First - Philippine - Holdings - Corp. V CIR

SECOND DIVISION
[C.T.A. CASE NO. 8991. December 17, 2019.]

For: Assessment
FIRST PHILIPPINE HOLDINGS CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL

REVENUE, respondent.
DECISION
MINDARO-GRULLA, J : p
Submitted for decision on January 4, 2019, is a Petition for Review filed on February 20, 2015 praying that the
deficiency tax assessments in the amount of P1,555,240,774.37 for taxable year 2009, be declared null and void. 1
Petitioner First Philippine Holdings Corporation is a corporation duly organized and existing under and by
virtue of the laws of the Republic of the Philippines, with office address at 6th Floor, Benpres Building, Exchange
Road corner Meralco Avenue, Pasig City, Philippines. 2
On the other hand, respondent is the Commissioner of the Bureau of Internal Revenue (BIR), the government
agency tasked to, among others, collect all national internal revenue taxes. As Commissioner, respondent has the
power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed
in relation thereto or other matters arising under the Tax Code or other laws or portions thereof administered by
the BIR. 3
On May 18, 2010, petitioner received a copy of Letter of Authority No. LOA-116-2010-00000053 (LOA) dated
May 14, 2010, 4 authorizing the conduct of an audit of its taxable records for taxable year (TY) 2009.5
Subsequently, petitioner executed several Waivers of the Defense of Prescription under the Statute of
Limitations of the National Internal Revenue Code (Waivers), with the following details: 6
1. On August 17, 2012, Mr. Francis Giles B. Puno executed a Waiver (First Waiver) for the period until
December 31, 2012. The First Waiver was accepted by then Officer-in-Charge Assistant Commission for
LTS Alfredo V. Misajon (OIC-ACIR Misajon) on September 6, 2012. 7
2. On November 6, 2012, Ms. Perla R. Catahan executed another Waiver (Second Waiver) for the period
until June 30, 2013, OIC-ACIR Misajon accepted the Second Waiver on November 15, 2012. 8
3. On May 24, 2013, Ms. Catahan executed a subsequent Waiver (Third Waiver) for the period until
December 31, 2013. OIC-ACIR Misajon accepted the Third Waiver on June 13, 2013. 9
4. On October 3, 2013, Mr. Ramon T. Pagdagdagan executed a final Waiver (Fourth Waiver) for the period
until June 30, 2014. OIC-ACIR Misajon accepted the Fourth Waiver on October 29, 2013. 10
On June 2, 2014, petitioner received a copy of the Preliminary Assessment Notice (PAN) of even date which
assessed petitioner for deficiency income tax, value-added tax (VAT), expanded withholding tax (EWT), withholding
tax on compensation (WC), fringe benefit tax (FBT) and documentary stamp tax (DST) for the TY 2009 in the total
amount of P1,534,735,393.83. 11
In response to the PAN, petitioner alleges that it filed a Reply dated June 16, 2014. 12
However, on June 30, 2014, petitioner received a copy of the Formal Letter of Demand with Final Assessment
Notice (FLD-FAN) dated June 27, 2014, finding it liable for deficiency income tax, VAT, EWT, WC, FBT, DST and
corresponding penalties and interest for TY 2009 in the total amount of P1,555,240,774.37. 13 The alleged
deficiency taxes are broken down as follows:
Compromise
Tax Basic Tax Interest Total
Penalty
Income Tax P527,107,058.70 P447,968,793.45 P50,000.00 P975,125,852.15
VAT 10,181,362.04 9,104,648.13 50,000.00 19,336,010.17
EWT 11,634,558.97 10,593,695.74 25,000.00 22,253,254.71
WC 19,948,611.70 17,948,285.16 25,000.00 37,921,896.86
FBT 432,644.52 389,261.54 16,000.00 837,906.06
DST 262,302,864.34 237,437,990.08 25,000.00 499,765,854.42
TOTAL TAX DUE P1,555,240,774.37
On July 25, 2014, petitioner filed a Protest to assessment of even date in the form of a request for
reconsideration. 14
On December 10, 2014, petitioner filed a Supplemental Protest. 15
Petitioner filed on February 20, 2015 the instant Petition for Review.
On May 19, 2015, respondent filed his Answer, 16 interposing the following special and affirmative defenses:
"SPECIAL AND AFFIRMATIVE DEFENSES
Respondent hereby reiterates and re-pleads the preceding paragraphs of this answer as part of the
Special and Affirmative Defenses.
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THE ASSESSMENT WAS MADE
WITHIN THE PRESCRIPTIVE
PERIOD TO ASSESS
DEFICIENCY TAXES
5. Petitioner claims that the waivers executed by its own officers were defective and did not toll the
running of the prescriptive period to assess deficiency taxes. Firstly, petitioner argues that its corporate
officers, one (1) treasurer and two (2) comptrollers, were not authorized to sign the waivers in its behalf.
Secondly, petitioner argues that former OIC Assistant Commissioner Alfredo V. Misajon was equally not
authorized to sign the Waivers.
6. However, respondent submits that the position assumed by petitioner is more of convenience
rather than merit. As for its first ground to invalidate the waiver, respondent cannot help but notice that
petitioner's fourth officer to sign the waiver was already empowered with a Board Resolution. This tends to
mislead the Honorable Court that the three (3) corporate officers who signed the previous waivers were not
authorized to sign in behalf of petitioner. Moreover, the fourth corporate officer occupies the same position as
the two before him as comptroller of petitioner.
7. The second ground alleged by petitioner to invalidate the Waiver likewise deserves scant
consideration. Petitioner recognizes RDAO 5-2001 which authorizes an Assistant Commissioner to sign a
Waiver in behalf of respondent. The designation of an Officer-in-Charge does not divest ACIR Misajon of his
powers, more important his functions, to act as Assistant Commissioner for the Large Taxpayers Service. As
stated in RDAO 5-2001, one of ACIR Misajon's functions is to sign waivers in behalf of the CIR. Also, there was
no distinction under RDAO 5-2001 whether the revenue officer who will sign the waiver is an OIC or not.
8. Given the foregoing considerations, respondent respectfully submits that the waivers that were
executed were validly executed and in accord with existing rules and regulations. Further, the case of " Rizal
Commercial Banking Corporation vs. Commissioner of Internal Revenue " likewise tells us that strict adherence
to RMO 20-90 is not absolute and a taxpayer may be estopped from questioning the validity of waivers.
9. Thus, given that it was petitioner who executed the assailed waivers, and that the same was
accepted by respondent through ACIR Misajon, it is respectfully submitted that the assessment was made
within the prescriptive period to assess deficiency taxes.
PETITIONER IS LIABLE FOR THE
ASSESSED DEFICIENCY TAXES FOR
2009
10. All presumptions are in favor of the correctness of tax assessments. The good faith of tax
assessors and the validity of their actions are presumed. They will be presumed to have taken into
consideration all the facts to which their attention was called (CIR vs. Construction Resources of Asia, Inc. 145
SCRA 671 ). It is incumbent upon the taxpayer to prove the contrary (Mindanao Bus Company vs. CIR, 1 SCRA
538; CIR vs. Tuazon, Inc., 173 SCRA 397 ) and failure to do so shall vest legality on respondent's actions and
assessments.
11. Per investigation report of respondent's examiners, the following tax deficiencies were found:
Compromise Total
Tax Basic Tax Interest Total
Penalty Increments
Income Tax 527,107,058.70 447,968,793.45 50,000.00 448,018,793.45 975,125,852.15
VAT 10,181,362.04 9,104,648.13 50,000.00 9,154,648.13 19,336,010.17
EWT 11,634,558.97 10,593,695.74 25,000.00 10,618,695.74 22,253,254.71
Compensation 19,948,611.70 17,948,285.16 25,000.00 17,973,285.16 37,921,896.86
FBT 432,644.52 389,261.54 16,000.00 405,261.54 837,906.06
DST 262,302,864.34 237,437,990.08 25,000.00 237,462,990.08 499,765,854.42
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
Total 831,607,100.27 723,442,674.10 191,000.00 723,633,674.10 1,555,240,774.38
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
The foregoing tax deficiencies were explained as follows:

I. INCOME TAX
a. That per Reconciliation of Service income per books as against the data from the third party
information (Relief) resulted to a discrepancy/variance amounting to P14,601,213.26 hence should
be part of income pursuant to Sec. 32 of the NIRC as per schedule on page 491;
b. Reconciliation of purchases per books and the third party information (Relief) have a difference
amounting to P9,513,394.16 and should also be included in the computation of income tax as per
schedule on page 490, pursuant to Sec. 32 of the NIRC;
c. Verification of payment of Inaec Aviation Corp. (Inaec) for the share in the rental income on
helicopter shows that the above named taxpayer did not declare the income amounting to
P2,885,262.00. Purchases from Inaec was also undeclared in the computation on Income tax. The
said findings resulted to a total of undeclared income of P6,253,986.54 as per summary on page
511 which should be included in the computation of income tax pursuant to Sec. 32 of the NIRC;
d. Verification of the payment of goods to top 10,000 corporation against the alpha list of suppliers
shows that a discrepancy amounting to P6,548,267.00, hence, should be part of adjustment in
income tax computation on page 497, pursuant to Sec. 32 of the NIRC;
e. Verification of Donation on charitable institution amounting to P5,464,500.00 was disallowed since
there is no proof or certificate presented which is violation of Sec. 34 (H) of the NIRC; (page 435);
f. Per verification of the representation expenses it shows that the amount of P3,979,609.13 exceed
the ceiling as prescribed by law per computation page 508, pursuant to RR-10-2002;
g. Reconciliation of the expenses per financial statement as against the Income tax return (ITR) shows
a discrepancy amounting to P1,151,652,963.00. The amount was not declared in the financial
statement, hence, claimed as expenses in the ITR as per summary on page 509. Interest expense
was not necessary and not related to the taxable income pursuant to Sec. 34 (A)(1). Per Notes to FS
#12, Long term debt FRCN were used to finance acquisition of other company's shares and for debt
repayment. These funds were also used to finance your affiliates as stated in Note #20, Related
Party disclosures which the Advances to FPH Fund, FGHC International, First Philec Group amounted
to P3,144,000,000.00, P2,410,000,000.00, and P969,000,000.00, respectively, which should be
disallowed/added in the computation of income tax;
h. Verification of the salaries and wages per Financial statement/ITR as against the alpha list of
employees shows that there is a discrepancy amounting to P65,838,758.38 as computed on page
501, which resulted to an under declaration of income pursuant to Sec. 32 of the NIRC;
i. Comparison of income payments subject to withholding tax claimed per financial statement/income
tax return as against the Alpha list disclosed that were not subjected to withholding tax amounting
to P320,905,7283.26 n per computation on pages 497 to 500 hence disallowed pursuant to Section
34 (K) of the NIRC, as amended;
j. The said findings resulted to a total deficiency tax on Income Tax amounting to P975,125,852.15
including increments per summary on page 555.
II. Value Added Tax:
a. That per verification of service income per books against the party information (Relief), it shows that
there is a discrepancy on income amounting to P14,601,21326 n as summarized in page 491, which
should be added in the computation of VAT pursuant to Sec. 106 of the NIRC, as amended;
b. Comparison of purchases per books and the third party information (Relief) shows a discrepancy
amounting to P9,513,394.16 as summarized on page 490, which should also be included in the
computation of VAT pursuant to Sec. 106 of the NIRC, as amended;
c. Per verification of the service and other income, it shows that some of income were not included in
the computation of VAT amounting P44,129,345.07. The said amount should be part in the
computation on VAT as stated on page 505 pursuant to Sec. 106 of the NIRC, as amended;
d. Reconciliation of the payment of goods to top 10T corporation against the alpha list of suppliers
shows that the taxpayer pays more than the amount claimed in the FS, hence the said discrepancy
or unaccounted source of cash amounting to P6,548,267.00 should be part of adjustment in VAT
computation on page 497, pursuant to Sec. 106 of the NIRC, as amended;
e. The said findings resulted to a total deficiency tax on VAT amounting to P19,336,010.17 including
increments per computation on pages 554.
III. WITHHOLDING TAX:
a. Withholding Tax-Compensation
Verification of the salaries and wages per alpha list and FS shows that there's a discrepancy
amounting to P65,838,758.30 which resulted to a deficiency tax amounting to P37,921,896.86
including increments, pursuant to Sec. 80 (A) of the NIRC as per summary on page 552.
b. Expanded Withholding Tax (EWT)
Verification disclosed that some of the income payments were not subjected to Expanded Withholding
Tax in violation of Section 57 of the NIRC and its implementing regulations particularly Revenue
Regulations No. 2-98 as amended by Revenue Regulations No. 6-2001 and further amended by
Revenue Regulations No. 12-2001 and subsequently further amended by Regulations No. 17-2003
and 30-2003. This resulted to deficiency EWT amounting to P22,253,254.71 inclusive of increments
(computation on pages 548 to 549).
IV. DOCUMENTARY STAMP TAX
A DST for the Advances to and from related parties, Short term and long term loans, Lease contact and
issuance of stocks with a total amount of P52,516,431,441.83, only P31,465,264.00 was subjected to DST.
The remaining amount of P52,484,966,177.83 is still subject to DST which resulted to a deficiency tax
amounting to P499,765,854.42 including increments (computation on page 550 to 551).
12. At this juncture, it must be stressed that when assessments are assailed, the burden of proof is
upon the complaining party. It is, incumbent upon the complaining party to show that the assessment was
erroneous, in order to relieve himself from it.
13. Failure to present proof of error in the assessment will justify judicial affirmation of said
assessment (Delta Motors Co. vs. Commissioner, CTA Case No. 3782, 21 May 1986; Commissioner of Internal
Revenue vs. Court of Appeals, et al., G.R. Nos. 104151 and 105563, 10 March 1995)."
On June 1, 2015, respondent transmitted the BIR Records for the instant case. 17
The pre-trial conference was set, and held on, July 9, 2015. 18
Petitioner's Pre-Trial Brief 19 and respondent's Pre-Trial Brief 20 were both filed on July 6, 2015.
However, on even date, petitioner filed an Omnibus Motion, 21 praying, in effect, for an early resolution of the
issue of prescription, prior to the conduct of a full-blown trial on the merits of the case.
During the pre-trial conference, the Court granted petitioner's Omnibus Motion, and set the presentation of
petitioner's witnesses to testify on the issue of prescription on August 10, 2015. 22 The Court also directed the
parties to submit their Joint Stipulation of Facts and Issues.
The parties submitted their Joint Stipulation of Facts and Issues (JSF) on August 6, 2015. 23 Consequently, the
Court issued a Pre-Trial Order on August 18, 2015, 24 approving and adopting the said JSF, and considering the pre-
trial as deemed terminated.
During the trial on the issue of prescription, petitioner presented documentary and testimonial evidence. As

