SET AND STAGE RESOURCE MANAGEMENT, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SPECIAL SECOND DIVISION SET AND STAGE RESOURCE CTA CASE NO. 10703 MANAGEMENT, INC., Members: Petitioner, -versus- RINGPIS-LIBAN, PJ & Chairperson, MODESTO-SAN PEDRO, and FERRER-FLORES,]]. COMMISSIONER OF Promulgated:-, . ,_., INTERNAL REVENUE, x-------------------------------~:s~o~~'_nf. __________________________ ~:---------------x l~1'" DECISION RINGPIS-LIBAN, P.J.: THE CASE The Amended Petition for Review seeks the cancellation and setting aside of the FinalAssessment Notice/ Formal Letter ofDemand (FAN/FLD) dated March 2, 2021, assessing petitioner of alleged value-added tax (VAT) deficiency taxes, penalties, and interests, for the taxable period from January to June 2019, as follows: a. VAT in the amount ofP11,746,552.64; b. Surcharge in the amount ofP5,873,276.32; c. Interest in the amount of P2,382,780.16; and, d. Compromise Penalty in the amount ofP25,000.0. 1 ;v THE PARTIES 1 Statement of the Case, Pre-Trial Order dated February 28, 2023, Docket- Vol. 2, p. 913.

DECISION CTA Case No. 10703 Petitioner Set and Stage is a corporation duly organized and ex1st1ng under and by virtue of the laws of the Republic of the Philippines.2 It is engaged in the business of designing and training, tolling, and certifying technical production personnel.3 It is also duly registered with the Bureau of Internal Revenue (BIR), with office address 502 Bormaheco Compound, Cervantes Street, West Service Road, I<l\1 17, Marcelo Green Village, City of Paraiiaque, and Taxpayer Identification No. (TIN) 009-518-397-00000.4 Respondent Commissioner of Internal Revenue is vested under the law with authority to carry out the functions, duties, and responsibilities of the BIR, including, inter alia, the power to decide disputed assessment, cancel and abate tax liabilities, pursuant to the provisions of the 1997 National Internal Revenue Code (NIRC), and other tax laws, rules and regulations. 5 ANTECEDENTS (ADMINISTRATIVE LEVEL) The BIR issued the Letter of Azttboriry (L01\) SN: eLA201700004376 I LOA-VSB-2019-00000491 dated January 3, 2020,6 authorizing Revenue Officer (RO) Angeli Malana and Group Supervisor (GS) Dante Tan of Revenue District Office (RDO) No. 08B- South NCR, to examine petitioner's books of accounts and other accounting records for VAT for the period from January 1, 2019 to June 30, 2019. Thereafter, the BIR issued the second LOA SN: eLA201700004684 I LOA-VSB-2020-00000275 dated July 30, 2020,7 authorizing again RO Angeli Malana, but now with GS Pauline Lydia Reyes of the same RDO, to examine petitioner's books of accounts and other accounting records for VAT tax for the same. On October 22, 2020, the BIR issued a Notice of Discrepanry,8 to which petitioner submitted a Rep/} to Notice of Discrepano' dated November 23, 2022.9 The BIR replied to petitioner on November 23, 2022 via its letter of even daty 2 Exhibit "P-11", FOE Binder- Vol. 1. 3 Par. 11, Amended Petition for Review, vis-a-vis par. 11, Answer, Docket - Vol., p. 342 and Docket- Vol. 2, p. 736. 4 Id. 5 Par. 12, The Parties, Amended Petition for Review, vis-a-vis par. 12, Answer, Docket - Vol., p. 342 and Docket- Vol. 2, p. 736. 6 Exhibit "P-24", FOE Binder- Vol. 1; Exhibit "R-1", Docket -Vol. 2, p. 807. 7 Exhibit "P-25", FOE Binder- Vol. 1. 8 Exhibit "P-34", FOE Binder- Vol. 1; Exhibit "R-2", BIR Records, pp. 286 to 290. 9 Exhibit "P-35", FOE Binder- Vol. 1. 10 Exhibit "P-36", FOE Binder- Vol. 1.

DECISION CTA Case No. 10703 Subsequendy on November 15, 2020, the BIR issued the Preliminary AJJeJJment Notice (PAN), which petitioner received on December 15, 2020. 11 The BIR then issued the FAN/FLD dated March 2, 2021,1:Which petitioner received on March 11,2021. 13 Petitioner filed its ReqtteJtfor ReinveJtigation on May 11, 2021. 1+ Thereafter, the BIR issued the letter dated July 12, 2021 (Action on ProteJt Letter to FLD),15 requiring petitioner to submit the necessary documents, within sixty (60) days from the date of filing of the ProteJt/ ReqtteJtfor ReinveJtigation. The BIR then issued the third L01\ SN: eLA201700062883 / LOA- V8B2021-00000196 dated July 28, 2021, 16 authorizing again RO Angeli Malana and GS Dante Tan of RDO No. 08B -South NCR, to examine petitioner's books of accounts and other accounting records for VAT for the period from January 1, 2019 to June 30,2019. PROCEEDINGS BEFORE THIS COURT On December 6, 2021, petitioner posted the Petition for Review. 17 In the Resolution dated February 10, 2022,18 the Court ordered petitioner to submit a compliant/correct Petition for Review, within five (5) days from notice. Petitioner is also ordered to submit the original Secretary'J Certificate or Board ReJoltttion establishing the authority of Mr. Malcolm George M. Arevalo to execute the Verification, Authentication of AnnexeJ, and Certification Agaimt ForumShopping, or a certified true copy thereof, within the same period. Petitioner flied its Compliance ([V"ith Motion To Admit Amended Petition and jttdicial AfftdavitJ ofWitneJJeJ) on March 18, 2022, 19 attaching its Amended Petition for Review. 20 On June 10, 2022, respondent posted his Amwer,21 interposing the following special and affirmative defenses, to wit: (1) there is no violation of 11 BIR Records, pp. 337 to 342. ~ 12 Exhibits "P-4" to "P-6", FOE Binder- Vol. 1. 13 Exhibits "P-2", FOE Binder- Vol. 1. 14 Id. 15 Exhibit "P-3", FOE Binder- Vol. 1. 16 Exhibit "P-26", FOE Binder- Vol. 1. 17 Docket - Vol. I, pp. 8 to 46. 18 Docket- Vol. I, pp. 333 to 334. 19 Docket- Vol. I, pp. 335 to 337. 20 Docket- Vol. I, pp. 339 to 382. 21 Docket- Vol. 2, pp. 736 to 741.

DECISION CTA Case No. 10703 due process; (2) petitioner's rights were duly respected; and (3) there is no prohibition on the issuance of multiple LOAs. On June 29, 2022, respondent transmitted the BIR Records for this case, consisting of one (1) folder with 432 pagcs. 22 In the Resolution dated July 4, 2022,23 the parties were ordered to immediately proceed and to appear personally or through their authorized representative, before the Philippine 1\llediation Center-Court of Tax Appeals (PMC-CTA) on July 28, 2022. However, the PMC-CTA issued the No Agreement To Mediate dated August 18, 2022,2-1 stating that the parties decided not to have their case mediated. The Pre-Trial Conference was set and held on October 27, 2022.25 Prior thereto, the Pre-T1ial Bnif (For the Petitionet) was filed on October 24, 2022,26 while respondent's Pre-Trial Briif (U/ith Attached Special Power of Attornry) was submitted via accredited courier service on October 26, 2022.27 Since the parties failed to submit their JointStipulation of Facts and Issttes GSFI) as of February 17, 2023,28 the Court decreed, in the Resolution dated February 21, 2023,29 that the parties are deemed to have waived the filing of theirJSFI. The Pre-Trial Order dated February 28,2023 was then issued.30 As trial ensued, the parties presented their respective testimonial and documentary evidence. Petitioner offered the testimonies of the following individuals, namely: (1) Mr. l\lfalcolm George M. Arevalo,31 petitioner's President; (2) Atty. Jaime I. Cordez,32 petitioner's Finance and Accounting Head; and (3) Ms. Precy B. ?' 22 Compliance dated June 29, 2022, Docket, p. 743. 23 Docket- Vol. 2, pp. 746 to 747. 24 Docket- Vol. 2, p. 748. 25 Resolution dated September 12, 2022, Docket- Vol. 2, pp. 750 to 751; Minutes of the hearing held on October 27, 2022, Docket- Vol. 2, p. 791. 26 Docket- Vol. 2, pp. 763 to 775. 27 Docket- Vol. 2, pp. 781 to 786. 28 Records Verification Report dated February 17, 2023 issued by this Court's Judicial Records Division, Docket- Vol. 2, p. 908. 29 Docket- Vol. I, pp. 910 to 911. 30 Docket- Vol. I, pp. 913 to 921. 31 Exhibit "P-43", Docket - Vol. 2, pp. 873 to 877; Minutes of the hearing held on, and Order dated, July 20, 2023, Docket- Vol. 4, pp. 1530 and to 1532 to 1532, respectively. 32 Exhibit "P-42", Docket - Vol. 3, pp. 1260 to 1280; Minutes of the hearing held on, and Order dated, July 20, 2023, Docket- Vol. 4, pp. 1530 and 1532 to 1533, respectively.

