REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

EN BANC

GREEN VALLEY CTA EB No. 1801

MARKETING (CTA Case No. 8988)
CORPORATION,
Petitioner,

-versus -

COMMISSIONER OF
INTERNAL REVENUE,
Respondent.
x---------------------------x
COMMISSIONER OF CTA EB No. 1808
INTERNAL REVENUE, (CTA Case No. 8988)
Petitioner,
Present:
DEL RO~SARIO I f!L_
CASTANEDA, JR.,
UY,
FA 80 N-VI CTO RI N 0 I
- versus - MINDARO-GRULLA,
RINGPIS-LIBAN,
MANAHAN,
BACORRO-VILLENA, and
MODESTO-SAN PEDRO, JJ.
GREEN VALLEY
MARKETING Promulgated:
CORPORATION,
Respondent. OCT 1Lt 2019
X- - - - - - - - - - - - - - - - - - - - - - - - - ~ - - - - - - - - X
CQJ ;5{ 'CJ~c -...._'
DECISION
CTA EB Nos. 1801 & 1808
Page 2 of 32

DECISION

Fabon-Victorino, J.:

Before the Court are the two (2) Petitions for Review
separately filed by Green Valley Marketing Corporation 1
(Corporation) and the Commissioner of Internal Revenue 2
(CIR) on March 23, 2018 and March 26, 2018, respectively,
assailing the Decision 3 dated November 3, 2017 as well as
the Resolution 4 dated February 15, 2018 both rendered by
the Court in Division. The assailed Decision and Resolution
cancelled the CIR's assessment for deficiency value-added
tax (VAT), miscellaneous tax and compromise penalties but
partially upheld the assessment for deficiency income tax (IT)
and expanded withholding tax (EWT) against the
Corporation in the amount of P36,986,780.57.

The following facts as established during trial of the

case remained unchallenged.

The Corporation is a domestic corporation registered

with the Bureau of Internal Revenue (BIR) with Certificate of
Registration No. 8RC0000020168.

The CIR is the head of the BIR and holds office at the
Bureau of Internal Revenue (BIR), National Office Building,
Agham Road, Diliman, Quezon City.

On September 23, 2011, the Corporation received a

Letter of Authority No. LOA-116-2011-00000109 signed by
BIR OIC-Assistant Commissioner (OIC-ACIR) Alfredo V.
Misajon authorizing the examination/audit of the
Corporation's books of accounts and other accounting
records for all internal revenue taxes for the year 2010.

More than a year thereafter, or sometime in f"larch

2013, the Corporation received a Letter Notification dated

Rollo (CTA EB No. 1801), pp. 5-17.

2 Rollo (CTA EB No. 1808), pp. 7-23.
3
Rollo (CTA EB No. 1801), pp. 19-72.
4
Ibid. at pp. 74-90.
DECISION
CTA EB Nos. 1801 & 1808
Page 3 of 32

March 5, 2013 about the re-assignment of its tax

investigation/audit pursuant to MOA No. LOA-116-2.013-
0433 dated February 25, 2013.

On May 6, 2013, the Corporation received the First

Notice for Presentation of Books of Accounts and Other
Relevant Records. A Second Notice for the same purpose
followed which the Corporation received on June 17, 2013.

On June 21, 2013, the Corporation executed a Waiver

of the Defense of Prescription under the Statute of
Limitations of the National Internal Revenue Code (NIRC), as
amended, extending the period to assess until December 31,
2013, which OIC-ACIR for the Large Taxpayers Service,
Alfredo V. Misajon accepted on July 17, 2013.

On September 12, 2013, the Corporation executed a

second Waiver allowing another extension of until June 30,
2014 to issue an assessment. It was also accepted by OIC-
ACIR Service Alfredo V. Misajon on September 17, 2013.

On June 3, 2014, the Corporation was served a

Preliminary Assessment Notice (PAN) together with the
Details of Discrepancies. Shortly thereafter, or on June 25,
2014, it received a Formal Letter of Demand (FLD) with
Details of Discrepancies and attached Assessment Notices
Nos. IT -116-LOA-116-2011-00000109-10-14-809, VT -116-
LOA-116-2011-00000109-10-14-810, MC-116-LOA-116-
2011-00000109-10-14-811, and WE-116-LOA-116-2011-
00000109-10-14-812.

On July 25, 2014, the Corporation protested the FLD by

way of a request for reconsideration.

On February 20, 2015, the Corporation filed a Petition

for Review with the Court in Division, alleging the CIR's
inaction on its protest.

Trial ensued and on November 3, 2017, the Court in

Division promulgated the assailed Decision, partially
granting the Petition for Review in the following fashion:
DECISION
CTA EB Nos. 1801 & 1808
Page 4 of 32

WHEREFORE, premises considered, the instant

Petition for Review is PARTIALLY GRANTED. The
deficiency VAT and miscellaneous tax assessments, as well
as the compromise penalties, issued by (the CIR) against
(the Corporation) for taxable year 2010 are CANCELLED.
On the other hand, the deficiency income tax and
expanded withholding tax assessments are PARTIALLY
UPHELD. Accordingly, (the Corporation) is ordered to pay
the amount of P36,986,780.57, inclusive of the 25%
surcharge imposed under Section 248(A)(3) of the NIRC of
1997, as amended, computed as follows:

Tax TvDe Basic Surcharge Total

Income Tax 1"28.294.209.73 1"7 073,552.43 1"35 367 762.16
Expanded 1,295,214. 73 323,803.68 1,619,018.41
Withholdinq Tax ··-
TOTAL 1"29 589 424.46 1"7,397 ,356.11 1"36,986,780.57

In addition, (the Corporation) is ordered to pay:

(a) Deficiency interest at the rate of twenty percent

(20%) per annum on the basic deficiency income tax of
P28,294,209.73 and expanded withholding tax of
P1,295,214. 73 computed from the dates indicated below
until full payment thereof pursuant to Section 249(8) of
the NIRC of 1997, as amended:

Tax Type Deficiency Interest

Computed From
Income Tax 15-Apr-2011
EWT 11-Jan-2011 --

(b) Delinquency interest at the rate of 20% per

annum on the total amount of P36,986,780.57 and on the
20% deficiency interest which have accrued as aforestated
in (a), computed from August 15, 2014 until full payment
thereof pursuant to Section 249(C) of the NIRC of 1997, as
amended.

SO ORDERED.

Both unconvinced, the Corporation and the CIR

challenged the foregoing Decision through their respective
Motions for Partial Reconsideration which were denied for
lack of merit in the similarly assailed Resolution of February
15, 2018.

On March 23, 2018, the Corporation filed its Petition for

Review with the Court En Bane docketed as CTA EB No.
DECISION
CTA EB Nos. 1801 & 1808
Page 5 of 32

1801. The CIR followed suit and filed his own Petition for
Review on March 26, 2018, docketed as CTA EB No. 1808.

The two Petitions for Review were consolidated per

Minute Resolution of March 27, 2018. 5

On October 24, 2018, the consolidated Petitions for

Review were submitted for decision. 6

The Corporation's Petition for Review:

The Corporation states that comparison between the

income payments liable for withholding tax and its pertinent
WT Returns is the proper method to determine whether it
had purchases not subjected to withholding tax and not the
comparison of summary list of purchases (SLP) with the
monthly alphalist of payees (MAP) made by the Court in
Division. Further, the Corporation's SLP and MAP may not
be compared with each other as the former represents paid
and unpaid purchases whereas the latter pertains to only
purchases actually paid from which taxes were withheld and
remitted. Thus, the Court in Division allegedly erred in
matching its SLP of P396,320,243.95, with its MAP totaling
P370,607,375.02 to arrive at the conclusion that it fai!ed to
subject its purchases to withholding tax in the sum of
P25,712,868. 93.7

It also ascribes error in the order disallowing a portion

of its expenses amounting to P14,461,555.95, particularly
its dealings with Pilipinas Shell Petroleum Corporation, 8 as
well as the Petron Fleet Card. 9 Allegedly, the foregoing
business transactions were not supply of services, but
supply of goods from which it deducted the corresponding
withholding taxes due thereon. Moreover, there was no
agreement to purchase and sell goods between the
Corporation, as the Fleet Card holder, and Petron
Corporation since its supplier was the retail dealer of Petron
and not Petron Corporation itself, precisely withholding taxes
5 !d. at p. 91.
6 Id. at pp. 145-146.
7
P396,320,243.95 less P370,607,375.02.
8
9
P4,594,075.59.
P3,966,212.97.
/
DECISION
CTA EB Nos. 1801 & 1808
Page 6 of 32

on purchases anstng from the Petron Fleet Card may be

dispensed with.

