SOLID VIDEO CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SPECIAL THIRD DIVISION SOLID VIDEO CORPORATION, CTA CASE NO. 9051 Petitioner, Members: -versus- FABON-VICTORINO, and RINGPIS-LIBAN, Jl. COMMISSIONER OF INTERNAL Promulgated: REVENUE, " Resp o ndent. c~-- X - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X RESOLUTION RINGPIS-LIBAN, J : For this Court's resolution are the following: 1. petitioner's Motion for P artial Reconsideration (Re: Amended Decision dated M ay 02, 2019), flied on May 24, 2019, without respondent's comment despite notice as per Records Verification dated August 5, 2019; and 2. respondent's M otion for R econsideration , filed through registered mail on May 24, 2019, and received by this Court on May 30, 2019, with petitioner's Comment/Opposition (Re: R espondents' M otion for Reconsideration d ated M ay 24, 2019), flied on July 24, 2019. Both parties seek reconsideration o f the Court's Amended D ecision dated .i'v1ay 2, 2019 (assailed Decision)\ the dispositive portion of which reads: "WHE REF ORE, prerm.ses cons1"dered, petl.t.wner's M otion for P artial Reconsideration (Re: D ecision d ated ~ 1 Docket vol. 3, pp. 1213-1232.

RESOLUTION CTA CASE NO. 9051 October 25, 2018) is PARTIALLY GRANTED. Accordingly, the Decision dated October 25, 2018, is hereby amended to read as follows: "WHEREFORE, premises considered, the instant Petition for Review is PARTIALLY GRANTED. The assessments issued by respondent against petitioner covering deficiency income tax and VAT for CY 2010 are AFFIRMED WITH MODIFICATIONS. Accordingly, petitioner is ORDERED TO PAY respondent the aggregate amount of TWO MILLION FIVE HUNDRED FIVE THOUSAND SIX HUNDRED EIGHTY-THREE PESOS AND SIXTY-NINE CENTAVOS (P2,505,683.69), inclusive of the twenty-five percent (25%) surcharge imposed under Section 248(A) (3) of the NIRC of 1997, as amended, and deficiency and delinquency interests imposed under Sections 249(B) and (C) of the same Code, until December 31, 2017, computed as follows: Basic Tax Due Income Tax VAT Total I' 590,891.50 I' 88,033.64 I' 678,925.14 Add: 25% Surchaq.,rc 147,722.87 22,008.41 169,371.28 20% Deficiency Interest from April16, 2011 to May 15,2015 482,750.26 482,750.26 jP590,891.50 x 20% x 1,491I 365 day;] 75,781.29 75,781.29 20% Deficiency Interest from Jan. 26,2011 to May p 1,221,364.63 p 185,823.34 p 1,407,187.97 15,2015 311,148.89 311,148.89 jP88,033.64 x 20% x 1,571I 365 dap] 46,356.34 46,356.34 Total Amount Due, May 15, 2015 643,140.50 97,849.99 643,140.50 ,\dd: 20% Ddlcicncy Interest from May 16,2015 to Dec. 1'2,175,654.02 1'330,029.67 97,849.99 31,2017 P2,505,683.69 jP590,891.50 x 20% x 961 I 365 days} jP88,033.64 x 20% x 961 I 365 days} 20% Dclim.Jucncy Interest from May 16, 2015 to Dec. 31, 2017 jP/,221,364.63 x 20% x 961 I 365 day.<} jP/85,823.34 x 20% x 961 I 365 days] Total Amount Due, December 31,2017 In addition, petltloner is ORDERED TO PAY respondent delinquency interest at the rate of twelve percent (12%) on the total amount due as of May 15, 2015 in the amount of P1,407,187.97 as determined above, computed from January 1, 2018 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended by Republic Act (RA) No. 10963, also known as Tax Reform for Acceleration and Inclusion (TRAIN), as implemented by RR No. 21-2018. ~

