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G.R. No. 171101, April 24, 2018 - HACIENDA LUISITA INCORPORATED, PETITIONER, LUISITA INDUSTRIAL PARK CORPORATION AND RIZAL COMMERCIAL BANKING CORPORATION, Petitioners-in-Intervention, v. PRESIDENTIAL AGRARIAN REFORM COUNCIL; SECRETARY NASSER PANGANDAMAN OF THE DEPARTMENT OF AGRARIAN REFORM; ALYANSA NG MGA MANGGAGAWANG BUKID NG HACIENDA LUISITA, RENE GALANG, NOEL MALLARI, AND JULIO SUNIGA AND HIS SUPERVISORY GROUP OF THE HACIENDA LUISITA, INC. AND WINDSOR ANDAYA, Respondents.

G.R. No. 171101, April 24, 2018 - HACIENDA LUISITA INCORPORATED, PETITIONER, LUISITA INDUSTRIAL PARK CORPORATION AND RIZAL COMMERCIAL BANKING CORPORATION, Petitioners-in-Intervention, v. PRESIDENTIAL AGRARIAN REFORM COUNCIL; SECRETARY NASSER PANGANDAMAN OF THE DEPARTMENT OF AGRARIAN REFORM; ALYANSA NG MGA MANGGAGAWANG BUKID NG HACIENDA LUISITA, RENE GALANG, NOEL MALLARI, AND JULIO SUNIGA AND HIS SUPERVISORY GROUP OF THE HACIENDA LUISITA, INC. AND WINDSOR ANDAYA, Respondents.

PHILIPPINE SUPREME COURT DECISIONS

EN BANC

G.R. No. 171101, April 24, 2018

HACIENDA LUISITA INCORPORATED, PETITIONER, LUISITA INDUSTRIAL PARK CORPORATION AND RIZAL COMMERCIAL BANKING CORPORATION, Petitioners-in-Intervention, v. PRESIDENTIAL AGRARIAN REFORM COUNCIL; SECRETARY NASSER PANGANDAMAN OF THE DEPARTMENT OF AGRARIAN REFORM; ALYANSA NG MGA MANGGAGAWANG BUKID NG HACIENDA LUISITA, RENE GALANG, NOEL MALLARI, AND JULIO SUNIGA AND HIS SUPERVISORY GROUP OF THE HACIENDA LUISITA, INC. AND WINDSOR ANDAYA, Respondents.

R E S O L U T I O N

VELASCO JR., J.:

This treats of the "Motion for Execution of the 05 July 2011 Decision" interposed by respondents Noel Mallari and Windsor Andaya.1

As a backgrounder, in the fallo of its underlying Decision of July 5, 2011, the Court directed petitioner Hacienda Luisita Incorporated (HLI) to, among other things, pay the 6,296 qualified farm-worker beneficiaries (FWBs) of the hacienda the unspent or unused balance of the proceeds of the sale of the 580.51-hectare lot received by the company, viz:

