GREEN VALLEY MARKETING CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY EN BANC GREEN VALLEY CTA EB No. 1801 MARKETING Petitioner, (CTA Case No. 8988) CORPORATION, -versus - COMMISSIONER OF INTERNAL REVENUE, Respondent. x------------------------- -- x COMMISSIONER OF CTA EB No. 1808 INTERNAL REVENUE, (CTA Case No. 8988) Petitioner, Present: DEL RO~SARIO I f!L_ CASTANEDA, JR., UY, FA80N-VI CTO RI N0 I - versus - MINDARO-GRULLA, RINGPIS-LIBAN, MANAHAN, BACORRO-VILLENA, and MODESTO-SAN PEDRO, JJ. GREEN VALLEY MARKETING Promulgated: CORPORATION, OCT 1Lt 2019 Respondent. X- - - - - - - - - - - - - - - - - - - - - - - - -~ - - - - - - - - X CQJ ;5{ 'CJ~c -...._'

DECISION CTA EB Nos. 1801 & 1808 DECISION Fabon-Victorino, J.: Before the Court are the two (2) Petitions for Review separately filed by Green Valley Marketing Corporation 1 (Corporation) and the Commissioner of Internal Revenue 2 (CIR) on March 23, 2018 and March 26, 2018, respectively, assailing the Decision 3 dated November 3, 2017 as well as the Resolution4 dated February 15, 2018 both rendered by the Court in Division. The assailed Decision and Resolution cancelled the CIR's assessment for deficiency value-added tax (VAT), miscellaneous tax and compromise penalties but partially upheld the assessment for deficiency income tax (IT) and expanded withholding tax (EWT) against the Corporation in the amount of P36,986,780.57. The following facts as established during trial of the case remained unchallenged. The Corporation is a domestic corporation registered with the Bureau of Internal Revenue (BIR) with Certificate of Registration No. 8RC0000020168. The CIR is the head of the BIR and holds office at the Bureau of Internal Revenue (BIR), National Office Building, Agham Road, Diliman, Quezon City. On September 23, 2011, the Corporation received a Letter of Authority No. LOA-116-2011-00000109 signed by BIR OIC-Assistant Commissioner (OIC-ACIR) Alfredo V. Misajon authorizing the examination/audit of the Corporation's books of accounts and other accounting records for all internal revenue taxes for the year 2010. More than a year thereafter, or sometime in f"larch 2013, the Corporation received a Letter Notification dated Rollo (CTA EB No. 1801), pp. 5-17. 2 Rollo (CTA EB No. 1808), pp. 7-23. 3 Rollo (CTA EB No. 1801), pp. 19-72. 4 Ibid. at pp. 74-90.

DECISION CTA EB Nos. 1801 & 1808 March 5, 2013 about the re-assignment of its tax investigation/audit pursuant to MOA No. LOA-116-2.013- 0433 dated February 25, 2013. On May 6, 2013, the Corporation received the First Notice for Presentation of Books of Accounts and Other Relevant Records. A Second Notice for the same purpose followed which the Corporation received on June 17, 2013. On June 21, 2013, the Corporation executed a Waiver of the Defense of Prescription under the Statute of Limitations of the National Internal Revenue Code (NIRC), as amended, extending the period to assess until December 31, 2013, which OIC-ACIR for the Large Taxpayers Service, Alfredo V. Misajon accepted on July 17, 2013. On September 12, 2013, the Corporation executed a second Waiver allowing another extension of until June 30, 2014 to issue an assessment. It was also accepted by OIC- ACIR Service Alfredo V. Misajon on September 17, 2013. On June 3, 2014, the Corporation was served a Preliminary Assessment Notice (PAN) together with the Details of Discrepancies. Shortly thereafter, or on June 25, 2014, it received a Formal Letter of Demand (FLD) with Details of Discrepancies and attached Assessment Notices Nos. IT-116-LOA-116-2011-00000109-10-14-809, VT-116- LOA-116-2011-00000109-10-14-810, MC-116-LOA-116- 2011-00000109-10-14-811, and WE-116-LOA-116-2011- 00000109-10-14-812. On July 25, 2014, the Corporation protested the FLD by way of a request for reconsideration. On February 20, 2015, the Corporation filed a Petition for Review with the Court in Division, alleging the CIR's inaction on its protest. Trial ensued and on November 3, 2017, the Court in Division promulgated the assailed Decision, partially granting the Petition for Review in the following fashion:

DECISION CTA EB Nos. 1801 & 1808 WHEREFORE, premises considered, the instant Petition for Review is PARTIALLY GRANTED. The deficiency VAT and miscellaneous tax assessments, as well as the compromise penalties, issued by (the CIR) against (the Corporation) for taxable year 2010 are CANCELLED. On the other hand, the deficiency income tax and expanded withholding tax assessments are PARTIALLY UPHELD. Accordingly, (the Corporation) is ordered to pay the amount of P36,986,780.57, inclusive of the 25% surcharge imposed under Section 248(A)(3) of the NIRC of 1997, as amended, computed as follows: Tax TvDe Basic Surcharge Total Income Tax 1"28.294.209.73 1"7 073,552.43 1"35 367 762.16 Expanded Withholdinq Tax 1,295,214. 73 323,803.68 1,619,018.41 TOTAL 1"29 589 424.46 ��- 1"7,397,356.11 1"36,986,780.57 In addition, (the Corporation) is ordered to pay: (a) Deficiency interest at the rate of twenty percent (20%) per annum on the basic deficiency income tax of P28,294,209.73 and expanded withholding tax of P1,295,214. 73 computed from the dates indicated below until full payment thereof pursuant to Section 249(8) of the NIRC of 1997, as amended: Tax Type Deficiency Interest Income Tax Computed From EWT 15-Apr-2011 11-Jan-2011 -- (b) Delinquency interest at the rate of 20% per annum on the total amount of P36,986,780.57 and on the 20% deficiency interest which have accrued as aforestated in (a), computed from August 15, 2014 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended. SO ORDERED. Both unconvinced, the Corporation and the CIR challenged the foregoing Decision through their respective Motions for Partial Reconsideration which were denied for lack of merit in the similarly assailed Resolution of February 15, 2018. On March 23, 2018, the Corporation filed its Petition for Review with the Court En Bane docketed as CTA EB No.

DECISION CTA EB Nos. 1801 & 1808 1801. The CIR followed suit and filed his own Petition for Review on March 26, 2018, docketed as CTA EB No. 1808. The two Petitions for Review were consolidated per Minute Resolution of March 27, 2018. 5 On October 24, 2018, the consolidated Petitions for Review were submitted for decision.6 The Corporation's Petition for Review: The Corporation states that comparison between the income payments liable for withholding tax and its pertinent WT Returns is the proper method to determine whether it had purchases not subjected to withholding tax and not the comparison of summary list of purchases (SLP) with the monthly alphalist of payees (MAP) made by the Court in Division. Further, the Corporation's SLP and MAP may not be compared with each other as the former represents paid and unpaid purchases whereas the latter pertains to only purchases actually paid from which taxes were withheld and remitted. Thus, the Court in Division allegedly erred in matching its SLP of P396,320,243.95, with its MAP totaling P370,607,375.02 to arrive at the conclusion that it fai!ed to subject its purchases to withholding tax in the sum of P25,712,868. 93.7 It also ascribes error in the order disallowing a portion of its expenses amounting to P14,461,555.95, particularly its dealings with Pilipinas Shell Petroleum Corporation, 8 as well as the Petron Fleet Card. 9 Allegedly, the foregoing business transactions were not supply of services, but supply of goods from which it deducted the corresponding withholding taxes due thereon. Moreover, there was no agreement to purchase and sell goods between the Corporation, as the Fleet Card holder, and Petron Corporation since its supplier was the retail dealer of Petron and not Petron Corporation itself, precisely withholding taxes 5 !d. at p. 91. 6 Id. at pp. 145-146. 7 P396,320,243.95 less P370,607,375.02. 8 P4,594,075.59. / 9 P3,966,212.97.