for its testimonial evidence, on September 7, 2015, petitioner offered the testimonies of the following witnesses:
Mr. Techserve Allan Golfo, 25 Senior Manager for Corporate Accounting, Ms. Gemma Rose C. Roque, 26 Head of
Comptrollership Group, and Atty. Esmeraldo C. Amistad, 27 Assistant Corporate Secretary and Assistant Compliance
Officer.
Petitioner filed its Formal Offer of Evidence (FOE) on the issue of prescription on October 7, 2015. 28
Respondent filed his Omnibus Motion (to Cancel Hearing Set on July 20, 2015 and Admit Comment) on December 1,
2015. 29 In the Resolution dated December 1, 2015, 30 the Court admitted petitioner's Exhibits.
Respondent likewise presented documentary and testimonial evidence. He offered the testimony of his
witness, Ms. Olivia S. Sison, 31 Revenue Officer II of the Bureau of Internal Revenue (BIR). There being no other
witnesses to present, respondent's counsel made an oral FOE. Considering that petitioner did not interpose any
objection, the Court admitted respondent's exhibits and gave the parties thirty (30) days from notice to file their
respective memorandum. 32
Within the extended time granted by the Court, petitioner filed its Memorandum (Re: Issue on Prescription) on
June 23, 2016, 33 while respondent filed his Memorandum on July 13, 2016. 34
On September 27, 2016, the Court issued a Resolution resolving the issue on prescription. 35 The Court
partially granted petitioner's Omnibus Motion. The dispositive portion of the said Resolution states:
"WHEREFORE, in view of the foregoing, petitioner's Omnibus Motion is PARTIALLY GRANTED .
Accordingly, respondent's right to assess the following: (1) deficiency VAT for the 1st and 2nd quarters of
2009; (2) deficiency EWT for the months of January to July 2009; (3) deficiency WT on compensation for the
months of January to July 2009; and (4) deficiency FBT for the 1st and 2nd quarters of 2009 had already
prescribed.
Set this case for hearing on November 7, 2016 at 9:00 a.m. for the presentation of evidence for the
petitioner to determine its liability for the remaining tax deficiency assessments for the taxable year 2009.
SO ORDERED."
On October 14, 2016, respondent filed a Motion for Reconsideration, 36 with petitioner's Comment (to
Respondent's Motion for Partial Reconsideration) filed on November 3, 2016. 37 Likewise, petitioner filed its Motion
for Partial Reconsideration (Re: Decision dated September 27, 2016) on October 18, 2016, 38 with no comment from
the respondent as per Records Verification Report dated November 21, 2016. 39
In the Resolution dated March 9, 2017, 40 the Court denied both motions for lack of merit.
Aggrieved, both parties separately filed their Petitions for Review with the CTA En Banc, by respondent on
April 11, 2017 under CTA EB No. 1625, while that of petitioner's on April 17, 2017 under CTA EB No. 1626.
On April 19, 2017, petitioner's Petition was consolidated with that of respondent's, the case bearing the lowest
docket number, via CTA En Banc's Minute Resolution. 41
Pending the resolution of the CTA En Banc, the trial on the merits in the instant case proceeded.
On May 29, 2017, petitioner filed a Motion to Commission An Independent Certified Public Accountant. 42 The
Court commissioned Ms. Roselle Y. Caraig on June 14, 2017, as the Independent Certified Public Accountant (ICPA)
to render a report on the case. 43
When the case was called for the presentation of evidence for the petitioner to determine the liability for the
remaining deficiency taxes for the TY 2009, petitioner presented documentary and testimonial evidence. As for its
testimonial evidence, petitioner offered the testimonies of the following witnesses: Mr. Techserve Allan Golfo, 44
Senior Manager for Corporate Accounting, Ms. Victoria A. Martinez, 45 former Assistant Vice President, and Ms.
Roselle Y. Caraig, 46 the Court-commissioned ICPA.
On August 3, 2017, the ICPA submitted her report 47 to the Court, which was later amended and submitted on
September 7, 2017. 48
For petitioner's documentary evidence, it filed its Formal Offer of Evidence on October 30, 2017. 49
On November 27, 2017, the said Formal Offer of Evidence was resolved by the Court, 50 admitting petitioner's
exhibits, except for certain exhibits which were denied for not being found in the records and for failure to submit
the duly marked exhibit.
Petitioner filed a Motion for Partial Reconsideration (Re: Resolution dated November 27, 2017) on December
12, 2017, 51 which was partially granted by the Court in its Resolution dated June 21, 2018,52 admitting the
previously denied exhibits except for Exhibit "P-93", for not being found in the records.
Petitioner's admitted documentary exhibits are the following:
Exhibit: Description:
P-4 Formal Letter of Demand with Final
Assessment Notice dated June 27, 2014
P-5 Petitioner's Protest filed on July 25, 2014
P-11 Income Tax Return of FPH for the year
2009
P-60 PRC Professional Identification Card
P-61 Bureau of Internal Revenue Accreditation
Number 08-000745-40-2016 issued to
Roselle Y. Caraig on June 8, 2016 by the
Revenue National Accreditation Board
valid until June 8, 2019
P-62 PICPA ID with ID Number 101274
P-63 Tax Management Association of the
Philippines (TMAP) application form for Isla
Lipana & Co. indicating Roselle Y. Caraig
as the representative
P-64 Curriculum vitae
P-65 Reconciliation of undeclared sales
P-66 Reconciliation of undeclared purchases
P-67 Audited Financial Statement of FPH for
Taxable Year 2009
P-68 Itemized summary of the donations of
Eugenio Lopez Foundation, Inc., the
Philippine Business for Social Progress, and
the Lopez Group Foundation, Inc.
P-69 Certificate of Donation No. D033-093-2009
(certified by Benjamin F. Uichico,
authorized signatory of the Philippine
Business for Social Progress)
P-69-A Certificate of Donation No. D043-007-2009
(certified by Marifi H. Hernandez, acting
comptroller of ELFI)
P-69-B Certificate of Donation No. D043-014-2009
P-69-C Certificate of Donation No. D043-022-2009
P-69-D Certificate of Donation No. D043-028-2009
P-69-E Certificate of Donation No. D043-035-2009
P-69-F Certificate of Donation No. D043-044-2009
P-69-G Certificate of Donation No. D043-047-2009
P-69-H Certificate of Donation No. D043-052-2009
P-69-I Certificate of Donation No. D043-054-2009
P-69-J Certificate of Donation No. D043-061-2009

P-69-K Certificate of Donation No. D043-040-2009
P-69-L Certificate of Donation No. D043-044-2009
P-69-M Certificate of Donation No. D043-048-2009
P-70 Schedule with breakdown of
Representation Expense of Petitioner
P-71 Reconciliation of Interest Expense of
Petitioner
P-72 Reconciliation of Professional Fees
P-73 Reconciliation of Rental
P-74 to P- Reconciliation of ITR/FS and Alphalist
74-L
P-75 Judicial Affidavit of Roselle Y. Caraig (Re:
Commissioning as Independent Certified
Public Accountant)
P-75-A Signature of Roselle Y. Caraig
P-76 Judicial Affidavit of Jason Jimenez
P-76-A Signature of Jason Jimenez
P-77 Independent Certified Public Accountant
(ICPA) Report dated August 31, 2017
P-78 Certificate of Filing of Amended Articles of
Incorporation dated August 6, 2014 with
attached Amended Articles of
P-78-1 Incorporation of Petitioner
Amended Articles of Incorporation of
Petitioner
P-78-2 Certificate of Filing of Amended By-Laws
dated July 9, 2009 with attached Amended
By-laws of Petitioner
P-79 BIR Certificate of Registration of Petitioner
P-80 Summary List of Sales for calendar year
2009
P-81 Summary List of Purchases for calendar
year 2009
P-82 Alphalist of Payees
P-83 Relevant working paper of Petitioner's
external auditor to prove that there were
not transactions with INAEC Corporation
P-84 Relevant working paper of Petitioner's
external auditor to prove that the amount
picked up by the BIR included transactions
which should not be classified under
"salaries and wages" account
P-84-1 Breakdown of the personnel expenses that
should not be classified as salaries based
on the working paper of Petitioner's
external auditor
P-84-2 Breakdown of retirement benefit expense
based on the working paper of Petitioner's
external auditor
P-84-3 Breakdown of training and others based on
the working paper of Petitioner's external
auditor
P-84-4 Breakdown of reconciling items of the
disallowed expenses issue
P-84-5 Breakdown of other outside services under
disallowed expenses issue
P-84-6 Breakdown of the repairs and
maintenance, office supplies expense and
communication, light and water under the
disallowed expense issue
P-84-7 Schedule of Exhibits
P-85 Audited Financial Statement of Petitioner
for the year ending December 31, 2009
P-86 Floating Rate Corporate Notes (FRCN)
Facility Agreement
P-87 Fixed Rate Corporate Notes (FXCN) Facility
Agreement
P-88 Reconciling items of the identified
discrepancy between the forex loss per
AFS vs. forex loss per ITR based on
relevant portion of the working paper from
Petitioner's external auditor
P-89 to P- Official Receipts by the Law Firm of
89-24 Quiason Makalintal Barot Torres and Ibarra
to Petitioner
P-89-25 to Official Receipts by SGV & Co. to Petitioner
P-89-40
P-89-41 to Official Receipts by Migallos & Luna Law
P-89-64 Office to Petitioner
P-89-53 to Official Receipts by Puno and Puno Law
P-89-65 Offices to Petitioner
P-90 to P- Official Receipts by Watson Wyatt
90-2 Worldwide to Petitioner
P-91 Official Receipts issued by First Philippine
Realt Corporation
P-92 to P- Certificate of Creditable Tax Withheld At
92-74 Source BIR Form No. 2307 of Petitioner
P-93-1 to P- Documentary Stamp Tax
93-54 Declaration/Return BIR Form No. 2000 of
Petitioner
P-300 Judicial Affidavit of Roselle Y. Caraig
P-300-A Signature of Roselle Y. Caraig
P-5001 FPH's Articles of Incorporation

P-5002 FPH's Annual Income Tax Return (BIR Form
No. 1702) for taxable year 2009 filed with
the BIR on April 14, 2010
P-5003 General Ledger of FPH
P-5004 Floating Rate Corporate Notes (FRCN)
Facility Agreement
P-5005 Fixed Rate Corporate Notes (FXCN) Facility
Agreement
P-5006 Judicial Affidavit of Techserve Allan U.
Golfo
P-5006-A Signature of Techserve Allan U. Golfo
P-5007 Judicial Affidavit of Victoria A. Martinez
P-5007-A Signature of Victoria A. Martinez
During the hearing held on July 23, 2018, respondent's counsels manifested that they are adopting all the
evidence presented in the preliminary determination of jurisdiction of this case, which was noted by the Court. 53
Consequently, on July 31, 2018, respondent filed its Formal Offer of Evidence, 54 with petitioner's
Comment/Opposition (To Respondent's Formal Offer of Evidence) filed on August 24, 2018. 55
Meanwhile, on September 3, 2018, CTA En Banc issued a Decision, 56 denying both petitions for lack of merit.
The dispositive portion of the Decision states:
"WHEREFORE, pursuant to Section 2 of Republic Act No. 1125, as amended by Republic Act No. 9503 in
relation to Section 3 of Rule 2 of the Revised Rules of the Court of Tax Appeals, the Petitions for Review filed by
First Philippine Holdings Corporation and the Commissioner of Internal are hereby DENIED for lack of merit.
The findings and conclusions reached by the Second Division in the assailed Resolutions dated September 27,
2016 and March 9, 2017 Assailed Resolutions are hereby AFFIRMED.
SO ORDERED."
Resolving respondent's Formal Offer of Evidence, the Court issued a Resolution dated October 3, 2018, 57
admitting respondent's exhibits and giving the parties a period of thirty (30) days from notice to file their respective
memorandum.
Respondent's documentary exhibits are the following:
Exhibit: Description:
R-8 Letter dated May 14, 2010
R-9 First Notice for the Presentation of Books of
Accounts and other Accounting Record dated
June 7, 2010
R-10 Second and Final Notice for the Presentation
of Books of Accounts and other Accounting
Record dated August 5, 2010
R-11 Letter dated April 5, 2011
R-12 Preliminary Assessment Notice with Details
of Discrepancies
R-13 Formal Letter of Demand, Assessment
Notices and Details of Discrepancies
In compliance thereof and within the extended time granted by the Court, petitioner filed its Memorandum on
November 26, 2018, 58 while respondent failed to file his memorandum as per Records Verification Report dated
December 6, 2018. 59
On January 4, 2019, the instant case was submitted for decision.60
THE ISSUES
Based on the JSF, both parties are unable to agree on the issues to be resolved by the Court. Hence, the issues
to be resolved for petitioner are as follows: 61
1. Whether or not the right of the respondent to assess petitioner for deficiency taxes has already
prescribed;
2. Whether or not petitioner was afforded due process in the issuance of the formal letter of demand and
final assessment notice;
3. Whether or not petitioner's right to speedy disposition of cases was violated;
4. Whether or not the FLD-FAN is invalid for failure to comply with Revenue Memorandum Order No. 1-
2000;
5. Whether or not petitioner is liable for deficiency income tax for taxable year 2009;
6. Whether or not petitioner is liable for deficiency VAT for taxable year 2009;
7. Whether or not petitioner is liable for deficiency EWT for taxable year 2009;
8. Whether or not petitioner is liable for deficiency WC for taxable year 2009;
9. Whether or not petitioner is liable for deficiency FBT for taxable year 2009; and
10. Whether or not petitioner is liable for deficiency DST for taxable year 2009.
On the other hand, the sole issue to be resolved on the part of the respondent is as follows:62
Whether or not petitioner is liable to pay the assessed amount of P1,555,240,774.37, representing its
deficiency Income Tax, VAT, EWT, WC, FBT, DST and corresponding penalties and interest, for taxable year
2009.
Petitioner's arguments:
Petitioner argues that it is not liable to deficiency taxes for the TY 2009.
Petitioner avers that on the alleged assessed deficiency income tax, it stresses that it does not have any form
of undeclared sales, unaccounted purchases or unrecognized income, nor does it maintain an unaccounted source
of cash. It contends that being a listed company, it adopts the policy of transparency and full reporting with regard
to its tax records and full compliance with applicable laws and regulations.
As to the assessed deficiency VAT, petitioner argues that Section 106 of the National Internal Revenue Code
(NIRC) of 1997, is inapplicable as it is a seller of services, subject to VAT upon collection and not upon
consummation of the sale. Further, petitioner maintains that it did not have undeclared purchases as well as
unaccounted source of cash.
Petitioner disagrees with respondent when it was assessed of deficiency EWT and WC on the basis that the
assessment lacks factual or legal basis. As such, the deficiency EWT and WC assessment must be cancelled for
being in clear violation of its right to due process and non-compliance with Section 228 of the NIRC of 1997.
On the deficiency FBT, petitioner avers that this item should be cancelled as the expenses on transportation
and travel were only used for the conduct of the business and cannot be considered as fringe benefits. Moreover,
the item "Other Benefits" should also be cancelled as respondent failed to indicate where he got the figure.
Lastly, petitioner asserts that it is not liable for deficiency DST on the basis that theFilinvest Decision, 63
imposition of DST on inter-office advances granted to affiliated corporation, is not applicable in this case. It posits
that the Filinvest Decision is not applicable to transactions beginning March 20, 2004 upon the effectivity of
Republic Act No. 9243, which amended the provisions of the NIRC of 1997, relating to DST. According to petitioner,
the said Decision cannot be applied retroactively.
Respondent's counter-arguments:
Respondent maintains that petitioner is liable for deficiency income tax, VAT, EWT, WC, FBT and DST for the
TY 2009.
COURT'S RULING
The Petition for Review must be partially granted.
As ruled in the Resolution dated September 27, 2016, 64 which was affirmed by the CTA En Banc in its
Decision dated September 3, 2018, 65 the period to assess the following alleged deficiency taxes for the TY 2009
have already prescribed:
(1) deficiency VAT for the 1st and 2nd quarters of 2009;
(2) deficiency EWT for the months of January to July 2009;
(3) deficiency WT on compensation for the months of January to July 2009; and
(4) deficiency FBT for the 1st and 2nd quarters of 2009.
The Court shall now determine whether the petitioner is liable of the remaining alleged deficiency income tax,
VAT for the 3rd and 4th quarters, EWT for the months of August to December, WC for the months of August to
December, DST and compromise penalty for the TY 2009.
For an orderly discussion, the subject tax assessments shall be addressed in this sequence:
Tax Type Total

