ASSESSMENT AND COLLECTION court-appointed receiver, Roberto L.
ted receiver, Roberto L. Mendoza, sent an insolvent corporation in the hope of its eventual
BUREAU OF INTERNAL REVENUE,
versusmLEPANTO CERAMICS, INC … Respondent
This is a direct recourse to the Court from the
Regional Trial Court (RTC) of Calamba City, Province
of Laguna, Branch 35 (RTC Br. 35), through a
petition for review on certiorari,1 raising a pure
question of law. In particular, petitioners Bureau of
Internal Revenue (BIR), Assistant Commissioner
Alfredo V. Misajon (Misajon), Group Supervisor
Rolando M. Balbido (Balbido), and Examiner
Reynante DP. Martirez (Martirez; collectively,
petitioners) assail the Decision2 dated June 1, 2015
and the Order3 dated October 26, 2015 of the RTC
Br. 35 in Civil Case No. 4813-2014-C, which found
Misajon, Balbido, and Martirez (Misajon, et al.) guilty
of indirect contempt and, accordingly, ordered them
to pay a fine of P5,000.00 each.
The Facts
On December 23, 2011, respondent Lepanto
Ceramics, Inc. (LCI) - a corporation duly organized
and existing under Philippine Laws with principal
office address in Calamba City, Laguna - filed a
petition4 for corporate rehabilitation pursuant to
Republic Act No. (RA) 10142,5 otherwise known as
the “Financial Rehabilitation and Insolvency Act
(FRIA) of 2010,” docketed before the RTC of
Calamba City, Branch 34, the designated Special
Commercial Court in Laguna (Rehabilitation Court).
Essentially, LCI alleged that due to the financial
difficulties it has been experiencing dating back to
the Asian financial crisis, it had entered into a state
of insolvency considering its inability to pay its
obligations as they become due and that its total
liabilities amounting to P4,213,682,715.00 far
exceed its total assets worth P1,112,723,941.00.
Notably, LCI admitted in the annexes attached to the
aforesaid Petition its tax liabilities to the national
government in the amount of at least
P6,355,368.00.6
On January 13, 2012, the Rehabilitation Court issued
a Commencement Order,7 which, inter
alia: (a) declared LCI to be under corporate
rehabilitation; (b) suspended all actions or
proceedings, in court or otherwise, for the
enforcement of claims against LCI; (c)prohibited LCI
from making any payment of its liabilities
outstanding as of even date, except as may be
provided under RA 10142; and (d) directed the BIR
to file and serve on LCI its comment or opposition to
the petition, or its claims against LCI.8 Accordingly,
the Commencement Order was published in a
newspaper of general circulation and the same,
together with the petition for corporate
rehabilitation, were personally served upon LCPs
creditors, including the BIR.9
Despite the foregoing, Misajon, et al., acting as
Assistant Commissioner, Group Supervisor, and
Examiner, respectively, of the BIR’s Large Taxpayers
Service, sent LCI a notice of informal
conference10 dated May 27, 2013, informing the
latter of its deficiency internal tax liabilities for the
Fiscal Year ending June 30, 2010. In response, LCI’s
proceedings, in court or otherwise, for the
BIR a letter-reply, reminding the latter of the
pendency of LCI’s corporate rehabilitation
proceedings, as well as the issuance of a
Commencement Order in connection therewith.
Undaunted, the BIR sent LCI a Formal Letter of
Demand11 dated May 9, 2014, requiring LCI to pay
deficiency taxes in the amount of
P567,519,348.39.12 This prompted LCI to file a
petition for indirect contempt dated August , 2014
13
against petitioners before RTC Br. 35. In said
petition, LCI asserted that petitioners’ act of
pursuing the BIR’s claims for deficiency taxes
against LCI outside of the pending rehabilitation
proceedings in spite of the Commencement Order
issued by the Rehabilitation Court is a clear defiance
of the aforesaid Order. As such, petitioners must be
cited for indirect contempt in accordance with Rule
71 of the Rules of Court in relation to Section 16 of
RA 10142.14
For their part, petitioners maintained that: (a) RTC
Br. 35 had no jurisdiction to cite them in contempt
as it is only the Rehabilitation Court, being the one
that issued the Commencement Order, which has the
authority to determine whether or not such Order
was defied; (b) the instant petition had already been
mooted by the Rehabilitation Court’s Order15 dated
August 28, 2014 which declared LCI to have been
successfully rehabilitated resulting in the
termination of the corporate rehabilitation
proceedings; (c) their acts do not amount to a
defiance of the Commencement Order as it was done
merely to toll the prescriptive period in collecting
deficiency taxes, and thus, sanctioned by the Rules of
Procedure of the FRIA; (d) their acts of sending a
Notice of Informal Conference and Formal Letter of
Demand do not amount to a “legal action or other
recourse” against LCI outside of the rehabilitation
proceedings; and (e) the indirect contempt
proceedings interferes with the exercise of their
functions to collect taxes due to the government.16
The Issue Before the Court
The issue for the Court’s resolution is whether or
not the RTC Br. 35 correctly found Misajon, et al. to
have defied the Commencement Order and,
accordingly, cited them for indirect contempt.
