COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. B.F. GOODRICH PHILS., INC.

(now SIME DARBY

INTERNATIONAL TIRE CO., INC.) and THE COURT OF APPEALS, respondents.

DOCTRINE:

Factual findings of the CTA are generally not disturbed on appeal when supported by substantial evidence and in the
absence of gross error or grave abuse of discretion

For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law
provides a statute of limitations in the collection of taxes Thus, the law on prescription, being a remedial measure, should
be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should
perforce be strictly construed.

Section 15 does not provide an exception to the statute of limitations on the issuance of an assessment, by allowing the
initial assessment to be made on the basis of the best evidence available. Having made its initial assessment in the
manner prescribed, the commissioner could not have been authorized to issue, beyond the five-year prescriptive period,
the second and the third assessments under consideration before us.

The fact alone that a taxpayer may have sold its property for a price lesser than its declared fair market value does not
constitute a false return which contains wrong information due to mistake, carelessness or ignorance, for it is possible
that real property may be sold for less than adequate consideration for a bona fide business purpose.

Even though a donor’s tax, which is defined as “a tax on the privilege of transmitting one’s property or property rights to
another or others without adequate and full valuable consideration,” is different from capital gains tax, a tax on the gain
from the sale of the taxpayer’s property forming part of capital assets, the tax return filed by private respondent to report
its income for the year 1974 was sufficient compliance with the legal requirement to file a return. In other words, the fact
that the sale transaction may have partly resulted in a donation does not change the fact that private respondent already
reported its income for 1974 by filing an income tax return.

Instances of negligence or oversight on the part of the BIR with regard to make timely assessments cannot prejudice
taxpayers, considering that the prescriptive period was precisely intended to give them peace of mind.

FACTS:

Private Respondent BF Goodrich Phils., Inc. (now Sime Darby International Tire Co., Inc.), was an American-owned and
controlled corporation previous to July 3, 1974. As a condition for approving the manufacture by private respondent of
tires and other rubber products, the Central Bank of the Philippines required that it should develop a rubber plantation. In
compliance with this require ment, private respondent purchased from the Philippine government in 1961, under the
Public Land Act and the Parity Amendment to the 1935 Constitution, certain parcels of land located in Tumajubong,
Basilan, and there developed a rubber plantation.

In accord with the terms of the sale, Siltown Realty Philippines, Inc. leased the said parcels of land to private respondent
for a period of 25 years, with an extension of another 25 years at the latter’s option.

Based on the BIR’s Letter of Authority No. 10115 dated April 14, 1975, the books and accounts of private respondent
were examined for the purpose of determining its tax liability for taxable year 1974. The examination resulted in the April
23, 1975 assessment of private respondent for deficiency income tax in the amount of P6,005.35, which it duly paid.

The BIR also issued Letters of Authority Nos. 074420 RR and 074421 RR and Memorandum Authority Reference No.
749157 for the purpose of examining Siltown’s business, income and tax liabilities.

On the basis of this examination, the BIR commissioner issued against private respondent on October 10, 1980, an
assessment for deficiency in donor’s tax in the amount of P1,020,850, in relation to the previously mentioned sale of its
Basilan landholdings to Siltown. Apparently, the BIR deemed the consideration for the sale insufficient, and the difference
between the fair market value and the actual purchase price a taxable donation.

In a letter dated November 24, 1980, private respondent contested this assessment. On April 9, 1981, it received another
assessment dated March 16, 1981, which increased to P1,092,949 the amount demanded for the alleged deficiency
donor’s tax, surcharge, interest and compromise penalty.

Private respondent appealed to the CTA. CTA rendered its Decision modifying the assessment issued by BIR and ordered
to pay the amount of P1,311,179.01 plus 10% surcharge and 20% annual interest from March 16, 1981 until fully paid.

Undaunted, private respondent elevated the matter to the Court of Appeals, which reversed the CTA”:

“What is involved here is not a first assessment; nor is it one within the 5year period stated in Section 331 above. Since
what is involved in this case is a multiple assessment beyond the five-year period, the assessment must be based on the
grounds provided in Section 337, and not on Section 15 of the 1974 Tax Code. Section 337 utilizes the very specific terms
‘fraud, irregularity, and mistake When it is a subsequent assessment made beyond the five-year period, then, it may be
validly justified only by ‘fraud, irregularity and mistake’ on the part of the taxpayer.”

Issues:

Whether or not petitioner’s right to assess herein deficiency donor’s tax has indeed prescribed as ruled by public
respondent Court of Appeals.

Whether or not the herein deficiency donor’s tax assessment for 1974 is valid and in accordance with law.”

Ruling:

Petition has no merit.

Petitioner’s Contention:

The petitioner contends that the Court of Appeals erred in reversing the CTA on the issue of prescription, because its
ruling was based on factual findings that should have been left undisturbed on appeal, in the absence of any showing
that it had been tainted with gross error or grave abuse of discretion. The Court is not persuaded

The factual findings of the CTA are generally not disturbed on appeal when supported by substantial
evidence and in the absence of gross error or grave abuse of discretion. However, the CTA’s application of
the law to the facts of this controversy is an altogether different matter, for it involves a legal question. In
the present case, the Court of Appeals ruled not on the truth or falsity of the facts found by the CTA, but on
the latter’s application of the law on prescription.

Section 331 of the National Internal Revenue Code provides:

“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 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.”

Applying this provision of law to the facts at hand, it is clear that the October 16, 1980 and the March 1981
assessments were issued by the BIR beyond the five-year statute of limitations. The Court has thoroughly
studied the records of this case and found no basis to disregard the five-year period of prescription.

Petitioner relies on the CTA ruling: More, when there is falsity with intent to evade tax as in this case, the ordinary
period of limitation upon assessment and collection does not apply so that contrary to the averment of petitioner, the
right to assess respondent has not prescribed. “What is the considered falsity? The transfer through sale of the parcels of
land in Tumajubong, Lamitan, Basilan in favor of Siltown Realty for the sum of P500,000.00 only whereas said lands had
been sworn to under Presidential Decree No. 76 (Dec. 6, 1972) as having a value of P2,683,467 (P2,475,467 + P207,700)

For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or
assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on
prescription, being a remedial measure, should be liberally construed in order to afford such protection. As
a corollary, the exceptions to the law on prescription should perforce be strictly construed.

Clearly, Section 15 does not provide an exception to the statute of limitations on the issuance of an
assessment, by allowing the initial assessment to be made on the basis of the best evidence available.
Having made its initial assessment in the manner prescribed, the commissioner could not have been
authorized to issue, beyond the five-year prescriptive period, the second and the third assessments under
consideration before us. Nor is petitioner’s claim of falsity sufficient to take the questioned assessments
out of the ambit of the statute of limitations.

Petitioner insists that private respondent committed “falsity” when it sold the property for a price lesser than its declared
fair market value. This fact alone did not constitute a false return which contains wrong information due to mistake,
carelessness or ignorance.

In the present case, the private respondent was compelled to sell the property even at a price less than its
market value, because it would have lost all ownership rights over it upon the expiration of the parity
amendment. In other words, private respondent was attempting to minimize its losses. At the same time,
it was able to lease the property for 25 years, renewable for another 25.

This can be regarded as another consideration on the price. Furthermore, the fact that private respondent
sold its real property for a price less than its declared fair market value did not by itself justify a finding of
false return. Indeed, private respondent declared the sale in its 1974 return submitted to the BIR. Within
the five-year prescriptive period, the BIR could have issued the questioned assessment, because the
declared fair market value of said property was of public record. This it did not do, however, during all
those five years. Moreover, the BIR failed to prove that respondent’s 1974 return had been filed
fraudulently. Equally significant was its failure to prove respondent’s intent to evade the payment of the
correct amount of tax. the BIR failed to show that private respondent’s 1974 return was filed fraudulently
with intent to evade the payment of the correct amount of tax.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ASALUS CORPORATION, respondent.

DOCTRINE:

The findings of fact of the Court of Tax Appeals (CTA) are, as a rule, respected by the Supreme Court (SC),
but they can be set aside in exceptional cases. Such findings can only be disturbed on appeal if they are not
supported by substantial evidence or there is a showing of gross error or abuse on the part of the Tax
Court.