Besides, it is highly improbable to disallow expenses for

non-withholding of taxes either the amount of
P370,607,375.02 or P396,320,243.95 reflected in its
respective MAP and SLP since the foregoing sums are way
higher than its claimed expenses of P79,067,382.28
reflected in its 2010 AITR, states the Corporation.

The Corporation believes that it was able to establish

that the income payments per global reconciliation
disallowed by the Court in Division in the amount of
P63,254,568.05 were duly subjected to withholding taxes.
It puts premium on the Amended Report submitted by the
court-commissioned Independent Certified Public Accountant
(!CPA) dated December 8, 2015, stating that it had properly
subjected its income payments to withholding taxes save
those excluded from withholding taxes, as well as such
payments it voluntarily subjected to withholding taxes. That
being the case, the foregoing items of income payments
should have been allowed as deduction by the Court in
Division.

With regard to the over-stated cost of sales Freight-In

in the sum of P6,880,450.84, 10 the Corporation insists that
such item is not an expense deductible from gross income.
Rather, Freight-In is a component of its cost of sales
subtracted from the gross sales to arrive at gross income.
Hence, substantiation requirement on expenses under
Section 34(A)(1)(b) of the NIRC, as amended does not find
application on cost of sales like the item Freight-In.

And assuming such Freight-In costs amounting to

P6,880,450.84 were unsubstantiated, deduction of such item
was not possible since the sum from which it might be
subtracted, i.e., P47,384,410.00, 11 was not declared as an
item of deduction in its gross income. With the foregoing,

10
This figure is a discrepancy resulting from Freight-In per FS amounting to
P47,384.410.00 as found by the Court in Division vis-a-vis Freight-In per SLP
of P40,503,959.16.
11
Freight-In costs per the Corporation's AFS and AITR. See Exhibits P-8-a and
P-8, respectively.
DECISION
CTA EB Nos. 1801 & 1808
Page 7 of 32

the cancellation of deficiency income tax originating

therefrom is in order.

Finally, on the matter of deficiency EWT in the amount

of P1,295,214.73, since the deficiency IT assessments were
without basis, the correlative deficiency EWT assessment
should also be cancelled.

Despite directive, 12 the CIR failed to file comment to

the Corporation's Petition for Review.

The CIR's Petition for Review:

The CIR contends that under Section 228 of the NIRC,

as amended, after the taxpayer filed a protest within 30
days from receipt of assessment, it has another 60 days
from such filing to submit supporting documents to
substantiate its protest. Only after the lapse of that 60-day
period that his 180-day to act on the said protest shall
commence. If he fails to take any action on such protest,
the taxpayer has 30 days to seek judicial remedy before the
Court in Division. Since the Corporation filed its protest on
July 25, 2014, it had 60 days or until September 23, 2014 to
submit supporting documents. From the lapse of the said
60-day period, he had 180 days or until March 22, 2015 to
act on the Corporation's protest. It was only after the lapse
of the 180-day period on March 22, 2015 that the
Corporation, within 30 days, could seek judicial intervention.
However, the Corporation allegedly sprinted to the Court in
Division and prematurely lodged its Petition for Review on
February 20, 2015 or before the 180-day period lapsed on
March 22, 2015.

The CIR also complains on the Court in Division's

partial cancellation of the Corporation's deficiency income
tax liability to the extent of P28,294,209. 73, which in turn
stemmed from: a) P15,819,843.57 as undeclared income
originating from line-by-line reconciliation; b) undeclared
income arising from disallowed expenses amounting to
P813,253.16; c) overstatement of expenses in the total
amount of P30,667,979.09; d) unaccounted income due to
12
Id. at p. 102.
DECISION
CTA EB Nos. 1801 & 1808
Page 8 of 32

unaccounted expenses of P84,671.41; e) undeclared source

of cash due to unaccounted rental expense amounting to
P232,857.18; and f) disallowed excess MCIT of P460,156.61.

For item a, the CIR explains that the alleged

undeclared income emanated from his comparison of the
Corporation's purchases with: 1) SLP of third parties,
alongside the BIR tax reconciliation system (TRS); and 2)
summary alphalist of tax withheld (SAWT) with the
Corporation's Summary List of Sales (SLS). The result of
such comparison led to a conclusion that there exists
unaccounted income subject to income tax in the amount of
P15,819,843.57.

Anent item b, he states that the matching the

Corporation's income payments subject to withholding tax
per FS/ITR with its withholding tax (WT) returns yielded
inconsistencies in the sum of P813,253.16 which the
Corporation failed to explain or reconcile, for which reason
the disallowance thereof is in order.

As for item c, the Corporation posits that the

Corporation failed to present countervailing proof regarding
the over-claimed costs and/or expenses amounting to
P30,667,979.09 13 as required by Section 32 of the NIRC, as
amended, hence, the same must be treated as unreported
gain subject to income taxes.

On item d, he claims that a comparison of salaries and

wages per the Corporation's AFS and ITR as against its
alphalist of employees yielded a discrepancy of P84,671.41.
Since the latter neglected to show proof refuting such
finding, it is deemed unaccounted income subject to income
taxes.

For item e, the CIR points out that by evaluating the

Corporation's rental expense per FS and its EWT Return, it
generated inconsistencies of P232,857 .18 which must be
13 The CIR originally disallowed alleged overstated expenses amounting to
P37,230,901.04 and added the same to the Corporation's taxable income.
However, the Court in Division partly upheld the disallowance to the extent of
P6,880,450.84, leaving the remainder of P30,667,979.09 (1"37,230,901.04 /
less P6,880,450.84) as the contested portion by the CIR. .V
DECISION
CTA EB Nos. 1801 & 1808
Page 9 of 32

deemed as unaccounted source of cash subject to income

taxes.

As regards item f, he posits that since the Corporation's

30% of adjusted taxable income, or regular corporate
income tax (RCIT), is allegedly higher than 2% of its gross
income, or minimum corporate income tax (MCIT), the
deduction of excess MCIT of P460,156.61 to its tax credits is
warranted.

The CIR insinuates that the Court in Division committed

an egregious error in invalidating the deficiency VAT
assessments on unaccounted income and rental expense
respectively amounting to P84,671.41 and P232,857.18,
undeclared sales on resultant discrepancy as found in line-
by-line reconciliation in the sum of P158,198,435.66, as well
as over-claimed input taxes.

As for the subject unaccounted income and rental

expense, he argues that since the foregoing items are
proper objects of income tax, it follows that imposition of
VAT thereon is as well availing pursuant to Section 106 of
the NIRC, as amended.

On the discrepancy arising from line-by-line

reconciliation, the CIR insists that the Corporation did not
declare its purchases amounting to P142,378,592.09. By
dividing such amount with a cost ratio of 90%, the quotient
of P158,198,435.66 must be treated as undeclared sales
subject to VAT.

He also believes that in view of the Corporation's failure

to reconcile the monies pertaining to purchases reported in
its VAT returns with its SLP, his disallowance of creditable
input taxes amounting to P53,738,254.34 must be sustained.

Reversible error was also committed by the Court in

Division when it diminished the deficiency EWT assessment
from Pl,311,498.67 to P1,295,214.73 as the BIR discovered
during its audit that the Corporation failed to pay
withholding taxes on certain income payments, hence, the
DECISION
CTA EB Nos. 1801 & 1808
Page 10 of 32

deficiency EWT in the amount of P1,311,498.67 should be

retained, states the CIR.

