Ritegroup, Inc. v. Commissioner of Internal Revenue

THIRD DIVISION [C.T.A. CASE NO. 8651. January 25, 2017.] RITEGROUP INCORPORATED , petitioner , vs. COMMISSIONER OF INTERNAL REVENUE , respondent . DECISION RINGPIS-LIBAN , J p : THE CASE This Petition for Review filed by Ritegroup Incorporated seeks the invalidation and cancellation of the Final Assessment Notice and the Formal Letter of Demand No. 043A-B0282-08 dated January 13, 2012 issued by the Commissioner of Internal Revenue for taxable year (TY) 2008, assessing it for alleged deficiency income tax P7,770,554.22, deficiency value-added tax (VAT) P3,005,918.88, deficiency expanded withholding tax (EWT) P44,763.11, deficiency fringe benefit tax (FBT) P108,087.37, and compromise penalty P12,000.00; or in the aggregate amount of Ten Million Nine Hundred Forty-One Thousand Three Hundred Twenty-Three Pesos and Fifty-Eight Centavos (P10,941,323.58). THE FACTS Petitioner Ritegroup Incorporated is a domestic corporation duly organized under Philippine laws, engaged in the business of supplying medical and laboratory products. Its principal office is located at Unit 2202 Prestige Tower, Ortigas Jr. Road, Ortigas Center, San Antonio, Pasig City. 1 On the other hand, respondent is the Commissioner of the Bureau of Internal Revenue (BIR), vested by law with authority to perform the duties of said office, including, among others, the power to assess and collect all national internal revenue taxes, fees and charges, and to enforce all forfeitures, penalties, and fines connected therewith. He holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City. On November 23, 2009, respondent issued a Letter of Authority (LA) No. LOA 2008 0049704 and received by petitioner on December 1, 2009, authorizing revenue officers to examine petitioner's books of accounts and other accounting records for all internal revenue taxes covering the period from January 1, 2008 to December 31, 2008. 2 CAIHTE On July 18, 2011, petitioner received a Notice of Informal Conference dated July 6, 2011. 3 Subsequently, petitioner received a Preliminary Assessment Notice 4 (PAN) on January 4, 2012. On January 13, 2012, 5 petitioner received a Formal Letter of Demand 6 (FLD) dated January 13, 2012 with Detail of Discrepancies 7 and Final Assessment Notices (FAN), 8 assessing it for alleged deficiency taxes for TY 2008 in the aggregate amount of P10,941,323.58, computed as follows: 9 TYPE AMOUNT DUE Deficiency Income Tax P7,770,554.22 Deficiency Value-Added Tax 3,005,918.88 Deficiency Expanded Withholding Tax 44,763.11 Deficiency Fringe Benefit Tax 108,087.37 Compromise Penalty Fee 12,000.00 Total (with Income Tax Return) P10,941,323.58 ============ Petitioner disputed the aforesaid FAN on January 26, 2012. 10 On September 25, 2012, petitioner received a letter dated September 7, 2012 issued by Mr. Jonas DP. Amora, OIC-Regional Director of Revenue Region No. 7, Quezon City, stating that the investigating officer of Revenue District Office (RDO) No. 43A-Pasig City recommended the reiteration of the assessments issued against petitioner. 11 The letter also requested the payment of petitioner's tax liabilities and indicated that it was a final decision. On October 9, 2012, petitioner filed with the BIR a Letter of Appeal dated October 7, 2012. 12 Due to inaction of respondent, petitioner filed this Petition for Review on May 7, 2013. 13 In the Answer 14 filed on July 19, 2013, respondent interposed the following special and affirmative defenses: "4. Tax assessments by tax examiners are presumed correct and made in good faith, and all presumptions are in favor of the correctness of a tax assessment unless proven otherwise. Rizal Commercial Banking Corporation v. Commissioner of Internal Revenue , G.R. No. 168498, April 24, 2007, 522 SCRA 144; 5. The Petitioner failed to submit ALL RELEVANT SUPPORTING DOCUMENTS to its protest. Hence, the same had become final and demandable under Section 228 of the National Internal Revenue Code of 1997 which states: Sec. 228. Protesting of Assessment. 'xxx xxx xxx Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. xxx xxx xxx ' As a matter of fact, the protest of the Petitioner was denied by Regional Director Jonas DP. Amora in his letter the Petitioner dated September 7, 2012, the basis of which is the Petitioner's failure to submit documents in support of its protest. The Petitioner's Petition for Review even confirmed this fact. No documentary evidence was presented by the Petitioner to prove that the supporting documents were submitted in the course of the audit investigation. Further, there is likewise no documentary evidence to prove that the supporting documents to the protest were submitted within the sixty-day period provided under Section 228 of the National Internal Revenue Code of 1997. 6. The herein Petitioner was fully appraised of the facts and the law on which the Final Assessment was issued. The Final Assessment Notice, Demand Letter and Details of Discrepancies which were all together sent at the same time to the Petitioner, contained, in detail, the manner of computation, the facts on which the assessment was based and the provisions of the law used in arriving at such deficiency assessment. There appears a glaring disparity in the purchases account as declared in the Financial Statement of the Petitioner and that found in the books of accounts of the Petitioner. Nothing in the Financial Statement submitted had explained the aforesaid discrepancy in the purchases account, not even the Notes to the Financial Statement. The Petitioner did not submit any supporting document with respect to its purchases. The discrepancy in the purchases accounts mentioned above should therefore be considered as an overstatement of purchases, which should be disallowed and said disallowance bears several tax consequences; 7. There also appeared a discrepancy in the alphalist submitted by the Petitioner and the Financial Statement/ITR submitted with respect to the Legal and Notarial expenses and rent expense in the amount of P430,364.97. 8. There were no supporting documents submitted to substantiate Meeting and Conference Expense, contrary to the allegations of the Petitioner that it did make available the said documents during the audit investigation. Assuming, without necessarily admitting, that supporting documents were submitted to substantiate the Meeting and Conference Expense, the proofs submitted by the Petitioner does not even bear the company name of the Petitioner as the entity to whom the Official Receipts were issued. DETACa 9. The part of the factual basis for assessing the Petitioner deficiency value-added tax is the disallowed input tax commensurate to the disallowed purchases. With the disallowance of the overstated purchases of the Petitioner, it follows that Petitioner should not be allowed to claim input tax deductions for said disallowed purchases. 10. There is no evidence on record to prove that the plane ticket which was subjected to Fringe Benefit Tax is not a First Class Plane Ticket. There is neither any evidence submitted to prove that the purchase of the plane ticket was made for the travel of an employee of the Petitioner to prove actual occurrence of an official business meeting or convention to which Petitioner's representative is an attendee." Petitioner filed, through registered mail, its Reply 15 on July 31, 2013 and received by the Court on August 5, 2013. Petitioner filed its Pre-Trial Brief 16 on August 27, 2013; while respondent's Pre-Trial Brief 17 was submitted on September 27, 2013. On November 14, 2013, petitioner moved to commission Mr. Sonny Bonilla as the Independent Certified Public Accountant for the case, 18 which the Court granted on November 28, 2013. 19 The parties submitted their Joint Stipulation of Facts and Issues 20 on November 22, 2013. Subsequently, the Court issued a Pre-Trial Order 21 on December 13, 2013. During trial, petitioner presented Mr. Sonny Bonilla, Ms. Mhay Madlangbayan, and Ms. Mayzl Domingo as its witnesses. Thereafter, petitioner formally offered its documentary evidence, which were all admitted by the Court. 22 On the other hand, respondent presented the following witnesses: Revenue Officers John Byron Jakes T. Lasam and Leyte C. Portugal. Respondent formally offered his documentary evidence, which were all admitted on December 1, 2015. 23 After the Court considered petitioner's Trial Memorandum (For: Petitioner Ritegroup, Incorporated) 24 filed on February 5, 2016 and the Records Verification Report 25 of the Judicial Records Division dated February 9, 2016 stating that respondent failed to file his Memorandum, the case was declared submitted for decision on February 11, 2016. 