REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

SPECIAL THIRD DIVISION

SOLID VIDEO CORPORATION, CTA CASE NO. 9051

Petitioner,
Members:

FABON-VICTORINO, and
-versus- RINGPIS-LIBAN, Jl.

Promulgated:
COMMISSIONE R OF
INTERNAL REVENUE,
Respondent.

X -----------------------------------------------------------------------------------------------X

AMENDED DECISION

RINGPIS-LIBAN,L_:

For this Court's resolution is petitioner's Motion for Partial

Reconsideration (Re: Decision dated October 25, 2018), flied through
registered mail on November 15, 2018, and received by this Court on
November 23, 2018, without respondent's comment thereto despite due notice
as per Records Verification dated January 21,2019.

Petitioner seeks for partial reconsideration of the Court's Decision

(assailed Decision) 1 promulgated on October 25, 2018, the dispositive portion
of which reads:

"WHEREFORE, premises considered,

instant the
Petition for Review is PARTIALLY GRANTED. The
assessments issued by respondent against petitioner covering
deficiency income tax and VAT for CY 2010 are AFFIRMED
WITH MODIFICATIONS. Accordingly, petitioner is
ORDERED TO PAY respondent the aggregate amount of
THIRTEEN MILLION TWO H UNDRED SEVENTY-
SEVEN THOUSAND FOUR HUNDRED EIGHTY-FIVE
~
1
Docket vol. 3, pp. 1023-1054.

000(}12.13
 AMENDED DECISION
CTA CASE NO. 9051
Page 2 of 20

PESOS AND TWENTY-SEVEN CENTAVOS

(P13,277,485.27), inclusive of the twenty-five percent (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 same Code, until December
31, 2017, computed as follows:

Income Tax VAT Total

Basic Tax Due p 3,155,095.39 p 442,921.25 p 3,598,016.64
Add: 25% Surcharge 788,773.85 110,730.31 899,504.16
20% Deficiency Interest from April 16, 2011 to
May 15,2015
(1'3,155,095.40 x 20% x 1,491 I 365 days/ 2,577,669.72 - 2,577,669.72
20% Deficiency Interest from Jan. 26, 2011 to May
15,2015
(1'442,921.25 x 20% x 1,571 I 365 davsl 381,276.32 381,276.32
Total Amount Due, May 15, 2015 p 6,521,538. 96 p 934,927.88 p 7,456,466.84
Add: 20% Deficiency Interest from May 16,2015 to
Dec. 31,2017
(!>3,155,095.40 x 20% x 961 I 365 davsl 1,661,395.44 1,661,395.44
(1'442,921.25 x 20% x 961 I 365 davs] 233,231.41 233,231.41
20% Delinquency Interest from !vlay 16,2015 to
Dec. 31,2017
(1'6,521,538.96 x 20% x 961 I 365 davsl 3,434,081.61 3,434,081.61
(1'934,921.88 x 20% x 961 I 365 days) 492,309.97 492,309.97
Total Amount Due, December 31, 2017 P11,617 ,016.01 P1,660,469.26 P13,277 ,485.27

In addition, penuoner 1s ORDERED TO PAY

respondent delinquency interest at the rate of twelve percent
(12%) on the total amount due as of May 15,2015 in the amount
of P7,456,466.84, 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),
as implemented by RR No. 21-2018.

SO ORDERED." 2

Petitioner submits that this Court erred in sustaining and upholding the
foregoing deficiency income tax and VAT assessments, and in imposing
surcharge, as well as deficiency and delinquency interests thereon. Thus, it
moves for the partial reconsideration of the assailed Decision based on the
following grounds:

1. The Court erred in its conclusion that peunoner had

"undeclared service income" in the amount of P9,872,088.83
in CY 2010; and;V'

2
Docket vol. 3, pp. 1053-1054.

OOODlZH
 AMENDED DECISION
CTA CASE NO. 90S1
Page 3 of 20

2. Even assuming for the sake of argument that peuuoner is

liable for deficiency income tax and VAT for CY 2010,
petitioner submits that the Court erred in its computation of
the applicable deficiency interest and delinquency interest, and
in requiring petitioner to pay 25% surcharge on the foregoing
deficiency taxes.

After thorough evaluation of petitioner's motion, the Court finds

petitioner's arguments partially meritorious.

1. The Court erred in its conclusion that petitioner had "undeclared

service income" in the amount ofP9,872,088.83 in CY 2010.

Income Tax DificienfJ

To recall, respondent imputed against petitioner an undeclared service

income in the amount of P17,970,985.52 upon comparing petitioner's service
income per BIR Forms 2307 as against its service income per Income Tax
Return (ITR).

In the assailed Decision, this Court considered the adjustments worth

PS,098,896.69 and consequendy reduced the assessed undeclared servtce
income to P9,872,088.83 (P17,970,985.52less P8,098,896.69).

