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

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SPECIAL FIRST DIVISION MERIDIEN BUSINESS CTA Case No. 9316 LEADER, INC., Petitioner, Members: -versus- DEL ROSARIO , PJ, Chairperson, CASTANEDA, JR.,1 and MANAHAN, JJ. COMMISSIONER OF Promulgated: INTERNAL REVENUE, OCT 0 7. 202f 2 1:32 - ...... Respondent. ){- - - - - - - - - - - - - - - - - - - - - - - - - - RESOLUTI MANAHAN, J. : This resolves the following motions: 1. Petitioner's Motion for Reconsideration [Re: Amended Decision dated 23 February 2021], filed on March 19, 2021, with respondent's Comment/ Opposition (Re: Petitioner's Motion for Reconsideration) filed on June 11, 2021; and, 2. Respondent's Motion for Partial Reconsideration (Re: Amended Decision dated 23 February 21) posted on March 19, 202 1, and received by the Court on May 19, 2021, with petitioner's Comment [Re: Partial Motion for Reconsideration dated 19 March 2021] posted on April 5, 2021 and received by the Court on May 21, 2021. Both parties assail this Court's Amended Decision in the above captioned case promulgated on February 23, 2021. The dispositive portion of which reads as follows: 1 Assigned as special member. ~

RESOLUTION CTA Case No. 9316 "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, is 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 for TY 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 (Pl73,888,746.30), 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: XXX In addition, petitioner should be ORDERED TO PAY respondent delinquency interest at the rate of twelve percent (12%) computed from January 1, 2018 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 E"J'anded Withholding Tax 1 989,798.56 Value Added Tax Withholding Tax on Compensation 73,970,555.48 Fringe Benefit Tax 10,997,137.97 SO ORDERED." 1,359,501.12 The Court will now discuss the parties' respective motions. Petitioner's Motion for Reconsideration Petitioner argues that the assessments are void for failing to state a ftxed and deftnite tax liability. Petitioner argues that that Formal Assessment Notice (FAN) and Formal Letter of Demand (FLD) employed language which is identical to that ~

RESOLUTION CfA Case No. 9316 used in Commissioner ofInternal Revenue v. Fitness By Design, Inc. 2 (Fitness By Design case), thus, like in the said case, the tax liability remained indefinite and still subject to modification, and therefore void. Petitioner also argues that the Final Decision deprived it of its right to due process when it failed to state the law and the facts on which the Final Decision was based. Assuming that the FLD /Final Decision are valid, petitioner manifests that it made payments for the following basic taxes and interests: Tax Basic Tax Interest Total Pay_ment EWT p 938,727.00 P 1,909,860.00 I VAT 7,146,940.00 p 971' 132.00 7,146,940.00 WTC 674,437.00 888,768.00 -- 214,331.00 Petitioner argues that the Court erred in upholding various items of assessment, i.e. unrecorded sales from prepaid cards, reimbursable charges, discrepancy on income subject to value- added tax (VAT) per ITR versus per VAT return, and deficiency WTC, pointing to the testimonies of its witnesses to bolster its arguments. Furthermore, petitioner argues that with the payment of its deficiency expanded withholding tax (EWT), inclusive of interest, the related disallowed expense should be allowed to be claimed for the purpose of computing its income tax. The motion has partial merit. The FLD/FDDA contained a definite due date. It is reiterated that the 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. This is unlike the factual circumstances of Commissioner of Internal Revenue v. 'G.R. No. 215957, November 9, 2016. a.-

RESOLUTION CfA Case No. 9316 Fitness by Design, Inc.,3 where the assessments did not contain a specific due date, thereby negating the demand for payment. 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. The sustained assessment items already considered the testimonies of petitioner's witnesses As to the specific items of assessment, the assailed Amended Decision has already considered the testimonies pointed out by petitioner and extensively discussed the reasoning for sustaining the assessments. While the said testimonies may have been uncontroverted, the Court made findings based on the testimonies and on available evidence and found that the assessments should be sustained. The Court is not inclined to repeat the same discussions in this resolution. Petitioner's payment of deficiency taxes shall be considered in computing its remaining liability Petitioner manifested that it made the following payments: Amount Reference documents attached to Pet's MR 3 G.R. No. 215957, November9, 2016. ~

