TYC TRADING & MANUFACTURING PHILIPPINES, INC., v. COMMISSIONER OF INTERNAL REVENUE,

CTA Fom1 No.8 111111111111 1111111111 1111111111 11111 1111111111111111111111111 111111111111111111 20-000015-0069 REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SPECIAL FIRST DIVISION CTA CASE NO. 10247 TYC TRADING & MANUFACTURING PHILIPPINES, INC., Petitioner, - versus - NOTICE OF DECISION COMMISSIONER OF INTERNAL REVENUE, Respondent. To: OFFICE OF THE SOLIC ITOR GENERAL 134 Amorsolo Street, Legazpi Village, Makati City ATTY. APRI LYN T. POBAR Bureau of Internal Revenue- Revenue Region No. 8B, South NC R 2nd Floor, Legal Division, BIR Regional Office Building No. 313 Sen. Gil Puyat Ave.. Makati City PAR BENIGNO LAW FIRM {BENLAW) Unit 1905, One Park I Ith Drive corner 9th Avenue Boni facio Global City Tagui g City GREETINGS: You are hereby notified by these presents that on April 18, 2024, a Decision was rendered in the above-entitled case, copy of which is attached hereto. Quezon City, Philippines, A pril 22, 2024. zman Clerk of Court III Page 1 of I

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SPECIAL FIRST DIVISION TYC TRADING & CTA Case No. 10247 MANUFACTURING PHILIPPINES, INC., Members: Petitioner, DEL ROSARIO, Chairperson, MANAHAN, and -versus- REYES-FAJARDO, JJ. COMMISSIONER OF Promulgated: INTERNAL REVENUE, R e s p o n de nt. }{- - - - - - - - - - - - - - - - - - - - - - - - - - -- MANAHAN, J.: This is a Petition for Review filed by petitioner on January 17, 2020, praying that a judgment be rendered ordering the nullification of the Final Decision on Disputed Assessment (FDDA) dated December 17, 2019 upholding the t~ deficiency assessments in the total amount of P21 ,301,082.49 representing income t~ , value-added t~ (VAT), e}{panded withholding t~ (EWT) and withholding t~ on compensation (WTC), including interest, for t~able year (TY) 2015. THE PARTIES Petitioner TYC Trading & Manufacturing Philippines, Inc. is a domestic corporation duly registered with the Bureau of Internal Revenue (BIR) with T~payer Identification No. 236- 370-679-000,1 and office address at Unit 16, G/F Prime Center, Prime cor. Enterprise St., Madrigal Business Park, Ayala Alabang, Muntinlupa City.2 1 Par. 2, Joint Stipulation ofFacts and Issue (JSFI), Docket, p. 199; Exhibit "P- 1", Docket, p. 342. 2 Par. 4, Petitionfor Review, vis-a-vis Par. 4 , Answer, Docket, pp. 8 and 68, respectively ~

DECISION CTA Case No. 10247 Respondent is the duly appointed Commissioner of Internal Revenue (CIR) vested with the powers and duties, among others, to assess and collect all national internal revenue taxes and to decide, approve and grant tax protests. He holds office at the 5th floor, BIR National Office Building, BIR Road, Diliman, Quezon City. THE FACTS On November 10, 2016, a Letter of Authority (LOA) (SN: eLA201200035094) was issued authorizing Revenue Officer (RO) Abdul Bashit Busran and Group Supervisor Aurora Balisacan of Revenue District Office (RDO) No. 53B - Muntinlupa City, to examine petitioner's books of accounts and other accounting records for all internal revenue taxes for the period January 1, 2015 to December 31, 2015.3 Later, an undated Notice of Informal Conference (NIC) was issued to and received by petitioner on July 4, 2018. 4 Subsequently, the Preliminary Assessment Notice (PAN) dated November 19, 2018 with attached Details of Discrepancies was issued and received by petitioner on November 27, 2018.5 On December 28, 2018, respondent served and petitioner received the Formal Assessment Notice (FAN) dated December 21, 2018, finding petitioner liable for deficiency income tax, VAT, EWT and WTC forTY 2015, detailed as follows: 6 Tax Type Basic 20% Interest 12% Interest Total Income tax P7,647 ,381.60 P2,618 ,966.30 P1 ,066 ,024.04 Pll ,332,3 71.94 VAT 5,084,008.28 1,966 ,745.12 708 ,696.82 7,759 ,450.22 94,340.82 37,012.62 13,150.85 144,504.29 EWT 40,364.34 15,836.09 5 ,626.68 61,827 . 11 WTC Total P12,866,095.04 P4 ,638,560.13 P1 ,793 ,498 .39 Pl9,298,153.56 On January 17, 2019, petitioner timely filed a Letter Protest/request for reinvestigation with the BIR dated January 14, 2019 relative to said FAN.7 3 Exhibit "R-1 ", BIR Records, p. 2. 4 Exhibit "R-2", BIR Records, p. 236; Refer to Exhibit "P-15" (Q&A No . 6), Docket, p. 502. s Exhibits "P-9" and "R-3", BIR Records, pp. 256 to 260; Refer to Exhibit "P-15" (Q&A No. 6), Docket, p. 502. 6 Par. 4, JSFI, Docket, p. 200 ; Exhibit "P-10", Docket, pp. 472 to 480; Exhibit "R-4", BIR Records, pp. 266 to 274. 7 Par. 5, JSFI, Docket, p. 200; Exhibit "P- 11", BIR Records , pp. 285 to 290 . ~

DECISION CTA Ca se No. 10247 In reply thereto, Regional Director Glen A. Geraldina granted petitioner's request for reinvestigation, through the letter dated February 11, 2019, stating therein that the necessary documents to support its claim and/or defenses shall have to be submitted to RDO No . 53B within sixty (60) days from the date of filing of the protest, pursuant to Section 3.1.5 of Revenue Regulations (RR) No . 12-99, as amended by RR No . 18- 2013.8 On December 20, 2019, respondent served and petitioner received the FDDA dated December 17, 2019, finding petitioner liable for deficiency income tax, VAT, EWT and WTC for TY 2015, as follows: 9 Tax Type Basic 20% Interest 12% Interest Total IT p 7,647,381.60 P2,618,966.30 1!'2,526,778.69 p 12,793, 126.59 VAT EWT 5,084,00 8 .27 1,966,745. 12 1,236 ,876.53 8 , 2 8 7 , 6 2 9 .9 2 WTC 94 ,340.82 37,012.62 22,95 1.96 154 ,30 5 .40 40,364.34 15,836. 09 9,820 . 15 66,020.58 Total 1!'1 2,866,095. 03 1!'4 ,638,560.1 3 1!'3,796,427. 3 3 P21,301,082.49 Unsatisfied with the findings contained in the FDDA, petitioner filed its Petition for Review with the Court on January 17, 2020. 10 On June 30, 2020, respondent filed his Answer (With Special and Affirmative Defenses) (With Attached Judicial Affidavit of Witness and Documentary Evidence) .11 On July 8 , 2020, respondent transmitted the BIR Records to the Court consisting of one (1) folder with 351 pages. The Pre-Trial Conferen ce was set and held on October 1, 2020. 12 Prior thereto, petitioner's Pre-Trial Brief was filed on September 18, 2020, 13 while respondent's Pre-Trial Brief was submitted on September 28, 202 0 .14 s Exhibit "R-5", BIR Records , p. 293 ; Par. 11, Petitionfor Review, Docket, p. 10 . 9 Pa r. 6, JSFI, Docket, p. 200; Exhibits "P-1 2" and "R-8", BIR Records, pp. 30 9 to 3 14. 10 Dock et , pp. 7 to 26; Par . 7, J SFI, Docket, p. 200. 11 Dock et, pp. 67 to 80. 12 Notice ofPre-Trial Conference dated July 23, 2020 , Docket, p p. 128 to 130; Minutes of t he hearing h eld o n , and Ord e r dated, October 1, 2020, D ocket, p p. 179 to 183. 13 Docket, pp. 134 to 139. 14 Docket , pp . 168 t o 173 .~

DECISION CTA Case No. 1024 7 Pa ge 4 of 42 During the Pre-Trial Conference held on October 1, 2020, the Court, among others, directed the parties to appear before the Philippine Mediation Center - Court of Tax Appeals (PMC- CTA) on November 9 , 2020 at 10:00 a.m. , pursuant to A.M. No. 11-1-5-SC-PHIWA (Re: Interim Guidelines for Implementing Mediation in the Court of Tax Appeals). 1s However, the PMC- CTA later issued the "No Agreement To Mediate" dated November 25, 2020,16 stating that the parties decided not to have their case mediated. On October 19, 2020, the parties filed their Joint Stipulation of Facts and Issue , 17 which was approved in the Resolution dated October 29, 2020 , 18 thereby deeming the termination of the Pre-Trial. The Pre-Trial Order dated November 20, 2020 was then issued.l9 Trial then ensued, with both parties presenting and offering their respective documentary and testimonial evidence. Petitioner offered the testimonies of the following individuals, namely: (1) Ms. Anna Marie S . De FCahmaevreoz,' 20 petitioner's President; (2) Ms. Reina Donna D. 21 petitioner's Accounting Staff; and (3) Ms. Honorata L. Paguio ,22 the Court-commissioned Independent Certified Public Accountant (ICPA).23 The Report of the ICPA was submitted to the Court on March 1, 2021.24 15 Order dated Octob er 1, 20 20, Docket, pp. 182 toO 183. 16 Docket, p. 213. 11 Docket, pp. 199 to 20 1. 18 Docket , p. 203. 19 Docket , pp. 205 to 212. 20 Exhibit "P- 14", Docket, pp. 482 to 500; Minu tes of hearing held on, and Order dated, J anuary 28, 202 1, Docket, pp. 248 to 248-B, and 249 to 250, respectively. 21 Exhibit "P-15", Docket, pp. 501 to 507; Minutes of hearing h eld on , and Order dated, June 29,20 21, Dock et, p p . 30 3 to 3 11. 22 Exh ibit "P- 17", Docket , pp. 287 to 3 00; Minutes of h earing held on, a n d Order dated, June 29,202 1, Docket , pp. 303 to 3 11. 23 Oath of Commission dated January 28, 2021, Docket , p. 248-C; Minutes of h earing held on, and Order dated , J anuary 28, 2021, Docket, pp. 248 to 248-B, and 2 49 to 250, r e sp e c t i v ely. 24 Exhibit "P-18", Docket , pp. 263 to 273.~

DECISION CTA Case No. 10247 Petitioner filed its Formal Offer of Evidence on July 14, 2021,25 to which respondent posted his Comment/ Opposition (To Petitioner's Formal Offer of Evidence) on July 29, 2021.26 In the Resolution dated March 29, 2022, 27 the Court admitted petitioner's offered exhibits except for Exhibit "P-18- h-5-a-1", for not being found in the records. Thereafter, petitioner filed its Partial Motion for Reconsideration with Motion to Transfer the Markings on April 20, 2022,28 while respondent posted his Comment/ Opposition (To Petitioner's Partial Motion for Reconsideration with Motion to Transfer the Markings) on May 17, 2022.29 In the Resolution dated August 5, 2022 ,30 the Court admitted Exhibit "P-18-h-5- a-1", but denied the admission of Exhibits "P-18-h-1.2-a-1n" to "P-18-h-1.2-a-lo", for not being found in the records. Thus, petitioner filed its Partial Motion for Reconsideration on August 25, 2022,31 while respondent posted his Manifestation (To Petitioner's Partial Motion for Reconsideration dated 23 August 2022) on September 12, 2022 .32 Petitioner also filed a Supplemental Formal Offer with Motion to Mark Additional Exhibits on August 30, 2022. 33 Respondent, however, failed to file comment thereon.34 Meanwhile, respondent filed his Motion for Reconsideration (of the Resolution dated 05 August 2022) on August 30, 2022, 35 while petitioner filed its Comment/ Opposition (Re: CIR's Motion for Reconsideration dated 26 August 2022) on September 5 , 2022. 36 25 Docket, pp. 3 13 to 34 1. 26 Docket, pp. 518 to 521. 27 Docket, pp. 527 to 529. 28 Docket, pp. 530 to 532. 29 Docket, pp. 547 to 549. 30 Docket, pp. 561 to 563. 31 Docket, pp. 564 to 566. 32 Docket, pp. 6 18 to 619. 33 Docket, pp. 589 to 592. 34 Records Verification Report dated September 29, 2022 issued by the J udicial Records Division of this Court, Docket, p. 621. 35 Docket, pp. 583 to 585. 36 Docket, pp. 61 1 to 614~

