135. COMMISSIONER OF INTERNAL REVENUE v. HON. RAUL M. GONZALEZ, L.M.

CAMUS ENGINEERING
CORPORATION

G.R. No. 177279, October 13, 2010

FACTS: A Letter of Authority was issued by Commissioner Dakila Fonacier. Because of this, some revenue
officers, supervised by Section Chief Sixto Dy, Jr. of the Tax Fraud Division, conducted a fraud investigation
for all internal revenue taxes to determine the tax liabilities of L.M. Camus Engineering Corporation
(LMCEC) for the years 1997, 1998, and 1999. The investigation arose from information provided by an
“informer” that LMCEC had substantial undeclared income for those years. LMCEC was not able to comply
with the subpoena duces tecum issued, so the BIR instituted a criminal complaint againt LMCEC for
violation of Section 266 of the NIRC. The Commissioner assessed that the company has total deficiency
taxes amounting to P430,958,005.90. On October 1, 2002, assessment notices and a formal letter of
demand were sent to LMCEC through personal service. However, the company and its representatives
refused to receive those documents which caused the officers to resort to constructive service. On May
21, 2003, the CIR referred the complaint to the Secretary of Justice for preliminary investigation. In a joint
affidavit, the revenue officers who conducted the tax fraud investigation said that despite receiving the
final assessment notice and formal demand letter LMCEC refused to pay their tax deficiency assessment
which has become final and executory because of the company’s failure to file a protest within the 30-
day reglementary period. Luis Camus (President of LMCEC) and Lino Mendoza (Comptroller) filed a joint
counter-affidavit saying that they cannot be held liable because the suit is a simple civil action for
collection and not a tax evasion case so the DOJ is not the proper forum for the BIR’s complaint. The
company also asserted that it filed a protest on the Preliminary Assessment Notice issued by the BIR for
having no factual and legal basis. However, the protest is still unsolved. LMCEC also said that the
“informant” is fictitious and that the case is another form of harassment against the company.

ISSUE: Whether the BIR is authorized to gather information from third persons

HELD: Yes.

The procedure is authorized under Section 5 of the NIRC, which provides:

SEC. 5. Power of the Commissioner to Obtain Information, and to Summon, Examine, and Take
Testimony of Persons. – In ascertaining the correctness of any return, or in making a return when none
has been made, or in determining the liability of any person for any internal revenue tax, or in collecting
any such liability, or in evaluating tax compliance, the Commissioner is authorized:
(A) To examine any book, paper, record or other data which may be relevant or material to
such inquiry;

(B) To obtain on a regular basis from any person other than the person whose internal revenue tax liability
is subject to audit or investigation, or from any office or officer of the national and local governments,
government agencies and instrumentalities, including the Bangko Sentral ng Pilipinas and government-
owned or -controlled corporations, any information such as, but not limited to, costs and volume of
production, receipts or sales and gross incomes of taxpayers, and the names, addresses, and financial
statements of corporations, mutual fund companies, insurance companies, regional operating
headquarters of multinational companies, joint accounts, associations, joint ventures or consortia and
registered partnerships, and their members;

(C) To summon the person liable for tax or required to file a return, or any officer or employee of such
person, or any person having possession, custody, or care of the books of accounts and other accounting
records containing entries relating to the business of the person liable for tax, or any other person, to
appear before the Commissioner or his duly authorized representative at a time and place specified in the
summons and to produce such books, papers, records, or other data, and to give testimony;

(D) To take such testimony of the person concerned, under oath, as may be relevant or material to such
inquiry; x x x

The lack of consent of the taxpayer under investigation does not imply that the BIR obtained the
information from third parties illegally or that the information received is false or malicious. Nor does the
lack of consent preclude the BIR from assessing deficiency taxes on the taxpayer based on the documents.
The respondents cannot escapre criminal prosecution under Sections 254 and 255 of the NIRC by mere
imputation of a “fictitipous” or disqualified informant simply because other than disclosure of the official
registry number of the third party informer, the Bureau insisted on maintaining the confidentiality of the
identity and personal circumstances of the informer.

136. Fitness by Design v. CIR, G.R. No. 177982, 17 October 2008

FACTS:

 March 17, 2004: CIR assessed Fitness by Design Inc. for deficiency Income Taxes for the year of 1995
for P 10,647, 529.69
 February 1, 2005: CIR issued a warrant of distraint and levy against petitioner which prompted
petitioner to file a Petition for Review before the CTA where he alleged his defense of prescription
based on Sec. 203 of the Tax Code.
 CIR answer: Tax return was false and fraudulent for deliberately failing to declare its true sales of P
7,156,336.08 and failure to file a VAT return for it. Since petitioner failed to file a protest, it is
subject to either distraint or levy. Moreover, it cited Sec. 222 (a) of 1997 Tax Code where false and
fraudulent return with intent to evade tax or failure to file a return prescribe 10 years after the
discovery of the falsity, fraud or omission.
 March 10, 2005: BIR filed a criminal complaint before the DOJ against the officers and accountant of
petitioner for violation against the 1977 NIRC.
 During the preliminary hearing on the issue of prescription, petitioner's former bookkeeper attested
that his former colleague, CPA Sablan, illegally took custody of accounting records and turned them
over to the BIR.
 Petitioner then requested a subpoena ad testificandum for Sablan who failed to appear.
 CTA: Denied the motion for issuance of subpoena and disallowed the submission of written
interrogatories to Sablan who is NOT a party to the case nor was his testimony relevant. It also
violates Section 2 of Republic Act No. 2338, as implemented by Section 12 of Finance Department
Order No. 46-66, proscribing the revelation of identities of informers of violations of internal
 revenue laws, except when the information is proven to be malicious or false. Moreover, the
subpoena is NOT needed to obtain affidavit of the informer.
ISSUE: W/N BIR can use the information without petitioner's consent

HELD: YES.

