OPULENT LANDOWNERS, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SECOND DIVISION OPULENT LANDOWNERS, INC., CTA CASE NO. 8956 Petitioner, Members: -versus- CASTANEDA, JR., Chairperson/ CASANOVA, and MANAHAN, JJ. COMMISSIONER OF INTERNAL Promulgated: REVENUE, FEB 1 4 2018 Respondent. x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x RESOLUTION CASTANEDA, JR., J, : For resolution of the Court are the following: 1. Petitioner's Motion for Partial Reconsideration (of the Decision Promulgated on September 19, 2017), filed on October 5, 2017, with respondent's Opposition (re: Petitioner's Motion for Partial Reconsideration), filed on November 3, 2017; and 2. Respondent's Motion for Partial Reconsideration (Re: Decision promulgated on 19 September 2017), filed on October 5, 2017, with petitioner's Comment (To the Respondent's Motion for Partial Reconsideration), filed on October 27, 2017. ~

RESOLUTION CTA CASE No. 8956 For easy reference, the dispositive portion of the assailed Decision1 reads: "WHEREFORE, the instant Petition for Review is PARTIALLY GRANTED. Accordingly the Compromise Penalty imposed upon petitioner is CANCELLED. On the other hand, the assessments issued by respondent against petitioner for deficiency Income Tax, deficiency Value Added Tax, deficiency Documentary Stamp Tax, and deficiency Improperly Accumulated Earnings Tax are UPHELD, but in the reduced amount of P15,372,714.26 inclusive of 25�/o surcharge, computed as follows: Tax Type Basic Tax 25�/o Total P263 060.57 Surcharge Income Tax 543,484.02 P328 825.71 Value Added Tax 630,506.99 P65,765.14 679,355.03 Documentary Stamp 135,871.01 788,133.74 Tax 10,861,119.82 157,626.75 Improperly P12,298,171.40 Accumulated Earnings 2,715,279.96 13,576,399.78 Tax P3,074,542.86 P15,372,714.26 Total In addition, petitioner is liable to pay: (a) Deficiency interest at the rate of 20�/o per annum on the following basic deficiency taxes pursuant to Section 249(8) of the NIRC of 1997, as amended: Deficiency Tax Basic Tax 200/o Deficiency Interest computed Income Tax P263,060.57 Value Added Tax 543 484.02 from Documentary Stamp Tax 630 506.99 April 15 2010 Improperly Accumulated January 25 2010 Earnings Tax January 5 2010 10 861 119.82 January 15 2011 (b) Delinquency interest at the rate of 20�/o per annum in the total amount due of P15,372,714.26 representing basic deficiency income tax, deficiency value added tax, deficiency documentary stamp tax, Improperly Accumulated Earnings Tax, and on the deficiency interest/�- 1 Docket, Vol. II, pp. 690-736.

RESOLUTION CTA CASE No. 8956 which has accrued as stated above in (a) computed from November 19, 2014 until full payment thereof, pursuant to Section 249(C) of the NIRC of 1997. SO ORDERED."2 Petitioner raised the following issues in its motion: "I. Whether petitioner is liable for the total deficiency Income Tax of P263,060.57, exclusive of interests and surcharge. II. Whether petitioner is liable for the total deficiency VAT of P543,484.02, exclusive of interests and surcharge. III. Whether petitioner is liable for the total deficiency DST of P630,506.99, exclusive of interests and surcharge. IV. Whether petitioner is liable for the total deficiency Improperly Accumulated Earnings Tax of P10,861,119.82, exclusive of interests and surcharge. V. Whether petitioner may be held liable for interests and surcharge. "3 On the other hand, respondent raised the following issues in his motion: I. "The Honorable Court erred in ruling that petitioner is not liable for deficiency Income Tax for taxable year 2009 due to: a. Undeclared Income from discrepancy in the sales to Garcia, Rodrigo in the amount of P108,000.00; ~ 2 Docket, Vol. II, pp. 734-735. 3 Docket, Vol. II, p. 759.

