TRANSNATIONAL PLANS, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SECOND DIVISION TRANSNATIONAL PLANS, INC., Petitioner, CTA CASE NO. 8291 -versus- Members: Castaneda, Chairperson Casanova, and Cotangco-Manalastas, JJ. COMMISSIONER OF INTERNAL Promulgated: REVENUE, FEB Z0 2015 / Respondent. � ~ X- - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - --X DECISI0 N r 'f: 11 r~ COTANGCO-MANALASTAS,J.: This is a petition for the nullification of the Final Decision on Disputed Assessment dated April 11, 2011 finding Transnational Plans, Inc. liable in the total amount of Thirteen Million Two Hundred Fifty Thousand Six Hundred Fifty-Two and 58/100 Pesos (P13,250,652.58), inclusive of interest and penalties, allegedly representing its deficiency income tax, value-added tax (VAT), withholding tax on compensation, expanded withholding tax (EWT), and documentary stamp tax (DST) for taxable year 2006. STATEMENT OF FACTS Petitioner Transnational Plans, Inc. is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with office address at G/F Floor, Mary Bachrach Building, Port Area, City of Manila.1 Petitioner is principally engaged in the business as a pre-need company.2 Respondent is the Commissioner of the Bureau of Internal Revenue (BIR), duly appointed to exercise the powers and perform the duties of her office including, inter alia, the {-- 1 Par. I, Facts Stipulated by the Parties, Joint Stipulation of Facts and Issues (JSFI), docket, p. 136. 2 Exhibit "D".

DECISION CTA CASE NO. 8291 Page 2 of64 power to decide disputed assessments, refunds of internal revenue taxes, fees, other charges, and penalties imposed in relation thereto, or other matters arising under the Tax Code. She holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City. Petitioner received Letter of Authority (LOA) No. 000122833 dated September 25, 2007 from the Large Taxpayers Audit and Investigation Division I (LTAID I) of the BIR, authorizing the examination of petitioner's books of accounts and other financial records for all intemal revenue taxes for taxable year 2006. On August 12, 2009 petitioner received from the BIR a Preliminary Assessment Notice4 (PAN) dated August 3, 2009 indicating that the alleged deficiency taxes of petitioner is P20,539.755.71. In response, petitioner filed its protest letter5 on August 27, 2009 with the BIR. Thereafter, on October 9, 2009, petitioner received from respondent a Final Assessment Notice (FAN) dated September 24, 2009 bearing a decrease in the purported deficiency taxes in the total amount of P17,465,022.74.6 Petitioner then filed an administrative protest? on November 9, 2009. On April 15, 2011, petitioner received a Final Decision on Disputed Assessment (FDDA) dated April 11, 2011 from respondent.8 Based on the FDDA, respondent further decreased petitioner's alleged deficiency taxes to the total amount of P13,250,652.58. Said amount was broken down in the FDDA as follows: Income Tax Basic Penalties Total VAT 1,493,384.57 1,244,468.45 2,737,817.02 Withholding Tax - 4,030,948.36 3,518,219.84 7,549,168.20 Compensation Expanded 1,087,446.00 967,380.70 2,054,826.70 Withholding Tax DST 162,923.88 157,189.83 320,113.71 293,435.63 270,291.32 563,726.95 3 Exhibit "C". 4 Exhibit "JJ". 5 Exhibit "KK~~. 6 Par. 2, Facts Stipulated by the Parties, JSFI, docket, p. 136. 7 Exhibits "E" and "E-1 ". 8 Par. 3, Facts Stipulated by the Parties, JSFI, docket, p. 136: Exhibit "F".

DECISION CTA CASE NO. 8291 Page 3 of64 Compromise Penalty I I 25,000.00 P13,250,652.58 TOTAL On May 16, 2011, petitioner filed with this Court the instant Petition for Review9, questioning the assessments made by respondent in the FDDA. On June 27, 2011, respondent filed her Answer1o raising the following special and affirmative defenses: "xxx XXX XXX 7. Petitioner Transnational Plans, Inc. is liable to pay its deficiency income tax, value-added tax, withholding tax on compensation, expanded withholding tax and documentary stamp tax in the total amount of Thirteen Million, Two hundred Fifty Thousand, Six hundred Fifty Two and 58/100 Pesos (1'13,250,652.58). 8. Contrary to petitioner's claim that it was not informed in writing of the facts on which the assessment was based, the formal letter of demand and assessment notices indicated not merely the tax, compromise, and interest due thereon but likewise sufficiently stated the facts, the law, rules and regulations on which assessment is based. Thus, petitioner cannot impugn the validity of assessment on the supposed omission. 9. Petitioner claims that the Final Assessment Notice was formally protested within the reglementary period of 30 days. However, it did not aver the fact of submission of necessary documents in support of its protest. Upon investigation, it was revealed that indeed, petitioner failed to submit necessary documents within 60 days from the filing of protest. This omission is fatal to the administrative claim. 9.1 Section 228 of the NIRC of 1997 is hereunder quoted for ready reference: Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt ofthe assessment in such form and manner as may be prescribed by r implementing rules and regulations. Within sixty (60) / days from filing of the protest, all relevant 9 Docket, pp. 6-76. 10 Docket, pp. 86-104.

DECISION CTA CASE NO. 8291 Page 4 of64 supporting documents shall have been submitted; otherwise, the assessment shall become final. 9.2 Relative therewith, Revenue Regulations No. 12- 99 implementing the provisions of the NIRC governing assessment of National internal Revenue Taxes likewise provides: Section 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment. 3.1. 5 Disputed Assessment XXX XXX XXX The taxpayer shall submit the required documents in support of his protest within sixty (60} days from date of filing of his letter of protest, otherwise, the assessment shall become final, executory and demandable. 9.3 The foregoing was promulgated pursuant to the power of the Commissioner of Internal Revenue to interpret tax laws as enunciated in Section 4 of the NIRC, to wit: SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases - The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance. 9.4 The mandatory character of Section 228 and Revenue Regulations No. 12-99 cannot be gainsaid. The word 'shall' connotes an imperative and mandatory character of a statute. The general rule of requiring adherence to the letter in construing statues applies with particular strictness to tax laws and provisions of a taxing act are not to be extended by implication. (CIR v. Court of Appeals, 338 Phil. 332, 330 (1997). To rule otherwise would not just prevent the Commissioner from reconsidering the protested assessment but will practically render nugatory the intention of Congress. 9.5 Consequently, the assessment has become final and executory and deprives this Honorable Court of jurisdiction to try the case. 10. Furthermore, comprehensive study of petitioner's books of accounts and pertinent accounting V records disclosed that it is liable to pay the total deficiency income tax assessment.

DECISION CTA CASE NO. 8291 Page 5 of64 Comparison made between Bond Placements per Documentary Stamp Tax (DST) Returns (tax base) of 1"62,276,610.00 versus the increase in bond placement per FS of 1"57,356,241.00 showed a difference of 1"4,920,369.00. Applying the Gross Profit rate of 12.7% yielded and (sic) a gross profit of 1"624,866.86. Hence, deficiency income tax is hereby assessed pursuant to Section 32 of the NIRC which provides: XXX XXX XXX Disallowance of Cost & Expenses amounting to 3,641,823.35 were the result of the reconciliations made between the FS and ITR, and said cost and expenses were not supported by any proof despite repeated requests for the presentation of any document to prove that such costs and expenses were incurred and deductible during the year under re-audit. Hence, were disallowed pursuant to Section 34 (k) of the NIRC, as amended which is hereunder quoted: XXX XXX XXX 12. It is also liable to pay its value added tax liability. Reconciliation made between Gross Receipts subject to Value Added Tax (VAT) per returns amounting to 1"37,169,711.01 versus Gross Receipts subject to VAT per re- investigation of 1"70,691,857.64 showed a difference of 33,522,146.63. Applying the VAT rate of 12% yielded an Output Tax of 4,022,657.60; hence, the same was assessed pursuant to Sections 106, 108 and 109 of the National Internal Revenue Code, as amended which provides: XXX XXX XXX Claimed input taxes for both domestic goods and services aggregating 1"8,290.76 were disallowed pursuant to Sections 110 and 113 (A) and (B) of the NIRC, as amended pertaining to Invoicing and Accounting Requirements for VAT Registered Persons, which is hereunder quoted: XXX XXX XXX 13. Likewise, it is liable to pay withholding tax on compensation. Claimed salaries and wages aggregating 1"9,816,995.75 is 1"3,398,268.75 higher than the Alpha List submitted amounting to 1"6,418,727.00. Said discrepancy is therefore subjected to deficiency withholding tax to conform V to Sections 78, 79 and 80 of the NIRC, as amended which provides: XXX XXX XXX

DECISION CTA CASE NO. 8291 Page 6 of64 14. Verification disclosed that liability for expanded withholding tax should likewise be imposed. Reconciliation made between claimed expenses subject to 1%, 2%, 5% and 10% EWT including domestic purchases of goods and services totaling 1'9,482,367.91 versus the amount subjected to the same rates per Alpha List of 1'2,699,670.60 showed a difference of 1'6,782,697.31; hence, subjected to deficiency EWT to comply with Section 57(B) of the NIRC, as amended, which provides:' XXX XXX XXX 15. With respect to deficiency documentary stamp tax, Comparison made between the Documentary Stamp Tax paid per return amounting to 1'121,326.42 and the Documentary Stamp Tax due per our re-audit of 1'414,762.05 showed a difference of1'293,435.63. Deficiency Documentary Stamp Tax was imposed pursuant to Sections 180 and 186 of the NIRC, as amended, which is hereunder quoted: XXX XXX XXX 16. Compromise penalty was imposed pursuant to RMO 1-90 amounting to 1'25,000.00 due to the following violations: (1.) Failure to file list of regular suppliers (2.) Failure to file alpha list of income payments not subjected to withholding tax. (3.) Failure to file Monthly Alphabetical List of Payees (MAP) (4.) Failure to maintain subsidiary books as required under Sec. 113 and Sec. 233 of the NIRC. 17. It must be stressed that 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) 18. 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) 19. Petitioner has not pointed out any prov1s1on or item in the assessment notice which bears a trace of falsity. The averments were based on conjectures, surmises and /r-- speculations. These cannot supply the basis for the charge of impropriety of the assessments made."

DECISION CTA CASE NO. 8291 Page 7 of64 A Notice of Pre-Trial Conference 11 was issued by this Court on June 28, 2011, setting the case for pre-trial conference on August 4, 2011. Petitioner filed its Petitioner's Pre-Trial Brief12 on July 29, 2011; while respondent submitted her Respondent's Pre-Trial Briefl3 on August 1, 2011. Thereafter, the parties submitted their Joint Stipulation of Facts and Issues14 on September 5, 2011. After finding everything in order, this Court issued a Resolutionts dated September 8, 2011, declaring the pre-trial terminated and ordering petitioner to proceed with the initial presentation of its evidence. On September 8, 2011, petitioner filed a Motion to Refer the Case for Mediation16 praying that the instant petition be referred to the Philippine Mediation Center of the Court of Tax Appeals (CTA) for quick and speedy disposition. However, during the September 12, 2011 hearing, petitioner's counsel moved for the withdrawal of its motion after this Court informed petitioner that at that point the Court has no existing facilities for mediation. Petitioner filed a Motion to Suspend Proceedingst7 on October 24, 2011, claiming that since it made an offer of compromise with respondent, petitioner prays that the instant proceeding be suspended to give the parties an opportunity to settle the case amicably. Meanwhile, on March 23, 2012, petitioner filed a Motion to Refer Evidence to an Independent Certified Public Accountant18, manifesting its intention to avail the services of Mr. Julito 0. Tabalba of J.O. Tabalba & Co. to act as an Independent Certified Public Accountant (ICPA) pursuant to Rule 13 of the Revised Rules of the Court of Tax Appeals. Finding merit therein, this Court granted petitioner's motion f during the March 28, 2012 hearing by commissioning Mr. Julito 0. Tabalba as the ICPA of the instant case. This Court 11 Docket, p. 106. 12 Docket, pp. 107-116. 13 Docket, pp. 117-121. 14 Docket, pp. 135-141. 15 Docket, p. 143. 16 Docket, pp. 144-147. 17 Docket, pp. 150-153. 18 Docket, pp. 223-233.

DECISION CTA CASE NO. 8291 Page 8 of64 further ordered Mr. Julito 0. Tabalba to submit his ICPA report within forty-five (45) days. In compliance, the ICPA submitted his report on July 10, 2012.19 On March 21, 2013, petitioner flled its Formal Offer of Evidence20, offering Exhibits "A" to "VW", inclusive of sub- markings. On April 5, 2013, respondent flled her Comment (On Petitioner's Formal Offer of Evidence)21 interposing no objection to the admission of petitioner's exhibits, but only as to the manner they were identified in open court and subject to the condition that the same had faithfully complied with the necessity of comparison with the original documents under Section 4 of Rule 12 of the Revised Rules of the Court of Tax Appeals. Accordingly, in the Resolution22 dated May 10, 2013, this Court admitted most exhibits offered by petitioner save for some exhibits which were denied for petitioner's failure to have said exhibits identified during trial. Petitioner then filed a Motion for Reconsideration with Motion to Recall Witness (Re: Resolution dated May 10, 2013)23, begging the indulgence of this Court to allow it to recall its witness, Ms. Marivic M. Anciado, for the sole purpose of identifying the exhibits denied by this Court. In response, respondent flled her Comment (On Petitioner's Motion for Reconsideration with Motion to Recall Witness)24 on June 17, 2013, opposing petitioner's motion on the ground that nowhere in Ms. Marivic M. Anciado's judicial affidavit did she mention and identify the assailed exhibits; thus, how can she then identify the same when recalled. Petitioner then flled a Reply (To Respondent's Comment dated 14 June 2013)25 on June 24, 2013 claiming that even though its witness did not mention the exhibits in her judicial affidavit, said exhibits nevertheless form part of her testimony and are embedded with the other documentary exhibits that she identified. { 19 Docket, p. 258. 20 Docket, pp. 373-397. 21 Docket, pp. 398-400. 22 Docket, pp. 402-403. 23 Docket, pp. 404-407. 24 Docket, pp. 415-418. 25 Docket, pp. 420-422.

DECISION CTA CASE NO. 8291 Page 9 of64 During the July 17, 2013 hearing,26 petitioner's witness, Ms. Marivic M. Anciado, was re-called to the witness stand and identified the assailed exhibits. Accordingly, the exhibits initially denied admission by this Court was then reconsidered and admitted as part of petitioner's formal offer of evidence. On October 4, 2013, respondent filed her Respondent's Formal Offer of Documentary Evidence27, offering Exhibits "R- 1" to "R-16-A", inclusive of sub-markings. In response thereto, petitioner filed its Comment (To Respondent's Formal Offer of Documentary Evidence) on October 21, 2013 opposing the admission of majority of respondent's exhibits for allegedly not having been properly identified. In the November 19, 2013 Resolution2s, this Court admitted all exhibits formally offered by respondent, and ordered both parties to submit their memoranda within thirty (30) days thereafter. On January 27, 2014, petitioner submitted its Memorandum29, while respondent submitted her Memorandum30 on February 14, 2014. With the filing of both parties' respective memoranda, this Court in the February 20, 2014 Resolution considered the instant case submitted for decision. Shortly thereafter, on March 10, 20 14, petitioner filed a Motion for Leave to File and To Admit Attached Reply to Respondent's Memorandum claiming that it need to address a few arguments raised by respondent which it feels as inaccurate.31 Thus, petitioner prays that this Court admit and consider the reply attached to its motion. In the Resolution dated March 14, 2014, this Court granted the motion which consequently admitted petitioner's reply.32 STATEMENT OF ISSUES t The parties submitted the following issues33 for this Court's resolution: 26 Docket, pp. 537-540. 27 Docket, pp. 565-577. 28 Docket, pp. 582-583. 29 Docket, pp. 610-653. 30 Docket, pp. 729-744. 31 Docket, pp. 746-749. 32 Docket, p. 762. 33 Statement oflssues, JSFI, docket, pp. 136-!39.

DECISION CTA CASE NO. 8291 Page 10 of64 1. Whether or not petitioner is liable for deficiency income tax for taxable year 2006; 2. Whether or not petitioner is liable to pay deficiency value- added tax for taxable year 2006; 3. Whether or not petitioner is liable to pay deficiency withholding tax-compensation for taxable year 2006; 4. Whether or not petitioner is liable to pay deficiency expanded withholding taxes for taxable year 2006; and 5. Whether or not petitioner is liable to pay deficiency documentary stamp tax for taxable year 2006. DISCUSSION /RULING The issues presented before this Court essentially boils down to whether petitioner is liable for deficiency income tax, VAT, withholding tax-compensation, EWT, and DST for taxable year 2006. Petitioner mainly argues that respondent's assessments are erroneous. As to the alleged deficiency income, it claims that respondent failed to consider petitioner's net loss, including its Net Operating Loss Carry Over (NOLCO) which was never fully utilized to offset petitioner's loss during taxable year 2006 and also the Minimum Corporate Income Tax (MCIT) it paid. Respondent likewise failed to consider the input VAT of P375,966.79 in arriving at petitioner's alleged deficiency VAT. She also failed to consider the ten percent (10%) VAT rate imposed on transactions prior to the implementation of the twelve percent (12%) VAT rate on February 1, 2006, and being a pre-need company, its trust fund contributions were equally subjected to VAT in violation of Section 4.108-3UJ of Revenue Regulations (RR) No. 16-2005. As to its alleged deficiency withholding taxes, petitioner insists that respondent erroneously considered other employee benefits as part of their salaries and wages, which include retirement fund contribution, de minimis benefits, and seminar and training expenses. Lastly, petitioner claims that{

DECISION CTA CASE NO. 8291 Page II of64 there is no unreported revenue amounting to P4,920,369.00 for which to base its DST. On the other hand, respondent avers that the instant Petition for Review is nothing but a mere scrap of paper since Ms. Ma. Veronica S. Lao Guico's authority to sign the Verification and Certification in behalf of petitioner was without authority. The Secretary's Certificate34 attached to the Petition for Review shows that it was executed and notarized before the meeting of the Board of Directors was actually held. However, should this Court entertain said petition despite its flaw, the petition must still fail since petitioner failed to submit all relevant documents within sixty (60) days from the filing of protest in accordance with Section 228 of the NIRC of 1997, in relation to RR No. 12-99. Conversely, petitioner replies that respondent's statement is inaccurate and misleading. Petitioner claims that the date of the meeting was just inadvertently typed. Nonetheless, there is a distinction between non-compliance and substantial compliance with the requirements of verification and non- forum shopping. Further, respondent is already estopped from raising as an issue the typographical error in the Secretary's Certificate since she only raised the alleged defect in her Memorandum. Before proceeding to the crux of the controversy, this Court shall first address the other Issues raised by respondent. With regard to the issue of petitioner's non-compliance with the requirements of verification and certification, this Court finds the same as substantially complied with and is therefore entitled admission. Section 835 of Republic Act (R.A.) No. 1125,36 as amended, provides that the proceedings before this Honorable Court "shall not be governed strictly by technical rules of evidence". However, liberal application of{- 34 Exhibit "B". 35 SECTION 8. Court of record; seal; proceedings. - The Court of Tax Appeals shall be a court of record and shall have a seal which shall be judicially noticed. It shall prescribe the form of its writs and other processes. It shall have the power to promulgate rules and regulations for the conduct of the business of the Court, and as may be needful for the uniformity of decisions within its jurisdiction as conferred by law, but such proceedings shall not be governed strictly by technical rules of evidence. 36 An Act Creating the Court of Tax Appeals.

