Republic of The Philippines Court of Tax Appeals Quezon City
Republic of The Philippines Court of Tax Appeals Quezon City
Republic of The Philippines Court of Tax Appeals Quezon City
THIRD DIVISION
COMMISSIONER OF INTERNAL
Pro mulga ted:
REVENUE,
DECISION
The Case
This Petition for Review1 flied by Prime Steel Mill, Incorporated seeks the
cancellation of its alleged income and value-added tax deflciencies for taxable
year 2005, as well as compromise penalties, interests and surcharges, in the
aggregate amount of P37,675,379.58.
The Facts
Petitioner flied the instant Petition for Review before this Court on May
14, 2014. 11
Within the extended time granted by the Court, 12 respondent flied his
Answer13 on July 14, 2014 and interposed the following defenses~
10
Exhibit "P-11", docket, p. 296.
11
Docket, pp. 14-22.
12
Order dated June 16, 2014, docket, p. 29.
13 Docket, pp. 31-33.
DECISION
CTA CASE NO. 8818
Page 4 of 25
On October 14, 2014, the parties flied their Joint Stipulation of Facts and
17
Issues . This was adopted by the Court in the Pre-Trial Order18 issued on
November 10, 2014, which also terminated the pre-trial.
14
Docket, pp. 129-136.
15
Docket, pp. 137-140.
16
Minutes of the Hearing dated October 9, 2014, docket, p. 141.
17
Docket, pp. 143-149.
18
Docket, pp. 160-167.
19
Oath of Commission, docket, p. 194.
20
Minutes of the Hearing dated November 13, 2014, docket, p. 176; Exhibit "P-19", docket, pp.
329-335.
21
Minutes of the Hearing dated December 4, 2014, docket, p. 179; Exhibit "P-20", docket, pp. 336-
347.
22
Minutes of the Hearing dated January 29, 2015, docket, p. 193; Exhibit "P-39", docket, pp. 388-
393.
23 Docket, pp. 245-262.
24
Docket, pp. 397-398.
DECISION
CTA CASE NO. 8818
Page 6 of 25
The Issues
The parties stipulated the following issues 33 for resolution of this Court:
~
25
Docket, pp. 422-425.
26 Docket, pp. 438-439.
27
Minutes of the Hearing dated October 20, 2015, docket, p. 440; Exhibit "R-13", docket, pp. 399-
405.
28
Docket, pp. 444-447.
29 Docket, pp. 467-468.
30
Docket, pp. 469-485.
31
Docket, pp. 486-492.
32
Docket, p. 499.
33
Issues, JSFI, docket, p. 144.
DECISION
CTA CASE NO. 8818
Page 7 of 25
3. Whether the FAN and FLD issued for taxable year 2005 against
Petitioner representing alleged Income and VAT deficiencies
and the right of the Government through the Bureau oflnternal
Revenue to collect such alleged deficiency taxes had prescribed
pursuant to Section 203 and 222 of the 1997 Tax Code, as
amended.
Petitioner claims that the alleged income tax deficiency and VAT
deficiency have no factual basis. It also argues that the FAN and the FLD were
served beyond the period to assess provided under Section 203 of the NIRC of
1997, as amended, in relation to Sections 58 and 114 thereof. Moreover,
petitioner asserts that the period to collect the alleged deficiency taxes pursuant
to Section 222(c) of the NIRC of 1997, as amended, has already lapsed. Lastly,
petitioner contends that the imposition of compromise penalty cannot be
justified.
of the government through the BIR to collect the deficiency taxes has not yet
prescribed pursuant to Sections 203 and 222 of the NIRC of 1997, as amended.
Jurisdiction of the
Court of Tax Appeals
Based on the foregoing, petitioner had thirty (30) days from receipt of the
FDDA on April 14, 2014 or until May 14, 2014 within which to appeal such
FDDA with the Court of Tax Appeals.
Since the instant Petition for Review was filed on May 14, 2014, the same
was timely filed.
The Court shall now proceed to resolve the issues stipulated by the parties.
Right of respondent
to assess petitioner
The return for final withholding tax shall be filed and the
payment made within twenty-five (25) days from the close of each
calendar quarter, while the return for creditable withholding taxes
shall be filed and the payment made not later than the last day of
the month following the close of the quarter during which
withholding was made: Provided, That the Commissioner, with the
approval of the Secretary of Finance, may require these withholding
agents to pay or deposit the taxes deducted or withheld at more
frequent intervals when necessary to protect the interest of the
government.
