JERRY OCIER v. COMMISSIONER OF INTERNAL REVENUE

RE~UBUC OF THE PHiliPPINES Coon of Tax Appeals QUEZON CITY SECOND DIVISION JERRY OGIER, C.T.A. CASE NO. 6831 Petitioner, Members: CASTANEDA, JR., Chairperson �uv, and -versus- . PALANCA-ENRIQUEZ, JJ. COMMISSIONER OF INTERNAL Promulga ted: REVENUE, FEB 0 2 2009 / Respondent. ! _, . X- 7 ~ :.lfi - - - - - - - - - - - - - - - - - - - - - - - - - -� - - - - - - - - - - - - - " '~ ' / - ----X - ---- DECISION UY, J_.: This is a Petition for Review file d by petitioner, Jerry Ocier, on December 5, 2003 seeking the reversal and setting aside of the Decision1 of the Commissioner of Internal Revenue (respondent) dated March 10, 2003, the dispositive portion of which states : "IN VIEW THEREOF , this Offi ce hereby resolves to DENY the protest of Mr. Jerry Ocier.' The Final Assessment Notice No . BW-99-CGT-0040-01 for� P'17 ,862 ,848 .21 and BW- 99-DST-0041 -01 for P71 ,703.76 both dated September 10, 2001 issued by this Bureau for deficiency cap ital gains tax and documentary stamp tax respe ctively, are hereby AFFIRMED in all respects . Consequently, Mr. Ocier is hereby ordered to pay the above-stated amount plus interest that may have accrued thereon after thirty (30) days from receipt hereof, otherwise the ~ :. nJl' 1 Annex "A" of Petition for Rev iew; Docket, pp. 15-22. 105

DEC ISION C.T. A. CASE NO. 683 1 collection thereon will be effected through the summary remedies provided by law. This constitutes the final decision of this Office on the matter.2" THE FAClS Petitioner is of legal age, Filipino, with address at No. 6 Wilson Street, Greenhills, San Juan, Metro Manila, where he may be served summons and j other court processes . Respondent is the duly � appointed officer of the Bureau of Internal Revenue (BIR) with the power to decide disputed assessments, cancel and abate tax liabilities , pursuant to the provisions of the National Internal Revenue Code (NIRC) of 1997, as amend ed, and other tax laws, rules and regulations . On January 31 , 2001 , petitioner received a "Notice to Taxpayer" from the BIR which states that petitioner has incurred deficiencies in Capital Gains Tax (CGT) and Documentary Stamp Ta x (DST) for�the year 1999.3 On April 19, 2001 , petitioner sent a Letter-Reply to the BIR stating therein that the transfer of a total of 4.9 million shares of BW Resources from his account to the account of Mr. Dante Tan , which is the basis of the alleged deficiency tax, was erroneously presumed by the BIR as a sale when it was actually a loan.4 On September 26, 2001 , petitioner re ceived Assessment Notice No. BW-99-DST/CGT-0041 -01 dated Septem ber 10, 2001 from respondent 2 Ibid, at p. 22. oo. 3 Par. 2, Summ ary o f A dmitted Facts, Jo int Sti pu lation ; Doc ket. pp. I J0 1. 4 Exhi bit " E"; Docket, pp. I 59- 160. lOS

DECIS ION C.T.A . CASE NO. 683 1 Page 3 of23 assessing petitioner for deficiency DST and GST, inclusive of increments in the amounts of P17 ,862,848.21 and P71 ,703 .76 , respectively. These deficiency assessments arose from the alleged gains that petitioner supposedly realized from the sale of shares of BW Resources through over- the-counter transaction .5 On October 12, 2001 , petitioner duly filed with the BIR a Letter protesting the said assessment. 6 � In the Decision dated March 10, 2003, addressed to the law office of Fortun, Narvasa & Salazar, respondent denied petitioner's protest pertaining to the defi ciency CGT and DST assessments issued to him in the amounts of P17,862 ,848.21 and P71 ,703.76, respectively , relative to his BW Resources stock transaction in 1999.7 On June 16, 2003, petitioner received a Preliminary Collection Letter from the BIR, seeking to enforce the co llection of the above-mentioned deficiency assessments. In reply the reto, petitioner filed a letter on July 30, 2003.8 Subsequently on November p, 2003 , petitioner received a Letter dated October 15, 2003 from Teresita M. Ang eles, Chief of the BIR Collection Enforcement Division , wherein the Decision dated March 10, 2003 was attached .9 Alleging that he learned of the Decis ion dated March 10, 2003 only on November 6, 2003, petitioner filed the instant Petition for Review on December 5, 2003. 5 Par. 4, Summ ary of Adm itted Facts, Joint Stipu lat ion ; Doc ke t. p. I0 I . 6 Exhi bit "G" ; Docket, pp. I 62- 164. 7 Exhibits "A" and "A-I "; Doc ket, pp. 148- 155. 8 Par. 5, Summary of Admi tted Facts, Jo int Stipulati on; Docket, p. I0 I. 9 Par. 2.2, Petition for Review; Docket, pp . 2-3 ; Exhibit " 1\" . Docket, p. 156 . 107

