tax cases
TRANSCRIPT
FIRST DIVISION
LUCAS G. ADAMSON, THERESE G.R. No. 120935
JUNE D. ADAMSON, and SARA
S. DE LOS REYES, in their capacities
as President, Treasurer and Secretary
of Adamson Management Corporation,
Petitioners,
- versus -
COURT OF APPEALS and
LIWAYWAY VINZONS-CHATO,
in her capacity as Commissioner
of the Bureau of Internal Revenue,
Respondents.
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COMMISSIONER OF G.R. No. 124557
INTERNAL REVENUE,
Petitioner,
Present:
-versus- PUNO, C.J., Chairperson,
CARPIO,
CORONA,
COURT OF APPEALS, COURT LEONARDO-DE CASTRO, and
OF TAX APPEALS, ADAMSON BERSAMIN, JJ.
MANAGEMENT CORPORATION,
LUCAS G. ADAMSON, THERESE
JUNE D. ADAMSON, and SARA Promulgated:
S. DE LOS REYES,
Respondents. May 21, 2009
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D E C I S I O N
PUNO, C.J.:
Before the Court are the consolidated cases of G.R. No. 120935 and G.R.
No. 124557.
G.R. No. 120935 involves a petition for review on certiorari filed by
petitioners LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON, and SARA S. DE
LOS REYES (private respondents), in their respective capacities as president,
treasurer and secretary of Adamson Management Corporation (AMC) against
then Commissioner of Internal Revenue Liwayway Vinzons-Chato
(COMMISSIONER), under Rule 45 of the Revised Rules of Court. They seek to
review and reverse the Decision promulgated on March 21, 1995 and
Resolution issued on July 6, 1995 of the Court of Appeals in CA-G.R. SP No.
35488 (Liwayway Vinzons-Chato, et al. v. Hon. Judge Erna Falloran-Aliposa, et
al.).
G.R. No. 124557 is a petition for review on certiorari filed by the
Commissioner, assailing the Decision dated March 29, 1996 of the Court of
Appeals in CA-G.R. SP No. 35520, titled Commissioner of Internal Revenue v.
Court of Tax Appeals, Adamson Management Corporation, Lucas G. Adamson,
Therese June D. Adamson and Sara S. de los Reyes. In the said Decision, the
Court of Appeals upheld the Resolution promulgated on September 19, 1994
by the Court of Tax Appeals (CTA) in C.T.A. Case No. 5075 (Adamson
Management Corporation, Lucas G. Adamson, Therese Adamson and Sara de
los Reyes v. Commissioner of Internal Revenue).
The facts, as culled from the findings of the appellate court, follow:
On June 20, 1990, Lucas Adamson and AMC sold 131,897 common
shares of stock in Adamson and Adamson, Inc. (AAI) to APAC Holding Limited
(APAC). The shares were valued at P7,789,995.00. On June 22, 1990,
P159,363.21 was paid as capital gains tax for the transaction.
On October 12, 1990, AMC sold to APAC Philippines, Inc. another
229,870 common shares of stock in AAI for P17,718,360.00. AMC paid the
capital gains tax of P352,242.96.
On October 15, 1993, the Commissioner issued a “Notice of Taxpayer”
to AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes,
informing them of deficiencies on their payment of capital gains tax and Value
Added Tax (VAT). The notice contained a schedule for preliminary conference.
The events preceding G.R. No. 120935 are the following:
On October 22, 1993, the Commissioner filed with the Department of
Justice (DOJ) her Affidavit of Complaint against AMC, Lucas G. Adamson,
Therese June D. Adamson and Sara S. de los Reyes for violation of Sections 45
(a) and (d), and 110, in relation to Section 100, as penalized under Section 255,
and for violation of Section 253, in relation to Section 252 (b) and (d) of the
National Internal Revenue Code (NIRC).
AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los
Reyes filed with the DOJ a motion to suspend proceedings on the ground of
prejudicial question, pendency of a civil case with the Supreme Court, and
pendency of their letter-request for re-investigation with the Commissioner.
After the preliminary investigation, State Prosecutor Alfredo P. Agcaoili found
probable cause. The Motion for Reconsideration against the findings of
probable cause was denied by the prosecutor.
On April 29, 1994, Lucas G. Adamson, Therese June D. Adamson and
Sara S. de los Reyes were charged before the Regional Trial Court (RTC) of
Makati, Branch 150 in Criminal Case Nos. 94-1842 to 94-1846. They filed a
Motion to Dismiss or Suspend the Proceedings. They invoked the grounds that
there was yet no final assessment of their tax liability, and there were still
pending relevant Supreme Court and CTA cases. Initially, the trial court denied
the motion. A Motion for Reconsideration was however filed, this time
assailing the trial court’s lack of jurisdiction over the nature of the subject
cases. On August 8, 1994, the trial court granted the Motion. It ruled that the
complaints for tax evasion filed by the Commissioner should be regarded as a
decision of the Commissioner regarding the tax liabilities of Lucas G. Adamson,
Therese June D. Adamson and Sara S. de los Reyes, and appealable to the CTA.
It further held that the said cases cannot proceed independently of the
assessment case pending before the CTA, which has jurisdiction to determine
the civil and criminal tax liability of the respondents therein.
On October 10, 1994, the Commissioner filed a Petition for Review with
the Court of Appeals assailing the trial court’s dismissal of the criminal cases.
She averred that it was not a condition prerequisite that a formal assessment
should first be given to the private respondents before she may file the
aforesaid criminal complaints against them. She argued that the criminal
complaints for tax evasion may proceed independently from the assessment
cases pending before the CTA.
On March 21, 1995, the Court of Appeals reversed the trial court’s
decision and reinstated the criminal complaints. The appellate court held that,
in a criminal prosecution for tax evasion, assessment of tax deficiency is not
required because the offense of tax evasion is complete or consummated
when the offender has knowingly and willfully filed a fraudulent return with
intent to evade the tax. It ruled that private respondents filed false and
fraudulent returns with intent to evade taxes, and acting thereupon, petitioner
filed an Affidavit of Complaint with the Department of Justice, without an
accompanying assessment of the tax deficiency of private respondents, in
order to commence criminal action against the latter for tax evasion.
Private respondents filed a Motion for Reconsideration, but the trial
court denied the motion on July 6, 1995. Thus, they filed the petition in G.R.
No. 120935, raising the following issues:
1. WHETHER OR NOT THE RESPONDENT HONORABLE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE IN UNGAB V. CUSI (Nos. L-41919-24, May 30, 1980, 97 SCRA 877) TO THE CASE AT BAR.
2. WHETHER OR NOT AN ASSESSMENT IS REQUIRED UNDER THE SECOND
CATEGORY OF THE OFFENSE IN SECTION 253 OF THE NIRC. 3. WHETHER OR NOT THERE WAS A VALID ASSESSMENT MADE BY THE
COMMISSIONER IN THE CASE AT BAR. 4. WHETHER OR NOT THE FILING OF A CRIMINAL COMPLAINT SERVES AS AN
IMPLIED ASSESSMENT ON THE TAX LIABILITY OF THE TAXPAYER. 5. WHETHER OR NOT THE FILING OF THE CRIMINAL INFORMATION FOR TAX
EVASION IN THE TRIAL COURT IS PREMATURE BECAUSE THERE IS YET NO BASIS FOR THE CRIMINAL CHARGE OF WILLFULL INTENT TO EVADE THE PAYMENT OF A TAX.
6. WHETHER OR NOT THE DOCTRINES LAID DOWN IN THE CASES OF YABES V. FLOJO (No. L-46954, July 20, 1982, 115 SCRA 286) AND CIR V. UNION SHIPPING CORP. (G.R. No. 66160, May 21, 1990, 185 SCRA 547) ARE APPLICABLE TO THE CASE AT BAR.
7. WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION OVER THE
DISPUTE ON WHAT CONSTITUTES THE PROPER TAXES DUE FROM THE TAXPAYER.
In parallel circumstances, the following events preceded G.R. No.
124557:
On December 1, 1993, AMC, Lucas G. Adamson, Therese June D.
Adamson and Sara S. de los Reyes filed a letter request for re-investigation
with the Commissioner of the “Examiner’s Findings” earlier issued by the
Bureau of Internal Revenue (BIR), which pointed out the tax deficiencies.
On March 15, 1994 before the Commissioner could act on their letter-
request, AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los
Reyes filed a Petition for Review with the CTA. They assailed the
Commissioner’s finding of tax evasion against them. The Commissioner moved
to dismiss the petition, on the ground that it was premature, as she had not
yet issued a formal assessment of the tax liability of therein petitioners. On
September 19, 1994, the CTA denied the Motion to Dismiss. It considered the
criminal complaint filed by the Commissioner with the DOJ as an implied
formal assessment, and the filing of the criminal informations with the RTC as
a denial of petitioners’ protest regarding the tax deficiency.
The Commissioner repaired to the Court of Appeals on the ground that
the CTA acted with grave abuse of discretion. She contended that, with regard
to the protest provided under Section 229 of the NIRC, there must first be a
formal assessment issued by the Commissioner, and it must be in accord with
Section 6 of Revenue Regulation No. 12-85. She maintained that she had not
yet issued a formal assessment of tax liability, and the tax deficiency amounts
mentioned in her criminal complaint with the DOJ were given only to show the
difference between the tax returns filed and the audit findings of the revenue
examiner.
The Court of Appeals sustained the CTA’s denial of the Commissioner’s
Motion to Dismiss. Thus, the Commissioner filed the petition for review under
G.R. No. 124557, raising the following issues:
1. WHETHER OR NOT THE INSTANT PETITION SHOULD BE DISMISSED FOR FAILURE
TO COMPLY WITH THE MANDATORY REQUIREMENT OF A CERTIFICATION UNDER OATH AGAINST FORUM SHOPPING;
2. WHETHER OR NOT THE CRIMINAL CASE FOR TAX EVASION IN THE CASE AT BAR CAN PROCEED WITHOUT AN ASSESSMENT;
3. WHETHER OR NOT THE COMPLAINT FILED WITH THE DEPARTMENT OF JUSTICE
CAN BE CONSTRUED AS AN IMPLIED ASSESSMENT; and 4. WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION TO ACT ON
PRIVATE RESPONDENTS’ PETITION FOR REVIEW FILED WITH THE SAID COURT.