DECISION CTA Case No . 10 247 Page 6 of 4 2 In the Resolution dated November 18, 2022 ,37 the Court admitted Exhibits "P-18-h-1.2-a-1n" to "P-18-h-1.2-a-1o" and acting on petitioner's Supplemental Formal Offer with Motion to Mark Additional Exhibits, Exhibits "P-18-h - 1.3-a-2" and "P- 18- h-1.3-a-3" were likewise admitted. For his part, r espondent presented the testimony of RO Abdul Bashit B . Busran.38 Respondent's Formal Offer of Evidence was filed on December 13, 2022. 39 Petitioner filed its Comment/Objections (Re: CIR's Formal Offer of Exhibits) on December 19, 2022.40 In the Resolution dated January 27 , 2023,41 the Court admitted all of respondent's offered exhibits. The Memorandum (For the Respondent) was posted on March 15, 2023 ,42 while the Memorandum (For the Petitioner) was filed on March 3 1, 2 0 23 .43 The present case was submitted for decision on April 18, 2 0 2 3 .44 THE ISSUE As stipulated by the parties, the issue for this Court's resolution is as follows: "Whether or not the petitioner is liable for deficiency income tax, value-added tax ('VAT'), expanded withholding tax ('EWT') and withholding tax on compensation (WTC '), including interest and penalties for TY 2015 in the total amount of P2 1,301 ,082.49, plus interests and penalties."45 37 Dock et , p p . 626 to 633. 38 Exhibit "R-9", Docket , pp. 83 to 95; Minutes of t he hearing h eld on, a nd Order dated , Augu st 25, 2022, Docket , pp . 580 to 582. 39 Docket, pp. 634 to 638. 40 Docket, pp. 6 41 to 6 43. 41 Docket, pp. 650 to 651. 42 Docket, pp. 652 to 672. 43 Docket , p p. 674 to 698. 44 Minu te Resolution dated April 18 , 2023. 45 Issu e , J SFI, Docket , p. 200 . ~

DECISION CTA Case No. 10247 Petitioner's arguments: Petitioner argues that the right of respondent to issue tax deficiency assessments for VAT, EWT and WTC, forTY 2015 has already prescribed. If at all, petitioner avers that it may only be assessed for the fourth quarter of TY 2015 but maintains that said assessments have no bases in fact and in law. Petitioner also considers the FAN and the assessment notices to be invalid for being unsigned. Respondent's arguments: Respondent contravenes the contention of petitioner and asserts that his right to assess petitioner's deficiency taxes for TY 2015 has not yet prescribed and that the assessment notices were issued within the three (3)-year prescriptive period provided under Section 203 of the 1997 National Internal Revenue Code (NIRC), as amended, in relation to Section 77(B) of the same Code. As regards the allegation of petitioner that the assessment notices are unsigned, hence, invalid, respondent denies this and points to the records of the case showing that these were all signed by the Revenue Regional Director, Glen A. Geraldina, with initials of other revenue officials and employees who recommended their issuance. Respondent also alleges that procedural due process was followed in the issuance of the subject assessments and that petitioner duly received the LOA, NIC, PAN, Assessment Notices and FAN and FDDA forTY 2015. He also claims that the PAN, FAN and FDDA contained the facts, law, rules and regulations on which the assessments were made and showed quite clearly that petitioner is liable for deficiency income tax and EWT arising from disallowed expenses due to non-withholding and for deficiency income tax and WTC arising from assessment of salaries and wages not subjected to withholding tax. Further, respondent reiterates the findings of the revenue examiners that petitioner is liable for deficiency income tax arising from Unsubstantiated Purchases and from income tax arising from Net Operating Loss Carry Over (NOLCO) and Excess Minimum Corporate Income Tax (MCIT) over Normal Corporate Income Tax (NCIT) carried over to the succeeding period. As regards the~

DECISION CTA Case No. 10247 findings of alleged VAT deficiency, respondent states that this arose from receipts not subject to VAT and input tax carried over to the succeeding period. Lastly, respondent also claims that petitioner failed to submit the necessary documents in relation to its Request for Reinvestigation within sixty (60) days from the date of filing of its Letter Protest, hence, the subject assessment became final and consequently lost its chance to further contest the subject assessments. THE RULING OF THE COURT We shall first resolve whether petitioner was able to file its appeal with this Court in the manner and within the period prescribed by relevant laws, which is determinative of our jurisdiction to take cognizance of this case. Records show that petitioner received a FAN on December 28, 2018 and subsequently filed a protest/request for reinvestigation with the BIR on January 17, 2019. On December 17, 2019, respondent issued an FDDA and received by petitioner on December 20, 2019. On January 17, 2020, petitioner filed the instant Petition for Review with the Court. Section 11 of Republic Act (RA) No. 1125, as amended by RA No. 9282, gives the taxpayer a period of thirty (30) days from receipt of such decision within which to file an appeal with the Court and we quote: "SEC. 11 . Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely affected by a decision, ruling or inaction of the Commissioner of Internal Revenue...may file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the expiration of the period fixed by law for action as referred to in Section 7(a)(2) herein. XXX XXX xxx." (Emphases supplied) Further, Section 3 (a) , Rule 8 of the Revised Rules of the Court of Tax Appeals (RRCTA), provides as follows, and we quote:~

DECISION CTA Case No. 10247 "RULE 8 PROCEDURE IN CIVIL CASES XXX XXX XXX 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 ofTrade and Industry, the Secretary of Agriculture, or a Regional Trial Court in the exercise of its original jurisdiction may appeal to the Court by petition for review filed within thirty days after receipt of a copy of such decision or ruling, or expiration of the period fixed by law for the Commissioner 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. (Emphasis supplied) Thus, petitioner had thirty (30) days from receipt of the said FDDA on December 20, 2019 within which to file its appeal before this Court. Correspondingly, the filing of the present Petition for Review on January 17, 2020, was timely made. We now proceed to decide on the merits of the subject assessments. As earlier stated, the FDDA found petitioner liable for deficiency income tax, VAT, EWT and WTC forTY 2015, detailed as follows: 46 Tax Basic 20% Interest 12% Interest Total Type P7,647,381.60 P2,618,966.30 P2,526,778 .69 P12,793,126 .59 Income Tax 5,084,008.27 1,966,745.12 1,236,876.53 8,287,629 .92 94,340.82 37,012.62 22 ,951.96 154,305.40 VAT 40,364.34 15,836.09 9 ,820.15 66,020.58 EWT WTC P12,866,095.03 P4,638,560.13 P3, 796,427.33 P21,301,082.49 TOTAL 46 Par. 6 , JSFI, Docket, p . 200; Exhibits "P- 12" and "R-8", BIR Records, pp. 309 to 314 .~

DECISION CTA Case No. 10247 Petitioner primarily alleges that respondent's right to assess deficiency VAT, EWT and WTC forTY 2015 had already prescribed, hence cannot be a source of tax collection. An analysis of the records of this case leads us to agree with the petitioner as to the assessments for deficiency VAT for the 1st to 3rct Quarters of TY 2015, and the assessments for deficiency EWT and WTC for the months of January to November 2015 as these were made beyond the three (3)-year prescriptive period under Section 203 of the 1997 NIRC, as amended, quoted as follows: "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 after the last day prescribed by law for the filing 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 filed on such last day." Based on the foregoing provision, it is clear that except as provided in Section 222 of the 1997 NIRC, as amended, 47 internal revenue taxes must be assessed within three (3) years from the last day prescribed by law for the filing of the tax return or the actual date of filing of such return, whichever comes later.48 As a corollary thereto, an assessment notice issued after the three (3)-year prescriptive period is not valid and effective.49 47 "SEC. 222 . Exceptions as to Period ofLimitation ofAssessment and Collection of Taxes. (a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed or a proceeding in court for the collection of such tax may be filed without assessment, at a ny time within ten (10) 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 cognizance of in the civil or criminal action for the collection thereof. (b) If before the expiration 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 within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon. " 48 Refer to Commissioner of Internal Revenue vs. Kudos Metal Corporation, G.R. No. 178087, May 5, 2010. 49 Commissioner of Internal Revenue vs. Next Mobile, Inc., G.R. No. 212825, December 7, 2015.~

DECISION CTA Case No. 10247 For clarity, we shall primarily refer to the specific provisions of the law prescribing the period within which to file the pertinent tax returns vis-a-vis the date of filing of the said tax returns by petitioner, to adjudge the commencement and end of the three (3)-year prescriptive period under the afore- quoted Section 203 of the 1997 NIRC, as amended. For filing of corporate income tax returns, Section 77(B) of the 1997 NIRC, as amended, is relevant and we quote: "SEC. 77. Place and Time of Filing and Payment of Quarterly Corporate Income Tax. - XXX XXX XXX (B) Time ofFiling the Income Tax Return. - The corporate quarterly declaration shall be filed within sixty (6 0) day s following the close of each of the first three (3) quarters of the taxable year. The final adjustment return shall be filed on or before the fifteenth (15th) day of April, or on or before the fifteenth (15th) day of the fourth (4th) month following the close of the fiscal year, as the case may be." (Emphasis supplied) Thus, on the basis thereof, petitioner's Annual Income Tax Return forTY 2015 should be filed on or before Apri115, 2016. Anent the filing of quarterly VAT returns, we quote the applicable provision of Section 114(A) of the 1997 NIRC, as amended, as follows: "SEC. 114. Return and Payment of Value-added Tax.- (A) In General. - Every person liable to pay the value- added tax imposed under this Title shall file a quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered persons shall pay the value-added tax on a monthly basis." (Emphasis supplied) Based on the foregoing provision, petitioner's Quarterly VAT Returns for the four (4) quarters ofTY 2015 should be filed on or before: (1) April 25, 2015, for the 1st quarter; (2) July 25, 2015, for the 2nd quarter; (3) October 25, 2015, for the 3rct quarter; and, (4) January 25, 2016, for the 4 th quarter. ~