The Court’s Ruling
The petition is without merit.
Section 4 (gg) of RA 10142 states:
Section 4. Definition of Terms. - As used in this Act,
the term:
xxx
(gg) Rehabilitation shall refer to the restoration of
the debtor to a condition of successful operation and
solvency, if it is shown that its continuance of
operation is economically feasible and its creditors
can recover by way of the present value of payments
projected in the plan, more if the debtor continues
as a going concern than if it is immediately
liquidated.
xxx
“[C]ase law has defined corporate rehabilitation as
an attempt to conserve and administer the assets of
FACTS
return from financial stress to solvency. It
contemplates the continuance of corporate life and
activities in an effort to restore and reinstate the
corporation to its former position of successful
operation and liquidity.”23
Verily, the inherent purpose of rehabilitation is to
find ways and means to minimize the expenses of
the distressed corporation during the rehabilitation
period by providing the best possible framework for
the corporation to gradually regain or achieve a
sustainable operating form.24 “[It] enable[s] the
company to gain a new lease in life and thereby
allow creditors to be paid [t]heir claims from its
earnings. Thus, rehabilitation shall be undertaken
when it is shown that the continued operation of the
corporation is economically more feasible and its
creditors can recover, by way of the present value of
payments projected in the plan, more, if the
corporation continues as a going concern than if it is
immediately liquidated.25
In order to achieve such objectives, Section 16 of RA
10142 provides, inter alia, that upon the issuance of
a Commencement Order - which includes a Stay or
Suspension Order - all actions or proceedings, in
court or otherwise, for the enforcement of “claims”
against the distressed company shall be suspended.
Under the same law, claim “shall refer to all claims
or demands of whatever nature or character against
the debtor or its property, whether for money or
otherwise, liquidated or unliquidated, fixed or
contingent, matured or unmatured, disputed or
undisputed, including, but not limited to; (1) all
claims of the government, whether national or
local, including taxes, tariffs and customs
duties; and (2) claims against directors and officers
of the debtor arising from acts done in the discharge
of their functions falling within the scope of their
authority: Provided, That, this inclusion does not
prohibit the creditors or third parties from filing
cases against the directors and officers acting in
their personal capacities.”27
To clarify, however, creditors of the distressed
corporation are not without remedy as they may
still submit their claims to the rehabilitation court
for proper consideration so that they may
participate in the proceedings, keeping in mind the
general policy of the law “to ensure or maintain
certainty and predictability in commercial affairs,
preserve and maximize the value of the assets of
these debtors, recognize creditor rights and respect
priority of claims, and ensure equitable treatment of
creditors who are similarly situated.”28 In other
words, the creditors must ventilate their claims
before the rehabilitation court, and any “[a]ttempts
to seek legal or other resource against the distressed
corporation shall be sufficient to support a finding of
indirect contempt of court.”29
In the case at bar, it is undisputed that LCI filed a
petition for corporate rehabilitation. Finding the
same to be sufficient in form and substance, the
Rehabilitation Court issued a Commencement
Order30 dated January 13, 2012 which, inter
alia: (a) declared LCI to be under corporate
rehabilitation; (b) suspended all actions or
This involves deficiency IT and VAT
enforcement of claims against LCI; (c) prohibited LCI
from making any payment of its outstanding
liabilities as of even date, except as may be provided
under RA 10142; and (d) directed the BIR to file and
serve on LCI its comment or opposition to the
petition, or its claims against LCI. It is likewise
undisputed that the BIR - personally and by
publication - was notified of the rehabilitation
proceedings involving LCI and the issuance of the
Commencement Order related thereto. Despite the
foregoing, the BIR, through Misajon, et al., still opted
to send LCI: (a) a notice of informal
conference31 dated May 27, 2013, informing the
latter of its deficiency internal tax liabilities for the
Fiscal Year ending June 30, 2010; and (b) a Formal
Letter of Demand32 dated May 9, 2014, requiring LCI
to pay deficiency taxes in the amount of
P567,519,348.39, notwithstanding the written
reminder coming from LCI’s court-appointed
receiver of the pendency of rehabilitation
proceedings concerning LCI and the issuance of a
commencement order. Notably, the acts of sending a
notice of informal conference and a Formal Letter of
Demand are part and parcel of the entire process for
the assessment and collection of deficiency taxes
from a delinquent taxpayer,33 - an action or
proceeding for the enforcement of a claim which
should have been suspended pursuant to the
Commencement Order. Unmistakably, Misajon, et
al.’s foregoing acts are in clear defiance of the
Commencement Order.
