What is more, the waivers in question reveal that they are in no wise unequivocal, and

therefore necessitates for its binding effect the concurrence of the Commissioner of
Internal Revenue. In fact, in his reply dated April 18, 1995, the Solicitor General,
representing the Commissioner of Internal Revenue, admitted that subject waivers
executed by Carnation were "for end in consideration of the approval by the
Commissioner of Internal Revenue of its request for reinvestigation and/or reconsideration
of its internal revenue case involving tax assessments for the fiscal year ended
September 30, 1981 which were all pending at the time". On this basis neither implied
consent can be presumed nor can it be contended that the waiver required under Sec.
319 of the Tax Code is one which is unilateral nor can it be said that concurrence to such
an agreements a mere formality because it is the very signatures of both the
Commissioner of Internal Revenue and the taxpayer which give birth to such a valid
agreement.
WHEREFORE, the decision
pronouncement as to costs.

of

the

Court

of

Appeals

is

hereby

AFFIRMED.

No

SO ORDERED.
G.R. No. 162852

December 16, 2004

PHILIPPINE
JOURNALISTS,
INC.,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

petitioner,

YNARES-SANTIAGO, J.:
This is a petition for review filed by Philippine Journalists, Incorporated (PJI) assailing the
Decision1 of the Court of Appeals dated August 5, 2003, 2 which ordered petitioner to pay
the assessed tax liability of P111,291,214.46 and the Resolution 3 dated March 31, 2004
which denied the Motion for Reconsideration.
The case arose from the Annual Income Tax Return filed by petitioner for the calendar
year ended December 31, 1994 which presented a net income of P30,877,387.00 and the
tax due of P10,807,086.00. After deducting tax credits for the year, petitioner paid the
amount of P10,247,384.00.
On August 10, 1995, Revenue District Office No. 33 of the Bureau of Internal Revenue
(BIR) issued Letter of Authority No. 871204 for Revenue Officer Federico de Vera, Jr. and
Group Supervisor Vivencio Gapasin to examine petitioners books of account and other
accounting records for internal revenue taxes for the period January 1, 1994 to December
31, 1994.
From the examination, the petitioner was told that there were deficiency taxes, inclusive
of surcharges, interest and compromise penalty in the following amounts:
Value Added Tax

P 229,527.90

Income Tax

125,002,892.95

Withholding Tax

2,748,012.35

Total

P 127,980,433.20

In a letter dated August 29, 1997, Revenue District Officer Jaime Concepcion invited
petitioner to send a representative to an informal conference on September 15, 1997 for
an opportunity to object and present documentary evidence relative to the proposed
assessment. On September 22, 1997, petitioners Comptroller, Lorenza Tolentino,
executed a "Waiver of the Statute of Limitation Under the National Internal Revenue Code
(NIRC)".5 The document "waive[d] the running of the prescriptive period provided by
Sections 223 and 224 and other relevant provisions of the NIRC and consent[ed] to the
assessment and collection of taxes which may be found due after the examination at any
time after the lapse of the period of limitations fixed by said Sections 223 and 224 and
other relevant provisions of the NIRC, until the completion of the investigation". 6
On July 2, 1998, Revenue Officer De Vera submitted his audit report recommending the
issuance of an assessment and finding that petitioner had deficiency taxes in the total
amount of P136,952,408.97. On October 5, 1998, the Assessment Division of the BIR
issued Pre-Assessment Notices which informed petitioner of the results of the
investigation. Thus, BIR Revenue Region No. 6, Assessment Division/Billing Section, issued
Assessment/Demand No. 33-1-000757-947 on December 9, 1998 stating the following
deficiency taxes, inclusive of interest and compromise penalty:
Income Tax

P108,743,694.88

Value Added Tax

184,299.20

Expanded Withholding Tax

2,363,220.38

Total

P111,291,214.46

On March 16, 1999, a Preliminary Collection Letter was sent by Deputy Commissioner
Romeo S. Panganiban to the petitioner to pay the assessment within ten (10) days from
receipt of the letter. On November 10, 1999, a Final Notice Before Seizure 8 was issued by
the same deputy commissioner giving the petitioner ten (10) days from receipt to pay.
Petitioner received a copy of the final notice on November 24, 1999. By letters dated
November 26, 1999, petitioner asked to be clarified how the tax liability of
P111,291,214.46 was reached and requested an extension of thirty (30) days from receipt
of the clarification within which to reply. 9
The BIR received a follow-up letter from the petitioner asserting that its (PJI) records do
not show receipt of Tax Assessment/Demand No. 33-1-000757-94. 10 Petitioner also
contested that the assessment had no factual and legal basis. On March 28, 2000, a
Warrant of Distraint and/or Levy No. 33-06-046 11 signed by Deputy Commissioner Romeo
Panganiban for the BIR was received by the petitioner.
Petitioner filed a Petition for Review 12 with the Court of Tax Appeals (CTA) which was
amended on May 12, 2000. Petitioner complains: (a) that no assessment or demand was
received from the BIR; (b) that the warrant of distraint and/or levy was without factual and
legal bases as its issuance was premature; (c) that the assessment, having been made
beyond the 3-year prescriptive period, is null and void; (d) that the issuance of the
warrant without being given the opportunity to dispute the same violates its right to due
process; and (e) that the grave prejudice that will be sustained if the warrant is enforced
is enough basis for the issuance of the writ of preliminary injunction.
On May 14, 2002, the CTA rendered its decision, 13 to wit:
As to whether or not the assessment notices were received by the petitioner, this
Court rules in the affirmative.

To disprove petitioners allegation of non-receipt of the aforesaid assessment

notices, respondent presented a certification issued by the Post Master of the
Central Post Office, Manila to the effect that Registered Letter No. 76134 sent by
the BIR, Region No. 6, Manila on December 15, 1998 addressed to Phil.
Journalists, Inc. at Journal Bldg., Railroad St., Manila was duly delivered to and
received by a certain Alfonso Sanchez, Jr. (Authorized Representative) on January
8, 1999. Respondent also showed proof that in claiming Registered Letter No.
76134, Mr. Sanchez presented three identification cards, one of which is his
company ID with herein petitioner.

However, as to whether or not the Waiver of the Statute of Limitations is valid

and binding on the petitioner is another question. Since the subject assessments
were issued beyond the three-year prescriptive period, it becomes imperative on
our part to rule first on the validity of the waiver allegedly executed on
September 22, 1997, for if this court finds the same to be ineffective, then the
assessments must necessarily fail.

After carefully examining the questioned Waiver of the Statute of Limitations,

this Court considers the same to be without any binding effect on the petitioner
for the following reasons:
The waiver is an unlimited waiver. It does not contain a definite expiration date.
Under RMO No. 20-90, the phrase indicating 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

Secondly, the waiver failed to state the date of acceptance by the Bureau which
under the aforequoted RMO should likewise be indicated

Finally, petitioner was not furnished a copy of the waiver. It is to be noted that
under RMO No. 20-90, the waiver must be executed in three (3) copies, the
second copy of which is for the taxpayer. It is likewise required that the fact of
receipt by the taxpayer of his/her file copy be indicated in the original copy.
Again, respondent failed to comply.
It bears stressing that RMO No. 20-90 is directed to all concerned internal
revenue officers. The said RMO even provides that the procedures found therein
should be strictly followed, under pain of being administratively dealt with should
non-compliance result to prescription of the right to assess/collect
Thus, finding the waiver executed by the petitioner on September 22, 1997 to be
suffering from legal infirmities, rendering the same invalid and ineffective, the
Court finds Assessment/Demand No. 33-1-000757-94 issued on December 5,
1998 to be time-barred. Consequently, the Warrant of Distraint and/or Levy
issued pursuant thereto is considered null and void.
WHEREFORE, in view of all the foregoing, the instant Petition for Review is
hereby GRANTED. Accordingly, the deficiency income, value-added and

expanded withholding tax assessments issued by the respondent against the

petitioner on December 9, 1998, in the total amount of P111,291,214.46 for the
year 1994 are hereby declared CANCELLED, WITHDRAWN and WITH NO
FORCE AND EFFECT. Likewise, Warrant of Distraint and/or Levy No. 33-06-046
is hereby declared NULL and VOID.
SO ORDERED.14
After the motion for reconsideration of the Commissioner of Internal Revenue was denied
by the CTA in a Resolution dated August 2, 2002, an appeal was filed with the Court of
Appeals on August 12, 2002.
In its decision dated August 5, 2003, the Court of Appeals disagreed with the ruling of the
CTA, to wit:
The petition for review filed on 26 April 2000 with CTA was neither timely filed
nor the proper remedy. Only decisions of the BIR, denying the request for
reconsideration or reinvestigation may be appealed to the CTA. Mere assessment
notices which have become final after the lapse of the thirty (30)-day
reglementary period are not appealable. Thus, the CTA should not have
entertained the petition at all.

[T]he CTA found the waiver executed by Phil. Journalists to be invalid for the
following reasons: (1) it does not indicate a definite expiration date; (2) it does
not state the date of acceptance by the BIR; and (3) Phil. Journalist, the taxpayer,
was not furnished a copy of the waiver. These grounds are merely formal in
nature. The date of acceptance by the BIR does not categorically appear in the
document but it states at the bottom page that the BIR "accepted and agreed
to:", followed by the signature of the BIRs authorized representative. Although
the date of acceptance was not stated, the document was dated 22 September
1997. This date could reasonably be understood as the same date of acceptance
by the BIR since a different date was not otherwise indicated. As to the allegation
that Phil. Journalists was not furnished a copy of the waiver, this requirement
appears ridiculous. Phil. Journalists, through its comptroller, Lorenza Tolentino,
signed the waiver. Why would it need a copy of the document it knowingly
executed when the reason why copies are furnished to a party is to notify it of
the existence of a document, event or proceeding?
As regards the need for a definite expiration date, this is the biggest flaw of the
decision. The period of prescription for the assessment of taxes may be
extended provided that the extension be made in writing and that it be made
prior to the expiration of the period of prescription. These are the requirements
for a valid extension of the prescriptive period. To these requirements provided
by law, the memorandum order adds that the length of the extension be
specified by indicating its expiration date. This requirement could be reasonably
construed from the rule on extension of the prescriptive period. But this
requirement does not apply in the instant case because what we have here is not
an extension of the prescriptive period but a waiver thereof. These are two (2)
very different things. What Phil. Journalists executed was a renunciation of its
right to invoke the defense of prescription. This is a valid waiver. When one
waives the prescriptive period, it is no longer necessary to indicate the length of
the extension of the prescriptive period since the person waiving may no longer
use this defense.

WHEREFORE, the 02 August 2002 resolution and 14 May 2002 decision of the
CTA are hereby SET ASIDE. Respondent Phil. Journalists is ordered [to] pay its
assessed tax liability of P111,291,214.46.
SO ORDERED.15
Petitioners Motion for Reconsideration was denied in a Resolution dated March 31, 2004.
Hence, this appeal on the following assignment of errors:
I.
The Honorable Court of Appeals committed grave error in ruling that it is outside
the jurisdiction of the Court of Tax Appeals to entertain the Petition for Review
filed by the herein Petitioner at the CTA despite the fact that such case inevitably
rests upon the validity of the issuance by the BIR of warrants of distraint and
levy contrary to the provisions of Section 7(1) of Republic Act No. 1125.
II.
The Honorable Court of Appeals gravely erred when it ruled that failure to
comply with the provisions of Revenue Memorandum Order (RMO) No. 20-90 is
merely a formal defect that does not invalidate the waiver of the statute of
limitations without stating the legal justification for such conclusion. Such ruling
totally disregarded the mandatory requirements of Section 222(b) of the Tax
Code and its implementing regulation, RMO No. 20-90 which are substantive in
nature. The RMO provides that violation thereof subjects the erring officer to
administrative sanction. This directive shows that the RMO is not merely cover
forms.
III.
The Honorable Court of Appeals gravely erred when it ruled that the assessment
notices became final and unappealable. The assessment issued is void and
legally non-existent because the BIR has no power to issue an assessment
beyond the three-year prescriptive period where there is no valid and binding
waiver of the statute of limitation.
IV.
The Honorable Court of Appeals gravely erred when it held that the assessment
in question has became final and executory due to the failure of the Petitioner to
protest the same. Respondent had no power to issue an assessment beyond the
three year period under the mandatory provisions of Section 203 of the NIRC.
Such assessment should be held void and non-existent, otherwise, Section 203,
an expression of a public policy, would be rendered useless and nugatory.
Besides, such right to assess cannot be validly granted after three years since it
would arise from a violation of the mandatory provisions of Section 203 and
would go against the vested right of the Petitioner to claim prescription of
assessment.
V.
The Honorable Court of Appeals committed grave error when it HELD valid a
defective waiver by considering the latter a waiver of the right to invoke the
defense of prescription rather than an extension of the three year period of
prescription (to make an assessment) as provided under Section 222 in relation

to Section 203 of the Tax Code, an interpretation that is contrary to law, existing
jurisprudence and outside of the purpose and intent for which they were
enacted.16
We find merit in the appeal.
The first assigned error relates to the jurisdiction of the CTA over the issues in this case.
The Court of Appeals ruled that only decisions of the BIR denying a request for
reconsideration or reinvestigation may be appealed to the CTA. Since the petitioner did
not file a request for reinvestigation or reconsideration within thirty (30) days, the
assessment notices became final and unappealable. The petitioner now argue that the
case was brought to the CTA because the warrant of distraint or levy was illegally issued
and that no assessment was issued because it was based on an invalid waiver of the
statutes of limitations.
We agree with petitioner. Section 7(1) of Republic Act No. 1125, the Act Creating the Court
of Tax Appeals, provides for the jurisdiction of that special court:
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; (Emphasis supplied).
The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the
Commissioner of Internal Revenue on matters relating to assessments or refunds. The
second part of the provision covers other cases that arise out of the NIRC or related laws
administered by the Bureau of Internal Revenue. The wording of the provision is clear and
simple. It gives the CTA the jurisdiction to determine if the warrant of distraint and levy
issued by the BIR is valid and to rule if the Waiver of Statute of Limitations was validly
effected.
This is not the first case where the CTA validly ruled on issues that did not relate directly
to a disputed assessment or a claim for refund. In Pantoja v. David,17 we upheld the
jurisdiction of the CTA to act on a petition to invalidate and annul the distraint orders of
the Commissioner of Internal Revenue. Also, in Commissioner of Internal Revenue v. Court
of Appeals,18 the decision of the CTA declaring several waivers executed by the taxpayer
as null and void, thus invalidating the assessments issued by the BIR, was upheld by this
Court.
The second and fifth assigned errors both focus on Revenue Memorandum Circular No.
20-90 (RMO No. 20-90) on the requisites of a valid waiver of the statute of limitations. The
Court of Appeals held that the requirements and procedures laid down in the RMO are
only formal in nature and did not invalidate the waiver that was signed even if the
requirements were not strictly observed.
The NIRC, under Sections 203 and 222,19 provides for a statute of limitations on the
assessment and collection of internal revenue taxes in order to safeguard the interest of
the taxpayer against unreasonable investigation. 20 Unreasonable investigation
contemplates cases where the period for assessment extends indefinitely because this
deprives the taxpayer of the assurance that it will no longer be subjected to further
investigation for taxes after the expiration of a reasonable period of time. As was held in
Republic of the Phils. v. Ablaza:21

The law prescribing a limitation of actions for the collection of the income tax is
beneficial both to the Government and to its citizens; to the Government
because tax officers would be obliged to act promptly in the making of
assessment, and to citizens because after the lapse of the period of prescription
citizens would have a feeling of security against unscrupulous tax agents who
will always find an excuse to inspect the books of taxpayers, not to determine
the latters real liability, but to take advantage of every opportunity to molest
peaceful, law-abiding citizens. Without such a legal defense taxpayers would
furthermore be under obligation to always keep their books and keep them open
for inspection subject to harassment by unscrupulous tax agents. The law on
prescription being a remedial measure 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 recommend the approval of the law. (Emphasis supplied)
RMO No. 20-90 implements these provisions of the NIRC relating to the period of
prescription for the assessment and collection of taxes. A cursory reading of the Order
supports petitioners argument that the RMO must be strictly followed, thus:
In the execution of said waiver, the following procedures should be followed:
1. The waiver must be in the form identified hereof. This form may be
reproduced by the Office concerned but there should be no deviation from
such form. The phrase "but not after __________ 19___" should be filled
up
2.
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
3. The following revenue officials are authorized to sign the waiver.
A. In the National Office

be

administratively

dealt

with.

A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation
of the taxpayers right to security against prolonged and unscrupulous investigations and
must therefore be carefully and strictly construed. 23 The waiver of the statute of
limitations is not a waiver of the right to invoke the defense of prescription as erroneously
held by the Court of Appeals. It is an agreement between the taxpayer and the BIR that
the period to issue an assessment and collect the taxes due is extended to a date certain.
The waiver does not mean that the taxpayer relinquishes the right to invoke prescription
unequivocally particularly where the language of the document is equivocal. For the
purpose of safeguarding taxpayers from any unreasonable examination, investigation or
assessment, our tax law provides a statute of limitations in the collection of taxes. Thus,
the law on prescription, being a remedial measure, should be liberally construed in order
to afford such protection. As a corollary, the exceptions to the law on prescription should
perforce be strictly construed.24 RMO No. 20-90 explains the rationale of a waiver:
... The phrase "but not after _________ 19___" should be filled up. This indicates
the expiry date of the period agreed upon to assess/collect the tax after the
regular three-year period of prescription. The period agreed upon shall
constitute the time within which to effect the assessment/collection of
the tax in addition to the ordinary prescriptive period. (Emphasis
supplied)
As found by the CTA, the Waiver of Statute of Limitations, signed by petitioners
comptroller on September 22, 1997 is not valid and binding because it does not conform
with the provisions of RMO No. 20-90. It did not specify a definite agreed date between
the BIR and petitioner, within which the former may assess and collect revenue taxes.
Thus, petitioners waiver became unlimited in time, violating Section 222(b) of the NIRC.
The waiver is also defective from the government side because it was signed only by a
revenue district officer, not the Commissioner, as mandated by the NIRC and RMO No. 2090. The waiver is not a unilateral act by the taxpayer or the BIR, but is a bilateral
agreement between two parties to extend the period to a date certain. The conformity of
the BIR must be made by either the Commissioner or the Revenue District Officer. This
case involves taxes amounting to more than One Million Pesos (P1,000,000.00) and
executed almost seven months before the expiration of the three-year prescription period.
For this, RMO No. 20-90 requires the Commissioner of Internal Revenue to sign for the BIR.
The case of Commissioner of Internal Revenue v. Court of Appeals,25 dealt with waivers
that were not signed by the Commissioner but were argued to have been given implied
consent by the BIR. We invalidated the subject waivers and ruled:

3. Commissioner

assess/collect shall
(Emphasis supplied)22

For tax cases involving

more than P1M

B. In the Regional Offices

1. The Revenue District Officer with respect to tax cases still
pending investigation and the period to assess is about to
prescribe regardless of amount.

5. 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

Petitioners submission is inaccurate

The Court of Appeals itself also passed upon the validity of the waivers executed
by Carnation, observing thus:
We cannot go along with the petitioners theory. Section 319 of the Tax
Code earlier quoted is clear and explicit that the waiver of the fiveyear26 prescriptive period must be in writing and signed by both the BIR
Commissioner and the taxpayer.
Here, the three waivers signed by Carnation do not bear the written
consent of the BIR Commissioner as required by law.

We agree with the CTA in holding "these waivers to be invalid and

without any binding effect on petitioner (Carnation) for the reason that
there was no consent by the respondent (Commissioner of Internal
Revenue)."

For sure, no such written agreement concerning the said three waivers
exists between the petitioner and private respondent Carnation.

What is more, the waivers in question reveal that they are in no wise
unequivocal, and therefore necessitates for its binding effect the concurrence of
the Commissioner of Internal Revenue. On this basis neither implied
consent can be presumed nor can it be contended that the waiver
required under Sec. 319 of the Tax Code is one which is unilateral nor
can it be said that concurrence to such an agreement is a mere
formality because it is the very signatures of both the Commissioner of
Internal Revenue and the taxpayer which give birth to such a valid
agreement.27 (Emphasis supplied)
The other defect noted in this case is the date of acceptance which makes it difficult to fix
with certainty if the waiver was actually agreed before the expiration of the three-year
prescriptive period. The Court of Appeals held that the date of the execution of the waiver
on September 22, 1997 could reasonably be understood as the same date of acceptance
by the BIR. Petitioner points out however that Revenue District Officer Sarmiento could
not have accepted the waiver yet because she was not the Revenue District Officer of
RDO No. 33 on such date. Ms. Sarmientos transfer and assignment to RDO No. 33 was
only signed by the BIR Commissioner on January 16, 1998 as shown by the Revenue
Travel Assignment Order No. 14-98. 28 The Court of Tax Appeals noted in its decision that it
is unlikely as well that Ms. Sarmiento made the acceptance on January 16, 1998 because
"Revenue Officials normally have to conduct first an inventory of their pending papers and
property responsibilities." 29
Finally, the records show that petitioner was not furnished a copy of the waiver. Under
RMO No. 20-90, the waiver must be executed in three copies with the second copy for the
taxpayer. The Court of Appeals did not think this was important because the petitioner
need not have a copy of the document it knowingly executed. It stated that the reason
copies are furnished is for a party to be notified of the existence of a document, event or
proceeding.
The flaw in the appellate courts reasoning stems from its assumption that the waiver is a
unilateral act of the taxpayer when it is in fact and in law an agreement between the
taxpayer and the BIR. When the petitioners comptroller signed the waiver on September
22, 1997, it was not yet complete and final because the BIR had not assented. There is
compliance with the provision of RMO No. 20-90 only after the taxpayer received a copy
of the waiver accepted by the BIR. 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 of the
acceptance by the BIR and the perfection of the agreement.
The waiver document is incomplete and defective and thus the three-year prescriptive
period was not tolled or extended and continued to run until April 17, 1998. Consequently,
the Assessment/Demand No. 33-1-000757-94 issued on December 9, 1998 was invalid
because it was issued beyond the three (3) year period. In the same manner, Warrant of
Distraint and/or Levy No. 33-06-046 which petitioner received on March 28, 2000 is also
null and void for having been issued pursuant to an invalid assessment.

WHEREFORE, premises considered, the instant petition for review is GRANTED. The
Decision of the Court of Appeals dated August 5, 2003 and its Resolution dated March 31,
2004 are REVERSED and SET ASIDE. The Decision of the Court of Tax Appeals in CTA
Case No. 6108 dated May 14, 2002, declaring Warrant of Distraint and/or Levy No. 33-06046 null and void, is REINSTATED.
SO ORDERED.
G.R. No. 155541

January 27, 2004

ESTATE OF THE LATE JULIANA DIEZ VDA. DE

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

GABRIEL,

petitioner,

DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari assails the decision of the Court of Appeals in CA-G.R.
CV No. 09107, dated September 30, 2002, 1 which reversed the November 19, 1995 Order
of Regional Trial Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, entitled
"Testate Estate of Juliana Diez Vda. De Gabriel". The petition was filed by the Estate of the
Late Juliana Diez Vda. De Gabriel, represented by Prudential Bank as its duly appointed
and qualified Administrator.
As correctly summarized by the Court of Appeals, the relevant facts are as follows:
During the lifetime of the decedent, Juliana Vda. De Gabriel, her business affairs
were managed by the Philippine Trust Company (Philtrust). The decedent died on
April 3, 1979. Two days after her death, Philtrust, through its Trust Officer, Atty.
Antonio M. Nuyles, filed her Income Tax Return for 1978. The return did not
indicate that the decedent had died.
On May 22, 1979, Philtrust also filed a verified petition for appointment as Special
Administrator with the Regional Trial Court of Manila, Branch XXXVIII, docketed as Sp.
Proc. No. R-82-6994. The court a quo appointed one of the heirs as Special Administrator.
Philtrusts motion for reconsideration was denied by the probate court.
On January 26, 1981, the court a quo issued an Order relieving Mr. Diez of his
appointment, and appointed Antonio Lantin to take over as Special Administrator.
Subsequently, on July 30, 1981, Mr. Lantin was also relieved of his appointment, and Atty.
Vicente Onosa was appointed in his stead.
In the meantime, the Bureau of Internal Revenue conducted an administrative
investigation on the decedents tax liability and found a deficiency income tax for the
year 1977 in the amount of P318,233.93. Thus, on November 18, 1982, the BIR sent by
registered mail a demand letter and Assessment Notice No. NARD-78-82-00501 addressed
to the decedent "c/o Philippine Trust Company, Sta. Cruz, Manila" which was the address
stated in her 1978 Income Tax Return. No response was made by Philtrust. The BIR was
not informed that the decedent had actually passed away.
In an Order dated September 5, 1983, the court a quo appointed Antonio Ambrosio as the
Commissioner and Auditor Tax Consultant of the Estate of the decedent.

On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of

distraint and levy to enforce collection of the decedents deficiency income tax liability,
which were served upon her heir, Francisco Gabriel. On November 22, 1984, respondent
filed a "Motion for Allowance of Claim and for an Order of Payment of Taxes" with the
court a quo. On January 7, 1985, Mr. Ambrosio filed a letter of protest with the Litigation
Division of the BIR, which was not acted upon because the assessment notice had
allegedly become final, executory and incontestable.
On May 16, 1985, petitioner, the Estate of the decedent, through Mr. Ambrosio, filed a
formal opposition to the BIRs Motion for Allowance of Claim based on the ground that
there was no proper service of the assessment and that the filing of the aforesaid claim
had already prescribed. The BIR filed its Reply, contending that service to Philippine Trust
Company was sufficient service, and that the filing of the claim against the Estate on
November 22, 1984 was within the five-year prescriptive period for assessment and
collection of taxes under Section 318 of the 1977 National Internal Revenue Code (NIRC).
On November 19, 1985, the court a quo issued an Order denying respondents claim
against the Estate,2 after finding that there was no notice of its tax assessment on the
proper party.3
On July 2, 1986, respondent filed an appeal with the Court of Appeals, docketed as CAG.R. CV No. 09107, 4 assailing the Order of the probate court dated November 19, 1985. It
was claimed that Philtrust, in filing the decedents 1978 income tax return on April 5,
1979, two days after the taxpayers death, had "constituted itself as the administrator of
the estate of the deceased at least insofar as said return is concerned." 5 Citing Basilan
Estate Inc. v. Commissioner of Internal Revenue, 6 respondent argued that the legal
requirement of notice with respect to tax assessments 7 requires merely that the
Commissioner of Internal Revenue release, mail and send the notice of the assessment to
the taxpayer at the address stated in the return filed, but not that the taxpayer actually
receive said assessment within the five-year prescriptive period. 8 Claiming that Philtrust
had been remiss in not notifying respondent of the decedents death, respondent
therefore argued that the deficiency tax assessment had already become final, executory
and incontestable, and that petitioner Estate was liable therefor.
On September 30, 2002, the Court of Appeals rendered a decision in favor of the
respondent. Although acknowledging that the bond of agency between Philtrust and the
decedent was severed upon the latters death, it was ruled that the administrator of the
Estate had failed in its legal duty to inform respondent of the decedents death, pursuant
to Section 104 of the National Internal Revenue Code of 1977. Consequently, the BIRs
service to Philtrust of the demand letter and Notice of Assessment was binding upon the
Estate, and, upon the lapse of the statutory thirty-day period to question this claim, the
assessment became final, executory and incontestable. The dispositive portion of said
decision reads:
WHEREFORE, finding merit in the appeal, the appealed decision is REVERSED
AND SET ASIDE. Another one is entered ordering the Administrator of the Estate
to pay the Commissioner of Internal Revenue the following:
a. The amount of P318,223.93, representing the deficiency income tax
liability for the year 1978, plus 20% interest per annum from November
2, 1982 up to November 2, 1985 and in addition thereto 10% surcharge
on the basic tax of P169,155.34 pursuant to Section 51(e)(2) and (3) of
the Tax Code as amended by PD 69 and 1705; and
b. The costs of the suit.
SO ORDERED.9

Hence, the instant petition, raising the following issues:

1. Whether or not the Court of Appeals erred in holding that the service of
deficiency tax assessment against Juliana Diez Vda. de Gabriel through the
Philippine Trust Company was a valid service in order to bind the Estate;
2. Whether or not the Court of Appeals erred in holding that the deficiency tax
assessment and final demand was already final, executory and incontestable.
Petitioner Estate denies that Philtrust had any legal personality to represent the decedent
after her death. As such, petitioner argues that there was no proper notice of the
assessment which, therefore, never became final, executory and incontestable. 10
Petitioner further contends that respondents failure to file its claim against the Estate
within the proper period prescribed by the Rules of Court is a fatal error, which forever
bars its claim against the Estate.11
Respondent, on the other hand, claims that because Philtrust filed the decedents income
tax return subsequent to her death, Philtrust was the de facto administrator of her
Estate.12 Consequently, when the Assessment Notice and demand letter dated November
18, 1982 were sent to Philtrust, there was proper service on the Estate. 13 Respondent
further asserts that Philtrust had the legal obligation to inform petitioner of the
decedents death, which requirement is found in Section 104 of the NIRC of 1977. 14 Since
Philtrust did not, respondent contends that petitioner Estate should not be allowed to
profit from this omission.15 Respondent further argues that Philtrusts failure to protest the
aforementioned assessment within the 30-day period provided in Section 319-A of the
NIRC of 1977 meant that the assessment had already become final, executory and
incontestable.16
The resolution of this case hinges on the legal relationship between Philtrust and the
decedent, and, by extension, between Philtrust and petitioner Estate. Subsumed under
this primary issue is the sub-issue of whether or not service on Philtrust of the demand
letter and Assessment Notice No. NARD-78-82-00501 was valid service on petitioner, and
the issue of whether Philtrusts inaction thereon could bind petitioner. If both sub-issues
are answered in the affirmative, respondents contention as to the finality of Assessment
Notice No. NARD-78-82-00501 must be answered in the affirmative. This is because
Section 319-A of the NIRC of 1977 provides a clear 30-day period within which to protest
an assessment. Failure to file such a protest within said period means that the
assessment ipso jure becomes final and unappealable, as a consequence of which legal
proceedings may then be initiated for collection thereof.
We find in favor of the petitioner.
The first point to be considered is that the relationship between the decedent and
Philtrust was one of agency, which is a personal relationship between agent and principal.
Under Article 1919 (3) of the Civil Code, death of the agent or principal automatically
terminates the agency. In this instance, the death of the decedent on April 3, 1979
automatically severed the legal relationship between her and Philtrust, and such could not
be revived by the mere fact that Philtrust continued to act as her agent when, on April 5,
1979, it filed her Income Tax Return for the year 1978.
Since the relationship between Philtrust and the decedent was automatically severed at
the moment of the Taxpayers death, none of Philtrusts acts or omissions could bind the
estate of the Taxpayer. Service on Philtrust of the demand letter and Assessment Notice
No. NARD-78-82-00501 was improperly done.
It must be noted that Philtrust was never appointed as the administrator of the Estate of
the decedent, and, indeed, that the court a quo twice rejected Philtrusts motion to be

thus appointed. As of November 18, 1982, the date of the demand letter and Assessment
Notice, the legal relationship between the decedent and Philtrust had already been nonexistent for three years.
Respondent claims that Section 104 of the National Internal Revenue Code of 1977
imposed the legal obligation on Philtrust to inform respondent of the decedents death.
The said Section reads:
SEC. 104. Notice of death to be filed. In all cases of transfers subject to tax or
where, though exempt from tax, the gross value of the estate exceeds three
thousand pesos, the executor, administrator, or any of the legal heirs, as the
case may be, within two months after the decedents death, or within a like
period after qualifying as such executor or administrator, shall give written
notice thereof to the Commissioner of Internal Revenue.
The foregoing provision falls in Title III, Chapter I of the National Internal Revenue
Code of 1977, or the chapter on Estate Tax, and pertains to "all cases of transfers
subject to tax" or where the "gross value of the estate exceeds three thousand
pesos". It has absolutely no applicability to a case for deficiency income tax,
such as the case at bar. It further lacks applicability since Philtrust was never the
executor, administrator of the decedents estate, and, as such, never had the
legal obligation, based on the above provision, to inform respondent of her
death.
Although the administrator of the estate may have been remiss in his legal
obligation to inform respondent of the decedents death, the consequences
thereof, as provided in Section 119 of the National Internal Revenue Code of
1977, merely refer to the imposition of certain penal sanctions on the
administrator. These do not include the indefinite tolling of the prescriptive
period for making deficiency tax assessments, or the waiver of the notice
requirement for such assessments.
Thus, as of November 18, 1982, the date of the demand letter and Assessment
Notice No. NARD-78-82-00501, there was absolutely no legal obligation on the
part of Philtrust to either (1) respond to the demand letter and assessment
notice, (2) inform respondent of the decedents death, or (3) inform petitioner
that it had received said demand letter and assessment notice. This lack of legal
obligation was implicitly recognized by the Court of Appeals, which, in fact,
rendered its assailed decision on grounds of "equity". 17
Since there was never any valid notice of this assessment, it could not have become final,
executory and incontestable, and, for failure to make the assessment within the five-year
period provided in Section 318 of the National Internal Revenue Code of 1977,
respondents claim against the petitioner Estate is barred. Said Section 18 reads:
SEC. 318. Period of limitation upon assessment and collection. Except as
provided in the succeeding section, internal revenue taxes shall be assessed
within five years after the return was filed, and no proceeding in court without
assessment for the collection of such taxes shall be begun after the expiration of
such period. For the purpose of this section, a return filed before the last day
prescribed by law for the filing thereof shall be considered as filed on such last
day: Provided, That this limitation shall not apply to cases already investigated
prior to the approval of this Code.
Respondent argues that an assessment is deemed made for the purpose of giving effect
to such assessment when the notice is released, mailed or sent to the taxpayer to
effectuate the assessment, and there is no legal requirement that the taxpayer actually
receive said notice within the five-year period. 18 It must be noted, however, that the

foregoing rule requires that the notice be sent to the taxpayer, and not merely to a
disinterested party. Although there is no specific requirement that the taxpayer should
receive the notice within the said period, due process requires at the very least that such
notice actually be received. In Commissioner of Internal Revenue v. Pascor Realty and
Development Corporation,19 we had occasion to say:
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.
In Republic v. De le Rama, 20 we clarified that, when an estate is under administration,
notice must be sent to the administrator of the estate, since it is the said administrator,
as representative of the estate, who has the legal obligation to pay and discharge all
debts of the estate and to perform all orders of the court. In that case, legal notice of the
assessment was sent to two heirs, neither one of whom had any authority to represent
the estate. We said:
The notice was not sent to the taxpayer for the purpose of giving effect to the
assessment, and said notice could not produce any effect. In the case of Bautista
and Corrales Tan v. Collector of Internal Revenue this Court had occasion to
state that "the assessment is deemed made when the notice to this effect is
released, mailed or sent to the taxpayer for the purpose of giving effect to said
assessment." It appearing that the person liable for the payment of the tax did
not receive the assessment, the assessment could not become final and
executory. (Citations omitted, emphasis supplied.)
In this case, the assessment was served not even on an heir of the Estate, but on a
completely disinterested third party. This improper service was clearly not binding on the
petitioner.
By arguing that (1) the demand letter and assessment notice were served on Philtrust, (2)
Philtrust was remiss in its obligation to respond to the demand letter and assessment
notice, (3) Philtrust was remiss in its obligation to inform respondent of the decedents
death, and (4) the assessment notice is therefore binding on the Estate, respondent is
arguing in circles. The most crucial point to be remembered is that Philtrust had
absolutely no legal relationship to the deceased, or to her Estate. There was therefore no
assessment served on the Estate as to the alleged underpayment of tax. Absent this
assessment, no proceedings could be initiated in court for the collection of said tax, 21 and
respondents claim for collection, filed with the probate court only on November 22, 1984,
was barred for having been made beyond the five-year prescriptive period set by law.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R.
CV No. 09107, dated September 30, 2002, is REVERSED and SET ASIDE. The Order of the
Regional Trial Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, dated
November 19, 1985, which denied the claim of the Bureau of Internal Revenue against the
Estate of Juliana Diez Vda. De Gabriel for the deficiency income tax of the decedent for
the year 1977 in the amount of P318,223.93, is AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 174942

March 7, 2008

BANK OF THE PHILIPPINE ISLANDS (Formerly: Far East Bank and Trust
Company),
petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
TINGA, J.:
The Bank of the Philippine Islands (BPI) seeks a review of the Decision 1dated 15 August
2006 and the Resolution2dated 5 October 2006, both of the Court of Tax Appeals (CTA or
tax court), which ruled that BPI is liable for the deficiency documentary stamp tax (DST)
on its cabled instructions to its foreign correspondent bank and that prescription had not
yet set in against the government.

On August 31, 2004, the Court rendered a Decision denying the petitioners
Petition for Review, the dispositive portion of which is quoted hereunder:
IN VIEW OF ALL THE FOREGOING, the petition is hereby DENIED for
lack of merit. Accordingly, petitioner is ORDERED to PAY the
respondent the amount of P24,587,174.63 representing deficiency
documentary stamp tax for the period 1982-1986, plus 20% interest
starting February 14, 2003 until the amount is fully paid pursuant to
Section 249 of the Tax Code.
SO ORDERED.
On September 21, 2004, petitioner filed a Motion for Reconsideration of the
abovementioned Decision which was denied for lack of merit in a Resolution
dated February 14, 2005.

The following undisputed facts are culled from the CTA decision:
Petitioner, the surviving bank after its merger with Far East Bank and Trust
Company, is a corporation duly created and existing under the laws of the
Republic of the Philippines with principal office at Ayala Avenue corner Paseo de
Roxas Ave., Makati City.
Respondent thru then Revenue Service Chief Cesar M. Valdez, issued to the
petitioner a pre-assessment notice (PAN) dated November 26, 1986.
Petitioner, in a letter dated November 29, 1986, requested for the details of the
amounts alleged as 1982-1986 deficiency taxes mentioned in the November 26,
1986 PAN.
On April 7, 1989, respondent issued to the petitioner, assessment/demand
notices FAS-1-82 to 86/89-000 and FAS 5-82 to 86/89-000 for deficiency
withholding tax at source (Swap Transactions) and DST involving the amounts of
P190,752,860.82 and P24,587,174.63, respectively, for the years 1982 to 1986.
On April 20, 1989, petitioner filed a protest on the demand/assessment notices.
On May 8, 1989, petitioner filed a supplemental protest.
On March 12, 1993, petitioner requested for an opportunity to present or submit
additional documentation on the Swap Transactions with the then Central Bank
(page 240, BIR Records). Attached to the letter dated June 17, 1994, in
connection with the reinvestigation of the abovementioned assessment,
petitioner submitted to the BIR, Swap Contracts with the Central Bank.
Petitioner executed several Waivers of the Statutes of Limitations, the last of
which was effective until December 31, 1994.
On August 9, 2002, respondent issued a final decision on petitioners protest
ordering the withdrawal and cancellation of the deficiency withholding tax
assessment in the amount of P190,752,860.82 and considered the same as
closed and terminated. On the other hand, the deficiency DST assessment in the
amount of P24,587,174.63 was reiterated and the petitioner was ordered to pay
the said amount within thirty (30) days from receipt of such order. Petitioner
received a copy of the said decision on January 15, 2003. Thereafter, on January
24, 2003, petitioner filed a Petition for Review before the Court.

On March 9, 2005, petitioner filed with the Court En Banc a Motion for Extension
of Time to File Petition for Review praying for an extension of fifteen (15) days
from March 10, 2005 or until March 25, 2005. Petitioners motion was granted in
a Resolution dated March 16, 2005.
On March 28, 2005, (March 25 was Good Friday), petitioner filed the instant
Petition for Review, advancing the following assignment of errors.
I. THIS HONORABLE COURT OVERLOOKED THE SIGNIFICANCE OF THE
WAIVER DULY AND VALIDLY AGREED UPON BY THE PARTIES AND
EFFECTIVE UNTIL DECEMBER 31, 1994;
II. THIS TAX COURT ERRED IN HOLDING THAT THE COLLECTION OF
ALLEGED DEFICIENCY TAX HAS NOT PRESCRIBED.
III. THIS HONORABLE COURT ERRED IN HOLDING THAT RESPONDENT
DID NOT VIOLATE PROCEDURAL DUE PROCESS IN THE ISSUANCE OF
ASSESSMENT NOTICE RELATIVE TO DOCUMENTARY STAMP DEFICIENCY.
IV. THIS HONORABLE COURT ERRED IN HOLDING THAT THE 4 MARCH
1987 MEMORANDUM OF THE LEGAL SERVICE CHIEF DULY APPROVED BY
THE BIR COMMISISONER VESTS NO RIGHTS TO PETITIONER.
V. THIS HONORABLE COURT ERRED IN HOLDING THAT PETITIONER IS
LIABLE FOR DOCUMENTARY STAMP TAX ON SWAP LOANS
TRANSACTIONS FROM 1982 TO 1986.3
The CTA synthesized the foregoing issues into whether the collection of the deficiency
DST is barred by prescription and whether BPI is liable for DST on its SWAP loan
transactions.
On the first issue, the tax court, applying the case of Commissioner of Internal Revenue v.
Wyeth Suaco Laboratories, Inc.,4(Wyeth Suaco case), ruled that BPIs protest and
supplemental protest should be considered requests for reinvestigation which tolled the
prescriptive period provided by law to collect a tax deficiency by distraint, levy, or court
proceeding. It further held, as regards the second issue, that BPIs cabled instructions to
its foreign correspondent bank to remit a specific sum in dollars to the Federal Reserve
Bank, the same to be credited to the account of the Central Bank, are in the nature of a
telegraphic transfer subject to DST under Section 195 of the Tax Code.

In its Petition for Review 5 dated 24 November 2006, BPI argues that the governments
right to collect the DST had already prescribed because the Commissioner of Internal
Revenue (CIR) failed to issue any reply granting BPIs request for reinvestigation
manifested in the protest letters dated 20 April and 8 May 1989. It was only through the 9
August 2002 Decision ordering BPI to pay deficiency DST, or after the lapse of more than
thirteen (13) years, that the CIR acted on the request for reinvestigation, warranting the
conclusion that prescription had already set in. It further claims that the CIR was not
precluded from collecting the deficiency within three (3) years from the time the notice of
assessment was issued on 7 April 1989, or even until the expiration on 31 December
1994 of the last waiver of the statute of limitations signed by BPI.
Moreover, BPI avers that the cabled instructions to its correspondent bank are not subject
to DST because the National Internal Revenue Code of 1977 (Tax Code of 1977) does not
contain a specific provision that cabled instructions on SWAP transactions are subject to
DST.
The Office of the Solicitor General (OSG) filed a Comment 6 dated 1 June 2007, on behalf of
the CIR, asserting that the prescriptive period was tolled by the protest letters filed by BPI
which were granted and acted upon by the CIR. Such action was allegedly communicated
to BPI as, in fact, the latter submitted additional documents pertaining to its SWAP
transactions in support of its request for reinvestigation. Thus, it was only upon BPIs
receipt on 13 January 2003 of the 9 August 2002 Decision that the period to collect
commenced to run again.
The OSG cites the case of Collector of Internal Revenue v. Suyoc Consolidated Mining
Company, et al.7(Suyoc case) in support of its argument that BPI is already estopped from
raising the defense of prescription in view of its repeated requests for reinvestigation
which allegedly induced the CIR to delay the collection of the assessed tax.
In its Reply8dated 30 August 2007, BPI argues against the application of the Suyoc case
on two points: first, it never induced the CIR to postpone tax collection; second, its
request for reinvestigation was not categorically acted upon by the CIR within the threeyear collection period after assessment. BPI maintains that it did not receive any
communication from the CIR in reply to its protest letters.

assessed tax begins to run on the date the assessment notice had been released, mailed
or sent to the taxpayer.11
As applied to the present case, the CIR had three (3) years from the time he issued
assessment notices to BPI on 7 April 1989 or until 6 April 1992 within which to collect the
deficiency DST. However, it was only on 9 August 2002 that the CIR ordered BPI to pay the
deficiency.
In order to determine whether the prescriptive period for collecting the tax deficiency was
effectively tolled by BPIs filing of the protest letters dated 20 April and 8 May 1989 as
claimed by the CIR, we need to examine Section 320 12 of the Tax Code of 1977, which
states:
Sec. 320. Suspension of running of statute.The running of the statute of
limitations provided in Sections 318 or 319 on the making of assessment and the
beginning of distraint or levy or a proceeding in court for collection, in respect of
any deficiency, shall be suspended for the period during which the Commissioner
is prohibited from making the assessment or beginning distraint or levy or a
proceeding in court and for sixty days thereafter; when the taxpayer requests
for a re-investigation which is granted by the Commissioner; when the
taxpayer cannot be located in the address given by him in the return filed upon
which a tax is being assessed or collected: Provided, That if the taxpayer informs
the Commissioner of any change in address, the running of the statute of
limitations will not be suspended; when the warrant of distraint and levy is duly
served upon the taxpayer, his authorized representative, or a member of his
household with sufficient discretion, and no property could be located; and when
the taxpayer is out of the Philippines. (Emphasis supplied)
The above section is plainly worded. In order to suspend the running of the prescriptive
periods for assessment and collection, the request for reinvestigation must be granted by
the CIR.
In BPI v. Commissioner of Internal Revenue, 13the Court emphasized the rule that the CIR
must first grant the request for reinvestigation as a requirement for the suspension of the
statute of limitations. The Court said:

We grant the petition.

Section 3189 of the Tax Code of 1977 provides:
Sec. 318. Period of limitation upon assessment and collection.Except as
provided in the succeeding section, internal revenue taxes shall be assessed
within five years after the return was filed, and no proceeding in court without
assessment for the collection of such taxes shall be begun after the expiration of
such period. For the purposes of this section, a return filed before the last day
prescribed by law for the filing thereof shall be considered as filed on such last
day: Provided, That this limitation shall not apply to cases already investigated
prior to the approval of this Code.
The statute of limitations on assessment and collection of national internal revenue taxes
was shortened from five (5) years to three (3) years by Batas Pambansa Blg. 700. 10 Thus,
the CIR has three (3) years from the date of actual filing of the tax return to assess a
national internal revenue tax or to commence court proceedings for the collection thereof
without an assessment.
When it validly issues an assessment within the three (3)-year period, it has another three
(3) years within which to collect the tax due by distraint, levy, or court proceeding. The
assessment of the tax is deemed made and the three (3)-year period for collection of the

In the case of Republic of the Philippines v. Gancayco, taxpayer Gancayco

requested for a thorough reinvestigation of the assessment against him and
placed at the disposal of the Collector of Internal Revenue all the evidences he
had for such purpose; yet, the Collector ignored the request, and the records and
documents were not at all examined. Considering the given facts, this Court
pronounced that
x x x The act of requesting a reinvestigation alone does not suspend the
period. The request should first be granted, in order to effect
suspension. (Collector v. Suyoc Consolidated, supra; also Republic v. Ablaza,
supra). Moreover, the Collector gave appellee until April 1, 1949, within which to
submit his evidence, which the latter did one day before. There were no
impediments on the part of the Collector to file the collection case from April 1,
1949
In Republic of the Philippines v. Acebedo, this Court similarly found that
x x x T]he defendant, after receiving the assessment notice of September 24,
1949, asked for a reinvestigation thereof on October 11, 1949 (Exh. "A"). There
is no evidence that this request was considered or acted upon. In fact,
on October 23, 1950 the then Collector of Internal Revenue issued a warrant of

distraint and levy for the full amount of the assessment (Exh. "D"), but there was
follow-up of this warrant. Consequently, the request for reinvestigation did
not suspend the running of the period for filing an action for collection.
[Emphasis in the original]14
The Court went on to declare that the burden of proof that the request for reinvestigation
had been actually granted shall be on the CIR. Such grant may be expressed in its
communications with the taxpayer or implied from the action of the CIR or his authorized
representative in response to the request for reinvestigation.
There is nothing in the records of this case which indicates, expressly or impliedly, that
the CIR had granted the request for reinvestigation filed by BPI. What is reflected in the
records is the piercing silence and inaction of the CIR on the request for reinvestigation,
as he considered BPIs letters of protest to be.
In fact, it was only in his comment to the present petition that the CIR, through the OSG,
argued for the first time that he had granted the request for reinvestigation. His
consistent stance invoking the Wyeth Suaco case, as reflected in the records, is that the
prescriptive period was tolled by BPIs request for reinvestigation, without any assertion
that the same had been granted or at least acted upon.15

In this case, BPIs letters of protest and submission of additional documents pertaining to
its SWAP transactions, which were never even acted upon, much less granted, cannot be
said to have persuaded the CIR to postpone the collection of the deficiency DST.
The inordinate delay of the CIR in acting upon and resolving the request for
reinvestigation filed by BPI and in collecting the DST allegedly due from the latter had
resulted in the prescription of the governments right to collect the deficiency. As this
Court declared in Republic of the Philippines v. Ablaza:17
The law prescribing a limitation of actions for the collection of the income tax is
beneficial both to the Government and to its citizens; to the Government
because tax officers would be obliged to act promptly in the making of
assessment, and to citizens because after the lapse of the period of prescription
citizens would have a feeling of security against unscrupulous tax agents who
will always find an excuse to inspect the books of taxpayers, not to determine
the latters real liability, but to take advantage of every opportunity to molest
peaceful, law-abiding citizens. Without such a legal defense taxpayers would
furthermore be under obligation to always keep their books and keep them open
for inspection subject to harassment by unscrupulous tax agents. The law on
prescription being a remedial measure 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 recommend the approval of
the law.18

In the Wyeth Suaco case, private respondent Wyeth Suaco Laboratories, Inc. sent letters
seeking the reinvestigation or reconsideration of the deficiency tax assessments issued
by the BIR. The records of the case showed that as a result of these protest letters, the
BIR Manufacturing Audit Division conducted a review and reinvestigation of the
assessments. The records further showed that the company, thru its finance manager,
communicated its inability to settle the tax deficiency assessment and admitted that it
knew of the ongoing review and consideration of its protest.

Given the prescription of the governments claim, we no longer deem it necessary to pass
upon the validity of the assessment.

As differentiated from the Wyeth Suaco case, however, there is no evidence in this case
that the CIR actually conducted a reinvestigation upon the request of BPI or that the latter
was made aware of the action taken on its request. Hence, there is no basis for the tax
courts ruling that the filing of the request for reinvestigation tolled the running of the
prescriptive period for collecting the tax deficiency.

SO ORDERED.

Neither did the waiver of the statute of limitations signed by BPI supposedly effective until
31 December 1994 suspend the prescriptive period. The CIR himself contends that the
waiver is void as it shows no date of acceptance in violation of RMO No. 20-90. 16 At any
rate, the records of this case do not disclose any effort on the part of the Bureau of
Internal Revenue to collect the deficiency tax after the expiration of the waiver until eight
(8) years thereafter when it finally issued a decision on the protest.
We also find the Suyoc case inapplicable. In that case, several requests for reinvestigation
and reconsideration were filed by Suyoc Consolidated Mining Company purporting to
question the correctness of tax assessments against it. As a result, the Collector of
Internal Revenue refrained from collecting the tax by distraint, levy or court proceeding in
order to give the company every opportunity to prove its claim. The Collector also
conducted several reinvestigations which eventually led to a reduced assessment. The
company, however, filed a petition with the CTA claiming that the right of the government
to collect the tax had already prescribed.
When the case reached this Court, we ruled that Suyoc could not set up the defense of
prescription since, by its own action, the government was induced to delay the collection
of taxes to make the company feel that the demand was not unreasonable or that no
harassment or injustice was meant by the government.

WHEREFORE, the petition is GRANTED. The Decisionof the Court of Tax Appeals dated 15
August 2006 and its Resolution dated 5 October 2006, are hereby REVERSED and SET
ASIDE. No pronouncement as to costs.

G.R. No. L-11527

November 25, 1958

THE
COLLECTOR
OF
INTERNAL
REVENUE,
vs.
SUYOC CONSOLIDATED MINING COMPANY, ET AL., respondents.

petitioner,

Office of the Solicitor General Ambrosio Padilla and Solicitor Sumilang V. Bernardo for
petitioner.
Ohnick, Velilla and Balongkita for respondents.
BAUTISTA ANGELO, J.:
Suyoc Consolidated Mining Company, a mining corporation operating before the war, was
unable to file in 1942 its income tax return for the year 1941 due to the last war. After
liberation, Congress enacted Commonwealth Act No. 722 which extended the filing of tax
returns for 1941 up to December 31, 1945. Its records having been lost or destroyed, the
company requested the Collector of Internal Revenue to grant it an extension of time to
file its return, which was granted until February 15, 1946, and the company was
authorized to file its return for 1941 on the basis of the best evidence obtainable.
The company filed three income tax returns for the calendar year ending December 31,
1941. On February 12, 1946, it filed a tentative return as it had not yet completely
reconstructed its records. On November 28, 1946, it filed a second final return on the

basis of the records it has been able to reconstruct at that time. On February 6, 1947, it
filed its third amended final return on the basis of the available records which to that date
it had been able to reconstruct.
On the basis of the second final return filed by the company on November 28, 1946, the
Collector assessed against it the sum of P28,289.96 as income tax for 1941, plus
P1,414.50 as 5 per cent surcharge and P3,894.80 as 1 per cent monthly interest from
March 1, 1946 to February 28, 1947, or a total of P33,099.26. The assessment was made
on February 11, 1947. On February 21, 1947, the company asked for an extension of at
least one year from February 28, 1947 within which to pay the amount assessed,
reserving its right to question the correctness of the assessment. The Collector granted an
extension of only three months from March 20, 1947.
The company failed to pay the tax within the period granted to it and so the Collector sent
to it a letter on November 28, 1950 demanding payment of the tax due as assessed, plus
surcharge and interest up to December 31, 1950. On April 6, 1951, the company asked for
a reconsideration and reinvestigation of the assessment, which was granted, the case
being assigned to another examiner, but the Collector made another assessment against
the company in the sum of P33,829.66. This new assessment was made on March 7,
1952. On April 18, 1952, the Collector revised this last assessment and required the
company to pay the sum of P28,289.96 as income tax, P1,414.50 as surcharge,
P20,934.57 as interest up to April 30, 1952 and P40 as compromise.
After several other negotiations conducted at the request of respondent, including an
appeal to the Conference Staff created to act on such matters in the Bureau of Internal
Revenue, the assessment was finally reduced by the Collector to P24,438.96, without
surcharge and interest, and of this new assessment the company was notified on July 28,
1955. Within the reglementary period, the company filed with the Court of Tax Appeals a
petition for review of this assessment made on July 26, 1955 on the main ground that the
right of the Government to collect the tax has already prescribed. After the case was
heard, the court rendered its decision upholding this defense and, accordingly, it set aside
the ruling of the Collector of Internal Revenue. The Collector interposed the present
petition for review.
Under the law, an internal revenue tax shall be assessed within five years after the return
is filed by the taxpayer and no proceeding in court for its collection shall be begun after
the expiration of such period (Section 331, National Internal Revenue Code). The law also
provides that where an assessment of internal revenue tax is made within the above
period, such tax may be collected by distraint or levy or by a proceeding in court but only
if the same is begun (1) within five years after assessment or (2) within the period that
may be agreed upon in writing between the Collector and the taxpayer before the
expiration of the 5-year period [Section 332 (c), Idem.].
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].
The following authorities cited in the brief of the Solicitor General are in point:
The petitioner makes the point that by the Revenue Act of May 29, 1928 (chap.
852, 45 Stat. at L. 791, 875, sec. 609, U.S.C. title 26, sec. 2609), a credit against
a liability in respect of any taxable year shall be "void" if it has been made
against a liability barred by limitation. The aim of that provision, as we view it,
was to invalidate such a credit if made by the Commissioner of his own motion
without the taxpayer's approval or with approval failing short of inducement or
request. Cf. Stange vs. United States, 282 U. S. 270, 75 L. ed. 335, 51 S. Ct. 145,
supra; Revenue Act of 1928, sec. 506 (b) (c), chap. 852, 45 Stat. at L. 791, 870,
871, U.S.C. title 26, see. 1062a. If nothing more than this appeared, there was to
be no exercise in invitum of governmental power. But the aim of the statute
suggests a restraint upon its meaning. To know whether liability has been barred
by limitation it will not do to refer to the flight of time alone. The limitation may
have been postponed by force of a simple waiver, which must then be made in
adherence to the statutory forms, or so we now assume. It may have been
postponed by deliberate persuasion to withhold official action. We think it an
unreasonable construction that would view the prohibition of the statute as overriding the doctrine of estoppel (Randon vs. Tobey, 11 How. 493, 519, 13 L. ed.
784, 795) and invalidating a credit made at the taxpayer's request. Here at the
time of the request, the liability was still alive, unaffected as yet by any statutory
bar. The request in its fair meaning reached forward into the future and prayed
for the postponement of collection till the audits for later years had been
completed in the usual course. This having been done, the suspended collection
might be effected by credit or by distraint or by other methods prescribed by law.

Congress surely did not mean that a credit was to be void if made by the
Government in response to such prayer.
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," ' " Dolan vs. Rogers, 149 N. Y. 489, 491, 44
N.E. 167, and Imperator Realty Co. vs. Tull, 228 N. Y. 447, 457, 127 N.E. 263,
quoting West vs. Blakeway, 2 Mann. & G. 729, 751, 133 Eng. Reprint, 940, 949.
Sometimes the resulting disability has been characterized as an estoppel,
sometimes as a waiver. The label counts for little. Enough for present purposes
that the disability has its roots in a principle more nearly ultimate than either
waiver or estoppel, the principle that no one shall be permitted to found any
claim upon his own inequity or take advantage of his own wrong. Imperator
Realty Co. vs. Tull, 228 N.Y. 447, 127 N.E. 263, supra. A suit may not be built on
an omission induced by him who sues. Swain vs. Seamens, 9 Wall. 254, 274, 19
L. ed. 554, 560; United States vs. Peck, 102 U.S. 64, 26 L. ed. 46; Thomson vs.
Poor, 147 N.Y. 402, 42 N.E. 13; New Zealand Shipping Co. vs. Societe des Ateliers
(1919) A. C. 1, 6-H. L.; 2 Williston, Contr. sec. 689. (R. H. Stearns Co. vs. U.S.,
supra; Emphasis supplied.)
. . . It is admitted that these assessments were timely made in August 1923.
Upon the making of the assessment the Commissioner sought to make
collection, which likewise was at a time when the statute had not ran on
collection, but the authorized representative of the Lattimores strenuously
objected to the collection and urged the Commissioner to withhold collection,
pending adjustment of the controversy between them and the Commissioner.
The Commissioner yielded to their request and postponed collection until August
19, 1926, which was after the statute had run on collection. In the meantime,
further claims for refund and protests were filed, conferences were held and
consideration was given to the settlement of the controversy, and the matter
was not finally disposed of until 1926, when the statute had run on collection.
The procedure carried out was that requested by plaintiffs, and they cannot now
be heard to say that the collection was not timely. R. H. Stearns Company vs.
United States, 291 U.S. 54, 54 S. Ct. 325, 78 L. Ed. 647. (Lattimore vs. U.S., 12 F.
Supp. 895, 91.)
Wherefore, the decision appealed from is reversed.
The decision of the Collector of Internal Revenue rendered on July 26, 1955 is hereby
affirmed. No costs.
Paras, C. J., Bengzon, Labrador, Concepcion, Reyes, J. B. L. and Endencia, JJ., concur.
G. R. No. 157064 August 7, 2006
BARCELON, ROXAS SECURITIES, INC. (now known as UBP Securities, Inc.)
Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
CHICO-NAZARIO, J.:
This 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 2 in C.T.A. Case No. 5662.
Petitioner 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. 3
On 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. 4
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. 5 The dispositive portion of this decision reads:
WHEREFORE, in view of the foregoing, the 1988 deficiency tax assessment against
petitioner is hereby CANCELLED. Respondent is hereby ORDERED TO DESIST from
collecting said deficiency tax. No pronouncement as to costs. 6
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. 7 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. 8
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. 9
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. 10
This Court finds the instant Petition meritorious.
The core issue in this case is whether or not respondents right to assess petitioners
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 11 thereto, such as when the findings are
contrary to those of the trial court or, in this case, the CTA. 12
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-1-87-91000649 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 taxpayers 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 taxpayers 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).
xxxx
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 governments 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). 13
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 14 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. 15 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 16 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, 17 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.

