QCD VENTURES, INC. v. COMMISSIONER OF INTERNAL REVENUE

� ,� REPUBLIC OF THE PHHJPPINES COURT OF TAX APPEALS QUEZON CITY FIRST DIVISION *********** QCD VENTURES, INC., C.T.A. Case No. 7741 Petitioner, -versus- Mentbers: ACOSTA, P.j. UY, and FABON-VICOIUNO,.JL.,_ COMMISSIONER OF INTERNAL REVENUE, represented herein by Pron1ulgated: Hon. Lilia Hefti, I . c Respondent. X --------------------------------------D--E--C-I-S--IO--N-------0---T---0--8--2--0~1~0-~ -i--I-:�3-1-/ -\-""------X Acosfa, J!l: This Petition for Review, analogous to a petition under Rule 42 of the 1997 Rules of Civil Procedure, seeks to appeal the letter of Revenue District Officer (ROO) Nelson R. Traje dated 17 Janu ary 2007 (sic) which was received by petitioner on 08 February 2008. Said letter denied petitioner's request for a reinvestigation of a deficiency assessment of its 2002 income tax, expanded withholding tax, as well as a compromise assessment in the amount of PhP343,619.13. lw-

Decision QCD Ventures, Inc. vs, Commissioner of Internal Re venue CTA Case No. 774 1 Below are the facts as culled from the records of the case: Petitioner is a domestic corporation duly organized and existing under Philippine laws with principal office address at Block 10, Lot 19, 21, 23 Bankers Village II, Quirino Highway, Caloocan City. Respondent Commissioner of Internal Revenue, on the other hand, is a public officer with principal address at the Bureau of Internal Revenu e (BIR) Building, Diliman, Quezon City where he may be served with summons and other legal processes.I In 2003, respondent investigated the books of accounts of the petitioner for the taxable year 2002. On 30 November 2005, the Regional Director Rene Q. Aguas came out with a Preliminary Assessment Notice (PAN) assessing the petitioner for deficiency taxes as of 30 November 2005 in the amount of PhPl, 728,349.942 , computed as follows: Taxable In co m e pe r Re turn p Add: Disc repan cies/Adjustments 813,237.67 2,812,065.79 Income pay ments no t s ubj ected to EWT 176,000.00 2.81 2,065.79 Dona tions & Contributions 535,563.60 Unsupported Expenses 380,595. 14 899,861.06 Materials 906,669.38 220,106 .00 Accrued Expenses 1,1 1 9 , 9 6 7 .0 6 Taxa ble Income per Audit p In co m e Tax Due p Add: Tax credits- uns upported Deficien cy In co m e Tax p 1 Paragraphs 1. 1 and 1.2, Petitioner 's Petition fo r Revie 1v, as admitted by Respondent in his Answer 2 Paragraph 3, Joint Stipulation ofFacts; Exhibit "88 " z~

'. Decision QCD Ventures, Inc. vs, Commissioner of internal Revenue CTA Case No. 7741 . Page 3 of II Interest 582,382.88 Compromise Penalty 25,000.00 608.382 .88 Late payment 1,000.00 _l.l21L.J__1_2M Non-filing of Schedule of Taxes & Licenses p TOTAL AMOUNT DUE On 14 December 2005, petitioner sent to the Regional Director a letter elated 13 December 2005 disputing each item of the PAN3. On 20 December 2005, Regional Director Aguas issued an unnumbered formal notice of assessment for the taxable year 2002 with attached demand letters assessing petitioner of deficiency taxes in the same amount as found in the PAN1. Thereafter, petitioner received a letter from the BIR elated 12 January 2006, signed by the OIC-Assistant Regional Director, Atty. Eduardo T. Bajaclor, informing petitioner to submit a formal request for reinvestigation of the assessment, with the facts, laws, rules and regulations and jurisprudence upon which the requ es t/protest is based cited therein, within fifteen (15) clays from receipt of said letters. Pursuant to the same, petitioner submitted a letter dated 02 February 2006 to the BJR requesting for reinvestigation of the assessment for taxable year 20026. Days after or on 08 February 2006, the BIR through Regional Director Anselmo G. Adriano informed the petitioner that its request for reinvestigation is granted and that the case will be forwarded to Revenue District Office No. 27, Caloocan City for appropriate action7. On 18 April 2006, ROO Nelson R. Traje of Revenue District No. 27, through a letter signed by Mr. Tomas S. Clemente, requested petitioner to submit the required documents 3 Paragraph 4, Joint Stipulation of Facts, Docket, p. 63 ; Exhibit "Z", �f W\ 4 Paragraph 5, /d.; Exhibits "X" and "Y " to " Y-3 �� 5 Paragraph 6, /d. ,� Exhibit "AA" 6 Paragraph 7, !d.,� Exhibit "W" 7 Paragraph 8, !d.,� Exhibit "V"

