PHILIPPINE BANK OF COMMUNICATIONS v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES Coon of Tax Appeals QUEZON CITY FIRST DIVISION PHILIPPINE BANK OF CTA Case No. 7763 COMMUNICATIONS, Members : Petitioner, ACOSTA, Chairperson - versus - UY, and FASON-VICTORINO, JJ. COMMISSIONER OF INTERNAL Promulgated: REVENUE , JAN 20 2012 ;.2:col".,.... Respondent. ~- X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ------X DECISION UY, J.: Before Us is a Petition for Review filed on April 14, 2008 , seeking the issuance of a tax credit certificate (TCC) in favor of petitioner Philippine Bank of Communications , in the amount of ~ 20 ,705 ,641 .00 , allegedly representing its unutilized creditable withholding taxes for calendar year ended December 31 , 2005 . THE FACTS Petitioner Philippine Bank of Communications is a domestic t' corporation organized and existing under the laws of the Republic of the Philippines, with principal office address at PBCOM Tower, 6795 Ayala

DECISION CTA CASE NO. 7763 Page 2 of21 Avenue corner V .A. Rufino Street, Makati City.1 It is registered with the Bureau of Internal Revenue (BIR) as engaged in regular commercial banking business, with Tax Identification Number 000-263-340-000 .2 On the other hand, respondent is the duly designated Commissioner of Internal Revenue , authorized under the law to perform the duties of said Office, including among others , the power to refund overpaid , as well as erroneously or illegally collected internal revenue taxes. She holds office at the National Office Building of the Bureau of Internal Revenue (BIR) , Diliman , Quezon City.3 Petitioner filed its Annual Income Tax Return (ITR) for 2005 on April 17, 2006 , showing a net loss of~ 1,111 ,343 ,780 .00 .4 Subsequently, it filed an amended Annual ITR for 2005 , which was stamped received on May 2, 2006 , declaring therein a net loss of~ 1,174,479 ,367 .00 .5 Both ITRs for 2005 reflected a tax overpayment of ~ 61 ,789 ,455.00 , consisting of prior year's excess credits of ~ 41 ,083 ,814 .00 and creditable tax withheld of ~ 20 ,705 ,641 .00. In the same ITRs, petitioner marked the option "To be issued a Tax Credit Certificate". On April 11 , 2008 , petitioner filed its letter-request for the refund of its alleged excess creditable withholding tax paid for calendar year ended December 31 , 2005 in the amount of ~ 21 ,506,428 .21 pursuant to Sections 76 and 229 of the National Internal Revenue Code (NIRC) of 1997, as amended . In that request, petitioner pointed out that its excess creditable f 1 Par. 1, Stipu lation of Facts, Joint Stipu lation of Facts and Issues (JSF J), Docket (Vol. 1), p. 818. 2 Exhibit "1". 3 Par. 2, Stipu lation of facts, JSFI, Docket (Vol. I), pp. 818 to 819. 4 Exhibit "A". 5 Exhibit "B".

DEC ISION CTA CAS E NO . 7763 Page 3 of 2 1 income tax withheld for 2005, as reported in its ITR, amounts to ~ 20 ,705 ,641 .00 , but upon review of �its documents, it discovered that the actual total excess creditable taxes for 2005 amounted to~ 21 ,506 ,428 .21 .6 Claiming inaction on respondent's part and in order to preserve its right to judicially claim the TCC ,7 petitioner filed the instant Petition for Review on April 14, 2008 .8 In the Answer9 filed on June 23 , 2008 , respondent prayed for the dismissal of the Petition for Review for lack of merit. In support thereof, respondent interposed the following defenses, viz : "3. Petitioner's alleged claim for refund is subject to administrative routinary investigation/examination by the Bureau ; 4. In an action for refund , the burden of proof is on the taxpayer to establish its right to refund , and failure to sustain the burden is fatal to the claim for refund/credit; 5. Claims for refund are construed strictly against the claimant for the same partake the nature of exemption from taxation (Commissioner of Internal Revenue vs . Ledesma , 31 SCRA 95) and such , they are looked upon with disfavor (Western Minolco Corp . vs. Commissioner of Internal Revenue, 124 SCRA 1211 ). " In accordance with the pre-trial proceedings held on November 20 , 200810, the parties submitted their "Joint Stipulation of Facts and Issues" on December 5, 200811 and was approved by the Court on December 12, 2008 .12 Thereafter, trial ensued and both parties presented and offered their respective evidence . Upon termination thereof, this case was submitted for,(\ 6 Exhibit " H" . 7 Pars. 12 to 13, Petition for Revi ew, Docket (Vol. 1), p. 4. 8 Par. 3, Stipu lation of Facts, JSF I, Docket (Vol. 1), p. 81 9. 9 Docket (Vol. I), pp. I 14 to I 16. 10 M inutes of Pre-Trial held on November 20 , 2008 , Docket (Vol. 1), p. 808 11 JSFI , Docket (Vol. 1), pp. 818 to 820. 12 Resolution dated December 12, 2008 , Docket (Vol. 1), p. 822.