RESOLUTION CTA CASE No. 8956 b. Undeclared Income [from] discrepancy in the sales to Rivera, Roy in the amount of P82,210.00; and c. Undeclared Income [from] discrepancy in the sales to Uy, Mady in the amount of P293,375.00. II. The Honorable Court erred in ruling that petitioner is not liable for deficiency Income Tax for taxable year 2009 due from Collection of Other Receivables- Tenants in the entire amount of P7,164,425.73. III. The Honorable Court erred in ruling that petitioner is not liable for deficiency Income Tax for taxable year 2009 due from Unaccounted Disbursements (SAWT of Meralco) in the amount of P4,587,870.68. IV. The Honorable Court erred in ruling that petitioner is not liable for deficiency Value-Added Tax [from] taxable year 2009 due from Collection of Other Receivable[s]- Tenants in the amount of P7,164,425.73. V. The Honorable Court erred in ruling that petitioner is liable for deficiency Value-Added Tax for the taxable year 2009 due from undeclared income but only in the reduced amount of P778,061.49 instead of P1,181,646.49. VI. The Honorable Court erred in ruling that petitioner is not liable for deficiency Value-Added Tax for the taxable year 2009 due from Undeclared Income from Meralco in the amount of P4,587,870.68. VII. The Honorable Court erred in ruling that petitioner is not liable [for] Compromise Penalty in the amount of P50,000.00."4 After careful evaluation of the issues raised by the parties, the Court finds both motions unmeritorious. )k- 4 Docket, Vol. II, pp. 740-741.

RESOLUTION CTA CASE No. 8956 I. Income Tax In the assailed decision, the liability for deficiency income tax is revised in the amount of P263,060.57 computed as follows: Taxable Income per return P778,061.49 p 24,379,143.14 Add: Discrepancies per investigation 14,400.20 792,461.69 Undeclared Income P1,646,161.01 P25,171,604.83 Collection of Other Receivables - 25 322.66 Tenants 30% Taxable Income p 1,620,838.35 P7,551,481.45 Tax Rate 5,667,582.53 Income Tax Due 7,288,420.88 Less: Tax Credits/Payment per return P263,060.57 Tax Credit per return Less: Unsupported CWT Allowed Creditable Withholding Tax Add: Payment Deficiency Income tax The reduction in the assessed amount of deficiency income tax was due to the cancellation and/or reduction of the following: a. Undeclared Income from discrepancy in P108,000.00 the sales to Garcia, Rodrigo 82,210.00 213,375.00 b. Undeclared Income from discrepancy in the sales to Rivera, Roy 7,150,025.53 4,587,870.68 c. Undeclared Income from discrepancy in the sales to Uy, Mady d. Income from Collection of Other Receivables-Tenants e. Unaccounted Disbursement (SAWT of Meralco) a. Undeclared Income from discrepancy in the sales to Garcia, Rodrigo As discussed in the assailed decision, the reporting of creditable withholding taxes claimed by petitioner as reflected in the SAWT were declared under the name of "Garcia, Rodrigo H.", while the sales reported in its SLS were declared under the trade name "Homebankers Realty". ~

RESOLUTION CTA CASE No. 8956 Petitioner sufficiently proved that the income declared under the name of "Garcia, Rodrigo H." and the income declared under the trade name, "Homebankers Realty", is one and the same. The billing statements5 bear the company name Homebankers Realty under the name Garcia, Rodrigo H. as the owner, while the official receipts6 were issued to Garcia, Rodrigo H. under the business style/name of Homebankers Realty. Thus, the Court aptly ruled that petitioner has no undeclared sales in the amount of P108,000.00. b. Undeclared Income from discrepancy in the sales to Rivera, Roy As discussed in the assailed decision, the reporting of creditable withholding taxes claimed by petitioner reflected in the SAWT were declared under the name of "Rivera, Roy C.", while the sales reported in its SLS were declared under the trade name "RDEX Food Inti. Phil., Inc." To corroborate its assertion, petitioner presented the Certificate of Registration7 with the BIR of RDEX Food Inti. Phil., Inc. The TIN No. 005-979-710-11 appearing therein is the TIN No. used in the official receipts and billing statements under the name of Mr. Rivera, Roy C. Thus, records clearly show that RDEX Food Inti. Phil., Inc. is the tradename registered under the name of Rivera, Roy C. In fine, the Court aptly ruled that petitioner has no undeclared sales in the amount of P82,210. c. Undeclared Income from discrepancy in the sales to Uy, Mady Upon verification of SAvvrB and SLS, the Court found that the total sales of petitioner to Ms. Uy, Mady T. is only PSO,OOO.OO and not P293,375.009 as claimed by the BIR. <tz- 5 Exhibit P-29-4, pp. 415-426. 6 Exhibit P-29-5, pp. 443-454. 7 Exhibit P-29-3, IC-27 (I.a), p.177. 8 Exhibit P-12, Docket, Vol. II, pp. 515-538; Exhibit P-29-3, pp. 163-175.

