CTA Case No. 4312 (Decision)

- ---- REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY CENTRAL CEMENT CORPORATION. C.T.A. CASE NO. 4312 Petitioner, - versus - BIENVENIDO TAN, in his capacity as Commissioner of Internal Revenue, Respondent. X- - - - - - - - - - - - X DEC I s I 0 N A letter from the Bureau of Internal Revenue <"BIR") dated March 9, 1988 was received by petitioner on even date informing it of a proposed <tentative) assessment for alleged deficiency income tax for fiscal year ended June 30, 1987 in the total amount of P4'; 202, 118. 00, inclusive of interest computed up to March 15, 1988. <Annex "A", C.T.A. Records, pp. 8-9. ) A period of ten <10) days from receipt thereof was g iven petitioner within which to :-: dispute the proposed assessment otherwise, it would become final and the necessary formal assessment notice will be issued. ,I 880

DECISION - C.T.A. CASE NO. 4312 - 2- Petitioner seasonably responded to respondent's letter on March 18, 1988 Cor 9 days �rom receipt of letter) by disputing the proposed assessment. <Annex "8", C.T.A. Records, p. 10. > There was no reply to petitioner's March 18, 1988 letter instead, another letter from the BIR dated May 13, 1988 was received by petitioner on May 19, 1988. This time the proposed assessment amount d to P5,404,339.SO, includi ng a 251. surcharge and 207. per annum interest . Comprising the aforesaid assessment are deficiency income tax of P5,400,847.99 and deficiency expanded withholding tax of P3, 491. 62 . <A nnex "C", C.T.A . Records, pp. 11-14. ) Again petitioner was granted ten ( 10 L days from receipt thereof to dispute the p'roposed assessment otherwise, it becomes "final and executory". On May 27 , 1988 Cor 8 days from receipt of � letter>, petitioner through a letter of ' even date expressed vehement objections to the proposed assessment and requested that it be reviewed, reconsidered and thereafter withdrawn. <Exh ibits "D", " D-1", "D-2". Instead o� a reply thereto, petitioner received on September 20, 1988 from the BIR a �inal assessment notice <Extlibi t �or alleged 89

DECISION - C.T.A. CASE NO. 4312 -3- deficiency income tax and expanded withholding tax computed as of August 15, 1988 shown .below: INCOME EWT Basic Tax P3,954,053.00 P2, 081. 48 Surcharge 988,513.25 520.37 Interest 946, 501. 42 Compromise Penalty 1,000.00 1,749.22 300.00 TOTAL P5,890,067.67"' P4, 651. 07 ... �Detailed computation shown in Exhibit "4". ) A protest was seasonably lodged by petitioner with the respondent Commissioner of Internal Revenue on September 23, 1988. <Exhibit "F".) While awaiting resolution of the protest, an undated Warrant of Levy on Real Property <Exhibit "G") and an undated Warrant of Distraint of Personal Property <Exhibit "H") 1ere served on petitioner on Decembe r 1, 1988. Undated Warrants of Garnishment were likewis e erved on two of petitioner's d e pos i tor y ba nk s n a me ly, Ph i lippine Commercial Inte rnatio nal Ban k, PCI Bank Towers, Makati <Exhibit "I"> a nd Intern tion 1 Cor porate Bank, 111 Paseo de Roxas , Maka ti <Exhibit "J") on December 6, 1988 and December 7, 1988, respectively. All the foregoing warrants were issued under the signature of respondent. Petitioner assailed the issuance of the warrants and sought their recall in a letter filed 88 2

I' DECISION - C. T. A. CASE NO. 4312 -4- vi th respondent on December 12, 1988 o n t h e ground that the warrants are null and void �or having been issued prematurely and in violation o� the taxpayer 's right to due process, t he protest �iled not having been acted upon by respondent. <Exhibits "K", "K-1", "K-2" and "K-3" . > The warrants were not recalled by respondent despite the petitioner's insis tence and t he �oregoing contentions. In view thereof, petitioner �iled with this Court on December 15, 1988 the instant petition �or ) review vith urgent motion for injunction. It is respectfully prayed that the assessment be set aside for lack of legal and factual basis and that respondent be r strained �rom enforcing the warrants in question for being null and void. Thi s Court :found the is uance o:f warr ants o� distr int nd l vy nd warrants of garnishment in violation of Section 207 of the N tiona! Internal Revenue Code which only authorizes the issuance o� warrants "not earlier than three months nor later than six months from receipt of the demand". <"Resolution", C. T. A Records, pp. 31-38.) Th e dispositive portion of said resolution promulgated on December 21, 1988 provides:

DECISION - C.T.A. CASE NO. 4312 -5- WHEREFORE, finding the motion for injunction of petitioner Central Cement Corporation well founded a nd meritorious, and there being no obj ection on the part of respondent, the said mot ion is GRANTED. Respondent Commissioner of Internal Revenue and his agents are hereby enj oined from enforcing the warrants o:f distraint and levy served upon petitioner and warrants of garnishment upon petitioner's depository banks without necessity of filing surety bond pending :final determination of the case. SO ORDERED. In its "Answer" dated February 24, 1989 <C.T .A. Records, PP� 46-50), respondent reiterated the propriety of its aasessments for defieiaoney income and expanded withholding ta~es for f iscal year ended June 30, 1987, nd prayed to this Court that petitioner be ord red to pay the sa me, to wit: I. Deficiency lncoae Tax CP 3,080,940.00) let Loss pttr Rnurn Add: 01 llolt!d erptnaea p 39,564.00 1. DeficifDOJ withholding tax 100,000.00 2. Bonus ~aid to PICC 3, Une~plained diff~renoe i n cost of ealPB 3,694,580.00 4. Unreported proceeds fro� sales of property and equip~ent 1,235,453.00 5. Incoae payaents to contractors 208,14~.~ 5,274,745.00CSICJ not subj~t to EVT 6,600.00 6. Deficiency docuaentary sta1p tax 9,096,889.! 00 Add: Unexplained increase in net worth P11,297,294.00(SICI Taxable let Inco1e Per Investigation lnco~e Tax due thereon (3511 3,954,053.00 Surcharge (2511 988.513.25 Interest fro� 10/16/87 to 9/30/88 (19. 1511 946,501.42 Co�pro�ise penalty for lat~ filing _ __,1,._,0, 00. 00 TOTAL AIIOOIT OOE and al.LECTIBLE p 5,~�~!�6..?

DECISION - C.T.A. CASE MO. 4312 -6- II. Deficiency Expanded Withholding Tax p 3,217.20 Parking Fee 2,880.00 Kooler Industries 40,520.00 ftetro car rental Various branch contractors 161.~31.63 Incow paJ~~ents not subjected to m 208,148.83 2,081.48 m due thereon (1l, 520.37 1,749.22 Surcharge 12511 300.00 Interest up to 9/J0/88 Coapro ise penalty p !t6S1.07 TOTAl AIIOOWT DUE and COU.ECTIBU: (BIR records, p. 189. l The evidence offered by petitioner <Exhibits "A" to "X" - with sub-markings> in the hearing o:f this case were all admitted by this Court in its resolution dated Febru ry 20, 1991. <C. T. A. Records, pp. 99-100. ) Petitioner also presented as its witness Antonio Dumaliang, the company's comptroller. On the other hand, respondent's evidence marked as Exhibits "1" to "G" <with sub-markings> were likewise admitted by this Co ur t in its resolution dated December 3 , 1991. (C.T.A. Records, pp. 126-127.) For its witness, respondent presented Raul Magtagnob, a member of the BIR investigation team. The issue of the cas to be resolved by the Court are the :following: 1. Whether or not this Court has jurisdiction over this case. 8q . vi

DECISION - C.T.A. CASE NO. 4312 -7- 2. Whether or not the assessment o:f the petitioner for deficiency income tax of PS,890,067.67 and deficiency expanded withholding tax o:f P4,651.07 for taxable year 1987 is correct. The contention of respondent is that this Court has not acquired jurisdiction to act on this petition. He claims there is no dec is ion yet on petitioner's protest. His issu ance o:f the warrants of distraint , levy and garnishment allegedly does not conatitute a decision on the protest which is appealable to the Court of Tax Appeals . However, the matter of jurisdiction was neither raised by responde n t in his "Answer� <C. T . A. Records, pp . 46 - 50 ) nor in the trial on the merits of this case. In f act. respondent through c ounsels actively participated in t he proceedings be:fore this Court which run for over two years without being heard to question the Co urt's jurisdiction. It was only when the case was submitt d for decision that respondent raised first time in its memorandum that this Court is wi thout jurisdiction. <Id., pp. 171 -204.) Jurisdiction is the authority to hear and determine a cause the right to act in a c ase�� <Herrera vs. Barretto and .Joaquin, 25 Ph il., 245; 888

