ORICA NITRATES PHILIPPINES, INC. v. COMMISSIONER OF INTERNAL REVENUE

CTA Form No.8 1111111111111111111111111111111111111 11111111111111 111111 11111 111111111111111111 22-0003 79-0079 REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SPECIAL FIRST DIVISION CTA CASE N0.10946 ORICA NITRATES PIDLIPPINES, NOTICE OF DECISION INC., Petitioner, - versus- COMMISSIONER OF INTERNAL REVENUE, Respondent. To: OFFICE OF THE SOLICITOR GENERAL 134 Amorsolo Street, Legazpi Village Makati City ATTY. SYLVIA R. ALMA JOSE ATTY. AYESHA RANIA B. GUILING-MATANOG Bureau of Internal Revenue Room 703, Litigation Divisio n, BIR National Office Building Sen. Miriam P. Defensor-Santiago Diliman, Quezon City CABRERA & COMPANY 28th Floor, AlA Tower (formerly Philamlife Tower) 8767 Paseo de Roxas 1226 Makati City GREETINGS: You are hereby notified by these presents that on April 15, 2026, a Decision was rendered in the above-entitled case, copy of which is attached hereto. Quezon City, Philippines, April17, 2026.

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SPECIAL FIRST DIVISION ORICA NITRATES CTA CASE NO. 10946 PHILIPPINES, INC. , M e m b e rs: Petitioner, -versus- BACORRO-VILLENA, Acting Chairperson, and CUI-DAVID, JJ. COMMISSIONER OF Promulgated: INTERNAL REVENUE, Respondent. APR 1 5 20~bPM }(---- --------- ------- --- -~ ~ ---------- -}( DECISION CUI-DAVID, J.: Before this Court is a Petition for R eview, 1 filed by petitioner Orica Nitrates Philippines, Inc. (petitioner) on August 2, 2022, seeking the cancellation and reversal of the Final Assessment Notice and Formal Letter of Demand (FAN/FLD) issued by respondent Commissioner of Internal Revenue (CIR or respondent), which found petitioner liable for deficiency t~es in the amount of P41,332,677.49, inclusive of interest, surcharges, and administr ative penalties. THE PARTIES Petitioner Orica Nitrates Philippines Inc. is a domestic corporation duly organized and e}(isting under the laws of the Philippines, with principal office address at #2 Monte De Ramos Apt., Infante Subdivision, Bagacay, Dumaguete City, Negros Oriental.2 Petitioner is a registered t~payer of Revenu e Region Docket - Vol. I. pp. 6-22. Docket - Vol. II. p. 990. Petitioncr�s Memorandum. I. The Parties. par. 1.1 : 753. Exhibit �� p_r �.

DECISION CTA Case No. 10946 Orica Nitrates Philippines, Inc. v. Commissioner of Internal Revenue x------------------------------------------------------------------------------------------x No. 12 - Bacolod City, with Taxpayer's Identification Number (TIN) 000-134-384-000.3 Respondent CIR is the government official authorized and charged with the assessment and collection of all national internal revenue taxes, fees and charges, and enforcement of all forfeitures, penalties and fines connected therewith. THE FACTS On June 21, 2017, respondent issued Letter of Authority (LOA) No. eLA201200046008 (First LOA) , authorizing Revenue Officer (RO) Priscilla Ho (Ho) and Group Supervisor (GS) Grace Rikelle Lapu-Os (Lapu-Os) to examine petitioner's books of accounts and other accounting records for the period October 1, 2015 to March 31, 2017. The First LOA was received by petitioner on the same date.4 On September 19, 2017, petitioner received an undated Schedule of Tax Deficiencies signed by RO Ho, finding petitioner liable for total tax deficiencies of P189,096,587.35.s Petitioner responded through a Letter dated October 23, 2017, signed by its Finance Officer, Rowena R. Viliran, and received by RO Ho on October 24, 2017 .6 On April 26, 2018, respondent then issued a Preliminary Assessment Notice (PAN), finding petitioner liable for deficiency taxes in the amount ofP42,549,775.67, inclusive of interest, for the short period October 1, 2016 to March 31, 2017,7 broken down as follows: Total Income Tax Deficiency - 1st Quarter 42,284,227.25 Total Income Tax Deficiency - 2nd Quarter 13,428.20 Total Value-Added Tax Deficiency Total Amount Due and Collectible 252,120.21 42,549,775.67 On April 30, 2018, petitioner received the PAN.8 /d. at 992. Petitioner"s Memorandum. IV. tatcmcnt of the Facts. par. 7: 769-770. Exhibit ��r-r. Docket - Vol. I. p. 264. Joint Stipulation of Fact and I sues. par. l.l.a.l: Docket- Vol. II. p. 790. Exhibit ��r-6��. Docket - Vol. II. pp. 791 -795. Exhibit ��r-r. 6 /d. at 796-806. Exhibit ��r-8... Docket- Vol. II. pp. 807-8 10. Exhibit ��r-9��. Docket- Vol. I. p. 264. Joint Stipulation of Facts and Issues. par. l.l .a.2.

DECISION CTA Ca se No. 1094 6 Orica Nitrates Philippines, Inc. v. Commissioner of Internal Revenue X--------------------------------------------------------------------------------------- ---X On May 9, 2018, petitioner filed a Protest Letter to PAN, which was received by respondent on May 10, 2018.9 On June 19, 2018, respondent issued a Formal Letter of Demand (FLD) with Details of Discrepancies, finding petitioner liable for deficiency value-added tax (VAT) in the amount of P303,922.90, inclusive of interest, and compromise penalties of P350,000.00 for the fiscal year (FY) ending September 30, 2016 ("FY 20 16"). 10 The FLD was received by petitioner on June 28, 2018. 11 However, the attached Details of Discrepancies reveals that a deficiency income tax of P43,427,958.28 was likewise being imposed and covers the short period October 1, 2016 to March 31, 2017, with no assessment shown for FY 2016. The FLD and Details of Discrepancies were signed by Aynie E. Mandajoyan- Dizon, OIC-Regional Director of Revenue Region No. 12 - Bacolod City. On July 25, 2018, petitioner filed its Protest to Final Letter ofDemand (FLD) I Final Assessment Notice (FAN) [sic] dated July 23, 2018. 12 On April 15, 2019, respondent issued LOA No. eLA20 15000076065 (Second LOA), authorizing RO Jolen Keith Ilustre and GS Priscilla Ho to examine petitioner's books of accounts and other accounting records for the period October 1, 2015 to March 31, 2017. The Second LOA was received by petitioner on April22, 2019. 13 On June 27, 2019, respondent issued two documents captioned as Final Decision on Disputed Assessment (FDDA), finding petitioner liable for the following: First FDDA14 FY 316,378.94 Deficiency VAT September 350,000.00 Compromise penalties 30,2016 666,378.94 Total Amount Due and Collectible 9 Docket - Vol. II. pp. 8 11-8 19. Exhibit " P-1 0". 10 Docket -Vol. I. p. 265, Joint Stipulation of Facts and Issues. par. l.l .a.3 : Docket- Vol. II. pp. 820-823. Exhibit ��p_ II ". I I fd. 12 Docket - Vol. II. pp. 824-834. Exhibit "P-1 2". 13 Docket- Vol. II. p. 265, Joint Stipulation of Facts and Issues. par. l. l.a.4: Docket - Vol. II. p. 835. Exhibit "P-1 3". 14 Docket- Vol. II. pp. 836-837. Exhibit "P-1 4".

DECISION CTA Case No. 10946 Orica Nitrates Philippines , Inc. v. Commission er of Internal Revenue x-- ---- ----------- --------------------- ---------- -- ------------------- ----- ----------------x Second FDDA1s Short 34,226.64 Total Income Tax Deficiency - 1st Period - October 1, 14,426.23 Quarter 2016 to 290,014.57 Total Income Tax Deficiency - 2nd March 31, 205,000.00 543,667.44 Quarter 2017 Total Value-Added Tax Deficiency Total Suggested Compromise Penalties Total Amount Due and Collectible The FDDAs were signed by Assistant Regional Director Zennen A. Tabanao. On June 28, 2019, petitioner voluntarily paid the amount indicated in the FDDAs. The payments made have the following details: BIR Form Amount Filing Reference No. Check No. 0605 16 6 6 6 ,3 7 8 . 9 4 291900031058712 2687084 17 0605 18 153 ,6 5 2 . 8 7 291900031058909 2867083 19 390,014.57 29190003 1058859 286708521 060520 Notably, the sum of the above payments is equal to the sum of the total amount due and collectible as indicated in the FDDA dated June 27, 2019. On September 27, 2019, respondent issued a Letter cancelling the First LOA (Cancellation Letter) . 22 The dispositive portion of the Cancellation Letter provides: PREDICATED on all the foregoing, pleas e be informed that eLA No. eLA201200046008 LOA -079-2017-00000078 d ated June 21, 2017 is hereby CANCELLED withou t prej udice to the issuance of a valid Letter of Aut h ority coverin g t he investigation of fiscal years October 1, 2015 to September 30, 2016 and October 1, 2 01 6 to September 30, 2017 . The Letter was signed by Antonio Jonathan G. Jaminola, Regional Director of Revenue Region No. 12- Bacolod City (RD Jaminola). 15 Docket - Vol. II. pp. 840-848. Exhibit �� P-I s��. 16 /d. at 849-851 . Exh ibit ��P-1 6��. 17 /d. at 852. Exhibit ��P-I T . 1s /d. at 856-858. Exhi bit ��P- t s��. 19 !d. at 862. Exhibit ��P-2o��. 20 !d. at859-86 1. Exhi bit ��P-1 9��. 21 /d. at 865. Exhibit ��P-20- r �. 22 /d. at9 16-9 17. Exhi bit ��p. 2 r �.