DEC ISION CTA CASE NO. 7763 Page 4 of2 1 decision on August 16, 2011 , taking into consideration respondent's Memorandum filed on July 25 , 2011 and petitioner's Memorandum filed on August 15, 2011 .13 Hence, this Decision. THE ISSUES The parties jointly stipulated on the following issues14 for this Court's resolution , to wit: "A. Whether or not the claim for the issuance of a tax credit certificate was filed within the two-year prescriptive period prescribed under Section 204(C) , in relation to Section 229 of the NIRC of 1997 as amended ; B. Whether or not petitioner has an unutilized creditable withholding tax in the amount of P20 ,705 ,641.00 for the calendar year 2005 , which is a proper subject of a claim for refund/issuance of tax credit certificate pursuant to Section 76 of the NIRC as amended ; C. Whether or not the income from which the subject creditable taxes were withheld were included as part of the gross income in petitioner's annual income tax return for the calendar year 2005 ; and D. Whether or not the unutilized creditable withholding tax for the calendar year 2005 in the amount of P20 ,705 ,641 .00 was carried-over and applied by petitioner against its tax liabilities in the succeeding taxable year." The foregoing issues may be simplified as follows : "Whether or not petitioner is entitled to the issuance of a TCC in the amount of ~ 20 ,705 ,641 .00 , allegedly representing the unutilized creditable withholding taxes for calendar yea~if (f- ended December 31 , 2005 ." 13 Reso lution dated August 16, 20 I I, Docket (Vol. 1), p. 1355 . 14 Stipulation of Issues, JSF I, Docket, pp. 8 19 to 820.

DEC IS ION CTA CASE NO. 7763 Page 5 of2 I Petitioner's arguments Petitioner contends that it has unutilized creditable withholding tax fo r the calendar year 2005 which is a proper subject of a claim for the issuance of a TCC , pursuant to Section 76 of the NIRC of 1997; and that its claim for the issuance of a TCC was filed within the two-year prescriptive period under Section 204(C) , in relation to Section 229 , both of the NIRC of 1997. According to petitioner, the income from which the subject creditable taxes were withheld were included in its Annual ITR for the calendar year 2005 as part of its gross income; and that its unutilized creditable withholding tax for the calendar year 2005 in the amount of ~ 20 ,705 ,641 .00 was not carried-over and applied against its tax liabilities in the succeeding taxable year. Respondent's counter-arguments Respondent counter-argues that petitioner is not entitled to a refund or the issuance of a TCC in the amount of ~ 20 ,705 ,641 .00 , representing unutilized creditable withholding tax for 2005 because petitioner failed to fully comply with the provisions of Section 2.58.3 of Revenue Regulations (RR) No. 2-98 , otherwise known as the Withholding Tax Regulations. THE COURT'S RULING After careful and thorough consideration of the parties' allegations in their respective pleadings , the documentary and oral evidence presented in this case , the Court finds insufficient compliance with legal requirements to merit a favorable consideration of the instant refund claim .

DEC ISION CTA CASE NO. 7763 Page 6 of 2 1 Petitioner failed to fully comply with the conditions for the grant of a claim for refund of creditable withholding tax. The Supreme Court ruled , in a number of cases15, that there are three (3) conditions for the grant of a cla im for refund of creditable withholding income tax (CWT) , to wit: first, the claim is filed with the Commissioner of Internal Revenue within the two-year period from the date of payment of the tax;16 second, it is shown on the return of the recipient that the income payment received was declared as part of the gross income ;17 and third, the fact of withholding is established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld therefrom . The first condition is pursuant to Sections 204(C) and 229 of the NIRC of 1997, viz: "SEC. 204 . Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. -The Commissioner may- XXX XXX XXX (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and , in his discretion , redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction . No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a _.{.. tf' \1 written claim for credit or refund ." (Emphasis supplied) 15 Banco Filipino Savings and Mortgage Bank vs. Court ofAppeals, et a!. , G.R. No. 155682, March 27, 2007 ; Commissioner of Internal Revenue vs. Perf Realty Corporation, G. R. No . 163345 , July 4, 2008, and Commissioner of Internal Revenue vs. Far East Bank & Trust Co. (Now Bank of the Philippine Islands), G.R. No . 173854, March 15, 2010 . 16 Jose C. Vitug and Ernesto D. Acosta, Tax Law and Juri sprudence, 329 (2006), citing Gibb v. Collector, I07 Phil. 230 ( 1960). 17 Calamba Steel Center, Inc. v. Commissioner on Internal Revenue, G.R. No . 15 1857, Apri l 28, 2005 , 45 7 SCRA 482.

DEC ISION CTA CASE NO. 7763 Page 7 of2 1 "SEC . 229. Recovery of Tax Erroneously or Illegally Collected. - No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected , or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected , until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained , whether or not such tax, penalty, or sum has been paid under protest or duress. In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made , such payment appears clearly to have been erroneously paid ." (Emphasis supplied) The Supreme Court has ruled that, at the earliest, the two-year prescriptive period for claiming a refund commences to run on the date of the filing of the final adjustment return ,18 and that such period consisted of twenty- four (24) months from such date.19 The present claim covers taxable year 2005 for which petitioner filed its � Annual ITR on April 17, 2006 .2 Counting from this date, the Court finds the administrative claim filed by petitioner on April 11 , 2008 and the Petition for Review filed on April 14, 2008 to be within the two-year prescriptive period . Clearly, the first condition has been satisfied . As regards petitioner's compliance with the second and third r conditions , the Court-commissioned Independent Certified Public Accountant 18 ACCRA In vestments Corp. vs. Court ofAppeals, et al., G .R. No. 96322, December 20, 199 1. 19 Com missioner of Internal Revenue vs. Prime/own Property Group, Inc., G. R. No. 162 155, August 28, 2007. 20 Ex hibit " A".

