COMMISSIONER OF INTERNAL REVENUE v. THE RESIDENCES AT GREENBELT CONDOMINIUM CORPORATION

REPUBLIC OF THE PHILIPPINES COURT OFTAXAPPEALS QUEZON CITY ENBANC COMMISSIONER OF CTA EB NO. 2810 INTERNAL REVENUE, (CTA Case No. 9942) Petitioner, Present: -versus- Del Rosario, P.J. Ringpis-Liban, Manahan, Bacorro-Villena, l\!Iodesto-San Pedro, Re yes- Fajardo, Cui-David, Ferrer-Flores, and Angeles,Jl THE RESIDENCES AT Promulgated: GREENBELT CONDOMINIUM CORPORATION, Respondent. X------------------------------------------------------------------------------------------------X DECISION RINGPIS-LIBAN,.l; Before the Court En Bane is a Petition for Review1 flied by the Commissioner of Internal Revenue (CIR) via registered mail on October 27, 2023. The Petition for Review challenges the Decision dated May 26, 20232 (Assailed D ecision) as well as the Resolution dated September 27, 20233 (Assailed Resolution) rendered by the First Division and the Special First Division, respectively, (collectively referred to as "Court in Division")4 of this Court in CTA Case No. 9942. /\;/ 1 Court En Banes Docket, pp. 14-25. 2 lei., pp. 32-50. 3 !d., pp. 60-63. 4 Both the First Division and Special First Division were composed of Presiding Justice Roman G. Del Rosario, Associate Justice Catherine T. Manahan, and Associate Just ice Marian I vy F. Reyes-Fajardo (ponente).

DECISION CTA EB No. 2810 (CTA Case No. 9942) The respective dispositive pornons of the Assailed Decision and Resolution are quoted hereunder: Assailed Decision: "WHEREFORE, the Petition for Rc,�iew dated October 1, 2018, filed by The Residences at Greenbelt Condominium Corporation, is GRANTED. ,\ccordingly, the Final .r\ssessment Notice dated December 27, 2017, embodying the deficiency income tax, value-added tax, expanded withholding tax, and documentary stamp tax assessments for taxable vear 2014 in the total amount of '1'13,184,036.64, is CANCELLED and WITHDRAWN. Respondent, his representati,�es, agents, or other persons acting in his behalf are ENJOINED from implementing the collection of deficiency income tax, value-added tax, expanded withholding tax, and documentary stamp tax assessments for taxable year 2014, in the total amount ofP13,184,036.64 against petitioner. SO ORDERED." Assailed Resolution: "WHEREFORE, respondent's Motion for Reconsideration, filed on June 16, 2023, is DENIED, for lack of merit. The Decision dated ;\lay 26, 2023, is AFFIRMED. SO ORDERED." THE FACTS The facts of the present case were laid down by the Court in Division in the c\ssailed Decision as follows:' "Petitioner The Residences at Greenbelt Condominium Corporation is a domestic corporation organized for the purpose of holding title to the land and the common areas of the condominium project named The Residences at Greenbelt, Esperanza Drive, l\Iakati City. 1ts principal office is located at 2/F Bldg. .r\dmin, Laguna Tower, Esperama Drive, i\lakati City. It is registered with the Bureau of Internal ReYenue (BIR). Respondent is the Commissioner of the BIR and holds office at the 5'h Floor, BIR National Office Building, c\gham Road, Quezon City, and is represented by the Legal Division of Revenue Region No. 8 (South i\lakati) which holds office at the 2/F BIR Regional Office ~ 5 Court En Banes Docket, pp. 32-35 (Citations omitted).