RESOLUTION CTA Case No. 9316 Basic ?938,727.10 EWT March 16, 2016 Interest 971,132.48 Total Pl,909,859.58 Annexes A-2 to A-4 I VAT December 29, 2016 Basic ?7,146,940.44 Annexes B-2 to B-4 we March 16, 2016 Basic ?207' 178.66 I 214,330.57 December 29, 2016 Interest P421,509.23 I ?467,258.39 Total Annexes C-1 to C-3 Annexes B-6, B-8, B-10 Basic Based on the records, the documents showing these payments were not formally offered and admitted, but were merely attached to petitioner's Motion. In BPI-Family Savings Bank, Inc. v. Court ofAppeals, et al.,4 the Supreme Court considered the returns attached to a motion for reconsideration in deciding a claim for refund, reasoning that: True, strict procedural rules generally frown upon the submission of the Return after the trial. The law creating the Court of Tax Appeals, however, specifically provides that proceedings before it "shall not be governed strictly by the technical rules of evidence." The paramount consideration remains the ascertainment of truth. xxx In the present case, the Return attached to the Motion for Reconsideration clearly showed that petitioner suffered a net loss in 1990. Contrary to the holding of the CA and the CTA, petitioner could not have applied the amount as a tax credit. In failing to consider the said Return, as well as the other documentary evidence presented during the trial, the appellate court committed a reversible error. It should be stressed that the rationale of the rules of procedure is to secure a just determination of every action. They are tools designed to facilitate the attainment of justice. But there can be no just determination of the present action if we ignore, on ground of strict technicality, the Return submitted before the CTA and even before this Court. (underscoring supplied) Similar to the aforequoted case, petitioner herein submitted proof of its payments of deficiency taxes with its Motion for Reconsideration. It would be unjust not to consider 4 G.R. No. 122480, April12, 2000. an-

RESOLUTION CTA case No. 9316 the said payments in the computation of petitioner's remaining deficiency liability. However, the Court does not agree with petitioner's averment that the disallowed expense originally amounting to Php46,428,677.25 and reduced to Php44,991,463.91 in the assailed Amended Decision be allowed for computing its deficiency tax, in view of the payment of the related deficiency EWT, inclusive of interest, in the total amount of Php1,909,859.88. Section 2.58.5 of Revenue Regulations (RR) No. 2-98, as amended by RR No. 14-2002, reads: Sec. 2.58.5. Requirements for Deductibility - Any income payment which is otherwise deductible under the Code shall be allowed as a deduction from the payor's gross income only if it is shown that the income tax required to be withheld has been paid to the Bureau in accordance with Sees. 57 and 58 of the Code. A deduction will also be allowed in the following cases where no withholding of tax was made: XXX XXX XXX (C) The withholding agent erroneously underwithheld the tax but pays the difference between the correct amount and the amount of tax withheld, including the interest, incident to such error, and surcharges, if applicable, at the time of the audit/investigation or reinvestigation/reconsideration. (Emphasis supplied) It should be noted that the partial payment of the EWT was made only on March 16, 2016- long after the issuance of the FLD dated May 19, 2014, received by petitioner on May 21, 2014,5 and the FDDA dated September 18, 2015, received by petitioner on September 23, 2015.6 Evidently, the payment was beyond "the time of the audit/investigation or reinvestigation/reconsideration". Thus, the related expenses shall still be disallowed for income tax purposes. 5 Exhibits "P-2" and "R-11". 6 Exhibit "R-14". ~

RESOLUTION CfA Case No. 9316 Consequently, the findings on the deficiency income tax shall not be disturbed. Thus, petitioner's deficiency liability shall be recomputed incorporating petitioner's various payments. Respondent's Motion for Partial Reconsideration Respondent argues that the Court erred in ruling on matters that were never substantiated in the administrative level, stating that several items of assessments were reiterated from the Preliminary Assessment Notice (PAN) to the FLD /FDDA for failure of petitioner to substantiate its arguments. Based on this, respondent argues that the Court should confine itself to the issues and documents raised in petitioner's protests to respondent's assessment. On the items of assessments, respondent reiterates that that the assessments are correct based on the findings after audit of petitioner's undeclared sales, undeclared purchases, and undeclared other operating income. Respondent likewise asserts that petitioner is also liable for deficiency VAT on the foregoing findings of undeclared items. Respondent also reiterates that verification of petitioner's Summary List of Purchases (SLP) versus petitioner's income payments per Summary List of Sales (SLS) showed a discrepancy, which petitioner failed to refute; that petitioner did not subject to withholding tax some of its expenses; and, that the disallowance of such expenses should be upheld. Finally, respondent reiterates that petitioner violated some of the invoicing requirements and that petitioner is liable for compromise penalty and the 50% surcharge. The Motion is without merit. Respondent's arguments are mere rehash of the grounds for the assessments, which have been considered and discussed in the assailed Amended Decision. There is no compelling reason nor substantive argument that would merit a modification or reversal of the Amended Decision in favor of respondent. ~

