MERIDIEN BUSINESS LEADER, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY FIRST DIVISION MERIDIEN BUSINESS CTA Case No. 9316 LEADER, INC., Petitioner, Members: -versus- DEL ROSARIO , PJ, Chairperson, CASTANEDA, JR.,* and MANAHAN, JJ. COMMISSIONER OF Promulgated: INTERNAL REVENUE, Respondent. ){- - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - AMENDED DECISION MANAHAN,J.: This resolves r e spondent's Motion for Reconsideration (Re: Decision dated 11 November 20 19) filed through registered mail on September 10, 2020 assailing this Court's Decision1 in the above captioned case promulgated on July 29, 2020. The dispositive portion of which reads as follows: "WHEREFORE, the Petition for Review filed by Me ridien Business Leader , Inc. on Ma rch 18, 2016, through registered mail, is hereby GRANTED. Accordingly, the assailed Final Decision, the undated FDDA, including the s ubject tax assessments issued by respondent Commissioner of Interna l Revenue, holding petitioner lia ble for deficiency taxes and compromise penalties in the aggregate amount of f>2,361 ,261,053. 16 for taxable year 2 010, a re CANCELLED and SET ASIDE. SO ORDERED." Respondent moves for the reconsideration of the assailed Decision on the ground that the "Honorable Court erred in ruling that the assessment notices against petitioner is a nullity for allegedly not indicating a definite due date for the payment of the ta){ liabilities." Petitioner, on the other hand, reiterates � Des ignated as Spec1al Member pursuant to Memorandum dated December 18. 2020 1 Docket- Vol. VI (unpaged) a--

AMENDED DECISION CTA Case No. 9316 that the Court validly cancelled the assessments and prays that respondent's Motion for Reconsideration be denied for lack of merit. We agree with respondent. In Commissioner of Internal Revenue v. Fitness by Design, Inc., 2 the assessments were found to lack a definite amount of tax liability and did not contain a specific due date, thereby negating the demand for payment. In the instant case, the Formal Letter of Demand (FLD) and Final Decision on Disputed Assessment (FDDA) both contained due dates, June 30, 2014 and October 31, 2015, respectively. Thus, there is a definite demand to pay on a specific due date. With those due dates contained in the FLD, FDDA and assessment notices, together with the computation of tax liability up to the said due dates, then there is a definite amount of tax liability. The statement contained in the FLD and the FDDA merely means that the interest will be adjusted if the taxpayer fails to pay on the due date specified in the assessment notices. The basic deficiency tax liability remains the same regardless of when the taxpayer chooses to pay the assessment. The interest, and only the interest, may be adjusted if the taxpayer pays before or after the due date. The basic deficiency tax liability remains the same. What is important is that there is a due date contained in the FLD/FDDA/assessment notice. Thus, the Court will now examine the assessment items. Based on respondent's FDDA, with attached Details of Discrepancies and Assessment Notices,3 petitioner was assessed of deficiency internal revenue taxes forTY 20 10, in the aggregate amount of P2,361 ,261,053.17, including surcharges, interest and penalties, summarized as follows: 2 G R_ No. 215957, November9, 2016 1 Exhibit "R-14", BlR Records. pp. 879 to 900. Ac..-<

AMENDED DECISION ITA Case No. 9316 Tax Type Basic Surcharge Interest Compromise Total p 642,954,160.26 P321,477,080.13 Penalty Income Tax "IT") r 584,824,058.10 r 1,549,255,298.49 Value Added Tax ("VAT") 325,699,810.94 162,849,905.47 310,351,765.06 - 798,901,481.47 Withholding Tax on Compensation 4,976,080.53 - 4,684,332.25 p 25,000.00 9,685,412.78 I"WC"I Expanded 938,727.10 899,634.91 25,000.00 1,863,362.01 Withholding Tax 615,464.07 561,168.33 ("EWT") 153,866.02 25,000.00 1 ,355,498.4~'- Fnnge Benefit P'901,320,958.65 Tax ("FBT") _ 200,000.00 200,000.00 Compromise Penalty P'975,184,242.90 P484,480,851.62 P275,000.00 P2,361 ,261,053.17 Total I. Deficiency IT- Pl,549,255,298.49 & II. Deficiency EWT- Pl,863,362.01 Petitioner was assessed of deficiency income tax for TY 2010 in the amount of 1'1,549,255,298.49, computed as follows: 5 --- -- -- Taxable mcome per return p 15,546,167.00 Add: Findings per Investigation: PI ,844,097,778.86 I IT-1 Undeclared sales per audit .. 224,050,566.58 IGJ,GL,TAR,TB,FS/ITRI �-------�- IT-2 Additional Taxable Income on 20,841,052.46 Undeclared Purchases 7,762,459.05 I IT-3 Undeclared Other OEerating Income 46,428,677.25 ��-- IT-4 Additional Taxable Income (matching ~. 2,143,180,534.20 of SLP, EWT, & Aitiedl p 2,158,726,701.20 IT-6 Disallowed expenses for non- 30% p 647,618,010.36 -�-- withholding _9.f tax 4,66~,850.10 -~-- Total Adj~stments per audit.. f' 642.!.~54, 160.26 Taxable income per audit Multiplied by: Income tax rate Income tax due per audit �-�- - Less: 30o/oRegular Corpora!~ Income Tax ____!_~~~~ Income Tax De!.l~iency - Add: Increments Surcharge p 321,477,080.13 584,824,058.10 Interest- 10/31/2015 906,301,138.23 f'l,549,255,298.49 Total Amount Due (IT) The assessment items shall be discussed one by one: IT-1 Undeclared sales per audit {GJ,GL,TAR,TB,FS/ITR) PI ,844,097,778.86 IT-2 Additional Taxable Income on Undeclared Purchases 224,050,566.58 IT-3 Undeclared Other Operating Income 20,841,052.46 IT-4 Additional Taxable Income (matching of SLP, EWT, & Aitied) 7,762,459.05 IT-6 Disallowed expenses for non -withholding of tax 46,428,677.25 � The O.Ol discrepancy from the total amount per FDDA of:Pl.JS:\.498.41 is due to mathematical error ' Exhibit "R-14", BlK Records. p. 900. ~

AMENDED DECISION CTA Case No. 9316 IT-1 Undeclared sales per audit- ?1,844,097, 778.86 Based on respondent's examination, all transactions entered in petitioner's General Journal ("GJ") were compared to the account balances generated in the General Ledger ("GL") and were then traced to the Trial Balance ("TB") to ascertain that all transactions were reflected/forwarded in the Financial Statements ("FS"). Analysis of accounts particularly the sales transactions revealed that 51% of the sales were adjusted/reclassified to the "mother account" (Account Codes 4001000; 4002000, and 4003000) in the GL but were not forwarded/reflected in the TB, which practically understates the sales declaration in the FS. Hence, the discrepancy noted in the GL amounting to f>1,844,097,778.86, as detailed below, was assessed of the corresponding income tax due pursuant to Section 32 of the National Internal Revenue Code of 1997, as amended (herein referred to as "Tax Code" for brevity) :6 j Acct Code Account Name Gen. Journal {GJ) Gen. Ledger {GL) FS/TB 4001000 4001100 Sale of Goods - r 776,509,034.47 p 376,114,570.06 - 4001200 Outright 376,112,459.46 r 376,112,459.46 4002000 Sale of Goods - 4002100 Outright Vat 2,110.60 2,110.60 - ----- 2,110.60 I 4002200 Sale of Goods - 515,306,819.34 4003000 4003100 Outright Vat Exempt I ,098,241,260.87 512,978,879.54 512,97~&79 54~ 4003200 Sale of Goods - Major 4005000 Consie:nor 2,327,939.80 2,327,939.80 Sale of Goods - Major Consignor Vat 952,676,389.46 Sale of Goods- Major 1,914,211,792.36 952,673,828.15 952,673,828.15 Consignor Vat Exempt Sale of Goods - Store 2,703,101.16 2,561.31 2,561.31 .I Consignor P3,791 ,667,299.46 2,703,101.16 Sale of Goods - Store P3,690,898,658.88 2,703,101.16 Consignor Vat (32,964,772.63) (15,827,864.541 Sale of Goods - Store P3,758,702,526.83 P3,675,070,794.34 r 1,846,800,880.02 Consignor Vat Exempt Sale of Goods - Others 115,827,864.541 Gross Sales r 1,830,973,015.48 r-- Less: Discount Fees Net Sales per FLD Net Sales, per audit!GL ----------- r 3,675,07QJ:94.34 Net Sales, per FS/ITR/TB I ,830,973,015.48 Discrepancy P1,844,097,778.86 Petitioner contends that the alleged under declaration of sales is merely a result of respondent's erroneous reading and misinterpretation of the entries in its GJ and GL. Allegedly, the '' Exhibit"R-14'", BIR Records. p. 897. ~

AMENDED DECISION CTA Case No. 9316 sales amounts picked up by respondent per GJ is, in actuality, the sums of the Budgeted or Forecasted Sales and its Actual Sales. It further alleges that respondent considered the mother accounts per GL as separate sales entries when it actually represent the sums of the sales of children accounts (total VATable and VAT-Exempt), thus, resulted to a double take-up of the balances. We find for the petitioner. A perusal of the GJs submitted by petitioner shows that its sales accounts, particularly, "Sale of Goods-Outright Vat", "Sale of Goods-Major Consignor Vat" and "Sale of Goods-Store Consignor Vat" with the corresponding account codes of 4001100, 4002100 and 4003100, included both the budgeted and actual sales amounts, as shown below: Account Account Name Exh. Bude:et Sales Exh. Actual Sales --T--o-t-a-l-� - - - Code Sale of Goods - No. p 400,396,575.00 No. p 376,112,459.00 p 776,509,034.00 Outright Vat IGJl' iGJl' 4001100 "P-7" 580,986,398.00 Sale of Goods- "P-13" 4002100 Major "P-8" 961,533,570.00 Consignor Vat P1,942,916,543.00 "P-14" 512,978,880.00 1,093,965,278.00 4003100 "P-9" Sale of Goods - "P-15" 952,673,828.00 1,914,207,398.00 Store Consignor Vat Pl,841,765,167.00 P3,784,681,71Q.OO Gross sales Verily, the above actual sales of 1"376, 112,459.00, 1"512,978,880.00 and 1"952,673,828.00 for "Sale of Goods- Outright Vat", "Sale of Goods-Major Consignor Vat" and "Sale of Goods-Store Consignor Vat", respectively, were properly reflected in the GL and forwarded to the FS as gleaned from respondent's computation. Nonetheless, it is apparent that the 1"1,844,097,778.86 discrepancy noted by respondent pertains to the following alleged sales amounts for "Sale of Goods-Outright", "Sale of Goods-Major Consignor" and "Sale of Goods-Store Consignor" reflected in the GL but not forwarded in the FS: Account Code Account Name Sales Amount __ . 4001000 Sale of Goods- Outri-;ht Sale of Goods Maior Consignor p 376,114,570.06 4002000 Sale of Goods - Store _Consignor 4003000 Total 515,306,819.34 952,676,389.46 P1,844,097,778.86 Docket- Vol. IV, pp. 2358 to 2414. x Docket- Vol IV. pp. 2771 to 3000 and Docket- Vol. V. pp. 3001 to 3389 t:M.

AMENDED DECISION CfA Case No. 9316 However, based on the GL-Sales Transactions9 used by respondent in its examination, it can be deduced that these accounts (Outright, Major Consignor and Store Consignor) are actually mother accounts. In fact, the alleged sales amounts corresponding thereto are the exact sums of its respective children accounts (Vat and Vat exempt), as presented hereunder: Acct Account Name SM Lipa Sales SM Rosales Sales -- - Total Sales Code ---~---~------- ------ Sale of Goods - Outright P233,209,167.86 Pl42,905,402.20 P376,114,570.06 4001000 (mother account) children accounts: 4001100 Sale of Goods - p 233.209.167.86 p 142,903,291.60 p 376,112,459.46 Outrillht Vat 4001200 Sale of Goods - P233,209,167.86 2,110.60 2,110.60 Outright Vat Exempt f'142,905,402.20 P376,114,570.06 - ------------ Total 4002000 -- ---- --- ---�-� -- 4002100 - - --- -------- 4002200 Sale of Goods - Major Consignor (mother account) P342,019,440.69 Pl73,287,378.65 P515,306,819.34 children accounts: Sale of Goods - Major Consignor Vat p 340,134,767.43 p 172,844,112.11 p 512,978,879,54 443,266.54 - Sale of Goods - Major 2,327,939.80 P173,287,378.65 Consignor Vat Exempt 1,884,673.26 P515,306,819.34 Total P342,019,440.69 4003000 Sale of Goods - Store P619,372,520.43 P333,303,869.03 P952,676,389.46 Consignor 4003100 (mother account) 4003200 children accounts: -- Sale of Goods - Store p 619,372,520.43 p 333,301,307.72 r 952,673,828.15 Consimor VAT Sale of Goods ~ Store -----� - 2,561.31 ---. ~,561.31 Consignor VAT exempt 1"333,303,869.03 1'952,676,389.46 Total - - _1'{;_1_9,37_2,_5_2_0.43 Even respondent, in its assessment, acknowledged that these accounts with Account codes 4001000, 4002000 and 4003000 are mother accounts. Since the said accounts are mother accounts, which basically represents the total sales of its children accounts, the sales amounts corresponding to the former do not constitute as undeclared sales as the actual sales per children accounts were unquestionably included in the net sales per FS of '1'1,830,973,015.48 and had already been subjected to income tax. Consequently, the deficiency income tax on the alleged undeclared sales of'P1,844,097,778.86 must be cancelled. ~ HlR Records, p. 566. a-.-

AMENDED DECISION CTA Case No. 9316 IT-2 Additional Taxable Income on Undeclared Purchases - P224,050,566.58 Respondent's comparison of the purchases recorded per petitioner's Purchase Books as against the purchases reflected per FS revealed a discrepancy in the declaration of purchases for the year. The discrepancy noted was considered as unreflected sources of funds not accounted for in the return, which led to the inference that part of the income has not been reported. Hence, the corresponding income tax due thereon was assessed pursuant to Section 27 and in relation to Section 32 of the Tax Code. The assessed additional taxable income on undeclared purchases amounting to P224,050,566.58 was computed by respondent as follows: to Purchases, per Purchase Book: ~ 823,345,975.42 Rosales (0230-0457) 1,442,693,971.89 Lipa (0230 0270) ~2.266,039,947.31 Total Less: Prior year purchases 201,509,558.54 Net allowable purchases, per Purchase Book P2,064,530,388.77 Less: Adjustment: 7,011,928.43 Net Discounts and Returns Net allowable purchases after adjustment ~2.057,518,460.34 Net Purchases, per FS Undeclared Purchases 1,392,479,477.00 Divided by: COS ratio P665,038,983.34 Grossed-up sales on undeclared purchases Multiplied by: GP rate 74.80% Additional taxable income on undeclared purchases ~ 889,089,549.92 25.20% P224,050,566.58 ------ The assessment is unmeritorious. Respondent's allegation that petitioner had unreported income arising from alleged undeclared purchases is without factual basis. The imputation of the alleged additional income is based on a mere presumption that since there were purchases not accounted for in petitioner's FS, it has likewise undeclared income which corresponds to it. 1n Exhibit ''R-14". BJR Records, p. 896 a....-

