SYDENHAM LABORATORIES,INC. v. COMMISSIONER OF INTERNAL REVENUE

' . REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SPECIAL FIRST DIVISION *********** SYDENHAM LABORAT ORIES, INC. , C.T.A. CASE N O. 7416 Petitioner, Members: ACOSTA,P.J -7Jfr.fl/J- BAUTISTA, and CASANOVA, Jk. COMMISSIONER OF INT ERNAL Promulgated: REVENU E , Re.rpondents. MAY~ ; J!Je""~ X -----------------------------------------------------------------------7 - ---------------- - ---~ -- - -- ------ ~ D ECISION ~--- ACOSTA, P.J. : Before Us is a Petition for Review seeking the cancellation and setting aside of the assessm ent and Form al Letter of Demand issued by resp ondent against petitioner for the alleged deficiency Income T ax in the am ount of P250,955.06, Value-Added Tax (VAT) in the am oun t of P1 ,572,5 80.24, D ocumentary Stamp Tax in th e am ount of P 76,339.76, and Expanded Withholding Tax in d1e am ount of P15 6,548.37, for taxable calendar year 2001. Th e antecedent facts culled from th e records are as follows: Petitioner is a domestic corporation duly organized and existing under and by virtue of the laws o f the Republic o f d1c Philippines, with prin cipal offi ce at E. Aguinaldo Hi-way cor . Governor's D rive, Dasmari11as, Cavite.1 1 Joint Stip ula tion of Fact' and Js, ues QSFI), record s. p. 100. 74 8

CT.A. CASE NO . 7-/.16 DECJ.I'JOI\' PACE:! Respo ndent is a public officer duly appointed by the President of the Philippines and is the head of the Bureau of lntcrnal Revenue (BIR), the government agency o fficiall y responsible for th e assessment and collection of all natio nal and internal revenue taxes. For taxable year 2001, petitio ner flied its Annual Corporation Incorne Tax Return (JTR) with the Bureau of Internal Revenue (B IR) on A pril 15, 2002. Petitioner received a Preliminary Assessment Notice (PAN) dated October 27, 2004 from resp ondent assessing petitioner for alleged deficiency incorne tax, docum.entary stalTJ.P tax, value added tax, and expanded withholding tax for calendar year 2001 . Petitioner contested the said assessment through a letter dated Decen1ber 1, 2004 for lacking of factual and legal basis. O n December 21, 2004, petitioner received an Assessment No tice and a Formal Letter of Demand (FLD) b o th dated December 15, 2004; stating that petitioner is liable for deficiency incom e tax, documentary stamp tax, \'alue add ed tax, and expanded withholding for taxable calendar year 2001. T h e FLD 2 contains the following details: INCOl\fE TA.X Net Income per income staremenr p ( 2,373,753()0) .'\dd : Over declaration of depreciation p 281,851.32 Gain on sale of fn.:ed asset 1,632,5 70.97 Loss corresponding to ITI-I 1,439,000.74 Less: Rental of equipment (509 ,484.66) 2 843 938.37 Adjusted gross income per audit p 470185.37 T"\XDUE BasiC p 150,459.32 .\dd: interest(4/ 16/ 02 - 12/ 15/ 04) p 80,495.74 comprom1se 20 000.00 100495.74 Total deficiency income tax due p 250,255.06 DOCUJ\IENT\RY ST.\MP T\X On lea se contracts p 17,974.00 On stock issuance 31 104.00 2 Exhibit "D", records, pp. 266-267; Exhibir "2", BIR Record s, pp. 302-304. fu.,__ 74Q