26 THE ISSUES The parties submitted the following issues 27 to be resolved by this Court: 1. Whether there is basis for respondent in assessing petitioner for the alleged deficiency income taxes; 2. Whether petitioner submitted all the required documents requested; 3. Whether the assessment has become final due to petitioner's failure to submit supporting documents in the reinvestigation and protest; 4. Whether there is basis for respondent in assessing petitioner for the alleged deficiency VAT from the alleged sale of a company vehicle, disallowed input tax, and unaccounted expenses; 5. Whether there is basis for respondent in assessing petitioner for the alleged deficiency EWT, considering that the applicable EWT has already been paid and settled by the latter; 6. Whether respondent committed grave error in concluding that petitioner is liable for the alleged deficiency FBT for the purchase of a business class ticket for a legitimate business conference, and the use of a company car by the company's sales manager; and 7. Whether petitioner is liable for the alleged deficiency taxes assessed for TY 2008. The above-enumerated issues can be summarized into two main issues, to wit: 1. Whether the assessment has become final due to petitioner's failure to submit supporting documents in the reinvestigation and protest; and 2. Whether petitioner is liable for the alleged deficiency income tax, VAT, EWT, FBT, and compromise penalty for TY 2008. RULING OF THE COURT Before proceeding to the main issue, the Court shall resolve first the timeliness of the filing of this Petition for Review. Section 228 of the National Internal Revenue Code (NIRC) of 1997, as amended, provides: "SEC. 228. Protesting of Assessment. When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however , That a preassessment notice shall not be required in the following cases: xxx xxx xxx The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings. aDSIHc Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable." Relative thereto are Sections 3.1.4 and 3.1.5 of Revenue Regulations (RR) No. 12-99 implementing the aforesaid provision, to wit: "3.1.4. Formal Letter of Demand and Assessment Notice. The formal letter of demand and assessment notice shall be issued by the Commissioner or his duly authorized representative. The letter of demand calling for payment of the taxpayer's deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of demand and assessment notice shall be void (see illustration in ANNEX B hereof). The same shall be sent to the taxpayer only by registered mail or by personal delivery. If sent by personal delivery, the taxpayer or his duly authorized representative shall acknowledge receipt thereof in the duplicate copy of the letter of demand, showing the following: (a) His name; (b) signature; (c) designation and authority to act for and in behalf of the taxpayer, if acknowledged received by a person other than the taxpayer himself; and (d) date of receipt thereof. 3.1.5. Disputed Assessment. The taxpayer or his duly authorized representative may protest administratively against the aforesaid formal letter of demand and assessment notice within thirty (30) days from date of receipt thereof. xxx xxx xxx xxx In general, if the protest is denied, in whole or in part, by the Commissioner or his duly authorized representative, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from date of receipt of the said decision, otherwise, the assessment shall become final, executory and demandable; Provided, however, that if the taxpayer elevates his protest to the Commissioner within (30) days from date of receipt of the final decision of the Commissioner's duly authorized representative, the latter's decision shall not be considered final, executory and demandable, in which case, the protest shall be decided by the Commissioner. If the Commissioner or his duly authorized representative fails to act on the taxpayer's protest within one hundred eighty (180) days from date of submission, by the taxpayer, of the required documents in support of his protest, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the lapse of the said 180-day period, otherwise, the assessment shall become final, executory and demandable." In the present case, petitioner received on September 25, 2012, 28 a copy of the denial of the protest to the FAN issued by OIC-Regional Director Jonas DP. Amora of Revenue Region No. 7, Quezon City. Petitioner then appealed the said denial before respondent on October 9, 2012, 29 which was within the thirty (30)-day period from receipt of such denial by the latter's duly authorized representative. Accordingly, respondent had one hundred eighty (180) days from October 9, 2012 or until April 7, 2013 within which to act on petitioner's protest. However, respondent failed to act on the same; thus, petitioner had thirty (30) days from April 7, 2013 or until May 7, 2013 within which to appeal such inaction. Since petitioner filed this Petition for Review on May 7, 2013, the same was timely filed. The Court shall now proceed to resolve the main issues. Petitioner contends that it is the taxpayer's prerogative to submit documents and to determine what documents should be submitted. Petitioner likewise argues that if the taxpayer chose to submit the protest without supporting documents, it does not invalidate the properly filed protest. Petitioner further claims that respondent did not require the former to submit its supporting documents in all of the latter's notices and communications. A perusal of the Protest Letter dated January 26, 2012 shows that petitioner attached a Summary of Comparative Computations. Likewise, further scrutiny of the records reveals that respondent did not require petitioner to submit additional supporting documents pertinent to the protest. The Court emphasizes that respondent cannot demand from petitioner what type of supporting documents that should be submitted, pursuant to the Supreme Court decision in the case of Commissioner of Internal Revenue vs. First Express Pawnshop Company, Inc. , 30 which states: "The term 'relevant supporting documents' should be understood as those documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit additional documents. The BIR cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit." (Emphasis supplied) It is clear from the foregoing that the FAN has not become final due to petitioner's purported failure to submit supporting documents. ETHIDa Nonetheless, before the Court resolves the main issue of whether petitioner is liable for the deficiency taxes, the Court shall settle first the issue which petitioner presented in its Memorandum. Petitioner claims that the LA, by virtue of which the subject FAN was issued, was not revalidated after 120 days from the date of its issuance. Petitioner posits that under Revenue Memorandum Order (RMO) No. 38-88 and Revenue Memorandum Circular (RMC) No. 40-2006, a revenue officer is allowed only one hundred twenty (120) days from the date of receipt of the LA by the taxpayer to conduct the audit and submit the required report of investigation; and if the revenue officer is unable to submit such report within the 120-day period, he must then submit a progress report to his Head of Office and surrender the LA for revalidation. Section 13 of the NIRC of 1997, as amended, states: "SEC. 13. Authority of a Revenue Officer. Subject to the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner, a Revenue Officer assigned to perform assessment functions in any district may, pursuant to a Letter of Authority issued by the Revenue Regional Director, examine taxpayers within the jurisdiction of the district in order to collect the correct amount of tax or to recommend the assessment of any deficiency tax due in the same manner that the said acts could have been performed by the Revenue Regional Director himself." Corollary thereto is RMC No. 23-09 which provides that failure of the revenue officer to request for revalidation of LA or the expiration of the revalidation period does not nullify the LA nor will it affect or modify the rules on the reglementary period within which an assessment may be validly issued, to wit: "I. Revalidation of LAs The revalidation of LA shall give rise to the extension of the period within which the Revenue Officer (RO) assigned to the case shall submit the report of investigation to higher authorities for review and approval, without the imposition of applicable administrative sanctions. Depending on the classification of the pending tax case, said extension period shall be equivalent to the original prescribed number of days within which to report the case under existing revenue issuances. Failure on the part of the RO to request for the revalidation of LA or the expiration of the 'revalidation period' does not nullify the LA nor will it affect or modify the rules on the reglementary period within which an assessment may be validly issued. However, this shall be considered as a ground for the imposition of disciplinary action and demerit in the performance rating of the concerned RO, including the reassignment of the case to another RO if the Regional Director, upon the recommendation of the Revenue District Officer, deems it necessary." It is noteworthy that RMC No. 23-09 was issued on April 16, 2009 and the subject LA was issued on November 23, 2009 and received by petitioner on December 1, 2009. The Court shall now proceed to determine whether petitioner is liable for deficiency taxes. Based on the Final Assessment Notices 31 and the Formal Letter of Demand No. 043A-B0282-08 dated January 13, 2012, petitioner is found liable for deficiency income tax, VAT, EWT, and FBT for TY 2008 in the aggregate amount of P10,941,323.58, inclusive of surcharge, interest and compromise penalty, broken down as follows: Tax Type Basic Surcharge Interest Total Income Tax P4,960,217.37 P2,810,336.85 P7,770,554.22 VAT 1,867,189.23 1,138,729.65 3,005,918.88 EWT 27,701.82 17,061.29 44,763.11 FBT 57,877.05 P14,469.26 35,741.06 108,087.37 Compromise Penalty 12,000.00 Total P6,912,985.47 P14,469.26 P4,001,868.85 P10,941,323.58 =========== ========= =========== ============ I. Deficiency Income Tax P7,770,554.22 and Deficiency EWT P44,763.11 Respondent found petitioner liable for deficiency income tax for TY 2008 in the amount of P7,770,554.22, computed as follows: 32 Taxable income per ITR P692,012.00 Add: Adjustments per investigation: Disallowed purchases P12,511,344.83 Disallowed meetings & conferences expense 662,134.85 Non-deductible representation expense 83,151.32 Unaccounted expenses 430,364.97 Income payments not subjected to withholding tax 524,031.00 Disallowed donation 48,557.65 Disallowed expenses 27,348.00 14,286,932.62 Taxable income per investigation P14,978,944.62 ============ Income tax due thereon (35%) P5,242,630.62 Less: Allowed tax