Tax Rev Remedies Cases Part 01

REMEDIES UNDER THE NIRC
THIRD DIVISION
April 5, 2017
G.R. No. 222743
MEDICARD PHILIPPINES, INC., Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
REYES,, J.:
This appeal by Petition for Review1 seeks to reverse and set aside the Decision2 dated September 2,
2015 and Resolution3 dated January 29, 2016 of the Court of Tax Appeals (CTA) en bane in CTA EB
No. 1224, affirming with modification the Decision4 dated June 5, 2014 and the Resolution5 dated
September 15, 2014.in CTA Case No. 7948 of the CTA Third Division, ordering petitioner Medicard
Philippines, Inc. (MEDICARD), to pay respondent Commissioner of Internal Revenue (CIR) the
deficiency
Value-Added Tax. (VAT) assessment in the aggregate amount of ₱220,234,609.48, plus 20%
interest per annum starting January 25, 2007, until fully paid, pursuant to Section 249(c)6 of the
National Internal Revenue Code (NIRC) of 1997.
The Facts
MEDICARD is a Health Maintenance Organization (HMO) that provides prepaid health and medical
insurance coverage to its clients. Individuals enrolled in its health care programs pay an annual
membership fee and are entitled to various preventive, diagnostic and curative medical services
provided by duly licensed physicians, specialists and other professional technical staff participating
in the group practice health delivery system at a hospital or clinic owned, operated or accredited by
it.7
MEDICARD filed its First, Second, and Third Quarterly VAT Returns through Electronic Filing and
Payment System (EFPS) on April 20, 2006, July 25, 2006 and October 20, 2006, respectively, and
its Fourth Quarterly VAT Return on January 25, 2007.8
Upon finding some discrepancies between MEDICARD's Income Tax Returns (ITR) and VAT
Returns, the CIR informed MEDICARD and issued a Letter Notice (LN) No. 122-VT-06-00-00020
dated
September 20, 2007. Subsequently, the CIR also issued a Preliminary Assessment Notice (PAN)
against MEDICARD for deficiency VAT. A Memorandum dated December 10, 2007 was likewise
issued recommending the issuance of a Formal Assessment Notice (FAN) against MEDICARD.9 On.
January 4, 2008, MEDICARD received CIR's FAN dated December' 10, 2007 for alleged deficiency
VAT for taxable year 2006 in the total amount of Pl 96,614,476.69,10 inclusive of penalties. 11
According to the CIR, the taxable base of HMOs for VAT purposes is its gross receipts without any
deduction under Section 4.108.3(k) of Revenue Regulation (RR) No. 16-2005. Citing Commissioner
of Internal Revenue v. Philippine Health Care Providers, Inc., 12 the CIR argued that since
MEDICARD. does not actually provide medical and/or hospital services, but merely arranges for the
same, its services are not VAT exempt.13
MEDICARD argued that: (1) the services it render is not limited merely to arranging for the provision
of medical and/or hospital services by hospitals and/or clinics but include actual and direct rendition
of medical and laboratory services; in fact, its 2006 audited balance sheet shows that it owns x-ray
and laboratory facilities which it used in providing medical and laboratory services to its members;
(2) out of the ₱l .9 Billion membership fees, ₱319 Million was received from clients that are
registered with the Philippine Export Zone Authority (PEZA) and/or Bureau of Investments; (3) the
processing fees amounting to ₱l 1.5 Million should be excluded from gross receipts because P5.6
Million of which represent advances for professional fees due from clients which were paid by
MEDICARD while the remainder was already previously subjected to VAT; (4) the professional fees
in the amount of Pl 1 Million should also be excluded because it represents the amount of medical
services actually and directly rendered by MEDICARD and/or its subsidiary company; and (5) even
assuming that it is liable to pay for the VAT, the 12% VAT rate should not be applied on the entire
amount but only for the period when the 12% VAT rate was already in effect, i.e., on February 1,
2006. It should not also be held liable for surcharge and deficiency interest because it did not pass
on the VAT to its members.14
On February 14, 2008, the CIR issued a Tax Verification Notice authorizing Revenue Officer
Romualdo Plocios to verify the supporting documents of MEDICARD's Protest. MEDICARD also
submitted additional supporting documentary evidence in aid of its Protest thru a letter dated March
18, 2008.15
On June 19, 2009, MEDICARD received CIR's Final Decision on Disputed Assessment dated May
15, 2009, denying MEDICARD's protest, to wit:
IN VIEW HEREOF, we deny your letter protest and hereby reiterate in toto assessment of deficiency
[VAT] in total sum of ₱196,614,476.99. It is requested that you pay said deficiency taxes
immediately. Should payment be made later, adjustment has to be made to impose interest until
date of payment. This is olir final decision. If you disagree, you may take an appeal to the [CTA]
within the period provided by law, otherwise, said assessment shall become final, executory and
demandable. 16
On July 20, 2009, MEDICARD proceeded to file a petition for review before the CT A, reiterating its
position before the tax authorities. 17
On June 5, 2014, the CTA Division rendered a Decision18 affirming with modifications the CIR's
deficiency VAT assessment covering taxable year 2006, viz.:
WHEREFORE, premises considered, the deficiency VAT assessment issued by [CIR] against
[MEDICARD] covering taxable year 2006 ·is hereby AFFIRMED WITH
MODIFICATIONS. Accordingly, [MEDICARD] is ordered to pay [CIR] the amount of P223,l
73,208.35, inclusive of the twenty-five percent (25%) surcharge imposed under -Section 248(A)(3) of
the NIRC of 1997, as amended, computed as follows:
Basic Deficiency VAT ₱l78,538,566.68

Add: 25% Surcharge 44,634,641.67
Total ₱223.173.208.35
In addition, [MEDICARD] is ordered to pay:
a. Deficiency interest at the rate of twenty percent (20%) per annum on the basis deficiency
VAT of Pl 78,538,566.68 computed from January 25, 2007 until full payment thereof
pursuant to Section 249(B) of the NIRC of 1997, as amended; and
b. Delinquency interest at the rate of twenty percent (20%) per annum on the total amount of
₱223,173,208.35 representing basic deficiency VAT of ₱l78,538,566.68 and· 25% surcharge
of ₱44,634,64 l .67 and on the 20% deficiency interest which have accrued as afore-stated in
(a), computed from June 19, 2009 until full payment thereof pursuant to Section 249(C) of
the NIRC of 1997.
SO ORDERED.19
The CTA Division held that: (1) the determination of deficiency VAT is not limited to the issuance of
Letter of Authority (LOA) alone as the CIR is granted vast powers to perform examination and
assessment functions; (2) in lieu of an LOA, an LN was issued to MEDICARD informing it· of the
discrepancies between its ITRs and VAT Returns and this procedure is authorized under Revenue
Memorandum Order (RMO) No. 30-2003 and 42-2003; (3) MEDICARD is estopped from questioning
the validity of the assessment on the ground of lack of LOA since the assessment issued against
MEDICARD contained the requisite legal and factual bases that put MEDICARD on notice of the
deficiencies and it in fact availed of the remedies provided by law without questioning the nullity of
the assessment; (4) the amounts that MEDICARD earmarked , and eventually paid to doctors,
hospitals and clinics cannot be excluded from · the computation of its gross receipts under the
provisions of RR No. 4-2007 because the act of earmarking or allocation is by itself an act of
ownership and management over the funds by MEDICARD which is beyond the contemplation of
RR No. 4-2007; (5) MEDICARD's earnings from its clinics and laboratory facilities cannot be
excluded from its gross receipts because the operation of these clinics and laboratory is merely an
incident to MEDICARD's main line of business as HMO and there is no evidence that MEDICARD
segregated the amounts pertaining to this at the time it received the premium from its members; and
(6) MEDICARD was not able to substantiate the amount pertaining to its January 2006 income and
therefore has no basis to impose a 10% VAT rate.20
Undaunted, MEDICARD filed a Motion for Reconsideration but it was denied. Hence, MEDICARD
elevated the matter to the CTA en banc.
In a Decision21 dated September 2, 2015, the CTA en banc partially granted the petition only insofar
as the 10% VAT rate for January 2006 is concerned but sustained the findings of the CTA Division in
all other matters, thus:
WHEREFORE, in view thereof, the instant Petition for Review is hereby PARTIALLY
GRANTED. Accordingly, the Decision date June 5, 2014 is hereby MODIFIED, as follows:
"WHEREFORE, premises considered, the deficiency VAT assessment issued by [CIR] against
[MEDICARD] covering taxable year 2006 is hereby AFFIRMED WITH
MODIFICATIONS. Accordingly, [MEDICARD] is ordered to pay [CIR] the amount of
₱220,234,609.48, inclusive of the 25% surcharge imposed under Section 248(A)(3) of the NIRC of
1997, as amended, computed as follows:
Basic Deficiency VAT ₱76,187,687.58

Add: 25% Surcharge 44,046,921.90
Total ₱220,234.609.48
In addition, [MEDICARD] is ordered to pay:
(a) Deficiency interest at the rate of 20% per annum on the basic deficiency VAT of ₱l
76,187,687.58 computed from January 25, 2007 until full payment thereof pursuant to
Section 249(B) of the NIRC of 1997, as amended; and
(b) Delinquency interest at the rate of 20% per annum on the total amount of
₱220,234,609.48 (representing basic deficiency VAT of ₱l76,187,687.58 and 25% surcharge
of ₱44,046,921.90) and on the deficiency interest which have accrued as afore-stated in (a),
computed from June 19, 2009 until full payment thereof pursuant to Section 249(C) of the
NIRC of 1997, as amended."
SO ORDERED.22
Disagreeing with the CTA en bane's decision, MEDICARD filed a motion for reconsideration but it
was denied.23Hence, MEDICARD now seeks recourse to this Court via a petition for review
on certiorari.
The Issues
l. WHETHER THE ABSENCE OF THE LOA IS FATAL; and
2. WHETHER THE AMOUNTS THAT MEDICARD EARMARKED AND EVENTUALLY PAID

TO THE MEDICAL SERVICE PROVIDERS SHOULD STILL FORM PART OF ITS GROSS
RECEIPTS FOR VAT PURPOSES.24
Ruling of the Court
The petition is meritorious.
The absence of an LOA violated

MEDICARD's right to due process
An LOA is the authority given to the appropriate revenue officer assigned to perform assessment
functions. It empowers or enables said revenue officer to examine the books of account and other
accounting records of a taxpayer for the purpose of collecting the correct amount of tax. 25 An LOA is
premised on the fact that the examination of a taxpayer who has already filed his tax returns is a
power that statutorily belongs only to the CIR himself or his duly authorized representatives. Section
6 of the NIRC clearly provides as follows:
SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements
for Tax Administration and Enforcement. –
(A) Examination of Return and Determination of Tax Due.- After a return has been filed as
required under the provisions of this Code, the Commissioner or his duly authorized
representative may authorize the examinationof any taxpayer and the assessment of the correct
amount of tax: Provided, however, That failure to file a return shall not prevent the Commissioner
from authorizing the examination of any taxpayer.
x x x x (Emphasis and underlining ours)
Based on the afore-quoted provision, it is clear that unless authorized by the CIR himself or by his
duly authorized representative, through an LOA, an examination of the taxpayer cannot ordinarily be
undertaken. The circumstances contemplated under Section 6 where the taxpayer may be assessed
through best-evidence obtainable, inventory-taking, or surveillance among others has nothing to do
with the LOA. These are simply methods of examining the taxpayer in order to arrive at .the correct
amount of taxes. Hence, unless undertaken by the CIR himself or his duly authorized
representatives, other tax agents may not validly conduct any of these kinds of examinations without
prior authority.
With the advances in information and communication technology, the Bureau of Internal Revenue
(BIR) promulgated RMO No. 30-2003 to lay down the policies and guidelines once its then incipient
centralized Data Warehouse (DW) becomes fully operational in conjunction with its Reconciliation of
Listing for Enforcement System (RELIEF System).26 This system can detect tax leaks by matching
the data available under the BIR's Integrated Tax System (ITS) with data gathered from third-party
sources. Through the consolidation and cross-referencing of third-party information, discrepancy
reports on sales and purchases can be generated to uncover under declared income and over
claimed purchases of Goods and services.
Under this RMO, several offices of the BIR are tasked with specific functions relative to the RELIEF
System, particularly with regard to LNs. Thus, the Systems Operations Division (SOD) under the
Information Systems Group (ISG) is responsible for: (1) coming up with the List of Taxpayers with
discrepancies within the threshold amount set by management for the issuance of LN and for the
system-generated LNs; and (2) sending the same to the taxpayer and to the Audit Information, Tax
Exemption and Incentives Division (AITEID). After receiving the LNs, the AITEID under the
Assessment
Service (AS), in coordination with the concerned offices under the ISG, shall be responsible for
transmitting the LNs to the investigating offices [Revenue District Office (RDO)/Large Taxpayers
District Office (LTDO)/Large Taxpayers Audit and Investigation Division (LTAID)]. At the level of
these investigating offices, the appropriate action on the LN s issued to taxpayers with RELIEF data
discrepancy would be determined.
RMO No. 30-2003 was supplemented by RMO No. 42-2003, which laid down the "no-contact-audit
approach" in the CIR's exercise of its ·power to authorize any examination of taxpayer arid the
assessment of the correct amount of tax. The no-contact-audit approach includes the process of
computerized matching of sales and purchases data contained in the Schedules of Sales and
Domestic Purchases and Schedule of Importation submitted by VAT taxpayers under the RELIEF
System pursuant to RR No. 7-95, as amended by RR Nos. 13-97, 7-99 and 8-2002. This may also
include the matching of data from other information or returns filed by the taxpayers with the BIR
such as Alphalist of Payees subject to Final or Creditable Withholding Taxes.
Under this policy, even without conducting a detailed examination of taxpayer's books and records, if
the computerized/manual matching of sales and purchases/expenses appears to reveal
discrepancies, the same shall be communicated to the concerned taxpayer through the issuance of
LN. The LN shall serve as a discrepancy notice to taxpayer similar to a Notice for Informal
Conference to the concerned taxpayer. Thus, under the RELIEF System, a revenue officer may
begin an examination of the taxpayer even prior to the issuance of an LN or even in the absence of
an LOA with the aid of a computerized/manual matching of taxpayers': documents/records.
Accordingly, under the RELIEF System, the presumption that the tax returns are in accordance with
law and are presumed correct since these are filed under the penalty of perjury27 are easily rebutted
and the taxpayer becomes instantly burdened to explain a purported discrepancy.
Noticeably, both RMO No. 30-2003 and RMO No. 42-2003 are silent on the statutory requirement of
an LOA before any investigation or examination of the taxpayer may be conducted. As provided in
the RMO No. 42-2003, the LN is merely similar to a Notice for Informal Conference. However, for a
Notice of Informal Conference, which generally precedes the issuance of an assessment notice to
be valid, the same presupposes that the revenue officer who issued the same is properly authorized
in the first place.
With this apparent lacuna in the RMOs, in November 2005, RMO No. 30-2003, as supplemented by
RMO No. 42-2003, was amended by RMO No. 32-2005 to fine tune existing procedures in handing
assessments against taxpayers'· issued LNs by reconciling various revenue issuances which conflict
with the NIRC. Among the objectives in the issuance of RMO No. 32-2005 is to prescribe procedure
in the resolution of LN discrepancies, conversion of LNs to LOAs and assessment and collection of
deficiency taxes.
IV. POLICIES AND GUIDELINES
xxxx
8. In the event a taxpayer who has been issued an LN refutes the discrepancy shown in the
LN, the concerned taxpayer will be given an opportunity to reconcile its records with those of the BIR
within
One Hundred and Twenty (120) days from the date of the issuance of the LN. However, the subject
taxpayer shall no longer be entitled to the abatement of interest and penalties after the lapse of the
sixty (60)-day period from the LN issuance.
9. In case the above discrepancies remained unresolved at the end of the One Hundred and
Twenty (120)-day period, the revenue officer (RO) assigned to handle the LN shall
recommend the issuance of [LOA) to replace the LN. The head of the concerned investigating
office shall submit a summary list of LNs for conversion to LAs (using the herein prescribed format in
Annex "E" hereof) to the OACIR-LTS I ORD for the preparation of the corresponding LAs with the
notation "This LA cancels LN_________ No. "
xxxx
V. PROCEDURES
xxxx
B. At the Regional Office/Large Taxpayers Service

xxxx
7. Evaluate the Summary List of LNs for Conversion to LAs submitted by the RDO x x x prior to
approval.
8. Upon approval of the above list, prepare/accomplish and sign the corresponding LAs.
xxxx
Decision 11 G.R. No. 222743
xxxx
10. Transmit the approved/signed LAs, together with the duly accomplished/approved Summary List
of LNs for conversion to LAs, to the concerned investigating offices for the encoding of the required
information x x x and for service to the concerned taxpayers.
xxxx
C. At the RDO x x x
xxxx
11. If the LN discrepancies remained unresolved within One Hundred and Twenty (120) days from
issuance thereof, prepare a summary list of said LN s for conversion to LAs x x x.
xxxx
16. Effect the service of the above LAs to the concerned taxpayers.28
In this case, there is no dispute that no LOA was issued prior to the issuance of a PAN and FAN
against MED ICARD. Therefore no LOA was also served on MEDICARD. The LN that was issued
earlier was also not converted into an LOA contrary to the above quoted provision. Surprisingly, the
CIR did not even dispute the applicability of the above provision of RMO 32-2005 in the present case
which is clear and unequivocal on the necessity of an LOA for the· assessment proceeding to be
valid. Hence, the CTA's disregard of MEDICARD's right to due process warrant the reversal of the
assailed decision and resolution.
In the case of Commissioner of Internal Revenue v. Sony Philippines, Inc. ,29 the Court said that:
Clearly, there must be a grant of authority before any revenue officer can conduct an examination or
assessment. Equally important is that the revenue officer so authorized must not go beyond the
authority given. In the absence of such an authority, the assessment or examination is a
nullity.30 (Emphasis and underlining ours)
The Court cannot convert the LN into the LOA required under the law even if the same was issued
by the CIR himself. Under RR No. 12-2002, LN is issued to a person found to have underreported
sales/receipts per data generated under the RELIEF system. Upon receipt of the LN, a taxpayer may
avail of the BIR's Voluntary Assessment and Abatement Program. If a taxpayer fails or refuses to
avail of the said program, the BIR may avail of administrative and criminal .remedies, particularly
closure, criminal action, or audit and investigation. Since the law specifically requires an LOA and
RMO No. 32-2005 requires the conversion of the previously issued LN to an LOA, the absence
thereof cannot be simply swept under the rug, as the CIR would have it. In fact Revenue
Memorandum Circular No. 40-2003 considers an LN as a notice of audit or investigation only for the
purpose of disqualifying the taxpayer from amending his returns.
The following differences between an LOA and LN are crucial. First, an LOA addressed to a revenue
officer is specifically required under the NIRC before an examination of a taxpayer may be had while
an LN is not found in the NIRC and is only for the purpose of notifying the taxpayer that a
discrepancy is found based on the BIR's RELIEF System. Second, an LOA is valid only for 30 days
from date of issue while an LN has no such limitation. Third, an LOA gives the revenue officer only a
period of 10days from receipt of LOA to conduct his examination of the taxpayer whereas an LN
does not contain such a limitation.31 Simply put, LN is entirely different and serves a different purpose
than an LOA. Due process demands, as recognized under RMO No. 32-2005, that after an LN has
serve its purpose, the revenue officer should have properly secured an LOA before proceeding with
the further examination and assessment of the petitioner. Unfortunarely, this was not done in this
case.
Contrary to the ruling of the CTA en banc, an LOA cannot be dispensed with just because none of
the financial books or records being physically kept by MEDICARD was examined. To begin with,
Section 6 of the NIRC requires an authority from the CIR or from his duly authorized representatives
before an examination "of a taxpayer" may be made. The requirement of authorization is therefore
not dependent on whether the taxpayer may be required to physically open his books and financial
records but only on whether a taxpayer is being subject to examination.
The BIR's RELIEF System has admittedly made the BIR's assessment and collection efforts much
easier and faster. The ease by which the BIR's revenue generating objectives is achieved is no
excuse however for its non-compliance with the statutory requirement under Section 6 and with its
own administrative issuance. In fact, apart from being a statutory requirement, an LOA is equally
needed even under the BIR's RELIEF System because the rationale of requirement is the same
whether or not the CIR conducts a physical examination of the taxpayer's records: to prevent undue
harassment of a taxpayer and level the playing field between the government' s vast resources for
tax assessment, collection and enforcement, on one hand, and the solitary taxpayer's dual need to
prosecute its business while at the same time responding to the BIR exercise of its statutory powers.
The balance between these is achieved by ensuring that any examination of the taxpayer by the BIR'
s revenue officers is properly authorized in the first place by those to whom the discretion to exercise
the power of examination is given by the statute.
That the BIR officials herein were not shown to have acted unreasonably is beside the point because
the issue of their lack of authority was only brought up during the trial of the case. What is crucial is
whether the proceedings that led to the issuance of VAT deficiency assessment against MEDICARD
had the prior approval and authorization from the CIR or her duly authorized representatives. Not
having authority to examine MEDICARD in the first place, the assessment issued by the CIR is
inescapably void.
At any rate, even if it is assumed that the absence of an LOA is not fatal, the Court still partially finds
merit in MEDICARD's substantive arguments.
The amounts earmarked and

eventually paid by MEDICARD to
the medical service providers do not
form part of gross receipts.for VAT
purposes
MEDICARD argues that the CTA en banc seriously erred in affirming the ruling of the CT A Division
that the gross receipts of an HMO for VAT purposes shall be the total amount of money or its
equivalent actually received from members undiminished by any amount paid or payable to the
owners/operators of hospitals, clinics and medical and dental practitioners. MEDICARD explains that
its business as an HMO involves two different although interrelated contracts. One is between a
corporate client and MEDICARD, with the corporate client's employees being considered as
MEDICARD members; and the other is between the health care institutions/healthcare professionals
and MED ICARD.
Under the first, MEDICARD undertakes to make arrangements with healthcare

institutions/healthcare professionals for the coverage of MEDICARD members under specific health
related services for a specified period of time in exchange for payment of a more or less fixed
membership fee. Under its contract with its corporate clients, MEDICARD expressly provides that
20% of the membership fees per individual, regardless of the amount involved, already includes the
VAT of 10%/20% excluding the remaining 80o/o because MED ICARD would earmark this latter
portion for medical utilization of its members. Lastly, MEDICARD also assails CIR's inclusion in its
gross receipts of its earnings from medical services which it actually and directly rendered to its
members.
Since an HMO like MEDICARD is primarily engaged m arranging for coverage or designated
managed care services that are needed by plan holders/members for fixed prepaid membership fees
and for a specified period of time, then MEDICARD is principally engaged in the sale of services. Its
VAT base and corresponding liability is, thus, determined under Section 108(A)32 of the Tax Code, as
amended by Republic Act No. 9337.
Prior to RR No. 16-2005, an HMO, like a pre-need company, is treated for VAT purposes as a dealer
in securities whose gross receipts is the amount actually received as contract price without allowing
any deduction from the gross receipts.33 This restrictive tenor changed under RR No. 16-2005. Under
this RR, an HMO's gross receipts and gross receipts in general were defined, thus:
Section 4.108-3. xxx
xxxx
HMO's gross receipts shall be the total amount of money or its equivalent representing the service
fee actually or constructively received during the taxable period for the services performed or to be
performed for another person, excluding the value-added tax. The compensation for their
services representing their service fee, is presumed to be the total amount received as
enrollment fee from their members plus other charges received.
Section 4.108-4. x x x. "Gross receipts" refers to the total amount of money or its equivalent
representing the contract price, compensation, service fee, rental or royalty, including the amount
charged for materials supplied with the services and deposits applied as payments for services
rendered, and advance payments actually or constructively received during the taxable period for
the services performed or to be performed for another person, excluding the VAT. 34
In 2007, the BIR issued RR No. 4-2007 amending portions of RR No. 16-2005, including the
definition of gross receipts in general.35
According to the CTA en banc, the entire amount of membership fees should form part of
MEDICARD's gross receipts because the exclusions to the gross receipts under RR No. 4-2007
does not apply to MEDICARD. What applies to MEDICARD is the definition of gross receipts of an
HMO under RR No. 16-2005 and not the modified definition of gross receipts in general under the
RR No. 4-2007.
The CTA en banc overlooked that the definition of gross receipts under. RR No. 16-2005 merely
presumed that the amount received by an HMO as membership fee is the HMO's compensation for
their services. As a mere presumption, an HMO is, thus, allowed to establish that a portion of the
amount it received as membership fee does NOT actually compensate it but some other person,
which in this case are the medical service providers themselves. It is a well-settled principle of legal
hermeneutics that words of a statute will be interpreted in their natural, plain and ordinary
acceptation and signification, unless it is evident that the legislature intended a technical or special
legal meaning to those words. The Court cannot read the word "presumed" in any other way.
It is notable in this regard that the term gross receipts as elsewhere mentioned as the tax base
under the NIRC does not contain any specific definition.36 Therefore, absent a statutory definition,
this Court has construed the term gross receipts in its plain and ordinary meaning, that is, gross
receipts is understood as comprising the entire receipts without any deduction.37 Congress, under
Section 108, could have simply left the term gross receipts similarly undefined and its interpretation
subjected to ordinary acceptation,. Instead of doing so, Congress limited the scope of the term gross
receipts for VAT purposes only to the amount that the taxpayer received for the services it performed
or to the amount it received as advance payment for the services it will render in the future for
another person.
In the proceedings ·below, the nature of MEDICARD's business and the extent of the services it
rendered are not seriously disputed. As an HMO, MEDICARD primarily acts as an intermediary
between the purchaser of healthcare services (its members) and the healthcare providers (the
doctors, hospitals and clinics) for a fee. By enrolling membership with MED ICARD, its members will
be able to avail of the pre-arranged medical services from its accredited healthcare providers without
the necessary protocol of posting cash bonds or deposits prior to being attended to or admitted to
hospitals or clinics, especially during emergencies, at any given time. Apart from this, MEDICARD
may also directly provide medical, hospital and laboratory services, which depends upon its
member's choice.
Thus, in the course of its business as such, MED ICARD members can either avail of medical
services from MEDICARD's accredited healthcare providers or directly from MEDICARD. In the
former, MEDICARD members obviously knew that beyond the agreement to pre-arrange the
healthcare needs of its ·members, MEDICARD would not actually be providing the actual healthcare
service. Thus, based on industry practice, MEDICARD informs its would-be member beforehand that
80% of the amount would be earmarked for medical utilization and only the remaining 20%
comprises its service fee. In the latter case, MEDICARD's sale of its services is exempt from VAT
under Section 109(G).
The CTA's ruling and CIR's Comment have not pointed to any portion of Section 108 of the NIRC
that would extend the definition of gross receipts even to amounts that do not only pertain to the
services to be performed: by another person, other than the taxpayer, but even to amounts that were
indisputably utilized not by MED ICARD itself but by the medical service providers.
It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a
statute shall be considered surplusage or superfluous, meaningless, void and insignificant. To this
end, a construction which renders every word operative is preferred over that which makes some
words idle and nugatory. This principle is expressed in the maxim Ut magisvaleat quam pereat, that
is, we choose the interpretation which gives effect to the whole of the statute – it’s every word.
In Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue,38the Court adopted
the principal object and purpose object in determining whether the MEDICARD therein is engaged in
the business of insurance and therefore liable for documentary stamp tax. The Court held therein
that an HMO engaged in preventive, diagnostic and curative medical services is not engaged in the
business of an insurance, thus:
To summarize, the distinctive features of the cooperative are the rendering of service, its
extension, the bringing of physician and patient together, the preventive features, the
regularization of service as well as payment, the substantial reduction in cost by quantity
purchasing in short, getting the medical job done and paid for; not, except incidentally to
these features, the indemnification for cost after .the services is rendered. Except the last,
these are not distinctive or generally characteristic of the insurance arrangement. There is,
therefore, a substantial difference between contracting in this way for the rendering of service, even
on the contingency that it be needed, and contracting merely to stand its cost when or after it is
rendered.39 (Emphasis ours)
In sum, the Court said that the main difference between an HMO arid an insurance company is that
HMOs undertake to provide or arrange for the provision of medical services through participating
physicians while insurance companies simply undertake to indemnify the insured for medical
expenses incurred up to a pre-agreed limit. In the present case, the VAT is a tax on the value added
by the performance of the service by the taxpayer. It is, thus, this service and the value charged
thereof by the taxpayer that is taxable under the NIRC.
To be sure, there are pros and cons in subjecting the entire amount of membership fees to
VAT.40 But the Court's task however is not to weigh these policy considerations but to determine if
these considerations in favor of taxation can even be implied from the statute where the CIR
purports to derive her authority. This Court rules that they cannot because the language of the NIRC
is pretty straightforward and clear. As this Court previously ruled:
What is controlling in this case is the well-settled doctrine of strict interpretation in the imposition of
taxes, not the similar doctrine as applied to tax exemptions. The rule in the interpretation of tax laws
is that a statute will not be construed as imposing a tax unless it does so clearly, expressly, and
unambiguously. A tax cannot be imposed without clear and express words for that purpose.
Accordingly, the general rule of requiring adherence to the letter in construing statutes
applies with peculiar strictness to tax laws and the provisions of a taxing act are not to be
extended by implication. In answering the question of who is subject to tax statutes, it is basic that
in case of doubt, such statutes are to be construed most strongly against the government and in
favor of the subjects or citizens because burdens are not to be imposed nor presumed to be
imposed beyond what statutes expressly and clearly import. As burdens, taxes should not be unduly
exacted nor assumed beyond the plain meaning of the tax laws. 41 (Citation omitted and emphasis
and underlining ours)
For this Court to subject the entire amount of MEDICARD's gross receipts without exclusion, the
authority should have been reasonably founded from the language of the statute. That language is
wanting in this case. In the scheme of judicial tax administration, the need for certainty and
predictability in the implementation of tax laws is crucial. Our tax authorities fill in the details that
Congress may not have the opportunity or competence to provide. The regulations these authorities
issue are relied upon by taxpayers, who are certain that these will be followed by the courts. Courts,
however, will not uphold these authorities' interpretations when dearly absurd, erroneous or
improper.42 The CIR's interpretation of gross receipts in the present case is patently erroneous for
lack of both textual and non-textual support.
As to the CIR's argument that the act of earmarking or allocation is by itself an act of ownership and
management over the funds, the Court does not agree. On the contrary, it is MEDICARD's act of
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earmarking or allocating 80% of the amount it received as membership fee at the time of payment
that weakens the ownership imputed to it. By earmarking or allocating 80% of the amount,
MEDICARD unequivocally recognizes that its possession of the funds is not in the concept of owner
but as a mere administrator of the same. For this reason, at most, MEDICARD's right in relation to
these amounts is a mere inchoate owner which would ripen into actual ownership if, and only if,
there is underutilization of the membership fees at the end of the fiscal year. Prior to that, MEDI
CARD is bound to pay from the amounts it had allocated as an administrator once its members avail
of the medical services of MEDICARD's healthcare providers.
Before the Court, the parties were one in submitting the legal issue of whether the amounts
MEDICARD earmarked, corresponding to 80% of its enrollment fees, and paid to the medical service
providers should form part of its gross receipt for VAT purposes, after having paid the VAT on the
amount comprising the 20%. It is significant to note in this regard that MEDICARD established that
upon receipt of payment of membership fee it actually issued two official receipts, one pertaining to
the VAT able portion, representing compensation for its services, and the other represents the non-
vatable portion pertaining to the amount earmarked for medical utilization.: Therefore, the absence
of an actual and physical segregation of the amounts pertaining to two different kinds · of fees
cannot arbitrarily disqualify MEDICARD from rebutting the presumption under the law and from
proving that indeed services were rendered by its healthcare providers for which it paid the amount it
sought to be excluded from its gross receipts.
With the foregoing discussions on the nullity of the assessment on due process grounds and
violation of the NIRC, on one hand, and the utter lack of legal basis of the CIR's position on the
computation of MEDICARD's gross receipts, the Court finds it unnecessary, nay useless, to discuss
the rest of the parties' arguments and counter-arguments.
In fine, the foregoing discussion suffices for the reversal of the assailed decision and resolution of
the CTA en banc grounded as it is on due process violation. The Court likewise rules that for
purposes of determining the VAT liability of an HMO, the amounts earmarked and actually spent for
medical utilization of its members should not be included in the computation of its gross receipts.
WHEREFORE, in consideration of the foregoing disquisitions, the petition is hereby GRANTED. The
Decision dated September 2, 2015 and Resolution dated January 29, 2016 issued by the Court of
Tax Appeals en bane in CTA EB No. 1224 are REVERSED and SET ASIDE. The definition of gross
receipts under Revenue Regulations Nos. 16-2005 and 4-2007, in relation to Section 108(A) of the
National Internal Revenue Code, as amended by Republic Act No. 9337, for purposes of
determining its Value-Added Tax liability, is hereby declared to EXCLUDE the eighty percent (80%)
of the amount of the contract price earmarked as fiduciary funds for the medical utilization of its
members. Further, the Value-Added Tax deficiency assessment issued against Medicard
Philippines, Inc. is hereby declared unauthorized for having been issued without a Letter of Authority
by the Commissioner of Internal Revenue or his duly authorized representatives.
SO ORDERED.
BIENVENID L. REYES,
Associate Justice
WE CONCUR:
PRESBITERO J. VELASCO, JR
Associate Justice
Chairperson
LUCAS P. BERSAMIN ALFREDO BENJAMIN S. CAGUIOA

Associate Justice Associate Justice
NOEL G. TIJAM
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.
PRESBITERO J. VELASCO, JR
Associate Justice
Chairperson,
CERTIFICATION
Pursuant to the Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation,
I certify that the conclusions in the above Decision had been reached in consultation before the case
MARIA LOURDES P.A. SERENO

Chief Justice
SECOND DIVISION
November 9, 2016
G.R. No. 215957
COMMISSIONER OF INTERNAL REVENUE, Petitioner

vs.
FITNESS BY DESIGN, INC., Respondent
DECISION
LEONEN, J.:
To avail of the extraordinary period of assessment in Section 222(a) of the National Internal
Revenue Code, the Commissioner of Internal Revenue should show that the facts upon which the
fraud' is based is communicated to the taxpayer. The burden of proving that the facts exist in any
subsequent proceeding is with the Commissioner. Furthermore, the Final Assessment Notice is not
valid if it does not contain a definite due date for payment by the taxpayer.
This resolves a Petition for Review on Certiorari1 filed by the Commissioner of Internal Revenue,
which assails the Decision2 dated July 14, 2014 and Resolution3 dated December 16, 2014 of the
Court of Tax Appeals. The Court of Tax Appeals En Banc affirmed the Decision of the First Division,
which declared the assessment issued against Fitness by Design, Inc. (Fitness) as invalid.4
On April 11, 1996, Fitness filed its Annual Income Tax Return for the taxable year of
1995.5 According to Fitness, it was still in its pre-operating stage during the covered period.6
On June 9, 2004, Fitness received a copy of the Final Assessment Notice dated March 17,
2004.7 The Final Assessment Notice was issued under Letter of Authority No. 00002953.8 The Final
Assessment Notice assessed that Fitness had a tax deficiency in the amount of ₱10,647,529.69.9 It
provides:
FINAL ASSESSMENT NOTICE
March 17, 2004
FITNESS BY DESIGN, INC

169 Aguirre St., BF Homes,
Paranaque City
Gentlemen:
Please be informed that after investigation of your Internal revenue Tax Liabilities for the year 1995
pursuant to Letter of Authority No. 000029353 dated May 13, 2002, there has been found due
deficiency taxes as shown hereunder:
Assessment No. _____________
Income Tax
Taxable Income per return ₱
Add: Unreported Sales 7,156,336.08
Taxable Income per audit 7,156,336.08
Tax Due (35%) 2,504,717.63

Add: Surcharge (50%) ₱ 1,252,358.81
Interest (20%/annum) until 4-15-04 4,508,491. 73 5, 760,850.54
Deficiency Income Tax ₱ 8,265,568.17
Value Added Tax
Unreported Sales ₱ 7,156,336.08

Output Tax (10%) 715,633.61
Add: Surcharge (50%) ₱ 357,816.80
Interest (20%/ annum) until 4-15-04 1,303,823.60 1,661,640.41
Deficiency VAT ₱ 2,311,214.02
Documentary Stamp Tax
Subscribe Capital Stock ₱ 375,000.00

DST due (2/200) 3,750.00
Add: Surcharge (25%) 937.50
Deficiency DST ₱ 4,687.50
Total Deficiency Taxes ₱ 10,647,529.69
The complete details covering the aforementioned discrepancies established during the investigation
of this case are shown in the accompanying Annex 1 of this Notice. The 50% surcharge and 20%
interest have been imposed pursuant to Sections 248 and 249(B) of the [National Internal Revenue
Code], as amended. Please note, however, that the interest and the total amount due will have
to be adjusted if paid prior or beyond April 15, 2004.
In view thereof, you are requested to pay your aforesaid deficiency internal revenue taxes liabilities
through the duly authorized agent bank in which you are enrolled within the time shown in the
enclosed assessment notice.10 (Emphasis in the original)
Fitness filed a protest to the Final Assessment Notice on June 25, 2004. According to Fitness, the
Commissioner's period to assess had already prescribed. Further, the assessment was without basis
since the company was only incorporated on May 30, 1995.11
On February 2, 2005, the Commissioner issued a Warrant of Distraint and/or Levy with Reference
No. OCN WDL-95-05-005 dated February 1, 2005 to Fitness.12
Fitness filed before the First Division of the Court of Tax Appeals a Petition for Review (With Motion
to Suspend Collection of Income Tax, Value Added Tax, Documentary Stamp Tax and Surcharges
and Interests) on March 1, 2005.13
On May 17, 2005, the Commissioner of Internal Revenue filed an Answer to Fitness' Petition and
raised special and affirmative defenses.14 The Commissioner posited that the Warrant of Distraint
and/or Levy was issued in accordance with law.15 The Commissioner claimed that its right to assess
had not yet prescribed under Section 222(a)16 of the National Internal Revenue Code.17 Because the
1995 Income Tax ,Return filed by Fitness was false and fraudulent for its alleged intentional failure to
reflect its true sales, Fitness' respective taxes may be assessed at any time within 10 years from the
discovery of fraud or omission.18
The Commissioner asserted further that the assessment already became final and executory for
Fitness' failure , to file a protest within the reglementary period.19 The Commissioner denied that
there was a protest to the Final Assessment Notice filed by Fitness on June 25, 2004.20 According to
the Commissioner, the alleged protest was "nowhere to be found in the [Bureau of Internal Revenue]
Records nor reflected in the Record Book of the Legal Division as normally done by [its]' receiving
clerk when she received [sic] any document."21 Therefore, the Commissioner had sufficient basis to
collect the tax deficiency through the Warrant of Distraint and/or Levy.22
The alleged fraudulent return was discovered through a tip from a confidential informant.23 The
revenue officers' investigation revealed that Fitness had been operating business with sales
operations amounting to ₱7,156,336.08 in 1995, which it neglected toreport in its income tax
return.24 Fitness' failure to report its income resulted in deficiencies to its income tax and value-added
tax of ₱8,265,568.17 and ₱2,377,274.02 respectively, as well as the documentary stamp tax with
regard to capital stock subscription.25
Through the report, the revenue officers recommended the filing of a civil case for collection of taxes
and a criminal case for failure to declare Fitness' purported sales in its 1995 Income Tax
Return.26 Hence, a criminal complaint against Fitness was filed before the Department of Justice.27
The Court of Tax Appeals First Division granted Fitness' Petition on the ground that the assessment
has already prescribed.28 It cancelled and set aside the Final Assessment Notice dated March 1 7,
2004 as well as the Warrant of Distraint and/or Levy issued by the Commissioner.29 It ruled that the
Final Assessment Notice is invalid for failure to comply with the requirements of Section 22830 of the
National Internal Revenue Code. The dispositive portion of the Decision reads:
WHEREFORE, the Petition for Review dated February 24, 2005 filed by petitioner Fitness by
Design, Inc., is hereby GRANTED. Accordingly, the Final Assessment Notice dated 'March 17, 2004,
finding petitioner liable for deficiency income tax, documentary stamp tax and value-added tax for
taxable year 1995 in the total amount of ₱10,647,529.69 is hereby CANCELLED and SET ASIDE.
The Warrant of Distraint and Levy dated February 1, 2005 is 'likewise CANCELLED and SET
ASIDE.
SO ORDERED.31 (Emphasis in the original)

The Commissioner's Motion for Reconsideration and its Supplemental Motion for Reconsideration
were denied by the Court of Tax Appeals First Division.32
Aggrieved, the Commissioner filed an appeal before the Court of Tax Appeals En Banc.33 The
Commissioner asserted ,that it had 10 years to make an assessment due to the fraudulent income
tax return filed by Fitness.34 It also claimed that the assessment already attained finality due to
Fitness' failure to file its protest within the period provided by law.35
Fitness argued that the Final Assessment Notice issued to it could not be claimed as a valid
deficiency assessment that could justify the issuance of a warrant of distraint and/or levy.36 It
asserted that it was a mere request for payment as it did not provide the period within which to pay
the alleged liabilities.37
The Court of Tax Appeals En Banc ruled in favor of Fitness. It affirmed the Decision of the Court of
Tax Appeals First Division, thus:
WHEREFORE, the instant Petition for Review is DENIED for lack of merit. Accordingly, both the
Decision and Resolution in CTA Case No. 7160 dated July 10, 2012 and November 21, 2012
respectively are AFFIRMED in toto.38 (Emphasis in the original)
The Commissioner's Motion for Reconsideration was denied by the Court of Tax Appeals En Banc in
the Resolution39 dated December 16, 2014.
Hence, the Commissioner of Internal Revenue filed before this Court a Petition for Review.
Petitioner Commissioner of Internal Revenue raises the sole issue of whether the Final Assessment
Notice issued against respondent Fitness by Design, Inc. is a valid assessment under Section 228 of
the National Internal Revenue Code and Revenue Regulations No. 12-99.40
Petitioner argues that the Final Assessment Notice issued to respondent is valid since it complies
with Section 228 of the National Internal Revenue Code and Revenue Regulations No. 12-99.41 The
law states that the taxpayer shall be informed in writing of the facts, jurisprudence, and law on which
the assessment is based.42 Nothing in the law provides that due date for payment is a substantive
requirement for the validity of a final assessment notice.43
Petitioner further claims that a perusal of the Final Assessment Notice shows that April 15, 2004 is
the due date for payment.44 The pertinent portion of the assessment reads:
interest have been imposed pursuant to Sections 248 and 249(B) of the [National Internal Revenue
Code], as amended. Please note, however, that the interest and the total amount due will have to be
adjusted if paid prior or beyond April 15, 2004.45 (Emphasis supplied)
This Court, through the Resolution46 dated July 22, 2015, required respondent to comment on the
Petition for Review.
In its Comment,47 respondent argues that the Final Assessment Notice issued was merely a request
and not a demand for payment of tax liabilities.48 The Final Assessment Notice cannot be considered
as a final deficiency assessment because it deprived respondent of due process when it failed to
reflect its fixed tax liabilities.49Moreover, it also gave respondent an indefinite period to pay its tax
liabilities.50
Respondent points out that an assessment should strictly comply with the law for its
validity.51 Jurisprudence provides that "not all documents coming from the [Bureau of Internal
Revenue] containing a computation of the tax liability can be deemed assessments[,] which can
attain finality."52 Therefore, the Warrant of Distraint and/or Levy cannot be enforced since it is based
on an invalid assessment.53
Respondent likewise claims that since the Final Assessment Notice was allegedly based on fraud, it
must show the details of the fraudulent acts imputed to it as part of due process.54
The Petition has no merit.
An assessment "refers to the determination of amounts due from a person obligated to make
payments."55 "In the context of national internal revenue collection, it refers to the determination of
the taxes due from a taxpayer under the National Internal Revenue Code of 1997."56
The assessment process starts with the filing of tax return and payment of tax by the taxpayer.57 The
initial assessment evidenced by the tax return is a self-assessment of the taxpayer.58 The tax is
primarily computed and voluntarily paid by the taxpayer without need of any demand from
government.59 If tax obligations are properly paid, the Bureau of Internal Revenue may dispense with
its own assessment.60
After filing a return, the Commissioner or his or her representative may allow the examination of any
taxpayer for assessment of proper tax liability.61 The failure of a taxpayer to file his or her return will
not hinder the Commissioner from permitting the taxpayer's examination.62 The Commissioner can
examine records or other data relevant to his or her inquiry in order to verify the correctness of any
return, or to make a return in case of noncompliance, as well as to determine and collect tax
liability.63
The indispensability of affording taxpayers sufficient written notice of his or her tax liability is a clear
definite requirement.64 Section 228 of the National Internal Revenue Code and Revenue Regulations
No. 12-99, as amended, transparently outline the procedure in tax assessment.65
Section 3 of Revenue Regulations No. 12-99,66 the then prevailing regulation regarding the due
process requirement in the issuance of a deficiency tax assessment, requires a notice for informal
conference.67 The revenue officer who audited the taxpayer's records shall state in his or her report
whether the taxpayer concurs with his or her findings of liability for deficiency taxes.68 If the taxpayer
does not agree, based on the revenue officer's report, the taxpayer shall be informed in writing69 of
the discrepancies in his or her payment of internal revenue taxes for "Informal Conference."70 The
informal conference gives the taxpayer an opportunity to present his or her side of the case.71
The taxpayer is given 15 days from receipt of the notice of informal conference to respond.72 If the
taxpayer fails to respond, he or she will be considered in default.73 The revenue officer74 endorses the
case with the least possible delay to the Assessment Division of the Revenue Regional Office or the
Commissioner or his or her authorized representative.75 The Assessment Division of the Revenue
Regional Office or the Commissioner or his or her authorized representative is responsible for the
"appropriate review and issuance of a deficiency tax assessment, if warranted."76
If, after the review conducted, there exists sufficient basis to assess the taxpayer with deficiency
taxes, the officer 'shall issue a preliminary assessment notice showing in detail the facts,
jurisprudence, and law on which the assessment is based.77 The taxpayer is given 15 days from
receipt of the pre-assessment notice to respond.78 If the taxpayer fails to respond, he or she will be
considered in default, and a formal letter of demand and assessment notice will be issued.79
The formal letter of demand and assessment notice shall state the facts, jurisprudence, and law on
which the assessment was based; otherwise, these shall be void.80 The taxpayer or the authorized
representative may administratively protest the formal letter of demand and assessment notice
within 30 days from receipt of the notice.81
II
The word "shall" in Section 228 of the National Internal Revenue Code and Revenue Regulations
No. 12-99 means the act of informing the taxpayer of both the legal and factual bases of the
assessment is mandatory.82 The law requires that the bases be reflected in the formal letter of
demand and assessment notice.83 This cannot be presumed.84 Otherwise, the express mandate of
Section 228 and Revenue Regulations No. 12-99 would be nugatory.85 The requirement enables the
taxpayer to make an effective protest or appeal of the assessment or decision.86
The rationale behind the requirement that taxpayers should be informed of the facts and the law on
which the assessments are based conforms with the constitutional mandate that no person shall be
deprived of his or her property without due process of law.87 Between the power of the State to tax
and an individual's right to due process, the scale favors the right of the taxpayer to due process.88
The purpose of the written notice requirement is to aid the taxpayer in making a reasonable protest,
if necessary.89Merely notifying the taxpayer of his or her tax liabilities without details or particulars is
not enough.90
Commissioner of Internal Revenue v. United Salvage and Towage (Phils.), Inc.91 held that a final
assessment notice that only contained a table of taxes with no other details was insufficient:
In the present case, a mere perusal of the [Final Assessment Notice] for the deficiency EWT for
taxable year 1994 will show that other than a tabulation of the alleged deficiency taxes due, no
further detail regarding the assessment was provided by petitioner. Only the resulting interest,
surcharge and penalty were anchored with legal basis. Petitioner should have at least attached a
detailed notice of discrepancy or stated an explanation why the amount of P48,461.76 is collectible
against respondent and how the same was arrived at.92
Any deficiency to the mandated content of the assessment or its process will not be
tolerated.93 In Commissioner of Internal Revenue v. Enron,94 an advice of tax deficiency from the
Commissioner of Internal Revenue to an employee of Enron, including the preliminary five (5)-day
letter, were not considered valid substitutes for the mandatory written notice of the legal and factual
basis of the assessment.95 The required issuance of deficiency tax assessment notice to the taxpayer
is different from the required contents of the notice.96 Thus:
The law requires that the legal and factual bases of the assessment be stated in the formal letter of
demand and assessment notice. Thus, such cannot be presumed. Otherwise, the express
1âwphi 1
provisions of Article 228 of the [National Internal Revenue Code] and [Revenue Regulations] No. 12-
99 would be rendered nugatory. The alleged "factual bases" in the advice, preliminary letter and
"audit working papers" did not suffice. There was no going around the mandate of the law that the
legal and factual bases of the assessment be stated in writing in the formal letter of demand
accompanying the assessment notice.97 (Emphasis supplied)
However, the mandate of giving the taxpayer a notice of the facts and laws on which the
assessments are based should not be mechanically applied.98 To emphasize, the purpose of this
requirement is to sufficiently inform the taxpayer of the bases for the assessment to enable him or
her to make an intelligent protest.99
In Samar-I Electric Cooperative v. Commissioner of Internal Revenue,100 substantial compliance with

Section 228 of the National Internal Revenue Code is allowed, provided that the taxpayer would be
later apprised in writing of the factual and legal bases of the assessment to enable him or her to
prepare for an effective protest.101 Thus:
Although the [Final Assessment Notice] 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 letter dated April 10, 2003
responded to petitioner's October 14, 2002 letter-protest, explaining at length the factual and legal
bases of the deficiency tax assessments and denying the protest.
Considering the foregoing exchange of correspondence and documents between the parties, we find
that the requirement of Section 228 was substantially complied with. Respondent had fully informed
petitioner in writing of the factual and legal bases of the deficiency taxes assessment, which enabled
the latter to file an "effective" protest, much unlike the taxpayer's situation in Enron. Petitioner's right
to due process was thus not violated.102
A final assessment notice provides for the amount of tax due with a demand for payment.103 This is to
determine the amount of tax due to a taxpayer.104 However, due process requires that taxpayers be
informed in writing of the facts and law on which the assessment is based in order to aid the
taxpayer in making a reasonable protest.105 To immediately ensue with tax collection without initially
substantiating a valid assessment contravenes the principle in administrative investigations "that
taxpayers should be able to present their case and adduce supporting evidence."106
Respondent filed its income tax return in 1995.107 Almost eight (8) years passed before the disputed
final assessment notice was issued. Respondent pleaded prescription as its defense when it filed a
protest to the Final Assessment Notice. Petitioner claimed fraud assessment to justify the belated
assessment made on respondent.108If fraud was indeed present, the period of assessment should be
within 10 years.109 It is incumbent upon petitioner to clearly state the allegations of fraud committed
by respondent to serve the purpose of an assessment notice to aid respondent in filing an effective
protest.
III
The prescriptive period in making an assessment depends upon whether a tax return was filed or
whether the tax return filed was either false or fraudulent. When a tax return that is neither false nor
1âw phi1
fraudulent has been filed, the Bureau of Internal Revenue may assess within three (3) years,
reckoned from the date of actual filing or from the last day prescribed by law for filing.110 However, in
case of a false or fraudulent return with intent to evade tax, Section 222(a) provides:
Section 222. 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 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. (Emphasis
supplied)
In Aznar v. Court of Tax Appeals,111 this Court interpreted Section 332112 (now Section 222[a] of the
National Internal Revenue Code) by dividing it in three (3) different cases: first, in case of false
return; second, in case of a fraudulent return with intent to evade; and third, in case of failure to file a
return.113 Thus:
Our stand that 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 aggregates the situations into three different
classes, namely "falsity'', "fraud" and "omission."114
This Court held that there is a difference between "false return" and a "fraudulent return."115 A false
return simply involves a "deviation from the truth, whether intentional or not" while a fraudulent return
"implies intentional or deceitful entry with intent to evade the taxes due."116
Fraud is a question of fact that should be alleged and duly proven.117 "The willful neglect to file the
required tax return or the fraudulent intent to evade the payment of taxes, considering that the same
is accompanied by legal consequences, cannot be presumed."118 Fraud entails corresponding
sanctions under the tax law. Therefore, it is indispensable for the Commissioner of Internal Revenue
to include the basis for its allegations of fraud in the assessment notice.
During the proceedings in the Court of Tax Appeals First Division, respondent presented its
President, Domingo C. Juan Jr. (Juan, Jr.), as witness.119 Juan, Jr. testified that respondent was, in
its pre-operating stage in 1995.120During that period, respondent "imported equipment and distributed
them for market testing in the Philippines without earning any profit."121 He also confirmed that the
Final Assessment Notice and its attachments failed to substantiate the Commissioner's allegations
of fraud against respondent, thus:
More than three (3) years from the time petitioner filed its 1995 annual income tax return on April 11,
1996, respondent issued to petitioner a [Final Assessment Notice] dated March 17, 2004 for the year
1995, pursuant to the Letter of Authority No. 00002953 dated May 13, 2002. The attached Details of
discrepancy containing the assessment for income tax (IT), value-added tax (VAT) and documentary
stamp tax (DST) as well as the Audit Result/ Assessment Notice do not impute fraud on the part of
petitioner. Moreover, it was obtained on information and documents illegally obtained by a [Bureau
of Internal Revenue] informant from petitioner's accountant Elnora Carpio in 1996.122 (Emphasis
supplied)
Petitioner did not refute respondent's allegations. For its defense, it presented Socrates Regala
(Regala), the Group Supervisor of the team, who examined respondent's tax liabilities.123 Regala
confirmed that the investigation was prompted by a tip from an informant who provided them with
respondent's list of sales.124 He admitted125 that the gathered information did not show that respondent
deliberately failed to reflect its true income in 1995.126
IV
The issuance of a valid formal assessment is a substantive prerequisite for collection of

taxes.127 Neither the National Internal Revenue Code nor the revenue regulations provide for a
"specific definition or form of an assessment." However, the National Internal Revenue Code defines
its explicit functions and effects."128 An assessment does not only include a computation of tax
liabilities; it also includes a demand for payment within a period prescribed.129 Its main purpose is to
determine the amount that a taxpayer is liable to pay.130
A pre-assessment notice "do[es] not bear the gravity of a formal assessment notice."131 A pre-
assessment notice merely gives a tip regarding the Bureau of Internal Revenue's findings against a
taxpayer for an informal conference or a clarificatory meeting.132
A final assessment is a notice "to the effect that the amount therein stated is due as tax and a
demand for payment thereof."133 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[.]"134 Thus, it must be "sent to and received by the taxpayer, and must demand payment of
the taxes described therein within a specific period."135
The disputed Final Assessment Notice is not a valid assessment.
First, it 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, which a final assessment notice should supposedly
be. An assessment, in the context of the National Internal Revenue Code, is a "written notice and
demand made by the [Bureau of Internal Revenue] on the taxpayer for the settlement of a due tax
liability that is there: definitely set and fixed."136 Although the disputed notice provides for the
computations 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. Thus:
interest have been imposed pursuant to Sections 248 and 249 (B) of the [National Internal Revenue
Code], as amended. Please note, however, that the interest and the total amount due will have to be
adjusted if prior or beyond April 15, 2004.137 (Emphasis Supplied)
Second, there are no due dates in the Final Assessment Notice. This negates petitioner's demand
for payment.138Petitioner's contention that April 15, 2004 should be regarded as the actual due date
cannot be accepted. The last paragraph of the Final Assessment Notice states that the due dates for
payment were supposedly reflected in the attached assessment:
In view thereof, you are requested to pay your aforesaid deficiency internal revenue tax liabilities
through the duly authorized agent bank in which you are enrolled within the time shown in the
enclosed assessment notice.139 (Emphasis in the original)
However, based on the findings of the Court of Tax Appeals First Division, the enclosed assessment
pertained to remained unaccomplished.140
Contrary to petitioner's view, April 15, 2004 was the reckoning date of accrual of penalties and
surcharges and not the due date for payment of tax liabilities. The total amount depended upon
1avv phi 1
when respondent decides to pay. The notice, therefore, did not contain a definite and actual demand
to pay.
Compliance with Section 228 of the National Internal Revenue Code is a substantative
requirement.141 It is not a mere formality.142 Providing the taxpayer with the factual and legal bases for
the assessment is crucial before proceeding with tax collection. Tax collection should be premised
on a valid assessment, which would allow the taxpayer to present his or her case and produce
evidence for substantiation.143
The Court of Tax Appeals did not err in cancelling the Final Assessment Notice as well as the Audit
Result/Assessment Notice issued by petitioner to respondent for the year 1995 covering the "alleged
deficiency income tax, value-added tax and documentary stamp tax amounting to ₱10,647,529.69,
inclusive of surcharges and interest"144 for lack of due process. Thus, the Warrant of Distraint and/or
Levy is void since an invalid assessment bears no valid effect.145
Taxes are the lifeblood of government and should be collected without hindrance.146 However, the
collection of taxes should be exercised "reasonably and in accordance with the prescribed
procedure."147
The essential nature of taxes for the existence of the State grants government with vast remedies to
ensure its collection. However, taxpayers are guaranteed their fundamental right to due process of
law, as articulated in various ways in the process of tax assessment. After all, the State's purpose is
to ensure the well-being of its citizens, not simply to deprive them of their fundamental rights.
WHEREFORE, the Petition is DENIED. The Decision of the Court of Tax Appeals En Banc dated
July 14, 2014 and Resolution dated December 16, 2014 in CTA EB Case No. 970 (CTA Case No.
7160) are hereby AFFIRMED.
SO ORDERED.
MARVIC M.V.F. LEONEN

Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
ARTURO D. BRION MARIANO C. DEL CASTILLO

On official leave
JOSE CATRAL MENDOZA*
Associate Justice
ATTESTATION
ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division
CERTIFICATION

Chief Justice
FIRST DIVISION
G.R. No. L-20569 August 23, 1974
JOSE B. AZNAR, in his capacity as Administrator of the Estate of the deceased, Matias H.
Aznar, petitioner,
vs.
COURT OF TAX APPEALS and COLLECTOR OF INTERNAL REVENUE, respondents.
Sato, Enad Garcia for petitioner.
Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and Special Attorney
Librada R. Natividad for respondents.
ESGUERRA, J.:p
Petitioner, as administrator of the estate of the deceased, Matias H. Aznar, seeks a review and nullification of the decision of the Court of Tax
Appeals in C.T.A. Case No. 109, modifying the decision of respondent Commissioner of Internal Revenue and ordering the petitioner to pay
the government the sum of P227,691.77 representing deficiency income taxes for the years 1946 to 1951, inclusive, with the condition that if
the said amount is not paid within thirty days from the date the decision becomes final, there shall be added to the unpaid amount the
surcharge of 5%, plus interest at the rate of 12% per annum from the date of delinquency to the date of payment, in accordance with Section
51 of the National Internal Revenue Code, plus costs against the petitioner.
It is established that the late Matias H. Aznar who died on May 18, 1958, predecessor in interest of
herein petitioner, during his lifetime as a resident of Cebu City, filed his income tax returns on the
cash and disbursement basis, reporting therein the following:
Year Net Income Amount Exhibit

of Tax
Paid
1945 P12,822.00 P114.66 pp.