DECISION CTA Case No . 10247 With regard to the filing of withholding tax returns, Section 2.58(A)(2)(a) of RR No. 2-98, as amended, states: "Sec. 2.58. RETURNS AND PAYMENT OF TAXES WITHHELD AT SOURCE. - (A) Monthly return and payment of taxes withheld at source.- XXX XXX XXX (2) WHEN TO FILE - (a) For both large and non-large taxpayers, the withholding tax return, whether creditable or final (including final withholding taxes on interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements)[,] shall be filed and payments should be made, within ten (10) days after the end of each month, except for taxes withheld for the month of December of each year, which shall be filed on or before January 15 of the following year; xxx." (Emphases supplied) Thus, petitioner's remittance returns for the twelve (12) months of TY 2015 should be filed within ten (10) days after the end of each month, except for the month of December 2015, in which case the said tax return must be filed on or before January 15, 2016. Correspondingly, for purposes of the subject tax assessments of deficiency income tax, VAT, EWT and WTC against petitioner for TY 2015, the end of the three (3)-year prescriptive period under Section 203 of the 1997 NIRC, as amended, if applicable, is respectively determined as follows: Kind of Tax & Period Actual date of filing of Reckoning date of the End of the three- the pertinent tax three-year prescriptive year prescriptive Income Tax - for 2015 return VAT- 1st Quarter 2015 March 31, 20 1651 period5� period VAT- 2nd Quarter 2015 April 24, 201552 April 15, 2019 VAT- 3rd Quarter 2015 July 16, 201553 April 15, 2016 April 25, 2018 October 23, 201554 April25, 2015 July 25, 2018 July 25, 2015 October 25, 2018 October 25, 2015 50 The last day prescribed by law for the filing of the tax return or actual date of filing the same, whichever comes later. 51 Exhibit "P-2", Docket, pp. 343 to 350. 52 Exhibits "P-4" a nd "P-4-a", Docket, pp. 376 to 379. 53 Exhibit "P-4.1", Docket, pp. 385 to 386. 54 Exhibits "P-4.2" and "P-4.2-a", Docket, pp. 389 to 391.~

DECISION CTA Case No. 10247 VAT- 4th Quarter 2015 January 25 , 201655 January 25, 2016 January 25, 2019 EWT- January 2015 February 10, 201556 February 10, 2015 February 10, 2018 EWT- February 2015 EWT - March 20 15 March 6 , 201557 March 10, 2015 March 10, 2018 EWT- April 2015 April8, 201558 April 10,2015 April 10, 2018 EWT- May 2015 May 8, 201559 May 10, 2015 May 10, 2018 EWT- June 2015 June 8, 201560 June 10, 2015 June 10, 2018 EWT- July 2015 July 9, 201561 JulY' 10, 2015 July 10, 2018 EWT- August 2015 August 5, 201562 August 10, 2015 August 10, 2018 EWT- September 2015 September 3, 201563 September 10, 2015 September 10, 2018 EWT - October 2015 October 2, 201564 October 10, 2015 October 10, 2018 EWT - November 2015 November 3, 201565 November 10, 2015 November 10, 2018 EWT- December 2015 December 8 , 201566 December 10, 2015 December 10, 2018 WTC - January 20 15 January 8, 201 667 January 15, 2016 January 15, 2019 WTC - February 2015 Fe bruary 10, 201 568 February 10, 2015 February 10, 2018 WTC - March 20 15 March 6 , 201569 March 10, 2015 March 10, 2018 WTC - April 2015 April 8, 201 570 April 10, 2015 April 10, 2018 WTC- May 2015 May 8 , 2 01511 May 10, 2015 May 10, 2018 WTC - June 2015 June 8 , 201512 June 10, 2015 June 10, 2018 WTC- July 2015 July 9, 201573 July 10, 2015 July 10, 2018 WTC- August 2015 August 6 , 201574 August 10, 2015 August 10, 2018 WTC - September 2015 September 3, 201575 September 10, 2015 September 10, 2018 WTC- October 2015 October 2, 201576 October 10, 2015 October 10, 2018 WTC- November 2015 November 3, 201577 November 10, 2015 November 10, 2018 WTC- December 2015 December 10, 2015 December 10, 2018 December 8, 201578 January 15, 2016 January 15, 2019 January 10, 201679 In this case, the Assessment Notices and FAN were received by petitioner on December 28, 2018. so Hence, the assessments for deficiency VAT for the 1st to 3rct Quarters of 2015, and the assessments for deficiency EWT and WTC for the months of January to November 2015 were made beyond the three (3)-year prescriptive period under Section 203 of the 1997 NIRC, as amended. 55 Exhibit "P-4.3" , Docket, pp. 394 to 395. 56 Exhibit "P-5", Docket, p . 398. 57 Exhibit "P-5. 1", Docket, p . 400 . 58 Exhibit "P-5.2", Docket, p . 402. 59 Exhibit "P-5.3", Docket, p. 404. 60 Exhibit "P-5.4", Docket , p . 406. 6 1 Exhibits "P-5.5" to "P-5 .5 -b", Docket , pp. 408 to 410 . 62 Exhibits "P-5.6" and "P-5.6-a ", Docket, pp. 412 to 413. 63 Exhibits "P-5 .7" to "P-5.7-b", Docket, pp. 415 to 417. 64 Exhibits "P-5.8" and "P-5 .8-a", Doc ket, pp. 419 to 420. 65 Exhibits "P-5.9" to "P-5 .9 -b", Doc ket, pp. 422 to 424. 66 Exhibits "P-5 . 10" and "P-5 .10-a ", Docket, pp. 426 to 427 . 67 Exhibits "P-5.11" and "P-5 . 11-a", Docket, pp. 429 to 430 . 68 Exhibits "P-6" and "P-6 -a ", Docket, pp. 4 37 to 438. 69 Exhibit "P-6.1", Docket, pp. 4 39 to 439-A. 70 Exhibits "P-6.2" and "P-6 .2-a ", Docket, pp. 440 to 441. 71 Exhibits "P-6.3" and "P-6 .3-a", Docket, pp. 442 to 443. 72 Exhibits "P-6.4" and "P-6.4-a ", Docket, pp. 444 to 445. 73 Exhibits "P-6.5" and "P-6.5-a", Docket, pp. 447 to 448. 74 Exhibits "P-6.6" and "P-6 .6-a ", Doc ket , pp. 449 to 451. 75 Exhibits "P-6.7" and "P-6.7-a", Docket, pp. 452 to 454 . 76 Exhibits "P-6.8" and "P-6 .8-a", Docket, pp. 455 to 457 . 77 Exhibits "P-6.9" to "P-6 .9-b", Docket, pp. 458 to 460 . 78 Exhibits "P-6 .10" and "P-6 . 10-a", Docket, pp. 461 to [461 -AJ . 79 Exhibits "P-6.11" and "P-6 . 11-a", Docket, pp. 462 to 464. so Par. 4 , JSFI, Docket, p. 200; Exhibit "P- 10", Docket, pp. 472 to 480; Exhibit "R-4", BIR Records, pp. 266 to 274. (.)#*'

DECISION CTA Case No. 10247 Respondent however contends that the assessments for deficiency VAT, EWT and WTC forTY 2015 were made within the extraordinary prescriptive period of ten (10) years to assess as provided in Section 222(a) of the 1997 NIRC, as amended. Respondent further states that during the presentation of evidence of petitioner, it was disclosed that there is a discrepancy of 182.43�/o in the total amount of sales reported by petitioner as compared to the total amount of sales per its Quarterly VAT Returns for 2015. Hence, there is a presumption of falsity of returns considering that there were receipts not subjected to VAT and there were items of deductions that petitioner failed to withhold the corresponding EWT and WTC. This circumstance, according to respondent justifies the application of the extraordinary prescriptive period of ten (10) years to assess pursuant to Section 222 of the 1997 NIRC, as amended. The Court disagrees with respondent. For assessments issued beyond the three (3)-year period, where fraud is b eing invoked, the factual basis must also be stated and communicated to the taxpayer.Bl Otherwise stated, to avail of the extraordinary period of assessment in Section 222(a) of the 1997 NIRC, as amended, the CIR should show that the facts upon which the fraud is based is communicated to the taxpayer. It is incumbent upon the CIR to clearly state the allegations of fraud committed by the taxpayer to serve the purpose of an assessment notice to aid the taxpayer in filing an effective protest. It is indispensable for the CIR to include the basis for its allegations of fraud in the assessment notice.82 In this case, n either the FAN nor the FDDA explicitly states that the applicable prescriptive period is ten (10) years set in Section 222 of the 1997 NIRC, as amended. We therefore find that said extraordinary prescriptive period cannot be made to apply to petitioner as it was not sufficiently informed that the extraordinary period laid down in Section 222 of the 1997 NIRC , as amended, would apply. s1 Commissioner of Internal Revenue vs. Spouses Remigio P. Magaan and Leticia L. Magaan, G.R. No. 232663, M ay 3, 202 1. 82 Commissione r of Internal Revenue vs. Fitness By Design, Inc., G.R. No. 2 15957, November 9, 20 1 6.~

DECISION CTA Case No. 10247 Consequently, only the following periods fall within the prescriptive period and will be the subject of this Court's decision, to wit: VAT 4th Quarter EWT December 2015 WTC December 2015 This Court also finds that respondent's right to assess petitioner's income tax deficiency for TY 2015, has not prescribed and will likewise be part of this Decision. As regards the allegation that the assessment notices were unsigned, a perusal of the records of the case, particularly the BIR Records, belie the claim of petitioner and hence must be disregarded. We now go into the details of the covered assessments. I. Income Tax Respondent assessed petitioner of basic deficiency income tax in the amount of P7,647 ,381.60, computed as follows: Taxable Loss per return P2,354,652.59 P(3,183,636 .00) Add: Adjustments/disallowan ces 15 1,460 .92 25,491,272.01 Disallowed expenses due to non-withholding 22,985,158.50 1'22,307,636.01 Salaries and wages n ot subjected to Withholding Tax 3,183,636.00 Unsubstantiated Purchases P25,49 1,272.01 Taxable Incom e Add: NOLCO Adjusted Taxa ble Income Income Tax Due (30%) 7,647 ,381.60 Less: Tax Credits/Payments P30,309.00 0.00 Prior Year's Excess Credits 74,727.00 P7,647,381.60 O?Jt.. Payments per return P l05 ,036.00 Total 105,036.00 Less: Excess MCIT carried over to Su cceeding Period Basic Tax Due

DECISION CTA Case No. 10247 Based on the foregoing, the assessment items are the following: A. Disallowed expenses due to non-withholding p 2,354,652.59 B. Salaries and wages not subjected to 151,460.92 Withholding Tax 22,985,158.50 C. Unsubstantiated Purchases 3, 183,636.00 105,0 36 .00 D.NOLCO E. Excess MCIT A. Disallowed expenses due to non- withholding (P2,354,652.59) Based on the FDDA, respondent found that petitioner failed to withhold the appropriate withholding tax due on the above income payments, in violation of Section 34(K) of the 1997 NIRC, as amended , which expressly provides that expenses cannot be claimed as deductions from taxable income if the required withholding tax has not been remitted to the BIR. 83 As can be gleaned in the Details of Discrepancies attached to the FDDA, the disallowed expenses due to non- withholding in the amount of P2,354,652.59 are broken down, as follows :84 Income Payment Per ITR/AFS Per 1601-E Disallowed EWT EWT Due Subject to EWT Expenses Rates Professional fees p 780,000 .00 p 416,555.62 p 363,444.38 15% p 54,516.66 Contractors & Purchase of Services 211,888.00 Other Services 1,047,948.00 22 ,081,266.24 1,991,208.21 2% 39,824.16 Tracking and 22,81 2,638.45 P22,497 ,821.86 p 2,354,652.59 P94,340.82 Freight 24,072,474.45 P24,852,474.45 Processing fees Subtotal Total We shall discuss petitioner's arguments and supporting documents to resolve whether petitioner has proven that it is entitled to claim the above disallowances as deductions from its taxable income. 83 This was prior to the enactment of Republic Act (RA) 11976 or the Ease of Paying Taxes (EOPT) Law which took effect on January 22, 2024. 84 Exhibits "P-12" and "R-8", BIR Records, pp. 309 - 314~