J D EC IS IO N C.T.A. CASE NO. 683 1 On February 5, . 2004, respondent filed his Answer alleging the following Special and Affirmative Defenses : - "6. Petitioner seeks to set aside thru the instant Petition for Review the deficiency capital gains tax and documentary stamp tax assessments issued against him for the taxable year 1999 relative to the sale or transfer of BW shares owned by him on the following grounds to wit: (1) that he did not sell/dispose his BW shares but was only borrowed from him by Mr. Dante Tan hence, he did not realize any gain therefrom; and (2) that, even if, a transfer was actually made, petitioner can not be held liable to pay the capital gains tax and documentary stamp tax assessment relative to the said transfer because under the withholding tax system , it is the withholding agent who should be held liable. 7. On the first issue, petiti oner argued that he did not dispose of or sell his BW shares, the same having been borrowed only by Mr. Dante Tan from him as evidenced by an alleged trust declaration in the form of a letter showing the alleged agreement between him and Mr. Dante Tan . We do not agree. Contrary to common sense and sound business practice, petitioner would like us to believe that he parted with his substantial holdings of BW shares for no reason at all. No person in his right mind would. part with his substantial shares of BW shares without any reason . Be that as it may, the letter cannot be considered a stock loan agreement or a trust declaration since the terms of the agreement were not specified. If we are to consider said agreement as one of a loan, the terms thereof, the time as to when such shares are to be returned should have been clearly indicated therein . However, no such term was indicated in the said agre ement. This alone negates the position of petitioner. For this reason and for want of evidence, we seriously doubt the legitimacy or the efficacy of said letter purporting to be a stock loan . Obviously, the controversy here is not whether BW shares subject of this petition were actually transferred , in view of the fact that this was clearly established and not controverted . It is only how said BW shares were transferred or the mode of disposition that is the issue in this case . 8. Furthermore, petitioner can not argue that the transaction is or in the nature of a trust declaration and, therefore, not, a taxable transaction . In this regard, it is worthy to discuss in brief, the concept of Securities Borrowing Lending (SBL in brevity) . SBL, �which is the subject of BIR Ruling No. 168-98, is a product intende~; : ~e introduced, at the time, in~

;'r DEC IS ION C.T.A. CASE NO . 683 1 the market by the Philippine Stock Exchange. In principle it has the following proposed features : There is an agreement prepared in accordance with the Guidelines of the BIR; While there is physical transfer of securities to the Borrower, the Lender retains most rights of ownership, such as dividend payments and th~ right to sell the loaned securities at any time; The Borrower puts up collateral, which is not necessarily cash but may not also be government securities or letters of credit, which collateral may be �increased during the term of the securities lending to ensure full collateralization; - Collateral is returned by tt1e Lender to the Borrower at the end of the term whereupon, the Borrower returns the borrowed securities which need not be the same securities but may be merely identical; and - The Lender has the right to terminate the agreement and to require return of the securities upon giving proper notice. In the said ruling, it is expressly stated that 'to qualify as a lending of securities, the transaction must strictly comply with all the forgoing requirements .' s�o , if the transaction is outside the scope of the .fibove-stated qualification , although described as a SBL, the same shall be considered as a regular exchange transaction subject to the corresponding taxes under the Tax Code. 9. On to the second issue, petitioner posited the view that even assuming for the sake of argument, that the transfer of the stock certificates should be considered as a taxable transaction , the remedy of collecti on .should lie not against petitioner but against the withholding agent instead . Again, this position is without merit. Although , this issue was not raised by petitioner in his protest, still , we intend to answer the same, in this wise . Let it be stressed that the liability of a withholding agenUpayor (in this case , petitioner's broker) is entirely different from the liability of the payee being the recipient of the �income (the proceeds from the sale/transfer of the BW shares) bein~ 109

DE C IS lON C.T.A. CASE NO. 683 I Page 6 of23 subject of tax. Be it noted that under the Tax Code as well as the prevailing Revenue Regul ati ons implementing the 'withholding tax system ', the liabil ity of a withholding agent is entirely different from that of the payee. The payor or the withholding agent's liability aros e from its failu re to withhold the tax, a function that is incumbent upon it as such. So when said withholding agent fails to perform hi s duty by not withholding the proper or correct tax, the agent is pena lize for such fa ilure. Such penalty may include the amount of the ta x to be withheld and a fine , as the case may be, but in no way would the payee (like petitioner herein) be exempted or exo nerated from the payment of the tax, because he is still the person primarily liable for the payment of the same, he being the recipient of the income subject of tax. If we are to foll ow petition~ r� s position that he is already exonerated from th e payment of.the ta x, even if the tax sought to be collected has not bee n paid due to non -withholding of the same by his agent, it will have the effect of granting or giving exemption to petition er despite lack of positive law granting or providing the same. Evidently, this will run counter to the well-settled principle in law th at tax exemption is never presumed . 10. Petitioner was informed of the law and the facts on which the assessments are made in com pliance with Section 228 of the Tax Code. 11 . Finally, it is well settled rule in taxation that assessments are prima facie presumed correct and made in I good faith . The ta xpayer has th e duty of proving otherwise. In the absence of proof of any irregulari ties in the performance of official duties, an assessment will not be disturbed ." On July 22, 2004, th e parties fil ed their Joint Stipulation which was approved by the Court in a Resolution dated August 3, 2004 .10 During trial , petitioner presented th ree (3) witnesses , to wit: Jerry Ocier, who is the Vice-President of Eastern Securiti es Development Corporation; Lemuel S. Bitong , Associate Director of the Philippine Depository and Trust Corporation ; and Jennifer Laureni o, Accou nting Assistant of Eastern Securities from July 16, 1991 to December 3�1. 2002. Thereafter he rested his ~ 10 Docket, pp. 100- 105. 110

