ARROW FREIGHT CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPI NES COURT OF TAX APPEALS QUEZON CITY SECOND DIVISION ARROW FREIGHT CTA Case No. 10064 CORPORATION, Members: Petitioner, CASTANEDA, JR., Chairperson and BACORRO-VILLENA, JJ. -versus- COMMISSIONER OF Promulgated: INTERNAL REVENUE, JUL 1 3 2021 Respondent. x------------------------------------------------------------------------------- ---------x DECISION CASTANEDA, JR., J.: THE CASE The present Petition for Review filed on April 11, 2019 prays for the refund in the amount of P9,188,766.00, allegedly representing petitioner's unutilized creditable withholding taxes (CWTs) for the year 2016.1 ~ 1 Summary of the Case, Pre-Trial Order dated July 31, 2019, Docket- Vol. I, p. 278.

DECISION Arrow Freight Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10064) THE PARTIES Petitioner Arrow Freight Corporation is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines, with principal business address at 368 F. San Diego St., Veinte Reales, Valenzuela City.2 Pursuant to its Amended Articles of Incorporation, the purpose for which it was formed is to "engage in the business of hauling and transporting passengers_ freight goods_ wares_ produce, merchandise and other property by means of trucks_ buses_ trailers_ vans and other forms of motor vehicle or conveyance as a common carrier or otherwise, in any point or part of the Philippines and in such foreign countries as may be allowed by Philippine Law, and to acquire, own, operate, lease and dispose of like business'~3 It is also registered with the Bureau of Internal Revenue (BIR) and has applied for registration as value-added tax (VAT) taxpayer, among other tax types. It secured a BIR Certificate with VAT-registered Taxpayer Identification No. 000-231-942-000.4 Respondent Commissioner of Internal Revenue is empowered to perform the duties of his office, including acting upon protests cases and approval of claims for refund or tax credit as provided by law and implementing regulations,5 with office at BIR National Office Bldg., BIR Road, Diliman, Quezon City.6 THE FACTS On January 29, 2018, petitioner filed an administrative claim for refund in the amount of P9,188,766.00, allegedly representing its excess unutilized CWfs for calendar year 2016.7 The BIR then issued the Letter ofAuthority (LOA) No. LOA-024- 2018-00000007 (SN: eLA201500096676) dated February 26, 2018,8 authorizing certain revenue officers to examine petitioner's books of accounts and other accounting records for all internal revenue taxes including documentary stamp tax and other taxes for the period from ~ 2 Par. 2, Petition for Review vis-a-vis Par. 3, Answer to the Petition for Review, Docket- Vol. I, pp. 11 and 79, respectively. 3 Par. 4, Petition for Review vis-a-vis Par. 3, Answer to the Petition for Review, Docket- Vol. I, pp. 11 and 79, respectively; Exhibits "P-1" and "P-2", Docket- Vol. I, pp. 339 to 349. 4 Par. 5, Petition for Review vis-a-vis Par. 3, Answer to the Petition for Review, Docket - Vol. I, pp. 11 and 79, respectively; Exhibit "P-3", Docket- Vol. I, p. 350. 5 Par. A(1), Joint Stipulation of Facts and Issues (JSFI), Docket- Vol. I, p. 271. 6 Par. 3, Petition for Review vis-a-vis Par. 3, Answer to the Petition for Review, Docket - Vol. I, pp. 11 and 79, respectively. 7 Exhibit "P-12", Docket- Vol. I, pp. 464 to 471. 8 Exhibit "R-1", Docket- Vol. II, p. 563.

DECISION Arrow Freight Corporation vs. Commissioner of Internal Revenue (CTA case No. 10064) January 1, 2016 to December 31, 2016. Petitioner received the said LOA on February 28, 2018.9 Subsequently, the BIR issued against petitioner the Preliminary Assessment Notice dated June 24, 2019, which the latter received on June 28, 2019; 10 and the Rna! Assessment Notice, with Formal Letter of Demand(FAN/FLD) No. 38191/ 22947 dated September 16, 2019, which petitioner received on October 8, 2019,11 assessing it for deficiency taxes for taxable year 2016. On April 11, 2019, petitioner filed the present Petition for Review. 12 In his Answer to the Petition for Review filed on May 31, 2019,13 respondent raised the following special and affirmative defenses, to wit: (1) there is no sufficient proof to establish that petitioner is entitled to claim refund in the amount of P9,188,766.00; and (2) claims for refund partake the nature of tax exemption, hence, are not favored and to be construed strictisssimi juris against the person or entity claiming the refund. The Pre-Trial Conference was set and held on July 4, 2019.14 Prior thereto, the Pre- Trial Brief for the Respondent and Pre- Trial Brieffor the Petitionerwere separately filed on June 28, 2019.15 On July 19, 2019, the parties submitted their Joint Stipulation of Facts and Jssues. 16 Thereafter, the Pre-Trial Order dated July 31, 2019 was issuedY Trial then ensued. During trial, petitioner presented its documentary and testimonial evidence. Petitioner offered the testimonies of the following individuals, namely: (1) Ms. Virginia M. Rudio,18 petitioner's)....... 9 Id. 10 Exhibit "R-7", Docket- Vol. II, pp. 585 to 591. 11 Exhibits "R-8" and "R-9", Docket -Vol. II, pp. 593 to 605. 12 Docket- Vol. I, pp. 10 to 22. 13 Docket - Vol. I, pp. 79 to 82. 14 Notice of Pre-Trial Conference dated June 7, 2019, Docket- Vol. I, pp. 83 to 84; Minutes of the hearing held on, and Order dated, July 4, 2019, Docket- Vol. I, pp. 259 to 262. 15 Docket- Vol. I, pp. 85 to 88, and 95 to 102, respectively. 1� Docket- Vol. I, pp. 271 to 276. 17 Pre-Trial Order dated July 31, 2019, Docket- Vol. I, pp. 278 to 281. 18 Exhibit "P-13", Docket - Vol. I, pp. 108 to 118; Minutes of the hearing held on, and Order dated, August 14, 2019, Docket- Vol. I, pp. 299 to 301.

