PB COM vs CIR

1.Pet is a commercial banking corp.

-filed its quarterly return for the first and
second quarter of 1985---paid the tax
2. Pet suffered losses----ITR: income losses, no tax liab
(for 1985 and 1986)
3. But during those years it earned rental income from
leased properties
4. pet requested for a tax credit rep the overpayment
of taxes, and the taxes withheld by the lessees
5. pending investigation, pet filed a petition with CTA
6. CTA: denied ---beyond the 2yr prescriptive period
7. CA: affirmed
Issue: barred by prescription? (RE: Non-Retroactivity
of Rulings (Sec246))
Ruling: YES
*Pet: Not yet barred relying on RMC 7-85 (10yr
prescriptive period)
-Non-retro applies thus covered by the 10yr PP
*SC: Not tenable
Sec246: Non-Retroactivity of Rulings
GR: Non-Retro if reversal is prejudicial to the TP
Except:
1. TP deliberately misstates material facts from
his return
2. facts gathered by BIR are materially
different from the facts which the ruling was
based
3. TP acted in bad faith
Claims for refund should be exercised within the
time fixed by law because the BIR, being an admin
body enforced to collect taxes, its functions should
not be unduly delayed or hampered by incidental
matters.
When the CIR issued the RMC changing the
prescriptive period of 2years to 10years on claims of
excess quarterly income tax payments, such circular
created a clear inconsistency with the provision of the
tax code. In doing so, BIR did not simply interpret the
law; rather it legislated guidelines contrary to the law
passed by Congress.
It is accepted that the interpretation of exec
offices whose duty is to enforce the laws, is entitled
to great respect by the courts. Nevertheless, such
interpretation is NOT Conclusive and will be ignored
if judicially found to be erroneous. (NOTE:
Rules/regulations issued by admin officials to
implement the law cannot go beyond the provisions
of the latter.)
Adj: Sec 246 will not applyRMC not apply: still 2yrs
as provided by the Tax Code.
Filed out of time

CIR vs SONY PHILS

1. CIR issued LOA to examine books of Sony for period
1997 and unverified prior years
2. CIR issued assesments for 1997 deficiency taxes
3.Sony sought re-evaluation:submitted relevant
documents
4. Sony filed pet with CTA
5. CTA: disallowed the deficiency VAT assessments
Subsidized advertising expense paid by Sony was duly
covered by a VAT invoice resulted in an input VAT
credit.
Issue: Valid assessment?
Ruling: NO.
*CIR: LOA-period of 1997 and unverified prior years
means the fiscal year ending in March 31, 1998.
*SC: not correct
Sec13: LOA is the authority given to the
appropriate revenue officer assigned to perform
assessment functions. It empowers said officer to
examine the books of the account and other acctg
records of a TP for the purpose of collecting the
correct amount of tax.
NOTE: There must be a grant of
authority before any revenue officer can
conduct an examination or assessment, else
the latter is null and void.
CIR went beyond the scope of their authority
because the deficiency VAT assessment they arrived
at was based on records from January-March 1998.
CIR added unverified prior years in the LOA. This is
a violation of RMO 43-90 which states that a LOA
should cover a taxable period not exceeding one
taxable year. (Note: If the audit if a TP shall include
more than one taxable period, the other periods shall
be SPECIFICALLY INDICATED in the LOA.)
Adj: disallow deficiency VAT assessments: not
covered by LOA
FITNESS BY DESIGN vs CIR
1. CIR assessed pet for deficiency income taxes for
1995
2. Pet protested: issued beyond 3yr PP
3. CIR issued a warrant of distraint/levy.
4. pet filed a petition for review with CTA.
5. CIR Answer: Pet ITR was false and fraudulent for its
deliberate failure to declare its true sales.
6. Pets former bookkeeper attested that a former
colleague (Sablan) illegally took custody of pets acctg
records and turned it over to the BIR.
7. a subpoena ad testificandum was issued to Sablan
but he failed to appear.

