Splash Corp. v. Commissioner of Internal Revenue

SECOND DIVISION [C.T.A. CASE NO. 8530. May 19, 2016.] SPLASH CORPORATION , petitioner , vs. COMMISSIONER OF INTERNAL REVENUE , respondent . DECISION CASTAEDA, JR. , J p : STATEMENT OF THE CASE Before this Court is a Petition for Review filed by Splash Corporation to seek the cancellation, setting aside, and declaration as null and void of the Final Assessment Notice (FAN) dated December 21, 2011 that found it liable for internal revenue tax liabilities for calendar year (CY) 2007, amounting to Two Hundred Eleven Million Fifty-Two Thousand Sixteen Pesos and 94/100 (P211,052,016.94). STATEMENT OF FACTS Petitioner Splash Corporation is a domestic corporation organized in accordance with the laws of the Republic of the Philippines, with office address at the 5th Floor, W Office Building, 11th Avenue corner 28th Street, Bonifacio Global, Taguig City. 1 Respondent is the duly appointed Commissioner of the Bureau of Internal Revenue (BIR), who is responsible for the assessment and collection of all national internal revenue taxes, fees and charges and the enforcement of all forfeitures, penalties and fines connected with such taxes. She holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City. On December 22, 2011, petitioner received a copy of the FAN dated December 21, 2011. The notice made a formal demand upon petitioner to settle its purported tax liabilities amounting to P211,052,016.94, as broken down below: 2 TAX TYPE BASIC TAX SURCHARGE INTEREST COMPROMISE TOTAL PENALTY Income Tax P86,647,041.67 P63,779,154.43 P150,426,196.10 VAT 22,986,157.63 17,938,927.28 40,924,784.91 EWT 845,679.14 664,771.46 1,510,450.61 Percentage Tax P8,479,280.00 P9,649,305.33 P50,000 18,178,585.33 MC 12,000.00 12,000.00 Total P110,478,878.44 P62,000.00 P211,052,016.94 ============== ========== ============== Petitioner filed a request for reconsideration of the FAN before respondent on January 20, 2012. 3 However, respondent failed to act on petitioner's request for reconsideration, prompting petitioner to file the instant Petition for Review 4 before this Court on August 17, 2012. In her Amended Answer, 5 respondent insists that petitioner is liable to pay deficiency income tax in the amount of P150,426,196.10, inclusive of increments. According to respondent, while petitioner claims that its net taxable income is exempt under Republic Act (RA) No. 7459, otherwise known as the "Inventors and Invention Incentives Act of the Philippines", the person entitled to the said exemption is the inventor under whose name the patent was registered. 6 She further states that in Revenue Regulations (RR) No. 19-93, an inventor refers to the patentee/s, heir/s or assignee/s of an invention letters patent, utility model letters, or industrial design letters patent. Since petitioner is not the inventor or assignee of the inventor, it has no right to claim the exemption. 7 Respondent also contends that petitioner's reliance on BIR Ruling Nos. 041-95, 042-95, and 158-99, which state that a corporation in which the inventor holds majority shares may claim tax incentives due to the inventor, is misplaced. 8 She adds that in the afore-mentioned BIR Rulings, the inventors are majority shareholders in their respective corporations, which is not the situation in the present case. 9 Respondent maintains that the exemption applies to the sale of the inventions by the inventor himself and not on the sale of the invention by other parties. The tax incentive applies to the sale of inventions by Dr. Rolando B. Hortaleza, and not the sale by petitioner. 10 Respondent points out that based on the conducted investigation, petitioner is neither the inventor nor a patent holder of the invention, and merely manufactured and marketed the inventions solely for itself and not for and in behalf of the inventor nor any person for that matter. Respondent also calls attention to the fact that petitioner was incorporated in 1991, while the first of Dr. Hortaleza's inventions that have qualified under RA No. 7459 was made a decade after. 11 Respondent posits that petitioner's net taxable income claimed as exempt under RA No. 7459 is subject to corporate income tax. Respondent further states that there is a discrepancy on net taxable income as stated in the Income Tax Return (ITR) and based on the investigation. Petitioner declared its net taxable income on a regular rate of P134,592,153.00, which should have been P138,533,066.00. Hence, there is an understatement of P3,940,913.00. 12 Respondent asserts that petitioner is liable for deficiency income tax on the disallowed cost of sales to Crown Asia Properties, Inc. amounting to P33,335,564.00. 13 She likewise contends that petitioner is liable for deficiency income tax for its failure to withhold and remit withholding tax in full on various income payments which should have been subjected to expanded withholding tax (EWT) amounting to P34,800,115.00. 14 Petitioner is also allegedly liable for deficiency value-added tax (VAT) for sales to HBC, Inc. and Crown Asia Properties, Inc.;and for deficiency expanded withholding tax (EWT) amounting to P1,510,450.61. 15 Respondent adds that petitioner is liable for percentage tax due to the listing of its shares of stock in the Philippine Stock Exchange. 16 Finally, respondent argues that by executing Waivers of Statute of Limitations, petitioner is now estopped from questioning the validity of the waivers and from using the defense of prescription. 17 The case was then set for a Pre-Trial Conference on November 8, 2012. 18 Accordingly, respondent and petitioner submitted their respective Pre-Trial Briefs on October 24, 2012 19 and on November 5, 2012. 20 On November 8, 2012, 21 the Court ordered the parties to submit their Joint Stipulation of Facts and Issues, 22 which they submitted on December 3, 2012. Thereafter, the case was set for the presentation of evidence. 23 On December 13, 2012, petitioner filed its Reply (To Respondent's Amended Answer). 24 Petitioner presented the following witnesses: Mr. Jose Enrique D. Santos 25 Financial Accounting Manager of petitioner; Atty. Jasmine U. Tan 26 Corporate Secretary of petitioner; Mr. Raphael C. Miguel 27 Independent Certified Public Accountant; and Ms. Christina E. Buenafe 28 Research and Development Manager for Personal Care of petitioner. Petitioner formally offered its documentary evidence 29 on June 9, 2014 and on June 26, 2014. The Court admitted all of petitioner's submitted exhibits, except Exhibits "EEE-3451" and "KKK-166" for not being found in the records. 30 On the other hand, respondent presented Nicasio H. Lumagui, Jr. BIR Chief Revenue Officer I, as her lone witness. 31 Thereafter, on February 16, 2015, respondent formally offered her evidence. 32 In the Court's Resolution 33 dated March 26, 2015, Exhibits "1","2","3","4","5","6","7","8","9","10","11","12" "17",and "17-A" were admitted as evidence. Petitioner submitted its Memorandum on June 1, 2015. 34 On the other hand, respondent filed a Manifestation 35 stating that she is adopting the arguments she raised in her Amended Answer dated October 15, 2012 as her Memorandum. Hence, on June 8, 2015, the Court declared the case submitted for decision. STATEMENT OF ISSUES The parties submitted the following issues for resolution of the Court: 1. Whether or not respondent can subject to income tax for taxable year 2007 petitioner's sales of tax-exempt products in disregard of the provisions of RA No. 7459, the rulings of the BIR, and the final and executory judgment rendered by the Court of Tax Appeals and the Supreme Court; 1.1 Whether or not the tax exemption under Section 6 of RA No. 7459 attaches to the income derived from the commercial sale of Dr. Rolando Hortaleza's invention; 1.2 Whether or not petitioner is entitled to tax exemption if the commercial production/sale of Dr. Rolando Hortaleza's invention is done through petitioner; 2. Whether or not the 2007 tax assessment has prescribed; 3. Whether or not respondent can subject petitioner for alleged discrepancy on net taxable income of P3,940,913.00; CAIHTE 4. Whether or not petitioner's contribution of parcel of land to the joint venture project with Crown Asia Properties constitutes capital contribution; 5. Whether or not petitioner failed to withhold and remit withholding tax in full on various income payments subject to expanded withholding tax; 6. Whether or not petitioner underdeclared its sales to HBC; 7. Whether or not respondent can assess petitioner for deficiency VAT arising from cash sale to Crown Asia Properties; 8. Whether or not petitioner erred in recording its input taxes under one time vendor; 9. Whether or not petitioner was informed of the law and the facts from which the assessment for income tax, VAT, withholding tax, and percentage tax for the year 2007 was based, pursuant to Section 228 of the National Internal Revenue Code (NIRC) of 1997, as amended; 10. Whether petitioner is liable to pay deficiency income tax, VAT, EWT, and percentage tax assessments for taxable year 2007, in the aggregate amount of P211,052,016.94, inclusive of surcharge and penalties, pursuant to Sections 248 and 249 of the NIRC of 1997, as amended. There are two (2) main issues to be resolved by the Court, namely: 1. Whether the 2007 tax assessment has prescribed; and 2. Whether petitioner is liable to pay the assessed deficiency income tax, VAT, EWT, and percentage tax for taxable year 2007, in the total amount of P211,052,016.94, inclusive of surcharge and penalties. DISCUSSION Prescription According to Section 203 of the NIRC of 1997, as amended, the government can 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. Hence, an assessment notice issued after the three-year prescriptive period is not anymore valid and effective. Section 203 of the NIRC of 1997, as amended, provides: "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." Pursuant to Section 77 of the NIRC of 1997, as amended, a corporate taxpayer (on a calendar year basis of reporting) must file its Annual Income Tax Return on or before April 15 of the following year. In this case, petitioner filed its Annual Income Tax Return for calendar year 2007 on April 15, 2008, 36 but subsequently filed amendments thereto on May 16, 2008 37 and May 21, 2008. 