DECISION CTA EB Nos. 1801 & 1808 on purchases anstng from the Petron Fleet Card may be dispensed with. Besides, it is highly improbable to disallow expenses for non-withholding of taxes either the amount of P370,607,375.02 or P396,320,243.95 reflected in its respective MAP and SLP since the foregoing sums are way higher than its claimed expenses of P79,067,382.28 reflected in its 2010 AITR, states the Corporation. The Corporation believes that it was able to establish that the income payments per global reconciliation disallowed by the Court in Division in the amount of P63,254,568.05 were duly subjected to withholding taxes. It puts premium on the Amended Report submitted by the court-commissioned Independent Certified Public Accountant (!CPA) dated December 8, 2015, stating that it had properly subjected its income payments to withholding taxes save those excluded from withholding taxes, as well as such payments it voluntarily subjected to withholding taxes. That being the case, the foregoing items of income payments should have been allowed as deduction by the Court in Division. With regard to the over-stated cost of sales Freight-In in the sum of P6,880,450.84, 10 the Corporation insists that such item is not an expense deductible from gross income. Rather, Freight-In is a component of its cost of sales subtracted from the gross sales to arrive at gross income. Hence, substantiation requirement on expenses under Section 34(A)(1)(b) of the NIRC, as amended does not find application on cost of sales like the item Freight-In. And assuming such Freight-In costs amounting to P6,880,450.84 were unsubstantiated, deduction of such item was not possible since the sum from which it might be subtracted, i.e., P47,384,410.00, 11 was not declared as an item of deduction in its gross income. With the foregoing, 10 This figure is a discrepancy resulting from Freight-In per FS amounting to P47,384.410.00 as found by the Court in Division vis-a-vis Freight-In per SLP of P40,503,959.16. 11 Freight-In costs per the Corporation's AFS and AITR. See Exhibits P-8-a and P-8, respectively.

DECISION CTA EB Nos. 1801 & 1808 the cancellation of deficiency income tax originating therefrom is in order. Finally, on the matter of deficiency EWT in the amount of P1,295,214.73, since the deficiency IT assessments were without basis, the correlative deficiency EWT assessment should also be cancelled. Despite directive, 12 the CIR failed to file comment to the Corporation's Petition for Review. The CIR's Petition for Review: The CIR contends that under Section 228 of the NIRC, as amended, after the taxpayer filed a protest within 30 days from receipt of assessment, it has another 60 days from such filing to submit supporting documents to substantiate its protest. Only after the lapse of that 60-day period that his 180-day to act on the said protest shall commence. If he fails to take any action on such protest, the taxpayer has 30 days to seek judicial remedy before the Court in Division. Since the Corporation filed its protest on July 25, 2014, it had 60 days or until September 23, 2014 to submit supporting documents. From the lapse of the said 60-day period, he had 180 days or until March 22, 2015 to act on the Corporation's protest. It was only after the lapse of the 180-day period on March 22, 2015 that the Corporation, within 30 days, could seek judicial intervention. However, the Corporation allegedly sprinted to the Court in Division and prematurely lodged its Petition for Review on February 20, 2015 or before the 180-day period lapsed on March 22, 2015. The CIR also complains on the Court in Division's partial cancellation of the Corporation's deficiency income tax liability to the extent of P28,294,209. 73, which in turn stemmed from: a) P15,819,843.57 as undeclared income originating from line-by-line reconciliation; b) undeclared income arising from disallowed expenses amounting to P813,253.16; c) overstatement of expenses in the total amount of P30,667,979.09; d) unaccounted income due to 12 Id. at p. 102.

DECISION CTA EB Nos. 1801 & 1808 unaccounted expenses of P84,671.41; e) undeclared source of cash due to unaccounted rental expense amounting to P232,857.18; and f) disallowed excess MCIT of P460,156.61. For item a, the CIR explains that the alleged undeclared income emanated from his comparison of the Corporation's purchases with: 1) SLP of third parties, alongside the BIR tax reconciliation system (TRS); and 2) summary alphalist of tax withheld (SAWT) with the Corporation's Summary List of Sales (SLS). The result of such comparison led to a conclusion that there exists unaccounted income subject to income tax in the amount of P15,819,843.57. Anent item b, he states that the matching the Corporation's income payments subject to withholding tax per FS/ITR with its withholding tax (WT) returns yielded inconsistencies in the sum of P813,253.16 which the Corporation failed to explain or reconcile, for which reason the disallowance thereof is in order. As for item c, the Corporation posits that the Corporation failed to present countervailing proof regarding the over-claimed costs and/or expenses amounting to P30,667,979.09 13 as required by Section 32 of the NIRC, as amended, hence, the same must be treated as unreported gain subject to income taxes. On item d, he claims that a comparison of salaries and wages per the Corporation's AFS and ITR as against its alphalist of employees yielded a discrepancy of P84,671.41. Since the latter neglected to show proof refuting such finding, it is deemed unaccounted income subject to income taxes. For item e, the CIR points out that by evaluating the Corporation's rental expense per FS and its EWT Return, it generated inconsistencies of P232,857 .18 which must be 13 The CIR originally disallowed alleged overstated expenses amounting to P37,230,901.04 and added the same to the Corporation's taxable income. However, the Court in Division partly upheld the disallowance to the extent of P6,880,450.84, leaving the remainder of P30,667,979.09 (1"37,230,901.04 / less P6,880,450.84) as the contested portion by the CIR. .V

DECISION CTA EB Nos. 1801 & 1808 deemed as unaccounted source of cash subject to income taxes. As regards item f, he posits that since the Corporation's 30% of adjusted taxable income, or regular corporate income tax (RCIT), is allegedly higher than 2% of its gross income, or minimum corporate income tax (MCIT), the deduction of excess MCIT of P460,156.61 to its tax credits is warranted. The CIR insinuates that the Court in Division committed an egregious error in invalidating the deficiency VAT assessments on unaccounted income and rental expense respectively amounting to P84,671.41 and P232,857.18, undeclared sales on resultant discrepancy as found in line- by-line reconciliation in the sum of P158,198,435.66, as well as over-claimed input taxes. As for the subject unaccounted income and rental expense, he argues that since the foregoing items are proper objects of income tax, it follows that imposition of VAT thereon is as well availing pursuant to Section 106 of the NIRC, as amended. On the discrepancy arising from line-by-line reconciliation, the CIR insists that the Corporation did not declare its purchases amounting to P142,378,592.09. By dividing such amount with a cost ratio of 90%, the quotient of P158,198,435.66 must be treated as undeclared sales subject to VAT. He also believes that in view of the Corporation's failure to reconcile the monies pertaining to purchases reported in its VAT returns with its SLP, his disallowance of creditable input taxes amounting to P53,738,254.34 must be sustained. Reversible error was also committed by the Court in Division when it diminished the deficiency EWT assessment from Pl,311,498.67 to P1,295,214.73 as the BIR discovered during its audit that the Corporation failed to pay withholding taxes on certain income payments, hence, the

