MAGNETIC RESONANCE IMAGING SERVICES (as represented by HOSPITAL MANAGEMENT SERVICES, INC.), petitioner, vs.

COMMISSIONER OF INTERNAL REVENUE, respondent. CTA Case no. 6608 October 20,2009 Facts The petitioner is a joint venture by G. E. Philippines Incorporated and Medical Center ManilaHospital Management Services Inc. On April 15,1999 the petitioner filed it's Income Tax Return (ITR) for December 31,1998 Which was also the date the company was dissolved. Said ITR was reffered by both parties as tentative return. On July 15,1999 an amended ITR was filed by the petitioner. On December 19,2001 a Formal Assessment Notice (FAN was issued by the BIR and received on January 2, 2002 Stating a deficiency of 9,303,036.31 and 19410.76 for income tax and expanded withholding tax for the year 1998. Several deductions was disallowed by the BIR, such as Writedown of property and Equiptment 13,000,000.00, Hospital Medical supplies 196,091.00, light and water 20911.00 telephone 20911.00, repair and maintenance 6650486.00 , msc expense 11,656.00 and insurance expense 217,929.00. As well as failure to pay withholding tax due for salaries and wages. Fan was based on tentative return. It was protested on January 31,2002 and received on February 1,2002. A leter dated June 14,2002 was received September 9,2002 from the bir stating that they would need additional documents to be submitted to act on the protest. On September 23, 2002 the thru SGV the petitioner argued that the documents to support the claim was the difference in the two ITRs In a letter dated October 2, 2002 received by the petitioner on October 22,2002 a leter was sent stating that case was forwarded to the Revenue District no. 34 for reinvestigation. Books of account and other records were asked to be submitted. Some of the said documents were submitted. On January 3,2003 the final decision of the bir was that the petitioner assest a tax deficiency of 10,649,555.69 including surcharges and interest. Received January 27,2003 Petition for review was filed February 26,2003 by the petitioner, answer was given on March 24,2003. Motion to dismiss was filled june 6, 2003 and on june 26,2003. On July 18 2003 the motion was dismissed and there was a hearing set for November 13,2003. On November 21,2008 the case was submitted for decision. Issues: Whether or not Final Assessment Notice No. 34-24-000006-98 is valid Whether or not there were valid disallowed as an expense and whether such expense was claimed as in the Final Income Tax Return filed by the Petitioner. WON the deficiency has prescribed. Held There was a valid Final Assessment Notice on the said case, the Bir has the authority to base its assestment on the itr submitted to it's office and is not confined to the final return as argued by the petitioner. There is on such thing as a tentative itr. As any ITR may be looked upon by the commissioner under sec 5 . Although the ITR may be modified within 3 years any paper such as the tentative ITR may be looked upon to determine correctness The expenses claimed by the petitioner were not supported by any additional documents sent by the

petitioner and upon evaluation. Some of which were already subjected to writedown for the taxable year of 1997, and financial statements submitted to the SEC. Burden of proof is with the respondent and the assessment of the BIR is presumed correct. Petitioners argument on prescription: Respondent's failure in moving for the collection of the assessed tax resulted in the prescription of the government's right to collect the deficiency. Records show that assessment notice and demand letter dated 19 December 2001 were issued and sent to Administrative Section on the same date, thus collection should have been initiated on or before 19 December 2006. Hence, as period provided under Section 203 of the 1977 NIRC has prescribed, Petitioner is no longer liable to pay either the deficiency income tax or the deficiency expanded withholding tax for taxable year 1998. EcHIDT In addition, by Respondent's own admission, the Assessment Notice has become final on 23 February 2003, however as of the even date there was no Warrant of Distraint and/or Levy served on the respondents nor any judicial proceedings initiated by the BIR to collect the tax due based on this assessment the CIR is now proscribed from collecting the assessed tax." 59 These arguments are untenable. While it has been held that when the BIR validly issues an assessment, within either the three-year or tenyear period under Section 203 60 and 222 61 of the NIRC of 1997, respectively, whichever is appropriate, it has another five (5) years after the assessment within which to collect the national internal revenue tax due thereon by distraint, levy and/or court proceeding, the counting of the said five-year prescriptive period may be suspended under certain conditions. In this particular case, such period was suspended when petitioner filed the instant Petition for Review. "SEC. 5. Power of the Commissioner to Obtain Information, and to Summon, Examine, and Take Testimony of Persons. In ascertaining the correctness of any return, or in making a return when none has been made, or in determining the liability of any person for any internal revenue tax, or in collecting any such liability, or in evaluating tax compliance, the Commissioner is authorized: DHESca (A) To examine any book, paper, record, or other data which may be relevant or material to such inquiry (Emphases supplied) xxx xxx xxx "SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement. (A) Examination of Returns and Determination of Tax Due. After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax: Provided, however, That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. The tax or any deficiency tax so assessed shall be paid upon notice and demand from the Commissioner or from his duly authorized representative. TEcAHI Any return, statement or declaration filed in any office authorized to receive the same shall not be withdrawn: Provided, That within three (3) years from the date of such filing, the same may be modified, changed, or amended: Provided, further, That no notice for audit or investigation of such return, statement or declaration has, in the meantime, been actually served upon the taxpayer (Emphasis supplied).