DECISION CTA Ca se No. 109 46 Orica Nitrates Philippines, Inc. v. Commission er of Internal Reven ue x------------------------------------------------------------------------------------------x On October 17, 2019, respondent issued LOA No. eLA201600038852 (Third LOA), authorizing RO Michael Luberas (Luberas) and GS Gretchen Abay (Abay) to examine petitioner's books of accounts and other accounting records for the period October 1, 2016 to September 30, 2017. The Third LOA was received by petitioner on November 12, 2019 .23 On December 11, 2019, respondent issued the First Notice, requesting the presentation of petitioner's records for examination.24 A Second and Final Notice was also issued on February 13, 2020, 25 followed by a Notice of Discrepancy (NOD) issued on October 23, 2020. The NOD was signed by Assistant Revenue District Officer Brigette B. Sepe. RO Luberas and GS Abay recommended the issuance of a PAN through an undated Memorandum. 26 Another Memorandum dated March 16, 2021 was prepared by RO Elaine Marie A. Elumir (Elumir) and GS Edmon A. Yanson (Yanson) , recommending the issuance of the PAN.27 On March 26, 2021, petitioner received an undated PAN assessing deficiency income tax ofP41,332,677.49 , inclusive of surcharge and interest. The PAN alleged an undeclared gain on the sale of land and improvements amounting to P 2 9 4 ,8 3 5 , 7 3 3 . 0 0 . 28 Petitioner filed its Reply to the PAN dated April 10, 2021 ,29 which was received by respondent on April 12, 2021.30 On October 4 , 2021 , respondent issued a response letter to petitioner's Reply, invoking the ten (10) -year prescriptive period.31 Thereafter, on October 7, 2021, respondent issued the FAN 32 1FLD, 33 again assessing deficiency income tax in the amount ofP41 ,332,677.49 , inclusive of surcharge and interest. Petitioner received the FAN/FLD on the same date. \�' 23 Docket-Vol. I. p. 265. Joint Stipul ation of Facts and Issues. par. I. I.a. 7: B1 R Records. pp. 169. Exhibit ��R-2"": 170. Exhibit ��P-22"". 24 B1R Records. p. 17 1. Exhibit .. R-4��. 25 /d. at 172. Exhibit ��R-s-�. 26 /d. at 287-300. Exhibit ��R-T. 27 /d. at 330-334. Exhibit ��R-9��. 2s /d. at 349-350. Exh ibit ��R-1 o��. 29 Docket - Vol. 11. pp. 866-872. Exhibit ��P-2-r-. 10 BIR Records. p. 370. Jl /d. at 457-469. Exh ibit ��R- 1r �. 32 /d. at 482. Exhibit ��R-1 2-T: 496. Exhibit ��P-25-T. 33 !d. at 480-48 1. Exhi bit ��R- 1T: 488-489. Exhibit ��P-25��.

DECISION CTA Case No. 10946 Orica Nitrates Philippine s, Inc. v. Commissione r of Inter nal Revenue x------------------------------------------------------------------------------------------x On November 5, 2021 , petitioner filed its Protest to the FAN /FLD in the form of a request for reinvestigation, sent via registered mail. 34 However , respondent allegedly received the Protest only on February 17, 2022.35 To establish the timeliness of its filing, petitioner sent a Letter dated March 22, 2022, attaching a Certification from the Bacolod City Post Office confirming that the Protest was mailed on November 5 , 2021. The said Letter was received by respondent on March 28, 2022 .36 Meanwhile, in a Letter dated January 4 , 2022 , or within sixty (60) days from the filing of its Protest, petitioner submitted additional supporting document, a Certificate Authorizing Registration (CAR) .37 On March 29, 2022, a Memorandum issued by Regional Director Josephine S. Virtucio directed the return of the docket from the Collection Division to the Assessment Division, upon finding that petitioner's Protest was timely filed. 38 Notwithstanding the presence of a draft FDDA in the BIR Records, it appears that no FDDA resolving petitioner's November 5 , 2021 Protest was ever issued or served upon petitioner. PROCEEDINGS BEFORE THE COURT On August 2, 2022, petitioner filed the present Petition for Review.39 On August 11 , 2 022, 40 the Court issued Summons requiring respondent to file an Answer. On September 15, 2022, respondent filed a Motion for Extension ofTime to File Answer,4 1 which the Court granted in an Order dated September 19, 2022 , giving respondent until October 15, 2022 to file his Answer.42 Thus, on October 17, 2022, respondent filed his Answer.43 34 Docket - Vol. II. pp. 873-882. Exhibit ��P-26��. 35 BIR Records. p. 629. Exh ibit ��R-13"". in relat ion to rcspondent�s copy of the Protest in BIR Records. p. 609. 36 Docket - Vol. II. p. 892. Exhibi t ��P-28��. 37 /d. 38 BIR Records. pp. 637-64 1. Exhibit ��R- 1-f". 39 Docket - Vol. I. pp. 6-22. 40 /d. at 179. 41 /d. at 181 -1 84. 42 /d. at 186. 43 /d. at 187-204.

DECISION CTA Case No. 10946 Orica Nitrates Philippines, Inc. v. Commissioner of Internal Revenue X------------------------------------------------------------------------------------------X On October 20, 2022 ,44 the Court issued a Notice of Pre- Trial Conference, setting the pre-trial on February 9 , 2023. On October 27, 2022 , respondent filed a Motion to Defer Transmittal of BIR Records, 45 which the Court granted in an Order dated November 7, 2022 .46 Thus, on December 19, 2022, respondent elevated the BIR Records, consisting of one folder with 756 pages.47 On February 2 , 2023, the Pre-Trial Brief(ofPetitioner Orica Nitrates Philippines, Inc.r8 was filed while Respondent's Pre-Trial Briefwas filed on February 3, 2023.49 As directed during the Pre-Trial Conference on February 9 , 2023, 50 the parties filed their Joint Stipulation of Facts and Issues on March 13, 2023,51 which the Court approved in its Resolution dated May 18, 2023.52 On March 14, 2023, both parties filed their Joint Motion to Refer the Case for Mediation,53 which the Court granted in a Resolution dated March 29, 2023.54 The Pre-Trial Orderwas promulgated on May 18, 2023.55 On June 1, 2023, the Court received the Mediation Schedule from the Philippine Mediation Center Office- Court of Tax Appeals (PMC-CTA). 56 On July 4, 2023, PMC-CTA requested an extension, 57 which the Court granted in a Resolution dated July 17, 2023. 58 Notwithstanding the extension, Records Verification dated August 24, 2023 reveals that no report on the status of the compromise settlement was made by the parties. 59 Thus, on September 27, 2023, the Court promulgated a Resolution ordering the parties to provide an 44 /d. at 206-207. 45 /d. at 208-2 11. 46 /c/.at 2 13. 47 /d. at 2 14-2 16. Compliance dated December 19. 2022. 48 /d. at 2 19-23 I. 49 /d. at 237-242. 50 !d. at 256-257. 51 !d. at 264-27 1. 52 !d. at 646. 53 /d. at 62 1-625. 54 !d. at 643-644. 55 !d. at 648-653. 56 !d. at 655. 57 !d. at 659. 58 !d. at 662. 59 !d. at 684.

DECISION CTA Case No. 10946 Orica Nitr ates Philippines, Inc . v. Commissioner of Inter nal Reven ue x--- --------- -- ------ --- ----------- -- ------ --- ------------ --------------------- ------------x update to the Court on the status of their compromise settlement. 60 Another Records Verification dated January 2, 2024 reveals that the parties failed to update the Court on the status of petitioner's Offer of Compromise. 6 1 Thus, on January 11 , 2024, both parties filed a Joint Manifestation on the Status of Offer of Compromise, stating that the National Evaluation Board (NEB) has not yet convened to evaluate petitioner's offer of compromise. 62 Trial then ensued. On April 2 , 2024, 63 petitioner presented its witnesses Rowena R. Viliran and Roselle Y. Caraig, who both testified by way of their judicial affidavits. Thereafter, petitioner filed its Formal Offer of Evidence Ad Cautelam (with Manifestation) on April 17, 202464 and its Supplemental Formal Offer ofEvidence (of Petitioner Orica Nitrates Philippines, Inc.) on May 10, 2024.65 On May 16, 2024, respondent filed his Comment (to Petitioner's Formal Offer ofEvidence and Supplemental Offer ofEvidence).66 On June 27, 2024, the Court admitted all of p etitioner's exhibits except Exhibit "P-2 1- 1", which was d enied a dmission for failure to present the original for comparison.67 On Nove mber 12, 202 4 , r espondent pre s ented his witnesses: RO Luberas and RO Elumir, who both t estified by way of their judicial affidavits.68 Respondent's Formal Offer of Evidence was filed on November 22 , 2024,69 to which p etitioner filed its Comment (to Respondent's Formal Offer of Evidence) on December 2, 2024.70 On February 17, 2025, the Court promulgated a Resolution admitting r espondent's exhibits.71 60 !d. a t 696-69 7. 6 1 /d. a t 708. 62 /d. at 709-7 1I. 63 !d. at 729-73 0. 64 !d. at 740-752. 65 /d. at 9 11-9 15. 66 /d. at. 922-924. 67 /d. at 939-940. 68 /d. at 956-958. 69 /d. at 960-970. 70 !d. at 978-98 1. 71 !d. at 988-989.

