COMMISSIONER OF INTERNAL REVENUE v. SONOMA SERVICES, INC.

REPUBLIC OF THE PHILIPPINES Court of Tax Appeals QUEZON CITY En Bane COMMISSIONER OF INTERNAL CTA EB No. 2467 REVENUE, Petitioner, (CTA Case No. 9808) -versus- Present: DEL ROSARIO, ill UY, RINGPIS-LIBAN , MANAHAN , BACORRO-VILLENA, MODESTO-SAN PEDRO, REYES-FAJARDO, and CUI-DAVID, JJ. SONOMA SERVICES, INC., Respondent. x ------------------------------------------------------------------------l---------------x RESOLUTION DEL ROSARIO, PJ.: For resolution is petitioner's "Motion for Reconsideration" filed on June 13, 2022 via registered mail and received by the Court on June 23, 2022, with respondent's "Comment (Re: Motion for Reconsideration dated June 6, 2022)" filed on July 18, 2022. In said Motion for Reconsideration , petitioner prays that the Court: (i) grant the Petition for Review; (ii) set aside this Court's Decision dated May 24, 2022, and the Court of Tax Appeals (CTA) Third Division 's Decision dated October 1, 2020 and Resolution dated March 2, 2021; and, (iii) deny respondent's claim for refund of P4,993,000.00. The dispositive portion of the assailed Decision reads:~

RESOLUTION Commissioner of lntemal Revenue vs. Sonoma Services, Inc. CTA EB No. 2467 (CTA Case No. 9808) "WHEREFORE, in light of the foregoing, the Petition for Review filed by petitioner Commissioner of Internal Revenue is DENIED for lack of merit. The assailed Decision dated October 1, 2020 and the assailed Resolution dated March 2, 2020 promulgated by the Court in Division are hereby AFFIRMED. SO ORDERED." In support thereof, petitioner raises the following grounds: 1. The CTA Third Division erred in declaring that respondent has proven the existence of its calendar year (CY) 2015 prior year's excess tax credits without requiring respondent to present the Creditable Withholding Tax (CWT) Certificates from 2006 to 2016 in view of the ruling in Commissioner of Internal Revenue vs. Zuel/ig Pharma Corporation; 1 2. The CTA Third Division erred in not declaring that respondent's judicial claim for tax refund for CY 2015 was filed out of time; and, 3. The CTA Third Division erred in not holding that respondent failed to comply with the requirements under Revenue Regulations (RR) No. 2-98, as amended by RR No. 2-2006, on the claim for refund of its excess/unutilized creditable income taxes withheld for CY 2015. Respondent, on the other hand, counter-argues that: 1. It has adequately proven the existence of its prior year's excess tax credits that were carried over to its Annual Income Tax Return (ITR) for CY 2015; 2. Its judicial claim for refund of excess and unutilized CWT for CY 2015 was filed within the two (2)-year prescriptive period provided in Sections 204(C) and 229 of the National internal Revenue Code (NIRC) of 1997, as amended; and, 3. There is no law, jurisprudence, or administrative regulation that requires the submission of Summary Alphalist of Withholding Agents of Income Payments Subjected to Withholding Tax (SAWT) and Monthly Alphalist of Payees (MAP) prescribed under RR No. 2-98, as amended by RR 1 CTA EB No. 1794, October 1, 2019rf} .

