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Remedies of the Government
1.Ungab vs. Judge QUIRICO P. UNGAB, vs. HON. VICENTE N. CUSI, JR., CFI Judge, THE
Cusi Jr. COMMISSIONER OF INTERNAL REVENUE, and JESUS N. ACEBES, State
Prosecutor
G.R. Nos. L-41919-24 | 1980-05-30
FACTS:
• BIR Examiner examined the income tax returns filed by Ungab for the
calendar year ending December 31, 1973.
o Ungab failed to report his income derived from sales of banana
saplings.
• BIR District Revenue Officer at Davao City sent a "Notice of Taxpayer"
to Ungab
o informing him that there is due from him the amount of P104,980.81,
representing income, business tax and forest charges;
o inviting Ungab to an informal conference where Ungab, duly assisted
by counsel, may present his objections to the findings of the BIR Examiner.
• Upon receipt of the notice, Ungab wrote the BIR District Revenue
Officer protesting the assessment, claiming:
o that he was only a dealer or agent on commission basis in the banana
sapling business and
o that his income, as reported in his income tax returns for the said year,
was accurately stated.
• BIR Examiner was fully convinced that Ungab had filed a fraudulent
income tax return so that he submitted a "Fraud Referral Report," to the Tax
Fraud Unit of the BIR.
• Special Investigation Division of the BIR found sufficient proof that
Ungab is guilty of tax evasion for the taxable year 1973 and recommended his
prosecution.
• CIR approved the prosecution of Ungab.
State Prosecutor, 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 filed six (6)
informations against Ungab with the CFI:
(1) for filing a fraudulent income tax return for the calendar year ending
December 31, 1973;
(2) for engaging in business as producer of saplings, from January, 1973 to
December, 1973, without first paying the annual fixed or privilege tax thereof;
(3) for failure to render a true and complete return on the gross quarterly sales,
receipts and earnings in his business as producer of banana saplings and to pay
the percentage tax due thereon, for the quarter ending December 31, 1973;
(4) xxx March 31, 1973;
ISSUE:
Whether the protest of Ungab against the assessment of the District Revenue Officer can
stop his prosecution for violation of the National Internal Revenue Code.
RULING: NO
(1) The State Prosecutor, although believing that he can proceed independently of the City
Fiscal in the investigation and prosecution of these cases, first sought permission from the
City Fiscal of Davao City before he started the preliminary investigation of these cases.
The City Fiscal, after being shown Administrative Order No. 116, designating the said State
Prosecutor to assist all Provincial and City fiscals throughout the Philippines in the
investigation and prosecution of all violations of the National Internal Revenue Code, as
amended, and other related laws, graciously allowed the State Prosecutor to conduct the
investigation of said cases, and in fact, said investigation was conducted in the office of the
City Fiscal.
(2) 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.
"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." Guzik vs. U.S., 54
F2d 618.
"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 willfully 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." Merten's Law of
Federal Income Taxation, Vol. 10, Sec. 55A.05, p. 21.
Besides, it has been ruled that a petition for reconsideration of an assessment may affect
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(5) for failure to render a true and complete return on the gross quarterly sales, the suspension of the prescriptive period for the collection of taxes, but not the prescriptive
receipts and earnings in his business as producer of banana saplings for the period of a criminal action for violation of law. People vs. Ching Lak alias Ang You Chu,
quarter ending on June 30, 1973, and to pay the percentage tax due thereon; L-10609, May 23, 1958.
(6) xxx September 30, 1973 xxx

Ungab 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:
• while the State Prosecutor may initiate the investigation of and
prosecute crimes and violations of penal laws when duly authorized, certain
requisites, enumerated in Estrella vs. Orendain should be observed before such
authority may be exercised;
o "Under Sections 1679 and 1686 of the Revised Administrative Code, in
any instance where a provincial or city fiscal fails, refuses or is unable, for any
reason, to investigate or prosecute a case and, in the opinion of the Secretary of
Justice it is advisable in the public interest to take a different course of action,
the Secretary of Justice may either appoint as acting provincial or city fiscal, to
handle the investigation or prosecution exclusively and only of such case, any
practicing attorney or some competent officer of the Department of Justice or
office of any city or provincial fiscal, with complete authority to act therein in all
respects as if he were the provincial or city fiscal himself, or appoint any lawyer
in the government service, temporarily to assist such city of provincial fiscal in
the discharge of his duties, with the same complete authority to act in
dependently of and for such city or provincial fiscal, provided that no such
appointment may be made without first hearing the fiscal concerned and never
after the corresponding information has already been filed with the court by the
corresponding city or provincial fiscal without the conformity of the latter, except
when it can be patently shown to the court having cognizance of the case that
said fiscal is intent on prejudicing the interests of justice.
o The same sphere of authority is true with the prosecutor directed and
authorized under Section 3 of Republic Act 3783, as amended and/or inserted
by Republic Act 5184.
o The observation in Salcedo vs. Liwag regarding the nature of the
power of the Secretary of Justice over fiscals as being purely over administrative
matters only was not really necessary, as indicated in the above relation of the
facts and discussion of the legal issues of said case, for the resolution thereof."
• Otherwise, the provisions of the Charter of Davao City on the functions
and powers of the City Fiscal will be meaningless because according to said
charter he has charge of the prosecution of all crimes committed within his
jurisdiction.
(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 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.
Trial court denied the motion.
2. BIR vs. Spouses BIR VS. COURT OF APPEALS AND SPOUSES MANLY
Antonio Villan G.R. No. 197590 | 2014-11-24
Subject:
Propriety of Rule 65 petition;
Determination of probable cause by the DOJ is subject to judicial review by the
courts when there exists grave abuse of discretion;
Tax evasion;
A deficiency assessment is not required in a criminal prosecution for tax
evasion, but proof that a tax is due is still required;
'Expenditure method' as a technique used by the BIR to determine a taxpayer's
undeclared income;
Probable cause sufficiently established
FACTS:
• Antonio Villan Manly is a stockholder and the Executive Vice-President
of Standard Realty Corporation, a family-owned corporation.
o He is also engaged in rental business.
• In April 2005, the Bureau of Internal Revenue (BIR) issued a Letter of
Authority to investigate the spouses Manly’s internal revenue tax liabilities for
taxable year 2003 and prior years.
• June 6, 2005, BIR issued a letter to the spouses requiring them to
submit documentary evidence to substantiate the source of their cash purchase
of a 256-square meter log cabin in Tagaytay City worth P17,511,010.00.
• The spouses, however, failed to comply with the letter.
• The investigation showed that despite the modest income declared for
the years 1998 to 2003 (total: P2,104,571.58), the spouses were able to
purchase in cash several luxurious properties.
o The revenue officers concluded that Antonio’s Income Tax Returns
(ITRs) for taxable years 2000, 2001, and 2003 were underdeclared.
o And since the underdeclaration exceeded 30% of the reported or
declared income, it was considered a prima facie evidence of fraud with intent to
evade the payment of proper taxes due to the government.
o The revenue officers, thus, recommended the filing of criminal cases
against the spouses Manly.
• The spouses denied the accusations and alleged that they used their
accumulated savings from their earnings for the past 24 years in purchasing the
properties.
o They also contended that the criminal complaint should be dismissed
because the BIR failed to issue a deficiency assessment against them.
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ISSUE:
HELD:
TAX EVASION
Sections 254 and 255 of the NIRC pertinently provide:
SEC. 254. Attempt to Evade or Defeat Tax. – Any person who willfully attempts in any
manner to evade or defeat any tax imposed under this Code or the payment thereof shall,
in addition to other penalties provided by law, upon conviction thereof, be punished by a
fine of not less than Thirty thousand pesos (P30,000.00) but not more than One hundred
thousand pesos (P100,000.00) and suffer imprisonment of not less than two (2) years but
not more than four (4) years: Provided, That the conviction or acquittal obtained under this
Section shall not be a bar to the filing of a civil suit for the collection of taxes.
SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax,
Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation. – Any
person required under this Code or by rules and regulations promulgated thereunder to pay
any tax, make a return, keep any record, or supply correct and accurate information, who
willfully fails to pay such tax, make such return, keep such record, or supply such correct
and accurate information, or withhold or remit taxes withheld, or refund excess taxes
withheld on compensation at the time or times required by law or rules and regulations
shall, in addition to other penalties provided by law, upon conviction thereof, be punished by
a fine of not less than Ten thousand pesos (P10,000.00) and suffer imprisonment of not
less than one (1) year but not more than ten (10) years.
A DEFICIENCY ASSESSMENT IS NOT REQUIRED IN A CRIMINAL PROSECUTION FOR
TAX EVASION, BUT PROOF THAT A TAX IS DUE IS STILL REQUIRED
Tax evasion is deemed complete when the violator has knowingly and willfully filed a
fraudulent return with intent to evade and defeat a part or all of the tax. (see Ungab v.
Judge Cusi, Jr.)
Corollarily, an assessment of the tax deficiency is not required in a criminal prosecution for
tax evasion.
However, in Commissioner of Internal Revenue v. Court of Appeals, we clarified that
although a deficiency assessment is not necessary, the fact that a tax is due must first be
proved before one can be prosecuted for tax evasion.

