cta_decision CTA Case No. 1089810898 2025-04-15

REBECCA D. DUKA, OWNER/SOLE PROPRIETOR OF DUKA GENERAL MERCHANDISE, as represented by GIL D. DUKA AND/OR CELIA D. DUKA v. CAESAR R. DULAY, COMMISSIONER OF INTERNAL REVENUE, AND ROZIL R. LOZARES, REGIONAL DIRECTOR OF REVENUE REGION NO. 10, LEGAZPI CITY

CTA Fonn No.8 1111111111111111111111 1111111111 111111111111111111111111111111 111111111111111111 22-000299-0064 REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY FIRST DIVISION CTA CASE N0.10898 REBECCA D. DUKA, NOTICE OF DECISION OWNER/SOLE PROPRIETOR OF DUKA GENERAL MERCHANDISE, as represented by GIL D. DUKA AND/OR CELIA D. DUKA, Petitioner, - versus- COMMISSIONER OF INTERNAL REVENUE AND ROZIL R. LOZARES, REGIONAL DIRECTOR OF REVENUE REGION NO. 10, LEGAZPI CITY, Respondents. To: OFFICE OF THE SOLICITOR GENERAL 134 Amorsolo Street, Legazpi Village Makati City ATTY. SYLVIA R. ALMA JOSE ATTY. AYESHA RANIA B. GUILING-MATANOG ATTY. NIKI BERYL B. DELACRUZ Bureau of Internal Revenue Room 703, Litigation Division, BIR National Office Bldg. Sen. Miriam P. Defensor-Santiago Avenue Diliman, Quezon City PILOTIN LAW OFFICE Unit I, Block 15, Lot 9, Avenida Street Bahayang Pag-asa Subdivision Phase 8, Barangay Magdalo, lmus C ity, Cavite GREETINGS: You are hereby notified by these presents that on April 15, 2025, a Decision was rendered in the above-entitled case, copy of which is attached hereto. Quezon City, Philippines, April 21, 2025. . Atty. Maria Job~ Chan-Te Executive Cl~ourt II

.� REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY FIRST DIVISION REBECCA D. DUKA, CTA Case No. 10898 OWNER/SOLE PROPRIETOR Members: OF DUKA GENERAL DEL ROSARIO, P.J., Chairperson, MERCHANDISE, as BACORRO-VILLENA, and CUI-DAVID,]]. represented by GIL D. DUKA AND/OR CELIA D. DUKA, Petitioner, - versus- CAESAR R. DULAY, COMMISSIONER OF INTERNAL REVENUE, AND ROZIL R. LOZARES, REGIONAL DIRECTOR OF REVENUE REGION NO. 10, LEGAZPI CITY, Respondents. DECISI BACORRO-VILLENA, L: t At bar is a Petition for Review1 filed by petitioner Rebecca D. Duka (petitioner), as represented by Gil D. Duka and/ or Celia D.. Duka, pursuant to Section 3(a)', Rule 8 in relation to Section 3(a)(1)', Filed on 23 Ju ne 2022, D ivision Docket, Volume I, pp. 7-41. SEC. 3 . Who may appeal; period tofile petition. - (a) A party adverse ly affected by a decis ion, ru ling or the inaction of the Commissioner of Internal Revenue on disputed assessments or claims for re fund of internal revenue taxes, or by a decision

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Celia D. Duka v. Caesar R. Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Regional Director of Revenue Region No. 10, Legazpi City DECISION x--------------------------------------------------------------------x Rule 4 of the Revised Rules of the Court of Tax Appeals (RRCTA), seeking the reversal of respondent Commissioner of Internal Revenue's (respondent's/CIR's) Final Decision on Disputed Assessment (FDDA) dated 09 March 20224, which affirms respondent's Formal Letter of Demand (FLD)/Final Assessment Notice (FAN) dated 13 October 2021.s The FLO/FAN found petitioner liable for deficiency taxes in the total amount of P69,938,123.84 for the calendar year (CY) ended 31 December 2018 (2018), broken down as follows: Tax Type/Fee Basic Surcharge Interest Total PI, 629,792.67 1"2,838,012.30 Income Tax 35. 707,953� 73 so% 25% ~"393.323�30 67,077�384.18 Value-Added Tax (VAT) 12,907-47 1"814,896�33 - 13-497,6o6.5I 21,077�9 Expanded 4�943�56 Withholding 1,000,00 n,853,976.86 P17,847�o8 1,649-46 Tax (EWT) 399-46 P69,9J8,I2J.84 Registration - 3,226.87 Fee (RF) TOTAL - 250.00 PARTIES OF THE CASE Petitioner Rebecca D. Duka is the owner of a sole proprietorship duly organized and registered with the Department of Trade and Industry (DTI) under the trade name of Duka General Merchandise _ (DGM), with principal office address at Cabid-an, Sorsogon City,t or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade 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. SEC. 3. Cases within the jurisdiction of the Court in Division. ~ The Court in Division shall exercise: (a) Exclusive original over or appellate jurisdiction to review by appeal the following: (I) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue[.) Exhibit "P-5", Division Docket, Volume II, p. 587: Exhibit "R-17", BIR Records, p. 1174. Exhibit "P-1", id., pp. 537-547; Exhibits "R-12" and "R-13", id., pp. 802-814.

