Fitness by Design v.

CIR
G.R. No. 177982 October 17, 2008
CARPIO MORALES, J.

Lessons Applicable: BIR power to gather information without consent

FACTS:

 March 17, 2004: CIR assessed Fitness by Design Inc. for deficiency Income Taxes
for the year of 1995 for P 10,647, 529.69
 February 1, 2005: CIR issued a warrant of distraint and levy against petitioner which
prompted petitioner to file a Petition for Review before the CTA where he alleged
his defense of prescription based on Sec. 203 of the Tax Code. 
 CIR answer: Tax return was false and fraudulent for deliberately failing to declare its
true sales of P 7,156,336.08 and failure to file a VAT return for it.  Since petitioner
failed to file a protest, it is subject to either distraint or levy.  Moreover, it cited Sec.
222 (a) of 1997 Tax Code where false and fraudulent return with intent to evade tax
or failure to file a return prescribe 10 years after the discovery of the falsity, fraud or
omission.  
 March 10, 2005: BIR filed a criminal complaint before the DOJ against the officers
and accountant of petitioner for violation against the 1977 NIRC.
 During the preliminary hearing on the issue of prescription, petitioner's former
bookkeeper attested that his former colleague, CPA Sablan, illegally took custody of
accounting records and turned them over to the BIR. 
 Petitioner then requested a subpoena ad testificandum for Sablan who failed
to appear.
 CTA: Denied the motion for issuance of subpoena and disallowed the submission of
written interrogatories to Sablan who is NOT a party to the case nor was his
testimony relevant.  It also violates Section 2 of Republic Act No. 2338, as
implemented by Section 12 of Finance Department Order No. 46-66, proscribing the
revelation of identities of informers of violations of internal revenue laws, except
when the information is proven to be malicious or false.  Moreover, the subpoena is
NOT needed to obtain affidavit of the informer.
ISSUE: W/N BIR can use the information without petitioner's consent

HELD: YES.

 Sec. 5 of the tax code provides that the BIR is authorized to obtain from any person
other than the person whose internal revenue tax liability is subject to audit or
investigation and can even summon any person having possession, custody or care
of the books of accountants and other accounting records containing entries relating
to the business of the person liable for tax.  This includes even those which cannot
be admitted in a judicial proceeding where the Rules of Court are strictly observed. 
CTA case is not a criminal prosecution where he can cross examine the witness
against him.  CTA can enforce its order by citing them for indirect contempt.
COMMISSIONER OF INTERNAL REVENUE VS. AQUAFRESH SEAFOODS, INC.
FACTS:
Aquafresh Seafoods sold two parcels of located at Barrio Banica in Roxas City and paid the
corresponding CGT and DST due on the sale. However, the BIR assessed Aquafresh Seafoods
based on its conclusion that the lots were classified as commercial and not residential as
claimed by the taxpayer. Aquafresh Seafood’s defense was that there was already a pre-
defined zonal value for the said lots and thus the BIR could not reclassify the same to be
commercial lots.
ISSUE:
Is the requirement (under Section 6 of the Tax Code) of consultation with competent appraisers
both from the public and private sectors in determining fair market value applicable in this case?
HELD:
YES. The BIR’s position that the requirement of consultation with appraisers is mandatory only
when formulating or making changes in the schedule of zonal values is wrong. The Court held
that the BIR’s act of classifying the subject properties involved a re-classification and revision of
the prescribed zonal values. It was likewise added that the application of the rule of assigning
zonal values based on the ‘predominant use of property’ only applies when the property is
located in an area or zone where the properties are not yet classified and their zonal values are
not yet determined. If a determination has already been made, the BIR has no discretion as
regards its classification and/or valuation.
COMMISSION OF INTERNAL REVENUE vs. HANTEX TRADING CO., INC G.R. No. 136975.
March 31, 2005

Facts:
Hantex Trading Co is a company organized under the Philippines. It is engaged in the sale of
plastic products, it imports synthetic resin and other chemicals for the manufacture of its
products. For this purpose, it is required to file an Import Entry and Internal Revenue
Declaration (Consumption Entry) with the Bureau of Customs under Section 1301 of the Tariff
and Customs Code. Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of Counter-
Intelligence Division of the Economic Intelligence and Investigation Bureau (EIIB), received
confidential information that the respondent had imported synthetic resin amounting to
P115,599,018.00 but only declaredP45,538,694.57. Thus, Hantex receive a subpoena to
present its books of account which it failed to do. The bureau cannot find any original copies of
the products Hantex imported since the originals were eaten by termites. Thus, the Bureau
relied on the certified copies of the respondent’s Profit and Loss Statement for 1987 and1988 on
file with the SEC, the machine copies of the Consumption Entries, Series of 1987, submitted by
the informer, as well as excerpts from the entries certified by Tomas and Danganan. The case
was submitted to the CTA which ruled that Hantex have tax deficiency and is ordered to pay,
per investigation of the Bureau. The CA ruled that the income and sales tax deficiency
assessments issued by the petitioner were unlawful and baseless since the copies of the import
entries relied upon in computing the deficiency tax of the respondent were not duly
authenticated by the public officer charged with their custody, nor verified under oath by the EIIB
and the BIR investigator.

Issue:
Whether or not the final assessment of the petitioner against the respondent for deficiency
income tax and sales tax for the latter’s 1987 importation of resins and calcium bicarbonate is
based on competent evidence and the law

Ruling:
No. Section 16 of the NIRC of 1977, as amended, provides that the Commissioner of Internal
Revenue has the power to make assessments and prescribe additional requirements for tax
administration and enforcement. Among such powers are those provided in paragraph (b),
which provides that “Failure to submit required returns, statements, reports and other
documents. – When a report required by law as a basis for the assessment of any national
internal revenue tax shall not be forth coming within the time fixed by law or regulation or when
there is reason to believe that any such report is false, incomplete or erroneous, the
Commissioner shall assess the proper tax on the best evidence obtainable.” This provision
applies when the Commissioner of Internal Revenue undertakes to perform her administrative
duty of assessing the proper tax against a taxpayer, to make a return in case of a taxpayer’s
failure to file one, or to amend a return already filed in the BIR. The “best evidence” envisaged
in Section 16 of the 1977 NIRC, as amended, includes the corporate and accounting records of
the taxpayer who is the subject of the assessment process, the accounting records of other
taxpayers engaged in the same line of business, including their gross profit and net profit sales.
Such evidence also includes data, record, paper, document or any evidence gathered by
internal revenue officers from other taxpayers who had personal transactions or from whom the
subject taxpayer received any income; and record, data, document and information secured
from government offices or agencies, such as the SEC, the Central Bank of the Philippines, the
Bureau of Customs, and the Tariff and Customs Commission. However, the best evidence
obtainable under Section 16 of the 1977 NIRC, as amended, does not include mere
photocopies of records/documents. The petitioner, in making a preliminary and final tax
deficiency assessment against a taxpayer, cannot anchor the said assessment on mere
machine copies of records/documents. Mere photocopies of the Consumption Entries have no
probative weight if offered as proof of the contents thereof. The reason for this is that such
copies are mere scraps of paper and are of no probative value as basis for any deficiency
income or business taxes against a taxpayer. 
Sy po vs. CTA G.R. No. 81446, 18 August 1988
Facts:
The sole proprietor of Silver Cup (late husband of petitioner) did not produce his books of
accounts on despite the subpoena duces tecum issued against him. This prompted the
investigating team to enter the factory bodega and seized different brands. On the basis of the
team’s report of investigation, the Commissioner of Internal Revenue assessed Mr. Po Bien
Sing deficiency income tax.
Issue: Whether or not assessment can be made on the basis of the seized items by the
investigating team.
Ruling: Yes.
In the case at bar, the persistent failure of the late Po Bien Sing and the herein petitioner to
present their books of accounts for examination for the taxable years involved left the
Commissioner of Internal Revenue no other legal option except to resort to the power conferred
upon him under Section 16 of the Tax Code. This refers to the rule on the “best evidence
obtainable”. This applies when a tax report required by law for the purpose of assessment is not
available or when the tax report is incomplete or fraudulent.
And as to its correctness, tax assessments by tax examiners are presumed correct and made in
good faith. The taxpayer has the duty to prove otherwise. In the absence of proof of any
irregularities in the performance of duties, an assessment duly made by a Bureau of Internal
Revenue examiner and approved by his superior officers will not be disturbed. All presumptions
are in favor of the correctness of tax assessments.
Collector vs. Benipayo GR L-13656, 31 January 1962

Facts:
Alberto Benipayo is the owner of the Lucena Theater in Lucena, Quezon. In 1953, the internal
revenue agent investigated Benipayo’s tax liability for the period of August 1952 to September
1953. The examiner recommended a deficiency tax assessment in the sum of P11,193.45
inclusive of 25% surcharge plus a suggested compromise penalty of P900.00 based on the
conclusion that Benipayo sold 2 tax-free 20c ticletsfraudulently in order to avoid payment of
amusement tax prescribed by Section 260 of the Tax Code (based on a reverse ratio of adult to
children; 3:1 in 1949 to 1951, and 1:3 for period in question; and average attendance for the
past years). Benipayo protested, claiming that the findings of the examiners are mere
presumptions and conclusions, devoid of findings of fact of alleged fraudulent practices by him.

