TAKENAKA CORPORATION PHILIPPINE BRANCH v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES Coon at Tax Appeals QUEZON CITY FORMER SECOND DIVISION TAKENAKA CORPORATION C.T.A. CASE NO . 7701 PHILIPPINE BRANCH , Members : Petitioner, - versus- CASTANEDA, JR., Chairperson UY, and PALAN CA-E NRIQUEZ, JJ. COMMISSIONER OF INTERNAL Promulgated : REVENUE , OCT 0 4 2010/ Respondent. ~7 1:'o �D-o- � X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - I- - - - - - - - --X DECISION UY, J.: In this Petition for Review filed on October 31, 2007 , petitioner, Takenaka Corporation Phi lippine Branch , prays that, after due notice and hearing, this Court render judgment finding petitioner not liable for the total amount of ~ 761 ,189.81, represe nting alleged deficiency expanded withho lding taxes and further ordering respondent , Commissioner of Internal Revenue , to cancel and terminate the deficiency tax assessment for taxable year 2003 issued against petitioner. THE FACTS Petitioner is a foreign corporation organized and existing under the laws of Japan , duly licensed to transact business in the Philippines, with principal offi ce~ 894

DEC IS ION C.T.A. Case No . 770 I address at 181h Floor, Tower II Enterprise Center, Ayala Avenue , Makati City.1 It is registered with the Bureau of Internal Revenue (BIR) as an income tax and value-added tax taxpayer,2 with Taxpayer Identification No. 005-301-571-000 .3 Respondent is the duly appointed Commissioner of the Bureau of Internal Revenue , vested by law with the authority to decide disputed assessment and to enforce the provisions of the National Internal Revenue Code (NIRC) and other tax laws , with office address at the BIR National Office Building , Diliman , Quezon City 4 On April 15, 2004, petitioner filed its original Income Tax Return for taxable year 2003 , and on October 7, 2004 , its final amended Income Tax Return. 5 A Preliminary Assessment Notice (PAN) , together with the Details of Discrepancies dated December 5, 2006 was rece ived by petitioner on December 22 , 2006 representing deficiency income tax and expanding withholding tax , in the amounts of ~ 169,650 ,228 .93 and ~ 752 ,921 .59 , respectively , for taxable year 2003 .6 On January 5, 2007 , petitione r, through its tax counsel , wrote respondent a letter which : (a) acknowledged receipt of the PAN on December 22 , 2006 ; (b) recognized the fact that the last day given by the BIR fo r filing the Reply to the PAN fell on a Saturday , January 6, 2007 , thus the same may be done on the next working day which is Monday, January 9, 2007 ; and (c) requested for an extension of time of fifteen (15) days to file its Reply to the PAN in view of the fact 1 Par. I, Facts Adm itted, Joint Stipu lation of Facts and Issues (JSFI) , Docket, p. 227. f 2 Par. 3, Facts Adm itted , JSFl , Docket, p. 227 . 3 Exhibit " A". 4 Par. 2, Facts Admitted , JSF I, Docket, p. 227. 5 Par. 4, Facts Adm itted, JSF I, Docket, p. 228. 6 Par. 5, Facts Adm itted , JSF I, Docket, p. 228. 1l9 5

DECISION C.T.A. Case No. 770 l that the PAN was received during the Christmas holiday season , resulting 1n insufficiency of time to study and evaluate the said PAN .7 On January 8, 2007 , petitioner filed a protest letter to the above-mentioned PAN ,8 stating its objections to the assessment and showing why the same has no merit or basis. 9 On January 12, 2007 , petitioner received a Formal Assessment Notice, together with the Details of Discrepancies dated January 6, 2007 , representing deficiency income tax and expanded withholding tax in the respective amounts of ~ 171 ,558,285 .13 and ~ 761 ,189.81 for taxable year 2003. 10 On February 9, 2007 , petitioner filed a formal protest disputing the said assessments and requested its withdrawal and cancellation .11 On February 12 , 2007 , petitioner, through counsel , received a letter from respondent dated February 6, 2007 , stating that: (a) respondent has denied petitioner's request for a fifteen (15)-day extension to file a protest against the PAN ; (b) respondent acknowledged receipt of petitioner's reply to the PAN ; (c) respondent will consider petitioner's reply to the PAN as petitioner's formal protest to the Final Assessment Notice (FAN) ; (d) the FAN was issued in view of petitioner's non- submission of a Waiver of the Statute of Limitations ; and (e) the docket of the case has been forwarded to Revenue District Office (ROO) No. 47-East Makati under 151 Indorsement dated February 6, 2007 for reinvestigation of the above- mentioned deficiency taxes .12 7 Par. 6, Facts Adm itted , JSF I, Docket, p. 228. ~ 8 Par. 7, Facts Adm itted, JSF I, Docket, p. 228. 9 Exhi bit " D)'. 10 Par. 8, Facts Adm itted, JSF l, Docket, p. 22 8. 11 Par. 9, Facts Admitted , JSF I, Docket, p. 22 8. 12 Par. l 0, Facts Admitted, JSFl , Docket, pp . 22 8 to 229. 89G