85-88
B.I.R.
rec.
1946 9,910.94 114.66 38-A

(pp.
329-
332
B.I.R
rec.)
1947 10,200.00 132.00 39

(pp.
75-78
B.I.R
rec.)
1948 9,148.34 68.90 40
(pp.
70-73
B.I.R.
rec.)
1949 8,990.66 59.72 41

(pp.
64-67
B.I.R.
rec.)
1950 8,364.50 28.22 42

(pp.
59-62,
BIR
rec.)
1951 6,800.00 none 43

(pp.
54-57
BIR
rec.).
The Commissioner of Internal Revenue having his doubts on the veracity of the reported income of
one obviously wealthy, pursuant to the authority granted him by Section 38 of the National Internal
Revenue Code, caused B.I.R. Examiner Honorio Guerrero to ascertain the taxpayer's true income
for said years by using the net worth and expenditures method of tax investigation. The assets and
liabilities of the taxpayer during the above-mentioned years were ascertained and it was discovered
that from 1946 to 1951, his net worth had increased every year, which increases in net worth was
very much more than the income reported during said years. The findings clearly indicated that the
taxpayer did not declare correctly the income reported in his income tax returns for the aforesaid
years.
Based on the above findings of Examiner Guerrero, respondent Commissioner, in his letter dated
November 28, 1952, notified the taxpayer (Matias H. Aznar) of the assessed tax delinquency to the
amount of P723,032.66, plus compromise penalty. The taxpayer requested a reinvestigation which
was granted for the purpose of verifying the merits of the various objections of the taxpayer to the
deficiency income tax assessment of November 28, 1952.
After the reinvestigation, another deficiency assessment to the reduced amount of P381,096.07
dated February 16, 1955, superseded the previous assessment and notice thereof was received by
Matias H. Aznar on March 2, 1955.
The new deficiency assessment was based on the following computations:
1946
Net income per return ........................ P9,910.94

Add: Under declared income .............. 22,559.94
Net income per investigation............... 32,470.45
Deduct: Income tax liability
per return as assessed ...................................................... 114.66
Balance of tax due ........................................................... P3,687.10
Add: 50% surcharge ........................................................ 1,843.55
DEFICIENCY INCOME TAX ...................................... P5,530.65
1947
Net income per return ..................................................... P10,200.00

Add: Under declared income ............................................ 90,413.56
Net income per reinvestigation ....................................... P100,613.56
Deduct: Personal and additional exemption ...................... 7,000.00
Amount of income subject to tax ...................................... P93,613.56
Total tax liability ............................................................... P24,753.15
Deduct: Income tax liability per return as assessed ............ 132.00
Add: 50% surcharge ........................................................ 12,310.58 DEFICIENCY INCOME TAX
...................................... P36,931.73
1948
Net income per return ...................................................... P9,148.34

Add: Under declared income ............................................. 15,624.63
Net income per reinvestigation .......................................... P24,772.97
Deduct: Personal and additional exemptions ...................... 7,000.00
Amount of income subject to tax ....................................... P17,772.97
Total tax liability ............................................................... 2,201.40
Deduct: Income tax liability per return as assessed ............ 68.90
Add: 50% surcharge ........................................................ 1,066.25 DEFICIENCY INCOME TAX
...................................... P3,198.75
1949
Net income per return ....................................................... P9,990.66

Net income per reinvestigation .......................................... 114,409.19
Deduct: Personal and additional exemptions ...................... P7,000.00
Deduct: Income tax liability per return as assessed ............. 59.72
Balance of tax due ............................................................ P30,083.96
Add: 50% surcharge ......................................................... 15,041.98 DEFICIENCY INCOME TAX
....................................... P45,125.94
1950
Net income per return ....................................................... P8,364.50

Net income per reinvestigation .......................................... P373,943.26
Deduct: Personal and additional exemptions ...................... 7,800.00
Deduct: Income tax liability per return as assessed ............. 28.00
Balance of tax due ............................................................ P185,855.00
Add: 50% surcharge ......................................................... 92,928.00 DEFICIENCY INCOME TAX
....................................... P278,783.00
1951
Net income per return ........................................................ P6,800.00

Add: Under declared income ............................................... 33,355.80
Net income per reinvestigation ............................................ P40,155.80
Deduct: Personal and additional exemptions ........................ 7,200.00
Amount of income subject to tax ......................................... P32,955.80
Total tax liability .................................................................. P7,684.00
Deduct: Income tax liability per return as assessed ............... - o - .
Balance of tax due .............................................................. P7,684.00
Add: 50% surcharge ........................................................... 3,842.00 DEFICIENCY INCOME TAX
.......................................... P11,526.00
SUMMARY
1946
.... P5,530.65
1947 .... 36,931.73
1948 .... 3,198.75
1949 .... 45,125.94
1950 .... 278,783.00
1951 .... 11,526.00
Total .... P381,096.07
In determining the unreported income, the respondent Commissioner of Internal Revenue resorted
to the networth method which is based on the following computations:
1945
Real estate inventory ................................ P64,738.00

Other assets ............................................. 37,606.87
Total assets ............................................ P102,344.87
Less: Depreciation allowed ...................... 2,027.00
Networth as of Dec. 31, 1945 ................ P100,316.97
1946
Real estate inventory ................................. P86,944.18

Other assets ............................................. 60,801.65
Total assets ............................................. P147,745.83
Less: Depreciation allowed ...................... 4,875.41
Net assets ................................................ P142,870.42
Less: Liabilities .................. P17,000.00
Net Worth as of
Jan. 1, 1946 ................... P100,316.97 P117,316.97
Increase in networth ................................. 25,553.45
Add: Estimated living expenses ................. 6,917.00
Net income .............................................. P32,470.45
1947
Real estate inventory .................................. P237,824.18

Other assets ............................................... 54,495.52
Total assets ............................................... P292,319.70
Less: Depreciation allowed ......................... 12,835.72
Net assets .................................................. 279,483.98
Less: Liabilities ................... P60,000.00
Networth as of
Jan. 1, 1947 ........................ 125,870.42 P185,870.42
Increase in networth ................................... P93,613.56
Add: Estimated living expenses ................... 7,000.00
Net income ................................................P100,613.56
1948

Other assets .............................................. 118,720.60
Total assets ............................................... P363,544.78
Less: Depreciation allowed ........................ 20,936.03
Net assets ................................................. P342,608.75
Less: Liabilities ................... P105,351.80
Networth as of
Jan. 1, 1948 ...................... 219,483.98 P324,835.78
Net income ................................................ P24,772.97
1949
Real estate inventory ................................. P400,515.52

Investment in schools and other colleges .... 23,105.29
Other assets ............................................. 70,311.00
Total assets ............................................... P493,931.81
Less: Depreciation allowed ........................ 32,657.08
Net assets ................................................. P461.274.73
Less; Liabilities .................. P116,608.59
Networth as of
Jan. 1, 1949 ...................... 237,256.95 P353,865.54
Increase in networth .................................. P107,409.19
Add: Estimated living expenses .................. 7,000.00
Net income ............................................... P114,409.19
1950
Investment in Schools and
other colleges ................................ 193,460.99
October assets .......................................... 310,788.87
Total assets ............................................... P916,715.38
Less; Depreciation allowed ........................ 47,561.99
Net assets ................................................. P869,153.39
Less: Liabilities .................. P158,343.99
Networth as of Jan. 1, 1950 ... 344,666.14 P503,010.13
Net income ................................................. P373,943.26
1951
Real estate inventory ................................... P412,465.52

Investment in schools and other colleges ..... 214,016.21
Other assets ............................................... 320,209.40
Total assets ................................................ P946,691.13
Less: Depreciation allowed ......................... 62,466.90
Net assets .................................................. P884,224.23
Less: Liabilities ........................................... P140,459.03
Networth as of
Jan. 1, 1951 ................ 710,809.40 P851,268.43
Increase in networth .................................... P32,955.80
Add: Estimated living expenses .................... 7,200.00
Net income ................................................. P40,155.80
(Exh. 45-B, BIR rec. p. 188)
On February 20, 1953, respondent Commissioner of Internal Revenue, thru the City Treasurer of
Cebu, placed the properties of Matias H. Aznar under distraint and levy to secure payment of the
deficiency income tax in question. Matias H. Aznar filed his petition for review of the case with the
Court of Tax Appeals on April 1, 1955, with a subsequent petition immediately thereafter to restrain
respondent from collecting the deficiency tax by summary method, the latter petition being granted
on February 8, 1956, per C.T.A. resolution, without requiring petitioner to file a bond. Upon review,
this Court set aside the C.T.A. resolution and required the petitioner to deposit with the Court of Tax
Appeals the amount demanded by the Commissioner of Internal Revenue for the years 1949 to 1951
or furnish a surety bond for not more than double the amount.
On March 5, 1962, in a decision signed by the presiding judge and the two associate judges of the
Court of Tax Appeals, the lower court concluded that the tax liability of the late Matias H. Aznar for
the year 1946 to 1951, inclusive should be P227,788.64 minus P96.87 representing the tax credit for
1945, or P227,691.77, computed as follows:
1946
Net income per return .............................................. P9,910.94

Add: Under declared income ..................................... 22,559.51
Net income ............................................................ P32,470.45
Less: Personal and additional exemptions .................. 6,917.00
Income subject to tax ............................................. P25,553.45
Tax due thereon ...................................................... P3,801.76
Less: Tax already assessed ...................................... 114.66
Balance of tax due .................................................... P3,687.10
Add: 50% surcharge ................................................. 1,843.55
Deficiency income tax ................................................ P5,530.65
1947
Net income per return ............................................ P10,200.00

Add: Under declared income .................................. 57,551.19
Net income ........................................................... P67,751.19
Less: Personal and additional exemptions ............... 7,000.00
Income subject to tax ............................................. P60,751.19
Tax due thereon ..................................................... P13,420.38
Less: Tax already assessed ..................................... P132.00
Balance of tax due ................................................... P13,288.38
Add: 50% surcharge ................................................ 6,644.19
Deficiency income tax .............................................. P19,932.57
1948
Net income per return .............................................. P9,148.34

Add: Under declared income ..................................... 8,732.10
Net income ............................................................ P17,880.44
Less: Personal and additional exemptions ................. 7,000.00
Income subject to tax .............................................. P10,880.44
Tax due thereon ...................................................... P1,029.67
Less: Tax already assessed ....................................... 68.90
Balance of tax due .................................................... 960.77
Add: 50% surcharge ................................................. 480.38
Deficiency income tax ............................................... P1,441.15
1949
Net income per return ................................................. P8,990.66

Add: under declared income ......................................... 43,718.53
Net income ............................................................... P52,709.19
Less: Personal and additional exemptions .................... 7,000.00
Income subject to tax ................................................. P45,709.19
Tax due thereon ......................................................... P8,978.57
Less: Tax already assessed ......................................... 59.72
Balance of tax due ....................................................... P8,918.85
Add: 50% surcharge .................................................... 4,459.42
Deficiency income tax ................................................. P13,378.27
1950
Net income per return .................................................. P6,800.00

Add: Under declared income ......................................... 33,355.80
Net income ................................................................. P40,155.80
Less: Personal and additional exemptions ...................... 7,200.00
Income subject to tax .................................................. P32,955.80
Tax due thereon ........................................................... P7,684.00
Less: Tax already assessed ........................................... -o- .
Balance of tax due ........................................................ P7,684.00
Add: 50% surcharge .................................................... 3,842.00
Deficiency income tax .................................................. P11,526.00
1951
Net income per return ................................................... P8,364.50

Add: Under declared income ........................................ 246,449.06
Net income ............................................................... P254.813.56
Less: Personal and additional exemptions .................... 7,800.00
Income subject to tax ................................................ P247,013.56
Tax due thereon ........................................................ P117,348.00
Less: Tax already assessed ........................................ 28.00
Balance of tax due ..................................................... P117,320.00
Add: 50% surcharge .................................................. 58,660.00
Deficiency income tax ................................................ P175 980.00
SUMMARY
1946 P5,530.65
1947 19,932.57
1948 1,441.15
1949 13,378.27
1950 175,980.00
1951 11,526.00
P227,788.64.
The first vital issue to be decided here is whether or not the right of the Commissioner of Internal
Revenue to assess deficiency income taxes of the late Matias H. Aznar for the years 1946, 1947,
and 1948 had already prescribed at the time the assessment was made on November 28, 1952.
Petitioner's contention is that the provision of law applicable to this case is the period of five years
limitation upon assessment and collection from the filing of the returns provided for in See. 331 of
the National Internal Revenue Code. He argues that since the 1946 income tax return could be
presumed filed before March 1, 1947 and the notice of final and last assessment was received by
the taxpayer on March 2, 1955, a period of about 8 years had elapsed and the five year period
provided by law (Sec. 331 of the National Internal Revenue Code) had already expired. The same
argument is advanced on the taxpayer's return for 1947, which was filed on March 1, 1948, and the
return for 1948, which was filed on February 28, 1949. Respondents, on the other hand, are of the
firm belief that regarding the prescriptive period for assessment of tax returns, Section 332 of the
National Internal Revenue Code should apply because, as in this case, "(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 of such tax may be begun without assessment, at any time
within ten years after the discovery of the falsity, fraud or omission" (Sec. 332 (a) of the NIRC).
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."
To our minds we can dispense with these controversial arguments on facts, although we do not deny
that the findings of facts by the Court of Tax Appeals, supported as they are by very substantial
evidence, carry great weight, by resorting to a proper interpretation of Section 332 of the NIRC. 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. Our stand that 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
of ten 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.
There being undoubtedly false tax returns in this case, We affirm the conclusion of the respondent
Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that the period of ten years
within which to assess petitioner's tax liability had not expired at the time said assessment was
made.
II
As to the alleged errors committed by the Court of Tax Appeals in not deducting from the alleged
undeclared income of the taxpayer for 1946 the proceeds from the sale of jewelries valued at
P30,000; in not excluding from other schedules of assets of the taxpayer (a) accounts receivable
from customers in the amount of P38,000 for 1948, P126,816.50 for 1950, and provisions for
doubtful accounts in the amount of P41,810.56 for 1950; (b) over valuation of hospital and dental
buildings for 1949 in the amount of P32,000 and P6,191.32 respectively; (c) investment in hollow
block business in the amount of P8,603.22 for 1949; (d) over valuation of surplus goods in the
amount of P23,000 for the year 1949; (e) various lands and buildings included in the schedule of
assets for the years 1950 and 1951 in the total amount of P243,717.42 for 1950 and P62,564.00 for
1951, these issues would depend for their resolution on determination of questions of facts based on
an evaluation of evidence, and the general rule is that the findings of fact of the Court of Tax
Appeals supported by substantial evidence should not be disturbed upon review of its decision
(Section 2, Rule 44, Rules of Court).
On the question of the alleged sale of P30,000 worth of jewelries in 1946, which amount petitioner
contends should be deducted from the taxpayer's net worth as of December 31, 1946, the record
shows that Matias H. Aznar, when interviewed by B.I.R. Examiner Guerrero, stated that at the
beginning of 1945 he had P60,000 worth of jewelries inherited from his ancestors and were disposed
off as follows: 1945, P10,000; 1946, P20,000; 1947, P10,000; 1948, P10,000; 1949, P7,000; (Report
of B.I.R. Examiner Guerrero, B.I.R. rec. pp. 90-94).
During the hearing of this case in the Court of Tax Appeals, petitioner's accountant testified that on
January 1, 1945, Matias H. Aznar had jewelries worth P60,000 which were acquired by purchase
during the Japanese occupation (World War II) and sold on various occasions, as follows: 1945,
P5,000 and 1946, P30,000. To corroborate the testimony of the accountant, Mrs. Ramona Agustines
testified that she bought from the wife of Matias H. Aznar in 1946 a diamond ring and a pair of
earrings for P30,000; and in 1947 a wrist watch with diamonds, together with antique jewelries, for
P15,000. Matias H. Aznar, on the other hand testified that in 1945, his wife sold to Sards Parino
jewelries for P5,000 and question, Mr. Aznar stated that his transaction with Sards Parino, with
respect to the sale of jewelries, amounted to P15,000.
The lower court did not err in finding material inconsistencies in the testimonies of Matias H. Aznar
and his witnesses with respect to the values of the jewelries allegedly disposed off as stated by the
witnesses. Thus, Mr. Aznar stated to the B.I.R. examiner that jewelries worth P10,000 were sold in
1945, while his own accountant testified that the same jewelries were sold for only P5,000. Mr.
Aznar also testified that Mrs. Agustines purchased from his wife jewelries for P35,000, and yet Mrs.
Agustines herself testified that she bought jewelries for P30,000 and P15,000 on two occasions, or a
total of P45,000.
We do not see any plausible reason to challenge the fundamentally sound basis advanced by the
Court of Tax Appeals in considering the inconsistencies of the witnesses' testimony as material, in
the following words:
We do not say that witnesses testifying on the same transaction should give identical
testimonies. Because of the frailties and the limitations of the human mind,
witnesses' statements are apt to be inconsistent in certain points, but usually the
inconsistencies refer to the minor phases of the transaction. It is the insignificance of
the detail of an occurrence that fails to impress the human mind. When that same
mind, made to recall what actually happened, the significant point which it failed to
take note is naturally left out. But it is otherwise as regards significant matters, for
they leave indelible imprints upon the human mind. Hence, testimonial
inconsistencies on the minor details of an occurrence are dismissed lightly by the
courts, while discrepancies on significant points are taken seriously and weigh
adversely to the party affected thereby.
There is no sound basis for deviating from the lower court's conclusion that: "Taxwise in view of the
aforesaid inconsistencies, which we deem material and significant, we dismiss as without factual
basis petitioner's allegation that jewelries form part of his inventory of assets for the purpose of
establishing his net worth at the beginning of 1946."
As to the accounts receivable from the United States government for the amount of P38,254.90,
representing a claim for goods commandered by the U.S. Army during World War II, and which
amount petitioner claimed should be included in his net worth as of January 1, 1946, the Court of
Tax Appeals correctly concluded that the uncontradicted evidence showed that "the collectible
accounts of Mr. Aznar from the U.S. Government in the sum of P38,254.90 should be added to his
assets (under accounts receivable) as of January 1, 1946. As of December 31, 1947, and December
31, 1948, the years within which the accounts were paid to him, the 'accounts receivable shall
decrease by P31,362.37 and P6,892.53, respectively."
Regarding a house in Talisay Cebu, (covered by Tax Declaration No. 8165) which was listed as an
asset during the years 1945 and 1947 to 1951, but which was not listed as an asset in 1946 because
of a notation in the tax declaration that it was reconstructed in 1947, the lower court correctly
concluded that the reconstruction of the property did not render it valueless during the time it was
being reconstructed and consequently it should be listed as an asset as of January 1, 1946, with the
same valuation as in 1945, that is P1,500.
On the question of accounts receivable from customers in the amount of P38,000 for 1948, and
P123,816.58 for the years 1950 and 1951, which were included in the assets of Mr. Aznar for those
years by the respondent Commissioner of Internal Revenue, it is very clear that those figures were
taken from the statements (Exhs. 31 and 32) filed by Mr. Matias H. Aznar with the Philippine
National Bank when he was intending to obtain a loan. These statements were under oath and the
natural implication is that the information therein reflected must be the true and accurate financial
condition of the one who executed those statements. To believe the petitioner's argument that the
late Mr. Aznar included those figures in his sworn statement only for the purpose of obtaining a
bigger credit from the bank is to cast suspicion on the character of a man who can no longer defend
himself. It would be as if pointing the finger of accusation on the late Mr. Aznar that he intentionally
falsified his sworn statements (Exhs. 31 and 32) to make it appear that there were non-existent
accounts receivable just to increase his assets by fictitious entries so that his credit with the
Philippine National Bank could be enhanced. Besides, We do not lose sight of the fact that those
statements (Exhs. 31 and 32) were executed before this tax controversy arose and the disputable
presumptions that a person is innocent of crime or wrong; that a person intends the ordinary
consequences of his voluntary act; that a person takes ordinary care of his concerns; that private
transaction have been fair and regular; that the ordinary course of business has been followed; that
things have happened according to the ordinary course of nature and the ordinary habits of life; that
the law has been obeyed (Sec. 5, (a), (c), (d), (p), (q), (z), (ff), Rule 131 of the Rules of Court),
together with the conclusive presumption that "whenever a party has, by his own declaration, act, or
omission, intentionally and deliberately led another to believe a particular thing true, and to act upon
such belief, he cannot, in any litigation arising out of such declaration, act or omission, be permitted
to falsify it" (Sec. 3 (a), Rule 131, Rules of Court), convincingly indicate that the accounts receivable
stated by Mr. Aznar in Exhibits 31 and 32 were true, in existence, and accurate to the very amounts
mentioned.
There is no merit to petitioners argument that those statements were only for the purpose of
obtaining a bigger credit from the bank (impliedly stating that those statements were false) and those
accounts were allegedly back accounts of students of the Southwestern Colleges and were
worthless, and if collected, would go to the funds of the school. The statement of the late Mr. Aznar
that they were accounts receivable from customers should prevail over the mere allegation of
petitioner, unsupported as they are by convincing evidence. There is no reason to disturb the lower
court's conclusion that the amounts of P38,000 and P123,816.58 were accounts receivable from
customers and as such must be included as petitioner's assets for the years indicated.
As to the questions of doubtful accounts (bad debts), for the amount of P41,810.56, it is clear that
said amount is taken from Exhibit 31, the sworn statement of financial condition filed by Mr. Matias
H. Aznar with the Philippine National Bank. The lower court did not commit any error in again giving
much weight to the statement of Mr. Aznar and in concluding that inasmuch as this is an item
separate and apart from the taxpayer's accounts receivable and non-deductible expense, it should
be reverted to the accounts receivable and, consequently, considered as an asset in 1950.
On the alleged over valuation of two buildings (hospital building which respondent Commissioner of
Internal Revenue listed as an asset from 1949-1951 at the basic valuation of P130,000, and which
petitioner claims to be over valued by P32,000; dentistry building valued by respondent
Commissioner of Internal Revenue at P36,191.34, which petitioner claims to be over valued by
P6,191.34), We find no sufficient reason to alter the conclusion of respondent Court of Tax Appeals
sustaining the respondent Commissioner of Internal Revenue's valuation of both properties.
Respondent Commissioner of Internal Revenue based his valuation of the hospital building on the
representation of Mr. Matias H. Aznar himself who, in his letter (Exh. 35) to the Philippine National
Bank dated September 5, 1949, stated that the hospital building cost him P132,000. However in
view of the effect of a typhoon in 1949 upon the building, the value allowed was P130,000. Exhibit
35, contrary to petitioner's contention, should be given probative value because, although it is an
unsigned plain copy, that exhibit was taken by the investigating examiner of the B.I.R. from the files
of the Southwestern Colleges and formed part of his report of investigation as a public official. The
estimates of an architect and a civil engineer who agreed that a value of P84,240 is fair for the
hospital building, made years after the building was constructed, cannot prevail over the petitioner's
own estimate of his property's value.
Respondent Commissioner of Internal Revenue's valuation of P36,191.34 of the Dentistry Building is

based on the letter of Mr. and Mrs. Matias H. Aznar to the Southwestern Colleges, dated December
15, 1950, which is embodied in the minutes of the meeting of the Board of Trustees of the
Southwestern Colleges held on May 7, 1951 (Exhibit G-1). In Exhibit 26 A, which is the cash book of
the Southwestern Colleges, this building was listed as of the same amount. Petitioner's estimate of
P30,000 for this building, based on Architect Paca's opinion, cannot stand against the owner's
estimate and that which appears in the cash book of the Southwestern Colleges, if we take into
consideration that the owner's (Mr. Matias H. Aznar) letter was written long before this tax
proceeding was initiated, while architect Paca's estimate was made upon petitioner's request solely
for the purpose of evidence in this tax case.
In the inventory of assets of petitioner, respondent Commissioner of Internal Revenue included the
administrative building valued at P19,200 for the years 1947 and 1948, and P16,700 for the years
1949 to 1951; and a high school building valued at P48,000 for 1947 and 1948, and P45,000 for
1949, 1950 and 1951. The reduced valuation for the latter years are due to allowance for partial loss
resulting from the 1949 typhoon. Petitioner did not question the inclusion of these buildings in the
inventory for the years prior to 1950, but objected to their inclusion as assets as of January 1, 1950,
because both buildings were destroyed by a typhoon in November of 1949. There is sufficient
evidence (Exh. G-1, affidavit of Jesus S. Intan, employee in the office of City Assessor of Cebu City,
Exh. 18, Mr. Intan's testimony, a copy of a letter of the City Assessor of Cebu City) to prove that the
two buildings were really destroyed by typhoon in 1949 and, therefore, should be eliminated from the
petitioner's inventory of assets beginning December 31, 1949.
On the issue of investment in the hollow blocks business, We see no compelling reason to alter the
lower court's conclusion that "whatever was spent in the hollow blocks business is an investment,
and being an investment, the same should be treated as an asset. With respect to the amount
representing the value of the building, there is no duplication in the listing as the inventory of real
property does not include the building in question."
Respondent Commissioner of Internal Revenue included in the inventory, under the heading of other
asset, the amount of P8,663.22, treated as investment in the hollow block business. Petitioner
objects to the inclusion of P1,683.42 which was spent on the building and in the business and of
P674.35 which was spent for labor, fuel, raw materials, office supplies etc., contending that the
former amount is a duplication of inventory (included among the list of properties) and the latter is a
business expense which should be eliminated from the list of assets.
The inclusion of expenses (labor and raw materials) as part of the hollow block business is
sanctioned in the inventory method of tax verification. It is a sound accounting practice to include
raw materials that will be used for future manufacture. Inclusion of direct labor is also proper, as all
these items are to be embodied in a summary of assets (investment by the taxpayer credited to his
capital account as reflected in Exhibit 72-A, which is a working sheet with entries taken from the
journal of the petitioner concerning his hollow blocks business). There is no evidence to show that
there was duplication in the inclusion of the building used for hollow blocks business as part of
petitioner's investment as this building was not included in the listing of real properties of petitioner
(Exh. 45-C p. 187 B.I.R. rec.).
As to the question of the real value of the surplus goods purchased by Mr. Matias H. Aznar from the
U.S. Army, the best evidence, as observed correctly by the lower court, is the statement of Mr.
Matias H. Aznar, himself, as appearing Exh. 35 (copy of a letter dated September 5, 1949 to the
Philippine National Bank), to the effect "as part of my assets I have different merchandise from
Warehouse 35, Tacloban, Leyte at a total cost of P43,000.00 and valued at no less than P20,000 at
present market value." Petitioner's claim that the goods should be valued at only P20,000 in
accordance with an alleged invoice is not supported by evidence since the invoice was not
presented as exhibit. The lower court's act in giving more credence to the statement of Mr. Aznar
cannot be questioned in the light of clear indications that it was never controverted and it was given
at a time long before the tax controversy arose.
The last issue on propriety of inclusion in petitioner's assets made by respondent Commissioner of
Internal Revenue concerns several buildings which were included in the list of petitioner's assets as
of December 31, 1950. Petitioner contends that those buildings were conveyed and ceded to
Southwestern Colleges on December 15, 1950, in consideration of P100,723.99 to be paid in cash.
The value of the different buildings are listed as: hospital building, P130,000; gymnasium, P43,000;
dentistry building, P36,191.34; bodega 1, P781.18; bodega 2, P7,250; college of law, P10,950;
laboratory building, P8,164; home economics, P5,621; morgue, P2,400; science building, P23,600;
faculty house, P5,760. It is suggested that the value of the buildings be eliminated from the real
estate inventory and the sum of P100,723.99 be included as asset as of December 31, 1950.
The lower court could not find any evidence of said alleged transfer of ownership from the taxpayer
to the Southwestern Colleges as of December 15, 1950, an allegation which if true could easily be
proven. What is evident is that those buildings were used by the Southwestern Colleges. It is true
that Exhibit G-1 shows that Mr. and Mrs. Matias H. Aznar offered those properties in exchange for
shares of stocks of the Southwestern Colleges, and Exhibit "G" which is the minutes of the meeting
of the Board of Trustees of the Southwestern Colleges held on August 6, 1951, shows that Mr.
Aznar was amenable to the value fixed by the board of trustees and that he requested to be paid in
cash instead of shares of stock. But those are not sufficient evidence to prove that transfer of
ownership actually happened on December 15, 1950. Hence, the lower court did not commit any
error in sustaining the respondent Commissioner of Internal Revenue's act of including those
buildings as part of the assets of petitioner as of December 31, 1950.
Petitioner also contends that properties allegedly ceded to the Southwestern Colleges in 1951 for
P150,000 worth of shares of stocks, consisting of: land, P22,684; house, P13,700; group of houses,
P8,000; building, P12,000; nurses home, P4,100; nurses home, P2,080, should be excluded from
the inventory of assets as of December 31, 1951. The evidence (Exh. H), however, clearly shows
that said properties were formally conveyed to the Southwestern Colleges only on September 25,
1952. Undoubtedly, petitioner was the owner of those properties prior to September 25, 1952 and
said properties should form part of his assets as of December 31, 1951.
The uncontested portions of the lower court's decision consisting of its conclusions that library books
valued at P7,041.03, appearing in a journal of the Southwestern Colleges marked as' Exhibit 25-A,
being an investment, should be treated as an asset beginning December 31, 1950; that the
expenses for construction to the amount of P113,353.70, which were spent for the improvement of
the buildings appearing in Exhibit 24 are deemed absorbed in the increased value of the buildings as
appraised by respondent Commissioner of Internal Revenue at cost after improvements were made,
and should be taken out as additional assets; that the amount receivable of P5,776 from a certain
Benito Chan should be treated as petitioner's asset but the amount of P5,776 representing the value
of a house and lot given as collateral to secure said loan should not be considered as an asset of
petitioner since to do so would result in a glaring duplication of items, are all affirmed. There seems
to be no controversy as to the rest of the items listed in the inventory of assets.
III
The second issue which appears to be of vital importance in this case centers on the lower court's
imposition of the fraud penalty (surcharge of 50% authorized in Section 72 of the Tax Code). The
petitioner insists that there might have been false returns by mistake filed by Mr. Matias H. Aznar as
those returns were prepared by his accountant employees, but there were no proven fraudulent
returns with intent to evade taxes that would justify the imposition of the 50% surcharge authorized
by law as fraud penalty.
The lower court based its conclusion that the 50% fraud penalty must be imposed on the following
reasoning: .
It appears that Matias H. Aznar declared net income of P9,910.94, P10,200,

P9,148.34, P8,990.66, P8,364.50 and P6,800 for the years 1946, 1947, 1948, 1949,
1950 and 1951, respectively. Using the net worth method of determining the net
income of a taxpayer, we find that he had net incomes of P32,470.45, P67,751.19,
P17,880.44, P52,709.11, P254,813.56 and P40,155.80 during the respective years
1946, 1947, 1948, 1949, 1950, and 1951. In consequence, 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. These substantial under declarations of income for six
consecutive years eloquently demonstrate the falsity or fraudulence of the income
tax return with an intent to evade the payment of tax. Hence, the imposition of the
fraud penalty is proper (Perez vs. Court of Tax Appeals, G.R. No. L-10507, May 30,
1958). (Emphasis supplied)
As could be readily seen from the above rationalization of the lower court, no distinction has been
made between false returns (due to mistake, carelessness or ignorance) and fraudulent returns (with
intent to evade taxes). The lower court based its conclusion on the petitioner's alleged fraudulent
intent to evade taxes on the substantial difference between the amounts of net income on the face of
the returns as filed by him in the years 1946 to 1951 and the net income as determined by the
inventory method utilized by both respondents for the same years. The lower court based its
conclusion on a presumption that fraud can be deduced from the very substantial disparity of
incomes as reported and determined by the inventory method and on the similarity of consecutive
disparities for six years. Such a basis for determining the existence of fraud (intent to evade payment
of tax) suffers from an inherent flaw when applied to this case. It is very apparent here that the
respondent Commissioner of Internal Revenue, 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 (Exh.
1, B.I.R. rec. pp. 126-129). 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. This is a
crystal-clear, indication that even the respondent Commissioner of Internal Revenue with the use of
the inventory method can commit a glaring mistake in the assessment of petitioner's tax liability.
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 (elimination of
two buildings in the list of petitioner's assets beginning December 31, 1949, because they were
destroyed by fire; elimination of expenses for construction in petitioner's assets as duplication of
increased value in buildings, and elimination of value of house and lot in petitioner's assets because
said property was only given as collateral) 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.
From the above exposition of facts, we cannot but emphatically reiterate the well established
doctrine that fraud cannot be presumed but must be proven. As a corollary thereto, 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 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.
The lower court's conclusion regarding the existence of fraudulent intent to evade payment of taxes
was based merely on a presumption and not on evidence establishing a willful filing of false and
fraudulent returns so as to warrant the imposition of the fraud penalty. The fraud contemplated by
law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and
deliberately done or resorted to in order to induce another to give up some legal right. Negligence,
whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by
the law. It must amount to intentional wrong-doing with the sole object of avoiding the tax. It
necessarily follows that a 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.
We conclude that the 50% surcharge as fraud penalty authorized under Section 72 of the Tax Code
should not be imposed, but eliminated from the income tax deficiency for each year from 1946 to
1951, inclusive. The tax liability of the petitioner for each year should, therefore, be:
1946 P 3,687.10
1947 13,288.38
1948 960.77
1949 8,918.85
1950 117,320.00
1951 7,684.00
P151,859.10
The total sum of P151,859.10 should be decreased by P96.87 representing the tax credit for 1945,
thereby leaving a balance of P151,762.23.
WHEREFORE, the decision of the Court of Tax Appeals is modified in so far as the imposition of the
50% fraud penalty is concerned, and affirmed in all other respects. The petitioner is ordered to pay
to the Commissioner of Internal Revenue, or his duly authorized representative, the sum of
P151,762.23, representing deficiency income taxes for the years 1946 to 1951, inclusive, within 30
days from the date this decision becomes final. If the said amount is not paid within said period,
there shall be added to the unpaid amount the surcharge of 5%, plus interest at the rate of 12% per
annum from the date of delinquency to the date of payment, in accordance with Section 51 of the
National Internal Revenue Code.
With costs against the petitioner.
Makalintal, C.J, Castro, Teehankee, Makasiar and Muñoz Palma, JJ., concur.
February 22, 2017
G.R. No. 221590
COMMISSIONER OF INTERNAL REVENUE, Petitioner

vs.
ASALUS CORPORATION, Respondent
DECISION
MENDOZA, J.:
This petition for review on certiorari seeks to reverse and set aside the July 30, 2015 Decision1 and
the November 6, 2015 Resolution2 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 1191,
which affirmed the April 2, 2014 Decision3 of the CTA Third Division (CTA Division).
The Antecedents
On December 16, 2010, respondent Asalus Corporation (Asalus) received a Notice of Informal
Conference from Revenue District Office (RDO) No. 47 of the Bureau of Internal Revenue (BIR). It
was in connection with the investigation conducted by Revenue Officer Fidel M. Bañares
II (Bañares) on the Value-Added Tax (VAT) transactions of Asalus for the taxable year 2007.4 Asalus
filed its Letter-Reply,5 dated December 29, 2010, questioning the basis of Bañares' computation for
its VAT liability.
On January 10, 2011, petitioner Commissioner of Internal Revenue (CIR) issued the Preliminary
Assessment Notice (PAN) finding Asalus liable for deficiency VAT for 2007 in the aggregate amount
of ₱413, 378, 058.11, inclusive of surcharge and interest. Asalus filed its protest against the PAN but
it was denied by the CIR. 6
On August 26, 2011, Asalus received the Formal Assessment Notice (FAN) stating that it was liable
for deficiency VAT for 2007 in the total amount of ₱95,681,988.64, inclusive of surcharge and
interest. Consequently, it filed its protest against the FAN, dated September 6, 2011. Thereafter,
Asal us filed a supplemental protest stating that the deficiency VAT assessment had prescribed
pursuant to Section 203 of the National Internal Revenue Code (NIRC).7
On October 16, 2012, Asal us received the Final Decision on Disputed

Assessment8 (FDDA) showing VAT deficiency for 2007 in the aggregate amount of
₱106,761,025.17, inclusive of surcharge and interest and ₱25,000.00 as compromise penalty. As a
result, it filed a petition for review before the CTA Division.
The CTA Division Ruling
In its April 2, 2014 Decision, the CT A Division ruled that the VAT assessment issued on August 26,
2011 had prescribed and consequently deemed invalid. It opined that the ten (10)-year prescriptive
period under Section 222 of the NIRC was inapplicable as neither the FAN nor the FDDA indicated
that Asalus had filed a false VAT return warranting the application of the ten (10)-year prescriptive
period. It explained that it was only in the PAN where an allegation of false or fraudulent return was
made. The CTA stressed that after Asalus had protested the PAN, the CIR never mentioned in both
the FAN and the FDDA that the prescriptive period would be ten (10) years. It further pointed out that
the CIR failed to present evidence regarding its allegation of fraud or falsity in the returns.
The CTA wrote that "the three instances where the three-year prescriptive period will not apply must
always be alleged and established by clear and convincing evidence and should not be anchored on
mere conjectures and speculations,9 before the ten (10) year prescriptive period could be
considered. Thus, it disposed:
WHEREFORE, the instant Petition for Review is hereby GRANTED. Accordingly, the deficiency VAT
assessment for taxable year 2007 and the compromise penalty are hereby CANCELLED and
WITHDRAWN, on ground of prescription.
SO ORDERED.10
The CIR moved for reconsideration but its motion was denied.
The CTA En Banc Ruling
In its July 30, 2015 Decision, the CTA En Banc sustained the assailed decision of the CT A Division
and dismissed the petition for review filed by the CIR. It explained that there was nothing in the FAN
and the FDDA that would indicate, the non-application of the three (3) year prescriptive period under
Section 203 of the NIRC. It found that the CIR did not present any evidence during the trial to
substantiate its claim of falsity in the returns and again missed its chance to do so when it failed to
file its memorandum before the CTA Division.
The CTA En Banc further explained that the PAN alone could not be used as a basis because it was
not the assessment contemplated by law. Consequently, the allegation of falsity in Asalus' tax
returns could not be considered as it was not reiterated in the FAN. The dispositive portion thus
reads:
WHEREFORE, premises considered, the present Petition for Review is hereby DENIED, and
accordingly, DISMISSED for lack of merit.
SO ORDERED.11
The CIR sought the reconsideration of the decision of the CTA En Banc, but the latter upheld its
decision in its November 6, 2015 resolution.
Hence, this petition.
ISSUES
WHETHER PETITIONER HAD SUFFICIENTLY APPRISED RESPONDENT THAT THE FAN AND
FDDA ISSUED AGAINST THE LATTER FALLS UNDER SECTION 222(A) OF THE 1997 NIRC, AS
AMENDED;
II
WHETHER RESPONDENT'S FAILURE TO REPORT IN ITS VAT RETURNS ALL THE FEES IT
COLLECTED FROM ITS MEMBERS APPLYING FOR HEALTHCARE SERVICES CONSTITUTES
"FALSE" RETURN UNDER SECTION 222(A) OF THE 1997 NIRC, AS AMENDED; AND
II
WHETHER PETITIONER'S RIGHT TO ASSESS RESPONDENT FOR ITS DEFICIENCY VAT FOR
TAXABLE YEAR 2007 HAD ALREADY PRESCRIBED.12
The CIR, through the Office of the Solicitor General (OSG), argues that the VAT assessment had yet
to prescribe as the applicable prescriptive period is the ten (10)-year prescriptive period under
Section 222 of the NIRC, and not the three (3) year prescriptive period under Section 203 thereof. It
claims that Asalus was informed in the PAN of the ten (10)-year prescriptive period and that the FAN
made specific reference to the PAN. In turn, the FDDA made reference to the FAN. Asalus, on the
other hand, only raised prescription in its supplemental protest to the FAN. The CIR insists that
Asalus was made fully aware that the prescriptive period under Section 222 would apply.
Moreover, the CIR asserts that there was substantial understatement in Asalus' income, which
exceeded 30% of what was declared in its VAT returns as appearing in its quarterly VAT returns;
and the underdeclaration was supported by the judicial admission of its lone witness that not all the
membership fees collected from members applying for healthcare services were reported in its VAT
returns. Thus, the CIR concludes that there was prima facie evidence of a false return.
The Position of Asalus
In its Comment/Opposition,13 dated April 22, 2016, Asalus countered that the present petition
involved a question of fact, which was beyond the ambit of a petition for review under Rule 45.
Moreover, it asserted that the findings of fact of the CT A Division, which were affirmed by the
CTA En Banc, were conclusive and binding upon the Court. It posited that the CIR could not raise for
the first time on appeal a new argument that "the FDDA and the FAN need not explicitly state the
applicability of the ten-year prescriptive period and the bases thereof as long as the totality of the
circumstances show that the taxpayer was 'sufficiently informed' of the facts in support of the
assessment. Based on the totality of the circumstances, it was informed of the facts in support of the
assessment." 14
Asalus reiterated that the CIR, either in the FAN or the FDDA, failed to show that it had filed false
returns warranting the application of the extraordinary prescriptive period under Section 222 of the
NIRC. It insisted that it was not informed of the facts and law on which the assessment was based
because the FAN did not state that it filed false or fraudulent returns. For this reason, Asalus averred
that the assessment had prescribed because it was made beyond the three (3)-year period as
provided in Section 203 of the NIRC.
The Reply of the CIR
In its Reply, 15 dated August 15, 2016, the CIR argued that the findings of the CT A might be set
aside on appeal if they were not supported with substantial evidence or if there was a showing of
gross error or abuse. It repeated that there was presumption of falsity in light of the 30%
underdeclaration of sales. The CIR emphasized that even Asalus' own witness testified that not all
the membership fees collected were reported in its VAT returns. It insisted that Asalus was
sufficiently informed of its assessment based on the prescriptive period under Section 222 of the
NIRC as early as when the PAN was issued.
On another note, the CIR manifested that Asalus' counsels made use of insulting words in its
Comment, which could have been dispensed with. Particularly, it highlighted the use of the following
phrases as insulting: "even to the uninitiated," "petitioner's habit of disregarding firmly established
rules of procedure," "twist establish facts to suit her ends," "just to indulge petitioner," and "she then
tried to calculate, on her own but without factual basis." It asserted that "[w]hile a lawyer has a
complete discretion on what legal strategy to employ in a case, the overzealousness in protecting his
client's interest does not warrant the use of insulting and profane language in his pleadings xxx." 16
The Court's Ruling
There is merit in the petition.
It is true that the findings of fact of the CT A are, as a rule, respected by the Court, but they can be
set aside in exceptional cases. In Barcelon, Roxas Securities, Inc. (now known as UBP Securities,
Inc.) v. Commissioner of Internal Revenue, this Court in Toshiba Information Equipment (Phils.), Inc.
v. Commissioner of Internal Revenue, 17explicitly pronounced-
Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the
highest respect. In Sea-Land Service, Inc. v. Court of Appeals [G.R. No. 122605, 30 April 2001, 357
SCRA 441, 445-446], this Court recognizes that the Court of Tax Appeals, which by the very nature
of its function is dedicated exclusively to the consideration of tax problems, has necessarily
developed an expertise on the subject, and its conclusions will not be overturned unless there has
been an abuse or improvident exercise of authority. Such findings can only be disturbed on
appeal if they are not supported by substantial evidence or there is a showing of gross error
or abuse on the part of the Tax Court. In the absence of any clear and convincing proof to the
contrary, this Court must presume that the CTA rendered a decision which is valid in every
respect.18 [Emphasis supplied]
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.
Generally, internal revenue taxes shall be assessed within three (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. 19Section 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 (10) years from the discovery of the
falsity, fraud or omission.
In the oft-cited Aznar v. CTA,20the Court compared a false return to a fraudulent return in relation to
the applicable prescriptive periods for assessments, to wit:
and fraudulent returns with intent to' evade tax, while respondent Commissioner of Internal Revenue
under declarations of income for six consecutive years eloquently demonstrate the falsity or
xxxx
xxx 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 assessmeμt, at any time within ten years after the discovery of the (1) falsity, (2)
fraud, (3) omission. Our stand that 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
seggregates 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 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
omission even seems to be inadequate and should be the one enforced.
There being undoubtedly false tax returns in this case, We affirm the conclusion of the respondent
Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that the period of ten years
within which to assess petitioner's tax liability had not expired at the time said assessment was
made. (Emphasis supplied)
Thus, a mere showing that the returns filed by the taxpayer were false, notwithstanding the absence
of intent to defraud, is sufficient to warrant the application of the ten (10) year prescriptive period
under Section 222 of the NIRC.
Presumption of Falsity of Returns
In the present case, the CTA opined that the CIR failed to substantiate with clear and convincing
evidence its claim that Asalus filed a false return. As it noted that the CIR never presented any
evidence to prove the falsity in the returns that Asalus filed, the CTA ruled that the assessment was
subject to the three (3) year ordinary prescriptive period.
The Court is of a different view.
Under Section 248(B) of the NIRC,21 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 returns constitute substantial
underdeclaration. A prima facie evidence is one which that will establish a fact or sustain a judgment
unless contradictory evidence is produced. 22
In other words, when there is a showing that a taxpayer has substantially underdeclared its sales,
receipt or income, there is a presumption that it has filed a false return. As such, the CIR need not
immediately present evidence to support the falsity of the return, unless the taxpayer fails to
overcome the presumption against it.
Applied in this case, the audit investigation revealed that there were undeclared VA Table sales
more than 30% of that declared in Asalus' VAT returns. Moreover, Asalus' lone witness testified that
not all membership fees, particularly those pertaining to medical practitioners and hospitals, were
reported in Asalus' VAT returns. The testimony of its witness, in trying to justify why not all of its
sales were included in the gross receipts reflected in the VAT returns, supported the presumption
that the return filed was indeed false precisely because not all the sales of Asalus were included in
the VAT returns.
Hence, the 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
ten (10)-year prescriptive period for assessment under Section 222 of the NIRC. To require the CIR
to present additional evidence in spite of the presumption provided in Section 248(B) of the NIRC
would render the said provision inutile.
Substantial Compliance of Notice Requirement
The CTA also posited that the ordinary prescriptive period of three (3) years applied in this case
because there was no mention in the FAN or the FDDA that what would apply was the extraordinary
prescriptive period and that the CIR did not present any evidence to support its claim of false
returns.
Again, the Court disagrees.
It is true that neither the FAN nor the FDDA explicitly stated that the applicable prescriptive period
was the ten (10)-year period set in Section 222 of the NIRC. They, however, made reference to the
PAN, which categorically stated that "[t]he running of the three-year statute of limitation I as provided
un4er Section 203 of the 1997 National Internal Revenue Code (NIRC) is not i applicable xxx but
rather to the ten (10) year prescriptive period pursua11t to Section 222(A) of the tax code
xxx." 23 In Samar-I Electric Cooperative v. COMELEC,24the Court ruled that it sufficed that the
taxpayer was substantially informed of the legal and factual bases of the assessment enabling him
to file an effective protest, to wit:
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 letter dated April 10, 2003 responded to petitioner's
October 14, 2002 letter-protest, explaining at length the factual and legal bases of the deficiency tax
assessments and denying the protest.
Considerirg the foregoing exchange of correspondence and Document between the parties,
we find that the requirement of Section 228 was substantially complied with. Respondent had
fully informed I petitioner in writing of the factual and legal bases of the deficiency taxes assessment,
which enabled the latter to file an "effective" protest, much unlike the taxpayer's situation
in Enron. Petitioner's right to due process was thus not violated. [Emphasis supplied]
Thus, substantial compliance with the requirement as laid down under Section 228 of the NIRC
suffices, for what is important is that the taxpayer has been sufficiently informed of the factual and
legal bases of the assessment so that it may file an effective protest against the assessment. In the
case at bench, Asalus was sufficiently informed that with respect to its tax liability, the extraordinary
period laid down in Section 222 of the NIRC would apply. This was categorically stated in the PAN
and all subsequent communications from the CIR made reference to the PAN. Asalus was
eventually able to file a protest addressing the issue on prescription, although it was done only in its
supplemental protest to the FAN.
Considering the existing circumstances, the assessment was timely made because the applicable
prescriptive period was the ten (10)-year prescriptive period under Section 222 of the NIRC. To
reiterate, there was a prima facie showing that the returns filed by Asalus were false, which it failed
to controvert. Also, it was adequately informed that it was being assessed within the extraordinary
prescriptive period.
A Reminder
A lawyer is indeed expected to champion the cause of his client with utmost zeal and competence.
Such exuberance, however, must be tempered to meet the standards of civility and decorum. Rule
8.01 of the Code of Professional Responsibility mandates that "[a] lawyer shall not, in his
professional dealings, use language which is abusive, offensive or otherwise improper." In Noble v.
Atty. Ailes, 25 the Court cautioned lawyers to be careful in their: choice of words as not to unduly
malign the other party, to wit:
Though a lawyer's language may be forceful and emphatic, it should always be dignified and
respectful, befitting the dignity of the legal profession. The use of intemperate language and unkind
1âwphi1
ascriptions has no place in the dignity of the judicial forum. In Buatis Jr. v. People, the Court treated
a lawyer's use of the words "lousy," "inutile," "carabao English," "stupidity," and "satan" in a letter
addressed to another colleague as defamatory and injurious which effectively maligned his integrity.
Similarly, the hurling of insulting language to describe the opposing counsel is considered conduct
unbecoming of the legal profession.
xxx
On this score, it must be emphasized that membership in the bar is a privilege burdened with
conditions such that a lawyer's words and actions directly affect the public's opinion of the
legal profession. Lawyers are expected to observe such conduct of nobility and uprightness
which should remain with them, whether in their public or private lives, and may be disciplined in
the event their conduct falls short of the standards imposed upon them. Thus, in this case, it is
inconsequential that the statements were merely relayed to Orlando's brother in private. As a
member of the bar, Orlando should have been more circumspect in his words, being fully
aware that they pertain to another lawyer to whom fairness as well as candor is owed. It was
highly improper for Orlando to interfere and insult Maximino to his client.
Indulging in offensive personalities in the course of judicial proceedings, as in this case, constitutes
unprofessional conduct which subjects a lawyer to disciplinary action. While a lawyer is entitled to.
present his case with vigor and courage, such enthusiasm does not justify the use of
offensive and abusive language. The Court has consistently reminded the members of the bar to
abstain from all offensive personality and to advance no fact prejudicial to the honor and reputation
of a party. xxx26[Emphases supplied]
While the Court recognizes and appreciates the passion of Asalus' counsels in promoting and
protecting its interest, they must still be reminded that they should be more circumspect in their
choice of words to argue their client's position. As much as possible, words which undermine the
integrity, competence and ability of the opposing party, or are otherwise offensive, must be avoided
especially if the message may be delivered in a respectful, yet equally emphatic manner. A counsel's
mettle will not be viewed any less should he choose to pursue his cause without denigrating the
other party.
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.
SO ORDERED.
JOSE CATRAL MENDOZA

Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
DIOSDADO M. PERALTA ESTELA M. PERLAS-BERNABE*

MARVIC M.V.F. LEONEN

Associate Justice
ATTESTATION
ANTONIO T. CARPIO
Associate Justice
CERTIFICATION

Chief Justice
THIRD DIVISION
G.R. No. 197515 July 2, 2014
COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
UNITED SALVAGE AND TOWAGE (PHILS.), INC., Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Revised Rules of Court
which seeks to review, reverse and set aside the Decision1 of the Court of Tax Appeals En Banc
(CTA En Banc), dated June 27, 2011, in the case entitled Commissioner of Internal Revenue v.
United Salvage and Towage (Phils.), Inc. (USTP), docketed as C.T.A. EB No. 662. The facts as
culled from the records:
Respondent is engaged in the business of sub-contracting work for service contractors engaged in
petroleum operations in the Philippines.2 During the taxable years in question, it had entered into
various contracts and/or sub-contracts with several petroleum service contractors, such as Shell
Philippines Exploration, B.V. and Alorn Production Philippines for the supply of service vessels.3
In the course of respondent’s operations, petitioner found respondent liable for deficiency income
tax, withholding tax, value-added tax (VAT) and documentary stamp tax (DST) for taxable years
1992,1994, 1997 and 1998.4Particularly, petitioner, through BIR officials, issued demand letters with
attached assessment notices for withholding tax on compensation (WTC) and expanded withholding
tax (EWT) for taxable years 1992, 1994 and 1998,5 detailed as follows:
Assessment Notice No. Tax Covered Period Amount

25-1-000545-92 WTC 1992 ₱50,429.18
25-1-000546-92 EWT 1992 ₱14,079.45
034-14-000029-94 EWT 1994 ₱48,461.76
034-1-000080-98 EWT 1998 ₱22,437.016
On January 29, 1998 and October 24, 2001, USTP filed administrative protests against the 1994 and
1998 EWT assessments, respectively.7
On February 21, 2003, USTP appealed by way of Petition for Review before the Court in action
(which was thereafter raffled to the CTA-Special First Division) alleging, among others, that the
Notices of Assessment are bereft of any facts, law, rules and regulations or jurisprudence; thus, the
assessments are void and the right of the government to assess and collect deficiency taxes from it
has prescribed on account of the failure to issue a valid notice of assessment within the applicable
period.8
During the pendency of the proceedings, USTP moved to withdraw the aforesaid Petition because it
availed of the benefits of the Tax Amnesty Program under Republic Act (R.A.) No. 9480.9 Having
complied with all the requirements therefor, the CTA-Special First Division partially granted the
Motion to Withdraw and declared the issues on income tax, VAT and DST deficiencies closed and
terminated in accordance with our pronouncement in Philippine Banking Corporation v.
Commissioner of Internal Revenue.10 Consequently, the case was submitted for decision covering
the remaining issue on deficiency EWT and WTC, respectively, for taxable years 1992, 1994 and
1998.11
The CTA-Special First Division held that the Preliminary Assessment Notices (PANs) for deficiency
EWT for taxable years 1994 and 1998 were not formally offered; hence, pursuant to Section 34,
Rule 132 of the Revised Rules of Court, the Court shall neither consider the same as evidence nor
rule on their validity.12 As regards the Final Assessment Notices (FANs) for deficiency EWT for
taxable years 1994 and 1998, the CTA-Special First Division held that the same do not show the law
and the facts on which the assessments were based.13 Said assessments were, therefore, declared
void for failure to comply with Section 228 of the 1997 National Internal Revenue Code (Tax
Code).14 From the foregoing, the only remaining valid assessment is for taxable year 1992.15
Nevertheless, the CTA-Special First Division declared that the right of petitioner to collect the
deficiency EWT and WTC, respectively, for taxable year 1992 had already lapsed pursuant to
Section 203 of the Tax Code.16 Thus, in ruling for USTP, the CTA-Special First Division cancelled
Assessment Notice Nos. 25-1-00546-92 and 25-1-000545-92, both dated January 9, 1996 and
covering the period of 1992, as declared in its Decision17 dated March 12, 2010, the dispositive
portion of which provides:
WHEREFORE, the instant Petition for Review is hereby GRANTED. Accordingly, Assessment
Notice No. 25-1-00546-92 dated January 9, 1996 for deficiency Expanded Withholding Tax and
Assessment Notice No. 25-1-000545 dated January 9, 1996 for deficiency Withholding Tax on
Compensation are hereby CANCELLED.
SO ORDERED.18
Dissatisfied, petitioner moved to reconsider the aforesaid ruling. However, in a Resolution19 dated
July 15, 2010, the CTA-Special First Division denied the same for lack of merit.
On August 18, 2010, petitioner filed a Petition for Review with the CTA En Banc praying that the
Decision of the CTA-Special First Division, dated March 12, 2010,be set aside.20
On June 27, 2011, the CTA En Banc promulgated a Decision which affirmed with modification the
Decision dated March 12, 2010 and the Resolution dated July 15, 2010 of the CTA-Special First
Division, the dispositive portion of which reads:
WHEREFORE, premises considered, the Petition is PARTLY GRANTED. The Decision dated March
12, 2010 and the Resolution dated July 15, 2010 are AFFIRMED with MODIFICATION upholding the
1998 EWT assessment. In addition to the basic EWT deficiency of ₱14,496.79, USTP is ordered to
pay surcharge, annual deficiency interest, and annual delinquency interest from the date due until
full payment pursuant to Section 249 of the 1997 NIRC.
SO ORDERED.21
Hence, the instant petition raising the following issues:
1. Whether or not the Court of Tax Appeals is governed strictly by the technical rules of
evidence;
2. Whether or not the Expanded Withholding Tax Assessments issued by petitioner against
the respondent for taxable year 1994 was without any factual and legal basis; and
3. Whether or not petitioner’s right to collect the creditable withholding tax and expanded
withholding tax for taxable year 1992 has already prescribed.22
After careful review of the records and evidence presented before us, we find no basis to overturn
the decision of the CTA En Banc.
On this score, our ruling in Compagnie Financiere Sucres Et Denrees v. CIR,23 is enlightening, to wit:
We reiterate the well-established doctrine that as a matter of practice and principle, [we] will not set
aside the conclusion reached by an agency, like the CTA, especially if affirmed by the [CA]. By the
very nature of its function, it has dedicated itself to the study and consideration of tax problems and
has necessarily developed an expertise on the subject, unless there has been an abuse or
improvident exercise of authority on its part, which is not present here.24
Now, to the first issue.
Petitioner implores unto this Court that technical rules of evidence should not be strictly applied in
the interest of substantial justice, considering that the mandate of the CTA explicitly provides that its
proceedings shall not be governed by the technical rules of evidence.25 Relying thereon, petitioner
avers that while it failed to formally offer the PANs of EWTs for taxable years 1994and 1998, their
existence and due execution were duly tackled during the presentation of petitioner’s witnesses,
Ruleo Badilles and Carmelita Lynne de Guzman (for taxable year 1994) and Susan Salcedo-De
Castro and Edna A. Ortalla (for taxable year 1998).26 Petitioner further claims that although the PANs
were not marked as exhibits, their existence and value were properly established, since the BIR
records for taxable years 1994 and 1998 were forwarded by petitioner to the CTA in compliance with
the latter’s directive and were, in fact, made part of the CTA records.27
Under Section 828 of Republic Act (R.A.) No. 1125, the CTA is categorically described as a court of
record.29 As such, it shall have the power to promulgate rules and regulations for the conduct of its
business, and as may be needed, for the uniformity of decisions within its jurisdiction.30 Moreover, as
cases filed before it are litigated de novo, party-litigants shall prove every minute aspect of their
cases.31 Thus, no evidentiary value can be given the pieces of evidence submitted by the BIR, as the
rules on documentary evidence require that these documents must be formally offered before the
CTA.32 Pertinent is Section 34, Rule 132 of the Revised Rules on Evidence which reads:
SEC. 34. Offer of evidence. – The court shall consider no evidence which has not been formally
offered. The purpose for which the evidence is offered must be specified.
Although in a long line of cases, we have relaxed the foregoing rule and allowed evidence not
formally offered to be admitted and considered by the trial court, we exercised extreme caution in
applying the exceptions to the rule, as pronounced in Vda. de Oñate v. Court of Appeals,33 thus:
From the foregoing provision, it is clear that for evidence to be considered, the same must be
formally offered. Corollarily, the mere fact that a particular document is identified and marked as an
exhibit does not mean that it has already been offered as part of the evidence of a party. In
Interpacific Transit, Inc. v. Aviles[186 SCRA 385, 388-389 (1990)], we had the occasion to make a
distinction between identification of documentary evidence and its formal offer as an exhibit. We said
that the first is done in the course of the trial and is accompanied by the marking of the evidence as
an exhibit while the second is done only when the party rests its case and not before. A party,
therefore, may opt to formally offer his evidence if he believes that it will advance his cause or not to
do so at all. In the event he chooses to do the latter, the trial court is not authorized by the Rules to
consider the same.
However, in People v. Napat-a[179 SCRA 403 (1989)] citing People v. Mate[103 SCRA 484 (1980)],
we relaxed the foregoing rule and allowed evidence not formally offered to be admitted and
considered by the trial court provided the following requirements are present, viz.: first, the same
must have been duly identified by testimony duly recorded and, second, the same must have been
incorporated in the records of the case.34
The evidence may, therefore, be admitted provided the following requirements are present: (1) the
same must have been duly identified by testimony duly recorded; and (2) the same must have been
incorporated in the records of the case. Being an exception, the same may only be applied when
there is strict compliance with the requisites mentioned above; otherwise, the general rule in Section
34 of Rule 132 of the Rules of Court should prevail.35
In the case at bar, petitioner categorically admitted that it failed to formally offer the PANs as
evidence. Worse, it advanced no justifiable reason for such fatal omission. Instead, it merely alleged
that the existence and due execution of the PANs were duly tackled by petitioner’s witnesses. We
hold that such is not sufficient to seek exception from the general rule requiring a formal offer of
evidence, since no evidence of positive identification of such PANs by petitioner’s witnesses was
presented. Hence, we agree with the CTA En Banc’s observation that the 1994 and 1998 PANs for
EWT deficiencies were not duly identified by testimony and were not incorporated in the records of
the case, as required by jurisprudence.
While we concur with petitioner that the CTA is not governed strictly by technical rules of evidence,
as rules of procedure are not ends in themselves but are primarily intended as tools in the
administration of justice,36 the presentation of PANs as evidence of the taxpayer’s liability is not mere
procedural technicality. It is a means by which a taxpayer is informed of his liability for deficiency
taxes. It serves as basis for the taxpayer to answer the notices, present his case and adduce
supporting evidence.37 More so, the same is the only means by which the CTA may ascertain and
verify the truth of respondent's claims. We are, therefore, constrained to apply our ruling in Heirs of
Pedro Pasag v. Spouses Parocha,38 viz.:
x x x. A formal offer is necessary because judges are mandated to rest their findings of facts and
their judgment only and strictly upon the evidence offered by the parties at the trial. Its function is to
enable the trial judge to know the purpose or purposes for which the proponent is presenting the
evidence. On the other hand, this allows opposing parties to examine the evidence and object to its
admissibility. Moreover, it facilitates review as the appellate court will not be required to review
documents not previously scrutinized by the trial court.
Strict adherence to the said rule is not a trivial matter. The Court in Constantino v. Court of Appeals
ruled that the formal offer of one's evidence is deemed waived after failing to submit it within a
considerable period of time. It explained that the court cannot admit an offer of evidence made after
a lapse of three (3) months because to do so would "condone an inexcusable laxity if not non-
compliance with a court order which, in effect, would encourage needless delays and derail the
speedy administration of justice."
Applying the aforementioned principle in this case, we find that the trial court had reasonable ground
to consider that petitioners had waived their right to make a formal offer of documentary or object
evidence. Despite several extensions of time to make their formal offer, petitioners failed to comply
with their commitment and allowed almost five months to lapse before finally submitting it.
Petitioners' failure to comply with the rule on admissibility of evidence is anathema to the efficient,
effective, and expeditious dispensation of justice. x x x.39
Anent the second issue, petitioner claims that the EWT assessment issued for taxable year 1994
has factual and legal basis because at the time the PAN and FAN were issued by petitioner to
respondent on January 19, 1998, the provisions of Revenue Regulation No. 12-9940 which governs
the issuance of assessments was not yet operative. Hence, its compliance with Revenue Regulation
No. 12-8541 was sufficient. In any case, petitioner argues that a scrutiny of the BIR records of
respondent for taxable year 1994 would show that the details of the factual finding of EWT were
itemized from the PAN issued by petitioner.42
In order to determine whether the requirement for a valid assessment is duly complied with, it is
important to ascertain the governing law, rules and regulations and jurisprudence at the time the
assessment was issued. In the instant case, the PANs and FANs pertaining to the deficiency EWT
for taxable years 1994 and 1998, respectively, were issued on January 19, 1998, when the Tax
Code was already in effect, as correctly found by the CTA En Banc:
The date of issuance of the notice of assessment determines which law applies- the 1997 NIRC or
the old Tax Code. The case of Commissioner of Internal Revenue v. Bank of Philippine Islands is
instructive:
In merely notifying BPI of his findings, the CIR relied on the provisions of the former Section 270
prior to its amendment by RA 8424 (also known as the Tax Reform Act of 1997). In CIR v. Reyes,
we held that:
In the present case, Reyes was not informed in writing of the law and the facts on which the
assessment of estate taxes had been made. She was merely notified of the findings by the CIR, who
had simply relied upon the provisions of former Section 229 prior to its amendment by [RA] 8424,
otherwise known as the Tax Reform Act of 1997.
First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The
old requirement of merely notifying the taxpayer of the CIR's findings was changed in 1998to
informing the taxpayer of not only the law, but also of the facts on which an assessment would be
made; otherwise, the assessment itself would be invalid.
It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On
April 22, 1998, the final estate tax assessment notice, as well as demand letter, was also issued.
During those dates, RA 8424 was already in effect. The notice required under the old law was no
longer sufficient under the new law.(Emphasis ours.)
In the instant case, the 1997 NIRC covers the 1994 and 1998 EWT FANs because there were
issued on January 19, 1998 and September 21, 2001, respectively, at the time of the effectivity of
the 1997 NIRC. Clearly, the assessments are governed by the law.43
Indeed, Section 228 of the Tax Code provides that the taxpayer shall be informed in writing of the
law and the facts on which the assessment is made. Otherwise, the assessment is void. To
implement the aforesaid provision, Revenue Regulation No. 12-99was enacted by the BIR, of which
Section 3.1.4 thereof reads:
3.1.4. Formal Letter of Demand and Assessment Notice. –The formal letter of demand and
assessment notice shall be issued by the Commissioner or his duly authorized representative. The
letter of demand calling for payment of the taxpayer’s deficiency tax or taxes shall state the facts, the
law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the formal
letter of demand and assessment notice shall be void. The same shall be sent to the taxpayer only
by registered mail or by personal delivery. x x x44
It is clear from the foregoing that a taxpayer must be informed in writing of the legal and factual
bases of the tax assessment made against him. The use of the word "shall" in these legal provisions
indicates the mandatory nature of the requirements laid down therein.
In the present case, a mere perusal of the FAN for the deficiency EWT for taxable year 1994will
show that other than a tabulation of the alleged deficiency taxes due, no further detail regarding the
assessment was provided by petitioner. Only the resulting interest, surcharge and penalty were
anchored with legal basis.45 Petitioner should have at least attached a detailed notice of discrepancy
or stated an explanation why the amount of ₱48,461.76 is collectible against respondent46 and how
the same was arrived at. Any short-cuts to the prescribed content of the assessment or the process
thereof should not be countenanced, in consonance with the ruling in Commissioner of Internal
Revenue v. Enron Subic Power Corporation47 to wit:
The CIR insists that an examination of the facts shows that Enron was properly apprised of its tax
deficiency. During the pre-assessment stage, the CIR advised Enron’s representative of the tax
deficiency, informed it of the proposed tax deficiency assessment through a preliminary five-day
letter and furnished Enron a copy of the audit working paper allegedly showing in detail the legal and
factual bases of the assessment. The CIR argues that these steps sufficed to inform Enron of the
laws and facts on which the deficiency tax assessment was based.
We disagree. The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the
preliminary five-day letter, were not valid substitutes for the mandatory notice in writing of the legal
and factual bases of the assessment. These steps were mere perfunctory discharges of the CIR’s
duties incorrectly assessing a taxpayer. The requirement for issuing a preliminary or final notice, as
the case may be, informing a taxpayer of the existence of a deficiency tax assessment is markedly
different from the requirement of what such notice must contain. Just because the CIR issued an
advice, a preliminary letter during the pre-assessment stage and a final notice, in the order required
by law, does not necessarily mean that Enron was informed of the law and facts on which the
deficiency tax assessment was made.
The law requires that the legal and factual bases of the assessment be stated in the formal letter of
demand and assessment notice. Thus, such cannot be presumed. Otherwise, the express provisions
of Article 228 of the NIRC and RR No. 12-99 would be rendered nugatory. The alleged "factual
bases" in the advice, preliminary letter and "audit working papers" did not suffice. There was no
going around the mandate of the law that the legal and factual bases of the assessment be stated in
writing in the formal letter of demand accompanying the assessment notice.
We note that the old law merely required that the taxpayer be notified of the assessment made by
the CIR. This was changed in 1998 and the taxpayer must now be informed not only of the law but
also of the facts on which the assessment is made. Such amendment is in keeping with the
constitutional principle that no person shall be deprived of property without due process. In view of
the absence of a fair opportunity for Enron to be informed of the legal and factual bases of the
assessment against it, the assessment in question was void. x x x.48
In the same vein, we have held in Commissioner of Internal Revenue v. Reyes,49 that:
Even a cursory review of the preliminary assessment notice, as well as the demand letter sent,
reveals the lack of basis for -- not to mention the insufficiency of -- the gross figures and details of
the itemized deductions indicated in the notice and the letter. This Court cannot countenance an
assessment based on estimates that appear to have been arbitrarily or capriciously arrived at.
Although taxes are the lifeblood of the government, their assessment and collection "should be
made in accordance with law as any arbitrariness will negate the very reason for government itself."50
Applying the aforequoted rulings to the case at bar, it is clear that the assailed deficiency tax
assessment for the EWT in 1994disregarded the provisions of Section 228 of the Tax Code, as
amended, as well as Section 3.1.4 of Revenue Regulations No. 12-99 by not providing the legal and
factual bases of the assessment. Hence, the formal letter of demand and the notice of assessment
issued relative thereto are void.
In any case, we find no basis in petitioner’s claim that Revenue Regulation No. 12-99 is not
applicable at the time the PAN and FAN for the deficiency EWT for taxable year 1994 were issued.
Considering that such regulation merely implements the law, and does not create or take away
vested rights, the same may be applied retroactively, as held in Reyes:
x x x x.
Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment,
considering that it merely implements the law.
A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax
Code. While it is desirable for the government authority or administrative agency to have one
immediately issued after a law is passed, the absence of the regulation does not automatically mean
that the law itself would become inoperative.
At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that the
taxpayer must be informed of both the law and facts on which the assessment was based. Thus, the
CIR should have required the assessment officers of the Bureau of Internal Revenue (BIR) to follow
the clear mandate of the new law. The old regulation governing the issuance of estate tax
assessment notices ran afoul of the rule that tax regulations-- old as they were -- should be in
harmony with, and not supplant or modify, the law.
It may be argued that the Tax Code provisions are not self- executory. It would be too wide a stretch
of the imagination, though, to still issue a regulation that would simply require tax officials to inform
the taxpayer, in any manner, of the law and the facts on which an assessment was based. That
requirement is neither difficult to make nor its desired results hard to achieve. Moreover, an
administrative rule interpretive of a statute, and not declarative of certain rights and corresponding
obligations, is given retroactive effect as of the date of the effectivity of the statute. RR 12-99 is one
such rule. Being interpretive of the provisions of the Tax Code, even if it was issued only on
September 6, 1999, this regulation was to retroact to January 1, 1998 -- a date prior to the issuance
of the preliminary assessment notice and demand letter.51
Indubitably, the disputed assessments for taxable year 1994 should have already complied with the
requirements laid down under Revenue Regulation No. 12-99. Having failed so, the same produces
no legal effect.
Notwithstanding the foregoing findings, we sustain the CTA En Banc’s findings on the deficiency
EWT for taxable year 1998 considering that it complies with Section 228 of the Tax Code as well as
Revenue Regulation No. 12-99, thus:
On the other hand, the 1998 EWT FAN reflected the following: a detailed factual account why the
basic EWT is ₱14,496.79 and the legal basis, Section 57 B of the 1997 NIRC supporting findings of
EWT liability of ₱22,437.01. Thus, the EWT FAN for 1998 is duly issued in accordance with the law.52
As to the last issue, petitioner avers that its right to collect the EWT for taxable year 1992 has not yet
prescribed. It argues that while the final assessment notice and demand letter on EWT for taxable
year 1992 were all issued on January 9, 1996, the five (5)-year prescriptive period to collect was
interrupted when respondent filed its request for reinvestigation on March 14, 1997 which was
granted by petitioner on January 22, 2001 through the issuance of Tax Verification Notice No.
00165498 on even date.53 Thus, the period for tax collection should have begun to run from the date
of the reconsidered or modified assessment.54
This argument fails to persuade us.
The statute of limitations on assessment and collection of national internal revenue taxes was
shortened from five (5) years to three (3) years by virtue of Batas Pambansa Blg. 700.55 Thus,
petitioner has three (3) years from the date of actual filing of the tax return to assess a national
internal revenue tax or to commence court proceedings for the collection thereof without an
assessment.56 However, when it validly issues an assessment within the three (3)-year period, it has
another three (3) years within which to collect the tax due by distraint, levy, or court proceeding.57The
assessment of the tax is deemed made and the three (3)-year period for collection of the assessed
tax begins to run on the date the assessment notice had been released, mailed or sent to the
taxpayer.58
On this matter, we note the findings of the CTA-Special First Division that no evidence was formally
offered to prove when respondent filed its returns and paid the corresponding EWT and WTC for
taxable year 1992.59
Nevertheless, as correctly held by the CTA En Banc, the Preliminary Collection Letter for deficiency
taxes for taxable year 1992 was only issued on February 21, 2002, despite the fact that the FANs for
the deficiency EWT and WTC for taxable year 1992 was issued as early as January 9, 1996. Clearly,
five (5) long years had already lapsed, beyond the three (3)-year prescriptive period, before
collection was pursued by petitioner.
Further, while the request for reinvestigation was made on March 14, 1997, the same was only acted
upon by petitioner on January22, 2001, also beyond the three (3) year statute of limitations reckoned
from January 9, 1996, notwithstanding the lack of impediment to rule upon such issue. We cannot
countenance such inaction by petitioner to the prejudice of respondent pursuant to our ruling in
Commissioner of Internal Revenue v. Philippine Global Communication, Inc.,60 to wit:
The assessment, in this case, was presumably issued on 14 April 1994 since the respondent did not
dispute the CIR’s claim. Therefore, the BIR had until 13 April 1997. However, as there was no
Warrant of Distraint and/or Levy served on the respondents nor any judicial proceedings initiated by
the BIR, the earliest attempt of the BIR to collect the tax due based on this assessment was when it
filed its Answer in CTA Case No. 6568 on 9 January 2003, which was several years beyond the
three-year prescriptive period. Thus, the CIR is now prescribed from collecting the assessed tax.61
Here, petitioner had ample time to make a factually and legally well-founded assessment and
implement collection pursuant thereto. Whatever examination that petitioner may have conducted
1âwphi1
cannot possibly outlast the entire three (3)-year prescriptive period provided by law to collect the
assessed tax. Thus, there is no reason to suspend the running of the statute of limitations in this
case.
Moreover, in Bank of the Philippine Islands, citing earlier jurisprudence, we held that the request for
reinvestigation should be granted or at least acted upon in due course before the suspension of the
statute of limitations may set in, thus:
In BPI v. Commissioner of Internal Revenue, the Court emphasized the rule that the CIR must first
grant the request for reinvestigation as a requirement for the suspension of the statute of limitations.
The Court said:
In the case of Republic of the Philippines v. Gancayco, taxpayer Gancayco requested for a thorough
reinvestigation of the assessment against him and placed at the disposal of the Collector of Internal
Revenue all the evidences he had for such purpose; yet, the Collector ignored the request, and the
records and documents were not at all examined. Considering the given facts, this Court
pronounced that—
x x x The act of requesting a reinvestigation alone does not suspend the period. The request should
first be granted, in order to effect suspension. (Collector v. Suyoc Consolidated, supra; also Republic
v. Ablaza, supra). Moreover, the Collector gave appellee until April 1, 1949, within which to submit
his evidence, which the latter did one day before. There were no impediments on the part of the
Collector to file the collection case from April 1, 1949…
In Republic of the Philippines v. Acebedo, this Court similarly found that –
x x x T]he defendant, after receiving the assessment notice of September 24, 1949, asked for a
reinvestigation thereof on October 11, 1949 (Exh. "A"). There is no evidence that this request was
considered or acted upon. In fact, on October 23, 1950 the then Collector of Internal Revenue issued
a warrant of distraint and levy for the full amount of the assessment (Exh. "D"), but there was follow-
up of this warrant. Consequently, the request for reinvestigation did not suspend the running of the
period for filing an action for collection.[Emphasis in the original]62With respect to petitioner’s
argument that respondent’s act of elevating its protest to the CTA has fortified the continuing
interruption of petitioner’s prescriptive period to collect under Section 223 of the Tax Code,63 the
same is flawed at best because respondent was merely exercising its right to resort to the proper
Court, and does not in any way deter petitioner’s right to collect taxes from respondent under
existing laws.
On the strength of the foregoing observations, we ought to reiterate our earlier teachings that "in
balancing the scales between the power of the State to tax and its inherent right to prosecute
perceived transgressors of the law on one side, and the constitutional rights of a citizen to due
process of law and the equal protection of the laws on the other, the scales must tilt in favor of the
individual, for a citizen’s right is amply protected by the Bill of Rights under the Constitution."64 Thus,
while "taxes are the lifeblood of the government," the power to tax has its limits, in spite of all its
plenitude.65 Even as we concede the inevitability and indispensability of taxation, it is a requirement
in all democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure.66
After all, the statute of limitations on the collection of taxes was also enacted to benefit and protect
the taxpayers, as elucidated in the case of Philippine Global Communication, Inc.,67 thus:
x x x The report submitted by the tax commission clearly states that these provisions on prescription
should be enacted to benefit and protect taxpayers:
Under the former law, the right of the Government to collect the tax does not prescribe. However, in
1âwphi1
fairness to the taxpayer, the Government should be estopped from collecting the tax where it failed
to make the necessary investigation and assessment within 5 years after the filing of the return and
where it failed to collect the tax within 5 years from the date of assessment thereof. Just as the
government is interested in the stability of its collections, so also are the taxpayers entitled to an
assurance that they will not be subjected to further investigation for tax purposes after the expiration
of a reasonable period of time. (Vol. II, Report of the Tax Commission of the Philippines, pp. 321-
322).68
WHEREFORE, the petition is DENIED. The June 27, 2011 Decision of the Court of Tax Appeals En
Banc in C.T.A. EB No. 662 is hereby AFFIRMED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson
MARTIN S. VILLARAMA, JR.* JOSE CATRAL MENDOZA

MARVIC MARIO VICTOR F. LEONEN

Associate Justice
ATTESTATION
was assigned to the writer of the opinion of the Court's Division.

Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
MARIA LOURDES P. A. SERENO

Chief Justice
SECOND DIVISION
G.R. No. 139736 October 17, 2005
BANK OF THE PHILIPPINE ISLANDS, Petitioner,

vs.
DECISION
CHICO-NAZARIO, J.:
This Petition for Review on Certiorari, under Rule 45 of the 1997 Rules of Civil Procedure, assails
the Decision of the Court of Appeals in CA-G.R. SP No. 51271, dated 11 August 1999,1 which
reversed and set aside the Decision of the Court of Tax Appeals (CTA), dated 02 February
1999,2 and which reinstated Assessment No. FAS-5-85-89-002054 requiring petitioner Bank of the
Philippine Islands (BPI) to pay the amount of ₱28,020.00 as deficiency documentary stamp tax
(DST) for the taxable year 1985, inclusive of the compromise penalty.
There is hardly any controversy as to the factual antecedents of this Petition.
Petitioner BPI is a commercial banking corporation organized and existing under the laws of the
Philippines. On two separate occasions, particularly on 06 June 1985 and 14 June 1985, it sold
United States (US) $500,000.00 to the Central Bank of the Philippines (Central Bank), for the total
sales amount of US$1,000,000.00.
On 10 October 1989, the Bureau of Internal Revenue (BIR) issued Assessment No. FAS-5-85-89-
002054,3 finding petitioner BPI liable for deficiency DST on its afore-mentioned sales of foreign bills
of exchange to the Central Bank, computed as follows –
1985 Deficiency Documentary Stamp Tax

Foreign Bills of Exchange………………………….. P 18,480,000.00
Tax Due Thereon: 27,720.00
₱18,480,000.00 x ₱0.30 (Sec. 182 NIRC).
₱200.00
Add: Suggested compromise penalty………….…… 300.00
TOTAL AMOUNT DUE AND COLLECTIBLE…. P 28,020.00
Petitioner BPI received the Assessment, together with the attached Assessment Notice,4 on 20
October 1989.
Petitioner BPI, through its counsel, protested the Assessment in a letter dated 16 November 1989,
and filed with the BIR on 17 November 1989. The said protest letter is reproduced in full below –
November 16, 1989
The Commissioner of Internal Revenue

Quezon City
Attention of: Mr. Pedro C. Aguillon
Asst. Commissioner for Collection
Sir:
On behalf of our client, Bank of the Philippine Islands (BPI), we have the honor to protest your
assessment against it for deficiency documentary stamp tax for the year 1985 in the amount of
₱28,020.00, arising from its sale to the Central Bank of U.S. $500,000.00 on June 6, 1985 and
another U.S. $500,000.00 on June 14, 1985.
1. Under established market practice, the documentary stamp tax on telegraphic transfers or sales of
foreign exchange is paid by the buyer. Thus, when BPI sells to any party, the cost of documentary
stamp tax is added to the total price or charge to the buyer and the seller affixes the corresponding
documentary stamp on the document. Similarly, when the Central Bank sells foreign exchange to
BPI, it charges BPI for the cost of the documentary stamp on the transaction.
2. In the two transactions subject of your assessment, no documentary stamps were affixed because
the buyer,
Central Bank of the Philippines, was exempt from such tax. And while it is true that under P.D. 1994,
a proviso was added to sec. 222 (now sec. 186) of the Tax Code "that whenever one party to a
taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not
exempt shall be the one directly liable for the tax," this proviso (and the other amendments of P.D.
1994) took effect only on January 1, 1986, according to sec. 49 of P.D. 1994. Hence, the liability for
the documentary stamp tax could not be shifted to the seller.
In view of the foregoing, we request that the assessment be revoked and cancelled.
Very truly yours,
PADILLA LAW OFFICE
By:
(signed)
SABINO PADILLA, JR.5
Petitioner BPI did not receive any immediate reply to its protest letter. However, on 15 October 1992,
the BIR issued a Warrant of Distraint and/or Levy6 against petitioner BPI for the assessed deficiency
DST for taxable year 1985, in the amount of ₱27,720.00 (excluding the compromise penalty of
₱300.00). It served the Warrant on petitioner BPI only on 23 October 1992.7
Then again, petitioner BPI did not hear from the BIR until 11 September 1997, when its counsel
received a letter, dated 13 August 1997, signed by then BIR Commissioner Liwayway Vinzons-
Chato, denying its "request for reconsideration," and addressing the points raised by petitioner BPI in
its protest letter, dated 16 November 1989, thus –
In reply, please be informed that after a thorough and careful study of the facts of the case as well as
the law and jurisprudence pertinent thereto, this Office finds the above argument to be legally
untenable. It is admitted that while industry practice or market convention has the force of law
between the members of a particular industry, it is not binding with the BIR since it is not a party
thereto. The same should, therefore, not be allowed to prejudice the Bureau of its lawful task of
collecting revenues necessary to defray the expenses of the government. (Art. 11 in relation to Art.
1306 of the New Civil Code.)
Moreover, let it be stated that even before the amendment of Sec. 222 (now Sec. 173) of the Tax
Code, as amended, the same was already interpreted to hold that the other party who is not exempt
from the payment of documentary stamp tax liable from the tax. This interpretation was further
strengthened by the following BIR Rulings which in substance state:
1. BIR Unnumbered Ruling dated May 30, 1977 –
"x x x Documentary stamp taxes are payable by either person, signing, issuing, accepting, or
transferring the instrument, document or paper. It is now settled that where one party to the
instrument is exempt from said taxes, the other party who is not exempt should be liable."
2. BIR Ruling No. 144-84 dated September 3, 1984 –
"x x x Thus, where one party to the contract is exempt from said tax, the other party, who is not
exempt, shall be liable therefore. Accordingly, since A.J.L. Construction Corporation, the other party
to the contract and the one assuming the payment of the expenses incidental to the registration in
the vendee’s name of the property sold, is not exempt from said tax, then it is the one liable
therefore, pursuant to Sec. 245 (now Sec. 196), in relation to Sec. 222 (now Sec. 173), both of the
Tax Code of 1977, as amended."
Premised on all the foregoing considerations, your request for reconsideration is hereby DENIED.8
Upon receipt of the above-cited letter from the BIR, petitioner BPI proceeded to file a Petition for
Review with the CTA on 10 October 1997;9 to which respondent BIR Commissioner, represented by
the Office of the Solicitor General, filed an Answer on 08 December 1997.10
Petitioner BPI raised in its Petition for Review before the CTA, in addition to the arguments
presented in its protest letter, dated 16 November 1989, the defense of prescription of the right of
respondent BIR Commissioner to enforce collection of the assessed amount. It alleged that
respondent BIR Commissioner only had three years to collect on Assessment No. FAS-5-85-89-
002054, but she waited for seven years and nine months to deny the protest. In her Answer and
subsequent Memorandum, respondent BIR Commissioner merely reiterated her position, as stated
in her letter to petitioner BPI, dated 13 August 1997, which denied the latter’s protest; and remained
silent as to the expiration of the prescriptive period for collection of the assessed deficiency DST.
After due trial, the CTA rendered a Decision on 02 February 1999, in which it identified two primary
issues in the controversy between petitioner BPI and respondent BIR Commissioner: (1) whether or
not the right of respondent BIR Commissioner to collect from petitioner BPI the alleged deficiency
DST for taxable year 1985 had prescribed; and (2) whether or not the sales of US$1,000,000.00 on
06 June 1985 and 14 June 1985 by petitioner BPI to the Central Bank were subject to DST.
The CTA answered the first issue in the negative and held that the statute of limitations for
respondent BIR Commissioner to collect on the Assessment had not yet prescribed. In resolving the
issue of prescription, the CTA reasoned that –
In the case of Commissioner of Internal Revenue vs. Wyeth Suaco Laboratories, Inc., G.R. No.
76281, September 30, 1991, 202 SCRA 125, the Supreme Court laid to rest the first issue. It
categorically ruled that a "protest" is to be treated as request for reinvestigation or reconsideration
and a mere request for reexamination or reinvestigation tolls the prescriptive period of the
Commissioner to collect on an assessment. . .
...
In the case at bar, there being no dispute that petitioner filed its protest on the subject assessment
on November 17, 1989, there can be no conclusion other than that said protest stopped the running
of the prescriptive period of the Commissioner to collect.
Section 320 (now 223) of the Tax Code, clearly states that a request for reinvestigation which is
granted by the Commissioner, shall suspend the prescriptive period to collect. The underscored
portion above does not mean that the Commissioner will cancel the subject assessment but should
be construed as when the same was entertainedby the Commissioner by not issuing any warrant of
distraint or levy on the properties of the taxpayer or any action prejudicial to the latter unless and
until the request for reinvestigation is finally given due course. Taking into consideration this
provision of law and the aforementioned ruling of the Supreme Court in Wyeth Suaco which
specifically and categorically states that a protest could be considered as a request for
reinvestigation, We rule that prescription has not set in against the government.11
The CTA had likewise resolved the second issue in the negative. Referring to its own decision in an
earlier case, Consolidated Bank & Trust Co. v. The Commissioner of Internal Revenue,12 the CTA
reached the conclusion that the sales of foreign currency by petitioner BPI to the Central Bank in
taxable year 1985 were not subject to DST –
From the abovementioned decision of this Court, it can be gleaned that the Central Bank, during the
period June 11, 1984 to March 9, 1987 enjoyed tax exemption privilege, including the payment of
documentary stamp tax (DST) pursuant to Resolution No. 35-85 dated May 3, 1985 of the Fiscal
Incentive Review Board. As such, the Central Bank, as buyer of the foreign currency, is exempt from
paying the documentary stamp tax for the period above-mentioned. This Court further expounded
that said tax exemption of the Central Bank was modified beginning January 1, 1986 when
Presidential Decree (P.D.) 1994 took effect. Under this decree, the liability for DST on sales of
foreign currency to the Central Bank is shifted to the seller.
Applying the above decision to the case at bar, petitioner cannot be held liable for DST on its 1985
sales of foreign currencies to the Central Bank, as the latter who is the purchaser of the subject
currencies is the one liable thereof. However, since the Central Bank is exempt from all taxes during
1985 by virtue of Resolution No. 35-85 of the Fiscal Incentive Review Board dated March 3, 1985,
neither the petitioner nor the Central Bank is liable for the payment of the documentary stamp tax for
the former’s 1985 sales of foreign currencies to the latter. This aforecited case of Consolidated Bank
vs. Commissioner of Internal Revenue was affirmed by the Court of Appeals in its decision dated
March 31, 1995, CA-GR Sp. No. 35930. Said decision was in turn affirmed by the Supreme Court in
its resolution denying the petition filed by Consolidated Bank dated November 20, 1995 with the
Supreme Court under Entry of Judgment dated March 1, 1996.13
In sum, the CTA decided that the statute of limitations for respondent BIR Commissioner to collect
on Assessment No. FAS-5-85-89-002054 had not yet prescribed; nonetheless, it still ordered the
cancellation of the said Assessment because the sales of foreign currency by petitioner BPI to the
Central Bank in taxable year 1985 were tax-exempt.
Herein respondent BIR Commissioner appealed the Decision of the CTA to the Court of Appeals. In
its Decision dated 11 August 1999,14 the Court of Appeals sustained the finding of the CTA on the
first issue, that the running of the prescriptive period for collection on Assessment No. FAS-5-85-89-
002054 was suspended when herein petitioner BPI filed a protest on 17 November 1989 and,
therefore, the prescriptive period for collection on the Assessment had not yet lapsed. In the same
Decision, however, the Court of Appeals reversed the CTA on the second issue and basically
adopted the position of the respondent BIR Commissioner that the sales of foreign currency by
petitioner BPI to the Central Bank in taxable year 1985 were subject to DST. The Court of Appeals,
thus, ordered the reinstatement of Assessment No. FAS-5-85-89-002054 which required petitioner
BPI to pay the amount of ₱28,020.00 as deficiency DST for taxable year 1985, inclusive of the
compromise penalty.
Comes now petitioner BPI before this Court in this Petition for Review on Certiorari, seeking
resolution of the same two legal issues raised and discussed in the courts below, to reiterate: (1)
whether or not the right of respondent BIR Commissioner to collect from petitioner BPI the alleged
deficiency DST for taxable year 1985 had prescribed; and (2) whether or not the sales of
US$1,000,000.00 on 06 June 1985 and 14 June 1985 by petitioner BPI to the Central Bank were
subject to DST.
The efforts of respondent Commissioner to collect on Assessment No. FAS-5-85-89-002054 were

