Parity Packaging Corp. v. Commissioner of Internal Revenue

SECOND DIVISION [C.T.A. CASE NO. 9318. June 20, 2018.] PARITY PACKAGING CORPORATION , petitioner , vs. COMMISSIONER OF INTERNAL REVENUE , respondent . DECISION CASANOVA , J p : This Petition for Review 1 filed by petitioner Parity Packaging Corporation (Parity),prays for the nullification of respondent's assessment on deficiency income tax (IT),value-added tax (VAT) and withholding tax on compensation (WTC) for calendar year (CY) 2011 in the aggregate amount of P11,218,897.63, inclusive of interest, broken down as follows: Tax Type Tax Due Interest Total Amount Due Income Tax P2,268,054.09 P1,795,283.88 P4,063,337.97 Value-Added Tax 3,453,924.41 3,578,507.46 7,032,431.87 Withholding Tax Compensation 60,230.10 62,897.69 123,127.79 Total P5,782,208.60 P5,436,689.03 P11,218,897.63 Petitioner is a domestic corporation registered with the Securities and Exchange Commission (SEC) 2 with office address at SMI 24 Fortune Avenue, Brgy. Fortune, Marikina City. 3 It is engaged in the business of manufacturing, preparing, buying, selling and generally deal in at wholesale all kinds of printing, publishing, binding and engraving works, and designs, books, papers, catalogues, and stationery supplies, printing supplies, pads and stamps and to carry on a general business in monotyping, linotyping, electrotyping, color-typing, stencil press service, typesetting, composition, dies and advertising services; and to engage in and carry on the service as a commercial printer, bookbinders, engravers, photographic printers, stereotypers, electrotypers, lithographers and to undertake a general printing, engraving, lithographing business under specific contract or job orders from client. 4 Petitioner is registered with the Bureau of Internal Revenue (BIR) as a Large Taxpayer with Taxpayer Identification No. (TIN) 004-464-749. 5 Respondent is the duly appointed Commissioner of Internal Revenue (CIR) who holds office at the 5th Floor, BIR National Office Building, BIR Road, Diliman, Quezon City, where he may be served summons and other processes. 6 On April 12, 2013, petitioner received Letter of Authority (LOA) NO. LOA-116-2013-00000060 7 authorizing Revenue Officers Ma. Theresa Espino, William Sundiam, Miguel Sulit, Allan Maniego, Joel Aguila and Group Supervisor Wilfredo Reyes (collectively referred to as examiners) of LT Regular Audit Division I to conduct an examination of its books of accounts and other accounting records for all internal revenue taxes for CY 2011. On September 17, 2014, petitioner executed a Waiver of the Defense of Prescription under the Statute of Limitations of the National Internal Revenue Code (NIRC),giving respondent until March 31, 2015 within which to assess the former. 8 On March 13, 2015, petitioner received Preliminary Assessment Notice (PAN) together with the Details of Discrepancies. 9 On March 31, 2015, petitioner received respondent's Formal Letter of Demand (FLD),together with the Details of Discrepancies and Assessment Notice Demand Nos. IT-116-LOA-00000060-11-15-1573, VT-116-LOA-00000060-11-15-1574, WE-116-LOA-00000060-11-15-1575, WC-116-LOA-00000060-11-15-1576, assessing the former for deficiency taxes, interest and compromise penalty totaling to P23,366,419.69 for taxable year 2011. 10 On April 29, 2015, petitioner filed its protest requesting for a reconsideration of the assessment. 11 On March 1, 2016, petitioner received respondent's Final Decision on Disputed Assessment (FDDA),together with Details of Discrepancies and Audit Result/Assessment Notice Nos. IT-116-LOA-00000060-11-15-1573, VT-116-LOA-00000060-11-15-1574, WE-116-LOA-00000060-11-15-1575, WC-116-LOA-00000060-11-15-1576, assessing the former for deficiency taxes, interest and compromise penalty in the amount of P11,218,897.63 for taxable year 2011. Thus, on March 31, 2016, petitioner filed the instant Petition for Review before this Court. On June 27, 2016, respondent filed his Answer 12 to the Petition for Review and interposed the following arguments: SPECIAL AND AFFIRMATIVE DEFENSES xxx xxx xxx 8. Petitioner is liable to pay its deficiency Income Tax, Value Added Tax (VAT) and Withholding Tax on Compensation in the aggregate amount of P11,218,897.63, based on the foregoing to wit: Undeclared Sales per cash analysis, P5,881,234.85 Verification disclosed that petitioner failed to substantiate with documentary evidence advances of P30,000,000.00 to dispute the negative balance in your cash accounts. On the issue of undeclared sales per Cash Analysis P5,881,234.85, which was derived from negative balance from the cash account for the month of January 2011. Excerpts from the Cash account disclosed the following data, to wit : Period Debit Credit Balance Beginning Balance 17,880,042.87 17,880,042.87 January 963,077.46 24,724,355.18 (5,881,234.85) CASH Petitioner argued that the negative balance in the Cash account does not immediately translate into undeclared sales. The General Ledger for Cash Account is presumably the source document from which BIR based their allegation and such analysis of the entries found on the said book is erroneous. Petitioner even cited that there are two books, the General Journal, the Book of Original Entry, and General Ledger, the Book of Final Entry. To validate petitioner's argument, it presented a General Ledger that for the month of January petitioner have a running balance of P24,118,765.15 due to an insertion of a debit entry of P30,000,000.00. Petitioner's arguments lacks (sic) basis. T-Accounts which was the basis of the assessment was the exact document petitioner submitted on May 16, 2013. Such T-accounts was a summary of all the transactions and is therefore considered the General Ledger or the Books of Final Entry. Petitioner's failure to show an entry of P30,000,000.00 in the General Ledger is a mistake not acceptable and questionable for the following reasons: 1) Petitioner failed to submit the source documents to justify such entry; 2) To make it appear that the balance at the end of the year is P17,017,886.78, you make a credit entry of P30,000,000.00 in December 2011 without again providing respondent the source documents. 3) It was also disclosed that the P30,000,000.00 was an advances as shown in your submitted general journal, however you failed to substantiate this proper documentation. Also, for a company about to close down, how could you justify such advances? Respondent would like to point out that the assessments were based on facts as presented in general ledger petitioner submitted. On the issue of Sales Not Subject to Income Tax in the amount P7,949,517.65 which was derived from discrepancy between the Certificate of Income Tax Withheld at Source (BIR Form 2307) as against Sales per Income Tax Return. Petitioner argued that they have no undeclared sales for taxable year 2011 and that the Certificate of Creditable Tax Withheld (BIR Form 2307) serves as evidence that income payment was made and corresponding tax was withheld but it does not mean that the said income payment represents sale for the current period. To validate petitioner's argument, it presented in a table form the composition of income payment subjected to Expanded Withholding claimed by Parity for the year 2011, as follows: Particulars Sales for the current year 2011 Sales of Prior year Sales of Machineries to Packageworld, Inc. Certificate of Creditable Tax Withheld at Source Tanduay 6,984,198.29 1,333,984.71 8,318,183.00 PMFTC 7,194,656.68 3,214,945.28 10,409,601.96 Packageworld, Inc. 3,805,587.69 Sales of Machinery and Equipt 3,805,587.69 TOTALS 14,178,854.97 4,548,929.99 3,805,587.69 22,533,372.65 Although the Certificate of Creditable Income Tax Withheld (BIR Form 2307) issued by Tanduay Distillers, Inc. and PMFTC, Inc. contains all the information including the period such income payments pertains but if it is indeed income from prior years, then your arguments may be