DECISION CTA Case No. 10946 Orica Nitrates Ph ilippine s, Inc. v. Commissioner of Interna l Reven ue x--------------- ----- ---- ----- ------ -------------------------- --------------------------- --x Petitioner 72 and respondent 73 separately filed their Memorandum on March 24, 2025, and April 2, 2025, respectively. The case was submitted for decision on April 24, 2025.74 THE ISSUES The parties have stipulated the following issues for the Court's resolution: 7s 1. WHETHER THE RESPONDENT'S RIGHT TO ASSESS HAS PRESCRIBED. 2 . WHETHER THERE ARE FACTUAL AND LEGAL BASES TO HOLD PETITIONER LIABLE FOR AD VALOREM PENALTIES ON THE QUARTERLY INCOME TAX FILED FOR THE FIRST QUARTER OF FY 2 017 AMOUNTING TO P41 ,3 3 2 ,677.49 . PETITIONER'S ARGUMENTS In its Petition for Review and Memorandum, petitioner argues that respondent may no longer conduct a reassessment since "FY 20 17 has already been previously audited including the questioned transaction." Petitioner argues that the issuance of the Cancellation Letter and the Third LOA merely "corrects the period as explicitly stated in the Cancellation Letter." Thus, according to petitioner, the issues assessed, and the related payment under the First and the Second LOAs remain valid. Petitioner also states that the First FDDA already dropped the assessment on the alleged undeclared income from the sale of real properties. Thus, respondent should be estopped and be "precluded from disregarding its previous assessment and reissuing a new one to the prejudice of petitioner." Petitioner argues that respondent's right to assess petitioner of deficiency taxes has already prescribed, considering that the FAN/FLD was issued beyond the three (3)- year prescriptive period. It also argues that the instant case does not fall under Section 222(a) of the National Internal Revenue Code (NIRC) of 1997, as amended, which provides 72 !d. at990-1 013. 73 !d. at I022-1 046. 74 !d. at I050. 75 Docket - Vol. I. p.265. II. Joint tipulation of Facts and Issues. II. Stipulation of Issue.

DECISION CTA Case No. 10946 Orica Nitrates Philippines, Inc. v. Commissioner of Internal Revenue X------------------------------------------------------ --- ---------------------------- -----X respondent the benefit of a 10-year prescriptive period. Petitioner states that the 10-year prescriptive period shall not apply in the absence of intent to evade tax. Petitioner also raises alleged violations of its right to due process, arguing that: (1) RO Elumir's participation is unauthorized; and (2) there is no factual and/ or legal basis for the imposition of the ad valorem penalties. RESPONDENT'S ARGUMENTS In his Answer and Memorandum, respondent argues that the BIR is not barred from assessing deficiency taxes or penalties against petitioner. According to respondent, as the First and the Second LOAs were declared void, "there was no impediment in the issuance of the Third LOA." Respondent maintains that his right to assess has not yet prescribed. Respondent posits that "there is falsity in the returns filed by [petitioner]," considering that there is an underdeclaration of income, emanating from underdeclared gain on sale of land and improvem ent, exceeding 30�/o. Respondent also claims that the deficiency assessments have factual and legal basis, quoting heavily from the various m emoranda prepared by the ROs involved in the audit. THE COURT'S RULING The instant Petition for Review is meritorious. The Court hasjurisdiction over the instant petition. Before addressing the substantive issues , the Court must first determine whether it validly acquired jurisdiction over the pres ent Petition.

DECISION CTA Case No. 10946 Orica Nitrates Philippines, Inc. v. Commissioner of Internal Revenue x------------------------------------------------------------------------------------------x Section 7(a)(1) and (2) of Republic Act (RA) No. 1125,76 as amended by RA No. 9282 ,77 vests the Court of Tax Appeals (CTA) with exclusive appellate jurisdiction to review decisions or inactions of the CIR, to wit: SEC. 7. Juris diction. - The CTA shall exercise: (a ) Exclusive appellate jurisdiction to review by appeal, as herein provided: (1) Decisions of the [CIR] in cases involving disputed assessments, refunds of interna l revenue taxes, fees or oth er ch arges, p enalties in relation th ereto, or other m atter s arising under th e National Internal Reven ue Code or other laws administered by th e Bureau of Interna l Revenue; (2 ) Inaction by the [CIR] in cases involving disputed assessments, refunds of in ternal revenue taxes, fees or other ch a rges , pen a lties in r elation th ereto, or other m atter s a ris ing under the Nation al Internal Revenue Code or other laws administered by the Bureau of Intern al Revenue, where th e National Internal Revenue Code provides a specific period of action, in which case th e in action s hall be deemed a denial; (Empha sis supplied) Correlatively, Section 11 of the same law governs the period to appeal, to wit: SEC. 11. Who May Appeal; Mode of Appeal; Eff ect of Appe al. - Any party adversely affected by a decision, ruling, or inaction of the [CIR]...m ay file a n appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the expiration of the period il.xed by law for action as referred to in Section 7(a)(2) herein. ... (Emphasis supplied) 76 An Act Creating the Court of Tax Appeals. June 16. 195-l. 77 A n Act Ex panding the Juri sd ict ion o f the Court o f Tax Appeals (CTA). Elc1ating I ts Rank to the L evel of a Collegiate Court with Special Jurisdiction and Enlarging Its Membership. Amendi ng for the Purpose Certain Sections of Republic Act o. 1125. as Amended. Othen1ise Known as the Law Creating the Court ofTax Appeals. and for Other Purposes. March 30. 2004.

DECISION CTA Case No . 10946 Orica Nitrates Ph ilippines, In c. v. Commissioner of Internal Revenue x---------- -------------------------- -- ---- ----------------- ------ -- ----- ----------------- -x The above provisions are echoed in Section 3(a)( 1) and (2), Rule 4,78 and Section 3(a), Rule 879 of the Revised Rules of the CTA. Thus, the CTA has exclusive appellate jurisdiction to review a decision, ruling, or inaction of the CIR, provided the appeal is filed within thirty (30) days from receipt of such decision or ruling, or after the expiration of the p eriod fixed by law for action. Relatedly, Section 3 . 1.4 ofRR No. 12-1999,80 as amended by RR No . 18-2013, 81 provides the procedure and timelines governing protests against a FAN/FLD. It states that: 3 .1.4 Disputed As ses sm en t . - The taxpayer or its a uthorized represen tative or tax agent m ay protest a dministra tively against th e a foresaid FLD / FAN with in thirty (3 0) days from d ate of receipt th ereof. Th e taxpayer protesting a n assessment m ay file a written request for recon sid eration or reinvestigation defin ed as follows: (i) Request for recon sidera tion - .. . (ii) Request for reinvestigation - refers to a plea of re- evalua tion of an assessmen t on th e ba sis of n ewly discovered or a ddition a l eviden ce th at a taxpayer intends to p resen t in th e reinvestigation. For requests for reinvestigation, the taxpayer sh a ll submit a ll r elevan t suppor ting documents in support of his protest within s ixty (6 0) days from date of filing of h is letter of protest, otherwise, th e assessm en t sha ll become fin a l. The 78 Section]. Cases Within the Jurisdiction ofthe Court in Dil�isions. - The Court in Divisions shall exercise: (a) Exclusive original or appellate jurisdiction to re' ie" by appeal the follow ing: ( I) Decisions of the Commissioner of Internal Revenue in cases invol ving disputed assessments. refunds of internal revenue taxes. fees or other charge . penalt ies in relation thereto. or oth er matters ari sing under the ational Internal Revenue Code or other laws administered by the Bureau of Internal Revenue: (2) Inaction by the Commi ssioner of Internal Revl!nuc in cases invol ving disputed assessments. refund s of internal revenue taxes. fees or other charges. penalt ies in relat ion thereto. or other matters arising under the ational lnternal Revenue Code or other laws administered by the Bureau of Internal Revenue. where the ational Internal Revenue Code or other applicable law provides a specific period for action: ... (Emphasis supplied) 79 Sec. 3. Who may appeal: period to file petition.- (a) A party adversely affected by a decision. ruling. or the inaction of the Commissioner of Internal Revenue on disputed assessments or claims for refund of internal revenue taxes. or by a decision or ruling of the Commissioner of Customs. the Secretary of Finance. the Secretary of Trade and Industry. the Secretary of Agriculture. or a Regiona lTrial Court in the exercise of its originaljurisdiction may appeal to the Court by petition for review filed with in thirt) days after receipt of a copy of such decision or ruling. or expiration of the period fi xed by law for the Commi ssioner of Internal Revenue to act on the disputed assessments. In case of inaction of the Commissioner of Internal Revenue on claims for refund of internal revenue taxes erroneously or illegally collected. the taxpayer must file a petition for review within the two-year period prescribed by law from payment or collection of the taxes. 80 Implementing the Provisions of the ational Internal Revenue Code of 1997 Govern ing the Ru les on Assessment or ational Internal Revenue Taxes. Ci' il l>enaltics and Interest and the Extra-Judicial Settlement of a Taxpayer's Criminal Violation of the Code Through Pa) ment of a uggested Compromise Penalty. September 6. 1999. 81 Amending Certain Sections of Revenue Regulations o. 12-99 Relative to the Due Process Requi rement in the Issuance of a Deficiency Tax Assessment. 1ovember 28. 20 13.