DECISION C.T.A. Case No . 77 01 On April 4 , 2007 , petitioner submitted supporting documents to its protest, such as its Income Tax Returns for taxable years 2004 and 2005 and its Audited Financial Statements for taxable year 2005 .13 On October 24 , 2007 , petitioner availed of the tax amnesty under Republic Act No. 9480 and completed its requirements .14 Consequently, only the issue regarding the deficiency expanded withholding tax assessment remains in dispute . Due to respondent's inaction on petitioner's Formal Protest filed on February 9, 2007 , the instant Petition for Review was filed on October 31 , 2007 . In the Answer filed on January 8, 2008 , respondent interposes the following Special and Affirmative Defenses: "5. The assessments in question were made and issued m accordance with law, rules and regulations . 6. Petitioner was assessed of deficiency expanded withholding tax for its failure to withhold and remit the corresponding withholding tax on its professional fees and temporary staff costs in the amount of P4 ,715,449 .10 claimed as deductions its income tax return for taxable year 2003 . 7. All presumptions are in favor of the correctness of the tax assessment (Interprovincial Autobus vs. Collector of Internal Revenue, 98 Phil. 290) ." 15 After pre-trial held on March 13, 2008 , the parties filed their Joint Stipulation of Facts and Issues16 on April 1, 2008 , which was approved by the Court in the Resolution dated on April 8, 2009 .17 Among the facts admitted by the parties , are the following matters: r 13 Par. 11, Facts Admitted , JSFI, Docket, p. 229. 14 Par. 12, Facts Ad mitted , JSF I, Docket, p. 229. 15 Docket, pp . 202 to 204. 16 Docket, pp . 227 to 230. 17 Docl<et, p. 231. 89 7

DECI S ION C.T.A . Case No. 770 I "13. It is the respondent's position that Petitioner failed to withhold and remit the corresponding withholding tax due on professional fees and temporary staff costs amounting to P761 ,189.81 inclusive of interest. 14. Petitioner claimed as deduction in its income tax return for taxable year 2003 professional fees and temporary staff costs amounting to P4 ,7 15,449.10. XXX XXX XXX 20 . The following firms are general professional partnerships: a. Accounting firm of SyCip Gorres Velayo & Co b. Law firm of Castillo Laman Tan Pantaleon San Jose c. Law firm of Angara Abello Concepcion Regala & Cruz (ACCRA) d. Law firm of Aranas Consunji Barleta & Co e. Accounting firm of Joaquin Cuna nan & Co ". During trial , the parties presented their respective testimonial and documentary evidence in support of their respective claims and assertions . Upon admission of respondent's documentary evidence in the Resolution dated September 3, 2009 , the parties were directed to file their respective Memorandum within thirty (30) days from notice .18 In the Resolution dated October 16, 2009 , this case was submitted for decision , considering petitioner's Memorandum filed on October 8, 2009 and the report of this Court's Record Division that respondent failed to file a Memorandum .19 Hence, this Decision . THE ISSU ES A sole issue was stipulated by the parties for th is Court's resolution , to wit: 2o 18 Docket, pp . 663 to 664 ~ 19 Docket, p. 69 0. 20 Docket, p. 23 0. 89 8