C T.A. CASE NO. 7+ 16 DECJJJOJ\' PAGE3 Total ha slC ta x due 49,078.00 Less: tax paid .11 1(14.00 Deficienc\' 17,974.00 .-\ dd:25% surcharge on 1'49,078 .00 p 12,269 .50 interest (04/06 / 00-12/ 15/ 04) 33,596.26 compromise 12 500.00 58 365.76 Total d efi cie n cy DST d u e p 76 ,112...1_6 \':\ LUE :\DDED LL\: Sale of Fixed .<\ssets p 8 472 000.00 T\XDUE Ba sic p 847200.00 "\dd:25% surcharge p 211,800.00 interes t(01 / 25/02-12/ 15/04) 488,580.24 comprorruse ?5 000.00 725 380.24 Total d efi cie n cy VAT du e _p 1,572,580.2~ EXP .\NDED \X!ITHI-IOLDING TAX Gross Tax Due Professional fees 867,906.54 10% 86,790.65 Rental 3,804,187.43 5% 190,209 .3 7 Securiry ServiCes 418,823.49 1% 4,188.23 Security Services 130,909 .08 2% 2,618.18 Janitorial Serv1ces 212,905.51 1% 2,129.06 Jani to rial Services 93,135.81 2% 1,862. 72 Brokerage 88,949.76 5% 4,447.49 Director's fees 93,000.00 10% 9,300.00 Director's fees 42,000.00 20% 8,400.00 Services 8,848,800.62 1% 88,488.01 Services 1,392,638. 18 2% 27 852.76 Total 426,286.47 Less: tax paid 334 608.68 Deficiency 91,677.79 ~\dd: interest (01 / 25 / 02 - 12/ 15 / 04) p 52,870.58 compronuse 12,000 .00 64 870.58 Total d efi cie n cy EWT d u e ~.54E.TI Petitioner filed its protest to the above assessment on January 18, 2005. Thereafter, petitioner issued a letter dated February 24, 2005" addressed to the BIR Revenue District Office No. 054, subrnitting relevant and pertinent documents in support of its protest. :l Exhibit "J", records, pp. 280-281. 730

C.T.A. C./1.\'E N O. 7-1-16 DECZ.\'10 1\ ' PAGE-l- On February 1, 2006 4 , petitioner received a letter which in effect denied petition er's pro tes t on the ground that its alleged supp orting documents did n o t sub stantiate its protes t. H ence, th e instant P etition for Review filed o n M arch 2, 2006. Respo nd ent filed his A nswer on A pril 25, 2006 , setting up his defenses, pertin ent hereto are: " 6. xxx p etitioner was assessed deficiency incmne tax du e to over- declaratio n of depreciation expense but denies the res t of th e allegations fo r being false, th e truth being that examination of p etitioner's books o f accounts and o ther accounting records disclosed that petitio ner committed over-declaration of depreciation; 7. xxx p etitioner was assessed for deficiency inco me tax du e to its failure to report its gain on sal e of fixed assets but denies the res t of tl1e allegation for b eing false, tl1e truth being that examination o f p etition er's b ooks of accounts and other accounting records disclosed that p etition er fail ed to include in its taxable incom e its gain on sale of fL'-'ed assets; 8. xxx petitioner was assessed fo r deficien cy incom e tax for dedu cting losses from IT H from its gross inco m e tax in the am ount of P1 ,439,000.74 but denies the rest of tl1e allegation for. being erroneous conclusion s of fact and law; XXX XXX XXX 10. H e denies tl1e allegations under the heading 'Nature of tl1 e P etitio n' for b eing erroneous conclusion of fact and law, tl1e tru th b eing that p etitio ner failed to duly pro test tl1 e assessm ent issued against it; XXX XXX XXX 12. xxx that investigation disclosed that p etition er failed to remit the corresp onding documentary stamp tax o n its lease agreem ent. T here was late remittance of documentary stamp tax o n its issuance of capital sto ck amounting to P31, 104.00 in violatio n o f Sectio n s 194 and 176, respectively, of th e N ational Internal Revenue Code o f 1997; 13. xxx verification disclosed that p etition er failed to pay the value added tax o n tl1e sale of its fixed asset in violation of Section 106 of th e N ational Internal Revenue Code of 1997; 4 Ex hibir "K", record s, p. 282; E::-:hibit "7" , BJR Record s, p. 394. 'i r: ~ IJ.J.. ..

C T A . C.AJh. f\10. N 16 DECJS/01\' PAGE5 14. xxx [v]erifi cation disclosed tha t petitioner failed to remit the correct expanded withholding tax on its income p aym ents subject to expanded withholding tax in violatio n o f Section s 80 and 57, respectively, of th e N ational Internal Revenue Code of 1997; 15. xxx that du e to deficien cy taxes, petition er is liable to surcharges and interes t in accordance with tb e provisions o f Sections 248 and 249 o f the N IRC o f 1997; 16. xxx exam..inatio n o f petition er's books o f accounts and o ther accounting records d..isclosed that p etitio ner is liable for deficiency incom e tax (P2 50,955.06); docutTlentary stamp tax (P76,339.7 6); valu e- added tax (P1,572,580.24); and expanded withhold..ing tax (P156,548.37); 17. All presumption s are in favor o f the correctness of tax assessm ents. The good faith o f tax assessors and the validity of th eir action s are presumed. They will be presun1.ed to have taken into consideration all the facts to which their attention was called (CTR IJJ. Con.rtrttdion Re.rource.r qf A.ria, Inc. 145 SCRA 671). I t is incumbent upon the taxpayer to prove the contrary (Mindanao Btu Compm?)' IJJ. CIR, 1 SCRA 538; CIR !JS. Tua:;:on, Inc., 173 SCR/] 397) and failure to do so shall vest legality to respondent's action s and assessm ents." Petition er and resp ondent f.tled their resp ective Formal O ffer of Evidence o n February 18, 2008 and September 17, 2008, w hich were admitted by this Co urt on April 1, 2008 and October 22, 2008, resp ectively. In a Resolution dated January 7, 2009, this case was deem ed submitted for decision after the Court con sidered the parties' Mem oranda. H owever, the Court issued an O rder on November 10, 2009, requiring p etitioner to subnut the previou sly adnutted exlubits "FF","GG","HH" ,"II","JJ -1", and "JJ-2", w hich were found to be nussing from the records. Petitioner complied with the order of the Court o n November 18, 2009. In a Resolution dated November 26, 2009, the case was re-subnutted for decision. T he parties jointly submitted tb e following issues for resolution: (tv<-

