REPUBLIC OF THE PHILIPPINES

COURT OF TAX APPEALS

QUEZON CITY

ENBANC
************

COMMISSIONER OF INTERNAL CTA EB No. 1054

REVENUE, (CTA Case No. 8345)
Petitioner,
Present:

DEL ROSARIO , P.J. I

CASTANEDA, JR. ,
-versus- BAUTISTA,
UY,
CASANOVA,
FABON-VICTORINO,
MINDARO-GRULLA,
COTANGCO-MANALASTAS, and
RINGPIS-LIBAN, JJ.
AGRINURTURE, INC.,
Respondent. Promulgated:

JAN 13 2015
?#'- -<-.Sl>/'.~ >

X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X

DECISION
UY, J. :

The instant Petition for Review1 was filed by the petitioner

Commissioner of Internal Revenue on September 6, 2013 against
respondent Agrinurture, Inc., seeking the reversal and setting aside of
the Decision dated May 29, 2013 2 and the Resolution dated August 5,
2013 3 , both promulgated by the Special Second Division of this Court
(or Court in Division) in CTA Case No. 8345, entitled, "Agrinurture,
Inc., Petitioner, vs. Commissioner of Internal Revenue, Respondent",
the dispositive portions of which respectively read as follows:

1
2
EB Docket, pp. 8 to 22. ~
EB Docket, pp. 23 to 39. The assailed Decision was penned by Associate Justice
Juanito C. Castaneda, Jr. , Chairperson, and concurred in by Associate Justice Caesar A.
Casanova and Associate Justice Ciel ito N . Mindaro-Grulla.
3
EB Docket, pp. 40 to 42. The assai led Resolution was likewise penned by the same
ponente, and concurred in by the same Associate Justices.
DECISION
CTA EB No. 1054
Page 2 o f 18

Decision dated May 29, 2013:

"WHEREFORE, premises considered , the instant

Petition for Review is hereby GRANTED. Accordingly, the
assessments for deficiency income tax and deficiency
value-added tax against petitioner for taxable year 2007
are hereby CANCELLED and WITHDRAWN.

SO ORDERED."

Resolution dated August 5, 2013:

"WHEREFORE, finding no compelling reason to

reverse the ruling of this Court in the assailed Decision,
respondent's Motion for Reconsideration filed on June 10,
2013 is DENIED for lack of merit.

SO ORDERED. "

THE FACTS

As found by the Court in Division , the facts of the case are as

follows.

Petitioner is the duly appointed Commissioner of the Bureau of

Internal Revenue (BIR) vested with the authority to carry out the
functions, duties and responsibilities of said office, including , inter
alia, the power to decide disputed assessments, and cancel or abate
tax liabilities pursuant to the provisions of the National Internal
Revenue Code (N IRC) of 1997 and other tax laws, rules and
regulations.

Respondent Agrinurture, Inc. is a publicly listed corporation duly

organized and existing under and by virtue of the laws of the Republic
of the Philippines, with principal office address at No. 54 National
Road , Dampoiii-A , Pulilan, Bulacan , Philippines.

Respondent received from petitioner a Preliminary Assessment

Notice (PAN) dated August 26, 2010 from the LN Task Force of the
BIR, which assessed respondent for alleged deficiency income tax
and value-added tax (VAT) for taxable year 2007.

Thereafter, respondent received the Final Assessment Notice

dated December 30, 2010, assessing respondent for deficiency~
DECISION
CTA EB No. 1054
Page 3 of 18

income tax and deficiency VAT, inclusive of interest and surcharges,

for taxable year 2007, broken down as follows:

TAX AMOUNT
Value-added Tax p 715,839.15
Income Tax 2,043,335.50
TOTAL p 2,759,174.65

On February 18, 2011, respondent filed its Protest on the Final

Assessment Notice, stating that the assessment for alleged
deficiency income tax and VAT, predicated solely on the alleged
undeclared purchase transaction in the amount of P13,572,086.31 ,
should be reconsidered , as there is no factual and/or legal basis for
such assessment.