Decision QCD Ventures, Inc. vs, Commissioner of Internal Re venue C TA Case No. 7741 necessary for the reinvestigation, to wh ich petitioner responded via a letter, attention to Revenue Officer Michelle R. Delos Santos, dated 19 May 20068. On 09 Jun e 2006, RDO Traje issued another post reporting notice informing the petitioner that, per audit report of Ms. Delos Santos, the recommended deficiency taxes have gone down to PhP300,822.419. On 04 July 2006, petitioner sent a letter to Anita G. Torres, Chief of the Assessment Division, challenging the findings of the BIR in the Post Reporting Notice of 09 June 2006, specifically the propriety of adding back NOLCO as it was never claimed in the first placelo. In connection with this latest protest RDO Traje, through a letter dated 14 August 2006, advised petitioner to submit the necessary documents in order for the BIR to ascertain the correct internal revenue tax liabilities that may still be due for the period under reinvestigationll. Sans any reply from petitioner, respondent reiterated its request for documents and for petitioner to present its side in its letter dated 29 August 2006 12. The petitioner thereafter responded to the BIR letters through a letter dated and received on 15 September 2006, informing Revenue Officer Allan Marasigan that petitioner has already responded to the issues raised in the BIR letters, copying the BIR of its previously submitted letter dated 04 July 2006 13. On 15 September 2006, a post reporting notice was issued, which, in effect denied petitioner's protest and reiterated the BIR's earlier findings. An Amended 8 Paragraphs 9 and I 0, J oint Stipulation of Facts, Docket, p. 263; tv-- 9 Paragraph 1 ! , !d. , Docket, p. 264; Exhibit "S " 10 Paragraph 12, !d. 11 Paragraph /3 , /d. 12 Paragraph 14, /d. 13 Parag raph 15, /d.

. Decision QCD Ventures, Inc. vs, Commissioner of Internal Revenue CTA Case No. 774 1 Page 5 of I I Reporting Notice with a minor correction in the computation was also sent by BlR on 21 September 2006.14 On 13 March 2007, petitioner received new assessment notices and formal letters of demand, all dated 26 February 2007, demanding payment of deficiency income and expanded withholding taxes in the amounts of PhP326,848.3515 and PhP37 0.78 16, respectively computed as follows: I. Deficiency Income Tax p 2,812,065.79 Taxa ble Income per Original Investigati on Less: Allow ed Expenses per Inves tiga ti on 813,237.67 Income payments subjected to EWT 535,563.60 Uns upported Expenses Accrued Expenses 9 0 6 , 6 6 9 .3 8 Add: Excess Donation and Contribution Taxa ble Incom e per Inves tigation 14.786.11 2.240.684.54 In co me Tax clue Less : Tax paid p 571.381.25 Deficiency Income Tax Interes t p 182,842.00 Total Amount Due O.OQ II. Expanded Withholding Tax 182,842.00 Taxa ble Income per Original In vestiga tion Less: Repairs & Maintenance 144.006.3 5 Freight Documentation p 326.848.35 Supplies & Photocopying Advertising & Promotion p 813 ,237 .67 Taxable Income per Investigation 813.237.67 138,971.90 533,389.77 128,115.00 12,761.00 p 14 Paragraphs 16 and 17, Joint Stipulation of Facts, Docket, p. 264; Exhibits "M"and "N" �l 15 Paragraph 18, /d. , p. 265; Exhibit "CC- I " 16 Paragraph 18, !d. ; Exhibit "CC-2" t~