EWT P22,253,254.71
WTC 37,921,896.86
IT 975,125,852.15
FBT 837,906.06
VAT 19,336,010.17
DST 499,765,854.42
Total P1,555,240,774.37
I. DEFICIENCY EWT — P22,253,254.71

Respondent assessed petitioner of deficiency EWT for TY 2009 in the amount of P22,253,254.71, computed as
follows: 66
Amount Rate Tax Due

Professional Fee (15%) P66,922,594.80 15% P10,038,389.22
Professional Fee (10%) 790,628.20 10% 79,062.82
Rental 19,090,158.00 5% 954,507.90
Payment to supplier of services to
1,160,877,170.00 2% 23,217,543.40
Top 10T Corp
Payment of goods to Top 10T Corp 9,610,152.00 1% 96,101.52
–––––––––––––––––––– ––––––––––––
Total P1,257,290,703.00 P34,385,604.86
Less: Payment 22,751,045.89
––––––––––––
Tax Still Due P11,634,558.97
Add: Interest (Computed up to
P10,467,915.52
07.15.2014)
Interest on late remittance 125,780.22 P10,593,695.74
–––––––––––––––
Compromise Penalty 25,000.00 10,618,695.74
–––––––––––––––––––––––––––
TOTAL DEFICIENCY EWT P22,253,254.71
============
The assessment resulted from the respondent's finding that there were income payments made by petitioner
in the year 2009 that were not subjected to EWT as required under Section 2.57.2 of Revenue Regulations (RR) No.
02-98, as amended, detailed as follows: 67
Income
Per ITR/FS Per Alphalist Discrepancy Rate EWT Due
Payments
Professional Fee
(15%) P66,922,594.80 P53,113,965.12 P13,808,629.68 0.15 P2,071,294.4
Professional Fee
(15%) 790,628.20 790,628.20 -
Rental 19,090,158.00 17,864,647.74 1,225,510.26 0.05 61,275.5
Payment of
services by Top
10T Corp
Security
Services P14,061,410.00
Other Outside
services 18,219,959.00
Advertising 1,425,625.00
Repairs and
Maintenance-
Labor 6,614,607.00
Insurance 7,452,886.00
Communication,
Light and Water 6,757,086.00
Interest 1,067,075,436.00
Representation 5,020,086.00
Others-Cost of
Services 13,155,000.00
Others-
Operating
Expenses 21,095,075.00 1,160,877,170.00 685,777,719.97 475,099,450.03 0.02 9,501,989.0
TOTAL P1,247,680,551.00 P757,546,961.03 P490,133,589.97 P11,634,558.9
Add: Interest (Computed up to 07.15.2014) P10,467,915.52
Interest on late remittance 125,780.22 P10,593,695.74
TOTAL DEFICIENCY EWT P22,253,254.7
The Court shall discuss each of the above-enumerated categories of income payments.
a. Professional fees — P13,808,629.68
Section 2.57.2 (A) (9) of RR No. 02-98, as amended, imposes 10% or 15% on payments for professional fees
as follows:
"Sec. 2.57.2. Income payments subject to creditable withholding tax and rates prescribed
thereon. — x x x.
(A) Professional fees, talent fees, etc., for services rendered by individuals . — On the gross
professional, promotional and talent fees or any other form of remuneration for the services of the following
individuals — Fifteen percent (15%), if the gross income for the current year exceeds P720,000; and Ten
percent (10%), if otherwise;"
Petitioner contends that the assessed professional fees of P13,808,629.68 pertain to: (a) income payments to
entities exempted from withholding, (b) professional fees subjected to 2% withholding and (c) legal fees which were
not considered by respondent in his evaluation/audit.
Details of petitioner's reconciliation are as follows: 68
Per ITR/FS P67,713,223.00

Less:
1. Exempted from EWT-GPPs
SGV & Co. P6,063,156.70
Migallos & Luna Law Offices 300,000.00
Puno & Puno Law Offices 363,000.00
The Law Firm of QMBTI 2,155,090.84

Villaraza Cruz Marcelo & 8,928,571.42
Angangpaco
2. Income subjected to 2% EWT
Watson Wyatt Philippines 600,000.00
Add:
3. Various legal fees subjected to
1,560,000.00
15% EWT
Professional fees subjected to
2,874,705.91
15% EWT
Others 166,483.00
Per Alphalist P53,904,592.95
The Court-commissioned ICPA, Ms. Roselle M. Caraig, stated that it was not provided with Schedule 3 of the
Annual Information Return of Income Tax Withheld (Expanded)/Income Payments Exempt from Withholding Tax (BIR
Form No. 1604-E) to be able to verify the actual amount of income payments to General Professional Partnerships
(GPPs) listed above. However, the ICPA was provided with the official receipts (ORs) 69 issued by the said GPPs to
support petitioner's payments thereto for CY 2009.
With regard to the income payments to Watson Wyatt Philippines, the ICPA noted from the alphalist of payees
attached to the BIR Form No. 1604-E that the total income payments amounted to P602,500.00 and not
P600,000.00 as claimed by petitioner. 70 The ICPA was, likewise, provided with copies of the ORs 71 issued by
Watson Wyatt Philippines aggregating to P662,750.00 to support the claimed expenses.
As to the reconciliation items "various legal fees subjected to 15%" and "professional fees subjected to 15%
EWT," the ICPA was not provided with the details of the suppliers/income payments composing the said payments.
However, the ICPA verified that the total income payments subjected to 15% withholding tax per alphalist of payees
attached to the BIR Form No. 1604-E amounted to P53,111,018.37.
The ICPA was not able to verify the reconciling item "Others" as it was not provided with details and/or
documents in support of petitioner's claim.
The Court sustains the assessment.
Section 22 (B) of the NIRC of 1997, as amended, defines GPPs as "partnerships formed by persons for the sole
purpose of exercising their common profession, no part of the income of which is derived from engaging in any
trade or business." As a corollary, Section 26 of the same NIRC provides that a general professional partnership
shall not be subject to income tax. Its partners are the ones liable in their individual capacity for the payment of
income tax.
Consequently, GPPs are exempt from EWT as provided for under Section 2.57.5 of RR No. 02-98, as amended
by RR No. 14-02, to wit:
"Sec. 2.57.5. Exemption from Withholding . — The withholding of creditable withholding tax prescribed
in these Regulations shall not apply to income payments made to the following:
xxx xxx xxx
(B) Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law,
general or special, such as but not limited to the following:
xxx xxx xxx
(4) General professional partnerships
xxx xxx xxx"
However, in the instant case, petitioner failed to provide valid supporting documents, such as the Articles of
Partnership of the subject payees to prove that the same are indeed GPPs. The ORs presented by petitioner merely
established the amount of professional fees paid for a particular period.
As to the professional fees paid to Migallos & Luna Law Offices and Puno & Puno Law Offices, in the respective
amounts of P300,000.00 and P363,000.00, there is no indication that the gross income for the year 2009 of the said
payees did not exceed P720,000.00. Thus, the same shall be imposed with the 15% EWT rate.
On the income payments to Watsons Wyatt Philippines amounting to P662,750.00, the Court cannot
determine the taxability of the same because the supporting ORs 72 do not show the description or the nature of
the said income payments. Also, petitioner did not submit the invoices referred to in the ORs.
As to the remaining reconciling items, i.e., various legal fees subjected to 15% EWT in the amount of
P1,560,000.00, professional fees subjected to 15% EWT in the amount of P2,874,705.91 and others in the amount
of P166,483.00, the Court cannot verify the same without the corresponding details and supporting documents.
In sum, petitioner is liable for the deficiency 15% EWT assessment of P2,071,294.45 on professional fees of
P13,808,629.68.
b. Rentals — P1,225,510.26
Petitioner contends that the difference in rentals amounting to P1,225,510.26 pertains to income payments to
First Philippine Realty Corporation for purchases of food items.
However, a perusal of the OR 73 provided by petitioner shows that the amount indicated therein does not tally
with the assessed amount of P1,225,510.26. Moreover, since the nature of the income payment cannot be
ascertained from the supporting OR, the Court cannot determine the tax implication of the transaction. Thus, the
income payment of P1,225,510.26 shall be considered as rentals subject to 5% EWT, under Section 2.57.2 of RR No.
02-98, as amended by RR No. 14-02, which states:
"Sec. 2.57.2. Except as herein otherwise provided, there shall be withheld a creditable income tax at
the rates herein specified for each class of payee from the following items of income payments to persons
residing in the Philippines:
xxx xxx xxx
(C) Rentals
(1) Real properties . — On gross rental for the continued use or possession of real
property used in business which the payor or obligor has not taken or is not taking title, or in which
he has no equity — Five percent (5%);
(2) Personal properties . — On gross rental or lease in excess of Ten Thousand Pesos
(P10,000.00) per payment for the continued use or possession of personal property used in
business which the payor or obligor has not taken or is not taking title, or in which he has no equity
which include, but not limited to the following: land transport equipment, water transport
equipment, air transport equipment, industrial equipment, commercial equipment, scientific
equipment, agricultural machinery and equipment, construction/civil engineering machinery and
equipment, telecommunication equipment, office furniture/machines/equipment, main frame
computer and all other computer machines/equipment, materials handling equipment and auxiliary
equipment — Five percent (5%);
However, the Ten Thousand Pesos (P10,000.00) threshold shall not apply when the
accumulated gross rental or lease paid by the lessee to the same lessor exceeds or is reasonably
expected to exceed P10,000.00 within the year. In which case, the lessee shall withhold the five
percent (5%) withholding tax on the entire amount.
c. Purchases of Services by Top 10,000 Corporations — P475,099,450.03
Petitioner argues that the difference pertains to (a) salaries and wages paid to security guards through
security agencies, (b) membership dues and charges paid to non-stock non-government institutions exempt from
income (withholding) tax, (c) interest payments to financial institutions exempt from income (withholding) tax by
virtue of their certificate of tax exemptions; and (d) payments to government or its political subdivisions for real
property taxes, business permits and other local and national taxes and fees. 74
The Court cannot likewise verify petitioner's claim due to lack of specific details and supporting documents
pertaining to the items in the reconciliation submitted by the petitioner. Thus, this assessment item shall remain.
It is noted that while the assessment covering the months of January to July of TY 2009 had already
prescribed, petitioner was unable to point out which portion of the assessment pertains thereto, hence, the entire
EWT assessment shall be considered as pertaining to the months of August to December 2009.
In sum, petitioner is liable for basic deficiency EWT for TY 2009 in the amount of P11,634,558.97, computed
as follows:
Income Payments Amount Rate EWT Due

Professional Fee (15%) P13,808,629.68 15% P2,071,294.45
Rental 1,225,510.26 5% 61,275.51
Purchases of services by Top
475,099,450.03 2% 9,501,989.00
10T Corp
TOTAL P490,133,589.97 P11,634,558.97
II. DEFICIENCY WTC — P37,921,896.86

Finding that petitioner failed to pay the corresponding WTC on unaccounted salaries and wages of
P65,838,758.30 pursuant to Section 80 (A) of the NIRC of 1997, as amended, respondent assessed petitioner of
deficiency EWT in the amount of P37,921,896.86, computed as follows: 75
Unaccounted Salaries and Wages P65,838,758.30

Rate 0.30
––––––––––––
Deficiency Tax P19,948,611.70
P17,948,285.16
07.15.2014)
–––––––––––––––––––––––––––
TOTAL DEFICIENCY WTC P37,921,896.86
============
Respondent computed the unaccounted salaries and wages as follows: 76
Salaries and Wages

Per ITR P422,611,345.00
Per Alphalist 356,772,586.70
Unaccounted Salaries and
P65,838,758.30
Wages