The issues in G.R. No. 124557 and G.R. No. 120935 can be compressed
into three:
1. WHETHER THE COMMISSIONER HAS ALREADY RENDERED AN ASSESSMENT (FORMAL OR OTHERWISE) OF THE TAX LIABILITY OF AMC, LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON AND SARA S. DE LOS REYES;
2. WHETHER THERE IS BASIS FOR THE CRIMINAL CASES FOR TAX EVASION TO
PROCEED AGAINST AMC, LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON AND SARA S. DE LOS REYES; and
3. WHETHER THE COURT OF TAX APPEALS HAS JURISDICTION TO TAKE
COGNIZANCE OF BOTH THE CIVIL AND THE CRIMINAL ASPECTS OF THE TAX LIABILITY OF AMC, LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON AND SARA S. DE LOS REYES.
The case of CIR v. Pascor Realty, et al. is relevant. In this case, then BIR
Commissioner Jose U. Ong authorized revenue officers to examine the books of
accounts and other accounting records of Pascor Realty and Development
Corporation (PRDC) for 1986, 1987 and 1988. This resulted in a recommendation
for the issuance of an assessment in the amounts of P7,498,434.65 and
P3,015,236.35 for the years 1986 and 1987, respectively.
On March 1, 1995, the Commissioner filed a criminal complaint before the
DOJ against PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S.
Dio, alleging evasion of taxes in the total amount of P10,513,671.00. Private
respondents filed an Urgent Request for Reconsideration/Reinvestigation disputing
the tax assessment and tax liability.
The Commissioner denied the urgent request for
reconsideration/reinvestigation because she had not yet issued a formal assessment.
Private respondents then elevated the Decision of the Commissioner to the
CTA on a petition for review. The Commissioner filed a Motion to Dismiss the
petition on the ground that the CTA has no jurisdiction over the subject matter of
the petition, as there was yet no formal assessment issued against the petitioners.
The CTA denied the said motion to dismiss and ordered the Commissioner to file
an answer within thirty (30) days. The Commissioner did not file an answer nor
did she move to reconsider the resolution. Instead, the Commissioner filed a
petition for review of the CTA decision with the Court of Appeals. The Court of
Appeals upheld the CTA order. However, this Court reversed the Court of Appeals
decision and the CTA order, and ordered the dismissal of the petition. We held:
An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It also signals the time when penalties and interests begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it must be served on and received by the taxpayer. Accordingly, an affidavit, which was executed by revenue officers stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an assessment that can be questioned before the Court of Tax Appeals.
Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition or form of an assessment. However, the NIRC defines the specific functions and effects of an assessment. To consider the affidavit attached to the Complaint as a proper assessment is to subvert the nature of an assessment and to set a bad precedent that will prejudice innocent taxpayers.
True, as pointed out by the private respondents, an assessment informs the taxpayer that he or she has tax liabilities. But not all documents coming from the BIR containing a computation of the tax liability can be deemed assessments.
To start with, an assessment must be sent to and received by a taxpayer, and must demand payment of the taxes described therein within a specific period. Thus, the NIRC imposes a 25 percent penalty, in addition to the tax due, in case the taxpayer fails to pay the deficiency tax within the time prescribed for its payment in the notice of assessment. Likewise, an interest of 20 percent per annum, or such higher rate as may be prescribed by rules and regulations, is to be collected from the date prescribed for its payment until the full payment.
The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it. Section 203 of the NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return. Section 222, on the other hand, specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return. Also, Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof. Necessarily,
the taxpayer must be certain that a specific document constitutes an assessment. Otherwise, confusion would arise regarding the period within which to make an assessment or to protest the same, or whether interest and penalty may accrue thereon.
It should also be stressed that the said document is a notice duly sent to the taxpayer. Indeed, an assessment is deemed made only when the collector of internal revenue releases, mails or sends such notice to the taxpayer.
In the present case, the revenue officers’ Affidavit merely contained a computation of respondents’ tax liability. It did not state a demand or a period for payment. Worse, it was addressed to the justice secretary, not to the taxpayers.
Respondents maintain that an assessment, in relation to taxation, is simply understood to mean:
“A notice to the effect that the amount therein stated is due as tax and a demand for payment thereof.”
“Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for the proper presentation of tax rolls.”
Even these definitions fail to advance private respondents’ case. That the BIR examiners’ Joint Affidavit attached to the Criminal Complaint contained some details of the tax liabilities of private respondents does not ipso facto make it an assessment. The purpose of the Joint Affidavit was merely to support and substantiate the Criminal Complaint for tax evasion. Clearly, it was not meant to be a notice of the tax due and a demand to the private respondents for payment thereof.
The fact that the Complaint itself was specifically directed and sent to the Department of Justice and not to private respondents shows that the intent of the commissioner was to file a criminal complaint for tax evasion, not to issue an assessment. Although the revenue officers recommended the issuance of an assessment, the commissioner opted instead to file a criminal case for tax evasion. What private respondents received was a notice from the DOJ that a criminal case for tax evasion had been filed against them, not a notice that the Bureau of Internal Revenue had made an assessment.
Private respondents maintain that the filing of a criminal complaint must be preceded by an assessment. This is incorrect, because Section 222 of the NIRC specifically states that in cases where a false or fraudulent return is submitted or in cases of failure to file a return such as this case, proceedings in court may be commenced without an assessment. Furthermore, Section 205 of the same Code clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. In Ungab v. Cusi, petitioner therein sought the dismissal of the criminal Complaints for being premature, since his protest to the CTA had not yet been resolved. The Court held that such protests could not stop or suspend the criminal action which was independent of the resolution of the protest in the CTA. This was because the
commissioner of internal revenue had, in such tax evasion cases, discretion on whether to issue an assessment or to file a criminal case against the taxpayer or to do both.
Private respondents insist that Section 222 should be read in relation to Section 255 of the NIRC, which penalizes failure to file a return. They add that a tax assessment should precede a criminal indictment. We disagree. To reiterate, said Section 222 states that an assessment is not necessary before a criminal charge can be filed. This is the general rule. Private respondents failed to show that they are entitled to an exception. Moreover, the criminal charge need only be supported by a prima facie showing of failure to file a required return. This fact need not be proven by an assessment.
The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted. If the commissioner is unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically and clearly that an assessment has been made against him or her. In contrast, the criminal charge need not go through all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed against him, not that the commissioner has issued an assessment. It must be stressed that a criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.
In the cases at bar, the Commissioner denied that she issued a formal
assessment of the tax liability of AMC, Lucas G. Adamson, Therese June D.
Adamson and Sara S. de los Reyes. She admits though that she wrote the
recommendation letter addressed to the Secretary of the DOJ recommending
the filing of criminal complaints against AMC and the aforecited persons for
fraudulent returns and tax evasion.
The first issue is whether the Commissioner’s recommendation letter can
be considered as a formal assessment of private respondents’ tax liability.
In the context in which it is used in the NIRC, an assessment is a written
notice and demand made by the BIR on the taxpayer for the settlement of a
due tax liability that is there definitely set and fixed. A written communication
containing a computation by a revenue officer of the tax liability of a taxpayer
and giving him an opportunity to contest or disprove the BIR examiner’s
findings is not an assessment since it is yet indefinite.
We rule that the recommendation letter of the Commissioner cannot be
considered a formal assessment. Even a cursory perusal of the said letter
would reveal three key points:
1. It was not addressed to the taxpayers.
2. There was no demand made on the taxpayers to pay the tax
liability, nor a period for payment set therein.
3. The letter was never mailed or sent to the taxpayers by the
Commissioner.
In fine, the said recommendation letter served merely as the prima facie
basis for filing criminal informations that the taxpayers had violated Section 45
(a) and (d), and 110, in relation to Section 100, as penalized under Section 255,
and for violation of Section 253, in relation to Section 252 9(b) and (d) of the
Tax Code.
The next issue is whether the filing of the criminal complaints against
the private respondents by the DOJ is premature for lack of a formal
assessment.
Section 269 of the NIRC (now Section 222 of the Tax Reform Act of 1997)
provides:
Sec. 269. Exceptions as to period of limitation of assessment and collection of taxes.-(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court after the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for collection thereof…
The law is clear. When fraudulent tax returns are involved as in the cases
at bar, a proceeding in court after the collection of such tax may be begun
without assessment. Here, the private respondents had already filed the
capital gains tax return and the VAT returns, and paid the taxes they have
declared due therefrom. Upon investigation of the examiners of the BIR, there
was a preliminary finding of gross discrepancy in the computation of the
capital gains taxes due from the sale of two lots of AAI shares, first to APAC
and then to APAC Philippines, Limited. The examiners also found that the VAT
had not been paid for VAT-liable sale of services for the third and fourth
quarters of 1990. Arguably, the gross disparity in the taxes due and the
amounts actually declared by the private respondents constitutes badges of
fraud.
Thus, the applicability of Ungab v. Cusi is evident to the cases at bar. In
this seminal case, this Court ruled that there was no need for precise
computation and formal assessment in order for criminal complaints to be
filed against him. It quoted Merten’s Law of Federal Income Taxation, Vol. 10,
Sec. 55A.05, p. 21, thus:
An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. A crime is complete when the violator has knowingly and willfully filed a fraudulent return, with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the government’s failure to discover the error and promptly to assess has no connections with the commission of the crime.
This hoary principle still underlies Section 269 and related provisions of
the present Tax Code.