DECISION CTA Case No. 10247 1. Disallowed Professional fees (P363,444.38) According to petitioner, the amount of Professional Fees claimed as deductions per Income Tax Return ("ITR")/ Audited Financial Statements ("AFS") in the amount of P780,000 .00 is composed of the following: as GPP Suppliers Amount Exhibit Reference p 335,000.00 "P-18-h - 1.1 -a- 1" to "P- 1. L.A. De Jesus and Associates, CPAs 18-h-1 . 1-a- 1k"; "P-18-h- 180,000.00 1.1 -a-2" to "P-18-h-1.1 - 2. JG Law 25,000.00 3 . Mamuri, Eisma & Associates, CPAs a -2k" Total Professional Fee - Exempt p 540,000.00 "P-18-h - 1.1 -b-1" to "P- Non-GPP Suppliers 1. Emmanuel D. Sarmiento 18-h - 1.1-b- 1k" 2. Atty. Jose Vicente F. Jimenez "P-18-h-1.1-c-1" to "P- Total Professional Fee - Taxable Total Professional Fees per ITR/AFS 18-h- 1.1-c-2" p 180,000.00 "P- 18-h-1.2-a- 1" to "P- 60,000.00 18-h -1 .2-a-1w" p 240,000.00 "P- 18-h-1.2-b-1" to "P- 18-h-1.2-b-l c" p 780,000.00 Petitioner contends that a portion of said income payments were made to General Professional Partnerships (GPPs) which are exempt from withholding, pursuant to Section 2.57.5 of RR No. 2-98, as amended by RR 14-02, in relation to Section 26 of the 1997 NIRC, as amended, to wit: "SEC. 26. Tax Liability of Me mbers of General Professional Partne rships. A general professional partnership as such shall not be subject to the income tax imposed under this Chapter. Persons engaging in business as partners in a general professional partnership shall be liable for income tax only in their separate and individual capacities." "Section 2.57.5. Exemption from Withholding. - The withholding of creditable withholding tax prescribed in these Regulations shall not apply to income payments made to the following: XXX XXX XXX ss Par. 22 .2, Petition fo r Review, Docket, p. 16. 0?-v'

DECISION CTA Case No. 10247 (B) Persons enj oying exemption from paym ent of income taxes purs u a nt to th e provision s of a ny law, general or special, such a s but n ot limited to th e following: XXX XXX XXX (4) General Professional Part nerships" (Emphasis supplied) It is clear from the foregoing that income p aymen t s made to a GPP, as a juridical p erson, are exempt from incom e tax, vis - a-vis the EWT. The partners of s aid GPP are th e one s liable in their ind ividual capacities for the paym ent of in come tax, pursuant to the afore-quoted Section 2 6 of the 1997 NIRC , a s amended. A careful examina tion of the pert inen t documents 86 submitted by petitioner revealed the following information: Incom e Per ITR /AFS Nontaxable Taxable Per 1601-ES7 Disa llowed EWT EWT Due Payment E xp e n s e s Rates p 1 ,500 .00 ,. 780,000.00 p 540 ,000.00 I> Profession al 240 ,000.00 p 225,000.0 0 p 15,000.00 10% fees ((al10%) Other Services 2 11,887.76 - 2 11 ,887.76 191,555.57 20,332. 19 10% 2 ,033.22 ((al 10%) Trucking and 1,047,948 .06 - 1,047,948.06 78, 120.19 969,827.87 2% 19,396.56 Freight 2% 16, 189.84 Processing Fees 22,8 12,638.45 - 22,8 12,638.45 22 ,003,1 46.05 809,492.40 2% 35,586.40 Subtotal p 24,072,474.27 23 860 586.51 22,081,266.24 1, 779,320.27 p 39, 119.62 Total P24,852,4 74 .27 p 540,000.00 P24,312,474.27 P22,497,821.81 p 1,814,65 2 .46 Ou t of the recorded professional fees amounting to P780,000.0 0 per Annual ITR 88 and AFS 89 , the amount of P540,000.00 represents p ayments to GPPs9o, as sh own in their respective Articles of Partnership and Basis of Exemption91 , which are considered by law t o b e exempt from withholding taxes. This Court concludes tha t petitioner was a ble t o provide su pporting documents to show th at Profe ssional Fees per AFS/ ITR in the amount of P780,000.00 is indeed composed of P540,000.0 0 pertaining to income paym ents to GPPs. 86 Exhibits "P- 18-h- 1.1-a"; "P- 18-h - 1. 1-a-1" to "P- 18-h- 1. 1-a -1 k"; "P- 18-h- 1. 1-a-2" t o "P- 18 -h-l.l-a-2k"; "P- 18-h- 1. 1- b"; "P- 18-h -1.1-b- 1" to "P-18-h- 1.1 -b - 1k"; "P- 18-h- 1. 1-c"; "P- 18-h - 1. 1-c - 1" to "P-1 8-h - 1.1 -c-2". 87 Exhibits "P-5" to "P-5 . 11". 88 Exhibit "P-2 ", Ite m 2 2 of Schedule 4, Docket, p . 34 6 . 89 Exhibit "P-3 ", Docket, p . 372. 90 Exhibit "P- 18-h - 1. 1". 91 Exhibits "P- 18 -h-1.3". "P-18-h - 1.3-a", "P- 18 -h - 1.3-a-1", and "P- 1 8-h- 1. 3-b".~

DECISION CTA Case No. 10247 Page 19 of42 On the other hand, the remaining amount of P240,000.00 relates to income payments made to non-GPP services92. From the non-GPP fees, only P225,000.00 was paid 93 and was subjected to the corresponding withholding taxes during the year, as reflected in the Monthly Alphalist of Payees 94 . The remaining P 15,000.00 allegedly pertains to a discrepancy representing professional fee paid to Mr. Jose Vicente Espino Jimenez accrued as of December 31, 2015 95 and whose withholding tax was allegedly remitted in February 20 1696. Consequently, the discrepancy of P15,000.00 that was claimed as expense as of December 31, 2015, and from which no EWT was remitted during the year 2015, shall be disallowed as deduction from taxable income, and likewise, be subjected to deficiency EWT at the rate of 10�/o. 2. Disallowed Payments to Contractors and Purchase of Services (P24,072,474.45) With regard to the disallowed income payments to Contractors and Purchase of Services, petitioner claims that the amount per ITR/AFS of P24,072,474.45, as found by respondent, consists of the following: 97 a.) Other Services p 130,612.24 211,887.75 81 ,275.51 p Rarniro, Louella Alagar Saguinsin, Reynaldo 78,120.19 1,047,948.05 898,750.36 b .) Trucking freight 22,812,638.45 71,077 .50 RMA Cargo Logistics, Inc. p 24,072,474.45 Service charge 22,468,440.55 Reimbursable charges 344, 197.70 All Ways International Reimbursable charges not subject to EWT c.) Processing Fees Pulp Specialist Phils., Inc. Salinas, Clarita H. Total fee per ITS/AFS 92 Exhibit "P-18-h-1.2". 93 Exhibits "P-18-h-1.2-a"; "P-18-h-1.2-a-1" to "P-18-h- 1.2-a-lw" and "P-18-h-1.2-b"; "P- 18-h-1.2-b- 1" to "P-18-h-1.2-b- lc". 94 Exhibits "P-5-a", to "P-5- 11-b. 95 Exhibit "P-18-h-1.2-b". 96 Exhibit "P-18-h". 97 Par. 22.4, Docket, pp. 16 to 17. ~

DECISION CTA Case No. 10247 To reiterate, the examina tion of the p ertinent documents98 submitted by p etition er r esulted to the following summary of findings: Income Per ITR/AFS Nontaxable Taxable Per 1601-E99 Disallowed EWT EWT Due Payment Expenses Rates Pr o f e s s i o n a l 780,000.00 p 540,000.00 p 240 ,000 .00 p 225,000.00 p 15,000.00 10% p 1,500.00 fees (@10%) Other Services 2 11,887.76 - 2 11 ,887.76 191,555.57 2 0,332. 19 10% 2,0 33.22 (@10% ) 1 047 948.06 78,120 . 19 9 69,827.87 - 1,047 948.06 2% 19,396.56 Trucking and Fr e ig h t 2% 16, 189.84 2% 35,586.40 Processing Fees 22,812,638.45 - 2 2 8 12 638.45 22 ,003,146.05 809 492.40 p 39, 119.62 Subtotal p 24 0 72, 474.27 23,860,586.51 22,081,266.24 1, 779,320.27 Total P24 852,474.27 p 540 000.00 P24,312,474.27 P22,497,821.81 p 1 814 652.46 The Court after vouching the supporting documents such as the Check/ Journal Vouch er s or Official Receipts, and cr oss- referencing them with the reported amounts per Form No. 1601 -E , r evealed the following, thus: a.) Oth e r Outside Services Per petitioner 's AFS forTY ended December 31 , 2015, the "Outside Services" amounting to P211 ,887. 76 is reporte d under Note 15 - Oper atin g Expen ses. Ba sed on the findings of the ICPA, the s ame is b r oken d own as follows :1oo Su pplier Amount Ramiro, Lou ella A. p 130,6 12 .24 Saguinsin, Reyn a ldo L. Total 8 1,275.52 p 211,887.76 The C o u rt t h e n v e r ified wheth er said runounts wer e properly subjected to EWT. � Supplier: Ramiro, Loue lla A . Per Check Voucher Exhibit No. Date Debit Account Amount Credit - Cash Credit- Pe r 1601-E in Bank Expanded Professional Withho ld ing Fee Tax Professional "P-18-h-3. 1-a" 5/ 15/2015 Fee ~ 17,777.78 ~ 16,000.00 ~ 1,777.78 ~ 1,777.78 "P-18-h-3.1-a1" 6/ 15/2015 17,777.78 16,000.00 1,777.78 1,777.78 98 Exhibits "P- 18 -h - 1.1-a"; "P- 18 -h - 1.1 -a - 1" to "P- 18-h - 1.1 -a- 1k"; "P- 18-h - 1.1-a -2" to "P- 18-h - 1. 1-a -2k"; "P- 18 -h - 1.1- b"; "P- 18 -h - 1.1 -b - 1" to "P- 18 -h- 1.1 -b - 1k"; "P- 18 -h - 1. 1-c"; "P- 18 -h - 1. 1-c- 1" t o "P- 18 -h - 1.1 -c-2". 99 Exhibits "P-5" to "P-5. 11 ". 100 Exhibit "P- 1 8 -h-3". ~