Petitioners’ insistence that: (a) Misajon, et al. only
performed such acts to toll the prescriptive period
for the collection of deficiency taxes; and (b) to cite
them in indirect contempt would unduly interfere
with their function of collecting taxes due to the
government, cannot be given any credence. As aptly
put by the RTC Br. 35, they could have easily tolled
the running of such prescriptive period, and at the
same time, perform their functions as officers of the
BIR, without defying the Commencement Order and
without violating the laudable purpose of RA 10142
by simply ventilating their claim before the
Rehabilitation Court.34 After all, they were
adequately notified of the LCI’s corporate
rehabilitation and the issuance of the corresponding
Commencement Order.
In sum, it was improper for Misajon, et al. to collect,
or even attempt to collect, deficiency taxes from LCI
outside of the rehabilitation proceedings concerning
the latter, and in the process, willfully disregard the
Commencement Order lawfully issued by the
Rehabilitation Court. Hence, the RTC Br. 35 correctly
cited them for indirect contempt.35
WHEREFORE, the petition is DENIED. The Decision
dated June 1, 2015 and the Order dated October 26,
2015 of the Regional Trial Court of Calamba City,
Province of Laguna, Branch 35 in Civil Case No.
4813-2014-C are hereby AFFIRMED.
SO ORDERED.
CIR VS PHILIPPINE DAILY INQUIRER
assessments for TY 31 Dec 2004 The BIR issued
the FAN 11 March 2008 and received by PDI on 17
April 2008 The assessments arose from
discrepancies between tax returns and
information from 3rd parties The BIR alleged that
PDI falsely filed its tax returns because it under-
declared its income based on the BIR's RELIEF
system. Thus, the ten-year prescriptive period from
discovery of falsity shall apply. PDI executed 3
waivers which it later on questioned for being
defectives
(1) Mere inadvertence does not give rise to falsity
ISSUE Whether or not discrepancies between PDI’s
tax returns and information from 3 rd parties make
the tax returns false.
RULING Citing a previous decision, the SC
reiterated that the entry of wrong information due
to mistake, carelessness or ignorance (without the
intent to evade tax) does not constitute a false
return. The SC did not find enough evidence to
support the claim that there was fraud or
intentional falsity on the part of the taxpayer.
(2) Waiver is defective if only the BIR is at fault
ISSUE Whether or not the waivers executed by PDI
are valid.
RULING The SC voided the waivers executed by the
taxpayer because the BIR failed to provide the
office accepting copies, and the said waivers were
not executed in three copies as required under BIR
rules. The SC ruled that the waivers executed by the
taxpayer were defective since the BIR did not
follow its own rules on waivers. The defect was
caused solely by the BIR; thus, the waivers have no
effect and did not extend the threeyear prescriptive
period
NOTE: In the case of CIR vs Next Mobile (G.R. No.
212825 dated 7 December 2015), SC did not void
the waivers even if they were defectives because
both the taxpayer and BIR caused the defects (in
pari delicto)
CIR V B.F. GOODRICH PHIL., INC., ET AL GR No.