DECISION CTA Case No. 10703 Bacalangco,33 the Court-commissioned Independent Certified Public Accountant (ICPA).3+ The Report and Supplemental Report of the ICPA were submitted on August 22, 2023 and October 6, 2023, respectively. 35 On February 29, 2024, the Formal Offer of Evidence (For the Petitioner) was submitted,36 to which respondent filed his Comment/ Opposition (Io Petitioner's Formal Offer of Exhibits) via accredited courier service on March 20, 2024Y In the Resolution dated July 31, 2024,38 the Court admitted petitioner's offered exhibits excehf Exhibits "P-116" "P-120" "P-132" "P-143" "P-183" "P- ' 1 ' ' ' ' ' 211"' "P-262"' "P-289"' "P-297 to P-298"' "P-300"' and "P-304 to P-306"' for failure of the document marked to state clearly the date of issuance thereof or for being dated outside the period of petitioner's alleged substantiated/valid input tax from January 2019 to June 2019; and Exhibits "P-35" and "P-36, for failure to identify. For his part, respondent presented the testimony of RO Angeli D. Malana. 39 On August 20, 2024, respondent filed his Formal Offer of Evidence,-+0 to which petitioner filed its Comment/ Of?jection (Io the Formal Offer ofEvidence for the Respondent) on September 4, 2024.+1 In the Resolution dated October 29, 2024,42 the Court admitted all of respondent's offered exhibits. The Memorandum (For the Petitioner) was filed via accredited courier on January 13, 2025,+3 while respondent submitted a Motion for Extension to File Memorandum via private accredited courier on February 8, 2025.++ Subsequently, respondent flied a Motion to Admit [Amended] Respondent's Memorandum via accredited courier on February 12, 2025,+5 with attached Memorandum for Respondent. !!__ 33 Exhibit "P-323", Docket - Vol. 4, pp. 1576 to 1586, respectively; Minutes of the hearing held on, and Order dated, July 20, 2023, Docket- Vol. 4, pp. 1530 and 1532 to 1533, respectively. 34 Oath of Commission dated July 20, 2023, Docket- Vol. 4, p. 1531; Minutes of the hearing held on, and Order dated, July 20, 2023, Docket - Vol. 4, pp. 1530 and to 1532 to 1532, respectively. 35 Exhibits "P-323-2" and "P-323-3", Docket - Vol. 4, pp. 1536 to 1555, and 1562 to 1568, respectively. 36 Docket- Vol. 4, pp. 1688 to 1700. 37 Docket- Vol. 4, pp. 1702 to 1711. 38 Docket- Vol. 4, pp. 1724 to 1728. 39 Exhibit "R-6", Docket - Vol. 2, pp. 797 to 806; Minutes of the hearing held on, and Order dated, August 15, 2024, Docket- Vol. 4, pp. 1729 to 1730. 40 Docket- Vol. 4, pp. 1731 to 1735. 41 Docket- Vol. 4, pp. 1736 to 1749. 42 Docket- Vol. 4, pp. 1774 to 1775. 43 Docket- Vol. 4, pp. 1824 to 1871. 44 Docket- Vol. 4, pp. 1878 to 1879. 45 Docket- Vol. 4, pp. 1883 to 1884.

DECISION CTA Case No. 10703 This case was considered submitted for decision on February 18, 2025.-t-6 THE STIPULATED ISSUE The parties agreed during the Pre-Trial Conference to the following issue for this Court's resolution: "Whether or not petitioner is liable for deficiency Yalue added tax for the period 1 January 2019 to 30 June 2019 in the aggregate amount of PhP20,002,609 .12."41 Petitioner's arguments: Petitioner argues that petitioner's right to due process is violated because of the multiple and overlapping LOA issued by respondent to the petitioner for the same taxable year Ganuary 2, 2019 to June 30, 2019); and that Assessment No. VT-ELA04684-19-21-175/FLD dated March 2, 2021 is void, unjust, oppressive, and confiscatory, due to lack of legal basis and must perforce be cancelled. Respondent's counter-arguments: Respondent contends that petitioner's right to due process was not violated; that the Details if Discrepamies attached to the FAN /FLD provided the legal and factual bases to support the deficiency VAT assessment; that the deficiency VAT assessment based on undeclared receipts/collection from missing Official Receipts (ORs) issued has legal and factual bases; and that the Court is not bound by the findings of the ICPA. THE COURT'S RULING The present Amended Petition for Review is partly meritorious. The audit ofpetitioner's deficiency tax liabilities for the taxable period f/ 46 Minute Resolution dated February 18, 2025, Docket. 47 Par. B. STATEMENT OF FACTS AND ISSUE, Pre-Trial Order dated February 28, 2023, Docket- Vol. 2, p. 914; Refer to Minutes of the hearing held on October 27, 2022, Docket- Vol. I, p. 791.

DECISION CTA Case No. 10703 January to June 2019 was made pursuant to valid LOAs. Petitioner argues that its right to due process was violated because of the multiple and overlapping LOAs issued by the respondent for the same taxable period. Citing the case of Commi.rJioner if Internal Revemte vs. Mcdonald's Philippines Realty Corp. (Mcdonald's case),48 petitioner states that the necessity of a validly issued LOA for the valid conduct of a taxpayer investigation by an RO is a well-settled doctrine embodied in our statutory and case law. And citing further the case of Medicard Philippims, Im: vs. Commissioner if Internal Revenue (Medicard case),49 petitioner states that the LOA has a dual function as the modality for the delegation of the respondent's investigatory power and as a manifestation of due process. Petitioner avers that it received an LOA on January 3, 2020 which authorized RO Angeli Malana and GS Dante Tan to examine its books of accounts and other accounting records for VAT for the period January 1, 2019 to June 30, 2019. While the audit procedure was ongoing with respect to the said LOA, respondent issued another LOA authorizing RO Angeli Malana and GS Pauline Lydia Reyes to examine the petitioner's books of account and other accounting records for VAT for the same taxable period January 1, 2019 to June 30, 2019. Petitioner claims that this second LOA was issued without replacing or cancelling the first LOA. Petitioner further claims that the second LOA was furnished to and received, not by petitioner or any of its employees or representatives, but by Arnold San Diego who works in Creative and Technical Production Network, Inc. Petitioner also states that on March 3, 2021 it received an Assessment Notice, Formal Demand Letter and Details if Discrepanry, to which it timely flied a protest letter specifically requesting for reinvestigation. On September 3, 2021, it then received an Action on Protest to FLD, dated July 12, 2021 giving due course to the request for reinvestigation. In this regard, according to petitioner, despite the prior issuance of an Assessment Notice , Formal Demand Letter, and Action on Protest to FLD issued based on the second LOA, respondent issued another LOA dated July 28, 2021, authorizing RO Rodolfo III Cabalona and GS Abdulhalim Usman, to examine the petitioner's books of accounts and other accounting records for VAT covering the same taxable period January 1, 2019 to June 30,2019. The aforesaid LO~A. declared that it replaces the first LOA with SN: eLA201700004376 dated January 3, 2020, for the continuation of audit of herein tax liabilities for the taxable period from January 1, 2019 to June 30, 2019 arising from the reassignment of case due to Revenue Travel Assignment Order No. 100-2021 dated :March 1, 2021. jt/ 48 G.R. No. 242670, May 10, 2021. 49 G.R. No. 222743, April 5, 2017.

