense as
covered by the underlying provisions of Sections 34 (B) of the 1997 NIRC, as
amended and as applicable to the year 2003, to wit:
"(B) Interest. —
(1) In General. — The amount of interest paid or incurred within a taxable

year on indebtedness in connection with the taxpayer's profession, trade
or business shall be allowed as deduction from gross income: Provided,
however, That the taxpayer's otherwise allowable deduction for interest
expense shall be reduced by an amount equal to the following
percentages of the interest income subjected to final tax:
Forty-one percent (41%) beginning January 1, 1998;
Thirty-nine percent (39%) beginning January 1, 1999; and
Thirty-eight percent (38%) beginning January 1, 2000;
(2) Exceptions. — No deduction shall be allowed in respect of interest under

the succeeding subparagraphs:
(a) If within the taxable year an individual taxpayer reporting income

on the cash basis incurs an indebtedness on which an interest is
paid in advance through discount or otherwise: Provided, That
such interest shall be allowed a deduction in the year the
indebtedness is paid: Provided, further, that if the indebtedness is
payable in periodic amortizations, the amount of interest which
corresponds to the amount of the principal amortized or paid
during the year shall be allowed as deduction in such taxable
year;
(b) If both the taxpayer and the person to whom the payment has
been made or is to be made are persons specified under Section
36(B); or
(c) If the indebtedness is incurred to finance petroleum exploration.

(3) Optional Treatment of Interest Expense. — At the option of the
taxpayer, interest incurred to acquire property used in trade business or
exercise of a profession may be allowed as a deduction or treated as a
capital expenditure." (Emphasis supplied)
BIR records 173(176) reveal that respondent computed for the discrepancy in
the following manner: DcHSEa
Interest Income Amount
Interest, Inc. — ST Investment TB taken from P9,861,790.84 174(177)

worksheet aud.
Interest, Inc. — ST Investment TB taken from 2,927,553.26 175(178)
worksheet aud.
Interest, Inc. — Bank Deposits 592,264.48 176(179)
–––––––––––––
TOTAL 13,381,608.58
Grossed up value at 80% 16,727,010.60
Rate 38%
Interest deduction 6,356,264.03
Claimed as non-deductible interest expense 2,694,884.00
Discrepancy — additional non-deductible P3,661,380.03
portion of interest exp
The Court compared the trial balance amounts to the FS-ITR reconciliation to
check whether these were not indeed included in the interest income subject to final
tax per ITR.
Based on the Reconciliation of Net Loss per books versus taxable income
attached to the Annual Income Tax Return, the Court found that petitioner treated as
non-taxable income, Interest income subject to final tax only in the amount of
P2,741,168.00 and non-deductible interest expense in the amount of P2,694,884.00.
In its protest letter, petitioner asserted that the said finding is incorrect and has
no basis. However, it should be noted that the amounts in respondent's computation
were simply taken from petitioner's trial balance. Consequently, petitioner failed to
provide supporting documents to refute the finding.
On the other hand, the ICPA reported that petitioner failed to provide the
necessary bank documents and related papers such as bank statement, vouchers and

other related documents in order for the ICPA to thoroughly verify that the additional
items of interest income was indeed subjected to final withholding tax. 177(180)
Considering the foregoing, the Court rules that the additional non-deductible
interest expense in the amount of P3,661,380.03 be upheld.
E. Debit to Miscellaneous Income (Batch 108747) — Reduction of Income

Account while Reducing the Advances-Metro Pacific (asset) Account —
P62,485,550.46
Based on the FLD, respondent found an unjustified reduction to miscellaneous

income account with a corresponding decrease to their advances (asset) account which
understated the income subject to income tax.
Moreover, scrutiny of petitioner's trial balance for 2003 submitted to

respondent on February 1, 2007, reveals that the amount debited to Miscellaneous
Income account is P62,526,902.00. However, since this revised amount is greater, the
Court is constrained to uphold the original assessed amount of P62,485,550.46.
Examination by the ICPA of petitioner's AFS and AITR for taxable year 2003
shows that during the year, petitioner made an adjustment to miscellaneous income
which in effect reduced taxable income by P62,485,550.46. According to the ICPA,
this relates to the sale of Block 6 Lot 1 to Metro Pacific Corporation (MPC).
Sometime in 2002, petitioner's Board of Directors resolved to approve the return of
the lot by MPC and effectively refund the amount to MPC. 178(181)
In its protest letter dated May 9, 2007, 179(182) petitioner states that the sale
was not consummated and that the property is still in the name of FBDC. Therefore,
petitioner believes that there was sufficient basis for the reversal of income previously
reported and subjected to tax.
In support of its contention, petitioner provided two journal vouchers, voucher

numbers 0202-004 180(183) and 0202-0034 181(184) dated February 28, 2002, to
prove that the journal entry made in the books of petitioner was an adjustment to
miscellaneous income due to sales return and refund of paid amortizations by Metro
Pacific Corporation (MPC) for the purchase of Lot 6-1 in BGC. Moreover, petitioner
presented the Minutes of FBDC Special Meeting of the Board of Directors held on
January 25, 2002 182(185) to prove that the return of the lot by MPC was approved by
petitioner's Board of Directors.

However, upon scrutiny of the said documents, it was found that the journal
vouchers did not actually reflect the amount of P62,485,550.46 debit to miscellaneous
income. The journal entries recorded were as follows:
Particulars Debit Credit

ICR — MPC 24,972,585.00
A/R — Others 21,458,034.14
Cash in Bank — PDCP C/A 46,430,619.14
# To record return of MPC 04/07/01 amort on Lot 6-1ST per OR 3526
ICR — MPC 25,596,899.00
A/R — Others 20,833,719.18
ICR — MPC 26,236,822.00
A/R — Others 20,193,797.14
We put emphasis on the three debits to the account "A/R — Others" as this
actually corresponds to the total amount in question. However, the account in question
is not "A/R — Others" made in 2002, but the adjustment (debit) to miscellaneous
income in the year 2003. Moreover, while there is evidence of approval through the
minutes of the BOD meeting, there was no proof of actual refund that will justify the
cancellation of income.
Thus, the Court finds that the assessment of respondent pertaining to the
unexplained debit to Miscellaneous Income account in the amount of P62,485,550.46
should be sustained, for lack of proper substantiation on the part of petitioner. CTHaSD
F. Excess Unexpired MCIT as of CY 2002 in the Amount of P17,199,081.00

was not Considered as Deduction from the Assessment.
Based on the 2003 Annual Income Tax Return, 183(186) petitioner has excess
MCIT amounting to P66,567,526. Since for the taxable year 2003, it incurred Regular
Corporate Income Tax Liability (RCIT) of P49,368,445.00, petitioner applied the
MCIT to the extent of its RCIT due, leaving the amount of P17,199,081.00 at the end
of 2003. On this score, petitioner asserts that this should be deducted from deficiency
income tax due.

Section 27 (E) (2) of the 1997 NIRC, as amended, provides the treatment for
the excess MCIT from previous years, to wit:
"(E) Minimum Corporate Income Tax on Domestic Corporation. — . . .
(2) Carry Forward of Excess Minimum Tax. — Any excess of the

minimum corporate income tax over the normal income tax as
computed in Subsection(A) of this Section shall be carried
forward and credited against the normal income tax for the three
(3) immediately succeeding taxable years."
Considering that the unexpired MCIT arose from taxable year 2002 and that
respondent offered no justification as to why there was no deduction made to account
for the said excess MCIT, this Court deems it fair to deduct the same from the basic
deficiency income tax due of petitioner.
To conclude, petitioner is liable for basic deficiency income tax for taxable
year 2003 in the amount of P29,719,822.65, computed as follows:
On Compensation P55,730,198.12
b. Discrepancy in interest income on installment
contract per FS vs. ITR
Per F/S P76,150,000.00
Per ITR 75,558,726.00 591,274.00
c. Interest Arbitrage Computation (non-deductible
expense)
Interest, Inc. — ST Investment TB taken from 9,861,790.74
worksheet aud.
Interest, Inc. — ST Investment TB taken from 2,927,553.26
worksheet aud.
––––––––––––
Total 13,381,608.48
Rate 0.38
Claimed as non-deductible interest expense 2,694,884.00

Discrepancy — Additional non-deductible portion
of interest expense 3,661,380.03
d. Debit to Miscellaneous Income (Batch 108747)
Reduction of income account while reducing the 62,485,550.46
advances-metro pacific (asset) account
––––––––––––––
Total P146,621,573.92
Income Tax Rate 32%
Income Tax Due P46,918,903.65
Less: Excess MCIT from CY 2002 17,199,081.00
––––––––––––––
Basic Deficiency Income Tax P29,719,822.65
=============
WHEREFORE, premises considered, the assessment issued by respondent

against petitioner for taxable year 2003 covering deficiency Withholding Tax on
Compensation in the amount of P29,546,442.74 is hereby CANCELLED. However,
the assessments issued by respondent against petitioner for taxable year 2003 covering
deficiency VAT, Expanded Withholding Tax, Documentary Stamp Tax, Fringe
Benefit Tax and Income Tax are hereby AFFIRMED but with modifications.
Accordingly, petitioner is hereby ORDERED TO PAY respondent the amount of
EIGHTY FIVE MILLION EIGHT FIFTY SIX THOUSAND TWO HUNDRED
THIRTY SEVEN PESOS AND EIGHTY NINE CENTAVOS (P85,856,237.89)
representing basic deficiency Value-Added Tax, Expanded Withholding Tax,
Documentary Stamp Tax, Fringe Benefits Tax and Income Tax and the 25% surcharge
imposed under Section 248 (3) of the NIRC of 1997, as amended, computed as
follows:
Type of Tax Basic Tax due 25% Surcharge Total

Value-Added Tax P28,889,366.59 P7,222,341.65 P36,111,708.24
Expanded Withholding Tax 6,815,989.95 1,703,997.49 8,519,987.44
Documentary Stamp Tax 1,086,685.00 271,671.25 1,358,356.25
Fringe Benefits Tax 2,173,126.12 543,281.53 2,716,407.65
Income Tax 29,719,822.65 7,429,955.66 37,149,778.32
––––––––––––– ––––––––––––– –––––––––––––
Total P68,684,990.31 P17,171,247.58 P85,856,237.89
============ ============ ============
In addition, petitioner is hereby ORDERED to PAY:

a) Deficiency interest at the rate of twenty percent (20%) per annum on the
basic deficiency Value-Added Tax, Expanded Withholding Tax, Documentary Stamp
Tax, Fringe Benefits Tax and Income Tax computed from the dates indicated below
until full payment thereof pursuant to Section 249 (B) of the NIRC of 1997, as
amended:
Tax Type Basic Tax Deficiency interest

computed from
Value-Added Tax P28,889,366.59 January 25, 2004
Expanded Withholding Tax 6,815,989.95 January 13, 2004
Documentary Stamp Tax 1,086,685.00 January 5, 2004
Fringe Benefits Tax 2,173,126.12 January 15, 2004
Income Tax 29,719,822.65 April 15, 2004
b) Delinquency interest at the rate of twenty percent (20%) per annum on the
deficiency interest which have accrued on the deficiency Value-Added Tax, Expanded
Withholding Tax, Documentary Stamp Tax and Fringe Benefits Tax as aforestated in
(a) computed from January 2, 2007 until full payment thereof pursuant to Section 249
(C) of the NIRC of 1997, as amended;
c) Delinquency interest at the rate of twenty percent (20%) per annum on the
deficiency interest which have accrued on the deficiency Income Tax as aforestated in
(a) computed from April 13, 2007 until full payment thereof pursuant to Section 249
(C) of the NIRC of 1997, as amended; TacSAE
d) Delinquency interest at the rate of twenty percent (20%) per annum on the
following amounts computed from the dates indicated below until full payment
thereof pursuant to Section 249 (C) of the NIRC of 1997, as amended:
Type of Tax Total Amount Due Delinquency Interest

Computed from
Value-Added Tax P36,111,708.24
Expanded Withholding Tax 8,519,987.44 January 2, 2007
Documentary Stamp Tax 1,358,356.25
Fringe Benefits Tax 2,716,407.65
Income Tax 29,719,822.65 April 13, 2007
SO ORDERED.