valid. However, the corresponding creditable withholding tax of such income pertaining to prior year as [illustrated] will be deducted from your allowable tax credits. On the issue of Sales not subjected to Value-Added Tax per Account Receivable Analysis in the amount of P20,251,715.60 pursuant to Secs. 106 (A) and 108 (A) of the NIRC. Petitioner argued that the alleged sales not subjected to Value-Added Tax has no legal and factual bases. As stated in the Notes to Financial Statements, revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be measured reliably. For the year 2011, the total revenue of Parity is composed of Sales of Goods amounting to P6,984,198.00 and Sale of Services in the amount of P7,194,657.00. Petitioner further argued that the recognition of VAT liabilities for the sale of services and sale of goods is different as provided for by Secs. 108 and 106 of the NIRC. For the sale of goods or properties, the 12% VAT is imposed upon the gross selling price as defined under Sec. 106 (A) of the NIRC which means that the VAT on sale of goods or properties accrues upon the consummation of sales, regardless of whether or not the consideration therefore (sic) was actually received. With regards to the sale of services accrues upon actual or constructive receipt of the consideration irrespective of whether or not the service has been rendered. There is no arguments as to when VAT was imposed with regards sales of goods or properties and on sales of service. (sic) However, based on the documents submitted more particularly on the sales invoices issued to Tanduay Distillers, Inc.,it appears that what was being sold to Tanduay are posters, barcode stickers, labels and the like, printed by petitioner. Thus, it is very clear that petitioner are (sic) actually providing services and should not be mistaken as sale of goods. There was no sale of goods as what petitioner are (sic) implying but was, in fact sales of services. Therefore, the account receivable account should not be distinguish as derived from sales of goods and services but could be all attributed to sale of services only. xxx xxx xxx. On the issue of excessive Direct Labor in the amount of P9,050,878.32 pursuant to Sec. 34(A)(1) (a)(i) and (b) of the NIRC and discrepancy in the salaries and wages per GL as against taxable compensation per petitioner's monthly remittance return (BIR Form 1601C) amounting to P455,578.96 taking into consideration the benefits subjected to Fringe Benefits Tax under Sec. 33 of the NIRC and Revenue Regulations 3-98. Petitioner pointed out that respondent was remiss in its duty in not considering the Alphabetical List of Employees from whom taxes were withheld and reported a Total Gross Compensation of P14,464,314.58. Respondent disagrees. Verification disclosed that respondent have no records of alphalist of employees submitted and petitioner even failed to provide respondent with a copy of such during the audit. Based on your Alphalist of Employees as part of the annexes in petitioner's protest letter, out of Gross Compensation Income of P14,464,314.58, the non-taxable compensation amounts to P9,830,923.18 and taxable compensation amounts to P9,211,326.00 which was paid in December 2011. Analysis of salaries and wages accounts showing the taxable and non-taxable compensation income thereby resulting to discrepancy of P200,767.01 which were not subjected to withholding tax, to wit: Total Salaries and wages 14,682,951.94 Separation Pay 9,211,326.60 Employees comp contr 4,280.00 13th month pay 244,242.39 Pag-ibig fund 14,825.00 Maternity & Sick Leave 27,196.15 Vacation Leave 146,568.39 SSS Premium contribution 162,180.00 Medicare premium 38,175.00 Total Non-Taxable Compensation 9,848,793.53 Taxable Compensation Income per audit 4,834,158.41 Total Taxable Compensation per Alphalist 4,633,391.40 Amount still subject to withholding tax 20,767.01 =========== On the issue of Unsupported Credited Withholding Tax amounting to P8,089.00 which is the difference between the submitted Certificate of Creditable Income Tax Withheld at Source (BIR Form 2307) and the tax credit claimed in the Income Tax Return pursuant to Sec. 58(B) of the National Internal Revenue Code. Petitioner argued that respondent failed to provide the facts from which respondent based its allegation that the submitted photocopies of Certificate of Creditable Income Tax Withheld (BIR Form 2307) amounted to P1,621,928.00, hence the assessment should be cancelled for lack of factual basis. Again respondent disagrees, the disallowance have factual basis. Shown below is the summary of creditable withholding tax supported with BIR Form 2307, to wit: TIN NAME OF PAYORS PERIOD COVERED INCOME PAYMENT RATE TAX WITHHELD 000-086-108 Tanduay Distillers, Inc. 02/01/11-02/28/11 8,318,183.00 1% 83,181.83 007-515-588 PMFTC, Inc. 01/01/11-03/31/11 3,713,954.60 15% 557,093.19 007-515-588 PMFTC, Inc. 07/01/11-09/30/11 2,482,220.94 15% 372,333.14 005-241-455 Packageworld, Incorporation 07/01/11-09/30/11 407,741.54 1% 4,077.42 005-241-455 Packageworld, Incorporation 04/01/11-04/30/11 3,397,846.15 1% 33,978.46 007-515-588 PMFTC, Inc. 04/01/11-06/30/11 3,589,710.67 15% 538,456.60 007-515-588 PMFTC, Inc. 04/01/11-06/30/11 218,715.75 15% 32,807.36 22,128,372.65 1,621,928.00 As previously discussed, BIR Form that pertains to prior period will be disallowed. ON THE ISSUE OF PRESCRIPTION Petitioner alleged that deficiency Value-Added Tax, Expanded Withholding Tax and Withholding Tax on Compensation is barred by prescription citing the provision of Sec. 203 of the NIRC of 1977. Respondent disagrees. A valid waiver was executed on September 17, 2014 therefore it suspended the running of prescriptive period until March 31, 2015. Also, with regard to withholding tax on compensation, adjustment on the computation of withholding tax due to each employees were made at end of the calendar year. Also, the separation pay granted to its employees were made on December 2011. In view of the foregoing, shown under are the summary of deficiency taxes still due after evaluation, to wit: I. INCOME TAX Regular Income Tax I. NET TAXABLE INCOME PER RETURN P- ADD ADJUSTMENTS UNDECLARED SALES 5,881,234.85 TAXABLE INCOME P5,881,234.85 =========== TAX DUE P1,764,370.46 PRIOR YEAR'S EXCESS TAX CREDIT P27,468,608.88 TAX CREDIT CLAIMED DURING THE YEAR 1,630,017.00 TOTAL P29,098,625.88 LESS: DISALLOWED CWT-UNSUPPORTED P8,089.00 DISALLOWED CWT-PRIOR YEARS 495,581.64 503.670.64 ALLOWABLE TAX CREDIT P28,594,955.24 LESS TAX CREDIT CARRIED OVER SUCC. QTR. 29,098,638.87 503,683.63 DEFICIENCY INCOME TAX P2,268,054.09 ADD INTEREST AS OF 3/31/16 1,795,283.88 TOTAL AMOUNT DUE P4,063,337.97 =========== II. VALUE-ADDED TAX TAXABLE SALES PER VAT RETURN P21,199,387.80 ADD OTHER INCOME SALES NOT SUBJECTED TO VAT BASED ON A/R ANALYSIS P20,251,715.60 UNDECLARED SALES 5,881,234.85 26,132,950.45 TAXABLE SALES P47,332,338.25 =========== OUTPUT TAX DUE 5,679,880.59 LESS TAX CREDIT/TAX PAID INPUT TAX CARRIED OVER FROM PREV. QTR. P- INPUT TAX CLAIMED DURING THE YEAR 268,878.06 VAT PAID 1.959,197.30 TOTAL P2,228,075.36 LESS: EXCESS INPUT TAX 2,119.18 INPUT TAX PER AUDIT 2,225,956.18 DEFICIENCY VALUE-ADDED TAX P3,453,924.41 AD (sic) INTEREST AS OF 3/31/16 3,578,507.46 TOTAL AMOUNT DUE, INCLUDING INCREMENTS P7,032,431.87 =========== III. WITHHOLDING TAX-COMPENSATION TAXABLE BASIS P200,767.01 =========== BASIC TAX DUE 60,230.10 ADD: INTEREST AS OF 3/31/16 62,897.69 TOTAL AMOUNT DUE P123,127.80 =========== 9. 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 ( Sy Po vs. Court of tax (sic) Appeals ,164 SCRA 524).Dereliction on the part of petitioner to satisfactorily overcome the presumption of regularity and correctness of the assessment will justify the judicial upholding of said assessment notices. Petitioner submitted its Pre-Trial Brief 13 on August 1, 2016, while respondent submitted his Pre-Trial Brief 14 on August 26, 2016. On September 1, 2016, the Pre-Trial Conference 15 was held and the Court ordered the parties to submit their Joint Stipulation of Facts and Issues (JSFI) within fifteen (15) days. On September 16, 2016, the parties filed their Joint Stipulation of Facts and Issues. 