RESOLUTION CTA CASE NO. 9051 SO ORDERED." SO ORDERED."2 Petitioner's Motion for Partial Reconsideration Petitioner assails the Amended Decision on the following grounds: I. The Court erred in its conclusion that petitioner had "undeclared service income" 1n the amount of Php1,324,742.53 in CY 2010; II. Assuming arguendo that there is basis for respondent's deficiency tax assessments, petitioner respectfully moves this Court to reconsider the manner of computation of the deficiency and delinquency interest due on petitioner's deficiency taxes; and Ill. The imposition of a 25% surcharge violated petitioner's right to due process. Petitioner's Motion for Partial Reconsideration is bereft of merit. After a careful evaluation of the arguments raised by petitioner in its Motion for Partial Reconsideration, the Court finds that the same are a mere rehash of its arguments raised in its previous Motion for Reconsideration, which have already been thoroughly discussed and addressed in the assailed Amended Decision. Thus, the Court reiterates its findings that pet111oner has undeclared service income amounting to 1"1,324,742.53 pertaining to sales of goods erroneously considered as sales of services by the BIR, to wit: "� Sales ofgoods erroneous!;; considered as safes ofseroices by the BIR - ?1,642,308.54 In the assailed Decision, his Court cancelled the deficiency income tax assessment to the extent ofP325,004.35 since only the said amount pertains to sales of goods which were verified to have been included in the service income reflected per BIR Forms No. 2307 upon which the respondent's assessment was based. /Y' 2 Docket vol. 3, pp. 1230-1231.

RESOLUTION CfA CASE NO. 90S1 Consequendy, the assessed undeclared semce income of P1,642,308.54, out of the P1,967,312.89 claimed as pertaining to sales of goods erroneously considered as sales of services by respondent remains. Petitioner observed that the Court only considered the sales of goods as valid if the amount of sales shown in the BIR Form No. 2307 matches the total sales of goods and services reported in its books of accounts for CY 2010. It posits that the Court erred in disregarding the other sales of goods merely because there were discrepancies between the amount of income payments that were subjected to creditable withholding tax (CWf) per BIR Forms No. 2307 and the amount of sales recorded in petitioner's books of accounts for CY 2010. Petitioner points out that the amounts shown in the BIR Forms No. 2307 and the amounts of sales recorded in its books do not always match due to timing difference. It avers that it uses the accrual method in recording its revenues for income tax purposes, while its withholding agents use the cash method for the withholding of CWT on their income payments. Petitioner allegedly records the sales of goods in its books upon issuance of sales invoice, regardless of whether payment has been made whereas its withholding agents withhold the CWT and issue the CWT Certificate upon payment. Thus, it submits that such difference in accounting periods results to discrepancies between the amounts reported in the ITR and the amounts reflected in the BIR Forms No. 2307. Petitioner further alleges that notwithstanding the discrepancies, it can be gleaned that the amount of P1,651,156.49 pertains to sales of goods while the balance pertains to sales of services. In any case, the ICPA was able to verify that the sales of goods and services in the amount of P1,967,312.89 was reported as part of petitioner's gross income in ITR and was, therefore, subjected to 30% regular corporate income tax in CY 2010. However, petitioner's assertion is unfounded. It only stated that the discrepancies were due to timing difference but failed to establish the veracity of the same. Merely stating a reason without giving proof to that effect does not hold water. Mere allegation and speculation is not evidence, and is not equivalent to proof. Even if the ICPA was able to determine that the amount of P1,651,156.49 refers to sales of goods, out of the P1,967,312.89 subject sales reported in petitioner's ITR, still, petitioner failed to prove that the entire amount is included in respondent's computation of the assessed income. Thus this Court reiterates its findings in the assailed Decision, to wit: ~

