BENCHMARK MARKETING CORP., v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS Quezon City ENBANC BENCHMARK MARKETING CTA EB NO. 2212 CORP., (CTA Case No. 9296) Petitioner, Present: -versus- DEL ROSARIO, P.J. , UY, COMMISSIONER OF RINGPIS-LIBAN, INTERNAL REVENUE, MANAHAN, BACORRO-VILLENA, Respondent. MODESTO-SAN PEDRO REYES-FAJARDO, CUI-DAVID, and FLORES-FERRER, JJ. X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - DECISION DEL ROSARIO, P.J.: This is a Petition for Review filed by petitioner Benchmark Marketing Corp. on January 31 , 2020, praying for the reversal of the Decision dated September 4, 2019 (assailed Decision) and the Amended Decision dated January 2, 2020 (assailed Amended Decision) promulgated by the Court's Special Second Division (Court in Division) in the case entitled Benchmark Marketing Corp. vs. Commissioner of Internal Revenue , docketed as CTA Case No. 9296, and for the issuance of a judgment declaring as null and void the sustained portions of the deficiency tax assessments, inclusive of penalties, issued against petitioner for taxable year (TY) ending December 31 , 2011 . THE PARTIES Petitioner Benchmark Marketing Corp. (BMC) is a domestic corporation duly organized and existing under the laws of th;tl

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Philippines with business address at Dona Natividad Bldg. 10 Quezon Avenue, Quezon City. The principal purpose for which it was created is to engage in, conduct and carry on the business of, buying, selling, distributing, marketing at wholesale and retail fermented liquor, bottled water and other beverages. 1 Respondent Commissioner of Internal Revenue (CIR) is the chief of the Bureau of Internal Revenue (BIR) vested with power to decide disputed tax assessments 2 FACTS The undisputed facts, as narrated in the assailed Decision, are reproduced below: "On April 8, 2013, petitioner received Letter of Authority (LOA) No. LOA-116-2013-00000011 with SN: eLA2011 00007112 and Checklist of Audit Requirements for the examination of petitioner's books of accounts and other accounting records for all internal revenue taxes for the year 2011. On September 28, 2013, petitioner received a Second and Final Notice from BIR dated September 24, 2013. On June 20, 2014, petitioner executed a 'Waiver of the Defense of Prescription under the Statute of Limitations of the NIRC' (Waiver) in relation to the 2011 Tax Audit which was accepted by the BIRon June 24, 2014 extending the audit period until December 31, 2014. On September 24, 2014, petitioner received a Final Reminder and Audit Notice from BIR dated September 23, 2014. On November 13, 2014, petitioner executed another Waiver which was accepted by the BIR on November 21, 2014 extending the audit period until June 30, 2015. On March 27, 2015, petitioner executed another Waiver which was accepted by the BIRon April27, 2015 extending the audit period until December 31, 2015. On June 10, 2015, a Preliminary Assessment Notice (PAN) dated June 9, 2015 together with the Details of Discrepancies were received by petitioner from the BIR. On July 22, 2015, the Formal Letter of Demand (FLO), Details of Discrepancies, and Assessment Notices (FAN) were received by petitioner from the BIR assessing [it for] deficiency income tax, VAT, and EWT. The FLO shows the following computations: 1 Paragraph 1, Facts of the assailed Decision, CTA EB Rollo, pp. 63-64. 2 Sections 3 and 4, National Internal Revenue Code (NIRC) of 1997, as amended. ~

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) XXX On August 20, 2015, petitioner filed its administrative protest [against the FLO/FAN] disputing the deficiency income tax, VAT and EWT assessed against it. Due to the BIR's alleged inaction on its protest, petitioner filed the instant Petition for Review on March 17, 2016 praying that the assessment notices for deficiency income tax, VAT, and EWT for the year ending December 31, 2011 in the aggregate amount of Php127,130,709.77 be declared null and void."3 On September 4, 2019, the Court in Division partially granted the Petition for Review. It cancelled and withdrew the assessments issued by respondent against petitioner covering deficiency VAT, EWT and compromise penalties for taxable year (TY) 2011, while it upheld in part the assessment issued against petitioner for deficiency income tax forTY 2011. It sustained the following items of income tax assessment, namely: (i) unallowable sales returns & allowances amounting to P16,281 ,370.23; (ii) unsupported freight-in, fuel & other transport expenses in the amount of P29, 181 ,966.24; (iii) unsupported Advertising & Other Outside Services amounting to P22,089, 137.55; (iv) undeclared sales to government amounting to P176,387.43; (v) the disallowed expenses due to non-withholding amounting to P41 ,230,990.26; and, (vi) undeclared sales per reconciliation of the Summary List of Sales (SLS) and Summary Alphalist of Withholding Tax (SAWT) amounting to P1 ,428, 182.54. The dispositive portion of the Court in Division's Decision reads: "WHEREFORE, the instant Petition for Review is PARTIALLY GRANTED. The assessments issued by respondent against petitioner covering deficiency VAT, EWT and compromise penalties forTY 2011 are CANCELLED AND WITHHDRAWN. However, the assessment issued against petitioner for deficiency income tax forTY 2011 is UPHELD IN PART. Accordingly, petitioner is ORDERED TO PAY respondent the aggregate amount of ONE HUNDRED NINE MILLION EIGHT HUNDRED TWENTY- SEVEN THOUSAND EIGHTY-FIVE PESOS AND 82/100 (Php109,827,085.82), inclusive of the 25% surcharge, 20% deficiency interest and 20% delinquency interest imposed under Sections 248(A)(3), 249(8) and (C) of the NIRC of 1997, as amended, respectively, computed until December 31, 2017, as follows: Basic Deficiency Income Tax 1"33, 113,267.56 25% Surcharqe 8,278,316.89 20% Deficiency Interest from April17, 2012 to Julv 21,791,251.69 3 CTA EB Rollo, pp. 64-66011

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 4 of40 31, 2015 (1"33, 113,267.56 X 20% X 1,201 1'"63,182,836.14 days/365 days) 16,039,522.48 Total Amount Due, July 31, 2015 Add: 20% Deficiency Interest from August 1, 2015 30,604,727.20 to December 31, 2017 (1'"33, 113,267.56 x 20% x 884 days/365 days) 1"1 09,827,085.82 20% Delinquency Interest from August 1, 2015 to December 31, 2017 (1"63, 182,836.14 x 20% x 884 days/365 days) Total Amount Due as of December 31, 2017 In addition, petitioner is liable to pay delinquency interest at the rate of 12% on the total unpaid amount of Php63, 182,836.13, as of July 31, 2015, as determined above, computed from January 1, 2018 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended by Republic Act No. 10963, also known as Tax Reform for Acceleration and Inclusion (TRAIN) and implemented by RR No. 21-2018. SO ORDERED." Petitioner filed on September 23, 2019 its Motion for Partial Reconsideration (of the Decision Promulgated on September4, 2019), and respondent filed on even date his Motion for Reconsideration Re: Decision dated [04 September]2019. On January 2, 2020, the Court in Division promulgated the assailed Amended Decision, partially granting petitioner's Motion for Partial Reconsideration and denying respondent's Motion for Reconsideration for lack of merit. The Court in Division found merit in petitioner's motion as it reduced the basic deficiency income tax by P202,826.41, corresponding to the thirty percent (30%) of assessed Advertising and Promotions Expenses of P676,088.02 which was substantiated with sales invoices or official receipts. With the reconsidered amount, the Court in Division arrived at the adjusted basic income tax deficiency of P32,91 0,441.15 from the basic income tax deficiency of P33, 113,267.56, as computed in the assailed Decision. The dispositive portion of the Amended Decision reads: "WHEREFORE, in view of the foregoing, the Motion for Reconsideration filed by the respondent is DENIED for lack of merit, while the Motion for Partial Reconsideration filed by the petitioner is PARTIALLY GRANTED. Accordingly, the Court's Decision dated September 4, 2019, is hereby amended to read as follows: WHEREFORE, the instant Petition for Review is f!/l PARTIALLY GRANTED. The assessments issued by respondent against petitioner covering deficiency VAT,

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) EWT and compromise penalties for TY 2011 are CANCELLED AND WITHHDRAWN. However, the assessment issued against petitioner for deficiency income tax for TY 2011 is UPHELD IN PART. Accordingly, petitioner is ORDERED TO PAY respondent the aggregate amount of ONE HUNDRED NINE MILLION ONE HUNDRED FIFTY-FOUR THOUSAND THREE HUNDRED SIXTY- NINE PESOS AND 56/100 (P109,154,369.56), inclusive of the 25% surcharge, 20% deficiency interest and 20% delinquency interest imposed under Sections 248(A)(3), 249(8) and (C) of the NIRC of 1997, as amended, respectively, computed until December 31, 2017, as follows: Basic Deficiency Income Tax 1"32,910,441.15 Surcharqe (25%) 8,227,610.29 20% Deficiency Interest from April 17, 2012 to July 21,657,775.24 31,2015 (1"32,910,441.15 X 20% X 1,201 days/365 days) Total Amount Due, July 31, 2015 1"62, 795,826.68 Add: 20% Deficiency Interest from August 1, 2015 to 15,941,276.70 December 31, 2017 (1"32,910,441.15 x 20% x 884 days/365 days) 20% Delinquency Interest from August 1, 2015 30,417,266.18 to December 31,2017 (1"62,795,826.68 x 20% x 884 days/365 days) Total Amount Due as of December 31, 2017 -------------- P1 09,154,369.56 In addition, petitioner is liable to pay delinquency interest at the rate of 12% on the total unpaid amount ofP62,795,826.68, as of July 31, 2015, as determined above, computed from January 1, 2018 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended by Republic Act No. 10963, also known as Tax Reform for Acceleration and Inclusion (TRAIN) and implemented by RR No. 21- 2018. SO ORDERED." Unfazed, petitioner filed its Motion for Extension of Time to File Verified Petition for Review (Pursuant to Rule 8, Sec. 3(b) of the Revised Rules of the Court of Tax Appeals) on January 15, 2020,4 which was granted in the Court's Minute Resolution dated January 17, 2020. 5 Petitioner was granted a final and non-extendible period of fifteen (15) days from January 18, 2020, or until February 2, 2020, within which to file its Petition for Review. (J") � CTA EB Rollo, pp. 1-3. s CTA EB Rollo, p. 4.