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 present case, records show that petitioner filed its Annual Income Tax Return for
taxable year 1987 on 14 April 1988. 18 The last day for filing by petitioner of its return was
on 15 April 1988, 19 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. 20

In the case of Nava v. Commissioner of Internal Revenue, 27 this Court stressed on the
importance of proving the release, mailing or sending of the notice.

In Protectors Services, Inc. v. Court of Appeals, 21 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, 22 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. 23
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 BIRs 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, 24 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 Courts
pronouncement in Africa v. Caltex (Phil.), Inc., 25 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.
There 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.

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 taxpayers 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.
G.R. No. 159694

January 27, 2006

COMMISSIONER
OF
INTERNAL
vs.
AZUCENA T. REYES, Respondent.

REVENUE,

Petitioner,

x -- -- -- -- -- -- -- -- -- -- -- -- -- x
G.R. No. 163581

January 27, 2006

AZUCENA
T.
REYES,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

Petitioner,

DECISION
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 26 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.

PANGANIBAN, CJ.:
Under the present provisions of the Tax Code and pursuant to elementary due process,
taxpayers must be informed in writing of the law and the facts upon which a tax
assessment is based; otherwise, the assessment is void. Being invalid, the assessment
cannot in turn be used as a basis for the perfection of a tax compromise.

The Case
Before us are two consolidated 1 Petitions for Review2 filed under Rule 45 of the Rules of
Court, assailing the August 8, 2003 Decision 3 of the Court of Appeals (CA) in CA-GR SP No.
71392. The dispositive portion of the assailed Decision reads as follows:
"WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Tax Appeals
is ANNULLED and SET ASIDE without prejudice to the action of the National Evaluation
Board on the proposed compromise settlement of the Maria C. Tancinco estates tax
liability." 4
The Facts
The CA narrated the facts as follows:
"On July 8, 1993, Maria C. Tancinco (or decedent) died, leaving a 1,292 square-meter
residential lot and an old house thereon (or subject property) located at 4931 Pasay
Road, Dasmarias Village, Makati City.
"On the basis of a sworn information-for-reward filed on February 17, 1997 by a certain
Raymond Abad (or Abad), Revenue District Office No. 50 (South Makati) conducted an
investigation on the decedents estate (or estate). Subsequently, it issued a Return
Verification Order. But without the required preliminary findings being submitted, it issued
Letter of Authority No. 132963 for the regular investigation of the estate tax case.
Azucena T. Reyes (or [Reyes]), one of the decedents heirs, received the Letter of
Authority on March 14, 1997.
"On February 12, 1998, the Chief, Assessment Division, Bureau of Internal Revenue (or
BIR), issued a preliminary assessment notice against the estate in the amount of
P14,580,618.67. On May 10, 1998, the heirs of the decedent (or heirs) received a final
estate tax assessment notice and a demand letter, both dated April 22, 1998, for the
amount of P14,912,205.47, inclusive of surcharge and interest.
"On June 1, 1998, a certain Felix M. Sumbillo (or Sumbillo) protested the assessment [o]n
behalf of the heirs on the ground that the subject property had already been sold by the
decedent sometime in 1990.
"On November 12, 1998, the Commissioner of Internal Revenue (or [CIR]) issued a
preliminary collection letter to [Reyes], followed by a Final Notice Before Seizure dated
December 4, 1998.
"On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the estate,
followed on February 11, 1999 by Notices of Levy on Real Property and Tax Lien against it.
"On March 2, 1999, [Reyes] protested the notice of levy. However, on March 11, 1999, the
heirs proposed a compromise settlement of P1,000,000.00.
"In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to pay 50% of the basic
tax due, citing the heirs inability to pay the tax assessment. On March 20, 2000, [the CIR]
rejected [Reyess] offer, pointing out that since the estate tax is a charge on the estate
and not on the heirs, the latters financial incapacity is immaterial as, in fact, the gross
value of the estate amounting to P32,420,360.00 is more than sufficient to settle the tax
liability. Thus, [the CIR] demanded payment of the amount of P18,034,382.13 on or before
April 15, 2000[;] otherwise, the notice of sale of the subject property would be published.

"On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to pay 100% of
the basic tax due in the amount of P5,313,891.00. She reiterated the proposal in a letter
dated May 18, 2000.
"As the estate failed to pay its tax liability within the April 15, 2000 deadline, the Chief,
Collection Enforcement Division, BIR, notified [Reyes] on June 6, 2000 that the subject
property would be sold at public auction on August 8, 2000.
"On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division. Assailing the
scheduled auction sale, she asserted that x x x the assessment, letter of demand[,] and
the whole tax proceedings against the estate are void ab initio. She offered to file the
corresponding estate tax return and pay the correct amount of tax without surcharge [or]
interest.
"Without acting on [Reyess] protest and offer, [the CIR] instructed the Collection
Enforcement Division to proceed with the August 8, 2000 auction sale. Consequently, on
June 28, 2000, [Reyes] filed a [P]etition for [R]eview with the Court of Tax Appeals (or
CTA), docketed as CTA Case No. 6124.
"On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary
Injunction or Status Quo Order, which was granted by the CTA on July 26, 2000. Upon
[Reyess] filing of a surety bond in the amount of P27,000,000.00, the CTA issued a
[R]esolution dated August 16, 2000 ordering [the CIR] to desist and refrain from
proceeding with the auction sale of the subject property or from issuing a [W]arrant of
[D]istraint or [G]arnishment of [B]ank [A]ccount[,] pending determination of the case
and/or unless a contrary order is issued.
"[The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the CTA no
longer has jurisdiction over the case[,] because the assessment against the estate is
already final and executory; and (ii) that the petition was filed out of time. In a
[R]esolution dated November 23, 2000, the CTA denied [the CIRs] motion.
"During the pendency of the [P]etition for [R]eview with the CTA, however, the BIR issued
Revenue Regulation (or RR) No. 6-2000 and Revenue Memorandum Order (or RMO) No.
42-2000 offering certain taxpayers with delinquent accounts and disputed assessments
an opportunity to compromise their tax liability.
"On November 25, 2000, [Reyes] filed an application with the BIR for the compromise
settlement (or compromise) of the assessment against the estate pursuant to Sec.
204(A) of the Tax Code, as implemented by RR No. 6-2000 and RMO No. 42-2000.
"On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement of the hearing
before the CTA scheduled on January 9, 2001, citing her pending application for
compromise with the BIR. The motion was granted and the hearing was reset to February
6, 2001.
"On January 29, 2001, [Reyes] moved for postponement of the hearing set on February 6,
2001, this time on the ground that she had already paid the compromise amount of
P1,062,778.20 but was still awaiting approval of the National Evaluation Board (or NEB).
The CTA granted the motion and reset the hearing to February 27, 2001.
"On February 19, 2001, [Reyes] filed a Motion to Declare Application for the Settlement of
Disputed Assessment as a Perfected Compromise. In said motion, she alleged that [the
CIR] had not yet signed the compromise[,] because of procedural red tape requiring the
initials of four Deputy Commissioners on relevant documents before the compromise is
signed by the [CIR]. [Reyes] posited that the absence of the requisite initials and
signature[s] on said documents does not vitiate the perfected compromise.

"Commenting on the motion, [the CIR] countered that[,] without the approval of the NEB,
[Reyess] application for compromise with the BIR cannot be considered a perfected or
consummated compromise.
"On March 9, 2001, the CTA denied [Reyess] motion, prompting her to file a Motion for
Reconsideration Ad Cautelam. In a [R]esolution dated April 10, 2001, the CTA denied the
[M]otion for [R]econsideration with the suggestion that[,] for an orderly presentation of
her case and to prevent piecemeal resolutions of different issues, [Reyes] should file a
[S]upplemental [P]etition for [R]eview[,] setting forth the new issue of whether there was
already a perfected compromise.
"On May 2, 2001, [Reyes] filed a Supplemental Petition for Review with the CTA, followed
on June 4, 2001 by its Amplificatory Arguments (for the Supplemental Petition for Review),
raising the following issues:
1. Whether or not an offer to compromise by the [CIR], with the acquiescence by the
Secretary of Finance, of a tax liability pending in court, that was accepted and paid by the
taxpayer, is a perfected and consummated compromise.
2. Whether this compromise is covered by the provisions of Section 204 of the Tax Code
(CTRP) that requires approval by the BIR [NEB].
"Answering the Supplemental Petition, [the CIR] averred that an application for
compromise of a tax liability under RR No. 6-2000 and RMO No. 42-2000 requires the
evaluation and approval of either the NEB or the Regional Evaluation Board (or REB), as
the case may be.
"On June 14, 2001, [Reyes] filed a Motion for Judgment on the Pleadings; the motion was
granted on July 11, 2001. After submission of memoranda, the case was submitted for
[D]ecision.

Ruling of the Court of Appeals

In partly granting the Petition, the CA said that Section 228 of the Tax Code and RR 12-99
were mandatory and unequivocal in their requirement. The assessment notice and the
demand letter should have stated the facts and the law on which they were based;
otherwise, they were deemed void.6 The appellate court held that while administrative
agencies, like the BIR, were not bound by procedural requirements, they were still
required by law and equity to observe substantive due process. The reason behind this
requirement, said the CA, was to ensure that taxpayers would be duly apprised of -- and
could effectively protest -- the basis of tax assessments against them. 7 Since the
assessment and the demand were void, the proceedings emanating from them were
likewise void, and any order emanating from them could never attain finality.
The appellate court added, however, that it was premature to declare as perfected and
consummated the compromise of the estates tax liability. It explained that, where the
basic tax assessed exceeded P1 million, or where the settlement offer was less than the
prescribed minimum rates, the National Evaluation Boards (NEB) prior evaluation and
approval were the conditio sine qua non to the perfection and consummation of any
compromise.8 Besides, the CA pointed out, Section 204(A) of the Tax Code applied to all
compromises, whether government-initiated or not. 9 Where the law did not distinguish,
courts too should not distinguish.
Hence, this Petition. 10
The Issues
In GR No. 159694, petitioner raises the following issues for the Courts consideration:
"I.
Whether petitioners assessment against the estate is valid.

"On June 19, 2002, the CTA rendered a [D]ecision, the decretal portion of which
pertinently reads:
WHEREFORE, in view of all the foregoing, the instant [P]etition for [R]eview is hereby
DENIED. Accordingly, [Reyes] is hereby ORDERED to PAY deficiency estate tax in the
amount of Nineteen Million Five Hundred Twenty Four Thousand Nine Hundred Nine and
78/100 (P19,524,909.78), computed as follows:
xxxxxxxxx
[Reyes] is likewise ORDERED to PAY 20% delinquency interest on deficiency estate tax
due of P17,934,382.13 from January 11, 2001 until full payment thereof pursuant to
Section 249(c) of the Tax Code, as amended.
"In arriving at its decision, the CTA ratiocinated that there can only be a perfected and
consummated compromise of the estates tax liability[,] if the NEB has approved
[Reyess] application for compromise in accordance with RR No. 6-2000, as implemented
by RMO No. 42-2000.

"II.
Whether respondent can validly argue that she, as well as the other heirs, was not aware
of the facts and the law on which the assessment in question is based, after she had
opted to propose several compromises on the estate tax due, and even prematurely
acting on such proposal by paying 20% of the basic estate tax due." 11
The foregoing issues can be simplified as follows: first, whether the assessment against
the estate is valid; and, second, whether the compromise entered into is also valid.
The Courts Ruling
The Petition is unmeritorious.
First Issue:
Validity of the Assessment Against the Estate

"Anent the validity of the assessment notice and letter of demand against the estate, the
CTA stated that at the time the questioned assessment notice and letter of demand were
issued, the heirs knew very well the law and the facts on which the same were based. It
also observed that the petition was not filed within the 30-day reglementary period
provided under Sec. 11 of Rep. Act No. 1125 and Sec. 228 of the Tax Code." 5

The second paragraph of Section 228 of the Tax Code 12 is clear and mandatory. It provides
as follows:
"Sec. 228. Protesting of Assessment. --

xxxxxxxxx
"The taxpayers shall be informed in writing of the law and the facts on which the
assessment is made: otherwise, the assessment shall be void."
In the present case, Reyes was not informed in writing of the law and the facts on which
the assessment of estate taxes had been made. She was merely notified of the findings
by the CIR, who had simply relied upon the provisions of former Section 229 13 prior to its
amendment by Republic Act (RA) No. 8424, otherwise known as the Tax Reform Act of
1997.
First, RA 8424 has already amended the provision of Section 229 on protesting an
assessment. The old requirement of merely notifying the taxpayer of the CIRs findings
was changed in 1998 to informing the taxpayer of not only the law, but also of the facts
on which an assessment would be made; otherwise, the assessment itself would be
invalid.
It was on February 12, 1998, that a preliminary assessment notice was issued against the
estate. On April 22, 1998, the final estate tax assessment notice, as well as demand
letter, was also issued. During those dates, RA 8424 was already in effect. The notice
required under the old law was no longer sufficient under the new law.
To be simply informed in writing of the investigation being conducted and of the
recommendation for the assessment of the estate taxes due is nothing but a perfunctory
discharge of the tax function of correctly assessing a taxpayer. The act cannot be taken to
mean that Reyes already knew the law and the facts on which the assessment was based.
It does not at all conform to the compulsory requirement under Section 228. Moreover,
the Letter of Authority received by respondent on March 14, 1997 was for the sheer
purpose of investigation and was not even the requisite notice under the law.
The procedure for protesting an assessment under the Tax Code is found in Chapter III of
Title VIII, which deals with remedies. Being procedural in nature, can its provision then be
applied retroactively? The answer is yes.
The general rule is that statutes are prospective. However, statutes that are remedial, or
that do not create new or take away vested rights, do not fall under the general rule
against the retroactive operation of statutes. 14 Clearly, Section 228 provides for the
procedure in case an assessment is protested. The provision does not create new or take
away vested rights. In both instances, it can surely be applied retroactively. Moreover, RA
8424 does not state, either expressly or by necessary implication, that pending actions
are excepted from the operation of Section 228, or that applying it to pending
proceedings would impair vested rights.
Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no
moment, considering that it merely implements the law.
A tax regulation is promulgated by the finance secretary to implement the provisions of
the Tax Code.15 While it is desirable for the government authority or administrative agency
to have one immediately issued after a law is passed, the absence of the regulation does
not automatically mean that the law itself would become inoperative.
At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that
the taxpayer must be informed of both the law and facts on which the assessment was
based. Thus, the CIR should have required the assessment officers of the Bureau of
Internal Revenue (BIR) to follow the clear mandate of the new law. The old regulation
governing the issuance of estate tax assessment notices ran afoul of the rule that tax

regulations -- old as they were -- should be in harmony with, and not supplant or modify,
the law.16
It may be argued that the Tax Code provisions are not self-executory. It would be too wide
a stretch of the imagination, though, to still issue a regulation that would simply require
tax officials to inform the taxpayer, in any manner, of the law and the facts on which an
assessment was based. That requirement is neither difficult to make nor its desired
results hard to achieve.
Moreover, an administrative rule interpretive of a statute, and not declarative of certain
rights and corresponding obligations, is given retroactive effect as of the date of the
effectivity of the statute.17 RR 12-99 is one such rule. Being interpretive of the provisions
of the Tax Code, even if it was issued only on September 6, 1999, this regulation was to
retroact to January 1, 1998 -- a date prior to the issuance of the preliminary assessment
notice and demand letter.
Third, neither Section 229 nor RR 12-85 can prevail over Section 228 of the Tax Code.
No doubt, Section 228 has replaced Section 229. The provision on protesting an
assessment has been amended. Furthermore, in case of discrepancy between the law as
amended and its implementing but old regulation, the former necessarily prevails. 18 Thus,
between Section 228 of the Tax Code and the pertinent provisions of RR 12-85, the latter
cannot stand because it cannot go beyond the provision of the law. The law must still be
followed, even though the existing tax regulation at that time provided for a different
procedure. The regulation then simply provided that notice be sent to the respondent in
the form prescribed, and that no consequence would ensue for failure to comply with that
form.
Fourth, petitioner violated the cardinal rule in administrative law that the taxpayer be
accorded due process. Not only was the law here disregarded, but no valid notice was
sent, either. A void assessment bears no valid fruit.
The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly
with tax collection without first establishing a valid assessment is evidently violative of
the cardinal principle in administrative investigations: that taxpayers should be able to
present their case and adduce supporting evidence. 19 In the instant case, respondent has
not been informed of the basis of the estate tax liability. Without complying with the
unequivocal mandate of first informing the taxpayer of the governments claim, there can
be no deprivation of property, because no effective protest can be made. 20 The haphazard
shot at slapping an assessment, supposedly based on estate taxations general provisions
that are expected to be known by the taxpayer, is utter chicanery.
Even a cursory review of the preliminary assessment notice, as well as the demand letter
sent, reveals the lack of basis for -- not to mention the insufficiency of -- the gross figures
and details of the itemized deductions indicated in the notice and the letter. This Court
cannot countenance an assessment based on estimates that appear to have been
arbitrarily or capriciously arrived at. Although taxes are the lifeblood of the government,
their assessment and collection "should be made in accordance with law as any
arbitrariness will negate the very reason for government itself." 21
Fifth, the rule against estoppel does not apply. Although the government cannot be
estopped by the negligence or omission of its agents, the obligatory provision on
protesting a tax assessment cannot be rendered nugatory by a mere act of the CIR .
Tax laws are civil in nature.22 Under our Civil Code, acts executed against the mandatory
provisions of law are void, except when the law itself authorizes the validity of those
acts.23 Failure to comply with Section 228 does not only render the assessment void, but

also finds no validation in any provision in the Tax Code. We cannot condone errant or
enterprising tax officials, as they are expected to be vigilant and law-abiding.

CORONA, J.:
This is a petition for review on certiorari 1 of a decision2 of the Court of Appeals (CA) dated
May 29, 1998 in CA-G.R. SP No. 41025 which reversed and set aside the decision 3 and
resolution4 of the Court of Tax Appeals (CTA) dated November 16, 1995 and May 27, 1996,
respectively, in CTA Case No. 4715.

Second Issue:
Validity of Compromise
It would be premature for this Court to declare that the compromise on the estate tax
liability has been perfected and consummated, considering the earlier determination that
the assessment against the estate was void. Nothing has been settled or finalized. Under
Section 204(A) of the Tax Code, where the basic tax involved exceeds one million pesos or
the settlement offered is less than the prescribed minimum rates, the compromise shall
be subject to the approval of the NEB composed of the petitioner and four deputy
commissioners.

In two notices dated October 28, 1988, petitioner Commissioner of Internal Revenue (CIR)
assessed respondent Bank of the Philippine Islands (BPIs) deficiency percentage and
documentary stamp taxes for the year 1986 in the total amount of P129,488,656.63:
1986 Deficiency Percentage Tax
Deficiency percentage tax

P 7, 270,892.88

Finally, as correctly held by the appellate court, this provision applies to all compromises,
whether government-initiated or not. Ubi lex non distinguit, nec nos distinguere debemos.
Where the law does not distinguish, we should not distinguish.

Add: 25% surcharge

1,817,723.22

20% interest from 1-21-87 to 10-28-88

3,215,825.03

WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. No
pronouncement as to costs.

Compromise penalty
TOTAL AMOUNT DUE AND COLLECTIBLE

15,000.00
P12,319,441.13

SO ORDERED.
ARTEMIO
Chief
Chairperson, First Division

V.

1986 Deficiency Documentary Stamp Tax

PANGANIBAN
Justice

WE CONCUR:

Deficiency percentage tax

P93,723,372.40

Add: 25% surcharge

23,430,843.10

Compromise penalty
CONSUELO
YNARES-SANTIAGO
Associate Justice

MA.
ALICIA
AUSTRIA-MARTINEZ
Asscociate Justice

ROMEO
J.
Associate Justice

MINITA
V.
Asscociate Justice

CALLEJO

SR.

CHICO-NAZARIO

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the
conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
ARTEMIO
Chief Justice
G.R. No. 134062

V.

PANGANIBAN

April 17, 2007

COMMISSIONER
OF
INTERNAL
REVENUE,
vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent.
DECISION

Petitioner,

TOTAL AMOUNT DUE AND COLLECTIBLE

15,000.00
P117,169,215.50.5

Both notices of assessment contained the following note:

Please be informed that your [percentage and documentary stamp taxes have] been
assessed as shown above. Said assessment has been based on return (filed by you)
(as verified) (made by this Office) (pending investigation) (after investigation). You
are requested to pay the above amount to this Office or to our Collection Agent in the
Office of the City or Deputy Provincial Treasurer of xxx 6
In a letter dated December 10, 1988, BPI, through counsel, replied as follows:
1. Your "deficiency assessments" are no assessments at all. The taxpayer is not
informed, even in the vaguest terms, why it is being assessed a deficiency. The
very purpose of a deficiency assessment is to inform taxpayer why he has
incurred a deficiency so that he can make an intelligent decision on whether to
pay or to protest the assessment. This is all the more so when the assessment
involves astronomical amounts, as in this case.
We therefore request that the examiner concerned be required to state, even in
the briefest form, why he believes the taxpayer has a deficiency documentary
and percentage taxes, and as to the percentage tax, it is important that the

taxpayer be informed also as to what particular percentage tax the assessment

refers to.
2. As to the alleged deficiency documentary stamp tax, you are aware of the
compromise forged between your office and the Bankers Association of the
Philippines [BAP] on this issue and of BPIs submission of its computations under
this compromise. There is therefore no basis whatsoever for this assessment,
assuming it is on the subject of the BAP compromise. On the other hand, if it
relates to documentary stamp tax on some other issue, we should like to be
informed about what those issues are.
3. As to the alleged deficiency percentage tax, we are completely at a loss on
how such assessment may be protested since your letter does not even tell the
taxpayer what particular percentage tax is involved and how your examiner
arrived at the deficiency. As soon as this is explained and clarified in a proper
letter of assessment, we shall inform you of the taxpayers decision on whether
to pay or protest the assessment.7
On June 27, 1991, BPI received a letter from CIR dated May 8, 1991 stating that:
although in all respects, your letter failed to qualify as a protest under Revenue
Regulations No. 12-85 and therefore not deserving of any rejoinder by this office as no
valid issue was raised against the validity of our assessment still we obliged to explain
the basis of the assessments.
xxx xxx xxx
this constitutes the final decision of this office on the matter. 8
On July 6, 1991, BPI requested a reconsideration of the assessments stated in the CIRs
May 8, 1991 letter. 9 This was denied in a letter dated December 12, 1991, received by BPI
on January 21, 1992.10
On February 18, 1992, BPI filed a petition for review in the CTA. 11 In a decision dated
November 16, 1995, the CTA dismissed the case for lack of jurisdiction since the subject
assessments had become final and unappealable. The CTA ruled that BPI failed to protest
on time under Section 270 of the National Internal Revenue Code (NIRC) of 1986 and
Section 7 in relation to Section 11 of RA 1125. 12 It denied reconsideration in a resolution
dated May 27, 1996.13
On appeal, the CA reversed the tax courts decision and resolution and remanded the
case to the CTA14 for a decision on the merits. 15 It ruled that the October 28, 1988 notices
were not valid assessments because they did not inform the taxpayer of the legal and
factual bases therefor. It declared that the proper assessments were those contained in
the May 8, 1991 letter which provided the reasons for the claimed deficiencies. 16 Thus, it
held that BPI filed the petition for review in the CTA on time. 17 The CIR elevated the case
to this Court.
This petition raises the following issues:
1) whether or not the assessments issued to BPI for deficiency percentage and
documentary stamp taxes for 1986 had already become final and unappealable
and
2) whether or not BPI was liable for the said taxes.

The former Section 27018 (now renumbered as Section 228) of the NIRC stated:
Sec. 270. Protesting of assessment. When the [CIR] or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify
the taxpayer of his findings. Within a period to be prescribed by implementing
regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails
to respond, the [CIR] shall issue an assessment based on his findings.
xxx xxx xxx (emphasis supplied)
Were the October 28, 1988 Notices Valid Assessments?
The first issue for our resolution is whether or not the October 28, 1988 notices 19 were
valid assessments. If they were not, as held by the CA, then the correct assessments were
in the May 8, 1991 letter, received by BPI on June 27, 1991. BPI, in its July 6, 1991 letter,
seasonably asked for a reconsideration of the findings which the CIR denied in his
December 12, 1991 letter, received by BPI on January 21, 1992. Consequently, the
petition for review filed by BPI in the CTA on February 18, 1992 would be well within the
30-day period provided by law.20
The CIR argues that the CA erred in holding that the October 28, 1988 notices were
invalid assessments. He asserts that he used BIR Form No. 17.08 (as revised in November
1964) which was designed for the precise purpose of notifying taxpayers of the assessed
amounts due and demanding payment thereof. 21 He contends that there was no law or
jurisprudence then that required notices to state the reasons for assessing deficiency tax
liabilities.22
BPI counters that due process demanded that the facts, data and law upon which the
assessments were based be provided to the taxpayer. It insists that the NIRC, as worded
now (referring to Section 228), specifically provides that:
"[t]he taxpayer shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void."
According to BPI, this is declaratory of what sound tax procedure is and a confirmation of
what due process requires even under the former Section 270.
BPIs contention has no merit. The present Section 228 of the NIRC provides:
Sec. 228. Protesting of Assessment. When the [CIR] or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify
the taxpayer of his findings: Provided, however, That a preassessment notice shall not
be required in the following cases:
xxx xxx xxx
The taxpayer shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void.
xxx xxx xxx (emphasis supplied)
Admittedly, the CIR did not inform BPI in writing of the law and facts on which the
assessments of the deficiency taxes were made. He merely notified BPI of his findings,
consisting only of the computation of the tax liabilities and a demand for payment thereof
within 30 days after receipt.

In merely notifying BPI of his findings, the CIR relied on the provisions of the former
Section 270 prior to its amendment by RA 8424 (also known as the Tax Reform Act of
1997).23 In CIR v. Reyes,24 we held that:

In other words, the CAs theory was that BPI was deprived of due process when the CIR
failed to inform it in writing of the factual and legal bases of the assessments even if
these were not called for under the old law.

In the present case, Reyes was not informed in writing of the law and the facts on which
the assessment of estate taxes had been made. She was merely notified of the findings
by the CIR, who had simply relied upon the provisions of former Section 229 prior to its
amendment by [RA] 8424, otherwise known as the Tax Reform Act of 1997.

We disagree.

First, RA 8424 has already amended the provision of Section 229 on protesting an
assessment. The old requirement of merely notifying the taxpayer of the CIR's
findings was changed in 1998 to informing the taxpayer of not only the law, but also
of the facts on which an assessment would be made; otherwise, the assessment itself
would be invalid.
It was on February 12, 1998, that a preliminary assessment notice was issued against the
estate. On April 22, 1998, the final estate tax assessment notice, as well as demand
letter, was also issued. During those dates, RA 8424 was already in effect. The notice
required under the old law was no longer sufficient under the new law. 25
(emphasis supplied; italics in the original)
Accordingly, when the assessments were made pursuant to the former Section 270, the
only requirement was for the CIR to "notify" or inform the taxpayer of his "findings."
Nothing in the old law required a written statement to the taxpayer of the law and facts
on which the assessments were based. The Court cannot read into the law what obviously
was not intended by Congress. That would be judicial legislation, nothing less.
Jurisprudence, on the other hand, simply required that the assessments contain a
computation of tax liabilities, the amount the taxpayer was to pay and a demand for
payment within a prescribed period. 26 Everything considered, there was no doubt the
October 28, 1988 notices sufficiently met the requirements of a valid assessment under
the old law and jurisprudence.
The sentence

Indeed, the underlying reason for the law was the basic constitutional requirement that
"no person shall be deprived of his property without due process of law." 32 We note,
however, what the CTA had to say:
xxx xxx xxx
From the foregoing testimony, it can be safely adduced that not only was [BPI] given the
opportunity to discuss with the [CIR] when the latter issued the former a Pre-Assessment
Notice (which [BPI] ignored) but that the examiners themselves went to [BPI] and "we talk
to them and we try to [thresh] out the issues, present evidences as to what they need."
Now, how can [BPI] and/or its counsel honestly tell this Court that they did not know
anything about the assessments?
Not only that. To further buttress the fact that [BPI] indeed knew beforehand the
assessments[,] contrary to the allegations of its counsel[,] was the testimony of Mr. Jerry
Lazaro, Assistant Manager of the Accounting Department of [BPI]. He testified to the fact
that he prepared worksheets which contain his analysis regarding the findings of the
[CIRs] examiner, Mr. San Pedro and that the same worksheets were presented to Mr.
Carlos Tan, Comptroller of [BPI].
xxx xxx xxx
From all the foregoing discussions, We can now conclude that [BPI] was indeed aware of
the nature and basis of the assessments, and was given all the opportunity to contest the
same but ignored it despite the notice conspicuously written on the assessments which
states that "this ASSESSMENT becomes final and unappealable if not protested within 30
days after receipt." Counsel resorted to dilatory tactics and dangerously played with time.
Unfortunately, such strategy proved fatal to the cause of his client. 33

[t]he taxpayers shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void

The CA never disputed these findings of fact by the CTA:

was not in the old Section 270 but was only later on inserted in the renumbered Section
228 in 1997. Evidently, the legislature saw the need to modify the former Section 270 by
inserting the aforequoted sentence.27 The fact that the amendment was necessary
showed that, prior to the introduction of the amendment, the statute had an entirely
different meaning.28

[T]his Court recognizes that the [CTA], 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 [CTA].34

Contrary to the submission of BPI, the inserted sentence in the renumbered Section 228
was not an affirmation of what the law required under the former Section 270. The
amendment introduced by RA 8424 was an innovation and could not be reasonably
inferred from the old law. 29 Clearly, the legislature intended to insert a new provision
regarding the form and substance of assessments issued by the CIR.30

Under the former Section 270, there were two instances when an assessment became
final and unappealable: (1) when it was not protested within 30 days from receipt and (2)
when the adverse decision on the protest was not appealed to the CTA within 30 days
from receipt of the final decision:35

In ruling that the October 28, 1988 notices were not valid assessments, the CA explained:
xxx. Elementary concerns of due process of law should have prompted the [CIR] to inform
[BPI] of the legal and factual basis of the formers decision to charge the latter for
deficiency documentary stamp and gross receipts taxes. 31

Sec. 270. Protesting of assessment.1a\^/phi1.net

xxx xxx xxx
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation in such form and manner as may be prescribed by the

implementing regulations within thirty (30) days from receipt of the assessment;
otherwise, the assessment shall become final and unappealable.

greater import, this rule of conduct would meet a pressing need for fair play, regularity,
and orderliness in administrative action.39 (emphasis supplied)

If the protest is denied in whole or in part, the individual, association or corporation

adversely affected by the decision on the protest may appeal to the [CTA] within thirty
(30) days from receipt of the said decision; otherwise, the decision shall become final,
executory and demandable.

