Center for Training and Development, Inc. v. Commissioner of Internal Revenue

THIRD DIVISION [C.T.A. CASE NO. 8742. March 8, 2016.] CENTER FOR TRAINING AND DEVELOPMENT, INC. , petitioner , vs. COMMISSIONER OF INTERNAL REVENUE , respondent . DECISION RINGPIS-LIBAN , J p : The Case This case involves a Petition for Review 1 filed by Center for Training and Development, Inc. seeking the cancellation of the assessments covering deficiency income tax and value-added tax (VAT) for taxable year 2006 in the aggregate amount of P2,612,858.31, inclusive of interest. The Facts Petitioner Center for Training and Development, Inc. is a domestic corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal office at Unit 2207-2208 Cityland 10 Tower 1, 6815 H.V. Dela Costa, Ayala Avenue, Makati City. It is primarily engaged in providing, rendering, and conducting training, development and management education, corporate communication and research, research and development studies, business and management advisory services and other related activities. Petitioner is duly registered with the Bureau of Internal Revenue (BIR) Revenue District Office (RDO) No. 50 of Revenue Region No. 8-South Makati City, Philippines. 2 On the other hand, respondent is the duly appointed Commissioner of the Bureau of Internal Revenue vested under the appropriate laws with the authority to carry out the functions, duties and responsibilities of said office, including inter alia , the power to decide disputed assessments and cancel and abate tax liabilities, pursuant to the provisions of the National Internal Revenue Code (NIRC) of 1997 and other tax laws, rules and regulations. Respondent is being represented in this case by the legal officers of the Legal Division of Revenue Region No. 8-Makati City, with office address at the 2/F Legal Division, BIR Bldg., No. 313 Sen. Gil Puyat Ave., Makati City. 3 CAIHTE On August 30, 2007, respondent, through the Revenue Region No. 8, issued Tax Verification Notice (TVN) No. 00050279, authorizing Revenue Officers of RDO No. 50 to examine or audit petitioner's internal revenue taxes covering taxable year 2006. 4 Revenue District Officer Florante R. Aninag issued a Notice of Informal Conference with attached computation of tax deficiencies dated September 1, 2009. 5 Petitioner then submitted its position paper to the preliminary findings in the form of a protest letter dated September 25, 2009. 6 Notwithstanding the series of informal discussions and the submission of the position paper, respondent issued a Preliminary Assessment Notice (PAN) dated December 29, 2009 for alleged deficiency taxes, inclusive of interest and compromise penalties, in the total amount of P1,757,907.13, broken down as follows: 7 TAX TYPE AMOUNT Income Tax P1,705,805.64 Value-added Tax (VAT) 50,963.12 EWT 1,138.37 TOTAL P1,757,907.13 =========== Subsequently, respondent issued Assessment Notices for income tax (IT TVN 50279-06-10-0116), VAT (VT TVN 50279-06-10-0116) and expanded withholding tax (WE TVN 50279-06-10-0116), as well as the Formal Assessment Notice (FAN) with the corresponding Details of Discrepancy, all dated January 14, 2010; which was received by petitioner on the same date, reiterating the alleged deficiency taxes contained in the PAN as follows: 8 TAX TYPE ASSESSMENT NO. AMOUNT Income Tax (IT TVN 50279-06-10-0116) P1,729,933.02 VAT (VT TVN 50279-06-10-0116) 51,664.13 Expanded (WE TVN 50279-06-10-0116) 1,153.98 Withholding Tax TOTAL P1,782,751.13 =========== Petitioner filed a protest letter against the FAN and paid the assessed expanded withholding tax for taxable year 2006 on February 9, 2010. 9 On August 8, 2011, Revenue District Officer Ricardo B. Espiritu issued a Second and Final Notice to petitioner, informing the latter to submit documentary evidence to support its arguments in the protest letter. 