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 6 of40 On January 31, 2020, petitioner filed the present Petition for Review. 6 In the Resolution dated June 5, 2020, respondent was ordered to file a comment, not a motion to dismiss, on the Petition for Review. 7 Respondent filed his Motion to Admit Attached Comment on July 1, 2020. 8 The Court granted the said motion and admitted the attached CommenUOpposition Re: Petitioner's Petition for Review in the Resolution dated September 1, 2020_9 In the same Resolution, the case was referred to the Philippine Mediation Center-Court of Tax Appeals (PMC-CTA) for mediation. PMC Form 9 or the Request for Extension [of mediation] filed on November 19, 2020, 10 was granted in the Resolution dated January 15, 2021. The parties were given a final extension of thirty (30) days from November 26, 2020 or until December 26, 2020 within which to reach an amicable settlement. 11 Petitioner filed on March 15, 2021 a Manifestation on the Status of the Compromise Agreement informing the Court that it had submitted its offer of compromise settlement to respondent and that it had been informed that the offer is still for further negotiation. 12 In the Resolution dated June 2, 2021, the Court suspended the proceedings for an additional sixty (60) days from May 15, 2021 when the quarantine classification of the National Capital Region (NCR) was downgraded to General Community Quarantine (GCQ) with heightened restrictions or until July 14, 2021. The parties were directed to submit a Report on the progress of their judicial compromise within five (5) days from July 14, 2021. 13 On July 19, 2021, petitioner filed a Manifestation on the Status of the Compromise Agreement informing the Court that it had submitted its Revised Compromise Offer to respondent and that it was hopeful that the revised compromise offer would be given favorable consideration for the expedient resolution of the case. Petitioner s CTA EB Rollo, pp. 5-110. 7 CTA EB Rollo, pp. 112-113. 8 CTA EB Rollo, pp. 114-123. 9 CTA EB Rollo, pp. 125-126. 1o CTA EB Rollo, p. 127. 11 CTA EB Rollo, pp. 129-130. 12 CTA EB Rollo, pp. 132-133. 13 CTA EB Rollo, pp. 146-147. e1

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 7 of40 prayed that an extension of one (1) month, or until August 19, 2021, be granted for the parties to reach a compromise. 14 In the Resolution dated October 27, 2021, the Court declared that with the developments in quarantine classification, petitioner's prayer for extension until August 19, 2021 is moot. The Court suspended the proceedings for an additional non-extendible period of sixty (60) days from October 1, 2021, or until November 30, 2021 in order to afford the parties ample opportunity to settle the case amicably. The parties were directed to submit a Joint Report on the progress of their judicial compromise within five (5) days from November30, 2021. 15 In the Resolution dated March 2, 2022, the Court reiterated the order requiring the parties to submit their Joint Report on the status of their judicial compromise within five (5) days from notice. 16 Respondent filed on April 6, 2022 a Manifestation and Compliance With Apologies (Re: Resolution dated 02 March 2022) informing the Court that petitioner's offer of compromise submitted on December 2, 2021 was denied by respondent, and that petitioner submitted an improved offer of compromise which is pending before respondent's office for approvaiY In the Resolution dated June 7, 2022, the Court noted the aforesaid respondent's Manifestation and Compliance With Apologies. Since the Petition for Review has been pending for more than two (2) years already, and taking into account the denial by respondent of petitioner's original offer of compromise, the Court reinstated the proceedings in this case and submitted the Petition for Review for decision. 18 Meanwhile, PMC-CTA Form 5 (Mediator's Report), filed on July 28, 2022, stating the unsuccessful mediation of this case, was noted in the Resolution dated August 22, 2022. 14 CTA EB Rollo, pp. 148-150. 15 CTA EB Rollo, pp. 162-164. 1s CTA EB Rollo, pp. 170-171. 17 CTA EB Rollo, pp. 174-177. 1a CTA EB Rollo, pp. 179-181.(11

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 8 of40 PETITIONER'S ARGUMENTS Petitioner agrees with the Court in Division in rejecting part of the findings of the respondent, but raises on appeal the items of income tax assessment sustained by the Court in Division. Petitioner argues the following with respect to the sustained items of assessment: 1. Unallowable Sales Returns &Allowances - 1'"16,281 ,370.23 Although the amount verified by the ICPA was only to the extent of 1'"39,258,500.52, it does not necessarily mean that the unverified portion of [the contra-sales account] amounting to 1'"16,281,370.23, as found by the Court in Division, may already be disallowed as deduction. Respondent failed to provide the legal basis for the disallowance of "sales discounts" as the FLO merely cites Revenue Audit Memorandum Order (RAMO) No. 01-1999, without stating which portion thereof provides a requirement for the production of the "Debit/Credit Memo and Certificate of Deductibility". Anent the disallowance of the difference between the Sales Return and Discounts accounted by the ICPA and the Sales Return and Discounts recorded by petitioner for the months of February and April 2011 in the aggregate amount of 1'"2,489,328.35, while the amounts accounted by the ICPA for these months were higher than that recorded in the ledger, this, however, did not remove the fact that these Sales Return and Discounts are from 2011. It is a normal occurrence in bookkeeping for posting of transactions to be made in other periods (i.e., earlier or subsequent months). Afterall, for the other months of 2011, except for February and April, the ICPA was able to validate less Sales Returns and Discounts than what were recorded in the ledger. In this situation, the 1'"2,489,328.35 excess validated Returns and Discounts could very well be from these other months. 2. Unsupported Freight-In, Fuel & Transportation Expenses - P29, 181,966.24 The question is whether the suppliers for the alleged difference of P29, 181 ,966.24 were listed in petitioner's Summary List of Purchases (SLP). The concern of the respondent in his FLO does not call for the production of the source documents. The complete listing of suppliers in the SLP relating to freight-in, fuel & transportation expenses was completely addressed by the ICPA. Petitioner's freight-in, fuel & transportation expenses were found in the SLP, contrary to the asseveration of the respondent. Out of P59,559,522.08, the ICPA was able to verify the amount of 1'"58,563,790.52. While it would seem that there is a difference of P995,731.79, this was only because the ICPA cannot match the particular supplier to the particular expenditure item the supplier should be categorized. The deficiency income tax assessment on ~

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) alleged unsupported freight-in, fuel and transportation expense are without factual or legal basis. 3. Unsupported Advertising & Other Outside Services P22,089, 137.55 Petitioner insists that the allegation on unsupported advertising &other outside services has no factual basis. It avers that it presented its SLP for the 1�t, 2"d, 3'd and 41h Quarters for the year 2011, Audited Financial Statements (FS), Monthly and Quarterly VAT Returns to prove that the income payments made to various entities which represent Advertising and Other Outside Services has been properly reported to the BIR. Petitioner presented its line-by-line reconciliation to explain the alleged unsupported amounts. The Court in Division missed the fact that apart from the summary for certain expense items, the same were likewise supported by source documents which were submitted to the Court through a USB. With respect to the purchases from Asia Brewery (P4,676,301.75) and lnterbev Philippines (P939,937.48) which were charged to advertising (total of P5,616,239.23), while these purchases would have formed part of the Cost of Sales, the total was removed from the Cost of Sales and reclassified instead as advertising expenses, which is more appropriate considering the nature of these expenses. The matter of classifying legitimate costs and expenses in the books of accounts, either as Cost of Sales or expenses, is a discretion left on the management, and in any way, [the amount] would have been deducted from the taxable income. 4. Sales to Government (not included in the SLS)- P176,387.43 Petitioner claims that its sales to the Provincial Government of Camarines Sur were reported in the Summary List of Sales (SLS) for 2011 under the name, Camarines Sur Water Sports Complex (CLC). The ICPA was able to verify the fact of sales to the Province of Camarines Sur through the Certificate of Withholding Tax at Source (BIR Form 2306) by the petitioner, and that the same were included in petitioner's SLS under the registered name "CWC". Petitioner also moves for the Court to take judicial notice that the CWC is located within the Provincial Capitol Complex of Camarines Sur, supporting its contention that CWC listed in its SLS actually pertains to the Provincial Government of Camarines Sur. Thus, petitioner concludes that the deficiency income tax assessment on the sales to government for allegedly not having been included in the SLS should be cancelled for want of factual or legal bases. 5. Excess of Standard input over actual input (to be closed to expense)- (P10,475.73) As this assessed item relates to [the alleged sales to government not included in the SLS], petitioner reiterates that all its sales to the Provincial Government of Camarines Sur were duly supported in its SLS under the name Camarines Sur Water Sports Complex (CLC). Thus, it is petitioner's position that the assessed item is without factual basis.~

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) 6. Disallowed Expense due to non-withholding- 1'"41 ,230,990.26 Petitioner disagrees with the findings of the respondent. It claims that it properly subjected the income payments covered by the withholding tax system. Respondent's assumption that all income payments are subject to withholding tax is incorrect as the ICPA confirmed that not all expenses it claimed are subject to withholding tax. The alleged income payments to suppliers not subjected to Expanded Withholding Tax (EWT) are either (i) casual purchases or from a person who is not considered a regular supplier, (ii) petty cash disbursements incurred by salesmen and sales off1ces such as, but not limited to meals, representation and entertainment, gasoline, out- of-town fieldwork expenses and supplies or (iii) expenses that were paid in cash such as, but not limited to prepaid cellphone loads, registered mails transmitted to customers and the like. In addition, the ICPA found that based on the supporting documents, purchases from Sincere Management Staff and Golden Touch Advertising, were found to be subject to EWT. The deficiency income tax and corresponding EWT assessment were derived by respondent as a result of a mere comparison of petitioner's EWT forms and petitioner's purchases per Financial Statements/Income Tax Return/Trial Balance (FS/ITR/TB). As observed by the ICPA, respondent did not present supplier invoice details to explain the observed difference which may be due only to timing differences. Assuming that certain expenses were not subjected to withholding taxes, respondent cannot simply disallow the expenses claimed as deduction from gross income for failure of the taxpayer to subject them to withholding taxes. If there is a deficiency in the payment of the withholding tax, respondent should, at the very least, assess it for deficiency in withholding taxes and not disallow the expenses altogether as this is deprivation of property without due process of law which no less than the Constitution proscribes. The prevailing rule during the taxable year under audit is Revenue Regulations No. 14-2002 which states that [a deduction will also be allowed where no withholding of tax was made] when the withholding agent erroneously underwithheld the tax but pays the difference between the correct amount and the amount of tax withheld, including the interest, incident to such error, and surcharges, if applicable, at the time of the audit/investigation or reinvestigation/reconsideration. 7. Gross Profit on Undeclared sales per reconciliation of SLS & SAWT- 1'"1 ,428,182.54 The assessment is downright speculative. The fact that the total income payment received as appearing in the SAWT is higher than the income payment received based on the SLS does not necessarily imply unrecorded sales. For it may happen that the SAWT total is higher due to timing difference, or due to variance in accounting system adopted by the payor and the payee of income. l\11

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Revenue Regulations No. 2-98 recognizes the variance in the time of recording, where it is possible that withholding would be made either at the time of accrual or payment, whichever comes first. 8. Imposition of Surcharge or Interests has no factual and legal bases Considering that the imposition of interests and surcharge are in the nature of accessory penalties to the alleged deficiency basic taxes due and unpaid, the same should be cancelled upon the nullification of the assessment issues that were assailed in the Petition for Review. RESPONDENT'S ARGUMENTS In his Comment/Opposition Re: Petitioner's Petition for Review filed on July 1, 2020, 19 respondent raises the following: 1. The arguments propounded by petitioner are without merit; 2. The Court in Division is correct in ruling that petitioner is liable for deficiency income tax assessment; 3. Assessments are presumed correct and made in good faith. The burden of proof is on the taxpayer contesting the validity or correctness of an assessment to prove not only that the Commissioner of Internal Revenue is wrong but the taxpayer is right. Dereliction on the part of the petitioner to satisfactorily overcome the presumption of regularity and correctness of the assessment will justify the judicial upholding of the assessment. 4. As noted by the Court in Division, sales returns and discounts require proper substantiation for it to be allowed as deduction from gross sales to arrive at gross income. The sales returns and discounts, being unsupported, were correctly disallowed by the Court; 5. The Freight, Fuel and Transportation Expense was correctly disallowed for being unsupported; and, 6. Since petitioner failed to present sufficient evidence to disprove respondent's findings, the disallowance was properly upheld by the Court. ISSUE Whether or not petitioner is liable for the assessed deficiency Income Tax for taxable year 2011 in the aggregate amount of ft1 09, 154,369.56, inclusive of interest and penalties.20 19 CTA EB Rollo, pp. 119-123. 20 Petition for Review, CTA EB Rollo, p. 14.~