DECISION CTA CASE NO. 8291 Page 12 of64 procedural rules is allowed only when two requisites are present: (1) there is a plausible explanation for the non- compliance, and (2) the outright dismissal would defeat the administration of justice.37 In the instant case, petitioner sufficiently complied with the above-mentioned requisites. Its counsels explained the reason for the inadvertence in the Secretary's Certificate. To further deny due course of the instant case, especially when it is already submitted for decision, will certainly defeat the administration of justice. As correctly pointed out by petitioner in the case of Swedish Match Philippines, Inc. vs. The Treasurer of the City of Manila3B, the Supreme Court held that: "A distinction between noncompliance and substantial compliance with the requirements of a certificate of non-forum shopping and verification as provided in the Rules of Court must be made. In this case, it is undisputed that the Petition filed with the RTC was accompanied by a Verification and Certification of Non- Forum Shopping signed by Ms. Beleno, although without proof of authority from the board. However, this Court finds that the belated submission of the Secretary's Certificate constitutes substantial compliance with Sections 4 and 5, Rule 7 of the 1997 Revised Rules on Civil Procedure. A perusal of the Secretary's Certificate signed by petitioner's Corporate Secretary Rafael Khan and submitted to the RTC shows that not only did the corporation authorize Ms. Beleno to execute the required Verifications and/or Certifications of Non-Forum Shopping, but it likewise ratified her act of filing the Petition with the RTC. xxx XXX XXX XXX Clearly, this is not an ordinary case of belated submission of proof of authority from the board of directors. Petitioner-corporation ratified the authority of Ms. Beleno to represent it in the Petition filed before the RTC, particularly in Civil Case No. 03-108163, and consequently to sign the verification and certification of non-forum shopping on behalf of the corporation. This fact confirms and affirms her authority and gives this Court all the more reason to uphold that authority." (Emphasis supplied) Anent the issue that petitioner failed to submit all relevant documents within sixty (60) days from the filing of protest in accordance with Section 228 of the National Internal/- 37 Marcelino Domingo vs. Court ofAppeals, et al., G.R. No. 169122, February 2, 2010. 38 G.R. No. 181277, July 3, 2013.

DECISION CTA CASE NO. 8291 Page 13 of64 Revenue Code (NIRC) of 1997, in relation toRR No. 12-99, this Court has consistently held that the term "complete documents" should be understood to refer to those documents that are necessary to support the application for refund or tax credit certificate, as determined by the taxpayer. The BIR examiner can require the taxpayer to submit additional documents but the examiner cannot demand what type of supporting documents should be submitted. Otherwise, the taxpayer will be at the mercy of the examiner, who may require the production of documents that the taxpayer cannot submit. Moreover, it is basic that respondent ought to know the tax records of all taxpayers.39 The Supreme Court in the case of Commissioner of Internal Revenue vs. First Express Pawnshop Company, Inc.4o, answered the issue of what are relevant documents needed to be submitted to the Bureau of Internal Revenue, in the following manner: "The term 'relevant supporting documents' should be understood as those documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit additional documents. The BIR cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit." (Emphasis supplied) This Court will now address the merit of the claim. Section 203 of the NIRC of 1997, as amended, mandates that respondent should make an assessment for deficiency taxes within three (3) years from the last day prescribed by law to file the tax retum or the actual date of filing of such retum, whichever comes later. Any assessment notice issued beyond this three-year prescriptive period shall not be valid save in certain cases, to wit: "SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years after{- 39 Diageo Philippines, Inc. vs. Commissioner of Internal Revenue, CTA Case Nos. 7846 and 7865, January 16,2012, citing BPI-Family Savings Bank, Inc. vs. Court ofAppeals, eta/., G.R. No. 122480, April 12, , 2000 and Commissioner ofInternal Revenue vs. Ironcon Builders and Development Corporation, G.R. No. 180042, February 8, 20 I0. 40 G.R. Nos. 172045-46, June 16, 2009.

DECISION CTA CASE NO. 8291 Page 14 of64 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." However, since the matter of prescription was never raised as an issue in the instant case, this Court shall now go into the merits of the case. DEFICIENCY INCOME TAX- P2,737,817.02 In respondent's FDDA41 , she computed the alleged deficiency income tax for taxable year 2006, as follows: Taxable income per return P4,920,369.00 I"( 1 6 , 3 0 8 , 6 2 6 . 0 0 ) Add: Adjustment f'3,611,850.00 624,886.86 Unreported income (unaccounted 29,973.35 source of funds) 3,641,823.35 Taxable income- gross profit (.127) !'1,219,468.45 f' 4,266,710.21 Disallowed cost & expenses 25,000.00 f' 1,493,348.57 Discounts Non-deductible interest expense 1,244,468.45 Taxable income per re-audit p 2,737,817.02 Income tax due (35%) Add: Interest (20% per annum) Compromise penalty Total Deficiency Income Tax The determination of whether or not the assessment is correct shall depend on the propriety of the income imputed as well as the cost/expense deductions disallowed by respondent, namely: a. Unreported income 1"4,920,369.00 b. Discounts 3,611,850.00 c. Interest expense 29,973.35 41 Exhibit "F", p. I.

DECISION CTA CASE NO. 8291 Page 15 of64 Each shall be discussed accordingly for the proper disposition of the income tax assessment. a. Unreported Income- P4,920,369.00 Respondent charged petitioner of an alleged undeclared income in the amount of P4,920,369.00 based on the following finding: 42 1. Comparison made between Bond Placements per Documentary Stamp Tax (DST) Returns (tax base) of P62,276,610.00 versus the increase in bond placement per FS of P57,356,241.00 showed a difference of P4,920,369.00. Applying the Gross Profit Rate of 12.7% yielded and [sic] a gross profit of 1'624,886.86. Hence, deficiency income tax is hereby assessed pursuant to Section 32 of the National Internal Revenue Code (NIRC). Examination of petitioner's Notes to Financial Statements43 for the years ended December 31, 2006 and 2005, particularly, Note 12, disclosed that petitioner has trust funds which are being administered by three (3) local banks under trust agreements for the fulfillment of petitioner's obligations under the pre-need pension and education plan agreements. In compliance with the rules and regulations of the Securities and Exchange Commission (SEC) and in accordance with the terms of the trust agreements, no withdrawal shall be made from the trust funds except to: (a) pay all costs, expenses and charges incurred in connection with the administration, preservation, maintenance and protection of the trust fund or any part thereof needed for the payment of benefits; (b) settle, compromise or abandon all claims and demands in favor of or against the trust fund, with the prior written consent of petitioner; and engage in investing activities. The amount of P57,356,241.0044 increase in Financial Assets at Fair Value through Profit or Loss (FVPL) represents additional investments in government securities, shares of stocks and unrealized market gain on valuation acquired by/ 42 Exhibit "F", Annex A, p. I. 43 Exhibit "H", Notes to Financial Statements, Note 12, p. 20. 44 Exhibit "H", Notes to Financial Statements, Note 12, p. 20 (the difference between P348,104,977.00 and P290,748,736.00).

DECISION CTA CASE NO. 8291 Page 16 of64 the trustee banks for the trust funds.45 These Financial Assets at FVPL formed part of the trust funds' Assets on Investments managed independently by the trustee banks for the benefits of the plan holders. The transactions relating to the trust funds' investments are being recorded in a separate book, the trust being an entity with separate and distinct legal personality. As such, taxes relating to the trust funds' assets are being paid by the trustee bank out of the trust funds. 46 On the other hand, the amount of P62,276,610.00 tax base reflected in petitioner's DST returns47 pertains to bonds and loan agreements entered into by petitioner for which it paid DST. Considering that the trustee banks were the ones responsible for the P57,356,241.00 increase in Financial Assets at FVPL of the trust funds' investments, it was erroneous for respondent to compare the said amount with the P62,276,610.00 value of the bonds and loan agreements entered into by petitioner itself and, thereafter, conclude the difference between the two amounts as petitioner's unaccounted source of income. Moreover, the composition of the two amounts differs; the amount of P57,356,241.00 pertains to government securities, shares of stocks and unrealized market gain on valuation whereas the amount of P62,276,610.00 refers to bonds and loan agreements. While axiomatic is the fact that all presumptions are in favor of the correctness of tax assessments, the assessment itself should not only be based on mere presumptions, no matter how logical the presumption might be. It has consistently been held that in order to stand the test of judicial scrutiny, the assessment must be based on actual facts. 48 For lack of factual basis, the deficiency income tax V assessment corresponding to the alleged P4,920,369.00 unaccounted source of income should be cancelled. 45 Exhibit "H", Notes to Financial Statements, p. 9. 46 Exhibit "GGG 13-6", Article Ten; Exhibit "GGG13-7", Article Eleven; Exhibit "GGG 13-4", Article Six, 6.2.1 0. 47 Exhibits "Y" to "II" and BIR Records, pp. 126-127. 48 Collector ofInternal Revenue vs. Benipayo, G.R. No. L-13656, January 31, 1962.

DECISION CTA CASE NO. 8291 Page 17 of64 b. Disallowed Cost and Expenses- P3,641,823.35 Disallowance of cost and expenses in the total amount of P3,641,823.35, consisting of discounts and interests in the respective amounts of P3,611,850.00 and P29,973.35, was the result of the reconciliations made by respondent's examiner between petitioner's Financial Statements (FS) and Income Tax Return (ITR). Respondent claims that said cost and expenses were not supported by any documentary proof, despite repeated requests, to prove that such costs and expenses were incurred and deductible during the year under re-audit. Consequently, these were disallowed pursuant to Section 34(K) of the NIRC of 1997, as amended.49 Corollary, on the disallowed discounts of P3,611,850.00, petitioner explained that discounts are recorded and presented in the books as direct costs. While premium collections are recorded and presented in the books as gross of discounts for internal monitoring. Petitioner also claims that these discounts constitute income and actual receipts, which should be allowed as deduction for income tax purposes since under Section 27 of the NIRC of 1997, as amended, the term "gross income" means gross receipts less sales returns, allowances and discounts.so Perusal of petitioner's Statements of Income and Notes to Financial Statements, specifically Note 15s1, for the years ended December 31, 2006 and 2005 discloses that the account "Discounts" in the amount of P3,611,850.00 is one of the items reported under "Other Direct Costs and Expenses". The Court-commissioned ICPA, Mr. Julito Tabalba, on his examination of the VAT official receipts (ORs), found that discounts granted by petitioner amounted to P2,108,043.86.52 However, verification thereof in the summary schedules shows a lower amount by P3,380.40, as computed below:~ 49 Exhibit "F", Annex A, p. I. 50 BIR Records, p. 618. 51 Exhibit "H". 52 Exhibit "PPP", p. 14.

DECISION CTA CASE NO. 8291 Page 18 of64 Month Exhibit Discount Per ICPA Difference Per Summary January "ZZ-1" to "ZZ-9", LLL-7 Schedule Februarv March "ZZ-10" to "ZZ-18" p 50,630.00 p 50,858.75 p 1228.75) April "ZZ-19" to "ZZ-26" May "ZZ-27" to "ZZ-34" 138,868.48 138,868.48 - "ZZ-35" to "ZZ-46", June LLL-11 to LLL-12 187,554.89 187,554.89 - "ZZ-47" to "ZZ- 51", Juiv LLL-16 to LLL-19 102,035.90 102,035.90 - August "ZZ-52" to "ZZ-58" Seotember "ZZ-59" to "ZZ-67" 215,025.81 215,025.81 - October "ZZ-68" to "ZZ-75" November "ZZ-76" to "ZZ-83" 220,529.21 220,529.21 - "ZZ-84" to "ZZ-90", 171,438.70 171,438.70 - December LLL-23 to LLL-24, 210,418.85 210,418.85 - Total 323,370.81 326,413.86 LLL-26 205,541.02 205,541.02 13,043.051 "ZZ-91" to "ZZ-99" - 101,617.35 101,617.35 - 177,632.44 177,741.04 (108.60) p 2,104,663.46 p 2,108,043.86 p 13,380.401 In addition, scrutiny of the ORs submitted by petitioner reveals that out of the P2,104,663.46 sales discounts per schedules, the amount of P1,722,711.52 shall be disallowed due to the following reasons: Exhibit Date Customer No.J O.R. Discount No. 1. No discount was indicated in the O.R. ss 39 4-Jao-06 MMI Pension 45339 p 4,519.56 45346 394.80 SS46 16-Jan-06 Banico, E. 45347 117.00 16-Jan-06 Castro, R. 45482 114.69 ss 47 12-Jan-06 Francisco, Geronimo 45825 289.80 ss 182 17-Jan-06 Yap, M. 45857 781.40 ss 525 5-Jao-06 Alamat Crew 45868 896.60 ss 557 11-Jan-06 CASSC 45870 123.30 ss 568 11-Jan-06 MET! 45874 192.45 ss 570 11-Jan-06 D. ASSET 45876 43.80 ss 574 11-Jan-06 Cadenza Emplovee 45877 298.10 ss 576 11-Jan-06 DAKILA 45878 108.60 ss 577 11-Jan-06 Exito Employee 45879 78.00 ss 578 11-Jan-06 BONITA 45880 78.00 ss 579 11-Jan-06 TRANS M 45961 234.00 ss 580 26-Jan-06 Tambolero, M. 46001 64.10 ss 661 18-Jan-06 LA WIN 46004 144.90 ss 701 18-Jao-06 MAUNLAD 46005 449.60 ss 704 18-Jan-06 NEOMARINE 46009 370.80 ss 705 18-Jan-06 AMEX 46034 ss 709 24-Jan-06 SMI 46037 6,391.95 ss 734 24-Jan-06 SMI 46038 457.50 ss 737 24-Jan-06 !PSI 46039 228.75 ss 738 24-Jan-06 TCL 783.00 ss 739

DECISION CIA CASE NO. 8291 Page 19 of64 ss 744 24-Jan-06 VISION AIR 46044 1,189.50 ss 803 25-Jan-06 TAC 46103 810.00 ss 808 27-Jan-06 ASIAN A 46108 274.40 ss 855 31-Jan-06 Jennifer Humandv 46155 381.50 ss 1636 27-Jan-06 Villacorta, R. 46936 83.00 ss 816 1-Feb-06 ASIANA PHILS. 46116 274.40 4-Feb-06 TMDC 46124 530.60 SS824 16-Feb-06 TAC 46311 810.00 20-Feb-06 NEO MARINE 46322 449.60 ss 1011 1-Feb-06 Pramis, A. 45969 117.00 ss 1032 2-Feb-06 Duhina, J. 45970 140.00 ss 669 2-Feb-06 TMDC 45978 228.75 ss 670 2-Feb-06 NET! 45979 305.00 ss 678 20-Feb-06 Yao,M. 45990 289.80 ss 679 20-Feb-06 Looez, C. 45992 128.00 1-Feb-06 ASIAN A 46117 SS690 4-Feb-06 JRDC 46123 2,595.98 SS692 13-Feb-06 TESI 46138 228.75 SS817 13-Feb-06 TESI 46139 SS823 13-Feb-06 D. WONDER 46143 1,297.20 SS838 13-Feb-06 HOKOKU 46145 686.25 SS839 13-Feb-06 DONGJIN 46146 SS843 3-Feb-06 YAS BROKERAGE 46171 1,110.00 SS845 16-Feb-06 Carimoong, C. 46198 6,538.50 SS846 16-Feb-06 NFJSC- CEBU 46312 1,751.40 SS871 16-Feb-06 NFJSC 46313 SS898 16-Feb-06 NFJSC CEBU 46314 76.25 SS1012 16-Feb-06 NFJSC 46315 825.00 SS1013 17-Feb-06 EPERFORMAX 46317 131.60 SS1014 20-Feb-06 MATATAG 46318 1,658.75 SS1015 20-Feb-06 VROON 46319 131.60 SS1017 20-Feb-06 ALAMAT 46321 1,619.75 SS1018 20-Feb-06 EX! TO 46324 391.40 SS1019 20-Feb-06 LAWIN 46326 144.90 SS1021 20-Feb-06 HNGKNGFLEET 46327 3,014.80 SS1024 20-Feb-06 CADENZA 46331 1,550.00 SS1026 20-Feb-06 BONITA 46333 731.20 SS1027 20-Feb-06 PRSPRDD 46335 1,170.00 SS1031 20-Feb-06 D. ASSET 46336 312.00 SS1033 20-Feb-06 EX! TO 46338 3,061.70 SS1035 20-Feb-06 MET! 46339 SS1036 20-Feb-06 TLSC 46340 78.00 SS1038 20-Feb-06 DOLPHIN MGT 46341 538.30 SS1039 20-Feb-06 TDGI 46342 192.45 SS1040 20-Feb-06 KAPALARAN 46343 108.60 SS1041 20-Feb-06 KMTC 46452 413.10 SS1042 21-Feb-06 CASSC 46457 1,952.65 SS1043 22-Feb-06 Go, A. 46459 662.00 SS1152 22-Feb-06 !PSI 46462 1,051.00 SS1157 28-Feb-06 ADTOURS 46476 107.90 SS1159 16-Mar-06 NFJSC 46758 118.95 576.80 SS1162 309.40 SS1167 1,247.85 SS1458 5,788.40 838.75

DECISION CTA CASE NO. 8291 Page 20 of64 SS2702 4-Jul-06 KMTC 48002 158.60 SS872 3-Feb-06 YUSEN 46172-4 305.00 3-Feb-06 YAS BROKERAGE 46172-5 305.00 ss 872 13-Feb-06 TRANS M 46307-2 3,551.80 20-Feb-06 DAKILA 46332-2 128.20 SS1007 21-Feb-06 NYKSIN 46455-3 38,998.70 SS1032 21-Feb-06 JCL 46455-4 969.00 SS1155 21-Feb-06 ICMA 46455-5 1,210.70 SS1155 21-Feb-06 HACHIUMA 46455-6 14,394.55 SS1155 21-Feb-06 HOKOKU 46455-7 772.60 SS1155 21-Feb-06 NYKLINE 46455-8 1,659.80 SS1155 7-Mar-06 TLSC 6,859.45 SS1155 3-Mar-06 TLI 893 1 213.05 TT743 20-Feb-06 LAWIN 45997 399.69 SS697 20-Feb-06 TLI 46334 1,833.85 SS1034 20-Feb-06 KAPALARAN 46340 107.90 SS1040 1-Mar-06 Esteban, M. 46343 SS1043 3-Mar-06 PIZZATEK 46429 78.00 SS1129 1-Mar-06 SMI 46438 131.40 SS1138 1-Mar-06 D. MAGIC 46461 7,561.65 SS1161 2-Mar-06 CASSC 46481 2,008.50 SS1181 3-Mar-06 TMDC 46486 836.60 SS1186 3-Mar-06 TOG! 46497 551.60 SS1197 3-Mar-06 TOG! 46499 535.60 SS1199 24-Mar-06 Raneses, Pacita 46500 2,369.00 SS1200 7-Mar-06 NET! 46535 7,800.00 SS1235 7-Mar-06 TMDC 46552 1 247.85 SS1252 7-Mar-06 MMI 46556 943.20 SS1256 9-Mar-06 VISION AIR 46559 6,362.90 9-Mar-06 ASIANA 46560 ss 1259 13-Mar-06 NLPH 46566 87.60 9-Mar-06 EXITO 46569 274.40 SS1260 9-Mar-06 EXITO 46572 5,188.85 SS1266 9-Mar-06 LAWIN 46572 108.60 SS1269 9-Mar-06 NEOMARlNE 46574 108.60 SS1272 9-Mar-06 CADENZA 46576 SS1272 9-Mar-06 CADENZA 46577 64.10 SS1274 10-Mar-06 KAPALARAN 46578 513.70 SS1276 10-Mar-06 MANDARA 46580 SS1277 10-Mar-06 DYNAMIC ASSET 46582 43.80 SS1278 10-Mar-06 DOLSHIP 46583 165.60 SS1280 10-Mar-06 DALEX 46584 107.90 SS1282 10-Mar-06 MAUNLAD 46587 800.00 14-Mar-06 TAC 46592 192.45 ss 1283 14-Mar-06 DONGJIN 46593 396.50 15-Mar-06 FETRAN 46595 972.40 SS1284 15-Mar-06 TRANS M 46597 SS1287 15-Mar-06 HOKOKU 46598 87.60 SS1292 9-Mar-06 MMS 46599 686.25 SS1293 24-Mar-06 MMI 46603 2,217.00 SS1295 24-Mar-06 MMI 46604 1,465.70 SS1297 46605 4,731.80 SS1298 4,713.80 SS1299 198.40 SS1303 305.00 SS1304 846.00 SS1305