DEC ISION CTA CASE NO. 7763 Page 8 of21 (ICPA) , Edwin F. Ramos , presented the following findings in his final and consolidated report dated November 3, 200921: Amount of CWT Per Schedule Fl 20,705 ,641.15 Less : Overclaimed CWT 3,116.23 Amount of CWT Per Petition for Review fiiil 20,702,524.92 Accounted for as Follows: Fl 3,514,765.21 Claim Not Properly Substantiated 5,584 ,070.39 Income Not Traced to General Ledger (GL) No Original BIR Forms 1606, 1706 and 2307 10 ,614 ,092.48 Subtotal Fl 19,712 ,928 .08 For Consideration of this Court (Claim Properly Substantiated and Related Income Traced to GL) Fl 530,683 .21 Claim Properly Substantiated and Related Income Traced to GL 458 ,913.63 Subtotal Fl 989 ,596.84 fiiil 20,702,524.92 Amount of CWT Per Petition for Review Petitioner submitted additional documents to the ICPA, specifically, original BIR Forms 1606, original bank validated BIR tax payment deposit slips and original certification issued by the BIR in relation to the substantiation of its claimed CWT under Annexes A-9 to A-12 of the !CPA's final and consolidated report amounting to ~ 10,783,504.00 ,22 which formed part of the ~ 19,7 12,928.08 CWT excepted by the ICPA. Upon verification of petitioner's additional documents, the ICPA made the following findings in the supplemental report23 dated August 31 , 2010 : Creditable withholding tax payments properly Annex Amount supported by original 81R Form 1606, original bank Reference Fl 72,300 .00 validated 81R tax payment deposit slip and original certification issued by the 81R; the related income of Annex 1-1 which were verified to be included in the Company's General Ledgers (GL), Annual Audited Financial Statements (AAFS) and Annual Income Tax Return (ITR) Creditable withholding tax payments supported by photocopies of Bl R returns stamped "received " by the BIR agent but with certification issued by the BIR 1. confirming tax payments and photocopies of bank 21 Exhibit "N", Annex C, p. 14. 22 Exhibit " X", p. I, par. 2. 23 Exhibit "X", pp. 2 to 5.

DECISION CTA CASE NO. 7763 Page 9 of21 validated deposit slips as evidence of tax remittance ; Annex 3 510 ,000 .00 the related income of which were verified to be Annex 4-1 included in the Company's GL, AAFS and annual ITR 132 ,000 .00 Creditable withholding tax payments supported by til 714,300.00 photocopies of SIR returns stamped "received " by the SIR agent but with certification issued by the SIR confirming tax payments and with bank validation as evidence of tax remittance ; the related income of which were verified to be .included in the Company's GL, 2. AAFS and annual ITR Creditable withholding tax payments supported by photocopies of SIR returns stamped "received " by the BIR agent but with certification issued by the BIR confirming tax payments; the related income of which were verified to be included in the Company's GL, 3. AAFS and annual ITR TOTAL- Properly Supported For Consideration of the Honorable Court Creditable withholding tax paym ents supported by photocopies of SIR returns stamped "received " by the SIR agent but with certification issued by the SIR confirming tax payments and photocopies of bank validated deposit slips as evidence of tax remittance ; the related income of which are supported by original deed of absolute sale and/or photocopies of debit tickets/instruction sheets for domestic operations/memorandum to book/transaction tickets/outgoing inter-branch transactions and are 1. traced to the general ledger Annex 1-2 ~ 471 ,000 .00 Creditable withholding tax paym ents supported by photocopies of Sl R returns stamped "received " by the SIR agent but with certification issued by the SIR confirming tax payments and photocopies of bank validated deposit slips as evidence of tax remittance ; the related income of which are supported by original deed of absolute sale, photocopies of sales offering 2. only but are traced to the GL Annex 1-3 25,000 .00 Creditable withholding tax paym ents supported by photocopies of SIR returns stamped "received " by the SIR agent but with certification issued by the SIR confirming tax payments and photocopies of bank validated deposit slips as evidence of tax remittance; the related income of which are supported by original deed of absolute sale, photocopies of sales offering and accounting tickets generated from the company's 3. system but could not be traced to the general ledger Annex 1-4 39 ,900.00 Creditable withholding tax paym ents supported by photocopies of BIR returns stamped "received " by the SIR agent but with certification issued by the SIR confirming tax payments and photocopies of bank validated deposit slips as evidence of tax remittance ; the related income of which are supported by original deed of absolute sales, photocopies of sales offering tickets, original memorandum to book/i nstruction sheets for domestic operations/transaction tickets/outgoing inter-branch transactions and are L-4_.~b~tUrYaL'cee~rd~p~�toe_r~tsh~ec_heg~ed~nu~el~rea~al_nl~ed~dP~g�ee_rr~,tah~x_orw~e~etu~vre_nr_,is~thde~fif~nea_rme~n~et_o_f_th_e_L~A~n~n~e~x~1--5~~--~5~� ~76~0~,~0~00~.~0~0~~

