Cta 2D CV 09418 D 2020jan23 Ass

REPUBLIC OF THE PHILIPPINES
COURT OF TAX APPEALS

QUEZON CITY
SECOND DIVISION
ROBINSONS TRUE SERVE CTA CASE NO. 9418

HARDWARE PHILIPPINES For: Assessment
INC.,
Petitione~ Members:
CASTANEDA, JR., Chairperson

-versus- MINDARO-GRULLA, and
BACORRO-VILLENA, 11.
COMMISSIONER OF INTERNAL Promulgated:

REVENUE,
Respondent. JAN 2 J 2020 /
x-------------------------------------------------------------------------------~------x
f=l~ f ·l>j .
DECISION
MINDARO-GRULLA, J.:
Submitted for decision on February 4, 2019 is a Petition for

Review filed by petitioner Robinsons True Serve Hardware
Philippines, Inc. against respondent Commissioner of I nternal
Revenue on August 10, 2016, praying for t he cancellation of the
alleged deficiency income tax, va lue-added tax (VAT), expanded
withholding tax (EWT), and documentary stamp tax (DST)
assessments against petitioner for taxable year (TY) ended December
31, 2010 in the aggregate amount of P1,182,392,770.89. 1
Petitioner Robinsons True Serve Hardware Philippines, Inc. is a

corporation duly registered with the Securities and Exchange
Commission (SEC), with SEC Company Registration No. CS200702416
and principal office located at 110 E. Rodriguez Jr. Avenue, Libis,
Quezon City. 2
1 Par. I, Pre-Trial Order dated July 31, 2017, Docket - Vol. II, p. 933.
2 Exhibit "P-1", Docket- Vol. III, pp. 1054 to 1062.
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erA Case No. 9418 Page 2 of 46
Robinsons True Serve Hardware Philippines, Inc. vs. Commissioner of Internal Revenue
DECISION
Respondent is the duly appointed Commissioner of Internal

Revenue with office address at Bureau of Internal Revenue (BIR)
Building, Diliman, Quezon City. 3 It is registered with the BIR under
Certificate of Registration Number OCN 8RC0000059028, with TIN
006-643-830-000. 4
On July 6, 2012, petitioner received from respondent a copy of

the Letter of Authority (LOA) No. LOA-116-2012-00000017
(eLA201100003095) dated July 3, 2012, 5 authorizing the examination
of petitioner's books of accounts for taxable year ended December
31, 2010. 6
Thereafter, on April 8, 2013, petitioner executed a Waiver of

the Defense of Prescription Under the Statute of Limitations of the
National Internal Revenue Code and respondent accepted the same
on the same date?
On September 15, 2014, petitioner received a copy of the

Preliminary Assessment Notice (PAN) dated September 12, 20148
which assessed petitioner for deficiency income tax, VAT, EWT, fringe
benefit tax (FBT), DST, and improperly accumulated earnings tax
(IAET) in the aggregate amount of P1,053,817,287.46, inclusive of
increments, for taxable year ended 31 December 2010. 9 Petitioner
disputed the said PAN through the letter dated September 30, 2014
which was received by respondent on the same date. 10
Subsequently, on October 10, 2014, petitioner received a copy

of the Formal Letter of Demand (FLD) dated October 10, 2014 with
Audit Result/Assessment Notices in the total amount of
P1,064,562,827 .18, inclusive of increments, 11 representing alleged
deficiency income tax, VAT, EWT, FBT, DST, and IAET for taxable
year ended December 31, 2010.12 Petitioner then protested the FLD
3 Par. 1, Summary of Admitted Facts, Joint Stipulation of Facts and Issues (JSFI), Docket- Vol. I,
p. 369.
4
Exhibit "P-'", Docket- Vol. III, p. 1064.
5 Exhibit "R-1", BIR Records- Folder 1, p. 659.
6
Par. 2, Summary of Admitted Facts, JSFI, Docket- Vol. I, p. 369.
7
Exhibit "P-3", Docket- Vol. III, p. 1065; Exhibit "R-2", BIR Records- Folder 1, p. 679-B.
8 Exhibit "P-4", Docket - Vol. III, pp. 1066 to 1084; Exhibit "R-4", BIR Records - Folder 1, pp.
915 to 933.
9
10
Exhibit "P-5", Docket- Vol. III, pp. 1085 to 1102.
11
Exhibit "P-6", Docket - Vol. III, pp. 1105 to 1107; Exhibits "R-6" and "R-7", BIR Records -
Folder 1, pp. 1314 to 1322, and 1299 to 1304.
12
(
Robinsons True Serve Hardware Philippines, Inc. vs. Commissioner ofInternal Revenue
DECISION
through the letter dated November 7, 2014 filed with the BIRon the
same date. 13 Petitioner subsequently filed with the BIR the letter
dated January 6, 2015, submitting additional supporting documents
and schedules to support petitioner's position. 14
On March 8, 2016, petitioner received a copy of the Final

Decision on Disputed Assessment (FDDA) signed by Mr. Nestor S.
Valeroso, Assistant Commissioner of the BIR Large Taxpayers
Service, which assessed petitioner for deficiency income tax, VAT,
EWT, and DST in the aggregate amount of P1,182,392,770.89 15 •16
Consequently, petitioner filed a motion or request for

reconsideration of the said FDDA before the Office of respondent on
April 7, 2016Y However, respondent denied the said request in the
letter dated June 30, 2016, a copy of which was received by
petitioner on July 11, 2016. 18
Petitioner filed the instant Petition for Review on August 10,

19
2016. The instant case was initially raffled to this Court's First
Division.
In the Answer filed on November 28, 2016/0 respondent

interposed the following special and affirmative defenses, to wit:
"4. Respondent repleads and adopts the preceding

paragraphs of this Answer as part of his Special and
Affirmative Defenses.
PETITIONER MUST SHOW THAT

IT FILED THE INSTANT
PETITION WITHIN THE
PRESCRIPTIVE PERIOD.
5. Petitioner must prove that it filed the instant case

with the Honorable Court within thirty (30) days from receipt

15 The total amount indicated in the FDDA is P1,182,392,770.88.
16 Exhibit "P-9", Docket - Vol. III, pp. 1148 to 1162; Exhibits "R-9", "R-9-A", and "R-10", BIR
Records- Folder 2, pp. 1775 to 1830; Par. 5, Summary of Admitted Facts, JSFI, Docket- Vol.
I, p. 37B. ·
17 Exhibit "P-10", Docket -Vol. III, pp. 1163 to 1191.
18 Exhibit "P-11", Docket- Vol. III, p. 1192; Exhibit "R-11'', BIR Records- Folder 3, p. 1066.
19 Docket- Vol. I, pp. 10 to 42.
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CTA Case No. 9418 Page 4 of 46
DECISION
of the final decision of respondent as prescribed by Section

228 of the Tax Code.
6. Section 228 of the Tax Code explicitly directs the

taxpayer to file its Petition for Review with the CTA within the
mandatory period of thirty (30) days from receipt of the
decision of respondent, to wit:
'SEC. 228. Protesting of Assessment. - xxx
If the protest is denied in whole or in part, or is

not acted upon within one hundred eighty (180)
days from submission of documents, the
taxpayer adversely affected by the decision
or inaction may appeal to the Court of Tax
Appeals within (30) days from receipt of
the said decision, or from the lapse of the one
hundred eighty (180)-day period; otherwise the
decision shall become final, executory and
demandable.' (Emphasis Supplied)
7. Petitioner alleged that on 7 April 2016, it filed a

request for reconsideration of the FDDA (Final Decision on
Disputed Assessment) pursuant to Section 3.1.4 of Revenue
Regulations No. 12-99, and that on 11 July 2016, it received
the letter dated 30 June 2016 which denied the request for
reconsideration.
8. However, it is the heavy burden of petitioner to

prove that it indeed received the letter dated 30 June 2016
only on 11 July 2016.
9. 'The basic rule is that he who alleges must prove

his case.' (FRANCISCO LIM vs. EQUITABLE PC! BANK, G.R.
No. 183918, January 1s_ 2014.) Thus, petitioner has the
burden of proving its allegations.
10. A taxpayer's right to contest assessments,

particularly the right to appeal to the Honorable Court of Tax
Appeals (CTA), may be waived or lost.
11. It is respectfully submitted that petitioner must

satisfactorily prove that it filed the instant appeal with the
Honorable Court within the period prescribed by law. It is a
well-entrenched rule that, failure of the petitioner to
appeal to the Court of Tax Appeals in due time made
the assessments in question, final, executory and
demandable.
t
DECISION
12. Likewise, in La Flor De/a Jsabela, Inc. vs. CIR,

CTA EB No. 672 (CTA Case No. 7709) the Honorable Court En
Bane held as follows:
'To reiterate, the failure of a taxpayer to file

a petition for review with the Court of Tax
appeals within the statutory period
rendered the disputed assessment final,
executory and demandable, thereby
precluding the said taxpayer from
interposing the defenses of legality or
validity of the assessment and prescription
of the Government's right to assess. Indeed,
any objection against the assessment should
have been pursued following the avenue paved in
Section 229 (now Section 228) of the NIRC on
protests on assessments of internal revenue
taxes.' (Emphasis supplied)
RESPONDENT ISSUED THE

ASSESSMENT AND SERVED IT TO
PETITIONER WITHIN THE
PERIOD PRESCRIBED BYLAW.
A. Respondent's right to assess

petitioner for taxable year 2010
did not prescribe as the ordinary
three (3} year period within
which to make the assessment
finds no application to the
instant case.
13. Petitioner contends that the assessment was

issued beyond the prescriptive period provided by law.
14. Respondent respectfully disagrees. Petitioner

failed to consider that the applicable prescriptive period to
assess in this case is ten (10) years from discovery of false or
fraudulent return and/or willful neglect to file return.
15. Section 222 (a) of the Tax Code specifically

provides:
'Sec. 222. Exceptions as to Period of Limitation of

Assessment and Collection of Taxes.
/..
DECISION
(a) In the case of a false or fraudulent

return with intent to evade tax or of failure to
file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax
may be filed without assessment, at any time
within 10 years after the discovery of the
falsity, fraud or omission: Provided, That in a
fraud assessment which has become final and
executory, the fact of fraud shall be judicially
taken cognizance of in the civil or criminal action
for the collection thereof.' (Emphases ours)
16. In the instant case, preliminary review disclosed

that petitioner failed to declare its correct Taxable Income
subject to Income Tax. Perusal of the Final Decision on
Disputed Assessment (FDDA) revealed that petitioner only
declared in its Income Tax return the amount of
P17,352,276.00. However, result of the audit investigation
revealed that the taxable income per audit should have been
P1,134,515,078.50. This results to a substantial
underdeclaration of around 98% of the supposed taxable
income of petitioner.
17. In addition, perusal of the same FDDA revealed

that petitioner declared the amount of P693,565,034.80 as
taxable sales in its VAT returns. However, after audit, the
correct amount of sales should have been P1,815,950,330.72.
This means, there was underdeclaration of sales in the
amount of P1,122,385,295.92 or around 61%.
. 18. The foregoing only concludes that petitioner

committed substantial underdeclaration of its taxable income
and sales, therefore, clearly falls under false or fraudulent
return.
19. Section 248 (B) of the Tax Code provides:
'SEC. 248. - Civil Penalties. -

XXX XXX
(B) In case of willful neglect to file the return
within the period prescribed by this Code or by
rules and regulations, or in case of a false or
fraudulent return is willfully made, the penalty to
be imposed shall be fifty percent (50%) of the tax
or of the deficiency tax, in case, any payment has
been made on the basis of such return before the
discovery of the falsity or fraud: Provided, That a
substantial underdeclaration of taxable
L
Robinsons True Setve Hardware Philippines, Inc. vs. Commissioner of Internal Revenue
DECISION
sales, receipts or income, or a substantial

overstatement of deductions, as determined by
the Commissioner pursuant to the rules and
regulations to be promulgated by the Secretary of
Finance, shall constitute prima facie
evidence of a false or fraudulent return:
Provided, further, That failure to report sales.
receipts or income in an amount exceeding thirty
percent C30%) of that declared per return. and a
claim of deductions in an amount exceeding
(30%) of actual deductions. shall render the
taxpayer liable for substantial underdeclaration of
sales. receipts or income or for overstatement of
deductions, as mentioned herein.' (Emphases
supplied)
20. The Honorable Supreme Court in the case of