DECISION CTA CASE NO. 8291 Page 21 of64 SS1367 16-Mar-06 Yap,M. 46667 217.35 SS1373 17-Mar-06 Pramis, A. 46673 117.00 SS1381 23-Mar-06 Albacete, J. 46681 394.80 SS1403 20-Mar-06 Sanglav, R. 46703 171.00 SS1409 20-Mar-06 Batulan, R. 46709 164.00 SS1453 16-Mar-06 CASSC 46753 1,070.60 SS1457 16-Mar-06 NFJSC 46757 848.75 SS1461 16-Mar-06 NESC 46761 231.30 SS1479 22-Mar-06 CADENZA 46779 1,529.40 SS1481 23-Mar-06 EX! TO 46781 287.60 SS1482 23-Mar-06 Vroon-ideal 46782 2,096.20 SS1483 23-Mar-06 LA WIN 46783 399.00 SS1485 23-Mar-06 HKG FLT 46785 312.00 SS1487 23-Mar-06 PRSPRDD 46787 710.60 SS1489 23-Mar-06 D. WONDER 46789 1,347.00 SS1491 23-Mar-06 ALAMAT 46791 1,398.00 23-Mar-06 Vroon-ideal 46793 2,096.20 ss 1493 29-Mar-06 NYKSMI 46794 7,085.15 29-Mar-06 IPS! 46795 261.30 SS1494 23-Mar-06 D. Magic 46797 1,951.50 SS1495 29-Mar-06 NET! 46798 1,641.65 SS1497 30-Mar-06 ADTOURS 46799 5,891.60 SS1498 3-Mar-06 Fit 45996-1 SS1499 3-Mar-06 TWFI 45996-2 43.80 SS696 3-Mar-06 TLI 45996-3 51.70 SS696 6-Mar-06 YUSEN STAFF 46424-1 1,213.05 SS696 6-Mar-06 YUSENMGMT 46424-2 1,359.30 16-Mar-06 NFJSC-CEBU 46757-1 683.30 ss 1124 17-Mar-06 COSMIC 46763-1 131.60 17-Mar-06 NYK SIN 46763-3 166.00 SS1124 17-Mar-06 JCL 46763-4 34,806.30 SS1457 17-Mar-06 ICMA 46763-5 1,295.00 SS1463 17-Mar-06 HACHIUMA 46763-6 7,080.40 SS1463 17-Mar-06 HOKOKU 46763-7 14,867.65 SS1463 17-Mar-06 NYKLINE 46763-8 772.60 SS1463 17-Mar-06 TMM 46763-9 2,284.00 SS1463 26-Apr-06 MMS 46615 6,267.20 SS1463 3-Apr-06 YAS BROKERAGE 46865 198.40 SS1463 3-Apr-06 Yusen 46866 228.75 SS1463 3-Apr-06 NCT 46872 1,220.00 SS1315 3-Apr-06 NCT 46874 637.90 SS1565 3-Apr-06 NCT 46875 637.90 SS1566 4-Apr-06 VISION AIR 46884 533.75 SS1572 3-Apr-06 YAS BROKERAGE 46885 538.30 SS1574 5-Apr-06 TCL 46886 991.50 SS1575 6-Apr-06 TLSC 46892 783.00 SS1584 6-Apr-06 TLI 46894 634.40 SS1585 5-Apr-06 FIT 46895 1,213.05 SS1586 5-Apr-06 TWFI 46897 43.80 SS1592 6-Apr-06 TESI 46899 51.70 5-Apr-06 Martinez, Renvi 46900 946.20 ss 1594 3,903.90 SS1595 SS1597 SS1599 SS1600

DECISION CTA CASE NO. 8291 Page 22 of64 SS1633 19-Apr-06 Yap, M. 46933 217.35 SS1682 25-Apr-06 TMDC 46982 551.60 SS1684 25-Aor-06 TMDC 46984 305.00 SS1701 6-Apr-06 TESI 47001 3,736.25 SS1702 6-Apr-06 MMI 47002 4,428.20 SS1710 6-Apr-06 LAWIN CREW 47010 803.90 SS1712 6-Apr-06 ALAMAT 47012 1,085.40 SS1715 6-Apr-06 NEO MARINE 47015 904.00 SS1716 6-Apr-06 MATATAG 47016 144.90 SS1717 6-Apr-06 EXITO CREW 47017 209.60 SS1718 6-Apr-06 CADENZA 47018 1,529.40 SS1719 6-Apr-06 D. Asset 47019 192.45 SS1720 6-Apr-06 Meti 47020 413.10 SS1721 6-Apr-06 Cadenza Emp 47021 121.80 SS1722 6-Apr-06 Exito Emp 47022 108.60 SS1724 6-Apr-06 KAPALARAN 47024 107.90 SS1725 6-Apr-06 LA WIN 47025 SS1729 6-Apr-06 NEOMARINE 47029 64.10 SS1730 7-Apr-06 PIZZATEK 47030 513.70 SS1734 10-Apr-06 SMI 47034 109.50 SS1735 10-Apr-06 NCT 47035 838.75 SS1740 12-Apr-06 DOLPHIN 47040 533.75 SS1741 12-Apr-06 DOLPHIN MGMT 47041 237.90 SS1742 12-Apr-06 Dongiin 47042 662.00 SS1743 12-Apr-06 Hokoku 47043 2,537.70 SS1748 18-Apr-06 TOG! 47048 4,713.40 SS1749 18-Aor-06 !LSI 47049 700.00 SS1751 18-Apr-06 FETRAN 47051 18-Apr-06 TRANS M 47052 20.60 ss 1752 18-Apr-06 ASIAN A 47054 539.50 19-Apr-06 KMTC 47055 821.90 SS1754 20-Apr-06 NLPH 47057 274.40 SS1755 20-Apr-06 NLPH 47058 118.95 SS1757 20-Apr-06 TESI 47059 4,364.50 SS1758 27-Apr-06 TOG! 47076 4,364.50 SS1759 27-Apr-06 D. Magic 47079 946.20 SS1776 27-Apr-06 YAS BROKERAGE 47080 391.40 SS1779 28-Apr-06 A1vior, B. 47084 2,087.70 SS1780 28-Apr-06 Mendoza, R. 47085 991.50 SS1784 28-Apr-06 TRANS M 47089 4,935.00 SS1785 28-Apr-06 SMI 47093 788.40 SS1789 28-Apr-06 !PSI 47095 SS1793 28-Apr-06 NET! 47099 78.00 SS1795 27-Apr-06 MMI Crew 47158 4,662.60 SS1799 24-Apr-06 COSMIC 47060-1 SS1858 24-Apr-06 CSPLDT 47060-2 392.90 SS1760 24-Apr-06 JCL 47060-4 994.50 SS1760 24-Apr-06 ICMA 47060-5 4,503.90 SS1760 24-Apr-06 HACHIUMA 47060-6 466.00 SS1760 24-Apr-06 HOKOKU 47060-7 625.40 SS1760 24-Apr-06 NYKLINE 47060-8 815.00 SS1760 6,712.00 SS1760 4 086.90 772.60 1,703.20

DECISION CTA CASE NO. 8291 Page 23 of64 SS1760 24-Apr-06 TMMCREW 47060-9 2,581.30 SS1763 47063-1 1 358.30 SS1763 24-Apr-06 YUSEN STAFF 47063-2 SS1764 24-Apr-06 YUSENMGMT 47064-1 683.30 10-May-06 MMI employees 47064-2 1,359.30 ss 1764 2-May-06 EPERFORMAX 46625 4-May-06 47159 686.30 SS1325 4-May-06 Matawaran, R. 47170 4,519.56 SS1859 5-May-06 47171 SS1870 5-May-06 Flores, E. 47174 391.40 SS1871 8-May-06 TESI 47175 175.20 SS1874 8-May-06 TESI 47178 175.20 8-May-06 CASSC 47179 2,247.50 ss 1875 8-May-06 CASSC 47182 762.50 8-May-06 ADTOURS 47183 1,070.60 SS1878 9-May-06 ADTOURS 47186 226.20 SS1879 9-May-06 TDGI 47189 4,342.20 SS1882 9-May-06 TMDC 47194 5,417.80 SS1883 9-Mav-06 DALEX 2,142.40 SS1886 9-Mav-06 DOLPHIN MGMT 47196 551.60 SS1889 16-May-06 Transnational Resources, Inc 47199 184.00 SS1894 9-May-06 Neomarine Emp 47200 662.00 SS1896 9-May-06 Yap,M. 47220 SS1899 9-May-06 LA WIN 47352 87.60 SS1900 9-Mav-06 KAPALARAN 47354 513.70 SS1920 9-May-06 EXITO 47356 217.35 SS2052 9-May-06 CADENZA 47357 SS2054 9-May-06 D. ASSET 47358 64.10 SS2056 9-May-06 Aguirre, Roberto 47359 107.90 SS2057 9-Mav-06 MET! 47360 108.60 SS2058 11-May-06 Aguirre, Roberto 47362 121.80 SS2059 11-May-06 Virtusio, Domingo 47363 192.45 SS2060 15-May-06 Dong Jin Crew 47367 530.40 SS2062 15-May-06 HOKOKU 47368 268.20 SS2063 15-May-06 D. WONDER 47372 1,383.00 SS2067 16-May-06 Fetran 47374 109.50 SS2068 18-May-06 TRANS M 47375 3,132.10 24-Mav-06 TDC 47382 2,397.50 ss 2072 24-Mav-06 !PSI 47400 678.80 24-May-06 MMI EMP 47403 5,171.50 SS2074 18-May-06 MMI 47404 781.90 SS2075 MMI 47407 686.25 SS2082 22-Mav-06 NET! 47452 144.30 SS2100 22-May-06 NYKFIL 47453 846.00 SS2103 22-May-06 YAS BROKERAGE 47465 243.00 SS2104 22-May-06 YUSEN 47467 6,350.70 SS2107 22-Mav-06 NFJSC 47472 706.50 SS2152 22-May-06 NESC 47474 4,782.45 SS2153 22-May-06 NFJSC 47475 765.90 SS2165 22-May-06 NFJSC 47476 915.00 SS2167 NFJSC-MANILA 47482-2 3,355.00 SS2172 TLI 47486 667.50 1,658.75 ss 2174 131.60 131.60 SS2175 SS2176 79.30 SS2182 SS2186

DECISION CTA CASE NO. 8291 Page 24 of64 SS2187 22-May-06 TLI 47487 1,213.05 SS2189 22-May-06 TLI 47489 118.95 SS2194 22-May-06 TLI 47494 SS2196 22-Mav-06 VISION AIR 47496 1,213.05 SS2197 23-May-06 ASIAN A 47497 280.00 SS2198 23-May-06 ASIAN A 47498 185.40 SS2202 24-May-06 NCT 47502 SS2207 24-May-06 NLPH 47507 1,998.20 SS2211 25-Mav-06 VISION AIR 47511 637.90 SS2219 25-May-06 Doiphin-Dodongo, B. 47519 SS2221 25-May-06 VROON 47521 4,696.50 SS2224 26-May-06 DALEX 47524 304.90 SS2226 26-Mav-06 KAGITINGAN 47526 SS2227 26-Mav-06 Maunlad Crew 47527 2,377.60 SS2228 26-May-06 EXITO 47528 731.60 SS2229 26-May-06 ASIAN A 47529 382.00 SS2230 26-May-06 CADENZA 47530 SS2233 26-May-06 NEOMARINE 47533 1,974.00 SS2234 26-Mav-06 PROSPERIDAD 47534 156.00 SS2237 26-May-06 IDEAL 47537 209.60 SS2239 26-May-06 ALAMAT 47539 274.40 SS2242 29-Mav-06 TCL 47542 SS2247 30-Mav-06 TMDC 47547 1,973.40 SS2260 30-May-06 LA WIN 47560 2,257.00 SS2262 31-May-06 SMI 47562 SS2095 18-Mav-06 TDGI 47395-1 355.90 SS2095 18-Mav-06 NYKFIL 47396-1 829.80 SS2155 22-May-06 AMBULO YUSEN 47455-7 304.00 SS2155 22-May-06 COSMIC 47455-1 783.00 SS2155 22-May-06 NYKSIN 47455-3 228.75 SS2155 22-Mav-06 JCL 47455-4 1,830.40 SS2155 22-Mav-06 ICMA 47455-5 1,601.25 SS2155 22-May-06 NYKLINE 47455-8 262.00 SS2155 22-May-06 TMM 47455-9 594.10 SS2169 22-May-06 YUSEN STAFF 47469-1 772.60 SS2169 22-Mav-06 YUSEN MGMT 47469-2 166.00 SS2182 22-May-06 NFJSC 47482-1 28,668.60 SS2182 22-May-06 NFJSC-CEBU 47482-2 903.00 SS2284 7-Jun-06 Lao Guico Ma. Veronica 47584 7,220.20 SS2343 15-Jun-06 Siin, Marlon 47643 2,469.20 SS2345 16-Jun-06 Yap, Margie 47645 4,202.00 SS2451 13-Jun-06 VROON 47751 1,446.90 SS2452 13-Jun-06 PROSPERIDAD 47752 683.30 SS2455 13-Jun-06 LA WIN 47755 1,658.75 SS2457 13-Jun-06 IDEAL 47757 131.60 SS2459 14-Jun-06 EXITO 47759 1,052.80 SS2460 14-Jun-06 ALAMAT 47760 103.40 SS2461 14-Jun-06 CADENZA 47761 217.35 SS2463 14-Jun-06 CADENZA 47763 731.60 SS2464 14-Jun-06 EXITO 47764 355.90 SS2467 14-Jun-06 LA WIN 47767 803.90 829.80 822.80 304.00 2,832.60 121.80 108.60 64.10

DECISION CTA CASE NO. 8291 Page 25 of64 SS2471 14-Jun-06 D. ASSET 47771 192.45 SS2472 14-Jun-06 DOLPHIN MGMT 47772 530.40 SS2473 14-Jun-06 D. Magic 47773 1,577.50 SS2474 14-Jun-06 D. WONDER 47774 678.80 14-Jun-06 VISION AIR 47775 304.90 ss 2475 15-Jun-06 NET! 47776 968.70 15-Jun-06 !PSI 47777 144.30 SS2476 15-Jun-06 NYK SMI 47778 4,437.30 SS2477 16-Jun-06 NESC 47779 667.50 SS2478 16-Jun-06 NEOMARINE 47783 449.60 SS2479 16-Jun-06 DONGJIN 47786 641.40 SS2483 16-Jun-06 HOKOKU 47787 8,562.60 SS2486 16-Jun-06 RET PLAN 47788 84,329.50 SS2487 16-Jun-06 TRANS M 47789 1,143.90 16-Jun-06 FETRAN 47790 1,636.70 ss 2488 20-Jun-06 ASIAN A 47800 274.40 29-Jun-06 Operana, E. 47814 460.00 SS2489 29-Jun-06 Operana, E. 47815 525.00 SS2490 30-Jun-06 YUSEN 47818 2,058.75 SS2500 20-Jun-06 ASIAN A 47851 123.60 SS2514 21-Jun-06 PIZZATEK 47857 109.50 SS2515 21-Jun-06 D. WONDER 47858 1,344.90 SS2518 21-Jun-06 D. Magic 47859 796.50 SS2551 23-Jun-06 TCL 47866 783.00 SS2557 29-Jun-06 DALEX 47873 382.00 SS2558 28-Jun-06 CASSC 47876 1 503.80 SS2559 28-Jun-06 CASSC 47876 1 070.60 SS2566 28-Jun-06 SMI 47880 11,971.25 SS2573 28-Jun-06 !PSI 47881 1,448.75 SS2576 29-Jun-06 MMI PENSION 47885 4,519.56 SS2576 30-Jun-06 MMI 47886 228.75 SS2580 30-Jun-06 PIZZATEK 47887 109.50 SS2581 30-Jun-06 NLPH 47888 4,123.50 SS2585 30-Jun-06 Elmer Paredes 47957 SS2586 5-Jun-06 ADTOURS 47626-1 1.05 SS2587 30-Jun-06 YUSENMGMT 47644-3 5,643.30 SS2588 16-Jun-06 NFJSC 47782-1 SS2657 16-Jun-06 NFJSC-CEBU 47782-2 815.30 SS2326 26-Jul-06 MMS 47427 848.75 SS2344 31-Jul-06 TMDC 47430 131.60 SS2482 26-Jul-06 TMDC 47434 198.40 SS2482 27-Jul-06 MMI 47435 551.60 SS2127 26-Jul-06 MMI 47437 4,346.25 SS2130 31-Jul-06 MAUNLAD 47848 3,923.90 SS2134 14-Jul-06 NET! 47891 1,316.00 SS2135 16-Jul-06 CASSC 47893 SS2137 17-Jul-06 NLPH 47894 87.60 SS2548 16-Jul-06 TDGI 47899 1,982.50 SS2591 16-Jul-06 Volfango, Edna 47959 1,172.15 SS2593 16-Jul-06 Volfango, Edna 47961 2,058.75 SS2594 16-Jul-06 Figueras, Kerwin 48002 SS2599 638.60 SS2659 166.00 SS2661 157.50 SS2702 158.60

DECISION CTA CASE NO. 8291 Page 26 of64 SS2705 16-Ju1-06 Jimenez, Theresa 48005 771.00 SS2774 31-Ju1-06 Yusen 48074 27,297.50 SS2775 31-Ju1-06 Yusen 48075 SS2776 31-Ju1-06 YAS BROKERAGE 48076 76.25 SS2780 31-Ju1-06 Carpio, Judv 48080 10,675.00 SS2796 31-Ju1-06 ADTOURS 48096 SS2797 31-Ju1-06 ADTOURS 48097 87.60 SS2853 26-Ju1-06 KMTC 48153 251.85 SS2854 26-Ju1-06 KMTC 48154 1,009.40 SS2856 26-Ju1-06 TAC 48156 SS2857 26-Ju1-06 TAC 48157 39.65 SS2858 26-Ju1-06 JRDC 48158 1427.4 SS2859 26-Ju1-06 KAMRAZ 48159 228.70 SS2860 26-Ju1-06 TDC 48160 1,448.70 SS2861 31-Ju1-06 DOLPHIN MGT 48161 228.75 SS2862 25-Ju1-06 KYOKKO 48162 228.75 SS2864 31-Ju1-06 FETRAN 48164 838.75 SS2865 29-Ju1-06 TRANS M 48165 530.40 SS2866 31-Jul-06 NET! 48166 1,467.10 SS2867 31-Ju1-06 KAPALARAN 48167 1,459.10 SS2868 31-Ju1-06 LAWIN EMP 48168 2,787.00 SS2875 31-Ju1-06 NEOMARINE 48175 1,282.10 SS2876 31-Ju1-06 PROSPERIDAD 48176 107.90 SS2877 31-Ju1-06 DOLPHIN-TRI 48177 SS2878 31-Ju1-06 CADENZA 48178 64.10 SS2879 31-Ju1-06 DAC 48179 449.60 SS2880 31-Ju1-06 EXITO EMP 48180 SS2883 26-Ju1-06 NLPH 48183 43.80 SS2885 31-Ju1-06 NYK-SMI 48185 43.80 SS2886 31-Ju1-06 !PSI 48186 121.80 SS2887 31-Ju1-06 TCL 48187 192.45 SS2888 26-Ju1-06 TOG! 48188 108.60 SS2889 31-Ju1-06 KPD !PC fr. JRD 48189 4,429.30 SS2893 26-Ju1-06 MMI 48193 4,487.60 SS2894 26-Ju1-06 MMI EMP 48194 144.30 SS2900 26-Ju1-06 EXITO 48200 1,258.00 SS2952 26-Ju1-06 PROSPERIDAD 48252 700.00 SS2955 26-Ju1-06 MATATAG 48255 18,328.90 SS2958 31-Ju1-06 TESI 48258 846.00 SS2960 29-Ju1-06 CADENZA 48260 243.00 SS2962 29-Ju1-06 ALAMAT 48262 822.80 SS2967 31-Ju1-06 KMTC 48267 7,131.90 SS2973 31-Ju1-06 Operana, Edgar 48273 250.00 SS2977 31-Ju1-06 IDEAL 48277 2,116.10 SS2701 16-Ju1-06 TWFI 48001-2 1,710.20 SS2701 16-Ju1-06 FIT 48001-3 304.00 SS2863 31-Ju1-06 D. WONDER 48163-1 118.95 SS2866 31-Ju1-06 NETIADD'L 48166-1 460.00 SS2897 26-Ju1-06 COSMIC 48197-1 829.80 SS2897 26-Ju1-06 CSPLDT 48197-2 51.70 SS2897 26-Ju1-06 JCL 48197-4 43.80 616.80 87.60 166.00 1,620.70 1,479.00