38 Applying Section 203, respondent had until May 23, 2011 (May 21, 2011, being a Saturday),within which to assess petitioner for deficiency income tax for CY 2007. Meanwhile, Section 114 (A) 39 of the NIRC of 1997, as amended, and Section 4.114-1 (A) of RR No. 16-2005 provide that Quarterly VAT Returns shall be filed within twenty-five (25) days following the close of each taxable quarter. Summarized below are the dates of filing of petitioner's Income Tax Return, Quarterly VAT Returns, and Percentage Tax Return, and the corresponding dates within which respondent should assess petitioner for deficiency income tax, VAT, and percentage tax for CY 2007: Last Day to File Last Day to Period Covered Exhibit Date Filed Return Assess 1st Qtr Jan. 1-Mar. 31, "RR" April 25, 2007 April 25, 2007 April 26, 2010 40 2007 2nd Qtr April 1-June 30, "SS" July 25, 2007 July 25, 2007 July 26, 2010 41 2007 3rd Qtr July 1-Sept. 30, "TT" October 24, 2007 October 25, 2007 October 25, 2010 2007 4th Qtr Oct. 1-Dec. 31, "DD" April 30, 2008 January 25, 2008 May 2, 2011 42 2007 (Amended Return) As regards the EWT, Section 2.58 (A) (2) (b) of RR No. 17-03, in relation to Section 7 of RR No. 09-01, as last amended by RR No. 26-02, provides that the electronic filing of EWT Returns of taxpayers engaged in manufacturing such as herein petitioner must be made within fourteen (14) days following the end of the month. The dates of filing of petitioner's Monthly EWT Returns as well as the last day for respondent to assess deficiency EWT for CY 2007 are summarized below: Month Exhibit Date Filed Last Day to File Last Day to Assess Covered Return Jan-07 "UU" February 14, 2007 February 14, 2007 February 15, 2010 43 Feb-07 "UU-1" March 14, 2007 March 14, 2007 March 15, 2010 44 Mar-07 "UU-2" April 13, 2007 April 16, 2007 45 April 16, 2010 Apr-07 "UU-3" May 11, 2007 May 14, 2007 May 14, 2010 May-07 "UU-4" June 14, 2007 June 14, 2007 June 14, 2010 Jun-07 "UU-5" July 13, 2007 July 16, 2007 July 16, 2010 Jul-07 "UU-6" August 14, 2007 August 14, 2007 August 16, 2010 46 Aug-07 "UU-7" September 12, 2007 September 14, 2007 September 14, 2010 Sep-07 "UU-8" October 16, 2007 October 15, 2007 October 18, 2010 47 Oct-07 "UU-9" November 14, 2007 November 14, 2007 November 15, 2010 48 Nov-07 "UU-10" December 14, 2007 December 14, 2007 December 14, 2010 Dec-07 "UU-11" January 24, 2008 January 14, 2008 January 24, 2011 With respect to percentage tax on shares of stock sold and exchanged through initial public offering (IPO), Section 127 (C) (2) of the NIRC of 1997, as amended, provides that the Percentage Tax Return must be filed within thirty (30) days from the date of listing of the shares of stock in the local stock exchange. For its IPO of common shares on November 15, 2007, 49 petitioner filed its Percentage Tax Return on March 26, 2008. Counting from March 26, 2008, respondent had until March 28, 2011 50 within which to assess petitioner for deficiency percentage tax on the November 15, 2007 IPO transaction. Therefore, the last day for respondent to issue an assessment for CY 2007 was on May 23, 2011 for income tax, on May 2, 2011, at the latest for VAT, on January 24, 2011, at the latest for EWT, and on March 28, 2011 for percentage tax. However, petitioner received the FAN only on December 22, 2011 51 or beyond the three-year prescriptive period provided by law. While respondent does not deny that the assessment notices were issued beyond the three-year prescriptive period, she claims that the period was extended by the waivers executed by petitioner. 52 On the other hand, petitioner assails the validity of the three Waivers it executed through its representative due to the following defects: 53 Date of Receipt by Petitioner Date of Last Day of the Type and Execution Acceptance of accepted Amount of Date by CIR Effectivity Waiver Tax First June June 21, Dec. 31, June 24, Signed by Waiver 54 10, 2010 2010 2010 2010 Not indicated representatives of Second Not Not June 30, petitioner who are Waiver 55 indicated indicated 2011 Oct. 8, 2010 Not indicated not authorized by Third May 13, May 30, Dec. 31, its Board of Waiver 56 2011 2011 2011 June 9, 2011 Not indicated Directors However, as can be gleaned from the above-quoted provision, there are certain exceptions. Section 222 of the NIRC of 1997, as amended, provides that: "SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes . (a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time within ten (10) years after the discovery of the falsity, fraud, or omission: Provided ,That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof. (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 written agreement made before the expiration of the period previously agreed upon. (c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in paragraph (a) hereof may be collected by distraint or levy or by a proceeding in court within five (5) years following the assessment of the tax. (d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in paragraph (b) hereinabove, may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the expiration of the five (5)-year period. The period so agreed upon may be extended by subsequent written agreements made before the expiration of the period previously agreed upon. (e) Provided, however ,That nothing in the immediately preceding Section and paragraph (a) hereof shall be construed to authorize the examination and investigation or inquiry into any tax return filed in accordance with the provisions of any tax amnesty law or decree." (Emphasis supplied) From the foregoing, it can be seen that the period to assess and collect taxes may only be extended upon a written agreement between the BIR Commissioner and the taxpayer executed before the expiration of the three-year prescriptive period. Revenue Memorandum Order (RMO) No. 20-90 issued on April 4, 1990 and Revenue Delegation Authority Order (RDAO) No. 05-01 issued on August 2, 2001 lay down the procedure for the proper execution of a 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, 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, and executed by the taxpayer or his duly 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. 57 In the case of Philippine Journalists, Inc. vs. Commissioner of Internal Revenue , 58 the Supreme Court held: "A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the taxpayers' right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed. The waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription as erroneously held by the Court of Appeals. It is an agreement between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly where the language of the document is equivocal. For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed. RMO No. 20-90 explains the rationale of a waiver: DETACa ...The phrase 'but not after _________ 19____' should be filled up. This indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription. The period agreed upon shall constitute the time within which to effect the assessment/collection of the tax in addition to the ordinary prescriptive period. (Emphasis supplied) As found by the CTA, the Waiver of Statute of Limitations, signed by petitioner's comptroller on September 22, 1997 is not valid and binding because it does not conform with the provisions of RMO No. 20-90. It did not specify a definite agreed date between the BIR and petitioner, within which the former may assess and collect revenue taxes. Thus, petitioner's waiver became unlimited in time, violating Section 222(b) of the NIRC. The waiver is also defective from the government side because it was signed only by a revenue district officer, not the Commissioner, as mandated by the NIRC and RMO No. 20-90. The waiver is not a unilateral act by the taxpayer or the BIR, but is a bilateral agreement between two parties to extend the period to a date certain. The conformity of the BIR must be made by either the Commissioner or the Revenue District Officer. This case involves taxes amounting to more than One Million Pesos (P1,000,000.00) and executed almost seven months before the expiration of the three-year prescription period. For this, RMO No. 20-90 requires the Commissioner of Internal Revenue to sign for the BIR." However, in the recent case of Commissioner of Internal Revenue vs. Next Mobile, Inc. (formerly Nextel Communications Phils., Inc.) , 59 the Supreme Court held that while the general rule is that when a waiver does not comply with the requisites for validity specified under RMO No. 20-90 and RDAO No. 01-05 is considered invalid and ineffective to extend the prescriptive period to assess taxes, parties who do not come to court with clean hands cannot be allowed to benefit from their own wrongdoing. The pertinent parts of the decision are quoted hereunder: "The general rule is that when a waiver does not comply with the requisites for its validity specified under RMO No. 20-90 and RDAO 01-05, it is invalid and ineffective to extend the prescriptive period to assess taxes. However, due to its peculiar circumstances, We shall treat this case as an exception to this rule and find the Waivers valid for the reasons discussed below: First ,the parties in this case are in pari delicto or 'in equal fault.' In pari delicto connotes that the two parties to a controversy are equally culpable or guilty and they shall have no action against each other. However, although the parties are in pari delicto ,the Court may interfere and grant relief at the suit of one of them, where public policy requires its intervention, even though the result may be that a benefit will be derived by one party who is in equal guilt with the other. Here, to uphold the validity of the Waivers would be consistent with the public policy embodied in the principle that taxes are the lifeblood of the government, and their prompt and certain availability is an imperious need. Taxes are the nation's lifeblood through which government agencies continue to operate and which the State discharges its functions for the welfare of its constituents. As between the parties, it would be more equitable if petitioner's lapses were allowed to pass and consequently uphold the Waivers in order to support this principle and public policy. Second ,the Court has repeatedly pronounced that parties must come to court with clean hands. Parties who do not come to court with clean hands cannot be allowed to benefit from their own wrongdoing. Following the foregoing principle, respondent should not be allowed to benefit from the flaws in its own Waivers and successfully insist on their invalidity in order to evade its responsibility to pay taxes. Third ,respondent is estopped from questioning the validity of its Waivers. While it is true that the Court has repeatedly held that the doctrine of estoppel must be sparingly applied as an exception to the statute of limitations for assessment of taxes, the Court finds that the application of the doctrine is justified in this case. Verily, the application of estoppel in this case would promote the administration of the law, prevent injustice and avert the accomplishment of a wrong and undue advantage. Respondent executed five Waivers and delivered them to petitioner, one after the other. It allowed petitioner to rely on them and did not raise any objection against their validity until petitioner assessed taxes and penalties against it. Moreover, the application of estoppel is necessary to prevent the undue injury that the government would suffer because of the cancellation of petitioner's assessment of respondent's tax liabilities. Finally ,the Court cannot tolerate this highly suspicious situation. In this case, the taxpayer, on the one hand, after voluntarily executing waivers, insisted on their invalidity by raising the very same defects it caused. On the other hand, the BIR miserably failed to exact from respondent compliance with its rules. The BIR's negligence in the performance of its duties was so gross that it amounted to malice and bad faith. Moreover, the BIR was so lax such that it seemed that it consented to the mistakes in the Waivers. Such a situation is dangerous and open to abuse by unscrupulous taxpayers who intend to escape their responsibility to pay taxes by mere expedient of hiding behind technicalities. It is true that petitioner was also at fault here because it was careless in complying with the requirements of RMO No. 20-90 and RDAO 01-05. Nevertheless, petitioner's negligence may be addressed by enforcing the provisions imposing administrative liabilities upon the officers responsible for these errors. The BIR's right to assess and collect taxes should not be jeopardized merely because of the mistakes and lapses of its officers, especially in cases like this where the taxpayer is obviously in bad faith." The Court finds that the factual circumstances of the present case are similar to that of the afore-quoted case. While the requirements of RMO No. 20-90 and RDAO No. 05-01 must strictly be complied with by respondent, petitioner is estopped from questioning the validity of the waivers it voluntarily executed because petitioner cannot be allowed to benefit from the same defects it caused. In view thereof, the Court