EN BANC

[C.T.A. EB CASE NO. 1961. July 14, 2020.]

(C.T.A. Case No. 9045)

COMMISSIONER OF INTERNAL REVENUE , petitioner, vs. MCC

TRANSPORT SINGAPORE PTE. LTD. , respondent.

DECISION

MODESTO-SAN PEDRO , J : p

The Case

This is a Petition for Review 1 under Section 3 (b), Rule 8 2 of the Revised
Rules of the Court of Tax Appeals ("RRCTA") , 3 seeking the reversal and setting
aside of the Decision promulgated on 18 May 2018 and the Resolution dated 12
October 2018, both rendered by the Special Third Division ("Court in Division"), and to
render a new judgment ordering respondent to pay the de ciency Value-Added Tax
("VAT") in the aggregate amount of P25,772,734.83 for taxable year 2009 plus
surcharge and delinquency and deficiency interests. 4

The Parties

Petitioner Commissioner of Internal Revenue ("CIR") is the duly appointed

Commissioner of the Bureau of Internal Revenue ("BIR") who 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 National
Internal Revenue Code (hereinafter referred to as the "Tax Code") or other laws or
portions thereof administered by the BIR. He holds o ce at the BIR National O ce
Building, Agham Road, Diliman, Quezon City. 5
Meanwhile, respondent MCC Transport Singapore Pte. Ltd., is a foreign
corporation duly organized and existing under the laws of Singapore. It is engaged in
international shipping of cargoes to and from the Philippines through its general
shipping agent, Maersk Filipinas, Inc., with registered o ce address at c/o Maersk
Filipinas, Inc., 9/F One E-Com Center, Harbor Drive corner Sunset Ave., Mall of Asia
Complex, Pasay City. 6

The Facts

Respondent electronically led its Quarterly VAT Returns for taxable year 2009
on the following dates: CAIHTE

Period Covered 7 Date Filed and Paid

8
1st Quarter 2009 27 April 2009
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 2nd Quarter 2009 21 July 2009
3rd Quarter 2009 21 October 2009
4th Quarter 2009 22 January 2010

On 15 September 2010, respondent received Letter of Authority ("LOA") No. LOA-

051-2010-00000270, dated 13 September 2010, authorizing BIR examiners to examine
its books of account and other accounting records for all internal revenue taxes for the
period 1 January 2009 to 31 December 2009. 9
Thereafter, petitioner issued Letter Notice No. 051-TRS-09-00-00024, dated 24
May 2011, with attached Details of Withholding Agents/Payors and Payees/Income
Recipients Records. In the said Letter Notice, petitioner disclosed that per the BIR's
computerized/third-party matching, it noted certain discrepancies between
respondent's sales/receipts in its VAT returns vis-à-vis the information provided by
respondent's withholding agents for taxable year 2009. 1 0
In its Letter Reply, dated 4 August 2011, respondent explained that it had no
transactions with the withholding agents identified by the BIR in the Letter Notice. 1 1
Subsequently, respondent received the Preliminary Assessment Notice ("PAN"),
dated 26 December 2013, with attached Details of Discrepancies on 27 December
2013. In the PAN, the BIR found respondent to have undeclared sales/receipts
amounting to P83,886,643.55 and consequently found it liable for de ciency VAT in the
amount of P23,125,134.46, representing the basic tax, fty percent (50%) surcharge,
and deficiency interest for taxable year 2009. 1 2
Respondent filed its Protest to the PAN on 10 January 2014. 1 3
Thereafter, petitioner issued the Formal Assessment Notice ("FAN") with
attached Details of Discrepancies and Assessment Notice No. VT-
ELA4967/LA43131/LN024-09-14-095 on 21 January 2014, which was received by
respondent on 22 January 2014. 1 4
On 20 February 2014, respondent led a Letter, dated 17 February 2014, seeking
reconsideration of the FAN. 1 5
Petitioner replied through a Letter, dated 4 March 2014, which was received by
respondent on 7 March 2014. In the Letter, petitioner advised respondent that its entire
tax docket, together with its Letter, were forwarded to Revenue District O ce ("RDO")
No. 51-Pasay City for reconsideration. 1 6
On 31 March 2014, respondent received from the O cer-in-Charge ("OIC")
Revenue District Officer of RDO No. 51-Pasay City a letter informing respondent that the
case was reassigned to a new Revenue O cer and a new Group Supervisor and
requesting the same to submit to the named Revenue O cer the documents in support
of the protest to the FAN. 1 7
On 16 April 2015, respondent received the Final Decision on Disputed
Assessment ("FDDA") with attached Details of Discrepancies, both dated 15 April 2015,
nding respondent liable for de ciency VAT in the aggregate amount of
P25,772,734.83 for taxable year 2009 representing basic tax, 50% surcharge, and
interest. 1 8 DETACa