It is long established in our jurisdiction that the first three (3) quarterly
returns are mere installments of the annual tax due. These quarterly tax
payments, which are computed based on the cumulative figures of gross receipts
and deductions in order to arrive at a net taxable income, should be treated as
advances or portions of the annual income tax due, to be adjusted at the end o~
DECISION
CTA CASE NO. 8818
Page 11 of 25
the calendar or fiscal year. 34 The final adjustment return is the one truly reflective
of the operations of an establishment. Thus, the three-year period is reckoned
from the fifteenth (15th) day of April or the fifteenth (15th) day of the fourth
(4th) month following the close of the fiscal year, as the case may be; or the date
of actual filing of the final adjustment return, whichever is later.
In this case, petitioner flied its 2005 final adjustment return for income
tax on April 12, 2006 35 , which was later amended on June 22, 2006 36 • Applying
Sections 77 (B) and 203 of the NIRC of 1997, as amended, the BIR had until June
22, 2009 within which to issue the FLD and the FAN assessing petitioner for
deficiency income tax for taxable year 2005.
3-Year
Date to Count Prescriptive
Actual Date of Due Date per 3-Year Prescriptive Period per
VAT Returns38 Filing Sec. 114(A) Period Sec. 203
1st Quarter 4/23/2005 4/25/2005 4/25/2005 4/25/2008
2nd Quarter 7/25/2005 7/25/2005 7/25/2005 7/25/2008
3rd Quarter 10/24/2005 10/25/2005 10/25/2005 10/27/200839
4th Quarter 4/7/2006 1/25/2006 4/7/2006 4/7/2009
(amended)
//
34
Commissioner of Internal Revenue vs. TMX Sales, Inc., G.R. No. 83736, January 15, 1992.
35
Annual Income Tax Return, Exhibit "P-5", docket, p. 273.
36
Annual Income Tax Return, Exhibit "P-5-A", docket, p. 275.
37
Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue,
G.R. Nos. 141104 and 148763, June 8, 2007.
38
Exhibits "P-1" to "P-4", with sub-markings, docket, pp. 263-272.
39
October 25, 2008 being a Saturday.
DECISION
CTA CASE NO. 8818
Page 12 of 25
Since the FLD was only received by petitioner on February 12, 2009,
respondent's right to assess petitioner for deficiency VAT for the first (1 sr) to
third (Yd) quarters of taxable year 2005 had already prescribed and only the
deficiency VAT assessment for the fourth (4th) quarter is valid.
The Court shall now scrutinize the propriety of each item of the subject
assessment.
Respondent's assessment for both deficiency income tax and VAT arose
from the same finding - unaccounted source of cash - hence, they shall be
resolved jointly.
With respect to the alleged "Total amount of cash per bank" as per Details
of Discrepancy, petitioner presented the following explanations:
40
Details of Discrepancies, FDDA, Exhibit "P-11", docket, p. 296.
DECISION
CTA CASE NO. 8818
Page 13 of 25
41
Pars. 3, 4, and 6, petitioner's Memorandum, docket, pp. 474-475.
42 Exhibit "P-15", docket, p. 307.
DECISION
CTA CASE NO. 8818
Page 14 of 25
Date
Issuer Bank Deposited Exhibit No. Amount
Federal North Hardware Metro bank 1/10/2006 P-26-1 P-27-A-25 p 113,954.55
Amyes Builders Metro bank 1/11/2006 P-26-2 P-27-A-25 3,460.00
ECD Sales Enterprises Metro bank 1/11/2006 P-26-2 P-27-A-25 1,479.00
J oraica Marketing Metro bank 1/16/2006 P-26-3 P-27-A-26 136,400.00
JO Construction PBCom 1/31/2006 P-26-5 P-28-A-11 137,950.00
ECD Sales Enterprises PBCom 1/31/2006 P-26-6 P-28-A-11 3,807.00
Weserve Industrial Supply, Inc. PBCom 1/31/2006 P-26-6 P-28-A-11 16,380.00
JO Construction Metro bank 2/6/2006 P-26-10 P-27-A-26 558,840.01
168 Steel Multiple Resources Metro bank 2/13/2006 P-26-9 P-27-A-27 8,320.00
ECD Sales Enterprises Metro bank 2/28/2006 P-26-7 P-27-A-27 5,916.00
ECD Sales Enterprises Metro bank 2/22/2006 P-26-8 P-27-A-27 5,916.00
Kato Metal Corporation Metro bank 3/6/2006 P-26-4 P-27-A-27 366,636.36
TOTAL TOTAL p 1,359,058.92
These post-dated checks did not comprise the cash deposits during the
year 2005 as proven by the bank deposit slips 44 showing that the post-dated
checks were actually deposited in 2006 and were accordingly traced to the
respective bank statements or passbook45 of petitioner on the same date they
were deposited. 46
43
Exhibit "P-24".