Relative thereto, petitioner contends that the difference between the salaries and wages per ITR as against
those shown in the alphalist of employees attached to the Annual Information Return of Income Tax Withheld on
Compensation and Final Withholding Taxes or BIR Form No. 1604-CF pertains to 13th month pay as well as
petitioner's contributions to pension plans, Social Security System (SSS), Home Development Mutual Fund
(HDMF)/Pag-ibig and PhilHealth which are allegedly exempt from WTC. Details of petitioner's reconciliation are
presented as follows: 77
Salaries and Wages per ITR P453,174,482.00

Salaries and Wages per Alphalist of Payees 356,772,586.70
Unaccounted Salaries and Wages P96,401,895.30
Less: Payments not subjected to withholding tax on
compensation
Contributions to Pension plans P185,126,164.77
SSS, HDMF, and PhilHealth 1,320,045.00
Fringe-Benefits — Others 8,774,250.41
Add: Classified under "Direct Charges-Salaries, wages
98,818,564.88
and benefits"
Difference P-
However, petitioner failed to present evidence to explain the actual nature of the aforesaid amounts. Thus, in
the absence of proof that the amount of P65,838,758.30 is not subject to WTC, petitioner is liable for the
corresponding basic deficiency WTC for TY 2009 in the amount of P19,948,611.70, as computed by respondent.
As earlier noted, respondent's right to assess petitioner of deficiency WTC for the months of January to July of
TY 2009 had already prescribed. Petitioner was, however, unable to establish that the salaries and wages of
P65,838,758.30 or a portion thereof pertained to the months of January to July, 2009. Thus, the Court shall consider
the amount of P65,838,758.30 as pertaining to the months of August to December 2009.
III. DEFICIENCY INCOME TAX — P975,125,852.15
In the respondent's FLD, the deficiency income tax assessment was computed as follows: 78
Taxable income per return P-

Add (Less) adjustment:
Undeclared Sales (SLS vs. Relief) P14,601,213.26
Undeclared Purchases (SLP vs. Relief) 9,513,394.16
Undeclared Income 6,253,986.54
Unaccounted source of cash 6,548,267.00
Disallowed Charitable Contribution 5,464,500.00
Disallowed Representation 3,979,609.13
Disallowed expenses 1,151,652,963.00
Unaccounted Salaries and Wages 65,838,758.30
Expenses not subjected to EWT 490,133,589.97 1,753,986,281.36
––––––––––––––––––––––––––––––––––––
Adjusted Net income P1,753,986,281.36
–––––––––––––––
Tax Due P526,195,884.41
Less: Payments
Prior Years Excess Credits P78,401,789.00
Creditable Withholding Tax (1st to 3rd
6,372,031.00
Quarters)
Creditable Withholding Tax (4th Quarter) 6,802,745.00
––––––––––––––––––
Total P91,576,565.00
Less: MCIT -
––––––––––––––––––
Total P91,576,565.00
Less: Amount carry forward for next year 91,576,565.00
––––––––––––––––––
Excess P-
––––––––––––––––––
Unsupported 2307 911,174.29
–––––––––––––––
Tax still due and payable P527,107,058.70

P447,968,793.45
07.15.2014)
––––––––––––––––––––––––––––––––––––
TOTAL DEFICIENCY INCOME TAX P975,125,852.15
=============
As can be seen from the above computation, the assessment arose from the following items:
A. Undeclared Sales (SLS vs. TPI-

P14,601,213.26
B. Relief)
Undeclared Purchases (SLP vs.
9,513,394.16
TPI-Relief)
C. Undeclared Income 6,253,986.54
D. Unaccounted source of cash 6,548,267.00
E. Disallowed Charitable
5,464,500.00
Contribution
F. Disallowed Representation 3,979,609.13
G. Disallowed Expenses 1,151,652,963.00
H. Unaccounted Salaries and Wages 65,838,758.30
I. Expenses not subjected to EWT 490,133,589.97
J. Amount carried forward for next

91,576,565.00
year
K. Unsupported Creditable
911,174.29
Withholding Taxes
A. Undeclared Sales —
P14,601,213.26
The undeclared sales were derived by the respondent as follows:
As described in the Details of Discrepancies, the undeclared sales of P14,601,213.26 is based on the
difference between the Service Income per books against that RELIEF, hence must be added in the computation of
income tax, pursuant to Section 32 of the NIRC of 1997, as amended. 79
Registered Name Amount per Registered Amount per Difference
SLS Name RELIEF
None - First Electro P600,000.00 P600,000.00
Dynamics
Corporation
First Philippine P18,556,701.03 First Philippine 24,742,268.04 6,185,567.0
Industrial Corporation Industrial
Corporation
First Sumiden Circuits, 4,595,099.62 First Sumiden 4,232,741.35 4,232,741.35
Inc. Circuits, Inc.
None - Hewlett Packard 136,564.25 136,564.25
Philippines
Corporation
None - INAEC Aviation 721,315.50 721,315.50
Corporation
None - Kimberly Clark 51,278.60 51,278.60
Phils, Inc.
Planet Sports 2,867,610.59 Planet Sports 3,751,215.66 883,605.0
Stock Transfer Service, 424,277.32 Stock Transfer 1,060,693.40 636,416.08
Inc. Service, Inc.
None - The Mercantile 49,205.92 49,205.92
Insurance
Company, Inc.
Trans-Asia Oil and 2,046,258.59 Trans-Asia Oil 3,150,778.09 1,104,519.50
Energy Development and Energy
Corporation Development
Corporation
Total 14,601,213.28
The resulting discrepancy as found in the above table was computed by deducting the amount reflected per
petitioner's Summary List of Sales (SLS) from the amount of Summary List of Purchases (SLP) per Third-Party
Information (TPI)/Reconciliation of Listing for Enforcement (RELIEF), or in case the amount per SLS is higher than
the amount per RELIEF, by automatically reflecting the lower amount of income between SLS and RELIEF as an
undeclared sales.
On the other hand, petitioner asserts that as seller of services, its VAT payments are based on gross receipts.
As such, there are significant differences in accounting methods between income tax accounting under accrual
basis and VAT accounting under cash basis due to timing differences in recognizing income per income tax and per
VAT. Thus, discrepancies between the RELIEF and SLS of the petitioner should not be automatically subjected to
income tax.
Petitioner accounted for the differences as follows: (a) the amount of P651,278.60 pertains to the rental
income from First Electro Dynamics Corporation and Kimberly Clark Philippines, Inc. which were accrued in 2009 but
were not collected during the year, (b) the amount of P770,521.42 pertains to unearned and uncollected service
income from INAEC Aviation Corporation and The Mercantile Insurance Company, (c) there is no unaccounted sales
amounting to P760,165.93 to Stock Transfer Services, Inc. and Trans-Asia Oil and Energy Development Corporation,
such discrepancy is an excessive declaration of purchases from the said customers, (d) the amount of P136,564.25
pertains to rebates received from Hewlett Packard Philippines Corporation which petitioner treated as a reduction in
expense; and (e) the difference in the declarations made by First Philippine Industrial Corporation, Planet Sports,
Inc., Stock Transfer Services, Inc., Trans-Asia Oil and Development Corporation and First Sumiden Circuits, Inc. in
the total amount of P12,282,683.08 refers to income accrued but not yet collected in the year 2009. Furthermore,
petitioner noted that for the sales made to First Sumiden Circuits, Inc. amounting to P4,595,099.62, it reported
higher sales in its VAT Returns than the amount reported per RELIEF.
Petitioner likewise contends that the BIR should have secured certifications from concerned parties to
authenticate said declarations and present such certifications to the petitioner in order that it can have a fair
chance to validate the same. Thus, the imposition of income tax on any discrepancy is not factual but merely a
conclusion.
The Court cancels the assessment.
To reiterate, respondent purportedly found petitioner to have undeclared sales/receipts not subjected to
income tax derived per matching of the petitioner's SLS vis-à-vis the data from the BIR's RELIEF System.
However, records do not show that the information provided by the BIR was verified. The method employed
by respondent in securing the data from the RELIEF, which were compared with the figures appearing on
petitioner's SLS, violates Revenue Memorandum Order (RMO) No. 04-03, which requires the BIR to verify the
allegations stemming from TPI through externally sourced data.
Nowhere in the records did it show that the amount per petitioner's SLS received by the BIR was verified with
externally sourced data to check its correctness. The respondent did not secure the required certifications or
confirmation from the alleged third-party sources to support the integrity of the amounts per RELIEF.
Notably, RMO No. 04-03 recognizes the need to verify the amounts reflected in the quarterly report with other
externally sourced data in ascertaining the taxpayer's under-declaration of revenues or overstatement of costs and
expenses, if any. The pertinent portions of RMO No. 04-03 are quoted hereunder:
"The Bureau of Internal Revenue is reengineering its work processes in order to increase revenue
collections and to pursue quality audit by making use of available internal and external information resources.
In order to strengthen and enhance its assessment functions, the utilization of information technology has
been identified as an effective tool to improve tax administration through the development of the
Reconciliation of Listings for Enforcement (RELIEF) System.
The RELIEF System was created to support third-party information program and voluntary assessment
program of the Bureau through the cross-referencing of third-party information from the taxpayer's Summary
Lists of Sales and Purchases prescribed to be submitted on a quarterly basis pursuant to Revenue Regulations
Nos. 7-95, as amended by RR 13-97, RR 07-99 and RR 08-2002.
The RELIEF System shall cover all VAT taxpayers above threshold limits set by RR 8-2002 to submit
Summary Lists of Sales and Purchases in magnetic form based on a prescribed electronic format. The
consolidation and matching of information with other externally sourced data will detect under-declaration of
revenues/over-declaration of cost and expenses, thus, resulting to greater tax potential."
Without the confirmation from third parties, the finding casts doubts as to the reliability and correctness of the
assessment on the alleged undeclared sales.
While it is true that tax assessments have the presumption of correctness and regularity in its favor, it is also
equally true that assessments should not be based on mere presumptions no matter how reasonable or logical the
presumption might be. This principle was thoroughly discussed by the High Court in the case of Commissioner of
Internal Revenue vs. Hantex Trading Co., Inc., 80 the pertinent portions of which are quoted as follows:
"We agree with the contention of the petitioner that, as a general rule, tax assessments by tax
examiners are presumed correct and made in good faith. All presumptions are in favor of the correctness of a
tax assessment. It is to be presumed, however, that such assessment was based on sufficient evidence. Upon
the introduction of the assessment in evidence, a prima facie case of liability on the part of taxpayer is made. If
a taxpayer files a Petition for Review in the CTA and assails the assessment, the prima facie presumption is
that the assessment made by the BIR is correct, and that in preparing the same, 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 administrative
regularity; the likelihood that the taxpayer will have access to the relevant information; and the desirability of
bolstering the record-keeping requirements of the NIRC.
However, the prima facie correctness of a tax assessment does not apply upon proof that an assessment
is utterly without foundation, meaning it is arbitrary and capricious. Where the BIR has come out with a 'naked
assessment,' i.e., without any foundation character, the determination of the tax due is without rational basis.
In such a situation, the U.S. Court of Appeals ruled that the determination of the Commissioner 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."
Accordingly, the assessment cannot be sustained since it was based merely on unverified amounts extracted
from respondent's own database.
B. Undeclared Purchases —
P9,513,394.16; and
D. Unaccounted source of cash —
P6,548,267.00;
Respondent's comparison of the purchases reflected in petitioner's SLP against the amounts declared in the
SLS per RELIEF, disclosed a difference amounting to P9,513,394.16 which was assessed with deficiency income tax
pursuant to Section 32 of the NIRC of 1997, as amended. Below is the detailed breakdown of the alleged
undeclared purchases of P9,513,394.16: 81
Registered Name Total Registered Name Gross Sales of Undeclared

Purchases Seller Purchases
TN Ramos P598,942.25 TN Ramos P4,314,875.10 P3,715,932.85
Construction and Construction and
Development Corp. Development
Corporation
Rufino Ernesto Jr. 1,312,310.75 Rufino Ernesto Jr. 3,662,607.15 2,350,296.40
Baltazar Baltazar
None - BMR Modern 867,300.00 867,300.00
Structures, Inc.
The Law Firm of (847,124.91) None - 847,124.91
QMBTI
None - Pilipinas Shell 287,175.78 287,175.78
Petroleum Corporation
None - Macquarie Capital 216,148.05 216,148.05
Securities Philippines,
Inc.
Unison Computer 2,500.00 Unison Computer 203,242.86 200,742.86
Systems, Inc. Systems, Inc.
Quartz Business 181,116.74 Quartz Business 341,755.46 160,638.72
Products Corporation Products Corporation
None - Honda Cars Makati, 133,428.25 133,428.25
Inc.
Certification 25,000.00 Certification 136,000.00 111,000.00
International International
Philippines, Inc. Philippines, Inc.
Manila Electric 68,009.41 Manila Electric 175,331.33 107,321.92
Company Company
E-Plus Stationery, Inc. 71,407.00 Eplus Stationery, Inc. 150,462.51 79,055.51
Griffin Sierra Tours, 15,920.25 Griffin Sierra Travel, 94,569.83 78,649.58
Inc. Inc.
Watson Wyatt 1,115,000.00 Watson Wyatt 1,180,000.00 65,000.00
Philippines, Inc. Philippines, Inc.
None - Integrated Computer 45,535.71 45,535.71
Systems, Inc.
None - John Clements 38,886.62 38,886.62
Consultants, Inc.
None - INAEC Aviation 36,305.50 36,305.50
Corporation
Cats Motors, Inc. 8,221.83 Cats Asian Cars, Inc. 40,247.16 32,025.33
Crown Property (31,250.00) None - 31,250.00
Apparisal Corp.
Mercury Drug 30,461.25 Mercury International 53,571.42 23,110.17
Corporation Security Printing Corp.
None - O N Asia Motors 15,776.32 15,776.32
Corporation
None - Mapfre Insular 14,906.67 14,906.67
Insurance Corporation
Lane Archive 2,567.00 Komstak, Inc. 17,421.02 14,854.02
Technologies of the
Philippines
None - Tan Ronnie 14,359.60 14,359.60
None - CT Citimotors, Inc. 8,009.24 8,009.24
Citibind Corporation 2,010.33 Citibind Corporation 9,115.62 7,105.29
Facilities Managers, (6,499.50) None - 6,499.50
Inc.
Ambassador 22,406.25 Ambassador 27,361.61 4,955.36
Appliances, Inc. Appliances, Inc.
Total P2,570,998.65 P12,084,392.81 P9,513,394.16
Likewise, respondent's verification of the expenses claimed per petitioner's Audited Financial Statements
(AFS) as against the purchases of goods by top ten thousand corporations as reported in the Alphalist of Suppliers
shows a discrepancy amounting to P6,548,267.00 which respondent treated as unaccounted source of cash and
subjected to deficiency income tax pursuant to Section 32 of the NIRC of 1997, as amended, computed as follows:
82
Purchases of Goods by Top 10T

