TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019 1

Table of Contents
ROHM APOLLO SEMICONDUCTOR v. CIR................................................................................................................................ 2
CIR v. MENGUITO .................................................................................................................................................................... 3
CIR v. METRO STAR SUPERAMA .............................................................................................................................................. 6
CIR vs REYES ............................................................................................................................................................................ 7
AUSTRALASIA CYLINDER CORP. v. CIR..................................................................................................................................... 9
PNZ MARKETING v. CIR ......................................................................................................................................................... 10
Phil. Mining Service Corp v. CIR ............................................................................................................................................ 12
OCEANIC WIRELESS NETWORK, INC. v. CIR........................................................................................................................... 13
CIR v. ENRON SUBIC POWER CORPORATION ........................................................................................................................ 15
H. TAMBUNTING PAWNSHOP vs CIR .................................................................................................................................... 16
CIR v. FIRST EXPRESS PAWNSHOP CO. .................................................................................................................................. 19
DAYRIT, et. al v. CRUZ & VERA .............................................................................................................................................. 20
ADVERTISING ASSOCIATES, INC. v. CA ................................................................................................................................. 22
COMMISSIONER OF INTERNAL REVENUE v. LEONARDO S. VILLA and THE COURT OF APPEALS......................................... 23
LASCONA LAND v. CIR ........................................................................................................................................................... 24
RCBC vs CIR ........................................................................................................................................................................... 25
CIR v. ISABELA CULTURAL CORPORATION ............................................................................................................................ 26
CIR v. AYALA SECURITIES CORP. & CTA ................................................................................................................................. 28
SURIGAO ELECTRIC CO., INC., v. CA ..................................................................................................................................... 30
CIR v. UNION SHIPPING CORPORATION................................................................................................................................ 31
CIR v. ALGUE, INC. ................................................................................................................................................................. 32
CENTRAL CEMENT vs CIR ...................................................................................................................................................... 33
ADVERTISING ASSOCIATES INC. v. CA ................................................................................................................................... 34
AVON PRODUCTS MFG., INC. v. PCIR .................................................................................................................................... 35
BASA v. RP ............................................................................................................................................................................. 38
MAMBULAO LUMBER v. CIR ................................................................................................................................................. 39

Section 6. Power of the Commissioner to Make Assessments and Prescribe Additional

Requirements for Tax Administration and Enforcement. –

(A) Examination of Return 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, notwithstanding any law requiring the prior authorization of
any government agency or instrumentality: Provided, however, That failure to file a
return shall not prevent the Commissioner from authorizing the examination of any
taxpayer.

The tax or any deficiency tax so assessed shall be paid upon notice and demand
from the Commissioner or from his duly authorized representative.

Any return, statement of declaration filed in any office authorized to receive the same
shall not be withdrawn: Provided, That within three (3) years from the date of such
filing, the same may be modified, changed, or amended: Provided, further, That no
notice for audit or investigation of such return, statement or declaration has in the
meantime been actually served upon the taxpayer.