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Celia D. Duka v. Caesar R. Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Regional Director of Revenue Region No. 10, Legazpi City DECISION x--------------------------------------------------------------------x Philippines, and primarily engaged in the retail business. It is registered with the Bureau of Internal Revenue (BIR) under Taxpayer's Identification Number (TIN) 113-473-014-ooo. Petitioner may be served with summons and other court processes at Unit 3F #95 Avenida Rizal, Bahayang Pag-asa Subd., Molino V, Bacoor City, Cavite.6 Respondent Caesar R. Dulay was the previous CIR of the BIR, the government agency charged with, among others, the responsibility of collecting all national internal revenue taxes. He may be served with orders and other court processes at Litigation Division, Room 703, BIR National Office Building, BIR Road, Diliman, Quezon City. 7 On the other hand, respondent Rozil R. Lozares (Lozares) is the duly appointed Regional Director (RD) of Revenue Region (RevReg) No. 10, Legazpi City, who issued the assailed FDDA and FLD/FAN.8 FACTS OF THE CASE On 24 January 2020, petitiOner received Letter of Authority (LOA) No. o68-2o2o-ooooo025 (electronic LOA No. 201600012327)9, dated 23 January 2020, authorizing Revenue Officer (RO) Precious Diolata (Diolata) and Group Supervisor (GS) Princini Parco (Parco) of Revenue District Office (RDO) No. 68, Sorsogon, Sorsogon- RevReg No. 10 - Legazpi City to examine/audit petitioner's internal revenue taxes for the period 01 January 2018 to 31 December 2018.10 In connection with the LOA, petitioner received the "First Request for Presentation of Records" dated 27 January 2020 (First t Request)" on 29 January 2020. However, due to petitioner's failure to comply, a "Second Request for Presentation of Records" dated _ 13 February 2020 (Second Request)'2 was issued. Petitioner received 6 See Par. 3, Ill. The Parties, Petition for Review, supra at note I; I. Admitted Facts, Joint Stipulation of Facts and Issue (JSFI), Division Docket, Volume II, p. 961. !d. Supra at notes 4 and 5. 9 Exhibit "R-1 ", BIR Records, p. I. Id. 11 Exhibit "R-2", id., p. 2. Exhibit "R-4", id., p. 6.

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Celia D. Duka v. Caesar R. Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Regional Director of Revenue Region No. 10, Legazpi City DECISION x--------------------------------------------------------------------x the same on 19 February 2020. However, despite these repeated requests, pet1t10ner failed to submit her complete records. Consequently, on 10 March 2020, petitioner received the "Final Notice" dated o6 March 2020.'3 Subsequently, on 11 January 2021, petitioner was served with a Subpoena Duces Tecum (subpoena) for her to produce specific records at respondent RD Lozares' office on 22 January 2021.'4 These records included: (1) Acknowledgment Receipts; (2) Order Slips; (3) Purchase Orders; (4) Check Vouchers; (5) Sales Invoices; and (6) Delivery Receipts.'5 In response, on 25 January 2021, petitioner submitted an Affidavit, dated 11 August 2o2o'6, stating that she could not locate and produce the Sales Invoices for CY 2018 despite her best efforts to locate them. She further stated that the same documents were deemed lost and irretrievable.'7 On 28 April 2021, petitioner received a Notice of Discrepancy (NOD) of even date'8, requiring her to appear before respondent RD Lozares for a Discussion of Discrepancy. Petitioner subsequently met with RO Diolata on 10 May 2021 to discuss the audit findings.'9 Following the Discussion of Discrepancy, on 17 May 2021, RO Diolata issued a Memorandum recommending the issuance of a Preliminary Assessment Notice (PAN).20 Then, on 24 September 2021, petitioner received the PAN dated 17 September 202121, along with the attached Details of Discrepancies of her alleged deficiency Income Tax, VAT, EWT, and RF for CY 2018, inclusive of interest in the aggregate amount ofP6g.g38.123.84. On 11 October 2021, petitioner filed her "Reply (to [PAN]" . (Reply), via registered mail, which respondent RD Lozares received o n t 13 Exhibit "R-5", id., p. 7. 14 Exhibit "R-6", id., p. 665. IS !d. 16 !d., p. 671. 17 !d. 18 !d., p. 680. 10 !d., pp. 701-702. 20 Exhibit "R-8", id., pp. 725-730. 21 Exhibit "R-11 ", id., pp. 791-798.

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Celia D. Duka v. Caesar R. Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Regional Director of Revenue Region No. 10, Legazpi City DECISION X--------------------------------------------------------------------X 22 October 2021.22 Subsequently, on 27 October 2021, petitiOner received the FLD/FAN dated 13 October 202123, which detailed the following: Tax Basic Surchar~e Interest Total Type/Fee Income Tax !"1,629,792.67 so% 25% ~"393.323�30 1"2,838,012.30 VAT 35� 707,953� 73 67,077.)84.18 EWT 1"814,896�33 - 13.497,606.51 RF 12,907�47 4.943�56 21,077�9 TOTAL 17,853.976.86 1"17,847�08 399-46 1,649-46 1,000.00 1"69,938,123.84 - 3,226.87 - 250.00 On 25 November 2021, petitioner received a Letter dated 17 November 202124 from respondent RD Lozares, informing the latter that, by the time her Reply had been received, the FLD/FAN had already been issued. The Letter further advised petitioner to file a protest against the issued FLD/FAN within thirty (3o) days from receipt.25 ln compliance, on 26 November 2021, petitioner filed a "Re: Request for Reinvestigation on the [FLD]" with Annexes (Protest Letter).26 On 22 January 2022, petitiOner received the approval of her request for reinvestigation, as stated in her Protest Letter, and was instructed to further submit additional relevant supporting documents within sixty (6o) days from the filing of the Protest Letter.27 Pursuant thereto, petitioner submitted her additional supporting documents on 25 January 2o22.28 However, on I7 February 2022, RO Diolata observed that the t additional documents merely contained transmittals of documents previously submitted before the issuance of the FLD /FAN ..29 Consequently, RO Diolata recommended the issuance of an FDDA.30 22 Id., pp. 817-830. 23 Supra at note 5. 04 Exhibit"R-14", BIR Records, pp. 831-832. 25 Id. !d., pp. 1130-1146. Exhibit "R-15", id., p. 1148. 28 ld.,pp.ll59-1161 Exhibit"R-16", id., p. 1163. 30 !d.

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Celia D. Duka v. Caesar R. Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Regional Director of Revenue Region No. 10, Legazpi City DECISION X--------------------------------------------------------------------X On 16 March 2022, petitioner received the FDDA dated 09 March 20223\ which denied her request for reinvestigation. The FDDA also reiterated a demand for the payment of the assessed deficiency taxes in the aggregate of f'6g.g38.123.84, plus compromise penalty of f'38.ooo.oo. Aggrieved, petitioner filed her "Motion/Request for Reconsideration" (MR) dated 12 April 2022 with respondent CIR on 13 April 2022Y However, notwithstanding the pending MR before respondent CIR, petitioner, on 24 May 2022, received a Warrant of Distraint and/or Levy (WDL) dated 13 May 2022,33 PROCEEDINGS BEFORE THE COURT Undeterred, on 23 June 202334, petitiOner filed the present Petition for Review together with an "Urgent Motion to Suspend the Collection of Tax and Dispensing with the Bond Requirement" (Motion to Suspend), contesting the deficiency tax assessments issued for CY 2018. She asserted that the assessments were erroneous, lacking factual and legal basis, and that due process was not observed in its conduct. Petitioner also argued that there were violations in the issuance of the Preliminary and Final Assessment Notices and that the assessment period had already prescribed. Initially, it was raffled to the Court's Second Division. On 27 June 2022, summons was issued to respondents, directing them to file an Answer within 30 days from the date of receipt thereof, i.e., 01 July 2022,35 On 04 July 2022, respondents were given five (5) days from the date of receipt thereof to file their comment or opposition to the Motion to Suspend.36 During the hearing of petitioner's Motion to Suspend, petitioner . presented the following witnesses who all testified via their respectivet JI Supra at note 4. Exhibit "P-6", Division Docket, Volume II, p. 588. 33 Exhibit "P-8", id., p. 777. Supra at note I. 35 Division Docket, Volume I, p. 391. 36 Resolution dated 04 July 2022, id., p. 393.