credits/payments: Prior year's excess credits P19,029.00 Payments 82,907.25 Creditable withholding tax 180,477.00 282,413.25 Deficiency Income Tax P4,960,217.37 Add: 20% Interest p.a. (04.16.09 to 2.13.12) 2,810,336.85 TOTAL AMOUNT DUE P7,770,554.22 ============ In order to determine whether petitioner is liable for deficiency income tax, the Court shall scrutinize the propriety of each of the following items: cSEDTC 1. Disallowed Purchases P12,511,344.83 2. Disallowed Meetings and conferences expense 662,134.85 3. Non-deductible Representation expense 83,151.32 4. Unaccounted expenses 430,364.97 5. Income payments not subjected to withholding tax 524,031.00 6. Disallowed Donation 48,557.65 7. Disallowed expenses P27,348.00 1. Disallowed Purchases P12,511,344.83 Respondent's verification disclosed that the purchases reported in petitioner's financial statements (FS) in the amount of P20,771,606.00 were overstated by P12,511,344.83 as compared to the amount of P8,260,261.17 recorded in petitioner's books. Thus, respondent disallowed the discrepancy of P12,511,344.83 as deduction from petitioner's gross income pursuant to Section 34 (A) of the NIRC of 1997, as amended. In his Answer to the instant Petition, respondent has stated that nothing in petitioner's FS, not even in the Notes to FS, explained the discrepancy on purchases, and petitioner did not submit any document to support the said purchases. On the other hand, petitioner argues that it was not informed that lack of supporting documents for the purchases was the basis for disallowance, or the fact of payment for purchases was ever put into question. According to petitioner, it should have been informed that the assessment was due to failure to present supporting documents relative to the purchases. It is only now before this Court that respondent raised for the first time the issue of substantiation of unrecorded purchases. Allegedly, respondent's failure to inform petitioner violated petitioner's right to due process; hence, the FAN must be cancelled outright. Petitioner also contends that the disallowed purchases were, in large part, importations of products for resale, and as such, were ordinary and necessary expenses directly attributable to the conduct of its trade. Even though these purchases were not recorded in its books, the accurate and complete figures representing the same were purportedly reported in its FS and were duly substantiated. The Court finds that the assessment should be partially upheld. Contrary to its claim, petitioner knew from the time the Notice for Informal Conference 33 until the PAN 34 and the FANs/FLD 35 were issued that the basis of respondent's assessment is the issue of substantiation of its unrecorded purchases. In its reply letter 36 to the Notice for Informal Conference, protest letter 37 to the FANs/FLD and even in its appeal letter 38 to the BIR Commissioner, petitioner has stated that the related sales invoices and/or official receipts in support of the disallowed purchases of P12,511,344.83 were available for examination and substantiation. Petitioner has further indicated therein that the sales invoices and/or official receipts sufficiently meet the substantiation requirements as prescribed by Section 34 (A) (1) (b) of the NIRC of 1997, as amended. In view thereof, petitioner cannot argue now that it was denied of due process. Petitioner has been properly informed in writing of the factual and legal bases of the subject assessment pursuant to Section 228 of the NIRC of 1997, as amended. It is clearly stated in the Details of Discrepancies attached to the PAN and FANs/FLD that respondent disallowed the amount of P12,511,344.83 representing the overstatement/difference found in petitioner's claimed purchases per FS vis--vis those reflected in its books citing as legal basis Section 34 (A) of the NIRC of 1997, as amended, the pertinent portions of which state: "SEC. 34. Deductions from Gross Income. xxx, there shall be allowed the following deductions from gross income: (A) Expenses. (1) Ordinary and Necessary Trade, Business or Professional Expenses. (a) In General. There shall be allowed as deduction from gross income all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on or which are directly attributable to, the development, management, operation and/or conduct of the trade, business or exercise of a profession, including: xxx xxx xxx (b) Substantiation Requirements. No deduction from gross income shall be allowed under Subsection (A) hereof unless the taxpayer shall substantiate with sufficient evidence, such as official receipts or other adequate records: (i) the amount of the expense being deducted, and (ii) the direct connection or relation of the expense being deducted to the development, management, operation and/or conduct of the trade, business or profession of the taxpayer." Based on the above provision, ordinary and necessary business expense, such as purchases in the instant case, shall be allowed as deduction from gross income, provided that the same is supported by sufficient evidence such as official receipts or other adequate records. Records show that petitioner erred in reflecting the amounts of P13,883,739.00 and P11,475,415.00 as Merchandise Inventory January 1, 2008 and Purchases for the year 2008, respectively, in Note 10 39 of its Notes to FS. The amount of P20,771,606.00 (rounded off) has been used by respondent as purchases in computing the correct amount of petitioner's Merchandise Inventory January 1, 2008; and it was based on the latter's General Ledger-Trial Balance, 40 thus: SDAaTC Merchandise Inventory, Dec. 31, 2008 P10,855,944.01 Add: Cost of Sales 14,503,210.38 Cost of Goods Available for Sale 25,359,154.39 Less: Merchandise Inventory, Jan. 1, 2008 4,587,548.05 Purchases for 2008 P20,771,606.34 ============ In support of its purchases for TY 2008, petitioner has submitted various sales invoices, official receipts, Bureau of Customs (BOC) Import Entry and Internal Revenue Declarations (IEIRDs), Import Entry Declarations (IEDs) and other documents 41 which were examined by the Court-commissioned Independent Certified Public Accountant (ICPA), Mr. Sonny S. Bonilla. The latter has accounted petitioner's purchases covering TY 2008 amounting to P20,645,983.65 as follows: 42 Findings Amount Exhibit No. A. Allowed Purchases with supporting documents Importation with IED-original P7,179,607.36 "P-35" to "P-35.14" Importation with IED-photocopy only 4,955,880.78 "P-36" to "P-36.22" Importation with BOC Form-original 715,851.85 "P-37" to "P-37.9" Difference of landed cost between actual docs *20,647.11 "P-36.1", "P-37.8", versus schedule per VAT "P-36.18" Other importation charges 1,203,270.71 "P-39" to "P-39.131B" Local purchases for resale 5,021,159.27 "P-32" to "P-32.267" Subtotal P19,096,417.08 B. Exceptions noted Unsubstantiated importation P109,758.34 Double take up of input of importation 610,683.33 "P-36.18" Unsubstantiated local purchases 358,639.29 Double take up of input of local purchases 56,020.00 "P-36.64", "P-32.202" Local purchases with variance in amount between original documents versus schedule 10,761.03 Unsubstantiated other charges of importation 403,704.58 Subtotal P1,549,566.57 Grand Total P20,645,983.65 ============ * The amount per ICPA's summary is 20,606.74 but the correct amount stated above was based on page 5 of the ICPA Report. Of the exceptions noted by the ICPA, the local purchases with variance of P10,761.03 43 pertained to the amounts included per supporting documents but not part of petitioner's claimed purchases per schedule, and are also included in the P5,021,159.27 local purchases for resale allowed by the ICPA. As a result, the amount of P10,761.03 has been erroneously accounted twice by the ICPA. Since the amount of P10,761.03 is duly supported with sales invoices, it is properly included in the amount of P5,021,159.27 local purchases for resale allowed by the ICPA, hence, reducing the exceptions noted by the ICPA to P1,538,805.54 and the total purchases as accounted for by the ICPA to P20,635,222.62. Aside from the recommended disallowed purchases by the ICPA in the amount of P1,538,805.54, the amount of P136,383.38, representing the difference between petitioner's claimed purchases of P20,771,606.00 and the amount of P20,635,222.62 purchases accounted by the ICPA, shall be disallowed as deductions from gross income for being unsupported. Further verification of the ICPA's findings on purchases with valid documents reveals that purchases amounting to P2,247,981.74 should also be disallowed for the reasons stated hereunder: Reason for disallowance Importation with original copy of IED Reference/Exhibit No. Disallowed Purchases Annex "C", Exhibit "P-67" (Brown Envelope) Amount per IED (P407,423.31) is lower than the amount of purchase per schedule (P423,253.79)/overclaim "P-35.5" P15,830.48 Subtotal P15,830.48 Importations with photocopied IEDs Annex "D", Exhibit "P-67" (Docket, Vol. 5, p. 3032) Supported by Land Bank of the Philippines (LBP) OR but VAT amount was not separately shown; amount of purchase cannot be determined therefrom "P-36.A" P333,321.43 Supported by LBP OR but VAT amount was not separately shown; amount of purchase cannot be determined therefrom "P-36.2.D" 425,956.39 Supported by LBP OR but VAT amount was not separately shown; amount of purchase cannot be determined therefrom "P-36.3.B" 113,907.69 Supported by LBP OR but VAT amount was not separately shown; amount of purchase cannot be determined therefrom "P-36.4.B" 50,026.10 Supported by photocoies of IEDs only "P-36.8" to "P-36.8.D" 621,436.54 Supported by LBPOR but VAT amount was not separately shown; amount of purchase cannot be determined therefrom "P-36.20.B" 162,813.40 Supported by LBP OR but VAT amount was not separately