(SGD.) MA. BELEN M. RINGPIS-LIBAN
Associate Justice
Lovell R. Bautista and Esperanza R. Fabon-Victorino, JJ., concur.
Footnotes
1. Docket, Vol. I, pp. 4 to 58.
2. Exhibit "9", CTA Case No. 7696, BIR records, p. 534.
8. Par. 1, Summary of Admitted Facts, Joint Stipulation of Facts and Issues (JSFI), CTA
Case No. 7696, Vol. I, Docket, p. 168.
9. Par. 2, Summary of Admitted Facts, JSFI, CTA Case No. 7696, Vol. I, Docket, p.
168.
10. Exhibits "1" and "15", BIR Records, p. 3.
11. Exhibits "2", "3", "4", "16", "17" and "18", BIR Records, pp. 1-8.
14. Exhibit "7", BIR Records, pp. 490-495.
15. Exhibit "13", BIR Records, pp. 536-541; Par. 3, Summary of Admitted Facts, JSFI,
CTA Case No. 7696, Vol. I, Docket, pp. 168-169.
16. Exhibit "9", BIR Records, p. 534; Par. 3, Summary of Admitted Facts, JSFI, CTA
Case No. 7696, Vol. I, Docket, pp. 168-169.
CTA Case No. 7696, Vol. I, Docket, p. 169.
23. Summary of Admitted Facts, JSFI, Vol. I, Docket, pp. 169-173.
173.
25. Par. 2, Stipulated Facts, JSFI, CTA Case No. 7696, Vol. I, Docket, p. 177.
173.
28. Par. 8, Summary of Admitted Facts, JSFI, Vol. I, Docket, p. 174.
30. Petition for Review, CTA Case No. 7696, Vol. I, Docket, pp. 4-28.
31. Petition for Review, CTA Case No. 7228, Docket, pp. 1-13.
32. CTA Case No. 7228, Docket, pp. 61-62.
33. CTA Case No. 7696, Vol. I, Docket, pp. 126-127.
34. Answer, CTA Case No. 7696, Vol. I, Docket, pp. 74-82.
35. Special and Affirmative Defenses, Answer, CTA Case No. 7728, Docket, pp. 43-46.
36. CTA Case No. 7696, Vol. I, Docket, pp. 129-138; 139-157.
38. Minutes of the hearing dated November 10, 2008 and December 10, 2008, pp. 223
and 327, respectively; Exhibits "EEE", "EEE-3", "EEE-4", "EEE-5", "EEE-6" and
"EEE-7".
39. Minutes of the Hearing dated February 26, 2009, Vol. I, Docket, p. 375; Exhibits
"BBBBB" and "CCCCC".
40. Minutes of the Hearing dated February 18, 2009, Vol. I, Docket, pp. 371, 387; Exhibit
S4-50.
41. Minutes of the Hearing dated July 26, 2012, Vol. II, Docket, p. 781; Exhibits
"EEEEE", "E5-2", "EEEEE-3" and "EEEEE-4".
42. Vol. II, Docket, pp. 991-1118.
43. Vol. II, Docket, pp. 1125-1127.
44. Vol. III, Docket, pp. 1124-1230.
45. Vol. III, Docket, pp. 1268-1270.
46. Vol. III, Docket, pp. 1272-1274.
47. Vol. IV, Docket, pp. 1999-2001.
48. Exhibit "26", Vol. III, Docket, pp. 1247-1253.
49. Vol. IV, Docket, pp. 1983-1995.
50. Vol. IV, Docket, pp. 2003-2004.
51. Vol. IV, Docket, pp. 2005-2007.
52. Vol. IV, Docket, pp. 2024-2025.
53. Vol. IV, Docket, pp. 2028-2038.
54. Vol. IV, Docket, p. 2041.
55. Issues to be Tried and Resolved, Joint Stipulation of Facts and Issues (JSFI), CTA
Case No. 7696, docket, vol. one, p. 178.
56. Should be P70,046,666.94.
57. Should be P38,869,403.69.
58. Should be P6,338,119.45.
59. Par. 5.04, Petition for Review, CTA Case No. 7696, Vol. I, Docket, p. 14.
61. "SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of
Taxes. —
(a) In the case of false or fraudulent return with intent to evade 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 . . ."
62. G.R. No. L-20569, August 23, 1974.
63. Exhibit "13", CTA Case No. 7696, BIR records, pp. 536-541.
64. Erroneously indicated as P70,046,666.93 per FLD.
65. Exhibit "A", pp. 4-6; Petition for Review, CTA Case No. 7696, docket, vol. one, pp.
19-22.
66. Supra, Note 36.
67. Exhibits "YYYY-1.1" "YYYY-1.545".
68. G.R. No. 66416, March 21, 1990.
69. Exhibit "AAAAA", p. 15.
70. G.R. Nos. 193301 and 194637, dated March 11, 2013.
71. Fort Bonifacio Development Corp. vs. CIR, G.R. Nos. 158885 & 170680, April 2,
2009.
72. Id.
73. Exhibit "CCCCC".
74. Exhibit "A", p. 6.
75. G.R. No. 185969, November 19, 2014.
76. Exhibit "EEEEE-4", p. 61.
78. Exhibit "CCCCC", p. 3.
80. Exhibit "F".
81. Exhibit "H".
82. Exhibit "J".
83. Exhibit "K".
84. Exhibits "SSSS-1", "SSSS-10", "SSSS-17", "SSSS-24", "SSSS-31" and "SSSS-39".
85. Fort Bonifacio Development Corporation, G.R. Nos. 164155 & 175543, February 25,
2013, citing Philippine Home Assurance Corporation v. Court of Appeals, 361 Phil.
368, 372-373 (1999).
86. Exhibit "AAAAA", Annex F.3.
87. CTA Case No. 7696, BIR records, p. 416.
90. CTA Case No. 7696, docket, vol. 2, pp. 1125-1127.
91. Exhibit "SSSS-67".
95. G.R. Nos. 163653 and 167689, July 19, 2011.
97. Par. 13, Answer, CTA Case No. 7696, Vol. I, Docket, p. 80.
99. Par. 16, Answer, CTA Case No. 7696, Vol. I, Docket, pp. 81-82.
100. Exhibit "PPPP-1".
101. Exhibit "OOOO".
102. Exhibit "NNNN-1".
103. Exhibit "MMMM-1".
104. Exhibit "RRRR-3".
105. Supra, Note 14.
106. Supra, Notes 8 and 15.
107. Respondent's Answer, CTA Case No. 7696, docket, vol. one, p. 76; Exhibit "13",
CTA Case No. 7696, BIR records, p. 537.
108. Exhibits "TTTT-2.3", "TTTT-2.5", "TTTT-2.6", "TTTT-2.7", "TTTT-2.8",
"TTTT-2.10", "TTTT-2.11", "TTTT-2.13", "TTTT-2.15", "TTTT-2.17",
"TTTT-2.57", "TTTT-2.59", "TTTT-2.61", "TTTT-2.63" and "TTTT-2.64".
109. Exhibit "AAAAA".
"TTTT-2.60".
112. Exhibits "UUU" to "UUU-5".
113. Exhibit "DDDDD", p. 2.
114. Exhibits "UUU-2" to "UUU-3".
115. Exhibit "UUU".
116. Exhibit "FFFFF-1".
129. Exhibit "WWW-1".
130. CTA Case No. 7696, BIR records, pp. 391-393.
131. Exhibit "AAAAA", p. 12; Exhibits "UUUU-1" to "UUUU-17".
132. Exhibit "AAAAA", p. 12 and Annexes C.3 and C.4; Exhibit "EEEEE", p. 2.
133. Exhibit "EEEEE-3".
135. Exhibit "EEEEE-3", pp. 9-12.
137. Exhibit "RRRR-5", FBDC's Notes to Parent Company Financial Statements, p. 16.
138. Exhibit "RRRR-3", Section D, line 98.
139. Exhibit "KKKKK".
142. Officemetro Philippines, Inc. vs. Commissioner of Internal Revenue, CTA Case No.
8382, dated June 3, 2014.
145. Exhibits "N" and "O".
146. Exhibit "HHH".
147. Exhibit "GGG".
148. See details per Annex A.
149. Exhibit "13", CTA Case No. 7696, BIR records, pp. 536 and 538.
150. 4 SCRA 182, "As assessment fixes and determines the tax liability of a taxpayer. As
soon as it is served, an obligation arises on the part of the taxpayer concerned to pay
the amount assessed and demanded. Hence, assessments should not be based on mere
presumptions no matter how reasonable or logical said presumptions may be. The
assessment must be based on actual facts. The presumption of correctness of
assessment being a mere presumption cannot be made to rest on another
presumption."
151. G.R. No. 136975, March 31, 2005.
152. Id., citing United States v. Janis, 49 L. Ed. 2d 1046 (1976); 428 US 433 (1976).
153. Exhibit "E5-2", Q&A no. (63), p. 19.
154. Exhibit "E5-2", Q&A 70-73, pp. 20-21; Exhibits "FFFFF-14" and "HHHHH".
155. Exhibit "E5-2", Q&A no. (64), p. 19.
156. Exhibit "E5-2", Q&A no. (65), p. 19.
158. Republic vs. Sandiganbayan, G.R. Nos. 112708-09, March 29, 1996.
161. Exhibits "XXXX-8", "XXXX-11", "XXXX-15" and "XXXX-18".
162. Exhibit "HHHHH", net of the amount of P888,500.00 recorded under the account
"Parties and Gifts" which was subjected also to deficiency WTC by respondent.
163. Exhibit "IIIII".
164. Exhibit "JJJJJ".
165. Exhibit "MMMM-1-a".
167. Exhibits "XXXX-11" and "XXXX-18".
169. Exhibit "C", p. 3.
170. Exhibit "AAAAA", pp. 8-10.
171. CTA Case No. 7728, BIR Records, p. 180.
172. Exhibit "DDDDD".
174. CTA Case No. 7728, BIR records, p. 89, Trial Balance account no. 100.8101.
180. Exhibit "WWWW-1".
183. Computation of Minimum Corporate Income Tax of Previous Year, Exhibit
"RRRR-3", p. 2.
Annex available upon request.

SECOND DIVISION
[C.T.A. CASE NO. 8265. December 10, 2014.]
DAKAY CONSTRUCTION AND DEVELOPMENT

CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, respondent.
DECISION
CASANOVA, J : p
This resolves the Petition for Review 1(187) filed on April 8, 2011 seeking for
the cancellation and withdrawal of the assessment against petitioner for alleged
deficiency Income Tax, Value-Added Tax, Documentary Stamp Tax and Compromise
Penalties for taxable year 2007 in the total amount of P37,620,843.86.
The facts as found in the records of this case are as follows:
Petitioner Dakay Construction and Development Corporation is a Filipino

domestic corporation, duly organized and existing under and by virtue of Philippine
laws with principal office address at Woolbright Drive, Sudlon, Lahug, Cebu City,
Philippines. 2(188)
On the other hand, respondent is the duly appointed Commissioner of Internal

Revenue who is vested with authority to administer and enforce national internal
revenue laws. Her office is located at the 5th Floor, BIR National Office Building,
Agham Road, Diliman, Quezon City, Philippines. 3(189)
On November 24, 2008, petitioner received a Letter of Authority from Jose N.

Tan, Regional Director of Revenue Region No. 13, Cebu City, dated October 22,
2008, informing petitioner that RO Violeto Meso and GS Aldine Paulo of Regional

District Office No. 81 of Cebu City North, are authorized to examine its books of
accounts and other accounting records for all internal revenue taxes for the calendar
year (CY) 2007. 4(190)
After investigation, a Formal Letter of Demand (FLD) and Assessment Notices

were issued by Regional Director Jose N. Tan on December 29, 2010, 5(191)
assessing petitioner of deficiency taxes in the total amount of P37,620,843.86,
inclusive of statutory increments.
On January 28, 2011, petitioner filed its Protest Letter assailing the assessment
contained in the FLD. 6(192)
Thereafter, a letter was issued by Regional Director Jose N. Tan, which was
allegedly received by petitioner on March 9, 2011, requesting for the immediate
payment of the deficiency tax assessed. The letter further states that if petitioner
disagrees, it may appeal the said final decision with the Court of Tax Appeals within
thirty (30) days from date of receipt thereof, otherwise, petitioner's deficiency tax
assessments shall become final, executory and demandable. 7(193)
Accordingly, petitioner filed the instant Petition for Review on April 8, 2011.
For her part, respondent filed her Answer 8(194) on June 16, 2011, interposing
the following defenses:
"ARGUMENTS AND DISCUSSIONS
The assessments for deficiency Income Tax, VAT, Documentary Stamp

tax and Compromise Penalties in the respective amounts of P16,179,240.81,
P21,344,766.20, P93,826.85 and P3,000.00, were issued in accordance with
law, jurisprudence and existing revenue issuances.
Respondent's Letter of Authority (LOA)

is valid and binding.
Petitioner argued that the issuance of respondent's Letter of Authority

(LOA) as basis of respondent to audit petitioner's accounting records and the
subsequent assessments covering the period CY 2007 issued on October 22,
2008 is void and without force and effect on ground that petitioner received said
LOA beyond 30 days from the date thereof. It likewise argued that the
respondent's revenue officers have no valid authority to conduct the examination
and the subsequent assessments. Respondent begs to disagree.

It must be noted that nowhere is it mentioned in said LOA or other
internal revenue issuances or audit programs and policies that the failure of
revenue examiners to serve the LOA to taxpayers within 30 days from the date
hereof, will give rise to taxpayer immunity from audit for that particular period.
The said requirement is merely directory and is intended to enhance efficiency
while at the same ensure quality of audit. It does not estop the right of the
government to issue assessment notices for deficiency taxes within the period/s
set by law. Therefore, at any time within the regular three-year prescriptive
period for issuing assessment notices under Section 203 of the National Internal
Revenue Code (NIRC) of 1997, as amended, the Commissioner of Internal
Revenue or her duly authorized representatives may issue an order revalidating
Letters of Authority.
Further, petitioner is estopped from questioning the validity of said LOA

due to petitioner's failure to invoke its right to object or refuse to receive the
alleged void LOA at the time it was served by the revenue officers. As a matter
of fact, petitioner voluntarily submitted its books of accounts and accounting
records for audit of respondent's revenue officers in order to comply with
respondent's LOA. Likewise, petitioner did not cite the invalidity of the issuance
of the LOA in its protest letter dated January 25, 2011. Hence, respondent's
revenue officers have the authority to audit petitioner's book of accounts and
accounting records for the taxable year 2007.
Respondent's right to assess petitioner's

deficiency internal revenue tax
assessments have not prescribed.
a.) Deficiency Income Tax (IT)
The internal revenue tax assessment involved in this case is for the
taxable year 2007. BIR records show that petitioner's (sic) filed its income tax
return on April 15, 2008; and, in accordance with Section 203 of the 1997
NIRC, as amended, the prescriptive period for assessing petitioner would end on
April 15, 2011. However, respondent issued the Final Assessment on December
29, 2010, which petitioner received on the same date. Hence, the subject
assessment is valid for having been issued within the prescriptive period.
b.) Deficiency Value-Added Tax (VAT)
The right of the respondent to assess petitioner for deficiency Value

Added Tax (VAT) for the taxable year 2007 has not prescribed because it falls
under Section 222(a) of the 1997 Tax Code, thus:

'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.
xxx xxx xxx
The abovementioned provision finds application to the present case

because respondent discovered that petitioner made a false return and failed to
file a return to cover number of transaction with intent to evade taxes returns
(sic) based on the result of the investigations made by respondent's revenue
officers on the books of accounts and pertinent records and documents
submitted by petitioner.
In the case at bar, although petitioner filed its monthly and quarterly
VAT returns as mandated by law, it failed to declare thereto cash collections
subject to VAT of P40,926,892.32 and unexplained sources of cash subject to
VAT of P12,344,184.85. Petitioner also declared a creditable VAT withheld in
the total amount of P1,378,747.07 which were disallowed due to 'out-of-period
claimed' and unsupported creditable VAT withheld, and it did not declare the
right application of standard input tax of seven percent (7%) of the selling/gross
receipts attributable to government sales pursuant to Q & A No. 31 of Revenue
Memorandum Circular No. 62-05 in the total amount of P10,243,4380.90 (sic).
These facts show that the VAT returns filed by petitioner can be considered as
false return because it deviated from the truth, when in truth there was some
items to be considered subject to VAT and rightly to be declared. Being
considered as acfalse (sic) return, it is immaterial if petitioner intentionally
omitted to declare items to be subject to VAT or not.
Considering that petitioner's return is false, the applicable prescriptive

period would be ten years from the discovery of falsity. In the case at bar, the
latest quarterly returns filed was on January 25, 2008, while the FAN was issued
on December 29, 2009, such period being within the ten year period it follows
that the assessment had not yet prescribed.

Moreover, the Supreme Court had 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, No. L-19495,
November 24, 1966). Hence, the assessment for deficiency VAT has not
prescribed.
c. Deficiency Documentary Stamp Tax (DST)
Based on the audit findings of respondent's revenue officers that

petitioner had an increase in the Capital Stock for the year 2006 as per audited
Balance Sheet attached to its Annual Income Tax Return amounting to
P9,200,000.00, and no DST payments were posted in the BIR-Integrated Tax
System on said increase in capital stock, it is reasonable to deduce that
petitioner evidently failed to file DST Returns in violation of Section 175 of the
NIRC of 1997, as amended. Hence, for failure to file DST return, the
corresponding taxes may be assessed at any time within ten (10) years after
the discovery of such omission pursuant to Section 222(a) of the 1997 Tax
Code.
Assessments are presumed to be correct unless the contrary is shown,

and the burden of proof rest upon the taxpayer to overcome this presumption
(Tan Guan vs. The Court of Tax Appeals and the Commissioner of the Bureau of
Internal Revenue, No. L-23676, April 27, 1967). For failure of petitioner to
present evidences that will overpower such presumption, the Honorable Court
should therefore stand by the truthfulness of respondent's assessment for
deficiency income tax, VAT, deficiency DST and compromise penalties.
Respondent's deficiency internal revenue

tax assessments have factual and legal
basis
Petitioner assailed the assessment notices for having been issued without
factual and legal basis. Respondent respectfully submits that petitioner's
assertions lacks of merit.
Section 228 of the NIRC provides that the taxpayer shall be informed in
writing of the law and the facts on which the assessment was based. It bears
stressing that the purpose of Section 228 of the 1997 Tax Code in requiring that
the taxpayer be informed of the law and the facts on which the assessment is
made is to give the taxpayer the opportunity to refute the findings of the

examiner and give a more accurate and detailed explanation regarding the
proposed assessment(s)., (sic)
The purpose of the above law was served in the instant case. A perusal
of petitioner's Protest Letter on respondent's PAN dated December 22, 2010 as
well as its Protest Letter on respondent's Assessment Notice and FAN dated
January 25, 2011, reveals that petitioner was able to present its arguments
intelligently as well as prepare documentary evidence to support its protest in
assailing the PAN and assessment notices issued by respondent for petitioner's
deficiency IT, VAT, DST and compromise penalties assessments. Hence,
Section 228 of the 1997 Tax Code is deemed to have been complied with.
(Philippine Stock Exchange, Inc. vs. Commissioner of Internal Revenue, CTA
Case No. 5995, promulgated October 15, 2002, citing Belle Corporation vs.
Commissioner of Internal Revenue, CTA Case No. 5930, promulgated April 4,
2002)."
Thereafter, the case was set for Pre-Trial Conference on January 19, 2012.
9(195) Pre-Trial Brief for Petitioner was filed on January 10, 2012 10(196) while
Respondent's Pre-trial Brief was filed on February 22, 2012. 11(197)
On August 22, 2012, the Court issued a Pre-Trial Order which deemed
terminated the pre-trial of the case. 12(198)
During trial, both parties presented their respective documentary and

testimonial evidence.
After presentation, marking and identification, the Court admitted Exhibits "A"
to "R" 13(199) as part of petitioner's documentary evidence while Exhibits "1" to
"12-A" 14(200) were admitted as part of respondent's documentary evidence.
Subsequently, petitioner filed its Memorandum 15(201) on December 20, 2013

while respondent failed to file her Memorandum as per Records Verification 16(202)
dated January 6, 2014. Thus, in a Resolution 17(203) dated January 13, 2014, the case
was submitted for decision without respondent's memorandum.
The Court simplified the issues in this case as follows:
1. Whether or not the examination of the books as well as the

assessments made by respondent CIR is null and void for the
following reasons, among others:

a. The tax deficiency assessment is based on a void Letter of
Authority for having been served on petitioner beyond thirty
(30) days from the date of issuance thereof;
b. The tax deficiency assessment is void for having prescribed;
c. The tax deficiency assessment was issued without factual

and legal bases.
2. Whether petitioner is liable for the deficiency Income Tax (IT),

Value Added Tax (VAT), and Documentary Stamp Tax (DST) in
the aggregate amount of P37,620,843.86 for the CY 2007.
As to the issue that the Letter of Authority (LOA) issued by respondent is void
for having been served on petitioner beyond thirty (30) days from the date of issuance
thereof, the Court finds the same bereft of merit.
According to petitioner, the LOA was served on November 24, 2008, or

thirty-three (33) days from October 22, 2008. In view thereof, petitioner believes that
the LOA is void for having been served beyond the thirty (30)-day mandatory period
provided under Revenue Audit Memorandum Order No. 1-00 (RAMO No. 1-00).
Furthermore, petitioner alleges that the belatedly issued revalidation notice did
not work to cure the void Letter of Authority. Petitioner maintains that the subject
LOA is allegedly void from its inception and it necessarily follows that it cannot be
cured nor ratified by a subsequent act. Petitioner adds that the revalidation was
defectively made considering that the Notice of Revalidation was belatedly issued and
that it did not comply with the directives of no less than the BIR with respect to proper
revalidation procedures.
Petitioner further mentions that respondent failed to comply with the manner of
accomplishing a revalidation as provided under Revenue Memorandum Order No.
38-88. Petitioner alleges that a subsequent and/or new LOA was never issued to
petitioner and that the Notice was issued way beyond the one hundred twenty (120)
day period granted by the BIR Rules.
To address the foregoing issues, the Court finds it relevant to cite RAMO No.
1-00 which provides as follows:
"2.3 A Letter of Authority must be served or presented to the taxpayer within