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Celia D. Duka v. Caesar R. Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Regional Director of Revenue Region No. 10, Legazpi City DECISION x--------------------------------------------------------------------x judicial affidavits, namely: Loreto Carpio (Carpio), Joanne D. De Keyser (De Keyser) and Gil D. Duka (Duka).37 On the witness stand, Carpio, petitioner's Bookkeeper, declared that: (1) he safekeeps petitioner's business records, prepares and files the necessary BIR tax returns; (2) petitioner filed the correct amount of sales as generated by petitioner's Point-of-Sale (POS) System during CY 2018; (3) DGM was not one of the top withholding agents in 2018 as they have not received a notice to that effect from the BIR; and (4) he received the WDL.38 No cross-examination followed.39 Upon the completion of Carpio's testimony, petitioner presented De Keyser, DGM's Cashier. She testified that: (1) she had been an employee of DGM since 2010 and one of her duties was to reconcile the money received from sales against the generated Closing Report from the POS System to generate the Z-Reading report; (2) she also recorded the sales in petitioner's Sales Book; and (3) petitioner reported the correct sales for CY 2018.40 Again, no cross-examination was conductedY Lastly, petitiOner presented Duka, petitioner's authorized representative and DGM's Operations Manager. On the witness stand, he declared that: (1) he managed DGM's day-to-day operations, including the preparation and filing of BIR returns; (2) DGM reported the correct sales in petitioner's CY 2018 Annual Income Tax Return (AITR) and VAT returns; (3) BIR's findings were not supported by details, preventing petitioner from preparing an intelligent response oft and supporting documents, specifically per BIR's assessment, DGM has . total sales of P735,771>442.96 and exempt sales in the amount 37 See Order dated 18 July 2022, id., pp. 412-413. 38 See Judicial Affidavit of Loreto Carpio dated 22 June 2022, Exhibit "P-89", id., pp. 384-390. 39 See Order dated 18 July 2022, supra at note 37. See Judicial Affidavit of Joanne D. De Keyser dated 20 June 2022, Exhibit "P-90", Division Docket, Volume I, pp. 379-383. 41 See Order dated 18 July 2022, supra at note 37.

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Celia D. Duka v. Caesar R. Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Regional Director of Revenue Region No. 10, Legazpi City DECISION x--------------------------------------------------------------------x f's1,247,909.20, as allegedly shown in petitioner's Z-Reading report; however, the date of the Z-Reading was not provided making it impossible for petitioner to effectively refute it; (4) the observations per PAN and FLO/FAN were identical and failed to take account petitioner's Reply; (5) the WDL was issued despite the pendency of an MR with respondent CIR; and (6) as of 31 December 2020, DGM had ceased operations, with a net worth of only f'7,609,074�oo.42 In his cross-examination, Duka mentioned that the Z-Reading report mentioned in Question No. 2943 of his Judicial Affidavit comes from DGM's POS system.44 However, during Duka's redirect examination, he further clarified that the alleged day reading of f"735,771,442.96 of DGM's sales for CY 2018 comes from the BIR as shown in the PAN and FLO/FAN and is not the same as the amounts or totals in the DGM's own Z-Reading report.45 He further stated that there were no attachments regarding the amounts reflected in the PAN and FLD/FAN leaving him and petitioner clueless as to where to trace the amounts used by respondents.46 No re-cross examination followed.47 The Court directed petitioner to file her formal offer in support of the Motion to Suspend.48 t On 18 July 2022, respondents filed their Cornrnent/Opposition49 � and averred that: (1) petitioner failed to show the existence of her clear 42 See Amended Judicial Affidavit of Gil D. Duka dated 12 July 2022, Exhibit "P-91", Division Docket, Volume I, pp. 397- 409. 4) 29. Q: What are these items? A: In the assessment, the BIR alleged that per Z-Reading report, DGM [had] total sales in the amount of P735,77I ,442.96, and exempt sales in the amount of PSI ,247,909.20. But we cannot make our own validation because we do not know where they got the said amounts, the date of the Z-Reading was not provided in the NOD, PAN and FAN. As a matter of fact, the alleged sales [are] not the same as the alleged Z-Reading sales in the NOD. 44 TSN dated I8 July 2022, pp. 21-22. 45 Id., pp. 22-23. 46 I d. 47 Id., p. 23. 48 See Order dated 18 July 2022, Division Docket, Volume I, pp. 412-413. " See Comment/Opposition (Re: Petitioner's Urgent Motion to Suspend Collection of Tax and Dispensing with the Payment of Bond), id., pp. 414-426.

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Celia D. Duka v. Caesar R. Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Regional Director of Revenue Region No. 10, Legazpi City DECISION X--------------------------------------------------------------------X and unmistakable right which petitioner seeks to protect; (2) petitioner failed to prove that the collection of taxes would jeopardize her interest as she failed to present her current Audited Financial Statements (AFS); (3) the suspension or undue delay of the collection of taxes would surely be prejudicial to the government's interest; (4) suspension of collection of tax without any cash deposit or bond is reserved only for extreme situations, e.g., patent violation of the law; and (s) the instant assessment and collection efforts are presumed correct and made in good faith and, thus, there is no basis to exempt petitioner from posting the required bond or paying the cash deposit. On 25 July 2022, petitioner filed a "Motion to Allow Additional Commissioner's Hearing (with Manifestation)"5� (Motion to Allow Additional CH), asking the Court for another Commissioner's Hearing to allow petitioner to secure a faithful reproduction of the original documents submitted before another division of the Court and for the marking of the PAN and Closure Order dated 14 October 2020. On 29 July 2022, respondent CIR filed a "Motion for Extension of Time to File Answer"Y In its Resolution dated n August 202252, the Court granted the said motion and thereby extended respondent CIR's deadline to file an Answer until 29 August 2022. On 02 August 2022, petitioner filed via LBC a "Motion to Admit Reply on Respondent's Opposition."53 Respondent CIR's Answer was eventually filed on 30 August 2022.54 In his or her Answer, respondent CIR interposed the following special and affirmative defenses: (1) considering that there was a discrepancy of more than 30% between the sales reported per oft petitioner's returns and sales generated per POS System, there is a . prima facie evidence of false or fraudulent return, citing the case 50 ld., pp. 431-433. 5I ld., pp. 451-454. 52 !d., pp. 468-469. 53 !d., pp. 456-458. !d., pp. 477-499.