DECISION CTA Case No. 10703 Petitioner further argues that the issuance of three (3) and overlapping LOAs to examine the petitioner's books of accounts and other accounting records for VAT for the same taxable period January 1, 2019 to June 30, 2019 is inconsistent with the constitutional principle that no person shall be deprived of property without due process of law. While the respondent is authorized to issue a LOA for the examination of taxpayers within the region, he has gravely abused his discretion by issuing multiple and overlapping LOAs resulting in lack or excess of jurisdiction. Consequently, the petitioner's right to due process was violated because it could not properly and fully present countervailing evidence in support of its position because of several ROs with overlapping authorities who examined the books and other accounting records of the petitioner for the same taxable year, January 2, 2019 to June 30, 2019. Petitioner then insists that the issuance of the overlapping LOAs violated the "one LO.t\ per taxable year" rule under Revenue Memorandum Order Nos. 8-2006 and 43-90. Petitioner quotes the following: "1. Only one (1) [LOA] shall be issued to the same taxpayer, for the same tax type and period. except where an [LOA] was issued for a specific tax type only and subsequently, another [LOA] was issued to the same taxpayer by the same or another office covering the investigation of all internal revenue taxes (AIRT) for the same taxable period. The [LOA] issued for AIRT purposes shall be allowed provided the cmTerage shall be limited to AIRT except for the specific tax type and said cmTerage shall be clearly stated on the face of the [LOA]. 2. In case two or more [LOA)s are issued to the same taxpayer for the same tax type and for the same period, the power to decide which [LOA) shall prevail shall be under the exclusive jurisdiction of the Commissioner (CIR). The LA prevailed upon shall be considered cancelled. The concerned [Large Taxpayers Audit and Investigation Division] I and II/[Large Taxpayers District Office]/[Revenue District Office]/[National Innstigation Di,Tision]/Special ImTestigation Division] [Task Force] shall indicate under Status Code "Cancelled" and select the appropriate Action Code "LA Cancelled by Order of the CIR". Under the Remarks column, indicate "Cancelled by LA No. _ issued by (name office).['] (Emphasis and underlining supplied)" Petitioner claims that the requirement under the "One LOA per taxable year" rule was not complied by respondent making the assessment against the petitioner violative of its right to due process. Moreover, petitioner states that it complied with the required submission by the respondent, these submissions were supposed to be examined by RO Malana and reviewed by GS Tan. Petitioner further states that unbeknown to it, as no copy was furnished to it, respondent issued a second LOA authorizing GS Reyes and a different GS, to review the books and accounts of petitioner without replacing or cancelling the first LOA. Based on this second LOA, the assailed Assessment Notice and FLD with Details of Discrepanry dated March 2, 2021 were issued and signed by RO ~

DECISION CTA Case No. 10703 Malana and GS Reyes. Hence, at the time that the assailed assessment was issued, two (2) LOAs were issued and subsisting covering the same taxable period violating the right of the petitioner to due process. Petitioner posits that respondent realized his mistake and belatedly issued the third LOA, this time authorizing a totally different set of RO and GS to examine the books and accounts of petitioner several months after the assailed Assessment Notice was already issued and while the same was already under protest by the petitioner. Petitioner also states that the third LOA cancelled and replaced only the first LOA but is silent as to the cancellation of the second LOA. Regardless of the cancellation of the first LOA, there are still two (2) LOAs issued and subsisting covering the same taxable period which remains violative of the right of the petitioner to due process. This alone should warrant the nullification of the assailed Asse.wnent Notice. On the other hand, respondent maintains that petitioner's right to due process was not violated. ~\ccording to respondent, contrary to petitioner's claim, the BIR's issuance of the successive Letters of Authority is precisely done to protect petitioner's right to due process. Respondent likewise cites the lVLDonald's case to explain the importance of the issuance of the LOA. Respondent further cites the case of Repttblic of the Philippines vs. Robiegie Coporation (Robiegie case),50 where the Supreme Court reiterated the ruling in the Medicard case and cited the BIR issuance requiring the issuance of a new LOA in case of assignment or transfer of cases to another RO. Respondent thus states that any transfer or change of BIR officer should be embodied in a LOA. He further states that the essence of due process regarding an RO's authority to examine books of accounts and other accounting records of the taxpayer is that the person conducting examination/audit is named in such LOA. Respondent claims that in this case, petitioner was duly informed about the identities of the BIR officers authorized to conduct the audit and examination of their books of accounts and other accounting records. He also states that BIR's successive issuance of LOAs was to keep petitioner informed of the identifies of the ROs authorized to conduct audit of its books. It is also worth noting that the audit of petitioner's books was conducted under a valid LOA. We agree with respondent. In the Mcdonald's case, which is relied upon by both petlt1oner and respondent, the Supreme Court held that reassigning ROs and substituting ~ 50 G.R. No. 260261, October 3, 2022.

DECISION CTA Case No. 10703 them without a separate or amended LOA violates the taxpayer's right to due process, to wit: "We rule that the practice of reassigning or transferring revenue officers originally named in the LOA and substituting them with new revenue officers to continue the audit or investigation without a separate or amended LOA (i) violates the taxpayer's right to due process in tax audit or investigation; (ii) usurps the statutory power of the CIR or his duly authorized representati,~e to grant the power to examine the books of account of a taxpayer; and (iii) does not comply with existing BIR rules and regulations, particularly RMO No. 43-90 dated September 20, 1990." (EmphmiJ and tmder:rmring added) Related to McDonald's, in the Robiegie case, the Supreme Court ruled that the issuance of a new LOA for the same taxable period is not prohibited if such new LOA is necessitated by the reassignment, retirement, or other inability of the incumbent RO to continue an investigation, thus: "Contrary to the Republic's claims, the requirement of a new LOA for the valid reassignment of a tax investigation can be reconciled with the 'one LOA per taxable year' rule under fuviO Nos. 8-2006 and 43-90. Items 1 and 2 of Part IV. D. RMO No. 8-2006 prmride: 1. Only one (1) [LOA] shall be issued to the same tax type and period, except where an [LOA] was issued for a specific tax type only and subsequently, another [LOA[ was issued to the same taxpayer by the sane or another office covering the investigation of all internal revenue taxes (AIRT) for the same taxable period. The [LOAJ issued for AIRT purposes shall be allowed provided the cmrerage shall be limited to AIRT except for the specific tax type and said conrage shall be clearly stated on the face of the [LOA]. 2. In case two or more [LOA]s are issued to the same taxpayer for the same tax type and for the same period, the power to decide which [LOA] shall prevail shall be under the exclusive jurisdiction of the Commissioner (CIR). The LA prevailed upon shall be considered cancelled. Clearly, the 'one LOA per taxable year' rule is not as ironclad as the Republic portrays it to be. Part IV.D., Item 2 of RMO No. 8-2006 authorizes the issuance of duplicate LOAs, subject to the CIR's discretion to determine which of the two LOAs shall prevail. Obviously, when a tax investigation is reassigned to a different RO pursuant to the mandatory 'rotation' of assessment officers under Section 17 of the NIRC, or for any other legally justified reason, the CIR or his/her duly authorized representatives may issue a new LOA to the newly assigned RO, and such LOA can be made to prevail over the LOA issued to the previous investigating officer. Since the CIR's power to issue a LOA is delegable to the CIR's duly authorized representati,res, as enumerated in fu\10 No. 43-90. Stated differently, RMO No. 8-2006 does not prohibit the issuance of a new LOA within the same taxable period if such new LOA is necessitated by the reassignment, retirement, or other inability of the , v incumbent RO to continue an investigation. The BIR official who will