Finally, the CIR insists that the Corporation is also

liable for compromise penalties in the amount of P50,000.00
and P25,000.00 for each deficiency income tax, VAT and
EWT pursuant to Revenue Memorandum Order (RMO) Nos.
01-90 and 19-2007. He argues that the cited RMOs have
not been revoked, hence, they have the force and effect of
law. Moreover, compromise penalty is not only for
settlement of criminal liability but may also be imposed in
cases of violations of the Tax Code.

In rejecting the foregoing propositions, 14 the

Corporation points out that the CIR's arguments are
anything but novel as they are but mere restatements of his
previous arguments which had already been discussed and
passed upon by the Court in Division in the assailed Decision
and Resolution.

In any event, it counters that since its administrative

protest filed with the BIR on July 25, 2014 was a request for
reconsideration, the 180-day period for the CIR to rule on it
commenced on such date. Thus, the CIR had until January
21, 2015 to act on its administrative claim but failed. Thus,
the Corporation had until February 20, 2015 to seek judicial
intervention. In other words, its Petition for Review was
seasonably instituted with the Court in Division on February
20, 2015.

As to the unaccounted purchases treated as undeclared

income per Audit Information Tax Exemption and Incentives
Division (AITEID)-SLP matching in the sum of
P84,819,343.96, the Corporation retorts that the CIR failed
to provide the factual basis of the said amount, thereby
transgressing its right to due process on assessment. Hence,
the cancellation thereof by the Court in Division was in order.

Anent the unaccounted income from undeclared

purchases per SLP-MAP comparison amounting to
P57 ,559,248.13, it states that such finding was without
14
The Corporation's Comment dated May 15, 2018, id. at pp. 95-101.
DECISION
CTA EB Nos. 1801 & 1808
Page 11 of 32

basis, void and based on mere presumptions. While an

assessment is prima facie correct, such cannot be upheld
when found to be utterly without foundation, as in this
instance.

Further, there were no additional income payments in

the sum of P813,253.16 per MAP-SLP that were not
subjected to withholding taxes. Such amount pertained to
the reduction of the subject income payments from
P26,526,122.09, as found by the BIR, to P25,712,868.93, as
ruled by the Court in Division. For the Corporation, the
slashing of the amount made by the Court in Division was
correct as it was the product of its thorough mathematical
analysis of its MAP and SLP.

The Corporation further sides with the Court in Division

in the cancellation of the BIR's findings pertaining to
unaccounted income from unaccounted costs/expenses in
the amount of P30,667,979.09 since it was considered in
light of the facts, applicable laws, as well as jurisprudence
on the matter.

The Corporation as well points out that the reason

offered by the CIR to justify his disallowance of its excess
MCIT in the amount P460,156.61, i.e., the Corporation's
adjusted taxable income would result in a higher RCIT than
the MCIT, was only raised for the first time in the
proceedings before the Court in Division. No such ground
was indicated in the FLD that he issued against it. For lack
of factual basis, the Court in Division was correct in
invalidating the same.

The CIR's assertion that it is accountable for deficiency

VAT is erroneous, says the Corporation. Allegedly, the
deficiency VAT rests on the same facts and findings under
the alleged deficiency IT. Since the deficiency IT upon which
the deficiency VAT is predicated was nullified by the Court in
Division in the assailed Decision, the invalidation of the VAT
liability must likewise ensue.

Moreover, among the alleged sources of its alleged

deficiency VAT was the finding of inconsistencies of input tax . /
DECISION
CTA EB Nos. 1801 & 1808
Page 12 of 32

sources reported between its VAT returns and SLP. But, as

correctly ruled by the Court in Division, there was no
discrepancy on such purchases, negating the impression that
the Corporation should be liable for deficiency VAT arising
from disallowed input taxes.

On the CIR's protestations on deficiency EWT, the

Corporation believes that they are mere reiterations of his
points which were already resolved by the Court in Division
in the assailed Decision and Resolution. Besides, there was
no total cancellation by the Court in Division of the income
payments not subjected to withholding taxes. Rather, the
Court in Division only corrected the findings of the CIR
regarding the subject income payments from
P26,526,122.09 to P25,712,868.93.

Lastly, the Corporation opines that it is not liable for

compromise penalties slapped by the CIR since it never
acceded to its imposition.

THE RULING OF THE COURT

The Petitions for Review separately filed by the

Corporation and the CIR are devoid of merit.

The Corporation's Petition for Review:

Section 34(A)(l)(a) 15 of the NIRC, as amended

recognizes ordinary and necessary expenses as deductions
from the gross income to arrive at the proper taxable

15 SEC. 34. Deductions from Gross Income. - xxx, in computing taxable

income subject to income tax under Sections xxx 27(A), xxx, there shall be
allowed the following deductions from gross income;

(A) Expenses. -

(1) Ordinary and Necessary Trade, Business or Professional

Expenses. -

(a) In General. -There shall be allowed as deduction from gross income all
the ordinary and necessary expenses paid or incurred during the taxable year
in carrying on or which are directly attributable to, the development,
management, operation and/or conduct of the trade, business or exercise of a /
profession, xxx: 1(/
DECISION
CTA EB Nos. 1801 & 1808
Page 13 of 32

income. Among the requisites for its deductibility is found in

Section 34(K) of the same Code which provides:

SEC. 34. Deductions from Gross Income. - xxx;

(K) Additional Requirements for Deductibility of

Certain Payments. - Any amount paid or payable which is
otherwise deductible from, or taken into account in
computing gross income or for which depreciation or
amortization may be allowed under this Section, shall be
allowed as a deduction only if it is shown that the tax
required to be deducted and withheld therefrom has been
paid to the Bureau of Internal Revenue in accordance with
this Section, Sections 58 and 81 of this Code.

The foregoing prov1s1on, in relation to Section

34(A)(l)(a) of the same Tax Code, it is imperative, for
purposes of deductibility of an expense, that the tax
required to be withheld on the amount paid or payable is
shown to have been remitted to the BIR by the taxpayer
constituted as a withholding agent of the government. 16

Relevantly, deductions for income tax purposes partake

of 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. 17 To
be entitled to claim a tax deduction, the taxpayer must
competently establish the factual and documentary bases of
its claim. 18 Otherwise, the claimed deduction will be
19
disallowed.

The Corporation argues that to produce an accurate

result of whether it had purchases not subjected to
withholding tax, it must be a comparison between the
income payments liable for withholding tax and its pertinent
WT Returns and not the SLP-MAP matching as used by the
Court in Division.

16
ING Bank N. V. Manila Branch vs. Commissioner of Internal Revenue, G.R. No.
167679, July 22, 2015.
17
Phi/ex Mining Corporation vs. Commissioner of Internal Revenue, G.R. No.
148147, April 16, 2008.
18
H. Tambunting Pawnshop, Inc. vs. Commissioner of Internal Revenue, G.R. /
No. 173373, July 29, 2013.
19
See Atlas Consolidated Mining & Development Corporation vs. Commissioner
of Internal Revenue, G.R. No. L-26911, January 27, 1981.
DECISION
CTA EB Nos. 1801 & 1808
Page 14 of 32

The argument is unavailing.

This matter has already been settled in the assailed

Decision. Initially, the CIR opted to compare the
Corporation's SLP and MAP relative to its purchase of goods
and services, generating discrepancies in the amount of
P26,526,122.09 treated as income payments not subjected
to withholding taxes which was disallowed. Note that the
Corporation had been informed on the factual and legal
bases of this item of assessment.

Upon review by the Court in Division, it conducted an

independent matching of the Corporation's SLP of
P396,320,243.95 with its MAP, or the income payments
which were subjected to withholding taxes amounting to
P370,607,375.02, and found that it had purchases which
were not subjected to withholding tax amounting to
P25,712,868.93. In other words, the Court in Division
rectified the error committed by the CIR's SLP-MAP
comparison of P26,526,122.09 by reducing the amount of
purchases not subjected to withholding tax per its own SLP-
MAP matching to P25,712,868.93.