8. Pet requested for subpoena duces tecum.

Granted
9. Pet submitted written interrogatories to Sablan
10. CTA disallowed the written interrogatorires.
Issue:
Ruling:
The subpoena and answers to written interrogatories
would violate Sec2, RA 2338 proscribing the
revelation of identities of informers of violation of
internal revenue laws, except when the info is proven
to be false or malicious.
The law allows the BIR access to all relevant or
material records and data in the person of the TP and
the BIR can accept documents which cannot be
admitted in a judicial proceeding where the Rules of
Court are strictly observed. To require the consent of
the TP would defeat the intent if the law to help the
BIR assess and collect the correct amount of taxes.
BIR vs OMBUDSMAN
1. Ombudsman received an info from an informer-forreward regarding allegedly anomalous grant of tax
refunds to Limtuaco and La Tondena Distilleries.
2. Ombudsman issued a subpoena duces tecum to
Atty.Millard (Legal Dept of BIR) ordering him to
appear and bring the relevant documents re said tax
refund.
3. BIR asked that it be excused from complying
because (a) the Limtuaco case is pending
investigation and (b) the investigation thereof was
mooted.
4. Ombudsman issued another subpoena duces
tecum to CIR Vinzons-Chato
5. BIR moved to vacate the subpoena: (a) issued
without resolving the issues in the first subpoena, (b)
documents were already submitted to the Graft
Investi Officer, (c) compliance will violate Sec270
NIRC on unlawful divulgence of trade secrets.
6. Ombudsman denied.
Issue:
Ruling:
*BIR: The Ombudsman could validly exercise its
power to investigate ONLY when there is an
appropriate case. The fact-finding investing of the
Ombudsman is not the proper case as it is only a step
preliminary to the filing of recovery actions on tax
refunds granter to Limtuaco and La Todena.
*SC: Not meritorious
-Consti: Ombudsman shall act promptly on
complaints filed in any form or manner against public
officials or any subdivision, agency xxxx and shall in
appropriate case notify the complainants of the
action taken and the result thereof.

NOTE: There is NO reqt of a pending action before the

Ombudsman could wield its investigative power. It
could resort to its investigative prerogative on its own
or upon a complaint filed in any form or manner. Even
when the complaint is verbal or written, unsigned or
unverified, the Ombudsman could initiate the investig
in an appropriate case means any
case concerning official act or omission
which is alleged to be illegal, unjust,
improper or inefficient.
*BIR: determination of granting tax refunds fall within
its exclusive expertise thus can no longer be disturbed
by the Ombudsman thru its investigative power
*SC: Not correct
The power to investigate and to prosecute which was
granted by law to the Ombudsman is plenary and
unqualified. It encompasses all kinds of malfeasance,
misfeasance and nonfeasance.
NOTE: Concededly, the determination of whether to
grant a tax refund falls within the exclusive expertise
of the BIR but when there is a suspicion of even just a
tinge of impropriety in the grant of the same, the
Ombudsman could rightfully ascertain whether the
determination was done in accdg with law.
*BIR: subpoena would violate sec 270 (Divulgence of
trade secrets)
*SC: BIR did not show how the production of
subpoena would violate the law.
The documents sought were only the case
dockets of the tax refunds granted to
Limtuaco and La Tondena which are public
records.
*BIR: The investigation by OB violated due process.
(commenced the investi by issuing subpoena without
furnishing BIR the summary of the complaint and
requiring it to submit an Answer)
*SC: BIR is correct
BIR was summarily ordered to appear before the
Ombudsman and to produce the case dockets of the
tax refunds granted to Limtuaco and la tondena. It is
as if they were already deemed probably guilty of
granting anomalous tax refunds.
CIR vs HANTEX TRADING
1. Hantex is a corpo engaged in the sale of plastic
products. It imports synthetic resin and other
chemicals for the manufacture of its products. Thus it
is required to file a Consumption Entry.
2. EIIB received an info that Hantex imported
synthetic resin amounting to P115 million but only
declared P45million.

3. EIIB issued Mission Order 398-89 for the audit and

the investigation of the importations of Hantex for
1987.
4. IIPO issued subpoena duces tecum and a
testificandum to bring the books of accounts for the
year 1987, record of importations for the year 1987,
ITR and record of tax payments.
5. the president and the general manager refused to
comply with the subpoena.
6. IIPO requested the Collection Division of the port
of manila to authenticate the machine copies of the
import entries supplied by the informer.
7. they could not authenticate because they do not
have the original copies.
8. EIIB conducted an investig and relied on the
certified copies of Profit and Loss Statement for 1987
and 1988 on file with SEC.
9. Based on the documents the EIIB found that for
1987, the respondent had importations totaling
P105,716,527.00 (inclusive of advance sales tax)
10. Revenue officers conducted an investigation on
the 1987 importations. Based on the report: there is
a prima facie case of fraud. (unrecorded importation)
11. The investigation branch wrote and invited them
to a conference to discuss the deficiency taxes.
12. hantex questioned the assessment on the ground
of failure to present the original.
13. BIR denied the request.
14. CTA ordered hantex to pay deficiency tax.
15. CA reversed: assessments were unlawful since the
copies relied upon in computing the deficiency tax
were not duly authenticated by the public officer
charged with their custody.