Based on petitioner's reconciliation, the amount of P9,872,088.83

allegedly consists of the following items:

Adjustments per Remaining

Per petitioner's assailed undeclared
reconciliation3 Decision4 service income
a. Sales of goods erroneously considered by
petitioner's customer as sales of services I' 8,547,346.30 I' 8,547,346.30
b. Advances from customer received in 2010 for
services rendered in 2011 6,732,890.31 I' 6, 732,890.33
c. Sales of goods erroneously considered as sales
of services by BIR 1,967,312.89 325,004.35 1,642,308.54
d. Service income without details included in BIR's
computation 996,159.03 934,439.62 61,719.41
e. Double posting by BIR of service income -
Leyte National University 96,512.00 96,512.00 -
f. Difference between actual commission income
from Solid Trading Limited and amount
computed by BIR 10,050.39 10,050.39 -

g. Other service income without BIR Form No.

(379,285.79)
2307 (379,285.79)

3
Decision, docket val. 3, p. 1038-1039.
4
Decision, docket val. 3, pp. 1039-1043.

00001215
 AMENDED DECISION
CTA CASE NO. 9051
Page 4 of 20

/ Rounding off difference 0.39 0.37

I Total P17 ,970,985.52 P8,098,896.69 P9,872,088.83

Among the items above, petitioner seeks reconsideration on the sales of

goods erroneously considered by petitioner's customers as sales of services in
the amount of 1"8,547,346.30 (item a above) and sales of goods erroneously
considered as sales of services by the BIR in the amount of 1"1,642,308.54 (item
c above).

• Sales of goods erroneous!J considered by

petitioner's customers as sales of services -
?8,547,346.30

In the assailed Decision, this Court upheld the assessed service income
ofP8,547,346.30 in this wise:

"However, even if it was established that the aforesaid

amount of 1"8,547 ,346.30 actually refers to sales of goods and not
services, the same does not tally with any of the following sales of
services to FEU per BIR Forms No. 2307 considered by
respondent in his computation: 5

Withholding Agent Period Covered Sales of Services

FEU 2nd Quarter p 1,875,000.00
FEU 3rd Quarter 5,243,924.00
FEU 4th Quarter 6,176,916.00
Total p 13,295,840.00

Without the related tnvmces and official receipts

supporting the amount of 1"13,295,840.00, the Court cannot
ascertain the inclusion of the 1"8,547 ,346.30 sales of goods in
respondent's assessment. Thus, the Court upholds the assessed
service income ofP8,547,346.30."

Contesting the Court's findings, petitioner maintains that it presented

copies of sales invoices covering the sales to Far Eastern University (FEU) for
the second, third and fourth quarters of CY 2010 in the amount of
1"13,295,840.00 - i.e., Sales Invoice (SI) Nos. 19634 (Exhibit "P-31-2'') and
19694 (Exhibit "P-31-1"); and that the sale of goods to FEU in the amount of
1"8,547,346.30 forms part of the total sales in the amount of 1"13,295,840.00
that was reported in petitioner's Annual ITR for CY 201~

5
BIR Records, p. 193 in relation to pp. 90-92.

00001216
AMENDED DECISION
CfA CASE NO. 9051
Page 5 of 20

According to petitioner, it issued SI Nos. 19634 and 19694 to FEU in

CY 2010 and SINo. 19837 in CY 2011, covering the aggregate amount of
1"14,344,624.21, broken down below:

Total Sale of Total Sale of

Goods Services Total Sales
(NetofVAT) (NetofVAT) (NetofVAT)
SI 19634
!Exh. P-31-2) 1'2,455,130.72 1'1,294,869.28 1'3,750,000.00
SI 19694
!Exh. P-31-1} 7,034,223.79 3,453,624.42 10,487,848.21
SI 19837 (Advance
payment for sales
made in CY 2011) 106,776.00 - 106,776.00
Total p 9,596,130.51 1'4,748,493.70 P14,344,624.21

Petitioner explains that out of the 1"14,344,624.21 invoiced by petitioner,

only the amount ofP13,295,840.00 was subjected by FEU to CWT in CY 2010
because this was the total amount paid by FEU in CY 2010. The difference of
1"1,048,784.21 (1"14,344,624.21 less 1"13,295,840.00) pertains to the 10%
retention amount on the sales covered by SI 19694, which was eventually paid
by FEU in CY 2011, to wit:

Total Sales oer SI Nos. 19634, 19694 and 19837 1'14,344,624.21

Less: 10°/o Retention 1,048,784.21 I' 13,295,840.00
Total CWI oer BIR Forms No. 2307 of FEU 13,295,840.00
Difference PO.OO

Petitioner claims that based on the foregoing, it has sufficiendy

explained the difference between the amounts of sales shown in the invoices
issued to FEU and the CWT Certificates that were issued by FEU in CY 2010.
Petitioner further avers that evidence on record clearly shows that the sales to
FEU in the amount of 1"13,295,840.00 were included as part of gross
sales/revenues reported in petitioner's ITR for CY 2010 in the amount of
1"126,971,675.00, and was therefore, subjected to 30% corporate income tax in
CY 2010. Thus, petitioner maintains that the deficiency income tax assessment
on the alleged undeclared service income should be cancelled, otherwise,
petitioner will erroneously and unjusdy be required to pay income tax on the
same sale of goods twice.

The Court finds merit in petitioner's claim.

