REPUBLIC OF THE PHILIPPI NES

COURT OF TAX APPEALS

QUEZON CITY

SECOND DIVISION

JUMBO EAST REALTY INC., CTA CASE NO. 8 3 80

Petitioner,
Members:

CASTANEDA, JR., Chairperson/

- versus-
CASANOVA, and
COTANGCO - MANA LASTAS,J~

COMMISSIONER OF INTERNAL Promulgated :

REVENUE, MAR 1 6 2015
Respondent. ~
r/ 'M'/ '
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

-
CASTANEDA, JR., J., :

This Petition for Review filed by Jumbo East Realty, Inc. seeks
the cancellation of Assessment Notice Nos. 34-06-IT-0916, 34-06-VT-
0917, 34-06-WE-0918, 34-06-Ff-0919 and 34-06-DS-0920, finding it
liable to pay deficiency income tax, value added tax, expanded
withholding tax, final tax and documentary stamp tax, respectively,
for the taxable year 2006.

THE FACTS

Petitioner Jumbo East Realty, Inc. is a corporation duly

organized and existing under and by virtue of the laws of the
Philippines, with principal office at 3rd floor, Pako Bldg., Pedro Gil
corner Gen. Luna Streets, Paco, Manila. 1 ~

1
Par. 1, Petition for Review, Docket, p. 6; Par. 1, Joint Stipulation of Facts and I ssues (JSFI ), Docket, p. 163.
 DECISION
CTA CASE NO. 8380
Page 2 of 31

Respondent is the Commissioner of the Bureau of Internal

Revenue (SIR), duly appointed to exercise the powers and perform
the duties of her office including, inter alia, the power to decide
disputed assessments, refunds of internal revenue taxes, fees, other
charges, and penalties imposed in relation thereto, or other matters
arising under the Tax Code. She holds office at the SIR National
Office Building, Agham Road, Diliman, Quezon City.

On April 12, 2007, petitioner filed its Annual Income Tax Return
(ITR) for taxable year 2006. 2

On January 7, 2011, petitioner received a Formal Letter of

Demand3 (FLD). Attached thereto are the Details of Discrepancies4
and Assessment Notice Nos. 34-06-IT-0916, 34-06-VT-0917, 34-06-
WE-0918, 34-06-FT-0919, and 34-06-DS-0920/ the details of which
are as follows: 6

DEFICIENCY INCOME TAX

pursuant to Sec. 6(B) & 32 NIRC
Net Income (Loss) per investigation p 1 053 998.00
Add: Adjustment per investigation
Disallowances - unsupported/ non-filing of
sched ule
50% disallowance- operatinq expenses P337 588.50
100% disallowance - taxes & licenses 209 706.00 547 294.50
Income - understated 155 681.36
Adjusted Taxable Income p 1,756 973.86

Tax due p 614 940.85

Less: payments 160 834.00
Deficiency Income Tax p 454 106.85
Add: 25% Surcharqe (Sec. 248)
20% Interest p.a. from UP to 12/3 1/2010 329 224.97
Compromise Penalty (Sec. 254 in relation to
RMO 19-2007) 16 000.00
TOTAL AMOUNT DUE & COLLECTIBLE p 799,331.82

DEFICIENCY VALUE-ADDED TAX

pursuant to Sec. 108/110/ 113 NIRC
Taxable Sales per Return p 3 375 622.00
Add: Adjustment per investigation
Income - understated 155,681.36
Adjusted taxable income p 3,531,303.36

Output tax p 417 870.88

Less: I nput tax -
Value-added Tax payable p 417 870.88

2
Par. 3, JSFI, Docket, p. 163.
3
Exhibit "A", Docket, pp. 17-19; Par. 2, JSFI, docket, p. 163; Statement of Material Dates, Petition for
Review, Docket, p. 7.
4
Exhibit " A-1", Docket, p. 20.
5
Exhibits "A-2" to "A-6", Docket, pp. 21-25.
6
Exhibit " A", Docket, pp. 17-18.
 DECISION
CfA CASE NO. 8380
Page 3 of 31

Less: payments per return 399 556.36

Tax still due & payable p 18 314.52
Add : 25% Surcharqe (Sec. 248)
20% Interest p.a . from up to 12/ 31/ 2010 14 397 .11
Compromise Penalty (Sec. 254 in relation to
RMO 19-2007) 4 000.00
TOTAL AMOUNT DUE & COLLECTIBLE p 36,711.63

DEFICIENCY EXPANDED WITHHOLDING TAX

pu rsuant to Sec. 79/ 80 NIRC
Lega l & Audit fee p 70 000 .00 X 10% p 7 000 .00
Security Services 192 183.10 x 2% 3 843.66
Repairs & Maintenance 79 983.00 x2% 1 599.66
Total EWT due p 12 443.32
Less: remittances 10 843.60
Deficiency Expanded With holding Tax p 1/599.72
Add : 25% Surcharqe (Sec. 248)
20% Interest p.a. from UP to 12/ 31/ 2010 1 266.43
Compromise Penalty (Sec. 254 in relation to
RMO 19-2007) 700.00
TOTAL AMOUNT DUE & COLLECTIBLE p 3 566.1 5

DEFICIENCY FINAL TAX

pursuant to Sec. 24(2), NIRC
Dividends payable p 6 754 250.00
x Rate 10%
Final Tax Due - Dividends payable p 675 425.00
Less: remittances -
Deficiency Fina l Tax p 675 425.00
Add: 25% Surcharge (Sec. 248) 168/856.25
20% Interest p.a. from up to 12/ 31/ 2010 534/705.94
Compromise Penalty (Sec. 254 in relat ion to
RMO 19-2007) 20 000.00
TOTAL AMOUNT DUE & COLLECTIBLE p 1,398,987.19

DEFICIENCY DOCUMENTARY STAMP TAX

pursuant to Sec. 24(2) NIRC
Renta l Income p 3 53L303.36

DST Due p 3 532.30

Less: payments -
Deficiency Documentary Stamp Tax p 3 532.30
Add : 25% Surcharge (Sec. 248) 883.08
20% Interest p.a. from up to 12/ 31/ 2010 2 816.00
Compromise Penalty (Sec. 254 in relation to
RMO 19-2007) 1 000.00
TOTAL AMOUNT DUE & COLLECTIBLE p 8/231.37

On January 28 1 2011/ petitioner filed a protest of the said

assessments/ attaching thereto its supporting documents.8

On March 25, 2011, petitioner received a letter9 dated February

25, 2011 from respondent, informing it that its protest has been jr-
7
Exhibit " B", Docket, pp. 26-28.
8
Par. 2, JSFI, Docket, p. 163; Statement of Material Dates, Petition for Review, docket, p. 7.
9
Exhibit " F", Docket, p. 64.
 DECISION
CfA CASE NO. 8380
Page 4 of 31

referred to Revenue Officer Rafael M. Lentejas II for re-investigation

and at the same time, respondent revised the previous
assessments. 10 The details of the revised assessments are as follows:

11
DEFICIENCY INCOME TAX
Taxable Income p 1 053 998.00
Add: Adjustment per investigation
Disallowance- unsupported/ non-filing
50% disallowance-operatinq p 337 588.50
100% disallowance-taxes & licenses 209 706.00 547,294.50
Income - understated (Annex A) 155,681.36
Adjusted Taxable Income p 1,756,973.86

