Green Valley Marketing Corp. v. Commissioner of Internal Revenue

SECOND DIVISION [C.T.A. CASE NO. 8988. November 3, 2017.] GREEN VALLEY MARKETING CORPORATION , petitioner , vs. COMMISSIONER OF INTERNAL REVENUE , respondent . DECISION CASTAEDA, JR. , J p : STATEMENT OF THE CASE This is a Petition for Review filed by Green Valley Marketing Corporation praying that Assessment Notices Nos. IT-116-LOA-116-2011-00000109-10-14-809, VT-116-LOA-116-2011-00000109-10-14-810, MC-116-LOA-116-2011-00000109-10-14-811 and WE-116-LOA-116-2011-00000109-10-14-812 issued by respondent against petitioner for alleged deficiency income tax, value-added tax (VAT), expanded withholding tax (EWT), and miscellaneous tax (MC) for calendar year 2010 in the aggregate amount of P195,931,984.67 be declared void. STATEMENT OF FACTS Petitioner is registered with the Bureau of Internal Revenue (BIR) and duly issued a BIR Certificate of Registration No. 8RC0000020168 duly certified by Teresita M. Dizon, OIC-HREA Large Taxpayer Service Division. 1 Respondent is the duly appointed Commissioner of Internal Revenue (CIR) who holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City. On September 23, 2011, petitioner received Letter of Authority No. LOA-116-2011-00000109 2 from respondent signed by the OIC-ACIR Alfredo V. Misajon, which authorized its representatives to conduct an examination of the former's books of accounts and other accounting records for all internal revenue taxes for the period January 1, 2010 to December 31, 2010. 3 Sometime in March 2013, petitioner received a Letter Notification dated March 5, 2013 from respondent informing it that audit/investigation has been re-assigned pursuant to MOA No. LOA-116-2013-0433 dated February 25, 2013. 4 On May 6, 2013, petitioner received respondent's First Notice for Presentation of Books of Accounts and Other Relevant Records. 5 On June 17, 2013, petitioner received BIR's Second Notice for Presentation of Books of Accounts and Other Relevant Records. 6 On June 21, 2013, petitioner executed a "Waiver of the Defense of Prescription under the Statute of Limitations of the National Internal Revenue Code" 7 in relation to the tax audit being conducted. OIC-Assistant Commissioner for the Large Taxpayers Service, Mr. Alfredo V. Misajon, accepted it on July 17, 2013. The Waiver gave respondent until December 31, 2013 within which to assess petitioner. 8 On September 12, 2013, petitioner executed another Waiver 9 giving respondent until June 30, 2014 within which to assess the former. Mr. Misajon accepted it on September 17, 2013. 10 On June 3, 2014, petitioner received from respondent the Preliminary Assessment Notice (PAN) together with the Details of Discrepancies. 11 On June 25, 2014, petitioner received a Formal Letter of Demand (FLD) 12 from respondent BIR, with Details of Discrepancies and attached Assessment Notices 13 Nos. IT-116-LOA-116-2011-00000109-10-14-809, VT-116-LOA-116-2011-00000109-10-14-810, MC-116-LOA-116-2011-00000109-10-14-811 and WE-116-LOA-116-2011-00000109-10-14-812. 14 On July 25, 2014, petitioner filed its administrative protest 15 in the nature of a request for reconsideration with respondent. However, respondent failed to act on petitioner's administrative protest. Thus, on February 20, 2015, petitioner filed the instant Petition for Review. On May 12, 2015, respondent filed his Answer, 16 interposing the following special and affirmative defenses: "4. Respondent adopts the abovementioned admissions and denials as part of her special and affirmative defenses: THE ASSESSMENT HAS BASES BOTH IN FACT AND IN LAW 5. Respondent strongly submits that the assessment has bases both in fact and in law which can be gleaned from the following discussion. A. PETITIONER IS LIABLE FOR DEFICIENCY INCOME TAX AND VALUE-ADDED TAX (VAT) RESULTING FROM UNDECLARED INCOME. 6. Petitioner is being assessed for deficiency Income Tax and Value-Added Tax resulting from alleged unaccounted income amounting to P158,198,435.66. Petitioner argues that such is without merit and lacks factual basis since it was only a result of a comparison of different data reported under the VAT RELIEF System, Tax Reconciliation System (Creditable Withholding Tax Withheld from petitioner as reported by third parties), Summary Alphalist of Creditable Withholding Tax) vis--vis the declaration made per Summary List of Sales (SLS). 7. It must be stressed that respondent's audit investigation for deficiency taxes is not confined to the examination of the documents provided or obtained from petitioner. The Commissioner has the power to promulgate rules to ensure the accuracy and truthfulness of the taxes declared and paid by taxpayers. Such power of the Commissioner of Internal Revenue to obtain information from other sources is enshrined in Section 5 of the Tax Code which specifically provides: xxx xxx xxx 8. Also, lest petitioner must have forgotten, the RELIEF System which stands for "Reconciliation of Listing for Enforcement" was purposely to detect tax leaks by matching the data available under the Bureau's Integrated Tax System (ITS) with data gathered from third party sources. Through the consolidation and cross-referencing of third party information, discrepancy reports on sales and purchases can be generated to uncover under declared income and over claimed purchases (goods and services). Timely recognition and accurate reporting of unregistered taxpayers a non-filer can be made possible . 9. The Tax Reconciliation System (TRS) on the other hand is geared towards enhancing revenue collection by computerized matching of data available under the Bureau's Integrated Tax System (ITS). Through the consolidation and cross-referencing of data from withholding agents (WAs) and declaration of income recipients, discrepancy reports can be generated to uncover violations on tax rules and regulations such under declaration of income, non-declaration of income, under remittance and/or non-remittance of taxes withheld, over withholding, under withholding, over declaration of credits to name a few . Timely recognition and accurate reporting of unregistered taxpayers and non-filers will also be possible. B. PETITIONER IS LIABLE FOR DEFICIENCY INCOME TAX RESULTING FROM DISALLOWED EXPENSES DUE TO NON-WITHHOLDING OF TAX AND UNACCOUNTED COST/EXPENSE. 10. Respondent's audit examination revealed that certain income payments made by petitioner were properly subjected to withholding tax. 11. Thus, the corresponding income tax due thereon is assessed pursuant to Section 32 in relation to Section 27 of the Tax Code. 12. Section 6 of Revenue Regulations No. 14-2002 explicitly provides: xxx xxx xxx 13. Based on the above quoted provision of Revenue Regulations No. 14-2002 and the findings of respondent that certain payments made by petitioner were not properly subjected to withholding tax, the disallowed expenses in the amount of P89,780,690.14 is proper. Thus, the corresponding income taxes resulting from the disallowed expenses should also be imposed on petitioner. 14. Further, respondent's audit examination also reveals that petitioner failed to submit/present sufficient proof of support such claim of deduction. The following deductions are being disallowed: Salary P84,671.41 Freight/Handling 37,230,901.40 Total P37,315,572.81 ============ 15. Finally, petitioner is being assessed deficiency income tax because of the audit findings that there exist an unaccounted rental expense per reconciliation of Expanded Withholding Tax Return with the amount of claimed rental expenses in petitioner's Financial Statement in the amount of P232,857.18. 16. Respondent strongly submits the propriety of such assessment. In Perez vs. Court of Tax Appeals, et al. the Honorable Supreme Court made it explicit that unreflected sources of funds not accounted for in the taxpayer's returns leads to the inference that part of his income had not been reported . C. PETITIONER IS LIABLE FOR DEFICIENCY VALUE-ADDED TAX (VAT) RESULTING FROM UNACCOUNTED INCOME DUE TO UNACCOUNTED EXPENSES, UNACCOUNTED RENTAL EXPENSE AND DISALLOWED CREDITABLE INPUT TAXES. 17. As discussed previously, respondent's audit findings revealed that there exist an unaccounted income due to unaccounted expenses and unaccounted rental expense, to wit: Unaccounted Income P84,671.41 Unaccounted Rental Expense 232,857.18 Total P317,528.59 ========= 18. Pursuant to Section 106 of the Tax Code, the corresponding findings will not only make petitioner liable for deficiency income tax but also Value-Added Tax (VAT). 19. Finally, respondent's audit assessment reveals that petitioner failed to reconcile the unaccounted difference in the sources of input tax per Summary List of Purchases (SLP) against the declared purchases per VAT Returns which led to the disallowance of corresponding input tax pursuant to Section 110(A) of the Tax Code in the amount of P53,738,254.34. D. PETITIONER IS LIABLE FOR DEFICIENCY EXPANDED WITHHOLDING TAX (EWT) RESULTING FROM INCOME PAYMENTS NOT PROPERLY SUBJECTED TO WITHHOLDING TAXES. 20. Respondent's audit examination reveals that withholding taxes on certain income payments were not paid pursuant to Section 2.57.2 of Revenue Regulations No. 2-98, as amended. Thus the assessment deficiency withholding tax against petitioner, viz. : Total Income payments per audit P835,453,720.90 Total Income Payments per EWT returns 745,673,030.76 Difference-Income Payments not subjected to withholding tax P89,780,690.14 Basic EWT at various rates P1,311,498.67 ============ 21. Withholding tax is a system by which taxes are collected at source. Tax is collected in advance even before it reaches the hands of the income recipient. It is a means by which the government can collect the appropriate amount of taxes through payors who are constituted as withholding tax agents. This ensures that taxes will be paid first, and will be paid on time as the government needs the funding to meet its obligations. The system is used to equal or at least approximate or collect in full the tax due from the payee on certain income payments. 22. This obligation of petitioner to withhold and remit the correct tax is its duty as an agent of the government in the collection of taxes and not as a statutory taxpayer. 23. Thus, the assessment on petitioner for failure on its part to withhold the proper taxes is proper. E. PETITIONER IS LIABLE FOR COMPROMISE PENALTIES. 24. Petitioner contends that is should not be subject of the compromise penalties since these are only suggested in settlement of criminal liability, and may not be imposed or exacted on the taxpayer in the event that a taxpayer refuses to pay the same. 25. Respondent interposes that the compromise penalties are proper and with bases. Audit examination of petitioner disclosed that it failed to file the Summary List of Withholding Taxes (SAWT) and Summary List of Sales (SLS) in violation of Revenue Memorandum Order No. 51-2009. Petitioner is does subject to compromise penalties per violation as provided for in the Tax Code and Revenue Memorandum Order No. 19-2007. THE ASSESSMENTS AGAINST PETITIONER WERE ISSUED WITHIN THE PERIOD PROVIDED FOR BY LAW 26. Petitioner alleged that it executed a third waiver giving respondent until 31 December 2014 within which to assess the petitioner. As alleged the third waiver bears no stamp of acceptance from respondent. 