30 days from its date of issue; otherwise, it becomes null and void unless
revalidated. The taxpayer has all the right to refuse its service if presented
beyond the 30-day period depending on the policy set by top management.
Revalidation is done by issuing a new Letter of Authority or by just simply
stamping the words "Revalidated on __________________" on the face of the
copy of the Letter of Authority issued.
Clearly, an LOA served beyond the 30-day period provided above does not
automatically make it null and void if the same is revalidated. Furthermore,
revalidation may be done not only by issuing a new LOA but also by simply stamping
the words "Revalidated on ____________" on the face of the copy of the Letter of
Authority issued.
While it is true that the LOA in this case was served beyond the 30-day period
provided in the RAMO, records of the case, however, show that the LOA was
subsequently revalidated as can be seen on the face of the copy of respondent's LOA
with stamp "REVALIDATED ON: JULY 24, 2009." Clearly, the LOA issued on
October 22, 2008 is not null and void in view of its revalidation on July 24, 2009.
As to petitioner's allegation that respondent failed to comply with the manner

of accomplishing a revalidation, the Court finds it relevant Revenue Memorandum
Circular No. 023-09 dated April 16, 2009 which provides:
"I. Revalidation of LAs
The revalidation of LA shall give rise to the extension of the period

within which the Revenue Officer (RO) assigned to the case shall submit the
report of investigation to higher authorities for review and approval, without the
imposition of applicable administrative sanctions. Depending on the
classification of the pending tax case, said extension period shall be equivalent
to the original prescribed number of days within which to report the case under
existing revenue issuances. Failure on the part of the RO to request for the
revalidation of LA or the expiration of the 'revalidation period' does not
nullify the LA nor will it affect or modify the rules on the reglementary
period within which an assessment may be validly issued. However, this
shall be considered as a ground for the imposition of disciplinary action and
demerit in the performance rating of the concerned RO, including the
reassignment of the case to another RO if the Regional Director, upon the
recommendation of the Revenue District Officer, deems it necessary."
Clearly, the irregularity in the manner of accomplishing the revalidation of the

LOA, specifically the alleged failure of respondent to request for revalidation within
the "revalidation period" does not nullify the LOA nor affect the issuance of a valid
assessment and may only be considered as a ground for imposition of disciplinary
action on the concerned revenue officer.
Thus, petitioner's allegation that the failure to properly accomplish the

revalidation of the LOA makes the LOA invalid is unmeritorious.
Moving on to the issue of prescription, the period within which to assess

internal revenue taxes is governed by Section 203 of the National Internal Revenue
Code (NIRC) of 1997, as amended, the pertinent provision of which reads:
"SEC. 203. Period of Limitation Upon Assessment and Collection. — Except

as provided in the 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
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."
It is clear from the foregoing that the three (3)-year period to assess internal
revenue taxes commences from the date of actual filing of the return; or from the last
day prescribed by law for the filing of such return, whichever comes later.
Accordingly, if the return was filed earlier than the last day allowed by law, the period
to assess shall still be counted from the last day prescribed for filing of the return.
However, if the return was filed beyond the period prescribed by law, the three-year
period shall be counted from the day the return was filed.
The instant petition for review involves the assessment issued by respondent
against petitioner for deficiency Income Tax, deficiency Value-Added Tax and
deficiency Documentary Stamp Tax for the taxable year 2007.
As to petitioner's income tax, the return is required to be filed and the payment
is to be made on or before the fifteenth (15th) day of April. 18(204) The Annual
Income Tax Return for the taxable year 2007 was filed on April 15, 2008. 19(205)
Hence, counting from the said date, respondent had until April 15, 2011 within which
to assess petitioner for the subject deficiency income tax for the taxable year 2007.
Clearly, the deficiency income tax assessment issued by respondent on December 29,

2010 was issued within the 3-year period provided by law.
On the other hand, the law requires that the Value-Added Tax Return be filed
quarterly within twenty-five (25) days following the close of each taxable quarter
prescribed for each taxpayer. 20(206) In this regard, records reveal that petitioner
filed its Quarterly Value-Added Tax Return covering the 1st, 2nd, 3rd, and 4th
quarters of taxable year 2007 on April 25, 2007, 21(207) July 25, 2007, 22(208)
October 24, 2007 23(209) and January 25, 2008, 24(210) respectively. Hence,
respondent had until April 25, 2010, July 25, 2010, October 25, 2010 and January 25,
2011 within which to assess petitioner for deficiency Value-Added Tax for 1st, 2nd,
3rd and 4th quarters of the taxable year 2007.
Based on the foregoing dates, respondent's deficiency VAT assessment for the
1st, 2nd and 3rd quarters of the taxable year 2007 were issued beyond the 3-year
prescriptive period provided by law while the deficiency VAT assessment for the 4th
quarter was issued within the 3-year prescriptive period.
Nevertheless, considering that the bases for the deficiency VAT assessment are
the entries in petitioner's Financial Statements and Alphalist of payees subject to
withholding tax pertaining to the whole taxable year of 2007, and considering that
petitioner failed to overcome the presumption of regularity in the performance of the
respondent's duties, the deficiency VAT assessment is deemed to have been made on
the unprescribed period for the taxable year 2007.
On the other hand, as to the prescription of assessment for deficiency

documentary stamp tax, the assessment was based on the alleged failure of petitioner
to pay documentary stamp tax on the increase in its Capital Stock as per its Audited
Balance Sheet pertaining to the whole taxable year of 2007. According to petitioner,
the original issuance of shares of stocks were issued sometime on March 2007, and
pursuant to Section 200 (B) of the Tax Code, the DST is due within ten (10) days after
the close of the month. Thus, petitioner concludes that the assessment has already
prescribed.
Respondent opposes petitioner's allegation, claiming that petitioner's failure to

pay DST on said increase in capital stock implies that petitioner failed to file DST
Returns in violation of Section 175 of the NIRC of 1997, as amended. Hence,
respondent believes that petitioner may be assessed of DST at any time within ten (10)
years after the discovery of such omission pursuant to Section 222 (a) of the 1997 Tax
Code.

On this matter, it must be noted that petitioner failed to show evidence to prove
that the assessment for DST pertains to the original issuance of shares of stocks issued
sometime on March 2007. There is, likewise, nothing in the records of this case which
would show that petitioner filed the corresponding DST return for such transaction.
Consequently, what is applicable here is the ten-year period to assess provided in
Section 222 of the 1997 Tax Code, which states:
"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 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." (Emphasis supplied)
Since no return for DST was filed, the Court finds no error in respondent's
claim that the DST may be assessed anytime within ten years after the discovery of the
omission. In view of petitioner's failure to overcome the presumption of regularity of
the performance of respondent's duties, the deficiency documentary stamp tax
assessment for the taxable year 2007 is deemed to have been made within the
prescriptive period provided by law to assess.
Moving on to the correctness of the assessment issued against petitioner, it

must be noted that tax assessments by tax examiners are presumed correct and made
in good faith. All presumptions are in favor of the correctness of a tax assessment. It
is to be presumed, however, that such assessment was based on sufficient evidence.
Upon the introduction of the assessment in evidence, a prima facie case of liability on
the part of the taxpayer is made. If a taxpayer files a petition for review in the CTA
and assails the assessment, the prima facie presumption is that the assessment
made by the BIR is correct, and that in preparing the same, the BIR personnel
regularly performed their duties. This rule for tax initiated suits is premised on
several factors other than the normal evidentiary rule imposing proof obligation on the
petitioner-taxpayer: the presumption of administrative regularity; the likelihood that
the taxpayer will have access to the relevant information; and the desirability of
bolstering the record-keeping requirements of the NIRC. 25(211)
However, the prima facie correctness of a tax assessment does not apply
upon proof that an assessment is utterly without foundation, meaning it is
arbitrary and capricious. Where the BIR has come out with a "naked assessment,"
i.e., without any foundation character, the determination of the tax due is without
rational basis. In such a situation, the U.S. Court of Appeals ruled that the
determination of the Commissioner contained in a deficiency notice disappears.
Hence, the determination by the CTA must rest on all the evidence introduced
and its ultimate determination must find support in credible evidence. 26(212)
(Emphasis supplied.)
I. INCOME TAX — P16,179,240.81
As reflected in the FLD 27(213) dated December 29, 2010, the deficiency
income tax was computed as follows:
Taxable Income per return P14,067,041.35

Add: Audit Findings
Construction Income not subjected to
income tax P1,292,107.93
Recoupment on Mobilization Payable
not subjected to income tax 24,565,516.45
Disallowed salaries and wages 128,617.32 25,986,241.70
–––––––––––––
Total adjusted taxable income per audit P40,053,283.05
Income tax due thereon P14,018,649.07
Less: Income Tax credits:
Prior year's excess credits P25,123,835.95
Creditable Withholding Tax per return 9,724,032.96
–––––––––––––
Total Income Tax Credits per Return 34,847,868.91
Less: Disallowed creditable tax
certificates — double claims 1,360,592.48
Allowable Income Tax Credits per audit 33,487,276.43
Less: Amount Carried over to succeeding
year per return 29,924,404.44 3,562,871.99
Basic Deficiency Income Tax Due P10,455,777.08
Add: 20% interest from 04.16.08-01.15.11 5,723,463.73
–––––––––––––
Total Deficiency Income Tax Due P16,179,240.81
==========

As can be seen from the above computation, the assessment arose from the
following items:
A. Construction Income not subjected to income tax P1,292,107.93

B. Recoupment on Mobilization Payable not subjected to 24,565,516.45
income tax
C. Disallowed salaries and wages 128,617.32
D. Disallowed Creditable Tax Certificates-double claims 1,360,592.48
E. Amount carried-over to succeeding year per return 29,924,404.44
The Court shall discuss the validity of the said assessment by looking into the
propriety of each item.
A. Construction Income not subjected to income tax — P1,292,107.93
Based on the Details of Discrepancies 28(214) attached to the FLD, respondent

arrived at the discrepancy by comparing construction income recorded under
petitioner's Collection Book Entries and construction income reported in petitioner's
Financial Statements and Annual Income Tax Return (ITR), as shown below:
Construction Income per Collection Book Entries P510,758,177.42

Construction Income per Financial Statements/ITR 509,466,069.49
Construction Income not subjected to income tax P1,292,107.93
Petitioner contends that it is engaged in the construction of buildings under

long-term contracts, wherein the income is spread over the length of time it takes to
complete the project, thus petitioner uses the percentage of completion method which
is the method required by the Tax Code. 29(215)
In support thereof, petitioner presented its Annual ITR for TY 2007 to prove,
among others, that its gross receipts for the said year in the amount of
P509,466,069.49 exceeded ten (10) million pesos. 30(216) No other evidence was
presented by petitioner to refute respondent's finding.
It is worthy to note how Section 48 of the NIRC of 1997, as amended, provides

for the reporting of income for long-term construction contracts, to wit:
"SEC. 48. Accounting for Long-Term Contracts. — Income from

long-term contracts shall be reported for tax purposes in the manner as provided
in this Section. As used herein, the term 'long-term contracts' means building,
installation or construction contracts covering a period in excess of one (1) year.
Persons whose gross income is derived in whole or in part from such contracts
shall report such income upon the basis of percentage of completion. The
return should be accompanied by a return certificate of architects or
engineers showing the percentage of completion during the taxable year of
the entire work performed under contract. There should be deducted from
such gross income all expenditures made during the taxable year on account of
the contract, account being taken of the material and supplies on hand at the
beginning and end of the taxable period for use in connection with the work
under the contract but not yet so applied. If upon completion of a contract, it is
found that the taxable net income arising thereunder has not been clearly
reflected for any year or years, the Commissioner may permit or require an
amended return." (Emphasis supplied)
Considering that there was no documentary evidence of a return certificate of

architects or engineers showing percentage of completion, which is a required
attachment to the income tax return, and that no schedule was provided by petitioner
showing how it computed its revenues, costs and expenses for the year using the
percentage of completion method, petitioner's reliance on mere oral testimonies fails
to disprove the findings of the respondent.
Hence, the Court finds for the respondent, and the deficiency income tax on
construction income should be upheld.
B. Recoupment on Mobilization Payable not subjected to income tax —

P24,565,516.45
The discrepancy was computed as follows:
Mobilization Payable, beginning P38,483,668.64

Total Mobilization Payable set up during the year 79,986,074.35
––––––––––––––
Total P118,469,742.89
Less: Mobilization Payable, ending 18,485,929.39
––––––––––––––
Total Recoupment per reconciliation P99,983,813.60
Total Recoupment per Collection Book Entries 75,418,297.15
Recoupment on Mobilization Payable not
subjected to income tax P24,565,516.45
===========
Petitioner alleges that the income tax deficiency assessed was erroneously
made for the reason that respondent improperly considered the Recoupment on
Mobilization Payable as income on the part of petitioner.
Petitioner states that a "Mobilization Payment" refers to a cash advance made

by the client to the contractor to answer for future expenses and services for a
particular period of time. Petitioner maintains that if after the lapse of this period of
time, the amount advanced is not fully consumed, the excess is given back or refunded
to the client. Petitioner alleges that a "Mobilization Payable" is when a contractor
collects the mobilization payment but has yet to render the services equivalent to this
mobilization payment.
Thus, petitioner concludes that a "Mobilization Payable" cannot per se be taxed

as income because no gain is realized by the contractor and is, in fact, a liability on the
part of the contractor because it represents an amount the contractor is bound to return
if the contemplated services are not rendered.
Petitioner, likewise, alleges that respondent used the "cash basis method" of
accounting as opposed to the "percentage of completion method" which was used by
petitioner in its computation. In using the "cash basis method", petitioner averred that
respondent treated all cash received by petitioner (whether or not the service has been
rendered) as income, resulting in a recoupment on its mobilization payable.
Petitioner avers that the use of "cash basis method" completely disregards the
nature of a recoupment upon a mobilization payable which recognizes income only
upon the rendering of services by the contractor and that the percentage of completion
method is the method espoused by the Tax Code for long-term construction contracts
such as those involved in petitioner's case.
As discussed earlier under item (A), petitioner failed to provide documentary

evidence to prove the use of percentage of completion method, thus disputing
respondent's finding on recoupment of Mobilization Payable may prove futile. The
testimony of petitioner's witness 31(217) as well as its allegations in the memorandum
are insufficient to support its claim that respondent's assessment for income tax
arising from the Recoupment on Mobilization Payable is incorrect.
Basic is the rule that mere testimonies are self-serving if they are not supported
by documentary evidence. Corollary thereto is the settled rule that the presumption is
always and inevitably against a litigant who fails to furnish evidence within his reach,

and it is stronger when documents, writings, etc., would be conclusive in establishing
his case. This is indeed an occasion to emphasize once again that the superiority of
written evidence, compared with oral, is so pronounced, obvious and well known, that
in most cases the deliberate and inexcusable withholding of written evidence, and
effort to secure favorable consideration of oral testimony in the place of it, is an
affront to the intelligence of the court. 32(218)
Thus, the presumption of correctness of respondent's assessment on this item is

upheld.
C. Disallowed Salaries and Wages — P128,617.32
On respondent's income tax assessment relating to the disallowed salaries and

wages, the Details of Discrepancies attached to the FLD states that a reconciliation of
salaries and wages account per audit revealed an over statement of said expenses
computed as follows:
Salaries and Wages claimed per Financial Statements P35,802,384.75

Salaries per alphalist of employees 35,673,767.43
Disallowed Salaries P128,617.32
Petitioner's witness, Atty. Raymond L. Bertulfo, testified, by way of Judicial