DECISION CTA Case No. 10703 issue the new LOA also has the power to make it pre\Tail over the old, previously issued LOA, subject of course to the control and regulation of the CIR as the statutorily designated tax imTestigator. It must be noted that Section 13 of the NIRC, in providing for the LOA as the mode of delegation of the CIR's investigatory powers to the ROs, likewise ga,Te the CIR the power to regulate and define the parameters for the issuance of LOAs. The 'one LOA per taxable year' rule under R[\10 Nos. 8-2006 and 43-90 is an example of such a regulation; and such regulation is only valid insofar as it is consistent with the provisions of the NIRC." (EmpbaJeJ added) Based on the foregoing pronouncements, a separate or amended LOA should be issued when the assigned ROs are reassigned, retire, or otherwise unable to continue an investigation, and failure to do so violates the taxpayer's right to due process. In the present case, respondent issued three (3) different LOAs for the taxable period January to June 2019. Notably, respondent's witness explained the same during trial, viz- 51 "RE-DIRECT EXAMINATION )(----------------------------)( XXX XXX XXX ATTY. NAPUTO: I am showing you the Letter of Authority dated July 30, 2020 with LA 20170004684, is this the replacement Letter of Authority you mentioned? WITNESS: Yes, Sir. XXX XXX XXX ATTY. NAPUTO: Do you know who are the authorized revenue officers in the said Letter of Authority? WITNESS: Yes, Sir. Ms. Pauline Reyes, it is my supe1yisor and myself. ATTY. NAPUTO: Do you know why the original Letter of A uthorit:y was replaced? WITNESS: Yes, sir. It is because my group supervisor previously, Mr. Dante E. Tan was promoted to a higher position in the Bureau. , r XXX XXX XXX 51 Transcript of Stenographic Notes for the hearing held on August 15, 2024, pp. 52 to 53, and 60 to 62.

DECISION CTA Case No. 10703 RE-CROSS EXAMINATION )(----------------------------)( XXX XXX XXX ATTY.ELGO: Ok, Your Honors. Now, Madam Witness, I am referring to you the last paragraph of this Letter of Authority. If I may quote, 'This is a replacement of the Letter of Authority No. SNeLA20170004376 dated January 3, 2020 for the continuation of audit of herein tax liabilities for the taxable period from January 1, 2019 to June 30, 2019 arising from the re-assignment of case due to [R]evenue Travel Assignment Order No. 100-2021 dated March 1, 2021.' Now, you will confirm with me that by the issuance of this Letter of Authority, only then the BIR cancelled the first Letter of 1\uthority. Correct? XXX XXX XXX ATTY. ELGO: Will you confum with this Honorable Court that by the issuance of this third Letter of Authority only then the BIR cancelled the fust Letter of J\uthorit:y? WITNESS: Yes, Your Honors. ATTY. ELGO: So, that's a yes. JVSTICE SAN PEDRO: That Letter of Authority didn't mention the second Letter of Authority? WITNESS: No, Your Honors, because in this Letter of Authority, it is the time when the new examiners being assigned. Whene\-er there is a new examiner being assigned, that is the only time the Letter of Authority is being stamped with the word replacement Letter of Authority. JUSTICE SA~ PEDRO: Ok." It is undisputed that in each case, respondent informed petitioner of the identity of the ROs who at the time were authorized to examine petitioner's books of accounts and other accounting records. Contrary to petitioner's assertion, the issuance of the LOAs subject of the present case are valid and were done in accordance with the rules to protect petitioner's right to due process. The deficiency VAT assessment for taxable period January to June 2019 is upheld in par~

DECISION CTA Case No. 10703 As stated in the FAN /FLD,52 the petitioner was assessed deficiency VAT in the aggregate amount P20,002,609.12, inclusive of surcharge and interest, for the period January 1, 2019 to June 30, 2019, as detailed below: Sales/Receipts per\'. \T Return 1'79,644,940.(,2 Less: l�:xempt sales/receipts Taxable sales/receipts per \'.\T Returns 1'79,644,9411.62 .\Jd: UnJechlreJ receipts from missing ORs (Schedule I) P57,92.),5n I 9 HH,S 7.1,565. 77 Cndcclarcd income from unaccounted purchase of scrYiccs (:-;chcdulc 2) I ,ilil(,,41 19.1 IH PloH 7JH 5116..19 Undeclared Sales per Tl'l (Schedule .1) :>,IUI,IJII.).'J'J Undeclared income from unaccounted purchases per TPl (~chcdulc -t.) l,(,<J<J.II74.22 Receipts not subjected to\'. \T (Schedule S) UnJccLln�J f�:xtmncous Incornc (Schedule r1) 15,54H,1124.ib .\djusted \'.\Table Sab 6,.--1-HSAOJ.--l-) Output Tax Due 1'211,1HCJ,:!20.77 Less: Input Tax Tnput tax frorn prcYious L]UJrtcr 1'55H,H54.24 .'\K'!,.).'\ 1.(J4 Input Tax JcfcrrcJ on capital goods exceeding ln1illion (,2.'\,2H5.H7 Input Tax on current purchases 1'1,571,471.75 .145,175.116 Total aYailablc input tax P1.226,2%.W I.ess: Input tax on purchases of capital goods exceeJing I ~Jillion :\ct creJir.tblc input tax I.ess: Disa!lm,-cJ input tax J'(,2.'\,2H5.H7 Disallo\\Td input tax carried oyer from prcnou~ 4'.14,4~H.HH 1,117, 724.75 111H,5 71.94 yuaner (Schedule~) Basic Tax Due 1'211,1177,64H.H3 H,.).) 1,11%.1 H J.ess: \' .\T pa,�ments P1U4o.552.62 Basic Dcticicncy \'.\T 5,H73,276.32 2,.)H2,7HII.lo .\JJ: 51 I"" Surcharge P20.002.609.12 12" o Interest (7.25.19 to 4.2.21121) TOTAL AMOUNT DUE Moreover, a compromise penalty in the amount of P25,000.00 was also imposed upon the petitioner for failure to supply correct and accurate information in the Summary List of Sales and Purchases (SLSP), in violation of applicable tax regulations. 1. Undeclared receipts from missing Official Receipts - p 57,923,593.19. In the Details of Discrepancie.f3 attached to the FLD,54 respondent found petitioner liable for undeclared receipts from missing ORs in the amount of /' 52 Exhibit "P-17", Docket- Vol. 1, pp. 152 to 153. 53 Exhibit "P-6", FOE Binder - Vol. 1.

DECISION CTA Case No. 10703 P57,923,593.19. These undeclared receipts were assessed pursuant to Section 108 of the NIRC of 1997, as amended. Total taxable sales P79,644,940.64 Divided by No. of ORs issued 11 Average Sales per OR Multiplied by No. of missing ORs p 7,240,449.15 Undeclared receipts from missing ORs 8 P57 ,923,593.19 Petitioner argues that the submitted ORs are complete. Four (4) of the alleged missing ORs were cancelled receipts, while the remaining four (4) ORs were 2018 transactions which are dated, reported and remitted in 2018.55 Upon examination and evaluation of the submitted documents, including OR Listint6 and 0Rs,57 it was determined that the OR numbers 63,58 67,59 71 60 and 7761 were cancelled, whereas OR numbers 65,6~ 68,63 69,6-t and 70,65 with a total amount of P18,891.253.52 bear dates in the year 2018. The remaining ORs with a total amount of P79,644,940.65 are all dated 2019, as detailed below: Exhibit No. OR No. Payor Date Issued in 2019 Issued in 2018 "P-27" 62 Jan. 20,2019 P11,876,316.01 "P-27-1" 63 ~\BS-CB:\' "P-27 -2" 64 Feb. 25,2019 11,876,316.01 P3, 101,934.43 "P-27-3" 65 cancelled Dec. 28, 2018 14,308,796.61 "P-27-4" 66 .\BS-CB\i :\far. 22, 2019 "P-27 -5" 67 CTP:'\'I 1,956,501.54 "P-27 -6" 68 .\pr. 12,2018 1,956,501.54 "P-27-7" 69 ~\BS-CBJ'\ :\Lw 30, 2018 11,876,316.01 "P-27-8" 70 J\Ia\� 30, 2018 "P-27 -9" 71 cancelled 11,876,316.01 72 CTP:'-\I ~\pr. 25, 2019 295,560.00 "P-27-1 0" 73 CTP"\:I ~\pr. 30, 2019 48,000.00 "P-27-11" 74 .\BS-CBJ'\ :\Ia,- 6, 2019 "P-27-12" 75 cancelled i\Ia\� 9, 2019 3,354,002.66 "P-27-13" 76 :\Im� 9, 2019 1,677,001.33 "P-27-1-1" 77 ~\BS-CB:'\' "P-27-1 5" Bikerbox Biker box CTPNI CTPNI cancelled }/ 54 Exhibit "P-5", FOE Binder - Vol. 1. 55 Exhibit "P-2", FOE Binder- Vol. 1. 56 Exhibit "P-2-C", FOE Binder- Vol. 1. 57 Exhibits "P-27" to "P-27-18", FOE Binder- Vol. 1. 58 Exhibit "P-27-1", FOE Binder- Vol. 1. 59 Exhibit "P-27-5", FOE Binder- Vol. 1. 60 Exhibit "P-27-9", FOE Binder -Vol. 1. 61 Exhibit "P-27-15", FOE Binder- Vol. 1. 62 Exhibit "P-27-3", FOE Binder- Vol. 1. 63 Exhibit "P-27-6", FOE Binder- Vol. 1. 64 Exhibit "P-27-7", FOE Binder- Vol. 1. 65 Exhibit "P-27-8", FOE Binder - Vol. 1.