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 12 of40 THE COURT EN BANC'S RULING CTA En Bane has jurisdiction over the case The present case is a Petition for Review of the assailed Decision and assailed Amended Decision rendered by the Court in Division relative to the disputed deficiency taxes issued by the Bureau of Internal Revenue (BIR) against petitioner forTY ending December 31,2011. The Court En Bane is vested with authority to review the said assailed Decision and assailed Amended Decision of the Court in Division pursuant to Section 1821 of Republic Act (R.A.) No. 1125,22 as amended by R.A. No. 9282, 23 in relation to Section 2(a)(1 ), Rule 4 of the Revised Rules of the Court of Tax Appeals (RRCTA), as amended. 24 Moreover, the present Petition for Review was filed on January 31, 2020, which is within the extended period pursuant to Court En Bane's Minute Resolution dated January 17, 2020.25 Clearly, the Court En Bane can properly take cognizance over the present Petition for Review. CTA En Bane sustains the findings of the Court in Division In the assailed Decision, petitioner was ordered to pay a Basic Deficiency Income Tax of P33, 113,267.56. As aforesaid, in the 21 SEC. 18. Appeal to the Court of Tax Appeals En Bane. -No civil proceeding involving matter arising under the National Internal Revenue Code, the Tariff and Customs Code or the Local Government Code shall be maintained, except as herein provided, until and unless an appeal has been previously filed with the CTA and disposed of in accordance with the provisions of this Act. A party adversely affected by a resolution of a Division of the CTA on a motion for reconsiderat'1on or new trial, may file a petition for review with the CTA en bane. 22 An Act Creating the Court of Tax Appeals. 23 An Act Expanding the Jurisdiction of the Court of Tax Appeals (CTA), Elevating Its Rank to the Level of a Collegiate Court With Special Jurisdiction and Enlarging Its Membership, Amending for the Purpose Certain Sections of Republic Act No. 1125, as Amended, Otherwise Known as the Law Creating the Court of Tax Appeals, and for Other Purposes. 24 Sec. 2. Cases within the jurisdiction of the Court en bane. - The Court en bane shall exercise exclusive appellate jurisdiction to review by appeal the following: (a) Decisions or resolutions on motions for reconsideration or new trial of the Court in Divisions in the exercise of its exclusive appellate jurisdiction over: (1) Cases arising from administrative agencies- Bureau of Internal Revenue, Bureau of Customs, (i) Department of Finance, Department of Trade and Industry, Department of Agriculture[.] 2s CTA EB Rollo, p. 4.

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) assailed Amended Decision, the Basic Deficiency Income Tax was reduced to P32,91 0,441.15 in the light of the findings of the Court in Division anent the substantiated Advertising and Promotions Expenses amounting to P676,088.02. Thus, petitioner was ordered to pay respondent the aggregate amount of P1 09, 154,369.56, inclusive of the Basic Deficiency Income Tax of P32,91 0,441.15, 25% surcharge, 20% deficiency interest and 20% delinquency interest imposed under Sections 248(A)(3), 249(B) and (C) of the NIRC of 1997, as amended, respectively, computed until December 31,2017. The adjusted Basic Deficiency Income Tax of P32,910,441.15 is computed below: Reference Basis for the Assessment in the FLO Amount 16,281,370.23 IT-3 Unallowable Sales Returns & Allowances 29,181,966.24 Unsupported Freight-in, Fuel & Transportation 21,413,049.53 IT-4 expenses 176,387.43 Unsupported Advertising & Other Outside (10,475.73) Services (,.22,089, 137.55/ess the amount of 41,230,990.26 f>676,088.02 which was reconsidered in the 1 ,428,182.54 109,701,470.50 IT-5 assailed Amended Decision) 4,236,787.70 IT-6 Sales to Gov't (not included in the SLS) 113,938,258.20 Excess of std input over actual input (to be 30% 34,181,477.46 IT-7 closed to expense) 1,271,036.31 Disallowed expenses due to nonwithholding 32,910,441.15 IT-8 (Sec. 34K, NIRC) GP on undeclared sales per recon of SLS, IT-9 SAWT [& TPI Data] Total Adjustments Per Audit Taxable Income per return Taxable Income per Audit Income Tax Rate Income Tax Due Per Audit Allowable Credits Basic Deficiency Income Tax The aforesaid items of income tax assessment in the assailed Decision, as adjusted in the assailed Amended Decision, are sought to be reconsidered in the present Petition for Review. After a careful review of the arguments raised by petitioner, the Court finds that the same were already sufficiently threshed out and {fJ passed upon by the Court in Division in the assailed Decision and Amended Decision.

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 14 of40 The Court, however, opts to address the issues raised by petitioner to settle once and for all the controversy. IT-3 Unallowable Sales Returns and Allowances - P16,281,370.23 To recall, respondent disallowed petitioner's sales discounts amounting to 1846,338,319.08 due to petitioner's alleged failure to present the required supporting documents. The Details of Discrepancies attached to the FLO stated that "[a]s part of the audit procedure for Sales account, the contra-sales account, Sales Returns, Discount & Allowances requires verification of supporting records such as Debit/Credit Memo and Certificate of Deductibility issued by the BIR, pursuant to RAMO No. 01-1999. The amount of contra-sales account reflected in the Trial Balance was not considered as a valid reduction of sales due to failure to present the required supporting documents." In the assailed Decision, the Court in Division partially upheld the disallowance. The Court in Division found that notwithstanding the absence of Debit/Credit Memo or Certificate of Deductibility issued by the BIR, petitioner sufficiently proved a portion of its claimed sales returns, discounts and allowances through the presentation of its sales invoices forTY 2011. In the present Petition, however, petitioner reiterates its contention that the FLO merely cites RAMO No. 01-1999 as legal basis for the subject item of assessment without actually stating which portion thereof requires the production of the documents "Debit/Credit Memo and Certificate of Deductibility" to allow the sales discounts to be deducted from the gross sales. Thus, petitioner argues that the FLO failed to provide the legal basis for the disallowance of the sales discount as a valid deduction from gross sales. Petitioner's contention is untenable. Contrary to petitioner's allegations, records reveal that respondent provided factual and legal bases for the subject item of assessment as shown in the Details of Discrepancies26 attached to the FLO. Since the assessment contains factual and legal bases, there is no violation of petitioner's right to due process. In fact, petitioner was '"Exhibit "P-37-a", BIR Records, Folder 2, pp. 1599-1604."'

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) able to effectively refute the assessment and explain its side thereon by arguing in its protest to the FLD/FAN that it had proper documentation of the sales discounts in the form of sales invoices which it submitted to respondent. 27 The Court in Division was correct in holding that the presentation of sales invoices is sufficient to prove the sales discounts and allowances. It must be emphasized that the term "gross income" derived from business is invariably stated in Title II (Tax on Income) of the NIRC of 1997, as amended. 28 The term 'gross income' derived from business shall be equivalent to gross sales less sales returns, discounts and allowances and cost of goods sold.29 The Chapter pertaining to Tax on Income does not elaborate on the concept about "sales returns, discounts and allowances". Nonetheless, Section 106(0), a provision on VAT under Title IV of the of the NIRC of 1997, as amended, gives light on the concept of sales returns, discounts and allowances, viz.: "SEC. 106. Value-added Tax on Sale of Goods or Properties. -XXX (D) Sales Returns, Allowances and Sales Discounts. - The value of goods or properties sold and subsequently returned or for which allowances were granted by a VAT-registered person may be deducted from the gross sales or receipts for the quarter in which a refund is made or a credit memorandum or refund is issued. Sales discount granted and indicated in the invoice at the time of sale and the grant of which does not depend upon the happening of a future event may be excluded from the gross sales within the same quarter it was given." Although the afore-quoted provision is stated under Title IV of the NIRC of 1997, as amended, the same is equally applicable for income tax purposes in determining their deductibility or exclusion from gross sales. It is a rule in statutory construction that every part of the statute must be considered together with the other parts, and kept subservient to the general intent of the whole enactment. The law must not be read in truncated parts, its provisions must be read in relation to the whole law. The particular words, clauses and phrases should not be studied as detached and isolated expression, but the whole and 27 Protest to the FAN, Exhibit "P-38", CTA Docket, Vol. Ill, pp. 1498-1517. 28 See for instance Sections 27, 28, 31, 32 of the NIRC of 1997, as amended. 29 Section 27, NIRC of 1997, as amended. l11

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 16 of40 every part of the statute must be considered in fixing the meaning of any of its parts and in order to produce a harmonious whole. 30 In relation to Section 106(D) of the NIRC of 1997, as amended, Section 4.106.9 of Revenue Regulations (RR) No. 16-2005 provides that a sales discount be indicated in the invoice at the time of sale for it to be excluded from the gross sales, to wit: "SEC. 4.106-9.- Allowable Deductions from Gross Selling Price. - In computing the taxable base during the month or quarter, the following shall be allowed as deductions from gross selling price: (a) Discounts determined and granted at the time of sale, which are expressly indicated in the invoice, the amount thereof forming part of the gross sales duly recorded in the books of accounts. Sales discount indicated in the invoice at the time of sale, the grant of which is not dependent upon the happening of a future event, may be excluded from the gross sales within the same month/quarter it was given. (b) Sales returns and allowances for which a proper credit or refund was made during the month or quarter to the buyer for sales previously recorded as taxable sales." (Boldfacing supplied) Upon evaluation of the Summary of Sales and the corresponding sales invoices, 31 the Court in Division concluded that the disallowed contra-sales account "Sales Returns, Discount, & Allowances" actually consisted of "trade discounts," "deals," and "pick-up allowances" which are all in the nature of sales discount. Considering that these were given to the customers at the time of sale and properly indicated in the sales invoice, then the sales invoices are sufficient to prove such discounts. Scrutiny of the ICPA's monthly schedules of sales returns/discounts and allowances, together with the corresponding invoices, shows that petitioner's substantiated sales returns and discounts from its five sales offices amounted to P36,451 ,830.46 (inclusive of VAT) or P32,546,277.20 (exclusive of VAT)a2 Ultimately, the Court in Division upheld the disallowance of sales discount amounting to P16,281 ,370.23, representing the difference between the sales discount of P46,338,319.08 per petitioner's schedules and �3 Commissioner of Internal Revenue vs. Pilipinas Shell Petroleum Corporation, G.R. No. 192398, September 29, 2014. 31 Exhibit "P-120-A-1-1 and series" to "P-120-E-12-1 and series" except the exhibits which were 1'1 denied admission by the Court. 32 Assailed Decision, CTA EB Rollo, pp. 82-84.