shown; amount of purchase cannot be determined therefrom "P-36.21-B" 165,768.14 Supported by photocopies of IEDs and copy of computation only "P-36.23" to "P-26.23.A" 50,957.86 Subtotal P1,924,187.55 Importation with original copies of BOC Form (Official Receipt) Annex "E" of Exhibit "P-67" (Brown Envelope) Unreadable BOC OR but with LBP OR; amount of purchase based on LBP OR (P154,133.33) is lower the amount indicated per schedule (P221,533.33)/overclaim "P-37" to "P-37.A" P67,400.00 BOC OR not dated "P-37.3" 14,875.00 Subtotal P82,275.00 Other importation charges Annex "G" of Exhibit "P-67" (Brown Envelope) Discrepancy in the total amount of purchases per summary (P1,203,270.71) and per schedule of the same ICPA Report (P1,169,424.10) Page 8; Annex "G" of Exhibit "P-67" (Docket, Vol. 4, p. 2267; Brown Envelope) P33,846.61 Supported by Debit/Credit Note dated outside the taxable year 2008 "P-39.1" 676.20 Supported by unreadable invoice "P-39.10" 3,649.56 Supported by OR issued not in the name of petitioner "P-39.75" 2,634.45 Purchases listed twice per schedule "P-39.56", "P-39.93" 8,600.00 Supported by documents dated outside the taxable year 2008 "P-39.106" to "P-39.106.B" 12,995.37 VAT amount was included in the amount of purchase per schedule; supported by VAT OR without TIN and address of petitioner and VAT amount was not separately shown "P-39.107.A", "P-39.107" 1,419.60 Subtotal P63,821.79 Local purchases for resale Annex "F" of Exhibit "P-67" (Brown Envelope) Supported by document with unreadable details "P-32.20" P24,720.00 Supported by document with unreadable details "P-32.53" 32,208.00 Supported by document with unreadable details "P-32.75" 43,323.25 Supported by VAT invoice not dated and without TIN of petitioner "P-32.101" 4,944.00 Supported by VAT invoice with unreadable date and without TIN of petitioner "P-32.165" 19,776.00 Supported by document with unreadable details "P-32.232" 4,187.31 Supported by document with unreadable details "P-32.239" 3,908.36 Supported by document with unreadable details "P-32.240" 28,800.00 Subtotal P161,866.92 Total P2,247,981.74 In sum, petitioner's purchases for TY 2008 that shall be disallowed as deductions from gross income would amount only to P3,923,170.66, computed as follows: acEHCD Disallowances per ICPA Report, as adjusted P1,538,805.54 Add: Unaccounted difference between total claimed purchases of P20,771,606.00 and total purchases of P20,635,222.62 accounted by the ICPA 136,383.38 Additional disallowances per the Court's further verification 2,247,981.74 Total Disallowed Purchases P3,923,170.66 =========== 2. Disallowed meetings and conferences expense P662,134.85 Respondent disallowed the meetings and conferences expense of P662,134.85 for petitioner's failure to fully substantiate the same with necessary documentary evidence, pursuant to Section 34 (A) (1) (b) of the NIRC of 1997, as amended. The disallowance was derived as follows: 44 Meetings and conferences per F/S P1,344,695.00 Meetings and conferences with proper documents 682,560.15 Disallowed Meetings and conferences expense P662,134.85 ========== Petitioner asserts that during trial, it presented Exhibit "P-10" 45 consisting of official receipts, invoices and other proof of payments for expenses incurred during meetings and conferences. The said supporting documents are allegedly made available to the revenue officers during their audit, and even submitted for the convenience of respondent as Annexes to the Letter 46 Appeal dated October 7, 2012. According to petitioner, even assuming for the sake of argument that it has failed to fully substantiate these expenses, it is not proper to have the entire amount of expenses disallowed. Citing the cases of Mariano Zamora vs. Collector of Internal Revenue and Court of Tax Appeals 47 and Visayan Cebu Terminal Co., Inc. vs. Collector of Internal Revenue , 48 petitioner prays that at least fifty percent (50%) of the expenses be allowed as valid deduction. The Court finds the assessment in order. As provided by Section 34 (A) (1) (b) of the NIRC of 1997, as amended, the substantiation requirement for deductibility of expenses requires sufficient evidence, such as official receipts or other adequate records. To be entitled to claim a tax deduction, the taxpayer must competently establish the factual and documentary bases of its claim. 49 Deductions for income tax purposes partake of the nature of tax exemptions and are strictly construed against the taxpayer, who must prove by convincing evidence that he is entitled to the deduction claimed. 50 A perusal of Exhibit "P-10" shows that it is not what petitioner purports it to be, but it is a mere schedule or summary of expenses which is self-serving. It is not, in itself, sufficient to prove petitioner's claimed meetings and conferences expenses, unless it is accompanied by pertinent invoices and/or official receipts, which petitioner failed to submit before this Court. Likewise, the Court finds no merit in petitioner's invocation of the "50% rule, in the absence of receipts to prove actual amount of expense deduction," which was enunciated in the cases of Marian Zamora and Visayan Cebu Terminal Co., Inc. , and reiterated in Section 2.4 (c) of Revenue Memorandum Circular No. 23-00 as follows: "2.4. Existing Revenue Procedures and Jurisprudence Governing Assessment Based on the Best Evidence Obtainable. Provided hereunder are the existing revenue procedures and jurisprudence governing issuance of a deficiency tax assessment based on the best evidence obtainable: xxx xxx xxx (c) Assessment Based on Estimate; 50% Rule, in the Absence of Receipts to Prove Actual Amount of Expense Deduction. The Court held in the Mariano Zamora case that, if there is a showing that expenses have been incurred but the exact amount thereof cannot be ascertained due to absence of documentary evidence, it is the duty of the BIR to make an estimate of the deduction that may be allowable in computing the taxpayer's taxable income, bearing heavily against the taxpayer whose inexactitude is of his own making. That disallowance of 50% of the taxpayer's claimed deduction is valid." Based on Section 2.4 (c) of RMC No. 23-00, the "50% rule" is to be resorted to by respondent when no invoices or receipts are submitted by the taxpayer to prove its claimed expense deduction. In the instant case, petitioner has presented documents supporting its claimed meetings and conferences expenses up to a certain extent, which respondent ascertained to be amounting to P682,560.15. Thus, contrary to petitioner's assertion, respondent has not disallowed the entire meetings and conferences expenses claimed by petitioner in the amount of P1,344,695.00, but has actually considered a portion or 51% thereof in the amount of P682,560.15 as substantiated. Only the remaining 49% amounting to P662,134.85 has been disallowed by respondent for being unsupported. Even if the Court applies the 50% rule, the amount of P682,560.15 allowed by respondent as deduction from petitioner's gross income is even greater than the amount of P672,347.50 representing 50% of the total claimed expense of P1,344,695.00. In fine, petitioner has failed to discharge its burden of proof as to the substantiation of its meetings and conferences expense in the amount of P662,134.85; hence, the disallowance of the same is sustained. SDHTEC 3. Non-deductible representation expense P83,151.32 Finding that petitioner's representation expense per FS exceeded the statutory limit, the excess amount over the limitation was assessed by respondent as non-deductible, pursuant to RR No. 10-2002. 51 According to respondent's tax audit, while the representation expense per FS was P127,684.00, there were expenses included as part of meetings and conferences and travel and transportation expenses which were in the nature of representation, thus, exceeding the limit amounting to P83,151.32. 52 Petitioner, on the other hand, argues that the representation expense it claimed as deduction is well within the statutory limit. Allegedly, respondent has failed to provide the basis for his finding in all of his notices and communications sent to petitioner in violation of the latter's right to due process, as embodied in Section 228 of the Tax Code; hence, the assessment must be struck down for being void. The Court agrees with petitioner. A scrutiny of the notices and communications 53 issued by respondent to petitioner indicates that other than stating that the assessed amount of P83,151.32 is in excess of the prescribed limit, no further details have been provided. Respondent has never indicated how the amount of P83,151.32 was arrived at. Furthermore, respondent's finding that some expenses lodged in the meetings and conferences and travel and transportation expenses are in the nature of representation causing to exceed the limit, is a mere statement without details provided, not even the amounts representing the same. Petitioner cannot be expected to be able to determine and thereafter refute respondent's finding without disclosure of the details of the basis of the assessed amount of P83,151.32. It is a mandatory requirement under Section 228 of the NIRC of 1997, as amended, as implemented by RR No. 12-99, that a taxpayer shall be informed not only of the law but also of the facts on which the assessment is made; otherwise, the assessment shall be void. This is in consonance with the due process requirement of the 1997 Philippine Constitution, which provides that "no person shall be deprived of his property without due process of law." The taxpayer needs to know the nature of the examiner's findings in order to be able to properly contest the same and submit supporting documents. In the case of Commissioner of Internal Revenue vs. United Salvage and Towage (Phils.), Inc. , 