DECISION CTA Case No. 10703 Exhibit No. OR No. Payor Date Issued in 2019 Issued in 2018 "P-27-16" 78 _\BS-CBl\ '\Ia,- 29, 2019 11,87 6,316.01 1'18,891,253.52 "P-27-17" 79 .\BS-CB:\' )une 1--1-,2019 11,876,316.01 "P-27-18" 80 Star bucks i\Im� 20, 2019 580,000.00 TOTAL 1'79,644,940.65 However, the petltloner failed to present sufficient supporting documents to establish that the ORs bearing dates in 2018 were duly reported and remitted in the same year. It is further noted that these 2018 ORs were issued not in order of occurrence. Considering that the issuance of the ORs was not made in a chronological manner and petitioner failed to present evidence that will substantiate its claim that ORs dated in 2018 are indeed for 2018 transactions, the assessment on undeclared receipts from the missing ORs is hereby upheld, but is limited to the amount P18,891,253.52. 2. Undeclared incorne frorn unaccounted expenses - P1,886,409.08. Pursuant to Section 108(A) of the NIRC of 1997, as amended, respondent assessed petitioner for undeclared income from unaccounted expenses amounting to P1 ,886,409.04, because several discrepancies on petitioner's income payments to suppliers were noted after comparing the amounts per VAT returns as against the amounts reported per quarterly expanded withholding taxes. Services subjected to EWT PS,513,649.50 Services declared per VAT returns 3,627,240.42 Undeclared mcome from unaccounted purchases of P1,886,409.08 setYlces Petitioner states that the services declared per VAT (i.e., the amount of P3,627,240.42) is confirmed. According to petitioner, the company only claims input VAT that is compliant with BIR invoicing requirements; but not all transactions subject to expanded withholding tax are VATable.66 The ICPA stated that the withholding tax base exceeds the input VAT base because certain suppliers or service providers are non-VAT-registered entities, the transactions involve VAT-exempt sales, or the difference arises from timing differencep,/ � 66 Exhibit "P-2", FOE Binder- Vol. 1. 67 USB (Exhibit "P-323-4"), !CPA Report, page 2 of 5.

DECISION CTA Case No. 10703 To support its arguments, petltloner submitted payment vouchers,68 � quotation,69 Certificate of Creditable Tax Withheld at Source,7 Certificate of Registration (BIR Form No. 2303),71 and OR No. GMKT00000104206,72 to establish that its suppliers or service providers are non-VAT-registered entities, that the subject transactions constitute VAT-exempt sales, or that any discrepancies are attributable to timing differences. Upon evaluation of the submitted documents, only OR No. GMKT00000104206,73 amounting to P280,326.35, constitutes a convincing corroboration for a VAT-exempt transaction. The remaining transactions, totaling P1,606,082.73 (P1,886,409.08 less P280,326.35), remained unsubstantiated and are therefore subject to assessment. Notably, petitioner failed to submit non- VAT or V1\T-exempt ORs or invoices. Furthermore, with respect to the claimed timing dijferences, petitioner did not provide a reconciliation schedule and general ledger demonstrating that the transactions were recorded in a period other than the claimed period. Accordingly, petitioner has not satisfied the evidentiary requirements necessary to support its defense, and the assessment stands, but in the reduced amount ofP1,606,082.73. 3. Undeclared sales per third party information (TPI) - P5,031,003.99. According to respondent, a partial tally of the computerized matching conducted by the BIR on the purchases submitted by the petitioner's customers against the sales declared in its tax returns shows an understatement of sales in the amount of P5,031,003.99. Furthermore, the confirmation letters that were sent to customers did not get any replies. Hence, the findings are considered true and correct pursuant to Revenue N!emorandum Order (RMO) No. 13-2012 (IV)(D)(9). The undeclaration is assessed of VAT pursuant to Section 1OS of the NIRC, in relation to Section 106 of the same Code as amended, viz.: TIN I Customer's Registered Name I Sales per TPI I Sales per SLS Undeclared 1'5,031,003.99 008288192 I Creative and Tcchnicall'roduction Network Inc. I r>1o.o62.oo7.99 1 f>'i,031,00-t.OO P5,031,00.1. 99 Undeclared Sales per TPI 7 68 Exhibits "P-2-PP", "P-2-QQ", "P-2-RR", "P-2-SS", "P-2-TI", "P-2-UU", "P-2-W", P-2-WW", USB (Exhibit "P-323-4"), Folder P-2-A to XX-2. 69 Exhibit "P-2-QQ-1", USB (Exhibit "P-323-4"), Folder P-2-A to XX-2. 70 Exhibits "P-2-RR-1", "P-2-SS-1", "P-2-UU-1", "P-2-W-1", P-2-WW-1", USB (Exhibit "P-323-4"), Folder P-2-A to XX-2. 71 Exhibit "P-2-TI-1", USB (Exhibit "P-323-4"), Folder P-2-A to XX-2. 72 Exhibit "P-2-PP-1", USB (Exhibit "P-323-4"), Folder P-2-A to XX-2. 73 Id.

DECISION CTA Case No. 10703 Petitioner then contends that for the period January 1, 2019 to June 30, 2019, the company received and reported sales collection of P5,031,004.00, which is equivalent to three (3) months of charges. The other three (3) months were collected after June 30, 2019. Indeed, when an assessment is based on TPI, the investigating RO is required to prepare and send a confirmation request to the taxpayer serving as the TPI's source, or coordinate with the RDO having jurisdiction over the TPI source for the preparation and issuance of a confirmation request. If the TPI source affirms the amounts (in its reply to the confirmation request) aligning with the TPI, the RO must then obtain its sworn statement attesting to the veracity of the data provided. This procedure is in accordance with RMO No. 46-2004 which reads, in part, as follows:7-l- "III. PROCEDURES XXX Action on Protested LNs due to TPI discrepancy The Revenue Officer assigned to handle the Letter Notice shall: XXX XXX XXX 2. Require the taxpayer to execute a Sworn Statement. (Annex A) attesting to the veracity of the schedules and authenticity of the documents presented/submitted. 3� Obtain Sworn Statements from TPI sources (Annexes 'B' and 'C') attesting to the ;reracity of the data pro;Tided. 3.1 If the TPI source is registered in the RDO/LTDO/LTAID ha;Ting jurisdiction mTer the subject taxpayer, the RO shall: 3.I.I Prepare 'Confirmation Requests' (using the format prescribed in Annex "C" of RMO No. 30- 2003 to be signed by the heads of the concerned RDO/LTDO/LTAID) for purposes of verifying the accuracy of the figures appearing in the DTCS. 3.1.2 If the TPI source agrees with the figures in the 'Confirmation Requests' (CR), secure a Sworn Statement from the TPI source to allow the RO to build a case against the taxpayer. ~ 74 Additional Supplement and Guidelines in Handling Letter Notices with Discrepancies Arising from Data Matching Processes as defined in Revenue Memorandum Order (RMO) Nos. 34-2004 and 30-2003, as amended by RMO Nos. 42-2003 and 24-2004, which remain Unserved, have been Served but are Without Response, or are Under Protest by Taxpayers. Italics in the original text and emphasis supplied.