RESOLUTION CTA CASE No. 8956 Hence, the Court aptly ruled that the assessment is void for being capricious and arbitrary. d. Income from Collection of Other Receivables-Tenants in the amount of P7,164,425.73 In his report,10 the ICPA disclosed that electricity and water bills charged to tenants were not included in the claimed expenses of the petitioner, computed as follows11 : Month Total Water Water Bills OPEX Total Electricity OPEX Bills Charged To Electricity Bill Bills Charged January Tenants12 P18 658.96 to Tenants13 P(36 027.96) February P47 687.05 29 515.76 P456 460.82 222,527.85 March 49 801.52 P29 028.09 26 548.84 605 080.59 P492 488.78 78 936.55 April 51 908.08 20 285.76 36 486.97 603 981.30 382 552.74 109 951.19 May 56 859.07 25 359.24 24 155.19 643 482.81 525 044.75 41 183.43 June 52 903.22 20 372.10 22 249.54 608 401.95 533 531.62 34 100.84 July 46 123.62 28 748.03 29 641.12 568 399.34 567 218.52 97 530.85 August 49 237.87 23 874.08 23 697.88 590 283.37 552 298.50 18 075.71 September 53 678.45 19 596.75 21 212.19 532 714.42 492 752.52 36 603.04 October 49 016.09 29 980.57 13 209.18 506 693.17 514 638.71 18 447.76 November 38 399.96 27 803.90 14 723.94 465 296.59 470 090.13 70 811.49 December 42 908.31 25 190.78 29,616.62 486 210.59 446 848.83 100 303.71 Total 48 945.16 28 184.37 491,952.38 415 399.10 19,328.54 P289,716.19 391 648.67 P792,444.46 P587,468.40 P6,576,957 .33 P297,752.21 PS,784,512.87 In support thereof, petitioner presented pieces of evidence such as Billing Statements to tenants, 14 Meralco Statement of Accounts15 and Manila Water Statement of Accounts. 16 However, the !CPA's examination revealed that petitioner over- claimed its Operating Expenses by P14,400.20, computed as follows: Month Total Bill (Water Charged to Claimed January & Electricity) Tenants Operating Expense (Light, P504,147.87 P521,516.87 Water & Power) P(17 369.00) 9 Exhibit P-29-3, pp. 138-162. 10 Exhibit P-29, pp. 12-13. 11 Exhibit P-29, p. 13. 12 Please See Annex A. 13 Please See Annex A. 14 Exhibit P-29-4. 15 Exhibit P-29-3, pp. 214-320. 16 Exhibit P-29-3, pp. 178-213.

