CIR vs KUDOS METAL

Facts:

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

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

ISSUES: Whether or not the notices of assessment were issued by BIR beyond the
3-year prescriptive period

Whether or not Kudos Metal is estopped from claiming prescription by executing the
waivers

RULING:

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

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