FIRST DIVISION

[C.T.A. CASE NO. 7965. March 14, 2013.]

NEXT MOBILE, INC. (formerly NEXTEL COMMUNICATIONS

PHILS., INC.), petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, respondent.

RESOLUTION

UY, J : p

Submitted for resolution is respondent's "MOTION FOR

RECONSIDERATION (Re: Decision promulgated 11 December 2012)"
filed on January 17, 2013, with petitioner's "COMMENT (on Respondent's
Motion for Reconsideration dated 14 January 2013)" filed on February
7, 2013. The dispositive portion of the assailed Decision reads:
"WHEREFORE, premises considered, the instant Petition for
Review is GRANTED. Accordingly, the Formal Letter of Demand dated
October 17, 2005 and the Assessment Notices/Demand No. 43-734
dated October 17, 2005 are both hereby CANCELLED and
WITHDRAWN for being issued beyond the prescriptive period allowed
by law. Consequently, the '1st Notice' dated July 24, 2009 demanding
payment of assessed deficiency income tax, final withholding tax,
expanded withholding tax, increments for late remittance of taxes
withheld, and compromise penalty in the total amount of
Php313,339,610.41 for taxable year ending December 31, 2001 is
hereby SET ASIDE.
SO ORDERED."

In the instant Motion, respondent claims that this Court erred in holding
that respondent failed to substantiate her allegation by clear and convincing
proof that petitioner filed a false or fraudulent return.
Respondent contends that there are substantial pieces of evidence to
substantiate her allegation that petitioner filed a false return. She claims
that petitioner declared no income in its Annual Income Tax Return (ITR) and
accompanying Audited Financial Statements for the taxable year 2001; that
the Formal Letter of Demand (FLD) and Assessment Notices No. 43-734
(FAN), clearly and evidently show that petitioner had deficiency income tax,
expanded withholding tax (EWT), final withholding tax (FWT), and
increments for late remittance of taxes in the amounts of Php54,552,780.41,
Php933,811.03, Php252,282,875.12, Php5,376,143.85 and Php194,000.00,
respectively, for taxable year ending December 31, 2001; that based on the
Supplemental Report of Mr. Sonny S. Bonilla, the court-appointed
Independent Certified Public Accountant (ICPA), petitioner's income
payments still subject to expanded withholding tax increased to
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 Php18,528,570.99, with corresponding deficiency tax of Php2,193,656.76;
that the foregoing shows that petitioner filed a false return considering that
there is substantial under-declaration of income in its ITR for taxable year
ending December 31, 2001 and said falsity provides sufficient basis for the
application of the ten-year prescriptive period to assess; and that the right of
the State to assess petitioner for deficiency taxes had not yet prescribed
considering that the FAN for deficiency income tax, EWT, FWT and
increments for late remittance of taxes were issued only on October 17,
2005, or well within the ten-year prescriptive period. cEaSHC

In addition, respondent argues that the assessments for deficiency

income tax, EWT, FWT, and increments for late remittance of taxes were
issued with legal and factual bases.
On the other hand, petitioner points out that under the FAN, it was
assessed for deficiency income tax not because it allegedly under-declared
its income but because deductions were disallowed allegedly due to non-
withholding of tax; that even assuming that the alleged falsity of the ITR is
premised on an overstatement of deductions, there is still no substantial
overstatement of deductions since the disallowed deductions constitutes less
than thirty percent (30%) of the actual deductions claimed; that the
disallowed Net Operating Loss Carry-Over (NOLCO) should not be considered
as a disallowed deduction for purposes of computing the 30% threshold; that
respondent failed to rebut the ICPA's findings that petitioner is not liable for
deficiency income tax; and that while the ICPA found petitioner liable for
deficiency EWT in the amount of P2,193,656.76, such amount does not
translate to an under-declaration of income for purposes of income tax.
Petitioner also argues that respondent's belated allegation that even
the assessments relating to EWT, FWT and increments for late remittance of
taxes were issued within the ten (10) year prescriptive period, implying that
even the withholding tax returns of petitioner were also false, should not be
countenanced as this will violate petitioner's right to due process. Petitioner
contends that the only issue raised in this case was whether the ITR was
false; that petitioner proceeded to trial on the basis of this issue, among
others; and that to allow respondent to raise this theory will deprive
petitioner of its right to procedural due process considering that petitioner
cannot now, at this stage of the proceedings, adduce any evidence to the
contrary.
Finally, petitioner posits that contrary to respondent's allegations, the
assessments for deficiency income tax, EWT, FWT and increments for late
remittance of taxes have no legal and factual bases, and that petitioner have
properly presented evidence and legal arguments to disprove the findings of
respondent in the FAN. cDTCIA