Since no action was taken by petitioner on the protest within

180 days from the filing thereof on February 18, 2011 , respondent
filed a Petition for Review before the Court in Division on September
16, 2011 . The case was docketed as CTA Case No . 8345.

On November 10, 2011 , petitioner filed her Answer and

interposed the defense, among others, that the deficiency value-
added tax (VAT) assessment in the amount of P715,839.15 and the
deficiency income tax in the amount of P2,043,335.50 were issued in
accordance with law and suffers no infirmity as the same were in
accordance with Sections 31 , 32 , 106 and 108 of the National Internal
Revenue Code of 1997 (NIRC of 1997), as well as with Revenue
Memorandum Order No. 17-2009 which covers the income and
value-added tax liabilities of individual and corporate taxpayers who
were issued Letter Notices (LNs) based on Tax Reconciliation System
(TRS) and Consolidated RELIEF-SLSP and TPM BOC Data
Programs covering taxable year 2007.

Thereafter, the case was set for pre-trial conference on

December 8, 2011 . On January 17, 2012, the parties filed their Joint
Stipulation of Facts and Issues with the Court in Division , and the
same was approved in the Resolution dated January 19, 2012. In the
same Resolution , the Court in Division considered the pre-trial
terminated and ordered the parties to proceed with the trial on the
merits presenting only evidence not covered by their Joint Stipulation
of Facts.

During trial , both parties presented their respective

documentary and testimonial evidence. Respondent presented as itsj\
DEC ISION
CTA EB No. 1054
Page 4 of 18

witnesses, Ma. Lizette B. Navea, respondent's Comptroller since

October 2010, and Rafael ito M. Soliza, respondent's former Auditor
General from February 2009 until April 2010. On the other hand,
petitioner presented as her sole witness Jocelyn P. Hernandez, Chief
of the Assessment Section of Revenue District Office No. 28,
Novaliches and formerly occupying the position of Revenue Officer II
from 1995.

The case was submitted for decision on March 14, 201 3,

considering petitioner's Memorandum filed on February 22 , 2013 and
respondent's Memorandum filed through registered mail on March
4, 2013.

In the assailed Decision , the Court in Division granted the

Petition for Review, thereby ordering the cancellation and withdrawal
of the assessments for deficiency income tax and deficiency VAT for
taxable year 2007 against respondent.

Aggrieved , petitioner filed a Motion for Reconsideration on June

10, 2013,4 to which respondent filed its Comment on July 4, 2013.5
For lack of merit, the said Motion was denied by the Court in Division
in the assailed Resolution dated August 5, 2013.

Petitioner then filed before the Court En Bane, a Motion for

Extension of Time to File Petition for Review on August 22, 2013.6
The said Motion was granted by the Court En Bane and petitioner
was given a final and non-extendible period of fifteen (15) days from
August 23, 2013, or until September 7, 2013, with in wh ich to file her
Petition for Review.7

Petitioner filed the instant Petition for Review on September 6,

8
2013, praying for the reversal and setting aside of the Decision
dated May 29, 2013 and Resolution dated August 5, 2013, and that a
new one be rendered , ordering respondent to pay the amounts of
P2,043,335.50 as deficiency income tax, plus 25/o surcharge and
20% deficiency and delinquency interest for late payment from
December 31 , 2010 (due date indicated in the Final Assessment
Notice), until fully paid , pursuant to Sections 248 and 249 of the NIRC~
of1997. \l~

4
Division Docket (CTA Case No. 8345), pp. 432 to 437.
5
Division Docket (CTA Case No. 8345), pp. 440 to 450.
6
EB Docket, pp. I to 6.
7
EB Docket, p. 7.
8
EB Docket, pp. 8 to 22.
DECISION
CTA EB No. 1054
Page 5 of 18

Without necessarily giving due course to the instant Petition for

Review, respondent was ordered by the Court En Bane to file its
Comment thereon .9 Correspondin~ly, respondent filed its Comment/
Opposition on November 18, 201 3. 0

Considering the issues raised by both parties in their respective

pleadings, the Court En Bane resolved to give due course to the
Petition for Review, and required the parties to submit their respective
Memorandum .11

On January 9, 2014, petitioner filed a Manifestation ,12

manifesting that she is adopting the arguments raised in the instant
Petition for Review as her Memorandum . The Court En Bane took
note of the said Manifestation. 13 For its part, respondent filed its
Memorandum on February 6, 2014.14 Thereafter, this case was
submitted for decision on February 26, 2014.15

Hence, this Decision.