C. T/1. C"A .l E N 0. J./.1 6 OECJ.\"101\ ' PAC:I-'i (; 1. Whether or not, under the facts and the law, petitioner is liable for alleged deficiency income tax, documentarv stamp tax, \'alue added tax, and expanded ·withholding tax for the taxable calendar year 2001; 2. Whether or not petitioner dul y protested the assessrnents. Liability for tbe alleged deficiency income tax, docun1enta1y stamp tax, value added tax, and expanded withholding tax for the taxable calendar year 2001 Deficiency Income and Value-Added Tax A reYicw of the records would show that the assessment for income tax due and value added tax (VAT) are rooted on the alleged sale of fixed assets by petitioner in 2001. Respondent explains, through his witness, Mr. Edwin Aritumba, the Revenue Officer tasked to investigate petitioner's books of accounts; that petitioner entered into a contract of sale with UCPB Leasing and Finance Corporation on A ugu st 30, 2001 and . December 11, 2001 but eventually leased them back. What had actually happened was a sale-leaseback transaction. Thus, petitioner is liable for deficiency VAT on the sale of its fixed assets. Petitioner's deficiency incorne taxes results from a recognition of the sale resulting to the over declaration of depreciation expense for the sold assets, recognition of the rental thereof and identifying sales subject to Income Tax Holiday in accordance with the Board of Investments' (BOI) registration. In sum, the bases for the alleged deficiency incorne tax are as follows: Net Loss per Income Tax Return P(2,373,753.00) A dd: Over-declaration of depreciation 281,851.32 Gain on sale of fixed asset 1,632,570.97 Loss corresponding to ITH 1,439,000.74 Less: Rental of fixed assets (509,484.66) 75J

C.TA. CAJE NO. 7-1-16 DECJJJOJ\' PAGE 7 Petitioner denies entering into any sale transaction for tbe taxable year 2001 and stands firm that the said fL~ed assets arc still intact and form part of its inventory. Petitioner continues that the alleged over declaration of depreciation for taxable year 2001 is a result o f the provision for depreciation of its property and equipment using the straight hne meth o d based on the useful hfc of related asse ts. In other word s, the alleged depreciation was in truth and in fact legitimate depreciation incurred in the conduct of its trade or busu1ess. A s to the loss pertaining to petitioner's Income Tax Hohday, petitioner asserted d1.at there is no basis on respondent' s position to add back the loss correspondillg to its Income Tax Hohday on the ground d1at petitioner allegedly deducted loss correspondillg to Income Tax Holiday in the amount ofP1,439,000.00. This Court find s for the petitioner. The various pieces of evidence submitted by the parties to this Court failed to show that petitioner entered illto a contract of sale. The existence o f proofs to this matter is very crucial considering that the assessment was based on the alleged sale of fixed assets. This Court recognizes that tax as sessments by tax exatnmers are presumed correct and made in good faith . The presumption on the correctness of assessments carries with it the assumption that the assessment is not baseless but founded on sufficiently relevant pieces of evidence. The taxpayer has the duty to prove otl1.crwise. In the absence of proof of any irregularities ill the performance of duties, an assessment duly made b y a Bureau of Internal Revenu e examiner and approved b y his superior officers will not be disturbed. A ll presumptions are ill favor of the correctn~ss of tax assessments' . O nce petitioner has presented its evidence to rebut the presumption , it becomes illcumbent upon respondent to present controverting e\Tidence to refute petitioner's p ositio n. It follow s that 5 Sy Po vs. Court of Tax .·\ ppeals, G .R. No. L-81446, .·\ugusr 18. 1988.