10 On November 8, 2013, petitioner received an Amended Assessment Notice (IT-TVN 50279/TVN149101-06-13-0410) and Final Decision on Disputed Assessment (FDDA), both dated November 4, 2013, 11 with the following deficiency tax assessments: 12 I. INCOME TAX Taxable Income (Loss) per ITR P(273,032.00) Add: Adjustments/Disallowance Undeclared Income (Schedule 1) P1,212,181.14 Unsupported Expenses (Schedule 2) 1,818,134.70 3,030,315.84 Taxable Income (Loss) per Audit P2,757,283.84 Add: Net Operating Loss Carry Over (NOLCO) 273,032.00 Adjusted Taxable Income P3,030,315.84 Basic Income Tax Due (35%) P1,060,610.54 Less: Tax Credit/Paid per return Prior Year's Excess Credits P830,824.59 Creditable Tax Withheld 391,845.41 Total P1,222,670.00 Less: MCIT Carry Over P47,070.31 Amount Carried Over to Succeeding Year 1,175,599.69 Unsupported Creditable Tax Withheld 27,741.69 1,250,411.69 (27,741.69) Basic Deficiency Income Tax P1,088,352.23 Add: Interest (04.16.07 to 12.09.13) 1,448,552.10 TOTAL AMOUNT DUE P2,536,904.33 =========== II. VALUE-ADDED TAX Taxable Receipts per VAT Returns P8,759,946.36 Output Tax Due per Returns (Schedule 4) P1,046,633.56 Less: Creditable Tax/Payment Creditable Input Tax P284,205.67 Less: Disallowed Input Tax (Schedule 5) P12,297.49 Input Tax Allocable to Exempt Sales 1,636.45 13,933.94 270,271.73 VAT Payable P776,361.83 Less: Payment 744,378.44 Basic Deficiency VAT P31,983.39 Add: Interest (01.26.07 to 12.09.13) 43,970.59 TOTAL AMOUNT DUE P75,953.98 =========== On December 5, 2013, petitioner filed the present Petition for Review before the Court of Tax Appeals. DETACa Respondent filed her Answer 13 on January 30, 2014, interposing the defense that during the administrative investigation, petitioner failed to substantiate or submit supporting evidence against the BIR findings specified in the Details of Discrepancies attached to the PAN, the FAN and the FDDA of the following amounts: I. Income Tax 1. Undeclared Income P1,212,181.14 2. Unsupported Expenses 1,818,134.70 3. NOLCO 273,032.00 4. MCIT 47,070.31 5. Amount Carried Over to the Succeeding Year 1,175,599.69 6. Unsupported Creditable Taxes Withheld 27,741.69 II. VAT 1. Total Output Tax Due P1,046,633.56 2. Disallowed Input Tax 12,297.49 3. Input Tax Allocable as Exempt Sales 1,636.45 Respondent also claimed that petitioner duly executed a Waiver of Defense of Prescription under the Statute of Limitations of the National Internal Revenue Code, thereby making Section 222 (b) of the NIRC applicable. 14 The case was then set for a pre-trial conference on March 27, 2014. 15 After both parties filed their Pre-Trial Briefs 16 on March 20, 2014, they entered into a Joint Stipulation of Facts and Simplification of Issues. 17 The Court then issued the Pre-Trial Order, 18 which terminated the pre-trial and set the initial presentation of petitioner's evidence on June 9, 2014. Petitioner presented Mr. Enrico T. Pizarro, the Court-commissioned Independent Certified Public Accountant (ICPA), as its lone witness, who by way of Judicial Affidavit 19 testified on the procedures undertaken such as checking, verifying and examining the pertinent documents relative to these assessments. Thereafter, petitioner submitted its Formal Offer of Evidence 20 on June 27, 2014. The Court admitted all the formally offered exhibits of petitioner in the Resolution 21 issued on July 23, 2014. On the other hand, respondent presented Revenue Officer Ofelia L. Metrillo 22 and Revenue Officer Carlomar L. Frilles. 23 Respondent filed her Formal Offer of Evidence 24 on December 18, 2014. The Court admitted all the formally offered evidence of respondent via Resolution 25 dated January 14, 2015. The case was declared submitted for decision on March 10, 2015, 26 after petitioner filed its Memorandum, 27 sans a memorandum from respondent. The Issues The parties submitted the following issues 28 for this Court's resolution: 1. Whether or not the BIR's right to assess petitioner for taxable year 2006 has prescribed; and 2. Whether or not petitioner is liable for deficiency income tax and deficiency VAT for taxable year 2006. The Court's Ruling The petition is partly meritorious. On the Issue of Prescription Section 203 of the National Internal Revenue Code of 1997 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 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. None of the exceptions provided under Section 222 of the NIRC of 1997 are availing in this case. In particular, respondent's claim that petitioner executed a Waiver of Defense of Prescription under the Statute of Limitations of the National Internal Revenue Code deserves no consideration as the same is not supported