DECISION CTA EB Nos. 1801 & 1808 deficiency EWT in the amount of P1,311,498.67 should be retained, states the CIR. Finally, the CIR insists that the Corporation is also liable for compromise penalties in the amount of P50,000.00 and P25,000.00 for each deficiency income tax, VAT and EWT pursuant to Revenue Memorandum Order (RMO) Nos. 01-90 and 19-2007. He argues that the cited RMOs have not been revoked, hence, they have the force and effect of law. Moreover, compromise penalty is not only for settlement of criminal liability but may also be imposed in cases of violations of the Tax Code. In rejecting the foregoing propositions, 14 the Corporation points out that the CIR's arguments are anything but novel as they are but mere restatements of his previous arguments which had already been discussed and passed upon by the Court in Division in the assailed Decision and Resolution. In any event, it counters that since its administrative protest filed with the BIR on July 25, 2014 was a request for reconsideration, the 180-day period for the CIR to rule on it commenced on such date. Thus, the CIR had until January 21, 2015 to act on its administrative claim but failed. Thus, the Corporation had until February 20, 2015 to seek judicial intervention. In other words, its Petition for Review was seasonably instituted with the Court in Division on February 20, 2015. As to the unaccounted purchases treated as undeclared income per Audit Information Tax Exemption and Incentives Division (AITEID)-SLP matching in the sum of P84,819,343.96, the Corporation retorts that the CIR failed to provide the factual basis of the said amount, thereby transgressing its right to due process on assessment. Hence, the cancellation thereof by the Court in Division was in order. Anent the unaccounted income from undeclared purchases per SLP-MAP comparison amounting to P57,559,248.13, it states that such finding was without 14 The Corporation's Comment dated May 15, 2018, id. at pp. 95-101.

DECISION CTA EB Nos. 1801 & 1808 basis, void and based on mere presumptions. While an assessment is prima facie correct, such cannot be upheld when found to be utterly without foundation, as in this instance. Further, there were no additional income payments in the sum of P813,253.16 per MAP-SLP that were not subjected to withholding taxes. Such amount pertained to the reduction of the subject income payments from P26,526,122.09, as found by the BIR, to P25,712,868.93, as ruled by the Court in Division. For the Corporation, the slashing of the amount made by the Court in Division was correct as it was the product of its thorough mathematical analysis of its MAP and SLP. The Corporation further sides with the Court in Division in the cancellation of the BIR's findings pertaining to unaccounted income from unaccounted costs/expenses in the amount of P30,667,979.09 since it was considered in light of the facts, applicable laws, as well as jurisprudence on the matter. The Corporation as well points out that the reason offered by the CIR to justify his disallowance of its excess MCIT in the amount P460,156.61, i.e., the Corporation's adjusted taxable income would result in a higher RCIT than the MCIT, was only raised for the first time in the proceedings before the Court in Division. No such ground was indicated in the FLD that he issued against it. For lack of factual basis, the Court in Division was correct in invalidating the same. The CIR's assertion that it is accountable for deficiency VAT is erroneous, says the Corporation. Allegedly, the deficiency VAT rests on the same facts and findings under the alleged deficiency IT. Since the deficiency IT upon which the deficiency VAT is predicated was nullified by the Court in Division in the assailed Decision, the invalidation of the VAT liability must likewise ensue. Moreover, among the alleged sources of its alleged deficiency VAT was the finding of inconsistencies of input tax . /

DECISION CTA EB Nos. 1801 & 1808 sources reported between its VAT returns and SLP. But, as correctly ruled by the Court in Division, there was no discrepancy on such purchases, negating the impression that the Corporation should be liable for deficiency VAT arising from disallowed input taxes. On the CIR's protestations on deficiency EWT, the Corporation believes that they are mere reiterations of his points which were already resolved by the Court in Division in the assailed Decision and Resolution. Besides, there was no total cancellation by the Court in Division of the income payments not subjected to withholding taxes. Rather, the Court in Division only corrected the findings of the CIR regarding the subject income payments from P26,526,122.09 to P25,712,868.93. Lastly, the Corporation opines that it is not liable for compromise penalties slapped by the CIR since it never acceded to its imposition. THE RULING OF THE COURT The Petitions for Review separately filed by the Corporation and the CIR are devoid of merit. The Corporation's Petition for Review: Section 34(A)(l)(a) 15 of the NIRC, as amended recognizes ordinary and necessary expenses as deductions from the gross income to arrive at the proper taxable 15 SEC. 34. Deductions from Gross Income. - xxx, in computing taxable income subject to income tax under Sections xxx 27(A), xxx, there shall be allowed the following deductions from gross income; (A) Expenses. - (1) Ordinary and Necessary Trade, Business or Professional Expenses. - (a) In General. -There shall be allowed as deduction from gross income all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on or which are directly attributable to, the development, management, operation and/or conduct of the trade, business or exercise of a / profession, xxx: 1(/

DECISION CTA EB Nos. 1801 & 1808 income. Among the requisites for its deductibility is found in Section 34(K) of the same Code which provides: SEC. 34. Deductions from Gross Income. - xxx; (K) Additional Requirements for Deductibility of Certain Payments. - Any amount paid or payable which is otherwise deductible from, or taken into account in computing gross income or for which depreciation or amortization may be allowed under this Section, shall be allowed as a deduction only if it is shown that the tax required to be deducted and withheld therefrom has been paid to the Bureau of Internal Revenue in accordance with this Section, Sections 58 and 81 of this Code. The foregoing prov1s1on, in relation to Section 34(A)(l)(a) of the same Tax Code, it is imperative, for purposes of deductibility of an expense, that the tax required to be withheld on the amount paid or payable is shown to have been remitted to the BIR by the taxpayer constituted as a withholding agent of the government. 16 Relevantly, deductions for income tax purposes partake of the nature of tax exemptions and are strictly construed against the taxpayer, who must prove by convincing evidence that he is entitled to the deduction claimed. 17 To be entitled to claim a tax deduction, the taxpayer must competently establish the factual and documentary bases of its claim. 18 Otherwise, the claimed deduction will be disallowed. 19 The Corporation argues that to produce an accurate result of whether it had purchases not subjected to withholding tax, it must be a comparison between the income payments liable for withholding tax and its pertinent WT Returns and not the SLP-MAP matching as used by the Court in Division. 16 ING Bank N. V. Manila Branch vs. Commissioner of Internal Revenue, G.R. No. 167679, July 22, 2015. 17 Phi/ex Mining Corporation vs. Commissioner of Internal Revenue, G.R. No. 148147, April 16, 2008. 18 H. Tambunting Pawnshop, Inc. vs. Commissioner of Internal Revenue, G.R. / 19 No. 173373, July 29, 2013. See Atlas Consolidated Mining & Development Corporation vs. Commissioner of Internal Revenue, G.R. No. L-26911, January 27, 1981.