AMENDED DECISION CTA Case No. 9316 As held in the case of Commissioner ofInternal Revenue vs. Agrinurture, Inc., 11 a finding of under-declaration of purchases does not by itself result in the imposition of income tax. The three (3) elements on the imposition of income tax are: (1) there must be gain or profit, (2) that the gain or profit is realized or received, actually or constructively, and (3) it is not exempted by law or treaty from income tax. 12 Income tax is assessed on income received from any property, activity or service. As such, income tax is imposed only when there is an income, and such income was received by the taxpayer and not when there is an under declaration of purchases. In this case, the said elements are not present. Respondent's assessment was not based on undeclared income actually received by petitioner but on a mere presumption that the alleged undeclared purchases constitute as undeclared Income. While axiomatic is the fact that all presumptions are in favor of the correctness of tax assessments, the assessment itself should not be based on presumptions no matter how logical the presumption might be. In order to stand the test of judicial scrutiny, the assessment must be based on actual facts. The presumption of correctness of assessment being a mere presumption cannot be made to rest on another presumption. 13 For lack of factual basis, the deficiency income tax assessment corresponding to the alleged additional taxable income on undeclared purchases amounting to P224,050,566.58 shall be cancelled. IT-3 Undeclared Other Operating Income- P20,841,052.46 Respondent's comparison of petitioner's other income per GJ as against that declared per FS revealed a discrepancy in the amount of P20,841,052.46, as detailed below, hence, assessed pursuant to Sections 27 and 32 of the Tax Code: 14 11 CTA EB Case No. I054 (CTA Case No. 8345). January 13, 20 15 12 Conumssiuner of Internal Revenue vs. Court qfAppeals. el a!.. G. R. No. I08576, January 20, 1999 11 Collector ofInternal Revenue vs. Bempayo, G.R. No. L-13656, January 3 L 1962 1 ~ Exhibit "R-14''. BIR Records, pp. 895 to 896. ~

AMENDED DECISION CTA Case No. 9316 Acct Account Name Per Audlt/GJ PerFS Discrepancy Code 4040110 Gain/Loss on Forex ~ 13,489,598.26 p 5,542,757.00 p 7,946,841.26 40400!2 Rental Income-Mall .. 7 ,658,815.99 40400!5 Selling 4,807,822.00 2,850,993.99_ 4040022 1,358,850.17 634,975.00 723,875.17 Rental Income-Others Service Income- 3,621,215.79 1,205,309.00 2,415,906.79 Manoower Cost 76,034.00 221,209.41 4040032 Service Income-Others 297,243.41 1,477,806.00 2,088,117.76 40'1_0152 Mise Income-Bills 3,565,923.76 87,496.00 38,161.98 Payment 4040155 Mise Income-Showtickets 125,657.98 60,821.00 82,609.66 4040156 143,430.66 4040157 Mise Income-Items left by 424,905.05 .. 424,905.05_ 4040158 Customer 547,762.38 215,445.00 332,317.38 Mise Income-Processing 838,699.00 574,341.01 Fees 1,335,878.00 2,616,891.61 Mise Income-Cash 1,204,047.00 493,172.84 Overw:es/CBAL 4040159 Mise Income-Scran Sales 1,413,040.01 4040160 Mise Income-SMAC 3,952,769.61 4040161 Mise Income-Others 1,697,219.84 293,501.00 11,534.36_ _ 4040162 Mise Income-Government 305,035.36 332,737.00 20,174.19_ Services Pl8,113,327.00 - 4040163 Mise Income-Remittances 352,911.19 -- P20,841,052.46 Total .. P38,954,379.46 Unrep_~rted Other Operating__!ncome per audit Petitioner alleged that the GJ captured all source system including the "Hyperion" module in which budgeted sales are lodged into; that the GJ includes not only the actual income but the budgeted income as well, making the recorded other income higher than the reported amount perFS; that the discrepancy is merely a result of misinterpretation of entries in the GJ since respondent treated the budgeted/forecasted amounts as actual other income, when these are actually mere guides used by petitioner's officers to assess the performance of its business. Petitioner's arguments are deemed to have merit. A perusal of the GJ shows that the same contains records j entries of both actual sales and budget sales ("Budget from Hyperion") under the subject accounts names with the corresponding account codes. The details of the budget sales amounts and actual sales amounts are tabulated below: --~--- ----- Acct Account Name Exh. Budget Sales Exh. Actual Sales Total Code Gain/Loss on Forex No. p 7,946,841.00 No. 4040110 Rental Income-Mall (GJ)" (GJ)�� p 5,542,757.00 Pl3,489,598'1_2_ Sellin2 "P-10-1" "P-Il-l" 4040012 Rental Income~ Others "P-10-2" 2,850,994.00 "P-11-2" 4,807,822.00 7,658,815.96 4040015 "P-10-3" 723,875.00 "P-11-3" 634,975.00 . _L_358,850 19 1-' LJocket- Vol IV, pp. 2415 to 2444 ~r. LJocket- Vol IV, PP- 2445 to 2642. ~

AMENDED DECISION CTA Case No. 9316 4040022 Service Income- "P-10-4" 2,415,906.00 "P-11-4" 1 ,205,309.0Q 3,621,215.35 "P-10-5" 221,209.00 "P-11-4" 76,034.00 297,243.22 ~010032 Manpow~.r.~gst "P-10-6" "P-10-7" 2,088,117.00 "P-11-5" 1,477,806.00 -- 3,565,923.44 4040152 Service Income- "P-10-8" 38,162.00 "P-11-6" 87,496.00 4040155 Others "P-10-9" 82,610.00 60,821.00 125,658.00 4040156 Mise Income Bills "P-10-10'' 143,431.00 4040157 Payment 424,905.00 "P-11-7" - 424,905.05 4040158 Mise Income-Show "P-10-11" - 332,317.78 "P-11-8" 547,762.78 4040159 tickets 574,341.41 "P-11-9" 215,444.60 1,413,040.41 4040160 Mise Income-Items "P-10-12" 2 616,891.62 "P-11-10" 838,698.60 4040161 left by Customer "P-10-13" 493,172.37 "P-11-11" 1,335,877.99 - Mise Income- 1,204,047.47 4040162 Processing Fees "P-10-14'' 3,952,769.62 Mise Income-Cash "P-10-15" 11,533.88 "P-11-12" 293,501.48 1,697,219.37 c-4-0-4-0-163 Overages/CBAL Mise Income-Scrap 20,174.27 "P-11-13" 332,736.92 305,034.88 Sales 352,911.27 Mise Income-SMAC 1'20,841,050.33 P18,113,327.00 1'38,954,378.96 Mise Income-Others Mise Income Government Services Mise Income- Remittance Total As gleaned above, the actual sales per GJ under each account names, are equivalent to the sales amounts found by respondent perFS. Further, the budget sales per GJ under each account names, with a total amount of t>20,841,050.33, are relatively equivalent (with a minimal difference of t>2.13 due to rounded off amounts) to the discrepancies found by respondent aggregating to t>20,841,052.46. Hence, respondent's assessment is based on the budget amounts per GJ which it presumed to be actual sales without any other indication on the result of its verification that the same indeed pertain to actual sales transactions where petitioner may have earned an income. Considering that the actual sales per GJ were reflected in the FS and were already subjected to income tax; and that the findings of respondent that petitioner had undeclared operating income is unfounded, the deficiency income tax on the alleged undeclared other operating income of t>20,841,052.46 cannot be sustained. IT-4 Additional Taxable Income (matching of SLP, EWT, & Aitied) - ?7,762,459.05 After a line-by-line matching of petitioner's Summary List of Purchases ("SLP"), Alphalist of Payees and third-party information ("TPI") from BIR AITIED (Relief Data), respondent noted a discrepancy on the former's purchases which was considered as undeclared revenue pursuant to the doctrine held in the case of CTA us Perez and CIR L-1 0507 dated 30 May 1958, a..t/

AMENDED DECISION CfA Case No. 9316 and assessed petitioner of additional taxable income based on gross profit ratio amounting to 1'7,762,459.05, computed as follows: 17 TIN Suppliers Name RemarksL SLP/EWT Aitied Data Discrepancy 388771 Jollibee Foods Com. Justification p 62,989,514.45 no trans in 2010 r 10,959,677.52 11,145,240.17 204276905 Hershey Phils., Inc. Ootima Fashion p 185,562.65 9,023,339.75 6,569,104.18 220916861 Mktg. Convergence, Inc. no trans in 2010 2,454,235.57 4,591,967.65 122558110 Lao, Caroline Sio 4,591,970.53 3,866,894.11 �--- Dowi Hoseiry 4,879,282.27 4849649 Chelsons Mfg. Inct. Inc. Mills 2,632,393.57 2,246,888. 70 Alexis Mkt_g_ Inc. 5,760,171.77 1,933,068.06 r--2723605 �--- Tan Kian Go 340,988.98 2,250,088.32 102231380 Coca-Cola Bottlers 3,333,097.64 1,909,099.34 112104 Phils. Inc. 1,354,398.27 1,318,321.97 223508439 Tanada, Angielyn H. JY Mktg. 3,472,523.26 53,200,951.43 Zapmega Gen 37,858.18 138750939 Zapata, Willy R. Mdse 1,354,398. 72 1,020,830.69 P23,040,949.89 218694749 SM Retail Inc. 51,882,629.46 p 23,040,949.89 103902410 Siytaoco, Michael Tiu Exxel Inter'! Trdg 1,019,394.18 Beautylines Trdg 1,354,820.08 f'160,608,066. 99 74.80% 188793321 Magpavo, Jerry Ko. Inc p 30,803,4Q8.95 981,536.00 25.20% f'75,011,230.59 p 7.762,459.05 Ur:!_~_e_<:lared purchase~.Eer line-by-line reconciliation r---Dl~ided by: COS Ratio ~eA.~sales on U:r?.d.~clared. purchases �- .. Multiplied bv: GP Rate Additional taxable income .. Petitioner disagrees with the above assessment. Petitioner points out that the Computer Assisted Audit Tools (CAATis) extraction data as provided under Revenue Memorandum Order (RMO) No. 14-2011 are not evidence in themselves to support a tax assessment. The Bureau has to comply with the procedures laid down in RMO No. 46-2004 before such third-party information can enjoy the presumption of correctness, that is, the BIR must secure the Sworn Declaration of the third-party, in this case, the specific suppliers of the Company that such amounts were indeed sales by the Company to them. Otherwise, the BIR's data are mere hearsay evidence that will not stand the scrutiny to the Court. Thus, the assessments resulting from the comparison of the supposed third-party information (SLS) and the Company's report (SLP and Alphalist of suppliers subjected to EWT) or any other information are mere naked assessments or have no leg to stand on absent the sworn statements/declarations from the said third party sources. Since this item of the assessment is 17 l:xhibit ��R-!4'�. B!R Records. p. 895 a.v

AMENDED DECISION ITA Case No. 9316 simply based on a mere assumption and not on facts, it must be cancelled and set aside. Also, petitioner posits that the imputation of additional taxable income arising from alleged undeclared purchases/expenses has no legal basis whatsoever either under our tax laws or existing jurisprudence. Thus, the income tax assessment on the additional taxable income arising from the alleged undeclared purchases must be cancelled due to lack of factual and/ or legal basis. We agree with the petitioner. Records show that the assessed additional taxable income which arose from the amounts per TPI was based merely on figures extracted from respondent's own database (Relief data) not verified with the pertinent externally sourced documents to check its veracity. In the cross-examination during the hearing held on April 11, 2019, respondent's own witness, RO Riza F. Budaiio, admitted that third-party confirmations were not secured by the latter, to wit: 1s "ATTY. CONDE: XXX XXX XXX Q. With respect to the additional taxable income of seven seven six two four nine five, considered as undeclared purchases, Ms. Witness, in answer to Question No. 54, did you secure sworn electric declaration of third parties in relation to these particular findings? MS. BUDANO A. I failed to secure a third-party confirmation on that." Notably, under RMO No. 4-2003,19 even the BIR recognizes the need to verify the amounts reflected in the Quarterly report with other externally sourced data in ascertaining the taxpayer's under-declaration of revenues or overstatement of 1 ~TSN.Aprilll,2019hearing,p.l4. 1 ~ SUBJECT: Guidelines and Procedures on the Processing of Quarterly Summary Lists of Sales and Purchases and of the Imposition of Penalties Therefor as Provided under Revenue Regulations No. 8-2002. a--

AMENDED DECISION CTA Case No. 9316 costs and expenses, if any. The pertinent portions of RMO No. 4-2003 are hereunder quoted: "The Bureau of Internal Revenue is reengineering its work processes in order to increase revenue collections and to pursue quality audit by making use of available internal and external information resources. In order to strengthen and enhance its assessment functions, the utilization of information technology has been identified as an effective tool to improve tax administration through the development of the Reconciliation of Listings for Enforcement (RELIEF) System. The RELIEF System was created to support third-party information program and voluntary assessment program of the Bureau through the cross-referencing of third-party information from the taxpayer's Summary Lists of Sales and Purchases prescribed to be submitted on a quarterly basis pursuant to Revenue Regulations ("RR") Nos. 7-95, as amended by RR 13-97, RR 07-99 and RR 08-2002. The RELIEF System shall cover all VAT taxpayers above threshold limits set by RR 8-2002 to submit Summary Lists of Sales and Purchases in magnetic form based on a prescribed electronic format. The consolidation and matching of information with other externally sourced data will detect under-declaration of revenues/ over-declaration of cost and expenses, thus, resulting to greater tax potential." Without the corroborating certifications or confirmations from related third-party sources to support the TPI's credibility and integrity, the finding casts doubts as to the reliability and correctness of the assessment on the alleged additional taxable 1ncome. While it is true that tax assessments have the presumption of correctness and regularity in its favor, it is also equally true that assessments should not be based on mere presumptions no matter how reasonable or logical the presumption might be.2o As such, the imposition of income tax on undeclared income on the basis of an unverified third party information is without merit and must be cancelled. Moreover, as earlier discussed under item IT-2, and we reiterate that, a finding of under-declaration of purchase or 211 Commtss1oner ofInternal Revenue vs. Fax !v' Parcel. lncorporuted, CTA EB No. 883, February 14, 2013. cz-t_

AMENDED DECISION CTA Case No. 9316 expense does not by itself result in the imposition of income tax. In the imposition of income tax, it must be clear that there was an income, and such income was received by the taxpayer, and not when there is an under-declared purchase or expense. Here, it is clear that the assessment was not based on undeclared income actually received by petitioner. Respondent's mere reliance on the undeclared purchases, is not enough basis to uphold the subject assessment. As such, the findings that petitioner had additional taxable income based on the alleged undeclared purchases per line-by- line reconciliation cannot be enforced against petitioner; otherwise, the Court stands to tax petitioner arbitrarily. Accordingly, the deficiency income tax assessment on the amount off'7,762,459.05 should be cancelled and withdrawn. IT-6/WE-1 Disallowed expenses for non-withholding of tax/ Purchases still subject to EWT- ?46,428,677.25 Respondent's comparison of the income payments subject to withholding tax per TB as against the amounts subjected to withholding tax per Alphalist disclosed that the following expenses, aggregating to 1"46,428,677.25, have not been subjected to withholding tax, hence disallowed pursuant to Section 34(K) of the Tax Code:21 Income Payments EWT Per Trial Balance Per Alphalist Disallowed Purchase of Goods Rate p 1,421,777,909.00 p 1,421,777,909.00 Expenses Purchase of Services 1% Rental 217,613,962.83 171,512,653.00 p 46,101,309.83 Professional Fees 2% 78,795,647.09 78,474,930.40 320,716.69 Management Fee 486,357.73 479,707.00 Total 5% 73,063,302.24 - 6,650.73 102,185,009.26 -- 10% - f'l,791,737,178.89 Pl,774,430,208.66 P46,428,677.25 15% In relation thereto, petitioner was assessed of deficiency EWT in the amount of 1"1,863,362.01, as computed below, pursuant to Sec. 57 of the Tax Code and Sec. 2.57.2 of RR 2- 1998, as amended by RR 17-2003 and RR 30-2003:22 21 Exhibit "R-14'". BIR Records, p. 894 22 lxhibit ��R-14'". BIR Records. pp. 899 and 886 to 887 t:H&,.