DEC ISION CTA CASE NO. 7763 Page 10 of 2 1 Creditable withholding ta x payments supported by Annex 1-6 300 ,000 .00 photocopies of BIR returns stamped "received " by the BIR agent but with certification issued by the BIR Annex 2 1,500 ,000.00 confirming tax payments and photocopies of bank Annex 4-2 validated deposit slips as evidence of tax remittance ; 204 ,000 .00 the related income of which are supported by original Annex 1-7 Iii 8,299,900.00 deed of absolute sale, photocopi es of sales offering Annex 1-8 tickets, original memorandum to book/instruction Annex 4-3 ~ 367,704 .00 sheets for domestic operations/transaction Annex 4-4 351 ,600.00 tickets/outgoing inter-branch transacti ons and could not be traced to general ledger, however, th e name of 630 ,000.00 5. the buyer per schedule and per tax return is different 420 ,000.00 Creditable withholding ta x paym ents supported by Iii 1,769,304.00 original BIR returns stamped "received" by th e BIR lil10,783,504.00 agent and with certification issued by th e BIR confirming tax payments, origina l BIR form 2307 and original bank validated deposit sl ips as evid ence of tax remittance ; the related income of whi ch were verified to be included in the Company's GL, AAFS and annual ITR, however, the name of the buyer per schedule and 6. per tax return is different Creditable withholding tax paym ents supported by photocopies of BIR returns stam ped "recei ved" by the BIR agent but with certification issued by th e BIR confirming tax payments; th e related incom e of which are supported by original deed of absolute sal e and photocopies of sales offering ti ckets on ly bu t are traced 7. to the general ledger TOTAL- For Consideration of the Honorable Court Exceptions Creditable withholding ta x paym ents supported by photocopies of BIR returns stam ped "received" by the BIR agent but with certification issu ed by the BIR confirm ing tax payments and photocopies of bank validated deposit slips as evidence of tax re mi ttance ; the related income of whi ch coul d not be traced to the Company's GL , AAFS and an nual ITR Creditable withholding tax payments su pported by photocopies of Bl R return s stam ped "received" by the BIR agent and photocopies of bank validated deposit 2. slips as evidence of tax remittance Creditable withholding tax payments su pported by photocopies of Bl R returns stam ped "received" by the BIR agent but with certification issued by the BIR confirm ing tax payments; th e related income of wh ich could not be tra ced to th e co mpany's GL , AAFS and 3. annuaiiTR Creditable withhold ing tax paym ents supported by photocopies of BIR return s stam ped 'rece ived " by the 4. BIR agent TOTAL- Exceptions GRAND TOTAL Based on the reports of th e ICPA, out of petitioner's claimed CWT for taxable year 2005 in the amount of ~ 20 ,705 ,641 .00 , only the amount of

DEC ISION CTA CASE NO. 7763 Page II of21 ~ 1,173,213 .63 (the sum of~ 458 ,913 .6324 and ~ 714 ,300 .0025) was found to be properly substantiated and the related income payments of which were verified to have been included in petitioner's Genera l Ledger (GL) , Annual Audited Financial Statements (AAFS) and Income Tax Return (ITR) . However, the ICPA noted that if the Court will allow petitioner's claims under "For Consideration of the Court" amounting to ~ 8,830 ,583.21 (the sum of ~ 530 ,683.21 and ~ 8,299 ,900 .00) , petitioner's total amount of claimable CWT would be ~ 10,003 ,796 .84 , broken down as follows : Claims Properly Substantiated and Related Income Traced to 1'1 458,913.63 GL, AAFS and ITR 71 4,300 .00 Per !CPA's Final and Consolidated Report (Exh. "N") Jiil 1'173, 21 3.63 Per !CPA's Supplemental Repo rt (Exh . "X") Subtotal 1'1 530 ,683 .21 For Consideration of this Court 8,299 ,900 .00 Per !CPA's Final and Consolidated Report (Exh. "N") Per !CPA' s Supplemental Report (Exh. "X") Jiil 8,830,583.21 Subtotal Jiil 10,003,796.84 TOTAL A further scrutiny of the records revealed that the CWT of ~ 10,003 ,796 .84 is composed of the following : A. CLAIMS PRO PERLY SUBSTANTIATED AN D RELATE D INCOM E TRACED TO GE NERAL LEDG ER, AAFS A ND ITR 1. Per /CPA 's Final Report (Exhibit "N") Withholding Agent Income Tax Withheld BIR Exhibit Payment Form No. Income Payments by Top 10000 1'1 21 9,782.45 1'1 4,395 .64 2307 M-2 .71 Corp-Supplier of Services 149,706.96 2,994 .14 2307 M-2 .73 Lafarge Cement Service Phils. 434 ,564.90 8,691 .30 2307 M-2.76 Lafarge Cement Servjce Phils. 4,775.77 95.52 2307 M-2 .199 Lafarge Cement Service Phils. Lepanto Consolid ated Mining Rentals 24 Exhibit "N", Annex C, p. 14. 25 Exhibit "X", p. 3.