27. Respondent interposes that alleged third waiver does not exist in the BIR Records. Respondent strongly submits that there are only two waivers involved in the case at hand and with details as follows: a. The "First Waiver" executed by petitioner on 21 June 2013, extending the period to assess for taxable year 2010 until 31 December 2013. The same was accepted for the respondent by Asst. Commissioner Alfredo V. Misajon on 17 July 2013. The copy of the accepted waiver was received by petitioner on 22 July 2013; and b. The "Second Waiver" executed by petitioner on 12 September 2013 extending the period to assess for taxable year 2010 until 30 June 2014. The same was accepted for the respondent by Asst. Commissioner Alfredo V. Misajon on 17 September 2013. The copy of the accepted waiver was received by petitioner on 20 September 2013. 28. The Final Assessment Notice (FAN) and the Formal Letter of Demand was issued and served upon petitioner on 25 June 2014. Thus, the same were issued within the period provided for by the Tax Code. 29. Further, respondent submits that the period of prescription provided for under the Tax Code does not apply to the assessment against petitioner for deficiency Expanded Withholding Taxes (EWT) in the total amount of P2,224,383.27. 30. Withholding tax assessments are NOT internal revenue tax as a statutory taxpayer but rather such assessments were issued for failure of respondent to withhold correct taxes it is duty bound to collect as agent. Thus the assessments issued for Deficiency Expanded Withholding Tax are imprescriptible. This obligation of petitioner to withhold and remit the correct taxes is its duty as an agent of the government in the collection of taxes and not as a statutory taxpayer. 31. By operation of law, the relationship between the Government and the withholding agent is one of agency for which reason the withholding agent only holds the funds withheld by him in trust for the Government. Clearly, the liability of petitioner as taxpayer is different from its liability as withholding agent. This is the reason why liabilities arising from withholding taxes were never covered by tax amnesty programs. Basically, these liabilities arose from a different source of obligation. 32. The liability of a withholding agent is further established under Section 251, Title X of the Tax Code, which provides: xxx xxx xxx 33. In Filipinas Synthetic Fiber Corporation vs. Court of Appeals and Commissioner of Internal Revenue , the Honorable Supreme Court ratiocinated: "The law sets no condition for the personal liability of the withholding agent to attach. The reason is to compel the withholding agent to withhold the tax under all circumstances. In effect, the responsibility for the collection of the tax as well as the payment thereof is concentrated upon the person over whom the Government has jurisdiction. Thus, the withholding agent is constituted the agent both the government and the taxpayer. With respect to the collection and/or withholding of the tax, he is the Governments agent. In regard to the filing of the necessary income tax return and the payment of the tax to the Government, he is the agent of the taxpayer. The withholding agent, therefore, is no ordinary government agent especially because under Section 53 (c) he is held personally liable for the tax he is duty bound to withhold; whereas, the Commissioner of Internal Revenue and his deputies are not made liable to law." 34. The tax Code only makes petitioner, as withholding agent personally liable for the tax arising from the breach of its legal duty to withhold as distinguished from its duty to pay tax, since the government's cause of action against the withholding agent is not for the collection of income tax, but for the enforcement of the withholding provision of Section 57 of the Tax Code, compliance with which is imposed on the withholding agent and not upon the taxpayer. 35. Accordingly, the tax deducted and withheld by withholding agents under the said provision shall be held as a special fund in trust for the government until paid to the collecting officer. It bears emphasis that petitioner as a withholding agent merely holds in trust the amount of tax it withheld and as trustee, it is duty bound to remit to the government the proper amount of tax withheld and this duty is imprescriptible. THE LETTER OF AUTHORITY (LOA), NOTICE OF INFORMAL CONFERENCE (NIC), PRELIMINARY ASSESSMENT NOTICE (PAN), FORMAL LETTER OF DEMAND (FLD) AND FINAL ASSESSMENT NOTICE (FAN) WERE ISSUED IN ACCORDANCE WITH LAW, RULES AND JURISPRUDENCE 36. As can be deduced from the following narrations of facts, the procedure prescribed under Revenue Regulations No. 12-99 had been complied with by respondent, viz. : 36.1 A Letter of Authority (LOA) No. 116-2011-00000109/SN eLA201100003014 dated 23 September 2011 was issued authorizing Revenue Officers Zenaida Paz, Myrna Ramirez, Ma. Salud Maddela, Cletofel Parungao, Allan Maniego, Joel Aguila/Group Supervisor-Glorializa Samoy of LT Regular Audit Division 1 to examine books of accounts and other accounting records for all internal revenue taxes for the period from January 01, 2010 to December 31, 2010 of petitioner. Copy of the Letter of Authority was issued to petitioner on 26 September 2011. Accompanying the LOA is the Checklist of Requirements requesting the presentation of the required records and documents. The same was served upon petitioner on even date. 36.2 On 06 May 2013 the First Notice was issued reiterating the request for presentation and submission of the documents mentioned in the checklist of requirements. 36.3 On 17 June 2013 the Second and Final Notice for Presentation of Books of Accounts & Other Accounting Records was issued reiterating the previously issued notice with a warning that non-compliance within ten (10) days from receipt will warrant the issuance of a Subpoena Duces Tecum. 36.4 On 21 June 2013, petitioner executed a Waiver (First Waiver) of the Defense of Prescription under the Statute of Limitations of the National Internal Revenue Code for taxable year 2010 extending the period to assess until 31 December 2013. The same was accepted for the respondent by Asst. Commissioner Alfredo V. Misajon on 17 July 2013. The copy of the accepted waiver was received by petitioner on 22 July 2013. 36.5 On 12 September 2013, petitioner executed another Waiver (Second Waiver) of the Defense of Prescription under the Statute of Limitations of the National Internal Revenue Code for taxable year 2010 extending the period to assess until 30 June 2014. The same was accepted for the respondent by Asst. Commissioner Alfredo V. Misajon on 17 September 2013. The copy of the accepted waiver was received by petitioner on 20 September 2013. 36.6 On 03 June 2014 the Preliminary Assessment Notice ("PAN") was issued to petitioner on demanding payment of deficiency Income Tax, Value-Added Tax (VAT), Expanded Withholding Tax (EWT), surcharge, interest and compromise penalty for the taxable year 2010. The PAN was received by petitioner on even date. 36.7 Final Assessment Notice (BIR Form No. 0401) and Formal Letter of Demand (FLD) dated 25 June 2014 were issued and received by petitioner on even date. The Formal Letter of Demand is quoted as follows: "Please be informed that after investigation here has been found due from your deficiency Income Tax, Value-Added Tax, Miscellaneous Tax and Expanded Withholding Tax for the year ending 31 December 2010, as shown hereunder: Tax Type Assessment No. Amount Income Tax Payable IT-116-LOA-116-2011-00000109-10-14-809 P71,613,796.56 Value-Added Tax VT-116-LOA-116-2011-00000109-10-14-810 122,043,804.84 Miscellaneous Tax MC-116-LOA-116-2011-00000109-10-14-811 50,000.00 Expanded Withholding Tax WE-116-LOA-116-2011-00000109-10-14-812 2,224,383.27 Total Amount Payable P195,931,984.67 " 36.8 On 25 July 2014, petitioner filed its administrative protest on the Formal Letter of Demand and Final Assessment Notice. 37. Contrary to petitioner's contention, it was accorded every opportunity allowed by law and the rules to contest the assessment. Petitioner therefore cannot just simply claim that it was not accorded due process. Petitioner in alleging denial of due process randomly quoted the decision of the Honorable Supreme Court in the case of Castillo, et al. vs. Hon. Juan and interposed that judgment should be rendered upon lawful hearing and must clearly explain its factual and legal basis. 38. With all due respect, respondent strongly interposes that the decision of the Honorable Supreme Court in Vivo vs. Philippine Amusement and Game Corporation (PAGCOR) is best applied to the case at hand, thus: The essence of procedural due process is embodied in the basic requirement of notice and a real opportunity to be heard. In administrative proceedings, such as in the case at bar, procedural due process simply means the opportunity to explain one's side or the opportunity to seek a reconsideration of the action or ruling complained of. "To be heard" does not mean only verbal arguments in court; one may be heard also thru pleadings. Where opportunity to be heard, either through oral arguments or pleadings, is accorded, there is no denial of procedural due process . (Emphasis ours) 39. Petitioner was never denied the opportunity to contest respondent's findings. In every stage of the conduct of the audit examination, petitioner was accorded opportunity to submit supporting documents to refute the audit findings. 40. Hence, petitioner cannot and should not clamor that it was denied due process. In Calma, et al. vs. Court of Appeals, et al. , the Highest Court made it clear: Administrative due process requires notice and an opportunity to be heard before judgment is rendered. So long as the parties are given the opportunity to explain their side, the requirements of due process are satisfactorily complied with. 41. Based on the foregoing, the finding of deficiency tax liabilities against petitioner for taxable year 2010 is proper in all respects. It was made explicit by the Honorable Supreme Court in the case of Commissioner of Internal Revenue vs. Bank of the Philippine Islands that: "Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. All presumptions are in favor of the correctness of tax assessments ."" Thereafter, a Notice of Pre-Trial Conference 17 was issued by the Court, setting the case for pre-trial conference on June 25, 2015. Accordingly, petitioner's Pre-Trial Brief 18 and Respondent's Pre-Trial Brief 19 were both filed on June 19, 2015. However, upon petitioner's motion, 20 the pre-trial conference was reset on July 23, 2015. 21 Pre-trial ensued. The parties submitted their Joint Stipulation of Facts and Issues 22 on August 17, 2015. Thereafter, the Court issued a Pre-Trial Order 23 on September 3, 2015. On September 7, 2015, upon petitioner's motion, 24 this Court commissioned Mr. Rendon P. Gammag, as Independent Certified Public Accountant (ICPA). 