REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

SPECIAL FIRST DIVISION

*********

SM RESIDENCES CORP., CTA Case No. 9395

Petitioner,
Members:
-versus-
DEL ROSARIO, P.J. , Chairperson ,
UY, and
MINDARO-GRULLA, JJ.

THE COMMISSIONER OF Promulgated:

INTERNAL REVENUE,
Respondent. A_P_R_1 _0-=i=..,~~-----Z---
X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

DECISION
UY, J.:

Before this Court is a Petition for Review filed on July 27, 2016
by SM_Residences Corporation against the Commissioner of Internal
Revenue, assailing the latter's Final Decision on Disputed
Assessment (FDDA), holding petitioner liable for deficiency taxes in
the aggregate of P49,552,927.83 for the taxable year (TY) 2009.

THE FACTS

Petitioner SM_Residences Corp. 1s a corporation duly

organized and existing under the laws of the Republic of the
Philippines, with principal business address at 10/F One E-com
Center, Harbor Drive, Mall of Asia Complex, Pasay City. 1 Its primary
purpose is stated as follows:

"To acquire by purchase, exchange, assigns, gift or

otherwise, and to sell, assign, transfer, exchange, lease
let, develop, mortgage, pledge, traffic, deal in and with
and otherwise operate, enjoy and dispose of, and all
properties of every kind and description and wherever

1
Exhibits "P-1 " and "P-2", Docket - Vol. II, pp. 93 1 to 940.
DECISION
CIA Case No. 9395
Page 2 of 41

situated and as to the extent permitted by law, including

but not limited to real estate, whether improved or
unimproved, and any interest or right therein, as well as
buildings, tenements, warehouses, factories, edifices and
structures and other improvements, and bonds,
debentures, promissory notes, shares of capital stock, or
other securities or obligations, created, negotiated or
issued by any corp., association or other entity foreign or
domestic, and while the owner, holder or possessor
thereof, to exercise all rights, powers and privileges of
ownership or any other interest therein, including the right
to receive, collect and dispose of, any and all rentals,
dividends, interest and income derived therefrom, and the
right to vote on any propriety or other interest on any
shares of the capital stock, and upon any bonds,
debentures, or other securities, having voting power so
owned or held; provided that the corporation shall not
engage in the business of an open-end investments
company as defined in the Investment Company Act (R.A.
2629), without first complying with applicable provisions of
the said Act, provided it shall not act as broker or dealer
of securities."

Petitioner is registered with the Bureau of Internal Revenue

(BIR) as a VAT taxpayer under Taxpayer Identification Number (TIN)
007-1 05-036-000. 3

On the other hand, respondent Commissioner of Internal

Revenue (CIR) is the head of the BIR, the government agency tasked
to, among others, collect all national internal revenue taxes. As CIR,
respondent has the power to decide disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto or other matters arising under the Tax Code or other
laws or portions thereof administered by the BIR. Respondent's
office is at the 51h Floor, Bureau of Internal Revenue Building, Agham
Road, Diliman, Quezon City. 4

On November 14, 2008, petitioner and SM_Development

Corporation (SMDC) entered into a Memorandum of Agreement, 5
whereby the said parties agreed to develop petitioner's property, a

2
Exhibit "P-2-A", Docket- Vol. II, p. 933.
3
Exhibit "P-3", Docket- Vol. II, p. 942.
4
Par. A. I, Joint Stipulation of Facts and Issues (JSFI), Docket- Vol. I, p. 503.
5
Exhibit "P-31 ",Docket- Vol. II, at pp. I 033 to! 039.

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DECISION
CIA Case No. 9395
Page 3 of 41

parcel of land located at SM Mall of Asia Complex, CBP 1-A, Pasay

City, Metro Manila, into a commercial/ residential condominium
development project, to be registered and known as the "Sea
Residences". The said parties agreed that each shall be entitled to
the following percentage shares based on the proceeds of the sale of
condominium units: (1) 15% for petitioner, and (2) 85% for SMDC.

Petitioner filed its Annual Income Tax Return (ITR) forTY 2009
on April 14, 201 0. 6 It likewise separately filed its Quarterly VAT
Returns for the same year on the following dates: (1) April 27, 2009,
for the first quarter of 2009; 7 and (2) February 19, 2010, for the
second, 8 third, 9 and fourth, 10 quarters of 2009.

Pursuant to Letter of Authority No. LOA-125-2010-00000119

dated May 14, 2010, 11 the BIR conducted a tax examination/audit of
the books of accounts and other accounting records of the petitioner
forTY 2009. 12

On April 26, 2012, petitioner, through Cecilia R. Patricio,

executed a Waiver of the Statute of Limitation under the National
Internal Revenue Code (1 51 Waiver), 13 which extended the BIR's
period to assess until December 31, 2012. 14

Thereafter, on August 22, 2012, petitioner, through Patricio,

executed another Waiver of the Statute of Limitation under the
National Internal Revenue Code (2nd Waiver), 15 which extended the
BIR's period to assess until March 31, 2013. 16

On January 19, 2013, petitioner again executed a Waiver of

Defense of Prescription under the Statute of Limitations of the
National Internal Revenue Code (3'd Waiver) 17 which extended the
BIR's period to assess until December 31, 2013. 18

6
Exhibit "P-8", Docket- Vol. II, pp. 949 to 950.
7
Exhibit "P-17", Docket- Vol. II, p. 962.
8
Exhibit "P-18", Docket- Vol. II, pp. 963 to 964.
9
Exhibit "P-19", Docket- Vol. II, pp. 965 to 966.
10
Exhibit "P-20", Docket- Vol. II, pp. 967 to 968.
11
Exhibit "P-21 ",Docket- Vol. II, pp. 969 to 971; and Exhibit "R-1 ", BIR Records, p. 4.
12
Par. B.!, JSFI, Docket- Vol. I, p. 504.
13
Exhibit "P-22", Docket- Vol. II, p. 972; and Exhibit "R-2", BIR Records, p. 173.
14
Par. B.2, JSFI, Docket- Vol. I, p. 504.
15
Exhibit "P-23", Docket- Vol. II, p. 973; and Exhibit "R-3", BIR Records, p. 174.
16
Par. B.3, JSFI, Docket- Vol. I, p. 504.
17
Exhibit "P-24", Docket- Vol. II, p. 974; and Exhibit "R-4", BIR Records, p. 174-A.
18
Par. B.4, JSFI, Docket- Vol. I, p. 504.

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DECISION
CTA Case No. 9395
Page 4 of 41

Subsequently, on May 3, 2013, petitioner received from the Sl R

a copy of the Preliminary Assessment Notice (PAN), 19 covering
various assessments for deficiency income tax, value-added tax
(VAT), and documentary stamp tax (DST), for TY 2009 in the total
amount of P35,603,354.91, inclusive of surcharge and interest. 20

On July 25, 2013, petitioner and SMDC entered into an

Amendment to the Memorandum of Agreement, 21 amending their
previous Memorandum of Agreement to the effect that the property
subject of the Sea Residences Project shall be purchased by SMDC
upon full payment of the agreed purchase price via the execution of a
Deed of Absolute Sale.

Petitioner again executed, on August 29, 2013, a Waiver of

Defense of Prescription under the Statute of Limitations of the
National Internal Revenue Code (4th Waiver), 22 which extended the
SIR's period to assess until April 30, 2014.Z3

A Waiver of Defense of Prescription under the Statute of

Limitations of the National Internal Revenue Code (5th Waiver) 24 was
likewise executed by petitioner on January 27, 2014, further
extending the SIR's period to assess until September 30, 2014.

Petitioner then received from the SIR, on February 27, 2014,

the Formal Letter of Demand (FLO) dated February 26, 2014, 25
together with the Detail of Discrepancies/Assessments for deficiency
income tax, VAT and DST, in the aggregate amount of
P39,345,258.25, inclusive of surcharge, interest and compromise
penalty forTY 2009. 26

On March 31, 2014, petitioner filed with respondent its protest

27
letter, requesting for the cancellation of the subject assessments for
lack of factual and/or legal bases. In the same letter, petitioner

19
Exhibit "P-27", Docket- Vol. II, pp. 977 to 980; and Exhibit "R-8", BIR Records, pp.
241 to 244.
20
Par. B.5, JSFI, Docket- Vol. I, p. 504.
21
Exhibit "P-31-A", Docket- Vol. II, at pp. 1040 to1042.
22
Exhibit "P-25", Docket- Vol. II, p. 975; and Exhibit "R-5", BIR Records, p. 246.
23
Par. B.6, JSFI, Docket- Vol. I, p. 504.
24
Exhibit "P-26", Docket- Vol. II, p. 976.
25
Exhibit "P-28", Docket- Vol. II, pp. 981 to 987; and Exhibit "R-9", BIR Records, pp.
274 to 277.
26
Par. B.7, JSFI, Docket- Vol. I, p. 504.
27
Exhibit "P-29", Docket- Vol. II, pp. 988 to 1025.

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DECISION
CTA Case No. 9395
Page 5 of 41

requested that other available remedies be afforded it, including the

submission of supplemental protest letter and additional supporting
documents, for the immediate resolution of the disputed issues.

On June 27, 2016, petitioner received a copy of the FDDA, 28

which denied petitioner's protest letter by reiterating the payment of
the aggregate amount of P49,552,927.83, inclusive of increments for
the deficiency income tax, VAT and DST, forTY 2009, 29 computed as
follows:

I. INCOME TAX
Taxable Income p
Add: Adjustments I Disallowances
Undeclared Income p 36,130,552.57
Disallowed NOLCO 1,344,416.00 37,474,968.57
Adjusted Taxable Income ,. 37,474,968.57
Tax rate 30%
Basic Tax Due p 11,242,490.57
Add: Interest 4/16/2010-6/30/2016 p 13,971,489.65
Compromise penalty 50,000.00 14,021,489.65
TOTAL AMOUNT DUE p 25,263,980.22

II. VAT
Taxable sales per audit P136,380,284.64
Tax rate 12%
Output Tax Due p 16,365,634.16
Less: Input Tax Credit 5,613,985.01
Output Tax Payable p 10,751,649.15
Less: Payment per return 171,406.43
Deficiency VAT p 10,580,242.72
Add: Interest 1/26/201 0 - 6/30/2016 p 13,612,279.40
Compromise penalty 50,000.00 13,662,279.40
TOTAL AMOUNT DUE p 24,242,522.12

Ill. DST
Advances to related parties p 3,330, 710.00
Rate 1/200
DST due thereon p 16,653.55
Add: Surcharge p 4,163.39
Interest 1/16/2010-6/30/2016 21,608.55
Compromise penalty 4,000.00 29,771.94
TOTAL AMOUNT DUE p 46,425.49

GRAND TOTAL ~ 49,552,927.83

28
Exhibit "P-30", Docket- Vol. II, pp. 1026 to 1032; and Exhibit "R-10", BIR Records,
pp. 329 to 332.
29
Par. B.8, JSFI, Docket- Vol. 1, p. 504.