AMENDED DECISION CTA Case No. 9316 Purchases still subject to EWT: Rate Per TB /Audit EWT Due Goods 1% p 1,421,777,909.00 P14,217,779.09 Services 217,613,962.83 4,352,279.26 Rental 2% 78,795,647.09 3,939,782.35 Professional Fee 486,357.73 48,635.77 Mgmt/ Consultancy Fee 5% 102,185,009.26 10% 15,327,751.39 15% P1,820,858,885.91 EWT Due P37,886,227.86 Less: EWT Remitted per Form 160 IE 36,947,500.76 EWT Due - Basic p 938,727.10 Add: Increments p 899,634.91 Interest- 10(31/2015 Compromise 25,000.00 924,634.91 Total Amount Due (WE) - Pl,863,362.01 To simplify, the disallowed purchases/income payments totaling P46,428,677.25 was assessed of the corresponding basic EWT due of P938,727.10, computed as follows: -- Tax Base Rate EWT Due Disallowed Expenses/Purchases still r 46,101,309.83 2% r 922,026.20 subject to EWT 320,716.69 5% 16,035.83 Purchase of Services 6,650.73 10% 665.07 Rental P46,428,677.25 1'938,727.10 Professional Fees Total a. Purchase of Services The breakdown of the assessed purchase of services in the amount ofP46, 101,309.83 is presented by petitioner as follows: Prepaid Insurance r 1,109,666.12 Prepaid Others 20,531,533.60 9,239,616.41 f--F=r-e-cig-;h- t and handm. g charges -- 1,214,476.50 ~--�--. -�----� 98,105,296.34 572,792.10 Communication 3,296,340.45 -- 22,042,848.69 Utilities 2,067,926.51 Security services 5,567,132.80 9,823,187.20 Janitorial services 1,523,216.76 1,995,115.34 Manpower costs 16,686.46 Senrice fees 40,508,127.55 217,613,962.83 IT expenses Advertising and promotions Insurance Transportation and travel Mise Expense - Bank Charges PPE Acquisition Total expenses that should be subjected to EWT ~

AMENDED DECISION 171,512,653.00 CfA Case No. 9316 P46,101,309.83 Less: Income payment per BIR Form 1601E Difference Petitioner contends that respondent considered the total debits of the "Prepaid Insurance" and "Prepaid Others" accounts as income payments that should have been subjected to 2% EWT without considering the total credits thereon which represent the expense during the year; that it has already subjected to EWT the prepaid accounts upon set up but since respondent already captured all the expenses in the TB as income payment that should be subjected to 2% EWT, total debits of these prepaid accounts should no longer be considered as the same were already closed to expense during the year; that the method of the respondent in getting all the amounts of expense accounts and at the same time considering the total debits of prepaid expenses will definitely result to a discrepancy as there is double take-up of the amount of expense; and that only the ending balance amounting to 1>19,139.78 should have been considered in the assessment since the same was not yet closed to expense account during the year. We partially agree with the petitioner. As testified by petitioner's Controller, Ma. Marilyn C. Abalayan, in her Judicial Affidavit,23 the details of the "Prepaid Insurance" and "Prepaid Others", and the entries for the set-up of its prepayments and recording of actual expenses are as follows: Prepaid Insurance Beginning Total debits Total credits Ending ~ 25,969.25 p 1,109,666.12 p 1,116,496.59 p 19,138.78 Prepaid Others 0.00 20,531,533.60 20,531,533.60 0.00 Total 1'25,969.25 1'21,641,199.72 1'21,648,030.19 1'19,138.78 - to set up prepayments: Debit Credit Prepaid expenses Input tax XXX XXX XXX XXX EWT payable Cash -~~- __!_~_J:'_ecord actual ex~enses _ _ _ _ XXX --- ---� Expense~ __ -~- Prepaid expenses~ XXX 21 Exhibit "P-29", Docket- Vol. Ill, pp. 1852 to 1853, A-51. ~

AMENDED DECISION CfA Case No. 9316 Verily, petitioner does not deny that the "Prepaid Insurance" and "Prepaid Others" in the amounts of P1,109,666.12 and P20,531,533.60 are subject to 2% EWT. In fact, based from its entries, it subjects the prepaid expenses to EWT upon set-up ofthe said accounts. Meanwhile, respondent's assessment also included the "Insurance" expense account, which is related to the "Prepaid Insurance" account. Since a credit to the "Prepaid Insurance" corresponds to a debit to the "Insurance" expense account, the credit/expensed amounts corresponding to the P1,109,666.12 "Prepaid Insurance" for the year may have formed part of the assessed amount of P1 ,523,216. 76 for "Insurance" expense subject to EWT, resulting to double take-up of amounts. Moreover, since petitioner has "Prepaid Insurance" beginning amount of P25,969.25, the corresponding credit/expensed amounts thereto, which may also have formed part of the assessed amount of P1 ,523,216. 76 for "Insurance" expense subject to EWT, should not be included in the amounts subject to EWT forTY 2010 as the tax due thereon redounds to the prior taxable year. Now, considering that the portion pertaining to the current year prepaid expenses out of the P19,138.78 ending balance cannot be ascertained and the expensed amounts pertaining to the beginning balance of P25,969.25 must be excluded in the assessment, petitioner's position taking up only the ending balance of P19,138.78 as subject to EWT is not plausible. Rationally, to avoid double take-up of the P1,109,666.12 "Prepaid Insurance" for the year as subject to EWT, it is only proper that the corresponding creditsI expensed amounts thereto be deducted from the assessed amount for "Insurance" instead. As to the "Prepaid Others", petitioner did not present the breakdown thereof or any detail as to what type of prepaid expense constitutes the same and to which expense does it relate. As such, it cannot be determined whether the expensed portion of the said prepaid expense was actually included in the expense accounts already considered by respondent as subject to 2% EWT. Hence, the alleged double take-up is unfounded. ~r

AMENDED DECISION CTA Case No. 9316 Thus, the consideration of 1"1,109,666.12 "Prepaid Insurance" and 1"20,531 ,533.60 "Prepaid Others" in computing the assessment is in order. However, the amount in consideration for "Insurance" shall accordingly be reduced to N06,720.17 (1"1,523,216.76 less 1"1,116,496.59), taking into account the total credits to "Prepaid Insurance" amounting to PI, 116,496.59, which include the expensed amounts for the 1"25,969.25 beginning balance that should not be subject to EWT forTY 2010 and 1"1,109,666.12 current year's purchase that was already subject to EWT under "Prepaid Insurance". All the other expense accounts, being undisputed, shall not be disturbed. Considering the foregoing, the purchase of service still subject to 2% EWT amounted to 1"44,984,813.24, as computed below: Preoaidlnsurance p 1,109,666.12 20,531,533.60 Prepaid Others 9,239,616.41 Freie:ht and handing chare:es 1,214,476.50 98,105,296.34 Communication 572,792.10 3,296,340.45 Utilities .. 22,042,848.69 2,067,926.51 Security services 5,567,132.80 9,823,187.20 Janitorial services 406,720.17 Manpower costs I ,995,115.34 Service fees 16,686.46 IT expenses 40,508,127.55 Advertisine: and oromotions 216,497,466.24 Insurance Transportation and travel 171,512,653.00 Mise Expense - Bank Charges P44,984,813.24 PPE Acquisition Total expenses that should be subjected to EWT Less: Income payment per BIR Form 1601E Purchase of service still subject to 2% EWT . b. Rental Based on respondent's verification, the assessed Rental amounting to 1"320,716.69 was computed as follows: 24 Prepaid Rent debits r 395,292.23 Rent Exoense (total endinll bal. of Rent Exoense accounts) Total Rentals that should be subjected to EWT 78,400,354.86 78,795,647.09 2~ BIR Rt:cords, pp. 508 and 510. ~

AMENDED DECISION CTA Case No. 9316 Tax base of EWT remitted per Form 1601E 78,474,930.40 Difference P' 320,716.69 Petitioner maintains that it has subjected to EWT the prepaid account upon set-up but since respondent already captured the total rent expense account in the TB as income payment that should be subjected to 5% EWT, total debits of the prepaid rent should no longer be considered as the same were already closed to rent expense during the year; that the method of the respondent in getting the total rent expense and at the same time considering also the total debits of prepaid rent will, to reiterate, definitely result to a discrepancy as there is double take-up of the amount of rent expense; and that only the ending balance amounting to P40,884.11 should have been considered in the assessment since the same was not yet closed to expense account during the year. We rule against the assessment. Respondent's assessment included both the "Prepaid Rent" and "Rent Expense", which are related accounts. When a portion of the Prepaid Rent is expensed or incurred, the amount is credited to the "Prepaid Rent" with a corresponding debit of the same amount to the "Rent Expense". As such, considering the "Rent Expense", which includes the credit/ expensed amounts in "Prepaid Rent", as subject to 5% EWT, when the said credit/expensed amounts were already subject to 5% EWT upon set-up of the "Prepaid Rent", results to double take-up of amounts. While petitioner posits that only the ending balance of P40,884.1125 under "Prepaid Rent" should be considered as part of the assessment since the credits thereto/ expensed amounts therefrom were already assessed under "Rent Expense", we find it more logical to consider the "Prepaid Rent" amount of P395,292.23, as subject to 5% EWT since the same is already subject to EWT upon set-up thereof, and deduct the corresponding credits/expensed amounts from the assessed amount of "Rent Expense" to avoid double take-up of amounts. 2-' Computation ofEn~~g balance of"Prepmd Rent'' per TB/BIR audit (based on SIR Records, p. 510) Dl!bits j)J95.292.23 Credits 354,4U!U2 Ending balance l' 40,884.11 ~

AMENDED DECISION CTA Case No. 9316 Consequently, petitioner have no Rentals still subject to 5% EWT, as shown below: Prepaid Rent (debits) P78,400,354.86 p 395,292.23 Rent Expense (total ending bal. of Rent Expense accounts) 354,408.12 78,045,946.74 Less: Credits to/expensed amounts from Prepaid Rent P78,441,238.97 Total Rentals subject to EWT 78,4 74,930.40 (P 33,691.43) Tax base of EWT remitted per Form 160 IE Difference -' .. �- c. Professional Fees Petitioner did not anymore refute the assessed "Professional Fees" in the amount of'P6,650. 73, hence, the same shall be enforced. In sum, the deficiency income tax on the disallowed expenses totaling P44,991,463.97 and the corresponding deficiency EWT due thereon in the amount ofP900,361.34 shall be upheld. The computation of the said disallowed expenses and deficiency EWT is shown below: Purchases/Expenses still Disallowed Expenses Rate Deficiency EWT subject to EWT p 44,984,813.24 2% Due 6,650.73 10% Purchase of Services P44,991,463.97 p 899,696.26 Professional Fees 665.07 Total P900,361.34 Income Tax Credits Based on the computation of the deficiency income tax assessment, respondent did not consider the income tax payments and creditable taxes withheld forTY 2010 reflected in petitioner's Annual Income Tax Return ("ITR") as tax credits to be offset against the income tax due of the latter. In effect, respondent disallowed the creditable withholding taxes ("CWTs") and income tax payments of petitioner, which respectively amount to P2,128,722.00,26 and P7,575,895.00,27 ,, 02 (Exl � '" ''""uuo ' � �~ ~"' � '-''"' � � v~ \~""'"" k � ~� , ~'-''"'"' 'V<� '> 3606 -'VVVJ� .._ ' ' ' J Creditable Tax Withheld for the First Three Quarters (Line 30C) Pl,380,494.00 Creditable Tax Withheld Per BIR Form No.2307 for the Fourth Quarter (Lme 30D) 748,228.00 Total CWTs forTY 2010 P2, 128,722.00 'P-21 ",Docket- Vol. V, p. 3606) P5.174.175 00 2.40 I. 720 00 ~

AMENDED DECISION CTA Case No. 9316 without stating the basis therefor. For failure of respondent to inform petitioner of the law and facts on which the said disallowances were based, the same is considered void, pursuant to Section 22828 of the Tax Code. Accordingly, the said CWTs and income tax payments shall be considered in computing the total income tax deficiency of petitioner. Based on the foregoing, petitioner is liable to pay basic deficiency EWT forTY 2010 in the amount of P900,361.34 as computed earlier and income tax for TY 2010 in the amount of P8,456,672.29, computed as follows: Taxable Income per return ~15,546,167.00 Add: Adjustments - - - 44,991,463.97 IT-6 Disallowed expenses for non-withholding ~ 60,537,630.97 of tax 30% -- -- ----------- r18,161,289.29 Adjusted Taxable Income ~2.128,722.00 9,704,617.00 Multiplied bv: Income Tax rate P8,456,672.29 Income Tax due 7,575,895.00 Less: Income Tax Credits ---- ---- Creditable Withholding Taxes Income Tax Payments ~~ D~!:'~-i~~~Y. l!,l_C~-~~}'ax III. Deficiency VAT- P798,901,481.47 Petitioner was assessed of deficiency VAT forTY 2010 m the amount of'P798,901,481.47, computed as follows: 29 Vatable Sales r1,851 ,011,948.22 Add: Findings per Investigation: VT-1 Undeclared sales per audit ~1 ,844,097 '778.86 /GJ,GL,TAR,TB,FS/ITR/ 224,050,566.58 20,841,052.46 VT-2 Additional Taxable Income on 7,762,459.05 Undeclared Purchases 60,352,008.03 VT-3 Undeclared Operating Income VT-4 Additional Taxable Income (matching of SLP, EWT, & A1tied) _______ --- ------ VT-6 Unrecorded sale of Prepaid Cards Total tax E!rments forTY 2010 r1 ,575,895.oo 1 '" "Sec_ 228_ Protestmg ofAssessment. -When the Commissioner or his duly authorized representative llnds that proper taxes ~hould be assessed. he shall first notify the taxpayer of his findings Provided. ho11'ever. That a preassessment notice shall not be required in the following cases: XXX XXX XXX The taxpayers shall be informed 111 writing of the law and the facts on which the assessment is made: otherwise, the assessment shall be void.'' 2'J Exhibit "R-14", BJR Records, p. 899 to 900. ~