Affidavit, that the BIR merely compared the salaries and wages per financial
statements and that of per alphalists. 33(219) Without the corresponding details, Atty.
Bertulfo alleged that it is difficult to reply to the assessment.
From the above testimony of petitioner's witness, it can be deduced that

petitioner is actually aware of the basis for the disallowance of salaries and wages
which is the comparison of its own financial statements and alphalists. Thus, the
Court cannot give credence to the testimony of the witness that it was difficult for
them to reply since it could have easily verified from its own records, specifically its
financial statements and alphalists, how the disallowed salaries and wages was
computed.
For failure to present credible evidence to refute the disallowance of salaries

and wages in the amount of P128,617.32, the same is upheld.
D. Double claimed creditable withholding tax certificates — P1,360,592.48
In the details of discrepancy, respondent stated that the total income tax credits

per return amounted to P34,847,868.91. Respondent, however, found that there were
double claimed creditable withholding tax certificates in the total amount of
P1,360,592.48. Hence, respondent concluded that the total allowable income tax
credits amounted to only P33,487,276.43.
Petitioner assails the above-mentioned findings, averring that it made repeated

requests for respondent to prove it with a breakdown or details of the alleged double
claim, as they were never provided during audit. Petitioner avers that as a result, the
assessment in connection with the alleged double claimed creditable withholding tax
partakes the nature of a "naked assessment", or an assessment which is reached
without rational foundation or basis.
Notably, the law requires that the taxpayers should be informed of the legal and
factual bases of the assessment. However, the assessment notices need not be a full
narration of the facts and laws on which the assessment is based. Thus, so long as the
parties are notified and were given the opportunity to explain their side, the
requirements of due process are satisfactorily complied with. 34(220)
Applying the foregoing, the mere fact that respondent failed to provide
petitioner of a breakdown or details of the alleged double claim of creditable
withholding tax certificates does not make the assessment "a naked assessment".
Also, it cannot be said that the assessment for the double claim of creditable
withholding tax certificates has no factual basis since the assessment itself shows that
respondent based the assessment on petitioner's Income Tax Return and Creditable
Tax Certificates which petitioner could have easily verified. In view thereof,
petitioner's allegation that the assessment in connection with the alleged double
claimed creditable withholding tax partakes the nature of a "naked assessment", or an
assessment which is reached without rational foundation or basis, is unmeritorious.
E. Disallowed excess income tax credits for the year 2007 — P29,924,404.44
Respondent mentioned that she deducted excess income tax credits for the year
2007 in the amount of P29,924,404.44 from the total allowable income tax credits
amounting to P33,487,276.43. Thus, the income tax credits allowed against the
deficiency income tax per audit amounted only to P3,562,871.99.
On the other hand, petitioner claims that it was surprised when respondent did
not consider its unutilized income tax credits and added the above-mentioned amount
to petitioner's taxable income which was allegedly not explained in respondent's
assessment.
Verification of the FLD shows that the prior year's excess credits in the amount
of P29,924,404.44 were considered by respondent to have been carried over by
petitioner to the succeeding year. As reflected in the FLD, respondent deducted the
foregoing amount from the amount of P33,487,276.43 representing the allowable
income tax credits per her audit.
However, if the Court would follow the assumption implied in respondent's

computation that petitioner actually applied/utilized/carried over the amount of
P29,924,404.44 representing its unutilized tax credits for 2007 to offset its income tax
due in the succeeding year 2008 and that it was found to be improper as petitioner has
no prior year's excess credits, such erroneous application of unutilized tax credit can
only be the subject of assessment at the time when the tax credit was actually
applied/utilized, which is in the year 2008 and not in the year 2007, for such is beyond
the scope of the present assessment. Hence, respondent's disallowance of petitioner's
prior years excess credits in the amount of P29,924,404.44 for the year 2007 is
erroneous.
In fine, considering that petitioner's valid tax credits for the year 2007 are more
than sufficient to cover the income tax due on the assessed Construction Income of
P1,292,107.93 and Recoupment on Mobilization Payable of P24,565,516.45 and
disallowed Salaries and Wages of P128,617.32, petitioner is not liable for any
deficiency income tax, as determined below:
Taxable Income Per Return P14,067,041.35

Add: Audit Findings
Construction Income Not Subjected to
Income Tax P1,292,107.93
Recoupment on Mobilization Payable
Not Subjected to Income Tax 24,565,516.45
Disallowed Salaries and Wages 128,617.32 25,986,241.70
–––––––––––––
Total Adjusted Taxable Income Per Audit P40,053,283.05
Income Tax Due Thereon P14,018,649.07

Less: Income Tax Credits
Prior Year's Excess Credits P25,123,835.95
Creditable Tax Withheld Per Return 9,724,032.96
Total Income Tax Credits Per Return 34,847,868.91

Less: Disallowed Creditable Tax
Certificates — Double Claims 1,360,592.48
Allowable Income Tax Credits 33,487,276.43
–––––––––––––
Excess Tax Credits P19,468,627.36
============
II. VALUE-ADDED TAX — P21,344,776.20
As shown in the FLD, the deficiency VAT assessment was computed as

follows: 35(221)
Total output tax per VAT returns P50,635,178.52

Add: Output tax on collections not
subjected to VAT P4,911,227.08
Output tax on the unexplained
sources of cash in subcontractor and 1,481,302.18 6,392,529.26
rental expenses
–––––––––––––
Total Output Tax per audit P57,027,707.78
Less: Input Tax per audit
Input tax attributable to private sales P28,125,005.82
Standard Input Tax on government
sales 10,243,438.91 38,368,444.73
Net VAT Payable P18,659,263.05
Less: VAT credits
VAT payments P611,456.61
Creditable VAT withheld per return P7,516,946.02
Less: Disallowed VAT withheld
certificates 1,378,747.07 6,138,198.95 6,749,655.56
Basic Deficiency VAT due thereon P11,909,607.49
Add: 20% Interest
from 01.26.08-01.15.11 P7,041,351.50
20% Interest on VAT on
downpayment/mobilization payable
not remitted on time 2,393,817.21 9,435,168.71
–––––––––––––
Total Deficiency Value-added Tax Due P21,344,776.20
============
The Court shall determine the propriety of the following items pertaining to the
deficiency VAT assessment:

A. Collections not subjected to VAT P40,926,892.32
B. Output Tax on the unexplained sources of 1,481,302.18

cash in subcontractor and rental expenses
C. Standard Input Tax on Government Sales 10,243,438.90
D. Disallowed Creditable VAT Withheld 1,378,747.07
A. Collections not subjected to VAT — P40,926,892.32
The Details of Discrepancies shows the audit findings of respondent as to the

total collections allegedly not subjected to VAT computed as follows:
Construction Income per Collection Book Entries P510,758,177.42

Less: Retention Receivables for the year per audit 64,529,598.51
Net Collections P446,228,578.91
Add: Retention Receivable Collected 55,183,029.08
Collections per audit P501,411,607.99
Add: Discrepancy on Recoupment on Mobilization P24,565,516.45
Proceeds from the sale of fixed assets 1,017,502.01
Gross Receipts on Accounts Receivable 899,794.85 26,482,813.31
–––––––––––––
Total Collections per audit P527,894,421.30
Less: Zero-rated sales 65,007,707.97
Collections Subject to VAT per audit P462,886,713.33
Less: Zero-rated sales 421,959,821.01
Collections not subjected to VAT per audit P40,926,892.32
Multiply by VAT rate 12%
–––––––––––––
Output Tax due thereon P4,911,227.08
============
Petitioner alleges that the entry reflected in the above computation relating to
the assessment on the discrepancy on recoupment on mobilization payable allegedly
cannot work to generate any taxes as it is a liability, as opposed to taxable income.
However, the Court already sustained the assessment on the item Recoupment
on Mobilization Payable as mentioned in this Court's discussion on petitioner's
Income Tax liability. (See discussion in item I.B above) Accordingly, the VAT
assessed on the alleged discrepancy on Recoupment on Mobilization Payable shall
likewise be sustained.
Petitioner further assails respondent's computation on petitioner's deficiency

VAT assessment on the following grounds:
1. That no details were presented regarding certain entries,

specifically (a) Proceeds from the sale of fixed assets amounting to
P1,017,502.01; and (b) Gross receipts on accounts receivable
amounting to P899,794.85. As such, petitioner alleged that it
cannot formulate an intelligent explanation and/or protest as the
said details were never furnished by respondent despite repeated
requests.
2. That the item "Zero Rated Sales" appeared twice in the

computation provided by respondent. First in the amount of
P65,007,707.97 and second, in the amount of P421,959,821.01.
According to petitioner, respondent never explained this in any of
its assessments.
On the foregoing matters, it was already mentioned that assessment notices

need not be a full narration of the facts and laws on which the assessment is based. As
long as the parties are notified and were given the opportunity to explain their side,
the requirements of due process are satisfactorily complied with. 36(222)
Moreover, the Proceeds from the sale of fixed assets amounting to

P1,017,502.01 and Gross receipts on Accounts Receivable amounting to P899,794.85
are clearly identified in petitioner's Statement of Cash Flows for the year ended
December 31, 2007. 37(223) As regards the "Zero Rated Sales" which appeared twice
in respondent's computation, the second amount of P421,959,821.01 actually
represents the total amount of petitioner's declared VATable sales/receipts in its
Quarterly VAT Returns 38(224) for the year 2007.
Accordingly, the allegation alone that no details were presented to petitioner on

the amounts reflected in the assessment, without further proof that the same is utterly
without foundation, meaning it is arbitrary and capricious, shall not cause the
cancellation of the assessment.
B. Output Tax on the unexplained sources of cash in subcontractor and

rental expenses — P1,481,302.18

Respondent's reconciliation of the subcontractor and rental expenses per
Financial Statements against the subcontractor expense per Alphalist of Payees
subject to withholding tax reveals a discrepancy construed as unexplained sources of
cash subject to VAT, computed as follows:
Subcontractor Expense per Alphalist of Payees P205,376,545.00

Subcontractor Expense per Financial Statements 193,095,891.37 P12,280,653.63
Rental Expense per Alphalist of Payees P332,555.40

Rental Expense per Financial Statements 269,024.18 63,531.22
––––––––––––
Total Unexplained Sources of Cash P12,344,184.85
Multiply by VAT Rate 12%
––––––––––––
Output Tax on the unexplained sources of cash P1,481,302.18
===========
According to petitioner, this was arrived at by comparing the figures as

reported in the Alphalist of Petitioner's Payees with the expense amounts as presented
in petitioner's Audited Financial Statements.
To explain the discrepancy, petitioner adopts its arguments in its Protest

39(225) wherein it was stated that the figures as reported in the Alphalist of Payees
(P205,376,545.00) is higher as compared to the Subcontractors Expense reported in
the Audited Financial Statement (P193,095,891.37) as the former is arrived at by
dividing by the withholding tax rate of 2% the amounts actually withheld and remitted
to arrive at the reported Amount of Income Payment. Petitioner alleged that the
amounts actually withheld and remitted are based on the actual billing of the
subcontractors, including billings chargeable to the works or contracts of the
other subcontractors which are entered into the books as Accounts Receivable
(AR)-Subcon (Name of Subcon to be Charged). Petitioner maintained that even if it
is still charged to a particular subcontractor, petitioner would still withhold 2% as
required based on the total billing, thus, the report on the "Amount of Income
Payment" on the Alphalist of Payees, as explained above, would be bigger compared
to the amount declared in the Financial Statements (i.e., Subcontractors Expense
account). According to petitioner, the amount of the subcontractors expense as entered
into the books would, however, not include the said billing charged to another
subcontractor as it is booked as a Receivable Account (AR-Subcon), thus, petitioner
concluded that the total figure is lesser as compared to the one reported in the

Alphalist of Payees.
The Court finds the assessment unmeritorious.
Since the expenses reflected per petitioner's alphalist were higher than the
amounts reported in its ITR/FS, respondent concluded that the difference pertains to
petitioner's undeclared income subject to output VAT. By doing so, respondent merely
relied on assumptions without obtaining any evidence corroborating such findings.
This is contrary to the doctrine laid down by the Supreme Court in Collector of
Internal Revenue vs. Benipayo, 40(226) wherein it was held that:
". . . An assessment fixes and determines the tax liability of a taxpayer.

As soon as it is served, an obligation arises on the part of the taxpayer concerned
to pay the amount assessed and demanded. Hence, assessments should not be
based on mere presumptions no matter how reasonable or logical said
presumptions may be. . . . ."
In order to stand the test of judicial scrutiny, the assessment must be

based on actual facts. The presumption of correctness of assessment being a
mere presumption cannot be made to rest on another presumption . . . ."
Furthermore, even if the subject expenses per alphalist were to be considered

as income subject to output VAT, the same shall be offset by treating the equivalent
payments as purchases for which input tax credits may be claimed. Hence, no
VATable income will result from the said transactions.
C. Standard Input Tax on Government Sales — P10,243,438.90
In the Details of Discrepancies attached to the FLD, it was stated that the above
amount pertains to the application of the standard input tax of seven percent (7%) of
the selling price/gross receipts attributable to government sales pursuant to Q & A No.
31 of Revenue Memorandum Circular No. 62-05.
Sales to Government per VAT returns P146,334,841.50

Standard Input Tax Rate 7%
–––––––––––––
Standard Input Tax allowed on Government Sales P10,243,438.91
============
In the Judicial Affidavit of petitioner's witness, Atty. Raymond L. Bertulfo

testified that respondent have understated the figures for "Input tax attributable to

private sales" and the figures for "Standard Input Tax on government sales".
According to Atty. Bertulfo, petitioner's Quarterly VAT Returns reflect the correct
figures as follows: 41(227)
Input tax attributable to private sale P32,253,723.62

Input tax attributable to government sale 10,253,700.57
–––––––––––––
Total P42,507,424.19
============
Section 4.114-2 of Revenue Regulations No. 04-07, implementing Section 114

(C) of the NIRC of 1997, as amended, mandates the withholding of 5% final VAT on
government money payments as follows:
"SEC. 4.114-2. Withholding of VAT on Government Money

Payments and Payments to Non-Residents. —
(a) The government or any of its political subdivisions,

instrumentalities or agencies including government-owned or controlled
corporations (GOCCs) shall, before making payment on account of each
purchase of goods and/or of services taxed at twelve percent (12%) VAT
pursuant to Secs. 106 and 108 of the Tax Code, deduct and withhold a final
VAT due at the rate of five percent (5%) of the gross payment thereof.
The five percent (5%) final VAT withholding rate shall represent the net
VAT payable of the seller. The remaining seven percent (7%) effectively
accounts for the standard input VAT for sales of goods or services to
government or any of its political subdivisions, instrumentalities or agencies
including GOCCs in lieu of the actual input VAT directly attributable or ratably
apportioned to such sales. Should actual input VAT attributable to sale to
government exceeds seven percent (7%) of gross payments, the excess may
form part of the sellers' expense or cost. On the other hand, if actual input VAT
attributable to sale to government is less than seven percent (7%) of gross
payment, the difference must be closed to expense or cost."
The five percent (5%) final VAT withholding rate shall represent the net VAT
payable of the seller. The remaining seven percent (7%) effectively accounts for the
standard input VAT for sales of goods or services to government or any of its political
subdivisions, instrumentalities or agencies including GOCCs, in lieu of the actual
input VAT directly attributable or ratably apportioned to such sales to the
Government. Should actual input VAT exceed the standard input VAT of seven

percent (7%) of gross payments, the excess may form part of the sellers' expense or
cost. Conversely, if actual input VAT is less than the standard input VAT of 7% of
gross payment, the difference must be treated as taxable income. 42(228)
In its Quarterly VAT Returns for taxable year 2007, petitioner reflected the
following VATable sales/receipts to private and government entities totalling
P421,959,820.92:
% of VATable % of VATable
Sales/Receipts Sales/Receipts
Taxable VATable to Private to Government
Quarter Sales/Receipts VATable Entities to to Total
Year to Private Sales/Receipts Total Total Sales/Receipts
Exh. 2007 Entities to Government Sales/Receipts Sales/Receipts
"M" 1st Qtr P96,140,799.67 P20,262,919.83 P116,403,719.50 82.5925495% 17.4074505%

"N" 2nd Qtr 60,827,396.42 24,838,508.75 85,665,905.17 71.0053741% 28.9946259%
"O" 3rd Qtr 60,548,083.50 43,917,686.00 104,465,796.50 57.9597353% 42.0402647%
"P" 4th Qtr 58,108,699.83 57,315,726.92 115,424,426.75 50.3435031% 49.6564969%
–––––––––––––– –––––––––––––– ––––––––––––––
P275,624,979.42 P146,334,841.50 P421,959,820.92
============= ============= =============
Based on the percentage of each type of sales/receipts to total sales/receipts,

petitioner's reported input VAT for the year 2007 of P42,506,775.88 shall be allocated
as follows:
Input VAT
Attributable to Input VAT
Taxable VATable Attributable to
Quarter Sales/Receipts VATable
Year to Private Sales/Receipts
Exh. 2007 Input VAT Entities to Government
"M" 1st Qtr P12,760,711.76 P10,539,397.18 P2,221,314.58
"N" 2nd Qtr 8,836,403.91 6,274,321.65 2,562,082.26
"O" 3rd Qtr 10,100,297.49 5,854,105.69 4,246,191.80
"P" 4th Qtr 10,809,362.72 5,441,811.85 5,367,550.87
––––––––––––– ––––––––––––– –––––––––––––
P42,506,775.88 P28,109,636.38 P14,397,139.50
=========== =========== ===========
Inasmuch as the actual input VAT in each of the taxable quarters of 2007 is
greater than the 7% standard input VAT, the difference shall be closed to petitioner's
cost or expense. Thus, the amount of input VAT that may be credited against
petitioner's output VAT on sales/receipts to government for the year 2007 amounts to
only P10,243,438.91, broken down as follows:
Input VAT
Attributable to Input VAT
Taxable VATable Attributable to
Quarter Sales/Receipts VATable Input VAT
Year Input VAT to Private Sales/Receipts 7% Standard Closed to
Exh. 2007 Per Return Entities to Government Input Cost/Expense
"M" 1st Qtr P12,760,711.76 P10,539,397.18 P2,221,314.58 P1,418,404.39 P802,910.19