Corp.
Per FS P9,610,152.00
Difference (P6,548,267.00)
On the other hand, petitioner contends that the assessments on undeclared purchases and unaccounted
source of cash amounting to P9,513,394.16 and P6,548,267.00, respectively, lack legal and factual bases because
these were merely based on presumptions or conclusion. The FAN-FLD did not provide any details where the
discrepancies noted by the respondent came from. In its reply to the PAN, petitioner requested from the
respondent, the basis of the assessed amounts but the respondent ignored said request.
Moreover, petitioner asserts that even assuming there were unrecorded purchases, the respondent is in error
in concluding that unrecorded purchases is equivalent to undeclared income. Without proof that petitioner realized
or received income, gain, or profit, there is no factual and legal bases to assess for undeclared income on the
ground of unaccounted income payments.
The Court cancels the subject income tax assessment items.
The three (3) elements on the imposition of income tax are: (1) there must be gain or profit, (2) that the gain
or profit is realized or received, actually or constructively, and (3) it is not exempted by law or treaty from income
tax. 83 Income tax is assessed on income received from any property, activity or service. As such, income tax is
imposed only when there is an income, and such income was received by the taxpayer and not when there is an
under declaration of purchases.
In this case, the said elements are not present. Respondent's assessment was apparently based on a mere
presumption that the alleged undeclared purchases/expenses constitute undeclared income.
For income tax purposes, a taxpayer is free to deduct from its gross income a lesser amount, or not to claim
any deduction at all. What is prohibited by the income tax law is to claim a deduction beyond the amount
authorized therein. 84
Even when taxable income is imputed on the alleged undeclared purchases or expenses in the amounts of
P9,513,394.16 and P6,548,267.00, as undeclared purchases or expenses, petitioner is also entitled to claim the
corresponding deduction in the same amounts in the nature of direct cost or operating expense. Thus, no gain or
profit would result from the transactions which can be subjected to income tax.
C. Undeclared Income —
P6,253,986.54
Respondent's reconciliation of petitioner's sales with the SLP of INAEC Aviation Corporation (INAEC) shows
that the rental income on petitioner's helicopter was not declared and only a portion of petitioner's purchases from
INAEC were declared. In addition, respondent found that petitioner had undeclared other income in the amount of
P3,000,000.00 which was assessed pursuant to Section 32 of the NIRC of 1997. 85 The details thereof are shown
below:
Undeclared Sales (INAEC Aviation Corp.) P2,885,262.00

Undeclared Income due to undeclared P405,030.04
purchases from INAEC Aviation Corp.
Less: Purchases claimed per SLP 36,305.50 368,724.54
Undeclared Other Income 3,000,000.00
Total P6,253,986.54
Petitioner contends that it does not have any form of undeclared income, and said difference is recorded as
follows: (a) undeclared rental income from INAEC Aviation Corporation amounting to P2,885,262.00 pertains to
income earned and reported in 2006. Its summary list of purchases for the year 2009 shows that there are no
purchases transactions with INAEC Aviation Corporation, (b) undeclared other income pertains to the proceeds from
the sale of transportation equipment, with P2,549,018.33 and P305,882.20 representing the book value of the
equipment and output VAT, respectively, and audit adjustment in the amount of P145,099.47. According to
petitioner, since there was no gain from the said sale, the proceeds are not subject to income tax.
The ICPA, upon examination of the working papers of petitioner's external auditors, verified that there were
no transactions with INAEC Aviation Corporation for TY 2009 in the amount of P2,885,262.00, and that there were
no purchase transactions from INAEC Aviation Corporation per SLP. On the other hand, petitioner did not submit
any supporting documents pertaining to the Other income amounting to P3,000,000.00.
The Court cancels the foregoing item of assessment.
We find that the subject assessment resulted from respondent's comparison of petitioner's sales to purchases
from INAEC Aviation Corp. as reflected in its SLS and SLP and that shown per the BIR's RELIEF System. As we have
stated earlier, without third party-certifications, the assessment resulting therefrom is without factual basis.
E. Disallowed Charitable
Contribution — P5,464,500.00
Invoking Section 34 (H) of the NIRC of 1997, as amended, respondent disallowed petitioner's claimed
donations to charitable institutions for failure to present proofs or Certificates of Donation.
Petitioner avers that all donations were properly substantiated with Certificates of Donations, in the form
prescribed by the BIR.
The Certificates of Donations (BIR Forms No. 2322) offered by petitioner are summarized as follows:
Exhibit Payee Amount

P-69 Philippine Business For Social P1,000,000.00
Progress
P-69-A Eugenio Lopez Foundation, Inc. 400,000.00
P-69-B Eugenio Lopez Foundation, Inc. 200,000.00
P-69-C Eugenio Lopez Foundation, Inc. 200,000.00
P-69-D Eugenio Lopez Foundation, Inc. 200,000.00
P-69-E Eugenio Lopez Foundation, Inc. 400,000.00
P-69-F Eugenio Lopez Foundation, Inc. 200,000.00
P-69-G Eugenio Lopez Foundation, Inc. 200,000.00
P-69-H Eugenio Lopez Foundation, Inc. 200,000.00
P-69-I Eugenio Lopez Foundation, Inc. 500,000.00
P-69-J Eugenio Lopez Foundation, Inc. 200,000.00
P-69-K Eugenio Lopez Foundation, Inc. 950,000.00
P-69-L Lopez Group Foundation, Inc. 1,563,000.00
P-69-M Lopez Group Foundation, Inc. 1,500.00
Total P6,214,500.00
It is here noted that there is a difference of P750,000.00 between the amounts of P5,464,500.00 reflected in
the Annual ITR vis-à-vis the amount of P6,214,500.00 indicated in the Certificates of Donations, showing that the
amount disallowed is more than the covered donations. As represented by petitioner, the difference pertains to
donations made in 2009 but is to be accounted for in January 2010.
Since petitioner was able to present proper documents in support of its claimed deduction for donations
amounting to P5,464,500.00, respondent's disallowance thereof must be cancelled.
F. Disallowed Representation
Expense — P3,979,609.13
Respondent found that petitioner's claimed representation expense exceeded the ceiling prescribed by law
pursuant to RR No. 10-2002, as shown below: 86
Representation expense per ITR P5,020,086.00

Gross Receipt per ITR P104,047,687.00
Rate as allowable 1%
Ceiling for Representation
Expense 1,040,476.87
Disallowed Representation
P3,979,609.13
Expense
Petitioner accounted for the breakdown of its representation expense per ITR amounting to P5,020,086.00, as
follows: 87
Representation Expense P5,020,086.00

per ITR
Details:
1. Actual Representation P2,433,949.00
Expense per RR No. 10-
2002
2. Corporate Giveaways 1,857,387.00
3. Investors Materials 285,000.00
4. Others 443,750.00 5,020,086.00
Difference -
With regard to corporate giveaways and investor materials, petitioner contends that these were essentially
marketing expenses incurred in the ordinary course of business, hence deductible in full pursuant to Section 34 (A)
(1) of the NIRC of 1997.
As correctly pointed out by the ICPA, petitioner did not provide supporting documents for its claimed
corporate giveaways and investor materials in order for this Court to verify the actual nature and tax implications of
these expenses. Likewise, no details/documents were provided pertaining to the "Others" account.
Indeed, Section 5 of RR No. 10-2002 sets the ceiling on entertainment, amusement, and recreation expense,
as follows:
"SECTION 5. CEILING ON ENTERTAINMENT, AMUSEMENT, AND RECREATION EXPENSE. — There shall
be allowed a deduction from gross income for entertainment, amusement and recreation expense, as defined
in Section 2 of these Regulations, in an amount equivalent to the actual entertainment, amusement and
recreation expense paid or incurred within the taxable year by the taxpayer, but in no case shall such
deduction exceed 0.50 percent (%) of net sales (i.e., gross sales less sales returns/allowances and sales
discounts) for taxpayers engaged in sale of goods or properties; or 1.00 percent (%) of net revenue (i.e.,
gross revenue less discounts) for taxpayers engaged in sale of services, including exercise of profession and
use or lease of properties. However, if the taxpayer is deriving income from both sale of goods/properties and
services, the allowable entertainment, amusement and recreation expense shall in all cases be determined
based on an apportionment formula taking into consideration the percentage of the net sales/net revenue to
the total net sales/net revenue, but which in no case shall exceed the maximum percentage ceiling provided in
these Regulations.
Apportionment Formula:
Net sales/net revenue x Actual Expense

–––––––––––––––––––––––––––
Total Net sales and net
revenue
Illustration: ERA Corporation is engaged in the sale of goods and services with net sales/net revenue of
P200,000 and P100,000 respectively. The actual entertainment, amusement and recreation expense for the
taxable quarter totaled to P3,000.
Ent., Amusement Allowable Amt to

& Recreation Max. be claimed as
Expense (EAR) Percentage EAR Expense
Net based on Ceiling of (whichever is
sales/Net Apportionment EAR lower of col. 2
revenue Formula* Expense** and 3)
Particulars (1) (2) (3) (4)
Sale of Goods P200,000 P2,000 P1,000 P1,000
Sale of 100,000 1,000 1,000 1,000
Services
Total P300,000 P3,000 P2,000 P2,000
*Apportionment Formula
Sale of Goods (P200,000/P300,000) x P3,000
Sale of Services (P100,000/P300,000) x P3,000
**Maximum Percentage Ceiling
Sale of Goods (P200,000 x 0.50%)
Sale of Services (P100,000 x 1%)
In the above illustration, ERA Corporation can only claim a total of P2,000 as entertainment, amusement
and recreation expense."
Guided by the afore-cited provision, petitioner can only claim a total amount of P1,040,476.87 as
representation and entertainment expense, as computed below. Thus, respondent's disallowance of petitioner's
claimed representation expense in the amount of P3,979,609.13 is upheld.
Representation Expense per ITR P5,020,086.00

Less: 1% of the gross receipts
1,040,476.87
per ITR
Disallowed Representation
P3,979,609.13
Expense
G. Disallowed Expenses —
P1,151,652,963.00
Respondent disallowed the discrepancy between certain expenses per petitioner's AFS as against those
shown in its ITR in the amount of P1,151,652,963.00, computed as follows: 88
Particulars Per FS Per ITR Difference

Salaries and Wages P545,000,000.00 P583,611,345.00 (P38,611,345.00)
Other outside
8,000,000.00 18,219,959.00 (10,219,959.00)
services
Repairs and
- 6,614,607.00 (6,614,607.00)
Maintenance
Office Supplies - 2,610,152.00 (2,610,152.00)
Interest - 1,067,075,436.00 (1,067,075,436.00)
Communication,
-
Light and Water 6,757,086.00 (6,757,086.00)
Forex losses - 19,764,378.00 (19,764,378.00)
TOTAL P553,000,000.00 P1,704,652,963.00 (P1,151,652,963.00)
In the Details of Discrepancies attached to the FLD, petitioner clearly provided the factual and legal bases of
the disallowance of the interest expense of P1,067,075,436.00. As stated therein, the "Interest expense was not
necessary and not related to your taxable income pursuant to Sec. 34 (A) (1). Per your Notes to FS #12, Long-term
debt FRCN & FXCN were used to finance acquisition of other company's shares and for debt repayment. These
funds were also used to finance your affiliates as stated in Note #20, Related Party disclosures which your
Advances to FPH Fund, FGHC International, First Philec Group amounted to P3,144,000,000 00, P2,410,000,000.00
and P969,000,000.00, respectively."
However, as to the remaining disallowed expenses, namely, salaries and wages in the amount
P38,611,345.00, other outside services in the amount of P10,219,959.00, repairs and maintenance in the amount of
P6,614,607.00, office supplies in the amount of P2,610,152.00, communication, light and water in the amount of
P6,757,086.00 and forex losses in the amount of P19,764,378.00 totalling P84,577,527.00, respondent failed to
state in the Details of Discrepancies the factual and legal bases of the disallowance of the said expenses. Hence,
the assessment on these items is void and must be cancelled and/or withdrawn pursuant to Section 228 of the NIRC
of 1997, as amended, which provides that the taxpayer shall be informed in writing of the law and the facts on
which the assessment is made; otherwise, the assessment shall be void.
With regard to the disallowed interest expense of P1,067,075,436.00, the ICPA found that the same arose
from the provisions of the Floating Rate Corporate Notes Facility Agreement (FRCN Agreement) and Fixed Rate
Corporate Notes Facility Agreement (FXCN Agreement) entered into by petitioner with BDO Capital & Investment
Corporation and Banco De Oro — ECPI, Inc. — Trust Banking Group. 89
Section 34 (B) (1) of the NIRC of 1997 provides that the amount of interest paid or incurred within a taxable
year on indebtedness in connection with the taxpayer's profession, trade or business shall be allowed as deduction
from gross income.
The term "interest" shall refer to the payment for the use or forbearance or detention of money, regardless of
the name it is called or denominated. 90
To implement Section 34 (B) (1) of the NIRC of 1997, as amended, Section 3 of RR No. 13-2000, laid down the
requisites for an interest to be deductible from gross income, listed as follows:
1. There must be an indebtedness;
2. There should be an interest expense paid or incurred upon such indebtedness;
3. The indebtedness must be that of the taxpayer;
4. The indebtedness must be connected with the taxpayer's trade, business or exercise of profession;
5. The interest expense must have been paid or incurred during the taxable year;
6. The interest must have been stipulated in writing;
7. The interest must be legally due;
8. The interest payment arrangement must not be between related taxpayers as mandated in Section 34(B)
(2), in relation to Section 36(B), both of the NIRC of 1997;
9. The interest must not be incurred to finance petroleum operations; and
10. In case of interest incurred to acquire property used in trade, business or exercise of profession, the
same was not treated as a capital expenditure.
As aptly noted by the ICPA, the interest expense incurred by petitioner met all the requirements provided
under RR 13-2000. 91 Requisites no. 1 to 3 and 6 to 8 were proven by the submission of the FRCN and FXCN
Agreements; 92 requisite no. 4 was supported by the submission of the Articles of Incorporation93 of petitioner
showing that the indebtedness was incurred in its ordinary course of business; requisites 5, 9 and 10 were
supported by Notes No. 12 (Long Term Debts) , 21 (Financial Risk Management Objectives and Policies) and 22
(Financial Instruments) of petitioner's AFS, 94 stating that the interest expense was incurred on these loan
agreements, and that the proceeds from the loan were used to acquire shares and for purposes of debt
repayments. Thus, respondent's disallowance of this item is cancelled.
H. Unaccounted Salaries and
Wages — P65,838,758.30
Respondent found a discrepancy in petitioner's claimed salaries and was as reflected in its FS/ITR and as
shown per its alphalist of employees in the amount of P65,838,758.30, as computed below. Respondent stated that
such discrepancy resulted to an under declaration of petitioner's income, thus, was assessed pursuant to Section 32
of the NIRC of 1997, as amended.
Salaries and Wages