DECIS ION CTA Case No. 10946 Orica Nitrates Philippines, Inc. v. Commissioner of Internal Revenue x------------------------------------------------------------------------------------------x term "releva n t suppor ting documents" refer to those documents necessary to suppor t the lega l a nd factual ba s es in disputing a tax a s sessmen t as determined by the taxpayer . The sixty (60)-day period for the submission of a ll releva nt supporting documents sha ll not apply to requests for reconsideration. Furthermore, th e term "the assessmen t sha ll become final" sha ll m ean the taxpayer is ba rred from disputing t h e correctness of the issued a ssessment by introduction of n ewly discovered or additiona l eviden ce, a nd the FDDA sha ll consequently be denied. If the protest is n ot acted upon by the Commission er's duly authorized repre sen tative within on e hundred eighty (180) days counted fr om the d ate of filing of the protest in case of a request reconsideration ; or from date of submission by the taxpayer of the r equired documents within s ixty (60) d ays from the date of filing of the protest in ca se of a request for reinvestiga tion, the taxpayer m ay either: (i) appeal to the CTA within thirty (3 0) days a fter the expiration of the on e hundred eighty (180)-d ay period; or (ii) await the fina l d ecision of the Commissioner 's duly authorized representa tive on the disputed asses sment. It must be empha s ized , h owever , th at in cas e of in action on protested a s sessm en t within th e 180-day period , th e option of the taxpayer to eith er: (1) file a petition for review with the CTA within 30 days after the expiration of th e 18 0 - day period; or (2) await th e fina l decision of the Commissioner or his duly a u thorized representative on the dis puted assessment a nd a ppeal such final d ecision to the CTA within 30 days after the receipt of a copy of such decision, ar e mutually exclusive a nd the resor t to one bars the a pplication of the other. Based on the foregoing, a taxpayer who files a request for reinvestigation must submit all relevant supporting documen ts within sixty (60) days from the filing of the protest. If t h e CIR fails to act on the protest within one hundred e ighty (180) days from submission of said documents, the taxpayer may either : 1. Appeal to t h e CTA within thirty (30) days from the lapse of the 180-day period; or 2 . Await the final decision of the CIR and appeal therefrom within thirty (30) days from receipt. These options are mutually exclusive, and resorting to one bars the other.

DECISION CTA Case No. 10946 Orica Nitrates Philippines, Inc. v. Commissioner of Internal Revenue x------------------------------------------------------------------------------------------x In this case, petition er filed its Protest to the FAN/FLD, in the form of a request for reinvestigation, on November 5, 2021 via registered mail. 82 On January 4, 2022, or within 60 days from th e filing of Protest, petitioner submitted its additional su pporting document, a Certificate Authorizing Registration (C A R). 83 Thus, the 180-day period for respondent to act commenced on January 4, 2022 and expired on July 3, 2022 .84 Responden t did not act within the 180-day period. Under the law, petitioner could either await the CIR's decision or appeal to th e CTA within 30 days from the lapse of the 180-day period. The 30-day period to appeal to the CTA ended on August 2 , 2022. Petitioner chose the latter and timely filed a Petition for Review on August 2 , 2022. The Court therefore validly acquired jurisdiction over this case. The Third LOA is void. Section 235 of the NIRC of 1997, as amended, explicitly provides that, for income tax purposes, the examination and inspection of a taxpayer's books shall be made only once in a taxable year, subject to limited exceptions: SEC. 235 . Preservation of Books of Accounts and Other Accounting Records. - All the books of accounts ... , shall be preserved by th em for a period beginning from the last entry in each book until the last day prescribed by Section 2 03 within w hic h the Commiss ioner is authorized to make an assessment. The said books a nd records shall be subject to examination a nd inspection by internal revenue officers: Provided, That for income tax purposes, such examination and inspection s hall be made only once in a taxable ye ar, except in the following cases: (a) Fraud, irregularity or mista ke, as determined by th e Com m is sione r; (b) The taxpayer requests reinvestigation; (c) Verification of complia n ce with withholding tax laws and regulations; s2 Docket - Vol. II. pp. 873-882. Exhibit ..P-26... sJ Docket- Vol. II. p. 892. Exhibit ..P-28... 84 The 180'hday fell on July 3. 2022. Sunday . The next \\ Orking day is July -l. 2022.

DECISION CTA Case No. 10946 Orica Nitrates Philippines, Inc. v. Commissioner of Internal Revenue x------------------------------------------------------------------------------------------x (d) Verification of capital gains tax liabilities; and (e) In the exercise of the Commissioner's power under Section 5(8) to obtain information from other persons in which case, another or separate examination and inspection may be made. Examination and inspection of books of accounts and other accounting records shall be done in the taxpayer's office or place of business or in the office of the Bureau of Interna l Revenue. . .. . (Emphasis supplied) This statutory limitation is ech oed and op erationalized in RMO No. 8-2006, which en sh rines th e "One LOA per Taxable Year" rule and clarifies th at only on e Letter of Auth ority (LOA) may be issued for the same taxpayer, tax type, and period, unless validly superseded under con ditions determined by the CIR. Item s 1 and 2 of Part IV.D. of RMO No. 8-2006 provide: 1. Only one (1) [LOA] shall be issued to the same taxpayer, for the same tax type and period, except where an [LOA] was issued for a specific tax type only and subsequently, another [LOA] was issued to the same taxpayer by the same or a nother office covering the investigation of a ll internal revenue taxes (AIRT) for the same taxable period. The [LOA] issued for AIRT purposes shall be allowed provided the coverage shall be limited to AIRT except for the specific tax type and said coverage shall be clearly stated on the face of the [LOA]. 2. In case two or more [LOA]s are issued to the same taxpayer for the same tax type and for the same period, the power to decide which [LOA] shall prevail shall be under t he exclusive jurisdiction of the Commissioner (CIR). The LA [LOA] prevailed upon shall be considered cancelled... .. (Emphasis supplied) In th e instant case, three LOAs were issued, all covering All Internal Revenue Taxes (AIRT). The First LOA authorized RO Ho and GS Lapu-Os to examine petitioner's books of accounts and other accounting records for the period October 1, 2015 to March 31, 2017. The Second LOA, in turn , authorized RO Ilustre and GS Ho to condu ct the same examin ation of petitioner for the same period, October 1, 2015 to March 3 1, 2017. Finally, the Third LOA authorized RO Luberas and GS Abay to examin e petitioner's books for the period October 1, 2016 to September 30, 2017.

DECISION CTA Case No. 10946 Orica Nitrates Philippines, Inc. v. Commissioner of Internal Revenue X----------- -------- -------------------- --------------------------------------------- ---- --X The issuance of the Second LOA, which effectively superseded the First LOA, is permissible, as it was necessitated by the reassignment of the ROs. In Republic v. Robiegie Corporation, 85 the Supreme Court recognized an exception to the "One LOA per Taxable Year" rule in cases of reassignment, retirement, or other inability of the originally assigned revenue officers to continue the investigation, viz.: Clearly, the "one LOA per taxable year " rule is not as ironcla d as the Republic portrays it to be. Pa rt IV.D. , Item 2 of RMO No. 8-2006 a uthorizes the issuance of duplicate LOAs, subject to the CIR's discretion to d etermine which of th e two LOAs shall prevail. Obviously, when a tax investigation is reassigned to a different RO pursuant to the mandatory "rotation" of assessment officers under Section 17 of the NIRC, or for any other legally justified reason, the CIR or his/her duly authorized representatives may issue a new LOA to the newly assigned RO, and such LOA can be made to prevail over the LOA issued to the previous investigating officer. Since th e CIR's power to issu e a LOA is delegable, the concomitant power to uphold the validity of a subsequently issued duplicate LOA is likewise delegable to the CIR's duly authorized representatives, as enumerated in RMO No. 43-90. Stated differently, RMO No. 8-2006 does not prohibit th e issuance of a new LOA within the same taxable period if such new LOA is necessitated by the reassignment, retirement, or other in ability of th e incumbent RO to continue an investigation. The BIR official wh o will issu e th e new LOA also has th e power to make it prevail over the old, previously issued LOA, subj ect of course to the control and regulation of the CIR as the statutorily designated tax investigator. When an audit is reassigned to a different RO , a replacement LOA may be issued and made to prevail over the earlier LOA. Thus, the Second LOA validly replaced and prevailed over the First LOA. However, the Third LOA is infirm. First, it violates the "One LOA per Taxable Year" rule . It overlaps with the coverage of the First and Second LOAs for the period October 1, 2016 to March 31, 2017, despite covering the same AIRT for substantially the same taxable period. Second, the Third LOA does not fall within the recognized exceptions to the "One LOA per Taxable Year" rule. Even assuming the existence of fraud, irregularity, or mistake, these 85 G.R. o. 26026 1. October 3. 2022 [Per J. Gaerlan. Th ird Division].