D EC I SION C.T.A. Case No. 770 I "1. Whether or not petitioner failed to withhold (sic) the corresponding withholding tax on professional fees and temporary staff costs amounting to P471 ,544 .91 for the taxable year 2003 ." Petitioner's arguments Petitioner argues that the assessment for alleged deficiency expanded withholding tax against petitioner should be can ce lled and terminated, considering that: (a) the alleged discrepancy between the amount of petitioner's payments for professional fees and temporary staff costs per financial statements vis-a-vis per alphalist resulted from payments to general professional partnerships and other expenses subject to a different rate of withholding tax; (b) petitioner properly subjected to withholding tax all its other payments for goods and services ; and (c) the presumption of correctness of the alleged deficiency tax assessment has been disputed and overturned by evidence on record . Respondent's counter-arguments In the Answer , respondent contends that the assessments in question were made and issued in accordance with law, rules and regulations . According to respondent , petitioner was assessed of deficiency expanded withholding tax . for its failure to withhold and remit the corresponding withholding tax on its professional fees and temporary staff costs in the amount of 12 4 ,715 ,449 .10 claimed as deductions its income tax return for taxable year 2003. THE COURT'S RULING At the outset, tax assessments by tax examiners are presumed correct and made in good faith . The taxpayer has the duty to prove otherwise . In th e absence of proof of any irregularities in the performance of duties, an assessment duly made by a BIR examiner and approved by his superior officers" 89 9

DEC ISION C.T.A . Case No. 770 I will not be disturbed . All presumptions are in favor of the correctness of tax assessments 21 The deficiency expanded withholding tax of petitioner for taxable year 2003 was computed by respondent as follows :22 Amount per General Ledger/FSIITR ~ 7,457 ,219 .00 Less : Amount per Alphalist 2,741 ,769 .90 Amount not subjected to EWT Multiply by 10% ~ 4 ,715,449 .10 Expanded Withholding Tax due 10% Add : Interest@ 20 % (1 .16.04 to 02 .12.07) Total Amount Due ~ 471 ,544 .91 289 ,644 .90 ~ 761 J 189.81 Petitioner argues that the deficiency expanded withho lding tax of ~ 471 ,544 .91 assessed against it was due to respondent's flawed audit procedure . It further points out that respondent merely "picked -up" the amounts of professional fees included in petitioner's "Aiphalist of Payees Subject to Expanded Withholding Tax as of December 31 , 2003"23 and compared them to the "Professional and Temporary Staff Cost" reported by petitioner in its Audited Financial Statements for taxable year 2003 ?4 Consequently, the difference between the two amounts were treated by respondent as payments not subjected to expanded withholding tax and imposed thereon a uniform rate of ten percent (1 0%) to come up with the alleged deficiency expanded withholding tax. Petitioner also explains that the amount of ~ 7,457 ,219 .00 was derived from the total amount of~ 14,914,437 .81 , which is composed of items subjected 21 Comm issioner of Intern al Revenue vs. Bank of the Philippine Islands, G .R. No. 134062 , Apri l 17 , 2007; Rizal Comm ercial Banking Corporation vs. Commissioner of Internal Revenue, G .R. No. 168498, April 22 2E4x,h2i0bi0t7".E". " 23 Exhibit " S" and Exhibit "5". 24 Exhibit "N". 900

DEC ISION C .T. A. Case N o. 770 I Page 8 o f 18 to expand ed withhold ing ta x as well as those not subjected to expanded withholding tax , summarized as follows :25 PAYEE AMOUNT NOT SUBJECTED GENERAL Fl 2 ,820,840 .00 SUBJECTED TOEWT PROFESSIONAL PARTNERSHIP 1,684 ,848 .30 TOEWT 1,464 ,854 .62 Fl 2 ,820 ,840 .00 SGV & CO . - 1,684 ,848 .30 1,022 ,000 .00 Accounting Firm 990,080 .18 990 ,080 .18 851 ,760 .07 CASTILLO LAMAN 851,760 .07 684 ,297 .50 292,225 .14 TAN PANTALEON & 350 ,000 .00 325 ,170.00 ! SAN JOSE- Law Firm 292 ,225 .14 Iii 6,639 ,753 .69 TENGSON CES 159,810 .00 Fl 1,464,854 .62 147,000 .00 1,022 ,000.00 ASSOCIATES PHILS , 110,000 .02 INC . - Specialty 11 ,551 .98 4,000,000 .00 Contractor liil14 ,914 ,437.81 7,457 ,218 .71 MAUNSELL Iii 7,457 ,219 .10 PHILIPPINES , INC. - Civil Structural Specialty Contractor ACCRA (Abel lo Concepcion Rega la & Cruz) Law Office ARANAS CONSUNJI BARLETA & CO. - Law Firm KDDI PHILIPPINES 684 ,297 .50 350 ,000 .00 CORP. - Maintenance 325 ,170.00 of Network ARANAS MENDIOLA & DE JESUS - Law Firm LEGAL INFORMATION NETWORK CORP. - Legal Information JOAQUIN CUNANAN & CO . - Accounting Firm CONTROL R IS K S 159,810 .00 (PHILIPPINES) INC . - 147,000 .00 110,000 .02 Security Risks WILFRIDO MONTES - Engineer MJ INTER NATIONAL CO ., LTD - Maintenance Infolog System PETTY CASH 11,551 .98 4,000,000 .00 NON -DEDUCTIBLE EXPENSES - No receipts TOTAL Iii 4,011 ,551.98 Iii 4,263 ,132.14 LESS-COST OF CONTRACTS (PROFESIONAL FEES) PROFESSIONAL & TEMPORARY STAFF COST-GENERAL 25 Exhibit "GG ". 1\ 901