• The State Prosecutor, finding probable cause, issued a Resolution
recommending the filing of criminal charges against the spouses for violations of
o Sections 254 (Attempt to Evade or Defeat Tax) and
o 255 (Failure to Supply Correct and Accurate Information, and Failure
to Pay) in relation to Section 248(B) of the Tax Code (RA 8424) for the years
2001 to 2003.
• The spouses appealed to the Secretary of Justice via a Petition for
Review.
• Acting Justice Secretary Agnes Devanadera reversed the Resolution.
o She found no willful failure to pay or attempt to evade or defeat the tax
on the part of the spouses as the BIR allegedly failed to specify the amount of
tax due and the likely source of income from which the same was based.
o She also pointed out the BIR’s failure to issue a deficiency tax
assessment against the spouses which is a prerequisite to the filing of a criminal
case for tax evasion.
• The BIR appealed to the Court of Appeals (CA).
• The CA ruled that there was no probable cause to charge the spouses
as the BIR failed to state their exact tax liability and to show sufficient proof of
their likely source of income.
• Hence, this petition for certiorari under Rule 65.
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'EXPENDITURE METHOD' AS A TECHNIQUE USED BY THE BIR TO DETERMINE A
TAXPAYER'S UNDECLARED INCOME
In the case of income, for it to be taxable, there must be a gain realized or received by the
taxpayer, which is not excluded by law or treaty from taxation.
The government is allowed to resort to all evidence or resources available to determine a
taxpayer’s income and to use methods to reconstruct his income.
A method commonly used by the government is the expenditure method, which is a method
of reconstructing a taxpayer’s income by deducting the aggregate yearly expenditures from
the declared yearly income.
The theory of this method is that when the amount of the money that a taxpayer spends
during a given year exceeds his reported or declared income and the source of such money
is unexplained, it may be inferred that such expenditures represent unreported or
undeclared income.
PROBABLE CAUSE SUFFICIENTLY ESTABLISHED
In the present case, the BIR used this method to determine the spouses’ tax liability by
deducting the spouses’ major cash acquisitions from their available funds.
Since the underdeclaration is more than 30% of the spouses’ reported or declared income,
which under Section 248(B) of the NIRC constitutes as prima facie evidence of false or
fraudulent return, the BIR recommended the filing of criminal cases against the spouses
under Sections 254 and 255, in relation to Section 248(B) of the NIRC.
Contrary to the findings of the Justice Secretary and the Court of Appeals, the amount of
tax due from the spouses was specifically alleged in the Complaint-Affidavit.
• The computation, as well as the method used in determining the tax liability, was
also clearly explained.
• The revenue officers likewise showed that the underdeclaration exceeded 30% of
the reported or declared income.
The revenue officers also identified the likely source of the unreported or undeclared
income in their Reply-Affidavit.
• The revenue officers considered respondent Antonio’s rental business to be the
likely source of their unreported or undeclared income due to his unjustified refusal to allow
the revenue officers to inspect the building.
The spouses’ defense that they had sufficient savings to purchase the properties remains
self-serving at this point since they have not yet presented any evidence to support this.
• And since there is no evidence yet to suggest that the money they used to buy the
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properties was from an existing fund, it is safe to assume that that money is income or a
flow of wealth other than a mere return on capital.
• It is a basic concept in taxation that income denotes a flow of wealth during a
definite period of time, while capital is a fund or property existing at one distinct point in
time.

We are convinced that there is probable cause to indict respondent spouses for tax evasion
as petitioner was able to show that a tax is due from them.

Probable cause, for purposes of filing a criminal information, is defined as such facts that
are sufficient to engender a well-founded belief that a crime has been committed, that the
accused is probably guilty thereof, and that he should be held for trial.

It bears stressing that the determination of probable cause does not require actual or
absolute certainty, nor clear and convincing evidence of guilt; it only requires reasonable
belief or probability that more likely than not a crime has been committed by the accused.

However, we are only here to determine probable cause. As to whether the spouses are
guilty of tax evasion is an issue that must be resolved during the trial of the criminal case,
where the quantum of proof required is proof beyond reasonable doubt.

PROPRIETY OF RULE 65 PETITION

The spouses contend that the BIR availed of the wrong remedy in filing a Petition for
Certiorari under Rule 65 of the Rules of Court, instead of a Petition for Review on Certiorari
under Rule 45.