DECISION - C.T.A. CASE NO. 4312 -8- Conchada vs. Director o:f Prisons, 31 Phil. 4 ~ U.S vs. LiMsiongco, 41 Phil., 523. > It is the power and authority conferred on a court by the constitution and laws to hear and determine causes between parties and to carry its judgments into effect. <21 C.J.S., 29.) In determining whether a case lies within or outside the jurisdiction of a court resort to the consequent statutory enactment is indispensable. [Francisco, The Revised Rules of Court in the Philippines, Vol. 1 ( 2d ) p. 1 06. J Towards this end, what is crucial in the determination of the jurisdiction of the court is the averments in the pleadings taken as a whole. Once jurisdiction is acquired it continues until the case is finally terminated. <Pa�intuan vs. Tiga1o, 53 Phil. 1~ Phi1ippine Land Air Sea Labor Union <PLASLU), Inc., vs. CIR, 93 Phil. 747~ Tuvera vs. de GuzMan, L- 20547, April 30,1965. > While lack of jurisdiction may be assailed at any stage, a party � s active participation in the proceedings before the court without jurisdiction will estop such party from assailing such lack of jurisdiction. (Garcia vs. Court o:f Appea1s, 202 SCRA 228~ Sa1en vs. Ding1asan, 198 SCRA 623.> One who subjects himself to the jurisdiction of a court, even where he would not otherwise be subject to 8 9'"(

DECISION - C.T.A. CASE NO. 4312 - 9- suit, becomes subject to any valid claim asserted against him directly relating to the subject of his voluntarily initiated proceeding. To permit one to invoke the exercise of jurisdiction within the general powers of the court and then to reverse its orders upon the ground that it had no jurisdiction would be to allow one to trifle with courts. The principle is one of ~stoppel in the interest of a sound administration of the laws. <Young ften Labor Union Stevedores vs. Court of lndustria1 Re1ations, et al., No. L- 20307, February 26, 1965 citing Perkins vs. Benguet Conso1idated Mining Co�pany, et al., No . L - 1981 - 82, May 28, 1954>. In the case at bar, the warrants of distraint, levy and garnishment were issued by respondent knowing fully well that the deficiency assessments were under protest by petitioner. Even when the issuance of the warrants were objected t o by pet itioner �or being i n viol a t i on of the Tax Code, resp o ndent di d not l i f t said WfU''rl!m t 6 . I t i s by r e spondent's o wn doing t h t dm ini s trati ve reme dies avai lable to pet i t i oner were effectiv e l y s hut- off ther e by, leaving petitioner with no recour se but to seek relief -from this Court. Taking c o g ni~ance of th pet i tio n f o r review with u r gent motion for inju n ction, t h is Cou r t found

- DECISION - C.T.A. CASE NO. 4312 - 10 - the aforesaid motion meritorious and granted the same. <"Resolution�, C.T.A. Records, pp. 31-38. > Respondents were enjoined from enforcing the warrants pending "final determination" of the case. <Ibid. > At this time, there was no objection on the part of respondent. In its "Answer" it :reite:rated its assessments and prayed that this Court order petitioner to pay the sam~ . In the subsequent p r oceedings bGfo:re this Court ~hie h la ted for over a couple o� years nd where respondent a ctively participated, the que tion o! j urisdiction was never raised. By its oyn acta, pondents at the very least recognized this court's ju:risdietion over the case and vol unt arily submit ted to it~ authority. It is therefore stopp d from aeaailing this court's jurisdiction over the cas � Accordingly, it cannot be al lowed now to deny this cour t's jurisdiction, for do so would be to make a mockery of the law and judicial process. ) We now proceed to look into the merits of the deficiency income tax assessment of P5, 890, 067. 67. This was principally on account of the alleged unexplained increase in net worth of P9, 096, 889. 00 and disallowed expenses of P5,281,345.00. 8 0, '--,, ....,