We now go to the issue of whether the CTA has no jurisdiction to take
cognizance of both the criminal and civil cases here at bar.
Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals )
as amended, the rulings of the Commissioner are appealable to the CTA, thus:
SEC. 7. Jurisdiction. – The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein provided -
(1) Decisions of the Commissioner of Internal Revenue in cases involving 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 or other laws or part of law administered by the Bureau of Internal Revenue;
Republic Act No. 8424, titled “An Act Amending the National Internal Revenue Code,
As Amended, And For Other Purposes,” later expanded the jurisdiction of the Commissioner
and, correspondingly, that of the CTA, thus:
SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. – The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
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 this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.
The latest statute dealing with the jurisdiction of the CTA is Republic Act No.
9282. It provides:
SEC. 7. Section 7 of the same Act is hereby amended to read as follows:
Sec. 7. Jurisdiction. — The CTA shall exercise:
(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:
(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue;
(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial;
(3) Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction;
x x x
(b) Jurisdiction over cases involving criminal offenses as herein provided:
(1) Exclusive original jurisdiction over all criminal offenses arising from violations of the National Internal Revenue Code or Tariff and Customs
Code and other laws administered by the Bureau of Internal Revenue or the Bureau of Customs: Provided, however, That offenses or felonies mentioned in this paragraph where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than One million pesos (P1,000,000.00) or where there is no specified amount claimed shall be tried by the regular courts and the jurisdiction of the CTA shall be appellate. Any provision of law or the Rules of Court to the contrary notwithstanding, the criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with, and jointly determined in the same proceeding by the CTA, the filing of the criminal action being deemed to necessarily carry with it the filing of the civil action, and no right to reserve the filling of such civil action separately from the criminal action will be recognized.
(2) Exclusive appellate jurisdiction in criminal offenses:
(a) Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax cases originally decided by them, in their respected territorial jurisdiction.
(b) Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in their respective jurisdiction.
(c) Jurisdiction over tax collection cases as herein provided:
(1) Exclusive original jurisdiction in tax collection cases involving final and executory assessments for taxes, fees, charges and penalties: Provided, however, That collection cases where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than One million pesos (P1,000,000.00) shall be tried by the proper Municipal Trial Court, Metropolitan Trial Court and Regional Trial Court.
(2) Exclusive appellate jurisdiction in tax collection cases:
(a) Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection cases originally decided by them, in their respective territorial jurisdiction.
(b) Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the exercise of their appellate jurisdiction over tax collection cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts, in their respective jurisdiction.
These laws have expanded the jurisdiction of the CTA. However, they did
not change the jurisdiction of the CTA to entertain an appeal only from a final
decision or assessment of the Commissioner, or in cases where the
Commissioner has not acted within the period prescribed by the NIRC. In the
cases at bar, the Commissioner has not issued an assessment of the tax liability
of private respondents.
Finally, we hold that contrary to private respondents’ stance, the
doctrines laid down in CIR v. Union Shipping Co. and Yabes v. Flojo are not
applicable to the cases at bar. In these earlier cases, the Commissioner
already rendered an assessment of the tax liabilities of the delinquent
taxpayers, for which reason the Court ruled that the filing of the civil suit for
collection of the taxes due was a final denial of the taxpayers’ request for
reconsideration of the tax assessment.
IN VIEW WHEREOF, premises considered, judgment is rendered:
1. In G.R. No. 120935, AFFIRMING the CA decision dated March 21, 1995, which set aside the Regional Trial Court’s Order dated August 8, 1994, and REINSTATING Criminal Case Nos. 94-1842 to 94-1846 for further proceedings before the trial court; and
2. In G.R. No. 124557, REVERSING and SETTING ASIDE the
Decision of the Court of Appeals dated March 29, 1996, and ORDERING the dismissal of C.T.A. Case No. 5075.
No costs.
SO ORDERED.
FIRST DIVISION
G.R. No. 166387 : January 19, 2009
COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. ENRON SUBIC POWER CORPORATION, Respondent. chanroblesvirtuallawlibrary
R E S O L U T I O N
CORONA, J.:
In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Commissioner of Internal Revenue (CIR) assails the November 24, 2004 decision[1] of the Court of Appeals (CA) annulling the formal assessment notice issued by the CIR against respondent Enron Subic Power Corporation (Enron) for failure to state the legal and factual bases for such assessment. chanroblesvirtuallawlibrary
Enron, a domestic corporation registered with the Subic Bay Metropolitan Authority as a freeport enterprise,[2] filed its annual income tax return for the year 1996 on April 12, 1997. It indicated a net loss of P7,684,948. Subsequently, the Bureau of Internal Revenue, through a preliminary five-day letter,[3] informed it of a proposed assessment of an alleged P2,880,817.25 deficiency income tax.[4] Enron disputed the proposed deficiency assessment in its first protest letter.[5] chanroblesvirtuallawlibrary
On May 26, 1999, Enron received from the CIR a formal assessment notice [6]
requiring it to pay the alleged deficiency income tax of P2,880,817.25 for the taxable year 1996. Enron protested this deficiency tax assessment. [7]
chanroblesvirtuallawlibrary
Due to the non-resolution of its protest within the 180-day period, Enron filed a petition for review in the Court of Tax Appeals (CTA). It argued that the deficiency tax assessment disregarded the provisions of Section 228 of the National Internal Revenue Code (NIRC), as amended,[8] and Section 3.1.4 of Revenue Regulations (RR) No. 12-99[9] by not providing the legal and factual bases of the assessment. Enron likewise questioned the substantive validity of the assessment.[10] chanroblesvirtuallawlibrary
In a decision dated September 12, 2001, the CTA granted Enrons petition and ordered the cancellation of its deficiency tax assessment for the year 1996. The CTA reasoned that the assessment notice sent to Enron failed to comply with the requirements of a valid written notice under Section 228 of the NIRC and RR No. 12-99. The CIRs motion for reconsideration of the CTA decision was denied in a resolution dated November 12, 2001. chanroblesvirtuallawlibrary
The CIR appealed the CTA decision to the CA but the CA affirmed it. The CA held that the audit working papers did not substantially comply with Section 228 of the NIRC and RR No. 12-99 because they failed to show the applicability of the cited law to the facts of the assessment. The CIR filed a motion for reconsideration but this was deemed abandoned when he filed a motion for extension to file a petition for review in this Court. chanroblesvirtuallawlibrary
The CIR now argues that respondent was informed of the legal and factual bases of the deficiency assessment against it. chanroblesvirtuallawlibrary
We adopt in toto the findings of fact of the CTA, as affirmed by the CA. In Compagnie Financiere Sucres et Denrees v. CIR,[11] we held: We reiterate the well-established doctrine that as a matter of practice and principle, [we] will not set aside the conclusion reached by an agency, like the CTA, especially if affirmed by the [CA]. By the very nature of its function, it has dedicated itself to the study and consideration of tax problems and has necessarily developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority on its part, which is not present here. The CIR errs in insisting that the notice of assessment in question complied with the requirements of the NIRC and RR No. 12-99. A notice of assessment is:
[A] declaration of deficiency taxes issued to a [t]axpayer who fails to respond to a Pre-Assessment Notice (PAN) within the prescribed
period of time, or whose reply to the PAN was found to be without merit. The Notice of Assessment shall inform the [t]axpayer of this
fact, and that the report of investigation submitted by the Revenue Officer conducting the audit shall be given due course.
The formal letter of demand calling for payment of the taxpayers deficiency tax or taxes shall state the fact, the law, rules and
regulations or jurisprudence on which the assessment is based, otherwise the formal letter of demand and the notice
of assessment shall be void. (emphasis supplied)[12] chanroblesvirtuallawlibrary
Section 228 of the NIRC provides that the taxpayer shall be informed in writing of the law and the facts on which the assessment is
made. Otherwise, the assessment is void. To implement the provisions of Section 228 of the NIRC, RR No. 12-99 was enacted. Section
3.1.4 of the revenue regulation reads: chanroblesvirtuallawlibrary
3.1.4. Formal Letter of Demand and Assessment Notice. The formal letter of demand and assessment notice
shall be issued by the Commissioner or his duly authorized representative. The letter of demand calling for
payment of the taxpayers deficiency tax or taxes shall state the facts, the law, rules and
regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of
demand and assessment notice shall be void. The same shall be sent to the taxpayer only by registered
mail or by personal delivery. xxx (emphasis supplied) chanroblesvirtuallawlibrary
It is clear from the foregoing that a taxpayer must be informed in writing of the legal and factual bases of the tax assessment made
against him. The use of the word shall in these legal provisions indicates the mandatory nature of the requirements laid down
therein. We note the CTAs findings:
In [this] case, [the CIR] merely issued a formal assessment and indicated therein the supposed tax, surcharge, interest and
compromise penalty due thereon. The Revenue Officers of the [the CIR] in the issuance of the Final Assessment Notice did not
provide Enron with the written bases of the law and facts on which the subject assessment is based. [The CIR] did not bother to
explain how it arrived at such an assessment. Moreso, he failed to mention the specific provision of the Tax Code or rules and
regulations which were not complied with by Enron.[13]
Both the CTA and the CA concluded that the deficiency tax assessment merely itemized the deductions disallowed and included
these in the gross income. It also imposed the preferential rate of 5% on some items categorized by Enron as costs. The legal and
factual bases were, however, not indicated.
chanroblesvirtuallawlibrary
The CIR insists that an examination of the facts shows that Enron was properly apprised of its tax deficiency. During the pre-
assessment stage, the CIR advised Enrons representative of the tax deficiency, informed it of the proposed tax deficiency
assessment through a preliminary five-day letter and furnished Enron a copy of the audit working paper [14] allegedly showing in
detail the legal and factual bases of the assessment. The CIR argues that these steps sufficed to inform Enron of the laws and facts
on which the deficiency tax assessment was based. chanroblesvirtuallawlibrary
We disagree. The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the preliminary five-day letter, were
not valid substitutes for the mandatory notice in writing of the legal and factual bases of the assessment. These steps were mere
perfunctory discharges of the CIRs duties in correctly assessing a taxpayer.[15] The requirement for issuing a preliminary or final
notice, as the case may be, informing a taxpayer of the existence of a deficiency tax assessment is markedly different from the
requirement of what such notice must contain. Just because the CIR issued an advice, a preliminary letter during the pre-assessment
stage and a final notice, in the order required by law, does not necessarily mean that Enron was informed of the law and facts on
which the deficiency tax assessment was made. chanroblesvirtuallawlibrary
The law requires that the legal and factual bases of the assessment be stated in the formal letter of demand and assessment notice.