Generally, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by
law for the filing of the return, or where the return is filed beyond the period, from the day the return was
actually filed; In the case of a false or fraudulent return with intent to evade tax or of failure to file a
return, the assessment may be made within ten (10) years from the discovery of the falsity, fraud or
omission.
Under Section 248(B) of the National Internal Revenue Code (NIRC), there is a prima facie evidence of a
false return if there is a substantial underdeclaration of taxable sales, receipt or income. The failure to
report sales, receipts or income in an amount exceeding thirty percent (30%) what is declared in the
returns constitutes substantial underdeclaration.

In Samar-I Electric Cooperative v. Commissioner of Internal Revenue, 744 SCRA 459 (2014), the Supreme
Court (SC) ruled that it sufficed that the taxpayer was substantially informed of the legal and factual bases
of the assessment enabling him to file an effective protest

FACTS:

On December 16, 2010, respondent Asalus Corporation (Asalus) received a Notice of Informal Conference from Revenue
District Office (RDO) No. 47 of the Bureau of Internal Revenue (BIR). It was in connection with the investigation
conducted by Revenue Officer Fidel M. Bañares II (Bañares) on the Value-Added Tax (VAT) transactions of Asalus for the
taxable year 2007.

Asalus filed its Letter-Reply, dated December 29, 2010, questioning the basis of Bañares’ computation for its VAT liability.
On January 10, 2011, petitioner Commissioner of Internal Revenue (CIR) issued the Preliminary Assessment Notice (PAN)
finding Asalus liable for deficiency VAT for 2007 in the aggregate amount of P413,378,058.11, inclusive of surcharge and
interest.

Asalus filed its protest against the PAN but it was denied by the CIR. On August 26, 2011, Asalus received the Formal
Assessment Notice (FAN) stating that it was liable for deficiency VAT for 2007 in the total amount of P95,681,988.64,
inclusive of surcharge and interest.

Consequently, it filed its protest against the FAN, dated September 6, 2011. Thereafter, Asalus filed a supplemental
protest stating that the deficiency VAT assessment had prescribed pursuant to Section 203 of the National Internal
Revenue Code (NIRC).

On October 16, 2012, Asalus received the Final Decision on Disputed Assessment8 (FDDA) showing VAT deficiency for
2007 in the aggregate amount of P106,761,025.17, inclusive of surcharge and interest and P25,000.00 as compromise
penalty. As a result, it filed a petition for review before the CTA Division.

The CTA Division’s Ruling :

CTA Division ruled that the VAT assessment issued on August 26, 2011 had prescribed and consequently deemed
invalid. The CTA wrote that the three instances where the three-year prescriptive period will not apply must always be
alleged and established by clear and convincing evidence and should not be anchored on mere conjectures and
speculations,9 before the ten (10)year prescriptive period could be considered””

The CTA En Banc’s Ruling:

The CTA En Banc sustained the assailed decision of the CTA Division and dismissed the petition for review filed by the
CIR. It found that the CIR did not present any evidence during the trial to substantiate its claim of falsity in the returns
and again missed its chance to do so when it failed to file its memorandum before the CTA Division. PAN alone could not
be used as a basis because it was not the assessment contemplated by law. Consequently, the allegation of falsity in
Asalus’ tax returns could not be considered as it was not reiterated in the FAN.

ISSUES:

WHETHER PETITIONER’S RIGHT TO ASSESS RESPONDENT FOR ITS DEFICIENCY VAT FOR TAXABLE YEAR 2007 HAD
ALREADY PRESCRIBED
WHETHER RESPONDENT’S FAILURE TO REPORT IN ITS VAT RETURNS ALL THE FEES IT COLLECTED FROM ITS
MEMBERS APPLYING FOR HEALTHCARE SERVICES CONSTITUTES “FALSE” RETURN UNDER SECTION 222(A) OF THE
1997 NIRC, AS AMENDED

RULING:

PETITIONER’S CONTENTION

CIR, through the Office of the Solicitor General (OSG), argues that the VAT assessment had yet to prescribe as the
applicable prescriptive period is the ten (10)-year prescriptive period under Section 222 of the NIRC, and not the three
(3)-year prescriptive period under Section 203 thereof. It claims that Asalus was informed in the PAN of the ten (10)-year
prescriptive period and that the FAN made specific reference to the PAN.

Moreover, the CIR asserts that there was substantial understatement in Asalus’ income, which exceeded 30% of what
was declared in its VAT returns as appearing in its quarterly VAT returns; and the underdeclaration was supported by the
judicial admission of its lone witness that not all the membership fees collected from members applying for healthcare
services were reported in its VAT returns. Thus, the CIR concludes that there was prima facie evidence of a false return.

There is merit in the petition. After a review of the records and applicable laws and jurisprudence, the Court finds that
the CTA erred in concluding that the assessment against Asalus had prescribed. Generally, internal revenue taxes shall be
assessed within three (3) years after the last day prescribed by law for the filing of the return, or where the return is filed
beyond the period, from the day the return was actually filed.19 Section 222 of the NIRC, however, provides for
exceptions to the general rule. It states that in the case of a false or fraudulent return with intent to evade tax or of
failure to file a return, the assessment may be made within ten (10) years from the discovery of the falsity, fraud or
omission.

The proper and reasonable interpretation of said provision should be that in the three different cases of (1)
false return, (2) fraudulent return with intent to evade tax, (3) 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 (1) falsity, (2) fraud, (3) omission there is a difference
between “false return” and “fraudulent return” cannot be denied. While the first merely implies deviation
from the truth, whether intentional or not, the second implies intentional or deceitful entry with intent to
evade the taxes due.

Thus, a mere showing that the returns filed by the taxpayer were false, notwithstanding the absence of
intent to defraud, is sufficient to warrant the application of the ten (10)-year prescriptive period under
Section 222 of the NIRC.

PRESUMPTION OF FALSITY OF RETURNS

Under Section 248(B) of the NIRC,21 there is a prima facie evidence of a false return if there is a substantial
underdeclaration of taxable sales, receipt or income. The failure to report sales, receipts or income in an amount
exceeding 30% what is declared in the returns constitute substantial underdeclaration. A prima facie evidence is one
which that will establish a fact or sustain a judgment unless contradictory evidence is produced.

In other words, when there is a showing that a taxpayer has substantially underdeclared its sales, receipt or income,
there is a presumption that it has filed a false return. As such, the CIR need not immediately present evidence to support
the falsity of the return, unless the taxpayer fails to overcome the presumption against it.

the audit investigation revealed that there were undeclared VATable sales more than 30% of that declared in Asalus’ VAT
returns. Moreover, Asalus’ lone witness testified that not all membership fees, particularly those pertaining to medical
practitioners and hospitals, were reported in Asalus’ VAT returns. The testimony of its witness, in trying to justify why not
all of its sales were included in the gross receipts reflected in the VAT returns, supported the presumption that the return
filed was indeed false precisely because not all the sales of Asalus were included in the VAT returns.
The CIR need not present further evidence as the presumption of falsity of the returns was not overcome. Asalus was
bound to refute the presumption of the falsity of the return and to prove that it had filed accurate returns. Its failure to
overcome the same warranted the application of the ten (10)-year prescriptive period for assessment under Section 222
of the NIRC.

SUBSTANTIAL COMPLIANCE OF NOTICE REQUIREMENT

It is true that neither the FAN nor the FDDA explicitly stated that the applicable prescriptive period was the ten (10)-year
period set in Section 222 of the NIRC. They, however, made reference to the PAN, which categorically stated that “[t]he
running of the three-year statute of limitation as provided under Section 203 of the 1997 National Internal Revenue Code
(NIRC) is not applicable x x x but rather to the ten (10)-year prescriptive period pursuant to Section 222(A) of the tax
code x x x.”

Thus, substantial compliance with the requirement as laid down under Section 228 of the NIRC suffices, for what is
important is that the taxpayer has been sufficiently informed of the factual and legal bases of the assessment so that it
may file an effective protest against the assessment. Asalus was sufficiently informed that with respect to its tax liability,
the extraordinary period laid down in Section 222 of the NIRC would apply. This was categorically stated in the PAN and
all subsequent communications from the CIR made reference to the PAN. Asalus was eventually able to file a protest
addressing the issue on prescription, although it was done only in its supplemental protest to the FAN. Considering the
existing circumstances, the assessment was timely made because the applicable prescriptive period was the ten (10)-year
prescriptive period under Section 222 of the NIRC.