16 The Court then issued a Pre-Trial Order on September 26, 2016. 17 Petitioner availed of the services of a court-commissioned Independent Certified Public Accountant (ICPA). 18 Mr. Joel C. Romano was appointed by the Court on October 5, 2016. 19 Petitioner presented Ms. Evita M. Pantaleon 20 and Mr. Joel C. Romano 21 as its witnesses. The Formal Offer of Evidence for the Petitioner 22 was filed on January 3, 2017, without comment from respondent, per Records Verification 23 dated February 2, 2017. In the Resolution 24 dated February 27, 2017, the Court admitted all of petitioner's exhibits, except for "P-16" and "P-16-1". Respondent, on the other hand, presented Revenue Officer Ma. Theresa L. Espio 25 on February 27, 2017. On March 8, 2017, respondent's Formal Offer of Evidence 26 was filed offering Exhibits "R-1 to "R-13-A",which were all admitted in a Resolution 27 dated April 6, 2017. On May 30, 2017, petitioner filed its Memorandum, 28 while respondent filed his Memorandum 29 on June 20, 2017. The case was then submitted for decision 30 on June 27, 2017. The lone issue 31 to be resolved, as defined by the Court, is: Whether petitioner is liable to pay the assessed deficiency Income Tax, Value-Added Tax and Withholding Tax on Compensation in the aggregate amount of P11,218,897.63, all for calendar year 2011, plus 25% surcharge and 20% deficiency and delinquency interest for late payment until fully paid pursuant to Sections 248 and 249 of the 1997 NIRC. Pursuant to Section 3, Rule 4 of the 2005 Revised Rules of the Court of Tax Appeals (CTA), as amended, the CTA has jurisdiction over the following: "SEC. 3. Cases within the jurisdiction of the Court in Divisions. The Court in Divisions shall exercise: (a) Exclusive original or appellate jurisdiction to review by appeal the following: (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments ,refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue; xxx xxx xxx" Section 228 of the NIRC of 1997, as amended, 32 and Section 3.1.4 of Revenue Regulations (RR) No. 12-99, as amended, provide for the 30-day period to appeal before the CTA reckoned from the receipt of the decision of the Commissioner, or from the expiration of the one hundred eighty (180)-day period to decide, otherwise the decision shall become final, executory and demandable. Considering that the petitioner received the copy of the FDDA on March 1, 2016, petitioner has 30 days or until March 31, 2016 within which to file an appeal before this Court. Consequently, the Petition for Review was timely filed on March 31, 2016. The Court shall now determine whether petitioner is liable to pay the deficiency taxes assessed by respondent. Section 203 of the NIRC of 1997, as amended provides for the period of limitation of actions for the assessment and collection of taxes, i.e. ,within three (3) years after the last day prescribed for the filing of the return. 33 The Court notes that the FLD was only issued and received by petitioner on March 31, 2015, 34 which is already beyond the 3-year prescriptive period for respondent to assess petitioner. However, due to petitioner's execution of the Waiver of the Defense of Prescription under the Statute of Limitation of the NIRC (Waiver) on September 17, 2014, which was accepted by respondent on September 24, 2014, the prescriptive period was extended until March 31, 2015, in accordance with Section 222 (b) of the NIRC of 1997, as amended, which provides: "SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. xxx xxx xxx (b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon. xxx xxx xxx" Yet, based on the records of the case, there were returns filed by petitioner wherein respondent's right to assess had already prescribed even before the Waiver was executed on September 17, 2014. These returns comprise of the 1st to 2nd Quarterly VAT Returns for CY 2011 and WTC Returns from January to August 2011. An analysis of the prescriptive periods for each return is presented below: Exhibit Nos. Returns Due Date for Filing Actual Filing Date 3-Yr Prescriptive Period Remarks P-14-1 Income Tax Return 35 4/16/2012 36 7/20/2012 7/20/2015 Not prescribed VAT Returns: 37 P-19-1 1st Qtr. 4/25/2011 4/11/2011 4/25/2014 Prescribed P-19-2 2nd Qtr. 7/25/2011 7/11/2011 7/25/2014 Prescribed P-19-3 3rd Qtr. 10/25/2011 10/17/2011 10/27/2014 38 Not prescribed P-19-4 4th Qtr. 1/25/2012 2/29/2012 39 3/2/2015 40 Not prescribed WTC Returns: 41 P-18-1 January 2011 2/11/2011 2/9/2011 2/11/2014 Prescribed P-18-2 February 2011 3/11/2011 3/8/2011 3/11/2014 Prescribed P-18-3 March 2011 4/11/2011 4/6/2011 4/11/2014 Prescribed P-18-4 April 2011 5/11/2011 5/7/2011 5/12/2014 42 Prescribed P-18-5 May 2011 6/13/2011 43 6/10/2011 6/13/2014 Prescribed P-18-6 June 2011 7/11/2011 7/9/2011 7/11/2014 Prescribed P-18-7 July 2011 8/11/2011 8/10/2011 8/11/2014 Prescribed P-18-8 August 2011 9/12/2011 44 9/7/2011 9/12/2014 Prescribed P-18-9 September 2011 10/11/2011 10/6/2011 10/13/2014 45 Not prescribed P-18-10 October 2011 11/11/2011 11/3/2011 11/11/2014 Not prescribed P-18-11 November 2011 12/12/2011 46 12/7/2011 12/12/2014 Not prescribed P-18-12 December 2011 1/11/2012 1/10/2012 1/12/2015 47 Not prescribed Considering the above, only the income tax return (ITR) and 3rd to 4th Quarterly VAT Returns for CY 2011, as well as the WTC Returns from September to December 2011 may be validly assessed by respondent. Nevertheless, petitioner was unable to determine which portion of the deficiency tax assessments pertain to the prescribed quarters/months. Thus, the court shall consider the whole amount of the assessed item as referring to the unprescribed portion of CY 2011. I. Deficiency Income Tax P4,063,337.97 Respondent assessed petitioner of deficiency income tax amounting to P4,063,337.97, inclusive of interest, computed as follows: 48 Net Taxable Income per Return Add: Adjustments Undeclared Sales P5,881,234.85 Taxable Income P5,881,234.85 Tax Due P1,764,370.46 Prior year's excess tax credit P27,468,608.88 Tax credit claimed during the year 1,630,017.00 Total P29,098,625.88 Less: Disallowed CWT unsupported P8,089.00 Disallowed CWT prior years 495,581.64 503,670.64 Allowable Tax Credit P28,594,955.24 Less: Tax credit carried over succ. qtr. 29,098,638.87 503,683.63 Deficiency Income Tax P2,268,054.09 Add: Interest as of 3/31/2016 1,795,283.88 Total Amount Due P4,063,337.97 The following items of assessment were disputed by petitioner: A. Undeclared sales P5,881,234.85 B. Disallowed CWTs 503,670.64 C. Disallowed tax credits carried over to succeeding quarter 29,098,638.87 A. Undeclared sales P5,881,234.85 Respondent's verification disclosed that petitioner had a negative cash balance of P5,881,234.85 for the month of January 2011 which the former construed as undeclared sales subject to income tax at 30% pursuant to Section 32 (A) of the NIRC of 1997, as amended. An excerpt of the cash account 49 in petitioner's General Ledger is presented as follows: DEBIT CREDIT BALANCE Beginning Bal. P17,880,042.87 January CDR P24,724,355.18 (6,844,312.31) January ORR P963,077.46 (5,881,234.85) January GJ 30,000,000.00 24,118,765.15 According to respondent, petitioner failed to substantiate with documentary evidence the advances of P30,000,000.00 to dispute the negative balance in the latter's cash accounts. Petitioner's failure to record such advances is a mistake not acceptable and requires further verification and validation. 