25 During trial, petitioner presented (1) Ms. Emmie Basmayan-Villamor, 26 petitioner's General Manager; and (2) Mr. Rendon P. Gammag, 27 the ICPA, as its witnesses. The Amended Formal Offer of Evidence for the Petitioner 28 was filed on March 17, 2016. All exhibits were admitted by this Court, pursuant to the Resolutions 29 dated April 18, 2016 and April 20, 2016. On the other hand, respondent presented Revenue Officer Carolyn V. Mendoza 30 as his lone witness. Thereafter, respondent formally offered his exhibits 31 on July 29, 2016, which were all admitted in the Court's Resolution 32 dated August 30, 2016. This case was deemed submitted for decision on November 24, 2016, considering respondent's Memorandum 33 filed on November 4, 2016 and Memorandum for the Petitioner 34 filed on November 18, 2016. 35 STATEMENT OF ISSUE The issue and sub-issue stipulated by the parties for this Court's resolution are as follows: 36 Whether petitioner is liable to pay the deficiency IT, VAT, Miscellaneous Tax and EWT for taxable year 2010 in the amount of P195,931,984.67, inclusive of interests and compromise. Whether respondent has sufficiently informed the petitioner in writing of the law and the facts on which the alleged deficiency tax assessments were made and if those assessments have factual and legal bases. DISCUSSION/RULING The Court will determine first the timeliness of the filing of the instant 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. 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. The FLD with Details of Discrepancies and Assessment Notices were received by petitioner on June 25, 2014 and petitioner filed its administrative protest on July 25, 2014 or within the thirty-day period prescribed under Section 228 of the NIRC of 1997, as amended. Moreover, the same section provides that if the protest is not acted upon within 180 days from submission of supporting documents, the taxpayer may appeal the inaction to this Court within 30 days from the lapse of the 180-day period. In this case, petitioner did not submit additional supporting documents within the 60-day period allowed under Section 228 of the NIRC of 1997, as amended. Hence, counting 180 days from the filing of the administrative protest on July 25, 2014, respondent had until January 21, 2015 to decide on the protest. There being no action on the protest, petitioner had thirty (30) days from January 21, 2015 or until February 20, 2015 within which to file an appeal before this Court. Hence, petitioner timely filed the instant Petition for Review with this Court on February 20, 2015. The Court shall now determine whether petitioner is liable to pay the deficiency taxes assessed by respondent. Respondent issued her Formal Letter of Demand 37 (FLD) dated June 25, 2014 against petitioner with total deficiency tax liabilities amounting to P195,931,984.67, detailed as follows: Tax Type Basic Interest Compromise Total Income Tax P42,944,689.00 P28,644,107.56 P25,000.00 P71,613,796.56 VAT 72,760,169.85 49,258,634.99 25,000.00 122,043,804.84 Expanded Withholding Tax 1,311,498.67 887,884.60 25,000.00 2,224,383.27 Miscellaneous Tax 50,000.00 50,000.00 TOTAL P117,016,357.52 P78,790,627.15 P125,000.00 P195,931,984.67 I. Income Tax (IT) P71,613,796.56 Respondent assessed petitioner of deficiency IT in the total amount of P71,613,796.56, computed as follows: 38 Taxable Income (Loss) per Return P4,004,253.69 Add: Adjustments per Audit i. Undeclared Income on discrepancies per line-by-line reconciliation P15,819,843.57 ii. Disallowed expenses for non-withholding of tax 89,780,690.14 iii. Unaccounted income from unaccounted expenses 37,548,429.63 143,148,963.34 Adjusted Taxable Income P147,153,217.03 Tax Due P44,145,965.11 Less: Tax Credits Prior year's excess credits P461,126.32 Tax payments for the first three quarters 740,186.94 Creditable Tax Withheld for the first three quarters 49,896.46 Creditable Tax Withheld per BIR Form 2307 for the 4Q 257,379.21 Tax paid per 1702 152,843.79 Less: Excess MCIT 460,156.61 1,201,276.11 Basic Deficiency Tax 42,944,689.00 Add: Increments Interest until August 15, 2014 28,644,107.56 Compromise penalty 25,000.00 Total Amount Due P71,613,796.56 As can be seen from the above computation, the assessment arose from the following items: i. Undeclared Income on discrepancies per line-by-line reconciliation P15,819,843.57 ii. Disallowed expenses for non-withholding of tax 89,780,690.14 iii. Unaccounted income from unaccounted expenses 37,548,429.63 iv. Disallowed excess MOT 460,156.61 The Court shall determine the propriety of each item. i. Undeclared Income on discrepancies per line- by-line reconciliation P15,819,843.57 As stated in the Details of Discrepancies attached to the FLD, this item of assessment was based on Section 5 (B) of the NIRC of 1997, as amended, which grants the Commissioner the power to obtain any information, on a regular basis from any person, any office or agency other than the party whose internal revenue tax liabilities is under audit. This power is further enhanced under the third party information program of the bureau, wherein the BIR can access the records of the taxpayer's suppliers/customers to confirm the accuracy of the declaration made in the tax returns. The alleged undeclared income on discrepancies per line-by-line reconciliation was computed as follows: 39 A. Unaccounted income resulting from unaccounted purchases per matching of AITEID data vs. SLP P84,819,343.96 B. Unaccounted income resulting from unaccounted purchases per matching of MAP vs. SLP 57,559,248.13 Total P142,378,592.09 Divided by ratio of cost to sale per ITR 90% Equivalent Sales P158,198,435.66 Multiply by gross profit rate 10% Total P15,819,843.57 A. Unaccounted income resulting from unaccounted purchases per matching of AITEID data vs. SLP P84,819,343.96 Respondent maintains that petitioner has unrecorded income in the amount of P84,819,343.96 arising from the reconciliation of purchases per SLP (Summary List of Purchases) and AITEID (Audit Information, Tax Exemption and Incentives Division) data, presented as follows: 40 SUPPLIER Per SLP Per AITEID AITEID > SLP a. Asia Brewery, Incorporated P54,535,600.14 b. Interbrev Philippines, Inc. 24,596,066.55 c. Actuarial Advisers, Inc. 7,500.00 d. Allied Bankers Insurance Corporation 1,760.00 e. Angeles Electric Corporation 2,556.68 f. Asian Shipping Corporation 104,822.02 g. Charles Ice Plant and Cold Storage Corp. 312.50 h. Lorenzo Shipping Corporation 1,642,046.12 i. Motormall Davao Corporation 8,482.14 j. Pilipinas Shell Petroleum Corporation 2,837,954.47 k. PJP Auto Center, Inc. 1,437.50 l. Rapid Movers and Forwarders Co., Inc. 378,262.79 m. Ravago Equipment Rentals, Inc. 28,571.12 n. Topkick Movers Corporation 673,971.93 P84,819,343.96 Petitioner contends that respondent's allegation has no factual and legal bases considering that petitioner has no unaccounted purchases for taxable year 2010. Petitioner further argues that the schedule above failed to provide the amounts under columns "Per SLP" and "Per AITEID" to justify that the AITEID data is greater than those declared by petitioner in its SLP. The details stated by the respondent are not sufficient to afford the petitioner the opportunity to intelligently answer the assessment, as well as to prepare documentary evidence to support its position. Needless to say, petitioner cannot properly contest the issues raised by respondent point-by-point because it was not fully or at least substantially informed of its factual basis. We agree with petitioner. Though respondent provided the legal basis of the assessment, respondent, however, failed to provide the factual bases of the variances per SLP and per AITEID data. Respondent failed to indicate the basis of why the AITEID data is greater than the amounts reported in the petitioner's SLP. Respondent simply did not indicate where the said amounts came from. To reiterate petitioner's argument, said assessment details are not sufficient to afford petitioner the opportunity to intelligently answer the assessment, as well as prepare the documentary evidence in support of its protest. Even the Court-commissioned ICPA himself, Mr. Rendon P. Gammag, in his Amended Report 41 dated December 8, 2015, was not able to reconcile the differences between SLP and per AITEID data, for lack of details. In Commissioner of Internal Revenue vs. Enron Subic Power Corporation , 42 the Supreme Court ruled as follows: 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. x x x Further, both Section 228 of the NIRC of 1997, as amended, and Section 3.1.4 of RR No. 12-99 clearly require the written details on the nature, factual and legal bases of the subject deficiency tax assessments. The reason for the mandatory nature of this requirement is explained in the case of Commissioner of Internal Revenue vs. Reyes : 43 x x x A void assessment bears no valid fruit. The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations: that taxpayers should be able to present their case and adduce supporting evidence. In the instant case, respondent has not been informed of the basis of the estate tax liability. Without complying with the unequivocal mandate of first informing the taxpayer of the government's claim, there can be no deprivation of property, because no effective protest can be made . The haphazard shot at slapping an assessment, supposedly based on estate taxation's general provisions that are expected to be known by the taxpayer, is utter chicanery. 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." (Emphasis supplied; citations omitted) Thus, as petitioner cannot be expected to determine and thereafter refute the findings of the examiner without the disclosure of the details of the discrepancies and the factual bases of the assessment made against it, the assessment pertaining thereto is considered void and shall be cancelled accordingly. B. Unaccounted income resulting from unaccounted purchases per matching of MAP vs. SLP P57,559,248.13 As stated in the Details of Discrepancies, the basis of respondent's assessment is petitioner's alleged "unaccounted income" amounting to P57,559,248.13 derived by matching petitioner's SLP and MAP, as follows: SUPPLIER'S NAME PER SLP PER MAP SLP>MAP Aboitiz Transport System Corporation P5,045,711.74 P5,214,775.28 (P169,063.54) Arce Manpower Services - 8,950.20 (8,950.20) Asian Shipping Corporation 3,158,977.77 3,263,799.79 (104,822.02) Buug Hardware & Gen. Merchandise - 43,526.78 (43,526.78) Chua Hong/Siu Tian Chua 300,000.00 325,000.00 (25,000.00) Coren Commercial Co., Inc. - 200,758.93 (200,758.93) DDIS, Inc. 1,258,928.53 1,607,142.84 (348,214.31) Dennis Trucking Services 2,002,207.23 2,340,935.22 (338,727.99) Eagle Force Security and Allied Services Corp. - 881,190.49 (881,190.49) Eric Arada - 37,500.00 (37,500.00) FA Freight Services 960,069.21 1,133,154.38 (173,085.17) Fastcargo Logistic Corporation 3,961,560.13 4,858,772.29 (897,212.16) Friends Trucking 1,713,468.21 1,760,372.67 (46,904.46) Gct and Sons Agricultural Devt. Corp. 673,135.71 754,661.32 (81,525.61) George Duran - 165,000.00 (165,000.00) Gr Real Estate Lessor - 340,507.59 (340,507.59) Gt Distributor, Inc. 64,707.94 144,274.70 (79,566.76) Hizon Transport Services and Trading, Inc. - 3,045.98 (3,045.98) Interbev Philippines, Inc. 285,353,972.41 331,981,981.89 (46,628,009.48) Jesus Anthony Tan - 15,789.42 (15,789.42) Jesus