HLI is directed to pay the 6,296 FWBs the consideration of PhP500,000,000 received by it from Luisita Realty, Inc. for the sale to the latter of 200 hectares out of the 500 hectares covered by the August 14, 1996 Conversion Order, the consideration of PhP750,000,000 received by its owned subsidiary, Centennary Holdings, Inc. for the sale of the remaining 300 hectares of the aforementioned 500-hectare lot to Luisita Industrial Park Corporation, and the price of PhP80,511,500 paid by the government through the Bases Conversion Development Authority for the sale of the 80. 51-hectare lot used for the construction of the SCTEX road network. From the total amount of PhP1,330,511,500 (PhP500,000,000 + PhP750,000,000 + PhP80,511,500 = PhP1,330,511,500) shall be deducted the 3% of the total gross sales from the production of the agricultural land and the 3% of the proceeds of said transfers that were paid to the FWBs, the taxes and expenses relating to the transfer of titles to the transferees, and the expenditures incurred by HLI and Centennary Holdings, Inc. for legitimate corporate purposes. For this purpose, DAR is ordered to engage the services of a reputable accounting firm approved by the parties to audit the books of HLI and Centennary Holdings, Inc. to determine if the PhP1,330,511,500 proceeds of the sale of the three (3) aforementioned lots were used or spent for legitimate corporate purposes. Any unspent or unused balance as determined by the audit shall be distributed to the 6,296 original FWBs.2
On November 22, 2011, the Court, acting on several incidents, issued a Resolution denying, in the main, petitioner's motion for reconsideration and standing firm in its Decision of July 5, 2011. The dispositive portion of the Court's Resolution reads in full as follows:
WHEREFORE, the Motion for Partial Reconsideration dated July 20, 2011 filed by public respondents Presidential Agrarian Reform Council and Department of Agrarian Reform, the Motion for Reconsideration dated July 19, 2011 filed by private respondent Alyansa ng mga Manggagawang Bukid sa Hacienda Luisita, the Motion for Reconsideration dated July 21, 2011 filed by respondent-intervenor Farmworkers Agrarian Reform Movement, Inc., and the Motion for Reconsideration dated July 22, 2011 filed by private respondents Rene Galang and AMBALA are PARTIALLY GRANTED with respect to the option granted to the original farmworker-beneficiaries of Hacienda Luisita to remain with Hacienda Luisita, Inc., which is hereby RECALLED and SET ASIDE. The Motion for Clarification and Partial Reconsideration dated July 21, 2011 filed by petitioner HLI and the Motion for Reconsideration dated July 21, 2011 filed by private respondents Noel Mallari, Julio Suniga, Supervisory Group of Hacienda Luisita, Inc. and Windsor Andaya are DENIED.
The fallo of the Court's July 5, 2011 Decision is hereby amended and shall read:
PARC Resolution No. 2005-32-01 dated December 22, 2005 and Resolution No. 2006-34-01 dated May 3, 2006, placing the lands subject of HLI's SDP under compulsory coverage on mandated land acquisition scheme of the CARP, are hereby AFFIRMED with the following modifications:

All salaries, benefits, the 3% of the gross sales of the production of the agricultural lands, the 3% share in the proceeds of the sale of the 500- hectare converted land and the 80.51-hectare SCTEX lot and the homelots already received by the 10,502 FWBs composed of 6,296 original FWBs and the 4,206 non-qualified FWBs shall be respected with no obligation to refund or return them. The 6,296 original FWBs shall forfeit and relinquish their rights over the HLI shares of stock issued to them in favor of HLI. The HLI Corporate Secretary shall cancel the shares issued to the said FWBs and transfer them to HLI in the stocks and transfer book, which transfers shall be exempt from taxes, fees and charges. The 4,206 non-qualified FWBs shall remain as stockholders of HLI.

DAR shall segregate from the HLI agricultural land with an area of 4,915.75 hectares subject of PARC's SOP-approving Resolution No. 89-12-2 the 500-hectare lot subject of the August 14, 1996 Conversion Order and the 80.51-hectare lot sold to, or acquired by, the government as part of the SCTEX complex. After the segregation process, as indicated, is done, the remaining area shall be turned over to DAR for immediate land distribution to the original 6,296 FWBs or their successors-in-interest which will be identified by the DAR. The 4,206 non-qualified FWBs are not entitled to any share in the land to be distributed by DAR.

HLI is directed to pay the original 6,296 FWBs the consideration of PhP500,000,000 received by it from Luisita Realty, Inc. for the sale to the latter of 200 hectares out of the 500 hectares covered by the August 14, 1996 Conversion Order, the consideration of PhP750,000,000 received by its owned subsidiary, Centennary Holdings, Inc., for the sale of the remaining 300 hectares of the aforementioned 500-hectare lot to Luisita Industrial Park Corporation, and the price of PhP80,511,500 paid by the government through the Bases Conversion Development Authority for the sale of the 80.51-hectare lot used for the construction of the SCTEX road network. From the total amount of PhP1,330,511,500 (PhP500,000,000 + PhP750,000,000 + PhP80,511,500 = PhP1,330,511,500) shall be deducted the 3% of the proceeds of said transfers that were paid to the FWBs, the taxes and expenses relating to the transfer of titles to the transferees, and the expenditures incurred by HLI and Centennary Holdings, Inc. for legitimate corporate purposes. For this purpose, DAR is ordered to engage the services of a reputable accounting firm approved by the parties to audit the books of HLI and Centennary Holdings, Inc. to determine if the PhP1,330,511,500 proceeds of the sale of the three (3) aforementioned lots were actually used or spent for legitimate corporate purposes. Any unspent or unused balance and any disallowed expenditures as determined by the audit shall be distributed to the 6,296 original FWBs.