REMINDER ON THE COUNSELS OF ASALUS

While the Court recognizes and appreciates the passion of Asalus’ counsels in promoting and protecting its interest, they
must still be reminded that they should be more circumspect in their choice of words to argue their client’s position. As
much as possible, words which undermine the integrity, competence and ability of the opposing party, or are otherwise
offensive, must be avoided especially if the message may be delivered in a respectful, yet equally emphatic manner. A
counsel’s mettle will not be viewed any less should he choose to pursue his cause without denigrating the other party.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. PHILIPPINE DAILY INQUIRER, INC., respondent.

DOCTRINE:
SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes.—(a) In the case of a
false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or
a proceeding in court for the collection of such tax may be filed without assessment, at any time within ten
(10) years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which
has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof.

While the filing of a fraudulent return necessarily implies that the act of the taxpayer was intentional and
done with intent to evade the taxes due, the filing of a false return can be intentional or due to honest
mistake.

FACTS:

PDI is a corporation engaged in the business of newspaper publication. On 15 April 2005, it filed its Annual Income Tax.
Return for taxable year 2004. BIR alleged that based on the computerized matching it conducted on the information and
data provided by third party sources against PDI’s declaration on its VAT Returns for taxable year 2004, there was an
underdeclaration of domestic purchases from its suppliers amounting to P317,705,610.52. BIR invited PDI to reconcile the
deficiencies with BIR. In response, PDI submitted reconciliation reports, attached to its letters
PDI executed a Waiver of the Statute of Limitation (First Waiver) consenting to the assessment and/or collection of taxes
for the year 2004 which may be found due after the investigation, at any time before or after the lapse of the period of
limitations fixed by Sections 203 and 222 of the National Internal Revenue Code (NIRC) but not later than 30 June 2007.
PDI submitted additional partial reconciliation and explanations on the discrepancies found by the BIR.

BIR invited PDI to an informal conference to present any objections that it might have on the BIR’s findings. PDI
executed a Waiver of the Statute of Limitation (Second Waiver). In a Preliminary Assessment Notice (PAN) dated 15
October 2007 issued by the BIR-LTAID, PDI was assessed for alleged deficiency income tax and VAT for taxable year
2004. PDI received the PAN on 4 December 2007.

PDI sought reconsideration of the PAN and expressed its willingness to execute another Waiver (Third Waiver), which it
did on the same date, thus extending BIR’s right to assess and/or collect from it until 30 April 2008. On 17 April 2008,
PDI received a Formal Letter of Demand dated 11 March 2008 and an Audit Result/Assessment Notice from the BIR,
demanding for the payment of alleged deficiency VAT and income tax, respectively.

On 16 May 2008, PDI filed its protest. On 12 December 2008, PDI filed a Petition for Review against the Commissioner of
Internal Revenue (CIR) alleging that the 180-day period within which the BIR should act on its protest had already
lapsed.

CTA RULING:

In its 16 February 2012 Decision, the CTA First Division ruled in favor of PDI. The CTA First Division ruled that the period
of limitation in the assessment and collection of taxes is governed by Section 203 of the NIRC

The CTA First Division ruled that internal revenue taxes must be assessed on time. It added that the period of assessment
must not extend indefinitely because doing so will deprive the taxpayer of the assurance that it will not be subjected to
further investigation after the expiration of a reasonable period of time. Nevertheless, the CTA First Division noted that
the three-year prescriptive period under Section 203 of the NIRC applies only when the returns are filed pursuant to legal
requirements. It also added that in the absence of a false or fraudulent return, or where a return has been filed, the
period of limitation may still be extended in cases where the taxpayer and the CIR have agreed in writing, prior to the
expiration of the period prescribed under Section 203 of the NIRC, to an assessment within the time agreed upon.

The CTA First Division ruled that in ascertaining the correctness of any return, or in determining the tax liability of any
person, the CIR is authorized to obtain information, on a regular basis, from any person other than the taxpayer subject
of the audit or investigation.

It further ruled that the CIR may rely on the information obtained from third parties in issuing assessments to taxpayers,
and that the CIR enjoys the presumption of regularity in obtaining such information. Further, the CTA First Division stated
that the determinations and assessments of the CIR are presumed correct and made in good faith, and it is the duty of
the taxpayer to prove otherwise. The CTA First Division then ruled that in this case, PDI introduced proof that the
determination made by the CIR on the supposed overdeclared input tax of P1,601,652.43 is not correct. The CTA First
Division ruled that the CIR failed to disprove the findings submitted by the Independent Certified Public Accountant
(ICPA) that supported PDI’s assertions.

CTA First Division rejected the CIR’s theory that since there was an underdeclaration of the input tax and of purchases, it
translates to taxable income for tax purposes and taxable gross receipts for VAT purposes. In this case, the CTA First
Division ruled that in the imposition or assessment of income tax, it must be clear that there was an income and the
income was received by the taxpayer. The basis could not be merely an underdeclaration of purchases.

The CTA First Division added that for income tax purposes, a taxpayer may either deduct from its gross income a lesser
amount, or not claim any deduction at all. It stated that what is prohibited is to claim a deduction beyond the amount
authorized by law. According to the CTA First Division, even when there was underdeclaration of input tax, which means
there was an underdeclaration of purchases and expenses, the same is not prohibited by law.
The CTA First Division ruled that it was an error for the CIR to impose a deficiency income tax based on the
underdeclared input tax, and the income tax return cannot be treated as false. Thus, the CTA First Division ruled that the
prescriptive period applicable to the case is the three-year period, and the deficiency income tax assessment issued by
the BIR beyond the three-year prescriptive period is void.

The CTA First Division found that while the First and Second Waivers were executed in three copies, the BIR failed to
provide the office accepting the waivers with their respective third copies. The CTA First Division found that the third
copies were still attached to the docket of the case. The CTA First Division also found that the BIR failed to prove that the
Third Waiver was executed in three copies.

The CTA First Division concluded that due to the defects in the Waivers, the three-year period within which to assess PDI
was not extended. The CTA First Division further ruled that the compromise penalties should likewise be cancelled. CIR
filed a motion for reconsideration

The Decision of the CTA En Banc

The CTA En Banc ruled that it found no reason to depart from the CTA First Division’s findings. CTA En Banc held that PDI
sufficiently discharged its burden of proving that the VAT assessment and the Income Tax. assessment made by the CIR
were not correct. The CTA En Banc ruled that the presumptions of correctness and regularity cited by the CIR were
overturned by the evidence presented by PDI particularly, the final report of the ICPA, accounts payable, check vouchers,
invoices, official receipts, and credit memoranda. The CTA En Banc noted that the CIR did not present any evidence to
the contrary.

ISSUES:

(1) The CTA En Banc erred in ruling that petitioner’s assessment for deficiency VAT and income tax was adequately
controverted by respondent;

(2) The CTA En Banc erred in ruling that the petitioner’s right to assess respondent for deficiency VAT and income tax
has prescribed; and

(3) The CTA En Banc erred in ruling that respondent is not estopped from raising the defense of prescription

RULING:

Reconciliation of Listing for Enforcement (RELIEF) System is an information technology tool used by the BIR to improve
tax administration. Using the RELIEF system, the BIR assessed PDI for deficiency VAT and income tax amounting to
P3,154,775.57 and P1,525,230.00, respectively. According to the BIR, the computerized matching conducted by its office,
using information and data from third party sources against PDI’s VAT returns for 2004 showed an underdeclaration of
domestic purchases from its suppliers amounting to P317,705,610.52. PDI denied the allegation.

there were discrepancies that PDI were able to explain. In particular, the ICPA report showed that the purchase from
Millennium Cars, Inc. was made on behalf of an employee as a loan. In addition, the underdeclared input tax insofar as
Alliance Printing, Inc. is concerned was due to the latter’s erroneous posting of data, a fact that the corporation admitted.
However, there are still issues that need to be resolved. In particular, PDI failed to justify its erroneous listing of
purchases from Harrison Communications, Inc., McCann Erickson, Inc., and WPP Marketing Corporation as general and
administrative expenses.