"N" 2nd Qtr 8,836,403.91 6,274,321.65 2,562,082.26 1,738,695.61 823,386.65
"O" 3rd Qtr 10,100,297.49 5,854,105.69 4,246,191.80 3,074,238.02 1,171,953.78
"P" 4th Qtr 10,809,362.72 5,441,811.85 5,367,550.87 4,012,100.88 1,355,449.98
––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––– ––––––––––––
P42,506,775.88 P28,109,636.38 P14,397,139.50 P10,243,438.91 P4,153,700.60
============ ============ ============ ============ ===========
Contrary to petitioner's claimed input VAT of P42,507,424.19, the amount that

may be credited against its VATable sales/receipts to private and government entities
for taxable year 2007 is only P38,353,075.28, detailed as follows:
Allowable
Input VAT on
VATable Allowable Input
Taxable Sales/Receipts VAT on VATable
Quarter to Private Sales/Receipts Total Allowable
Year 2007 Entities to Government Input VAT
1st Qtr P10,539,397.18 P1,418,404.39 P11,957,801.57
2nd Qtr 6,274,321.65 1,738,695.61 8,013,017.26
3rd Qtr 5,854,105.69 3,074,238.02 8,928,343,71
4th Qtr 5,441,811.85 4,012,100.88 9,453,912.74
––––––––––––– ––––––––––––– –––––––––––––
Total P28,109,636.38 P10,243 438.91 P38,353,075.28
============ ============ ============
D. Disallowed Creditable VAT Withheld — P1,378,747.07
BIR Records reveal that the following withholding VAT certificates claimed
by petitioner for taxable year 2007 were disallowed by respondent: 43(229)
Respondent's

Payee Description Sales Amount VAT withheld comments
PPA VAT withholding on P6,024,381.93 P301,219.10 Prior period gov't.
gov't. public works sales
Danao City Gov't. VAT withholding on 3,471,680.00 154,985.71 NO PERIOD
gov't. public works INDICATED
PPA-PDO Visayas VAT withholding on 3,943,441.93 197,172.10 NO PERIOD
Barangay Lahug VAT withholding on 1,112,468.80 55,623.44 NO PERIOD
- 63,745.47 Not substantiated
––––––––––––– ––––––––––––
TOTAL P25,504,220.03 P1,378,747.07
============ ===========
On the other hand, petitioner provided BIR Forms No. 2306, marked as
Exhibits "Q" to "Q-12" 44(230) to prove, among others, that: 1) the disallowed VAT
withheld certificates in the aggregate amount of P1,378,747.07 were filled out by the
Philippine Ports Authority; and 2) these were declared in the Quarter in which the
payments were received by petitioner.
However, per comparison between the schedule found in the BIR Records and
the set of Exhibits offered by petitioner, only the following withholding VAT
certificates were relevant:
VAT Quarter
Exhibit Payee Sales Amount Withheld Claimed
Q-3 PPA-PDOP 1,118,586.06 P55,929.30 2nd
Visayas
Q-4 PPA-PDO 3,943,441.93 197,172.10 2nd
Visayas
Q-6 PPA-PDO 1,075,331.23 53,766.58 3rd
Visayas
Q-7 PPA-PDO 3,604,918.55 204,278.72 3rd
Visayas
Q-8 PPA-PDO 5,153,411.53 292,026.65 3rd
Visayas
––––––––––––– –––––––––––
Total P14,895,689.30 P803,173.35
============ ==========
Notably, respondent's audit working papers reveal that the above certificates
did not indicate the taxable quarter for which the exemption is being applied, hence, a
valid finding from respondent. However, upon admission of the evidence by this
Court, the same certificates offered as evidence were properly filled out. Petitioner
alleges that these were filled out by Philippine Ports Authority.
Nonetheless, due to respondent's failure to controvert the evidence presented

by petitioner, the Court finds that portion of disallowed final withholding VAT in the
amount of P803,173.35 for which valid support was admitted, should be granted.
Thus, petitioner's disallowed final withholding VAT for taxable year 2007 amounts to
only P575,573.72.
In sum, petitioner is liable to pay basic deficiency VAT for taxable year 2007
in the amount of P9,640,501.40, computed as follows:
Total Output Tax per VAT Returns P50,635,178.51

Add: Output tax on collections not
subjected to VAT 4,911,227.08
–––––––––––––
Total Output Tax per Audit P55,546,405.59
Less: Input Tax per Audit
Input Tax attributable to sales to
private entities P28,109,636.38
Input Tax attributable to sales to
government entities 10,243,438.91 38,353,075.28
Net VAT Payable P17,193,330.31
Less: VAT Credits/Payments
VAT Payments P611,456.61
Creditable VAT withheld per return P7,516,946.02
Less: Disallowed VAT withheld
certificates 575,573.72 6,941,372.30 7,552,828.91
––––––––––––
Basic Deficiency VAT P9,640,501.40
===========

III. DOCUMENTARY STAMPS TAX — P93,826.85
Per review, respondent notes that there was an increase in the Capital Stock for
the year as per audited Balance Sheet attached to the Annual Income Tax Return filed
amounting to P9,200,000.00. Respondent, however, found that no documentary stamp
tax payment was posted in the BIR-Integrated Tax System. Thus, respondent
computed that the documentary stamps tax due amounts to P93,826.85, inclusive of
statutory penalties, computed as follows:
Increase in Capital Stock P9,200,000.00
Documentary Stamps Tax Due thereon P46,000.00

Less: Tax paid -
Basic Deficiency Documentary Stamps Tax Due P46,000.00
Add: 25% Surcharge P11,500.00
20% Interest (fr. 01.06.08 to 01.15.11) 27,826.85
Compromise penalty 8,500.00 47,826.85
––––––––––––
Total Deficiency Documentary Stamps Tax Due P93,826.85
==========
Petitioner alleged that the assessment for DST pertains to the original issuance
of shares of stock issued sometime on March 2007. However, the same was already
found not supported by substantial evidence. Further, petitioner did not question the
correctness of the assessment for deficiency documentary stamps tax issued by
respondent. Lastly, there is nothing in the records of this case which would show that
petitioner filed the corresponding DST return for such transaction. Thus, the
assessment against petitioner for basic deficiency documentary stamps tax for taxable
year 2007 in the amount of P46,000.00 remains.
IV. SUGGESTED COMPROMISE PENALTIES — P3,000.00 AND

COMPROMISE PENALTY INCLUDED IN THE DEFICIENCY DST
ASSESSMENT — P8,500.00
The suggested compromise penalties are computed in the FLD as follows:
Non-submission of Summary Lists of Sales (1st and 3rd quarters) P2,000.00

Non-submission of Summary Lists of Purchases (3rd quarter) 1,000.00
–––––––––
Total Suggested Compromise Penalties P3,000.00

========
Likewise, the deficiency DST assessment of P93,826.85 discussed earlier,

included compromise penalty of P8,500.00.
On the above compromise penalties assessed, it must be stressed that the same
is being imposed to avoid prosecution for violation of the provisions of the Tax Code.
45(231) Pursuant to Revenue Memorandum Order (RMO) No. 01-90, as amended by
RMO No. 19-07, compromise penalties are only suggested in settlement of criminal
liability, and may not be imposed or exacted on the taxpayer in the event that a
taxpayer refuses to pay the same. Clearly, the compromise penalty implies a mutual
agreement between the parties in respect to the thing or subject matter which is so
compromised. The imposition of compromise penalty without the conformity of the
taxpayer is illegal and unauthorized. 46(232)
In this case, there was nothing in the records which would show that petitioner
consented to the compromise penalty. Consequently, the compromise penalty should
not be imposed and must be cancelled.
WHEREFORE, premises considered, the assessments issued by respondent

against petitioner for taxable year 2007 covering deficiency income tax in the amount
of P16,179,240.81 and compromise penalties in the amount of P11,500.00 are hereby
CANCELLED AND/OR WITHDRAWN. However, the deficiency VAT and
deficiency DST assessments for taxable year 2007 are hereby AFFIRMED but with
some modifications. Accordingly, petitioner is ORDERED to PAY respondent the
amount of TWELVE MILLION ONE HUNDRED EIGHT THOUSAND ONE
HUNDRED TWENTY SIX PESOS & 75/100 (P12,108,126.75) representing
deficiency VAT and DST for taxable year 2007, inclusive of the 25% surcharge
imposed under Section 248 (3) of the NIRC of 1997, computed as follows:
Basic Tax 25% Surcharge Total

Deficiency VAT P9,640,501.40 P2,410,125.35 P12,050,626.75
Deficiency DST 46,000.00 11,500.00 57,500.00
–––––––––––– –––––––––––– –––––––––––––
Total P9,686,501.40 P2,421,625.35 P12,108,126.75
=========== =========== ============
In addition, petitioner is hereby ORDERED to PAY:
a) Deficiency interest at the rate of 20% per annum on the basic

deficiency VAT and DST computed from the dates indicated below
until full payment thereof pursuant to Section 249 (B) of the NIRC
of 1997, as amended;
Deficiency
Interest
Tax Type Basic Tax computed from
Deficiency VAT P9,640,501,40 April 25, 2008

Deficiency DST 46,000.00 January 5, 2008
b) Delinquency interest at the rate of 20% per annum on the total

amount of P12,108,126.75 and on the 20% deficiency interest
which have accrued as aforestated in (a), computed from January
15, 2011 until full payment thereof pursuant to Section 249 (C) of
the NIRC of 1997, as amended.
SO ORDERED.
(SGD.) CAESAR A. CASANOVA

Associate Justice
Court of Tax Appeals
Juanito C. Castañeda, Jr. and Amelia R. Cotangco-Manalastas, JJ., concur.
Footnotes
1. Docket (Vol. I), pp. 1-12.
2. Par. 1, Petition for Review, Docket (Vol. I), p. 1.
4. Exhibit "B".
5. Exhibits "G", "G-1", "G-2", "G-3", "G-4".
6. Exhibit "H".
7. Exhibit "A".
8. Docket (Vol. I), pp. 94-102.
9. Notice of Pre-Trial Conference issued on November 28, 2011, Docket (Vol. I), p.
153.
10. Docket (Vol. I), pp. 154-169.
11. Docket (Vol. I), pp. 132-139.
12. Docket (Vol. I), pp. 217-220.
13. Resolution dated January 29, 2013, Docket (Vol. I), pp. 457-458.
14. Resolution dated October 16, 2013, Docket (Vol. II), pp. 556-557.
15. Docket (Vol. II), pp. 573-625.
16. Docket (Vol. II), p. 626.
18. In accordance with Section 77 (B) of the NIRC of 1997, as amended.
19. Exhibit "L".
20. Section 114 of the NIRC of 1997, as amended by R.A. 9337.
21. Exhibit "M".
22. Exhibit "N".
23. Exhibit "O".
24. Exhibit "P".
25. Commissioner of Internal Revenue vs. Hantex Trading, Inc., G.R. No. 136975, March
31, 2005.
26. Ibid.
27. Exhibit "G".
28. Exhibit "G".
29. Docket (Vol. I), p. 274.
30. Exhibit "L".
31. Exhibit "K".
33. Exhibit "K".
34. Calma, et al. vs. Court of Appeals, G.R. No. 122787, February 9, 1999.
35. Exhibit "G".
36. Supra note 34.
37. BIR Records, p. 339.
38. Exhibits "M", "N", "O" and "P".
39. Exhibit "H".
40. G.R. No. L-13656, January 31, 1962.
41. Docket (Vol. I), p. 430.
42. REVENUE MEMORANDUM CIRCULAR NO. 29-05, Q&A No. 17.
44. Docket (Vol. I), pp. 405-417.
45. Philippine International Fair, Inc. v. Collector of Internal Revenue, et al., G.R. No.
L-12928 and G.R. L-12932, March 31, 1962.
46. Commissioner of Internal Revenue vs. Lianga Bay Logging Co., Inc., G.R. No.
L-35266, January 21, 1991.

FIRST DIVISION
[C.T.A. CASE NO. 6985. March 9, 2009.]
PHILIPPINE HOTELIERS, INC., petitioner, vs. COMMISSIONER

OF INTERNAL REVENUE, respondent.
DECISION
CASANOVA, J : p
This is a Petition for Review of respondent's Decision on Disputed Assessment

dated December 12, 2003 partially denying petitioner's protest on the assessments
issued against it for deficiency income, value-added, expanded withholding, and final
withholding taxes for the calendar year ended 1998 in the amounts of P2,314,791.70,
P18,081,177.67, P422,710.83, and P998,724.62, respectively, including increments
therein.
Statement of Facts
Petitioner is a corporation duly organized and existing under and by virtue of

the laws of the Republic of the Philippines, with principal office located at Hotel
Dusit Nikko, Ayala Center, Makati City. 1(233)
Respondent, on the other hand, is the official duly authorized under Section 4
of the National Internal Revenue Code (NIRC) of 1997 to assess and collect internal
revenue taxes, as well as, the power to decide disputed assessments, among others,
subject to the exclusive appellate jurisdiction of this Court. 2(234) AEDcIH
A Preliminary Assessment Notice 3(235) (PAN) was issued on February 5,

2002, to which petitioner duly replied to. Subsequently, on May 15, 2002, respondent
issued the Formal Letter of Demand 4(236) against petitioner showing the following
tax deficiencies, with interests:

VAT 30,126,600.69
Final Withholding Tax 8,641,150.42
EWT 1,389,766.75
——————
Total P49,029,420.85
===========
This Formal Demand was protested to on June 26, 2002. 5(237)
Consequently, in his Final Decision 6(238) on Disputed Assessment dated

December 12, 2003, respondent partially granted petitioner's protest, but still found
petitioner liable for the following amounts:

VAT 18,081,177.67
EWT 422,710.83
Final Withholding Tax 998,724.62
——————
Total P21,817,404.82
===========
The remaining income tax assessments were allegedly based on the following:
7(239)
a. Overclaimed interest expense (P696,998.34) — allegedly from

failure of petitioner to reduce by an amount equal to 41% of
interest income its interest expense, pursuant to Section 34 (B) (1)
of the NIRC;
b. Disallowed prior years expenses (P614,022.29) — allegedly

because petitioner did not incur these expenses during the taxable
year, in violation of Section 34 (A) (1) of the NIRC;
c. Disallowed expenses not subjected to final tax (P1,605,321.30) —

failure to deduct and withhold the final tax on payments made to

non-resident foreign corporations in violation of Sections 34 (K),
58, and 81 of the NIRC; and
d. Disallowed income tax credits (P50,483.23) — allegedly petitioner

withheld this amount as creditable VAT for services performed for
the government. TEcADS
As for the remaining value-added tax (VAT) deficiencies, respondent averred

that:
a. Collections for the account of Hospitality Marketing Consultants

not subject to VAT (P17,974,794.21) — should form part of gross
receipts under Section 108 (A);
b. Licensing fees paid to non-resident foreign corporations not

subjected to VAT (P44,759,858.43) — petitioner as licensee did
not withhold VAT on such licensing fees and no input taxes were
claimed, petitioner was made liable for increments only under
Sections 248 & 249 of the NIRC and RMO No. 1-90; and
c. Unsubstantiated input taxes and input tax from non-VAT suppliers

(P6,484,197.68) — these input taxes were not duly supported by
invoices or receipts contrary to Sections 113 and 237 of the NIRC
and others were purchases from Non-VAT suppliers contrary to
Section 4.110-5, Revenue Regulations 7-95 in relation to Section
110 (A) of the NIRC.
Respondent's findings on the remaining expanded withholding tax deficiency

was based on the alleged late remittance of expanded withholding taxes for expenses
incurred in 1997, thus the 20% per annum interest pursuant to Section 249 of the
NIRC.
Lastly, the remaining final withholding tax assessments were based on the
following discrepancies:
a. Expenses not subjected to final withholding tax (P1,928,821.30) —

tax allegedly required to be deducted and withheld from payments
made to non-resident foreign corporations has not been paid to the
BIR pursuant to Sections 34 (K), 58 and 81 of the NIRC; and
b. Interest (P25,142.00) — the 20% per annum interest has been

allegedly imposed pursuant to the provisions of Section 249 of the
NIRC on late remittance of final taxes as of 1997 expenses.
Hence this petition.
Respondent, in his Answer 8(240) filed on July 19, 2004, raised the following
Special and Affirmative Defenses:
"6. Income Tax
a.) Over-claimed interest expense (P696,998.34)
Verification disclosed that the interest expense claimed was not

reduced by an amount equal to 41% of interest income subjected
to final tax pursuant to Section 34 (B)(1) of the National Internal
Revenue Code of 1997. DCaEAS
b.) Disallowed prior year's expenses (P614,022.29)
Verification disclosed that these expenses were not incurred

during the taxable year, in violation of Section 34(A)(1)(a) of the
National Internal Revenue Code of 1997.
c.) Disallowed expenses — not subjected to final tax

(P1,928,821.30)
Verification disclosed that the tax required to be deducted and

withheld from the payments made to non-resident foreign
corporations has not been paid to the Bureau of Internal Revenue
in accordance with Sections 34(K), 58 and 81 of the National
Internal Revenue Code of 1997.
d.) Disallowed income tax credits (P50,481.23)
Verification disclosed that these tax credits were withholding of

creditable value-added tax for services performed for the
government.
7. Value-Added Tax
a.) Collections for the account of Hospitality Marketing Consultants