Issue:
Whether there is evidence in the record to show Benipayo committed the alleged act to cheat or
defraud the Government

Ruling:
No. An assessment fixes and determines the tax liability of a taxpayer. In order to stand the test
of judicial scrutiny, the assessment must be based on actual facts. The presumption of
correctness of assessment, being a mere presumption, cannot be made to rest on another
presumption, no matter how reasonable or logical such may be; i.e. that the circumstances in
1952 and 1953 are presumed to be the same as those existing in 1949 to 1951, and July 1955.
There are no substantial facts to support the assessment in question. Neither was there any
proof of the fraud allegedly committed. Fraud is a serious charge, and to be sustained, it must
also be supported by clear and convincing proof. 
Meralco Securities Corp. vs. Savellano
GR L-36181, 23 October 1982
Facts:
In 1967, the late Juan G. Maniago submitted to the Commissioner confidential denunciation
against the Meralco Securities Corp. for tax evasion for not having paid income tax on 25% of
the dividends it received from the Manila Electric Co. for years 1962 to 1966. The Commissioner
caused the investigation of the denunciation and found that no deficiency corporate tax was due
from Meralco Securities. Maniago was informed of the findings. The Secretary of Finance
sustained the Commissioner’s action. Maniago filed a petition for mandamus against the
Commissioner so as to compel it to impose the alleged deficiency tax assessment against
Meralco Securities and to award him the corresponding informer’s award.
Issue:
Whether the Commissioner may be compelled to impose the alleged deficiency tax assessment.
Held:
Mandamus only lies to enforce the performance of a ministerial act or duty and not to control the
performance of discretionary power. Mandamus may not be made against the Commissioner to
compel him to impose a tax assessment not found by him to be due or proper, for that would be
tantamount to a usurpation of executive functions. Purely administrative and discretionary
functions may not be interfered with by the Courts. The discretionary power vested in the proper
executive official, in the absence of arbitrariness or grave abuse so as to go beyond the
statutory authority, is not subject to the contrary judgment or control of others.
REPUBLIC OF THE PHILIPPINES, represented by the Commissioner of the Bureau of
Internal Revenue (BIR) vs. SALUD V. HIZON G.R. No. 130430, 13 December 1999
FACTS:
On July 18, 1986, the BIR issued to Hizon a deficiency income tax assessment. Respondent not
having contested the assessment, petitioner, on January 12, 1989, served warrants of distraint
and levy to collect the tax deficiency. However, it did not proceed to dispose of the attached
properties.
On November 3, 1992, respondent wrote the BIR requesting a reconsideration of her tax
deficiency assessment which the BIR denied. On January 1, 1997, BIR filed a case with the
RTC to collect the tax deficiency. The complaint was not signed by the Commissioner.
ISSUE:
1. WHETHER OR NOT THE INSTITUTION OF THE CIVIL CASE WAS IMPROPER
CONSIDERING THAT IT IS NOT APPROVED BY THE CIR AS REQUIRED BY SEC 221.
2. WHETHER OR NOT THE ACTION FOR COLLECTION OF TAXES FILED AGAINST
RESPONDENT HAD ALREADY BEEN BARRED BY THE STATUTE OF LIMITATIONS.
RULING:
1. No. While it is true that Section 221 of the NIRC provides that “but no civil and criminal
actions for the recovery of taxes or the enforcement of any fine, penalty or forfeiture under this
Code shall begin without the approval of the Commissioner”, it is not, however, one of those
enumerated by Sec 7 of the same Code which cannot be delegated.
2. Yes. The 3 year-period within which to collect has already prescribed.
If, as petitioner in effect said, the prescriptive period was suspended twice, i.e., when the
warrants of distraint and levy were served on January 12, 1989 and then when respondent
made her request for reinvestigation on November 3, 1992, the three-year prescriptive period
must have commenced running again sometime after the service of the warrants of distraint and
levy
Moreover, petitioner’s argument that respondent’s request for reinvestigation of her tax
deficiency assessment on November 3, 1992 effectively suspended the running of the period of
prescription such that the government could still file a case for tax collection, is wrong since it
was not made within 30 days from the receipt of the assessment. In the case at bar, respondent
made her request for reconsideration more than 3 months after the issuance of Notice of
Assessment.
CIR vs. Hon. Secretary Gonzales
GR 177279, October 2010
Doctrine: Tax assessments by tax examiners are presumed correct and made in good faith,
and all presumptions are in favor of the correctness of a tax assessment unless proven
otherwise.
Facts: Pursuant to Letter of Authority issued. BIR conducted a fraud investigation for all internal
revenue taxes to ascertain/determine the tax liabilities of respondent L. M. Camus Engineering
Corporation (LMCEC). The audit and investigation against LMCEC was precipitated by the
information provided by an "informer" that LMCEC had substantial underdeclared income for the
said period. For failure to comply with the subpoena duces tecum issued in connection with the
tax fraud investigation, a criminal complaint was instituted by BIR against LMCEC for violation of
Section 266 of the NIRC. Based on data obtained from an "informer" and various clients of
LMCEC, it was discovered that LMCEC filed fraudulent tax returns with substantial under
declarations of taxable income for the 3 years. Petitioner thus assessed the company of total
deficiency taxes and PAN was received by LMCEC. But the company refused to pay and they
contend that the assessment were invalid since the serial numbers were not consistent. The
company also attacks the identity of the informer for being fictitious and alleges that the criminal
case should not be filed, because it was only made to harass the company.
Issue: Whether the obtained information from third parties despite the lack of consent of the
taxpayer under investigation is illegal or malicious?
Ruling: No. As the revenue officers were not given the opportunity to examine the taxpayer’s
documents, they are authorized under Section 5 of the NIRC to gather information from third
parties. In the absence of accounting records and other documents necessary for the proper
determination of tax liabilities, the revenue officers resorted to the “Best Evidence Obtainable”
[Section 6(B) of the NIRC; RMC No. 23-2000 (November 27, 2000)]. The lack of consent of the
taxpayer under investigation does not imply that the BIR obtained the information from third
parties illegally or that the information received is false or malicious. Nor does the lack of
consent preclude the BIR from assessing deficiency taxes on the taxpayer based on the
documents. In addition, respondents cannot be allowed to escape criminal prosecution under
Sections 254 and 255 of the NIRC by mere imputation of a “fictitious” or disqualified informant
under Section 282 simply because other than disclosure of the official registry number of the
third party “informer,” the Bureau insisted on maintaining the confidentiality of the identity and
personal circumstances of said “informer.”
Petition Granted.
COMMISSIONER OF INTERNAL REVENUE versus SONY PHILIPPINES, INC.
G.R. No. 178697 November 17, 2010

Facts:
1.     the CIR issued Letter of Authority (LOA 19734) authorizing certain revenue officers to
examine Sonys books of accounts and other accounting records regarding revenue taxes for
the period 1997 and unverified prior years.
2.     A preliminary assessment for 1997 deficiency taxes and penalties was issued by the CIR
which Sony protested.
3.     Thereafter, acting on the protest, the CIR issued final assessment notices, the formal letter
of demand and the details of discrepancies.
4.     The CIR assessed a deficiency VAT - P11,141,014.41

Issue:
1.     Whether or not he Letter of Authority is Valid
2.     Whether or not respondent (Sony) is liable for the deficiency VAT in the amount of
P11,141,014.41

Ruling:
1. Based on Section 13 of the Tax Code, a Letter of Authority or LOA is the authority given to
the appropriate revenue officer assigned to perform assessment functions. It empowers or
enables said revenue officer to examine the books of account and other accounting records of a
taxpayer for the purpose of collecting the correct amount of tax.
There must be a grant of authority before any revenue officer can conduct an examination or
assessment. Equally important is that the revenue officer so authorized must not go beyond the
authority given. In the absence of such an authority, the assessment or examination is a nullity.
The LOA 19734 covered the period 1997 and unverified prior years. For said reason, the CIR
acting through its revenue officers went beyond the scope of their authority because the
deficiency VAT assessment they arrived at was based on records from January to March 1998
or using the fiscal year which ended in March 31, 1998.
It violated also Section C of Revenue Memorandum Order No. 4390 - A Letter of Authority
should cover a taxable period not exceeding one taxable year.
2. CIRs argument that Sonys advertising expense could not be considered as an input VAT
credit because the same was eventually reimbursed by Sony International Singapore (SIS).
Sony’s deficiency VAT assessment stemmed from the CIRs disallowance of the input VAT
credits that should have been realized from the advertising expense of the latter. It is evident
under Section 110 of the 1997 Tax Code that an advertising expense duly covered by a VAT
invoice is a legitimate business expense.  There is also no denying that Sony incurred
advertising expense. Aluquin testified that advertising companies issued invoices in the name of
Sony and the latter paid for the same. Indubitably, Sony incurred and paid for advertising
expense/ services. Where the money came from is another matter all together but will definitely
not change said fact.