Thus, such cannot be presumed. Otherwise, the express provisions of Article 228 of the NIRC and RR No. 12-99 would be rendered
nugatory. The alleged factual bases in the advice, preliminary letter and audit working papers did not suffice. There was no going
around the mandate of the law that the legal and factual bases of the assessment be stated in writing in the formal letter of demand
accompanying the assessment notice. chanroblesvirtuallawlibrary
We note that the old law merely required that the taxpayer be notified of the assessment made by the CIR. This was changed in 1998
and the taxpayer must now be informed not only of the law but also of the facts on which the assessment is made. [16] Such
amendment is in keeping with the constitutional principle that no person shall be deprived of property without due process.[17] In
view of the absence of a fair opportunity for Enron to be informed of the legal and factual bases of the assessment against it, the
assessment in question was void. We reiterate our ruling in Reyes v. Almanzor, et al.:[18] chanroblesvirtuallawlibrary
Verily, taxes are the lifeblood of the Government and so should be collected without unnecessary
hindrance. However, such collection should be made in accordance with law as any arbitrariness will
negate the very reason for the Government itself. chanroblesvirtuallawlibrary
WHEREFORE, the petition is hereby DENIED. The November 24, 2004 decision of the Court of Appeals is AFFIRMED. chanroblesvirtuallawlibrary
chanroblesvirtuallawlibrary
No costs. chanroblesvirtuallawlibrary
SO ORDERED.
SECOND DIVISION
[G.R. No. 167765, June 30, 2008]
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. FMF DEVELOPMENT CORPORATION, RESPONDENT.
DECISION
QUISUMBING, J.:
For review on certiorari is the Decision[1] and Resolution[2] dated January 31, 2005 and April 14, 2005, respectively, of the Court of Appeals in CA- G.R. SP No. 79675, which affirmed the Decision[3] dated March 20, 2003 of the Court of Tax Appeals (CTA) in C.T.A. Case No. 6153.
In effect, the Court of Appeals cancelled the assessment notice issued by the Bureau of Internal Revenue (BIR) for the deficiency income and withholding taxes for the taxable year 1995 of respondent FMF Development Corporation (FMF), a domestic corporation organized and existing under Philippine laws.
The facts are as follows:
On April 15, 1996, FMF filed its Corporate Annual Income Tax Return for taxable year 1995 and declared a loss of P3,348,932. On May 8, 1996, however, it filed an amended return and declared a loss of P2,826,541. The BIR then sent FMF pre-assessment notices, all dated October 6, 1998, informing it of its alleged tax liabilities.[4] FMF filed a protest against these notices with the BIR and requested for a reconsideration/reinvestigation.
On January 22, 1999, Revenue District Officer (RDO) Rogelio Zambarrano informed FMF that the reinvestigation had been referred to Revenue Officer Alberto Fortaleza. He also advised FMF of the informal conference set on February 2, 1999 to allow it to present evidence to dispute the BIR assessments.
On February 9, 1999, FMF President Enrique Fernandez executed a waiver of the three-year prescriptive period for the BIR to assess internal revenue taxes, hence extending the assessment period until October 31, 1999. The waiver was accepted and signed by RDO Zambarrano.
On October 18, 1999, FMF received amended pre-assessment notices[5] dated October 6, 1999 from the BIR. FMF immediately filed a protest on November 3, 1999 but on the same day, it received BIR's Demand Letter and Assessment Notice No. 33-1-00487-95 dated October 25, 1999 reflecting FMF's alleged deficiency taxes and accrued interests, as follows: Income Tax Assessment P 1,608,015.50Compromise Penalty on Income Tax Assessment 20,000.00Increments on Withholding Tax on Compensation 184,132.26Compromise Penalty on Increments on Withholding Tax on Compensation
16,000.00
Increments on Withholding Tax on Management Fees 209,550.49Compromise Penalty on Increments on Withholding Tax on Management Fees
16,000.00
TOTAL P2,053,698.25[6]
On November 24, 1999, FMF filed a letter of protest on the assessment invoking, inter alia,[7] the defense of prescription by reason of the invalidity of the waiver. In its reply, the BIR insisted that the waiver is valid because it was signed by the RDO, a duly authorized representative of petitioner. It also ordered FMF to immediately settle its tax liabilities; otherwise, judicial action will be taken. Treating this as BIR's final decision, FMF filed a petition for review with the CTA challenging the validity of the assessment.
On March 20, 2003, the CTA granted the petition and cancelled Assessment Notice No. 33-1-00487-95 because it was already time-barred. The CTA ruled that the waiver did not extend the three-year prescriptive period within which the BIR can make a valid assessment because it did not comply with the procedures laid down in Revenue Memorandum Order (RMO) No. 20-90.[8]
First, the waiver did not state the dates of execution and acceptance of the waiver, by the taxpayer and the BIR, respectively; thus, it cannot be determined with certainty if the waiver was executed and accepted within the prescribed period. Second, the CTA also found that FMF was not furnished a copy of the waiver signed by RDO Zambarrano. Third, the CTA pointed out that since the case involves an amount of more than P1 million, and the period to assess is not yet about to prescribe, the waiver should have been signed by the Commissioner of Internal Revenue, and not a mere RDO.[9] The Commissioner of Internal Revenue filed a motion for reconsideration, but it was denied.
On appeal to the Court of Appeals, the decision of the CTA was affirmed. Sustaining the findings of the CTA, the Court of Appeals held that the waiver did not strictly comply with RMO No. 20-90. Thus, it nullified Assessment Notice No. 33-1-00487-95. The fallo of the Court of Appeals' decision reads:WHEREFORE, finding the instant petition not impressed with merit, the same is DENIED DUE COURSE and is hereby DISMISSED. No costs.
SO ORDERED.[10]
The Commissioner of Internal Revenue sought reconsideration, but it was denied.
Hence the instant petition, raising the following issues:I.
WHETHER OR NOT RESPONDENT'S WAIVER OF THE STATUTE OF LIMITATIONS WAS VALIDLY EXECUTED.
II.
WHETHER O[R] NOT THE PERIOD TO ASSESS HAD PRESCRIBED.
III.
WHETHER OR NOT THE COURT OF APPEALS CORRECTLY DISREGARDED PETITIONER'S SUBSTANTIVE ARGUMENT.[11]
Essentially, the present controversy deals with the validity of the waiver and whether it validly extended the original three-year prescriptive period so as to make Assessment Notice No. 33-1-00487-95 valid. The basic questions to be resolved therefore are: (1) Is the waiver valid? and (2) Did the three-year period to assess internal revenue taxes already prescribe?
Petitioner contends that the waiver was validly executed mainly because it complied with Section 222 (b)[12] of the National Internal Revenue Code (NIRC). Petitioner points out that the waiver was in writing, signed by the taxpayer and the Commissioner, and executed within the three-year prescriptive period. Petitioner also argues that the requirements in RMO No. 20-90 are merely directory; thus, the indication of the dates of execution and acceptance of the waiver, by the taxpayer and the BIR, respectively, are not required by law. Petitioner adds that there is no provision in RMO No. 20-90 stating that a waiver may be invalidated upon failure of the BIR to furnish the taxpayer a copy of the waiver. Further, it contends that respondent's execution of the waiver was a renunciation of its right to invoke prescription. Petitioner also argues that the
government cannot be estopped by the mistakes committed by its revenue officer in the enforcement of RMO No. 20-90.
On the other hand, respondent counters that the waiver is void because it did not comply with RMO No. 20-90. Respondent assails the waiver because (1) it was not signed by the Commissioner despite the fact that the assessment involves an amount of more than P1 million; (2) there is no stated date of acceptance by the Commissioner or his duly authorized representative; and (3) it was not furnished a copy of the BIR-accepted waiver. Respondent also cites Philippine Journalists, Inc. v. Commissioner of Internal Revenue[13] and contends that the procedures in RMO No. 20-90 are mandatory in character, precisely to give full effect to Section 222 (b) of the NIRC. Moreover, a waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription.[14]
After considering the issues and the submissions of the parties in the light of the facts of this case, we are in agreement that the petition lacks merit.
Under Section 203[15] of the NIRC, internal revenue taxes must be assessed within three years counted from the period fixed by law for the filing of the tax return or the actual date of filing, whichever is later. This mandate governs the question of prescription of the government's right to assess internal revenue taxes primarily to safeguard the interests of taxpayers from unreasonable investigation. Accordingly, the government must assess internal revenue taxes on time so as not to extend indefinitely the period of assessment and deprive the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after the expiration of reasonable period of time.[16]
An exception to the three-year prescriptive period on the assessment of taxes is Section 222 (b) of the NIRC, which provides:x x x x
(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon.
x x x xThe above provision authorizes the extension of the original three-year period by the execution of a valid waiver, where the taxpayer and the BIR agreed in writing that the period to issue an assessment and collect the taxes due is extended to an agreed upon date. Under RMO No. 20-90, which implements Sections 203 and 222 (b), the following procedures should be followed:
1. The waiver must be in the form identified as Annex "A" hereof....
2. The waiver shall be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials.
Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or
the revenue official authorized by him, as hereinafter provided, shall sign the waiver indicating that the Bureau has accepted and agreed to the waiver. The date of such acceptance by the Bureau should be indicated. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.