by evidence. For the filing of ITRs, the relevant provision is Section 77 (B) of the NIRC of 1997, which provides that the Annual ITR shall be filed on or before the fifteenth (15th) day of April, or on or before the 15th day of the fourth (4th) month following the close of the fiscal year, as the case may be. As regards VAT Returns, Section 114 (A) of the NIRC of 1997 provides that the Quarterly VAT Returns shall be filed within twenty-five (25) days following the close of each taxable quarter. Below is a summary of the dates when petitioner filed its 2006 Annual ITR and Quarterly VAT Returns, 29 and the corresponding deadlines for respondent to assess petitioner: DATE OF TAX REQUIRED ACTUAL LAST DAY TO RETURN FILING DATE FILING ASSESS Annual ITR April 16, 2007 30 April 16, 2007 31 April 16, 2010 Quarterly VAT Return 1st Quarter April 25, 2006 April 25, 2006 32 April 27, 2009 33 2nd Quarter July 25, 2006 July 25, 2006 34 July 27, 2009 35 3rd Quarter October 25, 2006 October 25, 2006 36 October 26, 2009 37 4th Quarter January 25, 2007 January 25, 2007 38 January 25, 2010 An assessment notice issued after the three (3)-year prescriptive period is not valid and has no effect. Based on the parties' stipulation and the evidence presented, the FAN 39 and the Assessment Notices 40 were issued by respondent and were received by petitioner on January 14, 2010 . Indubitably, respondent's right to assess petitioner for deficiency VAT for the first, second, and third quarters of taxable year 2006 had already prescribed. This warrants the cancellation of the assessments for the first, second, and third quarters of taxable year 2006. aDSIHc The Court shall now resolve the issue of whether or not petitioner is liable for the assessed deficiency income tax and deficiency VAT for the fourth quarter of taxable year 2006. On the Computation of Deficiency Income Tax Petitioner was assessed for basic deficiency income tax amounting to P1,088,352.23, arising from the following items: 1. Undeclared income P1,212,181.14 2. Unsupported expenses 1,818,134.70 3. NOLCO 273,032.00 4. MCIT 47,070.31 5. Amount carried over to the succeeding year 1,175,599.69 6. Unsupported creditable taxes withheld 27,741.69 1. Undeclared income P1,212,181.14 Respondent's audit disclosed that petitioner had service fees for taxable year 2006 in the amount of P11,055,174.14 compared to that declared in its Annual ITR 41 in the amount of P9,842,993.00. Thus, pursuant to Section 32 of the NIRC of 1997, petitioner was assessed for alleged undeclared income of P1,212,181.14, computed as follows: 42 Gross receipts per VAT return P8,770,446.36 Add: Trade receivable, end net of VAT 2,456,140.18 Subtotal P11,226,586.54 Less: Trade receivable, beg net of VAT 171,412.40 Service fees per audit P11,055,174.14 Service fees per ITR 9,842,993.00 Undeclared income P1,212,181.14 =========== Respondent's assessment is erroneous. A perusal of the Notes to Financial Statements, 43 as well as the general ledgers, 44 for the period covering January to December 2005 reveals that the beginning balance of "Trade receivables" for taxable year 2006 amounted to P1,714,124.42 , and not P171,412.40 , as detailed below: EXHIBIT ACCOUNT AMOUNT " P-24", p. 3 1020 Accounts Receivable Trade P1,521,188.35 "P-25", p. 2 1023 Accounts Receivable Billed OPE 82,706.79 "P-26", p. 24 1021 Accounts Receivable Unbilled OPE 110,229.28 TOTAL P1,714,124.42 =========== Respondent committed an accounting slide arising from an erroneous positioning of the decimal point. Moreover, following respondent's computation of petitioner's "Trade receivable, end net of VAT", the amount of P1,714,124.42 shall be divided by 1.10. 45 The resulting amount of P1,558,294.93 represents petitioner's "Trade receivable, beg. net of VAT". Consequently, petitioner has no undeclared income for the said year: Gross receipts per VAT return P8,770,446.36 Add: Trade receivable, end net of VAT (P2,750,877.00/1.12) 2,456,140.18 Subtotal P11,226,586.54 Less: Trade receivable, beg net of VAT (P1,714,124.42/1.10) 1,558,294.93 Service fees per audit P9,668,291.61 Service fees per ITR 9,842,993.00 Overdeclaration of Service Fees P(174,701.39) ============ Evidently, respondent's assessment should be cancelled for lack of merit. 