already barred by prescription.
Anent the question of prescription, this Court disagrees in the Decisions of the CTA and the Court of
Appeals, and herein determines the statute of limitations on collection of the deficiency DST in
Assessment No. FAS-5-85-89-002054 had already prescribed.
The period for the BIR to assess and collect an internal revenue tax is limited to three years by
Section 203 of the Tax Code of 1977, as amended,15 which provides that –
SEC. 203. Period of limitation upon assessment and collection. – Except as provided in the
succeeding section, internal revenue taxes shall be assessed within three 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-year period shall be counted
from the day the return was filed. For the 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.16
The three-year period of limitations on the assessment and collection of national internal revenue
taxes set by Section 203 of the Tax Code of 1977, as amended, can be affected, adjusted, or
suspended, in accordance with the following provisions of the same Code –
SEC. 223. – 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 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 begun without assessment,
at any time within ten 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) If before the expiration of the time prescribed in the preceding section for the assessment of the
tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such
time the tax may be assessed within the period agreed upon. The period so agreed upon may be
extended by subsequent written agreement made before the expiration of the period previously
agreed upon.
(c) Any internal revenue tax which has been assessed within the period of limitation above-
prescribed may be collected by distraint or levy or by a proceeding in court within three years
following the assessment of the tax.
(d) Any internal revenue tax which has been assessed within the period agreed upon as provided in
paragraph (b) hereinabove may be collected by distraint or levy or by a proceeding in court within
the period agreed upon in writing before the expiration of the three-year period. The period so
agreed upon may be extended by subsequent written agreements made before the expiration of the
period previously agreed upon.
(e) Provided, however, That nothing in the immediately preceding section and paragraph (a) hereof
shall be construed to authorize the examination and investigation or inquiry into any tax returns filed
in accordance with the provisions of any tax amnesty law or decree.17
SEC. 224. Suspension of running of statute. – The running of the statute of limitation provided in
Section[s] 203 and 223 on the making of assessment and the beginning of distraint or levy or a
proceeding in court for collection, in respect of any deficiency, shall be suspended for the period
during which the Commissioner is prohibited from making the assessment or beginning distraint or
levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a
reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the
address given by him in the return filed upon which a tax is being assessed or
collected: Provided, That, if the taxpayer informs the Commissioner of any change in address, the
running of the statute of limitations will not be suspended; when the warrant of distraint and levy is
duly served upon the taxpayer, his authorized representative, or a member of his household with
sufficient discretion, and no property could be located; and when the taxpayer is out of the
Philippines.18
As enunciated in these statutory provisions, the BIR has three years, counted from the date of actual
filing of the return or from the last date prescribed by law for the filing of such return, whichever
comes later, to assess a national internal revenue tax or to begin a court proceeding for the
collection thereof without an assessment. In case of a false or fraudulent return with intent to evade
tax or the failure to file any return at all, the prescriptive period for assessment of the tax due shall be
10 years from discovery by the BIR of the falsity, fraud, or omission. When the BIR validly issues an
assessment, within either the three-year or ten-year period, whichever is appropriate, then the BIR
has another three years19 after the assessment within which to collect the national internal revenue
tax due thereon by distraint, levy, and/or court proceeding. The assessment of the tax is deemed
made and the three-year period for collection of the assessed tax begins to run on the date the
assessment notice had been released, mailed or sent by the BIR to the taxpayer.20
In the present Petition, there is no controversy on the timeliness of the issuance of the Assessment,
only on the prescription of the period to collect the deficiency DST following its Assessment. While
Assessment No. FAS-5-85-89-002054 and its corresponding Assessment Notice were both dated 10
October 1989 and were received by petitioner BPI on 20 October 1989, there was no showing as to
when the said Assessment and Assessment Notice were released, mailed or sent by the BIR. Still, it
can be granted that the latest date the BIR could have released, mailed or sent the Assessment and
Assessment Notice to petitioner BPI was on the same date they were received by the latter, on 20
October 1989. Counting the three-year prescriptive period, for a total of 1,095 days,21 from 20
October 1989, then the BIR only had until 19 October 1992 within which to collect the assessed
deficiency DST.
The earliest attempt of the BIR to collect on Assessment No. FAS-5-85-89-002054 was its issuance
and service of a Warrant of Distraint and/or Levy on petitioner BPI. Although the Warrant was issued
on 15 October 1992, previous to the expiration of the period for collection on 19 October 1992, the
same was served on petitioner BPI only on 23 October 1992.
Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the Warrant of
Distraint and/or Levy be fully executed so that it can suspend the running of the statute of limitations
on the collection of the tax. It is enough that the proceedings have validly began or commenced and
that their execution has not been suspended by reason of the voluntary desistance of the
respondent BIR Commissioner. Existing jurisprudence establishes that distraint and levy
proceedings are validly begun or commenced by the issuance of the Warrant and service thereof on
the taxpayer.22 It is only logical to require that the Warrant of Distraint and/or Levy be, at the very
least, served upon the taxpayer in order to suspend the running of the prescriptive period for
collection of an assessed tax, because it may only be upon the service of the Warrant that the
taxpayer is informed of the denial by the BIR of any pending protest of the said taxpayer, and the
resolute intention of the BIR to collect the tax assessed.
If the service of the Warrant of Distraint and/or Levy on petitioner BPI on 23 October 1992 was
already beyond the prescriptive period for collection of the deficiency DST, which had expired on 19
October 1992, then what more the letter of respondent BIR Commissioner, dated 13 August 1997
and received by the counsel of the petitioner BPI only on 11 September 1997, denying the protest of
petitioner BPI and requesting payment of the deficiency DST? Even later and more unequivocally
barred by prescription on collection was the demand made by respondent BIR Commissioner for
payment of the deficiency DST in her Answer to the Petition for Review of petitioner BPI before the
CTA, filed on 08 December 1997.23
II
There is no valid ground for the suspension of the running of the prescriptive period for collection of
the assessed DST under the Tax Code of 1977, as amended.
In their Decisions, both the CTA and the Court of Appeals found that the filing by petitioner BPI of a
protest letter suspended the running of the prescriptive period for collecting the assessed DST. This
Court, however, takes the opposing view, and, based on the succeeding discussion, concludes that
there is no valid ground for suspending the running of the prescriptive period for collection of the
deficiency DST assessed against petitioner BPI.
A. The statute of limitations on assessment and collection of taxes is for the protection of the
taxpayer and, thus, shall be construed liberally in his favor.
Though the statute of limitations on assessment and collection of national internal revenue taxes
benefits both the Government and the taxpayer, it principally intends to afford protection to the
taxpayer against unreasonable investigation. The indefinite extension of the period for assessment is
unreasonable because it deprives the said taxpayer of the assurance that he will no longer be
subjected to further investigation for taxes after the expiration of a reasonable period of time.24 As
aptly explained in Republic of the Philippines v. Ablaza25 –
The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the
Government and to its citizens; to the Government because tax officers would be obliged to act
promptly in the making of assessment, and to citizens because after the lapse of the period of
prescription citizens would have a feeling of security against unscrupulous tax agents who will
always find an excuse to inspect the books of taxpayers, not to determine the latter’s real liability, but
to take advantage of every opportunity to molest peaceful, law-abiding citizens. Without such a legal
defense taxpayers would furthermore be under obligation to always keep their books and keep them
open for inspection subject to harassment by unscrupulous tax agents. The law on prescription
being a remedial measure should be interpreted in a way conducive to bringing about the beneficent
purpose of affording protection to the taxpayer within the contemplation of the Commission which
recommend the approval of the law.
In order to provide even better protection to the taxpayer against unreasonable investigation, the Tax
Code of 1977, as amended, identifies specifically in Sections 223 and 22426 thereof the
circumstances when the prescriptive periods for assessing and collecting taxes could be suspended
or interrupted.
To give effect to the legislative intent, these provisions on the statute of limitations on assessment
and collection of taxes shall be construed and applied liberally in favor of the taxpayer and strictly
against the Government.
B. The statute of limitations on assessment and collection of national internal revenue taxes may be
waived, subject to certain conditions, under paragraphs (b) and (d) of Section 223 of the Tax Code
of 1977, as amended, respectively. Petitioner BPI, however, did not execute any such waiver in the
case at bar.
According to paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, the
prescriptive periods for assessment and collection of national internal revenue taxes, respectively,
could be waived by agreement, to wit –
SEC. 223. – Exceptions as to period of limitation of assessment and collection of taxes. –
...
agreed upon.
...
period previously agreed upon.27
The agreements so described in the afore-quoted provisions are often referred to as waivers of the
statute of limitations. The waiver of the statute of limitations, whether on assessment or collection,
should not be construed as a waiver of the right to invoke the defense of prescription but, rather, an
agreement between the taxpayer and the BIR to extend the period to a date certain, within which the
latter could still assess or collect taxes due. The waiver does not mean that the taxpayer
relinquishes the right to invoke prescription unequivocally.28
A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of the Tax
Code of 1977, as amended, must be: (1) in writing; (2) agreed to by both the Commissioner and the
taxpayer; (3) before the expiration of the ordinary prescriptive periods for assessment and collection;
and (4) for a definite period beyond the ordinary prescriptive periods for assessment and collection.
The period agreed upon can still be extended by subsequent written agreement, provided that it is
executed prior to the expiration of the first period agreed upon. The BIR had issued Revenue
Memorandum Order (RMO) No. 20-90 on 04 April 1990 to lay down an even more detailed
procedure for the proper execution of such a waiver. RMO No. 20-90 mandates that the procedure
for execution of the waiver shall be strictly followed, and any revenue official who fails to comply
therewith resulting in the prescription of the right to assess and collect shall be administratively dealt
with.
This Court had consistently ruled in a number of cases that a request for reconsideration or
reinvestigation by the taxpayer, without a valid waiver of the prescriptive periods for the assessment
and collection of tax, as required by the Tax Code and implementing rules, will not suspend the
running thereof.29
In the Petition at bar, petitioner BPI executed no such waiver of the statute of limitations on the
collection of the deficiency DST per Assessment No. FAS-5-85-89-002054. In fact, an internal
memorandum of the Chief of the Legislative, Ruling & Research Division of the BIR to her
counterpart in the Collection Enforcement Division, dated 15 October 1992, expressly noted that,
"The taxpayer fails to execute a Waiver of the Statute of Limitations extending the period of
collection of the said tax up to December 31, 1993 pending reconsideration of its protest. .
."30 Without a valid waiver, the statute of limitations on collection by the BIR of the deficiency DST
could not have been suspended under paragraph (d) of Section 223 of the Tax Code of 1977, as
amended.
C. The protest filed by petitioner BPI did not constitute a request for reinvestigation, granted by the
respondent BIR Commissioner, which could have suspended the running of the statute of limitations
on collection of the assessed deficiency DST under Section 224 of the Tax Code of 1977, as
amended.
The Tax Code of 1977, as amended, also recognizes instances when the running of the statute of
limitations on the assessment and collection of national internal revenue taxes could be suspended,
even in the absence of a waiver, under Section 224 thereof, which reads –
Philippines.31
Of particular importance to the present case is one of the circumstances enumerated in Section 224
of the Tax Code of 1977, as amended, wherein the running of the statute of limitations on
assessment and collection of taxes is considered suspended "when the taxpayer requests for a
reinvestigation which is granted by the Commissioner."
This Court gives credence to the argument of petitioner BPI that there is a distinction between a
request for reconsideration and a request for reinvestigation. Revenue Regulations (RR) No. 12-85,
issued on 27 November 1985 by the Secretary of Finance, upon the recommendation of the BIR
Commissioner, governs the procedure for protesting an assessment and distinguishes between the
two types of protest, as follows –
PROTEST TO ASSESSMENT
SEC. 6. Protest. The taxpayer may protest administratively an assessment by filing a written request
for reconsideration or reinvestigation. . .
...
For the purpose of the protest herein –
(a) Request for reconsideration. – refers to a plea for a re-evaluation of an assessment on the basis
of existing records without need of additional evidence. It may involve both a question of fact or of
law or both.
(b) Request for reinvestigation. – refers to a plea for re-evaluation of an assessment on the basis of
newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation.
It may also involve a question of fact or law or both.
With the issuance of RR No. 12-85 on 27 November 1985 providing the above-quoted distinctions
between a request for reconsideration and a request for reinvestigation, the two types of protest can
no longer be used interchangeably and their differences so lightly brushed aside. It bears to
emphasize that under Section 224 of the Tax Code of 1977, as amended, the running of the
prescriptive period for collection of taxes can only be suspended by a request for reinvestigation,
not a request for reconsideration. Undoubtedly, a reinvestigation, which entails the reception and
evaluation of additional evidence, will take more time than a reconsideration of a tax assessment,
which will be limited to the evidence already at hand; this justifies why the former can suspend the
running of the statute of limitations on collection of the assessed tax, while the latter can not.
The protest letter of petitioner BPI, dated 16 November 1989 and filed with the BIR the next day, on
17 November 1989, did not specifically request for either a reconsideration or reinvestigation. A
close review of the contents thereof would reveal, however, that it protested Assessment No. FAS-5-
85-89-002054 based on a question of law, in particular, whether or not petitioner BPI was liable for
DST on its sales of foreign currency to the Central Bank in taxable year 1985. The same protest
letter did not raise any question of fact; neither did it offer to present any new evidence. In its own
letter to petitioner BPI, dated 10 September 1992, the BIR itself referred to the protest of petitioner
BPI as a request for reconsideration.32 These considerations would lead this Court to deduce that the
protest letter of petitioner BPI was in the nature of a request for reconsideration, rather than a
request for reinvestigation and, consequently, Section 224 of the Tax Code of 1977, as amended, on
the suspension of the running of the statute of limitations should not apply.
Even if, for the sake of argument, this Court glosses over the distinction between a request for
reconsideration and a request for reinvestigation, and considers the protest of petitioner BPI as a
request for reinvestigation, the filing thereof could not have suspended at once the running of the
statute of limitations. Article 224 of the Tax Code of 1977, as amended, very plainly requires that the
request for reinvestigation had been granted by the BIR Commissioner to suspend the running of
the prescriptive periods for assessment and collection.
That the BIR Commissioner must first grant the request for reinvestigation as a requirement for
suspension of the statute of limitations is even supported by existing jurisprudence.
In the case of Republic of the Philippines v. Gancayco,33 taxpayer Gancayco requested for a
thorough reinvestigation of the assessment against him and placed at the disposal of the Collector of
Internal Revenue all the evidences he had for such purpose; yet, the Collector ignored the request,
and the records and documents were not at all examined. Considering the given facts, this Court
pronounced that –
. . .The act of requesting a reinvestigation alone does not suspend the period. The request
should first be granted, in order to effect suspension. (Collector vs. Suyoc Consolidated, supra;
also Republic vs. Ablaza, supra). Moreover, the Collector gave appellee until April 1, 1949, within
which to submit his evidence, which the latter did one day before. There were no impediments on
the part of the Collector to file the collection case from April 1, 1949. . . .34
In Republic of the Philippines v. Acebedo,35 this Court similarly found that –
. . . [T]he defendant, after receiving the assessment notice of September 24, 1949, asked for a
reinvestigation thereof on October 11, 1949 (Exh. A). There is no evidence that this request was
considered or acted upon. In fact, on October 23, 1950 the then Collector of Internal Revenue
issued a warrant of distraint and levy for the full amount of the assessment (Exh. D), but there was
no follow-up of this warrant. Consequently, the request for reinvestigation did not suspend the
running of the period for filing an action for collection.
The burden of proof that the taxpayer’s request for reinvestigation had been actually granted shall be
on respondent BIR Commissioner. The grant may be expressed in communications with the
taxpayer or implied from the actions of the respondent BIR Commissioner or his authorized BIR
representatives in response to the request for reinvestigation.
In Querol v. Collector of Internal Revenue,36 the BIR, after receiving the protest letters of taxpayer
Querol, sent a tax examiner to San Fernando, Pampanga, to conduct the reinvestigation; as a result
of which, the original assessment against taxpayer Querol was revised by permitting him to deduct
reasonable depreciation. In another case, Republic of the Philippines v. Lopez,37 taxpayer Lopez
filed a total of four petitions for reconsideration and reinvestigation. The first petition was denied by
the BIR. The second and third petitions were granted by the BIR and after each reinvestigation, the
assessed amount was reduced. The fourth petition was again denied and, thereafter, the BIR filed a
collection suit against taxpayer Lopez. When the taxpayers spouses Sison, in Commissioner of
Internal Revenue v. Sison,38 contested the assessment against them and asked for a reinvestigation,
the BIR ordered the reinvestigation resulting in the issuance of an amended assessment. Lastly,
in Republic of the Philippines v. Oquias,39 the BIR granted taxpayer Oquias’s request for
reinvestigation and duly notified him of the date when such reinvestigation would be held; only,
neither taxpayer Oquias nor his counsel appeared on the given date.
In all these cases, the request for reinvestigation of the assessment filed by the taxpayer was
evidently granted and actual reinvestigation was conducted by the BIR, which eventually resulted in
the issuance of an amended assessment. On the basis of these facts, this Court ruled in the same
cases that the period between the request for reinvestigation and the revised assessment should be
subtracted from the total prescriptive period for the assessment of the tax; and, once the
assessment had been reconsidered at the taxpayer’s instance, the period for collection should begin
to run from the date of the reconsidered or modified assessment.40
The rulings of the foregoing cases do not apply to the present Petition because: (1) the protest filed
by petitioner BPI was a request for reconsideration, not a reinvestigation, of the assessment against
it; and (2) even granting that the protest of petitioner BPI was a request for reinvestigation, there was
no showing that it was granted by respondent BIR Commissioner and that actual reinvestigation had
been conducted.
Going back to the administrative records of the present case, it would seem that the BIR, after
receiving a copy of the protest letter of petitioner BPI on 17 November 1989, did not attempt to
communicate at all with the latter until 10 September 1992, less than a month before the prescriptive
period for collection on Assessment No. FAS-5-85-89-002054 was due to expire. There were
internal communications, mostly indorsements of the docket of the case from one BIR division to
another; but these hardly fall within the same sort of acts in the previously discussed cases that
satisfactorily demonstrated the grant of the taxpayer’s request for reinvestigation. Petitioner BPI, in
the meantime, was left in the dark as to the status of its protest in the absence of any word from the
BIR. Besides, in its letter to petitioner BPI, dated 10 September 1992, the BIR unwittingly admitted
that it had not yet acted on the protest of the former –
This refers to your protest against and/or request for reconsideration of the assessment/s of this
Office against you involving the amount of ₱28,020.00 under FAS-5-85-89-002054 dated October
23, 1989 as deficiency documentary stamp tax inclusive of compromise penalty for the year 1985.
In this connection, it is requested that the enclosed waiver of the statute of limitations extending the
period of collection of the said tax/es to December 31, 1993 be executed by you as a condition
precedent of our giving due course to your protest…41
When the BIR stated in its letter, dated 10 September 1992, that the waiver of the statute of
limitations on collection was a condition precedent to its giving due course to the request for
reconsideration of petitioner BPI, then it was understood that the grant of such request for
reconsideration was being held off until compliance with the given condition. When petitioner BPI
failed to comply with the condition precedent, which was the execution of the waiver, the logical
inference would be that the request was not granted and was not given due course at all.
III
The suspension of the statute of limitations on collection of the assessed deficiency DST from
petitioner BPI does not find support in jurisprudence.
It is the position of respondent BIR Commissioner, affirmed by the CTA and the Court of Appeals,
that the three-year prescriptive period for collecting on Assessment No. FAS-5-85-89-002054 had
not yet prescribed, because the said prescriptive period was suspended, invoking the case
of Commissioner of Internal Revenue v. Wyeth Suaco Laboratories, Inc.42 It was in this case in which
this Court ruled that the prescriptive period provided by law to make a collection is interrupted once a
taxpayer requests for reinvestigation or reconsideration of the assessment.
Petitioner BPI, on the other hand, is requesting this Court to revisit the Wyeth Suaco case
contending that it had unjustifiably expanded the grounds for suspending the prescriptive period for
collection of national internal revenue taxes.
This Court finds that although there is no compelling reason to abandon its decision in the Wyeth
Suaco case, the said case cannot be applied to the particular facts of the Petition at bar.
A. The only exception to the statute of limitations on collection of taxes, other than those already
provided in the Tax Code, was recognized in the Suyoc case.
As had been previously discussed herein, the statute of limitations on assessment and collection of
national internal revenue taxes may be suspended if the taxpayer executes a valid waiver thereof, as
provided in paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended; and in
specific instances enumerated in Section 224 of the same Code, which include a request for
reinvestigation granted by the BIR Commissioner. Outside of these statutory provisions, however,
this Court also recognized one other exception to the statute of limitations on collection of taxes in
the case of Collector of Internal Revenue v. Suyoc Consolidated Mining Co.43
In the said case, the Collector of Internal Revenue issued an assessment against taxpayer Suyoc
Consolidated Mining Co. on 11 February 1947 for deficiency income tax for the taxable year 1941.
Taxpayer Suyoc requested for at least a year within which to pay the amount assessed, but at the
same time, reserving its right to question the correctness of the assessment before actual payment.
The Collector granted taxpayer Suyoc an extension of only three months to pay the assessed tax.
When taxpayer Suyoc failed to pay the assessed tax within the extended period, the Collector sent it
a demand letter, dated 28 November 1950. Upon receipt of the demand letter, taxpayer Suyoc
asked for a reinvestigation and reconsideration of the assessment, but the Collector denied the
request. Taxpayer Suyoc reiterated its request for reconsideration on 25 April 1952, which was
denied again by the Collector on 06 May 1953. Taxpayer Suyoc then appealed the denial to the
Conference Staff. The Conference Staff heard the appeal from 02 September 1952 to 16 July 1955,
and the negotiations resulted in the reduction of the assessment on 26 July 1955. It was the
collection of the reduced assessment that was questioned before this Court for being enforced
beyond the prescriptive period.44
In resolving the issue on prescription, this Court ratiocinated thus –
It is obvious from the foregoing that petitioner refrained from collecting the tax by distraint or levy or
by proceeding in court within the 5-year period from the filing of the second amended final return due
to the several requests of respondent for extension to which petitioner yielded to give it every
opportunity to prove its claim regarding the correctness of the assessment. Because of such
requests, several reinvestigations were made and a hearing was even held by the Conference Staff
organized in the collection office to consider claims of such nature which, as the record shows,
lasted for several months. After inducing petitioner to delay collection as he in fact did, it is most
unfair for respondent to now take advantage of such desistance to elude his deficiency income tax
liability to the prejudice of the Government invoking the technical ground of prescription.
While we may agree with the Court of Tax Appeals that a mere request for reexamination or
reinvestigation may not have the effect of suspending the running of the period of limitation for in
such case there is need of a written agreement to extend the period between the Collector and the
taxpayer, there are cases however where a taxpayer may be prevented from setting up the defense
of prescription even if he has not previously waived it in writing as when by his repeated requests
or positive acts the Government has been, for good reasons, persuaded to postpone
collection to make him feel that the demand was not unreasonable or that no harassment or
injustice is meant by the Government. And when such situation comes to pass there are
authorities that hold, based on weighty reasons, that such an attitude or behavior should not be
countenanced if only to protect the interest of the Government.45
By the principle of estoppel, taxpayer Suyoc was not allowed to raise the defense of prescription
against the efforts of the Government to collect the tax assessed against it. This Court adopted the
following principle from American jurisprudence: "He who prevents a thing from being done may not
avail himself of the nonperformance which he has himself occasioned, for the law says to him in
effect ‘this is your own act, and therefore you are not damnified.’"46
In the Suyoc case, this Court expressly conceded that a mere request for reconsideration or
reinvestigation of an assessment may not suspend the running of the statute of limitations. It
affirmed the need for a waiver of the prescriptive period in order to effect suspension thereof.
However, even without such waiver, the taxpayer may be estopped from raising the defense of
prescription because by his repeated requests or positive acts, he had induced Government
authorities to delay collection of the assessed tax.
Based on the foregoing, petitioner BPI contends that the declaration made in the later case of Wyeth
Suaco, that the statute of limitations on collection is suspended once the taxpayer files a request for
reconsideration or reinvestigation, runs counter to the ruling made by this Court in the Suyoc case.
B. Although this Court is not compelled to abandon its decision in the Wyeth Suaco case, it finds that
Wyeth Suaco is not applicable to the Petition at bar because of the distinct facts involved herein.
In the case of Wyeth Suaco, taxpayer Wyeth Suaco was assessed for failing to remit withholding
taxes on royalties and dividend declarations, as well as, for deficiency sales tax. The BIR issued two
assessments, dated 16 December 1974 and 17 December 1974, both received by taxpayer Wyeth
Suaco on 19 December 1974. Taxpayer Wyeth Suaco, through its tax consultant, SGV & Co., sent
to the BIR two letters, dated 17 January 1975 and 08 February 1975, protesting the assessments
and requesting their cancellation or withdrawal on the ground that said assessments lacked factual
or legal basis. On 12 September 1975, the BIR Commissioner advised taxpayer Wyeth Suaco to
avail itself of the compromise settlement being offered under Letter of Instruction No. 308. Taxpayer
Wyeth Suaco manifested its conformity to paying a compromise amount, but subject to certain
conditions; though, apparently, the said compromise amount was never paid. On 10 December
1979, the BIR Commissioner rendered a decision reducing the assessment for deficiency
withholding tax against taxpayer Wyeth Suaco, but maintaining the assessment for deficiency sales
tax. It was at this point when taxpayer Wyeth Suaco brought its case before the CTA to enjoin the
BIR from enforcing the assessments by reason of prescription. Although the CTA decided in favor of
taxpayer Wyeth Suaco, it was reversed by this Court when the case was brought before it on appeal.
According to the decision of this Court –
Settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy
or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or
reconsideration of the assessment. . .
...
Although the protest letters prepared by SGV & Co. in behalf of private respondent did not
categorically state or use the words "reinvestigation" and "reconsideration," the same are to be
treated as letters of reinvestigation and reconsideration…
These letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to collect
the deficiency taxes. The Bureau of Internal Revenue, after having reviewed the records of
Wyeth Suaco, in accordance with its request for reinvestigation, rendered a final
assessment… It was only upon receipt by Wyeth Suaco of this final assessment that the five-year
prescriptive period started to run again.47
The foremost criticism of petitioner BPI of the Wyeth Suaco decision is directed at the statement
made therein that, "settled is the rule that the prescriptive period provided by law to make a
collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer requests for
reinvestigation or reconsideration of the assessment."48 It would seem that both petitioner BPI and
respondent BIR Commissioner, as well as, the CTA and Court of Appeals, take the statement to
mean that the filing alone of the request for reconsideration or reinvestigation can already interrupt
or suspend the running of the prescriptive period on collection. This Court therefore takes this
opportunity to clarify and qualify this statement made in the Wyeth Suaco case. While it is true that,
by itself, such statement would appear to be a generalization of the exceptions to the statute of
limitations on collection, it is best interpreted in consideration of the particular facts of the Wyeth
Suaco case and previous jurisprudence.
The Wyeth Suaco case cannot be in conflict with the Suyoc case because there are substantial
differences in the factual backgrounds of the two cases. The Suyoc case refers to a situation where
there were repeated requests or positive acts performed by the taxpayer that convinced the BIR to
delay collection of the assessed tax. This Court pronounced therein that the repeated requests or
positive acts of the taxpayer prevented or estopped it from setting up the defense of prescription
against the Government when the latter attempted to collect the assessed tax. In the Wyeth
Suaco case, taxpayer Wyeth Suaco filed a request for reinvestigation, which was apparently granted
by the BIR and, consequently, the prescriptive period was indeed suspended as provided under
Section 224 of the Tax Code of 1977, as amended.49
To reiterate, Section 224 of the Tax Code of 1977, as amended, identifies specific circumstances
when the statute of limitations on assessment and collection may be interrupted or suspended,
among which is a request for reinvestigation that is granted by the BIR Commissioner. The act of
filing a request for reinvestigation alone does not suspend the period; such request must be
granted.50 The grant need not be express, but may be implied from the acts of the BIR
Commissioner or authorized BIR officials in response to the request for reinvestigation.51
This Court found in the Wyeth Suaco case that the BIR actually conducted a reinvestigation, in
accordance with the request of the taxpayer Wyeth Suaco, which resulted in the reduction of the
assessment originally issued against it. Taxpayer Wyeth Suaco was also aware that its request for
reinvestigation was granted, as written by its Finance Manager in a letter dated 01 July 1975,
addressed to the Chief of the Tax Accounts Division, wherein he admitted that, "[a]s we understand,
the matter is now undergoing review and consideration by your Manufacturing Audit Division…" The
statute of limitations on collection, then, started to run only upon the issuance and release of the
reduced assessment.
The Wyeth Suaco case, therefore, is correct in declaring that the prescriptive period for collection is
interrupted or suspended when the taxpayer files a request for reinvestigation, provided that, as
clarified and qualified herein, such request is granted by the BIR Commissioner.
Thus, this Court finds no compelling reason to abandon its decision in the Wyeth Suaco case. It also
now rules that the said case is not applicable to the Petition at bar because of the distinct facts
involved herein. As already heretofore determined by this Court, the protest filed by petitioner BPI
was a request for reconsideration, which merely required a review of existing evidence and the legal
basis for the assessment. Respondent BIR Commissioner did not require, neither did petitioner BPI
offer, additional evidence on the matter. After petitioner BPI filed its request for reconsideration,
there was no other communication between it and respondent BIR Commissioner or any of the
authorized representatives of the latter. There was no showing that petitioner BPI was informed or
aware that its request for reconsideration was granted or acted upon by the BIR.
IV
Conclusion
To summarize all the foregoing discussion, this Court lays down the following rules on the
exceptions to the statute of limitations on collection.
The statute of limitations on collection may only be interrupted or suspended by a valid waiver
executed in accordance with paragraph (d) of Section 223 of the Tax Code of 1977, as amended,
and the existence of the circumstances enumerated in Section 224 of the same Code, which include
a request for reinvestigation granted by the BIR Commissioner.
Even when the request for reconsideration or reinvestigation is not accompanied by a valid waiver or
there is no request for reinvestigation that had been granted by the BIR Commissioner, the taxpayer
may still be held in estoppel and be prevented from setting up the defense of prescription of the
statute of limitations on collection when, by his own repeated requests or positive acts, the
Government had been, for good reasons, persuaded to postpone collection to make the taxpayer
feel that the demand is not unreasonable or that no harassment or injustice is meant by the
Government, as laid down by this Court in the Suyoc case.
Applying the given rules to the present Petition, this Court finds that –
(a) The statute of limitations for collection of the deficiency DST in Assessment No. FAS-5-85-89-
002054, issued against petitioner BPI, had already expired; and
(b) None of the conditions and requirements for exception from the statute of limitations on collection
exists herein: Petitioner BPI did not execute any waiver of the prescriptive period on collection as
mandated by paragraph (d) of Section 223 of the Tax Code of 1977, as amended; the protest filed
by petitioner BPI was a request for reconsideration, not a request for reinvestigation that was
granted by respondent BIR Commissioner which could have suspended the prescriptive period for
collection under Section 224 of the Tax Code of 1977, as amended; and, petitioner BPI, other than
filing a request for reconsideration of Assessment No. FAS-5-85-89-002054, did not make repeated
requests or performed positive acts that could have persuaded the respondent BIR Commissioner to
delay collection, and that would have prevented or estopped petitioner BPI from setting up the
defense of prescription against collection of the tax assessed, as required in the Suyoc case.
This is a simple case wherein respondent BIR Commissioner and other BIR officials failed to act
promptly in resolving and denying the request for reconsideration filed by petitioner BPI and in
enforcing collection on the assessment. They presented no reason or explanation as to why it took
them almost eight years to address the protest of petitioner BPI. The statute on limitations imposed
by the Tax Code precisely intends to protect the taxpayer from such prolonged and unreasonable
assessment and investigation by the BIR.
Considering that the right of the respondent BIR Commissioner to collect from petitioner BPI the
deficiency DST in Assessment No. FAS-5-85-89-002054 had already prescribed, then, there is no
more need for this Court to make a determination on the validity and correctness of the said
Assessment for the latter would only be unenforceable.
Wherefore, based on the foregoing, the instant Petition is GRANTED. The Decision of the Court of
Appeals in CA-G.R. SP No. 51271, dated 11 August 1999, which reinstated Assessment No. FAS-5-
85-89-002054 requiring petitioner BPI to pay the amount of ₱28,020.00 as deficiency documentary
stamp tax for the taxable year 1985, inclusive of the compromise penalty, is REVERSED and SET
ASIDE. Assessment No. FAS-5-85-89-002054 is hereby ordered CANCELED.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Associate Justice
Chairman
MA. ALICIA AUSTRIA-MARTINEZ ROMEO J. CALLEJO, SR.
DANTE O. TINGA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Associate Justice
Chairman, Second Division
CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairman’s Attestation, it is
hereby certified that the conclusions in the above Decision were reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.
HILARIO G. DAVIDE, JR.
Chief Justice
THIRD DIVISION
G.R. No. 198677 November 26, 2014

vs.
BASF COATING + INKS PHILS., INC., Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari assailing the Decision1 of the Court of Tax
Appeals (CTA) En Banc, dated June 16, 2011, and Resolution2 dated September 16, 2011, in C.T.A.
EB No. 664 (C.T.A. Case No. 7125).
The pertinent factual and procedural antecedents of the case are as follows:
Respondent was a corporation which was duly organized under and by virtue of the laws of the
Republic of the Philippines on August 1, 1990 with a term of existence of fifty (50) years. Its BIR-
registered address was at 101 Marcos Alvarez Avenue, Barrio Talon, Las Piñas City. In a joint
special meeting held on March 19, 2001, majorityof the members of the Board of Directors and the
stockholders representing more than two-thirds (2/3) of the entire subscribed and outstanding capital
stock of herein respondent corporation, resolved to dissolve the corporation by shortening its
corporate term to March 31, 2001.3 Subsequently, respondent moved out of its address in Las Piñas
City and transferred to Carmelray Industrial Park, Canlubang, Calamba, Laguna.
On June 26, 2001, respondent submitted two (2) letters to the Bureau of Internal Revenue (BIR)
Revenue District Officer of Revenue District Office (RDO) No. 53, Region 8, in Alabang, Muntinlupa
City. The first letter, dated April 26, 2001, was a notice of respondent's dissolution, in compliance
with the requirements of Section 52(c) of the National Internal Revenue Code.4 On the other hand,
the second letter, dated June 22, 2001, was a manifestation indicating the submission of various
documents supporting respondent's dissolution, among which was BIR Form No. 1905, which refers
to an update of information contained in its tax registration.5
Thereafter, in a Formal Assessment Notice (FA N) dated January 17, 2003, petitioner assessed
respondent the aggregate amount of ₱18,671,343.14 representing deficiencies in income tax, value
added tax, withholding tax on compensation, expanded withholding tax and documentary stamp tax,
including increments, for the taxable year 1999.6 The FAN was sent by registered mail on January
24, 2003 to respondent's former address in Las Piñas City.
On March 5, 2004, the Chief of the Collection Section of BIR Revenue Region No. 7, RDO No. 39,
South Quezon City, issued a First Notice Before Issuance of Warrant of Distraint and Levy, which
was sent to the residence of one of respondent's directors.7
On March 19, 2004, respondent filed a protest letter citing lack of due process and prescription as
grounds.8 On April 16, 2004, respondent filed a supplemental letter of protest.9 Subsequently, on
June 14, 2004, respondent submitted a letter wherein it attached documents to prove the defenses
raised in its protest letters.10
On January 10, 2005, after 180 dayshad lapsed without action on the part of petitioner on
respondent's protest, the latter filed a Petition for Review11 with the CTA.
Trial on the merits ensued.
On February 17, 2010, the CTA Special First Division promulgated its Decision,12 the dispositive
portion of which reads, thus:
WHEREFORE, the Petition for Review is hereby GRANTED. The assessments for deficiency
income tax in the amount of ₱14,227,425.39, deficiency value-added tax of ₱3,981,245.66,
deficiency withholding tax on compensation of ₱49,977.21, deficiency expanded withholding tax of
₱156,261.97 and deficiency documentary stamp tax of ₱256,432.91, including increments, in the
aggregate amount of ₱18,671,343.14 for the taxable year 1999 are hereby CANCELLED and SET
ASIDE.
SO ORDERED.13
The CTA Special First Division ruled that since petitioner was actually aware of respondent's new
address, the former's failure to send the Preliminary Assessment Notice and FAN to the said
address should not be taken against the latter. Consequently, since there are no valid notices sent to
respondent, the subsequent assessments against it are considered void. Aggrieved by the Decision,
petitioner filed a Motion for Reconsideration, but the CTA Special First Division denied it in its
Resolution14 dated July 13, 2010.
Petitioner then filed a Petition for Review with the CTA En Banc.15
On June 16, 2011, the CTA En Banc promulgated its assailed Decision denying petitioner's Petition
for Review for lack of merit. The CTA En Banc held that petitioner's right to assess respondent for
deficiency taxes for the taxable year 1999 has already prescribed and that the FAN issued to
respondent never attained finality because respondent did not receive it.
Petitioner filed a Motion for Reconsideration, but the CTA En Banc denied it in its Resolution dated
September 16, 2011.
Hence, the present petition with the following Assignment of Errors:
THE HONORABLE CTA EN BANC ERRED IN RULING THAT THE RIGHT OF PETITIONER TO
ASSESS HEREIN RESPONDENT FOR DEFICIENCY INCOME TAX, VALUEADDED TAX,
WITHHOLDING TAX ON COMPENSATION, EXPANDED WITHHOLDING TAX AND
DOCUMENTARY STAMP TAX, FOR TAXABLE YEAR 1999 IS BARRED BY PRESCRIPTION.
II
THE HONORABLE COURT OF TAX APPEALS, EN BANC, ERRED IN RULING THAT THE
FORMAL ASSESSMENT NOTICE (FAN) FOR RESPONDENT'S DEFICIENCY INCOME TAX,
VALUE-ADDED TAX, WITHHOLDING TAX ON COMPENSATION, EXPANDED WITHHOLDING
TAX AND DOCUMENTARY STAMP TAX FOR TAXABLE YEAR 1999 HAS NOT YET BECOME
FINAL, EXECUTORY AND DEMANDABLE.16
The petition lacks merit.
Petitioner contends that, insofar as respondent's alleged deficiency taxes for the taxable year1999
are concerned, the running of the three-year prescriptive period to assess, under Sections 203 and
222 of the National Internal Revenue Act of 1997 (Tax Reform Act of 1997) was suspended when
respondent failed to notify petitioner, in writing, of its change of address, pursuant to the provisions
of Section 223 of the same Act and Section 11 of BIR Revenue Regulation No. 12-85.
Sections 203, 222 and 223 of the Tax Reform Act of 1997 provide, respectively:
Sec. 203. 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. (emphasis
supplied)
Sec. 222. 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 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) If before the expiration of the time prescribed in Section 203 for the assessment of the
tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after
such time, the tax may be assessed within the period agreed upon.
The period so agreed upon may be extended by subsequent written agreement made before
the expiration of the period previously agreed upon.
(c) Any internal revenue tax which has been assessed within the period of limitation as
prescribed in paragraph (a) hereof may be collected by distraint or levy or by a proceeding in
court within five (5) years following the assessment of the tax.
(d) Any internal revenue tax, which has been assessed within the period agreed upon as
provided in paragraph (b) hereinabove, may be collected bydistraint or levy or by a
proceeding in court within the period agreed upon in writing before the expiration of the five
(5) -year period. The period so agreed upon may be extended by subsequent written
agreements made before the expiration of the period previously agreed upon.
(e) Provided, however, That nothing in the immediately preceding and paragraph (a) hereof
shall be construed to authorize the examination and investigation or inquiry into any tax
return filed in accordance with the provisions of any tax amnesty law or decree.
Sec. 223. Suspension of Running of Statute of Limitations. - The running of the Statute of Limitations
provided in Sections 203 and 222 on the making of assessment and the beginning of distraint or levy
a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period
levy or a proceeding in court and for sixty (60) days thereafter; when the taxpayer requests for a
address given by him in the return filed upon which a tax is being assessed or collected: Provided,
that, if the taxpayer informs the Commissioner of any change in address, the running of the Statute
of Limitations will not be suspended; when the warrant of distraint or levy is duly served upon the
taxpayer, his authorized representative, or a member of his household with sufficient discretion, and
no property could be located; and when the taxpayer is out of the Philippines. (emphasis supplied)
In addition, Section 11 of BIR Revenue Regulation No. 12-85 states:
Sec. 11. Change of Address. – In case of change of address, the taxpayer must give a written notice
thereof to the Revenue District Officer or the district having jurisdiction over his formerlegal
residence and/or place of business, copy furnished the Revenue District Officer having jurisdiction
over his new legal residence or place of business, the Revenue Computer Center and the
Receivable Accounts Division, BIR, National Office, Quezon City, and in case of failure to do so, any
communication referred to in these regulations previously sent to his former legal residence or
business address as appear in is tax return for the period involved shall be considered valid and
binding for purposes of the period within which to reply.
It is true that, under Section 223 of the Tax Reform Act of 1997, the running of the Statute of
Limitations provided under the provisions of Sections 203 and 222 of the same Act shall be
suspended when the taxpayer cannot be located in the address given by him in the return filed upon
which a tax is being assessed or collected. In addition, Section 11 of Revenue Regulation No. 12-85
states that, in case of change of address, the taxpayer is required to give a written notice thereof to
the Revenue District Officer or the district having jurisdiction over his former legal residence and/or
place of business. However, this Court agrees with both the CTA Special First Division and the CTA
En Banc in their ruling that the above mentioned provisions on the suspension of the three-year
period to assess apply only if the BIR Commissioner is not aware of the whereabouts of the
taxpayer.
In the present case, petitioner, by all indications, is well aware that respondent had moved to its new
address in Calamba, Laguna, as shown by the following documents which form partof respondent's
records with the BIR:
1) Checklist on Income Tax/Withholding Tax/Documentary Stamp Tax/Value-Added Tax and

Other Percentage Taxes;17
2) General Information (BIR Form No. 23-02);18
3) Report on Taxpayer's Delinquent Account, dated June 27, 2002;19
4) Activity Report, dated October 17, 2002;20
5) Memorandum Report of Examiner, dated June 27, 2002;21
6) Revenue Officer's Audit Report on Income Tax;22
7) Revenue Officer's Audit Report on Value-Added Tax;23

8) Revenue Officer's Audit Report on Compensation Withholding Taxes;24
9) Revenue Officer's Audit Report on Expanded Withholding Taxes;25
10) Revenue Officer's Audit Report on Documentary Stamp Taxes.26
The above documents, all of which were accomplished and signed by officers of the BIR, clearly
show that respondent's address is at Carmelray Industrial Park, Canlubang, Calamba, Laguna. The
CTA also found that BIR officers, at various times prior to the issuance of the subject FAN,
conducted examination and investigation of respondent's tax liabilities for 1999 at the latter's new
address in Laguna as evidenced by the following, in addition to the above mentioned records:
1) Letter, dated September 27, 2001, signed by Revenue Officer I Eugene R. Garcia;27
2) Final Request for Presentation of Records Before Subpoena Duces Tecum, dated March
20, 2002, signed by Revenue Officer I Eugene R. Garcia.28
Moreover, the CTA found that, based on records, the RDO sent respondent a letter dated April 24,
2002 informing the latter of the results of their investigation and inviting it to an informal
conference.29 Subsequently, the RDO also sent respondent another letter dated May 30, 2002,
acknowledging receipt of the latter's reply to his April 24, 2002 letter.30 These two letters were sent to
respondent's new address in Laguna. Had the RDO not been informed or was not aware of
respondent's new address, he could not have sent the said letters to the said address.
Furthermore, petitioner should have been alerted by the fact that prior to mailing the FAN, petitioner
sent to respondent's old address a Preliminary Assessment Notice but it was "returned to sender."
This was testified to by petitioner's Revenue Officer II at its Revenue District Office 39 in Quezon
City.31 Yet, despite this occurrence, petitioner still insisted in mailing the FAN to respondent's old
address.
Hence, despite the absence of a formal written notice of respondent's change of address, the fact
remains that petitioner became aware of respondent's new address as shown by documents replete
in its records. As a consequence, the running of the three-year period to assess respondent was not
suspended and has already prescribed.
It bears stressing that, in a number of cases, this Court has explained that the statute of limitations
on the collection of taxes primarily benefits the taxpayer. In these cases, the Court exemplified the
detrimental effects that the delay in the assessment and collection of taxes inflicts upon the
taxpayers. Thus, in Commissioner of Internal Revenue v. Philippine Global Communication,
Inc.,32 this Court echoed Justice Montemayor's disquisition in his dissenting opinion in Collector of
Internal Revenue v. Suyoc Consolidated Mining Company,33 regarding the potential loss to the
taxpayer if the assessment and collection of taxes are not promptly made, thus:
Prescription in the assessment and in the collection of taxes is provided by the Legislature for the
benefit of both the Government and the taxpayer; for the Government for the purpose of expediting
the collection of taxes, so that the agency charged with the assessment and collection may not tarry
too long or indefinitely tothe prejudice of the interests of the Government, which needs taxes to run
it; and for the taxpayer so that within a reasonable time after filing his return, hemay know the
amount of the assessment he is required to pay, whether or not such assessment is well founded
and reasonable so that he may either pay the amount of the assessment or contest its validity
incourt x x x. It would surely be prejudicial to the interest of the taxpayer for the Government
collecting agency to unduly delay the assessment and the collection because by the time the
collecting agency finally gets around to making the assessment or making the collection, the
taxpayer may then have lost his papers and books to support his claim and contest that of the
Government, and what is more, the tax is in the meantime accumulating interest which the taxpayer
eventually has to pay.34
Likewise, in Republic of the Philippines v. Ablaza,35 this Court elucidated that the prescriptive period
for the filing of actions for collection of taxes is justified by the need to protect law-abiding citizens
from possible harassment. Also, in Bank of the Philippine Islands v. Commissioner of Internal
Revenue,36 it was held that the statute of limitations on the assessment and collection of taxes is
principally intended to afford protection to the taxpayer against unreasonable investigations as the
indefinite extension of the period for assessment deprives the taxpayer of the assurance that he will
no longer be subjected to further investigation for taxes after the expiration of a reasonable period of
time. Thus, in Commissioner of Internal Revenue v. B.F. Goodrich Phils., Inc.,37 this Court ruled that
the legal provisions on prescription should be liberally construed to protect taxpayers and that, as a
corollary, the exceptions to the rule on prescription should be strictly construed.
It might not also be amiss to point out that petitioner's issuance of the First Notice Before Issuance of
Warrant of Distraint and Levy38 violated respondent's right to due process because no valid notice of
assessment was sent to it. An invalid assessment bears no valid fruit. The law imposes a
substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first
establishing a valid assessment is evidently violative of the cardinal principle inadministrative
investigations: that taxpayers should be able to present their case and adduce supporting
evidence.39 In the instant case, respondent has not properly been informed of the basis of its tax
liabilities. Without complying with the unequivocal mandate of first informing the taxpayer of the
government’s claim, there can be no deprivation of property, because no effective protest can be
made.
It is true that taxes are the lifeblood of the government. However, in spite of all its plenitude, the
power to tax has its limits.40 Thus, in Commissioner of Internal Revenue v. Algue, Inc.,41 this Court
held:
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. On the other hand, such collection should be made in accordance with law as any
1âw phi 1
arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile
the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of
taxation, which is the promotion of the common good, may be achieved.
xxxx
It is said that taxes are what we pay for civilized society. Without taxes, the government would be
paralyzed for the lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one’s hard-earned income to taxing authorities, every person who is
able to must contribute his share in the running of the government. The government for its partis
expected torespond in the form of tangible and intangible benefits intended to improve the lives of
the people and enhance their moral and material values. This symbiotic relationship is the rationale
of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those
in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his
succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate x x x that the law has not been observed.42
It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of
property without due process of law. In balancing the scales between the power of the State to tax
and its inherent right to prosecute perceived transgressors of the law on one side, and the
constitutional rights of a citizen todue process of law and the equal protection of the laws on the
other, the scales must tilt in favor of the individual, for a citizen’s right is amply protected by the Bill
of Rights under the Constitution.43
As to the second assigned error, petitioner's reliance on the provisions of Section 3.1.7 of BIR
Revenue Regulation No. 12-9944 as well as on the case of Nava v. Commissioner of Internal
Revenue45 is misplaced, because in the said case, one of the requirements ofa valid assessment
notice is that the letter or notice must be properly addressed. It is not enough that the notice is sent
by registered mail as provided under the said Revenue Regulation. In the instant case, the FAN was
sent tothe wrong address. Thus, the CTA is correct in holding that the FAN never attained finality
because respondent never received it, either actually or constructively.
WHEREFORE, the instant petition is DENIED. The Decision of the Court of Tax Appeals En Banc,
dated June 16, 2011, and its Resolution dated September 16, 2011, in C.T.A. EB No. 664 (C.T.A.
Case No. 7125), are AFFIRMED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:

Associate Justice
Chairperson
LUCAS P. BERSAMIN* MARTIN S. VILLARAMA, JR.

BIENVENIDO L. REYES
Associate Justice
ATTESTATION

Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I
certify that the co·nclusions in the above Decision had been reached in consultation before the case

Chief Justice
FIRST DIVISION
G.R. No. 162852 December 16, 2004
PHILIPPINE JOURNALISTS, INC., petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review filed by Philippine Journalists, Incorporated (PJI) assailing the
Decision1 of the Court of Appeals dated August 5, 2003,2 which ordered petitioner to pay the
assessed tax liability of P111,291,214.46 and the Resolution3 dated March 31, 2004 which denied
the Motion for Reconsideration.
The case arose from the Annual Income Tax Return filed by petitioner for the calendar year ended
December 31, 1994 which presented a net income of P30,877,387.00 and the tax due of
P10,807,086.00. After deducting tax credits for the year, petitioner paid the amount of
P10,247,384.00.
On August 10, 1995, Revenue District Office No. 33 of the Bureau of Internal Revenue (BIR) issued
Letter of Authority No. 871204 for Revenue Officer Federico de Vera, Jr. and Group Supervisor
Vivencio Gapasin to examine petitioner’s books of account and other accounting records for internal
revenue taxes for the period January 1, 1994 to December 31, 1994.
From the examination, the petitioner was told that there were deficiency taxes, inclusive of
surcharges, interest and compromise penalty in the following amounts:
Value Added Tax P 229,527.90
Income Tax 125,002,892.95
Withholding Tax 2,748,012.35
Total P 127,980,433.20
In a letter dated August 29, 1997, Revenue District Officer Jaime Concepcion invited petitioner to
send a representative to an informal conference on September 15, 1997 for an opportunity to object
and present documentary evidence relative to the proposed assessment. On September 22, 1997,
petitioner’s Comptroller, Lorenza Tolentino, executed a "Waiver of the Statute of Limitation Under
the National Internal Revenue Code (NIRC)".5 The document "waive[d] the running of the prescriptive
period provided by Sections 223 and 224 and other relevant provisions of the NIRC and consent[ed]
to the assessment and collection of taxes which may be found due after the examination at any time
after the lapse of the period of limitations fixed by said Sections 223 and 224 and other relevant
provisions of the NIRC, until the completion of the investigation".6
On July 2, 1998, Revenue Officer De Vera submitted his audit report recommending the issuance of
an assessment and finding that petitioner had deficiency taxes in the total amount of
P136,952,408.97. On October 5, 1998, the Assessment Division of the BIR issued Pre-Assessment
Notices which informed petitioner of the results of the investigation. Thus, BIR Revenue Region No.
6, Assessment Division/Billing Section, issued Assessment/Demand No. 33-1-000757-947 on
December 9, 1998 stating the following deficiency taxes, inclusive of interest and compromise
penalty:
Income Tax P108,743,694.88
Value Added Tax 184,299.20
Expanded Withholding 2,363,220.38

Tax
Total P111,291,214.46
On March 16, 1999, a Preliminary Collection Letter was sent by Deputy Commissioner Romeo S.
Panganiban to the petitioner to pay the assessment within ten (10) days from receipt of the letter. On
November 10, 1999, a Final Notice Before Seizure8 was issued by the same deputy commissioner
giving the petitioner ten (10) days from receipt to pay. Petitioner received a copy of the final notice
on November 24, 1999. By letters dated November 26, 1999, petitioner asked to be clarified how the
tax liability of P111,291,214.46 was reached and requested an extension of thirty (30) days from
receipt of the clarification within which to reply.9
The BIR received a follow-up letter from the petitioner asserting that its (PJI) records do not show
receipt of Tax Assessment/Demand No. 33-1-000757-94.10 Petitioner also contested that the
assessment had no factual and legal basis. On March 28, 2000, a Warrant of Distraint and/or Levy
No. 33-06-04611 signed by Deputy Commissioner Romeo Panganiban for the BIR was received by
the petitioner.
Petitioner filed a Petition for Review12 with the Court of Tax Appeals (CTA) which was amended on
May 12, 2000. Petitioner complains: (a) that no assessment or demand was received from the BIR;
(b) that the warrant of distraint and/or levy was without factual and legal bases as its issuance was
premature; (c) that the assessment, having been made beyond the 3-year prescriptive period, is null
and void; (d) that the issuance of the warrant without being given the opportunity to dispute the same
violates its right to due process; and (e) that the grave prejudice that will be sustained if the warrant
is enforced is enough basis for the issuance of the writ of preliminary injunction.
On May 14, 2002, the CTA rendered its decision,13 to wit:
As to whether or not the assessment notices were received by the petitioner, this Court rules
in the affirmative.
To disprove petitioner’s allegation of non-receipt of the aforesaid assessment notices,

respondent presented a certification issued by the Post Master of the Central Post Office,
Manila to the effect that Registered Letter No. 76134 sent by the BIR, Region No. 6, Manila
on December 15, 1998 addressed to Phil. Journalists, Inc. at Journal Bldg., Railroad St.,
Manila was duly delivered to and received by a certain Alfonso Sanchez, Jr. (Authorized
Representative) on January 8, 1999. Respondent also showed proof that in claiming
Registered Letter No. 76134, Mr. Sanchez presented three identification cards, one of which
is his company ID with herein petitioner.
…
However, as to whether or not the Waiver of the Statute of Limitations is valid and binding on
the petitioner is another question. Since the subject assessments were issued beyond the
three-year prescriptive period, it becomes imperative on our part to rule first on the validity of
the waiver allegedly executed on September 22, 1997, for if this court finds the same to be
ineffective, then the assessments must necessarily fail.
After carefully examining the questioned Waiver of the Statute of Limitations, this Court
considers the same to be without any binding effect on the petitioner for the following
reasons:
The waiver is an unlimited waiver. It does not contain a definite expiration date. Under RMO
No. 20-90, the phrase indicating the expiry date of the period agreed upon to assess/collect
the tax after the regular three-year period of prescription should be filled up…
Secondly, the waiver failed to state the date of acceptance by the Bureau which under the
aforequoted RMO should likewise be indicated…
Finally, petitioner was not furnished a copy of the waiver. It is to be noted that under RMO
No. 20-90, the waiver must be executed in three (3) copies, the second copy of which is for
the taxpayer. It is likewise required that the fact of receipt by the taxpayer of his/her file copy
be indicated in the original copy. Again, respondent failed to comply.
It bears stressing that RMO No. 20-90 is directed to all concerned internal revenue officers.
The said RMO even provides that the procedures found therein should be strictly followed,
under pain of being administratively dealt with should non-compliance result to prescription
of the right to assess/collect…
Thus, finding the waiver executed by the petitioner on September 22, 1997 to be suffering
from legal infirmities, rendering the same invalid and ineffective, the Court finds
Assessment/Demand No. 33-1-000757-94 issued on December 5, 1998 to be time-barred.
Consequently, the Warrant of Distraint and/or Levy issued pursuant thereto is considered
null and void.
WHEREFORE, in view of all the foregoing, the instant Petition for Review is
hereby GRANTED. Accordingly, the deficiency income, value-added and expanded
withholding tax assessments issued by the respondent against the petitioner on December 9,
1998, in the total amount of P111,291,214.46 for the year 1994 are hereby
declared CANCELLED, WITHDRAWN and WITH NO FORCE AND EFFECT. Likewise,
Warrant of Distraint and/or Levy No. 33-06-046 is hereby declared NULL and VOID.
SO ORDERED.14
After the motion for reconsideration of the Commissioner of Internal Revenue was denied by the
CTA in a Resolution dated August 2, 2002, an appeal was filed with the Court of Appeals on August
12, 2002.
In its decision dated August 5, 2003, the Court of Appeals disagreed with the ruling of the CTA, to
wit:
… The petition for review filed on 26 April 2000 with CTA was neither timely filed nor the
proper remedy. Only decisions of the BIR, denying the request for reconsideration or
reinvestigation may be appealed to the CTA. Mere assessment notices which have become
final after the lapse of the thirty (30)-day reglementary period are not appealable. Thus, the
CTA should not have entertained the petition at all.
… [T]he CTA found the waiver executed by Phil. Journalists to be invalid for the following
reasons: (1) it does not indicate a definite expiration date; (2) it does not state the date of
acceptance by the BIR; and (3) Phil. Journalist, the taxpayer, was not furnished a copy of the
waiver. These grounds are merely formal in nature. The date of acceptance by the BIR does
not categorically appear in the document but it states at the bottom page that the BIR
"accepted and agreed to:"…, followed by the signature of the BIR’s authorized
representative. Although the date of acceptance was not stated, the document was dated 22
September 1997. This date could reasonably be understood as the same date of acceptance
by the BIR since a different date was not otherwise indicated. As to the allegation that Phil.
Journalists was not furnished a copy of the waiver, this requirement appears ridiculous. Phil.
Journalists, through its comptroller, Lorenza Tolentino, signed the waiver. Why would it need
a copy of the document it knowingly executed when the reason why copies are furnished to a
party is to notify it of the existence of a document, event or proceeding? …
As regards the need for a definite expiration date, this is the biggest flaw of the decision. The
period of prescription for the assessment of taxes may be extended provided that the
extension be made in writing and that it be made prior to the expiration of the period of
prescription. These are the requirements for a valid extension of the prescriptive period. To
these requirements provided by law, the memorandum order adds that the length of the
extension be specified by indicating its expiration date. This requirement could be reasonably
construed from the rule on extension of the prescriptive period. But this requirement does not
apply in the instant case because what we have here is not an extension of the prescriptive
period but a waiver thereof. These are two (2) very different things. What Phil. Journalists
executed was a renunciation of its right to invoke the defense of prescription. This is a valid
waiver. When one waives the prescriptive period, it is no longer necessary to indicate the
length of the extension of the prescriptive period since the person waiving may no longer use
this defense.
WHEREFORE, the 02 August 2002 resolution and 14 May 2002 decision of the CTA are
hereby SET ASIDE. Respondent Phil. Journalists is ordered [to] pay its assessed tax liability
of P111,291,214.46.
SO ORDERED.15
Petitioner’s Motion for Reconsideration was denied in a Resolution dated March 31, 2004. Hence,
this appeal on the following assignment of errors:
I.
The Honorable Court of Appeals committed grave error in ruling that it is outside the
jurisdiction of the Court of Tax Appeals to entertain the Petition for Review filed by the herein
Petitioner at the CTA despite the fact that such case inevitably rests upon the validity of the
issuance by the BIR of warrants of distraint and levy contrary to the provisions of Section
7(1) of Republic Act No. 1125.
II.
The Honorable Court of Appeals gravely erred when it ruled that failure to comply with the
provisions of Revenue Memorandum Order (RMO) No. 20-90 is merely a formal defect that
does not invalidate the waiver of the statute of limitations without stating the legal justification
for such conclusion. Such ruling totally disregarded the mandatory requirements of Section
222(b) of the Tax Code and its implementing regulation, RMO No. 20-90 which are
substantive in nature. The RMO provides that violation thereof subjects the erring officer to
administrative sanction. This directive shows that the RMO is not merely cover forms.
III.
The Honorable Court of Appeals gravely erred when it ruled that the assessment notices
became final and unappealable. The assessment issued is void and legally non-existent
because the BIR has no power to issue an assessment beyond the three-year prescriptive
period where there is no valid and binding waiver of the statute of limitation.
IV.
The Honorable Court of Appeals gravely erred when it held that the assessment in question
has became final and executory due to the failure of the Petitioner to protest the same.
Respondent had no power to issue an assessment beyond the three year period under the
mandatory provisions of Section 203 of the NIRC. Such assessment should be held void and
non-existent, otherwise, Section 203, an expression of a public policy, would be rendered
useless and nugatory. Besides, such right to assess cannot be validly granted after three
years since it would arise from a violation of the mandatory provisions of Section 203 and
would go against the vested right of the Petitioner to claim prescription of assessment.
V.
The Honorable Court of Appeals committed grave error when it HELD valid a defective
waiver by considering the latter a waiver of the right to invoke the defense of prescription
rather than an extension of the three year period of prescription (to make an assessment) as
provided under Section 222 in relation to Section 203 of the Tax Code, an interpretation that
is contrary to law, existing jurisprudence and outside of the purpose and intent for which they
were enacted.16
We find merit in the appeal.
The first assigned error relates to the jurisdiction of the CTA over the issues in this case. The Court
of Appeals ruled that only decisions of the BIR denying a request for reconsideration or
reinvestigation may be appealed to the CTA. Since the petitioner did not file a request for
reinvestigation or reconsideration within thirty (30) days, the assessment notices became final and
unappealable. The petitioner now argue that the case was brought to the CTA because the warrant
of distraint or levy was illegally issued and that no assessment was issued because it was based on
an invalid waiver of the statutes of limitations.
We agree with petitioner. Section 7(1) of Republic Act No. 1125, the Act Creating the Court of Tax
Appeals, provides for the jurisdiction of that special court:
SEC. 7. Jurisdiction. – The Court of Tax Appeals shall exercise exclusive appellate
jurisdiction to review by appeal, as herein provided –
(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the National Internal Revenue Code or
other laws or part of law administered by the Bureau of Internal Revenue; (Emphasis
supplied).
The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the
Commissioner of Internal Revenue on matters relating to assessments or refunds. The second part
of the provision covers other cases that arise out of the NIRC or related laws administered by the
Bureau of Internal Revenue. The wording of the provision is clear and simple. It gives the CTA the
jurisdiction to determine if the warrant of distraint and levy issued by the BIR is valid and to rule if the
Waiver of Statute of Limitations was validly effected.
This is not the first case where the CTA validly ruled on issues that did not relate directly to a
disputed assessment or a claim for refund. In Pantoja v. David,17 we upheld the jurisdiction of the
CTA to act on a petition to invalidate and annul the distraint orders of the Commissioner of Internal
Revenue. Also, in Commissioner of Internal Revenue v. Court of Appeals,18 the decision of the CTA
declaring several waivers executed by the taxpayer as null and void, thus invalidating the
assessments issued by the BIR, was upheld by this Court.
The second and fifth assigned errors both focus on Revenue Memorandum Circular No. 20-90
(RMO No. 20-90) on the requisites of a valid waiver of the statute of limitations. The Court of
Appeals held that the requirements and procedures laid down in the RMO are only formal in nature
and did not invalidate the waiver that was signed even if the requirements were not strictly observed.
The NIRC, under Sections 203 and 222,19 provides for a statute of limitations on the assessment and
collection of internal revenue taxes in order to safeguard the interest of the taxpayer against
unreasonable investigation.20Unreasonable investigation contemplates cases where the period for
assessment extends indefinitely because this deprives the taxpayer of the assurance that it will no
longer be subjected to further investigation for taxes after the expiration of a reasonable period of
time. As was held in Republic of the Phils. v. Ablaza:21
The law prescribing a limitation of actions for the collection of the income tax is beneficial
both to the Government and to its citizens; to the Government because tax officers would be
obliged to act promptly in the making of assessment, and to citizens because after the lapse
of the period of prescription citizens would have a feeling of security against unscrupulous
tax agents who will always find an excuse to inspect the books of taxpayers, not to determine
the latter’s real liability, but to take advantage of every opportunity to molest peaceful, law-
abiding citizens. Without such a legal defense taxpayers would furthermore be under
obligation to always keep their books and keep them open for inspection subject to
harassment by unscrupulous tax agents. The law on prescription being a remedial
measure should be interpreted in a way conducive to bringing about the beneficent
purpose of affording protection to the taxpayer within the contemplation of the
Commission which recommend the approval of the law. (Emphasis supplied)
RMO No. 20-90 implements these provisions of the NIRC relating to the period of prescription for the
assessment and collection of taxes. A cursory reading of the Order supports petitioner’s argument
that the RMO must be strictly followed, thus:
In the execution of said waiver, the following procedures should be followed:
1. The waiver must be in the form identified hereof. This form may be reproduced by the
Office concerned but there should be no deviation from such form. The phrase "but not
after __________ 19___" should be filled up…
2. …
Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue or
the revenue official authorized by him, as hereinafter provided, shall sign the waiver
indicating that the Bureau has accepted and agreed to the waiver. The date of such
acceptance by the Bureau should be indicated…
3. The following revenue officials are authorized to sign the waiver.
A. In the National Office
3. Commissioner For tax cases

involving more than
P1M
B. In the Regional Offices
1. The Revenue District Officer with respect to tax cases still pending
investigation and the period to assess is about to prescribe regardless of
amount.
5. The foregoing procedures shall be strictly followed. Any revenue

official found not to have complied with this Order resulting in
prescription of the right to assess/collect shall be administratively dealt
with. (Emphasis supplied)22
A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the
taxpayers’ right to security against prolonged and unscrupulous investigations and must therefore be
carefully and strictly construed.23The waiver of the statute of limitations is not a waiver of the right to
invoke the defense of prescription as erroneously held by the Court of Appeals. It is an agreement
between the taxpayer and the BIR that the period to issue an assessment and collect the taxes due
is extended to a date certain. The waiver does not mean that the taxpayer relinquishes the right to
invoke prescription unequivocally particularly where the language of the document is equivocal. 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 on
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.24 RMO No. 20-90 explains the rationale of a waiver:
... The phrase "but not after _________ 19___" should be filled up. This indicates the expiry
date of the period agreed upon to assess/collect the tax after the regular three-year period of
prescription. The period agreed upon shall constitute the time within which to effect the
assessment/collection of the tax in addition to the ordinary prescriptive
period. (Emphasis supplied)
As found by the CTA, the Waiver of Statute of Limitations, signed by petitioner’s comptroller on
September 22, 1997 is not valid and binding because it does not conform with the provisions of
RMO No. 20-90. It did not specify a definite agreed date between the BIR and petitioner, within
which the former may assess and collect revenue taxes. Thus, petitioner’s waiver became unlimited
in time, violating Section 222(b) of the NIRC.
The waiver is also defective from the government side because it was signed only by a revenue
district officer, not the Commissioner, as mandated by the NIRC and RMO No. 20-90. The waiver is
not a unilateral act by the taxpayer or the BIR, but is a bilateral agreement between two parties to
extend the period to a date certain. The conformity of the BIR must be made by either the
Commissioner or the Revenue District Officer. This case involves taxes amounting to more than One
Million Pesos (P1,000,000.00) and executed almost seven months before the expiration of the three-
year prescription period. For this, RMO No. 20-90 requires the Commissioner of Internal Revenue to
sign for the BIR.
The case of Commissioner of Internal Revenue v. Court of Appeals,25 dealt with waivers that were not
signed by the Commissioner but were argued to have been given implied consent by the BIR. We
invalidated the subject waivers and ruled:
Petitioner’s submission is inaccurate…
The Court of Appeals itself also passed upon the validity of the waivers executed by
Carnation, observing thus:
We cannot go along with the petitioner’s theory. Section 319 of the Tax Code earlier
quoted is clear and explicit that the waiver of the five-year26 prescriptive period must
be in writing and signed by both the BIR Commissioner and the taxpayer.
Here, the three waivers signed by Carnation do not bear the written consent of the
BIR Commissioner as required by law.
We agree with the CTA in holding "these ‘waivers’ to be invalid and without any
binding effect on petitioner (Carnation) for the reason that there was no consent by
the respondent (Commissioner of Internal Revenue)."
…
For sure, no such written agreement concerning the said three waivers exists
between the petitioner and private respondent Carnation.
What is more, the waivers in question reveal that they are in no wise unequivocal, and
therefore necessitates for its binding effect the concurrence of the Commissioner of Internal
Revenue…. On this basis neither implied consent can be presumed nor can it be
contended that the waiver required under Sec. 319 of the Tax Code is one which is
unilateral nor can it be said that concurrence to such an agreement is a mere formality
because it is the very signatures of both the Commissioner of Internal Revenue and
the taxpayer which give birth to such a valid agreement.27 (Emphasis supplied)
The other defect noted in this case is the date of acceptance which makes it difficult to fix with
certainty if the waiver was actually agreed before the expiration of the three-year prescriptive period.
The Court of Appeals held that the date of the execution of the waiver on September 22, 1997 could
reasonably be understood as the same date of acceptance by the BIR. Petitioner points out however
that Revenue District Officer Sarmiento could not have accepted the waiver yet because she was
not the Revenue District Officer of RDO No. 33 on such date. Ms. Sarmiento’s transfer and
assignment to RDO No. 33 was only signed by the BIR Commissioner on January 16, 1998 as
shown by the Revenue Travel Assignment Order No. 14-98.28 The Court of Tax Appeals noted in its
decision that it is unlikely as well that Ms. Sarmiento made the acceptance on January 16, 1998
because "Revenue Officials normally have to conduct first an inventory of their pending papers and
property responsibilities."29
Finally, the records show that petitioner was not furnished a copy of the waiver. Under RMO No. 20-
90, the waiver must be executed in three copies with the second copy for the taxpayer. The Court of
Appeals did not think this was important because the petitioner need not have a copy of the
document it knowingly executed. It stated that the reason copies are furnished is for a party to be
notified of the existence of a document, event or proceeding.
The flaw in the appellate court’s reasoning stems from its assumption that the waiver is a unilateral
act of the taxpayer when it is in fact and in law an agreement between the taxpayer and the BIR.
When the petitioner’s comptroller signed the waiver on September 22, 1997, it was not yet complete
and final because the BIR had not assented. There is compliance with the provision of RMO No. 20-
90 only after the taxpayer received a copy of the waiver accepted by the BIR. The requirement to
furnish the taxpayer with a copy of the waiver is not only to give notice of the existence of the
document but of the acceptance by the BIR and the perfection of the agreement.
The waiver document is incomplete and defective and thus the three-year prescriptive period was
not tolled or extended and continued to run until April 17, 1998. Consequently, the
Assessment/Demand No. 33-1-000757-94 issued on December 9, 1998 was invalid because it was
issued beyond the three (3) year period. In the same manner, Warrant of Distraint and/or Levy No.
33-06-046 which petitioner received on March 28, 2000 is also null and void for having been issued
pursuant to an invalid assessment.
WHEREFORE, premises considered, the instant petition for review is GRANTED. The Decision of
the Court of Appeals dated August 5, 2003 and its Resolution dated March 31, 2004
are REVERSED and SET ASIDE. The Decision of the Court of Tax Appeals in CTA Case No. 6108
dated May 14, 2002, declaring Warrant of Distraint and/or Levy No. 33-06-046 null and void,
is REINSTATED.
SO ORDERED.
Davide, Jr., C.J. (Chairman), Quisumbing, Carpio, and Azcuna, JJ., concur.
SECOND DIVISION
G.R. No. 178087 May 5, 2010

vs.
KUDOS METAL CORPORATION, Respondent.
DECISION
DEL CASTILLO, J.:
The prescriptive period on when to assess taxes benefits both the government and the
taxpayer.1 Exceptions extending the period to assess must, therefore, be strictly construed.
This Petition for Review on Certiorari seeks to set aside the Decision2 dated March 30, 2007 of the
Court of Tax Appeals (CTA) affirming the cancellation of the assessment notices for having been
issued beyond the prescriptive period and the Resolution3 dated May 18, 2007 denying the motion
for reconsideration.
Factual Antecedents
On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income Tax Return (ITR) for
the taxable year 1998.
Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal Revenue (BIR)
served upon respondent three Notices of Presentation of Records. Respondent failed to comply with
these notices, hence, the BIR issued a Subpeona Duces Tecum dated September 21, 2006, receipt
of which was acknowledged by respondent’s President, Mr. Chan Ching Bio, in a letter dated
October 20, 2000.
A review and audit of respondent’s records then ensued.
On December 10, 2001, Nelia Pasco (Pasco), respondent’s accountant, executed a Waiver of the
Defense of Prescription,4 which was notarized on January 22, 2002, received by the BIR
Enforcement Service on January 31, 2002 and by the BIR Tax Fraud Division on February 4, 2002,
and accepted by the Assistant Commissioner of the Enforcement Service, Percival T. Salazar
(Salazar).
This was followed by a second Waiver of Defense of Prescription5 executed by Pasco on February
18, 2003, notarized on February 19, 2003, received by the BIR Tax Fraud Division on February 28,
2003 and accepted by Assistant Commissioner Salazar.
On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable year 1998
against the respondent. This was followed by a Formal Letter of Demand with Assessment Notices
for taxable year 1998, dated September 26, 2003 which was received by respondent on November
12, 2003.
Respondent challenged the assessments by filing its "Protest on Various Tax Assessments" on
December 3, 2003 and its "Legal Arguments and Documents in Support of Protests against Various
Assessments" on February 2, 2004.
On June 22, 2004, the BIR rendered a final Decision6 on the matter, requesting the immediate
payment of the following tax liabilities:
Kind of Tax Amount