Aggrieved, respondent led a Petition for Review before the Court in Division on
14 May 2015. 1 9

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 On 18 May 2018, the Court in Division promulgated the assailed Decision 2 0
cancelling and withdrawing the FDDA, dated 15 April 2015, as follows:
"WHEREFORE , premises considered, the Petition for Review is
GRANTED . Accordingly, the Final Decision on Disputed Assessment dated April
15, 2015, assessing petitioner for de ciency value-added tax, including
surcharge and interest, in the aggregate amount of P25,772,734.83 for the year
ended December 31, 2009 is CANCELLED and WITHDRAWN ."
In cancelling and withdrawing the FDDA, the Court in Division ruled that the third-
party information to which the assessment is based was not veri ed by the BIR except
for respondent's two (2) sales transactions totaling to P86,275.08. However, even if the
said amount was veri ed, the Court in Division still cancelled the assessment, since the
FAN was received by the respondent beyond the 3-year prescriptive period.
Further, the Court in Division explained that the 10-year prescriptive period does
not apply in this case since the petitioner failed to prove that the respondent led a
fraudulent return with intent to evade taxes.
Thereafter, on 7 June 2018, the petitioner led his Motion for Reconsideration. 2 1
Meanwhile, respondent led its "Comment (to Respondent's Motion for
Reconsideration dated 7 June 2018)" on 13 July 2018. 2 2
On 12 October 2018, the Court in Division issued the assailed Resolution 2 3
denying petitioner's Motion for Reconsideration for lack of merit. The dispositive
portion is hereby quoted, to wit:
"WHEREFORE , premises considered, respondent's Motion for
Reconsideration is DENIED for lack of merit."
On 30 October 2018, petitioner led a Motion for Extension of Time to File
Petition for Review, 2 4 which was granted by the Court En Banc. 2 5
On 15 November 2018, petitioner led the instant Petition for Review. 2 6
However, he failed to attach a copy of Revenue Delegation Authority Order ("RDAO")
Nos. 3-2006 and 02-2007 which show the authority of Regional Director Glen A.
Geraldino to act and on behalf of petitioner. Hence, the Court En Banc, in a Resolution
dated 14 December 2018, ordered petitioner to submit a copy of the said RDAOs. 2 7
In compliance with the 14 December 2018 Resolution, the petitioner belatedly
led a Manifestation with Motion to Admit with the attached RDAOs on 15 January
2019. 2 8
Thereafter, the Court En Banc issued a Resolution dated 11 February 2019,
directing respondent to le its Comment within ten (10) days from receipt of the said
Resolution. The Court En Banc also manifested in the same Resolution that it will decide
on whether it will give due course to the instant Petition only after respondent's
submission of its Comment or upon the expiration of the period given for filing. 2 9 aDSIHc

Respondent submitted its Comment (to Petitioner's Petition for Review dated 6
November 2018) on 11 March 2019. 3 0
On 17 March 2019, the Court En Banc referred the case for mediation pursuant
to Section II of the Interim Guidelines for Implementing Mediation in the Court of Tax
Appeals. 3 1
Subsequently, on 24 May 2019, the parties led their No Agreement to Mediate,
dated 23 May 2019, stating that they have decided not to have their case mediated by
the Philippine Mediation Center Unit-Court of Tax Appeals. 3 2
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 Considering the decision of the parties not to mediate, the Court En Banc issued
a Resolution dated 18 June 2019 directing them to file their respective memoranda. 3 3
On 30 July 2019, the petitioner led a manifestation stating that he is adopting
the arguments he raised in his Petition for Review as his Memorandum. 3 4 Meanwhile,
the respondent filed its Memorandum on 31 July 2019. 3 5
On 11 September 2019, the Court En Banc promulgated a Resolution submitting
the case for decision. 3 6 Hence, this Decision.