DECISION CTA EB Nos. 1801 & 1808 The argument is unavailing. This matter has already been settled in the assailed Decision. Initially, the CIR opted to compare the Corporation's SLP and MAP relative to its purchase of goods and services, generating discrepancies in the amount of P26,526,122.09 treated as income payments not subjected to withholding taxes which was disallowed. Note that the Corporation had been informed on the factual and legal bases of this item of assessment. Upon review by the Court in Division, it conducted an independent matching of the Corporation's SLP of P396,320,243.95 with its MAP, or the income payments which were subjected to withholding taxes amounting to P370,607,375.02, and found that it had purchases which were not subjected to withholding tax amounting to P25,712,868.93. In other words, the Court in Division rectified the error committed by the CIR's SLP-MAP comparison of P26,526,122.09 by reducing the amount of purchases not subjected to withholding tax per its own SLP- MAP matching to P25,712,868.93. Given that the Corporation failed to present convincing proof that the expenses per SLP-MAP comparison in the amount of P25,712,868.93 were indeed not exempted from withholding taxes, or that the foregoing items of its supplier's income were not yet ripe for withholding, it stands to reason that the disallowance thereof by the Court in Division should be sustained. In its further attempt to rationalize the alleged flaw in SLP-MAP comparison, the Corporation states that SLP-MAP may not be compared since the former represents paid and unpaid purchases whereas the latter pertains to only purchases actually paid from which taxes were withheld and remitted.

DECISION CTA EB Nos. 1801 & 1808 Significant to the foregoing argument is Section 2.57.4 of RR No. 12-01,2� and jurisprudence21 which tell us that the income payor-withholding agent's duty to withhold accrues from the moment such income is paid or payable, accrued or recorded as an expense in the payor's/employer's books, whichever comes first. Thus, en contra with the Corporation's insinuation, its legal obligation to withhold taxes on its supplier's income is not contingent on whether the same was paid or unpaid. Rather, its responsibility to deduct taxes on its supplier's income must be done when the same was paid; or became due, demandable or legally enforceable, or accrued or recorded as an expense in the payor's/employer's books, whichever is earlier. Simply put, even if income remains unpaid, as long as it is due, demandable or legally enforceable, or accrued, withholding of taxes thereon must ensue. Neither did the Corporation present any credible evidence to demonstrate that its pertinent purchases from Pilipinas Shell Petroleum Corporation, 22 as well as the Petron Fleet Card23 were subjected to withholding taxes, whether as a supplier of services, as found by the Court in Division, 24 or as a supplier of goods, as alleged in its Petition for Review. On this premise, the subject expenses arising therefrom must perforce be disallowed. The Corporation theorizes that the disallowance of the sums reflected in its MAP or SLP respectively amounting to P370,607,375.02 and P396,320,243.95 was surprising since it was much higher than its claimed expenses of P79,067,382.28 reported in its 2010 AITR. 20 SEC. 2.57.4. Time of Withholding. -The obligation of the payor to deduct and withhold the tax under Section 2.57 of these regulations arises at the time an income is paid or payable, or the income payment is accrued or recorded as expense or asset, whichever is applicable in the payor's books, whichever comes first. The term 'payable' refers to the date the obligation becomes due, demandable or legally enforceable. 21 See Note 16. 22 P4,594,075.59 is the amount representing the Corporation's purchases of services relative to Petron Fleet Card. See table in assailed Decision, pp. 34- 35. 23 P3,966,212.97 refers to the amount of purchases incurred by the Corporation to Pilipinas Shell Petroleum Corporation. See table in assailed Decision, pp. 34-35. ./ 24 See pp. 34-35, assailed Decision.

DECISION CTA EB Nos. 1801 & 1808 The theory is more apparent, than real. Section 34(K) of the NIRC, as amended spells out the three (3) occasions where amounts paid or payable must be subjected to withholding taxes as a prerequisite to its deductibility. First, when the subject amounts are deductible from the gross income; second, when such amounts are to be considered in the computation of the gross income; and third, in cases of amounts relative to allowances for depreciation or amortization, viz.: SEC. 34. Deductions from Gross Income. - xxx; (K) Additional Requirements for Deductibility of Certain Payments. - Any amount paid or payable which is otherwise deductible from, or taken into account in computing gross income or for which depreciation or amortization may be allowed under this Section, shall be allowed as a deduction only if it is shown that the tax required to be deducted and withheld therefrom has been paid to the Bureau of Internal Revenue in accordance with this Section, Sections 58 and 81 of this Code. Concomitantly, Section 27(A) 25 of the NIRC, as amended specifies the items that should be taken into account in arriving at the proper gross income of the taxpayer. The formula for this may be summarized in this wise: Gross sales Less: sales returns, discounts, allowances Net sales Less: Cost of Sales Gross Income 25 SEC. 27. Rates of Income tax on Domestic Corporations. - XXX XXX XXX For purposes of this Section, the term 'gross income' derived from business shall be equivalent to gross sales less sales returns, discounts and allowances and cost of goods sold. 'Cost of goods sold' shall include all business expenses directly incurred to produce the merchandise to bring them to their present location and use. I For a trading or merchandising concern, 'cost of goods sold' shall include the invoice cost of the goods sold, plus import duties, freight in transporting the goods to the place where the goods are actually sold, including insurance while the goods are in transit.

DECISION CTA EB Nos. 1801 & 1808 Indeed, cost of sales is an indispensable component to accurately determine a taxpayer's gross income. Consistent with Section 34(K) of the NIRC, as amended, failure to subject cost of sales to withholding taxes shall indubitably lead to its disallowance. Here, the error in the Corporation's theory stems from its notion that withholding of taxes is confined only to its expenses reported in its 2010 AITR totaling P79,067,382.28. It failed to realize that cost of sales amounting to P746,308,835.29 reflected in the same AITR may likewise be subjected to withholding taxes. By tacking the cost of sales of P746,308,835.29 with the expenses amounting to P79,067,382.28, the sum thereof totaling P825,376,217.57 were the aggregate expenses and cost of sales that might possibly be disallowed due to non-withholding of taxes on their correlative income payments. For this reason, it is not remote that expenses reflected in the MAP or SLP respectively amounting to P370,607,375.02 and P396,320,243.95 could be disallowed though higher than the expenses reported by the Corporation in its 2010 AITR, i.e., P79,067,382.28. Nor could the Court En Bane take hook, line and, sinker the Corporation's claim that it had properly withheld taxes on income payments per global reconciliation amounting to P63,254,568.05 on the basis of a mere statement in the Amended !CPA Report of December 8, 2015. True, the !CPA made a declaration in his Report that the Corporation properly subjected to withholding tax the income payments disbursed to its suppliers except those not covered by withholding tax. However, the !CPA did not describe with particularity the income payments subjected to, or exempted from withholding tax, as well as the source documents justifying his sweeping conclusion. Neither did the Corporation rectify the inadequacy of the !CPA on the matter, and instead conveniently joined the !CPA's proposition to rationalize its claim of proper withholding of taxes. In fact, as pointed out by the Court in Division, the Corporation even failed to formally offer as evidence the twenty-four (24) boxes allegedly containing slew of documents examined by the !CPA. Note that a mere