.. - - DECISION - C.T.A. CASE NO. 4312 - 11 - The BIR examiners arrived at the above- stated amount as follows: Paid-in Capital Per Financial Statewent 6/30/86 Pl4, 300,000.00 Less: Additional Stockholders contribution to ~..J!!IO. 00 the capital accounts as provided under Pl0,300,000.00 Section 4Cdl of Rem~ue Regulations llo. 14-86 _jQ,_624,0~.!00 Adjusted Capital Add: Retained Earnings P20, 924, 022. 00 Total -~ 431,_496. ~ Add: Reserve for Doubtful Accounts P23, 358, 158. 00 let worth as of 6/30/86 Reported llet Worth per E. 0. llo. 41 ~1.629.00 Unexplained increase in net worth CBIR Records, p. 1351 p 9,~,889.l!J Petitioner availed of the one-time tax amnesty covering unpaid income taxes for the :fiscal years ending June 30, 1981 to June 30 1986 pursuant to Executive Order No. 41 as implemented by Revenue Regulation No. 14-86. The immunities and privileges enjoyed by petitioner upon compliance with the conditions of the tax amnesty and the rules a nd regulations issued pursuant thereto are quoted below: RSection 6. Immunities and Privileges.- XXX XXX XXX a) The taxpayer shall be rt;>...l.~.!?Vf?_~ Q_!__~.!!Y_ income_ t~lL-.l.!..~J>_ili_i;y on any untaxed income from Januaa h_ 1981 t o .Q~gember 3L___J. 98..9._, including increments thereto and penalties on account of the non- payment of the said tax. Ciyilt_ 900

--- - DECISION - C.T.A. CASE NO. 4312 - 12 - cr~~~n~l or ~dministr ative li.~__p_.:h_J,_j,.j:_y arising from the non- payment of the said tax, whic h are actionable under the National Internal Revenue Code, As amended, are likewise deemed ext~ished. b> The taxpayer's tax amnesty dec~~tion shall not be admissible in evidence in all proceedings before judicial, quasi - judicial or administrative bodies, in which he is a defendant or respondent, and the same sh~ll not be e xam ~.JL_ inquj,,LE;>_g_g_r_ l:_Qoked into by ~nY P-~-:r.~9.0.t overnme t official, bu~eau or office. c> The bQ9...k!L-2i_~Q..Q..Q~.ni__!!n d other ~~ords of the taxpayer for the period from J_~n.y_acr_ 1, 1981 t _Q. De_p~mb_!:?r 31, 1985 --~ha.l,l not be ~xamined for income tax R.I!J"-P.9.~~~: Provided, That the Commissioner of Internal Revenue may authorize in writing the examination of the said books of ccounts and other records to verify the validity or correctness of a claim f or grant of any t x refund, tax credit <o ther than refund on c redit of withheld taxes on wages), tax ince ntives, and/or exemptions under e xisting laws . <Undersc oring supplied. > XXX XXX xxx .� In relation to the foregoing, any officer or employee of the Bureau of Internal Revenue or any governmen t entity wh o inqu ires, questions or attempts to inquire into the tax amnesty declaration filed by any taxpayer pursuant to Executive Order 90

DECISION - C.T.A. CASE NO. 4312 - 13 - No. 41 shall be guilty of grave misconduct for which he may summarily be dismissed. <Section 8~ E.O. No. 41. ) The net worth of the taxp yer as declared in the sworn statement filed shall be considered as his true net worth as of January 1, 1986 for the purpose of determining his future tax liabilities. Any unexplained increase in his net worth after January 1, 1986 sh ll be considered taxable income in the year when such inore s w a etablished or discovered. <Section 7, E.O No.4!.) In the case of a corporate entity on the fiscal year basis, the increase in net worth shall mean the excess of net worth as of the end of his 1985 fiscal year over the net worth as of the beginning of his 1981 fiscal year. For this purpose all fiscal years beginning on or after August 1, 1980 shall be considered as fiscal year 1981 and all fiscal years ending on or before June 30, 1986 shall be considered as f iscal ye r 1985. [Section 4 <c)~ Revenue Regulations No. 14-86. l A consider tion of all th provisions of E. 0 ' No. 41, taken as a whole, will evidently show that ) there is no leg 1 basis for respondent to assess petitioner for deficiency income tax on account of the discrepancy arising from a r e computation of the 902