HLI is entitled to just compensation for the agricultural land that will be transferred to DAR to be reckoned from November 21, 1989 which is the date of issuance of PARC Resolution No. 89-12-2. DAR and LBP are ordered to determine the compensation due to HLI.

DAR shall submit a compliance report after six (6) months from finality of this judgment. It shall also submit, after submission of the compliance report, quarterly reports on the execution of this judgment within the first 15 days after the end of each quarter, until fully implemented.

The temporary restraining order is lifted.

SO ORDERED.3
The July 5, 2011 Decision of the Court, as affirmed with modification in its November 22, 2011 Resolution, became final and executory on April 24, 2012. Thus, for purposes of determining the actual amount that may be distributed to the qualified FWBs, the Court issued a Resolution dated January 28, 2014 appointing a panel of three accounting firms. The dispositive portion of the Resolution provides:
WHEREFORE, premises considered, the following persons/entities are hereby APPOINTED as members of the panel tasked to conduct the special audit as ordered by the Court in Our July 5, 2011 Decision, viz.:

1. Ocampo, Mendoza, Leong and Lim (OMLL);

2. Ms. Carissa May Pay-Penson, CPA; and

3. Navarro Amper & Co. (Deloitte)

The panel shall DETERMINE the legitimate corporate expenses incurred by HLI from the respective dates of receipt by HLI of the payments for the properties until Our July 5, 2011 Decision became final and executory, which expenses shall be deducted from the PhP1,330,511,500 proceeds of the sale of the 580.51 hectare HLI property.

The panel is hereby given a period of ninety (90) days to complete the audit.

Upon completion of the special audit, the panel shall immediately SUBMIT to the Court its report/recommendation thereon.

The cost of the audit shall be shouldered by HLI.
The audit panel was appointed to determine if the P1,330,511,500 proceeds of the sale of the lots were actually used or spent for legitimate corporate purposes by HLI. Given that, as previously stated, any unspent or unused balance and any disallowed expenditures as determined by the panel shall be distributed to the 6,296 FWBs. Essentially, to arrive at what shall be deemed the unspent or unused balance of the sales proceeds, the following are to be deducted therefrom:
  1. 3% of the proceeds that were already paid to the FWBs;

  2. tax expenses relating to the transfer of titles to the transferees; and

  3. expenditures incurred by the Company for legitimate corporate expenses.
As to the meaning of the term "legitimate corporate expenses," the Court's January 28, 2014 Resolution likewise clarified it by referring to the definition of "ordinary and necessary expenses" used for taxation purposes, viz:
As regards the meaning of "legitimate corporate expenses," We refer to the definition of "ordinary and necessary expenses" used for taxation purposes. Thus:
Ordinarily, an expense will be considered 'necessary' where the expenditure is appropriate and helpful in the development of the taxpayer's business. It is 'ordinary' when it connotes a payment which is normal in relation to the business of the taxpayer and the surrounding circumstances. The term 'ordinary' does not require that the payments be habitual or normal in the sense that the same taxpayer will have to make them often; the payment may be unique or non-recurring to the particular taxpayer affected.

x x x Assuming that the expenditure is ordinary and necessary in the operation of the taxpayer's business, the answer to the question as to whether the expenditure is an allowable deduction as a business expense must be determined from the nature of the expenditure itself, which in turn depends on the extent and permanency of the work accomplished by the expenditure.
On September 13, 2016, for the apparent lack of interest of the accounting firm OMLL, the Court resolved to appoint Reyes Tacandong & Co. (RT&Co.) as a member of the audit panel. In the same Resolution, the Court ordered that the audit panel shall, by a majority vote, decide on the matters pertaining to the conduct of the audit and to submit a monthly report of their audit and a Final Report on or before the lapse of the ninety (90)-day period.