) DEC ISIO N C.T.A. CASE NO. 683 1 Page 7 of23 case and formally offered his documentary evidence consisting of Exhibits "A " to "Q", inclusive of their submarkings , which were all admitted with the I exception of Exhibits "0 ", "F", and "H" in the Resolution dated January 24, 2006 .11 While respondent's counsel was ab le to present one (1) witness, Josephine D. Madera , Revenue Officer - National Investigation Division of the Bl R, he however failed to make a formal offer of evidence despite several opportunities granted by the Court. On February 6, 2008 , this case was submitted for decision , taking into consideration petitioner's Memorandum filed on June 6, 2007, sans respondent's Formal Offer of Evidence and Memorandum. 12 THE ISSU ES As jointly stipulated by the parties, the issues of this case are the following : "1. Whether or not petitioner's counsel of record with the Bureau of Internal Revenue (BIR) is the law firm of Tan Acut & Lopez Law . Offices and not the law firm of Fortun Narvasa & Salazar? 2. Whether or not the present petition for review was timely filed within the thirty (30) days reglementary period to appeal the assaile.d decision of respondent commiss ioner? 3. Whether or not petitic;mer should be held liable to pay the deficiency capital gains tax and documentary stamp tax in connection with the alleged sal e/transfer of his shares of stocks in the BW Resources Corporation through over-the- counter transaction? 4. Whether or not petitioner filed a crim inal complaint for estafa _vl against Dante Tan and is now pending before the Regional ". Ibid., at pp. 187- 188. {iv - 12 !d., at p. 315. lll

DEC ISION C.T.A . CASE NO. 683 1 Page 8 of23 Trial Court of Pasig City, Branch 68 entitled 'People of the Philippines vs . Dante Tan' , docketed as Crimina l Case No. 12572? " Petitioner's Arguments Petitioner alleges that it was only_ on November 6, 2003 that he received from respondent a demand letter with the information that his protest and request for reconsideration have been denied . Although the Decision was dated March 10, 2003, petiti oner was never aware thereof until he received a Letter dated October 15, 2003 from Teresita Angeles , �Chief of the Collection Enforcement Division of the Bureau of Internal Revenue , on the above mentioned date. Further, petitioner submits th~t the subj ect CGT and DST assessments are erroneous and arbitrary considering that the same was made without the benefit of any audit of the books or re cord s of the petitioner; that he did not sell or dispose the shares of stock of BW Resources Corporation and he did not realize any gain a.s presumed by respo ndent; and that contrary to the presumption of respondent, said shares were in fact only borrowed by Mr. Dante Tan , as evidenced by the Letter-req uest dated September 2, 1999, and were not for disposition . Mr. Dante Tan has not accounted for the shares and petitioner has incurred a loss and was th erefore constrained to file a criminal case against the former. Even assuming for the sake of argume nt that the transfer of the stock certificates should be considered as a taxab le transaction , it is petitioner's stand that the remedy of collection should not be against him. According to him , under Sections 24 (C) and 57 of the NIRC of 1997, the transaction 112 I

DECISION C.T.A. CASE NO. 683 1 Page 9 of23 subject of this case is covered by the withholding tax system , and as it is a well -settled principle in taxation law that in case there should be a deficiency in the payment or in case there is no paym ent made by the withholding agent, the remedy of respondent is to collect the same from the withholding agent and not from the taxpayer himself. Additi on ally, petitioner emphasizes that one of the distinguishing characteristic of the withholding tax system is that although the payee or seller is still considered as the ta xpayer, the liability or payment of the same is shifted to the payor or buyer. Respondent's Counter-Arguments Respondent argues that since the Decision dated March 10, 2003 was sent by registered mail to the Law Offices of Fbrtun, Narvasa & Salazar, who filed the protest against the assessm ent in behalf of petitioner, the assessment subject of this case has beco me final and executory for petitioner's failure to appeal the said decision to the Court within the reglementary period of thirty (30) days pursuant to Section 228 of the NIRC of 1997. Additionally, respondent points out that it is contrary to common sense and sound business practice that petitioner parted with his substantial holdings of shares of stocks of BW Resources for no reason at all . The Letter dated September 2, 1999 cannot be co nsidered as a stock loan agreement or a trust declaration since the term~ of the agreement were not specified . � Furthermore, respondent contends that in order for subject transaction may qualify as a lending of securities, the transaction must strictly comply with all the requirements as stated in the BIR Ruling No. 168-98 which embodies the 113