DEOSION Arrow Freight Corporation vs. Commissioner of Internal Revenue (erA Case No. 10064) Page 4of 21 Accounting Section Manager; and (2) Ms. Madonna Mia S. Dayego,19 the Court duly-commissioned Independent Certified Public Accountant (ICPA).2o On September 13, 2019, Report of the ICPA was submitted to this Court.21 Petitioner filed its Formal Offer of Evidence on September 25, 2019; 22 while respondent submitted his Comment/Opposition on Formal Offer of Evidence on October 1, 2019.23 In the Resolution dated 21, 2019/4 the Court admitted petitioner's exhibits, exceptfor Exhibits "P-10" and "P-11", for failure to present the originals for comparison. Thus, on November 11, 2019, petitioner filed its Motion for Partial Reconsideration,Z5 praying that Exhibit "P-11" be admitted as its evidence. Respondent did not comment thereon.26 In the Resolution dated January 27, 2020,27 the Court granted petitioner's Motion for Partial Reconsideration, and admitted Exhibit "P-11" in evidence. Respondent likewise presented his documentary and testimonial evidence. The testimonies of the following Revenue Officers were proferred by respondent, to wit: (1) Ms. Indira D. Ganias; 28 and (2) Ms. Brigida C. De Perio. 29 Thereafter, respondent filed his Formal Offer of Exhibits on March 13, 2020.30 Petitioner failed to file its comment thereon. 31 In )c._ 19 Exhibit "P-48", Docket - Vol. I, pp. 320 to 325; Minutes of the hearing held on, and Order dated, September 23, 2019, Docket- Vol. I, pp. 326 and 327. 20 Oath of Commission dated August 14, 2019, Docket- Vol. I, p. 298; Minutes of the hearing held on, and Order dated, August 14, 2019, Docket- Vol. I, pp. 299 to 301, respectively. 21 Docket- Vol. I, pp. 308 to 316. 22 Docket -Vol. I, pp. 328 to 337. " Docket- Vol. I, pp. 475 to 476. 24 Docket- Vol. II, pp. 478 to 479. 25 Docket- Vol. II, pp. 480 to 483. 26 Records Verification dated December 17, 2019 issued by the Judicial Records Division of this Court, Docket- Vol. II, p. 547. 27 Docket- Vol. II, pp. 549 to 550. 28 Exhibit "R-11", Docket- Vol. I, pp. 89 to 94; Minutes of the hearing held on February 26, 2020, Docket- Vol. II, pp. 553. 29 Exhibit "R-12", Docket - Vol. II, pp. 541 to 546; Minutes of the hearing held on February 26, 2020, Docket -Vol. II, pp. 553. Jo Docket- Vol. II, pp. 559 to 562. 31 Records Verification dated June 4, 20202019 issued by the Judicial Records Division of this Court, Docket - Vol. II, p. 608.

DECISION Arrow Freight Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10064) the Resolution dated June 16, 2020,32 the Court admitted all of respondent's exhibits. Petitioner's Memorandum was filed on July 16, 2020; 33 while respondent's Memorandum was submitted on September 21, 2020.34 On October 6, 2020, the present case was considered submitted for decision.35 THE ISSUE As stipulated by the parties, the sole issue for the Court's determination is as follows: "WHETHER PETITIONER IS ENTITLED FOR TAX REFUND FOR THE UNUTILIZED CREDITABLE WITHHOLDING TAX (CWT) FOR THE YEAR 2016 AMOUNTING TO PHP9, 188,766.00'136 Petitioner's arguments: Petitioner argues that the claim for refund should be granted because all the elements necessary for the grant of refund of unutilized CWT are present. Respondent's counter-arguments: Respondent posits that the subject claim for refund is still subject to the administrative routinary investigation/examination by the BIR; that settled is the rule that taxes paid and collected are presumed to have been made in accordance with law and implementing regulations, hence, not refundable; that petitioner failed to substantiate the amount of P9,188,766.00, representing excess CWTs for the year 2016, was erroneously paid or remitted to the BIR; that the subject taxpayer has pending tax delinquency in the BIR in the amount of P2,979,791.99, representing deficiency income tax, VAT, expanded withholding tax, and improperly accumulated earnings tax, for taxable year 2016, as evidenced by the FAN/FLO Jk- 32 Resolution dated June 16, 2020, Docket- Vol. II, pp. 610 to 611. 33 Docket- Vol. II, pp. 612 to 629. 34 Docket- Vol. II, pp. 631 to 639. 35 Resolution dated October 6, 2020, Docket- Vol. II, p. 644. 36 Par. B, JSFI, Docket- Vol. I, p. 271.