Aznar vs. CTA, had the occasion to define false or fraudulent
return in this wise:
'That there is a difference between 'false return'

and 'fraudulent return' cannot be denied. While
the first merely implies deviation from the
truth, whether intentional or not, the second
implies intentional or deceitful entry with intent to
evade the taxes due.' (Emphasis ours)
21. Since the correct sales of petition did not appear

in its VAT returns and the correct taxable income in its
Income Tax return, there can only be one inevitable
conclusion - that there was a substantial under-
declaration in its VAT and Income Tax returns which renders
the ten (10) year prescriptive period to assess applicable.
22. To reiterate, a false return implies deviation

from the truth, whether intentional or not. Although the
Aznar case distinguishes what constitute 'false returns'
referring to mistake, carelessness or ignorance, from that of
'fraudulent returns' referring to intent to evade taxes, the
same case does not make a distinction as regards the
prescriptive period of 10 years. Indeed, in the same case of
Aznar, the Supreme Court ruled in favor of the Commissioner
of Internal Revenue CCIR) for an extension of 10 year to
assess the taxpayer. thus:
'The ordinary period of prescription of 5 years

(now 3 years) within which to assess tax liabilities
under Sec. 331 of the National Internal Revenue
t
DECISION
code should be applicable to normal

circumstances, but whenever the government
is placed at a disadvantage so as to prevent
its lawful agents from proper assessment of
tax liabilities due to false returns,
fraudulent return intended to evade
payment of tax or failure to file returns, the
period of 10 years provided for in Section 332
(a) NIRC, from the time of the discovery of the
falsity, fraud or omission even seems to be
inadequate and should be the one enforced.
There being undoubtedly false tax returns in this

case, We affirm the conclusion of the respondent
CTA that Section 332 (a) (now Sec. 222) of the
NIRC should apply and that the period of 10
years within which to assess petitioner's tax
liability had not expired at the time said
assessment was made. (Emphases ours)
23. It is clear from the statutory provision in Section

222 of the Tax Code that in the three different case of (1)
false return, (2) fraudulent return with intent to evade tax, or
(3) failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may begin
without assessment, at any time within 10 years after the
discovery of the (1) falsity, (2) fraud, (3) omission. The
discrepancy in petitioner's returns manifests an evident
substantial underdeclaration which eloquently demonstrates
the falsity or fraudulence of the VAT and Income Tax returns
with an intent to evade the payment of tax. Respondent,
could therefore, rightfully invoke Section 222 because his right
to assess has not yet prescribed.
24. Moreover, the Final Decision on Disputed

Assessment (FDDA) specifically states that:
lmg_osition of 50% Surcharge and

Prescrig_tive on Income and Value Added
Tax
The bookkeeping methods adopted by True

Value particulary on the transactions/items that it
recorded as Purchase Discount rather than Other
Income, resulted to falsity of the returns it filed.
This is all more proved by the fact that said
transactions originally book as credits to Purchase
Discounts were eventually reversed/debited at
L
DECISION
year-end, while yet still, No Other Taxable

Income were declared/recognized in its financial
statements and tax returns for said gondola
rentals, advertising charge and etc. True value
has deliberately mispresented the true and
correct result of its business operations for
taxable year 2010, thereby justifying imposition
of the 50% surcharge on income and Value-
Added tax pursuant to Section 248(B) of the
NIRC.
Likewise, in relation to the falsity of income and

value added tax returns filed as previously
discussed, the ten-year period of prescription
under 222(a) of the NIRC applies, which states
that: 'In the case of false or fraudulent return'
with intent to evade tax or of failure to file a
return, the tax may be assessed, or a proceeding
in court for the collection of such tax may be filed
without assessment, at any time within ten (10)
years after discovery of the falsity, fraud or
omission .. .'
Likewise, since True Value failed to file the

documentary stamp tax returns and pay the tax
due on its Lease Contacts, 50% Surcharge under
Section 248(B) of the NIRC is imposed.
Moreover, the 10-year prescriptive period under
Section 222(a) of the NIRC applies, which states
that: 'In the case of a false or fraudulent return
with intent to evade tax or of failure to file a
return, the tax may be assessed, or a proceeding
in court for the collection of such tax may be filed
without assessment, at any time within ten (10)
years after the discovery of the falsity, fraud or
omission .. .'
25. In view of petitioner's willful filing of false or

fraudulent returns and neglect to file documentary stamp tax
returns, as expounded in the FDDA, fifty percent (50%)
surcharge had been imposed pursuant to Section 245 (B) of
the Tax Code.
26. Also, it must be emphasized that the period to

assess petitioner for the deficiency taxes is ten (10) years
pursuant to Section 222(A) of the Tax Code in relation to
Section 248 (B) of the Tax Code.
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CfA Case No. 9418 Page 10 of 46
DECISION
27. Therefore, the assessments against petitioner

were made within the period prescribed by law.
B. Even assuming but without

conceding that the ordinary
period of prescription within
which to assess tax liabilities is
applicable, respondent's right to
assess petitioner for taxable
year 2010 still did not prescribe.
28. Section 203 of the Tax code provides the period

within which assessment should be made, to wit:
'SECTION 203. Period of Limitation Upon

Assessment and Collection. - Except as
provided in Section 222, internal revenue taxes
shall be assessed within three (3) years after the
last day prescribed by law for the filing of the
return, and no proceeding in court without
assessment for the collection of such taxes shall
be begun after the expiration of such period:
Provided, That in a case where a return is filed
beyond the period prescribed by law, the three
(3)-year period shall be counted from the day the
return was filed. For purposes of this Section, a
return filed before the last day prescribed by law
for the filing thereof shall be considered as filed
on such last day.' (Underscoring supplied)
29. Since internal revenue taxes shall be assessed

within three (3) years after the last day prescribed by law for
the filing of the return, applying the foregoing provision, the
last day for filing of return for taxable year 2010 is 15 April
2011, hence, petitioner's internal revenue taxes can be
assessed three (3) years therefrom, or until 15 April 2014.
30. As an exception to the ordinary three (3) year

prescriptive period, Section 222 (b) of the Tax Code allows
extension of the period to assess provided there is a waiver of
the statute of limitation.
31. A perusal of the BIR records revealed that, before

the expiration of the three (3) year prescriptive period,
petitioner executed waiver which validly extended the period
to assess. Hence, on 8 April 2013, before the expiration of
the three (3) year period to assess, the Waiver of the Statute
of Limitations under the National Internal Revenue Code was
L
DECISION
executed by petitioner extending the period to assess until 31

December 2014.
32. From the foregoing, considering that petitioner

executed waiver extending the period to assess until 31
December 2014, the Formal Letter of Demand (FLD) dated 10
October 2014 and Final Assessment Notices (FAN) that were
received by petitioner on 10 October 2014 did not prescribe.
33. Considering the foregoing discussion, it is clear

that respondent's right to assess petitioner for the deficiency
taxes has not prescribed, thus, the assessment is valid and
lawful.
THE ASSESSMENTS ISSUED

AGAINST PETITIONER HAVE
BASES IN FACTS AND LAW.
34. Petitioner's contentions in its petition are bereft of

merit. The assessments issued against it have bases in fact
and in law.
35. After the conduct of investigation, records reveal

that there is due from petitioner deficiency income tax, value-
added tax, expanded withholding tax, and documentary stamp
ta:< for taxable year 2010.
A. Income Tax
36. Respondent assessed deficiency income tax of

petitioner after considering the following discrepancies
discussed hereunder.
37. The Final Decision on Disputed Assessment

(FDDA) dated 29 February 2016, in its Details of
Discrepancies, explains how respondent arrived to the
assessment of deficiency income tax against petitioner, thus:
1. Unsupported Sales Discounts, Returns &

Allowance - P40,834.976.58
True Value's [petitioner herein] financial statements

showed Sales Discounts, Returns & Allowances aggregating
P40,834,976.58. The monthly amounts thereof likewise
reflected in the monthly GL. However, the debit notes should
be the primary source document issued for said discounts,
returns and allowances did not show that there were
issuances to any costumer. Nor were there presented any
/.
DECISION
other supporting documents that would support the

truthfulness of the same, hence, disallowed as deduction from
Gross Sales and assessed pursuant to Section 32(A) of the
NIRC.
2. Undeclared Cash Sales- P887.406.397.09
Significant amounts of debits and credits to the account

'Undeposited Collections' were noted. The total of the
monthly debits and credits were summarized, and as can be
gleaned from the summary, the debits approximated the
credits. This means that the undeposited cash collection were
eventually deposited. Utilizing said data that was culled from
the Cash Receipts Books, analysis on cash sales was made
utilizing the Net Sales reported per books and tax returns.
Charge Sales were likewise considered by utilizing the total
amounts of income payments made by credit card companies
per Summary of Creditable Withholding Taxes claimed. This
analysis disclosed undeclared cash sales, hence, assessed
pursuant to Section 32(A) of the NIRC. The ratio of
undeclared cash sales to the net sales declared per return
which is 127% is so substantial constituting prima facie
evidence of a false or fraudulent return that warrants
imposition of 50% Surcharge.
Extract of Undeposited Collection Account per

Cash Receipts Books:
PERIOD DEBIT CREDIT

1/31/2010 120,773,185.91 120, 773,190.91
2/28/2010 1661782,731.82 166,782,731.82
3/31/2010 93,647,450.47 91,647,450.47
4/30/2010 159,478,289.25 159,478,289.25
5/31/2010 77 313,136.02 77,313,136.01
6/30/2010 124 743,771.33 124 743,771.33
7/31/2010 120,598,102.30 120,136,244.30
8/31/2010 108,419,621.62 108,419,168.62
9/31/2010 163,174,852.28 163,033,252.17
10/31/2010 83,056,334.41 83,056,404.16
11/30/2010 38,171 811.40 38,171,811.40
12/31/2010 92,118,733.66 92,118,733.66
,TOTAL 1,348,269,020.47 1,345,674,184.10
Divide by: 112% 112%
Sales of net of VAT 1,203,811,625.42 1,201,494,807.23
Computation of Undeclared Cash Sales:

Cash Sales per Cash Receipts Books (based on Undeposited Collection)
t.
'•
DECISION
1,203,811,625.42
Less: Cash Sales Reported per Audit:
Net Sales per Books 699,921,414.00
Less: Credit Card Sales

based on SAWf 383,216,185.67 316,405,228.33
Undeclared Cash Sales 887,406,397.09
3. Undeclared Income from Concessionaires -

P13.824.705.65
True Value had an account in its General Ledger

describes 'Income from Concessionaires' but there are no
amounts reflected. Upon verifying its General Journal, there
are debits to the accounts described as 'Purchases -
Concessionaires (IFC)' for its different branches. In
December, however, these accounts were reversed/credited.
The said reversals which were accumulations to the said
account for the whole year represents Income from
Concessionaires which were accumulation to the said account
for the whole year represents Income from Concessionaires
which were undeclared in True Value's tax returns, thus
assessed pursuant to Section 32(A) of the NIRC. (See FDDA-
Schedule 1)
4. Undeclared Income per General Journal

P16.414.001.55
Perusal of the General Journal disclosed debits to the

account 'Purchase Discounts' for Gondola Rentals, Advertising
Support, Discounts Fee - True Perks, etc. Purchase Discount
is a contra-action to Purchases and is normally credited. The
debit entries to Purchase Discounts made by True Value is a
misrepresentation because in reality, they represent other
income earned for gondola rentals, advertising and other
charges which were not declared in it Tax Returns. In view of
the foregoing, the total amount of debits to Purchase
Discounts is being assessed as undeclared income pursuant to
Section 32(A) of the NIRC. (See FDDA-Schedule 2)
s. Undeclared Income per Debit Memos Issued -

P523.502.51
The debit and credit memo books presented merely

showed a list of the debit and credit memo numbers issued
without the corresponding entries. Perusal of the debit
memos disclosed income items such as handling fees for gift
{..
DECISION
check redemptions, charges to Robinsons Handyman, Inc. For

share in warehouse rental, etc., which were not reflected in its
tax returns. As such, said income items are being assessed
pursuant to Section 32(A) of the NIRC. (See FDDA-Schedule
3)
6. Undeclared Income from Gondola Rentals per