Per ITR P422,611,345.00
Unaccounted Salaries and P65,838,758.30
Wages
As we have stated under the deficiency WTC assessment, petitioner failed to explain and substantiate the
discrepancy of P65,838,758.30, hence, the assessment thereon is sustained.
I. Expenses not subjected to EWT —
P490,133,589.97
Notably, petitioner was also assessed of the corresponding deficiency EWT for the income payments of
P490,133,589.97. Thus, based on the Court's findings under the deficiency EWT assessment (supra), petitioner
failed to withhold and remit proper taxes on the subject income payments, as follows:
Income Payments Amount

Professional Fee (15%) P13,808,629.68
Rental 1,225,510.26
Purchases of services by Top 10T
475,099,450.03
Corp.
TOTAL P490,133,589.97
Consequently, the amount of P490,133,589.97 shall be disallowed from petitioner's claimed deductible
expenses pursuant to Section 34 (K) of the NIRC of 1997, which states:

"(K) Additional Requirements for Deductibility of Certain Payments. — Any amount paid or payable
which is otherwise deductible from, or taken into account in computing gross income or for which
depreciation or amortization may be allowed under this Section, shall be allowed as deduction only if it is
shown that the tax required to be deducted and withheld therefrom has been paid to the Bureau of
Internal Revenue in accordance with this Section, Section 58 and 81 of this Code." (Emphases ours)
J. Amount carried forward for
next year — P91,576,565.00;
and
K. Unsupported Creditable
Withholding Taxes — P911,174.29
Following the computation per FLD, respondent disallowed the excess tax credits carried over to the
succeeding year in the amount of P91,576,565.00, and "Unsupported 2307" in the amount of P911,174.29 without
indicating therein the basis for the disallowance. Thus, pursuant to Section 228 of the NIRC of 1997, as amended,
the assessment on these amounts is void and must be cancelled.
Based on the foregoing, petitioner is liable for deficiency income tax for TY 2009 in the amount of
P76,409,022.22, computed as follows:
Taxable Income per Return P-

Add (Less) adjustment:
Disallowed Representation Expense P3,979,609.13
Unaccounted Salaries and Wages 65,838,758.30
Expenses not subjected to EWT 490,133,589.97 559,951,957.40
–––––––––––––––––––––––––––––––––––––
Adjusted Net income P559,951,957.40
––––––––––––––––––
Tax Due P167,985,587.22
Less: Payments
Prior Years Excess Credits P78,401,789.00
Creditable Withholding Tax (1st to 3rd
6,372,031.00
Quarters)
Creditable Withholding Tax (4th
6,802,745.00 91,576,565.00
Quarter)
–––––––––––––––––––––––––––––––––––––
================
IV. VALUE-ADDED TAX — P19,336,010.17

Respondent computed the deficiency VAT assessment as follows: 95
Sales per VAT P69,404,812.47

Add: Other Income/Adjustment
Undeclared Sales (SLS vs. RELIEF) P14,601,213.26
Undeclared Purchases (SLP vs. RELIEF) 9,513,394.16
Undeclared Service Income 44,129,345.07
Unaccounted source of cash 6,548,267.00 74,792,219.49
–––––––––––––––––––––––––––––
Total P144,197,031.96
Less: Zero-rated Sales 7,070,366.89
––––––––––––––
Total Vatable Income per Audit P137,126,665.07
Rate 12%
––––––––––––––
Output Tax per Audit P16,455,199.81
––––––––––––––
Input Tax carried over from previous
P13,682,353.12
quarter
Input Tax deferred on capital goods
exceeding
1M from previous period
Input Tax generated during the year
Purchases of Capital goods not
P385,008.72
exceeding 1M
Purchases of Capital goods exceeding
1M 308,702.02
Goods other than Capital Goods 538,113.14

Services rendered by Non-resident 358,250.08
Domestic Services 8,809,989.69
––––––––––––
Total Domestic Purchases 10,400,063.65
––––––––––––––
Total P24,082,416.77
Less: Input tax carried over to
17,808,579.00
succeeding year
––––––––––––––
INPUT TAX PER AUDIT P6,273,837.77
––––––––––––––
P9,104,648.13
07.15.2014)
––––––––––––––––––––––––––––
TOTAL DEFICIENCY VAT P19,336,010.17
============
As can be seen from the above computation, the assessment arose from the following items:
a. Undeclared Sales (SLS vs. P14,601,213.26

RELIEF)
b. Undeclared Purchases (SLP vs. 9,513,394.16
RELIEF)
c. Undeclared Service Income 44,129,345.07
d. Unaccounted source of cash 6,548,267.00
e. Input tax carried over to 17,808,579.00
succeeding year
a. Undeclared Sales (SLS vs. RELIEF) — P14,601,213.26

b. Undeclared Purchases (SLP vs. RELIEF) — P9,513,394.16
Based on the same findings under the deficiency income tax assessment (supra), the deficiency VAT
assessment on the alleged undeclared sales of P14,601,213.26 and undeclared purchases of P9,513,394.16
resulted from respondent's comparison of petitioner's data per its SLS and SLP with third-party information per the
BIR's RELIEF System.
As we have discussed earlier, without third-party certifications as to the amounts reflected per the BIR RELIEF
System, the assessment must be cancelled for lack of factual basis.
Moreover, as to the undeclared purchases, it must be emphasized that under Section 106 (A) of the NIRC of
1997, as amended, VAT is imposed on the "gross selling price or gross value in money of the goods or properties
sold, bartered or exchanged, such tax to be paid by the seller or transferor."
Also, under Section 108 of the NIRC of 1997, as amended, VAT is imposed on the "gross receipts derived from
the sale or exchange of services." Significantly, the law defines "gross receipts" as: "x x x the total amount of
money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the
amount charged for materials supplied with the services and deposits and advanced payments actually or
constructively received during the taxable quarter for the services performed or to be performed for another
person, excluding value-added tax."
Clearly, VAT can be imposed only when it is shown that the taxpayer received an amount of money or its
equivalent from its sale, barter or exchange of goods or properties, or from sale or exchange of services, and not
when there are undeclared purchases.
c. Undeclared Service Income —
P44,129,345.07
Respondent found that petitioner had undeclared service income amounting to P44,129,345.07, as computed
below, which was assessed with deficiency VAT pursuant to Section 106 of the NIRC of 1997, as amended,
computed as follows:
Management fees P70,077,982.00

Rental income 33,969,705.00
Scrap sales 8,607.00
Sales commission 3,223,877.00
Total P107,280,171.00
Add: Other Income
Undeclared Income from Inaec Aviation
Corp. P2,885,262.00
Undeclared Income due to undeclared
purchases from Inaec Aviation Corp. 368,724.54
Undeclared Other Income
(Proceeds on sale of Transportation
Equipment) 3,000,000.00 6,253,986.54
Total P113,534,157.54
Less: Amount subjected to VAT 69,404,812.47
Undeclared service income P44,129,345.07
Petitioner contends that it does not have any form of undeclared service income and accounts for the noted
discrepancies as follows:
a. The alleged undeclared management fees, rental income and sales commission in the amounts of
P45,335,714.40, P5,718,354.88, and P3,223,877.00 pertained to income that were accrued in 2009 but was
uncollected.
b. The service income in the amount of P2,885,262.00 from INAEC Aviation Corporation was not
subjected to VAT since the service (i.e., lease of aircraft) is VAT-exempt.
c. Petitioner does not have undeclared income due to undeclared purchases from INAEC Aviation
Corporation in the amount of P368,724.54.
d. The undeclared income of P3,000,000.00 actually pertains to the proceeds from the sale of
transportation equipment, with P2,549,018.33 and P305,882.20 representing the return of capital and output
VAT, respectively.
The ICPA verified that the undeclared management fees amounting to P44,800,000.00 pertains to accruals for
2009 which remained uncollected as of the close of the year, recorded as follows: 96
Date Ref Description Amount

12/31/2009 GJ09-12-000055 To take up accrual of P44,800,000.00
FPIP management fee
for CY 2009
The excess of P535,714.40 97 was not explained by the petitioner.

The ICPA's findings show that the sales commission amounting to P3,223,877.00 pertains to accrual for 2009
which were uncollected as of the close of the year, recorded as follows: 98
Date Ref Description Amount

12/31/2009 GJ09-12- To set up receivable from FPIP on P3,223,877.06
000079 sales commission as of
December 31, 2009
However, the ICPA was not able to verify the remaining items as they were not provided with documents to
corroborate the same.
The Court partially upholds the assessment.
In the old case of Consolidated Mines, Inc. vs. Court of Tax Appeals , 99 the Supreme Court explained the
nature of books of account, i.e., general ledgers, as evidence. Thus:
"A 'ledger' is a book of accounts in which are collected and arranged, each under its appropriate head,
the various transactions scattered throughout the journal or daybook, land is not a 'book of original entries,'
within the rule making such books competent evidence. First Nat. Building Co. v. Vanderberg, 119 P 224, 227;
29 Okl. 583.
Code Iowa, No. 3658, providing that 'books of account' are receivable in evidence, etc., means a book
containing charges, and showing a continuous dealing with persons generally. A book, to be admissible, must
be kept as an account book, and the charges made in the usual course of business. Security Co. v. Graybeal,
52 NW 497, 85 Iowa 543, 39 Am St Rep 311.
Books of account may therefore be admissible under the rule. In tax cases, however, this Court appears
not to place too high a probative value on them, considering the statement in the case of Collector of Internal
Revenue v. Reyes that "books of account do not prove per se that they are veracious; in fact they may be
more consistent than truthful." Indeed, books of account may be used to carry out a plan of tax evasion.
(Underscoring supplied)
In the foregoing case, the Supreme Court provided that in tax cases, books of accounts do not proveper se
that they are reliable such that it may be given high probative value. In fact, mere presentation of these books of
account without the presentation of its supporting documents may even be used to carry out plans for tax evasion.
Thus, entries in these schedules, general listings and general ledgers may not be given probative value by the
Court, unless the supporting documents thereto are presented. Consequently, considering that said pieces of
evidence cannot be given any probative value, it follows that petitioner failed to prove that it has no undeclared
service income.
Nonetheless, even if the Court consider these schedules and journal entries as evidence tending to prove that
petitioner has no undeclared income; still, petitioner failed to discharge the burden of proving the fact of why the
said income is not subject to VAT.
Here, petitioner likewise failed to present to the Court any official receipts or subsequent journal entries
supporting the subject of the assessment to establish the movement of the alleged accrued service income. With no
basis for determining the nature and terms of the undeclared management fees, rental income and sales
commission and for failure to disprove the existence of undeclared income, the subject assessment shall be upheld
except for the amount of P6,253,986.54, which pertains to the following:
Undeclared income from Inaec

Aviation Corp. P2,885,262.00
Undeclared Income due to undeclared
purchases from Inaec Aviation Corp. 368,724.54
Undeclared Other Income
(Proceeds on sale of Transportation
Equipment) 3,000,000.00
P6,253,986.54
As stated under the deficiency income tax assessment (supra), the amount of P6,253,986.54 resulted from
respondent's comparison of petitioner's sales to and purchases from INAEC Aviation Corp. as reflected in its SLS and
SLP and that shown per the BIR's RELIEF System. As we have stated earlier, without third party-certifications, the
assessment resulting therefrom is without factual basis.
v. Excess Input Tax Carried Over to
Succeeding Quarter —
P17,808,579.00
In arriving at the deficiency VAT assessment, respondent deducted the input tax carried over to succeeding
year in the amount of P17,808,579.00 from the total allowable input VAT without providing the basis for such
deduction or disallowance. Hence, pursuant to Section 228 of the NIRC of 1997, such disallowance/assessment is
considered void and must be cancelled.
Although the assessment for the 1st and 2nd quarters of TY 2009 had already prescribed, petitioner was
unable to point out which portion of the assessment pertains thereto, hence, the entire VAT assessment shall be
considered as pertaining to the 3rd and 4th quarters of TY 2009.
Thus, petitioner is not liable to pay deficiency VAT since the input VAT per re-computation in the amount of
P24,853,057.02 is more than enough to cover the output tax amounting to P12,731,407.93, as shown below:
Sales per VAT P69,404,812.47

Add: Other Income/Adjustment
Undeclared Service Income P44,129,345.07
–––––––––––––––
Less: 6,253,986.54 37,875,358.53
–––––––––––––––
Total P107,280,171.00
Less: Zero-rated Sales 7,070,366.89
–––––––––––––––
Total Vatable Income per Audit P100,209,804.11
Rate 12%
–––––––––––––––
Output Tax P12,025,176.49
Input Tax carried over from previous
P13,682,353.17
quarter
Input Tax deferred on capital goods
4,620,718.12
exceeding 1M from previous period
Input Tax generated during the year
Purchases of Capital goods not
P385,008.72
exceeding 1M
Purchases of Capital goods exceeding
308,702.02
1M
Goods other than Capital Goods 538,113.14
Services rendered by Non-resident 358,250.08
Domestic Services 8,809,989.69
––––––––––––
Total Domestic Purchases 10,400,063.65
–––––––––––––––
Total P28,703,134.94
Less: Input Tax on Capital Goods
exceeding 1 million deferred for the 3,850,077.92
succeeding period
–––––––––––––––
Input Tax P24,853,057.02
–––––––––––––––
TOTAL VAT PAYABLE
(P12,827,880.53)
(OVERPAYMENT)
=============
V. FRINGE BENEFITS TAX — P837,906.06

Respondent's verification of petitioner's FBT account disclosed a discrepancy in the computation of FBT for the
first quarter of 2009. Hence, pursuant to Section 80 (A) of the NIRC of 1997, respondent assessed petitioner of
deficiency FBT for the first quarter of 2009 in the amount of P837,906.06, computed as follows: 100
Transportation and Travel P6,186,259.00

