INTERCREW PHILIPPINES AGENCY, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY THIRD DIVISION INTERCREW PHILIPPINES CTA Case No. 10509 AGENCY, INC., Petitioner, Members: -versus- MANAHAN, Chairperson} REYES-FAJARDO, and ANGELES, JJ. COMMISSIONER OF Promulgated: INTERNAL REVENUE, Respondent. MAY 1 6 2025 X- - - - - - - - - - - - - - - - - - - - - - - ~ - - -- - ~�.._ ~ ~f'_� ~ _: - - - - X RESOLUTION MANAHAN, J.: Before the Court is the Motion for Partial Reconsideration (Re: Decision dated January 3} 2025) filed by respondent Commissioner of Internal Revenue ("CIR") on January 30, 2025 ("Motion"),1 with comment filed by petitioner Intercrew Philippines Agency, Inc. ("lntercrew") on February 26, 2025 ("C o m m e n t ''). 2 The Motion seeks to modify the Court's Decision dated January 3, 2025 ("assailed Decision") ,3 the dispositive portion of which reads: ACCORDINGLY, the p resent Petition for Review is PARTIALLY GRANTED. The FLD and Assessment Notice de1ted July 29, 2 019, a nd the FDDA dated Ma rc h 26, 20 1 1, are CANCELLED and SET ASIDE insofar as the assessed income tax on the supposed undeclared revenues a m ounting to P38,582,622.00 a nd the a lleged unaccounted ren tals m the a mount of 1>437,745.45 a re concerned. The rem a ining 1 Docket - Vol. 2, pp. 569 to 578. 2 Comment (Re: Motion for Partial Reconsideration dated 28 January 2025), !d., pp. 586 to 595. 3 Jd., pp. 553 to 568. ~

RESOLUTION CTA Case No. 10509 income tax a nd EWT assessments a re SUSTAINED. Petitioner is ORDERED TO PAY th e amount of Plll,888.88 representing deficien cy taxes for th e taxable year 2015, inclusive of 25% surcharge and 20%/ 12% deficiency interest pursuant to Sections 248(A)(3) and 249(8) of the Tax Code and RR No. 21-2018, computed until August 29, 2019 as follows : Particulars Income tax EWT TOTAL Basic Tax Due 1'41 ,249.50 1'20,625 .00 1'61,874.50 10,312.38 5,156.25 15,468.63 Add: 25% Surcharge 14 ,126.54 14,126.54 20% Deficiency Interest 1'65,688.42 8,091. 78 8,091.78 Ap ril 16, 20 I6 to l' 33,873.03 1'99 ,561.45 December 31, 2017 (f'41 ,249.50 X 20% X 8 ,218.26 8,218.26 625/ 365) 1'73,906.67 4 , 109.18 4,1 09.18 20% Deficiency Interest 1'37 ,982 .21 1'111,888.88 January 16, 2016 to December 31, 2017 (/'20,625. 00 X 20% X 716/365) Total Am ount Due, December 31, 2017 Add: 12% Defic iency Interest January 1, 2018 to August29, 20 19 {f'41,249.50x J2% x 606/365) (1>20,625.00x 12%x 606/365) Total Amount Due, August 29, 2019 In addition, petitioner is ORDERED TO PAY d elinquency interest at th e rate of 12% per annum on the total unpa id deficiency taxes due as of August 29, 2019 in the amount of P111,888.88, as determined above, or equivalent to P36. 78 per day, computed from August 30, 2019 until fu ll payment thereof pursuant to Section 249(C) of the Tax Code and RR No. 21- 20 18. SO ORDERED. In his Motion, the CIR prays that the Court: 1.) uphold the deficiency assessments for income tax on the alleged undeclared revenues and unaccounted rentals in the amounts ofP38,582 ,622.00 and P437 ,745.45, r espectively; and 2.) order Intercrew to p ay the amount of P20,488,283.83 representing ~.t:~~.,...._

RESOLUTION CTA Case No. 10509 deficiency incom e an d expanded with holding taxes for 2015, plus deficiency and delinquency interests. The CIR argues as fo llows: First, the Court allegedly erred in cancelling the assessment on the groun d that due process was violated when the CIR issued, without considering Intercrew's protest, a Formal Letter ofDemand with Assessment Notices ("FLD/FAN") with exactly the same contents as the Preliminary Assessment Notice ("PAN"). According to the CIR, the documents submitted in support of the protest were already taken into account during the initial audit stage, prior to the issuance of the Notice of Informal Conference. The CIR notes that Intercrew failed to appear at the scheduled informal conference, r esulting in the issu a n ce of the PAN. Second, the CIR points out that the protest to the PAN dated July 1 1, 2019 was filed through registered mail and was received only on August 30, 2019, after the FLD/FAN was already issued. Lastly, the CIR insists that Intercrew wa s apprised of the legal bases of the assessment and invokes the doctrine that administrative decisions are accorded great respect and even conclusiveness by courts. Meanwhile, in its Comment, Intercrew argues that the doctrine of conclusiveness of administrative decisions is applicable only when supported by substantial evidence. In this case, the CIR fa iled to provide a ny evidence at a ll on Intercrew's supposed income receipts for the dispatch of 2,337 seafarers. Intercrew maintains that it is paid a flat monthly fee of $15,000, regardless of the number of seafarers it dispatch ed , a s shown in the Memorandum of Agreement it has with Dyn acom Tankers Ma nagement, Ltd. Hence , the deficiency tax assessmen t against it is pure conjecture . Upon car eful consider ation of the argum ents r aised by both p arties, the Court rules in favor of Intercrew. The instant Motion is without merit. ~