is convinced that respondent's right to assess was extended by the executed waivers. Hence, when the FAN was issued and subsequently received on December 22, 2011, respondent still had the right to assess petitioner for the following deficiency taxes: Period Covered Date Filed Last Day to File Last Day to Assess Return Income Tax CY 2007 April 15, 2008, as April 15, 2008 May 23, 2011 60 amended on May 16, 2008 and May 21, 2008 VAT 2nd Quarter 2007 61 July 25, 2007 July 25, 2007 July 26, 2010 62 3rd Quarter 2007 63 October 24, 2007 October 25, 2007 October 25, 2010 4th Quarter 2007 64 April 30, 2008 65 January 25, 2008 May 2, 2011 66 EWT May 2007 67 June 14, 2007 June 14, 2007 June 14, 2010 June 2007 68 July 13, 2007 July 16, 2007 July 16, 2010 July 2007 69 August 14, 2007 August 14, 2007 August 16, 2010 70 August 2007 71 September 12, 2007 September 14, 2007 September 14, 2010 September 2007 72 October 16, 2007 October 15, 2007 October 18, 2010 73 October 2007 74 November 14, 2007 November 14, 2007 November 15, 2010 75 November 2007 76 December 14, 2007 December 14, 2007 December 14, 2010 December 2007 77 January 24, 2008 January 14, 2008 January 24, 2011 However, when the First Waiver was executed on June 10, 2010, 78 respondent's right to assess had already prescribed for the following: Period Covered Date Filed Last Day to File Last Day to Return Assess VAT 1st Quarter 2007 79 April 25, 2007 April 25, 2007 April 26, 2010 80 EWT January 2007 81 February 14, 2007 February 14, 2007 February 14, 2010 February 2007 82 March 14, 2007 March 14, 2007 March 14, 2010 March 2007 83 April 13, 2007 April 16, 2007 April 16, 2010 April 2007 84 May 11, 2007 May 14, 2007 May 14, 2010 The Court shall now determine whether petitioner is liable for the deficiency taxes assessed by respondent. Liability for Deficiency EWT, Income Tax, VAT, and Percentage Tax I. DEFICIENCY EWT P1,510,450.60 Upon comparison of the purchases per petitioner's Summary List of Purchases against its income payments reflected in the Monthly Alphalist of Payees, respondent found discrepancies amounting to P34,800,115.79 which were not allegedly subjected to EWT as required under RR No. 02-98, as amended by RR No. 06-01 and RR No. 17-03, in relation to Revenue Memorandum Circular (RMC) No. 72-04. As such, respondent assessed petitioner for the corresponding deficiency EWT in the amount of P1,510,450.60, inclusive of interest, computed as follows: 85 Income Payment Per Summary List of Monthly Alpha List EWT Supplier/Payee Purchases of Payees No EWT Rate Tax Due A2F CARGO SERVICES, INC. P1,768,176.72 P1,260,608.23 P507,568.49 10% P50,756.85 AB COMMUNICATION 12,934,619.26 11,869,177.70 1,065,441.56 2% 21,308.83 ABS PROMOTION CORPORATION 51,757,161.71 51,427,836.32 329,325.39 2% 6,586.51 ACNIELSEN (PHILIPPINES), INC. 5,650,864.12 5,176,822.35 474,041.77 2% 9,480.84 CHYNNA ORTALEZA 515,463.91 282,130.60 233,333.31 15% 35,000.00 BENJAMIN TANG 194,227.05 174,226.83 20,000.22 15% 3,000.03 DG SPHEROIDS CORPORATION 30,292,134.66 28,990,589.00 1,301,545.66 1% 13,015.46 DILIMAN SCIENCE RESEARCH INSTITUTE 81,200.00 8,800.00 72,400.00 1% 724.00 DIRECT LINK WORLDWIDE 42,106.29 15,001.50 27,104.79 2% 542.10 DM9 4,863,891.83 4,858,892.00 4,999.83 2% 100.00 EVERGREEN CUISINE MGT. CORP. 112,865.33 102,613.50 10,251.83 2% 205.04 GREAT EASTERN HOTEL 164,299.44 1,427.68 162,871.76 2% 3,257.44 HENGSTLER INTERNATIONAL 1,780,372.77 1,778,140.86 2,231.91 1% 22.32 INTERNATIONAL PHARMACEUTICALS 20,027,250.00 17,388,000.00 2,639,250.00 1% 26,392.50 JENNYLYN MERCADO 313,927.66 180,594.33 133,333.33 15% 20,000.00 JONATHAN BORJA 42,888.89 37,888.90 4,999.99 10% 500.00 JONATHAN ROXAS 22,000.00 8,888.89 13,111.11 10% 1,311.11 LEONCIO T. DURAN III 209,250.00 139,500.00 69,750.00 2% 1,395.00 MANSMITH AND FIELDERS 108,324.00 53,310.50 55,013.50 2% 1,100.27 MEDIAFORCE INTEGRATION 23,816,349.69 23,798,353.32 17,996.37 2% 359.93 MIKE TAN 234,672.33 120,561.33 114,111.00 15% 17,116.65 MULTIMEDIA EXPONENTS 5,592,783.83 2,809,147.53 2,783,636.30 2% 55,672.73 ONE TIME VENDOR 11,587,609.08 10,677,539.10 910,069.98 10% 91,007.00 OUTSOURCE PR, INC. 934,272.16 880,672.33 53,599.83 15% 8,039.97 PARADIGM ENTERTAINMENT PRODUCTION 11,867,263.63 11,842,264.06 24,999.57 2% 499.99 PHIL AMERICAN INSURANCE 5,691,121.41 5,619,175.75 71,945.66 2% 1,438.91 PHIL-ASIA NUTRACEUTICAL CORPORATION 102,598.74 51,098.74 51,500.00 2% 1,030.00 PHILTOWN HOTEL 35,420.13 8,634.50 26,785.63 2% 535.71 PILIPINAS SHELL PETROLEUM CORPORATION 3,904,118.94 2,707,294.27 1,196,824.67 2% 23,936.49 PRUDENTIAL GUARANTEE AND INSURANCE 3,480,973.23 3,269,145.94 211,827.29 2% 4,236.55 RIZAL COMMERCIAL BANKING CORPORATION 4,080,781.33 3,886,458.50 194,322.83 2% 3,886.46 ROBINSONS SAVINGS BANK CORP. 2,690,404.48 2,573,810.50 116,593.98 2% 2,331.88 SAFETY ORGANIZATION 22,000.00 12,500.00 9,500.00 2% 190.00 SGV DEVT. DIMENSION INTL. 363,346.39 345,446.78 17,899.61 2% 357.99 SHERWIN ORDONEZ 315,005.67 120,561.33 194,444.34 15% 29,166.65 STRESADING WATER SUPPLY TRADING 213,270.00 53,370.00 159,900.00 1% 1,599.00 SULO HOTEL 111,489.79 69,371.00 42,118.79 2% 842.38 TBWA/SANTIAGO MANGADA 23,169,637.95 23,110,455.18 59,182.77 2% 1,183.66 TNT EXPRESS WORLDWIDE 429,527.89 428,478.39 1,049.50 2% 20.99 TOPNOTCH AWARDS AND NOVELTIES 123,500.00 32,850.00 90,650.00 1% 906.50 TOYOTA BALINTAWAK NORTH 402,866.76 317,720.31 85,146.45 2% 1,702.93 TOYOTA PASONG TAMO, INC. 1,944,515.19 1,929,515.71 14,999.48 2% 299.99 VISIVO PRODUCTION, INC. 349,999.92 215,384.50 134,615.42 2% 2,692.31 3J8 CAR ACCESSORIES SHOP 94,218.78 94,218.78 2% 1,884.38 ABERDEEN COURT 40,223.21 40,223.21 2% 804.46 ADBOARD 136,840.00 136,840.00 1% 1,368.40 ADHESIVE AND PAINTS APPLICATION SYSTEM 104,575.84 104,575.84 2% 2,091.52 ALFAJAR HATS CAPS EMBROIDERY 75,000.00 75,000.00 1% 750.00 ANG, ESTHER CATHY 1,127,004.34 1,127,004.34 15% 169,050.65 BANAHAW LUXURY TRANSPORT 22,400.00 22,400.00 2% 448.00 BILO, PRINCESS MANANSALA 22,926.72 22,926.72 15% 3,439.01 BRIOSO, EDNA 10,000.00 10,000.00 15% 1,500.00 BSET OPTION CONSULTANT 102,500.00 54,000.00 48,500.00 2% 970.00 CARANDANG, EMILIANO 5,000.00 5,000.00 15% 750.00 CENTER FOR GLOBAL BEST PRACTICES 14,400.00 14,400.00 2% 288.00 CHINESE GENERAL HOSPITAL 50,000.00 50,000.00 2% 1,000.00 CORPORATE ACHIEVERS INSTITUTE 13,314.56 13,314.56 2% 266.29 DE CLARIN, KRISTINA 12,240.00 12,240.00 15% 1,836.00 ECOP 57,000.00 57,000.00 2% 1,140.00 GALINDEZ, LAURENCE 6,893.00 6,893.00 15% 1,033.95 GONZALES, ANA MARIE 30,000.00 30,000.00 15% 4,500.00 GSI PHILIPPINES, INC. 11,000.00 11,000.00 2% 220.00 LA COMIDA 13,000.00 13,000.00 2% 260.00 LUMO, RYAN 28,925.00 28,925.00 15% 4,338.75 MANILA GALLERIA SUITES 1,078,554.46 972,439.29 106,115.17 2% 2,122.30 MDC ELECTRICAL CONTRACTOR 442,714.20 442,714.20 2% 8,854.28 NUTRACEUTICAL SYSTEMS, INC. 40,000.00 40,000.00 2% 800.00 OROBIA, MA. ANGELINA 14,705.88 14,705.88 15% 2,205.88 PADERNAL, ANDRES 20,000.00 20,000.00 15% 3,000.00 PANDAN SEAFOOD AND GRILL 43,837.50 43,837.50 1% 438.38 SPLASH PHARMACEUTICALS, INC. 18,317,681.17 18,317,681.17 1% 183,176.81 ZOOM IN PACKAGE INS 23,698.08 23,698.08 1% 236.98 TAGAYTAY HIGHLANDS INTERNATIONAL 23,658.42 23,658.42 2% 473.17 THE RED GINGER FARM GARDEN 24,050.00 24,050.00 2% 481.00 TOPNOTCH AWARDS AND NOVELTIES 123,500.00 32,850.00 90,650.00 2% 1,813.00 TOWER CLUB, INC. 19,250.00 19,250.00 2% 385.00 Deficiency EWT P254,493,663.34 P219,693,547.55 P34,800,115.79 P845,679.14 86 Add: 20% interest p.a. 01.16.08 to 12.20.11 664,771.46 Total Amount Payable P1,510,450.61 ============ Petitioner argues that respondent's computation failed to consider many items such as: (1) income payments per alphalist; (2) incorrect pick up of amounts; (3) incorrect EWT rate used; (4) payment exempted from withholding tax; and (5) reimbursement by employees. 87 It avers that contrary to respondent's claim, the income payments to several payees, namely, Chyna Ortaleza, Jennylyn Mercado, Jonathan Roxas, Mansmith and Fielders, Mike Tan, Multimedia Exponents, DS Spheroids Corporation, Sherwin Ordonez, Sulo Hotel, 3J8 Car Accessories, and Ana Marie Gonzales were already subjected to EWT under the classification of "One Time Vendor". 88 To support its assertion, petitioner submitted the "Breakdown of Payees under One Time Vendor per Alpha list" 89 which showed income payments totalling P10,677,539.01, with the related EWT payment of P393,773.32. An examination of the said schedule reveals that the following income payments indeed formed part of the P10,677,539.01 income payments, which were subjected to EWT under "One Time Vendor": aDSIHc Supplier/Payee ATC Income Payment EWT EWT Paid Rate CHYNNA ORTALEZA WC011 P233,333.33 15% P35,000.00 DG SPHEROIDS CORPORATION WC158 1,301,548.76 1% 13,015.49 JENNYLYN MERCADO WC011 133,333.33 15% 20,000.00 JONATHAN ROXAS WI010 22,000.00 10% 2,200.00 SHERWIN ORDONEZ WC011 194,444.44 15% 29,166.67 TOPNOTCH AWARDS AND NOVELTIES WC120 90,650.00 2% 1,813.00 ALFAJAR HATS CAPS EMBROIDERY WC158 75,000.00 1% 750.00 GONZALES, ANA MARIE WI010 30,000.00 10% 3,000.00 THE RED GINGER FARM AND GARDEN WC120 24,050.00 2% 481.00 Total P2,104,359.86 P105,426.16 =========== ========== Considering that the above income payments were doubly subjected to EWT by respondent, the same shall be stricken down in the computation of the assessment. Nevertheless, since petitioner applied a lower EWT rate of 10% instead of the 15% imposed by respondent on the income payment to Ana Marie Gonzales and failed to justify the same, petitioner is still liable for the 5% EWT difference of P1,500.00. 90 On the other hand, while the following payees were included under "One Time Vendor",the related income payments do not match with those shown under "One Time Vendor".Without supporting documents such as invoices, receipts, and reconciliation schedule, the Court cannot ascertain whether these income payments pertain to the same transactions under "One Time Vendor".Thus, the deficiency EWT assessment on these income payments shall stand. Income Payment Per Summary List of Monthly Alpha EWT Supplier/Payee Purchases List of Payees No EWT Rate EWT Due MANSMITH AND FIELDERS P108,324.00 P53,310.50 P55,013.50 2% P1,100.27 MIKE TAN 234,672.33 120,561.33 114,111.00 15% 17,116.65 MULTIMEDIA EXPONENTS 5,592,783.83 2,809,147.53 2,783,636.30 2% 55,672.73 SULO HOTEL 111,489.79 69,371.00 42,118.79 2% 842.38 3J8 CAR ACCESSORIES SHOP 94,218.78 94,218.78 2% 1,884.38 Petitioner further claims that the BIR deficiency EWT schedule included the following payments to employees, representing reimbursement of expenses, which are not subject to withholding tax: 91 Amount Abenojar, Noli Edgar P26,000.00 Ang, Esther Cathy 1,127,004.34 Bilo, Princess Manansala 22,926.72 De Clarin, Kristina 12,240.00 Galindez, Laurence 6,893.00 Mulimbayan, Angelita 10,043.60 Orobia, Ma. Angelina 14,705.88 Trinidad, Josephine M. 20,000.00 To support its stand, petitioner presented copies of actual reimbursements of its employees with other documents. 92 The Court finds petitioner's contention unmeritorious. Of the above alleged reimbursements, those pertaining to Noli Edgar Abenojar, Angelita Mulimbayan, and Josephine M. Trinidad in the respective amounts of P26,000.00, P10,043.60, and P20,000.00 were not included in the BIR's deficiency EWT schedule. As to the remaining purported reimbursements, only the reimbursement to Cathy Ang in the amount of P125.00 was supported, which does not even tie-up with the assessed amount of P1,127,004.34. Thus, the assessment on the alleged employee reimbursements shall not be disturbed. Petitioner also points out that respondent erred in using EWT rate of 2% instead of 1% on its income payments to Pilipinas Shell Petroleum Corporation since the transaction entered into by petitioner with the former involved purchase of goods, specifically, various petroleum products. 