50 Petitioner disputed said findings asserting that a negative balance, as in this case, does not necessarily equate to undeclared sales. It explained that it maintains the following Books of Accounts: 51 1) General Journal (GJ); 2) General Ledger (GL); 3) Cash Disbursement Register (CDR); 4) Official Receipts Register (ORR); 5) Sales Journal; and, 6) Purchases Journal. As a matter of practice, at month end, petitioner posts all monthly totals of the recorded transactions entered in its Books of Original Entry (CDR, ORR and GJ) to the Book of Final Entry in the following sequence: 1) Total debits and credits per CDR; 2) Total debits and credits per ORR; and, 3) Total debits and credits per GJ. 52 Entries from the General Journal or "GJ" and Special Journals in the foregoing General Ledger for cash can be seen. Official Receipt Register or "ORR" is where the collections or cash sales are recorded. The Cash Disbursement Records or "CDR" is where expenses and disbursements are recorded. The month-end totals of these special journals are the ones posted in the General Ledger as shown above. On the other hand, the General Journal is where non-routinary transactions are recorded. The transactions therein are, likewise, posted in the General Ledger. 53 The truth about the negative balance was actually a result of the first entry for January 2011 in the amount of P24,724,355.18 which came from the Cash Disbursement Register or CDR; thus, where the beginning balance for "Cash" was only P17,880,042.87, a credit entry of P24,724,355.18 from CDR would render a negative balance of P6,844,312.31; to be corrected somewhat by a debit entry of P963,077.46. Thus, an interim negative balance for the Cash Account up to that point in the amount of P5,881,234.85. 54 In fact, looking down further in the General Ledger for Cash, the negative balance was easily corrected. It was actually in the next line in the General Ledger where it was shown that the balance has become positive again after a Debit Entry from the General Journal in the amount of P30,000,000.00 was posted, bringing the balance of Cash to a positive P24,118,765.15. 55 There is no hard and fast rule in the sequence a bookkeeper would post in the General Ledger the balances coming from the General Journal and the Special Journals (i.e.,CDR and ORR) .Truly whichever will be posted first or last, the ending balance would still be the same. This fact is shown below if the entry coming from the General Journal in the amount of P30,000,000.00 was posted in the General Ledger ahead of the entry coming from the Cash Disbursement Record (CDR) in the amount of P24,118,765.15. 56 Nonetheless, if the examiners shifted their focus not on the negative balance of P5,881,234.85 but on the cause which gave rise to the negative balance, they would examine the CDR entries and would determine that there were separation payments made to redundant employees which payments necessitated the advance of P30,000,000.00 to avoid a cash over-draft; and, with the improvement of its cash position in December 2011, the original advances of P30,000,000.00 was paid. 57 On another note, petitioner bewails the fact that it was not fully informed as to why a negative balance in the running balance for Cash in the General Ledger for the month of January 2011 was treated as sales subject to income tax. No basis was provided as to why this should be treated as income subject to tax which is a clear violation of Section 228 of the NIRC, specifically, the requirement that the "taxpayers shall be informed in writing of the law and the facts on which the assessment is made, otherwise, the assessment shall be void." 58 We find for petitioner. It must be noted that the negative cash balance found by respondent amounting to P5,881,234.85 was assessed as "undeclared sales." However, the Court finds no logical relationship between a negative cash balance and treating the same as sales subject to tax. When a cash account shows a negative balance, it only means that there had been more cash disbursements as compared to cash receipts for a certain period. Cash disbursements are made to pay off purchases and other expenditures, while cash is received when sales, among others, have been made. Logically, then, an enterprise does not disburse cash to earn revenue or sales. Assuming that respondent had proper basis to doubt the veracity of the P30,000,000.00 advances in January 2011, the Court finds that it had been properly disposed of by petitioner when it submitted documents to support the same as legitimate transactions for the said period. Among the documents presented is the Secretary's Certificate dated December 14, 2010 attesting to the fact that the Board of Directors of petitioner held a meeting on December 7, 2010 and resolved to pass and approve the infusion of cash advance by petitioner's stockholders up to the amount of P30,000,000.00 to abridge the liquidity problem of petitioner. 59 This was further supported by Certifications dated January 6, 2011 issued by petitioner to its stockholders acknowledging the receipt of the advances totaling P30,000,000.00 pursuant to the Board Resolution. 60 The aggregate total was reflected in the GJ Register under Seq. No. 4, 61 which was then forwarded to petitioner's Cash GL. 62 Respondent should not have just relied on the T-Accounts 63 submitted by petitioner during the audit period, since the same was merely a summarization of all the T-Accounts of petitioner's books of accounts. This summary cannot be controlling over the source documents and actual records in the books of original entry. The tracing of the questioned transaction from source documents to books of accounts effectively disposed respondent's basis in denying petitioner's reconsideration of assessment. Through the pieces of evidence submitted by petitioner, the doubtful transaction had already been verified and validated. Thus, there is no more reason to sustain the assessment. More so, we stress that respondent's assessment had no logical basis to start with, rendering the same whimsical and arbitrary, hence warrants nullification. It is a legal truism that as a general rule, assessments are prima facie presumed correct and made in good faith; that 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. 64 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. 65 In order to withstand the test of judicial scrutiny, the assessment must be based on actual facts. The presumption of correctness of assessment being a mere presumption cannot be made to rest on another presumption. 66 In the case of Fax n Parcel, Incorporated v. Commissioner of Internal Revenue , 67 as affirmed by the CTA En Banc in the case involving the same parties and issues, 68 this Court ruled that although tax assessments have the presumption of correctness and regularity in its favor, it is also equally true that assessments should not be based on mere presumptions no matter how reasonable or logical the presumption might be. This was also highlighted in the case of Commissioner of Internal Revenue v. Hantex Trading , 69 to wit: "We agree with the contention of the petitioner that, as a general rule, tax assessments by tax examiners are presumed correct and made in good faith. All presumptions are in favour of the correctness of a tax assessment. It is to be presumed, however, that such assessment was based on sufficient evidence. Upon the introduction of the assessment in evidence, a prima facie case of liability on the part of taxpayer is made. If a taxpayer files a petition for review in the CTA and assails the assessment, the prima facie presumption is that the assessment made by the BIR is correct, and that in preparing the same, the BIR personnel regularly performed their duties. This rule for tax initiated suits is premised on several factors other than the normal evidentiary rule imposing proof obligation on the petitioner-taxpayer: the presumption of administrative regularity; the likelihood that the taxpayer will have access to the relevant information; and the desirability of bolstering the record-keeping requirements of the NIRC. 