DECISION Arrow Freight Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10064) No. 38191/ 22947 dated September 16, 2019; that it is incumbent upon the taxpayer to show that it has complied with the provisions of Section 204 in relation to Section 229 of the Tax Code; that failure to prove the same is fatal to its claim for refund; and that claims for refund are construed strictly against herein taxpayer for the same partakes the nature of exemption from taxation, and as such, they are looked upon with disfavor. THE COURT'S RULING The present Petition for Review should be denied. Petitioner's compliance with Section 76 of the NIRC of 1997. Pertinent to the resolution of the present case is Section 76 of the National Internal Revenue Code (NIRC) of 1997, which is quoted hereunder for easy reference, to wit: "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 to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the ~

DECISION Arrow Freight Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10064) 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." The above provision prescribes two (2) options to a taxable corporation whose total quarterly income tax payments in a given taxable year exceed its total income tax due. The taxpayer may either file a tax refund (either in the form of cash or tax credit certificate) or carry over the excess credit. However, once the carry- over option is taken actually or constructively it becomes irrevocable for that taxable periodY The phrase "for that taxable period" refers to the taxable year when the excess income tax, subject of the option, was acquired by the taxpayer.38 In exercising its option, the corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention either to carry over the excess credit or to claim a refund. To facilitate tax collection, these remedies are in the alternative and the choice of one precludes the other. 39 A perusal of the Annual Income Tax Return (ITR) of petitioner for 201640 shows that it had total tax credits of P33,893,197.0041, determined as follows: Prior Year's Excess Credits Other Than MCIT p 24 520 974.00 Add: Creditable Tax Withheld- 2016 P9,035,824.00 9,372,223.00 for the first three quarters 336 399.00 p 33,893,197.00 for the 4'h Quarter Total Tax Credits Petitioner claims that its Minimum Corporate Income Tax (MCIT) due for 2016 in the amount of P183,457.0042 was paid using a portion of its accumulated CWTs during the four (4) quarters of taxable year 2016 of P9,372,223.00, thus leaving the creditable taxes withheld during the same year in the amount of P9,188,766.00 )L " Phi/am Asset Management, Inc., vs. Commissioner of Internal Revenue, G.R. Nos. 156637/162004. December 14, 2005; Systra Philippines, Inc., vs. Commissioner of Internal Revenue, G.R. No. 176290, September 21, 2007. 38 Commissioner ofInternal Revenue vs. Bank ofthe Philippine Islands, G.R. No. 178490, July 7, 2009. 39 Philippine Bank of Communications vs. Commissioner of Internal Revenue, et a!., G.R. No. 112024, January 28, 1999. 40 Exhibit "P-4", Docket- Vol. I, pp. 351 to 358. 41 Exhibit "P-4" (Schedule 7), Docket- Vol. I, at p. 356. 42 Exhibit "P-4", Line 43, Docket- Vol. I, p. 352.

DECISION Arrow Freight Corporation vs. Commissioner of Internal Revenue {CTA case No. 10064) (which is the subject of the claim for refund), and the prior year's excess credits remain intact in the amount of P24,520,974.00, or a total of P33,709,740.00, unutilized as of December 31, 2016, as shown below: Creditable Taxes Withheld - TY 2016 p 9,372,223.00 Less: Income Tax Due (MCm 183,457.00 Balance of Creditable Taxes Withheld - 2016 Add: Prior Year's Excess Credits other than MCIT p 9,188,766.00 Excess CWTs as of December 31, 2016 24,520,974.00 P33,709,740.00 Considering that petitioner opted for a refund by marking the box corresponding to the option "To be refunded"43 in its Annual ITR for the taxable year 2016, and carried over only the amount of P24,520,974.00 (which is the prior year's excess credits) in its Annual ITR for taxable year 2017,44 the CWfs for 2016 in the amount of P9,188,766.00 may be the proper subject of a claim for credit or refund, pursuant to the afore-quoted Section 76 of the NIRC of 1997. Petitioner's compliance with the requisites to claim a refund or credit for unutilized excess CWTs. Aside from the requirement provided under Section 76 of the NIRC of 1997, however, jurisprudence and the pertinent BIR Revenue Regulations provide that the following requisites must be further complied with in order that the subject claim may be granted: 1. The claim for refund must be filed within the two-year prescriptive period as provided under Sections 204 (C) and 229 of NIRC of 1997; 2. The fact of withholding must be established by a copy of a statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom; and 9z-, 43 Exhibit "P-4", Line 21, Docket- Vol. I, p. 351. 44 Exhibit "P-8", Schedule 7, Docket- Vol. I, p. 370.

DECISION Arrow Freight Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10064) 3. The income upon which the taxes were withheld must be included in the return of the recipient.45 With regard to the first requisite, the pertinent provisions are Sections 204 (C) and 229 of the NIRC of 1997, which read as follows: "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 stamped 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: Provideft howeve~; That a return filed showing an overpayment shall be considered as a written claim for credit or refund." (Emphasis supplied) "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 ?z-- 45 Citibank N.A. vs. Court of Appeals, et a!., G.R. No. 107434, October 10, 1997; ACLRA Investments Corporation vs. The Honorable Court of Appeals, et a!., G.R. No. 96322, December 20, 1991; United International Pictures AB vs. Commissioner of Internal Revenue, G.R. No. 168331, October 11, 2012; Section 2.58, Revenue Regulations No. 2-98, as amended.