104171, February 24, 1999
Facts: Private respondent BF Goodrich Philippines
Inc. was an American corporation prior to July 3,
1974. As a condition for approving the manufacture
of tires and other rubber products, private
respondent was required by the Central Bank to
develop a rubber plantation. In compliance
therewith, private respondent bought from the
government certain parcels of land in Tumajubong
Basilan, in 1961 under the Public Land Act and the
Parity Amendment to the 1935 constitution, and
there developed a rubber plantation.
On August 2, 1973, the Justice Secretary rendered an
opinion that ownership rights of Americans over
Public agricultural lands, including the right to
dispose or sell their real estate, would be lost upon
expiration on July 3, 1974 of the Parity Amendment.
Thus, private respondent sold its Basilan land
holding to Siltown Realty Phil. Inc., (Siltown) for
P500,000 on January 21, 1974. Under the terms of
the sale, Siltown would lease the property to private
respondent for 25 years with an extension of 25
years at the option of private respondent.
Private respondent books of accounts were
examined by BIR for purposes of determining its tax
liability for 1974. This examination resulted in the
April 23, 1975 assessment of private respondent for
deficiency income tax which it duly paid. Siltown’s
books of accounts were also examined, and on the
basis thereof, on October 10, 1980, the Collector of
Internal Revenue assessed deficiency donor’s tax of
P1,020,850 in relation to said sale of the Basilan
landholdings.
Private respondent contested this assessment on
November 24, 1980. Another assessment dated
March 16, 1981, increasing the amountdemanded
for the alleged deficiency donor’s tax, surcharge,
interest and compromise penalty and was received
by private respondent on April 9, 1981. On appeal,
CTA upheld the assessment. On review, CA reversed
the decision of the court finding that
the assessment was made beyond the 5-year
prescriptive period in Section 331 of the Tax Code.
Issue: Whether or not petitioner’s right to assess has
prescribed.
Held: Applying then Sec. 331, NIRC (now Sec. 203,
1997 NIRC which provides a 3-year prescriptive
period for making assessments), it is cleanthat the
October 16, 1980 and March 16, 1981 assessments
were issued by the BIR beyond the 5-year statute of
limitations. The court thoroughly studied the
records of this case and found no basis to disregard
the 5-year period of prescription, expressly set
under Sec. 331 of the Tax Code, the law then in force.
For the purpose of safeguarding taxpayers from any
unreasonable examination, investigation
or assessment, our tax law provides a statute of
limitations in the collection of taxes. Thus, the law or
prescription, being a remedial measure, should be
liberally construed in order to afford such
protection. As a corollary, the exceptions to the law
on prescription should perforce be strictly
construed.
CIR v. ASALUS
COMMISSIONER OF INTERNAL REVENUE vs.
ASALUS CORPORATION
February 22, 2017
GR No. 221590
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: WHETHER OR NOT 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:
amount and actual demand to pay, the FAN is
Petitioner argues that Sec. 332 of the NIRC does not void.
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 vs Fitness By Design, Inc. GR 215957
FACTS More than 8 years from filing of tax return,
Fitness By Design Inc. (FBDI) received a FAN
covering the taxable year 1995. The imposed 50%
surcharge and indicated that the total amount due
shall be adjusted if paid prior or beyond 15 April
2004. FBDI protested the FAN stating that the right
of the BIR to assess has already prescribed.
Eventually, the BIR issued warrant of Distraint
and/or Levy which prompted FBDI to go the CTA.
The CTA cancelled the assessment on the ground of
prescription. Thus, the BIR elevated the case to
the SC.
(1) Fraud is not presumed
ISSUE Whether or not the BIR correctly invoked
fraud and therefore 10-year prescriptive period
should apply
RULING The SC held that fraud is a question of fact
that should be alleged and duly proven. It was
noted that aside from imposing the 50% surcharge,
the FAN and the Audit Result/Assessment Notice
did not impute fraud on the part of the taxpayer nor
did it include any basis for the allegation of fraud.
The SC ruled that fraud cannot be presumed and the
willful neglect to file the required return or
fraudulent intent to evade taxes must be proven by
the party alleging the fraud
(2) FAN must be a demand for payment ISSUE
Whether or not the FAN issued to FBDI is a
demand for payment or merely a request for
payment. RULING The FAN provides that the
tax due is still subject to modification,
depending on the date of payment. The SC
reiterated that in order to serve its purpose,
the FAN should contain a definite amount of
tax liability, and an actual demand for the
payment of such. Thus, absent the definite