3. The following revenue officials are authorized to sign the waiver.
A. In the National Office
x x x x
3. Commissioner For tax cases involving more than P1M
B. In the Regional Offices
3. The Revenue District Officer with respect to tax cases still pending investigation and the period to assess is about to prescribe regardless of amount.
x x x x
4.
5. The waiver must be executed in three (3) copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy shall be indicated in the original copy.
6. The foregoing procedures shall be strictly followed. Any revenue official found not to have complied with this Order resulting in prescription of the right to assess/collect shall be administratively dealt with. (Emphasis supplied.)
Applying RMO No. 20-90, the waiver in question here was defective and did not validly extend the original three-year prescriptive period. Firstly, it was not proven that respondent was furnished a copy of the BIR-accepted waiver. Secondly, the waiver was signed only by a revenue district officer, when it should have been signed by the Commissioner as mandated by the NIRC and RMO No. 20-90, considering that the case involves an amount of more than P1 million, and the period to assess is not yet about to prescribe. Lastly, it did not contain the date of acceptance by the Commissioner of Internal Revenue, a requisite necessary to determine whether the waiver was validly accepted before the expiration of the original three-year period. Bear in mind that the waiver in question is a bilateral agreement, thus necessitating the very signatures of both the Commissioner and the taxpayer to give birth to a valid agreement.[17]
Petitioner contends that the procedures in RMO No. 20-90 are merely directory and that the execution of a waiver was a renunciation of respondent's right to invoke prescription. We do not agree. RMO No. 20-90 must be strictly followed. In Philippine Journalists, Inc. v. Commissioner of Internal Revenue,[18]we ruled that a waiver of the statute of limitations under the NIRC, to a certain extent being a derogation of the taxpayer's right to security against prolonged and unscrupulous investigations, must be carefully and strictly construed. The waiver of the statute of limitations does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally, particularly where the language of the document is equivocal.[19] Notably, in this case, the waiver became unlimited in time because it did not specify a definite date, agreed upon between the BIR and respondent, within which the former may assess and collect taxes. It also had no binding effect on respondent because there was no consent by the Commissioner. On this basis, no implied consent can be presumed, nor can it be contended that the concurrence to such waiver is a mere formality.[20]
Consequently, petitioner cannot rely on its invocation of the rule that the government cannot be estopped by the mistakes of its revenue officers in the enforcement of RMO No. 20-90 because the law on prescription should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommended the approval of the law. To the Government, its tax officers are obliged to act promptly in the making of assessment so that taxpayers, after the lapse of the period of prescription, would have a feeling of security against unscrupulous tax agents who will always try to find an excuse to inspect the books of taxpayers, not to determine the latter's real liability, but to take advantage of a possible opportunity to harass even law-abiding businessmen. Without such legal defense, taxpayers would be open season to harassment by unscrupulous tax agents.[21]
In fine, Assessment Notice No. 33-1-00487-95 dated October 25, 1999, was issued beyond the three-year prescriptive period. The waiver was incomplete and defective and thus, the three-year prescriptive period was not tolled nor extended and continued to run until April 15, 1999. Even if the three-year period be counted from May 8, 1996, the date of filing of the amended return, assuming the amended return was substantially different from the original return, a case which affects the reckoning point of the prescriptive period,[22] still, the subject assessment is definitely considered time-barred.
WHEREFORE, the petition is DENIED for lack of merit. The assailed Decision and Resolution dated January 31, 2005 and April 14, 2005, respectively, of the Court of Appeals in CA-G.R. SP No. 79675 are hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Carpio-Morales, Tinga, Velasco, Jr., and Brion, JJ., concur.
[1] Rollo, pp. 58-71. Penned by Associate Justice Mariano C. Del Castillo, with Associate Justices Romeo A. Brawner and Magdangal M. De Leon concurring.
[2] Id. at 88.
[3] Id. at 179-196.
[4] Id. at 59-60.
DEFICIENCY INCOME TAX Net Income per investigation (P2,826,541.00) Add: Unallowable Deductions/Additional Income
Total Expenses P10,912,669.00 Disallowed Portion x 81% Total Adjustments 8,839,261.89 Net Income per investigation P 6,012,720.89Less: Personal and Additional Exemptions
- 0 -
P 6,012,720.89Income Tax Due (35%) P 2,104,452.00Less: Amount already assessed 154,995.30 TOTAL TAX DUE (excl. increments) P2,461,820.87A. INCREMENTS ON LATE PAYMENT OF WITHHOLDING TAX ON COMPENSATION (dividend bonus payable)Basic Tax P 304,891.1030% surcharge (Sec. 248) 87,016.20Interest (1/26/96 to 11/7/96) (Sec. 249)
+ 60,343.02
Compromise Penalty (Sec. 254) 16,000.00TOTAL P163,359.22B. INCREMENTS ON LATE PAYMENT OF EXPANDED WITHHOLDING TAX ON MANAGEMENT FEE Management fee per financial statement
P4,104,800.00
Less: Management fee subj. to EWT (1995)
260,640.00
Mgmt. Fee not subject to EWT until 10-15-96
P3,844,160.00
Basic Tax (10%) P 384,416.00 25% surcharge (Sec. 248) 96,104.00Interest (1-26-96 to 10-15-96) (Sec. 249)
69,942.35
Compromise Penalty (Sec. 254) 16,000.00Total P 182,046.35
INCREMENTS DUE (A + B) P 345,405.57
[5]
Id. at 61-62. Net Income per Investigation (P2,826,541.00)Add: Adjustments/Disallowances Management Fees-Not necessary (Sec. 29) 4,104,800.00Employee Benefits-unsupported (Sec. 29) 58,611.55Salaries and Wages-No EWT (Sec. 29) 1,059,118.50Withholding Tax-unaccounted (Sec. 28) 348,813.13Cash Overdraft-unaccounted (Sec. 28) 254,853.96Transportation Exp.-unaccounted (Sec. 28) 22,390.16Representation Exp.-unaccounted (Sec. 29) 14,772.59Miscellaneous Exp.-unsupported (Sec. 29) 69,404.65 5,932,764.44 Net Taxable Income P 3,106,223.44 Income Tax Due Thereon P 1,087,178.20Less Tax Credit/Paid 154,995.30 Income Tax Due Thereon (excluding increments)
P 932,182.90
A. Increments on Late Payment of Withholding Tax on Compensation (dividend bonus payable) Basic P 304,891.10 25% surcharge (Sec. 248) 87,016.20Interest (1/26/96 to 11/7/96) (Sec. 249)
60,343.02
Compromise Penalty (Sec. 254) 16,000.00Total P 163,359.22
B. Increments on Late Payment of Expanded Withholding Tax on Management Fee Management Fee per financial Statement P4,104,800.00Less: Management Fee subj. to EWT (1995) 260,640.00Difference (Mgmt. fee subj. to EWT until 10-15-96) P3,844,160.00Basic Tax (P3,844,160.00 x 10%) P384,416.0025% Surcharge (Sec. 248) 96,104.00Interest (1-2-96 to 10-15-96) (Sec. 249) 69,942.35Compromise Penalty (Sec. 254) 16,000.00Total P182,046.35
TOTAL INCREMENTS ON LATE PAYMENTS (A+B) P345,405.57
[6] Id. at 63.
[7] Id. at 63-64.
Nullity of the Assessment Notice for want of legal or factual basis: a) That the taxpayer was not informed in writing of the law and facts on which the assessment
was based;b) The [BIR] erred in disallowing business expenses as deductions (management fees, cash
overdraft, salaries, etc.)c) That withholding tax should only be upon actual payment of compensation and not upon its
accrual; andd) That the withholding tax on management fees paid to another corporation (i.e., IPCP)
should be only 5% and not 10%.
[8] SUBJECT: PROPER EXECUTION OF THE WAIVER OF THE STATUTE OF LIMITATIONS UNDER THE NATIONAL INTERNAL REVENUE CODE, dated April 4, 1990.
[9] Rollo, pp. 191-195.
[10] Id. at 70.
[11] Id. at 606.
[12] Section 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. -
x x x x
(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon.
x x x x
[13] G.R. No. 162852, December 16, 2004, 447 SCRA 214.
[14] Id. at 224-225, 227.
[15] Section 203. Period of Limitation Upon Assessment and Collection. - Except as provided in Section 222, internal revenue taxes shall be assessed within three (3) years after the last day
prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided, That in a case where a return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return was filed.... (Emphasis supplied.)
FIRST DIVISION
BARCELON, ROXAS SECURITIES, INC. (now known as UBP Securities, Inc.)
Petitioner,
- versus -
COMMISSIONER OF INTERNAL REVENUE,
Respondent.
G. R.No. 157064
Present:
PANGANIBAN, C.J.,
Chairman,
YNARES-SANTIAGO
AUSTRIA-MARTINEZ,
CALLEJO, SR., and
CHICO-NAZARIO, JJ.