DECISION CTA EB Nos. 1801 & 1808 assumption may not be the basis in deciding a case, or in granting a relief. 26 Without the accompanying pieces of evidence validating such proposition, the disallowance of income payments not subjected to withholding tax per global reconciliation to the extent of P63,254,568.05 must be sustained. The Corporation claims that the discrepancy of P6,880,450.8427 deemed as overstated costs resulting from a comparison of its Freight-In per AFS against its Freight-In per ITR were cost of sales and not deductions per se, hence substantiation requirement for expenses under Section 34(A)(l)(b) of the NIRC, as amended could be validly dispensed with. The Court is not swayed. Case law has it that the initial assessment evidenced by the tax return is a self-assessment of the taxpayer. The tax is primarily computed and voluntarily paid by the taxpayer without need of any demand from government. 28 In the event that the BIR disagrees with the initial assessment of the taxpayer, the CIR can examine records or other data relevant to his or her inquiry in order to verify the correctness of any return, or to make a return in case of noncompliance, as well as to determine and collect tax liability. 29 Note that among the components required to be declared truthfully in the AITR is the taxpayer's cost of sales30 during the taxable year. From these observations, it was incumbent upon the Corporation to adduce pertinent books of account, accounting records, invoices, receipts, and other source documents to support the veracity of its declarations, specifically, its cost of sales embodied in its 2010 AITR. The rationale for this assumes a two-fold purpose: first, for the 26 See Spouses Guidangen vs. Wooden, G.R. No. 174445, February 15, 2012. 27 This figure is a discrepancy resulting from Freight-In per FS amounting to P47,384,410.00 as found by the Court in Division vis-a-vis Freight-In per SLP of 1>40,503,959.16. 28 Commissioner of Internal Revenue vs. Fitness by Design, Inc., G.R. No. 215957, November9, 2016. 29 Ibid. 30 Item 18C, AITR, Exhibit P-8.

DECISION CTA EB Nos. 1801 & 1808 CIR and his duly authorized agents to determine with reasonable accuracy the legitimacy of the taxpayer's declarations in its Tax Returns pursuant to their legal competence to examine and consequently, issue assessment/s under Sections 5 and 6 of the NIRC, as amended; and second, for the taxpayer to defend the correctness of its declarations in its Tax Returns against the BIR's findings through the various phases of the assessment process. To be sure, these objectives may not be readily achieved if the Corporation is allowed to claim any amount of cost of sales without the benefit of substantiation. This cannot be permitted. Given that the Corporation failed to explain or reconcile by convincing evidence the variance of P6,880,450.84 arising from the matching of the item Freight-In in its AFS and SLP, such over-claimed costs must be treated as undeclared gains which must be tacked to its taxable income forTY 2010. The Corporation nevertheless claims that deduction of such unsubstantiated Freight-In costs amounting to P6,880,450.84 could not possibly be done since the sum from which it could be subtracted, i.e., P47,384,410.00, 31 was not declared as an item of deduction from its gross income. This is misleading. Section 27(A) in relation to Sections 32 and 31 of the NIRC, as amended, collectively provide the roadmap for the computation of taxable income. The formula for this may be demonstrated in the following fashion: Gross sales Less: sales returns, discounts, allowances Net sales Less: Cost of Sales Gross Income Less: Allowable Deductions Taxable Income 31 Freight-In costs per the Corporation's AFS and AITR. See Exhibits P-8-a and / P-8.

DECISION CTA EB Nos. 1801 & 1808 Irrefragably, in the event that the taxpayer overstated its cost of sales as in this case, the effect thereof would be to diminish its gross income, which in turn would reduce its taxable income. Conversely, by disallowing the excess cost of sales, the amount thereof must be added back to the taxpayer's taxable income to accurately reflect its adjusted taxable income. A summa contrario with the Corporation's stance, the Court in Division did not subtract the amount of Freight-In deemed as overstated costs totaling P6,880,450.84 from its gross income. Rather, such overstated cost of sales amounting to P6,880,450.84 was simply added back to its taxable income to correctly reflect the Corporation's adjusted taxable income which in turn became the basis of its income tax liability. On the matter of the deficiency EWT assessment in the amount of P1,295,214. 73, the Corporation insists that since the deficiency IT assessments were devoid of factual and legal ground, the corresponding deficiency EWT thereto must entirely be nullified. The claim is incredulous. Adverting to our earlier discussion, the Corporation had failed to withhold taxes on income payments originating from unaccounted difference: 1) per SLP-MAP matching amounting to P25,712,868.93; 32 and 2) global reconciliation in the sum of P63,254,568.05. Accordingly, the assessment for deficiency EWT to the extent of Pl,295,214.73 must be imposed upon the Corporation, with the following breakdown: 33 Income Payments not P36,346,946.66 1>26,907,621.391 1"63,254,568.05 12,066,454.75 13,646,414.18 25,712,868.93 subjected to withholding tax per global reconciliation Add: Income payments not subjected to withholding per matching of MAP & SLP 32 This figure is the discrepancy between the Corporation's purchases per SLP in the amount of 1"396,320,243.95 as against its purchases per MAP totalling P370,607,375.02. / 33 See assailed Decision, pp. 49-51. '44/'

DECISION CTA EB Nos. 1801 & 1808 Income Payments not 1'48,413,401.41 1'40,554,035.57 1'88,967,436.98 P1 295 214.73 subjected to withholding tax 1% 2% P484 134.01 P811 080.71 EWT Rate EWT Due The CIR's Petition for Review: The CIR argues that the Court in Division is wanting in legal competence to adjudicate the present case since the Corporation failed to strictly observe Section 228 of the NIRC, as amended. The point is not well-taken. Section 228 of the NIRC, as amended governs the procedure to be observed in contesting assessments duly issued by the BIR. It reads as follows: SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: xxx XXX XXX XXX Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings. Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. If the protest is denied in whole or in part, or is not acted upon within one hundred eighty ( 180 days) from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of one hundred eighty (180)-

DECISION CTA EB Nos. 1801 & 1808 day period; otherwise, the decision shall become final, executory and demandable. Thus, a taxpayer has a period of thirty (30) days from receipt of assessment to file its administrative protest with the CIR. Within sixty (60) days from the filing of protest, the taxpayer must submit documents in support thereof. The CIR has a period of one hundred eighty (180) days from date of submission of supporting documents to decide on the taxpayer's protest. Should the 180-day period end without any action from him, the taxpayer may, within 30 days from the lapse thereof, appeal with the Court in Division. Pertinently, the applicability of the 60-day period to submit supporting documents rests on the type of the taxpayer's administrative protest. These two (2) kinds of protest were defined in the case of Bank of the Philippine Islands vs. Commissioner of Internal Revenue in the following manner: 34 xxx. Revenue Regulations (RR) No. 12-85, issued on 27 November 1985 by the Secretary of Finance, upon the recommendation of the BIR Commissioner, governs the procedure for protesting an assessment and distinguishes between the two types of protest, as follows- xxxx (a) Request for reconsideration.- refers to a plea for a re-evaluation of an assessment on the basis of existing records without need of additional evidence. It may involve both a question of fact or of law or both. (b) Request for reinvestigation.- refers to a plea for re- evaluation of an assessment on the basis of newly- discovered or additional evidence that a taxpayer intends to present in the reinvestigation. It may also involve a question of fact or law or both. As it stands, the 60-day period for the taxpayer to submit documents in support of its protest referred to in Section 228 of the NIRC, as amended, only applies in a request for reinvestigation since this is the kind of protest 34 G.R. No. 181836, July 9, 2014.