) DECISION C.T.A . CASE NO. 683 I Page 10 o f 23 concept of Securities Borrowing Lending - a product intended to be introduced , at that time, in the market by the Philippine Stock Exchange. Otherwise, the transaction will be considered as . a regular exchange transaction subject to the corresponding tC~ xes under the NIRC of 1997. On the view of petitioner that the remedy of collection should not be made against him but instead against the withholding tax agent, respondent counters that the liability of the withholding ta x agent/payor is entirely different from the liability of the payee being the re cipient of the income being subject of tax . The failure of the withholding ta x agent/payor to perform his duty may result to him being penalized for the amount of the tax and a fine, but in no way would the payee be exempted or relieved from the payment of the tax since he is still the person primarily liable for the payment of the tax. THE COURT'S RULING " On the first issue , contrary to the claim of respondent, the Court finds that Tan Acut & Lopez Law Offices is the co un sel of record of petitioner in the administrative proceedings with the Bureau of Internal Revenue (BI R) and not the Law Office of Fortun Narvasa and Salazar, as evidenced by the Special Power of Attorney (SPA) executed by petitioner on April 4, 2002 appointing Tan Acut & Lopez Law Offices as his counsel. 13 A perusal of the said SPA shows that it was in fact received by the BIR on April 9, 2002, a date before the promulgation of respondent's De.cision on March 10, 2003. 13 Exhibit "M"; D62ket, p. 176.

DEC IS ION C.T.A. CASE NO. 6831 Page II of23 Additionally , it appears from the record s that the protest letter14 was in fact signed by petitioner himself, and th ere was no indication that the Law Office of Fortun Narvasa and Salazar filed the same in behalf of petitioner as claimed by respondent. Records clea rly show that most communications were written and signed by petitioner himself; that replies thereto from respondent or his authorized officers were likewise adqressed to him ; and that respondent is aware of petitioner's address� at No. 6 Wilson Street, Greenhills , San Juan, Metro Manila , because res ~ondent's Letter dated October 15, 2003 was sent at said address. The records al so do not show that the Law Office of Fortun Narvasa and Salazar entered its appearance as counsel for petitioner with the BIR . There seems to be no reason why respondent failed I to send the assailed Decision to the counsel of record Tan Acut & Lopez Law Office and to the petitioner himself at his address of record . Hence , it is clear that respondent erroneously sent the Decision to the Law Office of Fortun Narvasa and Salazar. In this regard, the Court is inclined to be lieve petitioner's submission that it could not have received the Decision dated March 10, 2003 when it was first sent by the BIR because the same was mailed to the wrong address, and thus finds that he received it only on November 6, 2003 at his San Juan address when it was attached to the Letter dated October 15, 2003 of Teresita M. Angeles , the Chief of the Collection En f~rcement Division of the BIR. Moreover, the Court notes that no controverting evidence was submitted by rti 14 Exhibit "G"; Docket, pp. 162- 164. 115

) DEC ISION C.T.A. CASE NO. 683 1 Page 12 of23 respondent to refute petitioner's cla im th at th e Law Office of Fortun Narvasa and Salazar is not his legal counse l in his dea lings with the BIR. With the foregoing findings , th e second issue on the timeliness of the filing of the instant Petiti on f<:;J! Re vi ew, ,or within the thirty (30) day reglementary period , is ruled in th e affirmative reckoned from the time that petitioner actually received the Decisi on of respo ndent on November 6, 2003. Counting thi rty (30) days therefrom , petiti oner had until � December 6, 2003 to elevate the case to this Court. As the Petition for Review was filed on December 5, 2003 , the same is considered as timely filed . As regards the third issue pertaining to petitioner's supposed tax liabilities for capital gains ta x and docum en tary stamp tax, arising from the sale/transfer of his shares of stocks in BW Resources Corporation through over-the-counter transactions , the Co urt need no longer look into whether or not the subject BW shares were actu ally tra nsferred , as this was clearly not controverted . What is at issue is wheth er or not respondent was able to establish , by sufficient evidence , th e legal and fa ctual bases for petitioner's supposed tax liabilities arising from sa id tran sfers. The Court takes special note that during the presentation of respondent's evidence , his counsel fail ed to make a formal offer of evidence as mandated under our procedural r01es. It must be remembered that the rul e on formal offer of evidence is not a trivial matter Failure to make a formal offer within a considerable period o~ llC