DECISION 5,000 .00 250 .00 2307 M-2 . 108 CTA CASE NO. 7763 5,000 .00 250 .00 2307 M-2.108 Page 12 of21 5,000.00 250 .00 2307 M-2 . 108 5,000 .00 250 .00 2307 M-2 .109 PBComm Finance 5,000.00 250 .00 2307 M-2 .109 PBComm Finance 5,000.00 250 .00 2307 M-2 .109 PBComm Finance 5,000 .00 250 .00 2307 M-2 .110 PBComm Finance 5,000 .00 250 .00 2307 M-2 .110 PBComm Finance 5,000 .00 250 .00 2307 M-2.110 PBComm Finance 5,000 .00 250 .00 2307 M-2 .11 1 PBComm Finance 5,000 .00 250 .00 2307 M-2 .111 PBComm Finance 5,000 .00 250 .00 2307 M-2 .111 PBComm Finance 73 ,284.53 3,331 .12 2307 M-2 .365 PBComm Finance 73 ,284.53 3,331 .12 2307 M-2 .365 PBComm Finance 52 ,694.40 2,634 .72 2307 M-2.370 PBComm Finance 106,403.51 5,320 .18 2307 M-2.371 Sensomed Phils. Inc. 52 ,694.40 2,634 .72 2307 M-2 .370 Sensomed Phils. Inc. 82 ,222.50 4,111 .13 2307 M-2.375 Traditional Homes 82 ,222 .50 4,111 .13 2307 M-2.375 SAS Institute Phils Inc. 82 ,222 .50 4,111 .13 2307 M-2 .375 Traditional Homes 27 ,3 18.40 1,365.92 2307 M-2.381 Blue Boz 106,403.60 5 ,320 .18 2307 M-2 .386 Blue Boz 106,403 .60 5,320 .18 2307 M-2 .3 86 Blue Boz 106,403 .60 5,320 .18 2307 M-2 .386 New Image International 52 ,694.40 2 ,634 .72 2307 M-2.388 SAS Institute Phil s Inc. 52 ,694.40 2,634.72 2307 M-2 .388 SAS Institute Phil s Inc. 52 ,694.40 2,634 .72 2307 M-2.388 SAS Institute Phils Inc. 52,694.40 2,634.72 2307 M-2.370 Traditional Homes 27 ,318.40 1,365.92 2307 M-2 .381 Traditional Homes Traditional Homes 50 ,152.50 1,003.05 2307 M-2.349 Traditional Homes 130,643 .50 2,612 .87 2307 M-2.360 New Image International 572 ,488 .80 28 ,624.44 2307 M-2.43 Interest Payments to Banks 572,488 .7 5 28 ,624.44 2307 M-2 .43 Abacus Capital and Investment 572,488 .7 5 28 ,624.44 2307 M-2.43 Vista Holding Corporation 572,488 .75 28 ,624.44 2307 M-2.43 572 ,488 .75 28 ,624.44 2307 M-2.43 Payments to Prime 572,488.75 28 ,624.44 2307 M-2.43 Contractors/S ub contractors 583 ,488.52 29 ,174.42 2307 M-2.43 CAI-STA Ph ils . 583,488 .52 29 ,174.42 2307 M-2.43 CAI-STA Phils . 583,488 .52 29 ,17 4.42 2307 M-2.43 CAI-STA Phils . 583,488 .52 29 ,174.42 2307 M-2.43 CAI-STA Ph ils . 583,488.52 29 ,174.42 2307 M-2.43 CAI -STA Phils . 583,488.52 29 ,174.42 2307 M-2.43 CAI-STA Phils . 2 14 ,7 82.45 2307 M-2 .65 CAI-STA Phils . 214,782.4 5 4,295.64 2307 M-2 .72 CAI-STA Phils. 727,699.50 4,295 .65 2307 M-2 .79 CAI-STA Phils . 14 ,553 .99 CAI-STA Ph ils . CAI-STA Ph ils. CAI-STA Phils . Lafarge Cem ent Service Phils. Lafarge Cement Service Phils . Maersk Logistics