BASED ON THE SYLLABUS OF ATTY. KRISKA MARNA A. BUENA, CPA

 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
ROHM APOLLO SEMICONDUCTOR v. CIR
G.R. No. 168950, January 14, 2015
Digest by Hannah Keziah P. Dela Cerna
Topic: Amend Return - Section 6(A), NIRC
Case: This Rule 45 Petition requires this Court to address the
question of timeliness with respect to petitioner's judicial claim
for refund or credit of unutilized input Value-Added Tax (VAT)
under Sections 112(A) and 112(D) of the 1997 Tax Code.
Petitioner Rohm Apollo Semiconductor Philippines., Inc. (Rohm
Apollo) assails the Decision and Resolution of the Court of Tax
Appeals En Banc (CTA En Banc) in CTA En Banc Case No. 59,
affirming the Decision in CTA Case No. 6534 of the CTA First
Division. The latter denied the claim for the refund or issuance
of a tax credit certificate filed by petitioner Rohm Apollo in the
amount of P30,359,615.40 representing unutilized input VAT
paid on capital goods purchased for the months of July and
August 2000.
Facts:
Petitioner Rohm Apollo is a domestic corporation registered
with the Securities and Exchange Commission. It is also
registered with the Philippine Economic Zone Authority as an
Ecozone Export Enterprise. Rohm Apollo is in the business of
manufacturing semiconductor products, particularly microchip
transistors and tantalium capacitors at the People’s Technology
Complex – Special Economic Zone, Barangay Maduya,
Carmona Cavite. Further, it is registered with the Bureau of
Internal Revenue (BIR) as a value-added taxpayer.
Sometime in June 2000, prior to the commencement of its
operations on 1 September 2001, Rohm Apollo engaged the
services of Shimizu Philippine Contractors, Inc. (Shimizu) for
the construction of a factory. For services rendered by Shimizu,
petitioner made initial payments of P198,551,884.28 on 7 July
2000 and P132,367,923.58 on 3 August 2000.
It should be noted at this point that Section 112(B), in
relation to Section 112(A) of the 1997 Tax Code, allows a
taxpayer to file an application for the refund or tax credit of
unutilized input VAT when it comes to the purchase of capital
goods. The provision sets a time frame for the filing of the
application at two years from the close of the taxable quarter
when the purchase was made.
Petitioner treated the payments as capital goods
purchases and thus filed with the BIR an administrative claim
for the refund or credit of accumulated unutilized creditable
input taxes on 11 December 2000. As the close of the taxable
quarter when the purchases were made was 30 September
2000, the administrative claim was filed well within the two-
year prescriptive period.
Pursuant to Section 112(D) of the 1997 Tax Code, the
Commissioner of Internal Revenue (CIR) had a period of 120
days from the filing of the application for a refund or credit on
11 December 2000, or until 10 April 2001, to act on the claim.
The waiting period, however, lapsed without any action
by the CIR on the claim.
Instead of filing a judicial claim within 30 days from the lapse
of the 120-day period on 10 April, or until 10 May 2001, Rohm
Apollo filed a Petition for Review with the CTA docketed as CTA
Case No. 6534 on 11 September 2002. It was under the belief
that a judicial claim had to be filed within the two-year
prescriptive period ending on 30 September 2002.
CTA First Division Decision
On 27 May 2004, the CTA First Division rendered a
Decision denying the judicial claim for a refund or tax credit. In
2
support of its ruling, the CTA First Division held, among others,
that petitioner must have at least submitted its VAT return for
the third quarter of 2001, since it was in that period that it
began its business operations. The purpose was to verify if
indeed petitioner did not carry over the claimed input VAT to
the third quarter or the succeeding quarters.
On 14 July 2004, petitioner Rohm Apollo filed a Motion for
Reconsideration, but the tax court stood by its Decision.
On 18 January 2005, the taxpayer elevated the case to the
CTA En Banc via a Petition for Review.
CTA En Banc
On 22 June 2005, the CTA En Banc rendered its Decision
denying Rohm Apollo’s Petition for Review. The appellate tax
court held that the failure to present the VAT returns for the
subsequent taxable year proved to be fatal to the claim for a
refund/tax credit, considering that it could not be determined
whether the claimed amount to be refunded remained
unutilized.
Issue: Whether the CTA acquired jurisdiction over the claim
for the refund or tax credit of unutilized input VAT. -NO.
Held: The Court denied the Petition on the ground that the
taxpayer’s judicial claim for a refund/tax credit was filed
beyond the prescriptive period.
The Judicial Claim was Filed Out of Time. - Section 112(D)
of the 1997 Tax Code states the time requirements for filing a
judicial claim for the refund or tax credit of input VAT. The legal
provision speaks of two periods:
(1) the period of 120 days, which serves as a waiting
period to give time for the CIR to act on the administrative
claim for a refund or credit;and
(2) the period of 30 days, which refers to the period for
filing a judicial claim with the CTA.
It is the 30-day period that is at issue in this case.
The landmark case of Commissioner of Internal Revenue v. San
Roque Power Corporation has interpreted Section 112 (D). The
Court held that the taxpayer can file an appeal in one of
two ways:
(1) file the judicial claim within 30 days after the Commissioner
denies the claim within the 120-day waiting period, or
(2) file the judicial claim within 30 days from the expiration of
the 120-day period if the Commissioner does not act within
that period.
In this case, the facts are not up for debate. On 11 December
2000, petitioner filed with the BIR an application for the refund
or credit of accumulated unutilized creditable input taxes. Thus,
the CIR had a period of 120 days from 11 December
2000, or until 10 April 2001, to act on the claim. It failed
to do so, however. Rohm Apollo should then have treated
the CIR’s inaction as a denial of its claim. Petitioner
would then have had 30 days, or until 10 May 2001, to
file a judicial claim with the CTA. But Rohm Apollo filed a
Petition for Review with the CTA only on 11 September 2002.
The judicial claim was thus filed late.
Petitioner Mistakenly Believed that a Judicial Claim Need
Not be Filed Within 30 Days. - The error of the taxpayer lies
in the fact that it had mistakenly believed that a judicial claim
need not be filed within 30 days from the lapse of the 120-day
period. It had believed that the only requirement is that the
judicial claim must be filed within the two-year period under
Sections 112(A) and (B) of the 1997 Tax Code. In other words,
Rohm Apollo erroneously thought that the 30-day period does
not apply to cases of the CIR’s inaction after the lapse of the
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120-day waiting period, and that a judicial claim is seasonably
filed so long as it is done within the two year-period. Thus, it
filed the Petition for Review with the CTA only on 11
September 2002.
These mistaken notions have already been dispelled
by Commissioner of Internal Revenue v. Aichi Forging
Company of Asia, Inc. (Aichi) and San Roque:
Aichi only the administrative claim
that must be filed within the
two-year prescriptive period
San Roque 30-day period always
applies, whether there is a
denial or inaction on the part
of the CIR.
Justice Antonio Carpio, writing for the Court in San Roque,
explained that the 30-day period is a 1997 Tax Code innovation
that does away with the old rule where the taxpayer could file
a judicial claim when there is inaction on the part of the CIR
and the two-year statute of limitations is about to expire.
Justice Carpio stated:
The old rule that the taxpayer may file the judicial claim,
without waiting for the Commissioner's decision if the two-
year prescriptive period is about to expire, cannot apply
because that rule was adopted before the enactment of the
30-day period.
RATIO FOR ADOPTION OF 30-DAY PERIOD:
The 30-day period was adopted precisely to do away with
the old rule, so that under the VAT System the taxpayer will
always have 30 days to file the judicial claim even if the
Commissioner acts only on the 120th day, or does not act
at all during the 120-day period. With the 30-day period
always available to the taxpayer, the taxpayer can no longer
file a judicial claim for refund or credit of input VAT without
waiting for the Commissioner to decide until the expiration
of the 120-day period.
Issue 2: Whether or not the 30-day period to appeal is
mandatory and jurisdictional. -YES.
The 30-day period to appeal is mandatory and
jurisdictional. - As a general rule, the 30-day period to appeal
is both mandatory and jurisdictional. The only exception to
the general rule is when BIR Ruling No. DA-489-03 was
still in force, that is, between 10 December 2003 and 5
October 2010, The BIR Ruling excused premature filing,
declaring that the taxpayer-claimant need not wait for the
lapse of the 120-day period before it could seek judicial relief
with the CTA by way of Petition for Review. In San Roque, the
High Court explained both the general rule and the exception:
To repeat, a claim for tax refund or credit, like a claim for
tax exemption, is construed strictly against the taxpayer.
One of the conditions for a judicial claim of refund or credit
under the VAT System is with the 120+30 day mandatory
and jurisdictional periods. Thus, strict compliance with
the 120+30 day periods is necessary for such a claim
to prosper, whether before, during, or after the effectivity
of the Atlas doctrine, except for the period from the
issuance of BIR Ruling No. DA-489-03 on 10 December 2003
to 6 October 2010 when the Aichi doctrine was adopted,
which again reinstated the 120+30 day periods as
mandatory and jurisdictional.
San Roque likewise ruled out the application of the BIR ruling
to cases of late filing. The Court held that the BIR ruling, as an
exception to the mandatory and jurisdictional nature of the
120+30 day periods, is limited to premature filing and does not
extend to the late filing of a judicial claim.
3
In sum, premature filing is allowed for cases falling during the
time when BIR Ruling No. DA-489-03 was in force;
nevertheless, late filing is absolutely prohibited even for cases
falling within that period.
As mentioned above, the taxpayer filed its judicial claim
with the CTA on 11 September 2002. This was before the
issuance of BIR Ruling No. DA-489-03 on 10 December
2003. Thus, Rohm Apollo could not have benefited from
the BIR Ruling. Besides, its situation was not a case of
premature filing of its judicial claim but one of late
filing. To repeat, its judicial claim was filed on 11 September
2002 – long after 10 May 2001, the last day of the 30-day
period for appeal. The case thus falls under the general rule –
the 30-day period is mandatory and jurisdictional.
CONCLUSION
In fine, the Court’s finding is that the judicial claim for the
refund or credit of unutilized input VAT was belatedly filed.
Hence, the CTA lost jurisdiction over Rohm Apollo’s claim for a
refund or credit.
The foregoing considered, there is no need to go into the merits
of this case.
A final note, the taxpayers are reminded that that when the
120-day period lapses and there is inaction on the part of the
CIR, they must no longer wait for it to come up with a decision
thereafter. The CIR’s inaction is the decision itself. It is
already a denial of the refund claim. Thus, the taxpayer must
file an appeal within 30 days from the lapse of the 120-day
waiting period.
CIR v. MENGUITO
G.R. No. 167560, September 17, 2008
Digest by Anna Sophia Tarhata Piang
Topic: Procedure for protesting an assessment (Sec. 228)
Facts:
1. Respondent Dominador Menguito is a Filipino citizen,
of legal age, married to Jeanne Menguito and is
engaged in the restaurant and/or cafeteria business.
For the years 1991, 1992 and 1993, its principal place
of business was at Gloriamaris, CCP Complex, Pasay
City and later transferred to Kalayaan Bar (Copper
Kettle Cafeteria Specialist or CKCS), Departure Area,
Ninoy Aquino International Airport, Pasay City. During
the same years, he also operated a branch at Club
John Hay, Baguio City carrying the business name of
Copper Kettle Cafeteria Specialist.
2. Subsequently, BIR Baguio received information that
respondent had undeclared income from Texas
Instruments and Club John Hay, prompting the BIR to
conduct another investigation.
3. Through a letter dated July 28, 1997, Spouses
Dominador Menguito and Jeanne Menguito (Spouses
Menguito) were informed by the Assessment Division
of the said office that they have underdeclared sales
totaling P48,721,555.96.
4. This was followed by a Preliminary Ten (10) Day Letter
dated August 11, 1997, informing respondent that in
the investigation of his 1991, 1992 and 1993 income,
business and withholding tax case, it was found out
that there is still due from him the total sum of
P34,193,041.55 as deficiency income and percentage
tax.
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 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
5. On September 2, 1997, the assessment notices
subject of the instant petition were issued. These were
protested by Ms. Jeanne Menguito, through a letter
dated September 28, 1997 on the ground that the
40% deduction allowed on their computed gross
revenue, is unrealistic. Ms. Jeanne Menguito
requested for a period of thirty (30) days within which
to coordinate with the BIR regarding the contested
assessment.
6. On October 10, 1997, BIR Baguio replied, informing
the Spouses Menguito that the source of assessment
was not through the disallowance of claimed expenses
but on data received from Club John Hay and Texas
Instruments Phils., Inc. Said letter gave the spouses
ten (10) days to present evidence (Exhibit 15, p. 110,
BIR Records).
7. In an effort to clear an alleged confusion regarding
Copper Kettle Cafeteria Specialist (CKCS) being a sole
proprietorship owned by the Spouses, and Copper
Kettle Catering Services, Inc. (CKCS, Inc.) being a
corporation with whom Texas Instruments and Club
John Hay entered into a contract, Petitioner
[respondent] submitted to BIR Baguio a photocopy of
the SEC Registration of Copper Kettle Catering
Services, Inc. on March 23, 1999 (pp. 134-141, BIR
Records).
8. On April 12, 1999, BIR Baguio wrote a letter to
Spouses Menguito, informing the latter that a
reinvestigation or reconsideration cannot be given due
course by the mere submission of an uncertified
photocopy of the Certificate of Incorporation. Thus, it
avers that the amendment issued is still valid and
enforceable.
9. On May 26, 1999, respondent filed the present case,
praying for the cancellation and withdrawal of the
deficiency income tax and percentage tax
assessments on account of prescription, whimsical
factual findings, violation of procedural due process on
the issuance of assessment notices, erroneous
address of notices and multiple credit/ investigation
by the Respondent [petitioner] of Petitioner's
[respondent’s] books of accounts and other related
records for the same tax year.
10. Instead of filing an Answer, petitioner CIR moved to
dismiss the instant petition on July 1, 1999, on the
ground of lack of jurisdiction. According to petitioner,
the assessment had long become final and executory
when respondent Menguito failed to comply with the
letter dated October 10, 1997.
11. Petitioner opposed said motion on July 21, 1999,
claiming that the final decision on respondent’s
protest is the April 12, 1999 letter of the Baguio
Regional Office; therefore, the filing of the action
within thirty (30) days from receipt of the said letter
was seasonably filed. Moreover, respondent asserted
that granting that the April 12, 1999 letter in question
could not be construed to mean as a denial or final
decision of the protest, still respondent’s appeal was
timely filed since petitioner CIR issued a Warrant of
Distraint and/or Levy against the respondenton May
3, 1999, which warrant constituted a final decision of
the petitioner on the protest of the taxpayer.
Petitioner CIR filed their Answer on September 24, 1999,
raising the following Special and Affirmative Defenses:
4
xxxx
ANSWER OF CIR
5. Investigation disclosed that for taxable years 1991,
1992 and 1993, respondent filed false or fraudulent
income and percentage tax returns with intent to
evade tax by under declaring his sales.
6. The alleged duplication of investigation of
respondent by the BIR Regional Office in Baguio City
and by the Revenue District Office in Pasay City is
justified by the finding of fraud on the part of the
petitioner [respondent], which is an exception to the
provision in the Tax Code that the examination and
inspection of books and records shall be made only
once in a taxable year (Section 235, Tax Code). At any
rate, petitioner [respondent], in a letter dated July 18,
1994, waived his right to the consolidation of said
investigation.
7. The aforementioned falsity or fraud was discovered
on August 5, 1997. The assessments were issued on
September 2, 1997, or within ten (10) years from the
discovery of such falsity or fraud (Section 223, Tax
Code). Hence, the assessments have not prescribed.
8. Respondent’s allegation that the assessments were
not properly addressed is rendered moot and
academic by his acknowledgment in his protest letter
dated September 28, 1997 that he received the
assessments.
9. Petitioner complied with the provisions of Revenue
Regulations No. 12-85 by informing respondent the
findings of the investigation in letters dated July 28,
1997 and August 11, 1997 prior to the issuance of the
assessments.
10. Respondent did not allege in his administrative
protest that there was a duplication of investigation,
that the assessments have prescribed, that they were
not properly addressed, or that the provisions of
Revenue Regulations No. 12-85 were not observed.
Not having raised them in the administrative level,
respondent cannot raise the same for the first time on
appeal (Aguinaldo Industries Corp. vs. Commissioner
of Internal Revenue, 112 SCRA 136).
11. The assessments were issued in accordance with
law and regulations.
12. All presumptions are in favor of the correctness of
tax assessments (CIR vs. Construction Resources of
Asia, Inc., 145 SCRA 67), and the burden to prove
otherwise is upon petitioner [respondent].5
(Emphasis supplied)
Ruling of the CTA
On April 2, 2002, the CTA rendered a Decision, the dispositive
portion of which reads:
Accordingly, respondent is ORDERED to PAY the
petitioner the amount of P11,333,233.94 and
P2,573,655.82 as deficiency income and percentage
tax liabilities, respectively for taxable years 1991,
1992 and 1993 plus 20% delinquency interest from
October 2, 1997 until full payment thereof.
SO ORDERED.
Respondent filed a motion for reconsideration, but the CTA
denied the same in its Resolution of October 10, 2002.
Petition with the CA
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Through a Petition for Review filed with the CA, respondent
questioned the CTA Decision and Resolution mainly on the
ground that Copper Kettle Catering Services, Inc. (CKCS, Inc.)
was a separate and distinct entity from Copper Kettle Cafeteria
Specialist (CKCS); the sales and revenues of CKCS, Inc. could
not be ascribed to CKCS; neither may the taxes due from one,
charged to the other; nor the notices to be served on the
former, coursed through the latter. Respondent cited the Joint
Stipulation in which petitioner acknowledged that its
(respondent’s) business was called Copper Kettle Cafeteria
Specialist, not Copper Kettle Catering Services, Inc.
Based on the unrefuted CTA summary, the CA rendered the
Decision assailed herein, the dispositive portion of which reads:
WHEREFORE, the instant petition is GRANTED.
Reversing the assailed Decision dated April 2, 2002
and Resolution dated October 10, 2002, the deficiency
income tax and percentage income tax assessments
against petitioner in the amounts of P11,333,233.94
and P2,573,655.82 for taxable years 1991, 1992 and
1993 plus the 20% delinquency interest thereon are
annulled.
SO ORDERED.
Issue: Whether or not respondent Menguito was denied due
process for failure of petitioner to validly serve respondent with
the post-reporting and pre-assessment notices as required by
law. – No.
Held:
In respondent's Petition for Review with the CTA, he questioned
the validity of the Assessment Notices, all dated September 2,
1997, issued by BIR, Baguio City against him on the following
grounds:
1. The assessment notices, based on income and
percentage tax returns filed for 1991, 1992 and 1993,
were issued beyond the three-year prescriptive period
under Section 203 of the Tax Code;50
2. The assessment notices were addressed to Copper
Kettle Specialist, Club John Hay, Baguio City, despite
notice to petitioner that respondent's principal place
of business was at the CCP Complex, Pasay City.51
3. The assessment notices were issued in violation of the
requirement of Revenue Regulations No. 12-85, dated
November 27, 1985, that the taxpayer be issued a
post-reporting notice and pre-assessment notice
before the preliminary findings of deficiency may ripen
into a formal assessment; and
4. The assessment notices did not give respondent a 15-
day period to reply to the findings of deficiency.
Assessment notices were valid
The Court notes that nowhere in his Petition for Review did
respondent deny that he received the September 2, 1997
assessment notices. Instead, during the trial, respondent's
witness, Ma. Theresa Nalda (Nalda), testified that she informed
the BIR, Baguio City "that there was no Notice or letter, that
we did not receive, perhaps, because they were not addressed
to Mr. Menguito's head office."
The CTA correctly upheld the validity of the assessment
notices. Citing Section 223 of the Tax Code which provides that
the prescriptive period for the issuance of assessment notices
based on fraud is 10 years, the CTA ruled that the assessment
notices issued against respondent on September 2, 1997 were
timely because petitioner discovered the falsity in respondent's
5
tax returns for 1991, 1992 and 1993 only on February 19,
1997.55 Moreover, in accordance with Section 2 of Revenue
Regulation No. 12-85, which requires that assessment notices
be sent to the address indicated in the taxpayer's return, unless
the latter gives a notice of change of address, the assessment
notices in the present case were sent by petitioner to Camp
John Hay, for this was the address respondent indicated in his
tax returns.56 As to whether said assessment notices were
actually received, the CTA correctly held that since respondent
did not testify that he did not receive said notices, it can be
presumed that the same were actually sent to and received by
the latter. The Court agrees with the CTA in considering as
hearsay the testimony of Nalda that respondent did not receive
the notices, because Nalda was not competent to testify on the
matter, as she was employed by respondent only in June 1998,
whereas the assessment notices were sent on September 2,
1997.57
Anent compliance with the requirements of Revenue Regulation
No. 12-85, the CTA held:
BIR records show that on July 28, 1997, a letter was
issued by BIR Baguio to Spouses Menguito, informing
the latter of their supposed underdeclaration of sales
totaling P48,721,555.96 and giving them 5 days to
communicate any objection to the results of the
investigation (Exhibit 11, p. 83, BIR Records). Records
likewise reveal the issuance of a Preliminary Ten (10)
Day Letter on August 11, 1997, informing Petitioner
[respondent herein] that the sum of P34,193,041.55
is due from him as deficiency income and percentage
tax (Exhibit 13, p. 173, BIR Records). Said letter gave
the Petitioner [respondent herein] a period of ten (10)
days to submit his objection to the proposed
assessment, either personally or in writing, together
with any evidence he may want to present.
xxxx
Respondent was given ample opportunity to present his
side
As to Petitioner's allegation that he was given only ten (10)
days to reply to the findings of deficiency instead of fifteen (15)
days granted to a taxpayer under Revenue Regulations No. 12-
85, this Court believes that when Respondent [petitioner
herein] gave the Petitioner [respondent herein] on October 10,
1997 an additional period of ten (10) days to present
documentary evidence or a total of twenty (20) days, there was
compliance with Revenue Regulations No. 12-85 and the latter
was amply given opportunity to present his side x x x.58
Respondent is estopped from denying receipt of the
assessment notices
In their Petition for Review with the CTA, respondent expressly
stated that "[s]ometime in September 1997, respondent
received various assessment notices, all dated 02 September
1997, issued by BIR-Baguio for alleged deficiency income and
percentage taxes for taxable years ending 31 December 1991,
1992 and 1993 x x x."62 In their September 28, 1997 protest
to the September 2, 1997 assessment notices, respondent,
through his spouses Jeanne Menguito, acknowledged that
"[they] are in receipt of the assessment notice you have sent
us, dated September 2, 1997 x x x."
Respondent is therefore estopped from denying actual receipt
of the September 2, 1997 assessment notices, notwithstanding
the denial of his witness Nalda.
As to the address indicated on the assessment notices,
respondent cannot question the same for it is the said address
which appears in its percentage tax returns. While respondent
claims that he had earlier notified petitioner of a change in his
business address, no evidence of such written notice was
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 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
presented. Under Section 11 of Revenue Regulation No. 12-85,
respondent's failure to give written notice of change of address
bound him to whatever communications were sent to the
address appearing in the tax returns for the period involved in
the investigation.
Thus, what remain in question now are: whether petitioner
issued and mailed a post-reporting notice and a pre-
assessment notice; and whether respondent actually
received them.
Petitioner failed to prove that it served post-reporting
and pre-assessment notices
There is no doubt that petitioner failed to prove that it served
on respondent a post-reporting notice and a pre-assessment
notice. Exhibit "11" of petitioner is a mere photocopy of a July
28, 1997 letter it sent to respondent, informing him of the
initial outcome of the investigation into his sales, and the
release of a preliminary assessment upon completion of the
investigation, with notice for the latter to file any objection
within five days from receipt of the letter. "Exhibit "13" of
petitioner is also a mere photocopy of an August 11, 1997
Preliminary Ten (10) Day Letter to respondent, informing him
that he had been found to be liable for deficiency income and
percentage tax and inviting him to submit a written objection
to the proposed assessment within 10 days from receipt of
notice. But nowhere on the face of said documents can be
found evidence that these were sent to and received by
respondent. Nor is there separate evidence, such as a registry
receipt of the notices or a certification from the Bureau of Posts,
that petitioner actually mailed said notices.
However, while the lack of a post-reporting notice and pre-
assessment notice is a deviation from the requirements under
Section 168 and Section 269 of Revenue Regulation No. 12-85,
the same cannot detract from the fact that formal assessments
were issued to and actually received by respondents in
accordance with Section 228 of the National Internal Revenue
Code which was in effect at the time of assessment.
Due process requires that a valid formal assessment be
served on the taxpayer
It should be emphasized that the stringent requirement that an
assessment notice be satisfactorily proven to have been issued
and released or, if receipt thereof is denied, that said
assessment notice have been served on the taxpayer, applies
only to formal assessments prescribed under Section 228 of
the National Internal Revenue Code, but not to post-reporting
notices or pre-assessment notices. The issuance of a valid
formal assessment is a substantive prerequisite to tax
collection, for it contains not only a computation of tax
liabilities but also a demand for payment within a prescribed
period, thereby signaling the time when penalties and interests
begin to accrue against the taxpayer and enabling the latter to
determine his remedies therefor. Due process requires that it
must be served on and received by the taxpayer.
The failure to serve post-reporting reports and pre-
assessment notices is not fatal
A post-reporting notice and pre-assessment notice do not bear
the gravity of a formal assessment notice. The post-reporting
notice and pre-assessment notice merely hint at the initial
findings of the BIR against a taxpayer and invites the latter to
an "informal" conference or clarificatory meeting. Neither
notice contains a declaration of the tax liability of the taxpayer
or a demand for payment thereof. Hence, the lack of such
notices inflicts no prejudice on the taxpayer for as long
as the latter is properly served a formal assessment
notice. In the case of respondent, a formal assessment notice
was received by him as acknowledged in his Petition for Review
and Joint Stipulation; and, on the basis thereof, he filed a
protest with the BIR, Baguio City and eventually a petition with
the CTA.
6
CIR v. METRO STAR SUPERAMA
GR 185731, December 8, 2010
Digest by Reginald Matt Santiago
Topic: Procedure for Protesting an Assessment
Doctrine: Failure to protest is immaterial when
assessment itself is void. Failure to prove that a
Preliminary Assessment Notice (PAN) was served to the
taxpayer would mean that the taxpayer was denied due
process as one must be informed of the facts and the law
from which the assessment was based upon.
Facts: A letter of authority was issued to examine the books
and accounts of Metro Star Superama for TY 1999 and LOA was
revalidated for TY 2001.
For failure to comply with several request for presentation of
records and subpoena duces tecum, the BIR Legal Division
issued an Indorsement to proceed with investigation based on
the best evidence obtainable preparatory to the issuance of
assessment notice.
A Preliminary 15-day Letter was issued and it was received by
Metro Star stating that a post audit review was held and that it
has a deficiency of VAT and withholding taxes due (P292K).
On April 11, 2002, Metro Star received a Formal Letter of
Demand from RD Legazpi assessing the same amount (P292K)
deficiency VAT and withholding taxes for TY 1999.
A Final Notice of Seizure was sent to Metro Star in May 12,
2003 giving the latter the last opportunity to settle its
deficiency tax liabilities within 10 days from receipt otherwise
BIR would issue warrants of distraint and/or levy and
garnishment to enforce collection.
A Warrant of Distraint and/or Levy was received by Metro Star
demanding payment of the efficiency tax. An MR was filed but
this was denied by the CIR.
Metro Star here denies that it receive a PAN and claiming that
it was not accorded due process thus it went to the CTA and
filed a petition for review.
CTA 2D: granted the petition and ordered to desist from the
collection as it found that there is no clear showing that Metro
Star received the alleged PAN dated January 16, 2002 and thus
the FLD, Warrant or Distraint were void as Metro Star was
denied due process. MR by CIR denied.
CTA EB: Affirmed CTA 2D in toto.
CIR: It insists that Metro Star received a PAN and that due
process was served since it had received the FAN.
Issue: Was Metro Star denied due process? – Yes.
Held: (1) Failure to prove receipt of assessment leads to
the conclusion that no assessment was issued. – CIR here
failed to discharge its duty and present any evidence to show
that Metro Star indeed received the PAN dated January 16,
2002. It could have simply presented the registry receipt or the
certification from the postmaster that it mailed the PAN, but
failed to do so. Neither did it offer any explanation on why it
failed to comply with the requirement of service of the PAN. It
merely accepted the letter of Metro Star’s chairman dated April
29, 2002, that stated that he had received the FAN dated April
3, 2002, but not the PAN; that he was willing to pay the tax as
computed by the CIR; and that he just wanted to clarify some
matters with the hope of lessening its tax liability.
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(2) Section 228 Requirements. - Indeed, Section 228 of the
Tax Code clearly requires that the taxpayer must first be
informed that he is liable for deficiency taxes through the
sending of a PAN. He must be informed of the facts and the law
upon which the assessment is made. The law imposes a
substantive, not merely a formal, requirement. To proceed
heedlessly with tax collection without first establishing a valid
assessment is evidently violative of the cardinal principle in
administrative investigations - that taxpayers should be able to
present their case and adduce supporting evidence.
(3) Sending of PAN Part of Due Process Requirement.
From the [Section 3, RR 12-99], 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" 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 Star’s 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.
(4) CIR v. Menguito not applicable. - The issue therein was
the non-compliance with the provisions of R. R. No. 12-85
which sought to interpret Section 229 of the old tax law. RA
No. 8424 has already amended the provision of Section 229 on
protesting an assessment. The old requirement of merely
notifying the taxpayer of the CIR’s findings was changed in
1998 to informing the taxpayer of not only the law, but also of
the facts on which an assessment would be made. Otherwise,
the assessment itself would be invalid
(5) Failure to Protest is Immaterial When there is a Void
Assessment. – It is a well settled rule that a void assessment
bear no fruit. Taxes are the lifeblood of the government and so
should be collected without unnecessary hindrance. On the
other hand, such collection should be made in accordance with
law as any arbitrariness will negate the very reason for
government itself.
It is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common
good, may be achieved.
CIR vs REYES
G.R. No. 170257. September 7, 2011
Digest by Kristal Charmaine F. Alaban
Topic: Requirement to inform taxpayer of factual and
legal basis of assessment
Facts:
July 8, 1993: Maria C. Tancinco died, leaving a 1,292 square-
meter residential lot and an old house thereon.
On the basis of a sworn information-for-reward filed by
Raymond Abad, R.D.O. No. 50 (South Makati) conducted an
investigation on the decedent’s estate. Subsequently, it issued
a Return Verification Order. But without the required
preliminary findings being submitted, it issued Letter of
Authority for the regular investigation of the estate tax case.
Azucena T. Reyes, one of the decedent’s heirs, received the
Letter of Authority on March 14, 1997.
7
February 12, 1998: the Chief, Assessment Division of BIR,
issued a preliminary assessment notice against the estate
in the amount of P14,580,618.67.
May 10, 1998: the heirs received a final estate tax
assessment notice and a demand letter, both dated April
22, 1998, for the amount of P14,912,205.47, inclusive of
surcharge and interest.
June 1, 1998: a Felix Sumbillo protested the assessment on
behalf of the heirs on the ground that the subject property had
already been sold by the decedent sometime in 1990.
On November 12, 1998: the CIR issued a preliminary collection
letter to Reyes, followed by a Final Notice Before Seizure dated
December 4, 1998.
January 5, 1999: a Warrant of Distraint and/or Levy was served
upon the estate, followed on February 11, 1999 by Notices of
Levy on Real Property and Tax Lien against it.
March 2, 1999: Reyes protested the notice of levy.
March 11, 1999: the heirs proposed a compromise settlement
of P1,000,000.00.
January 27, 2000: In a letter to the CIR, Reyes proposed to
pay 50% of the basic tax due, citing the heirs’ inability to pay
the tax assessment.
March 20, 2000: the CIR rejected Reyes’ offer, pointing out
that
• since the estate tax is a charge on the estate and not
on the heirs, the latter’s financial incapacity is
immaterial as, in fact,
• the gross value of the estate amounting to
P32,420,360.00 is more than sufficient to settle the
tax liability.
Thus, the CIR demanded payment of the amount of
P18,034,382.13 on or before April 15, 2000;
otherwise, the notice of sale of the subject property
would be published.
April 11, 2000: Reyes again wrote to the CIR, this time
proposing to pay 100% of the basic tax due in the amount of
P5,313,891.00.
June 6, 2000: As the estate failed to pay its tax liability within
the April 15, 2000 deadline, the Chief, Collection Enforcement
Division of the BIR, notified Reyes on that the subject property
would be sold at public auction on August 8, 2000.
On June 13, 2000: Reyes filed a protest with the BIR Appellate
Division. Assailing the scheduled auction sale, she
asserted that the assessment, letter of demand, and the
whole tax proceedings against the estate are void ab
initio. She offered to file the corresponding estate tax return
and pay the correct amount of tax without surcharge [or]
interest.
Without acting on Reyes’ protest and offer, the CIR instructed
the Collection Enforcement Division to proceed with the August
8, 2000 auction sale.
June 28, 2000: Reyes filed a Petition for Review with the CTA.
July 26, 2000: CTA granted Reyes’ Motion for the Issuance of
a Writ of Preliminary Injunction or Status Quo Order
August 16, 2000: CTA issued a Resolution ordering the CIR to
desist and refrain from proceeding with the auction sale of the
subject property or from issuing a Warrant of Distraint or
Garnishment of Bank Account.
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 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
November 23, 2000: CTA denied CIR’s Motion to Dismiss
(ground: that the CTA no longer has jurisdiction over the case
because the assessment against the estate is already final and
executory AND that the petition was filed out of time.
During the pendency of the Petition for Review with the CTA,
however, the BIR issued R.R. No. 6-2000 and RMO No. 42-
2000 offering certain taxpayers with delinquent accounts and
disputed assessments an opportunity to compromise their tax
liability.
November 25, 2000: Reyes filed an application with the BIR for
the compromise settlement of the assessment against the
estate pursuant to Sec. 204(A) of the Tax Code, as
implemented by RR No. 6-2000 and RMO No. 42-2000.
January 29, 2001: Reyes moved for postponement of the
hearing on the ground that she had already paid the
compromise amount of P1,062,778.20 but was still awaiting
approval of the National Evaluation Board. The CTA granted the
motion and reset the hearing to February 27, 2001.
February 19, 2001: Reyes filed a Motion to Declare Application
for the Settlement of Disputed Assessment as a Perfected
Compromise. CIR countered that, without the approval of the
NEB, Reyes’ application for compromise with the BIR cannot be
considered a perfected or consummated compromise.
March 9, 2001: the CTA denied Reyes’ motion.
May 2, 2001: Reyes filed a Supplemental Petition for Review
with the CTA
June 19, 2002: the CTA denied Reyes’ petition and ordered her
to pay the deficiency estate tax. She was likewise ordered pay
20% delinquency interest on deficiency estate tax due until full
payment. In arriving at its decision,
• It ratiocinated that there can only be a perfected and
consummated compromise of the estate’s tax liability, if
the NEB has approved her application for compromise in
accordance with RR No. 6-2000, as implemented by RMO
No. 42-2000.
• Anent the validity of the assessment notice and letter of
demand against the estate, the CTA stated that ‘at the
time the questioned assessment notice and letter of
demand were issued, the heirs knew very well the law and
the facts on which the same were based.’
Ruling of the CA
• In partly granting the Petition, it said that Section 228 of
the Tax Code and RR 12-99 were mandatory and
unequivocal in their requirement. The assessment
notice and the demand letter should have stated the
facts and the law on which they were based; otherwise,
they were deemed void. The appellate court held that while
administrative agencies, like the BIR, were not bound by
procedural requirements, they were still required by law and
equity to observe substantive due process. The reason behind
this requirement, said the CA, was to ensure that taxpayers
would be duly apprised of and could effectively protest — the
basis of tax assessments against them. Since the
assessment and the demand were void, the
proceedings emanating from them were likewise void,
and any order emanating from them could never attain
finality.
• The appellate court added, however, that it was premature to
declare as perfected and consummated the compromise of
the estate’s tax liability. It explained that, where the basic tax
assessed exceeded P1 million, or where the settlement offer
was less than the prescribed minimum rates, the National
Evaluation Board’s (NEB) prior evaluation and approval were
8
the conditio sine qua non to the perfection and consummation
of any compromise. Besides, the CA pointed out, Section
204(A) of the Tax Code applied to all compromises, whether
government-initiated or not. Where the law did not
distinguish, courts too should not distinguish.
ISSUE: Whether the assessment against the estate is valid
HELD:
The second paragraph of Section 228 of the Tax Code is clear
and mandatory. It provides as follows:
Sec. 228. Protesting of Assessment. --
xxx
The taxpayers shall be informed in writing of the
law and the facts on which the assessment is made:
otherwise, the assessment shall be void.
Reyes was not informed in writing of the law and the
facts on which the assessment of estate taxes had been
made. She was merely notified of the findings by the
CIR, who had simply relied upon the provisions of former
Section 229 prior to its amendment by Republic Act (RA) No.
8424, otherwise known as the Tax Reform Act of 1997.
FIRST: RA 8424 has already amended the provision of Section
229 on protesting an assessment. The old requirement of
merely notifying the taxpayer of the CIR’s findings was
changed in 1998 to informing the taxpayer of not only the law,
but also of the facts on which an assessment would be made;
otherwise, the assessment itself would be invalid.
At the time when the preliminary assessment notice, the final
estate tax assessment notice and demand letter were issued,
RA 8424 was already in effect. The notice required under the
old law was no longer sufficient under the new law.
To be simply informed in writing of the investigation
being conducted and of the recommendation for the
assessment of the estate taxes due is nothing but a
perfunctory discharge of the tax function of correctly
assessing a taxpayer. The act cannot be taken to mean
that Reyes already knew the law and the facts on which
the assessment was based. It does not at all conform to the
compulsory requirement under Section 228.
The procedure for protesting an assessment under the Tax
Code is found in Chapter III of Title VIII, which deals with
remedies. Being procedural in nature, can its provision then be
applied retroactively? The answer is yes. The general rule is
that statutes are prospective. However, statutes that are
remedial, or that do not create new or take away vested rights,
do not fall under the general rule against the retroactive
operation of statutes. Clearly, Section 228 provides for the
procedure in case an assessment is protested. The provision
does not create new or take away vested rights. In both
instances, it can surely be applied retroactively. Moreover, RA
8424 does not state, either expressly or by necessary
implication, that pending actions are excepted from the
operation of Section 228, or that applying it to pending
proceedings would impair vested rights.
SECOND: the non-retroactive application of Revenue
Regulation (RR) No. 12-99 is of no moment, considering that it
merely implements the law. At the time the pre-assessment
notice was issued to Reyes, RA 8424 already stated that the
taxpayer must be informed of both the law and facts on which
the assessment was based. Thus, the CIR should have required
the assessment officers of the BIR to follow the clear mandate
of the new law. The old regulation governing the issuance of
estate tax assessment notices ran afoul of the rule that tax
regulations should be in harmony with, and not supplant or
modify, the law.
BASED ON THE SYLLABUS OF ATTY. KRISKA MARNA A. BUENA, CPA
 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
It may be argued that the Tax Code provisions are not self-
executory. It would be too wide a stretch of the imagination,
though, to still issue a regulation that would simply require tax
officials to inform the taxpayer, in any manner, of the law and
the facts on which an assessment was based. That requirement
is neither difficult to make nor its desired results hard to
achieve.
Moreover, an administrative rule interpretive of a statute, and
not declarative of certain rights and corresponding obligations,
is given retroactive effect as of the date of the effectivity of the
statute. RR 12-99 is one such rule. Being interpretive of the
provisions of the Tax Code, even if it was issued only on
September 6, 1999, this regulation was to retroact to January
1, 1998 -- a date prior to the issuance of the preliminary
assessment notice and demand letter.
THIRD: Neither Section 229 nor RR 12-85 can prevail over
Section 228 of the Tax Code. No doubt, Section 228 has
replaced Section 229. The provision on protesting an
assessment has been amended.
Furthermore, in case of discrepancy between the law as
amended and its implementing but old regulation, the former
necessarily prevails. Thus, between Section 228 of the Tax
Code and the pertinent provisions of RR 12-85, the latter
cannot stand because it cannot go beyond the provision of the
law. The law must still be followed, even though the existing
tax regulation at that time provided for a different procedure.
FOURTH: Petitioner violated the cardinal rule in
administrative law that the taxpayer be accorded due
process. Not only was the law here disregarded, but no valid
notice was sent, either. A void assessment bears no valid fruit.
The law imposes a substantive, not merely a formal,
requirement. To proceed heedlessly with tax collection
without first establishing a valid assessment is evidently
violative of the cardinal principle in administrative
investigations: that taxpayers should be able to present
their case and adduce supporting evidence. In the
instant case, respondent has not been informed of the
basis of the estate tax liability. Without complying with
the unequivocal mandate of first informing the taxpayer
of the government’s claim, there can be no deprivation
of property, because no effective protest can be made.
Even a cursory review of the preliminary assessment notice, as
well as the demand letter sent, reveals the lack of basis for the
gross figures and details of the itemized deductions indicated
in the notice and the letter. This Court cannot countenance an
assessment based on estimates that appear to have been
arbitrarily or capriciously arrived at. Although taxes are the
lifeblood of the government, their assessment and collection
"should be made in accordance with law as any arbitrariness
will negate the very reason for government itself.”
FIFTH: The rule against estoppel does not apply. Although the
government cannot be estopped by the negligence or omission
of its agents, the obligatory provision on protesting a tax
assessment cannot be rendered nugatory by a mere act of the
CIR .
Failure to comply with Section 228 does not only render the
assessment void, but also finds no validation in any provision
in the Tax Code. We cannot condone errant or enterprising tax
officials, as they are expected to be vigilant and law-abiding.
ISSUE: Whether the compromise entered into is also valid.
It would be premature for this Court to declare that the
compromise on the estate tax liability has been perfected and
consummated, considering the earlier determination that the
9
assessment against the estate was void. Nothing has been
settled or finalized. Under Section 204(A) of the Tax Code,
where the basic tax involved exceeds one million pesos or the
settlement offered is less than the prescribed minimum rates,
the compromise shall be subject to the approval of the NEB
composed of the petitioner and four deputy commissioners.
Finally, as correctly held by the appellate court, this provision
applies to all compromises, whether government- initiated or
not. Ubi lex non distinguit, nec nos distinguere debemos.
Where the law does not distinguish, we should not distinguish.
AUSTRALASIA CYLINDER CORP. v. CIR
CTA Case no. 6269, June 16, 2003
Digest by Carla Louise Bayquen
PROTEST ASSESSMENT
There is no discussion under the topic it was assigned:
Requirement to inform taxpayer of factual and legal basis of
assessment.
Case: A claim for refund or issuance of a tax credit certificate
amounting to P 1,369,411.00 allegedly representing excess or
overpaid income tax for the year 1998.
Facts: Petitioner is a domestic corporation engaged in the
manufacture of steel drums and liquefied petroleum gas (LPG)
cylinders.
For the taxable year 1998, petitioner filed its Annual
Income Tax Return on April 16, 1999, declaring a gross
income of P36,161,977.00 and an income tax due of
P723,240.00, computed by applying the two (2%) percent
Minimum Corporate Income Tax.
Petitioner's creditable withholding taxes for the year 1998
amounted to Pl ,911 ,213.13. After applying petitioner's income
tax due of P723,240.00 against its quarterly income tax
payments of P613, 811.69 and creditable withholding taxes of
P 1,911 ,213 .13, the excess or overpaid income tax amounted
to P 1, 801, 784.82 which petitioner opted to carry over as tax
credit on the following year.
On April 17, 2000, petitioner filed its Annual Income Tax
Return for the taxable year 1999 declaring a gross income
of P20,823,025 .00 and an income tax due in the amount
ofP432,374.00.
However, on July 27, 2001 , petitioner filed an amended
1999 Annual Income Tax Return declaring a gross income
from operation of P20,823,012 and a minimum corporate
income tax of P432,374 .00. Petitioner, however, ended up in
a net loss position during the said year amounting to
P535,634.00.
On March 29, 2001 , petitioner filed a letter-request with
the Appellate Division of the Bureau of Internal Revenue (BIR)
claiming for the refund of the amount of P1,369,411.00.
Unable to obtain any response from the respondent, petitioner
filed a petition for review with this court on April 6, 2001 .
Respondent filed his Answer on June 6, 2001 and raised the
following Special and Affirmative Defenses:
"4. That the herein petitioner is not entitled to the refund of
the amounts prayed for in the instant petition for review;
"5. That the instant petition for review was prematurely filed
as petitioner has not exhausted the administrative remedies
required by law and jurisprudence on the actions of this nature
as no decision has as yet been rendered by the respondent;
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 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
"6. In an action for refund, the taxpayer has the burden to
show that the taxes paid were erroneously or illegally collected
and failure to do so is fatal to the action;
"7. Claims for tax refund are strictly construed against the
taxpayer. Petitioner has no cause of action."
In their Joint Stipulation of Facts, the parties stipulated that
this petition for review is filed with this court to review
and grant the refund in the amount of P1,369,411.00
representing excess or overpaid income tax for the year 1999.
However, the court has noted that the amount claimed by
petitioner is actually the 1998 excess credits as reflected in its
1998 Annual Income Tax Return reduced by the MCIT for the
taxable year 1999.
On March 28, 2003, the case was submitted for decision sans
evidence and memorandum of the respondent.
Issue: Whether or not, on the basis of the evidence presented,
petitioner is entitled to the refund of P 1,369,411 as overpaid
income tax for the year 1998.– NO.
Section 76. Final Adjustment Return
x x x Once the option to carry-over and apply the excess
quarterly income tax against income due for the taxable
quarters of the succeeding taxable years has been made. such
option shall be considered irrevocable for that taxable period
and no application for cash refund or issuance of a tax credit
certificate shall be allowed therefor.
The taxpayer's excess tax credits or overpaid income tax in a
given taxable year may be refunded or applied against its
income tax liabilities of the succeeding taxable years. However,
once the option to carry-over has been made, the same
becomes irrevocable for that taxable period.
This court has categorically ruled in several cases that once the
option to carryover and apply the excess quarterly income tax
against the income tax due for the taxable quarters of the
succeeding taxable years has been made, such option shall be
considered irrevocable and no application for cash refund or
issuance of a tax credit certificate shall be allowed therefor.
Here, petitioner has already opted to carry-over its excess tax
credits.
Considering that petitioner has already exercised its option to
carry-over the 1998 excess tax credits to the succeeding year,
it is no longer entitled to claim for the refund or issuance of a
tax credit certificate. However, petitioner may still claim the
excess income tax payment as tax credit to future income tax
liabilities.
Accordingly, this court finds it no longer necessary to delve into
the remaining Issues.
PNZ MARKETING v. CIR
CTA Case 5726, December 14, 2001
Digest by Hannah Keziah P. Dela Cerna
Topic: Requirement to inform taxpayer of factual and legal
basis of assessment
DOCTRINE: Section 228 requires the Respondent to inform
the taxpayer in writing of the laws and the facts on which the
assessment is made, otherwise the assessment shall be void.
Simply put, it is incumbent upon the Respondent to show
clearly the legal and the factual bases which led him to issue
the said deficiency income tax assessment in the first place.
The strictness of this rule runs parallel to the due process
clause as it obliges the Respondent not only to lay down the
10
law from which the assessment is based but more importantly,
the surrounding circumstances supporting the assessment. For
it is believed that it is only through a detailed appraisal of its
basis that the taxpayer may be able to dispute the imposition
or agree with it.
Case: This Petition for Review filed by herein Petitioner on
January 29,1999, seeks for the cancellation and withdrawal of
the deficiency income tax assessment issued by the
Respondent against Petitioner in the total amount of
P678,441.00 for taxable year 1994.
Facts:
Petitioner PNZ Marketing is a corporation duly organized and
existing under and by virtue of the laws of the Republic of the
Philippines, engaged in business as importer and dealer of
powdered and skimmed milk and other related products, with
principal office at 415 Arayat Street, Mandaluyong City.
Formal Assessment
On April 8, 1998, Petitioner received formal assessment notice
no. 000023 (Exhibit A) ahd Demand letter no. 41-66 (Exhibit
B) from herein Respondent stating therein Petitioner's alleged
deficiency income tax liability for the year 1994 in the total
amount of P678,441.00. As admitted, the alleged deficiency
income tax assessment issued against the Petitioner arose
from the following adjustments to Petitioner's income tax
return, to wit:
(a) Disallowance of the interest expense in the amount
ofP1,053,885.00;
(b) Disallowance of the salary expense in the amount
ofP489,865.35; and
(c) Imputation of unrecorded income in the a nount
ofP394,625.58.
Protest Letter filed by Petitioner
On May 7, 1998, Petitioner, through its external auditor, Sycip
Gorres Vclayo and Company (SGV & Co.), duly filed with the
Bureau of Internal Revenue (BIR) an administrative protest
letter. On July 6, 1998, Petitioner filed with the BIR a
supplemental protest letter, reiterating its disagreement to the
subject income tax assessment.
As no action was undertaken by the Respondent on the
aforesaid protest letters, Petitioner filed an appeal with this
Court on January 29, 1999 in order to toll the running of the
prescriptive period.
Respondent CIR’s Answer
For his part, Respondent, on March 22, 1999 filed his Answer
and raised the following Special and Affirmative defense,
thus:
1. That he reiterates and repleads the preceding paragraphs
of this answer as part of his Special and Affirmative defenses;
2. That investigation of the Petitioner's internal tax liabilities
for the year 1994 revealed a tax obligation of P67,441.00 as
deficiency income tax;
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 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
3. That the subject deficiency income tax assessment no.
000-059-612 dated April 3, 1998 was issued in accordance
with law and pertinent regulations;
4. That the disallowance of interest expense in the amount
of P1,053,885.00 from gross income for taxable year 1994
was due to the fact of Jack of
documentation or proof as required under Section 29 of the
National Internal Revenue Code;
5. That the disallowance of salary expense in the amount of
P489,865.35 was due to the discrepancy between salaries
reported per Petitioner's audited financial statements for
taxable year 1994 and those reported per alpha list and due
to the lack of documentation or proof as required under
Section 29 of the National Internal Revenue Code;
6. That Petitioner has unrecorded income in the amount of
P394,652.58 as can be seen from the discrepancy arising
from the Professional fees reported per Alpha list and that
reported per the Petitioner's Income tax return for taxable
year 1994;
7. That all presumptions are in favor of the correctness of
tax assessments (CIR vs. Construction Resources of Asia,
Inc., 145 SCRA 671) and the burden of proof to prove
otherwise is upon the Petitioner.
Issue (the one related to topic): Whether or not the subject
income tax assessment is void for failing to comply with the
requirements under Section 228 of the Tax code requiring that
the law and the facts upon which the assessment is made
should be clearly stated.
-NO, NOT void. Complied with Sec. 228.
CIR Should Inform Respondent In Writing the Laws and
Facts on which Assessment is Made; Otherwise, it is Void.
- Section 228 requires the Respondent to inform the taxpayer
in writing of the laws and the facts on which the assessment is
made, otherwise the assessment shall be void. Simply put, it
is incumbent upon the Respondent to show clearly the legal
and the factual bases which led him to issue the said deficiency
income tax assessment in the first place. The strictness of this
rule runs parallel to the due process clause as it obliges the
Respondent not only to lay down the law from which the
assessment is based but more importantly, the surrounding
circumstances supporting the assessment. For it is believed
that it is only through a detailed appraisal of its basis that the
taxpayer may be able to dispute the imposition or agree with
it. (Abbott Laboratories, Inc. vs. Commissioner of Internal
Revenue, CTA Case No. 5718, February 16, 2001)
CIR Complied With Section 228; Vagueness of
Assessment Notice Cured by Demand Letter. - The case at
bar is no exception to the rule. A perusal of the records
indicates a successful attempt on Respondent's part to
comply with the rules. The assessment notice, while
vague at first glance is subsequently cured by the
demand letter which shows the legal and factual basis relied
upon by the Respondent in issuing the assessment. The
demand letter, as thus worded contains the reasons why a
deficiency income tax assessment was issued against the
Petitioner. It reflects some notable disallowance on the
Business expense of the Petitioner for reasons such as
the following:
a) interest income has no supporting document pursuant to
Section 29;
b) that the income is unrecorded which is factual; and
c) that there is discrepancy in the declared salary expense
as provided in Revenue Regulations No. 4-93.
To the Court’s mind, these explanations are sufficient
compliance with the requirements of Section 228 of the Tax
Code.
OTHER ISSUES NOT RELATED TO TOPIC (you can skip
this but just in case Ma’am asks)
11
Issue 2: Whether or not Petitioner's interest expense in the
amount of P1,053,885.00 is sufficiently supported to qualify
as a valid item of deduction from its gross income for the
taxable year 1994. -YES
Held: With regard to the second issue, The Court ruled in favor
of the Petitioner. The question of whether the interest expense
is a valid item of expense or not has become moot and
academic. It must be noted that the Respondent, at the outset
disallowed said items on the ground that they were
unsupported by pertinent documents. However, Respondent
eventually changed its stance. This is evident from the fact that
the Respondent, upon receipt of the protest letter filed by the
Petitioner issued a revised deficiency income tax assessment
for 1994. Said revised assessment notice no longer included
the disallowance of the alleged unsupported interest expense.
Said revision in the assessment notice made us conclude that
Respondent was convinced that Petitioner's interest
expense for 1994 was fully substantiated and supported
by pertinent documents. As the propriety of the deductibility
of the said expense is not being questioned by the Respondent,
we have more reason to believe that the interest expense
incurred by the Petitioner is indeed a deductible expense.
Issue 3: Whether or not salary expense in the amount of
P489,865.35 should be disallowed as a deductible expense
of Petitioner for taxable year 1994 on the alleged ground
that said amount was not subjected to withholding tax on
compensation for said taxable year. -NO.
Held: The third issue involves the discrepancy in the salary
expenses declared in the Financial statement vis-a- vis the
alpha list. In the case at bar, Respondent disallowed the salary
expense in the amount of P489,865.35 for the reason that it
doubted the discrepancy between salaries reported per
Petitioner's audited financial statements and those reported
per alpha list. Respondent, in recommending the said
disallowance, theorized that some of the items of the salary
expense were not subjected to withholding tax. This Court does
not agree with the Respondent. Petitioner explained that the
amount which Respondent disallowed as an item of deductible
expense were for the following:
Logically, these items of expense cannot be included in the
Alpha List of salaries subjected to withholding tax due on
compensation because some of the items may be exempt from
tax and some are subject to expanded withholding tax
1. SSS, Medicare & Employees compensation contributions
are not subject to withholding tax;
2. The Contractual Services were paid to the contractor JC's
Manpower International, Inc., who had the obligation to
withhold the tax on the compensation of their workers.
3. The Medical Expenses are likewise not subjected to
withholding tax because of the insignificant amount involved.
4. The 13th month pay paid to the employees during taxable
year 1994 is likewise not subject to tax pursuant to Republic
Act No. 7833
5. And lastly, the monetized Vacation Leaves were properly
subjected by the Petitioner to withholding tax
Issue 4: Whether or not Petitioner has unrecorded income
for taxable year 1994 in the amount of P394,652.58 which
amount represents the difference between the professional
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 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
fees reported per alpha list for said taxable year and the
professional fees reported per the annual corporate Income
tax return of Petitioner for said year. -NO.
Respondent’s Contention:
Respondent maintains that Petitioner has an unrecorded
income in the amount of P394,652.58 as can be seen from the
discrepancy arising from the Professional Fees reported per
Alpha List and that reported per the Petitioner's Income Tax
Return for taxable year 1994. The marked discrepancy
between what is contained in the Alpha List in the amount of
P491 ,467.58 and that which is reported in the Income Tax
Return of P96,815.00 was treated by Respondent as
undeclared income in the amount of P394,652.58.
Held: The Court find Respondent's findings as to the alleged
undeclared income bereft of merit.
First, we would like to point out that there is a big difference
between what is considered as an undeclared income from an
undeclared expense. The facts of this case clearly show that
the professional fees being referred to by Respondent
are deductible expense and not income. Petitioner derives
its income from importing and selling milk products. It never
earned its income from the exercise of profession nor did it
render services from which it derived professional fees.
Respondent seems to have misconstrued the term expense as
being similar to income and this is where his assessment fails.
Being considered as an expense and not as income, it would be
illogical to conclude that with the underdeclaration of
professional fees as business expense. that there would be a
corresponding underdeclaration of income. In fact, the
Petitioner would even be prejudiced with any reduction to its
deductible expense because this would necessarily mean an
increase in tax base, and as the tax base increases, the amount
of tax payable to the government would likewise increase.
Be that as it may, the question of whether or not the amount
of P491.467.58 declared in the Alpha List was also declared in
Petitioner's Income Tax Return for taxable year 1994 was
answered in the affirmative by the documents submitted as
evidence.
The documents disclose that a portion of the P491,467.58
pertained to the professional fees paid to Edna Syquia in the
amount of P24,000.00 which was included in the category of
"Professional Fees" in the 1994 ITR (Exhibit "R"). The
remaining balance of P467.467.58 was included in the ITR
under a different category called "Trade Support."
Phil. Mining Service Corp v. CIR
CTA no. 5725, July 25, 2002
By Francis Jeric L. Emuy
Facts:
- Petitioner is a domestic corporation
- Petitioner entered into a service contract with
Dolomite Mining Corp (DMC)
- Under the said contract, petitioner shall be the
exclusive mining service contractor of DMC and the
operating expenses, all costs and expenses incurred
by petitioner in production of dolomite and in the
operation of dolomite project shall be reimbursed by
DMC. In addition, it stipulated that petitioner shall
have the exclusive right to purchase all the dolomite
ore produced subject to such terms and conditions as
shall be agreed.
- BIR sent a letter informing petitioner that a report
investigation on its income and business tax returns
had been submitted for appropriate action.
- Petitioner received PAN for deficiency income tax (95,
755,768) Deficiency excise tax (6, 206,963.22) and
deficiency VAT (126, 332, 882)
12
- The said assessment notices contained alleged
amounts of deficiency taxes which were assessed
without showing of how they were computed.
Issue: WON the petitioner’s right to due process was violated
in the issuance of the said assessments.
Ruling: Yes. NO.
Section 228 1997 Tax Code: the taxpayer shall be informed in
writing of the law and the facts on which the assessment is
made otherwise the assessment shall be void.
The tax payer needs to know the nature of the finding s to be
able to refute the same and provide explanation to proposed
assessments.
Petitioner received a letter that a report investigation was
conducted in its income and business. Attached thereto is the
investigation report containing detailed findings , the facts and
the law in which recommended assessments were based. The
said assessments were basically the same amounts fully
assessed against the petitioner. They differed only because of
the period covered for the imposition of interest charges.
Moreover, petitioner was able to effectively contest the subject
assessments and submit documents to support its claim of
erroneous assessments. Hence, petitioner knew the law and
the facts on which the assessments were based.
Issue: WON the deficiency income tax assessment is valid or
not
Ruling: No.
The source of the assessment is the alleged understatement of
revenues from sale of dolomite ore in the amount of P
87,345,831.30 and disallowance of expenses claimed as
deductions from gross income for fiscal year 1995.
The petitioner acted as the service contractor of DMC in
production of dolomite ore from the mining claims owned by
the latter and also became the exclusive buyer of the dolomite
ore. Thus petitioner incurred 2 types of loss:
1. Costs incurred as service contractor which are to be
reimbursed by DMC under the service contract
2. Costs incurred in relation to the processing of dolomite
ore after buying the same and before selling it to 3rd
parties
Only the second type of costs were borne solely to petitioner
and pertained to its independent operations. Petitioner was
able to show through billings, schedules and ORs that only
6,373,594 was reimbursed by DMC and the further processing
costs and various expenses (66,381,560 and 36,413,229
respectively) were not reimbursed. It was erroneous for BIR
to exclude these other cost as petitioner’s deductions from
gross income for FR 1995. Hence the deficiency income tax
assessment was erroneous and without factual legal basis.
Issue: WON PMSC and KMC are related taxpayers and that
therefore, the interest expense should be disallowed under
Section 29 (b)(ii) and 30 (b)(3).
Ruling: No.
Section 29 (b)(ii)
Xxx
No deduction shall be allowed in respect of interest under the
succeeding paragraphs:
Both the taxpayer and person to whom the payment
has been made or is to be made are persons specified under
Section 30 (b).
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 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
The respondent merely alleged and presented no proof that the
tax payers are related under the said sections. There is nothing
in the records to show that either petitioner or KMC was a
personal holding company or a foreign personal holding
company.
The disallowance of the interest expense has no legal and
factual basis. Consequently, the interest expense should be
allowed as deduction.
Issue: WON the unrealized foreign exchange loss should be
allowed as deduction.
Ruling: No.
OCEANIC WIRELESS NETWORK, INC. v. CIR
G.R. No. 148380, December 9, 2005
Digest by Anna Sophia Tarhata Piang
Topic: Requirement to inform taxpayer of factual and legal
basis of assessment
Facts:
12. On March 17, 1988, petitioner received from the
Bureau of Internal Revenue (BIR) deficiency tax
assessments for the taxable year 1984 in the total
amount of P8,644,998.71, broken down as follows:
13
13. Petitioner filed its protest against the tax assessments
and requested a reconsideration or cancellation of the
same in a letter to the BIR Commissioner dated April
12, 1988.
14. Acting in behalf of the BIR Commissioner, then Chief
of the BIR Accounts Receivable and Billing Division,
Mr. Severino B. Buot, reiterated the tax assessments
while denying petitioner's request for reinvestigation
in a letter dated January 24, 1991, thus:
"Note: Your request for re-investigation has been
denied for failure to submit the necessary supporting
papers as per endorsement letter from the office of
the Special Operation Service dated 12-12-90."
15. Said letter likewise requested petitioner to pay the
total amount of P8,644,998.71 within ten (10) days
from receipt thereof, otherwise the case shall be
referred to the Collection Enforcement Division of the
BIR National Office for the issuance of a warrant of
distraint and levy without further notice.
16. Upon petitioner's failure to pay the subject tax
assessments within the prescribed period, the
Assistant Commissioner for Collection, acting for the
Commissioner of Internal Revenue, issued the
corresponding warrants of distraint and/or levy and
garnishment. These were served on petitioner on
October 10, 1991 and October 17, 1991, respectively.
17. On November 8, 1991, petitioner filed a Petition for
Review with the Court of Tax Appeals (CTA) to contest
the issuance of the warrants to enforce the collection
of the tax assessments. This was docketed as CTA
Case No. 4668.
Ruling of the CTA
The CTA dismissed the petition for lack of jurisdiction in a
decision dated September 16, 1994, declaring that said petition
was filed beyond the thirty (30)-day period reckoned from the
time when the demand letter of January 24, 1991 by the Chief
of the BIR Accounts Receivable and Billing Division was
presumably received by petitioner, i.e., "within a reasonable
time from said date in the regular course of mail pursuant to
Section 2(v) of Rule 131 of the Rules of Court.
The court a quo likewise stated that the finality of the denial of
the protest by petitioner against the tax deficiency
assessments was bolstered by the subsequent issuance of the
warrants of distraint and/or levy and garnishment to enforce
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 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
the collection of the deficiency taxes. The issuance was not
barred by prescription because the mere filing of the letter of
protest by petitioner which was given due course by the Bureau
of Internal Revenue suspended the running of the prescription
period as expressly provided under the then Section 224 of the
Tax Code:
SEC. 224. Suspension of Running of the Statute of
Limitations. 'The running of the Statute of Limitations
provided in Section 203 and 223 on the making of assessment
and the beginning of distraint or levy or a proceeding in court
for collection, in respect of any deficiency, shall be suspended
for the period during which the Commissioner is prohibited
from making the assessment or beginning distraint or levy or
a proceeding in court and for sixty (60) days thereafter; when
the taxpayer requests for a reinvestigation which is granted by
the Commissioner; when the taxpayer cannot be located in the
address given by him in the return files upon which a tax is
being assessed or collected: Provided, That if the taxpayer
inform the Commissioner of any change of address, the running
of the statute of limitations will not be suspended; when the
warrant of distraint and levy is duly served upon the taxpayer,
his authorized representative, or a member of his household
with sufficient discretion, and no property could located; and
when the taxpayer is out of the Philippines.6 (Underscoring
supplied.)
Contention of the petitioner:
Petitioner filed a Motion for Reconsideration arguing that the
demand letter of January 24, 1991 cannot be considered as the
final decision of the Commissioner of Internal Revenue on its
protest because the same was signed by a mere subordinate
and not by the Commissioner himself
The Motion for Reconsideration was denied and the Court of
Appeals dismissed the petitioner’s Petition for Review.
Issue: Whether or not a demand letter for tax deficiency
assessments issued and signed by a subordinate officer who
was acting in behalf of the Commissioner of Internal Revenue,
is deemed final and executory and subject to an appeal to the
Court of Tax Appeals. - Yes.
On the nature of demand letters for payment
A demand letter for payment of delinquent taxes may be
considered a decision on a disputed or protested assessment.
The determination on whether or not a demand letter is
final is conditioned upon the language used or the tenor
of the letter being sent to the taxpayer.
We laid down the rule that the Commissioner of Internal
Revenue should always indicate to the taxpayer in clear and
unequivocal language what constitutes his final determination
of the disputed assessment, thus:
. . . we deem it appropriate to state that the
Commissioner of Internal Revenue should always
indicate to the taxpayer in clear and unequivocal
language whenever his action on an assessment
questioned by a taxpayer constitutes his final
determination on the disputed assessment, as
contemplated by Sections 7 and 11 of Republic Act No.
1125, as amended. On the basis of his statement
indubitably showing that the Commissioner's
communicated action is his final decision on the
contested assessment, the aggrieved taxpayer would
then be able to take recourse to the tax court at the
opportune time. Without needless difficulty, the
taxpayer would be able to determine when his right to
appeal to the tax court accrues.
The rule of conduct would also obviate all desire and
opportunity on the part of the taxpayer to continually
14
delay the finality of the assessment - and,
consequently, the collection of the amount demanded
as taxes - by repeated requests for recomputation and
reconsideration. On the part of the Commissioner, this
would encourage his office to conduct a careful and
thorough study of every questioned assessment and
render a correct and definite decision thereon in the
first instance. This would also deter the Commissioner
from unfairly making the taxpayer grope in the dark
and speculate as to which action constitutes the
decision appealable to the tax court. Of greater
import, this rule of conduct would meet a pressing
need for fair play, regularity, and orderliness in
administrative action.
IN THIS CASE: The letter of demand dated January 24, 1991,
unquestionably constitutes the final action taken by the Bureau
of Internal Revenue on petitioner's request for reconsideration
when it reiterated the tax deficiency assessments due from
petitioner and requested its payment. Failure to do so would
result in the "issuance of a warrant of distraint and levy to
enforce its collection without further notice." In addition, the
letter contained a notation indicating that petitioner's request
for reconsideration had been denied for lack of supporting
documents.
The authority to make tax assessments may be
delegated to subordinate officers
The general rule is that the Commissioner of Internal
Revenue may delegate any power vested upon him by law to
Division Chiefs or to officials of higher rank. He cannot,
however, delegate the four powers granted to him under the
National Internal Revenue Code (NIRC) enumerated in Section
7.
As amended by Republic Act No. 8424, Section 7 of the Code
authorizes the BIR Commissioner to delegate the powers
vested in him under the pertinent provisions of the Code to any
subordinate official with the rank equivalent to a division chief
or higher, except the following:
(a) The power to recommend the promulgation of rules
and regulations by the Secretary of Finance;
(b) The power to issue rulings of first impression or to
reverse, revoke or modify any existing ruling of the
Bureau;
(c) The power to compromise or abate under Section
204(A) and (B) of this Code, any tax deficiency:
Provided, however, that assessments issued by the
Regional Offices involving basic deficiency taxes of
five hundred thousand pesos (P500,000) or less, and
minor criminal violations as may be determined by
rules and regulations to be promulgated by the
Secretary of Finance, upon the recommendation of the
Commissioner, discovered by regional and district
officials, may be compromised by a regional
evaluation board which shall be composed of the
Regional Director as Chairman, the Assistant Regional
Director, heads of the Legal, Assessment and
Collection Divisions and the Revenue District Officer
having jurisdiction over the taxpayer, as members;
andcralawlibrary
(d) The power to assign or reassign internal revenue
officers to establishments where articles subject to
excise tax are produced or kept.
It is clear from the above provision that the act of
issuance of the demand letter by the Chief of the
Accounts Receivable and Billing Division does not fall
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 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
under any of the exceptions that have been mentioned
as non-delegable.
Section 6 of the Code further provides:
"SEC. 6. Power of the Commissioner to Make
Assessments and Prescribe Additional Requirements
for Tax Administration and Enforcement.'
(A) Examination of Returns and Determination of Tax
Due. - After a return has been filed as required under
the provisions of this Code, the Commissioner or his
duly authorized representative may authorize the
examination of any taxpayer and the assessment of
the correct amount of tax; Provided, however, That
failure to file a return shall not prevent the
Commissioner from authorizing the examination of
any taxpayer.
The tax or any deficiency tax so assessed shall
be paid upon notice and demand from the
Commissioner or from his duly authorized
representative.
Thus, the authority to make tax assessments may be delegated
to subordinate officers. Said assessment has the same force
and effect as that issued by the Commissioner himself, if not
reviewed or revised by the latter such as in this case.
Petitioner failed to avail of its right to bring the matter
before the Court of Tax Appeals within the
reglementary period
A request for reconsideration must be made within thirty (30)
days from the taxpayer's receipt of the tax deficiency
assessment, otherwise, the decision becomes final,
unappealable and therefore, demandable. A tax assessment
that has become final, executory and enforceable for failure of
the taxpayer to assail the same as provided in Section 228 can
no longer be contested, thus:
SEC. 228. Protesting of Assessment. 'When the Commissioner
or his duly authorized representative finds that proper taxes
should be assessed, he shall first notify the taxpayer of his
findings' Such assessment may be protested administratively
by filing a request for reconsideration or reinvestigation within
thirty (30) days from receipt of the assessment in such form
and manner as may be prescribed by implementing rules and
regulations. Within sixty (60) days from filing of the protest, all
relevant supporting documents shall have been submitted;
otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon
within one hundred (180) days from submission of documents,
the taxpayer adversely affected by the decision or inaction may
appeal to the Court of Tax Appeals within thirty (30) days from
receipt of the said decision, or from the lapse of the one
hundred eighty (180) - day period; otherwise, the decision
shall become final, executory and demandable."
Here, petitioner failed to avail of its right to bring the matter
before the Court of Tax Appeals within the reglementary period
upon the receipt of the demand letter reiterating the assessed
delinquent taxes and denying its request for reconsideration
which constituted the final determination by the Bureau of
Internal Revenue on petitioner's protest. Being a final
disposition by said agency, the same would have been a proper
subject for appeal to the Court of Tax Appeals.
15
CIR v. ENRON SUBIC POWER CORPORATION
GR 166387, January 19, 2009
Digest by Reginald Matt Santiago
Topic: Factual and Legal Bases in Assessment
Doctrine: The advice made by CIR as well as the audit
working papers are not valid substitutes to a Formal Letter
of Demand and Notice of Assessment required by law where
there must be a written factual and legal basis for the tax
deficiency assessment.
Facts: Enron, filed its ITR for TY 1996 indicating a net loss. BIR
sent a Preliminary 5-day letter informing of its proposed
assessment of deficiency income tax. Enron disputed the
proposed deficiency assessment in its First Protest Letter.
On May 26, 1999, received from CIR Formal Assessment
Notice requiring it to pay the alleged deficiency income tax
(P2.88Million) for TY 1996. Enron protested this deficiency tax
assessment.
Due to the non-resolution of its protest within the 180-day
period, Enron filed a Petition for Review in the CTA. It argued
that the deficiency tax assessment disregarded the provisions
of Section 228 and RR 12-99 by not providing the legal and
factual bases of the assessment. Enron likewise questioned the
substantive validity of the assessment. CTA granted the
petition and ordered cancellation of its deficiency tax
assessment as Section 228 was not complied with.
CA affirmed and held that the audit working papers did not
substantially comply with Section 228 and RR 12-99 because
they failed to show the applicability of the cited law to the facts
of the assessment.
Issue: Was there a written factual and legal basis in the
assessment of the tax deficiency as required under Section
228 and RR 12-99? – No.
Held: (1) Notice of Assessment, Defined. – It is a
declaration of deficiency taxes issued to a taxpayer who fails
to respond to a PAN within the prescribed period of time, or
whose reply to the PAN was found to be without merit. The
Notice of Assessment shall inform the taxpayer, of this fact,
and that the report of investigation submitted by the Revenue
Officer conducting the audit shall be given due course.
The formal letter of demand calling for payment of the
taxpayer’s deficiency tax or taxes, shall state the fact, the law,
rules and regulations or jurisprudence on which the assessment
is based, otherwise the formal letter of demand and the notice
of assessment shall be void.
(2) CIR Did Not Provide Enron with Written Bases of the
Law and Facts on Which Assessment is Based. – In this
case the CIR merely issued a formal assessment and indicated
therein the supposed tax, surcharge, interest and compromise
penalty due thereon. The Revenue Officers of the CIR in the
issuance of the FAN did not provide Enron with the written
bases of the law and facts on which the subject assessment is
based. The CIR did not bother to explain how it arrived at such
an assessment. He failed to mention the specific provision of
the Tax Code or rules and regulations which were not complied
with by Enron.
Both the CTA and the CA concluded that the deficiency tax
assessment merely itemized the deductions disallowed and
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 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019 16

included these in the gross income. It also imposed the decision was summarized as follows:
preferential rate of 5% on some items categorized by Enron as
costs. The legal and factual bases were, however, not
indicated.

CIR Contention: It argued that the CIR advised Enron’s

rep of the tax deficiency informing of the deficiency assessment
through a Preliminary 5-day letter and furnished Enron a copy
of the audit working paper allegedly showing in detail the legal
and factual bases of the assessment. CIR argues that these
were sufficient compliance. – Court does not agree.

(3) Not Valid Substitutes of Mandatory Notice in Writing

– The advice given, as well as the preliminary 5-day letter were
not valid substitutes as these steps were mere perfunctory
discharges of the CIR’s duties in correctly assessing the
taxpayer. The requirement for PAN or FAN is markedly different
from the requirement of what such notice must contain. Just
because CIR issued an advice does not mean that Enron was
informed of the factual and legal basis on which the deficiency
tax assessment was made.

The law requires that the legal and factual bases of the
assessment must be stated
➢ In the Formal Letter of Demand and Assessment
Notice, and such cannot be presumed.

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 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 CTA En Banc denied Tambunting’s petition for review and its
against it, the assessment in question was VOID. subsequent motion for reconsideration.

Tambunting’s contention before SC: The CTA should have

H. TAMBUNTING PAWNSHOP vs CIR
G.R. No. 173373 July 29, 2013
Digest by Kristal Charmaine F. Alaban
Topic: Submission of supporting documents
Facts:
The BIR issued assessment notices and demand letters
assessing Tambunting, a domestic corporation duly licensed
and authorized to engage in the pawnshop business, for
deficiency percentage tax, income tax and compromise
penalties for taxable year 1997. In determining the deficiency
income tax, BIR disallowed certain deductions.
Tambunting instituted an administrative protest against the
assessment notices and demand letters with the Commissioner
of Internal Revenue.
On February 21, 2001, Tambunting brought a petition for
review in the CTA.
allowed its deductions because
• it had been able to point out the provisions of law
authorizing the deductions;
• that it proved its entitlement to the deductions through all
the documentary and testimonial evidence presented in
court;
• that the provisions of Section 34 (A)(1)(b) of the 1997
National Internal Revenue Code, governing the types of
evidence to prove a claim for deduction of expenses, were
applicable because the law took effect during the pendency
of the case in the CTA;
• that the CTA had allowed deductions for ordinary and
necessary expenses on the basis of cash vouchers issued by
the taxpayer or certifications issued by the payees
evidencing receipt of interest on loans as well as
agreements relating to the imposition of interest;
• that it had thus shown beyond doubt that it had incurred
the losses in its auction sales; and
• that it substantially complied with the requirements of
Revenue Regulations No. 12-77 on the deductibility of its
losses.

On October 8, 2004, the CTA First Division ordered Tambunting ISSUE: Whether or not H. Tambunting is entitled to the
to pay CIR the amount of ₱4,536,687.15 representing income claimed deductions.
tax for the year 1997, plus 20% delinquency interest computed
from August 29, 2000 until full payment. However, the HELD: NO.
compromise penalties in the sum of ₱49,000.00 was cancelled.
Tambunting’s allowable deductions under the CTA First Division
LOSS ON AUCTION SALE

The SC affirmed CTA En Banc’s Ruling that:

BASED ON THE SYLLABUS OF ATTY. KRISKA MARNA A. BUENA, CPA

 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
To prove the loss on auction sale, petitioner submitted in
evidence its "Rematado" and "Subasta" books and the
"Schedule of Losses on Auction Sale". The "Rematado"
book contained a record of items foreclosed by the
pawnshop while the "Subasta" book contained a record of
the auction sale of pawned items foreclosed. However, the
gain or loss on auction sale represents the difference
between the capital and the price for which the pawned
articles were sold, as reflected in the "Subasta" Book.
Furthermore, it explained that the amounts appearing in
the "Rematado" book do not reflect the total capital of H.
Tambunting as it merely reflected the amounts loaned to
the pawnee. Likewise, the amounts appearing in the
"Subasta" book, are not representative of the amount of
sale made during the "subastas" since not all articles are
eventually sold and disposed of by H. Tambunting.
In this case, petitioner's reliance on the entries made
in the "Subasta" book were not sufficient to
substantiate the claimed deduction of loss on auction
sale. As admitted by the petitioner, the contents in the
"Rematado" and "Subasta" books do not reflect the
true amounts of the total capital and the auction
sale, respectively. Be that as it may, petitioner still failed
to adduce evidence to substantiate the other expenses
alleged to have been incurred in connection with the sale
of pawned items.
The rule that tax deductions, being in the nature of tax
exemptions, are to be construed in strictissimi juris
against the taxpayer is well settled. Corollary to this rule
is the principle that when a taxpayer claims a deduction,
he must point to some specific provision of the statute
in which that deduction is authorized and must be able
to prove that he is entitled to the deduction which the
law allows. An item of expenditure, therefore, must fall
squarely within the language of the law in order to be
deductible. A mere averment that the taxpayer has
incurred a loss does not automatically warrant a
deduction from its gross income.
As the CTA En Banc held, Tambunting did not properly prove
that it had incurred losses. The subasta books it presented
were not the proper evidence of such losses from the auctions
because they did not reflect the true amounts of the proceeds
of the auctions due to certain items having been left unsold
after the auctions. The rematado books did not also prove the
amounts of capital because the figures reflected therein were
only the amounts given to the pawnees. It is interesting to
note, too, that the amounts received by the pawnees were not
the actual values of the pawned articles but were only fractions
of the real values.
BUSINESS EXPENSES
As to business expenses, Section 29 (a) (1) (A) of the NIRC of
1977 provides:
(a) Expenses. — (1) Business expenses.— (A) In general. — All
ordinary and necessary expenses paid or incurred during the taxable
year in carrying on any trade or business, including a reasonable
allowance for salaries or other compensation for personal services
actually rendered; traveling expenses while away from home in the
pursuit of a trade, profession or business, rentals or other payments
required to be made as a condition to the continued use or
possession, for the purpose of the trade, profession or business, of
property to which the taxpayer has not taken or is not taking title or
in which he has no equity.
The requisites for the deductibility of ordinary and necessary trade
or business expenses, like those paid for security and janitorial
services, management and professional fees, and rental expenses,
are that: (a) the expenses must be ordinary and necessary; (b) they
must have been paid or incurred during the taxable year; (c) they
17
must have been paid or incurred in carrying on the trade or business
of the taxpayer; and (d) they must be supported by receipts, records
or other pertinent papers.
The SC affirmed also the CTA En Banc Ruling denying claim
for deduction of its security and janitorial expenses,
management and professional fees, and its rental expenses:
Contrary to petitioner’s contention, the
security/janitorial expenses paid to Pathfinder
Investigation were not duly substantiated. The
certification issued by Mr. Balisado was not the
proper document required by law to substantiate its
expenses. Petitioner should have presented the official
receipts or invoices to prove its claim as provided for under
Section 238 of the National Internal Revenue Code of 1977,
as amended, to wit:
SEC. 238. Issuance of receipts or sales or commercial
invoices. — All persons subject to an internal revenue tax shall
for each sale or transfer of merchandise or for services
rendered valued at ₱25.00 or more, issue receipts or sales or
commercial invoices, prepared at least in duplicate, showing
the date of transaction, quantity, unit cost and description of
merchandise or nature of service; Provided, That in the case
of sales, receipts or transfers in the amount of ₱100.00 or
more, or, regardless of amount, where the sale or transfer is
made by persons subject to value-added tax to other persons
also subject to value-added tax; or, where the receipts is
issued to cover payment made as rentals, commissions,
compensation or fees, receipts or invoices shall be issued
which shall show the name, business style, if any, and address
of the purchaser, customer, or client. The original of each
receipt or invoice shall be issued to the purchases, customer
or client at the time the transaction is effected, who, if
engaged in business or in the exercise of profession, shall
keep and preserve the same in his place of business for a
period of 3 years from the close of the taxable year in which
such invoice or receipt was issued, while the duplicate shall be
kept and preserved by the issuer, also in his place of business,
for a like period.
With regard to the misclassified items of expenses,
petitioner's statements were self-serving, likewise it failed
to substantiate its allegations by clear and convincing
evidence as provided under the foregoing provision of law.
Bearing in mind the principle in taxation that deductions
from gross income partake the nature of tax exemptions
which are construed in strictissimi juris against the
taxpayer, the Court en banc is not inclined to believe the
self-serving statements of petitioner regarding the
misclassified items of office supplies, advertising and rent
expenses.
Among the expenses allegedly incurred, courts may
consider only those supported by credible evidence
and which appear to have been genuinely incurred in
connection with the trade or business of the
taxpayer.
As previously discussed, the proper substantiation
requirement for an expense to be allowed is the official
receipt or invoice. While the rental payments were
subjected to the applicable expanded withholding taxes,
such returns are not the documents required by law to
substantiate the rental expense. Petitioner should have
submitted official receipts to support its claim.
Moreover, the issue on the submission of cash vouchers as
evidence to prove expenses incurred has been addressed
by this Court in the assailed Resolution, to wit: In order
that the cash vouchers may be given probative value,
these must be validated with official receipts.
Petitioner’s management and professional fees were
disallowed as these were supported merely by cash
vouchers, which the Court’s Division correctly found to
have little probative value.
BASED ON THE SYLLABUS OF ATTY. KRISKA MARNA A. BUENA, CPA
 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
To reiterate, deductions for income tax purposes
partake of the nature of tax exemptions and are strictly
construed against the taxpayer, who must prove by
convincing evidence that he is entitled to the deduction
claimed.
Tambunting did not discharge its burden of
substantiating its claim for deductions due to the
inadequacy of its documentary support of its claim. Its
reliance on withholding tax returns, cash vouchers,
lessor’s certifications, and the contracts of lease was
futile because such documents had scant probative
value. As the CTA En Banc succinctly put it, the law required
Tambunting to support its claim for deductions with the
corresponding official receipts issued by the service providers
concerned.
LOSS DUE TO FIRE
The text of Section 29(d) (2) & (3) of P.D. 1158 (NIRC of 1977)
then in effect, is clear enough, to wit:
(2) By corporation. — In the case of a corporation, all losses
actually sustained and charged off within the taxable year and not
compensated for by insurance or otherwise.
(3) Proof of loss. — In the case of a non-resident alien individual or
foreign corporation, the losses deductible are those actually
sustained during the year incurred in business or trade conducted
within the Philippines, and losses actually sustained during the year
in transactions entered into for profit in the Philippines although not
connected with their business or trade, when such losses are not
compensated for by insurance or otherwise. The Secretary of
Finance, upon recommendation of the Commissioner of Internal
Revenue, is hereby authorized to promulgate rules and regulations
prescribing, among other things, the time and manner by which the
taxpayer shall submit a declaration of loss sustained from casualty
or from robbery, theft, or embezzlement during the taxable year:
Provided, That the time to be so prescribed in the regulations shall
not be less than 30 days nor more than 90 days from the date of
the occurrence of the casualty or robbery, theft, or embezzlement
giving rise to the loss.
The implementing rules for deductible losses are found in
Revenue Regulations No. 12-77, as follows:
SECTION 1. Nature of deductible losses.— Any loss arising from
fires, storms or other casualty, and from robbery, theft or
embezzlement, is allowable as a deduction under Section 30 (d) for
the taxable year in which the loss is sustained. The term "casualty"
is the complete or partial destruction of property resulting from an
identifiable event of a sudden, unexpected, or unusual nature. It
denotes accident, some sudden invasion by hostile agency, and
excludes progressive deterioration through steadily operating
cause. Generally, theft is the criminal appropriation of another’s
property for the use of the taker. Embezzlement is the fraudulent
appropriation of another's property by a person to whom it has been
entrusted or into whose hands it has lawfully come.
SECTION 2. Requirements of substantiation. — The taxpayer
bears the burden of proving and substantiating his claim for
deduction for losses allowed under Section 30 (d) and should
comply with the following substantiation requirements:
(a) A declaration of loss which must be filed with the
Commissioner of Internal Revenue or his deputies within a
certain period prescribed in these regulations after the
occurrence of the casualty, robbery, theft or embezzlement.
(b) Proof of the elements of the loss claimed, such as the actual
nature and occurrence of the event and amount of the loss.
SECTION 3. Declaration of loss. — Within forty-five days after
the date of the occurrence of casualty or robbery, theft or
embezzlement, a taxpayer who sustained loss therefrom and who
intends to claim the loss as a deduction for the taxable year in which
the loss was sustained shall file a sworn declaration of loss with the
nearest Revenue District Officer. The sworn declaration of loss shall
contain, among other things, the following information:
18
(a) The nature of the event giving rise to the loss and the time of
its occurrence;
(b) A description of the damaged property and its location;
(c) The items needed to compute the loss such as cost or other basis
of the property; depreciation allowed or allowable if any; value
of property before and after the event; cost of repair;
(d) Amount of insurance or other compensation received or
receivable.
Evidence to support these items should be furnished, if available.
Examples are purchase contracts and deeds, receipted bills for
improvements, and pictures and competent appraisals of the
property before and after the casualty.
SECTION 4. Proof of loss.—
(a) In general. — The declaration of loss, being one of the
essential requirements of substantiation of a claim for a loss
deduction, is subject to verification and does not constitute
sufficient proof of the loss that will justify its deductibility for
income tax purposes. Therefore, the mere filing of a declaration
of loss does not automatically entitle the taxpayer to deduct the
alleged loss from gross income. The failure, however, to submit
the said declaration of loss within the period prescribed in these
regulations will result in the disallowance of the casualty loss
claimed in the taxpayer's income tax return. The taxpayer
should therefore file a declaration of loss and should be prepared
to support and substantiate the information reported in the said
declaration with evidence which he should gather immediately
or as soon as possible after the occurrence of the casualty or
event causing the loss.
(b) Casualty loss. — Photographs of the property as it existed
before it was damaged will be helpful in showing the condition
and value of the property prior to the casualty. Photographs
taken after the casualty which show the extent of damage will
be helpful in establishing the condition and value of the property
after it was damaged. Photographs showing the condition and
value of the property after it was repaired, restored or replaced
may also be helpful. Furthermore, since the valuation of the
property is of extreme importance in determining the amount of
loss sustained, the taxpayer should be prepared to come forward
with documentary proofs, such as cancelled checks, vouchers,
receipts and other evidence of cost. The foregoing evidence
should be kept by the taxpayer as part of his tax records and be
made available to a revenue examiner, upon audit of his income
tax return and the declaration of loss.
(c) Robbery, theft or embezzlement losses. - To support the
deduction for losses arising from robbery, theft or
embezzlement, the taxpayer must prove by credible. evidence
all the elements of the loss, the amount of the loss, and the
proper year of the deduction. The taxpayer bears the burden of
proof, and no deduction will be allowed unless he shows the
property was stolen, rather than misplaced or lost. A mere
disappearance of property is not enough, nor is a mere error or
shortage in accounts.
Failure to report theft or robbery to the police may be a factor
against the taxpayer. On the other hand, a mere report of alleged
theft or robbery to the police authorities is not a conclusive proof
of the loss arising therefrom.
In the context of the foregoing rules, the CTA En Banc
aptly rejected Tam bunting's claim for deductions due to
losses from fire and theft. The documents it had
submitted to support the claim, namely:
(a) the certification from the Bureau of Fire Protection in
Malolos;
(b) the certification from the Police Station in Malolos;
(c) the accounting entry for the losses; and
(d) the list of properties lost, were not enough. What
were required were for Tambunting to submit the
sworn declaration of loss mandated by Revenue
Regulations 12-77. Its failure to do so was prejudicial
to the claim because the sworn declaration of loss was
necessary to forewarn the BIR that it had suffered a
loss whose extent it would be claiming as a deduction
of its tax liability, and thus enable the BIR to conduct
its own investigation of the incident leading to the
loss. Indeed, the documents Tambunting submitted to the
BIR could not serve the purpose of their submission without
the sworn declaration of loss.
BASED ON THE SYLLABUS OF ATTY. KRISKA MARNA A. BUENA, CPA
 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
CIR v. FIRST EXPRESS PAWNSHOP CO.
G.R. Nos. 172045-46, June 16, 2009
Digest by Carla Louise Bayquen
PROTEST ASSESSMENT
Submission of Supporting Documents
Case: A claim for refund or issuance of a tax credit certificate
amounting to P 1,369,411.00 allegedly representing excess or
overpaid income tax for the year 1998.
Facts:
Petitioner, issued the assessment notices against First Express
Pawnshop for deficiency income, VAT, DST taxes.
Respondent received the assessment notices on 3 January
2002. On 1 February 2002, respondent filed its written protest
on the above assessments. Since petitioner did not act on the
protest during the 180-day period, respondent filed a petition
before the CTA on 28 August 2002.
First Express’ Contentions:
− Respondent contended that petitioner did not consider the
supporting documents on the interest expenses and
donations which resulted in the deficiency income tax.
− Respondent maintained that pawnshops are not lending
investors whose services are subject to VAT, hence it was not
liable for deficiency VAT.
− Respondent also alleged that no deficiency DST was due
because Section 18012 of the National Internal Revenue
Code (Tax Code) does not cover any document or transaction
which relates to respondent.
− Respondent also argued that the issuance of a pawn ticket
did not constitute a pledge under Section 19513 of the Tax
Code.
Petition’s Answer
In its Answer filed before the CTA, petitioner alleged that the
assessment was valid and correct and the taxpayer had the
burden of proof to impugn its validity or correctness. Petitioner
maintained that respondent is subject to 10% VAT based on its
gross receipts pursuant to Republic Act No. 7716, or the
Expanded Value-Added Tax Law (EVAT). Petitioner also cited
BIR Ruling No. 221-91 which provides that pawnshop tickets
are subject to DST.
CTA Division Ruling
The petition was partially granted. The DST taxes were
cancelled and set aside. However the deficiency VAT tax was
affirmed.
Both parties filed their Motions for Reconsideration which were
denied by the CTA First Division for lack of merit. Thereafter,
both parties filed their respective Petitions for Review under
Section 11 of Republic Act No. 9282 with the CTA En Banc.
CTA En Banc Ruling
The CTA held that in this case, there was no subscription or
any contract for the acquisition of unissued stock for ₱800,000
in the taxable year assessed. The General Information Sheet
(GIS) of respondent showed only a capital structure of
₱500,000 as Subscribed Capital Stock and ₱250,000 as Paid-
up Capital Stock and did not include the assessed amount.
Mere reliance on the presumption that the assessment was
correct and done in good faith was unavailing vis-à-vis the
evidence presented by respondent. Thus, the CTA ruled that
the assessment for deficiency DST on deposit on subscription
has not become final.
CIR’s Contention
− The CTA erred in disregarding the rule on the finality of
assessments prescribed under Section 228 of the Tax Code.
19
Petitioner asserts that even if respondent filed a protest, it
did not offer evidence to prove its claim that the deposit on
subscription was an "advance" made by respondent’s
stockholders. Petitioner alleges that respondent’s failure to
submit supporting documents within 60 days from the filing
of its protest as required under Section 228 of the Tax Code
caused the assessment of ₱12,328.45 for deposit on
subscription to become final and unassailable.
− Petitioner alleges that revenue officers are afforded the
presumption of regularity in the performance of their official
functions.
− Petitioner invokes the principle that by reason of the
expertise of administrative agencies over matters falling
under their jurisdiction, they are in a better position to pass
judgment thereon; thus, their findings of fact are generally
accorded great respect, if not finality, by the courts. Hence,
without the supporting documents to establish the non-
inclusion from DST of the deposit on subscription, petitioner’s
assessment pursuant to Section 228 of the Tax Code had
become final and unassailable.
First Express’ Contentions:
Respondent claims that petitioner requested for additional
documents in petitioner’s letter dated 12 March 2002, to wit:
(1) loan agreement from lender banks; (2) official receipts of
interest payments issued to respondent; (3) documentary
evidence to substantiate donations claimed; and (4) proof of
payment of DST on subscription.30 It must be noted that the
only document requested in connection with respondent’s DST
assessment on deposit on subscription is proof of DST
payment. However, respondent could not produce any proof of
DST payment because it was not required to pay the same
under the law considering that the deposit on subscription was
an advance made by its stockholders for future subscription,
and no stock certificates were issued. Respondent insists that
petitioner could have issued a subpoena requiring respondent
to submit other documents to determine if the latter is liable
for DST on deposit on subscription pursuant to Section 5(c) of
the Tax Code.
Issue: Whether or not the CTA erred on a question of law in
disregarding the rule on finality of assessments prescribed
under Section 228 of the Tax Code. – NO.
On the Taxability of Deposit on Stock Subscription
There’s a long discussion in the full text but in a nutshell
respondent is not liable for the payment of DST on its deposit
on subscription for the reason that there is yet no subscription
that creates rights and obligations between the subscriber and
the corporation.
On the Finality of Assessment as Prescribed
under Section 228 of the Tax Code
x x x Such assessment may be protested administratively by
filing a request for reconsideration or reinvestigation within
thirty (30) days from receipt of the assessment in such form
and manner as may be prescribed by implementing rules and
regulations. Within sixty (60) days from filing of the
protest, all relevant supporting documents shall have
been submitted; otherwise, the assessment shall
become final.
Section 228 of the Tax Code provides the remedy to dispute a
tax assessment within a certain period of time. It states that
an assessment may be protested by filing a request for
reconsideration or reinvestigation within 30 days from receipt
of the assessment by the taxpayer. Within 60 days from filing
of the protest, all relevant supporting documents shall have
been submitted; otherwise, the assessment shall become final.
In this case, respondent received the tax assessment on
3 January 2002 and it had until 2 February 2002 to
submit its protest. On 1 February 2002, respondent
BASED ON THE SYLLABUS OF ATTY. KRISKA MARNA A. BUENA, CPA
 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
submitted its protest and attached the GIS and Balance Sheet
as of 31 December 1998. Respondent explained that it received
₱800,000 as a deposit with the possibility of applying the same
as payment for the future issuance of capital stock.
Within 60 days from the filing of protest or until 2 April
2002, respondent should submit relevant supporting
documents. Respondent, having submitted the supporting
documents together with its protest, did not present additional
documents anymore.
In a letter dated 12 March 2002, petitioner requested
respondent to present proof of payment of DST on subscription.
In a letter-reply, respondent stated that it could not produce
any proof of DST payment because it was not required to pay
DST under the law considering that the deposit on subscription
was an advance made by its stockholders for future
subscription, and no stock certificates were issued.
Since respondent has not allegedly submitted any relevant
supporting documents, petitioner now claims that the
assessment has become final, executory and demandable,
hence, unappealable.
We reject petitioner’s view that the assessment has
become final and unappealable. It cannot be said that
respondent failed to submit relevant supporting documents
that would render the assessment final because when
respondent submitted its protest, respondent attached the GIS
and Balance Sheet. Further, petitioner cannot insist on the
submission of proof of DST payment because such document
does not exist as respondent claims that it is not liable to pay,
and has not paid, the DST on the deposit on subscription.
Relevant Supporting Documents
The term "relevant supporting documents" should be
understood as those documents necessary to support the legal
basis in disputing a tax assessment as determined by the
taxpayer. The BIR can only inform the taxpayer to submit
additional documents. The BIR cannot demand what type of
supporting documents should be submitted. Otherwise, a
taxpayer will be at the mercy of the BIR, which may require
the production of documents that a taxpayer cannot submit.
After respondent submitted its letter-reply stating that it could
not comply with the presentation of the proof of DST payment,
no reply was received from petitioner.
Section 228 states that if the protest is not acted upon within
180 days from submission of documents, the taxpayer
adversely affected by the inaction may appeal to the CTA within
30 days from the lapse of the 180-day period. Respondent,
having submitted its supporting documents on the same day
the protest was filed, had until 31 July 2002 to wait for
petitioner’s reply to its protest. On 28 August 2002 or within
30 days after the lapse of the 180-day period counted from the
filing of the protest as the supporting documents were
simultaneously filed, respondent filed a petition before the CTA.
Respondent has complied with the requisites in
disputing an assessment pursuant to Section 228 of the
Tax Code. Hence, the tax assessment cannot be considered as
final, executory and demandable. Further, respondent’s
deposit on subscription is not subject to the payment of DST.
Consequently, respondent is not liable to pay the deficiency
DST of ₱12,328.45.
1
The date of filing of returns does not appear in the record of the case, but
appears to be before the issuance of P.B. No. 23, proclaiming tax amnesty.
20
DAYRIT, et. al v. CRUZ & VERA
G.R. No. L-39910, September 26, 1988
Digest by Hannah Keziah P. Dela Cerna
Topic: Submission of Supporting Documents
DOCTRINE: Anent petitioners' claim that the tax assessments
against the estates of the Teodoro spouses are not yet final,
the court finds the claim untenable. In petitioners' motion for
reconsideration of the aforementioned assessments,
petitioners requested then Commissioner Misael P. Vera for a
period of thirty (30) days from October 7, 1972 within which to
submit a position paper that would embody their grounds for
reconsideration. However, no position paper was ever filed.
Such failure to file a position paper may be construed as
abandonment of the petitioners' request for reconsideration.
The court notes that it took the respondent Commissioner a
period of more than one (1) year and five (5) months, from
October 7, 1972 to March 14, 1974, before finally instituting
the action for collection. Under the circumstances of the case,
the act of the Commissioner in filing an action for allowance of
the claim for estate and inheritance taxes, may be considered
as an outright denial of petitioners' request for reconsideration.
Case: The application of tax amnesty to the estate of the
Teodoros is the issue in this case.
Facts:
Petitioners are the legitimate children and heirs of the deceased
spouses Marta J. Teodoro who died intestate on July 1, 1965
and Don Toribio Teodoro who died testate on August 30, 1965.
Thereafter, the heirs of the deceased filed separate estate and
inheritance tax returns for the estates of the late spouses with
the Bureau of Internal Revenue.1
Testate and Intestate Proceedings
In the meantime, testate and intestate proceedings for the
settlement of the decedents' estates were filed by Cecilia
Teodoro-Dayrit, one of the petitioners herein, in the then Court
of First Instance of Caloocan City 2 , Branch XII docketed as
Special Proceedings No. C-113. 2 On August 14, 1968, said
petitioner was appointed administratrix of the estate of Dona
Marta and letters testamentary was issued in her favor as
executrix of the estate of Don Toribio.
Deficiency Estate & Inheritance Tax Assessments
On August 9,1972, the respondent Commissioner of Internal
Revenue issued the following deficiency estate and inheritance
tax assessments:
Letter for Reconsideration and Request for Period of 30
Days to Submit Position Paper
The aforementioned notice of deficiency assessments was
received by petitioner Dayrit on August 14, 1972. In a letter
dated October 7, 1972, petitioners through counsel, asked for
a reconsideration of the said assessments alleging that the
same are contrary to law and not supported by sufficient
evidence. In the same letter, petitioners requested a period of
thirty (30) days within which to submit their position paper in
support of their claim.
2
The deceased were both residents of Caloocan City.
BASED ON THE SYLLABUS OF ATTY. KRISKA MARNA A. BUENA, CPA
 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
Presidential Decree No. 23
Meanwhile, on October 16, 1972, Presidential Decree (P.D) No.
23, entitled "Proclaiming Tax Amnesty Subject to Certain
Conditions," was issued by then President Ferdinand E. Marcos,
quoted hereunder as follows:
1. In all cases of voluntary disclosure of previously
untaxed income realized here or abroad by any taxpayer,
natural or juridical, the collection of the income tax and
penalties incident to nonpayment, as well as all criminal and
civil liabilities under the National Internal Revenue Code, the
Revised Penal Code, the Anti-Graft and Corrupt Practices Act
or any other law applicable thereto, is hereby condoned and,
in lieu thereof, a tax of TEN PERCENTUM (10%) on such
previously untaxed income is hereby imposed, subject to the
following conditions:
(a) Such previously untaxed income must have been
earned or realized prior to 1972;
(b) The taxpayer must file a notice and return with the
Commissioner of Internal Revenue on or before March
31, 1972 showing such previously untaxed income;
2. The tax imposed under Paragraph 1 hereof, shall be paid
within the following period:
(a) If the amount does not exceed P10,000.00 the tax
must be paid at the time of the filing of notice and return
but not later than March 31, 1973;
(b) If the amount exceeds P10,000.00 the tax maybe paid
in two (2) installments, the first installment to be paid
upon the filing of the notice and return but not later than
March 31, 1973; and the second installment within three
(3) months from the date of the filing of the return but
not later than June 30, 1973
Presidential Decree No. 67
On November 24, 1972, P.D. No. 67, was issued amending
paragraphs 1 and 3 of P.D. No. 23, to read as follows:
1. In all cases of voluntary disclosure of previously
untaxed income and/or wealth such as earnings, receipts,
gifts bequests or any other acquisitions from any source
whatsoever which are taxable under the National Internal
Revenue Code, as amended realized here or abroad by
any taxpayer, natural or juridical; the collection of all
internal revenue taxes including the increments or
penalties on account of non-payment as well as all civil,
criminal or administrative liabilities arising from or
incident to such disclosures under the National Internal
Revenue Code, the Revised Penal Code, the Anti-Graft
and Corrupt Practices Act, the Revised Administrative
Code, the Civil Service laws and regulations, laws and
regulations on Immigration and Deportation, or any other
applicable law or proclamation, are hereby condoned and,
in lieu thereof, a tax of ten per centum (10%) on such
previously untaxed income or wealth is hereby imposed,
subject to the following conditions:
a. Such previously untaxed income and/or wealth must
have been earned or realized prior to 1972;
b. The taxpayer must file a return with the
Commissioner of Internal Revenue on or before
March 31, 1973, showing such previously untaxed
income and/or wealth
Tax Return (Additional Amount)
In a tax return dated March 31, 1973, petitioner Cecilia
Teodoro-Dayrit declared an additional amount of
P3,655,595.78 as part of the estates of the Teodoro spouses,
for additional valuation over and above the amount declared in
the previous return for estates and inheritance taxes of the said
21
late spouses. The Bureau of Internal Revenue issued tax
payment acceptance order Nos.1127185-86 and
1533011.6 Pursuant to the aforesaid tax acceptance orders,
the estates and heirs of the deceased spouses Teodoro paid the
amounts of P5,000.00, P30,046.68 and P250,000.00 per
official receipts Nos. 73201, 774037 and 964467 dated April 2,
1973, July 17, 1973 and October 31, 1973,
respectively, 7 amounting to a total of P285,046.68.
Motion for Allowance of Claim filed by CIR
On March 14, 1974, respondent Commissioner of Internal
Revenue filed a motion for Allowance of Claim against the
estates of spouses Teodoro and for an order of payment of
taxes in S.P. No. C-113 with the then Court of First Instance of
Rizal, Branch XII, praying that petitioner Dayrit be ordered to
pay the Bureau of Internal Revenue the sum of P6,470,396.81
plus surcharges and interest.
Petitioners’ Oppositions
Petitioners filed two (2) separate oppositions alleging that:
1. the estate and inheritance taxes sought to be collected have
already been settled in accordance with the provisions of P.D.
No. 23, as amended by P.D. No. 67 and
2. that at any rate, the assessments have not become final and
executory.
CIR’s Reply to Opposition
In reply thereto, respondent Commissioner alleged that
petitioners could not avail of the tax amnesty in view of the
existence of a prior assessment. Petitioners insisted that the
tax amnesty could still be availed of invoking Section 4, BIR
Revenue Regulation No. 8-72.
Decision of CFI
On July 10, 1974, respondent Judge issued an order approving
the claim of respondent Commissioner and directing the
payment of the estate and inheritance taxes. Dissastisfied with
the decision, petitioners filed a motion for reconsideration but
it was denied in an order dated September 30, 1974.
Issue (related to topic): Whether or not the assessment has
become final and executory by Petitioners’ failure to submit
their position paper. -YES.
Petitioners’ Contention: Petitioners contend that respondent
Judge acted without jurisdiction or in excess of jurisdiction or
with grave abuse of discretion amounting to lack of jurisdiction
in granting the respondent Commissioner's claim for estate and
inheritance taxes against the estates of the Teodoro spouses
on the ground that due to the pendency of their motion for
reconsideration of the deficiency assessments issued by the
Commissioner, said tax assessments are not yet final and
executory. Petitioners stressed that the absence of a decision
on the disputed assessments was a bar against collection of
taxes. Finally, petitioners insist that their act of filing an estate
and inheritance tax return of a previously untaxed wealth of
the estates entitles said estates to tax amnesty under P.D. No.
23, as amended by P.D. 67 and hence, it is an error to grant
respondent Commissioner's claim for collection of estate and
inheritance taxes.
Respondent’s Contention: Respondent Commissioner
contends that petitioners cannot avail of the tax amnesty in
view of the prior existing assessments issued against the
estates of the deceased spouses before the promulgation of
P.D. No. 23. In support thereof, respondent cited Section 4 of
Revenue Regulation No. 15-72, amending Section 4 of
Regulation No. 8-12. Respondent Commissioner contends
further that neither may petitioners' act of filing a return of a
previously untaxed income or wealth in the amount of
P3,655,595.98 entitled the estates to tax amnesty where
petitioners failed to pay the 10% tax in full within the time
frame required under P.D. No. 23, and that to allow petitioners
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 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
to avail of the tax amnesty will render nugatory the provisions
of P.D. No. 68. Moreover, said respondent argues that certiorari
is not the proper remedy in that respondent Judge committed
no grave abuse of discretion in allowing the claim for collection
of taxes and that if at all, it was merely an error of judgment
which can be corrected only on appeal, and in which case the
reglementary period for the same has already prescribed.
Held:
Tax Assessments Already Final; Petitioners Abandoned
their Request by Failing to File Position Paper. - Anent
petitioners' claim that the tax assessments against the estates
of the Teodoro spouses are not yet final, the court finds the
claim untenable. In petitioners' motion for reconsideration of
the aforementioned assessments, petitioners requested then
Commissioner Misael P. Vera for a period of thirty (30) days
from October 7, 1972 within which to submit a position paper
that would embody their grounds for reconsideration. However,
no position paper was ever filed. Such failure to file a
position paper may be construed as abandonment of the
petitioners' request for reconsideration. The court notes
that it took the respondent Commissioner a period of more than
one (1) year and five (5) months, from October 7, 1972 to
March 14, 1974, before finally instituting the action for
collection. Under the circumstances of the case, the act of the
Commissioner in filing an action for allowance of the claim for
estate and inheritance taxes, may be considered as an outright
denial of petitioners' request for reconsideration.
Petitioners Should Have Contested and Upon Denial,
Should Have Appealed to CTA. - From the date of receipt of
the copy of the Commissioner's letter for collection of estate
and inheritance taxes against the estates of the late Teodoro
spouses, petitioners must contest or dispute the same
and, upon a denial thereof, the petitioners have a period
of thirty (30) days within which to appeal the case to the
Court of Tax Appeals. This they failed to avail of.
Taxpayer’s Burden to Disprove Assessment. - Tax
assessments made by tax examiners are presumed correct and
made in good faith. A taxpayer has to prove otherwise. Failure
of the petitioners to appeal to the Court of Tax Appeals in due
time made the assessments in question, final, executory and
demandable.
Issue (provided by case/court): Whether an estate may
avail of tax amnesty under Presidential Decree No. 23 where
there is already an existing assessment made prior to the
issuance of the said decree on the basis of the submitted
estate and inheritance tax returns by merely filing separate
estate tax returns of an undeclared and untaxed income
over and above the original amount of the estate declared.
-NO.
Held: With respect the petitioners' plea that the estate is at
any rate entitled to tax amnesty, a reading of P.D. No.
23 30 reveals that in order to avail of tax amnesty, it is
required, among others, that there should be a VOLUNTARY
disclosure of a previously untaxed income. This was the
pronouncement of this Court in Nepomuceno vs.
Montecillo with respect to P.D. 370 32 which was decreed as a
complement of P.D. Nos. 23 and 157. In addition thereto, said
income must have been earned or realized prior to 1972 and
the tax return must be filed on or before March 31, 1973.
Considering that P.D. No. 23 was issued on October 16, 1972,
the court rules that the said decree embraces only those
income declared in pursuance thereof within the taxable year
1972. The time frame cannot be stretched to include
declarations made prior to the issuance of the said decree or
those made outside of the time frame as envisioned in the said
decree. Thus, the estates of the Teodoro spouses which have
been declared separately sometime in the 1960's are clearly
outside the coverage of the tax amnesty provision.
22
Petitioners argue, however, that even if a notice of deficiency
assessment had already been issued, the estates may still avail
of tax amnesty if the basis of such deficiency assessment is
either the failure to file a return or the omission of items of
taxable income for a return already filed or the under
declaration of said return, citing P.D. No. 67 and Section 4 of
BIR Revenue Regulation No. 8-72.
Voluntary Disclosure Needed. - There is no merit in this
contention. Even if P.D. No. 67, as an amendment to P.D. 23,
enlarges the coverage of tax amnesty to include wealth such
as earnings, receipts, gifts, bequests or any other acquisitions
from any source whatsoever, said decree reiterates the need
of voluntary disclosure on the part of the taxpayer filing the
return in order to avail of the tax amnesty. The only noticeable
departure from P.D. No. 23 is the extension of the date for the
filing of the return from March 31, 1972 to March 31, 1973.
Thus, this Court finds that the same policy observed in the
issuance of P.D. No. 23, governs P.D. No. 67. In addition
thereto, it gives the tax evaders who failed to avail of the
provisions of P.D. No. 23 a chance to reform themselves. An
examination of both decrees does not show that taxpayers
availing of the tax amnesty in accordance with P.D. No. 67, are
entitled to blanket coverage of declarations made prior to the
issuance of said decrees.
Petitioners argue that the estates of their parents declared for
estate tax valuation sometime in the 1960's can avail of the
tax amnesty when petitioners declared an additional amount of
the estates over and above that which was previously declared.
A reading of P.D. No. 67 reveals that tax amnesty is extendible
only to those declarations made pursuant to said decree. Thus,
if at all, it is only the estates in the amount of P3,655,595.78
declared pursuant to P.D. No. 67 that is covered, upon
payment of 10% of the said amount within the period
prescribed under P.D. No. 23, which was up to June 30, 1973.
Considering that there has been partial compliance with the
said requirement by the payment of P285,046.68, petitioner
may claim the benefit of amnesty for said declared amount
upon payment of the balance of 10% thereof required to be
paid.
ADVERTISING ASSOCIATES, INC. v. CA
G.R. No. L-59758 December 26, 1984
By Francis Jeric L. Emuy
This case is about the liability of Advertising Associates,
lnc.(AAI) for P382,700.16 as 3% contractor's percentage tax
on its rental income from the lease of neon signs and billboards
imposed by section 191 of the Tax Code on business agents
and independent contractors. Section 191 defines an
independent contractor as including all persons whose activity
consists essentially of the sale of all kinds of services for a fee.
Section 194(v) of the Tax Code defines a business agent as
including persons who conduct advertising agencies.
In the instant case, AAI alleged that it sold in 1949 its
advertising agency business to Philippine Advertising
Counsellors, that its business is limited to the making,
construction and installation of billboards and electric signs and
making and printing of posters, signs, handbills, etc. It
contends that it is a media company, not an advertising
company.
The CIR required AAI to pay P297,927.06 and P84,773.10 as
contractor's tax for 1967-1971 and 1972, respectively,
including 25% surcharge on its rental income for the billboards
and neon signs. The basis of the assessment is the fact that
the taxpayer's articles of incorporation provide that its primary
purpose is to engage in general advertising business. Its
income tax returns indicate that its business was advertising.
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AAI contested the assessments. The taxpayer requested the
cancellation of the. The Commissioner resorted to the
summary remedy of issuing two warrants of distraint, directing
the collection enforcement division to levy on the taxpayer's
personal properties as would be sufficient to satisfy the
deficiency taxes.
More than a year later, Acting Commissioner Plana wrote a
letter to AAI. He justified the assessments by stating that the
rental income of Advertising Associates from billboards and
neon signs constituted fees or compensation for its advertising
services. He requested the taxpayer to pay the deficiency taxes
within ten days from receipt of the demand; otherwise, the
Bureau would enforce the warrants of distraint.
PETITIONER’s CONTENTION/DEFENSE
The petitioner relies on the Collector's rulings dated September
12, 1960 and June 20, 1967 that it is neither an independent
contractor nor a business agent. Furthermore, the Supreme
Court in the case of AAI v. CIR rejected the taxpayer's
contention that it was only a contractor of neon-tube signs and
that it should pay only the 3% contractor's tax under section
191 of the Tax Code.
Issue: WON AAI is liable for the tax
Ruling: Yes
The neon signs and billboards are primarily designed for
advertising. The court holds that the petitioner is a business
agent and an independent contractor as contemplated in
sections 191 and 194(v) as is therefore liable for tax on its
rental income
However, in view of the prior rulings that the taxpayer is not a
business agent nor an independent contractor and in view of
the controversial nature of the deficiency assessments, the
25% surcharge should be eliminated.
Issue: WON the collection of the tax had already prescribed.
Ruling: No
Section 319 of the 1977 Tax Code, Presidential Decree No.
1158, effective on June 3, 1977, provides that the tax may be
collected by distraint or levy or by a judicial proceeding begun
'within five years after the assessment of the tax".
The taxpayer received on June 18, 1973 and March 5, 1974 the
deficiency assessments herein. The warrants of distraint were
served upon it on April 18 and may 25, 1978 or within five
years after the assessment of the tax. Obviously, the warrants
were issued to interrupt the five-year prescriptive period. Its
enforcement was not implemented because of the pending
protests of the taxpayer and its requests for withdrawal of the
warrants which were eventually resolved in Commissioner
Plana's letter of May 23, 1979.
COMMISSIONER OF INTERNAL REVENUE v. LEONARDO
S. VILLA and THE COURT OF APPEALS
G.R. No. L-23988, January 2, 1968
Digest by Anna Sophia Tarhata Piang
Topic: Scope of jurisdiction of the CTA
Facts:
1. Leonardo S. Villa, a doctor of medicine, and his wife
filed joint income tax returns for the years 1951,
1952, 1953, 1954, 1955 and 1956 on April 2, 1952,
March 30, 1953, February 26, 1954, March 31, 1955,
April 2, 1956 and March 23, 1957, respectively.
23
2. Subsequently, the Bureau of Internal Revenue
determined the income of the Villa spouses by the use
of networth method and accordingly issued on
February 23, 1961 assessments for deficiency income
tax for the years 1951, 1952, 1953, 1954 and 1956
and residence tax for 1951 to 1957. Dr. Villa received
the assessments on April 7, 1961.
3. Without contesting the said assessments in the
Bureau of Internal Revenue, he filed on May 4, 1961
a petition for review in the Court of Tax Appeals.
4. The Court of Tax Appeals took cognizance of the
appeal, tried the case on the merits and rendered the
following judgment:
IN VIEW OF THE FOREGOING CONSIDERATIONS, with
the exception of that portion regarding the additional
residence taxes and surcharges for the years 1951 to
1957 in the amount of P244.00, for which we hold
petitioner liable, the decision appealed from is hereby
reversed. The petitioner is ordered to pay to the
Commissioner of Internal Revenue or his
representative the sum of P244.00, as additional
residence tax and surcharge without pronouncement
as to costs.
Issue: Whether or not the CTA acted had jurisdiction to the
cognizance of the petition. – No.
Held:
The law conferring jurisdiction on the Court of Tax Appeals is
found in Section 7 of Republic Act 1125, the pertinent part of
which states:
Sec. 7. Jurisdiction. — The Court of Tax Appeals shall
exercise exclusive appellate jurisdiction to review by
appeal as herein provided —
(1) Decisions of the Collector 4of Internal Revenue in
cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, or other matters
arising under the National Internal Revenue Code or
other law or part of law administered by the Bureau
of Internal Revenue;
Definition of ‘decisions’
The word "decisions" in paragraph 1, Section 7 of
Republic Act 1125, quoted above, has been interpreted
to mean the decisions of the Commissioner of Internal
Revenue on the protest of the taxpayer against the
assessments. Definitely, said word does not signify the
assessment itself. We quote what this Court said aptly in a
previous case:
In the first place, we believe the respondent court erred in
holding that the assessment in question is the respondent
Collector's decision or ruling appealable to it, and that
consequently, the period of thirty days prescribed by section
11 of Republic Act No. 1125 within which petitioner should have
appealed to the respondent court must be counted from its
receipt of said assessment. Where a taxpayer questions an
assessment and asks the Collector to reconsider or cancel the
same because he (the taxpayer) believes he is not liable
therefor, the assessment becomes a "disputed assessment"
that the Collector must decide, and the taxpayer can appeal to
the Court of Tax Appeals only upon receipt of the decision of
the Collector on the disputed assessment, . . . 5(Emphasis
supplied)
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 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
The same interpretation finds support in Section 11 of Republic
Act 1125, which states:
Sec. 11. Who may appeal; effect of appeal. — Any
person, association or corporation adversely affected
by a decision or ruling of the Collector of Internal
Revenue, the Collector of Customs or any provincial
or city Board of Assessment Appeals may file an
appeal in the Court of Tax Appeals within thirty days
after the receipt of such decision or ruling. (Emphasis
supplied)
Note that the law uses the word "decisions", not
"assessments", further indicating the legislative intention to
subject to judicial review the decision of the Commissioner on
the protest against an assessment but not the assessment
itself.
The petition was premature; the CTA had no
jursidcition
Since in the instant case the taxpayer appealed the assessment
of the Commissioner of Internal Revenue without previously
contesting the same, the appeal was premature and the Court
of Tax Appeals had no jurisdiction to entertain said appeal. For,
as stated, the jurisdiction of the Tax Court is to review by
appeal decisions of Internal Revenue on disputed assessments.
The Tax Court is a court of special jurisdiction. As such, it can
take cognizance only of such matters as are clearly within its
jurisdiction.
LASCONA LAND v. CIR
GR 171251, March 2012
Digest by Reginald Matt Santiago
Topic: Application of the 180-day Rule
Doctrine: Under the Revised Rules of the Court of Tax
Appeals, while generally the taxpayer must file within 30
days from the inaction or denial, but the taxpayer has the
option to wait and such option to wait shall not prejudice
the taxpayer of the right to appeal to the CTA on the finding
of the assessment.
Facts: On March 27, 1998, CIR issued Assessment Notice
against Lascona Land informing it of its alleged deficiency
income tax for 1993 (P753K).
On April 12, 1998, Lascona filed a letter protest but this was
denied by the OIC Regional Director (Region 8) Mr. Odulio on
March 12, 1999 the Letter which states in part:
xxx while we agree with the arguments advanced in
your letter protest, we regret, however, that we
cannot give due course to your request to cancel or
set aside the assessment notice issued to your client
for the reason that the case was not elevated to the
Court of Tax Appeals as mandated by the provisions
of the last paragraph of Section 228 of the Tax Code.
By virtue thereof, the said assessment notice has
become final, executory and demandable. xxx
LASCONA’s CONTENTION
On April 12, 1999, Lascona appealed to the CTA alleging that
the Regional Director erred in ruling that the failure to appeal
to the CTA within 30 days from the lapse of the 180-day period
rendered the assessment final and executory.
CIR stated however that the failure to timely file an appeal with
the CTA after the lapse of the 180-day period under Sec. 228
resulted to the finality of the assessment.
24
CTA nullified the subject assessment. It held that in cases of
inaction by the CIR on the protested assessment, NIRC
provides two options:
1. Appeal to the CTA within 30 days from the lapse of
180 day period; or
2. Wait until the Commissioner decides on his protest
before he elevates the case.
CTA denied the MR of the CIR. CTA argued that the RR 12-99
must conform to the Section 228, and that Section 228 must
be the one which prevails.
CA set aside the decision of the CTA and declared that the
subject Assessment became final, executory and demandable.
Issue: Whether the subject assessment has become final,
executory and demandable due to the failure of Lascona to
file an appeal before the CTA within 30 days from the lapse of
180-day period pursuant to Section 228 of the NIRC.
Lascona: It maintains that it had the option to wait for the final
decision of the Commissioner on the protest, which it did.
CIR: It argues that in case of the inaction by the CIR on the
protested assessment within the 180-day period, petitioner
should have appealed the inaction to the CTA. Respondent
maintains that due to the failure to file an appeal after the lapse
of the 180-day period, the assessment became final.
Provision Involved
REVISED RULES OF COURT OF TAX APPEALS
RULE 4, SECTION 3(A)(2)
Inaction by the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties in relation thereto, or
other matters arising under the National Internal Revenue
Code or other laws administered by the Bureau of Internal
Revenue, where the National Internal Revenue Code or
other applicable law provides a specific period for action:
Provided, that in case of disputed assessments, the inaction
of the Commissioner of Internal Revenue within the one
hundred eighty day-period under Section 228 of the National
Internal revenue Code shall be deemed a denial for purposes
of allowing the taxpayer to appeal his case to the Court and
does not necessarily constitute a formal decision of the
Commissioner of Internal Revenue on the tax case;
Provided, further, that should the taxpayer opt to await the
final decision of the Commissioner of Internal Revenue on
the disputed assessments beyond the one hundred eighty
day-period abovementioned, the taxpayer may appeal
such final decision to the Court under Section 3(a), Rule
8 of these Rules; and Provided, still further, that in the case
of claims for refund of taxes erroneously or illegally
collected, the taxpayer must file a petition for review with
the Court prior to the expiration of the two-year period
under Section 229 of the National Internal Revenue Code;
(1) Law Did Not Intend to Limit Remedy. - In arguing that
the assessment became final and executory by the sole reason
that petitioner failed to appeal the inaction of the Commissioner
within 30 days after the 180-day reglementary period,
respondent, in effect, limited the remedy of Lascona, as a
taxpayer, under Section 228 of the NIRC to just one, that is -
to appeal the inaction of the Commissioner on its
protested assessment after the lapse of the 180-day
period. This is incorrect.
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 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
As early as the case of CIR v. Villa, it was already established
that the word "decisions" in paragraph 1, Section 7 of
Republic Act No. 1125, quoted above, has been interpreted to
mean the decisions of the Commissioner of Internal Revenue
on the protest of the taxpayer against the assessments.
Definitely, said word does not signify the assessment itself.
Therefore, as in Section 228, when the law provided for the
remedy to appeal the inaction of the CIR, it did not intend to
limit it to a single remedy of filing of an appeal after the lapse
of the 180-day prescribed period. Precisely, when a taxpayer
protested an assessment, he naturally expects the CIR to
decide either positively or negatively.
(2) Cannot be Prejudiced if he Chooses to Wait; Lascona
had the Right to Appeal. - A taxpayer cannot be prejudiced
if he chooses to wait for the final decision of the CIR on the
protested assessment.
It must be emphasized, however, that in case of the inaction
of the CIR on the protested assessment, while we reiterate −
the taxpayer has two options, either: (1) file a petition for
review with the CTA within 30 days after the expiration of the
180-day period; or (2) await the final decision of the
Commissioner on the disputed assessment and appeal such
final 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. Accordingly,
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 Court by filing a
petition for review within thirty days after receipt of a copy of
such decision or ruling, even after the expiration of the 180-
day period fixed by law for the Commissioner of Internal
Revenue to act on the disputed assessments.
(3) Appeal was Timely Made. –
➢ Receipt of Letter: March 12, 1999 [the letter was
dated March 3, 1999]
➢ Appeal to the CTA: April 12, 1999 [it was timely
made within 30 days].
As correctly pointed out by the tax court: x x x to adopt the
interpretation of the respondent will not only sanction
inefficiency, but will likewise condone the Bureau's inaction.
This is especially true in the instant case when despite the fact
that respondent found petitioner's arguments to be in order,
the assessment will become final, executory and demandable
for petitioner's failure to appeal before us within the thirty (30)
day period.
RCBC vs CIR
G.R. No. 170257. September 7, 2011
Digest by Kristal Charmaine F. Alaban
Topic: Application of the 180-day rule
Facts:
Rizal Commercial Banking Corporation (RCBC) is a corporation
engaged in general banking operations. It seasonably filed its
Corporation Annual Income Tax Returns for Foreign Currency
Deposit Unit for the calendar years 1994 and 1995.
August 15, 1996: RCBC received Letter of Authority No.
25
133959 issued by then Commissioner of Internal Revenue
(CIR) Vinzons-Chato, authorizing a special audit team to
examine the books of accounts and other accounting records
for all internal revenue taxes from January 1, 1994 to
December 31, 1995.
January 23, 1997: RCBC executed two Waivers of the Defense
of Prescription Under the Statute of Limitations of the National
Internal Revenue Code covering the internal revenue taxes due
for the years 1994 and 1995, effectively extending the period
of the Bureau of Internal Revenue (BIR) to assess up to
December 31, 2000.
January 27, 2000: RCBC received a Formal Letter of Demand
together with Assessment Notices from the BIR for deficiency
Income Tax, Gross Receipts Tax, Final Withholding Tax, Final
Tax on FCDU Onshore Income Tax, Expanded Withholding Tax,
and Documentary Stamp tax.
February 24, 2000: RCBC filed a protest on and later submitted
the relevant documentary evidence to support it.
November 20, 2000: RCBC filed a petition for review before the
CTA.
December 6, 2000: RCBC received another Formal Letter of
Demand with Assessment Notices dated October 20, 2000,
following the reinvestigation it requested, which drastically
reduced the original amount of deficiency taxes. On the same
day, RCBC paid some of the deficiency taxes, but refused to
pay the assessments for deficiency onshore tax and
documentary stamp tax which remained to be the subjects of
its petition for review. RCBC argued that
• The waivers of the Statute of Limitations were not valid
because the same were not signed or conformed to by
the respondent CIR as required under Section 222(b) of
the Tax Code.
• As regards the deficiency FCDU onshore tax, RCBC
contended that because the onshore tax was collected
in the form of a final withholding tax, it was the
borrower, constituted by law as the withholding agent,
that was primarily liable for the remittance of the said
tax.
December 15, 2004: the CTA-First Division promulgated its
Decision which partially granted the petition for review. It
considered as closed and terminated the assessments for
deficiency income tax, deficiency gross receipts tax, deficiency
final withholding tax, deficiency expanded withholding tax, and
deficiency documentary stamp tax (not an industry issue) for
1994 and 1995. It, however, upheld the assessment for
deficiency final tax on FCDU onshore income and deficiency
documentary stamp tax for 1994 and 1995 and ordered RCBC
to pay plus 20% delinquency tax.
CTA-En Banc Decision: denied the petition for lack of merit.
It ruled that by receiving, accepting and paying portions of the
reduced assessment, RCBC bound itself to the new
assessment, implying that it recognized the validity of the
waivers. RCBC could not assail the validity of the waivers after
it had received and accepted certain benefits as a result of the
execution of the said waivers. As to the deficiency onshore tax,
it held that because the payor-borrower was merely designated
by law to withhold and remit the said tax, it would then follow
that the tax should be imposed on RCBC as the payee-bank.
Finally, in relation to the assessment of the deficiency
documentary stamp tax on petitioner’s special savings account,
it held that petitioner’s special savings account was a certificate
of deposit and, as such, was subject to documentary stamp
tax.
ISSUES:
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Whether petitioner, by paying the other tax assessment
covered by the waivers of the statute of limitations, is
rendered estopped from questioning the validity of the
said waivers with respect to the assessment of
deficiency onshore tax.
YES
RCBC’s contention: assails the validity of the waivers of the
statute of limitations on the ground that the said waivers were
merely attested to by Sixto Esquivias, then Coordinator for the
CIR, and that he failed to indicate acceptance or agreement of
the CIR, as required under Section 223 (b) of the 1977 Tax
Code. RCBC further argues that the principle of estoppel cannot
be applied against it because its payment of the other tax
assessments does not signify a clear intention on its part to
give up its right to question the validity of the waivers.
SC: Under Article 1431 of the Civil Code, the doctrine of
estoppel is anchored on the rule that "an admission or
representation is rendered conclusive upon the person making
it, and cannot be denied or disproved as against the person
relying thereon."
Estoppel is clearly applicable to the case at bench. RCBC,
through its partial payment of the revised assessments
issued within the extended period as provided for in the
questioned waivers, impliedly admitted the validity of
those waivers. Had petitioner truly believed that the
waivers were invalid and that the assessments were
issued beyond the prescriptive period, then it should not
have paid the reduced amount of taxes in the revised
assessment. RCBC’s subsequent action effectively belies its
insistence that the waivers are invalid. The records show that
on December 6, 2000, upon receipt of the revised assessment,
RCBC immediately made payment on the uncontested taxes.
Thus, RCBC is estopped from questioning the validity of the
waivers.
Whether petitioner, as payee-bank, can be held liable for
deficiency onshore tax, which is mandated by law to be
collected at source in the form of a final withholding tax.
YES.
RCBC’s contention: RCBC is convinced that it is the payor-
borrower, as withholding agent, who is directly liable for the
payment of onshore tax, citing Section 2.57(A) of Revenue
Regulations No. 2-98 which states:
(A) Final Withholding Tax. — Under the final withholding
tax system the amount of income tax withheld by the
withholding agent is constituted as a full and final payment
of the income tax due from the payee on the said income.
The liability for payment of the tax rests primarily on
the payor as a withholding agent. Thus, in case of his
failure to withhold the tax or in case of under
withholding, the deficiency tax shall be collected
from the payor/withholding agent. The payee is not
required to file an income tax return for the particular
income.
The petitioner is mistaken.
RCBC erred in citing the abovementioned Revenue Regulations
No. 2-98 because the same governs collection at source on
income paid only on or after January 1, 1998. The deficiency
withholding tax subject of this petition was supposed to have
been withheld on income paid during the taxable years of 1994
and 1995. Hence, Revenue Regulations No. 2-98 obviously
does not apply in this case.
26
In Chamber of Real Estate and Builders’ Associations, Inc. v.
The Executive Secretary, the Court has explained that the
purpose of the withholding tax system is three-fold:
(1) to provide the taxpayer with a convenient way of
paying his tax liability;
(2) to ensure the collection of tax, and
(3) to improve the government’s cashflow. Under the
withholding tax system, the payor is the taxpayer upon
whom the tax is imposed, while the withholding agent simply
acts as an agent or a collector of the government to ensure
the collection of taxes.
It is, therefore, indisputable that the withholding agent is
merely a tax collector and not a taxpayer, as elucidated by this
Court in the case of Commissioner of Internal Revenue v. Court
of Appeals, to wit:
In the operation of the withholding tax system, the
withholding agent is the payor, a separate entity acting
no more than an agent of the government for the
collection of the tax in order to ensure its payments; the
payer is the taxpayer – he is the person subject to tax
imposed by law; and the payee is the taxing authority. In
other words, the withholding agent is merely a tax
collector, not a taxpayer. Under the withholding system,
however, the agent-payor becomes a payee by fiction of
law. His (agent) liability is direct and independent
from the taxpayer, because the income tax is still
imposed on and due from the latter. The agent is not
liable for the tax as no wealth flowed into him – he
earned no income. The Tax Code only makes the agent
personally liable for the tax arising from the breach of its
legal duty to withhold as distinguished from its duty to
pay tax since:
"the government’s cause of action against the
withholding agent is not for the collection of income
tax, but for the enforcement of the withholding
provision of Section 53 of the Tax Code, compliance
with which is imposed on the withholding agent and
not upon the taxpayer.”
Based on the foregoing, the liability of the withholding agent is
independent from that of the taxpayer. The former cannot be
made liable for the tax due because it is the latter who earned
the income subject to withholding tax. The withholding agent
is liable only insofar as he failed to perform his duty to withhold
the tax and remit the same to the government. The liability for
the tax, however, remains with the taxpayer because the gain
was realized and received by him.
While the payor-borrower can be held accountable for its
negligence in performing its duty to withhold the amount of tax
due on the transaction, RCBC, as the taxpayer and the one
which earned income on the transaction, remains liable for the
payment of tax as the taxpayer shares the responsibility of
making certain that the tax is properly withheld by the
withholding agent, so as to avoid any penalty that may arise
from the non-payment of the withholding tax due.
RCBC cannot evade its liability for FCDU Onshore Tax by
shifting the blame on the payor-borrower as the withholding
agent. As such, it is liable for payment of deficiency onshore
tax on interest income derived from foreign currency loans.
CIR v. ISABELA CULTURAL CORPORATION
G.R. No. 172231, February 12, 2007
Digest by Carla Louise Bayquen
What constitutes denial of protest or decision on
disputed assessment
BASED ON THE SYLLABUS OF ATTY. KRISKA MARNA A. BUENA, CPA
 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
Case: Petitioner Commissioner of Internal Revenue (CIR)
assails the September 30, 2005 Decision of the Court of
Appeals in CA-G.R. SP No. 78426 affirming the February 26,
2003 Decision of the Court of Tax Appeals (CTA) in CTA Case
No. 5211, which cancelled and set aside the Assessment
Notices for deficiency income tax and expanded withholding tax
issued by the Bureau of Internal Revenue (BIR) against
respondent Isabela Cultural Corporation (ICC).
Facts: The facts show that on February 23, 1990, ICC, a
domestic corporation, received from the BIR Assessment
Notice No. FAS-1-86-90-000680 for deficiency income
tax in the amount of P333,196.86, and Assessment Notice No.
FAS-1-86-90-000681 for deficiency expanded withholding tax
in the amount of P4,897.79, inclusive of surcharges and
interest, both for the taxable year 1986.
On March 23, 1990, ICC sought a reconsideration of the
subject assessments. On February 9, 1995, however, it
received a final notice before seizure demanding payment of
the amounts stated in the said notices. Hence, it brought the
case to the CTA which held that the petition is premature
because the final notice of assessment cannot be considered as
a final decision appealable to the tax court. This was reversed
by the Court of Appeals holding that a demand letter of the
BIR reiterating the payment of deficiency tax, amounts to a
final decision on the protested assessment and may therefore
be questioned before the CTA. This conclusion was sustained
by this Court on July 1, 2001, in G.R. No. 135210. The case
was thus remanded to the CTA for further proceedings.
February 26, 2003: CTA rendered a decision canceling and
setting aside the assessment notices issued against ICC.
It held that the claimed deductions for professional and security
services were properly claimed by ICC in 1986 because it was
only in the said year when the bills demanding payment were
sent to ICC. Hence, even if some of these professional services
were rendered to ICC in 1984 or 1985, it could not declare the
same as deduction for the said years as the amount thereof
could not be determined at that time.
Petitioner filed a petition for review with the Court of
Appeals, which affirmed the CTA decision, holding that
although the professional services (legal and auditing services)
were rendered to ICC in 1984 and 1985, the cost of the services
was not yet determinable at that time, hence, it could be
considered as deductible expenses only in 1986 when ICC
received the billing statements for said services. It further ruled
that ICC did not understate its interest income from the
promissory notes of Realty Investment, Inc., and that ICC
properly withheld and remitted taxes on the payments for
security services for the taxable year 1986.
Petitioner, through the Office of the Solicitor General,
filed the instant petition contending that since ICC is using
the accrual method of accounting, the expenses for the
professional services that accrued in 1984 and 1985, should
have been declared as deductions from income during the said
years and the failure of ICC to do so bars it from claiming said
expenses as deduction for the taxable year 1986. As to the
alleged deficiency interest income and failure to withhold
expanded withholding tax assessment, petitioner invoked the
presumption that the assessment notices issued by the BIR are
valid.
Issue: The issue for resolution is whether the Court of Appeals
correctly: (1) sustained the deduction of the expenses for
professional and security services from ICC’s gross income;
YES and (2) held that ICC did not understate its interest
income from the promissory notes of Realty Investment, Inc;
and that ICC withheld the required 1% withholding tax from
the deductions for security services. YES
27
Held: The requisites for the deductibility of ordinary and
necessary trade, business, or professional expenses, like
expenses paid for legal and auditing services, are: (a) the expense
must be ordinary and necessary; (b) it must have been paid or
incurred during the taxable year; (c) it must have been paid or
incurred in carrying on the trade or business of the taxpayer; and
(d) it must be supported by receipts, records or other pertinent
papers.
The requisite that it must have been paid or incurred during the
taxable year is further qualified by Section 45 of the National
Internal Revenue Code (NIRC) which states that: "[t]he deduction
provided for in this Title shall be taken for the taxable year in which
‘paid or accrued’ or ‘paid or incurred’, dependent upon the method
of accounting upon the basis of which the net income is computed
x x x".
Accounting methods for tax purposes comprise a set of rules for
determining when and how to report income and deductions. In the
instant case, the accounting method used by ICC is the
accrual method.
Revenue Audit Memorandum Order No. 1-2000, provides that
under the accrual method of accounting, expenses not being
claimed as deductions by a taxpayer in the current year when they
are incurred cannot be claimed as deduction from income for the
succeeding year. Thus, a taxpayer who is authorized to deduct
certain expenses and other allowable deductions for the current
year but failed to do so cannot deduct the same for the next year.
The accrual method relies upon the taxpayer’s right to receive
amounts or its obligation to pay them, in opposition to actual
receipt or payment, which characterizes the cash method of
accounting. Amounts of income accrue where the right to receive
them become fixed, where there is created an enforceable liability.
Similarly, liabilities are accrued when fixed and determinable in
amount, without regard to indeterminacy merely of time of
payment.
For a taxpayer using the accrual method, the determinative
question is, when do the facts present themselves in such a
manner that the taxpayer must recognize income or
expense? The accrual of income and expense is permitted when
the all-events test has been met. This test requires: (1) fixing of a
right to income or liability to pay; and (2) the availability of the
reasonable accurate determination of such income or liability.
The all-events test requires the right to income or liability be fixed,
and the amount of such income or liability be determined with
reasonable accuracy. However, the test does not demand that the
amount of income or liability be known absolutely, only that a
taxpayer has at his disposal the information necessary to compute
the amount with reasonable accuracy. The all-events test is
satisfied where computation remains uncertain, if its basis is
unchangeable; the test is satisfied where a computation may be
unknown, but is not as much as unknowable, within the taxable
year. The amount of liability does not have to be determined
exactly; it must be determined with "reasonable accuracy."
Accordingly, the term "reasonable accuracy" implies something less
than an exact or completely accurate amount.
The propriety of an accrual must be judged by the facts that a
taxpayer knew, or could reasonably be expected to have known, at
the closing of its books for the taxable year. Accrual method of
accounting presents largely a question of fact; such that the
taxpayer bears the burden of proof of establishing the accrual of an
item of income or deduction.
Corollarily, it is a governing principle in taxation that tax
exemptions must be construed in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority; and one who
claims an exemption must be able to justify the same by the
clearest grant of organic or statute law. An exemption from the
common burden cannot be permitted to exist upon vague
implications. And since a deduction for income tax purposes
partakes of the nature of a tax exemption, then it must also be
strictly construed.
BASED ON THE SYLLABUS OF ATTY. KRISKA MARNA A. BUENA, CPA
 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
In the instant case, the expenses for professional fees
consist of expenses for legal and auditing services. The
expenses for legal services pertain to the 1984 and 1985 legal
and retainer fees of the law firm Bengzon Zarraga Narciso
Cudala Pecson Azcuna & Bengson, and for reimbursement of
the expenses of said firm in connection with ICC’s tax problems
for the year 1984. As testified by the Treasurer of ICC, the firm
has been its counsel since the 1960’s.19 From the nature of
the claimed deductions and the span of time during which the
firm was retained, ICC can be expected to have reasonably
known the retainer fees charged by the firm as well as the
compensation for its legal services. The failure to determine
the exact amount of the expense during the taxable year when
they could have been claimed as deductions cannot thus be
attributed solely to the delayed billing of these liabilities by the
firm. For one, ICC, in the exercise of due diligence could have
inquired into the amount of their obligation to the firm,
especially so that it is using the accrual method of accounting.
For another, it could have reasonably determined the amount
of legal and retainer fees owing to its familiarity with the rates
charged by their long time legal consultant.
As previously stated, the accrual method presents largely a
question of fact and that the taxpayer bears the burden of
establishing the accrual of an expense or income. However, ICC
failed to discharge this burden. As to when the firm’s
performance of its services in connection with the 1984 tax
problems were completed, or whether ICC exercised
reasonable diligence to inquire about the amount of its liability,
or whether it does or does not possess the information
necessary to compute the amount of said liability with
reasonable accuracy, are questions of fact which ICC never
established. It simply relied on the defense of delayed billing
by the firm and the company, which under the circumstances,
is not sufficient to exempt it from being charged with
knowledge of the reasonable amount of the expenses for legal
and auditing services.
In the same vein, the professional fees of SGV & Co. for
auditing the financial statements of ICC for the year 1985
cannot be validly claimed as expense deductions in 1986. This
is so because ICC failed to present evidence showing that even
with only "reasonable accuracy," as the standard to ascertain
its liability to SGV & Co. in the year 1985, it cannot determine
the professional fees which said company would charge for its
services.
ICC thus failed to discharge the burden of proving that
the claimed expense deductions for the professional
services were allowable deductions for the taxable year
1986. Hence, per Revenue Audit Memorandum Order No. 1-
2000, they cannot be validly deducted from its gross income
for the said year and were therefore properly disallowed by the
BIR.
As to the expenses for security services, the records show that
these expenses were incurred by ICC in 198620 and could
therefore be properly claimed as deductions for the said year.
Anent the purported understatement of interest income from
the promissory notes of Realty Investment, Inc., we sustain
the findings of the CTA and the Court of Appeals that no
such understatement exists and that only simple
interest computation and not a compounded one should
have been applied by the BIR. There is indeed no stipulation
between the latter and ICC on the application of compounded
interest. Under Article 1959 of the Civil Code, unless there is a
stipulation to the contrary, interest due should not further earn
interest.
Likewise, the findings of the CTA and the Court of Appeals that
ICC truly withheld the required withholding tax from its claimed
deductions for security services and remitted the same to the
28
BIR is supported by payment order and confirmation receipts.
Hence, the Assessment Notice for deficiency expanded
withholding tax was properly cancelled and set aside.
In sum, Assessment Notice No. FAS-1-86-90-000680 in the
amount of P333,196.86 for deficiency income tax should be
cancelled and set aside but only insofar as the claimed
deductions of ICC for security services. Said Assessment is
valid as to the BIR’s disallowance of ICC’s expenses for
professional services. The Court of Appeal’s cancellation of
Assessment Notice No. FAS-1-86-90-000681 in the amount of
P4,897.79 for deficiency expanded withholding tax, is
sustained.
FALLO: WHEREFORE, the petition is PARTIALLY GRANTED. The
September 30, 2005 Decision of the Court of Appeals in CA-
G.R. SP No. 78426, is AFFIRMED with the MODIFICATION that
Assessment Notice No. FAS-1-86-90-000680, which disallowed
the expense deduction of Isabela Cultural Corporation for
professional and security services, is declared valid only insofar
as the expenses for the professional fees of SGV & Co. and of
the law firm, Bengzon Zarraga Narciso Cudala Pecson Azcuna
& Bengson, are concerned. The decision is affirmed in all other
respects.
The case is remanded to the BIR for the computation of Isabela
Cultural Corporation’s liability under Assessment Notice No.
FAS-1-86-90-000680.
CIR v. AYALA SECURITIES CORP. & CTA
G.R. No. L-29485, November 21, 1980
Digest by Hannah Keziah P. Dela Cerna
Topic: What constitutes denial of protest or decision on
disputed assessment?
IN THE CASE AT BAR: The letter of February 18, 1963, in the
view of the Court, is tantamount to a denial of the
reconsideration or protest of the respondent corporation on the
assessment made by the petitioner, considering that the said
letter is in itself a reiteration of the demand by the Bureau of
Internal Revenue for the settlement of the assessment already
made, and for the immediate payment of the sum of P758,
687.04 in spite of the vehement protest of the respondent
corporation on April 21, 1961. This certainly is a clear indication
of the firm stand of petitioner against the reconsideration of
the disputed assessment in view of the continued refusal of the
respondent corporation to execute the waiver of the period of
limitation upon the assessment in question.
Case: This case is an Appeal from the decision of the Court of
Tax Appeals dated June 20, 1968, in its CTA Case No. 1346,
cancelling and declaring of no force and effect the assessment
made by the petitioner, Commissioner of Internal Revenue,
against the accumulated surplus of the respondent, Ayala
Securities Corporation.
Facts:
On November 29, 1955, respondent Ayala Securities
Corporation, a domestic corporation organized and existing
under the laws of the Philippines, filed its income tax returns
with the office of the petitioner for its fiscal year which ended
on September 30, 1955. Attached to its income tax return was
the audited financial statements of the respondent corporation
as of September 30, 1955, showing a surplus of
P2,758,442.37. The income tax due on the return of the
respondent corporation was duly paid for within the time
prescribed by law.
Assessment on Accumulated Surplus
BASED ON THE SYLLABUS OF ATTY. KRISKA MARNA A. BUENA, CPA
 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
In a letter dated February 21, 1961, petitioner advised the
respondent corporation of the assessment of P758.687.04 on
its accumulated surplus reflected on its income tax return for
the fiscal year which ended September 30, 1955.
Protest
The respondent corporation, on the other hand, in a letter
dated April 19, 1961, protested against the assessment on its
retained and accumulated surplus pertaining to the taxable
year 1955 and sought reconsideration thereof for the
reasons:
(1) that the accumulation of the surplus was for a bona fide
business purpose and not to avoid the imposition of income tax
on the individual shareholders, and
(2) that the said assessment was issued beyond the five-year
prescriptive period.
On May 30, 1961, petitioner wrote respondent
corporation's auditing and accounting firm with the
"advise that your request for reconsideration will be the
subject matter of further reinvestigation and a thorough
analysis of the issues involved conditioned, however, upon the
execution of your client of the enclosed form for waiver of the
defense of prescription". However, respondent corporation did
not execute the requested waiver of the statute of limitations,
considering its claim that the assessment in question had
already prescribed.
On February 21, 1963, respondent corporation received a letter
dated February 18, 1963, from the Chief, Manila Examiners, of
the Office of the herein petitioner, calling the attention of the
respondent corporation to its outstanding and unpaid tax in the
amount of P708,687.04 and thereby requesting for the
payment of the said amount within five (5) days from receipt
of the said letter (Exh. G). Believing the aforesaid letter to
be a denial of its protest, the herein respondent
corporation filed with the Court of Tax Appeals a Petition
for Review of the assessment, docketed as CTA Case No.
1346.
Petition for Review
Respondent corporation in its Petition for Review alleges that
the assessment made by petitioner Commissioner of Internal
Revenue is illegal and invalid considering that
(1) the assessment in question, having been issued only on
February 21, 1961, and received by the respondent corporation
on March 22, 1961, the same was issued beyond the five-year
period from the date of the filing of respondent corporations
income tax return November 29, 1955, and, therefore,
petitioner's right to make the assessment has already
prescribed, pursuant to the provision of Section 331 of the
National Internal Revenue Code; and
(2) the respondent corporation's accumulation of surplus for
the taxable year 1955 was not improper, considering that the
retention of such surplus was intended for legitimate business
purposes and was not availed of by the corporation to prevent
the imposition of the income tax upon its shareholders.
Petitioner’s Answer
Petitioner in his answer alleged that the assessment made by
his office on the accumulated surplus of the corporation as
reflected on its income tax return for the taxable year 1955 has
not as yet prescribed and, further, that the respondent
corporation's accumulation of surplus for the taxable year 1955
was improper as the retention of such surplus was availed of
by the corporation to prevent the imposition of the income tax
upon the individual shareholders or members of the said
corporation.
CTA Decision
After trial the Court of Tax Appeals rendered its decision of June
20, 1968, the dispositive portion of which is as follows:
29
WHEREFORE, the decision of the respondent Commissioner
of Internal Revenue assessing petitioner the amount of
P758,687.04 as 25 surtax and interest is reversed.
Accordingly, said assessment of respondent for 1955 is
hereby cancelled and declared of no force and effect.
Without pronouncement as to costs.
Petitioner’s Contention that is relevant to topic)
➢ Petitioner maintains that respondent Court of Tax
Appeals erred in holding that the letter dated
February 18, 1963 is a denial of the private
respondent corporation's protest against the
assessment, and as such, is a decision contemplated
under the provisions of Sections 7 and 11 of Republic Act
No. 1125. Petitioner contends that the letter dated
February 18, 1963, is merely an ordinary office
letter designed to remind delinquent taxpayers of
their obligations to pay their taxes to the Government
and, certainly, not a decision on a disputed or protested
assessment contemplated under Section 7(1) of R.A.
1125.
Issue 1 (related to topic): Whether or not the letter dated
February 18, 1963 is tantamount to a denial of the
reconsideration of the protest. -YES.
The letter of February 18, 1963, in the view of the Court, is
tantamount to a denial of the reconsideration or protest of the
respondent corporation on the assessment made by the
petitioner, considering that the said letter is in itself a
reiteration of the demand by the Bureau of Internal
Revenue for the settlement of the assessment already
made, and for the immediate payment of the sum of P758,
687.04 in spite of the vehement protest of the respondent
corporation on April 21, 1961. This certainly is a clear indication
of the firm stand of petitioner against the reconsideration of
the disputed assessment in view of the continued refusal of the
respondent corporation to execute the waiver of the period of
limitation upon the assessment in question.
This being so, the said letter amounts to a decision on a
disputed or protested assessment and, therefore, the court a
quo did not err in taking cognizance of this case.
OTHER ISSUES NOT RELATED TO TOPIC (you can skip
this but just in case Ma’am asks)
Issue 2 (not related to topic, just in case):
Whether Sec. 331 of the NIRC which provides for a five-year
period of prescription of assessment from the filing of the
return or Section 332(a) of the same Code which provides
for a ten-year period of limitation applies.
-SECTION 331 APPLIES, NOT 332(A).
Held:
No Evidence of Fraud or Falsity With Intent to Evade. -
There is no iota of evidence presented by the petitioner as to
any fraud or falsity on the return with intent to evade payment
of tax, not even in the income tax assessment nor in the letter-
decision of February 18, 1963, nor in his answer to the petition
for review. Petitioner merely relies on the provisions of Sec 25
of the National Internal Revenue Code, violation of which,
according to Petitioner, presupposes the existence of fraud. But
this is begging the question and We do not subscribe to the
view of the petitioner.
Fraud is a Question of Fact; Must be Proved. - Fraud is a
question of fact and the circumstances constituting fraud must
be alleged and proved in the court below. The finding of the
trial court as to its existence and non- existence is final and
cannot be reviewed here unless clearly shown to be erroneous.
BASED ON THE SYLLABUS OF ATTY. KRISKA MARNA A. BUENA, CPA
 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
Fraud is never lightly to be presumed because it is serious
charge.
The applicable provision of law in this case is Section 331 of
the National Internal Revenue Code, to wit:
SEC. 331. Period of limitation upon assessment and
collection. — Except as provided in the succeeding section,
internal revenue taxes shall be assessed within five years
after the return was filed, and no proceeding in court without
assessment for the collection of such taxes shall be begun
after the expiration of such period. For the purposes of this
section, a return filed before the last day prescribed by law
for the filing thereof shall be considered as filed on such last
day: Provided, That this limitation shall not apply to cases
already investigated prior to the approval of this Code.
Under Section 46(d) of the National Internal Revenue Code,
the Ayala Securities Corporation designated September 30,
1955, as the last day of the closing of its fiscal year, and under
Section 46(b) the income tax returns for the said corporation
shall be filed on or before the fifteenth (15th) day of the fourth
(4th) month following the close of its fiscal year. The Ayala
Securities Corporation could, therefore, file its income tax
returns on or before January 15, 1956. The assessment by the
Commissioner of Internal Revenue shall be made within five
(5) years from January 15, 1956, or not later than January 15,
1961, in accordance with Section 331 of the National Internal
Revenue Code herein above-quoted.
Issue 3 (not related to topic, just in case): Whether or not the
respondent Court of Tax Appeals committed a reversible
error in not making any ruling on the reasonableness or
unreasonableness of the accumulated profits or surplus in
question of the private respondent corporation. -NO.
Held:
As the assessment issued on February 21, 1961, which was
received by the Ayala Securities Corporation on March 22,
1961, was made beyond the five-year period prescribed under
Section 331 of said Code, the same was made after the
prescriptive period had expired and, therefore, was no
longer binding on the Ayala Securities Corporation.
This Court is of the opinion that the respondent court
committed no reversible error in not making any ruling on the
reasonableness or unreasonableness of the accumulated
profits or surplus of the respondent corporation.
For this reason, We are of the view that after reaching the
conclusion that the right of the Commissioner of Internal
Revenue to assess the 25% surtax had already
prescribed under Section 331 of the National Internal
Revenue Code, to delve further into the reasonableness
or unreasonableness of the accumulated profits or
surplus of the respondent corporation for the fiscal year
ending September 30, 1955, will only be an exercise in
futility.
SURIGAO ELECTRIC CO., INC., v. CA
G.R. No. L-25289 June 28, 1974
By Francis Jeric L. Emuy
Surigao Electric Co., Inc., received a warrant of distraint and
levy to enforce the collection from "Mainit Electric" of a
deficiency franchise tax plus surcharge in the total amount of
P718.59. The petitioner contested this warrant, stating that it
did not have a franchise in Mainit, Surigao.
Subsequently, the petitioner asked for reconsideration of the
assessment, admitting liability only for the 2% franchise tax in
accordance with its legislative franchise and not at the higher
30
rate of 5% imposed by section 259 of the National Internal
Revenue Code, as amended, which latter rate the Auditor
General used as basis in computing the petitioner's deficiency
franchise tax.
Then a revised assessment dated April 29, 1963 was received
by the petitioner on May 8, 1963 in the amount of P11,533.53,
representing the petitioner's deficiency franchise-tax and
surcharges thereon for the period from April 1, 1956 to June
30, 1959. The petitioner then requested a recomputation of the
revised assessment in a letter to the Commissioner dated June
6, 1963 (sent by registered mail on June 7, 1963). The
Commissioner, however, in a letter dated June 28, 1963
(received by the petitioner on July 16, 1963) denied the
request for recomputation.
The petitioner appealed to the Court of Tax Appeals. The tax
court dismissed the appeal on October 1, 1965 on the ground
that the appeal was filed beyond the thirty-day period of appeal
provided by section 11 of Republic Act 1125.
Issue: whether or not the petitioner's appeal to the Court of
Tax Appeals was time-barred
Ruling: Yes
The letter of demand issued by the Commissioner on April 29,
1963 and received by the petitioner on May 8, 1963 constitutes
the definite determination of the petitioner's deficiency
franchise tax liability or the decision on the disputed
assessment and, therefore, the decision appealable to the tax
court. This letter of April 29, 1963 was in response to the
communications of the petitioner, particularly the letter of
August 2, 1962 wherein it assailed the 4th Indorsement's data
and findings on its deficiency, franchise tax liability computed
at 5% (on the ground that its franchise precludes the
imposition of a rate higher than the 2% fixed in its legislative
franchise), and the letter of April 24, 1963 wherein it again
questioned the assessment and requested for a recomputation
(on the ground that the Government could make an
assessment only for the period from May 29, 1956 to June 30,
1959). Thus, as early as August 2, 1962, the petitioner already
disputed the assessment made by the Commissioner.
Moreover, the letter of demand dated April 29, 1963
unquestionably constitutes the final action taken by the
Commissioner on the petitioner's several requests for
reconsideration and recomputation. In this letter, the
Commissioner not only in effect demanded that the petitioner
pay the amount of P11,533.53 but also gave warning that in
the event it failed to pay, the said Commissioner would be
constrained to enforce the collection thereof by means of the
remedies provided by law. The Court has considered the
following communications sent by the Commissioner to
taxpayers as embodying rulings appealable to the tax court:
(a) a letter which stated the result of the
investigation requested by the taxpayer and the
consequent modification of the assessment;
(b) (b) letter which denied the request of the
taxpayer for the reconsideration cancellation, or
withdrawal of the original assessment
(c) (c) a letter which contained a demand on the
taxpayer for the payment of the revised or
reduced assessment; and
(d) (d) a letter which notified the taxpayer of a
revision of previous assessments.
The revised assessment embodied in the Commissioner's letter
dated April 29, 1963 being, in legal contemplation, the final
ruling reviewable by the tax court, the thirty-day appeal period
should be counted from May 8, 1963 (the day the petitioner
received a copy of the said letter). From May 8, 1963 to June
7, 1963 (the day the petitioner, by registered mail, sent to the
Commissioner its letter of June 6, 1963 requesting for further
recomputation of the amount demanded from it) saw the lapse
BASED ON THE SYLLABUS OF ATTY. KRISKA MARNA A. BUENA, CPA
 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
of thirty days. The June 6, 1963 request for further
recomputation, partaking of a motion for reconsideration,
tolled the running of the thirty-day period from June 7, 1963
(the day the petitioner sent its letter by registered mail) to July
16, 1963 (the day the petitioner received the letter of the
Commissioner dated June 28, 1963 turning down its request).
The prescriptive period commenced to run again on July 16,
1963. The petitioner filed its petition for review with the tax
court on August 1, 1963 — after the lapse of an additional
sixteen days. The petition for review having been filed beyond
the thirty-day period, we rule that the Court of Tax Appeals
correctly dismissed the same.
CIR v. UNION SHIPPING CORPORATION
GR No. L-66160, May 21, 1990
Digest by Anna Sophia Tarhata Piang
Topic: What constitutes denial of protest or decision on
disputed assessment?
Facts: In a letter dated December 27, 1974, herein petitioner
Commissioner of Internal Revenue assessed against Yee Fong
Hong, Ltd. and/or herein private respondent Union Shipping
Corporation, the total sum of P583,155.22 as deficiency income
taxes due for the years 1971 and 1972. Said letter was
received on January 4, 1975.
In a letter dated January 10, 1975 (Exhibit "B"), received by
petitioner on January 13, 1975, private respondent protested
the assessment.
Petitioner, without ruling on the protest, issued a Warrant of
Distraint and Levy, which was served on private respondent's
counsel, Clemente Celso, on November 25, 1976.
In a letter dated November 27, 1976, received by petitioner on
November 29, 1976, private respondent reiterated its request
for reinvestigation of the assessment and for the
reconsideration of the summary collection thru the Warrant of
Distraint and Levy.
Petitioner, again, without acting on the request for
reinvestigation and reconsideration of the Warrant of Distraint
and Levy, filed a collection suit before Branch XXI of the then
Court of First Instance of Manila and docketed as Civil Case No.
120459 against private respondent. Summons in the said
collection case was issued to private respondent on December
28, 1978.
On January 10, 1979, private respondent filed with respondent
court its Petition for Review of the petitioner's assessment of
its deficiency income taxes in a letter dated December 27,
1974, docketed therein as CTA Case No. 2989, wherein it prays
that after hearing, judgment be rendered holding that it is not
liable for the payment of the income tax herein involved, or
which may be due from foreign shipowner Yee Fong Hong, Ltd.;
to which petitioner filed his answer on March 29, 1979 (Rollo,
pp. 50-53).
Respondent Tax Court, in a decision dated December 9, 1983,
ruled in favor of private respondent —
WHEREFORE, the decision of the Commissioner of
Internal Revenue appealed from, assessing against
and demanding from petitioner the payment of
deficiency income tax, inclusive of 50% surcharge,
interest and compromise penalties, in the amounts of
P73,958.76 and P583,155.22 for the years 1971 and
1972, respectively, is reversed.
Contention of the Petitioner: Its issuance of the Warrant
of Distraint and Levy was proof of the finality of the
31
assessment and is tantamount to an outright denial of a
motion for reconsideration of the assessment.
Issue: When did the period to appeal to the Court of Tax
Appeals commence to run? - When the petitioner filed a
civil suit for collection of deficiency income taxes.
CONNECTED TO THIS ISSUE IS THE QUESTION:
In this case, what constituted the Commissioner’s denial of
the protest? – His institution of the civil case for
collection of deficiency taxes.
Held:
The Commissioner did not rule on the motion for
reconsideration
There appears to be no dispute that petitioner did not rule on
private respondent’s motion for reconsideration but left private
respondent in the dark as to which action of the Commissioner
is the decision appealable to the Court of Tax Appeals. Had he
categorically stated that he denies private respondent’s motion
for reconsideration and that his action constitutes his final
determination on the disputed assessment, private respondent
without needless difficulty would have been able to determine
when his right to appeal accrues and the resulting confusion
would have been avoided.
The issuance of warrants of distraint are not
appealable to the CTA
The Court has ruled that the reviewable decision of the Bureau
of Internal Revenue is that contained in the letter of its
Commissioner, that such constitutes the final decision on the
matter which may be appealed to the Court of Tax Appeals and
not the warrants of distraint (Advertising Associates, Inc. v.
Court of Appeals, 133 SCRA 769 [1984] emphasis supplied). It
was likewise stressed that the procedure enunciated is
demanded by the pressing need for fair play, regularity and
orderliness in administrative action.
Under the circumstances, the Commissioner of Internal
Revenue, not having clearly signified his final action on
the disputed assessment, legally the period to appeal
has not commenced to run. Thus, it was only when
private respondent received the summons on the civil
suit for collection of deficiency income on December 28,
1978 that the period to appeal commenced to run.
The request for reinvestigation and reconsideration was
in effect considered denied by petitioner when the latter
filed a civil suit for collection of deficiency income. So,
that on January 10, 1979 when private respondent filed the
appeal with the Court of Tax Appeals, it consumed a total of
only thirteen (13) days well within the thirty-day period to
appeal pursuant to Section 11 of R.A. 1125.
Issue: On the merits, whether or not Union Shipping
Corporation acting as a mere "husbanding agent" of Yee Fong
Hong Ltd. is liable for payment of taxes on the gross receipts
or earnings of the latter. – No.
Held:
On the merits, it was found fully substantiated by the Court of
Tax Appeals that, respondent corporation is the husbanding
agent of the vessel Yee Fong Hong, Ltd. as follows:
Coming to the second issue, petitioner contended and
was substantiated by satisfactory uncontradicted
testimonies of Clemente Celso, Certified Public
Accountant, and Rodolfo C. Cabalquinto, President
and General Manager, of petitioner that it is actually
and legally the husbanding agent of the vessel of Yee
BASED ON THE SYLLABUS OF ATTY. KRISKA MARNA A. BUENA, CPA
 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
Fong Hong, Ltd. as (1) it neither performed nor
transacted any shipping business, for and in
representation, of Yee Fong Hong, Ltd. or its vessels
or otherwise negotiated or procured cargo to be
loaded in the vessels of Yee Fong Hong, Ltd. (p. 21,
t.s.n., July 16, 1980); (2) it never solicited or
procured cargo or freight in the Philippines or
elsewhere for loading in said vessels of Yee Fong
Hong, Ltd. (pp. 21 & 38, ibid.); (3) it had not collected
any freight income or receipts for the said Yee Fong
Hong, Ltd. (pp. 22 & 38, ibid; pp. 46 & 48, t.s.n., Nov.
14, 1980.); (4) it never had possession or control,
actual or constructive, over the funds representing
payment by Philippine shippers for cargo loaded on
said vessels (pp. 21 & 38, ibid; p. 48, ibid); petitioner
never remitted to Yee Fong Hong, Ltd. any sum of
money representing freight incomes of Yee Fong
Hong, Ltd. (p. 21, ibid.; p. 48, ibid); and (5) that the
freight payments made for cargo loaded in the
Philippines for foreign destination were actually paid
directly by the shippers to the said Yee Fong Hong,
Ltd. upon arrival of the goods in the foreign ports.
(Rollo, pp. 58-59).
On the same issue, the Commissioner of Internal Revenue
Misael P. Vera, on query of respondent's counsel, opined that
respondent corporation being merely a husbanding agent is
not liable for the payment of the income taxes due from
the foreign ship owners loading cargoes in the
Philippines (Rollo, p. 63; Exhibit "I", Rollo, pp. 64-66).
Neither can private respondent be liable for withholding
tax under Section 53 of the Internal Revenue Code since
it is not in possession, custody or control of the funds
received by and remitted to Yee Fong Hong, Ltd., a non-
resident taxpayer. As correctly ruled by the Court of Tax
Appeals, "if an individual or corporation like the
petitioner in this case, is not in the actual possession,
custody, or control of the funds, it can neither be
physically nor legally liable or obligated to pay the so-
called withholding tax on income claimed by Yee Fong
Hong, Ltd." (Rollo, p. 67).
Finally, it must be stated that factual findings of the Court of
Tax Appeals are binding on this Court (Industrial Textiles
Manufacturing Company of the Phil., Inc. (ITEMCOP) v.
Commissioner of Internal Revenue, et al. (136 SCRA 549
[1985]). It is well-settled that in passing upon petitions for
review of the decisions of the Court of Tax Appeals, this Court
is generally confined to questions of law. The findings of fact of
said Court are not to be disturbed unless clearly shown to be
unsupported by substantial evidence (Commissioner of
Internal Revenue v. Manila Machinery & Supply Company, 135
SCRA 8 [1985]).
CIR v. ALGUE, INC.
GR L-28896, February 17, 1988
Digest by Reginald Matt Santiago
Topic: What constitutes denial of protest?
Doctrine: Special circumstances that warrants exception to
the rule that a warrant of distraint or levy renders a final
denial of protest.
Facts: Algue, Inc. is a domestic corporation engaged in the
engineering, construction and other allied activities. Algue
received a letter from CIR assessing it for delinquency income
taxes for TY 1958 and 1959 it received January 14, 1965.
32
On January 18, 1965, Algue filed a Letter of Protest or
request for reconsideration which was received the same day.
On March 12, 1965, a warrant of distraint and levy was
presented to the Algue, Inc. who was represented by its
counsel who refused to receive such on the ground that there
was a pending protest. But in the dockets, the protest was not
found. The counsel produced his file copy and gave a photocopy
who deferred service of the warrant.
On April 7, 1965, the counsel informed that BIR was not
taking any action on the protest and it was only then he
accepted the warrant od distraint.
On April 23, 1965, Algue filed a Petition for Review of the
decision of the Commissioner on Internal Revenue with the
Court of Tax Appeals.
Issue: Was the action timely filed? – Yes.
Held: (1) General Rule, A Warrant of Distraint is a Proof
of Finality of Assessment. - It is true that as a rule the
warrant of distraint and levy is "proof of the finality of the
assessment" and renders hopeless a request for
reconsideration," being "tantamount to an outright denial
thereof and makes the said request deemed rejected."
(2) Special Circumstance Prevents General Rule. - But
there is a special circumstance in the case at bar that prevents
application of this accepted doctrine. The proven fact is that
four days after the Algue, Inc. received the petitioner's notice
of assessment, it filed its letter of protest.
This was apparently not taken into account before the
warrant of distraint and levy was issued; indeed, such
protest could not be located in the office of the petitioner. It
was only after Atty. Guevara gave the BIR a copy of the protest
that it was, if at all, considered by the tax authorities. During
the intervening period, the warrant was premature and could
therefore not be served. As the Court of Tax Appeals correctly
noted," the protest filed by private respondent was not pro
forma and was based on strong legal considerations. It thus
had the effect of suspending on January 18, 1965, when it was
filed, the reglementary period which started on the date the
assessment was received, viz., January 14, 1965.
The period started running again only on April 7, 1965, when
the private respondent was definitely informed of the
implied rejection of protest and warrant finally served on it.
Hence, when the appeal was filed on April 23, 1965, only 20
days of the reglementary period had been consumed.
[Unrelated] Issue: Was the deduction proper?
CIR: The P75,000 deduction was properly disallowed because
it was not an ordinary reasonable business expense.
➢ The payments were fictitious because most of the
payees are members of the same family in control of
Algue.
CTA & Algue: Legitimate for payment of actual services for
promotional fees.
Held: (3) Deductions were proper. – The suspicions were
adequately met when the President of Algue testified that the
payments were not made in one lump but periodically and in
different amounts. This is a family corporation were strict
business procedures were not applied. Each payee still made
an accounting of all of the fees received.
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 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
The promotional fees was not excessive. There was a clear
profit from the transaction as the P75,000 was 60% of the total
commission. This was a reasonable proportion.
But even as we concede the inevitability and indispensability of
taxation, it is a requirement in all democratic regimes that it
be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain
and the courts will then come to his succor. For all the awesome
power of the tax collector, he may still be stopped in his tracks
if the taxpayer can demonstrate, as it has here, that the law
has not been observed.
We hold that the appeal of the private respondent from the
decision of the petitioner was filed on time with the respondent
court in accordance with Rep. Act No. 1125. And we also find
that the claimed deduction by the private respondent was
permitted under the Internal Revenue Code and should
therefore not have been disallowed by the petitioner.
CENTRAL CEMENT vs CIR
C.T.A Case No. 4312. September 1, 1993
Digest by Kristal Charmaine F. Alaban
Topic: What constitutes denial of protest or decision on
disputed assessment?
Facts:
On A letter from the BIR dated March 9, 1988 was received by
petitioner on even date informing it of a proposed (tentative)
assessment for alleged deficiency income tax for fiscal year
ended June 30, 1987 in the total amount of P4,202,118. 00,
inclusive of interest computed up to March 15, 1988. A period
of ten days from receipt thereof was given petitioner within
which to dispute the proposed assessment otherwise, it would
become final and the necessary formal assessment notice will
be issued.
Petitioner seasonably responded to respondent's letter on
March 18, 1988 (9 days from receipt of letter) by disputing the
proposed assessment.
There was no reply to petitioner's letter; instead, another letter
from the BIR dated May 13, 1988 was received by petitioner
on May 19, 1988. This time the proposed assessment
amounted to P5,404,339.50, including a 25% surcharge and
20% per annum interest. Comprising the aforesaid assessment
are deficiency income tax of P5,400,847.99 and deficiency
expanded withholding tax of P3, 491.62. Again petitioner was
granted ten days from receipt thereof to dispute the proposed
assessment otherwise, it becomes "final and executory".
On May 27, 1988 or 8 days from receipt of letter, petitioner
through a letter of even date expressed vehement objections
to the proposed assessment and requested that it be reviewed,
reconsidered and thereafter withdrawn.
Instead of a reply thereto, petitioner received on September
20, 1988 from the BIR a final assessment notice for alleged
deficiency income tax and expanded withholding tax.
A protest was lodged by petitioner with the CIR on September
23, 1988. While awaiting resolution of the protest an undated
Warrant of Levy on Real Property and an undated Warrant of
Distraint of Personal Property were served o petitioner on
December 1, 1988. Undated Warrant of Garnishment were
likewise served on 2 of petitioner’s depository banks on
December 6, 1988.
33
Petitioner assailed the issuance of the warrants and sought
their recall in a letter filed with respondent on December 12,
1988 on the ground that the warrants are null and void
for having been issued prematurely and in violation of
the taxpayer 's right to due process, the protest filed not
having been acted upon by respondent.
The warrants were not recalled by respondent despite the
petitioner's insistence. In view thereof, petitioner filed with the
CTA on December 15, 1988 the instant petition for review with
urgent motion for injunction. It is respectfully prayed that the
assessment be set aside for lack of legal and factual basis and
that respondent be restrained from enforcing the warrants in
question for being null and void.
Earlier, the CTA found the issuance of warrants of distraint and
levy and warrants of garnishment in violation of Section 207 of
the National Internal Revenue Code which only authorizes the
issuance of warrants "not earlier than three months nor later
than six months from receipt of the demand”.
In its "Answer" dated February 24, 1989, respondent reiterated
the propriety of its assessments for deficiency income and
expanded withholding taxes and prayed to the CTA that
petitioner be ordered to pay the same.
ISSUE: Whether or not this Court has jurisdiction over
this case.
CIR’s contention: Court has not acquired jurisdiction to act
on this petition. He claims there is no decision yet on
petitioner's protest. His issuance of the warrants of distraint,
levy and garnishment allegedly does not constitute a decision
on the protest which is appealable to the Court of Tax Appeals.
SC: However, the matter of jurisdiction was neither raised by
respondent in his “Answer" nor in the trial on the merits of this
case. In fact. respondent through counsels actively participated
in the proceedings be:fore this Court which run for over two
years without being heard to question the Court's jurisdiction.
It was only when the case was submitted for decision that
respondent raised first time in its memorandum that this Court
is without jurisdiction.
Jurisdiction is the authority to hear and determine a cause —
the right to act in a case. It is the power and authority
conferred on a court by the constitution and laws to hear and
determine causes between parties and to carry its judgments
into effect. In determining whether a case lies within or outside
the jurisdiction of a court resort to the consequent statutory
enactment is indispensable. Towards this end, what is crucial
in the determination of the jurisdiction of the court is the
averments in the pleadings taken as a whole. Once jurisdiction
is acquired it continues until the case is finally terminated.
While lack of jurisdiction may be assailed at any stage,
a party’s active participation in the proceedings before
the court without jurisdiction will estop such party from
assailing such lack of jurisdiction. One who subjects
himself to the jurisdiction of a court, even where he would not
otherwise be subject to suit, becomes subject to any valid claim
asserted against him directly relating to the subject of his
voluntarily initiated proceeding. To permit one to invoke the
exercise of jurisdiction within the general powers of the court
and then to reverse its orders upon the ground that it had no
jurisdiction would be to allow one to trifle with courts. The
principle is one of estoppel in the interest of a sound
administration of the laws.
In the case at bar, the warrants of distraint, levy and
garnishment were issued by respondent knowing fully well that
the deficiency assessments were under protest by petitioner.
Even when the issuance of the warrants were objected to by
BASED ON THE SYLLABUS OF ATTY. KRISKA MARNA A. BUENA, CPA
 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
petitioner for being in violation of the Tax Code, respondent did
not lift said warrants. It is by respondent's own doing that
administrative remedies available to petitioner were effectively
shut-off thereby, leaving petitioner with no recourse but to
seek relief from the CTA.
Taking cognizance of the petition for review with urgent motion
for injunction, this Court found found the aforesaid motion
meritorious and granted the same. Respondents were enjoined
from enforcing the warrants pending "final determination" of
the case. At this time, there was no objection on the part of
respondent. In its "Answer" it reiterated its assessments and
prayed that this Court order petitioner to pay the same. In the
subsequent proceedings before the CTA which lasted for over
a couple of years and where respondent actively participated,
the question of jurisdiction was never raised. By its own acts,
respondent at the very least recognized this court's jurisdiction
over the case and voluntarily submitted to it authority. It is
therefore estopped from assailing this court's jurisdiction over
the case. Accordingly, it cannot be allowed now to deny this
court's jurisdiction, for do so would be to make a mockery of
the law and judicial process. ) We now proceed to look into the
merits of the
deficiency income tax assessment of P5, 890, 067. 67. This was
principally on account of the alleged unexplained increase in
net worth of P9, 096, 889. 00 and disallowed expenses of
P5,281,345.00.
ISSUE: Whether or not the assessment of the petitioner for
deficiency income tax and deficiency expanded withholding tax
is correct. NO. The deficiency income tax assessment earlier
issued to Central Cement Corporation was ordered cancelled
for lack of merit. However, petitioner was still ordered to pay
deficiency expanded withholding tax plus delinquency interest.
In determining the correctness of the assessment, the CTA
considered the following:
Unexplained increase in net worth — There is no legal
basis for respondent to assess petitioner for deficiency
income tax on account of the discrepancy arising from a
recomputation of the net worth as of June 30, 1986. The
same is still covered by the immunity granted by said tax
amnesty law. Even then, the alleged unexplained increase
in net worth has been accounted as well as amply
explained and substantiated by petitioner
Disallowed expenses claimed — Petitioner's
explanation of the discrepancy was not given credence by
respondent allegedly on account of its failure to
substantiate the same. The records of the case belie such
allegation as petitioner has in fact submitted proof
supporting its accounting of the difference noted,
Bonus paid to PNOC — The basis in disallowing the
above is that they allegedly pertain to bonuses paid to
PNOC employees and there is no justification for it. The
best evidence which under the circumstances affords the
greatest certainty of establishing the fact in question are
the vouchers alluded to by the BIR examiner. However,
petitioner who has possession of said documents did not
produce them instead, it capitalized on the supply contract
which does not even suffice to overcome the presumption
of correctness of the BIR findings. Hence, the disallowance
is valid.
ADVERTISING ASSOCIATES INC. v. CA
G.R. No. L-59758 December 26, 1984
Digest by Carla Louise Bayquen
What constitutes denial of protest or decision on
disputed assessment
34
Facts: Advertising Associates alleged that it sold in 1949 its
advertising agency business to Philippine Advertising
Counsellors, that its business is limited to the making,
construction and installation of billboards and electric signs and
making and printing of posters, signs, handbills, etc. It
contends that it is a media company, not an advertising
company.
It paid sales taxes for selling billboards, electric signs,
calendars, posters, etc., realty dealer's tax for leasing
billboards and electric signs and 3% contractor's tax for
repairing electric signs as it was subjected to the same by the
CIR.
The Commissioner required Advertising Associates to pay
P297,927.06 and P84,773.10 as contractor's tax for 1967-1971
and 1972, respectively, including 25% surcharge (the latter
amount includes interest) on its income from billboards and
neon signs.
The basis of the assessment is the fact that the taxpayer's
articles of incorporation provide that its primary purpose is to
engage in general advertising business. Its income tax returns
indicate that its business was advertising.
Advertising Associates contested the assessments in its
'letters of June 25, 1973 and March 7, 1974. The Commissioner
reiterated the assessments in his letters of July 12 and
September 16,1974.
The taxpayer requested the cancellation of the
assessments in its letters of September 13 and November 21,
1974. Inexplicably, for about four years there was no
movement in the case. Then, on March 31, 1978, the
Commissioner resorted to the summary remedy of
issuing two warrants of distraint, directing the collection
enforcement division to levy on the taxpayer's personal
properties as would be sufficient to satisfy the deficiency taxes.
The warrants were served upon the taxpayer on April 18 and
May 25, 1978.
More than a year later, Acting Commissioner Efren I. Plana
wrote a letter dated May 23, 1979 in answer to the requests of
the taxpayer for the cancellation of the assessments and the
withdrawal of the warrants of distraint.
He justified the assessments by stating that the rental income
of Advertising Associates from billboards and neon signs
constituted fees or compensation for its advertising services.
He requested the taxpayer to pay the deficiency taxes within
ten days from receipt of the demand; otherwise, the Bureau
would enforce the warrants of distraint. He closed his demand
letter with this paragraph:
This constitutes our final decision on the matter. If you are not
agreeable, you may appeal to the Court of Tax Appeals within
30 days from receipt of this letter.
Advertising Associates received that letter on June 18, 1979.
Nineteen days later or on July 7, it filed its petition for review.
In its resolution of August 28, 1979, the Tax Court enjoined the
enforcement of the warrants of distraint.
The Tax Court did not resolve the case on the merits. It ruled
that the warrants of distraint were the Commissioner's
appealable decisions. Since Advertising Associates appealed
from the decision of May 23, 1979, the petition for review was
filed out of time. It was dismissed. The taxpayer appealed to
this Court.
(Procedure) Held: We hold that the petition for review was
filed on time. The reviewable decision is that contained in
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 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019 35

Commissioner Plana's letter of May 23, 1979 and not the

warrants of distraint.
No amount of quibbling or sophistry can blink the fact that said
letter, as its tenor shows, embodies the Commissioner's final
decision within the meaning of section 7 of Republic Act No.
1125. The Commissioner said so. He even directed the
taxpayer to appeal it to the Tax Court.
The directive is in consonance with this Court's dictum that the
Commissioner should always indicate to the taxpayer in clear
and unequivocal language what constitutes his final
determination of the disputed assessment. That procedure is
demanded by the pressing need for fair play, regularity and
orderliness in administrative action.
Substantial Issue: Whether or not petitioner is neither an
independent contractor nor a business agent. NO
On the merits of the case, the petitioner relies on the Collector's
rulings dated September 12, 1960 and June 20, 1967 that it is
neither an independent contractor nor a business agent
IN THE CASE AT BAR: This Court holds that the Collection Letter
dated July 9, 2004 constitutes the final decision of the
Commissioner that is appealable to the Court of Tax Appeals. The
Collection Letter dated July 9, 2004 demanded from Avon the
payment of the deficiency tax assessments with a warning that
should it fail to do so within the required period, summary
administrative remedies would be instituted without further notice.
The Collection Letter was purportedly based on the May 27, 2004
Memorandum of the Revenue Officers stating that Avon "failed to
submit supporting documents within 60-day period." This Collection
Letter demonstrated a character of finality such that there can be
no doubt that the Commissioner had already made a conclusion to
deny Avon's request and she had the clear resolve to collect the
subject taxes.
In any case, even if this Court were to disregard the Collection
Letter as a final decision of the Commissioner on Avon's protest,
the Collection Letter constitutes an act of the Commissioner on
"other matters" arising under the National Internal Revenue Code,
which, pursuant to Philippine Journalists, Inc. v. CIR, may be the
subject of an appropriate appeal before the Court of Tax Appeals.

As already stated, it considers itself a media company, like a
newspaper or a radio broadcasting company, but not an
advertising agency in spite of the purpose stated in its articles
of incorporation. It argues that its act of leasing its neon signs
and billboards does not make it a business agent or an
independent contractor. It stresses that it is a mere lessor of
neon signs and billboards and does not perform advertising
services.
But the undeniable fact is that neon signs and billboards are
primarily designed for advertising. We hold that the
petitioner is a business agent and an independent
contractor as contemplated in sections 191 and 194(v).
However, in view of the prior rulings that the taxpayer is not a
business agent nor an independent contractor and in view of
the controversial nature of the deficiency assessments, the
25% surcharge should be eliminated.
Case: These consolidated cases assail the Court of Tax Appeals
En Banc November 9, 2011 Decision and April 10, 2012
Resolution in CTA EB Case Nos. 661 and 663. The assailed
Decision denied the respective Petitions for Review by the
Commissioner of Internal Revenue (Commissioner) and of
Avon Products Manufacturing, Inc. (Avon), and affirmed the
Court of Tax Appeals Special First Division May 13, 2010
Decision. The assailed Resolution denied the Commissioner's
Motion for Reconsideration6 and Avon's Motion for Partial
Reconsideration.
Facts:
Avon filed its Value Added Tax (VAT) Returns and Monthly
Remittance Returns of Income Tax Withheld for the taxable
year 1999 on the following dates:

Petitioner's last contention is that the collection of the tax had

already prescribed. Section 332 of the 1939 Tax Code, now
section 319 of the 1977 Tax Code, Presidential Decree No.
1158, effective on June 3, 1977, provides that the tax may be
collected by distraint or levy or by a judicial proceeding begun
'within five years after the assessment of the tax".

The taxpayer received on June 18, 1973 and March 5, 1974 the
deficiency assessments herein. The warrants of distraint were
served upon it on April 18 and may 25,1978 or within five years
after the assessment of the tax. Obviously, the warrants were
issued to interrupt the five-year prescriptive period. Its
enforcement was not implemented because of the pending
protests of the taxpayer and its requests for withdrawal of the
warrants which were eventually resolved in Commissioner
Plana's letter of May 23, 1979.

It should be noted that the Commissioner did not

institute any judicial proceeding to collect the tax. He
relied on the warrants of distraint to interrupt the running of
the statute of limitations. He gave the taxpayer ample
opportunity to contest the assessments but at the same time
safeguarded the Government's interest by means of the
warrants of distraint.

AVON PRODUCTS MFG., INC. v. PCIR
G.R. No. 201398-99, October 3, 2018
Digest by Hannah Keziah P. Dela Cerna
Topic: What constitutes a denial of the protest or decision on
disputed assessment?
Avon signed two (2) Waivers of the Defense of Prescription
dated October 14, 2002 and December 27, 2002, which
expired on January 14, 2003 and April 14, 2003, respectively.
On July 14, 2004, Avon was served a Collection Letter dated
July 9, 2004. It was required to pay P80,246,459.15 broken
down as follows:

BASED ON THE SYLLABUS OF ATTY. KRISKA MARNA A. BUENA, CPA

 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019 36

Avon failed to submit supporting documents within the

KIND OF BASIC TOTAL 60-day period as required under Section 228 of the Tax
YEAR INTEREST COMPROMISE
TAX TAX AMOUNT Code.

The Large Taxpayers Collection and Enforcement Division

22,012,9 13,207,7 25,000 35,245, thereafter served Avon with the Collection Letter dated July 9,
Income Tax 1999
84.19 90.51 .00 774.70 2004. Avon asserted that even the items already paid on
January 30, 2004 were still included in the deficiency tax
assessments covered by this Collection Letter.
913,514. 658,675. 73,200 1,645,3
Excise Tax 1999
87 57 .00 90.44 Request for Reconsideration by Avon
In a letter to the Deputy Commissioner for Large Taxpayers
Service dated and filed on July 27, 2004, Avon requested the
20,286,0 13,254,6 50,000 33,590,
reconsideration and withdrawal of the Collection Letter. It
VAT 1999
33.82 77.47 .00 711.29 argued that it was devoid of legal and factual basis, and was
premature as the Commissioner of Internal Revenue had
not yet acted on its protest against the Final Assessment
Withholding Notices.
Tax 4,702,11 3,040,22 45,000 7,787,3
on 1999
6.38 9.28 .00 45.66
Compensation
The Commissioner did not act on Avon's request for
reconsideration. Thus, Avon was constrained to treat the
Expanded Collection Letter as denial of its protest.
1,187,61 764,626. 25,000 1,977,2
Withholding 1999
0.88 18 .00 37.06
Tax
Petition for Review
On August 13, 2004, Avon filed a Petition for Review before the
Court of Tax Appeals. On August 24, 2004, it filed an Urgent
TOTAL
P49,102,
260.14
P30,925,
999.01
P218,2
00.00
P80,246
,459.
Motion for Suspension of Collection of Tax.

CTA Special First Division Decision

These deficiency assessments were the same deficiency taxes
covered by the Preliminary Assessment Notice dated
November 29, 2002, received by Avon on December 23, 2002.
Protest against PAN
On February 14, 2003, Avon filed a letter dated February 13,
2003 protesting against the Preliminary Assessment Notice.
Without ruling on Avon's protest, the Commissioner
prepared the Formal Letter of Demand and Final
Assessment Notices, all dated February 28, 2003, received
by Avon on April 11, 2003. Except for the amount of interest,
the Final Assessment Notices were the same as the Preliminary
Assessment Notice.
Protest against FAN
In a letter dated and filed on May 9, 2003, Avon protested the
Final Assessment Notices. Avon resubmitted its protest to the
Preliminary Assessment Notice and adopted the same as its
protest to the Final Assessment Notices.
Conference and Meeting
A conference was allegedly held on June 26, 2003 where Avon
informed the revenue officers that all the documents necessary
to support its defenses had already been submitted. Another
meeting was held on August 4, 2003, where it showed the
original General Ledger Book as previously directed by the
revenue officers. During these meetings, the revenue officers
allegedly expressed that they would cancel the
assessments resulting from the alleged discrepancy in sales
if Avon would pay part of the assessments.
On May 13, 2010, the Court of Tax Appeals Special First
Division rendered its Decision, partially granting Avon's Petition
for Review insofar as it ordered the cancellation of the Final
Demand and Final Assessment Notices for deficiency excise
tax, VAT, withholding tax on compensation, and expanded
withholding tax. However, it ordered Avon to pay deficiency
income tax in the amount of P357,345.88 including 20%
deficiency interest on the total amount due pursuant to Section
249, paragraphs (b) and (c)(3) of the Tax Code. The Court of
Tax Appeals Special First Division also made the following
pronouncements:
a) There was no deprivation of due process in the issuance by
the CIR of the assessment for deficiency income tax, deficiency
excise tax, deficiency VAT, deficiency final withholding tax on
compensation and deficiency expanded withholding tax against
AVON for the latter was afforded an opportunity to explain and
present its evidence;
b) The Waivers of the Statute of Limitations executed by AVON
are invalid and ineffective as the CIR failed to provide [AVON]
a copy of the accepted Waivers, as required under Revenue
Memorandum Order No. 20-90. Hence, the assessment of
AVON's deficiency VAT, deficiency expanded withholding tax
and deficiency withholding tax on compensation is considered
to have prescribed;
c) AVON's failure to submit the relevant documents in
support of its protest did not make the assessment final
and executory;
d) As to assessment on AVON's deficiency Income Tax,

Thus, on January 30, 2004, Avon paid the following portions of
the Final Assessment Notices:
a) Disallowed taxes and licenses/Fringe Benefit Tax adjustment
P153,559.37; and
b) Withholding Tax on Compensation - Late Remittance -
P32,829.28
Memorandum Recommending Enforcement & Collection
However, in a Memorandum dated May 27, 2004, the Bureau
of Internal Revenue's officers recommended the enforcement
and collection of the assessments on the sole justification that
there was no undeclared sales/income in the amount
(1)
of P62,911,619.58 per ITR for the taxable year 1999;
AVON's liability for disallowed taxes and licenses and
December 1998 Fringe Benefit Tax payment
(2) adjustment in the amount of P152,632.10 and
P927.27, respectively, or a total of P153,559.37 is
extinguished in view of the payment made;

BASED ON THE SYLLABUS OF ATTY. KRISKA MARNA A. BUENA, CPA

 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
The discrepancy between Ending Inventories
reflected in Balance Sheet and Cost of Sales
(3) represents variance/adjustments on standard cost to
actual cost allocated to ending inventories and not
under-declaration as alleged by CIR;
AVON's claimed tax credits in the amount of
P203,645.89 was disallowed as the same was
unsupported by withholding tax certificates as
(4) required under Section 2.58.3 (B) of Revenue
Regulations No. 2-98. However, the amount of
P140,505.28 was upheld as a proper deduction from
its 1999 income tax due; and
e) As to assessment on AVON's deficiency excise tax, the same
is deemed cancelled and withdrawn in view of its Application
for Abatement over its deficiency excise tax assessment for the
year 1999 and its corresponding payment.
The parties' Motions for Partial Reconsideration were denied in
the July 12, 2010 Resolution.36 Both parties filed their
respective Petitions for Review before the Court of Tax Appeals
En Banc.
CTA En Banc Decision (only relevant ruling)
In its assailed November 9, 2011 Decision, the Court of Tax
Appeals En Banc denied the respective Petitions of the
Commissioner and Avon, and affirmed the Court of Tax Appeals
Special First Division May 13, 2010 Decision.
On the issue of jurisdiction, the Court of Tax Appeals En Banc
held that under Section 228 of the Tax Code, the taxpayer has
two (2) options in case of inaction of the Commissioner on
disputed assessments. The first option is to file a petition with
the Court of Tax Appeals within 30 days from the lapse of the
180-day period for the Commissioner to decide. The second
option is to await the final decision of the Commissioner and
appeal this decision within 30 days from its receipt. Here,
Avon opted for the second remedy by filing its petition
on July 14, 2004, within 30 days from receipt of the July
9, 2004 Collection Letter, which also served as the final
decision denying its protest. Hence, the Court of Tax
Appeals En Banc ruled that it had jurisdiction over the case.
Issue (RELATED TO TOPIC): Whether or not the collection
letter dated July 9, 2004 was a final decision of the
Commissioner appealable to the CTA. -YES.
This Court holds that the Collection Letter dated July 9, 2004
constitutes the final decision of the Commissioner that is
appealable to the Court of Tax Appeals. The Collection Letter
dated July 9, 2004 demanded from Avon the payment of
the deficiency tax assessments with a warning that
should it fail to do so within the required period,
summary administrative remedies would be instituted
without further notice. The Collection Letter was purportedly
based on the May 27, 2004 Memorandum of the Revenue
Officers stating that Avon "failed to submit supporting
documents within 60-day period." This Collection Letter
demonstrated a character of finality such that there can
be no doubt that the Commissioner had already made a
conclusion to deny Avon's request and she had the clear
resolve to collect the subject taxes.
Avon’s Appeal Filed On Time. - Avon received the Collection
Letter on July 14, 2004. Hence, Avon's appeal to the Court of
Tax Appeals filed on August 13, 2004 was not time-barred.
37
Collection Letter May Also Be Deemed An Act On Other
Matters Arising Under NIRC. - In any case, even if this Court
were to disregard the Collection Letter as a final decision of the
Commissioner on Avon's protest, the Collection Letter
constitutes an act of the Commissioner on "other
matters" arising under the National Internal Revenue
Code, which, pursuant to Philippine Journalists, Inc. v. CIR,
may be the subject of an appropriate appeal before the Court
of Tax Appeals.
On a final note, the Commissioner is reminded of her duty
enunciated in Section 3.1.6 of Revenue Regulations No. 12-99
to render a final decision on disputed assessment. Section 228
of the Tax Code requires taxpayers to exhaust administrative
remedies by filing a request for reconsideration or
reinvestigation within 30 days from receipt of the assessment.
Exhaustion of administrative remedies is required prior to
resort to the Court of Tax Appeals precisely to give the
Commissioner the opportunity to "re-examine its findings and
conclusions" and to decide the Issues raised within her
competence.
Paat v. Court of Appeals wrote:
This Court in a long line of cases has consistently held that before a
party is allowed to seek the intervention of the court, it is a pre-
condition that he should have availed of all the means of
administrative processes afforded him. Hence, if a remedy within the
administrative machinery can still be resorted to by giving the
administrative officer concerned every opportunity to decide on a
matter that comes within his jurisdiction then such remedy should
be exhausted first before court's judicial power can be sought. The
premature invocation of court's intervention is fatal to one's cause of
action. Accordingly, absent any finding of waiver or estoppel the case
is susceptible of dismissal for lack of cause of action. This doctrine of
exhaustion of administrative remedies was not without its practical
and legal reasons, for one thing, availment of administrative remedy
entails lesser expenses and provides for a speedier disposition of
controversies. It is no less true to state that the courts of justice for
reasons of comity and convenience will shy away from a dispute until
the system of administrative redress has been completed and
complied with so as to give the administrative agency concerned
every opportunity to correct its error and to dispose of the case.
Taxpayers cannot be left in quandary by the Commissioner's
inaction on the protested assessment. It is imperative that the
taxpayers are informed of the Commissioner's action for them
to take proper recourse to the Court of Tax Appeals at the
opportune time. Furthermore, this Court had time and again
expressed the dictum that "the Commissioner should always
indicate to the taxpayer in clear and unequivocal language
what constitutes his [or her] final determination of the disputed
assessment. That procedure is demanded by the pressing need
for fair play, regularity and orderliness in administrative
action."
OTHER ISSUES NOT RELATED TO TOPIC
Issue: Whether or not the assessments are void. -YES
Avon’s Contention Avon asserts that the deficiency tax
assessments are void because they were made without due
process and were not based on actual facts but on the
erroneous presumptions of the Commissioner.
It submits that a fundamental part of administrative due
process is the administrative body's due consideration and
evaluation of all the evidence submitted by the affected party.
With regard to tax assessment and collection, Section 228 of
the Tax Code and Revenue Regulations No. 12-99 prescribe
compliance with due process requirements through all the four
(4) stages of the assessment process, from the preliminary
findings up to the Commissioner's decision on the disputed
assessment.
BASED ON THE SYLLABUS OF ATTY. KRISKA MARNA A. BUENA, CPA
 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
Avon claims that from the start up to the end of the
administrative process, the Commissioner ignored all of its
protests and submissions to contest the deficiency tax
assessments. The Commissioner issued identical Preliminary
Assessment Notice, Final Assessment Notices, and Collection
Letters without considering Avon's submissions or its partial
payment of the assessments. Avon asserts that it was not
accorded a real opportunity to be heard, making all of the
assessments null and void.
Held: Avon's arguments are well-taken.
Section 228 provides that, the taxpayers shall be informed
in writing of the law and the facts on which the
assessment is made; otherwise, the assessment shall be
void.
First, during the informal conference, Avon orally rebutted and
submitted a written Reply dated November 26, 2002, with
attached supporting documents, to the summary of audit
findings of the Bureau of Internal Revenue. Revenue Examiner
Enrico Z. Gesmundo (Gesmundo), on cross-examination,
admitted receiving its Reply with the appended documents and
that this Reply should be the basis of the Preliminary
Assessment Notice.
However, the Commissioner issued the Preliminary Assessment
Notice dated November 29, 2002, which simply reiterated the
rebutted audit findings. The alleged under-declared sales was
increased by more than 300% based on the alleged sales
discrepancy in the Third Quarter VAT Return vis á vis Financial
Statement, without justifiable reason and despite clean opinion
of Avon's external auditor on its financial statements.
Second, in its protest letter to the Preliminary Assessment
Notice, Avon explained the error in the presentation of export
sales in the Third Quarter VAT Return. That is, instead of
presenting the total sales for the third quarter alone, the
presentation was a cumulative or year-to-date sales
presentation. Avon appended copies of the Third Quarter VAT
Return and the General Ledger Pages of Export Sales to its
protest letter to prove the cumulative presentation of its sales.
The Bureau of Internal Revenue Examiners accepted their
explanation during their meeting.
However, within just two (2) weeks from receipt of Avon's
protest letter, the Commissioner issued the Final Letter of
Demand and Final Assessment Notices, reiterating the findings
stated in the Preliminary Assessment Notice. The Bureau of
Internal Revenue chose to ignore Avon's explanations and
refused to cancel the assessments unless Avon would agree to
pay the other deficiency assessments.
Third, since the Final Assessment Notices merely reiterated
the findings in the Preliminary Assessment Notice, Avon
resubmitted its protest letter and supporting documents.
During the conference with the revenue officers on August 4,
2003, Avon explained that it had already submitted all the
reconciliation, schedules, and other supporting documents. It
also submitted additional documents as directed by the
revenue officers on June 26, 2003, and presented the original
General Ledger Book for 1999 for comparison by the Bureau of
Internal Revenue's officers with the copies previously
submitted. Again, Avon explained the alleged sales discrepancy
to the revenue officers, who were convinced that there was no
under declaration of sales, and that the sales discrepancy
between the Annual Income Tax Return and Quarterly VAT
Return was merely due to erroneous presentation of sales in
the Third Quarter VAT Return.
By this time, hoping that the Commissioner would cancel the
deficiency income and VAT assessments arising from the
alleged sales discrepancy, Avon informed the Bureau of
38
Internal Revenue examiners that it would make a partial
payment of the assessments, which it did.
Fourth, however, the Commissioner issued the Collection
Letter dated July 9, 2004 without deciding on the protest letter
to the Final Assessment Notices. Once again, she failed to even
comment on the arguments raised or address the documents
submitted by Avon. Even the amounts supposedly paid by Avon
were not deducted from the amount demanded in the
Collection Letter. To justify its issuance, the Commissioner
falsely alleged Avon of failing to submit its supporting
documents.
Fifth, Avon filed a request for withdrawal of the Collection
Letter, but it was likewise ignored.
Finally, the documents which reveal the events after the
filing of the protest to the Final Assessment Notices on
May 9, 2004 were missing from the Bureau of Internal
Revenue Records. These were:
(a) the handwritten Minutes of the Bureau of Internal
Revenue/Taxpayer Conference on June 26, 2003;
(b) Avon's letter116 dated August 1, 2003, with supporting
documents, received by Revenue Officer Gesmundo on August
4, 2003, showing Avon's submission of the documents required
by the Revenue Officers during the June 26, 2003 meeting; and
(c) the two (2) Bureau of Internal Revenue Tax Payment
Confirmations dated January 30, 2004, and Payment Forms
called Bureau of Internal Revenue Form No. 0605.
The facts demonstrate that Avon was deprived of due
process. It was not fully apprised of the legal and factual bases
of the assessments issued against it. The Details of
Discrepancy attached to the Preliminary Assessment Notice, as
well as the Formal Letter of Demand with the Final Assessment
Notices, did not even comment or address the defenses and
documents submitted by Avon. Thus, Avon was left unaware
on how the Commissioner or her authorized representatives
appreciated the explanations or defenses raised in connection
with the assessments. There was clear inaction of the
Commissioner at every stage of the proceedings.
The Commissioner's total disregard of due process
rendered the identical Preliminary Assessment Notice,
Final Assessment Notices, and Collection Letter null and
void, and of no force and effect.
BASA v. RP
G.R. No. L-45277 August 5, 1985
By Francis Jeric L. Emuy
The CIR assessed against Augusto Basa deficiency income
taxes for 1957 to 1960 totalling P16,353.12.
These were based on the taxpayer's failure to report in full his
capital gains on the sales of land. This omission or
underdeclaration of income justified the imposition of 50%
surcharge.
The taxpayer did not contest the assessments in the Tax Court.
The Commissioner's letter-decision on the case was
dated December 6, 1974. On the assumption that the
assessments had become final and incontestable, the
Commissioner on September 3, 1975 sued the taxpayer in the
Manila Court of First Instance for the collection of said amount.
The trial court in a decision dated April 20, 1976 affirmed the
assessments and ordered Basa to pay. Instead of appealing to
this Court directly under Republic Act No. 5440, in relation to
Rules 41 and 45 of the Rules of Court, since no factual issues
BASED ON THE SYLLABUS OF ATTY. KRISKA MARNA A. BUENA, CPA
 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
are involved, Basa tried to appeal to the Court of Appeals. He
did not perfect his appeal within the reglementary period. The
trial court dismissed it in its order dated October 1, 1976.
Issue: Whether the decision of the Court of First Instance of
Manila in an income tax case is reviewable by the Appellate
Court or by this Court.
Ruling: SC
He should have appealed to this Court. His failure to do so
rendered the decision final and executory. He has no cause of
action for certiorari.
The decision is correct. Furthermore, if he wanted to contest
the assessments, he should have appealed to the Tax Court.
Not having done so, he could not contest the same in the Court
of First Instance.
Issue: WON the prescription has set in for the making of the
assessments
Ruling: No.
The assessments were predicated on the fact that his income
tax returns, if not fraudulent, were false because he
underdeclared his income. In such a case, the deficiency
assessments may be made within ten years after the discovery
of the falsity or omission. The court action should be instituted
within five years after the assessment but this period is
suspended during the time that the Commission is prohibited
from instituting a court action.
In addition, Basa's requests for reinvestigation tolled the
prescriptive period of five years within which court action may
be. Moreover, the issue of prescription should have been raised
in the Tax Court.
MAMBULAO LUMBER v. CIR
GR No. L-37061, September 5, 1984
Digest by Anna Sophia Tarhata Piang
Topic: Appeals to the CTA and the Supreme Court
Facts: Sometime in 1957 Agent Nestor Banzuela of the Bureau
of Internal Revenue, Regional District No. 6, Bicol Region, Naga
City, conducted an examination of the books of accounts of
herein petitioner Mambulao number Company for the purpose
of determining said taxpayer's forest charges and percentage
tax liabilities.
On July 31, 1957, Agent Banzuela submitted his report wherein
it was stated among others that —
xxx xxx xxx
xxx xxx xxx
xxx xxx xxx
It can be stated in this connection that sometime in
the early part of 1949, the personnel of the local office
of the Bureau of Forestry in Daet, Camarines Norte,
manifested under the name of the subject taxpayer
2,052.48 cubic meters of timber, with the
corresponding forest charges in the total amount of
P15,443.65 including surcharges. The Bureau of
Forestry then demanded for the payment of said
forest charges on January 15, 1949. However, the
subject taxpayer, for one reason or the other,
contested this assessment until this case reached the
39
hands of the Secretary of Agriculture and Natural
Resources, the undersigned cannot therefore include
in his assessment this amount in question, hence, due
course is given, recommending that this bureau take
proper action regarding this case.
Consequently, on August 29, 1958, the Acting Commissioner
of Internal Revenue addressed a letter to petitioner, the
pertinent portion of which reads-
Mambulao Lumber Company
R-406 Samanillo Building
Escolta, Manila
Gentlemen:
xxx xxx xxx
It was also ascertained that in 1949 you manifested
2,052.48 cubic meters of timber, the forest charges
and surcharges of which in the total amount of
P15,443.55 was demanded of you by the Bureau of
Forestry on January 15, 1949. ...
In view thereof there is due from you the amount of
P33,595.26 as deficiency sales tax, forest charges and
surcharges, committed as follows:
Sales Tax x x x
Forest Charges
Forest charges and surcharges for the year 1949
appealed to the Secretary of Agriculture and Natural
Resources P15,443.55
xxx xxx xxx
Total amount due & payable P33,595.26
Demand is hereby made upon you to pay the aforesaid
amount of P 33,595.26 to the City Treasurer of Manila
or this office within ten (10) days from receipt hereof
so that this case may be closed.
xxx xxx xxx
Sgd.Melencio Domingo
Acting Commissioner
of Internal Revenue
The aforesaid letter was acknowledged to have been received
by petitioner on September 19, 1958. On October 18, 1958,
petitioner requested for a reinvestigation of its tax liability.
Subsequently, in a letter dated July 8, 1959, respondent
Commissioner of Internal Revenue give petitioner a period of
twenty (20) days from receipt thereof to submit the results of
its verification of payments with a warning that failure to
comply therewith would be construed as an abandonment of
the request for reinvestigation.
For failure of petitioner to comply with the above letter-request
and/or to pay its tax liability despite demands for the payment
thereof, respondent Commissioner of Internal Revenue filed. a
complaint for collection in the Court of First Instance of Manila
on August 25, 1961.
After trial, judgment was rendered by the trial court, the
dispositive portion of which reads —
WHEREFORE, judgment is rendered —
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 TAXATION II CASE SUMMARIES | 3-MANRESA [SECTION B] 2018-2019
(a) Ordering both defendants, jointly and severally, to
pay plaintiff the amount of P1,219.95 plus legal
interest thereon from August 25, 1961, the date of the
filing of the original complaint until fully paid, or in
case of failure to Pay the said amount, ordering the
forfeiture of GISCOR Bond No. 35 to the amount of
P1,219.95; and
(b) Ordering defendant Mambulao Lumber Company
to pay the plaintiff the amount of P15,739.80
representing its tax liability not secured by any bond,
with legal interest thereon from August 25, 1961, until
paid.
With costs against defendants.
From the aforesaid decision, petitioner appealed to the Court
of Appeals that portion of the trial court's decision ordering it
to pay the amount of P15,443.55 representing forest charges
and surcharges due for the year 1949.
As herein earlier stated, the then Court of Appeals affirmed the
decision of the trial court. Petitioner filed a motion for
reconsideration which was denied by the said court in its
Resolution dated June 7, 1973,
Contention of the Petitioner:
Relying on the provisions of Section 332 of the National
Internal Revenue Code which reads-
Section 332. Exemptions as to period of limitation of
assessment and collection of taxes —
xxx xxx xxx
(c) Where the assessment of any internal revenue tax has
been made within the period of limitation above prescribed
such tax may be collected by distraint or levy or by a
proceeding in court, but only if begun (1) within five years
after the assessment of the tax, or (2) prior to the expiration
of any period for collection agreed upon in writing by the
Collector of Internal Revenue and the taxpayer before the
expiration of such five-year period. The period so agreed
upon may be extended by subsequent agreements in writing
made before the expiration of the period previously agreed
upon.
petitioner argues that counting from January 15, 1949 when
the Bureau of Forestry in Daet, Camarines Norte made an
assessment and demand for payment of the amount of
P15,443.55 as forest charges and surcharges for the year
1949, up to the filing of the complaint for collection before
the lower court on August 25, 196 1, more than five (5)
years had already elapsed, hence, the action had clearly
prescribed.
Issue: Whether or not the right of plaintiff (respondent herein)
to file a judicial action for the collection of the amount of
P15,443.55 as forest charges and surcharges due from the
petitioner Mambulao Lumber Company for the year 1949 has
already prescribed. – No.
Held:
The basis of the petitioner’s complaint is the demand
letter from the BIR and not the assessment of the
Bureau of Forestry
Petitioner's aforesaid argument lacks merit. As correctly
observed by the trial court and the Court of Appeals in the
appealed decision, the letter of demand of the Acting
Commissioner of Internal Revenue dated August 29, 1958 was
the basis of respondent's complaint filed in this case and not
40
the demand letter of the Bureau of Forestry dated January 15,
1949. This must be so because forest charges are internal
revenue taxes and the sole power and duty to collect the same
is lodged with the Bureau of Internal Revenue and not with the
Bureau of Forestry. The computation and/or assessment of
forest charges made by the Bureau of Forestry may or may not
be adopted by the Commissioner of Internal Revenue and such
computation made by the Bureau of Forestry is not appealable
to the Court of Tax Appeals. 8 Therefore, for the purpose of
computing the five-year period within which to file a complaint
for collection, the demand or even the assessment made by
the Bureau of Forestry is immaterial.
In the case at bar, the commencement of the five-year
period should be counted from August 29, 1958, the date
of the letter of demand of the Acting Commissioner of
Internal Revenue to petitioner Mambulao Lumber
Company. It is this demand or assessment that is appealable
to the Court of Tax Appeals. The complaint for collection was
filed in the Court of First Instance of Manila on August 25, 1961,
very much within the five-year period prescribed by Section
332 (c) of the Tax Code. Consequently, the right of the
Commissioner of Internal Revenue to collect the forest charges
and surcharges in the amount of P15,443.55 has not
prescribed.
Petitioner did not appeal to the CTA within the 30-day
period
Furthermore, it is not disputed that on October 18, 1958,
petitioner requested for a reinvestigation of its tax liability. In
reply thereto, respondent in a letter dated July 8, 1959, gave
petitioner a period of twenty (20) days from receipt thereof to
submit the results of its verification of payments and failure to
comply therewith would be construed as abandonment of the
request for reinvestigation. Petitioner failed to comply with this
requirement. Neither did it appeal to the Court of Tax Appeals
within thirty (30) days from receipt of the letter dated July 8,
1959, as prescribed under Section 11 of Republic Act No. 1125,
thus making the assessment final and executory.
In a suit for collection of internal revenue taxes, as in this case,
where the assessment has already become final and executory,
the action to collect is akin to an action to enforce a judgment.
No inquiry can be made therein as to the merits of the original
case or the justness of the judgment relied upon. Petitioner is
thus already precluded from raising the defense of prescription.
Where the taxpayer did not contest the deficiency income tax
assessed against him, the same became final and properly
collectible by means of an ordinary court action. The taxpayer
cannot dispute an assessment which is being enforced by
judicial action, He should have disputed it before it was brought
to court.
BASED ON THE SYLLABUS OF ATTY. KRISKA MARNA A. BUENA, CPA