93 The Court does not agree. Contrary to its assertion, petitioner used the EWT rates of 2% and 10% and the Alphanumeric Tax Codes (ATC) of WC120 94 and WC140, 95 respectively, for some of its income payments to Pilipinas Shell Petroleum Corporation; which it subjected to withholding taxes as can be gleaned on its Monthly Alphalist of Payees. 96 Therefore and in the absence of contrary evidence, petitioner's income payments to Pilipinas Shell Petroleum Corporation in the total amount of P1,196,824.67 shall be subjected to the same 2% EWT rate as assessed by respondent. Considering that petitioner failed to account, support or give justification to the remaining discrepancies, respondent's assessment on the same shall be sustained. It is well-settled that tax assessments by tax examiners are presumed correct and made in good faith, with the taxpayer having the burden of proving otherwise. Failure to present proof of error in the assessment will justify the judicial affirmance of said assessment. 97 In fine, petitioner is still liable to pay basic deficiency EWT for CY 2007 in the total amount of P742,048.43 on income payments of P32,714,648.04, computed as follows: Income Payment Per Summary List of Monthly Alpha EWT Supplier Purchases List of Payees Without EWT Rate Tax Due A2F CARGO SERVICES, INC. P1,768,176.72 P1,260,608.23 P507,568.49 10% P50,756.85 AB COMMUNICATION 12,934,619.26 11,869,177.70 1,065,441.56 2% 21,308.83 ABS PROMOTION CORPORATION 51,757,161.71 51,427,836.32 329,325.39 2% 6,586.51 ACNIELSEN (PHILIPPINES), INC. 5,650,864.12 5,176,822.35 474,041.77 2% 9,480.84 BENJAMIN TANG 194,227.05 174,226.83 20,000.22 15% 3,000.03 DILIMAN SCIENCE RESEARCH INSTITUTE 81,200.00 8,800.00 72,400.00 1% 724.00 DIRECT LINK WORLDWIDE 42,106.29 15,001.50 27,104.79 2% 542.10 DM9 4,863,891.83 4,858,892.00 4,999.83 2% 100.00 EVERGREEN CUISINE MGT. CORP. 112,865.33 102,613.50 10,251.83 2% 205.04 GREAT EASTERN HOTEL 164,299.44 1,427.68 162,871.76 2% 3,257.44 HENGSTLER INTERNATIONAL 1,780,372.77 1,778,140.86 2,231.91 1% 22.32 INTERNATIONAL PHARMACEUTICALS 20,027,250.00 17,388,000.00 2,639,250.00 1% 26,392.50 JONATHAN BORJA 42,888.89 37,888.90 4,999.99 10% 500.00 LEONCIO T. DURAN III 209,250.00 139,500.00 69,750.00 2% 1,395.00 MANSMITH AND FIELDERS 108,324.00 53,310.50 55,013.50 2% 1,100.27 MEDIAFORCE INTEGRATION 23,816,349.69 23,798,353.32 17,996.37 2% 359.93 MIKE TAN 234,672.33 120,561.33 114,111.00 15% 17,116.65 MULTIMEDIA EXPONENTS 5,592,783.83 2,809,147.53 2,783,636.30 2% 55,672.73 ONE TIME VENDOR 11,587,609.08 10,677,539.10 910,069.98 10% 91,007.00 OUTSOURCE PR, INC. 934,272.16 880,672.33 53,599.83 15% 8,039.97 PARADIGM ENTERTAINMENT PRODUCTION 11,867,263.63 11,842,264.06 24,999.57 2% 499.99 PHIL AMERICAN INSURANCE 5,691,121.41 5,619,175.75 71,945.66 2% 1,438.91 PHIL-ASIA NUTRACEUTICAL CORPORATION 102,598.74 51,098.74 51,500.00 2% 1,030.00 PHILTOWN HOTEL 35,420.13 8,634.50 26,785.63 2% 535.71 PILIPINAS SHELL PETROLEUM CORPORATION 3,904,118.94 2,707,294.27 1,196,824.67 2% 23,936.49 PRUDENTIAL GUARANTEE AND INSURANCE 3,480,973.23 3,269,145.94 211,827.29 2% 4,236.55 RIZAL COMMERCIAL BANKING CORPORATION 4,080,781.33 3,886,458.50 194,322.83 2% 3,886.46 ROBINSONS SAVINGS BANK CORP. 2,690,404.48 2,573,810.50 116,593.98 2% 2,331.88 SAFETY ORGANIZATION 22,000.00 12,500.00 9,500.00 2% 190.00 SGV DEVT. DIMENSION INTL. 363,346.39 345,446.78 17,899.61 2% 357.99 STRESADING WATER SUPPLY TRADING 213,270.00 53,370.00 159,900.00 1% 1,599.00 SULO HOTEL 111,489.79 69,371.00 42,118.79 2% 842.38 TBWA/SANTIAGO MANGADA 23,169,637.95 23,110,455.18 59,182.77 2% 1,183.66 TNT EXPRESS WORLDWIDE 429,527.89 428,478.39 1,049.50 2% 20.99 TOYOTA BALINTAWAK NORTH 402,866.76 317,720.31 85,146.45 2% 1,702.93 TOYOTA PASONG TAMO, INC. 1,944,515.19 1,929,515.71 14,999.48 2% 299.99 VISIVO PRODUCTION, INC. 349,999.92 215,384.50 134,615.42 2% 2,692.31 3J8 CAR ACCESSORIES SHOP 94,218.78 94,218.78 2% 1,884.38 ABERDEEN COURT 40,223.21 40,223.21 2% 804.46 ADBOARD 136,840.00 136,840.00 1% 1,368.40 ADHESIVE AND PAINTS APPLICATION SYSTEM 104,575.84 104,575.84 2% 2,091.52 ANG, ESTHER CATHY 1,127,004.34 1,127,004.34 15% 169,050.65 BANAHAW LUXURY TRANSPORT 22,400.00 22,400.00 2% 448.00 BILO, PRINCESS MANANSALA 22,926.72 22,926.72 15% 3,439.01 BRIOSO, EDNA 10,000.00 10,000.00 15% 1,500.00 BSET OPTION CONSULTANT 102,500.00 54,000.00 48,500.00 2% 970.00 CARANDANG, EMILIANO 5,000.00 5,000.00 15% 750.00 CENTER FOR GLOBAL BEST PRACTICES 14,400.00 14,400.00 2% 288.00 CHINESE GENERAL HOSPITAL 50,000.00 50,000.00 2% 1,000.00 CORPORATE ACHIEVERS INSTITUTE 13,314.56 13,314.56 2% 266.29 DE CLARIN, KRISTINA 12,240.00 12,240.00 15% 1,836.00 ECOP 57,000.00 57,000.00 2% 1,140.00 GALINDEZ, LAURENCE 6,893.00 6,893.00 15% 1,033.95 GONZALES, ANA MARIE 30,000.00 30,000.00 15% 4,500.00 Less: Amt Remitted under One Time Vendor (20,000.00) (20,000.00) 15% (3,000.00) GSI PHILIPPINES, INC. 11,000.00 11,000.00 2% 220.00 LA COMIDA 13,000.00 13,000.00 2% 260.00 LUMO, RYAN 28,925.00 28,925.00 15% 4,338.75 MANILA GALLERIA SUITES 1,078,554.46 972,439.29 106,115.17 2% 2,122.30 MDC ELECTRICAL CONTRACTOR 442,714.20 442,714.20 2% 8,854.28 NUTRACEUTICAL SYSTEMS, INC. 40,000.00 40,000.00 2% 800.00 OROBIA, MA. ANGELINA 14,705.88 14,705.88 15% 2,205.88 PADERNAL, ANDRES 20,000.00 20,000.00 15% 3,000.00 PANDAN SEAFOOD AND GRILL 43,837.50 43,837.50 1% 438.38 SPLASH PHARMACEUTICALS, INC. 18,317,681.17 18,317,681.17 1% 183,176.81 ZOOM IN PACKAGE INS 23,698.08 23,698.08 1% 236.98 TAGAYTAY HIGHLANDS INTERNATIONAL 23,658.42 23,658.42 2% 473.17 TOPNOTCH AWARDS AND NOVELTIES 123,500.00 32,850.00 90,650.00 2% 1,813.00 TOWER CLUB, INC. 19,250.00 19,250.00 2% 385.00 Deficiency EWT P222,792,581.44 P190,077,933.40 P32,714,648.04 P742,048.43 ============== ============== ============= =========== It must be noted that while respondent's right to assess petitioner of deficiency EWT for the months of January to April 2007 had already prescribed, petitioner was unable to establish that the above income payments pertained to the months of January to April 2007. Thus, the total income payments of P32,714,648.04 shall be considered as pertaining to the months of May to December 2007. II. DEFICIENCY INCOME TAX P150,426,196.10 Respondent computed the deficiency income tax assessment for CY 2007 in the amount of P150,426,196.10, inclusive of interest, as follows: 98 ETHIDa Taxable Income/(loss) per returns P134,592,153.00 Add (less) adjustment Net Taxable Income Claimed as Tax Exempt under Republic Act No. 7459 P175,486,383.00 Discrepancy on Net Taxable Income per ITR and Audit 3,940,913.00 Disallowed Cost of Sales from Crown Asia Properties, Inc. 33,335,564.00 Various income payments not subjected to EWT 34,800,115.79 247,562,975.79 Taxable Income/(loss) per investigation P382,155,128.79 Income Tax Due P133,754,295.08 Less: Tax credit/payments Prior Year's Excess Tax Credits P44,140,667.00 Payments for the First Three Quarters - Creditable Tax Withheld 13,918,677.86 Tax Paid in Return Previously Filed - Payment per returns - Total Tax Credits/Payments 58,059,344.86 Less: Unsupported tax credit - Tax Credits/Payments carried over as tax credit next year 10,952,091.45 47,107,253.41 Deficiency Income Tax P86,647,041.67 Add: 20% interest p.a. 04.16.08 to 12.20.11 63,779,154.43 Total Amount Payable P150,426,196.10 ============= As can be seen from the foregoing computation, the assessment arose from the following items: A. Net Taxable Income Claimed as Tax Exempt under RA No. 7459 P175,486,383.00 B. Discrepancy on Net Taxable Income per ITR and Audit 3,940,913.00 C. Disallowed Cost of Sales from Crown Asia Properties, Inc. 33,335,564.00 D. Various income payments not subjected to EWT 34,800,115.79 E. Disallowed Tax Credits/Payments carried over as tax credit next year 10,952,091.45 The above-enumerated items will be discussed in seriatim . A. Net Taxable Income Claimed as Tax Exempt under RA No. 7459 P175,486,383.00 Respondent's verification disclosed that petitioner declared the amount of P175,486,383.00 as exempt from income tax under RA No. 7459 otherwise known as the Inventors and Inventions Incentives Act of the Philippines. However, respondent alleges that the person entitled to the tax exemption is Dr. Rolando B. Hortaleza, being the registered inventor and under whose name the patent was registered and not Splash Corporation. Hence, the amount claimed as exempt from income tax was assessed pursuant to Sections 31 and 32 of the NIRC of 1997, as amended, and RA No. 7459. The assessed amount was arrived at by respondent as follows: 99 Sales/Revenue/Receipts/Fees P809,454,688.00 Cost of sales 388,436,784.00 Gross income P421,017,904.00 Deductions 259,401,271.00 Taxable income per income tax returns P161,616,633.00 Add: Adjustment to taxable income 13,869,750.00 Net taxable income on claimed exempt transaction P175,486,383.00 Net income per books P166,777,403.00 Add: Non-deductible expenses/other taxable income Provision for doubtful accounts net of write off P4,700,286.00 Provision for retirement expense 4,680,721.00 Provision for inventory obsolescence 268,847.00 Unrealized foreign exchange loss in 2007 3,404,174.00 Non-deductible portion of interest expense 1,478,767.00 Non-deductible portion of obsolete stock charges to cost of sales 482,896.00 Interest expense 90,632.00 Total P15,106,323.00 Less: Non-taxable income and income subjected to final tax Interest income subjected to final tax P2,819,822.00 Pension expense paid related to current service cost 1,818,100.00 Amortization of past service cost 777,034.00 MTM Gain on derivative asset 692,634.00 Unrealized foreign exchange loss in 2006 realized in 2007 289,753.00 Total P6,397,343.00 Net taxable income per investigation P175,486,383.00 Net taxable income per income tax return 161,616,633.00 Difference adjustment to taxable income P13,869,750.00 ============= Section 6 of RA No. 7459 provides: "SECTION 6. Tax Exemption . To promote, encourage, develop and accelerate commercialization of technologies developed by local researchers or adapted locally from foreign sources including inventions, any income derived from these technologies shall be exempted from all kinds of taxes during the first ten (10) years from the date of the first sale ,subject to the rules and regulations of the Department of Finance: Provided, that this tax exemption privilege pertaining to invention shall be extended to the legal heir or assignee upon the death of the inventor. The technologies, their manufacture or sale, shall also be exempt from payment of license, permit fees, customs duties and charges on imports." (Emphasis supplied) Records show that patented inventions of Dr. Hortaleza, which are being manufactured and sold by petitioner, are covered by Utility Model (UM) Registration Certificate No. 2-1997-15095, 100 UM Registration Certificate No. 2-2001000110, 101 UM Registration Certificate No. 2-2001-000291, 102 UM Registration Certificate No. 2-2004-000075, 103 UM Registration Certificate No. 2-2003-000284, 104 UM Registration Certificate No. 1-2005-000239, 105 and UM Registration Certificate No. 2-2007-000428. 