2. Unsupported expenses P1,818,134.70 Respondent posits that the claimed expenses in the total amount of P1,818,134.70 should be disallowed for failure of petitioner to substantiate the same with sufficient evidence, as required under Section 34 (A) (1) (b) of the NIRC of 1997. 46 The expenses are detailed as follows: 47 PARTICULARS AMOUNT a. Billing Association dues P17,702.97 b. Light and water 54,697.50 c. Consulting fees 569,201.45 d. Representation and entertainment 12,500.00 e. Telephone 16,494.78 f. Professional/Reviewers' fees 1,147,538.00 Total unsupported expenses P1,818,134.70 =========== (a) Association due (b) Light and water Records show that petitioner entered into Contracts of Lease 48 dated May 30, 2003 and July 7, 2006 with AR Realty Holding Co., Inc. for the lease, covering the year 2006, of Unit 1814, Cityland 10 Tower I, 6815 Ayala Avenue, Makati City. Petitioner, as the lessee, agreed to answer and pay for the necessary expenses appurtenant thereto, particularly: ETHIDa " Section 3. WATER, ELECTRIC CURRENT, ETC . All expenses for water, electricity, telephone, and association dues shall be for the account of the LESSEE during the period of the occupancy. All payments of said bills shall be paid directly by the LESSEE to concerned companies." 49 Based on the summary of expenses submitted by petitioner, the association dues of P17,702.97, 50 and light and water of P54,698.60 51 are comprised of the following: MONTH COVERED EXHIBITS (CY 2006) AMOUNT Association dues "P-18.1, "P-18.1.1", "P-18.1.1.1" January P2,000.15 "P-18.2, "P-18.2.1", "P-18.2.1.1" March 1,857.29 "P-18.3, "P-18.3.1", "P-18.3.1.1" April 1,785.86 "P-18.4, "P-18.4.1", "P-18.4.1.1" June 1,857.29 "P-18.5, "P-18.5.1", "P-18.5.1.1" July 1,785.86 "P-18.6, "P-18.6.1", "P-18.6.1.1" September 2,104.13 "P-18.7, "P-18.7.1", "P-18.7.1.1" October 2,104.13 "P-18.8, "P-18.8.1", "P-18.8.1.1" November 2,104.13 "P-18.9, "P-18.9.1", "P-18.9.1.1" December 2,104.13 Total P17,702.97 ========= Light and water "P-19.1, "P-19.1.1" January P4,023.80 "P-19.2, "P-19.2.1" February 4,568.80 "P-19.3, "P-19.3.1" March 4,728.90 "P-19.4, "P-19.4.1" April 5,281.50 "P-19.5, "P-19.5.1" May 5,091.35 "P-19.6, "P-19.6.1" June 4,872.30 "P-19.7, "P-19.7.1" July 4,907.55 "P-19.8, "P-19.8.1" August 4,381.65 "P-19.9, "P-19.9.1" September 4,596.35 "P-19.10, "P-19.10.1" October 4,267.50 "P-19.11, "P-19.11.1" November 4,030.15 "P-19.12, "P-19.12.1" December 3,948.75 TOTAL P54,698.60 ========= These expenses were supported by cash disbursement journals, official receipts, statements of account, and invoices. 52 However, the official receipts and statements of account (for association dues) were issued in the name of AR Realty Holding Co., Inc., and the invoices (for light and water) were issued in the name of Sitaldas Bhagkian. While the Contracts of Lease 53 prove that the subject expenses were for the account of petitioner-lessee, these contracts do not certify that the lessor AR Realty Holding Co., Inc. or Sitaldas Bhagkian did not avail of these expenses as its/his own deductions in its/his 2006 ITR. Thus, respondent's disallowance of association dues and light and water is proper. (c) Consultancy fees Based on petitioner's allegations, the consultancy fees in question were incurred for some professional and technical needs in handling bookkeeping client's issues and concerns. 54 In support of its consultancy fees in the amount of P569,201.45, petitioner submitted cash disbursement journals 55 and checks 56 issued to various payees. Upon examination of these documents, the Court-commissioned ICPA, Mr. Enrico T. Pizarro, found that: 57 . . . [t]he cash disbursement journal vouchers used to record the payments made to consultants are listed in Exhibit P-20 . From the cash disbursement journals, I accounted a total of P572,161.33 consultancy fees for the year 2006. The said vouchers were in support of the payments made to each consultant for the year 2006. Most of the vouchers were supported by corresponding checks issued to each consultant. Since the amount I accounted is greater tha[n] the alleged unsupported expenses, I am of the opinion that the BIR findings lacked factual bases. We are not convinced. The checks simply establish the fact of payment, while