The Issues 3 7

WHETHER THE COURT IN DIVISION ERRED IN CANCELLING AND

WITHDRAWING THE FDDA DATED 15 APRIL 2015 ASSESSING RESPONDENT
FOR DEFICIENCY VAT INCLUDING SURCHARGE AND INTEREST, IN THE
AGGREGATE AMOUNT OF P25,772,734.83 FOR TAXABLE YEAR 2009 DUE TO
ALLEGED PRESCRIPTION AND FOR PETITIONER'S FAILURE TO SECURE THE
REQUIRED CERTIFICATIONS OR CONFIRMATION FROM THE THIRD PARTY
SOURCES.

Arguments of the Parties

Petitioner's Arguments 3 8
Petitioner argues that although he did not secure the certi cations or
con rmations from the third-party information sources to support the information it
gathered from the computerized/third-party matching, the absence of such
con rmation did not affect the validity of the assessment. He insists that nowhere in
Revenue Memorandum Order ("RMO") No. 04-2003 or 46-2004 does it state that
the absence of said certifications or confirmations renders the assessment void.
Petitioner also alleges that since the lack of certi cations or con rmations do
not render the assessment void, his assessment nding respondent to have undeclared
sales/receipts amounting to P83,886,643.55 should be sustained, and since his
assessment exceeds 30% of respondent's declared sales/receipts in its VAT returns,
the same should be considered as a false return which triggers the applicability of the
ten (10)-year prescriptive period.
Respondent's Counter-Arguments 3 9
Respondent alleges that the instant Petition for Review raises no new issue and
should be denied outright. Respondent maintains that petitioner's arguments are
identical to the ones it raised in his Motion for Reconsideration which were already
denied by the Court in Division in its assailed Resolution and Decision.
Further, respondent insists that the assessment is void since petitioner failed to
observe the necessary due process in the issuance of the assessment, in violation of
Section 228 of the Tax Code which requires the assessment to be based on facts.
Respondent explains that petitioner's assessment is based on unveri ed and
inaccurate third party information which renders the assessment void. ETHIDa

Finally, respondent argues that petitioner's allegation that it substantially

underdeclared its sales/receipts is false and is without factual basis. It insists that the
applicable prescriptive period should only be three (3) years, and since the FAN was
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 issued beyond the said three (3)-year period, the assessment has already prescribed.

The Ruling of the Court

The data gathered by the BIR from

the third-party information source
should be verified in order to render
the assessment valid.
–––––––––––––––––––––––––––––––
The contention of the petitioner that the validity of the assessment is not
affected by the absence of the certi cations or con rmations from the third-party
sources to validate the amounts obtained by the BIR from its computerized/third-party
matching is wrong and without merit.
The pertinent portions of RMO No. 04-2003 and 46-2004 state:
"Revenue Memorandum Order No. 4-2003
Subject: Guidelines and Procedures on the Processing of Quarterly
Summary Lists of Sales and Purchases and of the Imposition of Penalties
Therefor as Provided under Revenue Regulations No. 8-2002
xxx xxx xxx
I. Background
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 identi ed as an effective tool to improve tax administration through
the development of the Reconciliation of Listings for Enforcement (RELIEF)
System. TIADCc

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 taxpayers' 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 7-99 and RR 8-
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
underdeclaration of revenues/overdeclaration of cost and expenses,
thus resulting to greater tax potential ."
"Revenue Memorandum Order No. 46-04
SUBJECT: Additional Supplement and Guidelines in Handling Letter
Notices with Discrepancies Arising from Data Matching Processes as de ned in
Revenue Memorandum Order (RMO) Nos. 34-2004 and 30-2003, as amended by
RMO Nos. 42-2003 and 24-2004, which remain Unserved, have been Served but
are Without Response, or are Under Protest by Taxpayers
xxx xxx xxx