RESOLUTION Commissioner of Internal Revenue vs. Sonoma Services, Inc. CTA EB No. 2467 (CTA Case No. 9808) No. 2-2006 as a pre-requisite to the refund of an excess and unutilized CWT. THE COURT'S RULING After careful evaluation of the parties' respective arguments, the Court resolves to deny petitioner's "Motion for Reconsideration". Respondent's administrative and judicial claims for tax refund were timely filed Anent petitioner's argument that respondent should have filed its administrative and judicial claim for refund, on or before January 10 or 15, 2017, reckoned from the date of payment of taxes, the Court finds the same specious. The assailed Decision of the CTA Third Division already addressed the same, particularly on pages 9 to 11 thereof. To reiterate, Sections 204(C) and 229 of the NIRC of 1997, as amended, state that both administrative and judicial claims for refund of erroneously or illegally collected taxes should be filed within two (2) years from the date of payment of taxes. It is well-settled that the two (2)-year prescriptive period for claiming a refund under Section 229 of the NIRC of 1997, as amended, commences to run from the date of filing the final adjusted return or the Annual ITR.2 This is the only time a taxpayer is informed whether a tax is still due or a refund can be claimed based on the adjusted and audited figures. In the present case, respondent filed its AnnuaiiTR on April13, 2016, and an Amended AnnuaiiTR on April 25, 2016. Counting from April 25, 2016, respondent had until April 25, 2018 within which to file its administrative and judicial claims for refund. Records show that respondent timely filed its administrative and judicial claims for refund on September 7, 2017 and April11, 2018, respectively. 2 ACCRA Investments Corporation vs. Court of Appeals, G.R. No. 96322, December 20, 1991!7

RESOLUTION Commissioner of Internal Revenue vs. Sonoma SeNices, Inc. CTA EB No. 2467 (CTA Case No. 9808) Respondent was able to prove the existence of its CY 2015 prior year's excess tax credits In its Amended AnnuaiiTR for CY 2015, respondent had a total tax credits of P14,054, 123.00, broken down as follows: Prior Year's Excess Credit Other than MCIT ,. 9,061 '123.00 CWT from previous quarters 4,783,000.00 CWT for the 41h auarter 210,000.00 Total Tax Credits/Payments p 14,054,123.00 Respondent's regular corporate income tax for the period amounted to P445,427.00. The same was paid for using respondent's Prior Year's Excess Credits other than Minimum Corporate Income Tax (MCIT) of P9,061, 123.00, thus leaving a balance of P8,615,696.00 in respondent's prior year's excess credits. Respondent's CWTs in the total amount of P4,993,000.00 incurred during the period were not utilized to cover its current income tax liability. In the assailed Decision, the CTA Third Division found that respondent was able to account for its prior year's excess tax credits amounting to P9,061, 123.00. Petitioner, in the present Motion, insists that respondent failed to prove the existence of its prior year's excess credits as respondent failed to present its CWT Certificates from 2006 to 2016. At the outset, the Court notes that this is the first time that petitioner has raised this argument. Section 1, Rule 9 of the Rules of Court, in relation to Section 3, Rule 1 of the Revised Rules of the CTA, provides: "SECTION 1. Defenses and objections not pleaded. - Defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived. However, when it appears from the pleadings or the evidence on record that the court has no jurisdiction over the subject matter, that there is another action pending between the same parties for the same cause, or that the action is barred by prior judgment or by statute of limitations, the court shall dismiss the claim." r1r"

RESOLUTION Commissioner of lntemal Revenue vs. Sonoma Services, Inc. CTA EB No. 2467 (CTA Case No. 9808) A perusal of the Answer-3 filed by petitioner shows that petitioner never raised as a defense the failure of petitioner to prove its prior year's excess tax credits by reason of the non-submission of the pertinent CWT Certificates. Such defense is deemed waived and may not be raised by petitioner. Nevertheless, the Court shall address the issue to disabuse the mind of petitioner. The Court maintains that respondent has adequately proven the existence of its CY 2015 prior year's excess tax credits, a portion of which was utilized by respondent to pay for its income tax liability for CY 2015. The Court-commissioned Independent Certified Public Accountant (ICPA) painstakingly traced the sources of respondent's prior year's excess credits amounting to P9,061, 123.00 and found that the same arose from CYs 2011, 2013 (from the reinstatement of CY 2004 excess credits initially claimed as refund but subsequently denied by this Court in CTA EB Case No. 697 dated April 20, 2012) and 2014, as shown below: Particulars Prior Years' Total Excess Credits CWT for the Year 2003 ~2.506,600.00 ~ ~2,506,600.00 Tax credits/payments (289,502.00) Less application of excess tax credits (289,502.00) ~2.217,098.00 against RCIT due !i !i2,217,098.00 Amount carried over to 2004 2004 P2,217,098.00 P5, 188,970.00 !i7,406,068.00 Tax credits/payments (550,220.00) (550,220.00) Less: (5, 188,970.00) (5, 188,970.00) Application of excess tax credits !i1 ,666,878.00 against RCIT due !i1 ,666,878.00 p - Amount claimed for refund or issuance of TCC (CTA Case No. 7613) Amount carried over to 2005 2005 P1 ,666,878.00 !i5,070,932.00 P6,737,810.00 Tax credits/payments (1,029,302.00) (1 ,029,302.00) Less: Application of excess tax credits against RCIT due 3 CTA Docket, Vol. I, pp. 115-118. ~