the cash disbursement journals merely indicate the authorization/approval for payment and the corresponding accounting entries to be made. With only these documents at hand, the Court cannot ascertain the nature of the payments made by petitioner to various payees named in the checks. (d) Representation and entertainment (e) Telephone The details of the representation and entertainment expenses of P12,500.00, and the telephone expense of P16,494.78, based on the cash disbursement journals, 58 are as follows: cSEDTC EXHIBIT PARTICULARS AMOUNT Representation and entertainment P-29 Honorarium fee for Atty. Casasola P4,000.00 (Seminar January 17, 2006) P-30 Representation of Atty. Casasola 4,500.00 (Seminar March 2, 2006) P-31 Honorarium fee for Atty. Casasola 4,000.00 (October 11-12, 2006) Total P12,500.00 ========= Telephone P-32 Telephone expenses statement as of P16,494.78 February 17, 2006 For want of corroborative evidence, the cash disbursement journals are self-serving. Petitioner should have presented additional documentary evidence from which it can be verified and ascertained that the amounts in question indeed pertained to representation and entertainment expenses and telephone expenses. (f) Professors'/reviewers' fees According to petitioner, these fees were paid to reviewers for CPA review classes in its Recto, Manila and Makati branches. 59 Based on the summary 60 prepared by the ICPA, petitioner paid professors' fees amounting to P1,147,606.50 for 2006. The appointment of the professors 61 is evidenced by the Appointment Letters 62 duly accepted and signed by petitioner's President, Mr. Angelo D. Bernaldo, and the professors concerned. However, the payments in the amount of P83,975.00, allegedly representing professors' fees, are not supported by checks 63 issued by petitioner. Hence, the following are disallowed as deduction from petitioner's gross income: Cash Disbursement Professor/Reviewer Period Journal Amount Felipe Cahayon Jan 12-29, 2006 "P-21.10" P8,850.00 Rico Peamante Jan 12-29, 2006 "P-21.11" 6,600.00 Justo Jude Uro, Jr. Jan 12-29, 2006 "P-21.12" 5,100.00 Patricia Empleo Jan 12-29, 2006 "P-21.13" 6,600.00 Ma. Cecilia Mercado Jan 12-29, 2006 "P-21.14" 1,650.00 Rommel Valdez Jan 12-29, 2006 "P-21.15" 9,625.00 Virgilio Litonjua Jan 12-29, 2006 "P-21.16" 1,500.00 Luis Sabado Jan 30-Feb 13, 2006 "P-21.17" 3,300.00 Felipe Cahayon Jan 30-Feb 13, 2006 "P-21.18" 1,100.00 Rico Peamante Jan 30-Feb 13, 2006 "P-21.19" 4,950.00 Justo Jude Uro Jan 30-Feb 13, 2006 "P-21.20" 4,550.00 Patricia Empleo Jan 30-Feb 13, 2006 "P-21.21" 4,400.00 Ma. Cecilia Mercado Jan 30-Feb 13, 2006 "P-21.22" 2,750.00 Rommel Valdez Jun 29-Jul 14, 2006 "P-21.124" 3,025.00 Rico Peamante Aug 1-15, 2006 "P-21.127" 3,300.00 Rommel Valdez Aug 1-15, 2006 "P-21.130" 2,475.00 Louisita Aristorenas Oct 1-15, 2006 "P-21.166" 4,400.00 Ma. Cecilia Mercado Dec 1-15, 2006 "P-21.189" 4,900.00 Nenita Robles Dec 1-15, 2006 "P-21.191" 4,900.00 Total P83,975.00 ========= As a result, only in the amount of P1,063,631.50 (P1,147,606.50 less P83,975.00) is allowed as deduction from petitioner's taxable gross income for 2006. 3. NOLCO P273,032.00 Petitioner's operations for taxable year 2006 resulted in a net taxable loss in the amount of P273,032.00. 64 Respondent added back the said amount to the adjusted taxable income of petitioner, claiming that the tax benefit thereof has already been forwarded to succeeding periods as provided for under Section 34 (D) (3) of the NIRC of 1997, 65 which states: "SEC. 34. Deductions from Gross Income. . . . xxx xxx xxx (D) Losses . xxx xxx xxx (3) Net Operating Loss Carryover. The net operating loss of the business or enterprise for any taxable year immediately preceding the current taxable year, which had not been previously offset as deduction from gross income shall be carried over as a deduction from gross income for the next three (3) consecutive taxable years immediately following the year of such loss: . . ." However, respondent failed to present evidence to prove that petitioner used its 2006 net loss as NOLCO in the succeeding years. Furthermore, said NOLCO is beyond the scope of the present assessment as it can only be the subject of assessment in the taxable year when it is claimed as a deduction. Thus, respondent was wrong to add back the net loss in the amount of P273,032.00 to petitioner's taxable income. 