Either way (whether or not a protest was made), we cannot absolve BPI of its liability
under the subject tax assessments.

Implications Of A Valid Assessment

Considering that the October 28, 1988 notices were valid assessments, BPI should have
protested the same within 30 days from receipt thereof. The December 10, 1988 reply it
sent to the CIR did not qualify as a protest since the letter itself stated that "[a]s soon as
this is explained and clarified in a proper letter of assessment, we shall inform you of
the taxpayers decision on whether to pay or protest the assessment."36 Hence,
by its own declaration, BPI did not regard this letter as a protest against the assessments.
As a matter of fact, BPI never deemed this a protest since it did not even consider the
October 28, 1988 notices as valid or proper assessments.
The inevitable conclusion is that BPIs failure to protest the assessments within the 30-day
period provided in the former Section 270 meant that they became final and
unappealable. Thus, the CTA correctly dismissed BPIs appeal for lack of jurisdiction. BPI
was, from then on, barred from disputing the correctness of the assessments or invoking
any defense that would reopen the question of its liability on the merits. 37 Not only that.
There arose a presumption of correctness when BPI failed to protest the assessments:
Tax assessments by tax examiners are presumed correct and made in good faith. The
taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities in
the performance of duties, an assessment duly made by a Bureau of Internal Revenue
examiner and approved by his superior officers will not be disturbed. All presumptions are
in favor of the correctness of tax assessments.38

We realize that these assessments (which have been pending for almost 20 years) involve
a considerable amount of money. Be that as it may, we cannot legally presume the
existence of something which was never there. The state will be deprived of the taxes
validly due it and the public will suffer if taxpayers will not be held liable for the proper
taxes assessed against them:
Taxes are the lifeblood of the government, for without taxes, the government can neither
exist nor endure. A principal attribute of sovereignty, the exercise of taxing power derives
its source from the very existence of the state whose social contract with its citizens
obliges it to promote public interest and common good. The theory behind the exercise of
the power to tax emanates from necessity; without taxes, government cannot fulfill its
mandate of promoting the general welfare and well-being of the people. 40
WHEREFORE, the petition is hereby GRANTED. The May 29, 1998 decision of the Court
of Appeals in CA-G.R. SP No. 41025 is REVERSED and SET ASIDE.
SO ORDERED.
G.R. No. 135210

July 11, 2001

COMMISSIONER
OF
INTERNAL
vs.
ISABELA CULTURAL CORPORATION, respondent.

REVENUE,

petitioner,

PANGANIBAN, J.:
Even if we considered the December 10, 1988 letter as a protest, BPI must nevertheless
be deemed to have failed to appeal the CIRs final decision regarding the disputed
assessments within the 30-day period provided by law. The CIR, in his May 8, 1991
response, stated that it was his "final decision on the matter." BPI therefore had 30
days from the time it received the decision on June 27, 1991 to appeal but it did not.
Instead it filed a request for reconsideration and lodged its appeal in the CTA only on
February 18, 1992, way beyond the reglementary period. BPI must now suffer the
repercussions of its omission. We have already declared that:
the [CIR] should always indicate to the taxpayer in clear and unequivocal language
whenever his action on an assessment questioned by a taxpayer constitutes his final
determination on the disputed assessment, as contemplated by Sections 7 and 11 of [RA
1125], as amended. On the basis of his statement indubitably showing that the
Commissioner's communicated action is his final decision on the contested
assessment, the aggrieved taxpayer would then be able to take recourse to the
tax court at the opportune time. Without needless difficulty, the taxpayer would
be able to determine when his right to appeal to the tax court accrues.
The rule of conduct would also obviate all desire and opportunity on the part of
the taxpayer to continually delay the finality of the assessment and,
consequently, the collection of the amount demanded as taxes by repeated
requests for recomputation and reconsideration. On the part of the [CIR], this would
encourage his office to conduct a careful and thorough study of every questioned
assessment and render a correct and definite decision thereon in the first instance. This
would also deter the [CIR] from unfairly making the taxpayer grope in the dark and
speculate as to which action constitutes the decision appealable to the tax court. Of

A final demand letter from the Bureau of Internal Revenue, reiterating to the taxpayer the
immediate payment of a tax deficiency assessment previously made, is tantamount to a
denial of the taxpayer's request for reconsideration. Such letter amounts to a final
decision on a disputed assessment and is thus appealable to the Court of Tax Appeals
(CTA).
The Case
Before this Court is a Petition for Review on Certiorari1 pursuant to Rule 45 of the Rules of
Court, seeking to set aside the August 19, 1998 Decision 2 of the Court of Appeals3 (CA) in
CA-GR SP No. 46383 and ultimately to affirm the dismissal of CTA Case No. 5211. The
dispositive portion of the assailed Decision reads as follows:
"WHEREFORE, the assailed decision is REVERSED and SET ASIDE. Accordingly,
judgment is hereby rendered REMANDING the case to the CTA for proper
disposition."4
The Facts
The facts are undisputed. The Court of Appeals quoted the summary of the CTA as
follows:

"As succinctly summarized by the Court of Tax appeals (CTA for brevity), the
antecedent facts are as follows:
'In an investigation conducted on the 1986 books of account of
[respondent, petitioner] had the preliminary [finding] that [respondent]
incurred a total income tax deficiency of P9,985,392.15, inclusive of
increments. Upon protest by [respondent's] counsel, the said
preliminary assessment was reduced to the amount of P325,869.44, a
breakdown of which follows:
Deficiency Income Tax
Deficiency Expanded Withholding Tax
Total

P321,022.68
4,846.76
P325,869.44

(pp. 187-189, BIR records)'

On February 23, 1990, [respondent] received from [petitioner] an assessment
letter, dated February 9, 1990, demanding payment of the amounts of
P333,196.86 and P4,897.79 as deficiency income tax and expanded withholding
tax inclusive of surcharge and interest, respectively, for the taxable period from
January 1, 1986 to December 31, 1986. (pp. 204 and 205, BIR rec.)
In a letter, dated March 22, 1990, filed with the [petitioner's] office on March 23,
1990 (pp. 296-311, BIR rec.), [respondent] requested x x x a reconsideration of
the subject assessment.
Supplemental to its protest was a letter, dated April 2, 1990, filed with the
[petitioner's] office on April 18, 1990 (pp. 224 & 225, BIR rec.), to which x x x
were attached certain documents supportive of its protest, as well as a Waiver of
Statute of Limitation, dated April 17, 1990, where it was indicated that
[petitioner] would only have until April 5, 1991 within which to asses and collect
the taxes that may be found due from [respondent] after the re-investigation.

denied petitioner's request for a reconsideration of the commissioner's assessment. The

CA relied on the long-settled tax jurisprudence that a demand letter reiterating payment
of delinquent taxes amounted to a decision on a disputed assessment.
Hence, this recourse.6
Issues
In his Memorandum,7 petitioner presents for this Court's consideration a solitary issue:
"Whether or not the Final Notice Before Seizure dated February 9, 1995 signed
by Acting Chief Revenue Collection Officer Milagros Acevedo against ICC
constitutes the final decision of the CIR appealable to the CTA." 8
The Court's Ruling
The Petition is not meritorious.
Sole
Issue:
The Nature of the Final Notice Before Seizure
The Final Notice Before Seizure sent by the Bureau of Internal Revenue (BIR) to
respondent reads as follows:
"On Feb. 9, 1990, [this] Office sent you a letter requesting you to settle the
above-captioned assessment. To date, however, despite the lapse of a
considerable length of time, we have not been honored with a reply from you.
In this connection, we are giving you this LAST OPPORTUNITY to settle the
adverted assessment within ten (10) days after receipt hereof. Should you again
fail, and refuse to pay, this Office will be constrained to enforce its collection by
summary remedies of Warrant of Levy of Road Property, Distraint of Personal
Property or Warrant of Garnishment, and/or simultaneous court action.

On February 9, 1995, [respondent] received from [petitioner] a Final Notice

Before Seizure, dated December 22, 1994 (p. 340, BIR rec.). In said letter,
[petitioner] demanded payment of the subject assessment within ten (10) days
from receipt thereof. Otherwise, failure on its part would constrain [petitioner] to
collect the subject assessment through summary remedies.

Please give this matter your preferential attention.

[Respondent] considered said final notice of seizure as [petitioner's] final

decision. Hence, the instant petition for review filed with this Court on March 9,
1995.

ISIDRO
B.
Revenue District Officer

The CTA having rendered judgment dismissing the petition, [respondent] filed
the instant petition anchored on the argument that [petitioner's] issuance of the
Final Notice Before Seizure constitutes [its] decision on [respondent's] request for
reinvestigation, which the [respondent] may appeal to the CTA." 5

By:

Very truly yours,

TECSON,

JR.

(Signed)
MILAGROS
M.
Actg. Chief Revenue Collection Officer" 9

ACEVEDO

Ruling of the Court of Appeals

In its Decision, the Court of Appeals reversed the Court of Tax Appeals. The CA considered
the final notice sent by petitioner as the latter's decision, which was appealable to the
CTA. The appellate court reasoned that the final Notice before seizure had effectively

Petitioner maintains that this Final Notice was a mere reiteration of the delinquent
taxpayer's obligation to pay the taxes due. It was supposedly a mere demand that should
not have been mistaken for a decision on a protested assessment. Such decision, the

commissioner contends, must unequivocably indicate that it is the resolution of the

taxpayer's request for reconsideration and must likewise state the reason therefor.
Respondent, on the other hand, points out that the Final Notice Before Seizure should be
considered as a denial of its request for reconsideration of the disputed assessment. The
Notice should be deemed as petitioner's last act, since failure to comply with it would lead
to the distraint and levy of respondent's properties, as indicated therein.
We agree with respondent. In the normal course, the revenue district officer sends the
taxpayer a notice of delinquent taxes, indicating the period covered, the amount due
including interest, and the reason for the delinquency. If the taxpayer disagrees with or
wishes to protest the assessment, it sends a letter to the BIR indicating its protest, stating
the reasons therefor, and submitting such proof as may be necessary. That letter is
considered as the taxpayer's request for reconsideration of the delinquent assessment.
After the request is filed and received by the BIR, the assessment becomes a disputed
assessment on which it must render a decision. That decision is appealable to the Court of
Tax Appeals for review.
Prior to the decision on a disputed assessment, there may still be exchanges between the
commissioner of internal revenue (CIR) and the taxpayer. The former may ask clarificatory
questions or require the latter to submit additional evidence. However, the CIR's position
regarding the disputed assessment must be indicated in the final decision. It is this
decision that is properly appealable to the CTA for review.
Indisputably, respondent received an assessment letter dated February 9, 1990, stating
that it had delinquent taxes due; and it subsequently filed its motion for reconsideration
on March 23, 1990. In support of its request for reconsideration, it sent to the CIR
additional documents on April 18, 1990. The next communication respondent received
was already the Final Notice Before Seizure dated November 10, 1994.
In the light of the above facts, the Final Notice Before Seizure cannot but be considered as
the commissioner's decision disposing of the request for reconsideration filed by
respondent, who received no other response to its request. Not only was the Notice the
only response received; its content and tenor supported the theory that it was the CIR's
final act regarding the request for reconsideration. The very title expressly indicated that
it was a final notice prior to seizure of property. The letter itself clearly stated that
respondent was being given "this LAST OPPORTUNITY" to pay; otherwise, its properties
would be subjected to distraint and levy. How then could it have been made to believe
that its request for reconsideration was still pending determination, despite the actual
threat of seizure of its properties?
Furthermore, Section 228 of the National Internal Revenue Code states that a delinquent
taxpayer may nevertheless directly appeal a disputed assessment, if its request for
reconsideration remains unacted upon 180 days after submission thereof. We quote:
"Sec. 228. Protesting an Assessment. x x x
Within a period to be prescribed by implementing rules and regulations, the
taxpayer shall be required to respond to said notice. If the taxpayer fails to
respond, the Commissioner or his duly authorized representative shall issue an
assessment based on his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the
assessment in such form and manner as may be prescribed by implementing
rules and regulations. Within sixty (60) days from filing of the protest, all relevant
supporting documents shall have become final.

If the protest is denied in whole or in part, or is not acted upon within one
hundred eighty (180) days from submission of documents, the taxpayer
adversely affected by the decision or inaction may appeal to the Court of Tax
Appeals within (30) days from receipt of the said decision, or from the lapse of
the one hundred eighty (180)-day period; otherwise the decision shall become
final, executory and demandable." 10
In this case, the said period of 180 days had already lapsed when respondent filed its
request for reconsideration on March 23, 1990, without any action on the part of the CIR.
Lastly, jurisprudence dictates that a final demand letter for payment of delinquent taxes
may be considered a decision on a disputed or protested assessment. In Commissioner of
Internal Revenue v. Ayala Securities Corporation, this Court held:
"The letter of February 18, 1963 (Exh. G), in the view of the Court, is tantamount
to a denial of the reconsideration or [respondent corporation's] x x x protest o[f]
the assessment made by the petitioner, considering that the said letter [was] in
itself a reiteration of the demand by the Bureau of Internal Revenue for the
settlement of the assessment already made, and for the immediate payment of
the sum of P758,687.04 in spite of the vehement protest of the respondent
corporation on April 21, 1961. This certainly is a clear indication of the firm stand
of petitioner against the reconsideration of the disputed assessment, in view of
the continued refusal of the respondent corporation to execute the waiver of the
period of limitation upon the assessment in question.
This being so, the said letter amount[ed] to a decision on a disputed or protested
assessment and, there, the court a quo did not err in taking cognizance of this
case."11
Similarly, in Surigao Electric Co., Inc. v. Court of Tax Appeals 12 and again in CIR v. Union
Shipping Corp.,13 we ruled:
"x x x. The letter of demand dated April 29, 1963 unquestionably constitutes the
final action taken by the commissioner on the petitioner's several requests for
reconsideration and recomputation. In this letter the commissioner not only in
effect demanded that the petitioner pay the amount of P11,533.53 but also gave
warning that in the event it failed to pay, the said commissioner would be
constrained to enforce the collection thereof by means of the remedies provided
by law. The tenor of the letter, specifically the statement regarding the resort to
legal remedies, unmistakably indicate[d] the final nature of the determination
made by the commissioner of the petitioner's deficiency franchise tax liability."
As in CIR v. Union Shipping,14 petitioner failed to rule on the Motion for Reconsideration
filed by private respondent, but simply continued to demand payment of the latter's
alleged tax delinquency. Thus, the Court reiterated the dictum that the BIR should always
indicate to the taxpayer in clear and unequivocal language what constitutes final action
on a disputed assessment. The object of this policy is to avoid repeated requests for
reconsideration by the taxpayer, thereby delaying the finality of the assessment and,
consequently, the collection of the taxes due. Furthermore, the taxpayer would not be
groping in the dark, speculating as to which communication or action of the BIR may be
the decision appealable to the tax court.15
In the instant case, the second notice received by private respondent verily indicated its
nature that it was final. Unequivocably, therefore, it was tantamount to a rejection of the
request for reconsideration.

Commissioner v. Algue16 is not in point here. In that case, the Warrant of Distraint and
Levy, issued to the taxpayer without any categorical ruling on its request for
reconsideration, was not deemed equivalent to a denial of the request. Because such
request could not in fact be found in its records, the BIR cannot be presumed to have
taken it into consideration. The request was considered only when the taxpayer gave a
copy of it, duly stamp-received by the BIR. Hence, the Warrant was deemed
premature.1wphi1.nt
In the present case, petitioner does not deny receipt of private respondent's protest letter.
As a matter of fact, it categorically relates the following in its "Statement of Relevant
Facts":17
"3. On March 23, 1990, respondent ICC wrote the CIR requesting for a
reconsideration of the assessment on the ground that there was an error
committed in the computation of interest and that there were expenses which
were disallowed (Ibid., pp. 296-311).
"4. On April 2, 1990, respondent ICC sent the CIR additional documents in
support of its protest/reconsideration. The letter was received by the BIR on April
18, 1990. Respondent ICC further executed a Waiver of Statute of Limitation
(dated April 17, 1990) whereby it consented to the BIR to assess and collect any
taxes that may be discovered in the process of reinvestigation, until April 3, 1991
(Ibid., pp. 296-311). A copy of the waiver is hereto attached as Annex 'C'."
Having admitted as a fact private respondent's request for reconsideration, petitioner
must have passed upon it prior to the issuance of the Final Notice Before Seizure.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED.
SO ORDERED.
Melo, Vitug, Sandoval-Gutierrez, JJ., concur.

On
July
20,
2001,
petitioner
filed
a
protest
letter/request
for
reconsideration/reinvestigation pursuant to Section 228 of the National Internal Revenue
Code of 1997 (NIRC).5
As the protest was not acted upon by the respondent, petitioner filed on April 30, 2002 a
petition for review with the CTA for the cancellation of the assessments which was
docketed as C.T.A. Case No. 6475.6
On July 15, 2003, respondent filed a motion to resolve first the issue of CTAs jurisdiction, 7
which was granted by the CTA in a Resolution dated September 10, 2003. 8 The petition for
review was dismissed because it was filed beyond the 30-day period following the lapse of
180 days from petitioners submission of documents in support of its protest, as provided
under Section 228 of the NIRC and Section 11 of R.A. No. 1125, otherwise known as the
Law Creating the Court of Tax Appeals.
Petitioner did not file a motion for reconsideration or an appeal to the CTA En Banc from
the dismissal of its petition for review. Consequently, the September 10, 2003 Resolution
became final and executory on October 1, 2003 and Entry of Judgment was made on
December 1, 2003.9 Thereafter, respondent sent a Demand Letter to petitioner for the
payment of the deficiency tax assessments.
On February 20, 2004, petitioner filed a Petition for Relief from Judgment10 on the ground
of excusable negligence of its counsels secretary who allegedly misfiled and lost the
September 10, 2003 Resolution. The CTA Second Division set the case for hearing on April
2, 200411 during which petitioners counsel was present. 12 Respondent filed an
Opposition13 while petitioner submitted its Manifestation and Counter-Motion. 14
On May 3, 2004, the CTA Second Division rendered a Resolution 15 denying petitioners
Petition for Relief from Judgment.lawph!l.net

Gonzaga-Reyes, on leave.
G.R. No. 168498

On July 5, 2001, petitioner Rizal Commercial Banking Corporation received a Formal Letter
of Demand dated May 25, 2001 from the respondent Commissioner of Internal Revenue
for its tax liabilities particularly for Gross Onshore Tax in the amount of P53,998,428.29
and Documentary Stamp Tax for its Special Savings Placements in the amount of
P46,717,952.76, for the taxable year 1997.4

June 16, 2006

RIZAL
COMMERCIAL
BANKING
CORPORATION,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

Petitioner,

Petitioners motion for reconsideration was denied in a Resolution dated November 5,

2004,16 hence it filed a petition for review with the CTA En Banc, docketed as C.T.A. EB No.
50, which affirmed the assailed Resolutions of the CTA Second Division in a Decision dated
June 7, 2005.
Hence, this petition for review based on the following grounds:

DECISION
I.
YNARES-SANTIAGO, J.:
This is a petition for review under Rule 45 of the Rules of Court assailing the Decision 1 of
the Court of Tax Appeals (CTA) En Banc dated June 7, 2005 in C.T.A. EB No. 50 which
affirmed the Resolutions of the CTA Second Division dated May 3, 2004 2 and November 5,
20043 in C.T.A. Case No. 6475 denying petitioners Petition for Relief from Judgment and
the Motion for Reconsideration thereof, respectively.

THE HONORABLE CTA AND CTA EN BANC GRAVELY ERRED IN DENYING

PETITIONERS PETITION FOR RELIEF, WITHOUT FIRST AFFORDING IT THE
OPPORTUNITY TO ADDUCE EVIDENCE TO ESTABLISH THE FACTUAL ALLEGATIONS
CONSTITUTING ITS ALLEGED EXCUSABLE NEGLIGENCE, IN CLEAR VIOLATION OF
PETITIONERS BASIC RIGHT TO DUE PROCESS.
II.

The undisputed facts are as follows:

CONSIDERING THAT THE SUBJECT ASSESSMENT, INSOFAR AS IT INVOLVES
ALLEGED DEFICIENCY DOCUMENTARY STAMP TAXES ON SPECIAL SAVINGS
ACCOUNTS, IS AN ISSUE AFFECTING ALL MEMBERS OF THE BANKING INDUSTRY,

PETITIONER, LIKE ALL OTHER BANKS, SHOULD BE AFFORDED AN EQUAL

OPPORTUNITY TO FULLY LITIGATE THE ISSUE, AND HAVE THE CASE DETERMINED
BASED ON ITS MERITS, RATHER THAN ON A MERE TECHNICALITY. 17
Relief from judgment under Rule 38 of the Rules of Court is a legal remedy that is allowed
only in exceptional cases whereby a party seeks to set aside a judgment rendered against
him by a court whenever he was unjustly deprived of a hearing or was prevented from
taking an appeal, in either case, because of fraud, accident, mistake or excusable
neglect.18
Petitioner argues that it was denied due process when it was not given the opportunity to
be heard to prove that its failure to file a motion for reconsideration or appeal from the
dismissal of its petition for review was due to the failure of its employee to forward the
copy of the September 10, 2003 Resolution which constitutes excusable negligence.
Petitioners argument lacks merit.
It is basic that as long as a party is given the opportunity to defend his interests in due
course, he would have no reason to complain, for it is this opportunity to be heard that
makes up the essence of due process.19 In Batongbakal v. Zafra,20 the Court held that:
There is no question that the "essence of due process is a hearing before conviction and
before an impartial and disinterested tribunal" but due process as a constitutional precept
does not, always and in all situations, require a trial-type proceeding. The essence of due
process is to be found in the reasonable opportunity to be heard and submit any evidence
one may have in support of ones defense. "To be heard" does not only mean verbal
arguments in court; one may be heard also through pleadings. Where
opportunity to be heard, either through oral arguments or pleadings, is
accorded, there is no denial of procedural due process. (Emphasis supplied)
As correctly pointed by the Office of the Solicitor General (OSG), the CTA Second Division
set the case for hearing on April 2, 2004 after the filing by the petitioner of its petition for
relief from judgment. Petitioners counsel was present on the scheduled hearing and in
fact orally argued its petition.
Moreover, after the CTA Second Division dismissed the petition for relief from judgment in
a Resolution dated May 3, 2004, petitioner filed a motion for reconsideration and the
court further required both parties to file their respective memorandum. Indeed,
petitioner was not denied its day in court considering the opportunities given to argue its
claim.
Relief cannot be granted on the flimsy excuse that the failure to appeal was due to the
neglect of petitioners counsel. 21 Otherwise, all that a losing party would do to salvage his
case would be to invoke neglect or mistake of his counsel as a ground for reversing or
setting aside the adverse judgment, thereby putting no end to litigation. 22
Negligence to be "excusable" must be one which ordinary diligence and prudence could
not have guarded against and by reason of which the rights of an aggrieved party have
probably been impaired.23 Petitioners former counsels omission could hardly be
characterized as excusable, much less unavoidable.
The Court has repeatedly admonished lawyers to adopt a system whereby they can
always receive promptly judicial notices and pleadings intended for them. 24 Apparently,
petitioners counsel was not only remiss in complying with this admonition but he also
failed to check periodically, as an act of prudence and diligence, the status of the pending
case before the CTA Second Division. The fact that counsel allegedly had not renewed the
employment of his secretary, thereby making the latter no longer attentive or focused on

her work, did not relieve him of his responsibilities to his client. It is a problem personal to
him which should not in any manner interfere with his professional commitments.
In exceptional cases, when the mistake of counsel is so palpable that it amounts to gross
negligence, this Court affords a party a second opportunity to vindicate his right. But this
opportunity is unavailing in the case at bar, especially since petitioner had squandered
the various opportunities available to it at the different stages of this case. Public interest
demands an end to every litigation and a belated effort to reopen a case that has already
attained finality will serve no purpose other than to delay the administration of justice. 25
Since petitioners ground for relief is not well-taken, it follows that the assailed judgment
stands.lavvphil.e+ Assuming ex gratia argumenti that the negligence of petitioners
counsel is excusable, still the petition must fail. As aptly observed by the OSG, even if the
petition for relief from judgment would be granted, petitioner will not fare any better if the
case were to be returned to the CTA Second Division since its action for the cancellation
of its assessments had already prescribed. 26
Petitioner protested the assessments pursuant to Section 228 of the NIRC, which provides:
SEC. 228. Protesting of Assessment.- x x x.
xxxx
Within a period to be prescribed by implementing rules and regulations, the taxpayer
shall be required to respond to said notice. If the taxpayer fails to respond, the
Commissioner or his duly authorized representative shall issue an assessment based on
his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the assessment
in such form and manner as may be prescribed by implementing rules and regulations.
Within sixty (60) days from filing of the protest, all relevant supporting documents shall
have been submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one
hundred eighty (180) days from submission of documents, the taxpayer
adversely affected by the decision or inaction may appeal to the Court of Tax
Appeals within (30) days from receipt of the said decision, or from the lapse of
the one hundred eighty (180)-day period; otherwise the decision shall become
final, executory and demandable. (Emphasis supplied)
The CTA Second Division held:
Following the periods provided for in the aforementioned laws, from July 20, 2001, that is,
the date of petitioners filing of protest, it had until September 18, 2001 to submit
relevant documents and from September 18, 2001, the Commissioner had until March 17,
2002 to issue his decision. As admitted by petitioner, the protest remained unacted by
the Commissioner of Internal Revenue. Therefore, it had until April 16, 2002 within which
to elevate the case to this court. Thus, when petitioner filed its Petition for Review on April
30, 2002, the same is outside the thirty (30) period. 27
As provided in Section 228, the failure of a taxpayer to appeal from an assessment on
time rendered the assessment final, executory and demandable. Consequently, petitioner
is precluded from disputing the correctness of the assessment.

In Ker & Company, Ltd. v. Court of Tax Appeals,28 the Court held that while the right to
appeal a decision of the Commissioner to the Court of Tax Appeals is merely a statutory
remedy, nevertheless the requirement that it must be brought within 30 days is
jurisdictional. If a statutory remedy provides as a condition precedent that the action to
enforce it must be commenced within a prescribed time, such requirement is jurisdictional
and failure to comply therewith may be raised in a motion to dismiss.
In fine, the failure to comply with the 30-day statutory period would bar the appeal and
deprive the Court of Tax Appeals of its jurisdiction to entertain and determine the
correctness of the assessment.29
WHEREFORE, in view of the foregoing, the Decision of the Court of Tax Appeals En Banc
dated June 7, 2005 in C.T.A. EB No. 50 affirming the Resolutions of the Court of Tax
Appeals Second Division dated May 3, 2004 and November 5, 2004 in C.T.A. Case No.
6475 denying petitioners Petition for Relief from Judgment and Motion for
Reconsideration, respectively, is AFFIRMED.
SO ORDERED.
CONSUELO
Associate Justice

YNARES-SANTIAGO

WE CONCUR:
G.R. No. 119286

October 13, 2004

PASEO
REALTY
&
DEVELOPMENT
CORPORATION,
petitioner,
vs.
COURT OF APPEALS, COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL
REVENUE, respondents.
DECISION
TINGA, J.:
The changes in the reportorial requirements and payment schedules of corporate income
taxes from annual to quarterly have created problems, especially on the matter of tax
refunds.1 In this case, the Court is called to resolve the question of whether alleged
excess taxes paid by a corporation during a taxable year should be refunded or credited
against its tax liabilities for the succeeding year.
Paseo Realty and Development Corporation, a domestic corporation engaged in the lease
of two (2) parcels of land at Paseo de Roxas in Makati City, seeks a review of the Decision2
of the Court of Appeals dismissing its petition for review of the resolution 3 of the Court of
Tax Appeals (CTA) which, in turn, denied its claim for refund.
The factual antecedents4 are as follows:
On April 16, 1990, petitioner filed its Income Tax Return for the calendar year
1989 declaring a gross income of P1,855,000.00, deductions of P1,775,991.00,
net income of P79,009.00, an income tax due thereon in the amount of
P27,653.00, prior years excess credit of P146,026.00, and creditable taxes
withheld in 1989 of P54,104.00 or a total tax credit of P200,130.00 and credit
balance of P172,477.00.