CTA. CASE NO. 741{; D ECJSJOJ\' PAGES determ.ination of the correct amount of taxes due will still depend on the pieces of cYidence subrnitted to the Court. Well pronounced is the ruling of the Supreme Court in tbe case of tb c Commissioner of"Jnternal Revenue vs. Hantcx Trading Co., inc.6 : "lf a taxpa yer files a petition for review in the CTi\ and assails the assessment, the primafade presumption is that the assessment made by the BIR is correct, and that in preparing the sarne, the BIR personnel regularly performed their duties . This rule for tax initiated suits is premised on several factors other than the normal evidentiary rule imposing proof obligation on the petitioner-taxpayer: the presumption of achn.in.istrative regularity; the likelihood that the taxpayer will have access to the relevant information; and the desirability of bolstering the record- keeping reguirements of the NIRC. However, the prima fade correctness of a tax assessment does not apply upon proof that an assessment is utterly without founda cion, n1ean.ing it .is arbitrary and capricious. Where the BIR has come out with a 'naked assessment,' i.e., without any foundation chara cter, the detenn.ination of the tax due is without rational basis. In such a situation, the U.S. Court of Appeals ruled that th e determination of the Comtn.issioner contained in a deficiency notice disappears. Hence, the determination by the CTA must rest on all the evidence introduced and its ultimate determination must find support in credible evidence." (Emphasi.r .rttpplied.) In th.i.s case, petitioner subtn.itted to th.i.s Court the following pieces of evidence to contest respondent's assessment for deficiency VAT and income tax brought about by petitioner's alleged sale of fixed assets: Exhibit P Cop y of th e .\ udited Financial To prove that the fLxed assets, Statements of Sydenham subject of assessment in the Laboratories for taxable years instant case are tntact, and form 2002 and 2001 part of the uwenrory of petitioner for the vear 2001 and 2002. .\s such n o sale of fi xed assets to speak of contrary to the fmdings of responden t. Exhibit A . .-\ A ffidavit of Maria I sabel T. To p rove tha t petition er Bolarion dated N ovember 6, incurred no defictency in come 2006 tax, doctunenraty· stamp tax, expand ed withho lding tax_ and \ ' . .\T due for taxable vear 2001 1' G.R. No. 136975, March 31,2005. ., !" r· eJJ

C T A. C/IJ E NO. 7-m; DEC!JJON PAGE 9 E xhibits BB, BB-1, BB-2, BB-3, \'ariou s Schedule of Fixed T o prove th ar the all eged sale o f BB-4, BB-5, and CC _-\ ssers, an .:\nail-sis of flxed asse ts amounting to D epreciation as o f December P 8,472,000. 00 are Included in 31, 2001 and a Schedule of the Schedule of Fixed .: \ ssers Leasehold Improvements and rhe truth of the matter th ere were no sale of fix ed asse ts fo r vear 2001; and to prove that th e fixed assets are further classified as Machinery & E quipment, Laboratory & G lasswares, O ffi ce E quipment, F urniture & f.ixmres , and Leasehold Improvements. Exhibits DD, DD-1, DD-2, DD-3, Schedule of Fixed _-\ ssets for T o prove the Schedule of Fixed DD-4, DD-4, DD-5, and DD-6 D ecember 31, 2000, Schedule of .-\ssets and Schedule of .-\ccumulared D epreciation as of .-\ccumulated D epreciation for D ecember 31 , 2000, various vear 2000; and to prove that the Lapsing Schedule, and Schedule Sch edule of FiJ.:ed .-\ ssets for th e of Construction ln Progress as calendar year 2000 (ending of D ecember 31,2000. balance) clearl y show tha r the same is inta ct and the same is the beginning balance for the Sch edule. of Fixed .Asse ts for Calendar \'ear 2001. E xhibit E E _-\ffidavit of E dwin Baysa dared To prove that 'p etition er May 30, 2007 incurred no deficienc-y income tax, docum entary stamp rax, \ '_-\ T and expand ed withholding tax due for the taxable vear 200 1. E xhibit FF Schedule of D epreciation To prove th at th e Independent Ccrtifled Public .'\.ccountant commissioned by d1e Hon orabl e Court ha s verified tl1e accowlt "Property, Plant, and E quipment" o f petitioner and was able to ascertain that the sam.e was stated at co st and the basis of computing the depreciation is on a stra1ghr line method in accordance wirll th e Ge nerally Accepted .-\ccounting Principles in relation to Sectio n 34(F) (2)(a) of the N ational Internal Revenue Code, as amended. E xhibit GG Schedule of Fixed :-\ssets T o prove the beginning and ending balance of flXed assets of petitioner fo r taxable vear 2001; and to prove th at there had been an u1crease in th e amo un t of flXed assets from th e year 2000 to 2001, contrary to the Endings of the Bureau of Internal Revenue that there had been an ., .J~ ~- ,...