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Celia D. Duka v. Caesar R. Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Regional Director of Revenue Region No. 10, Legazpi City DECISION X--------------------------------------------------------------------X Commissioner of Internal Revenue v. Asalus Corporationss (Asalus); (2) applying the ten (10)-year extraordinary prescriptive period, respondent CIR's right to assess had not yet prescribed; (3) petitioner's right to procedural due process was satisfied since petitioner was able to refute the assessments when she filed protest to PAN and FLD/FAN; (4) the WDL constitutes as denial of petitioner's MR; (5) petitioner is liable for deficiency income tax, VAT, EWT, RF and administrative penalties; and (6) petitioner failed to overturn the presumption of correctness and validity of the assessments. On 07 September 2022, respondent CIR filed a "Motion to Defer Transmittal of BIR Records".56 Since the BIR Records would still be utilized in the preparation of the judicial affidavits of respondent CIR's witness, the Court granted the same in its Resolution dated 19 September 2o22.57 In another Resolution dated 12 September 202258, the Court granted petitioner's "Motion to Allow Additional Commissioner's Hearing", which hearing was set on 22 September 2022. Petitioner was then given an additional period of five (s) days therefrom to file the Formal Offer of Evidence (FOE), or until27 September 2022. Subsequently, on 21 September 2022, petitioner filed a "Reply on Respondent's Answer (with Objection on the presentation of Witnesses and Documentary Evidence)" via LBC, which the Court received on 22 September 2022.59 Later, petitioner filed her "[FOE] (On Motion to Lift [WDL]" 6 on o 27 September 2022 while respondent CIR filed his or her "Comment (on Petitioner's [FOE])"6' on 29 September 2022. Acting thereon, the . Court admitted petitioner's FOE.62 Also in the same Resolution, thet 55 G.R. No. 221590,22 February 2017. 56 Division Docket, Volume I, pp. 501-504. 57 !d., pp. 514-515. 58 !d., pp. 507-512. 59 !d., pp. 516-522. !d., Volume II, pp. 524-536. 61 !d., pp. 882-884. 62 See Resolution dated 06 January 2023, id., pp. 912-926.

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Celia D. Duka v. Caesar R. Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Regional Director of Revenue Region No. 10, Legazpi City DECISION X--------------------------------------------------------------------X Court granted petitioner's Motion to Suspend and dispensed with the bond requirement.63 Thereafter, the Pre-Trial Conference was set on 22 February 2023.64 Respondent CIR filed his or her Pre-Trial Brief6s on 15 February 2023, while petitioner filed her Pre-Trial Brie�66 on 16 February 2023. During the pre-trial conference, the parties were granted a period of 30 days to file the Joint Stipulation of Facts and Issues67 (JSFI), or until 24 March 2023. Upon petitioner's motion68, the aforementioned date was extended until31 March 2023.69 Accordingly, on 31 March 2023, they filed their JSFP0 , which the Court approved on 14 April 2023. The pre-trial proceedings were then terminated accordingly.?' In the Pre-Trial Order issued on o8 May 20237\ it was noted that petitioner had adopted the testimonies of Duka, Carpio and De Keyser during the hearing on the Motion to Suspend and offer Jelson B. Vargas (Vargas) as additional witness. Likewise, respondents opted not to conduct further cross-examination on the three (3) witnesses already presented during the motion hearing. On 24 May 2023, petitioner filed a "Motion (To Amend/Correct t Pre-Trial Order)"73 to amend the sole issue of the instant case74, which . the Court approved on 26 May 2023.75 In the Resolution issued on 63 !d. 64 Notice of Pre-Trial Conference dated 12 October 2022, id., pp. 904-905. 65 !d., pp. 927-931. 66 !d., pp. 933-945. 67 See Order dated 22 February 2023, id., pp. 952-954. 68 Motion to Extend the Filing of JSFI dated 23 March 2023, id., 955-957. 69 See Resolution dated 31 March 2023, id., p. 960. 70 !d., pp. 961-969. 71 See Resolution dated 14 April2023, id., p. 973. 72 !d., pp. 977-984. 73 !d., pp. 985-987. 74 Changed from "[w]hether or not petitioner is liable for deficiency Income Tax, [VAT], [EWT] and Compromise Penalties, in the aggregate amount of Php69,976,123.84, plus interests and surcharges, for taxable year 2018" to "[w]hether or not petitioner is liable for deficiency Income Tax, [VAT], [EWT] and Compromise Penalties, in the aggregate amount of Php69,976,123.84, inclusive of interests and surcharges, for taxable year 2018", as the amount already includes the alleged interests. and surcharges. 75 See Resolution dated 26 May 2023, Division Docket, Volume II, p. 990.