Bajamunde - 292,452.66 (292,452.66) Landcom Realty Corporation - 72,000.00 (72,000.00) LFH Venture Merchandising Corporation - 89,632.15 (89,632.15) Lorenzo Shipping Corporation 6,042,101.32 7,495,812.74 (1,453,711.42) Misamis Occidental Electric Cooperative, Inc. - 13,822.08 (13,822.08) Misamis Occidental II Electric Cooperative, Inc. - 16,498.66 (16,498.66) Negros Marine Watchman Services Corporation - 194,285.73 (194,285.73) Ocean Transport Group of Companies, Inc. - 2,773,930.80 (2,773,930.80) Pna Freight Services 673,802.84 719,877.65 (46,074.81) Rabukawa Trucking - 3,498.30 (3,498.30) Ravago Equipment Rentals, Inc. 72,282.98 75,019.73 (2,736.75) Ricardo Tumawak - 130,000.00 (130,000.00) Romeo Javelosa - 56,000.00 (56,000.00) Royalmaster Services, Inc. 1,202,984.34 1,490,146.54 (287,162.20) T Biraogo Trucking Services, Inc. 1,211,974.33 1,388,110.17 (176,135.84) Topkick Movers Corporation 4,648,802.13 5,060,502.80 (411,700.67) Vallecers East Supermart - 107,142.85 (107,142.85) Value Care Health Systems, Inc. 24,160.62 120,803.09 (96,642.47) Vila Gil Trucking, Inc. 433,500.00 486,500.00 (53,000.00) William Uy - 36,842.11 (36,842.11) Ym Cargo Transport Corporation 61,607.14 653,571.43 (591,964.29) Zamboanga Del Norte Electric Coop, Inc. Dipolog - 37,467.61 (37,467.61) Zamboanga Del Sur I Electric Cooperative, Inc. - 24,423.05 (24,423.05) Zamboanga Del Sur II Electric Cooperative, Inc. - 3,722.79 (3,722.79) P318,863,954.58 P376,423,202.71 (P57,559,248.13) On the other hand, petitioner argues that the amounts per SLP as presented by respondent is erroneous. The Court agrees with petitioner. Upon careful review of petitioner's SLP, 44 the Court finds that the total amount per SLP is equivalent to P353,029,525.22 and not P318,863,954.58 as claimed by respondent, to wit: Supplier's Name SLP per GVMC SLP per BIR Discrepancy Aboitiz Transport System Corporation P5,226,025.23 P5,045,711.74 P180,313.49 Arce Manpower Services - - - Asian Shipping Corporation 3,263,799.79 3,158,977.77 104,822.02 Buug Hardware and Gen. Merchandise 43,660.71 - 43,660.71 Chua Hong/Siu Tian Chua 325,000.00 300,000.00 25,000.00 Coren Commercial Co., Inc. 200,758.93 - 200,758.93 DDIS, Inc. 1,580,357.09 1,258,928.53 321,428.56 Dennis Trucking Services 2,340,935.22 2,002,207.23 338,727.99 Eagle Force Security and Allied Services Corp. 881,190.49 - 881,190.49 Eric Arada - - - FA Freight Services 1,133,154.38 960,069.21 173,085.17 Fastcargo Logistic Corporation 4,880,785.92 3,961,560.13 919,225.79 Friends Trucking 1,760,372.67 1,713,468.21 46,904.46 Gct and Sons Agricultural Devt. Corp. 754,661.32 673,135.71 81,525.61 George Duran - - - Gr Real Estate Lessor - - - Gt Distributor, Inc. 70,590.48 64,707.94 5,882.54 Hizon Transport Services and Trading, Inc. 3,045.98 - 3,045.98 Interbev Philippines, Inc. 309,949,038.96 285,353,972.41 24,595,066.55 Jesus Anthony Tan - - - Jesus Bajamunde - - - Landcom Realty Corporation - - - LFH Venture Merchandising Corporation 89,632.15 - 89,632.15 Lorenzo Shipping Corporation 7,495,812.74 6,042,101.32 1,453,711.42 Misamis Occidental Electric Cooperative, Inc. 7,082.95 - 7,082.95 Misamis Occidental II Electric Cooperative, Inc. 14,618.48 - 14,618.48 Negros Marine Watchman Services Corporation 194,285.73 - 194,285.73 Ocean Transport Group of Companies, Inc. 2,773,930.80 - 2,773,930.80 Pna Freight Services 719,877.65 673,802.84 46,074.81 Rabukawa Trucking - - - Ravago Equipment Rentals, Inc. 75,019.73 72,282.98 2,736.75 Ricardo Tumawak - - - Romeo Javelosa - - - Royalmaster Services, Inc. 1,490,146.54 1,202,984.34 287,162.20 T Biraogo Trucking Services, Inc. 1,388,110.17 1,211,974.33 176,135.84 Topkick Movers Corporation 5,060,502.80 4,648,802.13 411,700.67 Vallecers East Supermart 117,146.04 - 117,146.04 Value Care Health Systems, Inc. 24,160.62 24,160.62 - Vila Gil Trucking, Inc. 486,500.00 433,500.00 53,000.00 William Uy - - - Ym Cargo Transport Corporation 653,571.43 61,607.14 591,964.29 Zamboanga Del Norte Electric Coop, Inc. Dipolog 14,160.51 - 14,160.51 Zamboanga Del Sur I Electric Cooperative, Inc. 10,489.14 - 10,489.14 Zamboanga Del Sur II Electric Cooperative, Inc. 1,100.57 - 1,100.57 P353,029,525.22 P318,863,954.58 P34,165,570.64 Nowhere in the records of the case can it be found the amount relied upon by respondent. Nevertheless, petitioner made a reconciliation to account the discrepancies between the amounts per SLP and per MAP, summarized as follows: PER SLP PER MAP Discrepancy No Discrepancy P31,090,308.52 P31,090,308.52 P- SLP > MAP 10,267,617.90 10,224,217.20 43,400.70 Non-VAT (SLP < MAP) - 1,086,540.28 (1,086,540.28) Non-VAT portion (SLP < MAP) 71,612.27 216,737.28 (145,125.01) EWT based on remittances 309,949,038.96 331,981,981.89 (22,032,942.93) Wrong computation 1,650,947.57 1,823,417.54 (172,469.97) Total P353,029,525.22 P376,423,202.71 P(23,393,677.49) Taking into account the discrepancies in the above table, petitioner explained the causes of the discrepancies in this wise: 45 a. The suppliers' accounts totaling P31,090,308.52 have no discrepancy, as shown below: Supplier's Name Per SLP Per MAP Discrepancy Asian Shipping Corporation P3,263,799.79 P3,263,799.79 - Chua Hong/Siu Tian Chua 325,000.00 325,000.00 - Coren Commercial Co., Inc. 200,758.93 200,758.93 - Dennis Trucking Services 2,340,935.22 2,340,935.22 - Eagle Force Security and Allied Services Corp. 881,190.49 881,190.49 - F A Freight Services 1,133,154.38 1,133,154.38 - Friends Trucking 1,760,372.67 1,760,372.67 - GCT and Sons Agricultural Devt. Corp. 754,661.32 754,661.32 - Hizon Transport Services and Trading, Inc. 3,045.98 3,045.98 - LFH Venture Merchandising Corporation 89,632.15 89,632.15 - Lorenzo Shipping Corporation 7,495,812.74 7,495,812.74 - Negros Marine Watchman Services Corporation 194,285.73 194,285.73 - Ocean Transport Group of Companies, Inc. 2,773,930.80 2,773,930.80 - P N A Freight Services 719,877.65 719,877.65 - Ravago Equipment Rentals, Inc. 75,019.73 75,019.73 - Royalmaster Services, Inc. 1,490,146.54 1,490,146.54 - T Biraogo Trucking Services, Inc. 1,388,110.17 1,388,110.17 - Topkick Movers Corporation 5,060,502.80 5,060,502.80 - Villa Gil Trucking, Inc. A 486,500.00 486,500.00 - YM Cargo Transport Corporation 653,571.43 653,571.43 - P31,090,308.52 P31,090,308.52 - b. Assumed supplier accounts' totaling P10,267,617.90 is not less than the amounts declared per MAP, in fact the SLP amounts are greater than the MAP amounts by P43,400.70, as shown below: Supplier's Name Per SLP Per MAP SLP>MAP Aboitiz Transport System Corporation P5,226,025.23 P5,214,775.28 P11,249.95 Buug Hardware and Gen. Merchandise 43,660.71 43,526.78 133.93 Fastcargo Logistic Corporation 4,880,785.92 4,858,772.29 22,013.63 Vallecers East Supermart 117,146.04 107,142.85 10,003.19 P10,267,617.90 P10,224,217.20 P43,400.70 c. A total of P1,086,540.28 supplier accounts are Non-VAT entities, therefore the purchases made by the petitioner were not subjected to VAT, and the reason why the SLP is less than the MAP, as shown below: Supplier's Name Per SLP Per MAP Discrepancy Arce Manpower Services - P8,950.20 P(8,950.20) Eric Arada - 37,500.00 (37,500.00) George Duran - 165,000.00 (165,000.00) GR Real Estate Lessor - 340,507.59 (340,507.59) Jesus Anthony Tan - 15,789.42 (15,789.42) Jesus Bajamunde - 292,452.66 (292,452.66) Rabukawa Trucking - 3,498.30 (3,498.30) Ricardo Tumawak - 130,000.00 (130,000.00) Romeo Javelosa - 56,000.00 (56,000.00) William Uy - 36,842.11 (36,842.11) - P1,086,540.28 (P1,086,540.28) d. A total of P145,125.01 supplier accounts represents the portion of the purchases that are Non-VAT, again, the purchases made by petitioner are not subject to VAT and the reason why the SLP is less than the MAP, as shown below: Supplier's Name Per SLP Per MAP Discrepancy Misamis Occidental Electric Cooperative, Inc. P7,082.95 P13,822.08 (P6,739.13) Misamis Occidental II Electric Cooperative, Inc. 14,618.48 16,498.66 (1,880.18) Value Care Health Systems, Inc. 24,160.62 120,803.09 (96,642.47) Zamboanga Del Norte Electric Coop, Inc. Dipolog 14,160.51 37,467.61 (23,307.10) Zamboanga Del Sur I Electric Cooperative, Inc. 10,489.14 24,423.05 (13,933.91) Zamboanga Del Sur II Electric Cooperative, Inc. 1,100.57 3,722.79 (2,622.22) P71,612.27 P216,737.28 (P145,125.01) e. Supplier's account totaling P309,949,038.96 per SLP but reported per MAP as P331,981,981.89 making the SLP less than the MAP in the amount of P22,032,942.93, as shown below, actually represents purchases whose EWT is withheld based on remittances and not in the issuance of invoices: Supplier's Name Per SLP Per MAP Discrepancy Interbev Philippines, Inc. P309,949,038.96 P331,981,981.89 P(22,032,942.93) f. For the remaining P1,650,947.50 per SLP and P1,823,417.54 per MAP with a discrepancy of P172,464.97 making the SLP less than the MAP is due to a wrong computation, detailed as follows: Supplier's Name Per SLP Per MAP Discrepancy DDIS, Inc. P1,580,357.09 P1,607,142.84 (P26,785.75) GT Distributor, Inc. 70,590.48 144,274.70 (73,684.22) Landcom Realty Corporation - 72,000.00 (72,000.00) P1,650,947.57 P1,823,417.54 (P172,469.97) Based on the foregoing, petitioner posits that the assessment has no basis because respondent relied on mere presumptions. As such, petitioner argues that the alleged findings of "unaccounted purchases" amounting to P57,559,248.13 should be cancelled for lack of factual basis. Assessments are prima facie presumed correct and made in good faith. The taxpayer has the duty of proving otherwise; and in the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed. 46 However, the prima facie correctness of a tax assessment does not apply upon proof that an assessment is utterly without foundation, meaning it is arbitrary and capricious. Where the BIR has come out with a "naked assessment," i.e. , without any foundation character, the determination of the tax due is without rational basis. 