CIR v.

Phil Daily Inquirer

J. Carpio | Mar. 22, 2017
GR. No. 213943

PETITIONER: Commissioner of Internal Revenue

RESPONDENT: Philippine Daily Inquirer

Facts:
1. PHil. Daily Inquirer (PDI), a corporation engaged in newspaper publication, filed its Annual Income
Tax Return for the year 2004 on April 15, 2005.

2. Meanwhile, PDI’s Quarterly VAT Returns for the same year showed that:
a. PDI had an underdeclaration of domestic purchases from its suppliers amounting to
317,705,610.52

3. August 10, 2006: BIR sent an LN to PDI containing this discrepancy.

a. It also later invited PDI to reconcile the deficiencies with its Audit and Investigation Division.

4. On Mar. 21, 2007, PDI executed a Waiver of Statute of Limitation (1st Waiver), consenting to the
assessment for the year 2004 at any time prior the lapsing of the prescription under Sec. 203 and
222 NIRC, but not later than June 30, 2007.
a. This was received by the OIC-ACIR Valeroso of the BIR on March 23, 2007.

5. May 7, 2007: PDI later submitted through a letter additional partial reconciliation and explanations
on the discrepancies found by BIR.

6. May 28, 2007: PDI received a response/clarificatory letter from BIR stating that the assessment was
actually made based on the matching of sales of its suppliers against its purchases for the taxable
year 2004.
a. The letter also invited PDI to an informal conference to present any objections that it might
have to BIR’s findings.

7. June 5, 2007: PDI executed another Waiver of the Statute of Limitation (2nd Waiver), which
Valeroso accepted 3 days after.

8. October 15, 2007: A Preliminary Assessment Notice (PAN) was sent to PDI informing the latter of
the alleged deficiency income tax and VAT for taxable year 2004 on basis of the LN previously sent
to it.
a. See notes for computation
b. PDI received the PAN on December 4, 2007.

9. December 12, 2007: PDI sought reconsideration and expressed its willingness to execute another
waiver.
a. Accordingly, PDI executed another waiver (3rd Waiver), which extended BIR’s right to
assess until April 30, 2008.
b. OIC-Head Revenue Executive Assistant Aguila Jr. accepted the waiver.

10. April 17, 2008: BIR sent a Formal Letter of Demand dated Mar. 11, 2008 to PDI, demanding the
payment of the unpaid deficiency income tax plus VAT.
a. See notes for computation (but basically, it went up from 1,438,669.23 to 1,524,229.99,
mainly due to an increase in the computed compromise penalty)
11. May 16, 2008: PDI filed its protest against the assessment.

12. CIR: 180-day period within which the BIR should act on its protest had already lapsed, hence their
recourse to CTA.
a. Also denied the proof submitted by PDI’s Independent CPA that the overdeclared input tax of
1,601,652.42 assessed was incorrect.

13. CTA First Division: Due to defects that haunted the execution and acceptance of the waivers,
the 3-year period was deemed not extended.
a. While Sec. 222(b) NIRC sanctions extensions beyond the 3-year prescriptive period, such
must observe the ff:
i. made prior expiry of the initial 3 year period;
ii. made in accordance with guidelines for proper execution of waivers (RMO 20-90)
b. ITC, while the First and Second Waivers were executed in three copies, the BIR failed to
provide the office accepting the waivers with their respective third copies.
i. BIR also failed to prove that the Third Waiver was executed in three copies.
ii. Further, the Revenue Official who accepted the Third Waiver was not authorized to
do so.
c. Thus, CIR’s right to assess PDI in this case has already prescribed.

14. CIR filed for motion for reconsideration, but CTA First Division denied the motion for lack of merit.
a. CIR appealed to CTA En banc.

15. CTA En Banc: affirmed CTA 1st Division in toto.

a. PDI sufficiently discharged its burden of proving that the VAT assessment and the Income
Tax assessment made by the CIR were not correct.
i. In short, presumption of regularity of CIR’s duties was overturned by evidence
presented by PDI, especially by its independent CPA’s report on its accounts
payable, check vouchers, invoices, official receipts and credit memoranda.
b. Since PDI did not submit a false return, the 3-year prescriptive period should apply, not the
10-year exception under Sec. 222 NIRC.
i. CIR filed for MfR, but was denied.