CIR vs EMBROIDERY and GARMENT INDUSTRIES

1. CFI Manila issued search warrants for the seizure of
certain documents from respondent
2. Agents of the Anti-technical Smuggling group went
and seized various documents and records
3. CIR assessed respondent deficiency income taxes
for 1960 and 1961.
4. CIR issued a revised assessment of deficiency
income tax for 1959-1961
5. Resp protested, but denied.
6.CTA: resp not liable for deficiency income taxes --they are based on incompetent evidence consisting of
an informants report and the sworn statement of the
disgruntled former general manager of Resp that in
the years in question, resp sold all its dollar quotas to
local Chinese textile traders at an overprice value.
7. CA affirmed.

Issue:
Ruling:
The best evidence envisaged in Sec16 NIRC includes
the corporate and acctg records of the TP who is
subject of the assessment process, the acctg records
of other TP engaged in the same line of business,
including their gross profit and net profit sales.

Ruling: The BIR disallowed some if the expenses

claimed by the TP for failure of the latter to meet the
substantiation reqts under Sec34(a)(1)(b) of the Tax
Code, resulting in the assessment of deficiency
income tax. The BIR resorted to the Best Evidence
Obtainable Rule considering the failure of the TP to
furnish the supporting documents allegedly due to
destruction of its records by the typhoons.

Best evidence obtainable may consist of hearsay

evidence because admin agencies such as the BIR are
NOT bound by the technical rules of evidence.
NOTE: CIR, in making a prelim and final tax
assessment against a TP, cannot anchor the said
assessment on mere machine copies of
records/documents. Mere photocopy of the
Consumption Entries have no probative value if
offered as proof of the contents thereof. (mere scrap
of paper)
GR: BIR assessments-prima facie correct
EXCEPT: proof that an assessment is utterly without
foundation, meaning arbitrary and capricious.

Issue: Valid assessments?

Ruling: NO.
//Assessments must be made based on actual facts
and proved by competent evidence, not imposed
based on unverified information supplied by an
informant or disputed presumptions.
Case: The assessment were of doubtful validity as
they were based on their incompetent evidence
consisting of an informants report and the sworn
statement of the disgruntled former general manager
of Respondent.
FARCON MARKETING vs BIR
1.

The BIR failed to present before the Court any

evidence which it supposedly procured by resorting
to the BEOR, as basis for the deficiency assessment.
The BIR could have determined TP tax liability
through estimation considering the absence of the
TPs accounting records, which were destroyed by the
typhoons. However, such estimation should be based
on sufficient evidence. Since the BIR failed to present
any evidence which it used as basis for the deficiency
assessment, the assessment is void for lack of factual
basis.

JACINTO MARKETING vs CIR

1.

1.
CIR vs AQUAFRESH SEAFOODS
1. Resp sold to Philips Seafood 2parcels of land in
Roxas City for P3.1Million
2. Resp filed CGT Return
3. BIR received a report that the lots sold were
undervalued for taxation purposes--Ocular inspection
then the properties zonal value P2,000/sqm.
4. BIR sent assessment notices.
5. CTA: cancels the assessment.
Issue:
Ruling:
Although CIR has the autho to prescribe real property
values and divide the Philippines into zones, the law
is clear that the same be done upon consultation with
appraisers both from the public and private sectors.
CIR cannot unilaterally change the zonal value of such
properties to commercial without first conducting a
re-ievaluation of the zonal values as mandated to buy
The predominant use of other classifications of
properties located in a street/brgy zone, regardless of
actual use shall be considered for purposes of zonal
valuation.
//This applies only to zonal valuation for
purposes of CGT, estate tax and other
internal revenue purposes.

VICTORIA MANUFACTURING vs CIR

1.

REPUBLIC vs HIZON
1. BIR issued to Hizon a deficiency income tax
assessment for fiscal year 1981-1982
2. Resp not protestedBIR issued warrants of
distraint and levy to collect the deficiency. BUT it did
not proceed to dispose of the attached properties.
3. More than 3years later, Hizon requested
reconsideration of the assessment
4. BIR denied the request
5. BIR filed a case with the RTC to collect the tax
deficiency.
6. Hizon filed a motion to dismiss (a) action
prescribed, (b) not filed upon authority of the BIR
commissioner as required in Sec221 NIRC
7. RTC granted the motion and dismissed the
complaint.
Issues:
1. Not filed upon authority of BIR Commissione
2. prescribed
Ruling:

NO. RTC arrived at that conclusion because

the complaint filed by the BIR was not signed
by the Commissioner Chato. BUT it failed to
see that it was signed by BIR Chief of Legal
Division and verified by the Regional
Director. Thus, compliant with law.