C.TA. CASE NO. 7-1-16 DECJ.\]()1\' PAGE 10 occurrence of sale of fixed assets. Exhibit II Lease Contra ct with UCPB To prove rhar petitioner and Leasing and Finance UC PB Leasing and Finance Corporation Cotvoration entered into a lease agreement over the properties allegedly subj ect to \ ' _-\T. Said properties wt:re never disposed of and 111 fact and 111 truth are owned br UCPB Leasing and Finance Corporation. Exhibits J.J .1, JJ .2 List of various eguipmenrs To prove that the propern es subjec t to \'A.T amounting to P 8,472,000.00 has no factual and legal basis at all as the said properties subj ec t to \ ' _-\ T are owned by UCPB Leasing Corporation . The said properties were leased but nor sold to the petitioner. Exhibit J..J<: Independ ent CP.-\ Report dared To prove that l\Ir. E liseo _-\. .January 17, 2008 _-\urellado has conducted special audit procedures pursuant to being commissioned by the Honorable Court as an Independ ent Certified Public _-\ccountant, relative to the allegt:d defici ency tax assessment of petitioner covenng the taxable year end ed December 31, 2001; To prove that he has physically examin ed the origmal copies of the available supporting documents, such as the books of accounts, sales invoices, official receipts, cash vouchers, contracts and other relevant documents which were served and used as the basts of hi s report; To prove that Mr. _-\urellado ha s performed the necessary procedures in accordance with the Philippine Accounting Standards and Generally _-\ccepted _Accounting Principles: and To prove that the assessmen t for the \'ear 2001 has no factual and legal ba sis and that the principal amount of assessment in the amount of P1,1 07,3 11.11 ?~'. 'i .....J.., I I

CTA. CASE NO. 7-/.16 DECJ.)JOJV PAGE'.! 11 should be correspondingly reduced b1 P1 ,098,838. 11 , thereh1 leaving the tax clue to only P 8,473 .00. The above-mentioned pieces of evidence bolster petitioner's claim. The findings of the Certified Public Accountant (CPA) com.nussioned by thi s Court to c-:anune petitioner's voluminous documents agree that there are no proofs as to the sale of the fixed assets, to quote: "A. INCOME TAX XXX XXX XXX Over-declaration of depreciation Based on the examination of supporting documents, we have verified. the account 'Property, Plant, and Equipment' of SYDENHAM and was able to ascertain that the same is stated at cost and the basis o f computillg the depreciation is on a straight line method in accordance with the Generally Accepted Accounting Principles in relation to Section 34(F)(2) (a) of the National Internal Revenue Code, as amended. Gain on sale of fixed asset SYDENHAM is being assessed b y the BIR for the alleged gain on sale of frxed assets; we have ascertained that there had been no occurrence of any sale of frxed assets of the company. XXX XXX XXX C. VALUE ADDED TAX As discussed above on income tax 2001, our examination showed that there had been no sale of fixed assets for the subject taxable year. We also noted that what has transpired were additions to the schedule of fixed assets." For his part, respondent offered the affidavit of the Revenue Officer who was authorized to exanune the books of accounts and accounting. records of petitioner (Exhibit 1), Formal Letter of Demand (Exlubit 2), Assessment Notices (Exhibits 3-6), and th e J.etter from the Bureau of Internal Revenue 's (BIR) Assessment Division ordering petitioner to pay the assessed taxes (Exhibit 7). ..,.Ju ~- ~