DECISION CTA Case No. 10946 Orica Nitrates Philippines, Inc. v. Com mission er of Internal Revenue x------------------------------------------------------------------------------------------x matters had already been the subject of audit and assessment under the Second LOA. Notably, the purported undeclared gain on sale of land and improvements for the first quarter covering October 1 to December 31, 2016, the very basis of the ad valorem penalties assessment under the Third LOA, was previously investigated but ultimately not sustained and was dropped in the FDDA issued pursuant to the Second LOA. Thus, the Third LOA merely seeks to revive an issue already considered and discarded in the prior assessment. Third, the assessments under the Second LOA had already attained finality and were fully settled. On June 27, 2019, respondent issued two FDDAsB6 assessing deficiency taxes in the amounts ofP666,378.94 (deficiency VAT and Compromise Penalties for the fiscal year ending September 30, 20 16) and P543,667.44 (deficiency Income Tax, VAT, and Suggested Compromise Penalties for the short period from October 1, 20 16 to March 31, 2017). On June 28, 2019, petitioner voluntarily paid these amounts. Such payment effectively closed the audit and assessment process under the Second LOA. In light of the foregoing, respondent's attempt to reopen the audit through the issuance of the Third LOA cannot be sustained. The Third LOA not only violates the "One LOA per Taxable Year" rule, but also improperly seeks to reassess matters already covered, resolved, abandoned, and fully satisfied by petitioner. This runs afoul of the principles of finality of assessments and orderly tax administration. Accordingly, the Third LOA is void. Consequently, the assessments issued pursuant to such void LOA are likewise void and without legal effect. The assessment is void for having been conducted by unauthorized revenue officers. Even assuming arguendo that the Third LOA was valid, the assessment must still be declared void, as it was based on an audit conducted by revenue officers without proper authority. 86 First FDDA: Docket - Vol. II. pp. 836-837. Exhibit��P-1-1..: Second FDDA: Docket - Vol. II. pp. 840-848. Exhibit ��P-1 5"".

DECISION CTA Case No. 10946 Orica Nitrates Philippines, Inc. v. Commissioner of Internal Revenue X--- ------------------------------ --- ---------------------------- --- ---- -- -- ----- ----------X Under Sections 6(A), 10(c), and 13 of the NIRC of 1997, as amended, only the CIR or duly authorized representatives may examine a taxpayer's books and recommend an assessment, and such authority must be expressly conferred through a valid LOA, VlZ.: SEC. 6. Power ofthe 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. ... (Emphasis supplied) SEC. 10. Revenue Regional Director.- Under rules and regulations, policies and standards formulated by the Commissioner, with the approval of the Secretary of Finance, the Revenue Regional Director shall, within the region and district offices under his jurisdiction, among others: (c) Issue Letters of Authority for the examination of taxpayers within the region[.] (Emphasis supplied) SEC. 13 . Authority of a Revenue Officer.- ... ,a Revenue Officer assigned to perform assessment functions in any district may, pursuant to a Letter of Authority 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. (Emphasis supplied) An LOA is therefore an indispensable requirement. It is the legal authority granted to the revenue officers named therein to conduct the tax audit and "examine the books of account and other accounting records of a taxpayer for the purpose of collecting the correct amount of tax."87 The issuance of an LOA is premised on the fact that the examination of a taxpayer who has already filed his tax returns is a power that statutorily tfl 87 Commissioner ofInternal Revenue v. Sony Philippines. Inc.. G.R. o. 178697. No vember 17. 20 I0 [Per J. Mendoza, Second Division].

DECISION CTA Case No. 10946 Orica Nitrates Philipp ines , Inc. v. Commissioner of Internal Revenue X-------- --- ---- --- --- ----- --- ---------- --------------- ----- ---------- ---------------- -----X belongs on ly to the CIR himself or his duly authorized representatives.88 In Commissioner of Internal Re venue v. McDonald's Philippines Realty Corp., 89 th e Sup rem e Cou rt under scor ed that the identification of auth orized revenue officers in the LOA is a ju risdiction al r equ irem en t of a valid a u dit and , con sequ ently , of a valid assessm ent: To comply with due process in the audit or investigation by the BIR, the taxpayer needs to be informed that the revenue officer knocking at h is or her door has the proper authority to examine his books of accounts. The only way for the taxpayer to verify t he existence of that authority is when, upon reading t he LOA, there is a link between the said LOA and the revenue officer who will conduct the examination and assessment; and the only way to make that link is by looking at the names of the revenue officers who are aut horized in t he said LOA. If an y reven ue officer oth er than those named in th e LOA conducted the examination and a ssessmen t, taxpayers would be in a situ ation where th ey cannot verify th e existen ce of th e a uthority of th e revenu e officer to conduct the examina tion and assessmen t. Due process requires th at taxpayers must have the righ t to know tha t the revenue officers are duly a uthorized to conduct the examination and as sessment, and th is requires that th e LOAs must con tain the na mes of th e a u thorized revenu e officers. In oth er words, identifying the authorized revenue officers in the LOA is a jurisdictional requirement of a valid audit or investigation by the BIR, and therefore of a valid assessment. (Emphasis supplied) This doctrinal rule is vital: if th e audit is conducted by r evenue officer othe r than those expressly name d in the LOA, the resulting assess ment is void. In the present case, the Third LOA authorized RO Luberas and GS Abay to examine petitioner's book s of accounts for FY 2 0 17. 90 However , the BIR Records r eveal tha t , while RO Luberas and GS Ab ay in itially recommended the issuance of the PAN through an undated Memorandum, 91 another Memorandum d a ted March 16, 2021 , likewise r ecommending 88 Commissioner oflnlernal Revenue v. Mc Donald's Philippines Realty Corp.. G.R. o. 242670. May I0. 202 I [Per J. Lopez. J.. Third Di vision]. 89 !d. 90 Docket-Vol. I. p. 265. Joi m Sti pulation of Facts and Issues. par. I. I.a. 7: BIR Records. pp. 169. Exhibit ��R-2"': 170. Exhibit ��r -22��. 91 BIR Records. pp. 287-300. Exhibit ��R-T.

DECISION CTA Case No. 10946 Orica Nitrates Philippines, Inc. v. Commissioner of Internal Revenue X------- ---------------------------- ---------------------------------------- -- ---------- ---X the issuance of the PAN, was prepared by RO Elumir and GS Yanson,92 who were not authorized under the LOA. The participation of RO Elumir and GS Yanson in the audit and assessment process, absent a corresponding LOA, constitutes a fatal jurisdictional defect. Without proper authority, the audit itself is invalid, and the assessment issued pursuant thereto is necessarily void. The requirement of an LOA is not a mere procedural formality but a substantive safeguard of the taxpayer's right to due process. Thus, the failure to issue a new or amended LOA to cover the participation or substitution of revenue officers vitiates the audit and invalidates the resulting assessment. Accordingly, the assessment is void and unenforceable. Respondent's right to assess has prescribed. The power of the BIR to assess and collect taxes under Section 2 of the NIRC of 1997, as amended,93 is limited by Section 203,94 which provides that internal revenue taxes must be assessed within three (3) years , counted from the last day prescribed by law for filing the return or from the date the return was actually filed, whichever is later. An assessment issued beyond this period is void. As an exception, Section 222 allows the assessment period to be extended beyond the original three-year prescriptive period. 95 Section 222(a) provides for a 10-year prescriptive 92 BIR Records. pp. 330-334. Exhibit ��R-9��. 93 SEC. 2. Powers and Duties of the Bureau of Internal Revenue. - The Bureau of Internal Revenue shall be under the supervision and control of the Department of Finance. and its powers and duties shall comprehend the assessment and co llection of all national internal revenue taxes, fees, and charges. and the enforcement of all forfe itures. penalties. and fines connected therewith. including the execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts. ... (Emphasis supplied) 94 SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years alicr the last day prescribed by law for the fili ng of the return. and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided. That in a case where a return is filed beyond the period prescribed by law. the three (3)-year period shall be counted from the day the return was filed. For purposes of this Section. a return filed before the last day prescribed by law for the filing thereof shall be considered as fil ed on such last day. (Emphasis supplied) 95 SEC. 222. Exceptions as to Period of Limitation of Assess ment and Collectio n of Taxes.- (a) In the case of a false or fraud ulent return with intent to evade tax or of failure to tile a return. the tax may be assessed. or a proceedi ng in court for the collection of such tax may be fi led without assessment. at any time with in ten ( I0) years after the discovery of the falsity. fraud or omission: Provided. That in a fraud assessment which has become final and executory. the fact of fraud shall be judicially taken cogn izance of in the civil or criminal action for the collection thereof. (b) If before the expi ration of the time prescribed in Section 203 for the assessment of the tax. both the Commissioner and the taxpayer have agreed in writing to its assessment after such time. the tax may be assessed with in the period agreed upon....