THE ISSUE

Petitioner raises the following issue for resolution, to wit:

"WHETHER OR NOT THE SPECIAL SECOND

DIVISION OF THE HONORABLE COURT ERRED
WHEN IT CANCELLED THE DEFICIENCY VALUE-
ADDED TAX (VAT) AND INCOME TAX
16
ASSESSMENTS ."

Petitioner's Arguments

Petitioner contends that the subject assessments were never

based on mere presumptions, and that the undeclared purchase by
respondent was discovered thru third party information, particularly
from the sale of merchandise by Florence Foods Corporation to
respondent, in the amount of >14 ,000,000.00. The said discrepancy,

9
Resolution dated October 8, 20 13, EB Docket, pp. 47 to 48.
f\
10
EB Docket, pp. 6 1 to 70.
11
Reso lution dated December 18, 20 13, EB Docket, pp . 80 to 81.
12
EB Docket, pp. 82 to 85.
13
EB Docket, p. 86.
14
EB Docket, pp. 87 to 102.
15
Resolution dated February 26, 2014, EB Docket, pp. 104 to 105.
16
EB Docket, p . 14.
DEC ISION
CTA EB No. 1054
Page 6 of 18

or more specifically, non-declaration found in respondent's tax return

allegedly arose from the Reconciliation of Listing for Enforcement
System (RELIEF), Tax Reconciliation System (TRS), and Third Party
Matching - Bureau of Customs (TPM-BOC) Data Program, which
resulted in the following :

Purchases per LN TPI RELIEF

Per Summary List of Sales submitted
by respondent's suppliers p 14,180,337.89
Purchases per returns filed 608,251 .58
Under-declaration on purchases p 13.572.086.31

From the testimony of petitioner's witness, Ms. Jocelyn

Hernandez, the discrepancy/under-declaration was due to the
undeclared purchases for canning equipment from such particular
supplier- Florence Foods Corporation (FFC). However, respondent
allegedly failed to present proof of the purported sale of equipment,
apart from mere allegations of biased witnesses and some pictures of
the alleged machinery.

Moreover, petitioner maintains that respondent did not submit

accounting records necessary for the proper determination of its tax
liability. A reply-letter was sent to respondent on 25 November 2010
and a follow-up letter on 26 May 2011 requiring it to submit the
additional documents to support its protest. However, according to
petitioner, respondent failed to submit the required documents, much
more failed to appear and present documentary evidence. Thus, for
failure of respondent to submit the required invoices/official receipts
and schedule of purchases, the discrepancies noted in the Letter
Notice (LN) were not reconciled .

According to petitioner, it is a basic accounting principle that all

expenses have to be recorded. Respondent made an unrecorded
purchase of merchandise which was discovered thru third party
information as confirmed by the declaration in the returns of the seller
FFC, and by FFC thru a Letter dated 12 July 2011 in the amount of
P14,000,000.00. Since the purchase of merchandise did not appear
in respondent's returns nor reflected in its inventory or capital
expenditures, there can only be one necessary conclusion -that this
undeclared purchase of merchandise from a food manufacturing
company was eventually sold. Thus, absent any showing that it was
a capital expense or part of inventory, then the same can only be an
unreported sale or unreported purchased merchandise .~
I
DECISION
CTA EB No. 1054
Page 7 of 18

Finally, petitioner stresses that all presumptions are in favor of

the correctness of tax assessments and the failure to present proof of
error in the assessment will justify judicial affirmation of said
assessment.