Promulgated:
August 7, 2006
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
D E C I S I O N
CHICO-NAZARIO, J.:
cralaw
cralawThis is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court, seeking to set aside
the Decision of the Court of Appeals in CA-G.R. SP No. 60209 dated 11 July 2002, ordering the petitioner
to pay the Government the amount of P826,698.31 as deficiency income tax for the year 1987 plus 25%
surcharge and 20% interest per annum.The Court of Appeals, in its assailed Decision, reversed the
Decision of the Court of Tax Appeals (CTA) dated 17 May 2000 in C.T.A. Case No. 5662.
cralawPetitioner Barcelon, Roxas Securities Inc. (now known as UBP Securities, Inc.) is a corporation
engaged in the trading of securities.On 14 April 1988, petitioner filed its Annual Income Tax Return for
taxable year 1987.After an audit investigation conducted by the Bureau of Internal Revenue (BIR),
respondent Commissioner of Internal Revenue (CIR) issued an assessment for deficiency income tax in
the amount of P826,698.31 arising from the disallowance of the item on salaries, bonuses and
allowances in the amount of P1,219,093,93 as part of the deductible business expense since petitioner
failed to subject the salaries, bonuses and allowances to withholding taxes.This assessment was covered
by Formal Assessment Notice No. FAN-1-87-91-000649 dated 1 February 1991, which, respondent
alleges, was sent to petitioner through registered mail on 6 February 1991.However, petitioner denies
receiving the formal assessment notice.
cralawOn 17 March 1992, petitioner was served with a Warrant of Distraint and/or Levy to enforce
collection of the deficiency income tax for the year 1987.Petitioner filed a formal protest, dated 25
March 1992, against the Warrant of Distraint and/or Levy, requesting for its cancellation.On 3 July 1998,
petitioner received a letter dated 30 April 1998 from the respondent denying the protest with
finality.chanroblesvirtuallawlibrary
On 31 July 1998, petitioner filed a petition for review with the CTA.After due notice and hearing, the
CTA rendered a decision in favor of petitioner on 17 May 2000.The CTA ruled on the primary issue of
prescription and found it unnecessary to decide the issues on the validity and propriety of the
assessment.It maintained that while a mailed letter is deemed received by the addressee in the
course of mail, this is merely a disputable presumption.It reasoned that the direct denial of the
petitioner shifts the burden of proof to the respondent that the mailed letter was actually received
by the petitioner.The CTA found the BIR records submitted by the respondent immaterial, self-
serving, and therefore insufficient to prove that the assessment notice was mailed and duly received
by the petitioner.The dispositive portion of this decision reads:
WHEREFORE, in view of the foregoing, the 1988deficiency tax assessment against petitioner is hereby CANCELLED.Respondent is hereby ORDERED TO DESIST from collecting said deficiency tax.No pronouncement as to costs.
On 6 June 2000, respondent moved for reconsideration of the aforesaid decision but was denied by
the CTA in a Resolution dated 25 July 2000.Thereafter, respondent appealed to the Court of Appeals
on 31 August 2001.In reversing the CTA decision, the Court of Appeals found the evidence presented
by the respondent to be sufficient proof that the tax assessment notice was mailed to the petitioner,
therefore the legal presumption that it was received should apply.Thus, the Court of Appeals ruled
that:
WHEREFORE, the petition is hereby GRANTED.The decision dated May 17, 2000 as well as the Resolution dated July 25, 2000 are hereby REVERSED and SET ASIDE, and a new on entered ordering the respondent to pay the amount of P826,698.31 as deficiency income tax for
the year 1987 plus 25% surcharge and 20% interest per annum from February 6, 1991 until fully paid pursuant to Sections 248 and 249 of the Tax Code.
Petitioner moved for reconsideration of the said decision but the same was denied by the Court of
Appeals in its assailed Resolution dated 30 January 2003.
Hence, this Petition for Review on Certiorari raising the following issues:
I
WHETHER OR NOT LEGAL BASES EXIST FOR THE COURT OF APPEALS’ FINDING THAT THE COURT OF TAX APPEALS COMMITTED “GROSS ERROR IN THE APPRECIATION OF FACTS.”
II
WHETHER OR NOT THE COURT OF APPEALS WAS CORRECT IN REVERSING THE SUBJECT DECISION OF THE COURT OF TAX APPEALS.
III
WHETHER OR NOT THE RIGHT OF THE BUREAU OF INTERNAL REVENUE TO ASSESS PETITIONER FOR ALLEGED DEFICIENCY INCOME TAX FOR 1987 HAS PRESCRIBED.
IV
WHETHER OR NOT THE RIGHT OF THE BUREAU OF INTERNAL REVENUE TO COLLECT THE SUBJECT ALLEGED DEFICIENCY INCOME TAX FOR 1987 HAS PRESCRIBED.
V
WHETHER OR NOT PETITIONER IS LIABLE FOR THE ALLEGED DEFICIENCY INCOME TAX ASSESSMENT FOR 1987.
VI
WHETHER OR NOT THE SUBJECT ASSESSMENT IS VIOLATIVE OF THE RIGHT OF PETITIONER TO DUE PROCESS.
This Court finds the instant Petition meritorious.
The core issue in this case is whether or not respondent’s right to assess petitioner’s alleged
deficiency income tax is barred by prescription, the resolution of which depends on reviewing the
findings of fact of the Court of Appeals and the CTA.
While the general rule is that factual findings of the Court of Appeals are binding on this Court, there
are, however, recognized exceptions thereto, such as when the findings are contrary to those of the trial
court or, in this case, the CTA.chanroblesvirtuallawlibrary
In its Decision, the CTA resolved the issues raised by the parties thus:
Jurisprudence is replete with cases holding that if the taxpayer denies ever having received an assessment from the BIR, it is incumbent upon the latter to prove by competent evidence that such notice was indeed received by the addressee.The onus probandi was shifted to respondent to prove by contrary evidence that the Petitioner received the assessment in the due course of mail.The Supreme Court has consistently held that while a mailed letter is deemed received by the addressee in the course of mail, this is merely a disputable presumption subject to controversion and a direct denial thereof shifts the burden to the party favored by the presumption to prove that the mailed letter was indeed received by the addressee (Republic vs. Court of Appeals, 149 SCRA 351).Thus as held by the Supreme Court in Gonzalo P. Nava vs. Commissioner of Internal Revenue, 13 SCRA 104, January 30, 1965:
“The facts to be proved to raise this presumption are (a) that the letter was properly addressed with postage prepaid, and (b) that it was mailed.Once these facts are proved, the presumption is that the letter was received by the addressee as soon as it could have been transmitted to him in the ordinary course of the mail.But if one of the said facts fails to appear, the presumption does not lie.(VI, Moran, Comments on the Rules of Court, 1963 ed, 56-57 citing Enriquez vs. Sunlife Assurance of Canada, 41 Phil 269).”
In the instant case, Respondent utterly failed to discharge this duty.No substantial evidence was ever presented to prove that the assessment notice No. FAN-1-87-91-000649 or other supposed notices subsequent thereto were in fact issued or sent to the taxpayer.As a matter of fact, it only submitted the BIR record book which allegedly contains the list of taxpayer’s names, the reference number, the year, the nature of tax, the city/municipality and the amount (see Exh. 5-a for the Respondent).Purportedly, Respondent intended to show to this Court that all assessments made are entered into a record book in chronological order outlining the details of the assessment and the taxpayer liable thereon.However, as can be gleaned from the face of the exhibit, all entries thereon appears to be immaterial and impertinent in proving that the assessment notice was mailed and duly received by Petitioner.Nothing indicates therein all essential facts that could sustain the burden of proof being shifted to the Respondent. What is essential to prove the fact of mailing is the registry receipt issued by the Bureau of Posts or the Registry return card which would have been signed by the Petitioner or its authorized representative.And if said documents cannot be located, Respondent at the very least, should have submitted to the Court a certification issued by the Bureau of Posts and any other pertinent document which is executed with the intervention of the Bureau of Posts.This Court does not put much credence to the self serving documentations made by the BIR personnel especially if they are unsupported by substantial evidence establishing the fact of mailing. Thus:
“While we have held that an assessment is made when sent within the prescribed period, even if received by the taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259, May 27, 1959), this ruling makes it the more imperative that the release, mailing or sending of the notice be clearly and satisfactorily proved.Mere notations made without the taxpayer’s intervention, notice or control, without adequate supporting evidence cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense.” (Nava vs. CIR, 13 SCRA 104, January 30, 1965).
x x x x The failure of the respondent to prove receipt of the assessment by the Petitioner leads to the conclusion that no assessment was issued.Consequently, the government’s right to issue an assessment for the said period has already prescribed.(Industrial Textile Manufacturing Co. of the Phils., Inc. vs. CIR CTA Case 4885, August 22, 1996).chanroblesvirtuallawlibrary
Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the
highest respect.In Sea-Land Service Inc. v. Court of Appeals this Court recognizes that the Court of Tax
Appeals, which by the very nature of its function is dedicated exclusively to the consideration of tax
problems, has necessarily developed an expertise on the subject, and its conclusions will not be
overturned unless there has been an abuse or improvident exercise of authority.Such findings can only
be disturbed on appeal if they are not supported by substantial evidence or there is a showing of gross
error or abuse on the part of the Tax Court.In the absence of any clear and convincing proof to the
contrary, this Court must presume that the CTA rendered a decision which is valid in every respect.
Under Section 203 of the National Internal Revenue Code (NIRC), respondent had three (3) years from
the last day for the filing of the return to send an assessment notice to petitioner. In the case of
Collector of Internal Revenue v. Bautista,this Court held that an assessment is made within the
prescriptive period if notice to this effect is released, mailed or sent by the CIR to the taxpayer within
said period.Receipt thereof by the taxpayer within the prescriptive period is not necessary.At this point,
it should be clarified that the rule does not dispense with the requirement that the taxpayer should
actually receive, even beyond the prescriptive period, the assessment notice which was timely released,
mailed and sent.
In the present case, records show that petitioner filed its Annual Income Tax Return for taxable year
1987 on 14 April 1988.The last day for filing by petitioner of its return was on 15 April 1988, thus, giving
respondent until 15 April 1991 within which to send an assessment notice.While respondent avers that
it sent the assessment notice dated 1 February 1991 on 6 February 1991, within the three (3)-year
period prescribed by law, petitioner denies having received an assessment notice from respondent.
Petitioner alleges that it came to know of the deficiency tax assessment only on 17 March 1992 when it
was served with the Warrant of Distraint and Levy.