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) sales discount per !CPA's schedule, as recomputed by the Court in Division, amounting to P30,056,948.85. 33 Petitioner further questions the disallowance of the difference between the sales returns and discounts accounted by the ICPA and the sales returns and discounts recorded by petitioner for the months of February and April 2011 in the aggregate amount of P2,489,328.95. Petitioner argues that while the amounts accounted by the ICPA for the said months were higher than that recorded in the ledger, such finding did not remove the fact that these returns and discounts are from 2011. Moreover, petitioner posits that it is a normal occurrence in bookkeeping for posting transactions to be made either in earlier or later periods. Finally, petitioner believes that the amount of P2,489,328.95 could be from the other months where the ICPA validated less returns and discounts than those recorded in petitioner's ledgers. The Court finds petitioner's contentions without merit. Petitioner failed to substantiate its allegation that the P2,489,328.95 excess validated sales discounts pertain to the months other than February and April 2011. Allegations are not evidence, and without evidence, bare allegations do not prove facts. 34 Section 4.106-9 of RR No. 16-2005 mandates that sales discount indicated in the invoice at the time of sale, the grant of which is not dependent upon the happening of a future event, may be excluded from the gross sales within the same month/quarter it was given. In other words, it is required that the sales discounts given in a specific taxable period should be excluded from the gross sales reported in the very same taxable period. The ICPA determined that for the months of February and April 2011, there are sales discounts amounting to P1 ,521,969.12 and P967,359.23, respectively, that were not excluded from gross sales in the same months. In February 2011, petitioner only reported sales discounts amounting to P810,993.42 contrary to the finding of the ICPA that in the same month, petitioner granted sales discounts amounting to P2,332,962.54. Similarly, in April 2011, petitioner only reported sales discounts amounting to P1,724,517.90 while the ICPA 33 Substantiated sales discount, net of VAT amounting to 1"32,546,277.20 less over-accounted sales discount amounting to 1"2,489,328.95 which did not form part of the 1"46,338,319.08 sales discounts claimed by petitioner. 34 Sabellina vs. Buray et al., G.R. No. 187727, September 2, 2015. ~

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 18 of40 found that in the same month, petitioner actually granted sales discounts amounting to P2,691 ,877.13. Petitioner attempts to explain by arguing that the sales discounts in the aggregate amount of P2,489,328.95 were granted in months other than February and April 2011 so that it was proper for petitioner not to exclude them from gross sales reported in February and April 2011. Contrary to such claims, the ICPA noted that the sales discounts pertain to the months of February and April 2011. The ICPA evaluated the sales invoices dated within the said months and accounted these sales discounts as indicated in the said invoices. It is, therefore, inappropriate to claim that these sales discounts are from other months. In fine, it is proper to sustain the disallowance of the unsubstantiated sales discounts amounting to P16,281 ,370.23. /T-4 Unsupported Freight-in, Fuel & Transportation Expenses- P29, 181,966.24 To recall, respondent assessed petitioner for the unsupported freight-in, fuel and transportation expenses amounting to P29, 181,966.24, computed as follows: Per FS/ITRITB Freight-In '" 47,329,257.00 Transportation 2,369,147.21 9,861,117.87 Fuel & Oil I" 59,559,522.08 11,702,250.28 Less: Freight Contractors & Fuel Suppliers per SLP: 4,970,167.56 ~ 4,749,098.05 LFH Ventures Mdsg Corp. 2,687,483.02 2,539,108.30 Pilipinas Shell Petroleum Corp. 1,774,705.07 743,925.07 Petron Corp 709,860.05 259,411.75 Rapid Movers & Forwarders Co Inc. 63,169.59 43,628.04 Quincela Shipping Lines 28,658.03 28,316.81 Hizon Transport Services & Trdg Inc. 25,002.84 MRTC Trucking Services Corp Our Beverly Village Trucking Corp CMT Hauling Services Regina Shipping Lines Inc Powerzone Petroleum Products Corp Philippine Airlines Inc LBC Express-Sellnc JRS Business Corp

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 19 of40 Montenegro Shipping Lines Inc 17,133.89 30,377,555.84 TCL Merchandise Brokerage Inc 16,986.83 ~ 29,181 ,966.24 Air Philippines Corp Santa Clara Shipping Corp 6,751.78 Penafrancia Shipping Corp 5,107.13 DHL Worldwide Express 3,587.26 Unsupported 3,204.49 Petitioner argues that this item of assessment should be cancelled inasmuch as first, the ICPA was able to name the contractors and suppliers for freight-in, transportation and fuel expenses amounting to ~54,292,071.57 as shown in the "Reconciliation of Freight, Fuel & Transpo Expenses"; 35 and, second, petitioner has submitted the receipts and invoices36 for the non-VAT expenses amounting to ~4,271, 718.95. Out of the total freight-in, transportation and fuel expenses per FS/ITR amounting to ~59,559,522.08, petitioner claims that the ICPA has verified expenses amounting to ~58,563,790.52. Hence, petitioner effectively claims that only the difference of ~995, 731.79 should remain in this item of assessment considering that the ICPA cannot trace this amount. In essence, petitioner reiterates its contention that the subject item of assessment does not call for the production of source documents pertaining to the unsupported freight-in, fuel and transportation expenses, but merely for the completion of the list of suppliers in the SLP. Petitioner's contention lacks merit. As shown in respondent's computation of this item of assessment, the amount of ~29,181,966.24 pertains to the "unsupported" freight-in, transportation and fuel expenses." By using the word "unsupported", respondent's clear intention is to require petitioner to provide the breakdown of the total expenses as well as the source documents thereof. Without the supporting source documents, the Court cannot simply accept the reconciliation prepared by the ICPA. It bears stressing that the Court is not bound by the findings of the ICPA as so provided in Section 3, Rule 13 of the Revised Rules of the Court of Tax Appeals (RRTCA), as amended, viz: 35 Exhibit "P-95". 36 Exhibits "P-95-d" and series, and "P-95-e" and series. ~

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 20 of40 "SEC. 3. Findings of independent CPA.- The submission by the independent CPA of pre-marked documentary exhibits shall be subject to verification and comparison with the original documents, the availability of which shall be the primary responsibility of the party possessing such documents and, secondarily, by the independent CPA. The findings and conclusions of the independent CPA may be challenged by the parties and shall not be conclusive upon the Court, which may, in whole or in part, adopt such findings and conclusion subject to verification." (Boldfacing supplied) The ICPA's findings are not conclusive as the same are subject to verification as to their accuracy, veracity and merit. The Court may either adopt or reject the ICPA Report, wholly or partially, depending on the outcome of its own independent verification. Thus, absent the source documents supporting the items indicated in the reconciliation prepared by the ICPA, the Court is constrained to reject the findings of the ICPA thereby disallowing freight-in, transportation and fuel expenses amounting to P29, 181,966.24. /T-5 Unsupported Advertising and Other Outside Services - P21,413,049.53 In the assailed Decision, the Court in Division upheld respondent's disallowance of advertising expenses amounting to P22,089, 137.55 due to petitioner's failure to submit supporting documents. In the assailed Amended Decision, however, the Court in Division verified the source documents for the Non-VATable Outside Services and Advertising & Promotions Expenses and determined that expenses amounting to a total of P676,088.02 were found to be properly substantiated by sales invoices and official receipts. Thus, deducting this amount from the original disallowance of P22,089, 137.55, the remaining disallowed expenses is P21 ,413,049.53. To recall, the original disallowance of P22,089, 137.55 was computed by respondent as follows:O')

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 21 of40 Per FSffB: 1,142,961.38 23,232,098.93 Security Services 11,609,840.55 Outside services 10,479,297.00 Advertising & Promotions 375,000.00 1 '142,961.38 Less: Service & Advertising Provider per SLP: 312,187.50 22,089,137.55 ligon Security Investigation & Gen Services Inc 268,273.88 Paraseal Security Agency 137,500.00 New Bicol Veterans Security Agency Inc Mezza Security Agency Inc 50,000.00 Hot Rod Detective & Protective Agency Inc Unsupported/un-necessary advertising expenses Petitioner presented a reconciliation 37 between the total advertising and outside services per Financial Statements/Trial Balance and total advertising and outside services per SLP. Examination of the reconciliation revealed the following breakdown and a discrepancy amounting to P2,330,572.67, computed as follows: Reconciliation Items Amount VA Table (a} Security Services per SLP 1'142,961.38 (b) Advertising and Promotions per SLP 1,209,905.09 (c) Asia Brewery Inc. purchase charged to Advertising 4,676,301. 75 (d) lnterbev Philippines, Inc. purchase charged to Advertising (e) Outside Services 939,937.48 Non-VATable 1,841 ,604.50 (a) Outside Services Total 11,090,816.06 Advertising & Other Outside Services per FS/TB 20,901,526.26 Unsupported Advertising & Other Outside Services per 23,232,098.93 ICPA 2,330,572.67 "Paragraph 49, Petition for Review, CTA EB Docket, p. 24.11

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 22 of40 VA Table (a) Security Services per SLP (P1, 142,961.38) (b) Advertising and Promotions per SLP (P1,209,905.09); and (e) Outside Services (P1,841,604.50) To support the security services, advertising and promotions, and outside services, petitioner submitted the "Schedule of Security Services per SLP", 38 "Schedule of Vatable- Advertising & Promotion per SLP", 39 and "Schedule of Vatable- Outside Services per SLP",40 respectively. Undeniably, these documents are mere schedules prepared by petitioner and without the supporting source documents, the Court cannot determine whether these expenses were indeed incurred. (c) Asia Brewery Inc. purchase charged to Advertising (P4,676,301. 75); and (d) lnterbev Philippines Inc. purchase charged to Advertising (P939,937.48) Petitioner claims that portions of its purchases from and payments to Asia Brewery Inc. and lnterbev Philippines, Inc. pertain to freebies or products given to its customers for promotion purposes. To support its claim, petitioner offered a "Reconciliation of Taxes Withheld vs. Audited Financial Statement,"41 showing that inventories purchased from Asia Brewery Inc. and lnterbev Philippines, Inc. with a total value of P5,616,239.23 were reclassified from cost of sales to operating expenses. As shown in the Reconciliation below, petitioner deducted "Purchases charged to Advertising (Complimentaries)" with an amount of P5,616,239.23 from the purchases during the taxable year to arrive at the net purchases, and such deduction effectively reduced the cost of sales by the same amount. The deducted purchases, which according to petitioner were given to its customers as freebies, were 3a Exhibit "P-96-a". 39 Exhibit "P-96-c". tl 4o Exhibit "P-96-b". 41 Exhibit "P-98".