AMENDED DECISION CTA Case No. 9316 VT-7 Collections of Reimbursable 58,180,362.00 Charges not subjected to VAT 1,382,286.78 VT-8 Discrepancy on income -�"�---o;2cc,3"'2"'7oc,""9-o4-o;Occ.O"'O~-------- 2,218,994,453.76 subjected to VAT per ITR vs Vat ----~- -- Return VT-10 Sales not qualified for zero- rating Total Adjustments per audit Vatable sales per audit "P4,070,006,401.98 Multiplied by: Vat rate 12% Output tax due per audit fJ 488,400,768.24 Less: Net Allowable Input Tax: Input tax from current fl 214,125,163.37 purchases Add: Beginning carry-over input P 7,735,440.55 �----~- 6,970,608.37 f------- Beginning deferred input "14;?06~048.92 (CG) P 228,831,212.29 Available Input Tax Less: Ending carry-over input P 1,839,981.88 Ending deferred input 4,869,796.61 6,709,778.49 Uti (CG) t _t_a_x__for_.~t-ch_e_y_e_ar--f----------jf-cp~2"'2"'2~.-cl"2-cl-,4003"'3~."8oc-O lized inpu 1-------o-� Less: Audit Findings: VT 9 Violations on invoicing ft 59,420,476.50 59,420,476.50 requirements incl. unsupported Net allowable input tax per audit f" 162,700,957.30 Net VAT due per audit f" 325,699,810.94 Less: VAT Credits/Payments Basic Value Added Tax Deficiency P325,699,810.94 Add: Increments Surcharges- 50% r 162,849,905.47 Interest� 10/31/2015 310,351,765.06 473,201,670.53 Total Amount Due (VT) P798,901,481.47 The deficiency VAT assessment arose from the following items: VT-1 Undeclared sales per audit (GJ,GL,TAR,TB,FSJITR) Pl ,844,097,778.86 VT-2 Additional Taxable Income on Undeclared Purchases 224,050,566.58 VT-3 Undeclared Other Operating Income 20,841,052.46 VT-4 Additional Taxable Income (matching of SLP, EWT, & Aitied) 7,762,459.05 VT 6 Unrecorded sale of Prepaid Cards 60,352,008.03 VT-7 Collections of Reimbursable Charges not subjected to VAT 58,180,362.00 VT-8 Discrepancy on income subjected to VAT per ITR vs Vat Return 1,382,286.78 VT-9 Violations on invoicing requirements including unsupported 59,420,476.50 VT-1 0 Sales not qualified for zero-rating 2,327,940.00 VT-1 Undeclared sales per audit- P1,844,097, 778.86; VT-2 Additional Taxable Income on Undeclared Purchases - P224,050,566.58; a....,....'

AMENDED DECISION CTA Case No. 9316 VT-3 Undeclared Other Operating Income - ?20,841,052.46; and VT-4 Additional Taxable Income (matching of SLP, EWT, & Aitied)- P7, 762,459.05 Based on the same findings under the deficiency income tax assessment (items IT-1, IT-2, IT-3 and IT-4), that petitioner had undeclared sales and other operating income, and additional taxable income on undeclared purchases, respondent imposed 12% VAT thereon in accordance with Section 106, 107 and 108 of the Tax Code. In line with the findings discussed earlier, petitioner has no undeclared sales and additional taxable income, thus, the imposition of VAT thereon is incorrect. Likewise, no deficiency VAT assessment should arise from an undeclared purchase. As discussed, respondent is incorrect to presume that the undeclared purchases automatically resulted in undeclared income, therefore the imposition of VAT thereon is also incorrect. It must be pointed out that under Section 106(A) of the Tax Code, VAT is assessed on the "gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor". Also, under Section 108 of the NIRC of 1997, as amended, VAT is assessed on the "gross receipts derived from the sale or exchange of services". Significantly, the law defines "gross selling price" and "gross receipts" as follows: "... 'gross selling price' means the total amount of money or its equivalent which the purchaser pays or is obligated to pay the seller in consideration of the sale, barter or exchange of the goods or properties, excluding the value- added tax." "... 'gross receipts' means 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 and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding value-added tax." ~

AMENDED DECISION ITA Case No. 9316 Clearly, the VAT can be imposed only when it is shown that the taxpayer received an amount of money or its equivalent from its sale, barter or exchange of goods or properties, or from sale or exchange of services, and not when there are undeclared purchases or unaccounted expenses. In other words, the VAT is imposed when one sells, not when one purchases. At this juncture, it must be pointed out that in order to stand the test of judicial scrutiny, the assessment must be based on actual facts. The presumption of correctness of assessment being a mere presumption cannot be made to rest on another presumption. Hence, assessment should not be based on mere presumptions no matter how reasonable or logical said presumptions may be.Jo Consequently, the presumption of correctness of the assessment does not apply in the present case considering that respondent's conclusion that the additional income on undeclared purchases are translated and would automatically result in undeclared income which would in turn increase petitioner's VAT liabilities, is not based on actual facts and thus, is a mere presumption. Thus, considering that petitioner had no undeclared sales and other operating income, and additional taxable income on undeclared purchases, the assessed deficiency VAT thereon shall also be cancelled. VT-6 Unrecorded sale of Prepaid Cards- P60,352,008.03 Respondent's verification disclosed that sales of prepaid cards in the amount of 1'60,352,008.03 has not been subjected to VAT, as per analysis on the entries made in the books of account, which is in violation of Sections 106, 107 and 108 of the Tax Code, hence, assessed, with details as follows: 31 Acct Account Name ISA GJ/GL/TB Higher Amount Code AP Prepaid Cards-PLDT p 1,041,575.00 p 1,041,575.00 2002201 p 691,600.00 AP Prepaid Cards-SMART 33,537,351.11 33,537,351.11 2002202 22,221,651.00 1� Collector ofInternal Revenue vs. A Iberia D. Benipayo. G.R. No L-13656. January 31. 1962, 4 SCRA 182; C'omm1sstoner ofInternal Nevenue vs_ Island Garment Mam{factunng Corporation and the Court ofTax Appeals. G.R No. L-46644, September II. 1Y87. 153 SCRA 665 11 bhibit ''R-14", BIR Records. p. 892 ~

AMENDED DECISION CTA Case No. 9316 2002204 AP Prepa1d Cards-GLOBE 22,973,170.98 24,624,205.59 24,624,205.59 2002209 AP Prepaid Cards-PHILWEB I ,445.00 1,445.00 2002222 AP Prepaid Cards-DIGITEL - 2002223 AP Prepaid Cards-PILTEL 2,311,720.94 2,311,720.94 2002234 AP Prepaid Cards-DlGlTEL MOBILINE 3,410,246.00 21,980.90 21,980.90 2002236 AP Prepaid Cards-INNOVE COMM 2002238 AP Prepaid Cards-CONNECTIVITY UNL 5,618.00 3,547,289.90 3,547,289.90 2002239 AP Prepaid Cards-PHIL WIRELESS INC 216,840.00 53,184.20 53,184.20 2002241 AP Prepaid Cards-HELIUS CORP. 5,618.00 5,618.00 2002243 AP Prepaid Cards-CHIRISTIAN LIFE CO 38,145.00 2002244 AP Prepaid Cards-MICROGAMING TEC 22,650.00 451,498.22 451,498.22 2002246 AP Prepaid Cards-LUCKY CIRCLE COR 712,170.00 38,145.00 38,145.00 2002247 AP Prepaid Cards-ABS CBN Interacti 22,620.00 31,650.00 31,650.00 2002299 AP Prepaid Cards-Others 65,317.00 474,700.00 737,159.29 737,159.29 Total 1'50,854,727.98 22,620.00 22,620.00 AP Prepaid Cards Less: Adjustments/Accruals/Correction of entries 106,634.60 106,634.60 Net Credit to AP Prepaid Cards 5,966,298.92 5,966,298.92 Mise Income-Prepaid Cards 1'72,498,376.67 P72,498,376.67 Vatable sale of Prepaid cards, inclusive of VAT p 72,498,376.67 Divided by: ----- 19,863,169.32 Vatable sale of PreEaid cards, c;:xclusive of VAT p 52,635,207.35 14,959,041.64 p 67,594,218.99 112% P60,352,008.03 Petitioner avers that the above schedule represents prepaid cards transactions which were posted in the Special Purpose Machines ("SPM") but the receipt of cash arising therefrom does not constitute income on the part of the petitioner; that although it passes through the point-of-sale ("POS") system, the money received from the said transaction is not compensation for services rendered by petitioner but a liability for the cash held in trust for the telecommunications companies, which is being remitted to the latter; that as a non- sale transaction, it only issues Non-VAT acknowledgement receipt upon receipt of cash from customers; that it only acts as intermediary in the prepaid card transactions and for which it receives commission income for the services rendered to the telecommunications companies; and that the said commission income was reflected in its FS and ITR as part of other income, which was then subjected to the 30% income tax and 12% VAT. Petitioner's averments cannot be given credit as the latter did not present any supporting documents to establish or justify the same. In its protest32 to the Formal Letter of Demand ("FLD")/ Formal Assessment Notice ("FAN"), petitioner admitted that "the total credits of AP prepaid cards include not only the actual sale of prepaid cards but also the accrual, some 1 Exhibit '"P�3 �. Oocket- Vol. IV, P- 2126, second paragraph ' a-,/

AMENDED DECISION CTA Case No. 9316 adjustments and correction of entries during the year. Xxx The correct amount of prepaid card sales is ?52,635,207.35." However, it failed to prove that the proceeds therefrom are only held in trust for and are eventually remitted to the telecommunications companies and that the alleged commission income it earned from the said transactions, if true, was indeed reflected in its VAT returns and subsequently subjected to 12% VAT. Hence, petitioner's statements remain as mere allegations, absent any evidentiary documents to support the same. Basic is the rule that he who alleges a fact has the burden of proving it and a mere allegation is not evidence.33 Since petitioner failed to refute the respondent's findings on the Unrecorded Sale of Prepaid Cards in the amount of 1'60,352,008.03, the assessed deficiency VAT thereon shall be sustained. VT-7 Collections of Reimbursable Charges not subjected to VAT- P58,180,362.00 Respondent's investigation disclosed that reimbursable charges are the Common Usage Area Charges ("CUSA") regularly billed by petitioner to suppliers for their share on the utilities expense, which is generally based on the sales performance of the product and other parameters but not on actual consumption. By so doing, petitioner allegedly generates income and therefore should be subject to the 12% VAT. More so, petitioner utilizes the total input tax on communication, light & water without deducting or taking into consideration the reimbursable charges. It would be detrimental for the government if such action be allowed - presenting CUSA collections as reimbursable costs and subsequently claim all the inputs on these accounts. As such, reimbursable charges were considered as other income subject to VAT, hence, assessed pursuant to Section 108 of the Tax Code. The details of the assessment is presented below: 34 - - - - - ,----����� &.c;.t;:.9Pnt Name A1jill!.ttn~.n.t~ _Ta ~ncjjQg_J;3_al., per Acct Per AudU;j_Q_J p 1,068,462.11 w 471,641.111 p 596,821.00 Code 4040081 Reimbursable-Electricitv '' Luxuria Homes, Inc. vs. Court ofAppea/s, G.R No_ 1259866. January 28, 1999 u Exhibit "R-14", BJR Records, p. 891. ~

AMENDED DECISION erA Case No. 9316 4040082 Reimbursable-Water 97,800.84 (13,176.84) 84,624.00 4040083 Reimbursable-Common Area 243,380,438.84 1189,876,221.84) 53,504,217.00 4040085 Reimbursable-Others Total 7,868,994.03 (3,874,294.031 3,994,700.00 P252,415,695.82 P58,180,362.00 Petitioner argues that that the ending balance of "Reimbursable Charges" does not constitute income on the part of the petitioner; that the money received from said reimbursable charges is not a compensation for services rendered by petitioner but a reimbursement at cost on the utility expenses which were initially shouldered and paid by the latter on behalf of those concerned suppliers; that respondent's witness confirmed during cross examination that there is no actual sale subject to VAT arising from the reimbursable charges; and that accordingly, the said reimbursement at cost is not subject to 12% VAT. Meanwhile, respondent's verification also disclosed that petitioner utilizes the total input tax on communication, light & water without deducting the input tax related to the reimbursed charges. If so, petitioner overclaims the input tax related to the reimbursed charges, which the reimbursing payors should rightfully claim, and consequently, petitioner incurs a tax benefit therefrom as the said input tax overclaim reduces the output tax that is due from the petitioner. We sustain the assessment. Petitioner's stance that "Reimbursable Charges" are mere reimbursement at cost which it initially shouldered and paid on behalf of those concerned suppliers holds no water since petitioner did not provide any documentary evidence that would show that the expenses/costs charged to its suppliers are indeed without any mark-up or profit element. Moreover, petitioner neither controverted nor presented any evidence to disprove the findings of respondent with regard to its utilization of the input tax on the "Reimbursable Charges", as such the input tax overclaim implies unjust enrichment on the part of the petitioner. Consequently, We are compelled to retain the assessment. Accordingly, the deficiency VAT on the "Reimbursable Charges" in the amount of P58, 180,362.00 shall be sustained. ~

AMENDED DECISION CTA Case No. 9316 VT-8 Discrepancy on income subjected to VAT per ITR vs Vat Return- ?1,382,286. 78 Respondent's comparison of sales and other income per FS/ITR as against the sales per VAT return revealed a discrepancy in the amount oLP1,382,286.78, as detailed below, which was considered as income not subjected to VAT, in violation of the provisions of Sections 106, 107 and 108 of the Tax Code:35 Net Sales per ITR PI ,830,973,016.00 Other Income per FS/ITR: P5,635,831 .00 23,749,159.00 Commission and services 5,542,757.00 1 ,854,722,175.00 Foreign currency gain-net 5,442,797.00 Rental 4,098,028.00 2,327,940.00 Various Services 3,029,746.00 1,852,394,235.00 Miscellaneous 1,851 ,011 ,948.22 Total Gross Sales/Income per FS/ITR p 1,382,286.78 Less: Zero-rated sales Salesjlncome subject to VAT Less: Sales subjected to VAT per return Income not subjected to VAT Petitioner alleges that the total income per FS/ITR includes not only income from sale of goods but also those from sale of service. As value-added tax is imposed on gross receipts and income tax is imposed on gross sales and revenue, a timing difference may occur on the reporting of income for income tax purposes and for VAT purposes. However, petitioner's allegation is not justified as it failed to present evidence to show that, indeed, the difference merely arose from the timing difference in its recognition of income as declared in its VAT Returns vis-a-vis the income reported in its Annual ITR. Neither did petitioner prove that the subject discrepancy was reported as income and accordingly subjected to VAT in any other taxable year. Failure on the part of petitioner to present proof as to the allegations made is self-serving and does not prove anything. It is basic in the rule of evidence that bare allegations, 1 Exhibit ''R-14". l311{ Records. pp. 890 to 891. ' Chc.--