On November 14, 1991, petitioner filed with respondent a claim for "the refund
of excess creditable withholding and income taxes for the years 1989 and 1990
in the aggregate amount of P147,036.15."
On December 27, 1991 alleging that the prescriptive period for refunds for 1989
would expire on December 30, 1991 and that it was necessary to interrupt the
prescriptive period, petitioner filed with the respondent Court of Tax Appeals a
petition for review praying for the refund of "P54,104.00 representing creditable
taxes withheld from income payments of petitioner for the calendar year ending
December 31, 1989."
On February 25, 1992, respondent Commissioner filed an Answer and by way of
special and/or affirmative defenses averred the following: a) the petition states
no cause of action for failure to allege the dates when the taxes sought to be
refunded were paid; b) petitioners claim for refund is still under investigation by
respondent Commissioner; c) the taxes claimed are deemed to have been paid
and collected in accordance with law and existing pertinent rules and
regulations; d) petitioner failed to allege that it is entitled to the refund or
deductions claimed; e) petitioners contention that it has available tax credit for
the current and prior year is gratuitous and does not ipso facto warrant the
refund; f) petitioner failed to show that it has complied with the provision of
Section 230 in relation to Section 204 of the Tax Code.
After trial, the respondent Court rendered a decision ordering respondent
Commissioner "to refund in favor of petitioner the amount of P54,104.00,
representing excess creditable withholding taxes paid for January to July1989."
Respondent Commissioner moved for reconsideration of the decision, alleging
that the P54,104.00 ordered to be refunded "has already been included and is
part and parcel of the P172,477.00 which petitioner automatically applied as tax
credit for the succeeding taxable year 1990."
In a resolution dated October 21, 1993 Respondent Court reconsidered its
decision of July 29, 1993 and dismissed the petition for review, stating that it has
"overlooked the fact that the petitioners 1989 Corporate Income Tax Return
(Exh. "A") indicated that the amount of P54,104.00 subject of petitioners claim
for refund has already been included as part and parcel of the P172,477.00
which the petitioner automatically applied as tax credit for the succeeding
taxable year 1990."
Petitioner filed a Motion for Reconsideration which was denied by respondent
Court on March 10, 1994.5
Petitioner filed a Petition for Review6 dated April 3, 1994 with the Court of Appeals.
Resolving the twin issues of whether petitioner is entitled to a refund of P54,104.00
representing creditable taxes withheld in 1989 and whether petitioner applied such
creditable taxes withheld to its 1990 income tax liability, the appellate court held that
petitioner is not entitled to a refund because it had already elected to apply the total
amount of P172,447.00, which includes the P54,104.00 refund claimed, against its income
tax liability for 1990. The appellate court elucidated on the reason for its dismissal of
petitioners claim for refund, thus:
In the instant case, it appears that when petitioner filed its income tax return for
the year 1989, it filled up the box stating that the total amount of P172,477.00
shall be applied against its income tax liabilities for the succeeding taxable year.

Petitioner did not specify in its return the amount to be refunded and the amount
to be applied as tax credit to the succeeding taxable year, but merely marked an
"x" to the box indicating "to be applied as tax credit to the succeeding taxable
year." Unlike what petitioner had done when it filed its income tax return for the
year 1988, it specifically stated that out of the P146,026.00 the entire refundable
amount, only P64,623.00 will be made available as tax credit, while the amount
of P81,403.00 will be refunded.
In its 1989 income tax return, petitioner filled up the box "to be applied as tax
credit to succeeding taxable year," which signified that instead of refund,
petitioner will apply the total amount of P172,447.00, which includes the amount
of P54,104.00 sought to be refunded, as tax credit for its tax liabilities in 1990.
Thus, there is really nothing left to be refunded to petitioner for the year 1989. To
grant petitioners claim for refund is tantamount to granting twice the refund
herein sought to be refunded, to the prejudice of the Government.
The Court of Appeals denied petitioners Motion for Reconsideration7 dated November 8,
1994 in its Resolution8 dated February 21, 1995 because the motion merely restated the
grounds which have already been considered and passed upon in its Decision.9
Petitioner thus filed the instant Petition for Review10 dated April 14, 1995 arguing that the
evidence presented before the lower courts conclusively shows that it did not apply the
P54,104.00 to its 1990 income tax liability; that the Decision subject of the instant
petition is inconsistent with a final decision 11 of the Sixteenth Division of the appellate
court in C.A.-G.R. Sp. No. 32890 involving the same parties and subject matter; and that
the affirmation of the questioned Decision would lead to absurd results in the manner of
claiming refunds or in the application of prior years excess tax credits.
The Office of the Solicitor General (OSG) filed a Comment12 dated May 16, 1996 on behalf
of respondents asserting that the claimed refund of P54,104.00 was, by petitioners
election in its Corporate Annual Income Tax Return for 1989, to be applied against its tax
liability for 1990. Not having submitted its tax return for 1990 to show whether the said
amount was indeed applied against its tax liability for 1990, petitioners election in its tax
return stands. The OSG also contends that petitioners election to apply its overpaid
income tax as tax credit against its tax liabilities for the succeeding taxable year is
mandatory and irrevocable.
On September 2, 1997, petitioner filed a Reply13 dated August 31, 1996 insisting that the
issue in this case is not whether the amount of P54,104.00 was included as tax credit to
be applied against its 1990 income tax liability but whether the same amount was
actually applied as tax credit for 1990. Petitioner claims that there is no need to show that
the amount of P54,104.00 had not been automatically applied against its 1990 income
tax liability because the appellate courts decision in C.A.-G.R. Sp. No. 32890 clearly held
that petitioner charged its 1990 income tax liability against its tax credit for 1988 and not
1989. Petitioner also disputes the OSGs assertion that the taxpayers election as to the
application of excess taxes is irrevocable averring that there is nothing in the law that
prohibits a taxpayer from changing its mind especially if subsequent events leave the
latter no choice but to change its election.
The OSG filed a Rejoinder14 dated March 5, 1997 stating that petitioners 1988 tax return
shows a prior years excess credit of P81,403.00, creditable tax withheld of P92,750.00
and tax due of P27,127.00. Petitioner indicated that the prior years excess credit of
P81,403.00 was to be refunded, while the remaining amount of P64,623.00 (P92,750.00 P27,127.00) shall be considered as tax credit for 1989. However, in its 1989 tax return,
petitioner included the P81,403.00 which had already been segregated for refund in the
computation of its excess credit, and specified that the full amount of P172,479.00*
(P81,403.00 + P64,623.00 + P54,104.00** - P27,653.00***) be considered as its tax credit
for 1990. Considering that it had obtained a favorable ruling for the refund of its excess
credit for 1988 in CA-G.R. SP. No. 32890, its remaining tax credit for 1989 should be the

excess credit to be applied against its 1990 tax liability. In fine, the OSG argues that by its
own election, petitioner can no longer ask for a refund of its creditable taxes withheld in
1989 as the same had been applied against its 1990 tax due.
In its Resolution15 dated July 16, 1997, the Court gave due course to the petition and
required the parties to simultaneously file their respective memoranda within 30 days
from notice. In compliance with this directive, petitioner submitted its Memorandum16
dated September 18, 1997 in due time, while the OSG filed its Memorandum17 dated April
27, 1998 only on April 29, 1998 after several extensions.
The petition must be denied.
As a matter of principle, it is not advisable for this Court to set aside the conclusion
reached by an agency such as the CTA which is, by the very nature of its functions,
dedicated exclusively 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 its authority.18
This interdiction finds particular application in this case since the CTA, after careful
consideration of the merits of the Commissioner of Internal Revenues motion for
reconsideration, reconsidered its earlier decision which ordered the latter to refund the
amount of P54,104.00 to petitioner. Its resolution cannot be successfully assailed based,
as it is, on the pertinent laws as applied to the facts.
Petitioners 1989 tax return indicates an aggregate creditable tax of P172,477.00,
representing its 1988 excess credit of P146,026.00 and 1989 creditable tax of P54,104.00
less tax due for 1989, which it elected to apply as tax credit for the succeeding taxable
year.19 According to petitioner, it successively utilized this amount when it obtained
refunds in CTA Case No. 4439 (C.A.-G.R. Sp. No. 32300) and CTA Case No. 4528 (C.A.-G.R.
Sp. No. 32890), and applied its 1990 tax liability, leaving a balance of P54,104.00, the
amount subject of the instant claim for refund. 20 Represented mathematically, petitioner
accounts for its claim in this wise:
P172,477.
00

Amount indicated in petitioners 1989 tax return to be applied as tax cre

the succeeding taxable year

25,623.00

Claim for refund in CTA Case No. 4439 (C.A.-G.R. Sp. No. 32300)

P146,854.
00

Balance as of April 16, 1990

59,510.00

Claim for refund in CTA Case No. 4528 (C.A.-G.R. Sp. No. 32890)

P87,344.0
0

Balance as of January 2, 1991

33,240.00

Income tax liability for calendar year 1990 applied as of April 15, 1991

P54,104.0
0

Balance as of April 15, 1991 now subject of the instant claim for refund 21

Other than its own bare allegations, however, petitioner offers no proof to the effect that
its creditable tax of P172,477.00 was applied as claimed above. Instead, it anchors its
assertion of entitlement to refund on an alleged finding in C.A.-G.R. Sp. No. 32890 22
involving the same parties to the effect that petitioner charged its 1990 income tax

liability to its tax credit for 1988 and not its 1989 tax credit. Hence, its excess creditable
taxes withheld of P54,104.00 for 1989 was left untouched and may be refunded.
Note should be taken, however, that nowhere in the case referred to by petitioner did the
Court of Appeals make a categorical determination that petitioners tax liability for 1990
was applied against its 1988 tax credit. The statement adverted to by petitioner was
actually presented in the appellate courts decision in CA-G.R. Sp No. 32890 as part of
petitioners own narration of facts. The pertinent portion of the decision reads:
It would appear from petitioners submission as follows:
x x x since it has already applied to its prior years excess credit of P81,403.00
(which petitioner wanted refunded when it filed its 1988 Income Tax Return on
April 14, 1989) the income tax liability for 1988 of P28,127.00 and the income
tax liability for 1989 of P27,653.00, leaving a balance refundable of P25,623.00
subject of C.T.A. Case No. 4439, the P92,750.00 (P64,623.00 plus P28,127.00,
since this second amount was already applied to the amount refundable of
P81,403.00) should be the refundable amount. But since the taxpayer again used
part of it to satisfy its income tax liability of P33,240.00 for 1990, the amount
refundable was P59,510.00, which is the amount prayed for in the claim for
refund and also in the petitioner (sic) for review.
That the present claim for refund already consolidates its claims for refund for
1988, 1989, and 1990, when it filed a claim for refund of P59,510.00 in this case
(CTA Case No. 4528). Hence, the present claim should be resolved together with
the previous claims.23
The confusion as to petitioners entitlement to a refund could altogether have been
avoided had it presented its tax return for 1990. Such return would have shown whether
petitioner actually applied its 1989 tax credit of P172,477.00, which includes the
P54,104.00 creditable taxes withheld for 1989 subject of the instant claim for refund,
against its 1990 tax liability as it had elected in its 1989 return, or at least, whether
petitioners tax credit of P172,477.00 was applied to its approved refunds as it claims.
The return would also have shown whether there remained an excess credit refundable to
petitioner after deducting its tax liability for 1990. As it is, we only have petitioners
allegation that its tax due for 1990 was P33,240.00 and that this was applied against its
remaining tax credits using its own "first in, first out" method of computation.
It would have been different had petitioner not included the P54,104.00 creditable taxes
for 1989 in the total amount it elected to apply against its 1990 tax liabilities. Then, all
that would have been required of petitioner are: proof that it filed a claim for refund within
the two (2)-year prescriptive period provided under Section 230 of the NIRC; evidence
that the income upon which the taxes were withheld was included in its return; and to
establish the fact of withholding by a copy of the statement (BIR Form No. 1743.1) issued
by the payor24 to the payee showing the amount paid and the amount of tax withheld
therefrom. However, since petitioner opted to apply its aggregate excess credits as tax
credit for 1990, it was incumbent upon it to present its tax return for 1990 to show that
the claimed refund had not been automatically credited and applied to its 1990 tax
liabilities.
The grant of a refund is founded on the assumption that the tax return is valid, i.e., that
the facts stated therein are true and correct. 25 Without the tax return, it is error to grant a
refund since it would be virtually impossible to determine whether the proper taxes have
been assessed and paid.

Why petitioner failed to present such a vital piece of evidence confounds the Court.
Petitioner could very well have attached a copy of its final adjustment return for 1990
when it filed its claim for refund on November 13, 1991. Annex "B" of its Petition for
Review26 dated December 26, 1991 filed with the CTA, in fact, states that its annual tax
return for 1990 was submitted in support of its claim. Yet, petitioners tax return for 1990
is nowhere to be found in the records of this case.
Had petitioner presented its 1990 tax return in refutation of respondent Commissioners
allegation that it did not present evidence to prove that its claimed refund had already
been automatically credited against its 1990 tax liability, the CTA would not have
reconsidered its earlier Decision. As it is, the absence of petitioners 1990 tax return was
the principal basis of the CTAs Resolution reconsidering its earlier Decision to grant
petitioners claim for refund.
Petitioner could even still have attached a copy of its 1990 tax return to its petition for
review before the Court of Appeals. The appellate court, being a trier of facts, is
authorized to receive it in evidence and would likely have taken it into account in its
disposition of the petition.
In BPI-Family Savings Bank v. Court of Appeals,27 although petitioner failed to present its
1990 tax return, it presented other evidence to prove its claim that it did not apply and
could not have applied the amount in dispute as tax credit. Importantly, petitioner therein
attached a copy of its final adjustment return for 1990 to its motion for reconsideration
before the CTA buttressing its claim that it incurred a net loss and is thus entitled to
refund. Considering this fact, the Court held that there is no reason for the BIR to withhold
the tax refund.
In this case, petitioners failure to present sufficient evidence to prove its claim for refund
is fatal to its cause. After all, it is axiomatic that a claimant has the burden of proof to
establish the factual basis of his or her claim for tax credit or refund. Tax refunds, like tax
exemptions, are construed strictly against the taxpayer. 28
Section 69, Chapter IX, Title II of the National Internal Revenue Code of the Philippines
(NIRC) provides:
Sec. 69. Final Adjustment Return.Every corporation liable to tax under Section
24 shall file a final adjustment return covering the total net income for the
preceding calendar or fiscal year. If the sum of the quarterly tax payments made
during the said taxable year is not equal to the total tax due on the entire
taxable net income of that year the corporation shall either:
(a) Pay the excess tax still due; or
(b) Be refunded the excess amount paid, as the case may be.
In case the corporation is entitled to a refund of the excess estimated
quarterly income taxes paid, the refundable amount shown on its final
adjustment return may be credited against the estimated quarterly
income tax liabilities for the taxable quarters of the succeeding taxable
year. [Emphasis supplied]
Revenue Regulation No. 10-77 of the Bureau of Internal Revenue clarifies:
SEC. 7. Filing of final or adjustment return and final payment of income tax. A
final or an adjustment return on B.I.R. Form No. 1702 covering the total taxable
income of the corporation for the preceding calendar or fiscal year shall be filed

on or before the 15th day of the fourth month following the close of the calendar
or fiscal year. The return shall include all the items of gross income and
deductions for the taxable year. The amount of income tax to be paid shall be
the balance of the total income tax shown on the final or adjustment return after
deducting therefrom the total quarterly income taxes paid during the preceding
first three quarters of the same calendar or fiscal year.

SEC. 76. Final Adjustment Return.Every corporation liable to tax under Section
27 shall file a final adjustment return covering the total taxable income for the
preceding calendar or fiscal year. If the sum of the quarterly tax payments made
during the said taxable year is not equal to the total tax due on the entire
taxable income of that year, the corporation shall either:
(A) Pay the balance of the tax still due; or

Any excess of the total quarterly payments over the actual income tax computed
and shown in the adjustment or final corporate income tax return shall either (a)
be refunded to the corporation, or (b) may be credited against the estimated
quarterly income tax liabilities for the quarters of the succeeding taxable year.
The corporation must signify in its annual corporate adjustment return its
intention whether to request for refund of the overpaid income tax or claim for
automatic credit to be applied against its income tax liabilities for the quarters of
the succeeding taxable year by filling up the appropriate box on the corporate
tax return (B.I.R. Form No. 1702). [Emphasis supplied]
As clearly shown from the above-quoted provisions, in case the corporation is entitled to a
refund of the excess estimated quarterly income taxes paid, the refundable amount
shown on its final adjustment return may be credited against the estimated quarterly
income tax liabilities for the taxable quarters of the succeeding year. The carrying forward
of any excess or overpaid income tax for a given taxable year is limited to the succeeding
taxable year only.
In the recent case of AB Leasing and Finance Corporation v. Commissioner of Internal
Revenue,29 where the Court declared that "[T]he carrying forward of any excess or
overpaid income tax for a given taxable year then is limited to the succeeding taxable
year only," we ruled that since the case involved a claim for refund of overpaid taxes for
1993, petitioner could only have applied the 1993 excess tax credits to its 1994 income
tax liabilities. To further carry-over to 1995 the 1993 excess tax credits is violative of
Section 69 of the NIRC.
In this case, petitioner included its 1988 excess credit of P146,026.00 in the computation
of its total excess credit for 1989. It indicated this amount, plus the 1989 creditable taxes
withheld of P54,104.00 or a total of P172,477.00, as its total excess credit to be applied
as tax credit for 1990. By its own disclosure, petitioner effectively combined its 1988 and
1989 tax credits and applied its 1990 tax due of P33,240.00 against the total, and not
against its creditable taxes for 1989 only as allowed by Section 69. This is a clear
admission that petitioners 1988 tax credit was incorrectly and illegally applied against its
1990 tax liabilities.
Parenthetically, while a taxpayer is given the choice whether to claim for refund or have
its excess taxes applied as tax credit for the succeeding taxable year, such election is not
final. Prior verification and approval by the Commissioner of Internal Revenue is required.
The availment of the remedy of tax credit is not absolute and mandatory. It does not
confer an absolute right on the taxpayer to avail of the tax credit scheme if it so chooses.
Neither does it impose a duty on the part of the government to sit back and allow an
important facet of tax collection to be at the sole control and discretion of the taxpayer. 30
Contrary to petitioners assertion however, the taxpayers election, signified by the ticking
of boxes in Item 10 of BIR Form No. 1702, is not a mere technical exercise. It aids in the
proper management of claims for refund or tax credit by leading tax authorities to the
direction they should take in addressing the claim.

(B) Carry-over the excess credit; or

(C) Be credited or refunded with the excess amount paid, as the case
may be.
In case the corporation is entitled to a tax credit or refund of the excess
estimated quarterly income taxes paid, the excess amount shown on its final
adjustment return may be carried over and credited against the estimated
quarterly income tax liabilities for the taxable quarters of the succeeding taxable
years. Once the option to carry-over and apply the excess quarterly
income tax against income tax due for the taxable quarters of the
succeeding taxable years has been made, such option shall be
considered irrevocable for that taxable period and no application for
cash refund or issuance of a tax credit certificate shall be allowed
therefore. [Emphasis supplied]
As clearly seen from this provision, the taxpayer is allowed three (3) options if the sum of
its quarterly tax payments made during the taxable year is not equal to the total tax due
for that year: (a) pay the balance of the tax still due; (b) carry-over the excess credit; or
(c) be credited or refunded the amount paid. If the taxpayer has paid excess quarterly
income taxes, it may be entitled to a tax credit or refund as shown in its final adjustment
return which may be carried over and applied against the estimated quarterly income tax
liabilities for the taxable quarters of the succeeding taxable years. However, once the
taxpayer has exercised the option to carry-over and to apply the excess quarterly income
tax against income tax due for the taxable quarters of the succeeding taxable years, such
option is irrevocable for that taxable period and no application for cash refund or issuance
of a tax credit certificate shall be allowed.
Had this provision been in effect when the present claim for refund was filed, petitioners
excess credits for 1988 could have been properly applied to its 1990 tax liabilities.
Unfortunately for petitioner, this is not the case.
Taxation is a destructive power which interferes with the personal and property rights of
the people and takes from them a portion of their property for the support of the
government. And since taxes are what we pay for civilized society, or are the lifeblood of
the nation, the law frowns against exemptions from taxation and statutes granting tax
exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor
of the taxing authority. A claim of refund or exemption from tax payments must be clearly
shown and be based on language in the law too plain to be mistaken. Elsewise stated,
taxation is the rule, exemption therefrom is the exception. 32
WHEREFORE, the instant petition is DENIED. The challenged decision of the Court of
Appeals is hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.

The amendment of Section 69 by what is now Section 76 of Republic Act No. 8424 31
emphasizes that it is imperative to indicate in the tax return or the final adjustment return
whether a tax credit or refund is sought by making the taxpayers choice irrevocable.
Section 76 provides:

G.R. No. 96322 December 20, 1991

ACCRA
INVESTMENTS
CORPORATION,
petitioner,
vs.
THE HONORABLE COURT OF APPEALS, COMMISSIONER OF INTERNAL REVENUE
and THE COURT OF TAX APPEALS, respondents.

In a letter dated December 29, 1983 addressed to the respondent Commissioner of

Internal Revenue (Exh. "G"), the petitioner corporation filed a claim for refund inasmuch
as it had no tax liability against which to credit the amounts withheld.
Pending action of the respondent Commissioner on its claim for refund, the petitioner
corporation, on April 13, 1984, filed a petition for review with the respondent Court of Tax
Appeals (CTA) asking for the refund of the amounts withheld as overpaid income taxes.

Angara, Abello, Concepcion, Regala & Cruz for petitioner.

GUTIERREZ, JR., J.:p

This petition for review on certiorari presents the issue of whether or not the petitioner
corporation is barred from recovering the amount of P82,751.91 representing overpaid
taxes for the taxable year 1981.
The petitioner corporation is a domestic corporation engaged in the business of real
estate investment and management consultancy.
On April 15, 1982, the petitioner corporation filed with the Bureau of Internal Revenue its
annual corporate income tax return for the calendar year ending December 31, 1981
reporting a net loss of P2,957,142.00 (Exhibits "B", "B-1" to "B-10"). In the said return, the
petitioner corporation declared as creditable all taxes withheld at source by various
withholding agents, as follows:
Withholding Agent Amount Withheld
a) Malayan Insurance Co., Inc. P1,429.97

On January 27, 1988, the respondent CTA dismissed the petition for review after a finding
that the two-year period within which the petitioner corporation's claim for refund should
have been filed had already prescribed pursuant to Section 292 of the National Internal
Revenue Code of 1977, as amended.
Acting on the petitioner corporation's motion for reconsideration, the respondent CTA in
its resolution dated September 27, 1988 denied the same for having been filed out of
time. It ruled that the reckoning date for purposes of counting the two-year prescriptive
period within which the petitioner corporation could file a claim for refund was December
31, 1981 when the taxes withheld at source were paid and remitted to the Bureau of
Internal Revenue by its withholding agents, not April 15, 1982, the date when the
petitioner corporation filed its final adjustment return.
On January 14, 1989, the petitioner corporation filed with us its petition for review which
we referred to the respondent appellate court in our resolution dated February 15, 1990
for proper determination and disposition.
On May 28, 1990, the respondent appellate court affirmed the decision of the respondent
CTA opining that the two-year prescriptive period in question commences "from the date
of payment of the tax" as provided under Section 292 of the Tax Code of 1977 (now Sec.
230 of the National Internal Revenue Code of 1986), i.e., "from the end of the tax year
when a taxpayer is deemed to have paid all taxes withheld at source", and not "from the
date of the filing of the income tax return" as posited by the petitioner corporation (CA
Decision, pp. 3-5; Rollo, pp. 27-29).

(Exh. "C")
b) Angara Concepcion Regala
& Cruz Law Offices P73,588.00

Its motion for reconsideration with the respondent appellate court having been denied in
a resolution dated November 20, 1990, the petitioner corporation (ACCRAIN) elevated this
case to us presenting as main arguments, to wit:
I

(Exh. "D")

ACCRAIN'S JUDICIAL ACTION FOR RECOVERY OF CREDITABLE TAXES

ERRONEOUSLY WITHHELD AT SOURCE WAS FILED ON TIME.

c) MJ Development Corp. P 1,155.00 (Exh. "E")

d) Philippine Global Communications,
Inc. (Exh. "F") 6,578.94
TOTAL P82,751.91
(CTA Decision, p. 4; Records, p. 10)
The withholding agents aforestated paid and remitted the above amounts representing
taxes on rental, commission and consultancy income of the petitioner corporation to the
Bureau of Internal Revenue from February to December 1981.

II
THE RECKONING DATE FOR THE COMMENCEMENT OF THE TWO-YEAR
PRESCRIPTIVE PERIOD IS 15 APRIL 1982. ACCORDINGLY, THE 13 APRIL
1984 ACTION OFACCRAIN FOR THE RECOVERY OF TAXES ERRONEOUSLY
WITHHELD AT SOURCE IN 1981 IS NOT BARRED AND ACCRAIN IS
ENTITLED TO THE REFUND OF P82,751.91 OF SUCH TAXES. (Rollo, p.
116)
We find merit in the petitioner corporation's postures.
Crucial in our resolution of the instant case is the interpretation of the phraseology "from
the date of payment of the tax" in the context of Section 230 (formerly sec. 292) of the
National Internal Revenue Code of 1986, as amended, which provides that:

Sec. 230. Recovery of tax erroneously or illegally collected. No suit or

proceeding shall be maintained in any court for the recovery of any
national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, or of any penalty claimed
to have been collected without authority, or of any sum alleged to have
been excessive or in any manner wrongfully collected, until a claim for
refund or credit has been duly filed with the Commissioner; but such
suit or proceeding may be maintained, whether or not such tax, penalty
or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall begin after the expiration
of two years from the date of payment of the tax or penalty regardless
of any supervening cause that may arise after payment: Provided,
however, that the Commissioner may, even without a written claim
therefor, refund or credit any tax, where on the face of the return upon
which payment was made, such payment appears to have been
erroneously paid. (Emphasis supplied)
The respondent appellate court citing the case of Gibbs v. Commissioner of Internal
Revenue (155 SCRA 318 [1965]), construed the phrase "from the date of payment" as to
be reckoned from "the end of the tax year" when the petitioner corporation was deemed
to have paid its tax liabilities in question under the withholding tax system. (CA Decision,
pp. 4-5; Rollo, pp. 28-29)
The respondent appellate court in this case has misapplied jurisprudential law. In the
Gibbs case, supra, cited by the Court of Appeals, we have clearly stated that:
Payment is a mode of extinguishing obligations (Art. 1231, Civil Code)
and it means not only the delivery of money but also the performance,
in any other manner, of an obligation (id., Art. 1231). A taxpayer,
resident or non-resident, does so not really to deposit an amount to the
Commissioner of Internal Revenue, but, in truth, to perform and
extinguish his tax obligation for the year concerned. In other words, he
is paying his tax liabilities for that year. Consequently, a taxpayer
whose income is withheld at source will be deemed to have paid his tax
liability end of the tax year. It is from twhen the same falls due at the
his latter date then, or when thtwo-year prescriptive period under
Section 306 (now pae tax liability falls due, that the rt of Section 230) of
the Revenue Code starts to run with respect to payments effected
through the withholding tax system. ... (At p. 325; Emphasis supplied)
The aforequoted ruling presents two alternative reckoning dates, i.e., (1) the end of the
tax year; and (2) when the tax liability falls due. In the instant case, it is undisputed that
the petitioner corporation's withholding agents had paid the corresponding taxes withheld
at source to the Bureau of Internal Revenue from February to December 1981. In having
applied the first alternative date - "the end of the tax year" in order to determine whether
or not the petitioner corporation's claim for refund had been seasonably filed, the
respondent appellate court failed to appreciate properly the attending circumstances of
this case.
The petitioner corporation is not claiming a refund of overpaid withholding taxes, per se.
It is asking for the recovery of the sum of P82,751.91.00, the refundable or creditable
amount determined upon the petitioner corporation's filing of the its final adjustment tax
return on or before 15 April 1982 when its tax liability for the year 1981 fell due. The
distinction is essential in the resolution of this case for it spells the difference between
being barred by prescription and entitlement to a refund.

Under Section 49 of the National Internal Revenue Code of 1986, as amended, it is

explicitly provided that:
Sec. 49. Payment and assessment of income tax for individuals and
corporations.
(a) Payment of tax (1) In general. - The total amount of tax
imposed by this Title shall be paid by the person subject thereto at the
time the return is filed. ...
Section 70, subparagraph (b) of the same Code states when the income tax return with
respect to taxpayers like the petitioner corporation must be filed. Thus:
Sec. 70 (b) Time of filing the income return - The corporate quarterly
declaration shall be filed within sixty (60) days following the close of
each of the first three quarters of the taxable year. The final adjustment
return shall be filed on or before the 15th day of the 4th month
following the close of the fiscal year, as the case may be. The petitioner
corporation's taxable year is on a calendar year basis, hence, with
respect to the 1981 taxable year, ACCRAIN had until 15 April 1982
within which to file its final adjustment return. The petitioner
corporation duly complied with this requirement. On the basis of the
corporate income tax return which ACCRAIN filed on 15 April 1982, it
reported a net loss of P2,957,142.00. Consequently, as reflected
thereon, the petitioner corporation, after due computation, had no tax
liability for the year 1981. Had there been any, payment thereof would
have been due at the time the return was filed pursuant to
subparagraph (c) of the aforementioned codal provision which reads:
Sec. 70 (c) - Time payment of the income tax - The income tax due on
the corporate quarterly returns and the final income tax returns
computed in accordance with Sections 68 and 69 shall be paid at the
time the declaration or return is filed asprescribed by the Commissioner
of Internal Revenue. If we were to uphold the respondent appellate
court in making the "date of payment" coincide with the "end of the
taxable year," the petitioner corporation at the end of the 1981 taxable
year was in no position then to determine whether it was liable or not
for the payment of its 1981 income tax.
Anent claims for refund, section 8 of Revenue Regulation No. 13-78 issued by the Bureau
of Internal Revenue requires that:
Section 8. Claims for tax credit or refund Claims for tax credit or
refund of income tax deducted and withheld on income payments shall
be given due course only when it is shown on the return that the
income payment received was declared as part of the gross income and
the fact of withholding is established by a copy of the statement, duly
issued by the payor to the payee (BIR Form No. 1743-A) showing the
amount paid and the amount of tax withheld therefrom.
The term "return" in the case of domestic corporations like ACCRAIN refers to the final
adjustment return as mentioned in Section 69 of the Tax Code of 1986, as amended,
which partly reads:
Sec. 69. Final Adjustment Return - Every corporation liable to tax under
Section 24 shall file a final adjustment return covering the total taxable
income for the preceding calendar or fiscal year. If the sum of the

quarterly tax payments made during the said taxable year is not equal
to the total tax due on the entire taxable income of that year the
corporation shall either:
(a) Pay the excess tax still due; or
(b) Be refunded the excess amount paid, as the case may be.
Clearly, there is the need to file a return first before a claim for refund can prosper
inasmuch as the respondent Commissioner by his own rules and regulations mandates
that the corporate taxpayer opting to ask for a refund must show in its final adjustment
return the income it received from all sources and the amount of withholding taxes
remitted by its withholding agents to the Bureau of Internal Revenue. The petitioner
corporation filed its final adjustment return for its 1981 taxable year on April 15, 1982. In
our Resolution dated April 10, 1989 in the case of Commissioner of Internal Revenue v.
Asia Australia Express, Ltd. (G. R. No. 85956), we ruled that the two-year prescriptive
period within which to claim a refund commences to run, at the earliest, on the date of
the filing of the adjusted final tax return. Hence, the petitioner corporation had until April
15, 1984 within which to file its claim for refund. Considering that ACCRAIN filed its claim
for refund as early as December 29, 1983 with the respondent Commissioner who failed
to take any action thereon and considering further that the non-resolution of its claim for
refund with the said Commissioner prompted ACCRAIN to reiterate its claim before the
Court of Tax Appeals through a petition for review on April 13, 1984, the respondent
appellate court manifestly committed a reversible error in affirming the holding of the tax
court that ACCRAIN's claim for refund was barred by prescription.
It bears emphasis at this point that the rationale in computing the two-year prescriptive
period with respect to the petitioner corporation's claim for refund from the time it filed its
final adjustment return is the fact that it was only then that ACCRAIN could ascertain
whether it made profits or incurred losses in its business operations. The "date of
payment", therefore, in ACCRAIN's case was when its tax liability, if any, fell due upon its
filing of its final adjustment return on April 15, 1982.
WHEREFORE, in view of the foregoing, the petition is GRANTED. The decision of the Court
of Appeals dated May 28, 1990 and its resolution of November 20, 1990 are hereby
REVERSED and SET ASIDE. The respondent Commissioner of Internal Revenue is directed
to refund to the petitioner corporation the amount of P82,751.91.
SO ORDERED.