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 23 of40 claimed as ordinary deduction, particularly under the advertising expense account. Shown below is the pertinent portion of the Reconciliation showing the above-explained reclassification: SALES 100% 394,636,706.321 COST OF SALES 84% 30,405,210.42 I Beg. Inventories 339,677,518.77 Purchases Purchase Returns (506,085.90) Vatable Purchase Discounts (6,448,684.98) Non-vatable Purchase Discounts (44, 199,888.00) Purchases charged to Advertising (5,616,239.23) (Complimentaries) 282,906,620.66 Freight 47,329,257.23 Net Purchases 330,235,877.89 TGAFS [Total Goods Available For Sale] 360,641,088.31 Net Purchases (28,035,788.43) Cost of Sales 332,605,299.88 GROSS PROFIT 16% 62,031,40644 OPERATING EXPENSES �- Salaries and Wages Fringe Benefits 14,837,145.60 Rental 250,191.93 Professional Fees 292,989.28 Security Services 37,900.00 Other Outside Services Advertising 1 '142,961.38 11,609,840.55 Complimentaries 10,479,297.17 Promotions Repairs and Maintenance 5,616,239.23 Research and Development 4,863,057.94 Office Supplies 2,900,720.04 SSS, GSIS, Philhealth, HDMF & etc. 295,335.52 287,084.81 983,745.05 ~

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 24 of40 Insurance 405.00 Representation and Entertainment 236,191.93 Transportation and Travel 2,369,147.21 Fuel and Oil 9,861 '117.87 Communication, Light and Power 1,569,521.99 Taxes and Licenses 381,250.29 Losses 171,797.49 Depreciation Charitable Contribution 81,139.13 Miscellaneous - NET TAXABLE INCOME 6,836.50 57,794,618.74 4,236, 787.7042 According to petitioner, while those purchases would have formed part of the cost of sales, the amount of P5,616,239.23 was deducted from cost of sales and reclassified instead as advertising expense. To petitioner, it is more appropriate to claim these purchases as advertising expenses considering that they were not sold but given away as freebies to its customers. Essentially, petitioner contends that the matter of classifying legitimate costs and expenses in the books of accounts (i.e., either as cost of sales or ordinary expenses) is a discretion left to management and in any case, these expenses would have certainly reduced its taxable income. While the Court agrees that the matter of classifying legitimate costs and expenses is left to the discretion of management, it is incumbent upon the taxpayer to prove that the classification was proper by submitting the supporting documentary requirements. To establish that business expenses are deductible for income tax purposes, such must pass the substantiation requirements under Section 34(A)(1 )(b) of the NIRC of 1997, which reads as follows: "Section 34. Deductions from Gross Income. - xxx (A) Expenses. - (1) Ordinary and Necessary Trade, Business or Professional Expenses.- XXX XXX XXX 42 Per Reconciliation, the net taxable income is (1"6,242,509.47) but upon re-computation the correct net taxable income is 1"4,236, 787.70 which tallies with the taxable income per return. ~

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 25 of40 (b) Substantiation Requirements. - No deduction from gross income shall be allowed under Subsection (A) hereof unless the taxpayer shall substantiate with sufficient evidence, such as official receipts or other adequate records: (i) the amount of the expense being deducted, and (ii) the direct connection or relation of the expense being deducted to the development, management, operation and/or conduct of the trade, business or profession of the taxpayer." In this case, petitioner failed to submit evidence supporting the amount of expenses charged to the advertising expenses account and the receipt of the freebies by petitioner's customers. By showing the Reconciliation and the invoices supporting the purchases, petitioner simply pointed out that these expenses were part of the purchases made by it during the taxable year, reclassified them as advertising expenses, and nothing more. Lamentably, it is not sufficient to prove that these supposed freebies were originally part of the purchases; it must be shown that these inventories were first withdrawn from the inventories for sale, and second, they were actually given as freebies to the customers. Mere reclassification of accounts, i.e., from cost of sales to advertising expense, does not even prove that there was actual withdrawal of the goods, much less a free distribution thereof to customers. Non-VATable (a) Outside Services (f/111 ,090,816.06) With respect to the non-VATable outside services, petitioner claims that the Court in Division failed to consider that apart from the summary of the following expense items, they are likewise supported by source documents: Non-VATable Outside Services Amount Exhibit 201,737.81 P-96-d and series Commission-OP 12,000.00 P-96-e and series P-96-f and series Janitorial & Security 5,456,878.89 Salesmen Expenses Non-VATable Advertising & Promotions 5,420,199.36 P-96-g and series Promotions- Sponsorship Total 11,090,816.06 - -- -- - - - - - -- -- - ------ The Court evaluated the claim of petitioner that the foregoing expense items are supported by source documents. After a thorough cfl

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 26 of40 examination, the Court found that the submitted documents43 are mostly paying vouchers, petty cash vouchers, statements of operating expenses, and expense reports which are all petitioner's internal documents. Thus, the Court in Division correctly ruled that these documents are self-serving evidence which do not carry much evidentiary value. It is also worth pointing out that the petty cash vouchers for the janitorial and security expenses, all dated 201 0, were incurred and paid in 2010, as shown below: Exhibit No. Payee Petty Cash PCV Date Date of Voucher (PCV) Stamp Paid P-96-e-1-3 Alex Balin 23-Mar-10 P-96-e-1-3 Herald Manzares No. 25-Mar-10 i P-96-e-2-3 Alex Balin 27-Apr-1 0 P-96-e-3-4 Herald Manzares 2010-03-142 23-Jul-1 0 31-Mar-10 P-96-e-3-4 Alex Balin 20-Jul-10 P-96-e-4-3 Alex Balin 2010-03-151 18-Aug-10 31-Mar-10 2010-04-158 2010-07-034 30-Apr-1 0 2010-07-033 2010-08-048 24-Jul-10 24-Jul-10 23-Aug-10 As aforestated, the Court found that although some of the documents presented are invoices and official receipts, they were nevertheless dated 2009 and 2010, and thus, outside the assessed taxable period. Shown below are the expenses claimed as deductions in 2011 but whose supporting invoices and official receipts were dated in prior years: Exhibit No. Payee OR/Invoice No. Date i Masbate New Life Marketing & Merchandising P-96-g-1-4 Corporation Unreadable I P-96-g-2-13 D'Golden Touch Advertising 1556 P-96-g-2-17 New Ong to Expressmart 20�Mar-10 P-96-g-2-18 Nag a Lucky Star Trading 290020 2-Mar-10 P-96-g-2-19 Robertson Department Store and Supermart 44807 12-Mar-10 P-96-g-2-20 OK Bator Store 989333 3-Mar-10 P-96-9-2-21 Philippine Fisheries Development Authority 4-Mar-10 P-96-g-2-22 Lola's Music Bar 450 4-Mar-10 P-96-g-2-23 Robertson Mall 3872 4-Mar-10 P-96-g-2-30 Philippine Fisheries Development Authority 4134 4-Mar-10 P-96-g-2-31 Boning's Trading 300641 5-Feb-10 3902 5-Mar-10 701046 6-Mar-10 43 Exhibits "P-96","P-96-a" to "P-96-c", "P-96-d" and series, "P-96-e" and series, "P-96-f' and series, "P-96-g" and series. ~

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 27 of40 P-96-g-2-35 Abonalla Sari-Sari Store 231 6-Mar-10 P-96-g-2-41 Philippine Fisheries Development Authority 3926 6-Mar-10 P-96-g-2-45 OK Bator Store 602 6-Mar-10 P-96-g-2-47 Kim's Mobile Disco 2692 10-Mar-1 0 P-96-g-2-50 OK Bator Store 604 8-Mar-10 P-96-g-2-55 New Ong To Expressmart 29001 9-Mar-10 P-96-9-2-58 Iriga Ice Plant & Cold Storage, Inc. 13844 9-Mar-10 P-96-g-2-60 New Ong To Expressmart 290017 10-Mar-10 P-96-g-2-62 Boning's Trading 70157 10-Mar-1 0 P-96-g-2-63 Robertson Department Store and Supermart 98949 10-Mar-10 P-96-g-2-64 Naga Jam Trading 1 92360 10-Mar-10 P-96-g-2-70 Iriga Ice Plant & Cold Storage, Inc. 13849 10-Mar-10 P-96-g-2-74 Iriga Ice Plant & Cold Storage, Inc. 13854 11-Mar-1 0 P-96-g-2-79 lriga Ice Plant & Cold Storage, Inc. 13858 12-Mar-1 o P-96-g-2-80 lriga Standard Bazar 7368 12-Mar-1 0 P-96-g-2-81 Joyce S. Ong Marketing 18421 13-Mar-10 P-96-9-2-82 Joyce S. Ong Marketing 18422 13-Mar-10 P-96-g-2-83 Iriga Ice Plant & Cold Storage, Inc. 13861 13-Mar-10 P-96-g-2-84 J.B.S.S Merchandising N/A 13-Mar-1 o P-96-g-2-86 Kim's Mobile Disco 2693 13-Mar-1 0 P-96-g-2-87 Fortuna Department Store 27785 13-Mar-1 0 P-96-g-2-96 Mudbugs Sports_ & Cafe 8318 11-Mar-10 P-96-g-2-97 Lucky Nine Convenience Store 3351 13-Mar-10 P-96-g-2-99 Kim's Mobile Disco 2694 16-Mar-10 P-96-g-2-1 01 DK Bator Store 488 17-Mar-1 o P-96-g-2-1 02 Luzonwide Commercial Center 140078 17-Mar-10 P-96-g-2-1 04 Ben mat Handicraft Store 3776 16-Mar-10 P-96-g-2-1 05 Robertson Department Store and Supermart 989599 17-Mar-10 P-96-g-2-1 06 Robertson Department Store and Supermart 989598 12-Mar-10 P-96-g-2-1 07 Robertson Department Store and Supermart 989899 18-Mar-10 P-96-g-2-108 J. San Pascual Native 18677 19-Mar-10 P-96-g-2-1 08 New TH Trading 251361 16-Mar-10 P-96-g-2-1 08 New TH Trading 253097 19-Mar-10 P-96-g-2-1 09 San Vicente de Ferrer Grains Center 9416 17-Mar-10 P-96-g-2-11 0 San VIcente de Ferrer Grains Center 9417 17-Mar-10 P-96-g-2-112 C.O.B. Hardware 171728 18-Mar-10 P-96-g-2-112 New Bernales Hardware 29581 18-Mar-10 P-96-g-2-113 DK Bator Store 487 18-Mar-10 P-96-g-2-114 Kim's Mobile Disco 2695 18-Mar-1 0 P-96-g-2-117 V.C. Trading 28571 19-Mar-10 P-96-g-2-117 V.C. Trading 28570 19-Mar-1 o P-96-g-2-121 Naga City 9186603 19-Mar-1 0 riJ