Other Benefits 696,864.55
––––––––––––––––
Total P6,883,123.55
Divisor 0.68
––––––––––––––––
Gross Up P10,122,240.51
Tax rate 0.32
––––––––––––––––
Tax due P3,239,116.96
Less: Tax paid 2,806,472.44
––––––––––––––––
Amount still due
Add: Interest (Computed up to P432,644.52
P389,261.54
07.15.2014)
Compromise Penalty 16,000.00 405,261.54
––––––––––––––––––––––––––––––
TOTAL DEFICIENCY FBT P837,906.06
===========
Since the assessment for the first and second quarters of TY 2009 is declared invalid due to prescription, the
deficiency FBT assessment of P837,906.06 covering the first quarter of 2009 is cancelled.
VI. DOCUMENTARY STAMP TAX — P499,765,854.42
Respondent's verification disclosed that petitioner failed to pay the corresponding DST on advances due to
and from affiliates and subsidiaries and Lease contracts in accordance with Sections 194 and 179 of the NIRC of
1997, as amended, shown as follows: 101
Nature Amount Rate Tax Due

Deposit for future subscription P5,300,000,000.00 1/200 P26,500,000.00
Advances to landowners 88,000,000.00 1/200 440,000.00
Short Term Loan 11,205,000.00 1/200 56,025.00
Advances to subsidiaries 6,781,000,000.00 1/200 33,905,000.00
Advances from subsidiaries 27,975,000,000.00 1/200 139,875,000.00
Advances from FGHC 6,262,461.63 1/200 31,312.31
Lease Contract 22,637,467.20 1/1000 22,638.47
Long Term Debts 11,675,000,000.00 1/200 58,375,000.00
Issuance of stocks
Common 594,326,513.00 1/200 2,971,632.57
Preferred 63,000,000.00 1/200 315,000.00
–––––––––––––––– –––––––––––––
Total P52,516,431,441.83 P262,491,608.34
Less: Payment –––––––––––––––– 188,744.00
–––––––––––––
Tax Still Due P262,302,864.34
P237,437,990.08
07.15.2014)
–––––––––––––––––––––––––––––––––––––––––––––––
TOTAL DEFICIENCY DST P499,765,854.42
============
DST is a tax on documents, instruments, loan agreements, and papers evidencing the acceptance,
assignment, sale or transfer of an obligation, right or property incident thereto. DST is actually an excise tax
because it is imposed on the transaction rather than on the document. 102 DST is also levied on the exercise by
persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships
through the execution of specific instruments. 103
a. Deposit for future subscription —
P5,300,000,000.00
In the case of Commissioner of Internal Revenue vs. First Express Pawnshop Company, Inc., 104 the Supreme
Court ruled that deposits on future subscription of shares of stock are not subject to DST for the reason that there is
yet no subscription that creates rights and obligations between the subscriber and the corporation, to wit:
"In Section 175 of the Tax Code, DST is imposed on the original issue of shares of stock. The DST, as an
excise tax, is levied upon the privilege, the opportunity and the facility of issuing shares of stock. In
Commissioner of Internal Revenue v. Construction Resources of Asia, Inc., 105 this Court explained that the DST
attaches upon acceptance of the stockholder's subscription in the corporation's capital stock regardless of
actual or constructive delivery of the certificates of stock. Citing Philippine Consolidated Coconut Ind., Inc. v.
Collector of Internal Revenue, 106 the Court held:
The documentary stamp tax under this provision of the law may be levied only once, that is
upon the original issue of the certificate. The crucial point therefore, in the case before Us is the
proper interpretation of the word 'issue.' In other words, when is the certificate of stock deemed
'issued' for the purpose of imposing the documentary stamp tax? Is it at the time the certificates of
stock are printed, at the time they are filled up (in whose name the stocks represented in the
certificate appear as certified by the proper officials of the corporation), at the time they are
released by the corporation, or at the time they are in the possession (actual or constructive) of the
stockholders owning them?
xxx xxx xxx
Ordinarily, when a corporation issues a certificate of stock (representing the ownership of
stocks in the corporation to fully paid subscription) the certificate of stock can be utilized for the
exercise of the attributes of ownership over the stocks mentioned on its face. The stocks can be
alienated; the dividends or fruits derived therefrom can be enjoyed, and they can be conveyed,
pledged or encumbered. The certificate as issued by the corporation, irrespective of whether or not
it is in the actual or constructive possession of the stockholder, is considered issued because it is
with value and hence the documentary stamp tax must be paid as imposed by Section 212 of the
National Internal Revenue Code, as amended.
xxx xxx xxx
Revenue Memorandum Order No. 08-98 (RMO 08-98) provides the guidelines on the corporate stock
documentary stamp tax program. RMO 08-98 states that:
"1. All existing corporations shall file the Corporation Stock DST Declaration, and the DST
Return, if applicable when DST is still due on the subscribed share issued by the
corporation, on or before the tenth day of the month following publication of this Order.
xxx xxx xxx
3. All existing corporations with authorization for increased capital stock shall file their
Corporate Stock DST Declaration, together with the DST Return, if applicable when DST is due on
subscriptions made after the authorization, on or before the tenth day of the month following
the date of authorization. (Boldfacing supplied)
RMO 08-98, reiterating Revenue Memorandum Circular No. 47-97 (RMC 47-97), also states that what is
being taxed is the privilege of issuing shares of stock, and, therefore, the taxes accrue at the time the shares
are issued. RMC 47-97 also defines issuance as the point in which the stockholder acquires and may exercise
attributes of ownership over the stocks.
As pointed out by the CTA, Sections 175 and 176 of the Tax Code contemplate a subscription agreement
in order for a taxpayer to be liable to pay the DST. A subscription contract is defined as any contract for the
acquisition of unissued stocks in an existing corporation or a corporation still to be formed. A stock subscription
is a contract by which the subscriber agrees to take a certain number of shares of the capital stock of a
corporation, paying for the same or expressly or impliedly promising to pay for the same.
Based on Note 7 of the Audited Financial Statements, 107 petitioner contributed P5.3 billion or approximately
US$110.1 million by way of deposit for future subscription. There was no agreement to subscribe to the unissued
shares. Here, the deposit on stock subscription refers to an amount of money received by the corporation as a
deposit with the possibility of applying the same as payment for the future issuance of capital stock. In
Commissioner of Internal Revenue v. Construction Resources of Asia, Inc., 108 the Supreme Court held:
"We are firmly convinced that the Government stands to lose nothing in imposing the documentary
stamp tax only on those stock certificates duly issued, or wherein the stockholders can freely exercise the
attributes of ownership and with value at the time they are originally issued. As regards those certificates of
stocks temporarily subject to suspensive conditions they shall be liable for said tax only when released from
said conditions, for then and only then shall they truly acquire any practical value for their owners."
The deposit on stock subscription is merely an amount of money received by a corporation with a view of
applying the same as payment for additional issuance of shares in the future, an event which may or may not
happen. The person making a deposit on stock subscription does not have the standing of a stockholder and he is
not entitled to dividends, voting rights or other prerogatives and attributes of a stockholder. Hence, petitioner is not
liable for the payment of DST on its deposit on subscription for the reason that there is yet no subscription that
creates rights and obligations between the subscriber and the corporation.
Clearly, petitioner is not liable for the payment of DST on its deposit for future subscription. Thus,
respondent's assessment thereon is cancelled.
b. Advances to landowners —
P88,000,000.00
Per Note 10 of petitioner's AFS 109 for TYs 2009 and 2008, the assessed "Advances to landowners" in the
amount of P88,000,000.00 actually pertains to transactions entered into by petitioner in 2008. Thus, it was
erroneous on the part of respondent to assess petitioner of deficiency DST thereon for such is beyond the scope of
the present assessment. Accordingly, respondent's deficiency DST assessment on the amount of P88,000,000.00 is
cancelled.
c. Lease Contract — P22,637,467.20
Petitioner avers that the DST on the Lease Contract shall be for the account of the seller/lessee; hence it shall
not be liable.
However, petitioner did not submit the related Lease Contract for the Court to verify the same. Neither is
there any showing that petitioner has legal basis for claiming that it is not liable to DST. Thus, the assessment on
this item is upheld.
d. Short Term Loan —
P11,205,000.00
Petitioner contends that this pertains to a short term loan obtained by its subsidiary First Philippine Utilities
Corporation (FPUC) from Metro Pacific Investments Corporation (MPIC).
Per Note 7 of the AFS, 110 under Significant Transactions and Information on Certain Investees, it was also
stated that this was covered by a Promissory Note and Pledge Agreement between FPUC and MPIC whereby the
former unconditionally promises to pay the latter the principal amount of P11,205,000,000.00 on or before June 30,
2010 at an interest rate of 5% per annum. The loan is collateralized by the remaining 30,093,270 shares of
MERALCO held by FPUC and 138,357,600 common shares of First Gen Corporation owned by FGHC International,
both are subsidiaries of the petitioner.
Since the petitioner is not a party to the loan agreement, it is incorrect to assess the petitioner for DST on the
said short term loan. Hence, this assessment is cancelled.
e. Advances to subsidiaries —
P6,781,000,000.00
f. Advances from subsidiaries —
P27,975,000,000.00
It was disclosed in the Notes to the AFS that these Advances to and from subsidiaries represent non-interest
bearing and unsecured peso-denominated loans to meet working capital and investments requirements. 111 The
petitioner did not submit other information and documents to substantiate the same. Thus, for failure to refute the
BIR's findings, these items of assessment are upheld.
g. Advances from FGHC —
P6,262,461.63
Petitioner maintains that advances from FGHC are not subject to DST since no written paper was signed and
delivered by it to give right to debt. However, the Court cannot determine the nature of the transaction since
petitioner did not provide any supporting documents for the advances from FGHC amounting to P6,262,461.63.
Hence, this assessment remains.
h. Long Term Debts —
P11,675,000,000.00
Petitioner avers that these long term debts pertain to Floating Rate Corporate Notes (FRCN) Facility
Agreement and Fixed Rate Corporate Notes (FXCN) Facility Agreement issued in the year 2007, hence should not be
covered by the current audit period assessment. It also contends that the DST on these agreements was already
paid upon its execution.
Petitioner did not present any DST proof of payment on the agreements. However, a perusal of the FRCN and
FXCN Facility Agreements 112 shows that these were executed on October 25, 2007 and March 28, 2007,
respectively. Hence, the assessments on the long-term debts are invalid for being beyond the scope of the present
assessment.
i. Issuance of Common stocks —
P594,326,513.00
j. Issuance of Preferred stocks —
P63,000,000.00
Petitioner avers that the amounts lifted by the BIR for the Common Stocks Issuance and Preferred Stocks
Issuance pertain to previous taxable years wherein the beginning balance of the outstanding common stock as
indicated in the 2009 AFS was considered in arriving at the amount for the Common Stocks Issuance. While
preferred stocks issued during the years 2007 and 2008 were picked up for the Preferred Stocks Issuance.
Petitioner claims that for the issuances occurred during the year 2009, the corresponding DST has already been
paid.
As a rule, original issuance of shares is subject to DST of P1.00 on each P200 or a fractional part thereof, of
the par value of the shares. In case of shares without par value, the amount of DST is based on the actual
consideration for the issuance of such shares. DST is imposed on the privilege of issuing shares of stock. The shares
are considered issued upon the acquisition of the stockholder of the attributes of ownership over the shares. The
entire shares of stock subscribed are considered issued for purposes of the DST, even if not fully paid. Likewise, the
obligation to pay the DST attaches upon acceptance of the stockholder's subscription in the capital stock of a
corporation regardless of the physical issuance and delivery to the stockholder of the certificate of stock. In the
case of Commissioner of Internal Revenue vs. Construction Resources of Asia, Inc. and the Court of Tax Appeals, 113
the Supreme Court held that the delivery of the certificates of stock to the stockholders, whether actual or
constructive, is not essential for the DST to attach. Moreover, receipt of dividends and sale of shares have their own
tax implications.
In this regard, the assessment should include those subscribed during the year 2009 regardless of whether
they were issued or not. Upon examination of Notes 13 and 14 of the AFS, the beginning balances of common
shares and preferred shares issued prior to the year 2009 were considered in the amount sought to be assessed for
DST subscription both for common stocks and preferred stocks. Issuances for common stocks amount to
P39,892,180.00, 114 while there was no subscribed nor issued preferred stocks during the year 2009. Petitioner
submitted its DST Declarations/Returns (BIR Form No. 2000) as proof of the remittances of the DST for the shares of
common stocks issued of 3,989,218.00. 115 Thus, the DST assessment pertaining thereto must be cancelled.
Based on the foregoing, the petitioner shall be liable for deficiency DST in the total amount of
P173,645,205.78, computed as follows:
Nature Amount Rate Tax Due

Advances
to P6,781,000,000.00 1/200 P33,905,000.00
subsidiaries
Advances
from 27,975,000,000.00 1/200 139,875,000.00
subsidiaries
Advances 6,262,461.63 1/200 31,312.31
from FGHC
Lease
22,637,467.20 1/1000 22,637.47
Contract
Total P34,784,899,928.83 P173,833,949.78
Less:
188,744.00
Payment
Tax Still
P173,645,205.78
Due

VII. COMPROMISE PENALTIES — P191,000.00
Respondent imposed compromise penalties in the total amount of P191,000.00 against petitioner for its
failure to file and/or pay an internal revenue tax at the time or times required by law or regulation pursuant to
Section 255 of the NIRC of 1997, as amended, as determined using the schedule of suggested compromise
penalties prescribed under Revenue Memorandum Order (RMO) No. 19-2007, broken down as follows: 116
IT P50,000.00
VAT 50,000.00
EWT 25,000.00
WTC 25,000.00
FBT 16,000.00
DST 25,000.00
Total P191,000.00
It must be stressed that a compromise penalty is imposed to avoid prosecution for violation of the provisions
of the NIRC of 1997. 117 Under RMO No. 01-90, as amended by RMO No. 19-2007, compromise penalties are only
amounts suggested in settlement of criminal liability, and may not be imposed or exacted on a taxpayer in the
event that a taxpayer refuses to pay the same. Clearly, the compromise penalty implies a mutual agreement
between the parties in respect to the thing or subject matter which is so compromised. The imposition of the same
without the conformity of the taxpayer is illegal and unauthorized. 118
Since there is nothing in the records which would show that petitioner consented to the compromise penalties
assessed for all the deficiency taxes, the compromise penalties in the total amount of P191,000.00 cannot be
sustained.
WHEREFORE, in light of the foregoing considerations, the Petition for Review is PARTIALLY GRANTED .
Accordingly, the assessments issued by respondent against petitioner for TY 2009 covering deficiency VAT and FBT
are CANCELLED and SET ASIDE.
On the other hand, the deficiency IT, EWT, WTC, and DST assessments for TY 2009 areAFFIRMED but with
modifications. Accordingly, petitioner should be ORDERED TO PAY respondent the aggregate amount of
P1,214,705,419.96, inclusive of the 25% surcharge, 20% deficiency interest, and 20% delinquency interest
imposed under Sections 248 (A) (3), 249 (B) and (C) of the NIRC of 1997, as amended, computed until December
31, 2017, as follows:
IT EWT WTC DST Total

