Title: CIR vs. Hon.
Secretary Gonzales, GR 177279, October 2010 Issue: Whether the obtained information from third parties despite the
Topic: Organization and Function of BIR
Doctrine: Tax assessments by tax examiners are presumed correct and
made in good faith, and all presumptions are in favor of the correctness
of a tax assessment unless proven otherwise.
Facts: Pursuant to Letter of Authority issued. BIR conducted a fraud
investigation for all internal revenue taxes to ascertain/determine the
tax liabilities of respondent L. M. Camus Engineering Corporation
(LMCEC).
The audit and investigation against LMCEC was precipitated by the
information provided by an "informer" that LMCEC had substantial
underdeclared income for the said period. For failure to comply with the
subpoena duces tecum issued in connection with the tax fraud
investigation, a criminal complaint was instituted by BIR against
LMCEC for violation of Section 266 of the NIRC.
Based on data obtained from an "informer" and various clients of
LMCEC, it was discovered that LMCEC filed fraudulent tax returns with
substantial underdeclarations of taxable income for the 3 years.
Petitioner thus assessed the company of total deficiency taxes and
PAN was received by LMCEC. But the company refused to pay and
they contend that the assessment were invalid since the serial
numbers were not consistent. The company also attacks the identity of
the informer for being fictitious and alleges that the criminal case
should not be filed, because it was only made to harass the company.
lack of consent of the taxpayer under investigation is illegal or
malicious?
Ruling: No.
As the revenue officers were not given the opportunity to examine the
taxpayers documents, they are authorized under Section 5 of the
NIRC to gather information from third parties.
In the absence of accounting records and other documents necessary
for the proper determination of tax liabilities, the revenue officers
resorted to the Best Evidence Obtainable [Section 6(B) of the NIRC;
RMC No. 23-2000 (November 27, 2000)]. The lack of consent of the
taxpayer under investigation does not imply that the BIR obtained the
information from third parties illegally or that the information received is
false or malicious. Nor does the lack of consent preclude the BIR from
assessing deficiency taxes on the taxpayer based on the documents.
In addition, respondents cannot be allowed to escape criminal
prosecution under Sections 254 and 255 of the NIRC by mere
imputation of a fictitious or disqualified informant under Section 282
simply because other than disclosure of the official registry number of
the third party informer, the Bureau insisted on maintaining the
confidentiality of the identity and personal circumstances of said
informer.
Petition Granted.
Fitness by Design vs. CIR, October 17, 2008
Topic: Organization and Function of the Bureau of Internal Revenue
Law: Section 5 of Tax Code
Doctrine: The law thus allows the BIR access to all relevant or
material records and data in the person of the taxpayer, 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 taxpayer would defeat the intent of the law to help
the BIR assess and collect the correct amount of taxes.
Facts:
Mar. 17, 2004: Respondent CIR assessed Petitioner Fitness by Design
for deficiency income taxes for tax year 1995
Petitioner protested:
- the assessment on the ground that it was issued beyond the 3-year
prescriptive period under Sec. 203 of Tax Code
- since it was incorporated only on May 30, 1995, there was no basis to
assume it had already earned income for the tax year 1995
2005: respondent issued a warrant of distraint and/or levy against
petitioner
Petitioner filed a Petition for Review (with Motion to Suspend Collection
of Income Tax, VAT, DST and Surcharges and Interests) before CTA;
defense was prescription
Respondent:
- petitioners 1995 filed on Apr. 11, 1996 ITR was false and fraudulent
for its deliberate failure to declare its true sales
- did not disclose that it has been operating/doing business and had
sales ops for 1995 which it failed to report in its 1995 ITR
- for failure to file a VAT return and for filing a fraudulent income tax
return for 1995, the corresponding taxes may be assessed at any time
within 10 years after the discovery of such omission or fraud
BIR filed a criminal complaint before DOJ against officers and
accountant of petitioner for violation of provisions of NIRC covering
taxable year 1995
CTA denied petitioners Motion for Issuance of Subpoenas and
disallowed the submission by petitioner of written interrogatories to
Sablan and revenue officers by resolution; to require Sablan to testify
would violate Sec. 2 RA 2338 proscribing revelation of identities of
informers of violations of internal revenue laws, except when the
information is proven to be malicious/false; There was no need to issue
subpoena duces tecum to obtain the Affidavit of the Informer as the
same formed part of the BIR records of the case, the production of
which had been ordered by it
Petitioners MR denied
Hence, this present petition.
Issue: WON the acquisition of documents by BIR without petitioners
consent is considered as illegally obtained
Ratio:
Petitioners lack of consent does not, however, imply that the BIR
obtained them illegally or that the information received is false or
malicious. Nor does the lack of consent preclude the BIR from
assessing deficiency taxes on petitioner based on the documents.Thus
Section 5 of the Tax Code provides:

In ascertaining the correctness of any return, or in making a return
when none has been made, or in determining the liability of any person
for any internal revenue tax, or in collecting any such liability, or in
evaluating tax compliance, the Commissioner is authorized:
(A) To examine any book, paper, record or other data which may be
relevant or material to such query;
(B) To obtain on a regular basis from any person other than the
person whose internal revenue tax liability is subject to audit or
investigation, or from any office or officer of the national and local
governments, government agencies and instrumentalities, including
the Bangko Sentral ng Pilipinas and government-owned and controlled
corporations, any information such as, but not limited to, costs and
volume of production, receipts or sales and gross incomes of
taxpayers, and the names, addresses, and financial statements of
corporations, mutual fund companies, insurance companies, regional
operating headquarters of multinational companies, joint accounts,
associations, joint ventures or consortia and registered partnerships
and their members;
(C) 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 representatives at a time and
place specified in the summons and to produce such books, papers,
records, or other data, and to give testimony;
(D) To take such testimony of the person concerned, under oath, as
may be relevant or material to such inquiry; and
(E) To cause revenue officers and employees to make a canvass from
time to time of any revenue district or region and inquire after and
concerning all persons therein who may be liable to pay any internal
revenue tax, and all persons owning or having the care, management
or possession of any object with respect to which a tax is imposed.
The law thus allows the BIR access to all relevant or material records
and data in the person of the taxpayer, 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
taxpayer would defeat the intent of the law to help the BIR assess and
collect the correct amount of taxes.
Petitioners invocation of the rights of an accused in a criminal
prosecution to cross examine the witness against him and to have
compulsory process issued to secure the attendance of witnesses and
the production of other evidence in his behalf does not lie.CTA Case
No. 7160 is not a criminal prosecution, and even granting that it is
related to I.S. No. 2005-203, the respondents in the latter proceeding
are the officers and accountant of petitioner-corporation, not
petitioner. From the complaint and supporting affidavits in I.S. No.
2005-203, Sablan does not even appear to be a witness against the
respondents therein
Dispositive: WHEREFORE, in light of the foregoing disquisition, the
petition is DISMISSED. Costs against petitioner
CIR vs. Hantex Trading Co., March 21, 2005
Topic: Organization and Function of the Bureau of Internal Revenue
Law:
Doctrine: 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. 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.
Facts:
Respondent is engaged in sale of plastic products, imports synthetic
resin and other chemicals for the manufacture of its products. It is
required to file an Import Entry and Internal Revenue Declaration
(Consumption Entry) with Bureau of Customs (Sec. 1301, Tariff and
Customs Code)
Sometime in 1989, Acting Chief Amoto of Counter-Intelligence Division
of Econ Intelligence and Investigation Bureau (EIIB) received a
confidential information that respondent had imported synthetic resin
amting to P115M+ but only declared P45M+. the 1987 importations
were understated in its accounting records. Amoto submitted a report
to EIIB Commissioner recommending that an inventory audit be
conducted
A Mission Order was issued for the audit and investigation of
importations of Hantex for 1987. IIPO issued subpoena duces tecum
and ad testificandum for president and general manager of respondent
to appear in a hearing and bring the required documents. However,
respondent refused to comply: books of accounts and records of
importation had been investigated repeatedly by BIR on prior
occasions. IIPO explained that they were still authorized to do so under
EO 127 (Section 26-A). still, respondent refused to comply with the
subpoena. IIPO secured certified copies of the Profit and Loss
Statements for 1987 filed by respondent with SEC. however, they failed
to secure copies of respondents 1987 consumption entries from BOC
(Original copies were eaten by termites, accdg to custodian)
Acting Chief of Collection Division of BOC Danganan issued a
certification instead that enumerated entries were filed by respondent
processed and released after payment of duties and taxes; includes
machine copies of the Consumption Entries for 1987
Based on those, EIIB found that respondent had unreported sales
(P63M+) and income tax liability of P41M+ + penalty charge and
interests
EIIB Comm recommended BIR to collect the total tax assessment
Revenue Enforcement Officers conducted an investigation to ascertain
the respondents liability for deficiency sales and income taxes, if any;
there was prima facie case of fraud (based on report of EIIB and
documents/records)
Invitation to conference was reiterated in a letter. However, president
and general manager of respondent requested that the report of
officers be set aside saying that of all the prior investigations
conducted, they already proved the contrary to the allegation.
Petitioner: sent a letter demanding payment of deficiency income tax
and deficiency sales tax
Warrant of Distraint and/or Levy was actually served. Respondent
wrote the CIR protesting the assessment
BIR denied the letter-request for dismissal of assessments; she was
not proscribed from relying on other admissible evidence on the
respondents tax liability
Respondent filed a petition for review with CTA
CTA: denied petition; respondent failed to prove the correct amount of
taxes due to BIR
CA granted petition and reversed CTA decision
Hence, this petition.
Issue: WON the final assessment of petitioner against respondent for
deficiency income tax and sales tax for 1987 is based on competent
evidence and the law
Ratio: NO
Central to the second issue is Section 16 of the NIRC of 1977, as
amended, 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. 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
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. 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. 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.
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. 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.
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.
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. However, the rule does not apply where
the estimation is arrived at arbitrarily and capriciously.
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, or even the amount of P110,079,491.61
arrived at by Deputy Commissioner Deoferio, Jr. 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.
Dispositive: 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.
- After trial, the CTA-First Division disallowed the deficiency VAT
Title: Commissioner of Internal Revenue v. Sony Philippines,
[G.R. No. 178697. November 17, 2010.]
Topic: Organization and Function of the Bureau of Internal Revenue
Law: Sec 6, Tax Code
Doctrine: There must be a grant of authority before any revenue officer
can conduct an examination or assessment. Equally important is that
the revenue officer so authorized must not go beyond the authority
given. In the absence of such an authority, the assessment or
examination is a nullity.
Facts: On November 24, 1998, the CIR issued Letter of Authority No.