47 As held in the case of Collector of Internal Revenue vs. Benipayo , 48 the Court ruled that the assessment must be based on actual facts. As such, the finding that petitioner had unaccounted purchases cannot be enforced against petitioner; otherwise, the Court stands to tax petitioner arbitrarily. Accordingly, the deficiency income tax assessment on the alleged undeclared income from unaccounted purchases in the amount of P57,559,248.13 should be cancelled and withdrawn. ii. Disallowed expenses for non-withholding of tax P89,780,690.14 Respondent disallowed petitioner's expenses amounting to P89,780,690.14 as deductions from its gross income for the alleged non-withholding of tax per matching and reconciliation, determined as follows: A. Per matching of MAP-SLP P26,526,122.09 B. Per global reconciliation of income payments 63,254,568.05 Total P89,780,690.14 According to respondent, a comparison of petitioner's income payments subject to withholding tax claimed per financial statement/income tax return as against the withholding tax returns filed (1601E) disclosed that petitioner did not subject to withholding tax certain expenses, hence disallowed pursuant to Section 34 (K) of the NIRC of 1997, as amended, which states that "any amount paid or payable which is otherwise deductible from, or taken into account in computing the 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 in (sic) this Section of this Code." On the other hand, petitioner contends that the allegation has no factual and legal bases considering that petitioner has properly subjected all its income payments to withholding tax for the taxable year 2010. A. Income payments not subject to withholding tax per matching of MAP vs. SLP P26,526,122.09 Petitioner alleges that the comparison of the respondent of the income payments subjected to withholding tax per BIR Form No. 1601E, as against the petitioner's Audited Financial Statements (AFS) and Income Tax Return (ITR), on one hand, and the presentation of petitioner's MAP and SLP as its supporting computation, and the failure to mention the AFS, ITR or the BIR Forms 1601E, on the other hand, are misleading. That the respondent's confusing manner of presentation deprived petitioner to ascertain the facts on which respondent based its assessment. Hence, claiming that the assessment is void. The Court cannot subscribe to the refutation of petitioner. It is to be noted that the alleged disallowed expenses arose from the non-withholding of tax on certain payments made by petitioner to its suppliers. But instead of directly comparing the amounts of income payments subject to withholding tax claimed per financial statement/income tax, as categorically stated in the Details of Discrepancies, as against the withholding tax returns filed (BIR Form 1601 E), respondent compared petitioner's SLP with its MAP. Nevertheless, petitioner was still informed of the factual basis of the assessment considering that respondent disclosed the supporting computation of the assessment in the FLD, i.e. , the detailed comparison of its SLP and MAP, both of which were available to petitioner at hand. The details indicated therein are sufficient to inform petitioner of the factual basis of the assessment issued. Based on the supporting schedules presented by respondent, attached as Annexes A-3 and A-4, the source documents used by respondent to arrive at the alleged income payments not subjected to withholding tax amounting to P26,526,122.09 are the MAP and SLP, to wit: Purchases of Services (Annex A-3) Per SLP P15,119,840.39 Per MAP 658,284.44 SLP > MAP P14,461,555.95 Purchases of Goods (Annex A-4) Per SLP P377,830,331.84 Per MAP 365,765,765.70 SLP > MAP P12,064,566.14 TOTAL P26,526,122.09 The details of the foregoing are as follows: Purchases of Services (Annex A-3) Supplier's Name Per SLP Per MAP SLP > MAP Columbia Computer Center Davao, Inc. P13,035.71 P- P13,035.71 Herman Y Hablo Services 309,309.22 296,229.22 13,080.00 Te Petron Service Center 13,693.10 - 13,693.10 Imelda Petron Station 13,708.95 - 13,708.95 Grace Hardware Corporation 13,917.86 - 13,917.86 Sen Guan Hing 14,375.00 - 14,375.00 Carts Pension House 15,357.24 - 15,357.24 Lim Yao Chiong Ventures Corporation 18,673.44 - 18,673.44 Five Star Motor and Service Center 19,388.39 - 19,388.39 Pagadian Bay Plaza Hotel 21,590.22 - 21,590.22 Kings Technology Marketing 21,696.43 - 21,696.43 Philippine Airlines 22,016.88 - 22,016.88 Robinsons Abenson Appliances Corp. 22,200.89 - 22,200.89 Jacinto Canvas Supply 22,321.43 - 22,321.43 Charles Ice Plant & Cold Storage Corporation 22,450.92 - 22,450.92 ECT Enterprises 22,483.92 - 22,483.92 Chino and Irish Catering Services 23,544.70 - 23,544.70 Royal Garden Hotel 23,878.55 - 23,878.55 Dasoma Distributors 25,000.00 - 25,000.00 Mandaue Foam Industries, Inc. 25,328.57 - 25,328.57 FCT Industrial Fabricators & Services 27,078.66 - 27,078.66 Lispher Inn 28,928.50 - 28,928.50 JRS Express 30,339.30 - 30,339.30 DH Airconditioning Enterprises 35,352.69 - 35,352.69 Buug Hardware and Gen. Merchandise 36,294.64 - 36,294.64 Accu Image Productions 37,866.07 - 37,866.07 Street Kings Auto Supply 41,306.23 - 41,306.23 Ventura Marketing & Commercial Development Co. 43,824.55 - 43,824.55 Highway Tire Supply 44,223.21 - 44,223.21 Steel Art Billboards, Inc. 44,642.86 - 44,642.86 Golden Nugget Trucking 157,022.65 111,754.25 45,268.40 Osaka Auto Supply 46,791.52 - 46,791.52 Hotel Camila 48,423.40 - 48,423.40 CW Cole, Inc. 54,321.18 - 54,321.18 Albacs Motor and Services 59,883.04 - 59,883.04 JMS Jsall Marketing Services 66,071.43 - 66,071.43 Lofer Petron Service Station 76,609.89 - 76,609.89 Jemje Caltex Station and Convenience Store 77,498.24 - 77,498.24 Davao Light and Power Company 84,203.06 - 84,203.06 Pacific Motor Parts of Bacolod, Inc. 87,774.99 - 87,774.99 LFH Venture Merchandising Corporation 89,632.15 - 89,632.15 DBH Caltex Station 91,605.11 - 91,605.11 Tronco Advertising Co., Inc. 100,000.00 - 100,000.00 Western Advertising and Construction, Inc. 102,232.14 - 102,232.14 Asco Auto Supply 104,727.69 - 104,727.69 Diplahan Petron Station 107,145.34 - 107,145.34 Valiant Electronics Supply 108,234.36 - 108,234.36 Marjac Service Station 109,362.47 - 109,362.47 Tio Tuan Trucking Services, Inc. 119,000.00 - 119,000.00 Aquarius Human Resources Dev. Corp. 385,813.25 250,084.91 135,728.34 Mae Wess Company, Inc. 147,731.62 - 147,731.62 Liloy Caltex Station 161,534.45 216.06 161,318.39 Ultracraft Advertising Corp. 163,680.00 - 163,680.00 Coren Commercial Co., Inc. 187,500.00 - 187,500.00 Negros Marine Watchman Services Corporation 194,285.73 - 194,285.73 Philippine Long Distance Telephone Company 210,745.72 - 210,745.72 Seaoil Super Gasoline Station 293,439.62 - 293,439.62 Bacolod Real State Development Corporation 327,610.70 - 327,610.70 Top Harbor International, Inc. 718,401.06 - 718,401.06 Eagle Force Security and Allied Services Corp. 809,761.92 - 809,761.92 Ocean Transport Group of Companies, Inc. 1,648,930.80 - 1,648,930.80 Pilipinas Shell Petroleum Corporation 2,531,963.14 - 2,531,963.14 Petron Fleet Card 4,594,075.59 - 4,594,075.59 TOTAL P15,119,840.39 P658,284.44 P14,461,555.95 Purchases of Goods (Annex A-4) Supplier's Name Per SLP Per MAP SLP > MAP NCCC Supermarket P16,604.64 P- P16,604.64 Han-Joy Marketing 23,750.00 - 23,750.00 Asia Brewery, Incorporated 377,789,977.20 365,765,765.70 12,024,211.50 TOTAL P377,830,331.84 P365,765,765.70 P12,064,566.14 Upon verification, the Court finds that the amount per SLP should be P396,320,243.95, of which the amount of P370,607,375.02 was subjected to withholding tax, while the amount of P25,712,868.93 was not, to wit: Supplier's Name PER SLP Per MAP SLP > MAP A. Purchases of Services Accu Image Productions P37,866.07 P37,866.07 Albacs Motor and Services 59,883.04 59,883.04 Aquarius Human Resources Dev. Corp. 698,592.30 P250,084.91 448,507.39 Asco Auto Supply 104,727.69 104,727.69 Bacolod Real State Development Corporation 327,619.63 327,619.63 Buug Hardware and Gen. Merchandise 43,660.71 43,526.78 133.93 Carls Pension House 15,892.95 15,892.95 Charles Ice Plant & Cold Storage Corporation 22,450.92 22,450.92 Chino and Irish Catering Services 23,544.70 23,544.70 Columbia Computer Center Davao, Inc. 13,035.71 13,035.71 Coren Commercial Co., Inc. 200,758.93 200,758.93 0.00 CW Cole, Inc. 92,008.46 92,008.46 Dasoma Distributors 25,000.00 25,000.00 Davao Light and Power Company 99,990.20 99,990.20 DBH Caltex Station 91,908.68 91,908.68 DH Airconditioning Enterprises 95,504.48 95,504.48 Diplahan Petron Station 107,145.34 107,145.34 Eagle Force Security and Allied Services Corp. 881,190.49 881,190.49 0.00 ECT Enterprises 22,483.92 22,483.92 FCT Industrial Fabricators & Services 27,078.66 27,078.66 Five Star Motor and Service Center 20,000.00 20,000.00 Golden Nugget Trucking 157,022.65 111,754.25 45,268.40 Grace Hardware Corporation 14,498.22 14,498.22 Herman Y Hablo Services 309,309.22 296,229.22 13,080.00 Highway Tire Supply 44,223.21 44,223.21 Hotel Camila 60,708.67 60,708.67 Imelda Petron Station 13,708.95 13,708.95 Jacinto Canvas Supply 22,321.43 22,321.43 Jemje Caltex Station and Convenience Store 79,015.10 79,015.10 JMS Jsall Marketing Services 66,071.43 66,071.43 JRS Express 30,651.80 30,651.80 Kings Technology Marketing 21,696.43 21,696.43 LFH Venture Merchandising Corporation 89,632.15 89,632.15 0.00 Liloy Caltex Station 175,027.32 216.06 174,811.26 Lim Yao Chiong Ventures Corporation 18,673.44 18,673.44 Lispher Inn 28,928.50 28,928.50 Lofer Petron Service Station 95,045.74 95,045.74 Mae Wess Company, Inc. 177,579.62 177,579.62 Mandaue Foam Industries, Inc. 25,328.57 25,328.57 Marjac Service Station 116,862.47 116,862.47 Marjac Service Station 0.00 Negros Marine Watchman Services Corporation 194,285.73 194,285.73 0.00 Ocean Transport Group of Companies, Inc. 2,773,930.80 2,773,930.80 0.00 Osaka Auto Supply 48,621.52 48,621.52 Osaka Auto Supply 0.00 Pacific Motor Parts of Bacolod, Inc. 87,774.99 87,774.99 Pagadian Bay Plaza Hotel 22,233.08 22,233.08 Petron Fleet Card 4,594,075.59 4,594,075.59 Philippine Airlines 22,016.88 22,016.88 Philippine Long Distance Telephone Company 479,052.41 479,052.41 Pilipinas Shell Petroleum Corporation 3,966,212.97 3,966,212.97 Robinsons Abenson Appliances Corp. 22,200.89 22,200.89 Royal Garden Hotel 25,655.33 25,655.33 Seaoil Super Gasoline Station 311,227.31 311,227.31 Sen Guan Hing 14,375.00 14,375.00 Steel Art Billboards, Inc. 44,642.86 44,642.86 Street Kings Auto Supply 49,449.10 49,449.10 Te Petron Service Center 14,184.17 14,184.17 Te Petron Service Center 0.00 Tio Tuan Trucking Services, Inc. 119,000.00 119,000.00 Top Harbor International, Inc. 718,401.06 718,401.06 Tronco Advertising Co., Inc. 100,000.00 100,000.00 Ultracraft Advertising Corp. 163,680.00 163,680.00 Valiant Electronics Supply 159.82 159.82 Ventura Marketing & Commercial Development Co. 49,035.48 49,035.48 Ventura Marketing & Commercial Development Co. 0.00 Western Advertising and Construction, Inc. 111,160.71 111,160.71 Sub-total P18,488,023.50 P4,841,609.32 P13,646,414.18 B. Purchases of Goods Nccc Supermarket 18,493.25 18,493.25 Han-Joy Marketing 23,750.00 23,750.00 Asia Brewery, Incorporated 377,789,977.20 365,765,765.70 12,024,211.50 Sub-total P377,832,220.45 P365,765,765.70 P12,066,454.75 TOTAL P396,320,243.95 P370,607,375.02 P25,712,868.93 In his report, the ICPA explained that part of petitioner's expenses were not subjected to tax as the same were exempt from withholding tax, as follows: Supplier's Name Amount Exempt from Withholding Tax (Annex IC-70) Accu Image Productions P7,955.36 Albacs Motor and Services 18,651.79 Aquarius Human Resources Dev. Corp. 289,375.60 Asco Auto Supply 104,727.68 Bacolod Real State Development Corporation 327,619.63 Buug Hardware and Gen. Merchandise 133.93 Carls Pension House 15,762.50 Charles Ice Plant & Cold Storage Corporation 19,370.54 Chino and Irish Catering Services 28,981.64 CW Cole, Inc. 48,528.57 Dasoma Distributors 25,000.00 Davao Light and Power Company 122,869.82 DBH Caltex Station 65,160.94 DH Airconditioning Enterprises 95,504.46 Diplahan Petron Station 66,906.30 ECT Enterprises 22,483.93 FCT Industrial Fabricators & Services 30,328.66 Five Star Motor and Service Center 13,262.50 Golden Nugget Trucking 45,268.09 Grace Hardware Corporation 6,785.71 Han-Joy Marketing 13,750.00 Herman Y Hablo Services 13,080.00 Highway Tire Supply 38,357.14 Hotel Camila 33,730.34 Imelda Petron Station 13,708.43 Jacinto Canvas Supply 22,321.43 Jemje Caltex Station and Convenience Store 59,833.37 JMS Jsall Marketing Services 66,071.43 Kings Technology Marketing 21,696.43 Liloy Caltex Station 