Income Tax ₱ 9,693,897.85
VAT 13,962,460.90
EWT 1,712,336.76
Withholding Tax-Compensation 247,353.24
Penalties 8,000.00
Total ₱25,624,048.76
Ruling of the Court of Tax Appeals, Second Division
Believing that the government’s right to assess taxes had prescribed, respondent filed on August 27,
2004 a Petition for Review7 with the CTA. Petitioner in turn filed his Answer.8
On April 11, 2005, respondent filed an "Urgent Motion for Preferential Resolution of the Issue on
Prescription."9
On October 4, 2005, the CTA Second Division issued a Resolution10 canceling the assessment
notices issued against respondent for having been issued beyond the prescriptive period. It found
the first Waiver of the Statute of Limitations incomplete and defective for failure to comply with the
provisions of Revenue Memorandum Order (RMO) No. 20-90. Thus:
First, the Assistant Commissioner is not the revenue official authorized to sign the waiver, as the tax
case involves more than ₱1,000,000.00. In this regard, only the Commissioner is authorized to enter
into agreement with the petitioner in extending the period of assessment;
Secondly, the waiver failed to indicate the date of acceptance. Such date of acceptance is necessary
to determine whether the acceptance was made within the prescriptive period;
Third, the fact of receipt by the taxpayer of his file copy was not indicated on the original copy. The
requirement to furnish the taxpayer with a copy of the waiver is not only to give notice of the
existence of the document but also of the acceptance by the BIR and the perfection of the
agreement. 1avv phi1
The subject waiver is therefore incomplete and defective. As such, the three-year prescriptive period
was not tolled or extended and continued to run. x x x11
Petitioner moved for reconsideration but the CTA Second Division denied the motion in a
Resolution12 dated April 18, 2006.
Ruling of the Court of Tax Appeals, En Banc

On appeal, the CTA En Banc affirmed the cancellation of the assessment notices. Although it ruled
that the Assistant Commissioner was authorized to sign the waiver pursuant to Revenue Delegation
Authority Order (RDAO) No. 05-01, it found that the first waiver was still invalid based on the second
and third grounds stated by the CTA Second Division. Pertinent portions of the Decision read as
follows:
While the Court En Banc agrees with the second and third grounds for invalidating the first waiver, it
finds that the Assistant Commissioner of the Enforcement Service is authorized to sign the waiver
pursuant to RDAO No. 05-01, which provides in part as follows:
A. For National Office cases
Designated Revenue Official
1. Assistant Commissioner (ACIR), For tax fraud and policy Enforcement Service cases
2. ACIR, Large Taxpayers Service For large taxpayers cases other than those cases falling under
Subsection B hereof
3. ACIR, Legal Service For cases pending verification and awaiting resolution of certain legal issues
prior to prescription and for issuance/compliance of Subpoena Duces Tecum
4. ACIR, Assessment Service (AS) For cases which are pending in or subject to review or approval
by the ACIR, AS
Based on the foregoing, the Assistant Commissioner, Enforcement Service is authorized to sign
waivers in tax fraud cases. A perusal of the records reveals that the investigation of the subject
deficiency taxes in this case was conducted by the National Investigation Division of the BIR, which
was formerly named the Tax Fraud Division. Thus, the subject assessment is a tax fraud case.
Nevertheless, the first waiver is still invalid based on the second and third grounds stated by the
Court in Division. Hence, it did not extend the prescriptive period to assess.
Moreover, assuming arguendo that the first waiver is valid, the second waiver is invalid for violating
Section 222(b) of the 1997 Tax Code which mandates that the period agreed upon in a waiver of the
statute can still be extended by subsequent written agreement, provided that it is executed prior to
the expiration of the first period agreed upon. As previously discussed, the exceptions to the law on
prescription must be strictly construed.
In the case at bar, the period agreed upon in the subject first waiver expired on December 31, 2002.
The second waiver in the instant case which was supposed to extend the period to assess to
December 31, 2003 was executed on February 18, 2003 and was notarized on February 19, 2003.
Clearly, the second waiver was executed after the expiration of the first period agreed upon.
Consequently, the same could not have tolled the 3-year prescriptive period to assess.13
Petitioner sought reconsideration but the same was unavailing.
Issue
Hence, the present recourse where petitioner interposes that:

THE COURT OF TAX APPEALS EN BANC ERRED IN RULING THAT THE GOVERNMENT’S
RIGHT TO ASSESS UNPAID TAXES OF RESPONDENT PRESCRIBED.14
Petitioner’s Arguments
Petitioner argues that the government’s right to assess taxes is not barred by prescription as the two
waivers executed by respondent, through its accountant, effectively tolled or extended the period
within which the assessment can be made. In disputing the conclusion of the CTA that the waivers
are invalid, petitioner claims that respondent is estopped from adopting a position contrary to what it
has previously taken. Petitioner insists that by acquiescing to the audit during the period specified in
the waivers, respondent led the government to believe that the "delay" in the process would not be
utilized against it. Thus, respondent may no longer repudiate the validity of the waivers and raise the
issue of prescription.
Respondent’s Arguments
Respondent maintains that prescription had set in due to the invalidity of the waivers executed by
Pasco, who executed the same without any written authority from it, in clear violation of RDAO No.
5-01. As to the doctrine of estoppel by acquiescence relied upon by petitioner, respondent counters
that the principle of equity comes into play only when the law is doubtful, which is not present in the
instant case.
Our Ruling
The petition is bereft of merit.
Section 20315 of the National Internal Revenue Code of 1997 (NIRC) mandates the government to
assess internal revenue taxes within three years from the last day prescribed by law for the filing of
the tax return or the actual date of filing of such return, whichever comes later. Hence, an
assessment notice issued after the three-year prescriptive period is no longer valid and effective.
Exceptions however are provided under Section 22216 of the NIRC.
The waivers executed by respondent’s accountant did not extend the period within which the
assessment can be made
Petitioner does not deny that the assessment notices were issued beyond the three-year prescriptive
period, but claims that the period was extended by the two waivers executed by respondent’s
accountant.
We do not agree.
Section 222 (b) of the NIRC provides that the period to assess and collect taxes may only be
extended upon a written agreement between the CIR and the taxpayer executed before the
expiration of the three-year period. RMO 20-9017 issued on April 4, 1990 and RDAO 05-0118 issued
on August 2, 2001 lay down the procedure for the proper execution of the waiver, to wit:
1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase "but not
after ______ 19 ___", which indicates the expiry date of the period agreed upon to
assess/collect the tax after the regular three-year period of prescription, should be filled up.
2. The waiver must be signed by the taxpayer himself or his duly authorized representative.
In the case of a corporation, the waiver must be signed by any of its responsible officials. In
case the authority is delegated by the taxpayer to a representative, such delegation should
be in writing and duly notarized.
3. The waiver should be duly notarized.
4. The CIR or the revenue official authorized by him must sign the waiver indicating that the
BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR should
be indicated. However, before signing the waiver, the CIR or the revenue official authorized
by him must make sure that the waiver is in the prescribed form, duly notarized, and
executed by the taxpayer or his duly authorized representative.
5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should
be before the expiration of the period of prescription or before the lapse of the period agreed
upon in case a subsequent agreement is executed.
6. The waiver must be executed in three copies, the original copy to be attached to the
docket of the case, the second copy for the taxpayer and the third copy for the Office
accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be
indicated in the original copy to show that the taxpayer was notified of the acceptance of the
BIR and the perfection of the agreement.19
A perusal of the waivers executed by respondent’s accountant reveals the following infirmities:
1. The waivers were executed without the notarized written authority of Pasco to sign the
waiver in behalf of respondent.
2. The waivers failed to indicate the date of acceptance.
3. The fact of receipt by the respondent of its file copy was not indicated in the original copies
of the waivers.
Due to the defects in the waivers, the period to assess or collect taxes was not extended.
Consequently, the assessments were issued by the BIR beyond the three-year period and are void.
Estoppel does not apply in this case
We find no merit in petitioner’s claim that respondent is now estopped from claiming prescription
since by executing the waivers, it was the one which asked for additional time to submit the required
documents.
In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,20 the doctrine of estoppel
prevented the taxpayer from raising the defense of prescription against the efforts of the government
to collect the assessed tax. However, it must be stressed that in the said case, estoppel was applied
as an exception to the statute of limitations on collection of taxes and not on the assessment of
taxes, as the BIR was able to make an assessment within the prescribed period. More important,
there was a finding that the taxpayer made several requests or positive acts to convince the
government to postpone the collection of taxes, viz:
It appears that the first assessment made against respondent based on its second final return filed
on November 28, 1946 was made on February 11, 1947. Upon receipt of this assessment
respondent requested for at least one year within which to pay the amount assessed although it
reserved its right to question the correctness of the assessment before actual payment. Petitioner
granted an extension of only three months. When it failed to pay the tax within the period extended,
petitioner sent respondent a letter on November 28, 1950 demanding payment of the tax as
assessed, and upon receipt of the letter respondent asked for a reinvestigation and reconsideration
of the assessment. When this request was denied, respondent again requested for a reconsideration
on April 25, 1952, which was denied on May 6, 1953, which denial was appealed to the Conference
Staff. The appeal was heard by the Conference Staff from September 2, 1953 to July 16, 1955, and
as a result of these various negotiations, the assessment was finally reduced on July 26, 1955. This
is the ruling which is now being questioned after a protracted negotiation on the ground that the
collection of the tax has already prescribed.
of prescription even if he has not previously waived it in writing as when by his repeated requests or
positive acts the Government has been, for good reasons, persuaded to postpone collection to make
him feel that the demand was not unreasonable or that no harassment or injustice is meant by the
Government. And when such situation comes to pass there are authorities that hold, based on
weighty reasons, that such an attitude or behavior should not be countenanced if only to protect the
interest of the Government.
This case has no precedent in this jurisdiction for it is the first time that such has risen, but there are
several precedents that may be invoked in American jurisprudence. As Mr. Justice Cardozo has
said: "The applicable principle is fundamental and unquestioned. ‘He who prevents a thing from
being done may not avail himself of the nonperformance which he has himself occasioned, for the
law says to him in effect "this is your own act, and therefore you are not damnified."’ "(R. H. Stearns
Co. vs. U.S., 78 L. ed., 647). Or, as was aptly said, "The tax could have been collected, but the
government withheld action at the specific request of the plaintiff. The plaintiff is now estopped and
should not be permitted to raise the defense of the Statute of Limitations." [Newport Co. vs. U.S.,
(DC-WIS), 34 F. Supp. 588].21
Conversely, in this case, the assessments were issued beyond the prescribed period. Also, there is
no showing that respondent made any request to persuade the BIR to postpone the issuance of the
assessments.
The doctrine of estoppel cannot be applied in this case as an exception to the statute of limitations
on the assessment of taxes considering that there is a detailed procedure for the proper execution of
the waiver, which the BIR must strictly follow. As we have often said, the doctrine of estoppel is
predicated on, and has its origin in, equity which, broadly defined, is justice according to natural law
and right.22 As such, the doctrine of estoppel cannot give validity to an act that is prohibited by law or
one that is against public policy.23 It should be resorted to solely as a means of preventing injustice
and should not be permitted to defeat the administration of the law, or to accomplish a wrong or
secure an undue advantage, or to extend beyond them requirements of the transactions in which
they originate.24 Simply put, the doctrine of estoppel must be sparingly applied.
Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with
RMO 20-90 and RDAO 05-01, which the BIR itself issued. As stated earlier, the BIR failed to verify
whether a notarized written authority was given by the respondent to its accountant, and to indicate
the date of acceptance and the receipt by the respondent of the waivers. Having caused the defects
in the waivers, the BIR must bear the consequence. It cannot shift the blame to the taxpayer. To
stress, a waiver of the statute of limitations, being a derogation of the taxpayer’s right to security
against prolonged and unscrupulous investigations, must be carefully and strictly construed.25
As to the alleged delay of the respondent to furnish the BIR of the required documents, this cannot
be taken against respondent. Neither can the BIR use this as an excuse for issuing the assessments
beyond the three-year period because with or without the required documents, the CIR has the
power to make assessments based on the best evidence obtainable.26
WHEREFORE, the petition is DENIED. The assailed Decision dated March 30, 2007 and Resolution
dated May 18, 2007 of the Court of Tax Appeals are hereby AFFIRMED.
SO ORDERED.
MARIANO C. DEL CASTILLO

Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
ARTURO D. BRION ROBERTO A. ABAD

JOSE PORTUGAL PEREZ

Associate Justice
ATTESTATION
ANTONIO T. CARPIO
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s attestation, it
is hereby certified that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
THIRD DIVISION
G.R. No. 170257 September 7, 2011
RIZAL COMMERCIAL BANKING CORPORATION, Petitioner,

vs.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 seeking to set aside the July 27, 2005
Decision1 and October 26, 2005 Resolution2 of the Court of Tax Appeals En Banc (CTA-En Banc) in
C.T.A. E.B. No. 83 entitled "Rizal Commercial Banking Corporation v. Commissioner of Internal
Revenue."
THE FACTS
Petitioner Rizal Commercial Banking Corporation (RCBC) is a corporation engaged in general

banking operations. It seasonably filed its Corporation Annual Income Tax Returns for Foreign
Currency Deposit Unit for the calendar years 1994 and 1995.3
On August 15, 1996, RCBC received Letter of Authority No. 133959 issued by then Commissioner of
Internal Revenue (CIR) Liwayway Vinzons-Chato, authorizing a special audit team to examine the
books of accounts and other accounting records for all internal revenue taxes from January 1, 1994
to December 31, 1995.4
On January 23, 1997, RCBC executed two Waivers of the Defense of Prescription Under the Statute
of Limitations of the National Internal Revenue Code covering the internal revenue taxes due for the
years 1994 and 1995, effectively extending the period of the Bureau of Internal Revenue (BIR) to
assess up to December 31, 2000.5
Subsequently, on January 27, 2000, RCBC received a Formal Letter of Demand together with
Assessment Notices from the BIR for the following deficiency tax assessments:6
Particulars Basic Tax Interest Compromise Penalties Total
Deficiency Income Tax

1995 (ST-INC-95-0199-2000) ₱ 252,150,988.01 ₱ 191,496,585.96 ₱ 25,000.00 ₱ 443,672,57
1994 (ST-INC-94-0200-2000) 216,478,397.90 207,819,261.99 25,000.00 424,322,65
Deficiency Gross Receipts Tax
1995 (ST-GRT-95-0201-2000) 13,697,083.68 12,428,696.21 2,819,745.52 28,945,52
1994 (ST-GRT-94-0202-2000) 2,488,462.38 2,755,716.42 25,000.00 5,269,17
Deficiency Final Withholding Tax
1995 (ST-EWT-95-0203-2000) 64,365,610.12 58,757,866.78 25,000.00 123,148,47
1994 (ST-EWT-94-0204-2000) 53,058,075.25 59,047,096.34 25,000.00 112,130,17
Deficiency Final Tax on FCDU Onshore Income
1995 (ST-OT-95-0205-2000) 81,508,718.20 61,901,963,.52 25,000.00 143,435,68
1994 (ST-OT-94-0206-2000) 34,429,503.10 33,052,322.98 25,000.00 67,506,82
Deficiency Expanded Withholding Tax
1995 (ST-EWT-95-0207-2000) 5,051,415.22 4,583,640.33 113,000.00 9,748,05
1994 (ST-EWT-94-0208-2000) 4,482,740.35 4,067,626.31 78,200.00 8,628,56
Deficiency Documentary Stamp Tax
1995 (ST-DST1-95-0209-2000) 351,900,539.39 315,804,946.26 250,000.00 667,955,48
1995 (ST-DST2-95-0210-2000) 367,207,105.29 331,535,844.68 300,000.00 699,042,94
1994 (ST-DST3-94-0211-2000) 460,370,640.05 512,193,460.02 300,000.00 972,864,10
1994 (ST-DST4-94-0212-2000) 223,037,675.89 240,050,706.09 300,000.00 463,388,38
TOTALS ₱2,130,226,954.83 ₱2,035,495,733.89 ₱4,335,945.52 ₱4,170,058,63
Disagreeing with the said deficiency tax assessment, RCBC filed a protest on February 24, 2000
and later submitted the relevant documentary evidence to support it. Much later on November 20,
2000, it filed a petition for review before the CTA, pursuant to Section 228 of the 1997 Tax Code.7
On December 6, 2000, RCBC received another Formal Letter of Demand with Assessment Notices
dated October 20, 2000, following the reinvestigation it requested, which drastically reduced the
original amount of deficiency taxes to the following:8
Particulars Basic Tax Interest Compromise Penalties Total
Deficiency Income Tax

1995 (INC-95-000003) ₱ 374,348.45 ₱ 346,656.92 ₱ 721,00
1994 (INC-94-000002) 1,392,366.28 1,568,605.52 2,960,97
Deficiency Gross Receipts Tax
1995 (GRT-95-000004) 2,000,926.96 3,322,589.63 ₱ 1,367,222.04 6,690,73
1994 (GRT-94-000003) 138,368.61 161,872.32 300,24
Deficiency Final Withholding Tax
1995 (FT-95-000005) 362,203.47 351,287.75 713,49
1994 (FT-94-000004) 188,746.43 220,807.47 409,55
1995 (OT-95-000006) 81,508,718.20 79,052,291.08 160,561,00
1994 (OT-94-000005) 34,429,503.10 40,277,802.26 74,707,30
Deficiency Expanded Withholding Tax
1995 (EWT-95-000004) 520,869.72 505,171.80 25,000.00 1,051,04
1994 (EWT-94-000003) 297,949.95 348,560.63 25,000.00 671,51
1995 (DST-95-000006) 599,890.72 149,972.68 749,86
1995 (DST2-95-000002) 24,953,842.46 6,238,460.62 31,192,30
1994 (DST-94-000005) 905,064.74 226,266.18 1,131,33
1994 (DST2-94-000001) 17,040,104.84 4,260,026.21 21,300,13
TOTALS ₱ 164,712,903.44 ₱ 126,155,645.38 ₱ 12,291,947.73 ₱ 303,160,49
On the same day, RCBC paid the following deficiency taxes as assessed by the BIR:9
Particulars 1994 1995 Total

Deficiency Income Tax ₱ 2,965,549.44 ₱ 722,236.11 ₱ 3,687,785.55
Deficiency Gross Receipts Tax 300,695.84 6,701,893.17 7,002,589.01
Deficiency Final Withholding Tax 410,174.44 714,682.02 1,124,856.46
Deficiency Expanded Withholding Tax 672,490.14 1,052,753.48 1,725,243.62
Deficiency Documentary Stamp Tax 1,131,330.92 749,863.40 1,881,194.32
TOTALS ₱ 5,480,240.78 ₱ 9,941,428.18 ₱ 15,421,668.96
RCBC, however, refused to pay the following assessments for deficiency onshore tax and
documentary stamp tax which remained to be the subjects of its petition for review:10

Basic ₱ 34,429,503.10 ₱ 81,508,718.20 ₱ 115,938,221.30
Interest 40,277,802.26 79,052,291.08 119,330,093.34
Sub Total ₱ 74,707,305.36 ₱ 160,561,009.28 ₱ 235,268,314.64

Basic ₱ 17,040,104.84 ₱ 24,953,842.46 ₱ 41,993,947.30
Surcharge 4,260,026.21 6,238,460.62 10,498,486.83

Sub Total ₱ 21,300,131.05 ₱ 31,192,303.08 ₱ 52,492,434.13
TOTALS ₱ 96,007,436.41 ₱ 191,753,312.36 ₱ 287,760,748.77
RCBC argued that the waivers of the Statute of Limitations which it executed on January 23, 1997
were not valid because the same were not signed or conformed to by the respondent CIR as
required under Section 222(b) of the Tax Code.11 As regards the deficiency FCDU onshore tax,
RCBC contended that because the onshore tax was collected in the form of a final withholding tax, it
was the borrower, constituted by law as the withholding agent, that was primarily liable for the
remittance of the said tax.12
On December 15, 2004, the First Division of the Court of Tax Appeals (CTA-First
Division) promulgated its Decision13which partially granted the petition for review. It considered as
closed and terminated the assessments for deficiency income tax, deficiency gross receipts tax,
deficiency final withholding tax, deficiency expanded withholding tax, and deficiency documentary
stamp tax (not an industry issue) for 1994 and 1995.14 It, however, upheld the assessment for
deficiency final tax on FCDU onshore income and deficiency documentary stamp tax for 1994 and
1995 and ordered RCBC to pay the following amounts plus 20% delinquency tax:15

Basic ₱ 22,356,324.43 ₱ 16,067,952.86 ₱ 115,938, 221.30
Interest 26,153,837.08 15,583,713.19 119,330,093.34
Sub Total 48,510,161.51 31,651,666.05 119,330,093.34
Deficiency Documentary Stamp Tax (Industry Issue)
Basic ₱ 17,040,104.84 ₱ 24,953,842.46 ₱ 41,993,947.30
Surcharge 4,260,026.21 6,238,460.62 10,498,486.83

Sub Total 21,300,131.05 31,192,303.08 52,492,434.13
TOTALS ₱ 69,810,292.56 ₱ 62,843,969.13 ₱ 171,822,527.47
Unsatisfied, RCBC filed its Motion for Reconsideration on January 21, 2005, arguing that: (1) the
CTA erred in its addition of the total amount of deficiency taxes and the correct amount should only
be ₱ 132,654,261.69 and not ₱ 171,822,527.47; (2) the CTA erred in holding that RCBC was
estopped from questioning the validity of the waivers; (3) it was the payor-borrower as withholding
tax agent, and not RCBC, who was liable to pay the final tax on FCDU, and (4) RCBC’s special
savings account was not subject to documentary stamp tax.16
In its Resolution17 dated April 11, 2005, the CTA-First Division substantially upheld its earlier ruling,
except for its inadvertence in the addition of the total amount of deficiency taxes. As such, it modified
its earlier decision and ordered RCBC to pay the amount of ₱ 132,654,261.69 plus 20% delinquency
tax.18
RCBC elevated the case to the CTA-En Banc where it raised the following issues:
I.
Whether or not the right of the respondent to assess deficiency onshore tax and
documentary stamp tax for taxable year 1994 and 1995 had already prescribed when it
issued the formal letter of demand and assessment notices for the said taxable years.
II.
Whether or not petitioner is liable for deficiency onshore tax for taxable year 1994 and
1995.
III.
Whether or not petitioner’s special savings account is subject to documentary stamp

tax under then Section 180 of the 1993 Tax Code.19
The CTA-En Banc, in its assailed Decision, denied the petition for lack of merit. It ruled that by
receiving, accepting and paying portions of the reduced assessment, RCBC bound itself to the new
assessment, implying that it recognized the validity of the waivers.20 RCBC could not assail the
validity of the waivers after it had received and accepted certain benefits as a result of the execution
of the said waivers.21 As to the deficiency onshore tax, it held that because the payor-borrower was
merely designated by law to withhold and remit the said tax, it would then follow that the tax should
be imposed on RCBC as the payee-bank.22 Finally, in relation to the assessment of the deficiency
documentary stamp tax on petitioner’s special savings account, it held that petitioner’s special
savings account was a certificate of deposit and, as such, was subject to documentary stamp tax.23
Hence, this petition.
While awaiting the decision of this Court, RCBC filed its Manifestation dated July 22, 2009, informing
the Court that this petition, relative to the DST deficiency assessment, had been rendered moot and
academic by its payment of the tax deficiencies on Documentary Stamp Tax (DST) on Special
Savings Account (SSA) for taxable years 1994 and 1995 after the BIR approved its applications for
tax abatement.24
In its November 17, 2009 Comment to the Manifestation, the CIR pointed out that the only remaining
issues raised in the present petition were those pertaining to RCBC’s deficiency tax on FCDU
Onshore Income for taxable years 1994 and 1995 in the aggregate amount of ₱ 80,161,827.56 plus
20% delinquency interest per annum. The CIR prayed that RCBC be considered to have withdrawn
its appeal with respect to the CTA-En Banc ruling on its DST on SSA deficiency for taxable years
1994 and 1995 and that the questioned CTA decision regarding RCBC’s deficiency tax on FCDU
Onshore Income for the same period be affirmed.25
THE ISSUES
Thus, only the following issues remain to be resolved by this Court:
Whether petitioner, by paying the other tax assessment covered by the waivers of the statute
of limitations, is rendered estopped from questioning the validity of the said waivers with
respect to the assessment of deficiency onshore tax.26
and
Whether petitioner, as payee-bank, can be held liable for deficiency onshore tax, which is
mandated by law to be collected at source in the form of a final withholding tax.27
THE COURT’S RULING
Petitioner is estopped from

questioning the validity of the waivers
RCBC assails the validity of the waivers of the statute of limitations on the ground that the said
waivers were merely attested to by Sixto Esquivias, then Coordinator for the CIR, and that he failed
to indicate acceptance or agreement of the CIR, as required under Section 223 (b) of the 1977 Tax
Code.28 RCBC further argues that the principle of estoppel cannot be applied against it because its
payment of the other tax assessments does not signify a clear intention on its part to give up its right
to question the validity of the waivers.29
The Court disagrees.
Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored on the rule that "an
admission or representation is rendered conclusive upon the person making it, and cannot be denied
or disproved as against the person relying thereon." A party is precluded from denying his own acts,
admissions or representations to the prejudice of the other party in order to prevent fraud and
falsehood.30
Estoppel is clearly applicable to the case at bench. RCBC, through its partial payment of the revised
assessments issued within the extended period as provided for in the questioned waivers, impliedly
admitted the validity of those waivers. Had petitioner truly believed that the waivers were invalid and
that the assessments were issued beyond the prescriptive period, then it should not have paid the
reduced amount of taxes in the revised assessment. RCBC’s subsequent actioneffectively belies its
insistence that the waivers are invalid. The records show that on December 6, 2000, upon receipt of
the revised assessment, RCBC immediately made payment on the uncontested taxes. Thus, RCBC
is estopped from questioning the validity of the waivers. To hold otherwise and allow a party to
gainsay its own act or deny rights which it had previously recognized would run counter to the
principle of equity which this institution holds dear.31
Liability for Deficiency

Onshore Withholding Tax
RCBC is convinced that it is the payor-borrower, as withholding agent, who is directly liable for the
payment of onshore tax, citing Section 2.57(A) of Revenue Regulations No. 2-98 which states:
(A) Final Withholding Tax. — Under the final withholding tax system the amount of income tax
withheld by the withholding agent is constituted as a full and final payment of the income tax due
from the payee on the said income. The liability for payment of the tax rests primarily on the
payor as a withholding agent. Thus, in case of his failure to withhold the tax or in case of
under withholding, the deficiency tax shall be collected from the payor/withholding
agent. The payee is not required to file an income tax return for the particular income. (Emphasis
supplied)
The petitioner is mistaken.
Before any further discussion, it should be pointed out that RCBC erred in citing the abovementioned
Revenue Regulations No. 2-98 because the same governs collection at source on income paid only
on or after January 1, 1998. The deficiency withholding tax subject of this petition was supposed to
have been withheld on income paid during the taxable years of 1994 and 1995. Hence, Revenue
Regulations No. 2-98 obviously does not apply in this case.
In Chamber of Real Estate and Builders’ Associations, Inc. v. The Executive Secretary,32 the Court
has explained that the purpose of the withholding tax system is three-fold: (1) to provide the taxpayer
with a convenient way of paying his tax liability; (2) to ensure the collection of tax, and (3) to improve
the government’s cashflow. Under the withholding tax system, the payor is the taxpayer upon whom
the tax is imposed, while the withholding agent simply acts as an agent or a collector of the
government to ensure the collection of taxes.33 1avvphi1
It is, therefore, indisputable that the withholding agent is merely a tax collector and not a taxpayer,
as elucidated by this Court in the case of Commissioner of Internal Revenue v. Court of Appeals,34 to
wit:
In the operation of the withholding tax system, the withholding agent is the payor, a separate entity
acting no more than an agent of the government for the collection of the tax in order to ensure its
payments; the payer is the taxpayer – he is the person subject to tax imposed by law; and the payee
is the taxing authority. In other words, the withholding agent is merely a tax collector, not a taxpayer.
Under the withholding system, however, the agent-payor becomes a payee by fiction of law. His
(agent) liability is direct and independent from the taxpayer, because the income tax is still
imposed on and due from the latter. The agent is not liable for the tax as no wealth flowed
into him – he earned no income. The Tax Code only makes the agent personally liable for the tax
arising from the breach of its legal duty to withhold as distinguished from its duty to pay tax since:
"the government’s cause of action against the withholding agent is not for the collection of
income tax, but for the enforcement of the withholding provision of Section 53 of the Tax
Code, compliance with which is imposed on the withholding agent and not upon the
taxpayer."35 (Emphases supplied)
Based on the foregoing, the liability of the withholding agent is independent from that of the
taxpayer. The former cannot be made liable for the tax due because it is the latter who earned the
1âw phi 1
income subject to withholding tax. The withholding agent is liable only insofar as he failed to perform
his duty to withhold the tax and remit the same to the government. The liability for the tax, however,
remains with the taxpayer because the gain was realized and received by him.
While the payor-borrower can be held accountable for its negligence in performing its duty to
withhold the amount of tax due on the transaction, RCBC, as the taxpayer and the one which earned
income on the transaction, remains liable for the payment of tax as the taxpayer shares the
responsibility of making certain that the tax is properly withheld by the withholding agent, so as to
avoid any penalty that may arise from the non-payment of the withholding tax due.
RCBC cannot evade its liability for FCDU Onshore Tax by shifting the blame on the payor-borrower
as the withholding agent. As such, it is liable for payment of deficiency onshore tax on interest
income derived from foreign currency loans, pursuant to Section 24(e)(3) of the National Internal
Revenue Code of 1993:
Sec. 24. Rates of tax on domestic corporations.
xxxx
(e) Tax on certain incomes derived by domestic corporations
xxxx
(3) Tax on income derived under the Expanded Foreign Currency Deposit System. – Income derived
by a depository bank under the expanded foreign currency deposit system from foreign currency
transactions with nonresidents, offshore banking units in the Philippines, local commercial banks
including branches of foreign banks that may be authorized by the Central Bank to transact business
with foreign currency depository system units and other depository banks under the expanded
foreign currency deposit system shall be exempt from all taxes, except taxable income from such
transactions as may be specified by the Secretary of Finance, upon recommendation of the
Monetary Board to be subject to the usual income tax payable by banks: Provided, That interest
income from foreign currency loans granted by such depository banks under said expanded
system to residents (other than offshore banking units in the Philippines or other depository
banks under the expanded system) shall be subject to a 10% tax. (Emphasis supplied)
As a final note, this Court has consistently held that findings and conclusions of the CTA shall be
accorded the highest respect and shall be presumed valid, in the absence of any clear and
convincing proof to the contrary.36 The CTA, as a specialized court dedicated exclusively to the study
and resolution of tax problems, has developed an expertise on the subject of taxation.37 As such, its
decisions shall not be lightly set aside on appeal, unless this Court finds that the questioned decision
is not supported by substantial evidence or there is a showing of abuse or improvident exercise of
authority on the part of the Tax Court.38
WHEREFORE, the petition is DENIED.
SO ORDERED.
JOSE CATRAL MENDOZA

Associate Justice
WE CONCUR:

Associate Justice
Chairperson
DIOSDADO M. PERALTA ROBERTO A. ABAD

MARTIN S. VILLARAMA, JR.*

Associate Justice
ATTESTATION

Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I
RENATO C. CORONA
Chief Justice
THIRD DIVISION
G.R. No. 212825, December 07, 2015
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. NEXT MOBILE, INC. (FORMERLY NEXTEL

COMMUNICATIONS PHILS., INC.), Respondent.
DECISION
VELASCO JR., J.:
This is a Petition for Review under Rule 45 of the Rules of Court seeking to reverse and set aside the
Decision of the Court of Tax Appeals En Banc affirming the earlier decision of its First Division in CTA Case
No. 7965, cancelling and withdrawing petitioner's formal letter of demand and assessment notices to
respondent for having been issued beyond the prescriptive period provided by law.
The Facts
On April 15, 2002, respondent filed with the Bureau of Internal Revenue (BIR) its Annual Income Tax Return
(ITR) for taxable year ending December 31, 2001. Respondent also filed its Monthly Remittance Returns of
Final Income Taxes Withheld (BIR Form No. 1601-F), its Monthly Remittance Returns of Expanded
Withholding Tax (BIR Form No. 1501-E) and its Monthly Remittance Return of Income Taxes Withheld on
Compensation (BIR Form No. 1601-C) for year ending December 31, 2001.
On September 25, 2003, respondent received a copy of the Letter of Authority dated September 8, 2003
signed by Regional Director Nestor S. Valeroso authorizing Revenue Officer Nenita L. Crespo of Revenue
District Office 43 to examine respondent's books of accounts and other accounting records for income and
withholding taxes for the period covering January 1, 2001 to December 31, 2001.
Ma. Lida Sarmiento (Sarmiento), respondent's Director of Finance, subsequently executed several waivers of
the statute of limitations to extend the prescriptive period of assessment for taxes due in taxable year
ending December 31, 2001 (Waivers), the details of which are summarized as follows:
Extended
Date of Date of BIR
Waiver Date of
Execution Acknowledgment Signatory
Prescription
Revenue
March 30, August 26,
First Waiver August 30, 2004 District
2005 2004
Officer
Revenue
Second June 30, October 22,
October 22, 2004 District
Waiver 2005 2004
Officer
Revenue
Third September January
January 18, 2005 District
Waiver 30, 2005 12,2005
Officer
Revenue
Fourth September
None May 3, 2005 District
Waiver 30, 2005
Officer
Revenue
October 31, March 17,
Fifth Waiver May 3, 2005 District
2005 2005
Officer
On September 26, 2005, respondent received from the BIR a Preliminary Assessment Notice dated
September 16, 2005 to which it filed a Reply.
On October 25, 2005, respondent received a Formal Letter of Demand (FLD) and Assessment
Notices/Demand No. 43-734 both dated October 17, 2005 from the BIR, demanding payment of deficiency
income tax, final withholding tax (FWT), expanded withholding tax (EWT), increments for late remittance of
taxes withheld, and compromise penalty for failure to file returns/late filing/late remittance of taxes
withheld, in the total amount of P313,339,610.42 for the taxable year ending December 31, 2001.
On November 23, 2005, respondent filed its protest against the FLD and requested the reinvestigation of the
assessments. On July 28, 2009, respondent received a letter from the BIR denying its protest. Thus, on
August 27, 2009, respondent filed a Petition for Review before the CTA docketed as CTA Case No. 7965.
Ruling of the CTA Former First Division
On December 11, 2012, the former First Division of the CTA (CTA First Division) rendered a Decision
granting respondent's Petition for Review and declared the FLD dated October 17, 2005 and Assessment
Notices/Demand No. 43-734 dated October 17, 2005 cancelled and withdrawn for being issued beyond the
three-year prescriptive period provided by law.
It was held that based on the date of filing of respondent's Annual ITR as well as the dates of filing of its
monthly BIR Form Nos. 1601-F, 1601-E and 1601-C, it is clear that the adverted FLD and the Final
Assessment Notices both dated October 17, 2005 were issued beyond the three-year prescriptive period
provided under Section 203 ot the 1997 National Internal Revenue Code (NIRC), as amended.
The tax court also rejected petitioner's claim that this case falls under the exception as to the three-year
prescriptive period for assessment and that the 10-year prescriptive period should apply on the ground of
filing a false or fraudulent return. Under Section 222(a) of the 1997 NIRC, as amended, in case a taxpayer
filed a false or fraudulent return, the Commissioner of Internal Revenue (CIR) may assess a taxpayer for
deficiency tax within ten (10) years after the discovery of the falsity or the fraud. The tax court explained
that petitioner failed to substantiate its allegation by clear and convincing proof that respondent filed a false
or fraudulent return.
Furthermore, the CTA First Division held that the Waivers executed by Sarmiento did not validly extend the
three-year prescriptive period to assess respondent for deficiency income tax, FWT, EWT, increments for
late remittance of tax withheld and compromise penalty, for, as found, the Waivers were not properly
executed according to the procedure in Revenue Memorandum Order No. 20-90 (RMO 20-90)1 and Revenue
Delegation Authority Order No. 05-01 (RDAO 05-01).2
The tax court declared that, in this case, the Waivers have no binding effect on respondent for the following
reasons: chanRoblesv irt ual Lawlib rary
First, Sarmiento signed the Waivers without any notarized written authority from respondent's Board of
Directors. Petitioner's witness explicitly admitted that he did not require Sarmiento to present any notarized
written authority from the Board of Directors of respondent, authorizing her to sign the Waivers. Petitioner's
witness also confirmed that Revenue District Officer Raul Vicente L. Recto (RDO Recto) accepted the Waivers
as submitted.
Second, even assuming that Sarmiento had the necessary board authority, the Waivers are still invalid as
the respective dates of their acceptance by RDO Recto are not indicated therein.
Third, records of this case reveal additional irregularities in the subject Waivers:
(1) The fact of receipt by respondent of its copy of the Second Waiver was
not indicated on the face of the original Second Waiver;
(2) Respondent received its copy of the First and the Third Waivers on the
same day, May 23, 2005; and
(3) Respondent received its copy of the Fourth and the Fifth Waivers on the
same day, May 13, 2005.
Finally, the CTA held that estoppel does not apply in questioning the validity of a waiver of the statute of
limitations. It stated that the BIR cannot hide behind the doctrine of estoppel to cover its failure to comply
with RMO 20-90 and RDAO 05-01.
Petitioner's Motion for Reconsideration was denied on March 14, 2013.
Petitioner filed a Petition for Review before the CTA En Banc.
On May 28, 2014, the CTA En Banc rendered a Decision denying the Petition for Review and affirmed that of
the former CTA First Division.
It held that the five (5) Waivers of the statute of limitations were not valid and binding; thus, the three-year
period of limitation within which to assess deficiency taxes was not extended. It also held that the records
belie the allegation that respondent filed false and fraudulent tax returns; thus, the extension of the period
of limitation from three (3) to ten (10) years does not apply.
Issue
Petitioner has filed the instant petition on the issue of whether or not the CIR's right to assess respondent's
deficiency taxes had already prescribed.
Our Ruling
The petition has merit.
Section 2033 of the 1997 NIRC mandates the BIR to assess internal revenue taxes within three years from
the last day prescribed by law for the filing of the tax return or the actual date of filing of such return,
whichever comes later. Hence, an assessment notice issued after the three-year prescriptive period is not
valid and effective. Exceptions to this rule are provided under Section 2224 of the NIRC.
Section 222(b) of the NIRC provides that the period to assess and collect taxes may only be extended upon
a written agreement between the CIR and the taxpayer executed before the expiration of the three-year
period. RMO 20-90 issued on April 4, 1990 and RDAO 05-015 issued on August 2, 2001 provide the
procedure for the proper execution of a waiver. RMO 20-90 reads:
April 4, 1990
REVENUE MEMORANDUM ORDER NO. 20-90
Subject: Proper Execution of the Waiver of the Statute of Limitations under the National Internal
Revenue Code
To: All Internal Revenue Officers and Others Concerned
Pursuant to Section 223 of the Tax Code, internal revenue taxes may be assessed or collected after the
ordinary prescriptive period, if before its expiration, both the Commissioner and the taxpayer have agreed in
writing to its assessment and/or collection after said period. The period so agreed upon may be extended by
subsequent written agreement made before the expiration of the period previously agreed upon. This
written agreement between the Commissioner and the taxpayer is the so-called Waiver of the Statute of
Limitations. In the execution of said waiver, the following procedures should be followed: chanRob lesvi rtua lLawl ibra ry
1. The waiver must be in the form identified hereof. This form may be reproduced by the Office concerned
but there should be no deviation from such form. The phrase "but not after ______ 19____" should be filled
up. This indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-
year period of prescription. The period agreed upon shall constitute the time within which to effect the
assessment/collection of the tax in addition to the ordinary prescriptive period.
2. The waiver shall be signed by the taxpayer himself or his duly authorized representative. In the case of a
corporation, the waiver must be signed by any of its responsible officials.
Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue .or the revenue
official authorized by him, as hereinafter provided, shall sign the waiver indicating that the Bureau has
accepted and agreed to the waiver. The date of such acceptance by the Bureau should be indicated. Both
the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration
of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement
is executed.
3. The following revenue officials are authorized to sign the waiver: chanRob lesvi rtua lLawl ibra ry
xxxx
4. The waiver must be executed in three (3) copies, the original copy to be attached to the docket of the
case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of
receipt by the taxpayer of his/her file copy shall be indicated in the original copy.
5. The foregoing procedures shall be strictly followed. Any revenue official found not to have complied with
this Order resulting in prescription of the right to assess/collect shall be administratively dealt with.
This Revenue Memorandum Order shall take effect immediately.
(SGD.)JOSEU. ONG
Commissioner of Internal Revenue
The Court has consistently held that a waiver of the statute of limitations must faithfully comply with the
provisions of RMO No. 20-90 and RDAO 05-01 in order to be valid and binding.
In Philippine Journalists, Inc. v. Commissioner of Internal Revenue6 the Court declared the waiver executed
by petitioner therein invalid because: (1) it did not specify a definite agreed date between the BIR and
petitioner within which the former may assess and collect revenue taxes; (2) it was signed only by a
revenue district officer, not the Commissioner; (3) there was no date of acceptance; and (4) petitioner was
not furnished a copy of the waiver.
Philippine Journalists tells us that since a waiver of the statute of limitations is a derogation of the taxpayer's
right to security against prolonged and unscrupulous investigations, waivers of this kind must be carefully
and strictly construed. Philippine Journalists also clarifies that a waiver of the statute of limitations is not a
waiver of the right to invoke the defense of prescription but rather an agreement between the taxpayer and
the BIR that the period to issue an assessment and collect the taxes due is extended to a date certain. It is
not a unilateral act by the taxpayer of the BIR but is a bilateral agreement between two parties.
In Commissioner of Internal Revenue v. FMF Development Corporation7 the Court found the waiver in
question defective because: (1) it was not proved that respondent therein was furnished a copy of the BIR-
accepted waiver; (2) the waiver was signed by a revenue district officer instead of the Commissioner as
mandated by the NIRC and RMO 20-90 considering that the case involved an amount of more than
P1,000,000.00, and the period to assess was not yet about to prescribe; and (3) it did not contain the date
of acceptance by the CIR. The Court explained that the date of acceptance by the CIR is a requisite
necessary to determine whether the waiver was validly accepted before the expiration of the original
period.8
In CIR v. Kudos Metal Corporation,9 the waivers executed by Kudos were found ineffective to extend the
period to assess or collect taxes because: (1) the accountant who executed the waivers had no notarized
written board authority to sign the waivers in behalf of respondent corporation; (2) there was no date of
acceptance indicated on the waivers; and (3) the fact of receipt by respondent of its file copy was not
indicated in the original copies of the waivers.
The Court rejected the CIR's argument that since it was the one who asked for additional time, Kudos should
be considered estopped from raising the defense of prescription. The Court held that the BIR cannot hide
behind the doctrine of estoppel to cover its failure to comply with its RMO 20-90 and RDAO 05-01. Having
caused the defects in the waivers, the Court held that the BIR must bear the consequence.10 Hence, the BIR
assessments were found to be issued beyond the three-year period and declared void.11 Further, the Court
stressed that there is compliance with RMO 20-90 only after the taxpayer receives a copy of the waiver
accepted by the BIR, viz:
The flaw in the appellate court's reasoning stems from its assumption that the waiver is a unilateral act of
the taxpayer when it is in fact and in law an agreement between the taxpayer and the BIR. When the
petitioner's comptroller signed the waiver on September 22, 1997, it was not yet complete and final because
the BIR had not assented. There is compliance with the provision of RMO No. 20-90 only after the taxpayer
received a copy of the waiver accepted by the BIR. The requirement to furnish the taxpayer with a copy of
the waiver is not only to give notice of the existence of the document but of the acceptance by the BIR and
the perfection of the agreement.12 ChanRobles Vi rtualaw lib rary
The deficiencies of the Waivers in this case are the same as the defects of the waiver in Kudos. In the
instant case, the CTA found the Waivers because of the following flaws: (1) they were executed without a
notarized board authority; (2) the dates of acceptance by the BIR were not indicated therein; and (3) the
fact of receipt by respondent of its copy of the Second Waiver was not indicated on the face of the original
Second Waiver.
To be sure, both parties in this case are at fault.
Here, respondent, through Sarmiento, executed five Waivers in favor of petitioner. However, her authority
to sign these Waivers was not presented upon their submission to the BIR. In fact, later on, her authority to
sign was questioned by respondent itself, the very same entity that caused her to sign such in the first
place. Thus, it is clear that respondent violated RMO No. 20-90 which states that in case of a corporate
taxpayer, the waiver must be signed by its responsible officials13 and RDAO 01-05 which requires the
presentation of a written and notarized authority to the BIR.14
Similarly, the BIR violated its own rules and was careless in performing its functions with respect to these
Waivers. It is very clear that under RDAO 05-01 it is the duty of the authorized revenue official to ensure
that the waiver is duly accomplished and signed by the taxpayer or his authorized
representative before affixing his signature to signify acceptance of the same. It also instructs that in
case the authority is delegated by the taxpayer to a representative, the concerned revenue
official shall see to it that such delegation is in writing and duly notarized. Furthermore, it
mandates that the waiver should not be accepted by the concerned BIR office and official unless
duly notarized.15
Vis-a-vis the five Waivers it received from respondent, the BIR has failed, for five times, to perform its
duties in relation thereto: to verify Ms. Sarmiento's authority to execute them, demand the presentation of a
notarized document evidencing the same, refuse acceptance of the Waivers when no such document was
presented, affix the dates of its acceptance on each waiver, and indicate on the Second Waiver the date of
respondent's receipt thereof.
Both parties knew the infirmities of the Waivers yet they continued dealing with each other on the strength
of these documents without bothering to rectify these infirmities. In fact, in its Letter Protest to the BIR,
respondent did not even question the validity of the Waivers or call attention to their alleged defects.
In this case, respondent, after deliberately executing defective waivers, raised the very same deficiencies it
caused to avoid the tax liability determined by the BIR during the extended assessment period. It must be
remembered that by virtue of these Waivers, respondent was given the opportunity to gather and submit
documents to substantiate its claims before the CIR during investigation. It was able to postpone the
payment of taxes, as well as contest and negotiate the assessment against it. Yet, after enjoying these
benefits, respondent challenged the validity of the Waivers when the consequences thereof were not in its
favor. In other words, respondent's act of impugning these Waivers after benefiting therefrom and allowing
petitioner to rely on the same is an act of bad faith.
On the other hand, the stringent requirements in RMO 20-90 and RDAO 05-01 are in place precisely because
the BIR put them there. Yet, instead of strictly enforcing its provisions, the BIR defied the mandates of its
very own issuances. Verily, if the BIR was truly determined to validly assess and collect taxes from
respondent after the prescriptive period, it should have been prudent enough to make sure that all the
requirements for the effectivity of the Waivers were followed not only by its revenue officers but also by
respondent. The BIR stood to lose millions of pesos in case the Waivers were declared void, as they
eventually were by the CTA, but it appears that it was too negligent to even comply with its most basic
requirements.
The BIR's negligence in this case is so gross that it amounts to malice and bad faith. Without doubt, the BIR
knew that waivers should conform strictly to RMO 20-90 and RDAO 05-01 in order to be valid. In fact, the
mandatory nature of the requirements, as ruled by this Court, has been recognized by the BIR itself in its
issuances such as Revenue Memorandum Circular No. 6-2005,16 among others. Nevertheless, the BIR
allowed respondent to submit, and it duly received, five defective Waivers when it was its duty to exact
compliance with RMO 20-90 and RDAO 05-01 and follow the procedure dictated therein. It even openly
admitted that it did not require respondent to present any notarized authority to sign the questioned
Waivers.17 The BIR failed to demand respondent to follow the requirements for the validity of the Waivers
when it had the duty to do so, most especially because it had the highest interest at stake. If it was serious
in collecting taxes, the BIR should have meticulously complied with the foregoing orders, leaving no stone
unturned.
The general rule is that when a waiver does not comply with the requisites for its validity specified under
RMO No. 20-90 and RDAO 01-05, it is invalid and ineffective to extend the prescriptive period to assess
taxes. However, due to its peculiar circumstances, We shall treat this case as an exception to this rule and
find the Waivers valid for the reasons discussed below.
First, the parties in this case are in pari delicto or "in equal fault." In pari delicto connotes that the two
parties to a controversy are equally culpable or guilty and they shall have no action against each other.
However, although the parties are in pari delicto, the Court may interfere and grant relief at the suit of one
of them, where public policy requires its intervention, even though the result may be that a benefit will be
derived by one party who is in equal guilt with the other.18
Here, to uphold the validity of the Waivers would be consistent with the public policy embodied in the
principle that taxes are the lifeblood of the government, and their prompt and certain availability is an
imperious need.19 Taxes are the nation's lifeblood through which government agencies continue to operate
and which the State discharges its functions for the welfare of its constituents.20 As between the parties, it
would be more equitable if petitioner's lapses were allowed to pass and consequently uphold the Waivers in
order to support this principle and public policy.
Second, the Court has repeatedly pronounced that parties must come to court with clean hands.21Parties
who do not come to court with clean hands cannot be allowed to benefit from their own
wrongdoing.22 Following the foregoing principle, respondent should not be allowed to benefit from the flaws
in its own Waivers and successfully insist on their invalidity in order to evade its responsibility to pay taxes.
Third, respondent is estopped from questioning the validity of its Waivers. While it is true that the Court has
repeatedly held that the doctrine of estoppel must be sparingly applied as an exception to the statute of
limitations for assessment of taxes, the Court finds that the application of the doctrine is justified in this
case. Verily, the application of estoppel in this case would promote the administration of the law, prevent
injustice and avert the accomplishment of a wrong and undue advantage. Respondent executed five Waivers
and delivered them to petitioner, one after the other. It allowed petitioner to rely on them and did not raise
any objection against their validity until petitioner assessed taxes and penalties against it. Moreover, the
application of estoppel is necessary to prevent the undue injury that the government would suffer because
of the cancellation of petitioner's assessment of respondent's tax liabilities.
Finally, the Court cannot tolerate this highly suspicious situation. In this case, the taxpayer, on the one
hand, after voluntarily executing waivers, insisted on their invalidity by raising the very same defects it
caused. On the other hand, the BIR miserably failed to exact from respondent compliance with its rules. The
BIR's negligence in the performance of its duties was so gross that it amounted to malice and bad faith.
Moreover, the BIR was so lax such that it seemed that it consented to the mistakes in the Waivers. Such a
situation is dangerous and open to abuse by unscrupulous taxpayers who intend to escape their
responsibility to pay taxes by mere expedient of hiding behind technicalities.
It is true that petitioner was also at fault here because it was careless in complying with the requirements of
RMO No. 20-90 and RDAO 01-05. Nevertheless, petitioner's negligence may be addressed by enforcing the
provisions imposing administrative liabilities upon the officers responsible for these errors.23 The BIR's right
to assess and collect taxes should not be jeopardized merely because of the mistakes and lapses of its
officers, especially in cases like this where the taxpayer is obviously in bad faith.24
As regards petitioner's claim that the 10-year period of limitation within which to assess deficiency taxes
provided in Section 222(a) of the 1997 NIRC is applicable in this case as respondent allegedly filed false and
fraudulent returns, there is no reason to disturb the tax court's findings that records failed to establish,
even by prima facie evidence, that respondent Next Mobile filed false and fraudulent returns on
the ground of substantial underdeclaration of income in respondent Next Mobile's Annual ITR for
taxable year ending December 31, 2001.25 c ralaw red
While the Court rules that the subject Waivers are valid, We, however, refer back to the tax court the
determination of the merits of respondent's petition seeking the nullification of the BIR Formal Letter of
Demand and Assessment Notices/Demand No. 43-734.
WHEREFORE, premises considered, the Court resolves to GRANT the petition. The Decision of the Court of
Tax Appeals En Banc dated May 28, 2014 in CTA EB Case No. 1001 is hereby REVERSED and SET ASIDE.
Accordingly, let this case be remanded to the Court of Tax Appeals for further proceedings in order to
determine and rule on the merits of respondent's petition seeking the nullification of the BIR Formal Letter
of Demand and Assessment Notices/Demand No. 43-734, both dated October 17, 2005.
SO ORDERED. chanroblesvi rtua llawli bra ry
Peralta, Villarama, Jr., Perez,* and Reyes, JJ., concur.