DECISION CTA Ca se No . 10946 Orica Nitra tes Philippines, Inc. v. Commission er of Interna l Revenue X------------------------------------------------------------------------------------------X period in cases where the taxpayer filed a false or fraudulent return with intent to evade tax, or failed to file a return, while Section 222(b) authorizes an extension by agreement through a valid waiver. Hence, the crux of the controversy here is whether the assessment against petitioner falls under the ordinary three- year prescriptive period or the extraordinary 10-year prescriptive period. To resolve this issue, the Court finds McDonald's Philippines Realty Corp. v. Commissioner of Internal Revenue (McDonald's)96 highly instructive, viz.: F. Summary: Conditions for a Valid Extension ofAssessment Period in Case of a False Return z. Requisites under Section 222 (a) of the 1997 Tax Code � General Rule -ProofofFalse or Fraudulent Return Pursuant to Section 222 (a) of the 1997 Tax Code, the extraordinary 10-year assessment period may apply in case the taxpayer: (1) filed a false return, (2) filed a fra udulent return, or (3) failed to file a return. A fraudulent return "implie s intentional or deceitful entry with intent to evade the taxes due," while a false return simply "implies deviation from the truth, whether intentional or not." It must be stressed, however, that a false return within the meaning of Section 222 (a) does not refer to false returns in general. To be sure, the extra ordinary 10-year a ssessment period applies to a false return when: (1) the return contains an error or misstatement, and (2) such error or misstatement was deliberate or willful. It shall be the CIR's burden to esta blish the existence of the above-enumerated statutory requis ites with clear and convincing evidence. 96 G.R . o. 247737, August 8. 2023 [Per J. lnti ng. En Bane].

DECISION CTA Case No. 10946 Orica Nitrates Philippines, Inc. v. Commissioner of Internal Revenue x------------------------------------------------------------------------------------------x � Exception - Prima Facie Evidence of a False or Fraudulent Return (30% Threshold) The CIR may be relieved from the above-mentioned burden of proof when there is prima facie evidence of falsity or fraud, as defined under Section 248 (B) of the 1997 Tax Code. (1) The CIR ascertains that there 1s a misstatement/ misdeclaration m the return, 1n particular, (a) an understatement/ under declaration of sales, receipts, or income or (b) an overstatement/over declaration of expenses or other deductions, and (2) the misstatement is substantial, such that exceeds the corresponding amount declared in the return by 30%. 30% threshold satisfied. There is prima facie evidence of falsity or fraud, and the burden of proof shifts to the taxpayer. If the taxpayer fails to overcome the presumption, the prima facie evidence shall be sufficient to justify the application of the 10-year period. Taxpayer refutes presumption. If th e taxpayer is successful in overturning the presumption (e.g., demonstrating that the misstatement as ascertained by the CIR had been inadvertent or attributable to a mistake or was not deliberate or willful on the part of the taxpayer), the CIR cannot rely on the presumption in proving the taxpayer's intent to evade. ii. Due Process Requirements (1) First Due Process Requirement. The assessment notice issued to the taxpayer must clearly state the following: (a) that extraordinary prescriptive period (not the basic three-year period) is being applied, and (b) the bases of allegations of falsity or fraud, e.g., if the CIR seeks to rely on the presumption offalsity or fraud particularly, the formal notice to the taxpayer must set out the computation by which it ascertained that the misdeclaration in the return surpassed the 30% threshold.

DECISION CTA Case No. 10946 Orica Nitrates Philippines, Inc. v. Commissioner of Internal Revenue x---------------------------- ------------------ --------------------------- --------------- --x (2) Second Due Process Requirement . The tax authorities have not acted in a manner that is inconsistent with the invocation of the extraordinary prescriptive period or have otherwise misled th e taxpayer that the basic period will be applied. (Emphasis supplied; citation omitted) Applying the standards laid down in McDonald's, the Court finds that respondent failed to comply with the first due process requirement, that the assessment notice must expressly state the application of the extraordinary 10-year prescriptive period and the factual basis for such application. While both the PAN97 and the FAN98j FLD99 imposed a 50�/o surcharge, neither indicated that respondent was invoking the 10-year prescriptive period under Section 222(a), nor did they set forth the factual basis for alleging falsity or fraud. Respondent's invocation of the 10-year prescriptive period appears only in the October 4, 2021 Letter signed by RD Jaminola, issued in response to petitioner's Reply to the PAN. 1oo In that letter, respondent claimed that petitioner's alleged underdeclaration was "more than 30�/o or 7, 138.35�/o," thereby constituting prima facie evidence of a false return under Section 248, and, on that basis, concluded that the 10-year prescriptive period applies. This belated invocation, however, does not satisfy the first due process requirement. McDonald's clearly mandates that the invocation of the 10-year prescriptive period and the basis thereof be indicated in the assessment notice itself, not in some other communication to petitioner.The PAN and the FAN/FLD constitute respondent's official act of apprising the taxpayer of the factual and legal bases of the assessment. Thus, the October 4, 2021 Letter cannot be deemed substantial compliance with the due process requirement. For this reason alone, the 10-year prescriptive period cannot apply. Even assuming arguendo that due process had been satisfied, the Court finds that petitioner successfully rebutted any presumption of falsity or fraud. Respondent's finding offalsity rests solely on a comparison between petitioner's First Quarter VAT Return and First 97 BIR Records. pp. 349-350. Exhibit ��R- 10... 98 !d. at 482. Exhibit ..R-1 2-T. 496. Exhibit ��r-25-2"" 99 !d. at 480-48 1, Exhibit ..R-1 2": 488-489. Exhibit ..P-25... 1oo /d. at 457-469. Exh ibit ..R-1 1...

DECISION CTA Case No. 10946 Orica Nitrates Philippines, Inc. v. Commissioner of Internal Revenue X- -------- -- ------- ----------- ---------------------------- ---------------------------------X Quarter Income Tax Return, from which respondent derived an alleged underdeclaration of 7, 138.37�/o. A review of the FAN 1o1 /FLD 1o2 reveals that respondent concluded that petitioner had undeclared gain on the sale of land by comparing petitioner's First Quarter VAT Return filed on January 17, 20 17 against its First Quarter Income Tax Return filed on February 23, 2017. Based on this comparison, respondent computed the supposed under-declaration of 7,138.37�/o and, on this basis alone, invoked the prima facie presumption of fraud. The Court finds no fraud. It is important to discuss the nature of a quarterly income tax return vis-a-vis the annual income tax return or final adjustment return. Sections 75 and 76 of the NIRC of 1997, as amended, provide: SEC. 75. - Declaration of Quarterly Corporate Income Tax. - Every corporation shall file in duplicate a quarterly summary declaration of its gross income and deductions on a cumulative basis for the preceding quarter or quarters upon which the income tax, as provided in Title II of this Code, shall be levied, collected and paid. The tax so computed shall be decreased by the amount of tax previously paid or assessed during the preceding quarters and shall be paid not later than sixty (60) days from the close of each of the first three (3) quarters of the taxable year, whether calendar or fiscal year. SEC. 76. -Final Adjustment Return. -Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either: (A) Pay the balance of tax still due; or (B) Carry-over the excess credit; or (C) Be credited or refunded wit h the excess amount paid, as the case may be. In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid during the year, the excess amount shown on its final adjustment return may be carried over and credited against the estimated 101 !d. at 482. Exhibit ��R-12-2"': 496. Exhibit " P-25-2". 102 !d. at 480-48 1. Exhibi t "R-1 2": 488-489. Exhibit " P-25...

DECISION CTA Case No. 10946 Orica Nitrates Philippines, Inc. v. Commissioner of Internal Revenue x---------- ----------------------------------------- --- ------ ------------------ -------- ----x qua rterly income tax liabilities for th e taxable quarters of the succeeding taxa ble years. ... ." In Commissioner ofInternal Revenue v. Philippine American Life Insurance Company,l03 the Supreme Court explained that quarterly payments are merely partial tax payments, with the final tax liability determined only upon the filing of the annual return: It may be observed that although quarterly taxes due are required to be paid within sixty days from the close of each quarter, the fact that the amount shall be deducted from the tax due for the succeeding qua rter shows th at until a final adjustment return shall h ave been filed, the taxes paid in the preceding quarters are merely partial taxes due from a corporation. Neither amount can serve as the final figure to quantify what is due the government nor what should be refunded to the corporation. This interpretation may be gleaned from the last paragraph of Section 69 of the Tax Code which provides that the refundable amount, in case a refund is due a corporation, is that amount which is shown on its final adjustment return and not on its quarterly returns. [Emphasis and underscoring supplied.] Accordingly, any omission or misstatement in a quarterly income tax return is not conclusive and may be corrected in the annual income tax return, which constitutes the taxpayer's final adjustment. Here, the alleged failure of petitioner to declare the gain on the sale of land in its first quarter income tax return was rectified when p etitioner declared the gain on the sale of land in its annual income tax return, which constitutes the final adjustment return. Respondent's r eliance on quarterly returns alone, without reference to the annual return or final adjustment return, was therefore insufficient to establish fraud. This is especially so considering that petitioner disclosed the transaction in its VAT return, a circumstance inconsistent with any intent to evade tax. With no fraud to justify the application of the extraordinary prescriptive period, the Court proceeds to determine whether the assessm ent was issued within the ordinary three-year period under Section 203 of the NIRC. 103 G.R. 'o. 105208. May 29. 1995 [Per J. Romero. Third Di vision].