DECISION ITA EB No. 2810 (ITA Case No. 9942) Building, 313 Sen. Gil Puyat Avenue, 1\Iakati City. He is vested with the power to decide tax cases, including claims for refunds and/ or tax credits pursuant to Section 4 of the 1997 National Internal Revenue Code (NIRC), as amended. On December 5, 2017, petitioner received the BIR's Preliminary ,\ssessment Notice (P"\N) dated November 29, 2017, containing the proposed deficiency tax assessments in the total amount of P13,019,465.56, broken down as follows: Tax Type Basic Tax Increments Compromise I Surcharge Penalty TOTAL I IT Interest 1'20,000.00 1'9,297,695.37 V"\T 1'6,034,2-13. 97 1'3,263,451.40 - 810,001.36 E\\T 511,152.31 298,849.05 DST 983,15-1.47 - 2,6-19,131.18 1.665,976.71 78,303 90 262,637.65 131.-167.00 - Pl3,019,465.56 j 1'32,866.75 On December 18, 2017, petitioner filed its protest letter dated December 15, 2017 against the P/1.N, discussing in detail its defenses on the proposed deficiency tax assessments. Petitioner then prayed that reim�estigation, and e,�entually, cancellation and withdrawal thereof be made in light of said defenses. On January 4, 2018, petitioner received the BIR's F"\N dated December 27, 2017, assessing it for deficiency IT, VXI', EWT, DST, co,-enng 'lY 2014, in the total amount of P13,184,036.64, detailed below: Tax Type Basic Tax Increments Compromise I Surcharge IT Interest Penalty TOTAL ' v,\T E\'Cf 1'6,03-1,243.97 1'3,382,483.06 - 1'20,000.00 1'9,416,727.03 DST 511,15231 308,932.05 - 820,084.36 1,665,976.71 1,016,017 57 - 2,681,99-1.28 131,-167.00 80,897.22 265,230.97 1'32,866.75 Pl3,184,036.64 On January 30, 2018, petitioner protested the I'"�\N, through a letter dated January 23, 2018, followed by its submission of documentat-y e,�idence in support thereof, via its letter dated March 7, 2018, and filed with the BIRon Ilfarch 9, 2018. On J\Iarch 14, 2018, petitioner recei,�ed two (2) letters from BIR in response to the request for reim�estigation, i.e., letter dated February 26, 2018 signed by Regional Director Glen ,\. Geraldino, and the letter dated March 5, 2018 signed by Revenue Officer (RO) Florante R. ,\ninag. Both letters stated that petitioner's request for reinvestigation ~

DECISION CTA EB No. 2810 (CTA Case No. 9942) was granted. Petitioner was also required to submit the additional documents within sixty (60) days from petitioner's filing of its protest. On October 5, 2018, petitioner filed its Petition for Review with !\lotion to Suspend Collection of Taxes, docketed as CTA Case No. 9942, to which respondent filed his ,-\nswer on January 7, 2019. In the Resolution dated June 4, 2019, petitioner's !\lotion to Suspend Collection of Taxes was denied, for lack of merit. During the Pre-Trial Conference held on "\ugust 8, 2019, the Court: (1) adopted the issue to be resolved in this case, as agreed upon b\' the parties; (2) directed the parties to embody matters and the issue agreed upon in a Joint Stipulation of Facts and Issues; (3) set the schedules for the marking of the parties' exhibits, as well as for the presentation of their respecti,-e evidence; and (4) directed them to appear for mediation. On ,\ugust 28, 2019, the parties filed their Joint Statement of Facts and Issues QSFI), which was appro,-ed in the Resolution dated September 10, 2019. On the basis thereof, the Court issued a Pre-Trial Order on N onmber 6, 2019. Trial ensued." On !\lay 26, 2023, the Court in Division rendered the Assailed Decision. Aggrieved, petitioner filed a Motion for Reconsideration6 on June 16, 2023 which the Court in Division denied in the Assailed Resolution. On October 27, 2023, petitioner filed the present Petition for Review via registered mail, within the extended period granted by this Court7 In a !\linute Resolution dated November 30, 2023, this Court directed the respondent to file its Comment to the Petition for Review8 On December 14, 2023, respondent filed its Comment-Opposition [To the Petition for Review dated 16 October 2023].9 In a :\Iinute Resolution dated January 24, 2024, this Court referred the case to the Philippine l\lediation Center - Court of Tax Appeals (PMC-CL\) r for mediation. 111 6 Id., pp. 51-58. 7 Minute Resolution dated November 3, 2023, Court En Bane's Docket, p. 13. 8 Court En Banes Docket, p. 66. 9 !d., pp. 68-76. 10 Id., p. 81.