Indeed, the remedy of a party aggrieved by a decision, final order, or resolution of the Court
of Appeals is to file a Petition for Review on Certiorari under Rule 45 of the Rules of Court,
which is a continuation of the appellate process over the original case.

And as a rule, if the remedy of an appeal is available, an action for certiorari under Rule 65
of the Rules of Court, which is an original or independent action based on grave abuse of
discretion amounting to lack or excess of jurisdiction, will not prosper because it is not a
substitute for a lost appeal.

There are, however, exceptions to this rule, to wit:

(1) when public welfare and the advancement of public policy dictate;
(2) when the broader interest of justice so requires;
(3) when the writs issued are null and void;
(4) when the questioned order amounts to an oppressive exercise of judicial authority;
(5) when, for persuasive reasons, the rules may be relaxed to relieve a litigant of an
injustice not commensurate with his failure to comply with the prescribed procedure;
(6) when the judgment or order is attended by grave abuse of discretion; or
(7) in other meritorious cases.

3. Adamsons vs. ADAMSON VS. COURT OF APPEALS
Court of Appeals G.R. No. 120935 | 2009-05-21
Subject:
Tax assessment;
Complaint affidavit filed with the DOJ cannot be considered a tax assessment;
Criminal complaint for tax evasion does not require a prior tax assessment;
The recommendation letter of the Commissioner cannot be considered a formal
assessment;
CTA has no jurisdiction since there is not even an assessment yet;
FACTS:
On June 20, 1990, Lucas Adamson and Adamson Management Corporation
(AMC) sold 131,897 common shares of stock in Adamson and Adamson, Inc.
(AAI) to APAC Holding Limited (APAC). The shares were valued at
P7,789,995.00. Capital gains tax of P159,363.21 was paid as for the transaction.
On October 12, 1990, AMC sold to APAC Philippines, Inc. another 229,870 of
AAI common shares for P17,718,360.00. AMC paid the capital gains tax of
P352,242.96.
On October 15, 1993, the BIR Commissioner issued a "Notice of Taxpayer" to
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In this case, we find that there is reason to give due course to the instant Petition for
Certiorari as the BIR was able to convincingly show that the CA committed grave abuse of
discretion when it affirmed the dismissal of the criminal charges against the spouses
despite the fact that there is probable cause to indict them.
DETERMINATION OF PROBABLE CAUSE BY THE DOJ IS SUBJECT TO JUDICIAL
REVIEW BY THE COURTS WHEN THERE EXISTS GRAVE ABUSE OF DISCRETION
Although the Court has consistently adopted the policy of non-interference in the conduct
and determination of probable cause, which is exclusively within the competence of the
Executive Department, through the Secretary of Justice, judicial intrusion, in the form of
judicial review, is allowed when there is proof that the Executive Department gravely
abused its discretion in making its determination and in arriving at the conclusion it reached.
Grave abuse of discretion is defined as a capricious and whimsical exercise of judgment
tantamount to lack or excess of jurisdiction, a blatant abuse of authority so grave and so
severe as to deprive the court of its very power to dispense justice, or an exercise of power
in an arbitrary and despotic manner, due to passion, prejudice or personal hostility, so
patent and gross as to amount to an evasion or to a unilateral refusal to perform the duty
enjoined or to act in contemplation of the law.
Issues:
(1) Whether the Commissioner has already rendered an assessment (formal or otherwise)
of the tax liability of AMC and petitioners
(2) Whether the criminal cases for tax evasion can proceed against AMC and petitioners
despite the alleged lack of a formal assessment
(3) Whether the CTA has jurisdiction to take cognizance of both the civil and the criminal
aspects of the tax liability of AMC and petitioners
Held:
Tax assessment
1. An assessment informs the taxpayer that he or she has tax liabilities. But not all
documents coming from the BIR containing a computation of the tax liability can be deemed
assessments. An assessment contains not only a computation of tax liabilities, but also a
demand for payment within a prescribed period. It also signals the time when penalties and
interests begin to accrue against the taxpayer. To enable the taxpayer to determine his
remedies thereon, due process requires that it must be served on and received by the
taxpayer. Indeed, an assessment is deemed made only when the collector of internal
revenue releases, mails or sends such notice to the taxpayer.
Complaint affidavit filed with the DOJ cannot be considered a tax assessment

AMC, Lucas Adamson, Therese Adamson and Sara de los Reyes (petitioners),
in their respective capacities as president, treasurer and secretary of AMC,
informing them of deficiencies on their payment of capital gains tax (CGT) and
Value Added Tax (VAT). The notice contained a schedule for preliminary
conference.
G.R. No. 120935
On October 22, 1993, the Commissioner filed with the Department of Justice
(DOJ) an Affidavit of Complaint against AMC and petitioners for violation of
Sections 45 (a) and (d) and 110 of NIRC in relation to the filing of false or
fraudulent returns.
After the preliminary investigation, the State Prosecutor found probable cause
and petitioners were charged with criminal cases for tax evasion before the
Makati RTC. They filed a Motion to Dismiss or Suspend the Proceedings.
Petitioners argued that there was yet no final assessment of their tax liability,
and there were still pending relevant Supreme Court and CTA cases. The RTC
granted the Motion. It ruled that the complaints for tax evasion should be
regarded as a decision of the Commissioner regarding the tax liabilities of
petitioners and, thus, appealable to the CTA. It further held that the said cases
cannot proceed independently of the assessment case pending before the CTA.
The Court of Appeals reversed the RTC's decision and reinstated the criminal
complaints. The CA held that, in a criminal prosecution for tax evasion,
assessment of tax deficiency is not required because the offense of tax evasion
is complete or consummated when the offender has knowingly and willfully filed
a fraudulent return with intent to evade the tax.
G.R. No. 124557
Petitioners filed a letter request for re-investigation with the Commissioner of the
"Examiner's Findings" earlier issued by the Bureau of Internal Revenue (BIR),
which pointed out the tax deficiencies. Before the Commissioner could act on
their letter-request, AMC and petitioners filed a Petition for Review with the CTA
assailing the Commissioner's finding of tax evasion against them. The
Commissioner moved to dismiss the petition, on the ground that it was
premature, as she had not yet issued a formal assessment of the tax liability of
therein petitioners.
The CTA denied the Motion to Dismiss. It considered the criminal complaint filed
by the Commissioner with the DOJ as an implied formal assessment, and the
filing of the criminal informations with the RTC as a denial of petitioners' protest
regarding the tax deficiency.
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2. Accordingly, an affidavit, which was executed by revenue officers stating the tax
liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be
deemed an assessment that can be questioned before the Court of Tax Appeals. (CIR v.
Pascor Realty)
3. In the present case, the revenue officers' Affidavit merely contained a computation of
respondents' tax liability. Itdid not state a demand or a period for payment. Worse, it was
addressed to the justice secretary, not to the taxpayers.
4. That the BIR examiners' Joint Affidavit attached to the Criminal Complaint contained
some details of the tax liabilities of private respondents does not ipso facto make it an
assessment. The purpose of the Joint Affidavit was merely to support and substantiate the
Criminal Complaint for tax evasion. Clearly, it was not meant to be a notice of the tax due
and a demand to the private respondents for payment thereof.
Criminal complaint for tax evasion does not require a prior tax assessment
5. Adamson et al. maintain that the filing of a criminal complaint must be preceded by an
assessment. This is incorrect, because Section 222 of the NIRC specifically states that in
cases where a false or fraudulent return is submitted or in cases of failure to file a return
such as this case, proceedings in court may be commenced without an assessment.
Furthermore, Section 205 of the same Code clearly mandates that the civil and criminal
aspects of the case may be pursued simultaneously.
6. In Ungab v. Cusi, petitioner therein sought the dismissal of the criminal Complaints for
being premature, since his protest to the CTA had not yet been resolved. The Court held
that such protests could not stop or suspend the criminal action which was independent of
the resolution of the protest in the CTA. This was because the CIR had, in such tax evasion
cases, discretion on whether to issue an assessment or to file a criminal case against the
taxpayer or to do both.
7. 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 willfully 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. (Ungab v. Cusi)
8. Section 222, NIRC states that an assessment is not necessary before a criminal charge
can be filed. This is the general rule. Adamson et al. failed to show that they are entitled to
an exception. Moreover, the criminal charge need only be supported by a prima facie
showing of failure to file a required return. This fact need not be proven by an assessment.
9. When fraudulent tax returns are involved as in the cases at bar, a proceeding in court