AMENDED DECISION CTA Case No. 9316 unsubstantiated by evidence, are not equivalent to proof. In short, mere allegations are not evidence.36 Thus, this particular item of assessment shall be sustained. VT-9 Violations on invoicing requirements including unsupported - PS9,420,476.50 For an input tax to be creditable, it should be evidenced by a valid VAT invoice or official receipt ("OR") in accordance with Sections 110(A)(1), 113 and 237 of the Tax Code. However, respondent's scrutiny of petitioner's source documents disclosed that there were purchase invoices/receipts which failed to comply with the invoicing requirements and that some of its purchases from related companies were unsupported. Hence, the related input taxes were disallowed. The disallowance of !'59,420,476.50 was computed by respondent as follows:37 a) Disallowed due to violation on invoicing requirements Input Tax , 59,420,476.50 Purchases without MBL's TIN P61,956,624.34 , 22,878,447.04 (4,910,193.06) P59,420,476.50 Less: With Sample Invoices 1,162,908.94 1,211,136.30 OR & Invoices do not show segregation of input tax Purchases with TIN 006-305-533 instead of 006-324-896 Input Tax c) No supporting documents (related party transactions) SLP Premter Southern Com. Pl03,045,798.43 Pl2,365,495.81 6,225,915.54 SM Retail, Inc. 51,882,629.46 4,287,035.69 Hardware Workshop Inc. 35,725,297.43 Disallowed input tax from vouching of source documents At the outset, it is apparent from respondent's computation that the assessed disallowance of P59,420,476.50 pertains only to the input tax disallowed due to violation on invoicing requirements. Hence, the input tax with no supporting documents in the amount of !'22,878,447.04, as shown above, shall be disregarded. We partially uphold the disallowance. 11 Real vs. Bela, G. R. No. 146224, January 26, 2007 ' 17 Exhibit "R-14", BIR Records, p. 890. a__

AMENDED DECISION CTA Case No. 9316 Sections 11 O(A) and 113(A) and (B) of the NIRC of 1997, as amended, and as implemented by Sections 4.110-1, 4.110-8 and 4.113-1(A) and (B) ofRR No. 16-2005, explicitly state that any input tax may be creditable against the output tax provided that the same is supported by VAT invoice [for purchase of goods or properties] or VAT official receipt (OR) [for purchase of services] containing the required information, to wit: Sees. 11 O(A) and 113(A) and (B) of the Tax Code: "SEC. 110. Tax Credits.- (A) Creditable Input Tax.- (1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on the following transactions shall be creditable against the output tax: xxx" (a) Purchase or importation of goods: (i) For sale; or (ii) For conversion into or intended to form part of a finished product for sale including packaging materials; or (iii) For use as supplies in the course of business; or (iv) For use as materials supplied in the sale of service; or (v) For use in trade or business for which deduction for depreciation or amortization is allowed under this Code. (b) Purchase of services on which a value-added tax has actually been paid." "Sec. 113. Invoicing and Accounting Requirements for VAT-Registered Persons.- (A) Invoicing Requirements. -A VAT-registered person shall issue: (1) A VAT invoice for every sale, barter or exchange of goods or properties; and (2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services. a.._.

AMENDED DECISION CfA Case No. 9316 (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: (1) A statement that the seller is a VAT-registered person, followed by his Taxpayer's Identification Number (TIN); (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax: Provided, That: (a) The amount of the tax shall be shown as a separate item in the invoice or receipt; XXX XXX XXX (3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; and (4) In the case of sales in the amount of One thousand pesos (!" 1,000) or more where the sale or transfer is made to a VAT-registered person, the name, business style, if any, address and Taxpayer identification Number (TIN) of the purchaser, customer or client." Sees. 4.110-1, 4.110-8 and 4.113-1(A) and (B) of RR No. 16-2005: "SEC. 4.110-1. Credits for Input Tax.- xxx. XXX XXX XXX Any input tax on the following transactions evidenced by a VAT invoice or official receipt issued by a VAT-registered person in accordance with Sees. 113 and 237 of the Tax Code shall be creditable against the output tax: (a) Purchase or importation of goods (1) For sale; or (2) For conversion into or intended to form part of a finished product for sale, including packaging materials; or (3) For use as supplies in the course of business; or (4) For use as raw materials supplied in the sale of serviCes; or ~

AMENDED DECISION CTA Case No. 9316 (5) For use in trade or business for which deduction for depreciation or amortization is allowed under the Tax Code, XXX XXX XXX (c) Purchase of services in which a VAT has actually been paid;" "SEC. 4.110-8. Substantiation ofInput Tax Credits. - (a) Input taxes for the importation of goods or the domestic purchase of goods, properties or services is made in the course of trade or business, whether such input taxes shall be credited against zero-rated sale, non-zero-rated sales, or subjected to the 5% Final Withholding VAT, must be substantiated and supported by the following documents, and must be reported in the information returns required to be submitted to the Bureau: XXX XXX XXX (2) For the domestic purchase of goods and properties - invoice showing the information required under Sees. 113 and 237 of the Tax Code. XXX XXX XXX (4) For the purchase of services - official receipt showing the information required under Sees. 113 and 237 of the Tax Code. A cash register machine tape issued to a registered buyer shall constitute valid proof of substantiation of tax credit only if it shows the information required under Sees. 113 and 237 of the Tax Code." "SEC. 4.113-1. Invoicing Requirements. - (A) A VAT-registered person shall issue:- (1) A VAT invoice for every sale, barter or exchange of goods or properties; and (2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services. Only VAT-registered persons are required to print their TIN followed by the word 'VAT' in their invoice or official receipts. Said documents shall be considered as a 'VAT Invoice' or 'VAT official receipt'. All purchases covered by invoices/receipts other than VAT Invoice/VAT Official Receipt shall not give rise to any input tax. ~

AMENDED DECISION CTA Case No. 9316 VAT invoice/ official receipt shall be prepared at least in duplicate, the original to be given to the buyer and the duplicate to be retained by the seller as part of his accounting records. (B) Infonnation contained in VAT invoice or VAT official receipt.- The following information shall be indicated in VAT invoice or VAT official receipt: (1) A statement that the seller is a VAT-registered person, followed by his TIN; (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the VAT; Provided, That: (a) The amount of tax shall be shown as a separate item in the invoice or receipt; XXX XXX XXX (3) In the case of sales in the amount of one thousand pesos (1'1,000.00) or more where, the sale or transfer is made to a VAT-registered person, the name, business style, if any, address and TIN of the purchaser, customer or client, shall be indicated in addition to the information required in (1) and (2) of this Section." In addition, the invoices and ORs must be duly registered with the BIR pursuant to Section 237, in relation to Section 238, both of the Tax Code, which respectively provide: "SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. - All persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least in duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature of service: Xxx XXX XXX XXX SEC. 238. Printing of Receipts or Sales or Commercial Invoices. - All persons who are engaged in business shall secure from the Bureau of Internal Revenue an authority to print receipts or sales or commercial invoices before a printer can print the same No authority to print receipts or sales or commercial invoices shall be granted unless the receipts or invoices to be printed are serially numbered and shall show, among other ~

AMENDED DECISION CTA Case No. 9316 things, the name, business style, Taxpayer Identification Number (TIN) and business address of the person or entity to use the same, and such other information that may be required by rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner." Thus, in order to prove entitlement to credits for input taxes due and paid, petitioner must not only present the supporting documents prescribed under Section 4.110-8 of RR No. 16-2005, but more importantly, these documents must comply with the invoicing requirements of Sections 113(A) and (B), 237 and 238 of the Tax Code, as implemented by Section 4.113-1(A) and (B) ofRR No. 16-2005. In support of the disallowed input taxes, petitioner submitted various sales invoices, ORs and other related documents,38 which were examined by the Court-commissioned Independent Certified Public Accountant ("ICPA"), Ma. Criselda S. Oplas of Alas, Oplas & Co., CPAs. The results of the !CPA's examination are summarized hereunder:39 Input VAT Allowed by ICPA p 40.460,240.08 Input VAT properly supported and compliant with invoicing and substantiation requirements p 17,039,580.28 1,502,080.84 Input VAT disallowed by ICPA 220,005.33 176,360.99 Input VAT without available documents at the time of examination ---- 20,496.84 I:Q_Q_Ut VAT suQ.Q_oried by documents that are out-of-periocf 1,795.72 -~VAT supported by documents with no VAT breakdown p 18,960,320.00'0 . P59,420,560.08 Input VAT supported by documents with wrong VAT breakdoWii ;------_}_r~put VAT supported by documents with no or wrong TIN . ~ Input VAT supported by documents without petitioner's name mdicated therein Total Total Input VAT accounted by ICPA A comparison between the assessed disallowance of P59,420,476.50 and the input VAT accounted by ICPA in the amount of P59,420,560.08 revealed a difference of P83.58, which pertains to the amount included in the input tax accounted by ICPA for Shoetech General Merchandise Inc. but was already excluded from the assessed disallowed input tax for the said supplier per the Summary of Disallowed Input Tax4 1. Considering that the said difference was not anymore part of the assessed disallowance, and it cannot be ascertained as to which among the !CPA's classifications it belongs, the same shall be considered as part of the input VAT allowed by the �~ Exhibits ''P-31-3-1" to "P-31-159-269''. ''!Exhibit ��r-J0-3" (ICPA Report), Docket- Vol. lll, p. 2042, par. 3: Exhibit''P-31-2-2'" (Table 2), !CPA Report Folder �., The 0.0 I ditlhence from the P 18,960.320.0 I stated in ICPA Report may be due 10 roundtng otr ~~Exhibit "P-31-2-l" (Table lL !CPA Report Folder ~

AMENDED DECISION CTA Case No. 9316 ICPA. Consequently, the input VAT allowed by ICPA shall be adjusted to !'40,460, 156.50 (P40,460,240.08 less P83.58). The Court agrees with the above findings of the ICPA, save for the input VAT exception in the amount ofP58,710.12 (from "Input VAT supported by documents with wrong VAT breakdown") wherein the input VAT were found to be either correctly indicated in exact amount on the face of the supporting invoice/OR, or forming part of the input VAT amount indicated in the supporting invoice/OR, or reflected on the face of the supporting invoice/OR which is actually lower than the amount disallowed, to wit: - Invoice/ Exhibit No. Supplier's Name OR No. Input VAT Amount Input VAT due are actually properly reflected in the supporting VAT invoices -------- P-31-5-434 Alexis Marketing, Inc. 57534 p 515.57 P-31-6-42 Allegro Pacific (Phils.), Inc. ---- 14613 835.71 P-31-6-65 Allegro Pacific {Phils.), Inc. 15253 742.50 P-31-6-67 Allegro Pacific (Phils.), Inc. 15275 P-31-6-70 Allegro Pacific (Phils.), Inc. 15432 ----~-- 495.00 402.86 P-31-6-74 Allegro Pacific (Phils.), Inc. 15131 2,208.21 P-31-6-81 Allegro Pacific Phils. , Inc. 15181 1,080.00 P-31 6-87 Allegro Pacific (Phils.), Inc. 15592 768.21 P-31 10-65 Bachelor Galore Mfg. 56117 672.86 320.63 P-31 17-68 Branded Lifestyle Inc 12230 P-31 17-69 Branded Lifestyle Inc 12231 319.82 842.14 P-31-17-70 Branded Lifestyle Inc 12232 320.63 P-31-17-71 Branded Lifestyle Inc 12233 P-31-18-44 SSG Marketing & Gen. Merchandise 39520 96.43 P-31-18-45 BSCU.,1..?Xketing & Gen. Merchandise 39524 96.43 P-31-18-55 BSG Marketing & Gen. Merchandise 39713 160.71 P-31-37-69 Dreamworks Fashion Trading Inc 10690 1,234.29 P-31-48-136 Funtastic International Inc 106376 192.86 462.86 P-31-53-93 GM Stemiko Corp 40274 2,120.87 P-31-58-284 Gruppo Sachin & Sachin Co. 31141 2,160.0Q 10,320.17 P-31-93-107 Merle Garments ---- �--��- 11590 P-31-125-6 389080 642.86 P-31-141-32 So-en Garments Corp 4722 Topline -~!~ire ~d Garments Corp Input VAT due actually formed part of the input VAT amount reftected in the supporting VAT invoices P-31-5-162 Alexis Marketing, Inc. 54965 379.29 47.57 P-31-5-206 Alexis Marketing, Inc. 44403 21.21 P-31-5-284 Alexis Marketing, Inc. 53369 308.79 176.79 P-31-6-10 Allegro Pacific (Phils.). 1nc. 13794 145.71 488.57 P-31-6-15 Allegro Pacific (Phils.), Inc. 13973 325.71 P-31-6-31 Allegro Pacific (Phi1s.), Inc. 14282 P-31-6-37 Allegro Pacific IPhils.), Inc. 14568 P-31-6-41 Allegro Pacific {Phils.), Inc. 14500 ~

AMENDED DECISION CfA Case No. 9316 P-31-6-66 Allegro Pacific (Phils.), Inc. 15274 192.86 P-31-6-69 Allegro Pacific (Phils.l, Inc. 15405 1,388.57 P-31-6-72 All~o Pacificjphils.), Inc. 15468 514.29 P-31-6-73 Allegro Pacific (Phils.), Inc. 15480 192.86 P-31-6-85 Allegro Pacific (Phils.), Inc. 15552 289.29 P-31-6-93 Allegro Pacific (Phils.), Inc. 15690 868.37 P-31-7-7 An yo Apparel Inc. 2033 1,388.57 P-31-18-63 SSG Marketing & Gen. Merchandise 39922 132.86 [--"P---31-18-64 BSG Marketing & Gen. Merchandise 39925 115.71 P-31-18-270 BSG Marketing & Gen. Merchandise 32520 47.14 I-'P- -31-18-272 BSG Marketing & Gen. Merchandise 32627 281.79 BSG )'�!arketing & Gen. Merchandise 32793 f-----P-31-18-275 BSG Marketing & Gen. Merchandise 32924 ------ �--- P-31-18-281 - _. 9_98_.0_ 4 388.93 P-31-18-285 SSG Marketing & Gen. Merchandise 33000 507.86 P-31-18-286 BSG Marketing & Gen. Merchandise 33864 144.64 P-31-18-295 BSG Marketing & Gen. Merchandise 33136 .. 77.14 P-31-18-301 SSG Marketin_g_& Gen. Merchandise 142.93 33256 P-31-18-305 SSG Marketing & Gen. Merchandise 33392 .. 135.00 P-31-18-332 BSG ~arketing ~ Gen. Merchandise 34198 612.86 c--1'-�31_-18 345 . -~SG M~keting & gen. Merchandise 34429 -- 565.71 P-31-18-352 SSG Marketing & Gen. Merchandise 34619 205.71 P-31-18-355 BSG Marketing & Gen. Merchandise 34456 257.14 P-31-18-373 BSG Marketing & Gen. Merchandise 34920 263.57 P-31-18-390 BSG Marketing & Gen. Merchandise 35333 1,819.29 P-31-23-20 CD & D Trading 10058 925.71 P-31-23-29 CD & D Tradin_g 10325 617.14 P-31-23-31 CD & D Trading 10343 617.14 P-31-23-55 CD & D Trading 11133 867.86 P-31-34 23 Dakki Classics Concepts, Inc. 32750 370.93 P-31-37 -8 Dreamworks Fashion Trading Inc 8499 501.43 P-31-38-45 Easytone Marketing 14683 38.57 P-31-58-305 Gruppo Sachin & Sachin Co. 36137 312.82 P-31-63-2 Henson Clothing Company Inc 37502 173.79 P-31-63�3 Henson Clothi.Qg_Compan_y_Inc 37503 215.14 P31-95-143 Microer Bag 33181 275.36 P-31-95-144 Microer Bag 33220 114.00 P-31-95-146 Microer Bag 33310 675.00 3,702.86 P-31-106- 171.15 593 Planet Classic Corporation 83939 1,201.00 2,785.29 Input VAT due are reflected in the supporting VAT invoices which 1,396.20 are actually at a lower amount than the amount of the disallowed 609.10 1,991.76 input VAT 711.48 Alexis Marketing, Inc. -�P-31-5-205-- (out of disallowed claim of fl'186.43) 44241 ---- CD & D Trading P-31-23-53 (out of disallowed claim of fl'1,238.14) 11108 CD & D Trading P-31-23-60 (out of disallowed claim of P2,871.43) 11363 Kidstyle Fashion, Inc P-31-81-24 (out of disallowed claim of PI ,570.20) 4345 Microer Bag P-31-95-74 (out of disallowed claim of P609.11) 30634 Pasha Marketing P-31 103-83 (out of disallowed claim of Pl ,991.79) _ 15520 R-Man Footwear P-31-116-18 (out of disallowed claim of ~748.93) 1975 Total !' 58,710.12 ~