A perusal of the 'Summary of Sales of Goods Erroneously Considered

by Petitioner's Customer as Sales of Services'6 shows that petitioner had sales
to FEU during CY 2010 in the amount ofP14,237,848.21 as supported b y /

6
Exhibit "P-31".

00001217
AMENDED DECISION
CTA CASE NO. 9051
Page 6 of 20

corresponding sales invoices 7 • Out of the total sales of '1"14,237,848.21, the

ICPA was able to identify that the amount of '1"9,489,354.57 pertains to sales of
goods while '1"4,748,493.72 pertains to sales of services which were all reported
in petitioner's ITR, as summarized below:

Total Sales
Exhibit No. SINo. Sale of Goods Sale of Service (NetofVAT)
P-31-1 19694 I' 7,034,223.85 I' 3,453,624.44 I' 10,487,848.29*
P-31-2 19634 2,455,130.72 1,294,869.28 3,750,000.00
Total P9,489,354.57 P4,748,493.72 p 14,237,848.29
*wtth a rounding-off diffirente oj0.08.

Based on petitioner's summary of transactions with FEU attached as

Annex A 8 to its Motion for Partial Reconsideration, the amount of
'1"13,295,840.00 representing sales of services per BIR Forms No. 2307 is
broken down as follows:

Per BIR Amount per BIR

Records Forms No. 2307 Particulars
p. 92 1,875,000.00 50% of SI 19634
p. 91 5,243,924.00 50% of SI 19694
50% of SI 19634 -1'1,875,000.00
20% of SI 19694 - 1'2,097,570.00
p. 90 20% of SI 19694 - 1'2,097,570.00
Advance payment
6,176,916.00 for 2011 sales - 1'106,776.00
Total 13,295,840.00

Further verification reveals that of the '1"14,237,848.21 sales supported by

SI Nos. 19694 and 19634, the amount of '1"13,189,063.39 was erroneously
included in the sales of services to FEU per BIR Forms No. 2307 considered
by respondent in his computation, as detailed below:

Sales per Invoice Sales of services per BIR 2307

Reference (BIR
Exhibit SINo. Amount Records) Amount
p. 91 I' 5,243,924.11'
p. 90 4,195,139.281ll
P-31-1 19694 I' 10,487,848.21 subtotal p 9,439,063.39
_p. 92 I' I ,87 5,000.00
p. 90 I ,87 5,000.00
P-31-2 19634 I' 3,750,000.00 subtotal p 3,750,000.00
Total P14,237,848.21 Total P13,189,063.39

7
Exhibits "P-31-1" and "P-31-2".
8
Docket vol. 3, p. 1076.
9
50% of !"10,487,848.21.
10
40% of !"10,487,848.21.

00001218
AMENDED DECISION
CTA CASE NO. 9051
Page 7 of 20

As gleaned from above, the sale ofP10,487,848.21 per SINo. 19694 was
only 90% collected (P9,439,063.39 divide by P10,487,848.21) whereas the sale
of P3,750,000.00 per SI No. 19634 was fully collected. The difference of
P1,048,784.82 (P14,237,848.21 less P13,189,063.39), which is the 10% of the
P10,487,848.21 sale per SI No. 19694, allegedly pertaining to retention fee,
remains unpaid, hence, not included in the BIR Forms No. 2307 for CY 2010.
This rationalizes the ICPA's computation of petitioner's collection on sales of
goods in the amount of P8,785,932.13, wherein the subject amount of
P8,547,346.30 was derived from, as shown: 11

PARTICULARS AMOUNT
90% collection of sales of goods (Exhibit No. P-31-1) 6,330,801.41
100% collection of sales of goods (Exhibit No. P-31-2) 2,455,130.72
Total collections pertaining to sales 8,785,932.13
1 0°/o retention fee of service income (345,362.44)
Advance payment 106,777.00
Total 8,547,346.69
Per Assessment 8,547,346.30
Difference 0.39

Verily, the amount of P6,330,801.41 represents 90% of the

P7 ,034,223.85 sale of goods corresponding to SI No. 19694 while the amount
of P2,455,130.72 represents 100% of the sale of goods corresponding to SI No.
19634. These sales of goods were included in the Gross Sales/Revenue
reported in petitioner's annual ITR for CY 2010 in the amount of
P126,971,675.00 12 as evidenced by the General Ledger-Sales for CY 2010 13.

Therefore, considering that petitioner was able to prove that the amount
of P8,547 ,346.30 pertains to sales of goods which were reported in its ITR, and
that the same were erroneously indicated as sales of services in the BIR Forms
No. 2307 considered by respondent in the assessment, the assessed service
income in the amount of P8,547,346.30 shall be cancelled.

• Sales ofgoods erroneousfy considered as sales

of services by the BIR -PI ,642,308.54

In the assailed Decision'\ this Court cancelled the deficiency income tax
assessment to the extent of P325,004.35 since only the said amount pertains to
sales of goods which were verified to have been included in the service income
reflected per BIR Forms No. 2307 upon which the respondent's assessment
was based. _./Y'

11
Exhibit "P-31".
12
Exhibit "P-9", docket vol. 2, p. 855, line 17C.
13
Exhibit "P-30-1".
14
Docket vol. 3, pp. 1040-1042.