RESOLUTION Commissioner of Internal Revenue vs. Sonoma Services, Inc. CTA EB No. 2467 (CTA Case No. 9808) Particulars Prior Years' Total Amount claimed for refund or Excess Credits CWT for the Year (5,070,932.00) issuance of TCC (CTA Case - (5,070,932.00) No. 7757) ~637,576.00 ~637,576.00 1'1 - Amount carried over to 2006 2006 1'1637,576.00 ~3.991 ,800.00 ~4.629,376.00 Tax credits/payments (434,043.00) - (434,043.00) Less: - (3,991 ,800.00) (3,991 ,800.00) Application of excess tax credits against RCIT due ~203,533.00 1'1 - ~203,533.00 Amount claimed for refund or issuance ofTCC (CTA Case No. 7911) Amount carried over to 2007 2007 1'1203,533.00 1'13,643,050.00 ~3,846,583.00 (553,207.00) Tax credits/payments (203,533.00) (756,740.00) Less application of excess tax credits ~3.089,843.00 1'1 - ~3,089,843.00 against RCIT due Amount carried over to 2008 2008 1'13,089,843.00 1'13,683,100.00 1'16,772,943.00 Tax credits/payments (827,408.40) - (827,408.40) Less: - (3,683, 100.00) (3,683, 100.00) Application of excess tax credits 1'12,262,434.60 against RCIT due 1'12,262,434.60 ~ - Amount claimed for refund or issuance ofTCC (CTA Case No. 8266) Amount carried over to 2009 2009 ~2.262,434.60 ~4,045,41 0.00 ~6,307,844.60 Tax credits/payments (995,903.10) - (995,903.1 0) Less: - (4,045,41 0.00) (4,045,41 0.00) Application of excess tax credits 1'11 ,266,531.50 against RCIT due 1'11 ,266,531.50 1'1 - Amount claimed for refund or ~1 ,266,531.50 ~3,911 ,850.00 1'15, 178,381.50 issuance of TCC (CTA Case No. 8458) (178,931.38) - (178,931.38) Amount carried over to 2010 - (3,911 ,850.00) (3,911 ,850.00) 2010 Tax credits/payments Less: Application of excess tax credits against MCIT due Amount claimed for refund or issuance of TCC (CTA Case No. 8639) ~