106 Moreover, respondent in BIR Ruling Nos. 506-4004, n 717-2006, 391-2007, 557-2007, 680-2007, 141-2008, 317-2008, 318-2008, 286-2008, and 430-2009 confirmed that pursuant to RA No. 7459, sales of the patented inventions of Dr. Hortaleza, which are being manufactured and sold by petitioner, are exempt from income tax for a period of ten (10) years from the date of its first sale on a commercial scale, to wit: "In reply, please be informed that Section 6 of RA No. 7459 provides: 'Sec. 6. Tax Exemption . To promote, encourage, develop and accelerate commercialization of technologies developed by local researchers or adapted locally from foreign sources including inventions, any income derived from these technologies shall be exempted from all kinds of taxes during the first ten (10) years from the date of the first sale ,subject to the rules and regulations of the Department of Finance: Provided, that this tax exemption privilege pertaining to invention shall be extended to the legal heir or assignee upon the death of the inventor. The technologies, their manufacture or sale, shall also be exempt from payment of license, permit fees, customs duties and charges on imports.' xxx xxx xxx The said exemption can be availed of during the first ten (10) years from the date of the first sale on a commercial scale, provided that said exemption privileges pertaining to the invention shall be extended to the legal heir or assignee upon the death of the inventor. It is important to note that the Final Resolution of the Office of the President (OP) in OP Case No. 03-G-422 dated February 2, 2004, affirming the finding of the Department of Finance denying the appeal of an inventor relative to his tax exemption privileges granted by this Office, clarifies that the only tax exemption granted by the first paragraph of Section 6 of RA 7459 merely refers to income tax." Furthermore, in Commissioner of Internal Revenue vs. Splash Corporation , 107 which involved the same parties in the present case, this Court held that petitioner, who is the manufacturer and seller of the inventions made by Dr. Hortaleza, is entitled to tax incentives under RA No. 7459 for the first 10 years from the date of first sale of the inventions involved. Since the income of petitioner for CY 2007, in the total amount of P175,486,383.00, should have been exempt pursuant to RA No. 7459, the same must be cancelled in the assessment. B. Discrepancy on Net Taxable Income per ITR and Audit P3,940,913.00 Respondent's verification disclosed that petitioner's Taxable Income of P134,592,153.00 declared under Regular Rate in Part II of its Annual Income Tax Return 108 (AITR) for CY 2007 was understated by P3,940,913.00 when compared with Net Taxable Income of P138,533,066.00 reflected in Section E [Reconciliation of Net Income Per Books Against Taxable Income] of the same AITR. Thus, pursuant to Sections 31 and 32 of the NIRC of 1997, as amended, respondent assessed petitioner for the corresponding deficiency income tax. 109 Petitioner counter-argues that its net taxable income declared per AITR amounting to P134,592,153.00 is in order. To support its claim, petitioner presented a new schedule of Reconciliation of Net Income Per Books Against Taxable Income, 110 which showed the following details: TOTAL EXEMPT REGULAR Income before Income tax P272,047,715.01 P168,143,317.42 P103,904,458.59 Non-Deductible Expenses/Other Add: Taxable Income Provision for doubtful accounts 4,700,285.64 12,782,806.07 Provision for retirement expense 4,517,485.27 12,285,665.71 Provision for inventory obsolescence 268,831.01 731,107.62 Unrealized foreign exchange loss in 2007 3,285,456.21 8,935,063.29 Deficiency tax 2,705,440.96 7,357,665.00 Non-deductible interest expense 1,427,195.92 3,881,374.46 Interest expense from PAS 39 87,471.72 237,886.39 Non-deductible obsolete stock 466,055.20 1,267,474.73 17,458,221.92 47,479,043.27 Non-taxable income and income Less: subjected to final tax Interest income subject to FT 2,721,82.91 n 7,401,292.38 MTM gain on derivative asset 668,478.99 Unrealized foreign exchange loss in 2006 recognized in 2007 279,648.84 760,527.57 Pension expense paid related to current service cost 1,754,695.90 4,772,037.10 Amortization of past service cost 749,935.23 2,039,509.38 6,174,241.87 16,791,348.98 Taxable income (loss) 179,427,297.47 134,592,152.88 Net taxable income per ITR 134,592,153.00 Difference (0) The Court agrees with petitioner. The Court notes that the net income per books of P272,047,715.00 reflected in the new reconciliation schedule tallies with the net income before income tax per petitioner's 2007 Audited Financial Statements (AFS),specifically, the Statement of Income. 111 Likewise, the reconciling items shown in the schedule represent valid non-taxable income or non-deductible expense items which can be traced to petitioner's 2007 AFS and AITR. 112 In other words, the discrepancy of P3,940,913.00 found by respondent was a mere result of the error made by petitioner under Section E [Reconciliation of Net Income Per Books Against Taxable Income] portion of its 2007 AITR. Thus, the deficiency income tax assessment on this item should be cancelled. cSEDTC C. Disallowed Cost of Sales from Crown Asia Properties, Inc. P33,335,564.00 On November 28, 2007, a Memorandum of Agreement on Joint Venture (MOA-JV) 113 was executed by and between petitioner and Crown Asia Properties, Inc. (Developer),wherein the Developer undertook to develop a parcel of land [with an aggregate area of two thousand fifteen (2,015) square meters] owned by petitioner into a mixed-use residential and commercial condominium project. Under the MOA-JV, petitioner receives consideration (1) payable in cash amounting to P105,000,000.00 and (2) a minimum of 3,383.4 square meters of gross office/condotel areas and 26 parking slots or 7.5% of the condominium building, whichever is greater. The cash consideration is collectible as follows: November 30, 2007 P30 million and P18.75 million in each of the quarters ending March 31, 2007, June 30, 2008, September 30, 2008 and December 31, 2008. 114 In 2007, petitioner accounted for the cash component of the payment by the Developer as sale of land using the "cost recovery method".Accordingly, sales and cost of sales both amounting to P105 million has been recognized in the 2007 statement of income. 115 Likewise, in its 2007 AITR, petitioner recognized the amount of P105 million both as part of its Sales Revenues of P2,201,377,342.00 116 and Cost of Sales of P1,081,726,765.00. 117 Respondent opined that since petitioner will receive two separate and distinct considerations for its land, the acquisition cost of the land should be allocated to the two transactions in accordance with RR No. 02-40. Thus, respondent computed the allocation and the resulting disallowable cost of sales in the amount of P33,335,564.00 in the following manner: 118 Total Cost of Land to be allocated: Acquisition Cost per Books P241,800,000.00 Less: Overstatement of Acquisition Cost 10,075,000.00 Acquisition Cost per Deed of Sale 231,725,000.00 Add: Capitalized Incidental Charges 7,156,454.00 Cost of Parcel of Land to be Allocated P238,881,454.00 ============= Assigned Value to the Condominium Units to be received: Per agreement, Splash Corporation shall receive 3,383.4 sq.m. of the office/condotel areas and 26 parking slots or 7.5% of the condominium building, whichever is greater. No. of sq.m. of office/condotel areas 3,383.40 Add: No. of sq.m. of 12 parking lots at 12 sq.m. each 312.00 Total no. of sq.m. of office/condotel/parking slots 3,695.40 Multiply by zonal value per sq.m. P65,000.00 Assigned value to the condominium units to be received P240,201,000.00 ============= Attribution of the Cost of Land: Values Percentage Assigned value of the condominium units to be received P240,201,000.00 70% Cash consideration of intangible property 105,000,000.00 30% Total consideration in exchange of land P345,201,000.00 100% ============= ====== Cost of Parcel of Land to be allocated as follows: Values Percentage Cost of condominium units P167,217,018.00 70% Cost of intangible property 71,664,436.00 30% Cost of parcel of land P238,881,454.00 100% ============= ====== Disallowed Cost of Sales: Cash consideration of intangible property P105,000,000.00 Allocated cost of sales of the intangible property 71,664,436.00 Disallowed cost of sales P33,335,564.00 ============= Petitioner contends that its contribution of parcel of land to the joint venture project with Crown Asia does not constitute a sale of property in the course of trade or business, but a capital contribution to the project. Moreover, it cited a portion of BIR Ruling (DA-221-08) sought by Crown Asia, 119 wherein the BIR ruled that: "The MOA-JV executed between the LANDOWNER and DEVELOPER described above is an agreement between the parties for the construction and development of the aforementioned parcel of land into a mixed-use residential and commercial condominium project which is neither a contract of sale over real property nor an instrument which conveys title to real property ...." (Emphasis supplied) The Court is not persuaded. Based on "Note 11 Land for Development" of the 2007 Audited Financial Statements, 120 petitioner has expressly stated that the said land is currently held for sale to Crown Asia Properties, Inc. under a Memorandum of Agreement (MOA) dated November 28, 2007. It was also stated in Note 11 that the Company accounted for the cash component of the payment by the developer, which was discussed earlier, as a sale of land ,using the "cost recovery method". With regard to BIR Ruling (DA-221-08), the opinion of the Commissioner reads as follows: "2. The allocation and distribution of the resulting net saleable floor area to the LANDOWNER and DEVELOPER in accordance with their respective equity contributions as stipulated in the Deed of Partition is not subject to income tax, withholding tax or capital gains tax, since the allocation/distribution is without consideration ,not in connection with a sale and constitutes mere return of capital. Likewise, the said allocation and distribution is not subject to DST for want of consideration. xxx xxx xxx This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void." (Emphasis supplied) From the foregoing ruling, it can be seen that respondent based her opinion on the presumption that the MOA-JV executed by the parties does not involve any consideration, which is not actually the case, because aside from the office/condotel units and parking slots, the amount of P105,000,000.00 was a consideration paid by Crown Asia to petitioner in exchange for the land. Therefore, in the absence of evidence to the contrary, the Court finds that the subject transaction involves a sale of land and not a mere capital contribution to the joint venture. In fact, petitioner treated the entire cash consideration of P105,000,000.00 as part of it Sales Revenues for taxable year 2007, and reported the corresponding Cost of Sales for the same amount. However, as correctly pointed out by respondent, the cost of the land is attributable not only to the cash consideration of P105,000,000.00 but also to the 7.5% share in office/condotel units and parking slots that petitioner will receive from said Developer upon completion of the Project. Consequently, the said cost must be allocated between the cash consideration of P105,000,000.00 and the 7.5% share in office/condotel units and parking slots. This is in accordance with the "Matching Principle" under the Generally Accepted Accounting Principles (GAAP) which dictates that for every revenue, there should be a matching cost/expense to be recognized. Costs directly associated with the revenue of a particular taxable period are properly allocable to that period. 