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. In such a situation, the U.S. Court of Appeals ruled that the determination of the Commissioner contained in a deficiency notice disappears. Hence, the determination by the CTA must rest on all the evidence introduced and its ultimate determination must find support in credible evidence." As such, finding that petitioner had undeclared sales cannot be enforced against petitioner otherwise, the Court stands to tax petitioner arbitrarily. Accordingly, the deficiency income tax assessment on the alleged undeclared sales per cash analysis in the amount of P5,881,234.85 should be cancelled and withdrawn. B. Disallowed CWTs P503,670.64 The disallowed CWTs amounting to P503,670.64 pertain to the following: i. Unsupported P8,089.00 ii. From prior year/s 495,581.64 Total P503,670.64 i. Unsupported CWTs P8,089.00 Respondent's verification disclosed that the submitted photocopies of Certificates of Creditable Income Tax Withheld (BIR Forms No. 2307) only amounts to P1,621,928.00, resulting to a difference of P8,089.00. Thus, disallowed pursuant to Section 58 (B) of the NIRC of 1997, as amended. 70 Petitioner maintains that, as verified by the Court-commissioned ICPA Mr. Joel C. Romano, said amount had been properly supported with the corresponding BIR Forms 2307. In its Annual Income Tax Return (AITR) for CY 2011, 71 petitioner claimed creditable withholding taxes (CWTs) of P1,630,027.99, broken down as follows: AITR Line No. Description Amount 33F Creditable Tax Withheld from Previous Quarter/s P1,621,928.00 33H Creditable Tax Withheld per BIR Form No. 2307 for the Fourth Quarter 8,099.99 72 Total P1,630,027.99 In support thereof, petitioner submitted BIR Forms No. 2307 73 which were duly examined by the ICPA and by this Court, and, were found to be in order. Thus, there were no unsupported CWTs contrary to respondent's assessment. i. From prior year P495,581.64 This disallowance originated from the "Sales not subject to income tax" amounting to P7,949,517.65 which was assessed by respondent as per FLD. 74 This arose from the discrepancy found between the income per BIR Form 2307 amounting to P22,128,372.65 as against the Sales per Income Tax Return of P14,178,855.00. This discrepancy was accordingly accounted for by petitioner in its Protest Letter 75 to the FLD explaining therein that BIR Form 2307 serves as evidence that income payment was made and the corresponding tax was withheld, but it does not mean that the said income payment represents sale for the current period. To validate its argument, petitioner presented the composition of the income payments subjected to EWT which it claimed for the CY 2011, to wit: Particulars Sales for the Current Year 2013 Sales of Prior Years Sales of Machineries to Packageworld, Inc. Certificate of Creditable Tax Withheld at Source Tanduay P6,984,198.29 P1,333,984.71 P- P8,318,183.00 PMFTC 7,194,656.68 3,214,945.28 10,409,601.96 Packageworld, Inc. - Sale of Machinery and Equipment 3,805,587.69 3,805,587.69 TOTALS P14,178,854.97 P4,548,929.99 P3,805,587.69 P22,533,372.65 Respondent gave merit to petitioner's arguments and cancelled the assessment. However, the CWTs of P495,581.64, as computed below, related to sales from prior years which were disallowed as tax credit for 2011: Name of Payors Income Payment Sales from Prior Year Tax Rate Tax Withheld PMFTC, Inc. P3,214,945.28 15% P482,241.79 Tanduay Distillers, Inc. 1,333,984.71 1% 13,339.85 Total P4,548,929.99 P495,581.64 In the FDDA, respondent ruled in this regard: "Although the Certificate of Creditable Income Tax Withheld (BIR Form 2307) issued by Tanduay Distillers, Inc. and PMFTC, Inc. contains all the information including the period such income payments pertains but if it is indeed income from prior years, then your arguments may be valid. However, the corresponding creditable withholding tax of such income pertaining to prior year illustrated will be deducted from your allowable tax credits ." 76 (Emphasis supplied) The Court finds respondent's assessment meritorious. Petitioner's official receipts and invoices (submitted with the Protest Letter which support petitioner's alleged prior year sales) show that the corresponding withholding taxes withheld by the payees, Tanduay Distillers, Inc. (at 1%) and PMFTC, Inc. (at 15%) in the respective total amounts of P13,339.85 and P482,241.79. 77 The following are the ORs and invoices duly examined by the Court: Tanduay Distillers, Inc. OR No. OR Date Amount (Net of VAT) Invoice No. Invoice Date Withholding Tax 179 12/23/2011 P231,120.54 2454 8/7/2009 P2,311.21 178 12/23/2011 14,285.71 2444 8/7/2009 142.86 177 12/23/2011 32,142.86 2438 7/30/2009 321.43 176 12/23/2011 461,607.14 2425 7/20/2009 4,616.07 175 12/23/2011 2,142.86 2434 7/20/2009 21.43 174 12/23/2011 374,505.75 2427 7/20/2009 3,745.06 173 12/23/2011 217,857.14 2421 7/11/2009 2,178.57 172 12/23/2011 240.36 2411 7/2/2009 2.40 Totals P1,333,902.36 P13,339.03 78 PMFTC, Inc. OR No. OR Date Amount (Net of VAT) Description Invoice Date EWT 47 4/7/2011 P447,707.88 Billing for Service Agreement Dec. 2010 1/19/2011 P67,156.18 44 3/18/2011 1,774,374.04 Billing for Service Agreement Dec. 2010 1/19/2011 266,156.11 43 1/21/2011 992,863.36 Billing for Service Agreement Nov. 2010 1/19/2011 148,929.50 Totals P3,214,945.28 P482,241.79 Grand Total P4,548,847.64 P495,580.82 Petitioner earned the income from Tanduay Distillers, Inc. in the year 2009 while the income from PMFTC, Inc. was earned in the year 2010, for which the corresponding withholding taxes were credited by petitioner only when payment was collected in year 2011. Under Section 2.58.3 of RR No. 2-98, a claim for tax credit of any creditable income tax which was deducted and withheld on income payments shall be given due course only when it is shown that the income payment has been declared as part of the gross income. In this case, however, no proof was provided to show that indeed the supposed income payments upon which taxes were withheld have been declared as part of the gross income for taxable years 2009 and 2010. Needless to say, the infirmity of evidence on this aspect is fatal to its cause. While the BIR Form No. 2307 satisfies the fact of withholding as stated in Section 2.58.3 of RR No. 2-98, the official receipts and sales invoices, however, are not sufficient to prove that the income arising from such withholding was recorded and reported as income in prior years. Petitioner did not furnish this Court its GL, audited financial statements (AFS), and AITR for CYs 2009 and 2010 to ascertain that indeed the income payments upon which the taxes were withheld had been declared as part of the gross income in the said years. Considering the foregoing, respondent's disallowance of petitioner's claimed tax credit amounting to P495,581.64 is upheld. C. Disallowed tax credits carried over to succeeding quarters P29,098,638.87 Respondent deducted the amount of P29,098,638.87 79 from the available tax credits of petitioner which effectively disallows the same. This was lifted from Line 34B of the amended AITR, 80 or the tax overpayment for CY 2011 which is to be carried over to the next period. However, respondent failed to provide legal and factual bases in disallowing the same in the FLD or FDDA. This renders the disallowance null and void for not being compliant with Section 228 of the NIRC of 1997, as amended. Based on the foregoing findings, considering that petitioner is in a net loss position, petitioner would not be held liable for any deficiency income tax, as shown below: Sales P6,984,198.28 Less: Cost of Sales 22,023,698.02 Income from Operation P(15,039,499.74) Add: Other Taxable Income not Subjected to Final Tax 7,194,656.52 Total Gross Income P(7,844,843.22) Less: Allowable Deductions 8,313,430.70 Net Taxable Income P(16,158,273.92) Tax Due P- Less: Tax Credits/Payments Prior year's excess tax credit P27,468,608.88 Tax credit claimed during the year 1,630,017.00 Total P29,098,625.88 Less: Disallowed CWT prior years 495,581.64 28,603,044.24 Excess Tax