RESOLUTION CTA CASE NO. 9051 "Based on this Court's review and validation, of the P1 ,651,156.49 sales of goods, only the amount of P325,004.35 was verified to have been included in the service income reflected per BIR Forms No. 2307 upon which the respondent's assessment was based, as shown below: xxx The Court observed that the P31,577.32 sale to Cardinal Santos Medical Center has no corresponding BIR Form No. 2307 and was not included in respondent's computation. Moreover, the remaining P1,294,574.82 (P1,651,156.49 less P325,004.35 and P31,577.32) sales of goods cannot be ascertained as forming part of the amounts indicated in the BIR Forms No. 2307, hence, it cannot be determined whether the same were actually part of the assessed income. In fine, the Court cancels the deficiency income tax assessment only on the amount of P325,004.35 representing sales of goods erroneously considered as sales of services per BIR Forms No. 2307." Accordingly, the assessed service income in the amount of P1,642,308.54 (P1,967,312.89 less P325,004.35) shall remain. In sum, the assessed undeclared service income is reduced to P1,324,742.53, computed as follows: Undeclared service income per assailed Decision 1"9 ,872,088.83 Less: Reconsidered sales of goods erroneously considered by 8,547,346.30 petitioner's customer as sales of services P1,324,742.53 Undeclared Service Income as Adjusted Thus, the Court finds no merit m petitioner's Motion for Partial Reconsideration. Respondent's Motion for Reconsideration Respondent argues that the exhibits of petitioner should not have been given any probative value for being hearsay evidence. He contends that any probative weight given to the testimony of petitioner's witness, Ms. Irenea Caisip-Torres, should have been limited only to those facts which she has personal knowledge. /"

RESOLUTION CfA CASE NO. 9051 Respondent contends that petitioner failed to present the signatories of its returns or any person who had a hand in the preparation thereof. Thus, he submits that any other attempt on the part of petitioner to pass as absolute truth the contents of the returns shall be considered hearsay evidence. On the other hand, petitioner argues that respondent's motion is a pro forma motion for reconsideration as it failed to point out the specific findings of the Court which are allegedly not supported by evidence as required under Section 2, Rule 37 of the Rules of Court. Thus, it avers that respondent's motion for reconsideration should be treated as a mere scrap of paper that does not toll the reglementary period of appeal. Moreover, petitioner contends that there is no merit to respondent's allegation that the contents of petitioner's returns are "hearsay" because petitioner failed to present "the signatories of the subject returns or any of the person who had a hand in the preparation thereof." Petitioner submits that respondent's argument are clearly misplaced and without basis in fact and law because respondent failed to explain how petitioner's tax returns have "erroneously affected" the Court's findings in the Amended Decision. It also contends that even if respondent was able to explain the causal relation between petitioner's tax returns and the Amended Decision, respondent failed to identify which particular returns should be considered hearsay evidence. Petitioner also states that respondent's argument is purely speculative because it is anchored on respondent's assumption that Ms. Caisip-Torres did not have a hand in the preparation of petitioner's tax returns. Lastly, petitioner alleges that it was able to establish the authenticity and due execution of its tax returns in accordance with Section 20 of Rule 132 of the Rules of Court. Respondent's Motion for Reconsideration is bereft of merit. Paragraph 2 of Section 2 of Rule 37 of the Rules of Court provides: "A motion for reconsideration shall point out specifically the findings or conclusions of the judgment of final order which are not supported by the evidence or which are contrary to law, making express reference to the testimonial or documentary evidence or to the provisions of law alleged to be contrary to such findings or conclusions." The Court notes that respondent's motion for reconsideration relies mainly on a general and sweeping statement that any probative weight given to the testimony of Ms. Caisip-Torres should have been limited only to those facts which she has personal knowledge. While, respondent pointed out specifically /

RESOLUTION CTA CASE NO. 9051 which exhibits should be excluded under the hearsay rule, he failed to show how the exclusion of these documentary evidence affect the findings of the Court in the assailed Amended Decision. Moreover, the Court finds no merit to respondent's argument that petitioner's returns should be considered hearsay because petitioner failed to present "the signatories of the subject returns or any person who had a hand in the preparation thereof'. First, it should be recalled that respondent failed to comment in petitioner's Formal Offer of Evidence. He also failed to question the competence of Ms. Caisip-Torres regarding the contents of the subject returns during the trial. All objections to petitioner's evidence should have been raised during trial when the opportunity presented itself. Respondent failed to do so until now. Second, petitioner's witness, Ms. Caisip-Torres, is competent to testify on the due execution and authenticity of the returns as she had a hand in their preparation, as provided in Section of Rules 132 of the Rules of Court, which reads: "Section 20. Proof of private document. - Before any private document offered as authentic is received in evidence, its due execution and authenticity must be proved either: (a) By anyone who saw the document executed or written; or (b) By evidence of the genuineness of the signature or handwriting of the maker. Any other private document need only be identified as that which it is claimed to be." In the Sworn Statement of Ms. Caisip-Torres, she testified that she supervised the preparation and review of these returns and that she had custody thereof, to wit: "Q3. What are your duties and responsibilities as Finance & Admin. Manager of the Company? A: As Finance & Admin. Manager, I am responsible for the entire administrative, finance and accounting operations of the Company, including the tax compliance aspect of the business. In this regard, I oversee the proper recording of transactions in the Company's books of accounts. I also /'V"