DECISION - C.T.A. CASE NO. 4312 - 14 - net worth as of June 30, 1986. The same is still covered by the immunity granted by said tax amnesty law. Violations thereof cannot be countenanced. Results of clearly prohibited acts should be thrown out, never to be given due course. Even then, the alleged unexplained increase in net worth of P9, 096, 889. 00 has been accounted as well as amply explained and substantiated by petitioner as fol lows <Exhibit "L">: a> Customs duties and taxes paid on im port ed machineries and equipment for plant upgrading which were already claimed as deduction in the Income Tax Return <ITR) for fiscal year ended June 30, 1984 but capitalized �or financial accounting pur pose.������.������.� .. ...�.���� P8,996,889.00 <Exhibits "N", "N -9 " and Exhibits "0", "0-2" , "0-5" and "0-7". > b) Differ nc in llowance fo r doubtful account. . . . .. ... . . .. . . . .. 100~000.00 <Exhibit "M - 4". > TOTAL. ��. ��.� � P9,096,889.00 Fully diselo ed in pe titioner's audited financial statements for fi c year ended 1984 is the treatment of the P8, 996, 889. 00 c ustoms duties and taxes. Provided in Note 7 thereof is the following :

DECISION - C.T. A. CASE NO. 4312 - 15 - The company r e ported as d e duction f r om income for tax pur pose s cus toms duties and taxe s amounting to P8,996,889.00 i nc urre d in 1984 on the importation of a certain machinery and equipment which were c apitalized for f inancial r porting purposes. Accordingly, no income tax for 1984 has been provided in the accounts. " <Exhibit "N-9") The aforestated amount w a l ikewise r eported in its Schedul of Taxes and Licenses for f i s c a l year ended June 30, 1984 which we r e c laime d a s dedu c tions <Exhibit "0-2" > and the sa me a mo unt was added to the loss per return i n the Reconciliation of Net Income and Analysis of Changes in Retained Earnings/ Co mputation of Tax Due <Exhib it " 0 - 7�) . The company's comptrol l er testified under oath on the foregoing and expl i ne d i n detai l the discrepancy noted referring a t t he sa me ti me t o the evidence presented, to wit: ..J Q. M � Witness, pparently, bas e d on your tax amnesty ret urn and the computation of the BIR , t here i s a difference of .,9, 096, 889. 00 . How do you account for or reconc ile s uch difference? A. As I h ve et t d Q wh i le a - o , t he BI R computation was made on the basis of the financ'al accounting report of the company wh ich i s !ound o n Exhi b its M-3 and M-4 wherei n under the net worth method comp ut ati on , tha t is current assets lees t he

.. DECISION - C.T.A. CASE NO. 4312 - 16 - c ur rent liabil i ties a nd inc luding the l ong t erm debt. We also have to de duc t the capital stock which e xc lude the additional increase in capitalization dur ing the year, and we have to a dd ba ck the allowance for doubtful a ccounts. The BIR resulted to a n e t wo r th computation of P23, 259, 518. 00 whic h is computed in accordance with the financ ial accounting purposes and not on t a x accounting purposes. <T. S. N. Octobe r 9, 1989 pp. 11 - 12. > XXX XX X XXX Q. For t x purpo ses , Mr. Witness, What was the net wor th of your c or poration for t he fisca l year ended 1986? A. For fisca l yea r e nded 1986 , consider 'ng the beginning of 1981 which is the c overage of the t a x amnesty , i t wo uld be P1 4, 261,629.00 . <!d. , p p. 19-20 . > XXX XXX XXX Q. How did you arri v e at su c h a mount, ttr. Wi tn .. s? A. Be ed on t h e co mputat ion o f ne t worth, give n all the formulas a s I have stated in the fi nancial reporting purposes, the re is only a diff renee t h t you have t o t ke into consider tion. Tha t is t he deduc tion of the ouatom duties and taxes paid on pl nt p op rties nd eaq ui pment which inc l udes . � � � � n 1984 we paid the taxes nd d ut ies a mou n ing t o P8,996,S89.00 and under this compu ation we deduct d i n the 1984 the a me mount as one-t ime ex penses for the fiscal year. Q. Mr. Witness can you g o over the document a nd refer exactly to t he particu l ar doc u ment wherei n y o u ma d e that one-tim deduction of the P8,996,889.00 represent ing customs 90 Z)