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. GJM PHILIPPINES MANUFACTURING, INC., Facts GJM -is an manufacturing and exporter of aparrel with a principal place of business in Rosario Cavite. It had a Makati Office but due to financial constraint transferred said office to Rosario Cavite. It applied for a transfer with the RDO 54 of trece Martirez from RDO 48 from Makati. On May 29,2002 The transfer was confirmed on August 26,2002 On October 18, 2002 sent a letter for an informal conference for the assesment of taxes for the calendar year ending in December 31,1999 which stated a tax deficiency of 1,192,541.51 arising from the disallowance of (a) Loading and Shipment/Freight Out in the amount of P2,354,426.00; (b) Packing expense, P8,859,975.00; (c) Salaries and Wages, P2,717,910.32; (d) Staff Employee Benefits, P1,191,965.87, and (e) Fringe Benefits Tax, in the amount of P337,814.57. The findings were refuted by the controller of the company on October 24,2002. February 12,2003 a PAN was issued agaisnt GJM on April 14,2003 an Assessment Notice was issued. On July 25,2003 a Preliminary Collection Letter was address to the petitioner and was sent to the MAKATI address. On August 18,2003 a Final Notice befor seizure was sent to the new address. GJM claimed never reached it. On December 8,2003 a warrant of distrain was issued from RDO 48 in Makati. A protest was filed against the warrant on January 7 2004 for lack of legal and factual basis. And that it had already prescribed. BIR argued that : The fact that the Preliminary Assessment Notice and Formal Assessment Notice were served to petitioner, at its new address located at Phase 2, Lot 9, Blk. 4, PEZA, Rosario, Cavite, and the details of the proposed assessment of petitioner's income tax liability for taxable year 1999 were properly acknowledged by petitioner's representative, ERLINDA G. DATU, Financial Controller, when she submitted a reply dated October 24, 2002, protesting the said assessment, it is, therefore clear that respondent has complied with the procedural due process under Section 228 of the 1997 Tax Code, as implemented by Revenue Regulations No. 12-99 The court of tax appeal ruled in favor of GJM. Issue: WON the action has already prescribed. Based on the records of the case, GJM filed its Annual Income Tax Return for the taxable year 1999 on April 12, 2000, consequently, the three (3)-year period within which the CIR can validly issue assessment is until April 15, 2003. And records show that the FAN, with attached Details of Discrepancies, was released, mailed and sent through registered mail on April 14, 2003. Apparently, the FAN was made within the period provided under Section 203 of the 1997 NIRC, as amended. Thus, the Court in Division ruled as follows: The settled rule in our jurisprudence is that when mail matter is sent by registered mail, there may exist a presumption, set forth under Section 2(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. 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 mails.

To prove that the subject mail was served upon petitioner, respondent offered in evidence the Transmittal Letter No. 282 dated April 14, 2003 duly prepared and signed by Ms. Ma. Nieva A. Guerrero, as Chief of the Assessment Division of BIR Revenue Region No. 8-Makati. In the said Transmittal Letter, certain entries were made regarding petitioner, namely, its name, the assessment number, the tax year, the kind of tax, and the amount of the deficiency tax. A stamp mark of the Makati Central Post Office with date (i.e., "April 14, 2003") also appears on the same Transmittal Letter. Notably however, respondent did not present Ma. Nieva A. Guerrero to testify on the said Transmittal Letter dated April 14, 2003 which she supposedly prepared and signed, considering that petitioner has denied having received the subject Formal Assessment Notice and the Details of Discrepancies. 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, and offered before this Court, yet respondent failed to do so. Thus, for failure of respondent to establish that Formal Assessment Notice No. IT-17316-99-03-282 had been released, mailed or sent within the three (3)-year prescriptive period under Section 203 of the NIRC of 1997, the right of the Government to assess the subject tax has prescribed. 17 With this, the Court En Banc cannot likewise impose the twenty five per centum (25%) surcharge for late payment, and twenty per centum (20%) annual interest from April 14, 2003, until full payment, pursuant to Sections 248 18 and 249 19 of the 1997 NIRC, as amended, as found by the Court in Division