139,808.92 Lofer Petron Service Station 64,080.55 Mae Wess Company, Inc. 167,225.36 Mandaue Foam Industries, Inc. 31,181.25 Marjac Service Station 116,929.46 Osaka Auto Supply 23,051.19 Pacific Motor Parts of Bacolod, Inc. 86,958.05 Pagadian Bay Plaza Hotel 8,830.36 Petron Fleet Card 3,901,818.81 Philippine Airlines 24,804.88 Philippine Long Distance Telephone Company 193,982.61 Robinsons Abenson Appliances Corp. 22,200.89 Royal Garden Hotel 1,776.79 Seaoil Super Gasoline Station 229,618.41 Steel Art Billboards, Inc. 44,642.86 Street Kings Auto Supply 62,289.11 Te Petron Service Center 1,689.29 Tio Tuan Trucking Services, Inc. 58,000.00 Top Harbor International, Inc. 711,326.60 Tronco Advertising Co., Inc. 80,000.00 Ultracraft Advertising Corp. 68,583.75 Valiant Electronics Supply 159.82 Ventura Marketing & Commercial Development Co. 55,415.03 Western Advertising and Construction, Inc. 97,803.57 TOTAL P7,829,403.78 However, the ICPA did not explain nor provide justification why the amount of P7,829,403.78 from the foregoing suppliers was exempted from withholding tax. Neither did petitioner and the ICPA provide the appropriate supporting documents for the Court to determine the nature of the transactions purported to be exempt from withholding taxes. Consequently, the entire amount of P25,712,868.93 shall be disallowed as deductible expense from petitioner's gross income for its failure to withhold taxes thereon. B. Income payments not subject to withholding tax per global reconciliation P63,254,568.05 Respondent compared the income payments per petitioner's financial statement and income tax return as against the withholding tax returns (BIR Form No. 1601E) filed by petitioner, and found that the amount of P63,254,568.05, as determined below, was not subjected Subject to 1% Subject to 2% Total Purchases per Cost of Sales P708,757,373.28 P47,384,410.60 P756,141,783.88 Security Services 1,935,654.84 1,935,654.84 Other Outside Services 12,128,798.15 12,128,798.15 Advertising 14,510,036.21 4,423,887.44 18,933,923.65 Repairs and Maintenance 1,870,829.05 1,870,829.05 Research and Development 275,210.29 275,210.29 Office Supplies 434,963.08 434,963.08 Insurance 40,596.42 40,596.42 Representation and Entertainment 262,222.22 262,222.22 Transportation and Travel 1,804,197.72 1,804,197.72 Fuel and Oil 10,221,912.78 10,221,912.78 Communication, Light and Water 1,291,418.88 1,291,418.88 Miscellaneous 13,284.90 13,284.90 Additions to PPE 157,124.00 157,124.00 Total P734,094,694.25 P71,417,225.61 P805,511,919.86 Amount subject per EWT Return 697,747,747.59 44,509,604.22 742,257,351.81 Difference Income Payments not subjected to withholding tax FS>EWT Return P36,346,946.66 P26,907,621.39 P63,254,568.05 to withholding taxes, hence, disallowed pursuant to Section 34 (K) of the NIRC of 1997, as amended: Subject to 1% Subject to 2% Total Purchases per Cost of Sales P708,757,373.28 P47,384,410.60 P756,141,783.88 Security Services 1,935,654.84 1,935,654.84 Other Outside Services 12,128,798.15 12,128,798.15 Advertising 14,510,036.21 4,423,887.44 18,933,923.65 Repairs and Maintenance 1,870,829.05 1,870,829.05 Research and Development 275,210.29 275,210.29 Office Supplies 434,963.08 434,963.08 Insurance 40,596.42 40,596.42 Representation and Entertainment 262,222.22 262,222.22 Transportation and Travel 1,804,197.72 1,804,197.72 Fuel and Oil 10,221,912.78 10,221,912.78 Communication, Light and Water 1,291,418.88 1,291,418.88 Miscellaneous 13,284.90 13,284.90 Additions to PPE 157,124.00 157,124.00 Total P734,094,694.25 P71,417,225.61 P805,511,919.86 Amount subject per EWT Return 697,747,747.59 44,509,604.22 742,257,351.81 Difference Income Payments not subjected to withholding tax FS>EWT Return P36,346,946.66 P26,907,621.39 P63,254,568.05 Conversely, petitioner counters that the alleged non-withholding tax based on the global reconciliation made by the respondent is without merit because not all income payments are covered by the expanded withholding tax system under Revenue Regulations No. 02-98. Further, petitioner noted, upon its review of the global reconciliation of the respondent, that the discrepancies cited were caused by items that are not subject to expanded withholding tax, such as, but not limited to the following: 1. Casual Purchases or from a person who is not considered as a Regular Supplier; 2. Petty Cash Disbursements incurred by Salesmen and Sales Offices such as, but not limited to meals, representation and entertainment, gasoline, out-of-town fieldwork expenses and supplies; and/or 3. Expenses that were paid in cash such as, but not limited to prepaid cellphone loads, registered mails transmitted to customers and the like. Apart from the foregoing allegations, petitioner did not specify which and how much of the foregoing expense accounts were not subject to withholding tax. Without providing the necessary documents to support its claim, the Court cannot ascertain whether the income payment of P63,254,568.05 is indeed not subject to withholding tax. It must be remembered that tax assessments by tax examiners are presumed correct and made in good faith. All presumptions are in favor of the correctness of tax assessments. In other words, the taxpayer contesting the validity or correctness of an assessment must prove not only that the CIR is wrong but the taxpayer is right, otherwise, the presumption in favor of the correctness of tax assessment stands. 49 Mere allegations without adducing evidence are not sufficient. Allegation is not synonymous with proof. 50 In the absence of proof, the Court is constrained to uphold the assessment of respondent against petitioner. Accordingly, the amount of P63,254,568.05 shall be disallowed as deductible expense from petitioner's gross income. In sum, the disallowed expenses for non-withholding of tax are recomputed as follows: A. Per matching of MAP-SLP P25,712,868.93 B. Per global reconciliation of income payments 63,254,568.05 Total P88,967,436.98 iii. Unaccounted income from unaccounted expenses P37,548,429.63 The alleged unaccounted income from unaccounted expenses of P37,548,429.63 arose from the following: Unaccounted income due to unaccounted expenses P84,671.41 Overstatement of expenses 37,230,901.04 Unaccounted rental expense per reconciliation of EWT returns vs. FS 232,857.18 Total P37,548,429.63 A. Unaccounted income due to unaccounted expenses P84,671.41 According to respondent, petitioner's failure to submit/present proof for the unaccounted cost/expenses claimed led to the disallowance of said costs/deductions and were made part of the gross income, pursuant to Section 32 of the NIRC of 1997, as amended. The alleged unaccounted cost was computed by comparing the salaries and wages reported per AFS and ITR as against the alphalist of employees, to wit: Salaries, SSS, HDMF and related accounts P24,674,275.00 Less: SSS, HDMF 1,599,900.01 Salaries per FS/ITR P23,074,374.99 Less: per Alphalist Non-Taxable Salaries P- Taxable Salaries 23,159,046.40 Difference P(84,671.41) Since the amount of salaries per alphalist is higher than the salaries expense reflected in the ITR/FS, respondent simply inferred that petitioner had undeclared income. The Court finds the assessment erroneous. A close scrutiny of the alphalist for the taxable year 2010 and BIR Form No. 1601-C clearly indicates that the salaries expense amounted to P23,074,374.71, to wit: Schedule Subject to Tax Not Subject to Tax Total Schedule 7.1 P800,222.00 P61,427.20 P861,649.20 Schedule 7.2 791,202.16 113,654.19 904,856.35 Schedule 7.3 18,766,367.55 2,156,673.26 20,923,040.81 Schedule 7.4 364,724.60 20,103.75 384,828.35 Total P20,722,516.31 P2,351,858.40 P23,074,374.71 Period Covered Subject to Tax Not Subject to Tax Total January P1,712,504.52 P79,400.53 P1,791,905.05 February 2,061,100.17 82,206.47 2,143,306.64 March 1,635,013.40 76,711.53 1,711,724.93 April 1,858,362.86 83,376.50 1,941,739.36 May 1,719,543.20 77,981.14 1,797,524.34 June 1,896,990.21 81,095.70 1,978,085.91 July 1,659,528.05 77,687.58 1,737,215.63 August 1,578,697.89 75,329.10 1,654,026.99 September 1,613,926.00 76,279.43 1,690,205.43 October 1,667,957.97 78,558.30 1,746,516.27 November 1,721,924.47 78,770.87 1,800,695.34 December 1,596,967.57 1,484,461.25 3,081,428.82 Total P20,722,516.31 P2,351,858.40 P23,074,374.71 Thus, no discrepancy exists, except for the amount of P0.28 (P23,074,374.99 less P23,074,374.71) which is attributable to rounding off difference. Even so, it must be emphasized that for income tax purposes, a taxpayer is free to deduct from its gross income a lesser amount, or not claim any deduction at all. What is prohibited by the income tax law is to claim a deduction beyond the amount authorized therein. 51 Hence, even granting that there is an unaccounted expense, such as those pertaining to payments for salaries, wages and other benefits, the same is not prohibited by law. Bearing in mind that an unaccounted expense is not prohibited by law, it goes without saying that petitioner can exercise its discretion on whether or not it will declare a lesser amount of deductions or none at all. Furthermore, 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. 52 For lack of factual basis, the deficiency income tax assessment pertaining to the alleged undeclared income from unaccounted expenses of P84,671.41 is cancelled. B. Overstatement of expenses P37,230,901.04 According to respondent, petitioner's failure to submit/present proof for the overclaimed expenses led to the disallowance of said costs/deductions and were made part of the gross income, pursuant to Section 32 of the NIRC of 1997, as amended. The alleged unaccounted cost of P37,230,901.04 was computed as follows: Supplier's Name Amount per SLP Charles Ice Plant and Cold Storage Co. P22,450.92 Golden Nugget Trucking 157,022.65 Herman Y Hablo Services 309,309.22 JRS Express 30,339.30 Ocean Transport Group of Companies 1,648,930.80 Petron Fleet Card 4,594,075.59 Philippines Airlines 22,016.88 Pilipinas Shell Petroleum Corporation 2,531,963.14 Tio Tuan Trucking Services, Inc. 119,000.00 Top Harbor International, Inc. 718,401.06 Total P10,153,509.56 Freight and Handling per FS 47,384,410.60 Difference overstated freight/handling (P37,230,901.04) Petitioner contends that no discrepancy exists between the amounts claimed per FS as against those reported in its SLP as it made a proper accounting of its transactions. In his amended report, the ICPA noted that petitioner booked purchases from suppliers "Petron Fleet Card" and "Pilipinas Shell Petroleum Corporation" under the account "Fuel and Oil" and not under the "Freight-In" account. Also, purchases from supplier "Charles Ice Plant and Cold Storage Co." was recorded under "Advertising and Promotions" account and not under "Freight-In" account, to wit: 53 Date Voucher No. Supplier Amount Expense Account 12/01/2010 12-10-1007 Pilipinas Shell Petroleum Corporation P278,806.58 Fuel and Oil 11/03/2010 11-10-1004 Petron Fleet Card 230,380.93 Fuel and Oil 12/06/2010 12-10-1032 Charles Ice Plant and Cold Storage Co. 600.00 Advertising and Promotion Based on further verification, the freight-in account per SLP amounts to P40,503,959.16, as detailed below: 54 Registered Name of Supplier Taxable Amount 2Go