DEOSION Arrow Freight Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10064) the date of payment of the tax or penalty regardless of any supeiVening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefore, 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 added) It is well settled that the two-year prescriptive period for claiming a refund of overpaid income tax/CWTs commences to run on the date of filing of the Final Adjustment Return46 (or Annual ITR). It is only when the Final Adjustment Return covering the whole year is filed that the taxpayer would know whether a tax is still due or a refund can be claimed based on the adjusted and audited figures.47 The present claim pertains to taxable year 2016 for which petitioner filed its Annual ITR on April 12, 2017. Counting from this date, petitioner had until April 12, 2019, within which to file a claim for refund of its excess CWfs, both in the administrative and judicial levels. Thus, petitioner timely filed with the BIR its administrative claim for refund on January 29, 2018,48 and its judicial claim for refund, through the present Petition for Review, on April 11, 2019.49 Moreover, the second and third requisites are stated under Section 2.58.3(8) of Revenue Regulations (RR) No. 2-98, as amended, which reads: "Sec. 2.58.3. Claim for tax credit or refund. - XXX XXX XXX (B) Claims for tax credit or refund of any creditable income tax which was deducted and withheld on income payments shall be given due course only when it is shown that the income payment has been declared as part of the gross income and the fact of withholding is established by a copy of the ;i. 40 ACCRA Investments Corporation vs. The Honorable Court of Appeals, eta!., G.R. No. 96322, December 20, 1991; Commissioner ofInternal Revenue vs. TMX Sales, Inc. and the Court of Tax Appeals, G.R. No. 83736, January 15, 1992; Commissioner of Internal Revenue vs. The Philippine American Life Insurance Co., et at., G.R. No. 105208, May 29, 1995. 47 Commissioner ofInternal Revenue vs. TMX Sales Inc., eta!., G.R. No. 83736, January 15, 1992. 4' Exhibit "P-12", Docket- Vol. I, pp. 464 to 471. 4' Docket- Vol. I, pp. 10 to 22.

DECISION Arrow Freight Corporation vs. Commissioner of Internal Revenue (CTA case No. 10064) withholding tax statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld therefrom. (Emphasis added) To prove the fact of withholding of the subject claim, petitioner submitted various Certificates of Creditable Tax Withheld at Source (BIR Form No. 2307), 50 duly issued by its various withholding agents covering the subject period, as well as the Schedule of Creditable Taxes Withheld for 2016,51 reflecting ONTs in the total amount of P9,372,222.26, with related income payments amounting to P410,111,657.56. Upon verification, however, although supported by withholding tax certificates, the Court finds that the CWfs in the total amount of P749,000.49, should be disallowed from petitioner's claim for the reasons hereunder stated, to wit: Exhibit Pavor Income Tax Withheld Payment Supporting Certificates ofCreditable Tax Withheld At Source (SIR Form No. 2307) were not signed by the payor "P-19-52" BenguetCorp Nickel Mines Inc. p 9,738,031.51 p 194,760.63 "P-19-63" BenguetCorp Nickel Mines Inc. 7,563, 957.13 151,279.14 "P-19-66 BenguetCorp Nickel Mines Inc. 7,613,529.38 152,270.59 "P-19-68" BenguetCorp Nickel Mines Inc. 2,030,719.81 40,614.40 "P-19-71" BenguetCorp Nickel Mines Inc. 2,667,857.14 53,357.14 "P-19-90" BenguetCorp Nickel Mines Inc. 462,018.73 9,240.37 "P-19-124" BenguetCorp Nickel Mines Inc. 223,214.29 4,464.29 "P-19-126" BenguetCorp Nickel Mines Inc. 5,603,280.44 112,065.61 "P-19-133" Dominus Construction & 325,915.18 3,259.16 "P-19-134" Services Corporation 588,750.00 5,887.50 Dominus Construction & Services Corporation "P-19-135" Dominus Construction & 736,504.46 7,365.04 Services Corporation "P-19-136" Dominus Construction & 420,357.14 4,203.57 Services Corporation "P-19-137" Dominus Construction & 328,794.64 3,287.95 Services Corporation Subtotal P38,302,929.85 p 742,055.39 Supporting Certificates of Creditable Tax Withheld At Source (SIR Form No. 2307) were notsigned by the payorand with incorrect TIN ofthe payee indicated in the certificate. "P-19-113" BenguetCorp Nickel Mines Inc. p 347,255.21 p 6,945.10 Subtotal p 347,255.21 p 6,945.10 50 Exhibits"P-19-1"to"P-19-137". " Exhibit "P-18".