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DECISION
CTA Case No. 9395
Page 6 of 41

On July 22, 2016, petitioner paid, through eFPS, the deficiency

DST forTY 2009, in the total amount of P46,626.25. 30

Subsequently, on July 27, 2016, petitioner filed the instant

Petition for Review, praying that this Court: (a) reverse and set aside
respondent's FDDA holding petitioner liable for alleged deficiency
taxes in the aggregate amount of P49,552,927.83; (b) declare as null
and void the disputed deficiency assessments for income tax, VAT
and DST for the TY 2009; and (c) declare petitioner not liable for any
deficiency income tax, VAT and DST forTY 2009.

On October 25, 2015, respondent filed his Answer, 31

interposing certain special and affirmative defenses, to wit: (1) the
assessments have not prescribed, since valid waivers were executed
by and between petitioner and respondent; (2) respondent observed
both procedural and substantial due process in issuing the
assessment; (3) the assessment issued against petitioner is valid and
lawful; and (4) the assessment issued against petitioner has factual
and legal bases.

The Pre-Trial Conference, initially set on February 16, 201732 ,

was reset to May 4, 201733 pursuant to a Motion to Reset Pre- Trial
Conference 34 filed on Februa7 7, 2017 by petitioner; and a Motion to
Defer Pre-Trial Conference, 3 filed by respondent on February 10,
2017. On said date, the parties' counsels agreed to file their Joint
Stipulations of Facts and Issues not later than May 24, 2017.

On May 19, 2017, petitioner filed a Motion to Commission (An

Independent Certified Public Accountantl6 and the same was
granted. Thus, Atty. Adan T. Delamide was commissioned as the
Independent Certified Public Accountant (ICPA) for this case, in the
Order dated May 25, 2017. 37

On May 24, 2017, the parties filed their Joint Stipulation of

Facts and lssues, 38 which was approved by the Court in its
30
Exhibits "P-35" and "P-35-A", Docket- Vol. II, pp. 1127 to 1128.
31
Docket- Vol. I, pp. 179 to 190.
32
Docket- Vol. I, pp. 192 to 193.
33
Order dated February 8, 2017, Docket- Vol. I, p. 206.
34
Docket- Vol. I, pp. 20 I to 204.
35
Docket- Vol. I, pp. 210 to 212.
36
Docket- Vol. I, pp. 493 to 496.
37
Docket- Vol. I, pp. 523 to 524.
38
Docket- Vol. I, pp. 503 to 518.

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DECISION
CTA Case No. 9395
Page 7 of 41

Resolution dated June 6, 2017. 39 The Court then issued the Pre-trial
Order on July 17, 2017. 40

During trial, petitioner presented the followin~ witnesses: (1)

Cecilia R. Patricio, 41 (2) Gemma L. Mangaliman, 4 and the court
commissioned ICPA, Atty. Adan T. Delamide. 43

Upon conclusion of its presentation of evidence, petitioner filed

its Formal Offer of Evidence on September 4, 2017. 44 On September
18, 2017, respondent filed his Comment (Re: Petitioner's Formal
Offer of Evidence), 45 stating, among others, that he objects to the
purpose for which most exhibits are being offered, and for being self-
serving, immaterial and irrelevant. Moreover, respondent objects to
the admission of the testimony of the ICPA, Atty. Adan Delamide, due
to conflict of interest.

In the Resolution dated October 24, 2017, 46 this Court resolved

to admit petitioner's Exhibits, subject to its final evaluation and/or
appreciation of their purposes, materiality, relevancy, and probative
value to the issues involved in this case; except Exhibit "P-9", for
not being found in the records.

For his part, respondent presented a lone witness, Manuel T.

Tasarra. 47 Thereafter, respondent filed its Formal Offer of Evidence
on December 8, 2017. 48 Petitioner filed its Comment (Respondent's
Formal Offer of Evidence) on December 21, 2017, 49 alleging that

39
Docket - Vol. I, p. 541.
40
Docket- Vol. I, pp. 565 to 575.
41
Exhibit "P-38", Docket- Vol. I, pp. 260 to 266; and Order dated August 15, 2017,
Docket - Vol. II, pp. 908 to 909.
42
Exhibit "P-37", Docket- Vol. I, pp. 276 to 291; Minutes of the hearing held on, and
Order dated, July 18, 2017, Docket- Vol. I, pp. 578 to 581
43
Exhibit "P-36", Docket- Vol. I, pp. 484 to 488; Exhibit "P-12398", Docket- Vol. II,
pp. 591 to 610, respectively; Minutes of the hearing held on May 25, 2017, Docket-
Vol. I, pp. 519 to 521; and Order dated August 15,2017, Docket- Vol. II, pp. 908 to
909.
44
Docket - Vol. II, pp. 911 to 929.
45
Docket - Vol. II, pp. 1200 to 1202.
46
Docket- Vol. II, pp. 1217 to 1218.
47
Exhibit "R-13", Docket - Vol. I, pp. 223 to 226; Order dated November 28, 2017,
Docket - Vol. II, pp. 1220 to 1221; and Transcript of Stenographic Notes on the
hearing held on November 28, 2017.
48
Docket- Vol. II, pp. 1223 to 1228.
49
Docket- Vol. II, pp. 1230 to 1231.

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DECISION
CTA Case No. 9395
Page 8 of 41

petitioner has no objection to the admission of respondent's exhibits,

except for Exhibit "R-11" for being self-serving.

In the Resolution dated January 24, 2018, 50 this Court admitted

respondent's Exhibits, likewise subject to its final evaluation and/or
appreciation of their purposes, materiality, relevancy, and probative
value to the issues involved in this case. In the same Resolution, the
Court directed both parties to file their respective memorandum within
thirty (30) days from receipt hereof.

Respondent's Memorandum was filed on February 28, 2018; 51

while the Memorandum for the Petitioner was filed on March 27,
2018. 52 Hence, this case was considered submitted for decision on
April11, 2018. 53

Hence, this Decision.

THE ISSUES

The parties submitted the following issues54 for this Court's

resolution, to wit:

"1. WHETHER PETITIONER IS LIABLE TO PAY

DEFICIENCY INCOME TAX, VALUE-ADDED TAX,
AND DOCUMENTARY STAMP TAX IN THE
TOTAL AMOUNT OF P49,552,927.83 INCLUDING
INTEREST AND PENALTIES FOR TAXABLE
YEAR 2009

2. WHETHER THE PETITONER IS ESTOPPED

FROM QUESTIONING THE VALIDITY OF THE
WAIVERS IT EXECUTED".

Petitioner's arguments:

Petitioner argues that the waivers that it executed are defective

and invalid for the following reasons:

50
Docket- Vol. II, pp. 1238 to 1239.
51
Docket- Vol. II, pp. 1244 to 1252.
52
Docket- Vol. II, pp. 1256 to 1284.
53
Resolution dated April II, 2018, Docket- Vol. II, p. 1287.
54
Docket- Vol. I, JSFI, pp. 504 to 505.

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DECISION
CTA Case No. 9395
Page 9 of 41

a.)The date of receipt by the petitioner of the duly signed

waivers specifically the 2nd waiver and 4th waiver is not
indicated therein. The 2nd, 3'd, 4th and 5th waivers do not
show the date when the respondent received the same; and

b.) The acknowledgement in the 4th and 5th waivers indicates

that Cecilia R. Patricio was acting as the authorized
representative of Supplies Station, Inc. and not the
petitioner.

According to petitioner, the waiver did not extend the original

three (3)-year prescriptive period for the respondent to issue the FAN.
But granting without conceding that the assessment has not
prescribed, petitioner maintains that the deficiency tax assessment is
void due to lack of factual and legal bases.

Petitioner disagrees with the findings of the respondent that

there is undeclared taxable income in the amount of P36, 130,552.57
due to the difference in its collection schedule as against its declared
sales per financial statements. Allegedly, it reflected the correct
amount of revenue in its ITR.

Moreover, petitioner claims that the NOLCO amounting to

P1 ,344,416.00 that was applied as deduction against taxable income
in 2009 was part of the sustained net operating loss of the petitioner
in 2008 amounting to P3,323,704.00; and thus, the deficiency income
tax assessment should be cancelled and set aside.

Allegedly, petitioner is not liable for any deficiency VAT on

account of its failure to subject its sales to VAT. Pursuant to MOA
between the petitioner and SMDC, the latter, as the exclusive
Marketing and Sales Group for the Project, has issued sales
documents to the buyers, accepted the payments, and
correspondingly, remitted the VAT upon the sale of vatable units.
Thus, the sale of these units has already been subjected to VAT at
the time of sale. Invoking BIR Ruling No. DA-086-07, petitioner
argues that to impose the VAT on petitioner is tantamount to direct
duplicate taxation.

Furthermore, petitioner avers that it already paid the deficiency

DST including interest and penalties; and thus, this item of
assessment should be cancelled.

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DECISION
CTA Case No. 9395
Page 10 of 41

Finally, petitioner stresses that the ICPA recommended for the

cancellation of the assessments.

Respondent's counter-arguments:

Respondent believes that petitioner is liable for the deficiency

income tax, VAT and DST forTY 2009.

Relative to the deficiency income tax assessment, the adjusted

taxable income in the amount of P36, 130,552.64 allegedly pertains to
the difference between real estate sales per petitioner's collection
schedule of P136,380,284.64 as against its declared sales per
financial statement of P1 00,249, 732.00. According to respondent,
said discrepancy was assessed pursuant to Section 32(A) of the
National Internal Revenue Code {NIRC) in relation to Sec. 49(8) of
the same Code as amended.

As for the disallowed NOLCO, verification disclosed that

petitioner's claimed NOLCO were unsupported, as evidenced by its
2008 ITR, pursuant to Section 34(0)(3) of the NIRC.