RESOLUTION 654 882.11 402,838.50 252,043.61 CTA CASE No. 8956 655,889.38 550,403.99 105,485.39 700 341.88 553,903.72 146,438.16 Page 8 of 21 661 305.17 595,966.55 65,338.62 632,522.96 576,172.58 56,350.38 February 639 521.24 512,349.27 127,171.97 March 586,392.87 544,619.28 41/773.59 April 555 709.26 497,894.03 57,815.23 May 503,696.55 472,039.61 31,656.94 June 529 118.90 443,583.47 85,535.43 July 540,897.54 410,977.21 129,920.33 August September P7,164,425.73 P6,082,265.08 P1,082,160.65 October November P1,095,560.85 December P(14,400.20) Total Light, Water,& Power of OPI Less: Light, Water & Power per AFS Difference Due to the insufficiency of the reconciliation17 to account for the difference of P14,400.20, the Court was convinced that of Pl,095,560.85 Light, Water and Power per AFS, only Pl,082,160.65 were mere reimbursements of electricity and water consumptions. Citing Greenhills Properties, Inc. vs. Commissioner of Internal Revenue8, the Court held that collections which are merely held in trust and from which the corporation could not realize any gain or profit as a result of receipt thereof, must not be included in the corporation's gross income. Thus, it is proper to uphold the assessment on Collection of Other Receivables- Tenants in the amount of Pl4,400.20. e. Unaccounted Disbursements (SAWT of Meralco) in the amount of P4,587,870.68 CIR assessed petitioner of unaccounted disbursement amounting to P4,587,870.68 based on the data extracted from the Conglomerate Masterfile through the use of Computerized Accounting Audit Tools and Technique System (CAATTS). This amount was reported by Meralco on its SAWT. However, this was not reported/accounted for by petitioner both in its Income Tax Return tz- and Financial Statements.19 17 Exhibit P-29, pp. 13-14. 18 CTA Case No. 8295, May 15, 2015. 19 Schedule 1, Details of Discrepancy, Formal Letter of Demand, Exhibit P-29-3, p. 31.

RESOLUTION CTA CASE No. 8956 As discussed in the assailed Decision, there are three (3) elements for the imposition of income tax, to wit: 1. there must be gain or profit; 2. that the gain or profit is realized or received, actually or constructively; and 3. it is not exempted by law or treaty from income tax. The Court held that income tax is assessed on income received from property, activity or service.20 Therefore, the imposition or assessment of income tax should not be based on an undeclared disbursement, but only when there was income, and such income was received or realized by the taxpayer. 21 Further, the assailed Decision explained that petitioner is free to claim or not the deductions from gross income. What is prohibited by law is to claim a deduction beyond the authorized amount. Thus, the Court aptly ruled that the undeclared disbursement should not be treated as undeclared income for being presumptive in nature. II. Deficiency Value Added Tax (VAT) With respect to deficiency VAT, petitioner moves to reconsider the following: a. Undeclared Receipts P3,750,965.45 b. Undeclared Income (RLF/TRS/SAWT 778,061.49 vs. SLS) r- a. Undeclared receipts in the amount of P3,750,965.45 �2 Commissioner of Internal Revenue v. The Court of Appeals/ Court of Tax Appeals and A. Soriano Corp., G.R. No. 108576, January 20, 1999. 21 Viricson Corporation v. Commissioner ofInternal Revenue/ et. a!., CTA Case No. 8709, January 24, 2017.

RESOLUTION CTA CASE No. 8956 Petitioner avers that the analysis of the ICPA showed that the collections it made were for utilities paid in advance, but subject to reimbursement by its tenants. While they may have been lodged as credit in the Accounts Receivable - Trade account, the fact is that that they are indeed reimbursements received from tenants for utilities. 22 Respondent, on the other hand, asserts that there is a separate account for Other Receivables-Tenants which lodged the receivables from tenants representing reimbursements from utility expenses. On this score, the Court observes that petitioner merely rehashed its arguments. In the assailed Decision, the Court ruled that the income of petitioner is subject to 12�/o VAT based on gross receipts. Thus, a comparison between Sales reported on VAT returns vis-a-vis the computed Sales on accrual basis, to arrive at the over reported sales, is incorrect. Moreover, the Court is convinced that there is a separate account for Other Receivables-Tenants which lodge the receivables from tenants representing reimbursements from utility expenses. Thus, the deduction of the reimbursement of utility expenses in the ICPA reconciliation of the Accounts Receivable Trade is incorrect. Thus, the Court finds no cogent reason to disturb its findings. b. Undeclared Income (RLF/TRS/SAWT vs. SLS) in the amount of P1,181,646.49 Again, the Court observes that petitioner merely rehashed its arguments raised in its Petition for Review. Moreover, petitioner failed to present any evidence to support its argument. Thus, the Court aptly ruled that the undeclared income in the amount of P778,061.49 should be subjected to VAT due to petitioner's failure to substantiate its claim~ 22 Motion for Partial Reconsideration for the Petitioner, Docket, Vol. II, pp. 763-764.