54 the Supreme Court ruled as follows: "xxx Any short-cuts to the prescribed content of the assessment or the process thereof should not be countenanced, in consonance with the ruling in Commissioner of Internal Revenue v. Enron Subic Power Corporation to wit: xxx xxx xxx 'We disagree. The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the preliminary five-day letter, were not valid substitutes for the mandatory notice in writing of the legal and factual bases of the assessment. These steps were mere perfunctory discharges of the CIR's duties in correctly assessing a taxpayer. The requirement for issuing a preliminary or final notice, as the case may be, informing a taxpayer of the existence of a deficiency tax assessment is markedly different from the requirement of what such notice must contain. Just because the CIR issued an advice, a preliminary letter during the pre-assessment stage and a final notice, in the order required by law, does not necessarily mean that Enron was informed of the law and facts on which the deficiency tax assessment was made. The law requires that the legal and factual bases of the assessment be stated in the formal letter of demand and assessment notice. Thus, such cannot be presumed. Otherwise, the express provisions of Article 228 of the NIRC and RR No. 12-99 would be rendered nugatory. The alleged 'factual bases' in the advice, preliminary letter and 'audit working papers' did not suffice. There was no going around the mandate of the law that the legal and factual bases of the assessment be stated in writing in the formal letter of demand accompanying the assessment notice. We note that the old law merely required that the taxpayer be notified of the assessment made by the CIR. This was changed in 1998 and the taxpayer must now be informed not only of the law but also of the facts on which the assessment is made. Such amendment is in keeping with the constitutional principle that no person shall be deprived of property without due process. In view of the absence of a fair opportunity for Enron to be informed of the legal and factual bases of the assessment against it, the assessment in question was void. xxx.' In the same vein, we have held in Commissioner of Internal Revenue v. Reyes , that: 'Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals the lack of basis for not to mention the insufficiency of the gross figures and details of the itemized deductions indicated in the notice and the letter. This Court cannot countenance an assessment based on estimates that appear to have been arbitrarily or capriciously arrived at. Although taxes are the lifeblood of the government, their assessment and collection 'should be made in accordance with law as any arbitrariness will negate the very reason for government itself.' AScHCD Applying the aforequoted rulings to the case at bar, it is clear that the assailed deficiency tax assessment for the EWT in 1994 disregarded the provisions of Section 228 of the Tax Code, as amended, as well as Section 3.1.4 of Revenue Regulations No. 12-99 by not providing the legal and factual bases of the assessment. Hence, the formal letter of demand and the notice assessment issued relative thereto are void." Accordingly, insofar as the non-deductible representation expense of P83,151.32 is concerned, the assessment is void for respondent's failure to inform petitioner of the specific facts on which the said assessment was based in violation of Section 228 of the NIRC of 1997, as amended, and RR No. 12-99. Nonetheless, the Court finds that petitioner's claimed representation expense in the amount of P127,684.00 is a valid deduction against its taxable gross income. Sections 2 and 5 of RR No. 10-02, as quoted hereunder, provide for the limit on entertainment, amusement and recreation expense, including representation expense, which may be claimed as deductions: "SECTION 2. Definition of Terms. For purposes of these Regulations, the term 'Entertainment, Amusement and Recreation Expenses' includes representation expenses and/or depreciation or rental expense relating to entertainment facilities, as described below. The term 'Representation Expenses' shall refer to expenses incurred by a taxpayer in connection with the conduct of his trade, business or exercise of profession, in entertaining, providing amusement and recreation to, or meeting with, a guest or guests at a dining place, place of amusement, country club, theater, concert, play, sporting event, and similar events or places. For purposes of these Regulations, representation expenses shall not refer to fixed representation allowances that are subject to withholding tax on wages pursuant to appropriate revenue regulations. xxx xxx xxx SECTION 5. Ceiling on Entertainment, Amusement, and Recreation Expense. There shall be allowed a deduction from gross income for entertainment, amusement and recreation expense, as defined in Section 2 of these Regulations, in an amount equivalent to the actual entertainment, amusement and recreation expense paid or incurred within the taxable year by the taxpayer, but in no case shall such deduction exceed 0.50 percent (%) of net sales ( i.e. , gross sales less sales returns/allowances and sales discounts) for taxpayers engaged in sale of goods or properties; xxx." Applying the above provision, petitioner being engaged in the sale of food and medical products to hospitals, 55 its allowable representation expense shall not exceed 0.50% of its net sales of P26,190,642.00. 56 Therefore, its ceiling for representation expense amounts to P130,953.21 (P26,190,642.00 x .005). Clearly, the claimed representation expense of P127,684.00 57 does not exceed or even reach the ceiling of P130,953.21. Consequently, the whole amount claimed shall be allowed as deduction from gross income. 4. Unaccounted expenses P430,364.97 Based on respondent's verification, the following expenses per petitioner's alphalist were not fully reported in its FS/ITR resulting in an unaccounted source of cash which led to the inference that part of its income had not been declared: 58 Per Alphalist Per FS/ITR Difference Legal and notarial expenses P318,166.63 P233,331.00 P84,835.63 Rent expense P586,489.34 P240,960.00 345,529.34 Unaccounted expenses P430,364.97 ========== The Court finds the assessment without merit. It is worthy to note that the imputation of alleged undeclared income is based on a mere presumption that since there were undeclared expenses, there were corresponding undeclared income. Even if these alleged unaccounted expenses are to be treated as unaccounted sources of income, the same will be offset by recording the equivalent payments as expenses. As such, no taxable income will result from the said transactions. While it is axiomatic that all presumptions are in favor of the correctness of tax assessments, the assessment itself should not be based on presumptions no matter how logical the presumption might be. In order to stand the test of judicial scrutiny, the assessment must be based on actual facts. 59 For lack of factual basis, the deficiency income tax assessment pertaining to the alleged undeclared income from unaccounted expenses of P430,364.97 is cancelled. 5. Income payments not subjected to withholding tax P524,031.00 vis--vis the Deficiency EWT P44,763.11 Respondent disallowed the following income payments in the amount of P524,031.00 for petitioner's failure to subject the same to withholding tax, pursuant to RR No. 02-98, as amended; thus, petitioner was assessed for the corresponding deficiency EWT in the amount of P44,763.11, computed as follows: 60 Per Per FS Alphalist Difference Payments to contractors/sub-contractors: Repairs and maintenance P107,162.00 Delivery expenses 62,352.00 Advertising and promotion 139,252.00 Total P308,766.00 - P308,766.00 Incentives and commissions 215,265.00 - 215,265.00 Income payments not subjected to P524,031.00 withholding tax ========== Tax Rate Tax Due Payments to contractors/sub-contractors: P308,766.00 2% P6,175.32 Incentives and commissions 215,265.00 10% 21,526.50 Deficiency Expanded Withholding Tax P27,701.82 Add: 20% Interest p.a. (01.16.09 to 02.13.12) 17,061.29 Total Deficiency EWT P44,763.11 ========== In its letter of appeal 61 to the BIR Commissioner, petitioner has pointed out that it already settled the related 2% deficiency EWT on the repairs and maintenance, delivery expenses and advertising and promotion; while the incentives and commissions amounting to P215,265.00 were properly reported in its BIR Form No. 1601E and BIR Form No. 1604E. Petitioner has presented its Payment Form (BIR Form No. 0605) and the related Transaction Acknowledgement and EFPS Payment Form 62 proving that it paid on October 9, 2012, the amount of P6,175.32 representing 2% deficiency EWT due on the repairs and maintenance, delivery expenses and advertising and promotion in the total amount of P308,766.00. In view of the said payment, the deficiency income tax assessment on the disallowed expense deductions of P308,766.00 is cancelled. On the other hand, while the basic deficiency EWT assessment is cancelled, petitioner is still liable to pay the amount of P6,250.10, representing 25% surcharge, 20% deficiency and delinquency interest, pursuant to Sections 248 (A) (3), 249 (B) and (C) of the NIRC of 1997, as amended, computed as follows: Basic deficiency EWT P6,175.32 Add: 25% Surcharge 1,543.83 20% Deficiency Interest from Jan. 15, 2009 to Sept. 25, 2012 (P6,175.32 x 20% x 1,349/365 days) 4,564.66 from Sept. 25, 2012 to Oct. 9, 2012 (P6,175.32 x 20% x 14/365 days) 47.37 20% Delinquency Interest from Sept. 25, 2012 to Oct. 9, 2012 on basic deficiency EWT and surcharge [(P6,175.32+P1,543.83) x 20% x 14/365 days] 59.22 on deficiency interest due for Jan. 15, 2009 to Sept. 25, 2012 35.02 (P4,564.66 x 20% x 14/365) Total Amount Due 12,425.42 Less: Payment on October 9, 2012 Basic Tax 6,175.32 Amount Still Due P6,250.10 ======== As to the incentives and commissions, petitioner has failed to prove that it properly withheld and remitted the EWT due thereon. The vouchers 63 presented by petitioner in support of the incentives and commissions do not prove the fact of withholding. Even though it can be gleaned from the second page of petitioner's Annual Information Return of Creditable Income Taxes Withheld (Expanded) [BIR Form No. 1604E] 64 that the EWT of P21,526.47 was listed as part of the P61,141.13 taxes withheld and remitted to the BIR, there was no payee indicated therein, to which the said income payment may have been made. Moreover, nothing in its Monthly Remittance Returns of Creditable Income Taxes Withheld (Expanded) [BIR Form No. 1601E] 65 shows that it subjected an income payment in the nature of incentives and commissions with ATC WC515 amounting to P215,264.70. Thus, respondent's basic deficiency 10% EWT assessment in the amount of P21,526.50 is upheld pursuant to Section 2.57.2 (O) of RR No. 02-98, as amended by RR No. 17-03, which provides: caITAC "(O) Commissions of independent and/or exclusive sales representatives, and marketing agents of companies. On gross commissions, rebates, discounts and other similar considerations paid/granted to independent and/or exclusive sales representatives and marketing agents and sub-agents of companies, including multi-level marketing companies, on their sale of goods or services by way of direct selling or similar arrangements where there is no transfer of title over the goods from the seller to the agent/sales representative. Ten percent (10%)" Similarly, the Court sustains respondent's disallowance of petitioner's claimed deduction for incentives and commissions in the amount of P215,265.00 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." 6. Disallowed Donation P48,557.65 and 7. Disallowed expenses P27,348.00 Respondent disallowed petitioner's donation expense in the amount of P48,557.65, being in excess of the statutory limit pursuant to Section 34 (H) of the NIRC of 1997, as amended. The amount of P48,557.65 was computed as follows: 66 Donation per FS P87,535.00 Less: Limit (5% non-ind/10% ind) Taxable net income per FS P692,012.00 Donation per FS 87,535.00 Taxable net income before donation P779,547.00 Multiply by rate 5% 38,977.35 Disallowed Donation P48,557.65 ========== Likewise, the following expenses were disallowed as deductions from gross income pursuant to Section 34 of the NIRC of 1997, as amended: 67 Provision for probable losses P21,420.00 Penalty charges 5,928.00 Disallowed expenses P27,348.00 ========= Petitioner has not controverted the findings of respondent. However, petitioner maintains that it already settled the related 35% income tax deficiency on the disallowed donation and disallowed expenses on provision for probable losses and penalty charges. As such, said disallowances should be disregarded and cancelled. A perusal of the documents submitted by petitioner shows that petitioner paid on July 21, 2011, the amount of P40,209.05 representing 35% income tax due on the following disallowed expenses: 68 Provision for probable losses P21,420.00 Penalty charges 5,928.00 Donations and Contributions 87,535.00 Total 114,883.00 Income Tax (P114,883.00 x 35%) P40,209.05 ========= However, as can be seen from the above computation, the amount of P87,535.00 donations and contributions that was subjected to the 35% income tax rate was more than the amount of P48,557.65 disallowed by respondent for the said expense. Thus, the income tax payment of P40,209.05 was more than the P26,566.98 69 basic deficiency income tax assessment on the subject disallowed expenses. To properly account for the valid disallowance on the subject expenses and the payment made by petitioner, the assessed disallowances on donation and contributions in the amount of P48,557.65 and other expenses, namely, provision for probable losses and penalty charges, in the amount of P27,348.00 shall remain, and the income tax payment thereon in the amount of P40,209.05 shall be deducted to arrive at the total deficiency income tax still due from petitioner. ICHDca In sum, petitioner is liable to pay basic deficiency income tax in the amount of P1,626,348.56, deficiency EWT in the amount of P21,526.50, and increments amounting to P6,250.10 on the P6,175.32 deficiency EWT paid by petitioner on October 9, 2012, computed as follows: Taxable income per ITR P692,012.00 Add: Adjustments per review Disallowed Purchases P3,923,170.66 Disallowed Meetings and conferences expense 662,134.85 Income payments not subjected to withholding tax 215,265.00 Disallowed Donations and contributions 48,557.65 Disallowed Provision for probable losses and Penalty charges 27,348.00 4,876,476.16 Adjusted Taxable Income P5,568,488.16 Income tax due thereon (35%) P1,948,970.86 Less: Allowed tax credits/payments: Prior year's excess credits P19,029.00 Payments 82,907.25 Creditable withholding tax 180,477.00 282,413.25 Basic Deficiency Income Tax P1,666,557.61 Less: Payment made on July 21, 2011 40,209.05 Basic Deficiency Income Tax Still Due P1,626,348.56 =========== Income Tax Rate Tax Due Payment Payments to contractors/sub-contractors: P308,766.00 2% P6,175.32 Incentives and commissions 215,265.00 10% 21,526.50 Basic Deficiency EWT P27,701.82 Less: Payment made on October 9, 2012 6,175.32 Basic Deficiency EWT Still Due P21,526.50 ========= Increments representing 25% surcharge, 20% deficiency and delinquency interest on the P6,175.32 deficiency EWT paid by petitioner on Oct. 9, 2012 P6,250.10 ========= II. Deficiency VAT P3,005,918.88 Respondent computed the deficiency VAT assessment for TY 2008 in the amount of P3,005,918.89 by adding adjustments to petitioner's taxable sales/receipts per VAT returns consisting of proceeds from sale of fixed assets not subjected to VAT amounting to P449,812.00 and unaccounted expenses amounting to P430,364.97; and disallowing input tax amounting to P1,501,361.38 and input tax attributable to sale to government amounting to P255,960.12, as shown below: 70 Taxable Sales/Receipts per VAT returns P26,190,392.92 Add: Adjustments per Investigation: Proceeds from sale of fixed assets not subjected P449,812.00 to VAT Unaccounted expenses 430,364.97 880,176.97 Taxable Sales/Receipts per investigation P27,070,569.89 ============ Output Tax Due thereon P3,248,468.39 Less: Allowed tax credits/payments: Input tax carried over from the previous period P93,819.00 Payments 51,185.29 Creditable VAT withheld 477,509.85 Current input tax 2,516,086.51 Total P3,138,600.65 Less: Disallowed input tax P1,501,361.38 Disallowed input tax attributable to sale to govt. 255,960.12 1,757,321.50 1,381,279.15 Deficiency Value-Added Tax P1,867,189.23 71 Add: 20% Interest p.a. (01.27.09 to 02.13.12) 1,138,729.65 TOTAL AMOUNT DUE P3,005,918.88 ============= The Court shall now proceed with the discussion of each component of the deficiency VAT assessment. 1. Disallowed input tax attributable to sale to government P255,960.32 Respondent found that the input tax credits attributable to sales to government was overstated by P255,960.32, as computed below; therefore, respondent disallowed the same pursuant to RMC No. 65-05, as amended, and RR No. 4-07: 72 Input tax attributable to sale to government Sale to government P10,002,179.40 Total sales 26,190,401.25 0.38 Amount of input tax per VAT returns x P2,516,086.52 P956,112.88 Less: Standard input tax to sale to government 700,152.56 Disallowed input tax (closed to expense) P255,960.32 =========== Petitioner has agreed to the above findings of respondent. In fact, as can be seen from petitioner's computation of partial settlement of deficiency VAT as presented in Item II.2, petitioner has considered the amount of P255,960.32 as deduction to tax credits. Since petitioner did not refute the subject disallowance, the same is upheld. TCAScE 2. Proceeds from sale of asset not subjected to VAT P449,812.00 Petitioner avers that the actual proceeds from the sale of its company vehicle were only P100,000.00 and that the amount of P449,812.00 assessed by respondent referred to the book value of the said company vehicle. Allegedly, the tax base for VAT purposes should only be P100,000.00. The Court agrees with petitioner. Section 106 (A) of the NIRC of 1997, as amended, provides that a VAT rate of twelve percent (12%) shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, based on the gross selling price or gross value in money of the goods or properties sold. It further defines "gross selling price" as the total amount of money or its equivalent which the purchaser pays or is obligated to pay to the seller in consideration of the sale. As such, petitioner's sale of its company vehicle shall be subjected to VAT based on the sales proceeds therefrom without regard to the vehicle's net book value. Per the notarized Deed of Sale of Motor Vehicle 73 submitted by petitioner, the vehicle's actual selling price is P100,000.00, while the book value of said vehicle amounts to P449,822.00 as can be gleaned from Note 5 74 of petitioner's Notes to FS. Notably, even during the audit investigation, Revenue Officer Leyte Portugal included in her findings per Memorandum dated September 2, 2011 75 that petitioner submitted proof that the proceeds from sale of fixed asset not subjected to VAT was only P100,000.00 and not P449,812.00. In admitting its deficiency VAT liability on the P100,000.00 sales proceeds of its company vehicle and the P255,960.32 disallowed input tax attributable to sales to government, petitioner paid the amount of P126,798.99 76 on January 12, 2012, which was computed as follows: 77 Taxable Sales/Receipts per VAT returns P26,190,401.25 Add: Adjustments per Investigation: Proceeds from sale of fixed assets not subjected to VAT 100,000.00 Taxable Sales/Receipts per investigation P26,290,401.25 ============ Output Tax Due thereon P3,154,848.15 Less: Allowed tax credits/payments: Input tax carried over from the previous period P241,879.58 Payments 526,043.71 Current input tax 2,516,085.99 Total P3,284,009.28 Less: Input tax (excess over actual - sales to gov't.) 255,960.12 3,028,049.16 Deficiency Value-Added Tax P126,798.99 ============ However, the said payment of P126,798.99 is lower by P141,161.13 as compared with the assessed deficiency VAT in the amount of P267,960.12, 78 which was derived from the P100,000.00 proceeds from petitioner's sale of company vehicle and P255,960.12 disallowed input tax on sales to government. Nevertheless, since the Court upholds the P267,960.12 deficiency VAT assessment, petitioner's partial payment of P126,798.99 shall be deducted therefrom. 