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 28 of40 P-96-g-2-122 Naga City 3272905 19-Mar-10 P-96-g-2-124 C-Free Purifed Drinking Water 11312 19-Mar-10 P-96-g-2-125 M Abellado Fresh Fish Retailer 364 20-Mar-10 P-96-g-2-127 Xymon Jan Eatery 1165 20-Mar-10 P-96-g-2-128 Aldecs Mobile Disco Sound System 2130 20-Mar-10 P-96-g-2-129 Kim's Mobile Disco 2698 20-Mar-1 0 P-96-g-2-130 HPJ General Merchandise 3607 20-Mar-10 P-96-g-2-137 Philippine Fisheries Development Authority 4198 12-Mar-10 P-96-g-2-141 Philippine Fisheries Development Authority 4218 18-Mar-10 Related Investment & Development P-96-g-2-144 Company, Inc. 23979 19-Mar-20 Related Investment & Development I P-96-g-2-149 Company, Inc. 23984 19-Mar-10 Related Investment & Development P-96-g-2-152 Company, Inc. 23989 20-Mar-10 P-96-g-2-155 Philippine Fisheries Development Authority 4250 P-96-g-2-167 Master Square Department Store 260524 19-Mar-10 P-96-g-2-168 Robertson Department Store and Supermart 990640 P-96-g-2-169 Beth Trading 2210 22-Mar-10 P-96-g-2-172 CBCM Rela Estate Lessor 167 P-96-g-2-173 Master Square Supermart Unreadable 22-Mar-10 P-96-g-2-174 Master Square Department Store 259843 P-96-g-2-176 San Jose Ice Plant 15276 23-Mar-10 P-96-g-2-177 Bulwagan Bicolano 1927 P-96-g-2-178 Kim's Mobile Disco 1276 26-Mar-10 P-96-g-2-179 Robertson Department Store and Supermart 991163 P-96-g-2-180 Master Square Department Store 263755 26-Mar-10 P-96-g-2-180 Mher-nang Store 29 P-96-g-2-181 Power Plus Store Unreadable 26-Mar-10 P-96-g-2-182 San Vicente de Ferrer Grains Center 9437 P-96-g-2-186 Naga City 9186705 27-Mar-10 P-96-g-2-188 Pro-Lites Electronics Sales & Services 673 P-96-g-2-194 Philippine Fisheries Development Authority 4301 28-Mar-10 P-96-g-2-195 Philippine Fisheries Development Authority 4318 P-96-g-2-202 Philippine Fisheries Development Authority 4343 27-Mar-10 P-96-g-2-202 Philippine Fisheries Development Authority 4342 P-96-g-2-206 Philippine Fisheries Development Authority 4363 26-Mar-10 P-96-g-2-209 Philippine Fisheries Development Authority 4383 P-96-g-2-212 Philippine Fisheries Development Author'1ty 4411 26-Mar-10 P-96-g-2-239 Top Hongkong Trading and Shoe Place 592459 P-96-g-2-239 Top Hongkong Trading and Shoe Place 594346 26-Mar-10 P-96-g-2-241 Refaircon Commercial Services 199 P-96-g-2-262 RM Quintela Enterprises 62531 27-Mar-10 P-96-g-2-264 Brgy. Parang 8577923 27-Mar-10 L 27-Mar-10 27-Mar-10 22-Mar-10 23-Mar-10 24-Mar-10 24-Mar-10 25-Mar-10 26-Mar-10 27-Mar-10 8-Feb-10 10-Mar-10 15-Mar-10 19-Mar-1 0 15-Mar-10 ---� ~

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 29 of40 P-96-g-2-265 Malayan Store 15172 20-Ma~�-�J P-96-g-2-266 Top Hongkong Trading and Shoe Place 594914 P-96-g-2-266 Top Hongkong Trading and Shoe Place 595237 15-Mar-10 P-96-g-2-267 Mega Mini Mart 4634 P-96-g-2-296 D&T General Merchandise 122770 18-Mar-10 P-96-g-2-297 Mega Mini Mart 4554 P-96-g-2-298 AI Vino Roast, Grill & Fry 16183 i P-96-g-2-301 Top Hongkong Trading and Shoe Place 596375 P-96-g-3-2 Sincere Staff Management Services 2255 20-Mar-10 P-96-g-4-3 D' Golden Touch Advertising 1576 P-96-g-4-5 Refaircon Commercial Services 27-Mar-10 P-96-g-4-7 Kim's Mobile Disco 376 P-96-g-4-9 Kim's Mobile Disco 2715 7-Mar-10 I P-96-g-4-9 Kim's Mobile Disco 2706 P-96-g-4-11 Philippine Fisheries Development Authority 2709 27-Mar-10 P-96-g-4-30 Bacerdo Sound System 4807 P-96-g-4-32 Cepeda Advertising 27-Mar-10 I P-96-g-4-35 Philippine Fisheries Development Authority 77 P-96-g-4-36 Philippine Fisheries Development Authority 1885 6-Apr-1 0 P-96-g-5-2 Prime Oriental Marketing Enterprise 4977 Masbate New Life Marketing & Merchandising 4649 29-Mar-10 I P-96-g-5-3 Corporation 9744 P-96-g-6-2 D' Golden Touch Advertising 12-Apr-10 P-96-g-6-7 Libertad Consumers Corporation 542981 P-96-g-6-1 0 Mudbugs Sports_ & Cafe 1387 24-Apr-10 P-96-g-6-12 D' Golden Touch Advertising 282 P-96-g-6-14 D' Golden Touch Advertising 9899 10-Apr-10 P-96-g-6-14 D' Golden Touch Advertising 1669 Related Investment & Development 1671 17-Apr-10 P-96-g-6-15 Company, Inc. 1670 P-96-g-7-15 Denver's Computer Shoppe, Inc. 17-Apr-10 P-96-g-7 -18 Rote's Toy Balloons, Flower & Party Needs 23899 P-96-g-7-20 Rofe's Toy Balloons, Flower & Party Needs 4345 10-Apr-1 0 P-96-g-7 -22 Lucky Educational Supply, Inc. 1041 P-96-g-7-28 Nikko Studio & Developing Center 103 28-Apr-1 0 P-96-g-7 -29 Southern Bicol Development Corporation 26898 P-96-g-7 -50 Nikko Studio & Developing Center 1858 24-Apr-10 P-96-g-7 -52 Duka Enterprises 90965 P-96-g-7-53 New Baloga Enterprises 1863 10-Apr-10 P-96-g-7-82 M.E. Oy Trading 6839 P-96-g-7-82 Belen Amurao 56058 25-Feb-10 P-96-g-7-85 Bicol Warehouse Sales 1083 P-96-g-7-97 Lucky Educational Supply, Inc. 8362 15-May-10 Unreadable 21-Jun-1 0 ,_ 112059 10-Jul-1 0 12-Jul-1 0 --- 30-Jun-10 17-Jul-10 17-Jul-10 8�Mar�1 0 29-Dec-09 28-Dec-09 7�Dec�09 14-Nov-09 2-Dec-09 4�Dec�09 31-Dec-09 24-Nov-09 13-Nov-09 14�Dec�09 14�Dec�09 21-Dec-09 6-Dec-09 ~

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 30 of40 P-96-g-7-97 Bicot Warehouse Sales 127626 6-Dec-09 Garries Party Accessories & Catering P-96-g-7-124 Services 828 21-Dec-09 P-96-g-7-125 Bicol Warehouse Sales 131316 19-Dec-09 P-96-g-7-125 Bicol Warehouse Sales 131923 21-Dec-09 P-96-g-7-147 Abenson Unreadable P-96-g-7 -158 Patrick's Party Flavors & Catering Services 2009 P-96-g-7-164 F.E. Lee Enterprises 3291 30-Dec-09 P-96-g-7-166 Bulan Kimson Enterprises 71744 6-Dec-09 P-96-g-7-167 P. Aldana Cellphones & General Merchandise 19492 6-Dec-09 P-96-g-7-175 Nikko Studio & Developing Center 2333 13-Dec-09 P-96-g-7 -176 Bulan Kimson Enterprises 1871 4-Dec-09 P-96-g-7-176 Bulan Kimson Enterprises 19622 13-Dec-09 P-96-g-7-187 P. Aldana Cellphones & General Merchandise 19623 13-Dec-09 P-96-g-7 -194 L CC Supermarket 2790 19-Dec-09 P-96-g-7-198 F.E. Lee Enterprises N/A 22-Dec-09 P-96-g-7-201 P. Aldana Cellphones & General Merchandise 71657 22-Dec-09 P-96-g-7-208 Jad's Marketing 2792 19-Dec-09 P-96-g-7-213 F. E. Lee Enterprises 28241 29-Dec-09 P-96-g-7-216 P. Aldana Cellphones & General Merchandise 71685 23-Dec-09 P-96-g-8-13 Unreadable 2791 19-Dec-09 P-96-g-8-13 Unreadable 19836 2-Feb-10 P-96-g-8-13 FJM Construction Supply And Gen. Mdse. 19835 2-Feb-10 P-96-g-8-13 Unreadable 963 3-Feb-10 P-96-g-8-14 Belen Amurao Grocery 19881 6-Feb-10 P-96-g-8-14 Belen Amurao Grocery 10037 3-Feb-10 P-96-g-8-14 Belen Amurao Grocery 10100 23-Feb-10 P-96-g-8-15 M.E. Dy Trading Unreadable 10-Feb-1 o P-96-g-8-15 M.E. Dy Trading 1144 10-Feb-10 P-96-g-8-24 Belen Amurao Grocery 1143 3-Feb-1 o P-96-g-9-2 D' Golden Touch Advertising 10040 4-Feb-10 P-96-g-9-33 lriga Ice Plant & Cold Storage, Inc. 1783 29-Dec-10 P-96-g-1 0-2 Sincere Staff Management Services Unreadable 22-Jan-20 P-96-g-1 0-3 Master Square Supermart 1211 30-Jul-1 o P-96-g-10-4 Master Square Supermart 167353 6-Feb-1 o P-96-g-11-9 Unreadable 172850 16-Aug-10 P-96-g-11-19 Six In One Corporation 30296 25-Mar-10 P-96-g-11-38 Rally General Merchandise Unreadable 19-Mar-10 P-96-g-11-39 Belen Amurao Grocery 78965 6-Mar-10 P-96-g-11-39 Belen Amurao Grocery 10168 12-Mar-10 P-96-g-11-40 Unreadable 10137 5-Mar-10 Carries Party Accessories & Catering 1147 12-Mar-10 P-96-g-11-41 Services 1362 15-Mar-10 ~