RESOLUTION CTA CASE No. 8956 III. Documentary Stamp Tax (DST) In the assailed Decision, petitioner admits its DST liability in the total amount of P630,506.99, as follows: Particulars DST Due Lease Contract P8,006.99 Loans Receivable 122,500.00 Advances from Stockholders 500,000.00 Deficiency DST P630,506.99 At any rate, petitioner moves to reconsider the cancellation of a portion of the DST on Lease Contract in the total amount of P24,907.01, considering that upon verification of the ICPA, only the amount of P8,006.99 was left not subjected to DST.23 The ICPA presented a summary of documentary stamp tax paid for 2009. Based on his report, the DST in the amount of P24,907.01 was already paid. He further asserts that the difference of P8,006.99 between the computed DST payments and the alleged deficiency DST represents the DST due from non-renewing tenants,24 to wit: Amount of DST that should be paid P32,914.00 Less: DST Payments 24I907.01 DST Due from non-renewing tenants P8,006.99 However, upon Court's verification, out of the DST payments of P24,907.01 per ICPA report, only the amount of P15,988.70 was supported by Documentary Stamp Tax Return (BIR Form No. 2000) and corresponding bank validation slips, as follows: Date of Payment DST Due Reference Exhibit No. /Page February 5, 2009 P3,126.38 IC-91 (I.e) P-29-3, p. 424 July 3, 2009 7 698.28 IC-85 (I.e) P-29-3 p. 366 August 4 2009 2 677.82 IC-90 (I.e) P-29-3 p. 415 November 5, 2009 2,486.22 IC-81 (I.e) P-29-3, p. 354 Total P15,988.70 Sec. 194 of the NIRC, as amended, provides: F- 23 Motion for Partial Reconsideration for the Petitioner, Docket, Vol. II, p. 764. 24 Exhibit P-29, pp. 26-27.

RESOLUTION CTA CASE No. 8956 "SEC. 194. Stamp Tax on Leases and Other Hiring Agreements.- On each lease, agreement, memorandum, or contract for hire, use or rent of any lands or tenements, or portions thereof, there shall be collected a documentary stamp tax of Three pesos (P3.00) for the first Two thousand pesos (P2,000.00), or fractional part thereof, and an additional One peso (Pl.OO) for every One thousand pesos (Pl,OOO.OO) or fractional part thereof, in excess of the first Two thousand pesos (P2,000.00) for each year of the term of said contract or agreement." (Emphasis Supplied.) In light of the foregoing, petitioner's deficiency DST on lease contracts amounts to P16,923.17, computed pursuant to Sec. 194 of the NIRC, as amended, to wit: Lease Contract - DST Due P32,910,871.00 First P2,000.00, tax is P3.00 Add: In excess of first P2,000.00 32,908 871.00 (P32,910 871.00 less P2,000.00) 1/1,000 32,908,87 P32 911.87 Multiplied by Less: Payments with supporting 15 988.70 documents P16,923.17 Deficiency DST Due In effect, petitioner should have been liable to pay the basic deficiency DST in the increased amount of P639,423.17, computed as follows: Particulars DST Due Lease Contract P16,923.17 Loans Receivable 122,500.00 Advances from Stockholders 500,000.00 Deficiency DST P639,423.17 However, a perusal of respondent's motion shows that he failed to contest or raise any issue as to petitioner's deficiency DST. Thus, the Court shall uphold its previous ruling in the assailed Decision. IV. Improperly Accumulated Earnings Tax (IAET) fo-