This petition for review on certiorari under Rule 45 of the Rules of Court filed by the
petitioner Commissioner of Internal Revenue (CIR) seeks to reverse and set aside the 1]
September 16, 2008 Decision 1 of the Court of Tax Appeals En Banc (CTA-En Banc), in
C.T.A. EB No. 306 and 2] its November 18, 2008 Resolution 2 denying petitioners motion
for reconsideration.
The CTA-En Banc affirmed in toto the decision of its Second Division (CTA-Second Division)
in CTA Case No. 7169 reversing the February 8, 2005 Decision of the CIR which assessed
respondent Metro Star Superama, Inc. (Metro Star) of deficiency value-added tax and
withholding tax for the taxable year 1999.
Based on a Joint Stipulation of Facts and Issues 3 of the parties, the CTA Second Division
summarized the factual and procedural antecedents of the case, the pertinent portions of
which read:
Petitioner is a domestic corporation duly organized and existing by virtue of the laws of
the Republic of the Philippines, x x x.
On January 26, 2001, the Regional Director of Revenue Region No. 10, Legazpi City, issued
Letter of Authority No. 00006561 for Revenue Officer Daisy G. Justiniana to examine
petitioners books of accounts and other accounting records for income tax and other
internal revenue taxes for the taxable year 1999. Said Letter of Authority was revalidated
on August 10, 2001 by Regional Director Leonardo Sacamos.
For petitioners failure to comply with several requests for the presentation of records and
Subpoena Duces Tecum, [the] OIC of BIR Legal Division issued an Indorsement dated
September 26, 2001 informing Revenue District Officer of Revenue Region No. 67, Legazpi
City to proceed with the investigation based on the best evidence obtainable preparatory
to the issuance of assessment notice.
On November 8, 2001, Revenue District Officer Socorro O. Ramos-Lafuente issued a
Preliminary 15-day Letter, which petitioner received on November 9, 2001. The said letter
stated that a post audit review was held and it was ascertained that there was deficiency
value-added and withholding taxes due from petitioner in the amount of P 292,874.16.
On April 11, 2002, petitioner received a Formal Letter of Demand dated April 3, 2002 from
Revenue District No. 67, Legazpi City, assessing petitioner the amount of Two Hundred
Ninety Two Thousand Eight Hundred Seventy Four Pesos and Sixteen Centavos
(P292,874.16.) for deficiency value-added and withholding taxes for the taxable year
1999, computed as follows:
ASSESSMENT NOTICE NO. 067-99-003-579-072

G.R. No. 185371

COMMISSIONER
OF
INTERNAL
vs.
METRO STAR SUPERAMA, INC., Respondent.
DECISION

VALUE ADDED TAX

December 8, 2010
REVENUE,

Petitioner,

Gross Sales

P1,697,718.
90

Output Tax

P
154,338.08

Less: Input Tax

_____________

VAT Payable

P
154,338.08

MENDOZA, J.:
Add: 25% Surcharge

P
38,584.54

20% Interest

petitioners Motion for Reconsideration. Petitioner, through counsel received said Decision
on February 18, 2005.

79,746.49

Compromise Penalty
Late Payment
Failure
returns

to

x x x.

P16,000.00
File

VAT

2,400.00

18,400.00

136,731.01
P
291,069.09

TOTAL

Denying that it received a Preliminary Assessment Notice (PAN) and claiming that it was
not accorded due process, Metro Star filed a petition for review 4 with the CTA. The parties
then stipulated on the following issues to be decided by the tax court:

WITHHOLDING TAX
Compensation

2,772.91

Expanded

110,103.92

Total Tax Due

P
112,876.83

Less: Tax Withheld

111,848.27

Deficiency Withholding Tax

P 1,028.56

Add: 20% Interest p.a.

576.51

Compromise Penalty

200.00

TOTAL

P 1,805.07

*Expanded Withholding
Tax

P1,949,334.
25

x 5%

97,466.71

Film Rental

10,000.25

x 10%

1,000.00

Audit Fee

193,261.20

x 5%

9,663.00

Rental Expense

41,272.73

x 1%

412.73

Security Service

156,142.01

x 1%

1,561.42

Service Contractor

P
110,103.92

Total

1. Whether the respondent complied with the due process requirement as

provided under the National Internal Revenue Code and Revenue Regulations No.
12-99 with regard to the issuance of a deficiency tax assessment;
1.1 Whether petitioner is liable for the respective amounts of
P291,069.09 and P1,805.07 as deficiency VAT and withholding tax for
the year 1999;
1.2. Whether the assessment has become final and executory and
demandable for failure of petitioner to protest the same within 30 days
from its receipt thereof on April 11, 2002, pursuant to Section 228 of the
National Internal Revenue Code;
2. Whether the deficiency assessments issued by the respondent are void for
failure to state the law and/or facts upon which they are based.
2.2 Whether petitioner was informed of the law and facts on which the
assessment is made in compliance with Section 228 of the National
Internal Revenue Code;
3. Whether or not petitioner, as owner/operator of a movie/cinema house, is
subject to VAT on sales of services under Section 108(A) of the National Internal
Revenue Code;

SUMMARIES OF DEFICIENCIES
VALUE ADDED TAX

P
291,069.09

WITHHOLDING TAX

1,805.07

TOTAL

P
292,874.16

Subsequently, Revenue District Office No. 67 sent a copy of the Final Notice of Seizure
dated May 12, 2003, which petitioner received on May 15, 2003, giving the latter last
opportunity to settle its deficiency tax liabilities within ten (10) [days] from receipt
thereof, otherwise respondent BIR shall be constrained to serve and execute the Warrants
of Distraint and/or Levy and Garnishment to enforce collection.
On February 6, 2004, petitioner received from Revenue District Office No. 67 a Warrant of
Distraint and/or Levy No. 67-0029-23 dated May 12, 2003 demanding payment of
deficiency value-added tax and withholding tax payment in the amount of P292,874.16.
On July 30, 2004, petitioner filed with the Office of respondent Commissioner a Motion for
Reconsideration pursuant to Section 3.1.5 of Revenue Regulations No. 12-99.
On February 8, 2005, respondent Commissioner, through its authorized representative,
Revenue Regional Director of Revenue Region 10, Legaspi City, issued a Decision denying

4. Whether or not the assessment is based on the best evidence obtainable

pursuant to Section 6(b) of the National Internal Revenue Code.
The CTA-Second Division found merit in the petition of Metro Star and, on March 21, 2007,
rendered a decision, the decretal portion of which reads:
WHEREFORE, premises considered, the Petition for Review is hereby GRANTED.
Accordingly, the assailed Decision dated February 8, 2005 is hereby REVERSED and SET
ASIDE and respondent is ORDERED TO DESIST from collecting the subject taxes against
petitioner.
The CTA-Second Division opined that "[w]hile there [is] a disputable presumption that a
mailed letter [is] deemed received by the addressee in the ordinary course of mail, a
direct denial of the receipt of mail shifts the burden upon the party favored by the
presumption to prove that the mailed letter was indeed received by the addressee." 5 It
also found that there was no clear showing that Metro Star actually received the alleged
PAN, dated January 16, 2002. It, accordingly, ruled that the Formal Letter of Demand
dated April 3, 2002, as well as the Warrant of Distraint and/or Levy dated May 12, 2003
were void, as Metro Star was denied due process.6
The CIR sought reconsideration 7 of the decision of the CTA-Second Division, but the
motion was denied in the latters July 24, 2007 Resolution.8

Aggrieved, the CIR filed a petition for review 9 with the CTA-En Banc, but the petition was
dismissed after a determination that no new matters were raised. The CTA-En Banc
disposed:
WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and
DISMISSED for lack of merit. Accordingly, the March 21, 2007 Decision and July 27, 2007
Resolution of the CTA Second Division in CTA Case No. 7169 entitled, "Metro Star
Superama, Inc., petitioner vs. Commissioner of Internal Revenue, respondent" are hereby
AFFIRMED in toto.
SO ORDERED.
The motion for reconsideration 10 filed by the CIR was likewise denied by the CTA-En Banc
in its November 18, 2008 Resolution.11
The CIR, insisting that Metro Star received the PAN, dated January 16, 2002, and that due
process was served nonetheless because the latter received the Final Assessment Notice
(FAN), comes now before this Court with the sole issue of whether or not Metro Star was
denied due process.
The general rule is that the Court will not lightly set aside the conclusions reached by the
CTA which, by the very nature of its functions, has accordingly developed an exclusive
expertise on the resolution unless there has been an abuse or improvident exercise of
authority.12 In Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v.
Commissioner of Internal Revenue,13 the Court wrote:
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 [G.R. No.
122605, 30 April 2001, 357 SCRA 441, 445-446], 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.
On the matter of service of a tax assessment, a further perusal of our ruling in Barcelon is
instructive, viz:
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)."
x x x. 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 taxpayers 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.
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 governments 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). (Emphases
supplied.)
The Court agrees with the CTA that the CIR failed to discharge its duty and present any
evidence to show that Metro Star indeed received the PAN dated January 16, 2002. It
could have simply presented the registry receipt or the certification from the postmaster
that it mailed the PAN, but failed. Neither did it offer any explanation on why it failed to
comply with the requirement of service of the PAN. It merely accepted the letter of Metro
Stars chairman dated April 29, 2002, that stated that he had received the FAN dated April
3, 2002, but not the PAN; that he was willing to pay the tax as computed by the CIR; and
that he just wanted to clarify some matters with the hope of lessening its tax liability.
This now leads to the question: Is the failure to strictly comply with notice requirements
prescribed under Section 228 of the National Internal Revenue Code of 1997 and Revenue
Regulations (R.R.) No. 12-99 tantamount to a denial of due process? Specifically, are the
requirements of due process satisfied if only the FAN stating the computation of tax
liabilities and a demand to pay within the prescribed period was sent to the taxpayer?
The answer to these questions require an examination of Section 228 of the Tax Code
which reads:
SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the
taxpayer of his findings: provided, however, that a preassessment notice shall not be
required in the following cases:
(a) When the finding for any deficiency tax is the result of mathematical error in
the computation of the tax as appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent; or

(c) When a taxpayer who opted to claim a refund or tax credit of excess
creditable withholding tax for a taxable period was determined to have carried
over and automatically applied the same amount claimed against the estimated
tax liabilities for the taxable quarter or quarters of the succeeding taxable year;
or
(d) When the excise tax due on exciseable articles has not been paid; or
(e) When the article locally purchased or imported by an exempt person, such
as, but not limited to, vehicles, capital equipment, machineries and spare parts,
has been sold, traded or transferred to non-exempt persons.
The taxpayers shall be informed in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the taxpayer
shall be required to respond to said notice. If the taxpayer fails to respond, the
Commissioner or his duly authorized representative shall issue an assessment based on
his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the assessment
in such form and manner as may be prescribed by implementing rules and regulations.
Within sixty (60) days from filing of the protest, all relevant supporting documents shall
have been submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty
(180) days from submission of documents, the taxpayer adversely affected by the
decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from
receipt of the said decision, or from the lapse of one hundred eighty (180)-day period;
otherwise, the decision shall become final, executory and demandable. (Emphasis
supplied).
Indeed, Section 228 of the Tax Code clearly requires that the taxpayer must first be
informed that he is liable for deficiency taxes through the sending of a PAN. He must be
informed of the facts and the law upon which the assessment is made. The law imposes a
substantive, not merely a formal, requirement. To proceed heedlessly with tax collection
without first establishing a valid assessment is evidently violative of the cardinal principle
in administrative investigations - that taxpayers should be able to present their case and
adduce supporting evidence.14
This is confirmed under the provisions R.R. No. 12-99 of the BIR which pertinently provide:
SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment.
3.1 Mode of procedures in the issuance of a deficiency tax assessment:
3.1.1 Notice for informal conference. The Revenue Officer who audited the
taxpayer's records shall, among others, state in his report whether or not the
taxpayer agrees with his findings that the taxpayer is liable for deficiency tax or
taxes. If the taxpayer is not amenable, based on the said Officer's submitted
report of investigation, the taxpayer shall be informed, in writing, by the
Revenue District Office or by the Special Investigation Division, as the case may
be (in the case Revenue Regional Offices) or by the Chief of Division concerned
(in the case of the BIR National Office) of the discrepancy or discrepancies in the
taxpayer's payment of his internal revenue taxes, for the purpose of "Informal

Conference," in order to afford the taxpayer with an opportunity to present his

side of the case. If the taxpayer fails to respond within fifteen (15) days from
date of receipt of the notice for informal conference, he shall be considered in
default, in which case, the Revenue District Officer or the Chief of the Special
Investigation Division of the Revenue Regional Office, or the Chief of Division in
the National Office, as the case may be, shall endorse the case with the least
possible delay to the Assessment Division of the Revenue Regional Office or to
the Commissioner or his duly authorized representative, as the case may be, for
appropriate review and issuance of a deficiency tax assessment, if warranted.
3.1.2 Preliminary Assessment Notice (PAN). If after review and evaluation by
the Assessment Division or by the Commissioner or his duly authorized
representative, as the case may be, it is determined that there exists sufficient
basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall
issue to the taxpayer, at least by registered mail, a Preliminary Assessment
Notice (PAN) for the proposed assessment, showing in detail, the facts and the
law, rules and regulations, or jurisprudence on which the proposed assessment is
based (see illustration in ANNEX A hereof). If the taxpayer fails to respond within
fifteen (15) days from date of receipt of the PAN, he shall be considered in
default, in which case, a formal letter of demand and assessment notice shall be
caused to be issued by the said Office, calling for payment of the taxpayer's
deficiency tax liability, inclusive of the applicable penalties.
3.1.3 Exceptions to Prior Notice of the Assessment. The notice for informal
conference and the preliminary assessment notice shall not be required in any of
the following cases, in which case, issuance of the formal assessment notice for
the payment of the taxpayer's deficiency tax liability shall be sufficient:
(i) When the finding for any deficiency tax is the result of mathematical
error in the computation of the tax appearing on the face of the tax
return filed by the taxpayer; or
(ii) When a discrepancy has been determined between the tax withheld
and the amount actually remitted by the withholding agent; or
(iii) When a taxpayer who opted to claim a refund or tax credit of excess
creditable withholding tax for a taxable period was determined to have
carried over and automatically applied the same amount claimed
against the estimated tax liabilities for the taxable quarter or quarters
of the succeeding taxable year; or
(iv) When the excise tax due on excisable articles has not been paid; or
(v) When an article locally purchased or imported by an exempt person,
such as, but not limited to, vehicles, capital equipment, machineries
and spare parts, has been sold, traded or transferred to non-exempt
persons.
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
taxpayer's 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 (see illustration in
ANNEX B hereof).
The same shall be sent to the taxpayer only by registered mail or by personal delivery.

If sent by personal delivery, the taxpayer or his duly authorized representative shall
acknowledge receipt thereof in the duplicate copy of the letter of demand, showing the
following: (a) His name; (b) signature; (c) designation and authority to act for and in
behalf of the taxpayer, if acknowledged received by a person other than the taxpayer
himself; and (d) date of receipt thereof.
x x x.
From the provision quoted above, it is clear that the sending of a PAN to taxpayer to
inform him of the assessment made is but part of the "due process requirement in the
issuance of a deficiency tax assessment," the absence of which renders nugatory any
assessment made by the tax authorities. The use of the word "shall" in subsection 3.1.2
describes the mandatory nature of the service of a PAN. The persuasiveness of the right
to due process reaches both substantial and procedural rights and the failure of the CIR to
strictly comply with the requirements laid down by law and its own rules is a denial of
Metro Stars right to due process.15 Thus, for its failure to send the PAN stating the facts
and the law on which the assessment was made as required by Section 228 of R.A. No.
8424, the assessment made by the CIR is void.
The case of CIR v. Menguito 16 cited by the CIR in support of its argument that only the
non-service of the FAN is fatal to the validity of an assessment, cannot apply to this case
because the issue therein was the non-compliance with the provisions of R. R. No. 12-85
which sought to interpret Section 229 of the old tax law. RA No. 8424 has already
amended the provision of Section 229 on protesting an assessment. The old requirement
of merely notifying the taxpayer of the CIRs findings was changed in 1998 to informing
the taxpayer of not only the law, but also of the facts on which an assessment would be
made. Otherwise, the assessment itself would be invalid. 17 The regulation then, on the
other hand, simply provided that a notice be sent to the respondent in the form
prescribed, and that no consequence would ensue for failure to comply with that
form.1avvphi1
The Court need not belabor to discuss the matter of Metro Stars failure to file its protest,
for it is well-settled that a void assessment bears no fruit. 18
It is an elementary rule enshrined in the 1987 Constitution that no person shall be
deprived of property without due process of law. 19 In balancing the scales between the
power of the State to tax and its inherent right to prosecute perceived transgressors of
the law on one side, and the constitutional rights of a citizen to due process of law and
the equal protection of the laws on the other, the scales must tilt in favor of the
individual, for a citizens right is amply protected by the Bill of Rights under the
Constitution. Thus, while "taxes are the lifeblood of the government," the power to tax
has its limits, in spite of all its plenitude. Hence in Commissioner of Internal Revenue v.
Algue, Inc.,20 it was said
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. On the other hand, such collection should be made in accordance with law as
any arbitrariness will negate the very reason for government itself. It is therefore
necessary to reconcile the apparently conflicting interests of the authorities and the
taxpayers so that the real purpose of taxation, which is the promotion of the common
good, may be achieved.
xxx

xxx

xxx

It is said that taxes are what we pay for civilized society. Without taxes, the government
would be paralyzed for the lack of the motive power to activate and operate it. Hence,
despite the natural reluctance to surrender part of ones hard-earned income to taxing
authorities, every person who is able to must contribute his share in the running of the
government. The government for its part is expected to respond in the form of tangible

and intangible benefits intended to improve the lives of the people and enhance their
moral and material values. This symbiotic relationship is the rationale of taxation and
should dispel the erroneous notion that it is an arbitrary method of exaction by those in
the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a
requirement in all democratic regimes that it be exercised reasonably and in accordance
with the prescribed procedure. If it is not, then the taxpayer has a right to complain and
the courts will then come to his succor. For all the awesome power of the tax collector, he
may still be stopped in his tracks if the taxpayer can demonstrate x x x that the law has
not been observed.21 (Emphasis supplied).
WHEREFORE, the petition is DENIED.
G.R. No. 81446 August 18, 1988
BONIFACIA
SY
PO,
petitioner,
vs.
HONORABLE COURT OF TAX APPEALS AND HONORABLE COMMISSIONER OF
INTERNAL REVENUE, respondents.
Basilio E. Duaban for petitioner.

SARMIENTO, J.:
This is an appeal from the decision 1 of the respondent Court of Tax Appeals, dated
September 30,1987, which affirmed an earlier decision of the correspondent
Commissioner of Internal Revenue in assessment letters dated August 16, 1972 and
September 26, 1972, which ordered the payment by the petitioner of deficiency income
tax for 1966 to 1970 in the amount of P7,154,685.16 and deficiency specific tax for
January 2, 1964 to January 19, 1972, in the amount of P5,595,003.68.
We adopt the respondent court's finding of facts, to wit:
Petitioner is the widow of the late Mr. Po Bien Sing who died on
September 7, 1980. In the taxable years 1964 to 1972, the deceased Po
Bien Sing was the sole proprietor of Silver Cup Wine Factory (Silver Cup
for brevity), Talisay, Cebu. He was engaged in the business of
manufacture and sale of compounded liquors, using alcohol and other
ingredients as raw materials.
On the basis of a denunciation against Silver Cup allegedly "for tax
evasion amounting to millions of pesos" the then Secretary of Finance
Cesar Virata directed the Finance-BIR--NBI team constituted under
Finance Department Order No. 13-70 dated February 19, 1971 (Exh- 3,
pp. 532-553, Folder II, BIR rec.) to conduct the corresponding
investigation in a memorandum dated April 2, 1971 (p. 528, Folder II,
BIR rec.). Accordingly, a letter and a subpoena duces tecum dated April
13,1971 and May 3,1971, respectively, were issued against Silver Cup
requesting production of the accounting records and other related
documents for the examination of the team. (Exh. 11, pp. 525-526,
Folder II, BIR rec.). Mr. Po Bien Sing did not produce his books of
accounts as requested (Affidavit dated December 24, 1971 of Mr.
Generoso. Quinain of the team, p. 525, Folder H, BIR rec.). This

prompted the team with the assistance of the PC Company, Cebu City,
to enter the factory bodega of Silver Cup and seized different brands,
consisting of 1,555 cases of alcohol products. (Exh. 22, Memorandum
Report of the Team dated June 5, 1971, pp. 491-492, Folder II, BIR rec.).
The inventory lists of the seized alcohol products are contained in
Volumes I, II, III, IV and V (Exhibits 14, 15, 16, 17, and 18, respectively,
BIR rec.). On the basis of the team's report of investigation, the
respondent Commissioner of Internal Revenue assessed Mr. Po Bien
Sing deficiency income tax for 1966 to 1970 in the amount of
P7,154,685.16 (Exh. 6 pp. 17-19, Folder I, BIR rec.) and for deficiency
specific tax for January 2,1964 to January 19, 1972 in the amount of
P5,595,003.68 (Exh. 8, p. 107, Folder I, BIR rec.).
Petitioner protested the deficiency assessments through letters dated
October 9 and October 30, 1972 (Exhs. 7 and 9, pp. 27-28; pp. 152-159,
respectively, BIR rec.), which protests were referred for reinvestigation.
The corresponding report dated August 13, 1981 (Exh. 1 0, pp. 355,
Folder I, BIR rec.) recommended the reiteration of the assessments in
view of the taxpayer's persistent failure to present the books of
accounts for examination (Exh. 8, p. 107, Folder I, BIR rec.), compelling
respondent to issue warrants of distraint and levy on September 10,
1981 (Exh. 11, p. 361, Folder I, BIR rec.).
The warrants were admittedly received by petitioner on October 14,
1981 (Par. IX, Petition; admitted par. 2, Answer), which petitioner
deemed respondent's decision denying her protest on the subject
assessments. Hence, petitioner's appeal on October 29,1981. 2
The petitioner assigns the following errors:
I
RESPONDENT INTENTIONALLY ERRED IN HOLDING THAT PETITIONER HAS NOT PRESENTED
ANY EVIDENCE OF RELEVANCE AND COMPETENCE REQUIRED TO BASH THE TROUBLING
DISCREPANCIES AND SQUARE THE ISSUE OF ILLEGALITY POSITED ON THE SUBJECT
ASSESSMENTS.
II
RESPONDENT COURT OF TAX APPEALS PALPABLY ERRED IN DECIDING THE CASE IN A WAY
CONTRARY TO THE DOCTRINES ALREADY LAID DOWN BY THIS COURT.
III
RESPONDENT COURT OF TAX APPEALS GRAVELY ERRED IN FINDING PO BEEN SING TO
HAVE INCURRED THE ALLEGED DEFICIENCY TAXES IN QUESTION. 3
We affirm.
Settled is the rule that the factual findings of the Court of Tax Appeals are binding upon
this Honorable Court and can only be disturbed on appeal if not supported by substantial
evidence. 4
The assignments of errors boils down to a single issue previously raised before the
respondent Court, i.e., whether or not the assessments have valid and legal bases.

The applicable legal provision is Section 16(b) of the National Internal Revenue Code of
1977 as amended. It reads:
Sec. 16. Power of the Commissioner of Internal Revenue to make
assessments.
xxx xxx xxx
(b) Failure to submit required returns, statements, reports and other
documents. - When a report required by law as a basis for the
assessment of an national internal revenue tax shall not be forthcoming
within the time fixed by law or regulation or when there is reason to
believe that any such report is false, incomplete, or erroneous, the
Commissioner of Internal Revenue shall assess the proper tax on the
best evidence obtainable.
In case a person fails to file a required return or other document at the
time prescribed by law, or willfully or otherwise, files a false or
fraudulent return or other documents, the Commissioner shall make or
amend the return from his own knowledge and from such information as
he can obtain through testimony or otherwise, which shall be prima
facie correct and sufficient for all legal purposes.
The law is specific and clear. The rule on the "best evidence obtainable" applies when a
tax report required by law for the purpose of assessment is not available or when the tax
report is incomplete or fraudulent.
In the instant case, the persistent failure of the late Po Bien Sing and the herein petitioner
to present their books of accounts for examination for the taxable years involved left the
Commissioner of Internal Revenue no other legal option except to resort to the power
conferred upon him under Section 16 of the Tax Code.
The tax figures arrived at by the Commissioner of Internal Revenue are by no means
arbitrary. We reproduce the respondent court's findings, to wit:
As thus shown, on the basis of the quantity of bottles of wines seized
during the raid and the sworn statements of former employees Messrs.
Nelson S. Po and Alfonso Po taken on May 26, and 27,1971,
respectively, by the investigating team in Cebu City (Exhs. 4 and 5, pp.
514-517, pp. 511-513, Folder 11, BIR rec.), it was ascertained that the
Silver Cup for the years 1964 to 1970, inclusive, utilized and consumed
in the manufacture of compounded liquours and other products 20,105
drums of alcohol as raw materials 81,288,787 proof liters of alcohol. As
determined, the total specific tax liability of the taxpayer for 1964 to
1971 amounted to P5,593,003.68 (Exh. E, petition, p. 10, CTA rec.)
Likewise, the team found due from Silver Cup deficiency income taxes
for the years 1966 to 1970 inclusive in the aggregate sum of
P7,154,685.16, as follows:
1966 P207,636.24
1967 645,335.04
1968 1,683,588.48

1969 1,589,622.48

brought directly to, and stored at, a secret tunnel

within the bodega itself inside the compound of Silver
Cup.

1970 3,028,502.92

In the same vein, the factory personnel manager testified that false
entries were entered in the official register book: thus,

Total amount due.

and collectible P7,154,685.16

A As factory personnel manager and all-around

handy man of Po Bien Sing, owner of Silver Cup, these
labels were entrusted to me to make the false entries
in the official register book of Silver Cup, which I did
under the direction of Po Bien Sing. (Sworn statement,
p. 512, Folder II, BIR rec.) 10 (Emphasis ours)

The 50% surcharge has been imposed, pursuant to Section 72 * of the Tax Code and tax
1/2% monthly interest has likewise been imposed pursuant to the provision of Section
51(d) ** of the Tax Code (Exh. O, petition). 5
The petitioner assails these assessments as wrong.
In the case of Collector of Internal Revenue vs. Reyes,

we ruled:

Where the taxpayer is appealing to the tax court on the ground that the
Collector's assessment is erroneous, it is incumbent upon him to prove
there what is the correct and just liability by a full and fair disclosure of
all pertinent data in his possession. Otherwise, if the taxpayer confines
himself to proving that the tax assessment is wrong, the tax court
proceedings would settle nothing, and the way would be left open for
subsequent assessments and appeals in interminable succession.
Tax assessments by tax examiners are presumed correct and made in good faith. The
taxpayer has the duty to prove otherwise. 7 In the absence of proof of any irregularities in
the performance of duties, an assessment duly made by a Bureau of Internal Revenue
examiner and approved by his superior officers will not be disturbed. 8 All presumptions
are in favor of the correctness of tax assessments. 9
On the whole, we find that the fraudulent acts detailed in the decision under review had
not been satisfactorily rebutted by the petitioner. There are indeed clear indications on
the part of the taxpayer to deprive the Government of the taxes due. The Assistant
Factory Superintendent of Silver Cup, Nelson Po gave the following testimony:

The existence of fraud as found by the respondents can not be lightly set aside absent
substantial evidence presented by the petitioner to counteract such finding. The findings
of fact of the respondent Court of Tax Appeals are entitled to the highest respect. 11 We do
not find anything in the questioned decision that should disturb this long-established
doctrine.
WHEREFORE, the Petition is DENIED. The Decision of the respondent Court of Tax Appeals
is hereby AFFIRMED. Costs against the petitioner.