Respondent's Counter-arguments

For its part, respondent counter-argues that the instant Petition

should be dismissed outright for failing to comply with the
requirements for its filing , specifically, to attach the documents
referred to therein as required by Section 6, in relation to Section 7 of
Rule 43 of the Rules of Court.

Respondent points out that the instant Petition for Review

refers to the following documents:

a. Motion for Reconsideration

b. Reply-Letter allegedly sent to Petitioner on 25 November
2010
c. Letter allegedly sent on 26 May 2011
d. Letter dated 12 July 2011
e. Judicial Affidavit of Mr. Soliza executed on 30 October 2012
f. Financial Statement for 2007

However, while material portions of the foregoing documents were

referred to in the Petition for Review, such documents were not
attached thereto as required by Section 6, Rule 43 of the Rules of
Court. Hence, the failure of petitioner to attach the foregoing
documents is cause to dismiss the instant Petition for Review
outright.

Additionally, respondent asserts that the Decision of the Court

in Division is already final and executory, considering that the Motion
for Reconsideration filed by the petitioner in CTA Case No. 8345, did
not toll the period to file the instant Petition for Review for being pro
forma . Allegedly, a perusal of petitioner's said motion will readi ly
show that it fails to tender issues not previously set forth and passed
upon by the Honorable Court; that the arguments raised therein are
exact reiterations of the very same grounds, arguments and
authorities previously passed upon by the Court in Division 1n
rendering the assailed Decision. ~
DEC ISION
CTA EB No. 1054
Page 8 of 18

In any event, respondent further alleges that the Court in

Division correctly cancelled the subject tax assessments for being
void and without legal and factual basis.

Finally, respondent contends that the Letter Notice dated May

26, 2011 , purportedly requiring petitioner to submit additional
documents, was not only sent to the wrong address, but also
inadmissible for not having been formally offered during trial.

THE COURT EN BANC'S RULING

The instant Petition for Review lacks merit. Nevertheless, We

find it necessary to address some of the procedural issues raised by
respondent.

Petitioner has attached the

required documents in the
instant Petition for Review.

According to respondent, the instant Petition for Review should

be dismissed for petitioner's failure to comply with Section 6 in
relation to Section 7, both of Rule 43 of the 1997 Rules of Civil
Procedure, which provide as follows:

"SEC. 6. Contents of the petition.- The petition for

review shall (a) state the full names of the parties to the
case, without impleading the court or agencies either as
petitioners or respondents; (b) contain a concise
statement of the facts and issues involved and the
grounds relied upon for the review; (c) be accompanied
by a clearly legible duplicate original or a certified true
copy of the award, judgment, final order or resolution
appealed from , together with certified true copies of
such material portions of the record referred to
therein and other supporting papers ; and (d ) contain a
sworn certification against forum shopping as provided in
the last paragraph of section 2, Rule 42. The petition
shall state the specific material dates showing that it was
filed within the period fixed herein .

SEC. 7. Effect of failure to comply with

requirements.- The failure of the petition to comply
with any of the foregoing requirements regarding the
payment of the docket and other lawful fees, the deposit
for costs, proof of service of the petition, and the contents~
DECISION
CTA EB No. 1054
Page 9 of 18

of and the documents which accompany the petition

shall be sufficient ground for the dismissal thereof. "
(Emphases supplied by respondent)

In relation thereto, respondent points to Section 1, Rule 7 of the

Revised Rules of the Court of Tax Appeals (RRCTA), to wit:

"SECTION 1. Applicability of the Rules of Court on

procedures in the Court of Appeals, exception.- The
procedure in the Court en bane or in Division in original
and in appealed cases shall be the same as those in
petitions for review and appeals before the Court of
Appeals pursuant to the applicable provisions of Rules
42, 43, 44 and 46 of the Rules of Court, except as
otherwise provided for in these Rules. " (Emphasis
ours)

Particularly, respondent contends that while material portions of

the following documents were referred to in the instant Petition for
Review, the same were not attached thereto, as required by the
aforequoted Section 6, namely:

1) Motion for Reconsideration ;

2) Reply-Letter allegedly sent to petitioner on 25 November 201 0;
3) Letter allegedly sent on 26 May 2011 ;
4) Letter dated 12 July 2011 ;
5) Judicial Affidavit of Mr. Soliza executed on 30 October 2012;
and
6) Financial Statement for 2007.