00001219
AMENDED DECISION
CfA CASE NO. 9051
Page 8 of 20

Consequently, the asssessed undeclared service income ofP1,642,308.54,

out of the 1"1,967,312.89 claimed as pertaining to sales of goods erroneously
considered as sales of services by respondent remains.

Petitioner observed that the Court only considered the sales of goods as
valid if the amount of sales shown in the BIR Form No. 2307 matches the total
sales of goods and services reported in its books of accounts for CY 2010. It
posits that the Court erred in disregarding the other sales of goods merely
because there were discrepancies between the amount of income payments that
were subjected to creditable withholding tax (CWI) per BIR Forms No. 2307
and the amount of sales recorded in petitioner's books of accounts for CY
2010.

Petitioner points out that the amounts shown in the BIR Forms No.
2307 and the amounts of sales recorded in its books do not always match due
to timing difference. It avers that it uses the accrual method in recording its
revenues for income tax purposes, while its withholding agents use the cash
method for the withholding of CWT on their income payments. Petitioner
allegedly records the sales of goods in its books upon issuance of sales invoice,
regardless of whether payment has been made whereas its witholding agents
withhold the CWT and issue the CWT Certificate upon payment. Thus, it
submits that such difference in accounting periods results to discrepancies
between the amounts reported in the ITR and the amounts reflected in the BIR
Forms No. 2307.

Petitioner further alleges that notwithstanding the discrepancies, it can

be gleaned that the amount of 1"1,651,156.49 pertains to sales of goods while
the balance pertains to sales of services. In any case, the ICPA was able to
verify that the sales of goods and services in the amount of 1"1,967,312.89 was
reported as part of petitioner's gross income in ITR and was, therefore,
subjected to 30% regular corporate income tax in CY 2010.

However, petitioner's assertion is unfounded. It only stated that the

discrepancies were due to timing difference but failed to establish the veracity
of the same. Merely stating a reason without giving proof to that effect does
not hold water. Mere allegation and speculation is not evidence, and is not
equivalent to proof. 15

Even if the ICPA was able to determine that the amount of

1"1,651,156.49 refers to sales of goods, out of the 1"1,967,312.89 subject sales
reported in petitioner's ITR, still, petitioner failed to prove that the entire
amount is included in respondent's computation of the assessed income. Thus
this Court reiterates its findings in the assailed Decision, to wi~

15
Office of the Ombudsman vs. Ma. Nimfa P. De Villa, G.R. No. 208341, June 17, 2015, citing
Navarro vs. Clerk of Court Cerezo, 492 Phil. 19, 22 (2002).

QOC01220
AMENDED DECISION
CfA CASE NO. 9051
Page 9 of 20

"Based on this Court's review and validation, of the

1"1,651,156.49 sales of goods, only the amount of 1"325,004.35
was verified to have been included in the service income reflected
per BIR Forms No. 2307 upon which the respondent's
assessment was based, as shown below: xxx

The Court observed that the 1"31,577.32 sale to Cardinal

Santos Medical Center has no corresponding BIR Form No. 2307
and was not included in respondent's computation. Moreover, the
remaining 1"1,294,574.82 (1"1,651,156.49 less 1"325,004.35 and
1"31,577.32) sales of goods cannot be ascertained as forming part
of the amounts indicated in the BIR Forms No. 2307, hence, it
cannot be determined whether the same were actually part of the
assessed income.

In fine, the Court cancels the deficiency income tax

assessment only on the amount of 1"325,004.35 representing sales
of goods erroneously considered as sales of services per BIR
Forms No. 2307."

Accordingly, the assessed service income in the amount ofl"1,642,308.54

(I"1,967,312.89less 1"325,004.35) shall remain.

In sum, the assessed undeclared semce 1ncome 1s reduced to

1"1,324,742.53, computed as follows:

Undeclared service income per assailed Decision p 9,872,088.83

Less: Reconsidered sales of goods erroneously considered by
petitioner's customer as sales of services 8,547,346.30
Undeclared Service Income as Adjusted P1,324,742.53

All else being the same, petitioner is still liable to pay basic deficiency
income tax for CY 2010 in the amount ofl"590,891.50, computed as follows:

Taxable Income (Loss)_£'" ITR P18,265,923.00

Add: Undeclared Service Income 1,324,742.53
Total P19 ,590,665.53

Tax Due (30%) p 5,877,199.66

Less: Payments/Credits
Tax Paid per Return '1'4,302,734.00
Creditable Withholding Tax 1,177,043.00
Total P5,479,777.00
Less: Disallowed Creditable Withholding Tax 193,468.84 5,286,308.16
Basic Deficiency Income Tax p 590,891.50

00001221
AMENDED DEGSION
CfA CASE NO. 9051
Page 10 of 20

VAT DejicienfJ!

As discussed under the Income Tax Deficiency, petitioner seeks to

reconsider the finding that the latter had undeclared service income of
P9,872,088.83 in CY 2010. In relation thereto, petitioner submits that there is
likewise no basis for the Court's conclusion that petitioner is liable for
deficiency VAT on the same undeclared service income for CY 2010.