Given that the Corporation failed to present convincing

proof that the expenses per SLP-MAP comparison in the
amount of P25,712,868.93 were indeed not exempted from
withholding taxes, or that the foregoing items of its
supplier's income were not yet ripe for withholding, it stands
to reason that the disallowance thereof by the Court in
Division should be sustained.

In its further attempt to rationalize the alleged flaw in

SLP-MAP comparison, the Corporation states that SLP-MAP
may not be compared since the former represents paid and
unpaid purchases whereas the latter pertains to only
purchases actually paid from which taxes were withheld and
remitted.
DECISION
CTA EB Nos. 1801 & 1808
Page 15 of 32

Significant to the foregoing argument is Section 2.57.4

of RR No. 12-01,2° and jurisprudence 21 which tell us that the
income payor-withholding agent's duty to withhold accrues
from the moment such income is paid or payable, accrued or
recorded as an expense in the payor's/employer's books,
whichever comes first. Thus, en contra with the
Corporation's insinuation, its legal obligation to withhold
taxes on its supplier's income is not contingent on whether
the same was paid or unpaid. Rather, its responsibility to
deduct taxes on its supplier's income must be done when
the same was paid; or became due, demandable or legally
enforceable, or accrued or recorded as an expense in the
payor's/employer's books, whichever is earlier. Simply put,
even if income remains unpaid, as long as it is due,
demandable or legally enforceable, or accrued, withholding
of taxes thereon must ensue.

Neither did the Corporation present any credible

evidence to demonstrate that its pertinent purchases from
Pilipinas Shell Petroleum Corporation, 22 as well as the Petron
Fleet Card 23 were subjected to withholding taxes, whether as
a supplier of services, as found by the Court in Division, 24 or
as a supplier of goods, as alleged in its Petition for Review.
On this premise, the subject expenses arising therefrom
must perforce be disallowed.

The Corporation theorizes that the disallowance of the

sums reflected in its MAP or SLP respectively amounting to
P370,607,375.02 and P396,320,243.95 was surprising since
it was much higher than its claimed expenses of
P79,067,382.28 reported in its 2010 AITR.

20 SEC. 2.57.4. Time of Withholding. -The obligation of the payor to deduct and
withhold the tax under Section 2.57 of these regulations arises at the time an
income is paid or payable, or the income payment is accrued or recorded as
expense or asset, whichever is applicable in the payor's books, whichever
comes first. The term 'payable' refers to the date the obligation becomes due,
demandable or legally enforceable.
21 See Note 16.
22 P4,594,075.59 is the amount representing the Corporation's purchases of
services relative to Petron Fleet Card. See table in assailed Decision, pp. 34-
35.
23 P3,966,212.97 refers to the amount of purchases incurred by the Corporation
to Pilipinas Shell Petroleum Corporation. See table in assailed Decision, pp.
34-35.
24
See pp. 34-35, assailed Decision.
./
DECISION
CTA EB Nos. 1801 & 1808
Page 16 of 32

The theory is more apparent, than real.

Section 34(K) of the NIRC, as amended spells out the

three (3) occasions where amounts paid or payable must be
subjected to withholding taxes as a prerequisite to its
deductibility. First, when the subject amounts are
deductible from the gross income; second, when such
amounts are to be considered in the computation of the
gross income; and third, in cases of amounts relative to
allowances for depreciation or amortization, viz.:

SEC. 34. Deductions from Gross Income. - xxx;

(K) Additional Requirements for Deductibility of

Certain Payments. - Any amount paid or payable which is
otherwise deductible from, or taken into account in
computing gross income or for which depreciation or
amortization may be allowed under this Section, shall be
allowed as a deduction only if it is shown that the tax
required to be deducted and withheld therefrom has been
paid to the Bureau of Internal Revenue in accordance with
this Section, Sections 58 and 81 of this Code.

Concomitantly, Section 27(A) 25 of the NIRC, as

amended specifies the items that should be taken into
account in arriving at the proper gross income of the
taxpayer. The formula for this may be summarized in this
wise:

Gross sales
Less: sales returns, discounts, allowances
Net sales
Less: Cost of Sales
Gross Income

25
SEC. 27. Rates of Income tax on Domestic Corporations. -

XXX XXX XXX

For purposes of this Section, the term 'gross income' derived from business
shall be equivalent to gross sales less sales returns, discounts and allowances
and cost of goods sold. 'Cost of goods sold' shall include all business
expenses directly incurred to produce the merchandise to bring them to their

I
present location and use.

For a trading or merchandising concern, 'cost of goods sold' shall include

the invoice cost of the goods sold, plus import duties, freight in transporting
the goods to the place where the goods are actually sold, including insurance
while the goods are in transit.
DECISION
CTA EB Nos. 1801 & 1808
Page 17 of 32

Indeed, cost of sales is an indispensable component to

accurately determine a taxpayer's gross income. Consistent
with Section 34(K) of the NIRC, as amended, failure to
subject cost of sales to withholding taxes shall indubitably
lead to its disallowance.

Here, the error in the Corporation's theory stems from

its notion that withholding of taxes is confined only to its
expenses reported in its 2010 AITR totaling P79,067,382.28.
It failed to realize that cost of sales amounting to
P746,308,835.29 reflected in the same AITR may likewise be
subjected to withholding taxes. By tacking the cost of sales
of P746,308,835.29 with the expenses amounting to
P79,067,382.28, the sum thereof totaling P825,376,217.57
were the aggregate expenses and cost of sales that might
possibly be disallowed due to non-withholding of taxes on
their correlative income payments. For this reason, it is not
remote that expenses reflected in the MAP or SLP
respectively amounting to P370,607,375.02 and
P396,320,243.95 could be disallowed though higher than the
expenses reported by the Corporation in its 2010 AITR, i.e.,
P79,067,382.28.

Nor could the Court En Bane take hook, line and, sinker
the Corporation's claim that it had properly withheld taxes
on income payments per global reconciliation amounting to
P63,254,568.05 on the basis of a mere statement in the
Amended !CPA Report of December 8, 2015.

True, the !CPA made a declaration in his Report that

the Corporation properly subjected to withholding tax the
income payments disbursed to its suppliers except those not
covered by withholding tax. However, the !CPA did not
describe with particularity the income payments subjected
to, or exempted from withholding tax, as well as the source
documents justifying his sweeping conclusion. Neither did
the Corporation rectify the inadequacy of the !CPA on the
matter, and instead conveniently joined the !CPA's
proposition to rationalize its claim of proper withholding of
taxes. In fact, as pointed out by the Court in Division, the
Corporation even failed to formally offer as evidence the
twenty-four (24) boxes allegedly containing slew of
documents examined by the !CPA. Note that a mere
DECISION
CTA EB Nos. 1801 & 1808
Page 18 of 32

assumption may not be the basis in deciding a case, or in

granting a relief. 26 Without the accompanying pieces of
evidence validating such proposition, the disallowance of
income payments not subjected to withholding tax per global
reconciliation to the extent of P63,254,568.05 must be
sustained.

The Corporation claims that the discrepancy of

P6,880,450.84 27 deemed as overstated costs resulting from
a comparison of its Freight-In per AFS against its Freight-In
per ITR were cost of sales and not deductions per se, hence
substantiation requirement for expenses under Section
34(A)(l)(b) of the NIRC, as amended could be validly
dispensed with.

The Court is not swayed.

Case law has it that the initial assessment evidenced by

the tax return is a self-assessment of the taxpayer. The tax
is primarily computed and voluntarily paid by the taxpayer
without need of any demand from government. 28 In the
event that the BIR disagrees with the initial assessment of
the taxpayer, the CIR can examine records or other data
relevant to his or her inquiry in order to verify the
correctness of any return, or to make a return in case of
noncompliance, as well as to determine and collect tax
liability. 29 Note that among the components required to be
declared truthfully in the AITR is the taxpayer's cost of
sales 30 during the taxable year.