DECISION CTA Case No. 10946 Orica Nitrates Philippines, Inc. v. Commissioner of Internal Revenue Page 26 of34 X--------------------------------------------------- ---------------------------------------X Petitioner filed its Annual Income Tax Return (AITR) for FY 2017 on January 15, 2018, 104 which was also the statutory deadline.1os Under Section 203, the three-year period to assess petitioner for deficiency income tax expired on January 15, 2021. An assessment 1s deemed made only on the date the assessment notice was released, mailed, or sent to the taxpayer. 106 Furthermore, it is clear that the assessment contemplated in Sections 203 and 222 of the NIRC of 1997, as amended, refers to the service of the FAN upon the taxpayer. l07 Here, the FLD and FAN were issued only on October 7, 2021, well beyond the three-year prescriptive period. The Court recognizes that the running of the statute of limitations was suspended during the COVID-19 pandemic pursuant to Section 4(z) of RA No. 11469, which authorized the extension of statutory deadlines and timelines. 108 In implementation thereof, RR Nos. 7-2020,1 09 10-2020,110 and 11-2020 11 1 expressly suspended the running of the prescriptive period under Sections 203 and 222, pursuant to Section 223, beginning March 16, 2020. The computation of the period of suspension was clarified in RMC No. 136-2020,112 issued on December 7, 2020, which specified that the suspension runs from March 16, 2020 until sixty (60) days after the lifting of quarantine, and that the 104 Docket - Vol. II. pp. 775-789. Exhibi t ��p.y�_ 10s N IRC of 199 7. as amen ded. se c. 77( 8). 106 Commissioner ofInternal Revenue v. Pascor Realty and Development C01p.. G.R. No. 1283 15. June 29. 1999 [Per J. Panganiban. Third Division]. 107 Commissioner of Internal Revenue v. 7i�ansitions Optical Philippines. Inc., G.R. 1o. 227544. ovember 22. 20 17 [Per J. Leonen, Third Division). 108 SEC. 4. Authorized Powers. - Pursuant to Article VI. Section 23 (2) of the Constitution. the President is hereby authorized to exerci se powers that are necessary and proper to carry out the declared national policy. The President shal l have the power to adopt the following temporary emergency measures to respond to crisis brought by the pandemic: (z) Move statutory deadlines and timelines for the filing and submission of any document. the payment of taxes. fees. and other charges required by law. and the grant ofany benefit. in order to ease the bu rden on individuals under Community Quarantine: (Emphasis supplied) 109 Impl ementing Section 4(z) of Republic Act No. I 1469. otherwise know as "Bayanihan to Heal As One Act". particularly on the extension of statutory deadl ines and timclines for the filing and subm ission of any document and the payment of taxes. March 27. 2020. 110 Amends Section 2 of Revenue Regulations No. 7-2020 Relative to the Extension of Statutory Deadlines and Timelines for the Fi ling and Submi;sion of Any Document and the Payment of Taxes Pursuant to Section 4(z) of Republic Act No. 11 469. Otherwise Known as "Bayanihan to Heal as One Act". April9. 2020. 111 Amends Section 2 of Revenue Regulations o. I0-2020 relati ve to the extension of statutory deadlines andt imelines fo r the filing and subm ission of any document and the payment or taxes pursuant to Section 4(z) of Republic Act No. 11 469. otherwise known as --sayanihan to l�leal J\s One Act... April 29. 2020. 112 Clarification on the Suspension of the Statute or Li mitations Provided Under Revenue Regulations (RR) No. 11- 2020. December 7. 2020.

DECISION CTA Case No. 10946 Orica Nitrates Philippines, Inc. v. Commission er of Internal Revenue X------------------------- -----------------------------------------------------------------X number of days covered by such suspension must be excluded in counting the three-year prescriptive period to assess. ll3 Moreover, RMC No. 93-2021 114 reiterated that the suspension applies in areas placed under Enhanced Community Quarantine (ECQ) and/ or Modified ECQ (MECQ) , including any extension/ s thereof, and for 60 days thereafter. Applying the foregoing issuances, the Court considers the quarantine classifications in Bacolod City up to the Issuance of the FAN/FLD on October 7 , 2021: Quarantine I Alert Pertinent Date Covered Number of IATF Days Level Status Ma rch 16 - Resolution I Ma rch 29, 2 0 20 61 Genera l Community Ma rch 30 - May Qua ra n tine (GCQ) 11s Order 15,2020 +60 days116 Enhanced Commu nity 23 Quara n tine (ECQ) Bacolod City EO No. 2 1 +60 days117 204 days Bacolod City EO No. 26 I EO 11 2 Modified ECQ (MECQ) IATF Sept 8- Sept 30, Resolution 2020 No. 69-A Total number of days of suspension of the statute of limitations Hence, as illustrated above, a total of 204 days is added to the original prescriptive p eriod, giving respondent three years and 204 days, or until August 9, 2021, 118 to a sses s petitioner. IU Item 32 in the matri x provided under RR o. 11-2020 pertains to the suspension of the statute of limitation provided under ections 203 and 222 of the Tax Code. The said matrix provided that the suspension shal l stan from March 16. 2020. when the state ofemergency was declared due to COV ID- 19 vi rus unti l sixty days after the lifting of the quarantine. With such suspension. the counting of the three (3)-year prescripti ve period for the period to assess and the fi ve (5)-year period to collect. shall excl ude the number of days covered by the period of suspension. which is a total of one hundred thirty-seven ( 137) days. 114 SU BJECT: SUSPE SIO OF THE RU II G OF TilE TATUTE OF LIMITATIO S 0 ASSESSME T A D COLLECTIO OFTAXESPURSU/\ ITTO ECTIO 2230FTII E ATIO AL l TER ALREVENUE CODE OF 1997. AS AME DED. DUE TO T il E DECLARATION OF EN HA CED COMMU lTV QUAR/\ TINE (ECQ) AND MODIFIED ECQ (MECQ) I THE AT IONAL CAPITAL REGIO (NCR) AN D OTII ER AREA S OF TH E COUNTRY. " ' Despite being only in GCQ. RR o. 7-2020 provides a nationwide suspension on the running of statute of limitations. 116 See requirement under RMC o. 93-202 1. 117 See req uirement under RM C o. 93-202 1. 118 The 3-year-and-204-day period lapses on August 7. 202 1. Saturday. The next working day is August 9. 202 1.

DECISION CTA Case No. 10946 Orica Nitrates Philippines, Inc. v. Commissioner of Internal Revenue X----- ------------- ----------- ---- ------------------------ ------------------- --- -----------X Even with this extension, respondent's right to assess had already prescribed when the FAN 119 j FLD 12o was issued on October 7, 2021. The FAN and the FLD are void for failure to state a definite due date. Section 228 ofthe NIRC of 1997, as amended, 121 mandates that the taxpayer be informed in writing of the facts and the law upon which the assessment is based; otherwise, the assessment is void. 122 This requirement is mandatory, not merely directory, and cannot be presumed . Jurisprudence furth er underscores that "the issuance of a valid formal assessment is a substantive prerequisite to the collection of taxes." 123 In Commissioner of Internal Revenue v. Pascor Realty and Development Corporation,124 the Supreme Court held that an assessment must not only contain a computation of tax liabilities but must also embody a demand for payment within a prescribed period, as this demand marks the point when penalties and interest begin to accrue and enables the taxpayer to determine the proper rem edies. Thus: An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It also signals the time when penalties and interests begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies thereon , due process requires that it must be served on and received by the taxpayer. ... (Emphasis supplied) More emphatically, in Commissioner ofInternal Revenue v. Fitness by Design, Inc. (Fitness by Design) ,125 cited in Republic 119 BIR Records. p. 482. Exhibit��R-12-T: 496. Exhibit�� P-25-T. 120 !d. at480-48 1. Exhibit ��R-1 2"":488-489. Exhi bit ��P-25"�. 121 SEC. 228. Protesting of Assessment. - When the Comm issioner or his duly authorized representat ive finds that proper taxes should be assessed. he shall first not ify thl! taxpayer of his fi nd ings: The taxpayers shall be informed in writing of the Ia\\ and thl! facts on which the assessment is made: otherwise. the assessment shall be void. (Emphasis supplied) 122 Commissioner of Internal Revenue v. Avon Products Manufacturing. Inc.. G. R. os. 20 1398- 99 eta/.. October 3. 20 18 1Per J. Leonen. Third Division]. 123 Commissioner of Internal Revenue v..\lenguito. G.R. 1o. 167560. September 17. 2008 [Per J. Austria-Martinez. Third Division]. 124 G. R. o. 1283 15. June 29. 1999 [Per J. Panganiban. Third Divisionl. See also Tupa= v. Ulep. G. R. o. 127777. October I. 1999 [Per J. Pardo. Fi rst Di vision]. 125 G.R. o. 2 15957. November 9. 20 16 [Per J. Leonen. Sl!cond Division!.