Credits/Overpayment P(28,603,044.24) II. Deficiency Value-Added Tax (VAT) P7,032,431.87 Respondent assessed petitioner of deficiency VAT amounting to P7,032,431.87, computed as follows: Taxable Sales per VAT Return P21,199,387.80 Add: Other Income Sales Not Subjected to VAT Based on A/R Analysis P20,251,715.60 Undeclared Sales 5,881,234.85 26,132,950.45 Taxable Sales per VAT Return P47,332,338.25 Output Tax Due P5,679,880.59 Less: Tax Credit/Tax Paid Input Tax Carried Over from Previous Quarter P- Input Tax Claimed during the Year 268,878.06 VAT Paid 1,959,197.30 Total P2,228,075.36 Less: Excess Input Tax 2,119.18 Input Tax per Audit 2,225,956.18 Deficiency Value-Added Tax P3,453,924.41 Add: Interest as of 3/31/2016 3,578,507.46 Total Amount Due, Including Increments P7,032,431.87 The following items from the above assessment were disputed by petitioner: A. Sales not subjected to VAT based on A/R analysis P20,251,715.60 B. Undeclared sales 5,881,234.85 C. Disallowed excess input tax 2,119.18 A. Sales not subjected to VAT per A/R analysis P20,251,715.60 Respondent's verification disclosed that based on petitioner's accounts receivables account, the latter's collection for the year subject to VAT at 12% amounts to P37,645,515.71. However, only P17,393,800.10 was subjected to VAT. It appears that the amount of P21,199,387.80 as shown in petitioner's VAT returns includes sale of fixed assets in the amount of P3,805,587.69. Thus, the difference of P20,251,715.60 which pertains to sale of goods and services were not subjected to 12% VAT, pursuant to Secs. 106 (A) and 108 (A) of the NIRC. 81 Respondent's detailed analysis is hereunder presented, to wit: 82 Accounts Receivable, Beginning P84,680,318.00 Add: Sales P6,984,198.00 Service Income 7,194,657.00 Total P14,178,855.00 Add: 12% VAT 1,701,462.60 15,880,317.60 Total Receivables During the Year P100,560,635.60 Less: Accounts Receivable, Ending 58,397,658.00 Total Amount Collected P42,162,977.60 Taxable Sales per Audit Amount Collected, Net of VAT P37,645,515.71 Sale of Fixed Assets 3,805,587.69 Total Amount Subject to VAT P41,451,103.40 Taxable Sales per VAT Return 21,199,387.80 Sales Not Subject to VAT P20,251,715.60 Petitioner argues that the alleged sales not subjected to VAT per respondent's A/R analysis has no legal and factual bases. Petitioner asserts that based on the Notes to Financial Statements, revenue is recognized to the extent that it is probable that the economic benefits will flow to the company and the revenue can be measured reliably. For the year 2011, petitioner's total revenue is composed of sale of goods amounting to P6,984,198.00 and sale of services in the amount of P7,194,657.00. Petitioner further argues that the recognition of VAT liabilities for the sale of services and sale of goods is different as provided by Sections 108 and 106 of the NIRC of 1997, as amended. For the sale of goods or properties, the 12% VAT is imposed upon the gross selling price, which is defined under Section 106 (A) of the NIRC of 1997, as amended, which means the VAT accrues upon the consummation of sale, regardless of whether or not the consideration therefor was actually received. On the other hand, for the sale of services, the 12% VAT is computed based on gross receipts, as provided under Section 108 (A) of the NIRC of 1997, as amended, which means the VAT accrues upon actual or constructive receipt of the consideration irrespective of whether or not the service has been rendered. To bolster its argument, petitioner provided the following reconciliations/computations: Accounts Receivable, Beginning P3,214,945.28 Add: Service Revenue during the Year 7,194,657.00 Total P10,409,602.28 Less: Accounts Receivable, End - Gross Receipts Service P10,409,602.28 VAT Tax Base Sale of Goods P6,984,198.00 Sale of Service Gross Receipts Based on Computation 10,409,602.28 Sale of Fixed Asset 3,805,587.69 Total P21,199,387.97 VAT Return P21,199,387.97 Details/Breakdown of Accounts Receivable Beginning Balances: GOODS Tanduay Distillers, Inc. P75,732,205.27 Papercon (Phils.),Inc. 5,347,274.40 P81,079,479.67 SERVICE PMFTC 3,600,738.71 Total P84,680,218.38 Details/Breakdown of Accounts Receivable Ending Balances: GOODS Tanduay Distillers, Inc. P57,434,365.41 SERVICE PMFTC 963,192.64 Total P58,397,558.05 Respondent agrees with petitioner as to when VAT should be imposed on the sale of goods or properties, as well as, on sale of services. However, respondent posits that based on the documents submitted, more particularly on the sales invoices issued to Tanduay Distillers, Inc., it appears that what was being sold to Tanduay are posters, barcode stickers, labels and the like, printed by petitioner. Thus, should be considered as sales of services. Therefore, the components of Accounts Receivable account pertains to sales of services only. Consequently, all the collections derived during the year should be subject to 12% VAT pursuant to Section 108 of the NIRC of 1997, as amended. We shall sustain the assessment. Records show that petitioner's registered line of business/industry is as a manufacturer of containers, boxes of paper, paperboard. 83 The same was reflected in the Quarterly VAT Returns for 2011. 84 Moreover, petitioner's primary purpose as a corporation, as stated in its Amended Articles of Incorporation, is as follows: 85 "To manufacture, prepare, buy, sell, and generally deal in at wholesale, all kinds of printing, publishing, binding, and engraving works and designs, books, papers, catalogues, and stationery supplies, printing supplies, pads and stamps; and to carry on a general business in monotyping, linotyping, electrotyping, color-typing, stencil press service, typesetting, composition, dies and advertising services; to engage in and carry on service as a commercial printer, bookbinder, engravers, photographic printers, stereotypers, electrotypers, lithographers and to undertake a general printing, engraving, lithographing business under specific contract or job orders from clientele ." (Emphasis supplied) Clearly, from the foregoing, petitioner is an entity primarily engaged in printing services. The goods delivered are merely finished products or outputs of the completed printing service rendered to the client, Tanduay in this case. Hence, petitioner's sales to Tanduay is VATable on gross receipts under Section 108 of the NIRC of 1997, as amended. 86 Despite petitioner's erroneous interpretation of the nature of sales transactions it had with Tanduay, which formed part of the beginning balance of Accounts Receivable account, it cannot be discounted that the corresponding VAT may have been remitted, albeit in advance, or upon the delivery of the purported goods in the years 2008 and 2009 pursuant to a printing service performed by the former, following its ratiocination that the said sales are sales of goods. However, the general ledgers, journal entries and registers 87 presented by petitioner are insufficient to prove that the corresponding output VAT on the said sales made to Tanduay was indeed remitted in 2008 and 2009. Petitioner should have presented the related VAT Returns and summary lists of sales and other documents in which the remittance of the subject output VAT can be traced or verified. It is noteworthy of emphasis that mere allegations without adducing evidence are not sufficient. Allegation is not synonymous with proof. 88 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. 89 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. 90 As such, respondent's assessment finding the amount of P20,251,715.60 subject to VAT shall be sustained. B. Undeclared sales P5,881,234.85 As discussed in item I.A above, the Court finds that petitioner had no undeclared sales. Consequently, the imposition of VAT thereon is without basis. Thus, the deficiency VAT assessment should be cancelled and withdrawn. C. Disallowed excess input tax carried over to succeeding quarters P2,119.18 In arriving at petitioner's alleged deficiency VAT liability for the year 2011, respondent disallowed the excess tax credits of P2,119.18 reflected in petitioner's amended Quarterly VAT Return for the fourth quarter of 2011. 