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 31 of40 P-96-g-11-42 Brushwork Advertising 342 6-Mar-10 17754 P-96-g-11-48 Costa Fishing Supply 45021 i 121594 108849 19-Mar-10 1621 P-96-g-11-49 LCC Uberty Commercial Center, Inc. 19-Mar-10 P-96-g-11-52 Lucky Educational Supply, Inc. P-96-g-11-52 Lucky Educational Supply, Inc. I 18-Mar-1 o 15-Mar-10 P-96-g-11-52 JY Legazpi Mini Mart- AI bay I 18-Mar-10 I P-96-g-11-54 Carries Party Accessories & Catering 1380 24-Mar-10 Services P-96-g-11-54 Carries Party Accessories & Catering 1379 24-Mar-10 Services 859 6-Feb-10 5029 6-Feb-10 P-96-g-11-57 LCC Shopmore Commercial Corporation 99597 6-Feb-10 28244 10-Feb-10 P-96-g-11-59 Denver's Computer Shoppe, Inc. 100618 19-Feb-1 o 28973 13-Mar-10 P-96-g-11-60 Sorsogon Hollywood Trading 5744 13-Mar-10 1216 13-Mar-10 P-96-g-11-65 Jad's Marketing 10344 26-Apr-1 0 1150 6-Apr-10 P-96-g-11-66 Sorsogon Hollywood Trading 1151 30-Apr-10 1530 16-Apr-1 0 P-96-g-11-79 Jad's Marketing P-96-g-11-80 Denver's Computer Shoppe, Inc. P-96-g-11-81 Lasam Ice Plant P-96-g-12-4 Belen Amurao Grocery P-96-g-12-5 M.E. Oy Trading P-96-g-12-6 M.E. Dy Trading P-96-g-12-12 JY Legazpi Mini Mart- Albay P-96-g-12-13 Carries Party Accessories & Catering 1394 17-Apr-10 Services P-96-g-12-19 JY Legazpi Mini Mart- Albay 1577 30-Apr-10 P-96-g-12-58 Best Initial Art & Design Center 977 26-Apr-10 P-96-g-12-62 Best Initial Art & Design Center 976 27-Apr-10 P-96-g-12-77 Baloga Shopville 5028 9-Apr-10 P-96-g-12-95 Jad's Marketing 28249 17-Apr-10 P-96-g-12-96 Jeanee's Supermart & Department Store, Inc. 17402 17-Apr-10 P-96-g-12-1 07 Baloga Shopville 5030 16-Apr-1 0 P-96-g-12-108 Denver's Computer Shoppe, Inc. 6210 17-Apr-10 P-96-g-12-114 Baloga Shopville 5032 23-Apr-10 P-96-g-12-120 Baloga Shopville 5035 30-Apr-10 P-96-g-13-6 Unreadable 21476 7-Jul-10 P-96-g-13-32 Jad's Marketing 27909 13-Jul-1 0 P-96-g-13-32 Jad's Marketing 27910 14-Jul-10 P-96-g-13-32 Jad's Marketing 27911 15-Jul-1 0 P-96-g-15-11 Everlast Marketing 26411 4-May-10 P-96-g-15-11 Charisma Snack House & Catering Services 6430 8-May-10 P-96-g-15-28 JY Legazpi Mini Mart~ Albay 1655 15-May-10 P-96-g-15-29 Charisma Snack House & Catering Services 6433 16-May-10 P-96-g-15-4 7 Polyware Trading 10100 22-May-10 P-96-g-15-4 7 Polyware Trading 11753 22-May-10 L - .... - - -- - --� -- tt

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 32 of40 P-96-g-15-49 Charisma Snack House & Catering Services 3415 9-May-10 P-96-g-15-60 Charisma Snack House & Catering Services 6389 24-May-10 P-96-g-15-76 JY Legazpi Mini Mart- Atbay 1677 29-May-10 P-96-g-15-76 Charisma Snack House & Catering Services 6390 P-96-g-15-95 Lasam Ice Plant 1053 i P-96-g-15-96 Jad's Marketing 27856 P-96-g-15-98 Jeanee's Supermart & Department Store, Inc. 17499 29-May-10 P-96-g-15-98 Jeanee's Supermart & Department Store, Inc. 354808 8-May-10 P-96-g-15-1 03 Jessa Ice Plant 3202 1-May-10 P-96-g-15-11 0 Lasam Ice Plant 1052 30-Apr-1 0 P-96-g-15-111 Jad's Marketing 27861 30-Apr-10 P-96-g-15-113 DRI Enterprises 280 8-May-10 P-96-g-15-121 Lasam Ice Plant 1051 14-May-10 P-96-g-15-136 Lasam Ice Plant 1054 14-May-10 P-96-g-15-142 Lasam Ice Plant 1055 14-May-10 P-96-g-15-152 Lasam Ice Plant 1056 7-May-10 P-96-g-15-153 Denver's Computer Shoppe, Inc. 6667 15-May-10 P-96-g-15-161 Jad's Marketing 27870 21-May-10 P-96-g-15-162 Bringuela Enterprises 28207 22-May-10 P-96-g-15-176 Lasam Ice Plant 1057 22-May-10 P-96-g-16-2 Jacinto Enterprises 75993 28-May-10 P-96-g-16-3 Jacinto Enterprises 76085 28-May-10 P-96-g-16-4 Jacinto Enterprises 76100 29-May-10 Masbate New Life Marketing & Merchandising 1-Sep-1 o P-96-g-22-2 Corporation 550228 17-Sep-10 P-96-g-22-3 Masbate Apollo General Merchandise 2110 20-Sep-10 P-96-g-23-2 0' Golden Touch Advertising 1630 P-96-g-23-4 Mercury Drug 3455 11-0ct-1 o P-96-g-23-6 Master Square Department Store 12-Sep-10 P-96-g-23-1 0 V.C. Trading 264806 2-Jun-10 P-96-g-23-15 TJ Paint Center & General Merchandise 31125 16-Jun-10 P-96-g-23-16 Gemmaglenn Supermart 170131 17-Jun-1 0 P-96-g-23-17 TJ Paint Center & General Merchandise 2203 23-Jun-10 P-96-g-23-18 Gemmagleen Supermart 172780 10-Jun-10 P-96-g-23-19 Regine Joy Store 2260 10-Jun-1 0 P-96-g-23-20 Regine Joy Store 20427 10-Jun-1 0 P-96-g-23-21 Cepeda Advertising 20429 10-Jun-1 0 P-96-g-23-23 Lucky Nine Convenience Store 3864 10-Jun-1 0 P-96-g-23-24 Gemmagleen Supermart 1995 10-Jun-10 P-96-g-24-4 D' Golden Touch Advertising 2206 7-Jun-10 P-96-g-24-8 Libertad Consumers Corporation 1753 12-Jun-10 Prince & Pearl Hardware & Construction 354 11-Jun-10 P-96-g-24-9 Supply 30-Aug-10 71707 6-Aug-10 7-Aug-10 r1\

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 33 of40 P-96-g-24-13 Empire Trade Center 351678 7-Aug-10 P-96-g-24-14 Greenstone General Merchandise 12868 P-96-g-24-15 Empire Trade Center 351712 7-Aug-10 P-96-g-24-16 Remstarr Trading 138247 P-96-g-24-18 Robertson Mall 210029 10-Aug-1 0 P-96-g-24-18 Robertson Mall 210035 P-96-g-24-19 Pya Store 3041 10-Aug-10 P-96-g-24-20 An-An Marketing 10544 P-96-g-24-21 Lucky 9 Convenience Store 1375 11-Aug-10 P-96-g-24-23 Mercury Drug 3663 P-96-g-24-25 lau Trading 1618 i P-96-g-24-26 Princeton Enterprises 88876 I P-96-g-24-27 Erickson's Copy Center 13599 12-Aug-10 I P-96-g-24-28 Pimentel Hardware 17311 P-96-g-24-63 Unreadable 2874 12-Aug-10 Related Investment & Development P-96-g-24-63 Company, Inc. 25198 12-Aug-10 P-96-g-24-64 Unreadable 64908 P-96-g-24-64 Princeton Enterprises 89106 12-Aug-10 Related Investment & Development P-96-g-24-65 Company, Inc. 25217 12-Aug-1 0 P-96-g-24-65 Philippine Fisheries Development Authority 8916 P-96-g-24-65 Top People Hardware 12-Aug-1 o Related Investment & Development 87 P-96-g-24-67 Company, Inc. 13-Aug-10 Related Investment & Development 25222 P-96-g-24-67 Company, Inc. 13-Aug-1 0 P-96-g-24-68 Sir Karlos Restaurant 11155 P-96-g-24-69 Yet'zboo Tattoo Shop 67 13-Aug-10 P-96-g-24-77 D' Golden Touch Advertising 52 P-96-g-24-81 New Pili Lumber Dealer & Hardware 14-Aug-10 P-96-g-24-84 Bigg's 1682 P-96-g-24-85 Asog Garden and Catering Services 78476 20-Aug-1 0 P-96-g-24-86 D' Golden Touch Advertising 94165 16-Aug-10 P-96-g-24-87 Julia Outdoor Advertising 1525 21-Aug-10 P-96-g-24-88 Para print 1690 P-96-g-24-90 RP Canlas Enterprises 2520 21-Aug-1 0 P-96-g-24-91 RP Canlas Enterprises 1023 22-Aug-10 P-96-g-24-94 Robertson Mall 20-Aug-10 P-96-g-24-94 Artido Ricemill Corp 839 P-96-g-24-96 Philippine Fisheries Development Authority 843 22-Aug-10 P-96-g-24-96 Philippine Fisheries Development Authority 210218 P-96-g-24-96 Philippine Fisheries Development Authority 184377 21-Aug-10 P-96-g-24-96 triga Ice Plant & Cold Storage, Inc. 8935 22-Aug-10 8972 23-Aug-10 8958 31-Jul-10 14452 3-Aug-10 11-Aug-10 28-Aug-10 10-Aug-1 0 12-Aug-10 21-Aug-10 28-Aug-10 29-Aug-10 26-Aug-10 26-Aug-10 24-Aug-10 25-Aug-10 25-Aug-10 25-Aug-10 ~

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) P-96-g-24-97 Philippine Fisheries Development Authority 8995 26-Aug-10 I lriga Ice Plant & Cold Storage, Inc. 14458 27-Aug-10 Related Investment & Development P-96-g-24-97 Company, Inc. 25247 28-Aug-10 Related Investment & Development P-96-g-24-97 Company, Inc. 25241 28-Aug-10 I Asog Garden & Catering Services 1520 28-Aug-10 I P-96-g-24-98 Mud bugs Sports Bar & Cafe 12441 31-Aug-10 Boning's Trading 709635 23-Aug-10 P-96-9-24-99 Mequene Abe Commercia 27302 27-Aug-10 P-96-g-24-1 02 Mequene Abe Commercia 27303 27-Aug-10 P-96-g-24-1 03 Boning's Trading 709702 24-Aug-10 P-96-g-24-1 03 G-Ram's Goods & Gen Mdse 8501 28-Aug-10 P-96-g-24-1 03 Pro-Lites Electronics Sales & Services 148 28-Aug-10 P-96-g-24-1 03 Arsen's Textile & Upholstery Supply- Main 21479 3-Aug-10 P-96-g-24-103 Cepeda Advertising 1714 3-Aug-10 P-96-g-24-1 05 Arsen's Textile & Upholstery Supply- Main 19245 8-Aug-10 P-96-g-24-14 7 Cepeda Advertising 1721 9-Aug-10 P-96-g-24-148 Cepeda Advertising 2094 24-Aug-10 P-96-g-24-149 Junlly's Bakeshop & Gen. Mdse. 86456 25-Nov-10 P-96-9-24-150 lriga Ice Plant & Cold Storage, Inc. 14613 27-Nov-10 P-96-g-24-151 Top Hongkong Trading and Shoe Place N/A 30-Nov-10 P-96-g-25-6 E.P. Manzana Sales Center 92721 23-Nov-10 P-96-g-25-13 E.P. Manzana Sales Center 92776 26-Nov-10 P-96-g-25-30 D' Golden Touch Advertising 1403 P-96-g-25-32 Mudbugs Sports Bar & Cafe 14112 i P-96-g-25-35 D' Golden Touch Advertising 1765 P-96-g-25-37 Greenstone General Merchandise 17312 1-Nov-1 0 P-96-g-25-40 lriga Ice Plant & Cold Storage, Inc. 14601 19-Nov-1 0 P-96-g-25-41 lriga Ice Plant & Cold Storage, Inc. 14605 27-Nov-10 P-96-g-25-44 Iriga Ice Plant & Cold Storage, Inc. 14606 25-Nov-1 0 P-96-g-25-55 Philippine Fisheries Development Authority 11663 24-Nov-10 P-96-g-25-61 Philippine Fisheries Development Authority 11680 24-Nov-10 P-96-g-25-61 lriga Ice Plant & Cold Storage, Inc. 14609 25-Nov-10 P-96-g-25-68 Sincere Staff Management Services 1724 25-Nov-10 P-96-g-25-75 Master Square Supermart 174354 26-Nov-10 P-96-g-25-79 Mardi's Store 38274 26-Nov-10 P-96-g-26-4 M.E. Dy Trading 1157 26-Nov-10 P-96-g-26-7 Duka Enterprises 3729 3-Nov-10 P-96-g-27-4 Masbate New Life Marketing & Merchandising 5-Jul-1 0 P-96-g-27-5 Corporation 551250 4-Aug-10 P-96-g-27-6 Masbate New Union Bakery & Marketing 5-Aug-10 Corporation 228638 P-96-9-28-2 Pamatra Trading 2235 4-Nov-10 P-96-g-28-3 12-Nov-10 P-96-g-28-4 15-Nov-1 0 ~