DECISION - C.T.A. CASE NO. 4312 - 17 - duties and taxes paid on machineries and equipment. A. It is foun d in Exhibi ta 0, 0 -2, 0-5, and 0 - 7. <Id . , p. 20 > XXX XXX XXX Q. How do you account for the remaining difference of PlOO,OOO.OO? A. The difference of PlOO,OOO. OO corx- spond to the llowanoe :for doubtful aocounte? Q. In the documents which were previously marked as exhibits, would you refer to the specific document where the PlOO,OOO.OO is being mentioned. A. Exhibit L and Exhibit H-4. <I d. , p. 15) XXX XXX XXX Q. Would there b any inereaee in the ne worth of your cor po ation for the ending C)f fiscal y ar 1986 as co mp ed o the beginning net worth o.f 1987? A. None. Q. So .fa you a r c oncern d , Mr. Witrl a th re is no unexpl ained incre a in net worth? A. Yes, th re is none? <Id., pp. 20-21) XXX XXX XXX In contrast, respondent's examiner revealed during the erose-examination by petitioner's counsel the follo wing: 908

DECISION - C.T.A. CASE NO. 4312 - 18 - Q. Mr. Witness, in arriving at this alleged net worth :f.or tax purposes, did you take into � consideration the amount o:f P8,996,889.00 which was capitalized :for :financial reporting purposes but was reported as one-time deduction :from income :for tax purposes? A. W wei not m d aware o:f that during our investigation, that is why the same was not taken into consideration. As a matter o:f :fact, i:f I may add when the taxpayer's r@presentative request :for a reconsideration o:f our preliminary assessment, the same thing as being cit d here by the counsel o:f the taxpayer have !ready been alleged in their letter praying :for reconsideration. But the same was not al o given due course because they were not proven, and the y were not documented, and they were not even substantiated. Q. But, Mr. Witness, do I take it to mean that this particular position was brought into your at tention? A. It was brought to our a tte nti on af ter the preliminary investigation. It was brought to our attention only during the reconsideration period, and the same was not taken into consideration also because o:f lack o:f substantiation that woul d prove contrary to th report. Q. Mr. Witness, go ing over page 3 o:f the memorandum which you prepared personally, is it not a :fact that you were apprised even prior to the _, reconsideration o:f uch position specifically the statement "The allegation :forwarded by the taxpayer's representative that the net worth as of June 30, 1986 appearing in the tax amnesty return was arrived at using the tax accounting approach and not the 907

DECISION - C.T.A. CASE NO. 4312 - 19 - financial accounting approach, is irrelevant to discussion. � So, in effect, Kr Witness, you have been apprised by the representative of the petitioner of this particular position? A. They were saying another thing during our investigation but the same cannot be considered because, you know, in the BIR as in the courts, we go by the appraisal of evidences, and mere statements cannot be given consideration. Because they were saying this thing and they were saying another thing, and ve cannot verify. <T.S.N. September 13, 1991, pp. 20- 23) .I The unyielding stance of respondent do not impress Us since it is not anchored on solid ground but strikes Us as rather whimsical in the light of the clarity of petitioner's explanation, substantiated by documentary evidence. The correct net worth for tax purposes of P14,261,629.00 as reflected in petitioner's tax amnesty return <Exhibit �tt�>, not the net worth for financial statement purposes of P23, 358, 518. 00 <Exhibit �L�) would have been arrived at by respondent had it properly taken cognizance of petitioner's contention and evidence. Accordingly, there vas no unexplained increase in net worth which can give rise to a deficiency income tax assessment. 905