We disagree with respondent.

As aforequoted, it is clearly provided under Section 1, Rule 7 of

the RRCTA that the procedures in this Court, whether En bane or in
Divisions, in original and in appealed cases shall be the same as
those in petitions for review and appeals before the Court of Appeals
pursuant to the applicable provisions of Rules 42, 43, 44 and 46 of
the Rules of Court, except as otherwise provided for in the
Revised Rules of the Court of Tax Appeals . In other words, the
ru les provided under Rule 43, inter alia, of the 1997 Rules of Civil
Procedure shall be applicable, or resorted to , only when the RRCTA
is silent on a particular matter.

The necessary attachments to a petition for review filed before

this Court is provided under Section 2 of Rule 6 of the RRCTA, to wit:~
DEC ISION
CTA EB No. 1054
Page 10 of 18

"SEC. 2. Petition for review; contents.- The

petition for review shall contain allegations showing the
jurisdiction of the Court, a concise statement of the
complete facts and a summary statement of the issues
involved in the case, as well as the reasons relied upon
for the review of the challenged decision . The petition
shall be verified and must contain a certification against
forum shopping as provided in Section 3, Rule 46 of the
Rules of Court. A clearly legible duplicate original and
certified true copy of the decision appealed from shall
be attached to the petition." (Emphasis supplied)

In this case , petitioner was able to attach a certified true copy of

both the assailed Decision and assailed Resolution , duly certified by
Atty, Michael Benedick V. Aleta , then Executive Clerk of Court II of the
Court of Tax Appeals.

Thus, the Court En Bane finds that mere failure to attach copies
of the pleadings and other material portions of the record as would
support the allegations of the petition for review is not fatal as to
warrant the outright dismissal of a petition for review, because the
Revised Rules of the CTA only mandates that clearly legible duplicate
originals or certified true copies of the judgments or final orders are
attached to the petition for review.

Petitioner's Motion for

Reconsideration of the assailed
Decision is not pro forma.

In this case, respondent avers that the Motion for

Reconsideration filed by petitioner before Court in Division was pro
forma, thereby making the Decision dated May 29, 2013 final and
executory.

Again, We are not convinced .

It must be noted that the issue of finality before the Court in

Division was never raised in the Comment 17 filed by respondent in
CTA Case No. 8345 to the Motion for Reconsideration filed by
petitioner in the said case.

To entertain the belated introduction of this issue in the instant~

17
Division Docket (CTA Case No. 8345), pp. 440 to 450.
DECI SION
CTA EB No. 1054
Page I I of 18

Petition for Review, would not only cause undue prejudice to herein
petitioner, it would likewise be inappropriate, considering the doctrine
that issues not previously ventilated , cannot be raised for the first
time on appeal. 18

Additionally, jurisprudentially speaking 19 , a motion for

reconsideration is not pro forma just because it reiterated the
arguments earlier passed upon and rejected by the court. A movant
may raise the same arguments, precisely to convince the court that
its ruling was erroneous.

In fact, the Supreme Court, in the case of Marikina Valley

Development Corporation v. F/ojo,20 has underscored the destructive
effect of the literal application of the pro forma doctrine, to wit:

"xxx xxx because the doctrine relating to pro forma

motions for reconsideration impacts upon the reality and
substance of the statutory right of appeal, that doctrine
should be applied reasonably, rather than literally. The
right to appeal , where it exists, is an important and
valuable right. Public policy would be better served by
according the appellate court an effective opportunity to
review the decision of the trial court on the merits, rather
than by aborting the right to appeal by a literal application
of the procedural rules relating to pro forma motions for
reconsideration. "

Therefore, in the absence of a showing that the Motion for

Reconsideration filed by the petitioner before the Court in Division
was merely intended for delay, the same cannot be considered
outright as pro forma . Such being the case, the assailed Decision
and Resolution of the Court in Division must be maintained . Hence,
We find no reason to dismiss the instant Petition for Review.