The CIR further argues that Sony itself admitted that the reimbursement from SIS was income
and, thus, taxable.
Insofar as the subsidy may be considered as income and, therefore, subject to income tax, the
Court agrees. However, the Court does not agree that the same subsidy should be subject to
the 10% VAT. To begin with, the said subsidy termed by the CIR as reimbursement was not
even exclusively earmarked for Sonys advertising expense for it was but an assistance or aid in
view of Sonys dire or adverse economic conditions, and was only equivalent to the latters
(Sonys) advertising expenses.
There must be a sale, barter or exchange of goods or properties before any VAT may be levied.
Certainly, there was no such sale, barter or exchange in the subsidy given by SIS to Sony. It
was but a dole out by SIS and not in payment for goods or properties sold, bartered or
exchanged by Sony.
CIR V B.F. GOODRICH PHIL., INC., ET AL GR No. 104171, February 24, 1999

Facts: Private respondent BF Goodrich Philippines Inc. was an American corporation prior to

July 3, 1974. As a condition for approving the manufacture of tires and other rubber products,
private respondent was required by the Central Bank to develop a rubber plantation. In
compliance therewith, private respondent bought from the government certain parcels of land in
Tumajubong Basilan, in 1961 under the Public Land Act and the Parity Amendment to the 1935
constitution, and there developed a rubber plantation.

On August 2, 1973, the Justice Secretary rendered an opinion that ownership rights of
Americans over Public agricultural lands, including the right to dispose or sell their real estate,
would be lost upon expiration on July 3, 1974 of the Parity Amendment. Thus, private
respondent sold its Basilan land holding to Siltown Realty Phil. Inc., (Siltown) for P500,000 on
January 21, 1974. Under the terms of the sale, Siltown would lease the property to private
respondent for 25 years with an extension of 25 years at the option of private respondent.

Private respondent books of accounts were examined by BIR for purposes of determining its tax
liability for 1974. This examination resulted in the April 23, 1975 assessment of private
respondent for deficiency income tax which it duly paid. Siltown’s books of accounts were also
examined, and on the basis thereof, on October 10, 1980, the Collector of Internal Revenue
assessed deficiency donor’s tax of P1,020,850 in relation to said sale of the Basilan
landholdings.

Private respondent contested this assessment on November 24, 1980. Another assessment
dated March 16, 1981, increasing the amount demanded for the alleged deficiency donor’s tax,
surcharge, interest and compromise penalty and was received by private respondent on April 9,
1981. On appeal, CTA upheld the assessment. On review, CA reversed the decision of
the court finding that the assessment was made beyond the 5-year prescriptive period
in Section 331 of the Tax Code.

Issue: Whether or not petitioner’s right to assess has prescribed.

Held: Applying then Sec. 331, NIRC (now Sec. 203, 1997 NIRC which provides a 3-year
prescriptive period for making assessments), it is clean that the October 16, 1980 and March
16, 1981 assessments were issued by the BIR beyond the 5-year statute of limitations.
The court thoroughly studied the records of this case and found no basis to disregard the 5-year
period of prescription, expressly set under Sec. 331 of the Tax Code, the law then in force.

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
or 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.

Basilan Estates, Inc. v CIR and CTA; G.R. No. L-22492; 05 Sep 1967
FACTS:
Basilan Estates, Inc. filed on 24 March 1954 its income tax returns for 1953. On 26 February
1959, the BIR assessed it a deficiency income tax and 25% surtax on unreasonably
accumulated profits for 1953. Upon non-payment of the assessed amount, a warrant of distraint
and levy the execution of which was held and a constructive embargo was imposed instead. Its
request for reinvestigation was not given course for failure to waive the period of prescription,
and the company was served notice on 02 December 1960 that the warrant of distraint and levy
would be executed.
The corporation filed before the Court of Tax Appeals a petition for review of the
Commissioner’s assessment on the ground of prescription. The CTA found no prescription,
affirming the deficiency assessment.
Basilan Estates appealed to the Supreme Court.
ISSUE:
Whether or not the Commissioner’s right to collect deficiency income tax has prescribed.
RULING:
NO. The notice of assessment shows the assessment to have been made on 26 February 1959,
well within the five-year period. On the right side of the notice is also stamped Feb 26 1959 –
denoting the date of release according to BIR practice. Even granting that the notice had been
received by the petitioner late, under Section 331 of the Tax Code requiring five years within
which to assess deficiency taxes, the assessment is deemed made when notice to this effect is
released, mailed or sent by the Collector to the taxpayer and it is not required that the notice be
received by the taxpayer within the aforementioned five-year period.
Tupaz vs Ulep

FACTS:
On January 10, 1991, two Informations were filed with the RTC, against Petronila C. Tupaz and
her late husband Jose J. Tupaz, Jr., as corporate officers of El Oro Engravers Corp., for
nonpayment of deficiency corporate income tax for the year 1979.
Criminal Case No. Q-91-17321 was raffled to Branch 105, presided over by respondent Judge
Benedicto B. Ulep; Q-91-17322 was raffled to Branch 86, then presided over by Judge Antonio
P. Solano.
On May 20, 1996, Judge Ulep granted the motion for withdrawal of the information in Criminal
Case No. Q-91-17321 and dismissed the case, as prayed for by the prosecution.
Prosecutor Agcaoili filed a motion to reinstate information in Criminal Case Q-91-17321, stating
that the motion to withdraw information was made through palpable mistake, and was the result
of excusable neglect. He thought that Criminal Case No. Q-91-17321 was identical to Criminal
Case No Q-90-12896, wherein accused was charged with nonpayment of deficiency contractors
tax, amounting to P346,879.29.
Over the objections of accused, Judge Ulep granted the motion and ordered the information in
Criminal Case No. Q-91-17321 reinstated. The subsequent MR was denied.
Petitioner submits that respondent judge committed a grave abuse of discretion in reinstating
the information in Criminal Case No. Q-91-17321 because
(a) the offense has prescribed; or
(b) it exposes her to double jeopardy.
As regards the issue of prescription, petitioner contends that:
(a) the period of assessment has prescribed, applying the three year period provided under
Batas Pambansa No. 700;
(b) the offense has prescribed since the complaint for preliminary investigation was filed only on
June 8, 1989, and the offense was committed in April 1980 when she filed the income tax return
covering taxable year 1979.
On July 16, 1984, the Bureau of Internal Revenue (BIR) issued a notice of assessment.
Petitioner contends that the July 16, 1984 assessment was made out of time.
Petitioner avers that while Sections 318 and 319 of the NIRC of 1977 provide a five (5) year
period of limitation for the assessment and collection of internal revenue taxes, Batas
Pambansa Blg. 700, enacted on February 22, 1984, amended the two sections and reduced the
period to three (3) years. Since the tax return was filed in April 1980, the assessment made on
July 16, 1984 was beyond the three (3) year prescriptive period.
Petitioner submits that B.P. Blg. 700 must be given retroactive effect since it is favorable to the
accused. Petitioner argues that Article 22 of the Revised Penal Code, regarding the allowance
of retroactive application of penal laws when favorable to the accused shall apply in this case.
  