4. MCIT P47,070.31 Respondent avers that the MCIT was not allowed as tax credit against the computed deficiency income tax, considering that the said amount shall be carried over and credited against the normal income tax for the three (3) immediately succeeding taxable years in compliance with the provision under Section 27 (E) (2) of the NIRC of 1997, 66 to wit: SDAaTC "SEC. 27. Rates of Income Tax on Domestic Corporations . xxx xxx xxx (E) Minimum Corporate Income Tax on Domestic Corporations . xxx xxx xxx (2) Carry Forward of Excess Minimum Tax. Any excess of the minimum corporate income tax over the normal income tax as computed under Subsection (A) of this Section shall be carried forward and credited against the normal income tax for the three (3) immediately succeeding taxable years." It was improper for respondent to disallow said MCIT, as any tax benefit derived by petitioner from the carry-over of the said amount redounds to the succeeding year. Since the tax benefit will be in the succeeding year, at most, petitioner may only be assessed then. 5. Amount carried over to the succeeding year P1,175,599.69 Respondent contends that the excess credit of P1,175,599.69 cannot be credited against the deficiency income tax since said amount was already carried forward to the succeeding year 2007 pursuant to Section 76 of the NIRC of 1997, as amended. 67 As previously discussed, the benefit of excess tax credit carry-over will redound to the succeeding year. It is inappropriate to disallow the same as it is beyond the scope of the present assessment. 6. Unsupported creditable tax withheld P27,741.69 Respondent found that the CWT claimed by petitioner in the amount of P27,741.69 was unsupported, hence, disallowed pursuant to Section 2.58.3 of Revenue Regulations No. 2-98. 68 A perusal of the 2006 ITR 69 discloses that petitioner had CWT in the total amount of P391,845.41. 70 In support thereof, petitioner presented CWT certificates (BIR Form No. 2307) 71 which were summarized in Exhibit "P-23". 72 The summary indicates a total CWT amounting to P395,566.86. However, further scrutiny of the certificates reveals that only the amount of P392,631.15 represents petitioner's valid CWT for 2006, computed as follows: Total creditable withholding taxes per summary P395,566.86 Add (Deduct): 1) Discrepancies between the creditable withholding taxes per summary and per certificate CWT Per Summary is CWT Per CWT Per Under/ Withholding Agent Exhibit Summary Certificate (Over) MIMIR Holding, Inc. P-23.51 P1,000.00 P1,500.00 P500.00 MIMIR Holding, Inc. P-23.81 1,500.00 1,000.00 (500.00) JP Frances Holdings, Inc. P-23.78 2,500.00 1,500.00 (1,000.00) JP Frances Holdings, Inc. P-23.80 1,500.00 2,500.00 1,000.00 FusionSolutions, Inc. P-23.32 4,000.00 3,000.00 (1,000.00) (1,000.00) 2) Creditable withholding taxes pertaining to taxable year 2007 Withholding Agent Exhibit CWT Caterpillar Financial P-23.5 P700.00 Services Phils., Inc. Caterpillar Financial P-23.6 700.00 Services Phils., Inc. Caterpillar Financial P-23.74 535.71 (1,935.71) Services Phils., Inc. Properly supported creditable withholding taxes for taxable year 2006 P392,631.15 ========== The amount duly supported by CWT certificates, P392,631.15, is greater than P391,845.41, which is the amount reflected in petitioner's 2006 ITR. Hence, respondent's disallowance of the CWT of P27,741.69 is without factual basis. In fine, notwithstanding petitioner's unsupported expenses of P754,571.70, the income tax due thereon shall be offset against petitioner's total tax credits in the amount of P1,222,670.00. Therefore, petitioner is not liable for any deficiency income tax for taxable year 2006, as in fact it has excess tax credit computed below: Taxable income (loss) per ITR P(273,032.00) Add: Unsupported expenses Association dues P17,702.97 Light and water 54,697.50 Consultancy fees 569,201.45 Representation and entertainment 12,500.00 Telephone 16,494.78 Professors'/reviewers' fee 83,975.00 754,571.70 Taxable income (loss) per audit P481,539.70 Basic income tax due (35%) P168,538.90 Less: Tax credit paid per return Prior year's excess credits other