The subject assessments have

no leg to stand on.

To justify the subject assessments, petitioner faults the~

18
Zenaida Polanco, et al. vs. Carmen Cruz, etc., G.R. No. 182426, February 13, 2009.
19
Security Bank and Trust Company, Inc. vs. Rodolfo M Cuenca, G.R. No. 138544,
October 3, 2000; Department of Agrarian Reform, etc. vs. Vicente K. Uy, G.R. No.
169277, February 9, 2007; MCC Industrial Sales Corporation vs. Ssangyong
Corporation, G.R. No. 170633, October 17, 2007.
20
G.R. No. 110801, December 8, 1995.
DECI SION
CTA EB No. 1054
Page 12 of 18

respondent for its failure to submit the supposed required

invoices/official receipts and schedule of purchases. According to
petitioner, the discrepancies noted in the subject Letter Notice were
not reconciled .

We do not agree.

Petitioner cannot feign ignorance of respondent's records. It is

a well settled jurisprudential principle that petitioner ought to know
the records of all taxpayers.21 To the mind of the Court En Bane,
the said principle springs from the fact that the Office of the
Commissioner of Internal Revenue has been vested with ample
powers to know the records of taxpayers and assess the correct
amount of taxes. The most remarkable of said powers is found in
Section 5 of the NIRC of 1997, to wit:

"SEC. 5. Power of the Commissioner to Obtain

Information, and to Summon, Examine, and Take
Testimony of Persons.- In ascertaining the correctness
of any return , or in making a return when none has been
made, or in determining the liability of any person for any
internal revenue tax, or in collecting any such liability, or
in evaluating tax compliance, the Commissioner is
authorized:

(A) To examine any book, paper, record , or other

data which may be relevant or material to such inquiry;

(B) To obtain on a regular basis from any person

other than the person whose internal revenue tax liability
is subject to audit or investigation, or from any office or
officer of the national and local governments, government
agencies and instrumentalities, including the Bangko
Sentral ng Pilipinas and government-owned or -controlled
corporations, any information such as, but not limited to,
costs and volume of production, receipts or sales and
gross incomes of taxpayers, and the names, addresses,
and financial statements of corporations, mutual fund
companies, insurance companies, regional operating
headquarters of multinational companies , joint accounts,
associations, joint ventures or consortia and registered~~
partnerships, and their members; ~\l

21
BPI-Family Savings Bank, Inc. vs. Court ofAppeals, et al., G.R. No. 122480, April 12,
2000; and Commissioner of Internal Revenue vs. lroncon Builders and Development
Corporation, G.R. No. 180042, February 8, 20 l 0.
DECISION
CTA EB No. 1054
Page 13 of 18

(C) To summon the person liable for tax or required

to file a return, or any officer or employee of such person,
or any person having possession, custody, or care of the
books of accounts and other accounting records
containing entries relating to the business of the person
liable for tax, or any other person, to appear before the
Commissioner or his duly authorized representative at a
time and place specified in the summons and to produce
such books, papers, records, or other data, and to give
testimony;

(D) To take such testimony of the person

concerned, under oath, as may be relevant or material to
such inquiry; and

(E) To cause revenue officers and employees to

make a canvass from time to time of any revenue district
or region and inquire after and concerning all persons
therein who may be liable to pay any internal revenue tax,
and all persons owning or having the care, management
or possession of any object with respect to which a tax is
imposed.