DECISION CTA CASE NO. 7763 Page 13 of21 Maersk Logistics 182, 914 .00 3,658 .28 23 07 M-2.82 Maersk Logistics 185,393 .27 3,707 .87 23 07 M-2 .85 Subtotal ~ 10,700,715.49 ~ 458,913.62 2. Per /CPA's Supplemental Report (Exhibit "X") Sale of Real Property ~ 800, 000 .00 ~ 48 ,000.00 1606 M-2 .24 Silverio Cecille 405 ,000 .00 24,300 .00 1706 M-2 . 15 Max & Dannah Vivares 1706 M-2 .26 Sps. Clarita & Phodale Gloriani 8,500,000.00 510 ,000 .00 1706 M-2.18 Mr. Gregorio The 2,200 ,000 .00 132,000 .00 Subtotal ~ 11,905,000.00 ~ 714,300.00 - TOTAL CLAIMS PROPERLY SUBSTANTIATED AND RELATED INCOME TRACE D TO GL, AAFS AND ITR ~ 22 ,605,715.49 ~ 1,173,213.62 B. FOR CONSI DERATION OF THE COU RT 1. Per /CPA 'S Final Report (Exhibit "N") Payments to Prime ~ 175,000.00 ~ 3,500 .00 2307 M-2.286 Contractors/S ubcontractors Legaspi Oil Company Rentals 45,32 0 .00 2,266 .00 2307 M-2 .93 Manu life 45,048.00 2 ,252.40 2307 M-2 .376 IPSOS (Daichi Properties) 45,048 .00 2 ,252.40 2307 M-2 .377 IPSOS (Daichi Properties) 27,3 18.40 1,365 .92 2307 M-2 .381 New Image Inti (Daichi Properties) 27, 318.40 1,365 .92 2307 M-2 .381 New Image Inti (Daichi Properties) 27,3 18.40 1,365 .92 2307 M-2 .381 New Image Inti (Daichi Properties) 27,3 18.40 1,365 .92 2307 M-2 .382 New Image Inti (Daich i Properties) 27, 318.40 1,365 .92 2307 M-2.382 New Image Inti (Dai chi Properties) 27, 318.40 1,365 .92 2307 M-2.382 New Image Inti (Daichi Properties) 27 ,318.40 1,365 .92 2307 M-2 .383 New Image Inti (Dai chi Properties) 197,683.20 9,884. 16 2307 M-2 .397 KSY Land Deve lopmen t 300,0 00.00 15,000 .00 2307 M-2.405 Matex Min eral Resources Income Payments by Top 10000 50,555.56 1,011 .11 2307 M-2 .230 Corp-Supplier of Services 101 ,111 .11 2,022 .22 2307 M-2 .236 Masagana Tel amart 1,730 .15 2307 M-2 .246 Masagana Telama rt 86, 507 .50 1,083 .33 2307 M-2 .241 Lepanto Con solidated Mining 54,16 6 .50 Masagana Tel amart Sale of Real Property 242,000 .00 14 ,520 .00 1606 M-2.14 Mariscotes Roberto 7,760,000 .00 465 ,600.00 1606 M-2 .16 Med ica l One Corp. Iii ~ 530,683.21 Subtotal

DECISION CTA CASE NO. 7763 Page 14 of21 1 , 9 1 8 , 0 2 0 .01 2. Per /CPA 's Supplemental Report (Exh. "X ") Sale of Real Prop erty ~ 1,250 ,000.00 ~ 75,000.00 1606 M-2 . 12 Manuei/Espera nza Herna ndez 665 ,000.00 39 ,900.00 1606 M-2 .7 Geraldine Villave rt 1606 M-2 .30 Centreville Inc. 6,000 ,000.00 5,760 ,000 .00 1606 M-2 .23 Sergio Yap 3,400 ,000.00 204 ,000 .00 1706 M-2 .17 Milagros Abrea 36 ,000.00 1706 M-2.20 RD Corporation 600 ,000 .00 360 ,000 .00 1706 M-2 .11 Ma . Emily Dela Pena 6,000 ,000.00 25 ,000 .00 1706 M-2.431 Sps. Alfonso & Susan Umali 300 ,000 .00 2307 M-2.432 Kian Heng Tra ding Corp. 41 6,666 .67 5,000 ,000 .00 1,500 ,000 .00 Subtota l 25,000,000 .00 Iii 8,299 ,900 .00 TOTAL- FOR CON SIDERATI ON OF p THE COU RT 138,331 ,666.67 GRAND TOTA L p p 8,830,583 .21 147 ,625 ,33 5.34 p Iii 170,231 ,050.83 10,003,796.83 Notwithsta ndi ng the foregoin g findin gs, inasmuch as We wou ld want to give weight and consid eration to the findings and recommendation of the ICPA, We are constrained to disrega rd the sa me , because such fin dings and recommendations do not show faithful compliance with the second and third conditions for the grant of a claim for refu nd of CWT, to wit: there must be a showing on the return of the recipient that the income payment received was declared as part of the gross income; 26 an d the fact of withholdi ng must be established by a copy of a statement duly iss ued by the payor to the payee showing the amount pa id and th e amou nt of the tax withheld therefrom , respectively . t It must be emphasized that th e second and third conditions are based on Section 2.58.3(8) of RR No. 2-98, which states: 26 Calamba Steel Center, Inc. v. Commissioner on Internal Revenue, G.R. No . 15 1857, April 28, 2005 , 457 SCRA 482.