From these observations, it was incumbent upon the

Corporation to adduce pertinent books of account,
accounting records, invoices, receipts, and other source
documents to support the veracity of its declarations,
specifically, its cost of sales embodied in its 2010 AITR. The
rationale for this assumes a two-fold purpose: first, for the

26 See Spouses Guidangen vs. Wooden, G.R. No. 174445, February 15, 2012.
27 This figure is a discrepancy resulting from Freight-In per FS amounting to
P47,384,410.00 as found by the Court in Division vis-a-vis Freight-In per SLP
of 1>40,503,959.16.
28 Commissioner of Internal Revenue vs. Fitness by Design, Inc., G.R. No.
215957, November9, 2016.
29 Ibid.
30 Item 18C, AITR, Exhibit P-8.
DECISION
CTA EB Nos. 1801 & 1808
Page 19 of 32

CIR and his duly authorized agents to determine with

reasonable accuracy the legitimacy of the taxpayer's
declarations in its Tax Returns pursuant to their legal
competence to examine and consequently, issue
assessment/s under Sections 5 and 6 of the NIRC, as
amended; and second, for the taxpayer to defend the
correctness of its declarations in its Tax Returns against the
BIR's findings through the various phases of the assessment
process. To be sure, these objectives may not be readily
achieved if the Corporation is allowed to claim any amount
of cost of sales without the benefit of substantiation. This
cannot be permitted.

Given that the Corporation failed to explain or reconcile

by convincing evidence the variance of P6,880,450.84
arising from the matching of the item Freight-In in its AFS
and SLP, such over-claimed costs must be treated as
undeclared gains which must be tacked to its taxable income
forTY 2010.

The Corporation nevertheless claims that deduction of

such unsubstantiated Freight-In costs amounting to
P6,880,450.84 could not possibly be done since the sum
from which it could be subtracted, i.e., P47,384,410.00, 31
was not declared as an item of deduction from its gross
income.

This is misleading.

Section 27(A) in relation to Sections 32 and 31 of the

NIRC, as amended, collectively provide the roadmap for the
computation of taxable income. The formula for this may be
demonstrated in the following fashion:

Gross sales
Less: sales returns, discounts, allowances
Net sales
Less: Cost of Sales
Gross Income
Less: Allowable Deductions
Taxable Income

31
Freight-In costs per the Corporation's AFS and AITR. See Exhibits P-8-a and /
P-8.
DECISION
CTA EB Nos. 1801 & 1808
Page 20 of 32

Irrefragably, in the event that the taxpayer overstated

its cost of sales as in this case, the effect thereof would be
to diminish its gross income, which in turn would reduce its
taxable income. Conversely, by disallowing the excess cost
of sales, the amount thereof must be added back to the
taxpayer's taxable income to accurately reflect its adjusted
taxable income.

A summa contrario with the Corporation's stance, the

Court in Division did not subtract the amount of Freight-In
deemed as overstated costs totaling P6,880,450.84 from its
gross income. Rather, such overstated cost of sales
amounting to P6,880,450.84 was simply added back to its
taxable income to correctly reflect the Corporation's
adjusted taxable income which in turn became the basis of
its income tax liability.

On the matter of the deficiency EWT assessment in the

amount of P1,295,214. 73, the Corporation insists that since
the deficiency IT assessments were devoid of factual and
legal ground, the corresponding deficiency EWT thereto must
entirely be nullified.

The claim is incredulous.

Adverting to our earlier discussion, the Corporation had

failed to withhold taxes on income payments originating
from unaccounted difference: 1) per SLP-MAP matching
amounting to P25,712,868.93; 32 and 2) global reconciliation
in the sum of P63,254,568.05. Accordingly, the assessment
for deficiency EWT to the extent of Pl,295,214.73 must be
imposed upon the Corporation, with the following
breakdown: 33

Income Payments not P36,346,946.66 1>26,907,621.391 1"63,254,568.05

subjected to withholding tax
per global reconciliation
Add: Income payments not 12,066,454.75 13,646,414.18 25,712,868.93
subjected to withholding per
matching of MAP & SLP

32
This figure is the discrepancy between the Corporation's purchases per SLP in
the amount of 1"396,320,243.95 as against its purchases per MAP totalling
P370,607,375.02. /
33
See assailed Decision, pp. 49-51. '44/'
DECISION
CTA EB Nos. 1801 & 1808
Page 21 of 32

Income Payments not 1'48,413,401.41 1'40,554,035.57 1'88,967,436.98

subjected to withholding tax
EWT Rate 1% 2%
EWT Due P484 134.01 P811 080.71 P1 295 214.73

The CIR's Petition for Review:

The CIR argues that the Court in Division is wanting in

legal competence to adjudicate the present case since the
Corporation failed to strictly observe Section 228 of the
NIRC, as amended.

The point is not well-taken.

Section 228 of the NIRC, as amended governs the

procedure to be observed in contesting assessments duly
issued by the BIR. It reads as follows:

SEC. 228. Protesting of Assessment. - When the

Commissioner or his duly authorized representative finds
that proper taxes should be assessed, he shall first notify
the taxpayer of his findings: xxx

XXX XXX XXX

Within a period to be prescribed by implementing rules and

regulations, the taxpayer shall be required to respond to
said notice. If the taxpayer fails to respond, the
Commissioner or his duly authorized representative shall
issue an assessment based on his findings.

Such assessment may be protested administratively by

filing a request for reconsideration or reinvestigation within
thirty (30) days from receipt of the assessment in such
form and manner as may be prescribed by implementing
rules and regulations. Within sixty (60) days from filing of
the protest, all relevant supporting documents shall have
been submitted; otherwise, the assessment shall become
final.

If the protest is denied in whole or in part, or is not acted

upon within one hundred eighty ( 180 days) from
submission of documents, the taxpayer adversely affected
by the decision or inaction may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the said
decision, or from the lapse of one hundred eighty (180)-
DECISION
CTA EB Nos. 1801 & 1808
Page 22 of 32

day period; otherwise, the decision shall become final,

executory and demandable.

Thus, a taxpayer has a period of thirty (30) days from

receipt of assessment to file its administrative protest with
the CIR. Within sixty (60) days from the filing of protest,
the taxpayer must submit documents in support thereof.
The CIR has a period of one hundred eighty (180) days from
date of submission of supporting documents to decide on the
taxpayer's protest. Should the 180-day period end without
any action from him, the taxpayer may, within 30 days from
the lapse thereof, appeal with the Court in Division.

Pertinently, the applicability of the 60-day period to

submit supporting documents rests on the type of the
taxpayer's administrative protest. These two (2) kinds of
protest were defined in the case of Bank of the Philippine
Islands vs. Commissioner of Internal Revenue in the
following manner: 34

xxx. Revenue Regulations (RR) No. 12-85, issued on

27 November 1985 by the Secretary of Finance, upon the
recommendation of the BIR Commissioner, governs the
procedure for protesting an assessment and distinguishes
between the two types of protest, as follows-

xxxx

(a) Request for reconsideration.- refers to a plea for a

re-evaluation of an assessment on the basis of
existing records without need of additional evidence.
It may involve both a question of fact or of law or
both.

(b) Request for reinvestigation.- refers to a plea for re-

evaluation of an assessment on the basis of newly-
discovered or additional evidence that a taxpayer
intends to present in the reinvestigation. It may also
involve a question of fact or law or both.

As it stands, the 60-day period for the taxpayer to

submit documents in support of its protest referred to in
Section 228 of the NIRC, as amended, only applies in a
request for reinvestigation since this is the kind of protest

34
G.R. No. 181836, July 9, 2014.
DECISION
CTA EB Nos. 1801 & 1808
Page 23 of 32

which allows reception of additional evidence. In contrast, a

request for reconsideration is reevaluation of the assessment
based on existing record without the need of presenting
additional evidence.

There is no denying that the tenor of the Corporation's

administrative protest35 is one of reconsideration. It merely
pleaded for reexamination of the BIR's findings based on the
current or existing documents without intention of
submitting additional evidence. As such, the sixty (60)-day
period within which to submit supporting documents finds no
application in its case.