Purchases Books - P2.013.248.54
Verification of True Value's Purchase Book disclosed that

there were entries described as 'Purchase Discount - Gondola
Rentals' for its various branches. This was deliberately booked
as a Purchase Discount when this should have been reported
as Other Income. There was no Other Income declared by
True Value in its financial statements and tax returns aside
fmm Sale of Goods. This is assessed pursuant to section
32(A) of the NIRC. (See FDDA-Schedule 4)
7. Undeclared Other Income per GL- P672.768.91
Verification of True Value's monthly GL disclosed that

there was Other Income booked on a monthly basis for its
various branches. In December, however, the same were
reversed without any justifiable reason. These monthly Other
Incomes should have been reported for tax purposes, thus
assessed pursuant to Section 32(A) of NIRC. (See Schedule 5)
8. Fictitious Expenses arising from Bank Overdraft -

P127 ,461.682.39
The Trial Balance submitted by True Value reflected a

significant bank overdraft in one of its bank accounts,
particularly RSB CA#l00-23-001615-3. Bank overdraft are not
permitted under the Philippines laws and violates generally
accepted accounting principles. Moreover, the total cost and
expenses declared/claimed by True Value for taxable year
20·10 only amounted to P503,220,818.00 and
P179,048,320.00, respectively, for an aggregate of
P682,269,138.00 which were all deducted from the Net Sales
of P699,621,414.00. For it to have had a negative balance or
bank overdraft in its bank account at year end by an amount
which is more than twice its average monthly expenses is
rather absurd and unbelievable. Said negative balance
generally connotes that there were unreflected/unexplained
sources of funds and following the doctrine that was held in
the case of CTA vs. Perez and CIR L-10507 dated May 30,
1958, unreflected sources of funds not accounted for in the
taxpayer's returns to leads the inference that the part of its
L
DECISION
income had not been reported. The bank overdraft is

therefore added to taxable income and assessed pursuant to
Section 32(A) of NIRC.
9. Undeclared Income oer Matching of TPI-Relief &

SAWT vs. SLS - P26.502.990.27
True Value did not submit the Z-readings of all POS

machines used in 2010. The monthly Summary List of Vatable
Sales aggregating P693,565,034. 75 during the year were
lumped under 'various accounts' and did not reflect any
customer names, TINs, etc., as required. This amount is the
same as the Net Vatable Sales reported in its financial
statements and income and value added tax return. True
Value claims that the customer names were unidentifiable
since they were all made though the POS Machines. It is
argued, however, that while Sales were made through the
POS Machine, it is not true that all customers are
unidentifiable because it claimed creditable withholding taxes
totalling P1,955,117.00. The certificates thereof (Form 2307 &
2306) only prove that many, it not some of its customers,
were identifiable. Likewise, perusal of both the certificates of
creditable withholding taxes and TPI-Relief data shows that
True Value's income were not only sourced from Sale of Goods
as represented in its financial statements and income tax
returns but also from the sale of service and rentals. Absent
of Z-readings, there is no proof that all sales of goods made
through POS machines or otherwise had been fully declared in
its income tax returns. In view of the foregoing, Purchases
declared by its customers per combined analysis of the
summary of creditable withholding taxes (SAWf) and TPI-
Relief Data, except for those attributable to certificates of
creditable withholding taxes on income payments made by
credit card companies, are assessed as undeclared income
pursuant of Section 32(A) of the NIRC. (See schedule 6)
Summary of Undeclared income per matching of TPI-

Relief & SAWf vs. SLS
Sale of Goods 21,487,015.75

Service 4,722,979.49
Rental 214,285.86
Exempt 42,157.14
Zero-rated 36,552.03
Total 26,502,990.27
t
DECISION
10. Undeclared Income on Undeclared Purchases

CSLP vs. TPI-Relief vs. EWT) - P490.725.77
Comparison and analysis conducted among True Value's

Summary List of Purchases (SLP), EWT Alphalist and Sales
declared by its suppliers per TPI-Relief data disclosed
undeclared/unaccounted Purchases in the total amount of
P490,725.77. (See Schedule 7) Said discrepancies connote
undeclared revenues following the doctrine held in the case of
CTA vs. Perez and CIR L- 10507 dated May 30, 1958, which
states that unreflected sources of funds not accounted for in
the Taxpayer's returns leads to the inference that part of its
income had not been reported, thus, the same is assessed
pursuant to Section 32(A) of the NIRC.
11. Undeclared Income on Unaccounted Salaries &

Wages P262.626.69
This was originally as assessment for Unsupported

Salaries in the amount of P7,234,337.06 which was arrived at
after comparison and reconciliation of Salaries and Wages
Expense against the Alphalists of Employees submitted,
disallowed pursuant to Section 34(A)(1)(b) of the NIRC,
computed as follows:
Reconciliation:
Salaries & Allowance per FS 29,812,116.00

Less: Pension Cost 289,430.74
Fringe benefits 2,418,470.23
Contracted or outside services 8,839,497.00 11,547,397.97
Salaries & Wages per FS 18,264,718.03
Less: Compensation per Alphalist Employees 11,030,380.97
Compensation not supported by Alphalist 7,234,337.06
Taxpayer's Protest: True Value submitted the other

alphalists of employees which it previously failed to submit.
Likewise, it provided reconciliation of the Salaries and
Allowances per ITR as against the Salaries per 1604CF.
R.O's Stand: Data per additional alphalists submitted have

been takes into consideration. However, a reconciliation
thereof against the Salaries and Allowances per ITR results to
unaccounted salaries. Following the doctrine held in the case
CTA vs. Peres and CIR L-10507 dated May 30, 1958,
unreflected sources of funds not accounted for in the
taxpayer's returns leads to the inference that part of its
L
erA case No. 9418 Page 17 of 46
DECISION
income had not been reported, thus the same assessed

pursuant to Section 32(A) of the NIRC.
Salaries & allowances per FS 29,812,116.00

Less: Contracted/Outside Services 8,839,497.00
Pension Cost 289,430.74 9,128,927.74
Salaries & Allowances per ITR 20,683,188.26
Less: Fringe/Employee Benefits 2,418,470.23

Salaries and Allowances net of employee benefit 18,264,718.03
Less: Compensation and Alphalist
(See FDDA-Schedule 8) 18,527,344.72
Unaccounted Salaries (2,626,260.69)
12. Unsupported Licenses and Permit Fees

P2.885.135.00
Verification disclosed that True Value claimed Licenses

and Permit Fees in the total amount of P2,885,135.00 which
included documentary stamp tax in the amount of P51,559.00.
The said account normally pertains to business permit fees
paid to the local government units and is usually based on
gross sales. It is therefore imperative that this expense is fully
substantiated so that the sales figures upon which it is based
likewise be compared against the sales declarations per
financial statements and tax returns. Since no supporting
evidence were submitted, the said amount is disallowed as an
expenses/deduction from gross income pursuant to Section
34(A)(1)(b) of the NIRC.
Taxpayer's Protest: True Value claims that assessments of

taxes and license on business permits are not necessarily
based on gross sales. Various LGUs have different assessment
basis. In support, it submitted Official Receipts as proof of
payments.
RO's Stand: Based on the Official Receipts and schedule

submitted by True Value, there remains unsupported Taxes
and Licenses Expense in the amount of P755,165.55
disallowed as deduction from gross income.
Taxes and licenses per FS p 2,885,135.00

Less: Taxes and Licenses as Supported 2,129,358.45
Unsupported Taxes and Licenses p 755,165.55
L
DECISION
38. Respondent submits that the discrepancies resulting

to assessment were ascertained in accordance with actual
facts and law.
39. The discrepancies were discovered pursuant to

Section 5 of the Tax Code which provides the power of the
Commissioner of Internal Revenue (CIR) to ascertain the
correctness of the return filed in order to determine the
liability for any internal revenue tax, thus:
'SEC. 5. Power of the Commissioner to

Obtain Information, and to Summon,
Examine, and Take Testimony of Persons. -
In ascertaining the correctness of any return, or
in making a return when none has been made,
or in determining the liability of any person for
any internal revenue tax, or in collecting any
such liability, or in evaluating tax compliance, the
Commissioner is authorized:
(A) To examine any book, paper, record, or

other data which may be relevant or material to
such inquiry;
(B) To obtain on a regular basis from any person

other than the person whose internal revenue
tax liability is subject to audit or investigation, or
from any office or officer of the national and
local governments, government agencies and
instrumentalities, including the Bangko Sentral
ng Pilipinas and government-owned or -
controlled corporations, any information such as,
but not limited to, costs and volume of
production, receipts or sales and gross incomes
of taxpayers, and the names, addresses, and
financial statements of corporations, mutual fund
companies, insurance companies, regional
operating headquarters of multinational
companies, joint accounts, associations, joint
ventures of consortia and registered
partnerships, and their members;
XXX XXX
40. Corollary to such power the CIR has the authority to

determine the correct tax. Section 6 of the Tax Code
provides:
L
ITA Case No. 9418 Page 19 of 46
DECISION
'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 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.
Any return, statement of declaration filed in any

office authorized to receive the same shall not be
withdrawn: Provided, That within three (3) years
from the date of such filing, the same may be
modified, changed, or amended: Provided,
further, That no notice for audit or investigation of
such return, statement or declaration has in the
meantime been actually served upon the
taxpayer.
(B) Failure to Submit Required Returns,

Statements, 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.
In case a person fails to file a required return or

other document at the time prescribed by law, or
wilfully 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
l
DECISION
shall be prima facie correct and sufficient for all

legal purposes.
(C) Authority to Conduct Inventory-taking,

surveillance and to Prescribe Presumptive Gross
Sales and Receipts. - The Commissioner may, at
any time during the taxable year, order inventory-
taking of goods of any taxpayer as a basis for
determining his internal revenue tax liabilities, or
may place the business operations of any person,
natural or juridical, under observation or
surveillance if there is reason to believe that such
person is not declaring his correct income, sales
or receipts for internal revenue tax purposes. The
findings may be used as the basis for assessing
the taxes for the other months or quarters of the
same or different taxable years and such
assessment shall be deemed prima facie correct.
When it is found that a person has failed to issue

receipts and invoices in violation of the
requirements of Sections 113 and 237 of this
Code, or when there is reason to believe that the
books of accounts or other records do not
correctly reflect the declarations made or to be
made in a return required to be filed under the
provisions of this Code, the Commissioner, after
taking into account the sales, receipts, income or
other taxable base of other persons engaged in
similar businesses under similar situations or
circumstances or after considering other relevant
information may prescribe a minimum amount of
such gross receipts, sales and taxable base, and
such amount so prescribed shall be prima facie
correct for purposes of determining the internal
revenue tax liabilities of such person.'
41. Consistent with the foregoing provisions of law,

audit procedures were adopted by respondent which include
analysis of the accounting system, reconciliation of books of
accounts against per returns, matching of data, sampling, and
verification of revenue as to whether income reported by
petitioner truly reflects the actual results of its business
operations.
42. Respondent examined and scrutinized petitioner's

protests and the supporting documents, and compared the
f.
DECISION
same with other relevant records, after which the

discrepancies were still maintained.
43. Respondent informed petitioner in writing of the

law and facts on which the assessment was made; he clarified
the assessment in the issued Preliminary Assessment Notice
(PAN), Formal Letter of Demand (FLO), and Final Decision on
Disputed Assessments (FDDA).
44. All presumptions are in favour of the correctness

of tax assessment (Sy Po vs. Court of Tax Appeals, 164 SCRA
524). Dereliction on the part of petitioner to satisfactorily
overcome the presumption of regularity and correctness of the
assessment will justify the judicial upholding of said
a~sessment notice.
45. Considering that the assessments are prima facie

correct, respondent need not prove the presumption of
regularity of the assessment.
46. Section 3, Rule 131 of the Rules of Court

provides:
Section 3. Disputable presumptions. - The

following presumptions are satisfactory if
uncontradicted, but may be contradicted and
overcome by other evidence:
XXX XXX
(m) That official duty has been regularly

performed;
47. Assessments are presumed correct and made in

good faith. The taxpayer has the duty of proving otherwise.
In the absence of proof of any irregularities in the
performance of official duties, an assessment will not be
disturbed. Even an assessment based on estimates is prima
facie valid and lawful where it does not appear to have been
arrived at arbitrarily or capriciously. (Marcos II vs. Court of
Appeals, G.R. NO. 120880, June 5, 1997.)
48. Perusal of the BIR Records, petitioner failed to

substantiate its allegations to prove irregularities in the
assessment.
49. 'The basic rule is that mere allegation is not

evidence, and is not equivalent to proof.'
(
DECISION
50. In the case of Perez vs. Court of Tax Appeals, et

a/ the Honorable Supreme Court made it explicit that
unreflected sources of funds not accounted for in the
taxpayer's returns leads to the inference that part of
his income had not been reported.
51. Thus, petitioner is correctly assessed of deficiency

income tax for taxable year 2010.
B. Value-Added Tax (VAT)
52. The Final Decision on Disputed Assessment