DECISION CTA EB No. 2810 (CTA Case No. 9942) In a i\Iinute Resolution dated April 30, 2024, this Court noted that the parties have decided not have their case mediated by Pi\1C-CTA and, accordingly, submitted the case for decision. 11 THE ISSUE Petitioner submitted the following 1ssue for this Court's decision, to "Whether or not the tax findings in the Pi\N which was merely reiterated in the FAN due to the lack of supporting documents to the protest to Pi\N ''iolated the taxpayer's right to due process." THE ARGUMENTS OF THE PARTIES Petitioner argues that: 13 1. The Final, \ssessment Notice (E\N) dated December 27, 2017 was properly issued in compliance with Revenue Memorandum Order (RJ\IO) No. 26-2016 and Section 228 of the 1'\IRC, as amended, and ReYcnue Regulations (RR) No. 12-99, as amended..-\s such, there was no ,�iolation of due process in this case. 2. Under the National Internal Re,�enue Code (NIRC), the FI\N is recognized as the assessment that must be protested by the taxpayer. Consequently, it is permissible for the BIR to take into account the taxpayer's protest against the Pi\N in subsequent assessment notices, such as the Final Decision on Disputed i\ssessmcnt (FDD,\). 3. CT.\ 1" Di,�ision committed reversible error when it applied the .�1?Jon case, in relation to the /lng 'fi'bay case, to the present case considering that the same is not applicable due to the distinct set of facts presented in this case. 4. Reiteration of an assessment does not constitute a violation of due process; instead, it only signifies the denial of: (1) the protest; and/ or (2) irrelevant documents. On the other hand, respondent maintains that petitioner's arguments deserve scant consideration because in the case of Commissioner ofInternal Revenm v. Avon Prodttdr i\Iamtfacturing' 4 it was held that the failure of the taxing authority to inform the taxpayer of the reasons for rejecting its arguments in protesting _...... the Preliminary i\ssessment Notice (P,-\N) results to denial of due process thus 11 Id., p. 83. 12 !d., p. 17. ll !d., pp. 18�24. 14 G.R. Nos. 201398�99, October 03, 2018 ("Avon").

DECISION CTA EB No. 2.810 (CTA Case No. 9942) rendering the assessment null and void. Respondent asserts that petitioner's argument, i.e., that the Avon case is inapplicable to the present case because what was filed was a protest to the PA.N without additional supporting documents, is untenable. Respondent points out that the Supreme Court in Avon reminded the taxing authority to give due consideration to the arguments and evidence contained in the protest, as part of the requirements of due process. Respondent submits that Avon is on all fours to the present case because similar to Avon, the Bureau of Internal Revenue (BIR) in the present case merely rehashed the F,-\N and adjusted the interest on the deficiency taxes, ultimately ignoring respondent's arguments and evidence on its protest to the PAN. ,\s regards petitioner's argument that he issued a valid E\N in compliance with l~\10 No. 26-2016 and RMO 12-99, including Section 228 of the NIRC, respondent claims that the Avon case ultimately shed light on how the taxing authority should issue a valid FAN once a protest to the PAN was made. According to the aforecited case, the taxing authority must give the reason and facts upon which its conclusions were based which the BIR failed to do in this case. \'Chile revenue regulations and issuances of administrative agencies have the force and effect of law and presumed valid unless otherwise ruled by courts, in light of the Avon case, petitioner should have followed the guidelines in issuing a valid FAN once a protest to the PAN was made. Petitioner as the taxing authority is duty bound to apply the aforecited case in its issuance of the FAN to accord due process to the taxpayer. On the merits, respondent argues that, as a condominium corporation, it is not subject to VXr as held in First E-Bank Tower Condominium Cop. v. Bureau of Internal Revenm.' 5 In the same vein, it is also not subject to income tax as it claims that it is not formed for business purposes but only for holding title to the land and common areas on the condominium project. THE COURT EN BANCS RULING The Petition for Review shall be denied. Timeliness of the Petition The Court En Banr shall first determine whether the present Petition for Review was timely filed. Section 3(b), Rule 8 of the Revised Rules of the Court of Tax "\ppeals (RRCTA) provides: "Rule 8 Procedure in Ci,�il Cases /""' ts G.R. No. 215801, January 15, 2020.