In the assailed Decision16 , petitioner's undeclared sales/receipts on

service income not subjected to VAT in the amount of P4,282,139.22 was
computed in this manner:

Undeclared Service Income I" 9,872,088.83

Less: Commission Income 5,589,949.61
Undeclared Service Income not subjected to VAT P4,282,139.22

Based on the above discussion, petitioner was able to prove that the
assessed undeclared income of P8,547,346.30 pertains to sales of goods
erroneously considered as sales of services. Consequently, only the amount of
P1,324,742.53 was left on the assessment.

Meanwhile, it must be pointed out that the comnusston income of

P5,589,949.61 was properly reported in petitioner's GL-Sales 17 and was
included in the P11 ,3 77,842.00 service income per ITR, as shown below:

Service Income per Exhibit "P-30":

Service Income-Repairs I" 1,030,470.51
Service Income-Equipment Rental 8,928.57
Service Income-Integration 4,837,629.47
Service Income-Integration Discount (89, 135. 77)
Commission Income 5,589,949.61
Service Income per ITR P11,377 ,842.39

Per respondent's assessment:lB

Service Income !'_er 2307 I" 23,023,019.78
Add: Service Income I" 996,159.03
Posted twice-Leyte Normal University (96, 512. 00)
Goods misclassified as service-EDL (173,839.29) 725,807.74
Service Income as a4i_us ted I" 23,748,827.52
Add: Commission income from STL 5,600,000.00
Total I" 29,348,827.52

16
Docket vol. 3, pp. 1046-1047.
17
Exhibit "P-30-1" (59/59).
18
Exhibit "P-8", Details of Discrepancy, docket vol. 2, p. 849.0

000012:2
 AMENDED DECISION
CfA CASE NO. 9051
Page 11 of 20

Less: Service Income per ITR 11,377,842.00

Undeclared Income P17 ,970,985.52

As such, the cotnm1ss1on income does not form part of the assessed
undeclared income, hence, the deduction of the same from the undeclared
semce mcome for the purpose of computing the deficiency VAT is
unwarranted.

Thus, petitioner's undeclared sales/receipts on semce mcome not

subjected to VAT amounts to P1,324,742.53.

All else being the same, petitioner is liable for basic deficiency VAT for
CY 2010 in the reduced amount of P88,033.64, computed as follows:

Vatable Sales/Receipts per VAT Returns 1'116,874,744.09

Add: Undeclared Sales/Receipts 1,324, 7 42.53
Total Vatable Sales/Receipts, as Adjusted 1'118,199,486.62

Output Tax Due I' 14,183,938.39

Less: Creditable Input Tax
Input Tax Carried Over from Previous Period I' 2,291,168.83
Creditable VAT Withheld 73,148.14
Current Input Tax 11,259,943.75
Total 1'13,624,260.72
Less: Overclaimed Input Tax Credit 1'79,207.50
Input tax on Sale to Gov't closed to expense 1,444.29
Unsupported Creditable VAT withheld 3,382.61 84,034.40 13,540,226.32
Net VAT Payable I' 643,712.07
Less: VAT Payments 555,678.43
Basic Deficiency VAT p 88,033.64

2. Even assuming that petitioner is liable for deficieny income tax and
VAT for CY 2010, the Court erred in its computation of the applicable
deficiency and delinquency interests, and in requiring petitioner to
pay 25% surcharge on the foregoing deficiency taxes.

On the qpp!ication qf20% d~ficiency and

20% de!inqueno interest

Assuming arguendo that there is basis for respondent's deficiency tax

assessments, petitioner seeks to reconsider the manner of computation of
deficiency and delinquency interest due on the deficiency income tax and VAT
for CY 201 0/"'

000012:!3
AMENDED DECISION
CTA CASE NO. 9051
Page 12 of 20

In the assailed Decision, the Court effectively imposed (a) 20%

deficiency interest and 20% delinquency interest per annum on petitioner's
deficiency income tax and VAT liability for CY 2010 computed until December
31, 2017, pursuant to Section 249(B) and (C) of the NIRC of 1997, as
amended, prior to the effectivity of the TRAIN Law; and (b) 12% delinquency
interest on the total unpaid basic deficiency tax, surcharge, deficiency interest as
of May 15, 2015 computed from January 1, 2018 until full payment pursuant to
Section 249(C) of the same Code as amended by the TRAIN Law.

Petitioner submits that the imposition of 40% per annum interest on the
deficiency taxes partake the nature of an imposition that is penal, rather than
compensatory and is clearly excessive and unconscionable.

Petitioner further maintains that the computation is erroneous for being

contrary to the law prescribing the rules on the imposition of deficiency and
delinquency interest. Subscribing to the Separate (Concurring and Dissenting)
Opinion of Presiding Justice Del Rosario in the case of Felonila Z. Caluag vs.
People of the PhilippineP, petitioner posits that the computation of deficiency and
delinquency interests should follow what is written in the law at the time of
promulgation of the decision. Considering that compensatory interest is
imposed by law or by the courts as penalty or indemnity for damages, there is
no reason for this Court to utilize the old version of a law for a judgement
made under the new law.

Simply put, petitioner believes that the relative provisions of the TRAIN
Law shall be applied in the instant case in that the simultaneous imposition of
20% deficiency and 20% delinquency interest be removed and the deficiency
and delinquency interests be imposed at the rate of 12% since at the time when
petitioner was adjudged to be liable to pay the deficiency taxes, with the
corresponding deficiency and delinquency interests, the TRAIN Law was
already in effect.