RESOLUTION CTA CASE No. 8956 The Court shall now determine whether there is basis to reconsider the assailed Decision with respect to petitioner's deficiency IAET. The Court still finds that petitioner failed to satisfy the immediacy test In finding that petitioner failed to satisfy the immediacy test, the Court stated in the assailed Decision that: "A perusal of the audited financial statements of the petitioner shows that the following account comprises its Non-Current Assets, to wit: Investment Properties 2009 2008 Increase (Decrease) Available-for-sale financial P142,763,945.00 P146 457,806.00 (3/693 861.00) 99,553,840.00 57,474,382.00 42,079,458.00 assets 28 000,000.00 28 000,000.00 0.00 Loans Receivable 1,481,158.00 1 481,158.00 0.00 P38,385,597.00 Other non-current assets P271,798,943.00 P233,413,346.00 Total Non-Current Assets As per evaluation of the Court, the net decrease in Investment Properties account of (P3,693,861.00) pertains to additions in building improvements amounting to P669,643.00 and to additions in Office Equipment & Furniture amounting to P118,692.00, with an aggregate amount of P788,335.00 less accumulated depreciation of investment properties in the total amount of P4,482,196.00. On the other hand, the net increase in Available-for- sale financial assets in the amount of P42,079,458.00 pertains to the unrealized gain from changes in fair value of the available-for-sale financial assets. As such, while the investment in properties account shows additions in building improvements and office equipment & furniture, there are no additions in the building account of petitioner. Clearly, there is no indication that the management has undertaken any <;-

RESOLUTION crA CASE No. 8956 action to prove that the contemplated project, i.e., the construction of building, has taken place. Furthermore, petitioner presented various Secretary's Certificate to support its contention that the Board of Directors approved the appropriation of its retained earnings 'to proceed with the implementation of its contemplated projects.' However, said Secretary's Certificate reveals no clear information regarding the alleged plan for a specific project. Likewise, petitioner presented the following: (1) budgetary cost estimate dated April 19, 2006 and (2) perspective and floor plans prepared by Architect Ruben Co for the construction of the proposed 15 storey commercial building in the estimated total construction cost of P573,687,670.00. In regard thereto, the Court finds that petitioner had a contemplated expansion project as early as 2006. However, from 2006 to 2009, such expansion project was merely speculative or indefinite because, as testified to by petitioner's rebuttal witness, the expansion projects will be pursued as soon as petitioner's finances permit. Also, the ICPA reported that 'there was an existing development plan to rehabilitate petitioner's building and upgrade its facilities to conform with the Building Code of the Philippines with the total estimated cost of P573,687,670.00. However, the plan is yet to commence.' Clearly, these findings lead to the conclusion that the alleged expansion project is speculative or indefinite. Moreover, petitioner failed to disclose in its Notes to the Financial Statements the appropriations made, which are significant transactions and/or information of which the stockholders, government and the public should be apprised about. On this score, the CTA Second Division had the occasion to rule in this wise: 'Further, for the years 2007, 2008 and 2009, petitioner failed to disclose in the Notes to the 'jv

RESOLUTION CfA CASE No. 8956 Financial Statements the appropriations made, which are significant transactions and/or information of which the stockholders, government and the public should be apprised about. This is in violation to Philippine Accounting Standards (PAS) 1: Presentation of Financial Statements, paragraph 103, stating that the notes shall: (a) present information about the basis of preparation of the financial statements and the specific accounting policies used in accordance with paragraphs 108-115; (b) Disclose any information required by !FRS that is not presented on the face of the balance sheet, income statement, statement of changes in equity, or cash flow statement; and (c) Provide additional information that is not presented on the face of the balance sheet, income statement, statement of changes in equity, or cash flow statement that is deemed relevant to an understanding of any of them.' As such, the Court finds that petitioner failed to pass the 'Immediacy Test'. Hence, petitioner is liable to pay the deficiency Improperly Accumulated Earnings Tax."25 Petitioner asserts in its motion that: (1) the budgetary cost estimate as testified to by witness Gary Tan Jao; (2) the deposits for future subscriptions in the amount of P177,036,144.00; and (2) photographs of the existing state of its building, proves the reasonable needs of petitioner's business, i.e., expansion project. However, as discussed in the assailed Decision, from 2006 to 2009, such expansion project was merely speculative or indefinite because, as testified to by petitioner's rebuttal witness, the expansion projects will be pursued as soon as petitioner's finances permit. In? 25 See Note 1, pp. 731-734.