(HMC) not subjected to VAT (P17,974,794.21)
Verification disclosed that the petitioner issued official receipts

for proceeds of sales of membership tickets sold by HMC. In
addition, there is a provision in the Marketing Agreement signed
by HMC and the petitioner that petitioner will be solely liable for
the payment of VAT to the government and will indemnify and
hold HMC harmless from and against any claims that may be
made by any government authority for non-payment or
underpayment of any such tax. Under Section 108(A) of the 1997
Tax Code, the term "gross receipts" means the total amount of
money or its equivalent actually or constructively received during
the table quarter for the services performed or to be performed
for another person, excluding value-added tax. HEIcDT
b.) Licensing fees paid to non-resident foreign corporation not

subjected to VAT (P44,749,858.43)
Verification disclosed that petitioner did not withhold the VAT

on such licensing fees, and no input taxes were claimed. Thus,
for the equivalent loss of money to the government, petitioner
was made liable only for supposedly late remittance of withheld
VAT for fifteen days until the filing of VAT return, in
accordance with Sections 248 and 249 of the NIRC and RMO
No. 1-90.
c.) Unsubstantiated input taxes and input tax from non-VAT

suppliers (P6,484,197.68)
Verification disclosed that these input taxes claimed were not

duly supported by invoices or receipts showing the information
required under Sections 113 and 237 of the NIRC, and others
were on purchases from non-VAT suppliers, in violation of
Section 4.110-5 of Revenue Regulations No. 7-95, in relation to
Section 110(A) of the Tax Code.
8. Final Withholding Tax
a.) Expenses not subjected to final withholding tax (P1,928,821.30)
Verification disclosed that the tax required to be deduced and

withheld from the payments made to non-resident corporations
has not been paid to the Bureau of Internal Revenue in
accordance with Sections 34(K), 58 and 81 of the NIRC.
b.) Interest (P25,142.00)

The 20% per annum interest has been imposed pursuant to the
provisions of Section 249 of the NIRC on late remittance of final
taxes on 1997 transactions.
9. Expanded Withholding Tax
a.) Interest (P422,710.83)
The 20% per annum interest has been imposed pursuant to the
provisions of Section 249 of the NIRC on late remittance of final
taxes on 1997 transactions.
10. The assessments were issued in accordance with the existing law and
regulations.
11. Assessment are prima facie presumed correct and made in good faith.
The taxpayer has the duty of proving otherwise. In the absence of proof
of any irregularities in the performance of official duties, an assessment
will not be disturbed. All presumptions are in favour of the correctness
of tax assessments. (Cagayan Robina Sugar Milling Company vs. Court
of Tax Appeals, et al., G.R. No. 122451, October 12, 2000).
12. Failure to present proof of error in the assessment will justify judicial
affirmation of said assessment. (Commissioner of Internal Revenue vs.
Court of Appeals, et al., G.R. Nos. 104151 and 105563, March 10,
1995)."
The parties submitted their Joint Stipulation of Facts and Issues 9(241) on
November 23, 2004 which this Court approved via a Resolution 10(242) dated
December 2, 2004.
On October 21, 2005, petitioner filed a Motion for Leave to Admit Amended
Petition for Review 11(243) in view of its alleged discovery of copies of the Waivers
of the Statute of Limitations from the BIR Records. Petitioner submits that
respondent's right to assess petitioner for deficiency taxes has already prescribed, thus,
prays for the cancellation of the subject assessment notices issued against it. In a
Resolution 12(244) dated January 11, 2006, this Court admitted petitioner's Amended
Petition for Review and ordered respondent to file his Amended Answer.
Consequently, respondent filed his Amended Answer on January 27, 2006

maintaining his stand on the validity of the assessments and raising as additional

Special and Affirmative Defenses the following:
"7. The assessments were issued within the reglementary period because the
period to assess did not run during the time petitioner's request for
reinvestigation was given due course.
8. All presumptions are in favor of the correctness of tax assessments. The

good faith of tax assessors and the validity of their actions are presumed.
They will be presumed to have taken into consideration all the facts to
which their attention was called (CIR vs. Construction Resources of
Asia, Inc. 145 SCRA 671). It is incumbent upon the taxpayer to prove the
contrary (Mindanao Bus Company vs. CIR, 1 SCRA 538; CIR vs.
Tuazon, Inc. 173 SCRA 397) and failure to do so shall vest legality to
respondent's actions and assessments." EHSCcT
After petitioner presented its documentary and testimonial evidence, it

submitted its Formal Offer of Evidence 13(245) on November 9, 2006. This Court
resolved petitioner's Formal Offer on January 18, 2007. 14(246) Petitioner filed a
Motion for Reconsideration Re: Resolution Dated January 18, 2007 15(247) seeking
the admission of several denied exhibits which this Court eventually admitted via a
Resolution 16(248) dated March 21, 2007.
Respondent, for his part, likewise presented testimonial and documentary

evidence but failed to formally offer its documentary exhibits; thus, on December 3,
2007, respondent was deemed to have waived his right to file his Formal Offer of
Evidence. 17(249)
Upon the receipt of petitioner's Memorandum, 18(250) sans respondent's

Memorandum, this case was submitted for decision on March 12, 2008. 19(251)
Statement of the Issues
The parties originally stipulated 20(252) on the following issues for the
consideration of this Court, to wit:
A. Income Tax Assessment
1. Whether or not petitioner overclaimed its interest expense

for the taxable year 1998;
2. Whether or not the expenses claimed by petitioner as

deductions were paid or incurred in the taxable year 1998;
3. Whether or not the expenses representing payments made by

petitioner to certain non-resident foreign corporation should
be disallowed for petitioner's failure to withhold the final
taxes thereon; and
4. Whether or not the tax credits claimed on income tax were

actually creditable VAT for services rendered to the
government.
B. VAT Assessment
1. Whether or not the collections held in trust for HMC should

be considered as part of petitioner's gross receipts for VAT
purposes;
2. Whether or not the licensing fee paid to non-resident foreign

corporations should be subjected to VAT, or alternatively,
whether or not petitioner is obliged to withhold any VAT
thereon; and
3. Whether or not there were unsubstantiated input taxes and

input tax claimed from non-VAT suppliers.
C. Final Withholding Tax Assessment
1. Whether or not payments petitioner made to certain foreign

contractors are subject to final tax in the taxable year 1998.
D. EWT Assessment
1. Whether or not petitioner should be held liable for interest

on the alleged late remittance of the expanded withholding
tax for expenses incurred in 1997.
However, considering petitioner's Amended Petition for Review, the issue of

whether or not respondent's right to assess petitioner has prescribed warrants a similar
consideration by this Court.
FINDINGS/DISCUSSION

Before discussing the factual issues presented, this Court deems it proper to
discuss first the legal issue of prescription considering that the resolution of the
factual issues would depend on the findings of the same.
After a careful scrutiny of the arguments and documents presented, the Court
finds for petitioner.
The applicable provision of law is Section 203 of the National Internal

Revenue Code (NIRC) of 1997, as amended, to wit:
"Sec. 203. Period of Limitation Upon Assessment and Collection. —

Except as provided in Section 222, internal revenue taxes shall be assessed
within three (3) years after the last day prescribed by law for the filing of the
return, and no proceeding in court without assessment for the collection of such
taxes shall be begun after the expiration of such period: Provided, That in a case
period shall be counted from the day the return was filed. For the 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." cdrep
To apply, records of the case would show that petitioner filed its 1998 Annual
Corporate Income Tax Return on April 7, 1999. 21(253) Pursuant to the
aforementioned Section, respondent has until April 15, 2002 within which to assess
the petitioner of its 1997 income tax liabilities.
Records likewise show that petitioner filed its 1998 Quarterly Value-Added
Tax Returns on April 22, 1998, 22(254) July 20, 1998, 23(255) October 26, 1998,
24(256) and January 25, 1999. 25(257) In this regard, respondent has until April 25,
2001, July 25, 2001, October 25, 2001, and January 25, 2002 covering the 1st, 2nd,
3rd, and 4th Quarters of the taxable year 1998, respectively, within which to issue his
deficiency tax assessments against petitioner.
As regards petitioner's Monthly Remittance Returns on Income Tax Withheld

for the taxable year 1998, petitioner filed the same as follows:
Monthly Remittance Returns of

Income Taxes Withheld for the
Taxable Year 1998 26(258) Date of Filing 27(259) Last Day to Assess
January February 24, 1998 February 26, 2001

February March 25, 1998 March 26, 2001
March April 22, 1998 April 25, 2001
April May 20, 1998 May 25, 2001
May June 25, 1998 June 25, 2001
June July 20, 1998 July 25, 2001
July August 24, 1998 August 27, 2001
August September 24, 1998 September 25, 2001
September October 26, 1998 October 25, 2001
October November 25, 1998 November 26, 2001
November December 22, 1998 December 25, 2001
December January 25, 1999 January 25, 2002
Based on the dates of filing of petitioner's Monthly Remittance Returns of

Income Taxes Withheld for the taxable year 1998, respondent has the aforementioned
dates within which to issue his assessment against petitioner for any deficiency taxes.
Respondent does not dispute that the Formal Demand Letter with Assessment
Notices were issued against petitioner on May 15, 2002. 28(260) Apparently, based
on the above-mentioned dates, these assessment notices were issued beyond the
prescriptive period allowed under Section 203 of the NIRC of 1997. However, the
same Section 203 of the NIRC of 1997, as amended, provides that an assessment
notice issued may be issued after the lapse of the 3-year prescriptive period provided
that the instances under Section 222 (b) of the same Code are present:
"Section 222. Exceptions as to the Period of Limitation of

Assessment and Collection of Taxes. —
xxx xxx xxx
(b) If before the expiration of the time prescribed in Section 203 for
the assessment of the tax, both the Commissioner and the taxpayer has agreed in
writing to its assessment after such time, the tax may be assessed within the
period agreed upon. The period so agreed upon may be extended by subsequent
written agreement made before the expiration of the period previously agreed
upon."
In this regard, it becomes necessary for this Court to determine the validity of
the Waivers of the Statute of Limitations since respondent's right to assess petitioner
for deficiency taxes depends on them.
In support of its defense of prescription, petitioner submits that the three (3)
Waivers of the Statute of Limitations executed by the parties are invalid since the said
waivers were not executed in accordance with Section 222 (b) of the NIRC of 1997,
as well as, Revenue Memorandum Order (RMO) No. 20-90. For one, the first waiver
failed to indicate the date of acceptance, in violation of Section 2 of RMO 20-90.
Second, the second waiver was not signed by the respondent nor by any of his
authorized representatives. Hence, there is no valid and binding agreement between
the parties which would warrant the extension of the period to assess. However,
assuming that the second waiver is valid, the third waiver is not valid considering that
the same was executed three (3) days after the expiration of the second waiver.
Moreover, petitioner avers that it was not provided with a copy of any of the three
waivers. Lastly, all three waivers failed to state the kind of tax and the amounts for
each deficiency assessment, in violation of the requirements under Section 1 of RMO
20-90. In view thereof, the waivers did not in any way extend respondent's right to
assess.
Hence, there being no valid waivers to extend the respondent's period to assess
petitioner for deficiency taxes, the subject Formal Assessment Notices are void for
having been issued beyond the three (3)-year prescriptive period.
This Court agrees. SHCaDA
For purposes of clarity, hereunder is a reproduction of the subject first waiver

allegedly executed by the parties:
"WAIVER OF THE STATUTE OF LIMITATION UNDER THE

NATIONAL INTERNAL REVENUE CODE 29(261)
I, PABLO M. TANSIKING, JR. of PHILIPPINE HOTELIERS, INC.

request for the approval by the Commissioner of Internal Revenue for more time
to submit the documents required in connection with the
investigation/reinvestigation/re-evaluation its tax liabilities for the year 1998. I
hereby waive the defense of prescription under the statute of limitations
prescribed in Section 203 and 222, and other related provisions of the National
Internal Revenue Code, and consent to the assessment and/or collection of tax or
taxes of said year which may be found due after
investigation/reinvestigation/re-evaluation at any time before or after the lapse
of the period of limitation fixed be said sections of the National Internal
Revenue Code but not later than March 30, 2002.
The intent and purpose of this waiver is to afford the Commissioner of

Internal Revenue ample time to carefully consider the legal and/or factual
questions involved in the determination of the aforesaid tax liabilities. It is
understood, however, that the undersigned taxpayer/taxpayer[s] represented
below, by the execution of this waiver, neither admits in advance the correctness
of the assessment/assessments which may be made for the year
above-mentioned no[r] waives the right to use any legal remedies afforded by
law to secure a credit or refund of such tax that may have been paid for the same
year pursuant to the provisions of Section 204 and 229 of the National Internal
Revenue Code.
Executed this September 27, 2001, in Quezon City, Philippines.
By:
(sgd.)
PABLO M. TANSIKING, JR.
Taxpayer or Duly Authorized Signatory
TREASURER
Position
ROLDAN M. ANTONIO (sgd.)

Witness
Accepted by:
RENE G. BANEZ
COMMISSIONER OF INTERNAL REVENUE
By: (sgd.)
VIRGINIA L. TRINIDAD
Revenue Official/Position
Assistant Commissioner
Large Taxpayers Service
Office
xxx xxx xxx"
The second Waiver of the Statute of Limitations was written as follows:
"WAIVER OF THE STATUTE OF LIMITATIONS UNDER THE

I, ROLDAN ANTONIO representing PHILIPPINE HOTELIER, INC.

(owner of DUSIT HOTEL NIKKO[)] in consideration of the approval by the
Commissioner of Internal Revenue of our request for the extension of time
within which to present the required documents in connection with the
investigation and/or consideration of our pending internal revenue tax liabilities
for the year ended DECEMBER 1998 hereby waive the running of the
prescriptive period provided for in Section 203 and 222 and other relevant
provisions of the National Internal Revenue Code, and consent to the
assessment and collection of the taxes which may be found due after
investigation and consideration at any time before or after the lapse of the period
of limitations fixed by said [sections] of the National Internal Revenue Code but
not after JUNE 30, 2002. DCcTHa

understood, however, that the undersigned taxpayer does not, by the execution
of this waiver, admit in advance the correctness of the assessment which may be
made against him for the period above-mentioned; nor does he waive his right to
use any of the legal remedies afforded by law to secure a credit or refund of such
tax that may be assessed and paid for the same period pursuant to Sections 204
and 229 of the National Internal Revenue Code.
Executed this 14th day of MARCH 2002 in Makati City, Philippines.
(sgd.)
ROLDAN ANTONIO
(Taxpayer or Authorized Representative)
Accepted and Agreed to:
RENE G. BANEZ
By:
EDWIN R. ABELLA
Asst. Commissioner
Date: _________________
xxx xxx xxx"
As for the third waiver:


I, ROLDAN ANTONIO representing PHILIPPINE HOTELIER, INC.
(owner of DUSIT HOTEL NIKKO[)] in consideration of the approval by the
Commissioner of Internal Revenue of our request for the extension of time
within which to present the required documents in connection with the
investigation and/or consideration of our pending internal revenue tax liabilities
for the year ended DECEMBER 1998 hereby waive the running of the
prescriptive period provided for in Section 203 and 222 and other related
provisions of the National Internal Revenue Code, and consent to the
assessment and collection of the taxes which may be found due after
investigation and consideration at any time before or after the lapse of the period
of limitations fixed by said [sections] of the National Internal Revenue Code but
not after DECEMBER 31, 2002. IaSCTE

understood, however, that the undersigned taxpayer does not, by the execution
of this waiver, admits in advance the correctness of the assessment which may
be made against him for the period above-mentioned; nor does he waive his
right to use any of the legal remedies afforded by law to secure a credit or refund
on such tax that may be assessed and paid for the same year pursuant to Sections
204 and 229 of the National Internal Revenue Code.
Executed this 1st day of JULY 2002 in Makati City, Philippines.
(sgd.)
ROLDAN ANTONIO
Accepted and Agreed to:
RENE G. BANEZ
By:
(sgd.)
EDWIN R. ABELLA
Asst. Commissioner
Date: 7-01-02
xxx xxx xxx"

Relative to the execution of valid waivers, Revenue Memorandum Order
(RMO) No. 20-90 dated April 4, 1990 prescribes the procedures to be followed in the
execution of a Waiver of the Statute of Limitations, as follows:
"1. The waiver must be in the form identified as Annex "A" hereof. This
form may be reproduced by the Office concerned but there should be no
deviation from such form. The phrase 'but not after _______________
19 ___ should be filled up'. This indicates the expiry date of the period
agreed upon to assess/collect the tax after the regular three-year period
of prescription. The period agreed upon shall constitute the time within
which to effect the assessment/collection of the tax in addition to the
ordinary prescriptive period. CHTAIc
2. The waiver shall be signed by the taxpayer himself or his duly

authorized representative. In the case of a corporation, the waiver must
be signed by any of its responsible officials.
Soon after the waiver is signed by the taxpayer, the Commissioner of

Internal Revenue or the revenue official authorized by him, as
hereinafter provided, shall sign the waiver indicating that the Bureau has
accepted and agreed to the waiver. The date of such acceptance by the
Bureau should be indicated. Both the date of execution by the taxpayer
and date of acceptance by the Bureau should be before the expiration of
the period of prescription or before the lapse of the period agreed upon
in case a subsequent agreement is executed.
3. The following revenue officials are authorized to sign the waiver.
A. In the National Office
1. ACIRs for Collection, For tax cases involving