RESOLUTION Commissioner of Internal Revenue vs. Sonoma Services, Inc. CTA EB No. 2467 (CTA Case No. 9808) Particulars Prior Years' CWT for the Year Total Amount carried over to 2011 Excess Credits li1 ,087,600.12 li1 ,087,600.12 li - 2011 !'11,087,600.12 li4,386,654.40 li5,474,254.52 Tax credits/payments Less application of excess tax credits (1 ,087,600.12) (392,088.25) (1 ,479,688.37) !'13,994,566.15 li3,994,566.15 against RCIT due li - Amount carried over to 2012 li3,994,566.15 !'14,880, 190.40 li8,874, 756.55 2012 {1,479,209.10) - (1 ,479,209.1 0) Tax credits/payments Less: - {4,880, 190.40) (4,880, 190.40) li2,515,357.05 Application of excess tax credits !'12,515,357.05 Iii - against RCIT due !'12,515,357.05 li4,733,500.00 li7,248,857.05 Amount claimed for refund or issuance of TCC (CTA Case 4,357,499.04 - 4,357,499.04 No. 9026) (380,481. 09) - (380,481. 09) 6,492,375.00 11,225,875.00 Amount carried over to 2013 4,733,500.00 2013 (971 ,659.00) Tax credits/payments - (971 ,659.00) Add reinstatement of 2004 CWTs - {4,733,500.00) (4,733,500.00) disallowed by the CTA (per decision in li5,520,716.00 li5,520,716.00 CTA EB Case No. 697 dated April20, li - 2012) Less adjustment made by the Petitioner !'15,520,716.00 !'14,864, 750.00 P10,385,466.00 (1 ,324,343.00) Less: 114,196,373.00 - (1,324,343.00) Application of excess tax credits 119,061 '123.00 against RCIT due !'19,061 '123.00 114,864,750.00 Amount claimed for refund or (445,427.00) issuance of TCC (CTA Case !'14,993,000.00 lil14,054, 123.00 No. 9249) - - {445,427.00) Amount carried over to 2014 {4,993,000.00) (4,993,000.00) 2014 r1 Tax credits/payments Less application of excess tax credits against RCIT due Amount carried over to 2015 2015 Tax credits/payments Less: Application of excess tax credits against RCIT due Amount claimed for refund or issuance of TCC (CTA Case No. 9808)

RESOLUTION Commissioner of Internal Revenue vs. Sonoma SeNices, Inc. CTA EB No. 2467 (CTA Case No. 9808) Particulars Prior Years' Total Amount carried over to 2016 Excess Credits CWT for the Year li8,615,696.00 1"8,615,696.00 "' Moreover, the CTA Third Division's verification of the Annual ITRs presented in relation to the !CPA's summary of movements of excess CWTs revealed that the accumulated prior year's excess credit from CYs 2003 to 2010 had been utilized for the payment of respondent's income tax dues from CYs 2004 to 2011. Thus, the prior year's excess credit of P9,061, 123.00 were traced from CYs 2011 and 2014 and from the adjustments made in CY 2013, as shown below: Exhibit Taxable Income Tax Prior Year's Balance of CWTforthe Amount Excess Year Due Excess Prior Year's Year claimed for CWTatthe P-25-1 Credit Refund (CTA) end of the P-25-2 2003 (RCIT/MCIT) Excess d P-25-3 2004 Credit/( Income 2,506,600.00 e year P-25-4 2005 a Tax Still Due, 5,188,970.00 P-25-5 2006 289,502.00 5,070,932.00 - f=c+d-e P-25-6 2007 550,220.00 net of PY 3,991,800.00 2,217,098.00 P-25-7 2008 1,029,302.00 Excess Credit) 3,643,050.00 5,188,970.004 1,666,878.00 P-25-8 2009 434,043.00 3,683,100.00 5,070,932.005 P-25-9 2010 756,740.00 b c =b-e 4,045,410.00 3,991,800.006 637,576.00 P-25-10 2011 827,408.40 3,911,850.00 203,533.00 P-25-11 2012 995,903.10 - (289,502.00) 4,386,654.40 - 3,089,843.00 P-25-12 2013 178,931.38 4,880,190.40 2,262,434.60 2014 1,479,688.37 2,217,098.00 1,666,878.00 4, 733,500.00 3,683,100.007 1,266,531.50 1,479,209.10 4,864,750.00 1,087,600.12 971,659.00 1,666,878.00 637,576.00 4,045,41 o.oo� 3,994,566.15 1,324,343.00 2,515,357.05 637,576.00 203,533.00 3,911,850.009 5,520,716.00 9,061,123.00 203,533.00 (553,207.00) - 3,089,843.00 2,262,434.60 4,880,190.4010 4, 733,500.0012 2,262,434.60 1,266,531.50 - 1,266,531.50 1,087,600.12 1,087,600.12 (392,088.25) 3,994,566.15 2,515,357.05 2,515,357.05 5,520,716.0011 5,520, 716.00 4,196,373.00 Petitioner's claim that respondent failed to present its Certificates of CWT for the latter's prior year's excess tax credits in 4CTA Case No. 7613. 5 CTA Case No. 7757. 6 CTA Case No. 7911. 'CTA Case No. 8266. 8 CTA Case No. 8458. 9 CTA Case No. 8639. 1o CTA Case No. 9026. 11 Prior year's Excess Credit of P2,515,357.05 less adjustment in CY 2013 P380,481.62 add reinstated (per CTA EB No. 697) CY 2004 CWTs of P4,357,499.04 less income tax due 1"971 ,658.90; rounding off resulted to immaterial difference of P0.43. 12 CTA Case No. 9249.~