DECISION CTA EB Nos. 1801 & 1808 which allows reception of additional evidence. In contrast, a request for reconsideration is reevaluation of the assessment based on existing record without the need of presenting additional evidence. There is no denying that the tenor of the Corporation's administrative protest35 is one of reconsideration. It merely pleaded for reexamination of the BIR's findings based on the current or existing documents without intention of submitting additional evidence. As such, the sixty (60)-day period within which to submit supporting documents finds no application in its case. And since the Corporation's protest is in the nature of request for reconsideration, the one hundred eighty (180)- day period for the CIR to act on its protest commenced on the date said protest was filed on July 25, 2014. A fortiori, the CIR had 180-days, or until January 21, 2015 to decide on the administrative protest. With the CIR's inaction, the Corporation had another thirty (30) days, or until February 20, 2015 to seek judicial intervention. In fine, the Petition for Review was seasonably filed with the Court in Division on February 20, 2015. Now on the merits of the CIR's claim. The CIR asserts that the Corporation is liable for additional deficiency income taxes (IT) in the amount of P28,294,209. 73 since there was purportedly: a) undeclared income of P15,819,843.57 pursuant to the BIR's line-by-line reconciliation; b) undeclared income stemming from disallowed expenses amounting to P813,253.16; c) overstatement of costs totaling P30,667,979.09; d) unaccounted income due to unaccounted expenses of P84,671.41; e) undeclared source of cash due to unaccounted rental expense amounting to P232,857.18; and f) disallowed excess MCIT of P460,156.61. The CIR's contention is specious. a. Undeclared Income per Line-by-Line Reconciliation - P15,819,843.57 35 Exhibit P-27.

DECISION CTA EB Nos. 1801 & 1808 The sum of P15,819,843.57 was considered by the CIR as unaccounted income after he allegedly found that the Corporation had undeclared purchases after comparing the data between: first, AITEID with its SLP in the sum of P84,819,343.96; and second, its MAP and SLP amounting to P57 ,559,248.13. Section 228 36 of the NIRC, as amended, as implemented by RR No. 12-99, mandate inter alia, that a taxpayer shall be informed in writing of facts, law, rules and regulations upon which the assessment is based, otherwise it is a patent nullity. 37 The purpose of the written notice requirement is to aid the taxpayer in making a reasonable protest, if necessary. 38 Thus, such cannot be presumed. Otherwise, the express provisions of Article 228 of the NIRC and RR No. 12-99 would be rendered nugatory. 39 The rationale behind the requirement that taxpayers should be informed of the facts and law on which the assessments are based conforms with the constitutional mandate that no person shall be deprived of his or her property without due process of law.40 In this case, the CIR's comparison of the Corporation's purchases per AITEID-SLP allegedly yielded inconsistencies of P84,819,343.96. 41 However, no factual basis was provided to justify his findings. Specifically, he failed to state in detail why the purchases per AITEID were more than the purchases in the SLP since the SLP and AITEID columns in Annex A-1 of his Details of Discrepancy in the PAN remained unaccomplished. For failure to lay down the factual basis of his findings of undeclared purchases to the Corporation, the nullification of this item of assessment amounting to P84,819,343.96 is in order. 36 SEC. 228. Protesting of Assessment. - xxx The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. 37 See Commissioner of Internal Revenue vs. Avon Products Manufacturing, Inc., G.R. Nos. 201398-99, October 3, 2018. 38 Commissioner of Internal Revenue v. Liquigaz Philippines Corp., G.R. Nos. 215534 & 215557, April 18, 2016. 39 Commissioner of Internal Revenue vs. Enron Subic Power Corporation, G.R. No. 166387, January 19, 2009. 40 Commissioner of Internal Revenue vs. Fitness by Design, Inc., G.R. No. 215957, November 9, 2016. 41 BIR Record, Folder 1, pp. 490-498.

DECISION CTA EB Nos. 1801 & 1808 Further, the CIR matched the Corporation's MAP of P376,423,202.71 with its SLP purportedly amounting to P318,863,954.58, leaving a resultant discrepancy of P57,559,248.13 as unaccounted purchases. Upon further validation however, the Court in Division found that the Corporation's SLP amounts to P353,029,525.22 and not the BIR's flawed SLP of P318,863,954.58. By deducting the Corporation's MAP of P376,423,202. 71 with its correct SLP of P353,029,525.22, there was ensuing difference of P23,393,677.49 which the Corporation was able to satisfactorily account and reconcile. Thus, the attribution by the CIR of undeclared purchases per MAP-SLP in the amount of P57,559,248.13 must perforce fail. b. Undeclared income arising from disallowed expenses - P813,253.16 The CIR alleges that the amount of P813,253.16 consists of income payments which must be additionally disallowed for non-withholding of tax per his comparison of SLP-MAP. To recall, the CIR compared the Corporation's SLP-MAP and found that there were income payments not subjected to withholding tax amounting to P26,526,122.09. Upon the Court in Division's own matching of the SLP-MAP, it reduced the income payments not subjected to withholding tax from P26,526, 122.09 to P25, 712,868.93. Subtracting the income payments not subjected to withholding tax per BIR totalling P26,526,122.09 with the income payments not subjected to withholding tax of P25,712,868.93 as found by the Court in Division, the difference in the amount of P813,253.16 represents the income payments which the BIR erroneously imputed for non-withholding of taxes, for which reason additional disallowance of the latter amount of income payments must be rejected. c. Overstatement of Costs- P30,667,979.09 The CIR avers that the amount of P30,667,979.09 42 pertains to purported additional Freight-In costs over- 42 P37,230,901.04-P6,880,450.84 = !>30,667,979.09.

DECISION CTA EB Nos. 1801 & 1808 declared by the Corporation. The sum was arrived at by deducting the overstated Freight-In costs of P37,230,901.04 per the BIR's findings with the overstated Freight-In costs amounting to P6,880,450.84, as found by the Court in Division. On the matter, the Court in Division ruled that the Freight-In costs per SLP as found by the BIR in the amount of P37,230,901.04 was inaccurate. It then scrutinized and matched the Corporation's Freight-In costs per AFS in the sum of P47,384,410.00 with its Freight-In costs per the correct SLP amounting to P40,503,959.16, generating variations of P6,880,450.84 which the Corporation failed to account for. Hence, the Corporation should be made liable for overstatement of costs only to the extent of P6,880,450.84. d. Unaccounted income due to unaccounted expenses of F'84,671.41 The CIR states that P84,671.41 worth of unaccounted income was found after comparing the salaries and wages per the Corporation's AFS/ITR in the amount of P23,074,374.99 as against its Alphalist of Employees totaling P23,159,046.40. A review of the Corporation's Alphalist of Employees, side by side with its BIR Forms No. 1601-C however reveals that the salaries and wages amounts to P23,074,374.71 and not P23,159,046.40, as claimed by the CIR. Comparing the salaries and wages per ITR of P23,074,374.99 with the correct salaries and wages per Alpha list totaling P23,074,374. 71, yielded a discrepancy of a trifling P0.28, which could be ascribed to rounding-off of figures. e. Undeclared source of cash due to unaccounted rental expense amounting to F'232,857.18 The CIR insists that the Corporation had unaccounted source of cash from unaccounted rental expense of P232,857 .18 attributable to the variance between its Rental Expense per FS of P3,140,321. 77 and its Rental Expense per BIR Form 1601E of P3,373,178.95.