91 However, he did not explain the basis of the disallowance of the said excess input tax. Thus, following Section 228 of the NIRC of 1997, as amended, this item of assessment should be considered void. In view of the foregoing, petitioner is liable to pay the deficiency VAT in the amount of P2,428,086.68, computed as follows: Taxable Sales per VAT Return P21,199,387.80 Add: Sales Not Subjected to VAT per A/R Analysis 20,251,715.60 Taxable Sales per VAT Return P41,451,103.40 Output Tax Due P4,974,132.41 Less: Tax Credit/Tax Paid Input Tax Claimed during the Year P268,878.06 VAT Paid 2,277,167.67* 2,546,045.73 Basic Deficiency Value-Added Tax P2,428,086.68 * Schedule of Total VAT Payments : Date of Payment Amount January 2011 2/23/2011 P629,305.15 February 2011 3/21/2011 306,328.87 First Quarter 2011 4/13/2011 317,600.43 April 2011 5/24/2011 180,012.47 May 2011 6/16/2011 509,596.58 Second Quarter 2011 7/21/2011 381.93 July 2011 8/23/2011 298,946.90 August 2011 9/15/2011 34,995.34 Total Payments P2,277,167.67 III. Deficiency Withholding Tax on Compensation (WTC) P123,127.79 The deficiency withholding tax on compensation amounting to P123,127.80 shows the following details: Taxable Basis P200,767.01 Basic Tax Due P60,230.10 Add: Interest as of 3/31/16 62,897.69 Total Amount Due P123,127.79 Taking into consideration the benefits subjected to Fringe Benefits Tax under Section 33 of the NIRC of 1997, as amended, and RR No. 3-98, respondent's verification disclosed a discrepancy in taxable salaries and wages per GL as against taxable compensation per petitioner's Monthly Remittance Return (BIR Form 1601C) amounting to P455,578.96. The aforesaid discrepancy resulted to under remittance of P136,673.69 in violation of Section 80 of the NIRC of 1997, as amended, in relation to Section 2.80 (A) of RR No. 2-98, as amended. The salaries and wages allegedly not subjected to withholding tax amounting to P455,578.96 was computed as follows: Salaries and Wages per GL Taxable Non Taxable Total Payroll P4,834,981.74 P4,834,981.74 Vacation Leave P146,568.40 146,568.40 SSS 238,680.00 238,680.00 Medicare 76,350.00 76,350.00 Employee Compensation 4,280.00 4,280.00 HDMF 59,775.00 59,775.00 Sick & Maternity Leave 27,196.15 27,196.15 13th Month Pay 244,242.39 244,242.39 P4,834,981.74 P797,091.94 5,632,073.68 Direct Labor per GL 14,682,952.00 Discrepancy P(9,050,878.32) Taxable Compensation per Books P4,834,981.74 Taxable Compensation per BIR Form 1601C 4,379,402.78 Amount Not Subjected to Withholding Tax P455,578.96 Petitioner posits that it properly subjected the salaries and wages of its employees to withholding tax. Petitioner assents that it reported the amount of P14,682,951.94 representing Direct Labor in the AFS as substantiated by the entries found in the general ledger, general journal and cash disbursement register. However, petitioner contends that the BIR was remiss and failed to consider that per alphalist of employees from whom taxes were withheld, it reported a total gross compensation of P14,464,314.58. Such amount includes taxable and non-taxable compensation and excludes its statutory contributions remitted to the Social Security System (SSS),Philippine Health Insurance Corporation (PHIC) and Home Development Mutual Fund (HDMF) in the amount of P219,460.00 which was debited to the Direct Labor Account in December 2011. Respondent counters that petitioner did not submit its or provide respondent records of alphalist of employees or provide respondent copy of such document during audit. Nevertheless, based on the alphalist of employees annexed by petitioner in its Protest Letter, respondent maintains that out of the gross compensation income of P14,464,314.58, the non-taxable compensation amounts to P4,633,391.40. The bulk of the non-taxable compensation income is separation pay of petitioner's employees amounting to P9,211,326.60, which was paid in December 2011. An analysis of salaries and wages account showing the taxable and non-taxable compensation income resulted to a discrepancy of P200,767.01 which were not subjected to withholding tax, to wit: 92 Total salaries and wages P14,682,951.94 Separation pay P9,211,326.60 Employees comp contribution 4,280.00 13th month pay 244,242.39 Pagibig fund 14,825.00 Maternity & sick leave 27,196.15 Vacation leave 146,568.39 SSS premium contribution 162,180.00 Medicare premium 38,175.00 Total non-taxable compensation 9,848,793.53 Taxable compensation per audit P4,834,158.41 Total taxable compensation per Alphalist 4,633,391.40 Amount still subject to withholding tax P200,767.01 The foregoing amounts used by the BIR in its computation were lifted from petitioner's T-Accounts submitted during audit. 93 Upon reconciliation of these seeming disparity, the ICPA showed that there is in fact an over-withholding in compensation payment by P822.64, to wit: 94 Total salaries and wages P14,682,951.94 Non-taxable items (per Alphalist): Separation pay P9,211,326.60 13th Month 257,242.39 De minimis benefits 202,729.19 HDMF 14,825.00 ECOM 4,280.00 SSS 162,180.00 Medicare 38,175.00 SSS, HDMF, PHIC 159,625.00 Total nontaxable compensation 10,050,383.18 Taxable compensation P4,632,568.76 Total taxable compensation per Alphalist 4,633,391.40 Total taxable compensation per Alphalist where there is overwithholding P(822.64) Based on respondent's computation and petitioner's reconciliation, the assessment mainly arose from the difference in the computation of the non-taxable compensation. A comparison of the computation of the two parties shows the following differences: BIR Computation Petitioner's Reconciliation as per Alphalist Difference Separation pay P9,211,326.60 P9,211,326.60 P- Employees compensation contribution ER share 4,280.00 4,280.00 - 13th month pay 244,242.39 257,242.39 (13,000.00) Pagibig fund ER share 14,825.00 14,825.00 - Maternity & sick leave 27,196.15 - 27,196.15 Vacation leave 146,568.39 - 146,568.39 SSS premium contribution ER share 162,180.00 162,180.00 - Medicare premium ER share 38,175.00 38,175.00 - De minimis benefits - 202,729.19 (202,729.19) SSS, HDMF, PHIC - 159,625.00 (159,625.00) Total P9,848,793.53 P10,050,383.18 P(201,589.65) The foregoing leads us to the following findings: 1) The ECC, SSS, Medicare premiums and Pagibig fund considered by the BIR amounting to P4,280.00, P162,180, P38,175.00, and P14,825.00, respectively, as reflected in the T-Accounts pertain only to the employer's share. BIR failed to consider the employee's share on SSS, Medicare and PHIC contributions totaling P159,625.00. Both amounts can be traced to the Payment Vouchers and proof of remittances to said agencies. 95 The employee's share should have been considered in computing the non-taxable compensation. 2) The 13th month pay reflected in the T-Accounts amounted to P244,242.39 whereas the amount reflected in the Alphalist 96 is P257,242.39. The difference of P13,000.00 was unaccounted by petitioner, hence must be disregarded. 