FIRST DIVISION
G.R. No. 230861, September 19, 2018
ASIAN TRANSMISSION CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL

REVENUE, Respondent.
DECISION
BERSAMIN, J.:
We reiterate through this decision that the taxpayer has the primary responsibility for the proper
preparation of the waiver of the prescriptive period for assessing deficiency taxes. Hence, the Commissioner
of Internal Revenue (CIR) may not be blamed for any defects in the execution of the waiver.
The Case
This appeal seeks the review and reversal of the decision promulgated on August 9, 2016,1 whereby the
Court of Tax Appeals En Banc (CTA En Banc) reversed and set aside the decision rendered by its Second
Division (CTA in Division) holding that the waivers executed by petitioner Asian Transmission Corporation
(ATC) were invalid and did not operate to extend the three-year period of prescription to assess deficiency
taxes for the calendar year 2002.2
Antecedents
As found by the CTA in Division, the factual and procedural antecedents are as follows:
[ATC] is a corporation duly organized and existing under Philippine Laws and with business address at
Carmelray Industrial Park, Canlubang, Calamba City, Laguna. ATC is a manufacturer of motor vehicle
transmission component parts and engines of Mitsubishi vehicles. It was organized and registered with the
Securities and Exchange Commission on August 29, 1973 as evidenced by its Certificate of Incorporation.
[The CIR] is the Commissioner of the Bureau of Internal Revenue (BIR) with office address at BIR National
Office Bldg., Agham Road, Diliman, Quezon City.
On January 3, 2003 and March 3, 2003, ATC filed its Annual Information Return of Income Taxes Withheld
on Compensation and Final Withholding Taxes and Annual Information Return of Creditable Income Taxed
Withheld (Expanded)/Income Payments Exempt from Withholding Tax, respectively.
On August 11, 2004, ATC received Letter of Authority [(LOA)] No. 200000003557 where [the CIR] informed
ATC that its revenue officers from the Large Taxpayers Audit and Investigation Division II shall examine its
books of accounts and other accounting records for the taxable year 2002.
Thereafter, [the CIR] issued a Preliminary Assessment Notice (PAN) to ATC.
Consequently, on various dates, ATC, through its Vice President for Personnel and Legal Affairs, Mr. Roderick
M. Tan, executed several documents denominated as "Waiver of the Defense of Prescription Under the
Statute of Limitations of the National Internal Revenue Code" (Waiver), as follows:
Source of Date of Date of

Waiver
Document Execution Extension
Page 415, BIR September 8,

First Waiver June 30, 2005
Records 2004
Second Page 419, BIR December 31,
March 3, 2005
Waiver Records 2005
Page 422, BIR November 10,

Third Waiver June 30, 2006
Records 2005
Fourth Page 429, BIR December 31,

March 21, 2006
Waiver Records 2006
Page 767, BIR

Fifth Waiver March 21, 2006 June 30, 2007
Records
Page 349, BIR December 31,

Sixth Waiver April 18, 2007
Records 2007
Seventh Page 354, BIR

October 25, 2007 June 30, 2008
Waiver Records
Eight[h] Page 1176, BIR December 31,

May 30, 2008
Waiver Records 2008
Meanwhile, on February 28, 2008, ATC availed of the Tax Amnesty [P]rogram under Republic Act No. 9480.
On July 15, 2008, ATC received a Formal Letter of Demand from [the] CIR for deficiency [WTC] in the
amount of P[hp]62,977,798.02, [EWT] in the amount of P[hp]6,916,910.51, [FWT] in the amount of
P[hp]501,077.72. On August 14, 2008, ATC filed its Protest Letter in regard thereto.
Accordingly, on April 14, 2009, ATC received the Final Decision on Disputed Assessment where [the] CIR
found ATC liable to pay deficiency tax in the amount of P[hp]75,696,616.75. Thus, on May 14, 2009, ATC
filed an appeal letter/request for reconsideration with [the] CIR.
On April 10, 2012, ATC received the Decision of [the] CIR dated November 15, 2011, denying its request for
reconsideration. As such, on April 23, 2012, ATC filed the instant Petition for Review (with Application for
Preliminary Injunction and Temporary Restraining Order).3
Ruling of the CTA in Division
On November 28, 2014, the CTA in Division rendered its decision granting the petition for review of ATC. It
held that ATC was not estopped from raising the invalidity of the waivers inasmuch as the Bureau of Internal
Revenue (BIR) had itself caused the defects thereof, namely: (a) the waivers were notarized by its own
employee despite not being validly commissioned to perform notarial acts; (b) the BIR did not indicate the
date of its acceptance; (c) the BIR did not specify the amounts of and the particular taxes involved; and (d)
respondent CIR did not sign the waivers despite the clear mandate of RMO 20-90 to that effect. It ruled that
the waivers, being invalid, did not operate to toll or extend the three-year period of prescription.4
The CTA in Division disposed:
WHEREFORE, in view thereof, the Petition for Review is hereby GRANTED. Accordingly, the deficiency
[WTC] in the amount of P[hp]67,722,419.38, [EWT] in the amount of P[hp]7,436,545.83 and [FWT] in the
amount of P[hp]537,651.55, or in the total amount of P[hp]75,696,616.75 for the taxable year 2002, are
hereby declared CANCELLED, WITHDRAWN and WITH NO FORCE AND EFFECT.
SO ORDERED.5
On December 16, 2014, the CIR moved for reconsideration, and ATC opposed.
On March 13, 2015, the CTA in Division denied the CIR's motion for reconsideration,6 to wit:
WHEREFORE, premises considered, [the CIR's] Motion for Reconsideration is hereby DENIED for lack of
merit.
SO ORDERED.7
On April 20, 2015, the CIR filed a petition for review in the CTA En Banc.
Decision of the CTA En Banc
On August 9, 2016, the CTA En Banc promulgated the assailed decision reversing and setting aside the
decision of the CTA in Division, and holding that the waivers were valid. It observed that the CIR's right to
assess deficiency withholding taxes for CY 2002 against ATC had not yet prescribed. It disposed:
WHEREFORE, premises considered, the Court hereby GRANTS the Petition for Review. Accordingly, the
Decision promulgated on November 28, 2014 and the Resolution on March 13, 2015 by the Second Division
are REVERSED and SET ASIDE. Let the case be REMANDED to the Court in Division for further
proceedings in order to determine and rule on the merits of respondent's petition seeking the cancellation of
the deficiency tax assessments for calendar year 2002 for withholding tax on compensation, expanded
withholding tax, and final withholding tax in the aggregate amount of Php75,696,616.75.
SO ORDERED.8
On September 9 and September 16, 2016, ATC filed its motion for reconsideration9 and supplemental
motion for reconsideration,10 respectively, but the CTA En Banc denied the motions for lack of merit.
Issue
In this appeal, ATC insists that the CTA En Banc acted in excess of jurisdiction or with grave abuse of
discretion amounting to lack or excess of jurisdiction in applying the ruling in Commissioner of Internal
Revenue v. Next Mobile Inc.11 as well as the equitable principles of in pari delicto, unclean hands,
and estoppel.
Ruling of the Court
The appeal has no merit.
To be noted is that the CTA En Banc cited Commissioner of Internal Revenue v. Kudos Metal
Corporation,12 whereby the Court reiterated that RMO 20-90 and RDAO 05-01 governed the proper
execution of a valid waiver of the statute of limitations; and pointed to Commissioner of Internal Revenue v.
Next Mobile Inc., supra, to highlight the recognized exception to the strict application of RMO 20-90 and
RDAO 05-01.
In Commissioner of Internal Revenue v. Next Mobile Inc., the Court declared that as a general rule a waiver
that did not comply with the requisites for validity specified in RMO No. 20-90 and RDAO 01-05 was invalid
and ineffective to extend the prescriptive period to assess the deficiency taxes. However, due to peculiar
circumstances obtaining, the Court treated the case as an exception to the rule, and considered the waivers
concerned as valid for the following reasons, viz.:
First, the parties in this case are in pari delicto or "in equal fault." In pari delicto connotes that the two
parties to a controversy are equally culpable or guilty and they shall have no action against each other.
However, although the parties are in pari delicto, the Court may interfere and grant relief at the suit of one
of them, where public policy requires its intervention, even though the result may be that a benefit will be
derived by one party who is in equal guilt with the other.
Here, to uphold the validity of the Waivers would be consistent with the public policy embodied in the
principle that taxes are the lifeblood of the government, and their prompt and certain availability is an
imperious need. Taxes are the nation's lifeblood through which government agencies continue to operate
and which the State discharges its functions for the welfare of its constituents. As between the parties, it
would be more equitable if petitioner's lapses were allowed to pass and consequently uphold the Waivers in
order to support this principle and public policy.
Second, the Court has repeatedly pronounced that parties must come to court with clean hands. Parties who
do not come to court with clean hands cannot be allowed to benefit from their own wrongdoing. Following
the foregoing principle, respondent should not be allowed to benefit from the flaws in its own Waivers and
successfully insist on their invalidity in order to evade its responsibility to pay taxes.
Third, respondent is estopped from questioning the validity of its Waivers. While it is true that the Court has
repeatedly held that the doctrine of estoppel must be sparingly applied as an exception to the statute of
limitations for assessment of taxes, the Court finds that the application of the doctrine is justified in this
case. Verily, the application of estoppel in this case would promote the administration of the law, prevent
injustice and avert the accomplishment of a wrong and undue advantage. Respondent executed five Waivers
and delivered them to petitioner, one after the other. It allowed petitioner to rely on them and did not raise
any objection against their validity until petitioner assessed taxes and penalties against it. Moreover, the
application of estoppel is necessary to prevent the undue injury that the government would suffer because
of the cancellation of petitioner's assessment of respondent's tax liabilities.
Finally, the Court cannot tolerate this highly suspicious situation. In this case, the taxpayer, on the one
hand, after voluntarily executing waivers, insisted on their invalidity by raising the very same defects it
caused. On the other hand, the BIR miserably failed to exact from respondent compliance with its rules. The
BIR's negligence in the performance of its duties was so gross that it amounted to malice and bad faith.
Moreover, the BIR was so lax such that it seemed that it consented to the mistakes in the Waivers. Such a
situation is dangerous and open to abuse by unscrupulous taxpayers who intend to escape their
responsibility to pay taxes by mere expedient of hiding behind technicalities.
It is true that petitioner was also at fault here because it was careless in complying with the requirements of
RMO No. 20-90 and RDAO 01-05. Nevertheless, petitioner's negligence may be addressed by enforcing the
provisions imposing administrative liabilities upon the officers responsible for these errors. The BIR's right to
assess and collect taxes should not be jeopardized merely because of the mistakes and lapses of its officers,
especially in cases like this where the taxpayer is obviously in bad faith.13
In this case, the CTA in Division noted that the eight waivers of ATC contained the following defects, to wit:
1. The notarization of the Waivers was not in accordance with the 2004 Rules on Notarial Practice;
2. Several waivers clearly failed to indicate the date of acceptance by the Bureau of Internal Revenue;
3. The Waivers were not signed by the proper revenue officer; and
4. The Waivers failed to specify the type of tax and the amount of tax due.14
We agree with the holding of the CTA En Banc that ATC's case was similar to the case of the taxpayer
involved in Commissioner of Internal Revenue v. Next Mobile Inc. The foregoing defects noted in the waivers
of ATC were not solely attributable to the CIR. Indeed, although RDAO 01-05 stated that the waiver should
not be accepted by the concerned BIR office or official unless duly notarized, a careful reading of RDAO 01-
05 indicates that the proper preparation of the waiver was primarily the responsibility of the taxpayer or its
authorized representative signing the waiver. Such responsibility did not pertain to the BIR as the receiving
party. Consequently, ATC was not correct in insisting that the act or omission giving rise to the defects of
the waivers should be ascribed solely to the respondent CIR and her subordinates.
Moreover, the principle of estoppel was applicable. The execution of the waivers was to the advantage of
ATC because the waivers would provide to ATC the sufficient time to gather and produce voluminous records
for the audit. It would really be unfair, therefore, were ATC to be permitted to assail the waivers only after
the final assessment proved to be adverse. Indeed, the Court observed in Commissioner of Internal Revenue
v. Next Mobile Inc. that:
In this case, respondent, after deliberately executing defective waivers, raised the very same deficiencies it
caused to avoid the tax liability determined by the BIR during the extended assessment period. It must be
remembered that by virtue of these Waivers, respondent was given the opportunity to gather and submit
documents to substantiate its claims before the CIR during investigation. It was able to postpone the
payment of taxes, as well as contest and negotiate the assessment against it. Yet, after enjoying these
benefits, respondent challenged the validity of the Waivers when the consequences thereof were not in its
favor. In other words, respondent's act of impugning these Waivers after benefiting therefrom and allowing
petitioner to rely on the same is an act of bad faith.15
Thus, the CTA En Banc did not err in ruling that ATC, after having benefitted from the defective waivers,
should not be allowed to assail them. In short, the CTA En Banc properly applied the equitable principles of
in pari delicto, unclean hands, and estoppel as enunciated in Commissioner of Internal Revenue v. Next
Mobile case.
WHEREFORE, the Court DENIES the petition for review on certiorari; AFFIRMS the decision promulgated
on August 9, 2016 by the Court of Tax Appeals En Banc in CTA EB No. 1289 (CTA Case No. 8476);
and ORDERS the petitioner to pay the costs of suit.
SO ORDERED.
Leonardo-De Castro, C.J., (Chairperson), Del Castillo, Jardeleza, and Tijam, JJ., concur.
SECOND DIVISION
G.R. No. 185371 December 8, 2010

vs.
METRO STAR SUPERAMA, INC., Respondent.
DECISION
MENDOZA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court filed by the petitioner
Commissioner of Internal Revenue (CIR) seeks to reverse and set aside the 1] September 16, 2008
Decision1 of the Court of Tax Appeals En Banc (CTA-En Banc), in C.T.A. EB No. 306 and 2] its
November 18, 2008 Resolution2 denying petitioner’s motion for reconsideration.
The CTA-En Banc affirmed in toto the decision of its Second Division (CTA-Second Division) in CTA
Case No. 7169 reversing the February 8, 2005 Decision of the CIR which assessed respondent
Metro Star Superama, Inc. (Metro Star) of deficiency value-added tax and withholding tax for the
taxable year 1999.
Based on a Joint Stipulation of Facts and Issues3 of the parties, the CTA Second Division
summarized the factual and procedural antecedents of the case, the pertinent portions of which
read:
Petitioner is a domestic corporation duly organized and existing by virtue of the laws of the Republic
of the Philippines, x x x.
On January 26, 2001, the Regional Director of Revenue Region No. 10, Legazpi City, issued Letter
of Authority No. 00006561 for Revenue Officer Daisy G. Justiniana to examine petitioner’s books of
accounts and other accounting records for income tax and other internal revenue taxes for the
taxable year 1999. Said Letter of Authority was revalidated on August 10, 2001 by Regional Director
Leonardo Sacamos.
For petitioner’s failure to comply with several requests for the presentation of records and Subpoena
Duces Tecum, [the] OIC of BIR Legal Division issued an Indorsement dated September 26, 2001
informing Revenue District Officer of Revenue Region No. 67, Legazpi City to proceed with the
investigation based on the best evidence obtainable preparatory to the issuance of assessment
notice.
On November 8, 2001, Revenue District Officer Socorro O. Ramos-Lafuente issued a Preliminary

15-day Letter, which petitioner received on November 9, 2001. The said letter stated that a post
audit review was held and it was ascertained that there was deficiency value-added and withholding
taxes due from petitioner in the amount of ₱ 292,874.16.
On April 11, 2002, petitioner received a Formal Letter of Demand dated April 3, 2002 from Revenue
District No. 67, Legazpi City, assessing petitioner the amount of Two Hundred Ninety Two Thousand
Eight Hundred Seventy Four Pesos and Sixteen Centavos (₱292,874.16.) for deficiency value-
added and withholding taxes for the taxable year 1999, computed as follows:
ASSESSMENT NOTICE NO. 067-99-003-579-072
VALUE ADDED TAX
Gross Sales ₱1,697,718.90

Output Tax ₱ 154,338.08
Less: Input Tax _____________

VAT Payable ₱ 154,338.08
Add: 25% Surcharge ₱ 38,584.54
20% Interest 79,746.49

Compromise Penalty
Late Payment ₱16,000.00

Failure to File VAT returns 2,400.00 18,400.00 136,731.01
TOTAL ₱ 291,069.09
WITHHOLDING TAX
Compensation 2,772.91
Expanded 110,103.92
Total Tax Due ₱ 112,876.83

Less: Tax Withheld 111,848.27
Deficiency Withholding Tax ₱ 1,028.56
Add: 20% Interest p.a. 576.51

Compromise Penalty 200.00
TOTAL ₱ 1,805.07
*Expanded Withholding Tax ₱1,949,334.25 x 5% 97,466.71
Film Rental 10,000.25 x 10% 1,000.00
Audit Fee 193,261.20 x 5% 9,663.00

Rental Expense 41,272.73 x 1% 412.73
Security Service 156,142.01 x 1% 1,561.42
Service Contractor ₱ 110,103.92
Total
SUMMARIES OF DEFICIENCIES
VALUE ADDED TAX ₱ 291,069.09
WITHHOLDING TAX 1,805.07
TOTAL ₱ 292,874.16
Subsequently, Revenue District Office No. 67 sent a copy of the Final Notice of Seizure dated May
12, 2003, which petitioner received on May 15, 2003, giving the latter last opportunity to settle its
deficiency tax liabilities within ten (10) [days] from receipt thereof, otherwise respondent BIR shall be
constrained to serve and execute the Warrants of Distraint and/or Levy and Garnishment to enforce
collection.
On February 6, 2004, petitioner received from Revenue District Office No. 67 a Warrant of Distraint
and/or Levy No. 67-0029-23 dated May 12, 2003 demanding payment of deficiency value-added tax
and withholding tax payment in the amount of ₱292,874.16.
On July 30, 2004, petitioner filed with the Office of respondent Commissioner a Motion for
Reconsideration pursuant to Section 3.1.5 of Revenue Regulations No. 12-99.
On February 8, 2005, respondent Commissioner, through its authorized representative, Revenue

Regional Director of Revenue Region 10, Legaspi City, issued a Decision denying petitioner’s
Motion for Reconsideration. Petitioner, through counsel received said Decision on February 18,
2005.
x x x.
Denying that it received a Preliminary Assessment Notice (PAN) and claiming that it was not
accorded due process, Metro Star filed a petition for review4 with the CTA. The parties then
stipulated on the following issues to be decided by the tax court:
1. Whether the respondent complied with the due process requirement as provided under the
National Internal Revenue Code and Revenue Regulations No. 12-99 with regard to the
issuance of a deficiency tax assessment;
1.1 Whether petitioner is liable for the respective amounts of ₱291,069.09 and
₱1,805.07 as deficiency VAT and withholding tax for the year 1999;
1.2. Whether the assessment has become final and executory and demandable for
failure of petitioner to protest the same within 30 days from its receipt thereof on April
11, 2002, pursuant to Section 228 of the National Internal Revenue Code;
2. Whether the deficiency assessments issued by the respondent are void for failure to state
the law and/or facts upon which they are based.
2.2 Whether petitioner was informed of the law and facts on which the assessment is
made in compliance with Section 228 of the National Internal Revenue Code;
3. Whether or not petitioner, as owner/operator of a movie/cinema house, is subject to VAT

on sales of services under Section 108(A) of the National Internal Revenue Code;
4. Whether or not the assessment is based on the best evidence obtainable pursuant to
Section 6(b) of the National Internal Revenue Code.
The CTA-Second Division found merit in the petition of Metro Star and, on March 21, 2007, rendered
a decision, the decretal portion of which reads:
WHEREFORE, premises considered, the Petition for Review is hereby GRANTED. Accordingly, the
assailed Decision dated February 8, 2005 is hereby REVERSED and SET ASIDE and respondent is
ORDERED TO DESIST from collecting the subject taxes against petitioner.
The CTA-Second Division opined that "[w]hile there [is] a disputable presumption that a mailed letter
[is] deemed received by the addressee in the ordinary course of mail, a direct denial of the receipt of
mail shifts the burden upon the party favored by the presumption to prove that the mailed letter was
indeed received by the addressee."5 It also found that there was no clear showing that Metro Star
actually received the alleged PAN, dated January 16, 2002. It, accordingly, ruled that the Formal
Letter of Demand dated April 3, 2002, as well as the Warrant of Distraint and/or Levy dated May 12,
2003 were void, as Metro Star was denied due process.6
The CIR sought reconsideration7 of the decision of the CTA-Second Division, but the motion was
denied in the latter’s July 24, 2007 Resolution.8
Aggrieved, the CIR filed a petition for review9 with the CTA-En Banc, but the petition was dismissed
after a determination that no new matters were raised. The CTA-En Banc disposed:
WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and DISMISSED
for lack of merit. Accordingly, the March 21, 2007 Decision and July 27, 2007 Resolution of the CTA
Second Division in CTA Case No. 7169 entitled, "Metro Star Superama, Inc., petitioner vs.
Commissioner of Internal Revenue, respondent" are hereby AFFIRMED in toto.
SO ORDERED.
The motion for reconsideration10 filed by the CIR was likewise denied by the CTA-En Banc in its
November 18, 2008 Resolution.11
The CIR, insisting that Metro Star received the PAN, dated January 16, 2002, and that due process
was served nonetheless because the latter received the Final Assessment Notice (FAN), comes now
before this Court with the sole issue of whether or not Metro Star was denied due process.
The general rule is that the Court will not lightly set aside the conclusions reached by the CTA which,
by the very nature of its functions, has accordingly developed an exclusive expertise on the
resolution unless there has been an abuse or improvident exercise of authority.12 In Barcelon, Roxas
Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of Internal Revenue,13 the
Court wrote:
Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the
highest respect. In Sea-Land Service Inc. v. Court of Appeals [G.R. No. 122605, 30 April 2001, 357
SCRA 441, 445-446], this Court recognizes that the Court of Tax Appeals, which by the very nature
of its function is dedicated exclusively to the consideration of tax problems, has necessarily
developed an expertise on the subject, and its conclusions will not be overturned unless there has
been an abuse or improvident exercise of authority. Such findings can only be disturbed on appeal if
they are not supported by substantial evidence or there is a showing of gross error or abuse on the
part of the Tax Court. In the absence of any clear and convincing proof to the contrary, this Court
must presume that the CTA rendered a decision which is valid in every respect.
On the matter of service of a tax assessment, a further perusal of our ruling in Barcelon is
instructive, viz:
Jurisprudence is replete with cases holding that if the taxpayer denies ever having received an
assessment from the BIR, it is incumbent upon the latter to prove by competent evidence that such
notice was indeed received by the addressee. The onus probandi was shifted to respondent to prove
by contrary evidence that the Petitioner received the assessment in the due course of mail. The
Supreme Court has consistently held that while a mailed letter is deemed received by the addressee
in the course of mail, this is merely a disputable presumption subject to controversion and a direct
denial thereof shifts the burden to the party favored by the presumption to prove that the mailed
letter was indeed received by the addressee (Republic vs. Court of Appeals, 149 SCRA 351). Thus
as held by the Supreme Court in Gonzalo P. Nava vs. Commissioner of Internal Revenue, 13 SCRA
104, January 30, 1965:
"The facts to be proved to raise this presumption are (a) that the letter was properly addressed with
postage prepaid, and (b) that it was mailed. Once these facts are proved, the presumption is that the
letter was received by the addressee as soon as it could have been transmitted to him in the
ordinary course of the mail. But if one of the said facts fails to appear, the presumption does not lie.
(VI, Moran, Comments on the Rules of Court, 1963 ed, 56-57 citing Enriquez vs. Sunlife Assurance
of Canada, 41 Phil 269)."
x x x. What is essential to prove the fact of mailing is the registry receipt issued by the Bureau of
Posts or the Registry return card which would have been signed by the Petitioner or its authorized
representative. And if said documents cannot be located, Respondent at the very least, should have
submitted to the Court a certification issued by the Bureau of Posts and any other pertinent
document which is executed with the intervention of the Bureau of Posts. This Court does not put
much credence to the self serving documentations made by the BIR personnel especially if they are
unsupported by substantial evidence establishing the fact of mailing. Thus:
"While we have held that an assessment is made when sent within the prescribed period, even if
received by the taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259,
May 27, 1959), this ruling makes it the more imperative that the release, mailing or sending of the
notice be clearly and satisfactorily proved. Mere notations made without the taxpayer’s intervention,
notice or control, without adequate supporting evidence cannot suffice; otherwise, the taxpayer
would be at the mercy of the revenue offices, without adequate protection or defense." (Nava vs.
CIR, 13 SCRA 104, January 30, 1965).
x x x.
The failure of the respondent to prove receipt of the assessment by the Petitioner leads to the
conclusion that no assessment was issued. Consequently, the government’s right to issue an
assessment for the said period has already prescribed. (Industrial Textile Manufacturing Co. of the
Phils., Inc. vs. CIR CTA Case 4885, August 22, 1996). (Emphases supplied.)
The Court agrees with the CTA that the CIR failed to discharge its duty and present any evidence to
show that Metro Star indeed received the PAN dated January 16, 2002. It could have simply
presented the registry receipt or the certification from the postmaster that it mailed the PAN, but
failed. Neither did it offer any explanation on why it failed to comply with the requirement of service
of the PAN. It merely accepted the letter of Metro Star’s chairman dated April 29, 2002, that stated
that he had received the FAN dated April 3, 2002, but not the PAN; that he was willing to pay the tax
as computed by the CIR; and that he just wanted to clarify some matters with the hope of lessening
its tax liability.
This now leads to the question: Is the failure to strictly comply with notice requirements prescribed
under Section 228 of the National Internal Revenue Code of 1997 and Revenue Regulations (R.R.)
No. 12-99 tantamount to a denial of due process? Specifically, are the requirements of due process
satisfied if only the FAN stating the computation of tax liabilities and a demand to pay within the
prescribed period was sent to the taxpayer?
The answer to these questions require an examination of Section 228 of the Tax Code which reads:
SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his
findings: provided, however, that a preassessment notice shall not be required in the following
cases:
(a) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and automatically
applied the same amount claimed against the estimated tax liabilities for the taxable quarter
or quarters of the succeeding taxable year; or
(d) When the excise tax due on exciseable articles has not been paid; or
(e) When the article locally purchased or imported by an exempt person, such as, but not
limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or
transferred to non-exempt persons.
The taxpayers shall be informed in writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be
required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly
authorized representative shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a request for reconsideration or

reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as
may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the
protest, all relevant supporting documents shall have been submitted; otherwise, the assessment
shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days
from submission of documents, the taxpayer adversely affected by the decision or inaction may
appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from
the lapse of one hundred eighty (180)-day period; otherwise, the decision shall become final,
executory and demandable. (Emphasis supplied).
Indeed, Section 228 of the Tax Code clearly requires that the taxpayer must first be informed that he
is liable for deficiency taxes through the sending of a PAN. He must be informed of the facts and the
law upon which the assessment is made. The law imposes a substantive, not merely a formal,
requirement. To proceed heedlessly with tax collection without first establishing a valid assessment
is evidently violative of the cardinal principle in administrative investigations - that taxpayers should
be able to present their case and adduce supporting evidence.14
This is confirmed under the provisions R.R. No. 12-99 of the BIR which pertinently provide:
SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment. —
3.1 Mode of procedures in the issuance of a deficiency tax assessment:
3.1.1 Notice for informal conference. — The Revenue Officer who audited the taxpayer's
records shall, among others, state in his report whether or not the taxpayer agrees with his
findings that the taxpayer is liable for deficiency tax or taxes. If the taxpayer is not amenable,
based on the said Officer's submitted report of investigation, the taxpayer shall be informed,
in writing, by the Revenue District Office or by the Special Investigation Division, as the case
may be (in the case Revenue Regional Offices) or by the Chief of Division concerned (in the
case of the BIR National Office) of the discrepancy or discrepancies in the taxpayer's
payment of his internal revenue taxes, for the purpose of "Informal Conference," in order to
afford the taxpayer with an opportunity to present his side of the case. If the taxpayer fails to
respond within fifteen (15) days from date of receipt of the notice for informal conference, he
shall be considered in default, in which case, the Revenue District Officer or the Chief of the
Special Investigation Division of the Revenue Regional Office, or the Chief of Division in the
National Office, as the case may be, shall endorse the case with the least possible delay to
the Assessment Division of the Revenue Regional Office or to the Commissioner or his duly
authorized representative, as the case may be, for appropriate review and issuance of a
deficiency tax assessment, if warranted.
3.1.2 Preliminary Assessment Notice (PAN). — If after review and evaluation by the
Assessment Division or by the Commissioner or his duly authorized representative, as the
case may be, it is determined that there exists sufficient basis to assess the taxpayer for any
deficiency tax or taxes, the said Office shall issue to the taxpayer, at least by registered mail,
a Preliminary Assessment Notice (PAN) for the proposed assessment, showing in detail, the
facts and the law, rules and regulations, or jurisprudence on which the proposed assessment
is based (see illustration in ANNEX A hereof). 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.
3.1.3 Exceptions to Prior Notice of the Assessment. — The notice for informal conference
and the preliminary assessment notice shall not be required in any of the following cases, in
which case, issuance of the formal assessment notice for the payment of the taxpayer's
deficiency tax liability shall be sufficient:
(i) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax appearing on the face of the tax return filed by the taxpayer;
or
(ii) When a discrepancy has been determined between the tax withheld and the
amount actually remitted by the withholding agent; or
(iii) When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount claimed against the estimated tax liabilities
for the taxable quarter or quarters of the succeeding taxable year; or
(iv) When the excise tax due on excisable articles has not been paid; or
(v) When an article locally purchased or imported by an exempt person, such as, but
not limited to, vehicles, capital equipment, machineries and spare parts, has been
sold, traded or transferred to non-exempt persons.
3.1.4 Formal Letter of Demand and Assessment Notice. — The formal letter of demand and
assessment notice shall be issued by the Commissioner or his duly authorized
representative. The letter of demand calling for payment of the taxpayer's deficiency tax or
taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the
assessment is based, otherwise, the formal letter of demand and assessment notice shall be
void (see illustration in ANNEX B hereof).
The same shall be sent to the taxpayer only by registered mail or by personal delivery.
If sent by personal delivery, the taxpayer or his duly authorized representative shall acknowledge
receipt thereof in the duplicate copy of the letter of demand, showing the following: (a) His name; (b)
signature; (c) designation and authority to act for and in behalf of the taxpayer, if acknowledged
received by a person other than the taxpayer himself; and (d) date of receipt thereof.
x x x.
From the provision quoted above, it is clear that the sending of a PAN to 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 assessment made by the tax authorities.
The use of the word "shall" in subsection 3.1.2 describes the mandatory nature of the service of a
PAN. 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.15 Thus, for its failure to send the PAN stating the
facts and the law on which the assessment was made as required by Section 228 of R.A. No. 8424,
the assessment made by the CIR is void.
The case of CIR v. Menguito16 cited by the CIR in support of its argument that only the non-service of
the FAN is fatal to the validity of an assessment, cannot apply to this case because the issue therein
was the non-compliance with the provisions of R. R. No. 12-85 which sought to interpret Section 229
of the old tax law. RA No. 8424 has already amended the provision of Section 229 on protesting an
assessment. The old requirement of merely notifyingthe taxpayer of the CIR’s findings was changed
in 1998 to informing the taxpayer of not only the law, but also of the facts on which an assessment
would be made. Otherwise, the assessment itself would be invalid.17 The regulation then, on the
other hand, simply provided that a notice be sent to the respondent in the form prescribed, and that
no consequence would ensue for failure to comply with that form. 1avv phi 1
The Court need not belabor to discuss the matter of Metro Star’s failure to file its protest, for it is
well-settled that a void assessment bears no fruit.18
It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of
property without due process of law.19 In balancing the scales between the power of the State to tax
and its inherent right to prosecute perceived transgressors of the law on one side, and the
constitutional rights of a citizen to due process of law and the equal protection of the laws on the
other, the scales must tilt in favor of the individual, for a citizen’s right is amply protected by the Bill
of Rights under the Constitution. Thus, while "taxes are the lifeblood of the government," the power
to tax has its limits, in spite of all its plenitude. Hence in Commissioner of Internal Revenue v. Algue,
Inc.,20 it was said –
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. On the other hand, such collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile
the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of
taxation, which is the promotion of the common good, may be achieved.
xxx xxx xxx
It is said that taxes are what we pay for civilized society. Without taxes, the government would be
paralyzed for the lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one’s hard-earned income to taxing authorities, every person who is
able to must contribute his share in the running of the government. The government for its part is
expected to respond in the form of tangible and intangible benefits intended to improve the lives of
the people and enhance their moral and material values. This symbiotic relationship is the rationale
of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those
in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his
succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate x x x that the law has not been observed.21 (Emphasis supplied).
WHEREFORE, the petition is DENIED.
SO ORDERED.
JOSE CATRAL MENDOZA

Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
ANTONIO EDUARDO B. NACHURA DIOSDADO M. PERALTA

ROBERTO A. ABAD
Associate Justice
ATTESTATION
ANTONIO T. CARPIO
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation, I
RENATO C. CORONA
Chief Justice
THIRD DIVISION
G.R. No. 193100 December 10, 2014
SAMAR-I ELECTRIC COOPERATIVE, Petitioner,

vs.
DECISION
VILLARAMA, JR., J.:
At bar is a petition for review on certiorari of the Decision1 of the Court of Tax Appeals En Banc (CTA
EB) dated March 11, 2010 and it,s Resolution2 dated July 28, 2010 in C.T.A. EB Nos. 460 and 462
(C.T.A. Case No. 6697) affirming the May 27, 2008 Decision3 and the January 19, 2009 Amended
Decision4 of the CTA's First Division, and ordering petitioner to pay respondent Commissioner of
Internal Revenue (CIR) deficiency withholding tax on compensation in the aggregate amount of
₱2,690,850.91, plus 20% interest starting September 30, 2002, until fully paid, pursuant to Section
249( c) of the National Internal Revenue Code (NIRC) of 1997.
The following facts are undisputed as found by the CTA's First Division and adopted by the CTA EB:
Samar-I Electric Cooperative, Inc. (Petitioner) is an electric cooperative, with principal office at
Barangay Carayman, Calbayog City.
It was issued a Certificate of Registration by the National Electrification Administration (NEA) on

February 27, 1974 pursuant to Presidential Decree (PD) 269. Likewise, it was granted a Certificate
of Provisional Registration under Republic Act (RA) 6938, otherwise known as the Cooperative Code
of the Philippines on March 16, 1993, by the Cooperative Development Authority (CDA).
Respondent Commissioner of InternalRevenue is a public officer authorized under the National

Internal Revenue Code (NIRC) to examine any taxpayer including inter alia, the power to issue tax
assessment, evaluate, and decide upon protests relative thereto.
On July 13, 1999 and April 17, 2000, petitioner filed its 1998 and 1999 income tax returns,
respectively. Petitioner filed its 1997, 1998, and 1999 Annual Information Return of Income Tax
Withheld on Compensation, Expanded and Final Withholding Taxes on February 17, 1998, February
1, 1999, and February 4, 2000, in that order.
On November 13, 2000, respondent issued a duly signed Letter of Authority (LOA) No. 1998
00023803; covering the examination of petitioner’s books of account and other accounting records
for income and withholding taxes for the period 1997 to 1999. The LOA was received by petitioner
on November 14, 2000.
Petitioner cooperated in the audit and investigation conducted by the Special Investigation Division
of the BIR by submitting the required documents on December 5, 2000.
On October 19, 2001, respondent sent a Notice for Informal Conference which was received by
petitioner in November 2001; indicating the allegedly income and withholding tax liabilities of
petitioner for 1997 to 1999. Attached to the letter is a summary of the report, with an explanation of
the findingsof the investigators.
In response, petitioner sent a letter dated November 26, 2001 to respondent maintaining its
indifference to the latter’s findings and requesting details of the assessment.
On December 13, 2001, petitioner executed a Waiver of the Defense of Prescription under the
Statute of Limitations, good until March 29, 2002.
On February 27, 2002, a letter was sent by petitioner to respondent requesting a detailed
computation of the alleged 1997, 1998 and 1999 deficiency withholding tax on compensation. On
February 28, 2002, respondent issued a Preliminary Assessment Notice (PAN). The PAN was
received by petitioner on April 9, 2002, which was protested on April 18, 2002. Respondent’s Reply
dated May 27, 2002, contained the explanation of the legal basis of the issuance of the questioned
tax assessments.
However, on July 8, 2002, respondent dismissed petitioner’s protest and recommended the issuance
of a Final Assessment Notice.
Consequently, on September 15, 2002, petitioner received a demand letter and assessments
notices (Final Assessment Notices) for the alleged 1997, 1998, and 1999 deficiency withholding tax
in the amount of [P]3,760,225.69, as well as deficiency income tax covering the years 1998 to 1999
in the amount of [P]440,545.71, or in the aggregate amount of [P]4,200,771.40. Petitioner filed its
protest and Supplemental Protest to the Final Assessment Notices on October 14, 2002 and
November 4, 2002, respectively. But on the Final Decision on Disputed Assessment issued on April
10, 2003, petitioner was still held liable for the alleged tax liabilities.5
The CTA EB narrates the following succeeding events:
On May 29, 2003, the Petition for Review was filed by SAMELCO-I with the Court in division.
On May 27, 2008, the assailed Decision partially granting SAMELCO-I’s petition was promulgated.
Dissatisfied, both parties sought reconsideration of the said decision. CIR filed the "Motion for Partial
Reconsideration (Re: Decision dated 27 May 2008[)]" on June 13, 2008. On the other hand,
SAMELCOI’s "Motion for Reconsideration" was filed on June 17, 2008.
On January 19, 2009, the Court in division promulgated its Amended Decision which denied CIR’s
motion and partially granted SAMELCO-I’s motion.
Thereafter, CIR and SAMELCO-I filed their "Motion for Extension of Time to File Petition for Review"
on February 6, 2009 and February 11, 2009, respectively. Both motionswere granted by the Court.6
The following issues were raised by the parties in their petitions for review before the CTA EB. In
C.T.A. EB 460, herein respondent CIR raised the following grounds:
I. Whether or not SAMELCO-I is entitled to tax privileges accorded to members in

accordance with Republic Act No. 6938, or the Cooperative Code, or to privileges of
Presidential Decree (PD) No. 269.
II. Whether or not SAMELCO-I is liable for the minimum corporate income tax (MCIT) for
taxable years 1998 to 1999.
III. Whether or not SAMELCO-I is liable to pay the total deficiency expanded withholding tax
of [P]3,760,225.69 for taxable years 1997 to 1999.7
On the other hand, petitioner SAMELCO-I raised the following legal and factual errors in C.T.A. EB
No. 462, viz.:
I. The Court in Division gravely erred in holding that the 1997 and 1998 assessments on
withholding tax on compensation (received by SAMELCO-I on September 15, 2002), have
not prescribed even if the waiver validly executed was good only until March 29, 2002.
II. The Court in Divisionerred in holding that CIR can validly assess within the ten (10)-year
prescriptive period even if the notice of informal conference, PAN, formal letter of demand,
and assessment notice mention not a word that the BIR is invoking Section 222 (a) of the
1997 Tax Code [then Sec. 223, NIRC], due to alleged false withholding tax returns filed by
[SAMELCO-I] as the same assertions were mere afterthought to justify application of the 10-
year prescriptive period to assess.
III. The Court in Division failed to consider that CIR made no findings as to SAMELCO-I’s
filing of a false return as clearly manifested by the non-imposition of 50% surcharge on the
1997, 1998 and 1999 basic withholding tax deficiency in the PAN, demand notice and even
in the assessment notice other than interest charges.
IV. The Court in Division erred innot holding that given SAMELCOI’s filing of its 1997, 1998,
and 1999 withholding tax returns in good faith, and in close consultation with the BIR
personnel in Calbayog City where SAMELCO-I’s place of business is located, the latter
should no longer be imposed the incremental penalties (surcharge and interest).
V. The Court in Division failed to rule that since there was no substantial under remittance of
1998 withholding tax as the basic deficiency tax per amended decision is less than 30% of
the computed total tax due per return, SAMELCO-I did not file a false return.
VI. The Court in Division overlooked the fact that for taxable year 1999, [SAMELCO-I]
remitted the amount of [P]844,958.00 as withholding tax in compensation instead of
[P]786,702.43 as indicated in Page 8, Annex C of the CTA (1st Division) Decision.
VII. The Court in Division erred in failing to declare as void both the formal letter of demand
and assessment notice on withholding tax on compensation for 1997 taxable year, given its
non-compliance with Section 3.1.4 of RR 12-99.8
On February 26, 2009, the CTA EB consolidated both cases. After the filing of the respective
Comments of both parties, the cases were deemed submitted for decision. The CTA EB found that
the issues and arguments raised by the parties were "mere reiterations of what have been
considered and passed upon by the Court in division in the assailed Decision and the Amended
Decision."9 It ruled that SAMELCO-I is exempted in the payment of the Minimum Corporate Income
Tax (MCIT); that due process was observed in the issuance of the assessments in accordance with
Section 228 of the Tax Code; and that the 1997 and 1998 assessments on deficiency withholding
tax on compensation have not prescribed. Finding no reversible error in the Decision and the
Amended Decision, the CTA EB ruled, viz.:
WHEREFORE, premises considered, We deny the petitions for lack of merit. Accordingly, We
AFFIRM the May 27, 2008 Decision and the January 19, 2009 Amended Decision promulgated by
the First Division of this Court.
SO ORDERED.10
Petitioner moved for reconsideration.In a Resolution dated July 28, 2010, the CTA EB denied the
motion. Petitioner now comes to this Court raising the following assignment of errors:
A. The Honorable CTA En Banc gravely erred in holding that respondent sufficiently
complied withthe due process requirements mandated by Section 228 of the 1997 Tax Code
in the issuance of 1997-1999 assessments to petitioner, even if the details of discrepancies
on which the assessments were factually and legally based as required under Section 3.1.4
of Revenue Regulations (RR) No[.] 12-99, were not found in the Formal Letter of Demand
and Final Assessment Notice (FAN) sent to petitioner, in clear violation of the doctrine
established in the case of Commissioner of Internal Revenue vs. Enron Subic Power
Corporation, G.R. No. 166387, January 19, 2009, applying Section 3.1.4 of RR 12-99 in
relation to Section 228 NIRC. B. The Honorable CTA En Banc erred in holding that
respondent observed due process notwithstanding the missing Annex "A-1" that was meant
to show Details of Discrepancies and to be attached to BIR’s Letter of Demand/Final Notice
dated September 15, 2002, which was not furnished to petitioner and worse, a file copy of
which is not even found in the BIR records as part of its Exhibit "16" and neither is the same
found in the CTA records.
C. In deciding that the 1997 and 1998 withholding tax assessments have not yet prescribed,
the Honorable CTA En Banc failed to consider the singular significance of the Waiver of the
Defense of Prescription validly agreed upon and executed by the parties.
D. The Honorable CTA En Bancerred in holding that respondent can validly assess within
the ten (10)-year prescriptive period even if the Notice of Informal Conference, PAN, and
Final Letter of Demand (dated September 15, 2002), mentioned not a word as to the falsity
of the returns filed by petitioner, but as anafter thought that was raised rather belatedly only
in the Answer and during the trial.
E. The Honorable CTA En Bancerred in holding as valid the 1997 deficiency withholding tax
assessment being anchored on RR 2-98 (as cited in Notice of Informal Conference and
PAN), as the said RR 2-98 governs compensation income paid beginning January 1, 1998.11
We shall resolve the instant controversy by discussing the following two main issues in seriatim:
whether the 1997 and 1998 assessments on withholding tax on compensation were issued within
the prescriptive period provided by law; and whether the assessments were issued in accordance
with Section 228 of the NIRC of 1997.
On the issue of prescription, petitioner contends that the subject 1997 and 1998 withholding tax
assessments on compensation were issued beyond the prescriptive period of three years under
Section 203 of the NIRC of 1997. Under this section, the government is allowed a period of only
three years to assess the correct tax liability of a taxpayer, viz.:
SEC. 203. 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. Relying on
Section 203, petitioner argues that the subject deficiency tax assessments issued by respondent on
September 15, 2002 was issued beyond the three-year prescriptive period. Petitioner filed its Annual
Information Return of Income Tax Withheld on Compensation, Expanded and Final Withholding
Taxeson the following dates: on February 17, 1998 for the taxable year 1997; and on February 1,
1999 for the year taxable 1998. Thus, if the period prescribed under Section 203 of the NIRC of
1997 is to be followed, the three-year prescriptive period to assess for the taxable years 1997 and
1998 should have ended on February 16,2001 and January 31, 2002, respectively.
We disagree.
While petitioner is correct that Section 203 sets the three-year prescriptive period to assess, the
following exceptions are provided under Section 222 of the NIRC of 1997, viz.:
SEC. 222. 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 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 factof fraud shall be judicially taken cognizance of in the civil or criminal action
for the collection thereof.
(b) If before the expiration of the time prescribed in Section 203 for the assessment of the
tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after
such time, the tax may be assessed within the period agreed upon. The period so agreed
upon may be extended by subsequent written agreement made before the expiration of the
(c) Any internal revenue tax which has been assessed within the period of limitation as
prescribed in paragraph (a) hereof may be collected by distraint or levy or by a proceeding in
court within five (5) years following the assessment of the tax.
(d) Any internal revenue tax, which has been assessed within the period agreed upon as
provided in paragraph (b) herein above, may be collected by distraint orlevy or by a
proceeding incourt within the period agreed upon in writing before the expiration of the five
(5)-year period. The period so agreed upon may be extended by subsequent written
agreements made before the expiration of the period previously agreed upon.
(e) Provided, however, That nothing in the immediately preceding Section and paragraph (a)
hereof shall be construed to authorize the examination and investigation or inquiry into any
tax return filed in accordance with the provisions of any tax amnesty law or decree.
(Emphasis supplied.)
In the case at bar, it was petitioner’s substantial under declaration of withholding taxes in the amount
of ₱2,690,850.91 which constituted the "falsity" in the subject returns – giving respondent the benefit
of the period under Section 222 of the NIRC of 1997 to assess the correct amount of tax "at any time
within ten (10) years after the discovery of the falsity, fraud or omission."12 The case of Aznar v.
Court of Tax Appeals13 discusses what acts or omissions may constitute falsity, viz.:
and fraudulent returns with intent to evade tax, while respondent Commissioner of Internal Revenue
under declarations ofincome for six consecutive years eloquently demonstrate the falsity or
To our minds we can dispense with these controversial arguments on facts, although we do not deny
that the findings of facts by the Court of Tax Appeals, supported as they are by very substantial
evidence, carry great weight, by resorting to a proper interpretation of Section 332 of the NIRC. 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. Our stand that 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 NIRC should be applicable to normal circumstances, but whenever the government is placed at
a disadvantage so as to prevent its lawful agents fromproper assessment of tax liabilities due to
omission even seems to be inadequate and should be the one enforced. There being undoubtedly
false tax returns in this case, We affirm the conclusion of the respondent Court of Tax Appeals that
Sec. 332 (a) of the NIRC should apply and that the period of ten years within which to assess
petitioner’s tax liability had not expired at the time said assessment was made.14
A careful examination of the evidence on record yields to no other conclusion but that petitioner
failed to withhold taxes from its employees’ 13th month pay and other benefits inexcess of thirty
thousand pesos (₱30,000.00) amounting to ₱2,690,850.91for the taxable years 1997 to 1999 –
resulting to its filing of the subject false returns. Petitioner failed to refute this finding, both in fact and
in law, before the courts a quo.
We quote the following portion of the assailed Decision of the CTA EB, viz.:
It is noteworthy to mention that during the trial, the witness for the CIR testified that SAMELCO-I did
not file an accurate return, as follows:
ATTY. FRANCIA:
Q: Did the petitioner file an accurate Return?
MS. RAPATAN:
A: No.
ATTY. FRANCIA:
Q: Can you please explain?