DECISION CTA Case No. 10247 Page 21 of42 "P- 18-h-3.1-a2" 7/14/2015 Professional 1 7 , 7 7 7 .7 8 16,000.00 1,777.78 1,777.78 "P-18-h-3.1-a3" 8/ 13/2015 Fee "P- 18-h-3. 1-a4" 9/15/2015 17,777.78 16,000.00 1,777.78 1,777.78 "P-18-h-3 . 1-a5" 10/14/2015 Professional "P-18-h-3.1-a6" 11 /12/2015 Fee 17,777.78 16,000.00 1,777.78 1,777.78 "P- 18-h-3. 1-a?'' 12/14/20 15 Professional 17,777.78 16,000.00 1,777.78 1,777.78 Fee 16,000.00 16,000.00 0 .00 0.00 Profession al 16,000.00 16,000.00 0 .00 0.00 Fee Professiona l Fee Salaries a nd Wages TOTAL 1" 1 3 8 ,6 6 6 . 6 8 1" 1 2 8 ,0 0 0 .0 0 p 10 ,666.68 1"10,666.6 8 130,612.24 Per FS/ITR (per ICPA, Exh. No. "P-18 -h-3.1") p 8 ,054.44 Variance - per ICPA It can be gleaned from the foregoing that petitioner failed to subject the payments made in November and December 2015 to EWT, and that such payments pertaining to the month of December 20 15 was recorded u n der Salaries and Wages account. Verily , only the amou nt of P106,666.68 was subjected to EWT. Con sequ ently, the remaining expense amounting to P23,945 .56 101 shall be disallowed as dedu ction from gross Income. Of the remrun1ng amount of P23,945.56, the corresp onding EWT in the amount of P l 6,000.00 pertaining to transaction for the month of November 20 15 could no longer b e en forced considering that the same is already barred by prescription. Accordingly, only the remaining amount of P7,945.56 shall b e subject to deficiency EWT. � Supplier: Saguinsin, Reynaldo L. Per Journal Voucher Cre d it- Exhibit No. Dat e Debit Amount EWT Per 1601-E p 666.67 Professional 111.11 "P- 18-h -3.2-a" 8/11/2015 Fee p 6,666.67 p 666.67 444.44 Professional - "P- 18-h-3.2-a1" 10 / 8 /2015 Fee 1, 111.11 111.11 3,250.00 p 4 ,472.22 Professiona l "P- 18-h-3.2-a2" 12/ 11 /2015 Fee 4,444.44 444 .44 Professional "P- 18-h -3.2-b" 6 / 16 /201 6 Fee 36,850.00 3,350.00 Professional "P- 18-h-3.2-b1 " 11/ 9 /2015 Fee 35,750.00 3,250 .00 TOTAL p 84,822.22 p 7,822.22 Per FS/ITR (per ICPA, Exh. No. "P-18 -h -3.2") 81 ,275 .52 Variance p 3 ,546.70 10 1 Per ITR P 130,612.24 less per EWT Certificate P106,666.68. ~

DECISION CTA Case No. 10247 It was found that the income payment in the amount of P36,850.00 is evidenced by a check voucher dated June 16, 2016, with a debit to Professional Fee. A short note in the Check Voucher states that it is an adjustment from a 2015 Journal Voucher which was not presented before the Court. Since the check voucher is dated in the subsequent TY 2016, its inclusion is in the Financial Statements of TY 2016 and not in the year of assessment (i.e. , TY 2015), hence , should be disregarded. Also, it must be noted that for the month of November 2015 , considering that only the amount ofP3,250.00 was withheld , only the professional fee in the amount of P32,500.00 was subjected to 10�/o EWT, while the other amount of P3,250.00 was not subjected to EWT. In sum, only the amount of P44,722.22 was subjected to EWT, while the remaining amount of P36,553.30I02 was not subjected to EWT, thus, shall be disallowed as deduction from gross Income. Meanwhile, as regards the imposition of deficiency EWT, of the remaining amount of P36,553.30, as mentioned, the amount ofP3,250.00 pertaining to transaction for the month of November 2015 cannot be subjected to deficiency EWT considerin g that the same is barred by prescription. Accordingly, only the remaining amount of P33,303.30 shall be su bject to deficiency EWT. To recapitulate , out of the claimed Other Outside Services of P211,887.75, the amount of P60,498 .86 shall be disallowed as deduction from petitioner's gross income, while only the amount of P41 ,248.86 shall be subject to deficiency EWT, as determined below: Ramiro, Louella Alagar Per ITR Per 1601-E Disallowed Prescribe d Income Saguinsin, Reynaldo p 130,612.24 p 106,666.68 Expense p 16,000.00 Paym ents Luna p 23,945.56 Still Tot al Subject to EWT p 7,945.56 81 ,275.52 44,722 .22 36,553.30 3 ,250 .00 33,303.30 P2 1 1,887 .76 P1 5 1,388.90 P60,498.86 P 19,250.00 P4 1,248.86 1o2 Per ITR P81 ,275.52 less per EWT Certificate f>44 ,722.22 . ~

DECISION CTA Case No. 10247 b.) Trucking and Freight Per petitioner's AFS forTY 2015 , "Reimbursable Trucking and Freight" amounting to P1,047,948.05 is r eported under Note 15- Operating Expenses, broken down1D3 as follows: Supplier Reimbursable Brokerage Fee Amount p 78,120.19 RMA Cargo Logistics, Inc. Char~es p 78,120.19 p 976,870.56 All Ways International 71,077.50 Total p 898,750.37 p 1 ,047,948.06 71,077.50 p 969,827.87 Petitioner claims that a portion of its payments to RMA Cargo Logistics, Inc. and to All Ways International are reimbursements not subject to EWT. Petitioner cites BIR Ruling No. DA-115-06 where it was h eld that reimbursement of expenses, by its very nature is not income but merely a return of capital. As a return of capital, it is not income payment per se. Such being the case, it is not subject to income tax, and petitioner has no obligation to withhold taxes from said payments. Upon examination, we find that petitioner failed to fully provide adequate supporting documents to prove its claims, as discussed below. � Supplier: RMA Cargo Logistics, Inc. Per Official Receipts Per 1601-E Receipt Income Income EWT Amount (A) Payment Exhibit No. p 25,443.77 EWT Based on Payment declared "P- 18-h-5-b-1" p 462.61 "P-18-h-5 -b-1a" 13,678.70 OR/ p 23,130.70 p 462.61 "P-18-h-5-b-1 b" 13,693.17 248.70 "P- 18-h-5-b-1c" 248.97 Brokerage 24,883.53 497.67 "P- 18-h-5-b-1d" 5,469.99 Fee 4,972.58 99.45 "P-18-h-5-b-1e" 13,812.50 99.45 13,834.21 251.14 p 23,130.70 25, 133.38 502.67 TOTAL 251.53 12,435.19 p 12,448.34 p 78,120.19 P1,562.40 85,932.34 P1,562.40 4 ,972.58 12,556.83 12,576.55 p 78,120.19 From the above table, it can be gleaned that the income payment amounts declared per Form No. 160 1-E tie up with the amounts per Official Receipts (ORs) submitted before the Court. 103 Exhibit "P-18-h -5". ~

DECISION CTA Case No. 10247 Consequently, the brokerage fee in the amount of P78,120. 19 was properly subjected to EWT. As regards the alleged reimbursable charges of P898,750.37, petitioner submitted in eviden ce the acknowledgement receipts issued by RMA Cargo, to wit: Exhibit No. A.R. No. A.R. Date Amount "P- 18-h-5-a- 1a " 1589 June 18, 2015 p 140 ,017 .79 June 20, 2015 60 ,283 .06 "P- 18-h-5-a- 1b " 1604 June 24 , 2015 80 ,000 .00 Sept. 11 , 20 15 54,8 18 .0 1 "P-18-h-5-a- 1c" 16 05 Nov. 11 , 20 15 142,471.59 Nov. 20, 20 15 142,869.46 "P- 18-h-5-a-1d" 1771 p 620,459.91 "P- 18-h-5-a - 1e" 1889 2 78, 2 90.46 "P- 18-h -5-a- 1f' 1916 p 898,750.37 Sub-Total Without Supp orting Docu ment TOTAL However, with only the acknowledgement receipts submitted, this Court cannot ascertain the actual nature of the expenses paid by petitioner. Absent any other evidence that would show that the said amount indeed pertains to reimbursable expenses , petitioner's contention remains uncorroborated, Therefore, for petitioner's failure to prove its reimbursable and non-taxable nature, the alleged reimbursable expense of P898,750.37 shall be disallowed as deduction from gross 1ncome. Hence, considering that the right of the respondent to c ollect the c orre sponding EWT on the expe nse s p e rtaining to the amount of P620,459.91 is already barred by prescription, the corresponding EWT thereon cannot be enforced against petitioner. Consequently, only the expenses in the amount of P278,290 .46 without supporting documents , which is deemed incurred in the month of December 2015, shall be subject to deficiency EWT. � Supplier: All Ways International According to the ICPA Report, the Brokerage fees paid to All Ways Intemational in the amount ofP10,000 .00104, with the 104 Exhibit "P- 1 8-h-4".~

DECISION CTA Case No. 10247 corresponding tax at 10�/o, was correctly declared, paid and remitted to the BIR and were duly supported by ORslos. The breakdown of the payments included in the ORs are as follows: Exh. O.R . O.R . Exp ense Wit hho lding O.R. No . Date Brokerage Total Sales Tax (10 %) Amount P-18- June 29, Fees h-4-a 0059 2015 Re i m b u rs a b le p 5,000.00 p 500.00 p 4 ,500.00 Cha rges 34,987.50 - 34,987.50 Sub-to tal p 3 9 ,987.50 p 5 00.00 p 3 9,487 .5 0 P-1 8 - Dec. 18, B ro k e r a g e p 5 ,000.00 p 500.00 p 4,500.00 h -4- 0060 2015 Fees a1 36,090 .00 - 36,090.00 S u b - to t a l Reimbursa ble p 41,09 0.00 Charges p 500.0 0 p 40,59 0.0 0 It was observed, however, that petitioner failed to submit additional supporting documents to prove that the amounts of P34,987.50 and P36,090.00 were indeed actual reimbursements. Without adequate support, the nature of these payments cannot be ascertained, hence, the total amount of P71,077.50 should be disallowed as deductions from petitioner's gross income. Nonetheless, considering that the right of the respondent to collect the corresponding EWT on the expenses amounting to P34,987.50 is likewise barred by prescription, the corresponding EWT thereon cannot be enforced against petitioner. Consequently, only the expenses of P36,090 .00 incurred in the month of December 2015 shall be subject to deficiency EWT. In fine, for petitioner's failure to prove that the total amount of P969 ,827.87 pertains to reimbursable expenses, the same shall be disallowed as deductions from its taxable income. However, only the amount of P314,380.46 shall be subject to deficiency EWT, to wit: 10s Exhibit s "P- 18-h- 4 -a" to "P- 1 8-h-4-a 1 ".~

DECISION CTA Case No. 10247 Per ITR Per 1601-E Disallowed Prescribed Income p 78,120.19 Expense Payments p 78, 120. 19 still subject 898 ,750 .37 P78,120.19 toEWT 71 ,077.50 RMA Cargo Logistics, P 1,047,948.06 p - p - p - Inc. 898, 7 50. 37 620,459.91 278,290.46 Service Charge subject to EWT 71 ,077.50 34,987.50 36,090 .00 Reimbursable Charges P969,827.87 P655,447.41 P314,380.46 not subject to EWT All Ways International Reimbursable Charges not subject to EWT Total c .) Processing Fees � Supplier: Pulp Specialties Phils., Inc. An analysis of the documents presented resulted to the following findings: Amount Per 1601-E Difference (converted to (A- B) Income Payment EWT Php) p 0.00 Exhibit No. Date (A) (B) declared "P- 18-h-6-a- 1" 1/ 31/2015 p 7, 112,025.00 p 7,112 ,025 .00 p 142,240.50 "P-18-h -6 -a- 2/ 25/2015 5 / 31/ 2015 171,682 .35 171,682.35 3 ,433 .65 0.00 1a" 6/24/2015 "P-18-h-6-a- 11 / 2 / 2015 0.00 10/30/ 2015 1b" 7,5 47,229 .00 7 ,547,229.00 150,944.58 0 .00 "P-18-h-6-a- 0 .00 1c" "P-18-h-6-a- 6 ,828,012.00 6 ,828 ,012.00 1 3 6 , 5 6 0 .2 4 0.00 809,492.40 809,492 .40 ld" f> 21,658,948.35 "P-18-h-6-a- f>22,468,440 .75 P809,492.40 1e" No supporting documents TOTAL A rev1ew of the submitted documents reveals that the foregoing income payments were properly supported and the corresponding 2�/o EWT due thereon was remitted during the year, except for the income payment in the amount of P809,492.40, for which petitioner failed to provide supporting documents. Hence, the said amount shall be disallowed as a deduction from taxable income. Furthermore, the Court finds that the amount of P809,492.40 is considered an income payment m ade during December 2 015 , hence , should be subject to deficiency EWT.~