Income Tax Due p 614 940.85

Less: Income Tax Payment 280 479.97
Income Tax Deficiency p 334 460.88
Add : Interest p 262 070.72
Compromise Penalty 16 000.00 278 070.72
INCOME TAX PAYABLE p 612,531.60

12
DEFICIENCY VALUE- ADDED TAX
Sales p 3 375 622.34
Add : Income - understated 155 681.36
p 3 531,303.70

Output Tax p 417 870.88

Less: Input tax -
Value-added Tax Due
p 417 870.88
Less : Value-added Tax Payment 399 556.37
Deficiency Value-added Tax p 18 314.51
Add : Interest p 14 397.11
Compromise Penalty 4 000.00 18 397.11
VALUE-ADDED TAX PAYABLE p 36 711.62

13
EXPANDED WITHHOLDING TAX ANALYSIS
Leqal & Audit Fee p 70 000 .00 X 10% p 7 000 .00
Security Services 192 183.10 x2% 3 843.66
Repairs & Maintenance 79 983.00 x 2% 1 599.66
Total P342,166.10 p 12,443.32
Less: remittances 10 843.60
Deficiency Expanded Withholdinq Tax 1 599.72
Add: Interest 1 266.43
Compromise Penalty 700.00
TOTAL EWT DEFICIENCY p 3,566.15

14
DEFICIENCY FINAL TAX
Dividends Payable p 6 754 250.00
Final Tax Rate 10%
Final Tax Due - Dividends Payable 675 425.00

10
Par. 2, JSFI, Docket, p. 163; Statement of Material Dates, Petition for Review, Docket, p. 7.
11
Exhibit "F-2", Docket, p. 70.
12
Exhibit " F-4", Docket, p. 72.
13
Exhibit "F-3", Docket, p. 71.
14
Exhibit "F-5", Docket, p. 73.
 DECISION
CTA CASE NO. 8380
Page 5 of 31

Less: Remittance 574 325 .00

Final Tax Deficiency 101100.00
Add :
Interest (P574 325.00 up to 01-05-2010) p 344 909.70
Interest (P101 100.00 up to 03-15-2011) 84 757.81 429 667.51
Comprom ise Penalty 16 000.00
TOTAL DIVIDENDS TAX PAYABLE p 546 767.51

1
DEFICIENCY DOCUMENTARY STAMP TAX :>
Rental Income p 3 531 303.36

DST Due p 3 531.30

Less: DST payments -
Deficiency DST p p 3 531.30
Add: Surcharge p 882.83
Interest 2 777.45
Compromise Penalty 1 000.00 4 660.28
TOTAL DST PAYABLE p 8,191.58

On April 19, 2011, petitioner submitted its Reply16 dated April

15, 2011 to the revised assessment.

On October 17, 2011, petitioner received a letter dated

September 19, 2011 17 from respondent, rev1smg anew the
assessments and reducing further the amounts of deficiency income
tax, deficiency VAT, deficiency final tax, and deficiency DST.18

Thus, on November 16, 2011, petitioner filed the present

Petition for Review.

Respondent filed her Answer19 on January 16, 2012, raising the

following Special and Affirmative Defenses:

"SPECIAL AND AFFIRMATIVE DEFENSES

XXX XXX XXX

8. The Honorable Court has no jurisdiction to

entertain the instant petition for review due to
prematurity. The Petitioner is, in actuality, questioning
the validity of the Fina l Assessments and the recomputed
assessments based on the reinvestigation granted after Jh--
15
Exhibit "F-6", docket, p. 74.
16
Exhibit "G", docket, pp. 75-78.
17
Exhibits "I " to "I -5", docket, pp. 110-117.
18
Par. 2, JSFI , docket, p. 163; Statement of Material Dates, Petition for Review, docket, p. 7.
19
Docket, pp. 125-132.
DECISION
CfA CASE NO. 8380
Page 6 of 31

the Final Assessments were protested . There are no final

assessments issued as a result of the reinvestigation;

9. The findings of the revenue officer who

conducted the reinvestigation is still subject for review by
the Assessment Division, approval by the Commissioner
of Internal Revenue or her duly authorized
representative, the Regional Director; and, the
subsequent issuance of the Preliminary Assessment
Notice and the Final Assessment Notice;

10. In sum, the adversely affected party may file a

petition for review with the Honorable Court within the
thirty (30) days from receipt of the adverse ruling or
inaction of the Commissioner of Internal Revenue or her
duly authorized representative, the Regional Director.
Hence, it is primordial that the decision or ruling or
inaction must be attributed to Respondent herein.
However, in the case at bar, there was none because the
19 September 2011 letter would clearly show that the
letter was signed by the Revenue District Officer
Petronilla C. Fernando only and not by the Regional
Director as authorized representative of Respondent or by
the Commissioner herself. The word 'decisions' in Section
7 (a) (1) of R.A. 1125, as amended by R.A. No. 9282, has
been interpreted to refer to the decisions of the
Commissioner of Internal Revenue on the protest of the
taxpayer against the assessments as held by the
Honorable Court in the case of Mizuho Corporate Bank,
Ltd. Manila Branch vs. The Commissioner of Internal
Revenue, C.T.A. Case No. 7082, 8 January 2007;

11 . Petitioner deemed the issua nee of the 19

September 2011 letter signed by the Revenue District
Oficer Petronilla C. Fernando as a denial of its protest and
the computations attached thereto as Assessments which
is not yet final. Had Petitioner exercised prudence and
not haphazardly invoked the intervention of the
Honorable Court, Respondent would have exhausted all
administrative remedies. xxx

XXX XXX XXX r

DECISION
CTA CASE NO. 8380
Page 7 of 31

12. The assessment attached to the 19 September

2011 letter was a mere computation of how the revenue
district officer came up with the amounts in his
reinvestigation. xxx

XXX XXX XXX

13. Since there is no Final Assessments issued yet

to the Petitioner as a result of Petitioner's Protest,
Petitioner has no cause of action to file the instant
petition for review;

VALIDITY OF THE ASSESSMENTS

14. Petitioner's claim that Assessment Notices Nos.

34-06-IT-0916, 34-06-VT-0917, 34-06-WE-0918, 34-06-
FT-0919 and 34-06-DS-0920 covering deficiency income
tax, deficiency value added tax, deficiency expanded
withholding tax, deficiency final tax and deficiency
documentary stamp tax for taxable year 2006 are null
and void for failure of Respondent to sufficiently inform
Petitioner of the legal and factual bases in violation of
Sec. 228 of the Tax Reform Act of 1997 and the Due
Process Clause of the Constitution are false and
misleading. The truth of the matter is, Petitioner has been
fully informed of the legal and factual bases of the
assessments;

15. The Formal Letter of Demand dated 29

December 2010 and the Details of Discrepancies attached
as Annex 'A' thereto enumerated in detail the facts and
the laws on which the computations were made;

16. After Petitioner filed the Protest on 28 January

2011, Revenue District Officer Petronilla C. Fernando sent
two letters dated 25 February 2011 and 19 September
2011 including annexes attached thereto enumerating in
both letters the facts and the laws on which the
computations were made. These facts allowed Petitioner
to intelligently file a reply dated 19 April 2011 even
attaching thereto Petitioner's own annexes; f/v
DECI SION
CTA CASE NO. 8380
Page 8 of 31

XXX XXX XXX

19. In the protest letter dated 27 January 2011,

Petitioner admitted that Petitioner cannot locate receipts
or invoices to support its claim for ordinary and necessary
expenses; that official receipts were issued in the name of
EB Barcelon Inc., the former corporate name of petitioner
herein, Jumbo Realty Inc.; that, Petitioner attached
several documents to their protest; hence, Petitioner
stated that:

'These are ordinary and necessary

expenses which are all supported by receipts
or invoices but unfortunately we cannot locate
them at present because the accountant
handling the books of the company at the time
is no longer with us.'