16. Hence, this petiton for review on certiorari to SC by CIR.

Ratio Decidendi:

1. W/N CIR’s RIGHT TO ASSESS PDI HAS ALREADY PRESCRIBED — YES.

a. Sec. 203 NIRC: Prescriptive period to assess is set at 3 years, subject to the exceptions
provided under Sec. 222 NIRC.
i. ITC, CIR invokes Sec. 222(a) NIRC.
1. Sec. 222(a) NIRC: Exceptions as to Period of Limitation of Assessment and
Collection of Taxes.—
a. (a) In the case of a false or fraudulent return with intent to evade tax or of
failure to file a return, the tax may be assessed, or a proceeding in court for
the collection of such tax may be filed without assessment, at any time within
ten (10) years after the discovery of the falsity, fraud or omission: Provided,
That in a fraud assessment which has become final and executory, the fact of
fraud shall be judicially taken cognizance of in the civil or criminal action for
the collection thereof.

b. GEN: Fraud is never imputed and must be intentional.

 i. CIR v. Javier: 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.
ii. Negligence =/= Fraud.
1. Negligence, whether slight or gross, is not equivalent to fraud with intent to evade the
tax contemplated by law. It must amount to intentional wrongdoing with the sole
object of avoiding the tax.
iii. Fraudulent v. Falsified return
1. False return — deviation from the truth, whether intentional or not (ie. honest mistake)
2. Fraudulent return — intentional or deceitful entry with intent to evade the taxes due

c. ITC, there is not enough evidence to prove fraud or intentional falsity on part of PDI.
i. Therefore, the general rule on the 3-year prescriptive period under Sec. 203 NIRC should
apply in this case.
1. Sec 203 NIRC: Period of Limitation Upon Assessment and Collection.—Except as
provided in Section 222, internal revenue taxes shall be assessed within three (3)
years after the last day prescribed by law for the filing of the return, and no
proceeding in court without assessment for the collection of such taxes shall be
begun after the expiration of such period. Provided, That in a case where a return is
filed beyond the period prescribed by law, the three (3)-year period shall be counted
from the day the return was filed. For purposes of this section, a return filed before
the last day prescribed by law for the filing thereof shall be considered as filed on
such last day.

d. RE: Waivers — Defective.

i. A waiver must strictly conform to RMP 20-90 (CIR v. Sanley Works Sales)
1. A waiver is a mutual agreement between taxpayer and BIR to extend the period of
assessment. Consent from both sides must be manifest.
ii. RMO 20-90: xxx waiver must:
1. be signed by the taxpayer himself or his duly authorized representative
2. be signed by any of its responsible officials if tha taxpayer is a corporation
3. be accompanied by written authorization in case the taxpayer delegated the authority
to a representative
4. be duly notarized;
5. be signed by CIR or revenue official authorized by him, indicated acceptance and the
date thereof
a. (CIR must first make sure that the waiver was in the proper form before
signing)
6. indicate the date of execution of the taxpayer and the date of acceptance by the BIR
before expiration of the prescriptive period or lapse of a prior waiver
7. be executed in three copies;
a. original to be attached to the docket of the case
i. (which should contain fact of receipt by the taxpayer of his copy)
b. second for the taxpayer
c. third for the office accepting the waiver
iii. In this case:
1. There was a failure to provide the office accepting the waiver with the third
copy
a. Thus, first waiver was not properly executed, rendering the latter ones
void since the prescriptive period continued to run until it lapsed on April 15
2007.

2. Assuming arguendo that the first one was valid, the second waiver also was
improperly executed due to the same error by the CIR.

3. Again, assuming arguendo that the first and second waivers were valid, the
third one was also improperly executed since it was not executed in 3 copies.
 e. [RE: Estoppel since BIR accepted] — Does not apply.
i. A waiver of the statute of limitations is a derogation of the taxpayer’s right to security against
prolonged and unscrupulous investigations and thus, it must be carefully and strictly
construed.

RULING: Petition DENIED.

Notes:

Computation sent with PAN

Computation sent with FLD