' DECISION C.T.A. CASE NO. 683 1 Page 13 of23 time shall be deemed a waiver to submit it. Consequently, as in this case, any evidence that has not been offered shall be excluded and rejected .15 Pertinent is Section 34, Rule 132 of the Revised Rules on Evidence, which reads : "SEC. 34 . Offer of evidence. - The court shall consider no evidence which has not been formally offered . The purpose for which the evidence is offered mu st be specified ." Based on the records of the instant case , respondent presented one (1) witness to establish petitioner's supp os ed ta x liability, and as early as January 24, 2007, respondent's counsel rested his case and was directed by the Court to file a Formal Offer of Eviden ce within thirty (30) days from said date. 16 For failure of respondent to file said Formal Offer of Evidence, this Court declared respondent to have waived his right to file the same in the Resolution dated March 29 , 2007 17 and both parties were granted thirty (30) days to file their respective memorandum . This Resolution was however can ce ll ed and set aside in the Resolution dated July 16, 200718 upon a Moti on for Reconsideration filed by respondent's counsel on April 18, 2007, with Opposition from petitioner's counsel filed on May 23 , 2007 , in view of tl') e pending request of respondent's counsel for stipulation with petitioner's coun se l that Exhibits "11" and "14" are faithful reproductions of the originals there of. A commissioner's hearing was 15 Heirs of Pedro Pasag vs. Spo uses Loren::.o and Flnrenfino Parac ha, G. R. No. 15548 3, April 27, 2007 . 16 Minutes of th e hearin g he ld o n Jan uary 24, 2007; Docke t. p. 23 8. 17 Docket, p. 240 . 18 Ibid., at pp. 278-280. 117

DEC IS ION C.T.A. CASE NO . 6831 Page 14 of23 set for that purpose before Atty Jesus P lnocando on July 30, 2007 at 1:30 p.m. Meanwhile, petitioner filed his Memorandum on June 6, 2007. Thereafter, respond ent's counsel failed to appear during the scheduled commissioner's hearing on Jul y 30 , 2007 and resp ondent was again declared to have waived his right to fil e his Formal Offer of Evidence in the Resolution dated August 7, 2007.19 Again , the Court granted respondent's motion for reconsideration in the Resoluti on dated October 18, 200720 for the same purpose of allowing both parties' counse l to stipulate as regards Exhibits "11" and "14 during a commissioner's hearing schedu led on October 24, 2007. On said date, petitioner's counsel , Atty All ene Ani gan , failed to appear and respondent's counsel filed a Request for Admission on November 6, 2007.21 Petitioner's counsel did not respo nd to said request. Subsequently, in the Res oluti on dated February 6, 2008, 22 this case was considered submitted for decision wit l1out forma l offer of evidence or memorandum having been fil ed by respondent. It is well-settled that the courts cann ot consider evidence which has not been formally offered . Parties are required to inform the courts of the purpose of introducing their respe cti ve exhibits to assist the latter in ruling on their admissibility in case an objection thereto is made. Without a formal offer of evidence, courts are constrained to take no notice of the evidence even if it has been marked and identifi ed 23 19 !d., at p. 283. 20 -Id., at pp. 30 1-302. 21 !d., at pp. 309-3 13. 22 Id. , at p. 3 15. � 23 Far East Bank & Trust Co, vs ComlliiSStonet nf fnletnaf Re r enue, G .R. N o. 149589, September 1~5 2006. 118

DECISION ) J C.T.A. CASE NO . 683 1 Page 15 of23 In the more recent case of Hafael Arsenio S. Dizon, in his capacity as the Judicial Administrator of the Es tate of the deceased Jose P. Fernandez vs. Court of Tax Ap p eals and Commissioner of Internal Revenue, G.R. No. 140944, April 3 0, 2008, 24 the Supreme Court had the occasion to explicate the signifi can ce of th e forma l offer of evidence , in this wise : "While the CTA is not gove rn ed strictly by technical rules of evidence, as rul es of procedure are not ends in themselves and are primarily intended as ' tool s� in the administratiqn of justice, the presentati on of the BlR's evidence is . not a mere procedural technicality which may be disregarded considering that it is the only me ans by which the CTA may ascertain and verify the truth of BIR 's claims against the Estate. The BIR's failure to formally offer th ese pi eces of evide nce, despite CTA's directives , is fatal to its cause . Such fa ilure is aggravated by the fact that not even a single reason was advanced by the BIR to justify such fatal omission This , we take against the BIR. " Relevant thereto , in lnterpacific Transit, Inc. vs. Aviles, G.R. No. 86062, June 6, 1990, 186 SCRA 385,25 th e Supreme Court even clarified the distincti.on between identification of documentary evidence and its formal offer as an exhibit. The first is done in the co urse of the trial and is accompanied by the marking of the eviden ce as an exhi bit. The second is done only when the party rests its case an d not before . The mere fact that a particular document is identified and marked as an ex hibit does not mean it will be or has been offered as part of th e eviden ce of the party. The party may decide I I to formally offer it if it believes this will adv ance its cause, and then again it may decide not to do so at all . 24 Ponencia of Assoc iate Justi ce Antoni o Edt ta1�d11 11 NDc hut�a, Third Di ,�i ;ion. "~ 25 Ponencia of Associate Justi ce Cru z, l' irst l)i , is ion . { y� 119