'We respectfully submit that the taxes

and licenses paid in 2006 should be allowed
and we disagree to the findings of 100°/o
disallowance of 2006 taxes and licenses. In
this regard we are again submitting the
'Schedule of Taxes, Licenses and Fees'
together with the corresponding supporting
documents attached hereto as Annexes 'A' to
'A-6' for your reference. The official receipts
are in the name of EB Barcelon Inc., the
former corporate name of Jumbo Realty, Inc.'

XXX XXX XXX

21. The Annex 'A' attached to Annex 'I' to the

Petition for Review would clearly show that Petitioner
replaced its name from E.B. Barcelon Enterprises, Inc. to
Jumbo East Realty, Inc. as early as August 1982. And in
the year 2006, Jumbo East Realty Inc. has still been using
the name E.B. Barcelon Enterprises, Inc. and Petitioner
admitted such fact in its letters attached as Annexes 'G'
and 'I' to the Petition for Review as there are receipts
issued in the name of E.B. Barcelon Enterprises, Inc.;?v
DECI SION
CTA CASE NO. 8380
Page 9 of 31

22. Petitioner was claiming as expenses on utilities

and communications official receipts issued in the name
of E.B. Barcelon Enterprises, Inc., as legitimate expenses
of herein Petitioner, Jumbo East Realty, Inc. This
undisputable fact would lead one to believe that, if
Petitioner was using its old corporate name, it is possible
that Petitioner earned income under the same and old
corporate name;

23. These facts taken altogether would distinctly

and clearly show the evident bad faith on the part of
Petitioner."

The parties submitted their Joint Stipulation of Facts and

Issues20 on April 12, 2012; and on April 24, 2012, the Court issued its
Pre-Trial Order21 •

During trial, petitioner and respondent presented their

testimonial and documentary evidence.

Pursuant to the March 3, 2014 order of this Court, 22 respondent

filed her Memorandum 23 on March 27, 2014 and petitioner filed its
Memorandum 24 on May 8, 2014. Thereafter, the case was submitted
for decision .

THE ISSU ES

The parties submitted the following issues25 for the resolution

of this Court:

a) Does this Honorable Court have jurisdiction to

entertain this petition?

b) Do the said assessment notices violate Section

228 of R.A. 8424 or the Tax Reform Act of 1997 as Jv

20
Docket, pp. 163-164.
21
Docket, pp. 177-185.
22
Minutes of the hearing dated March 3, 20 14, Docket, p. 431.
23
Docket, pp. 432-445.
24
Docket, pp. 452-464.
25
JSFI, Docket, pp. 163-164.
DECI SION
CTA CASE NO. 8380
Page 10 of 31

amended and the Due Process Clause of the Constitution

as to render them a nullity?

c) If they are not, do the Assessment Notice Nos.

34-06-IT-0916; 34-06-Vf-0917; 34-06-WE-0918; 34-06-
FT-0919; and 34-06-DS0920, have any factual and legal
bases?

d) Whether or not Petitioner can be held liable for

using the old corporate name "EB Barcelon, Inc." of
petitioner Jumbo Realty Inc., when the change of name
was made in 1982 in receipts claimed as legitimate
expenses by Petitioner in 2006.

THE COURT'S RULING

Whether or not the Court has

jurisdiction over the case.

Respondent argues that petitioner wrongly considered the

September 19, 2011 letter signed by Revenue District Officer
Petronilo C. Fernando as a denial of its protest. Furthermore,
respondent avers that the findings of the revenue officer who
conducted the reinvestigation are still subject for review by the
Assessment Division, which must be with the approval of respondent
or her duly authorized representative, the Regional Director.

On the other hand, petitioner asserts that this Court has

jurisdiction to entertain the Petition, as the language used in the
assessment notices and FLD leaves no room to doubt that it is a final
determination of respondent. Moreover, petitioner argues that
respondent clothed her Regional Directors the authority to decide
with finality any matter falling within the ambit of her power. While
it may be argued that it was not the Regional Director, but the
Revenue District Officer, who acted upon the said protest, the action
of the Revenue District Officer is considered the action of the
Regional Director given the realities of the administrative machinery
of the government. ~
DECISION
CTA CASE NO. 8380
Page 11 of 31

In the case of Oceanic Wireless Networly Inc. v. Commissioner

of Internal Revenue/ et. al.26 , the Supreme Court ruled that:

The determination on whether or not a demand

letter is fi nal is conditioned upon the language used or
the tenor of the letter being sent to the taxpayer.

We laid down the rule that the Commissioner of

Internal Revenue should always indicate to the taxpayer
in clear and unequivocal language what constitutes his
final determination of the disputed assessment, thus:

... we deem it appropriate to state that t he

Commissioner of Internal Revenue should always
indicate to the taxpayer in clear and unequivocal
language whenever his action on an assessment
questioned by a taxpayer constitutes his final
determination on the disputed assessment, as
contemplated by Sections 7 and 11 of Republic Act
No. 1125, as amended. On the basis of his
statement indubitably showing that t he
Commissioner's communicated action is his final
decision on the contested assessment, t he
aggrieved taxpayer would then be able to take
recourse to the tax court at the opportune time.
Without needless difficulty, the taxpayer would be
able to determine when his right to appeal to the
tax court accrues."(Emphasis supplied)

In the Oceanic Case, the Supreme Court held that the

Commissioner of Internal Revenue should always indicate in clear
and unequivocal language her final decision on the disputed
assessment. Here, the subject letter dated September 19, 2011
states:

"This has reference to your protest letter dated April

15, 2011 raising several issues against the revised
computation of deficiency taxes prepared last February
25, 2011. After considering your protest and its
supporting documents the following findings still
stands. xxx xxx xxx" (Emphasis
supplied) r
26
G.R. No. 148380, December 9, 2005, 477 SCRA 205 citing the case of Surigao Electric Company_ Inc. v.
Court of Tax Appeals, G.R. No. L-25289, June 28, 1974, 57 SCRA 523 .
DECISI ON
CTA CASE NO. 8380
Page 12 of 31

From the foregoing, the subject letter of the respondent clearly

states that its findings vis a vis the petitioner's deficiency tax
assessments stand. Hence, there is no doubt that the September 19,
2011 letter of respondent is the denial of the protest contemplated
under Section 228 of the National I nternal Revenue of 1997, as
amended (NIRC of 1997, as amended), which provides:

"SEC. 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 t he 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 t he one hundred eighty
(180)-day period; otherwise, the decision shall become
final, executory and demandable."