Per its reports, the audit panel convened on April 19, 2017 and agreed on the following matters:
  1. A common scope of work, work program, process, workflow and client participation list;

  2. Each member of the audit panel shall perform the procedures agreed upon independently and shall therefore issue a separate report based on the procedures performed;4 and

  3. Other matters including communication protocols, engagement timeline and reporting requirements.5
REYES TACANDONG & CO.'S FINAL REPORT

By September 15, 2017, RT&Co. submitted its Final Report and summarized its findings with the following table:
Inputs
Amount
 
    
Proceeds from sale of land:    
Sale to LRC 
P500,000,000
 
Sale to LIPCO 
750,000,000
 
Sale to BCDA 
80,511,500
 
Total Proceeds 
1,330,511,500
 
  
 
Less Disbursements Directly Related to the Sale: 
 
  
 
Taxes Related to the sale of parcels of land:  
 
Sale to LRC 
 
Sale to LIPCO 
 
Sale to BCDA 
15,000,000
 
  
44,190,000
 
3% share of FWB on the proceeds 
4,830,690
 
  
 
  
39,915,345
 
Net Proceeds after Taxes and 3% Share of FWB 
1,226,575,465
 
  
 
Legitimate Corporate Expenses:  
 
Claimed as deduction in Income Tax Returns
P4,309,508,157
 
(ITR)
(29,746,035)
 
Already claimed as disbursements directly related to the sale above
4,279,762,122
 
  
 
Net Disbursements after Taxes, 3% Share of FWB and Legitimate Corporate Expenses 
(3,053,186,657)
 
  
 
Revenue from Operations  
2,404,396,492
 
  
 
Net Disbursements 
P648,790,165)
 
Explaining how it came up with the "legitimate corporate expenses" amounting to P4,279,762,122, RT&Co. outlined the procedures it adopted and wrote in its Final Report that:
The procedures performed and the results and findings are discussed below: The documents supporting the results and findings are filed in Annex E.

a. We obtained and summarized the Company's expense claimed as deductions in the ITR for the fiscal years ended June 30, 1998 to 2011.

We requested copies of the ITR for the fiscal years ended June 30, 1998 to 2011 and were provided with the ITR for fiscal years ended June 30, 1998, 2003 to 2005 and 2007 to 2011. Because the ITR for other fiscal years are not available, we referred to the AFS to identify corporate expenses that are deductible for income tax purposes.

Corporate expenses deducted for income tax purposes totaled P4,309,508,157 for the fiscal years ended June 30, 1998 to 2011 as follows:
As Disclosed in the ITR and FS
Amount
Cost of Sales
General and administrative expenses
Other charges
Less nondeductible expenses:
Provision for doubtful accounts
Retirement expense
Provision for decline of value of investment
Impairment loss on investment
Interest Expense
Unrealized foreign exchange loss
Unallowable representation expense
Nondeductible expense
Total
P2,864,060,868
1,001,102,071
714,895,626

216,413,155
18,990,626
13,500,000
12,100,000
1,337,260
541,555
549,800
7,118,012
P4,309,508,157
We did not note any exception.

b. We compared the corporate expenses claimed in the ITR against corporate expenses in the AFS.

We requested and obtained the AFS of the Company for the fiscal years ended June 30, 1998 to 2011. We summarized the expenses reported in the AFS in the periods under consideration. Furthermore, we compared the expenses reported in the AFS against the corporate expenses disclosed in the ITR.

We did not note any exception.

c. We assessed if the expense claimed as deductions in the ITR can qualify as legitimate corporate expenses as defined by the SC.

x x x x

Based on the definition above, all corporate expenses claimed as deductions in the ITR are therefore qualified as legitimate corporate expenses in computing the net disbursements.

Moreover, we noted that there were taxes related to the sale and 3% FWB share on the proceeds that were not presented net from the gain on sale and hence, were reported as part of the corporate expenses. Accordingly, we excluded these from the legitimate corporate expenses as these have been already claimed as disbursements directly related to the sale. Details are as follows:
 
Amount
 
3% share of FWB in the sale - sale to LIPCO and BCDA
P24,915,345
 
Taxes Related to the sale - sale to LIPCO
4,830,690
 
 
P29,746,035
 
d. We selected legitimate corporate expenses for testing from all disbursements amounting to at least P100,000 for the fiscal years ended June 30, 1998 to 2011. We vouched these disbursements to the check vouchers, payable vouchers and source documents. We, further, determined if the disbursements were cleared by the bank.