than MCIT P830,824.59 Creditable tax withheld 391,845.41 1,222,670.00 Excess Tax Credits P(1,054,131.11) ============ On the Computation of the Deficiency VAT Respondent assessed petitioner for basic deficiency VAT in the amount of P31,983.39 based on the following findings: (1) total output tax due in the amount of P1,046,633.56, using the tax rate of 12%; (2) disallowed input tax in the amount of P12,297.49; and (3) input tax allocable to exempt sales in the amount of P1,636.45. acEHCD We find it unnecessary to discuss in detail respondent's computations of these amounts since the same pertain to only the first and second quarters of the taxable year 2006. In particular: BIR Finding Discussion Total output tax due The discrepancy in the computation of output tax was in the amount of caused by the respondent's use of 12% VAT rate for P1,046,633.56 January 2006 and petitioner's use of 10% VAT rate for February 2006. Per RMC No. 7-2006, the VAT rate was increased from 10% to 12% effective February 1, 2006. Hence, only the first quarter assessment is affected by this finding. Disallowed input tax The discrepancy in the computation of input tax was in the amount of caused by the respondent's use of 12% VAT rate for P12,297.49 purchases made in January 2006 and petitioner's use of 10% VAT rate for purchases made in February 2006. Again, only the first quarter assessment is affected by this finding. Input tax allocable to Exempt receipts claimed by petitioner for the first exempt sales in the quarter of 2006 73 cannot be directly attributed to any amount of P1,636.45 particular transaction. The zero-rated receipts claimed by petitioner for the second quarter of 2006 74 are not corroborated by evidence. We reiterate that the assessments for the first, second and third quarters of 2006 are void for being issued beyond the period prescribed by law. Hence, respondent may validly assess petitioner for deficiency VAT only for the fourth quarter of taxable year 2006 . An examination of the VAT returns 75 discloses the following details: Taxable Zero- Quarter Vatable Rated Exempt CY 2006 Receipts Receipts Receipts Total Output Tax Input Tax 1st 76 P1,751,855.61 P10,500.00 P1,762,355.61 P190,054.55 P65,561.28 2nd 77 2,543,782.75 P40,000.00 2,583,782.75 302,564.84 59,104.79 3rd 78 1,897,462.47 - 1,897,462.47 226,854.49 70,342.85 4th 79 2,526,845.53 - 2,526,845.53 296,812.76 76,899.28 Total P8,719,946.36 P40,000.00 P10,500.00 P8,770,446.36 P1,016,286.64 P271,908.20 =========== ========= ========== =========== ============ ========== There is a deficiency in the fourth quarter VAT payment. There appears to be a miscalculation of the output VAT. Multiplying the total VATable receipts for the fourth quarter by 12% will yield the amount P303,221.46, and not P296,812.76. Hence, petitioner is liable for the basic deficiency VAT for the fourth quarter of 2006 in the amount of P6,408.69, as follows: 4TH QTR Output tax P303,221.46 Less: Input tax 76,899.29 Less: Attributable to exempt sales - Net VAT payable P226,322.17 Less: Payments 219,913.48 Basic deficiency VAT P6,408.69 ========= WHEREFORE , premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED . The deficiency income tax assessment issued by respondent against petitioner for taxable year 2006 in the amount of P2,536,904.33 is CANCELLED AND SET ASIDE . However, the deficiency VAT assessment for taxable year 2006 is UPHELD IN PART . Accordingly, petitioner is ORDERED TO PAY respondent the amount of EIGHT THOUSAND TEN PESOS AND EIGHTY-SIX CENTAVOS (P8,010.86) representing deficiency VAT for the fourth quarter of taxable year 2006, inclusive of the twenty-five percent (25%) surcharge imposed under Section 248 (A) (3) of the NIRC of 1997, computed as follows: Basic VAT Due P6,408.69 25% Surcharge P1,602.17 Total Amount Due P8,010.86 ======== In addition, petitioner is ORDERED TO PAY : (a) Deficiency interest at the rate of twenty percent (20%) per annum on the basic deficiency VAT of P6,408.69 computed from January 25, 2007 until full payment thereof pursuant to Section 249 (B) of the NIRC of 1997, as amended; and (b) Delinquency interest at the rate of 20% per annum on the total amount of P8,010.86 and on the deficiency interest which have accrued as afore-stated in (a), computed from December 4, 2013 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. Baustista and Esperanza R. Fabon-Victorino, JJ., concur. Footnotes 1. Docket, pp. 7-17. 