On the issue whether the letter issued by Revenue District

Officer Petronilla C. Fernando constitutes the final decision of the
respondent on petitioner's protest, Section 7 of the NIRC of 1997, as
amended, provides:

"SEC. 7. Authority of the Commissioner to Delegate

Power.- The Commissioner may delegate the powers
vested in him under t he pertinent provisions of this Code
to any or such subordinate officials with the rank
equivalent to a division chief or higher, subject to such
limitations and restrictions as may be imposed under
rules and regulations to be promulgated by the Secretary
of fina nce, upon recommendation of the Commissioner:
Provided, However, That the following powers of
the Commissioner shall not be delegated :

(a) The power to recommend the promulgation of rules

and regulations by the Secretary of Finance;

(b) The power to issue rul ings of first impression or to

reverse, revoke or modify any existing ruling of the
Bureau; ~
DECISION
CfA CASE NO. 8380
Page 13 of 31

(c) The power to compromise or abate, under Sec. 204

(A) and (B) of this Code, any tax liability: Provided,
however, That assessments issued by the regional offices
involving basic deficiency taxes of Five hundred thousand
pesos (PSOO,OOO) or less, and minor criminal violations,
as may be determined by rules and regulations to be
promulgated by the Secretary of finance, upon
recommendation of the Commissioner, discovered by
regional and district officials, may be compromised by a
regional evaluation board which shall be composed of the
Regional Director as Chairman, the Assistant Regional
Director, the heads of the Legal, Assessment and
Collection Divisions and the Revenue District Officer
having jurisdiction over the taxpayer, as members; and

(d) The power to assign or reassign internal revenue

officers to establishments where articles subject to excise
tax are produced or kept."(Emphasis supplied)

Under Section 7 of the NIRC of 1997, as amended, the general

rule is that the CIR may delegate the powers vested in her to any or
such subordinate officials with the rank equivalent to a division chief
or higher. However, the same admits of several exceptions, as
enumerated above. It is noteworthy that the power to assess is not
included as one of the exceptions to the powers which may be
delegated by respondent. Ergo, the same may be delegated to her
subordinate officials.

On the other hand, the power to delegate the examination and

assessment of any taxpayer is provided for under Section 6 of the
NIRC of 1997, as amended, viz:

"SEC 6.Power of the Commissioner to Make

assessments and Prescribe additional
Requirements for Tax Administration and
Enforcement.-

(A)Examination of Returns and Determination of

Tax Due. - After a return has been filed as required under
the provisions of this Code, the Commissioner or his
duly authorized representative may authorize the
examination of any taxpayer and the assessment
of the correct amount of tax: Provided, however; That ~
DECI SION
CTA CASE NO. 8380
Page 14 of 31

failure to file a return shall not prevent the Commissioner

from authorizing the examination of any taxpayer.

The tax or any deficiency tax so assessed

shall be paid upon notice and demand from the
Commissioner or from his duly authorized
representative." (Emphasis supplied)

Based from the above-quoted provisions, the respondent may

delegate her power to examine and assess any taxpayer. Meanwhile,
such power is not expressly mentioned under the exceptions
provided for in Section 7 of the NIRC of 1997, as amended. Hence,
applying the foregoing provisions in the present case, the letter
signed by Revenue District Officer Petronilla constitutes the final
decision of the respondent because the power to assess petitioner
may be delegated upon the former.27

Moreover, it is clear from the letter dated February 25, 2011

that petitioner's case has been elevated to Revenue Officer Rafael M.
Lentejas II, and that the letter dated September 19, 2011 issued and
signed by Revenue District Officer Petronilo C. Fernando is a mere
reiteration of the February 25, 2011 letter which found petitioner
liable for deficiency income tax, value added tax, expanded
withholding tax, final tax and documentary stamp tax, respectively.
In other words, the September 19, 2011 issued by the Revenue
District Officer is tantamount to a denial of petitioner's protest, which
denial is ripe for appeal before this Court.

Considering the foregoing, the Court rules that it is clothed with

jurisdiction to take cognizance of the case.

Whether or not the subject

assessments were lawfully
issued by the respondent.

Petitioner asserts that the subject assessments are void for

failure of respondent to sufficiently inform the petitioner of the legal
and factual bases thereof. Further, the revisions of the assessments

r
of its deficiency taxes show that respondent is uncertain as to its tax
liabilities.

27
See PEA Tollway Corporation vs. Commissioner of Internal Revenue, CTA Case No. 7382, Resolution
dated December 19, 2006.
 DECISI ON
CTA CASE NO. 8380
Page 15 of 31

On the other hand, respondent contends that the subject

assessments state the facts and the laws from which the
assessments were based, enabling petitioner to file an intelligent
reply.

A reading of the September 19, 2011 letter28 denying the

subject protest shows that the same set forth, in detail, the factual
and legal bases of respondent's assessment. Hence, petitioner's right
to due process was not violated and the subject assessments were
lawfully issued by respondent.

Whether or not petitioner

should be held liable based on
the assessments.

Finally, the Court shall proceed to determine the correctness of

the subject assessments.

On October 17, 2011, petitioner received respondent's letter

dated September 19, 2011 denying the protest but reducing fu rther
the amounts for deficiency income tax, deficiency value added tax,
deficiency final tax and deficiency documentary stamp tax. 29 Details
of the revised assessments are as follows:

30
DEFICIENCY INCOME TAX
Taxable Income p 1 053 998.00
Less: Disa llowance of Expenses for Failure to
Substa ntiate
50% disa llowance 442 441.00
Adj usted Taxable I ncome p 1 496,439.00
Income Tax Rate 35%
Income Tax due p 523 753 .65
Less: Income Tax payment 276,903.49
Income Tax Deficiency p 246 850 .16
Add: Interest p 220 339.13
Compromise 16 000.00 236 339.13
INCOME TAX PAYABLE p 483, 189.29

31
DEFICIENCY VALUE ADDED TAX
Revenue p 3 375 622.34
Multiply: VAT Rate 12%
Output tax p 405 074.68
Less: I nput tax -

28
Supra., Note 13.
29
JSFI, par. 17, Docket,p. 163.
30
Exhibit " I-1", Docket, p. 113.
31
Exhibit " I-2", Docket, p. 114.
 DECISION
CTA CASE NO. 8380
Page 16 of 31

VAT Due p 405 074.68

Less: VAT Payment 399,556.37
VAT Deficiency p 5 518.31
Add: Interest p 5 167.56
Compromise Penalty 1 500.00 6,667.56
TOTAL VAT PAYABLE p 12,185.87

EXPANDED WITHHOLDING TAX ANALYSIS 32

Leqal & Audit Fee p 70 000.00 10% p 7 000.00
Security Services 192 183.10 2% 3 843.66
Repairs & Maintenance 79 983.00 2% 1 599.66
Total P342 166.10 p 12 443.32
Less: remittances 10 843 .60
Deficiency Expanded Withholding Tax p 1 599.72
Add : Interest 1 266 .43
Compromise Penalty 700.00
TOTAL EWT DEFICIENCY p 3 566 .15