The CIR pointed out that PDI could not treat purchases from Harrison Communications, Inc. and McCann Erickson, Inc.
as general and administrative expenses. The ICPA report found nothing wrong in the entries. However, as pointed out by
the Office of the Solicitor General, PDI is a serviceoriented company that derives its income from the sale of newspapers
and advertisements. The services rendered by Harrison Communications, Inc., McCann Erickson, Inc., and WPP Marketing
Corporation were meant to promote and market the advertising services offered by PDI. As such, their services should be
considered part of cost of services instead of general and administrative expenses and operating expenses. Such finding
would ordinarily call for a recomputation. However, we need to resolve first whether the BIR’s assessment was made
within the prescriptive period.

Prescription and Estoppel

Under Section 203 of the NIRC, the prescriptive period to assess is set at three years. This rule is subject to the
exceptions provided under Section 222 of the NIRC. SEC. 222. Exceptions as to Period of Limitation of Assessment and
Collection of Taxes.— (a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return,
the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any
time within ten (10) years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment
which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal
action for the collection thereof.

In Commissioner of Internal Revenue v. Javier,24 this Court ruled that fraud is never imputed. The Court stated that it
will not sustain findings of fraud upon circumstances which, at most, create only suspicion.25 The Court added that the
mere understatement of a tax is not itself proof of fraud for the purpose of tax evasion.

The fraud contemplated by law is actual and not constructive. It must be intentional fraud, consisting of deception
willfully and deliberately done or resorted to in order to induce another to give up some legal right.

The proper and reasonable interpretation of said provision should be that in the three different cases of (1) false return,
(2) fraudulent return with intent to evade tax, (3) 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 (1) falsity, (2) fraud, (3) omission.

Our stand that the law should be interpreted to mean a separation of the three different situations of false return,
fraudulent return with intent to evade tax, and failure to file a return is strengthened immeasurably by the last portion of
the provision which segregates the situation into three different classes, namely “falsity,” “fraud,” and “omission.”

That there is a difference between “false return” and “fraudulent return” cannot be denied. While the first implies
deviation from the truth, whether intentional or not, the second implies intentional or deceitful entry with intent to evade
the taxes due. 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 provided for in Sec. 332(a) NIRC, from the time of
discovery of the falsity, fraud or omission even seems to be inadequate and should be the one enforced.

Thus, while the filing of a fraudulent return necessarily implies that the act of the taxpayer was intentional and done with
intent to evade the taxes due, the filing of a false return can be intentional or due to honest mistake. In CIR v. B.F.
Goodrich Phils., Inc.,31 the Court stated that the entry of wrong information due to mistake, carelessness, or ignorance,
without intent to evade tax, does not constitute a false return. In this case, we do not find enough evidence to prove
fraud or intentional falsity on the part of PDI.

Since the case does not fall under the exceptions, Section 203 of the NIRC should apply. Indeed, the Waivers executed by
the BIR and PDI were meant to extend the three-year prescriptive period, and would have extended such period were it
not for the defects found by the CTA. This further shows that at the outset, the BIR did not find any ground that would
make the assessment fall under the exceptions.

In this case, the CTA found that contrary to PDI’s allegations, the First and Second Waivers were executed in three
copies. However, the CTA also found that the CIR failed to provide the office accepting the First and Second Waivers with
their respective third copies, as the CTA found them still attached to the docket of the case. In addition, the CTA found
that the Third Waiver was not executed in three copies.

The failure to provide the office accepting the waiver with the third copy violates RMO 20-90 and RDAO 05-01. Therefore,
the First Waiver was not properly executed on 21 March 2007 and thus, could not have extended the three year
prescriptive period to assess and collect taxes for the year 2004. To make matters worse, the CIR committed the same
error in the execution of the Second Waiver on 5 June 2007. In short, the records of the case showed that the CIR’s
three-year prescriptive period to assess deficiency tax had already prescribed due to the defects of all the Waivers.

In Philippine Journalist, Inc. v. Commissioner of Internal Revenue, the Court categorically stated that a Waiver must
strictly conform to RMO No. 20-90. The mandatory nature of the requirements set forth in RMO No. 2090, as ruled upon
by this Court, was recognized by the BIR itself in the latter’s subsequent issuances, namely, Revenue Memorandum
Circular (RMC) Nos. 6-2005 and 29-2012. Thus, the BIR cannot claim the benefits of extending the period to collect the
deficiency tax as a consequence of the Waiver when, in truth it was the BIR’s inaction which is the proximate cause of the
defects of the Waiver. The BIR has the burden of ensuring compliance with the requirements of RMO No. 20-90 as they
have the burden of securing the right of the government to assess and collect tax deficiencies. This right would prescribe
absent any showing of a valid extension of the period set by the law.

Clearly, the defects in the Waivers resulted to the non-extension of the period to assess or collect taxes, and made the
assessments issued by the BIR beyond the three-year prescriptive period void

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE STANLEY WORKS SALES (PHILS.),
INCORPORATED, respondent.

DOCTRINE:
The period to assess and collect deficiency taxes may be extended only upon a written agreement between
the Commissioner of Internal Revenue (CIR) and the taxpayer prior to the expiration of the three (3)-year
prescribed period in accordance with Section 222(b) of the National Internal Revenue Code (NIRC).

A waiver of the statute of limitations, whether on assessment or collection, should not be construed as a
waiver of the right to invoke the defense of prescription but, rather, an agreement between the taxpayer
and the Bureau of Internal Revenue (BIR) to extend the period to a date certain, within which the latter
could still assess or collect taxes due

The statute of limitations imposed by the Tax Code precisely intends to protect the taxpayer from
prolonged and unreasonable assessment and investigation by the Bureau of Internal Revenue (BIR)
`

FACTS:

Respondent Domestic Corporation duly organized and existing under Philippine laws and duly registered with the
Securities and Exchange Commission.

Respondent is authorized “to engage in the business of designing, manufacturing, fabricating, or otherwise producing,
and the purchase, sale at wholesale, importation, export, distribution, marketing or otherwise dealing with, construction
and hardware materials, tools, fixtures and equipment.”

On January 1, 1979, respondent and Stanley Works Agencies (Pte.) Limited, Singapore (Stanley-Singapore) entered into a
Representation Agreement. Stanley-Singapore appointed respondent as its sole agent for the selling of its products within
the Philippines on an indent basis

On April 16, 1990, respondent filed with the BIR its Annual Income Tax Return for taxable year 1989. On March 19, 1993,
pursuant to Letter of Authority dated July 3, 1992, the BIR issued against respondent a Pre-Assessment Notice (PAN) No.
002523 for 1989 deficiency income tax.

April 12, 1993, petitioner, through OTC Domingo C. Paz of Revenue Region No. 4B-2 of Makati, issued to respondent
Assessment Notice No. 002523-89-6014 for deficiency income tax for taxable year 1989. The Notice was sent on April 15,
1993 and respondent received it on April 21, 1993. On May 19, 1993, respondent, through its external auditors
Punongbayan & Araullo, filed a protest letter and requested reconsideration and cancellation of the assessment.
On November 16, 1993, a certain Mr. John Ang, on behalf of respondent, executed a “Waiver of the Defense of
Prescription Under the Statute of Limitations of the National Internal Revenue Code” (Waiver). respondent waived its right
to raise the defense of prescription under Section 223 of the NIRC of 1977 insofar as the assessment and collection of
any deficiency taxes for the year ended December 31 1989, but not after June 30, 1994.

Waiver was not signed by petitioner or any of his authorized representatives and did not state the date of acceptance as
prescribed under Revenue Memorandum Order No. 20-90. Respondent did not execute any other Waiver or similar
document before or after the expiration of the November 16, 1993 Waiver on June 30, 1994.

respondent, through its external auditors Punongbayan & Araullo, wrote a letter to the Chief of the BIR Appellate Division
and requested the latter to take cognizance of respondent’s protest/request for reconsideration. On March 22, 2004,
petitioner rendered a Decision denying respondent’s request for reconsideration and ordering respondent to pay the
deficiency income tax plus interest that may have accrued

RULING OF THE CTA

the CTA First Division found that although the assessment was made within the prescribed period, the period within
which petitioner may collect deficiency income taxes had already lapsed.

he request for reconsideration did not suspend the running of the prescriptive period to collect deficiency income tax.
There was no valid waiver of the statute of limitations, as the following infirmities were found: (1) there was no
conformity, either by respondent or his duly authorized representative; (2) there was no date of acceptance to show that
both parties had agreed on the Waiver before the expiration of the prescriptive period; and (3) there was no proof that
respondent was furnished a copy of the Waiver.

