Commission on Internal Revenue vs Kudos Metal Corporation

Facts:

On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income
Tax Return (ITR) for the taxable year 1998. Respondent’s non-compliance with the
three Notices of Presentation of Records led to the Bureau of Internal Revenue’s (BIR)
issuance of a Subpoena Duces Tecum, followed by a review and audit of the
respondent’s records. Respondent’s accountant, Nelia Pasco, issued two Waivers of
the Defense of Prescription, one on December 1, 2001 and the other on January 22,
2002. On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the
taxable year 1998 against the respondent, followed by a Formal Letter of Demand with
Assessment Notices for taxable year 1998. Respondent then challenged the said
assessments by filing its “Protest on Various Tax Assessments” and “Legal Arguments
and Documents in Support of Protests against Various Assessments” on December 3,
2003 and February 2, 2004 respectively. BIR rendered a final decision on June 22,
2004, requesting the immediate payment of the respondents’ tax liabilities.

Issue:

Whether or not the Court of Tax Appeals en banc erred in ruling that the
government’s right to assess unpaid taxes of respondent prescribed?

Ruling:

The petition is bereft of merit. Section 203 of the National Internal Revenue Code
(NIRC) of 1997 allows the government to assess internal revenue taxes within three
years from the last day prescribed by law for filing of the tax return or the actual date of
filing of such return, whichever comes later. However, an exception is provided for in
Section 222 of the NIRC which provides that the period to assess and collect taxes may
only be extended upon a written agreement between the CIR and the taxpayer
executed before the expiration of the three year period.

Also, doctrine of estoppel cannot be applied in said case as an exception to the statute
of limitations on the assessment of taxes considering that there is a detailed procedure
for the proper execution of the waiver, which the BIR must strictly follow. It cannot give
validity to an act that is prohibited by law or one that is against public policy.