DECISION CTA Case No. 10247 � Supplier: Salinas, Clarita H. Per Official Receipts Per 1601-E Exhibit Date Receipt Expanded Income EWT Difference No. 8/ 15/2015 Amount Withholding Payment Declared (B-C =A) 12/2/2015 "P- 18-h-6 - (A) Tax (B) (C) b-1 " "P-18-h -6 - P1 86 ,453. 09 Not s h own p 19 0 ,258.26 p 3,805. 17 - b- 1a" 150 ,86 0 .65 Not shown 153,939.44 3,078.79 - TOTAL P337,313. 74 p 344,197.70 p 6,883.96 - It was noted that the ORs issued to petitioner show that the payments are considered zero-rated sales. Moreover, even though the EWT amount is not shown in the Official Receipts, it was determined that the EWT due was correctly declared in BIR Form No. 1601-E, as can be gleaned from the above table. Verily, petitioner was able to prove that the claimed expenses in the total amount ofP344,197.70 were subjected to EWT during the year. To summarize, petitioner's disallowed expenses due to non-withholding is determined to be in the amount of P1,854,819. 13, viz: Income Per ITR/AFS Nontaxable Taxable Per 1601-E Disallowed Payment p 78 0 ,000 .00 p 540,000.00 p 240,000.00 p 22 5 ,00 0 .00 Expenses Professional fees (@10%) p 15,000.00 O t he r S e rvice s 2 11,887.76 - 2 11 ,887.76 15 1,388.9 0 6 0,49 8 .86 (@ 1 0%) T r uc k i n g 1,047,94 8. 06 - 1,047 ,9 4 8. 06 78, 120 . 19 9 6 9,827 .87 a nd Freight Processing 22,8 12,638.45 - 22,8 12,638.45 22,003, 146.05 80 9,492.40 Fees P24,852,474.27 P540,000.00 P24,312,474.26 P22,470,905.14 P1,854,819.13 Total B. Salaries and wages not subjected to Withholding Tax (P151,460.92) As stated in the Details of Discrepancies, respondent's reconciliation of salaries and wages accounted per ITR versus the amount reported per Monthly Remittance Return of Income Taxes Withheld on Compensation (BIR Form No. 1601-C) resulted to a discrepancy amounting to P151,460.92 which was not subjected to withholding tax on compensation, and was thus, disallowed as deduction from Gross Income for Incom~

DECISION CTA Case No. 10247 Tax purposes, pursuant to Section 34(K) of the 1997 NIRC, as amended, detailed as follows: Salaries and Allowances per FS/ITR p 4,102,334.80 Less: Salaries and wages per 1601-C 3 , 9 5 0 , 8 7 3 .8 8 Salaries & Wages not subjected to withholding tax 151,460.92 Multiply by Average Withholding Rate: p 1,018,968.25 2 6 .6 5% Tax due per 1601-C 3,823,914.48 f' 4 0 ,364.34 Taxable Salaries per 1601-C Basic Tax Due On the other hand, petitioner presented a reconciliation to show that proper withholding was done on taxable compensation, hence: Salaries and wages per ITR/ AFS , 3 ,5 2 5 ,097 .30 , 4 , 102,334.80 Salaries and wages 577,237.50 4 , 103,177.70 13th month pay and bonuses P(842 .90) Salaries and wages per 1604-CF (Alphalist) Gross compensation per Schedule 7.3 of the Alphalist Discrepancy An examination of petitioner's ITR/AFS shows that the amount of salaries and wages reported therein is equal to the amount of gross compensation per Alphalist of Employees as of December 31, 2015,106 which is in the amount of P4,102,334.80. Of the said amount, the taxable compensation is P3,789,360.73 only, with a corresponding withholding tax of P1,007,965.32. On the other hand, the gross compensation per BIR Form No. 1601-Cl07 amounts to P3,950,873.93, of which the taxable compensation is !>3,823,913.93, with a corresponding withholding tax of P1 ,0 18,968.25, to wit: Exhibit TY 20 15 Gro s s Non -Taxable Taxable Tax Wit h held "P-6" January Com pensat io n Co mpensatio n C o m p e n s a t io n p 82,956.08 "P-6.1" February p 275,995.42 p 11,243.90 p 264,751.52 "P-6.2" March 86,219.08 "P-6.3" April 2 9 6 ,5 0 8 .0 5 11,825.20 2 8 4 ,6 8 2 . 8 5 125,397.32 "P-6.4" May 423,011 .27 10,855.27 4 1 2 , 1 5 6 .0 0 44,076 .77 181,958.75 1 0 ,8 6 8 .9 0 171,089.85 584,000 .00 11,887.70 572,112.30 83,309 .70 I06 Exhibit "P-6 . 12-a". 107 Exhibits "P-6" to "P-6 . 11". ON--

DECISION CTA Ca se No. 10247 "P-6.5" June 2 9 6 ,0 0 0 . 0 0 9 ,604.40 2 86,395 .60 83,309.70 "P-6.6" July 288,000.00 "P-6.7" August 427,646.67 11,887.7 0 276,112.30 83,309 .70 "P-6.8" September 290,186 .54 "P-6.9" October 302,998.43 11,887.70 415,758 .97 83 ,650.40 "P-6. 10" November 294,91 8.80 "P-6.11" December 2 8 9 ,6 5 0 . 0 0 11 ,887.70 278,298.84 82,726.48 Total P3,950,873.93 17,236. 13 2 8 5 ,7 6 2 .3 0 84,861.86 3,887.70 29 1,031.10 87,088.32 3 ,887 .70 285,762 .30 92 ,06 2.8 4 p 126,960.00 P3,823,913.93 P1,018,968.25 The fact that the amount remitted, as shown through bank receipts and eFPS confirmations, is greater than the amount that should have been made means petitioner paid more than what is due. Apparently, petitioner had an overpayment of P11,002.93. As such, respondent had no basis in disallowing the compensation in the amount of P151,460.92 as deduction from petitioner's gross income and subjecting the same to deficiency withholding tax on compensation. Accordingly, this item of assessment shall be cancelled. C. Unsubstantiated Purchases (P22,985,158.50) Respondent's verification disclosed that petitioner did not provide supporting documents or evidence to support its purchases which formed part of its "Cost of Sales - Purchases - Raw Materials" l08 claimed as deduction against its gross income, in violation of Section 34(A)(1)(b) of the 1997 NIRC, as amended, thus , disallowed , viz: Purcha ses per FS / ITR ~ 26,2 64 , 147 .50 Less: Purc h a s e s p e r a udit ~ 643,572 .00 3 ,278,989.00 1,938,877 .00 p 22,985,158.50 March 696 ,540 .00 May June Unsubstantiated Cost of Sales The records show that the total purchases of P26,264, 147. 50 were made from the following: toa Note 14, Audited Financia l Statem en ts for year en ded December 3 1, 20 15, Exhibit "P- 3 " .~

DECISION CTA Case No . 10247 Dat e Suppliers Amount Ca tanduanes Agr o- Mar 26,2015 Business f> 643,572.00 A_2_r 19, 20 15 Catanduanes Agro- 579,812.00 Jul28,2015 Busines s Catanduanes Agro- 782 ,832.00 f> 2 ,006,21 6.00 Business 1,32 1,77 1.5 0 1,322 ,7 16.50 17, 995,970.50 Jan 7 , 2015 Manila Hemp Trading Corp. 1,3 18,8 10.50 1,35 1,776.00 6 ,26 1,961.00 Jan 27, 2015 Manila Hemp Trading Corp. 1,357,920 .0 0 p 26,264, 147.50 1,352,160.00 Feb 21 , 2015 Manila Hemp Tra din g Corp. 1,349 ,2 16. 00 1,3 49, 3 44 .00 Mar 5 , 2015 Manila Hemp Tra ding Corp. 1 ,3 5 0 ,8 1 6 . 0 0 1 ,4 8 3 ,4 7 5 . 00 Mar 23, 2015 Manila Hemp Tra ding Corp. 1,4 7 8,365.00 1,475, 145.00 Apr 6, 2015 Manila Hemp Tra ding Corp. 1 ,4 8 4 ,4 5 5. 0 0 Apr 28, 2015 Manila Hemp Tra ding Corp. 264 ,962.00 503,554.00 May 21 , 2015 Manila Hemp Tra ding Corp . 515,423.00 556,2 14 .00 Jun 22 , 2015 Manila Hemp Trading Corp. 567 ,57 2. 00 55 1,422 .0 0 Jul 2 8,2015 Manila Hemp Tra ding Corp. 5 5 5 , 8 5 2 .0 0 53 5,80 6 .00 Aug 22, 2015 Manila Hemp Trading Corp. 546,09 2 .00 564,327.00 Sep 18, 2015 Manila Hemp Trading Corp. 528,497.00 528, 164.00 Oct 9 , 2015 Manila Hemp Trading Corp. 4 4,0 76. 00 Jan 24 , 2015 Rodrigo S. Tan Apr 6, 2015 Rodrigo S. Tan Apr 21 , 20 15 Rodrigo S. Tan May 4, 2015 Rodrigo S. Tan May 11,2015 Rodrigo S . Tan May 13,2015 Rodrigo S. Tan May 25,2015 Rodrigo S . Tan May28, 2015 Rodrigo S . Tan Jun 6 , 2015 Rodrigo S. Tan Jun 17, 2015 Rodrigo S. Tan Jun 29, 2015 Rodrigo S. Tan Jul3,2015 Rodrigo S . Tan Oct 5, 2015 Rodrigo S . Tan Total Purchases On th e other h and, the findings of the ICPA show th at the total p urchases of petitione r during TY 2015 with supporting d ocuments amounted to P27, 139,798.00, broken down as fo l lo w s : Supplier's Name Amount Supporting Docume nts Manila Hemp Trading Enriqu ita Tan j Bura u en Copra & p 18,1 33,582 "P-18-e" to "P-18-e-1. 12" Abaca Tra ding (BCAT) Ca ta ndua nes Agro- Business an d 7 ,000,0 00 "P- 18-e-2" to "P-1 8-e-2.1 0" Development Corp. 2 ,006,2 16 "P- 18-e-3" to "P- 18-e.3.6" Total p 27,139,798 According to the ICPA, th e above purchases are su p ported by ch eck vou chers (CVs) , suppliers' sales invoices (Sis) and ORs. Th e ICPA noted that t h e actu al amou nt of purchases with supporting documents is !>875,650.50 highera,w_..