The Court of Appeals sustained the CTA's denial of the Motion to Dismiss.
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after the collection of such tax may be begun without assessment. Here, Adamson et al.
had already filed the CGT return and the VAT returns, and paid the taxes they have
declared due therefrom. Upon investigation of the examiners of the BIR, there was a
preliminary finding of gross discrepancy in the computation of the capital gains taxes due
from the sale of two lots of AAI shares, first to APAC and then to APAC Philippines, Limited.
The examiners also found that the VAT had not been paid for VAT-liable sale of services for
the third and fourth quarters of 1990. Arguably, the gross disparity in the taxes due and the
amounts actually declared by the private respondents constitutes badges of fraud.
10. The issuance of an assessment must be distinguished from the filing of a complaint.
Before an assessment is issued, there is, by practice, a pre-assessment notice (PAN) sent
to the taxpayer. The taxpayer is then given a chance to submit position papers and
documents to prove that the assessment is unwarranted. If the commissioner is unsatisfied,
an assessment signed by him or her is then sent to the taxpayer informing the latter
specifically and clearly that an assessment has been made against him or her. In contrast,
the criminal charge need not go through all these. The criminal charge is filed directly with
the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed against him,
not that the commissioner has issued an assessment. It must be stressed that a criminal
complaint is instituted not to demand payment, but to penalize the taxpayer for violation of
the Tax Code.
The recommendation letter of the Commissioner cannot be considered a formal
assessment
11. In the context in which it is used in the NIRC, an assessment is a written notice and
demand made by the BIR on the taxpayer for the settlement of a due tax liability that is
there definitely set and fixed. A written communication containing a computation by a
revenue officer of the tax liability of a taxpayer and giving him an opportunity to contest or
disprove the BIR examiner's findings is not an assessment since it is yet indefinite.
12. The Commissioner admits that she wrote a recommendation letter addressed to the
Secretary of the DOJ recommending the filing of criminal complaints against AMC and the
aforecited persons for fraudulent returns and tax evasion. The recommendation letter of the
Commissioner cannot be considered a formal assessment:
(i) It was not addressed to the taxpayers.
(ii) There was no demand made on the taxpayers to pay the tax liability, nor a period for
payment set therein.
(iii) The letter was never mailed or sent to the taxpayers by the Commissioner.
13. In fine, the said recommendation letter served merely as the prima facie basis for filing
criminal informations that the taxpayers had violated Section 45 (a) and (d), and 110, in
relation to Section 100, as penalized under Section 255, and for violation of Section 253, in
relation to Section 252 9(b) and (d) of the Tax Code.

4. CIR vs. Estate of FACTS:
Benigno Toda Jr. · Cebiles Insurance Corporation authorized Benigno P. Toda, Jr.,
President and owner of 99.991% of its issued and outstanding capital stock,
to sell the Cibeles Building and the two parcels of land on which the
DAVIDE, CJ building stands for an amount of not less than P90 million.
· Toda purportedly sold the property for P100 million to Rafael A.
Altonaga.
· However, Altonaga in turn, sold the same property on the same day to
Royal Match Inc. for P200 million.
o For the sale of the property to Royal Dutch, Altonaga paid capital
gains tax [6%] in the amount of P10 million.
· These two transactions were evidenced by Deeds of Absolute Sale
notarized on the same day by the same notary public.
· On 16 April 1990, CIC filed its corporate annual income tax return for
the year 1989, declaring, among other things, its gain from the sale of real
property.
· On 12 July 1990, Toda sold his entire shares of stocks in CIC to Le
Hun T. Choa.
· Three and a half years later, Toda died.
· On 29 March 1994, the Bureau of Internal Revenue (BIR) sent an
assessment notice and demand letter to the CIC for deficiency income tax
for the year 1989.
· The new CIC asked for a reconsideration, asserting that Toda had
undertaken to hold the buyer of his stockholdings and the CIC free from all
tax liabilities for the fiscal years 1987-1989.
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CTA has no jurisdiction since there is not even an assessment yet
14. Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals) as amended,
the rulings of the Commissioner are appealable to the CTA. Republic Act No. 8424 later
expanded the jurisdiction of the Commissioner and, correspondingly, that of the CTA.
The latest statute dealing with the jurisdiction of the CTA is Republic Act No. 9282.
15. These laws have expanded the jurisdiction of the CTA. However, they did not change
the jurisdiction of the CTA to entertain an appeal only from a final decision or assessment of
the Commissioner, or in cases where the Commissioner has not acted within the period
prescribed by the NIRC. In the cases at bar, the Commissioner has not issued an
assessment of the tax liability of private respondents.
16. The doctrines laid down in CIR v. Union Shipping Co. and Yabes v. Flojo are not
applicable to the cases at bar. In these earlier cases, the Commissioner already rendered
an assessment of the tax liabilities of the delinquent taxpayers, for which reason the Court
ruled that the filing of the civil suit for collection of the taxes due was a final denial of the
taxpayers' request for reconsideration of the tax assessment.
ISSUE:
1) Whether or not the scheme employed by Cibelis Insurance Company constitutes tax
evasion. YES
2) Has the period of assessment prescribed. NO
HELD: Yes.
● Tax avoidance and tax evasion are the two most common ways used by
taxpayers in escaping from taxation.
● Tax avoidance is the tax saving device within the means sanctioned by law. This
method should be used by the taxpayer in good faith and at arm’s length.
● Tax evasion, on the other hand, is a scheme used outside of those lawful means
and when availed of, it usually subjects the taxpayer to further or additional civil or
criminal liabilities.
Tax evasion connotes the integration of three factors:
(1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be
legally due, or the non-payment of tax when it is shown that a tax is due
(2) an accompanying state of mind which is described as being evil, in bad faith, willfull,or
deliberate and not accidental; and
(3) a course of action or failure of action which is unlawful.
All are present in this case.