ISSUE:
Whether or not the period of assessment has prescribed. 
RULING:
 
At the outset, it must be stressed that internal revenue taxes are self-assessing and no further
assessment by the government is required to create the tax liability. An assessment, however,
is not altogether inconsequential; it is relevant in the proper pursuit of judicial and extra judicial
remedies to enforce taxpayer liabilities and certain matters that relate to it, such as the
imposition of surcharges and interest, and in the application of statues of limitations and in the
establishment of tax liens.
An assessment contains not only a computation of tax liabilities, but also a demand for payment
within a prescribed period. The ultimate purpose of assessment is to ascertain the amount that
each taxpayer is to pay.
An assessment is a notice to the effect that the amount therein stated is due as tax and a
demand for payment thereof. Assessments made beyond the prescribed period would not be
binding on the taxpayer.
We agree with the Solicitor General that the shortened period of three (3) years prescribed
under B.P. Blg. 700 is not applicable to petitioner. B.P. Blg. 700, effective April 5, 1984,
specifically states that the shortened period of three years shall apply to assessments and
collections of internal revenue taxes beginning taxable year 1984.
Assessments made on or after April 5, 1984 are governed by the five-year period if the taxes
assessed cover taxable years prior to January 1, 1984. The deficiency income tax under
consideration is for taxable year 1979. Thus, the period of assessment is still five years, under
the old law. The income tax return was filed in April 1980. Hence, the July 16, 1984 tax
assessment was issued within the prescribed period of five (5) years, from the last day of filing
the return, or from the date the return is filed, whichever comes later.
Nava v CIR; G.R. No. L-19470; 30 Jan 1965
FACTS:
Petitioner on 15 May 1951 filed his income tax return and paid half of the tax due assessed that
same date by the CIR, leaving a balance which he offered on two occasions to pay out of his
backpay. The CIR rejected both offers. On 30 March 1955, respondent issued a deficiency
income tax assessment notice inclusive of petitioner’s balance from the 1950 income tax return
plus surcharge. However, petitioner claims to have learned of the revised assessment for the
first time on 19 December 1956.
ISSUE(S):
Whether or not the government’s right to collect the balance has prescribed.
HELD:
YES. It being undisputed that an original assessment of Nava’s 1950 income tax return was
made on 15 May 1951, and no valid and effective notice of the re-assessment having been
made against the petitioner after that date, it is evident that the re-assessment expired on 15
May 1956. Since the notice of said deficiency income tax was effectively made on 19 December
1956 at the earliest, the judicial action to collect any deficiency tax on Nava’s 1950 income tax
return has already prescribed under Section 332 (c) of the Tax Code, it having been found by
the Tax Appeals court that said return was not false or fraudulent.
Republic of the Philippines v CA and Nielson & Co., Inc.; G.R. No. L-38540; 30 Apr 1987

FACTS:
In a demand letter dated 16 July 1955, the CIR assessed private respondent with deficiency
taxes for years 1949 to 1952. Several follow-up letters were sent reiterating its demand upon
private respondent for payment of said deficiency tax. One such follow-up letter dated 19
September 1956 was duly received but private respondent did not contest the assessment
before the CTA. On the theory that the assessment had become final and executory, a
complaint for collection was filed with the CFI of Manila. However, due to petitioner’s failure to
serve summons, the complaint was dismissed. Another complaint was filed on 26 November
1963 where a decision was rendered against private respondent. On appeal, the decision was
reversed.
ISSUE(S):
Whether or not private respondent’s right to dispute the merits of the assessment has already
prescribed.
HELD:
YES. The 19 September 1956 follow-up letter is considered a notice of assessment and is
appealable to the CTA within thirty days from receipt. The taxpayer’s failure to appeal in due
time, as in the case at bar, makes the assessment in question final, executory and demandable.
Thus, private respondent is now barred from disputing the correctness of the assessment or
from invoking any defense that would reopen the question of its liability on the merits.
Commissioner of Internal Revenue vs. Western Pacific Corporation (27 May 1965)
Facts:
Respondent was assessed for P3,731.00, as deficiency income tax for the year1953 which was
brought about by the disallowance of P8,265.82, listed in respondent's return for 1953, as
expense items, and P10,387.50, as written off "bad debts." The assessment was received by
respondent on the same date (March 2, 1959). On March 5, 1959, the CIR wrote a letter of
demand for the payment of the amount, including a breakdown of said assessment. Under date
of June 29, 1959, respondent requested for non-assessment, claiming that there has been
prescription in making the assessment, that the expense items and bad debts were allowable
deduction. The Commissioner on July 30, 1959 denied the same, and demanded for payment
within 30 days from receipt of said demand. On September 19, 1959, respondent requested that
it be permitted until September 25, 1959, to submit formal objections to the assessment. The
formal objections appearing in the letter of September 22, 1959, were identical to those of the
June 29, 1959 communication. The last letter of the Commissioner, dated October 28, 1959,
among others, requested payment of the assessment within 10 days from receipt.
Respondent appealed to the CTA, which absolved respondent but not based on prescription.
Issue:
Whether or not the action has prescribed.
Ruling:
Yes.
The Court that the assessment made by the Commissioner should be maintained, for the simple
reason that when the petition for review was brought to the CTA who no longer had jurisdiction
to entertain the same. The assessment had long become final. A petition for review should be
presented, within the reglementary period, which is 30 days from receipt of the assessment. The
30-day period is jurisdictional. The assessment was received on March 2, 1959. It was only on
June 29, 1959, when said corporation formally assailed the assessment, on the grounds of
prescription in making the assessment and the impropriety of the disallowance of the listed
deductions. From March 3 to June 29, 1959, manifestly more than the 30 days had lapsed and
the assessment became final, executory and demandable. Failure to comply with the 30-day
statutory period would bar appeal and deprive the CTA of its jurisdiction. The decision of the
CTA is set aside for having been rendered without jurisdiction, the assessment in question
having been already final, executory and demandable before the petition for review was
presented.
COMMISSIONER OF INTERNAL REVENUE and ARTURO V. PARCERO, petitioners,vs.
PRIMETOWN PROPERTY GROUP INC., respondent.
G.R. No. 162155.          August 28,2007.
Facts:
On March 11, 1999, Gilbert Yap, the Vice President of Primetown (respondent), applied for
refund of the income tax which they have paid on 1997. According to Yap, the company accrued
losses amounting to P/ 71,879,228. These losses enabled them to be exempt from
paying income tax, which respondent paid diligently. Respondent was therefore claiming a
refund. Respondents submitted requirements but the petitioners ignored their claim. On April 14,
2000, respondents filed a review in the Court of Tax Appeals. The said Court, however, denied
the petition stating that the petition was filed beyond the 2-year prescriptive period for
filing judicial claim for tax refund.
According to Sec 229 of the National Internal Revenue Code, “no suit or proceedings shall be
filed after the expiration of 2-yearsfrom the date of the payment of the tax regardless of any
supervening cause that may arise after payment. Respondents paid the last income tax return
on April 14, 1998. Article 13 of the New Civil Code states that a year is considered 365 days;
months 30 days; days 24-hours; and night from sunset to sunrise. Therefore, according to CTA,
the date of filing a petition fell on the 731st day, which is beyond the prescriptive period.
Issues:
Whether the two-year/730-day prescriptive period ends on April 13, 2000 or April 14, 2000
considering that the last payment of tax was on April 14, 1998 and that year 2000 was
a leap year.
Whether or not Article 13 of the New Civil Code be repealed by EO 292 Sec 31 Chap 8 Book 1
of the Administrative Code of 1987.
Ruling:
The Court ruled that when a subsequent law impliedly repeals a prior law, the new law
shall apply. In the case at bar, Art 13 of the New Civil Code, which states that a year shall
compose 365 days, shall be repealed by EO 292 Sec 31 of the Administrative Code of 1987,
which states that a year shall be composed of 12 months regardless of the number of days in a
month. Therefore, the two-year prescriptive period ends on April 14, 2000. Respondents filed
petition on April 14, 2000 (which is the last day prescribed to file a petition). Primetown is
entitled for the refund since it is filed within the 2-year reglementary period.
CIR v GJM Philippines Manufacturing, Inc.; G.R. No. 202695; 29 Feb 2016

FACTS:
Petitioner previously issued against respondent a Pre-Assessment Notice and Details of
Discrepancies on 12 February 2003, an Assessment Notice indicating a deficiency income tax
assessment on 14 April 2003 and a Preliminary Collection Letter requesting GJM to pay said
deficiency income tax for the taxable year 1999, the last one addressed to GJM’s former
address in Makati. On 18 August 2003, although the BIR sent a Final Notice Before Seizure to
respondent’s address in Cavite, the latter claimed that it did not receive the same.
On 08 December 2003, GJM received a Warrant of Distraint and/or Levy from the BIR.
Respondent then filed its Letter Protest on 07 January 2004, which the BIR denied on 15
January 2004.
ISSUE(S): Whether or not BIR has the burden of proving that GJM received the Final Notice.
HELD:
YES. When an assessment is made within the prescriptive period, as in the case at bar, receipt
by the taxpayer may or may not be within said period. But it must be clarified that the rule does
not dispense with the requirement that the taxpayer should actually receive the assessment
notice, even beyond the prescriptive period.
If the taxpayer denies having received an assessment from the BIR, it then becomes incumbent
upon the latter to prove by competent evidence that such notice was indeed received by the
addressee. A mailed letter is deemed received by the addressee in the course of mail, but this is
merely a disputable presumption subject to controversion, the direct denial of which shifts the
burden to the sender to prove that the mailed letter was, in fact, received by the addressee.
Republic of the Philippines vs. Marsman Development Company and/or F. H. Burgess, in
his capacity as Liquidator of the Marsman Development Company