The Court disagrees with petitioner.

As consistently held by this Court, the simultaneous imposition of

deficiency and delinquency interests is justified by Section 249 of the NIRC of
1997, as amended, which reads:

"SEC. 249. Interest. -

(A) In General-There shall be assessed and collected on any

unpaid amount of tax, interest at the rate of twenty percent (20%)
per annum, or such higher rate as may be prescribed by rules a~

19
CTA EB Crim. No. 047 (CTA Crim. Case No. 0-330), September 17, 2018.

00001224
AMENDED DECISION
CTA CASE NO. 9051
Page 13 of 20

regulations, from the date prescribed for payment until the

amount is fully paid.

(B) Deficienry Interest. -Any deficiency in the tax due, as the

term is defined in this Code, shall be subject to the interest
prescribed in Subsection (A) hereof, which interest shall be
assessed and collected from the date prescribed for its payment
until the full payment thereof.

(C) Delinquenry Interest.-In case of failure to pay:

(1) The amount of the tax due on any return to be ftled, or

(2) The amount of the tax due for which no return is

required, or

(3) A deficiency tax, or any surcharge or interest thereon

on the due date appearing in the notice and demand of the
Commissioner, there shall be assessed and collected on the unpaid
amount, interest at the rate prescribed in Subsection (A) hereof
until the amount is fully paid, which interest shall form part of the
tax."

Based on the above provision, there is a clear differentiation between

deficiency interest and delinquency interest. Deficiency interest is imposed on
any tax still due from the taxpayer, when the latter paid a lower amount of tax
than the actual due upon audit, which shall be collected from the date
prescribed for its payment until full payment thereof whereas the delinquency
interest is imposed due to the delay in the payment of the amount of tax due or
of deficiency tax, surcharge or interest thereon on the due date indicated in
notice of the Commissioner, which shall be collected from the due date on the
notice until full payment thereof.

The ruling of the Court in the case of Takenaka Corporation Philippine

Branch vs. Commissioner of Internal Revenul0 (the 'Takenaka Case'), as to the
simultaneous imposition of deficiency and delinquency interests, is instructive,
thus:

"Further, as to when the deficiency and delinquency

interests legally accrue, Section 249 (B) and (C)(3) of the NIRC of
1997, as amended, evidendy states that the deficiency interest on
any deficiency tax shall be assessed Jrom the date prescribed for its
bavment until the full :a.::r
.L::7 "
bavment thereof'
:;
while the assessment of the
delinquency interest that is imposed upon failure to pay a
deficiency tax, or any surcharge or interest thereon, shall be
,v
20
CTA EB Case No. 745, September 4, 2012.

00001225
AMENDED DECISION
CTA CASE NO. 9051
Page 14 of 20

reckoned from 'the due date appearing in the notice and demand q(the
Commissioner until the amount is... fu/lv Daid. '
~ ~

Clearly, these two (2) interests are different in nature.

Deficiency interest is imposed for the shortage of taxes paid,
while delinquency interest is imposed for the delay in
payment of taxes. Hence, having different nature for their
existence, petitioner cannot assail double imposition of interest as
the law itself allows the simultaneous imposition of these two
kinds of interests.

XXX XXX XXX

The law could not be any clearer. It states that the interests,
both deficiency and delinquency interests, shall be assessed until
full payment thereof. 'It bears stressing that the first and
fundamental duty of the Court is to apply the law. When the law
is clear and free from any doubt or ambiguity, there is no room
for construction or interpretation.' As has been the Supreme
Court's consistent ruling, where the law speaks in clear and
categorical language, there is no occasion for interpretation; there
is only room for application. 21 "

Upon the passage of Republic Act (R.A.) No. 10963, otherwise known
as the "Tax Reform for Acceleration and Inclusion" (TRAIN Law), which took
effect on January 1, 2018, Section 249 of the NIRC of 1997 was amended to
read as follows:

"SEC. 75. Section 249 of the NIRC, as amended is hereby

further amended to read as follows:

SEC. 249. Interest.-

(A) In General. - There shall be assessed and collected on

any unpaid amount of tax, interest at the rate of double the legal
interest rate for loans or forbearance of any money in the absence
of an express stipulation as set by the Bangko Sentral ng Pilipinas
from the date prescribed for payment until the amount is fully
paid: Provided, That in no case shall the deficiency and delinquency
interest prescribed under Subsections (B) and (C) hereof be
imposed simultaneously.

(B) Deficiency Interest. -Any deficiency in the tax due, as the

term is defined in this Code, shall be subject to the interest
prescribed in Subsection (A) hereof, which interest shall b~
21
Citing Abello v. Commissioner, G.R. No. 120721, February 23, 2005, citing further Cebu
Portland Cement Co. v. Municipality of Naga, 24 SCRA 708 [1968] and Rizal Commercial
Banking Corporation v. Intermediate Appellate Court, 320 SCRA 279, 289 (1999).

0000122(;
AMENDED DECISION
CfA CASE NO. 9051
Page 15 of 20

assessed and collected from the date prescribed for its payment
until the full payment thereof, or upon issuance of a notice and
demand by the Commissioner of Internal Revenue, whichever
comes earlier.