· On 27 January 1995, the Estate of Benigno P. Toda, Jr., represented
administrators , received a Notice of Assessment dated 9 January 1995
from the Commissioner of Internal Revenue for deficiency income tax for
the year 1989.
· The CTA held that the Commissioner failed to prove that CIC
committed fraud to deprive the government of the taxes due it.
o It ruled that even assuming that a pre-conceived scheme was
adopted by CIC, the same constituted mere tax avoidance, and not tax
evasion.
o There being no proof of fraudulent transaction, the applicable period
for the BIR to assess CIC is that prescribed in Section 203 of the NIRC
of 1986, which is three years after the last day prescribed by law for
the filing of the return.
o Thus, the governments right to assess CIC prescribed on 15 April
1993. The assessment issued on 9 January 1995 was, therefore, no
longer valid.
10
● The trial balance showed that RMI debited P 40M as "other-inv. Cibeles Building"
that indicates RMI Paid CIC (NOT Altonaga).
● Altonaga was a mere conduit finds support in the admission of respondent Estate
that the sale to him was part of the tax planning scheme of CIC.
● The scheme, explained the Court, resorted to by CIC in making it appear that
there were two sales of the subject properties, i.e., from CIC to Altonaga, and then
from Altonaga to RMI cannot be considered a legitimate tax planning. Such
scheme is tainted with fraud.
● Fraud in its general sense, “is deemed to comprise anything calculated to
deceive, including all acts, omissions, and concealment involving a breach of legal
or equitable duty, trust or confidence justly reposed, resulting in the damage to
another, or by which an undue and unconscionable advantage is taken of
another.”
● It is obvious that the objective of the sale to Altonaga was to reduce the amount of
tax to be paid especially that the transfer from him to RMI would then subject the
income to only 5% individual capital gains tax, and not the 35% corporate income
tax.
● Altonaga’s sole purpose of acquiring and transferring title of the subject properties
on the same day was to create a tax shelter.
● Altonaga never controlled the property and did not enjoy the normal benefits and
burdens of ownership.
● The sale to him was merely a tax ploy, a sham, and without business purpose and
economic substance.
● Doubtless, the execution of the two sales was calculated to mislead the BIR with
the end in view of reducing the consequent income tax liability.
● In a nutshell, the intermediary transaction, i.e., the sale of Altonaga, which was
prompted more on the mitigation of tax liabilities than for legitimate business
purposes constitutes one of tax evasion.
● Generally, a sale or exchange of assets will have an income tax incidence only
when it is consummated. The incidence of taxation depends upon the substance
of a transaction.
● The tax consequences arising from gains from a sale of property are not finally to
be determined solely by the means employed to transfer legal title.
●
● Rather, the transaction must be viewed as a whole, and each step from the
commencement of negotiations to the consummation of the sale is relevant.
● A sale by one person cannot be transformed for tax purposes into a sale by
another by using the latter as a conduit through which to pass title.
● To permit the true nature of the transaction to be disguised by mere formalisms,
which exist solely to alter tax liabilities, would seriously impair the effective
administration of the tax policies of Congress.
● To allow a taxpayer to deny tax liability on the ground that the sale was made
through another and distinct entity when it is proved that the latter was merely a
conduit is to sanction a circumvention of our tax laws.

5. Jose B. Aznar vs. FACTS:
CTA
● Matias Aznar (died 1958) filed is income tax return for years
1946-1951 on disbursement basis.
G.R. No. L-20569, ● CIR, having doubts to his reported income, caused BIR Examiner
August 23, 1974 Guerrero to ascertain the taxpayer’s true income by using the net
worth and expenditures method. It was discovered that from
1946-1951, that Matias did not declare correctly the income reported
on the said years since his net worth had increased every year.
11
● Hence, the sale to Altonaga should be disregarded for income tax purposes.
● The two sale transactions should be treated as a single direct sale by CIC to RMI.
PERIOD OF ASSESSMENT HAS NOT PRESCRIBED
General rule: BIR has 3 years to collect and assess taxes
Exception: in cases of
(1) fraudulent returns;
(2) false returns with intent to evade tax; and
(3) failure to file a return, the period within which to assess tax is ten years from discovery
of the fraud, falsification or omission, as the case may be.
● It is true that in a query dated 24 August 1989, Altonaga, through his counsel,
asked the Opinion of the BIR on the tax consequence of the two sale transactions.
● Thus, the BIR was amply informed of the transactions even prior to the execution
of the necessary documents to effect the transfer. Subsequently, the two sales
were openly made with the execution of public documents and the declaration of
taxes for 1989.
● However, these circumstances do not negate the existence of fraud.
● As earlier discussed those two transactions were tainted with fraud.
And even assuming arguendo that there was no fraud, we find that the income tax
return filed by CIC for the year 1989 was false.
● It did not reflect the true or actual amount gained from the sale of the Cibeles
property. Obviously, such was done with intent to evade or reduce tax liability.
● As stated above, the prescriptive period to assess the correct taxes in case of
false returns is ten years from the discovery of the falsity.
● The false return was filed on 15 April 1990, and the falsity thereof was claimed to
have been discovered only on 8 March 1991.
● The assessment for the 1989 deficiency income tax of CIC was issued on 9
January 1995.
● Clearly, the issuance of the correct assessment for deficiency income tax was well
within the prescriptive period.
ISSUES:
● Whether the right of the CIR to assess the deficiency income tax of Matias
for years 1946,1947 and 1948 had already prescribed at the time the
assessment was made (1952).
● Whether the penalty of 50% surcharge authorized under Sec. 72 of the Tax
Code should be applied.