Group, Inc. P7,500.00 700 Logistics 21,457.50 Aboitiz Air Transport Corp. 3,566.65 Aboitiz One, Inc. 1,500.00 Aboitiz Transport System Corporation 4,662,359.38 Arce Manpower Services 8,950.20 Asian Shipping Corporation 5,362,442.23 Bacolod Real State Development Corporation 327,204.00 Cebu Port Authority 22.32 Citiline Enterprises 14,337.14 CW Cole, Inc. 57,385.71 David Trucking Services 118,059.24 Dennis Trucking Services 2,211,212.27 E C Creencia Trading 3,887.05 Elmars Stevedoring Arrastre Trucking & Porter 35.00 Evergood Trucking 7,857.14 F A Freight Services 1,133,154.37 Fastcargo Logistics Corporation 4,268,519.60 Fastpak International Corp. 2,999.64 Friends Trucking 1,608,616.13 GCT and Sons Agricultural Devt. Corp. 624,705.50 Golden Nugget Trucking 157,022.33 Goldline Commercial 53.57 Good Deal Hauling Services 13,658.04 Guedeon Transport Services 257,206.80 Han-Joy Marketing 13,750.00 Hannie and Joy Trucking Service 3,750.00 Herman Y Hablo Services 309,309.24 Hizon Transport Services and Trading, Inc. 3,945.98 Hyper Speed Service Corporation 7,230.00 Integrated Ports Services of Ozamiz, Inc. 1,338.97 Jomalia Shipping Corporation 803.57 JRS Business Corporation 27,358.35 JSY Transport Services, Inc. 16,805.19 Kheri Lines, Inc. 1,385,579.24 LBC Express Min, Inc. 357.14 LFH Venture Merchandising Corporation 89,632.15 Lorenzo Shipping Corporation 3,893,796.10 M/V Nicole Star Ferry 14,973.21 Mae Wess Company, Inc. 159,100.36 Mail and More Business Services 95.00 Mercantile Corporation of Davao 3,591.32 Montenegro Lines 3,139.29 M-V Nicole Star Ferry 18,053.57 Negros Navigation Co., Inc. 1,364.57 Non VAT Sales Office 143,134.54 Non VAT Supplier 235,463.58 Ocean Transport Group of Companies, Inc. 2,773,930.79 P N A Freight Services 719,877.66 Philippine Airlines 2,768.66 Philippine Ports Authority 15.00 Philippine Salvage Construction and Trading C 30.50 Prudential Customs Brokerage Service 2,147.40 Rabukawa Trucking 3,498.30 Rapid Movers and Forwarders Co., Inc. 378,262.79 Ravago Equipment Rentals, Inc. 70,797.94 Royalmaster Services, Inc. 1,494,368.61 Selecta Press, Inc. 3,232.14 South Dockhandlers, Inc. 82.68 Starlite Ferry, Inc. 3,553.57 T Biraogo Trucking Services, Inc. 1,388,110.44 Tio Tuan Trucking Services, Inc. 62,000.00 Top Harbor International, Inc. 710,021.78 Topkick Movers Corporation 4,544,602.70 Villa Gil Trucking, Inc. 486,500.00 Weesam Express 303.57 YM Cargo Transport Corporation 653,571.43 Grand Total P40,503,959.16 Thus, the amount of unsupported freight-in per SLP is P6,880,450.84; derived from matching the Freight-In per FS in the amount of P47,384,410.00 55 against the verified Freight-In per petitioner's SLP amounting to P40,503,959.16. Consequently, the assessed amount of overstatement of expenses shall be reduced to P6,880,450.84. C. Unaccounted rental expenses per reconciliation of EWT returns vs. FS P232,857.18 Based on the comparison of petitioner's rent expense per FS and per EWT return, respondent's examiner found that petitioner failed to report in its FS the rent expense in the amount of P232,857.18 and considered the same as unaccounted source of cash, computed as follows: 56 Rent Expense per FS P3,140,321.77 Rent Expense per 1601E 3,373,178.95 Difference Unaccounted source of cash (P232,857.18) Petitioner, on the other hand, argues that the alleged unaccounted rent expense in the amount of P232,857.18 is reported under the account Advertising-Rental of Promo Equipment for Special Events in the financial statements. Further, petitioner avers that respondent failed to inquire from the petitioner the composition of the income payments subjected to withholding tax amounting to P3,373,178.95 vis--vis the rent expense reported per AFS amounting to P3,140,321.77. 57 According to petitioner, the rental payments reported in the Annual Alphalist of Payees are as follows: 58 TIN SUPPLIER'S NAME PER MAP 103307069 Buug Hardware and Gen. Merchandise P43,526.78 006408276 DDIS, Inc. 1,607,142.84 180513736 GR Real Estate Lessor 340,507.59 100103314 GT Distributor 11,765.08 004361557 GT Distributor, Inc. 132,509.62 000470445 Landcom Realty Corporation 72,000.00 102723827 Vallecers East Supermart 71,428.57 102723827 Vallecers East Supermarket 17,857.14 102723827 Vallecers East Supermart 17,857.14 100126392 Chua Hong/Siu Tian Chua 325,000.00 078892004 Eric Arada 37,500.00 121503452 George Duran 165,000.00 911215505 Jesus Anthony Tan 15,789.42 905046820 Jesus Bajamunde 292,452.66 919050715 Ricardo Tumawak 130,000.00 117383187 Romeo Javelosa 56,000.00 102724602 William Uy 36,842.11 Totals P3,373,178.95 Upon verification, petitioner withheld and paid the five percent (5%) withholding tax on its rental payments on real and personal properties which include, but not limited to, the following: land transport equipment, water transport equipment, air transport equipment, industrial equipment, scientific equipment, agricultural machinery and equipment, construction/civil engineering machinery and equipment, telecommunications equipment, office furniture/machines/equipment, main frame computer and all other computer machines/equipment, materials handling equipment and auxiliary equipment. Also, petitioner paid the expanded withholding tax on a timely manner as evidence by the BIR Forms 59 duly received by the BIR and machine validated by the bank. Likewise, the aforementioned suppliers were properly reported on the monthly alphalist of payees (MAP) attached to the withholding tax returns. Moreover, considering that the foregoing expenses were properly reflected in petitioner's AFS, lodged under the expense accounts Rental and Advertising, respondent's assessment, therefore, is without basis. Accordingly, the assessment pertaining thereto shall be cancelled. iv. Disallowed excess MCIT P460,156.61 Respondent deducted the excess of MCIT over RCIT amounting to P460,156.61 from the total tax credits/payment of P1,661,432.72 60 but gave no explanation in the FLD. The Court can only surmise that the excess MCIT was disallowed in order to recapture the tax benefit realized by petitioner in carrying the said amount to the succeeding year. However, the Court finds it improper for respondent to disallow the said excess MCIT because any tax benefit derived by petitioner from the carry-over of the said amount redounds to the succeeding year 2011. Since the tax benefit will be in the succeeding year, at most, petitioner may only be assessed in the said succeeding year. In fine, petitioner is liable for basic deficiency income tax in the amount of P28,294,209.73, as computed below: Taxable Income (Loss) per Return P4,004,253.69 Add: Adjustments per Audit Disallowed expenses for non-withholding of tax P88,967,436.98 Unaccounted income from unaccounted expenses 6,880,450.84 95,847,887.82 Adjusted Taxable Income P99,852,141.51 Tax Due P29,955,642.45 Less: Tax Credits Prior year's excess credits P461,126.32 Tax payments for the first three quarters 740,186.94 Creditable Tax Withheld for the first three quarters 49,896.46 Creditable Tax Withheld per BIR Form 2307 for the Fourth Quarter 257,379.21 Tax paid per BIR Form 1702 152,843.79 1,661,432.72 Basic Deficiency Tax P28,294,209.73 II. Value-Added Tax (VAT) P122,043,804.84 Respondent found petitioner liable for deficiency VAT in the amount of P122,043,804.84, computed as follows: 61 Taxable Sales per VAT returns P829,380,471.26 Add: Adjustment per Audit i. Unaccounted income due to unaccounted expenses P84,671.41 ii. Unaccounted rental expense 232,857.18 iii. Undeclared Sales on discrepancies per line-by-line reconciliation 158,198,435.66 158,515,964.25 Gross Receipts per Audit P987,896,435.51 Output tax P118,547,572.26 Less: Creditable Input tax Input tax carried over from previous period Add: Input tax claimed for the year P94,240,853.37 Less: iv. Overclaimed input per matching of SLP vs. VAT returns 53,738,254.34 40,502,599.03 VAT Due 78,044,973.23 Less: VAT paid 5,284,803.38 VAT Still due Basic 72,760,169.85 Add: Increments Interest until August 15, 2014 49,258,634.99 Compromise penalty 25,000.00 49,283,634.99 Total Amount Due P122,043,804.84 As shown above, the deficiency VAT arose from the following findings: i. Unaccounted income due to unaccounted expenses P84,671.41 ii. Unaccounted rental expense 232,857.18 iii. Undeclared Sales on discrepancies per line-by-line reconciliation 158,198,435.66 iv. Overclaimed input per matching of SLP vs. VAT returns 53,738,254.34 i. Unaccounted income due to unaccounted expenses P84,671.41 This assessment was based on the same findings under the deficiency income tax assessment, that since the amount of salaries per alphalist is higher than reflected in the ITR/FS, respondent simply inferred that petitioner had undeclared income which is subject to VAT pursuant to Section 106 of the NIRC of 1997, as amended. The Court finds the assessment devoid of merit. As discussed earlier [item I (iii) (A)] , no discrepancy exists. Also, even if these alleged unaccounted expenses are to be treated as unaccounted sources of income subject to output VAT, the same will be offset by recording the equivalent payments as expenses for which input tax credits may be claimed. Hence, no VATable income will result from the said transactions. Accordingly, the deficiency VAT assessment on this item shall be cancelled. ii. Unaccounted rental expense P232,857.18 This assessment is based on the same finding under the deficiency income tax assessment that petitioner had an undeclared income from unaccounted rental expenses based on the comparison of claimed income payments per BIR Form No. 1601-E as against the AFS. As discussed earlier [item I (iii) (C)] , considering that petitioner properly accounted its rental expenses per AFS, lodged under the expense accounts Rental and Advertising, respondent's assessment, therefore, is without basis. Accordingly, the deficiency VAT assessment pertaining thereto shall be cancelled. iii. Undeclared Sales on discrepancies per line- by-line reconciliation P158,198,435.66 As discussed under item I (i) (A) and (B) , the assessment has no basis because respondent relied on mere presumptions, thus, cancelled for lack of basis. That being the case, the imposition of VAT thereon shall also be cancelled and withdrawn. iv. Overclaimed input per matching of SLP vs. VAT returns P53,738,254.34 According to respondent, petitioner's failure to reconcile the unaccounted difference in the sources of input tax per SLP vs. VAT returns led to the disallowance of corresponding input tax, pursuant to Section 110 (a) of the NIRC of 1997, as amended, to wit: Sources of input tax claimed per VAT returns P785,340,444.75 Sources of input tax per SLP 337,521,658.56 Difference overclaimed source of input tax P447,818,786.19 Disallowed input tax P53,738,254.34 Petitioner asserts that respondent's claims have no merit as no discrepancy exists between the input tax claimed per VAT returns and per SLP. Upon verification, the Court finds that indeed no discrepancy exists between the input tax claimed per VAT returns and per SLP. In fact, contrary to the claim of respondent, petitioner's purchases actually amount to P784,032,657.01, and not P785,340,444.75 nor P337,521,658.56, to wit: Purchases Services Capital Goods not exceeding