33
DEFICIENCY FINAL TAX
Dividends payable p 6 754 250.00
Multiply: Final Tax Rate 10%
Final Tax Due- Dividends payable 675 425.00
Less : Remittance 574 325.00
Final Tax Deficiency p 101100.00
Add : Interest (P574,325.00 up to 01-05-2010) p 344 909.70
Interest (P 101,100.00 up to 03-15-2011) 84 757.81 429 667.51
Compromise Penalty 16 000.00
TOTAL DIVIDENDS TAX PAYABLE p 546,767.51

34
DEFICIENCY DOCUMENTARY STAMP TAX
Rental Income p 3 531 303.36
DST Due p 3 531.30
Less: DST payments -
Deficiency DST p 3 531.30
Add: Surcharge p 882.83
Interest 2 777.45
Compromise Pena lty 1 000.00 4 660.28
TOTAL DST PAYABLE p 8,191.58

I. Deficiency Income Tax- P483,189.29

The final revised deficiency income tax assessment of

P483, 189.29 arose from the following:

a. 50% disa llowance of various operatinq expenses P337,588.50

50% disa llowance of taxes and licenses 104 852.50 P442 441.00

disallowance of petitioner's claimed creditable taxes

b. withheld during the year

32
Exhibit "I-3", Docket, p. 115.
33
Exhibit "I-5", Docket, p. 117.
34
Exhibit "I -4", Docket, p. 116.
DECISION
ITA CASE NO. 8380
Page 17 of 31

35
Creditable taxes withheld durinq the year per ITR P168,78l.00
Less: Creditable taxes withheld with certificates (BIR
36
Forms No. 2307) as found by respondent 76,784.49 p 91 996 .51

The Court shall determine the propriety of the aforesaid

disallowances.

a. 50°/o disallowance of various expenses

and taxes and licenses - P442,441.00

Invoking Sections 232, 235 and 34 of the NIRC of 1997, as

amended, respondent disallowed the amount of P442,441.00
representing 50°/o of petitioner's claimed deductions for the following
operating expenses including taxes and licenses for petitioner's
failure to substantiate the same: 37

Claimed 50°/o
Operatinq Expenses Amount Per ITR Disallowance
Transportation p 107,767.00 p 53,883.50
Utilities 209 905.00 104 952.50
Reprsentation 62 666.00 31 333.00
Stationeries and Supplies 39,430.00 19,715.00
Communications 138,922.00 69 461.00
Insurance 44, 190.00 22,095.00
Donation 22,395.00 11 197.50
Miscellaneous 49,902.00 24,951.00
p 675,177.00 P337,588.50

Taxes and Licenses p 209,706.00 P104,852.50

Total p 442,441.00

The Court finds the disallowance in order.

Section 34(A)(1)(b) of the NIRC of 1997, as amended, states

that:

"SEC. 34.Deductions from Gross Income. - xxx

(A) Expenses. -
XXX

35
Exhibit " H", the sum of P126,537 and P42,244.00 (lines 28C and 28D).
36
Exhibit " I ", Docket , p. 111.
37
Exhibit "I-1", Docket, p. 113; Exhibit "A-1", Docket, p. 20.
DECISION
CTA CASE NO. 8380
Page 18 of 31

(a) In General. - There shall be allowed as

deduction from gross income all the ordinary and
necessary expenses paid or incurred during the taxable
year in carrying on or which are directly attributable to,
the development, management, operation and/or
conduct of the trade, business or exercise of a profession,
including:

XXX

(b )Substantiation Requirements. - No deduction

from gross income shall be allowed under Subsection (A)
hereof unless the taxpayer shall substantiate with
sufficient evidence, such as official receipts or adequate
records: (i) the amount of the expense being deducted,
and (ii) the direct connection or relation of the expense
being deducted to the development, management,
operation and/or conduct of the trade, business or
profession of the taxpayer."

Clearly, no deduction from gross income shall be allowed unless

the taxpayer shall substantiate with sufficient evidence the amount of
expense being deducted, and the direct connection or relation of the
expense being deducted to the development, management, operation
and/or conduct of the trade, business or profession of the taxpayer.

In the case of Cyanamid Philippines, Inc. v. The Court of

Appeals, the Court of Tax Appeals and Commissioner of Internal
Revenu~ 8 , the Supreme Court held that:

Laws granting exemption from tax are construed

strictissimi juris against the taxpayer and liberally in favor
of the taxing power. Taxation is the rule and exemption is
the exception. The burden of proof rests upon the party
claiming exemption to prove that it is, in fact, covered by
the exemption so claimed.

Deductions for income tax purposes partake of the nature of

tax exemptions; hence, if tax exemptions are strictly construed, then
deductions must also be strictly construed. 39 Jt-
38
G.R. No. 108067, January 20, 2000, citing CJR v. Mitsubishi Metal Corporation, 181 SCRA 214.
39
CJR v. General Foods (Phils.), Inc., G.R. No.143672, April 24, 2003, 401 SCRA 545.
DECISION
CTA CASE NO. 8380
Page 19 of 31

Consequently, the burden of proof rests upon the petitioner to

prove that it is entitled to deduct from its gross income the various
operating expenses in the total amount of P675,177.00 and taxes
and licenses in the amount of P209,706.00.

However, petitioner failed to submit its supporting documents,

i.e., invoices or official receipts, to substantiate its claimed operating
expenses of P675,177.00. While petitioner submitted various official
receipts (Exhibits "B-2" to "B-7'140 ) to support its claimed taxes and
licenses in the amount of P209,706.00, the same were denied
admission by the Court for petitioner's failure to present their original
copies for comparison, except for Exhibit "B-6". 41 Nevertheless, Exhibit
"B-6" cannot be accorded any probative value in the present case as
it pertains to a payment made in 2007 and hence, irrelevant.

Considering that petitioner's claimed deductions for various

operating expenses in the amount of P675,177.00 and taxes and
licenses in the amount of P209,706.00 were not adequately
supported by documentary evidence, the Court upholds the
respondent's disallowances. In this regard, the Court shall apply the
50°/o rule of approximation provided under Sections 2.3 and 2.4( c) of
Revenue Memorandum Circular (RMC) No. 23-2000, in relation to
Section 6(B) of the NIRC of 1997, as amended, to wit

"SEC. 6. Power of the Commissioner to Make

Assessments and Prescribe Additional Requirements for
Tax Administration and Enforcement-

XXX XXX XXX

Failure to Submit Required Returns/

(B)
Statement~ Reports and other Documents. - When a
report required by law as a basis for the
assessment of any national internal revenue tax
shall not be forthcoming within the time fixed by
laws or rules and regulations or when there is
reason to believe that any such report is false,
incomplete or erroneous, the Commissioner shall
assess the proper tax on the best evidence
obtainable. ~

40
Docket, pp. 30-35.
41
Resolutions dated August 29, 2012 and November 14, 2012, Docket, pp. 226-227 & 277-280.
DECISI ON
CTA CASE NO. 8380
Page 20 of 31

In case a person fails to file a required return or

other document at the time prescribed by law, or willfully
or otherwise files a false or fraudulent return or other
document, the Commissioner shall make or amend the
return from his own knowledge and from such
information as he can obtain through testimony or
otherwise, which shall be prima facie correct and
sufficient for all legal purposes."(Emphasis supplied)

"REVENUE MEMORANDUM CIRCULAR NO. 23-2000

SECTION 2. Prescribed Revenue Procedures. -

XXX XXX XXX

2.3 Assessment Based on Best Evidence Obtainable.

- An assessment based on best evidence obtainable is
justified when any of the grounds provided by law is
clearly established viz.

