FITNESS BY DESIGN v CIR 


Facts:

In 2004, Fitness by Design, Inc (FBD) was assessed for deficiency tax payments by the CIR for a
particular tax year (1995). They protested this assessment. Before the CTA, it claimed that this
assessment was beyond the 3-year prescriptive period. CIR claimed however, that FBD failed to
file its VAT return and that it fraudulently filed its Income Tax Return (ITR), based from
investigation. Hence, the CIR actually had 10 years from the discovery of such fraudulent act to
assess, and not only 3 years.

FBD claimed that a certain Sablan, a CPA and its former bookkeeper turned over their
books/records etc to BIR without its consent. Hence, it moved for issuance of subpoenas for
Sablan and some other revenue officers. It also sent written interrogatories for Sablan. These
motions were denied by the CTA.

Issue/s:

Assuming the documents/books/records were turned over to BIR without FBD’s consent, WON
BIR is precluded from assessing the deficiency taxes of FBD based on the documents – NO.

Held:

In ruling for the CIR, the Court said that under Section 5 of the NIRC, the CIR has the authority
to “To examine any book, paper, record or other data which may be relevant or material to such
query; to obtain on a regular basis from any person other than the person whose internal revenue
tax liability is subject to audit or investigation xxx; 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

In this case, even if FBD did not actually give its consent for the turn-over of the company’s
books/records to BIR, it couldn’t be presumed that such were illegally obtained since CIR has the
broad powers abovementioned, “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 xxx” (Section 5)