3. Unaccounted expenses P430,364.97 This assessment was based on the same finding under the deficiency income tax assessment that there were expenses per petitioner's alphalist, the sources of which were not accounted for in the FS/ITR. Respondent concluded that petitioner earned income which it failed to declare. The assessment is devoid of merit. As discussed earlier (Item I.4), even if the expenses per alphalist were to be considered as income subject to output VAT, the same shall be offset by treating the equivalent payments as purchases for which input tax credits may be claimed. Hence, no VAT-able income will result from the said transactions. 4. Disallowed input tax P1,501,361.38 Input taxes in the amount of P1,501,361.38 79 were disallowed in connection with the assessed disallowed purchases as discussed under the deficiency income tax assessment (Item I.1). As determined earlier, petitioner's purchases amounting to P3,923,170.66 are found to be proper disallowances. Consequently, only the input VAT corresponding thereto, in the amount of P470,780.48 (P3,923,170.66 x 12%) shall be disallowed as credits against petitioner's output tax due. In fine, petitioner is still liable for basic deficiency VAT for TY 2008 in the amount of P616,188.11, computed as follows: Taxable Sales/Receipts per VAT returns P26,190,392.92 Add: Adjustments per Investigation: Proceeds from sale of fixed assets not subjected to VAT 100,000.00 Taxable Sales/Receipts per investigation P26,290,392.92 ============ Output Tax Due thereon P3,154,847.15 Less: Allowed tax credits/payments: Input tax carried over from the previous period P93,819.00 Payments 51,185.29 Creditable VAT withheld 477,509.85 Current input tax 2,516,086.51 Total P3,138,600.65 Less: Disallowed input tax P470,780.48 Disallowed input tax attributable to sale to government 255,960.12 726,740.60 2,411,860.05 Deficiency Value-Added Tax P742,987.10 Less: Payment made on January 12, 2012 126,798.99 Basic Deficiency Value-Added Tax Still Due P616,188.11 ============ III. Deficiency FBT P108,087.37 Respondent's verification disclosed that petitioner failed to file the appropriate return and to withhold and remit the FBT due on the following benefits, pursuant to Section 33 of the NIRC of 1997, as amended, and RR No. 03-98: 80 cTDaEH Fringe benefits: Plane ticket (P251,850.73 x 30%) P75,555.22 Car Altis (P94,867.00 x 50%) 47,433.50 Total P122,988.72 Divide by 68% Grossed up monetary value P180,865.78 Applicable rate 32% Deficiency Fringe Benefit Tax P57,877.05 Add: 25% Surcharge P14,469.26 20% Interest p.a. (01.13.09 to 02.13.12) 35,741.06 50,210.32 TOTAL AMOUNT DUE P108,087.37 ========== Petitioner claims that the subject plane ticket was merely a business class ticket and for a legitimate business trip, hence, not subject to FBT. Petitioner also alleges that the car in question was being used by its sales manager as a company vehicle, which has remained in the name of the company, and is limited to official sales operations that are necessary, beneficial and convenient to petitioner. In the Answer, 81 respondent states that there was no evidence on record to prove that the plane ticket was not a first class plane ticket. Allegedly, there is neither any evidence submitted to prove that the purchase of the same was made for an official business meeting or convention to which petitioner's representative was an attendee. The assessment is partially upheld. Section 33 (A) of the NIRC of 1997, as amended, provides for the imposition of fringe benefits tax on the grossed-up monetary value of the fringe benefit granted by the employer to its managerial or supervisory employees as follows: "SEC. 33. Special Treatment of Fringe Benefit. (A) Imposition of Tax. A final tax of xxx thirty-two percent (32%) effective January 1, 2000 and thereafter, is hereby imposed on the grossed-up monetary value of fringe benefit furnished or granted to the employee (except rank and file employees as defined herein) by the employer, whether an individual or a corporation (unless the fringe benefit is required by the nature of, or necessary to the trade, business or profession of the employer, or when the fringe benefit is for the convenience or advantage of the employer) . The tax herein imposed is payable by the employer which tax shall be paid in the same manner as provided for under Section 57(A) of this Code. The grossed-up monetary value of the fringe benefit shall be determined by dividing the actual monetary value of the fringe benefit by xxx sixty-eight percent (68%) effective January 1, 2000 and thereafter: Provided, however , That fringe benefit furnished to employees and taxable under Subsections (B), (C), (D) and (E) of Section 25 shall be taxed at the applicable rates imposed thereat: Provided, further , That the grossed-up value of the fringe benefit shall be determined by dividing the actual monetary value of the fringe benefit by the difference between one hundred percent (100%) and the applicable rates of income tax under Subsections (B), (C), (D) and (E) of Section 25." (Emphasis supplied) Section 33 (B) of the NIRC of 1997, as amended, defines Fringe Benefits as any good, service, or other benefit furnished or granted by an employer, in cash or in kind, in addition to basic salaries, to an individual employee such as, but are not limited to the following: 1. Housing; 2. Expense account; 3. Vehicle of any kind; 4. Household personnel, such as maid, driver and others; 5. Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted; 6. Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations; 7. Expenses for foreign travel; 8. Holiday and vacation expenses; 9. Educational assistance to the employee or his dependents; and 10. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows. However, Section 2.33 (C) of RR No. 03-98, implementing Section 33 (A) of the NIRC of 1997, as amended, provides that no fringe benefit tax shall be imposed on the following: cSaATC "SEC. 2.33. SPECIAL TREATMENT OF FRINGE BENEFITS. xxx xxx xxx (C) Fringe Benefits Not Subject to Fringe Benefits Tax. In general, the fringe benefits tax shall not be imposed on the following fringe benefits: xxx xxx xxx (5) If the grant of fringe benefits to the employee is required by the nature of, or necessary to the trade, business or profession of the employer; or (6) If the grant of fringe benefit is for the convenience of the employer." Corollary thereto, Section 2.33 (B) (7) of RR No. 03-98, provides that: "SEC. 2.33. SPECIAL TREATMENT OF FRINGE BENEFITS. xxx xxx xxx (B) Definition of Fringe Benefit. xxx xxx xxx xxx (7) Expenses for foreign travel. (a) Reasonable business expenses which are paid for by the employer for the foreign travel of his employee for the purpose of attending business meetings or conventions shall not be treated as taxable fringe benefits. In this instance, inland travel expenses (such as expenses for food, beverages and local transportation) except lodging cost in a hotel (or similar establishments) amounting to an average US$300.00 or less per day, shall not be subject to a fringe benefit tax. The expenses should be supported by documents proving the actual occurrences of the meetings or conventions. The cost of economy and business class airplane ticket shall not be subject to a fringe benefit tax. However, 30 percent of the cost of first class airplane ticket shall be subject to a fringe benefit tax. (b) xxx Business conventions shall be evidenced by official invitations/communications from the host organization or entity abroad. Otherwise, the entire cost thereof shouldered by the employer shall be treated as taxable fringe benefits of the employee." (Emphasis supplied) Petitioner has proffered before this Court the electronic ticket 82 and related communications 83 to prove that the plane ticket, subject of the present assessment, was merely business class and that the trip was business-related. An examination of the foregoing documents shows that the flights were booked for petitioner's President and CEO, Ms. Marlene E. Orozco ("Ms. Orozco"), to travel from Manila to Amsterdam, Netherlands (connecting flight) to Dusseldorf, Germany (final destination) and back from Brussels, Belgium to Amsterdam, Netherlands to Manila via KLM Royal Dutch Airlines. All the flights are for "Restricted Business/Z" trips for a total cost of P169,890.00 as clearly indicated in the e-ticket. It has also been established that the said foreign travel of Ms. Orozco to Dusseldorf, Germany was for the purpose of visiting the Medica 2008 Exhibition for the furtherance of petitioner's business of buying and selling of food and medical products. Undoubtedly, the P169,890.00 cost of Ms. Orozco's plane ticket is not subject to FBT, pursuant to Section 2.33 (B) (7) (a) and (b) of RR No. 03-98 in relation to Section 33 (A) of the NIRC of 1997, as amended. Nonetheless, petitioner has failed to explain the discrepancy between the assessed amount of P251,850.73 and the substantiated amount of P169,890.00. In view thereof, the assessment on the difference of P81,960.73 shall remain in line with the rule 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. 