The prov1s1ons of the foregoing paragraphs

notwithstanding, nothing in this Section shall be construed
as granting the Commissioner the authority to inquire into
bank deposits other than as provided for in Section 6(F)
of this Code. "

To add more teeth to the power of petitioner under Section

5(C), the law imposes a penalty for failure to obey summons issued
by the BIR, viz:

"SEC. 266. Failure to Obey Summons.-Any person

who, being duly summoned to appear to testify, or to
appear and produce books of accounts, records,
memoranda or other papers, or to furnish information as
required under the pertinent provisions of this Code,
neglects to appear or to produce such books of accounts,
records, memoranda or other papers, or to furnish such
information , shall, upon conviction , be punished by a fine
of not less than Five thousand pesos (P5,000) but not
more than Ten thousand pesos (P1 0,000) and suffer
imprisonment of not less than one (1) year but not more~
than two (2) years." Jl~
DEC ISION
CTA EB No. 1054
Page 14 of 18

In addition , it is noteworthy that the Letter of Authority (LOA)

numbered 2009-00016681 and dated April 30, 2010 was issued by
the BIR against respondent. 22 Needless to state, such LOA
empowers or enables certain Revenue Officers to examine the books
of account and other accounting records of a taxpayer for the
purpose of collecting the correct amount of tax.23

Thus, with the said powers, coupled with the fact that a Letter of
Authority was issued , petitioner could have easily obtained the
required information for the reconciliation of any discrepancy that has
arisen under the circumstances. Such being the case , petitioner
cannot excuse herself by arguing that due to the failure of respondent
to submit the required invoices/official receipts and schedule of
purchases, the supposed discrepancies were not reconciled .

Petitioner likewise argues against the testimony of respondent's

witness, Rafaelito Soliza, in his Judicial Affidavit dated October 30,
2012 ,24 that the supposed P14,000,000.00 unrecorded purchase was
included in the additional acquisition of respondent for the year 2007
in the amount of P21 ,497,020.00, and that this particular item was
detailed in Note 6 of its Financial Statement for 2007.

The contention of petitioner is not tenable.

While it may be true that the amount of P14,000,000.00 was not

detailed in the Financial Statements for 2007, the fact remains that
the amount of P21 ,497,020.00, which represents "Additions" to
petitioner's "Machinery and Equipment" for the year 2007, covers the
said amount of P14,000,000.00. Moreover, the inclusion of the latter
amount is testified to by respondent's auditor, Mr. Soliza, whose
credibility was not at all destroyed by petitioner at the proceedings in
the Court a quo. In fact, it is herein noted that petitioner's counsel
chose not to cross examine Mr. Soliza on the subject testimony.25
Furthermore, the purchase of equipment by respondent representing
the amount of P14,000,000.00 was confirmed by FFC, i.e., from
whom the BIR obtained the information regarding the supposed
26
"undeclared purchase". More importantly, considering that the BIR
had the opportunity to verify the composition of the said amount o~i\.
22
Exhibit " 1", BIR Records, p. I 0 1. l ~
23
Commissioner of Internal Revenue vs. Sony Philippines, Inc., G.R. No. 178697,
November 17, 20 10.
24
Exhibit " J", Divi sion Docket (CTA Case No. 8345), pp. 307 to 310.
25
Minutes of the hearing in CTA Case No. 8345 held on November 28, 2012, Division
Docket (CTA Case No. 8345), p. 357; and Transcript of Stenographic Notes for the said
hearing, pp. 8 and 9.
26
Exhibit "27", BIR Records, p. 157.
DECI SION
CTA EB No. 1054
Page 15 of 18

P21 ,497,020.00 via the above-stated LOA, it could have easily

disproven respondent's claim that the amount of P14,000,000.00 is
included therein.

With the foregoing circumstances, the arguments of petitioner

fails to persuade the Court En Bane from ruling that the subject
purchase is undeclared.

But even granting that there was an under-declaration of

purchase on the part of respondent, the same is of no consequence.
We fully agree with the Court in Division that a finding of under-
declaration of purchase does not by itself result in the imposition of
income tax and VAT.

The three (3) elements for 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.27 Income tax is assessed on 1ncome
received from any property, activity or service.28

Such being the case, in the imposition or assessment of income

tax, it is not when there is an undeclared purchase, but only when
there was an income, and such income was received or realized by
the taxpayer.