DEC IS ION C.T.A. Case No. 770 1 From the foregoing , petitioner is of the position that the total professional fees and temporary staff cost of 12 7,457 ,219 .10 is derived by deducting the cost of contracts on professional fees from the total payment made for professional and temporary staff cost , which is 12 14,914,437 .81 . Said amount is composed of payments made to general professional partnerships , payments subjected to expanded withholding tax , and petty cash and non-deductible expenses not subjected to EWT, classified as follows : General Professional Partnership 12 6,639,753 .69 Payments subjected to EWT Payments not subjected to EWT 4,263 ,132.14 TOTAL 4 ,011 ,551 .98 li 14,914,437.81 Petitioner further claims that it paid a total amount of 12 6,639 ,753 .69 to the Accounting firm of Sycip , Gorres , Velayo & Co., the Law firm of Castillo , Laman , Tan , Pantaleon and San Jose, the Law firm of Angara , Abello , Concepcion , Regala and Cruz (ACCRA) , the Law firm of Aranas , Consunji , Barleta & Co ., and the Accounting firm of Joaquin , Cunanan & Co .; all of which are general professional partnerships as judicially admitted by the parties .26 We find the foregoing explanations of petitioner unmeritorious. Petitioner's claim that the amount of 12 7,457 ,2 19.10 representing Professional and Temporary Staff Cost under general and administrative expenses is arrived at by deducting the amount of 12 7,457 ,218 .71-representing the amount of "COST OF CONTRACTS (PROFESSIONAL FEES)"- from the total amount of 12 14,914,437 .81 deserves scant consideration . This is simply because assuming that the latter amount is precise and true , the said amount of 12 7,457 ,218 .71 is non-existent, since it was not reported as an item in the 26 Par. 20 , Facts Admitted , JSFI, Docket, p. 230 . ~ 90 2

DECISION C.T.A . Case No. 7701 breakdown of the Cost of Contract under Note 11 of petitioner's Audited Financial Statements for 200327 , which provided the "details" thereof, to wit: "Note 11 -Cost of contract The details of cost of contracts for the years ended December 31 foll ow: Subcontracted labor Notes 200 3 2002 Salaries and other employee benefits 2 p 162,319,976 p 1,701 ,263 ,050 Security guard cost 16 Communication , light and water 24 ,809 ,379 91,662 ,543 Rental of equipment used in construction 7 5,427 ,813 7,006 ,902 Cost of materials used in constru ction 2 3,950 ,515 Taxes and licenses 2,873,134 44 ,032 ,833 Transportation and travel 2,793,134 4,126,726 Depre c iation 2,225 ,058 Supplies 2 ,193 ,025 140,073 , 129 Reversal of losses on uncompleted 760 ,114 7, 480 ,517 contracts 276,431 4,252 ,391 Other contract costs 933 ,773 1,163 ,549 814, 142 p 208,792,938 (252 ,318,397) 586,109 p 1,749 ,913,718 In 2002, the Branch reversed the provision for losses on uncompleted con tracts of P252,318,397 in 2001 based on the Branch 's updated estimate of the cost of completion of the project as of December 31, 2002 ." In this connection , it must be remembered that Section 1 of Revenue Regulations No. 21-200228 requires the presentation of accounts in financial statements "in a very descriptive fashion ", to wit "SECTION 1. CON TE NTS AND FORMAT OF FINAN CIAL STATEMENTS TO BE ATTACHED TO THE ANN UAL INCOME TAX RETURN OR IN FORMATION RETURN.- The Financial Statements with accompanying Auditor's Certificate attached to the Annual Income Tax Return , or Annual Information Return for the Tax exempt persons , as the case may be, to be filed with the Bureau of Internal Revenue , thru its collection agents including Accredited Agent Banks, shall present/state the accounts therein in a very descriptive fashion such that the nature of the specific transactions entered in the accounts are known to the reader. The account titles to be used must be specific and not control accounts which must completely be enumerated in the financial statements and these accounts must conform to the rules and requirements of regulatory agencies that have supervision over them such as the Securities and 27 Exhib it "N", p. 15. 28 SUBJECT: Implementing the Provisions of Section 6(H) of the Tax Code of 1997, Authorizing the Comm issioner of Internal Revenue to Prescribe Additional Procedural and/or Documentary Requirements in Connection with the Preparation and Submi ss ion of Financi al Statements Accompanying th e Tax Returns. f' 903