AMENDED DECISION CTA Case No. 9316 Hence, in addition to the 1"40,460,156.50 input VAT allowed by the ICPA, the input VAT in the amount ofP58,710.12 was, likewise, duly substantiated. On the other hand, the ICPA's input VAT exceptions in the amount of P18,901,609.88 (P18,960,320.00 less P58,710.12) are proper disallowances as it failed to meet the invoicing and substantiation requirements prescribed under Sections 110(A) and 113(A) and (B) of the Tax Code, in relation to Sections 4.110-1, 4.110-8 and 4.113-1 of RR No. 16-2005. Thus, out of the assessed input VAT disallowance of P59,420,476.50, only the amount of P18,901,609.88, as computed below, shall be sustained: Disallowance_I~er FDDA . .. p 59.420,476.50 40,460,156.50 Less: Input VAT allowed by ICPA 58,710.12 Additional allowed input VAT per Court's further verification P18,901,609.88 Total Disallowed lnP:ut Tax ---� VT-10 Sales not qualified for zero-rating - ?2,327,940.00 Per the FLD/FAN,42 respondent disallowed the input tax allocated to exempt sales in the amount of P266,755.25 pursuant to Sec. 4.110-4 of RR 16-2005 which states that " ... the input tax attributable to VAT-exempt sales shall not be allowed as credit against the output tax but should be treated as part of cost or expense... ". However, considering petitioner's claim in its protest to the FLD/FAN 43 that it has no exempt sales transaction and that the amount of P2,327,940.00 pertaining to sales to PEZA-registered company and diplomats of foreign countries, which were subjected to zero-rate VAT, was mistakenly reflected as exempt sales, respondent withdrew the assessment on the disallowed input allocated to exempt sales. Nonetheless, respondent assessed the said zero-rate sales to 12% VAT for being not properly supported with valid documents such as PEZA registration and IDs of the diplomat buyers. The computation of the assessment per FDDA is shown below:44 Input tax from current purchases (Goods & Services) P212,371,516.43 Ratio of Exempt Sales to Total Sales: p 2,327,940.00 Exempt Sale, per VAT -� ~'Exhibit "P-2'", Docket- Vol. IV, p. 2090. item YT-10 -1� Exhibit "P-3'". Docket- Vol. IV, P- 2130, Schedule 18. .j.j Exhibit "R-14'�. 1:311{ R.ccords. pp. 889 to 890 t:hv

AMENDED DECISION CTA Case No. 9316 Total Sales 1,853,339,888:22 0.13% Disallowed input tax per FLD 266,755.25 Adjustments: 266,755.25 No Allocation of input tax for zero rated sales 0.00 Disallowed input -~ales not g,ualified for zero-rating; for being; unsuP:2orted P2,327 ,940.00 Petitioner now asserts that the assessed sales not qualified for zero-rating actually pertain to the sales of books, magazines and bulletins, which are VAT exempt pursuant to Section 109(1)(R) of the Tax Code, as implemented by Section 4.109- 1(B)(1)(r) of RR 16-2005, which provide that the "sale, importation, printing, or publication of books and any newspaper, magazine, review or bulletin, which appears at regular intervals with fixed prices for subscription and sale, and which is not devoted principally to the publication of paid advertisements". We uphold the assessment. Petitioner's contradicting stance is doubtful. Initially, petitioner claims that the amount of 1'2,327,940.00 pertain to zero-rated sales to PEZA-registered entities and diplomats, which were subject to zero-rated VAT, then later on, when the same was denied zero-rating absent the documents which will accord it to zero-rating, it submits that the same pertain to sales of books, magazines and bulletins, which are exempt from VAT. Nonetheless, petitioner did not present the supporting ORsjinvoices to prove the nature of the subject transactions or any other pieces of evidence to substantiate its claim. Hence, there is no showing that the sales of 1'2,327,940.00, indeed, pertain to the alleged VAT exempt sales of books, magazines and bulletins or qualify as zero-rated sales. As such, the deficiency VAT on the alleged sales not qualified for zero-rating amounting to 1'2,327,940.00 stands. In sum, petitioner is liable to pay basic deficiency VAT for TY 2010 in the amount ofi'33,570,721.48, computed as follows: a...--

AMENDED DECISION CTA Case No. 9316 Vatable Sales Pl,851,011,948.22 Add: Adjustments VT-6 Unrecorded sale of Prepaid Cards P60,352,008.03 58,180,362.00 VT-7 Collections of Reimbursable Charges not 1,382,286.78 2,327,940.00 ______,_____ subjected to VAT___ ____ �- -- -- VT-8 Discrepancy on income subjected to VAT 122,242,596.81 p 7,735,440.55 PI ,973,254,545.03 per ITR vs Vat Return 6,970,608.37 1,839,981.88 ----�--1-2-%-- VT-10 Sales not qualified for zero-rating 4,869,796.61 ,. 236,790,545.40 Total Adiustments �- -- Adjusted Vatable Sales p 214,125,163.37 Multiplied by: VAT rate 14,706,048.92 p 228,831,212.29 Output tax due �- 6,709,778.49 Less: Net ~llowable Inr~ut Tax: p 222,121,433.80 -~ Jpeut tax from current eurchases - Add: Beginning carry-over input Beginning deferred input {CG\ Available Input Tax Less: Ending carry-over input Ending deferred input (CG\ Utilized input tax for the year Less: Audit Findings: 18,901,609.88 VT-9 Violations on invoicing requirements p 203,219,823.92 incl. UllSUEEOrted p 33,570,721.48 Net allowable input tax Basic Deficiency VAT IV. Deficiency WC - P9,685,412. 78 Petitioner was assessed of deficiency WC for TY 20 10 m the amount of'P9,685,412.78, computed as follows: 45 Additional taxable salaries not subjected to withholding ~ 4,976,080.53 Add: Increments P4,684,332.25 4,709,332.25 Interest 10/31/2015 25,000.00 P9,685,412.78 Compromise Total Amount Due (WC) Respondent's audit of the amounts reflected as salaries and wages in the Alphalist and FS and the entries recorded in the books of accounts revealed a discrepancy on the amounts reported as salaries and wages, which likewise revealed additional compensation subject to withholding tax, hence, assessed of deficiency WC pursuant to Section 80(A) of the Tax Code. The assessed additional taxable salaries not subjected to ~5 Exhibit --R-14", BIR Records, p. 899. a--.

AMENDED DECISION CTA Case No. 9316 withholding in the amount of 1'4,976,080.53 was computed by respondent as follows;46 Acct Account Name Per Audit/GJ Non-Taxable Taxabl~_ '---- Code Salaries and Wages-Basic Rank and File P164,833,762.59 6001011 15,835,750.25 11,009,437.81 6001012 Salaries and Wages-Basic Confi 6001013 Salaries and Wages-Basic Exec 258,553.54 6001021 Salaries and Wages-Overtime- 2,333,032.37 Regular 2?_,567.02 ,J'Q21031 Salaries and Wages-COLA/ERA 15,644.27 --- 6001051 Salar_ies and Wage~- NO Reg Shift - --- - -6-0 -0 1-0-5-2- - Salaries 8l_.ld Wages-~_!? Confi 14,142.75 6001071 Salaries and Wages-Overtime 6001081 Rest 1,379,831.56 6001101 Salaries and Wages-Overtime Special 3,706,332.42 Salaries and Wages-Overtime 199,413,054.58 Legal 13,701,584.03 Total Salaries & Wages 2,295,935.69 p 199,413,054.58 2,954,802.43 6002010 SSS Contribution 250,529.79 6002020 PhilHealth Contribution p 19,202,851.94 P19,202,851.94 15,530,988.62 6002030 HDMF Contribution 4,892,349.73 2,859,258.47 6002040 Employee Compensation 70,000.00 228,058.74 _ Total Mandatory Contributions 980,409.40 1,486,620.58 6002050 OEB-13th Month 1,155,329.96 255,117.15 6002060 OEB-Bonus 649,251.27 6002070 OEB-Leave Conversion 6002120 DEB-Funeral Aid 6002130 OEB-Meals 6002140 DEB-Cashier's Refund 6002150 OEB-HMO Premium 6002160 OEB-Uniform 6002171 OEB-lnternal Training Charges 6002182 OEB Emp Events-Year End Party 329,680.14 -- OEB Ernp Events-Branch 16,892.50 -- - -- 6002183 Annive:rsary 1,175.0Q 6002184 66,076.16 6002190 __OEB EmJ2 E":_~nts-SJ2orts Fest 6002200 102,280.00 f--6002220 OEB-Emp_!oyee Recreation 519,068.68 ��-�- 6002230 OEB-Medical Subsidy 46,160.70 ----- OEB-Corporate - OEB-Awards/Incentive 6002240 OEB-Hosoitalization 565,874.00 OEB-Cashiers and Checkers 4,762,247.63 6002250 Allowance 6002260 82,774.65 6002270 OEB-Others 279,764.54 1'971 ,065.30 OEB-Clothing Corporate 7,399,684.00 p 44,250,127.22 44,250,127.22 6002280 OEB-HMO Access Fee P262,866,033.74 P63,452,979.16 6002290 OEB-HMO Hospitalization 6002300 OEB-STARS Total Other Employee Benefits Total Salaries & Wae:es, per audit r 199,413,054.58 Less: Salaries & W~es, per Alphalis!LFS: ~'� !d.. p. 887 to 888 c-.,...--

AMENDED DECISION CTA Case No. 9316 Schedule 7.1 Pl2,015,171.19 p 1,771,379.30 p 10,243,791.89 Schedule 7.3 58,113,369.57 6,864,676.38 51,248,693.19 1,551,994.99 Schedule 7.4 !51' 103.88 1 ,400,891.11 21,101,536.94 4,487,413.49 Schedule 7.5 16,614,123.45 Total p 92,782,072.69 ----- 34,519,485.31 34,519,485.31 p 79,507,499.64 - Pl27,301 ,558.00 P47,794,058.36 Add: Other Benefits per FS, not - - - -ref-le-ct-ed-in- - - - - - Total Salaries & Wages, per FS Discrepancy per FLD Pl35,564,475.74 Pl5,658,920.80 p 119,905,554.94 t - - - - - - - - - - - - - � - - - - - - - - - - - - - - � - - - - - - - - - - - - � - - - � � � Ta.x._able salaries not subJected to withholding.___ _____ ______ ____ __ [ -P-ll'9-,9-05-,�5�54-,-94� ~~plied by: Average withholding tax rat~------------------ 4.15% Basic WC on salaries & wages not subjected to withholding ------- p 4,976,080,53 Petitioner contends that the alleged discrepancy arose from respondent's comparison of the salaries and wages reflected in petitioner's GJ and the amount reported in the alphalist of compensation. Petitioner further reiterates the misappreciation by respondent of the entries in the GJ; that the "Salaries and Wages" per GJ also captured the budgeted/forecasted salaries and wages, which were lodged under "Hyperion" module; and that respondent included the budgeted/forecasted salaries and wages as actual payments to employees without considering the entries reversing such budgeted/forecasted figures. Petitioner further posits that, using the actual and correct amount of salaries and wages amounting to P92,753,655.00 and other employees' benefits ofP9,822,262.14 per GLand TB that should have been subjected to we, in comparison with the gross compensation reported in the annual Alphalist of employees, will show a reduced discrepancy of P2,567,775.77, computed as follows: ~alaries and wages per GLj_'!:!t________ _P 92,753,655.00 ___Q_!:_her_ e~e_e~ benefi~s_,_ _ _ _ _ _ _ _ _ 1---- - - - - - - � - - - _____2_Q_Q205-0E?. -13th month pay_ _ _ _ p 7,574,919.27_ f----6002060-0EB -Bonus 2,247,342.87 Sub-Total p 9,822,262.14 ~-salaries and OEB t~:er Tf! Pl02,680,297 ~ Less: Gross Compensation per alphalist 100,112,521.37 Difference p 2,567'775.77 -- --� --- ------ Further, petitioner presented the following summary of the salaries and wages recorded in its GJ, which shows the actual and alleged budgeted amounts: a...._.