DECISION CTA Case No. 10703 3.2 If the TPI source is outside the jurisdiction of the RDO /LTDO /LTAID where the taxpayer is registered, the RO shall: 3.2.1 Coordinate with the RDO/LTDO/LTAID where the TPI source is registered, in order to: a. Prepare a CR to be transmitted and signed by the RDO /LTDO /LTAID having jurisdiction mTer TPI source (CRs should be coursed thru the RDO/LTDO/LTAID where the taxpayer is registered); b. Secure a sworn statement from the TPI source thru the RDO/LTDO/LTAID having jurisdiction over the same; and, c. Assist the heads of the concerned RDO/LTDO/LTAID in the preparation of Monthly Status Report on Confirmation Requests Transmitted (~-\nnex "D") outside the RDO/LTDO/LTAID of the TPI source and submit the same to the SCG, for monitoring purposes." Respondent claimed that he sent confirmation letters to TPI sources in relation to undeclared sales amounting to P5,031,003.99, however, no replies were received. In assessing petitioner for undeclared sales, respondent relied on confirmation letters sent to third-party sources to verify the alleged discrepancies found in petitioner's SLS and sales per TPI. However, the records do not show that respondent received the valid sworn statements from third-party sources confirming the same. Respondent's finding of an undeclared sales amounting to P5,031,003.99 merely relied on the presumption that the amounts extracted from the database are correct since he or she did not receive any responses from the third parties. Hence, the Court cannot sustain this assessment item. Correspondingly, the amounts extracted from respondent's own database are self-serving and unsubstantiated. For lack of factual bases, respondent's findings on undeclared sales of P5,031,003.99 due to TPI matching should then be cancelled. 4. Undeclared sales from unaccountedpurchases per third party data - P1,699, 074.2/v'

DECISION CTA Case No. 10703 The investigation of the BIR disclosed that several purchases amounting to P1,699,074.22 for the period January 1, 2019 to June 30, 2019, as reflected in the computerized matching conducted by it on information/data provided by petitioner's supplier was declared in its VAT returns, to wit: TIN Supplier's Registered N arne PURCHASES Unaccounted per TPI per SLP 000113791 CT Citimotors Inc. P1,580,857.17 P66.99 P1,580,790.18 005110768 5,139.83 006358064 Culinary Events inc. 6,294.33 1,154.50 9,169.72 008706159 Colent Marketing Phils. Inc. 9,901.79 732.07 43,673.06 008860607 Coolcreater Aircon Trading 49,030.23 5,357.17 1,146.39 010150326 and Services, Inc. 100810996 1,532.14 385.75 5,098.22 224508324 Jovanisan Rik Marketing Inc. 3,482.17 226568285 5,982.14 883.92 27,358.06 227707416 FDR First Safety system 11,993.34 Training SetYices Corp. 11,223.25 P1,699,074.22 Sia Johnson Chua 4,375.00 892.83 Savemoney Trading Inc. 68,332.15 40,974.09 Global City Auto Sales Inc, 12,703.17 709.83 19 east Inc. 11,306.25 83.00 Unaccounted Purchase per TPI Out of the ten (1 0) items in the list, pet1t10ner found only two (2) transactions that tally with its records, detailed as follows: TIN Supplier's Registered PURCHASES Unaccounted Name perTPI per SLP Coolcreater Aircon Trading P49,030.23 P5,357.17 P43,673.06 008706159 and Services, Inc. 68,332.15 40,974.09 27,358.06 224508324 Savemoney Trading Inc. Unaccounted P71,031.12 ----- - - As already pointed out, the BIR is mandated to secure valid sworn statements from third-party sources to establish the accuracy and veracity of the data relied upon in the assessment. In the absence of such sworn statements, the assessment on alleged undeclared sales arising from unaccounted purchases based on third-party data is clearly devoid of factual and legal basis and must therefore be cancelled. Nonetheless, as expressly admitted by the petitioner in its protest letter/5 that two (2) transactions included in the assessment are consistent with its records, amounting to P71,031.12. Hence, said amount shall be maintained as part of the assessment. ~ 75 Exhibit "P-2", Request for Reinvestigation on LOA-VOS-2020-2018-00000275/SN: eLA20170004684, FOE Binder- Vol. 1.

DECISION CTA Case No. 10703 5. Receipts not subjected to VAT from Accounts Receivable (AR) analysis - P15,548,024.85. Per the BIR, a comparison of petitioner's gross receipts computed per audit amounting to P95,192,965.47, as against the amount declared per VAT returns amounting to P74,644,940.62, disclosed that gross receipts not subjected to VAT in the amount of P15,548,024.85, as shown in the computation below. Hence, this amount was assessed against petitioner in accordance with the provision of Title IV, Section 105 and 108 of the NIRC of 1997, as amended. Sales per ITR p 89,443,285.48 Add: Receivable, beg. (P6,461 ,347/1.12) 5,769,059.82 Sub-total p 95,212,345.30 Less: Receivable, end (P21,705.41/1.12) 19,379.83 Collection per Audit Less: Sales per VAT Return p 95,192,965.47 79,644,940.62 Receipts not Subjected to VAT P15,548,024.85 Petitioner argued that as per its reconciliation, its AR net of VAT balance as of June 30, 2019, should be P15,567,404.68, below is petitioner's reconciliation: Sales per ITR P89 ,443,285.48 Add: AR beginning 5,769,059.82 Sub-total Less: AREnd P95,212,345.30 Collection per Audit 15,567,404.68 Less: Sales per VAT Return Receipts not subjected to VAT P79 ,644,940.62 79,644,940.62 - To refute respondent's assessment, petitioner presented billing invoices and 0Rs76 purporting to support its allegation that its AR balance as of June 30,2019 amounted to P15,567,404.68, itemized as follows: Exhibit Date Customer Amount P~ment Details "P-2-II" Aug. 7, 2018 One Time Customer P26,796.70 OR Date Exhibit "P-2-II-1" Oct. 31, 2018 ABS-CBN "P-2-II-2" Dec. 12, 2018 ABS-CBN 3,312,884.43 - - "P-2-II-3" Dec. 19,2018 One Time Customer 891,852.27 "P-2-II-4" Dec. 28, 2018 ABS-CBN 40,943.00 - - "P-2-II-5" Dec. 28, 2018 ABS-CBN "P-2-II-6" Feb. 8.2019 One Time Customer 1,377,182.75 - - Creative & Technical 999,804.55 "P-2-II-7" Apr. 1. 2019 Production 446,428.57 - - - - - - - - 1,677,001.33 r Jul. 5, 2019 -"-P-�2-�JJ" 76 USB (Exhibit "P-323-4"), Folder P-2-A TO XX-2.