FACTS:
The Bureau of Internal Revenue (BIR) made assessments against Marsman Development
Company, a timber licensee holder, for deficiency sales taxes and forest charges due for its
operation since 1947 on October 15, 1953, September 13, 1954 and November 3, 1954. The
corporation was given considerable opportunity to comply but it remained unheeded so the BIR
issued final tax notices to the corporation which protested said final notices. Finding no merit in
the protests, the BIR issued a warrant of distraint and levy against it on July 3, 1956. The tax
obligation remained unsettled so the BIR filed a complaint on September 5, 1958 and amended
the complaint on August 26, 1959 to include the liquidator of the corporation, Mr. F. H. Burgess
as the corporation had been extrajudicially dissolved on April 23, 1954. There is no claim that
the affairs of the corporation had already been finally liquidated or settled.
ISSUES:
Is the action for collection of taxes barred by Sec. 77 of Corporation Law (now Section 139 of
the Revised Corporation Code) where assessment was made while the corporatiom was not
completely dissolved?
RULING:
No. The action for collection of tax assessments was not barred even after three years from the
date of dissolution which can be considered incomplete because Extrajudicial dissolution is
permitted only when it does not affect the rights of any creditor having a claim against the
corporation. The Government by its assessment which became final and executory before the
completion of its dissolution by the liquidation of its assets became the creditor of the
corporation.
NOTES:
Taxation; Tax Assessment; Motion for reconsideration thereof not suspend running of period for
collection of tax; Assessment considered final and executory.-The appellant corporation, by its
own omission, made it impossible for the Bureau of Internal Revenue to act on its motion for
reconsideration. It has been held that the mere filing of such a motion does not suspend the
running of the period for the collection of the tax and this implies that any assessment made by
the Bureau is supposed to be final and executory, insofar as the taxpayer is concerned, unless
revised by the Bureau in accordance with law and regulations, but it is to be emphasized that a
taxpayer cannot delay the collection of taxes by the simple expedient of barely asking for
clarification or reconsideration, very often unnecessary and unwarranted, without doing anything
to comply with the statutory and reglementary requirements for the reconsideration of the
assessment made against him.
Prescription; Where taxpayer failed to file return.-Section 231 of the Revenue Code requires the
Collector of Internal Revenue to assess the tax within the period of five years. Section 231 is not
applicable inasmuch as defendant corporation did not file returns for the taxes in question. The
pertinent provision applicable is section 332 (a) which provides that “in case of a false or
fraudulent return or of a failure to file a return, the tax may be assessed … at any time within ten
years after the discovery of the falsity, fraud or omission.”
Filing of complete returns.-In order that the filing of a return may serve as the starting point of
the period for the making of an assessment, the return must be as substantially complete as to
include the needed details on which the full assessment may be made.
Pleading Amendments practice; Admission retroacts to date of actual filing – An amended
complaint must be considered as filed, for the purposes of such a substantive matter as
prescription, on the date it is actually filed with the court, regardless of when it is ultimately
formally admitted by the court.
Commissioner of Internal Revenue vs. Phoenix Assurance Co., Ltd. (20 May 1965)
FACTS:
Phoenix Assurance Co., Ltd., a foreign insurance corporation organized under the laws of Great
Britain, is licensed to do business in the Philippines with head office in London. Through its
head office it entered, in London, into worldwide reinsurance treaties with various foreign
insurance companies. It agreed to cede a portion of premiums received on original insurances
underwritten by its head office, subsidiaries, and branch offices throughout the world, in
consideration for assumption by the foreign insurance companies of an equivalent portion of the
liability from such original insurances.
On August 1, 1958 the Bureau of Internal Revenue released the following assessment for
deficiency income tax for the years 1952 and 1954 against Phoenix Assurance Co., Ltd.
Phoenix Assurance Co., Ltd. protested against the aforesaid assessments for withholding tax
and deficiency income tax. However, the Commissioner of Internal Revenue denied such
protest. Subsequently, Phoenix Assurance Co., Ltd. appealed to the Court of Tax Appeals. In a
decision dated February 14, 1962, the Court of Tax Appeals allowed in full the deduction
claimed by Phoenix Assurance Co., Ltd. for 1950 as net addition to marine insurance reserve;
determined the allowable head office expenses allocable to Philippine business to be 5% of the
net income in the Philippines; declared the right of the Commissioner of Internal Revenue to
assess deficiency income tax for 1952 to have prescribed; absolved Phoenix Assurance Co.,
Ltd. from payment of the statutory penalties for non-filing of withholding tax return.
Issue:
Whether or not the right of the Commissioner of Internal Revenue assess deficiency income tax
for the year 1952 against Phoenix Assurance Co., Ltd. has prescribed
Ruling:
Phoenix Assurance Co., Ltd. filed its income tax return for 1952 on April 1, 1953 showing a loss
of P199,583.93. It amended said return on August 30, 1955 reporting a tax liability of P2,502.00.
On July 24, 1958, after examination of the amended return, the Commissioner of Internal
Revenue assessed deficiency income tax in the sum of P5,667.00. The Court of Tax Appeals
found the right of the Commissioner of Internal Revenue barred by prescription, the same
having been exercised more than live years from the date the original return was filed. On the
other hand, the Commissioner of Internal Revenue insists that his right to issue the assessment
has not prescribed inasmuch as the same was availed of before the 5-year period provided for
in Section 331 of the Tax Code expired, counting the running of the period from August 30,
1955, the date when the amended return was filed.
Section 331 of the Tax Code, which limits the right of the Commissioner of Internal Revenue to
assess income tax within five years from the filing of the income tax return, states:
"SEC. 331. Period of limitation upon assessment and collection. Except as provided in the
succeeding section, internal-revenue taxes shall be assessed within five years after the return
was filed, and no proceeding in court without assessment for the collection of such taxes shall
be begun after the expiration of such period. For the purposes of thin 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."
The question is: Should the running of the prescriptive period commence from the filing of the
original or amended return?
The Court of Tax Appeals ruled that the original return was a complete return containing
"information on various items of income and deduction from which respondent may intelligently
compute and determine the tax liability of petitioner", hence, the .prescriptive period should be
counted from the filing of said original return. On the other hand, the Commissioner of Internal
Revenue maintains that:
"* * * the deficiency income tax in question could not possibly he determined, or assessed, on
the basis of the original return filed on April 1, 1953, for considering that the declared loss
amounted to P199,583.93, the mere disallowance of part of the head office expense could not
possibly result in said loss being completely wiped out and Phoenix being liable to deficiency
tax. Not until the amended return was filed on August 30, 1955 could the Commissioner assess
the deficiency income tax in question."
Accordingly, he would wish to press for the counting of the prescriptive period from the filing of
the amended return.
To our mind, the Commissioner's view should he sustained. The changes and alterations
embodied in the amended income tax return consisted of the exclusion of reinsurance
premiums received from domestic insurance companies by Phoenix Assurance
Co., Ltd.'s London head office, reinsurance premiums ceded to foreign reinsurers not doing
business in the Philippines and various items of deduction attributable to such excluded
reinsurance premiums, thereby substantially modifying the original return. Furthermore,
although the deduction for head office expenses allocable to Philippine business, whose
disallowance gave rise to the deficiency tax, was claimed also in the original return, the
Commissioner could not have possibly determined a deficiency tax thereunder because
Phoenix Assurance Co., Ltd. declared a loss of P199,583.93 therein which would have more
than offset such disallowance of P15,826.35. Considering that the deficiency assessment was
based on the amended return which, as afore-stated, is substantially different from the original
return, the period of limitation of the right to issue the same should be counted from the filing of
the amended income tax return. From August 30, 1955, when the amended return was filed, to
July 24, 1958, when the deficiency assessment was issued, less than five years elapsed. The
right of the Commissioner to assess the deficiency tax on such amended return has not
prescribed.
To strengthen our opinion, we believe that to hold otherwise, we would be paving the way for
taxpayers to evade the payment of taxes by simply reporting in their original return heavy losses
and amending the same more than five years later when the Commissioner of Internal Revenue
has lost his authority to assess the proper tax thereunder. The object of the Tax Code is to
impose taxes for the needs of the Government, not to enhance tax avoidance to its prejudice.
Butuan Sawmill, Inc. v. Court of Tax Appeals (February 28, 1966)
FACTS:
During the period from 31 January 1951 to 08 June 1953, petitioner sold logs to Japanese firms.
Upon ascertainment on 17 September 1957 that petitioner did not file a sales tax return and pay
the corresponding tax on the sales, CIR on 27 August 1958 assessed against petitioner tax,
surcharge and compromise penalty on its sales of logs for the said period.
Petitioner averred that the filing of its income tax returns, wherein the proceeds of the disputed
sales were declared, is substantial compliance with the requirements of filing a sales tax return.
ISSUE(S):
Whether or not the assessment was made within the prescriptive period provided by the law
therefor.
HELD:
YES. The taxpayer must file a return for the particular tax required by law in order to avail
himself of the benefits of Section 331 of the Tax Code; otherwise, if he does not file a return, an
assessment may be made within the time stated in Section 332(a) of the same Code.
It being undisputed that petitioner failed to file a return for the disputed sales corresponding to
the years 1951, 1952 and 1953, and this omission was discovered only on 17 September 1957,
and that under Section 332 (a) of the Tax Code assessment thereof may be made within ten
(10) years from and after the discovery of the omission to file the return, it is evident that the
assessment and collection of the sales tax in question has not yet prescribed.
Commissioner of Internal Revenue v Ayala Securities Corporation (March 31, 1976)
FACTS:
Respondent, in a letter dated 19 April 1961, protested against the assessment issued by
petitioner in a letter dated 21 February 1961 on its retained and accumulated surplus pertaining
to the taxable year 1955 and sought reconsideration thereof. On 21 February 1963, respondent
received a letter dated 18 February 1963 from petitioner calling the attention of the respondent
to its outstanding and unpaid tax and thereby requesting for the payment of the same within five
(5) days from receipt of the said letter.
Believing the aforesaid letter to be a denial of its protest, respondent corporation filed a petition
for review with CTA.
ISSUE(S):
Whether or not the 18 February 1963 letter amounted to a denial of respondent’s protest.
HELD:
YES. The letter of 18 February 1963 is tantamount to a denial of the reconsideration or protest
of the respondent corporation on the assessment made by the petitioner, considering that the
said letter is in itself a reiteration of the demand by the BIR for the settlement of the assessment
already made, and for the immediate payment in spite of the vehement protest of the
respondent corporation on 21 April 1961. This certainly is a clear indication of the firm stand of
the petitioner against the reconsideration of the disputed assessment in view of the continued
refusal of the respondent corporation to execute the waiver of the period of limitation upon the
assessment in question. This being so, the said letter amounts to a decision on a disputed or
protested assessment.
Philippine Journalists, Inc. v. Commissioner of Internal Revenue, G.R. No. 162852, 16
December 2004
FACTS
The Revenue District Office of the Bureau of Internal Revenue (BIR) issued Letter of Authority
for Revenue Officer Federico de Vera, Jr. and Group Supervisor Vivencio Gapasin to examine
petitioner’s books of account and other accounting records for internal revenue taxes. Revenue
District Officer Jaime Concepcion invited petitioner to send a representative to an informal
conference for an opportunity to object and present documentary evidence relative to the
proposed assessment. Petitioner’s Comptroller, LorenzaTolentino, executed a “Waiver of the
Statute of Limitation Under the National Internal Revenue Code (NIRC)”. Records show that, it
did not bear the date of acceptance, that petitioner was not furnished a copy of the waiver, and
the waiver was signed only by the Revenue District Officer. The tax liability exceeds One Million
Pesos (P1,000,000.00).
ISSUE
Whether the waiver is in accordance with RMO No. 20-90 to validly extend the three-year
prescriptive period under the NIRC.
HELD
NO.
The waiver document is incomplete and defective and thus the three-year prescriptive period
was not tolled or extended and continued to run. Consequently, the Assessment/Demand was
invalid because it was issued beyond the three (3) year period. In the same manner, Warrant of
Distraint and/or Levy which petitioner received thereafter is also null and void for having been
issued pursuant to an invalid assessment.
The NIRC, under Sections 203 and 222, provides for a statute of limitations on the assessment
and collection of internal revenue taxes in order to safeguard the interest of the taxpayer against
unreasonable investigation. Unreasonable investigation contemplates cases where the period
for assessment extends indefinitely because this deprives the taxpayer of the assurance that it
will no longer be subjected to further investigation for taxes after the expiration of a reasonable
period of time.
A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the
taxpayers’ right to security against prolonged and unscrupulous investigations and must
therefore be carefully and strictly construed. xxx Thus, the law on prescription, being a remedial
measure, should be liberally construed in order to afford such protection.
The waiver is also defective from the government side because it was signed only by a revenue
district officer, not the Commissioner, as mandated by the NIRC and RMO No. 20-90. The
waiver is not a unilateral act by the taxpayer or the BIR, but is a bilateral agreement between
two parties to extend the period to a date certain. The conformity of the BIR must be made by
either the Commissioner or the Revenue District Officer. This case involves taxes amounting to
more than One Million Pesos (P1,000,000.00) and executed almost seven months before the
expiration of the three-year prescription period. For this, RMO No. 20-90 requires the
Commissioner of Internal Revenue to sign for the BIR.
Commissioner of Internal Revenue v. Kudos Metal Corporation, G.R. 178087, 05
May 2010 
FACTS
The CTA En Banc ruled for canceling the assessment notices issued against respondent for
having been issued beyond the prescriptive period. It found the first Waiver of the Statute of
Limitations incomplete and defective for failure to comply with the provisions of Revenue
Memorandum Order (RMO) No. 20-90. Thus: the waiver failed to indicate the date of
acceptance. Such date of acceptance is necessary to determine whether the acceptance was
made within the prescriptive period; And, the fact of receipt by the taxpayer of his file copy was
not indicated on the original copy. The requirement to furnish the taxpayer with a copy of the
waiver is not only to give notice of the existence of the document but also of the acceptance by
the BIR and the perfection of the agreement. The subject waiver is therefore incomplete and
defective. As such, the three-year prescriptive period was not tolled or extended and continued
to run.
Petitioner argues that the government’s right to assess taxes is not barred by prescription as the
two waivers executed by respondent, through its accountant, effectively tolled or extended the
period within which the assessment can be made. In disputing the conclusion of the CTA that
the waivers are invalid, petitioner claims that respondent is estopped from adopting a position
contrary to what it has previously taken. Petitioner insists that by acquiescing to the audit during
the period specified in the waivers, respondent led the government to believe that the “delay” in
the process would not be utilized against it. Thus, respondent may no longer repudiate the
validity of the waivers and raise the issue of prescription. Respondent maintains that
prescription had set in due to the invalidity of the waivers executed by Pasco, who executed the
same without any written authority from it, in clear violation of RDAO No. 5-01.
ISSUE
Whether the belated assessment of the CIR is still valid and effective on the ground that
respondent is already in estoppel.
HELD
NO. 
Section 203 of the National Internal Revenue Code of 1997 (NIRC) mandates the government
to assess internal revenue taxes within three years from the last day prescribed by law for the
filing of the tax return or the actual date of filing of such return, whichever comes later. Hence,
an assessment notice issued after the three-year prescriptive period is no longer valid and
effective. Exceptions however are provided under Section 222 of the NIRC.
Section 222 (b) of the NIRC 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. RMO 20-90 issued on April 4, 1990 and RDAO 05-01 issued
on August 2, 2001 lay down the procedure for the proper execution of the waiver
Due to the defects in the waivers, the period to assess or collect taxes was not extended.
Consequently, the assessments were issued by the BIR beyond the three-year period and are
void.
CIR v. NEXT MOBILE, INC. GR No. 212825. December 7, 2015
FACTS:

Respondent filed with the BIR taxes for 2001. Respondent, through Sarmiento, their director of
Finance, executed several waivers of the statute of limitations to extend the prescriptive perios
of assessment for taxes. 

On 2005, respondent received from the BIR a PAN and a formal letter of demand to pay
deficiency income tax. The BIR denied respondent's protest.

With the CTA, it was held that the demand was beyond the three year prescription period under
the NIRC. That the case does not apply the 10 year prescripton period as there was not false
return by the respondent. Also, the waivers did not validly extend the prescription because of
irregularities. 

ISSUE: Whether the period to pay has prescribed.

RULING:

NO.

The SC held that a waiver of the statute of limitations must faithfully comply with RMO No. 20-
90 and RDAO 05-01 in order to be valid. Sarmiento failed to show her authority to the BIR to
sign the waivers.

The BIR were also at fault having to neglect their ministerial duties. 

Both parties knew the infirmities of the waivers but still continued. Respondents were held in
bad faith as after having benefited by the waivers by giving them more time to pay, they used
the waivers they made themselves when the consequences were not in their favor.

The BIR's negligence amounts to malice and bad faith as they also knew the waivers did not
conform with RMO 20-90 and RDAO 05-01.
As both parties are in bad faith, the SC granted the petition on the issue of the nullification of the
formal letter of demand to the CTA.