CTA CAfE J\10. J.l.lu DECJ.\JON PAC:F: 1:! Respondent's exhibits failed to prove the sale of petitioner's fixed assets which is the basis for the alleged deficiency VAT and lncorne Tax, due to o\·cr depreciation and unreported gain on sale. Altl1ough, the BIR Record s were forwarded to tl1is Court, yet, it was not formally offered except for th e above-mentioned exhibits of respondent. Being so, this Co urt cannot consider the entire record s in resolving the issue on hand u:respectJve of whether they n1ay contain the b est evidence to prove respondent's assertJons. It is well-settled that the courts cannot consider e\Tidence which has not been formally offered. Parties are required to inform tl1e courts of the purpose of introducing tl1eir respective exhibits to assist tl1e latter in mling on tl1eil: admissibility il1 case an objection thereto is made. \"X/itl1out a formal offer of evidence, courts are constrained to take no notice of the evidence even if it has been marked and identified.' Pertinent hereto is Section 34, Rule 132 of the Re,Tised Rules on Evidence, which reads: "SEC. 34. Offer of evidence. - The court shall consider no evidence which has not been formally offered. The purpose for which the evidence is offered must be specified." The Supreme Court had the occas10n to explain tl1e applicability of the afore- quoted provision with respect to the BIR Records in the case of Rqfael Arsenio S. Di:;:_ontJJ. Court if Tax Appeal.r and Commissioner qf I ntenzal Ret;emJl , thusly: "While the CTA is not governed strictly by technical rules of evidence, as rules of procedure are not ends in tl1emselves and are primarily intended as tools in the administration of justice, the presentation of tl1e BIR's evidence is not a mere procedural technicality which may b e disregarded considerillg that it is tl1e only means by which the CTA may ascertain and verify the tmth of BIR's claims against the Estate. The BIR's failure to formally offer these pieces of evidence, despite CTA's directives, is fatal to its cause." Taking in to consideration the supporting evidence of petitio ner in light of respondent's evidence, this Court decides to take petitioner's side and cancel the 7 Far East Bank & Trust Co., vs. Commission er of Imernal Revenue, G .R. No. 149589, September 15, 2006. 8 G .R. N o. 140944, _-\pril 30, 2008. f h 75 0

C.T.A. CA.I'E NO. 7-f.IC OECJ.)JOJ\' PACii 13 assessrnents on income tax due to over declaration of depreciation expense and unreported gain on sale o f assets and the assess ment for V A'l'. Anent the loss corre sponcli.ng to incom e tax holiday, a review of the record s would show the loss corresponding to ITH, allegedly deducted by p etitioner from its gro ss incorne, is computed as foll ows: Ncr h -s per l'I'H I' (2.373.753.00) .\du : ( )vcr-d eclarnrion of deprec iation 281,851.32 I .e~s: Rental -] .case of eq uipm ent 509.484 66 .\djusted net loss I' (2.601.386.34) Loss corresponding to ITH period: Declan:d sales d uring th e lTII period X :\djustecl net los,; Declared total sales P21.691 .7-18.7'i X P(2.601.386.34) 1'(1.439 .000.74) 1'39,2 13,752.29 This Court agrees that any loss corresponding to IT H should be added back. The amount, however, is computed based on the actual n et loss per ITR instead of the adjusted net loss considering that the over declaration of depreciation expense and the rental expenses should no t be recognized in the first place. T he loss corresponding to ITH should be computed as follows: P21.69U48.75 X 1'(2.3 73.753.00) l'(1.313.08153) 1'39,213,752.29 Notwithstanding the foregoing, there is still n o b asis for the deficiency incom e tax bro ught about by th e loss corresponding to income tax h o liday because petition er is not in a taxable position , that is, petitioner incurred a net loss of P 1,060,67 1.47 for 2001 , computed as follows: Ner Loss per ITR p ( 2,373,753.00) .-\ dd : Loss corresponding to ITH 1 313 081.53 .-\ djusted Ne r Loss p (1 060 671 41) Deficiencv Documentary Stamp Tax .., r' '1 •OJ

CT./I . C/ 1S"E NO. 7-+1u DECIJJOI\ PAC/~· 1-1 The Formal Letter of Demand'1 shows that the assessrnenr for deficiency documentary stamp tax arose fro m the late remittance of d ocumentary stamp tax (DST) on the issuance of capital stock and failure to remit the corresponding d ocumentary stamp tax on its lease agreement,'" in the total amount of P 76,3.39 .76, to wit: ( )n lc~se co ntract:< I' 17.974.00 C)n srock i:.;s uance 31.10Hl0 Total DST cl ue I' 49.078. 00 1,css ta x pa id 31.104.00 DST still Jue ]> 17.974.00 25% :<urc harge (on 1'49 ,078.00) 12,2(>9.50 Interest (4/ 6/ 00 to 12/ 15/ 04) 33.596.26 Compromi se 12,500.00 Total d e fi c iency DST du e p 76,339.76 Petitioner contends that resp ond ent's assessment for deficiency D ST on lease contracts amounting to P1 7,974.00 is without factual and legal basis. The Court- commissioned independent CPA 11 found that the contract stipulated that Real Property Taxes, City and Municipal Licenses shall b e for the accou1it of the lessor. Further, in the absence of any express agreement, the paym ent of the DST shall be for the sole account of the lessor. 12 Furthermore, on the assessment for late remittance of D ST on stock issuance of P31,104.00, petitioner maintains that p etitioner already paid the DST thereof as shown b y its DST D eclaration / Return' ' . Furthermore, the right of resp ondent to assess it of deficiency D ST had already prescribed pursuant to Section 203 of the ' IRC of 1997. This Court agrees with petmoner that the assessm ent for defici ency DST has already prescribed. Section 203 of th e N IRC of 1997, provides as follows: "SEC. 203. Perzod of Limitation Upon As.rmmen/ and Collection. Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years after th e last day prescribed by law for the filing of the return, and no proceeding .in court without assessment for the collection of such taxes shall be begun after the expiration of such ~Ex hibit "D", records, pp. 266-267; Ex hibit "2", BIR Record s, pp. 302-304. 11 ' J SFI, records, p. 102. '' Mr. E liseo .-\ . .-\urellado. 12 Exhibit " K.I....:", SummatT of Findings (13), records, p. 383 . "Exhi))it "L", records, p. 283.