(FDDA) states petitioner's deficiency VAT liability on account
of unsupported exempt sales per return/financial statement,
to wit:
1. Unsupported Exempt Sales Returns/FS

P6.056.379.14
Vat-Exempt Sales that were declared per VAT returns

and disclosed in the supplemental information to the financial
statements were not supported by True Value, hence,
assessed of 12% VAT pursuant to Section 106 of the NIRC, as
amended.
53. As regards all other discrepancies from which VAT

is imposed as stated in the FDDA, the same were already
discussed in the assessment for income tax as explained
above.
54. Pursuant to Section 106 of the Tax Code, the

corresponding findings of discrepancies will not only make
petitioner liable for deficiency income tax but also value-added
tax.
55. For failure of petitioner to controvert the

investigation made by respondent, i.e. its failure to present
documentary evidence that will substantiate its claims, the
assessed deficiency taxes must be maintained.
56. Settled is the rule that, 'bare allegations

unsubstantiated by evidence, are not equivalent to proof'
(Domingo vs Roble, 453 SCRA 812, March 18, 2005).
57. Considering the foregoing, petitioner cannot

escape its liability for value added tax assessment.
t.
DECISION
C. Expanded Withholding Tax (EWT)
58. The assessment for expanded withholding tax is

properly imposed against petitioner. The FDDA explicitly
states:
Reconciliation of income payments per financial statements

and tax returns disclosed that you failed to withhold the
creditable withholding taxes due on various income payments
in accordance with their corresponding withholding tax rates
as prescribed under 2.57.2 of RR 2-98, in violation of Section
57(B) of the NIRC. (See Schedule 9)
Taxpayer's Protest: True Value alleges that the

discrepancies were merely attributable to timing differences
and submitted supporting debit memos, statements of
accounts and billing invoices.
RO's Stand: The reconciling item for Professional Fees

amounting to P72,800.00 is acceptable since it was supported
by billing invoices from SGV and CO, a GPP which is exempt
from income tax and withholding taxes. For the other
accounts and alleged timing differences, True Value failed to
satisfactorily establish with competent and sufficient proof
that they had indeed been subjected to expanded withholding
taxes. Likewise, the debit memos submitted did not prove
anything since it was not able to show/present how this were
recorded in its books. The assessment it thus reiterated with
revision on Professional Fees only.
59. No merits were given to petitioner's claim of

cancellation/reduction of EWT. Petitioner merely made
allegations but no supporting documents were submitted to
rebut respondent's findings.
60. Hence, petitioner was validly assessed of the

deficiency EWT.
D. DOCUMENTARY STAMP TAX (DST)
61. The assessment for documentary stamp tax is

likewise correctly imposed against petitioner. The FDDA
provides:
Verification disclosed that True Value claimed Rental expenses

in its tax returns. As disclosed in its financial statements, said
Lease contracts had terms ranging from 3 to 10 years. No
documentary stamp tax returns were however submitted by
L
DECISION
True Value despite several demands. In view thereof,

documentary stamp tax is being assessed pursuant to section
194 of the NIRC. Since the lease contracts were not
submitted, the Rental expense claimed per FS had been
multiplied by the maximum lease term of 10 years as
disclosed in the FS to determine the total lease contract
amount. Likewise, increase in Security Deposits account was
considered in determining the taxable basis for DST.
62. The DST returns covering each one of the Lease

Contract involved should have been submitted to prove that
petitioner indeed paid and remitted the DST on all lease
contracts.
63. Again, petitioner failed to controvert the

investigation made by respondent, and its failure to present
documentary evidence that will substantiate its claims renders
the assessed deficiency taxes valid and uncontroverted.
64. Thus, petitioner is properly assessed of DST in

accordance with the Tax Code.
E. Imposition of 50% Surcharge
65. As discussed above, the imposition of 50%

Surcharge is in accordance with the provision of law. The
Final Decision on Disputed Assessment (FDDA) specifically
states that:
The bookkeeping methods adopted by True

Value particularly on the transactions/items that it
recorded as Purchase Discount rather than Other
Income, resulted to falsity of the returns it filed.
This originally book as credits to Purchase
Discounts were eventually reversed/debited at
year-end, while yet still, No Other Taxable
Income were declared/recognized in its financial
statements and tax returns for said gondola
rentals, advertising charge and etc. True value
has deliberately mispresented the true and
correct result of its business operations for
taxable year 2010, thereby justifying imposition
of the 50% surcharge on income and Value
Added tax pursuant to Section 248(B) of the
NIRC.
66. In view of petitioner's willful filing of false or

fraudulent returns and neglect to file documentary stamp tax
L
CTA Case No. 9418 Page 2S of 46
DECISION
return, as shown in the FDDA, fifty percent (50%) surcharge

had been imposed pursuant to Section 248 (B) of the Tax
Code.
THE ASSESSMENT ISSUED

AGAINST PETITIONER IS VALID
AND LAWFUL.
67. The burden of proof is on the taxpayer contesting

the validity or correctness of an assessment to prove not only
that the Commissioner of Internal Revenue is wrong but the
taxpayer is right. Otherwise the presumption of correctness
of tax assessment stands. (Commissioner of Internal Revenue
vs. Hantex Trading Co. Inc., G.R. No. 136975, March 31,
2005.)
68. All told, petitioner's assertions that the

assessment issued to it by respondent has no basis in fact and
law are mere fallacy. Above discussions disprove petitioner's
claim. Thus, it is reiterated that petitioner is liable for the
assessed deficiency Income Tax, Value-Added Tax, Expanded
Withholding Tax, and Documentary Stamp Tax for taxable
year 2010."
On December 5, 2016, respondent filed a Motion for Leave to

Defer Transmittal of BIR Records/ 1 which the Court granted in the
Order dated December 8, 2016. 22
The pre-trial conference was initially set on February 22,

2017. 23 However, considering respondent's Urgent Motion to Reset
Pre-Trial Conference filed on February 15, 2017/4 the pre-trial
conference was reset to, and held on, May 18, 2017. 25
On February 17, 2017, petitioner then filed its Pre-Trial Brief,26

which the Court noted in the Order dated February 21, 2017. 27

22
Docket - Vol. I, p. 286.
23 Notice of Pre-Trial Conference dated December 6, 2016, Docket- Vol. I, pp. 282 to 283.
24 Docket - Vol. I, pp. 293 to 297.
25 Order dated February 17, 2017, Docket- Vol. I, p. 299; Minutes of the hearing held on, and
Order dated, May 18, 2017, Docket- Vol. I, pp. 3S1 to 3S4 and 3S6 to 3S9.
27
Docket- Vol. I, p. 314.
t
DECISION
On the other hand, Respondent's Pre-Trial Briefwas submitted

on May 12, 2017. 28
P.espondent submitted his Compliance on May 12, 2017/9

transmitting the BIR Records of petitioner's tax case which the Court
noted. 30
The parties submitted their Joint Stipulation of Facts and Issues

on June 16, 2017. 31 The Court approved the same on July 7, 2017,
deeming the pre-trial terminated. 32 Consequently, the Court issued
the Pre-Trial Order on July 31, 2017. 33
A-'J ·· trial ensued, petitioner presented documentary and

testimonial evidence. As part of its testimonial evidence, petitioner
offered the testimonies of (1) Ms. Jessica C. Bugnot, 34 petitioner's
Controller; and (2) Ms. Ria Anne P. Abanto, 35 the Court-
commissioned Independent Certified Public Accountant (ICPA). 36
On August 15, 2017, petitioner submitted a Motion to Admit

Independent Certified Public Accountant's Report, 37 and the Court
granted the same, and admitted the attached ICPA Report thereto. 38
On October 4, 2017, the Formal Offer of Evidence for Petitioner

was filed. 39
In the Resolution dated January 3, 2018, 40 the Court admitted
petitioner's Exhibits, exceptfor the following:
1. Exhibits "P-16-B", "P-45", and "P-57", for failure to

present the originals for comparison;
2
8 Docket- 'lol. I, pp. 315 to 319.
30 Minute Resolution dated May 26, 2017, Docket- Vol. I, p. 360.
3t Docket- Vol. I, pp. 369 to 375.

32 Resolution dated July 7, 2017, Docket- Vol. I, p. 408.
33 Pre-Trial Order dated July 31, 2017, Docket- Vol. II, pp. 933 to 944.
34
Exhibit "P-35", Docket - Vol. II, pp. 422 to 456; Minutes of the hearing held on, and Order
dated, August 1, 2017, Docket- Vol. II, pp. 945 to 948; Exhibit "P-66", Docket- Vol. II, pp.
1021 to 1025; Order dated September 19, 2017, Docket- Vol. III, pp. 1028 to 1029.
35 Exhibit "P-64", Docket- Vol. II, pp. 990 to 998; Order dated September 5, 2017, Docket- Vol.
II, pp. 1002 to 1003.

36 Minutes of the hearing held on, and Order dated, June 29, 2017, Docket- Vol. I, pp. 394 to
396, and 398 to 399; Oath of Commission dated June 29, 2017, Docket- Vol. I, p. 397.
3 7 Docket- Vol. II, pp. 950 to 953.
38 Resoluti·~oi 'dated September 5, 2017, Docket- Vol. II, p. 1007.
39 Docket- Vol. III, pp. 1032 to 1051.
L
DECISION
.,
2" Exhibits "P-30"f "P-30-A"I "P-31-A"I "P-31-B"I "P-31-C"I

"P-31-D", and "P-32", for failure to identify·, and
3. Exhibit "P-31", for failure to present the original for

comparison and failure to identify.
Petitioner's admitted documentary exhibits are as follows:
Exhibit: Description:
P-1 Amended Articles of Incorporation of Robinsons
True Serve Hardware Philiooines, Inc.
P-2 Bureau of Internal Revenue (BIR) Certificate of
Reqistration No. OCN 8RC000059028
P-3 Waiver of Defense of Prescription dated 8 April 2013
(Waiver)
P-3-A Waiver of Defense of Prescription accepted by the
BIRon 8 April 2013
P-3-B Waiver of Defense of Prescription delivered to
petitioner and received by Ms. Jessica Buqnot
P-4 Preliminary Assessment Notice (PAN) dated 12
September 2014
P-5 Protest Letter against the PAN dated 30 September
2014
P-6 Formal Letter of Demand (FLD) dated 10 October
2014
P-7 Protest Letter against the FLD dated 7 November
2014
P-8 Supplemental Protest Letter against the FLD dated 6
January 2015
P-9 Final Decision on Disputed Assessment (FDDA)
dated 29 February 2016
P-10 Reauest for Reconsideration dated 7 Aoril 2016
P-11 BIR Denial Letter dated 30 June 2016
P-12 Annual Income Tax Return 2010 (ITR)
P-12-A Annual Income Tax Return 2010 with electronic
date/time stamo "Aoril 13 2011 12:53 PM"
P-12-B eFPS Payment Details for the Annual Income Tax
Return 2010 with electronic date stamp "4/14/2011"
P-13 VAT Return- pt Quarter of 2010
P-13-A VAT Return - 1st Quarter of 2010 with electronic
date sta mo "Aoril 21 201 0"
P-14 VAT Return- 2nd Quarter of 2010
P-14-A VAT Return - 2nd Quarter of 2010 with electronic
date stamp "Julv 22. 2010"
P-14-B Transaction Acknowledgment Receipt for 2nd
Quarter VAT 2010
P-15 VAT Return- 3'd Quarter of 2010
t
DECISION
P-15-A VAT Return - 3'ct Quarter of 2010 with electronic