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Celia D. Duka v. Caesar R. Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Regional Director of Revenue Region No. 10, Legazpi City DECISION x--------------------------------------------------------------------x 29 May 2023, the present case was transferred to the Court's First Division pursuant to Administrative Circular No. 01-2023 (Reorganizing the Divisions of the Court) dated 23 May 2023.?6 Still later, on 25 July 2023, petitioner filed an "Ex Parte Motion for Issuance of Subpoena Ad Testificandum"77 (subpoena) against her additional witness, Vargas. In its Resolution dated 02 August 202318, the Court granted the Motion and issued the subpoena against Vargas and reset the presentation of Vargas' testimony on 04 October 2023.19 In compliance with the subpoena, petitioner submitted Vargas' Judicial Affidavit dated 25 September 2023.80 In the trial that ensued subsequently, petitioner presented Vargas, as her additional witness. On the witness stand, Vargas, the Head of Information Technology Officer and Systems Administrator of Basebyte Software Management and Consultancy Services (Basebyte), declared that: (1) Basebyte is BIR registered and accredited system provider; (2) Basebyte was the system provider ofDGM from 2010 to 2021; (3) the POS System of DGM reported correct sales as shown in the upper portion of the Z-Reading report; (4) DGM did not tamper with the POS System; and (s) DGM reported the correct sales for CY 8 2018. ' In his cross-examination, Vargas explained that Basebyte mistakenly configured the POS system to display the accumulated centralized sales and not the stand-alone accumulated sales of each specific POS machine. This error was discovered when the BIR . conducted an audit of petitioner's books in 2020. He also mentionedt 76 Id., p. 991. 77 !d., pp. 992-994. 78 See Resolution dated 02 August 2023, id., pp. 1002-1003. 79 !d. so See Judicial Affidavit of Jelson B. Vargas dated 25 September 2023, Exhibit "P-92", id., pp. 1008- 1017. 81 I d.

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Celia D. Duka v. Caesar R. Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Regional Director of Revenue Reg�lon No. 10, Legazpi City DECISION x--------------------------------------------------------------------x properly served to petitioner; (3) before the FLD/FAN was served, she received petitioner's Reply, however since the FLD/FAN had been issued, they suggested to petitioner to just file a protest to the FLD/FAN; and (4) she recommended for the issuance of the FDDA to deny petitioner's request for reinvestigation since the documents submitted by petitioner were the same documents submitted prior to the issuance of the FLD/FAN.9' In her cross-examination, RO Diolata explained that: (1) the Reply was not considered when the FLD/FAN was prepared because the FLD/FAN had already been issued by the time respondent RD Lozares received the Reply, though the FDL/FAN had not yet been served to petitioner; and (2) the amounts used in the PAN and FLD/FAN were derived from the Z-Reading reports retrieved through a Mission Order that is separate and distinct from the LOA in the instant case.9, During RO Diolata's redirect examination, she clarified that: (1) she had not received the Reply when she recommended the issuance of the FLD/FAN, which is why the FLD/FAN and the PAN are identical; and (2) she recommended the denial of petitioner's request for reinvestigation since no new documents were introduced by p e t i t i o n e r . 93 In her re-cross examination, she further stated that she informed petitioner of the issuance of the FLD /FAN and suggested that a protest to the FLD/FAN be filed within 30 days from the receipt thereof. 94 On 26 January 2024, respondent CIR filed his or her FOE95 consisting of Exhibits "R-1" to "R-18", inclusive of sub-markings. On t 15 February 2024, petitioner filed via LBC her "Comment on Respondent's [FOE])" .96 91 See Judicial Affidavit of [RO] Precious G. Diolata dated 23 September 2022, Exhibit "R-19", id., pp. 891-902. TSN dated 18 January 2024, pp. 22-41. 93 !d., pp. 42-44. !d., pp. 44-49. Division Docket, Volume II, pp. 1048-1063. 96 !d., pp. 1065-1067.

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Celia D. Duka v. Caesar R Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Regional Director of Revenue Region No. 1O, Legazpi City DECISION x--------------------------------------------------------------------x Furthermore, petitiOner argues that respondents failed to properly consider the evidence she presented, including reconciliations, affidavits, and other supporting documents, all of which refuted the alleged tax deficiencies. Respondents' findings, particularly those concerning undeclared sales, were claimed to be without basis in fact or law. Petitioner points to discrepancies in respondent's sales computations, particularly the reliance on erroneous POS System data, and asserts that these inconsistencies were neither explained nor substantiated. Additionally, the computation of interest and penalties was allegedly conducted arbitrarily, with no clear justification provided. Petitioner further asserts that the assessments lacked specific legal and factual bases. Respondents did not adequately inform petitioner of the specific factual bases of the assessments, preventing her from tracing the amounts that respondents used. Consequently, petitioner claims that she was deprived of the opportunity to effectively challenge the assessments, thus violating fundamental principles of fairness and due process. Lastly, petitioner challenges the impositiOn of a compromise penalty absent a mutual agreement between her and the BIR. Respondents counter that the tax assessments issued against petitioner are valid, supported by factual and legal bases, and were conducted in accordance with due process. Central to respondents' position is the finding that petitioner substantially under-declared her sales by more than 30%. According to respondents, this matter created a prima facie evidence of a false or fraudulent return under Section 248(B)102 of the National Internal Revenue Code (NIRC) of 1997, as amended. Respondents further assert that an audit of the petitioner's books at of accounts revealed a discrepancy ofi'197,64o,s76.17 between reported and actual sales. Citing Asa/us as precedent, respondents contend that . when a taxpayer significantly under-declares sales, there is '" SEC. 248. Civil Penalties.

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Cel1a D. Duka v. Caesar R. Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Regional Director of Revenue Region No. 10, Legazpi City DECISION x--------------------------------------------------------------------x presumption of falsity, shifting the burden to the taxpayer to prove the correctness of their returns. Since petitioner allegedly failed to provide sufficient rebuttal evidence, the assessments are presumed accurate. Moreover, respondents maintain that the assessments were properly done and issued using the best evidence obtainable, as allowed under Section 6103 of the NIRC of 1997, as amended. However, despite multiple requests and the issuance of a subpoena, petitioner allegedly still failed to submit complete records necessary for the audit, justifying the assessments based on available data. Respondents similarly refute petitioner's claim that the tax assessments had prescribed, arguing that under Section 222(a) of the NIRC of 1997, as amended, the ten (w)-year prescriptive period applies in cases of false or fraudulent returns. Given the substantial under- declaration of sales, respondents insist that petitioner's returns were false, making the assessments well within the allowable period. Respondents further argue that the assessments were properly communicated to petitioner, with the PAN and FLD/FAN providing adequate factual and legal explanations as required under Section 228104 of the NIRC of 1997, as amended. Due process does not necessitate a detailed discussion of the assessments' basis but only requires that the taxpayer be sufficiently informed, which was accomplished through the issued notices. Moreover, respondents reject petitioner's claim that her protest and supporting evidence were ignored, asserting that all submitted documents were duly reviewed but the same failed to persuade respondents to warrant the removal of the subject assessment item/s. On the issue of the WDL, respondents argue that the issuance of the WDL constituted a constructive denial of petitioner's MR. Citing Commissioner. of Internal Revenue v. South Entertain.ment Gallery, ~nc. ~ U (SEGI)10s, in mstances where the CIR proceeds with tax collectiOn 103 SEC. 6. Power ofthe Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement. I 04 SEC. 228. Protesting ofAssessment. I 05 G.R. No. 225809, 17 March 2021.