DECISION CTA CASE NO. 8291 Page 27 of64 SS2897 26-Jul-06 HACHIUMA 48197-6 12,375.30 SS2897 26-Jul-06 HOKOKU 48197-7 250.00 SS2897 26-Jul-06 NYKLINE 48197-8 SS2897 26-Jul-06 TMM 48197-9 1,406.10 SS2918 16-Aug-06 Edmon Vitacion 48218 5,942.50 SS2981 14-Aug-06 ASIAN A 48281 SS2982 14-Aug-06 ASIAN A 48282 816.00 SS2987 14-Aug-06 NFJSC 48287 1,812.80 SS2990 14-Aug-06 NESC 48290 SS2991 14-Aug-06 NCT 48291 123.60 SS2992 14-Aug-06 NCT 381.25 SS2993 14-Aug-06 NESC 48292 15,173.75 SS2994 14-Aug-06 NYK-FJSC 48293 19,977.50 SS2996 14-Aug-06 TOG! 48294 1,421.30 SS2997 14-Aug-06 TOG ASIA 48296 667.50 SS3000 14-Aug-06 TLI 48297 848.75 SS3067 16-Aug-06 YAS BROKERAGE 48300 SS3096 31-Aug-06 PIZZATEK 48367 61.80 SS3101 14-Aug-06 TLI 48396 610.00 SS3110 24-Aug-06 VROON 48401 118.95 SS3111 25-Aug-06 D. Magic 48410 657.30 SS3119 31-Aug-06 TCL 48411 SS3123 16-Aug-06 CASSC 48419 87.60 SS3124 31-Aug-06 TRANSM 48423 793.00 SS3125 16-Aug-06 TRANSM 48424 2,515.20 SS3141 25-Aug-06 DALEX 48425 1,207.50 SS3144 25-Aug-06 CADENZA 48441 658.00 SS3146 25-Aug-06 D. WONDER 48444 649.85 SS3148 25-Aug-06 D. Magic 48446 SS3149 PROSPERIDAD 48448 78.00 SS3160 25-Aug~06 San Jose, Bienvenido 48449 78.00 SS3163 MMI 48460 382.00 SS3165 31-Aug-06 TMDC 48463 2,082.20 SS3351 31-Aug-06 MATATAG 48465 699.80 SS3353 31-Aug-06 LA WIN 48651 1,023.60 SS3354 25-Aug-06 EX! TO 48653 355.90 SS3355 28-Aug-06 IDEAL 48654 1,316.00 SS3358 28-Aug-06 VROON 48655 3,796.90 SS3359 28-Aug-06 KYOKKO 48658 551.60 SS3360 28-Aug-06 HOKOKU 48659 250.00 SS3361 28-Aug-06 TRANSM 48660 803.90 SS3362 28-Aug-06 FETRAN 48661 822.80 SS3363 28-Aug-06 TOG! 48662 829.80 SS3364 28-Aug-06 TESI 48663 3,881.80 SS3365 28-Aug-06 TCL 48664 1,467.10 SS3366 28-Aug-06 TCL 48665 7,674.90 SS3371 28-Aug-06 DOLPHIN KAPALARAN 48666 1,111.00 SS3372 28-Aug-06 PROSPERIDAD 48671 4,540.10 SS3373 31-Aug-06 NEO MARINE 48672 700.00 SS3375 31-Aug-06 DOLPHIN EXITO 48673 2,247.50 SS3376 31-Aug-06 DOLPHIN CADENZA 48675 3,431.25 31-Aug-06 48676 915.00 31-Aug-06 107.90 43.80 449.60 108.60 121.80

DECISION CTA CASE NO. 8291 Page 28 of64 SS3377 31-Aug-06 LA WIN 48677 64.10 SS3378 31-Aug-06 DOLPHIN MGT 48678 4,402.60 SS3379 31-Aug-06 DOLPHIN MGT 48679 1,205.40 SS3380 31-Aug-06 TLSC 48680 4,956.25 SS3381 31-Aug-06 TLI 48681 SS3382 31-Aug-06 TLI 48682 674.05 SS3388 31-Aug-06 Operana, Edgar 48688 594.75 SS3390 31-Aug-06 TLSC 48690 525.00 SS3391 31-Aug-06 NCT 48691 1,336.50 SS3392 31-Aug-06 NYKFJSC 48692 1,214.70 SS3396 31-Aug-06 NESC 48696 991.25 SS3397 31-Aug-06 NESC 48697 2,897.50 SS3409 31-Aug-06 YUSEN 48709 635.50 SS3410 31-Aug-06 YAS BROKERAGE 48710 305.00 SS2994 31-Aug-06 NYK-FJSCCEBU 48294-1 915.00 SS3069 31-Aug-06 YUSEN STAFF 48369-1 131.60 SS3069 31-Aug-06 YUSENMGMT 48369-3 1,626.90 SS3070 31-Aug-06 YUSENMGMT 48370-1 815.30 SS3102 31-Aug-06 TOG! 48402-1 891.30 SS3111 31-Aug-06 D. Magic 48411-2 262.00 SS3367 31-Aug-06 COSMIC 48667-1 289.80 SS3367 31-Aug-06 CSPLDT 48667-2 166.00 SS3367 31-Aug-06 NYK-SIN 48667-3 1,620.70 SS3367 31-Aug-06 JCL 48667-4 27,409.70 SS3367 31-Aug-06 ICMA 48667-5 657.00 SS3367 31-Aug-06 HACHIUMA 48667-6 6,348.70 SS3367 31-Aug-06 HOKOKU 48667-7 9,809.00 SS3367 31-Aug-06 NYK LINE 48667-8 2 590.00 SS3367 31-Aug-06 TMM 48667-9 1,929.90 SS3385 31-Aug-06 TLSC-TWFI 48685-2 6,685.50 SS3395 31-Aug-06 NYKFSJC CEBU 48695-2 SS2741 28-Sep-06 AHRI 48041 51.70 SS3168 28-Sep-06 Safranca, Sonny 48468 131.60 SS3169 28-Sep-06 MMI 48469 305.00 SS3170 30-Sep-06 TMDCMML 48470 305.00 SS3447 15-Sep-06 Talamor, Ronnie 48747 2,363.70 SS3451 13-Sep-06 VISION AIR 48751 686.25 SS3452 29-Sep-06 ASIAN A 48752 394.80 SS3453 29-Sep-06 ASIAN A 48753 SS3455 18-Sep-06 ARHI 48755 87.60 SS3456 18-Sep-06 ARHI 48756 32.80 SS3457 28-Sep-06 Homer Del Ayre 48757 32.80 SS3461 28-Sep-06 TLSC 48761 305.00 SS3462 30-Sep-06 TLSC 48762 76.25 SS3463 30-Sep-06 FIT 48763 394.80 SS3464 28-Sep-06 MLGTPP 48764 991.25 SS3465 28-Sep-06 Sobremonte, Rogelio 48765 1,336.50 SS3466 28-Sep-06 Sobremonte, Rogelio 48766 43.80 SS3469 28-Sep-06 TOG 48769 1,052.80 SS3472 PROSPERlDAD 48772 658.00 SS3473 28-Sep-06 DOLPHIN MML 48773 131.60 84 329.50 1,066.00 555.10

DECISION CTA CASE NO. 8291 Page 29 of64 SS3474 30-Seo-06 TESI 48774 1 783.10 SS3476 30-Seo-06 TDGI 48776 721.00 SS3477 30-Sep-06 TDGI 48777 123.60 SS3479 30-Sep-06 CADENZA CRED 48779 SS3483 30-Sep-06 CASSC EMP 48783 7,412.20 SS3485 CASSC EMP 48785 649.85 SS3486 28-Seo-06 DOLPHIN DYNAMIC 48786 741.60 SS3487 30-Sep-06 DOLSHIP MET! 48787 192.45 SS3491 30-Sep-06 EXITO CREW 48791 242.70 SS3493 27-Sep-06 MAUNLAD CREW 48793 822.80 SS3494 30-Sep-06 MATATAG 48794 131.40 SS3499 EXITO EMP 48799 250.00 SS3505 28-Seo-06 TDG 48805 108.60 SS3510 29-Sep-06 MMS 48810 SS3511 13-Sep-06 VISION AIR 48811 84,329.50 SS3516 29-Sep-06 KYOKKO 48816 198.40 SS3517 29-Seo-06 HOKOKU 48817 87.60 SS3518 29-Sep-06 TRANS M 48818 SS3519 29-Sep-06 FETRAN 48819 2,431.10 SS3530 29-Sep-06 NYKSIN CREW 48830 10,764.10 SS3539 8-Sep-06 FETRAN 48839 SS3542 8-Seo-06 LAWIN CREW 48842 1,392.00 SS3543 13-Sep-06 VISION AIR 48843 1,459.10 SS3544 29-Sep-06 NEO MARINE 48844 1,525.00 SS3547 29-Sep-06 NLPH 48847 SS3548 29-Seo-06 NLPH 48848 2.55 SS3563 30-Seo-06 YUSENMGMT 48863 10.24 30-Sep-06 48882 280.00 ss 3582 Bustamante, Lorna 48919 88.00 27-Sep-06 48954 4,526.90 SS3619 27-Seo-06 TMDC 48955 3,637.20 SS3654 30-Sep-06 MET! 48956 1,005.20 SS3655 30-Sep-06 NEO MARINE 48960 43.80 SS3656 DOLSHIPTRI 48964 943.20 SS3660 28-Sep-06 IDEAL 48965 242.70 SS3664 NLPH 48966 318.00 30-Sep-06 !PSI 48967 43.80 ss 3665 NET! 48968 330.00 30-Sep-06 SMI MML 49236 915.00 SS3666 NYK FIL 47455-2 1,872.65 SS3667 FIT MANILA 48763-1 228.75 SS3668 CSPLDT 48768- 457.50 SS3936 TWFI 76.25 SS2155 3A 43.80 SS3463 28-Sep-06 NYKSIN CREW 48768-4 493.80 28-Seo-06 JCLCREW 48768-5 51.70 SS3468 28-Sep-06 ICMA CREW 48768-6 SS3468 28-Sep-06 HACHIUMA 48768-7 31,095.00 SS3468 28-Sep-06 HOKOKU 48768-8 657.00 SS3468 28-Seo-06 NYK LINE 48863-1 SS3468 28-Sep-06 YUSEN STAFF 5,116.50 SS3468 24-0ct-06 MMI 48475 11,260.32 SS3468 24-0ct-06 MMI 48476 SS3175 640.00 SS3176 3,589.00 1,406.90 4,519.56 1,290.00

DECISION CTA CASE NO. 8291 Page 30 of64 SS3179 9-0ct-06 TMDC 48479 395.60 SS3183 12-0ct-06 MMI 48484 1,290.00 SS3184 12-0ct-06 MMI 48485 4,519.56 SS3187 30-0ct-06 MMI 48487 1,316.00 SS3189 24-0ct-06 MMI CREW 48489 4,744.80 SS3190 24-0ct-06 MMI CREW 48490 3,312.30 SS3676 24-0ct-06 TAC 48976 SS3680 25-0ct-06 LIMOU 48980 99.00 SS3682 5-0ct-06 ALAMAT SHIPPING 48982 20.60 SS3688 16-0ct-06 NESC 48988 192.45 SS3693 26-0ct-06 TOG! 48993 635.50 SS3694 25-0ct-06 YAS BROKERAGE 48994 84,329.50 SS3697 24-0ct-06 YUSEN STAFF 48997 657.30 SS3698 24-0ct-06 YUSENMGMT 48998 1,323.90 SS3699 16-0ct-06 ASIAN A 48999 1,005.20 SS3799 31-0ct-06 Adkison, Arlene 49099 142.80 SS3808 24-0ct-06 TACMML 49108 6,480.00 SS3809 18-0ct-06 Transnational Corp. 49109 228.75 SS3814 20-0ct-06 Pizzatek and Food Corp. 49114 305.00 SS3818 20-0ct-06 Pizzatek and Food Corp. 49118 87.60 SS3901 19-0ct-06 ASIAN A 49201 87.60 SS3902 19-0ct-06 ASIAN A 49202 123.60 SS3904 20-0ct-06 TESI 49204 309.00 SS3905 25-0ct-06 TESI 49205 228.75 SS3911 23-0ct-06 Dolphin-Dalex 49211 1,739.30 SS3912 23-0ct-06 AETI 49212 382.00 SS3913 25-0ct-06 AETI MML 49213 741.60 SS3914 25-0ct-06 TCL 49214 206.00 SS3925 23-0ct-06 KYOKKO 49225 1,375.00 SS3927 25-0ct-06 TRANSM CREW 49227 1,383.10 SS3928 25-0ct-06 FETRAN 49228 3,562.50 SS3931 27-0ct-06 Sobremonte, Rogelio 49231 738.60 SS3936 23-0ct-06 TLSC-FIT 49236 131.60 SS3937 23-0ct-06 TLSC-TWFI 49237 43.80 SS3938 25-0ct-06 TLSC 49238 51.70 SS3940 23-0ct-06 HOKOKU-DOLPHIN 49240 1,336.50 26-0ct-06 NCT 49244 14,523.60 ss 3944 26-0ct-06 NCTEMP 49245 1 214.70 26-0ct-06 TOG! 49246 1 284.70 SS3945 30-0ct-06 VROON 49249 516.00 SS3946 30-0ct-06 NEO MARINE CREW 49250 1,415.80 SS3949 30-0ct-06 MAUNLAD-IKARIA 49252 88.00 SS3950 30-0ct-06 LAWIN CREW 49256 131.40 SS3952 30-0ct-06 HARMONY CREW 49257 1,395.10 SS3956 30-0ct-06 EXITO CREW 49259 2,895.00 SS3957 26-0ct-06 DOLPHIN SHIP MGT 49262 822.80 SS3959 27-0ct-06 LACANDALO, PILARDO 49265 1,209.00 SS3962 30-0ct-06 TCL 49270 198.25 SS3965 30-0ct-06 CADENZA CREW 49275 762.50 SS3970 24-0ct-06 NYK FJSC CEBU 48990-2 908.00 SS3975 30-0ct-06 CS PLOT 49267-1 3 275.10 SS3690 1,240.30 SS3967

DECISION CTA CASE NO. 8291 Page 31 of64 SS3967 30-0ct-06 JCL 49267-4 481.00 SS3967 30-0ct-06 ICMA 49267-5 4,262.30 SS3967 30-0ct-06 HOKOKU 49267-7 SS3199 28-Nov-06 MMI EMP 250.00 SS3200 28-Nov-06 MMIMML 48499 1,290.00 SS3747 25-Nov-06 Araquil, Roselyn 48500 SS3993 28-Nov-06 KMTC 49047 610.00 SS3999 28-Nov-06 NYK FIL SMI 49293 1,680.00 SS4063 28-Nov-06 YAS MML 49299 SS4064 28-Nov-06 YAS BROKERAGE 49363 277.55 SS4065 25-Nov-06 Tiu, Nestorio 49364 3,712.60 SS4107 30-Nov-06 San Jose, Bienvenido 49365 SS4114 30-Nov-06 MMI EMP 49407 457.50 SS4255 28-Nov-06 DOLPHIN MGT 49414 657.30 SS4256 28-Nov-06 TAC 49555 266.50 28-Nov-06 TOG ASIA MML 49556 1,316.00 ss 4258 28-Nov-06 TOG! MML 49558 243.00 28-Nov-06 TOG! 49560 321.60 SS4260 28-Nov-06 TRI 49561 810.00 SS4261 29-Nov-06 NEO MARINE EMP 49562 SS4262 28-Nov-06 DOLSHIP MET! 49563 76.25 SS4263 28-Nov-06 NYK-FIL IPS! 49564 1,936.40 SS4264 28-Nov-06 !PSI MML 49565 SS4265 28-Nov-06 NYK-FIL SMI 49566 368.00 SS4266 28-Nov-06 NYK-FIL NET! 49568 43.80 SS4268 29-Nov-06 TOG! 49570 SS4270 29-Nov-06 FETRAN 49575 318.00 SS4275 29-Nov-06 TRANS MCREW 49577 188.70 SS4277 29-Nov-06 KYOKKO 49578 275.70 SS4278 29-Nov-06 HOKOKU DOLSHIP 49579 305.00 SS4279 29-Nov-06 ASIANA 49581 3,243.00 SS4281 28-Nov-06 VISION AIR 49584 1,282.10 SS4284 28-Nov-06 VISION AIR 49587 700.00 SS4287 30-Nov-06 TCL 49588 5,262.20 SS4288 30-Nov-06 NTMA 49589 2,278.70 SS4289 29-Nov-06 DISNEY MAGIC 49592 1,062.40 SS4292 29-Nov-06 D. WONDER 49599 3,503.50 SS4299 29-Nov-06 DOLPHIN MGT 49600 142.80 SS4300 29-Nov-06 ASIAN A 49602 SS4302" 29-Nov-06 VISION AIR 49603 87.60 SS4303 29-Nov-06 TRI 49604 87.60 SS4304 29-Nov-06 PROSPERIDAD 49606 775.00 SS4306 29-Nov-06 PROSPERIDAD 49608 144.90 SS4308 29-Nov-06 PROSPERIDAD 49608 1,977.60 SS4308 29-Nov-06 NEO MARINE CREW 49609 2,727.20 SS4309 29-Nov-06 NEO MARINE CREW 49610 321.60 SS4310 29-Nov-06 DAC 49611 123.60 SS4311 29-Nov-06 KAPALARAN 49616 277.55 SS4316 30-Nov-06 Justo, Norito 49617 43.80 SS4317 30-Nov-06 NLPH 49621 43.80 SS4321 30-Nov-06 LAWIN EMP 49624 87.60 SS4324 49625 1,209.00 SS4325 88.00 318.00 192.45 107.90 987.00 4,003.80 6,410.00

