Commissioner vs Kudos Metal Corporation

GR 178087, May 5, 2010

Facts:

The BIR reviewed and audited Kudos Metals records after the latter filed its income tax return.
Meanwhile, Pasco, the corporations accountant, executed two waivers of raising the defense of
prescription so that the BIR may complete its investigation even after the 3-year period of assessment
expires. The waivers, however, were executed with the following defects: first, Pasco was not duly
authorized to sign the waiver in behalf of Kudos; second, the date of acceptance by the Commissioner
were not indicated in the first waiver; and lastly, the fact of receipt by Kudos Metal of its file copy was
not indicated in the original copies of the waivers.

When BIR issued a PAN for the taxable year 1998, followed by FAN, which was dated September 3, 2003
and received by Kudos Metal on November 3, 2003, the latter protested the assessments. The BIR
insisted on collecting the tax so Kudos Metal brought the issue before the CTA, claiming that the
governments right to assess taxes had prescribed.

Issue 1: W/N the notices of assessment were issued by BIR beyond the 3-year prescriptive period

Held:

Yes. The period for assessment prescribed already because the waivers allowing the extension of the
period were void. Section 222 of the NIRC and RMO-20-90, which lays down the procedure for the
proper execution of waivers, were not complied with. Most importantly, the date of acceptance by the
BIR was not indicated so there is no way to determine if the suspension was made within the
prescriptive period. The BIR as a result is now barred from collecting the unpaid taxes from Kudos
Metal.

Issue 2: W/N Kudos Metal is estopped from claiming prescription by executing the waivers

Held:

No. The doctrine of estoppel, which is predicated on equity, is not applicable here because there is a
detailed procedure for the proper execution of a waiver. The BIR failed to comply with the
requirements of such law, plain and simple. It cannot now use estoppel to make up for its failure most
especially because a waiver of the statute of limitations, which derogates a taxpayers right to security
against prolonged and unscrupulous investigations, must be carefully and strictly construed.