121 As a result, the Court holds that respondent's finding with respect to disallowed Cost of Sales in the amount of P33,335,564.00 should be upheld. D. Various income payments not subjected to EWT P34,800,115.79 Based on the finding that petitioner failed to withhold and remit the EWT on certain income payments in the amount of P34,800,115.79 as required under RR No. 02-98, respondent disallowed the said amount as deduction from petitioner's taxable gross income pursuant to Section 34 (K) of the NIRC of 1997, as amended. As earlier discussed under the deficiency EWT assessment, petitioner failed to prove that it properly withheld and remitted the EWT due on its income payments of P32,714,648.04 as required under RR No. 02-98, as amended. Consequently, the said amount shall be disallowed from petitioner's claimed deductible expenses pursuant to Section 34 (K) of the NIRC of 1997, as amended, which states that: "(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." E. Disallowed Tax Credits/Payments carried over as tax credit the next year P10,952,091.45 Respondent disallowed the amount of P10,952,091.45 representing the excess income tax credits carried over to the succeeding year 2008. However, no legal and factual bases were provided in the Details of Discrepancies 122 to justify the disallowance of such amount. Despite petitioner's failure to refute the same, the Court finds it improper to uphold an assessment which is already void on its face. Section 228 of the NIRC of 1997, as amended, provides that 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. Further, it was improper for respondent to disallow the said excess tax credits because any tax benefit derived by petitioner from the carry-over of the said amount redounds to the succeeding year 2008. Since the tax benefit will be in the succeeding year, at most, petitioner may only be assessed in the said succeeding year. In sum, petitioner is liable for basic deficiency income tax for CY 2007 in the amount of P12,165,482.90, computed as follows: Taxable Income Per Return P134,592,153.00 Add (less) adjustments: Disallowed Cost of Sales from Crown Asia Properties, Inc. P33,335,564.00 Various income payments not subjected to EWT 32,714,648.04 66,050,212.04 Taxable Income/(loss) per investigation P200,642,365.04 Income Tax Due P70,224,827.76 Less: Tax credits Prior Year's Excess Tax Credits P44,140,667.00 Creditable Tax Withheld 13,918,677.86 Total Tax Credits 58,059,344.86 Basic Deficiency Income Tax P12,165,482.90 ============= III. DEFICIENCY VALUE-ADDED TAX P40,924,784.91 Respondent computed the deficiency VAT assessment in the amount of P40,924,784.91 by adding adjustments to petitioner's taxable sales/receipts/revenues per VAT returns for the year 2007, consisting of (A) undeclared sales to HBC in the amount of P77,867,333.19, and (B) cash sale from Crown Asia Properties, Inc. in the amount of P105,000,000.00; and by disallowing petitioner's unsupported input tax in the amount of P1,487,742.89, as shown below: 123 Taxable Sales/Receipts/Revenues per return P2,654,619,537.49 Add (Less) Adjustments: Undeclared Sales to HBC P77,867,333.19 Cash sale from Crown Asia Properties, Inc. 105,000,000.00 182,867,333.19 Taxable Sales/Receipts/Revenues per investigation P2,837,486,870.68 Output Tax 340,498,424.48 Add: Output tax for the 4th Quarter 2,906,093.75 Total 343,404,518.23 Less: Input tax P257,996,086.81 Creditable VAT - Carry over from previous period - Less: Deferred VAT carried over to 2007 - - Total 257,996,086.81 Less: Carry forward to next quarter - Unsupported input tax P1,487,742.89 1,487,742.89 256,508,343.92 VAT Payable 86,896,174.31 Less: Payments 63,910,016.68 Deficiency VAT due 22,986,157.63 Add: 20% interest p.a. 01.26.08 to 12.20.11 17,938,627.28 Total Amount Payable P40,924,784.91 ================ A. Undeclared sales to HBC P77,867,333.19 Respondent's verification disclosed that there is a discrepancy between petitioner's sales to HBC declared under Note 17 Related Party Transactions of the AFS for taxable year 2007, 124 and the reported sales to HBC per Summary List of Sales (SLS). 125 Hence, the reported revenue for VAT purposes was allegedly understated by P77,867,333.19 and thereby assessed pursuant to Sections 106 and 108 of the NIRC of 1997, as amended. The same was computed as follows: 126 Sales to HBC per Note 17 of 2007 AFS P148,071,540.00 Sales to HBC per SLS 70,204,206.81 Difference P77,867,333.19 ============= Since prescription had set in, respondent's right to assess petitioner of deficiency VAT would only be limited to the 2nd, 3rd, and 4th quarters of 2007. Thus, from the sales discrepancy of P77,867,333.19 found by respondent, the amount of P10,634,706.68, broken down below, pertaining to the 1st quarter of 2007 shall be taken out: Prescribed Sales to HBC per Note 17 of 2007 AFS Invoice Exhibit Date Gross Sales Sales Discounts Net Sales No. 3/15/2007 P27,975.01 P1,107.82 P26,867.19 HHH-1 3/15/2007 54,234.64 2,147.70 52,086.94 HHH-2 3/15/2007 509,456.26 77,055.27 432,400.99 HHH-3 3/15/2007 45,948.22 6,949.67 38,998.55 HHH-4 3/16/2007 6,621.43 1,001.49 5,619.94 HHH-5 3/16/2007 249,822.33 37,785.64 212,036.69 HHH-6 3/21/2007 2,318,448.20 350,665.38 1,967,782.82 HHH-7 3/23/2007 358,200.00 54,177.76 304,022.24 HHH-8 3/23/2007 20,250.00 3,062.81 17,187.19 HHH-9 3/23/2007 131,400.00 19,874.25 111,525.75 HHH-10 3/28/2007 38,142.86 5,769.11 32,373.75 HHH-11 3/30/2007 162,306.95 6,427.38 155,879.57 HHH-12 3/30/2007 444,948.21 17,619.96 427,328.25 HHH-13 3/30/2007 3,551,145.58 540,150.56 3,010,995.02 HHH-14 3/30/2007 98,228.57 14,857.07 83,371.50 HHH-15 3/30/2007 489,535.74 74,042.29 415,493.45 HHH-16 3/30/2007 215,196.42 32,548.46 182,647.96 HHH-17 3/31/2007 1,022,726.75 154,687.39 868,039.36 HHH-18 3/31/2007 192,540.75 7,624.61 184,916.14 HHH-19 3/31/2007 1,744,963.37 263,925.73 1,481,037.64 HHH-20 3/31/2007 639,160.71 96,673.06 542,487.65 HHH-21 3/31/2007 144,642.86 21,877.23 122,765.63 HHH-22 3/31/2007 73,232.14 2,900.00 70,332.14 HHH-23 3/31/2007 33,637.50 5,087.68 28,549.82 HHH-24 3/31/2007 37,050.00 1,467.18 35,582.82 HHH-25 3/31/2007 22,982.14 3,476.05 19,506.09 HHH-26 3/31/2007 288,335.29 52,297.94 236,037.35 HHH-27 3/31/2007 552,993.76 83,640.30 469,353.46 HHH-28 3/31/2007 132,332.14 20,015.24 112,316.90 HHH-29 3/31/2007 213,557.15 32,300.53 181,256.62 HHH-30 TOTAL P13,820,014.98 P1,991,215.56 P11,828,799.42 Less: Net Returns Credit Memo Returns Exhibit Date Gross Returns Discounts Net Returns No. 2/14/2007 P113,335.71 P14,166.96 P99,168.75 JJJ-1 2/14/2007 4,117.42 514.68 3,602.74 JJJ-2 2/14/2007 1,177.47 147.18 1,030.29 JJJ-3 2/14/2007 3,393.04 424.13 2,968.91 JJJ-4 2/14/2007 2,920.53 365.07 2,555.46 JJJ-5 2/14/2007 491.29 61.41 429.88 JJJ-6 2/14/2007 1,104.42 138.05 966.37 JJJ-7 2/14/2007 3,059.87 382.48 2,677.39 JJJ-8 2/14/2007 1,400.09 175.01 1,225.08 JJJ-9 2/14/2007 4,101.61 512.70 3,588.91 JJJ-10 2/20/2007 4,509.10 563.64 3,945.46 JJJ-11 TOTAL P139,610.55 P17,451.31 P122,159.24 GRAND TOTAL 11,706,640.18 Prescribed Sales to HBC per SLS 2007 (Exhibit "Z") Sales Returns/ 2007 Gross Sales Discounts Net Sales January P12,963,064.18 P1,960,663.45 P11,002,400.73 February 13,937,986.99 2,230,262.83 11,707,724.16 March 14,696,215.25 36,334,406.64 (21,638,191.39) TOTAL P41,597,266.42 P40,525,332.92 P1,071,933.50 Difference P10,634,706.68 ============ Consequently, only the remaining sales discrepancy of P67,232,626.51 pertaining to the last three quarters of 2007 may be the subject of respondent's assessment, computed as follows: AaCTcI Unprescribed Less: Prescribed (2nd, 3rd and 4th Per FAN (1st Qtr 2007) Qtrs. 2007) Sales to HBC per Note 17 of 2007 FS P148,071,540.00 P11,706,640.18 P136,364,899.82 Sales to HBC per SLS 70,204,206.81 1,071,933.50 69,132,273.31 Difference P77,867,333.19 P10,634,706.68 P67,232,626.51 ============= ============ ============= Petitioner claims that the difference does not amount to undeclared sales because sales to HBC as reflected in Note 17 of the 2007 Notes to AFS, represent gross sales; whereas, the sales reported in the SLS represent net sales, i.e. ,gross sales less discounts and returns. 127 In support thereof, petitioner presented the Schedule of Net Sales to HBC 128 for the year 2007 and the related Sales Invoices to HBC, 129 Credit Memos 130 for returns by HBC, and GL/SAP Reference Sales Journal. 131 Upon examination of the Sales Invoices and Credit Memos as recorded in the GL/SAP References, the Court found that net sales (gross sales less sales discounts less net returns) to HBC for the last three quarters of 2007 as reported in Note 17 of the 2007 Notes to AFS amounted to P58,374,410.39 which when compared with that reflected per petitioner's net sales per petitioner's SLS in the amount of P69,132,273.31 would show an unaccounted difference of P10,757,862.92, computed as follows: Gross Sales 132 P149,888,915.25 P13,820,014.98 P136,068,900.27 Less: Sales Discounts 133 (21,863,801.09) (1,991,215.56) (19,872,585.53) Net Returns 134 (57,944,063.59) (122,159.24) (57,821,904.35) Net Sales per Note 17 of the 2007 Notes to AFS P70,081,050.57 P11,706,640.18 P58,374,410.39 Net Sales per SLS 69,132,273.31 Unaccounted Difference P(10,757,862.92) ============== For failure to account for the HBC sales discrepancy of P10,757,862.92, petitioner shall be assessed of the corresponding deficiency VAT. B. Cash Sale from Crown Asia Properties, Inc. P105,000,000.00 This assessment was based on the same finding under the deficiency income tax assessment (item II.C) that the cash consideration received by petitioner under the MOA-JV it entered with Crown Asia Properties, Inc. represents proceeds from petitioner's sale of land to the former. Petitioner claims that this assessment is baseless considering that the sale of properties was not consummated. According to petitioner, the initial payment of Thirty Million Pesos (P30,000,000.00) in 2007 is not tantamount to a consummated sale to warrant the imposition of VAT on the transaction, much less on the P105 Million. Petitioner points out that Section 105, in relation to Sections 106 and 108 of the NIRC of 1997, as amended, provides that VAT is imposed on any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, or engages in similar transactions, and/or any person who imports goods and that the phrase "in the course of trade or business" requires the "regular conduct or pursuit of a commercial or an economic activity". 135 Petitioner further asserts that it is engaged in the manufacture and sale of personal care products. Petitioner explains that VAT becomes due when the following conditions occur: (a) there is a sale, barter, exchange, transfer or similar transaction, either for nominal or valuable consideration, intended to transfer ownership, and; (b) the sale is consummated, not merely perfected. Allegedly, the transaction between petitioner and the Developer does not constitute a sale. Therefore, pursuant to BIR Ruling (DA-221-08), the MOA executed between the Landowner and the Developer is neither a contract of sale over real property nor an instrument which conveys title to real property. Petitioner maintains that the said transaction lacks the elements of a sale as provided for in Article 1458 of the New Civil Code, thus: "ART. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. ..." Petitioner states that, as thus defined, the essential elements of sale are the following: (a) consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; (b) determinate subject matter; and (c) price certain in money or its equivalent. Petitioner argues that not all the essential elements of a contract of sale is present since it has no intention to transfer outright the ownership of the subject property to Crown Asia to warrant the imposition of VAT on the P105,000,000.00 cash consideration received from Crown Asia. The Court finds for respondent. Section 105 of the NIRC of 1997, as amended, provides: "SEC. 105. Persons Liable . Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code. The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act No. 7716. The phrase ' in the course of trade or business ' means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests),or government entity. The rule of regularity, to the contrary, notwithstanding, services as defined in this Code rendered in the Philippines by non-resident foreign persons shall be considered as being rendered in the course of trade or business." (Emphasis supplied) From the foregoing provisions, it is clear that the phrase "regular course of trade or business",for all intents and purposes, is not confined to the primary business that a taxpayer is engaged in in this instant case, manufacturing and sale of personal care products but is an all-encompassing phrase pertaining to the pursuit of business opportunities that produce profits for petitioner (economic activity),including those which are merely incidental to petitioner's trade and industry. In the case of CS Garments, Inc. vs. Commissioner of Internal Revenue , 136 the CTA En Banc defined the phrase "in the course of trade or business",as follows: "...A transaction will be characterized as having been entered into by a person in the course of trade or business if it is: (1) regularly conducted; and (2) undertaken in pursuit of a commercial or economic activity. Likewise, transactions that are made incidental to the pursuit of a commercial or economic activity are considered as entered into in the course of trade or business. 'Incidental' means something else as primary; something necessary, appertaining to, or depending upon another, which is termed the principal. Hence, an isolated transaction is not necessarily disqualified from being made incidentally in the course of trade or business. xxx xxx xxx Once an activity has been identified as a business, any supply [sale] made while carrying it on is likely to be made in the course or furtherance of business. No distinction is made between capital and revenue items. Thus, a supply [sale] in the course or furtherance of business includes: (1) the disposition of the assets and liabilities of a business ;(2) the disposition of a business as going concern; and (3) anything done in connection with the termination or intended termination of a business." Moreover, the Supreme Court, in the case of Mindanao II Geothermal Partnership vs. Commissioner of Internal Revenue , 137 finally settled the issue as to whether an isolated transaction, such as the sale of a motor vehicle by a person not regularly engaged in this business, partakes the nature of an incidental transaction and as such, shall be subject to VAT, to wit: "Mindanao II's sale of the Nissan Patrol is said to be an isolated transaction. However, it does not follow that an isolated transaction cannot be an incidental transaction for purposes of VAT liability. Indeed, a reading of Section 105 of the 1997 Tax Code would show that a transaction 'in the course of trade or business' includes 'transactions incidental thereto.' Mindanao II's business is to convert the steam supplied to it by PNOC-EDC into electricity and to deliver the electricity to NPC. In the course of its business, Mindanao II bought and eventually sold a Nissan Patrol. Prior to the sale, the Nissan Patrol was part of Mindanao II's property, plant, and equipment. Therefore, the sale of the Nissan Patrol is an incidental transaction made in the course of Mindanao II's business which should be liable for VAT." Clearly, from the foregoing, petitioner's sale of land to Crown Asia Properties, Inc. is an incidental transaction which should be subject to 12% VAT. With regard to petitioner's contention that the essential element of a sale which is to transfer the ownership and to deliver a determinate thing is not present in the said transaction, the Court is still not persuaded. We wish to point out that a portion of the said MOA-JV states: "III. CONTRIBUTION OF THE PARTIES 3.1 The LANDOWNER shall contribute all right, title and interest in the Property. It shall transfer to the DEVELOPER the physical possession of the Property upon payment of the total amount of PESOS: THIRTY MILLION (Php30,000,000.00) on November 30, 2007 and provide the DEVELOPER unhampered access thereto for purposes of the development of the Project. 3.2 The DEVELOPER shall be responsible for the planning, conceptualizing, design, construction and financing of the Project in accordance with the terms of this Agreement." (Emphasis Supplied) Even though the stipulation in the MOA did not explicitly state that petitioner will transfer ownership to the Developer, the Court finds that petitioner did not present any other evidence to prove that the transfer was not really a consummation of the sale. In fact, as previously discussed, petitioner itself reported the said transaction in the AFS 138 and AITR 139 for 2007 as a Sale of Land. EcTCAD Hence, the sudden insistence of petitioner that the transfer of land to the Developer does not actually constitute a sale, without corroborating evidence to support the same, is not convincing. As a result, respondent's basic deficiency VAT assessment on the sale or transfer of land by petitioner to Crown Asia Properties, Inc. pursuant to the MOA-JV dated November 28, 2007 should be upheld. C. Output Tax P2,906,093.75 According to respondent, her investigation revealed that per petitioner's books of accounts and financial statements, VAT payable for the fourth quarter is P11,058,901.00 but what was paid in petitioner's 4th Quarter VAT Return was only for P8,152,807.25. 140 Hence, the unpaid VAT of P2,906,093.75, as computed below, was assessed pursuant to Section 110 (B), in relation to Section 106, of the NIRC of 1997, as amended: 141 VAT payable per AFS P11,133,496.00 Less: Input tax balance 74,595.00 VAT payable 4th Quarter return P11,058,901.00 Less: VAT paid per 4th Quarter Return 8,152,807.25 VAT Payable for the 4th Quarter P2,906,093.75 ============ On the other hand, petitioner contends that the alleged output tax deficiency was presumed by the BIR simply by comparing VAT paid versus output tax balance reflected per financial statements. Petitioner claims that said discrepancy is attributable to adjusting or reclassification entries not related to December VAT transaction per books. 142 To support its argument, petitioner presented before the Court its Schedule of Computation of VAT Payable for the 4th Quarter of 2007 as Exhibit "CC". Petitioner also alleges that what respondent failed to take into account is the fact that the balance of VAT payable per petitioner's financial statements for CY 2007 included other items not forming part of output VAT liability for that particular year. 143 Thus, the balance of VAT payable in the FS in the amount of P11,133,496.00 is supposedly overstated. 144 Petitioner notes that the balance of VAT payable reported in its FS for taxable year 2007 was arrived at after considering erroneous adjusting entries made in 2007 affecting the balance of VAT payable account. Petitioner reconciled the discrepancy as follows: 145 VAT Payable per 2007 FS P11,133,496.74 Reconciling items: 1. VAT on subsequent sales return 1,738,618.68 2. VAT on set up charges to supplier (1,496,298.01) 3. Adjusting entries to deduct SNC transactions & balances (10,513,544.68) 4. Reversal of entries previously booked pertaining to SNC balances 7,107,030.35 5. Erroneous entry on bank reconciling item (180,286.90) 6. Erroneous entry on bank reconciling item 360,573.80 7. For reclassification to other account 3,217.27 VAT Payable, as corrected P8,152,807.25 VAT paid in 4th Quarter VAT return 8,152,807.25 Difference P0.00 ============ The Court is not convinced. It is evident from the above reconciliation that the audited and adjusted amount of VAT payable is P11,133,496.74, and therefore, it is the amount that should have been reported for tax purposes after considering all adjustments affecting the year 2007. It should be noted that the audited financial statements were dated May 9, 2008, 146 which is later than the date when petitioner filed its amended 4th Quarterly VAT Return on April 30, 2008. 147 Therefore, it cannot be said that the amount of P8,152,807.25, which was earlier reported, is the adjusted amount. In the absence of documentary proof that the adjustments made by the external auditor are indeed erroneous, the Court finds that respondent's assessment should be upheld. D. Unsupported input tax P1,487,742.89 Invoking Section 113 of the NIRC of 1997, as amended, respondent disallowed petitioner's claimed input taxes in the amount of P1,487,742.89, as computed below, for being unsupported: 148 Input taxes per VAT returns P254,644,327.81 Input taxes per Summary List of Purchases 254,022,908.85 Unsupported input tax credits P621,418.96 Input taxes claimed under One Time Vendor with TIN No. 000-000-000-001 (per Summary List of Purchases) 866,323.93 Total disallowed input taxes P1,487,742.89 ============= Petitioner insists that it did not err in recording its input taxes under One Time Vendor. According to petitioner, it recorded and claimed input taxes with duly supported VAT invoices and receipts. 149 To support its claim, petitioner submitted as evidence a detailed Schedule 150 of Payees under One Time Vendor. However, it must be noted that petitioner only provided the Court with the Company-prepared schedule, and not with the corroborating VAT sales invoices and official receipts representing its purchases for the year 2007. It bears stressing that pursuant to Section 110 (A), in relation to Section 113 (A), of the NIRC of 1997, as amended, the input tax must be supported by VAT sales invoice (in the case of purchase of goods or properties) and VAT official receipt (in the case of purchase of services). Without the invoices or official receipts, petitioner's claimed input taxes in the amount of P1,487,742.89 cannot be credited or applied against its output tax for taxable year 2007. While respondent's right to assess petitioner of deficiency VAT for the 1st quarter of 2007 had already prescribed, petitioner was unable to point out which portion of this assessment pertains to the 1st quarter of 2007. Thus, the entire assessment shall be considered as pertaining to the four quarters of 2007. In sum, petitioner is liable for basic deficiency VAT for CY 2007 in the amount of P14,933,021.20, computed as follows: Taxable Sales/Receipts/Revenues per return P2,654,619,537.49 Add: Adjustments Undeclared sales to HBC P10,757,862.92 Cash sale from Crown Asia Properties, Inc. 105,000,000.00 115,757,862.92 Taxable Sales/Receipts/Revenues per investigation 2,770,377,400.41 Output Tax 332,445,288.05 Add: Output tax for the 4th quarter 2,906,093.75 Total 335,351,381.80 Less: Input tax P257,996,086.81 Less: Unsupported input tax 1,487,742.89 256,508,343.92 VAT Payable 78,843,037.88 Less: Payments 63,910,016.68 Deficiency VAT due 14,933,021.20 ============== IV. DEFICIENCY PERCENTAGE TAX P18,178,585.33 Respondent claims that petitioner filed its Percentage Tax Return and paid the corresponding tax due only on March 26, 2008 relative to its sale of shares of stock through initial public offering on November 15, 2007. According to respondent, the return should have been filed and tax should have been paid on or before December 15, 2007 pursuant to Section 127 of the NIRC of 1997 and RR No. 06-08. Thus, respondent assessed petitioner of 25% surcharge, 20% interest, and compromise penalty totaling P18,178,585.33, computed as follows: 151 Proceeds from Primary Share Offer Net proceeds P1,608,182,348.00 IPO cost 87,673,652.00 Tax Base 1,695,856,000.00 Tax Rate: Over 25% but not over 33 1/3% 2% Tax Due 33,917,120.00 Add: 25% Surcharge P8,479,280.00 20% interest p.a. 12.16.07 to 03.26.08 1,882,400.16 Compromise Penalty 50,000.00 10,411,680.16 Total Tax Payable on March 26, 2008 44,328,800.16 Less: Tax paid 33,917,120.00 Balance as of March 26, 2008 10,411,680.16 Add: Interest from March 27, 2008 to December 20, 2011 7,766,905.17 Total Amount Due and Collectible P18,178,585.33 ============= In its letter-request 152 and attached Application