And since the Corporation's protest is in the nature of

request for reconsideration, the one hundred eighty (180)-
day period for the CIR to act on its protest commenced on
the date said protest was filed on July 25, 2014. A fortiori,
the CIR had 180-days, or until January 21, 2015 to decide
on the administrative protest. With the CIR's inaction, the
Corporation had another thirty (30) days, or until February
20, 2015 to seek judicial intervention. In fine, the Petition
for Review was seasonably filed with the Court in Division on
February 20, 2015.

Now on the merits of the CIR's claim. The CIR asserts

that the Corporation is liable for additional deficiency income
taxes (IT) in the amount of P28,294,209. 73 since there was
purportedly: a) undeclared income of P15,819,843.57
pursuant to the BIR's line-by-line reconciliation; b)
undeclared income stemming from disallowed expenses
amounting to P813,253.16; c) overstatement of costs
totaling P30,667,979.09; d) unaccounted income due to
unaccounted expenses of P84,671.41; e) undeclared source
of cash due to unaccounted rental expense amounting to
P232,857.18; and f) disallowed excess MCIT of P460,156.61.

The CIR's contention is specious.

a. Undeclared Income per Line-by-Line Reconciliation -

P15,819,843.57

35 Exhibit P-27.
DECISION
CTA EB Nos. 1801 & 1808
Page 24 of 32

The sum of P15,819,843.57 was considered by the CIR

as unaccounted income after he allegedly found that the
Corporation had undeclared purchases after comparing the
data between: first, AITEID with its SLP in the sum of
P84,819,343.96; and second, its MAP and SLP amounting to
P57 ,559,248.13.

Section 228 36 of the NIRC, as amended, as

implemented by RR No. 12-99, mandate inter alia, that a
taxpayer shall be informed in writing of facts, law, rules and
regulations upon which the assessment is based, otherwise
it is a patent nullity. 37 The purpose of the written notice
requirement is to aid the taxpayer in making a reasonable
protest, if necessary. 38 Thus, such cannot be presumed.
Otherwise, the express provisions of Article 228 of the NIRC
and RR No. 12-99 would be rendered nugatory. 39 The
rationale behind the requirement that taxpayers should be
informed of the facts and law on which the assessments are
based conforms with the constitutional mandate that no
person shall be deprived of his or her property without due
process of law. 40

In this case, the CIR's comparison of the Corporation's

purchases per AITEID-SLP allegedly yielded inconsistencies
of P84,819,343.96. 41 However, no factual basis was
provided to justify his findings. Specifically, he failed to
state in detail why the purchases per AITEID were more
than the purchases in the SLP since the SLP and AITEID
columns in Annex A-1 of his Details of Discrepancy in the
PAN remained unaccomplished. For failure to lay down the
factual basis of his findings of undeclared purchases to the
Corporation, the nullification of this item of assessment
amounting to P84,819,343.96 is in order.

36
SEC. 228. Protesting of Assessment. - xxx

The taxpayers shall be informed in writing of the law and the facts on which
the assessment is made; otherwise, the assessment shall be void.
37
See Commissioner of Internal Revenue vs. Avon Products Manufacturing, Inc.,
G.R. Nos. 201398-99, October 3, 2018.
38
Commissioner of Internal Revenue v. Liquigaz Philippines Corp., G.R. Nos.
215534 & 215557, April 18, 2016.
39
Commissioner of Internal Revenue vs. Enron Subic Power Corporation, G.R.
No. 166387, January 19, 2009.
40
Commissioner of Internal Revenue vs. Fitness by Design, Inc., G.R. No.
215957, November 9, 2016.
41
BIR Record, Folder 1, pp. 490-498.
DECISION
CTA EB Nos. 1801 & 1808
Page 25 of 32

Further, the CIR matched the Corporation's MAP of

P376,423,202.71 with its SLP purportedly amounting to
P318,863,954.58, leaving a resultant discrepancy of
P57,559,248.13 as unaccounted purchases. Upon further
validation however, the Court in Division found that the
Corporation's SLP amounts to P353,029,525.22 and not the
BIR's flawed SLP of P318,863,954.58. By deducting the
Corporation's MAP of P376,423,202. 71 with its correct SLP
of P353,029,525.22, there was ensuing difference of
P23,393,677.49 which the Corporation was able to
satisfactorily account and reconcile. Thus, the attribution by
the CIR of undeclared purchases per MAP-SLP in the amount
of P57,559,248.13 must perforce fail.

b. Undeclared income arising from disallowed expenses

- P813,253.16

The CIR alleges that the amount of P813,253.16

consists of income payments which must be additionally
disallowed for non-withholding of tax per his comparison of
SLP-MAP.

To recall, the CIR compared the Corporation's SLP-MAP

and found that there were income payments not subjected
to withholding tax amounting to P26,526,122.09. Upon the
Court in Division's own matching of the SLP-MAP, it reduced
the income payments not subjected to withholding tax from
P26,526, 122.09 to P25, 712,868.93. Subtracting the income
payments not subjected to withholding tax per BIR totalling
P26,526,122.09 with the income payments not subjected to
withholding tax of P25,712,868.93 as found by the Court in
Division, the difference in the amount of P813,253.16
represents the income payments which the BIR erroneously
imputed for non-withholding of taxes, for which reason
additional disallowance of the latter amount of income
payments must be rejected.

c. Overstatement of Costs- P30,667,979.09

The CIR avers that the amount of P30,667,979.09 42

pertains to purported additional Freight-In costs over-
42
P37,230,901.04-P6,880,450.84 = !>30,667,979.09.
DECISION
CTA EB Nos. 1801 & 1808
Page 26 of 32

declared by the Corporation. The sum was arrived at by

deducting the overstated Freight-In costs of P37,230,901.04
per the BIR's findings with the overstated Freight-In costs
amounting to P6,880,450.84, as found by the Court in
Division.

On the matter, the Court in Division ruled that the

Freight-In costs per SLP as found by the BIR in the amount
of P37,230,901.04 was inaccurate. It then scrutinized and
matched the Corporation's Freight-In costs per AFS in the
sum of P47,384,410.00 with its Freight-In costs per the
correct SLP amounting to P40,503,959.16, generating
variations of P6,880,450.84 which the Corporation failed to
account for. Hence, the Corporation should be made liable
for overstatement of costs only to the extent of
P6,880,450.84.

d. Unaccounted income due to unaccounted expenses

of F'84,671.41

The CIR states that P84,671.41 worth of unaccounted

income was found after comparing the salaries and wages
per the Corporation's AFS/ITR in the amount of
P23,074,374.99 as against its Alphalist of Employees
totaling P23,159,046.40. A review of the Corporation's
Alphalist of Employees, side by side with its BIR Forms No.
1601-C however reveals that the salaries and wages
amounts to P23,074,374.71 and not P23,159,046.40, as
claimed by the CIR. Comparing the salaries and wages per
ITR of P23,074,374.99 with the correct salaries and wages
per Alpha list totaling P23,074,374. 71, yielded a discrepancy
of a trifling P0.28, which could be ascribed to rounding-off of
figures.

e. Undeclared source of cash due to unaccounted rental

expense amounting to F'232,857.18

The CIR insists that the Corporation had unaccounted

source of cash from unaccounted rental expense of
P232,857 .18 attributable to the variance between its Rental
Expense per FS of P3,140,321. 77 and its Rental Expense per
BIR Form 1601E of P3,373,178.95.
DECISION
CTA EB Nos. 1801 & 1808
Page 27 of 32

As correctly observed by the Court in Division, the

Corporation had correctly withheld and paid 5% WT on the
rental payments. Further, the income, along with the taxes
withheld from its pertinent suppliers were duly reflected in
its Monthly Alphalist of Payees (MAP) appended to the WT
Returns. Moreover, the amount of P232,857 .18 was
reported as a separate item in its FS under the account
"Advertising-Rental of Promo Equipment for Special Events."
In fine, the P232,857 .18 worth of purported unaccounted
cash was duly validated and refuted by the Corporation's
documents. Hence, total cancellation thereof is in order.

f. Disallowed excess MCIT- P460,156.61

Obvious from the FLO that the CIR offered no

justification why it disallowed the Corporation's excess MCIT
in the amount of P460,156.61. In his belated attempt to
explain the said disallowance, which for the first time was
declared in his Motion for Partial Reconsideration filed with
the Court in Division, he claimed that the Corporation's
adjusted taxable income would result in a higher RCIT than
the MCIT. Thus, the MCIT disallowance is a nullity for
infringing the Corporation's right to due process on
assessment embodied in Section 228 of the NIRC, as
amended.