000019734 (LOA 19734) authorizing certain revenue officers to
examine Sony's books of accounts and other accounting records
regarding revenue taxes for "the period 1997 and unverified prior
years." A preliminary assessment for 1997 deficiency taxes and
penalties was issued by the CIR which Sony protested. Thereafter,
acting on the protest, the CIR issued final assessment notices, the
formal letter of demand and the details of discrepancies.
Sony sought re-evaluation of the aforementioned assessment by filing
a protest on February 2, 2000. Sony submitted relevant documents in
support of its protest on the 16th of that same month.
On October 24, 2000, within 30 days after the lapse of 180 days from
submission of the said supporting documents to the CIR, Sony filed a
petition for review before the CTA.
assessment because the subsidized advertising expense paid by Sony
which was duly covered by a VAT invoice resulted in an input VAT
credit. As regards the EWT, the CTA-First Division maintained the
deficiency EWT assessment on Sony's motor vehicles and on
professional fees paid to general professional partnerships. It also
assessed the amounts paid to sales agents as commissions with five
percent (5%) EWT pursuant to Section 1 (g) of Revenue Regulations
No. 6-85. The CTA-First Division, however, disallowed the EWT
assessment on rental expense since it found that the total rental
deposit of P10,523,821.99 was incurred from January to March 1998
which was again beyond the coverage of LOA 19734. Except for the
compromise penalties, the CTA-First Division also upheld the penalties
for the late payment of VAT on royalties, for late remittance of final
withholding tax on royalty as of December 1997 and for the late
remittance of EWT by some of Sony's branches. In sum, the CTA-First
Division partly granted Sony's petition by cancelling the deficiency VAT
assessment but upheld a modified deficiency EWT assessment as well
as the penalties.
Issue: W/N the period 1997 and unverified prior years," should be
understood to mean the fiscal year ending in March 31, 1998
Ratio: NO. Based on Section 13 of the Tax Code, a Letter of Authority
or LOA is the authority given to the appropriate revenue officer
assigned to perform assessment functions. It empowers or enables
said revenue officer to examine the books of account and other
accounting records of a taxpayer for the purpose of collecting the
correct amount of tax. The very provision of the Tax Code that the CIR
relies on is unequivocal with regard to its power to grant authority to
examine and assess a taxpayer.
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. . . . [
Clearly, there must be a grant of authority before any revenue officer
can conduct an examination or assessment. Equally important is that
the revenue officer so authorized must not go beyond the authority
given. In the absence of such an authority, the assessment or
examination is a nullity.
As earlier stated, LOA 19734 covered "the period 1997 and unverified
prior years." For said reason, the CIR acting through its revenue
officers went beyond the scope of their authority because the
deficiency VAT assessment they arrived at was based on records from
January to March 1998 or using the fiscal year which ended in March
31, 1998. As pointed out by the CTA-First Division in its April 28, 2005
Resolution, the CIR knew which period should be covered by the
investigation. Thus, if CIR wanted or intended the investigation to
include the year 1998, it should have done so by including it in the LOA
or issuing another LOA.
Upon review, the CTA-EB even added that the coverage of LOA 19734,
particularly the phrase "and unverified prior years," violated Section C
of Revenue Memorandum Order No. 43-90 dated September 20, 1990,
the pertinent portion of which reads:
3. A Letter of Authority should cover a taxable period not exceeding
one taxable year. The practice of issuing L/As covering audit of
"unverified prior years is hereby prohibited. If the audit of a taxpayer
shall include more than one taxable period, the other periods or years
shall be specifically indicated in the L/A.
On this point alone, the deficiency VAT assessment should have been
disallowed. Be that as it may, the CIR's argument, that Sony's
advertising expense could not be considered as an input VAT credit
because the same was eventually reimbursed by Sony International
Singapore (SIS), is also erroneous. Thus, there must be a sale, barter
or exchange of goods or properties before any VAT may be levied.
Certainly, there was no such sale, barter or exchange in the subsidy
given by SIS to Sony. It was but a dole out by SIS and not in payment
for goods or properties sold, bartered or exchanged by Sony.
Dispositive: WHEREFORE, the petition is DENIED. SO ORDERED.
Title: REPUBLIC OF THE PHILIPPINES, represented by the
Honorable COMMISSIONER OF INTERNAL REVENUE (CIR),
petitioner, vs. AQUAFRESH SEAFOODS, INC., respondent.
G.R. No. 170389. October 20, 2010.]
Topic: Organization and Function of the Bureau of Internal Revenue
Law:
Doctrine: While the CIR has the authority to prescribe real property
values and divide the Philippines into zones, thelaw is clear that the
same has to be done upon consultation with competent appraisers
both from the public and private sectors.
Facts: Respondent Aquafresh Seafoods Inc. sold to Philips Seafoods,
Inc. two parcels of land, including improvements thereon, located at
Barrio Banica, Roxas City, for the consideration of Php3,100,000.00.
Respondent then filed a Capital Gains Tax Return/Application for
Certification Authorizing Registration and paid the amount of
Php186,000.00, representing the Capital Gains Tax and the amount of
Php46,500.00, representing the DST due from the said sale.
Subsequently, Revenue District Officer Gil G. Tabanda issued
Certificate Authorizing Registration No. 1071477.
The BIR, however, received a report that the lots sold were
undervalued for taxation purposes. This prompted the Special
Investigation Division (SID) of the BIR to conduct an ocular inspection
over the properties. After the investigation, the SID concluded that the
subject properties were commercial with a zonal value of Php2,000.00
per square meter.
Director Sacamos of the Revenue Region Iloilo City sent two
Assessment Notices apprising respondent of CGT and DST defencies
in the sum of Php1,372,171.46 and Php356,267.62, respectively.
Director Sacamos relied on the findings of the SID that the subject
properties were commercial with a zonal valuation of Php2,000.00 per
square meter. Respondent sent a letter protesting the assessments
made by Director Sacamos. Director Sacamos denied respondent's
protest for lack of legal basis.
Respondent filed a petition for review before the CTA seeking the
reversal of the denial of its protest. The main thrust of respondent's
petition was that the subject properties were located in Barrio Banica,
Roxas, where the pre-defined zonal value was Php650.00 per square
meter based on the "Revised Zonal Values of Real Properties in the
City of Roxas under Revenue District Office No. 72 Roxas City".
Respondent asserted that the subject properties were classified as
"RR" or residential and not commercial. Respondent argued that since
there was already a pre-defined zonal value for properties located in
Barrio Banica, the BIR officials had no business re-classifying the
subject properties to commercial.
Issue: W/N the CIR is correct in re-classifying the subject properties
from residential to commercial, consequentlyraising the zonal value request by the Iglesia ni Cristo that the re-computation of CGT and
of the properties.
Ratio: No. While the CIR has the authority to prescribe real property
values and divide the Philippines into zones, the law is clear that the
same has to be done upon consultation with competent appraisers
both from the public and private sectors. It is undisputed that at the
time of the sale of the subject properties found in Barrio Banica, Roxas
City, the same were classified as "RR," or residential, based on the
1995 Revised Zonal Value of Real Properties. Petitioner, thus, cannot
unilaterally change the zonal valuation of such properties to
"commercial" without first conducting a re-evaluation of the zonal
values as mandated under Section 6 (E) of the NIRC.
Petitioner failed to prove that it had complied with Revenue
Memorandum No. 58-69 and that a revision of the 1995 Revised Zonal
Values of Real Properties was made prior to the sale of the subject
properties. Thus, notwithstanding petitioner's disagreement to the
classification of the subject properties, the same must be followed for
purposes of computing the CGT and DST. It bears stressing, and as
observed by the CTA En Banc, that the 1995 Revised Zonal Values of
Real Properties was drafted by petitioner, BIR personnel,
representatives from the Department of Finance, National Tax
Research Center, Institute of Philippine Real Estate Appraisers and
Philippine Association of Realtors Board, which duly satisfied the
requirement of consultation with public and private appraisers.
In BIR Ruling No. 041-2001, issued on September 18, 2001, the BIR
tackled the application of a provision which is identical to Section 2 (a)
of the Zonal Valuation Guidelines. BIR Ruling No. 041-2001 involved a
DST based on the predominant use of the real properties located at
Mindanao Avenue, Quezon City, be set aside. In said case, the Iglesia
ni Cristo paid the CGT and DST based on the zonal value of residential
lots in Quezon City. The Revenue District Officer, however, ordered a
re-computation of the CGT and DST based on the ground that the real
property is located in a predominantly commercial area and must be
classified as commercial for purposes of zonal valuation. The BIR ruled
in favor of Iglesia ni Cristo stating that "Certain Guidelines in the
Implementation of Zonal Valuation of Real Properties for RDO No. 38,
applying the predominant use of property as the basis for the
computation of the Capital Gains and Documentary Stamp Taxes, shall
apply only when the real property is located in an area or zone where
the properties are not yet classified and their respective zonal valuation
are not yet determined."
this Court need not belabour on the applicability of Section 2 (a), as the
BIR itself has already ruled that the same shall apply only when the
real property is located in an area or zone where the properties are not
yet classified and their respective zonal valuation are not yet
determined. As mentioned earlier, the subject properties were already
part of the 1995 Revised Zonal Value of Real Properties which
classified the same as residential with a zonal value of Php650.00 per
square meter; thus, Section 2 (a) clearly has no application.
This Court agrees with the observation of the CTA that "zonal valuation
was established with the objective of having an 'efficient tax
administration by minimizing the use of discretion in the determination
of the tax based on the part of the administrator on one hand and the
taxpayer on the other hand.' Zonal value is determined for the purpose
of establishing a more realistic basis for real property valuation. Since
internal revenue taxes, such as CGT and DST, are assessed on the
basis of valuation, the zonal valuation existing at the time of the sale
should be taken into account.
this Court rules that even assuming arguendo that the subject
properties were used for commercial purposes, the same remains to
be residential for zonal value purposes. It appears that actual use is
not considered for zonal valuation, but the predominant use of other
classification of properties located in the zone. Again, it is undisputed
that the entire Barrio Banica has been classified as residential.
Dispositive: WHEREFORE, premises considered, the petition is
denied. The November 9, 2005 Decision of the Court of Tax Appeals
En Banc, in CTA-E.B. No. 77, is hereby AFFIRMED.
SO ORDERED.
CIR vs. Sony Philippines, November 17, 2010
Topic: Organization and Function of the Bureau of Internal Revenue
Law: Section 13 of NIRC
Doctrine: There must be a grant of authority before any revenue
officer can conduct an examination or assessment. Equally important
is that the revenue officer so authorized must not go beyond the
authority given. In the absence of such an authority, the assessment or
examination is a nullity.
Facts:
Nov. 24, 1998: CIR issued a Letter of Authority authorizing certain
revenue officers to examine Sonys books of accounts and other
accounting records regarding revenue taxes for the period 1997 and
unverified prior years.
1999: a preliminary assessment for 1997 deficiency taxes and
penalties was issued by CIR; Sony protested
Acting on the protest, CIR issued final assessment notices, formal
letter of demand and details of discrepancies
Sony sought re-evaluation of the assessment by filing a protest in
2000. Sony submitted relevant documents in support of its protest on
the 16th of that same month.
Within 30 days after the lapse of 180 days from submission of said
documents to CIR, Sony filed a petition for review before CTA.
CTA 1st division: disallowed deficiency VAT assessment because the
subsidized advertising expense paid by Sony which was duly covered
by a VAT invoice resulted in an input VAT credit; maintained the
deficiency Expanded Withholding Tax (EWT) on Sonys motor vehicles
and on professional fees paid to general professional partnerships;
also assessed amounts paid to sales agents as commissions with 5%
EWT; disallowed EWT assessment on rental expense since the total
rental deposit incurred from Jan-Mar 1998 beyond the coverage of
LOA; Except for compromise penalties, it also upheld the penalties for
the late payment of VAT on royalties, for late remittance of FWT on
royalty and for late remittance of EWT by some of Sonys branches
(Partly granted Sonys petition by cancelling the deficiency VAT
assessment but upheld a modified deficiency EWT assessment +
penalties
CIR sought reconsideration; CTA 1st Division denied
CIR filed a petition for review with CTA-EB
CTA-EB dismissed; CIRs MR denied
Hence, this petition for review
Issue: WON LOA 19734, though it states the period 1997 and
unverified prior years, should be understood to mean the fiscal year
ending in Mar. 31, 1998
Ratio: NO
Based on Section 13 of the Tax Code, a Letter of Authority or LOA is
the authority given to the appropriate revenue officer assigned to
perform assessment functions. It empowers or enables said revenue
officer to examine the books of account and other accounting records
of a taxpayer for the purpose of collecting the correct amount of tax.
The very provision of the Tax Code that the CIR relies on is
unequivocal with regard to its power to grant authority to examine and
assess a taxpayer.
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. x x x [Emphases supplied]
Clearly, there must be a grant of authority before any revenue officer
can conduct an examination or assessment. Equally important is that
the revenue officer so authorized must not go beyond the authority
given. In the absence of such an authority, the assessment or
examination is a nullity.
As earlier stated, LOA 19734 covered the period 1997 and unverified
prior years. For said reason, the CIR acting through its revenue officers
went beyond the scope of their authority because the deficiency VAT
assessment they arrived at was based on records from January to
March 1998 or using the fiscal year which ended in March 31, 1998. As
pointed out by the CTA-First Division in its April 28, 2005 Resolution,
the CIR knew which period should be covered by the investigation.
Thus, if CIR wanted or intended the investigation to include the year
1998, it should have done so by including it in the LOA or issuing
another LOA.
Upon review, the CTA-EB even added that the coverage of LOA 19734,
particularly the phrase and unverified prior years, violated Section C of
Revenue Memorandum Order No. 43-90 dated September 20, 1990
(LOA should cover a taxable period not exceeding one taxable year;
covering unverified prior years is prohibited)
Dispositive: In view of the foregoing, the Court finds no reason to
disturb the findings of the CTA-EB. WHEREFORE, the petition is
DENIED.
---
Republic of the Philippines vs. Aquafresh Seafoods, Oct. 20, 2010
Topic: Organization and Function of the Bureau of Internal Revenue
Law: Section 6(E) of the NIRC
Doctrine: While the CIR has the authority to prescribe real property
values and divide the Philippines into zones, the law is clear that the
same has to be done upon consultation with competent appraisers
both from the public and private sectors.
Facts:
June 7, 1999: Respondent Aquafresh Seafoods, Inc sold to Philips
Seafoods, Inc. 2 parcels of land + improvements, located at Barrio
Banica, Roxas City, for P3.1M; properties were covered under TCTs
Respondent then filed a Capital Gains Tax Return/Application for
Certification Authorizing Registration and paid P186K (CGT) and
P46,500 (DST) due from the said sale. Revenue District Officer
Tabanda issued Certificate Authorizing Registration
BIR received a report that the lots sold were undervalued for taxation
purposes. This prompted the Special Investigation Division (SID) of
BIR to conduct an ocular inspection over the properties. After the
investigation, SID concluded that the properties were commercial with
a zonal value of P2k per sq.m.
2000: Regional Director Sacamos of Revenue Region Iloilo sent 2
Assessment Notices apprising respondent of CGT and DST
deficiencies; he relied on findings of SID
Respondent sent a letter protesting the assessments made by
Sacamos; denied protest for lack of legal basis
Respondent appealed; denied
Respondent filed a petition for review before CTA seeking reversal of
denial of protest
- Subject properties were classified as residential and not commercial
- Since there was already a pre-defined zonal value for properties
located in Barrio Banica, the BIR officials had no business re-
classifying the subject properties to commercial
CTA: for respondent (existing Revised Zonal Values in Roxas City
should prevail for purposes of determining respondents tax liablities)
CIR filed MR; denied
Petitioner appealed to CTA-EB; dismissed
Hence, this petition.
- The requirement of consultation with competent appraisers is
mandatory only when it is prescribing real property values that is when
formulation or change is made in the schedule of zonal values
- What it did was not to prescribe zonal values, but merely classify the
same as commercial and apply the corresponding zonal value for such
classification based on the existing schedule of zonal values in Roxas
Issue: WON the requirement of consultation with competent appraisers
both from private and public sectors in determining the FMV of subject
lots is applicable in the case at bar
Ratio: YES
Under Section 27(D)(5) of the NIRC of 1997, a CGT of six (6%)
percent is imposed on the gains presumed to have been realized in the
sale, exchange or disposition of lands and/or buildings which are not
actively used in the business of a corporation and which are treated as
capital assets based on the gross selling price or fair market value as
determined in accordance with Section 6(E) of the NIRC, whichever is
higher.
On the other hand, under Section 196 of the NIRC, DST is based on
the consideration contracted to be paid or on its fair market value
determined in accordance with Section 6(E) of the NIRC, whichever is
higher.
Thus, in determining the value of CGT and DST arising from the sale of
a property, the power of the CIR to assess is subject to Section 6(E) of
the NIRC, which provides:
Section 6. Power of the Commissioner to Make Assessments and
Prescribe Additional Requirements for Tax Administration and
Enforcement.
(E) Authority of the Commissioner to Prescribe Real Property Values
The Commissioner is hereby authorized to divide the Philippines into
different zones or area and shall, upon consultation with competent
appraisers both from the private and public sectors, determine the
fair market value of real properties located in each zone or area. For
purposes of computing internal revenue tax, the value of the property
shall be, whichever is higher of:
(1) the fair market value as determined by the Commissioner; or
(2) the fair market value as shown in the schedule of values of the
Provincial and City Assessors.
While the CIR has the authority to prescribe real property values and
divide the Philippines into zones, the law is clear that the same has to
be done upon consultation with competent appraisers both from the
public and private sectors. It is undisputed that at the time of the sale of
the subject properties found in Barrio Banica, Roxas City, the same
were classified as RR, or residential, based on the 1995 Revised Zonal
Value of Real Properties. Petitioner, thus, cannot unilaterally change
the zonal valuation of such properties to commercial without first
conducting a re-evaluation of the zonal values as mandated under
Section 6(E) of the NIRC.
To this Court's mind, petitioner's act of re-classifying the subject
properties from residential to commercial cannot be done without first
complying with the procedures prescribed by law. It bears to stress that
ALL the properties in Barrio Banica were classified as residential,
under the 1995 Revised Zonal Values of Real Properties. Thus,
petitioner's act of classifying the subject properties involves a re-
classification and revision of the prescribed zonal values. In addition,
Revenue Memorandum No. 58-69 provides for the procedures on the
establishment of the zonal values of real properties.
Petitioner failed to prove that it had complied with Revenue
Memorandum No. 58-69 and that a revision of the 1995 Revised Zonal
Values of Real Properties was made prior to the sale of the subject
properties. Thus, notwithstanding petitioner's disagreement to the
classification of the subject properties, the same must be followed for
purposes of computing the CGT and DST. It bears stressing, and as
observed by the CTA En Banc, that the 1995 Revised Zonal Values of
Real Properties was drafted by petitioner, BIR personnel,
representatives from the Department of Finance, National Tax
Research Center, Institute of Philippine Real Estate Appraisers and
Philippine Association of Realtors Board, which duly satisfied the
requirement of consultation with public and private appraisers.
Section 1(b) of the Zonal Valuation Guidelines (relied upon by
petitioner) does not apply to the case at bar for the simple reason that
said proviso operates only when no zonal valuation has been
prescribed. The properties located in Barrio Banica, Roxas City were
already subject to a zonal valuation, a fact which even petitioner
has admitted in its petition. A case involving Iglesia ni Cristo (which
guidelines [Section 29(a)] are relied upon by petitioner as well) stated
Certain Guidelines in the Implementation of Zonal Valuation of Real
Properties for RDO No. 38, applying the predominant use of property
as the basis for the computation of the Capital Gains and Documentary
Stamp Taxes, shall apply only when the real property is located in an
area or zone where the properties are not yet classified and their
respective zonal valuation are not yet determined.
Zonal valuation was established with the objective of having an efficient
tax administration by minimizing the use of discretion in the
determination of the tax based on the part of the administrator on one
hand and the taxpayer on the other hand. Zonal value is determined for
the purpose of establishing a more realistic basis for real property
valuation. Since internal revenue taxes, such as CGT and DST, are
assessed on the basis of valuation, the zonal valuation existing at the
time of the sale should be taken into account.
If petitioner feels that the properties in Barrio Banica should also be
classified as commercial, then petitioner should work for its revision in
accordance with Revenue Memorandum Order No. 58-69. The burden
was on petitioner to prove that the classification and zonal valuation
in Barrio Banica have been revised in accordance with the prevailing
memorandum. In the absence of proof to the contrary, the 1995
Revised Zonal Values of Real Properties must be followed.
Dispositive: WHEREFORE, premises considered, the petition is
denied. The November 9, 2005 Decision of the Court of Tax
Appeals En Banc, in CTA-E.B. No. 77, is hereby AFFIRMED.

A. CIR v SONY PHILIPPINES
G.R. No. 178697 / November 17, 2010
TOPIC: Remedies - Assesment
DOCTRINE:
1. In the absence of authority through the Letter of Authority, the
assessment or examination by BIR agents is a nullity.
2. There must be a sale, barter or exchange of goods or properties
before any VAT may be levied.
FACTS: The CIR issued Letter of Authority (LA) to examine Sonys
books of accounts and other accounting records regarding revenue
taxes for the period 1997 and unverified prior years. A preliminary
assessment and demand letter for 1997 taxes, deficiencies and
penalties was issued by the CIR. The VAT deficiency resulted from its
disallowance of the input VAT tax credit from Sonys advertising
expense. Sony sought a re-evaluation of these tax deficiency
assessments by filing a protest. Acting on the protest, the CIR issued
final assessment notices with formal letter of demand. Thereafter, Sony
filed a petition for review before the CTA Division. Before the CTA
Division, CIR argued that since Sonys advertising expense was
reimbursed by Sony Singapore, the former never incurred any
advertising expense. As a result, Sony is not entitled to a tax credit. At
most, the CIR continues, the said advertising expense should be for
the account of Sony Singapore, and not Sony Philippines. The CTA
Division partly granted Sonys petition by cancelling the deficiency VAT
assessment but upheld a modified deficiency EWT assessment as well
as the penalties. This finding was later affirmed by the CTA-EB.
Unfazed, the CIR filed the instant petition for review.
ISSUES:
1. WON the LOA, although it states the period 1997 and unverified
prior years, should be understood to mean the fiscal year ending in
March 31, 1998.
2. WON the advertising expense, which amount was reimbursed by
Sony-Singapore, is an income of Sony and thus, VAT-taxable
transaction under the NIRC?
HELD:
1. NO, the period 1997 and unverified prior years should not be
understood to mean the fiscal year ending March 31, 1998. As earlier
stated, the LOA covered the period 1997 and unverified prior years.
For said reason, the CIR acting through its revenue officers went
beyond the scope of their authority because the deficiency VAT
assessment they arrived at was based on records from January to
March 1998 or using the fiscal year which ended in March 31, 1998. In
the absence of such an authority, the assessment or examination is a
nullity. On this point alone, the deficiency VAT assessment should have
been disallowed.
2: NO, the reimbursement for the advertising expense incurred by
Sony Phils., by Sony Singapore was not an income and was not VAT
taxable. As aptly founded by the CTA-First Division and later affirmed
by the CTA-EB, Sonys deficiency VAT assessment stemmed from the
CIRs disallowance of the input VAT credits that should have been
realized from the advertising expense of the latter. The Court does not
agree that the same subsidy should be subject to the 10% VAT. To
begin with, the said subsidy termed by the CIR as reimbursement was
not even exclusively earmarked for Sonys advertising expense for it
was but an assistance or aid in view of Sonys dire or adverse
economic conditions, and was only equivalent to Sonys advertising
expenses.
Section 106 of the Tax Code explains when VAT may be imposed or
exacted. Thus:
SEC. 106. Value-added Tax on Sale of Goods or Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and
collected on every sale, barter or exchange of goods or properties,
value-added tax equivalent to ten percent (10%) of the gross selling
price or gross value in money of the goods or properties sold, bartered
or exchanged, such tax to be paid by the seller or transferor.
Thus, there must be a sale, barter or exchange of goods or properties
before any VAT may be levied. Certainly, there was no such sale,
barter or exchange in the subsidy given by Sony Singapore to Sony. It
was but a dole out by Sony Singapore and not in payment for goods or
properties sold, bartered or exchanged by Sony.
In the present case, the services rendered by the advertising
companies, paid for by Sony using Sony Singapore dole-out, were for
Sony Phils. Sony Singapore just gave assistance to Sony Phils. in the
amount equivalent to the latters advertising expense but never
received any goods, properties or service in return. In view of the
foregoing, the Court finds no reason to disturb the findings of the CTA-
EB.
DISPOSITIVE: WHEREFORE, the petition is DENIED.
-
CIR vs. Sony Philippines (GR 178697, November 17, 2010
NATURE OF THE CASE: Petition for review on certiorari seeks to set
aside the Decision and the Resolution of the Court of Tax Appeals En
Banc, affirming the Decision of the CTA-First Division which partially
granted the petition for review of respondent Sony Philippines, Inc.
FACTS: Sony Philippines was ordered examined for the period 1997
and unverified prior years as indicated in the Letter of Authority. The
audit yielded assessments against Sony Philippines for deficiency VAT
and FWT, viz: (1) late remittance of Final Withholding Tax on royalties
for the period January to March 1998 and (2) deficiency VAT on
reimbursable received by Sony Philippines from its offshore affiliate,
Sony International Singapore (SIS).
On November 24, 1998, the CIR issued Letter of Authority to examine
Sonys books of accounts and other accounting records regarding
revenue taxes for the period 1997 and unverified prior years.
On December 6, 1999, a preliminary assessment and demand letter
for 1997 VAT, EWT, FWT deficiencies and penalties was issued by the
CIR. The VAT deficiency resulted from its disallowance of the input VAT
tax credit from Sonys advertising expense. Sony sought a re-
evaluation of these tax deficiency assessments by filing a protest.
Acting on the protest, the CIR issued final assessment notices with
formal letter of demand. Thereafter, Sony filed a petition for review
before the Court of Tax Appeals First Division.
Before the CTA First Division, CIR argued that since Sonys advertising
expense was reimbursed by Sony Singapore, the former never incurred
any advertising expense. As a result, Sony is not entitled to a tax
credit. At most, the CIR continues, the said advertising expense should
be for the account of Sony Singapore, and not Sony Philippines.
The CTA-First Division partly granted Sonys petition by cancelling the
deficiency VAT assessment but upheld a modified deficiency EWT
assessment as well as the penalties.
This finding was later affirmed by the CTA-EB. Unfazed, the CIR filed
the instant petition for review.
ISSUES: 1.) Whether or not the LOA, although it states the period
1997 and unverified prior years, should be understood to mean the
fiscal year ending in March 31, 1998; and
2.) Whether or not the advertising expense, which amount was
reimbursed by Sony-Singapore, is an income of Sony and thus, VAT-
taxable transaction under the NIRC?
3.) Was the investigation of its 1998 Final Withholding Tax return
valid?
HELD
1: NO, the period 1997 and unverified prior years should not be
understood to mean the fiscal year ending March 31, 1998?
As earlier stated, the LOA covered the period 1997 and unverified
prior years. For said reason, the CIR acting through its revenue
officers went beyond the scope of their authority because the
deficiency VAT assessment they arrived at was based on records from
January to March 1998 or using the fiscal year which ended in March
31, 1998. In the absence of such an authority, the assessment or
examination is a nullity.
On this point alone, the deficiency VAT assessment should have been
disallowed.
2: NO, the reimbursement for the advertising expense incurred by
Sony Phils., by Sony Singapore was not an income and was not VAT
taxable.
As aptly founded by the CTA-First Division and later affirmed by the
CTA-EB, Sonys deficiency VAT assessment stemmed from the CIRs
disallowance of the input VAT credits that should have been realized
from the advertising expense of the latter.
The Court does not agree that the same subsidy should be subject to
the 10% VAT. To begin with, the said subsidy termed by the CIR as
reimbursement was not even exclusively earmarked for Sonys
advertising expense for it was but an assistance or aid in view of
Sonys dire or adverse economic conditions, and was only equivalent
to Sonys advertising expenses.
Section 106 of the Tax Code explains when VAT may be imposed or
exacted. Thus:
SEC. 106. Value-added Tax on Sale of Goods or Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and
collected on every sale, barter or exchange of goods or properties,
value-added tax equivalent to ten percent (10%) of the gross selling
price or gross value in money of the goods or properties sold, bartered
or exchanged, such tax to be paid by the seller or transferor.
Thus, there must be a sale, barter or exchange of goods or properties
before any VAT may be levied. Certainly, there was no such sale,
barter or exchange in the subsidy given by Sony Singapore to Sony. It
was but a dole out by Sony Singapore and not in payment for goods or
properties sold, bartered or exchanged by Sony.
In the present case, the services rendered by the advertising
companies, paid for by Sony using Sony Singapore dole-out, were for
Sony Phils. Sony Singapore just gave assistance to Sony Phils. in the
amount equivalent to the latters advertising expense but never
received any goods, properties or service in return.
3: NO. A Letter of Authority should cover a taxable period not
exceeding one year and to indicate that it covers unverified prior years
should be enough to invalidate it. In addition, even if the Final
Withholding Tax was covered by Sony Philippines fiscal year ending
March 1998, the same fell outside of the period 1997 and was thus
not validly covered by the Letter of Authority.
In view of the foregoing, the Court finds no reason to disturb the
findings of the CTA-EB.
RULING: WHEREFORE, the petition is DENIED.
SO ORDERED.
CIR vs. Enron Subic Power Corporation
GR 166387, January 19, 2009
Topic: Remedies
Facts:
- Enron, A domestic corporation registered in subic bay, filed its annual
income tax return for 1996 on Aril 12, 1997. It indicated a net loss pf
Php 7,684,948.
- The BIR sent a preliminary five-day letter to inform Enron of a
proposed assessment over an alleged Php 2,880,817.25 deficiency
income tax.
- Eron disputed the deficiency assessment.
- On may 26, 1999, Enron received a formal assessment notice
requiring it to pay the deficiency tax but Enron protested.
- Due to the non-resolution of the protest within the 180 day period, it
was brought to the CTA for review and argued that the assessment
disregard Section 228 of the Tax Code by not providing the legal and
factual basis of the assessment.
- CTA favored enron, CA affirmed
Issue: WON the CIR informed Enron of the factual and legal basis for
the deficiency assessment?
Held: no
Ruling: WHEREFORE, the petition is hereby DENIED. The November
24, 2004 decision of the Court of Appeals is AFFIRMED.
Ratio:
- The advice of tax deficiency, given by the CIR to an employee of
Enron, as well as the preliminary five-day letter, were not valid
substitutes for the mandatory notice in writing of the legal and factual
bases of the assessment. These steps were mere perfunctory
discharges of the CIRs duties in correctly assessing a taxpayer.
- The requirement for issuing a preliminary or final notice, as the case
may be, informing a taxpayer of the existence of a deficiency tax
assessment is markedly different from the requirement of what such
notice must contain. Just because the CIR issued an advice, a
preliminary letter during the pre-assessment stage and a final notice, in
the order required by law, does not necessarily mean that Enron was
informed of the law and facts on which the deficiency tax assessment
was made.
- The law requires that the legal and factual bases of the assessment
be stated in the formal letter of demand and assessment notice. Thus,
such cannot be presumed. Otherwise, the express provisions of Article
228 of the NIRC and RR No. 12-99 would be rendered nugatory. The
alleged factual bases in the advice, preliminary letter and audit working
papers did not suffice. There was no going around the mandate of the
law that the legal and factual bases of the assessment be stated in
writing in the formal letter of demand accompanying the assessment
notice.
In view of the absence of a fair opportunity for Enron to be informed of
the legal and factual bases of the assessment against it, the
assessment in question was void
D. LUCAS ADAMSON vs. COURT OF APPEALS
G.R. No. 120935 / May 21, 2009
TOPIC: Remedies - Assessment
DOCTRINE: See rulings
FACTS: Lucas Adamson, President of Adamson Management Corp
(AMC), and other officers, sold common shares of stock in Adamson
and Adamson, Inc. (AAI) to APAC Holding Limited (APAC). A
deficiency tax assessment was issued against Petitioners relating to
their payment of capital gains tax and VAT on their sale of shares of
stock and parcels of land. Subsequent to the preliminary conference,
despite the revenue officers RECOMMENDATION to issue
assessment, the CIR filed with the Department of Justice her Affidavit
of Complaint against Petitioners. Lucas Adamson et al invoked the
grounds that there was yet no final assessment of their tax liability, and
there were still pending relevant Supreme Court and CTA cases. The
Court of Appeals ultimately ruled that, in a criminal prosecution for tax
evasion, assessment of tax deficiency is not required because the
offense of tax evasion is complete or consummated when the offender
has knowingly and willfully filed a fraudulent return with intent to evade
the tax.
ISSUES:
(1) Did the CIR issue an assessment?
(2) Must a criminal prosecution for tax evasion be preceded by a
deficiency tax assessment?
(3) Does the CTA have jurisdiction on the case?
HELD:
(1) NO. The recommendation letter of the Commissioner cannot be
considered a formal assessment as (a) it was not addressed to the
taxpayers; (b) there was no demand made on the taxpayers to pay the
tax liability, nor a period for payment set therein; (c) the letter was
never mailed or sent to the taxpayers by the Commissioner. It was only
an affidavit of the computation of the alleged liabilities and thus merely
served as prima facie basis for filing criminal informations.
(2) NO. The law is clear. When fraudulent tax returns are involved as in
the cases at bar, a proceeding in court after the collection of such
tax may be begun without assessment. When fraudulent tax returns
are involved as in the cases at bar, a proceeding in court after the
collection of such tax may be begun without assessment considering
that upon investigation of the examiners of the BIR, there was a
preliminary finding of gross discrepancy in the computation of the
capital gains taxes due from the transactions. The Tax Code is clear
that the remedies may proceed simultaneously.
(3) NO. While the laws governing the CTA have expanded the
jurisdiction of the Court, they did not change the jurisdiction of the CTA
to entertain an appeal only from a final decision of the Commissioner,
or in cases of inaction within the prescribed period. Since in the cases
at bar, the Commissioner has not issued an assessment of the tax
liability of the Petitioners, the CTA has no jurisdiction.
E. CASE TITLE: CIR v. UNITED SALVAGE and TOWAGE (PHILS.)
INC., G.R. No. 197515, July 2, 2014
TOPIC: Contains factual and legal basis of the deficiency tax
assessment
PONENTE: Peralta, J.
DOCTRINE: Section 228 of the Tax Code provides that the taxpayer
shall be informed in writing of the law and the facts on which the
assessment is made. Otherwise, the assessment is void. To implement
the aforesaid provision, Revenue Regulation No. 12-99was enacted by
the BIR, of which
Section 3.1.4 thereof reads:
3.1.4. Formal Letter of Demand and Assessment Notice. The formal
letter of demand and assessment notice shall be issued by the
Commissioner or his duly authorized representative. The letter of
demand calling for payment of the taxpayers deficiency tax or taxes
shall state the facts, the law, rules and regulations, or jurisprudence on
which the assessment is based, otherwise, the formal letter of demand
and assessment notice shall be void. The same shall be sent to the
taxpayer only by registered mail or by personal delivery. x x x44
It is clear from the foregoing that a taxpayer must be informed in writing
of the legal and factual bases of the tax assessment made against him.
The use of the word "shall" in these legal provisions indicates the
mandatory nature of the requirements laid down therein.
FACTS:
1. This is a petition for review on certiorari under Rule 45 of the
Revised Rules of Court.
2. United Salvage and Towage (Phils.), Inc., Respondent, is engaged
in the business of sub-contracting work for service contractors
engaged in petroleum operations in the Philippines.
3. During the taxable years in question, it had entered into various
contracts and/or sub-contracts with several petroleum service
contractors, such as Shell Philippines Exploration, B.V. and Alorn
Production Philippines for the supply of service vessels.
4. In the course of respondents operations, petitioner CIR found
respondent USTP liable for deficiency income tax, withholding tax,
value-added tax (VAT) and documentary stamp tax (DST) for taxable
years 1992,1994, 1997 and 1998.
5. Particularly, petitioner CIR, through BIR officials, issued demand
letters with attached assessment notices for withholding tax on
compensation (WTC) and expanded withholding tax (EWT) for taxable
years 1992, 1994 and 1998.
6. USTP filed administrative protests against the 1994 and 1998 EWT
assessments, respectively.
7. USTP appealed by way of Petition for Review before the Court in
action (which was thereafter raffled to the CTA-Special First Division)
alleging, among others, that the Notices of Assessment are bereft of
any facts, law, rules and regulations or jurisprudence; thus, the
assessments are void and the right of the government to assess and
collect deficiency taxes from it has prescribed on account of the failure
to issue a valid notice of assessment within the applicable period.
8. During the pendency of the proceedings, USTP moved to withdraw
the aforesaid Petition because it availed of the benefits of the Tax
Amnesty Program under Republic Act (R.A.) No. 9480.
9. Having complied with all the requirements therefor, the CTA-Special
First Division partially granted the Motion to Withdraw and declared the
issues on income tax, VAT and DST deficiencies closed and terminated
in accordance with our pronouncement in Philippine Banking
Corporation v. Commissioner of Internal Revenue.
10. Consequently, the case was submitted for decision covering the
remaining issue on deficiency EWT and WTC, respectively, for taxable
years 1992, 1994 and 1998.
11. CTA-Special First Division: held that the Preliminary Assessment
Notices (PANs) for deficiency EWT for taxable years 1994 and 1998
were not formally offered; hence, pursuant to Section 34, Rule 132 of
the Revised Rules of Court, the Court shall neither consider the same
as evidence nor rule on their validity. As regards the Final Assessment
Notices (FANs) for deficiency EWT for taxable years 1994 and 1998,
the CTA-Special First Division held that the same do not show the law
and the facts on which the assessments were based. Said
assessments were, therefore, declared void for failure to comply with
Section 228 of the 1997 National Internal Revenue Code (Tax Code).
From the foregoing, the only remaining valid assessment is for taxable
year 1992.
12. Hence, petitioner filed a Petition for Review with the CTA En Banc
praying that the Decision of the CTA-Special First Division, dated
March 12, 2010,be set aside.
ISSUES:
1. Whether or not the Court of Tax Appeals is governed strictly by the
technical rules of evidence;
2. Whether or not the Expanded Withholding Tax Assessments issued
by petitioner against the respondent for taxable year 1994 was without
any factual and legal basis; and
3. Whether or not petitioners right to collect the creditable withholding
tax and expanded withholding tax for taxable year 1992 has already
prescribed.
HELD:
1. No. The Court of Tax Appeals is not governed strictly by the
technical rules of evidence. Under Section 8 of Republic Act (R.A.) No.
1125, the CTA is categorically described as a court of record. As such,
it shall have the power to promulgate rules and regulations for the
conduct of its business, and as may be needed, for the uniformity of
decisions within its jurisdiction. Moreover, as cases filed before it are
litigated de novo, party-litigants shall prove every minute aspect of their
cases. Thus, no evidentiary value can be given the pieces of evidence
submitted by the BIR, as the rules on documentary evidence require
that these documents must be formally offered before the CTA.
Pertinent is Section 34, Rule 132 of the Revised Rules on Evidence
which reads:
SEC. 34. Offer of evidence. The court shall consider no evidence
which has not been formally offered. The purpose for which the
evidence is offered must be specified.
The evidence may, therefore, be admitted provided the following
requirements are present: (1) the same must have been duly identified
by testimony duly recorded; and (2) the same must have been
incorporated in the records of the case. Being an exception, the same
may only be applied when there is strict compliance with the requisites
mentioned above; otherwise, the general rule in Section 34 of Rule 132
of the Rules of Court should prevail.
In the case at bar, petitioner categorically admitted that it failed to
formally offer the PANs as evidence. Worse, it advanced no justifiable
reason for such fatal omission. Instead, it merely alleged that the
existence and due execution of the PANs were duly tackled by
petitioners witnesses. We hold that such is not sufficient to seek
exception from the general rule requiring a formal offer of evidence,
since no evidence of positive identification of such PANs by petitioners
witnesses was presented. Hence, we agree with the CTA En Bancs
observation that the 1994 and 1998 PANs for EWT deficiencies were
not duly identified by testimony and were not incorporated in the
records of the case, as required by jurisprudence.
While we concur with petitioner that the CTA is not governed strictly by
technical rules of evidence, as rules of procedure are not ends in
themselves but are primarily intended as tools in the administration of
justice, the presentation of PANs as evidence of the taxpayers liability
is not mere procedural technicality. It is a means by which a taxpayer is
informed of his liability for deficiency taxes. It serves as basis for the
taxpayer to answer the notices, present his case and adduce
supporting evidence. More so, the same is the only means by which
the CTA may ascertain and verify the truth of respondent's claims.
2. Yes. The Expanded Withholding Tax Assessments issued by
petitioner against the respondent for taxable year 1994 was without
any factual and legal basis.
In order to determine whether the requirement for a valid assessment
is duly complied with, it is important to ascertain the governing law,
rules and regulations and jurisprudence at the time the assessment
was issued.
In the instant case, the PANs and FANs pertaining to the deficiency
EWT for taxable years 1994 and 1998, respectively, were issued on
January 19, 1998, when the Tax Code was already in effect.
In the present case, a mere perusal of the FAN for the deficiency EWT
for taxable year 1994 will show that other than a tabulation of the
alleged deficiency taxes due, no further detail regarding the
assessment was provided by petitioner. Only the resulting interest,
surcharge and penalty were anchored with legal basis. 45 Petitioner
should have at least attached a detailed notice of discrepancy or stated
an explanation why the amount of P48,461.76 is collectible against
respondent and how the same was arrived at. Any short-cuts to the
prescribed content of the assessment or the process thereof should not
be countenanced, in consonance with the ruling in Commissioner of
Internal Revenue v. Enron Subic Power Corporation.
It is clear that the assailed deficiency tax assessment for the EWT in
1994 disregarded the provisions of Section 228 of the Tax Code, as
amended, as well as Section 3.1.4 of Revenue Regulations No. 12-99
by not providing the legal and factual bases of the assessment. Hence,
the formal letter of demand and the notice of assessment issued
relative thereto are void.
In any case, we find no basis in petitioners claim that Revenue
Regulation No. 12-99 is not applicable at the time the PAN and FAN for
the deficiency EWT for taxable year 1994 were issued. Considering
that such regulation merely implements the law, and does not create or
take away vested rights, the same may be applied retroactively.
3. Yes. Petitioners right to collect the EWT for taxable year 1992 has
prescribed.
The statute of limitations on assessment and collection of national
internal revenue taxes was shortened from five (5) years to three (3)
years by virtue of Batas Pambansa Blg. 700. Thus, petitioner 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. However, 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 assessed tax begins to run on
the date the assessment notice had been released, mailed or sent to
the taxpayer.
On this matter, we note the findings of the CTA-Special First Division
that no evidence was formally offered to prove when respondent filed
its returns and paid the corresponding EWT and WTC for taxable year
1992.
Nevertheless, as correctly held by the CTA En Banc, the Preliminary
Collection Letter for deficiency taxes for taxable year 1992 was only
issued on February 21, 2002, despite the fact that the FANs for the
deficiency EWT and WTC for taxable year 1992 was issued as early as
January 9, 1996. Clearly, five (5) long years had already lapsed,
beyond the three (3)-year prescriptive period, before collection was
pursued by petitioner.
Further, while the request for reinvestigation was made on March 14,
1997, the same was only acted upon by petitioner on January22, 2001,
also beyond the three (3) year statute of limitations reckoned from
January 9, 1996, notwithstanding the lack of impediment to rule upon
such issue.
F. CIR vs. Metro Star Superama
GR 185371, December 08, 2010

Topic: Assessment; Due Process
Doctrine
While taxes are the lifeblood of the government, the power to tax has
its limits in spite of all its plenitude. 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.
The sending of a Preliminary Assessment Notice (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 senders nugatory any assessment made by the tax
authorities
Facts
Metro Star is a domestic corporation that owns and operates a
movie/cinema house. After conducting a post audit review on Metro
Star, a Revenue District Officer issued a Preliminary 15-day Letter
which states that there was deficiency value-added and withholding
taxes due from it. A year later, Metro Star received a Formal Letter of
Demand on the same. This was followed by a Final Notice of Seizure
and a Warrant of Distraint and/or Levy.
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 with the CTA.
Issues
1. Whether or not the assessment is based on the best evidence
obtainable pursuant to Section 6(b) of the National Internal Revenue
Code;
1. Whether the deficiency assessments issued by the respondent are
void for failure to state the law and/or facts upon which they are based;
and
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.
Ruling
1. Yes. 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 CIR to prove by contrary evidence that Metro Star 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).
1. Yes. 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.
1. No. 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.
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.
G. COMMISSIONER OF INTERNAL REVENUE vs. FMF
DEVELOPMENT CORP.
GR No. 167765 | June 30, 2008 | Quisumbing, J.
Facts:
On April 15, 1996, FMF filed its Corporate Annual Income Tax Return
for taxable year 1995 and declared P3.348Mn loss. FMF filed an
amended return on May 8. 1996 and declared P2.826Mn loss. As a
result, the BIR sent pre-assessment notices dated Oct. 6, 1998 to FMF,
informing them about their alleged tax liabilities. A protest was filed by
FMF and requested for reinvestigation.
On Jan. 22, 1999 Revenue District Officer (RDO) Zambarranoinformed
FMF that the reinvestigation was already referred to the Revenue
Officer and advised them about the informal conference on Feb. 2,
1999 to allow them to present evidence that will dispute the BIR
assessment.
On Feb. 9, 1999, FMF President signed a waiver of the 3-year
prescriptive period for assessment and extending until Oct. 31, 1999.
This was accepted by RDO Zambarrano.
FMF received amended pre-assessment notices dated Oct. 6, 1999 on
Oct. 18, 1999. FMF filed a protest on Nov. 3, 1999 wherein they also
received a Demand Letter and Assessment Notice dated Oct. 25, 1999
on the same day of filing. Said letter bore FMFs alleged deficiency
taxes and accrued interests totaling P2.053Mn.
A Letter of Protest on the assessment was filed by FMF on the ground
of prescription by reason of the invalidity of waiver. Since the BIR
insisted that the waiver is valid, it ordered FMF to settle tax liabilities.
FMF filed a petition for review before the CTA, challenging the validity
of the assessment.
CTA Ruling
The waiver did not extend the 3-year prescriptive period where BIR
must make a valid assessment. BIR did not comply with Revenue
Memorandum Order No. 20-90 since the waiver did not state the dates
of execution and acceptance; hence it is hard to determine with
certainty whether the waiver was executed and accepted within the
time period. Also, FMF was not given a copy of the signed waiver.
CA Ruling
Appealed the decision of CTA.
Issue:WON the three-year prescriptive period wherein the BIR must
able to make an assessment has already prescribed
Ruling: YES
Sec. 203 of the NIRC states that nternal revenue taxes must be
assessed within three years counted from the period fixed by law for
the filing of the tax return or the actual date of filing, whichever is later.
This is to safeguard the interests of taxpayers from unreasonable
investigation. Accordingly, the government must assess internal
revenue taxes on time so as not to extend indefinitely the period of
assessment and deprive the taxpayer of the assurance that it will no
longer be subjected to further investigation for taxes after the expiration
of reasonable period of time
Exception to the three-year prescriptive period is the execution of a
valid waiver (Sec. 222 (b) of the NIRC) where the taxpayer and the BIR
agreed in writing that the period to issue an assessment and collect the
taxes due is extended to an agreed upon date
Characteristics of a valid waiverpursuant to RMO No. 20-90:
a. Must be in the form identified as Annex A
b. Shall be signed by the taxpayer himself or his duly authorized
representative. In the case of a corporation, the waiver must be signed
by any of its responsible officials.
Soon after the waiver is signed by the taxpayer, the Commissioner of
Internal Revenue or the revenue official authorized by him, as
hereinafter provided, shall sign the waiver indicating that the Bureau
has accepted and agreed to the waiver. The date of such acceptance
by the Bureau should be indicated. Both the date of execution by the
taxpayer and date of acceptance by the Bureau should be before the
expiration of the period of prescription or before the lapse of the period
agreed upon in case a subsequent agreement is executed
c. Authorized revenue officials to sign the waiver:
o Commissioner for taxes involving more than P1Mn if in the
National Office
o Revenue District Officer with respect to tax cases still pending
investigation and the period to assess is about to prescribe regardless
of amount if in the Regional Office
 until April 15, 1999. Even if the three-year period be counted from May
d. The waiver must be executed in three (3) copies, the original copy 8, 1996, the date of filing of the amended return, assuming the
to be attached to the docket of the case, the second copy for the amended return was substantially different from the original return, a
taxpayer and the third copy for the Office accepting the waiver. The fact case which affects the reckoning point of the prescriptive period, 22 still,
of receipt by the taxpayer of his/her file copy shall be indicated in the the subject assessment is definitely considered time-barred.
original copy.
e. The foregoing procedures shall be strictly followed. Any
Dispositive Portion:
revenue official found not to have complied with this Order resulting in
WHEREFORE, the petition is DENIED for lack of merit. The assailed
prescription of the right to assess/collect shall be administratively dealt
Decision and Resolution dated January 31, 2005 and April 14, 2005,
with.
respectively, of the Court of Appeals in CA-G.R. SP No. 79675 are
hereby AFFIRMED. No pronouncement as to costs.
The waiver is NOT valid and did not validly extend the three-year
prescriptive period
o It was not proven that respondent was furnished a copy of the BIR- H. Title: CIR vs. Stanley Works Sales (GR 1187589, December 3,
2014)
accepted waiver
o The waiver was signed only by a revenue district officer, when it
Facts: On January 1, 1979, respondent and Stanley Works Agencies
should have been signed by the Commissioner as mandated by the
(Pte.) Limited, Singapore (Stanley-Singapore) entered into a
NIRC and RMO No. 20-90, considering that the case involves an
Representation Agreement. Under such agreement, Stanley-Singapore
amount of more than P1 million, and the period to assess is not yet
appointed respondent as its sole agent for the selling of its products
about to prescribe
within the Philippines on an indent basis.
o Does not contain the date of acceptance by the Commissioner of
Internal Revenue, a requisite necessary to determine whether the On April 16, 1990, respondent filed with the BIR its Annual Income Tax
waiver was validly accepted before the expiration of the original three- Return for taxable year 1989.
year period
In fine, Assessment Notice No. 33-1-00487-95 dated October 25, On March 19, 1993, pursuant to Letter of Authority dated July 3, 1992,
the BIR issued against respondent a Pre-Assessment Notice (PAN)
1999, was issued beyond the three-year prescriptive period. The
No. 002523 for 1989 deficiency income tax.
waiver was incomplete and defective and thus, the three-year
prescriptive period was not tolled nor extended and continued to run
On March 29, 1993, respondent received its copy of the PAN.
On April 12, 1993, petitioner, through OTC Domingo C. Paz of
Revenue Region No. 4B-2 of Makati, issued to respondent
Assessment Notice No. 002523-89-6014 for deficiency income tax for
taxable year 1989. The Notice was sent on April 15, 1993 and
respondent received it on April 21, 1993.
On May 19, 1993, respondent, through its external auditors
Punongbayan & Araullo, filed a protest letter and requested
reconsideration and cancellation of the assessment.
On November 16, 1993, a certain Mr. John Ang, on behalf of
respondent, executed a Waiver of the Defense of Prescription Under
the Statute of Limitations of the National Internal Revenue Code
(Waiver). Under the terms of the Waiver, respondent waived its right to
raise the defense of prescription under Section 223 of the NIRC of
1977 insofar as the assessment and collection of any deficiency taxes
for the year ended December 31, 1989, but not after June 30, 1994.
The Waiver was not signed by petitioner or any of his authorized
representatives and did not state the date of acceptance as prescribed
under Revenue Memorandum Order No. 20-90. Respondent did not
execute any other Waiver or similar document before or after the
expiration of the November 16, 1993 Waiver on June 30, 1994.
On January 6, 1994, respondent, through its external auditors
Punongbayan & Araullo, wrote a letter to the Chief of the BIR Appellate
Division and requested the latter to take cognizance of respondent's
protest/request for reconsideration, asserting that the dispute involved
pure questions of law. On February 22, 1994, respondent sent a similar
letter to the Revenue District Officer (RDO) of BIR Revenue Region No.
4B-2 and asked for the transmittal of the entire docket of the subject
tax assessment to the BIR Appellate Division.
On September 30, 1994, respondent, through its external auditors
Punongbayan & Araullo, submitted a Supplemental Memorandum on
its protest to the BIR Revenue Region No. 4B-2.
On September 20, 1995, respondent, through its external auditors
Punongbayan & Araullo, filed a Supplemental Memorandum with the
BIR Appellate Division.
On November 29, 2001, the Chief of the BIR Appellate Division sent a
letter to respondent requiring it to submit duly authenticated financial
statements for the worldwide operations of Stanley Works and a sworn
declaration from the home office on the allocated share of respondent
as a branch office.
On December 11, 2001, respondent, through its counsel, the
Quisumbing Torres Law Offices, wrote the BIR Appellate Division and
asked for an extension of period within which to comply with the
request for submission of documents. On January 15, 2002,
respondent sent a request for an extension of period to submit a
Supplemental Memorandum.
On March 4, 2002, respondent, through its counsel, the Quisumbing
Torres Law Offices, submitted a Supplemental Memorandum alleging,
inter alia, that petitioner's right to collect the alleged deficiency income
tax has prescribed.
On March 22, 2004, petitioner rendered a Decision denying
respondents request for reconsideration and ordering respondent to
pay the deficiency income tax plus interest that may have accrued.
Issue/s: WON respondents repeated requests and positive acts
constitute estoppel from setting up the defense of prescription under
the NIRC.
Ruling: NO.
True, respondent filed a Protest and asked for a reconsideration and
cancellation of the assessment on 19 May 1993; however, it is
uncontested that petitioner failed to act on that Protest until 29
November 2001, when the latter required the submission of other
supporting documents. In fact, the Protest was denied only on 22
March 2004. Petitioners reliance on CIR v. Suyoc (Suyoc) is likewise
misplaced. In Suyoc, the BIR was induced to extend the collection of
tax through repeated requests for extension to pay and for
reinvestigation, which were all denied by the Collector. Contrarily,
herein respondent filed only one Protest over the assessment, and
petitioner denied it 10 years after. The subsequent letters of
respondent cannot be construed as inducements to extend the period
of limitation, since the letters were intended to urge petitioner to act on
the Protest, and not to persuade the latter to delay the actual collection.
Petitioner cannot take refuge in BPI vs CIR either, considering that
respondent and BPI are similarly situated. Similar to BPI, this is a
simple case in which the BIR Commissioner and other BIR officials
failed to act promptly in resolving and denying the request for
reconsideration filed by the taxpayer and in enforcing the collection on
the assessment. Both in BPI and in this case, the BIR presented no
reason or explanation as to why it took many years to address the
Protest of the taxpayer. The statute of limitations imposed by the Tax
Code precisely intends to protect the taxpayer from prolonged and
unreasonable assessment and investigation by the BIR. Even
assuming arguendo that the Waiver executed by respondent on 16
November 1993 is valid, the right of petitioner to collect the deficiency
income tax for the year 1989 would have already prescribed by 2001
when the latter first acted upon the protest, more so in 2004 when it
finally denied the reconsideration. Records show that the Waiver
extends only for the period ending 30 June 1994, and that there were
no further extensions or waivers executed by respondent. Again, a
waiver is not a unilateral act of the taxpayer or the BIR, but is a bilateral
agreement between two parties to extend the period to a date certain.
Since the Waiver in this case is defective and therefore invalid, it
produces no effect; thus, the prescriptive period for collecting
deficiency income tax for taxable year 1989 was never suspended or
tolled. Consequently, the right to enforce collection based on
Assessment Notice No. 002523-89-6014 has already prescribed.
Dispositive: Petition DENIED.
I. CIR vs Next Mobile
Topic: Remedies; Assessment
Doctrine: - Section 203 of the 1997 NIRC mandates the BIR to assess
internal revenue taxes within three years from the last day prescribed
by law for the filing of the tax return or the actual date of filing of such
return, whichever comes later. Hence, an assessment notice issued
after the three-year prescriptive period is not valid and effective.
- Exceptions to this rule are provided under Section 222 of the NIRC.
Section 222(b) of the NIRC provides that the period to assess and
collect taxes may only be extended upon a written agreement between
the CIR and the taxpayer executed before the expiration of the three-
year period. RMO 20-90 issued on April 4, 1990 and RDAO 05-01 5
issued on August 2, 2001 provided or the proper execution of waiver
Facts:
- On April 15, 2002, Respondent Filed its income tax return for 2001.
Respondent also filed its Monthly Remittance Returs of Final income
taxes withheld, its monthly Remittance returns of expanded Witholding
tax, and on compensation for 2001
- September 23, 2003, respondent received a letter signed by the
Regional Director VAleroso authorizing Revenue Officer Crespo to
examine respondents books of accounts.
- Sarmiento, Respondents Director of Finance, executed several
waivers to the statute of limitations extending the prescriptive period of
the assessment (5 waivers from August 30, 2004 to May 3, 2005)
- On October 25, 2005, respondent received a formal letter of demand
dated October 17, 2005, demanding payment of the deficiency taxes
amounting to P313,339,610.42 for 2001
- Respondent filed its protest and requested for reinvestigation of its
assessment. BIR denied the protest
- CTA ruled in favor of the respondent saying that the demand is
already beyond the 3 year prescriptive period
Issue: Whether the CIRs right to assess deficiency taxes had already
prescribed?
Held: Yes
Ratio:
- Section 203 of the 1997 NIRC mandates the BIR to assess internal
revenue taxes within three years from the last day prescribed by law for
the filing of the tax return or the actual date of filing of such return,
whichever comes later. Hence, an assessment notice issued after the
three-year prescriptive period is not valid and effective.
- Exceptions to this rule are provided under Section 222 of the NIRC.
Section 222(b) of the NIRC provides that the period to assess and
collect taxes may only be extended upon a written agreement between
the CIR and the taxpayer executed before the expiration of the three-
year period. RMO 20-90 issued on April 4, 1990 and RDAO 05-01 5
issued on August 2, 2001 provided or the proper execution of waiver
- In the instant case, the CT A found the Waivers because of the
following flaws: (1) they were executed without a notarized board
authority; (2) the dates of acceptance by the BIR were not indicated
therein; and (3) the fact of receipt by respondent of its copy of the
Second Waiver was not indicated on the face of the original Second
Waiver.
- respondent, through Sarmiento, executed.five Waivers in favor of
petitioner. However, her authority to sign these Waivers was not
presented upon their submission to the BIR. In fact, later on, her
authority to sign was questioned by respondent itself, the very same
entity that caused her to sign such in the first place. Thus, it is clear
that respondent violated RMO No. 20-90 which states that in case of a
corporate taxpayer, the waiver must be signed by its responsible
officials and RDAO 01-05 which requires the presentation of a written
and notarized authority to the BIR.
Similarly, the BIR violated its own rules and was careless in performing
its functions with respect to these Waivers. It is very clear that under
RDAO 05-01 it is the duty of the authorized revenue official to ensure
that the waiver is duly accomplished and signed by the taxpayer or his
authorized representative before affixing his signature to signify
acceptance of the same. It also instructs that in case the authority is
delegated by the taxpayer to a representative, the concerned revenue
official shall see to it that such delegation is in writing and duly
notarized. Furthermore, it mandates that the waiver should not be
accepted by the concerned BIR office and official unless duly notarized
. Vis-a-vis the five Waivers it received from respondent, the BIR has
failed, for five times, to perform its duties in relation thereto: to verify
Ms. Sarmiento's authority to execute them, demand the presentation of
a notarized document evidencing the same, refuse acceptance of the
Waivers when no such document was presented, affix the dates of its
acceptance on each waiver, and indicate on the Second Waiver the
date of respondent's receipt thereof. Both parties knew the infirmities of
the Waivers yet they continued dealing with each other on the strength
of these documents without bothering to rectify these infirmities. In fact,
in its Letter Protest to the BIR, respondent did not even question the
validity of the Waivers or call attention to their alleged defects.
J. CIR vs. Kudos Metal Corporation
Topic: Prescriptive Period
Law: Sections 203 and 222, NIRC
Doctrine: The prescriptive period on when to assess taxes benefits both the
government and the taxpayer. Exceptions extending the period to assess
must, therefore, be strictly construed.
Facts: April 15, 1999: Respondent filed its Annual Income Tax Return
for the taxable year 1998.
Pursuant to a Letter of Authority (Sept. 7, 1999), BIR served upon
respondent 3 Notices of Presentation of Records. Respondent failed to
comply with these notices, hence, BIR issued a Subpoena Duces
Tecum (Sept. 21, 2006), receipt of which was acknowledged by
respondents presentation, Mr. Chan Ching Bio, in a letter.
A review and audit of respondents records then ensued.
Pasco, respondents accountant, executed a Waiver of the Defense of
Prescription, received by the BIR Enforcement Service and by the BIR
Tax Fraud Division, and accepted by the Assistant Commissioner
Enforcement Service; this was followed by a 2nd waiver of defense of
prescription executed by Pasco received by the BIR Tax Fraud Division,
and accepted by Asst Commissioner.
August 25, 2003: BIR issued a Preliminary Assessment Notice for the
taxable year 1998 against respondent; followed by a Formal Letter of
Demand with Assessment Notices for taxable year 1998 (Sept. 26,
2003), which was received by respondent on Nov. 12, 2003.
Respondent challenged the assessments by filing its Protest on
Various Tax Assessments and its Documents in support of protests
against various assessments.
June 22, 2004 BIR: requested immediate payment of tax liabilities
Believing that the governments right to assess taxes had prescribed,
respondent filed a petition for review with CTA; Respondent filed an
Urgent Motion for Preferential Resolution of the Issue on Prescription
CTA: resolution cancelling the assessment notices issued against
respondent for having been issued beyond the prescriptive period;
found first waiver of statute of limitations incomplete a defective for
failure to comply with RMO 20-90
- Asst commissioner is not the revenue official authorized to sign
the waiver, as the tax case involves more than 1M; only
commissioner is authorized
- The waiver failed to indicate the date of acceptance
- Fact of receipt by the TP of his file copy was not indicated in the
original copy (this is to give notice of acceptance by BIR and
perfection of agreement)
Subject waiver is therefore incomplete and defective; as
such, the 3-year prescriptive period was not tolled or
extended and continued to run
Petitioner moved for reconsideration; denied
CTA En Banc: affirmed cancellation of assessment notices
Reconsideration denied
Hence, this petition.
Issue: WON the governments right to assess unpaid taxes of
respondent prescribed
Held: YES
Ratio:
Section 203 of the National Internal Revenue Code of 1 997 (NIRC)
mandates the government to assess internal revenue taxes within three
years from the last day prescribed by law for the filing of the tax return
or the actual date of filing of such return, whichever comes
later. Hence, an assessment notice issued after the three-year
prescriptive period is no longer valid and effective. Exceptions however
are provided under Section 222 of the NIRC.
The waivers executed by respondents accountant did not extend the
period within which the assessment can be made
Section 222 (b) of the NIRC provides that the period to assess and collect
taxes may only be extended upon a written agreement between the CIR and
the taxpayer executed before the expiration of the three-year period. RMO
20-90 issued on April 4, 1990 and RDAO 05-01 issued on August 2,
2001 lay down the procedure for the proper execution of the waiver
A perusal of the waivers executed by respondents accountant reveals the
following infirmities:
1. The waivers were executed without the notarized
written authority of Pasco to sign the waiver in behalf of
respondent.
2. The waivers failed to indicate the date of
acceptance.
3. The fact of receipt by the respondent of its file copy
was not indicated in the original copies of the waivers.
 Due to the defects in the waivers, the period to assess or collect
taxes was not extended. Consequently, the assessments were issued by the
BIR beyond the three-year period and are void.
Estoppel does not apply in this case
The doctrine of estoppel cannot be applied in this case as an
exception to the statute of limitations on the assessment of taxes considering
that there is a detailed procedure for the proper execution of the waiver, which
the BIR must strictly follow. As we have often said, the doctrine of estoppel is
predicated on, and has its origin in, equity which, broadly defined, is justice
according to natural law and right. As such, the doctrine of estoppel cannot
give validity to an act that is prohibited by law or one that is against public
policy. It should be resorted to solely as a means of preventing injustice and
should not be permitted to defeat the administration of the law, or to
accomplish a wrong or secure an undue advantage, or to extend beyond
them requirements of the transactions in which they originate. Simply put, the
doctrine of estoppel must be sparingly applied.
Moreover, the BIR cannot hide behind the doctrine of estoppel to
cover its failure to comply with RMO 20-90 and RDAO 05-01, which the BIR
itself issued. As stated earlier, the BIR failed to verify whether a notarized
written authority was given by the respondent to its accountant, and to
indicate the date of acceptance and the receipt by the respondent of the
waivers. Having caused the defects in the waivers, the BIR must bear the
consequence. It cannot shift the blame to the taxpayer. To stress, a waiver of
the statute of limitations, being a derogation of the taxpayers right to security
against prolonged and unscrupulous investigations, must be carefully and
strictly construed.
As to the alleged delay of the respondent to furnish the BIR of the
required documents, this cannot be taken against respondent. Neither can
the BIR use this as an excuse for issuing the assessments beyond the three-
year period because with or without the required documents, the CIR has the
power to make assessments based on the best evidence obtainable.
K. Bank of the Philippine Islands vs. CIR
G.R. No. 181836 July 9, 2014
BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs. COMMISSIONER OF
INTERNAL REVENUE, Respondent.
CARPIO, J.:
Facts: BPI, successor-in-interest of Citytrust Banking Corporation, is a
commercial banking corporation organized and existing under the laws of the
Philippines. On 19 May 1989, BIR issued Assessment No. FAS-5-85-89-
0009885 finding BPI liable for deficiency DST on its sales of foreign bills of
exchange to the Central Bank. On 16 June 1989, BPI received the
assessment notice and demand letter from the BIR.
BPI, through itscounsel, filed a protest letter requesting for the reinvestigation
and/or reconsideration of the assessment for lack of legal and factual bases.
The BPI alleged that it should not be liable for the assessed DST because: (1)
based on recognized business practice incorporated in the Bankers
Association of the Philippines (BAP) Foreign Exchange Trading Center Rule
2(e), DST was for the account of the buyer; (2) BIR Ruling No. 135-87stated
that neither the tax-exempt entity nor the other party shall be liable for the
payment of DST before the effectivity of Presidential Decree No. (PD) 1994 on
1 January 1986; (3) since the then law left the tax to be paid indifferently by
either party and the party liable was exempt, the document was exempt from
DST; and (4) the assessed DST was the same assessment made by the BIR
for DST swap transaction covering taxable years 1982-1986.
The CIR held that BPIs arguments were legally untenable. The CIR cited BIR
Unnumbered Ruling dated 30 May 1977 and BIR Ruling No. 144-84 dated 3
September 1984, where the liability to pay DST was shifted to the other party,
who was notexempt from the tax. As for being taxed twice, the CIR found that
such allegation was unsubstantiated by BPI. the CTA ordered the cancellation
of the assessed DST on BPI. The CTA ruled that neither BPI nor Central
Bank, which was tax-exempt, could be liable for the payment of the assessed
DST. The CTA reasoned out that before PD 1994 took effect in 1986, there
was no law that shifted the liability to the other party, in case the party liable to
pay the DST was tax exempt.
Issue: whether or not BIR has a right to collect the assessed DST from BPI.
Held: We deny the right of the BIR tocollect the assessed DST on the ground
of prescription.
The earliest attempt of the BIR to collect the tax was when it filed its answer in
the CTA on 23 February 1999, which was several years beyond the three-year
prescriptive period. However, the BIRs answer in the CTA was not the
collection casecontemplated by the law. Before 2004 or the year Republic Act
No. 9282 took effect, the judicial action to collect internal revenue taxes fell
under the jurisdiction of the regular trial courts, and not the CTA. Evidently,
prescription has set in to bar the collection of the assessed DST.
The BIR nevertheless insists thatthe running of the prescriptive period to
collect the tax was suspended by BPIs filing of a request for the
reinvestigation and/or reconsideration on 23 June 1989.
In the present case, the protest letter of BPI essentially raises the same
question of law, that is whether BPI was liable for DST on its sales of foreign
bills of exchange to the Central Bank in the taxable year 1985. Although it
raised the issue of being taxed twice, the BIR admitted that BPI did not
present any new or additional evidence to substantiate its allegations.24 In its
letter dated 4 August 1998,25 the BIR itself referred to the protest of BPI as a
request for reconsideration, found the arguments in it legally untenable, and
denied the request. Hence, we find that the protest letter of BPI was a request
for reconsideration, which did not suspend the running of the prescriptive
period to collect.
Even considering that BPIs protest was a request for reinvestigation, there
was nothing in the records which showed that the BIR granted such request.
On the other hand, the BIR only responded to BPI on 4 August 1998 or after
nine years from the protest letter of BPI. In the Bank of the Philippine Islands
case,26 we clarified and qualified our ruling in Commissioner of Internal
Revenue v. Wyeth Suaco Laboratories, Inc.,27 such that the request for
reinvestigation in that case was granted by the BIR. Thus, unlike in the
present case, there was a proper ground for suspension of the prescriptive
period in Wyeth Suaco.
Considering that the dismissal of the present case due to prescription is
imperative, there is no more need to determine the validity of the assessment.
L. Lascona vs CIR
GR 171251 March 5 2012
Facts:
On March 27 1998, the CIR issued an assessment notice against
Lascona Land Co., Inc informing the latter of its deficiency income tax
for the year 1993. On March 27 1998, Lascona filed a letter protest. In
its letter dated March 3, 1999, which was received by Lascona on
March 12, 1999, the Commissioner denied the protest on the ground
that the assessment has become final and executory when Lascona
did not appeal before the CTA within 30 days after the lapse of 180-day
period as mandated by Sec 228 of the NIRC.
On April 12 1999, Lascona appealed the Commissioners decision
before the CTA. Lascona averred that the Commissioner erred in ruling
that failure to file a timely appeal before the CTA resulted to the finality
of the assessment.
Issue: W/N the taxpayers failure to appeal before the CTA within 30
days after the lapse of the 180-day reglementary period pursuant to
Sec 228 resulted to the finality of the assessment
No. First, it must be clarified that the word decision does not signify
the assessmentitself. It is well-established in jurisprudence that the
word decision in the CTA Charter has been interpreted to mean the
decisions of the Commissioner on the protest of the taxpayer against
the assessments.
Second, the filing of an appeal within 30 days after the lapse of 180-
day period is not the only remedy available in case of inaction by the
CIR on the protested assessment. It is a well-settled rule in
jurisprudence, which is consistent with the Revised Rules of the CTA,
that the taxpayer may also opt to await the final decision of the
Commissioner on the disputed assessment and appeal such decision
to the CTA within 30 days after the receipt of a copy of such decision.
These options are mutually exclusive and resort to one bars the
application of the other.
Here, considering that Lascona opted to await the final decision of the
Commissioner on the protested assessment, it then has the right to
appeal such final decision to the CTA by filing a petition for review
within 30 days after receipt of copy of such decision or ruling, even
after the expiration of the 180-day period fixed by law for the CIR to act
on the disputed assessments. Thus, Lascona, when it filed an appeal
on April 12 1999 before the CTA, after its receipt of the Letter dated
March 3 1999 on March 12 1999, the appeal was timely made as it
was filed within 30 days after receipt of copy of the decision. #
Note ***RMC 54-2014
In the filing of administrative claims for refund or tax credit of input
taxes, the option for the taxpayer to wait for the Commissioners
decision on its claim before filing an appeal may not be available.
Under the new rule promulgated by the BIR in 2014, if the claim for
VAT refund or credit is not acted upon by the Commissioner within the
120-day period as required by law, such inaction shall be deemed a
denial of the application for tax refund or credit. Further, the new
regulation provides that the taxpayer can appeal in one of the two
ways: (1) File the judicial claim within 30 days after the Commissioner
denies the claim within the 120-day period, or (2) File the judicial claim
within 30 days after the expiration of the 120-day period if the
Commissioner did not act on the claim.
This will have to mean that, unlike in the case of appealing before the
CTA for disputed assessments, the remedy of the taxpayer to wait for
the Commissioners decision even after the 120-day period is not
available when it comes to claiming refund or tax credit of VAT input
taxes.Thus, if the taxpayer failed to file an appeal or judicial claim
within 30 days after the lapse of the 120-day period of the
Commissioners inaction, the taxpayer loses its right to appeal to the
CTA.