RESOLUTION CTA Case No. 10509 Identity of the preliminary and final assessment notices On the matter of the FLD/FAN being identical to the PAN , the Court stands by its ruling that the CIR failed to properly address Intercrew's defenses, resulting in a violation of the latter's right to administrative due process. As held in the assailed Decision: ... in issuing the PAN, FLD/FAN, and FDDA, the defenses a nd eviden ce submitted by the taxpayer must be considered. Jurisprude nce recogn izes that there a re cardinal primary rights which must be respected in a dminis trative proceedings, and these include not only the right to present evidence, but a lso the right to have such evidence considered, the right to a decision rendered on such evidence, and the right to know the reasons for the decision rendered.4 It is insufficient therefore for the CIR to just aver that it already previously considered the taxpayer's documentary evidence prior to the issuance of the PAN or FLD. Due process requires that the CIR also disclose how they were considered in drawing up with the conclusions stated in the PAN, FLD, and similar assessment notices. Here, despite lntercrew's consistent justifications as to why it could not have received income from other contractors and why it had unaccounted rentals, the CIR maintained the finding of deficiency tax simply ((based on information per contracts attached."S No other explanation was given . Patently, not only did the CIR fail to refute the taxpayer's justifications, he failed to provide any indication tha t the same were considered at a ll. At the risk of b eing r ep etitive , t h e Court emphasizes that the CIR is not precluded from issuing an FLD I FAN which merely reiterates the PAN-provided that it clearly and sufficiently addresses the taxpayer's d efenses. After all, the purpose of the PAN is to give both the taxp ayer and the CIR the opportunity to settle the case at the earliest possible time, 4 E mphasis sup p lied. s Assailed Decision, Docket- Vol. 2, pp. 563 to 565. ~

RESOLUTION CTA Case No. 10509 without the need for the issuance of Final Assessment Notices .6 There is no due process violation in the issuance of a similar FLD /FAN if, u pon evalu ation of and despite the j ustifications set forth by the taxpayer , the CIR determines that the findings and conclu sions stated in th e PAN remain warranted. Such is not the case here. The Court find s that it is immaterial that the protest to the PAN was received after the issuance of the FLD, as records show that the subsequently issued Final Decision on Disputed Assessment ("FDDA") still ignored Intercrew's defenses .? More importantly, the Court cannot allow the CIR to use such circumstance as an excuse to defeat the taxpayer's due process rights, particularly the right to present evidence, the right to have su ch evidence considered, the right to a decision ren dered on such evidence, and the right to know the reasons for the decision render ed. In observance of these due process rights, the CIR could have just issued an amended FLD j FAN upon receipt of the subject protest, or an FDDA which adequately explains why the taxpayer's protest lacks merit. Factual and legal basis of the assessment Assuming that there was nothing amiss in the issuance of the FLD /FAN and FDDA, the Court still finds the subject assessmen t void for lack of factual and legal bases. As earlier mentioned, the only basis cited for the finding of deficiency income tax on the supposed undeclared revenues was the "information per contracts attached." However, it was not established how such contracts d emonstrated the existence of undeclared revenues. Glaringly, there were no details of such "information" relied upon to assess Intercrew, nor was there any breakdown of its alleged income receipts. This falls short of the statutory requirement that the t axpayer must be informed in writing of the law and the facts on which the assessment is made.s 6 Commissioner of Internal Revenue v. Unioil Co rpo ration, G.R. No. 204405, August 04, 2021 [Per J. He rna ndo, Second Division]. 7 Assailed D ecision, Docke t - Vol. 2, p. 556. s Tax Code, Sec. 228. ~

RESOLUTION CTA Case No. 10509 ACCORDINGLY, respondent's Motion for Partial Reconsideration (Re: Decision dated January 3, 2025) is DENIED for lack of merit. SO ORDERED. {'~7. CATHERINE T. MANAHAN Associate Justice WE CONCUR: ~~ F:~-F~~ MARIAN IWF. REY~S-FAJARDO Associate Justice HENRY S~~NGELES Associate Justice