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Celia D. Duka v. Caesar R. Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Regional Director of Revenue Region No. 10, Legazpi City DECISION x--------------------------------------------------------------------x measures without explicitly ruling on a taxpayer's protest, such action is deemed an implied denial. Finally, respondents underscore that all presumptions are in favor of the correctness of tax assessments and failure on the part of petitioner to satisfactorily overcome the same would mean that the presumption still stands. Consequently, the Court would be bound to uphold the assessments. RULING OF THE COURT Before delving into the merits of the case, We shall first resolve whether this Court has jurisdiction over the instant petition. THE COURT OF TAX APPEALS (CTA) HAS JURISDICTION OVER THE INSTANT PETITION FOR REVIEW. At the outset, it should be emphasized that the CTA, being a court of special jurisdiction, can only take cognizance of matters which are clearly within its jurisdiction.106 Section 7 of Republic Act (RA) No. 1125107, as amended by RA 9282108, provides: Sec. 7� jurisdiction.- The CTA shall exercise: a. Exclusive appellate jurisdiction to review by appeal, as herein provided: r. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation t thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue; 106 Commissioner of Internal Revenue v. V. Y. Domingo Jewellers, Inc., G.R. No. 221780, 25 March 2019 citing Commissioner of Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., G.R. No. 190021, 22 October 2014. "7 AN ACT CREATING THE COURT OF TAX APPEALS. 108 AN ACT EXPANDING THE JURISDICTION OF THE COURT OF TAX APPEALS (CTA), ELEVATING ITS RANK TO THE LEVEL OF A COLLEGIATE COURT WITH SPECIAL .lliRISDICTION AND ENLARGING ITS MEMBERSHIP, AMENDING FOR THE PURPOSE CERTAIN SECTIONS OR REPUBLIC ACT NO. 1125. AS AMENDED, OTHERWISE KNOWN AS THE LAW CREATING THE COURT OF TAX APPEALS, AND FOR OTHER PURPOSES.

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Celia D. Duka v. Caesar R. Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Reg�lonal Director of Revenue Region No. 10, Legazpi City DECISION x--------------------------------------------------------------------x 2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial[.]'0 9 Taking cue from the foregoing, the Court in Division's appellate jurisdiction is not limited to cases involving decisions of the CIR in relation to disputed assessments or refunds. The second portion of Section 7(a)(1) and (2) of RA 1125, as amended by RA 9282, clearly covers "other matters" arising under the NIRC of 1997, as amended, or other laws administered by the BIR. The CTA's "other matters" jurisdiction includes the determination of the validity of the WDL, as ruled by the Supreme Court in the case of La Flor Dela Isabela, Inc. v. Commissioner of Internal Revenue110 (La Flor), citing Philippine journalists, Inc. v. Commissioner ofInternal Revenuem, to wit: In Philippine journalists, we ruled that the CTA's appellate jurisdiction is not limited to cases involving decisions of the CIR on matters relating to assessments or refunds. Section 7(a)(2) of RA 9282 also covers "other matter[s] arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue." Clearly, the CTA has t jurisdiction to determine whether the WDL issued by the BIR is valid and rule on the validity of the five waivers of the statute of_ ~~~itations and La Flor's application for tax amnesty under RA 9480. \09 Emphasis supplied and italics in the original text. 110 G.R. No. 202105, 28 April 2021; italics in the original text, emphasis and underscoring supplied. Ill G.R. No. 162852, !6 December 2004.

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Celia D. Duka v. Caesar R. Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Regional Director of Revenue Region No. 10, Legazpi City DECISION x--------------------------------------------------------------------x In the recent case of Commissioner ofInternal Revenue v. Manila Medical Services, Inc. (Manila Doctors Hospital)m, the Supreme Court reiterated the CTA's jurisdiction to determine the validity of a WDL, viz: Contrary however to the CIR's argument, Section 7(a)(1) of Republic Act No. (RA) 1125, as amended by RA 9282, which confers upon the CTA the jurisdiction to decide not only cases on disputed assessments and refunds of internal revenue taxes, but also "other matters" arising under the NIRC: SEC. 7� Jurisdiction.- The CTA shall exercise: (a) Exclusive appellate jurisdiction to review by appeal, as herein provided: (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue [Code] or other laws administered by the Bureau of Internal Revenue[.] As explained by the Court in Commissioner of Internal Revenue v. Court of Tax Appeals Second Division, the exclusive appellate jurisdiction of the CTA Division is not limited to cases involving decisions of the CIR or matters relating to assessments or refunds. The second part of the provision covers other cases that arise out of the NIRC or related laws administered by the BIR. The wording of the provision is clear and simple. It gives the CTA the jurisdiction to determine the validity of the warrant of distraint and levy. Considering that the issuance of a WDL falls under the CTA's D jurisdiction to review "other matters ~ing under the NIRC", this Court can take cognizance of this case. "' G.R. No. 255473, 13 February 2023; citations omitted, italics and emphasis in the original text and supplied.

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Cella D. Duka v. Caesar R. Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Regional Director of Revenue Region No. 1O, Legazpi City DECISION x--------------------------------------------------------------------x Notwithstanding the foregoing, the Supreme Court, in the case of Commissioner of Internal Revenue v. Algue, Inc., et a!. "3, considered as an implied denial a circumstance where the CIR, without categorically deciding the taxpayer's protest or request for reconsideration, proceeds with distraint and levy or institutes an action for collection in the ordinary courts, such as the instant case. In such case, the taxpayer's remedy is to file an appeal with the CTA within 30 days from the date that it was notified of the warrant or collection suit."4 Accordingly, the WDL may be considered as the final decision of the CIR appealable before the CTA. Section n of the RA 1125, as amended by RA 9282, in relation to Section 3(a), Rule 8 of the RRCTA, provides for the period when the taxpayer may invoke the CTA's jurisdiction in order to question the validity of the WDL, to wit: SEC. n. 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, the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the Regional Trial Courts may file an appeal with the CTA within thirty (Jo) 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)(z) herein. 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 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 fort 113 G.R. No. L-28896, 17 February !988. 114 Commissioner of Internal Revenue v. South Entertainment Gallery, Inc., G.R. No. 225809, 17 March 2021.