84 With reference to the deficiency FBT assessment on the Toyota Altis (1.8, Beige Mica) car, petitioner has presented an internal memorandum 85 signed by its President and CEO, Ms. Orozco, and addressed to its National Sales Manager, Ms. Gina T. Franco, assigning the said car to the latter for official use and hospital coverage effective July 18, 2008. It is likewise stated therein that the "car assignment is not permanent and may be assigned to another person in the future as the exigencies in operational efficiencies may require." Based on the foregoing, since the Toyota Altis car has remained as petitioner's property 86 and is merely assigned to and for the use of its sales manager in connection with its business of buying and selling food and medical products, the same is not subject to FBT pursuant to Section 2.33 (C) (5) and (6) of RR No. 03-98 in relation to Section 33 (A) of the NIRC of 1997, as amended. In sum, petitioner is liable to pay basic deficiency FBT for TY 2008 in the reduced amount of P11,570.93, computed as follows: Fringe benefits: Plane ticket (P81,960.73 x 30%) P24,588.22 Divide by 68% Grossed up monetary value P36,159.15 Multiply by applicable rate x 32% Deficiency Fringe Benefit Tax P11,570.93 ========= IV. Compromise penalty P12,000.00 It must be stressed that a compromise penalty is imposed to avoid prosecution for violation of the provisions of the Tax Code. 87 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 a taxpayer in the event that a taxpayer refuses to pay the same. Clearly, the compromise penalty implies a mutual agreement between the parties in respect to the thing or subject matter which is so compromised. The imposition of the same without the conformity of the taxpayer is illegal and unauthorized. 88 In this case, there is nothing in the records which would show that petitioner consented to the compromise penalty. Thus, the imposition of the amount of P12,000.00 compromise penalty cannot be sustained. WHEREFORE , premises, considered, the instant Petition for Review is PARTIALLY GRANTED . The assessments covering deficiency income tax, VAT, EWT, and FBT for TY 2008 are UPHELD but in the modified amount of P2,844,542.63 , inclusive of the twenty-five percent (25%) surcharge imposed under Section 248 (A) (3) of the NIRC of 1997, as amended, in the amount of P6,250.10 , twenty percent (20%) deficiency and delinquency interest on the partial deficiency EWT payment of P6,175.32 or in the aggregate sum of P2,850,792.73 , computed as follows: Tax Type Basic Surcharge Total Income Tax P1,626,348.56 P406,587.14 P2,032,935.70 VAT 616,188.11 154,047.03 770,235.14 EWT 21,526.50 5,381.63 26,908.13 FBT 11,570.93 2,892.73 14,463.66 Subtotal P2,275,634.10 P568,908.53 P2,844,542.63 25% surcharge, 20% deficiency and delinquency interest on the P6,175.32 deficiency EWT paid by petitioner on Oct. 9, 2012 P6,250.10 Subtotal P6,250.10 TOTAL P2,850,792.73 =========== In addition, petitioner is liable to pay: a) Deficiency interest at the rate of 20% per annum on the basic deficiency income tax, VAT, EWT, and FBT computed from the dates indicated below until full payment thereof pursuant to Section 249 (B) of the NIRC of 1997, as amended: Deficiency interest Type of Tax Basic Tax computed from Income Tax P1,626,348.56 April 15, 2009 VAT P616,188.11 January 25, 2009 EWT P21,526.50 January 15, 2009 FBT P11,570.93 January 10, 2009 b) Delinquency interest at the rate of 20% per annum on the total amount of P2,844,542.63 and on the deficiency interest which have accrued as afore-stated in (a) computed from February 13, 2012 until full payment thereof pursuant to Section 249 (C) of the NIRC of 1997, as amended. SO ORDERED. (SGD.) MA. BELEN M. RINGPIS-LIBAN Associate Justice Lovell R. Bautista and Esperanza R. Fabon-Victorino, JJ. , concur. Footnotes 1. Par. 1, The Parties, Petition for Review, docket, vol. 1, p. 9. 2. Exhibit "P-1", docket, vol. 4, p. 2418; Exhibit "R-2", BIR records, p. 247. 3. Par. 2, JSFI, docket, vol. 4, p. 2158; Exhibit "R-3", BIR records, p. 499. 4. Par. 3, JSFI, docket, vol. 4, p. 2158; Statement of Material Dates/Facts, Petition for Review, docket, vol. 1, p. 7; Exhibit "R-6", BIR records, pp. 557 to 558. 5. Statement of Material Dates/Facts, Petition for Review, docket, vol. 1, p. 7. 6. Exhibit "P-26", docket, vol. 4, pp. 2586 to 2588. 7. Exhibit "P-26.1", docket, vol. 4, pp. 2589 to 2590. 8. Exhibit "P-3", docket, vol. 1, pp. 38 to 42; Exhibit "R-7", BIR records, pp. 564 to 568. 9. Par. 5, JSFI, docket, vol. 4, p. 2159. 10. Exhibit "P-4", docket, vol. 4, pp. 2422 to 2425. 11. Par. 6, JSFI, docket, vol. 4, p. 2159; Exhibit "P-5", docket, vol. 1, p. 52. 12. Par. 7, JSFI, docket, vol. 4, p. 2159; Exhibit "P-6", docket, vol. 4, pp. 2429 to 2435. 13. Par. 8, JSFI, docket, vol. 4, p. 2159. 14. Docket, vol. 2, pp. 1054 to 1058. 15. Docket, vol. 2, pp. 1060 to 1065. 16. Docket, vol. 2, pp. 1073 to 1091. 17. Docket, vol. 3, pp. 2097 to 2101. 18. Motion for Appointment and/or Commissioning of Independent Certified Public Accountant, docket, vol. 4, pp. 2149 to 2152. 19. Minutes of the Hearing, docket, vol. 4, p. 2175. 20. Docket, vol. 4, pp. 2158 to 2173. 21. Docket, vol. 4, pp. 2178 to 2186. 22. Resolution dated October 4, 2014, docket, vol. 4, pp. 2531 to 2532 and Resolution dated December 18, 2014, docket, vol. 5, pp. 3482 to 3483. 23. Resolution, docket, vol. 6, pp. 3537 to 3538. 24. Docket, vol. 6, pp. 3549 to 3616. 25. Docket, vol. 6, p. 3617. 26. Resolution, docket, vol. 6, p. 3619. 27. Par. II, JSFI, docket, vol. 4, p. 2160. 28. Exhibit "P-5", docket, vol. 1, p. 52. 29. Exhibit "P-6", docket, vol. 4, pp. 2429 to 2435. 30. G.R. Nos. 172045-46, June 16, 2009. 31. Exhibit "P-3", docket, vol. 1, pp. 38 to 47. 32. Exhibit "P-3", docket, vol. 1, p. 44. 33. Exhibit "R-3", BIR records, pp. 496 to 499. 34. Exhibit "R-6", BIR records, pp. 554 to 558. 35. Exhibit "R-7", BIR records, pp. 559 to 568. 36. BIR records, pp. 507 to 510. 37. Exhibit "P-4", docket, vol. 4, pp. 2422 to 2428. 38. Exhibit "P-6", docket, vol. 4, pp. 2429 to 2435. 39. Exhibit "P-29", docket, vol. 4, p. 2595. 40. BIR records, pp. 369 to 404. 41. Exhibits "P-32" to "P-32.267", "P-35" to "P-35.14", "P-36" to "P-36.23", "P-37" to "P-37.9", and "P-39" to "P-39.131B." 42. Exhibit "P-67", docket, vol. 4, p. 2287. 43. Exhibit "P-67", docket, vol. 4, p. 2265. 44. Exhibit "P-3", Detail of Discrepancies, Item I.b, docket, vol. 1, p. 46. 45. Docket, vol. 4, pp. 2438 to 2439. 46. Exhibit "P-6", docket, vol. 4, pp. 2429 to 2435. 47. G.R. No. L-15290, May 31, 1963. 48. G.R. No. L-12798, May 30, 1960. 49. H. Tambunting Pawnshop, Inc. vs. Commissioner of Internal Revenue , G.R. No. 173373, July 29, 2013. 50. Philex Mining Corporation vs. Commissioner of Internal Revenue , G.R. No. 148187, April 16, 2008. 51. Exhibit "P-3", Detail of Discrepancies, Item I.c, docket, vol. 1, p. 46. 52. Exhibit "R-4", BIR records, p. 518. 53. Exhibits "R-3" to "R-4" and "R-6" to "R-7", BIR records, pp. 496 to 499, pp. 517 to 518, pp. 554 to 558, and pp. 559 to 568, respectively. 54. G.R. No. 197515, July 2, 2014 citing Commissioner of Internal Revenue vs. Enron Subic Power Corporation , G.R. No. 166387, January 19, 2009 and Commissioner of Internal Revenue vs. Azucena T. Reyes , G.R. No. 159694, January 27, 2006. 55. Notes to Financial Statements, Note 1, BIR records, p. 255. 56. Exhibit "P-27", Line 17C, docket, vol. 4, p. 2591. 57. Exhibit "P-28", docket, vol. 4, p. 2594. 58. Exhibit "P-3", Detail of Discrepancies, Item I.d, docket, vol. 1, p. 46. 59. Collector of Internal Revenue vs. Benipayo , G.R. No. L-13656, January 31, 1962. 60. Exhibit "P-3", FLD and Detail of Discrepancies, Items I.3 and III, docket, vol. 1, pp. 44 and 46. 61. Exhibit "P-6", docket, vol. 4, p. 2432. 62. Exhibit "P-21", docket, vol. 4, pp. 2508 to 2512. 63. Exhibits "P-60" to "P-60.11", docket, vol. 4, pp. 2672 to 2683. 64. Exhibit "P-43-A", docket, vol. 4, p. 2638. 65. Exhibits "P-42" to "P-42.7" and "P-42.9" to "P-42.11", docket, vol. 4, pp. 2626 to 2636. 66. Exhibit "P-3", Detail of Discrepancies, Item I.f, docket, vol. 1, p. 46. 67. Exhibit "P-3", Detail of Discrepancies, Item I.g, docket, vol. 1, p. 46. 68. Exhibits "P-13" to "P-13-A", docket, vol. 1, pp. 921 to 924. 69. P26,566.98 = (P48,557.65 + P27,348.00) x 35%. 70. Exhibit "P-3", FLD, docket, vol. 1, p. 44. 71. It should be P1,867,189.24. 72. Exhibit "P-3", Detail of Discrepancies, Item II.d, docket, vol. 1, p. 47. 73. Exhibit "P-14", docket, vol. 4, p. 2492. 74. Exhibit "P-54" to "P-54.3", docket, vol. 4, p. 2661. 75. Exhibit "R-4", par. 3, docket, vol. 3, p. 2114. 76. Exhibit "P-15", docket, vol. 4, pp. 2493 to 2498. 77. Attached to Exhibit "P-4", docket, vol. 4, p. 2426. 78. P267,960.12 = [P100,000.00 x 12%] + P255,960.12. 79. P1,501,361.38 = P12,511,344.83 x 12%. 80. Exhibit "P-3", Detail of Discrepancies, docket, vol. 1, pp. 45 and 47. 81. Par. 10, docket, vol. 2, pp. 1056 to 1057. 82. Exhibit "P-16", docket, vol. 4, pp. 2499 to 2501. 83. Exhibit "P-17", docket, vol. 4, pp. 2503 to 2506. 84. Marcos II vs. Court of Appeals, et al. , G.R. No. 120880, June 5, 1997. 85. Exhibit "P-18", docket, vol. 4, p. 2507. 86. Exhibit "P-54", Notes to FS, Note 5, docket, vol. 4, p. 2661. 87. The Philippines International Fair, Inc. vs. The Collector of Internal Revenue, et al. , G.R. Nos. L-12928 and L-12932, March 31, 1962. 88. Commissioner of Internal Revenue vs. Lianga Bay Logging Co., Inc., et al. , G.R. No. L-35266, January 21, 1991.