DECISION CTA Case No. 10946 Orica Nitrates Philippines, Inc. v. Commissioner of Internal Revenue x------ ------------------------------- -- ------- ----- -------- ---------------------- ---------x v. First Gas Power Corp. (First Gas Power Corp), 126 the Suprem e Court h eld that a Final Assessmen t Notice is not valid if it does not state a definite due date for payment by the taxp ayer , thus : A final assessment notice provides for the amount of tax due with a demand for payment. ... The issuance of a valid formal assessment is a substantive prerequisite for collection of taxes. ... An assessment does not only include a computation of tax liabilities; it also includes a demand for payment within a period prescribed. Its main purpose is to determine the amount that a taxpayer is liable to pay. A final assessment is a notice "to the effect that the amount therein stated is due as tax and a demand for payment thereof. " This d em a nd for payment signa ls th e time "when penalties a nd interests begin to accrue against the taxpayer and enabling the latter to determine his remedies[.]" Thus, it must be "sent to a nd received by the taxpayer, a nd must demand paym ent of the taxes described therein within a specific period." The disputed Final Assessment Notice is not a valid assessment. First, it lacks the definite amount of tax liability for wh ich respondent is accountable. It does not purport to be a deman d for payment of tax due, which a final a ssessment notice should supposedly be. Second, there are no due dates in the Final Assessment Notice. This n egates petitioner's demand for payment. Petitioner's contention that April 15, 2004 sh ould be regarded as the actual due date cannot be accepted. The last pa ragraph of the Final Assessment Notice states that the due dates for payment were supposedly reflected in t h e attach ed assessment:.... (Emphasis supplied; cita tions omitted) Followin g Fitness by D esign, the Supreme Cour t con sistently nullified assessmen ts that fail to indicate a 126 G.R. o. 214933. February 15. 2022 IPer J. LopcL. J.. First Division].

DECISION CTA Case No . 10946 Orica Nitrates Philippines, Inc. v. Commissioner of Internal Revenue X----------------------------------------------- --- - ------- --------------- -----------------X definite due date for payment,127 holding that such omission renders the supposed demand for payment legally ineffective. Without a specific period within which payment must be made, there is no valid assessm ent to speak of. The importance of a due date is further underscored in Section 249(C) ofthe NIRC of 1997, as amended, which provides that delinquency interest accrues only from the "due date appearing in the notice and demand." Without a due date, there is neither a lawful demand nor a basis to compute delinquency interest. Section 249(C) provides, in part: SEC. 249. Interest. - (C) Delinquency Interest. - In case of failure to pay: (3) A deficien cy tax, or a n y surcha rge or interest thereon on the due date appearing in the notice and demand of the Commissioner, there shall be assessed and collected on the unpaid amount, interest at the rate prescribed in Subsection (A) h ereof until the amount is fully paid, which interest shall form part of the tax. (Emphasis supplied) Accordingly, without a definite due date, delinquen cy interest cannot lawfully accrue, and the BIR cannot enforce collection. This alone underscores why specifying a due date is an indispensable element of a valid assessment. An assessment is a "written notice and demand m a de by the BIR on the taxpayer for the settlement of a due tax liability that is there definitely set and fixed." The Supreme Court in Fitness by Design reiterated that a final assessment must be "sent to and r eceived by the taxpayer, and must demand payment of the taxes described therein within a specific period." The phrase "specific period" must refer to a prospective or future due d ate that affords the taxpayer a real and fair opportunity to comply. A due date that h as already lapsed at the time of r eceipt deprives the taxpayer of this opportunity and thus violates the taxpayer's due process rights. 127 Republic v. First Gas Power Corporation. G.R. o. 21-1933. February 15. 2022 [Per J. Lopez. J.. First Division]: Commissioner of Internal Revenue v. T Shuule Services. Inc.. G.R. 1o. 240729. August 24. 2020 [Per J. lnting. Second Division].

DECISION CTA Case No. 10946 Orica Nitrates Philippines, Inc. v. Commissioner of Internal Revenue X-------- ------------------------ ---- --------------------- ------------- -- -------------- ----X In this case, the FLD 128 dated October 7, 2021 contains the following instruction: In view thereof, you are requested to pay your aforesaid Ad Valorem Pena lties on Incom e Tax through the duly Authorized Agent Bank in which you are enrolled within the time shown in the assessment notice. However, a perusal of the FAN129 shows that no due date was indicated. The due-date field was left blank, vzz.: - �~ - .,..,.~.�.......,. ' ..........,.,. . � , ., , 10� , ...... .. . .............. . r---..;;:;;:;:-;;;:::-;;;-;-;=====":7=::=~ I ;. . . ' AUDfTRESULTSIASSESSMENTNOnCE _U .ocf 1a0�f1 . tii(TU IIIW "'( ..11()() ,:.,.~ . ~~ ~ 2021.,. � FV9130no17 000-1 3<1 ...... - 3 8 4 -0 0 0 :( ....,.,,... . NITRATES ' ~� PHILIPPINES. INC. 2 I ... II Monte De Ramos Apartment 1<..- {9 - Infanta Subd . Ouma~to Cily EXHIBIT -.Jt:Jt:l'f~ lft""r.~~ ~bN'f "' "i� P1.oi1 A~I! e( ....,_~I)1 HAT vou~~lllllH~t-.Jt t lAU!trt .. eouo��w....... , ,,,.,,_.. ,, ''''\'"' ....... -... ... ori ��� '"' '� '""' ~ ., �vr . � .) J : l U )t hJIW lli>.UH IC U lARS - - � �� Ad Vatotem (VAT ) Ba..c Tax U " e I( 30. 72 ~. 9?.1 ' ~ e..uo~o.so.. Add SutchOtge lnteresl from 20% 3101/20 17 10 12131/2017 'l 10 30.3. 706 11.> 3030~ p -11 ,332 6 77 4 � ()=,ee'CJ� ���ft*M "te W t ... 0401 .... ......... . ...""' rl too ""' ' "'�"u ...,,,.. DLN ., f()ffltof'll ' '''""' '"."..'.'..'..',''''''.�..'. "' " \:' ,.. ICtYfq.D HIS~. I . . . AUDIT AESULTSIASSESSMeNT NOnCE ,.. 000-134-384-000 . __j .,..,..,., Ad Valotem (VAT) 0 ~'l "w� OISA<il' f ,. 10 1 �l:.QVE � ��ou�.,:i h J ( S\JBMI T LE T 1'f n o r :'\UQ t e. $,1 � I -=--------~~-------------~ Clearly, there was no date certain by which petitioner was required to pay, no defined period for compliance, and thus no valid demand for payment. This defect is not a mere irregularity; it is a substantive violation of due process that, under Fitness by Design and subsequent jurisprudence, renders the subject FAN and FLD void. 128 BIR Records. pp. 480-481. Exhibit --R-12": .t88-789. Ex hibit --P-25". 129 /d. at .t82. Exhibit --R-1 2-2":496. Exhibit --P-25-2".

DECISION CTA Case No. 10946 Orica Nitrates Philippines, Inc. v. Commissioner of Internal Revenue X------------------------------------------------------------------ ------------------------X The principle of due process furnishes a standard to which governmental action should conform in order to impress it with the stamp of validity. Fidelity to such standards must be the overriding concern of government agencies.l30 While indeed the government has an interest in the swift collection of taxes, its assessment and collection should be exercised justly and fairly and always in strict adherence to the requirements of the law and of the BIR's own rules.l31 Given the foregoing, the Court finds that the FAN and FLD are void for four independent reasons: (1) the Third LOA is void for violating the "One LOA per Taxable Year" rule; (2) the audit was conducted by revenue officers who were not duly authorized under a valid LOA; (3) the assessment was issued beyond the prescriptive period; and (4) the FAN and FLD failed to state a definite due date for payment. In view of the nullity of the assessment, further discussion of the remaining issues is unnecessary. WHEREFORE, premises considered , petitioner Orica Nitrates Philippines, Inc. 's Petition for Review is h er eby GRANTED. Accordingly, the Final Assessment Notice and Formal Letter of Demand, both dated October 7, 2021, are h ereby CANCELLED and SET ASIDE. Furthermore, respondent Commissioner of Internal Revenue is ENJOINED and PROHIBITED from enforcing the collection of the subject ad valorem penalties assessment against petitioner. ' 30 Mabuflay Textile Miffs C01poration v. Ongpin. G. R. 1o. 67784. February 28. 1986 [Per J. Gutierrez. Jr.. First Division]. citing Bacus v. Ople. G.R. o. 56856. October 23. 1984 [Per J. Cuevas. Second Divisionl 131 Commissioner of Internal Revenue v. Avon Products Manufacturing. Inc.. G.R. os. 20 1398- 99 et at.. October 3. 20 18 [Per J. Leonen. Third Division].

DECISION CTA Case No. 10946 Orica Nitrates Philippines, Inc. v. Commissioner of Internal Revenue x----------------------------- --------------------- --- -------- -------- ---------- -- ---------x SO ORDERED. LArl:AlMtrlJ~A~'Acu/tin-'ibAVID Associate Justice !CONCUR: JEAN MARl ATTESTATION I attest that the conclusions in the above Decision were reached in consultation b efore the case was assigned to the writer of the opinion of the Court's Division. ' A s iate Justice Acting Chairperson

DECISION CTA Case No. 10946 Orica Nitrates Philippines, Inc. v. Commissioner of Internal Revenue X------------ --------------------- ------------------ --------- ------ ------------ --- ----- ----X CERTIFICATION Pursuant to Article VIII , Section 13 of the Constitution and the Special First Division Acting Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation b efore the case was assigned to the writer of the opinion of the Court. ~.~}- MA. BELEN M. RINGPIS-LIBAN Presiding Justice