RESOLUTION CTA CASE No. 8956 other words, the expansion project remained to be speculative or indefinite, i.e., it will be pursued as soon as petitioner's finances permit and the plan is yet to commence as found by the ICPA. In relation thereto, while there exists deposits for future subscriptions, these amounts of money are merely received by petitioner with a view of applying the same as payment for additional issuance of shares for the alleged expansion project, which may or may not happen as discussed above. Thus, petitioner still failed to show that it satisfied the immediacy test in relation to IAET. Considering that petitioner failed to satisfy the same, there is no need for this Court to discuss the other relative arguments of petitioner. Petitioner's IAET is a proper subject of the assessment Petitioner contends that since the Letter of Authority (LOA) pertains only to the period from January 1, 2009 to December 31, 2009, it cannot be assessed for deficiency IAET for CY 2009. However, the Court finds petitioner's contention untenable. While it is true that the LOA covers only the period from January 1, 2009 to December 31, 2009, said LOA merely grants respondent the authority to examine the financial books and records of petitioner within the given period. It does not, however, decrease the power of respondent to make a deficiency IAET assessment later when it finds that based on the taxpayer's records, a deficiency IAET assessment is in order. Here, respondent found that petitioner had accumulated earnings in 2009 based on its financial books and records. Later in 2014, respondent found that such earnings were improperly accumulated. In fact, petitioner continued to accumulate earnings despite the fact that no part of its alleged plan has even commenced. Considering the foregoing, the Court finds petitioner's contention unmeritorious. t-"

RESOLUTION CTA CASE No. 8956 It is necessary to take into account petitioner's prior accumulations to determine whether it is liable for deficiency IAET In this regard, petitioner questions respondent's computation of its deficiency IAET because respondent included its "Retained Earnings from Prior Years". However, upon careful evaluation of petitioner's argument, the Court finds that respondent committed no error when it included the "Retained Earnings from Prior Years" in the computation of petitioner's deficiency IAET. In the case of Basi/an Estates, Inc. v. The Commissioner of Internal Revenue, et a!.,26 the Supreme Court explained that: Petitioner questions why the examiner covered the period from 1948-1953 when the taxable year on review was 1953. The surplus of P347,507.01 was taken by the examiner from the balance sheet of petitioner for 1953. To check the figure arrived at, the examiner traced the accumulation process from 1947 until 1953, and petitioner's figure stood out to be correct. There was no error in the process applied, for previous accumulations should be considered in determining unreasonable accumulations for the year concerned. 'In determining whether accumulations of earnings or profits in a particular year are within the reasonable needs of a corporation, it is necessary to take into account prior accumulations, since accumulations prior to the year involved may have been sufficient to cover the business needs and additional accumulations during the year involved would not reasonably be necessary."'(Emphasis supplied) Following the ruling of the Supreme Court in Basi/an, it is necessary to take into account the prior accumulations of petitioner to determine the reasonable needs of the business in relation to the immediacy test. Thus, there is no need to disturb the previous <tv findings of this Court. 26 G.R. No. L-22492, September 5, 1967.

RESOLUTION CTA CASE No. 8956 Compromise penalty applies only in the settlement of criminal liability Respondent insists that petitioner is liable for compromise penalty pursuant to Revenue Memorandum Order No. 19-2007. However, it bears stressing that in tax cases, compromise penalty is applicable only in the settlement of criminal liability. Considering that this case is merely civil in nature, no compromise penalty may be imposed against petitioner. As such, the Court is correct when it held that: "With respect to the compromise penalty in the amount of PSO,OOO.OO, the same should be cancelled. Under Revenue Memorandum Order No. 1-90, compromise penalties are only amounts suggested in settlement of criminal liability, and may not therefore be imposed or exacted on the taxpayer in the event that a taxpayer refuses to pay the suggested compromise penalties. It is well-settled that the Court has no jurisdiction to compel a taxpayer to pay the compromise penalty because by its very nature, it implies a mutual agreement between the parties in respect to the thing or subject matter which is so compromised, and the choice of paying or not paying it distinctly belongs to the taxpayer. Without showing that petitioner consented to the compromise penalty, its imposition should be deleted. "27 The Court correctly imposed interest and surcharge on deficiency Documentary Stamp Tax (DST) Finally, petitioner moves for this Court to cancel the imposition of surcharge and interest on its deficiency DST. It argues, among others, that it merely relied in good faith on several BIR Rulings where no DST was imposed on inter-corporate advances. Petitioner's argument is untenable. It- 27 See Note 1, p. 734.