DECISION CTA Case No. 10703 Exhibit Date Customer Amount Payment Details OR Date Exhibit "P-2-II-8" May 10,2019 ABS-CBN 1,001,278.68 May 10,2019 Creative & Technical 1,677,001.33 Aug. 27, "P-2-II-9" Production 1,677,001.33 2019 "P-2-MM" Jun. 1. 2019 Creative & Technical "P-2-II-10" Production 889,166.64 Jul. 5. 2019 "P-2-K.IZ" 48,788.53 Nmr. 22. "P-2-II-11" May 10,2019 ABS-CBN 2019 "P-2-00" "P-2-II-12" Jun. 4,2019 ABS-CBN 1,461,274.59 Sep. 27. "P-2-NN" "P-2-II-13 40,000.00 2019 - " P15,567 ,404. 70~~ - "P-2-II-14" Jun. 3,2019 ABS-CBN - - Jun.28,2019 One Time Customer Aug. 23. "P-2-LL" Total 2019 A thorough examination of the submitted documents reveals that an AR amounting to P6,961,449.31 remained outstanding as of June 30, 2019, having been paid by the customer only thereafter, as reflected in the ORs. With respect to the remaining amount of P8,605,955.39 (P15,567,404.70 less P6,961,449.31), the Court is unable to ascertain whether this amount remained receivable as of June 30, 2019. In the absence of an Aging of Receivables or other supporting documentation, the documents submitted arc insufficient to substantiate petitioner's claim. 1\ccordingly, and upon verification of the payment records, the amount P6,961,449.31 is the valid AR balance as ofJune 30, 2019, to wit: Payment Details Exhibit Date Customer Amount OR Date Exhibit Creative & Technical "P-2-II-7" Apr. 1, 2019 Production p 1,677,001.33 Jul. 5, 2019 "P-2-JT" "P-2-II-8" Mav 10, 2019 ABS-CBN 1,001,278.68 Aug. 27. 2019 "P-2-MM" Creati,Te & Technical "P-2-II-9" Mav 10,2019 Production 1,677,001.33 Jul. 5. 2019 "P-2-KK" Creative & Technical "P-2-II-10" Jun. 1. 2019 Production 1,677,001.33 Nov. 22,2019 "P-2-00" "P-2-II-11" Mav 10,2019 ABS-CBN 889,166.64 Sep.27,2019 "P-2-NN" "P-2-II-14" Jun.28,2019 One Time Customer 40,000.00 Aug. 23. 2019 "P-2-LL" --- - - - - Total P6,961,449.31 Based on the foregoing, the assessment on receipts not subjected to VAT from the AR analysis is upheld, but only in the reduced amount of P8,605,955.35, computed as follows: Sales per ITR p 89,443,285.48 Add: Receivable, Beginning 5,769,059.82 Sub-total Less: Receivable, End 95,212,345.30 Collections per Audit 6,961,449.31 77 Rounding off difference of 0.02. 88,250,895.99 /"'

DECISION 79,644,940.64 CTA Case No. 10703 P8,605,955.35 Less: Sales per VAT Returns Receipts Not Subjected to Vat 6. Undeclared extraneous income - ?6,485,460.43. The verification of the BIR disclosed that there was an understatement of the petitioner's receipts in the amount of P6,485,460.43, as shown below, for the period from January 1, 2019 to June 30, 2019, as a result of comparing the total revenues per trial balance as June 30, 2019 against the gross receipts reported in the VAT returns. Hence, this extraneous income as reported in the trial balance was assessed pursuant to Section 1OS and 108 of the NIRC of 1997, as amended, in relation to Revenue Regulations (RR) No. 16-2005. Total Revenue per Trial Balance p 86,130,401.05 Total Revenue per VAT Returns 79,644,940.62 Undeclared Extraneous Income F6,485 ,460.43 According to petitioner, the company reports revenue (P86,130,401.05) on accrual basis and sales reported per VAT return amounting to P79,644,940.62 for the period from January 1, 2019 to June 30,2019 comprises of collections from 2018 and 2019 charges. The ICPA noted that the records would show the difference between the total revenue per trial balance and that of the VAT returns of P6,485,460.43 accounts for revenues booked in 2019 and remained uncollected as of June 30, 2019. According to the ICPA, revenues are recognized in the books upon rendition of service while that reported per VAT returns represents collections pursuant to Sections 108 & 113 of the NIRC of 1997, as amended.78 Petitioner submitted billing invoices79 and reconciliation of accounts80 to refute respondent's allegation. However, it was determined that these documents are insufficient to establish that the alleged revenue were already booked in 2019 or to show that the account remains uncollected as of June 30, 2019. Accordingly, the assessment on undeclared extraneous income in the amount of P6,485,460.43 shall remain. 7. Disallowed input tax on local purchases - ?623,285.87. jl/ 78 USB (Exhibit "P-323-4"), ICPA Report, Item V. 79 Exhibit "P-2-EE-1" to "P-2-EE-21", USB (Exhibit "P-323-4"), Folder P-2-A TO XX-2. 80 Exhibit "P-2-EE", USB (Exhibit "P-323-4"), Folder P-2-A TO XX-2.

DECISION CTA Case No. 10703 Respondent assessed petitioner due to failure to support its claimed input tax in accordance with the invoicing requirements in Section 113. Hence, the input tax was disallowed pursuant to the provision imposed under Section 110(A)(1) of the ~IRC of 1997, as amended, which provides that "[a]ny input tax claimed evidenced by VAT invoice or official receipt issued in accordance with Section 113 hereof xxx shall be credited against output tax". Upon examination and evaluation of the ORs and invoices81 presented as well as the summary of input tax for the period January 1, 2019 to June 30, 2019 submitted by petitioner,82 input V.AT amounting to P424,869.05 must be disallowed for violation of invoicing requirements under the law, broken down as follows: Exhibit Supplier VAT Amount - Unsupported(P623,285.87 less P526,433.28) 1"96,852.59 "P-..J-8" Incorrect VAT Amount 126,355.73 l�:a,;tw<:>t llcalrhcar<: Inc<: "P-5 .1" to "P-58" Nature ofService notproperly indicated 5,-+6-+.29 S.\1'\i(; \L\1'\i(; .\0iD (;_\LRL\1\ HL'Sl'\LSS "P-83" VAT amount not indicated 2,1-+0.71 ''P-85" :\IL'\D .\LLL\NG: \'1�:[\;'JllRI�:S INC 12,000.00 "P-97'' :\IR CEEK :\IOHILE SCJLL'TIONS 11\.;C: "P-131" 3R H)()!) .\L\Nlll: \CTL'Rl:\C .\:\]) TI\..\D 160.71 "P-1..J.7" KNIC;IJTTEIJ�:Gl:\f 10.71 "P-152" PI IILII'I'IN I: SE\'1 -:~ CORI'OR. \'!'ION "1'-156" to "1'-156- 122.1--J. H" c; S.\NC.\L\NC \1\i]) \I:RL.\N HLTSJ~I:Ss 6-+2.86 "1'-230" "1-246" SS\!C CROLl!' OJ� I IOSI'IT.\LS .\:\D CU:\ 17,367.86 I'IIILII'I'I:\ E Sl �:\'El'\ CORI'OR. \'I' I0'\ 80.36 SS:\!C CROLl!' 01� IIOSI'IT.\LS .\ND CLI'\ 321.-+3 Sub-total 32,846.78 "P-ST' Without petitioner's address 729.1--J. PRO I!LJ C IITS TR \\'I -:L "P-77'' Without authorized si~nature 12,953.57 "P-96" I1\:\S INI,.ll'\JTI: TOOLS 10,826.79 "1'-2-tO" \VYLJ�:R 1-:~TERI'IUSI�:S 1:\C "1'-268" S.\\'1�: :\!ONI:YTR.\DINC 1'\C 1,593.21 "P-271" El� COA!I'Ll'l'J-:R CORPOH..\TIOI\ 1,380.00 I 1\NS ll\1�1'\ITI�: TOOLS -t,..J-59.71 Sub-total 31,213.28 "P-51" Without Nature ofService 7,921.20 c;ucvarra I�:kctronic,; 20,96--J..OO "P-82" :\ll3 E\' El\iT S! �:H.\'IC! :s "P-2..J.9" SYS'JE\f RENT.\L 1'1 IILII'PL\ii�:S ll\C 3,000.00 "1'-291" ST.\C;I-: CR.\Fl' Il\iTER'\.\TIO:\.\L Il\iC 5,90--J..OO 37,789.20 Sub-total "P-55" Without Petitioner's Details 288.21 Nobk. \S I�:nng\' Ca,;o]in<: Station Without Petitioner's TIN "P-54" Ipown Product' anJ S\'stcm Inc. 12,696.43 4,339.80 "P-6--J." I Tl IE .\!ERC:.\1\TILE INSL:I\..\1\iCE co E\C I - ~ 81 USB (Exhibit "P-323-4"), Folders 012019-Purchases to 062019-Purhases. 82 USB (Exhibit "P-323-4"), Annex B.