3) The de minimis benefits amounting to P202,729.19 were not supported by clear and convincing evidence to substantiate the same, thus, shall not be considered in computing the non-taxable compensation. Considering the foregoing, the non-taxable compensation amounts to P10,008,418.53. As such, the amount of compensation which petitioner failed to subject to WTC is thus decreased to P41,142.01, as determined below: Total salaries and wages P14,682,951.94 Non-taxable items: Separation pay P9,211,326.60 13th Month 244,242.39 Maternity & sick leave 27,196.15 Vacation leave 146,568.39 HDMF ER share 14,825.00 ECOM ER share 4,280.00 SSS ER share 162,180.00 Medicare ER share 38,175.00 SSS, HDMF, PHIC EE share 159,625.00 Total non-taxable compensation 10,008,418.53 Taxable compensation P4,674,533.41 Total taxable compensation per Alphalist 4,633,391.40 Amount of compensation still subject to withholding tax P41,142.01 The above difference of P41,142.01 should be subjected to withholding tax on compensation based on the graduated tax rates of 5% to 32%.However, the employees to whom the compensation pertained to were not individually identified. Thus, the appropriate tax rate to be used should be the effective rate computed based on the total withholding tax on compensation paid divided by the total amount of taxable compensation reported during the CY 2011, as shown below: Total withholding tax on compensation 97 P200,458.31 4.33% Total taxable compensation 98 P4,633,391.40 Therefore, petitioner shall be held liable to pay the basic deficiency WTC in the amount of P1,779.96, as computed below: Amount of compensation still subject to withholding tax P41,142.01 Effective Tax Rate 4.33% Basic Deficiency WTC P1,779.96 WHEREFORE ,premises considered, the assessment issued by respondent against petitioner for CY 2011 covering deficiency income tax is CANCELLED ,while the deficiency VAT and WTC assessments are AFFIRMED but with modifications. Accordingly, petitioner is ORDERED TO PAY the aggregate amount of P7,999,517.87 for the taxable year 2011, inclusive of the 25% surcharge imposed under Section 248 (A) (3) of the NIRC of 1997, as amended, and deficiency and delinquency interests imposed under Sections 249 (B) and (C) of the NIRC of 1997, as amended, until December 31, 2017, computed as follows: VAT WTC Total Basic Tax Due P2,428,086.68 P1,779.96 P2,429,866.64 Surcharge (25%) 607,021.67 444.99 607,466.66 Subtotal P3,035,108.35 P2,224.95 P3,037,333.30 Deficiency Interest (1-25-2012 99 /1-11-2012 100 to 12-31-2017) (P2,428,086.68 x 20% x 2,167 days/365) 2,883,103.47 2,883,103.47 (P1,779.96 x 20% x 2,181 days/365) 2,127.17 2,127.17 Subtotal P5,918,211.82 P4,352.12 P5,922,563.94 Delinquency Interest (3-31-2016 101 to 12-31-2017) (P5,918,211.82 x 20% x 640 days/365) 2,075,427.71 2,075,427.71 (P4,352.12 x 20% x 640 days/365) 1,526.22 1,526.22 TOTAL P7,993,639.53 P5,878.34 P7,999,517.87 In addition, petitioner is liable to pay delinquency interest at the rate of 12% on the unpaid VAT of P3,035,108.35 and WTC of P2,224.95, representing basic deficiency tax and surcharge, as determined above, computed from January 1, 2018 until full payment thereof pursuant to Section 249 (C) of the NIRC of 1997, as amended by Republic Act No. 10963, also known as Tax Reform for Acceleration and Inclusion (TRAIN). 102 SO ORDERED. (SGD.) CAESAR A. CASANOVA Associate Justice Juanito C. Castaeda, Jr.,J. ,concurs. Catherine T. Manahan, J. ,is on leave. Footnotes 1. Docket (Vol. I),pp. 10-28. 2. Exhibits "P-3" and "P-3-1". 3. Par. 2, Admitted Facts, Joint Stipulation of Facts and Issues (JSFI),Docket (Vol. II),p. 730. 4. Exhibit "P-3-1". 5. Exhibit "P-4". 6. Par. 3, Admitted Facts, JSFI, Docket (Vol. II) p. 731. 7. Exhibit "R-1". 8. Exhibit "R-5". 9. Exhibits "R-7" and "P-6-7". 10. Exhibit "R-9". 11. Exhibit "P-8". 12. Docket (Vol. I),pp. 426 to 436. 13. Docket (Vol. I),pp. 450-457. 14. Docket (Vol. II),pp. 689-692. 15. Minutes of the Hearing, Docket (Vol. II),p. 708. 16. Docket (Vol. II),pp. 730-739. 17. Docket (Vol. II),pp. 741-747. 18. Motion to Allow the Engagement of an Independent Certified Public Accountant, Docket (Vol. II),pp. 712-713. 19. Minutes of the Hearing dated October 5, 2016, Docket (Vol. II),p. 759. 20. Minutes of the Hearing dated November 16, 2016, Docket (Vol. II),p. 776. 21. Minutes of the Hearing dated December 12, 2016, Docket (Vol. II),p. 806. 22. Docket (Vol. II),pp. 808-824. 23. Docket (Vol. II),p. 950. 24. Resolution dated February 27, 2017, Docket (Vol. II),pp. 951-952. 25. Minutes of Hearing dated February 27, 2017, Docket (Vol. II),p. 953. 26. Docket (Vol. II),pp. 957-963. 27. Docket (Vol. III),pp. 971-972. 28. Docket (Vol. III),pp. 984-1006. 29. Docket (Vol. III),pp. 1014-1022. 30. Resolution, Docket (Vol. III),p. 1023. 31. JSFI, Docket (Vol. II),p. 732. 32. Section 228. Protesting of Assessment. xxx xxx xxx 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. 33. SEC. 203. Period of Limitation upon Assessment and Collection . Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided ,That in a case where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return was filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day. 34. Exhibits "P-7" to "P-7-6". 35. Docket (Vol. II),pp. 839 to 842. 36. April 15, 2012 being a Sunday. 37. Docket (Vol. II),pp. 924 to 945. 38. October 25, 2014 fell on a Saturday. 39. Amended Quarterly VAT Return, BIR Records, pp. 155-157. 40. March 1, 2015 fell on a Sunday. 41. Docket (Vol. II),pp. 879 to 922. 42. May 11, 2014 fell on a Sunday. 43. June 11, 2011 fell on a Saturday. 44. September 11, 2011 fell on a Sunday. 45. October 11, 2014 fell on a Saturday. 46. December 11, 2011 fell on a Sunday. 47. January 11, 2015 fell on a Sunday. 48. Exhibit "P-1". 49. Exhibits "P-10-1";"P-26-020". 50. Details of Discrepancies, FDDA, Exhibit "P-1-1". 51. Exhibit "P-26-022". 52. Pars. 18 to 19, Petition for Review, Docket (Vol. I),p. 15. 53. Par. 16, Memorandum for the Petitioner, Docket (Vol. III),p. 989. 54. Par. 18, ibid. ,pp. 989-990. 55. Par. 20, ibid. ,p. 990. 56. Par. 22, ibid . 57. Par. 28, Petition for Review, supra ,p. 8. 58. Par. 23, Petitioner's Memorandum, supra ,p. 991. 59. Exhibit "P-26-017". 60. Exhibits "P-26-015" to "P-26-015C". 61. Exhibit "P-26-018". 62. Exhibit "P-26-020". 63. BIR Records, p. 256. 64. Interprovincial Autobus Co., Inc. vs. CIR ,G.R. No. L-6741, January 31, 1956; Sy Po vs. Court of Tax Appeals, et al. ,G.R. No. 81446, August 18, 1988; Dayrit, et al. vs. Cruz, et al. ,G.R. No. L-39910, Sept. 26, 1988. 65. Commissioner of Internal Revenue vs. Hantex Trading Co., Inc. , G.R. No. 136975, March 31, 2005. 66. Collector of Internal Revenue v. Benipayo ,G.R. No. 13656, January 31, 1962. 67. CTA Case No. 7415, November 22, 2011. 68. CTA EB No. 883, February 14, 2013. 69. G.R. No. 136975, March 31, 2005. 70. Exhibit "P-1-1", supra . 71. Exhibit "P-14-1". 72. Differs with the amount disallowed by respondent by P10.99. 73. Exhibits "P-27-034" to "P-27-042". 74. Exhibit "P-7-1", supra . 75. Exhibit "P-8", supra . 76. Exhibit "P-1". 77. BIR Records, pp. 526 to 547. 78. Differs with the amount disallowed by respondent P0.82. 79. Actual amount per AITR is P29,098,636.87 resulting to insignificant discrepancy of P2.00. 80. Exhibit "P-14-1". 81. Details of Discrepancy, FLD, Exhibit "P-7-1". 82. Exhibit "P-1". 83. Exhibit "P-4". 84. Line 9, BIR Forms No. 2550Q, Exhibits "P-19-1" to "P-19-4". 85. Exhibit "P-3-1". 86. SEC. 108 . Value-Added Tax on Sale of Services and Use or Lease of Properties . (A) Rate and Base of Tax . There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties. x x x xxx xxx xxx The term 'gross receipts' means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding value-added tax. 87. Exhibits "P-28-043" to "P-28-093". 88. Ernesto Martin vs. Hon. Court of Appeals and Manila Electric Company ,G.R. No. 82248, January 30, 1992. 89. Collector of Internal Revenue vs. Bohol Land Transportation Co. ,G.R. Nos. L-13099 and L-13462, April 29, 1960, as cited in the case of Sy Po vs. Court of Tax Appeals, supra; Commissioner of Internal Revenue vs. Bank of the Philippine Islands , G.R. No. 134062, April 17, 2007. 90. Sy Po vs. Court of Tax Appeals, ibid . 91. BIR Records, pp. 155-157. 92. Exhibit "P-1". 93. BIR Records, pp. 251 to 252. 94. P. 9, ICPA Report, Exhibit "P-23". 95. Exhibits "P-29-098" to "P-29-157". 96. Exhibits "P-29-164" to "P-29-167". 97. Amount lifted from the Alphalist of Employees, Exhibit "P-29-167". 98. Ibid . 99. Section 4.114-1 (A) of RR No. 16-05. 100. Section 2 of RR No. 26-02. 101. Exhibits "P-1-2" to "P-1-4". 102. Alpha 245, Inc., (formerly ARC Worldwide Philippines Co., Inc.) vs. Commissioner of Internal Revenue , CTA Case No. 9225, April 6, 2018.