DECI SION C .T.A . Case N o. 770 1 Page l l of l 8 Exchange Commission (SEC) , Bangko Sentral ng Pilipinas (BSP) , Insurance Commission (IC) , etc. XXX XXX xxx." (Underscoring supplied) And even granting for the sake of argument, that the said amount of~ 7,457 ,218 .71 existed , it is not a sound business practice not to disclose the same in the said Audited Financial Statements , at least in the Notes thereof, considering that it is a significant and relevant information .29 In fine , the non-existence of~ 7,457 ,218 .71 , or the failure to report it as a separate account, or to make a notation rega rding the same , in petitioner's Audited Financial Statements for 2003 , work to the detriment of petitioner's cause as it weakens its claims . Anent the argument of petitioner that respondent merely "picked-up" the amounts of professional fees included in petitioner's "Aiphalist of Payees Subject to Expanded Withholding Tax as of December 31 , 2003"30 and compared them to the "Professional and Temporary Staff Cost" reported in its Audited Financial Statements for taxable year 2003 3 1 We find the same untenable. , Noteworthy is the testimony of respondent's witness , Dominador A . Callangan , the Revenue Officer who conducted the examination of petitioner's 2003 internal revenue tax liabilities. On cross-examination , he testified , among other matters , as follows : "ATTY. FAUSTINO Mr. Witness , I will refer you to the last page of Exhibit '3' particularly the portion with the heading Expanded Withholding Tax. f 29 The o bj ective of fin a ncial state me nts is to provide info rmation a bout the fin ancia l pos ition , pe rforma nce and changes in fin anci a l position of an enterpr ise that is useful to a w ide range of users in makin g econo mic dec is io ns. Fin ancia l state ments shou ld be understandab le, re le vant, re li ab le and comparab le. (http://en. wikipedia. orgl wiki/ Financial_statement#cite_note-iasplus.com-/) 30 Ex hibit " S" and Ex hibit "5". 31 Ex hib it " N ". 904

DEC ISION C.T.A. Case No. 770 I Q Can you confirm , Mr. Witness , that your findings regarding the alleged discrepancy on Expanded Withholding Tax liability of petitioner were based only on your comparison of the figures appearing in the ITR and the alpha list? MR. CALLANGAN A I would like to put on record that the basis of my examination was the entries taken from the books of accounts particularly the ledger account and the audited financial statement as well as the annual income ... (Interrupted) ATTY. FAUSTINO Thank you , Mr. Witness . Q As a Revenue Officer, Mr. Witness, would you agree with me that your procedures as well as your findings has been in accordance with applicable revenue rules and regulations relevant to this case? MR. CALLANGAN A Yes, definitely. ATTY. FAUSTINO Q To your knowledge , Mr. Witness, what is the proper treatment of payments to general professional partnerships and those of Pag - ibig contribution , SSS and Philhealth , are these payments subject to withholding tax? MR. CALLANGAN A With respect to professional fees paid to GPPs or General Professional Partnerships, these are not taxable entities, so consequently they are exempt from professional fees. With respect to the salaries and SSS , Pag -ibig contributions , these are non-taxable compensation , not subject to withholding tax on compensation . XXX XXX XXX ATTY. FAUSTINO Q And in your examination , Mr. Witness , were you able to verify whether the discrepancy you 've found were due to payments that are not subject to EWT? MR. CALLANGAN A Well , I have the occasion to check the journal vouchers but then I failed to establish that these income payments were paid to GPPs or non-taxable compensation as paid to the employees . (' 90 5