date stamo "October 21 2010"
P-16 VAT Return -4th Quarter of 2010
P-16-A VAT Return - 4th Quarter of 2010 with electronic
date stamo "Januarv 20 2011"
P-16-C eFPS Payment Details for 4th Quarter 2010 VAT
P-17 EWT Return - Januarv 2010
P-17-A EWT Return - January 2010 with electronic date
stamo filed on 11 February 2010
P-17-B EWT Return - January 2010 eFPS payment details
dated paid on 14 February 2010
P-18 EWT Return- Februarv 2010
P-18-A EWT Return - February 2010 with electronic date
stamo filed on 10 March 2010
P-18-B EWT Return - February 2010 eFPS payment details
date paid on 11 March 2010
I
P-19 EWT Return - March 2010
P-19-A EWT Return - March 2010 with electronic date
stamo filed on 8 Aoril 2010 and
P-19-B EWT Return - March 2010 eFPS payment details
date paid on 12 April 2010
P-20 EWT Return -APril 2010
P-20-A EWT Return - April 2010 with electronic date stamp
filed on 11 Mav 2010
P-20-B EWT Return- April 2010 eFPS payment details date
1---- oaid on 14 May 2010
P-21 EWT Return - May 2010
P-21-A EWT Return - May 2010 with electronic date stamp
filed 11 June 2010
P-21-B EWT Return - May 2010 eFPS payment details date
paid on 11 June 2010
P-22 EWT Return- June 2010
P-22-A EWT Return -June 2010 with electronic date stamp
filed 9 Julv 2010
P-22-B EWT Return -June 2010 with eFPS payment details
date paid on 12 July 2010
e--. P-23 EWT Return - Julv 2010
P-23-A EWT Return - July 2010 with electronic date stamp
filed on 10 Auoust 2010
P-23-B EWT Return - July 2010 with eFPS payment details
date oaid on 12 Auqust 2010
P-24 EWT Return - Auoust 2010
P-24-A EWT Return - August 2010 with electronic date
stamp filed on 8 Seotember 2010
P-24-B EWT Return - August 2010 with eFPS payment
details date paid on 13 September 2010
P-25 EWT Return - Seotember 2010
P-25-A EWT Return - September 2010 with electronic date
stamp filed on 8 October 2010
P-25-B EWT Return - Seotember 2010 with eFPS payment
L
DECISION
details date paid on 13 October 2010

P-26 EWT Return -October 2010
P-26-A EWT Return - October 2010 with electronic date
stamp filed on 10 November 2010
P-26-B EWT Return - October 2010 eFPS payment details
date paid on 12 November 2010
P-27 EWT Return - November 2010
P-27-A EWT Return - November 2010 with electronic date
stamp filed on 8 December 2010
P-27-B EWT Return- November 2010 eFPS payment details
date paid on 10 December 2010
-"
P-28 EWT Return - December 2010 I
P-28-A EWT Return - December 2010 with electronic date 1
stamp filed on 12 January 2011

P-28-B EWT Return - December 2010 eFPS payment details
date paid on 14 January 2011
P-29 2010 Audited Financial Statements (2010 AFS)
P-31-D 2010 Alphalist of Minimum Wage Earners for the
Calendar Year 2010, Schedule 7.5
P-32 Motion for Reconsideration filed on 4 Auqust 2016
P-33 Independent Certified Public Accountant (ICPA)
Report dated 14 August 2017
r- -- P-33-A Signature of Ms. Ria Anne P. Abanto
P-34 Affidavit in Lieu of Direct Examination of Ms. Ria
Anne P. Abanto executed on 16 June 2017
P-34-A Signature of Ria Anne P. Abanto
P-35 Affidavit in Lieu of Direct Examination of Ms. Jessica
C. Bugnot
P-35-A Siqnature of Ms. Jessica C. Buqnot
P-36 2010 Point of Sale (POS) End of Day Readings
P-37 General Ledger (GL)
P-38 Journal Entries of Sales Returns from JDA Software
P-39 Summary of Debit Entries Petitioner's Cash Receipt
--"
Book
P-40 2010 Cash Receipts Book
P-41 Copies of Cash Receipts Vouchers
P-42 2010 Bank Statements
P-43 Summary of Contracts/Agreements with
Concessionaries
P-44 General Journals
P-46 Confirmation replies from Affiliates related to Debit
Memos
P-47 2010 Purchases Book
P-48 Summary of 2010 cashier's shortaqes and overages
P-49 2010 Bank Reconciliations
P-50 Schedule of 2010 outstandinq checks
P-51 January 2011 Bank Statements
P-52 Summary of outstanding money market placements
as of December 31, 2010 from the Bank
P-53 2010 Summarv List of Sales (SLS)
t.
DECISlON
P-54 2010 Summary List of Purchases (SLP)

P-55 1604-E and Alphalist of Expanded Withholding
Taxes
P-56 Schedule of 2010 Licenses and Permits Fee
P-58 2010 BIR Forms 2550M and 2550Q and all its
attachments
P-59 Reconciliation of EWT prepared by the petitioner
P-60 Schedule of Purchases Expenses for 2009 paid in
-···
2010
P-61 Confirmation replies from Affiliates related to EWT
P-62 Schedule of Payments made to security aqencv
P-63 Lease Contracts covering taxable year 2010
P-64 Copies of POS Machine Permits
P-65 Affidavit in Lieu of Direct Examination of Ms. Ria
Anne P. Abanto executed on 31 Auqust 2017
P-65-A Signature of Ria Anne P. Abanto
P-66 Supplemental Judicial Affidavit of Ms. Jessica C.
Bugnot 14 September 2017
P-66-A Siqnature of Ms. Jessica C. Buqnot
Respondent also presented his documentary and testimonial

evidence. With respect to testimonial evidence, respondent proffered
only the testimony of Ms. Vivien C. Guillermo,41 Revenue Officer II of
the BIR.
On March 12, 2018, respondent filed his Formal Offer of

Evidence. 42 The Court then admitted respondent's Exhibits, except
for Exhibit "R-7", for failure to present the original for comparison. 43
Subsequently, respondent filed, on June 13, 2018, his Omnibus

Motion 1. Motion for Partial Reconsideration Re: Resolution dated
May 22, 2018; 2. Motion to Set Commissioner's Hearing; 3. Motion to
Submit Supplemental Formal Offer of Evidence; and 4. Motion to
Defer Submission of Memorandum. 44 Pursuant to the Court's
Resolution dated July 3, 2018, 45 petitioner filed its Comment (Re:
Omnibus Motion dated 11 June 2018 [1} Motion for partial
reconsideration re: Resolution dated May 22, 2018; [2} Motion to set
commissioner's hearing; [3} Motion to submit supplemental formal
41 Exhibit "R-13", Docket - Vol. I, pp. 327 to 339; Minutes of the hearing held on February 20,
2018, Docket- Vol. III, pp. 1430 to 1431; Order dated February 20, 2018, Docket- Vol. III,
pp. 1341 to 1342.
42
Docket- Vol. III, pp. 1344 to 1350.
43
Resolution dated May 23, 2018, Docket- Vol. III, pp. 1362 to 1363.
44
Docket - Vol. III, pp. 1364 to 1368.
4
' Docket- Vol. III, p. 1414.
L.
Robinsons True SeNe Hardware Philippines, Inc. vs. Commissioner of Internal Revenue
DECISION
offer. of evidence; and [4} Motion to defer submission of

memorandum) on July 20, 2018. 46
The Court granted the Motion to Set Commissioner's Hearing,

Motion to Submit Supplemental Formal Offer of Evidence, and Motion
to Defer Submission of Memorandum; and held in abeyance the
resolution of the Motion for Partial Reconsideration Re: Resolution
dated 22 May 2018.47
In the meantime, on June 26, 2018, the Memorandum for

Petitionerwas filed. 48
On September 19, 2018, the instant case was transferred to

this CoL:rt's Second Division. 49
On October 17, 2018, a Commissioner's Hearing was held. 50

Thereafter, respondent filed his Supplemental Formal Offer of
Evidenceon October 18, 2018. 51
In the Resolution dated November 20, 2018,52 respondent's

Motion for Partial Reconsideration Re: Resolution dated 22 May 2018
was granted; and thus, Exhibit "R-7" was admitted in evidence .
..
The admitted documentary evidence for the respondent are the

following:
Exhibit: Description:
R-1 Letter of Authority LOA-116-2012-00000017 dated
July 3 2012
R-1-A Checklist of Requirements for 2010 Tax
Investigation
R-2 Waiver of the Defense of Prescription under the
Statue of Limitations of the National Internal
Revenue Code executed on April 8, 2013
R-3 Memorandum dated May 26, 2014
R-4 Preliminary Assessment Notice dated September 12,
2014 with attached Details of Discrepancies and
46
47 Resolution dated August 18, 2019, Docket- Vol. III, pp. 1424 to 1426.
48
49 Order dated September 19, 2018, Docket- Vol. III, p. 1427.
50 Commissioner's Report Hearing on October 17, 2018, Docket- Vol. III, p. 1432.
52 Docket ·Vol. III, pp. 1444 to 1445.
l
DECISION
attached Schedules to Preliminary Assessment

Notice
R-5 Memorandum dated October 1, 2014
R-6 Formal Letter of Demand (FLD) dated October 10,
2014 with attached Details of Discrepancies and
attached Schedules to Formal Letter of Demand
R-7 Audit Result/Assessment Notice (BIR Form No.
0401)
R-8 Memorandum dated February 20, 2016
R-9 Final Decision on Disputed Assessment dated
February 29, 2016 with attached Details of
Discrepancies
R-9-A Schedules referred to in the Details of Discrepancies
of the FDDA
R-10 Audit Result/Assessment Notice (BIR Form No.
0401) dated February 29, 2016
R-11 Letter addressed to The President of Robinsons True
Serve Hardware Phils. Inc.
R-12 BIR Records consisting of four (4) folders of
documents described as Folder 1 with pages 1 to
1324, Folder 2 with pages 1324-A to 1833, Folder 3
with pages 1 to 1070, and Folder 4 with pages 1 to
587
R-13 Judicial Affidavit of Revenue Officer Vivien C.
Guillermo
R-13-a Signature of Revenue Officer Vivien C. Guillermo
Respondent then submitted his Memorandum on January 24,

2019. 53
On February 4, 2019, this case was deemed submitted for

decision. 54
THE ISSUE RAISED
The parties set forth the following issue for this Court's
resolution, to wit:
"Whether or not Petitioner is liable to pay the assessed

deficiency income tax, VAT, EWT, and DST for taxable
year 2010, plus 50% surcharge, 20% deficiency and
delinquency interest pursuant to Sections 248 and 249 of
the Tax Code.'155
54
Resolution dated February 4, 2019, Docket- Vol. III, p. 1477.
55 Par. II, ~SFI, Docket- Vol. I, p. 370.
t.
DECISION
Petitioner's arguments:
Petitioner contends that respondent's right to assess the former

for deficiency income tax, VAT, and EWT has already prescribed.
Allegedly, the Waiver signed by petitioner is defective as it failed to
specify the kind of taxes and the respective amounts of deficiency
due.
According to petitioner, the assessments for deficiency income

tax and VAT have no factual or legal basis. As to the assessment for
deficiency EWT, petitioner opines that respondent has failed to
consider the following: (i) the timing differences at the end of the
year for which remittance of withheld taxes was made the following
month; (ii) expenses paid by affiliates and subsequently charged to
petitioner pursuant to their expense sharing scheme for which
withholding taxes were withheld and remitted by the affiliates
concerned as the entities in control of the income payments made to
the corresponding suppliers; and (iii) payments for security services
under agency where only the agency fees were subject to
withholding taxes. Likewise, petitioner posits that respondent has
ignored the following in assessing petitioner for deficiency DST: (i)
the subject lease agreements were long-term lease agreements that
most of which were executed before the year ended December 31,
2010 and was beyond the coverage of respondent's audit
investigation; (ii) security deposits which were refunded to the lessee
at the end of the lease, were not part of the rent due under the lease
agreement and should not have been considered in determining the
amount of DST due; and (iii) in the absence of an agreement to the
contrary, DST on lease agreements are primarily the obligation of the
lessor.·
With respect to the 50% surcharge on deficiency income tax,