DECISION Arrow Freight Corporation vs. Commissioner of Internal Revenue (CfA Case No. 10064) TOTAL I I P38,650,185.06l P 749,ooo.49 Correspondingly, petitioner was able to satisfy the second requisite, but only to the extent of the said duly substantiated ONTs in the amount of P8,623,221.77 (P9,372,222.26 less P749,000.49). As regards the third requisite, to prove that the income payments related to the claimed ONTs formed part of petitioner's declared income per ITR, petitioner presented its Statements of Account (S0As),52 Sales Invoices (Sls),53, Debit Memos (DMs),54 Journal Vouchers (JVs), 55 General Ledger (GL),56 Monthly Trial Balance (MTB),57 and Monthly Revenue Summary (MRS),58 for taxable years 2013 to 2016. Likewise, petitioner submitted its Cash Receipts Book (CRB),59 Summary ofAccounts Receivable Adjustments (SARA),60 and Monthly Summary of Fuel Withdrawal (SFW),61 only for taxable year 2016. According to the Court-commissioned ICPA, Ms. Madonna Mia S. Dayego of M. F. Padernal and Co., the related income pertaining to trucking services, including rentals of equipment and revenue from trading from which the ONTs being claimed for refund were withheld, were reported as part of the petitioner's gross income subject to income tax in taxable year 2016.62 As part of its verification, the ICPA traced the payor's name and amount of income payments totaling P410,111,656.90, with corresponding CWTs of P9,372,222.2663, against the customer's name and the amount of income reflected in the CRB for 2016, SARA for 2016, SOAs, Sis and DMs for taxable years 2013 to 2016. The result of such verification is summarized as follows: 64 fie-- 52 Exhibits "P-22-1" to "P-22-220". 53 Exhibits "P-22-221" to "P-22-243". 54 Exhibits "P-22-244" to "P-22-247". 55 Exhibits "P-36-1" to "P-36-142", "P-37-1" to "P-37-110", "P-38-1" to "P-38-123", "P-39-1" to "P-39-96", and "P-40-1" to "P-40-10" 56 Exhibits "P-32-1" to "P-32-3", "P-33-1" to "P-33-3", "P-34-1" to "P-34-3", and "P-35-1" to "P-35-5". 57 Exhibits "P-32", "P-33", "P-34", and "P-35". 58 Exhibits "P-23-1-1" to "P-23-1-12; "P-23-2-1 to P-23-2-12"; "P-23-3-1" to "P-23-3-12"; "P-23-4-1" to "P- 23-4-12"; "P-23-5-1" to "P-23-5-12"; "P-23-6-1" to "P-23-6-12"; "P-23-7-1" to "P-23-7-12"; "P-23-8-1" to "P-23-8-12". 59 Exhibits "P-22-249." 60 Exhibit "P-22-248. 61 Exhibits "P-30-1" to "P-30-12". 62 Exhibit "P-15", No.7, p. 7 of 32. 63 Exhibit "P-19". 64 Exhibit "P-15", Table 8, p. 11 of 32.

DEOSION Arrow Freight Corporation vs. Commissioner of Internal Revenue (CfA Case No. 10064) Revenues from Summary ofCWT Traced to CRB, SOA, SI. OM and SARA Amount of Exhibit Income Equivalent Tax Withheld No. Particulars Payments "P-19"/ Per Summary of Creditable Taxes Withheld "P-22-249" supported by original Certificates of Creditable Tax Withheld at Source (BIR Form No. 2307) issued by payor in the P410,111,656.90 P9,372,222.26 petitioner's name and per CRB forTY 2016 Revenue from Trucking Services "P-22-1" Traced to SOA p 125,860.71 p 2,570.79 to Taxable year 2013 "P-22-220" Taxable year 2014 25,717,388.24 1,285,869.41 Taxable year 2015 110 960 097.73 2 386 242.27 Taxable year 2016 278,646,662.51 5,823,332.33 "P-22-248" SOA adjustments per SARA, net of VAT (17,318,267.99) (346,365.36) Overstatement of income payments per (446 428.57) (8.928.57) SOA compared to BIR Form No. 2307 260,881 965.95 5,468 038.40 Total amount traced to SOAs 1'397,685,312.63 1'9,1.42,720.87 Revenue from Trading "P-22-221" Traced to Sis p 2,062,568.66 p 27,933.55 to Taxable year 2016 , , (5 507.14) (55.07) "P-22-243" Overstatement of income payments per 51 2 057. 061..52 27,878.48 compared to BIR Form No. 2307 Total amount traced to Sis "P-22-244" Traced to OMs to Taxable year 2015 p 977,232.15 p 19,544.65 "P-22-247" Taxable year 2016 , 541 250.00 , 10 825.00 1.,51.8,482.1.5 30,369.65 Total amount traced to OMs (0.03) Rounding off 0.05 P9,200,968.97 Total amount traced to SOAs/Sis/DMs P401,260,856.35 p 171,253.29 "P-22" Unsupported by SOAs/Sis/DMs p 8,850,800.55 As ascertained by the ICPA, the resulting difference of P171,253.29, as shown in the above table, represents tax withheld per BIR Form No. 2307, for which the corresponding SOAs/Sis/DMs were not presented. Such being the case, there was no basis for tracing the recording in the books of the related income payments of P8,850,800.55. Hence, this will require a downward adjustment to petitioner's claim in the amount of P171,253.29.65 However, it must be noted that out of the difference of P171,253.29, the CWTs in the amount of P24,003.2266 already)-. 65 Exhibit "P-15", Par. c4, p. 12 of 32. 66 Exhibit Income Payment CWT "P-19-133" p 325,915.18 p 3,259.16 Dominus \\P-19-134" 588,750.00 Construction "P-19-135" 736,504.46 5,887.50 & Services "P-19-136" 420,357.14 7,365.04 Corporation 4,203.57