DECISION CTA Case No. 10247 compared to the purchases claimed as deduction in the ITR and reported in the AFS amounting to P26,264,147.50. A verification of the foregoing supporting documents reveals that petitioner submitted VAT-registered Sis stamped with the word "Zero-Rated Sales" from Manila Hemp Trading109 covering the amount of P18,133,582.00. Nonetheless, we shall consider only the claimed purchases from Manila Hemp Trading Corp. amounting to P17,995,970.50 as duly supported by documents. Meanwhile, purchases from Catanduanes Agro-Business and Development Corp. are supported by VAT-registered Sis and check vouchers which indicate that the purchases are for either "Raw Materials" or "Advances to Suppliers". Moreover, there are no differences in terms of amount in the Sis and the corresponding CVs, viz: Sales Invoice Check Voucher CHECK EXHIBIT INVOICE EXHIBIT VOUCHER SUPPLIER NO. NO. DATE NO. NO. DATE Amount CATANDUANES 03 / 0044 AGRO- BUSINESS AND P-18-3- 0052 3/23/2015 P-18-3- Debit to 3_1_26_12015 P643,572.00 DEVELOPMENT e-3.1 e-3.4 Purchases co. CATANDUANES P-18-3- -Raw AGRO- e-3.2 Materials BUSINESS AND 04 / 0016 DEVELOPMENT P-18-3- co. 0053 4/13/2015 Debit to 579,812.00 CATANDUANES e-3.3 P-18-3- Advances- AGRO- e-3.5 S1.1Q2liers 4_1_221_2015 BUSINESS AND DEVELOPMENT 07 / 0011 co. 0056 7/4/2015 P-18-3- Debit to 7 / 7/2015 782 ,8 3 2.00 Advances - Total e-3.6 Suppliers P2,006,216.00 It can be observed from the dates indicated in the supporting documents that petitioner still debits to "Advances -Suppliers" even though it has already received the goods from the suppliers, i.e., Sis are dated earlier than the check vouchers. Therefore, even if these were not directly debited to "Purchases - Raw Materials", and instead debited to "Advances - Suppliers", the same can still be considered as Purchases. Moreover, it is worth noting that the Sis contain the nature, price and quantity of the goods issued to petitioner. 109 Exhibit Nos. "P-18-e- 1" and "P-18-e-1.1" to "P- 18-e- 1-1.12" . ~

DECISION CTA Case No. 10247 This Court also finds that the purchases from Enriquita Tan/Burauen Copra & Abaca Trading (BCAT) in the amount of P7,000,000.00 are supported by Non-VAT Sis and check vouchers indicating that the payments are "Advances to Suppliers". However, unlike the Sis from Catanduanes Agro- Business and Development Corp., the Sis from BCAT do not indicate the nature and quantity of the goods supposedly purchased by supplier, hence, the Court cannot ascertain whether said Advances constitute purchases of actual raw materials, or a deposit to supplier for future purchases. Considering the foregoing, the Court disallows the portion of petitioner's purchases claimed as deductions from Gross Income amounting to P6,261,961.00 for failure of petitioner to prove that these are actual purchase of goods, viz: Purchases per FSfiTR p 17,995 ,970 .50 p 26,264,147.50 Less: Purchases per audit 2,006,216.00 20 ,002,186.50 Manila Hemp Trading p 6,261,961.00 Catanduanes Agro- Business and Development Corp. Unsubstantiated Purchases D. Net Operating Loss Carry-Over (NOLCO) (P3,183,636.00) Respondent's investigation discloses that petitioner's operation showed taxable income instead of net operating loss as previously claimed in its ITR. The tax benefit of this amount has already been forwarded to the succeeding periods as provided for under Section 34(0)(3) of the 1997 NIRC, as amended, and we quote: "SEC. 34. Deductions from Gross Income.- Except for taxpayers earning compensation income arising from personal services rendered under an employer-employee relationship where no deductions shall be allowed under this Section, in computing taxable income subject to income tax under Sections 24(A); 25(A); 26; 27(A), (B), and (C); and 28(A) (1), there shall be allowed the following deductions from gross mcome: XXX XXX XXX (D) Losses. - 3) Net Operating Loss Carry-Over.- The net operating loss of the business or enterprise for any taxable year~

DECISION CTA Case No. 102 47 immediately preceding the current taxable year, which had not been previously offset as deduction from gross income shall be carried over as a deduction from gross income for the next three (3) consecutive taxable years immediately following the year of such loss: Provided, however, That any net loss incurred in a taxable year during which the taxpayer was exempt from income tax shall not be allowed as a d eduction under this Subsection: Provided, further, That a net operating loss carry-over shall be allowed only if there has been no substantial change in the ownership of the business or enterprise in that -x:xx" (Emphasis supplied) This Court agrees with the respondent. Considering that the deficiency assessments made by respondent, as discussed above, are substantially tenable, we find that petitioner's operation did not result to a net loss, to wit: Sales , 66,351,051.00 Less: Cost of Sales P62,049,2 17.00 Less: Unsubstantiated Purchases 6,261,961.00 55,787,256.00 Gross Income from Operation P10,563,795.00 Add: Other Taxable Income Not Subject to Final Tax 949,966.00 Total Gross Income P11,513,761.00 Less: Ordinary Allowable Itemized Deductions , 8,435,436.00 Disa llowed Expenses due to non-withholding of tax 1,854,819.13 6 ,580,616 .87 Taxable Income before Allowance for NOLCO p 4,933,144.13 Less: Applied NOLCO- (NOLCO forTY 2012- P15, 179,346.34) 4,933,144.13 Adjusted Taxable Income after Allowance for NOLCO p - Add: NOLCO- TY 2015 3,183,636.00 p 3,183,636.00 Taxable lncome/(Loss) Accordingly, the net loss as declared by petitioner in its ITR in the amount of P3, 183,636.00 110 is non-existent, thus, there is nothing that can b e claimed as NOLCO for the three (3) immediately succeeding taxable years, in so far as TY 2015 is concerned. However, as clearly shown in petitioner's ITR in the succeeding TY 20 16, petitioner claimed as additional deductible exp ense from its total gross income, a total NOLCO of P16,246,827.00,111 which includes the claimed NOLCO from TY 2015 in the amount of P3, 183,636.00. Apparently, petitioner benefited from such NOLCO from TY 2015, where it was able to uo Item No. 40 of Exhibit "P-2" , Docket, p. 344. III Item 37, Pa rt IV of Exhibit "P- 18-f(2 )"; Note 13 of AFS, Exhibit "P-3", Docket, p. 37 1~

DECISION CTA Case No. 10247 Page 34 of42 save as much as 30�/o of the tax due in TY 2016. Accordingly, to recover such benefit, respondent's assessment of the same shall be sustained. E. Excess Minimum Corporate Income Tax (MCIT) carried over to Succeeding Period (P105,036.00) According to respondent, the excess MCIT paid over NCIT was not allowed as tax credit against the computed deficiency Income Tax, considering that the said amount shall be carried over and credited against the NCIT for the three (3) imm ediately succeeding taxable years in compliance with the provision imposed under Section 27(E)(2) of th e 1997 NIRC, as a me n d e d . 1 12 We also agree with the respondent on this matter. As presented below, we find that petitioner 's NCIT 1s greater than its MCIT, to wit: Sales p 66 ,351 ,051.00 Less: Cost of Sales P62 ,049,217.00 55,787,256.00 Less: Unsubstantiated Purchases 6,261,961.00 P10,563,795.00 Gross Income from Operation Add: Other Taxable Income Not Subject to Final Tax p 8 ,43 5 ,436.00 949 ,966 .00 Total Gross Income 1,854,819.13 P11,513,761.00 Less: Ordinary Allowable Itemized Deductions 6 ,580,616.87 Less: Disallowed Ex_Qenses due to non-withholding of tax Taxable Income before Allowance for NOLCO p 4,933,144.13 Less: Applied NOLCO - (NOLCO forTY 2012- P15, 179,346.34) Adjusted Taxable Income after Allowance for NOLCO 4,933,144. 13 Add: NOLCO- TY 2015 p - Taxable Income/(Loss) 3 , 183,636.00 p 3,183,636.00 MCIT p 30,309.00 p 230,275.22 NCIT p 955, 0 9 0.8 0 Tax Due 640.00 p 955,090.80 Less: Tax Credits/Payments 74 ,087 .00 p 105,036.00 - Prior Year's Excess Credits other than MCIT 105,036.00 Income Tax Payments under MCIT from Previous p 955,090.80 Quarter/s Income Tax Payments under MCIT per Annual ITR Total Tax Credits/ Payment s Less: MCIT forTY 2015 carried over to succeeding period Basic Deficiency Tax Due 112 Details of Discrepa ncies, FDDA, Exhibit "R-8 ", BIR Records, p. 3 10.~

DECISION CTA Case No. 1024 7 Considering that petitioner's tax due is greater using the regular income tax rate rather than the MCIT, there is supposedly n o MCIT to be carried forward to the next period. However, considering that petitioner had carried over the MCIT forTY 2 0 15 in its ITR forTY 2016 in th e amount ofP105,036.00 and credited the same against the regular income tax due in TY 2016, 113 for which petitioner is not en titled to do so, it is but proper to recover that same amount by su staining responden t's assessment. In fin e, petitioner is found liable for basic deficiency income tax covering TY 2015 amou nting to P955 ,090.80, as computed above. II. VALUE-ADDED TAX Resp ondent assessed petitioner for basic deficiency VAT in the amount of P5,084,008.27, computed as follows: Taxable Sales/ Receipts per VAT Returns 0 .00 Add: Receipts n ot subjected to VAT f> 42,858,200.35 Adjusted taxable sales/ receipts f> 42,858,200.35 Output tax due f> 120,701.4 1 f> 5, 142,984.04 Less: Allowable Input Tax per a u dit 5,24 1,474.83 58,975.77 Input Tax carried over from Previou s 5 ,362, 176 .24 p 5 ,084,008.27 Quarter 1>5 ,303,200.47 Total Less: Excess Input Tax Car ried over to Su cceedin g Period Basic tax due It b e ars r e ite r atio n that since portions o f r e spondent's assessment are barred by prescription, petitioner may on ly be assessed deficiency VAT for the period covering the 4 th Quarter ofTY 20 15. A. Receipts not subjected to VAT (P42,858,200.35) Per FDDA, respondent explain s that the comparison of receipts com puted based on the data reported per ITR against the amount of receipts subjected to VAT per VAT returns showed that there are r eceipts not subj ected to VAT amounting 113 Line 1 of Sch edule 8 and Line 4 of Schedule 7 "Exhibit P- 18-f(6)"~

DECISION CTA Case No. 10247 to P42,858,200.35. Section 105 of the 1997 NIRC, as amended, states that ((Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and pay any person who imports goods is subject to the value-added tax (VAT) imposed in Sections 106 and 108 of this Code which is twelve percent (12%) ofgross receipts derivedfrom the sale or exchange of services, including the use or lease of properties." A perusal of Schedule 4 under the Details of Discrepancies attached to the FAN 114 reveals how the amount of P42,858,200.35 was arrived at, viz: Sales per FS/ITR p 66,351,051.00 Sales per VAT Returns 23,492,850.65 Receipts not subjected to VAT P42,858,200.35 Petitioner argues that the subject receipts refer to its export sales to Yamamoto-Torno Menko, Ltd. Petitioner anchors its claim on Section 106(A)(2)(a)(l) of the 1997 NIRC , as amended, which provides that export sales by VAT-registered persons, such as petitioner, shall be subject to zero percent (0�/o) rate , to wit: "SEC. 106. Value-Added Tax on Sale of Goods or Properties. - "(A) Rate and Base of Tax. - x x x "(2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: " (a) Export Sales. -The term 'export sales' means: "(1) The sale a nd actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules a nd regulations of the Bangko Sentral ng Pilipinas (BSP);" Based on the foregoing, the following requisites must be met for petitioner's sales to be considered as zero-rated export sales, to wit: 114 Exhibit "P- 10 ", Doc ket , p. 479 . ~