C.T.A. CASE J\~0. 7-116 DI-£1.\'10!\' PACE 15 period: ProYided, That in a case where a return is filed beyond the perio d prescribed by law, th e three (3)-year period shall be counted from the day th e return was flied . For purposes of thi~ Section, a return filed before the la ~t d ay prescribed by law for the filing thereof shall be considered as filed o n such last day." Corollary thereto, Section 200(B) of the NIRC of 1997 prm,ides that: "SEC. 200. Payment qfDoctrmenta:y Stamp Ta.'\·. - (B) Time f or Filing and Pqymen! q/ the Tax. - Except as provided by rules and regulations promulgated by the Secretary of Finance, upon recommendation of the Conunissioner, the tax return prescribed in this Section shall be flied within ten (10) days after the close of the m o nth when the taxable docw11ent was made, signed, issued, accepted, or transferred, and the tax thereon shall be paid at the sam e tim e the aforesaid return is flied. " Pursuant to the aforecited Section 203 of the NIRC of 1997, the three-year perio d to assess conunences from the date of actual filing of the return or from tbe last date prescribed by law for the filing qf such return, whichever comes later. In the case of DST, it is within ten (10) days after the close of the month w hen the taxable docurnent was m ade, signed, issued, accepted, or transferred. Hence, if the return was flied earlier than the last day allowed by law, the period to assess shall still be counted from the last day prescrib ed for filing of the return. However, if the return was flied beyond the period prescribed by law, the three-year period shall be counted from the day tbe return was flied. T b erefore, respondent bad until tbe following dates widlin which to assess p etitioner for deficiency DST or for late remittance of DST: Last Day to Last Da)' to Reference Particulars Date Date Filed File Return Assess Lease con tract - 10-Mar-00 - 10-.\pr-00 10-t\ pr-03 b hi bit llll TC:T360374 Lease contract - 10-Mar-00 10-,\pr-00 10-.\pr-03 Ex hi bit Ill J TCT360373 Exhibit] , DST Dcclaration / lkturn 12-Mar-01 12-1\!ar-03

.. C. T.A. CASE NO. 7-1-16 DECJ.\"JOI\ ' PAGe 16 Clearly, the D ST assessmen t is aL:eady barred by prescription since the Preliminary ;\ sscssm ent Notice 0)AN) 14 , and the Assessment No tice 15 and Formal Letter of Demand 1r' for deficiency DST covering the year 2001 were issued o nly on October 27, 2004 and December 15, 2004, resp ectivclv. D eficien c_v Expanded Withholding Tax Respo ndent assessed petitioner of deficiency Expanded Withholding Tax (EWT) 17 for taxable year 2001 in the amount of P156,548.37, computed as follow s: G ross Amo un t Tax R ate Tax D ue Profession al fees I' 867.90654 10% p 86,790 65 Rental 3.804,187.43 5% 190.209.37 Scc u riry serv i ce~ 418.823.49 1% 4.1 88.23 Sec uri ty serv ices 130.909 08 2% 2.61 818 .J anit< >rial st:n' ices 212,905.51 1% 2.129.06 Janirori al se rvices 93.13S.81 2°10 1.862.72 Brokerage 88.949.76 5% 4.447.49 Director',; fees 93,000.00 10% 9.300 00 Director's fees 42.000.00 20% 8.400 00 Se rvices 8.848.800 62 10/ '0 88.488.01 Services 1.392.638.18 2% 27.852 76 TOTt\L p 15.993.25642 I' 426.286.47 Less tax paid 334.608 68 1 ~\X 'T still du e p 91,677.79 Interes t (1/25 / 02 to 12/ 15 / 04) 52.870.58 Compromise 12.000.00 Total deficiency EWT p 156,548.37 Petitioner contends that the assessment has no leg to stand on. It points out that some of th e paym ents mad e to suppliers of goods and services are not subject to withholding taxes for the reason that income recipients are exempt from income taxes. This explains the difference or the discrepancy as regards to the expand ed withholding taxes. 14 .J SFI, paragraph 4, reco rd s, p. 101. IS Exhibit "F", record s, p. 269. Jr. Exh.ibir "D ", record s, pp . 26CJ-267; Exhibi t "2", BIR Records, pp. 30:2-304 17 ld.