CTA En Banc’s Ruling

CTA En Banc affirmed the CTA First Division Decision dated 6 May 2008 and Resolution dated 14 July 2008. The Waiver
executed by respondent on 16 November 1993 could not be used by petitioner as a basis for extending the period of
assessment and collection, as there was no evidence that the latter had acted upon the waiver. Hence, the unilateral act
of respondent in executing said document did not produce any effect on the prescriptive period for the assessment and
collection of its deficiency tax. As to the issue of estoppel, the court ruled that this measure could not be used against
respondent, as it was petitioner who had failed to act within the prescribed period on the protest asking for a
reconsideration of the assessment.

Issues

Whether or not petitioner’s right to collect the deficiency income tax of respondent for taxable year 1989 has prescribed.

Whether or not respondent’s repeated requests and positive acts constitute “estoppel” from setting up the defense of
prescription under the NIRC.

RULING:

We deny the Petition. The resolution of the main issue requires a factual determination of the proper execution of the
Waiver. The Court found that the following requisites were absent: (1) Conformity of either petitioner or a duly
authorized representative; (2) Date of acceptance showing that both parties had agreed on the Waiver before the
expiration of the prescriptive period; and (3) Proof that respondent was furnished a copy of the Waiver. These findings
are undisputed by petitioner.

The statute of limitations on the right to assess and collect a tax means that once the period established by law for the
assessment and collection of taxes has lapsed, the government’s corresponding right to enforce that action is barred by
provision of law. The period to assess and collect deficiency taxes may be extended only upon a written agreement
between the CIR and the taxpayer prior to the expiration of the three-year prescribed period in accordance with Section
222(b) of the NIRC.
In relation to the implementation of this provision, the CIR issued Revenue Memorandum Order (RMO) No. 20-9010 on 4
April 1990 to provide guidelines on the proper execution of the Waiver of the Statute of Limitations.

In Philippine Journalist, Inc. v. Commissioner of Internal Revenue,12 the Court categorically stated that a Waiver must
strictly conform to RMO No. 20-90. The mandatory nature of the requirements set forth in RMO No. 20-90, as ruled upon
by this Court, was recognized by the BIR itself in the latter’s subsequent issuances, namely, Revenue Memorandum
Circular (RMC) Nos. 6200513 and 29-2012.14 Thus, the BIR cannot claim the benefits of extending the period to collect
the deficiency tax as a consequence of the Waiver when, in truth it was the BIR’s inaction which is the proximate cause of
the defects of the Waiver. The BIR has the burden of ensuring compliance with the requirements of RMO No. 20-90, as
they have the burden of securing the right of the government to assess and collect tax deficiencies. This right would
prescribe absent any showing of a valid extension of the period set by the law.

the Waiver was not a unilateral act of the taxpayer; hence, the BIR must act on it, either by conforming to or by
disagreeing with the extension. A waiver of the statute of limitations, whether on assessment or collection, should not be
construed as a waiver of the right to invoke the defense of prescription but, rather, an agreement between the taxpayer
and the BIR to extend the period to a date certain, within which the latter could still assess or collect taxes due. The
waiver does not imply that the taxpayer relinquishes the right to invoke prescription unequivocally.

2ND ISSUE

we do not agree with petitioner that respondent is now barred from setting up the defense of prescription by arguing that
the repeated requests and positive acts of the latter constituted estoppels, as these were attempts to persuade the CIR to
delay the collection of respondent’s deficiency income tax.

Since the Waiver in this case is defective and therefore invalid, it produces no effect; thus, the prescriptive period for
collecting deficiency income tax for taxable year 1989 was never suspended or tolled. Consequently, the right to enforce
collection based on Assessment Notice No. 002523-89-6014 has already prescribed.

RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE,

respondent.

DOCTRINE:

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; 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

The Court of Tax Appeals (CTA), as a specialized court dedicated exclusively to the study and resolution of
tax problems, has developed an expertise on the subject of taxation—its decision shall not be lightly set
aside on appeal, unless the Supreme Court finds that the questioned decision is not supported by
substantial evidence or there is a showing of abuse or improvident exercise of authority on the part of the
Tax Court

FACTS:

Petitioner 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. On August 15, 1996, RCBC received Letter of Authority No. 133959 issued by then Commissioner of Internal
Revenue (CIR) Liwayway 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. RCBC executed two
Waivers of the Defense of Prescription 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.

RCBC received a Formal Letter of Demand together with Assessment Notices from the BIR for the deficiency tax
assessments. Disagreeing with the said deficiency tax assessment, RCBC filed a protest on February 24, 2000 and later
submitted the relevant documentary evidence to support it. Much later on November 20, 2000, it filed a petition for
review before the CTA, pursuant to Section 228 of the 1997 Tax Code.

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 the following deficiency taxes as assessed by the BIR. RCBC, however, refused to pay the following 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 of failure to be executed as required
under Section 222(b) of the Tax Code. 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.

RULING OF CTA

It partially granted the petition for review. 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 1995.14 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
the following amounts plus 20% delinquency tax.

Unsatisfied, RCBC filed its Motion for Reconsideration. the CTA-First Division substantially upheld its earlier ruling, except
for its inadvertence in the addition of the total amount of deficiency taxes. As such, it modified its earlier decision and
ordered RCBC to pay the amount of P132,654,261.69 plus 20% delinquency tax.

CTA-En Banc

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. 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.

NOTE:
RCBC filed its Manifestation dated July 22, 2009, informing the Court that this petition, relative to the DST deficiency
assessment, had been rendered moot and academic by its payment of the tax deficiencies on Documentary Stamp Tax
(DST) on Special Savings Account (SSA) for taxable years 1994 and 1995 after the BIR approved its applications for tax
abatement.

ISSUES:

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.

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.

RULING:

Petitioner is estopped from questioning the validity of the waivers

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.” A party is precluded from
denying his own acts, admissions or representations to the prejudice of the other party in order to prevent fraud and
falsehood.

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.
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. To hold otherwise and allow a party to gainsay its own act
or deny rights which it had previously recognized would run counter to the principle of equity which this institution holds
dear.

Liability for Deficiency Onshore Withholding Tax

In Chamber of Real Estate and Builders’ Associations, Inc. v. The Executive Secretary,32 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

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.

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.

PHILIPPINE AMUSEMENT AND GAMING CORPORATION, petitioner, vs. BUREAU OF INTERNAL REVENUE,
COMMISSIONER OF INTERNAL REVENUE, and REGIONAL DIRECTOR, REVENUE REGION No. 6,
respondents.

DOCTRINE:
A textual reading of Section 3.1.5 gives a protesting taxpayer like PAGCOR only three options:
1. If the protest is wholly or partially denied by the CIR or his authorized representative, then the taxpayer
may appeal to the CTA within 30 days from receipt of the whole or partial denial of the protest.
2. If the protest is wholly or partially denied by the CIR’s authorized representative, then the taxpayer
may appeal to the CIR within 30 days from receipt of the whole or partial denial of the protest.
3. If the CIR or his authorized representative failed to act upon the protest within 180 days from
submission of the required supporting documents, then the taxpayer may appeal to the CTA within 30 days
from the lapse of the 180-day period.

FACTS:

[PAGCOR] provides a car plan program to its qualified officers under which sixty percent (60%) of the car
plan availment is shouldered by PAGCOR and the remaining forty percent (40%) for the account of the
officer, payable in five (5) years. On October 10, 2007, [PAGCOR] received a Post Reporting Notice dated
September 28, 2007 from BIR Regional Director Alfredo Misajon [RD Misajon] of Revenue Region 6,
Revenue District No. 33, for an informal conference to discuss the result of its investigation on [PAGCOR’s]
internal revenue taxes in 2004.

