CIR v.

Metro Star Superama

Facts

The BIR through a letter of authority caused the examination of Respondent’s book of accounts
and other accounting records for income tax and other internal revenue taxes for the taxable year
1999. For the latter’s failure to comply with several requests of presentation of records and
subpoena duces tecum, the BIR legal division issued an indorsement to proceed with the
investigation based on the best evidence obtainable preparatory to the issuance of an assessment
notice

Respondent received a preliminary 15-day letter on November 9 , 2001 and a formal letter of
demand on April 11, 2002 assessing it with deficiency VAT and withholding tax for the taxable
year 1999

Issue:

W/N the failure to strictly comply with the notice requirements prescribed in Sec 228 of the
NIRC and R.R. No. 12-99 is tantamount to a denial of due process.

Held:

Yes. The sending of a PAN to the taxpayer to inform him of the assessment made is but part of
the “due process requirement in the issuance of a deficiency tax assessment”, the absence of
which renders nugatory any tax assessment made by tax authorities. The persuasiveness of the
right to due process reaches both substantial and procedural rights and the failure of the CIR to
strictly comply with the requirements laid down by law and its own rules is a denial of Metro
Star’s right to due process. Thus, for its failure to send the PAN stating the facts and the law on
which it is based, the assessment made by the CIR is void.
 CIR v. Asalus Corporation

Facts:

On December 16, 2010, respondent Asalus Corporation (Asalus) received a Notice of Informal
Conference from Revenue District Office No. 47 of the Bureau of Internal Revenue (BIR). It was
in connection with the investigation conducted by Revenue Officer Fidel M. Bañares II on the
Value-Added Tax transactions of Asalus for the taxable year 2007. Asalus filed its Letter-Reply,
dated December 29, 2010, questioning the basis of Bañares' computation for its VAT liability.

On January 10, 2011, petitioner Commissioner of Internal Revenue issued the Preliminary
Assessment Notice finding Asalus liable for deficiency VAT for 2007 in the aggregate amount of
P413,378,058.11.

On August 26, 2011, Asalus received the Formal Assessment Notice stating that it was liable for
deficiency VAT for 2007 in the total amount of P95,681,988.64, inclusive of surcharge and
interest. Consequently, it filed its protest against the FAN, dated September 6, 2011.

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

In its April 2, 2014 Decision, the CTA Division ruled that the VAT assessment issued on August
26, 2011 had prescribed and consequently deemed invalid.

Issue:

W/N the CTA erred in the decision and that the petition be granted in favor of the petitioner.

Held:

The statement given by the CTA were correct in a way, and it was given due respect for they
found it partly correct but, after a review of the records and applicable laws and jurisprudence,
the Court finds that the CTA erred in concluding that the assessment against Asalus had
prescribed. Internal revenue taxes shall be assessed within three 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 of failure to file a return, the assessment may be made within ten years from the discovery of
the falsity, fraud or omission.

In the oft-cited Aznar v. CTA, the Court compared a false return to a fraudulent return in relation
to the applicable prescriptive periods for assessments, to wit:

Petitioner argues that Sec. 332 of the NIRC does not apply because the taxpayer did not file false
and fraudulent returns with intent to evade tax, while respondent Commissioner of Internal
Revenue insists contrariwise, with respondent Court of Tax Appeals concluding that the very
"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."

WHEREFORE, petition is GRANTED. The July 30, 2015 Decision and the November 6, 2015
Resolution of the Court of Tax Appeals En Banc are REVERSED and SET ASIDE. The case is
ordered REMANDED to the Court of Tax Appeals for the determination of the Value Added
Tax liabilities of the Asalus Corporation.
 CIR v. Fitness by Design

Facts

On June 9, 2004, respondent received a copy of the FAN dated March 17, 2004 issued by the
CIR. Said notice assessed that respondent had a tax deficiency, providing a tabular computation
of internal revenue tax liabilities of the year 1995. It also states:

The complete details covering the aforementioned discrepancies during the investigation are
shown in Annex 1 of this notice. The 50% surcharge and 20% interest have been imposed
pursuant to Sec 248 and 249 of the NIRC, as amended. Please note, however that the interest
and total amount due will have to be adjusted if paid prior or beyond April 15, 2004

Issue:

W/N the FAN issued by the CIR is a valid assessment

Held:

No. A final notice is an assessment “to the effect that the amount therein stated is due as tax and
a demand for payment thereof”. This demand for payment signals the time when penalties and
interests begin to accrue against the taxpayer and enabling the latter to determine his remedies.
Thus, it must be sent to and received by the taxpayer and must demand payment of the taxes
prescribed therein within a specific period.