With regard to the deficiency VAT assessment, the said sales

amounting to P136,380,284.64 was allegedly subjected to VAT,
pursuant to Revenue Regulation (RR) No. 16-2005, as amended by
RR No. 4-2007.

Anent the deficiency DST assessment, the Advances to related

parties amounting to P3,330,710.00 were subject to DST at the rate
of P1.00 per P200.00, pursuant to Section 179 of the NIRC of 1997.

Finally, respondent claims that the right to assess petitioner has

not yet prescribed. Respondent insists that petitioner is estopped
from assailing the validity of the waivers it executed. Allegedly, when
petitioner executed the waivers, it misled him as petitioner made
respondent believe that it needs more time to submit documents.

THE COURT'S RULING

The instant Petition for Review is partly meritorious.

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DECISION
CTA Case No. 9395
Page II of 41

The subject tax assessments

have not prescribed.

Section 203 of the NIRC of 1997 states the period of limitation

upon the assessment taxes, 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 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." (Emphases and
underscoring supplied)

Based on the foregoing, the BIR is mandated to assess internal

revenue taxes within three {3) years from the last day prescribed by
law for the filing of the tax return or the actual date of filing of such
return, whichever comes later. Accordingly, an assessment notice
issued after the said three-year prescriptive period is no longer valid
and effective.

However, there are certain instances where the BIR may

assess pertinent taxes against taxpayers beyond the said three-year
prescriptive period. One of which is provided under Section 222(b) of
the NIRC of 1997, which reads:

"SEC. 222. Exceptions as to 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 have 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

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DECISION
CTA Case No. 9395
Page 12 of 41

written agreement made before the expiration of the

period previously agreed upon.

XXX XXX xxx." (Emphasis supplied.)

Based on the foregoing, under Section 222(b) the three-year

prescriptive period may be extended, if before the expiration of the
time prescribed in Section 203 for the assessment of the tax, both
petitioner and the taxpayer have agreed in writing to its assessment
after such time, the tax may be assessed within the period agreed
upon.

In Commissioner of Internal Revenue vs. Kudos Metal

Corporation (hereinafter referred to as the "Kudos Metal case"), 55 the
Supreme Court said:

"Section 222(b) of the NIRC provides that the period

to assess and collect taxes may only be extended upon
a written agreement between the CIR and the
taxpayer executed before the expiration of the three-
year period. RMO 20-90 issued on April 4, 1990 and
RDAO 05-01 issued on August 2, 2001 lay down the
procedure for the proper execution of the waiver, to wit:

1. The waiver must be in the proper form prescribed by

RMO 20-90. The phrase 'but not after _ __
19 ', which indicates the expiry date of the period
agreed upon to assess/collect the tax after the regular
three-year period of prescription, should be filled up.

2. The waiver must 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. In case the authority is delegated
by the taxpayer to a representative, such delegation
should be in writing and duly notarized.

3. The waiver should be duly notarized.

4. The CIR or the revenue official authorized by him must

sign the waiver indicating that the BIR has accepted
and agreed to the waiver. The date of such
acceptance by the BIR should be indicated. However,

55
G.R. No. 178087, May 5, 2010.

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DECISION
CTA Case No. 9395
Page 13 of41

before signing the waiver, the CIR or the revenue

official authorized by him must make sure that the
waiver is in the prescribed form duly notarized by him
must make sure that the waiver is in the prescribed
form, duly notarized, and executed by the taxpayer or
his duly the authorized representative.

5. 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.

6. The waiver must be executed in three 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
must be indicated in the original copy to show that
the taxpayer was notified of the acceptance of the
BIR and the perfection of the agreement."
(Emphases supplied)

In this case, while petitioner admits that it executed five (5)

waivers, 56 it assails the validity thereof. Specifically, in arguing on the
invalidity of the said waivers, petitioner states in its Memorandum the
following:

"4.1. The Waivers of the Statute of Limitations

executed by Petitioner, through Ms. Cecilia R. Patricio
which purport to extend the prescriptive period are invalid
and ineffective for the following reasons:

a. The date of receipt by the Petitioner of the duly

signed waivers specifically 2nd Waiver, and 4th
Waiver is not indicated therein. The 2nd Waiver,
3rd Waiver, 4th Waiver, and 5th Waiver do not show
the date when the Respondent received such
waivers;

b. The Acknowledgment in the 4th and 5th waivers

56
Pars. B.2, B.3, B.4, and B.6, JSFI, Docket - Vol. I, p. 504; and Exhibits "P-22" to "P-
26", Docket- Vol. II, pp. 972 to 976. '

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DECISION
CTA Case No. 9395
Page 14of41

indicates that Cecilia R. Patricio was acting as the

authorized representative of Sup~lies Station, Inc.
and not of SM_Residences Corp." 7

We disagree with petitioner.

Petitioner stresses that as shown in its copy of the waivers, the

date of receipt by petitioner of the signed waivers, specifically the 2nd
Waiver and 4th Waiver, is not indicated therein.

The above-stated procedure, as enunciated in the Kudos Metal

case, particularly item No. 6, was misread by petitioner.

For easy reference, quoted anew is the said procedure:

"6. The waiver must be executed in three 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 must be
indicated in the original copy to show that the
taxpayer was notified of the acceptance of the BIR and
the perfection of the agreement." (Emphases
supplied)

Based on the foregoing provision, the Waiver must be executed

in three (3) copies: (1) the "original copy", which must be attached to
the docket of the case; (2) the "second copy", for the taxpayer; and
(3) the "third copy" for the BIR Office accepting the Waiver. But of the
said three (3) copies, the fact of receipt by the taxpayer is required to
be indicated only on the "original copy". This would explain why the
"second copy" of the 2nd Waiver and 4th Waiver, which are in the
possession of petitioner, have no indication of its date of receipt.

In the same vein, petitioner cannot invoke as a ground for

invalidity that the 2nd Waiver, 3rd Waiver, 4th Waiver, and 5th
Waiver, do not show the date when respondent received such
waivers. This is so because the date of receipt by respondent of the
Waivers is not a requirement for the validity thereof.

57
Docket- Vol. II, p. 1262.

f\l
DECISION
CIA Case No. 9395
Pagel5of41

Furthermore, the indication on the Acknowledgment portion of

the 4th and 5th Waivers that Cecilia R. Patricio was acting as the
authorized representative of Supplies Station, Inc. and not of
petitioner, is of no consequence. Obviously, such indication was an
error made by either petitioner or the notary public, since the Waivers
were clearly executed by Patricio for and on behalf of petitioner, and
no other entity.

The authority of Cecilia R. Patricio, as petitioner's duly

authorized representative, to execute the Waivers cannot be doubted
in this case. In the Secretary's Certificate of Atty. Epitacio B.
Borcelis, Jr., the duly elected Corporate Secretary of petitioner,
certified under oath the following statements, to wit:

"That at a special meeting of the Board of Directors

of the Corporation held at the principal office on
November 07, 2012, at which meeting a quorum was
present, the following resolution was unanimously
approved and adopted:

'RESOLVED, That the Corporation is

authorized to transact with any and all
government agencies and regulatory bodies in
the regular course of business. In connection
therewith, it is authorized and empowered to
transact business with the BUREAU OF
INTERNAL REVENUE (BIR) in connection
with the conglomerate tax audit examination
of the BIR covering taxable year 2009;

RESOLVED, FUTHER, That Ms.

CECILIA R. PATRICIO, be, as she is hereby
appointed as the authorized representative of
the Corporation in handling tax cases in
connection with the said conglomerate tax
audit examination of the BIR and she is
hereby authorized to sign, execute and deliver
waiver and other pertinent documents which
may be necessary under the premises, for
and in behalf of the Corporation to effect the
above purpose.'' 58 (Underscoring supplied)

58
BIR Records (Exhibit "R-12), p. 175.

~
DECISION
CTA Case No. 9395
Page 16 of 41

Thus, Cecilia R. Patricio is clearly the duly authorized

representative of petitioner to execute the subject Waivers.

In any event, the said error on the said Acknowledgment does

not, in any way, invalidate the said Waivers, because such an error is
not a ground which can render the same as invalid. But even
granting that the subject Waivers are indeed invalid, petitioner is
already estopped from assailing the same.

In Rizal Commercial Banking Corporation vs. Commissioner of

Internal Revenue, 59 the Supreme Court held:

"Under Article 1431 of the Civil Code, the

doctrine of estoppel is anchored on the rule that 'an
admission or representation is rendered conclusive
upon the person making it, and cannot be denied or
disproved as against the person relving thereon.' A
party is precluded from denying his own acts,
admissions or representations to the prejudice of the
other party in order to prevent fraud and falsehood.

Estoppel is clearly applicable to the case at

bench. RCBC, through its partial payment of the
revised assessments issued within the extended
period as provided for in the questioned waivers,
impliedly admitted the validity of those waivers. Had
petitioner truly believed that the waivers were invalid and
that the assessments were issued beyond the prescriptive
period, then it should not have paid the reduced amount
of taxes in the revised assessment. RCBC's
subsequent action effectively belies its insistence
that the waivers are invalid. The records show that on
December 6, 2000, upon receipt of the revised
assessment, RCBC immediately made payment on the
uncontested taxes. Thus, RCBC is estopped from
questioning the validity of the waivers. To hold
otherwise and allow a party to gainsay its own act or
deny rights which it had previously recognized would
run counter to the principle of equity which this
institution holds dear." (Emphases and underscoring
supplied)

59
G.R. No. 170257, September 7, 2011.

fJ
DECISION
CTA Case No. 9395
Page 17 of 41

Clearly from the foregoing jurisprudential pronouncement, the

doctrine of estoppel is anchored on the rule that an admission or
representation is rendered conclusive upon the person making it, and
cannot be denied or disproved as against the person relying thereon.
Such doctrine is applicable where a taxpayer executed waivers of the
statute of limitation, and within the period agreed upon therein by the
same taxpayer and the BIR, deficiency tax assessments were issued;
and despite any supposed defect in the said waivers, the taxpayer
still paid part of such tax assessments.

In the instant case, records show that on July 22, 2016,

petitioner paid, through eFPS, part of the subject tax assessments,
i.e., the deficiency DST for TY 2009, in the total amount of
P46,626.25. 60 If petitioner was really convinced that the subject
Waivers were invalid or ineffective and thus, the said tax
assessments were issued beyond the three (3)-year prescriptive
period to assess, then it should not have paid the deficiency DST for
TY 2009. Such payment of petitioner belies its stance that the same
Waivers are invalid. Correspondingly, petitioner is now in estoppel
from questioning the validity of the subject Waivers.