The report stated that PAGCOR has deficiencies on Value-Added Tax (VAT), Withholding Tax on VAT (WTV),
Expanded Withholding Tax (EWT), and Fringe Benefits Tax (FBI). BIR abandoned the deficiencies except
for FBT`. [PAGCOR] received a Final Assessment Notice [FAN] dated January 14, 2008. January 24, 2008,
[PAGCOR] filed a protest to the FAN. Due to inaction. [PAGCOR] elevated its protest to respondent CIR.
[PAGCOR] was informed that the imposition of FBT against it was sustained. [PAGCOR] filed the instant
Petition for Review alleging respondents’ inaction in its protest on the disputed deficiency FBT

The CTA 1st Division’s Ruling

ruled in favor of respondents. issuance of the FAN was a valid delegation of authority, and PAGCOR’s
administrative protest was validly and seasonably filed on 24 January 2008. The petition for review filed
with the CTA 1st Division, however, was filed out of time.

As earlier stated, [PAGCOR] timely filed its administrative protest on January 24, 2008. In accordance with Section 228 of
the Tax Code, respondent CIR or her dulyauthorized representative had 180 days or until July 22, 2008 to act on the
protest. After the expiration of the 180-day period without action on the protest, as in the instant case, the taxpayer,
specifically [PAGCOR], had 30 days or until August 21, 2008 to assail the non-determination of its protest. Clearly, the
conclusion that the instant Petition for Review was filed beyond the reglementary period for appeal on March 11, 2009,
effectively depriving the Court of jurisdiction over the petition, is inescapable

the failure of [PAGCOR] to appeal from an assessment on time rendered the same final, executory and demandable. The
failure to comply with the 30-day statutory period would bar the appeal and deprive the Court of Tax Appeals of its
jurisdiction to entertain and determine the correctness of the assessment.

[PAGCOR’s] obligation as an agent of the government to withhold and remit the final tax on the fringe benefit received by
its employees is personal and direct.

CIR sent PAGCOR a letter stated that PAGCOR should be subjected to the issuance of a Warrant of Distraint and/or Levy
and a Warrant of Garnishment because of its failure to pay its outstanding delinquent account in the amount of
P46,589,507.65. Settlement of the tax liability is necessary to obviate the issuance of a Warrant of Distraint and/or Levy
and a Warrant of Garnishment. PAGCOR filed a reply dated 28 September 2011 to ask that an order be issued directing
respondents to hold in abeyance the execution of the Warrant of Distraint and/or Levy and the Warrant of Garnishment,
as well as to suspend the collection of tax insofar as the 2004 assessment is concerní

The CTA En Banc’s Ruling

dismissed PAGCOR’s petition for review and affirmed the CTA 1st Division’s Decision and Resolution

ISSUES:

Whether or not the CTA En Banc gravely erred in affirming the CTA 1st Division’s Decision dismissing the Petition for
Review for having been filed out of time.

The Court’s Ruling

Timeliness of PAGCOR’s Petition before the CTA

A textual reading of Section 3.1.5 gives a protesting taxpayer like PAGCOR only three options:

1. If the protest is wholly or partially denied by the CIR or his authorized representative, then the taxpayer may appeal
to the CTA within 30 days from receipt of the whole or partial denial of the protest. 2. If the protest is wholly or partially
denied by the CIR’s authorized representative, then the taxpayer may appeal to the CIR within 30 days from receipt of
the whole or partial denial of the protest. 3. If the CIR or his authorized representative failed to act upon the protest
within 180 days from submission of the required supporting documents, then the taxpayer may appeal to the CTA within
30 days from the lapse of the 180-day period.

A whole or partial denial by the CIR’s authorized representative may be appealed to the CIR or the CTA. A whole or
partial denial by the CIR may be appealed to the CTA. The CIR or the CIR’s authorized representative’s failure to act may
be appealed to the CTA. There is no mention of an appeal to the CIR from the failure to act by the CIR’s authorized
representative.

PAGCOR did not wait for the RD or the CIR’s decision on its protest. PAGCOR made separate and successive filings before
the RD and the CIR before it filed its petition with the CTA.

PAGCOR’s protest to the RD on 24 January 2008 was filed within the 30-day period prescribed in Section 228 and Section
3.1.5. The RD did not release any decision on PAGCOR’s protest; thus, PAGCOR was unable to make use of the first
option as described above to justify an appeal to the CTA. The effect of the lack of decision from the RD is the same,
whether we consider PAGCOR’s April 2008 submission of documents16 or not.

Under the third option described above, even if we grant leeway to PAGCOR and consider its unspecified April 2008
submission, PAGCOR still should have waited for the RD’s decision until 27 October 2008, or 180 days from 30 April 2008.
PAGCOR then had 30 days from 27 October 2008, or until 26 November 2008, to file its petition before the CTA. PAGCOR,
however, did not make use of the third option.

Under the second option, PAGCOR ought to have waited for the RD’s whole or partial denial of its protest before it filed
an appeal before the CIR. PAGCOR rendered the second option moot when it formulated its own rule and chose to ignore
the clear text of Section 3.1.5. PAGCOR “elevated an appeal” to the CIR on 13 August 2008 without any decision from the
RD, then filed a petition before the CTA on 11 March 2009.

When PAGCOR filed its petition before the CTA, it is clear that PAGCOR failed to make use of any of the three options
described above. A petition before the CTA may only be made after a whole or partial denial of the protest by the CIR or
the CIR’s authorized representative. When PAGCOR filed its petition before the CTA on 11 March 2009, there was still no
denial of PAGCOR’s protest by either the RD or the CIR. Therefore, under the first option, PAGCOR’s petition before the
CTA had no cause of action because it was prematurely filed.

It thus follows that a complaint whose cause of action has not yet accrued cannot be cured or remedied by an amended
or supplemental pleading alleging the existence or accrual of a cause of action while the case is pending. Such an action
is prematurely brought and is, therefore, a groundless suit, which should be dismissed by the court upon proper motion
seasonably filed by the defendant. The underlying reason for this rule is that a person should not be summoned before
the public tribunals to answer for complaints which are [premature].
PAGCOR has clearly failed to comply with the requisites in disputing an assessment as provided by Section 228 and
Section 3.1.5. Indeed, PAGCOR’s lapses in procedure have made the BIR’s assessment final, executory and demandable,
thus obviating the need to further discuss the issue of the propriety of imposition of fringe benefits tax.

Commissioner of Internal Revenue v. Roca Security and Investigation Agency, Inc.

After review of the records, the Court resolves to DENY the petition for failure to sufficiently show
that the Court of Tax Appeals (CTA) En Banc committed any reversible error in its March 7, 2018 Decision,1
as to warrant the exercise of the Court's appellate jurisdiction.

As correctly held by the CTA En Banc, the Final Assessment Notice (FAN) issued by the
Commissioner of Internal Revenue (CIR) Is void as it violates respondent's right to due process.

Section 228 of the National Internal Revenue Code (NIRC) gives the taxpayer being assessed a
period of sixty ( 60) days from the date of filing a protest assailing the Preliminary Assessment Notice
(PAN) within which to submit relevant supporting documents. In this case, the respondent filed its protest
on April 18, 2013.

It had sixty ( 60) days from that date, or until June 17, 2013, to present its relevant documents to
support its protest against the PAN. Clearly, the FAN issued by the CIR on April 12, 2013 and received by
respondent only on April 19, 2013 violated the latter's right to due process as the latter had only one ( 1)
day (instead of 60 days) to present its relevant documents in support of its protest.

Besides, the 60-day period to protest alluded to in Section 228 of the NIRC refers to one made
against the PAN and not the FAN as the CIR insists, as only upon expiration of the said period does a
contested assessment "become final." Therefore, the CTA En Banc properly found the CIR to have violated
the statutory guidelines in terms of affording respondent taxpayer the right to due process. WHEREFORE,
the petition is DENIED. The March 7, 2018 Decision of the Court of Tax Appeals in CTA EB No. 1523 is
AFFIRMED.

COMMISSIONER OF INTERNAL REVENUE versus V.Y. DOMINGO JEWELLERS, INC

DOCTRINE:

Under the doctrine of exhaustion of administrative remedies, before a party is allowed to seek the intervention of
the court, he or she should have availed himself or herself of all the means of administrative processes afforded him or
her.27 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. 28 Exhaustion of administrative remedies
is required prior to resort to the CTA precisely to give the Commissioner the opportunity to "re-examine its findings and
conclusions" and to decide the issues raised within her competence.