DECISION CTA CASE NO. 7763 Page 15of21 "Sec. 2.58.3. Claim for Tax Credit or Refund XXX XXX XXX (B) Claim s for tax credit or refund of any creditable income tax which was deducted and withheld on income payments shall be given due co urse only whe n it is shown that the income payment has been declared as part of the gross income and the fact of withh olding is esta blished by a copy of the withholding tax statement duly iss ued by the payor to the payee showing the amount paid and the amount of tax with held therefrom (Emphasis supplied)." 27 The fo regoing provision is plain and clear. In com plying with th e third cond ition , it must be shown that the withholding tax statement was indeed "duly issu ed by the payor to the payee". As held in Banco Filipin o Savings and Mortgage Bank vs. Court of Appeals, et a/. ,28 the Su preme Court sai d: "In fine , the doc ument which may be accepted as evidence of the third conditi on, that is, the fact of withholding, must ema nate from the payor itself, an d not merely from the payee , and must indicate th e name of the payor, the income payment basis of the tax withheld , the amou nt of the tax withheld and the natu re of the tax pa id. At the time material to this case , the requisite information rega rd ing withholdin g taxes from the sale of acquired assets can be foun d in BI R Form No. 1743.1. As described in Section 6 of Reven ue Regulations No. 6-85, BI R Form No . 1743.1 is a written statement issu ed by the payor as withh olding agent showing the income or oth er payments mad e by the said withholding ag ent duri ng a quarter or year and the amount of the tax deducted and with held therefrom . It readily identifies the payor, the income payment and the tax withheld. It is complete in the relevant deta ils whi ch wo uld aid the cou rts in the evaluation of any clai m for refund of credita ble wi thholding taxes ." (Emphases supp lied) 27 SUBJECT: Imp lementin g Repub lic Act No. 8424, "An Act Amending The National internal Revenue Code, as Amended " Re lative to the Withholding on Income Subject to the Expanded Withholding T ax and Final Wi thho lding Tax, Withh o lding on Incom e Tax on Compensation, Withholding o f Creditabl e Value-Added Tax ad Other Percentage Taxes . 28 G .R. No . 15 56 82 , March 27, 2 007 .

DEC ISJON CTA CASE NO. 7763 Page 16 of2 1 Relative thereto , Section 2.58(8) of RR 2-98 , as amended by RR 03- 02 , identifies the withholding tax statement, for purposes of the third condition , as BIR Form No. 2307 , to wit: "Sec. 2.58. RETURNS AND PAYMENT OF TAXES WITHHELD AT SOURCE. XXX XXX XXX (B) Withholding tax statement for taxes withheld. - Every payor required to deduct or withhold taxes under these regulations shall furnish , in triplicate , each payee , whether individual or corporate, with a withholding tax statement, using the prescribed form (BIR Form No. 2307) showing the income payments made and the amount of taxes withheld therefrom, for every month of the quarter, within twenty (20) days following the close of the taxable quarter employed by the payee in filing his/its quarterly income tax return. The payor, nonetheless, should always retain a copy of duly issued BIR Form No. 2307. Failure to furnish the same shall be a ground for the mandatory audit of payor's income tax liabilities (including withholding tax) upon verified complaint of the payee. For final withholding taxes , the statement should be given to the payee on or before January 31 of the succeeding year. Upon request of the payee , however, the payor must furnish such certificate simultaneously with the tncome payment. " (Underscoring supplied) Such being the case , the recommended amount of~ 10,003 ,796.84 by the ICPA must be reduced by the amounts which are not supported by BIR Form No . 2307 , determined as follows : Supposed claimable amount of CWT li 10,003,796.84 7 994,320.00 Less: Withheld taxes not supported by BIR Form No. 2307 BIR Form Exhibit No. Tax Withheld Per /CPA 's Supplemental Report (Exhibit "X"): Sale of Real Property Silverio Cecille M-2 .24 1606 ~ 48 ,000.00 Max & Dannah Vivares M-2.15 1706 24 ,300 .00 Sps . Clarita & Phodale Gloriani M-2.26 1706 510 ,000 .00 Mr. Gregorio The M-2.18 1706 132,000 .00

D EC ISION CTA CASE NO. 7763 Page 17 of 2 1 Per /CPA'S Final Report (Exhibit "N") : Sale of Real Property Mariscotes Roberto M-2.14 1606 14,520.00 Medical One Corp. M-2.16 1606 465 ,600.00 Per /CPA's Supplemental Report (Exh. "X''): Sale of Real Property Manuei/Esperanza Hernandez M-2.12 1606 75 ,000.00 Geraldine Villavert M-2.7 1606 39 ,900 .00 Centreville Inc. M-2.30 1606 5,760 ,000 .00 Sergio Yap M-2.23 1606 204 ,000 .00 Milagros Abrea M-2.17 1706 36 ,000 .00 RD Corporation M-2.20 1706 360 ,000 .00 Ma. Emily Dela Pena M-2.11 1706 25 ,000.00 Sps. Alfonso & Susan Umali M-2.431 1706 300 ,000.00 ~ 7 994 320.00 Total amount of tax withheld supported by BIR Form No. 2307 lit 2,009,476.84 Notwithstanding said total amount of tax withheld supported by BIR Form No. 2307 , petitioner however, failed to convincingly comply with the second condition , i.e., it is shown on the return of the recipient that the income payment received was declared as part of the gross income. Logically, the first and foremost document to be closely examined is the final adjustment return or Annual ITR of petitioner for taxable year 2005 ,29 particularly the entries made therein . In the said return , specifically Schedule 1 thereof or the "Schedule of Sales/Revenues/Receipts/Fees", stating a revenue in petitioner's Sale of Service in the amount of Fi 1,378 ,216 ,892 .00 , there is no entry whatsoever in the "Creditable Tax Withheld" column. Even on petitioner's amended Annual ITR for the same taxable year30 there is no entry on the corresponding "Creditable Tax Withheld" column. Thus, said declarations are to the effect, or at the very least, taken to r mean , that no part of the gross income reported therein were ever subjected 29 Exhibi t " A". 30 Exhibit " B".