The FAN in the case at bar lacks the definite amount of tax liability for which respondent is
accountable. It does not purport to be a demand for payment of tax due. Although the disputed
notice provides for the computation of respondent’s tax liability, the amount remains indefinite.
It only provides that the tax due is still subject to modification depending on the date of
payment. There are no due dates in the disputed notice, thus, negating the demand for payment.
 CIR v. Avon Products

Facts

Avon filed its Value Added Tax (VAT) Returns and Monthly Remittance Returns of Income Tax
Withheld for the taxable year 1999. It signed two (2) Waivers of the Defense of Prescription in
the year 2002 which expires in 2003. In 2004, Avon was served a Collection Letter where it was
required to pay P80,246,459.15. These deficiency assessments were the same deficiency taxes
covered by the Preliminary Assessment Notice (PAN) it received in 2002. Avon then filed a
protest against the PAN. Without ruling on Avon's protest, the Commissioner (CIR) prepared the
Formal Letter of Demand (FLD) and Final Assessment Notices (FAN). Except for the amount of
interest, the FANs were the same as the PAN. Avon protested the FANs. It also resubmitted its
protest to the PAN and adopted the same as its protest to the FANs. A conference was held
where Avon informed all the revenue officers that all the documents which support its defenses
had already been submitted. The latter also allegedly expressed to cancel the assessments should
Avon pay portions of the assessments. Avon then complied and paid portions of the FANs.
However, in a Memorandum, BIR recommended the enforcement and collection of the
assessments

holding that Avon failed to submit supporting documents within the 60day period under Section
228 of the Tax Code. A Collection Letter was then sent to Avon which was claimed to have
included even those assessments which Avon had paid pursuant to the FANs. Avon requested the
reconsideration and withdrawal of the Collection Letter. It argued that it was devoid of legal and
factual basis, and was premature as the CIR had not yet acted on its protest against the FANs.
The matter was elevated to the CTA which ruled that there was no deprivation of due process in
the issuance by the CIR of the assessments as Avon was afforded an opportunity to explain and
present its evidence. Moreover, as affirmed by CTA en banc, the CIR’s failure to appreciate
Avon's supporting documents and arguments did not ipso facto amount to denial of due process
absent any proof of irregularity in the performance of duties.

Issue:
W/N the CIR failed to observe due process

Held:

The Commissioner's total disregard of due process rendered the identical Preliminary
Assessment Notice (PAN), Final Assessment Notices (FAN), and Collection Letter (CL) null and
void, and of no force and effect. The facts demonstrate that Avon was deprived of due process. It
was not fully apprised of the legal and factual bases of the assessments issued against it. The
Details of Discrepancy attached to the PAN, as well as the FLD with the FAN, did not even
comment or address the defenses and documents submitted by Avon. Thus, Avon was left
unaware on how the Commissioner or her authorized representatives appreciated the
explanations or defenses raised in connection with the assessments. There was clear inaction of
the Commissioner at every stage of the proceedings which is a deplorable transgression of
Avon's right to due process. In carrying out its quasi-judicial functions, the Commissioner is
required to "investigate facts or ascertain the existence of facts, hold

hearings, weigh evidence, and draw conclusions from them as basis for their official action and
exercise of discretion in a judicial nature." Administrative due process is anchored on fairness
and equity in procedure. It is satisfied if the party is properly notified of the charge against it and
is given a fair and reasonable opportunity to explain or defend itself. Moreover, it demands that
the party's defenses be considered by the administrative body in making its conclusions, and that
the party be sufficiently informed of the reasons for its conclusions.
 Samar Electric v. CIR

Facts

Petitioner issued its ITR for the years of 1998 and 1999. Respondent issued a Letter of Authority.

Petitioner was thereafter audited and investigated by the BIR . Petitioner was informed of the
results the results and findings of the investigation which included the legal and factual bases for
a deficiency assessment . Thereafter, respondent sent a notice of informal conference indicating
the income and withholding tax liabilities of petitioner who thereafter requested the specific
details of the assessment.

Petitioner executed a waiver of defense of prescription under the statute of limitations which was
valid until March 29, 2002.

Respondent thereafter issued a PAN which contained a computation of its deficiency taxes along
with the specific provision of law and revenue regulation violated. Petitioner protested the PAN
which was dismissed.

Petitioner received a demand letter and FAN showing the exact amount of deficiency taxes for
which it was liable. The FAN did not contain anymore the legal and factual bases for the
deficiency assessment. Petitioner again protested the FAN.

In its Final Decision on Disputed Assessment, petitioner was still held to be liable for the
payment of deficiency taxes.

Issue

W/N the assessments were issued in accordance with Sec. 228 of the NIRC

Held

Yes. Prior to the conduct of the informal conference, petitioner was already informed of the
findings of the investigation by the BIR which shows the legal and factual bases for the
assessment issued against petitioner. The same bases were also contained in the PAN which was
subsequently issued which enabled petitioner to protest the same.