Commissioner of Internal Revenue v Philippine Daily Inquirer Inc (March 22 2017)

FACTS:
BIR in a letter dated 30 June 2006 and received by respondent on 10 August 2006 invited the
latter to reconcile the deficiencies in its VAT returns for taxable year 2004. In connection
thereto, respondent executed three waivers of the statute of limitation, consenting to the
assessment and/or collection of taxes for 2004 which may be found before or after the lapse of
the period of limitations fixed by the NIRC.
The first waiver was executed on 21 March 2007 and received on 23 March 2007. The second
was executed on 05 June 2007 and accepted on 08 June 2007. The third was executed on 12
December 2007 and accepted on 20 December 2007.
The first and second waivers were executed in three copies, but the office accepting were not
provided with their respective third copies, as these were still attached to the docket of the case.
The third waiver was not executed in three copies.
ISSUE(S):
Whether or not the three-year prescriptive period was extended.
HELD:
NO. 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 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
waver. The third waiver still failed to extend the prescriptive period because it was not executed
in three copies.
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 v Transition Optical Philippines, Inc.
FACTS: On April 28, 2006, Transitions Optical received a Letter of Authority from BIR
authorizing Revenue Officers to examine its books of accounts for internal revenue tax
purposes for taxable year 2004. On October 9, 2007, the parties executed a Waiver of the
Defense of Prescription (First Waiver). In this waiver, the prescriptive period for the assessment
was extended to June 20, 2008. This was followed by another Waiver of the Defense of
Prescription (Second Waiver) extending the prescriptive period to November 30, 2008.
Thereafter, the CIR issued a Preliminary Assessment Notice (PAN) assessing Transitions
Optical for its deficiency taxes, to which the latter protested. Subsequently, a Final Assessment
Notice (FAN) was issued. In its Protest Letter against the FAN, Transitions Optical alleged that
the demand for deficiency taxes had already prescribed at the time the FAN was mailed. The
CIR issued a Final Decision on the Disputed Assessment holding Transitions Optical liable for
deficiency taxes of P19,701,849.69. Transitions Optical filed a Petition for Review before the
CTA. The CTA held that the waivers were defective and therefore void.
ISSUE(S):
1. W/N the two (2) Waivers entered into by the parties was valid.
2. W/N the assessment of deficiency taxes against respondent had prescribed.
RULING:
1. YES, as a general rule, petitioner has three (3) years to assess taxpayers from the filing of
the return. An exception to the rule of prescription is found in Section 222 (b) and (d) of the
NIRC.
2. YES, the assessment was served beyond the supposedly extended period.
RATIO: 1. Section 222 (b) and (d) of the NIRC provides: xxx

If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both
the Commissioner and the taxpayer have agreed in writing to its assessment after such time,
the tax may be assessed within the period agreed upon. The period so agreed upon may be
extended by subsequent written agreement made before the expiration of the period previously
agreed upon. xxx Any internal revenue tax, which has been assessed within the period agreed
upon as provided in paragraph (b) hereinabove, may be collected by distraint or levy or by a
proceeding in court within the period agreed upon in writing before the expiration of the five (5)-
year period. The period so agreed upon may be extended by subsequent written agreements
made before the expiration of the period previously agreed upon.

Thus, the period to assess and collect taxes may be extended upon the Commissioner of
Internal Revenue and the taxpayer's written agreement, executed before the expiration of the
three (3)-year period. The CTA declared as defective and void the Waivers for non-compliance
with requirements for the proper execution of a waiver. It held that the Waivers were not
accompanied by a notarized written authority. However, the respondent is estopped from
questioning the validity of its waivers. It never raised the invalidity of the waivers at the earliest
opportunity, either in its Protest to the PAN, FAN or Supplemental Protest to the FAN.
Respondent only raised this issue to in its Petition for Review with the CTA. 2. The First Division
of the CTA found that the date indicated in the envelope/mail matter containing the FAN and the
FLD is December 4, 2008, which is considered as the date of their mailing. Since the validity
period of the second Waiver is only until November 30, 2008, prescription had already set in at
the time the FAN and the FLD were actually mailed on December 4, 2008. Considering the
functions and effects of a PAN vis à vis a FAN, it is clear that the assessment contemplated in
Sections 203 and 222 of the NIRC refers to the service of the FAN upon the taxpayer. A PAN
merely informs the taxpayer of the initial findings of the Bureau of Internal Revenue. It contains
the proposed assessment, and the facts, law, rules, and regulations or jurisprudence on which
the proposed assessment is based. It does not contain a demand for payment but usually
requires the taxpayer to reply within 15 days from receipt. Otherwise, the CIR will finalize an
assessment and issue a FAN. On the other hand, a FAN contains not only a computation of tax
liabilities but also a demand for payment within a prescribed period. As soon as it is served, an
obligation arises on the part of the taxpayer concerned to pay the amount assessed and
demanded. It also signals the time when penalties and interests begin to accrue against the
taxpayer.
Commissioner of Internal Revenue v Systems Technology Institute, Inc (July 26 2017)
Facts:
Respondent filed its Amended Annual Income Tax Return for fiscal year 2003 on August 15,
2003. Filed its quarterly VAT Returns on July 23, 2002, October 25, 2002, January 24, 2003 and
May 23, 2003. And likewise filed its Expanded Withholding Tax from May 10, 2002 to April 15,
2003. Sangalang, of STI signed a Waiver of Defense of Prescription under the Statute of
Limitations of the National Internal Revenue Code with the proviso that the Assessment and
Collection of taxes of fiscal year shall come “no later than December 31, 2006”. The waiver was
accepted by Large Taxpayers District Office of Makati. Prior to the lapse of the first waiver,
another waiver was executed extending for the same purpose. And in the third waiver was
executed extending further the assessment and collection to June 30, 2007. The respondent
received a Formal Assessment Notice from the CIR for deficiency Income Tax, VAT and EWT
for fiscal year 2003 in the aggregate amount of Php 161,835,737.98 within the extended period
in the waiver. It filed a request for reconsideration/reinvestigation. And finally received from the
CIR the Final Decision on Disputed Assessment finding the respondent liable for deficiency
income tax, VAT and EWT in the lesser amount of Php 124,257,764.20. A petition for review
was filed by the respondent with the CTA. And the later promulgated its Decision denying the
assessment on the ground of prescription. The waivers were found to be defective for failing to
strictly comply with the requirements provided by Revenue Memorandum Order No. 20-90 and
Revenue Delegation Authority Order No. 05-01. Failure to comply will render the assessment
and collection not be extended and will not bar the respondent from questioning the validity
thereof or invoking the defense of prescription.
Issue:
Whether or not prescription had set in against the assessments for deficiency Income Tax,
deficiency VAT and deficiency Expanded Withholding Tax.

Held:
The court ruled in the affirmative. The waivers of Statute of Limitations being defective and
invalid did not extend the Commissioner of Internal Revenue period to issue the subject
assessment. Thus, the right of the government to assess or collect alleged deficiency taxes is
already barred by prescription. Sec. 203 of the NIRC of 1997, as amended, limits the CIR’s
period to assess and collect revenue taxes to three years counted from the last day prescribed
by law for the filing of the return or from the day the return was filed whoever comes later so as
to safeguard the interests of taxpayers from unreasonable investigation. Compliance with the
provisions of RMO 20-90 and RDAO 05-01 are mandatory and must strictly be followed. And as
observed, the CIR failed to recognize the following deviations which rendered the waiver invalid.
a. It became unlimited in time b. It was signed by one other than the CIR or the latter’s duly
authorized representative c. No date of acceptance d. Taxpayer has no copy of the waiver e. No
notarized written authority of the taxpayer’s representative to sign the waiver on its behalf. f.
Failure to specify the kind and amount of the tax due. Likewise, the Doctrine of Estoppel cannot
be applied as an exception to the Statute of Limitations on the assessments of taxes
considering that there is a detailed procedure for the proper execution of the waiver which the
BIR must strictly follow.

Rizal Commercial Banking Corporation v CIR (September 7 2011)

FACTS:
RCBC received the final assessment notice on July 5, 2001. It filed a protest on July 20, 2001.
As the protest was not acted upon, it filed a Petition for Review with the Court of Tax Appeals
(CTA) on April 30, 2002, or more than 30 days after the lapse of the 180-day period reckoned
from the submission of complete documents. The CTA dismissed the Petition for lack of
jurisdiction since the appeal was filed out of time.
ISSUE:
Has the action to protest the assessment judicially prescribed?
HELD:
YES. The assessment has become final. The jurisdiction of the CTA has been expanded to
include not only decision but also inactions and both are jurisdictional such that failure to
observe either is fatal.
However, if there has been inaction, the taxpayer can choose between (1) file a Petition with the
CTA within 30 days from the lapse of the 180-day period OR (2) await the final decision of the
CIR and appeal such decision to the CTA within 30 days after receipt of the decision. These
options are mutually exclusive and resort to one bars the application of the other. Thus, if
petitioner belatedly filed an action based on inaction, it can not subsequently file another petition
once the decision comes out.
Commissioner of Internal Revenue v Standard Chartered Bank (July 29 2015)
FACTS:

Respondent received CIR's Formal Letter of Demand for alleged deficiency income tax, final
income tax, withholding tax - final and compensation, and increments for the taxable year worth
P 33,326,211.37.

Respondent protested the said assessment by filing a letter-protest with the CIR requesting the
assessment to be withdrawn.

In the middle of things, respondent paid the BIR the assessed deficiency for both the
withholding taxes.

Respondent then filed for a petition for the cancellation and setting aside of the assessments
which the CTA granted. The CTA held that it has already prescribed as it covered the taxable
year of 1998. 