RESOLUTION Commissioner of Internal Revenue vs. Sonoma Services, Inc. CTA EB No. 2467 (CTA Case No. 9808) CY 2015 has no basis. As found by the CTA Third Division, respondent submitted its Certificate of Taxes Withheld at Source (BIR Form No. 2307) for CY 2004 amounting to P5, 188,969.74,13 CY 2011 amounting to P4,386,654.40, 14 and CY 2014 amounting to P4,864,750.00. 15 The CTA Third Division's finding is further verified upon examination of the exhibits showing the Certificates of Creditable Tax Withheld At Source (BIR Form Nos. 2307). The said examination revealed the following detailed breakdown: Exhibit CY2004 CWT P-36-1 ~ 40,909.09 P-36-2 103,636.35 P-36-3 122,727.26 P-36-4 P-36-5 40,909.09 P-36-6 103,636.35 P-36-7 122,727.26 P-36-8 142,459.08 P-36-9 P-36-10 35,772.28 P-36-11 40,909.09 P-36-12 103,636.35 P-36-13 122,727.26 P-36-14 40,909.09 P-36-15 103,636.35 P-36-16 122,727.26 P-36-17 40,909.09 P-36-18 103,636.35 P-36-19 122,727.26 P-36-20 P-36-21 2,136.36 P-36-22 18,181.82 P-36-23 130,186.36 P-36-24 75,000.00 P-36-25 124,550.00 P-36-26 170,754.54 P-36-27 210,920.45 P-36-28 110,386.35 P-36-29 68,181.82 P-36-30 40,909.09 P-36-31 103,636.35 P-36-32 122,727.26 P-36-33 40,909.09 P-36-34 103,636.35 122,727.26 22,727.27 13,636.35 13 Exhibits "P-35". "P-36", "P-36-1" to "P-36-54". 14 Exhibits "P-37", "P-38", "P-38-1"to "P-38-20". 15 Exhibits "P-39","P-40", "P-40-1"to "P-40-24".11)

RESOLUTION Commissioner of Internal Revenue vs. Sonoma Services, Inc. CTA EB No. 2467 (CTA Case No. 9808) P-36-35 CY 2011 13,636.35 P-36-36 CY 2014 13,636.35 P-36-37 45,272.71 P-36-38 12,719.09 P-36-39 121,568.18 P-36-40 76,314.28 P-36-41 155,795.44 P-36-42 68,181.82 P-36-43 292,090.92 P-36-44 93,007.98 P-36-45 320,386.37 P-36-46 93,007.98 P-36-47 418,363.64 P-36-48 133,550.05 P-36-49 29,545.46 P-36-50 11,363.63 P-36-51 113,754.55 P-36-52 28,617.82 P-36-53 104,659.08 P-36-54 47,696.46 Total 5, 188,969.74 P-38-1 262,500.00 P-38-2 262,500.00 P-38-3 262,500.00 P-38-4 262,500.00 P-38-5 262,500.00 P-38-6 262,500.00 P-38-7 262,500.00 P-38-8 262,500.00 P-38-9 P-38-10 15,000.00 P-38-11 15,000.00 P-38-12 10,000.00 P-38-13 262,500.00 P-38-14 262,500.00 P-38-15 304,050.00 P-38-16 304,050.00 P-38-17 262,500.00 P-38-18 262,500.00 P-38-19 262,500.00 P-38-20 262,500.00 Total 63,554.40 4,386,654.40 P-40-1 P-40-2 262,500.00 P-40-3 262,500.00 P-40-4 262,500.00 262,500.00 ~