AMENDED DECISION CTA Case No. 9316 Acct Code Account Name Bu~t Actual Total P164,833,762.59 1 6001011 Salaries and wages-Basic rank and flle ~87,405,443.29 ~77,428,319.30 15,835,750.25 6001012 Salaries and wages-Basic Confidential 9,063,174.46 6,772,575.79 11,009,437.81 1 4,602,987.74 6001013 Salaries and wages-Basic Executive 6,406,450.07 258,553.54 217,050.14 2,702.85 1 6001021 Salaries and wages-Overtime Regular 2,702.85 2,333,033.37 ; and File 38,800.55 1,095,035.46 1 6001022 Salaries and wages-Overtime-Regular - 26,567.02 15,644.27 ._ _26,567.02 _ 6001031 Salaries and wages-Cola/ ERA Rank 14,142.75 15,644.27 I and File 1,237,997.91 636,739.11 ___ 14,142.75_ 6001051 Salaries and wages-ND Reg. Shift Rank 42,513.43 1,222,040.53 6001052 - and File - 1,812,871.32 - __I_;i'7_,_79 1. 0 3 - Salaries and w~ges-ND Confidential - 84,595.01 f-;;ooio71 1,911.81 3,403,318.19 Salari~s and wages-Overtime Rest Day �------- 301,102.42 r--w-01081 Salaries and wages-Overtime Special P92, 753,655.00 1,911.81 Holiday 585,301.42 Pl99,413,054.58 6001082 Salaries and wages-Overtime Special 4?Iiday ______________ - 115,277.60 6ooCiol Salaries and wages-Overtime Legal Holiday 1,590,446.87 6001102 Salaries and wages-Overtime Legal 216,507.41 6001111 Salaries and wages-Overtime Legal Total Pl06,659,399.58 Petitioner's allegations lack merit. To support the said budgeted amounts, petitioner offered as evidence "Exhibit P-6-1 and series", which pertain to the GJs of Budget Accounts for Salaries and Wages. However, the same was denied admission by this Court for petitioner's failure to identify the same.47 Other than that, no documents were further submitted by petitioner to support the alleged budgeted amounts. Moreover, as to the alleged reduced amount of discrepancy, petitioner did not provide the basis for including only the two accounts under "Other employee benefits" (600205- 0EB -13th month pay and 6002060-0EB -Bonus), while excluding all others, as subject to WC in computing the said discrepancy. Since petitioner fell short in disproving that the total salaries & wages per audit in the amount ofP199,413,054.58 as found by respondent are subject to WC, the same shall not be disturbed. Accordingly, the basic deficiency withholding tax on compensation in the amount of P4,976,080.53 shall be sustained. V. Deficiency FBT- Pl,355,498.42 Petitioner was assessed of deficiency FBT for TY 20 10 m the amount of P1 ,355,498.42, computed as follows: 48 n Resolution dated March 5. 2018, Docket- Vol. VL pp. 4081 to 4082; Resolution dated December 18,2018. Docket- Vol. VI, pp 4177 to4181; Order dated April II, 2019. Docket- Vol. VL pp. 4192 to 4193. -IH Exhibit "R-14", BIR Records. p. 898. ~

AMENDED DECISION CfA Case No. 9316 Travel expenses, subject to FBT p 1,307,861.14 68% Divided by: p 1,923,325.21 Grossed-up monetary value 32% Multiplied by: FBT rate p 615,464.07 -~ --- Fringe Benefit Tax �- basic ~~ Add: Increments � - - f--~~---� ~~--~ ------~ Surcharge P153,866.02 -~. ~-----~ -� ~ 1nterest 10/31/2015 561,168.33 c--~ Compromise - 25,000.00 740,034.35 Total Amount Due (FBT) Pl,355,498.42 '----~ The said amount ofP1,355,498.42 arose from the amount of P1,307,861.14 under "TandT Local-Hotel Accommodation", which was assessed by respondent of FBT pursuant to Section 33 of the Tax Code.49 Petitioner avers that the above expenses are not benefits given to employees but are expenses of employees during their business travels and are incurred in the pursuit of petitioner's business, thus, not subject to FBT. However, petitioner's statement is a mere unsubstantiated allegation. No documentary evidence was adduced by petitioner to prove that the subject expenses were incurred by its employees during their business travels and were indeed made in the pursuit of petitioner's business. Since petitioner failed to overcome the presumption of correctness of the deficiency fringe benefit tax assessment, the Court sustains the said assessment. Thus, petitioner is liable to pay basic deficiency FBT forTY 2010 in the amount ofP615,464.07. VI. Compromise Penalty - P275,000.00 Respondent's imposition of compromise penalties aggregating 1'"275,000.00, broken down below, including those imposed on petitioner's deficiency taxes, must be removed since there is no showing that petitioner consented to the same:50 ~�1 [xhihit "R-14". B!R Records. p. 886 'u Exhibit "R-14 �. BIR Records. p 898 to 899 ~

AMENDED DECISION erA Case No. 9316 Non-submission of Summary List of Sales (Relief Data) p 50,000.00 p 200,000.00 Non-submission of E-Sales 50,000.00 2 POS machines which had resettable accumulating grand total 50,000.00 75,000.00 Non-compliance on the required format of books of accounts 50,000.00 p 275,000.00 Compromise penalty imposed on; p 25,000.00 Deficiency WTC 25,000.00 Deficiency EWT 25,000.00 Deficiency FBT Total Compromise Penalty It must be stressed that a compromise penalty is imposed to avoid prosecution for violation of the provisions of the Tax Code.st Pursuant to RMO No. 01-90, as amended by RMO No. 19-2007, compromise penalties are only suggested in settlement of criminal liability, and may not be imposed or exacted on a taxpayer in the event that a taxpayer refuses to pay the same. It is well-settled that the Court has no jurisdiction to compel a taxpayer to pay the compromise penalty because by its very nature, it implies a mutual agreement between the parties in respect to the thing or subject matter that is so compromised, and the choice of paying or not paying it distinctly belongs to the taxpayer. 52 Absent a showing that petitioner consented to the compromise penalty, its imposition should be deleted. The imposition of the same without the conformity of the taxpayer is illegal and unauthorized.53 VII. 50% Surcharge Respondent imposed fifty percent (50%) surcharge on petitioner's deficiency income tax and VAT pursuant to Section 248(B) of the Tax Code, as implemented by Section(4)(4.2)(4.2.1) of RR 12-1999, which states in part that ".... .in case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty percent (50%) of the deficiency tax. Provided, That a substantial underdeclaration of taxable sales, receipts or income, or a substantial overstatement of deductions, as determined by the Commissioner or his duly authorized representative, shall constitute prima facie evidence of a false or fraudulent return."S4 _il !he Philippines lnlemationaf f(llr, Inc. vs. The Collector of Internal Revenue. et. a!.. G. R. Nos. L-12928 and L-12932, March 31, 1962. 12 Phd. International Fmr. Inc. vs. The Collector of internal Revenue, G.R. Nos. L-12928 and L-12932, March 31. 1962,4 SCRA 781. "Comnusswner of Internal Revenue vs /,mngga Bay Logging Cu.. Inc .. G.R. No_ 35266. January 21, 1999. 193 SCRA 92-93 '~ lxhihit "R-14. BIR Records. p. 885. ~

AMENDED DECISION CfA Case No. 9316 The assessed 50% surcharge on deficiency income tax and VAT must be dropped. Section 248(B) of the Tax Code states what constitutes as prima facie evidence of false or fraudulent return: "(B) In case of willful neglect to file the return within the period prescribed by this Code or by rules and regulations, or in case a false or fraudulent return is willfully made, the penalty to be imposed shall be fifty percent (50%) of the tax or of the deficiency tax, in case any payment has been made on the basis of such return before the discovery of the falsity or fraud: Provided, That a substantial underdeclaration of taxable sales, receipts or income, or a substantial overstatement of deductions, as determined by the Commissioner pursuant to the rules and regulations to be promulgated by the Secretary of Finance, shall constitute prima facie evidence of a false or fraudulent return: Provided, further, That failure to report sales, receipts or income in an amount exceeding thirty percent (30%) of that declared per return, and a claim of deductions in an amount exceeding thirty percent (30%) of actual deductions, shall render the taxpayer liable for substantial underdeclaration of sales, receipts or income or for overstatement of deductions, as mentioned herein." (Emphasis and underscoring supplied) Based on the foregoing provision, a prima facie evidence of a false or fraudulent return is either a substantial under- declaration of sales, receipts or income, or a substantial overstatement of deductions. In turn, there is a substantial under-declaration of sales, receipts or income, when there is failure to report sales, receipts or income exceeding 30% of that declared per return; and, there is a substantial overstatement of deductions when a claim of deductions exceeds 30% of the actual deductions. In the case at bar, contrary to respondent's premise, there is no prima facie evidence of a false or fraudulent return in the instant case, since there is neither substantial under- declaration of sales, receipts or income, nor a substantial overstatement of deductions, as shown below: t:)?jV

AMENDED DECISION CTA Case No. 9316 O'-'n" .l1ncorne ~ 44,991,463.97 Income tax assessment upheld by this Court: p 469,684,683.00 Disallowed expenses for non-withholding of tax 9.58% Divided by: Reported Deductions per Annual ITRss Ratio of overclaimed deduction over actual deductions - On- VA-T VAT assessments upheld by this Court: Unrecorded sale of Prepaid Cards p 60,352,008.03 Collections of Reimbursable Charges not subjected to 58,180,362.00 1,382,286.78 VAT 2,327,940.00 Discrepancy on income subjected to VAT per ITR vs Vat p 373,203,908.38 Return 508,132,0~3.46 Sales not qualified for zero-rating p 122,242,596.81 . 369,323,660.13 Divided by: Reported Total Sales/Receipts per VAT 600,352,286.25 f-'R'-e��tu��rnss6 .. �- ------ 1st Quarterly VAJ'._Return - 2nd QuarterlY. 'jAT Return - 3rd __Quarterly VAT Return ... ------- 4th Quarterly VAT Return PI ,851,011,948.22 Ratio of undeclared sales over declared sales 6.60% Therefore, the imposition of 50% surcharge under Section 248(B) of the Tax Code is unwarranted. WHEREFORE, in view of the foregoing, the Motion for Partial Reconsideration filed by respondent is PARTIALLY GRANTED. Accordingly, the Court's Decision dated July 29, 2020, 1s hereby amended to read as follows: "WHEREFORE, premises considered the instant Petition for Review is PARTIALLY GRANTED. The assessments issued by respondent against petitioner for deficiency income tax, EWT, VAT, WC and FBT forTY 2010 are AFFIRMED WITH MODIFICATIONS. Accordingly, petitioner is ORDERED TO PAY respondent the aggregate amount of ONE HUNDRED SEVENTY-THREE MILLION EIGHT HUNDRED EIGHTY- EIGHT THOUSAND SEVEN HUNDRED FORTY-SIX PESOS AND THIRTY CENTAVOS (P173,888,746.30), inclusive of the 25% surcharge imposed under Section 248(A)(3) of the Tax Code, and 20% deficiency and delinquency interests imposed under Section 249(B) and (C) of the same Code, respectively, computed until December 31, 2017, as follows: ''Exhibit "P-21., (Lint: 22C). Docket- Vol Y. p. 3605 1 Exhibit "P-26" (Line 19A). Docket- Vol V. PP- 3886.3859.3866 and 3874. '' t:h..---

AMENDED DECISION CTA Case No. 9316 Basic Tax Income Tax EWT VAT WTC FBT Total p 8,456,672.29 p 4,976,080.53 Arlrl:25% Surcharge p 900,361.34 " 33,570,721.48 p 615,464.07 --- -~------- 2, 114,168.07 2:25,090.33 8,392,680.37 I ,244,020.13 153,866.02 20% Drliciency 7,69<!,096.44 p 48,):! 9,)99._7_!_- lnltrrst up to Oct H.2015 .�. 12,1:29,824.9), P18,262,936.80 IT: Vrom Apt 864 346.89 7,692,096.44 lU, 2011 to Oct. 31, 3,669,964.08 32,007,153.63 864,346.89 2015[1'8,456,672.29 4,777,037.31 X 20% X 1660! 365 7,925,614.22 32,007,153.63 daus! P1,989,798.56 , 73,970,555.48 P10,997,137.97 P29,858,515.10 - ------ 4,777,037.31 ��'EWT: From Jan. 14,2011 to Oct. 31, 590,171.03 590,17 1.03 20!5 {/'900,361.34 X ;}01(, X 1752/ J{j5 P1,359,501.12 P106,579,929.93 dw s/ 390,732.15 3,669,964.08 VAT: From ,Jan 390,732.15 26,2011 to Oct. 31, 14,568,773.38 2015 14,568,7'13.38 {I'JJ,570,72148x 2,159,482.62 2, I tF9,482.62 )()0" X) 710/ J65 267,094.54 dOifS/ 267,094.54 --~WTc: From 7,925,614.22 ,Jan. 14, 2011 to Oct. ::11' 2() 15 863,518.06 863,.':i18.0U {1'4, 976, 080.5.] X 20% 32,101,194.49 32,101,194.49 -~ _! ?_!?.Y.365 daysj 4,77:2,456.59 4,T/2,4tF6 ..':i9 "�"FBT: From Jan. 16,2011 to Oct. 31, 589,986.24 589,98lJ.24 2() J ~ {/'615,464.07 X 20"�n X 1750/365 P3,244,048.77 P120,640,523.35 P17,929,077.18 P2,216,581.90 P173,888,746.30 dens/ Total Amount Due, Oct. 31, 2015 i\dd: 20% DeticiC'ncv Interest from Nov 1, 2015 to Dec. 31, :2017 IT: {I'R,4S6,672.29 x 20% x 792/365 dausl EWT: {/'9(10,361.34 X 20% X 792/:365 dm s/ VAT: {/'..U,57U, 721.48 x l0�o X 792/,-165 duysJ WC: f/'4. 976,080 53 X ](I'J-o x 7'J:2/.365 days/ FBT� f/'615,464.07 X 20% X 7')2/.365 dat~s/ 20% Dc!Jnqucncv Interest from Nov. I, 2015 to Dec. 31, 2017 IT: f!' I H.26'l, ()36.80 X L0�o X 792/ ,!65 da! Sj EWT /1' 1. '!89. 79R .-)o .I LO"o ,- 7'-U/30~) dw s/ VAT f1'7.J,97Q,555.48 X 20% x 792/365 da sf WC: {I' 10,997,137.97 X 20% x 792/365 days/ FBT: {1'1.359,501.10 X 20% X 792/365 dO_l/S/ Total Amount Still Due as of Dec. 31, 2017 In addition, petitioner should be ORDERED TO PAY respondent delinquency interest at the rate of twelve percent (12%) computed from January 1, 2018 " Pursuanr toRR No_ 26-02. taxpay~rs classitied under group C such as herein petitioner. are required to tile the Monthly Withholding I'ax Return:; within elcv!.!n (13) days following th~ ~nd of the month Henc~. the d~adlin~ tOr tiling th~r~of tlx th~ last month ofTY 2010 is on January 13.2011 '~Supra. ''1 Pursuant to Section 5 of RR No. 4-2002. the d~adline tOre-tiling ofth~ Quarterly R~mittance Return of Final Income Taxes Withheld on Fring~ Benefits Paid to Employe~s Other than Rank and File (BIR Form No. 1603) is on January 15, 201 L assuming that the subject fringe benefit was granted within the last month of the TY 2010. t:)?/1/'