1. The report or records requested from

the taxpayer are not forthcoming i.e.
the records are lost; refusal of the
taxpayer to submit such records;

2. The reports submitted are false, incomplete

or erroneous.

In every case where a taxpayer is ordered to be

examined and he refuses or fails to submit his records
giving rise to the issuance of a subpoena duces tecum
pursuant to RMO No. 35-90, the assessment shall only be
issued after a criminal case has been instituted for failure
to obey summons.

After filing of the complaint against the taxpayer for

violation of the Subpoena Duces Tecum, the Legal
Division/Prosecution Division shall immediately return the
docket of the case to the concerned Revenue Officer. The
Revenue Officer shall, upon receipt of the docket,
immediately proceed to determine the taxpayer's
deficiency internal revenue tax liability in accordance with
the "Best Evidence Obtainable. " :;v-
DECISION
CfA CASE NO. 8380
Page 21 of 31

2.4 Existing Revenue Procedures and Jurisprudence

Governing Assessment Based on the Best Evidence
Obtainable. - Provided hereunder are the existing
revenue procedures and jurisprudence governing
issuance of a deficiency tax assessment based on the
best evidence obtainable:

XXX XXX XXX

(c) Assessment Based on Estimate/ 50% Rule, in

the Absence of Receipts to Prove Actual Amount of
Expense Deduction. - The Court held in the Mariano
Zamora case that, if there is a showing that
expenses have been incurred but the exact
amount thereof cannot be ascertained due to
absence of documentary evidence, it is the duty of
the BIR to make an estimate of the deduction that
may be allowable in computing the taxpayer's
taxable income, bearing heavily against the
taxpayer whose inexactitude is of his own making.
That disallowance of 50°/o of the taxpayer's
claimed deduction is valid."(Emphasis supplied)

b. Disallowed Creditable Taxes Withheld - P91,996.51

Respondent's findings show that out of petitioner's

reported creditable taxes withheld during the year in the amount
of P168,781.00 42 , only t he amount of P76,784.49 is duly
supported by Certificates of Creditable Tax Withheld at Source
(BIR Forms No. 2307). 43 Hence, the remaining declared
creditable taxes withheld in the amount of P91,996.51 were
disallowed.

A ca reful scrutiny of the BIR Forms No. 2307 presented by

petitioner confirmed respondent's finding that only the amount of
P76,784.49 creditable with holding taxes were duly substantiated, to
wit:~

42
Exhibit "H", the sum of P126,537 and P42,244.00 (lines 28C and 28D).
43
Exhibit " I ", Docket, p. 111.
DECISION
CTA CASE NO. 8380
Page 22 of 31

Amount of
Tax
Period Income Exhibit
Withheld
Payment
Ang, Gui 10-01-06 to 12-31-06 p 66 270.60 p 3 313.53 "G-7"44
Union Electrical Supply,
Inc. 10-01-06 to 12-3 1-06 132 645.00 6 632.25 "G-8"45
EPC Marketing I Edward
P. Chan 10-01-06 to 12-31-06 284,499.00 14 224.95 "G-9"46
Clinton Apparel, Inc. 10-01-06 to 12-31-06 9,000.00 450.00 "G-10'A 7
Romeo Sy 01-20-06 to 12-20-06 336 684.00 16 834.20 "G-11'At!
SyGuiTiak 10- 1-06 to 10-31-06 26 652.00 1 332.60 "G-12'A9
SyGuiTiak 11-1-06 to 11-30-06 26 652.00 1 332.60 "G-13 "~ 0
SyGuiTiak 12-1-06 to 12-31-06 26 652.00 1 332.60 "G-14 "~ 1
Jean HilisTating 52
01-31-06 to 12-31-06 89 880.00 4 494.00 "G-15 "
Carlos Melo 53
01-01-06 to 12-3 1-06 75 456.00 3 772.80 " G-16"
Myrna Pinga 01-01-06 to 12-31-06 70 692.00 3 534.60 "G-17"~ 4
Felipe Tabang 55
01-01-06 to 12-3 1-06 69 180.00 3 459.00 " G-18"
Export & Ind ustry Bank 01-01-06 to 12-31-06 32 1 427.20 16 071.36 " G-19 "~ 0
Total P1,535,689.80 p 76 784.49

Thus, on the basis thereof, the Court likewise sustains the

respondent's deficiency income tax assessment. Accordingly,
petitioner is liable to pay the basic deficiency income tax in the total
amount of P246,850.16, computed as follows:

Taxable Income p 1,053,998.00

Add: 50% disal lowance- operating expenses p 104 852.50
50% disallowance - taxes and licenses 337 588.50 442 441.00
Adjusted Taxable Income p 1,496,439.00
Income Tax Rate 35%
Income Tax Due p 523,753.65
Less: Tax Credits/ Payments
Prior Year's Excess Credits other than MCIT p 119,383.00
Tax Payments for the First Three Quarters 36,469.00
Creditable Tax Withheld for the Four
Quarters 76 784.49
44,267.00
Total Tax Credits/Payments 276,903.49
Income Tax Deficiency p 246,850.16

44
Docket, p. 94.
45
Docket, p. 95.
46
Docket, p. 96.
47
Docket, p. 97.
48
Docket, p. 98.
49
Docket, p. 99.
50
Docket, p. 100.
51
Docket, p. 101.
52
Docket, p. 102.
53
Docket, p. 103.
54
Docket, p. 104.
55
Docket, p. 105.
56
Docket, p. 106.
 DECISION
CfA CASE NO. 8380
Page 23 of 31

II. Deficiency Value Added Tax - P12,185.87

Respondent assessed petitioner for deficiency Value Added Tax

(VAT) in the amount of P12,185.87, inclusive of increments, based on
the following computation:

DEFICIENCY VALUE ADDED TAX 57

Revenue f> 3,375,622.34
MultiJJiy: VAT Rate 12%
Output tax f> 405,074.68
Less: Input tax -
VAT Due f> 405,074.68
Less: VAT Payment 399,556.37
VAT Deficiency f> 5 518.31
Add: Interest f> 5,167.56
Compromise Penalty 1{500.00 6,667.56
TOTAL VAT PAYABLE p 12,185.87

Upon verification of the Monthly Value-Added Tax Declarations

(SIR Forms No. 2550M) and Quarterly VAT Returns (SIR Forms No.
2550Q) 58 the Court notes that the deficiency in the amount of
P5,518.31 arose from the month of January 2006, as follows:

Return Period VATable Output VAT Output per

{Taxable Year Exhibit Discrepancy
2006) Receipts per Return BIR Audit
January p 275 918.78 p 27 591.87 "C" p 33 110.25 P5,518.38

l 5t Quarter 837 179.47 94 943.16 "C-2" 100 461.54 5 518.38

2no Quarter 860 536.02 103 264.32 "C-6" 103 264.32 -
3rd Quarter 832 937.09 99 952.47 "C-10" 99 952.45 (0.02)
4th Quarter 844 969 .76 101 396.39 "C-14" 101 396.37 (0.02)
Total (1st to 4th
Qtrs) P3,375,622.34 P399 556.34 P405,074.68 P5,518.34

Respondent subjected the January receipts to 12°/o VAT rate

instead of 10°/o, the rate applicable for the said period.