RESOLUTION Commissioner of Internal Revenue vs. Sonoma Services, Inc. CTA EB No. 2467 (CTA Case No. 9808) P-40-5 45,000.00 45,000.00 P-40-6 262,500.00 262,500.00 P-40-7 262,500.00 262,500.00 P-40-8 262,500.00 262,500.00 P-40-9 351,750.00 408,000.00 P-40-10 262,500.00 262,500.00 P-40-11 262,500.00 262,500.00 P-40-12 10,000.00 10,000.00 P-40-13 10,000.00 10,000.00 P-40-14 112,500.00 187,500.00 P-40-15 4,864,750.00 P-40-16 P-40-17 P-40-18 P-40-19 P-40-20 P-40-21 P-40-22 P-40-23 P-40-24 Total '" In view thereof, respondent has undoubtedly proven the existence of tax credits for CY 2004 amounting to P5, 188,969.74, CY 2011 amounting to P4,386,654.40, and CY 2014 amounting to P4,864,750.00. After carefully tracing the movements of the tax credits, the CTA Third Division also found that such tax credits were utilized as follows: Particulars CY2004 CY 2011 CY 2014 Total Credits Credits Credits 1"14,440,374.40 Amount of Credits 1"5, 188,970.0018 1"4,386,654.40 1"4,864,750.00 Refund under CTA Case No. 7613 (5, 188,970.00) CY 2011 RCIT Balance (5, 188,970.00) (392,088.25) (392,088.25) CY 2012 RCIT (1 ,479,209.1 0) Denied Refund Reinstated in (1 ,479,209.1 0) 2013/(Adjustment to CY 2010 income tax 4,357,499.04 (380,481.09) due) 3,977,017.95 CY 2013 RCIT (971 ,659.00) (971 ,659.00) CY 2014 RCIT (1 ,324,343.00) Balance (161 '126.04) (1,163,216.96) '" 9,061 '123.00 '" '" 4,196,373.00 - 1"4,864,750.00 In fine, this Court finds no error committed by the Court in Division when it ruled that respondent has sufficiently proven that the existence of its prior year's excess credits for CY 2015 amounting to 16 Immaterial difference of 1"0.26~

RESOLUTION Commissioner of Internal Revenue vs. Sonoma Services, Inc. CTA EB No. 2467 (CTA Case No. 9808) P9,061, 123.00, a portion of which was utilized to settle respondent's income tax liability for CY 2015 amounting to P445,427.00. Compliance with the requirements under RR No. 2- 98, as amended by RR No. 2- 2006 As regards petitioner's argument that respondent failed to comply with the requirements under RR No. 2-98, as amended by RR No. 2-2006, anent the submission of SAWTs and MAPs, the Court finds the same as mere reiterations of the arguments pleaded in petitioner's "Motion for Reconsideration" filed via registered mail on October 21, 2020 before the CTA Third Division, 17 and "Petition for Review" filed via registered mail on May 21, 2021 before this Court. 18 Petitioner's argument was duly considered in the assailed Decision, particularly on pages 8 to 9 thereof. Accordingly, it would be a useless superfluity for this Court to reiterate its pronouncements in the assailed Decision in addressing the same issue. All told, the Court finds no cogent reason to reverse or modify the assailed Decision. WHEREFORE, in light of the foregoing, petitioner's "Motion for Reconsideration" is DENIED for lack of merit. SO ORDERED. Presiding Justice WE CONCUR: E~P.UY rtv. ~ -'1' <.____ Associate Justice MA. BELEN M. RINGPIS-LIBAN Associate Justice 17 Annex "C", CTA En Bane Docket. pp. 46 to 55. 18 CTA En Bane Docket, pp. 1 to 12.

RESOLUTION Commissioner of lntemal Revenue vs. Sonoma Services, Inc. CTA EB No. 2467 (CTA Case No. 9808) r' ~7-~ CATHERINE T. MANAHAN Associate Justice (On Leave) MARIA ROWENA MODESTO-SAN PEDRO Associate Justice ~~f. ~-r~ MARIAN lvfF. REVES-FAJARDO Associate Justice LANhEsEuSn. CttUtIr-~VID Associate Justice