DECISION CTA EB No. 2810 (CTA Case No. 9942) XXX XXX SEC. 3. IF'!w muy uppeul,�periorl tofile petition. - XXX XXX XXX (b)"\ party ad,�ersely affected by a decision or resolution of a Division of the Court on a motion for reconsideration or new trial may appeal to the Court bv filing before it a petition for re,�iew within fifteen days from receipt of a copy of the questioned decision or resolution. xxx" (Emphasis supplied) The records show that petitioner received the ,\ssailed Resolution on October 6, 2023. Counting fifteen (15) days therefrom, petitioner had until October 21, 2023 within which to file his Petition for Review before the Court En Bam: On October 20, 2023, however, petitioner filed v1a private couner a Motion for Extension of Time to rile Petition for Review, 16 which was granted in the ~Iinute Resolution dated November 3, 2023n The Court En Bane granted petitioner an additional period of fifteen (15) days from October 21, 2023 or until November 5, 2023 within which to file his Petition for Review before the Court En Ba11e. ~\ccordingly, petitioner timely flied the present Petition for Review on October 27, 2023, well within the extended period. The Court in Division did not err in cancelling the subject assessment for violation of the taxpayer's right to due process. After careful scrutiny of the arguments of the parties and the relevant laws, rules, and jurispmdence on the matter vis-a-vis the facts as reflected in the case records, the Court En Bane finds no compelling reason to disturb the findings of the Court in Division in the Assailed Decision and Resolution. If only to reinforce the succinct discussion of the Court in Division in the c\ssailed Decision, the Court En Bane will address below the arguments raised by the petitioner in his present Petition for Review. Petitioner argues that in issuing the FAN, he was "guided by the pertinent provisions of Revenue J\Iemorandum Order No. 26-2016, issued in line with Section 228 of the NIRC, as amended, and pursuant toRR No. 12-99, as amended" where it states that protest against PAN is optional/not mandatory and that the Formal Letter of Demand and Final Assessment "')/ "Court En Banes Docket, pp. 1-3. 17 !d., p. 13

DECISION CTA EB No. 2810 (CTA Case No. 9942) Notice (FLD/FA~) shall be issued within fifteen (15) days from date of receipt by the taxpayer of the PI\.N, whether the same was protested or not18 Petitioner boldly asserts that the "taxpayer's right to file protest against the Pc\N emanates not from substantial [sic] law such as the NIRC: of 1997, as amended, but only from the administrative procedure of protesting assessment laid [down] by RR No. 12-99, as amended." Petitioner thus claims that this right can be modified by mere administrative issuance such as Rl\IO No. 26- 201619 Petitioner posits that the P"\'\J is merely "preparatory and preliminary prior to the issuance of the FAN and not technically the 'assessment' that is contemplated bv law that can warrant cancellation of an assessment.""'' Petitioner surmises that the protest against the PAN, unlike the protest against the FAN, is not indispensable. A PAN may or may not even be protested to by the taxpayer, and the non-protest thereof shall not make it final and non- appealable."' Petitioner also submits that Avon is inapplicable to the present case due to variance in their respective factual milieu. 22 Finally, petitioner insists that reiteration of an assessment does not constitute a violation of due process but instead, it only signifies the denial of the protest and/ or irrelevant documents. 23 Petitioner is grievously mistaken in all of his assertions. First of all, the Court En Bane agrees with the Court in Division in applying Avon to the present case. Contrary to petitioner's assertion, the factual circumstances of the present case justifv the application of Avon and the purported factual differences between these the two (2) cases as pointed out by the petitioner arc more apparent than real. I\s correctly held by the Court in Division, the C:IR's mechanical reiteration of his findings as set forth in the PAN when it subsequently issued the F.\N dated December 27, 2017 without giving the reasons for rejecting respondent's defenses as raised in its protest and without even acknowledging such letter-protest is tantamount to violation of the taxpayer's due process rights. Avon categorically held that while the CIR is not obliged to accept the taxpayer's explanations, he is nonetheless mandated to give his reasons for rejecting the same and must also give the particular facts upon which his conclusions arc based and those facts must appear on record. /V'' 18 Id, pp. 19-20. 19 Jd 20 Id./ pp. 20-21. 21 !d. 22 Id, pp. 21-22. 23 !d., pp. 22-24.

DECISION CTA EB No. 2.810 (CTA Case No. 9942.) It is not true that the taxpayer's right to file protest against the PAN does not emanate from a substantive law. Section 228 of the 1997 NIRC unequivocally grants the taxpayer the said right. The said statutory provision states: "SEC. 228. Protexlin.~ ol Ax.reJxment. - When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Prol�tded. h01.ve;.�er, That a preassessment notice shall not be rec1uired in the follmving cases: (a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return; or (b) \Vhen a discrepancy has been determined between the tax withheld and the amount actualk remitted by the withholding agent; or (c) \'\'hen a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or (d) \Vhen the excise tax due on excisable articles has not been paid; or (e) When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-cxcn1pt persons. The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representati,-e shall issue an assessment based on his findings. Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed b,- implementing rules and regulations. Within sixty (60) days from filing of the protest, all rele,�ant supporting documents shall have been submitted; otherwise, the assessment shall become fina/