C.T.A CAJE I'm. J./. 16 DE Cl.\10 1\' PACE 17 The independent CIJ r\ found that the alleged discrcpanc\' is merely a result of th e timing difference considering that expenses were charged against the income tax prior to the rcrn.ittance of the corresponding expanded withholding tax. ~ 1 H owcYer, a verification of th e records di sclosed that p etiti o ner failed to prove its allegations. Con sidering that all presumptions arc in favor of the correc tness of tax assessments, the Court uphold s resp o nd ent's assessrnent of deficiency EWT. Petitioner is liable to pay deficiency E \XIT in the arn.ount of P144,548.37, computed below: T otal 1·:\X/J' p er ;\ udi t I' 426.28647 J ·'" " 1·:\X ' J' paid 334 608.68 l"X' J' ,;till due I' 91.67779 l ntere,;r (1nS / 02 to 12/ 15/ 04) 52 870.58 Total E\XIT d e ficiency I' 144 5.48..31 Due Protest to the Assessments Resp ondent in his Memorandum sta nds that petitioner's adm.inistra tive protest is rnerely pro-forma because the d ocuments subrnitted by petitioner did not serve to substantiate its protest. Failure on th e part of the taxpayer to submit relc,rant supp orting documents on the administrative leYel, such as in the instant case, renders such protest pro forma and shall be construed as if n o administrative protest was filed at all and thus, renders the assessn1ents final, executory, and demandable. We are uncom-inced. Section 228 of the 1997 Tax Code provides: "Section 228. Protesting an Assessment. - ... Such assessment may be protested administratively by filing a reguest for reconsideration or reinvestigation within thirty (30) d ays from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulati on s. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. .. " (Emphasis supplied.) This Court believes that wha t are "relevant supporting d ocum ents" lies on the sound discretion of the taxpayer filing the protest. The purpose is to prevent the BIR from abusing its p ower by always declaring insufficient th e documents that petitioner will IX E xh ibit J:..J(., Summary of Findings (D), record s, p. 384. ..,• b,., " t

CTA. CAS.E J\'0. 7+16 DECISJOI'\ PAGE 18 subm..it. This will lead to an unending cvcle and th e taxpayer's protest will never be decided. In the case at bar, the February 26, 2004 letter 1'J of p etitioner showed that it subrn.itted documents which it deern ed relevant to support its protest. T h us, respondent cannot say that p etitioner did n ot submit docurnents in accordan ce to Section 228 of the 1997 Tax Code. WHEREFORE, th e instant P etition for review is PARTIALLY GRANTED . Respondent's assessment for deficiency Income Tax, VAT, and DST in th e amounts of P250,955 .06, P1,572,580.24, P 76,339.76, respectively, inclusive of in terest, surcharge and comprom..ise penalty for taxable year 2001 is h ereby ordered CANCELLED. H owever petitioner is ORDERED TO PAY the deficiency Expanded Withhold..ing Tax in the amount of P144,548.37, computed as follows: Basic p 91 ,677.79 Interest 52,870.58 TOTAL p 144.548.37 The compromise penalty of P12,000, imposed by respondent is excluded, th ere being n o compromise agreement between the parties. In add..ition, petitio ner is liable to pay 20% delinguency interest o n the amount of P144,548.37, computed from January 14, 2005 until full payn1.ent thereof pursuant to Section 249 (c) (3) of the 1997 Tax Code, as amended. SO ORDERED. L--:~ . CLA_ ERNESTO D. ACOSTA Presiding Justice 0 LE AVE CAESAR A. CASANOVA Associate Justice L 1 ~ Exhi bit.] .

C T.A . CASE NO. 7+ 16 OECTSJOJ\ " PA GE 19 CERTIFICATION Pursuant to Section 13, Article VIIJ of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. Lvr~ ERNESTO D. ACOSTA Presiding Justice