In this case , said elements are not present. The BIR merely
imposed income tax on respondent simply because there was
'Tu]nder-declaration on purchases", 29 nothing more.

Furthermore, it must be emphasized that for income tax

purposes, a taxpayer is free to deduct from its gross income a lesser
amount, or not claim any deduction at all. What is prohibited by the
income tax law is to claim a deduction beyond the amount authorized
therein .30 Hence, even granting that there is an undeclared purchase,
the same is not prohibited by law.

Bearing in mind that an under-declaration of purchases is not~

27
Commissioner of Internal Revenue vs. Court of Appeals, et al., G.R. No. 108576,
January 20, 1999.
28
Supra.
29
Exhibit "C" (Details of Discrepancy),

3
Commissioner of Internal Revenue vs. Phoenix Assurance Co. Ltd. , G.R. No. L-19727,
May 20, 1965.
DECISION
CTA EB No. 1054
Page 16 of 18

prohibited by law, it goes without saying that respondent can exercise

its discretion on whether or not it will declare a lesser amount of
deductions or none at all. Thus, in simply relying on the fact that
there is an under-declaration of purchase, petitioner's imposition or
assessment of the subject income tax does not hold water and
therefore, the subject deficiency income tax assessment must
perforce be cancelled .

In the same vein , no deficiency VAT assessment should arise

from the said "under-declared purchase".

It must be remembered that the VAT is imposed on the seller of

the goods, pursuant to Section 105 of the NIRC of 1997, to wit:

"SEC. 105. Persons Liable. - Any person who, in

the course of trade or business, sells, barters,
exchanges, leases goods or properties , renders
services, and any person who imports goods shall be
subject to the value-added tax (VAT) imposed in Sections
106 to 108 of the Code.

XXX XXX xxx." (Emphases supplied)

Furthermore, the VAT is assessed on the "gross selling price or

gross value in money of the goods or properties sold" and is "to be
paid by the seller or transferor ,.J 1 In this connection , the law defines
"gross selling price" as follows:

" ... the total amount of money or its equivalent which the
purchaser pays or is obligated to pay to the seller in
consideration of the sale, barter or exchange of the goods or
properties, excluding the value-added tax. The excise tax, if
any, on such goods or properties shall form part of the gross
selling price. "32 (Emphasis supplied)

Thus, what is critical to be shown , in the imposition or

assessment of VAT in the sale of goods or properties, is that the
taxpayer is paid or ought to be paid in an amount of money or its
equivalent, in consideration of such sale, and not when said taxpayer
purchases or disburses an amount of money to purchase goods or
properties. Simply put, the VAT is imposed when one sells, not when~
one purchases. I' ..
31
Section 106(A), NIRC of 1997.
32
Supra.
 DECIS ION
CTA EB No. 1054
Page 17 of 18

Correspondingly, VAT should not be imposed on the supposed

"under-declared purchase" of respondent. Hence, the subject
deficiency VAT assessment must likewise be cancelled .

WHEREFORE , premises considered, the Petition for Review is

hereby DENIED for lack of merit. The Decision dated May 29, 2013
and the Resolution dated August 5, 2013, issued by the Court in
Division in CTA Case No. 8345 is hereby AFFIRMED.

SO ORDERED.

ER~.UY
Associate Justice

WE CONCUR:

Presiding Justice

~;.C C . a..:t-~~ I J,._

.fUANITO C. CASTANEDJ(, JR.
Associate Justice

fl-
CAESAR A. CASANOVA
Associate Justice

Cuw: N. M~ .. 6~ ~/-~,L-
CIELITO N. MINDARO-GRULLA AMELlA R. COTANGCO-MANALASTAS
Associate Justice Associate Justice

~.~A;-:
MA. BELEN M. RINGPIS-LIBAN
Associate Justice
DECI SION
CTA EB No. 1054
Page 18 of 18

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is

hereby certified that the conclusions in the above Decision were
reached in consultation before the case was assigned to the writer of
the opinion of the Court En Bane.

Presiding Justice