DECISION CTA EB Nos. 1801 & 1808 As correctly observed by the Court in Division, the Corporation had correctly withheld and paid 5% WT on the rental payments. Further, the income, along with the taxes withheld from its pertinent suppliers were duly reflected in its Monthly Alphalist of Payees (MAP) appended to the WT Returns. Moreover, the amount of P232,857 .18 was reported as a separate item in its FS under the account "Advertising-Rental of Promo Equipment for Special Events." In fine, the P232,857 .18 worth of purported unaccounted cash was duly validated and refuted by the Corporation's documents. Hence, total cancellation thereof is in order. f. Disallowed excess MCIT- P460,156.61 Obvious from the FLO that the CIR offered no justification why it disallowed the Corporation's excess MCIT in the amount of P460,156.61. In his belated attempt to explain the said disallowance, which for the first time was declared in his Motion for Partial Reconsideration filed with the Court in Division, he claimed that the Corporation's adjusted taxable income would result in a higher RCIT than the MCIT. Thus, the MCIT disallowance is a nullity for infringing the Corporation's right to due process on assessment embodied in Section 228 of the NIRC, as amended. The CIR also claims that the Corporation is liable for deficiency VAT with increments in the aggregate sum of P122,043,804.84 emanating from: a) unaccounted income and rental expense respectively amounting to P84,671.41 and P232,857.18; b) unaccounted purchases treated as undeclared sales in the aggregate amount of P158,198,435.66; and c) Disallowed creditable input taxes amounting to P53,738,254.34. The contention is illusory. a. Unaccounted income and rental expense respectively amounting to P84,671.41 and P232,857.18 As earlier discussed, the unaccounted income and rental expense respectively amounting to P84,671.41 and /

DECISION CTA EB Nos. 1801 & 1808 P232,857 .18 imputed by the CIR against the Corporation were duly explained and reconciled by the latter, for which reason no VAT shall be due thereon. b. Unaccounted purchases treated as undeclared sales in the aggregate amount of P158, 198,435.66 The CIR slapped deficiency VAT on the Corporation's alleged undeclared sales amounting to P158,198,435.66. This figure stemmed from the discrepancies between AITEID-SLP comparison in the sum of P84,819,343.96; and SLP-MAP matching amounting to PS7,559,248.13, or for a total of P142,378,592.09 which were treated as undeclared purchases, and consequently transmuted into undeclared sales utilizing the following formula: Unaccounted purchases per SLP- P142,378,592.09 MAP-AITEID matching Divide by: Cost Ratio 90% Total (Undeclared Sales) P158,198,435.66 As earlier mentioned, the discrepancy ansmg from AITEID-SLP was nullified since the CIR failed to inform the Corporation of the factual basis of such item in the assessment. The same conclusion was reached with regard to the supposed inconsistency between the MAP and SLP given that the Corporation had satisfactorily accounted for, and reconciled the same. Since the SIR's findings of undeclared purchases per AITEID-SLP and MAP-SLP aggregately valued at P142,378,592.09 were invalidated, there are no undeclared purchases that the CIR may convert into undeclared sales. On this account, the deficiency VAT on undeclared sales P158,198,435.66 must as well be set aside. c. Disallowed creditable input taxes- P53,738,254.34 The CIR claims that a comparison between input tax sources claimed per VAT Returns amounting to P785,340,444.75 and input tax sources claimed per the Corporation's SLP of P337,521,658.56 resulted in input tax source variance in the sum of P447,818,786.19. Such t.t/

DECISION CTA EB Nos. 1801 & 1808 amount of P447,818,786.19 was multiplied by the VAT rate of 12% to arrive at the disallowed input taxes of P53, 738,254.34. The CIR is incorrect in insisting that the Corporation had purchases of P785,340,444. 75 and P337,521,658.56 reflected in its respective VAT Returns and SLP. As pointed out by the Court in Division, no inconsistency exists between the foregoing documents since the Corporation's purchases are uniformly pegged at P784,032,657.01. Thus, the disallowed input taxes totalling P53,738,254.34 should be invalidated. Further, the deficiency EWT in the amount of P1,311,498.67 could not be sustained in whole contrary to the position taken by the CIR. As discussed earlier, a deficiency EWT, albeit partially in the amount of P1,295,214. 73, must be imposed against the Corporation since the foregoing amount pertains to the withholding taxes which the Corporation failed to withhold on certain income payments as found on MAP-SLP matching and global reconciliation system. Finally, the Court En Bane agrees with the Corporation that compromise penalties could not be imposed against it for it never consented to the said imposition. It has been held that compromise penalty implies a mutual agreement between the parties in respect to the thing or subject matter which is so compromised. The imposition of the same without the conformity of the taxpayer is illegal and unauthorized.43 WHEREFORE, the Petition for Review filed by Green Valley Marketing Corporation on March 23, 2018, and the Petition for Review filed by the Commissioner of Internal Revenue on March 26, 2018 are DENIED, for lack of merit. Considering the amendments introduced by Republic Act (RA) No. 10963, or TRAIN Law relative to imposition of 43 Commissioner of Internal Revenue vs. Lianga Bay Logging Co., Inc. eta/., / G.R. No. L-35266, January 21, 1991. V

DECISION CTA EB Nos. 1801 & 1808 deficiency and delinquency interests, the fallo of the assailed Decision shall be MODIFIED as follows: "WHEREFORE, the Petition for Review is PARTIALLY GRANTED. The deficiency VAT and miscellaneous tax assessments, as well as the compromise penalties, issued by respondent against petitioner for taxable year 2010 are CANCELLED. On the other hand, the deficiency income tax and expanded withholding tax assessments are PARTIALLY UPHELD. Accordingly, petitioner is ordered to pay the amount of ONE HUNDRED FIFTEEN MILLION TWO HUNDRED FIFTEEN THOUSAND SEVEN HUNDRED EIGHTY-EIGHT PESOS AND TWENTY-ONE CENTAVOS (P115,215,788.21), inclusive of the 25% surcharge, 20% deficiency interest and 20% delinquency interest imposed under Sections 248(A)(3), 249(B) and (C) of the NIRC of 1997, as amended, respectively, computed until December 31, 2017, as summarized below: Basic Tax Income Tax Expanded I p 28 294 209.73 Withholding 25% Surcharge Total 20% Deficiency Interest from April 16, Tax p 29 589 424.46 2011 to August 15, 2014 (P28,294,209.73 X 20% X 1218/365 p 1 295 214.73 days)_ 20% Deficiency Interest from Jan. 12, 7 073 552.43 323,803.68 7,397 356.11 2011 to August 15, 2014 (P1,295,214.73 X 20% X 1312/365 18 883 478.06 18 883 478.06 days~ 931 135.19 931 135.19 Total Amount Due as of August 15, P54,251,240.22 P2,550,153.60 P56,801,393.82 2014 19 131 536.88 20% Deficiency Interest from August I 16 2014 to December 31 2017 (P28,294,209.73 X 20% X 1234/365 j: days) (P1,295,214.73 X 20% X 1234/365 19 131 536.88 days) 20% Delinquency Interest from August 875,778.07 875,778.07 16 2014 to December 31 2017 (P54,251,240.22 X 20% X 1234/365 36 682 756.40 I days) (P2,550,153.60 X 20% X 1234/365 I days) Total Amount Due as of Dec. 31, 36 682 756.40 2017 1 724 323.04 1 724 323.04 P110,065,533.50 P5,150,254.71 P115,215,788.21

DECISION CTA EB Nos. 1801 & 1808 In addition, petitioner is ORDERED TO PAY respondent delinquency interest at the rate of twelve percent (12%) on the total amount due as of August 15, 2014 of P56,801,393.82, as determined above, computed from January 1, 2018 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended by Republic Act (RA) No. 10963, also known as Tax Reform for Acceleration and Inclusion (TRAIN), as implemented by Revenue Regulations (RR) No. 21-2018. so ORDERED. II SO ORDERED.