J. ESGUERRA ● November 28, 1952- Examiner Guerrero notified Matias of the
assessed tax delinquency to the amount of P723,032.66 plus
compromise penalty. Matias asked for reinvestigation, which was
granted.
● Feb. 20, 1953- CIR placed the properties of Matias under distraint and
levy to secure payment of the deficiency income tax.
● After reinvestigation, the reduced amount of P381,096.07 dated
February 16, 1955, superseded the previous assessment and notice
thereof was received by Matias on March 2, 1955.
● April 1, 1955- Matias filed for petition for review with a subsequent
petition to restrain the CIR from collecting deficiency tax before the
CTA. It was granted on Feb 8 1956.
○ Upon review, the SC set aside the C.T.A. resolution and
required Matias to deposit with the CTA the amount
demanded by CIR for the years 1949 to 1951 or furnish a
surety bond for not more than double the amount
● March 5, 1962- in a decision signed by the presiding judge and the
two associate judges of the CTA, the lower court concluded that the
tax liability of the late Matias the year 1946 to 1951, inclusive should
be P227,788.64 minus P96.87 representing the tax credit for 1945, or
P227,691.77.
Petitioner’s contention:
● The provision applicable is the period of 5 year limitation upon
assessment and collection from filing of the returns under Sec. 331 of
NIRC.
● Since the 1946 ITR could be presumed filed before March 1, 1947
and the notice was receiver on March 2, 1955, a period of 8 years had
elapsed (the period of 5 years had already expired.
● Sec. 332 does not apply because the taxpayer did not file false and
fraudulent returns with intent to evade tax
● There might have been false returns by mistake filed by Matias as the
returns were prepared by his accountant employees, but there was no
proven fraudulent returns with intent to evade taxes that would
justify the imposition of 50% surcharge.
CIR’s contention:
● Sec 332 of the NIRC should apply: “a) In the case of a false or
fraudulent return with intent to evade tax or of a failure to file a return,
the tax may be assessed, or a proceeding in court for the collection
such tax may be begun without assessment, at any time within ten
years after the discovery of the falsity, fraud or omission"
12
RULING:
● NO. There’s false tax returns in this case. Sec. 332 should apply (10 years to
assess the petitioner has not prescribed)
○ (Sec.332) We believe that 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
○ 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 situations 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 merely 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 often years provided
for in Sec. 332 (a) NIRC, from the time of the discovery of the falsity,
fraud or omission even seems to be inadequate and should be the one
enforced.
● NO. 50% surcharge as fraud penalty authorized under Section 72 of the Tax
Code should not be imposed. 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.
○ Mere mistake cannot be considered as fraudulent intent, and if both
petitioner and respondent Commissioner of Internal Revenue committed
mistakes in making entries in the returns and in the assessment,
respectively, under the inventory method of determining tax liability, it
would be unfair to treat the mistakes of the petitioner as tainted with
fraud and those of the respondent as made in good faith.
○ Fraud cannot be presumed but must be proven. We can also state that
fraudulent intent could not be deduced from mistakes however frequent
they may be, especially if such mistakes emanate from erroneous
entries or erroneous classification of items in accounting methods
utilized for determination of tax liabilities. The predecessor of the

6. CIR vs. B.F. FACTS:
Goodrich Phils ● BF Goodrich Phils. (now Sime Darby International Tire Co., Inc.) was
an American-owned and controlled corporation. As a condition for
approving the manufacture by BF Goodrich of tires and other rubber
products, the Central Bank of the Philippines required that it should
develop a rubber plantation.
● In compliance with this requirement, BF Goodrich purchased from the
Philippine Government, under the Public Land Land Act and Parity
13
petitioner undoubtedly filed his income tax returns for the years 1946 to
1951 and those tax returns were prepared for him by his accountant and
employees. It also appears that petitioner in his lifetime and during the
investigation of his tax liabilities cooperated readily with the B.I.R, and
there is no indication in the record of any act of bad faith committed by
him.
○ It is very apparent here that the CIR, when the inventory method was
resorted to in the first assessment, concluded that the correct tax liability
of Mr. Aznar amounted to P723,032.66. After a reinvestigation the same
respondent, in another assessment dated February 16, 1955, concluded
that the tax liability should be reduced to P381,096.07. When the
respondent Court of Tax Appeals reviewed this case on appeal, it
concluded that petitioner's tax liability should be only P227,788.64.
○ The lower court in three instances supported petitioner's stand on the
wrong inclusions in his lists of assets made by the respondent
Commissioner of Internal Revenue, resulting in the very substantial
reduction of petitioner's tax liability by the lower court. The foregoing
shows that it was not only Mr. Matias H. Aznar who committed mistakes
in his report of his income but also the respondent Commissioner of
Internal Revenue who committed mistakes in his use of the inventory
method to determine the petitioner's tax liability. The mistakes committed
by the Commissioner of Internal Revenue which also involve very
substantial amounts were also repeated yearly, and yet we cannot
presume therefrom the existence of any taint of official fraud.
○ The lower court made no distinction between false returns (due to
mistake, carelessness or ignorance) and fraudulent returns (with intent
to evade taxes).
○ The lower court based its conclusion that the penalty must be imposed
on the following reasoning: He underdeclared his income by 227% for
1946, 564% for 1947, 95% for 1948,486% for 1949, 2,946% for 1950
and 490% for 1951.[1] These substantial under-declarations of income
for six consecutive years eloquently demonstrate the falsity or
fraudulence of the income tax returns with an intent to evade the
payment of tax.
ISSUE: Whether the last two assessments were valid? NO.
HELD:
● Assessments can only be made within 5 years after the return is filed. In this case,
the 1980 and 1981 assessments were issued by the BIR beyond the 5-year
period, hence, invalid.
“Sec. 331. xxx 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