Decisiou 210.78 370.78 QCD Ventures, Inc. vs, Commissioner of Internal Revenue 370.78 CTA Case No. 774 1 160.00 Page 6 of11 p Add: Increments for late filing/remittan ce for the month of Nove mber Surcharge Interest Total Amount Due From receipt of the said formal letters of demand, petitioner failed to protest the same within thirty (30) days. Thus, a collection letter dated 19 July 2007, was issued by the BIR17 which was received by petitioner sometime July 200718. In a letter dated 10 August 2007, in reply to the 19 July 2007 collection letter, petitioner advised BIR of the pending request for reinvestigation of the assessment. The BIR then, through ROO Traj e, responded in a letter dated 31 August 2007, advising petitioner to submit documents that may support its claim that net operating loss for the year 2002 was not carried over for the years 2003-2005. The BIR letter mentioned the Annual Income Tax Returns for the years 2003-2005 and the audited financial returns for the said y ears as the documents to be submitted by petitioner. On 19 September 2007, petitioner sent to ROO Traje the requested d o c u m e n t s 1 9. On 07 February 2008, petitioner received a letter, erroneously dated 17 January 2007, which should have been 17 January 2008 per Joint Stipulation of Fact of the partieszo, from ROO Traje formally denying petitioner's request for reinvestigation. The letter further states that the assessment has already become 17 Paragraph 19, Joint Stipulation of Facts, Docket, p. 265 f~t-v 18 Paragraph 26, Affidavit of Mr. Eduardo De Guzman, Docket, p. 425 19 Paragraphs 20,2 1 and 22, Joint Stipulation ofFacts, Docket, p. 265 20 Paragraph 23, !d.

Decision QCD Ventures, inc. vs, Commissioner of internal Revenue CTA Case No. 7741 Page 7 of II final and executory for failure on the part of petitioner to file a protest for reinvestigation within thirty (30) days from the receipt ofthe final assessment. Petitioner on 10 March 2008 fil ed the Petition for Review with this Court, challenging the propriety of the assessment made by the BIR. On 16 May 2008, respondent fil ed an Answer raising the following Special and Affirmative Defenses: "13. Th e tax Assessment Notice a nd Formal Lette r of Demand No. 29647 both iss ued on February 2007, which were received by petitioner on March 13, 2007 should be appea led a nd not the letter of ROO Nelson R. Traje dated january 17, 2007 (2008); 14. The iss ues a nd arguments raised in Title VI and VII are not relevant in the insta nt petition for th e reason th at correction in the computation of defi cie ncy taxes attached to the Post Re porting Notice dated june 9, 2006 have (sic) already been made resulting to th e cancellation of Assessment Notice and Form al Letter of Demand No. 28853, both dated December 20, 2005, and iss uance of new Assessment Notice and Formal Letter of Demand, both dated February 26, 2007." The iss ues to be resolved, based on the parties' submitted Pre-trial briefs are: 1. Is the BIR correct in adding NOLCO for the taxable year 2002 although it was not claimed at all by petitioner as a deductible item against gross income? 2. Is the tax credit du e to overpayment of petitioner for the taxable year 2001 sufficient to cover any legitimate assessment of the BIR for the year 2002? �V7

Decision QCD Ventures, Inc. vs, Commissioner of'!ntemal Re venue CTA Case No. 7741 Page 8 of I I 3. Is the petitioner correct in appealing the letter of ROO Traje dated 17 january 2007 (2008) instead of the tax assessment notices and formal letters of demand, all issued on 26 February 2007 and received by petitioner on 13 March 2007? 4. Was there compliance under Section 228 of the Tax Code that the taxpayer shall be informed of the law and the facts on which the assessments were made? 5. Is the petitioner liable to pay the deficiency income, expanded withholding and compromise taxes for the year 2002 in the aggregate amount of P343,619.13? On 10 August 2010, the case was submitted for decision, taking into consideration the Memorandum for the Respondent filed on 29 July 2010, sans petitioner's Memorandum. The petition has no merit. Petitioner should have protested the assessment notices and demand letters dated 26 February 2007 by filing a request for reconsideration or reinvestigation within thirty (30) days from the receipt of the same on 13 March 2007, and thereafter, within sixty (60) days from filing of said protest, all relevant supporting documents, when necessary, should have been submitted; having failed to do so, the assessments have become final. This is pursuant to Section 228 of the National Internal Revenue Code (NIRC), which in part states- gv-..