DEaSJON Arrow Freight Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10064) formed part of the disallowed CWTs in the total amount of P749,000.49, as discussed under the second requisite. Moreover, the income payments per SOAs, Sis and DMs were traced by the ICPA to the petitioner-prepared MRS for the taxable years 2013 to 2016. The results of the comparison and tracing are summarized as follows: 67 Revenue from Trucking Services- SOAs Traced to MRS PerSOAs Per MRS- Related to the Petitioner's Claim Difference Exhibit No. P~22 see Table above) Amount Equivalent Amount Equivalent Amount Equivalent of Income Tax Of Income Tax Exhibi Account of Income Tax Pavment Withheld No. Year Year Title Pavment Withheld Payment Withheld "P-24� "P-25" Freight- General cargo 1 2013 � 125 860.71 � 2 570.79 2013 Revenue- � 123 700.00 � 2 474.00 5I 2 160.71 � 96.79 Tacloban Revenue from 2014 SCNP�BNMI 25 714 756.32 I 285 737.81 Roundlno-off 10.02) - 2014 25 717 388.24 I 285 869.41 25 714 756.30 1 285 737.81 2 631.94 131.60 110 777 412.64 2 382 588.64 "P�26" 2015 Revenue from '"P-27" 2015 SCNP-BNMI 94 900.00 1 898.00 Freight- General Cargo I Revenue- Tacloban Roundlnq-off (2.78) (0.13) 2015 110 960 097.73 2 386 242.27 110 872 309.86 2 384 486.51 87 787.87 1 755.76 5 823 332.33 276 957 721.09 5 789 553.43 "P-28" 2016 Revenue from "P-29" 2016 SCNP-BNMI I 211 220.00 24 224.40 Freight� 2.69 0.13 General Cargo 278 168 943.78 5 813 777.96 I Revenue� Tacloban Rounding-off 2016 278 646 662.51 477 718.73 9 554.37 ~415 450 009.19 119 498 014.80 11414 879 709.94 n4&6476.2B ~570 299.25 1111538.52 Revenue from Trading- Sis and DMs Traced to SFW Per Sis and OMs Exhibit No. P-22. see Table above! Per SFW- Related to the Petitioner's Claim Difference Amount Equivalent Amount Equivalent Amount Equivalent Of Income Tax Exhlbl Account of Income Tax of Income Tax No. Year Payment Withheld Year Title Payment Withheld Pavment Withheld S!s "P-31" Revenue from .2 031 882.92 J!27 626.70 2016 Trading Rounding- 0.02 - off 2016 � 2 062 568.66 �27 933.55 .2 031 882.94 .27 626.70 � � 30 685.72 306.85 DMs 2015 � 977 232.15 .19 544.65 - - - - � 977 232.15 Iii 19 544.65 10 825.00 2016 541 250.00 10 825.00 - - - - 541 250.00 � 30 369.65 � I SIB 482.15 .30 369.65 - - - - lil 1 518 482.15 "P-19-137" 328,794.64 3,287.95 Total P2 400 321.42 P24 003.22 67 Exhibit "P-15", Tables 9 and 10, p. 13 of 32.

DEOSION Arrow Freight Corporation vs. Commissioner of Internal Revenue (CTA case No. 10064) Revenue from Trucking Services- SOAs Traced to MRS PerSOAs Exhibit No. P-22 see Table abovel Per MRS- Related to the Petitioner's Claim Difference Amount Equivalent Amount Equivalent Amount Equivalent of Income Of Income Tax Exhlbi Account of Income Tax Tax No. Year Payment Withheld Year Title Pavment Withheld Pavment Withheld nsa>o5o.a� na3o3.20 .2 031 882.94 n1 626.70 �� 549 167.87 no 676.50 The total difference in the income payments amounting to P2,119,467.12,68 with corresponding tax withheld of P42,215.02,69 pertained to revenue from trucking services per SOA70 and revenue from trading per Sis and DMs71 which were not traced to the petitioner-prepared MRS and SFW, respectively, due to the absence of supporting details/breakdowns to match the information in the MRS and SFW. As such, this requires a further downward adjustment of P42,215.02 to the petitioner's claim.72 Furthermore, the total revenue from trucking services per petitioner-prepared MRS was then traced to the total revenue recorded per JVs73 and Year-end Client's Adjusting Entries74 posted in the GLs for taxable years 2013 to 201675, and summarized in the MTB for the same taxable years76 under Revenue from SCNP-BNMI and Freight-General Cargo/Revenue-Tacloban. Moreover, the total revenue from trading per petitioner-prepared SFW was traced to the total revenue per JVs77 posted in GL for taxable year 201678 and summarized in MTB for taxable years 201679� The results of the foregoing procedures are summarized as follows: 80 Comparison of Total Revenue from Trucking Services per MRS, JVand GL/MTB Amount of Income Pa ment Rounding-off Ex hi Difference Per MRS bit PerJVs Per GL/MTB No. (d) (ei Particulars Exhibit Related to the Other Total ~760 564 226.60 MRS lV No. Petltioner's Transactions 11 878 041.13 vs. (c) = (a) + (b) vs. Claim (b) lVs GL/MTB (a) (C)- (d) (dj- (e Taxable_r!!ar 2013 ��"P-23- ~ - ~760 564 224.15 ~760 564 224.15 ~760 564 226.99 (~2.84) ~0.39 Revenue from SCNP- 11 751 041.13 BNMI Freight- General cargo 68 P570,299.25 (from Trucking Services) plus P1,549,167.87 (from Trading). 69 P11,538.52 (from Trucking Services) plus ~30,676.50 (from Trading). 70 Income payments of P570,299.25 and CWT of P11,538.52. 71 Income payments of P1,549,167.87 and CWT of P30,676.50. 72 Exhibit "P-15", p. 14 of 32. 73 Exhibits "P-36-1" to "P-36-142", "P-37-1" to "P-37-110", "P-38-1" to "P-38-123", and "P-39-1" to "P-39- 96". 74 Exhibit "P-38-124". 75 Exhibits "P-32-1" to "P-32-3", "P-33-1" to "P-33-3", "P-34-1" to "P-34-3", and "P-35-1" to "P-35-4". 76 Exhibits "P-32", "P-33", "P-34", and "P-35". 77 Exhibits "P-40-1" to "P-40-10". 78 Exhibit "P-35-5". 79 Exhibit "P-35". 80 Exhibit "P-15", Tables 11 and 12, pp. 16 to 17 of 32.