DECISION C.T.A . CASE NO. 683 I Page 16 or 23 Applying the forego ing jurisprud ence in the case at bench , the pieces of respondent's documen tary evid ence whi ch may have been identified and I marked as exhibits du rin g pre-trial or trial , or attached to the records of this case , but which were not form ally offere d in evide nce, cannot in any manner be looked into in the reso lution of th e iss ues rai sed in this case . Neither can such unrecognized proof be ass ign ed any evidentiary weight and value . It must be stressed tha t the1�e is a signifi cant distinction between identification of docum entary evid ence and its form al offer. The former is done in the course of the pre-tria l, and trial is acco rnp anied by the marking of the evidence as an exhi bit; while th e la tter i'�s done only when the party rests its case . The mere fact th at a parti cula r docum ent is identified and marked as an exhibit does not mean tha t it h2s alre ady bee n offered as part of the evidence . It must be emphasized tl1 at any ev id ence which a party desires to submit for the consid eration of th e'cou rt must forma lly be offered by the party , pursuant to Section 34, Rul e 132 of th e Rev ised Rules on Evidence; otherwise , it is excluded and rejected In the past however, it appears that in til e case of Vda. De Onate vs. Court of Appeals,26 th e Highes t Court re laxe d the foreg oing rule and allowed evidence , not form ally offered, to be consi de red on condition that: (1) evidence must have been identifi ed by testim ony dul y recorded ; and (2) it must have been incorporated in th e records c:i f th e case . Thus , We look into the ev id en ce presented by respondent, the oral testimony of Josephine 0 Madera, Revenue Officer -National Investigation~ 26 G.R. No. 11 6 149, Nove mbe r 23. 199--.. :25 0 "CP A 283 120

J DEC IS ION C.T.A. CASE NO. 683 I Page 17 of23 Division of the BIR , wh o tes tified by v:ay of Judicial Affidavits dated October 5 and 25, 2006,27 and specific d o cunt �~ nts which she id entified therein that are attached to the docket of this cas e In her affidavits , she identifi ed the following attached documents, to wit: Memorandum for the Com mi ssto ner dated November 21 , 2000 28 I Memorandum for the Dep uty Com, niss ione r dated November 15, 2001 ,29 various In and Out Receipts, 30 Sec uri ty Movement Report,31 and Letter of Instruction signed by a ce rta in Jerry '.io32 A perusal of the identi fied "In c.� nd Ou t Receipts" shows that these were issued to a certain Jerry with th e surn ames of Ong , Ng , Go, with the exception of "Out" Rece ipt No 0060154 issued by Eastern Securities Development Corporati on showi ng .leli very of BW Resources Corporation shares to Jerry Ocier on Septem bet� \, 1999 . Nevertheless, the latter receipt I is a mere photocopy and therefore �vvtt hout evid enti ary value. In the Memorandum for the Cl)mmi ss ioner dated November 21, 2000, and Memorandum for th e Dep uty Cc: rnmis sion er of the Legal and Inspection Group of the Bureau of Internal Revenu e dated Nove mber 15, 2001 , it was mentioned therein tha t the subj ect over-the-co unter transfers involve Jerry Ocier, Jerry 0 . Ng an d Jerry Go, \' ho are allege dly one and the same as evidenced by th e attached cli ent's informa tion form and an officer (Vice- President) of Eastern Sec uriti es . 1\l r-.~ J b l y however, th is client information was 27 Docket, pp. 209-2 14 a nd 23 1-23 4, respect i vc: l;. 28 Ibid., at pp. 2 15-2 16. 29 Id., at pp. 2 17-230. 30 Id., at pp. 22 1-225,227. 31 ld., at p. 226. 32 ld., at p. 228. 12.1

DEC IS ION C.T.A. CASE NO. 683 I Page 18 of23 never presented and the Court cannot make a proper determination of the veracity of such conclusion . Moreover, in the first Memorandum , the tax base was discussed as follows : "In determining the tax base , Sec. 6(a)(2) of Revenue Regulations 2-82, dated March 29 , '1982, was used, which provides- In the case of shares not traded through the stock exchange, but listed. in one or mfJre stock exchanges, the highest closing price on th e day when the shares are or sold, transferred exchanged, shall be the "fair market value ". When no sale is made in any stock exchange, the highest closing price on the' day nearest to the day of sale, transfer or exchange of th e shares shall be the fair market value. In Sec. (b)(1) the same revenue regulations , the first-in , first-out (FIFO) method was used in computing the cost of the shares, which is the highest closing price at the time of transfer in , since proper identification can not be applied ." Gleaned from the foregoing , proper identification of the shares admittedly could not be applied , and therefore , the revenue examiners of respondent had to resort to the provisions of Section (6)(a)(2) of Revenue Regulations No. 2-82, in computing the costs of supposed transferred shares, which is the "highest closing price at the time of transfer". Thus , to be able to apply the aforequoted accounting principles invoked by respondent, We must be able to determine , using the documentary evidence identified by respondent's witness, what was the highest closing price of BW shares at the time of the supposed transfers, as well as the supposed sales transactions that led to the imposition of the subject assessments . 122