DECISION CIA CASE NO. 8291 Page 32 of64 SS4326 30-Nov-06 DYNAMIC ASSET 49626 108.60 SS4326 30-Nov-06 EXITO EMP 49626 108.60 SS4330 30-Nov-06 HARMONY 49630 2,895.00 SS4331 30-Nov-06 EXlTO CREW 49631 613.20 SS4332 30-Nov-06 CADENZA CREW 49632 6,570.40 SS4333 30-Nov-06 ALAMATCREW 49633 2,195.00 SS4062 29-Nov-06 YUSEN STAFF 49362-1 1,323.90 SS4296 29-Nov-06 COSMIC 49596-1 468.90 SS4296 29-Nov-06 MARINE ENG'R/ CS VEGA 49596-2 2,239.75 SS4296 29-Nov-06 JCL 49596-4 1,179.00 SS4296 29-Nov-06 ICMA CREW 49596-5 4,119.50 SS4296 29-Nov-06 HOKOKUNYK 49596-7 1,983.60 SS2751 29-Dec-06 ADTOURS 48095 2,722.40 SS4070 29-Dec-06 Leyva, Leeberti 49370 262.80 SS4113 29-Dec-06 MMI RET 49413 4,519.56 SS4126 29-Dec-06 MMI RET 49426 4,519.56 SS4127 29-Dec-06 MMI EMP 49427 2,199.00 SS4345 30-Dec-06 PIZZATEK 49645 SS4346 30-Dec-06 DOMINOS PIZZATEK 49646 87.60 SS4348 30-Dec-06 NLPH 49648 87.60 SS4350 30-Dec-06 TCL 49650 4,164.60 SS4370 30-Dec-06 YUSENMML 49670 775.00 SS4374 30-Dec-06 Enotori, F1orencio 49674 1,143.75 SS4391 30-Dec-06 YAS BROKERAGE 49691 150.00 SS4401 30-Dec-06 TCLMML 49701 563.70 SS4408 30-Dec-06 NYK-FJSC CEBU 49708 762.50 SS4411 30-Dec-06 NESC MML 49711 131.60 30-Dec-06 NESC 49712 1,830.00 ss 4412 30-Dec-06 !PSI MML 49713 635.50 30-Dec-06 NET! MML 49714 762.50 SS4413 30-Dec-06 SMIMML 49715 305.00 SS4414 29-Dec-06 TMDC 49717 1,753.75 29-Dec-06 TMDCMML 49719 785.60 ss 4415 30-Dec-06 CASSCEMP 49722 228.75 30-Dec-06 TESI 49723 649.85 SS4417 30-Dec-06 TESI 49724 1,783.10 SS4419 30-Dec-06 LAWIN CREW 49725 1,783.10 SS4422 30-Dec-06 VROON CREW 49727 2,421.60 SS4423 30-Dec-06 CASSC 49732 255.40 SS4424 30-Dec-06 CASSC MML 49733 591.35 SS4425 30-Dec-06 TLI MML 49804 576.80 SS4427 30-Dec-06 TLSC MML 49805 118.95 SS4432 30-Dec-06 DOLPHIN MML 49806 396.50 SS4433 30-Dec-06 EXITO CREW 49808 39.65 SS4504 30-Dec-06 HARMONY CREW 49809 613.20 SS4505 30-Dec-06 MATATAG CREW 49812 391.60 SS4506 30-Dec-06 ALAMAT 49816 250.00 SS4508 30-Dec-06 LAWIN CREW 49817 550.00 SS4509 30-Dec-06 DOLSHIP 49819 1,395.10 SS4512 30-Dec-06 DOLSHIP HOKOKU 49820 118.95 SS4516 30-Dec-06 KYOKKO 49821 2,408.00 SS4517 2,026.40 SS4519 SS4520 SS4521

DECISION CTA CASE NO. 8291 Page 33 of64 SS4522 30-Dec-06 TUM! 49822 816.00 SS4523 30-Dec-06 TRANSM 49823 1,301.50 SS4524 30-Dec-06 FETRAN 49824 7,626.00 SS4525 30-Dec-06 VROONCREW 49825 SS4526 30-Dec-06 D. WONDER 49826 255.40 SS4529 30-Dec-06 NET! 49829 1,181.20 SS4530 30-Dec-06 !PSI 49830 SS4533 30-Dec-06 NTMA 49833 991.25 SS4537 30-Dec-06 DISNEY MAGIC 49837 457.50 SS4538 30-Dec-06 TRI 49838 579.60 SS4540 29-Dec-06 NEO MARlNE EMP 49840 2,801.27 SS4542 29-Dec-06 LAWIN EMP 49842 SS4543 29-Dec-06 KAPALARAN EMP 49843 43.80 29-Dec-06 EXITO EMP 49845 318.00 ss 4545 29-Dec-06 CADENZAEMP 49846 29-Dec-06 MET! 49847 64.10 SS4546 29-Dec-06 DAC 49848 107.90 SS4547 29-Dec-06 NEO MARlNE CREW 49851 108.60 SS4548 30-Dec-06 LAWIN CREW 49855 121.80 SS4551 30-Dec-06 EXITO CREW 49858 SS4555 30-Dec-06 VROONCREW 49862 97.80 SS4558 30-Dec-06 KYOKKO CREW 49863 192.45 SS4562 30-Dec-06 HOKOKU DOLSHIP 49864 SS4563 29-Dec-06 HOKOKU DOLSHIP 49865 88.00 SS4564 30-Dec-06 TRANSM CREW 49867 1,395.10 SS4565 30-Dec-06 FETRAN CREW 49868 SS4567 30-Dec-06 JRDC 49869 613.20 SS4568 30-Dec-06 VISION AIR 49880 483.40 SS4569 30-Dec-06 TMDC 49883 2,511.20 SS4580 30-Dec-06 NESC 49885 1,548.00 SS4583 30-Dec-06 NYKFJSC 49886 SS4585 30-Dec-06 NYKFJSC MML 49890 73.80 SS4586 30-Dec-06 NYKFJSC 49891 5,176.40 SS4590 29-Dec-06 VlSION AlR 49893 1,676.80 SS4591 29-Dec-06 TOG! 49894 SS4593 29-Dec-06 AlTI MML 49899 228.75 SS4594 29-Dec-06 TOG! 49900 280.00 SS4599 30-Dec-06 TAC 49731-1 280.00 SS4600 30-Dec-06 MARINE ENG'R/ CS VEGA 49731-2 588.60 SS4431 30-Dec-06 NYK SIN CREW 49731-3 228.75 SS4431 30-Dec-06 JCL 49731-4 228.75 SS4431 30-Dec-06 ICMA 49731-5 915.15 SS4431 30-Dec-06 HACHIUMA 49731-6 280.00 SS4431 30-Dec-06 HOKOKU 49731-7 700.00 SS4431 30-Dec-06 NYK LINE 49731-8 288.40 SS4431 30-Dec-06 TMMCREW 49731-9 123.60 SS4431 29-Dec-06 COSMIC 49861-1 SS4431 29-Dec-06 MARlNE ENG'R 49861-2 99.00 SS4561 29-Dec-06 JCL 49861-4 1,240.30 SS4561 29-Dec-06 ICMACREW 49861-5 28,289.40 SS4561 29-Dec-06 HACHIUMA 49861-6 1,179.00 SS4561 4,394.00 SS4561 11,551.50 667.60 3,156.30 6,531.50 468.90 2,039.80 1 263.00 5,499.30 4,607.20

DECISION CTA CASE NO. 8291 Page 34 of64 SS4561 29-Dec-06 HOKOKUNYK 49861-7 3,717.60 49861-8 1,814.20 SS4561 29-Dec-06 NYK LINE 49861-9 7,219.40 49888-1 SS4561 29-Dec-06 TMMCREW 49891-1 131.60 131.60 SS4638 30-Dec-06 NYKFJSC CEBU SS4641 30-Dec-06 NYKFJSC CEBU 2. Missing O.R. - 20-Jan-06 YAS Brokerage 45835 765.90 46467 78.00 - 27-Feb-06 Trans M 46199 46420 262.80 - 20-Feb-06 Mapalad, L. 46765 1,665.00 47766 - 1-Mar-06 Lacandalo, P. 47870 78.00 47868-1 107.90 - 21-Mar-06 TRANS M 47868-2 263.20 47868-3 949.20 - 14-Jun-06 KAPALARAN 47868-5 1,151.80 47868-7 27,520.30 - 28-Jun-06 Figueras, Kerwin Adam 47868-8 6,511.60 47868-9 772.60 - 23-Jun-06 COSMIC 47996 1,752.60 48559 3,903.70 - 23-Jun-06 CSPLDT 48798 653.00 49839 586.50 - 23-Jun-06 NYK SIN 49901 775.00 49902 43.80 - 23-Jun-06 ICMA 988.80 934.70 - 23-Jun-06 HOKOKU 78.00 - 23-Jun-06 NYKLINE - 23-Jun-06 TMM - 31-Jul-06 Bertolano, E. - 31-Aug-06 Navarro, Geraldine - 30-Sep-06 TCL - 29-Dec-06 PROSPERIDAD EMP - 29-Dec-06 TOG! MML - 29-Dec-06 NCT - 23-Feb-06 TRANS M 3. Not dated within the subject taxable year 46223 552.20 ss 923 23-Feb-05 Ramo, F. 4. Cancelled O.R. SS2771 31-Jul-06 YAS Brokerage 48072 765.90 Total p 1,722,711.52 Thus, out of the claimed discounts of P3,611,850.00, petitioner was only able to substantiate the amount of P381 ,951.94 (P2, 104,663.46 less P1,722,711.52). That having been settled, this Court shall now determine whether the discounts granted by petitioner in the amount of P381,951.94 for taxable year 2006 are deductible against its taxable gross income. As such, Section 27(A) of the NIRC of 1997, as amended, provides that: "SEC. 27. Rates of Income Tax on Domestic C01porations. - (A) In General. - xxx. ~

DECISION CTA CASE NO. 8291 Page 35 of64 For purposes of this Section, the term 'gross income' derived from business shall be equivalent to gross sales less sales returns, discounts and allowances and cost of goods sold. 'Cost of goods sold' shall include all business expenses directly incurred to produce the merchandise to bring them to their present location and use. For a trading or merchandising concern, 'cost of goods sold' shall include the invoice cost of the goods sold, plus import duties, freight in transporting the goods to the place where the goods are actually sold, including insurance while the goods are in transit. For a manufacturing concern, 'cost of goods manufactured and sold' shall include all costs of production of finished goods, such as raw materials used, direct labor and manufacturing overhead, freight cost, insurance premiums and other costs incurred to bring the raw materials to the factory or warehouse. In the case of taxpayers engaged in the sale of service, 'gross income' means gross receipts less sales returns, allowances and discounts." (Emphasis supplied) Clearly, for income tax purposes, discounts are treated as reductions of gross receipts of taxpayers engaged in the sale of services. Petitioner avers that it presented the discounts as part of its "Other Direct Costs and Expenses" because its premium collections were presented as gross of the said discounts. However, this Court is of the opinion that such treatment has the same effect as presenting the sales net of discounts under Section 27 and would not affect the income tax due of the taxpayer for as long as the discounts claimed as deductible cost/expense was also presented as part of the taxpayer's gross sales/revenues. In the instant case, it was shown that petitioner claimed the amount of P3,611,850.00 representing discounts as deduction from its gross income, however, petitioner failed to establish that such amount formed part of its declared premium collections for the year 2006 in the amount of P104,642,335.0053. Hence, the entire claimed discounts of P3,611,850.00 (including the amount of P381,951.94 substantiated by ORs) shall be disallowed./-- 53 Exhibit "G", line ISC.

DECISION CTA CASE NO. 8291 Page 36 of64 On non-deductible interest expense in the amount of P29,973.35, perusal of the records reveals that respondent based her assessment on petitioner's Schedule of Interest and Bank Charges54 which reflected the following: Date Ref. No. Particulars Amount 19-Jan-06 539068 Elmer Agbanglo - int earned f' 2,000.00 23-Jan-06 539118 Marv1ene De Castro 24-Jan-06 539128 Melvin Uy 666.67 3-Apr-06 539473 Abelardo Untalasco 500.00 18-Apr-06 539536 Apolinar Gagan 2,000.00 12-Jul-06 666483 Eric Rodrigo 333.33 18-Jul-06 666519 Belen Bano 1,000.00 18-Jul-06 666527 Belen Palaganas 3,000.00 27-Jul-06 666580 Vito Baguion 700.00 31-Jul-06 48189 Karla P. Delgado 438.76 18-Aug-06 666686 Ronel Dela Cruz 1,499.07 1-Sep-06 666722 Deogracias Mina 725.00 7-Sep-06 666784 CDDR-PCF 416.67 4-0ct-06 666920 Rogelio Sancho 208.33 5-0ct-06 666932 Marites P. Manuel 875.00 17-0ct-06 666975 Mariano Reyes 31-0ct-06 667031 Alma Sacasas 25.09 20-Nov-06 667132 Victorio Catabay 166.67 28-Nov-06 667217 Ferdinand Mate! 729.17 14-Dec-06 728969 Analyn Bemando 1,166.67 29-Dec-06 jv#12-38/ 1 rec interest & bank charges 1,750.00 30-Dec-06 jv#12-07 /3 rec service charge Jan 06 875.00 30-Dec-06 iv#12-08f3 rec service charge Feb 06 280.00 30-Dec-06 jv#12-09/3 rec service charge Mar 06 200.00 30-Dec-06 jv#12-10/3 rec service charge Apr 06 200.00 30-Dec-06 jv#12-11/3 rec service charge May 06 200.00 30-Dec-06 jv#12-12/3 rec service charge Jun 06 400.00 30-Dec-06 jv#12-13/3 rec service charge Jul 06 400.00 30-Dec-06 jv#12-14/3 rec service charge Aug 06 400.00 30-Dec-06 jv#12-15/3 rec service charge Sep 06 400.00 30-Dec-06 jv#12-16/3 rec service charge Oct 06 400.00 30-Dec-06 jv#12-17 /6 rec service charge MC 400.00 30-Dec-06 jv#12-17 /7 rev bank charge 2005 200.00 30-Dec-06 jv#12-17 /8 rev bank charge 1-10 100.00 30-Dec-06 jv#12-35/4 Rec OR#49270 (1,510.00) 31-Dec-06 jv#12-19/4 Bank charges (2,000.00) 31-Dec-06 jv#12-20/ 1 Bank charges DM#06-003 31-Dec-06 jv#12-21/3 Bank charges checkbook 5.00 31-Dec-06 jv#12-23/10 OR#46637 66.47 31-Dec-06 jv#12-24 Under / over deposits 33.00 31-Dec-06 jv#12-25/8 MC Application 3,300.00 0.16 12.32 50.00 54 BIR Records, pp. 462-463.

DECISION CTA CASE NO. 8291 Page 37 of64 31-Dec-06 iv# 12-27/7 OR#198 (50.00) 31-Dec-06 iv#12-28/8 OR#49229/270 4.05 31-Dec-06 iv#12-29f7 Bank chare:es BC sec/TDC 31-Dec-06 iv#12-29/8 Bank charges 100.00 31-Dec-06 iv#12-30/01 OR#48667 NYK SMI 0.40 31-Dec-06 iv#12-30l08 Bank charges BC Sep 06 31-Dec-06 iv# 12-32 I 20 ch#666768 (102.481 31-Dec-06 iv#12-39/ 14 Bank chare:es HSBC$ 4,950.00 31-Dec-06 iv# 12-40 I 04 Bank charges Nov 06 31-Dec-06 iv# 12-40 I 06 Bank charges Jan/Feb 06 32.53 31-Dec-06 iv#12-47 /15 Interest & Bank charges 784.00 31-Dec-06 iv#12-47!16 Rcls interest & bank charges 31-Dec-06 iv# 12-47/17 Rcls interest & bank charges 70.00 31-Dec-06 550.00 iv#12-54 2006 AJE Accruals 500.00 Total 583.33 800.00 (860.86) P29,973.35 Moreover, it must be noted that the total disallowed interest expense can be traced in petitioner's 2006 Trial Balance - Profit and Loss under Interest and Bank Charges account.55 Considering that petitioner failed to substantiate the P29,973.35 interest and bank charges, respondent's disallowance of the same shall be upheld pursuant to Section 34(A)( 1)(b) of the NIRC of 1997, as amended, which states: "(b) Substantiation Requirements. - No deduction from gross income shall be allowed under Subsection (A) hereof unless the taxpayer shall substantiate with sufficient evidence, such as official receipts or other adequate records: (i) the amount of the expense being deducted, and (ii) the direct connection or relation of the expense being deducted to the development, management, operation and/or conduct of the trade, business or profession of the taxpayer." c. Respondent's FDDA did not consider the net loss amounting to P16,308,626.00 In arriving at the deficiency income tax for taxable year 2006, respondent did not consider petitioner's net loss amounting to P16,308,626.0056. While the FDDA reflected the 2006 net loss of P16,308,626.00, a simple review of the mathematical computation of the alleged deficiency income tax stated in the FDDA would reveal that the P16,308,626.00 net loss was not considered. Obviously, the 2006 net loss of/- 55 BIR Records, pp. 421 and 423. 56 Exhibit "G", box 21 B.

DECISION CTA CASE NO. 8291 Page 38 of64 petitioner amounting to 1'16,308,626.00 will easily offset the disallowed items, and petitioner will still suffer a net loss of 1'12,666,802.65, as computed below. Thus, the deficiency income tax assessment for taxable year 2006 shall be cancelled. Taxable income per return 1"3,611 ,850.00 1"(16,308,626.00) Add: Disallowances 29,973.35 3,641,823.35 Discounts P( 12,666,802.65) Non-deductible interest expense Taxable Income per Court's Verification DEFICIENCY VALUE-ADDED TAX- P7,549,168.20 Respondent's reconciliation of petitioner's gross receipts subject to VAT and per the examiner's investigation showed a difference of 1'33,522,146.63. She computed the deficiency VAT in the amount ofP7,549,168.20 as follows;57 Collection of premiums per VAT 1"67 ,446,873.36 O.R.s Less: VAT component (12%) 1"5,551 ,066.00 7 ,226,450.72 Taxable sales per re-audit 4,920,369.00 60,220,422.64 Add: Other income 10,471,435.00 Unreported revenue Total receipt subject to VAT per re- 70,691,857.64 audit Gross receipt subject to VAT per 3,493,219.84 37,169,711.01 return 25,000.00 33,522,146.63 Difference Output tax (12%) 4,022,657.60 Disallowed input tax 8,290.76 Deficiency VAT Add: Interest (20% per annum) 4,030,948.36 Compromise penalty Total Deficiency Value Added Tax 3,518,219.84 p 7,549,168.20 Petitioner maintained that, in arnvmg at the alleged deficiency VAT assessment, respondent subjected the trust fund contributions to VAT, notwithstanding that under existing regulations applicable in taxable year 2006, the gross receipts of pre-need companies is net of the actual trust fund contribution. As such, VAT is imposed only on the premiums collected. ~ 57 Exhibit "F", Annex A, pp. 1-2.