Anent thereto, Section 108 (A) of the NIRC of 1997, as

amended by Republic Act (RA) No. 9337, authorized the President of
the Philippines, upon the recommendation of the Secretary of
Finance, to raise the VAT imposed on the sale of services and use jk-

57
Exhibit "I-2", Docket, p. 114.
58
Exhibits "C", "C-1", "C-2", "C-4", "C-5", "C-6", "C-8", "C-9", "C-10", "C-12", "C-13" & "C-14", Docket, pp.
36-50.
 DECISION
CfA CASE NO. 8380
Page 24 of 31

or lease of properties from 10°/o to 12°/o after meeting certain

conditions, thus:

"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°/o) of gross receipts derived from the sale
or exchange of services, including the use or lease of
properties: Provided, That the President, upon the
recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added
tax to twelve percent (12°/o), after any of the following
conditions has been satisfied:

(i) Value-added tax collection as a percentage of

Gross Domestic Product (GDP) of the previous year
exceeds two and four-fifth percent (2 4/5°/o); or

(ii) National government deficit as a percentage of

GDP of the previous year exceeds one and one-half
percent ( 1 1/2 °/o);"

Through RMC No. 07-06 dated January 31, 2006, the BIR
published the full text of the Memorandum from Executive Secretary
Eduardo Ermita dated January 31, 2006 announcing that the
President has approved the recommendation of the Secretary of
Finance to increase the VAT rate from 10°/o to 12°/o effective
February 1, 2006 pursuant to Section 4 of RA No. 9337.

On the basis of the foregoing, it is clear that petitioner properly

subjected its gross receipts for the month of January 2006 to 10°/o
VAT, which is the applicable rate for that taxable period. Hence, the
Court declares that deficiency VAT assessment should be cancelled.

III. Deficiency Expanded Withholding Tax- P 3,566.15

Respondent assessed the petitioner of deficiency expanded

withholding tax in the total amount of P3,566.15, inclusive of
increments, computed as follows: 1v
 DECISION
CTA CASE NO. 8380
Page 25 of 31

EXPANDED WITHHOLDING TAX ANALYSIS 59

Legal & Audit Fee p 70,000.00 10% p 7,000.00
Security Services 192 183.10 2% 3 843.66
Repairs & Maintenance 79 983.00 2% 1 599.66
Total p 342,166.10 p 12,443.32
Less: remittances 10,843.60
Deficiency Expanded Withholding Tax p 1,599.72
Add: Interest 1 266.43
Compromise Penalty 700.00
TOTAL EWT DEFICIENCY p 3,566.15

Petitioner argued that the repairs and maintenance was paid to

persons not subject to expanded withholding tax (EWf) such as
carpenters who undertook some repairs in its office. 60 However, no
supporting documents were presented to corroborate its assertion.
Anent the remaining accounts under audit, no supporting documents
were presented to oppose such findings. As previously discussed,
Section 34(A)(1)(b) of the NIRC of 1997, as amended, provides that
no deduction from gross income is allowed unless the taxpayer can
substantiate the same with sufficient evidence. Consequently,
respondent's assessment of basic deficiency withholding tax in the
total amount of ~1,599.72 should be sustained.

IV. Deficiency Final Tax- P 546,767.51

Petitioner's deficiency final tax was computed as follows:

Dividends payable p 6,754,250.00

Multiply: Final Tax Rate 10%
Final Tax Due - Dividends payable p 675,425.00
Less: Remittance 574,325.00
Final Tax Deficiency p 101,100.00
Add : Interest (P 574,325.00 up to 01-05-2010) P344 909.70
Interest (P 101100.00 up to 03-15-2011) 84 757.81 429,667.51
Compromise Penalty 16 000.00
TOTAL DIVIDENDS TAX PAYABLE p 546,767.51

Petitioner admitted that due to lack of funds when dividends for

2006 were declared, the related final taxes withheld in the amount of
~574,325.00 was paid only on January 10, 2011 6 ~

59
Exhibit "I-3", Docket, p. 115.
60
Petitioner's Reply dated April 15, 2011 to Revised Assessment, Docket, p. 77.
61
Exhibit " E" and " E-1", Docket, pp. 62-63.
DECISI ON
CfA CASE NO. 8380
Page 26 of 31

On the other hand, respondent considered the payment made

on January 10, 2011 and stated that the Bureau was only collecting
the increments as adjusted per period of payment62 .

The Court finds for the respondent.

Section 2.57.4 of Revenue Regulation No. 02-98, as amended

by Revenue Regulations No. 12-2001, provides when the obligation
to withhold the tax arises, thus:

"SECTION 2.57.4.Time of Withholding. - The obligation of

the payor to deduct and withhold the tax under Section
2.57 of these regulation arises at the time an income
payment is paid or payable, or the income
payment is accrued or recorded as an expense or
asset, whichever is applicable, in the payor's
books, whichever comes first. The term "payable"
refers to the date the obligation becomes due,
demandable or legally enforceable.

Provided, however, that where income is not yet

paid or payable but the same has been recorded as an
expense or asset, whichever is applicable, in the payor's
books, the obligation to withhold shall arise in the last
month of the return period in which the same is claimed
as an expense or amortized for tax purposes." (Emphasis
supplied)

Based on the above-cited prov1s1on, petitioner is liable to

withhold the corresponding final tax on dividends declared at the
time it is paid, becomes payable, accrued or recorded as an expense
or asset, whichever comes first. After which, the corresponding
return and remittance of the final tax must be made within 10 days
after the end of each month, except for taxes withheld for the month
of December of each year, which return shall be filed and the final
tax be paid on or before January 15 of the following year. 63

Considering that it had dividends payable as of December 31,

2006 in the amount of P6,754,250.0064 , petitioner was already
obligated to withhold and remit the final tax due thereon on January j£-
62
Exhibit "I", Docket, p. 112.
63
Section 2.58(A)(2) of RR No. 2-98, as amended by RR No. 12-01, Annex "B" (2).
64
Petitioner's Comparative Balance Sheet as of December 31, 2006 and 2005, under Current Liabilities, BIR
Records, p. 136.
 DECISION
CTA CASE NO. 8380
Page 27 of 31

15, 2007. Thus, petitioner's partial final tax remittance in the amount
of P574,325.00 was belatedly made on January 10, 2011. Pursuant
to Section 248(A)1) and 249(A) of the NIRC of 1997, as amended,
petitioner shall be held liable for the corresponding surcharge and
interest in the respective amounts of P143,581.25 and P458,201.21
totalling P601, 782.46, computed as follows :

Final WithholdingTax Paid on January 10 2011 p 574,325.00

Increments for Late Remittance:
25% Surcharge p 143,581.25
20% Interest from Jan. 15, 2007 to Jan. 10, 2011
(f>574,325.00 X 20% X 1456/365) 458,201.21
Total p 601,782.46