RESOLUTION CTA case No. 9316 WHEREFORE, petitioner's Motion for Reconsideration (Re: Amended Decision dated 23 February 2021) is PARTIALLY GRANTED as to the recognition of its payments made. On the other hand, respondent's Motion for Partial Reconsideration (Re: Amended Decision dated 23 February 2021) is DENIED for lack of merit. Petitioner's deficiency tax liability is recomputed to take into consideration the payments it manifested in its Motion for Reconsideration. Accordingly, petitioner is ORDERED TO PAY respondent the aggregate amount of ONE HUNDRED FIFTY-NINE MILLION SIX HUNDRED FORTY-SIX THOUSAND FIVE HUNDRED SEVENTY-TWO PESOS (P159,646,572.00), 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: Basic Deficiencv EWT Deflclencv EWT Less: Payment on Remaining p 900,361.34 March 16 2016 Balance Surchar~e 125%1 225,090.34 p 938,727.10 fP 38,365.761 Deficiency Interest (20%) from Jan. 14, 2011 to oct. 31, 201~r9oo,361.34 x 20%x 225,090.34 1, 752/365 daus Total Amount Due October 31, 2015 864,346.89 971,132.48 (106,785.591 p 1 989 798.57 Deficiency Interest (20%) from November 1, P1,909 859.58 67,588.77 2015 until payment on March 16, 2016 67,588.77 fP900,361.34 x 20%x 137 daus/365 dausl 149,371.18 Delinquency Interest (20%) from November 1, 149 371.18 P296,898.94 2015 until payment on March 16, 2016 P2,206, 758.52 fP1,989, 798.57 x 20%x 137 daus/365 dausl Total Amount Due, March 16, 2016 ---- -- 28 690.43 Delinquency Interest (20%) from March 17, 2016 until December 31,2017 P325,~89.37 {(P1,989, 798.57�P1,909,859.58) X 20% x 655 daus/365 dausll Total Deficiency EWT Due as of December 31,2017 Basic Deficiency VAT Deficiency VAT Less: Payment Remaininll Balance Surcharge {25%) p 33,570,721.48 on December 29, p 26,423,781.04 Deficiency Interest (20%) from Jan. 26, 8,392,680.37 2016 8 392,680.37 2011 to Oct. 31, 2015 {P33,570, 721.48 x p 7,146,940.44 20%x 1,740/365 dausi Total Amount Due, October 31, 2015 32 007,153.63 32 007 153.63 Deficiency Interest (20%) from November P73 970 555.48 1, 2015 until payment on December 29, 2016 {P33,570, 721.48 X 20% X 425 7,817,839.25 7,817,839.25 days/ 365 days] 17,226,019.77 17,226 019.77 Delinquency Interest (20%) from November 1, 2015 until payment on a:a.---