Hence, the subject tax assessments have not prescribed.

Petitioner is partly liable for the

assessed deficiency income
tax.

Respondent assessed petitioner in the total amount of

P25,263,980.22, representing the subject deficiency income tax for
TY 2009, computed as follows:

Taxable Income p
Add: Adjustments I Disallowances
Undeclared Income p 36,130,552.57
Disallowed NOLCO 1,344,416.00 37,474,968.57
Adjusted Taxable Income ~ 37,474,968.57
Tax rate 30%
Basic Tax Due ~ 11,242,490.57
Add: Interest 4/16/2010- 6/30/2016 p 13,971 ,489.65
Compromise penalty 50,000.00 14,021,489.65
TOTAL AMOUNT DUE p 25,263,980.22

60
Exhibits "P-35" and "P-35-A", Docket- Vol. II, pp. 1127 to 1128.

~
DECISION
CTA Case No. 9395
Page 18 of 41

On whether there was undeclared

income on the part of petitioner.

As can be seen from the foregoing income tax assessment, one

of the reasons the same came about is because of respondent's
finding that there was Undeclared Income in the amount of
P36, 130,552.57, 61 computed as follows:

Taxable sales of Sea Residences Project per audit ,. 909,201,897.62

Sharing percentage per Joint Venture Agreement 15%
Taxable sales of SM Residences per audit ,. 136,380,264.64

Real estate sales per audit ,. 136,380,264.64

Cost of development 52,038,137.07
Sales per audit (Gross profit) ,. 84,342,147.57
Sales per return (Gross profit) 48,211,595.00
Adjusted Taxable Income ,. 36,130,552.57

From this computation, it is not hard to discern that the amount

of P36, 130,552.57 was derived from the supposed Taxable sales of
Sea Residences Project per audit in the amount of P909,201 ,897.62.

While it is a general rule that tax assessments by tax examiners

are presumed correct and made in good faith, the presumption does
not apply upon proof that the assessment is utterly without
foundation, meaning it is arbitrary and capricious. It is clear that in
order to stand judicial scrutiny, the assessment must be based on
actual facts. 62

Upon a careful examination of the BIR Records, 63 the amount of

P909,201 ,897.62 can only be traced to the Schedule of collections. 64
However, the source of the entries made therein and as to who
prepared the said Schedule, was not disclosed by respondent;
neither did respondent present any evidence to substantiate the said
Schedule, and explain as to how the same came about.

As a corollary, petitioner presented the Schedule of Collections

for 2009 as certified by the Tax Manager, Kristine Marie Sy, and

61
Exhibit "R-10", BIR Records, at p. 330.
62
Commissioner oflntemal Revenue vs. Hantex Trading Co., Inc.,G.R. No. 136975,
March 31, 2005 citing Collector (now Commissioner) of Internal Revenue v. Benipayo,
G.R. No. L-13656, January 31, 1962
63
Exhibit "R-13".
64
BIR Records (Exhibit "R-13"), at pp. 119 to 160.

f
DECISION
CIA Case No. 9395
Page 19 of 41

AVP-Controller, Gemma Mangaliman, one of petitioner's witnesses. 65

According to Mangaliman, the revenue of P100,249,732.00, which
was reported by petitioner in its ITR, is exactly 15% of the total
collection of P668,331 ,549.34 as shown in the Schedule of Collection
which was certified by SMDC. 66 Furthermore, the following is the
report of the ICPA relative to the said amount of P668,331 ,549.34, to
wit:

"Undeclared income

XXX XXX XXX

9. We are not able to ascertain how the BIR arrived at the

taxable sales per audit Php909,201 ,897.62. The FAN
and FDDA provide that the said amount was taken from
the 'schedule of collection'. However, no such schedule
was attached to the FAN and FDDA. Moreover, a
perusal of the schedule of collection of petitioner (Exhibit
'P-33') showed that the total collection in the said
schedule is only Php668,331 ,549.34. We were unable
to determine if this schedule of collection is the same as
the 'schedule of collection' referred to by the BIR in its
assessment.

10. Based on the documents we have examined, below are

our additional findings and observations:

XXX XXX XXX

f. We have verified the documents supporting SMDC's

collections of the sales proceeds of the units sold under
the Project to ascertain the correct based of Petitioner's
15% share. Our verification disclosed that the total
collections were as follows:

Collections 15% Share

Total collections per taxpayer P668,331 ,549.34 P1 00,249,732.40
Total collections per ICPA 669,522,100.54 100,428,315.08
audit
Total ~ (1 I 190,551,20) p (178,582,68)

XXX XXX XXX

65
Exhibit "P-33", Docket- Vol. II, pp. 1063 to 1080.
66
Refer to Q&A Nos. 37 and 38, Exhibit "P-37", Docket- Vol. I, pp. 285 to 286.

f
DECISION
CIA Case No. 9395
Page 20 of 41

11. From the foregoing findings, we believe that while all the
revenues recorded in the books were all reported in the
ITR, SMOG's ORs and CM/OM showed that SMOG's
total collection is higher by Php1, 190,551.20 than what
was reported to Petitioner. This resulted in an
understatement in Petitioner's gross income of
Php178,582.68." 67

It must be noted that the admission of the said Schedule of

Collections for 2009 as Exhibit "P-33", inter alia, was objected to by
respondent for the purpose it was offered. 68 However, this Court
admitted the same in the Resolution dated October 24, 2017, 69 as
respondent provided no valid ground against the admissibility thereof.
Respondent did not question the ruling of the Court, either through a
motion for reconsideration of this Court's admission, or by presenting
counter evidence. Thus, as between the unsubstantiated Schedule
of collections of respondent and the verified Schedule of Collections
for 2009 of petitioner, the latter must prevail.

Correspondingly, respondent's finding of Undeclared Income in

the amount of P36, 130,552.57 was not fully shown to be with
foundation. As a consequence, the computation of the Adjusted
Taxable Income, as found by respondent, is reduced to P178,583.01,
computed as follows:

Collections per ICPA audit ,. 669,522,100.54

Sharing percentage per Joint Venture Agreement 15%
Share of petitioner per ICPA audit P100,428,315.08
Cost of development 52,038,137.07
Sales per audit (Gross profit) p 48,390,178.01
Sales per return (Gross profit) 48,211 ,595.00
Adjusted Taxable Income p 178,583.01

Such being the case, a pertinent portion of the income tax

assessment is justified to be cancelled.

Respondent properly disallowed

petitioner's Net Operating Loss Carry
Over (NOLCO) forTY 2009.

67
Exhibit "P-12,397", at pp. 4 to 6, and 8 to II.
68
Respondent's Comment (Re: Petitioner's Formal Offer of Evidence) filed on
September 18, 2017, Docket- Vol. II, pp. 1200 to 1202.
69
Docket- Vol. II, pp. 1217 to 1218.

~
DECISION
CIA Case No. 9395
Page 21 of 41

Respondent disallowed petitioner's Net Operating Loss Carry

Over (NOLCO) forTY 2009 for being "unsupported", as follows:

"Disallowed NOLCO P1,344,416.00 - Verification disclosed

that your claimed NOLCO were unsupported as evidenced by
your 2008 ITR pursuant to Section 34(0)(3) of the Code" 70

For its part, petitioner claims that the NOLCO amounting to

P1 ,344,416.00 that was applied as deduction against the taxable
income in 2009 was part of the sustained net operating loss of the
petitioner in 2008 amounting to P3,323,704.00; and thus, the
deficiency income tax assessment should be cancelled and set aside.

In response to such disallowance by respondent, the ICPA,

Atty. Adan T. Delamide, through his Report, 71 made the following
observations and recommendations, to wit:

"Disallowed NOLCO

12. The NOLCO of Php1,344,416 was disallowed by the 81R

for being unsupported by the Petitioner's 2008 ITR.

13. Our verification of Petitioner's 2008 ITR showed that

Schedules 5A and 58, which are the portions of the ITR
where NOLCO is shown, showed a "NIL". This confirms
that no NOLCO was presented in the ITR. A copy of the
2008 ITR is presented as Exhibit 'P-12386'.

14. Petitioner's 2008 Audited FS however reported, in its

Note 7, that a NOLCO of Php3.3 million was available
for carry over as deduction. A copy of the 2008 AFS is
presented as Exhibit 'P-12387'.

15. Schedule 58 of Petitioner's 2010 ITR showed that the

NOLCO from 2008 amounted to Php3,330,710, of which
Php1,34,416 was applied in 2009. A copy of the 2010
ITR is presented as Exhibit 'P-12389'.

XXX XXX XXX

CONCLUSION AND RECOMMENDATION

70
Exhibit "R-10", BIR Records, at p. 330.
71
Exhibit "P-12,397", at pp. 9 and 15.

r
DECISION
CTA Case No. 9395
Page 22 of 41

27. Based on the foregoing, we believe that the

assessments for income tax and VAT should be
cancelled, based on the following:

XXX XXX XXX

c. The NOLCO may be allowed as deduction in 2009

even though the BIR correctly mentioned that no
NOLCO is shown in the 2008 ITR. It is our view
that the disclosure of NOLCO in the 2008 AFS is
substantial compliance to allow the NOLCO
deduction. Moreover, the presentation of the 2008
NOLCO, as partially applied in 2009 in the amount
of Php1 ,344,416, in the 2010 ITR further supports
the view that this information was sufficiently
disclosed to the BIR to allow it to effectively
conduct an audit. We leave it to the Court to
consider the effect of the fact that the 2008 AFS
was only approved and authorized for issuance by
the Board of Directors on April12, 2012."

We, however, affirm respondent's finding of disallowance of the

NOLCO in the amount of P1 ,344,416.00.