VAT, and DST, petitioner avers that the same were bereft of any
basis to support a finding of fraud. Petitioner likewise claims that
there was no basis on the imposition of additional deficiency interest
based on the assessed deficiency VAT, EWT, and DST, even if there
was basis for the assessments of the same for lY 2010.
Respondent's counter-arguments:
Respondent counter-argues that petitioner must show the

instant Petition for Review was filed within the prescriptive period.
t.
DECISION
Respondent also claims that his right to assess petitioner forTY 2010
did not prescribe as the ordinary three (3) year period within which
to make the assessment finds no application to the instant case.
Even assuming that the ordinary period of prescription within which
to assess tax liabilities applied to this case, respondent asserts that
his right to assess petitioner forTY 2010 still did not prescribe.
It is averred by respondent that the assessments issued against

petitioner have factual and legal basis. Thus, the assessment issued
against petitioner is allegedly valid and lawful.
THE COURT'S RULING
Notwithstanding the above-quoted issue raised by the parties,

this Court resolves to raise, and rule on, the following related issue,
which it deems as necessary to achieve an orderly disposition of the
instant case, before looking into the said issue raised by the parties,
if still warranted, to wit:
"Whether or not the subject tax assessments are

invalid."
The foregoing issue is relevant primarily because in the instant

Petition tor Review, petitioner prays for the declaration of nullity and
cancellation of the subject tax assessments for TY ended December
31, 2010, in the aggregate amount of P1,182,392,770.89. Thus, it is
proper to resolve the said issue raised by this Court.
After all, there is even a legal basis allowing this Court to

resolve the same issue.
Legal . basis to resolve the

issue raised by this Court
Section 1, Rule 14 of the 2005 Revised Rules of the Court of

Tax Appeals reads as follows:
"RULE 14
JUDGMENT, ITS ENTRY AND EXECUTION
SECTION 1. - Rendition ofjudgment- xxx
L
DECISION
In deciding a case, the Court may not limit itself

to the issues stipulated by the parties but may also
rule upon related issues necessary to achieve an
orderly disposition of the case." (Emphasis supplied)
Based on the foregoing provision, this Court is not bound by

the issues specifically raised by the parties, but may also rule upon
related issues necessary to achieve an orderly disposition of the
case. 56 Such authority of this Court is confirmed and recognized by
the Supreme Court in the case of Commissioner of Internal Revenue
vs. Lancaster Philippines, Inc., 57 viz.
"On whether the CTA can resolve an issue which

was not raised by the parties, we rule in the
affirmative.
Under Section 1, Rule 14 of A.M. No. 05-11-07-

CTA, or the Revised Rules of the Court of Tax Appeals,
the CTA is not bound by the issues specifically raised
by the parties but may also rule upon related issues
necessary to achieve an orderly disposition of the
case. The text of the provision reads:
SECTION 1. Rendition ofjudgment- xxx
In deciding the case, the Court may not

limit itself to the issues stipulated by the
parties but may also rule upon related
issues necessary to achieve an orderly
disposition of the case.
The above section is clearly worded. On the basis

thereof, the CfA Division was, therefore, well within its
authority to consider in its decision the question on the scope
of authority of the revenue officers who were named in the
LOA even though the parties had not raised the same in their
pleadings or memoranda. The CfA En Bane was likewise
correct in sustaining the CfA Division's view concerning such
matter." (Emphases ours)
56
Commissioner of Internal Revenue vs. Lancaster Philippines, Inc., G.R. No. 183408, July 12,
2017.
57
G.R. No. 183408, July 12, 2017.
t.
Roblnsons True Serve Hl1rdwl1re Philippines, Inc. vs. Commissioner of Internl11 Revenue
DECISION
Furthermore, in Commissioner of Internal Revenue vs. Eastern

Telecommunications Philippines, Inc., 58 the Supreme Court held:
"The general rule is that appeals can only raise questions

of law or fact that (a) were raised in the court below, and (b)
are within the issues framed by the parties therein. An issue
which was neither averred in the pleadings nor raised during
trial in the court below cannot be raised for the first time on
appeal. The rule was made for the benefit of the adverse
party and the trial court as well. Raising new issues at the
appeal level is offensive to the basic rules of fair play and
justice and is violative of a party's constitutional right to due
process of law. Moreover, the trial court should be given a
meaningful opportunity to consider and pass upon all the
issues, and to avoid or correct any alleged errors before those
issues or errors become the basis for an appeal.
XXX XXX XXX
The rule against raising new issues on appeal is

not without exceptions; it is a procedural rule that the
Court may relax when compelling reasons so warrant
or when justice requires it. What constitutes good and
sufficient cause that would merit suspension of the
rules is discretionary upon the courts. Former Senator
Vicente Francisco, a noted authority in procedural law, cites
an instance when the appellate court may take up an issue for
the first time:
The appellate court mav, in the interest of

justice, properly take into consideration in
deciding the case matters of record having
some bearing on the issue submitted which
the parties failed to raise or the lower court
ignore, although they have not been
specifically raised as issues by the
pleadings. This is in consonance with the liberal
spirits that pervades the Rules of Court, and the
modern trend of procedure which accord the
courts broad discretionary power, consistent with
the orderly administration of justice, in the
decision of cases brought before them.
[Emphasis supplied.]
XXX XXX XXX
ss G.R. No. 163835, July 7, 2010.
t
DECISION
Another exemption from the rule against raising

new issues on appeal is when the question involves
matters of public importance." (Emphases and
underscoring ours)
On the basis of the foregoing jurisprudential pronouncements,

it is clear that while it is a general rule that appeals can only raise
questions of law or fact that (a) were raised in the court below, and
(b) are within the issues framed by the parties therein, the same
admits of certain exceptions, namely, (i) in the interest of justice,
matters of record having some bearing on the issue submitted which
the parties failed to raise or the lower court ignore, and (ii) questions
involving matters ofpublic importance.
In this case, whether or not the subject tax assessments are

valid is a matter of record, and of public importance. The said issue
is a matter of record because the parties submitted their respective
evidence to establish what transpired in the proceedings a quo, and
thus, could be resolved by simply referring to the same evidence.
Moreover, the issue raised by this Court has some bearing on the
issues submitted by the parties. Furthermore, the same issue can be
deemed as matter of public importance, simply because a void
assessment bears no valid fruit. 59 Taxpayers, including petitioner,
must not be held liable under an invalid tax assessment.
Correspondingly, We see no legal obstacle to resolve the

above-stated issue raised by this Court.
The subject tax assessments

are void, since petitioner's tax
liabilities remain indefinite.
In Commissioner of Internal Revenue vs. Fitness By Design,

Inc. (hereinafter referred to as the "Fitness By Design case''), 60 the
Supreme Court said:
"The issuance of a valid formal assessment is a

substantive prerequisite for collection of taxes. Neither
the National Internal Revenue Code nor the revenue
59
Samar-! Electric Cooperative vs. Commissioner of Internal Revenue, G.R. No. 193100,
December 10, 2014.
60 G.R. No. 215957, November 9, 2016.
1-
DECISION
regulations provided for a 'specific definition or form of an

assessment.' However, the National Internal Revenue Code
defines its explicit functions and effects. An assessment
does not only include a computation of tax liabilities; it
also includes a demand for payment within a period
prescribed. Its main purpose is to determine the
amount that a taxpayer is liable to pay.
XXX XXX XXX
A final assessment is a notice 'to the effect that the

amount therein stated is due as tax and a demand for
payment thereof.' This demand for payment signals the time
'when the penalties and interests begin to accrue against the
taxpayer and enabling the latter to determine his remedies[.]'
Thus, it must be 'sent to and received by the taxpayer, and
must demand payment of the taxes described therein within a
specific period.'
The disputed Final Assessment Notice is not a

valid assessment.
xxx it lacks the definite amount of tax liability for

which respondent is accountable. It does not purport
to be a demand for payment of tax due, which a final
assessment notice should supposedly be. An
assessment, in the context of the National Internal
Revenue Code, is a 'written notice and demand made
by the [Bureau of Internal Revenue] on the taxpayer
for the settlement of a tax liability that is there
definitely set and fixed.' Although the disputed notice
provides for the computation of respondent's tax
liability, the amount remains indefinite. It only
provides that the tax due is still subject to
modification. depending on the date of payment. Thus:
The complete details covering the

aforementioned discrepancies established during
the investigation of this case are shown in the
accompanying Annex 1 of this Notice. The 50%
surcharge and 20% interest have been imposed
pursuant to Sections 248 and 249 (B) of the
[National Internal Revenue Code], as amended.
Please note, however, that the interest and
the total amount due will have to be
adjusted if prior or beyond April 15, 2004.
(Emphasis Supplied)
L
DECISION
XXX XXX XXX
xxx. The total amount depended upon when

respondent decides to pay. The notice, therefore, did
not contain a definite and actual demand to pay."
(Emphases ours)
In this case, the contents of the FLO dated October 10, 2014
issued against petitioner, 61 are, in part, state as follows:
"FORMAL LETTER OF DEMAND
The President
ROBINSON$ TRUE SERVE HARDWARE PHILS., INC.
110 E. Rodriguez Jr. Avenue
Libis, Quezon City
TIN: 006-643-830-000
Sir/Madam:
Please be informed that we have received your letter of

protest against our Preliminary Assessment Notice dated
September 12, 2014, on September 30, 2014. While you
have provided explanations/justifications, the same cannot be
given any credit to warrant revision or cancellation of our
assessments since you have failed to submit relevant and
competent supporting evidence. In order to properly evaluate
and validate the explanations and justifications you have
provided, it is imperative that the soft copies of all the books
be submitted. Likewise, the Z-readings of all POS Machines,
contracts/agreements, and source documents that were
repeatedly requested during the course of audit, and other
supporting documents to your protest, should likewise be
submitted.
In view thereof, pursuant to RR 18-2013, we reiterate

ow assessments for deficiency Income Tax, Value-Added Tax,
Expanded Withholding Tax, Fringe Benefit Tax, Documentary
Stamp Tax and Improperly Accumulated Earnings Tax for the
taxable year 2010, pursuant to Letter of Authority (LOA) No.
116-2012-00000017 dated July 3, 2012, as shown hereunder:
XXX XXX XXX
61
Exhibit "P-6", Docket - Vol. III, pp. 1105 to 1107; Exhibit "R-6", BIR Records, Folder 1, pp.
1314 to '322.
L.
CTA case No. 9418 Page 40 of 46
DECISION
. *Please take note that the interest will have to

be adjusted if oaid beyond the date specified therein.
The complete details covering the aforementioned

discrepancies established during the investigation of this case
are shown in the accompanying ANNEX -A of this letter.
The twenty percent (20%) interest per annum has

imposed pursuant to Section 249(B) of the same Tax Code
due to your failure to pay the tax within the time prescribed
by law for its payment.
In view thereof, you are requested to pay your

aforesaid deficiency tax liabilities through the e-filing and
payment system (eFPS) using BIR Payment Form (BIR Form
0605). Afterwards, submit proof of payment thereof to the
Regular Large Taxpayers Audit Division I located at Rm 216
National Office Building, BIR Road, Diliman, Quezon City for
updating of your records and cancellation of the herein Formal
Letter of Demand, if warranted.
Very truly yours,
KIM S. JACINTO-HENARES
Commissioner of Internal Revenue
By:
(SIGNED)
NESTOR S. VALEROSO
OIC- Assistant Commissioner
Large Taxpayers Service"
(Emphases and underscoring ours)
A careful reading of the foregoing would reveal that the subject

tax assessments lack the definite amount of tax liabilities for which
petitioner is accountable. Specifically, the said FLD states that the
interest will still ''be adjusted if paid beyond the date specified
therein." Similar to the Fitness By Design case, although the FLD
provides for a computation of petitioner's supposed tax liabilities, the
respective amount thereof remains indefinite, since the said tax
assessments are still subject to modification or adjustment,
dependmg on the date of payment by petitioner.
l
Robinsons True Se!Ve Hardware Philippines, Inc. vs. Commissioner of Internal Revenue
DECISION
In the same vein, the FDDA dated February 29, 201662 is

likewise to the effect that "the interest will have to be adjusted if paid
beyond March 3()_ 2016'~ Thus, just as in the subject FLD, the
supposed tax liabilities of petitioner remain indefinite in the said
FDDA.
Such being the case, on the basis of the aforequoted ruling in

the Fitness By Design case, the subject tax assessments are void,
and thus, bear no valid fruit. 63
The subject tax assessments

are likewise void, for violation
of petitioner's right to due
process.
Section 3.1.5 of Revenue Regulations (RR) No. 12-9964 , as

amended by RR No. 18-201365 , provides as follows:
"SECTION 3. Due Process Requirement in the

Issuance of a Deficiency Tax Assessment. -
3.1 Mode of procedure in the issuance of a

deficiency tax assessment:
XXX XXX XXX
3.1.5 Final Decision on a Disputed Assessment fFDDAJ.