*Section 221, NIRC

Civil and criminal actions and proceedings instituted
in behalf of the government under the authority of
this code or other law enforced by the BIR shall be
brought in the name of the Government of the
Philippines xxxx but no civil and criminal actions for
the recovery of taxes of the enforcement of any fine,
penalty, or forfeiture under this Code shall be begun
without the approval of the Commissioner.
As amended by RA 8424, the NIRC is now
even more categorical. Sec7 of the present code
authorizes the BIR Commissioner to delegate the
powers vested in him under the provisions of the code
to any subordinate official with the rank equivalent to
a division chief or higher, EXCEPT:
1. power to recommend the promulgation of rules
and regulations by the Secretary of Finance
2. power to issue rulings of first impression, or to
reverse any existing ruling of the bureau
3. power to compromise or abate any tax deficiency
4. power to assign/reassign internal revenue officers
to establishments where articles subject to excise tax
are produced or kept.
NOTE: None of the exceptions
relates to the Commissioners power to
approve the filing of tax collection cases.
(RAO 5-83: Regional Director signs;
RAO 10-95: Litigation and prosecution
Section of the Legal Division of the regional
district offices.)
2. YES
*BIR: the request for reinvestigation of the tax
deficiency assessment effectively suspended the
running of the prescriptive period (3yrs), such that
the govt could still file a case for tax collection.
*SC: NOT correct.
Sec229: A request for recon must be made
within 30days from the TPs receipt of the
assessment, else it becomes final, unappealable and
thus demandable.
Notice: July 18, 1986
Recon: Nov 3, 1992
The request for recon did not suspend the
running of the period. Although the Commissioner
acted on her request by eventually denying it, this is
of no moment and does not detract from the fact that
the assessment had long become demandable.

BUT even if a considerable time has passed since

then, the enforcement of tax collection through
summary proceedings may be carried out beyond the
statutory period considering that such remedy was
seasonably availed of.
PNOC vs CA
1. BIR requested PNOC to settle its tax liabilities for
taxes on the interests earned in the money
placements with PNB, which PNB did not withhold.
2. PNOC made an offer to compromise its liabilities:
to set-off its liab against the claim of tax refund of
NAPOCOR.
3. BIR: the proposal to set-off is premature since the
claim was still under process.
4. PNOC made another compromise: to pay 30% of
the tax BIR accepted the compromise
5. Savellano was paid the informers reward, but he
demanded the balance thereof BIR said it was
already fully paid.
6. Savellano then questioned the legality of the
compromise bet PNOC and BIR
7. Savellano filed petition with CTA
8. New BIR Commissioner: demanded PNB to pay the
deficiency withholding tax
9. PNB appealed to the DOJ re: assessment
10. CTA: Compromise is Null and void
11. CA affirmed
Ruling:
I.PNOC could not apply for compromise under EO44
EO44 granted the BIR commissioner the
power to compromise any disputed assessment or
delinquent account pending as of 31 Dec 1985, upon
the payment of an amount equal to 30% of the basic
tax assessed; in which case the corresponding
interests and penalties shall be condoned.
RR17-86: Delinquent Account
-Refers to the amount if tax due on or before Dec31,
1985 from a TP who failed to pay the same within the
time prescribed for its payment arising from:
1.) a self-assessed tax, whether or not a tax
return was filed
2.) a deficiency assessment issued by the BIR
which has become final and executory.
Note: If there is no return filed, the TP shall be
considered delinquent as of the time the tax on such
return was due, and in availing of the compromise, a
tax return shall be filed as a basis for computing the
amount of compromise to be paid.
Disputed Assessment
-Refers to a tax assessment disputed or protested on
or before 31Dec1985 under any of the ff categories:
1.) if the same is administratively protested
within 30 days from the date the TP received
the assessment;

2.) if the decision of the BIR on the admin

protest is appealed before an appropriate
court.
CASE: NOT delinquent
1. Not self-assessed: BIR conducted an investi
and assessment of PNOC and PNB
2. The demand letter issued 8Aug1986 could
not have been a deficiency assessment that
become final and executory by dec31,1985
Note: where tax liab are self-assessed, the
compromise payment shall be based on the tax return
filed by the TP; where the BIR already issued an
assessment, it shall be computed based on the tax due
on the assessment notice.
Given that PNOCs tax liability did not constitute a
delinquent account or disputed assessment as of dec
31, 1985, then it could not be compromised under
EO44.
Sec 246 NIRC granted the BIR Commisioner the
authority to compromise the payment of any internal
revenue tax under the following circumstances:
1. There exist a reasonable doubt as to the
validity of the claim against the TP
2. The financial position of the TP
demonstrates a clear inability to pay the
assessed tax.
II. Tax Liab of PNB as withholding agent also did not
qualify for compromise under EO44
RMO 39-86 allows a withholding agent who
failed to withhold the required tax because of neglect
or belief he is not required by law to withhold tax, to
apply for a compromise settlement of his withholding
tax liability under EO44.
NOTE: A withholding agent who withheld the tax
but failed to remit the said amount to the govt is
disqualified from applying for compromise because
he is being made accountable as an agent, who held
funds in trust for the government.
CASE: PNBs withholding tax liability could not be
considered delinquent account or a disputed
assessment as defined under RR 17-86 for the same
reasons that PNOCs tax liability did not constitute as
such.
III. Even if they are qualified under EO44, their
application for compromise was filed beyond the
deadline.
It was only in its letter dated June 9, 1987 that PNOC
offered to compromise its tax liability in accdg with
the terms of EO44. This letter was filed beyond 31
March 1987, after the lapse of the effectivity of EO44
and the deadline for filing applications for
compromise under the said statute.

IV. BIRs discretionary authority to enter into a

compromise agreement is NOT absolute
GR: not be interfered by the courts
Except: if the exercise is not in accordance with law
CASE: The manner by which the Commissioner
exercised his discretionary power to enter into a
compromise was brought under the scrutiny of the
CTA amidst allegations of grave abuse of discretion.
CTA may correct such abuse if the matter is appealed
to them.
V. CTA may set aside a compromise agreement that is
contrary to law and public policy
The compromise agreement between BIR and PNC
was contrary to law having been entered into by BIR
Commissioner Tan in excess or in abuse of the
authority granted to him by legislation. EO44 and
NIRC had identified the situations wherein the BIR
Commissioner may compromise tax liabilities, and
none of these situations existed in this case.
PEOPLE vs Sandiganbayan and TAN
1. BIR investigated the tax liabilities of San Miguel
Corp covering the period from Jan1,1985 to
March31,1986.
2. Results: Deficiency on specific and ad valorem taxes
amounting to P342Million
3. BIR sent a letter to SMC demanding the deficiency
4. SMC protestedBIR denied the protest (signed by
Commissioner Tan) BUT reduced the amount due to
tax credit of the excess ad valorem tax deposit.
5. Chief legislative ruling and research division
recommended the reduction of the tax liability to
P22Million
6. SMC offered P10Million for the settlement of the
assessment.
7. BIR concurred and approved.
8. SB found that the compromise agreement was
entered into illegally: ordered BIR to collect from SMC
P292Million AND found Tan guilty (anti-graft/corrupt)
9. SB subsequently reversed the decision: The
abatement of the ad valorem taxes is proper.
Issue: valid abatement/compromise?
Ruling: YES
The SB did not gravely abuse its discretion when it
upheld Tans compromise offer of P10million. In
computing its ad valorem tax liabilities, SMC
deducted from its brewers gross selling price the
specific tax, price differential and ad valorem tax. BIR
allowed the deduction of the specific tax but not the
price differentials and ad valorem tax, thus increasing
the tax base and consequently the ad valorem tax
liabilities of SMC.

NOTE: Although referred to in the pleadings as a

compromise, the matter at hand is actually an
abatement or cancellation.
*Abatement- diminution or decrease in the
amount of tax imposed; it refers to the act of
eliminating or nullifying; of lessening or
moderating. While to cancel is to obliterate,
cross out or invalidate and to strike out,
delete, erase, make void or invalid, annul,
revoke or recall.
The BIR may therefore abate or cancel the whole or
any unpaid portion of a tax liability, inclusive of
increments, if its assessment is excessive or
erroneous; or if the administration costs involved do
not justify the collection of the amount due. No
mutual concessions need be made, because an
excessive or erroneous tax is not compromised; it is
abated or cancelled. Only correct taxes should be
paid.
SC: the abatement of the excessive and erroneous
taxes was not only within the discretion of the
respondent, but it was fair and reasonable, even if it
may appear to be an arbitrary action grossly
disadvantageous to the government. After all, the
purpose of tax assessment is to collect only what is
legally due to the government and not to overburden,
much less harass, the taxpayers.