DECISION CTA CASE NO. 8291 Page 39 of64 RR No. 16-05, which took effect on November 1, 2005, defines a pre-need company and provides the basis for the computation of its VATable gross receipts as follows: "SECTION 4.108-3. Definitions and Specific Rules on Selected Services. - XXX XXX XXX U) Pre-need Companies are corporations registered with the Securities and Exchange Commission and authorized/licensed to sell or offer for sale pre-need plans, whether a single plan or multi-plan. They are engaged in business as seller of services providing services to plan holders by managing the funds provided by them and making payments at the time of need or maturity of the contract. As service providers, the compensation for their services is the premiums or payments received from the plan holders. XXX XXX XXX SECTION 4.108-4. Definition of Gross Receipts. - 'Gross receipts' refers to the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits applied as payments for services rendered and advance payments actually or constructively received during the taxable period for the services performed or to be performed for another person, excluding VAT." Based above, the taxable base for pre-need companies for VAT purposes should be the entire receipts (including amounts collected for the trust fund contributions of planholders) without any deduction except VAT. Even though the foregoing provisions were amended under RR No. 04-07, which became effective on April 7, 2007, the trust fund contributions remained VATable, to wit: "SECTION 11. Gross Receipts.- Sec. 4.108-4 of RR No. 16-2005 is hereby amended to read as follows: 'SEC. 4.108-4. Definition of Gross Receipts. - 'Gross receipts' refers to the total amount of money or its equivalent representing the contract price, compensation, service fee, /

DECISION CTA CASE NO. 8291 Page 40 of64 rental or royalty, including the amount charged for materials supplied with the services and deposits applied as payments for services rendered and advance payments actually or constructively received during the taxable period for the services performed or to be performed for another person, excluding the VAT, except those amounts earmarked for payment to unrelated third (3rd) party or received as reimbursement for advance payment on behalf of another which do not redound to the benefit of the payor. A payment is a payment to a third (3rd) party if the same is made to settle an obligation of another person, e.g., customer or client, to the said third party, which obligation is evidenced by the sales invoice/official receipt issued by said third party to the obligor/debtor (e.g., customer or client of the payor of the obligation). An advance payment is an advance payment on behalf of another if the same is paid to a third (3rd) party for a present or future obligation of said another party which obligation is evidenced by a sales invoice/official receipt issued by the obligee/creditor to the obligor/debtor (i.e., the aforementioned 'another party') for the sale of goods or services by the former to the latter. For this purpose 'unrelated party' shall not include taxpayer's employees, partners, affiliates (parent, subsidiary and other related companies}, relatives by consanguinity or affinity within the fourth (4th) civil degree, and trust fund where the taxpayer is the trustor, trustee or beneficiary, even if covered by an agreement to the contrary." (Emphasis supplied) On November 12, 2007, the BIR issued Revenue Memorandum Circular (RMC) No. 74-07 emphasizing that: "It is hereby clarified that the taxable base of Pre- need Companies for VAT purposes shall be the gross receipts without any deduction. Such contribution is similar or equated to the recorded 'Reserve' in the case of insurance companies, whether life or non-life. Reserve is not deductible, for purposes of determining the taxable gross direct premium/writing for non-life insurance companies as well as life insurance companies. The said tax treatments have already been clarified and reiterated under Revenue Regulations (RR) No. 16-2005, as amended." However, in BIR Ruling No. DA-027-0658 dated January 31, 2006, then Commissioner of Internal Revenue, Jose Mario~ 58 Exhibit "NNN-2".

DECISION CTA CASE NO. 8291 Page 41 of64 Bunag, clarified to the Philippine Federation of Pre-Need Companies, Inc., to which petitioner is a member, that the gross receipts of a pre-need company should be net of actual trust fund contributions for VAT purposes. Since petitioner relied in good faith on BIR Ruling No. DA-027-06, the amounts it collected from planholders which were set aside for trust fund contributions shall be excluded from petitioner's VATable gross receipts, following the rationalization of the Supreme Court En Bane in the consolidated case of Commissioner of Internal Revenue vs. San Roque Power Corporation, Taganito Mining Corporation vs. Commissioner of Internal Revenue, and Philex Mining Corporation vs. Commissioner of Internal Revenue59, where it was held that under Section 246 of the Tax Code, taxpayers may rely upon a rule or ruling issued by the Commissioner from the time the rule or ruling is issued up to its reversal by the Commissioner or the Supreme Court. Be that as it may, petitioner has to comply with the invoicing requirements as provided under Section 113 of the NIRC of 1997, as amended, thus: "SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons. - XXX XXX XXX (B) Information Contained in the VAT Invoice or VAT Official Receipt. - The following information shall be indicated in the VAT invoice or VAT official receipt: XXX XXX XXX (d) If the sale involves goods, properties or services some of which are subject to and some of which are VAT zero-rated or VAT-exempt, the invoice or receipt shall clearly indicate the breakdown of the sale price between its taxable, exempt and zero-rated components, and the calculation of the value-added tax on each portion of the sale shall be shown on the invoice or receipt: Provided, That the seller may issue separate invoices or receipts for the taxable, V exempt, and zero-rated components of the sale." (Emphasis supplied) 59 G.R. Nos. 187485, 196113, and 197156, February 12,2013.

DECISION CTA CASE NO. 8291 Page 42 of64 In the instant case, the trust fund contributions which were separately indicated in petitioner's VAT official receipts as "NONVAT (Trust Fund)" only amounted to 1"635,213.90, detailed as follows: Exhibit Date O.R. No. Client Trust Fund 31-May-06 47602 Habulan, J-Feb06 p 855.40 ss 2302 31-May-06 47619 Mercado, Marina ss 2319 31-May-06 47620 Pareia,Josephine 2,566.20 ss 2320 1-Jun-06 47564 Escalante, Anselmo 854.10 ss 2264 1-Jun-06 47565 Escalante, Anselmo ss 2265 2-Jun-06 47623 Escalante, Anselmo 1,138.80 ss 2323 2-Jun-06 47624 Escalante, Anselmo 5,070.00 ss 2324 5-Jun-06 47651 Bautista, Allan 1,014.00 ss 2351 5-Jun-06 47652 Paie, Juanito ss 2352 6-Jun-06 47576 Corpuz, Nora 284.70 ss 2276 6-Jun-06 47627 De Jesus, Christopher 8,554.00 ss 2327 6-Jun-06 47630 Bermudez, Ruben 1,710.80 ss 2330 6-Jun-06 47653 Dizon, Richard 14,976.00 ss 2353 6-Jun-06 47654 Dahilig, Jasus ss 2354 6-Jun-06 47656 569.40 ss 2356 7-Jun-06 47632 47656 Alejandro, P- NovOS-May 06 23,951.20 ss 2332 7-Jun-06 47633 ss 2333 7-Jun-06 47634 Esteban, Marcelo 3,421.60 ss 2334 8-Jun-06 47663 Ofalsa, Rhodora 3,658.20 ss 2363 9-Jun-06 47635 Ofalsa, Rhodora 1,992.90 ss 2335 9-Jun-06 47664 47663 Galvan,T- Feb06-Jun07 1,014.00 ss 2364 9-Jun-06 47665 Galleta, Rex ss 2365 9-Jun-06 47666 47664 Monoso, L- May-Jul06 812.50 ss 2366 9-Jun-06 47668 47665 Olaya, 0- May 06 812.50 ss 2368 9-Jun-06 47669 47666 Luberiano, E- May-Jun06 5,304.00 ss 2369 13-Jun-06 47671 47668 Pendon, J -Mar-Nov06 5,154.50 ss 2371 14-Jun-06 47636 4 7669 Navarro, J -Jun-Aug06 1,751.10 ss 2336 14-Jun-06 47638 47671 Ponce, E -May-Jun06 1,015.95 ss 2338 15-Jun-06 47639 Diesmos, Tessa 2,031.90 ss 2339 15-Jun-06 47640 Villeno, Elena 2,546.70 ss 2340 16-Jun-06 47646 Divina Pelobello 2,566.20 ss 2346 16-Jun-06 47647 Acuna, Grace 1,014.00 ss 2347 16-Jun-06 47648 Grace Beriso 855.40 ss 2348 16-Jun-06 47649 Lopez, Charisse 854.10 ss 2349 16-Jun-06 47680 Ellen Flores 284.70 ss 2380 19-Jun-06 47681 Mata, Mirasol 569.40 ss 2381 19-Jun-06 47796 Villafranca, I - !PC 284.70 20-Jun-06 47650 Albuera, M -Mar -Apr 06 416.65 ss 2496 20-Jun-06 47854 Delos Reyes, C - May06 421.85 ss 2350 21-Jun-06 47803 Abuso, A1 Tiu 1,184.95 ss 2554 21-Jun-06 47804 Evangelista, L - Aug 06 5,923.45 ss 2503 22-Jun-06 47691 Fermin, M- Oct-Dec05 1,710.80 ss 2504 23-Jun-06 47693 Fermin, M- Oct-Dec05 389.35 ss 2391 Anora, R - Jun-Jul06 5,001.75 ss 2393 Del Avre, H +Feb 06 1,144.00 1,716.00 1,930.50 2,031.90 2,566.20

DECISION CTA CASE NO. 8291 Page 43 of64 ss 2506 23-Jun-06 47806 Sangdaan,J-TEP 4,784.00 ss 2508 26-Jun-06 47808 Balgos, R- Jun06-May07 18,154.50 ss 2394 27-Jun-06 47694 Romero, J - Aug-Dec08 27-Jun-06 47696 Romulo Verastigan 854.10 ss 2396 27-Jun-06 47697 Loyola, R - Apr-Jul06 1,200.00 ss 2397 27-Jun-06 47810 Bisares, M - Jun06 2,028.00 27-Jun-06 47811 Bernard, B - May06 ss 2510 27-Jun-06 47812 Carpio, J - Jun06 426.40 ss 2511 28-Jun-06 47700 De Leon, J - Dec 05-Jan06 1,423.50 ss 2512 28-Jun-06 47953 Gubaton, M - Jun06 28-Jun-06 47954 Gubaton,M - Jun06 569.40 ss 2400 29-Jun-06 47816 Estrada, J - Jun06 1,710.80 29-Jun-06 47883 Suniga, Domarie 4,063.15 ss 2653 30-Jun-06 47817 Bernardita Cayabyab 5-6,06 4,485.00 ss 2654 30-Jun-06 47825 Josephine Pareia Mar06 30-Jun-06 47826 Ronalda Serrano Jun06 284.30 ss 2516 30-Jun-06 47827 Myleen Salvador 1,556.10 30-Jun-06 47955 Emilio Johnson Jan06 ss 2583 30-Jun-06 47958 Mason Alacre Jan06 683.80 ss 2517 2nd Quarter 854.10 806.00 ss 2525 778.05 812.50 ss 2526 643.50 ss 2527 Pl68,043.55 ss 2655 p 284.70 ss 2658 1,014.00 284.70 ss 2532 3-Jul-06 47832 Macaspac, Concepcion 507.00 ss 2533 3-Jul-06 47833 Escalante, Anselmo 1,079.00 ss 2534 3-Jul-06 47834 Escalante, Anselmo 1,023.75 3-Jul-06 47896 Sison,Wilfredo 3,421.60 ss 2596 3-Jul-06 47959 Edna Volfango 7,215.00 3-Jul-06 47961 Volfango, Edna 507.00 ss 2659 3-Jul-06 47962 Basco, Marianita 8,580.00 ss 2661 4-Jul-06 47963 Javellonar, Armando 3,421.60 4-Jul-06 47964 Anthony Picazo 3,416.40 ss 2662 4-Jul-06 47966 Percival Artuz 854.10 4-Jul-06 48004 Figueras, Kerwin Adam ss 2663 5-Jul-06 47836 Mendoza, Reginald 20,529.60 ss 2664 5-Jul-06 47837 Grace Mapalad 1,820.00 5-Jul-06 47967 Real, Regimar 1,946.10 ss 2666 5-Jul-06 47968 David, Margie 539.50 ss 2704 5-Jul-06 47969 Villaluz, Rowell 4,204.80 6-Jul-06 47973 Randy Solitario 1,015.95 ss 2536 7-Jul-06 47974 Madridano, Joel 643.50 ss 2537 7-Jul-06 47975 Romualdo H. Vallejo 848.90 7-Jul-06 47976 Ronnie Morales 5,132.40 ss 2667 10-Jul-06 47838 Ang, Michelleynne 2,566.20 10-Jul-06 47979 Romil Camarines 1,820.00 ss 2668 10-Jul-06 47980 Ligtas, Frederick 284.70 ss 2669 10-Jul-06 47982 Geomar Magdadaro 1,708.20 ss 2673 11-Jul-06 47839 Divina Pelobello 3,421.60 12-Jul-06 47840 Jotojot, Alvin 1,883.70 ss 2674 12-Jul-06 47984 Casupanan, Jose 854.10 ss 2675 14-Jul-06 47841 Antonio !lao 17-Jul-06 47846 Grace Mapalad ss 2676 ss 2538 ss 2679 ss 2680 ss 2682 ss 2539 ss 2540 ss 2684 ss 2541 ss 2546

DECISION CTA CASE NO. 8291 Page 44 of64 ss 2547 17-Ju1-06 47847 Diesmos, Tessa 855.40 ss 2548 17-Ju1-06 47848 Chov, Louella 569.40 ss 2752 17-Ju1-06 48052 Grace Beriso 284.70 ss 2756 18-Jul-06 48056 Matawara, Rea 569.40 ss 2757 18-Jul-06 48057 Ofalsa, Rhodora 609.70 ss 2758 20-Jul-06 48058 Manalang, Noel 10,627.50 ss 2760 21-Jul-06 48060 Prado, Shervl 806.00 ss 2761 21-Jul-06 48061 Carlos Noriega 1,423.50 ss 2762 21-Jul-06 48062 Bisares, Marieta 426.40 ss 2763 21-Jul-06 48063 Bernabe, Bernard 1,423.50 ss 2764 21-Jul-06 48064 Shernan Balilo 4,732.00 ss 2765 25-Jul-06 48065 Fermin,Miriam 643.50 ss 2766 25-Jul-06 48066 Fermin,Miriam 572.00 ss 2767 25-Ju1-06 48067 Anonuevo, Ma. Cecilia 1,138.80 ss 2898 25-Jul-06 48198 Ilaga, Adoracion 4,988.10 ss 2768 26-Ju1-06 48068 Estrada, Jusmon 284.70 ss 2778 27-Jul-06 48078 Rabanal, Jesusa 1,625.00 ss 2779 28-Jul-06 48079 Ellen Flores 416.65 ss 2780 28-Jul-06 48080 Carpio, Judy Ann 569.40 ss 2781 31-Jul-06 48081 Carmela Dadural 569.40 ss 2784 31-Jul-06 48084 Serrano, Ronaldo 806.00 ss 2786 31-Jul-06 48086 Acuna, Grace 569.40 ss 2788 31-Jul-06 48088 Alegarbez, Roberto 25,057.50 ss 2792 31-Jul-06 48092 Carlo G. Cantanero 3,341.00 ss 2051 4-Aug-06 48351 Leyva,Leeberti 1,138.80 ss 2052 4-Aug-06 48352 Escalante, Anselmo 284.70 ss 2053 4-Aug-06 48353 Escalante, Anselmo 1,014.00 ss 2054 7-Aug-06 48354 Emmanuel Bertolano 2,562.30 ss 2055 7-Aug-06 48355 Emmanuel Bertolano 4,244.50 ss 2056 8-Aug-06 48356 De Jesus, Christopher 569.40 ss 3103 8-Aug-06 48403 Lao Guico, Ma. Veronica 6,843.20 ss 3107 8-Aug-06 48407 Rowena De Leon 569.40 ss 2057 9-Aug-06 48357 Florencio Enotorio 6,592.95 ss 3115 9-Aug-06 48415 Sison, Wilfredo 507.00 ss 2060 10-Aug-06 48360 Cainta, Romulo 3,395.60 ss 2071 11-Aug-06 48371 Pareja, Josephine Sussana 854.10 ss 3117 11-Aug-06 48417 Casugbu, Linaflor 10,270.00 ss 3120 14-Aug-06 48420 Rectin, Janet 447.20 ss 3126 14-Aug-06 48426 Suniga, Domarie 855.40 ss 3127 14-Aug-06 48427 Suniga, Domarie 3,591.00 ss 2072 15-Aug-06 48372 Grace Mapalad 854.10 ss 2073 15-Aug-06 48373 Diesmos, Tessa 855.40 ss 2074 15-Aug-06 48374 Choy, Louella 569.40 ss 2075 15-Aug-06 48375 Divina Pelobello 284.70 ss 2076 15-Aug-06 48376 Grace Acuna 569.40 16-Aug-06 48381 Ellen Flores 416.65 ss 2081 16-Aug-06 48383 Lopez, Charisse 833.30 ss 2083 16-Aug-06 48384 Grace Beriso 284.70 ss 2084 16-Aug-06 48385 Garcia, Ma. Regina 1,138.80 ss 2085 17-Aug-06 48388 Fermin, Miriam 572.00 ss 2088

DECISION CTA CASE NO. 8291 Page 45 of64 ss 2089 17-Aug-06 48389 Fermin, Miriam 643.50 17-Aug-06 48390 Abellon, Maria Noelane 4,015.05 ss 2090 18-Aug-06 48392 Bernabe, Bernard 1,423.50 ss 2092 18-Aug-06 48393 Bisares, Marieta 18-Aug-06 48395 Macaspac, Concepcion 426.40 ss 2093 23-Aug-06 48397 Noly Canonoy 142.35 ss 2095 25-Aug-06 48701 Noel Manalang 3,558.75 ss 2097 28-Aug-06 48702 Escaran, Wilfredo 13,435.50 29-Aug-06 48703 Villeno, Elena 484.90 ss 3401 29-Aug-06 48704 Carpio, Judy Ann 569.40 ss 3402 30-Aug-06 48706 Estrada, Jusmon 569.40 31-Aug-06 48519 Salloman, Jerryben 284.70 ss 3403 31-Aug-06 48523 Tamayo, Manuelito 1,365.00 ss 3404 31-Aug-06 48688 Operana, Edgar 855.40 31-Aug-06 48707 Escalante, Anselmo 3,412.50 ss 3406 31-Aug-06 48708 Escalante, Anselmo 284.70 ss 3219 31-Aug-06 48715 Matawara, Rea 1,014.00 31-Aug-06 48717 Carimpong, Cynthia 569.40 ss 3223 31-Aug-06 48718 Serrano, Ronaldo 3,217.50 ss 3388 31-Aug-06 48719 Ofalsa, Rbodora 806.00 ss 3407 31-Aug-06 48721 Pareia, Josephine Sussana 609.70 31-Aug-06 48723 Rabanal, Jesusa 854.10 ss 3408 31-Aug-06 48724 Brucelo, Mylene 2,437.50 ss 3415 5-Sep-06 48699 Sison,Wilfredo 1,992.90 ss 3417 5-Sep-06 48728 Esteban, Marcelo 507.00 5-Sep-06 48729 Cayabyab, Bemardita 1,014.00 ss 3418 5-Sep-06 48730 Myleen Salvador 683.80 6-Sep-06 48733 Dinglasan, Lea Carmen 778.05 ss 3419 6-Sep-06 48801 Bondoc, Nino Anthony 2,886.00 ss 3421 8-Sep-06 48734 Florencio Enotorio 1,828.45 12-Sep-06 48539 Javellonar, Armando 1,883.70 ss 3423 15-Sep-06 48740 Divina Pelobello 7,215.00 ss 3424 18-Sep-06 48750 Grace Beriso 284.70 19-Sep-06 48856 Mata, Mirasol 284.70 ss 3899 19-Sep-06 48857 Ellen Flores 1,184.95 ss 3428 19-Sep-06 48858 Bisares, Marieta 416.65 20-Sep-06 48859 Ligutom, Ma. Carr 426.40 ss 3429 22-Sep-06 48860 Fermin, Miriam 3,471.00 ss 3430 22-Sep-06 48861 Fermin, Miriam 572.00 22-Sep-06 48868 Leyva,Leeberti 643.50 ss 3433 26-Sep-06 48869 Mendoza, Reginald 1,708.20 27-Sep-06 48870 Carpio, Judy Ann 1,708.20 ss 3501 27-Sep-06 48871 Genova, Renato 569.40 ss 3434 27-Sep-06 48872 Diesmos, Tessa 855.40 29-Sep-06 48873 Frederick Navales 855.40 ss 3239 30-Sep-06 48875 Serrano, Ronaldo 29,802.50 ss 3440 30-Sep-06 48876 Pareja, Josephine Sussana 806.00 30-Sep-06 48877 Anselmo Escalante 854.10 ss 3450 30-Sep-06 48878 Anselmo Escalante 1,014.00 30-Sep-06 48881 Acuna, Grace 284.70 ss 3556 569.40 ss 3557 ss 3558 ss 3559 ss 3560 ss 3561 ss 3568 ss 3569 ss 3570 ss 3571 ss 3572 ss 3573 ss 3575 ss 3576 ss 3577 ss 3578 ss 3581