(C) De/inquenry Interest. xxx xxx xxx."

To implement the same, Revenue Regulations (RR) No. 21-2018 22 was

issued on September 14, 2018. Sections 5 & 6 thereof provides:

"SECTION 2. RATE OF INTEREST.- There shall be

assessed and collected on any unpaid amount of tax, interest at
the rate of double the effective legal interest rate for loans or
forbearance of any money in the absence of an express stipulation
as set by the Bangko Sentral ng Pilipinas (BSP) from the date
prescribed for its payment until the amount is fully paid.

The rate of interest per BSP Memorandum No. 799 series

of 2013 for loans or forbearance of any money in the absence of
an express stipulation is six percent (6%). Thus, the rate of legal
interest imposable under Section 249 of the Tax Code, as
amended, shall be twelve percent (12%). Xxx.

SECTION 3. DEFICIENCY INTEREST. - Interest

imposed on any deficiency tax due, which interest shall be
assessed and collected from the date prescribed for its payment
until: (a) full payment thereof, or (2) upon issuance of a notice
and demand by the Commissioner or his authorized
representative, whichever comes ftrst.

XXX XXX XXX

SECTION 5. NO DOUBLE IMPOSITION OF

INTEREST. - Upon the effectivity of the TRAIN Law, in no
case shall the deficiency and delinquency interest prescribed
herein be imposed simultaneously.

XXX XXX XXX

SECTION 6. TRANSITORY PROVISION. - In cases

where the tax liability /ies or deficiency tax/ es became due before
the effectivity of the TRAIN Law on January 1, 2018, and where
the full payment thereof will only be accomplished after the said
effectivity date, the interest rates shall be applied as follow~

22
Subject: Regulations Implementing Section 249 (Interest) of the National Internal Revenue
Code (NIRC) of 1997, as amended under Section 75 of the Republic Act (RA) No. 10963 or the
'Tax Reform for Acceleration and Inclusion (TRAIN Law)".

OOOtlU27
AMENDED DEQSION
CTA CASE NO. 9051
Page 16 of 20

Period A_pp!icable Interest Tjpe and Rate

For the period up to December 31,2017 Deficiency and/ or delinquency
interest at 20%
For the period January 1, 2018 until Deficiency and/ or delinquency
full payment of the tax liability interest at 12%

The double imposition of both deficiency and delinquency

interest under Section 249 prior to its amendment will still apply
in so far as the period between the date prescribed for payment
until December 31, 2017."

Based on the foregoing, the TRAIN Law introduced the following

amendments: (1) the rate of interest for deficiency and/ or delinquency was
reduced to 12%; (2) the running of the period for the computation of
deficiency interest starts from the date prescribed for its payment until either
full payment thereof or upon issuance of notice or demand by the CIR,
whichever comes earlier; (3) the simultaneous imposition of deficiency and
delinquency interests is effectively eliminated.

However, it is clear from the transitory provision of the TRAIN Law

that, in cases where the deficiency taxes became due before the effectivity of
the TRAIN Law on January 1, 2018 and the full payment thereof will only be
accomplished after the said effectivity date, the interest rate of 20% shall be
applied for the period up to December 31, 2017 while the interest rate of 12%
shall be applied for the period January 1, 2018 until full payment thereof. The
simultaneous imposition of deficiency and delinquency interest under Section
249 prior to its amendment will still apply in so far as the period between the
date prescribed for payment until December 31, 2017.

Considering that the deadline for payment of petitioner's deficiency

income tax and VAT for CY 2010 stated in the Final Decision on Disputed
Assessment (FDDA) was on May 15, 2015 23 , which was prior to the effectivity
of the TRAIN Law, the applicable interest rates, as properly computed by this
Court in the assailed Decision, shall be (a) 20% deficiency interest rate from the
date prescribed for its payment until December 31, 2017; (b) 20% delinquency
interest from May 16,2015 until December 31, 2017; and (c) 12% delinquency
interest from January 1, 2018 until full payment thereof.

The principle is well entrenched that statutes, including administrative

rules and regulations, operate prospectively only, unless the legislative intent to
the contrary is manifest by express terms or by necessary implication. 24 There
being no clear legislative intent to retroactively apply the provisions of the
TRAIN law, the same should only be applied prospectively, i.e., beginning
January 1, 2018.~

23
Exhibit "P-8", docket val. 2, p. 848.
24
BPI Leasing Corporation vs. Court of Appeals, eta!., G.R. No. 127624, November 18, 2003.

00001228
AMENDED DECISION
CTA CASE NO. 90S1
Page 17 of 20

On the imposition qf25% surcharge

Petitioner argues that the imposltlon of a 25% surcharge on the

deficiency tax assessments constitutes a violation of petitioner's right to due
process. Since the FDDA issued by respondent did not include any surcharge
as part of its assessment, there is no basis for this Court to impose a surcharge
that repondent did not impose.

Petitioner's argument is bereft of merit.