Amendment to the 1935 Constitution, certain parcels of land in
Basilan, and there developed a rubber plantation.
● More than a decade later, a certain justice secretary rendered an
opinion stating that, upon the expiration of the Parity Amendment,
ownership rights of Americans over public agricultural lands would be
lost. On the basis of this opinion, BF Goodrich sold to Siltown Realty
Philippines its Basilan landholding (1974). Siltown, then leased the
said land to BF Goodrich for 25 years, and extendible for another 25
years.
● The BIR issued three assessments against BF Goodrich:
○ 1975 Assessment - Based on an LOA, the books and
accounts of BF Goodrich were examined for the purpose of
determining its tax liability for taxable year 1974. This
resulted in the assessment for deficiency income tax, which
BF Goodrich paid.
○ 1980 Assessment - The BIR issued an LOA for the purpose
of examining Siltown’s business, income and tax liabilities.
This resulted in the issuance of another assessment for
deficiency in donor’s tax against BF Goodrich, in relation to
the sale of its Basilan landholdings to Siltown. In arriving in
such assessment, the BIR deemed the consideration for the
sale insufficient, and the difference between the FMV and the
actual purchase price a taxable donation.
○ 1981 Assessment - The BIR increased the amount
demanded against BF Goodrich for the alleged deficiency
donor’s tax.
● BF Goodrich appealed the correctness and legality of the last two
assessments to the CTA.
● CTA: Increased the amount to be paid by BF Goodrich.
● CA: Reversed the CTA. It held that the last two assessments were not
justified as it was made beyond the 5-year prescriptive period.
14
begun after expiration of such period. xxx”
● The CTA, in justifying the last 2 assessments and ruling in favor of the
CIR, relies on Sec. 15, which provides that:
“Sec. 15. When a report required by law as a basis for the
assessment of any national internal revenue tax shall not be
forthcoming 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 CIR shall assess the proper tax
on the best evidence obtainable.”
● Sec. 15, however, does not apply in this case. The said provision does
not provide an exception to the statute of limitations. It only allows an
initialassessment to be made on the basis of the best evidence
obtainable if the CIR finds that the report made by the taxpayer is false,
incomplete, or erroneous. In the present case, the CIR had already
made its initial assessment (1975 Assessment) in the manner
prescribed, hence, it could not have been authorized to issue, beyond
the 5-year period, the 2nd and 3rd assessment.
● As correctly ruled by the CA, the CIR’s claim of falsity is not sufficient to
take the questioned assessments out of the ambit of the statute of
limitations.
“Sec. 332. 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 a tax or of a failure to file a return,
the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at
any time within 10 years after the discovery of the falsity, fraud,
or omission.”
● The fact alone that BF Goodrich sold the property for a price lesser than
its FMV does not constitute a false return which contains wrong
information due to mistake, carelessness or ignorance. It is possible that
real property may be sold for less than adequate consideration for a
bona fidebusiness purpose; in such even, the sale remains an “arm’s
length” transaction.
● BF Goodrich was compelled to sell the property at a lesser price
because it would have lost all ownership rights over it upon the
expiration of the Parity Amendment. In other words, BF Goodrich 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.
● Also, BF Goodrich declared the sale in its 1974 return submitted to the

7. CIR vs. Asalus Facts:
Corp
On December 16, 2010, respondent ASALUS Corporation received a Notice of
Informal Conference from RDO No. 47 of BIR. This was in connection with the
investigation conducted by the revenue officer on the VAT transactions of
ASALUS for the taxable year 2007. ASALUS filed its Letter-Reply, dated
December 29, 2010, questioning the basis of the computation for its VAT liability.
On January 10, 2011, CIR issued the PAN finding ASALUS liable for deficiency
VAT for 2007 in the amount of 400M. On August 26, 2011, it received the FAN in
the total amount of 95M, inclusive of surcharge and interest. ASALUS filed a
protest against the FAN, dated September 6, 2011.
On October 16, 2012, ASALUS received the Final Decision on Disputed
Assessment showing VAT deficiency for 2007 in the amount of 100M and 25,000
as compromise penalty. ASALUS filed a petition for review before the CTA.
CTA Division ruled that the VAT assessment issued on August 26, 2011 had
prescribed and consequently invalid.
15
BIR. Within the 5-year prescriptive period, the BIR could have issued the
questioned assessment, because the declared FMV of said property
was of public record.
● Since, the BIR failed to demonstrate clearly that BF Goodrich had filed a
fraudulent return with the intent to evade tax, or that it had failed to file a
return at all, the period for assessments has prescribed.
Issue: Whether Petitioner’s right to assess respondent for its deficiency VAT for taxable
year 2007 had already prescribed
Held: NO
Generally, internal revenue taxes shall be assessed within 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.
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 failure to file a return,
the assessment may be made within 10 years from the discovery of the falsity, fraud or
omission.
Under Section 248 (B) of the 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 30% what is declared in the return
constitute substantial underdeclaration.
When there is a showing that a taxpayer has substantially under-declared its sales, receipt
or income, there is a presumption that it has filed a false return. CIR need not immediately
present evidence to support the falsity of the return, unless the taxpayer fails to overcome
the presumption against it.
IN THIS CASE, the audit investigation revealed that there were undeclared VAT sales more
than 30% of that declared in ASALUS’ VAT Returns. Hence, 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 10 year
prescriptive period for assessment under Section 222 of the NIRC.
Petition is granted. CTA decision reversed and set aside.

8. CIR vs. DOCTRINE: The final determination made by the Finance Department cannot
Commission on Audit bind respondent COA or foreclose its review thereof in the exercise of its
constitutional function and duty to ensure that public funds are expended and
used in conformity with law; exception.
FACTS:
Petitioner Tirso B. Savellano furnished the BIR with a confidential affidavit of
information denouncing the National Coal Authority (NCA) and the Philippine
National Oil Company (PNOC) for non-payment of taxes on interest earnings of
their respective money placements with the PNB.
By a letter, the BIR Commissioner recommended to the Minister of Finance
payment to petitioner Savellano of an informer's reward. Said recommendation
having been favorably passed upon by the Committee on Rewards of the
Department of Finance, the same was approved by then Deputy Minister of
Finance; and Savellano was in due time paid the aforesaid amount.
Respondent Commission on Audit (COA) rendered COA Decision No. 7407
disallowing in audit the payment of informer's reward to petitioner Savellano in
the NCA case on the ground that payment of an informer's reward under Section
281 of the National Internal Revenue Code is conditioned upon the actual
recovery or collection of revenues, and no such revenue or income was actually
realized or recovered or any benefit accrued to the government, since two (2)
government agencies were involved. In its view, allowance of claims of the kind
would not only place a premium upon violations committed by government
agencies but also induce collusion among government offices in order to obtain
the informer's reward. It reasoned that if the State cannot be held responsible for
the tortious acts of its employees unless the latter acted as special agents, with
more reason it should not be held liable to pay informer's reward upon violations
committed by government agencies.
Petitioner CIR sought reconsideration of COA Decision No. 740. These pleas
were denied due course in COA Decision No. 1930, denying due course to the
requests for reconsideration. Hence, these separate petitions,
In seeking nullification of COA Decision No. 740, petitioner CIRe argues that:
the approval by the Department of Finance of the claim for informer's reward of
petitioner Savellano is conclusive upon the executive agencies concerned,
respondent COA included, as it constitutes the final determination of the proper
administrative authority under Section 90 of the Government Auditing Code of
the Philippines; there were actual cash collections of P 109,941,644.17 from
NCA and PNOC for non-payment of withholding taxes on interest earnings,
16
ISSUE: W/N the final determination by the Department of Finance through the
recommendation of the BIR, of Savellano’s entitlement to the informer’s rewars, is
conclusive and binding to all government agencies including the COA, a constitutional
commission. [GENERALLY, NO. EXCEPTION BELOW]
HELD:
The final determination by the Department of Finance, through the recommendation of the
BIR, of petitioner Savellano's entitlement to the informer's reward is, under Section 90,
conclusive only upon the executive agencies concerned. Respondent COA is not an
executive agency. It is one of the three (3) independent constitutional commissions.
Specifically, it is the constitutional agency vested with the "power, authority and duty to
examine, audit and settle all accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property owned or held in trust by x x x the government,
or any of its subdivisions, agencies or instrumentalities x x x."
This is not to say, however, that the disallowance in audit by respondent COA is in itself
final. The same may be set aside and nullified by this Court, if done with grave abuse of
discretion.
One of the reasons for respondent COA's disallowance of the informer's reward under
consideration is that there was actually no revenue realized or recovered as two (2)
government agencies were involved. It overlooks the fact that the NCA and PNOC possess
legal personalities separate and distinct from the Philippine government. Although both are
government-owned and controlled corporations, NCA and PNOC perform proprietary
functions. Their revenues do not automatically devolve to the general coffers of the
government. Unless transferred to the Philippine government through the vehicle of
taxation, no part of their revenues is available for appropriation by the Legislature for
expenditure in government projects; such revenues remain said agencies' in their entirety,
to be applied to and expended for their own exclusive purpose. Clearly, then, when said
revenues are subjected to tax, the portion thereof corresponding to such tax becomes, in its
own, revenue for the government accruing to the General Fund.
That the informer's reward was sought and given in relation to tax delinquencies of
government agencies provides no reason for disallowance. The law on the matter makes
no distinction whatsoever between delinquent taxpayers in this regard, whether private
persons or corporations, or public or quasipublic agencies, it being sufficient for its
operation that the person or entity concerned is subject to, and violated, revenue laws, and
the informer's report thereof resulted in the recovery of revenues. It is elementary that
where the law does not distinguish, none must be made. Ubi lex non distinguit nec nos
distinguere debemos.
 17