In Protector’s Services, Inc. v. Court of Appeals,this Court ruled that when a mail matter is sent by
registered mail, there exists a presumption, set forth under Section 3(v), Rule 131 of the Rules of Court,
that it was received in the regular course of mail.The facts to be proved in order to raise this
presumption are: (a) that the letter was properly addressed with postage prepaid; and (b) that it was
mailed.While a mailed letter is deemed received by the addressee in the ordinary course of mail, this is
still merely a disputable presumption subject to controversion, and a direct denial of the receipt thereof
shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed
received by the addressee.chanroblesvirtuallawlibrary
cralaw
In the present case, petitioner denies receiving the assessment notice, and the respondent was unable
to present substantial evidence that such notice was, indeed, mailed or sent by the respondent before
the BIR’s right to assess had prescribed and that said notice was received by the petitioner. The
respondent presented the BIR record book where the name of the taxpayer, the kind of tax assessed,
the registry receipt number and the date of mailing were noted.The BIR records custodian, Ingrid
Versola, also testified that she made the entries therein.Respondent offered the entry in the BIR record
book and the testimony of its record custodian as entries in official records in accordance with Section
44, Rule 130 of the Rules of Court, which states that:
Section 44. Entries in official records. - Entries in official records made in the performance of his duty by a public officer of the Philippines, or by a person in the performance of a duty specially enjoined by law, are prima facie evidence of the facts therein stated.
The foregoing rule on evidence, however, must be read in accordance with this Court’s pronouncement
in Africa v. Caltex (Phil.), Inc., where it has been held that an entrant must have personal knowledge of
the facts stated by him or such facts were acquired by him from reports made by persons under a legal
duty to submit the same.
cralawThere are three requisites for admissibility under the rule just mentioned: (a) that the entry was made by a public officer, or by another person specially enjoined by law to do so; (b) that it was made by the public officer in the performance of his duties, or by such other person in the performance of a duty specially enjoined by law; and (c) that the public officer or other person had sufficient knowledge of the facts by him stated, which must have been acquired by him personally or through official information x x x.
In this case, the entries made by Ingrid Versola were not based on her personal knowledge as she
did not attest to the fact that she personally prepared and mailed the assessment notice.Nor was it
stated in the transcript of stenographic notes how and from whom she obtained the pertinent
information.Moreover, she did not attest to the fact that she acquired the reports from persons
under a legal duty to submit the same.Hence, Rule 130, Section 44 finds no application in the
present case.Thus, the evidence offered by respondent does not qualify as an exception to the rule
against hearsay evidence.
Furthermore, independent evidence, such as the registry receipt of the assessment notice, or a
certification from the Bureau of Posts, could have easily been obtained.Yet respondent failed to
present such evidence.
In the case of Nava v. Commissioner of Internal Revenue, this Court stressed on the importance
ofproving the release, mailing or sending of the notice.
While we have held that an assessment is made when sent within the prescribed period, even if received by the taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259, May 27, 1959), this ruling makes it the more imperative that the release, mailing, or sending of the notice be clearly and satisfactorily proved.Mere notations made without the taxpayer’s intervention, notice, or control, without adequate supporting evidence, cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense.
In the present case, the evidence offered by the respondent fails to convince this Court that Formal
Assessment Notice No. FAN-1-87-91-000649 was released, mailed, or sent before 15 April 1991, or
before the lapse of the period of limitation upon assessment and collection prescribed by Section
203 of the NIRC.Such evidence, therefore, is insufficient to give rise to the presumption that the
assessment notice was received in the regular course of mail.Consequently, the right of the
government to assess and collect the alleged deficiency tax is barred by prescription.
IN VIEW OF THE FOREGOING, the instant Petition is GRANTED.The assailed Decision of the Court of
Appeals in CA-G.R. SP No. 60209 dated 11 July 2002, is hereby REVERSED and SET ASIDE, and the
Decision of the Court of Tax Appeals in C.T.A. Case No. 5662, dated 17 May 2000, cancelling the
1988 Deficiency Tax Assessment against Barcelon, Roxas Securitites, Inc. (now known as UPB
Securities, Inc.) for being barred by prescription, is hereby REINSTATED.No costs.
SO ORDERED.
SECOND DIVISION
COMMISSIONER OF INTERNAL G.R. No. 178087REVENUE,
Petitioner, Present: CARPIO, J., Chairperson, BRION,
- versus - DEL CASTILLO, ABAD, and PEREZ, JJ. KUDOS METAL CORPORATION, Promulgated:
Respondent. May 5, 2010
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
D E C I S I O N
DEL CASTILLO, J.:
The prescriptive period on when to assess taxes benefits both the government and
the taxpayer. Exceptions extending the period to assess must, therefore, be strictly
construed.
This Petition for Review on Certiorari seeks to set aside the Decision dated
March 30, 2007 of the Court of Tax Appeals (CTA) affirming the cancellation of the
assessment notices for having been issued beyond the prescriptive period and the
Resolution dated May 18, 2007 denying the motion for reconsideration.
Factual Antecedents
On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income
Tax Return (ITR) for the taxable year 1998.
Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal
Revenue (BIR) served upon respondent three Notices of Presentation of Records.
Respondent failed to comply with these notices, hence, the BIR issued a Subpeona
Duces Tecum dated September 21, 2006, receipt of which was acknowledged by
respondent’s President, Mr. Chan Ching Bio, in a letter dated October 20, 2000.
A review and audit of respondent’s records then ensued.
On December 10, 2001, Nelia Pasco (Pasco), respondent’s accountant, executed a
Waiver of the Defense of Prescription, which was notarized on January 22, 2002,
received by the BIR Enforcement Service on January 31, 2002 and by the BIR Tax Fraud
Division on February 4, 2002, and accepted by the Assistant Commissioner of the
Enforcement Service, Percival T. Salazar (Salazar).
This was followed by a second Waiver of Defense of Prescription executed by
Pasco on February 18, 2003, notarized on February 19, 2003, received by the BIR Tax
Fraud Division on February 28, 2003 and accepted by Assistant Commissioner Salazar.
On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the
taxable year 1998 against the respondent. This was followed by a Formal Letter of
Demand with Assessment Notices for taxable year 1998, dated September 26, 2003
which was received by respondent on November 12, 2003.
Respondent challenged the assessments by filing its “Protest on Various Tax
Assessments” on December 3, 2003 and its “Legal Arguments and Documents in
Support of Protests against Various Assessments” on February 2, 2004.
On June 22, 2004, the BIR rendered a final Decision on the matter, requesting the
immediate payment of the following tax liabilities:
Kind of Tax Amount
Income Tax P 9,693,897.85VAT 13,962,460.90EWT 1,712,336.76Withholding Tax-Compensation 247,353.24Penalties 8,000.00 Total P 25,624,048.76
Ruling of the Court of Tax Appeals, Second Division
Believing that the government’s right to assess taxes had prescribed, respondent
filed on August 27, 2004 a Petition for Review with the CTA. Petitioner in turn filed his
Answer.
On April 11, 2005, respondent filed an “Urgent Motion for Preferential Resolution
of the Issue on Prescription.”
On October 4, 2005, the CTA Second Division issued a Resolution canceling the
assessment notices issued against respondent for having been issued beyond the
prescriptive period. It found the first Waiver of the Statute of Limitations incomplete and
defective for failure to comply with the provisions of Revenue Memorandum Order
(RMO) No. 20-90. Thus:
First, the Assistant Commissioner is not the revenue official authorized to sign the waiver, as the tax case involves more than P1,000,000.00. In this regard, only the Commissioner is authorized to enter into agreement with the petitioner in extending the period of assessment;
Secondly, the waiver failed to indicate the date of acceptance. Such date of
acceptance is necessary to determine whether the acceptance was made within the prescriptive period;
Third, the fact of receipt by the taxpayer of his file copy was not indicated on the
original copy. The requirement to furnish the taxpayer with a copy of the waiver is not only to give notice of the existence of the document but also of the acceptance by the BIR and the perfection of the agreement.
The subject waiver is therefore incomplete and defective. As such, the three-
year prescriptive period was not tolled or extended and continued to run. x x x
Petitioner moved for reconsideration but the CTA Second Division denied the
motion in a Resolution dated April 18, 2006.
Ruling of the Court of Tax Appeals, En Banc
On appeal, the CTA En Banc affirmed the cancellation of the assessment
notices. Although it ruled that the Assistant Commissioner was authorized to sign the
waiver pursuant to Revenue Delegation Authority Order (RDAO) No. 05-01, it found
that the first waiver was still invalid based on the second and third grounds stated by the
CTA Second Division. Pertinent portions of the Decision read as follows:
While the Court En Banc agrees with the second and third grounds for invalidating the first waiver, it finds that the Assistant Commissioner of the Enforcement Service is authorized to sign the waiver pursuant to RDAO No. 05-01, which provides in part as follows:
A. For National Office cases
Designated Revenue Official
1. Assistant Commissioner (ACIR), For tax fraud and policy Enforcement Service cases
2. ACIR, Large Taxpayers Service For large taxpayers casesother than those cases falling under Subsection B hereof
3. ACIR, Legal Service For cases pending verification and awaiting
resolution of certain legal issues prior to prescription and for issuance/compliance of Subpoena Duces Tecum
4. ACIR, Assessment Service (AS) For cases which are
pending in or subject to review or approval by the ACIR, AS
Based on the foregoing, the Assistant Commissioner, Enforcement Service is
authorized to sign waivers in tax fraud cases. A perusal of the records reveals that the investigation of the subject deficiency taxes in this case was conducted by the National Investigation Division of the BIR, which was formerly named the Tax Fraud Division. Thus, the subject assessment is a tax fraud case.
Nevertheless, the first waiver is still invalid based on the second and third
grounds stated by the Court in Division. Hence, it did not extend the prescriptive period to assess.