D ECISION C.T.A. Case No. 770 I Page 13 of I8 XXX XXX XXX ATTY. FAUSTINO 0 So , Mr. Witness , the entire discrepancy was subjected automatically to the maximum tax rate without even verifying what type of transaction it is? MR. CALLANGAN A I've concluded that the nature of the income payment pertains to professional fees paid to professionals which are subject to professional withholding tax rates ."32 (Emphasis supplied) Additionally , We take note of the "Analysis of Expanded Withholding Taxes due"33 prepared by respondent , to wit: 32 Transcript of Stenographic Notes, hearing held on Jun e 24, 2009 . ~ 33 Exhibit "4", BIR Records, p. 523. 90 6

DEC IS ION C.T.A. Case No . 770 1 Evidently , the foregoing testimonial and documentary evidence negate petitioner's claim that respondent merely "picked -up" the amounts of professional fees included in petitioner's "Aiphalist of Payees Subject to Expanded Withholding Tax as of December 31 , 2003" and compared them to the "Professional and Temporary Staff Cost" reported in its Audited Financial Statements for taxable year 2003. Based on the unrefuted testimony of respondent's witness , Callangan was aware that general professional partnerships are not subject to income tax and consequently, to withholding tax. Thus, We cannot assume that when he arrived at the above-stated findings , he had in mind the assessment of deficiency expanded withholding tax on petitioner's income payments to general professional partnerships . This is bolstered by the fact that the Alphalist in question pertinently refers to "Payees Subject to Expanded Withholding Tax as of Dece~ber 31 , 2003 ". Definitely, income payments to general professional partnerships are not subject to expanded withholding tax.34 Thus , from respondent's perspective , the said Alphalist could not be a source of information relating to income payments made by petitioner to general professional partnerships , but to those income payments that are subject to expanded withholding tax. Consequently, there is no merit in petitioner's argument that the discrepancy between the amount of petitioner's payments for professional fees and temporary costs per financial statements vis-a-vis per Alphalist resulted from payments to general professional partnerships . 34 Section 2 .57 .5(8)(4), Revenue Regulations No . (RR) 2-98 , as amended by RR 14-2002. ~ 907

DECISION C.T.A. Case No . 7701 Moreover, based on the above Analysis , respondent was able to dichotomize the total amount of Fi? 6,556 ,534 .62 found in the petitioner's "Aiphalist of Payees Subject to Expanded Withholding Tax as of December 31, 2003"35 and its 2003 Annual Information Return of Creditable Income Taxes Withheld (Expanded)/lncome Payments Exempt from Withholding Tax (BIR Form No. 1604-E)36 , as to which amounts of expanded withholding tax refer to professional fees, rental and contractors , and their corresponding expanded withholding tax rates . Said information are consistent with petitioner's own evidence .37 Likewise , respondent was able to determine the direct costs and general & administrative expenses which are subject to expanded withholding tax, and the respective withholding tax rates applicable thereto , thereby determining any deficiency or overpayment concerning the same . Parenthetically, in the said Analysis , respondent supports Our finding that there is indeed no direct cost or cost of contracts relating to professional fees in the amount of Fi? 7,457 ,218 .71 . In the same Analysis, the computation of the amount of 12 2,741,769.90 stated in the subject assessment is not hard to discern . Said amount is arrived at by adding the total professional fees categorized under WI01 038 in the amount of Fi? 302 ,248 .80 and that which is categorized under WC01 039 in the amount of 12 2,439 ,521 .10. 35 Exhibi t "S" a nd Ex hibit "5". r 36 Ex hibit " R". 37 Exhi bits "T' to "EE". 38 " W[Q I0" is the Alphanume ri c Tax Code (ATC) fo r Income Pay men ts to Professio nals (lawye rs, CPAs, engin eers, etc) subj ect to Creditable Withh olding T axes, if the c urrent year 's gross inco me of th e profess ional concern ed is fl 720,000 and below, pursuant to Revenue Memorandum O rder No. 3-2004. 39 " WCO I0" is the Alphanu me ri c Tax Code (ATC) fo r In come Payments to Profess iona l ta lent fees paid to j urid ica l perso ns su bject to Creditab le Withho ld in g Taxes, if the c urrent year's gross income of such ju ri dica l person is fl 720,000 and be low, purs uant to Revenue Memorand um O rde r No . 3-2004. 908