DECISION CTA Case No. 10703 Exhibit Supplier VAT Amount "P-67" \XYLJ:R 1:'\TJ:RPRISI�:S 11\iC 3-IJ 38.93 "P-68" 3R I�OOD \1.\'\l T.\Cll'RI:\C .\J\iD TR \D 3,278.57 "1'-81 II \1.\l\:IL\ L'J\ii'JJ:D J:LJ�:CJ'RIC:.\L Sl1JlJ'LY 1,+40.00 "P-89" S \:\(; \L\NC \'\D c; \I�:H.I.\1\i lillSI'\ESS 966.86 "1'-9-1" LTRC~LI.\:\ 1'\C 9,857.0+ "P-95" \X'ILJ:X I 1.\RDW \RI�: \:\D C:Cl'\STIUTCliCl 75.00 "1'-113" 1�:.\S'JWEST I 11�:.\1.'11 !C:.\RJ: l'\C 1,078.59 "1'-127" 1!\iSI'IR.\ l'RI\II: 1!\i'li.:R".\TIO'\.\L C:C lRJ> +2.32 "P-138" \!13 J:\T:'\'1' SER\'IC:FS 6,96+.29 "1'-16-1" WJLJ.:X I 1.\RD\X'.\RI�: .\l\iD C:Cll\STRL'CTIC l 1,+32.50 "P-173" .\PJ:RTL'RE TR\DI:\C; CORPOR\TIClN -192.86 "1'-213" 91.07 "P-2.87'' I .\L()]\i RIC:F TR \DI'\C 27.86 "1'-311" 3,160.71 "P-322" S.\1'1\VlS TR \DIJ\i(; 1,151.79 1'1�::\TI�:C;Cll\il\ .\SJ\ CORl'RCl.\'110'\ 81,234.62 \'\'l'LER I�XJ'J-:H.l'RISI�:S INC 5.69 Sub-total 10,71-1.29 "1'-116" Denied Exhibits per Resolution dated 7/31/2024 1�:\�IJ.Yl\ S.\'\ I'I�:DRO HlOD KIOSK 33 "P-120" 38.0-1 HlJI :\:I�:H.O:\: 1'1 JJJ.II'I'I"'l�:S 1:--;c 51.96 "1'-132" 107.1-1 "P-1+3" KM lXI'ClR'J' 1:\C: 107.1+ "1'-183" J>.\NCJ'J' '\I.\1.\HO'\ "P-262" C:.\FF \'01 L\ INC: 285 "1'-289" .\I�:CJS C:.\LTI�:X SER\'IG: C:E'\'J'ER .\'\DC: "P-2.97" SIC'\ \'J'L:RI�: C. \LTI�:X SI�:R\'ICI: 360 .\'\SCJJ\i L\IPORIL'\I C:ORPOR.\'1'10:\ ''P-298" 17.57 B.\"-..:.\. \C PEST C:C l:\TH.< lL 375.38 "1'-300" 12,095.21 "P-30+"; "1'-305" CI'J'R. \ :\fi�TRO \I. \J\i IL \ TOLL\\'. \YS C:O H'JI XEROX l'Ilii.Ii'l'l'\ES 1'\C: P424,869.05 Sub-total Grand Total 8. Disallowed input tax carried over from previous quarter- P494,438.88. Verification by the BIR disclosed that an input tax carried over from 2018 amounting to P948.185.88 were erroneously carried over to the succeeding quarter without proper presentation of supporting documents to determine the legitimacy of the said amounts. Hence, the noted discrepancy was assessed as unexplained input tax carried over which was disallowed pursuant Section 110(A)(1) of the NIRC of 1997, as amended. Deferred Input\'_\T per 2018 _\FS I P558,854.24 P-453,747.00 Less: Input tax claimed per \ -_\T return I 389,331.61 948,185.88 Input tax carried over from previous quarter P494,438.88 Input tax deferred on capital goods exceeding 1 million Disallowed input tax carried over from previous quarter An examination of the records of the case shows that petitioner failed to present the required supporting invoices or ORs to substantiate the assessed input tax and to refute the respondent's assessment. Accordingly, the assessed amount of P494,438.88 shall be retained. /-'

DECISION CTA Case No. 10703 9. Compromise Penalty- P2S,OOO.OO. Respondent imposed a compromise penalty of P25,000.00 against petitioner for its failure to supply correct information per Summary List of Sales and Purchases (SLSP), pursuant to Sec. 4.114-3 of RR No. 16-2005 as amended by RR No. 1-2012. However, 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 that is so compromised, and the choice of paying or not paying it distinctly belongs to the taxpayer. 83 Absent a showing that herein petitioner consented to the compromise penalty, its imposition should be cancelled. The imposition of the same without the conformity of the taxpayer is illegal and unauthorized.84 ACCORDINGLY, considering the foregoing, the present Amended Petitionfor Review is PARTIALLY GRANTED. The assessments issued by respondent against petltwner covering deficiency VAT for the period from J anuaty 1, 2019 to June 30, 2019 is UPHELD IN PART. Accordingly, petitioner is ORDERED TO PAY respondent the aggregate amount of P7,550,901.81, inclusive of 25% surcharge and 12% deficiency interest imposed under Section 248(A) (3) and Section 249(B) and (C) of the NIRC of 1997, as amended by Republic Act (RA) No. 10963, also known as Tax Reform for ~A.cceleration and Inclusion (TRAIN) and as implemented by RR No. 21-2018, computed until April1, 2021,85 as follows: Sales/Receipts per VAT Return P18,891,253.52 P79 ,644,940.69 Less: Exempt sales/receipts Taxable Sales/receipts per VAT 1,606,082. 73 - Returns Add: - 79,644,940.69 Undeclared receipts from missing ORs 71,031.12 35,659' 783.15 Undeclared income from unaccounted purchase 8,605,955.35 P11 5,304,723.84 of services 6,485,460.43 Undeclared sales per TPI ~ Undeclared income from unaccounted purchases per TPI Receipts not subjected to VAT Undeclared extraneous income Adjusted VATable Sales 83 The Philippines International Fair, Inc. vs. The Collector of Internal Revenue, eta/., G.R. Nos. L-12928 and L-12932, March 31, 1962. 84 Commissioner of Internal Revenue vs. Lianga Bay Logging Co., Inc. eta/., G.R. No. L-35266, January 21. 1999. 85 Due Date Reflected in the Assessment No. VT-ELA04684-1-21-175/FLD, Exhibit "R-5", Docket -Vol. 2, pp. 828 to 835.

DECISION CTA Case No. 10703 Output Tax Due P13,836,566.86 J"ess: Input Tax I Input tax from previous quarter P558,854.24 306,988.76 389,331.64 Input tax deferred on capital goods exceeding 1 623,285.87 P13,529,578.10 million P1,571,471.75 8,331,096.18 345,175.06 P5,198,481.92 Input tax on current purchases P1 ,226,296.69 Total a\�ailable input tax 919,307.93 Less: Input tax on purchase of capital goods exceeding 1 million Net creditable input tax Less: Disallowed input tax P424,869.05 Disallowed input tax carried over from previous quarter 494,438.88 Basic Tax Due Less: VAT pavmcnts Basic Deficienc\� VAT Add: 25% Surcharge 1,299,620.48 12% Interest (Jul. 25,2019 to Apr. 01, 2021) 1,052,799.41 _P7,550,901.81 (P5,001,141.19 x 12~"o X 616/ 365) TOTAL AMOUNT DUE, Aprill, 2021 --- -- - - In addition, petitioner is ORDERED TO PAY respondent delinquency interest at the rate of twelve percent (12%) per annum on the total unpaid deficiency taxes due as of April 1, 2021, in the amount of P7,550,901.81 or equivalent to P2,482.4986 per day, computed from April 2, 2021 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended by RA No. 10963, and as implemented by RR No. 21-2018. Lastly, pursuant to Section 13 of RA. No. 9282, considering that this decision is partly favorable to the national government, the BIR, through respondent, is hereby authorized to seize and distraint any goods, chattels, or effects, and the personal property, including stocks and other securities, debts, credits, bank accounts, and interests in and rights to personal property and/or levy the real property of petitioner in sufficient quantity to satisfy the tax or charge with any increment thereto incident to delinquency. SO ORDERED. ~.~ 7--- MA. BELEN M. RINGPIS-LIBAN Presiding Justice 86 ~7,550,901.81 X 12% I 365.

DECISION CTA Case No. 10703 WE CONCUR: Associate Justice co~t.&ItE~REs Associate Jus;~;-7.L' CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. t,.4t.-7- MA. BELEN M. RINGPIS-LIBAN Presiding Justice