MS. RAPATAN:
A: Because I based the computation of my deficiency withholding taxes on declared taxable income
per alpha list submitted then, I have extracted a data from the Alpha List, particularly that of the
manager and other officials, only their basic salary and their overtime pay were declared but the
other benefits were not actually subjected to withholding tax. So, the deficiency withholding taxes
from the taxes on the taxable 13th month pay and other benefits in excess of the [P]12,000.00 for
1997 and for the taxable years 1998 and 1999, in excess of the [P]30,000.00. I also noticed that the
per diem of the Manager was not included in the withholding tax computation of SAMELCO[-]I.
ATTY. FRANCIA:
Nothing further, your Honors.
JUSTICE BAUTISTA:
Any re-cross?
ATTY. NAPUTO:
No re-cross, your Honors.15
We have consistently held that courts will not interfere in matters which are addressed to the sound
discretion of the government agency entrusted with the regulation of activities coming under its
special and technical training and knowledge.16 The findings of fact of these quasijudicial agencies
are generally accorded respect and even finality as long as they are supported by substantial
evidence– in recognition of their expertise on the specific matters under their consideration.17 In the
case at bar, petitioner failed to proffer convincing argument and evidence that would persuade us to
disturb the factual findings of the CTA First Division, as affirmed by the CTA EB. As such, we cannot
but affirm the finding of petitioner’s substantial under declaration of withholding taxes in the amount
of ₱2,690,850.91 which constituted the "falsity" in the subject returns.
Anent the issue of violation of due process in the issuance of the final notice of assessment and
letter of demand, Section 228 of the NIRC of 1997 provides:
SEC. 228. Protesting of Assessment. – x x x
xxxx
The taxpayers shall be informed in writing of the law and the factson which the assessment is made:
otherwise, the assessment shall be void.
Petitioner contends that as the Final Demand Letter and Assessment Notices (FAN) were silent as
to the nature and basis of the assessments, it was denied due process,18 and the assessments must
be declared void. It likewise invokes Revenue Regulations(RR) No. 12-99 which states, viz.:
3.1.4 Formal Letter of Demand and Assessment Notice.– The formal letter of demand and
assessment notice shall be issued by the Commissioner or his duly authorized representative. The
letter of demand calling for payment of the taxpayer’s deficiency tax or taxes shall state the facts, the
law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the formal
letter of demand and assessment notice shall be void. The same shall be sent to the taxpayer only
by registered mail or by personal delivery. x x x
We uphold the assessments issued to petitioner.
Both Section 228 of the NIRC of 1997 and Section 3.1.4 of RR No. 12-99 clearly require the written
details on the nature, factual and legal bases of the subject deficiency tax assessments. The reason
for the mandatory nature of this requirement isexplained in the case of Commissioner of Internal
Revenue v. Reyes:19
A void assessment bears no valid fruit.
The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax
collection without first establishing a valid assessment is evidently violative of the cardinal principle
in administrative investigations: that taxpayers should be able to present their case and adduce
supporting evidence. In the instant case, respondent has not been informed of the basis of the
estate tax liability. Without complying with the unequivocal mandate of first informing the taxpayer of
the government’s claim, there can be no deprivation of property, because no effective protest can be
made. The haphazard shot at slapping an assessment, supposedly based on estate taxation’s
general provisions that are expected to be known by the taxpayer, is utter chicanery.
Even a cursory review of the preliminary assessment notice, as well as the demand letter sent,
reveals the lack of basis for – not to mention the insufficiency of – the gross figures and details of the
itemized deductions indicated in the notice and the letter. This Court cannot countenance an
assessment based on estimates that appear to have been arbitrarily or capriciously arrived at.
Although taxes are the lifeblood of the government, their assessment and collection "should be
made in accordance with law as any arbitrariness will negate the very reason for government itself."
(Emphasis supplied; citations omitted)
In Commissioner of Internal Revenue v. Enron Subic Power Corporation,20 we held that the law
requires that the legal and factual bases of the assessment be stated in the formal letter of demand
and assessment notice, and that the alleged "factual bases" in the advice, preliminary letter and
"audit working papers" did not suffice. Thus:
Both the CTA and the CA concluded that the deficiency tax assessment merely itemized the
deductions disallowed and included these in the gross income. It also imposed the preferential rate
of 5% on some items categorized by Enron as costs. The legal and factual bases were, however, not
indicated.
The CIR insists that an examination of the facts shows that Enron was properly apprised of its tax
deficiency. During the pre-assessment stage, the CIR advised Enron’s representative of the tax
deficiency, informed it of the proposed tax deficiency assessment through a preliminary five-day
letter and furnished Enron a copy of the audit working paper allegedly showing in detail the legal and
factual bases of the assessment. The CIR argues that these steps sufficed to inform Enron of the
laws and facts on which the deficiency tax assessment was based.
We disagree. The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the
preliminary five-day letter, were not valid substitutes for the mandatory notice in writing of the legal
and factual bases of the assessment. These steps were mere perfunctory discharges of the CIR’s
duties in correctly assessing a taxpayer. The requirement for issuing a preliminary or final notice, as
the case may be, informing a taxpayer of the existence of a deficiency tax assessment is markedly
different from the requirement of what such notice must contain. Just because the CIR issued an
advice, a preliminary letter during the pre-assessment stage and a final notice, in the order required
by law, does not necessarily mean that Enron was informed of the law and facts on which the
deficiency tax assessment was made.21 (Emphasis supplied)
In this case, we agree with the respondent that petitioner was sufficiently apprised of the nature,
factual and legal bases, as well as how the deficiency taxes being assessed against it were
computed. Records reveal that on October 19, 2001, prior to the conduct of an informal conference,
petitioner was already informed of the results and findings of the investigations made by the
respondent, and was duly furnished with a copy of the summary of the report submitted by Revenue
Officer Elisa G. Ponferrada-Rapatan of the Special Investigation Division. Said summary report
contained an explanation of Findings of Investigation stating the legal and factual bases for the
deficiency assessment. In a letter dated February 27, 2002 petitioner requested for copies of
working papers indicating how the deficiency withholding taxes were computed.22 Respondent
promptly responded in a letter-reply dated February 28, 2002 stating:
please be informed that the cooperative’s deficiency withholding taxes on compensation were due to
the failure of the cooperative to withhold taxes on the taxable 13th month pay and other benefits in
excess of ₱30,000.00 threshold pursuant to Section 3 of Revenue Regulation No. 2-95 implementing
Republic Act No. 7833 and Section 2.78/1 B 11 of Revenue Regulation 2-98 implementing Section
32 B e of Republic Act No. 8424. Further, we are providing you hereunder the computational format
on how deficiency withholding taxes were computed and sample computation from our working
papers, for your information and guidance.23
On April 9, 2002, petitioner received the PAN dated February 28, 2002 which contained the
computations of its deficiency income and withholding taxes. Attached to the PAN was the detailed
1âwphi1
explanation of the particular provision of law and revenue regulation violated, thus: DETAILS OF
DISCREPANCIES
1. Deficiency income taxes for 1998 and 1999 respectively result from non-payment of the
minimum corporate income tax (MCIT) imposed pursuant to Section 27(E) of the 1997 Tax
Reform Act.
2. Deficiency Withholding Taxes on Compensation for 1997-1999 are the total withholding
taxes on compensation of all employees of SAMELCO[-]I resulting from failureof employer to
withhold taxes on the taxable 13th month pay and other benefits in excess of [P]30,000.00
threshold pursuant to Revenue Regulation 2-98.24
The above information provided to petitioner enabled it to protest the PAN by questioning
respondent's interpretation of the laws cited as legal basis for the computation of the deficiency
withholding taxes and assessment of minimum corporate income tax despite petitioner's position that
it remains exempt therefrom.25 In its letter-reply dated May 27, 2002, respondent answered the
arguments raised by petitioner in its protest, and requested it to pay the assessed deficiency on the
date of payment stated in the PAN. A second protest letter dated June 23, 2002 was sent by
petitioner, to which respondent replied (letter dated July 8, 2002) answering each of the two issues
reiterated by petitioner: ( 1) validity of EO 93 withdrawing the tax exemption privileges under PD 269;
and (2) retroactive application of RR No. 8-2000.26 The FAN was finally received by petitioner on
September 24, 2002, and protested by it in a letter dated October 14, 2002 which reiterated in
lengthy arguments its earlier interpretation of the laws and regulations upon which the assessments
were based.27
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 letter dated April 10, 2003 responded to petitioner's
October 14, 2002 letter-protest, explaining at length the factual and legal bases of the deficiency tax
assessments and denying the protest.28
Considering the foregoing exchange of correspondence and documents between the parties, we find
that the requirement of Section 228 was substantially complied with. Respondent had fully informed
petitioner in writing of the factual and legal bases of the deficiency taxes assessment, which enabled
the latter to file an "effective" protest, much unlike the taxpayer's situation in Enron. Petitioner's right
to due process was thus not violated.
WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Tax
Appeals En Banc dated March 11, 2010 and July 28, 2010, respectively, in C.T.A. EB Nos. 460 and
462 (C.T.A. Case No. 6697), are hereby AFFIRMED and UPHELD.
With costs against the petitioner.
SO ORDERED.
MARTIN S. VILLARAMA, JR.

Associate Justice
WE CONCUR:

Associate Justice
Chairperson
DIOSDADO M. PERALTA JOSE C. MENDOZA*

BIENVENIDO L. REYES
Associate Justice
ATTESTATION

Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the 1987 Constitution and the Division Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's Division.

Chief Justice
SECOND DIVISION
G.R. No. 139736 October 17, 2005
BANK OF THE PHILIPPINE ISLANDS, Petitioner,

vs.
DECISION
CHICO-NAZARIO, J.:
This Petition for Review on Certiorari, under Rule 45 of the 1997 Rules of Civil Procedure, assails
the Decision of the Court of Appeals in CA-G.R. SP No. 51271, dated 11 August 1999,1 which
reversed and set aside the Decision of the Court of Tax Appeals (CTA), dated 02 February
1999,2 and which reinstated Assessment No. FAS-5-85-89-002054 requiring petitioner Bank of the
Philippine Islands (BPI) to pay the amount of ₱28,020.00 as deficiency documentary stamp tax
(DST) for the taxable year 1985, inclusive of the compromise penalty.
There is hardly any controversy as to the factual antecedents of this Petition.
Petitioner BPI is a commercial banking corporation organized and existing under the laws of the
Philippines. On two separate occasions, particularly on 06 June 1985 and 14 June 1985, it sold
United States (US) $500,000.00 to the Central Bank of the Philippines (Central Bank), for the total
sales amount of US$1,000,000.00.
On 10 October 1989, the Bureau of Internal Revenue (BIR) issued Assessment No. FAS-5-85-89-
002054,3 finding petitioner BPI liable for deficiency DST on its afore-mentioned sales of foreign bills
of exchange to the Central Bank, computed as follows –
1985 Deficiency Documentary Stamp Tax

Foreign Bills of Exchange………………………….. P 18,480,000.00
Tax Due Thereon: 27,720.00
₱18,480,000.00 x ₱0.30 (Sec. 182 NIRC).
₱200.00
Add: Suggested compromise penalty………….…… 300.00
TOTAL AMOUNT DUE AND COLLECTIBLE…. P 28,020.00
Petitioner BPI received the Assessment, together with the attached Assessment Notice,4 on 20
October 1989.
Petitioner BPI, through its counsel, protested the Assessment in a letter dated 16 November 1989,
and filed with the BIR on 17 November 1989. The said protest letter is reproduced in full below –
November 16, 1989
The Commissioner of Internal Revenue

Quezon City
Attention of: Mr. Pedro C. Aguillon
Asst. Commissioner for Collection
Sir:
On behalf of our client, Bank of the Philippine Islands (BPI), we have the honor to protest your
assessment against it for deficiency documentary stamp tax for the year 1985 in the amount of
₱28,020.00, arising from its sale to the Central Bank of U.S. $500,000.00 on June 6, 1985 and
another U.S. $500,000.00 on June 14, 1985.
1. Under established market practice, the documentary stamp tax on telegraphic transfers or sales of
foreign exchange is paid by the buyer. Thus, when BPI sells to any party, the cost of documentary
stamp tax is added to the total price or charge to the buyer and the seller affixes the corresponding
documentary stamp on the document. Similarly, when the Central Bank sells foreign exchange to
BPI, it charges BPI for the cost of the documentary stamp on the transaction.
2. In the two transactions subject of your assessment, no documentary stamps were affixed because
the buyer,
Central Bank of the Philippines, was exempt from such tax. And while it is true that under P.D. 1994,
a proviso was added to sec. 222 (now sec. 186) of the Tax Code "that whenever one party to a
taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not
exempt shall be the one directly liable for the tax," this proviso (and the other amendments of P.D.
1994) took effect only on January 1, 1986, according to sec. 49 of P.D. 1994. Hence, the liability for
the documentary stamp tax could not be shifted to the seller.
In view of the foregoing, we request that the assessment be revoked and cancelled.
Very truly yours,
PADILLA LAW OFFICE
By:
(signed)
SABINO PADILLA, JR.5
Petitioner BPI did not receive any immediate reply to its protest letter. However, on 15 October 1992,
the BIR issued a Warrant of Distraint and/or Levy6 against petitioner BPI for the assessed deficiency
DST for taxable year 1985, in the amount of ₱27,720.00 (excluding the compromise penalty of
₱300.00). It served the Warrant on petitioner BPI only on 23 October 1992.7
Then again, petitioner BPI did not hear from the BIR until 11 September 1997, when its counsel
received a letter, dated 13 August 1997, signed by then BIR Commissioner Liwayway Vinzons-
Chato, denying its "request for reconsideration," and addressing the points raised by petitioner BPI in
its protest letter, dated 16 November 1989, thus –
In reply, please be informed that after a thorough and careful study of the facts of the case as well as
the law and jurisprudence pertinent thereto, this Office finds the above argument to be legally
untenable. It is admitted that while industry practice or market convention has the force of law
between the members of a particular industry, it is not binding with the BIR since it is not a party
thereto. The same should, therefore, not be allowed to prejudice the Bureau of its lawful task of
collecting revenues necessary to defray the expenses of the government. (Art. 11 in relation to Art.
1306 of the New Civil Code.)
Moreover, let it be stated that even before the amendment of Sec. 222 (now Sec. 173) of the Tax
Code, as amended, the same was already interpreted to hold that the other party who is not exempt
from the payment of documentary stamp tax liable from the tax. This interpretation was further
strengthened by the following BIR Rulings which in substance state:
1. BIR Unnumbered Ruling dated May 30, 1977 –
"x x x Documentary stamp taxes are payable by either person, signing, issuing, accepting, or
transferring the instrument, document or paper. It is now settled that where one party to the
instrument is exempt from said taxes, the other party who is not exempt should be liable."
2. BIR Ruling No. 144-84 dated September 3, 1984 –
"x x x Thus, where one party to the contract is exempt from said tax, the other party, who is not
exempt, shall be liable therefore. Accordingly, since A.J.L. Construction Corporation, the other party
to the contract and the one assuming the payment of the expenses incidental to the registration in
the vendee’s name of the property sold, is not exempt from said tax, then it is the one liable
therefore, pursuant to Sec. 245 (now Sec. 196), in relation to Sec. 222 (now Sec. 173), both of the
Tax Code of 1977, as amended."
Premised on all the foregoing considerations, your request for reconsideration is hereby DENIED.8
Upon receipt of the above-cited letter from the BIR, petitioner BPI proceeded to file a Petition for
Review with the CTA on 10 October 1997;9 to which respondent BIR Commissioner, represented by
the Office of the Solicitor General, filed an Answer on 08 December 1997.10
Petitioner BPI raised in its Petition for Review before the CTA, in addition to the arguments
presented in its protest letter, dated 16 November 1989, the defense of prescription of the right of
respondent BIR Commissioner to enforce collection of the assessed amount. It alleged that
respondent BIR Commissioner only had three years to collect on Assessment No. FAS-5-85-89-
002054, but she waited for seven years and nine months to deny the protest. In her Answer and
subsequent Memorandum, respondent BIR Commissioner merely reiterated her position, as stated
in her letter to petitioner BPI, dated 13 August 1997, which denied the latter’s protest; and remained
silent as to the expiration of the prescriptive period for collection of the assessed deficiency DST.
After due trial, the CTA rendered a Decision on 02 February 1999, in which it identified two primary
issues in the controversy between petitioner BPI and respondent BIR Commissioner: (1) whether or
not the right of respondent BIR Commissioner to collect from petitioner BPI the alleged deficiency
DST for taxable year 1985 had prescribed; and (2) whether or not the sales of US$1,000,000.00 on
06 June 1985 and 14 June 1985 by petitioner BPI to the Central Bank were subject to DST.
The CTA answered the first issue in the negative and held that the statute of limitations for
respondent BIR Commissioner to collect on the Assessment had not yet prescribed. In resolving the
issue of prescription, the CTA reasoned that –
In the case of Commissioner of Internal Revenue vs. Wyeth Suaco Laboratories, Inc., G.R. No.
76281, September 30, 1991, 202 SCRA 125, the Supreme Court laid to rest the first issue. It
categorically ruled that a "protest" is to be treated as request for reinvestigation or reconsideration
and a mere request for reexamination or reinvestigation tolls the prescriptive period of the
Commissioner to collect on an assessment. . .
...
In the case at bar, there being no dispute that petitioner filed its protest on the subject assessment
on November 17, 1989, there can be no conclusion other than that said protest stopped the running
of the prescriptive period of the Commissioner to collect.
Section 320 (now 223) of the Tax Code, clearly states that a request for reinvestigation which is
granted by the Commissioner, shall suspend the prescriptive period to collect. The underscored
portion above does not mean that the Commissioner will cancel the subject assessment but should
be construed as when the same was entertainedby the Commissioner by not issuing any warrant of
distraint or levy on the properties of the taxpayer or any action prejudicial to the latter unless and
until the request for reinvestigation is finally given due course. Taking into consideration this
provision of law and the aforementioned ruling of the Supreme Court in Wyeth Suaco which
specifically and categorically states that a protest could be considered as a request for
reinvestigation, We rule that prescription has not set in against the government.11
The CTA had likewise resolved the second issue in the negative. Referring to its own decision in an
earlier case, Consolidated Bank & Trust Co. v. The Commissioner of Internal Revenue,12 the CTA
reached the conclusion that the sales of foreign currency by petitioner BPI to the Central Bank in
taxable year 1985 were not subject to DST –
From the abovementioned decision of this Court, it can be gleaned that the Central Bank, during the
period June 11, 1984 to March 9, 1987 enjoyed tax exemption privilege, including the payment of
documentary stamp tax (DST) pursuant to Resolution No. 35-85 dated May 3, 1985 of the Fiscal
Incentive Review Board. As such, the Central Bank, as buyer of the foreign currency, is exempt from
paying the documentary stamp tax for the period above-mentioned. This Court further expounded
that said tax exemption of the Central Bank was modified beginning January 1, 1986 when
Presidential Decree (P.D.) 1994 took effect. Under this decree, the liability for DST on sales of
foreign currency to the Central Bank is shifted to the seller.
Applying the above decision to the case at bar, petitioner cannot be held liable for DST on its 1985
sales of foreign currencies to the Central Bank, as the latter who is the purchaser of the subject
currencies is the one liable thereof. However, since the Central Bank is exempt from all taxes during
1985 by virtue of Resolution No. 35-85 of the Fiscal Incentive Review Board dated March 3, 1985,
neither the petitioner nor the Central Bank is liable for the payment of the documentary stamp tax for
the former’s 1985 sales of foreign currencies to the latter. This aforecited case of Consolidated Bank
vs. Commissioner of Internal Revenue was affirmed by the Court of Appeals in its decision dated
March 31, 1995, CA-GR Sp. No. 35930. Said decision was in turn affirmed by the Supreme Court in
its resolution denying the petition filed by Consolidated Bank dated November 20, 1995 with the
Supreme Court under Entry of Judgment dated March 1, 1996.13
In sum, the CTA decided that the statute of limitations for respondent BIR Commissioner to collect
on Assessment No. FAS-5-85-89-002054 had not yet prescribed; nonetheless, it still ordered the
cancellation of the said Assessment because the sales of foreign currency by petitioner BPI to the
Central Bank in taxable year 1985 were tax-exempt.
Herein respondent BIR Commissioner appealed the Decision of the CTA to the Court of Appeals. In
its Decision dated 11 August 1999,14 the Court of Appeals sustained the finding of the CTA on the
first issue, that the running of the prescriptive period for collection on Assessment No. FAS-5-85-89-
002054 was suspended when herein petitioner BPI filed a protest on 17 November 1989 and,
therefore, the prescriptive period for collection on the Assessment had not yet lapsed. In the same
Decision, however, the Court of Appeals reversed the CTA on the second issue and basically
adopted the position of the respondent BIR Commissioner that the sales of foreign currency by
petitioner BPI to the Central Bank in taxable year 1985 were subject to DST. The Court of Appeals,
thus, ordered the reinstatement of Assessment No. FAS-5-85-89-002054 which required petitioner
BPI to pay the amount of ₱28,020.00 as deficiency DST for taxable year 1985, inclusive of the
compromise penalty.
Comes now petitioner BPI before this Court in this Petition for Review on Certiorari, seeking
resolution of the same two legal issues raised and discussed in the courts below, to reiterate: (1)
whether or not the right of respondent BIR Commissioner to collect from petitioner BPI the alleged
deficiency DST for taxable year 1985 had prescribed; and (2) whether or not the sales of
US$1,000,000.00 on 06 June 1985 and 14 June 1985 by petitioner BPI to the Central Bank were
subject to DST.
The efforts of respondent Commissioner to collect on Assessment No. FAS-5-85-89-002054 were

already barred by prescription.
Anent the question of prescription, this Court disagrees in the Decisions of the CTA and the Court of
Appeals, and herein determines the statute of limitations on collection of the deficiency DST in
Assessment No. FAS-5-85-89-002054 had already prescribed.
The period for the BIR to assess and collect an internal revenue tax is limited to three years by
Section 203 of the Tax Code of 1977, as amended,15 which provides that –
SEC. 203. Period of limitation upon assessment and collection. – Except as provided in the
succeeding section, internal revenue taxes shall be assessed within three 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-year period shall be counted
from the day the return was filed. For the 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.16
The three-year period of limitations on the assessment and collection of national internal revenue
taxes set by Section 203 of the Tax Code of 1977, as amended, can be affected, adjusted, or
suspended, in accordance with the following provisions of the same Code –
SEC. 223. – 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 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 begun without assessment,
at any time within ten 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.
agreed upon.
(c) Any internal revenue tax which has been assessed within the period of limitation above-
prescribed may be collected by distraint or levy or by a proceeding in court within three years
following the assessment of the tax.
(e) Provided, however, That nothing in the immediately preceding section and paragraph (a) hereof
shall be construed to authorize the examination and investigation or inquiry into any tax returns filed
in accordance with the provisions of any tax amnesty law or decree.17
Philippines.18
As enunciated in these statutory provisions, the BIR has three years, counted from the date of actual
filing of the return or from the last date prescribed by law for the filing of such return, whichever
comes later, to assess a national internal revenue tax or to begin a court proceeding for the
collection thereof without an assessment. In case of a false or fraudulent return with intent to evade
tax or the failure to file any return at all, the prescriptive period for assessment of the tax due shall be
10 years from discovery by the BIR of the falsity, fraud, or omission. When the BIR validly issues an
assessment, within either the three-year or ten-year period, whichever is appropriate, then the BIR
has another three years19 after the assessment within which to collect the national internal revenue
tax due thereon by distraint, levy, and/or court proceeding. The assessment of the tax is deemed
made and the three-year period for collection of the assessed tax begins to run on the date the
assessment notice had been released, mailed or sent by the BIR to the taxpayer.20
In the present Petition, there is no controversy on the timeliness of the issuance of the Assessment,
only on the prescription of the period to collect the deficiency DST following its Assessment. While
Assessment No. FAS-5-85-89-002054 and its corresponding Assessment Notice were both dated 10
October 1989 and were received by petitioner BPI on 20 October 1989, there was no showing as to
when the said Assessment and Assessment Notice were released, mailed or sent by the BIR. Still, it
can be granted that the latest date the BIR could have released, mailed or sent the Assessment and
Assessment Notice to petitioner BPI was on the same date they were received by the latter, on 20
October 1989. Counting the three-year prescriptive period, for a total of 1,095 days,21 from 20
October 1989, then the BIR only had until 19 October 1992 within which to collect the assessed
deficiency DST.
The earliest attempt of the BIR to collect on Assessment No. FAS-5-85-89-002054 was its issuance
and service of a Warrant of Distraint and/or Levy on petitioner BPI. Although the Warrant was issued
on 15 October 1992, previous to the expiration of the period for collection on 19 October 1992, the
same was served on petitioner BPI only on 23 October 1992.
Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the Warrant of
Distraint and/or Levy be fully executed so that it can suspend the running of the statute of limitations
on the collection of the tax. It is enough that the proceedings have validly began or commenced and
that their execution has not been suspended by reason of the voluntary desistance of the
respondent BIR Commissioner. Existing jurisprudence establishes that distraint and levy
proceedings are validly begun or commenced by the issuance of the Warrant and service thereof on
the taxpayer.22 It is only logical to require that the Warrant of Distraint and/or Levy be, at the very
least, served upon the taxpayer in order to suspend the running of the prescriptive period for
collection of an assessed tax, because it may only be upon the service of the Warrant that the
taxpayer is informed of the denial by the BIR of any pending protest of the said taxpayer, and the
resolute intention of the BIR to collect the tax assessed.
If the service of the Warrant of Distraint and/or Levy on petitioner BPI on 23 October 1992 was
already beyond the prescriptive period for collection of the deficiency DST, which had expired on 19
October 1992, then what more the letter of respondent BIR Commissioner, dated 13 August 1997
and received by the counsel of the petitioner BPI only on 11 September 1997, denying the protest of
petitioner BPI and requesting payment of the deficiency DST? Even later and more unequivocally
barred by prescription on collection was the demand made by respondent BIR Commissioner for
payment of the deficiency DST in her Answer to the Petition for Review of petitioner BPI before the
CTA, filed on 08 December 1997.23
II
There is no valid ground for the suspension of the running of the prescriptive period for collection of
the assessed DST under the Tax Code of 1977, as amended.
In their Decisions, both the CTA and the Court of Appeals found that the filing by petitioner BPI of a
protest letter suspended the running of the prescriptive period for collecting the assessed DST. This
Court, however, takes the opposing view, and, based on the succeeding discussion, concludes that
there is no valid ground for suspending the running of the prescriptive period for collection of the
deficiency DST assessed against petitioner BPI.
A. The statute of limitations on assessment and collection of taxes is for the protection of the
taxpayer and, thus, shall be construed liberally in his favor.
Though the statute of limitations on assessment and collection of national internal revenue taxes
benefits both the Government and the taxpayer, it principally intends to afford protection to the
taxpayer against unreasonable investigation. The indefinite extension of the period for assessment is
unreasonable because it deprives the said taxpayer of the assurance that he will no longer be
subjected to further investigation for taxes after the expiration of a reasonable period of time.24 As
aptly explained in Republic of the Philippines v. Ablaza25 –
The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the
Government and to its citizens; to the Government because tax officers would be obliged to act
promptly in the making of assessment, and to citizens because after the lapse of the period of
prescription citizens would have a feeling of security against unscrupulous tax agents who will
always find an excuse to inspect the books of taxpayers, not to determine the latter’s real liability, but
to take advantage of every opportunity to molest peaceful, law-abiding citizens. Without such a legal
defense taxpayers would furthermore be under obligation to always keep their books and keep them
open for inspection subject to harassment by unscrupulous tax agents. The law on prescription
being a remedial measure should be interpreted in a way conducive to bringing about the beneficent
purpose of affording protection to the taxpayer within the contemplation of the Commission which
recommend the approval of the law.
In order to provide even better protection to the taxpayer against unreasonable investigation, the Tax
Code of 1977, as amended, identifies specifically in Sections 223 and 22426 thereof the
circumstances when the prescriptive periods for assessing and collecting taxes could be suspended
or interrupted.
To give effect to the legislative intent, these provisions on the statute of limitations on assessment
and collection of taxes shall be construed and applied liberally in favor of the taxpayer and strictly
against the Government.
B. The statute of limitations on assessment and collection of national internal revenue taxes may be
waived, subject to certain conditions, under paragraphs (b) and (d) of Section 223 of the Tax Code
of 1977, as amended, respectively. Petitioner BPI, however, did not execute any such waiver in the
case at bar.
According to paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, the
prescriptive periods for assessment and collection of national internal revenue taxes, respectively,
could be waived by agreement, to wit –
SEC. 223. – Exceptions as to period of limitation of assessment and collection of taxes. –
...
agreed upon.
...
period previously agreed upon.27
The agreements so described in the afore-quoted provisions are often referred to as waivers of the
statute of limitations. The waiver of the statute of limitations, whether on assessment or collection,
should not be construed as a waiver of the right to invoke the defense of prescription but, rather, an
agreement between the taxpayer and the BIR to extend the period to a date certain, within which the
latter could still assess or collect taxes due. The waiver does not mean that the taxpayer
relinquishes the right to invoke prescription unequivocally.28
A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of the Tax
Code of 1977, as amended, must be: (1) in writing; (2) agreed to by both the Commissioner and the
taxpayer; (3) before the expiration of the ordinary prescriptive periods for assessment and collection;
and (4) for a definite period beyond the ordinary prescriptive periods for assessment and collection.
The period agreed upon can still be extended by subsequent written agreement, provided that it is
executed prior to the expiration of the first period agreed upon. The BIR had issued Revenue
Memorandum Order (RMO) No. 20-90 on 04 April 1990 to lay down an even more detailed
procedure for the proper execution of such a waiver. RMO No. 20-90 mandates that the procedure
for execution of the waiver shall be strictly followed, and any revenue official who fails to comply
therewith resulting in the prescription of the right to assess and collect shall be administratively dealt
with.
This Court had consistently ruled in a number of cases that a request for reconsideration or
reinvestigation by the taxpayer, without a valid waiver of the prescriptive periods for the assessment
and collection of tax, as required by the Tax Code and implementing rules, will not suspend the
running thereof.29
In the Petition at bar, petitioner BPI executed no such waiver of the statute of limitations on the
collection of the deficiency DST per Assessment No. FAS-5-85-89-002054. In fact, an internal
memorandum of the Chief of the Legislative, Ruling & Research Division of the BIR to her
counterpart in the Collection Enforcement Division, dated 15 October 1992, expressly noted that,
"The taxpayer fails to execute a Waiver of the Statute of Limitations extending the period of
collection of the said tax up to December 31, 1993 pending reconsideration of its protest. .
."30 Without a valid waiver, the statute of limitations on collection by the BIR of the deficiency DST
could not have been suspended under paragraph (d) of Section 223 of the Tax Code of 1977, as
amended.
C. The protest filed by petitioner BPI did not constitute a request for reinvestigation, granted by the
respondent BIR Commissioner, which could have suspended the running of the statute of limitations
on collection of the assessed deficiency DST under Section 224 of the Tax Code of 1977, as
amended.
The Tax Code of 1977, as amended, also recognizes instances when the running of the statute of
limitations on the assessment and collection of national internal revenue taxes could be suspended,
even in the absence of a waiver, under Section 224 thereof, which reads –
Philippines.31
Of particular importance to the present case is one of the circumstances enumerated in Section 224
of the Tax Code of 1977, as amended, wherein the running of the statute of limitations on
assessment and collection of taxes is considered suspended "when the taxpayer requests for a
reinvestigation which is granted by the Commissioner."
This Court gives credence to the argument of petitioner BPI that there is a distinction between a
request for reconsideration and a request for reinvestigation. Revenue Regulations (RR) No. 12-85,
issued on 27 November 1985 by the Secretary of Finance, upon the recommendation of the BIR
Commissioner, governs the procedure for protesting an assessment and distinguishes between the
two types of protest, as follows –
PROTEST TO ASSESSMENT
SEC. 6. Protest. The taxpayer may protest administratively an assessment by filing a written request
for reconsideration or reinvestigation. . .
...
For the purpose of the protest herein –
(a) Request for reconsideration. – refers to a plea for a re-evaluation of an assessment on the basis
of existing records without need of additional evidence. It may involve both a question of fact or of
law or both.
(b) Request for reinvestigation. – refers to a plea for re-evaluation of an assessment on the basis of
newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation.
It may also involve a question of fact or law or both.
With the issuance of RR No. 12-85 on 27 November 1985 providing the above-quoted distinctions
between a request for reconsideration and a request for reinvestigation, the two types of protest can
no longer be used interchangeably and their differences so lightly brushed aside. It bears to
emphasize that under Section 224 of the Tax Code of 1977, as amended, the running of the
prescriptive period for collection of taxes can only be suspended by a request for reinvestigation,
not a request for reconsideration. Undoubtedly, a reinvestigation, which entails the reception and
evaluation of additional evidence, will take more time than a reconsideration of a tax assessment,
which will be limited to the evidence already at hand; this justifies why the former can suspend the
running of the statute of limitations on collection of the assessed tax, while the latter can not.
The protest letter of petitioner BPI, dated 16 November 1989 and filed with the BIR the next day, on
17 November 1989, did not specifically request for either a reconsideration or reinvestigation. A
close review of the contents thereof would reveal, however, that it protested Assessment No. FAS-5-
85-89-002054 based on a question of law, in particular, whether or not petitioner BPI was liable for
DST on its sales of foreign currency to the Central Bank in taxable year 1985. The same protest
letter did not raise any question of fact; neither did it offer to present any new evidence. In its own
letter to petitioner BPI, dated 10 September 1992, the BIR itself referred to the protest of petitioner
BPI as a request for reconsideration.32 These considerations would lead this Court to deduce that the
protest letter of petitioner BPI was in the nature of a request for reconsideration, rather than a
request for reinvestigation and, consequently, Section 224 of the Tax Code of 1977, as amended, on
the suspension of the running of the statute of limitations should not apply.
Even if, for the sake of argument, this Court glosses over the distinction between a request for
reconsideration and a request for reinvestigation, and considers the protest of petitioner BPI as a
request for reinvestigation, the filing thereof could not have suspended at once the running of the
statute of limitations. Article 224 of the Tax Code of 1977, as amended, very plainly requires that the
request for reinvestigation had been granted by the BIR Commissioner to suspend the running of
the prescriptive periods for assessment and collection.
That the BIR Commissioner must first grant the request for reinvestigation as a requirement for
suspension of the statute of limitations is even supported by existing jurisprudence.
In the case of Republic of the Philippines v. Gancayco,33 taxpayer Gancayco requested for a
thorough reinvestigation of the assessment against him and placed at the disposal of the Collector of
Internal Revenue all the evidences he had for such purpose; yet, the Collector ignored the request,
and the records and documents were not at all examined. Considering the given facts, this Court
pronounced that –
. . .The act of requesting a reinvestigation alone does not suspend the period. The request
should first be granted, in order to effect suspension. (Collector vs. Suyoc Consolidated, supra;
also Republic vs. Ablaza, supra). Moreover, the Collector gave appellee until April 1, 1949, within
which to submit his evidence, which the latter did one day before. There were no impediments on
the part of the Collector to file the collection case from April 1, 1949. . . .34
In Republic of the Philippines v. Acebedo,35 this Court similarly found that –
. . . [T]he defendant, after receiving the assessment notice of September 24, 1949, asked for a
reinvestigation thereof on October 11, 1949 (Exh. A). There is no evidence that this request was
considered or acted upon. In fact, on October 23, 1950 the then Collector of Internal Revenue
issued a warrant of distraint and levy for the full amount of the assessment (Exh. D), but there was
no follow-up of this warrant. Consequently, the request for reinvestigation did not suspend the
running of the period for filing an action for collection.
The burden of proof that the taxpayer’s request for reinvestigation had been actually granted shall be
on respondent BIR Commissioner. The grant may be expressed in communications with the
taxpayer or implied from the actions of the respondent BIR Commissioner or his authorized BIR
representatives in response to the request for reinvestigation.
In Querol v. Collector of Internal Revenue,36 the BIR, after receiving the protest letters of taxpayer
Querol, sent a tax examiner to San Fernando, Pampanga, to conduct the reinvestigation; as a result
of which, the original assessment against taxpayer Querol was revised by permitting him to deduct
reasonable depreciation. In another case, Republic of the Philippines v. Lopez,37 taxpayer Lopez
filed a total of four petitions for reconsideration and reinvestigation. The first petition was denied by
the BIR. The second and third petitions were granted by the BIR and after each reinvestigation, the
assessed amount was reduced. The fourth petition was again denied and, thereafter, the BIR filed a
collection suit against taxpayer Lopez. When the taxpayers spouses Sison, in Commissioner of
Internal Revenue v. Sison,38 contested the assessment against them and asked for a reinvestigation,
the BIR ordered the reinvestigation resulting in the issuance of an amended assessment. Lastly,
in Republic of the Philippines v. Oquias,39 the BIR granted taxpayer Oquias’s request for
reinvestigation and duly notified him of the date when such reinvestigation would be held; only,
neither taxpayer Oquias nor his counsel appeared on the given date.
In all these cases, the request for reinvestigation of the assessment filed by the taxpayer was
evidently granted and actual reinvestigation was conducted by the BIR, which eventually resulted in
the issuance of an amended assessment. On the basis of these facts, this Court ruled in the same
cases that the period between the request for reinvestigation and the revised assessment should be
subtracted from the total prescriptive period for the assessment of the tax; and, once the
assessment had been reconsidered at the taxpayer’s instance, the period for collection should begin
to run from the date of the reconsidered or modified assessment.40
The rulings of the foregoing cases do not apply to the present Petition because: (1) the protest filed
by petitioner BPI was a request for reconsideration, not a reinvestigation, of the assessment against
it; and (2) even granting that the protest of petitioner BPI was a request for reinvestigation, there was
no showing that it was granted by respondent BIR Commissioner and that actual reinvestigation had
been conducted.
Going back to the administrative records of the present case, it would seem that the BIR, after
receiving a copy of the protest letter of petitioner BPI on 17 November 1989, did not attempt to
communicate at all with the latter until 10 September 1992, less than a month before the prescriptive
period for collection on Assessment No. FAS-5-85-89-002054 was due to expire. There were
internal communications, mostly indorsements of the docket of the case from one BIR division to
another; but these hardly fall within the same sort of acts in the previously discussed cases that
satisfactorily demonstrated the grant of the taxpayer’s request for reinvestigation. Petitioner BPI, in
the meantime, was left in the dark as to the status of its protest in the absence of any word from the
BIR. Besides, in its letter to petitioner BPI, dated 10 September 1992, the BIR unwittingly admitted
that it had not yet acted on the protest of the former –
This refers to your protest against and/or request for reconsideration of the assessment/s of this
Office against you involving the amount of ₱28,020.00 under FAS-5-85-89-002054 dated October
23, 1989 as deficiency documentary stamp tax inclusive of compromise penalty for the year 1985.
In this connection, it is requested that the enclosed waiver of the statute of limitations extending the
period of collection of the said tax/es to December 31, 1993 be executed by you as a condition
precedent of our giving due course to your protest…41
When the BIR stated in its letter, dated 10 September 1992, that the waiver of the statute of
limitations on collection was a condition precedent to its giving due course to the request for
reconsideration of petitioner BPI, then it was understood that the grant of such request for
reconsideration was being held off until compliance with the given condition. When petitioner BPI
failed to comply with the condition precedent, which was the execution of the waiver, the logical
inference would be that the request was not granted and was not given due course at all.
III
The suspension of the statute of limitations on collection of the assessed deficiency DST from
petitioner BPI does not find support in jurisprudence.
It is the position of respondent BIR Commissioner, affirmed by the CTA and the Court of Appeals,
that the three-year prescriptive period for collecting on Assessment No. FAS-5-85-89-002054 had
not yet prescribed, because the said prescriptive period was suspended, invoking the case
of Commissioner of Internal Revenue v. Wyeth Suaco Laboratories, Inc.42 It was in this case in which
this Court ruled that the prescriptive period provided by law to make a collection is interrupted once a
taxpayer requests for reinvestigation or reconsideration of the assessment.
Petitioner BPI, on the other hand, is requesting this Court to revisit the Wyeth Suaco case
contending that it had unjustifiably expanded the grounds for suspending the prescriptive period for
collection of national internal revenue taxes.
This Court finds that although there is no compelling reason to abandon its decision in the Wyeth
Suaco case, the said case cannot be applied to the particular facts of the Petition at bar.
A. The only exception to the statute of limitations on collection of taxes, other than those already
provided in the Tax Code, was recognized in the Suyoc case.
As had been previously discussed herein, the statute of limitations on assessment and collection of
national internal revenue taxes may be suspended if the taxpayer executes a valid waiver thereof, as
provided in paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended; and in
specific instances enumerated in Section 224 of the same Code, which include a request for
reinvestigation granted by the BIR Commissioner. Outside of these statutory provisions, however,
this Court also recognized one other exception to the statute of limitations on collection of taxes in
the case of Collector of Internal Revenue v. Suyoc Consolidated Mining Co.43
In the said case, the Collector of Internal Revenue issued an assessment against taxpayer Suyoc
Consolidated Mining Co. on 11 February 1947 for deficiency income tax for the taxable year 1941.
Taxpayer Suyoc requested for at least a year within which to pay the amount assessed, but at the
same time, reserving its right to question the correctness of the assessment before actual payment.
The Collector granted taxpayer Suyoc an extension of only three months to pay the assessed tax.
When taxpayer Suyoc failed to pay the assessed tax within the extended period, the Collector sent it
a demand letter, dated 28 November 1950. Upon receipt of the demand letter, taxpayer Suyoc
asked for a reinvestigation and reconsideration of the assessment, but the Collector denied the
request. Taxpayer Suyoc reiterated its request for reconsideration on 25 April 1952, which was
denied again by the Collector on 06 May 1953. Taxpayer Suyoc then appealed the denial to the
Conference Staff. The Conference Staff heard the appeal from 02 September 1952 to 16 July 1955,
and the negotiations resulted in the reduction of the assessment on 26 July 1955. It was the
collection of the reduced assessment that was questioned before this Court for being enforced
beyond the prescriptive period.44
In resolving the issue on prescription, this Court ratiocinated thus –
of prescription even if he has not previously waived it in writing as when by his repeated requests
or positive acts the Government has been, for good reasons, persuaded to postpone
collection to make him feel that the demand was not unreasonable or that no harassment or
injustice is meant by the Government. And when such situation comes to pass there are
authorities that hold, based on weighty reasons, that such an attitude or behavior should not be
countenanced if only to protect the interest of the Government.45
By the principle of estoppel, taxpayer Suyoc was not allowed to raise the defense of prescription
against the efforts of the Government to collect the tax assessed against it. This Court adopted the
following principle from American jurisprudence: "He who prevents a thing from being done may not
avail himself of the nonperformance which he has himself occasioned, for the law says to him in
effect ‘this is your own act, and therefore you are not damnified.’"46
In the Suyoc case, this Court expressly conceded that a mere request for reconsideration or
reinvestigation of an assessment may not suspend the running of the statute of limitations. It
affirmed the need for a waiver of the prescriptive period in order to effect suspension thereof.
However, even without such waiver, the taxpayer may be estopped from raising the defense of
prescription because by his repeated requests or positive acts, he had induced Government
authorities to delay collection of the assessed tax.
Based on the foregoing, petitioner BPI contends that the declaration made in the later case of Wyeth
Suaco, that the statute of limitations on collection is suspended once the taxpayer files a request for
reconsideration or reinvestigation, runs counter to the ruling made by this Court in the Suyoc case.
B. Although this Court is not compelled to abandon its decision in the Wyeth Suaco case, it finds that
Wyeth Suaco is not applicable to the Petition at bar because of the distinct facts involved herein.
In the case of Wyeth Suaco, taxpayer Wyeth Suaco was assessed for failing to remit withholding
taxes on royalties and dividend declarations, as well as, for deficiency sales tax. The BIR issued two
assessments, dated 16 December 1974 and 17 December 1974, both received by taxpayer Wyeth
Suaco on 19 December 1974. Taxpayer Wyeth Suaco, through its tax consultant, SGV & Co., sent
to the BIR two letters, dated 17 January 1975 and 08 February 1975, protesting the assessments
and requesting their cancellation or withdrawal on the ground that said assessments lacked factual
or legal basis. On 12 September 1975, the BIR Commissioner advised taxpayer Wyeth Suaco to
avail itself of the compromise settlement being offered under Letter of Instruction No. 308. Taxpayer
Wyeth Suaco manifested its conformity to paying a compromise amount, but subject to certain
conditions; though, apparently, the said compromise amount was never paid. On 10 December
1979, the BIR Commissioner rendered a decision reducing the assessment for deficiency
withholding tax against taxpayer Wyeth Suaco, but maintaining the assessment for deficiency sales
tax. It was at this point when taxpayer Wyeth Suaco brought its case before the CTA to enjoin the
BIR from enforcing the assessments by reason of prescription. Although the CTA decided in favor of
taxpayer Wyeth Suaco, it was reversed by this Court when the case was brought before it on appeal.
According to the decision of this Court –
Settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy
or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or
reconsideration of the assessment. . .
...
Although the protest letters prepared by SGV & Co. in behalf of private respondent did not
categorically state or use the words "reinvestigation" and "reconsideration," the same are to be
treated as letters of reinvestigation and reconsideration…
These letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to collect
the deficiency taxes. The Bureau of Internal Revenue, after having reviewed the records of
Wyeth Suaco, in accordance with its request for reinvestigation, rendered a final
assessment… It was only upon receipt by Wyeth Suaco of this final assessment that the five-year
prescriptive period started to run again.47
The foremost criticism of petitioner BPI of the Wyeth Suaco decision is directed at the statement
made therein that, "settled is the rule that the prescriptive period provided by law to make a
collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer requests for
reinvestigation or reconsideration of the assessment."48 It would seem that both petitioner BPI and
respondent BIR Commissioner, as well as, the CTA and Court of Appeals, take the statement to
mean that the filing alone of the request for reconsideration or reinvestigation can already interrupt
or suspend the running of the prescriptive period on collection. This Court therefore takes this
opportunity to clarify and qualify this statement made in the Wyeth Suaco case. While it is true that,
by itself, such statement would appear to be a generalization of the exceptions to the statute of
limitations on collection, it is best interpreted in consideration of the particular facts of the Wyeth
Suaco case and previous jurisprudence.
The Wyeth Suaco case cannot be in conflict with the Suyoc case because there are substantial
differences in the factual backgrounds of the two cases. The Suyoc case refers to a situation where
there were repeated requests or positive acts performed by the taxpayer that convinced the BIR to
delay collection of the assessed tax. This Court pronounced therein that the repeated requests or
positive acts of the taxpayer prevented or estopped it from setting up the defense of prescription
against the Government when the latter attempted to collect the assessed tax. In the Wyeth
Suaco case, taxpayer Wyeth Suaco filed a request for reinvestigation, which was apparently granted
by the BIR and, consequently, the prescriptive period was indeed suspended as provided under
Section 224 of the Tax Code of 1977, as amended.49
To reiterate, Section 224 of the Tax Code of 1977, as amended, identifies specific circumstances
when the statute of limitations on assessment and collection may be interrupted or suspended,
among which is a request for reinvestigation that is granted by the BIR Commissioner. The act of
filing a request for reinvestigation alone does not suspend the period; such request must be
granted.50 The grant need not be express, but may be implied from the acts of the BIR
Commissioner or authorized BIR officials in response to the request for reinvestigation.51
This Court found in the Wyeth Suaco case that the BIR actually conducted a reinvestigation, in
accordance with the request of the taxpayer Wyeth Suaco, which resulted in the reduction of the
assessment originally issued against it. Taxpayer Wyeth Suaco was also aware that its request for
reinvestigation was granted, as written by its Finance Manager in a letter dated 01 July 1975,
addressed to the Chief of the Tax Accounts Division, wherein he admitted that, "[a]s we understand,
the matter is now undergoing review and consideration by your Manufacturing Audit Division…" The
statute of limitations on collection, then, started to run only upon the issuance and release of the
reduced assessment.
The Wyeth Suaco case, therefore, is correct in declaring that the prescriptive period for collection is
interrupted or suspended when the taxpayer files a request for reinvestigation, provided that, as
clarified and qualified herein, such request is granted by the BIR Commissioner.
Thus, this Court finds no compelling reason to abandon its decision in the Wyeth Suaco case. It also
now rules that the said case is not applicable to the Petition at bar because of the distinct facts
involved herein. As already heretofore determined by this Court, the protest filed by petitioner BPI
was a request for reconsideration, which merely required a review of existing evidence and the legal
basis for the assessment. Respondent BIR Commissioner did not require, neither did petitioner BPI
offer, additional evidence on the matter. After petitioner BPI filed its request for reconsideration,
there was no other communication between it and respondent BIR Commissioner or any of the
authorized representatives of the latter. There was no showing that petitioner BPI was informed or
aware that its request for reconsideration was granted or acted upon by the BIR.
IV
Conclusion
To summarize all the foregoing discussion, this Court lays down the following rules on the
exceptions to the statute of limitations on collection.
The statute of limitations on collection may only be interrupted or suspended by a valid waiver
executed in accordance with paragraph (d) of Section 223 of the Tax Code of 1977, as amended,
and the existence of the circumstances enumerated in Section 224 of the same Code, which include
a request for reinvestigation granted by the BIR Commissioner.
Even when the request for reconsideration or reinvestigation is not accompanied by a valid waiver or
there is no request for reinvestigation that had been granted by the BIR Commissioner, the taxpayer
may still be held in estoppel and be prevented from setting up the defense of prescription of the
statute of limitations on collection when, by his own repeated requests or positive acts, the
Government had been, for good reasons, persuaded to postpone collection to make the taxpayer
feel that the demand is not unreasonable or that no harassment or injustice is meant by the
Government, as laid down by this Court in the Suyoc case.
Applying the given rules to the present Petition, this Court finds that –
(a) The statute of limitations for collection of the deficiency DST in Assessment No. FAS-5-85-89-
002054, issued against petitioner BPI, had already expired; and
(b) None of the conditions and requirements for exception from the statute of limitations on collection
exists herein: Petitioner BPI did not execute any waiver of the prescriptive period on collection as
mandated by paragraph (d) of Section 223 of the Tax Code of 1977, as amended; the protest filed
by petitioner BPI was a request for reconsideration, not a request for reinvestigation that was
granted by respondent BIR Commissioner which could have suspended the prescriptive period for
collection under Section 224 of the Tax Code of 1977, as amended; and, petitioner BPI, other than
filing a request for reconsideration of Assessment No. FAS-5-85-89-002054, did not make repeated
requests or performed positive acts that could have persuaded the respondent BIR Commissioner to
delay collection, and that would have prevented or estopped petitioner BPI from setting up the
defense of prescription against collection of the tax assessed, as required in the Suyoc case.
This is a simple case wherein respondent BIR Commissioner and other BIR officials failed to act
promptly in resolving and denying the request for reconsideration filed by petitioner BPI and in
enforcing collection on the assessment. They presented no reason or explanation as to why it took
them almost eight years to address the protest of petitioner BPI. The statute on limitations imposed
by the Tax Code precisely intends to protect the taxpayer from such prolonged and unreasonable
assessment and investigation by the BIR.
Considering that the right of the respondent BIR Commissioner to collect from petitioner BPI the
deficiency DST in Assessment No. FAS-5-85-89-002054 had already prescribed, then, there is no
more need for this Court to make a determination on the validity and correctness of the said
Assessment for the latter would only be unenforceable.
Wherefore, based on the foregoing, the instant Petition is GRANTED. The Decision of the Court of
Appeals in CA-G.R. SP No. 51271, dated 11 August 1999, which reinstated Assessment No. FAS-5-
85-89-002054 requiring petitioner BPI to pay the amount of ₱28,020.00 as deficiency documentary
stamp tax for the taxable year 1985, inclusive of the compromise penalty, is REVERSED and SET
ASIDE. Assessment No. FAS-5-85-89-002054 is hereby ordered CANCELED.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Associate Justice
Chairman
MA. ALICIA AUSTRIA-MARTINEZ ROMEO J. CALLEJO, SR.
DANTE O. TINGA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Associate Justice
Chairman, Second Division
CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairman’s Attestation, it is
hereby certified that the conclusions in the above Decision were reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.
HILARIO G. DAVIDE, JR.
Chief Justice
FIRST DIVISION
G.R. Nos. 172045-46 June 16, 2009

vs.
FIRST EXPRESS PAWNSHOP COMPANY, INC., Respondent.
DECISION
CARPIO, J.:
The Case
The Commissioner of Internal Revenue (petitioner) filed this Petition for Review1 to reverse the Court
of Tax Appeals’ Decision2 dated 24 March 2006 in the consolidated cases of C.T.A. EB Nos. 60 and
62. In the assailed decision, the Court of Tax Appeals (CTA) En Banc partially reconsidered the CTA
First Division’s Decision3 dated 24 September 2004.
The Facts
On 28 December 2001, petitioner, through Acting Regional Director Ruperto P. Somera of Revenue
Region 6 Manila, issued the following assessment notices against First Express Pawnshop
Company, Inc. (respondent):
a. Assessment No. 31-1-984 for deficiency income tax of ₱20,712.58 with compromise
penalty of ₱3,000;
b. Assessment No. 31-14-000053-985 for deficiency value-added tax (VAT) of ₱601,220.18

with compromise penalty of ₱16,000;
c. Assessment No. 31-14-000053-986 for deficiency documentary stamp tax (DST) of