DECISION - C.T.A. CASE NO. 4312 - 20 - The items comprising the above arranged according to their materiality are as follows: (1) u~~xrul~in~d difference in cost of ~~l~~-=-E~~94,580.00 This vas arrived at by respondent's examiners I through the following computation: <BIR records, p. 136, par. 3. > Cost of sales per P140,662,893.00 Manufacturing Statement 144,357,4\.73.00 Cost of sales per I.T.R. p 3,694,580.00 Difference Petitioner's explanation of the discrepancy vas not given credence by respondent allegedly on account of its failure to substantiate the same. The records of the case belie such allegation as petitioner has in fact submitted proof supporting its accounting of the difference noted, to wit: Cost of sales per Kanufacturing State~ent P140,662,893.00 Cost of Sales per 1. T. R. P144, 357,473.00 Less: Unrecognized depreciation on capitalized foreign exchange loss deducted fro� cost of sales for inco~~e tax purposes. (Exhibits �o-t�, and �o-2�) 1, 559,987.00 _1~2, 797,486.00 Discrepancy 2, 134, 593. 00 Purchases of ce.ent fro� Ri-Celeftt Corp.: Exhibit �1-2� p 707,256.00 Exhibit �R-3� 35,853.82 Exhibit �R-4� 507,888.57 Exhibit �R-s� 439,766.46 Exhibit �R-6� m,168.1o Exhibit �s-1� _ _1(,_~.~ -~lo.z.m.Jz Discrepancy ~.760.83 80D

DECISION - C.T.A. CASE NO. 4312 - 21 - The difference of P26,760.83 vas claimed by .) petitioner under "Others" but failed to present evidence to established the same unlike the other items. Consequently, We have to disallow the amount of P26,760.83 . In the testimony o the co mp ny' comptro ller, the following v re lik wise disclosed: )()()( XXX Q. Mr . Wi tnes , regarding the amount of depreciation and capita lized foreign excha ng e loss, did th BlR have any question regarding this ? A. None. Q. Ho w bout your trea tment of t hat amount? Did the BIR made any comment on that? A. None also. Q. Also regarding the purchases o:f cement amounting to P2,134,593.00, did t he BIR question whether such purchase were made or not? A. Non . In fact, I have already �urni h d th m thea documents during their examination. ( T. S. N. , October 9, 1989, p. 26> B. ( 2) from sa.t,_e,'---=o,:_f The BIR came out with the aforestated :figure in \ the follo wing manner <BIR records, p. 2, par. 4): 9J )

DECISION - C.T.A. CASE NO. 4312 - 22 - Net proceeds from disposal of property and equipment per Statement of Changes in Financial Position for FY ended June 30, 1987 <Exhibit "Q - 13"> P1,385,000.00 Gross sales price from sale 149,_.Q.;37 . _OQ P1,235,453.00 of transportation equipment per I.T.R. <Exhibit "Q-1"> Unreported Proceeds from sales of equipment In assailing the BIR findings, petitioner merely presented an analysis of the proceeds .from disposal of property and equipment <Exhibit "T-1� > sans any corroborating evidence. Petitioner's explanation of the difference, quoted below, is by itself hard to believe compounded by the absence of any supporting document: Q. How would r eondil the diff re n e e of Pl,235,~53.00. Hr. Wi tne$s ? A. Th bul~ af this mount r e fe r red to h equ"pm~nt whic h v a acquired l at fie oa l y ar pr tH" to y e; r 1987 from a company Cent ral Cement Mar keting Cor poration. This is distinct from our company , Central Cement Corporation, in which we acquired this equipment for purposes of payment of their account with us. And the following fiscal year, knowing that the company has been making a profitable operation, we decided to return the equipment, and therefore, there is no gain or loss realized for this transaction. And that is why, the only report that was reflected in the ITR or the income tax return under Schedule 2 - a, found on Exhibit Q-1, the amount of 911 _,

DECISION - C.T.A. CASE NO. 4312 - 23 - P149,637.00 reflects only the sale to other company other than the Central Cement Marketing Corporation. <T.S.N. October 9, 1989 pp. 27- 28 > The dieallowano by respondent of the discrepancy found in the r ported proceeds from the disposal of prop rty and equipment amounting to P1,235, 453.00 is therefore proper. B. ( 3) subjected to This particular disa llowanc wa not contested by petitioner in ita protest letter to the BIR. Based on the concept of e xhaustion of administ rative remedies, a question not previously brought up in the administrative forum cannot be raised for the first time in court . <Aguina~do Industries Corporation vs. Co��isaioner of Intern ~ Revenue, No. L-29790, February 25, 1982, 112 SCRA 136 >. In the petition for review and the memorandum :filed with this Court, the hove-mentioned item was not di pu e d . Aooord 'ng ly, r spondent' :finding that various income payments amounting to P208,148.83 have to be disallowed for not being subjected to the expanded wit hhold ing tax pursua nt to Section 30 <j > [n ow Section 29<j >J of the Tax Code , is sustained. _, 912