DECISION C.T.A. CASE NO. 683 I Page 19 of23 A careful an d th oro ugh evalualic>;l . ,f tl te testimony of respondent's witness and the docum ents sh e ide nti fi ed re ~-tclil y yields a negative answer. Although in th e Memorandu m cl ateci i JOIJ(';mber '15, 2001, it was stated therein that the requisites und er Secti on '2 8 of Republic Act no. 8424 as implemented by Reven ue Regulatiqn s No 12-99, that assessment state the factual and legal ba se s were full y satisfied � .1 ith, whereby annexes and details of discrepancies attached to ti1e as sesc�tn ent recei ved furnished all the necessary informati on in com pli ance vvrtr1 ti ..:: Sc' id regulations, presenting the important points of th e� taxab le ove r-th ."'-coun ter tra nsactions, the said annexes were never presented nor f(,,t naflv offered in evidence by respondent. Thus , We cann ot determine with r;c:::3 sona ble ce rtainty the legal and factual basis of re spon dent's as ses s: ne~ ,; , a~:; there was neither a clear showing of an actual sal e of sh are s of sto cf nor evidence to support its basis for computing the su bject asses sme nts Respondent's reliance on BIR H�il ing No '168-98 as basis for ., considering the tran saction as one involvin r sal e is erro neous. In that ruling , respondent did not reso lve the prope !" laxat ion treatment of securities borrowing and lendin g tran sacti ons . In f;-,_:t, no revenue regulations were cited , much less promulgated to prescr ibe ihe guidelines and conditions for the tax treatment of securiti es borro wi n9 and len ding transactions . It was only on June 23, 2006 th at Revenu e Regul ati or, , t\lci 10-0633 was promulgated to 33 Subject: " Prescribin g the Guidel in es ~11vi <�omliti <'li!: ,., the r"�'Treat me nt o f Sec uriti es Borrow in g and Lending Transacti on s Ill\ o h 1n g Sln1 <:S ol S''" k' , ' Sec u1il1 es I 1sted in the Philippine S tock "~ Exchange'�. ~� v 123 1

DECISION C.T. A. CASE NO . 683 ! Page 20 o f 23 govern such transactions . As stated in Section 1 thereof, Revenue Regulations No . 10-06 was promulgated pursuant to Sections 24434 and 24535 of the NIRC of 1997. As a revenue regulation intended to govern those affected , it became effective on August 3, 2006 , fifteen (15) days after its publication in the newspaper Manila Bulletin on July 19, 2006. Consequently, petitioner cannot be bound by the rules contained therein as the same cannot be given retroactive effect pursuant to Secti on 24636 of the NIRC of 1997. 34 Section 244. Authority of Secretmy of Finance to f' ro111ulgate Rules and Regulations. - The Secretary of Finance, upo n reco mm endati on of the Co1i1miss ione r, s hall p ro mul ga te a ll need ful rul es and regul ati o ns fo r th e effec ti ve enforcement of th e pro1�is io ns or thi s Code. 35 Section 245. Specific Provisions to be Contained in Rules and Reg ulations. - Th e rules and reg ul ati ons of th e Burea u of Intern a l Rev enue sha lL a111ong o th er th ings, con ta in prov isions spec ify in g, prescribin g or de finin g: (a) The tim e and ma nn er in w hi ch Revenu e Reg io nal Di rec tor sha ll ca n vass th eir respec ti ve Revenue Regions for th e purpo se of di scove rin g perso ns a nd pro perty li able to nati ona l inte rn a l revenu e taxes, and th e mann e r in whi ch the ir li sts and records o f taxa hi e pe rso ns a nd taxab le o bj ects sha ll be made and kept; ~X ~X ~X (d) T he conditi o ns to be observed by reve nu e o lTi eers res pectin g th e insti tuti o ns and co ndu ct of lega l acti ons a nd proceedin gs; XXX 1 XXX XXX (g) The mann e r in w hi ch revenu e s hall be coll ected and pa id, the instrument, docum e nt or o bjec t to whi ch revenu e sta m ps sha ll be affi xed, th e mode of ca ncell ati on o f th e sa me, th e ma nne r in whi ch th e proper books, record s, in vo ices and o th e r pape rs sha ll be kep t and e ntri es th ere in made by th e person subj ect to th e tax , as we ll as th e mann er in wh ich li censes and sta mps sha ll be gath ered up and return ed aft er se rv in g thei r purposes; XX X XXX ~X (i) The mann er in w hic h tax return s, inform ati o n and repo rts sha ll be prepa red a nd reported and the tax co llected and pa id , as we ll as th e co nd iti o ns tmd er 11�hic h ev idence o f pay me nt sha ll be furni shed th e taxpayer, a nd th e pre parati on and p ub licati o n of tax stati sti cs; U) The manner in w hi c h internal reve nu e taxes, such as inco me tax, inc lud ing w ithho ld in g la x, estate and donor's ta xes, value-add ed tax , other pe rce nt age taxes, exc ise taxes and docume ntary stam p taxes shall be pa id through th e co ll ecti on o ffi ce rs of th e B ureau of Intern a l Revenu e or thro ugh dul y auth ori zed age nt ba n ks whi c h a re hereby deput ized to rece ive paym ents of s uch taxes and th e returns, papers and statements th at m ay be fil ed by th e taxpaye rs in co nn ecti on with th e payment of the tax: Provided. ho11'ever, Th at notw ith stand ing th e ot her pro visions of thi s Code prescribin g the pl ace o f filin g of returns and pay ment of taxes, th e Co mmi ssioner m ay, by r~tl es and reg ulati ons require that th e tax return s, pa pers and statemen ts a nd taxes of large tax payers be fil ed and paid, respecti vely, thro ugh co ll ecti on offi cers or through d ul y a utho ri zed agent ba nks : Providecl, ji1rther, That the Co mmi ssioner ca n exerc ise thi s power wi thi n six (6) yea rs fro m the approval o f R epublic Act No. 7646 or th e com p leti o n of its compre hensive co m puteri zati o n program , w hi c hever co mes earli er: Provided, fi nally , T hat separa te ve nu es fo r the Luzo n, V isayas and Min da nao areas may be designated for the filin g of tax return s a nd pay me nt o f ta .'\eS by sa id large tax paye rs . xxx.". 36 Section 246. No n- Retroactivity of Rulings. -A ny revoca ti o n, modi fi ca ti on o r reversal o f any o f th e "'"'d"'" rule. '"d cog"l olio"' pw mcdg"ed in with the ptcceding Section' ot '"Y ofth e ntling' o~ " 124