Sample Selection

Due to the significant number of transactions in fiscal years 1998 to 2011, we only select disbursements exceeding P100,000 for vouching. We exc1uded disbursements for the payment of loans because these do not meet the definition of legitimate corporate expenses.

Matching of Disbursements to Legitimate Corporate Expense Categories

Disbursements vouched relating to legitimate corporate expenses aggregated P3,563,879,525. We checked the account classification against entries in the subsidiary ledgers. Disbursements which we cannot check the account classification because the subsidiary ledgers are not available, were classified to a legitimate expense account based on the nature of the disbursements.

Legitimate corporate expense vouched according to expense account classification are as follows:
 
Per ITR and FS
Amounts vouched
% Vouched
Cost of Sales
Planting and cultivating
Barrio administration
Harvesting and transport
Trash operations
Production share
Aquaculture
Others

P1,290,138,754
782,383,405
434,854,199
143,956,890
72,088,656
64,130,160
32,602,833

P1,206,950,253
748,219,960
350,658,061
101,097,725
62,002,546
43,504,402
28,414,769

93.55%
95.63%
80.64%
70.23%
86.01%
67.84%
87.15%
 
2,820,154,897
2,540,847,716
90.10%
General and Administrative Expenses
General administration
Equipment group
services
Farm administration

684,560,618
29,285,219
44,508,278

501,818,738
29,114,074
43,442,688

73.31%
99.42%
97.61%
  
 
758,354,115
574,375,500
75.74%
Other charges
Interest expense
Bank charges

692,894,152
8,358,958

448,656,309
--

64.75%
0.00%
 
701,253,110
448,656,309
63.98%
Total
P4,279,762,122
P3,563,879,525
83.27%
The nature of the legitimate corporate expenses vouched is as follows:
Nature
Amount Vouched
% of Total
Payroll
Materials and
supplies
Interest payments
Employee benefits
Taxes and licenses
Tractor services
Production share
Medical expense
Retrenchment pay
Hauling services
Insurance
Cutting and loading service

Utilities

Professional fees

School bus allowance

Others
P1,190,119,697
1,086,855,792
446,719,470
420,799,589
87,671,132
70,220,924
62,002,546
19,588,005
17,323,395
16,489,576
10,701,165
10,399,074
8,884,496
8,333,315
8,307,484
99,463,865
33.39%
30.50%
12.53%
11.81%
2.46%
1.97%
1.74%
0.55%
0.49%
0.46%
0.30%
0.29%
0.25%
0.23%
0.23%
2.79%
Total
P3,563,879,525
100.00%
Classification of Source Documents

We classified the vouched legitimate corporate expenses according to source documents as follows:
  1. Payroll registers - internally-generated report that serves as the primary document supporting the salaries of the farmworkers.

  2. Third Party Documents - external source documents issued by third-party suppliers, including but not limited to official receipts, invoices and statements of account.

  3. Accounting Documents and Other Internal Accounting Records - disbursements are classified to this category if the supporting documents are merely check vouchers, payable vouchers, request for payment and/or internally generated document, other than payroll registers.
Results of our testing are as follows:
  
VOUCHED
TOTAL LEGITIMATE CORPORATE EXPENSES
 
Payroll Registers
Third Party Source Documents
Accounting Documents
TOTAL VOUCHED
 
Cost of Sale
Planting and Cultivating
Barrio administration
Harvesting and transport
Trash operations
Production share
Aquaculture
Others
P401,192,257
216,796,327
273,433,975
31,193,494
21,906,427
9,274,072
2,508,561
P216,404,747
44,059,480
3,561,892
6,993,319
-
6,206,776
2,432,057
P589,353,249
487,364,153
73,662,194
62,910,912
40,096,119
28,023,554
23,474,151
P1,206,950,253
748,219,960
350,658,061
101,097,725
62,002,546
43,504,402
28,414,769
P1,290,138,754
782,383,405
434,854,199
143,956,890
72,088,656
64,130,160
32,602,833
 