'. Decision QC D Ventures, Inc. vs, Commissioner of Internal Revenue CTA Case No. 774 1 CHAPTER III - PROTESTING AN ASSESSMENT, REFUND, ETC. SEC. 22 8. Protes ting of Assessme nt. - Wh en the Comm iss ione r or hi s duly auth orized re prese ntati ve fin ds th a t p rope r taxes s houl d be assessed, he s hall firs t notify the taxpayer of his find ings : XX X The taxpaye rs s ha ll be in fo rmed in writing of th e law and the facts on w hi ch the assessmen t is mad e; otherwise, the assess me nt sh all be void. Withi n a peri od to be prescribed by impleme nting r ul es and regul ations, the taxpaye r s hall be r equi re d to res pond to sa id notice. If th e taxpaye r fail s to res pond, th e Co mmiss ioner or his duly a utho rized rep rese nta ti ve sh all iss ue an assess me nt bas ed on his fin dings. Such a ssessment IUC!Y- IJe protes ted administratively by fjling a r e uuesJ; for r econsidera tion or r einvestigation within thirty_(30) days from r eceipt of the a ssessme nt in s uch form and ma nn e r a s ma,~ pres cribed IJy implementing rules and reg_ulations. Wi thin s ixty (60) days from fili ng of the protes t, all releva nt s upportin g d oc um en ts s ha ll h ave been subm itted; otherwise, the assessme nt shall beco m e fina I. XXX The assess ment requi red by law to be duly protes ted refers to the respond en t's formal letters of demand and assess ment notices, which w ere all received by petiti oner on 13 March 200 7 but we re left unchallenged until the filin g of this petition. By not obse rving the pro per administrative pro cedu re of protesting an assess ment, petitioner, unfortunately, los t its right t o contes t the subject assess ments as these have already become fin al and hence can no longer be qu estioned via a Petition for Review under Se ction 2, Rul e 3 of t he 2005 Revised Rul es of this Court. [ltl0

.. .. Decision QCD Ventures, Inc. vs, Commissioner ofInternal Revenue CTA Case No. 7741 Page 10 of II Needless to state, petitioner's protest of 04 July 2006, sent to Chief Torres of the Assessment Division, is not the administrative protest covered by the provision of the NIRC as it refers to the BIR Post Reporting Notice of 09 June 2006 and not to the issued formal letters of demand and assessment notices all dated 26 February 2007. Also, an examination of the letters between the petitioner and respondent would show that it was this 04 July 2006 protest which was denied by ROO Traje's letter dated 17 January 2007 (2008). As such, this Court agrees with respondent that the letter of ROO Traje, received by petitioner on 07 February 2008, is not the denial of the prote st of an assessment contemplated under the NIRC . Given the lapse of the period within which to protest the subject assessments administratively without any protest being duly filed, petitioner's Petition for Review has no leg to stand on and should therefore be dismissed. All the other iss ues in the instant case need not be passed upon as the same are rendered moot given the fact that the assessment has already attained finality. WHEREFORE, the Petition for Rev iew is hereby DENIED for lack of merit. Accordingly, the assessments issued by respondent against petitioner on 26 February 2007 for deficiency income and expanded withholding taxes for taxable year 2002 are hereby UPHELD in view of their finality. Petitioner is hereby ORDERED to PAY the amounts of PhP326,848.35 and PhP370.78. ~~

�� 4� Decision QCD Ventures, Inc. vs, Commissioner of Internal Revenue CTA Case No. 774 1 Page II of 11 In addition, petitioner is ORDERED to PAY 20% delinquency interest per annum on its deficiency income tax from 26 March 200721 until full payment thereof, pursuant to Section 249(C)(3) of the National Internal Revenue Code. SO ORDERED. ~W., \J~ ERNESTO D. ACOSTA Presiding Justice WE CONCUR: ER~Y Associate Justice CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was ass igned to the opinion writer of the Court's Division. Lu.. ~ ERNESTO D. ACOSTA Presiding Ju stice 21 Exhibit 6, Docket, p. 472