DECISION CTA EB No. 2810 (CTA Case No. 9942) If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax "-\ppeals within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable." (Empba.rir and zmder.rcon.'Zg .rzrpplied) i\.s may be gleaned from the above highlighted portion of the law, it not only requires the CIR to issue the PAN but also affords the taxpayer the right to respond thereto within the period to be set by the implementing mlcs. In Commissioner of I11tema! Revenue v. lvfetro Star Superama,"� the Supreme Court had confirmed the mandatory nature of the service of the PAN and that the failure of the CIR to serve the same in the manner required by law is equivalent to a denial of the taxpayer's due process rights and invariably results to the invalidation of the assessment. The relevant pan of the said decision states: "Indeed, Section 228 of the Tax Code clearly requires that the taxpayer must first be informed that he is liable for deficiency taxes through the sending of a PAN. He must be informed of the facts and the law upon which the assessment is made. The law imposes a substanti,�e, not merelv a formal, requirement. To proceed heedlessly with tax collection without first establishing a ,-alid assessment is e\�idently ,-iolatiYe of the cardinal principle in administrative im�estigations - that taxpayers should be able to present their case and adduce supporting e,�idence. XXX XXX XXX From the provision quoted above, it is clear that the sending of a PAN to taxpayer to inform him of the assessment made is but part of the 'due process requirement in the issuance of a deficiency tax assessment,' the absence of which renders nugatory any assessment made by the tax authorities. The usc of the word 'shall' in subsection 3.1.2 describes the mandatory nature of the sel'Yice of a P.-\N. The persuasi,�eness of the right to due process reaches both substantial and procedural rights and the failure of the CIR to strictly comply with the requirements laid down bv law and its own rules is a denial of l\Ietro Star's right to due process. Thus, for its failure to send the PAN stating the facts and the law on which the assessment was made as required by Section 228 of R.A. No. 8424, the assessment made by the CIR is void." (Empha.ri,� .rzrpplied) Juxtaposing the above ruling with that set forth by Avon, it becomes clear that due process demands that the CIR shall serve the P1\.N to the taxpayer in the manner required by law and that the protest to be filed by the taxpayer in response thereto must be duly considered by the CIR. Failure by y1./ "G.R. No. 185371, December 8, 2010.

DECISION CTA EB No. 2810 (CTA Case No. 9942) the CIR to comply with either of these requirements shall render the assessment void. While it may be true that l~\10 No. 26-2016 made the filing of protest to the PAN only optional on the part of the taxpayer and that the issuance of the FI\N shall be made fifteen (15) days from the date of taxpayer's receipt of the PAN, these rules do not detract from, but actually reinforce the Avon doctrine mandating the CIR to duly consider the taxpayer's protest to the PAN and to explain its reasons for rejecting the arguments and defenses raised by the taxpayer in its protest. The purported optional nature of the filing of protest to the PAN is simply irrelevant to the present case. The fact remains that the taxpayer is given the right, albeit optional, to file a protest to the PAN. Once the taxpayer opted to file such protest, the CIR has no choice but to consider it and cannot just take it for granted without offending the taxpayer's due process rights and invalidating the assessment. .\t any rate, even on the assumption that there was no violation of respondent's right to due process, the Court En Banr finds that petitioner erred in assessing respondent deficiency income tax and value-added tax (VAT) for the latter's collection of refundable deposits. As held by the Supreme Court in the case of In tbe Matter of Dedarato!y Relief on tbe Validity of BIR Reven11e iV1emorand!l!77 Cimr!ar No. 65-2012 "C!arifyi1~g the Taxability of Association Dues, i\iembenhip Fees and Other AJJess/ltentJ/ Charges Collected by Condominium Cmporations",cs assoCJauon dues, membership fees, and other assessments/charges collected by condominium corporations are not subject to income tax, VAT, and withholding tax. WHEREFORE, the Petition for Review is DENIED for lack of merit. SO ORDERED. MA. BELEN M. RINGPIS-LIBAN Associate Justice WE CONCUR� '-'"''aN G. DEL ROSQ Presiding Justice 25 G.R. No. 215801, January 15, 2020.

DECISION CIA EB No. 2810 (CIA Case No. 9942) {"'~'7,~ CATHERINE T. MANAHAN },ssociatc Justice c PEDRO (\)~ :..~.:tave) MARIAN IVY F. REYES-FAJARDO Associate Justice !mfM~iJ LANEE S. CUI-n"A\rm Associate Justice (\..ll'l L~c.:we) CORAZON G. FERRER-FLORES Associate Justice HENRY jftGELES Associate Justice

DECISION CfA EB No. 2.810 (CfA Case No. 9942.) CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. QG.DE Presiding Justice