956,305,113
279,658,271
1,304,884,332
2,540,847,716
General and Administrative
General and administration
Equipment Group Services
Farm Administration
48,626,016
35,520,525
19,548,307
119,932,566
216,416
511,407
333,260,156
7,705,747
9,054,360
501,818,738
43,442,688
29,114,074
684,560,618
44,508,278
29,285,219
 
103,694,848
120,660,389
350,020,263
574,375,500
758,354,115
Other Charges
Interest Expense
Bank Charges
--
--
368,952,229
--
79,704,080
--
448,656,309
--
692,894,152
8,358,958
 
--
368,952,229
79,704,080
448,656,309
701,253,110
Total
P1,059,999,961
P769,270,889
P1,734,608,675
P3,563,879,525
P4,279,762,122
Source documents tested were original copies and duly signed and approved by the appropriate parties.

Tracing to Bank Statements

Summary of the bank transactions for the fiscal years ended June 30, 1998 to 2011 are available only for the Company's bank accounts in United Coconut Planters Bank (UCPB)-Tarlac and Makati Branches and Metrobank-Makati Branch. However, the summary of the bank transactions for the Metrobank account was only received in September 6, 2017 and was excluded in the tracing.

We traced the legitimate corporate expense vouched to the bank statements. Results are as follows:
 
Legitimate Corporate Expense Vouched
Traced to Bank Statements
Cost of Sales
Planting and cultivating
Barrio administration
Harvesting and transport
Trash Operations
Production share
Aquaculture
Others

P1,206,950,253
748,219,960
350,658,061
101,097,725
62,002,546
43,504,402
28,414,769

P444,459,041
341,767,266
211,889,577
50,221,885
59,628,754
16,869,453
10,793,830
 
2,540,847,716
1,135,629,806
General and Administrative
General and administration
Equipment Group Services
Farm Administration

501,818,738
43,442,688
29,114,074

164,656,037
26,522,736
19,164,614
 
574,375,500
210,343,387
Other Charges
Interest Expense
Bank Charges

448,656,309
--

108,501,409
--
 
448,656,309
108,501,409
Total
P3,563,879,525
P1,454,474,602
% to Total
100.00%
40.81%
Moreover, legitimate corporate expenses vouched to internal accounting documents and records only, were traced to the bank statements as disbursements. Results are as follows:
 
Legitimate Corporate Expense Vouched to Internal Accounting Records and Documents Only
Traced to Bank Statements
Cost of Sales
Planting and cultivating
Barrio administration
Harvesting and transport
Trash Operations
Production share
Aquaculture
Others

P589,353,249
487,364.153
73,662,194
62,910,912
40,096,119
28,023,554
23,474,151

P174,640,533
93,804,398
53,730,554
28,471,959
20,968,280
10,295,250
7,298,910
 
1,304,884,332
P489,209,884
General and Administrative
General and administration
Equipment Group Services
Farm Administration

333,260,156
9,054,360
7,705,747

229,998,878
6,667,435
7,606,665
 
350,020,263
244,272,978
Other Charges
Interest Expense
Bank Charges

79,704,080
--

43,752,879
--
 
79,704,080
43,752,879
Total
P1,734,608,675
P777,235,741
% to Total
100.00%
44.81%
e. We obtained a listing of all expenses for fiscal years 1998 to 2011 from the various registers and agreed the amounts in the listing with the AFS.

We were not provided a listing of all expenses for fiscal years 1998 to 2011. In lieu of the listing, we were provided with the monthly subsidiary ledgers in the periods under consideration.

We summarized the monthly subsidiary ledgers for the fiscal years ended June 30, 1998 to 2011 and agreed the summarized expenses with the amounts reflected in the AFS. We noted differences aggregating to P37.3 million for the fiscal years ended June 30, 2007 and 2008. The differences were attributed to audit adjustments not posted in the Company's books of accounts.

f. We summarized expenses incurred by CHI by vouching to the AFS.

The following are the expenses incurred for the fiscal years 1998 to 2011.
 