AMENDED DECISION CTA Case No. 9316 -. Income Tax EWT VAT WTC FBT Total Ha~ic Tax I' 8,456,67:2.'29 p 900,361.34 I' 33,570,7'21~48 ----- r 615,464.07 -~- ~8,_519,J.99."il Add:25% Surcharge 2,114,168.07 225,090.33 S,39:2,680.37 I' 4,976,080.53 153,866.02 12,1J.9,SJ.4.qJ 20% Deliciencv 3:2,00?, 153.63 1,244,020.13 Interest up to Oct 7,692 096.44 , 73,970,555.48 7 692,096.44 31, J.O 15 864,346.89 - 4,777,037.31 864,346./:N l4,568,773.3t! IT: From Apr 1"10,997,137.97 3:2.007' 1~.).()] 16,2011 to Oct. 3\, 32,101,194.49 2015 11'8,456,672.29 - 1"120,640,523.35 2,159,482.62 4,777,037.)_1 X 2(~7 X 1660/365 dal!s 1"18,262,936.80 1"1,989,798.56 4,772,456.59 590,171.03 590,171.0] 1"17,929,077.18 �,yEWT: From Jan. 1"1,359,501.12 P106,579,929.93 14,2011 to Oct. 31, 2015 {I"Y0U,361.34 x 3,669,964.08 3,669,964 08 20�"o X 1752/ J65 390,732. h rlru s/ 390,732.15 14,568,773.3t! VAT: From ,Jan. 267,094.54 2,159.4t!J.b) J.(J, JOIJ to Or:t. 31, 267,094.;:,4 201."> {I'.U.570, 7:l 1 48 x 7,9:25,614./.:2 7,925,614.22 .:o",. ,- 1 74UJ 3h:> t!wr~l 8U3,518.06 863,518.()() '�'WTC: From ~ .Jan. 14, 2011 to Oct. 31,2015 3"1.,101,194.49 f/'4,976,080.5J X 20% 4,772,45().59 ~'x--1"7'5F2B1T3:65FrdoamysJjan. 589,986.24 589,98b.24 I(J, 2011 to Oct. 31. 20 15//'6/ 5,464. 07 X 1"29,858,515.10 1"3,244,048.77 1"2,216,581.90 1"173,888, 746.30 .20�~ x 1750/365 duysf Total Amount Due, Oct. 31, 2015 Add: 20% !Jeficiencv Interest from Nov I, J.Ol5 to Dec. 31, 20 1'/ IT: fx/'8/9425;6~l6o7s:.d! a29sX/ 20% EWT: f/'900,36].34 X 20% X 792/365 daysj. VAT f/'.U.S70.72148x JO",. >: 792/ 3(>5 days/ WC: /1'1. <J76.0t.>0.53 x .20"<, x 7<J2! ,165 da s/ FBT /1'615,464.07 x 20%x 792/365 daus/ 200,1,, LJelinquencv Interest from Nov. 1, 201Sto Dec. 31,2017 IT fl' 18,262. 936.HO X JO''o x 792/365 dm s/ EWT� /1' J. 'J89, 798 56 X J.(lu�o x 792/365 daysj VAT (!'7J, 970,555.18 X 20'"& x 792/365 days/ WC: {I' 10,997.137.97 X 20~ X 792/365 dG.IJS/ FBT: (/'1,.359,50/. 10 X 20% x 792/.365 da!.!S/ Total Amount Still Due as of Dec. 31, 2017 In addition, petitioner should be ORDERED TO PAY respondent delinquency interest at the rate of twelve percent (12%) computed from January 1, 2018 '7 Pursuant toRR No. 26�02, taxpayers cla:;sitlt:d under group C. such as herein petitioner. are required to tile the Monthly Withholding Tax Returns within eleven ( 13) days following the end of the month Hence. the dead Ime for filing thereof for the last month ofTY 2010tsonJanuary 13.2011 '~Supra ~�J Pursuant to Section 5 of RR No. 4�2002. the deadline for e�filing of the Quarterly Remittance Return of Final Income Taxes Withheld on Fringe Benefits Paid to Employees Other than Rank and File (BIR Form No 1603) is on January 15,2011. assuming that the subject fringe benefit was granted within the last month of the TY 201 0 P----

AMENDED DECISION CTA Case No. 9316 until full payment thereof pursuant to Section 249(C) of the Tax Code, as amended by Republic Act (RA) No. 10963, also known as Tax Reform for Acceleration and Inclusion (TRAIN), as implemented by RR No. 21- 2018, based on the following amounts: Income tax P18,262,936.80 1 , 9 8 9 , 798_,_:i()_ ExQanded Withholding Tax 73,970,~55.�8_ Value Added Tax �--� 10,997,137.97 Withholding Tax on Compensation... 1,359,501.12 Fringe Benefit Tax SO ORDERED. ~ ./2 /2_~ - -' ./ ...... �~ CATHERINE T. MANAHAN Associate Justice WE CONCUR: (With Dissentin~pinion) ROMAN G. DEL ROSARIO Presiding Justice <:;Z_OoAMt;. c Q.;f-~ot.. l ~ JifANITO c. CASTANEDA, JR. Associate Justice CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Amended Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. Presiding Justice

REPUBLIC OF THE PHILIPPINES Court of Tax Appeals QUEZON CITY FIRST DIVISION MERIDIEN BUSINESS CTA CASE NO. 9316 LEADER, INC. Members: Petitioner, -versus- DEL ROSARIO, P.J., Chairperson, and MANAHAN, JJ. COMMISSIONER OF Promulgated: INTERNAL REVENUE, FEB 23~, >t,.o.A- Respondent. x- - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - ~ ~ - - - - - - - - x DISSENTING OPINroN DEL ROSARIO, P.J.: After much introspection and consideration, I am constrained to maintain the position I have taken in the assailed Decision. It is indeed disconcerting to apply an existing jurisprudence when an interpretation of the pertinent law that contradicts such jurisprudence, as espoused by my distinctive colleague - is itself supported by equal sense and logic. My personal sentiment aside, I simply have to remind myself of the basic principle on "hierarchy of courts"; and that, as I belong to the third level court, my judicial discretion does not stretch to the point where I can brush aside a Supreme Court pronouncement by refusing to apply its teachings when glaring similarity to the present case exists. With due respect, I submit that this Court cannot ignore the application of a doctrine so clearly and plainly elucidated in Commissioner of Internal Revenue vs. Fitness by Design lnc.1 1 G.R. No. 215957, November 9, 2016.~

Dissenting Opinion CTA Case No. 9316 Page 2of7 To be sure, Fitness by Design was parenthetic in saying that a demand by government for the taxpayer to pay deficiency tax liabilities must specify the definite amount sought to be collected, failing which, the demand would be violative of the taxpayer's right to due process of law. Thus, in declaring as fatally infirm a demand letter similarly worded as that involved in the present case, the Supreme Court, speaking through Honorable Associate Justice Marvic M. V. F. Leonen opined: "The disputed Final Assessment Notice is not a valid assessment. First, it lacks the definite amount of tax liability for which respondent is accountable. It does not purport to be a demand for payment of tax due, which a final assessment notice should supposedly be. An assessment, in the context of the National Internal Revenue Code, is a 'written notice and demand made by the (Bureau of Internal Revenue] on the taxpayer for the settlement of a due tax liability that is there definitely set and fixed.' Although the disputed notice provides for the computations of respondent's tax liability, the amount remains indefinite. It only provides that the tax due is still subject to modification, depending on the date of payment. Thus: The complete details covering the aforementioned discrepancies established during the investigation of this case are shown in the accompanying Annex 1 of this Notice. The 50% surcharge and 20% interest have been imposed pursuant to Sections 248 and 249 (B) of the (National Internal Revenue Code], as amended. Please note, however, that the interest and the total amount due will have to be adjusted if prior or beyond Apri/15, 2004. (Emphasis Supplied) XXX The Court of Tax Appeals did not err in cancelling the Final Assessment Notice as well as the Audit ResuiUAssessment Notice issued by petitioner to respondent for the year 1995 covering the 'alleged deficiency income tax, value-added tax and documentary stamp tax amounting to P1 0,647,529.69, inclusive of surcharges and interest' for lack of due process. Thus, the Warrant of Distraint and/or Levy is void since an invalid assessment bears no valid effect." (Boldfacing supplied) Juxtaposed in parallel, the Formal Letter of Demand dated May 19, 20142 in the case at bar likewise reads: 2 Exhibits "P-2" and "R-11".~

Dissenting Opinion CTA Case No. 9316 Page 3of7 "Please take note that the interest and total amount due will have to be adjusted if paid beyond June 30, 2014." (Boldfacing supplied) There must be some wisdom behind the legal precept in Fitness by Design, more so as it was a unanimous decision promulgated by the Second Division of the Supreme Court. Thus, after assessing the rationale behind the doctrine in Fitness by Design, I noted that indeed -- the amount indicated in the aforequoted Formal Letter of Demand is definite only if payment is made on the EXACT due date stated therein. While payment can be made BEFORE or AFTER the date indicated, the exact MANNER of COMPUTING the "adjustment" to come up with a final and definite amount in case payment is made before or after the due date was undisclosed. Any ambiguity in the amount demanded from a taxpayer is fatal as it precludes him from knowing the exact amount to pay whenever an adjustment is made. Of course, there would have been a semblance of CERTAINTY if the Formal Letter of Demand dated May 19, 2014 at the very least indicated how adjustment of the demanded amount would be made - particularly with respect to the purported interest that should have to be adjusted vis-a-vis the resulting total amount. The manner by which interest was computed in Fitness By Design and in the present case is very similar; BOTH do not indicate the date when interest commences to run, viz.: FINAL ASSESSMENT NOTICE FORMAL LETTER OF DEMAND DATED MAY 19, FITNESS BY DESIGN 2014 Income Tax PRESENT CASE Income Tax Taxable Income per audit XXX Basic Income Tax Deficiency XXX Tax Due (35%) Add: Surcharge (50%) Add: Increments Interest (20% per annum) until4-15-04 XXX Surcharge 50% XXX Deficiency Income Tax Value Added Tax XXX Interest- 6-30-2014 XXX Unreported Sales Compromise XXX Output Tax (10%) Add: Surcharge (50%) XXX Total Amount Due (IT) XXX Interest (20% per annum) until4-15-04 Value Added Tax Deficiency VAT XXX Basic Value Added Tax Deficiency XXX XXX Add: Increments XXX XXX XXX Surcharge 50% XXX XXX XXX Interest- 6-30-2014 &1 Compromise XXX Total Amount Due (VT)

Dissenting Opinion CTA Case No. 9316 Page 4 of7 Withholding Tax Compensation XXX Additional taxable salaries xxx XXX Add: Increments Surcharge XXX Interest- 6-30-2014 XXX Compromise XXX Total Amount Due (WC) XXX Expanded Withholding Tax XXX Basic EWT Deficiency XXX Add: Increments Surcharge XXX Interest- 6-30-2014 XXX Compromise XXX Total Amount Due (WE) XXX Fringe Benefit Tax XXX Fringe Benefit Tax Basic XXX Add: Increments Surcharge 25% XXX Interest- 6-30-2014 XXX Compromise XXX Total Amount Due (FBT) XXX At once glaring is the fact that in the present case, while the Formal Letter of Demand dated May 19, 2014 states that the interest was computed up to June 30, 2014, it does not categorically provide for the specific reckoning point or date when interest commences to run for each type of tax assessment, namely, income tax, value- added tax, withholding tax on compensation, expanded withholding tax and fringe benefit tax. Even the rate of interest that was applied in computing the amount of interest was not indicated, which makes the Formal Letter of Demand dated May 19, 2014 even worse than that in Fitness By Design which the Supreme Court nullified. Considering the different deadlines prescribed by the National Internal Revenue Code (NIRC) of 1997, as amended, in the filing of returns and payment of aforesaid tax types, the dates for the reckoning of interest vary for each specific type of tax. Thus, it was fatal for respondent not to apprise petitioner in the Formal Letter of Demand anent the specific date within which interest shall begin to run for each tax type as well as the rate thereof. Since adjustment of the amount due becomes indispensable if payment is made by petitioner beyond or after June 30, 2014, the date as to when interest begins to run and the rate thereof are crucial and ~

Dissenting Opinion CTA Case No. 9316 Page 5of7 of much significance to petitioner's right to know the exact amount he is liable to pay. Financial matters, moreso - computation of interest, involve technical and skill-based concepts that require proper guidance in their application in pragmatic terms. Thus, it was faulty and flawed for respondent to presume that petitioner would know the exact amount of what is sought to be collected after "adjustment" if no clear and specific formula is communicated to it. In the words of Fitness by Design: "An assessment does not only include a computation of tax liabilities; .. . Its main purpose is to determine the amount that a taxpayer is liable to pay." Verily, the Formal Letter of Demand dated May 19, 2014 sent to petitioner can hardly be considered as one with indication of DEFINITE amount of liability. Fitness by Design is unambiguous and precise. Revisit by this Court of the doctrine laid down by the Highest Court of the land is unwarranted; rather - and more appropriate, is for respondent himself to revisit, review and modify the details of demand letters he sends out to taxpayers, consistent with the Supreme Court's pronouncement on the matter. This should not be too burdensome for respondent to do. As earlier stated, I can only apply Fitness by Design to this case. Unless and until modified by the Supreme Court En Bane, the doctrine laid down in aforestated case cannot be ignored irrespective of any contrary opinion on the matter. In the language of Honorable (now) Chief Justice Diosdado M. Peralta in Carmelo F. Lazatin, eta/. vs. Hon. Aniano A. Desierto as Ombudsman, et a/. 3: "Petitioners now assert that the Court's ruling on the constitutionality of the provisions of R.A. No. 6770 should be revisited and the principle of stare decisis set aside. Again, this contention deserves scant consideration. The doctrine of stare decisis et non quieta movere (to adhere to precedents and not to unsettle things which are established) is embodied in Article 8 of the Civil Code of the Philippines which provides, thus: 'ART. 8. Judicial decisions applying or interpreting the laws or the Constitution shall form a part of the legal system of the Philippines.' 3 G.R. No. 147097, June 5, 2009"0\

Dissenting Opinion CTA Case No. 9316 Page 6of7 It was further explained in Fermin v. People as follows: 'The doctrine of stare decisis enjoins adherence to judicial precedents. It requires courts in a country to follow the rule established in a decision of the Supreme Court thereof. That decision becomes a judicial precedent to be followed in subsequent cases by all courts in the land. The doctrine of stare decisis is based on the principle that once a question of law has been examined and decided, it should be deemed settled and closed to further argument.' In Chinese Young Men's Christian Association of the Philippine Islands v. Remington Steel Corporation, the Court expounded on the importance of the foregoing doctrine, stating that: 'The doctrine of stare decisis is one of policy grounded on the necessity for securing certainty and stability of judicial decisions, thus: Time and again, the court has held that it is a very desirable and necessary judicial practice that when a court has laid down a principle of law as applicable to a certain state of facts, it will adhere to that principle and apply it to all future cases in which the facts are substantially the same. Stare decisis et non quieta movere. Stand by the decisions and disturb not what is settled. Stare decisis simply means that for the sake of certainty, a conclusion reached in one case should be applied to those that follow if the facts are substantially the same, even though the parties may be different. Xxx"' To stress, it is the better practice that when a court has laid down a principle of law as applicable to a certain state of facts, it will adhere to that principle and apply it to all future cases where the facts are substantially the same.4 By tradition and in our system of judicial administration, the Supreme Court has the last word on what the law is. Any pronouncements made by the Supreme Court in its judicial decisions become part of the law of the land. Adherence to the principle of stare decisis et non quieta movere is mandated for all lower courts which necessarily includes this Court. 4 Sherwin T. Gatchalian vs. Office of the Ombudsman, eta/., G.R. No. 229288, August 1, 201~

Dissenting Opinion CTA Case No. 9316 Page 7 of7 There is only one Supreme Court from whose decisions all other courts - including this court - should take its bearings. In the absence of any strong, compelling reason that the doctrine of stare decisis should not be applied to the present case, I am of the view that by virtue of the doctrine laid in Fitness By Design, the Court did not err in holding that the Formal Letter of Demand dated May 19, 2014 (with attached Assessment Notices) was void for failure to contain a definite and fixed amount of tax liability. All told, I DISSENT on the proposition that the Formal Letter of Demand dated May 19, 2014 (with attached Assessment Notices) is valid and VOTE to deny respondent's Motion for Reconsideration filed on September 10, 2020. Presiding Justice