RESOLUTION CTA CASE No. 8956 In Team Energy Corporation (Formerly Mirant Pagbilao Corporation) v. Commissioner of Internal Revenue/8 the Supreme Court differentiated between a general interpretative rule applicable to all taxpayers as against a specific ruling applicable only to a particular taxpayer. Thus: "Thus, the only issue is whether BIR Ruling No. DA- 489-03 is a general interpretative rule applicable to all taxpayers or a specific ruling applicable only to a particular taxpayer. BIR Ruling No. DA-489-03 is a general interpretative rule because it is a response to a query made, not by a particular taxpayer, but by a government agency tasked with processing tax refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. This government agency is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus, while this government agency mentions in its query to the Commissioner the administrative claim of Lazi Bay Resources Development, Inc., the agency was, in fact, asking the Commissioner what to do in cases like the tax claim of Lazi Bay Resources Development, Inc., where the taxpayer did not wait for the lapse of the 120-day period." A perusal of the several BIR Rulings relied upon by petitioner reveals that these are mere specific rulings applicable to a particular taxpayer. In fact, said BIR Rulings were responses to the corresponding queries of the respective taxpayers and not by a government agency. Hence, applying the ruling in Team Energy case, petitioner could not have relied in good faith on specific rulings tailored for a particular taxpayer. Finally, the Court is correct in the imposition of surcharge and interest on petitioner's deficiency DST based on the ruling of the Supreme Court in the consolidated cases of Commissioner ofInternal Revenue v. Filinvest Development Corporation.29 In the said consolidated cases, the Supreme Court declared as valid the 9-z- 28 G.R. No. 197760, January 13, 2014. 29 G.R. Nos. 163653 & 167689, July 19, 2011.

RESOLUTION CTA CASE No. 8956 deficiency DST assessments on the advances respondent extended to its affiliates in 1996 and 1997. Thus: "Viewed in the light of the foregoing considerations, we find that both the CTA and theCA erred in invalidating the assessments issued by the CIR for the deficiency documentary stamp taxes due on the instructional letters as well as the journal and cash vouchers evidencing the advances FDC extended to its affiliates in 1996 and 1997. In Assessment Notice No. SP-DST-96-00020-2000, the CIR correctly assessed the sum of P6,400,693.62 for documentary stamp tax, P3,999,793.44 in interests and P25,000.00 as compromise penalty, for a total of P10,425,487.06. Alongside the sum of P4,050,599.62 for documentary stamp tax, the CIR similarly assessed P1,721,099.78 in interests and P25,000.00 as compromise penalty in Assessment Notice No. SP-DST- 97-00021-2000 or a total of P5,796,699.40. The imposition of deficiency interest is justified under Sec. 249 (a) and (b) of the NIRC which authorizes the assessment of the same 'at the rate of twenty percent (20�/o), or such higher rate as may be prescribed by regulations', from the date prescribed for the payment of the unpaid amount of tax until full payment. The imposition of the compromise penalty is, in turn, warranted under Sec. 250 of the NIRC which prescribes the imposition thereof 'in case of each failure to file an information or return, statement or list, or keep any record or supply any information required' on the date prescribed therefor." Based on the foregoing, the Supreme Court applied the imposition of penalties on deficiency DST for transactions that transpired as early as 1996 and 1997. Considering the foregoing, the Court rules that the Filinvest ruling is likewise applicable in this case. To conclude, the parties failed to raise meritorious arguments which warrant the reversal of the assailed Decision. Hence, the denial of both motions is in order. WHEREFORE, petitioner's Motion for Partial Reconsideration (of the Decision Promulgated on September 19, 2017) and respondent's Motion for Partial Reconsideration ~

RESOLUTION CTA CASE No. 8956 (Re: Decision promulgated on 19 September 2017) are DENIED, for lack of merit. SO ORDERED. 9<~" c. G;T-a.-.Jl~/Jr. WE CONCUR: fuANITO C. CASTANEDA, JR. Associate Justice CAESA~ANOVA Associate Justice c~�l�~ CATHERINE T. MANAHAN Associate Justice