-The decision of the Commissioner or his duly authorized
representative shall state the (i) facts, the applicable
law, rules and regulations, or jurisprudence on which
such decision is based, otherwise, the decision shall be
void (see illustration in ANNEX 'C' hereof), and (ii) that the
same is his final decision." (Emphases ours)
62 Exhibit "P-9", Docket- Vol. III, pp. 1148 to 1162; Exhibits "R-9", and "R-10", BIR Records-
Folder 2, pp. 1775 to 1816.
63
Refer to Commissioner of Internal Revenue vs. Reyes, G.R. Nos. 159694 and 163581, January
27, 2006.
64
SUBJECT: Implementing the Provisions of the National Internal Revenue Code of 1997
Governing the Rules on Assessment of National Internal Revenue Taxes, Civil
Penalties and Interest and the Extra-Judicial Settlement of a Taxpayers Criminal
Violation of the Code Through Payment of a Suggested Compromise Penalty
65
SUBJECT: Amending Certain Sections of Revenue Regulations No. 12-99 Relative to the
Due Process Requirement in the Issuance of a Deficiency Tax Assessment.
L
DECISION
Based on the foregoing provision, part of the due process

requirement in the issuance of a deficiency tax assessment is that the
decision of respondent shall state: (1) the facts, the applicable law,
rules and regulations, or jurisprudence on which such decision is
based; and (2) that the same is his or her final decision. In case of
failure to state the said facts, etc., respondent's decision shall be
rendered void.
In Commissioner of Internal Revenue vs. Avon Products

Manufacturing, Inc., etseq., 66 the Supreme Court said:
"Tax assessments issued in violation of the due

process rights of a taxpayer are null and void. While
the government has an interest in the swift collection
of taxes, the Bureau of Internal Revenue and is
officers and agents cannot be overreaching in their
efforts, but must perform their duties in accordance
with law, with their own rules of procedure, and
always with regard to the basic tenets of due process.
XXX XXX XXX
The importance of providing taxpayer with

adequate written notice of his or her tax liability is
undeniable. Under Section 228, it is explicitly required
that the taxpayer be informed in writing of the law
and of the facts on which the assessment is made;
otherwise, the assessment shall be void. xxx. Finally,
Section 3.1.6 67 specifically requires that the decision of
the Commissioner or of his or her duly authorized
representative on a disputed assessment shall state
the facts and law, rules and regulations, or
jurisprudence on which the decision is based. Failure
to do so would invalidate the Final Decision on
Disputed Assessment.
'The use of the word 'shall' in Section 228 of the

[National Internal Revenue Code] and in [Revenue
Regulations] No. 12-99 indicates that the requirement
of informing the taxpayer of the legal and factual
bases of the assessment and the decision made
against him [or her] is mandatory.' This is an essential
requirement of due process and applies to the
Preliminary Assessment Notice, Final Letter of Demand with
66 G.R. Nos. 201398-99 and 201418-19, October 3, 2018.
67
Now the aforequoted Section 3.1.5 of RR No. 12-99, as amended by RR 18-2013.
t
DECISION
the Final Assessment Notices, and the Final Decision on

Disputed Assessment.
XXX XXX XXX
Compliance with strict procedural requirements

must be followed in the collection of taxes as
emphasized in Commissioner of Internal Revenue v. Algue,
Inc.: 68
Taxes are the lifeblood of the government and

so should be collected without unnecessary
hindrance. On the other hand, such collection
should be made in accordance with law as any
arbitrariness will negate the very reason for
government itself. It is therefore necessary to
reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose
of taxation, which is the promotion of the common
good, may be achieved.
XXX XXX XXX
But even as we concede the inevitability

and indispensability of taxation, it is a
requirement in all democratic regimes that it
be exercised reasonably and in accordance
with the prescribed procedure. If it is not, then
the taxpayer has a right to complain and the
courts will then come to his succor. For all the
awesome power of the tax collector, he may
still be stopped in his tracks if the taxpayer can
demonstrate ... that the law has not been
observed. (Emphasis supplied)
xxx. {The Commissioner of Internal Revenue'sl

disregard of the standards and rules renders the
deficiency tax assessments null and void. xxx."
(Emphases and underscoring ours)
Based on the foregoing doctrinal pronouncements, one of the

due process requirements in the issuance of tax assessments is that
the taxpayer must be informed in writing of the law and of the facts
on which the assessment is made. Such requirement must be
embodied in the decision of respondent, in that it must state the
facts and law, rules and regulations, and jurisprudence on which the
68 241 Phil. 829 (1988) [Per J. Cruz, First Division].
L
DECISION
decision is based. In case respondent or the BIR fails to observe,

inter alia, the said due process requirement, it shall have the effect of
rendering the subject deficiency tax assessments void, and of no
force and effect.
In this case, the contents of the letter dated June 30, 2016 of
respondent, 69 purporting to be the latter's FDDA, read as follows:
"The President
ROBINSONS TRUE SERVE HARDWARE PHILS., INC.
110 E. Rodriguez Jr. Avenue
Libis, Quezon City
TIN: 006-643-830-000
Subject: All Internal Revenue Taxes for taxable year 2010

pursuant to LOA No. 116-2012-00000017 dated July 3, 2012
Sir/Madam:
This has reference to your Motion for Reconsideration

dated April 7, 2016 relative to our Final Decision on Disputed
Assessment (FDDA) dated February 29, 2016 representing
deficiency income tax, value added tax, expanded withholding
tax and documentary stamp tax in the amounts of
P835,117,452.82, P341,512,632.78, P4,100,489.72 and
P1,662,195.56, respectively, for taxable year 2010.
Please be informed that after a thorough and diligent

review of your case, we noted that you have merely reiterated
previous contentions per your letter of protest against our
Formal Letter of Demand which have already been addressed
aoct discussed in our FDDA, thus your Motion for
Reconsideration is DENIED. Accordingly, the aforesaid
deficiency tax assessments per our FDDA are hereby
reiterated.
In view thereof, It is requested that the deficiency taxes

contained in the FDDA and Assessment Notices aggregating
P,182,392,770.89, inclusive of interest and penalties, be paid
immediately upon receipt hereof.
This is our final decision. If you disagree, you may

appeal the same with the Court of Tax Appeals within thirty
(30) days from receipt hereof, otherwise, the said deficiency
69 Exhibit "P-11", Docket- Vol. Ill, p. 1192; Exhibit "R-11", BIR Records- Folder 3, p. 1066.
t.
CTA Case No. 9418 Page 4S of 46
Robinsons true Serve Hardware Philippines, Inc. vs. Commissioner of Internal Revenue
DECISION
tax assessments shall become final, executory and

demandable.
For your information and guidance.
Very truly yours,
(signed)
KIM S. JACINTO-HENARES
Commissioner of Internal Revenue"
A careful reading of the foregoing letter would reveal that the

same does not state the facts, the applicable law, rules and
regulations, or jurisprudence on which such decision is based, as
required under above-quoted Section 3.1.5 of RR No. 12-99, as
amended by RR No. 18-2013. Thus, there is a clear violation of
petitioner's due process rights under the said provision. Such being
the case, such violation renders the subject tax assessments null and
void.
In sum, the subject tax assessments are invalid, because

petitioner's tax liabilities remain indefinite, and petitioner's right to
due process was violated by respondent. With this finding, it
becomes unnecessary to address the issue raised by the parties.
WHEREFORE, in light of the foregoing considerations, the

instant Petition for Review is GRANTED. Accordingly, the subject
deficiency income tax, VAT, EWT, and DST assessments issued
against petitioner for taxable year ended December 31, 2010, in the
aggregate amount of P1,182,392,770.89 are CANCELLED and SET
ASIDE, for being void.
SO ORDERED.
~ ~. M~.L.A __ c~
CIELITO N. MINDARO-GRULLA
Associate Justice
DECISION
WE CONCUR:
~c7C-~ g,
JUANITO C. CASTANEDA, JR_C'-~
Associate Justice
...__
JEAN MAK.J NA
~~ate Justice
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.
~~-~c.~~/~
JUANITO C. CASTANEDA, JR.
Associate Justice
2nd Division Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII 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's Division.
Presiding Justice
REPUBLIC OF THE PHILIPPINES
COURT OF TAX APPEALS
Quezon City
SECOND DIVISION
ROBINSONS TRUE SERVE CTA CASE NO. 9418

HARDWARE PHILIPPINES,
INC.,
Petitioner,
Members:
CASTANEDA, JR., Chairperson,

-versus - MINDARO-GRULLA, and
BACORRO-VILLENA, JJ.
ONER OF
COMMISSI REVENUE,
INTERNAL Respondent. Promulgated: JAN 1 J 1010 L_
X-------------------------------------- y~ ;I~ ;:2

DISSENTING OPINION
BACORRO-VILLENA, L.:
With all due respect, I beg to differ with the conclusions reached
in the ponencia of our esteemed colleague, Han. Justice Cielito N.
Mindaro-Grulla.
As stated in the ponencia, the invalidity of respondent's

assessment against petitioner was essentially anchored on two
grounds: (1) the tax liabilities remain indefinite applying the doctrine
laid down in Commissioner of Internal Revenue v. Fitness By Design,
1
Inc. (Fitness By Design); and, (2) petitioner's right to due process
was violated for failure of respondent to state the facts, applicable law,
rules a~d regulations or jurisprudence on which his decision was
based. t
1
G.R. No. 215957, 09 November 20 16.
CTA Case No. 9418
Robinsons True Serve Hardware Philippines, Inc. v. Commissioner of Internal Revenue
DISSENTING OPINION
Page 2 of 8
X---------------------------------------------------------------- X
The bases of my respectful dissent are discussed below, m

seriatim.
THE AMOUNT OF TAX

LIABILITY IS DEFINITE.
The facts of the instant case are not in all fours with Fitness By
Design as to warrant its application herein.
In Fitness By Design, the Supreme Court noted that the amount

in the Final Assessment Notice (FAN) remained indefinite as the same
was subject to modification, depending on the date of the taxpayer's
payment. The wordings in the FAN there is quoted, as follows:
The complete details covering the aforementioned discrepancies

established during the investigation of this case are shown in the
accompanying Annex 1 of this Notice. The so% surcharge and 20%
interest have been imposed pursuant to Sections 248 and 249(B) of
the [National Internal Revenue Code], as amended. Please note,
however. that the interest and the total amount due will have to
be adjusted ifpaid prior or beyond April15. 2004!
The Supreme Court also emphasized that the FAN there did not
contain due dates, thus, it held:
Second, there are no due dates in the Final Assessment

Notice. This negates petitioner's demand for payment. Petitioner's
contention that April 15, 2004 should be regarded as the actual due
date cannot be accepted. The last paragraph of the Final Assessment
Notice states that the due dates for payment were supposedly
reflected in the attached assessment:
In view thereof, you are requested to pay your

aforesaid deficiency internal revenue tax liabilities
through the duly authorized agent bank in which you
.
assessment notrce~
.
are enrolled within the time shown in the enclosed
2
Emphasis and underscoring supplied.
CTA Case No. 9418
DISSENTING OPINION
Page 3 of 8
x----------------------------------------------------------------x
However, based on the findings of the Court of Tax Appeals

First Division, the enclosed assessment pertained to remain
unaccomplished. 3
Whereas, the pertinent portion of the Formal Letter of Demand

(FLO) in the case at bar reads:
Please take note that the interest will have to be adjusted if

paid beyond the date specified therein. 4
In the FLO in herein case, it is clear to mean that the interest will
only be adjusted if the taxpayer pays beyond the deadline or due date
provided (which is 10 November 2014 5). Insofar as the total amount
indicated in the FLO, there is no indefiniteness although the
computation of interest coincided with the due date for payment
which was shown conspicuously on the assessment notices attached to
it. From these, the taxpayer is demanded to pay the total amount
reflected in both FLO and assessment notices at any time within the
prescribed period.
What is crucial in determining the validity of the assessment is

the definiteness of the amount indicated in the FLO and the deadline
for payment (shown in the assessment notices attached to the FLO). If
the FLO apprises both substantively, then the FLO could not be
deemed insufficient or that the assessment is void. While the
computation of interest may not yet appear definite, the same is
understandable since the BIR could not really be expected to know or
to foresee when the taxpayer will actually settle the tax obligation. To
invalidate the entire assessment on the basis of the indefiniteness not
of the amount of tax liability but of the interest that may accrue
(beyond the deadline of payment) will therefore not be in accord with
the doctrines laid down in Fitness By Design.
Moreover, the proviso in Fitness By Design used the phrase "prior •

to or beyond April Is, 2004". The logical interpretation of this phras/'
Italics in the original text, emphasis and underscoring supplied.