The CIR also claims that the Corporation is liable for

deficiency VAT with increments in the aggregate sum of
P122,043,804.84 emanating from: a) unaccounted income
and rental expense respectively amounting to P84,671.41
and P232,857.18; b) unaccounted purchases treated as
undeclared sales in the aggregate amount of
P158,198,435.66; and c) Disallowed creditable input taxes
amounting to P53,738,254.34.

The contention is illusory.

a. Unaccounted income and rental expense respectively

amounting to P84,671.41 and P232,857.18

As earlier discussed, the unaccounted income and

rental expense respectively amounting to P84,671.41 and /
DECISION
CTA EB Nos. 1801 & 1808
Page 28 of 32

P232,857 .18 imputed by the CIR against the Corporation

were duly explained and reconciled by the latter, for which
reason no VAT shall be due thereon.

b. Unaccounted purchases treated as undeclared sales in

the aggregate amount of P158, 198,435.66

The CIR slapped deficiency VAT on the Corporation's

alleged undeclared sales amounting to P158,198,435.66.
This figure stemmed from the discrepancies between
AITEID-SLP comparison in the sum of P84,819,343.96; and
SLP-MAP matching amounting to PS7,559,248.13, or for a
total of P142,378,592.09 which were treated as undeclared
purchases, and consequently transmuted into undeclared
sales utilizing the following formula:

Unaccounted purchases per SLP- P142,378,592.09

MAP-AITEID matching
Divide by: Cost Ratio 90%
Total (Undeclared Sales) P158,198,435.66

As earlier mentioned, the discrepancy ansmg from

AITEID-SLP was nullified since the CIR failed to inform the
Corporation of the factual basis of such item in the
assessment. The same conclusion was reached with regard
to the supposed inconsistency between the MAP and SLP
given that the Corporation had satisfactorily accounted for,
and reconciled the same. Since the SIR's findings of
undeclared purchases per AITEID-SLP and MAP-SLP
aggregately valued at P142,378,592.09 were invalidated,
there are no undeclared purchases that the CIR may convert
into undeclared sales. On this account, the deficiency VAT
on undeclared sales P158,198,435.66 must as well be set
aside.

c. Disallowed creditable input taxes- P53,738,254.34

The CIR claims that a comparison between input tax

sources claimed per VAT Returns amounting to
P785,340,444.75 and input tax sources claimed per the
Corporation's SLP of P337,521,658.56 resulted in input tax
source variance in the sum of P447,818,786.19. Such t.t/
DECISION
CTA EB Nos. 1801 & 1808
Page 29 of 32

amount of P447,818,786.19 was multiplied by the VAT rate

of 12% to arrive at the disallowed input taxes of
P53, 738,254.34.

The CIR is incorrect in insisting that the Corporation

had purchases of P785,340,444. 75 and P337,521,658.56
reflected in its respective VAT Returns and SLP. As pointed
out by the Court in Division, no inconsistency exists between
the foregoing documents since the Corporation's purchases
are uniformly pegged at P784,032,657.01. Thus, the
disallowed input taxes totalling P53,738,254.34 should be
invalidated.

Further, the deficiency EWT in the amount of

P1,311,498.67 could not be sustained in whole contrary to
the position taken by the CIR. As discussed earlier, a
deficiency EWT, albeit partially in the amount of
P1,295,214. 73, must be imposed against the Corporation
since the foregoing amount pertains to the withholding taxes
which the Corporation failed to withhold on certain income
payments as found on MAP-SLP matching and global
reconciliation system.

Finally, the Court En Bane agrees with the Corporation

that compromise penalties could not be imposed against it
for it never consented to the said imposition. It has been
held that compromise penalty implies a mutual agreement
between the parties in respect to the thing or subject matter
which is so compromised. The imposition of the same
without the conformity of the taxpayer is illegal and
unauthorized. 43

WHEREFORE, the Petition for Review filed by Green

Valley Marketing Corporation on March 23, 2018, and the
Petition for Review filed by the Commissioner of Internal
Revenue on March 26, 2018 are DENIED, for lack of merit.

Considering the amendments introduced by Republic

Act (RA) No. 10963, or TRAIN Law relative to imposition of

43
Commissioner of Internal Revenue vs. Lianga Bay Logging Co., Inc. eta/., /
G.R. No. L-35266, January 21, 1991. V
 DECISION
CTA EB Nos. 1801 & 1808
Page 30 of 32

deficiency and delinquency interests, the fallo of the assailed

Decision shall be MODIFIED as follows:

"WHEREFORE, the Petition for Review is

PARTIALLY GRANTED. The deficiency VAT and
miscellaneous tax assessments, as well as the
compromise penalties, issued by respondent
against petitioner for taxable year 2010 are
CANCELLED. On the other hand, the deficiency
income tax and expanded withholding tax
assessments are PARTIALLY UPHELD.
Accordingly, petitioner is ordered to pay the
amount of ONE HUNDRED FIFTEEN MILLION
TWO HUNDRED FIFTEEN THOUSAND SEVEN
HUNDRED EIGHTY-EIGHT PESOS AND
TWENTY-ONE CENTAVOS (P115,215,788.21),
inclusive of the 25% surcharge, 20% deficiency
interest and 20% delinquency interest imposed
under Sections 248(A)(3), 249(B) and (C) of the
NIRC of 1997, as amended, respectively, computed
until December 31, 2017, as summarized below:

Expanded
I
Withholding
Income Tax Tax Total
Basic Tax p 28 294 209.73 p 1 295 214.73 p 29 589 424.46

25% Surcharge 7 073 552.43 323,803.68 7,397 356.11

20% Deficiency Interest from April 16,
2011 to August 15, 2014
(P28,294,209.73 X 20% X 1218/365
days)_ 18 883 478.06 18 883 478.06
20% Deficiency Interest from Jan. 12,
2011 to August 15, 2014
(P1,295,214.73 X 20% X 1312/365
days~ 931 135.19 931 135.19
Total Amount Due as of August 15,
2014 P54,251,240.22 P2,550,153.60 P56,801,393.82
20% Deficiency Interest from August
16 2014 to December 31 2017 I
:
(P28,294,209.73 X 20% X 1234/365
days)
(P1,295,214.73 X 20% X 1234/365
19 131 536.88 19 131 536.88 j
days) 875,778.07 875,778.07
20% Delinquency Interest from August
16 2014 to December 31 2017 I
(P54,251,240.22 X 20% X 1234/365 I

days) 36 682 756.40 36 682 756.40

(P2,550,153.60 X 20% X 1234/365
days) 1 724 323.04 1 724 323.04
Total Amount Due as of Dec. 31,
2017 P110,065,533.50 P5,150,254.71 P115,215,788.21
DECISION
CTA EB Nos. 1801 & 1808
Page 31 of 32

In addition, petitioner is ORDERED TO PAY

respondent delinquency interest at the rate of
twelve percent (12%) on the total amount due as
of August 15, 2014 of P56,801,393.82, 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 Republic Act (RA) No. 10963, also known as
Tax Reform for Acceleration and Inclusion (TRAIN),
as implemented by Revenue Regulations (RR) No.
21-2018.

so ORDERED. II

SO ORDERED.
 DECISION
CTA EB Nos. 1801 & 1808
Page 32 of 32

We Concur:

Presiding Justice

a.~~ c.. a..;;l--"'-..1-d. "S2.

J6'ANITO C. CASTANED.£\; JR. ER~P.UY
Associate Justice Associate Justice

~. 4JL.__
~ N. M~~- CvwUA
CIELITO N. MINDARO-GRULLA
__w \..... ,
MA. BELEN M. RINGPIS-LIBAN
Associate Justice Associate Justice

?'~-7~
CATHERINE T. MANAHAN JEAN MARl
Associate Justice te Justice

STO-SAN PEDRO

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
consolidated cases were assigned to the writer of the opinion
of the Court.