The NIRC provides that the assessments should have been issued within the three-year
prescriptive period. The CIR also presented the Waivers of Statute of Limitations executed by
the parties which extended the period to assess respondent. The CTA held that the CIR failed to
strictly comply and conform with the provisions of Revenue Memorandum Order No. 20-90. The
CTA held that the waivers were invalid.

ISSUE: Whether the assessments were already prescribed. Whether the waiver was invalid.

RULING:

Yes and yes.

The NIRC is clear that in a case where a return is filed beyond the period prescribed by law, the
three-year period shall be counted from the day the return was filed.
The waiver, as also provided by the NIRC, is an exception to the three-day prescription. But, as
the CTA first held, the provisions of the RMO should have been strictly complied with. Failing to
comply renders a waiver defective and ineffectual.

FACTS:
Appellee Rita Lim de Yu filed her yearly income tax returns from 1948 through 1953. The
Bureau of Internal Revenue assessed the taxes due on each return, and appellee paid them
accordingly. On July 17, 1956 the Bureau issued to appellee deficiency income tax
assessments for the years 1945 to 1953 in the total amount of P22,450.50. She protested the
assessments and requested a reinvestigation. On August 30, 1956 she signed a "waiver" of the
statute of limitations under the Tax Code as a condition to the reinvestigation requested.
Thereafter, or on July 18, 1958, the Bureau issued to her income tax assessment notices for the
years 1948 to 1953, totalling P35,379.63. This last assessment, like the one issued in 1956,
covered not only the basic deficiency income taxes, but also 50% thereof as surcharge. Upon
appellee's failure to pay, an action for collection was filed against her in the Court of First
Instance of Cotabato on May 11, 1959. After trial the suit was dismissed, and the Government
appealed to the Court of Appeals.
ISSUE:
Whether or not in dismissing the case on the ground that the right of appellant to collect the
deficiency income tax assessments had already prescribed.
RULING:
Fraud not having been proven, the period of limitation for assessment or collection was five
years from the filing of the return, according to Section 331 of the tax code. The right to assess
or collect the income taxes for the years 1948 to 1950 had already prescribed, therefore, when
the Bureau of Internal Revenue issued the deficiency income tax assessments on July 17,
1956.
The tax years 1948 to 1950 cannot be deemed included in the "waiver of the statute of
limitations under the National Internal Revenue Code" executed by appellee on August 30,
1956. The five-year period for assessment, counted from the date the return is filed, may be
extended upon agreement of the Commissioner and the taxpayer, but such agreement must be
made before, not after, the expiration of the original period (Section 332 [b], Tax Code). The
clear import of the provision is that it does not authorize extension once prescription has
attached.
An assessment is not an action or proceeding for the collection of taxes. It is merely a notice to
the effect that the amount therein stated is duo as tax and a demand for the payment thereof. It
is a step preliminary, but essential to warrant distraint, if still feasible, and, also, to establish a
cause for judicial action as the phrase is used in section 816 of the Tax Code * * *" (Alhambra
Cigar and Cigarette Manufacturing Company vs. The Collector of Internal Revenue, L-12026,
May 29, 1959)
Section 331 gives the Government five years from filing of the return (which is not false or
fraudulent) within which to assess the tax due. Paragraph (b) of Section 332 allows the
extension of this period by means of 3 written agreement between the taxpayer and the
Commissioner of Internal Revenue. On the other hand, paragraph (c) of the same section is
concerned with the collection of the tax after assessment, regardless of whether the
assessment was made during the original five-year period or within an agreed period of
extension. Collection then may be effected within five years after assessment or within the
"period for collection agreed upon in writing by the Commissioner of Internal Revenue and the
taxpayer before the expiration of such five-year period." Thus, although under the waiver
appellee consented to the "assessment and collection" if made not later than December 31,
1958, such expiration date must be deemed to refer only to the extension of the assessment
period. Insofar as collection is concerned, the period does not apply, for otherwise the effect of
the waiver would be to shorten, not extend, the legal period for that purpose. Appellant therefore
had five years from 1958 within which to file his action, which was actually filed in 1959.
Republic of the Philippines v Heirs of Cesar Jalandoni (September 20 1965)
Aznar v CTA (August 23 1974)

FACTS:
The CIR having doubts on the veracity of the reported income of the obviously wealthy
deceased taxpayer, the latter’s assets and liabilities during the period of 1941 to 1951 were
ascertained. The findings clearly indicated that said taxpayer did not correctly declare the
income reported in his income tax returns from 1946 to 1951, as the yearly increases in his net
worth were very much more than what was reported during said period. Respondent CIR issued
an assessment notice which, after reinvestigation, significantly reduced the assessed deficiency
income tax.
ISSUE(S):
Whether or not fraud with intent to evade taxes could be presumed from the deceased’s
erroneous income tax returns.
HELD:
NO. 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. Negligence, whether slight or gross, is not equivalent to the fraud with
intent to evade tax. It must amount to intentional wrongdoing with the sole object of avoiding the
tax. It necessarily follows that a mere mistake cannot be considered as fraudulent intent. If both
petitioner and respondent CIR committed mistakes in making entries in the returns and in the
assessment, respectively, it would be unfair to treat the mistakes of the petitioner as tainted with
fraud and those of respondent as made in good faith.
Commissioner of Internal Revenue v Asalus Corporation (February 22 2017)
FACTS:
Respondent filed before the CTA Division a petition for review of petitioner’s Final Decision on
Disputed Assessment (FDDA) showing deficiency VAT for 2007, where there was a finding of
under declaration of more than 30% of its declared VAT sales. In its 02 April 2014 Decision, the
CTA Division ruled that the VAT assessment had prescribed and consequently deemed invalid
because petitioner failed to present evidence regarding its allegation of fraud or falsity in the
returns.
ISSUE(S):
Whether or not a false return may be presumed.
HELD:
YES. When there is a showing that a taxpayer has substantially underdeclared its sales,
receipts 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 presumption
has been overcome.
Commissioner of Internal Revenue v Ayala Securities Corporation (November 21 1980)
FACTS:
Before the Court is petitioner Commissioner of Internal Revenue's motion for reconsideration of
the Court's decision of April 8, 1976 wherein the Court affirmed in toto the appealed decision of
respondent Court of Tax Appeals: cancelled and declared of no force and effect. This Court's
decision under reconsideration held that the assessment made on February 21, 1961 by
petitioner against respondent corporation (and received by the latter on March 22, 1961) in the
sum of P758,687.04 on its surplus of P2,758,442.37 for its fiscal year ending September 30,
1955 fell under the five-year prescriptive period provided in section 331 of the National Internal
Revenue Code and that the assessment had, therefore, been made after the expiration of the
said five-year prescriptive period and was of no binding force and effect . Ayala Securities Corp
filed its ITR w/ the CIR for the fiscal year w/c ended on Sept 30, 1955. Attached to its ITR was
the audited financial statements showing a surplus of P2M+. Income tax due on the return was
duly paid w/in the period prescribed by law. CIR then advised Ayala for the assessment of
P758k unpaid tax on its accumulated surplus. Ayala protested ate assessment and sought
reconsideration given that the accumulation was 1) for a bona fide business purpose and not to
avoid imposition of tax, and 2) assessment was issued beyond 5 yrs. CTA and SC both held
that the assessment was made beyond the 5-year period and thus had no binding force and
effect.
ISSUE: Whether or not the assessment was done beyond the prescriptive period
HELD: YES. In this case, the applicable provision is NOT Sec 332a but Sec 331. Sec 332
should apply when there is fraud / falsity on the return with intent to evade payment of tax.
There is no evidence presented by the CIR in this case as to any fraud/falsity on the return w/
intent to avoid payment. Fraud is a question of fact, circumstances must be proven and alleged.
In this case, the assessment issued on Feb 21, 1961, received by Ayala on March 22, 1961,
was made BEYOND the 5 year period prescribed under Sec331 (Ayala could file its income tax
on or before Jan 1956 thus, assessment must be made NOT later than Jan 1961). Thus, it was
no longer binding on Ayala Securities.
Commissioner of Internal Revenue v BASF Coating + Inks Phils, Inc (November 26 2014)
FACTS:
Respondent, after its dissolution, moved out of its address in Las Piñas City and
transferred to Laguna. It submitted various documents among which is BIR Form No.
1905, which refers to an update of information contained in its tax registration.
At various times, BIR officials conducted examination and investigation of respondent’s
tax liabilities at the latter’s new address in Laguna. The BIR also sent respondent a letter
informing it of the results of their investigation and inviting it to an informal conference.
It, however, sent by registered mail a Formal Assessment Notice (FAN) for deficiency
taxes to respondent’s former address in Las Piñas.
ISSUE(S):
Whether or not respondent’s change of address tolled the running of the statute of
limitations.
HELD:
NO. Petitioner, by all indications, is well aware that respondent had moved to its new
address in Laguna. 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 three-year period to assess respondent was not suspended and has already
prescribed.