-- DECISION - C.T.A. CASE NO. 4312 - 24 - The basis in disallowing the above is that they allegedly pertain to bonuses paid to PNOC employees and there is no justification for it. Revenue Officer Raul Magtagnob in his testimony categorically stated in court that: Q. Are you sure about that, Mr. Witness, that these bonuses were specifically paid to PNOC employees? A. Our verification states that these were paid because the vouchers were addressed to them? ( T. S. N. September 13, 1991, p. 10. > As rebuttal, petitioner referred to the Coal Supply Agreement by and between PNOC and Central Cement Corporation <Exhibit "X"> whereby Article XII.2 thereof provides: If the heating value of specification coal as analyzed under Article X of this Agreement is between 9,500 BTU/Lb. <As Received> and 9,600 BTU/Lb. <As Received>, no bonus with respect to heating value shall be made. If the heating value of specification coal as analyzed under this Agreement is above 9, 600 BTU/Lb. <As Received>, a bonus shall be applied as follows: Bonus = !!.._.::....9..'-. -~.QQ X Selling 9,500 Price

DECIS ION - C.T.A . CASE NO. 4 312 - 25 - Where = Heati n g value in BTU/ Lb. <As Received ) as analyzed under Artic l e X of this Agreemen t . XXX XXX XXX The best evidence which under the c i rc umstan ces af fords the greatest certainty o:f e sta b l i s hi n g the fact in question are the vouchers alluded t o by the BIR examiner. However, petitioner wh o has possession of said documents did not produce the m instead, it cap�talized on t h e su pp l y contr a c t whi c h does not even suffice t o overcome the presum ption of correctness of th BIR findings. Hence, the disallowance of t he PlOO.OOO.OO is valid. The o th er expen ses di sal lowed name ly, deficiency withholding tax of P39, 564.00 and de.ficiency documentary stamp tax of PG, GOO. 00 were not disputed by petitioner in its protest l etter t o BIR. They were neit her raised i n t he petition for review nor in the memora nd um fi l e d in this c our t. We t herefore find i n favor of res ponden t. In summary, comput ed below is petitione r' s i nco me tax liability for fiscal y ear ended J u n e 30, 1987:

._,._. - -�- �- - DECISION - C.T.A. CASE NO. 4312 - 26 - .) let loss per return (P3, 080, 940. 0()) Add: Disallowed expenses p 39,564.00 1. Deficiency withholding tax 100,000.00 2. Bonus paid to PIOC e ployees 26,760.83 3. Unexplained difference in cost of sales 4. Unreported proceeds fro� sale of property 1,235,453.00 and equipwnt 208,148. 83 5. Incow pay nts not subjected to --~!...� _j.~_~16 5.~. 66 withholding tax CP1,~,413.34l 6. Deficiency docuwntary sta�p tax let loss per investigation As to the deficiency expanded vithholding tax assessment of P4, 651. 07 (inclusive o:f increments>, the same has already become :final, executory and demandable :for failure of petitioner to :file a protest vi th the Commissioner o:f Internal Revenue within thi r ty <30 > days from receipt of the :final assessme nt pursuant to Section 229 o:f the Tax Code, as amended. WHEREFORE, the deficiency income tax assessment issued to Central Cement Corporation in the amount. o:f PS, 890, 067. 67 is hereby cancelled :for lack of merit. However, petitioner is ordered to pay respondent Commissioner of Internal Revenue the .r- de:ficiency expanded withholding tax of P4,651.07 (inclusive of incrementa> plus delinquency interest of 20X per annum :from September 15, 1988 until paid pursuant to Section 249(c)(3) o:f the National Internal Code of 1988. 915

........ - ... DECISION - C.T.A. CASE NO. 4312 - 27 - SO ORDERED. Quezon City, Metro Manila, September 1, 1993. t-X..~-~ ERNESTO A. ACOSTA Presiding Judge WE CONCUR: � GRUBA Judge ' 7RA~.~ 0~. b.E.L~A Associate Jud e CERTIFICATI ON I hereby certify that this decision was reached after due consultation among the members of t he Court of Tax Appeals in accordance with Section 13 Article VII of the Constitution. Q~v.z.~ ERNESTO D. ACOSTA Presiding Judge Court of Tax Appeals