DEC IS IO N C.T.A. CASE NO. 6831 Page 2 1 of23 This Court is not unmindful of the prin ciple that assessments are prima facie presumed correct and made in good faith ; that it is the taxpayer that has the duty of provi.ng otherwise ; and in the abse nce of proof of any irregularities in the performan ce of official duties , an ass essmen t will not be disturbed . Considering however that the subject assessments are being contested by petiti oner, it becomes incumbent upon respondent to present sufficient eviden ce in support th ereof, most especially that respondent's computation of subj ect ta x defidencies were not based on clear cut evidence, because respond ent's examiners had to resort to ce rtain accounting methods and principles to arrive at the same, to wit: the first-in first out method in computing the cost of the subject shares of stock, and the "highest closing price" at the time of transfer, to arrive at th e "fair market value" of the same, because admittedl y, proper identifi cation cou ld not be applied . To reiterate , applying the principle enunciated in the case of Rafael Arsenio S. Dizon, in his capacity as the Judicial Administrator of the Estate of the deceased Jose P. Fernandez vs. Court of Tax Appeals and Commissioner of Internal Revenue,37 respondent's failure to submit sufficient evidence to establish the propriety and legality of the assailed Decision and As sessme nt Notices, as there was no evidence formally offered in his behalf, is fatal to his case. circulars promul gated by the Com mi ss ione r sha ll not be g iven retroactive application if the revoca ti o n, modifi cation o r reversa l w ill be rrcjudic ia l to th e taxpaye rs, except in the followin g cases: (a) Where the taxpaye r de li berately mi ss tates or omi ts materia l facts from hi s re turn or any document required of him by th e Burea u of Inte rn al Revenu e; (b) Where th e fa cts subsequent ly ga th ered by th e Burea u of In terna l R eve nue are m ateriall y different ~ from the fa cts on wh ic h the ru lin g is bHsed; or; (c) Wh ere the taxpayer acted in bad fa ith . 37 Supra. 125

DECISION C.T.A . CASE NO. 68 31 Page 22 of23 In view of the foregoing discussion , the resolution of other related issues, such as whether the transaction between petitioner and Dante Tan is considered a sal e of shares of stocks or stock loan , and whether or not petitioner filed a crim inal case against Dante Tan , becomes irrelevant. Hence, the Court declines to resolve' the same. WHEREF ORE , premises considered , the instant Petition for Review is hereby GRANTED . Accordingly , respond ent's Decision dated March 10, 2003, is REVERSED AND SEl ASIDE . The Final Assessment Notice Nos. BW-99-CGT-004 0-01 and BW-99-DST-0041-01 , both dated September 10, 2001, assessing petitioner for deficiency CGT and DST in the amounts of P17,862,848.21 and P71 ,703.76, respectively , inclusive of interest, surcharge and compromis e penalty for ta xab le yea_r 1999 is hereby ordered CANCELLED. SO ORDERED. ~.UY Associate Justice WE CONCUR: ~rz;_,~ / ~;s'oc?GA~ct,/J~ � OLGA PALANCA-ENRIQ~ . Associate Justi ce Associate Justice 12G

DEC ISION C.T. A.' CASE NO. 68 3 I Page 23 o f 23 AT T ESTAT ION I attest that th e con clusions in th e above Deci sion were reached in consultation before th e case was assigned to th e write r of the opinion of the Court's Division . ~-~ Q C.AcS:TwA--N-E-D~A~,1JRSA.r._ JUAN ITO C. Associate Justice Chairperson C E R T IF ICATION Pursuant to Arti cl e VIII , Secti on 13 of the Constitution , and the Division I Chairperson's Attestation, it is hereby certified th at th e conclusions in the above Decision we re reached in co nsultation before the case was assigned to the wri ter of the opini on of the Co urt. ~uz . Q -0--- ERNESTO D. ACOSTA Presiding Justice 127