Moreover, assuming arguendo that the first waiver is valid, the second waiver is
invalid for violating Section 222(b) of the 1997 Tax Code which mandates that the period agreed upon in a waiver of the statute can still be extended by subsequent written agreement, provided that it is executed prior to the expiration of the first period agreed upon. As previously discussed, the exceptions to the law on prescription must be strictly construed.
In the case at bar, the period agreed upon in the subject first waiver expired on
December 31, 2002. The second waiver in the instant case which was supposed to extend the period to assess to December 31, 2003 was executed on February 18, 2003 and was notarized on February 19, 2003. Clearly, the second waiver was executed after the expiration of the first period agreed upon. Consequently, the same could not have tolled the 3-year prescriptive period to assess.
Petitioner sought reconsideration but the same was unavailing.
Issue
Hence, the present recourse where petitioner interposes that:
THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT THE GOVERNMENT’S RIGHT TO ASSESS UNPAID TAXES OF RESPONDENT PRESCRIBED.
Petitioner’s Arguments
Petitioner argues that the government’s right to assess taxes is not barred by
prescription as the two waivers executed by respondent, through its accountant,
effectively tolled or extended the period within which the assessment can be made. In
disputing the conclusion of the CTA that the waivers are invalid, petitioner claims that
respondent is estopped from adopting a position contrary to what it has previously taken.
Petitioner insists that by acquiescing to the audit during the period specified in the
waivers, respondent led the government to believe that the “delay” in the process would
not be utilized against it. Thus, respondent may no longer repudiate the validity of the
waivers and raise the issue of prescription.
Respondent’s Arguments
Respondent maintains that prescription had set in due to the invalidity of the
waivers executed by Pasco, who executed the same without any written authority from it,
in clear violation of RDAO No. 5-01. As to the doctrine of estoppel by acquiescence
relied upon by petitioner, respondent counters that the principle of equity comes into play
only when the law is doubtful, which is not present in the instant case.
Our Ruling
The petition is bereft of merit.
Section 203 of the National Internal Revenue Code of 1997 (NIRC) mandates the
government to assess internal revenue taxes within three years from the last day
prescribed by law for the filing of the tax return or the actual date of filing of such return,
whichever comes later. Hence, an assessment notice issued after the three-year
prescriptive period is no longer valid and effective. Exceptions however are provided
under Section 222 of the NIRC.
The waivers executed by respondent’s accountant did not extend the period within which the assessment can be made
Petitioner does not deny that the assessment notices were issued beyond the three-
year prescriptive period, but claims that the period was extended by the two waivers
executed by respondent’s accountant.
We do not agree.
Section 222 (b) of the NIRC provides that the period to assess and collect taxes
may only be extended upon a written agreement between the CIR and the taxpayer
executed before the expiration of the three-year period. RMO 20-90 issued on April 4,
1990 and RDAO 05-01 issued on August 2, 2001 lay down the procedure for the proper
execution of the waiver, to wit:
1. The waiver must be in the proper form prescribed by RMO 20-90. The
phrase “but not after ______ 19 ___”, which indicates the expiry date of
the period agreed upon to assess/collect the tax after the regular three-
year period of prescription, should be filled up.
2. The waiver must be signed by the taxpayer himself or his duly
authorized representative. In the case of a corporation, the waiver must
be signed by any of its responsible officials. In case the authority is
delegated by the taxpayer to a representative, such delegation should be
in writing and duly notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him must sign the waiver
indicating that the BIR has accepted and agreed to the waiver. The date
of such acceptance by the BIR should be indicated. However, before
signing the waiver, the CIR or the revenue official authorized by him
must make sure that the waiver is in the prescribed form, duly notarized,
and executed by the taxpayer or his duly authorized representative.
5. Both the date of execution by the taxpayer and date of acceptance by
the Bureau should be before the expiration of the period of prescription
or before the lapse of the period agreed upon in case a subsequent
agreement is executed.
6. The waiver must be executed in three copies, the original copy to be
attached to the docket of the case, the second copy for the taxpayer and
the third copy for the Office accepting the waiver. The fact of receipt by
the taxpayer of his/her file copy must be indicated in the original copy
to show that the taxpayer was notified of the acceptance of the BIR and
the perfection of the agreement.
A perusal of the waivers executed by respondent’s accountant reveals the
following infirmities:
1. The waivers were executed without the notarized written authority of
Pasco to sign the waiver in behalf of respondent.
2. The waivers failed to indicate the date of acceptance.
3. The fact of receipt by the respondent of its file copy was not indicated
in the original copies of the waivers.
Due to the defects in the waivers, the period to assess or collect taxes was not
extended. Consequently, the assessments were issued by the BIR beyond the three-year
period and are void.
Estoppel does not apply in this case
We find no merit in petitioner’s claim that respondent is now estopped from
claiming prescription since by executing the waivers, it was the one which asked for
additional time to submit the required documents.
In Collector of Internal Revenue v. Suyoc Consolidated Mining Company, the
doctrine of estoppel prevented the taxpayer from raising the defense of prescription
against the efforts of the government to collect the assessed tax. However, it must be
stressed that in the said case, estoppel was applied as an exception to the statute of
limitations on collection of taxes and not on the assessment of taxes, as the BIR was able
to make an assessment within the prescribed period. More important, there was a finding
that the taxpayer made several requests or positive acts to convince the government to
postpone the collection of taxes, viz:
It appears that the first assessment made against respondent based on its second final return filed on November 28, 1946 was made on February 11, 1947. Upon receipt of this assessment respondent requested for at least one year within which to pay the amount assessed although it reserved its right to question the correctness of the assessment before actual payment. Petitioner granted an extension of only three months. When it failed to pay the tax within the period extended, petitioner sent respondent a letter on November 28, 1950 demanding payment of the tax as assessed, and upon receipt of the letter respondent asked for a reinvestigation and reconsideration of the assessment. When this request was denied, respondent again requested for a reconsideration on April 25, 1952, which was denied on May 6, 1953, which denial was appealed to the Conference Staff. The appeal was heard by the Conference Staff from September 2, 1953
to July 16, 1955, and as a result of these various negotiations, the assessment was finally reduced on July 26, 1955. This is the ruling which is now being questioned after a protracted negotiation on the ground that the collection of the tax has already prescribed.
It is obvious from the foregoing that petitioner refrained from collecting the tax
by distraint or levy or by proceeding in court within the 5-year period from the filing of the second amended final return due to the several requests of respondent for extension to which petitioner yielded to give it every opportunity to prove its claim regarding the correctness of the assessment. Because of such requests, several reinvestigations were made and a hearing was even held by the Conference Staff organized in the collection office to consider claims of such nature which, as the record shows, lasted for several months. After inducing petitioner to delay collection as he in fact did, it is most unfair for respondent to now take advantage of such desistance to elude his deficiency income tax liability to the prejudice of the Government invoking the technical ground of prescription.
While we may agree with the Court of Tax Appeals that a mere request for
reexamination or reinvestigation may not have the effect of suspending the running of the period of limitation for in such case there is need of a written agreement to extend the period between the Collector and the taxpayer, there are cases however where a taxpayer may be prevented from setting up the defense of prescription even if he has not previously waived it in writing as when by his repeated requests or positive acts the Government has been, for good reasons, persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant by the Government. And when such situation comes to pass there are authorities that hold, based on weighty reasons, that such an attitude or behavior should not be countenanced if only to protect the interest of the Government.
This case has no precedent in this jurisdiction for it is the first time that such has
risen, but there are several precedents that may be invoked in American jurisprudence. As Mr. Justice Cardozo has said: “The applicable principle is fundamental and unquestioned. ‘He who prevents a thing from being done may not avail himself of the nonperformance which he has himself occasioned, for the law says to him in effect “this is your own act, and therefore you are not damnified.”’ “(R. H. Stearns Co. vs. U.S., 78 L. ed., 647). Or, as was aptly said, “The tax could have been collected, but the government withheld action at the specific request of the plaintiff. The plaintiff is now estopped and should not be permitted to raise the defense of the Statute of Limitations.” [Newport Co. vs. U.S., (DC-WIS), 34 F. Supp. 588].
Conversely, in this case, the assessments were issued beyond the prescribed
period. Also, there is no showing that respondent made any request to persuade the BIR
to postpone the issuance of the assessments.
The doctrine of estoppel cannot be applied in this case as an exception to the
statute of limitations on the assessment of taxes considering that there is a detailed
procedure for the proper execution of the waiver, which the BIR must strictly follow. As
we have often said, the doctrine of estoppel is predicated on, and has its origin in, equity
which, broadly defined, is justice according to natural law and right. As such, the
doctrine of estoppel cannot give validity to an act that is prohibited by law or one that is
against public policy. It should be resorted to solely as a means of preventing injustice
and should not be permitted to defeat the administration of the law, or to accomplish a
wrong or secure an undue advantage, or to extend beyond them requirements of the
transactions in which they originate. Simply put, the doctrine of estoppel must be
sparingly applied.
Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure
to comply with RMO 20-90 and RDAO 05-01, which the BIR itself issued. As stated
earlier, the BIR failed to verify whether a notarized written authority was given by the
respondent to its accountant, and to indicate the date of acceptance and the receipt by the
respondent of the waivers. Having caused the defects in the waivers, the BIR must bear
the consequence. It cannot shift the blame to the taxpayer. To stress, a waiver of the
statute of limitations, being a derogation of the taxpayer’s right to security against
prolonged and unscrupulous investigations, must be carefully and strictly construed.
As to the alleged delay of the respondent to furnish the BIR of the required
documents, this cannot be taken against respondent. Neither can the BIR use this as an
excuse for issuing the assessments beyond the three-year period because with or without
the required documents, the CIR has the power to make assessments based on the best
evidence obtainable.
WHEREFORE, the petition is DENIED. The assailed Decision dated March
30, 2007 and Resolution dated May 18, 2007 of the Court of Tax Appeals are hereby
AFFIRMED.
SO ORDERED.