2. Par. 1, Stipulation of Facts, Joint Stipulation of Facts and Simplification of Issues (JSFSI), docket, pp. 158-159. 3. Par. 2, Stipulation of Facts, JSFSI, docket, p. 159. 4. Par. 3, Stipulation of Facts, JSFSI, docket, p. 159. 5. Par. 4, Stipulation of Facts, JSFSI, docket, p. 159. 6. Par. 5, Stipulation of Facts, JSFSI, docket, p. 159. 7. Par. 6, Stipulation of Facts, JSFSI, docket, pp. 159-160. 8. Par. 7, Stipulation of Facts, JSFSI, docket, p. 160. 9. Par. 8, Stipulation of Facts, JSFSI, docket, p. 160. 10. Par. 9, Stipulation of Facts, JSFSI, docket, p. 160. 11. Par. 10, Stipulation of Facts, JSFSI, docket, p. 160. 12. Exhibit "P-15", docket, pp. 237-241. 13. Docket, pp. 66-70. 14. Par. 6 of the Answer, docket, p. 68. 15. Notice of Pre-Trial Conference issued on February 7, 2014, docket, p. 72. 16. Petitioners' Pre-Trial Brief, docket, pp. 75-82; Respondent's Pre-Trial Brief, docket, pp. 83-86. 17. Docket, pp. 158-162. 18. Docket, pp. 170-175. 19. Exhibit "P-35", docket, pp. 1038-1056. 20. Docket, pp. 974-1004. 21. Docket, pp. 1064-1067. 22. Exhibit "R-11", docket, pp. 88-93. 23. Exhibit "R-12", docket, pp. 124-129. 24. Docket, pp. 1091-1095. 25. Docket, pp. 1101-1102. 26. Docket, p. 1125. 27. Docket, pp. 1103-1122. 28. JSFSI, docket, p. 161. 29. Petitioner employs the calendar year. 30. April 15, 2007 fell on a Sunday. 31. Exhibit "P-17", docket, pp. 264-266. 32. Exhibit "P-22.3", docket, pp. 786-788. 33. April 25, 2009 fell on a Saturday. 34. Exhibit "P-22.6", docket, pp. 793-795. 35. July 25, 2009 fell on a Saturday. 36. Exhibit "P-22.9", docket, pp. 800-802. 37. October 25, 2009 fell on a Sunday. 38. Exhibit "P-22.12", docket, pp. 807-809. 39. Exhibit "P-9", docket, pp. 222-226. 40. Exhibit "P-6", docket, p. 219; Exhibit "P-7", docket, p. 220. 41. Exhibit "P-17", docket, pp. 264-266. 42. Exhibit "P-15", Details of Discrepancies, docket, p. 239. 43. Exhibit "P-16", docket, p. 256. 44. Exhibits "P-24", "P-25", and "P-26", docket, pp. 896-923. 45. The applicable VAT rate in 2005 was 10%. 46. Section 34 (A) (1) (b) of the Tax Code states, ". . . No deductions from gross income shall be allowed under this Subsection (A) hereof, unless the taxpayer shall substantiate with sufficient evidence, such as official receipts or adequate records; (i) the amount of expenses being deducted. . . . ." 47. Exhibit "P-15", Details of Discrepancies, docket, p. 239. 48. Exhibits "P-27" and "P-28", docket, pp. 924-931. 49. Exhibits "P-27" and "P-28", docket, p. 924 and p. 928. 50. Exhibit "P-18", docket, pp. 267-294. 51. Exhibit "P-19", docket, pp. 295-319. As per respondent's audit, the amount of light and water amounted to P54,697.50. 52. Docket, pp. 268-319. 53. Exhibits "P-27" and "P-28", docket, pp. 924-931. 54. Exhibit "P-10", docket, p. 229. 55. Exhibits "P-20.1" to "P-20.48", docket, pp. 322 to 369. 56. Exhibits "P-20.1.1" to "P-20.2.1", "P-20.6.1" to "P-20.21.1", "P-20.23.1" to "P-20.33.1", "P-20.35.1" to "P-20.40.1", "P-20.42.1" to "P-20.45.1", "P-20.47.1" to "P-20.48.1", docket, pp. 370-410. 57. Exhibit "P-34", docket, p. 1026. 58. Docket, pp. 932-935. 59. Exhibit "P-10", docket, p. 229. 60. Exhibit "P-21", docket, pp. 411-415. 61. Exhibit "P-33", docket, p. 936. 62. Exhibits "P-33.1" to "P-33.16", docket, pp. 937-952. 63. Docket, pp. 416-780. 64. Exhibit "P-17", line 21B, docket, p. 264. 65. Exhibit "P-15", Details of Discrepancies, docket, p. 239. 66. Exhibit "P-15", Details of Discrepancies, docket, p. 239. 67. Exhibit "P-15", Details of Discrepancies, docket, p. 240. 68. Exhibit "P-15", Details of Discrepancies, docket, p. 240. 69. Exhibit "P-17", Docket, p. 264. 70. [P119,238.29 + P272,607.12 = P391,845.41]; Exhibit "P-17", lines 28C and 28D, docket, p. 264. 71. Exhibits "P-23.1" to "P-23.83", docket, pp. 813-895. 72. Docket, pp. 811-812. 73. Exhibit "P-22.3", docket, pp. 786-788. 74. Exhibit "P-22.6", docket, pp. 793-795. 75. Docket, pp. 782-809. 76. Exhibit "P-22.3", docket, pp. 786-788. 77. Exhibit "P-22.6", docket, pp. 793-795. 78. Exhibit "P-22.9", docket, pp. 800-802. 79. Exhibit "P-22.12", docket, pp. 807-809.