for Abatement or Cancellation of Tax, Penalties and/or Interest (BIR Form No. 2110) filed with respondent on July 5, 2011, petitioner voluntarily offered to pay the amount of P1,895,641.78 representing 20% interest charges from December 14, 2007 to March 26, 2008 but requested the abatement/cancellation of surcharges and penalties incident to the late filing and payment of percentage tax on its sale of shares of stock through IPO on November 15, 2007. However, records show that no evidence was presented to prove that petitioner's application for abatement or cancellation of the surcharge and penalties was approved and granted by respondent. Thus, the Court finds that the assessment should be upheld except for the compromise penalty. Section 127 (C) (2) of the NIRC of 1997, as amended, provides that the Percentage Tax Return must be filed within thirty (30) days from the date of listing of the shares of stock in the local stock exchange. For its IPO of common shares on November 15, 2007, 153 petitioner should have filed the return and paid the corresponding tax on or before December 15, 2007. For its belated filing of the Percentage Tax Return and payment of corresponding tax due on March 26, 2008, 154 petitioner shall be held liable to pay 25% surcharge and 20% interest from December 15, 2007 to March 26, 2008 amounting to P10,374,921.78, as computed below, pursuant to Sections 248 (A) (1) and 249 (B) of the NIRC of 1997, as amended: HSAcaE Basic Tax Due P33,917,120.00 25% Surcharge P8,479,280.00 20% Deficiency Interest (P33,917,120 x 102/365 days x 20%) 1,895,641.78 Total P10,374,921.78 ============ V. COMPROMISE PENALTIES P62,000.00 In addition to the compromise penalty of P50,000.00 included in the deficiency percentage tax assessment, the amount of P12,000.00 155 was imposed by respondent against petitioner for non-filing of Summary List of Importation and Summary Alpha List of Withholding Taxes (SAWT).However, such imposition cannot be sustained. Pursuant to RMO No. 01-90, as amended by RMO No. 19-07, compromise penalties are only suggested in settlement of criminal liability, and may not be imposed or exacted on the taxpayer in the event that a taxpayer refuses to pay the same. It is well-settled that the Court has no jurisdiction to compel a taxpayer to pay the compromise penalty because by its very nature, it implies a mutual agreement between the parties in respect to the thing or subject matter that is so compromised, and the choice of paying or not paying it distinctly belongs to the taxpayer. 156 In the instant case, there was nothing in the records which would show that petitioner consented to the compromise penalties. In fact, compromise penalty for deficiency percentage tax in the amount of P50,000 is being appealed by petitioner for abatement. As a result, the compromise penalties totalling P62,000.00 must be cancelled. In view of the foregoing, the assessments issued by respondent against petitioner for CY 2007 covering deficiency income tax, VAT, EWT and increments on the late filing of return and payment of percentage tax should be upheld in part. WHEREFORE ,premises considered, the instant Petition for Review is PARTIALLY GRANTED .Accordingly, petitioner is ORDERED TO PAY respondent the amount of FORTY-FIVE MILLION ONE HUNDRED SEVENTY-FIVE THOUSAND SIX HUNDRED TWELVE PESOS AND 45/100 (P45,175,612.45) , inclusive of the twenty-five percent (25%) surcharge imposed under Section 248 (A) (1) of the NIRC of 1997, as amended, and the twenty percent (20%) deficiency interest imposed under Section 249 (B) of the same Code, computed as follows: Basic Tax 25% 20% Total Surcharge Interest (In Philippine Pesos) Income Tax 12,165,482.90 3,041,370.73 15,206,853.63 VAT 14,933,021.20 3,733,255.30 18,666,276.50 EWT 742,048.43 185,512.11 927,560.54 Subtotal 27,840,552.53 6,960,138.14 - 34,800,690.67 Increments for late filing of return and payment of Percentage Tax 8,479,280.00 1,895,641.78 10,374,921.78 Subtotal - 8,479,280.00 1,895,641.78 10,374,921.78 Total 27,840,552.53 15,439,418.14 1,895,641.78 45,175,612.45 =========== =========== ========== =========== In addition, petitioner is ORDERED TO PAY : a) Deficiency interest at the rate of 20% per annum on the basic deficiency income tax, VAT ,and EWT computed from the dates indicated below until full payment thereof pursuant to Section 249 (B) of the NIRC of 1997, as amended: Deficiency interest Tax Type Basic Tax computed from Deficiency Income Tax P12,165,482.90 April 15, 2008 Deficiency VAT 14,933,021.20 January 25, 2008 Deficiency EWT 742,048.43 January 15, 2008 b) Delinquency interest at the rate of 20% per annum on the total amount of P34,800,690.68, representing basic deficiency income tax, VAT ,and EWT , plus 25% surcharge, computed from December 22, 2011 until full payment thereof pursuant to Section 249 (C) of the NIRC of 1997, as amended; c) Delinquency interest at the rate of 20% per annum on the increments for late filing of return and payment of percentage tax in the amount of P10,374,921.78, computed from December 22, 2011 until full payment thereof pursuant to Section 249 (C) of the NIRC of 1997, as amended; and d) Delinquency interest at the rate of 20% per annum on the 20% deficiency interest which have accrued as afore-stated in (a), computed from December 22, 2011, until full payment thereof pursuant to Section 249 (C) of the NIRC of 1997, as amended. SO ORDERED. (SGD.) JUANITO C. CASTAEDA, JR. Associate Justice Caesar A. Casanova and Amelia R. Cotangco-Manalastas, JJ., concur. C.T.A. Case No. 8530 (Annex A) C.T.A. Case No. 8530 (Annex B) Footnotes 1. Par. 4, Summary of Admitted Facts, Joint Stipulation of Facts and Issues (JSFI),docket, p. 240. 2. Par. 2, Summary of Admitted Facts, JSFI, docket, pp. 239-240. 3. Exhibit "R". 4. Docket, pp. 6-38. 5. Amended Answer filed on October 16, 2012, docket, pp. 172-191. 6. Amended Answer, docket, p. 174. 7. Amended Answer, docket, p. 175. 8. Amended Answer, docket, p. 176. 9. Amended Answer, docket, p. 178. 10. Amended Answer, docket, p. 179. 11. Amended Answer, docket, p. 179. 12. Amended Answer, docket, p. 180. 13. Amended Answer, docket, pp. 181-182. 14. Amended Answer, docket, p. 182. 15. Amended Answer, docket, p. 183. 16. Amended Answer, docket, p. 183. 17. Amended Answer, docket, p. 184. 18. Notice of Pre-Trial Conference, docket, p. 167. 19. Respondent's Pre-Trial Brief, docket, pp. 198-204. 20. Pre-Trial Brief, docket, pp. 210-221. 21. Minutes of the Hearing, docket, p. 225. 22. Docket, pp. 239-245. 23. Resolution, docket, p. 247. 24. Docket, pp. 248-255. 25. Minutes of the Hearing, docket, pp. 1121, 1130, and 1489. 26. Minutes of the Hearing, docket, pp. 1121, 1130, 1390, and 1489. 27. Minutes of the Hearing, docket, pp. 1130, 1197, and 1213. 28. Minutes of the Hearing, docket, pp. 1278, 1365, and 1370. 29. Formal Offer of Evidence with Motion for Commissioner's Hearing and Leave to File Supplemental Formal Offer of Evidence, docket, pp. 1504-1521; Supplemental Formal Offer of Evidence, docket, pp. 1531-1535. 30. Resolution dated August 12, 2014, docket, pp. 1543-1555; Resolution dated November 26, 2014, pp. 1647-1653. 31. Minutes of the Hearing, docket, p. 1655. 32. Formal Offer of Evidence, docket, pp. 1664-1670. 33. Docket, pp. 1681-1682. 34. Docket, pp. 1690-1740. 35. Docket, pp. 1741-1743. 36. BIR Records, p. 524. 37. Exhibit "X". 38. Exhibit "RRR-1",docket, p. 1152. 39. 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. 40. April 25, 2010 fell on a Sunday. 41. July 25, 2010 fell on a Sunday. 42. April 30, 2011 fell on a Saturday. 43. February 14, 2010 fell on a Sunday. 44. March 14, 2010 fell on a Sunday. 45. April 14, 2007 fell on a Saturday. 46. August 14, 2010 fell on a Saturday. 47. October 16, 2010 fell on a Saturday. 48. November 14, 2010 fell on a Sunday. 49. Exhibit "Y",Petitioner's Notes to Financial Statements, Note 16 (e). 50. March 26, 2011 fell on a Saturday. 51. Exhibit "Q". 52. Amended Answer, docket, p. 184. 53. Exhibit "QQ",Q&A no. 24; Exhibit "MMMM",Q&A no. 7. 54. Exhibit "S". 55. Exhibit "T". 56. Exhibit "U". 57. Commissioner of Internal Revenue vs. Kudos Metal Corporation , G.R. No. 178087, May 5, 2010. 58. G.R. No. 162852, December 16, 2004. 59. G.R. No. 212825, December 7, 2015. 60. May 21, 2011 fell on a Saturday. 61. Exhibit "SS". 62. July 25, 2010 fell on a Sunday. 63. Exhibit "TT". 64. Exhibit "DD". 65. Amended Return. 66. April 30, 2011 fell on a Saturday. 67. Exhibit "UU-4". 68. Exhibit "UU-5". 69. Exhibit "UU-6". 70. August 14, 2010 fell on a Saturday. 71. Exhibit "UU-7". 72. Exhibit "UU-8". 73. October 16, 2010 fell on a Saturday. 74. Exhibit "UU-9". 75. November 14, 2010 fell on a Sunday. 76. Exhibit "UU-10". 77. Exhibit "UU-11". 78. Exhibit "S". 79. Exhibit "RR". 80. April 25, 2010 fell on a Sunday. 81. Exhibit "UU". 82. Exhibit "UU-1". 83. Exhibit "UU-2". 84. Exhibit "UU-3". 85. Exhibit "Q",Annex "A",Details of Discrepancies, items I.d and II and Annex "A-1". 86. Should be P845,679.15. 87. Exhibit "QQ",Q&A no. 57. 88. Exhibit "QQ",Q&A no. 57. 89. Exhibit "EE". 90. P30,000.00 x 15% less P3,000.00. 91. Exhibit "QQ",Q&A no. 57. 92. Exhibit "GG". 93. Exhibit "QQ",Q&A nos. 57 and 60. 94. EWT on income payments to prime contractors/sub-contractors. 95. EWT on gross commission or service fees of customs, insurance, stocks, real estate, immigration and commercial brokers, and fees of agents of professional entertainers. 96. Exhibit "HH". 97. Marcos II vs. Court of Appeals, et al ., G.R. No. 120880, June 5, 1997. 98. Exhibit "Q". 99. Exhibit "Q",Annex "A",Details of Discrepancies, item I.a. 100. Exhibit "FFF-1". 101. Exhibit "FFF-2". 102. Exhibit "FFF-3". 103. Exhibit "FFF-4". 104. Exhibit "FFF-5". 105. Exhibit "FFF-6". 106. Exhibit "FFF-7". 107. CTA EB No. 330, May 5, 2008. 108. Exhibit "RRR-1". 109. Exhibit "Q",Annex "A",Details of Discrepancies, item I.b. 110. Exhibit "V". 111. Exhibit "Y". 112. Exhibit "X". 113. Exhibit "W". 114. Exhibit "Y",Notes to Financial Statements, Note 11. 115. Exhibit "Y",Notes to Financial Statements, Note 11. 116. Exhibit "RRR-1",line 15C. 117. Exhibit "RRR-1",line 16C. 118. Exhibit "Q",Annex "A",Details of Discrepancies, item I.c. 119. Exhibit "OO". 120. Exhibit "Y". 121. Merten's The Law of Federal Income Taxation, Section 12A.101, Volume 2, (1995). 122. Exhibit "Q". 123. Exhibit "Q". 124. Exhibit "Y". 125. Exhibit "BB". 126. Exhibit "Q",Annex "A",Details of Discrepancies, item II.a. 127. Exhibit "QQ",Q&A no. 47. 128. Exhibit "Z". 129. Exhibits "HHH-1" to "HHH-212". 130. Exhibits "JJJ-1" to "JJJ-625". 131. Exhibits "LLLL-1" to "LLL-439" and "MMM-1" to "MMM-661". 132. See Annex A. 133. See Annex A. 134. See Annex B. 135. Commissioner of Internal Revenue vs. Court of Appeals, et al. , G.R. No. 125355, March 30, 2000. 136. CTA EB No. 287, January 14, 2008. 137. G.R. Nos. 193301 and 194637, March 11, 2013. 138. Exhibit "Y",Statement of Income and Notes to Financial Statements, Notes 11 and 23. 139. Exhibit "RRR-1",line 15C. 140. Exhibit "DD",Line 26E. 141. Exhibit "Q",Annex "A",Details of Discrepancies, item II.c. 142. Petition for Review, docket, p. 33. 143. Docket, pp. 1735-1737. 144. Exhibit "U 4 ",Q&A no. 8. 145. Exhibit "U 4 ",Q&A no. 9. 146. Exhibit "Y". 147. Exhibit "DD". 148. Exhibit "Q",Annex "A",Details of Discrepancies, item II.d. 149. Petition for Review, docket, p. 33. 150. Exhibit "EE". 151. Exhibit "Q",Annex "A",Details of Discrepancies, item IV. 152. Exhibit "LL". 153. Exhibit "Y",Petitioner's Notes to Financial Statements, Note 16 (e). 154. Exhibits "JJ" and "KK". 155. Exhibit "Q". 156. The Philippines International Fair, Inc. vs. The Collector of Internal Revenue, et al ., G.R. Nos. L-12928 and L-12932, March 31, 1962. n Note from the Publisher: Copied verbatim from the official copy.