Although the FAN and demand letter issued to petitioner were not accompanied by a written
explanation of the legal and factual bases of the deficiency taxes assessed against the petitioner,
the records showed that respondent in its response to petitioner’s letter-protest against the FAN,
explained at length the factual and legal bases of the deficiency tax assessments and the denial of
the protest.
 CIR v. Yumex Philippines

On March 4, 2010, a Notice of Informal Conference was issued by the Revenue District Officer
(RDO) to respondent informing the latter that the investigation of its accounting records for the
taxable year 2007 resulted in a preliminary assessment of income tax, value-added tax, expanded
withholding tax, fringe benefits tax, IAET, and compromise penalty.

Replying to the preliminary audit findings, respondent wrote petitioner regarding its status as a
corporation registered under the Philippine Economic Zone Authority (PEZA) which allows it to
enjoy payment of a special rate on registered activities; hence, it is not subject to IAET.
Subsequently, petitioner sent the letter6 dated August 12, 2010 and a Summary of Deficiencies
to respondent, which were received by the latter on August 20, 2010 and August 25, 2010,
respectively. Respondent thereafter sent its reply letter dated August 25, 2010. A Preliminary
Assessment Notice (PAN) dated December 16, 2010, with attached Details of Discrepancies, was
issued by the Bureau of Internal Revenue (BIR) Regional Director (RD), finding respondent
liable to pay deficiency income tax, fringe benefits tax, IAET, and compromise penalty. A
Formal Letter of Demand {FLD) dated January 10, 2011, was likewise issued by the RD, finding
respondent liable to pay: deficiency income tax (P589,961.46), fringe benefits tax
(Pl,097,855.50), IAET (P9,077,695.05), and compromise penalty (P25,000.00). On January 20,
2011, respondent filed a protest on the FLD asserting its status as a PEZA-registered entity; and
that since all of its activities are registered under PEZA, it is therefore fully exempt from the
IAET.

On February 4, 2011, petitioner received a letter dated February 2, 2011 from respondent, stating
that the latter is paying a total amount of P981,461.83, consisting of the basic deficiency income
tax (P372,106.45), basic deficiency fringe benefits tax (P584,355.38), and compromise penalty
(P25,000.00). However, respondent contested the amounts of interest and penalty on its
deficiency income and fringe benefit taxes and expressed its hope that petitioner will waive the
same. Respondent still did not pay its deficiency IAET.

After a reinvestigation, the RDO issued a letter dated July 25, 2011, acknowledging payment by
respondent of the basic deficiency taxes on income and fringe benefits, plus compromise penalty;
and informing respondent that its request for cancellation of the civil increments and penalties
thereon is subject to the approval of petitioner or the Deputy Commissioner/ Assistant
Commissioner/RD, pursuant to Section III( 6) of Revenue Memorandum Order (RMO) No. 19-
2007. The RDO reiterated her position and stood by the assessment of the IAET and its
corresponding civil increments. She advised respondent that the whole docket of the case will be
forwarded to the Regional Office for pursuance of collection. Respondent considered the above-
mentioned letter as petitioner's Final Decision on Disputed Assessment, and appealed the same
by filing a Petition for Review before the CTA Division on September 7, 2011.

Issue:

W/N the PAN and FAN were invalid as they were issued without due process

Held:

Yes. Sec. 228 of the NIRC mandates petitioner to inform the taxpayer in writing of the law and
the facts on which the assessment is made; otherwise, the assessment is void.

To implement the procedural and substantive rules on assessment of national internal revenue
taxes, the BIR issued RR No. 12-99 which provides that “If the taxpayer fails to respond within
fifteen (15) days from date of receipt of the PAN, he shall be considered in default, in which
case, a formal letter of demand and assessment notice shall be caused to be issued by the said
Office, calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable
penalties”
Clearly from the aforequoted provision, the taxpayer has fifteen ( 15) days from date of receipt
of the PAN to respond to the said notice. Only after receiving the taxpayer's response or in case
of the taxpayer's default can respondent issue the FLD/F AN. Per the evidence on record, the
BIR issued a PAN dated December 16, 2010, which it posted by registered mail the next day,
December 17, 2010. It then issued and mailed the FLD/FAN on January 10, 2011. Although
posted on different dates, the PAN and FLD/F AN were both received by the Post Office of
Dasmarinas, Cavite, on January 17, 2011, and served upon and received by respondent on
January 18, 2011. Under the circumstances, respondent was not given any notice of the
preliminary assessment at all and was deprived of the opportunity to respond to the same before
being given the final assessment.