DEOSION Arrow Freight Corporation vs. Commissioner of Internal Revenue (CTA case No. 10064) Comparison of Total Revenue from Trucking Services per MRS, JV and GL/MTB Amount of Income Pa ment Rounding-off Exhl Difference bit Per MRS No. PerJVs PerGL/MTB (ei Particulars Exhibit Related to the Other Total (d) MRS JV Revenue - Tacloban No. Transactions (c) = (a) + (b) I 370 500.00 vs. vs. Petitioner's 1497 500.00 13 248 541.13 JVs GL/MTB Total "P-23- (b) _{dj- (e) 2"/ Claim lil773 812 767.73 (C)- (d) "P-24- (a) 1" P585 932 353.97 123 700.00 13 124 841.13 13 248 541.13 13 248 541.13 9 998 099.07 - - P123 700.00 P773 689 065.28 lil773 812 768.12 20 804 496.98 �3.�,6- 30 802 596.05 (P2.84l (P0.39) ��-.32 P616 734 950.02 lil773 812 765.28 lil767 179 548.54 4 229 242.86 Taxable vear 2014 "P-23- P25 714 756.32 P560 217 599.04 P585 932 355.36 P585 932 353.97 16 075 540.31 lil1.39 p- 9 998 099.07 20 304 783.17 Revenue from SCNP- 3"/ 20 804 496.98 BNMI "P-25� 30 802 596.05 ~787 484 331.71 Freight- General 1" Jl616 734 950.02 canio Revenue- Tacloban "P-23- - 30 802 596.07 30 802 596.07 0.02 - 4" �3.�,7- ��.-33 Total 1125 714 756.32 lil591 020 195.11 lil1.41 p- lil616 734 951.43 Taxable year 2015 "P-23� PliO 777 412.64 P656 402 135.93 P767 179 548.57 lil767 179 548.54 P0.03 p- 94 900.00 20 209 883.19 4 229 242.86 Revenue from SCNP- 5"/ 20 304 783.19 16 075 540.31 BNMI "P-26� Freight General 1" �3.�,8- 20 304 783.17 carao Revenue- Tacloban "P-23- 0.02 - 6"/ "P-27� 1" Total lil110 872 312.64 lil676 612 019.12 ."P- ii1787 484 331.71 fiiO.OS p- 34 fil787 484 331.76 Taxable year 2016 "P-23- P276 957 721.09 P91 129 77!.89 P368 087 492.98 P368 087 493.34 ii1368 087 493.34 (00.36) p- 7"/ I 211 220.00 2 343 341.43 2 343 341.43 Revenue from SCNP- "P-28- 1157 449.15 1157 449.15 BNMI 1" 4 419 830.28 4 419 830.28 Freight General "P-23- caroo 8"/"P- 29-1" Revenue - Tacloban Revenue- Hauling Pamo 6 709 400.89 7 920 620.89 7 920 620.86 7 920 620.86 0.03 - P97 839 172.78 P376 008 114.20 Total TY 2016 P278 168 941.09 �.3�,9- P376 008 114.20 (P0.33) lrl< ��-.35 ~376 008 113.87 Comparison ofRevenue from Trading per SFW. JV and GL/MTB for Taxable Year 2016 I Amount of Income Payment I Rounding-oft' Difference I I I I I Exhibit Particulars PerSFW Per JVs Per GL/MTS

DEQSION Arrow Freight Corporation vs. Commissioner of Internal Revenue (CTA Case No. 10064) Related to the No. (d) (e) Petitioner's JV Claim Other ��� PerSFW Exhibit [Table 11] Transactions Total vs. JVs GL/MTB No. (a) (b) (c) = (a) + (b) (c)- (d) (dj- (e Taxable year 2016 'P-30"/ lii2,031,882.92 5123,400,546.76 lii25,432,429.68 ��-40"/ lii25,432,429.71 lii25,432,429.71 (~0.03) ~- "P-31-1 Revenue from "'P�35- Trading s� The amounts of revenue from trucking services for the taxable years 2013 to 2016, and revenue from trading for taxable year 2016 tally with the revenue from trucking services and sale of goods accounts reflected in the petitioner-prepared Schedule of Computation of Taxable Income for taxable years 2013 to 2016,81 except for rounding-off differences. Also, the amounts of Gross Revenue reflected in the taxable income column of the petitioner- prepared Schedule of Computation of Taxable Income for the taxable years 2013 to 2016 tally with the total amounts of Sales/Revenues/Fees, and Non-Operating and Other Income reflected in the Annual ITRs for taxable years 2013 to 2016.82 In view of the foregoing, petitioner has sufficiently proved that the income payments related to the CWfs of P9,158,753.95 formed part of the gross income declared in its Annual ITRs for the taxable years 2013 to 2016, determined as follows: Particulars Amount of Tax Withheld Amount per Summary of Creditable Taxes Withheld83 Income Payment p 9 372 222.26 Less: Downward Aclj_ustments p 410 111 656.90 171 253.29 SOAs/Sis/DMs not presented for review 8,850 800.55 11 538.52 Not traced to MRS 570 299.25 30 676.50 Not traced to MSFW 1 549 167.87 213468.31 Total downward acfilJstments 1fJY7()d67.67 .. 9,158,753.95 p 399 141 389.23 Total Petitioner then is considered to have complied with the third requisite, relative to the amount of P9,158,753.95. In sum, on the basis of its evidence, petitioner was able to prove an unutilized excess CWfs for taxable year 2016 in the amount of P8,250,300.42, computed as follows: ~ 81 Exhibits "P-41" to "P-44". 82 Exhibits "P-16-1" to "P-16-4". 83 Exhibit "P-19".