44 Exhibit "P-26-1" to "P-26-10".
45
Exhibits "P-27-A", with sub-markings and "P-28-A", with sub-markings.
46
Annex A of ICPA Report, Exhibit "P-22", docket, p. 212.
47
Exhibit "P-25".
DECISION
CTA CASE NO. 8818
Page 15 of 25
Manual Fund Transfers- Records show that these are fund transfers
from petitioner's one bank account to another which it maintains with different
banks. Based on the Company Policy on Manual and Automatic Fund Transfer49 ,
the fund transfer is done when, based on its daily cash position, one bank would
be lacking in funds and no collection is expected, and where there is an excess
fund from the other bank.
The Court finds that these fund transfers were duly supported by
approved journal vouchers and deposit slips 50 and were traced to be debited, on
one hand, from petitioner's source account and credited, on the other hand, to
the receiving banks, as clearly shown in its bank statements and passbooks 51 •
48
Exhibit "P-25".
49 Exhibit "P-31-1".
50
Exhibits "P-32-1" to "P-32-26".
51 Exhibits "P-27-A-1" to "P-27-A-29", "P-27-B-1" to "P-27-B-16", "P-28-A-1" to "P-28-A-12", "P-28-
B-1" to "P-28-B-13", and "P-29-1" to "P-29-10"; Annex B of ICPA Report, Exhibit "P-22", docket,
p. 213
52
See detailed tracing of manual transfers in Annexes B and C of ICPA Report, Exhibit "P-22",
docket, pp. 213 to 214.
DECISION
CTA CASE NO. 8818
Page 16 of 25
Auto Fund Transfers - These are mere transfers between the current
and savings accounts (CA/SA) maintained by petitioner within the same bank.
Petitioner's collections are deposited to its savings account while its check
disbursements are charged against the current account. To accommodate the
inward clearing checks issued by petitioner, the funds deposited in the savings
account is automatically transferred to the current account.
Apparendy, respondent took into account only the debit side of the entry
and did not consider the corresponding credit of the journal entry for the same
amount, which is also a cash in bank account, hence, the overstatement per
books by P13,991,218.60.
The gross amount of the loans and the corresponding DST were duly
supported by Promissory Notes and Disclosure Statements 57 , detailed as
follows: 58
DST per
Promissory Principal Loan Disclosure
Note No. Date Amount Statement Loan Proceeds
1051673 2/21/2005 p 30,000,000.00 p 12,328.80 p 29,987,671.20
1051674 2/24/2005 20,000,000.00 7,397.30 19,992,602.70
//
55 Exhibits "P-27-A-1" to "P-27-A-29", "P-27-B-1" to "P-27-B-16", "P-28-A-1" to "P-28-A-12", and
"P-28-B-1" to "P-28-B-13".
56 Exhibits "P-38-1" to "P-38-12".
57
Exhibit "P-33".
58
Annex D of !CPA Report, Exhibit "P-22", docket, p. 215.
DECISION
CTA CASE NO. 8818
Page 18 of 25
y
59 Exhibits "P-27-A-5", "P-27-A-6", "P-27-A-8", "P-27-A-8", "P-27-A-14", "P-27-A-14", "P-27-A-18",
"P-27-A-21", "P-27-A-24", and "P-27-A-24".
60 Exhibits "P-28-A-3", "P-28-A-6", "P-28-A-8", "P-28-A-10", and "P-34-B".
61 Exhibits "P-27-A-9", "P-27-A-17", "P-27-A-22", "P-27-A-25", and "P-34-A".
62 Exhibits "P-29-2", "P-29-5", "P-29-7", "P-29-9", and "P-34-C".
DECISION
CTA CASE NO. 8818
Page 19 of 25
Date
Deposited Date Credited
Description per Journal per Deposit per Bank
Vouchers 64 Amount Bank Slips 65 Passbook66
Dividend income from PLDT P700.00 PBCom 12/16/2005 12/16/2005
Dividend income from PLDT 210.00 PBCom 8/10/2005 8/10/2005
Dividend income from PLDT 140.00 PBCom 6/1/2005 6/1/2005
Advances to employees 7,696.14 Metro bank 11/15/2005 11/15/2005
Accounts receivable-others 213.40 Metro bank 1/3/2005 1/3/2005
SS Sickness benefit 1,800.00 Metro bank 1/4/2005 1/4/2005
SS Sickness benefit 1,800.00 Metro bank 5/16/2005 5/16/2005
Accounts receivable-others 240.25 Metro bank 3/9/2005 3/9/2005
Accounts receivable-others 10.00 Metro bank 3/10/2005 3/10/2005
P12,809.79
Considering the lack of factual basis, the Court finds that respondent's
assessment with respect to the other deposits should be cancelled.