Special Operations, not more than P500,000.00
National Assessment,
Excise and Legal on
tax cases pending
before their respective
offices. In the absence
of the ACIR, the Head
Executive Assistant
may sign the waiver.
2. Deputy Commissioner For tax cases involving more

than P500,000.00 but not
more than P1M
3. Commissioner For tax cases involving more

than P1M
B. In the Regional Offices
1. The Revenue District Officer with respect to tax cases

still pending investigation and the period to assess is
about to prescribe regardless of amount.
2. The Regional Director, the Assistant Regional Director,

the Chief, Assessment Branch or the Chief, Legal Branch
with respect to cases still pending review and the period
to assess/collect is about to prescribe, regardless of
amount. CASaEc
3. The Regional Director, the Assistant Regional Director,

the Chief, Collection Branch or the Chief, Legal Branch
with respect to cases still pending collection and the
period to assess/collect is about to prescribe regardless of
amount.
4. The waiver must be executed in three (3) copies, the

original copy to be attached to the docket of the case, the
second copy for the taxpayer and the third copy for the
Office accepting the waiver. The fact of receipt by the
taxpayer of his/her file copy shall be indicated in the
original copy.
5. The foregoing procedures shall be strictly followed. Any

revenue official found not to have complied with this
Order resulting in prescription of the right to
assess/collect shall be administratively dealt with."
(Emphasis and underscoring supplied)
In other words, a valid waiver must conform to the following format:


______________________________________________ in
consideration of the approval by the Commissioner of Internal Revenue of my
request for re-investigation and/or reconsideration of my pending internal
revenue case involving the assessment of the sums of
_____________________________________ as _____________ for the years
_____________, hereby waive the running of the prescriptive period provided
for in Sections 203 and 223 and other relevant provisions of the National
Internal Revenue Code, and consent to the assessment and collection of the
taxes which may be found due after re-investigation and reconsideration at any
time before or after the lapse of the period of limitations fixed by said Sections
203 and 223 and other relevant provisions of the National Internal Revenue
Code, but not after _____________, 19__. IaDcTC

Internal Revenue ample time to carefully consider the instant protest of the
undersigned taxpayer against the assessment. It is understood, however, that the
undersigned taxpayer does not, by the execution of this waiver, admit in
advance the correctness of the assessment which may be made against him for
the periods above mentioned; nor does he waive his right to use any of the legal
remedies afforded by law to secure a credit or refund on such tax that may be
assessed and paid for the same period pursuant to Sections 204 and 230 of the
National Internal Revenue Code. The period of suspension agreed upon herein
may be extended by subsequent agreement in writing made before the expiration
of said period of extension.
Executed this ___________ day of ________ 19__, in Quezon City,

Philippines.
________________________
ACCEPTED AND AGREED TO:
Commissioner of Internal Revenue

Date _________________"
A perusal, however, of the subject Waivers of the Statute of Limitations dated

October 19, 2001, reveals the following defects:
1. The first, second and third waivers 33(265) failed to follow the
required format as prescribed under RMO 20-90.

2. The first waiver failed to indicate the date of receipt by the
Commissioner of Internal Revenue or his authorized
representative.
3. The second waiver was not signed by the Commissioner of Internal

Revenue or his authorized representative.
4. The subject three (3) Waivers of Statute of Limitations 34(266)

failed to specify the types of tax and their respective amounts of
deficiency due.
5. There is no proof to show that petitioner was given copies of the

subject waivers.
In the case of Philippine Journalists, Inc., vs. Commissioner of Internal

Revenue, 35(267) the Supreme Court discussed the rationale behind the strict
compliance of the requisites in executing of a valid Waiver of the Statute of
Limitations, to wit: STECDc
"A waiver of the statute of limitations under the NIRC, to a certain

extent, is a derogation of the taxpayers' right to security against prolonged
and unscrupulous investigations and must therefore be carefully and strictly
construed. The waiver of the statute of limitations is not a waiver of the right to
invoke the defense of prescription as erroneously held by the Court of Appeals.
It is an agreement between the taxpayer and the BIR that the period to issue
an assessment and collect the taxes due is extended to a date certain. The
waiver does not mean that the taxpayer relinquishes the right to invoke
prescription unequivocally particularly where the language of the document is
equivocal. For the purpose of safeguarding taxpayers from any unreasonable
examination, investigation or assessment, our tax law provides a statute of
limitations in the collection of taxes. Thus, 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.
xxx xxx xxx
As found by the CTA, the Waiver of Statute of Limitations, signed by

petitioner's comptroller on September 22, 1997 is not valid and binding
because it does not conform with the provisions of RMO No. 20-90. It did not
specify a definite agreed date between the BIR and petitioner, within which the

former may assess and collect revenue taxes. Thus, petitioner's waiver became
unlimited in time, violating Section 222(b) of the NIRC." (Emphasis supplied)
Verily, all details bringing about the validity of a waiver should not be
dispensed with; for one, not only is the date of acceptance by the respondent of the
waiver one vital information, the same waiver must logically be agreed to and
accepted by the respondent. As a waiver is an agreement between the parties, failure
to agree and accept would effectively mean that no waiver was ever executed, that is,
no agreement or meeting of the minds ever existed. The law requires that the date of
acceptance by the Bureau of Internal Revenue (BIR) should be before the expiration
of the period of prescription, or before the lapse of the three-year prescriptive period
pursuant to Section 203 of the NIRC of 1997, as amended; for the date of acceptance
would determine whether or not the acceptance by respondent was made within the
prescriptive period. Consequently, if the same was executed after the period to assess,
then, there would not have been any period to extend. This finds ground in the same
Philippine Journalist 36(268) case, thus: cAHDES
"The other defect noted in this case is the date of acceptance which
makes it difficult to fix with certainty if the waiver was actually agreed before
the expiration of the three-year prescriptive period. The Court of Appeals held
that the date of the execution of the waiver on September 22, 1997 could
reasonably be understood as the same date of acceptance by the BIR. Petitioner
points out however that Revenue District Officer Sarmiento could not have
accepted the waiver yet because she was not the Revenue District Officer of
RDO No. 33 on such date. Ms. Sarmiento's transfer and assignment to RDO No.
33 was only signed by the BIR Commissioner on January 16, 1998 as shown by
the Revenue Travel Assignment Order No. 14-98. The Court of Tax Appeals
noted in its decision that it is unlikely as well that Ms. Sarmiento made the
acceptance on January 16, 1998 because 'Revenue Officials normally have to
conduct first an inventory of their pending papers and property
responsibilities'." (Emphasis supplied)
In this instant case, the first waiver failed to follow the prescribed format as
required under RMO No. 20-90, which specifically states that there "should be no
deviation from such form". Likewise, the first waiver did not bear the date of
acceptance by the respondent. As previously discussed, the date of acceptance plays
an important role in the validity of the waiver for this determines whether the subject
waiver was executed within the prescriptive period allowed by law to issue an
assessment. Consequently, if the same was executed after the period to assess, then,
there would not have been any period to extend. Moreover, there is no mention of the

amount of taxes subject of the assessments. The purpose of stating the amount of tax
due is for the petitioner to identify which among the proposed tax assessments may
subsequently be issued without invoking the defense of prescription. If the amount
were not indicated in the said waiver, rationally, there is no agreement to speak of. It
should be emphasized that RMO No. 20-90 requires specific information; hence, to
substitute the same with general statements is a departure from the said order. Lastly,
the signatory of the first waiver is the Assistant Commissioner of the Large Taxpayers
Service, which, in this case, should have been the Commissioner himself pursuant to
RMO No. 20-90, considering that the amount of assessed taxes is more than one
million pesos.
With these lapses on the first waiver, effectively, respondent's period to assess
was not extended. A waiver, being void from its inception, does not give rise to a right
for which respondent may exercise; it was as if no waiver to extend the period to
assess was ever executed. The first waiver being a void one, the succeeding waivers
executed by the parties have no force and effect as to bind the parties.
With respondent's failure to issue the assessment notices within three (3) years
from the date petitioner filed its income, value-added, final withholding, and
expanded withholding tax returns, in view of the invalidity of the three Waivers of the
Statute of Limitations, his period to assess had already prescribed. Effectively, the
May 15, 2002 Formal Letter of Demand and Assessment Notices for deficiency taxes
issued against petitioner are void for having been issued beyond the prescriptive
period allowed by law. aHICDc
In view of the foregoing, this Court deems it no longer necessary to resolve the
factual issues raised by the parties.
WHEREFORE, the instant Petition for Review is hereby GRANTED and the
assessments issued against petitioner for deficiency income tax, value-added tax, final
withholding tax, and expanded withholding tax for the taxable period 1998 in the
aggregate amount of TWENTY ONE MILLION EIGHT HUNDRED SEVENTEEN
THOUSAND FOUR HUNDRED FOUR AND 82/100 PESOS (P21,817,404.82) are
hereby CANCELLED and WITHDRAWN for being issued beyond the prescriptive
period allowed by law. Accordingly, respondent's Final Decision on Disputed
Assessment issued on December 12, 2003 is hereby REVERSED and SET ASIDE.
SO ORDERED.

(SGD.) CAESAR A. CASANOVA
Associate Justice
Ernesto D. Acosta, P.J. and Lovell R. Bautista, J., concur.
Footnotes
1. Joint Stipulation of Facts and Issues (JSFI), paragraph 1, Rollo, pp. 83-90.
2. Ibid., paragraph 3.
3. Ibid., paragraph 5; Exhibit "A", Rollo, pp. 222-224.
4. Ibid., paragraphs 7-11, Exhibit "G", Rollo, pp. 235-237. ADETca
5. Exhibit "H", Rollo, pp. 238-246.

6. Exhibit "I", Rollo, pp. 247-249.
7. Ibid.
8. Rollo, pp. 47-51.
9. Rollo, pp. 83-90.
10. Rollo, p. 92.
11. Rollo, pp. 122-128.
12. Rollo, pp. 146-148.
13. Rollo, pp. 185-221.
14. Rollo, pp. 375-376.
15. Rollo, pp. 381-383.
16. Rollo, pp. 387-388.
17. Rollo, p. 405.
18. Rollo, pp. 416-444.
19. Rollo, p. 446. HcSDIE
20. Rollo, pp. 88-89.

21. Exhibit "O".
22. For the 1st Quarter of 1998; Exhibit "P".
23. For the 2nd Quarter of 1998; Exhibit "Q".
24. For the 3rd Quarter of 1998; Exhibit "R".
25. For the 4th Quarter of 1998; Exhibit "S".
26. Exhibits "T-1" to "T-12", "X-1" to "X-12", "Y-1" to "Y-11".
27. Exhibits "T-1-a" to "T-12-a", "X-1-a" to "X-12-a", "Y-1-a" to "Y-11-a".
28. Supra, note 4.
29. Exhibit "U".
30. Exhibit "V".
31. Exhibit "W".
32. Annex "A", Revenue Memorandum Order No. 20-90, April 4, 1990.
33. Exhibits "U", "V", and "W".

34. Exhibits "U", "V", and "W". cdtai
35. G.R. No. 162852, December 16, 2004.

36. Ibid.

Endnotes
1 (Popup - Popup)
1. Docket, Vol. I, pp. 4 to 58.
2 (Popup - Popup)
3 (Popup - Popup)
4 (Popup - Popup)
5 (Popup - Popup)
6 (Popup - Popup)
7 (Popup - Popup)
8 (Popup - Popup)
8. Par. 1, Summary of Admitted Facts, Joint Stipulation of Facts and Issues (JSFI), CTA
Case No. 7696, Vol. I, Docket, p. 168.
9 (Popup - Popup)
168.
10 (Popup - Popup)
11 (Popup - Popup)
11. Exhibits "2", "3", "4", "16", "17" and "18", BIR Records, pp. 1-8.
12 (Popup - Popup)
13 (Popup - Popup)
14 (Popup - Popup)
14. Exhibit "7", BIR Records, pp. 490-495.
15 (Popup - Popup)
CTA Case No. 7696, Vol. I, Docket, pp. 168-169.
16 (Popup - Popup)
17 (Popup - Popup)

18 (Popup - Popup)
19 (Popup - Popup)
20 (Popup - Popup)
21 (Popup - Popup)
22 (Popup - Popup)
23 (Popup - Popup)
23. Summary of Admitted Facts, JSFI, Vol. I, Docket, pp. 169-173.
24 (Popup - Popup)
* Note from the Publisher: Copied verbatim from the official copy.
25 (Popup - Popup)

26 (Popup - Popup)
173.
27 (Popup - Popup)
28 (Popup - Popup)
173.
29 (Popup - Popup)
30 (Popup - Popup)
28. Par. 8, Summary of Admitted Facts, JSFI, Vol. I, Docket, p. 174.
31 (Popup - Popup)
32 (Popup - Popup)
30. Petition for Review, CTA Case No. 7696, Vol. I, Docket, pp. 4-28.
33 (Popup - Popup)
31. Petition for Review, CTA Case No. 7228, Docket, pp. 1-13.
34 (Popup - Popup)

32. CTA Case No. 7228, Docket, pp. 61-62.
35 (Popup - Popup)
36 (Popup - Popup)
34. Answer, CTA Case No. 7696, Vol. I, Docket, pp. 74-82.
37 (Popup - Popup)
35. Special and Affirmative Defenses, Answer, CTA Case No. 7728, Docket, pp. 43-46.
38 (Popup - Popup)
36. CTA Case No. 7696, Vol. I, Docket, pp. 129-138; 139-157.
39 (Popup - Popup)
40 (Popup - Popup)
38. Minutes of the hearing dated November 10, 2008 and December 10, 2008, pp. 223
and 327, respectively; Exhibits "EEE", "EEE-3", "EEE-4", "EEE-5", "EEE-6" and
"EEE-7".
41 (Popup - Popup)
39. Minutes of the Hearing dated February 26, 2009, Vol. I, Docket, p. 375; Exhibits
"BBBBB" and "CCCCC".
42 (Popup - Popup)
40. Minutes of the Hearing dated February 18, 2009, Vol. I, Docket, pp. 371, 387; Exhibit

S4-50.
43 (Popup - Popup)
41. Minutes of the Hearing dated July 26, 2012, Vol. II, Docket, p. 781; Exhibits
"EEEEE", "E5-2", "EEEEE-3" and "EEEEE-4".
44 (Popup - Popup)
42. Vol. II, Docket, pp. 991-1118.
45 (Popup - Popup)
43. Vol. II, Docket, pp. 1125-1127.
46 (Popup - Popup)
44. Vol. III, Docket, pp. 1124-1230.
47 (Popup - Popup)
45. Vol. III, Docket, pp. 1268-1270.
48 (Popup - Popup)
46. Vol. III, Docket, pp. 1272-1274.
49 (Popup - Popup)
47. Vol. IV, Docket, pp. 1999-2001.
50 (Popup - Popup)
48. Exhibit "26", Vol. III, Docket, pp. 1247-1253.

51 (Popup - Popup)
49. Vol. IV, Docket, pp. 1983-1995.
52 (Popup - Popup)
50. Vol. IV, Docket, pp. 2003-2004.
53 (Popup - Popup)
51. Vol. IV, Docket, pp. 2005-2007.
54 (Popup - Popup)
52. Vol. IV, Docket, pp. 2024-2025.
55 (Popup - Popup)
53. Vol. IV, Docket, pp. 2028-2038.
56 (Popup - Popup)
54. Vol. IV, Docket, p. 2041.
57 (Popup - Popup)
55. Issues to be Tried and Resolved, Joint Stipulation of Facts and Issues (JSFI), CTA
Case No. 7696, docket, vol. one, p. 178.
58 (Popup - Popup)
56. Should be P70,046,666.94.
59 (Popup - Popup)
57. Should be P38,869,403.69.

60 (Popup - Popup)
58. Should be P6,338,119.45.
61 (Popup - Popup)
62 (Popup - Popup)
63 (Popup - Popup)
61. "SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of
Taxes. —
(a) In the case of false or fraudulent return with intent to evade 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 . . ."
64 (Popup - Popup)
62. G.R. No. L-20569, August 23, 1974.
65 (Popup - Popup)
66 (Popup - Popup)
64. Erroneously indicated as P70,046,666.93 per FLD.
67 (Popup - Popup)

65. Exhibit "A", pp. 4-6; Petition for Review, CTA Case No. 7696, docket, vol. one, pp.
19-22.
68 (Popup - Popup)
66. Supra, Note 36.
69 (Popup - Popup)
67. Exhibits "YYYY-1.1" "YYYY-1.545".
70 (Popup - Popup)
68. G.R. No. 66416, March 21, 1990.
71 (Popup - Popup)
72 (Popup - Popup)
70. G.R. Nos. 193301 and 194637, dated March 11, 2013.
73 (Popup - Popup)
71. Fort Bonifacio Development Corp. vs. CIR, G.R. Nos. 158885 & 170680, April 2,
2009.
74 (Popup - Popup)
72. Id.
75 (Popup - Popup)

76 (Popup - Popup)
74. Exhibit "A", p. 6.
77 (Popup - Popup)
75. G.R. No. 185969, November 19, 2014.
78 (Popup - Popup)
79 (Popup - Popup)
80 (Popup - Popup)
81 (Popup - Popup)
82 (Popup - Popup)
80. Exhibit "F".
83 (Popup - Popup)
81. Exhibit "H".
84 (Popup - Popup)
82. Exhibit "J".
85 (Popup - Popup)
83. Exhibit "K".
86 (Popup - Popup)
84. Exhibits "SSSS-1", "SSSS-10", "SSSS-17", "SSSS-24", "SSSS-31" and "SSSS-39".
87 (Popup - Popup)
85. Fort Bonifacio Development Corporation, G.R. Nos. 164155 & 175543, February 25,
2013, citing Philippine Home Assurance Corporation v. Court of Appeals, 361 Phil.
368, 372-373 (1999).
88 (Popup - Popup)
89 (Popup - Popup)
90 (Popup - Popup)
91 (Popup - Popup)
92 (Popup - Popup)
90. CTA Case No. 7696, docket, vol. 2, pp. 1125-1127.