RESOLUTION CTA case No. 9316 December 29, 2016 [?73,970,555.48 x P99,014,414.50 P7,146,940.44 p 91,867,474.06 20% x 425 daus/ 365 dausl 5,313,713.78 Total Amount Due, December 29, 2016 13 437 954.37 PllO 619 142.21 Deficiency Interest (20%) from December 30,2016 until December 31,2017 [?26~:23, 781.04 x 20% x 367 days/365 daus Delinquency Interest (20%) from December 30, 2016 until December 31, 2017 [(P73,970,555.48-P7~i46,940.44) X 20% x 367 dausj365 daus Total Deficiency VAT Due as of December 31, 2017 Basic Deficiencv WC Deficiency WC Less: Amount Due, Less: Remaining p 4,976,080.53 Payment on March 17 2016 Payment on Balance Surchar~e 125%\ March 16, p 4,768,901.87 December 29, 1,244,020.13 p 4,301,643.48 Deficiency Interest (20%) 2016 I ,244,020.13 2016 I ,244,020.13 from Jan. 14,2011 to Oct. 4,777,037.31 p 207,178.66 p 467,258.39 4,562,706.74 31,2015 {?4,976,080.53 x Pl0,997,137.97 4,562,706.74 20%x 1, 752/365 dausl 214,330.57 P467 258.39 373,546.87 Total Amount Due, 373,546.87 373,546.87 October 31, 2015 P421,509.23 825,538.58 Deficiency Interest (20%) 825,538.58 825,538.58 from November 1, 2015 P12 196 223.42 Pll 774 714.19 752,571.91 until payment on March 16, 2016 {?4,976,080.53 ~I 752,571.91 1,668,921.14 20% x 137 dausj 365 da�-s P13,728,948.85 1668921.14 Delinquency Interest (20%) P14 196 207.24 865,042.83 from November 1, 2015 until payment on March ! 16,2016 {P10,997,137.97 x 2~s7 x 137 days/365 2,032,751. 74 daus P16 626,743.42 Total Amount Due, March 16 2016 Deficiency Interest (20%) from March 17,2016 until payment on December 29, 2016 {P4, 768,901.87 x 20% x 288 dausj365 dausl Delinquency Interest (20%) from March 17, 20 16 until payment on December 29, 2016 /(P10,997,137.97- P421,509.23) :?0% x 288 daus/365 daus Total Amount Due, December 29 2016 Deficiency Interest (20%) from December 30, 2016 until December 31, 2017 {P4,301,643.48 X 2~~ X 367 dausj365 daus Delinquency Interest (20%) from December 30, 2016 until December 31, 2017 {(P10,997,137.97- P421,509.23-P467,258.39) x 20;:: x 367 days/ 365 daus Total Deficiency WC Due as of December 31, 2017 Income Tax FBT Total p 8,456,672.29 Basic Tax p 615,464.07 p 9,072,136.36 Add: 25% Surcharge 2,114 168.07 153,866.02 2 268 034.09 20% Deficiency Interest up to Oct. 31 2015 IT: From Apr. 16, 2011 to Oct. 31, 2015 7,692,096.44 7,692,096.44 {P8,456,672.29 X 20%X 1660!365 days} ~

RESOLUTION CTA Case No. 9316 FBT: From Jan. 16,2011 to Oct. 31,2015 590,171.03 590,171.03 [P615,464.07 x 20%x 1750/365 daus/ P18 262 936.80 P1 359 501.12 P19 622 437.92 ToW Amount Due Oct. 31 2015 3,669 964.08 Add: 20% Deficiency Interest from Nov. 1, 2015 to 267,094.54 3 669 964.08 Dec. 31,2017 7,925,614.22 267,094.54 P29,858,515.10 IT: /P8,456,672.29 x 20% x 792/365 daus 589,986.24 7,925,614.22 FBT: P615 464.07 x 20%x 792/365 daus/ P2,216,581.90 589,986.24 20% Delinquency Interest from Nov. 1, 2015 P32,075,097.00 to Dec. 31,2017 IT: /P18 262,936.80 x 20%x 792!365 dausl FBT: P1, 359,501.12 x 20% x 792/365 dausl Total Amount Still Due as of Dec. 31, 2017 In addition, petitioner is ORDERED TO PAY respondent delinquency interest at the rate of twelve percent (12%) computed from January 1, 2018 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 !>18,262,936.80 Expanded Withholding Tax (!' 1, 989,798.57 79,938.99 -!'1,909,859.58) Value Added Tax (!'73,970,555.48- 66,823,615.04 !'7, 146,940. 44) Withholding Tax on Compensation 10,108,370.35 (!' 10,997,137.97- !'421,509.23 less 1,359,501.12 !'467,258.39) Fringe Benefit Tax SO ORDERED. /}~�;;:~ c)lTHERINE T. MANAHAN Associate Justice WE CONCUR: (I reiterate my Dissenting Opinion) ROMAN G. DEL ROSARIO Presiding Justice .-J:. >l...........et:- c . a:;ta.:;:?l, JUANITO C. CASTANED , JR. Associate Justice