F. Reversal Entry-?36,001.71
63
Income Statement, Exhibit "P-35-13".
64
Exhibits "P-36-1" to "P-36-3", "P-36-5", "P-36-6", "P-36-9", and "P-36-11 ".
65 Exhibits "P-36-4", "P-36-6", "P-36-7", "P-36-8", "P-36-10", and "P-36-12".
66
Exhibits "P-28-A-5", "P-28-A-7", "P-28-A-10", "P-27-A-1", "P-27-A-6", "P-27-A-7", "P-27-A-13",
and "P-27-A-23".
67
Exhibit "P-37-A".
DECISION
CTA CASE NO. 8818
Page 20 of 25
This entry was later reversed on the same date per JV No. 04-020. 68
Apparently, respondent took into consideration only the initial entry in its
investigation while disregarded the reversal entry.
It was noted by the Court that the JV s presented do not show any approval
for posting in the books. Nevertheless, petitioner's Cash on Hand ledger69
reveals that the above transactions (initial and reversal entries) were accordingly
taken up in the books in April 2005.
68 Exhibit "P-37-B".
69 BIR Records, p. 268.
70
Details of Discrepancies, FDDA, Exhibit "P-11", docket, p. 296.
DECISION
CTA CASE NO. 8818
Page 21 of 25
For taxable year 2005, South Lotus Business Corporation issued fourteen
(14) invoices to petitioner, summarized as follows: 71
The foregoing invoices were issued between January to July 2005. The
prevailing law then governing the VAT system was Republic Act (RA) No. 8424,
as implemented by RR No. 7-95 (Consolidated Value-Added Tax Regulations),
and not RA No. 9337, as implemented by RR No. 16-2005 (Consolidated Value-
Added Tax Regulations of 2005) which took effect only on November 1, 2005.
Relative thereto are Sections 113(A) and 237 ofRA No. 8424 and Section
4.108-1 ofRR No. 7-95, which state:
Based on the foregoing, it is clear that the input VAT shall be creditable
to the output VAT of the purchaser when such input VAT is evidenced by a
VAT invoice or official receipt. The invoice or receipt must be duly registered
with the BIR, and should contain the information required by Section 113(A) of
RA No. 8424 and Section 4.108-1 of RR No. 7-95. Consequently, receipt or
invoice which does not comply with the invoicing requirements, among others,
shall not be considered as a "VAT Invoice" or "VAT official receipt" and shall
not give rise to any input tax.
Upon further scrutiny of the contested invoices, the Court finds that the
same bear all necessary information as required under Sections 113(A) and 237
of RA No. 8424, and Section 4.108-1 of RR No. 7-95. Verily, the input taxes in
relation thereto incurred by petitioner may be credited against its output VAT
liability.
In view of the foregoing, the Court finds petitioner not liable for
deficiency VAT for taxable year 2005, since it has sufficient tax credits to cover
its output VAT liability, as computed below:
mutual agreement between the parries 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. 73 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. 74
In this case, there is nothing in the records which would show that
petitioner consented to the compromise penalty. Consequently, the compromise
penalty should not be imposed and must be cancelled.
(a) Deficiency interest at the rate of twenty percent (20%) per annum on
the basic deficiency income tax of P25,388.81 computed from April 15, 2006
until full payment thereof pursuant to Section 249(B) of the NIRC of 1997, as
amended; and
(b) Delinquency interest at the rate of20% per annum on the total amount
of P31,736.01 and on the 20% deficiency interest which have accrued as afore-
stated in (a), computed from May 14, 2014 until full payment thereof pursuant
to Section 249(C) of the NIRC of 1997, as amended.
SO ORDERED.
73 The Philippines International Fair, Inc. vs. The Collector of Internal Revenue, eta!., G.R. Nos. L-
12928 and L-12932, March 31, 1962.
74
Commissioner of Internal Revenue vs. Lianga Bay Logging Co., Inc., eta/., G.R. No. L-35266,
January 21, 1991.
DECISION
CTA CASE NO. 8818
Page 25 of 25
WE CONCUR:
~UTISTA
....
LOVELL . FABON-VICTORINO
Associate Justice
ATTESTATION
LOVELL~
so~:~~
As
BAUTISTA
Justice
Chairperson
CERTIFICATION