Verily, the imposition of the 25% surcharge is based on the petitioner's

failure to pay the deficiency income tax and VAT within the time prescribed
for its payment in the FDDA, pursuant to Section 248(A)(3) of the NIRC of
1997, as amended, to wit:

"SEC. 248. Civil Penalties.-

(A) There shall be imposed, in addition to the tax required

to be paid, a penalty equivalent to twenty-five percent (25%) of
the amount due, in the following cases:

XXX XXX XXX

(3) Failure to pay the deficiency tax within the time

prescribed for its payment in the notice of assessment;"

A perusal of the FDDA 25 reveals that the CIR indicated the deadline for
payment of the deficiency taxes to be on or before May 15, 2015 and that the
said FDDA is his frnal decision, which is appealable to the Court. Since
petitioner failed to pay the same on the due date stated therein, the 25%
surcharge was properly imposed upon its deficiency income tax and VAT
liabilities.

The law is very clear. The imposition of surcharge is mandatory. This is

justified because the intention of the law is precisely to discourage delay in the
payment of taxes due to the State. It is basic that "surcharge" is an overcharge
or exaction imposed by law as an addition to the main tax required to be paid.
It is not really a penalty as used in criminal law but a civil administrative
sanction provided primarily as a safeguard for the protection of the State
revenue and to reimburse the government for the expenses in investigating and
the loss resulting from the taxpayer's fraud. In other words, the imposition of a
surcharge is not penal but compensatory in nature - they are compensation to
the State for the delay in the payment, or for the concomitant use of the fun~

25
Exhibit "P-8", docket vol. 2, p. 848.
 AMENDED DEGSION
CTA CASE NO. 9051
Page 18 of 20

by the taxpayer beyond the date he ts supposed to have paid them to the
State. 26

WHEREFORE, premises considered, petitioner's Motion for Partial

Reconsideration (Re: Decision dated October 25, 2018) is PARTIALLY
GRANTED. Accordingly, the Decision dated October 25, 2018, is hereby
amended to read as follows:

"WHEREFORE, premises considered, the instant

Petition for Review is PARTIALLY GRANTED. The
assessments issued by respondent against petitioner covering
deficiency income tax and VAT for CY 2010 are AFFIRMED
WITH MODIFICATIONS. Accordingly, petitioner is
ORDERED TO PAY respondent the aggregate amount of
TWO MILLION FIVE HUNDRED FIVE THOUSAND
SIX HUNDRED EIGHTY-THREE PESOS AND SIXTY-
NINE CENTAVOS (P2,505,683.69), inclusive of the twenty-
five percent (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 same
Code, until December 31, 2017, computed as follows:

Income Tax VAT Total

Basic Tax Due I' 590,891.50 I' 88,033.64 I' 678,925.14
Add: 25% Surcharge 147,722.87 22,008.41 169,731.28
20% Deficiency Interest from April 16,2011 to May 15,
2015
[P590,891.50 x 20% x 1,491 I 365 days} 482,750.26 482,750.26
20% Deficiency Interest from Jan. 26, 2011 to May 15,
2015
[P88,033.64 x 20% x 1,571 I 365 days} 75,781.29 75,781.29
Total Amount Due, May 15, 2015 P1,221,364.63 P185,823.34 P1,407 ,187. 97
Add: 20°/o Deficiency Interest from May 16, 2015 to Dec.
31, 2017:
(P590,891.50 X 20% X 961 I 365 days] 311,148.89 311,148.89
{P88,033.64 x 20% x 961 I 365 days] 46,356.34 46,356.34
20% Delinquency Interest from May 16, 2015 to Dec.
31,2017
(P/,221,364.63 X 20% X 961 I 365 days] 643,140.50 643,140.50
(P/85,823.34 x 20% x 961 I 365 days} 97,849.99 97,849.99
Total Amount Due, December 31, 2017 P2,175,654.02 P330,029.67 P2,505,683.69

In addition, petitioner 1s ORDERED TO PAY

respondent delinquency interest at the rate of twelve percent
(12%) on the total amount due as of May 15, 2015 in the amount
ofP1,407,187.97 as determined above, computed from January 1,
2018 until full payment thereof pursuant to Section 249(C) of th~

26
Tambunting Pawnshop, Inc., vs. Commissioner of Internal Revenue, CTA EB No. 245 (CTA
Case No. 6776), May 24, 2007, citing Republic of the Phils. vs. Phil. Bank of Commerce, 34
SCRA 369

00001230
 AMENDED DECISION
CTA CASE NO. 9051
Page 19 of 20

NIRC of 1997, as amended by Republic Act (RA) No. 10963, also

known as Tax Reform for Acceleration and Inclusion (TRAIN),
as implemented by RR No. 21-2018.

SO ORDERED."

SO ORDERED.

~. -£4-.. .4 '- .
MA. BELEN M. RINGPIS-LIBAN
Associate Justice

I CONCUR:

ATTESTATION

I attest that the conclusions in the above Amended Decision were

reached in consultation before the case was assigned to the writer of the
opinion of the Court's Division.

L,n.,rn.. PABON-VICTORINO
ssociate Justice
Acting Chairperson

00001231
AMENDED DECISION
CTA CASE NO. 9051
Page 20 of 20

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Acting
Division Chairperson's Attestation, it is hereby certified that the conclusions in
the above Amended Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court.

Presiding Justice