FACTS:

September 9, 2009, the Bureau of Internal Revenue (BIR) issued a Preliminary Assessment Notice3 (PAN) against
V.Y. Domingo, a corporation primarily engaged in manufacturing and selling emblematic jewelry, assessing the latter the
total amount of P2,781,844.21 representing deficiency income tax and value-added tax, inclusive of interest, for the
taxable year 2006.

V.Y. Domingo filed a Request for Re-evaluation/Re-investigation and Reconsideration4 dated September 17, 2009
with the Regional Director of BIR.V.Y. Domingo then received a Preliminary Collection Letter. informing it of the existence
of Assessment Notice No. 32-06-IT-0242 and Assessment Notice No. 32-06-VT-0243, both dated November 18, 2010, for
collection of its tax liabilities in the amounts of P1,798,889.80 and P1,365,727.63, respectively, for a total amount of
P3,164,617.43.

PCL likewise stated:

If you want to know the details and/or settle this assessment, may we invite you to come to this office, within ten
(10) days from receipt of this notice.

On September 12, 2011, V.Y. Domingo sent a letter to the BIR requesting certified true copies of Assessment
Notices. Upon receipt of the requested copies of the notices on September 15, 2011, V.Y. Domingo filed on September
16, 2011 a Petition for Review7 with the CTA in Division praying that Assessment Notices be declared null and void,
cancelled, withdrawn, and with no force and effect, for allegedly having been issued beyond the prescriptive period for
assessment and collection of internal revenue taxes.

CIR filed her Motion to Dismiss8 the petition for lack of jurisdiction. Claiming that V.Y. Domingo's petition was
anchored on its receipt of the PCL, which it treated as a denial of its Request for Re-evaluation/Re-investigation and
Reconsideration, the CIR further argued that there was no disputed assessment to speak of, and that the CTA had no
jurisdiction to entertain the said Petition for Review.

CTA RULING:

CTA First Division granted the CIR's motion and dismissed V.Y. Domingo's Petition for Review.The CTA First
Division ruled that what were appealed to it were the subject assessments, not a decision or the CIR's denial of its
protest; thus, the said assessments had attained finality, and the CTA in Division was without jurisdiction to entertain the
appeal.

CTA En Banc RULING:

CTA En Banc granted V.Y. Domingo's Petition for Review It remanded the case to the CTA First Division for
further proceedings to afford the CIR full opportunity to present her evidence. Petitioner's case did not fall within the
usual procedure in the issuance of an assessment as respondent failed to serve or send the FAN to petitioner. ence,
petitioner cannot be faulted for not filing an administrative protest before filing a petition for review before the Court in
Division since it did not receive the FAN and the language of the PCL shows that the respondent is already demanding
payment from petitioner presupposing that the assessment has become final.

ISSUE:

Whether the First Division of the CTA has jurisdiction to entertain V.Y. Domingo's petition for review

RULING:

SEC. 7. Jurisdiction. — The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

(1) Decisions of 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;

(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
provides a specific period of action, in which case the inaction shall be deemed a denial;

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.Within a period to be prescribed by implementing rules and regulations, the taxpayer shall
be required to respond to said notice.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.

In general, if the protest is denied, in whole or in part, by the Commissioner or his duly authorized
representative, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from date of receipt of the
said decision, otherwise, the assessment shall become final executory and demandable: Provided, however, that if the
taxpayer elevates his protest to the Commissioner within thirty (30.) days from date of receipt of the final decision of the
Commissioner's duly authorized representative, the latter's decision shall not be considered final, executory and
demandable, in which case, the protest shall be decided by the Commissioner.

If the Commissioner or his duly authorized representative fails to act on the taxpayer's protest within one
hundred eighty (180) days from date of submission, by the taxpayer, of the required documents in support of his protest,
the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from the lapse of the said 180-day period,
otherwise the assessment shall become final, executory and demandable.

It is clear from the said provisions of the law that a protesting taxpayer like V.Y. Domingo has only three options
to dispute an assessment:

1. If the protest is wholly or partially denied by the CIR or his authorized representative, then the taxpayer may
appeal to the CTA within 30 days from receipt of the whole or partial denial of the protest;

2. If the protest is wholly or partially denied by the CIR's authorized representative, then the taxpayer may
appeal to the CIR within 30 days from receipt of the whole or partial denial of the protest;

3. If the CIR or his authorized representative failed to act upon the protest within 180 days from submission of
the required supporting documents, then the taxpayer may appeal to the CTA within 30 days from the lapse of the 180-
day period.

In this case, records show that on August 11, 2011, V.Y. Domingo received the PCL issued by petitioner CIR
informing it of Assessment Notice Nos. 32-06-IT-0242 and 32-06-VT-0243 dated November 18, 2010. On September 12,
2011, the former sent a letter request to the BIR requesting for certified true copies of the said Assessment Notices.

However, instead of filing an administrative protest against the assessment notice within thirty (30) days from its
receipt of the requested copies of the Assessment Notices on September 15, 2011, V.Y. Domingo elected to file its
petition for review before the CTA First Division on September 16, 2011, ratiocinating that the issuance of the PCL and
the alleged finality of the terms used for demanding payment therein proved that its Request for Re-evaluation/Re-
investigation and Reconsideration had been denied by the CIR.Evidently, V.Y. Domingo's immediate recourse to the CTA
First Division was in violation of the doctrine of exhaustion of administrative remedies.

Under the doctrine of exhaustion of administrative remedies, before a party is allowed to seek the intervention of
the court, he or she should have availed himself or herself of all the means of administrative processes afforded him or
her.27 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. 28 Exhaustion of administrative remedies
is required prior to resort to the CTA precisely to give the Commissioner the opportunity to "re-examine its findings and
conclusions" and to decide the issues raised within her competence.

What is evident in the instant case is that Assessment Notice Nos. 32-06-IT-0242 and 32-06-VT-0243 dated
November 18, 2010 have not been disputed by V.Y. Domingo at the administrative level without any valid basis therefor,
in violation of the doctrine of exhaustion of administrative remedies. To reiterate, what is appealable to the CTA are
decisions of the CIR on the protest of the taxpayer against the assessments. There being no protest ruling by the CIR
when V.Y. Domingo's petition for review was filed, the dismissal of the same by the CTA First Division was proper.
 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BASF COATING + INKS PHILS., INC.,
respondent.

DOCTRINE:

Under Section 223 of the Tax Reform Act of 1997, the running of the Statute of Limitations provided under
the provisions of Sections 203 and 222 of the same Act shall be suspended when the taxpayer cannot be
located in the address given by him in the return filed upon which a tax is being assessed or collected

In a number of cases, the Supreme Court (SC) has explained that the statute of limitations on the
collection of taxes primarily benefits the taxpayer.

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

Prescription in the assessment and in the collection of taxes is provided by the Legislature for the benefit
of both the Government and the taxpayer; for the Government for the purpose of expediting the collection
of taxes, so that the agency charged with the assessment and collection may not tarry too long or
indefinitely to the prejudice of the interests of the Government, which needs taxes to run it;

and for the taxpayer so that within a reasonable time after filing his return, he may know the amount of
the assessment he is required to pay, whether or not such assessment is wellfounded and reasonable so
that he may either pay the amount of the assessment or contest its validity in court

FACTS:

In a joint special meeting held on March 19, 2001, majority of the members of the Board of Directors and the
stockholders representing more than two-thirds (2/3) of the entire subscribed and outstanding capital stock of herein
respondent corporation, resolved to dissolve the corporation by shortening its corporate term to March 31, 2001.
respondent moved out of its address in Las Piñas City and transferred to Carmelray Industrial Park, Canlubang, Calamba,
Laguna.

The respondent sent a letter to BIR, dated April 26, 2001, a notice of respondent’s dissolution, in compliance with the
requirements of Section 52(c) of the National Internal Revenue Code. Second letter, dated June 22, 2001, was a
manifestation indicating the submission of various documents supporting respondent’s dissolution, among which was BIR
Form No. 1905, which refers to an update of information contained in its tax registration.