₱12,328.45 on deposit on subscription with compromise penalty of ₱2,000; and
d. Assessment No. 31-1-000053-987 for deficiency DST of ₱62,128.87 on pawn tickets with
compromise penalty of ₱8,500.
Respondent received the assessment notices on 3 January 2002. On 1 February 2002, respondent
filed its written protest on the above assessments. Since petitioner did not act on the protest during
the 180-day period,8respondent filed a petition before the CTA on 28 August 2002.9
Respondent contended that petitioner did not consider the supporting documents on the interest
expenses and donations which resulted in the deficiency income tax.10 Respondent maintained that
pawnshops are not lending investors whose services are subject to VAT, hence it was not liable for
deficiency VAT.11 Respondent also alleged that no deficiency DST was due because Section
18012 of the National Internal Revenue Code (Tax Code) does not cover any document or
transaction which relates to respondent. Respondent also argued that the issuance of a pawn ticket
did not constitute a pledge under Section 19513 of the Tax Code.14
In its Answer filed before the CTA, petitioner alleged that the assessment was valid and correct and
the taxpayer had the burden of proof to impugn its validity or correctness. Petitioner maintained that
respondent is subject to 10% VAT based on its gross receipts pursuant to Republic Act No. 7716, or
the Expanded Value-Added Tax Law (EVAT). Petitioner also cited BIR Ruling No. 221-91 which
provides that pawnshop tickets are subject to DST. 15
On 1 July 2003, respondent paid ₱27,744.88 as deficiency income tax inclusive of interest.16
After trial on the merits, the CTA First Division ruled, thus:
IN VIEW OF ALL THE FOREGOING, the instant petition is hereby PARTIALLY GRANTED.
Assessment No. 31-1-000053-98 for deficiency documentary stamp tax in the amount of Sixty-Two
Thousand One Hundred Twenty-Eight Pesos and 87/100 (₱62,128.87) and Assessment No. 31-14-
000053-98 for deficiency documentary stamp tax on deposits on subscription in the amount of
Twelve Thousand Three Hundred Twenty-Eight Pesos and 45/100 (₱12,328.45)
are CANCELLED and SET ASIDE. However, Assessment No. 31-14-000053-98 is
hereby AFFIRMED except the imposition of compromise penalty in the absence of showing that
petitioner consented thereto (UST vs. Collector, 104 SCRA 1062; Exquisite Pawnshop Jewelry, Inc.
vs. Jaime B. Santiago, et al., supra).
Accordingly petitioner is ORDERED to PAY the deficiency value added tax in the amount of Six
Hundred One Thousand Two Hundred Twenty Pesos and 18/100 (₱601,220.18) inclusive of
deficiency interest for the year 1998. In addition, petitioner is ORDERED to PAY 25% surcharge and
20% delinquency interest per annum from February 12, 2002 until fully paid pursuant to Sections
248 and 249 of the 1997 Tax Code.
SO ORDERED.17 (Boldfacing in the original)
Both parties filed their Motions for Reconsideration which were denied by the CTA First Division for
lack of merit. Thereafter, both parties filed their respective Petitions for Review under Section 11 of
Republic Act No. 9282 (RA 9282) with the CTA En Banc.18
On 24 March 2006, the CTA En Banc promulgated a Decision affirming respondent’s liability to pay
the VAT and ordering it to pay DST on its pawnshop tickets. However, the CTA En Banc found that
respondent’s deposit on subscription was not subject to DST.19
Aggrieved by the CTA En Banc’s Decision which ruled that respondent’s deposit on subscription was
not subject to DST, petitioner elevated the case before this Court.
The Ruling of the Court of Tax Appeals
On the taxability of deposit on subscription, the CTA, citing First Southern Philippines Enterprises,
Inc. v. Commissioner of Internal Revenue,20 pointed out that deposit on subscription is not subject to
DST in the absence of proof that an equivalent amount of shares was subscribed or issued in
consideration for the deposit. Expressed otherwise, deposit on stock subscription is not subject to
DST if: (1) there is no agreement to subscribe; (2) there are no shares issued or any additional
subscription in the restructuring plan; and (3) there is no proof that the issued shares can be
considered as issued certificates of stock.21
The CTA ruled that Section 17522 of the Tax Code contemplates a subscription agreement. The CTA
explained that there can be subscription only with reference to shares of stock which have been
unissued, in the following cases: (a) the original issuance from authorized capital stock at the time of
incorporation; (b) the opening, during the life of the corporation, of the portion of the original
authorized capital stock previously unissued; or (c) the increase of authorized capital stock achieved
through a formal amendment of the articles of incorporation and registration of the articles of
incorporation with the Securities and Exchange Commission.23
The CTA held that in this case, there was no subscription or any contract for the acquisition of
unissued stock for ₱800,000 in the taxable year assessed. The General Information Sheet (GIS) of
respondent showed only a capital structure of ₱500,000 as Subscribed Capital Stock and ₱250,000
as Paid-up Capital Stock and did not include the assessed amount. Mere reliance on the
presumption that the assessment was correct and done in good faith was unavailing vis-à-vis the
evidence presented by respondent. Thus, the CTA ruled that the assessment for deficiency DST on
deposit on subscription has not become final.24
The Issue
Petitioner submits this sole issue for our consideration: whether the CTA erred on a question of law
in disregarding the rule on finality of assessments prescribed under Section 228 of the Tax Code.
Corollarily, petitioner raises the issue on whether respondent is liable to pay ₱12,328.45 as DST on
deposit on subscription of capital stock.
The Ruling of the Court
Petitioner contends that the CTA erred in disregarding the rule on the finality of assessments
prescribed under Section 228 of the Tax Code.25 Petitioner asserts that even if respondent filed a
protest, it did not offer evidence to prove its claim that the deposit on subscription was an "advance"
made by respondent’s stockholders.26 Petitioner alleges that respondent’s failure to submit
supporting documents within 60 days from the filing of its protest as required under Section 228 of
the Tax Code caused the assessment of ₱12,328.45 for deposit on subscription to become final and
unassailable.27
Petitioner alleges that revenue officers are afforded the presumption of regularity in the performance
of their official functions, since they have the distinct opportunity, aside from competence, to peruse
records of the assessments. Petitioner invokes the principle that by reason of the expertise of
administrative agencies over matters falling under their jurisdiction, they are in a better position to
pass judgment thereon; thus, their findings of fact are generally accorded great respect, if not finality,
by the courts. Hence, without the supporting documents to establish the non-inclusion from DST of
the deposit on subscription, petitioner’s assessment pursuant to Section 228 of the Tax Code had
become final and unassailable.28
Respondent, citing Standard Chartered Bank-Philippine Branches v. Commissioner of Internal

Revenue,29 asserts that the submission of all the relevant supporting documents within the 60-day
period from filing of the protest is directory.
Respondent claims that petitioner requested for additional documents in petitioner’s letter dated 12
March 2002, to wit: (1) loan agreement from lender banks; (2) official receipts of interest payments
issued to respondent; (3) documentary evidence to substantiate donations claimed; and (4) proof of
payment of DST on subscription.30 It must be noted that the only document requested in connection
with respondent’s DST assessment on deposit on subscription is proof of DST payment. However,
respondent could not produce any proof of DST payment because it was not required to pay the
same under the law considering that the deposit on subscription was an advance made by its
stockholders for future subscription, and no stock certificates were issued.31 Respondent insists that
petitioner could have issued a subpoena requiring respondent to submit other documents to
determine if the latter is liable for DST on deposit on subscription pursuant to Section 5(c) of the Tax
Code.32
Respondent argues that deposit on future subscription is not subject to DST under Section 175 of
the Tax Code. Respondent explains:
It must be noted that deposits on subscription represent advances made by the stockholders and are
in the nature of liabilities for which stocks may be issued in the future. Absent any express
agreement between the stockholders and petitioner to convert said advances/deposits to capital
stock, either through a subscription agreement or any other document, these deposits remain as
liabilities owed by respondent to its stockholders. For these deposits to be subject to DST, it is
necessary that a conversion/subscription agreement be made by First Express and its stockholders.
Absent such conversion, no DST can be imposed on said deposits under Section 175 of the Tax
Code.33 (Underscoring in the original)
Respondent contends that by presenting its GIS and financial statements, it had already sufficiently
proved that the amount sought to be taxed is deposit on future subscription, which is not subject to
DST.34 Respondent claims that it cannot be required to submit proof of DST payment on subscription
because such payment is non-existent. Thus, the burden of proving that there was an agreement to
subscribe and that certificates of stock were issued for the deposit on subscription rests on petitioner
and his examiners. Respondent states that absent any proof, the deficiency assessment has no
basis and should be cancelled.35
On the Taxability of Deposit on Stock Subscription
DST is a tax on documents, instruments, loan agreements, and papers evidencing the acceptance,
assignment, sale or transfer of an obligation, right or property incident thereto. DST is actually an
excise tax because it is imposed on the transaction rather than on the document.36 DST is also
levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or
termination of specific legal relationships through the execution of specific instruments.37 The Tax
Code provisions on DST relating to shares or certificates of stock state:
Section 175. Stamp Tax on Original Issue of Shares of Stock. - On every original issue, whether on
organization, reorganization or for any lawful purpose, of shares of stock by any association,
company or corporation, there shall be collected a documentary stamp tax of Two pesos (₱2.00) on
each Two hundred pesos (₱200), or fractional part thereof, of the par value, of such shares of
stock: Provided, That in the case of the original issue of shares of stock without par value the
amount of the documentary stamp tax herein prescribed shall be based upon the actual
consideration for the issuance of such shares of stock: Provided, further, That in the case of stock
dividends, on the actual value represented by each share.38
Section 176. Stamp Tax on Sales, Agreements to Sell, Memoranda of Sales, Deliveries or Transfer
of Due-bills, Certificates of Obligation, or Shares or Certificates of Stock. - On all sales, or
agreements to sell, or memoranda of sales, or deliveries, or transfer of due-bills, certificates of
obligation, or shares or certificates of stock in any association, company or corporation, or transfer of
such securities by assignment in blank, or by delivery, or by any paper or agreement, or
memorandum or other evidences of transfer or sale whether entitling the holder in any manner to the
benefit of such due-bills, certificates of obligation or stock, or to secure the future payment of money,
or for the future transfer of any due-bill, certificate of obligation or stock, there shall be collected a
documentary stamp tax of One peso and fifty centavos (₱1.50) on each Two hundred pesos (₱200),
or fractional part thereof, of the par value of such due-bill, certificate of obligation or stock: Provided,
That only one tax shall be collected on each sale or transfer of stock or securities from one person to
another, regardless of whether or not a certificate of stock or obligation is issued, indorsed, or
delivered in pursuance of such sale or transfer: And provided, further, That in the case of stock
without par value the amount of the documentary stamp tax herein prescribed shall be equivalent to
twenty-five percent (25%) of the documentary stamp tax paid upon the original issue of said stock.39
In Section 175 of the Tax Code, DST is imposed on the original issue of shares of stock. The DST,
as an excise tax, is levied upon the privilege, the opportunity and the facility of issuing shares of
stock. In Commissioner of Internal Revenue v. Construction Resources of Asia, Inc.,40 this Court
explained that the DST attaches upon acceptance of the stockholder’s subscription in the
corporation’s capital stock regardless of actual or constructive delivery of the certificates of stock.
Citing Philippine Consolidated Coconut Ind., Inc. v. Collector of Internal Revenue,41 the Court held:
The documentary stamp tax under this provision of the law may be levied only once, that is upon the
original issue of the certificate. The crucial point therefore, in the case before Us is the proper
interpretation of the word ‘issue.’ In other words, when is the certificate of stock deemed ‘issued’ for
the purpose of imposing the documentary stamp tax? Is it at the time the certificates of stock are
printed, at the time they are filled up (in whose name the stocks represented in the certificate appear
as certified by the proper officials of the corporation), at the time they are released by the
corporation, or at the time they are in the possession (actual or constructive) of the stockholders
owning them?
xxx
Ordinarily, when a corporation issues a certificate of stock (representing the ownership of stocks in
the corporation to fully paid subscription) the certificate of stock can be utilized for the exercise of the
attributes of ownership over the stocks mentioned on its face. The stocks can be alienated; the
dividends or fruits derived therefrom can be enjoyed, and they can be conveyed, pledged or
encumbered. The certificate as issued by the corporation, irrespective of whether or not it is in the
actual or constructive possession of the stockholder, is considered issued because it is with value
and hence the documentary stamp tax must be paid as imposed by Section 212 of the National
Internal Revenue Code, as amended.
In Section 176 of the Tax Code, DST is imposed on the sales, agreements to sell, memoranda of
sales, deliveries or transfer of shares or certificates of stock in any association, company, or
corporation, or transfer of such securities by assignment in blank, or by delivery, or by any paper or
agreement, or memorandum or other evidences of transfer or sale whether entitling the holder in any
manner to the benefit of such certificates of stock, or to secure the future payment of money, or for
the future transfer of certificates of stock. In Compagnie Financiere Sucres et Denrees v.
Commissioner of Internal Revenue, this Court held that under Section 176 of the Tax Code, sales to
secure the future transfer of due-bills, certificates of obligation or certificates of stock are subject to
documentary stamp tax.42
Revenue Memorandum Order No. 08-98 (RMO 08-98) provides the guidelines on the corporate
stock documentary stamp tax program. RMO 08-98 states that:
1. All existing corporations shall file the Corporation Stock DST Declaration, and the DST
Return, if applicable when DST is still due on the subscribed share issued by the
corporation, on or before the tenth day of the month following publication of this Order.
xxx
3. All existing corporations with authorization for increased capital stock shall file their
Corporate Stock DST Declaration, together with the DST Return, if applicable when DST is
due on subscriptions made after the authorization, on or before the tenth day of the
month following the date of authorization. (Boldfacing supplied)
RMO 08-98, reiterating Revenue Memorandum Circular No. 47-97 (RMC 47-97), also states that
what is being taxed is the privilege of issuing shares of stock, and, therefore, the taxes accrue at the
time the shares are issued. RMC 47-97 also defines issuance as the point in which the stockholder
acquires and may exercise attributes of ownership over the stocks.
As pointed out by the CTA, Sections 175 and 176 of the Tax Code contemplate a subscription
agreement in order for a taxpayer to be liable to pay the DST. A subscription contract is defined as
any contract for the acquisition of unissued stocks in an existing corporation or a corporation still to
be formed.43 A stock subscription is a contract by which the subscriber agrees to take a certain
number of shares of the capital stock of a corporation, paying for the same or expressly or impliedly
promising to pay for the same.44
In this case, respondent’s Stockholders’ Equity section of its Balance Sheet as of 31 December
199845 shows:
Stockholders’ Equity 1998 1997

Authorized Capital Stock ₱ 2,000,000.00 ₱ 2,000,000.00
Paid-up Capital Stock 250,000.00 250,000.00
Deposit on Subscription 800,000.00
Retained Earnings 62,820.34 209,607.20
Net Income (858,498.38) (146,786.86)
Total ₱ 254,321.96 ₱ 312,820.34
The GIS submitted to the Securities and Exchange Commission on 31 March 1999 shows the
following Capital Structure:46
B. Financial Profile
1. Capital Structure :
AUTHORIZED - ₱2,000,000.00
SUBSCRIBED - 500,000.00
PAID-UP - 250,000.00
These entries were explained by Miguel Rosario, Jr. (Rosario), respondent’s external auditor, during
the hearing before the CTA on 11 June 2003. Rosario testified in this wise:
Atty. Napiza
Q. Mr. Rosario, I refer you to the balance sheet of First Express for the year 1998 particularly
the entry of deposit on subscription in the amount of ₱800 thousand, will you please tell us
what is (sic) this entry represents?
Mr. Rosario Jr.
A. This amount of ₱800 thousand represents the case given by the stockholders to the
company but does not necessarily made (sic) payment to subscribed portion.
Atty. Napiza
Q. What is (sic) that payment stands for?
Mr. Rosario Jr.
A. This payment stands as (sic) for the deposit for future subscription.
Atty. Napiza
Q. Would you know if First Express issued corresponding shares pertinent to the amount
being deposited?
Mr. Rosario Jr.
A. No.
Atty. Napiza
Q. What do you mean by no? Did they or they did not?
Mr. Rosario Jr.
A. They did not issue any shares because that is not the payment of subscription.
That is just a mere deposit.
Atty. Napiza
Q. Would you know, Mr. Rosario, how much is the Subscribed Capital of First Express
Pawnshop?
Mr. Rosario Jr.
A. The Subscribed Capital of First Express Pawnshop Company, Inc. for the year 1998 is
₱500 thousand.
Atty. Napiza
Q. How about the Paid Up Capital?
Mr. Rosario Jr.

A. The Paid Up Capital is ₱250 thousand.
Atty. Napiza
Q. Are (sic) all those figures appear in the balance sheet?
Mr. Rosario Jr.
A. The Paid Up Capital appeared here but the Subscribed Portion was not stated.
(Boldfacing supplied)
Based on Rosario’s testimony and respondent’s financial statements as of 1998, there was no
agreement to subscribe to the unissued shares. Here, the deposit on stock subscription refers to an
amount of money received by the corporation as a deposit with the possibility of applying the same
as payment for the future issuance of capital stock.47 In Commissioner of Internal Revenue v.
Construction Resources of Asia, Inc.,48 we held:
We are firmly convinced that the Government stands to lose nothing in imposing the documentary
stamp tax only on those stock certificates duly issued, or wherein the stockholders can freely
exercise the attributes of ownership and with value at the time they are originally issued. As regards
those certificates of stocks temporarily subject to suspensive conditions they shall be liable
for said tax only when released from said conditions, for then and only then shall they truly
acquire any practical value for their owners. (Boldfacing supplied)
lavvph il
Clearly, the deposit on stock subscription as reflected in respondent’s Balance Sheet as of 1998 is
not a subscription agreement subject to the payment of DST. There is no ₱800,000 worth of
subscribed capital stock that is reflected in respondent’s GIS. The deposit on stock subscription is
merely an amount of money received by a corporation with a view of applying the same as payment
for additional issuance of shares in the future, an event which may or may not happen. The person
making a deposit on stock subscription does not have the standing of a stockholder and he is not
entitled to dividends, voting rights or other prerogatives and attributes of a stockholder. Hence,
respondent is not liable for the payment of DST on its deposit on subscription for the reason that
there is yet no subscription that creates rights and obligations between the subscriber and the
corporation.
On the Finality of Assessment as Prescribed

under Section 228 of the Tax Code
Section 228 of the Tax Code provides:
SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his
findings: Provided, however, That a preassessment notice shall not be required in the following
cases:
(a) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and automatically
applied the same amount claimed against the estimated tax liabilities for the taxable quarter
or quarters of the succeeding taxable year; or
(d) When the excise tax due on excisable articles has not been paid; or
(e) When an article locally purchased or imported by an exempt person, such as, but not
limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or
transferred to non-exempt persons.
The taxpayer shall be informed in writing of the law and the facts on which the assessment is made;
otherwise, the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be
required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly
authorized representative shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a request for reconsideration or

reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as
may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the
protest, all relevant supporting documents shall have been submitted; otherwise, the
assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days
from submission of documents, the taxpayer adversely affected by the decision or inaction may
appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from
the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall become final,
executory and demandable. (Boldfacing supplied)
Section 228 of the Tax Code49 provides the remedy to dispute a tax assessment within a certain
period of time. It states that an assessment may be protested by filing a request for reconsideration
or reinvestigation within 30 days from receipt of the assessment by the taxpayer. Within 60 days
from filing of the protest, all relevant supporting documents shall have been submitted; otherwise,
the assessment shall become final.
In this case, respondent received the tax assessment on 3 January 2002 and it had until 2 February
2002 to submit its protest. On 1 February 2002, respondent submitted its protest and attached the
GIS and Balance Sheet as of 31 December 1998. Respondent explained that it received ₱800,000
as a deposit with the possibility of applying the same as payment for the future issuance of capital
stock.
Within 60 days from the filing of protest or until 2 April 2002, respondent should submit relevant
supporting documents. Respondent, having submitted the supporting documents together with
its protest, did not present additional documents anymore.
In a letter dated 12 March 2002, petitioner requested respondent to present proof of payment of DST
on subscription. In a letter-reply, respondent stated that it could not produce any proof of DST
payment because it was not required to pay DST under the law considering that the deposit on
subscription was an advance made by its stockholders for future subscription, and no stock
certificates were issued.
Since respondent has not allegedly submitted any relevant supporting documents, petitioner now
claims that the assessment has become final, executory and demandable, hence, unappealable.
We reject petitioner’s view that the assessment has become final and unappealable. It cannot be
said that respondent failed to submit relevant supporting documents that would render the
assessment final because when respondent submitted its protest, respondent attached the GIS and
Balance Sheet. Further, petitioner cannot insist on the submission of proof of DST payment because
such document does not exist as respondent claims that it is not liable to pay, and has not paid, the
DST on the deposit on subscription.
The term "relevant supporting documents" should be understood as those documents necessary to
support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can
only inform the taxpayer to submit additional documents. The BIR cannot demand what type of
supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR,
which may require the production of documents that a taxpayer cannot submit. 1awphi1
After respondent submitted its letter-reply stating that it could not comply with the presentation of the
proof of DST payment, no reply was received from petitioner.
Section 228 states that if the protest is not acted upon within 180 days from submission of
documents, the taxpayer adversely affected by the inaction may appeal to the CTA within 30 days
from the lapse of the 180-day period. Respondent, having submitted its supporting documents on
the same day the protest was filed, had until 31 July 2002 to wait for petitioner’s reply to its protest.
On 28 August 2002 or within 30 days after the lapse of the 180-day period counted from the filing of
the protest as the supporting documents were simultaneously filed, respondent filed a petition before
the CTA.
Respondent has complied with the requisites in disputing an assessment pursuant to Section 228 of
the Tax Code. Hence, the tax assessment cannot be considered as final, executory and
demandable. Further, respondent’s deposit on subscription is not subject to the payment of DST.
Consequently, respondent is not liable to pay the deficiency DST of ₱12,328.45.
Wherefore, we DENY the petition. We AFFIRM the Court of Tax Appeals’ Decision dated 24 March
2006 in the consolidated cases of C.T.A. EB Nos. 60 and 62.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
Chairperson
RENATO C. CORONA TERESITA J. LEONARDO-DE CASTRO

LUCAS P. BERSAMIN
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the opinion
of the Court’s Division.
REYNATO S. PUNO
Chief Justice
SECOND DIVISION
[ G.R. No. 215534, April 18, 2016 ]
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. LIQUIGAZ
PHILIPPINES CORPORATION, RESPONDENT.
[G.R. NO. 215557]
LIQUIGAZ PHILIPPINES CORPORATION, PETITIONER, VS. COMMISSIONER OF

INTERNAL REVENUE, RESPONDENT.
DECISION
MENDOZA, J.:
Presented before us is a novel issue. When may a Final Decision on Disputed Assessment (FDDA) be declared void,
and in the event that the FDD A is found void, what would be its effect on the tax assessment?
Assailed in these consolidated petitions for review on certiorari filed under Rule 45 of the Rules of Court are the May
22, 2014 Decision[1] and the November 26, 2014 Resolution[2] of the Court of Tax Appeals (CTA) En Banc which
affirmed the November 22, 2012 Decision[3] of the CTA Division, Second Division (CTA Division).
Liquigaz Philippines Corporation (Liquigaz) is a corporation duly organized and existing under Philippine laws. On
July 11, 2006, it received a copy of Letter of Authority (LOA) No. 00067824, dated July 4, 2006, issued by the
Commissioner of Internal Revenue (CIR), authorizing the investigation of all internal revenue taxes for taxable year
2005.[4]
On April 9, 2008, Liquigaz received an undated letter purporting to be a Notice of Informal Conference (NIC), as well
as the detailed computation of its supposed tax liability. On May 28, 2008, it received a copy of the Preliminary
Assessment Notice[5] (PAN), dated May 20, 2008, together with the attached details of discrepancies for the calendar
year ending December 31, 2005.[6] Upon investigation, Liquigaz was initially assessed with deficiency withholding tax
liabilities, inclusive of interest, in the aggregate amount of P23,931,708.72, broken down as follows:
Expanded Withholding Tax (EWT) P5,456,141.82
Withholding Tax on Compensation (WTC) P4,435,463.97
Fringe Benefits Tax (FBT) P14,040,102.93
TOTAL P23,931,708.72
Thereafter, on June 25, 2008, it received a Formal Letter of Demand[7] (FLD)/Formal Assessment Notice (FAN),
together with its attached details of discrepancies, for the calendar year ending December 31, 2005. The total
deficiency withholding tax liabilities, inclusive of interest, under the FLD was P24,332,347.20, which may be broken
down as follows:
EWT P 5,535,890.38
WTC P 4,500,169.94
FBT P 14,296,286.88
TOTAL P 24,332,347.20
On July 25, 2008, Liquigaz filed its protest against the FLD/FAN and subsequently submitted its supporting
documents on September 23, 2008.
Then, on July 1, 2010, it received a copy of the FDDA[8] covering the tax audit under LOA No. 00067824 for the
calendar year ending December 31, 2005. As reflected in the FDDA, the CIR still found Liquigaz liable for deficiency
withholding tax liabilities, inclusive of interest, in the aggregate amount of P22,380,025.19, which may be broken
down as follows:
EWT P 3,479,426.75
WTC P 4,508,025.93
FBT P14,392,572.51
TOTAL P 22,380,025.19
Consequently, on July 29, 2010, Liquigaz filed its Petition for Review before the CTA Division assailing the validity of
the FDDA issued by the CIR.[9]
The CTA Division Ruling
In its November 22, 2012 Decision, the CTA Division partially granted Liquigaz's petition cancelling the EWT and FBT
assessments but affirmed with modification the WTC assessment. It ruled that the portion of the FDDA relating to the
EWT and the FBT assessment was void pursuant to Section 228 of the National Internal Revenue Code (NIRC) of
1997, as implemented by Revenue Regulations (RR) No. 12-99.
The CTA Division noted that unlike the PAN and the FLD/FAN, the FDDA issued did not provide the details thereof,
hence, Liquigaz had no way of knowing what items were considered by the CIR in arriving at the deficiency
assessments. This was especially true because the FDDA reflected a different amount from what was stated in the
FLD/FAN. The CTA Division explained that though the legal bases for the EWT and FBT assessment were stated in
the FDDA, the taxpayer was not notified of the factual bases thereof, as required in Section 228 of the NIRC.
On the other hand, it upheld the WTC assessment against Liquigaz. It noted that the factual bases used in the FLD
and the FDDA with regard thereto were the same as the difference in the amount merely resulted from the use of a
different tax rate.
The CTA Division agreed with Liquigaz that the tax rate of 25.40% was more appropriate because it represents the
effective tax compensation paid, computed based on the total withholding tax on compensation paid and the total
taxable compensation income for the taxable year 2005. It did not give credence to Liquigaz's explanation that the
salaries account included accrued bonus, 13th month pay, de minimis benefits and other benefits and contributions
which were not subject to withholding tax on compensation. The CTA Division relied on the report prepared by
Antonio O. Maceda, Jr., the court-commissioned independent accountant, which found that Liquigaz was unable to
substantiate the discrepancy found by the CIR on its withholding tax liability on compensation. The dispositive portion
of the CTA Division decision reads:
WHEREFORE, the Petition for Review is hereby PARTIALLY GRANTED. Accordingly, the assessments for
deficiency expanded withholding tax in the amount of P3,479,426.75 and fringe benefits tax in the amount of
P14,392,572.51 issued by respondent against petitioner for taxable year 2005, both inclusive of interest and
compromise penalty is hereby CANCELLED and WITHDRAWN for being void.
However, the assessment for deficiency withholding tax on compensation for taxable year 2005 is
hereby AFFIRMED with MODIFICATIONS. Accordingly, petitioner is hereby ORDERED to PAY respondent the
amount of P2,958,546.23, inclusive of the 25% surcharge imposed under Section 248(A)(3) of the NIRC of 1997, as
amended, computed as follows:
Salaries per ITR P52,239,313.00

Less: Salaries per Alphalist P42,921,057-16
Discrepancy P9,318,255-84
Tax rate 25.40%
Basic Withholding Tax on Compensation P2,366,836.98
Add: 25% Surcharge P591,709.5
Total Amount Due P2,958,546.23
In addition, petitioner is liable to pay: (a) deficiency interest at the rate of twenty percent (20%) per annum of the
basic deficiency withholding tax on compensation of P2,958,546.23 computed from January 20, 2006 until full
payment thereof pursuant to Section 249(B) of the NIRC of 1997, as amended; and (b) delinquency interest at the
rate of twenty percent (20%) per annum on the total amount due of £2,958,546.23 and on the deficiency interest
which have accrued as aforestated in (a) computed from July 1, 2010 until full payment thereof, pursuant to Section
249(0(3) of the NIRC of 1997, as amended.
The compromise penalty of P25,000.00, originally imposed by respondent is hereby excluded there being no
compromise agreement between the parties.
SO ORDERED[10]
Both the CIR and Liquigaz moved for reconsideration, but their respective motions were denied by the CTA Division
in its February 20, 2013 Resolution.
Aggrieved, they filed their respective petitions for review before the CTA En Banc.
The CTA En Bane- Ruling
In its May 22, 2014 Decision, the CTA En Banc affirmed the assailed decision of the CTA Division. It reiterated its
pronouncement that the requirement that the taxpayer should be informed in writing of the law and the facts on which
the assessment was made applies to the FDDA— otherwise the assessment would be void. The CTA En Bane
explained that the FDDA determined the final tax liability of the taxpayer, which may be the subject of an appeal
before the CTA.
The CTA En Banc echoed the findings of the CTA Division that while the FDDA indicated the legal provisions relied
upon for the assessment, the source of the amounts from which the assessments arose were not shown. It
emphasized the need for stating the factual bases as the FDDA reflected different amounts than that contained in the
FLD/FAN.
On the other hand, the CTA En Banc sustained Liquigaz' WTC assessment. It observed that the basis for the
assessment was the same for the FLD and the FDDA, which was a comparison of the salaries declared in the
Income Tax Return (ITR) and the Alphalist that resulted in a discrepancy of P9,318,255.84. The CTA En
Banchighlighted that the change in the amount of assessed WTC deficiency simply arose from the revision of the tax
rate used—from 32% to the effective tax rate of 25.40% suggested by Liquigaz.
Further, it disregarded the explanation of Liquigaz on the ground of its failure to specify how much of the salaries
account pertained to de minimis benefits, accrued bonuses, salaries and wages, and contributions to the Social
Security System, Medicare and Pag-Ibig Fund. The CTA En Banc reiterated that even the court-commissioned
independent accountant reported that Liquigaz was unable to substantiate the discrepancy found by the CIR.
Both parties moved for a partial reconsideration of the CTA En Banc Decision, but the latter denied the motions in its
November 26, 2014 Resolution.
Not satisfied, both parties filed their respective petitions for review, anchored on
SOLE ISSUE
WHETHER THE COURT OF TAX APPEALS EN BANC ERRED IN PARTIALLY UPHOLDING THE VALIDITY OF
THE ASSESSMENT AS TO THE WITHHOLDING TAX ON COMPENSATION BUT DECLARING INVALID THE
ASSESSMENT ON EXPANDED WITHHOLDING TAX AND FRINGE BENEFITS TAX.
The present consolidated petitions revolve around the same FDDA where Liquigaz seeks the cancellation of its
remaining tax liability and the CIR aims to revive the assessments struck down by the tax court. Basically, Liquigaz
asserts that like its assessment for EWT and FBT deficiency, the WTC assessment should have been invalidated
because the FDDA did not provide for the facts on which the assessment was based. It argues that it was deprived of
due process because in not stating the factual basis of the assessment, the CIR did not consider the defenses and
supporting documents it presented.
Moreover, Liquigaz is adamant that even if the FDDA would be upheld, it should not be liable for the deficiency WTC
liability because the CIR erred in comparing its ITR and Alphalist to determine possible discrepancies. It explains that
the salaries of its employees reflected in its ITR does not reflect the total taxable income paid and received by the
employees because the same refers to the gross salaries of the employees, which included amounts that were not
subject to WTC.
On the other hand, the CIR avers that the assessments for EWT and FBT liability should be upheld because the
FDDA must be taken together with the PAN and FAN, where details of the assessments were attached. Hence, the
CIR counters that Liquigaz was fully apprised of not only the laws, but also the facts on which the assessment was
based, which were likewise evidenced by the fact that it was able to file a protest on the assessment. Further, the CIR
avers that even if the FDDA would be declared void, it should not result in the automatic abatement of tax liability
especially because RR No. 12-99 merely states that a void decision of the CIR or his representative shall not be
considered as a decision on the assessment.
The Court's Ruling
Central to the resolution of the issue is Section 228[11] of the NIRC and RR No. 12-99,[12] as amended. They lay out
the procedure to be followed in tax assessments. Under Section 228 of the NIRC, a taxpayer shall be informed in
writing of the law and the facts on which the assessment is made, otherwise, the assessment shall be void. In
implementing Section 228 of the NIRC, RR No. 12-99 reiterates the requirement that a taxpayer must be informed in
writing of the law and the facts on which his tax liability was based, to wit:
SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment. —
3.1 Mode of procedures in the issuance of a deficiency tax assessment:
3.1.1 Notice for informal conference. — The Revenue Officer who audited the taxpayer's records shall, among others,
state in his report whether or not the taxpayer agrees with his findings that the taxpayer is liable for deficiency tax or
taxes. If the taxpayer is not amenable, based on the said Officer's submitted report of investigation, the taxpayer shall
be informed, in writing, by the Revenue District Office or by the Special Investigation Division, as the case may be (in
the case Revenue Regional Offices) or by the Chief of Division concerned (in the case of the BIR National Office) of
the discrepancy or discrepancies in the taxpayer's payment of his internal revenue taxes, for the purpose of "Informal
Conference," in order to afford the taxpayer with an opportunity to present his side of the case. If the taxpayer fails to
respond within.fifteen (15) days from date of receipt of the notice for informal conference, he shall be considered in
default, in which case, the Revenue District Officer or the Chief of the Special Investigation Division of the Revenue
Regional Office, or the Chief of Division in the National Office, as the case may be, shall endorse the case with the
least possible delay to the: Assessment Division of the Revenue Regional Office or to the Commissioner or his duly
authorized representative, as the case may be, for appropriate review and issuance of a deficiency tax assessment, if
warranted.
3.1.2 Preliminary Assessment Notice (PAN). — If after review and evaluation by the Assessment Division or by the
Commissioner or his duly authorized representative, as the case may be, it is determined that there exists sufficient
basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall issue to the taxpayer, at least by
registered, mail, a Preliminary Assessment Notice (PAN) for the proposed assessment, showing in detail, the facts
and the law, rules and regulations, or jurisprudence on which the proposed assessment is based (see illustration in
ANNEX A hereof). 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.
xxx
3.1.4 Formal Letter of Demand and Assessment Notice. — The formal letter of demand and assessment notice shall
be issued by the Commissioner or his duly authorized representative. The letter of demand calling for payment of
the taxpayer's deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on
which the assessment is based, otherwise, the formal letter of demand and assessment notice shall be
void (see illustration in ANNEX B hereof), xxx
3.1.5 Disputed Assessment. — The taxpayer or his duly authorized representative may protest administratively
against the aforesaid formal letter of demand and assessment notice within thirty (30) days from date of receipt
thereof. If there are several issues involved in the formal letter of demand and assessment notice but the taxpayer
only disputes or protests against the validity of some of-the issues raised, the taxpayer shall be required to pay the
deficiency tax or taxes attributable to the undisputed issues, in which case, a collection letter shall be issued to the
taxpayer calling for payment of the said deficiency tax, inclusive of the applicable surcharge and/or interest. No action
shall be taken on the taxpayer's disputed issues until the taxpayer has paid the deficiency tax or taxes attributable to
the said undisputed issues. The prescriptive period for assessment or collection of the tax or taxes attributable to the
disputed issues shall be suspended, xxx
3.1.6 Administrative Decision on a Disputed Assessment. — The decision of the Commissioner or his duly
authorized representative shall (a) state the facts, the applicable law, rules and regulations, or jurisprudence
on which such decision is based, otherwise, the decision shall be void (see illustration in ANNEX C hereof), in
which case, the same shall not be considered a decision on a disputed assessment; and (b) that the same is his final
decision.
[Emphases and Underscoring Supplied]
The importance of providing the taxpayer of adequate written notice of his tax liability is undeniable. Section 228 of
the NIRC declares that an assessment is void if the taxpayer is not notified in writing of the facts and law on which it
is made. Again, Section 3.1.4 of RR No. 12-99 requires that the FLD must state the facts and law on which it is
based, otherwise, the FLD/FAN itself shall be void. Meanwhile, Section 3.1.6 of RR No. 12-99 specifically requires
that the decision of the CIR or his duly authorized representative on a disputed assessment shall state the facts, law
and rules and regulations, or jurisprudence on which the decision is based. Failure to do so would invalidate the
FDDA.
The use of the word "shall" in Section 228 of the NIRC and in RR No. 12-99 indicates that the requirement of
informing the taxpayer of the legal and factual bases of the assessment and the decision made against him is
mandatory.[13] The requirement of providing the taxpayer with written notice of the factual and legal bases applies
both to the FLD/FAN and the FDDA.
Section 228 of the NIRC should not be read restrictively as to limit the written notice'only to the assessment itself. As
implemented by RR No. 12-99, the written notice requirement for both the FLD and the FAN is in observance of due
process—to afford the taxpayer adequate opportunity to file a protest on the assessment and thereafter file an appeal
in case of an adverse decision.
To rule otherwise would tolerate abuse and prejudice. Taxpayers will be unable to file an intelligent appeal before the
CTA as they would be unaware on how the CIR or his' authorized representative appreciated the defense raised in
connection with the assessment. On the other hand, it raises the possibility that the amounts reflected in the FDDA
were arbitrarily made if the factual and legal bases thereof are not shown.
A void FDDA does not

ipso facto render the
assessment void
The CIR arid Liquigaz are at odds with regards to the effect of a void FDDA. Liquigaz harps that a void FDDA will
lead to a void assessment because the FDDA ultimately determines the final tax'liability of a'taxpayer, which may
then be appealed before the CTA. On the other hand, the CIR believes that a void FDDA does not ipso facto result in
the nullification of the assessment.
In resolving the issue on the effects of a void FDDA, it is necessary to differentiate an "assessment" from a "decision."
In St. Stephen's Association v. Collector of Internal Revenue,[14] the Court has long recognized that a "decision"-
differs from an "assessment," to wit:
In the first place, we believe the respondent court erred in holding that the assessment in question is the respondent
Collector's decision or ruling appealable to it, and that consequently, the period of thirty days prescribed by section li
of Republic Act No. 1125 within which petitioner should have appealed to the respondent court must be counted from
its receipt of said assessment. Where a taxpayer questions an assessment and asks the Collector to reconsider or
cancel the same because he (the taxpayer) believes he is not liable therefor, the assessment becomes a "disputed
assessment" that the Collector must decide, and the taxpayer can appeal to the Court of Tax Appeals only upon
receipt of the decision of the Collector on the disputed assessment, in accordance with paragraph (1) of section 7,
Republic Act No. 1125, conferring appellate jurisdiction upon the Court of Tax Appeals to review "decisions of the
Collector of Internal Revenue in cases involving disputed assessment..."
The difference is likewise readily apparent in Section 7[15] of R.A. 1125,[16] as amended, where the CTA is conferred
with appellate jurisdiction over the decision of the CIR in cases involving disputed assessments, as well as inaction of
the CIR in disputed assessments. From the foregoing, it is clear that what is appealable to the CTA is the "decision"
of the CIR on disputed assessment and not the assessment itself.
An assessment becomes a disputed assessment after a taxpayer has filed its protest to the assessment in the
administrative level. Thereafter, the CIR either issues a decision on the disputed assessment or fails to act on it and
is, therefore, considered denied. The taxpayer may then appeal the decision on the disputed assessment or the
inaction of the CIR. As such, the FDDA is not the only means that the final tax liability of a taxpayer is fixed, which
may then be appealed by the taxpayer. Under the law, inaction on the part of the CIR may likewise result in the
finality of a taxpayer's tax liability as it is deemed a denial of the protest filed by the latter, which may also be
appealed before the CTA.
Clearly, a decision of the CIR on a disputed assessment differs from the assessment itself. Hence, the invalidity of
one does not necessarily result to the invalidity of the other—unless the law or regulations otherwise provide.
Section 228 of the NIRC provides that an assessment shall be void if the taxpayer is not informed in writing of the law
and the facts on which it is based. It is, however, silent with regards to a decision on a disputed assessment by the
CIR which fails to state the law and facts on which it is based. This void is filled by RR No. 12-99 where it is stated
that failure of the FDDA to reflect the facts and law on which it is based will make the decision void. It, however, does
not extend to the nullification of the entire assessment.
With the effects of a void FDDA expounded, the next issue to be addressed is whether the assailed FDDA is void for
failure to state the facts and law on which it was based.
The FDDA must state the

facts and law on which it
is based to provide the
taxpayer the opportunity
to file an intelligent
appeal
The CIR and Liquigaz are also in disagreement whether the FDDA issued was compliant with the mandatory
requirement of written notice laid out in the law and implementing rules and regulations. Liquigaz argues that the
FDDA is void as it did not contain the factual bases of the assessment and merely showed the amounts of its alleged
tax liabilities.
A perusal of the FDDA issued in the case at bench reveals that it merely contained a table of Liquigaz's supposed tax
liabilities, without providing any details. The CIR explains that the FDDA still complied with the requirements of the
law as it was issued in connection with the PAN and FLD/FAN, which had an attachment of the details of
discrepancies. Hence, the CIR concludes that Liquigaz was sufficiently informed in writing of the factual bases of the
assessment.
The reason for requiring that taxpayers be informed in writing of the facts and law on which the assessment is made
is the constitutional guarantee that no person shall be deprived of his property without due process of law. [17] Merely
notifying the taxpayer of its tax liabilities without elaborating on its details is insufficient. In CIR v. Reyes,[18] the Court
further explained:.
In the present case, Reyes was not informed in writing of the law and the facts on which the assessment of estate
taxes had been made:. She was merely notified of the findings by the CIR, who had simply relied upon the provisions
of former Section 229 prior to its amendment by Republic Act (RA) No. 8424, otherwise known as the Tax Reform Act
of 1997.
First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old -
requirement- of merely notifying the taxpayer of the CIR's findings was changed in 1998 to informing the taxpayer of
not only the law, but also of the facts on which an assessment would be made; otherwise, the assessment itself
would be invalid, xxx
At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that the taxpayer must be
informed of both the law and facts on which the assessment was based. Thus, the CIR should have required the
assessment officers of the Bureau of Internal Revenue (BIR) to follow the clear mandate of the new law. The old
regulation governing the issuance of estate tax assessment notices ran afoul of the rule that tax regulations — old as
they were — should be in harmony with, and not supplant or modify, the law. xxx
Fourth, petitioner violated the cardinal rule in administrative law that the taxpayer be accorded due process. Not only
was the law here disregarded, but no valid notice was sent, either. A void assessment bears no valid fruit.
The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without
first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations: that
taxpayers should be able to present their case and adduce supporting evidence. In the instant case, respondent
has not been informed of the basis of the estate tax liability. Without complying with the unequivocal
mandate of first informing the taxpayer of the government's claim, there can be no deprivation of property,
because no effective protest can be made. The haphazard shot at slapping an assessment, supposedly based on
estate taxation's general provisions that are expected to be known by the taxpayer, is utter chicanery.
Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals the lack of
basis for — not to mention the insufficiency of — the gross figures and details of the itemized deductions indicated in
the notice and the letter. This Court cannot countenance an assessment based on estimates that appear to
have been arbitrarily or capriciously arrived at. Although taxes are the lifeblood of the government, their
assessment .and collection "should be made in accordance with law as any arbitrariness will negate the very reason
for government itself."
[Emphases Supplied]
In CIR v. United Salvage and Towage (Phils.), Inc.,[19] the Court struck down an assessment where the FAN only
contained a table of the taxes due without providing further detail thereto, to wit:
In the present case, a mere perusal of the FAN for the deficiency EWT for taxable year 1994 will show that other than
a tabulation of the alleged deficiency taxes due, no further detail regarding the assessment was provided by
petitioner. Only the resulting interest, surcharge and penalty were anchored with legal basis. Petitioner should have
at least attached a detailed notice of discrepancy or stated an explanation why the amount of P48,461.76 is
collectible against respondent and how the same was arrived at. Any short-cuts to the prescribed content of the
assessment or the process thereof should not be countenanced, in consonance with the ruling in Commissioner of
Internal Revenue v. Enron Subic Power Corporation to wit:
The CIR insists that an examination of the facts shows that Enron was properly apprised of its tax deficiency. During
the pre-assessment stage, the CIR advised Enron's representative of the tax deficiency, informed it of the proposed
tax deficiency assessment through a preliminary five-day letter and furnished Enron a copy of the audit working paper
allegedly showing in detail the legal and factual bases of the assessment. The CIR argues that these steps sufficed to
inform Enron of the laws and facts on which the deficiency tax assessment was based.
We disagree. The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the preliminary five-
day letter, were not valid substitutes for the mandatory notice in writing of the legal and factual bases of the
assessment. These steps were mere perfunctory discharges of the CIR's duties in correctly assessing a taxpayer.
The requirement for issuing a preliminary or final notice, as the case may be, informing a taxpayer of the existence of
a deficiency tax assessment is markedly different from the requirement of what such notice must contain. Just
because the CIR issued an advice, a preliminary letter during the pre-assessment stage and a final notice, in the
order required by law, does not necessarily mean that Enron was informed of the law and facts on which the
deficiency tax assessment was made.
The law requires that the legal and factual bases of the assessment be stated in the formal letter of demand and
assessment notice. Thus, such cannot be presumed. Otherwise, the express provisions of Article 228 of the NIRC
and RR No. 12-99 would be rendered nugatory. The alleged "factual bases" in the advice, preliminary letter and
"audit working papers" did not suffice. There was no going around the mandate of the law that the legal and factual
bases of the assessment be stated in writing in the formal letter of demand accompanying the assessment notice.
We note that the old law merely required that the taxpayer be notified of the assessment made by the CIR. This was
changed in 1998 and the taxpayer must now be informed not only of the law but also of the facts on which the
assessment is made. Such amendment is in keeping with the constitutional principle that no ' person shall be
deprived of property without due process. In view of the absence of a fair opportunity for Enron to be informed of the
legal and factual bases of the assessment against it, the assessment in question was void.....
xxx
Applying the aforequoted rulings to the case at bar, it is clear that the assailed deficiency tax assessment for the EWT
in 1994 disregarded the provisions of Section 228 of the Tax Code, as amended, as well as Section 3.1.4 of Revenue
Regulations No. 12-99 by not providing the legal and factual bases of« the assessment. Hence, the formal letter of
demand and the notice of assessment issued relative thereto are void.
[Emphasis Supplied]
Nevertheless, the requirement of providing the taxpayer with written notice of the facts and law used as basis for the
assessment is not to be mechanically. applied. Emphasis on the purpose of the written notice is important. The
requirement should be in place so that the taxpayer could be adequately informed of the basis of the assessment
enabling him to prepare an intelligent protest or appeal of the assessment or decision. In Samar-I Electric
Cooperative v. CIR,[20] the Court elaborated:
The above information provided to petitioner enabled it to protest the PAN by questioning respondent's interpretation
of the laws cited as legal basis for the computation of the deficiency withholding taxes and assessment of minimum
corporate income tax despite petitioner's position that it remains exempt therefrom. In its letter-reply dated May 27,
2002, respondent answered the arguments raised by petitioner in its protest, and requested it to pay the assessed
deficiency on the date of payment stated in the PAN. A second protest letter dated June 23, 2002 was sent by
petitioner, to which respondent replied (letter dated July 8, 2002) answering each of the. two issues reiterated by
petitioner: (1) validity of EO 93 withdrawing the tax exemption privileges under PD 269; and (2) retroactive application
of RR No. 8-2000. The FAN was finally received by petitioner on September 24, 2002, and protested by it in a letter
dated October 14, 2002 which reiterated in lengthy arguments its earlier interpretation of the laws and regulations
upon which the assessments were based.
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
letter dated April 10, 2003 responded to petitioner's October 14, 2002 letter-protest, explaining at length the factual
and legal bases of the deficiency tax assessments and denying the protest.
Considering the foregoing exchange of correspondence and documents between the parties, we find that the
requirement of Section 228 was substantially complied with. Respondent had fully informed petitioner in writing of the
factual and legal bases of the deficiency taxes assessment, which enabled the latter to file an "effective" protest,
much unlike the taxpayer's situation in Enron. Petitioner's right to due process was thus not violated.
Thus, substantial compliance with the requirement under Section 228 of the NIRC is permissible, provided that the
taxpayer would be eventually apprised in writing of the factual and legal bases of the assessment to allow him to file
an effective protest against.
The above-cited cases refer to the compliance of the FAN/FLD of the due process requirement embodied in Section
228 of the NIRC and RR No. 12-99. These may likewise applied to the FDDA, which is similarly required to include a
written notice of the factual and legal bases thereof. Without sounding repetitious, it is important to note that Section
228 of the NIRC did not limit the requirement of stating the facts and law only to the FAN/FLD. On the other hand, RR
No. 12-99 detailed the process of assessment and required that both the FAN/FLD and the FDDA state the law and
facts on which it is based.
Guided by the foregoing, the Court now turns to the FDDA in issue.
It is undisputed that the FDDA merely showed Liquigaz' tax liabilities without any details on the specific transactions
which gave rise to its supposed tax deficiencies. While it provided for the legal bases of the assessment, it fell short
of informing Liquigaz of the factual bases thereof. Thus, the FDDA as regards the EWT and FBT tax deficiency did
not comply with the requirement in Section 3.1.6 of RR No. 12-99, as amended, for failure to inform Liquigaz of the
factual basis thereof.
The CIR erred in claiming that Liquigaz was informed of the factual bases of the assessment because the FDDA
made reference to the PAN and FAN/FLD, which were accompanied by details of the alleged discrepancies. The
CTA En Banc highlighted that the amounts in the FAN and the FDDA were different. As pointed out by the CTA, the
FLD/FAN and the FDDA reflected the following amounts:[21]
Basic Expanded Withholding Fringe Total

Deficiency Withholding Tax on Benefits Tax
Tax Tax Compensation
Per FLD P3,675,048.78 P2,981,841.84 P9,501,564-07 P16,158,454.72
Per FDDA P1,823,782.67 P2,366,836.98 P7,572,236.16 P11,762,855.81
Difference P1,851,266.11 P615,004.80 P1,929,327.91 P4,395,598.91
As such, the Court agrees with the tax court that it becomes even more imperative that the FDDA contain details of
the discrepancy. Failure to do so would deprive Liquigaz adequate opportunity to prepare an intelligent appeal. It
would have no way of determining what were considered by the CIR in the: defenses it had raised in the protest to
the FLD. Further, without the details of the assessment, it would open the possibility that the reduction of the
assessment could have been arbitrarily or capriciously arrived at.
The Court, however, finds that the CTA erred in concluding that the assessment on EWT and FBT deficiency was
void because the FDDA covering the same was void. The assessment remains valid notwithstanding the nullity of the
FDDA because as discussed above, the assessment itself differs from a decision on the disputed assessment.
As established, an FDDA that does not inform the taxpayer in writing of the facts and law on which it is based renders
the decision void. Therefore, it is as if there was no decision rendered by the CIR. It is tantamount to a denial by
inaction by the CIR, which may still be appealed before the CTA and the assessment evaluated on the basis of the
available evidence and documents. The merits of the EWT and FBT assessment should have been discussed and
not merely brushed aside on account of the void FDDA.
On the other hand, the Court agrees that the FDDA substantially informed Liquigaz of its tax liabilities with regard to
its WTC assessment. As highlighted by the CTA, the basis for the assessment was the same for the FLD and the
FDDA, where the salaries reflected in the ITR and the alphalist were compared resulting in a discrepancy of
P9,318,255.84. The change in the amount of assessed deficiency withholding taxes on compensation merely arose
from the modification of the tax rates used— 32% in the FLD and the effective tax rate of 25.40% in the FDDA. The
Court notes it was Liquigaz itself which proposed the rate of 25.40% as a more appropriate tax rate as it represented
the effective tax on compensation paid for taxable year 2005. [22] As such, Liquigaz was effectively informed in writing
of the factual bases of its assessment for WTC because the basis for the FDDA, with regards to the WTC, was
identical with the FAN— which had a detail of discrepancy attached to it.
Further, the Court sees no reason to reverse the decision of the CTA as to the amount of WTC liability of Liquigaz. It
is a time-honored doctrine that the findings and conclusions of the CTA are accorded the highest respect and will not
be lightly set aside because by the very nature of the CTA, it is dedicated exclusively to the resolution of tax problems
and has accordingly developed an expertise on the subject. [23] The issue of Liquigaz' WTC liability had been
thoroughly discussed in the courts a quo and even the court-appointed independent accountant had found that
Liquigaz was unable to substantiate its claim concerning the discrepancies in its WTC.
To recapitulate, a "decision" differs from an "assessment" and failure of the FDDA to state the facts and law on which
it is based renders the decision void—but not necessarily the assessment. Tax laws may not be extended by
implication beyond the clear import of their language, nor their operation enlarged so as to embrace matters not
specifically provided.[24]
WHEREFORE, the May 22, 2014 Decision and the November 26, 2014 Resolution of the Court of Tax Appeals En
Banc are PARTIALLY AFFIRMED in that the assessment on deficiency Withholding Tax in Compensation is upheld.
The case is REMANDED to the Court of Tax Appeals for the assessment on deficiency Expanded Withholding Tax
and Fringe Benefits Tax.
SO ORDERED.
Carpio, (Chairperson), Brion, Del Castillo, and Leonen, JJ., concur.

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REMEDIES UNDER THE NIRC

G.R. No. 222743

MEDICARD PHILIPPINES, INC., Petitioner,

Basic Deficiency VAT ₱l78,538,566.68

In addition, [MEDICARD] is ordered to pay:

Basic Deficiency VAT ₱76,187,687.58

In addition, [MEDICARD] is ordered to pay:

l. WHETHER THE ABSENCE OF THE LOA IS FATAL; and

2. WHETHER THE AMOUNTS THAT MEDICARD EARMARKED AND EVENTUALLY PAID

Ruling of the Court

The petition is meritorious.

The absence of an LOA violated

x x x x (Emphasis and underlining ours)

IV. POLICIES AND GUIDELINES

B. At the Regional Office/Large Taxpayers Service

Decision 11 G.R. No. 222743

The amounts earmarked and

Under the first, MEDICARD undertakes to make arrangements with healthcare

Section 4.108-3. xxx

LUCAS P. BERSAMIN ALFREDO BENJAMIN S. CAGUIOA

MARIA LOURDES P.A. SERENO

G.R. No. 215957

COMMISSIONER OF INTERNAL REVENUE, Petitioner

FINAL ASSESSMENT NOTICE

March 17, 2004

FITNESS BY DESIGN, INC

Assessment No. _____________

Tax Due (35%) 2,504,717.63

Value Added Tax

Unreported Sales ₱ 7,156,336.08

Subscribe Capital Stock ₱ 375,000.00

Total Deficiency Taxes ₱ 10,647,529.69

SO ORDERED.31 (Emphasis in the original)

The Petition has no merit.

In Samar-I Electric Cooperative v. Commissioner of Internal Revenue,100 substantial compliance with

Section 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. –

The issuance of a valid formal assessment is a substantive prerequisite for collection of

The disputed Final Assessment Notice is not a valid assessment.

MARVIC M.V.F. LEONEN

ARTURO D. BRION MARIANO C. DEL CASTILLO

MARIA LOURDES P.A. SERENO

G.R. No. L-20569 August 23, 1974

Sato, Enad Garcia for petitioner.

Year Net Income Amount Exhibit

1945 P12,822.00 P114.66 pp.

1946 9,910.94 114.66 38-A

1947 10,200.00 132.00 39

1949 8,990.66 59.72 41

1950 8,364.50 28.22 42

1951 6,800.00 none 43

The new deficiency assessment was based on the following computations:

Net income per return ........................ P9,910.94

Net income per return ..................................................... P10,200.00

Net income per return ...................................................... P9,148.34

Net income per return ....................................................... P9,990.66

Net income per return ....................................................... P8,364.50

Net income per return ........................................................ P6,800.00

1947 .... 36,931.73

1948 .... 3,198.75

1949 .... 45,125.94

1950 .... 278,783.00

1951 .... 11,526.00

Total .... P381,096.07