DECISION CTA EB Nos. 1801 & 1808 We Concur: Presiding Justice a.~~ c.. a..;;l--"'-..1-d. "S2. ER~P.UY J6'ANITO C. CASTANED.�\; JR. Associate Justice Associate Justice ~ N. M~~- CvwUA ~. 4JL.__ __w \..... , CIELITO N. MINDARO-GRULLA MA. BELEN M. RINGPIS-LIBAN Associate Justice Associate Justice ?'~-7~ te Justice CATHERINE T. MANAHAN JEAN MARl Associate Justice STO-SAN PEDRO 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 consolidated cases were assigned to the writer of the opinion of the Court. Presiding Justice

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ENBANC GREEN VALLEY MARKETING CTA EB NO. 1801 CORPORATION, (CTA Case No. 8988) Petitioner, -versus- COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - - - - - - - - - - - - - X COMMISSIONER OF INTERNAL CTA EB NO. 1808 REVENUE, (CTA Case No. 8988) Petitioner, Present: -versus- DEL ROSARIO, P.J. , CASTANEDA, JR., UY, FASON-VICTORINO, MINDARO-GRULLA, RINGPIS-LIBAN, MANAHAN, BACORRO-VILLENA, and, MODESTO-SAN PEDRO, JJ. GREEN VALLEY MARKETING Promulgated: CORPORATION, Respondent. _O_C_T_1_lt_2=-0_19~�-==-----:--::-.......,....-,-- -C:#J!- x----- - - -- - - - - - - - - --- ----- - -- -- - - -- - -:$�-� P~.:.X'" � CONCURRING AND DISSENTING OPINION DEL ROSARIO, P.J.: I concur with the ponencia in denying the Petition for Review filed by the Commissioner of Internal Revenue (CIR) in CTA EB No.

Concurring and Dissenting Opinion CTA EB Nos. 1801 and 1808 (CTA Case No. 8988) Page 2 of4 1808 for lack of merit. With due respect, however, I am constrained to withhold my assent to the denial of the Petition for Review filed by Green Valley Marketing Corporation (GVMC) in CTA EB No. 1801. Records disclose the following: � September 23, 2011 - Letter of Authority (LOA) SN: eLA201100003014 (LOA-116-2011-00000109)1 was issued by Alfredo V. Misajon, OIC-Assistant Commissioner, Large Taxpayer Service, authorizing Revenue Officers (ROs) Zenaida Paz, Myrna Ramirez, Ma. Salud Maddela, Cletofel PArungao, Allan Maniego, Joel Aguila and Group Supervisor (GS) Glorializa Samoy to examine the books of accounts and other accounting records of GVMC for all internal revenue taxes for the period from January 1, 2010 to December 31,2010. � March 8, 2013 - GVMC received the March 5, 2013 Letter2 of Cesar D. Escalada, Chief, Regular LT Audit Division I, informing it that the continuation of audit/investigation pursuant to LOA No. 116-2011-000001 09 is now assigned to RO Carolyn V. Mendoza under GS Rolando Balbido pursuant to MOA No. LOA-116-2013-0433 dated February 25, 2013. � Memorandum dated March 10, 2014, 3 prepared by ROs C. Mendoza/ R. Arriola/ R. Martirez I S. Samaniego and noted by GS Rolando M. Balbido, recommended the issuance of a Preliminary Assessment Notice against GVMC. � Memorandum dated June 19, 2014,4 prepared by ROs C. Mendoza/ R. Arriola/ R. Martirez I S. Samaniego and noted by GS Rolando M. Balbido, recommended the issuance of a Formal Letter of Demand and Assessment Notice against GVMC. Considering that ROs Mendoza, Arriola, Martirez, and Samaniego, who recommended the issuance of the assessment against GVMC, were not authorized by an LOA to continue GVMC's audit investigation, it is my view that the Final Letter of Demand dated June 25, 20145 and Assessment Nos. WE-116-LOA-116-2011- 1 Exhibit ''R-2", BIR Records, p. 2. 2 Exhibit "R-1", BIR Records, p. 349. 3 Exhibit "R-8", BIR Records, pp. 482-489. 4 Exhibit "R-10", BIR Records, pp. 510-518. 5 Exhibit "R-12", BIR Records, pp. 523-529.

Concurring and Dissenting Opinion CTA EB Nos. 1801 and 1808 (CTA Case No. 8988) Page 3 of4 00000109-10-14-812 (for expanded withholding tax), MC-116-LOA- 116-2011-000001 09-10-14-811 (for miscellaneous tax), VT-116-LOA- 116-2011-000001 09-10-14-810 (for value-added tax), IT-116-LOA- 116-2011-00000109-10-14-809 (for income tax),6 issued against GVMC are void ab initio. The National Internal Revenue Code (NIRC) of 1997, as amended, is clear and categorical in requiring an authority from the CIR or from his duly authorized representatives before an examination of a taxpayer may be made_? Section 6 thereof provides: "SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement. - (A) Examination of Returns and Determination of Tax Due - After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax: Provided, however; That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. xxx" (Boldfacing and underscoring supplied) A Bureau of Internal Revenue (BIR) officer cannot simply subject a taxpayer to audit without valid authority issued for that purpose. Section 13 of the NIRC of 1997, as amended, provides: "SEC. 13. Authority of a Revenue Officer. - Subject to the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner, a Revenue Officer assigned to perform assessment functions in any district may, pursuant to a Letter of Authoritv issued by the Revenue Regional Director, examine taxpayers within the jurisdiction of the district in order to collect the correct amount of tax, or to recommend the assessment of any deficiency tax due in the same manner that the said acts could have been performed by the Revenue Regional Director himself." (Boldfacing and underscoring supplied) In the cases at bar, the authority of RO Mendoza to continue the audit investigation of GVMC was alleged to be pursuant to Memorandum of Assignment (MOA) No. LOA-116-2013-0433 dated February 25, 20138 Such MOA, however, cannot be treated as an LOA as precisely, any re-assignment of cases requires the issuance of a new LOA. As for ROs Arriola, Martirez, Samaniego and GS 6 Exhibits "R-11" to "R-11-c", BIR Records, pp. 519-522. 7Medicard Philippines, Inc. vs. Commissioner of Internal Revenue, G.R. No. 222743, April 5, 2017. 8 Exhibit "R-13" (Judicial Affidavit of RO Mendoza), Docket, p. 1250.

Concurring and Dissenting Opinion CTA EB Nos. 1801 and 1808 (CTA Case No. 8988) Page 4 of4 Balbido, there is no proof of their authority to participate in the audit investigation of GVMC. Necessarily, the assessment issued pursuant to MOA No. LOA-116-2013-0433 is void. Being a void assessment, the same bears no valid fruit9 and must be slain at sight. All told, I VOTE to (1) DENY the Petition for Review filed by the Commissioner of Internal Revenue in CTA EB No. 1808 for lack of merit; (2) GRANT the Petition for Review filed by Green Valley Marketing Corporation in CTA EB No. 1801; (3) REVERSE and SET ASIDE the assailed Decision dated November 3, 2017 and Resolution dated February 15, 2018 of the Court in Division; (3) CANCEL the Final Letter of Demand dated June 25, 2014 and Assessment Nos. WE-116-LOA-116-2011-00000109-10-14-812, MC- 116-LOA-116-2011-00000109-10-14-811, VT-116-LOA-116-2011- 000001 09-10-14-810, and, IT-116-LOA-116-2011-000001 09-10-14- 809. Presiding Justice 9 Commissioner oflnternal Revenue vs. Metro Star Superama, Inc., G.R. No. 185371, December 8, 2010.