Section 34(D)(3) of the NIRC of 1997 provides as follows:

"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)(1 ), there shall be allowed the following
deductions from gross income:

XXX XXX XXX

(D) Losses.-

XXX XXX XXX

(3) Net Operating Loss Carry-over. - The net

operating loss of the business or enterprise for any
taxable year immediately preceding the current taxable

f
DECISION
CTA Case No. 9395
Page 23 of 41

year, which had not been previously offset as

deduction from gross income shall be carried over as
a deduction from gross income for the next three (3)
consecutive taxable years immediately following the
year of such loss: Provided, however, That any net loss
incurred in taxable year during which the taxpayer was
exempt from income tax shall not be allowed as a
deduction under this Subsection: Provided, further, That
a net operating loss carry-over shall be allowed only
if there has been no substantial change in the
ownership of the business or enterprise in that-

(i) Not less than seventy-five percent (75%) in

nominal value of outstanding issued shares,
if the business is in the name of a
corporation, is held by or on behalf of the
same persons; or

(ii) Not less than seventy-five percent (75%) of

the paid up capital of the corporation, if the
business is in the name of a corporation, is
held by or on behalf of the same persons.

For purposes of this Subsection, the term 'net

operating loss' shall mean the excess of allowable
deduction over gross income of the business in a
taxable year:

XXX XXX xxx." (Emphases supplied)

Based on the foregoing provision, a NOLCO is a deduction

claimed by a taxpayer for the current taxable year, arising from its net
operating loss from the immediately preceding taxable year, subject
to certain qualifications or limitations.

Furthermore, Section 1 of RR No. 21-2002 72 states, among

others, the reportorial requirements in case a taxpayer claims a
NOLCO. Said provision reads:

72
SUBJECT: Implementing the Provisions of Section 6(H) of the Tax Code of 1997,
Authorizing the Commissioner of Internal Revenue to Prescribe
Additional Procedural and/or Documentary Requirements in Connection
with the Preparation and Submission of Financial Statements
Accompanying the Tax Returns.

fl
DECISION
CTA Case No. 9395
Page 24 of 41

"SECTION 1. CONTENTS AND FORMAT OF

FINANCIAL STATEMENTS TO BE ATTACHED TO THE
ANNUAL INCOME TAX RETURN OR INFORMATION
RETURN. - The Financial Statements with
accompanying Auditor's Certificate attached to the Annual
Income Tax Return, or Annual Information Return for the
Tax exempt persons, as the case may be, to be filed with
the Bureau of Internal Revenue, thru its collection agents
including Accredited Agent Banks, shall presenUstate the
accounts therein in a very descriptive fashion such that
the nature of the specific transactions entered in the
accounts are known to the reader. xxx.

XXX XXX XXX

The Profit and Loss Statement/Income

Statement shall show separately by segment (there
should be proper labeling), with breakdown of the
specific accounts, the following:

1. Cost of Goods Sold (for seller of goods)/Cost

of Services (for seller of services);
II. Selling and Administrative Expenses;
Ill. Financial Expenses, if any;
IV. Special Deductions (e.g.. Net Operating
Loss Carry-Over (NOLCO)), if any;
V. Deductions under Special Laws, if any.
(Note: Deductions Ill, IV and V should be fully
explained in the Notes to the Financial Statements)."
(Emphases supplied)

It clear from the foregoing that in case a NOLCO is being

claimed as a deduction from gross income by a taxpayer, the same
must be separately shown, with proper labeling and breakdown of the
specific accounts, in the Profit and Loss Statement/Income Statement
for the year in which such NOLCO is claimed; and such deduction
must be fully explained in the Notes to the Financial Statements.

Furthermore, considering that the NOLCO is a tax deduction,

which is a matter of legislative grace, 73 the doctrinal pronouncements

73
Chamber of Real Estate and Builders Associations, Inc. vs. The Han. Executive
Secretary Alberto Romulo, eta!., G.R. No. 160756, March 9, 2010.

~
DECISION
CTA Case No. 9395
Page 25 of 41

by the Supreme Court in H. Tambunting Pawnshop, Inc. vs.

Commissioner of Internal Revenue, 74 ought to be considered, to wit:

"To be entitled to claim a tax deduction, the

taxpayer must competently establish the factual and
documentary bases of its claim.

XXX XXX XXX

The rule that tax deductions, being in the nature

of tax exemptions, are to be construed in strictissimi
juris against the taxpayer is well settled. Corollary to
this rule is the principle that when a taxpayer claims a
deduction, he must point to some specific provision
of the statute in which that deduction is authorized
and must be able to prove that he is entitled to the
deduction which the law allows. An item of
expenditure, therefore, must fall squarely within the
language of the law in order to be deductible. A mere
averment that the taxpayer has incurred a loss does
not automatically warrant a deduction from its gross
income.

XXX XXX XXX

xxx. To reiterate, deductions for income tax

purposes partake the nature of tax exemptions and
are strictly construed against the taxpayer, who must
prove by convincing evidence that he is entitled to
the deduction claimed. Tambunting did not discharge
its burden of substantiating its claim for deductions due to
the inadequacy of its documentary support of its claim.
xxx." (Emphases supplied)

Based on the foregoing doctrinal pronouncements, it is well

settled that deductions from gross income must be strictly construed
against the taxpayer, and the latter must competently establish the
factual and documentary bases of such deductions. Relative thereto,
it must also be stressed that in cases filed before this Court, which
are litigated de novo, party-litigants must prove every minute aspect
of their case. 75

74
G.R. No. 173373, July 29,2013.
75
Edison (Bataan) Cogeneration Corporation vs. Commissioner of Internal Revenue,
etseq., G.R. Nos. 201665 and 201668, August 30, 2017.

f
DECISION
CTA Case No. 9395
Page 26 of 41

Correspondingly, on the basis of law and jurisprudence, for a

NOLCO to be validly deducted from the gross income, the following
facts must be clearly established by the taxpayer-claimant, to wit:

1) The net operating loss was not previously offset as a

deduction from gross income;
2) The said net operating loss has not been carried over for
more than three (3) consecutive taxable years;
3) There was no substantial change in the ownership of the
business or enterprise in that not less than 75% in nominal
value of outstanding issued shares or not less than 75% of
the paid up capital of the corporation, if the business is in the
name of the corporation, is held by or on behalf of the same
persons;
4) The net operating loss from the preceding year(s) which was
carried over is substantiated by documentary evidence,
showing the items of gross income and allowable deductions
from the said preceding year(s), on the basis of which, such
net operating loss was computed;
5) The NOLCO, as a special deduction, must have been shown
as a separate item, with proper labeling and breakdown of
the specific accounts, in the Profit and Loss
Statement/Income Statement for the year in which such
NOLCO is claimed; and
6) The NOLCO, as a special deduction, must be fully explained
in the Notes to the Financial Statements.

In this case, petitioner failed to establish some of the foregoing

legal requirements.

In its 2009 Notes to Financial Statements, regarding the subject

NOLCO, petitioner's external auditor reported as follows:

"8. Income Tax

The Company's deferred tax asset amounting to P0.6

million as of December 31, 2009 represents the tax effect
of NOLCO in 2008 amounting to P3.3 million.
Unrecognized deferred tax asset amounting to P1. 0 million
as of December 31, 2008 also pertains in the tax effect of
NOLCO for that year.

Portion of unrecognized NOLCO incurred in 2008

amounting to ~1.3 million was applied as deduction
against taxable income in 2009. As of December 31,
2009, the balance of carryforward benefits of NOLCO

f
DECISION
CTA Case No. 9395
Page 27 of 41

that can be claimed as deduction against future

taxable income amounted to P2.0 million which will
expire in 2011.

XXX XXX xxx." 76 (Emphasis supplied)

Thus, it can be said that petitioner has shown substantial

compliance with the requirement that the NOLCO, as a special
deduction, must be fully explained in the Notes to the Financial
Statements. There is likewise no indication that the net operating
loss for 2008 was previously offset as deduction from gross income;
nor that the same net operating loss was carried over for more than
three (3) consecutive taxable years.

However, petitioner failed to show that there was no substantial

change in the ownership thereof in that not less than 75% in nominal
value of its outstanding issued shares or not less than 75% of the
paid up capital of petitioner is held by or on behalf of the same
persons. Petitioner failed to present or offer any evidence to this
effect.

Furthermore, petitioner likewise failed to substantiate by

documentary evidence, the items of gross income and allowable
deductions forTY 2008, on the basis of which, the net operating loss
from the said year was computed and carried over to TY 2009.

In addition, the NOLCO, was not shown in petitioner's

Statements of Comprehensive Income for the year ended December
31, 2009, 77 as a special deduction and as a separate item.

Thus, We affirm respondent's disallowance of the NOLCO

claimed by petitioner in the amount of P1 ,344,416.00 forTY 2009, for
being unsupported.

In sum, petitioner's income tax due for TY 2009 is in the total

amount of P456,899. 70, determined as follows:

Taxable Income p
Add: Adjustments I Disallowances
Undeclared Income p 178,583.01
Disallowed NOLCO 1,344,416.00 1,522,999.01
Adjusted Taxable Income p 1,522,999.01
Tax rate 30%
Basic Income Tax Due p 456,899.70

76
Exhibit "P-32-B", Docket- Vol. II, p. 1060.
77
Exhibit "P-32", Docket- Vol. II, at p. 1046.

~
DECISION
CTA Case No. 9395
Page 28 of 41

Petitioner is liable for the

deficiency VAT.

As for the deficiency VAT for TY 2009, respondent arrived at

the total amount due of P24,242,522.12, determined as follows:

Taxable sales per audit f"136,380,284.64

Tax rate 12%
Output Tax Due p 16,365,634.16
Less: Input Tax Credit 5,613,985.01
Output Tax Payable p 10,751,649.15
Less: Payment per return 171,406.43
Deficiency VAT f" 10,580,242.72
Add: Interest 1/26/2010-6/30/2016 p 13,612,279.40
Compromise penalty 50,000.00 13,662,279.40
TOTAL AMOUNT DUE p 24,242,522.12

As already shown, the amount of P136,380,264.64 was

computed by respondent in the following manner, to wit:

Taxable sales of Sea Residences Project per audit f" 909,201,897.62

Sharing percentage per Joint Venture Agreement 15%
Taxable sales of SM Residences per audit p 136,380,264.64

However, similar to Our ruling on the supposed undeclared

income by petitioner, the said amount of P909,201 ,897.62 cannot be
used as basis to sustain respondent's finding as regards the
deficiency VAT assessment, since the basis thereof was not clearly
established.

Nevertheless, by petitioner's own evidence, We find that part of

the subject deficiency VAT assessment may be sustained.