DEC ISION CTA CAS E NO. 7763 Page I8 of 2 1 to creditable withholding tax. Accordingly, the supposed income payments to which taxes were withheld , cannot be said to have been declared as part of the gross income for taxable year 2005. As cases filed before this Court are litigated de novo , party-litigants should prove every minute aspect of their cases. 31 Thus , there should be no room for inconsistencies , especially on the part of claimant, who has the burden of proof to establish the factual basis of its claim for tax refund . Not only was petitioner remiss of its duty prove compliance with the above-stated second condition , petitioner likewise failed to establ ish that it has not carried over its excess withholding income tax to the taxable quarters of the succeeding taxable years . Once exercised, the option to carry over is irrevocable. Section 76 of the NIRC of 1997 provides as follows : "SEC . 76. Final Adjustment Return. - Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either: (A) Pay the balance of tax still due; or (B) Carry-over the excess credit; or (C) Be credited or refunded with the excess amount paid , as the case may be. In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid , the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years . Once the option 31 Dizon vs. Co urt of Tax Appeals, eta!. , G.R. No . 140944, Apri l 30, 2008 ; Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, G.R. No. 145526, March 16, 2007 ; and Commissioner of Internal Revenue vs. Manila Mining Corporation, G.R. No. 153204, August 31 , 2005 .

DEC ISION CTA CASE NO. 7763 Page 19 of 2 1 to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefor." (Emphasis supplied) The last sentence of Section 76 is clear in its mandate. Once a corporation exercises the option to carry-over and apply the excess quarterly income tax against the tax due for the taxable quarters of the succeeding taxable years , such option is irrevocable for that taxable year. Having chosen to carry-over the excess quarterly income tax, the corporation cannot thereafter choose to apply for a cash refund or for the issuance of a TCC for the amount representing such overypayment. 32 In this case , petitioner has effectively exercised the carry-over option pertaining to its declared excess CWT for 2005 . While petitioner elected the option "To be issued a Tax Credit Certificate" in its 2005 Annual ITR33 insofar as the excess tax credits of ~ 61 ,789,455 .00 for 2005 (including the claimed unutilized creditable withholding tax of ~ 20 ,705 ,641 .00) is concerned , petitioner carried over the said amount in its Quarterly Income Tax Returns for the firse 4 , second 35, and third 36 quarters of taxable year 2006. Thus , petitioner's original option to be issued a TCC on the purported CWT of ~ 20 ,705 ,641.00 is actually negated by its very act of carrying over the same amount to the succeeding taxable ~ 32 Commissioner of Internal Revenue vs. Mirant (Philippines) Operations, Corporation, et seq., G.R. Nos. 17 1742 and 176165 , June 15,2011. 33 Exhibit " A", line 3 1. 34 Exhibit " M-16". 35 Exhibit " M-17". 36 Exhibit " M- 18".

.. DEC ISION CTA CASE NO. 7763 Page 20 of2 1 quarters of 2006. Having effectively exercised the option of carry-over as regards the claimed excess tax credits of 12 20 ,705 ,641 .00 , petitioner is bound by the irrevocability rule under Section 76 of the NIRC of 1997. Consequently, the prayer of petitioner in the instant Petition of Review for the issuance of a TCC in the amount of 12 20 ,705 ,641 .00 in its favor cannot be granted on the following grounds , viz: 1) failure to show compliance with the second and third conditions for the grant of a claim for refund of CWT, to wit: (a) that there must be a showing on the return of the recipient that the income payment received was declared as part of the gross income , and (b) that the fact of withholding must be established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld therefrom , respectively; and 2) the operation of the irrevocability rule under Section 76 of the NIRC of 1997. Thus , for all the reasons cited above , We reiterate our consistent ruling that actions for tax refund , as in the instant case , are in the nature of a claim for exemption and the law is not only construed in strictissimi juris against the taxpayer, but also the pieces of evidence presented entitling a taxpayer to an exemption is strictissimi scrutinized and must be duly proven .37 WHEREFORE , the instant Petition for Review is hereby DENIED for lack of merit. 37 Atlas Consolidated Mining and Developm ent Corporation vs. Commissioner of Internal Revenue, G.R. No . 159490, February 18, 2008.

.. E~P.� UY DEC ISION Associate Justice CTA CASE NO. 7763 Page 2 1 of21 SO ORDERED . WE CONCUR: l~ v- <Jt.-tL-- ERNESTO b. ACOSTA CERTIFICATION hereby certify that the decision was reached after due consultation with the members of the division of the Court of Tax Appeals in accordance with Section 13, Article VIII of the Constitution . G- ~. ~~ ERNESTO D. ACOSTA Presiding Justice