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 35 of40 P-96-g-30-36 Julia Outdoor Advertising 2698 22-Feb-10 Related Investment & Development P-96-g-31-3 Company, Inc. 25714 4-Dec-10 P-96-g-31-7 Iriga Ice Plant & Cold Storage, Inc. 14637 11-Dec-10 P-96-g-31-1 0 Philippine Fisheries Development Authority 11885 10-Dec-10 P-96-g-31-11 Iriga tee Plant & Cold Storage, Inc. 14631 10-Dec-10 P-96-g-31-15 Philippine Fisheries Development Authority 11901 11-Dec-10 P-96-g-31-17 Philippine Fisheries Development Authority 11910 11-0ec-10 P-96-g-31-20 Philippine Fisheries Development Authority 11919 12-Dec-10 P-96-g-31-28 Iriga Ice Plant & Cold Storage, Inc. 14657 18-Dec-10 P-96-g-31-30 lriga Ice Plant & Cold Storage, Inc. 14611 17-Dec-10 P-96-g-31-34 14659 19-Dec-10 P-96-g-31-35 Iriga Ice Plant & Cold Storage, Inc. 163262 27-Dec-10 P-96-g-31-36 14680 29-0ct-10 P-96-g-31-67 Shotex Trade Center 4714 16-Dec-10 P-96-g-31-82 lriga Ice Plant & Cold Storage, Inc. 2777 30-Dec-10 P-96-g-32-4 Salgado Videoke 1249 29-Dec-10 P-96-g-32-7 Cepeda Advertising 1250 29-Dec-10 P-96-g-32-1 0 Sincere Staff Management Services 175595 30-Dec-10 P-96-g-32-10 Sincere Staff Management Services 175594 30-Dec-10 P-96-g-33-2 Master Square Supermart 1240 4-Nov-10 P-96-g-33-3 Master Square Supermart 22930 12-Nov-10 P-96-g-35-4 JY Tabaco Supermarket & Dept Store 11290 2-Dec-10 P-96-g-35-5 Boy & Lar Enterprise 1167 1-Dec-10 P-96-g-36-6 Unreadable 2269 13-0ct-10 P-96-g-36-7 M.E. Dy Trading 507 13-0ct-10 P-96-g-36-7 JY Legazpi Mini Mart- Albay 1804 12-0ct-10 Legazpi Mini Mart P-96-g-37-1 Joy Daraga Supermarket 552210 4-Dec-10 P-96-g-37-1 Masbate New Life Marketing & Merchandising 474443 2-Dec-10 P-96-g-37-4 Corporation 196832 7-Dec-10 P-96-g-37-5 Lim Enterprises, Inc. 1-Dec-10 Milagro's Auto Supply & Hardware 1166 P-96-g-37 -13 M.E. Dy Trading -- Masbate New Life Marketing & Merchandising 552293 Corporation 21-Dec-10 Well-settled is the rule that while a taxpayer has the right to claim all authorized deductions during the current year, a taxpayer cannot deduct such claim in the succeeding year. Section 76 of RR No. 02-40 is instructive, thus: "SECTION 76. When charges are deductible. -Each year's return, so far as practicable, both as to gross income and deductions therefrom, should be complete in itself, and taxpayers are expected to make every reasonable effort to ascertain the facts necessary to make a correct return. The expenses, liabilities or deficit of one year cannot be used to reduce the income of a subsequent year. A taxpayer has the right to deduct all ~

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 36 of40 authorized allowances and it follows that if he does not within any year deduct certain of his expenses, losses, interests, taxes, or other charges, he can not deduct them from the income of the next or any succeeding year." In Commissioner of Internal Revenue vs. lsabela Cultural Corporation,44 the Supreme Court, citing Revenue Audit Memorandum Order No. 1-2000, highlighted the importance of claiming deductions in the year they are incurred, thus: "The requisites for the deductibility of ordinary and necessary trade, business or professional expenses, like expenses paid for legal and auditing services, are: (a) the expense must be ordinary and necessary; (b) it must have been paid or incurred during the taxable year; (c) it must have been paid or incurred in carrying on the trade or business of the taxpayer and; (d) it must be supported by receipts, records or other pertinent papers. The requisite that it must have been paid or incurred during the taxable year is further qualified by Section 45 of the National Internal Revenue Code (NIRC) which states that: "[!]he deduction provided for in this Title shall be taken for the taxable year in which 'paid or accrued' or 'paid or incurred', dependent upon the method of accounting upon the basis of which the net income is computed ... " Accounting methods for tax purposes comprise a set of rules for determining when and how to report income and deductions. In the instant case, the accounting method used by ICC is the accrual method. Revenue Audit Memorandum Order No. 1-2000, provides that under the accrual method of accounting, expenses not being claimed as deductions by a taxpayer in the current year when they are incurred cannot be claimed as deduction from income for the succeeding year. Thus, a taxpayer who is authorized to deduct certain expenses and other allowable deductions for the current year but failed to do so cannot deduct the same for the next year." (Boldfacing supplied)" Undoubtedly, petitioner used the accrual method of accounting for TY 2011 as implied in the declarations in its Audited Financial Statements,45 particularly under the "Summary of Significant Accounting Policies," to wit: "Revenue Recognition Revenue comprises the fair value of the consideration received. The Company recognizes revenue when the amount can be reliably measured; it is probable that future economic benefits will flow to the entity and specific criteria have been met. Revenue from the sale of goods is recognized when the significant risk and rewards of ownership of the goods have passed to the buyer. "46 (Boldfacing supplied} 44 G.R. No. 172231, February 12, 2007. 45 Exhibit "P-23", CTA Docket, Vol. Ill, pp. 1403-1421. 46 Exhibit "P-23", CTA Docket, Vol. Ill, p. 1414(11

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 37 of40 If the taxpayer accounts for its income on the accrual method, it should also adopt the accrual method of accounting for its expenses. A hybrid method, i.e., accrual method for income recognition and cash method for expense recognition, is not contemplated by Philippine tax laws, rules and regulations. Considering that petitioner employed the accrual method of accounting for its revenues, then it follows that the same method of accounting was employed for the accounting of its expenses. Petitioner should have claimed the expenses incurred in TYs 2009 and 2010 in the same years and not in TY 2011. Petitioner cannot deduct the expenses incurred in TYs 2009 and 2010 from its gross income earned in TY 2011. Accordingly, it is proper to sustain the disallowance of Advertising and Other Outside Services amounting to P22,089, 137.55. /T-8 - Disallowed expenses due to non-withholding (Sec. 34K, NIRC) - 1'41,230,990.26 Petitioner reiterates its position that the expenses should not have been disallowed because it properly subjected all income payments covered by the withholding tax system as presented in its reconciliation. Further, petitioner explains that the income payments not subjected to expanded withholding tax are either (1) casual purchases or from a person who is not considered as a regular supplier; (2) petty cash disbursements incurred by salesmen and sales offices such as, but not limited to, meals, representation and entertainment, gasoline, out-of-town fieldwork expenses and supplies; or (3) expenses that were paid in cash such as, but not limited to, prepaid cellphone loads, registered mails transmitted to customers and the like. To prove that it subjected to withholding tax all expenses it incurred, petitioner submitted a Reconciliation of Taxes Withheld vs. Audited Financial Statement for the Taxable Year Ended December 31, 2011. 47 Perusal of the said Reconciliation reveals the following pertinent figures: Total purchases 388,083,135.02 1,869,323.89 Exempt 14,837,145.60 Compensation 41,237,829.13 Casual purchases, etc. ---�� L... -- - - -- - -- 47 Exhibit "P-47", CTA Docket, Vol. Ill, p. 1564~

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 38 of40 Total income payments subject to EWT 330,138,836.40 Less: Subjected per alphabetical list 330,138,836.40 Income payment not subjected to EWT - Based on the foregoing, petitioner would like the Court to believe that certain expenses are actually casual purchases, cash disbursements incurred by salesmen and sales offices and expenses paid in cash, without offering a breakdown of any of these expenses and their accompanying source documents. The Court is constrained to reject the above reconciliation sans the supporting documents that would allow the Court to verify the existence of these expenses. Petitioner likewise argues that respondent cannot simply disallow the expenses claimed as deduction from gross income for failure of the taxpayer to subject them to withholding taxes. If there is a deficiency in the payment of the withholding tax, respondent should assess petitioner for deficiency withholding taxes and not disallow the expenses altogether. In particular, petitioner claims that the prevailing rule during the taxable year under audit is RR No. 14-2002. In effect, petitioner is of the belief that since the taxable year is 2011, then RR No. 14-2002 applies. Petitioner failed to prove that it paid the withholding taxes at the time of the audit/investigation or reinvestigation/reconsideration. Thus, the Court finds it futile and irrelevant to discuss whether it is RR No. 14-2002 or RR No. 12-2013 that is applicable to petitioner's case. In fine, it is proper to sustain the disallowance of expenses amounting to P41 ,230,990.26 due to non-withholding of taxes. All told, the Court finds no reason to modify much more reverse the findings of the Court in Division. It is fundamental that the findings of fact by the CTA in Division are not to be disturbed without any showing of grave abuse of discretion considering that the members of the Division are in the best position to analyze the documents presented by the parties.48 WHEREFORE, premises considered, the present Petition for Review is DENIED for lack of merit. The assailed Amended Decision dated January 2, 2020 is AFFIRMED. 48 Republic of the Philippines, represented by the Commissioner of Internal Revenue vs. Team (Phils.) Energy Corporation (formerly Mirant (Phils.) Energy Corporation), G.R. No. 188016, January 14, 2015. ~

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 39 of40 SO ORDERED. Presiding Justice WE CONCUR: ER~P.UY Associate Justice ~- ~ .-p<...__ MA. BELEN M. RINGPIS-LIBAN Associate Justice CJ#('J.e-t' 7- /)tr. dfi - CATHERINE T. MANAHAN Associate Justice ~ ' aACORR"O-VILLENA MARIA RtJW~. v-;:,AN PEDRO ~IV.Y(J~.r~.Ev~i!nS� :~A~O Associate Justice LANl~li'ASA~I'cAuJi~AVID Associate Justice C~~~~~RES Associate Justice )

Decision Benchmark Marketing Corp. vs. Commissioner of Internal Revenue CTA EB No. 2212 (CTA Case No. 9296) Page 40 of40 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. Presiding Justice