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Celia D. Duka v. Caesar R. Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Regional Director of Revenue Region No. 10, Legazpi City DECISION x--------------------------------------------------------------------x 3.1.1 Preliminary Assessment Notice (PAN). - If after review and evaluation by the Commissioner or his duly authorized representative, as the case may be, it is determined that there exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall issue to the taxpayer a Preliminary Assessment Notice (PAN) for the proposed assessment. It shall show in detail, the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based (see illustration in ANNEX A hereof). If the taxpayer fails to respond within fifteen (15) days from date of receipt of the PAN, he shall be considered in default, in which case, a Formal Letter of Demand and Final Assessment Notice (FLO/FAN) shall be issued calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties. If the taxpayer, within fifteen (15) days from date of receipt of the PAN, responds that he/it disagrees with the findings of deficiency tax or taxes, an FLO/FAN shall be issued within fifteen (rs) days from filing/submission of the taxpayer's response, calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties. " 1 In the landmark case of Commissioner of Internal Revenue v. Avon Products Manufacturing, Inc. 122 (Avon), citing Ang Tibay, represented by Toribio Teodoro, manager and proprietor, and National Workers' Brotherhood v. The Court ofIndustrial Relations and National Labor Union, Jnc.123, the Supreme Court highlighted the paramount importance of administrative due process in the conduct of tax assessments, declaring in no uncertain terms: The Ang Tibay safeguards were subsequently "simplified into four basic rights," as follows: (a) [T]he right to notice, be it actual or constructive, of the at institution of the proceedings that may affect a person's legal right; (b) reasonable opportunity to appear and defend his rights and . to introduce witnesses and relevant evidence in his favor; (c) 121 Italics in the original text, emphasis and underscoring supplied. 122 G.R. Nos. 201398-99,03 October 2018; citations omitted, italics and emphasis in the original text and supplied, and underscoring supplied. \23 G.R. No. 46496, 27 February !940.

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Celia D. Duka v. Caesar R. Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Regional Director of Revenue Region No. 10, Legazpi City DECISION x--------------------------------------------------------------------x tribunal so constituted as to give him reasonable assurance of honesty and impartiality, and one of competent jurisdiction; and (d) a finding or decision by that tribunal supported by substantial evidence presented at the hearing or at least ascertained in the records or disclosed to the parties. The importance of providing the taxpayer with adequate written notice of his or her tax liability is undeniable. Under Section 228, it is explicitly required that the taxpayer be informed in writing of the law and of the facts on which the assessment is made; otherwise, the assessment shall be void. Section 3.1.2 of Revenue Regulations No. I2-99 requires the Preliminary Assessment Notice to show in detail the facts and law, rules and regulations, or jurisprudence on which the proposed assessment is based. Further, Section 3.1.4 requires that the Final Letter of Demand must state the facts and law on which it is based; otherwise, the Final Letter of Demand and Final Assessment Notices themselves shall be void. Finally, Section 3.1.6 specifically requires that the decision of the Commissioner or of his or her duly authorized representative on a disputed assessment shall state the facts and law, rules and regulations, or jurisprudence on which the decision is based. Failure to do so would invalidate the Final Decision on Disputed Assessment. On the other hand, the taxpayer is explicitly given the opportunity to explain or present his or her side throughout the process, from tax investigation through tax assessment. Under Section 3.1.1 of Revenue Regulations No. I2-99, the taxpayer is given IS days from receipt of the Notice for Informal Conference to respond; otherwise, he or she will be considered in default and the case will be referred to the Assessment Division for appropriate review and issuance of deficiency tax assessment, if warranted. Again, under Section 228 of the Tax Code and Section 3.1.2 of Revenue Regulations No. I2-99, the taxpayer is required to respond within IS days from receipt of the Preliminary Assessment Notice; otherwise, he or she will be considered in default and the Final Letter of Demand and Final Assessment Notices will be issued, After receipt of the Final Letter of Demand and Final Assessment Notices, the taxpayer is given 30 days to file a protest, and subsequently, to appeal his or her protest to the Court of Tax Appeals. tot The facts demonstrate that Avon was deprived of due process. It was not fully apprised of the legal and factual bases of the . assessments issued against it. The Details of Discrepancy attached

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Celia D. Duka v. Caesar R. Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Regional Director of Revenue Region No. 10, Legazpi City DECISION x--------------------------------------------------------------------x the Preliminary Assessment Notice, as well as the Formal Letter of Demand with the Final Assessment Notices, did not even comment or address the defenses and documents submitted by Avon. Thus, Avon was left unaware on how the Commissioner or her authorized representatives appreciated the explanations or defenses raised in connection with the assessments. There was clear inaction of the Commissioner at every stage of the proceedings. First, despite Avon's submission of its Reply, together with supporting documents, to the revenue examiners' initial audit findings, and its explanation during the informal conference, the Preliminary Assessment Notice was issued. The Preliminary Assessment Notice reiterated the same audit findings, except for the alleged under-declared sales which ballooned in amount from PI5,7oo,ooo.oo to P62,9oo,ooo.oo, without any discussion or explanation on the merits of Avon's explanations. Upon receipt of the Preliminary Assessment Notice, Avon submitted its protest letter and supporting documents, and even met with revenue examiners to explain. Nonetheless, the Bureau of Internal Revenue issued the Final Letter of Demand and Final Assessment Notices, merely reiterating the assessments in the Preliminary Assessment Notice. There was no comment whatsoever on the matters raised by Avon. or discussion of the Bureau of Internal Revenue's findings in a manner that Avon may know the various issues involved and the reasons for the assessments. Under the Bureau of Internal Revenue's own procedures, the taxpayer is required to respond to the Notice of Informal Conference and to the Preliminary Assessment Notice within 15 days from receipt. Despite Avon's timely submission of a Reply to the Notice of Informal Conference and protest to the Preliminary Assessment Notice, together with supporting documents, the Commissioner and her agents violated their own procedures by refusing to answer or even acknowledge the submitted Reply and protest. The Notice of Informal Conference and the Preliminary Assessment Notice are a part of due process. They give both the taxpayer and the Commissioner the opportunity to settle the case at the earliest possible time without the need for the issuance t of a Final Assessment Notice. However, this purpose is not served in this case because of the Bureau of Internal Revenue's ~~action or failure to consider Avon's explanations.