Presiding Justice
 REPUBLIC OF THE PHILIPPINES
COURT OF TAX APPEALS
QUEZON CITY

ENBANC

GREEN VALLEY MARKETING CTA EB NO. 1801

CORPORATION, (CTA Case No. 8988)
Petitioner,

-versus-

COMMISSIONER OF INTERNAL
REVENUE,
Respondent.
X- - - - - - - - - - - - - - - - - - - - - - - X

COMMISSIONER OF INTERNAL CTA EB NO. 1808

REVENUE, (CTA Case No. 8988)
Petitioner,
Present:

DEL ROSARIO, P.J. ,

CASTANEDA, JR.,
UY,
-versus- FASON-VICTORINO,
MINDARO-GRULLA,
RINGPIS-LIBAN,
MANAHAN,
BACORRO-VILLENA, and,
MODESTO-SAN PEDRO, JJ.

GREEN VALLEY MARKETING

Promulgated:
CORPORATION,
Respondent. _O_C_T_1_lt_2=-0_19~«-==-----:--::-.......,....-,--
x----- - - -- - - - - - - - - --- ----- - -- -- - - -- - - -C:#J!-
:$·-· P~.:.X'"·

CONCURRING AND DISSENTING OPINION

DEL ROSARIO, P.J.:

I concur with the ponencia in denying the Petition for Review

filed by the Commissioner of Internal Revenue (CIR) in CTA EB No.
Concurring and Dissenting Opinion
CTA EB Nos. 1801 and 1808 (CTA Case No. 8988)
Page 2 of4

1808 for lack of merit. With due respect, however, I am constrained to

withhold my assent to the denial of the Petition for Review filed by
Green Valley Marketing Corporation (GVMC) in CTA EB No. 1801.

Records disclose the following:

• September 23, 2011 - Letter of Authority (LOA) SN:

eLA201100003014 (LOA-116-2011-00000109) 1 was issued by
Alfredo V. Misajon, OIC-Assistant Commissioner, Large
Taxpayer Service, authorizing Revenue Officers (ROs)
Zenaida Paz, Myrna Ramirez, Ma. Salud Maddela, Cletofel
PArungao, Allan Maniego, Joel Aguila and Group
Supervisor (GS) Glorializa Samoy to examine the books of
accounts and other accounting records of GVMC for all internal
revenue taxes for the period from January 1, 2010 to December
31,2010.

• March 8, 2013 - GVMC received the March 5, 2013 Letter2 of

Cesar D. Escalada, Chief, Regular LT Audit Division I, informing
it that the continuation of audit/investigation pursuant to LOA
No. 116-2011-000001 09 is now assigned to RO Carolyn V.
Mendoza under GS Rolando Balbido pursuant to MOA No.
LOA-116-2013-0433 dated February 25, 2013.

• Memorandum dated March 10, 2014, 3 prepared by ROs C.

Mendoza/ R. Arriola/ R. Martirez I S. Samaniego and noted
by GS Rolando M. Balbido, recommended the issuance of a
Preliminary Assessment Notice against GVMC.

• Memorandum dated June 19, 2014, 4 prepared by ROs C.

Mendoza/ R. Arriola/ R. Martirez I S. Samaniego and noted
by GS Rolando M. Balbido, recommended the issuance of a
Formal Letter of Demand and Assessment Notice against
GVMC.

Considering that ROs Mendoza, Arriola, Martirez, and

Samaniego, who recommended the issuance of the assessment
against GVMC, were not authorized by an LOA to continue GVMC's
audit investigation, it is my view that the Final Letter of Demand dated
June 25, 2014 5 and Assessment Nos. WE-116-LOA-116-2011-

1
Exhibit ''R-2", BIR Records, p. 2.
2 Exhibit "R-1", BIR Records, p. 349.
3 Exhibit "R-8", BIR Records, pp. 482-489.
4 Exhibit "R-10", BIR Records, pp. 510-518.
5 Exhibit "R-12", BIR Records, pp. 523-529.
Concurring and Dissenting Opinion
CTA EB Nos. 1801 and 1808 (CTA Case No. 8988)
Page 3 of4

00000109-10-14-812 (for expanded withholding tax), MC-116-LOA-

116-2011-000001 09-10-14-811 (for miscellaneous tax), VT-116-LOA-
116-2011-000001 09-10-14-810 (for value-added tax), IT-116-LOA-
116-2011-00000109-10-14-809 (for income tax), 6 issued against
GVMC are void ab initio.

The National Internal Revenue Code (NIRC) of 1997, as

amended, is clear and categorical in requiring an authority from the
CIR or from his duly authorized representatives before an
examination of a taxpayer may be made_? Section 6 thereof provides:

"SEC. 6. Power of the Commissioner to Make Assessments

and Prescribe Additional Requirements for Tax Administration and
Enforcement. - (A) Examination of Returns and Determination of
Tax Due - After a return has been filed as required under the
provisions of this Code, the Commissioner or his duly authorized
representative may authorize the examination of any taxpayer
and the assessment of the correct amount of tax: Provided,
however; That failure to file a return shall not prevent the
Commissioner from authorizing the examination of any taxpayer.
xxx" (Boldfacing and underscoring supplied)

A Bureau of Internal Revenue (BIR) officer cannot simply

subject a taxpayer to audit without valid authority issued for that
purpose. Section 13 of the NIRC of 1997, as amended, provides:

"SEC. 13. Authority of a Revenue Officer. - Subject to the

rules and regulations to be prescribed by the Secretary of Finance,
upon recommendation of the Commissioner, a Revenue Officer
assigned to perform assessment functions in any district may,
pursuant to a Letter of Authoritv issued by the Revenue
Regional Director, examine taxpayers within the jurisdiction of the
district in order to collect the correct amount of tax, or to
recommend the assessment of any deficiency tax due in the
same manner that the said acts could have been performed by the
Revenue Regional Director himself." (Boldfacing and underscoring
supplied)

In the cases at bar, the authority of RO Mendoza to continue

the audit investigation of GVMC was alleged to be pursuant to
Memorandum of Assignment (MOA) No. LOA-116-2013-0433 dated
February 25, 2013 8 Such MOA, however, cannot be treated as an
LOA as precisely, any re-assignment of cases requires the issuance
of a new LOA. As for ROs Arriola, Martirez, Samaniego and GS

6 Exhibits "R-11" to "R-11-c", BIR Records, pp. 519-522.

7 Medicard Philippines, Inc. vs. Commissioner of Internal Revenue, G.R. No. 222743, April 5,
2017.
8 Exhibit "R-13" (Judicial Affidavit of RO Mendoza), Docket, p. 1250.
Concurring and Dissenting Opinion
CTA EB Nos. 1801 and 1808 (CTA Case No. 8988)
Page 4 of4

Balbido, there is no proof of their authority to participate in the audit

investigation of GVMC.

Necessarily, the assessment issued pursuant to MOA No.

LOA-116-2013-0433 is void. Being a void assessment, the same
bears no valid fruit 9 and must be slain at sight.

All told, I VOTE to (1) DENY the Petition for Review filed by the
Commissioner of Internal Revenue in CTA EB No. 1808 for lack of
merit; (2) GRANT the Petition for Review filed by Green Valley
Marketing Corporation in CTA EB No. 1801; (3) REVERSE and SET
ASIDE the assailed Decision dated November 3, 2017 and
Resolution dated February 15, 2018 of the Court in Division; (3)
CANCEL the Final Letter of Demand dated June 25, 2014 and
Assessment Nos. WE-116-LOA-116-2011-00000109-10-14-812, MC-
116-LOA-116-2011-00000109-10-14-811, VT-116-LOA-116-2011-
000001 09-10-14-810, and, IT-116-LOA-116-2011-000001 09-10-14-
809.

Presiding Justice

9
Commissioner oflnternal Revenue vs. Metro Star Superama, Inc., G.R. No. 185371, December
8, 2010.