In addition, petitioner is liable to pay basic deficiency final tax

in the amount of P101,100.00, computed as follows :

Dividends Payable p 6J54,250.00

Final Tax Rate 10%
Final Tax Due p 675,425 .00
Less: Final Tax Rem ittance on January 10, 2011 574,325.00
Deficiency Final Tax p 101,100.00

V. Deficiency Documentary Stamp Tax - P8,191.58

For petitioner's failure to present proofs of documentary stamp

tax payments on lease contracts entered into during taxable year
2006, respondent assessed petitioner of deficiency documentary
stamp tax in the total amount of P8,191.58 inclusive of increments,
computed as follows:

DEFICIENCY DOCUMENTARY STAMP TAX 65

Rental Income p 3/531,303.36

DST Due p 3 531.30

Less: DST payments -
Deficiency DST p 3 531.30
Add: Surcharge p 882 .83
Interest 2,777.45
Compromise Penalty 1,000.00 4 660.28
TOTAL DST PAYABLE p 8,191.58

65
Exhibit "I-4", Docket, p. 116.
 DECISION
CTA CASE NO. 8380
Page 28 of 31

Petitioner alleged that the corresponding documentary stamp

taxes were paid but the returns and receipts evidencing payment
cannot be located. 66

However, petitioner's assertion does not hold water. Well-

settled is the rule that all presumptions are in favor of the
correctness of the assessment and the burden of proof is upon
petitioner to prove otherwise. 67

In the present case, petitioner failed to provide supporting

documents to dispute the assessment. Thus, the assessment is
presumed correct. Therefore, petitioner is liable for basic deficiency
documentary stamp tax pursuant to Section 194 of the NIRC, as
amended, in the amount of P3,532.30, computed as follows:

Rental Income p 3,531,303.36

Documentary Stamp Tax:
Fist 2,000.00 21000.00 3.00 3.00
In excess of first 2,000.00 3,529 303.36 3,529 303.6 X 1/1000 3 529.30
Documentary Stamp Tax Due P3 532.30

VI. Compromise Penalties - P35,200.00

Respondent imposed a total amount of P35,200.00 compromise

penalties against the petitioner, broken down as follows:

Tax type Compromise Penalty

Income Tax p 16,000.00
Value Added Tax 1,500.00
Expanded Withholding Tax 700.00
Documentary Stamp Tax 1,000.00
Final Tax 16,000.00
Total p 35,200.00

Under Revenue Memorandum Order No. 1-90, compromise

penalties are only amounts suggested in settlement of criminal
liability, and the same may not be imposed or exacted on the
taxpayer in the event that a taxpayer refuses to pay the suggested
compromise penalties. Jt-

66
Exhibit "G", Docket, p. 78.
67
CIR v. Court of Appeals_ et. a!., G.R. Nos. 104151 & 105563, March 10, 1995 & I nter-Provincial Autobus
Co., I nc. v. CIR, 98 Phil. 290[1956].
DECISION
CTA CASE NO. 8380
Page 29 of 31

Significantly, it is also well-settled that the Court has no

jurisdiction to compel a taxpayer to pay the compromise penalty
because by its very nature, it implies a mutual agreement between
the parties in respect to the thing or subject matter which is so
compromised, and the choice of paying or not paying it distinctly
belongs to the taxpayer. 68Absent 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. 69

Hence, there being no compromise agreement between the

parties in the instant case, the P35,200.00 compromise penalties
imposed by respondent should be cancelled.

In sum, petitioner is able to show that its deficiency VAT

assessment and compromise penalties are improper. However, the
Court finds that petitioner is liable to pay its deficiency income tax,
expanded withholding tax, documentary stamp tax and final tax, but
in a reduced amount, in relation to the subject assessments.

WHEREFORE, in view thereof, the instant Petition for Review

is hereby PARTIALLY GRANTED. Accordingly, the assessments
issued by respondent against petitioner for taxable year 2006
covering deficiency value-added tax in the amount of P12, 185.87
and compromise penalties in the amount of P35,200.00 are hereby
CANCELLED. However, respondent's assessments for taxable year
2006 covering deficiency income tax, expanded withholding tax,
documentary stamp tax and final tax are hereby UPHELD, but in
the modified amount of P1,043,135.19, inclusive of the 25°/o
surcharge imposed under Section 248(A)(3) of the NIRC of 1997, as
amended, computed as follows :

25°/o 20°/o
Tax Type Basic Tax Surcharge Interest Total
Income Tax p 246 850.16 p 61J12.54 p 308 562.70
Expanded W/holding Tax 1 599.72 399.93 1 999.65
Final Tax 101 100.00 25 275 .00 126 375.00
Documentary Stamp Tax 3 532.30 883.08 4 415.38
Sub-total P353 082.18 p 88,270.55 p 441,352.73

Increments on Late
Remittance of Final Tax p 143 581.25 p 458 201.21 p 601 782.46

68
The Philippines International Fair, Inc. v. The Collector of Internal Revenue, et. al., G.R. Nos. L-1298 and
L-12932, March 31, 1962, 4 SCRA 781.
69
Commissioner of Internal Revenue v. Lianga Bay Logging Co., Inc., G.R. No.L-35266, January 21, 1991,
193 SCRA 92-93 .
DECISION
CfA CASE NO. 8380
Page 30 of 31

Sub-total p 143,581.25 p 458,201.21 p 601 782.46

TOTAL P353,082.18 p 231,851.80 p 458,201.21 P1,043 135.19

In addition, petitioner shall be liable to pay:

(a) Deficiency interest at the rate of twenty percent (20°/o)

per annum on the basic deficiency income tax, expanded withholding
tax, final tax and documentary stamp tax computed from the dates
indicated below until full payment thereof pursuant to Section 249(B)
of the NIRC of 1997, as amended;

Deficiency
Interest
Tax Type Basic Tax Computed from
Income Tax p 246,850.16 April 15, 2007
Expanded Withholding Tax 1,599.72 January 15 2007
Final Tax 101,100.00 January 15, 2007
Documentary Stamp Tax 3,532.30 January 5, 2007

(b) Delinquency interest at the rate of 20°/o per annum on the

total amount of f'441,352. 73 and on the 20°/o deficiency interest
which have accrued as afore-stated in (a), computed from October
17, 2011 until full payment thereof pursuant to Section 249(C) of the
NIRC of 1997, as amended; and

(c) Delinquency interest at the rate of 20°/o per annum on the

deficiency increments for late remittance of final tax in the amount of
f'601,782.46 computed from October 17, 2011 until full payment
thereof pursuant to Section 249(C) of the NIRC of 1997, as amended.

SO ORDERED.

~h. c. . ~o4. ~
JtJANITO C. CASTANEDA, J!¥. .
Associate Justice

WE CONCUR:

CAESA~ANOVA
Associate Justice
(On Leave)
AMELIA R. COTANGCO-MANALASTAS
Associate Justice
DECISION
CTA CASE NO. 8380
Page 31 of 31

ATTESTATION

I attest that the conclusions in the above Decision were reached

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

Q__.~·~ c. ~. ~ .
JUANITO C. CASTANEDA,t.fR.
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the

Division Chairperson's Attestation, it is hereby certified that the
conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the
Court.

Presiding Justice