Sections 105 and 106 of the NIRC of 1997, as amended by

Republic Act (RA) No. 9337, 78 provides, in part, as follows:

"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

78
AN ACT AMENDING SECTIONS 27, 28, 34, 106, 107, 108, 109, 110, Ill, 112, 113,
114, 116, 117, 119, 121, 148, 151, 236, 237 AND 288 OF THE NATIONAL
INTERNAL REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER
PURPOSES.

f
DECISION
CTA Case No. 9395
Page 29 of 41

subject to the value-added tax (VAT) imposed in

Sections 106 to 108.

XXX XXX XXX."

"SEC. 106. Value-added Tax on Sale of Goods or

Properties. -

(A) Rate and Base of Tax. -There shall be levied,

assessed and collected on everv sale, barter or
exchange of goods or properties, a value-added tax
equivalent to ten percent (10%f 9 of the gross selling
price or gross value in money of the goods or properties
sold, bartered or exchanged, such tax to be paid by the
seller or transferor: xxx

(1) The term 'goods or properties' shall mean all

tangible and intangible objects which are capable of
pecuniary estimation and shall include:

(a) Real properties held primarily for sale to

customers or held for lease in the ordinary course of
trade or business;

XXX XXX XXX." (Emphases and

underscoring supplied)

Based on the foregoing provisions, any person who, in the

course of trade or business, sells, inter alia, goods or properties,
which include real properties held primarily for sale to customers,
shall be subject VAT. In other words, the sale of real properties held
primarily for sale to customers is one of the transactions subject to
VAT.

Relative thereto, it must be remembered that a contract of sale,

in general, necessitates that the vendor or seller has the right to
transfer ownership of the thing sold, pursuant to the following
provisions of the Civil Code of the Philippines80 , to wit:

79
The VAT rate of I 0% was increased to 12%. Refer to the Memorandum dated January
31, 2006 from then Executive Secretary Eduardo R. Ermita, as circularized in Revenue
Memorandum Circular No. 7-2006 dated January 31,2006.
80
RA No. 386.

f
DECISION
CIA Case No. 9395
Page 30 of 41

"Article 1458. By the contract of sale one of the

contracting parties obligates himself to transfer the
ownership and to deliver a determinate thing, and the
other to pay therefor a price certain in money or its
equivalent.

A contract of sale may be absolute or conditional."

(Emphasis and underscoring supplied)

"Article 1459. The thing must be licit and the

vendor must have a right to transfer the ownership
thereof at the time it is delivered." (Emphasis and
underscoring supplied)

"Article 1477. The ownership of the thing sold

shall be transferred to the vendee upon the actual or
constructive delivery thereof." (Emphasis and
underscoring supplied)

"Article 1495. The vendor is bound to transfer the

ownership of and deliver, as well as warrant the thing
which is the object of the sale." (Emphasis and
underscoring supplied)

In other words, there can be no valid contract of sale, unless

the vendor or seller has the right to transfer ownership, at least, at the
time the thing to be sold is delivered. Thus, under the law, the
imposition of VAT on the seller or the person who sells, presupposes
that such seller or person has the right to transfer ownership of the
thing sold.

In this case, it was shown that it is not only SMDC which has
the right to transfer ownership of the units sold, but also petitioner.
This is clear in the said parties' Memorandum of Agreement dated
November 14, 2008, 81 which has the following provisions:

"WHEREAS, the LANDOWNER82 is the owner of a

parcel of land with an area of EIGHTEEN THOUSAND
FOUR HUNDRED EIGHTY square meter (18,480 sq. m.),
more or less, located at Lot 4 Road Lot 11 corner Road
Lot 23, SM Mall of Asia Complex, CBP 1-A, Pasay City,
Metro Manila and presently covered by Transfer

81
Exhibit "P-31 ", Docket- Vol. II, at pp. I 033 to I 039.
82
Referring to petitioner.

f
DECISION
CTA Case No. 9395
Page 31 of 41

Certificate of Title No, 149281 of the Register of Deeds

for Pasay City (PROPERTY) ...

WHEREAS, the DEVELOPER is a corporation

engaged in the development of real estate properties;

XXX XXX XXX

I. DEVELOPMENT

XXX XXX XXX

2. The DEVELOPER shall develop the PROPERTY

into a commercial/residential condominium development
project (Project) whose design shall be in accordance
with government regulations. The Project shall be
registered and known as "Sea Residences."

XXX XXX XXX

II. OBLIGATIONS OF THE LANDOWNER

XXX XXX XXX

4. xxx. In addition, the LANDOWNER shall, through a

Board Resolution, designate the DEVELOPER as the
signatory to the reservation agreements, contracts to sell,
deeds of absolute sale and other relevant documents for
the sale of the individual condominium units at the Sea
Residences to the buyers thereof.

XXX XXX XXX

V. SHARING STRUCTURE

XXX XXX XXX

2. The LANDOWNER and DEVELOPER agree that

the each shall be entitled to the following percentage
shares based on the proceeds of the sale of the units:

LANDOWNER Fifteen Percent ( 15%)

DEVELOPER Eighty-five Percent (85%)
Total: One Hundred Percent (100%)

XXX XXX XXX

f
DECISION
CTA Case No. 9395
Page 32 of 41

VI. MARKETING AND SELLING OF UNITS

1. The DEVELOPER is hereby designated as the

exclusive Marketing and Sales Group for the Project. The
Sales Administration shall be exclusively undertaken by
the DEVELOPER.

2. The DEVELOPER shall be entitled to a Marketing

Fee of Twelve percent (12%) based on the Total Contract
Price as stated in the contract to sell or other similar
document executed with the buyer of a unit.

3. The selling price and payment terms for the

condominium units shall be subject to the mutual
agreement of the LANDOWNER and DEVELOPER. The
selling price and payment terms may be revised or
modified upon mutual agreement of the LANDOWNER
and DEVELOPER.

XXX XXX XXX

XI. MORTGAGE AND OTHER DISPOSITION

1. It is further agreed that neither party shall mortgage,

transfer, encumber or otherwise dispose the PROPERTY
or any portion thereof, or any of their respective rights and
interests in the PROPERTY or the Project to any person,
entity, bank or financial institution. However, both the
LANDOWNER and DEVELOPER shall have the right to
assign, in whole or in part, any of its rights, interests and
obligations granted under this MOA to any of the
corporations within its group of companies, subject to the
prior written consent of the LANDOWNER or the
DEVELOPER, as the case may be.

XXX XXX xxx."

Based on the foregoing provisions, while petitioner is the owner

of the subject parcel of land, and SMDC is the developer thereof,
both of them are the owners of the Project. This holds specially true
to petitioner because there is no indication that the latter transferred
its ownership over the said parcel of land in TY 2009-the year under
consideration; and because the selling price and payment terms for
the condominium units were still subject to the mutual agreement of

~
DECISION
CIA Case No. 9395
Page 33 of 41

petitioner and SMDC, not only of the latter. Further, it is noted that,
as agreed upon, the selling price and payment terms may be revised
or modified upon mutual agreement of the landowner and developer.

Correspondingly, for each sale of the units under the Sea

Residences Project, both SMDC and petitioner are considered the
sellers thereof. As such, each of them must separately file their
Quarterly VAT Returns, for their respective share in the Sea
Residences Project, pursuant to Section 114 of the NIRC of 1997, as
amended by RA No. 9337, which provides as follows:

"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: Provided, however, That VAT-registered
persons shall pay the value-added tax on a monthly
basis.

XXX XXX XXX

(B) Where to File the Return and Pay the Tax. -

Except as the Commissioner otherwise permits, the
return shall be filed with and the tax paid to an
authorized agent bank, Revenue Collection Officer or
duly authorized city or municipal Treasurer in the
Philippines located within the revenue district where
the taxpayer is registered or required to register."

Clearly from the foregoing provisions, every person subject to

VAT under the aforequoted Sections 105 and 106 of the NIRC of
1997, as amended by RA No. 9337, is liable to file the corresponding
VAT return and pay the said tax. Thus, on the basis thereof, SMDC
must include in its VAT Returns only the amount which corresponds
to its 85% share in the sale of the condominium units in the Sea
Residences Project, and pay the corresponding VAT thereof. For its
part, petitioner must report in its VAT Returns its corresponding 15%
share in the same sale of the condominium units in the Sea
Residences Project, and pay also the corresponding VAT thereof.

~
DECISION
CTA Case No. 9395
Page 34 of 41

Apropos, it is a cardinal principle of justice that fees, taxes or

imposts should not be exacted except from those really liable to pay
them 83

We do not subscribe to petitioner's contention that considering

that the subject transactions have been subjected to VAT upon sale,
this should not be subject to VAT anymore, since to do so would be
tantamount to double taxation in its prohibited sense or direct
duplicate taxation, as it violates the equal protection clause of the
Constitution.

Considering that the imposition of the VAT would refer only to

the said parties' corresponding share in the sale of condominium
units, there is no direct duplicate taxation in this case.

Double taxation means taxing the same property twice when it

should be taxed only once; that is, taxing the same person twice by
the same jurisdiction for the same thing. It obnoxious when the
taxpayer is taxed twice, when it should be but once. 84

To emphasize, what is being taxed herein is merely the portion

of petitioner's 15% share relative to the sale of condominium units
under the Sea Residences Project. The supposed payments of the
SMDC of the corresponding VAT regarding the 15% share of
petitioner in the said sale of condominium units are, at best, may be
considered only as a erroneously or illegally collected tax that may be
refunded upon proof thereof; but is not tantamount to double taxation.