Formal Assessment Notice (FAN) dated January 17, 2003, petitioner assessed respondent the aggregate amount of
P18,671,343.14 representing deficiencies. The FAN was sent by registered mail on January 24, 2003 to respondent’s
former address in Las Piñas City.

On March 5, 2004 BIR issued a First Notice Before Issuance of Warrant of Distraint and Levy, which was sent to the
residence of one of respondent’s directors. March 19, 2004, respondent filed a protest letter citing lack of due process
and prescription as grounds. On April 16, 2004, respondent filed a supplemental letter of protest. On January 10, 2005,
after 180 days had lapsed without action on the part of petitioner on respondent’s protest, the latter filed a Petition for
Review11 with the CTA.

CTA RULING:

The CTA ruled that since petitioner was actually aware of respondent’s new address, the former’s failure to send the
Preliminary Assessment Notice and FAN to the said address should not be taken against the latter. Consequently, since
there are no valid notices sent to respondent, the subsequent assessments against it are considered void.

CTA En Banc RULING:

petitioner’s right to assess respondent for deficiency taxes for the taxable year 1999 has already prescribed and that the
FAN issued to respondent never attained finality because respondent did not receive it.

ISSUE:

WHETHER THE CLAIM OF CIR IS BARRED BY PRESCRIPTION

RULING:

The petition lacks merit. It is true that, under Section 223 of the Tax Reform Act of 1997, the running of the Statute of
Limitations provided under the provisions of Sections 203 and 222 of the same Act shall be suspended when the taxpayer
cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected. In
addition, Section 11 of Revenue Regulation No. 1285 states that, in case of change of address, the taxpayer is required to
give a written notice thereof to the Revenue District Officer or the district having jurisdiction over his former legal
residence and/or place of business.

However, this Court agrees with both the CTA Special First Division and the CTA En Banc in their ruling that the above
mentioned provisions on the suspension of the threeyear period to assess apply only if the BIR Commissioner is not
aware of the whereabouts of the taxpayer.

In the present case, petitioner, by all indications, is well aware that respondent had moved to its new address in
Calamba, Laguna, as shown by the documents which form part of respondent’s records with the BIR. The above
documents, all of which were accomplished and signed by officers of the BIR, clearly show that respondent’s address is at
Carmelray Industrial Park, Canlubang, Calamba, Laguna.

The CTA also found that BIR officers, at various times prior to the issuance of the subject FAN, conducted examination
and investigation of respondent’s tax liabilities for 1999 at the latter’s new address in Laguna

Moreover, the CTA found that, based on records, the RDO sent respondent a letter dated April 24, 2002 informing the
latter of the results of their investigation and inviting it to an informal conference.29 Subsequently, the RDO also sent
respondent another letter dated May 30, 2002, acknowledging receipt of the latter’s reply to his April 24, 2002 letter.30
These two letters were sent to respondent’s new address in Laguna. Had the RDO not been informed or was not aware of
respondent’s new address, he could not have sent the said letters to the said address.

petitioner should have been alerted by the fact that prior to mailing the FAN, petitioner sent to respondent’s old address a
Preliminary Assessment Notice but it was “returned to sender.” This was testified to by petitioner’s Revenue Officer II at
its Revenue District Office 39 in Quezon City.31 Yet, despite this occurrence, petitioner still insisted in mailing the FAN to
respondent’s old address.

despite the absence of a formal written notice of respondent’s change of address, the fact remains that petitioner became
aware of respondent’s new address as shown by documents replete in its records. As a consequence, the running of the
threeyear period to assess respondent was not suspended and has already prescribed.

It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of property without due
process of law. In balancing the scales between the power of the State to tax and its inherent right to prosecute
perceived transgressors of the law on one side, and the constitutional rights of a citizen to due process of law and the
equal protection of the laws on the other, the scales must tilt in favor of the individual, for a citizen’s right is amply
protected by the Bill of Rights under the Constitution
QUIRICO P. UNGAB, petitioner, vs. HON. VICENTE N. CUSI, JR., in his capacity as Judge of the Court of First
Instance, Branch 1, 16TH Judicial District, Davao City, THE COMMISSIONER OF INTERNAL REVENUE, and
JESUS N. ACEBES, in his capacity as State Prosecutor, respondents.

DOCTRINE:

National Internal Revenue Code; Preliminary investigation; Authority of State Prosecutor to investigate
and prosecute violations of the National Internal Revenue Code independently of the City Fiscal; Case at
bar.

Jurisdiction of the Court of First Instance over criminal prosecution for violations of the National Internal
Revenue Code; Computation and assessment of deficiency taxes is not a pre-requisite for criminal
prosecution under the Code

Prescription; Petition for reconsideration of assessment of deficiency taxes suspends the prescriptive
period for the collection of taxes, not the prescriptive period of a criminal action for violation of law.

FACTS:

Sometime in July, 1974, BIR Examiner Ben Garcia examined the income tax returns filed by the herein petitioner,
Quirico P. Ungab, for the calendar year ending December 31, 1973. he discovered that the petitioner failed to report his
income derived from sales of banana saplings.  the BIR District Revenue Officer at Davao City sent a "Notice of Taxpayer"
to the petitioner informing him of his deficiencies and invitation to an informal conference.

 The petitioner wrote the BIR District Revenue Officer protesting the assessment, claiming that he was only a
dealer or agent on commission basis in the banana sapling business and that his income, as reported in his income tax
returns for the said year, was accurately stated. BIR Examiner Ben Garcia, submitted a "Fraud Referral Report," to the
Tax Fraud Unit of the Bureau of Internal Revenue. 

After examining the records of the case, the Special Investigation Division of the Bureau of Internal Revenue
found sufficient proof that the herein petitioner is guilty of tax evasion for the taxable year 1973 and recommended his
prosecution. In a second indorsement to the Chief of the Prosecution Division, dated December 12, 1974, the
Commissioner of Internal Revenue approved the prosecution of the petitioner.

 State Prosecutor Jesus Acebes who had been designated to assist all Provincial and City Fiscals throughout the
Philippines in the investigation and prosecution, if the evidence warrants, of all violations of the National Internal Revenue
Code, as amended, and other related laws, in Administrative Order No. 116 dated December 5, 1974, and to whom the
case was assigned, conducted a preliminary investigation of the case, and finding probable cause, filed six (6)
informations against the petitioner.

the petitioner filed a motion to quash the informations upon the grounds that: (1) the informations are null and
void for want of authority on the part of the State Prosecutor to initiate and prosecute the said cases; and (2) the trial
court has no jurisdiction to take cognizance of the above-entitled cases in view of his pending protest against the
assessment made by the BIR Examiner.  the trial court denied the motion on October 22, 1975.

ISSUE:

Whether the filing of the informations was precipitate and premature since the Commissioner of Internal Revenue
has not yet resolved his protests against the assessment of the Revenue District Officer; and that he was denied recourse
to the Court of Tax Appeals.

RULING:

What is involved here is not the collection of taxes where the assessment of the Commissioner of Internal
Revenue may be reviewed by the Court of Tax Appeals, but a criminal prosecution for violations of the National Internal
Revenue Code which is within the cognizance of courts of first instance. While there can be no civil action to enforce
collection before the assessment procedures provided in the Code have been followed, there is no requirement for the
precise computation and assessment of the tax before there can be a criminal prosecution under the Code. têñ.£

The contention is made, and is here rejected, that an assessment of the deficiency tax due is necessary before the
taxpayer can be prosecuted criminally for the charges preferred. The crime is complete when the violator has, as in this
case, knowingly and willfully filed fraudulent returns with intent to evade and defeat a part or all of the tax. 14

An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the
income tax. A crime is complete when the violator has knowingly and willfuly filed a fraudulent return with intent to evade
and defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has
made an inaccurate return, and the government's failure to discover the error and promptly to assess has no connections
with the commission of the crime.

A petition for reconsideration of an assessment may affect the suspension of the prescriptive period for the
collection of taxes, but not the prescriptive period of a criminal action for violation of law. 16 Obviously, the protest of the
petitioner against the assessment of the District Revenue Officer cannot stop his prosecution for violation of the National
Internal Revenue Code. Accordingly, the respondent Judge did not abuse his discretion in denying the motion to quash
filed by the petitioner.