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Celia D. Duka v. Caesar R. Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Regional Director of Revenue Region No. 10, Legazpi City DECISION x--------------------------------------------------------------------x It is true that the Commissioner is not obliged to accept the taxpayer's explanations, as explained by the Court of Tax Appeals. However, when he or she rejects these explanations, he or she must give some reason for doing so. He or she must give the particular facts upon which his or her conclusions are based. and those facts must appear in the record. Indeed, the Commissioner's inaction and omission to give due consideration to the arguments and evidence submitted before her by Avon are deplorable transgressions of Avon's right to due process. The right to be heard, which includes the right to present evidence, is meaningless if the Commissioner can simply ignore the evidence without reason. In Edwards v. McCoy: The object of a hearing is as much to have evidence considered as it is to present it. The right to adduce evidence, without the corresponding duty on the part of the board to consider it, is vain. Such right is conspicuously futile if the person or persons to whom the evidence is presented can thrust it aside without notice or consideration. In Ang Tibay, this Court similarly ruled that "[n]ot only must the party be given an opportunity to present his case and to adduce evidence tending to establish the rights which he asserts but the tribunal must consider the evidence presented." The Commissioner's total disregard of due process rendered the identical Preliminary Assessment Notice, Final Assessment Notices, and Collection Letter null and void, and of no force and effect. This Court has, in several cases, declared void any assessment that failed to strictly comply with the due process requirements set forth in Section 228 of the Tax Code and Revenue Regulations No. 12-99. In this case, Avon was able to amply demonstrate the Commissioner's disregard of the due process standards raised in Ang Tibay and subsequent cases, and of the Commissioner's own rules of procedure. Her disre ard of the standards nd rules renders the deficiency tax assessments null and void.

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Celia D. Duka v. Caesar R. Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Regional Director of Revenue Region No. 10, Legazpi City DECISION X--------------------------------------------------------------------X No. 12-99, as amended, the BIR is bound to observe two distinct procedural safeguards before issuing an FLO /FAN. First, if the taxpayer does not respond to the PAN, the BIR must wait 15 days from the taxpayer's receipt of the notice before issuing an FLO/FAN to give the taxpayer time to draft a reply. Second, if the taxpayer does respond within 15 days, disputing the deficiency assessment, the BIR must issue the FLO/FAN within 15 days from the date of submission. The rationale for this rule is not difficult to discern as one of the cardinal primary rights which must be respected during administrative proceedings is the party's right for its evidence to be considered by the administrative tribunal.127 Thus, the BIR is duty-bound to consider first the taxpayer's response before issuing the FLO/FAN. In its common acceptation, the word "respond" means "to react in response".128 Clearly, when petitioner mailed her Reply on u October 2021, it was well within the 15-day reglementary period to respond.129 Consequently, the second safeguard should be made applicable. Thus, respondent RO Lozares should have waited first for petitioner's Reply and issued the FLO/FAN within 15 days from the receipt of the Reply, i.e., 22 October 2021.130 Here, the FLO/FAN was issued on 13 October 2021131 or only after two (2) days from the mailing of the Reply but before the receipt of the Reply. Clearly, the second safeguard was disregarded. In the case of Prime Steel Mill, Incorporated v. Commissioner of Internal Revenue13\ citing Commissioner of Internal Revenue v. Yumex Philippines Corporation133, the Supreme Court has held that the 15-day period provided under RR 12-99, as amended, (albeit pertaining oft to the first safeguard) for a taxpayer to reply to a PAN forms part . and parcel of the due process requirement in the issuance 127 Ang Tibay, represented by Toribio Teodoro, manager and proprietor, and National Workers' Brotherhood v. The Court of Industrial Relations and National Labor Union, Inc., supra at note I23. >28 See also Merriam-Webster Dictionary, "respond," available at <https://www,merriarn- webster.com/ dictionarv /respond> (last accessed on 26 March 2025). 129 Since the fifteenth day (i.e., 09 October 202I) fell on a Saturday, the next working day is II October 202I. 130 Supra at note 22. 131 Supra at note 5. \32 G.R. No. 249153, 12 September 2022. 133 G.R. No. 222476,05 May 2021.

CTA Case No. 10898 Rebecca D. Duka, Owner/Sole Proprietor of Duka General Merchandise, as represented by Gil D. Duka and/or Celia D. Duka v. Caesar R. Dulay, Commissioner of Internal Revenue, and Rozil R. Lozares, Regional Director of Revenue Region No. 10, Legazpi City DECISION x--------------------------------------------------------------------x A letter dated January 25, 2022 was received by this office pertaining to their request for reinvestigation. However, the letter contains only [a] transmittal of documents already submitted to us prior to the issuance of Final Assessment Notice (FAN)/Formal Letter of Demand (FLO). On February o8, 2022, the subject taxpayer's representatives, through a text message, requested for a conference to discuss their protest. On February 16, 2022 the meeting took place at the office of the Revenue District Officer. During the conference, audit findings such as undeclared sales per POS, undeclared sales to government, disallowance of expenses, [under- withholding] of expenses and other findings were discussed. It is worthy to note, however, that the letter dated January 25, 2022 only contains transmittal of documents already in our possession and does not contain any new additional documents or newly discovered evidence, contrary to the provision of Section 228 of the National Internal Revenue Code (NIRC), as amended and relevant revenue regulations on protesting an assessment. In view of the foregoing, it is respectfully recommended that the request for reinvestigation BE DENIED and that this case be forwarded to the Regional Director, Revenue Region No. 10 through the Assessment Division for issuance of Final Decision on Disputed Assessment (FDDA) and if circumstances warrant for filing of a RATE case. A meticulous scrutiny of the documents RO Diolata mentioned (that were already submitted and "considered" by respondents vis-a-vis the assessment items from NOD to PAN to FLD/FAN) reveals that there was no clear explanation on record as to why petitioner's arguments and pieces of documents were rejected. More troubling is the unexplained increase in the underdeclared sales and disallowed expenses from the NOD to the FLD/FAN, despite petitioner's submission of supporting documents, to wit: Documents Assessment Items submitted Date NOD PAN FLD/FAN by submitted petitioner'36 (issued on 28 (issued on 21 (issued on 13 April 2o21)'37 September October 136 Supra at note 28. 137 Supra at note 18.

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