Basic Tax P76,409,022.22 P11,634,558.97 P19,948,611.70 P173,645,205.78 P281,637,398.67
Add: 25%
19,102,255.56 2,908,639.74 4,987,152.93 43,411,301.45 70,409,349.68
Surcharge
Add: 20%
Deficiency
Interest
IT: from Apr. 16,
2010 to July 15,
2014
64,979,069.85 64,979,069.85
(P76,409,022.22
x 20% x
1,552/365 days)
EWT: from Jan.
12, 2010 to July
15, 2014
10,493,415.93 10,493,415.93
(P11,634,558.97
x 20% x
1,646/365 days)
WTC: from Jan.
12, 2010 to July
15, 2014
17,992,008.14 17,992,008.14
(P19,948,611.70
x 20% x
1,646/365 days)
DST: from Jan.
12, 2010 to July
15, 2014
156,613,703.40 156,613,703.40
(P173,645,205.78
x 20% x
1,646/365 days)
Total Amount
Due as of July P160,490,347.63 P25,036,614.64 P42,927,772.77 P373,670,210.63 P602,124,945.67
15, 2014
Add: 20%
Deficiency
Interest from July
16, 2014 to Dec.
195,217,155.79
31, 2017
(P281,637,398.67
x 20% x
1,265/365 days)
Add: 20%
Delinquency
Interest from July
16, 2014 to Dec.
31, 2017 417,363,318.50
(P602,124,945.67
x 20% x
1,265/365 days)
Total Amount
Due as of Dec. P1,214,705,419.96
31, 2017
In addition, petitioner should be ORDERED TO PAY respondent delinquency interest at the rate of twelve
percent (12%) on the total unpaid deficiency taxes due of P602,124,945.67 as of July 15, 2014, 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 No. 10963, also known as Tax Reform for Acceleration and Inclusion (TRAIN), as
implemented by RR No. 21-2018.
SO ORDERED.
(SGD.) CIELITO N. MINDARO-GRULLA

Associate Justice
Juanito C. Castañeda, Jr. and Jean Marie A. Bacorro-Villena, JJ., concur.
Footnotes
1.Summary of the Case, Pre-Trial Order dated August 18, 2015, Docket — Vol. I, p. 414.
2.Par. 1, Summary of Admitted Facts, Joint Stipulation of Facts & Issues (JSF), Docket — Vol. I, p. 394.
3.Par. 4, Petition for Review, vis-à-vis Par. 1, Answer, pp. 7 and 340, respectively; Par. 2, JSF, Docket — Vol. I, p. 395.
4.Exhibit "P-1", Docket — Vol. II, p. 769.
5.Par. 3, Summary of Admitted Facts, JSF, Docket — Vol. I, p. 395.

6.Par. 4, Summary of Admitted Facts, JSF, Docket — Vol. I, p. 395.
7.Par. 4.1, Summary of Admitted Facts, JSF, Docket — Vol. I, p. 395; Exhibit "P-7", Docket — Vol. II, pp. 881 to 882.
11.Par. 5, Summary of Admitted Facts, JSF, Docket — Vol. I, p. 395; Exhibit "P-2", Docket — Vol. II, pp. 770 to 780.
12.Exhibit "P-3", Docket — Vol. II, pp. 781 to 796.

13.Par. 6, Summary of Admitted Facts, JSF, Docket — Vol. I, pp. 395 to 396; Exhibit "P-4", Docket — Vol. II, pp. 797 to 813.
16.Docket — Vol. I, pp. 106 to 128.
17.Respondent's Compliance dated May 28, 2015, Docket — Vol. I, pp. 350 to 351.
18.Notice of Pre-Trial Conference dated May 22, 2015, Docket — Vol. I, pp. 348 to 349; Minutes of the hearing held on, and
Resolution dated, July 9, 2015, Docket — Vol. I, pp. 381 and 384, respectively.

22.Minutes of the Hearing held on July 9, 2015, Docket — Vol. I, p. 381; Resolution dated July 9, 2015, Docket — Vol. I, p.
384.

25.Exhibit "P-57", Docket — Vol. I, pp. 424 to 439; Minutes of the hearing held on, and Resolution dated, September 7,
2015, Docket — Vol. II, pp. 731 to 732, 733.
26.Exhibit "P-58", Docket — Vol. II, pp. 582 to 597; Minutes of the hearing held on, and Resolution dated, September 7,
27.Exhibit "P-59", Docket — Vol. II, pp. 720 to 730; Minutes of the hearing held on, and Resolution dated, September 7,
28.Docket — Vol. II, pp. 751 to 768.


31.Exhibit "R-6", Docket — Vol. II, pp. 1027 to 1030; Minutes of the hearing held on May 4, 2016, Docket — Vol. III, pp. 1052
to 1053; Resolution dated May 23, 2016, Docket — Vol. III, pp. 1055 to 1057.
32.Minutes of the hearing held on May 4, 2016, Docket — Vol. III, pp. 1052 to 1053; Resolution dated May 23, 2016, Docket
— Vol. III, pp. 1055 to 1057.
33.Docket — Vol. III, pp. 1072 to 1115.



39.Docket — Vol. III, p. 1179.

42.Docket, Vol. III, pp. 1217 to 1220.
43.Minutes of the Hearing held on June 14, 2017, Docket — Vol. III, pp. 1362 to 1363.
44.Exhibit "P-5006", Docket — Vol. IV, pp. 1416 to 1435; Minutes of the hearing held on July 31, 2017, Docket — Vol. IV, p.
1787; Order dated August 16, 2017, Docket — Vol. IV, p. 1788.
45.Exhibit "P-5007", Docket — Vol. IV, pp. 1392 to 1397; Minutes of the hearing held on July 31, 2017, Docket — Vol. IV, p.
1787; Order dated August 16, 2017, Docket — Vol. IV, p. 1788.
46.Exhibit "P-300", Docket — Vol. IV, pp. 1820 to 1843; Minutes of the hearing held on September 13, 2017, Docket — Vol.
IV, p. 1847; Order dated August 16, 2017, Docket — Vol. IV, p. 1788.
47.ICPA Report dated July 31, 2017.
48.Exhibit "P-51", Amended ICPA Report dated August 31, 2017.
49.Docket — Vol. V, pp. 1876 to 1887.

50.Resolution dated November 27, 2017, Docket — Vol. V, pp. 2115 to 2117.
51.Docket — Vol. V, pp. 2124 to 2127.

52.Docket — Vol. V, pp. 2172 to 2178.
53.Minutes of the hearing held on June 23, 2018, Docket — Vol. V, p. 2177; Order dated July 23, 2018, Docket — Vol. V, p.
2178.
54.Docket — Vol. V, pp. 2184 to 2187.
55.Docket — Vol. V, pp. 2195 to 2201.

56.Docket — Vol. V, pp. 2203 to 2249.
57.Docket — Vol. V, pp. 2269 to 2270.

58.Docket — Vol. V, pp. 2303 to 2374.
59.Docket — Vol. V, p. 2377.
60.Resolution dated October 16, 2018, docket, Vol. III, p. 1779.

61.Pars. 1 to 10, Issues to be Resolved, JSF, Docket — Vol. I, pp. 396 to 397.
62.Par. 1, JSF, Docket — Vol. I, p. 397.

63.Referring to Commissioner of Internal Revenue vs. Filinvest Development Corporation , G.R. Nos. 163653 and 167689
dated July 19, 2011.

65.Docket — Vol. V, pp. 2203 to 2249.

67.Exhibit "P-4", Details of Discrepancies, Schedule 8, Docket — Vol. II, p. 802.
68.Exhibit "P-77", Table 6.15, p. 17.

69.Exhibits "P-89-1" to "P-89-65".
70.Exhibit "P-82".
71.Exhibits "P-90-1" and "P-90-2".

72.Exhibits "P-90-1" and "P-90-2".
73.Exhibit "P-91".
74.Exhibit "P-77", Annexes 3, 3-I, 3-2 and 3-3.
76.Exhibit "P-4, Details of Discrepancies, Schedule 7, Docket — Vol. II, p. 801.

77.Exhibit "P-77", p. 16, Table 6.14.

79.Exhibit "P-2", Details of Discrepancies, Schedule 1, Docket — Vol. II, pp. 778 to 779.
80.G.R. No. 136975, March 31, 2005.

81.Exhibit "P-2", Schedule 2.
83.Commissioner of Internal Revenue vs. Court of Appeals, et al., G.R. No. 108576, January 20, 1999.
84.The Commissioner of Internal Revenue vs. Phoenix Assurance Co., Ltd., G.R. No. L-19727, May 20, 1965.

87.Exhibit "P-77", Table 6.7, p. 13.

89.Exhibits "P-5004" and "P-5005", Docket — Vol. V, pp. 1985 to 2110.
90.BIR Ruling No. 196-03 dated 20 June 2003.

91.Exhibit "P-77", Table 6.13, p. 15.

93.Exhibit "P-78-1".
94.Exhibit "P-67", Docket — Vol. V, pp. 1926 to 1928 and 1936 to 1944.
95.Exhibit "P-4", Docket, Vol. II, p. 798.
96.Exhibit "P-77", Table 6.18, p. 20.
97.(P45,335,714.40 – P44,800,000.00).
98.Exhibit "P-77", Table 6.19, p. 20.
99.G.R. Nos. L-18843 and L-18844, 29 August 1974.

100.Exhibit "P-4", Docket — Vol. II, pp. 799 and 803.

102.Section 173, 1997 Tax Code; De Leon and De Leon, The National Internal Revenue Code Annotated, 8th ed., Volume 2
(2003). See also Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal Revenue , G.R. No. 166786, 3 May
2006, 489 SCRA 147, 152-153.
103.Philippine Home Assurance Corporation v. Court of Appeals, 361 Phil. 368, 372-373 (1999).
104.G.R. Nos. 172045-46, June 16, 2009.
105.230 Phil. 76, 80-81 (1986).

106.162 Phil. 32 (1976).
107.Exhibit 85, p. 21.

108.230 Phil. 76, 80-81 (1986).
109.Exhibit "P-67", p. 25, Docket — Vol. V, p. 1925.
110.Exhibit "P-67", p. 22, Docket — Vol. V, p. 1922.

111.Exhibit "P-67", Note 20, p. 35, Docket — Vol. V, p. 1935.

113.G.R. No. L-68230 dated November 25, 1986.
114.3,989,218 number of shares at P10 par value per share.

115.Exhibits "P-93-1" to "P-93-54".
117.The Philippines International Fair, Inc. vs. The Collector of Internal Revenue, et al., G.R. Nos. L-12928 and L-12932,
March 31, 1962.
118.Commissioner of Internal Revenue vs. Lianga Bay Logging Co., Inc., et al., G.R. No. L-35266, January 21, 1991.

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SECOND DIVISION

[C.T.A. CASE NO. 8991. December 17, 2019.]

FIRST PHILIPPINE HOLDINGS CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL

The foregoing tax deficiencies were explained as follows:

CD Technologies Asia, Inc. © 2021 cdasiaonline.com

P-69-J Certificate of Donation No. D043-061-2009

P-5001 FPH's Articles of Incorporation

Tax Type Total

I. DEFICIENCY EWT — P22,253,254.71

Amount Rate Tax Due

Per ITR/FS P67,713,223.00

CD Technologies Asia, Inc. © 2021 cdasiaonline.com

Income Payments Amount Rate EWT Due

II. DEFICIENCY WTC — P37,921,896.86

Unaccounted Salaries and Wages P65,838,758.30

Respondent computed the unaccounted salaries and wages as follows: 76

Salaries and Wages

CD Technologies Asia, Inc. © 2021 cdasiaonline.com

Salaries and Wages per ITR P453,174,482.00

Taxable income per return P-

Add: Interest (Computed up to

A. Undeclared Sales (SLS vs. TPI-

J. Amount carried forward for next

Registered Name Total Registered Name Gross Sales of Undeclared

Purchases of Goods by Top 10T

Undeclared Sales (INAEC Aviation Corp.) P2,885,262.00

Exhibit Payee Amount

Representation expense per ITR P5,020,086.00

Representation Expense P5,020,086.00

Net sales/net revenue x Actual Expense

Ent., Amusement Allowable Amt to

Representation Expense per ITR P5,020,086.00

Particulars Per FS Per ITR Difference

Salaries and Wages

Income Payments Amount

CD Technologies Asia, Inc. © 2021 cdasiaonline.com

Taxable Income per Return P-

IV. VALUE-ADDED TAX — P19,336,010.17

Sales per VAT P69,404,812.47

Goods other than Capital Goods 538,113.14

a. Undeclared Sales (SLS vs. P14,601,213.26

a. Undeclared Sales (SLS vs. RELIEF) — P14,601,213.26

Management fees P70,077,982.00

Date Ref Description Amount

The excess of P535,714.40 97 was not explained by the petitioner.

Date Ref Description Amount

Undeclared income from Inaec

Sales per VAT P69,404,812.47

V. FRINGE BENEFITS TAX — P837,906.06

Transportation and Travel P6,186,259.00

Nature Amount Rate Tax Due

Nature Amount Rate Tax Due

CD Technologies Asia, Inc. © 2021 cdasiaonline.com

IT EWT WTC DST Total

(SGD.) CIELITO N. MINDARO-GRULLA

5.Par. 3, Summary of Admitted Facts, JSF, Docket — Vol. I, p. 395.

12.Exhibit "P-3", Docket — Vol. II, pp. 781 to 796.

21.Docket — Vol. I, pp. 374 to 379.