4
Exhibit "P-6", emphasis and underscoring supplied.
As shown in Assessment Notices of the BlR, see BlR Records.
CTA Case No. 9418
DISSENTING OPINION
Page 4 of 8
X---------------------------------------------------------------- X
entails requiring taxpayers, after receiving the assessment, to come

forward to the BIR and inform the latter of its intended payment date
(even if within the period prescribed) for the adjustment of interest,
and correspondingly the total amount due. This makes the total
amount in the FAN indefinite and subject to modification. In effect,
the total amount of assessment in the FAN is merely suggestive as the
final computation of liability is entirely dependent on the actual date
of payment by the taxpayer. Hence, the Supreme Court held:
A final assessment is a notice "to the effect that the amount

therein stated is due as tax and a demand for payment thereof." This
demand for payment signals the time "when penalties and interests
begin to accrue against the taxpayer and enabling the latter to
determine his remedies[.]" Thus, it must be "sent to and received by
the taxpayer, and must demand payment of the taxes described
therein within a specific period."
The disputed Final Assessment Notice is not a valid

assessment.
First, it lacks the definite amount of tax liability for which

respondent is accountable. It does not purport to be a demand for
payment of tax due, which a final assessment notice should
supposedly be. An assessment, in the context of the National Internal
Revenue Code, is a "written notice and demand made by the [Bureau
of Internal Revenue] on the taxpayer for the settlement of a due tax
liability that is there definitely set and fixed." Although the
disputed notice provides for the computations of respondent's
tax Iiabilit:y. the amount remains indefinite. It only provides
that the tax due is still subject to modification, depending on
the date of payment. Thus:
The complete details covering the aforementioned

discrepancies established during the investigation of
this case are shown in the accompanying Annex 1 of
this Notice. The so% surcharge and 20% interest have
been imposed pursuant to Sections 248 and 249 (B) of
the [National Internal Revenue Code], as amended.
Please note, however, that the interest and the total
amount due will have to be adjusted if prior or beyond
Apri/15, 2004.
However, based on the findings of the Court of Tax Appeals

First Division, the enclosed assessment pertained to remained
•
unaccomplished.,
CTA Case No. 9418
DISSENTING OPINION
Page 5 of 8
x----------------------------------------------------------------x
Contrary to petitioner's view, April15, 2004 was the reckoning

date of accrual of penalties and surcharges and not the due date for
payment of tax liabilities. The total amount depended upon when
respondent decides to pay. The notice, therefore, did not contain a
definite and actual demand to pay. 6
The above circumstance is not the scenario in the instant case.
The more significant difference between the two cases is the

deadline for payment indicated in the assessment notices. The
deadline for payment is vital as it is the reckoning date from which
delinquency interest will run (assuming the taxpayer pays beyond the
prescribed period).
In Fitness By Design, the deadline for payment in the assessment

notices remained unaccomplished. The absence of the said deadline
was fatal to the SIR's claim because the FAN itself indicated that the
taxpayer was requested to pay the deficiency taxes due "within the
time shown in the enclosed assessment notice". It was for this reason
that April15, 2004 indicated in the FAN was not considered as deadline
for payment.
On the other hand, in the case at bar, the assessment notices

attached to the FLD show that the deadline for payment to be "w
November 2014". As stated earlier, the computation of interest in the
FLD coincided with the said deadline for payment.
It is also noteworthy that the FLD issued by respondent in this

case is compliant with the pro-forma FLD in Annex B of RR 12-99.
NO VIOLATION OF
PETITIONER'S RIGHT TO
DUE PROCESS
This ground for invalidity of the assessment is hinged on Section

3.1.5 of Revenue Regulations (RR) No. 18-2013, which amended RR 12-
99, to wit:}}-
6
Emphasis and underscoring supplied, and italics in the original text.
CTA Case No. 9418
DISSENTING OPINION
Page 6 of 8
X---------------------------------------------------------------- X
3.1.5 Final Decision on a Disputed Assessment (FDDA). - The

decision of the Commissioner or his duly authorized representative
shall state the (i) facts, the applicable Jaw, rules and regulations, or
jurisprudence on which such decision is based, otherwise the
decision shall be void (see illustration in ANNEX "C" hereof), and
(ii) that the same is his final decision. (Emphasis and underscoring
supplied)
The ponencia quoted the letter dated 30 June 2016 of then BIR
Commissioner Kim Henares, in response to petitioner's Motion for
Reconsideration on the FDDA, and found the same to be lacking the
facts, applicable law, rules and regulations, or jurisprudence (on which
Henares had based her decision on the FDDA). While it may be true
that it was not complete, the whole assessment should not be
invalidated or cancelled.
The Supreme Court made an exhaustive discussion on this

matter in Commissioner of Internal Revenue v. Liquigaz Philippines
Corporation 7, to wit:
The importance of providing the taxpayer of adequate written notice

of his tax liability is undeniable. Section 228 of the NIRC declares
that an assessment is void if the taxpayer is not notified in writing of
the facts and law on which it is made. Again, Section 3.1.4 of RR No.
12-99 requires that the FLO must state the facts and law on which it
is based, otherwise, the FLO/FAN itself shall be void. Meanwhile.
Section 3.1.68 of RR No. 12-99 specifically requires that the decision of
the CIR or his duly authorized representative on a disputed
assessment shall state the facts. law and rules and regulations. or
jurisprudence on which the decision is based. Failure to do so would
invalidate the FOOA.
A void FOOA does not

ipso facto render the
assessment void
In resolving the issue on the effects of a void FO OA, it is

necessary to differentiate an "assessment" from a "decision". In St.
Stephen's Association v. Collector of Internal Revenue, the Court has\
long recognized that a "decision" differs from an "assessment" to wit:/'
G.R. Nos. 215534 and 215557, 18 April2016.

Section 3.1.5 ofRR 18-2013.
CTA Case No. 9418
DISSENTING OPINION
Page 7 of 8
X---------------------------------------------------------------- X
An assessment becomes a disputed assessment after a

taxpayer has filed its protest to the assessment in the administrative
level. Thereafter, the CIR either issues a decision on the disputed
assessment or fails to act on it and is, therefore, considered denied.
The taxpayer may then appeal the decision on the disputed
assessment or the inaction of the CIR. As such, the FDDA is not the
only means that the final tax liability of a taxpayer is fixed, which
may then be appealed by the taxpayer. Under the law, inaction on
the part of the CIR may likewise result in the finality of a taxpayer's
tax liability as it is deemed a denial of the protest filed by the latter,
which may also be appealed before the CTA.
Clearly, a decision of the CIR on a disputed assessment differs

from the assessment itself. Hence, the invalidity of one does not
necessarily result to the invalidity of the other - unless the law or
regulations otherwise provide.
Section 228 of the NIRC provides that an assessment shall be

void if the taxpayer is not informed in writing of the law and the
facts on which it is based. It is, however, silent with regards to a
decision on a disputed assessment by the CIR which fails to state the
law and facts on which it is based. This void is filled by RR No. 12-99
where it is stated that failure of the FDDA to reflect the facts and law
on which it is based will make the decision void. It. however. does
not extend to the nullification of the entire assessment.
As established, an FDDA that does not inform the taxpayer in

writing of the facts and law on which it is based renders the decision
void. Therefore, it is as if there was no decision rendered by the CIR.
It is tantamount to a denial by inaction by the CIR, which may still
be appealed before the CTA and the assessment evaluated on the
basis of the available evidence and documents. The merits of the
EWT and FBT assessment should have been discussed and not
merely brushed aside on account of the void FDDA.
To recapitulate, a "decision" differs from an "assessment" and

failure of the FDDA to state the facts and law on which it is based
renders the decision void - but not necessarily the assessment. Tax
laws may not be extended by implication beyond the clear import of
i'
their language, nor their operation enlarged so as to embrace
~atters not specifically provided. 9
9
Emphasis and underscoring supplied.
CTA Case No. 9418
DISSENTING OPINION
Page 8 of 8
X--------------------------------------------------------------- ·X
With the foregoing, it is my opinion that it is only the decision of

respondent CIR that should be declared void - and not the entire
assessment itself. In such case, the necessary result is not to
automatically void or cancel the assessment but to deem that the CIR
did not act on the Motion for Reconsideration (and his inaction gives
the taxpayer the right of appeal before this Court).
With the above, I vote in favor of the validity of the assessment

against petitioner.

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REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

ROBINSONS TRUE SERVE CTA CASE NO. 9418

CASTANEDA, JR., Chairperson

COMMISSIONER OF INTERNAL Promulgated:

Submitted for decision on February 4, 2019 is a Petition for

Petitioner Robinsons True Serve Hardware Philippines, Inc. is a

Respondent is the duly appointed Commissioner of Internal

On July 6, 2012, petitioner received from respondent a copy of

Thereafter, on April 8, 2013, petitioner executed a Waiver of

On September 15, 2014, petitioner received a copy of the

Subsequently, on October 10, 2014, petitioner received a copy

On March 8, 2016, petitioner received a copy of the Final

Consequently, petitioner filed a motion or request for

Petitioner filed the instant Petition for Review on August 10,

In the Answer filed on November 28, 2016/0 respondent

"4. Respondent repleads and adopts the preceding

PETITIONER MUST SHOW THAT

5. Petitioner must prove that it filed the instant case

13 Exhibit "P-7", Docket- Vol. III, pp. 1108 to 1137.

of the final decision of respondent as prescribed by Section

6. Section 228 of the Tax Code explicitly directs the

'SEC. 228. Protesting of Assessment. - xxx

If the protest is denied in whole or in part, or is

7. Petitioner alleged that on 7 April 2016, it filed a

8. However, it is the heavy burden of petitioner to

9. 'The basic rule is that he who alleges must prove

10. A taxpayer's right to contest assessments,

11. It is respectfully submitted that petitioner must

12. Likewise, in La Flor De/a Jsabela, Inc. vs. CIR,

'To reiterate, the failure of a taxpayer to file

RESPONDENT ISSUED THE

A. Respondent's right to assess

13. Petitioner contends that the assessment was

14. Respondent respectfully disagrees. Petitioner

15. Section 222 (a) of the Tax Code specifically

'Sec. 222. Exceptions as to Period of Limitation of

(a) In the case of a false or fraudulent

16. In the instant case, preliminary review disclosed

17. In addition, perusal of the same FDDA revealed

. 18. The foregoing only concludes that petitioner

19. Section 248 (B) of the Tax Code provides:

'SEC. 248. - Civil Penalties. -

sales, receipts or income, or a substantial

20. The Honorable Supreme Court in the case of

'That there is a difference between 'false return'

21. Since the correct sales of petition did not appear

22. To reiterate, a false return implies deviation

'The ordinary period of prescription of 5 years

code should be applicable to normal

There being undoubtedly false tax returns in this

23. It is clear from the statutory provision in Section

24. Moreover, the Final Decision on Disputed

lmg_osition of 50% Surcharge and

The bookkeeping methods adopted by True

year-end, while yet still, No Other Taxable

Likewise, in relation to the falsity of income and

Likewise, since True Value failed to file the

25. In view of petitioner's willful filing of false or