DECISION CTA CASE NO. 8291 Page 46 of64 ss 3582 30-Sep-06 48882 Bustamante, Lorena 284.70 3rd Quarter P300,219.10 ss 3583 3-0ct-06 48883 De Leon, Janice I' 855.40 ss 3584 3-0ct-06 48884 Habulan, Jesus 4,277.00 ss 3585 3-0ct-06 48885 Remigio Talaga 2,334.80 ss 3586 3-0ct-06 48886 Rotairo, Rujen 569.40 4-0ct-06 48887 Cafe, Anthony 2,545.40 ss 3587 5-0ct-06 48888 Ang, Michelleynne 848.90 5-0ct-06 48889 Gasacao, Reynaldo 7,410.00 ss 3588 6-0ct-06 48892 De Jesus, Christopher 569.40 ss 3589 6-0ct-06 48893 Rectin, Janet 894.40 ss 3592 10-0ct-06 48894 Jotoiot, Alvin 1,281.15 11-0ct-06 48895 Codera, Delio 1,883.70 ss 3593 13-0ct-06 48896 Lopez, Charisse 833.30 ss 3594 13-0ct-06 48897 Ofalsa,Rhodora 1,219.40 16-0ct-06 48898 Diesmos, Tessa 855.40 ss 3595 16-0ct-06 48899 Grace Mapalad 854.10 ss 3596 16-0ct-06 48900 Clarizza Mendoza 1,638.00 16-0ct-06 49101 Divina Pelobello 284.70 ss 3597 16-0ct-06 49102 Ellen Flores 416.65 ss 3598 16-0ct-06 49104 Choy,Louella 569.40 16-0ct-06 49105 Bondoc, Nino Anthony 1,828.45 ss 3599 16-0ct-06 49106 Del Avre, Homer 2,566.20 20-0ct-06 49111 Grace Beriso 284.70 ss 3600 20-0ct-06 49112 Genova, Renato 855.40 ss 3801 20-0ct-06 49113 Bisares, Marieta 426.40 ss 3802 20-0ct-06 49115 Carmela Dadural 569.40 21-0ct-06 49116 Manliclic, Melvinne 1,716.00 ss 3804 25-0ct-06 49119 Estrada, Jusmon 569.40 ss 3805 25-0ct-06 49120 Rotairo, Ruien 569.40 ss 3806 30-0ct-06 49121 Operana, Edgar 2,990.00 30-0ct-06 49122 Operana, Edgar 3,412.50 ss 3811 30-0ct-06 49123 Remigio Talaga 1,117.40 30-0ct-06 49124 Grace Mapalad 854.10 ss 3812 31-0ct-06 49127 Noel Manalang 10,744.50 ss 3813 31-0ct-06 49128 Manalang, Noel 8,482.50 31-0ct-06 49131 Acuna, Grace 569.40 ss 3815 2-Nov-06 49135 Isles, Erwin Dell 4,329.00 ss 3816 3-Nov-06 49143 Fermin, Miriam 572.00 3-Nov-06 49144 Fermin, Miriam 643.50 ss 3819 3-Nov-06 49145 Escalante, Anselmo 569.40 3-Nov-06 49146 Escalante, Anselmo 2,028.00 ss 3820 7-Nov-06 49147 Joel Madridano 1,708.20 ss 3821 7-Nov-06 49148 Mendoza, Reginald 1,708.20 7-Nov-06 49149 Rotairo, Ruien 569.40 ss 3822 8-Nov-06 49354 Dinglasan, Lea Carmen 2,886.00 ss 3823 10-Nov-06 49359 De Leon, Janice 855.40 14-Nov-06 49366 Florencio Enotorio 1,883.70 ss 3824 15-Nov-06 49371 Divina Pelobello 284.70 ss 3827 ss 3828 ss 3831 ss 3835 ss 3843 ss 3844 ss 3845 ss 3846 ss 3847 ss 3848 ss 3849 ss 4054 ss 4059 ss 4066 ss 4071

DECISION CTA CASE NO. 8291 Page 47 of64 ss 4073 16-Nov-06 49373 Grace Beriso 284.70 16-Nov-06 49374 Mata, Mirasol 1,184.95 ss 4074 16-Nov-06 49375 Ellen Florez ss 4075 17-Nov-06 49376 Lilibeth Mendoza 833.30 ss 4076 17-Nov-06 49377 Choy,Louella 24,017.50 ss 4077 17-Nov-06 49378 Diesmos, Tessa 17-Nov-06 49379 Sobremonte, Rogelio 569.40 ss 4078 21-Nov-06 49383 Bisares, Marieta 855.40 21-Nov-06 49385 Bemabe, Bernard 855.40 ss 4079 23-Nov-06 49389 Cayabyab, Bemardita 426.40 ss 4083 28-Nov-06 49392 Carpio, Judy Ann 4,270.50 ss 4085 29-Nov-06 49394 Remigio Talaga 683.80 29-Nov-06 49395 Estrada, Jusmon 1,138.80 ss 4089 29-Nov-06 49396 Operana, Edgar 1,167.40 30-Nov-06 49399 Elmer 284.70 ss 4092 30-Nov-06 49651 Acuna, Grace 3,412.50 ss 4094 4-Dec-06 49654 Fermin, Miriam 5,960.50 4-Dec-06 49656 Fermin, Miriam 569.40 ss 4095 4-Dec-06 49657 Lopez, Charisse 572.00 ss 4096 5-Dec-06 49660 Ligutom, Ma. Carr 643.50 ss 4099 8-Dec-06 49665 Escalante, Anselmo 833.30 8-Dec-06 49666 Escalante, Anselmo 3,471.00 ss 4351 8-Dec-06 49667 Ofalsa, Rhodora 2,028.00 8-Dec-06 49668 Matawara, Rea 569.40 ss 4354 13-Dec-06 49674 Florencio Enotorio 609.70 ss 4356 15-Dec-06 49679 Divina Pelobello 284.70 15-Dec-06 49680 Bustamante, Lorena 1,883.70 ss 4357 15-Dec-06 49681 Bustamante, Lorena 284.70 ss 4360 15-Dec-06 49683 Acuna, Grace 284.70 18-Dec-06 49685 Sobremonte, Rogelio 389.35 ss 4365 18-Dec-06 49686 Del Ayre, Homer 569.40 18-Dec-06 49687 Diesmos, Tessa 855.40 ss 4366 18-Dec-06 49688 Choy, Louella 2,566.20 ss 4367 18-Dec-06 49689 Mata, Grace 855.40 ss 4368 20-Dec-06 49693 Bisares, Marieta 569.40 22-Dec-06 49694 Grace Beriso 9,750.00 ss 4374 29-Dec-06 49696 Operana, Edgar 426.40 ss 4379 29-Dec-06 49697 Operana, Edgar 284.70 29-Dec-06 49698 Carmela Dadural 2,990.00 ss 4380 4th Quarter 3,412.50 ss 4381 569.40 P166,951.25 ss 4383 P635,213.90 ss 4385 ss 4386 ss 4387 ss 4388 ss 4389 ss 4393 ss 4394 ss 4396 ss 4397 ss 4398 Total - Year 2006 As reflected in its trial balance6o and audited FS61 for taxable year 2006, petitioner's total premium collections for/ 60 BIR Records, p. 421. 61 Exhibit "H", Notes to Financial Statements, Note 19, p. 25.

DECISION CTA CASE NO. 8291 Page 48 of64 the year 2006 amounted to Pl04,642,335.00, broken down as follows: 62 Taxable Premium Collections Period Peso Dollar Total 8,756,697.48 Jan-06 I' 7,630,733.44 I' 1' 125,964.04 I' 8, 756,697.48 7,630,733.44 p 1,125,964.04 p p Feb-06 I' 6,812,701.57 I' 1,237,564.93 I' 8,050,266.50 8,162,398.68 Mar-06 14,975,100.25 p 1,171,237.30 9,333,635.98 22,605,833.69 p p 2,408,802.23 p 17,383,902.48 1st Quarter p 3,534,766.27 p 6,140,599.96 Apr-06 I' 9,446,025.65 I' 1,156,455.66 I' 10,602,481.31 8,962,285.08 May-06 8,136,697.15 1 055,770.89 10,018,055.97 26,545,007.88 p Jun-06 1,300,562.20 9,437,259.35 2nd Quarter p 3,512,788.75 p 30,057.796.63 Jul-06 I' 6,935,632.85 I' 1' 110,035.88 I' 8,045,668.73 7' 181 '752.03 1,042,952.76 8,224,704.79 Aug-06 6,699,835.93 1,160,788.68 7,860,624.61 20,817,220.81 p 3,313,777.32 p 24,130,998.13 Sept-06 3rd Quarter p Oct-06 I' 6,788,351.75 I' 975,611.98 I' 7,763,963.73 6,705,482.74 992,622.11 7,698,104.85 Nov-06 7,876,569.05 974,302.52 8,850,871.57 21,370,403.54 p 2,942,536.61 p 24,312,940.15 Dec-06 4th Quarter p Total p 91,338,465.92 p 13,303,868.95 p 104,642,334.87 However, the above-computed premium collections of Pl04,642,334.87 shall be further reduced by the amount of P635,213.90 representing trust fund contributions. Therefore, only the remaining amount of P104,007,120.97 shall be subjected to VAT. Petitioner likewise asserts that its mam clients are seamen or seafarers who receive compensation for services rendered abroad as members of the complement of vessels engaged exclusively in international trade. These seamen are considered overseas contract workers for all intents and purposes and classified as non-residents of the Philippines following the provision of Section 23(C) of the NIRC of 1997, as amended. Since petitioner's services rendered to the seamen ~ 62 BIR Records, p. 490.

DECISION CTA CASE NO. 8291 Page 49 of64 are services rendered to non-residents and paid for in acceptable foreign currency, the premium payments and the trust fund contributions coming from the seamen should not attract 12% VAT since the services are zero-rated services under the provisions of Section 108(B)(2) of the NIRC of 1997, as amended. Unfortunately, however, petitioner failed to adduce evidence in support of its assertion. Respondent also disallowed the input tax of P8,290.7663. Records disclose that the assessed amount of P5,551,066.0064 Other Income is composed of the surcharges on lapsed plans, processing fees, other income and commission income reflected in petitioner's trial balance and audited FS65 for taxable year 2006, detailed as follows: Taxable Surcharge Processing Other Commission Total Month on Lapsed Fee Income Income 460,049.81 460,049.81 January Plans Subtotal I' 272,345.87 I' 19,113.47 I' 113,226.70 I' 55,363.77 I' I' 272,345.87 I' 19,113.47 I' 113,226.70 I' 55,363.77 I' February I' 248,904.04 I' 35,057.61 I' 01,023.66 I' 2,392.62 I' 387,377.93 29,414.84 480,782.86 March 297,184.39 56,804.82 97,378.81 31,807.46 p 868,160.79 198,402.47 p 87,171.23 p 1,328,210.60 I' 546,088.43 I' 91,862.43 p 311,629.17 p 1st Qtr I' 818,434.30 p 110,975.90 p April p 310,200.61 I' 33,210.94 I' 119,262.88 I' 35,053.71 I' 497,728.14 May 326,222.46 28,850.00 83,147.69 22,268.79 460,488.94 June 286,584.51 27,865.13 41,154.62 459,421.91 2nd Qtr 89,926.07 p 103,817.65 98,477.12 p 1,417,638.99 I' 923,007.58 I' 306,228.22 p July p 341,298.44 I' 24,903.49 I' 208,979.70 I' 23,573.13 I' 598,754.76 28,201.54 490,628.83 August 312,139.28 26,650.00 121,562.00 28,726.01 504,446.34 79,755.03 I' September 274,596.84 133,784.69 69,414.81 p 1 593,829.93 3rd Qtr p 928,034.56 p 464,326.39 p 121,713.95 October p 277,833.62 I' 32,751.86 I' 132,739.34 I' 1,056.20 I' 444,381.02 November 236,512.24 44,670.00 127,521.71 41,816.36 450,520.31 December 240,198.14 30,901.15 32,746.48 12,639.39 316,485.16 4th Qtr p 754,544.00 p 108,323.01 I' 293,007.53 p 55,511.95 p 1,211,386.49 lr Total 3,424,020.44 I' 388,980.01 p 1,375,191.31 p 362,874.25 1'5,551,066.01 63 BIR Records, p. 475. 64 BIR Records, pp. 421-425. 65 Exhibit "H", Statements of Income, forming part of the 1'6,555,710.00 Interest and other income; BIR Records, p. 421.

DECISION CTA CASE NO. 829I Page 50 of64 Again, for petitioner's failure to refute respondent's findings, the disallowed input tax of f'8,290. 76 shall be upheld and the aforesaid income shall form part of petitioner's taxable gross receipts for the year 2006 pursuant to Section 105 m relation to Section 108(A) of the NIRC of 1997, as amended. In fine, petitioner is liable to pay basic deficiency VAT in the amount off'8,577,964.13, computed as follows: Jan Feb- Mar 1� Quarter 2" Quarter 3n1 Quarter 4th Quarter Total 8,756,697.48 17,383,902.48 (In Philippine Pesos) 24,312,940.15 104,642,334.87 Collection of - - 26,140,599.96 30,057.796.63 24,130,998.13 166,951.25 635,213.90 ___Q!em.iums 8,756,697.48 17,383,902.48 - 168,043.55 300,219.10 24,145,988.90 104,007,120.97 Less: 272,345.87 546,088.43 26,140,599.96 29,889,753.08 23,830,779.03 754,544.00 3,424,020.44 Trust Fund 19,113.47 91,862.43 108,323.01 388,980.01 Contributions 198,402.47 818,434.30 923,007.58 928,034.56 293,007.53 properly 113,226.70 31,807.46 55,511.95 1,375,191.31 supported by 55,363.77 110,975.90 89,926.07 79,755.03 25,357,375.39 362,874.25 VATORs 9,216,747.29 18,252,063.27 Net Premium 12"/o" 311,629.17 306,228.22 464,326.39 12% 109,558,186.98 Collections 10% 3,042,885.05 921,674.73 2,190,247.59 87,171.23 98,477.12 121,713.95 12,962,647.49 Add: 1,932.26 8,290.76 27,468,810.56 31,307,392.07 25,424,608.96 113,053.30 Surcharges 2,931,764.01 375,966.80 on Lapsed 3,111,922.32 12'% 12% 851,794.86 12,594,971.46 Plans 3,050,953.08 2,079,969.15 4,017,007.32 3,756,887.05 8,577,964.14 Processing Fees 1,323.00 3,167.61 1,867.89 Other 124,244.61 72,492.16 66,176.73 income 2,989,000.71 3,687,562.50 2,986,644.24 Commission 1,215,193.24 income 961,544.36 988,474.86 Total receipts subiect to VAT 2,027,456.35 2,472,369.26 1,998,169.38 Tax Rate Output tax Add: Disallowed input tax Less: Input tax VAT due Less: VAT paid Basic deficiency VAT tr 66 Effective February I, 2006, the VAT rate was increased from I 0% to I2% pursuant to Revenue Memorandum Circular No. 07-06.

DECISION CTA CASE NO. 8291 Page 51 of64 DEFICIENCY WITHHOLDING TAX ON COMPENSATION - P2,054,826. 70 Respondent computed the alleged deficiency withholding tax on compensation as follows:67 Salaries and wages 1'6,418,727.24 1'9,816,995.75 Provision for quarterly allowance 3,338,758.51 6,418,727.00 Per diems 59,510.00 3,398,268.75 Compensation_l)_er alpha list 1,087,446.00 Difference Deficiency withholding tax on compensation 942,380.70 (32%) 25,000.00 Add: Interest (20% per annum) 1'2,054,826. 70 Compromise penalty Deficiency withholding tax on compensation In arriving at the above computation, respondent simply compared the amount stated in the alphalist amounting to P6,418,727.00 and the alleged claimed salaries and wages aggregating to P9,816,995.75. As stated by respondent in the FDDA, the salaries and wages reflected under Note 16 of the 2006 Audited Financial Statements amounting to P6,418,728.0068 is equal to the amount reflected in the alphalist69, thus: No. of Non�Taxable Taxable employees 13th Month SSS& Compensation Total 15 2 Others 1'5,549,599.62 1'6, 105,075.42 2 90,537.30 105,250.00 Total 1'420,000.00 1'135,475.80 161,594.00 208,401.83 PerFS Rounding-off 10,000.00 4,712.70 1'5,801,730.92 6,418, 727.25 difference 6,418,728.00 38,107.83 8,700.00 1'468, 107.83 1'148,888.50 p (0.75) In effect, these assessments are prov1s10n for quarterly V allowance in the amount of P3,338,758.5F0 and per diems in the amount of P59,510.00. 67 Exhibit "JJ", p. 2; Exhibit "F", p. 2. 68 Exhibit "H", Notes to Financial Statements, p. 22. 69 BIR Records, pp. 260-262 and 477. 70 BIR Records, pp. 421-425.

DECISION CTA CASE NO. 8291 Page 52 of64 As to the prov1s10n for quarterly allowance, petitioner alleged that these are actual disbursements paid to employees. Petitioner insists that for internal purposes, the account title "provision" is used but, at year-end, these provisions are reversed, thereby only actual or cash disbursements remain.71 Included in this account are de minimis and other benefits of relatively small value, reimbursements of related company costs and other expenses not subject to income tax on compensation. 72 With regard to the per diems in the aggregate amount of P233,510.0073, petitioner avers that this represents payments to members of the board of directors/non-employees in the amount of Pl74,100.00, and to employees in the amount of P59,410.00.74 However, petitioner failed to present sufficient evidence to explain the actual nature of the aforesaid amounts. Thus, in the absence of proof that the provision for quarterly allowance of P3,338,758.51 and per diems of P59,510.00 paid to petitioner's employees are not subject to withholding tax on compensation, petitioner shall be held liable for the corresponding deficiency withholding tax on compensation for taxable year 2006. Nonetheless, the tax rate to be used shall be the effective rate computed based on the total withholding tax on compensation paid divided by the total amount of net taxable compensation during the taxable year 2006, as shown below: Reference No. of Gross Tsxable Personal Net Tsxable Tax Due Effective (BIR Compensation Exemption Compensation Tax Rate Employees (e) = (dl + (c) Records) Income Income 15 24% Page 262 2 (a) (b) (c) = (a) - (b) (d) Page 261 2 p 5,549,599.62 p 531,000.00 P5,018,599.62 Page 260 P1,207,915.64 90,537.30 72,000.00 18,537.30 2,649.97 292,713.12 65,000.00 227,713.12 p 5,932,850.04 p 668,000.00 PS,264,850.04 34,724.53 Pl,245,290.14 71 Exhibit "KK", p. 13. 72 Exhibit "E", p. 14. 73 BIR Records, pp. 421-425. 74 Exhibit "KK", p. 13.