G.R. No. 148380 December 9, 2005

OCEANIC
WIRELESS
NETWORK,
INC.,
Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, THE COURT OF TAX APPEALS, and THE
COURT OF APPEALS, Respondents.
DECISION
AZCUNA, J.:

Annexes "A", "A-1 " to "A-17" show that from January to December
1970, Silver Cup had used in production 189 drums of untaxed distilled
alcohol and 3,722 drums of untaxed distilled alcohol. Can you tell us
how could this be possible with the presence of a revenue inspector in
the premises of Silver Cup during working hours?
Actually, the revenue inspector or storekeeper comes
around once a week on the average. Sometimes,
when the storekeeper is around in the morning and Po
Bein Sing wants to operate with untaxed alcohol as
raw materials, Po Bien Sing tells the storekeeper to go
home because the factory is not going to operate for
the day. After the storekeeper leaves, the illegal
operation then begins. Untaxed alcohol is brought in
from Cebu Alcohol Plant into the compound of Silver
Cup sometimes at about 6:00 A.M. or at 12:00 noon or
in the evening or even at mid-night when the
storekeeper is not around. When the storekeeper
comes, he sees nothing because untaxed alcohol is

This is a Petition for Review on Certiorari seeking to reverse and set aside the Decision of
the Court of Appeals dated October 31, 2000, and its Resolution dated May 3, 2001, in
"Oceanic Wireless Network, Inc. v. Commissioner of Internal Revenue" docketed as CAG.R. SP No. 35581, upholding the Decision of the Court of Tax Appeals dismissing the
Petition for Review in CTA Case No. 4668 for lack of jurisdiction.
Petitioner Oceanic Wireless Network, Inc. challenges the authority of the Chief of the
Accounts Receivable and Billing Division of the Bureau of Internal Revenue (BIR) National
Office to decide and/or act with finality on behalf of the Commissioner of Internal Revenue
(CIR) on protests against disputed tax deficiency assessments.
The facts of the case are as follows:
On March 17, 1988, petitioner received from the Bureau of Internal Revenue (BIR)
deficiency tax assessments for the taxable year 1984 in the total amount of
P8,644,998.71, broken down as follows:

Kind of Tax Assessment No. Amount

Deficiency Income Tax FAR-4-1984-88-001130 P8,381,354.00
Penalties for late payment FAR-4-1984-88-001131 3,000.00
of income and failure to
file quarterly returns
Deficiency Contractors FAR-4-1984-88-001132 29,849.06
Tax
Deficiency Fixed Tax FAR-4--88-001133 12,083.65
Deficiency Franchise Tax FAR-484-88-001134 ___227,712.00
T o t a l -------- P8,644,998.71
Petitioner filed its protest against the tax assessments and requested a reconsideration or
cancellation of the same in a letter to the BIR Commissioner dated April 12, 1988.
Acting in behalf of the BIR Commissioner, then Chief of the BIR Accounts Receivable and
Billing Division, Mr. Severino B. Buot, reiterated the tax assessments while denying
petitioners request for reinvestigation in a letter 1 dated January 24, 1991, thus:
"Note: Your request for re-investigation has been denied for failure to submit the
necessary supporting papers as per endorsement letter from the office of the Special
Operation Service dated 12-12-90."
Said letter likewise requested petitioner to pay the total amount of P8,644,998.71 within
ten (10) days from receipt thereof, otherwise the case shall be referred to the Collection
Enforcement Division of the BIR National Office for the issuance of a warrant of distraint
and levy without further notice.
Upon petitioners failure to pay the subject tax assessments within the prescribed period,
the Assistant Commissioner for Collection, acting for the Commissioner of Internal
Revenue, issued the corresponding warrants of distraint and/or levy and garnishment.
These were served on petitioner on October 10, 1991 and October 17, 1991, respectively. 2
On November 8, 1991, petitioner filed a Petition for Review with the Court of Tax Appeals
(CTA) to contest the issuance of the warrants to enforce the collection of the tax
assessments. This was docketed as CTA Case No. 4668.
The CTA dismissed the petition for lack of jurisdiction in a decision dated September 16,
1994, declaring that said petition was filed beyond the thirty (30)-day period reckoned
from the time when the demand letter of January 24, 1991 by the Chief of the BIR
Accounts Receivable and Billing Division was presumably received by petitioner, i.e.,
"within a reasonable time from said date in the regular course of mail pursuant to Section
2(v) of Rule 131 of the Rules of Court."3

The decision cited Surigao Electric Co., Inc. v. Court of Tax Appeals 4 wherein this Court
considered a mere demand letter sent to the taxpayer after his protest of the assessment
notice as the final decision of the Commissioner of Internal Revenue on the protest.
Hence, the filing of the petition on November 8, 1991 was held clearly beyond the
reglementary period.5
The court a quo likewise stated that the finality of the denial of the protest by petitioner
against the tax deficiency assessments was bolstered by the subsequent issuance of the
warrants of distraint and/or levy and garnishment to enforce the collection of the
deficiency taxes. The issuance was not barred by prescription because the mere filing of
the letter of protest by petitioner which was given due course by the Bureau of Internal
Revenue suspended the running of the prescription period as expressly provided under
the then Section 224 of the Tax Code:
SEC. 224. Suspension of Running of the Statute of Limitations. The running of the
Statute of Limitations provided in Section 203 and 223 on the making of assessment and
the beginning of distraint or levy or a proceeding in court for collection, in respect of any
deficiency, shall be suspended for the period during which the Commissioner is prohibited
from making the assessment or beginning distraint or levy or a proceeding in court and
for sixty (60) days thereafter; when the taxpayer requests for a reinvestigation which is
granted by the Commissioner; when the taxpayer cannot be located in the address given
by him in the return files upon which a tax is being assessed or collected: Provided, That if
the taxpayer inform the Commissioner of any change of address, the running of the
statute of limitations will not be suspended; when the warrant of distraint and levy is duly
served upon the taxpayer, his authorized representative, or a member of his household
with sufficient discretion, and no property could located; and when the taxpayer is out of
the Philippines. 6 (Underscoring supplied.)
Petitioner filed a Motion for Reconsideration arguing that the demand letter of January 24,
1991 cannot be considered as the final decision of the Commissioner of Internal Revenue
on its protest because the same was signed by a mere subordinate and not by the
Commissioner himself. 7
With the denial of its motion for reconsideration, petitioner consequently filed a Petition
for Review with the Court of Appeals contending that there was no final decision to speak
of because the Commissioner had yet to make a personal determination as regards the
merits of petitioners case.8
The Court of Appeals denied the petition in a decision dated October 31, 2000, the
dispositive portion of which reads:
"WHEREFORE, the petition is DISMISSED for lack of merit.
SO ORDERED."
Petitioners Motion for Reconsideration was likewise denied in a resolution dated May 3,
2001.
Hence, this petition with the following assignment of errors: 9
I
THE HONORABLE RESPONDENT CA ERRED IN FINDING THAT THE DEMAND LETTER ISSUED
BY THE (THEN) ACCOUNTS RECEIVABLE/BILLING DIVISION OF THE BIR NATIONAL OFFICE
WAS THE FINAL DECISION OF THE RESPONDENT CIR ON THE DISPUTED ASSESSMENTS,

AND HENCE CONSTITUTED THE DECISION APPEALABLE TO THE HONORABLE RESPONDENT

CTA; AND,

The above conclusion finds support in Commissioner of Internal Revenue v. Ayala

Securities Corporation,12 where we held:

II

The letter of February 18, 1963 (Exh. G), in the view of the Court, is tantamount to a
denial of the reconsideration or [respondent corporations]protest o[f] the assessment
made by the petitioner, considering that the said letter [was] in itself a reiteration of the
demand by the Bureau of Internal Revenue for the settlement of the assessment already
made, and for the immediate payment of the sum of P758,687.04 in spite of the
vehement protest of the respondent corporation on April 21, 1961. This certainly is a clear
indication of the firm stand of petitioner against the reconsideration of the disputed
assessmentThis being so, the said letter amount[ed] to a decision on a disputed or
protested assessment, and, there, the court a quo did not err in taking cognizance of this
case.

THE HONORABLE RESPONDENT CA ERRED IN DECLARING THAT THE DENIAL OF THE

PROTEST OF THE SUBJECT ALLEGED DEFICIENCY TAX ASSESSMENTS HAD LONG BECOME
FINAL AND EXECUTORY FOR FAILURE OF THE PETITIONER TO INSTITUTE THE APPEAL
FROM THE DEMAND LETTER OF THE CHIEF OF THE ACCOUNTS RECEIVABLE/BILLING
DIVISION, BIR NATIONAL OFFICE, TO THE HONORABLE RESPONDENT CTA, WITHIN THIRTY
(30) DAYS FROM RECEIPT THEREOF.
Thus, the main issue is whether or not a demand letter for tax deficiency assessments
issued and signed by a subordinate officer who was acting in behalf of the Commissioner
of Internal Revenue, is deemed final and executory and subject to an appeal to the Court
of Tax Appeals.
We rule in the affirmative.
A demand letter for payment of delinquent taxes may be considered a decision on a
disputed or protested assessment. The determination on whether or not a demand letter
is final is conditioned upon the language used or the tenor of the letter being sent to the
taxpayer.
We laid down the rule that the Commissioner of Internal Revenue should always indicate
to the taxpayer in clear and unequivocal language what constitutes his final
determination of the disputed assessment, thus:
. . . we deem it appropriate to state that the Commissioner of Internal Revenue should
always indicate to the taxpayer in clear and unequivocal language whenever his action on
an assessment questioned by a taxpayer constitutes his final determination on the
disputed assessment, as contemplated by Sections 7 and 11 of Republic Act No. 1125, as
amended. On the basis of his statement indubitably showing that the Commissioners
communicated action is his final decision on the contested assessment, the aggrieved
taxpayer would then be able to take recourse to the tax court at the opportune time.
Without needless difficulty, the taxpayer would be able to determine when his right to
appeal to the tax court accrues.
The rule of conduct would also obviate all desire and opportunity on the part of the
taxpayer to continually delay the finality of the assessment and, consequently, the
collection of the amount demanded as taxes by repeated requests for recomputation
and reconsideration. On the part of the Commissioner, this would encourage his office to
conduct a careful and thorough study of every questioned assessment and render a
correct and definite decision thereon in the first instance. This would also deter the
Commissioner from unfairly making the taxpayer grope in the dark and speculate as to
which action constitutes the decision appealable to the tax court. Of greater import, this
rule of conduct would meet a pressing need for fair play, regularity, and orderliness in
administrative action.10
In this case, the letter of demand dated January 24, 1991, unquestionably constitutes the
final action taken by the Bureau of Internal Revenue on petitioners request for
reconsideration when it reiterated the tax deficiency assessments due from petitioner,
and requested its payment. Failure to do so would result in the "issuance of a warrant of
distraint and levy to enforce its collection without further notice." 11 In addition, the letter
contained a notation indicating that petitioners request for reconsideration had been
denied for lack of supporting documents.

Similarly, in Surigao Electric Co., Inc v. Court of Tax Appeals, 13 and in CIR v. Union
Shipping Corporation,14 we held:
". . . In this letter, the commissioner not only in effect demanded that the petitioner pay
the amount of P11,533.53 but also gave warning that in the event it failed to pay, the said
commissioner would be constrained to enforce the collection thereof by means of the
remedies provided by law. The tenor of the letter, specifically the statement regarding the
resort to legal remedies, unmistakably indicate[d] the final nature of the determination
made by the commissioner of the petitioners deficiency franchise tax liability."
The demand letter received by petitioner verily signified a character of finality. Therefore,
it was tantamount to a rejection of the request for reconsideration. As correctly held by
the Court of Tax Appeals, "while the denial of the protest was in the form of a demand
letter, the notation in the said letter making reference to the protest filed by petitioner
clearly shows the intention of the respondent to make it as [his] final decision." 15
This now brings us to the crux of the matter as to whether said demand letter indeed
attained finality despite the fact that it was issued and signed by the Chief of the
Accounts Receivable and Billing Division instead of the BIR Commissioner.
The general rule is that the Commissioner of Internal Revenue may delegate any power
vested upon him by law to Division Chiefs or to officials of higher rank. He cannot,
however, delegate the four powers granted to him under the National Internal Revenue
Code (NIRC) enumerated in Section 7.
As amended by Republic Act No. 8424, Section 7 of the Code authorizes the BIR
Commissioner to delegate the powers vested in him under the pertinent provisions of the
Code to any subordinate official with the rank equivalent to a division chief or higher,
except the following:
(a) The power to recommend the promulgation of rules and regulations by the Secretary
of Finance;
(b) The power to issue rulings of first impression or to reverse, revoke or modify any
existing ruling of the Bureau;
(c) The power to compromise or abate under Section 204(A) and (B) of this Code, any tax
deficiency: Provided, however, that assessments issued by the Regional Offices involving
basic deficiency taxes of five hundred thousand pesos (P500,000) or less, and minor
criminal violations as may be determined by rules and regulations to be promulgated by
the Secretary of Finance, upon the recommendation of the Commissioner, discovered by
regional and district officials, may be compromised by a regional evaluation board which
shall be composed of the Regional Director as Chairman, the Assistant Regional Director,

heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer
having jurisdiction over the taxpayer, as members; and
(d) The power to assign or reassign internal revenue officers to establishments where
articles subject to excise tax are produced or kept.
It is clear from the above provision that the act of issuance of the demand letter by the
Chief of the Accounts Receivable and Billing Division does not fall under any of the
exceptions that have been mentioned as non-delegable.
Section 6 of the Code further provides:
"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. . . ." (Emphasis
supplied)
Thus, the authority to make tax assessments may be delegated to subordinate officers.
Said assessment has the same force and effect as that issued by the Commissioner
himself, if not reviewed or revised by the latter such as in this case. 16
A request for reconsideration must be made within thirty (30) days from the taxpayers
receipt of the tax deficiency assessment, otherwise, the decision becomes final,
unappealable and therefore, demandable. A tax assessment that has become final,
executory and enforceable for failure of the taxpayer to assail the same as provided in
Section 228 can no longer be contested, thus:
"SEC. 228. Protesting of Assessment. When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the
taxpayer of his findingsSuch assessment may be protested administratively by filing a
request for reconsideration or reinvestigation within thirty (30) days from receipt of the
assessment in such form and manner as may be prescribed by implementing rules and
regulations. Within sixty (60) days from filing of the protest, all relevant supporting
documents shall have been submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred (180)
days from submission of documents, the taxpayer adversely affected by the decision or
inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the
said decision, or from the lapse of the one hundred eighty (180) - day period; otherwise,
the decision shall become final, executory and demandable."
Here, petitioner failed to avail of its right to bring the matter before the Court of Tax
Appeals within the reglementary period upon the receipt of the demand letter reiterating
the assessed delinquent taxes and denying its request for reconsideration which
constituted the final determination by the Bureau of Internal Revenue on petitioners
protest. Being a final disposition by said agency, the same would have been a proper
subject for appeal to the Court of Tax Appeals.

The rule is that for the Court of Tax Appeals to acquire jurisdiction, an assessment must
first be disputed by the taxpayer and ruled upon by the Commissioner of Internal
Revenue to warrant a decision from which a petition for review may be taken to the Court
of Tax Appeals. Where an adverse ruling has been rendered by the Commissioner of
Internal Revenue with reference to a disputed assessment or a claim for refund or credit,
the taxpayer may appeal the same within thirty (30) days after receipt thereof. 17
We agree with the factual findings of the Court of Tax Appeals that the demand letter may
be presumed to have been duly directed, mailed and was received by petitioner in the
regular course of the mail in the absence of evidence to the contrary. This is in
accordance with Section 2(v), Rule 131 of the Rules of Court, and in this case, since the
period to appeal has commenced to run from the time the letter of demand was
presumably received by petitioner within a reasonable time after January 24, 1991, the
period of thirty (30) days to appeal the adverse decision on the request for
reconsideration had already lapsed when the petition was filed with the Court of Tax
Appeals only on November 8, 1991. Hence, the Court of Tax Appeals properly dismissed
the petition as the tax delinquency assessment had long become final and executory.
WHEREFORE, premises considered, the Decision of the Court of Appeals dated October
31, 2000 and its Resolution dated May 3, 2001 in CA-G.R. SP No. 35581 are hereby
AFFIRMED. The petition is accordingly DENIED for lack of merit.
G.R. No. 136975

March 31, 2005

COMMISSION
OF
INTERNAL
vs.
HANTEX TRADING CO., INC., respondent.

REVENUE,

Petitioner,

DECISION
CALLEJO, SR., J.:
Before us is a petition for review of the Decision 1 of the Court of Appeals (CA) which
reversed the Decision2 of the Court of Tax Appeals (CTA) in CTA Case No. 5126, upholding
the deficiency income and sales tax assessments against respondent Hantex Trading Co.,
Inc.
The Antecedents
The respondent is a corporation duly organized and existing under the laws of the
Philippines. Being engaged in the sale of plastic products, it imports synthetic resin and
other chemicals for the manufacture of its products. For this purpose, it is required to file
an Import Entry and Internal Revenue Declaration (Consumption Entry) with the Bureau of
Customs under Section 1301 of the Tariff and Customs Code.
Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of Counter-Intelligence
Division of the Economic Intelligence and Investigation Bureau (EIIB), received
confidential information that the respondent had imported synthetic resin amounting to
P115,599,018.00 but only declared P45,538,694.57.3 According to the informer, based on
photocopies of 77 Consumption Entries furnished by another informer, the 1987
importations of the respondent were understated in its accounting records. 4 Amoto
submitted a report to the EIIB Commissioner recommending that an inventory audit of the
respondent be conducted by the Internal Inquiry and Prosecution Office (IIPO) of the EIIB. 5
Acting on the said report, Jose T. Almonte, then Commissioner of the EIIB, issued Mission
Order No. 398-896 dated November 14, 1989 for the audit and investigation of the

importations of Hantex for 1987. The IIPO issued subpoena duces tecum and ad
testificandum for the president and general manager of the respondent to appear in a
hearing and bring the following:

filed by the respondent which were processed and released from the Port of Manila after
payment of duties and taxes, to wit:
Hantex Trading Co., Inc.

1. Books of Accounts for the year 1987;

Entry No.

Date Released

Entry No.

Date Released

3903

1/29/87

22869

4/8/87

4414

1/20/87

19441

3/31/87

10683

2/17/87

24189

4/21/87

12611

2/24/87

26431

4/20/87

12989

2/26/87

45478

7/3/87

17050

3/13/87

26796

4/23/87

17169

3/13/87

28827

4/30/87

18089

3/16/87

31617

5/14/87

19439

4/1/87

39068

6/5/87

21189

4/3/87

42581

6/21/87

43451

6/29/87

42793

6/23/87

42795

6/23/87

45477

7/3/87

35582

not received

85830

11/13/87

45691

7/3/87

86650

not received

46187

7/8/87

87647

11/18/87

46427

7/3/87

88829

11/23/87

57669

8/12/87

92293

12/3/87

62471

8/28/87

93292

12/7/87

63187

9/2/87

96357

12/16/87

66859

9/15/87

96822

12/15/87

67890

9/17/87

98823

not received

68115

9/15/87

99428

12/28/87

69974

9/24/87

99429

12/28/87

IMPORTER HANTEX TRADING CO., INC. SERIES OF 1987

72213

10/2/87

99441

12/28/87

ENTRY NO.

DATE RELEASED

ENTRY NO.

DATE RELEASED

77688

10/16/87

101406

1/5/87

03058-87

1/30/87

50265-87

12/9/87

84253

11/10/87

101407

1/8/87

09120-87

3/20/87

46427-87

11/27/87

85534

11/11/87

3118

1-19-8712

18089-87

5/21/87

30764-87

8/21/87

19439-87

6/2/87

30833-87

8/20/87

19441-87

6/3/87

34690-87

9/16/87

11667-87

4/15/87

34722-87

9/11/87

23294-87

7/7/87

43234-87

11/2/87

45478-87

11/16/87

44850-87

11/16/87

45691-87

12/2/87

44851-87

11/16/87

25464-87

7/16/87

46461-87

11/19/87

26483-87

7/23/87

46467-87

11/18/87

29950-87

8/11/87

48091-87

11-27-8711

2. Record of Importations of Synthetic Resin and Calcium Carbonate for the year
1987;
3. Income tax returns & attachments for 1987; and
4. Record of tax payments.7
However, the respondents president and general manager refused to comply with the
subpoena, contending that its books of accounts and records of importation of synthetic
resin and calcium bicarbonate had been investigated repeatedly by the Bureau of Internal
Revenue (BIR) on prior occasions. 8 The IIPO explained that despite such previous
investigations, the EIIB was still authorized to conduct an investigation pursuant to
Section 26-A of Executive Order No. 127. Still, the respondent refused to comply with the
subpoena issued by the IIPO. The latter forthwith secured certified copies of the Profit and
Loss Statements for 1987 filed by the respondent with the Securities and Exchange
Commission (SEC).9 However, the IIPO failed to secure certified copies of the respondents
1987 Consumption Entries from the Bureau of Customs since, according to the custodian
thereof, the original copies had been eaten by termites. 10
In a Letter dated June 28, 1990, the IIPO requested the Chief of the Collection Division,
Manila International Container Port, and the Acting Chief of the Collection Division, Port of
Manila, to authenticate the machine copies of the import entries supplied by the informer.
However, Chief of the Collection Division Merlita D. Tomas could not do so because the
Collection Division did not have the original copies of the entries. Instead, she wrote the
IIPO that, as gleaned from the records, the following entries had been duly processed and
released after the payment of duties and taxes:

Acting Chief of the Collection Division of the Bureau of Customs Augusto S. Danganan
could not authenticate the machine copies of the import entries as well, since the original
copies of the said entries filed with the Bureau of Customs had apparently been eaten by
termites. However, he issued a certification that the following enumerated entries were

Bienvenido G. Flores, Chief of the Investigation Division, and Lt. Leo Dionela, Lt. Vicente
Amoto and Lt. Rolando Gatmaitan conducted an investigation. They relied on the certified
copies of the respondents Profit and Loss Statement for 1987 and 1988 on file with the
SEC, the machine copies of the Consumption Entries, Series of 1987, submitted by the
informer, as well as excerpts from the entries certified by Tomas and Danganan.
Based on the documents/records on hand, inclusive of the machine copies of the
Consumption Entries, the EIIB found that for 1987, the respondent had importations
totaling P105,716,527.00 (inclusive of advance sales tax). Compared with the declared
sales based on the Profit and Loss Statements filed with the SEC, the respondent had
unreported sales in the amount of P63,032,989.17, and its corresponding income tax
liability was P41,916,937.78, inclusive of penalty charge and interests.
EIIB Commissioner Almonte transmitted the entire docket of the case to the BIR and
recommended the collection of the total tax assessment from the respondent. 13

On February 12, 1991, Deputy Commissioner Deoferio, Jr. issued a Memorandum to the
BIR Assistant Commissioner for Special Operations Service, directing the latter to prepare
a conference letter advising the respondent of its deficiency taxes. 14

In all of these investigations, save your request for an informal conference, we

welcomed them and proved the contrary of the allegation. Now, with your new
inquiry, we think that there will be no end to the problem.

Meanwhile, as ordered by the Regional Director, Revenue Enforcement Officers Saturnino

D. Torres and Wilson Filamor conducted an investigation on the 1987 importations of the
respondent, in the light of the records elevated by the EIIB to the BIR, inclusive of the
photocopies of the Consumption Entries. They were to ascertain the respondents liability
for deficiency sales and income taxes for 1987, if any. Per Torres and Filamors Report
dated March 6, 1991 which was based on the report of the EIIB and the
documents/records appended thereto, there was a prima facie case of fraud against the
respondent in filing its 1987 Consumption Entry reports with the Bureau of Customs. They
found that the respondent had unrecorded importation in the total amount of
P70,661,694.00, and that the amount was not declared in its income tax return for 1987.
The District Revenue Officer and the Regional Director of the BIR concurred with the
report.15

Madam, we had been subjected to so many investigations and re-investigations

for 1987 and nothing came out except the payment of deficiency taxes as a
result of oversight. Tax evasion through underdeclaration of income had never
been proven.18

Based on the said report, the Acting Chief of the Special Investigation Branch wrote the
respondent and invited its representative to a conference at 10:00 a.m. of March 14, 1991
to discuss its deficiency internal revenue taxes and to present whatever documentary and
other evidence to refute the same.16 Appended to the letter was a computation of the
deficiency income and sales tax due from the respondent, inclusive of increments:
B. Computations:
1. Cost of Sales Ratio

A2/A1

85.492923%

2. Undeclared Sales Imported

A3/B1

110,079,491.61

3. Undeclared Gross Profit

B2-A3

15,969,316.61

1. Deficiency Income Tax

B3 x 35%

5,589,261.00

50% Surcharge

C1 x 50%

2,794,630.50

Interest to 2/28/91

C1 x 57.5%

3,213,825.08

C. Deficiency Taxes Due:

Total

11,597,825.58

2. Deficiency Sales Tax

at 10%

7,290,082.72

at 20%

10,493,312.31

Total Due

17,783,395.03

Less: Advanced Sales Taxes Paid

11,636,352.00

Deficiency Sales Tax

6,147,043.03

50% Surcharge

C2 x 50%

3,073,521.52

Interest to 2/28/91

5,532,338.73

Total

14,752,903.2817

The invitation was reiterated in a Letter dated March 15, 1991. In his Reply dated March
15, 1991, Mariano O. Chua, the President and General Manager of the respondent,
requested that the report of Torres and Filamor be set aside on the following claim:
[W]e had already been investigated by RDO No. 23 under Letters of Authority
Nos. 0322988 RR dated Oct. 1, 1987, 0393561 RR dated Aug. 17, 1988 and
0347838 RR dated March 2, 1988, and re-investigated by the Special
Investigation Team on Aug. 17, 1988 under Letter of Authority No. 0357464 RR,
and the Intelligence and Investigation Office on Sept. 27, 1988 under Letter of
Authority No. 0020188 NA, all for income and business tax liabilities for 1987.
The Economic Intelligence and Investigation Bureau on Nov. 20, 1989, likewise,
confronted us on the same information for the same year.

Invoking Section 23519 of the 1977 National Internal Revenue Code (NIRC), as amended,
Chua requested that the inquiry be set aside.
The petitioner, the Commissioner of Internal Revenue, through Assistant Commissioner
for Collection Jaime M. Maza, sent a Letter dated April 15, 1991 to the respondent
demanding payment of its deficiency income tax of P13,414,226.40 and deficiency sales
tax of P14,752,903.25, inclusive of surcharge and interest. 20 Appended thereto were the
Assessment Notices of Tax Deficiency Nos. FAS-1-87-91-001654 and FAS-4-87-91001655.21
On February 12, 1992, the Chief of the Accounts Receivables/Billing Division of the BIR
sent a letter to the respondent demanding payment of its tax liability due for 1987 within
ten (10) days from notice, on pain of the collection tax due via a warrant of distraint and
levy and/or judicial action.22 The Warrant of Distraint and/or Levy23 was actually served on
the respondent on January 21, 1992. On September 7, 1992, it wrote the Commissioner of
Internal Revenue protesting the assessment on the following grounds:
I. THAT THE ASSESSMENT HAS NO FACTUAL AS WELL AS LEGAL BASIS, THE FACT
THAT NO INVESTIGATION OF OUR RECORDS WAS EVER MADE BY THE EIIB WHICH
RECOMMENDED ITS ISSUANCE.24
II. THAT GRANTING BUT WITHOUT ADMITTING THAT OUR PURCHASES FOR 1987
AMOUNTED TO P105,716,527.00 AS CLAIMED BY THE EIIB, THE ASSESSMENT OF
A DEFICIENCY INCOME TAX IS STILL DEFECTIVE FOR IT FAILED TO CONSIDER OUR
REAL PURCHASES OF P45,538,694.57.25
III. THAT THE ASSESSMENT OF A DEFICIENCY SALES TAX IS ALSO BASELESS AND
UNFOUNDED CONSIDERING THAT WE HAVE DUTIFULLY PAID THE SALES TAX DUE
FROM OUR BUSINESS.26
In view of the impasse, administrative hearings were conducted on the respondents
protest to the assessment. During the hearing of August 20, 1993, the IIPO representative
presented the photocopies of the Consumption and Import Entries and the Certifications
issued by Tomas and Danganan of the Bureau of Customs. The IIPO representative
testified that the Bureau of Customs failed to furnish the EIIB with certified copies of the
Consumption and Import Entries; hence, the EIIB relied on the machine copies from their
informer.27
The respondent wrote the BIR Commissioner on July 12, 1993 questioning the assessment
on the ground that the EIIB representative failed to present the original, or authenticated,
or duly certified copies of the Consumption and Import Entry Accounts, or excerpts
thereof if the original copies were not readily available; or, if the originals were in the
official custody of a public officer, certified copies thereof as provided for in Section 12,
Chapter 3, Book VII, Administrative Procedure, Administrative Order of 1987. It stated that
the only copies of the Consumption Entries submitted to the Hearing Officer were mere
machine copies furnished by an informer of the EIIB. It asserted that the letters of Tomas
and Danganan were unreliable because of the following:

In the said letters, the two collection officers merely submitted a listing of
alleged import entry numbers and dates released of alleged importations by
Hantex Trading Co., Inc. of merchandise in 1987, for which they certified that the
corresponding duties and taxes were paid after being processed in their offices.
In said letters, no amounts of the landed costs and advance sales tax and duties
were stated, and no particulars of the duties and taxes paid per import entry
document was presented.

sales were computed based on mere presumptions as to the alleged gross profit
contained in its 1987 financial statement. Moreover, even the alleged financial statement
of the respondent was a mere machine copy and not an official copy of the 1987 income
and business tax returns. Finally, the respondent was following the accrual method of
accounting in 1987, yet, the BIR investigator who computed the 1987 income tax
deficiency failed to allow as a deductible item the alleged sales tax deficiency for 1987 as
provided for under Section 30(c) of the NIRC of 1986.33

The contents of the two letters failed to indicate the particulars of the
importations per entry number, and the said letters do not constitute as
evidence of the amounts of importations of Hantex Trading Co., Inc. in 1987. 28

The Commissioner did not adduce in evidence the original or certified true copies of the
1987 Consumption Entries on file with the Commission on Audit. Instead, she offered in
evidence as proof of the contents thereof, the photocopies of the Consumption Entries
which the respondent objected to for being inadmissible in evidence. 34 She also failed to
present any witness to prove the correct amount of tax due from it. Nevertheless, the CTA
provisionally admitted the said documents in evidence, subject to its final evaluation of
their relevancy and probative weight to the issues involved. 35

The respondent cited the following findings of the Hearing Officer:

[T]hat the import entry documents do not constitute evidence only indicate
that the tax assessments in question have no factual basis, and must, at this
point in time, be withdrawn and cancelled. Any new findings by the IIPO
representative who attended the hearing could not be used as evidence in this
hearing, because all the issues on the tax assessments in question have already
been raised by the herein taxpayer. 29
The respondent requested anew that the income tax deficiency assessment and the sales
tax deficiency assessment be set aside for lack of factual and legal basis.
The BIR Commissioner30 wrote the respondent on December 10, 1993, denying its letterrequest for the dismissal of the assessments.31 The BIR Commissioner admitted, in the
said letter, the possibility that the figures appearing in the photocopies of the
Consumption Entries had been tampered with. She averred, however, that she was not
proscribed from relying on other admissible evidence, namely, the Letters of Torres and
Filamor dated August 7 and 22, 1990 on their investigation of the respondents tax
liability. The Commissioner emphasized that her decision was final.32
The respondent forthwith filed a petition for review in the CTA of the Commissioners Final
Assessment Letter dated December 10, 1993 on the following grounds:
First. The alleged 1987 deficiency income tax assessment (including increments) and the
alleged 1987 deficiency sales tax assessment (including increments) are void ab initio,
since under Sections 16(a) and 49(b) of the Tax Code, the Commissioner shall examine a
return after it is filed and, thereafter, assess the correct amount of tax. The following facts
obtaining in this case, however, are indicative of the incorrectness of the tax assessments
in question: the deficiency interests imposed in the income and percentage tax deficiency
assessment notices were computed in violation of the provisions of Section 249(b) of the
NIRC of 1977, as amended; the percentage tax deficiency was computed on an annual
basis for the year 1987 in accordance with the provision of Section 193, which should
have been computed in accordance with Section 162 of the 1977 NIRC, as amended by
Pres. Decree No. 1994 on a quarterly basis; and the BIR official who signed the deficiency
tax assessments was the Assistant Commissioner for Collection, who had no authority to
sign the same under the NIRC.
Second. Even granting arguendo that the deficiency taxes and increments for 1987
against the respondent were correctly computed in accordance with the provisions of the
Tax Code, the facts indicate that the above-stated assessments were based on alleged
documents which are inadmissible in either administrative or judicial proceedings.
Moreover, the alleged bases of the tax computations were anchored on mere
presumptions and not on actual facts. The alleged undeclared purchases for 1987 were
based on mere photocopies of alleged import entry documents, not the original ones, and
which had never been duly certified by the public officer charged with the custody of such
records in the Bureau of Customs. According to the respondent, the alleged undeclared

On December 11, 1997, the CTA rendered a decision, the dispositive portion of which
reads:
IN THE LIGHT OF ALL THE FOREGOING, judgment is hereby rendered DENYING
the herein petition. Petitioner is hereby ORDERED TO PAY the respondent
Commissioner of Internal Revenue its deficiency income and sales taxes for the
year 1987 in the amounts of P11,182,350.26 and P12,660,382.46, respectively,
plus 20% delinquency interest per annum on both deficiency taxes from April 15,
1991 until fully paid pursuant to Section 283(c)(3) of the 1987 Tax Code, with
costs against the petitioner.
SO ORDERED.36
The CTA ruled that the respondent was burdened to prove not only that the assessment
was erroneous, but also to adduce the correct taxes to be paid by it. The CTA declared
that the respondent failed to prove the correct amount of taxes due to the BIR. It also
ruled that the respondent was burdened to adduce in evidence a certification from the
Bureau of Customs that the Consumption Entries in question did not belong to it.
On appeal, the CA granted the petition and reversed the decision of the CTA. The
dispositive portion of the decision reads:
FOREGOING PREMISES CONSIDERED, the Petition for Review is GRANTED and the
December 11, 1997 decision of the CTA in CTA Case No. 5162 affirming the 1987
deficiency income and sales tax assessments and the increments thereof, issued
by the BIR is hereby REVERSED. No costs.37
The Ruling of the Court of Appeals
The CA held that the income and sales tax deficiency assessments issued by the
petitioner were unlawful and baseless since the copies of the import entries relied upon in
computing the deficiency tax of the respondent were not duly authenticated by the public
officer charged with their custody, nor verified under oath by the EIIB and the BIR
investigators.38 The CA also noted that the public officer charged with the custody of the
import entries was never presented in court to lend credence to the alleged loss of the
originals.39 The CA pointed out that an import entry is a public document which falls within
the provisions of Section 19, Rule 132 of the Rules of Court, and to be admissible for any
legal purpose, Section 24, Rule 132 of the Rules of Court should apply. 40 Citing the ruling
of this Court in Collector of Internal Revenue v. Benipayo,41 the CA ruled that the
assessments were unlawful because they were based on hearsay evidence. The CA also
ruled that the respondent was deprived of its right to due process of law.

The CA added that the CTA should not have just brushed aside the legal requisites
provided for under the pertinent provisions of the Rules of Court in the matter of the
admissibility of public documents, considering that substantive rules of evidence should
not be disregarded. It also ruled that the certifications made by the two Customs
Collection Chiefs under the guise of supporting the respondents alleged tax deficiency
assessments invoking the best evidence obtainable rule under the Tax Code should not be
permitted to supplant the best evidence rule under Section 7, Rule 130 of the Rules of
Court.
Finally, the CA noted that the tax deficiency assessments were computed without the tax
returns. The CA opined that the use of the tax returns is indispensable in the computation
of a tax deficiency; hence, this essential requirement must be complied with in the
preparation and issuance of valid tax deficiency assessments.42
The Present Petition
The Commissioner of Internal Revenue, the petitioner herein, filed the present petition for
review under Rule 45 of the Rules of Court for the reversal of the decision of the CA and
for the reinstatement of the ruling of the CTA.
As gleaned from the pleadings of the parties, the threshold issues for resolution are the
following: (a) whether the petition at bench is proper and complies with Sections 4 and 5,
Rule 7 of the Rules of Court; (b) whether the December 10, 1991 final assessment of the
petitioner against the respondent for deficiency income tax and sales tax for the latters
1987 importation of resins and calcium bicarbonate is based on competent evidence and
the law; and (c) the total amount of deficiency taxes due from the respondent for 1987, if
any.
On the first issue, the respondent points out that the petition raises both questions of
facts and law which cannot be the subject of an appeal by certiorari under Rule 45 of the
Rules of Court. The respondent notes that the petition is defective because the
verification and the certification against forum shopping were not signed by the petitioner
herself, but only by the Regional Director of the BIR. The respondent submits that the
petitioner should have filed a motion for reconsideration with the CA before filing the
instant petition for review. 43
We find and so rule that the petition is sufficient in form. A verification and certification
against forum shopping signed by the Regional Director constitutes sufficient compliance
with the requirements of Sections 4 and 5, Rule 7 of the Rules of Court. Under Section 10
of the NIRC of 1997,44 the Regional Director has the power to administer and enforce
internal revenue laws, rules and regulations, including the assessment and collection of
all internal revenue taxes, charges and fees. Such power is broad enough to vest the
Revenue Regional Director with the authority to sign the verification and certification
against forum shopping in behalf of the Commissioner of Internal Revenue. There is no
other person in a better position to know the collection cases filed under his jurisdiction
than the Revenue Regional Director.
Moreover, under Revenue Administrative Order No. 5-83, 45 the Regional Director is
authorized to sign all pleadings filed in connection with cases referred to the Revenue
Regions by the National Office which, otherwise, require the signature of the petitioner.
We do not agree with the contention of the respondent that a motion for reconsideration
ought to have been filed before the filing of the instant petition. A motion for
reconsideration of the decision of the CA is not a condition sine qua non for the filing of a
petition for review under Rule 45. As we held in Almora v. Court of Appeals:46
Rule 45, Sec. 1 of the Rules of Court, however, distinctly provides that:

A party may appeal by certiorari from a judgment of the Court of

Appeals, by filing with the Supreme Court a petition for certiorari within
fifteen (15) days from notice of judgment, or of the denial of his motion
for reconsideration filed in due time. (Emphasis supplied)
The conjunctive "or" clearly indicates that the 15-day reglementary period for
the filing of a petition for certiorari under Rule 45 commences either from notice
of the questioned judgment or from notice of denial of the appellants motion for
reconsideration. A prior motion for reconsideration is not indispensable for a
petition for review on certiorari under Rule 45 to prosper. 47
While Rule 45 of the Rules of Court provides that only questions of law may be raised by
the petitioner and resolved by the Court, under exceptional circumstances, the Court may
take cognizance thereof and resolve questions of fact. In this case, the findings and
conclusion of the CA are inconsistent with those of the CTA, not to mention those of the
Commissioner of Internal Revenue. The issues raised in this case relate to the propriety
and the correctness of the tax assessments made by the petitioner against the
respondent, as well as the propriety of the application of Section 16, paragraph (b) of the
1977 NIRC, as amended by Pres. Decree Nos. 1705, 1773, 1994 and Executive Order No.
273, in relation to Section 3, Rule 132 of the Rules of Evidence. There is also an
imperative need for the Court to resolve the threshold factual issues to give justice to the
parties, and to determine whether the CA capriciously ignored, misunderstood or
misinterpreted cogent facts and circumstances which, if considered, would change the
outcome of the case.
On the second issue, the petitioner asserts that since the respondent refused to
cooperate and show its 1987 books of account and other accounting records, it was
proper for her to resort to the best evidence obtainable the photocopies of the import
entries in the Bureau of Customs and the respondents financial statement filed with the
SEC.48 The petitioner maintains that these import entries were admissible as secondary
evidence under the best evidence obtainable rule, since they were duly authenticated by
the Bureau of Customs officials who processed the documents and released the cargoes
after payment of the duties and taxes due. 49 Further, the petitioner points out that under
the best evidence obtainable rule, the tax return is not important in computing the tax
deficiency.50
The petitioner avers that the best evidence obtainable rule under Section 16 of the 1977
NIRC, as amended, legally cannot be equated to the best evidence rule under the Rules of
Court; nor can the best evidence rule, being procedural law, be made strictly operative in
the interpretation of the best evidence obtainable rule which is substantive in character. 51
The petitioner posits that the CTA is not strictly bound by technical rules of evidence, the
reason being that the quantum of evidence required in the said court is merely
substantial evidence.52
Finally, the petitioner avers that the respondent has the burden of proof to show the
correct assessments; otherwise, the presumption in favor of the correctness of the
assessments made by it stands. 53 Since the respondent was allowed to explain its side,
there was no violation of due process.54
The respondent, for its part, maintains that the resort to the best evidence obtainable
method was illegal. In the first place, the respondent argues, the EIIB agents are not duly
authorized to undertake examination of the taxpayers accounting records for internal
revenue tax purposes. Hence, the respondents failure to accede to their demands to
show its books of accounts and other accounting records cannot justify resort to the use
of the best evidence obtainable method. 55 Secondly, when a taxpayer fails to submit its
tax records upon demand by the BIR officer, the remedy is not to assess him and resort to
the best evidence obtainable rule, but to punish the taxpayer according to the provisions
of the Tax Code.56

In any case, the respondent argues that the photocopies of import entries cannot be used
in making the assessment because they were not properly authenticated, pursuant to the
provisions of Sections 2457 and 2558 of Rule 132 of the Rules of Court. It avers that while
the CTA is not bound by the technical rules of evidence, it is bound by substantial rules. 59
The respondent points out that the petitioner did not even secure a certification of the
fact of loss of the original documents from the custodian of the import entries. It simply
relied on the report of the EIIB agents that the import entry documents were no longer
available because they were eaten by termites. The respondent posits that the two
collectors of the Bureau of Customs never authenticated the xerox copies of the import
entries; instead, they only issued certifications stating therein the import entry numbers
which were processed by their office and the date the same were released. 60
The respondent argues that it was not necessary for it to show the correct assessment,
considering that it is questioning the assessments not only because they are erroneous,
but because they were issued without factual basis and in patent violation of the
assessment procedures laid down in the NIRC of 1977, as amended. 61 It is also pointed out
that the petitioner failed to use the tax returns filed by the respondent in computing the
deficiency taxes which is contrary to law; 62 as such, the deficiency assessments
constituted deprivation of property without due process of law. 63
Central to the second issue is Section 16 of the NIRC of 1977, as amended, 64 which
provides that the Commissioner of Internal Revenue has the power to make assessments
and prescribe additional requirements for tax administration and enforcement. Among
such powers are those provided in paragraph (b) thereof, which we quote:
(b) Failure to submit required returns, statements, reports and other documents.
When a report required by law as a basis for the assessment of any national
internal revenue tax shall not be forthcoming within the time fixed by law or
regulation or when there is reason to believe that any such report is false,
incomplete or erroneous, the Commissioner shall assess the proper tax on the
best evidence obtainable.
In case a person fails to file a required return or other document at the time
prescribed by law, or willfully or otherwise files a false or fraudulent return or
other document, the Commissioner shall make or amend the return from his own
knowledge and from such information as he can obtain through testimony or
otherwise, which shall be prima facie correct and sufficient for all legal
purposes.65
This provision applies when the Commissioner of Internal Revenue undertakes to perform
her administrative duty of assessing the proper tax against a taxpayer, to make a return
in case of a taxpayers failure to file one, or to amend a return already filed in the BIR.
The petitioner may avail herself of the best evidence or other information or testimony by
exercising her power or authority under paragraphs (1) to (4) of Section 7 of the NIRC:
(1) To examine any book, paper, record or other data which may be relevant or
material to such inquiry;
(2) To obtain information from any office or officer of the national and local
governments, government agencies or its instrumentalities, including the Central
Bank of the Philippines and government owned or controlled corporations;
(3) To summon the person liable for tax or required to file a return, or any officer
or employee of such person, or any person having possession, custody, or care
of the books of accounts and other accounting records containing entries relating
to the business of the person liable for tax, or any other person, to appear before

the Commissioner or his duly authorized representative at a time and place

specified in the summons and to produce such books, papers, records, or other
data, and to give testimony;
(4) To take such testimony of the person concerned, under oath, as may be
relevant or material to such inquiry; 66
The "best evidence" envisaged in Section 16 of the 1977 NIRC, as amended, includes the
corporate and accounting records of the taxpayer who is the subject of the assessment
process, the accounting records of other taxpayers engaged in the same line of business,
including their gross profit and net profit sales. 67 Such evidence also includes data, record,
paper, document or any evidence gathered by internal revenue officers from other
taxpayers who had personal transactions or from whom the subject taxpayer received
any income; and record, data, document and information secured from government
offices or agencies, such as the SEC, the Central Bank of the Philippines, the Bureau of
Customs, and the Tariff and Customs Commission.
The law allows the BIR access to all relevant or material records and data in the person of
the taxpayer. It places no limit or condition on the type or form of the medium by which
the record subject to the order of the BIR is kept. The purpose of the law is to enable the
BIR to get at the taxpayers records in whatever form they may be kept. Such records
include computer tapes of the said records prepared by the taxpayer in the course of
business.68 In this era of developing information-storage technology, there is no valid
reason to immunize companies with computer-based, record-keeping capabilities from BIR
scrutiny. The standard is not the form of the record but where it might shed light on the
accuracy of the taxpayers return.
In Campbell, Jr. v. Guetersloh,69 the United States (U.S.) Court of Appeals (5th Circuit)
declared that it is the duty of the Commissioner of Internal Revenue to investigate any
circumstance which led him to believe that the taxpayer had taxable income larger than
reported. Necessarily, this inquiry would have to be outside of the books because they
supported the return as filed. He may take the sworn testimony of the taxpayer; he may
take the testimony of third parties; he may examine and subpoena, if necessary, traders
and brokers accounts and books and the taxpayers book accounts. The Commissioner is
not bound to follow any set of patterns. The existence of unreported income may be
shown by any practicable proof that is available in the circumstances of the particular
situation. Citing its ruling in Kenney v. Commissioner,70 the U.S. appellate court declared
that where the records of the taxpayer are manifestly inaccurate and incomplete, the
Commissioner may look to other sources of information to establish income made by the
taxpayer during the years in question.71
We agree with the contention of the petitioner that the best evidence obtainable may
consist of hearsay evidence, such as the testimony of third parties or accounts or other
records of other taxpayers similarly circumstanced as the taxpayer subject of the
investigation, hence, inadmissible in a regular proceeding in the regular courts. 72
Moreover, the general rule is that administrative agencies such as the BIR are not bound
by the technical rules of evidence. It can accept documents which cannot be admitted in
a judicial proceeding where the Rules of Court are strictly observed. It can choose to give
weight or disregard such evidence, depending on its trustworthiness.
However, the best evidence obtainable under Section 16 of the 1977 NIRC, as amended,
does not include mere photocopies of records/documents. The petitioner, in making a
preliminary and final tax deficiency assessment against a taxpayer, cannot anchor the
said assessment on mere machine copies of records/documents. Mere photocopies of the
Consumption Entries have no probative weight if offered as proof of the contents thereof.
The reason for this is that such copies are mere scraps of paper and are of no probative
value as basis for any deficiency income or business taxes against a taxpayer. Indeed, in
United States v. Davey,73 the U.S. Court of Appeals (2nd Circuit) ruled that where the
accuracy of a taxpayers return is being checked, the government is entitled to use the

original records rather than be forced to accept purported copies which present the risk of
error or tampering.74

evidence introduced and its ultimate determination must find support in credible
evidence.

In Collector of Internal Revenue v. Benipayo,75 the Court ruled that the assessment must
be based on actual facts. The rule assumes more importance in this case since the xerox
copies of the Consumption Entries furnished by the informer of the EIIB were furnished by
yet another informer. While the EIIB tried to secure certified copies of the said entries
from the Bureau of Customs, it was unable to do so because the said entries were
allegedly eaten by termites. The Court can only surmise why the EIIB or the BIR, for that
matter, failed to secure certified copies of the said entries from the Tariff and Customs
Commission or from the National Statistics Office which also had copies thereof. It bears
stressing that under Section 1306 of the Tariff and Customs Code, the Consumption
Entries shall be the required number of copies as prescribed by regulations. 76 The
Consumption Entry is accomplished in sextuplicate copies and quadruplicate copies in
other places. In Manila, the six copies are distributed to the Bureau of Customs, the Tariff
and Customs Commission, the Declarant (Importer), the Terminal Operator, and the
Bureau of Internal Revenue. Inexplicably, the Commissioner and the BIR personnel
ignored the copy of the Consumption Entries filed with the BIR and relied on the
photocopies supplied by the informer of the EIIB who secured the same from another
informer. The BIR, in preparing and issuing its preliminary and final assessments against
the respondent, even ignored the records on the investigation made by the District
Revenue officers on the respondents importations for 1987.

The issue that now comes to fore is whether the tax deficiency assessment against the
respondent based on the certified copies of the Profit and Loss Statement submitted by
the respondent to the SEC in 1987 and 1988, as well as certifications of Tomas and
Danganan, is arbitrary, capricious and illegal. The CTA ruled that the respondent failed to
overcome the prima facie correctness of the tax deficiency assessment issued by the
petitioner, to wit:

The original copies of the Consumption Entries were of prime importance to the BIR. This
is so because such entries are under oath and are presumed to be true and correct under
penalty of falsification or perjury. Admissions in the said entries of the importers
documents are admissions against interest and presumptively correct. 77
In fine, then, the petitioner acted arbitrarily and capriciously in relying on and giving
weight to the machine copies of the Consumption Entries in fixing the tax deficiency
assessments against the respondent.
The rule is that in the absence of the accounting records of a taxpayer, his tax liability
may be determined by estimation. The petitioner is not required to compute such tax
liabilities with mathematical exactness. Approximation in the calculation of the taxes due
is justified. To hold otherwise would be tantamount to holding that skillful concealment is
an invincible barrier to proof.78 However, the rule does not apply where the estimation is
arrived at arbitrarily and capriciously. 79
We agree with the contention of the petitioner that, as a general rule, tax assessments by
tax examiners are presumed correct and made in good faith. All presumptions are in favor
of the correctness of a tax assessment. It is to be presumed, however, that such
assessment was based on sufficient evidence. Upon the introduction of the assessment in
evidence, a prima facie case of liability on the part of the taxpayer is made. 80 If a
taxpayer files a petition for review in the CTA and assails the assessment, the prima facie
presumption is that the assessment made by the BIR is correct, and that in preparing the
same, the BIR personnel regularly performed their duties. This rule for tax initiated suits is
premised on several factors other than the normal evidentiary rule imposing proof
obligation on the petitioner-taxpayer: the presumption of administrative regularity; the
likelihood that the taxpayer will have access to the relevant information; and the
desirability of bolstering the record-keeping requirements of the NIRC. 81
However, the prima facie correctness of a tax assessment does not apply upon proof that
an assessment is utterly without foundation, meaning it is arbitrary and capricious. Where
the BIR has come out with a "naked assessment," i.e., without any foundation character,
the determination of the tax due is without rational basis. 82 In such a situation, the U.S.
Court of Appeals ruled83 that the determination of the Commissioner contained in a
deficiency notice disappears. Hence, the determination by the CTA must rest on all the

The issue should be ruled in the affirmative as petitioner has failed to rebut the
validity or correctness of the aforementioned tax assessments. It is incongruous
for petitioner to prove its cause by simply drawing an inference unfavorable to
the respondent by attacking the source documents (Consumption Entries) which
were the bases of the assessment and which were certified by the Chiefs of the
Collection Division, Manila International Container Port and the Port of Manila, as
having been processed and released in the name of the petitioner after payment
of duties and taxes and the duly certified copies of Financial Statements secured
from the Securities and Exchange Commission. Any such inference cannot
operate to relieve petitioner from bearing its burden of proof and this Court has
no warrant of absolution. The Court should have been persuaded to grant the
reliefs sought by the petitioner should it have presented any evidence of
relevance and competence required, like that of a certification from the Bureau
of Customs or from any other agencies, attesting to the fact that those
consumption entries did not really belong to them.
The burden of proof is on the taxpayer contesting the validity or correctness of
an assessment to prove not only that the Commissioner of Internal Revenue is
wrong but the taxpayer is right (Tan Guan v. CTA, 19 SCRA 903), otherwise, the
presumption in favor of the correctness of tax assessment stands (Sy Po v. CTA,
164 SCRA 524). The burden of proving the illegality of the assessment lies upon
the petitioner alleging it to be so. In the case at bar, petitioner miserably failed
to discharge this duty. 84
We are not in full accord with the findings and ratiocination of the CTA. Based on the letter
of the petitioner to the respondent dated December 10, 1993, the tax deficiency
assessment in question was based on (a) the findings of the agents of the EIIB which was
based, in turn, on the photocopies of the Consumption Entries; (b) the Profit and Loss
Statements of the respondent for 1987 and 1988; and (c) the certifications of Tomas and
Danganan dated August 7, 1990 and August 22, 1990:
In reply, please be informed that after a thorough evaluation of the attending
facts, as well as the laws and jurisprudence involved, this Office holds that you
are liable to the assessed deficiency taxes. The conclusion was arrived at based
on the findings of agents of the Economic Intelligence & Investigation Bureau
(EIIB) and of our own examiners who have painstakingly examined the records
furnished by the Bureau of Customs and the Securities & Exchange Commission
(SEC). The examination conducted disclosed that while your actual sales for
1987 amounted to P110,731,559.00, you declared for taxation purposes, as
shown in the Profit and Loss Statements, the sum of P47,698,569.83 only. The
difference, therefore, of P63,032,989.17 constitutes as undeclared or unrecorded
sales which must be subjected to the income and sales taxes.
You also argued that our assessment has no basis since the alleged amount of
underdeclared importations were lifted from uncertified or unauthenticated xerox
copies of consumption entries which are not admissible in evidence. On this
issue, it must be considered that in letters dated August 7 and 22, 1990, the
Chief and Acting Chief of the Collection Division of the Manila International
Container Port and Port of Manila, respectively, certified that the enumerated

consumption entries were filed, processed and released from the port after
payment of duties and taxes. It is noted that the certification does not touch on
the genuineness, authenticity and correctness of the consumption entries which
are all xerox copies, wherein the figures therein appearing may have been
tampered which may render said documents inadmissible in evidence, but for
tax purposes, it has been held that the Commissioner is not required to make his
determination (assessment) on the basis of evidence legally admissible in a
formal proceeding in Court (Mertens, Vol. 9, p. 214, citing Cohen v.
Commissioner). A statutory notice may be based in whole or in part upon
admissible evidence (Llorente v. Commissioner, 74 TC 260 (1980); Weimerskirch
v. Commissioner, 67 TC 672 (1977); and Rosano v. Commissioner, 46 TC 681
(1966). In the case also of Weimerskirch v. Commissioner (1977), the
assessment was given due course in the presence of admissible evidence as to
how the Commissioner arrived at his determination, although there was no
admissible evidence with respect to the substantial issue of whether the
taxpayer had unreported or undeclared income from narcotics sale. 85
Based on a Memorandum dated October 23, 1990 of the IIPO, the source documents for
the actual cost of importation of the respondent are the machine copies of the
Consumption Entries from the informer which the IIPO claimed to have been certified by
Tomas and Danganan:
The source documents for the total actual cost of importations, abovementioned,
were the different copies of Consumption Entries, Series of 1987, filed by subject
with the Bureau of Customs, marked Annexes "F-1" to "F-68." The total cost of
importations is the sum of the Landed Costs and the Advance Sales Tax as shown
in the annexed entries. These entries were duly authenticated as having been
processed and released, after payment of the duties and taxes due thereon, by
the Chief, Collection Division, Manila International Container Port, dated August
7, 1990, "Annex-G," and the Port of Manila, dated August 22, 1990, "Annex-H."
So, it was established that subject-importations, mostly resins, really belong to
HANTEX TRADING CO., INC.86
It also appears on the worksheet of the IIPO, as culled from the photocopies of the
Consumption Entries from its informer, that the total cost of the respondents importation
for 1987 was P105,761,527.00. Per the report of Torres and Filamor, they also relied on
the photocopies of the said Consumption Entries:
The importations made by taxpayer verified by us from the records of the Bureau
of Customs and xerox copies of which are hereto attached shows the big volume
of importations made and not declared in the income tax return filed by
taxpayer.
Based on the above findings, it clearly shows that a prima facie case of fraud
exists in the herein transaction of the taxpayer, as a consequence of which, said
transaction has not been possibly entered into the books of accounts of the
subject taxpayer.87
In fine, the petitioner based her finding that the 1987 importation of the respondent was
underdeclared in the amount of P105,761,527.00 on the worthless machine copies of the
Consumption Entries. Aside from such copies, the petitioner has no other evidence to
prove that the respondent imported goods costing P105,761,527.00. The petitioner
cannot find solace on the certifications of Tomas and Danganan because they did not
authenticate the machine copies of the Consumption Entries, and merely indicated
therein the entry numbers of Consumption Entries and the dates when the Bureau of
Customs released the same. The certifications of Tomas and Danganan do not even
contain the landed costs and the advance sales taxes paid by the importer, if any.
Comparing the certifications of Tomas and Danganan and the machine copies of the
Consumption Entries, only 36 of the entry numbers of such copies are included in the said

certifications; the entry numbers of the rest of the machine copies of the Consumption
Entries are not found therein.
Even if the Court would concede to the petitioners contention that the certification of
Tomas and Danganan authenticated the machine copies of the Consumption Entries
referred to in the certification, it appears that the total cost of importations inclusive of
advance sales tax is only P64,324,953.00 far from the amount of P105,716,527.00
arrived at by the EIIB and the BIR, 88 or even the amount of P110,079,491.61 arrived at by
Deputy Commissioner Deoferio, Jr.89 As gleaned from the certifications of Tomas and
Danganan, the goods covered by the Consumption Entries were released by the Bureau of
Customs, from which it can be presumed that the respondent must have paid the taxes
due on the said importation. The petitioner did not adduce any documentary evidence to
prove otherwise.
Thus, the computations of the EIIB and the BIR on the quantity and costs of the
importations of the respondent in the amount of P105,761,527.00 for 1987 have no
factual basis, hence, arbitrary and capricious. The petitioner cannot rely on the
presumption that she and the other employees of the BIR had regularly performed their
duties. As the Court held in Collector of Internal Revenue v. Benipayo,90 in order to stand
judicial scrutiny, the assessment must be based on facts. The presumption of the
correctness of an assessment, being a mere presumption, cannot be made to rest on
another presumption.
Moreover, the uncontroverted fact is that the BIR District Revenue Office had repeatedly
examined the 1987 books of accounts of the respondent showing its importations, and
found that the latter had minimal business tax liability. In this case, the presumption that
the District Revenue officers performed their duties in accordance with law shall apply.
There is no evidence on record that the said officers neglected to perform their duties as
mandated by law; neither is there evidence aliunde that the contents of the 1987 and
1988 Profit and Loss Statements submitted by the respondent with the SEC are incorrect.
Admittedly, the respondent did not adduce evidence to prove its correct tax liability.
However, considering that it has been established that the petitioners assessment is
barren of factual basis, arbitrary and illegal, such failure on the part of the respondent
cannot serve as a basis for a finding by the Court that it is liable for the amount contained
in the said assessment; otherwise, the Court would thereby be committing a travesty.
On the disposition of the case, the Court has two options, namely, to deny the petition for
lack of merit and affirm the decision of the CA, without prejudice to the petitioners
issuance of a new assessment against the respondent based on credible evidence; or, to
remand the case to the CTA for further proceedings, to enable the petitioner to adduce in
evidence certified true copies or duplicate original copies of the Consumption Entries for
the respondents 1987 importations, if there be any, and the correct tax deficiency
assessment thereon, without prejudice to the right of the respondent to adduce
controverting evidence, so that the matter may be resolved once and for all by the CTA. In
the higher interest of justice to both the parties, the Court has chosen the latter option.
After all, as the Tax Court of the United States emphasized in Harbin v. Commissioner of
Internal Revenue,91 taxation is not only practical; it is vital. The obligation of good faith
and fair dealing in carrying out its provision is reciprocal and, as the government should
never be over-reaching or tyrannical, neither should a taxpayer be permitted to escape
payment by the concealment of material facts.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court
of Appeals is SET ASIDE. The records are REMANDED to the Court of Tax Appeals for
further proceedings, conformably with the decision of this Court. No costs.