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 III. PROCEDURES
xxx xxx xxx
Action on Protested LNs due to TPI discrepancy
The Revenue Officer assigned to handle the Letter Notice shall:
1. Evaluate the merits of the taxpayer's Protest by:
1.1 Requiring the taxpayer to submit the necessary
schedules and supporting documents to substantiate his claims.
1.2 Reconciling the Schedule of Sales/Local Purchases
submitted by the taxpayer against the Details of Taxpayer's
Customers/Suppliers' Records (DTCS) culled from the Quarterly
Summary List of Sales/Purchases submitted by taxpayer's
suppliers and customers, respectively.
1.3 Reconciling the Schedule of Importation submitted
by the taxpayer against the Details of Importation with Return
Information Matching (DIRIM) culled from data provided by the
Bureau of Customs (BOC).
1.4 Checking for the propriety of the transactions
re ected in the schedules submitted by the taxpayer by validating
receipts, import entry declarations, etc.).
2. Require the taxpayer to execute a Sworn Statement (Annex A)
attesting to the veracity of the schedules and authenticity of the documents
presented/submitted.
3. Obtain Sworn Statements from TPI sources (Annexes "B"
and "C") . 40

Although the said RMOs do not explicitly state that the absence of the
con rmation or certi cation renders the assessment void, the abovementioned
provisions con rm that the BIR is required to verify the amounts it obtained from its
computerized/third-party matching by securing con rmation or certi cation from the
third-party information source, or from externally sourced data. AIDSTE

Without accomplishing the aforementioned, the data gathered from the

computerized/third party matching are left unveri ed, and the resulting assessment is
void for lack of factual and legal basis.
As ruled by the Supreme Court in Commissioner of Internal Revenue v.
Hantex Trading Co., Inc. 4 1 an assessment, in order to stand judicial scrutiny, must
be based on facts supported by credible evidence. The relevant portions of the said
case are hereby 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 su cient evidence.
Upon the introduction of the assessment in evidence, a prima facie case of
lability on the part of the taxpayer is made. If a taxpayer les 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
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 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 de ciency notice
disappears. Hence, the determination by the CTA must rest on all the
evidence introduced and its ultimate determination must nd support
in credible evidence .
xxx xxx xxx
Thus, the computations of the EIIB and the BIR on the quantity and costs
of the importations of the respondent in the amount of P105,761,527.00 for
1987 have no factual basis, hence, arbitrary and capricious. The petitioner
cannot rely on the presumption that she and the other employees of
the BIR had regularly performed their duties. As the Court held in
Collector of Internal Revenue v. Benipayo , in order to stand judicial
scrutiny, the assessment must be based on facts. The presumption of
the correctness of an assessment, being a mere presumption, cannot
be made to rest on another presumption ." 4 2
Furthermore, the issue raised by the petitioner is not novel and has been resolved
by this court in Commissioner of Internal Revenue v. G&W Architects, Engineers
and Project Consultants, Co. , 4 3 where it was ruled:
"The assessment being based on unveri ed information, this Court could
not just recklessly take it hook, line and sinker, absent any substantiation.
AaCTcI

Petitioner likewise failed to show that he complied with the

guidelines set forth in RMO No. 46-04, which requires the execution
and presentation of sworn statements from third-party informants to
attest to veracity of the schedules and data on which the assessment
is based. There being no veri cation, the reliability of such
information is questionable.
Moreover, while there is a presumption of correctness of
assessment issued by [Petitioner], it is an elementary rule that being a
mere presumption, the same cannot be made to rest on another
presumption which is [Petitioner's] presumption that the under-
declared purchases translated and would automatically result in
pro t, undeclared income or additional taxable sales which would in
turn increase [Respondent's] income tax and VAT liability. "
In this case, out of respondent's alleged undeclared sales/receipts assessment
totaling to P83,886,643.55, the Court in Division, upon examination, ruled that petitioner
was only able to verify two sales transactions made to Star re Co., Inc. and
Transcontainer Philippines, Inc., with the aggregate amount of P86,275.08.
At this juncture, the Court can only consider these transactions as valid
undeclared sales/receipts assessment of the petitioner.
Petitioner failed to establish that
respondent's VAT returns were
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 fraudulent, with intent to evade.
––––––––––––––––––––––––––––
As discussed above, the petitioner was only able to verify its undeclared
sales/receipts assessment up to the amount of P86,275.08, which only represents
1.21% (P86,275.08/P7,108,001.37) of the total declared sales of the respondent. Given
this, the petitioner failed to prove that there is substantial under-declaration and or
fraud under Section 222 of the Tax Code. Hence, the three (3)-year prescriptive period
under Section 203 of the Tax Code must apply.
Under Section 203 of the Tax Code, internal revenue taxes shall be assessed
within three (3) years after the last day prescribed by law for the ling of the return or
when the return was led, whichever is later. Hence, based on this provision, the
petitioner had the following dates to assess the respondent, as follows:

Last Day to
Perio d Co vered Date Filed and File as Last Day to
44 Paid 4 5 Req uired by Assess
Law
1st Quarter 2009 27 April 2009 25 April 2009 27 April 2012
2nd Quarter 2009 21 July 2009 25 July 2009 25 July 2012
3rd Quarter 2009 21 October 2009 25 October 2009 25 October 2012
4th Quarter 2009 22 January 2010 25 January 2010 25 January 2013

Considering, that the FAN was only received by respondent on 22 January 2014,
the same was clearly issued beyond the 3-year prescriptive period allowed by the Tax
Code.
Given the foregoing, we uphold the ruling of the Court in Division nding
petitioner's deficiency VAT assessment for calendar year 2009 null and void. SDHTEC

WHEREFORE , premises considered, the instant Petition for Review is hereby

DENIED for lack of merit. Accordingly, the Court in Division's Decision promulgated on
18 May 2018 and the Resolution dated 12 October 2018 are hereby AFFIRMED .
SO ORDERED.

(SGD.) MARIA ROWENA MODESTO-SAN

PEDRO
Associate Justice
Roman G. del Rosario, P.J., Juanito C. Castañeda, Jr., Erlinda P. Uy, Esperanza R.
Fabon-Victorino, Ma. Belen M. Ringpis-Liban, Catherine T. Manahan and Jean Marie A.
Bacorro-Villena, JJ., concur.

Footnotes
1. See Petition for Review; Rollo, pp. 5-47, with annexes.
2. "SECTION 3. Who May Appeal; Period to File Petition. —

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 xxx xxx xxx

(b) A party adversely affected by a decision or resolution of a Division of the Court on a

motion for reconsideration or new trial may appeal to the Court by ling before it a
petition for review within fteen days from receipt of a copy of the questioned
decision or resolution. Upon proper motion and the payment of the full amount of the
docket and other lawful fees and deposit for costs before the expiration of the
reglementary period herein xed, the Court may grant an additional period not
exceeding fteen days from the expiration of the original period within which to le
the petition for review."
3. A.M. No. 05-11-07-CTA, 22 November 2005.
4. See Prayer in the Petition for Review; Rollo, p. 15.
5. See The Facts in the Decision; Rollo, p. 21.

6. Id., pp. 20-21.

7. Id., p. 21.
8. Ibid.
9. Ibid.
10. Ibid.

11. Id., p. 22.

12. Ibid.
13. Ibid.
14. Ibid.
15. Ibid.

16. Ibid.
17. Ibid.
18. Id., p. 23.
19. Ibid.

20. Id., pp. 19-42.

21. See Resolution; Rollo, p. 44.
22. Ibid.
23. Rollo, pp. 44-47.
24. Id., pp. 1-3.

25. See Minute Resolution; Rollo, p. 4.

26. Rollo, pp. 5-47, with annexes.
27. Id., pp. 50-51.

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 28. Id., pp. 52-61.
29. Id., pp. 62-64.
30. Id., pp. 65-84.
31. Id., pp. 86-87.

32. Id., pp. 88-92.

33. Id., pp. 94-95.
34. Id., pp. 96-98.
35. Id., pp. 100-136.
36. Id., pp. 139-140.

37. See Issues for Resolution in the Petition for Review; Rollo, pp. 9-10.
38. See Petition for Review; Rollo, pp. 5-47, with annexes.
39. See Memorandum; Rollo, pp. 100-137.
40. Emphasis supplied.

41. G.R. No. 136975, 31 March 2005.

42. Emphasis supplied.
43. CTA E.B. No. 1572, 23 February 2018.
44. See The Facts in the Decision; Rollo, p. 21.
45. Ibid.

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