DECISION CTA CASE NO. 8291 Page 53 of64 In sum, petitioner is liable to pay basic deficiency withholding tax on compensation for the year 2006 in the amount of P803,789.33, computed as follows: Provision for quarterly allowance 1'3,338, 758.51 Per diems 59,510.00 Total compensation subject to withholding tax Effective tax rate 1'3,398,268.51 Basic deficiency withholding tax on 24% compensation p 803,789.33 DEFICIENCY EXPANDED WITHHOLDING TAX- P320,113.71 The table below shows respondent's computation of the deficiency expanded withholding tax assessment:75 Total professional fees 1'1,638,489.13 p 32,428.21 Professional fees per alpha list 1,314,207.00 Professional fees not subjected to EWT 324,282.13 8,648.35 Tax due (10%) Rentals per FS/ITR 718,805.05 117,985.66 Rentals per alpha list 545,838.00 Rentals not subjected to EWT 172,967.05 3,861.66 Tax due (5%) 162,923.88 Purchases of services per FS/ITR 6,738,907.76 157,189.83 Purchases per alpha list 839,625.00 Purchases of services not subjected to EWT 5,899,282.76 Tax due (2%) Purchases of goods/merchandise per FS/ITR 386,165.97 Purchases of goods per alpha list - Purchases of goods not subjected to EWT 386,165.97 Tax due (1%) Deficiency tax 141,189.83 Add: Interest (20% per annum) 16,000.00 Compromise penalty p 320,113.71 Total deficiency withholding tax - expanded " Exhibit "F", p. 2.

DECISION CTA CASE NO. 8291 Page 54 of64 1. Professional Fees - P324,282.13 Respondent found that petitioner had income payments for professional fees in the amount of P324,282.13 which were not subjected to EWT, as detailed below: PerBIR P239,000.13 P1,638,489.13 Professional and consultation fees 545,455.00 Administrative and management fees 887,004.00 Commissions 32,970.00 Less: SGV and Co. professional fees portion P239,000.00 1,314,207.00 Per Alphalist 174,100.00 897,207.00 Professional talent fee (WC010) 3,900.00 Fees of director (WI090) Gross commission, etc. (WC140) p 324,282.13 Others Professional fees not subjected to EWT It appears from the foregoing table that the professional fees allegedly not subjected to EWT in the amount of P324,282.13 originated from the "Administrative and management fees". According to petitioner, the account listed as "Administrative and management expenses" is composed of reimbursements of expenses for corporate events, quality management, and other costs and expenses, which were charged by Transnational Diversified Corporation (TDC) and Transnational Diversified Group, Inc. (TDGI) at cost. Petitioner argued that since TDC and TDGI collects at cost and without gain or profit, these pure reimbursements of costs transactions do not partake the nature of an income payment, hence not subject to EWT. Again, this Court cannot sufficiently verify petitioner's claim since it failed to submit evidence in support of its claim. In addition, the portion of the "Administrative and management fees" was offset by the "Fees of director" in the amount of P174, 100.00 and "Others" in the amount of P3,900.00. These two items clearly do not fall within the classification of "Administrative and management fees" as defined above. Hence, it is but proper to exclude the "Fees of director" and "Others" in the offsetting. t-- Petitioner further insists that the revenue exammer erroneously categorized "Commissions/ Service fees",

DECISION CTA CASE NO. 8291 Page 55 of64 payments of which were made to Dolphin Ship Management, Inc., Multinational Maritime, Inc. and NYK Fil Ship Management, Inc., as "Professional fees", and that the corresponding taxes were properly withheld and remitted using the 10% withholding tax rate. Assuming arguendo, that the "Commission" was offset against the corresponding income payment per alphalist, such offsetting was more favorable to petitioner by P10,203.00. Also, in arriving at the total "Professional fees" subject to EWT, respondent deducted the SGV and Co.'s professional fees portion. Conversely, petitioner insisted in its protest letter76 that the proper composition of "Professional fees" includes, among others, that of the SGV and Co., to wit: Actuarial Advisors, Inc. p 239,000.00 497,882.99 Transnational E-Business Solutions, Inc.; SGV and Co. 351,793.03 Security and janitorial expenses (Sniper Security Agency) Pl ,088,676.03 Total professional fees per ITR Perusal of the records reveals that among the afore- mentioned three (3) items, only the professional fees of Actuarial Advisors, Inc. in the amount of P239,000.00 was included by respondent in her assessment.77 Thus, she already disregarded the professional fees pertaining to Transnational E-Business Solutions, Inc. (TESI), SGV and Co., and Sniper Security Agency. Hence, it is improper for respondent to deduct the professional fees pertaining to SGV and Co. when, in the first place, it has never been part of subject professional fees. Accordingly, petitioner is found liable for basic deficiency EWT on professional fees in the amount of P54,545.50, computed as follows: Administrative and management fees 1'545,455.00 Tax rate 10% Basic deficiency EWTon professional fees (10%) p 54,545.50 76 Docket, p. 462. 77 BIR Records, p. 511.

DECISION CTA CASE NO. 8291 Page 56 of64 2. Rentals - P172,966.45 Petitioner accounted the discrepancy of P172,966.4578, as follows: TESI Network Support I' 40,000.00 TESI Network Support - Accrual 30,000.00 Payments to U-Bix for rentals of photocopier 13,480.74 Other various accruals of miscellaneous expenses 89,485.71 Total 1'172,966.45 TESI was registered with the Board of Investments (BOI) under Certificate of Registration No. 2001-09279 dated June 28, 2001, and was entitled to income tax holiday (ITH) incentive from June 28, 2001 to June 27, 2007 or for a total period of 6 years.so In accordance with the provision of Section 39(a)(1) of Executive Order No. 226, income payments received by TESI, in connection with its registered activity, are exempt from the payment of said withholding tax. On payments to U-Bix Corporation for rentals of photocopying machines, petitioner asserts that these were already subjected to the 2% EWT rate in the amount of P269.61. However, this Court finds that although there were payments relating to U-Bix Corporation reflected in the alphalist81 , it cannot be traced therefrom the alleged EWT payment of P269.61. Petitioner pointed out that other various accruals of miscellaneous expenses do not pertain to any specific vendor, some of which are casual or non-regular suppliers of TPI. Nonetheless, petitioner failed to show that these were casual or non-regular suppliers exempt from EWT. Accordingly, petitioner is liable for basic deficiency EWT on rentals in the amount ofP5,148.32, as computed below: Payments to U-Bix for rentals of photocopier 1'13,480.74 Other various accruals of miscellaneous expenses 89,485.71 1'102,966.45 Basic deficiency EWTon rental (5%) p 5,148.32 78 BIR Records, p. 502. 19 BIR Records, p. 553; Exhibit "UU". 80 BIR Records, p. 554; Exhibit "VV". 81 BIR Records, p. 207, lines 46 and 47.

DECISION CTA CASE NO. 8291 Page 57 of64 3. Purchases of services - P5,899,282.76, and Purchases of goods- P386,165.97 In its protest letters82 to the Preliminary Assessment Notice dated August 27, 2009 and Formal Letter of Demand dated November 5, 2009, petitioner requested respondent for the details of the purchases of services per FS/ ITR in the amount of P6,738,907.76 and purchases of goods/merchandise per FS/ITR in the amount ofP386,165.97. However, respondent has not provided the factual basis and details of these discrepancies on which petitioner is being assessed of deficiency withholding tax. As mentioned earlier, Section 228 of NIRC of 1997, as amended, provides that the taxpayer must be informed in writing of the law and the facts upon which a tax assessment is based; otherwise, the assessment is void. This is in consonance with the due process requirement of the 1997 Philippine Constitution, which provides that "No person shall be deprived of his property without due process of law." The taxpayer needs to know the nature of the examiner's findings in order to be able to properly contest the same and submit supporting documents. In the FDDAB3, Formal Letter of Demand and Final Assessment Noticess4, and Preliminary Assessment Notice85 sent by respondent to petitioner and particularly in the attached "Details of Discrepancies", there was no indication whatsoever as to how respondent's examiner arrived at the amounts of P6,738,907.76 and P386,165.97 allegedly representing petitioner's purchases of services and goods/merchandise per FS/ITR, respectively. Petitioner cannot be expected to be able to determine and thereafter refute the examiner's findings without the disclosure of the details of the basis of the assessment. Accordingly, the deficiency EWT assessments on these items are invalid and illegal for r respondent's failure to inform petitioner in writing of the facts on which the said assessment was based. 82 Exhibits "KK", p. 18 and "E", p. 19. 83 Exhibit "F". 84 Exhibit "R-12", BIR Records, pp. 628-638. 85 Exhibit "JJ".

DECISION CTA CASE NO. 8291 Page 58 of64 In sum, petitioner is liable to pay basic deficiency EWT in the total amount of P59,693.82, as computed below: Basic deficiency EWT on: 1'54,545.50 Professional fees 5,148.32 Rental Total 1'59,693.82 DEFICIENCY DOCUMENTARY STAMP TAX- P563,726.95 In the FDDA, respondent computed the alleged deficiency DST for the year 2006 as follows: DST on Premiums- Pre-Need Plans Premiums collected I' 103,378,870.77 DST due (0.20/200) 103,378.87 DST paid per return 59,109.63 I' 44,269.37 DST on Bonds and Loan Agreements 249,166.26 293,435.63 DSTbase 62,276,610.00 254,291.32 DST due (1/200) 311,383.05 16,000.00 p 563,726.95 DST paid per return 62,216.79 Basic Deficiency DST Add: Interest (20% per annum) Compromise Penalty Total Deficiency a. DST on Premiums - Pre-Need Plans - P44,269.37 Petitioner contends that portion of the premium collections being assessed pertains to plans issued prior to March 20, 2004 and were already subjected to DST based on the plan amounts. According to Section 186 of the NIRC of 1997 (prior to R.A. No. 9243), the DST on pre-need plans issued prior to March 20, 2004 shall be fifty centavos (P0.50) on each five hundred pesos (P500.00) of the value or amount of the plan. Pursuant to the amendment introduced by R.A. No. 9243, as implemented by Section 8 of R.R. No. 13-2004, the DST on all premium collections for pre-need plans issued on or after March 20, 2004 shall be twenty centavos (P0.20) on each two hundred pesos (P200.00), or fractional part thereof, of the premium or contribution collected. Premium collections applicable to pre-need plans issued by petitioner prior to March 20, 2004, the DST of which having been collected earlier based on plan amounts, need no longer be subjected again to stamp tax rate of 0.20/200. Thus, premiums/-

DECISION CTA CASE NO. 8291 Page 59 of64 collected amounting only to P57,899,090.00 was subjected to DST in the amount ofP57,901.13, as shown below: Taxable Month (2006) Tax BaseB6 Tax PaidB7 January p 4,017,000.00 p 4,017.00 February March 3,911,000.00 3,911.00 April 6,571,280.00 6,571.50 May 7 ,045, 700.00 7,046.00 June 7,011,340.00 7,011.50 July 3,814,900.00 3,815.00 August 3, 702,130.00 3,702.13 September 4, 767,580.00 4,768.00 October 4,049,780.00 4,050.00 November 4,098,950.00 4,099.00 December 4,727,110.00 4,727.50 Total 4,182,320.00 4,182.50 p 57,899,090.00 p 57,901.13 On the other hand, respondent's verification disclosed total premium collections of Pl03,378,870.7788 for the period January to December 2006, as summarized below: Month Peso Pension Peso Education Dollar Pension Total Collection January I' 5,458,308.96 I' 2,172,425.00 February 2,243,982.00 I' 1,125,918.19 I' 8,756,652.15 March 4,568,720.05 4,265,148.00 April 3,897,251.00 1,969,978.00 1,218,517.60 8,031,219.65 May 7,476,049.00 2,388,764.00 June 6,573,521.97 1,903,337.00 1,171,342.46 9,333,741.46 July 6,233,360.00 2,378,517.00 August 4,557,117.00 2,140,557.00 1,165,472.43 10,611,499.43 September 5,041,196.00 2,107,019.00 October 4,645,437.00 2,146,681.00 1,055,807.08 10,018,093.05 November 4,641,670.00 2,085,262.00 December 4,620,221.00 1,762,170.00 1,300,440.05 9,437,137.05 4,712,149.00 1,110,107.40 8,045,741.40 1,042,962.80 8,224, 715.80 1,160,803.26 7,913,259.26 975,582.13 7,763,933.13 992,631.40 7,698,114.40 1,070,444.99 7 ,544,763.99 I' 103,378,870.77 However, as earlier stated, petitioner's premmm collections for the year 2006 as reflected in its trial balance and audited FS for the year 2006 amounted to y P104,642,335.00. Hence, this amount shall be the reference in determining petitioner's DST liability. 86 BIR Records, pp. 62-106 and I08-111. 87 Ibid. 88 BIR Records, pp. 376-387 and 474.

DECISION CTA CASE NO. 8291 Page 60 of64 After thorough study of the records, petitioner failed to prove that, of the total premium collections of 1"104,642,335.00, the amount of 1"46,743,245.00 (1"104,642,335.00 less 1"57,899,090.00) was related to plans issued prior to March 20, 2004 and was already previously subjected to DST at the rate of 0.50/500. Mere allegation without adducing documentary evidence is not enough. This renders the assessment valid and correct. Consequently, petitioner is liable to pay basic deficiency DST on premiums in the amount ofP46,741.21, computed as follows: Total premium collections subject to DST p 104,642,335.00 Tax rate P.20/P200 DST due on premiums (pre-need plans) p 104,642.34 Less: DST paid per return 57,901.13 Basic deficiency DST on premiums - pre-need plans p 46,741.21 b. Deficiency DST on Bonds and Loan Agreements- P249,166.26 Petitioner alleged that the tax base of 1"62,276,610.00 reflected in its monthly DST returns should be corrected as 1"12,545,224.97 only. Petitioner's accountant then in-charge erroneously arrived at the tax base for DST on loans. Instead of using the tax rate of 1"1/1"200, the rate of P0.30/P200 was used in electronically filed returns. To support its claim, petitioner presented the following summary:B9 Month Erroneous Tax Should Be Tax DST Paid Exhibit Base Base per Return January I' 4,200.26 "Y" Febru9D' I' 4,200,260.00 I' 840,056.18 March 4,085,250.00 974,417.95 4,085.25 "Z" April 6,518,120.00 6,518.12 "AA" May 4,596,050.00 1,303,770.82 4,596.05 "BB" June 4,209,670.00 919,213.68 4,209.67 "CC" July 6,225,710.00 841,933.06 6,225.71 "DD" August 6,261,720.00 6,261.72 "EE" 4,774,120.00 1,252,066.00 4,774.12 "FF" September 1,252,342.67 BIR 5,875,130.00 Records, pp. October 935,034.30 126-127 6,788,690.00 "GG" 1' 175,023.56 5,900.00 1,357,739.16 6,788.69 89 Exhibit "KK", Annex "A"; BIR Records, p. 489; Exhibits "Y" to "II".

DECISION CTA CASE NO. 8291 Page 61 of64 November 4,559,570.00 898 870.78 4,559.57 "HH" December 4,182,320.00 794,756.81 5,238.00 "II" Total P62,276,610.00 P12,545,224.97 p 63,357.16 Unfortunately, the above summary and the related DST returns are insufficient to establish petitioner's assertion that the P63,357.16 DST it had paid pertains to loan agreements worth P12,545,224.97. Petitioner should have presented such loan agreements in order for this Court to ascertain the veracity of its claim. As already held in various cases, assessments are prima facie presumed correct and made in good faith. The burden of proof to rebut the presumption of correctness in the assessment is on the taxpayer. Petitioner herein failed on that task. Thus, respondent's findings shall be upheld. Petitioner is liable to pay basic deficiency DST on bonds and loan agreements in the amount of P248,025.89, as computed below: Bonds and loans subject to tax 1"62,276,610.00 Tax rate P1/P200 DSTdue Less: DST paid per return 311,383.05 63,357.16 Basic deficiency DST on bonds and loan agreements p 248,025.89 In fine, petitioner is liable for basic deficiency DST for taxable year 2006 in the total amount of P294,767.10, as computed below: Basic deficiency DST on: p 46,741.21 Premiums (pre-need plans) 248,025.89 Bonds and loan agreements p 294,767.10 Total COMPROMISE PENALTIES- P132,000.00 The compromise penalties of P132,000.00, as broken down below, are found to be without legal basis: Tax Type Compromise Penalty Income tax p 25,000.00 {-

DECISION CTA CASE NO. 8291 Page 62 of64 Value added tax 25,000.00 Withholding tax - compensation 25,000.00 Expanded withholding tax 16,000.00 16,000.00 Documentary stamp tax 25,000.00 Penalty for failure to file list of regular supplier, alpha list of P132,000.00 income payments not subjected to withholding tax, Monthly Alphabetical List of Payees (MAP) and failure to maintain subsidiary books as required under Sections 113 and 233 of the NIRC Total A compromise penalty cannot be imposed since no compromise agreement was reached between the parties. The imposition of the same without the conformity of the taxpayer is illegal and unauthorized.90 Revenue Memorandum Order No. 1-90 expressly provides that "compromise penalties are only amounts suggested in settlement of criminal liability, and may not therefore be imposed or exacted on the taxpayer in the event that a taxpayer refuses to pay the suggested compromise penalty". Since petitioner did not pay the compromise penalties imposed by respondent, it did not agree to settle the same. As a consequence, the compromise penalties ofP132,000.00 shall be cancelled. WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED. The assessments covering taxable year 2006 for deficiency income tax in the amount of P2,737,817.02 and compromise penalties in the amount of P132,000.00 shall be CANCELLED AND WITHDRAWN. However, the assessments for deficiency VAT, withholding tax on compensation, EWT and DST for the same taxable year shall be UPHELD WITH MODIFICATIONS. Accordingly, petitioner is ORDERED TO PAY respondent the amount of P12, 170,268.00, inclusive of the twenty-five percent (25%) surcharge imposed under Section 248(A)(3) of the NIRC of 1997, computed as follows: Tax Type Basic Tax 25% Total 1'8,577,964.14 Surcharge 1'10,722,455.18 Value added tax Withholding tax on 1'2,144,491.04 1,004,736.66 compensation 803,789.33 200,947.33 �9 Commissioner of Internal Revenue vs. Lianga Bay Logging Co., Inc. and the Court of Tax Appeals, G.R. No. L-35266, January 21, 1991.

DECISION CTA CASE NO. 8291 Page 63 of64 Expanded 59,693.82 14,923.46 74,617.28 withholding tax Documentary 294,767.10 73,691.78 368,458.88 stamp tax P9,736,214.39 P2,434,053.61 P12,170,268.00 Total (a) Deficiency interest at the rate of twenty percent (20%) per annum on the basic deficiency VAT, withholding tax on compensation, EWT and DST computed from the dates indicated below until full payment thereof pursuant to Section 249(B) of the NIRC of 1997, as amended; Tax Type Basic Tax Deficiency Interest Value-added tax Computed from 1'2,027,456.35 1st Quarter 2,472,369.26 25-Apr-06 2nd Quarter 1,998,169.38 25-Jul-06 3rd Quarter 2,079,969.15 25-0ct-06 4th Quarter 8,577,964.14 25-Jan-07 803,789.33 Withholding tax on compensation 59,693.82 15-Jan-07 Expanded withholding tax 294,767.10 15-Jan-07 Documentary stamp tax 05-Jan-07 (b) Delinquency interest at the rate of 20% per annum on the total amount of P12,170,268.00 and on the 20% deficiency interest which have accrued as afore-stated in (a), computed from April 15, 2011 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended. SO ORDERED. ~~ r- 37'""__,_.#-- AMELIA R. COTANGCO-MANALASTAS Associate Justice WE CONCUR: CAESAR A. CASANOVA Associate Justice Q~-;4, c. ~......e-4... 9.,. JlJANITO C. CASTANEDA: JR. Associate Justice

DECISION CTA CASE NO. 8291 Page 64 of64 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. 9......~..:4 c. ~...;>4 Q JtfANITo c. CASTANEDA, aR. Associate Justice Chairperson CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. Presiding Justice