Moreover, petitioner cannot rely on BIR Ruling No. DA-086-07,

wherein it was held that '1t]he share in the net proceeds distributed to
the respective joint venture partners is not subject to VAT anymore",
simply because the ruling therein is an erroneous interpretation of the
law, as shown above. In this connection, it must be emphasized that
although it is widely accepted that the interpretation placed upon a
statute by the executive officers, whose duty is to enforce it, is
entitled to great respect by the courts, this interpretation is not
conclusive and will have to be ignored if judicially found to be
erroneous and clearly absurd or improper. An administrative
issuance that overrides the law it merely seeks to interpret, instead of
remaining consistent and in harmony with it, will not be countenanced
by this Court 85
83
Iloilo vs. Pinzon, G.R. No. L-7552, May 31, 1955.
84
The City of Manila, eta/. vs. Coca-co/a Bottlers Philippines, Inc., G.R. No. 181845,
August 4, 2009.
85
Commissioner of Internal Revenue vs. American Express International, Inc., G.R. No.
152609, June 29, 2005.

f
DECISION
CTA Case No. 9395
Page 35 of41

Hence, We partly agree with the findings of the IGPA,

specifically, that petitioner's VAT liability should be computed based
only on its share of SMOG's vatable sales, and taking into account
the VAT rules and regulations on deferred sales and installment
sales. Said the IGPA Report86 , to wit:

"b) Value Added Tax

XXX XXX XXX

26. Assuming that Petitioner is required to pay VAT on its

15% share in the units sold, we believe its VAT liability
. should be computed based only on its shares of
SMOG's vatable sales, and taking into account the VAT
rules and regulations on deferred sales and installment
sales. Based on this view, the tax base per our audit
would be as follows:
Vatable Sales Selling_ Price Collection Tax Base
Deferred 1'"223,052,493.51 ,.107,599,647.98 1'"223,052,493.51
Installment 518, 136,958.92 49,336,030.07 49,336,030.07
Total ,.741, 189,452.43 1'"156,935,678.05 1'"272,388,523.58
SMDC Vatable Sales per BSL (Annex 'E') 276,326,676.00
Under (Over) Declaration in the Tax Base P(3,938,152.42)
Note: Deferred-with initial payments for the year exceeding 25% of the
selling price. Tax base would be the total selling price. Installment-with
initial payments for the year not exceeding 25% of the selling price. Tax
base would be the amount of collections.

Based on the above computation, Petitioner's 15%

share on the vatable sales would only amount to
Php40,858,278.54 (Php272,388,523.58 x 15%). This
amount is still lower than the amount of vatable sales
reported in the 2009 VAT return of Php48,211 ,595.33.
We therefore conclude that for TY 2009, there is an
over-declaration of sales instead of under-declaration as
stated in the FAN and FOOA. The VAT refundable to
Petitioner can be computed as follows:
Per VAT Return Per ICPA Audit
Taxable Sales ,.48,211 ,595.33 ,.40,858,278.54
VAT Rate 12% 12%
Output Tax Due ,. 5,785,391.44 p 4,902,993.42
Input Tax Credits allowed by BIR 5,613,985.01 5,613,985.01
VAT Payable p 171 ,406.43 p (71 0,991.59)
VAT Paid 171,406.43 171,406.43
VAT Still Due (Refundable) p p (171~06.43)

86
Exhibit "P-12,397'', at pp. 13 to 14.

f
DECISION
CTA Case No. 9395
Page 36 of 41

Relative thereto, Section 4.106-3 of Revenue Regulations (RR)

No. 16-2005, 87 as amended by RR No. 4-2007, provides, in part, as
follows:

"SEC. 4.106-3. Sale of Real Properties. - Sale of

real properties held primarily for sale to customers or
held for lease in the ordinary course of trade of
business of the seller shall be subject to VAT.

XXX XXX XXX

In case of installment sale, the seller shall be

subject to output VAT on the installment payments
received, including interests and penalties for late
payment, actually and/or constructively received,
subject to the provisions of Sec.4.1 06-4 hereof.
Correspondingly, the buyer of the property can claim the
input tax in the same period as the seller recognized the
output tax.

Installment payments, including interests and

penalties, actually and/or constructively received starting
February 1, 2006 shall be subject to twelve percent (12%)
output VAT.

XXX XXX XXX

In the case of sale of real properties on a

deferred-pavment basis not on the installment plan,
the transaction shall be treated as cash sale which
makes the entire selling price taxable in the month of
sale. Output tax shall be recognized by the seller and
input tax shall accrue to the buyer at the time of the
execution of the instrument of sale." (Emphases and
underscoring supplied)

Based on the foregoing provisions, in case of installment sales,

the seller shall be subject to output VAT on the installment payments
received, including interests and penalties for late payment, actually
and/or constructively received; and in case of sale on a deferred-
payment basis not on the installment plan, the transaction shall be
treated as cash sale which makes the entire selling price subject to
VAT in the month of sale. Thus, per the ICPA's finding, the amount
of P49,336,030.07, representing installment sales of condominium
87
SUBJECT: Consolidated Value-Added Tax Regulations of2005.

r
DECISION
CTA Case No. 9395
Page 37 of41

units under the Sea Residences Project, and the amount of

P223,052,493.51, representing the deferred sales of the same units,
or the total amount of P272,388,523.58, are subject to VAT. The 15%
of which or the total amount of P40,858,278.54 should have been
reported by petitioner as its vatable sales for TY 2009.

However, We do not agree with the !CPA's finding that the said
amount of P40,858,278.54 is still lower than the amount of vatable
sales reported in the 2009 VAT Return of P48,211 ,595.33 and hence,
"there is an over-declaration of sales instead of under-declaration as
stated in the FAN and FDDA." This is so because: first, the
breakdown of the said amount of P48,211 ,595.33 was not proven by
petitioner; and more importantly, to assume that the said share of
P40,858,278.54 is already included in the said amount
P48,211 ,595.33, would run counter to petitioner's stance that "it was
SMDC that issued the sales documents to buyers, accepted
payments and remitted the VAT on the sale of units.'88 Anent the
said stance, petitioner could not have included the said amount of
P40,858,278.54 in its VAT Returns for TY 2009, if it was fully
convinced that SMDC has remitted the VAT on the sale of the said
condominium units.

Thus, petitioner's liability for the deficiency VAT for 2009 is

reduced to P4,902,993.42, computed as follows:

Taxable sales (P48,211 ,595.33 + P40,858,278.54) P89,069,873.87

Tax rate 12%
Output Tax Due p 10,688,384.86
Less: Input Tax Credit 5,613,985.01
Output Tax Payable p 5,074,399.85
Less: Payment per return 171,406.43
Deficiency VAT p 4,902,993.42

Petitioner is liable for the

deficiency DST.

With regard to deficiency DST for TY 2009, respondent

computed the same in the total amount of P46,425.49, as follows:

Advances to related parties p 3,330,710.00

Rate 1/200
DST due thereon p 16,653.55

88
Exhibit "P-29", Docket - Vol. II, at p. 990. Refer also to Par. 4.50 of the instant
Petition for Review, Docket - Vol. I, at p. 29, and Par. 4.38 of petitioner's
Memorandum, Docket- Vol. II, at p. 1275.

~
DECISION
CTA Case No. 9395
Page 38 of 41

Add:Surcharge p 4,163.39
Interest 1/16/2010-6/30/2016 21,608.55
Compromise penalty 4,000.00 29,771.94
TOTAL AMOUNT DUE t- 46,425.49

As already stated earlier, on July 22, 2016, petitioner paid,

through eFPS, the deficiency DST for TY 2009, in the total amount of
P46,626.25. 89 Thus, this item of assessment should already be
cancelled.

Computation of deficiency and

delinquency interests to conform
with the provisions of RA No.
10963, and implemented by RR No.
21-2018.

It must also be noted that the Secretary of Finance issued RR

No. 21-2018 on September 21, 2018, implementing Section 249 of
the NIRC of 1997, as amended by RA No. 10963. Section 6 of the
said RR provides as follows:

"SECTION 6. TRANSITORY PROVISION. - In cases

where the tax liability/ies or deficiency taxies became due
before the effectivity of the TRAIN Law on January 1,
2018, and where the full payment thereof will only be
accomplished after the said effectivity date, the interest
rates shall be applied as follows:

Period Applicable Interest Type

and Rate
For the period up to Deficiency and/or delinquency
December 31, 2017 interest at 20%
For the period January 1, Deficiency and/or delinquency
2018 until full payment of interest at 12%
the tax liability

The double imposition of both deficiency and

delinquency interest under Section 249 prior to its
amendment will still apply insofar as the period between
the date prescribed for payment until December 31, 2017.

11/ustration 2: A Company has been assessed

deficiency income tax of P1 ,000,000.00, exclusive of

89
Exhibits "P-35" and "P-35-A", Docket- Vol. II, pp. 1127 to 1128.

~
DECISION
CIA Case No. 9395
Page 39 of 41

interest and surcharge, for taxable year 2015. The tax

liability has remained unpaid despite the lapse of June 30,
2017, the deadline for payment stated in the notice and
demand issued by the Commissioner. Payment was
made by the taxpayer only on February 10, 2018. The
civil penalties for late payment shall be computed as
follows:

Basic Tax Due -Income Tax 1'"1 ,000,000.00

Add: 25% Surcharge for late payment 1'"250,000.00
20% Deficiency Interest from Apri116, 2016
to June 30, 2017 (441 days) 241,643.84 491,643.84
Total Amount Due, June 30, 2017 P1 ,491,643.84
Add:
20% Deficiency Interest from July 1, 2017 to
December 31 , 2017 (184 days; based on
basic tax of P1 ,000.000.00) P1 00,821.92

20% Delinquency interest from July 1, 2017

December 31 , 2017 (184 days; based on
total amount due of P1 ,491 ,643. 84 as of
June 30, 2017) 150,390.39

12% Delinquency Interest from January 1,

2018 to February 10. 2018 (41 days; based
on total amount due of P1,491,643.84 as of
June 30, 2017) 20,106.54 271,318.85
Total Amount Due, February 10, 2018 P1, 762,962.69"

The foregoing provision clarifies and illustrates the computation

of delinquency and deficiency interests in case where the tax liability
became due before the effectivity of the TRAIN Law on January 1,
2018, and where the full payment thereof will only be accomplished
after the said effectivity date.

WHEREFORE, in light of the foregoing considerations, the

Petition for Review is PARTIALLY GRANTED. The deficiency DST,
including increments, forTY 2009, in the total amount of P46,626.25,
is CANCELLED and SET ASIDE.