which amount had accrued to the General Fund; Section 316 (now 281) of the
National Internal Revenue Code (NIRC) entitling an informer to a reward for
information leading to the collection of internal revenue taxes is clear and needs
no interpretation.

COA invokes its constitutionally-vested audit jurisdiction over all government

agencies, to which, it contends, the statutorily granted power of the Secretary of
Finance under Section 90, P.D. 1445 must yield. It insists that petitioner
Savellano is not entitled to the informer's reward because there was no actual
collection of revenues under the benefit-to-thegovernment rule; and Savellano's
alleged information did not lead to the discovery of a fraud.

9. Meralco DOCTRINE: ISSUE:

Securities Corp 1. WON RTC has jurisdiction to take cognizance of the case - NO
vs. Savellano Mandamus does not lie to compel the Commissioner of Internal Revenue to impose a 2. WON Mandamus can lie to compel the CIR to assess deficiency taxes - NO
(October 23, tax assessment not found by him to be proper. 3. WON Maniago is entitled to informer’s reward - NO
1982)
FACTS:
RULING:
● The late Juan Maniago (substituted by his wife and children) submitted to
J. Teehankee CIR confidential denunciation against Meralco Securities Corporation for tax
(1) Respondent judge has no jurisdiction to take cognizance of the case because
evasion for having paid income tax only on 25% of the dividends received
the subject matter thereof clearly falls within the scope of cases now exclusively
from Manila Electric Co. for 1962-1966.
within the jurisdiction of the Court of Tax Appeals.
○ Allegedly the government was shortchanged of income tax due
from 75% of the dividends.
● RA 1125 granted the CTA exclusive appellate jurisdiction to review by appeal
● Petitioner CIR caused the investigation and found that no deficiency
decisions of the CIR involving disputed assessments, refunds or other charges
corporate income tax was due on dividends it received from Manila Electric
imposed under the NIRC.
since under the law then prevailing “in case dividends received by a
● The law transferred to the Court of Tax Appeals jurisdiction over all cases
domestic or foreign resident corporation liable to (corporate income) tax
involving said assessments previously cognizable by courts of first instance, and
under this Chapter . . . . only twenty-five per centum thereof shall be
even those already pending in said courts.
returnable for the purposes of the tax imposed under this section.”
● The question of whether or not to impose a deficiency tax assessment on
○ CIR denied Maniago’s claim for inforwer’s award. Affirmed by Sec.
Meralco Securities Corporation undoubtedly comes within the purview of the
of Finance.
words "disputed assessments" or of "other matters arising under the National
● Maniago filed a petition for mandamus in RTC Manila against CIR and
Internal Revenue Code . . . ."
Meralco to compel the Commissioner to impose the alleged deficiency tax
● Even assuming arguendo that the right granted the taxpayers affected to
assessment and to award the informer’s award.
question and appeal disputed assessments, under section 7 of Republic Act No.
● RTC granted the writ and ordered CIR to assess and collect P51,840,612
1125, may be availed of by strangers or informers like the late Maniago, the most
as deficiency corporate income tax from 1962-1969 plus 25% informer’s
that he could have done was to appeal to the Court of Tax Appeals the ruling of
reward.
petitioner CIR within thirty (30) days from receipt thereof pursuant to section 11
of Republic Act No. 1125. He failed to take such an appeal to the tax court. The
 18

ruling is clearly final and no longer subject to review by the courts.

(2) Mandamus only lies to enforce the performance of a ministerial act or duty5 and
not to control the performance of a discretionary power. Purely administrative and
discretionary functions may not be interfered with by the court.

● Discretion, as thus intended, means the power or right conferred upon the office
by law of acting officially under certain circumstances according to the dictates of
his own judgment and conscience and not controlled by the judgment or
conscience of others.
● Mandamus may not be resorted to so as to interfere with the manner in which
discretion shall be exercised or to influence or coerce a particular determination.
● Since the office of the Commissioner of Internal Revenue is charged with the
administration of revenue laws, which is the primary responsibility of the
executive branch of the government, mandamus may not lie 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.
● After the Commissioner had after a mature and thorough study rendered his
decision or ruling that no tax is due or collectible, and his decision is sustained
by the Secretary, now Minister of Finance (whose act is that of the President
unless reprobated), such decision or ruling is a valid exercise of discretion in the
performance of official duty and cannot be controlled much less reversed by
mandamus.

(3) Since no taxes are to be collected, no informer's reward is due to private

respondents as the informer's heirs.
● Informer's reward is contingent upon the payment and collection of unpaid or
deficiency taxes. An informer is entitled by way of reward only to a percentage of
the taxes actually assessed and collected.
● Since no assessment, much less any collection, has been made in the instant
case, respondent judge's writ for the Commissioner to pay respondents 25%
informer's reward is gross error and without factual nor legal basis.