P1 Million Goods Other than Capital Goods Total January P2,858,114.38 P55,602,765.62 P58,460,880.00 February 4,061,061.34 P959.50 55,226,265.59 59,288,286.43 March 4,109,573.47 1,419.64 72,141,041.46 76,252,034.57 Total 1st qtr P11,028,749.19 P2,379.14 P182,970,072.67 P194,001,201.00 April P5,292,443.67 P22,200.89 P56,877,142.97 P62,191,787.53 May 4,472,343.61 7,187.50 60,463,814.33 64,943,345.44 June 1,719,502.17 63,216,236.28 64,935,738.45 Total 2nd qtr P11,484,289.45 P29,388.39 P180,557,193.58 P192,070,871.42 July P5,394,427.53 P29,732.14 P43,563,072.50 P48,987,232.17 August 3,034,768.60 2,098.21 50,264,944.90 53,301,811.71 September 6,965,914.95 61,714,751.76 68,680,666.71 Total 3rd qtr P15,395,111.08 P31,830.35 P155,542,769.16 P170,969,710.59 October P5,220,974.83 P65,301,154.53 P70,522,129.36 November 4,678,507.82 69,774,055.55 74,452,563.37 December 2,259,745.69 21,116.06 79,735,319.52 82,016,181.27 Total 4th qtr P12,159,228.34 P21,116.06 P214,810,529.60 P226,990,874.00 TOTAL P50,067,378.06 P84,713.94 P733,880,565.01 P784,032,657.01 Hence, the disallowance should be cancelled. In view of the foregoing, the Court finds petitioner's VAT deficiency assessment devoid of merit. Accordingly, the same should be cancelled. III. Expanded Withholding Tax (EWT) P2,224,383.27 Respondent assessed petitioner of deficiency EWT, as shown below: 62 Basic Deficiency Tax P1,311,498.67 Add: Increments Interest until 08/15/2014 P887,884.60 Compromise penalty 25,000.00 912,884.60 Total Amount Due P2,224,383.27 The details of the basic deficiency EWT are as follows: Subject to 1% Subject to 2% Subject to 5% Subject to 15% Total Purchases per Cost of Sales P708,757,373.28 P47,384,410.60 P756,141,783.88 Rental P3,140,321.77 3,140,321.77 Professional Fees P42,500.00 42,500.00 Security Services 1,935,654.84 1,935,654.84 Other Outside Services 12,128,798.15 12,128,798.15 Advertising 14,510,036.21 4,423,887.44 18,933,923.65 Repairs and Maintenance 1,870,829.05 1,870,829.05 Research and Development 275,210.29 275,210.29 Office Supplies 434,963.08 434,963.08 Insurance 40,596.42 40,596.42 Representation and Entertainment 262,222.22 262,222.22 Transportation and Travel 1,804,197.72 1,804,197.72 Fuel and Oil 10,221,912.78 10,221,912.78 Communication, Light and Water 1,291,418.88 1,291,418.88 Miscellaneous 13,284.90 13,284.90 Additions to PPE 157,124.00 157,124.00 Unaccounted Rental Expense 232,857.18 232,857.18 Total P734,094,694.25 P71,417,225.61 P3,373,178.95 P42,500.00 P808,927,598.81 Less: Amount subjected per EWT Return 697,747,747.59 44,509,604.22 3,373,178.95 42,500.00 745,673,030.76 Total Income Payments not subjected to withholding tax per global reconciliation P36,346,946.66 P26,907,621.39 - - P63,254,568.05 Add: Income payments not subjected to withholding per matching of MAP-SLP 12,064,566.14 14,461,555.95 26,526,122.09 Income Payments not subjected to withholding tax P48,411,512.80 P41,369,177.34 - - P89,780,690.14 EWT Due P484,115.13 P827,383.55 P1,311,498.67 Basically, the foregoing arose from (1) the comparison of the income payments per petitioner's AFS/ITR as against the withholding tax returns (BIR Form No. 1601E), where respondent found a discrepancy of P63,254,568.05; and (2) the matching of MAP against SLP, where respondent found a discrepancy of P26,526,122.09. As already discussed under item I (ii) (A) , out of the discrepancy of P26,526,122.09, the Court finds that only the amount of P25,712,868.93 was not subjected to withholding tax, while under item I (ii) (B) , the amount not subjected to withholding taxes was P63,254,568.05. Accordingly, the assessment for deficiency EWT shall be upheld but in the modified amount of P1,295,214.73, as computed below: Income Payments not subjected to withholding tax per global reconciliation P36,346,946.66 P26,907,621.39 P63,254,568.05 Add: Income payments not subjected to withholding per matching of MAP-SLP 12,066,454.75 13,646,414.18 25,712,868.93 Income Payments not subjected to withholding tax P48,413,401.41 P40,554,035.57 P88,967,436.98 EWT Rate 1% 2% EWT Due P484,134.01 P811,080.71 P1,295,214.73 IV. Miscellaneous Tax (MC) P50,000.00; and Compromise Penalties on the Deficiency Income Tax, Value-Added Tax, and Expanded Withholding Tax P75,000.00 Respondent's verification disclosed that petitioner failed to file summary alphalist of withholding taxes (SAWT) and summary list of sales (SLS), in violation of Revenue Memorandum Order (RMO) 51-2009, for which a penalty of P25,000.00 for each failure or in the total amount of P50,000.00 was imposed. Likewise, respondent imposed compromise penalties on the deficiency income tax, VAT and EWT, amounting to P25,000.00 for each deficiency or in the total amount of P75,000.00. Such imposition cannot be sustained. Under RMO No. 01-90, compromise penalties are only amounts suggested in settlement of criminal liability, and may not be imposed or exacted on the taxpayer in the event that a taxpayer refuses to pay the same. It is well-settled that the Court has no jurisdiction to compel a taxpayer to pay the compromise penalty because by its very nature, it implies a mutual agreement between the parties in respect to the thing or subject matter that is so compromised, and the choice of paying or not paying it distinctly belongs to the taxpayer. 63 Absent a showing that herein petitioner consented to the compromise penalty, its imposition should be deleted. The imposition of the same without the conformity of the taxpayer is illegal and unauthorized. 64 WHEREFORE , premises considered, the instant Petition for Review is PARTIALLY GRANTED . The deficiency VAT 65 and miscellaneous tax 66 assessments, as well as the compromise penalties, issued by respondent against petitioner for taxable year 2010 are CANCELLED . On the other hand, the deficiency income tax and expanded withholding tax assessments are PARTIALLY UPHELD . Accordingly, petitioner is ordered to pay the amount of P36,986,780.57 , inclusive of the 25% surcharge imposed under Section 248 (A) (3) of the NIRC of 1997, as amended, computed as follows: Tax Type Basic Surcharge Total Income Tax P28,294,209.73 P7,073,552.43 P35,367,762.16 Expanded Withholding Tax 1,295,214.73 323,803.68 1,619,018.41 TOTAL P29,589,424.46 P7,397,356.11 P36,986,780.57 In addition, petitioner is ordered to pay: (a) Deficiency interest at the rate of twenty percent (20%) per annum on the basic deficiency income tax of P28,294,209.73 and expanded withholding tax of P1,295,214.73 computed from the dates indicated below until full payment thereof pursuant to Section 249 (B) of the NIRC of 1997, as amended: Tax Type Deficiency Interest Computed From Income Tax 15-Apr-2011 EWT 11-Jan-2011 (b) Delinquency interest at the rate of 20% per annum on the total amount of P36,986,780.57 and on the 20% deficiency interest which have accrued as aforestated in (a), computed from August 15, 2014 until full payment thereof pursuant to Section 249 (C) of the NIRC of 1997, as amended. SO ORDERED. (SGD.) JUANITO C. CASTAEDA, JR. Associate Justice Caesar A. Casanova and Catherine T. Manahan, JJ. , concur. Footnotes 1. Par. 3, Admitted Facts, Joint Stipulation of Facts and Issues (JSFI), docket, vol. IV, p. 2405; Exhibit "P-2", docket vol. III, p. 1346. 2. Exhibit "R-2", BIR Records, Folder 1, p. 2. 3. Par. 4, Admitted Facts, JSFI, docket, vol. IV, p. 2405. 4. Par. 5, Admitted Facts, JSFI, docket, vol. IV, p. 2405. 5. Par. 6, Admitted Facts, JSFI, docket, vol. IV, p. 2405. 6. Par. 7, Admitted Facts, JSFI, docket, vol. IV, p. 2405. 7. Exhibit "R-6", BIR Records, Folder 1, p. 356. 8. Par. 8, Admitted Facts, JSFI, docket, vol. IV, p. 2405. 9. Exhibit "R-7", BIR Records, Folder 1, p. 357. 10. Par. 9, Admitted Facts, JSFI, docket, vol. IV, p. 2405. 11. Par. 10, Admitted Facts, JSFI, docket, vol. IV, p. 2405; Exhibit "R-9", BIR Records, Folder 1, pp. 490-501. 12. Exhibits "P-26" and "R-12", BIR Records, Folder 1, pp. 523-529. 13. Exhibits "R-11" to "R-11-c", BIR Records, Folder 1, pp. 519-522. 14. Pars. 11 and 12, Admitted Facts, JSFI, docket, vol. IV, pp. 2405-2406. 15. Exhibit "P-27". 16. Docket, vol. II, pp. 1202-1216. 17. Docket, vol. II, pp. 1218-1219. 18. Docket, vol. II, pp. 1226-1235. 19. Docket, vol. II, pp. 1236-1242. 20. Docket, vol. II, pp. 1258-1260. 21. Docket, vol. II, p. 1262. 22. Docket, vol. IV, pp. 2404-2415. 23. Docket, vol. IV, pp. 2418-2425. 24. Docket, vol. IV, pp. 2368-2371. 25. Minutes of the Hearing dated September 7, 2015, docket, vol. IV, p. 2427. 26. Minutes of the Hearing dated September 7, 2015, docket, vol. IV, p. 2427; offered in evidence as Exhibit "P-28" (though marked as Exhibit "P-82"), docket, vol. III, pp. 1267-1280. 27. Minutes of the Hearing dated February 1, 2016, docket, vol. IV, p. 2515; Exhibit "P-81", docket, vol. IV, pp. 2477-2499. 28. Docket, vol. IV, pp. 2554-2568. 29. Docket, vol. IV, pp. 2575-2576 and p. 2579, respectively. 30. Minutes of the Hearing dated June 22, 2016, docket, vol. IV, p. 2582; Exhibit "R-13", docket, vol. II, pp. 1249-1257. 31. Respondent's Formal Offer of Evidence, docket, vol. IV, pp. 2588-2596. 32. Docket, vol. IV, pp. 2606-2607. 33. Docket, vol. IV, pp. 2633-2648. 34. Docket, vol. IV, pp. 2654-2674. 35. Docket, vol. IV, p. 2675. 36. JSFI, docket, vol. IV, p. 2406. 37. Exhibits "P-26" and "R-12", BIR Records, Folder 1, pp. 523-529. 38. Ibid. 39. Schedule 1, Details of Discrepancies, Annex "A" of FLD, BIR Records, Folder 1, pp. 523-526. 40. Annex "A-1", Details of Discrepancies, Annex "A" of PAN, BIR Records, Folder 1, pp. 490-498. 41. Exhibit "P-82". 42. G.R. No. 166387, January 19, 2009. 43. G.R. No. 159694, January 27, 2006. 44. Exhibits "P-24-a" to "P-24-d", docket, vol. III, pp. 2268-2308. 45. Exhibit "P-27". 46. Sy Po v. Honorable Court of Tax Appeals, et al. , G.R. No. 81446, August 18, 1988. 47. Commissioner of Internal Revenue v. Hantex Trading Co., Inc. , G.R. No. 136975, March 31, 2005. 48. G.R. No. L-13656, January 31, 1962. 49. Sy Po v. Honorable Court of Tax Appeals, et al. , G.R. No. 81446, August 18, 1988. 50. Martin v. Hon. Court of Appeals and Manila Electric Company , G.R. No. 82248, January 30, 1992. 51. Commissioner of Internal Revenue v. Phoenix Assurance Co. Ltd. , G.R. No. L-19727, May 20, 1965. 52. Collector of Internal Revenue v. Benipayo , G.R. No. L-13656, January 31, 1962. 53. Exhibit "P-82" (Amended ICPA Report), p. 22. 54. Annex "IC-67", Amended Annex 63 to 71, pp. 1355-1356. 55. Note 10, Exhibit "P-8-a" (AFS), docket, vol. III, p. 1558. 56. Schedule 5, Details of Discrepancies, Annex "A" of FLD, BIR Records, Folder 1, p. 524. 57. Par. 68, Petition for Review, docket, vol. I, p. 31. 58. Ibid. 59. Exhibits "P-12-a" to "P-12-l", docket, vol. III, pp. 2195-2231. 60. Exhibit "P-8", docket, vol. III, p. 1532. 61. Exhibits "P-26" and "R-12", BIR Records, Folder 1, p. 528. 62. Exhibits "P-26" and "R-12", BIR Records, Folder 1, p. 528. 63. The Philippines International Fair, Inc. v. The Collector of Internal Revenue, et al. , G.R. Nos. L-12928 and L-12932, March 31, 1962. 64. Commissioner of Internal Revenue v. Lianga Bay Logging Co., Inc., et al. , G.R. No. 35266, January 21, 1991. 65. Assessment Notice No. VT-116-LOA-116-2011-00000109-10-14-810. 66. Assessment Notice No. MC-116-LOA-116-2011-00000109-10-14-811.