Accordingly, petitioner is ORDERED TO PAY respondent the

amount of P19,271 ,999.00, representing the reduced deficiency
income tax and VAT, forTY 2009, inclusive of the twenty-five percent
(25%) surcharge, and twenty percent (20%) deficiency interest and
delinquency interest imposed under Sections 248(A) and 249(8) and
(C), of the NIRC of 1997, as amended, respectively, computed until
December 31, 2017, as follows:

f
 DECISION
CTA Case No. 9395
Page 40 of 41

Income Tax VAT TOTAL

Basic Tax Due p 456,899.70 1'"4,902,993.42 1'"5,359,893.12
Add: 25% Surcharge 114,224.93 1,225,748.36 1,339,937.29
Add: 20% Deficiency Interest from:
April 16, 2010 to June 30, 2016
[1'"456, 899. 70 x 20% x 2, 268 days 567,807.41 567,807.41
1365]
January 26, 2010 to June 30, 2016
[1'"4,902,993.42 x 20% x 2,348 days 6,308,070.44 6,308,070.44
1365]
Total Amount Due,
ft1 '138,932.04 1'"12,436,812.22 P13,575,744.26
June 30, 201690
Add: 20% Deficiency Interest from
July 1, 2016 to December 31, 2017
[1'"456, 899.70 x 20% x 549 days
137,445.44 137,445.44
1365]
[f'>4,902,993.42 x 20% x 549 days
1,474,927.88 1,474,927.88
1365]
Add: 20% Delinquency Interest from
July 1, 2016 to December 31, 2017
[f'>1, 138,932.04 x 20% x 549 days
342,615.72 342,615.72
1365]
[f'>12,436,812.22 x 20% x 549 days
3, 741,265.70 3,741,265.70
/365]
Total Amount Due, December 31,
P1 ,618,993.20 1'"17,653,005.80 P19,271 ,999.00
2017 -

In addition, petitioner is ORDERED TO PAY delinquency

interest at the rate of twelve percent (12%), on the total unpaid
amount as of June 30, 2016 in the amount of P13,575,744.26, as
determined above, computed from January 1, 2018 until full payment
thereof, pursuant to Section 249(C) of the NIRC of 1997, as amended
by RA No. 10963, and as implemented by RR No. 21-2018.

SO ORDERED.
'
ER~.UY
Associate Justice

WE CONCUR:

(See ~N.M~~-C~
CIELITO N. MINDARO-GRULLA
Presiding Justice Associate Justice

90
Exhibit "P-30", Docket- Vol. II, at pp. 1028 tol029.
DECISION
CTA Case No. 9395
Page 41 of 41

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, it is

hereby certified that the conclusions in the above Decision were
reached in consultation before the case was assigned to the writer of
the opinion of the Court's Division.

Presiding Justice
Chairperson, Special 1st Division
 REPUBLIC OF THE PHILIPPINES
Court of Tax Appeals
QUEZON CITY

SPECIAL FIRST DIVISION

SM_RESIDENCES CORP., CTA CASE NO. 9395

Petitioner,

Present:

-versus- DEL ROSARIO, P.J., Chairperson,

UY, and
MINDARO-GRULLA, JJ.

COMMISSIONER OF INTERNAL
REVENUE,
Respondent.

CONCURRING & DISSENTING OPIN

DEL ROSARIO, P.J.:

I concur with the conclusion of the ponencia in: (i) partially

granting the Petition for Review; (ii) cancelling and setting aside the
deficiency Documentary Stamp Tax, including increments, for taxable
year (TY) 2009, in the amount of P46,626.25; and, (iii) ordering
petitioner to pay respondent the amount of t-19,271 ,999.00,
representing the reduced deficiency income tax and value-added tax
(VAT), for TY 2009, inclusive of the 25% surcharge, and 20%
deficiency interest and delinquency interest imposed under Sections
248(A) and 249(8) and (C) of the National Internal Revenue Code
(NIRC) of 1997, as amended, respectively, computed until December
31,2017.

I concur with the ponencia that there are two separate

computations of deficiency interest in line with Revenue Regulations
No. 21-2018: (1) the deficiency interest computed from the date
following the last day prescribed for the payment of the tax until the
due date indicated in the notice and demand; and (2) deficiency
interest from the day following the due date indicated in the notice
and demand until December 31, 2017.

~
Concurring & Dissenting Opinion
CTA Case No. 9395
Page 2 of 4

With due respect, I could not, however, subscribe to the manner

by which the ponencia computed petitioner's tax liabilities. The due
date June 30, 2016 from whence the ponencia computed
respondent's deficiency and delinquency interest is found in the Final
Decision on Disputed Assessment'. To my mind, the date February
28, 2014, appearing in the Assessment Notices dated February 26,
2014 as the due date for payment, should be used for purposes of
computing the deficiency interest.

I submit that the deficiency interest imposable on the deficiency

income tax should be computed from April16, 2010 until February
28, 2014, and the deficiency interest imposable on the deficiency
VAT should be computed from January 26, 2010 until February 28,
2014, or the due date appearing on the Assessment Notices
attached to the FAN with Nos. IT-125-LA00000119-09-14-0030 and
VT-125-LA-00000119-14-0031, and from March 1, 2014 up to
December 31, 2017 pursuant to Section 249 (A) and (B) of the NIRC
of 1997, as amended by Section 75 of Republic Act (RA) No. 10963, 2
and Sections 33 and 64 of Revenue Regulations (RR) No. 21-2018.

1
Exhibit "R-10", BIR Records, pp. 329 to 332.
2 SEC. 75. Section 249 of the NIRC, as amended, is hereby further amended to read as follows:

"SEC. 249. Interest. -

"(A) In General. - There shall be assessed and collected on any unpaid amount of tax,
interest at the rate of double the legal interest rate for loans or forbearance of any money
in the absence of an express stipulation as set by the Bangko Sentral ng Pilipinas from
the date prescribed for payment until the amount is fully paid: Provided, That in no
case shall the deficiency and the delinquency interest prescribed under Subsections (B)
and (C) hereof, be imposed simultaneously

"(B) Deficiency Interest. - Any deficiency in the tax due, as the term is defined in this
Code, shall be subject to the interest prescribed in Subsection (A) hereof, which interest
shall be assessed and collected from the date prescribed for its payment until full
payment thereof, or upon issuance of a notice and demand by the Commissioner
of Internal Revenue, whichever comes earlier."
3 "SECTION 3. DEFICIENCY INTEREST. - Interest imposed on any deficiency tax due, which

interest shall be assessed and collected from the date prescribed for its payment until: (a)
full payment thereof, or (2) upon issuance of a notice and demand by the Commissioner or his
authorized representative, whichever comes first."
4 SECTION 6. TRANSITORY PROVISION. - In cases where the tax liabilitylies or deficiency

taxies became due before the effectivity of the TRAIN Law on January 1, 2018, and where the full
payment thereof will only be accomplished after the said effectivity date, the interest rates shall
be applied as follows:

Period Applicable Interest Type and Rate

For lhe period up to December 31, 20t7 Deficiency and/or delinquency interest at 20%
For the period January 1, 2018 until full payment of the tax Deficiency and/or delinquency interest at 12%
liability

The double imposition of both deficiency and delinquency interest under Section 249
prior to its amendment will still apply in so far as the period between the date prescribed for
payment until December 31,2017.

Illustration 2: A Company has been assessed deficiency income tax of ~1 ,000,000.00, exclusive
of interest and surcharge, for taxable year 2015. The tax liability has remained unpaid despite the
lapse of June 30, 2017, the deadline for payment stated in the notice and demand issued by the~
 Concurring & Dissenting Opinion
CTA Case No. 9395
Page 3 of 4

The delinquency interest imposable in this case, on the other hand,

should be computed from March 1, 2014, the day following the
due date indicated in the notice and demand consistent with
Section 6 of RR No. 21-2018.

All told, I VOTE to:

(i) PARTIALLY GRANT the Petition for Review filed

on July 27, 2016;

(ii) CANCEL and SET ASIDE the deficiency

Documentary Stamp Tax, including increments for
TY 2009; and,

(iii) AFFIRM with MODIFICATION the deficiency

Income Tax and VAT, and ORDER petitioner
SM_Residences, Inc. to PAY the Bureau of
Internal Revenue the following amount:

IT VAT Total

Basic Deficiency Tax p 456,899.70 4,902,993.42 5,359,893.12

Add: 25% Surcharge 114,224.93 1,225,748.36 1,339,973.28

Deficiency Interest from April 16,
2010 to February 28, 2014•
(P456,899. 70 X 20% X 1,415/365
days) 354,253.74 354,253.74
Deficiency Interest from January
26, 2010 to February 28, 2014 6
{P4,902,993.42 X 20% X 2,608/365
days) 4,016,424.75 4,016,424.75
Total Amount Due, February 28, 2014 ,. 925,378.37 10,145,166.52 11,070,544.89

Deficiency Interest
From March 1, 2014 to December 31,
2017
(P456,899.70 x 20% for 1,402/365 days) ,. 350,999.11 350,999.11

Commissioner. Payment was made by the taxpayer only on February 10, 2018. The civil
penalties for late payment shall be computed as follows:

Basic Tax Due 1'1 ,000,000.00

Add: 25% Surcharge for late payment 1'250,000.00
20% Deficiency Interest from April16, 2016 to June 30, 2017 (441 days) 241,643.84 491,643.84
Total Amount Due, June 30 2017 1'1 ,491,643.84
Add:
20% Deficiency Interest from July 1, 2017 to December 31, 2017 (184
days; based on basic tax of P1 ,000,000.00) 1'100,821.92
20% Delinquency Interest from July 1, 2017 to December 31, 2017 (184
days; based on total amount due of P1 ,491 ,643.84 as of June 30, 2017 150,390.39
12% Delinquency Interest from January 1, 2018 to February 10, 2018 (41
days; based on total amount due of ta1 ,491 ,643.84 as of June 30, 2017 20,106.54 271,318.85
Total Amount Due, February 10, 2018 1'1 '762,962.69

5
Due date appearing on Assessment Notice No. IT-125-LA00000119-09-14-0030 attached to the
Formal Letter of Demand dated February 26, 2014, BIR Records, p. 271.
6
Due date appearing on Assessment Notice No. VT-125-LA-00000119-14-0031 attached to the
Formal Letter of Demand dated February 26, 2014, BIR Records, p. 273. C1'l
Concurring & Dissenting Opinion
CTA Case No. 9395
Page 4 of 4

(~4,902,993.42 x 20% for 1,402/365 days) 3,766,573.58 3, 766,573.58

Delinquency Interest
From March 1, 2014 to December 31,
2017
(P925,378 37 X 20% X 1,402/365 days) P 710,893.41 710,893.41
(~10, 145,466.52 x 20% x 1,402/365 days) 7,793,711.49 7,793,711.49
Total Amount Due, December 31, 2017 ~ 1,987,270.88 21,705,451.58 23,692,722.47

In addition, petitioner is ordered to pay the delinquency interest

at the rate of twelve percent (12%) on the total unpaid amount as of
February 28, 2014 in the amount of P11 ,070,544.89 as determined
above, computed from January 1, 2018 until full payment thereof
pursuant to Section 249 (C) of the NIRC of 1997, as amended by RA
No. 10963 and as implemented by RR No. 21-2018.

Presiding Justice