93 (Popup - Popup)
94 (Popup - Popup)
95 (Popup - Popup)
96 (Popup - Popup)
97 (Popup - Popup)
95. G.R. Nos. 163653 and 167689, July 19, 2011.
98 (Popup - Popup)
99 (Popup - Popup)
97. Par. 13, Answer, CTA Case No. 7696, Vol. I, Docket, p. 80.
100 (Popup - Popup)

101 (Popup - Popup)

99. Par. 16, Answer, CTA Case No. 7696, Vol. I, Docket, pp. 81-82.

102 (Popup - Popup)
100. Exhibit "PPPP-1".
103 (Popup - Popup)

101. Exhibit "OOOO".
104 (Popup - Popup)

102. Exhibit "NNNN-1".
105 (Popup - Popup)

103. Exhibit "MMMM-1".
106 (Popup - Popup)

104. Exhibit "RRRR-3".
107 (Popup - Popup)

105. Supra, Note 14.
108 (Popup - Popup)

106. Supra, Notes 8 and 15.
109 (Popup - Popup)

107. Respondent's Answer, CTA Case No. 7696, docket, vol. one, p. 76; Exhibit "13",
CTA Case No. 7696, BIR records, p. 537.
110 (Popup - Popup)


"TTTT-2.57", "TTTT-2.59", "TTTT-2.61", "TTTT-2.63" and "TTTT-2.64".
111 (Popup - Popup)

112 (Popup - Popup)

"TTTT-2.60".
113 (Popup - Popup)

114 (Popup - Popup)

112. Exhibits "UUU" to "UUU-5".
115 (Popup - Popup)

113. Exhibit "DDDDD", p. 2.
116 (Popup - Popup)

114. Exhibits "UUU-2" to "UUU-3".

117 (Popup - Popup)
115. Exhibit "UUU".
118 (Popup - Popup)

119 (Popup - Popup)

120 (Popup - Popup)

121 (Popup - Popup)

122 (Popup - Popup)

123 (Popup - Popup)

124 (Popup - Popup)

125 (Popup - Popup)


126 (Popup - Popup)
127 (Popup - Popup)

128 (Popup - Popup)

129 (Popup - Popup)

130 (Popup - Popup)

131 (Popup - Popup)

129. Exhibit "WWW-1".
132 (Popup - Popup)

133 (Popup - Popup)
134 (Popup - Popup)

131. Exhibit "AAAAA", p. 12; Exhibits "UUUU-1" to "UUUU-17".
135 (Popup - Popup)

132. Exhibit "AAAAA", p. 12 and Annexes C.3 and C.4; Exhibit "EEEEE", p. 2.
136 (Popup - Popup)

133. Exhibit "EEEEE-3".
137 (Popup - Popup)

138 (Popup - Popup)

139 (Popup - Popup)

140 (Popup - Popup)

137. Exhibit "RRRR-5", FBDC's Notes to Parent Company Financial Statements, p. 16.
141 (Popup - Popup)

138. Exhibit "RRRR-3", Section D, line 98.
142 (Popup - Popup)

139. Exhibit "KKKKK".
143 (Popup - Popup)

144 (Popup - Popup)

145 (Popup - Popup)

142. Officemetro Philippines, Inc. vs. Commissioner of Internal Revenue, CTA Case No.
8382, dated June 3, 2014.
146 (Popup - Popup)

147 (Popup - Popup)

148 (Popup - Popup)

145. Exhibits "N" and "O".
149 (Popup - Popup)

146. Exhibit "HHH".
150 (Popup - Popup)

147. Exhibit "GGG".
151 (Popup - Popup)

148. See details per Annex A.
152 (Popup - Popup)

149. Exhibit "13", CTA Case No. 7696, BIR records, pp. 536 and 538.

153 (Popup - Popup)
150. 4 SCRA 182, "As assessment fixes and determines the tax liability of a taxpayer. As
soon as it is served, an obligation arises on the part of the taxpayer concerned to pay
the amount assessed and demanded. Hence, assessments should not be based on mere
presumptions no matter how reasonable or logical said presumptions may be. The
assessment must be based on actual facts. The presumption of correctness of
assessment being a mere presumption cannot be made to rest on another
presumption."
154 (Popup - Popup)

151. G.R. No. 136975, March 31, 2005.
155 (Popup - Popup)

152. Id., citing United States v. Janis, 49 L. Ed. 2d 1046 (1976); 428 US 433 (1976).
156 (Popup - Popup)

153. Exhibit "E5-2", Q&A no. (63), p. 19.
157 (Popup - Popup)

154. Exhibit "E5-2", Q&A 70-73, pp. 20-21; Exhibits "FFFFF-14" and "HHHHH".
158 (Popup - Popup)

155. Exhibit "E5-2", Q&A no. (64), p. 19.
159 (Popup - Popup)

156. Exhibit "E5-2", Q&A no. (65), p. 19.
160 (Popup - Popup)


161 (Popup - Popup)
162 (Popup - Popup)

163 (Popup - Popup)

164 (Popup - Popup)

165 (Popup - Popup)

162. Exhibit "HHHHH", net of the amount of P888,500.00 recorded under the account
"Parties and Gifts" which was subjected also to deficiency WTC by respondent.
166 (Popup - Popup)

163. Exhibit "IIIII".
167 (Popup - Popup)

164. Exhibit "JJJJJ".
168 (Popup - Popup)

165. Exhibit "MMMM-1-a".
169 (Popup - Popup)

170 (Popup - Popup)

167. Exhibits "XXXX-11" and "XXXX-18".
171 (Popup - Popup)

172 (Popup - Popup)

169. Exhibit "C", p. 3.
173 (Popup - Popup)

170. Exhibit "AAAAA", pp. 8-10.
174 (Popup - Popup)

171. CTA Case No. 7728, BIR Records, p. 180.
175 (Popup - Popup)

172. Exhibit "DDDDD".
176 (Popup - Popup)

177 (Popup - Popup)

178 (Popup - Popup)

179 (Popup - Popup)

180 (Popup - Popup)

181 (Popup - Popup)

182 (Popup - Popup)

183 (Popup - Popup)

184 (Popup - Popup)

185 (Popup - Popup)

186 (Popup - Popup)

183. Computation of Minimum Corporate Income Tax of Previous Year, Exhibit
"RRRR-3", p. 2.

187 (Popup - Popup)
1. Docket (Vol. I), pp. 1-12.
188 (Popup - Popup)

189 (Popup - Popup)

190 (Popup - Popup)

4. Exhibit "B".
191 (Popup - Popup)

5. Exhibits "G", "G-1", "G-2", "G-3", "G-4".
192 (Popup - Popup)

6. Exhibit "H".
193 (Popup - Popup)

7. Exhibit "A".
194 (Popup - Popup)

8. Docket (Vol. I), pp. 94-102.
195 (Popup - Popup)

9. Notice of Pre-Trial Conference issued on November 28, 2011, Docket (Vol. I), p.
153.

196 (Popup - Popup)
10. Docket (Vol. I), pp. 154-169.
197 (Popup - Popup)

11. Docket (Vol. I), pp. 132-139.
198 (Popup - Popup)

12. Docket (Vol. I), pp. 217-220.
199 (Popup - Popup)

13. Resolution dated January 29, 2013, Docket (Vol. I), pp. 457-458.
200 (Popup - Popup)

14. Resolution dated October 16, 2013, Docket (Vol. II), pp. 556-557.
201 (Popup - Popup)

15. Docket (Vol. II), pp. 573-625.
202 (Popup - Popup)

203 (Popup - Popup)

204 (Popup - Popup)

18. In accordance with Section 77 (B) of the NIRC of 1997, as amended.
205 (Popup - Popup)
19. Exhibit "L".
206 (Popup - Popup)

20. Section 114 of the NIRC of 1997, as amended by R.A. 9337.
207 (Popup - Popup)

21. Exhibit "M".
208 (Popup - Popup)

22. Exhibit "N".
209 (Popup - Popup)

23. Exhibit "O".
210 (Popup - Popup)

24. Exhibit "P".
211 (Popup - Popup)

25. Commissioner of Internal Revenue vs. Hantex Trading, Inc., G.R. No. 136975, March
31, 2005.
212 (Popup - Popup)

26. Ibid.
213 (Popup - Popup)

27. Exhibit "G".
214 (Popup - Popup)

28. Exhibit "G".
215 (Popup - Popup)

29. Docket (Vol. I), p. 274.
216 (Popup - Popup)

30. Exhibit "L".
217 (Popup - Popup)

31. Exhibit "K".
218 (Popup - Popup)

219 (Popup - Popup)

33. Exhibit "K".
220 (Popup - Popup)

34. Calma, et al. vs. Court of Appeals, G.R. No. 122787, February 9, 1999.
221 (Popup - Popup)

35. Exhibit "G".
222 (Popup - Popup)

36. Supra note 34.
223 (Popup - Popup)

224 (Popup - Popup)

38. Exhibits "M", "N", "O" and "P".
225 (Popup - Popup)

39. Exhibit "H".
226 (Popup - Popup)

40. G.R. No. L-13656, January 31, 1962.
227 (Popup - Popup)

41. Docket (Vol. I), p. 430.
228 (Popup - Popup)

42. REVENUE MEMORANDUM CIRCULAR NO. 29-05, Q&A No. 17.
229 (Popup - Popup)

230 (Popup - Popup)

44. Docket (Vol. I), pp. 405-417.
231 (Popup - Popup)

45. Philippine International Fair, Inc. v. Collector of Internal Revenue, et al., G.R. No.
L-12928 and G.R. L-12932, March 31, 1962.
232 (Popup - Popup)

46. Commissioner of Internal Revenue vs. Lianga Bay Logging Co., Inc., G.R. No.
L-35266, January 21, 1991.
233 (Popup - Popup)

1. Joint Stipulation of Facts and Issues (JSFI), paragraph 1, Rollo, pp. 83-90.
234 (Popup - Popup)

2. Ibid., paragraph 3.
235 (Popup - Popup)

3. Ibid., paragraph 5; Exhibit "A", Rollo, pp. 222-224.
236 (Popup - Popup)

4. Ibid., paragraphs 7-11, Exhibit "G", Rollo, pp. 235-237.
237 (Popup - Popup)

5. Exhibit "H", Rollo, pp. 238-246.
238 (Popup - Popup)

6. Exhibit "I", Rollo, pp. 247-249.
239 (Popup - Popup)

7. Ibid.

240 (Popup - Popup)
8. Rollo, pp. 47-51.
241 (Popup - Popup)

9. Rollo, pp. 83-90.
242 (Popup - Popup)

10. Rollo, p. 92.
243 (Popup - Popup)

11. Rollo, pp. 122-128.
244 (Popup - Popup)

12. Rollo, pp. 146-148.
245 (Popup - Popup)

13. Rollo, pp. 185-221.
246 (Popup - Popup)

14. Rollo, pp. 375-376.
247 (Popup - Popup)

15. Rollo, pp. 381-383.
248 (Popup - Popup)

16. Rollo, pp. 387-388.
249 (Popup - Popup)
17. Rollo, p. 405.
250 (Popup - Popup)

18. Rollo, pp. 416-444.
251 (Popup - Popup)

19. Rollo, p. 446.
252 (Popup - Popup)

20. Rollo, pp. 88-89.
253 (Popup - Popup)

21. Exhibit "O".
254 (Popup - Popup)

22. For the 1st Quarter of 1998; Exhibit "P".
255 (Popup - Popup)

23. For the 2nd Quarter of 1998; Exhibit "Q".
256 (Popup - Popup)

24. For the 3rd Quarter of 1998; Exhibit "R".
257 (Popup - Popup)

25. For the 4th Quarter of 1998; Exhibit "S".
258 (Popup - Popup)
26. Exhibits "T-1" to "T-12", "X-1" to "X-12", "Y-1" to "Y-11".
259 (Popup - Popup)

27. Exhibits "T-1-a" to "T-12-a", "X-1-a" to "X-12-a", "Y-1-a" to "Y-11-a".
260 (Popup - Popup)

28. Supra, note 4.
261 (Popup - Popup)

29. Exhibit "U".
262 (Popup - Popup)

30. Exhibit "V".
263 (Popup - Popup)

31. Exhibit "W".
264 (Popup - Popup)

32. Annex "A", Revenue Memorandum Order No. 20-90, April 4, 1990.
265 (Popup - Popup)

266 (Popup - Popup)

267 (Popup - Popup)
35. G.R. No. 162852, December 16, 2004.
268 (Popup - Popup)

36. Ibid.

FBDC Tax Deficiency Case

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FBDC Tax Deficiency Case

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THIRD DIVISION

[C.T.A. CASE NOS. 7696 & 7728. July 15, 2015.]

FORT BONIFACIO DEVELOPMENT CORPORATION, petitioner,

This is a Petition for Review 1(1) filed by Fort Bonifacio Development

Type of Tax Basic Interest Total

Value-Added Tax P43,599,988.80 P26,446,678.14P70,046,666.94 2(2)

Petitioner Fort Bonifacio Development Corporation (FBDC) is a domestic

Respondent Commissioner of Internal Revenue (CIR) is the duly appointed

On November 30, 2006, the BIR issued a Notice of Informal Conference

On January 2, 2007, 15(15) the BIR issued to FBDC a Formal Letter of

Copyright 1994-2016 CD Technologies Asia, Inc. Taxation 2015 2

A. VALUE ADDED TAX

B. WITHHOLDING TAX — COMPENSATION

Total Expenses subject to withholding P82,164,831.35

Copyright 1994-2016 CD Technologies Asia, Inc. Taxation 2015 4

C. EXPANDED WITHHOLDING TAX

EWT due on Actual Expenses P30,021,558.86

D. DOCUMENTARY STAMP TAX:

Base Rate DST Due

E. FINAL WITHHOLDING TAX — FRINGE BENEFITS

Revenues Per ITR

Realized revenue on sale of real estate P1,205,596,247.00

Cost and expenses

Copyright 1994-2016 CD Technologies Asia, Inc. Taxation 2015 7

Copyright 1994-2016 CD Technologies Asia, Inc. Taxation 2015 8

On February 5, 2007, or within the reglementary period, FBDC

On March 30, 2007 and on July 9, 2007, FBDC submitted additional

Copyright 1994-2016 CD Technologies Asia, Inc. Taxation 2015 9

"VALUE-ADDED TAX (VAT)

6. Petitioner derives income primarily on the sale of real estate, lease of

6.1 Collections pertaining to principal on sale of properties were identified as

WITHHOLDING TAX ON COMPENSATION

7. Discrepancies in withholding tax on compensation were arrived at after an

EXPANDED WITHHOLDING TAXES

8. Expenses subject to expanded withholding taxes per Revenue Regulations

8.1 Other audit findings include matching inconsistencies on petitioner's

FINAL WITHHOLDING TAX — FRINGE BENEFITS

9. Transportation and travel expenses, membership fees and representation

DOCUMENTARY STAMP TAX (DST)

Copyright 1994-2016 CD Technologies Asia, Inc. Taxation 2015 11

xxx xxx xxx

xxx xxx xxx

Copyright 1994-2016 CD Technologies Asia, Inc. Taxation 2015 12

"SPECIAL AND AFFIRMATIVE DEFENSES

5. Petitioner was sufficiently informed in writing of the law and facts on

xxx xxx xxx

6. The assessment issued against petitioner is valid being supported by

Copyright 1994-2016 CD Technologies Asia, Inc. Taxation 2015 13

xxx xxx xxx

Based on the investigation conducted by revenue officers, petitioner derives

a. Disallowed expenses not subject to Withholding taxes —

These items were disallowed pursuant to Section 34(K) of the

b. Discrepancy in the amount of P591,274.00.

Said amount was found to have been unreported on Interest

c. Portion of retirement expenses claimed during the year were

Retirement expenses charged to income amounting to

d. Understatement on non-deductible portion of interest

Such amount was disallowed because the Interest income subject

Copyright 1994-2016 CD Technologies Asia, Inc. Taxation 2015 14

e. Debits to Miscellaneous Income in the amount of

A close scrutiny of their entries per monthly trial balance would

7. The unexpired or unapplied Minimum Corporate Income Tax (MCIT) may