RESOLUTION CTA CASE NO. 9051 supervise the preparation of the Company's financial reports and tax returns, and review the same before filing with government agencies such as the Bureau of Internal Revenue (BIR) and the Securities and Exchange Commission (SEC). Furthermore, I have custody of, and am responsible for the safekeeping of, the Company's tax and accounting records, including copies of the Company's tax returns."3 (Emphasis supplied) Ms. Caisip-Torres also identified these returns in her Sworn Statement, to wit: "IlL Tax Returns Q31. Ms. Torres, you earlier mentioned that you have custody of the Company's tax and accounting records, including copies of the Company's tax returns. Is that correct? A: Yes, that is correct. Q32. In this regard, will you be able to identify the tax returns of the Company for CY 2010? A: Yes. Q33. Ms. Torres, I am showing you a document captioned as Annual Income Tax Return (ITR) marked as Exhibit "P-9." with sub-markings "P-9-1" and "P-9- 2." Can you please identify this document? A: Exhibit "P-9" is the Company's Annual ITR [BIR Form No.1702) for CY 2010, which was filed with the BIR through the Electronic Filing and Payment System [EFPS] on April 15, 2011, with Filing Reference No. 121100004691949. Exhibit "P-9-1" is the Company's manually-filed Annual ITR (BIR Form No. 1702) for CY 2010, stamped as received by the BIRon April29, 2011. Exhibit "P-9-2" is the Company's audited financial statements for CY 2010, stamped as received by the BIR on April29, 2011. /'V 3 Exhibit "P-14", Sworn Statement of Ms. Irenea Caisip-Torres to Questions Propounded by Atty. Mardomeo N. Raymundo, Jr., docket vol. 1, p. 366.

RESOLUTION CTA CASE NO. 9051 Q34. On page 2 of the manually-filed Annual ITR (Exhibit "P-9-1") appears two signatures above the printed names Vincent S. Lim and Ma. Cecilia C. Mison. Can you please identify these signatures? A: Yes. The signature on the left hand side belongs to the Company's SVP-Chief Financing Officer, Mr. Vincent Lim, while the signature on the right hand side belongs to the Company's General Manager, Ms. Ma. Cecilia C. Mison. Q35. How did you become familiar with the signatures of Mr. Lim and Ms. Mison? A: I became familiar with Mr. Lim's and Ms. Mison's signatures because I often see them sign documents. Q36. If shown copies of the Company's Quarterly VAT Returns for CY 2010, would you be able to identify the same? A: Yes. Q37. Ms. Torres, I am showing you four documents which were pre-marked as Exhibits "P-10" "P-11" "P-12" and "P- 13". What is the relation of these documents to your earlier statement? A: These are the Quarterly VAT Returns of the Company for CY 2010, particularly:"4 Based on the foregoing, it is clear that petitioner's witness was able to sufficiently identify the returns alleged by respondent to be hearsay evidence. Hence, the Court finds no cogent reason to reverse or modify the assailed Amended Decision promulgated on May 2, 2019. WHEREFORE, premises considered, petitioner's Motion for Partial Reconsideration (Re: Amended Decision dated May 02, 2019) and respondent's Motion for Reconsideration are DENIED for lack of merit. /V' 4 Exhibit "P-14", Sworn Statement of Ms. lrenea (aisip-Torres to Questions Propounded by Atty. Mardomeo N. Raymundo, Jr., docket vol. 1, pp. 373-374.

RESOLUTION MA. BELEN M. RINGPIS-LIBAN CTA CASE NO. 90S1 Page 10 of 10 Associate Justice SO ORDERED. WE CONCUR: