Aznar vs. Court of Tax Appeals GR No.

20569, 23 August 1974

Facts: Petitioner, as an administrator of the estate of the deceased, Matias H. Aznar, seeks a review and
nullification of the decision of the Court of Tax Appeals ordering the petitioner to pay the government the
sum of P227,691.77 representing deficiency income taxes for the years 1946 to 1951. An investigation by
the Commissioner of Internal Revenue (CIR) ascertained the assets and liabilities of the taxpayer and it
was discovered that from 1946 to 1951, his net worth had increased every year, which increases in net
worth was very much more than the income reported during said years. The findings clearly indicated that
the taxpayer did not declare correctly the income reported in his income tax returns for the aforesaid years.
Petitioner avers that according to the NIRC, the right of the CIR to assess deficiency income taxes of the late
Aznar for the years 1946, 1947, and 1948 had already prescribed at the time the assessment was made on
November 28, 1952; there is a five year limitation upon assessment and collection from the filing of the
returns. Meanwhile, respondents believe that the prescription period in the case at bar that is applicable is
under Sec. 332 of the NIRC which provides that: "(a) In the case of a false or fraudulent return with intent
to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection
of such tax may be begun without assessment, at any time within ten years after the discovery of the falsity,
fraud or omission". Petitioner argues said provision does not apply because the taxpayer did not file false
and fraudulent returns with intent to evade tax.
Issue: Whether or not the deceased Aznar filed false or fraudulent income tax returns and subsequently,
whether the action has not prescribed.
Held: The petition is without merit.
The respondent CTA concluded that the very "substantial under declarations of income for six consecutive
years eloquently demonstrate the falsity or fraudulence of the income tax returns with an intent to evade
the payment of tax." The ordinary period of prescription of 5 years within which to assess tax liabilities
under Sec. 331 of the NIRC should be applicable to normal circumstances, but whenever the government
is placed at a disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities due
to false returns, fraudulent return intended to evade payment of tax, or failure to file returns, the period of
ten years from the time of the discovery of the falsity, fraud or omission even seems to be inadequate. There
being undoubtedly false tax returns, in this case, We affirm the conclusion of the respondent Court of Tax
Appeals that Sec. 332 (a) of the NIRC should apply and that the period of ten years within which to assess
petitioner's tax liability had not expired at the time said the assessment was made.

Commissioner vs Kudos Metal Corporation GR 178087, May 5, 2010

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 was
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.
Issue 1: W/N the notices of assessment were issued by BIR beyond the 3-year prescriptive period
Held: Yes. The period for assessment prescribed already because the waivers allowing the extension of
the period were void. Section 222 of the NIRC and RMO-20-90, which lays down the procedure for the
proper execution of waivers, were not complied with. Most importantly, the date of acceptance by the BIR
was not indicated so there is no way to determine if the suspension was made within the prescriptive
period. The BIR, as a result, is now barred from collecting the unpaid taxes from Kudos Metal.
Issue 2: W/N Kudos Metal is estopped from claiming prescription by executing the waivers
Held: No. The doctrine of estoppel, which is predicated on equity, is not applicable here because there is
a detailed procedure for the proper execution of a waiver. The BIR failed to comply with the requirements
of such law, plain and simple. It cannot now use estoppel to make up for its failure most especially because
a waiver of the statute of limitations, which derogates a taxpayer’s right to security against prolonged and
unscrupulous investigations, must be carefully and strictly construed.

Commissioner of Internal Revenue vs. Metro Star Superama, Inc.

(December 8, 2010)
On January 26, 2011, a Letter of Authority was issued for the examination Metro Star Superama Inc.’s
(Metro Star) books of accounts and other accounting records for income tax and other internal revenue
taxes for the taxable year 1999. For Metro Star’s failure to comply with several requests for the
presentation of records and Subpoena Duces Tecum, an Indorsement dated September 26, 2001, was
issued informing Revenue District Officer of Legazpi City to proceed with the investigation based on the
best evidence obtainable preparatory to the issuance of the assessment notice.
On November 8, 2001, a Preliminary 15-day Letter, which Metro Star received on November 9, 2001, was
issued stating that a post audit review was held and it was ascertained that there were deficiency value-
added and withholding taxes due from Metro Star. On April 11, 2002, Metro Star received a Formal Letter
of Demand dated April 3, 2002, assessing it an amount for deficiency value-added and withholding taxes
for the taxable year 1999.
Subsequently, a Final Notice of Seizure dated May 12, 2003, was sent to Metro Star, which it received on
May 15, 2003, giving it the last opportunity to settle its deficiency tax liabilities within 10 days from receipt
thereof. On February 6, 2004, Metro Star received a Warrant of Distraint/Levy dated May 12, 2003,
demanding payment of deficiency value-added tax and withholding tax payment. On July 30, 2004, Metro
Star filed with the Office of the CIR an MR which was denied. Denying that it received a Preliminary
Assessment Notice (PAN) and claiming that it was not accorded with due process, Metro Star filed a petition
for review with the CTA. The CTA-Second Division granted Metro Star’s petition for review. A
reconsideration was sought by the CIR but it was denied. On appeal to the CTA-En Banc, the petition was
dismissed.
Issue: Whether failure to send the PAN would render the assessment null and void
Held: On the matter of service of a tax assessment, a further perusal of our ruling in Barcelon is instructive,
viz:
Jurisprudence is replete with cases holding that if the taxpayer denies ever having received an assessment
from the BIR, it is incumbent upon the latter to prove by competent evidence that such notice was indeed
received by the addressee. The onus probandi was shifted to the respondent to prove by contrary evidence
that the Petitioner received the assessment in the due course of mail. The Supreme Court has consistently
held that while a mailed letter is deemed received by the addressee in the course of mail, this is merely a
disputable presumption subject to controversion and a direct denial thereof shifts the burden to the party
favored by the presumption to prove that the mailed letter was indeed received by the addressee (Republic
vs. Court of Appeals, 149 SCRA 351).
The Court agrees with the CTA that the CIR 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. Neither did it
offer any explanation on why it failed to comply with the requirement of service of the PAN.
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.
This is confirmed under the provisions R.R. No. 12-99 of the BIR which pertinently provide:
3.1.2 Preliminary Assessment Notice (PAN). - If after review and evaluation by the Assessment Division or
by the Commissioner or his duly authorized representative, as the case may be, it is determined that there
exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall issue to the
taxpayer, at least by registered mail, a Preliminary Assessment Notice (PAN) for the proposed assessment,
showing in detail, the facts and the law, rules and regulations, or jurisprudence on which the proposed
assessment is based (see illustration in ANNEX A hereof). If the taxpayer fails to respond within fifteen (15)
days from date of receipt of the PAN, he shall be considered in default, in which case, a formal letter of
demand and assessment notice shall be caused to be issued by the said Office, calling for payment of the
taxpayer's deficiency tax liability, inclusive of the applicable penalties.
From the provision quoted above, it is clear that the sending of a PAN to the taxpayer to inform him of the
assessment made is but part of the “due process requirement in the issuance of a deficiency tax
assessment,” the absence of which renders nugatory any assessment made by the tax authorities. The use
of the word “shall” in subsection 3.1.2 describes the mandatory nature of the service of a PAN. The
persuasiveness of the right to due process reaches both substantial and procedural rights and the failure
of the CIR to strictly comply with the requirements laid down by law and its own rules is a denial of Metro
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.