DEOSION Arrow Freight Corporation vs. Commissioner of Internal Revenue (CfA Case No. 10064) Particulars Tax Withheld p 9,372,223.0084 Creditable Taxes Withheld in Taxable Year 2016 Less: Income Tax Due (MCIT) 183 457.00 Amount of Claim per Petition for Review p 9 188 766.00 Less: Disallowed CWTs as per this Court's verification of the supporting 749 000.49 BIR Form No. 2307 (as discussed under the second reouisite) Less: Downward Adiustments 147,250.0785 11,538.52 SOAs/Sls/DMs not presented for review (as adiustedl_ 30 676.50 Not traced to MRS Not traced to SFW 189,465.09 Total downward adjustments Valid CWTs PS 250 300.42 However, petitioner is not entitled to the said unutilized excess CWTs for taxable year 2016, in view of the assessments made by respondent against it, for the same taxable year. The issue of petitioner's claim for tax refund is intertwined with the issue of the proper taxes that are due from petitioner.. A claim for tax refund carries the assumption that the tax returns filed were correct. If the tax return filed was not proper, the correctness of the amount paid and, therefore, the claim for refund becomes questionable. In that case, the court must determine if a taxpayer claiming refund of erroneously paid taxes is more properly liable for taxes other than that paid.86 In this case, petitioner's ITR for taxable year 2016 was put into question when respondent presented the issued FAN/FLO No. 38191/ 22947 dated September 16, 2019 against petitioner for taxable year 2016. The said notices were received by the latter on October 8, 2019.87 In the said FAN/FLO, the BIR assessed petitioner with, inter alia, deficiency income tax amounting to P190,925,996.45, including surcharges and interests, 88 computed as follows: Total Income Tax Due P113,031,576.10 ~ Less: Tax Credits and Payments 84 Actual CWTs per Summary of Creditable Taxes Withheld in TY 2016 is P9,372,222.26. Rounding-off difference of t'0.74. 85 P171,253.29 less P24,003.22. 86 SMI-ED Philippines Technology, Inc. vs. Commissioner ofInternal Revenue, G.R. No. 175410, November 12, 2014. 87 Exhibits "R-8" and "R-9", Docket- Vol. II, pp. 593 to 605. 88 Exhibits "R-8" and "R-9", Docket- Vol. II, at pp. 593 and 601, respectively.

DEOSION Arrow Freight Corporation vs. Commissioner of Internal Revenue (erA Case No. 10064) Prior year's excess credits ~24,520, 974.00 9,372,223.00 ONT 2307 9,372,223.00 Total ~103,659,353.10 Less: carried over to next ~33,893,197.00 period 87,266,643.35 Basic Deficiency Income Tax 24,520,974.00 P190,925,996.45 Add: 50% Surcharge 20% Interest from 04/16/2017 ~51,829,676.55 to 12/31/2017 20% Interest from 01/01/2018 14,705,096.18 to 08/31/2019 Total Deficiency Income Tax 20,731,870.62 However, petitioner did not refute the said assessments, including the foregoing deficiency income tax assessment amounting to P190,925,996.45. It is settled that all presumptions are in favor of the correctness of tax assessments. The good faith of the tax assessors and the validity of their actions are thus presumed. They will be presumed to have taken into consideration all the facts to which their attention was called. Hence, it is incumbent upon the taxpayer to credibly show that the assessment was erroneous in order to relieve himself from the liability it imposes.89 It is noteworthy that petitioner did not object to the admissibility of FAN/FLD No. 38191/ 22947 dated September 16, 2019 when these documents were formally offered by respondent before this Court. In fact, petitioner did not even comment on respondent's Formal Offer of Exhibits. 90 Hence, petitioner is deemed to have admitted the validity of these documents. Petitioner's failure to object to the offered evidence renders it admissible, and the Court cannot, on its own, disregard such evidence.91 In view of the said presumption and considering that petitioner is deemed to have admitted the validity of the FAN/FLD No. 38191/ 22947 dated September 16, 2019 issued against petitioner for taxable year 2016, petitioner is required to pay its tax obligations by virtue thereof, pursuant to Section 6(A) of the NIRC of 1997, which states that: 91--- 89 Commissioner ofInternal Revenue vs. Secretary ofJustice, eta!., G.R. No. 177387, November 9, 2016. 90 Records Verification dated June 4, 20202019 issued by the Judicial Records Division of this Court, Docket -Vol. II, p. 608. 91 Refer to Commissioner ofInternal Revenue vs. Philippine National Bank, G.R. No. 180290, September 29, 2014.

DEOSION Arrow Freight Corporation vs. Commissioner of Internal Revenue (CTA case No. 10064) "SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement. - XXX XXX XXX The tax or any deficiency tax so assessed shall be paid upon notice and demand from the Commissioner or from his duly authorized representative. XXX XXX xxx." (Emphasis added) Since the deficiency income tax assessed by the BIR for taxable year 2016 amounted to P190,925,996.45, the same exceeds the determined unutilized excess CWTs for taxable year 2016 in the amount of P8,250,300.42. Correspondingly, petitioner is not entitled to the latter amount. WHEREFORE, premises considered, the present Petition for Review is DENIED for lack of merit. SO ORDERED. ~--cc.~~~l9-. JOAt.HTO C. CASTANED(" JR. Associate Justice !CONCUR: � JEAN MARl

DECISION Arrow Freight Corporation vs. Commissioner of Internal Revenue (CTA case No. 10064) ATTESTATION I attest 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's Division. ~-c c..Q.:t-"'-'-' c<.. () JiiANITO c. CASTANEDA/JR. Associate Justice Chairperson CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairperson's Attestation, 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