DECISION C.T.A . Case No . 770 I In sum , petitioner failed to sufficiently show that the assessment in question is erroneous , and that the same was arrived at arbitrarily and capriciously . To reiterate , all presumptions are in favor of the correctness of tax assessments . The good faith of tax assessors and the validity of their actions are presumed . They will be presumed to have taken into consideration all the facts to which their attention was called . No presumption can be indulged that all of the public officials of the state in the various countries who have to do with the assessment of property for taxation will knowingly violate the duties imposed upon them by law.40 The judicial affirmance of the subject assessment is therefore in order. Consequently, in addition to the deficiency expanded withholding tax due , civil penalty and interest thereon should likewise be imposed on petitioner, in accordance with the following provisions of the NIRC of 1997, viz: "SEC . 247. General Provisions .- (a) The additions to the tax or deficiency tax prescribed in this Chapter shall apply to all taxes , fees and charges imposed in this Code . The amount so added to the tax shall be collected at the same time, in the same manner and as part of the tax ." "SEC . 248 . Civil Penalties.- (A) There shall be imposed , in addition to the tax required to be paid , a penalty equivalent to twenty-five percent (25%) of the amount due , in the following cases : XXX XXX XXX (3) Failure to pay the deficiency tax within the time prescribed for its payment in the notice of assessment;" "SEC 249. Interest.- �4 Co llector of Intern al Revenue vs. Bohol Land Transp ortatiOn Co., G .R. Nos. L- 13099 and L- 13462, April,., 1'- 'II 29, 1960 . 909

DEC I SION C.T.A. Case No. 770 I (A) In General. - There shall be assessed and collected on any unpaid amount of tax , interest at the rate of twenty percent (20%) per annum , or such higher rate as may be prescribed by rules and regulations , from the date prescribed for payment until the amount is fully paid . XXX XXX XXX (C) Delinquency Interest. -In case of failure to pay: XXX XXX XXX (3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of the Commissioner, there shall be assessed and collected on the unpaid amount, interest at the rate prescribed in Subsection (A) hereof until the amount is fully paid , which interest shall form part of the tax." WHEREFORE , in view of the foregoing considerations , the instant Petition for Review is hereby DENIED . Accordingly , the deficiency expanded withholding tax assessment issued by respondent against petitioner for taxable year 2003 is hereby UPHELD. Petitioner is hereby ORDERED TO PAY the amount of FIVE HUNDRED EIGHTY NINE THOUSAND FOUR HUNDRED THIRTY ONE PESOS AND FOURTEEN CENTAVOS {Iii 589,431.14) , computed as follows : Amount per General Ledger/FS/ITR ~ 7,457 ,219 .00 Less : Amount per Alphalist 2,741 ,769.90 Amount not subjected to EWT Multiply by 10% ~ 4,715,449 .10 Expanded Withholding Tax due 10% Penalty equivalent to 25% imposed under Section 248(A)(3) , NIRC of 1997 ~ 471 ,544 .91 Total 117 ,886 .23 ~ 589,431 .14 In addition to the foregoing amount, petitioner is hereby ORDERED TO PAY respondent the following : (a) interest at the rate of twenty percent (20%) per annum on the same amount, computed from January 16, 2004 until full payment thereof, pursuant to Section 249(A) of the NIRC of 1997; and 910 ~

DECISION C.T.A. Case No. 770 I (b) delinquency interest at the rate of twenty percent (20 %) per annum on the unpaid amount (i.e., 12 761 ,189.81)41 until full payment thereof, pursuant to Section 249(C)(3) of the NIRC of 1997. SO ORDERED. ER~Y Associate Justice WE CONCUR: fw.~z Associate Justice ~t;G . ~~~~ ql.JANITO C. CASTANEDA, J'R. Associate Justice ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division . ~~e::;:-- C . QY-~ Q I JUANITO C. CASTANEDA,"fR: Associate Justice Chairperson CERTIFICATION I hereby certify that the decision was reached after due consultation with the members of the division of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution . L~ . D~ ERNESTO D. ACOSTA Presiding Justice 41 Ex hibit "E". 911.