A closer scrutiny of respondent's arguments reveals that the same had

been duly considered by this Court in the assailed Decision. Nevertheless, for
the sole purpose of expounding the ruling of this Court in the assailed
Decision, this Court will address the arguments raised by respondent.
Petitioner was assessed for deficiency income tax because deductions
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 were disallowed as deductible expenses due to non-withholding of tax.
Pursuant to Section 248 (B) of the National Internal Revenue Code (NIRC) of
1997, as amended, to constitute a prima facie evidence that petitioner's ITR
is false, respondent should be able to establish that petitioner substantially
overstated its deductions. However, a review of the pieces of evidence
enumerated by respondent in her Motion for Reconsideration reveals
otherwise.
Section 248 (B) of the 1997 NIRC, as amended, provides that a claim of
deductions in an amount exceeding 30% of actual deductions, shall render
the taxpayer liable for its overstatement. As borne by the records, the
disallowed deductions due to non-withholding of tax constitute less than
30% of the deductions claimed by petitioner. 1 Furthermore, as correctly
pointed out by petitioner, the disallowed NOLCO should not be considered
for purposes of computing the 30% threshold. Records show that the NOLCO
in the amount of Php3,572,090,039.00 was disallowed by respondent. 2
However, the NOLCO claimed as deduction by petitioner in its ITR for the
taxable year 2001 amounts only to Php2,749,949,144.00. 3 Respondent's
witness, Ms. Margie Padre admitted that she disallowed the NOLCO in the
amount of Php3,572,090,039.00 because she assumed, without presenting
any evidence, that said NOLCO was carried over by petitioner to taxable year
2002. 4 Well-settled is the rule that assessments should not be based on
mere presumptions no matter how reasonable or logical said presumptions
may be. Assessments must be based on actual facts. The presumption of
correctness of assessment being a mere presumption cannot be made to
rest on another presumption. 5
Since respondent failed to establish, even by prima facie evidence, that
petitioner's ITR was false, there is no basis to extend the prescriptive period
to assess petitioner for deficiency income tax from three (3) years to ten
(10) years.
Anent respondent's claim that the right of the state to assess petitioner
for deficiency EWT, FWT and increments for late remittance had not yet
prescribed as the assessments were issued within the ten-year period, this
Court finds the same without merit.
Respondent did not raise in her Answer the falsity of petitioner's
withholding tax returns and the extension of the government's right to
assess petitioner for deficiency EWT, FWT, and increments for late
remittance from three (3) years to ten (10) years. In paragraph twelve (12)
of respondent's Answer, respondent alleged that "petitioner filed a false
income tax return, hence, respondent's right to assess is within ten (10)
years from the date of the discovery of the falsity." Furthermore, the parties
never included as an issue in their approved Joint Stipulation of Facts and
Issues dated November 25, 2009 the alleged falsity of petitioner's
withholding tax returns. Similarly, in her Memorandum, respondent never
bothered to allege and discuss the falsity of petitioner's withholding tax
returns and the extension of the government's right to assess petitioner for
deficiency EWT, FWT, and increments for late remittance to ten (10) years
on account thereof. TADCSE

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 Corollary to this is the rule that only those that had been stipulated
upon or admitted during the pre-trial conference will bind the parties. It has
been held that "the determination of issues during the pre-trial conference
bars the consideration of other questions, whether during trial or on appeal."
6 In addition, it is axiomatic in pleadings and practice that no new issue in a

case can be raised in a pleading which by due diligence could have been
raised in previous pleadings. 7
Moreover, as the object of the pleadings is to draw the lines of battle
between the litigants and to indicate fairly the nature of the claims or
defenses of both parties, a party cannot subsequently take a position
contrary to, or inconsistent, with his pleadings as respondent did in this
case. It is also settled that when a party adopts a particular theory and the
case is tried and decided upon that theory in the court below, he will not be
permitted to change his theory on appeal. The case will be reviewed and
decided on that theory and not approached and resolved from a different
point of view. To permit a party to change his theory on appeal will be unfair
to the adverse party. 8
Finally, this Court finds it unnecessary to discuss respondent's
argument that the assessments against petitioner for deficiency income tax,
EWT, FWT, and increments for late remittance of taxes were issued with
legal and factual bases since said assessments are, nevertheless, void for
being issued beyond the three-year prescriptive period provided under
Section 203 of the 1997 NIRC, as amended.
In view of the foregoing, this Court finds no compelling reason to set
aside the assailed Decision.
WHEREFORE, premises considered, respondent's "MOTION FOR
RECONSIDERATION (Re: Decision promulgated 11 December 2012)"
is hereby DENIED for lack of merit.
SO ORDERED.

(SGD.) ERLINDA P. UY
Associate Justice
Esperanza Fabon-Victorino, J., concurs.

Footnotes

1. Disallowed deductions due to non-withholding Php98,333,873.91

(Exhibit "G", Docket, Volume II, p. 000372)
Deductions claimed per ITR Php3,562,018,449
(Exhibit "XX", line 103, Docket, Volume II, p. 000507)
Percentage of disallowed deductions due to non- 2.77%
withholding over deductions claimed per ITR
2. Petitioner's Exhibit "G", Docket, Volume II, pp. 000372 to 000375.

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 3. Petitioner's Exhibit "XX", Lines 98 and 99, Docket, Volume II, p. 000507.
4. Transcript of Stenographic Notes (TSN) dated November 22, 2011, pp. 41 to 42,
46 to 47.

5. Commissioner of Internal Revenue vs. Island Garment Manufacturing

Corporation, G.R. No. L-46644, September 11, 1987, citing Collector of
Internal Revenue vs. Benipayo, L-13656, January 31, 1962.
6. Villanueva, et al. vs. Court of Appeals, et al., G.R. No. 143286, April 14, 2004.

7. Toshiba Information Equipment (Phils.), Inc. vs. Commissioner of Internal

Revenue, G.R. No. 157594, March 15, 2010.
8. Cocomangas Hotel Beach Resort vs. Visca, et al., G.R. No. 167045, August 29,
2008.

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