Amount
Taxes and Licenses
Pre-operating expenses
Professional fees
Transportation and travel
Others
P10,126,103
1,199,097
91,500
13,748
38,257
 
P11,468,705
We were not able to obtain documents supporting the abovementioned expenses and thus, we cannot ascertain their validity.
NAVARRO AMPER & CO.'S FINAL REPORT

On September 18, 2017, the Court received the Final Report of NA&Co. The figure of P1,710,494,333 appears to represent the legitimate corporate expenses of petitioner HLI for the fiscal years relevant to the case. NA&Co. summarized its findings, thusly:
Note [d] - Legitimate Corporate Expense

Procedures Performed

As discussed under Section I (C), there was no separate and specific accounting and identification of expenses to which the proceeds from the sale of land properties were used. Following the Supreme Court's resolution deducting the legitimate corporate expenses from the proceeds, we asked the company to provide us with the schedule of those expenses. In the absence of the schedule, we then followed the procedures we planned (which was agreed by the Panel) to identify the legitimate corporate expenses considering the definition of the Supreme Court of the "legitimate corporate expenses".

Accordingly, we obtained from the Company all relevant accounting records such as cash vouchers, payable vouchers, journal vouchers, cash book records, subsidiary ledgers, general ledgers and other related attachments thereto, covering the period of the Engagement.

To the extent possible, we selected, traced and sighted the expense amounts from the cash books to check vouchers, payable vouchers and related attachments thereto, as well to the bank statements.

We also traced the transactions to the related subsidiary ledger, then subsidiary ledger total to the general ledger and ultimately to the financial statements and income tax returns of the periods covered by the Engagement.

Summary Results and Findings

Based on the procedures performed, the total legitimate corporate expenses sighted and traced through the supporting documents amounted to P1,710,494,333 as summarized below:
TYPE OF DOCUMENT
Original
Photocopy
Total
External Documents
Third Party
P79,887,529
P96,750,835
P176,638,364
Internal Documents
Payroll Register
Payable Voucher
Request for Payment/Petty Cash
Voucher
Transactions Summary
Material Receipt
Internal Invoice

942,015,426
61,952,958

160,654,199
219,345,895
341,316
15,844,630

60,942,020
10,490,201

21,427,804
40,298,935
17,229
252,356

1,002,957,446
72,443,159

182,082,003
259,644,830
358,545
16,369,986
Subtotal
1,400,154,424
133,701,545
1,533,855,969
Total
P1,480 041,953
P230,452,380
P1,710,494,333
Percentage of Amount:
traced to bank statements
not traced to bank statements
Total

82.84%
17.16%
100.00%

46.30%
53.70%
100.00%

77.92%
22.08%
100.00
In performing the above procedures, we were able to trace and note payment of liabilities which may represent payment for accounts payable and accrued expenses. However, we were not able to verify the actual expense accounts charged when the liabilities and the accruals were recorded due to the following reasons:
  1. Multiple invoices are paid in lump - It is difficult to trace the transactions to the ledgers/journal vouchers since there is no unique referencing; thus, it was impracticable to trace the liabilities to the underlying expense accounts.

  2. Hospital bills - There are voluminous transactions with small amounts; hence, making it impracticable to trace;

  3. Absence of subsidiary ledgers which would allow us to trace the recording of the expense.
Hence, we have not included those payments amounting to Php3,767,874,734 in the amount of legitimate corporate expenses presented as sighted and traced.

x x x x
Taking into account the amount of P1,710,494,333, as the legitimate corporate expenses of petitioner HLI, and all other amounts that shall be deducted from the proceeds of the sales per this Court's Decision, NA&Co. calculated what may be disbursed to the FWBs in the following manner:
 
External Documents
Internal Documents
Note
Total
Original
Photocopy
Original
Photocopy
[a] PROCEEDS FROM THE SALE
 
LRC
LIPCO
BCDA
P500,000,000
750,000,000
80,511,500
P500,000,000
--
25,680,810
P-
750,000,000
54,830,690
P-
-
-
P-
-
-
 
1,330,511,500
525,680,810
804,830,690
-
-
LESS DISBURSEMENTS
[b] 3% Share of FWBs
39,709,309
39,709,309
-
[c] Taxes Related to land sold to:

LRC
LIPCO
BCDA
18,750,000
55,440,000
4,830,690
15,000,000
46,440,000
--
3,750,000
9,000,000
4,830,690
-
-
-
-
-
-
 
79,020,690
61,440,000
17,580,690
-
-
Subtotal
118,729,999
61,440,000
17,580,690
39,709 309
-
 
[d] Legitimate Corporate Expenses
1,710,494,333
79,887,529
96,750,835
1,400,154,424
133,701,545
Total Expenses
1,829,224,330
141,327,529
114,331,525
1,439,863,733
133,701,545
 
NET PROCEEDS (DISBURSEMENTS)
(P498,712,830)
P384,353,281
P690,499,165
(P1,439,863,733)
(P133,701,545)
CARISSA MAY PAY-PENSON'S FINAL REPORT

Pay-Penson who was nominated by the movants to be a member of the audit panel submitted her Final Report on September 29, 2017. In tabular form, she summarized her findings as follows:
Document Grading
Total in PHP
 

AA
(External documents and disbursement traced through bank statements)

A
(External documents and disbursement not traced through bank statements)
 

BB
(Internal documents and disbursement traced through bank statements)

B
(Internal documents and disbursement traced not through bank statements)
  
1,330,511,500
1,330,511,500
  
Taxes and Expenses 
-79,020,462
-79,020,690
3% Share of FWBs 
-34,740,462
-34,740,462
TOTAL PROCEEDS 
1,216,750,348
1,216,750,348


Legitimate Corporate Expenses
AA
A
BB
B
Total in PHP
Cost of Growing Crops
83,381
145,299,091
368,974,416
503,093,071
1,017,449,959
Irrigation and Drainage
1,954,873
2,470,758
243,871,435
22,887,894
271,184,960
Planting and Cultivating Costs
2,457,132
91,023,881
55,928,765
27,069,669
176,479,447
Barrio Administration
763,170
4,899,381
102,311,272
22,956,548
130,930,371
Inventories
-
- 11,934,053
--
86,718,142
98,652,195
Trash Operations
199,599
559,671
33,236,326
2,751,342
36,746,938
Aquaculture
1,065,809
2,364,181
4,196,433
2,215,570
9,841,993
Indirect Expenses
--
506,810
--
1,491,949
1,998,759
General and Administrative
4,144,785
20,098,187
80,422,156
132,119,132
236,784,260
 
10,668,749
279,156,013
888,940,803
801,303,317
1,980,068,882
To sum up, all three members of the audit panel have determined that the legitimate corporate expenses of HLI for the years 1998 up to 2011, coupled with the taxes and expenses related to the sale and the 3% share already distributed to the FWBs, far exceed the proceeds of the sale of the adverted 580.51-hectare lot. In net effect, there is no longer any unspent or unused balance of the sales proceeds available for distribution.

WHEREFORE, premises considered, the July 5, 2011 Decision and November 22, 2011 Resolution of the Court insofar as it directed that "any unspent or unused balance and any disallowed expenditures as determined by the audit shall be distributed to the 6,296 original FWBs" are considered FULLY COMPLIED WITH.

SO ORDERED.

Sereno, C. J., on leave.
Leonardo-De Castro, Peralta, Bersamin, Del Castillo, Perlas-Bernabe, Leonen, Caguioa, Martires, Tijam, Reyes, Jr., and Gesmundo, JJ., concur.
Carpio, (Acting C. J.), no part prior inhibition.
Jardeleza, J., no part.



NOTICE OF JUDGMENT

Sirs/Mesdames:

Please take notice that on April 24, 2018 a Decision/Resolution, copy attached herewith, was rendered by the Supreme Court in the above-entitled case, the original of which was received by this Office on June 25, 2018 at 10:51 a.m.


Very truly yours,
(SGD)
EDGAR O. ARICHETA
 
Clerk of Court

Endnotes:


1Rollo, Vol. 216.

2 Emphasis supplied.
 
3 Emphasis supplied.

4 Per NA&Co., the engagement was undertaken to the extent possible and subject to the limitations, in accordance with the requirements of Philippine Standard on Related Services (PSRS) 4400, Engagements to Perform Agreed-Upon Procedures.

5 RT&Co Final Report, p. 4.
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