DECISION CTA Ca se No. 1024 7 1) There is a sale and actual shipment of goods from the Philippines to a foreign country; and, 2) The goods are paid for in acceptable foreign currency or its equivalent in goods or services, a ccounted for in accordance with the BSP rules and regulations. Corollary thereto , Section 113(A) and (B) of the 1997 NIRC, as amended, and Section 4 . 113-1 (A) and (B) of RR No. 16-05, as amended, provide that any VAT register ed p erson claiming VAT zero-rated direct export sales must present at least three (3) types of documents , namely : 1. Sales Invoice as proof of sale of goods; 2. The Bill of Lading or Airway Bill as proof of a ctual shipment of goods from the Philippines to a foreign country; and, 3 . Bank Credit Advice, Certificate of Bank Remittance or any other document proving paym ent for the goods in acceptable foreign currency or its equivalent in goods and services. In other words, export sales supported by these documents shall qualify for VAT zero-rating under Section 106(A)(2)(a)(1) of the 1997 NIRC , as amended. Upon review of the supporting documents, the Court finds that petitioner had direct export sales in TY 2015 to Yamamoto- Torno Menko, Ltd. with office address located in 5-3-3 Soto- Kanda, Chiyoda- Ku, Tokyo Japan amounting to P66,351 ,051.41 which are properly and a dequa t ely supported by commercial invoices 115 and 0Rsl16 that are compliant with the invoicing requirem ents under Section 11 3 of the 1997 NIRC, as amended, as well as the related Bills of Lading.117 Details of the export sales are summarized as follows: SALES INV. O FFICIAL RECEIPT BILL OF LADING SALES AMOUNT NO . DATE NO. DATE NO. DATE USDollar Rate Pesos 108,551.88 44.15 4,792,565.50 1526 02/09/2015 1026 02/09/2015 0985A00189 02/09/2015 111750.00 44.15 4,933 ,762.50 1527 02/09/2015 1027 02/09/2015 0985A00189 02/09/20 15 111,750.00 44.15 4,933,762.50 1528 02/09/2015 1028 02109/2015 0985A00189 02/09/2015 111,750.00 44.15 4,933,762.50 1529 02/09/2015 1029 021091_2015 0985A00189 02/09/2015 us Exhibits "P- 18-g-1" to "P-18-g-1.14". 116 Exhibits "P- 18-g-3" to "P-18-g-3.14". 117 Exhibits "P-18-g-2" to "P 18-g-2. 7"~

DECIS ION CTA Case No. 10247 111 ,750.00 44.9 1 5,0 18,692.50 1530 06/ 11 /2015 1030 06/11/20 15 0985A00987 06/1 1/20 15 112,275.00 44.91 5,042,270.25 153 1 06/ 11/2015 1031 06/11/2015 0985A00987 06/11 /2015 114,750.00 44.95 5, 158,012.50 1532 06/19/2015 1032 06/19/2015 0985A01018 06/09/2015 114,750.00 44.95 5,158,0 12.50 1533 06/19/2015 1033 06/19/2015 0985A01018 06/09/2015 S ITMNKBGO 1 7, 7 0 0 . 00 4 5 .2 0 800,040.00 1534 06/ 16/2015 1034 06/ 16/2015 06/16/2015 57,577.50 46.73 2,690,596.58 1535 09 /04/2015 1035 09/14/2015 00146 09/03/2015 116,875.00 46.76 5,465,075.00 1536 11 /05/20 15 1036 11/05/2015 0985A01506 11 /05/20 15 115,87 1.88 46.76 5,418,169.11 1537 11 /05/20 15 1037 11/05/2015 0985A01838 11 /05/20 15 116,875.00 46.98 5,490,787.50 1538 11/13/2015 1038 11/13/2015 0985A0 1838 11 / 13/201 5 109,879.38 46.98 5,162, 133.27 1539 11 /13/20 15 1039 11/13/2015 0985A0 1877 11/13/20 15 28,680.00 47.19 1,353,409.20 1540 12/ 11/2015 1041 12/28/2015 0985A01877 12/ 11 /20 15 1 ,4 6 0 , 7 8 5 .6 4 66,351,0 51.41 0985A02019 Fu rth ermore , the export sales118 were paid for in US Dollars as evidenced by Passbooks, 119 Application and Declaration for Remittance, 12o Bank Certification121 and Debit Memo. 122 Moreover, the above aggregate sales figure is the same as the sales amount reflected in th e Sales Schedule 123 and the Au dited Fina n cial Statem en ts. Notably , petitioner was able to prove that its sales per ITR pertain to export sales subject to zero-rating, th us respondent's deficiency VAT assessment thereon sh ould be cancelled. B. Input Tax Carried Over to Succeeding Period (P5,303,200.47) According to respondent, the excess input tax per VAT returns amounting to P5,303,200.47 was not applied against the output tax due in computing for deficiency VAT since this shall be carried over to the succeeding period/quarter(s) as provided under Section 110(B) of the 1997 NIRC, as amended. Hence, respondent treated the Input Tax Carried over to Succeeding Period from th e assailed VAT Returns in the same manner as it treated th e NOLCO and Excess MCIT carried over to the Succeeding Periods in the deficiency IT assessment. This Court does not agree with the conclusion of respondent that petitioner has undeclared sales subject to 12�/o VAT. We hold that petitioner h as no output VAT liability and in fact has excess input VAT that can still b e carried over and can ua As summarized in Exhibit "P- 18-g-4". 119 Exhibit "P- 18 -g-4. 1". 120 Exhibits "P-1 8-g-4.2" to "P- 18-g-4. 2e". 121 Exhibit "P- 18-g-4. 3". 122 Exhibit "P-18-g-4.4". 123 Exhibit "P- 1 8-g-5". ~

DECISION CTA Case No. 10247 be utilized as tax credit in the succeeding periods pursuant to Section 108(B) of the 1997 NIRC, as amended. In view of the foregoing, we find that respondent's VAT assessment should be cancelled. III. EXPANDED WITHHOLDING TAX Respondent assessed petitioner of basic deficiency EWT amounting to P94,340.82 for the latter's failure to withhold and remit the corresponding withholding tax due on income payments previously disallowed as deductions from Gross Income, in violation of Section 2.57.2 of RR No. 2-98, as amended. As previously discussed, since portions of respondent's assessment are barred by prescription, petitioner may only be assessed, specifically for deficiency EWT, for its income payments dated December 2015. To recall, the Court disallowed as deduction from gross income the income payments of P1,854,819.13 for petitioner's failure to subject the same to EWT. However, of the said amount, the income payments in the amount of P674,697.41 pertains to payments incurred during the period already barred by prescription, in so far as the assessment for EWT is concerned. Accordingly, petitioner shall be held liable to pay the basic deficiency EWT amounting to P24,802.44 only, as calculated below: Disallowed Prescribed Income EWT EWT Due Expense Payments still Rate subject to EWT Professional Fee r 15,000.00 f' -r 15,000.00 10% f' 1,500.00 Atty. Jose Vicente Jimenez Sub-total 15,000.00 - 15,000.00 1 ,500.00 Other Services 23 ,945.56 16,000.00 7,945.56 2% 158.91 Ramiro, Louella Alagar 36,553.30 3,250.00 33,303.30 2% 666.07 Sa ruinsin, Reynaldo Luna 60,498.86 41,248.86 824.98 Sub-total 19,250.00 Trucking and Freight 898,750.37 620,459.91 278,290.46 2% 5,565.81 !.-.. RMA Cargo Logistics, Inc. 'I' Reimbursable Charges not subject to EWT

DECISION 71,077.50 34,987.50 36,090.00 2% - CTA Case No. 10247 969,8 2 7 .87 655,447.4 1 3 14 ,380.46 Page 40 of 42 72 1.80 809,492.40 - 809,492.40 2% 6 ,287.61 All Ways International Reimbursable Charges - - - 2% - not subject to EWT 809,492 .40 - 8 09,492.40 16,189.85 Su b-to tal Pr ocessing Fee p 1,854,819. 13 P674,697.41 P 1 ,180,121.72 - Pulp Specialist Phils. , Inc. 16,189.85 Salinas, Clarita H. P24,802.44 Sub-tota l T OT A L IV. WITHHOLDING TAX ON COMPENSATION As stated in th e Details of Discrepancies, respondent's investigation disclosed that petition er failed to withhold and remit the corresponding withholding tax on salaries and wages previously disallowed as deduction from gross income resulting in a WTC deficiency in th e amount of 1>40,364.34 pursuant to Section 2.57.2 of RR No. 2-98, as amended. As discussed earlier under the portion of the deficiency tax assessment noted as "B. Salaries and Wages Not Subjected to Withholding Tax (1>15 1,460.92)", respondent had no basis in disallowin g the compensation amounting to 1>15 1,460.92 as deduction from petitioner's gross income, thus, the corresponding assessment subjecting the same to deficiency withholding tax on compensation must fail. Accordingly, the present deficiency WTC assessment shall be cancelled. WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. The assessment issued by respondent against petitioner for TY 20 15 covering the deficiency VAT and WTC are CANCELLED and SET ASIDE, while the assessments for deficiency Income Tax and EWT are UPHELD, but with modification. Accordingly, p etitioner is ORDERED TO PAY r espondent the amount of P1,686,035.63, representing deficiency Income Tax and EWT forTY 2015 , inclusive of surcharge and d eficiency interest imposed under Sections 248(A)(3) and 249(B) of th e 1997 NIRC, as amended by RA No. 10963, also known as Tax Reform for Acceleration and Inclusion ("TRAIN") Law, respectively, computed until January 21, 2019, as shown b elow: t)?'f.,--

DECISION ,Income Tax EWT , Total CTA Case No . 10247 9 5 5 ,090 .80 , 24,80 2.44 979,8 9 3 .24 Page 41 of 42 2 3 8 ,7 7 2 . 7 0 244,9 73 .3 1 6 ,2 00. 61 Basic deficiency tax Add: Surch a rge (25%) 327 ,085.89 3 27 ,08 5 .89 Deficiency interest on : 121 ,204.95 12 1,204 .95 Inc ome Tax P 1,642, 154.34 9,730.7 1 9,730.7 1 20% from Apr. 16 , 201 6 t o Dec. 31,201 7 (P9 55,0 90.8 0 X 20 % X 625 / 365 d ays ) 3, 147.53 - 12% from J a n . 1, 201 8 to J a n. 2 1,20 19 P43,881.2 9 (P955,090 .80 x 20% x 386 / 365 days) 3, 147.53 EWT P 1 ,686,035.63 20% from J a n . 16 , 2 01 6 to Dec. 3 1, 2 0 17 (P24,8 02 .44 X 20% X 7 16 / 365 d ay s ) 12% from J a n . 1, 201 8 to J a n . 2 1, 2 01 9 (P24 ,80 2.44 X 20 % X 386/ 365 days) Total deficiency t ax due a s of Jan. 21 , 2019124 In addition, petitioner is ORDERED TO PAY respondent delinquency interest at the rate of twelve percen t (12o/o) per annum on the total amou nt du e of P1,686,035.63 as of Janu ary 2 1, 20 19, as determined above, or equivalent to !>554.31 125 p er day, computed from Janu ary 22, 20 19 until full payment thereof pursuant to Section 249(C) of the 1997 NIRC, as amended by RA No. 10963, also known as TRAIN Law, as implem en ted by RR No. 2 1-20 18. SO ORDERED. C~7� ~ WE CONCUR: CATHERINE T . MANAHAN Associate Justice ROMAN G. DEL ROSARIO Presiding J u stice ~ ~ r. ~ ~ -ta.;~ MARIAN 1-vl.t. REYiS~FAJ:ARDO Associate Justice 124 Du e date as per Assessm ent Notice, Exhibits "R-4-C" a n d "R-4-A", BIR Records, pp. 272, 274. 12s P1,686,035. 63 x 12% d ivided by 365 days.

DECISION CTA Case No. 10247 CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. ROMAN G. DEL ROSARIO Presiding Justice