 Sec. 5 of the tax code provides that the BIR is authorized to obtain from any person other than the
person whose internal revenue tax liability is subject to audit or investigation and can even summon
any person having possession, custody or care of the books of accountants and other accounting
records containing entries relating to the business of the person liable for tax. This includes even
those which cannot be admitted in a judicial proceeding where the Rules of Court are strictly
observed. CTA case is not a criminal prosecution where he can cross examine the witness against
him. CTA can enforce its order by citing them for indirect contempt.

137. OCEANIC WIRELESS NETWORK V. COMMISSIONER OF INTERNAL REVENUE

G.R NO. 148380

Facts:

Oceanic Wireless Network received from the BIR deficiency tax assessments for the year 1984 in
the total amount of PHP 8,644,998.00. Oceanic filed its protest against the tax assessments and
requested a cancellation of the same. However, it was denied by Acting BIR commissioner; MR
SEVERINO BUOT, (CHIEF OF THE BIR ACCOUNTS RECEIVABLE AND BILLING DIVISION) on the ground of
lack of supporting documents.

A letter of demand was sent again by MR SEVERINO BUOT to OCEANIC giving it within 10 days to
pay its tax deficiency in the aforementioned amount. Otherwise, the case shall be referred to the
COLLECTION ENFORCEMENT DIVISION of the BIR NATIONAL OFFICE for the issuance of a warrant of
distraint and levy.

OCEANIC failed to pay, and so a warrant of distraint was indeed issued. This prompted OCEANIC
to file a petition for review with the CTA which was denied by the same because it was filed beyond the
30 day reglemantary period.

Issue:

Whether a demand letter for tax deficiency assessments issued and signed by a subordinate
officer who was acting in behalf of the CIR, is deemed final and executory?

Held:

YES. Republic Act No. 8424, Section 7 of the Code authorizes the BIR Commissioner to delegate
the powers vested in him under the pertinent provisions of the Code to any subordinate official with the
rank equivalent to a division chief or higher, except the following:
(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;

(b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of
the Bureau;

(c) The power to compromise or abate under Section 204(A) and (B) of this Code, any tax
deficiency: Provided, however, that assessments issued by the Regional Offices involving basic deficiency
taxes of five hundred thousand pesos (P500,000) or less, and minor criminal violations as may be
determined by rules and regulations to be promulgated by the Secretary of Finance, upon the
recommendation of the Commissioner, discovered by regional and district officials, may be
compromised by a regional evaluation board which shall be composed of the Regional Director as
Chairman, the Assistant Regional Director, heads of the Legal, Assessment and Collection Divisions and
the Revenue District Officer having jurisdiction over the taxpayer, as members;

(d) The power to assign or reassign internal revenue officers to establishments where articles subject to
excise tax are produced or kept.

It is clear from the above provision that the act of issuance of the demand letter by the Chief of the
Accounts Receivable and Billing Division does not fall under any of the exceptions that have been
mentioned as non-delegable.

Section 6 of the Code further provides:

"SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for
Tax Administration and Enforcement.'

(A) Examination of Returns 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 examination of 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.

The tax or any deficiency tax so assessed shall be paid upon notice and demand from the Commissioner
or from his duly authorized representative. . . ." (Emphasis supplied)ςrαlαωlιbrαrÿ

Thus, the authority to make tax assessments may be delegated to subordinate officers. Said assessment
has the same force and effect as that issued by the Commissioner himself, if not reviewed or revised by
the latter such as in this case.

138. CIR vs. Kudos metal

FACTS

The CTA En Banc ruled for 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: 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; And, 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. The subject waiver is therefore
incomplete and defective. As such, the three-year prescriptive period was not tolled or extended and
continued to run.

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 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.

ISSUE

Whether the belated assessment of the CIR is still valid and effective on the ground that respondent is
already in estoppel.

HELD

NO.

Section 203 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 222 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 05-01 issued on August 2, 2001 lay
down the procedure for the proper execution of the waiver

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.
139. COMMISSION OF INTERNAL REVENUE vs. AQUAFRESH SEAFOODS, INC.
G.R. No. 170389; October 20, 2010; SECOND DIVISION; 634 SCRA 82

FACTS:
Aquafresh Seafoods Inc. sold to Philips Seafoods, Inc. two parcels of land, includingimprovements
thereon, for Php 3,100, 000.00. Aquafresh paid Php 186,000.00, representing theCapital Gains Tax (CGT)
and Php 46,500.00, representing the Documentary Stamp Tax (DST).The Bureau of Internal Revenue
(BIR) received a report that the lots sold wereundervalued for taxation purposes. After an investigation,
BIR concluded that the subjectproperties were commercial with a zonal value of Php 2,000.00 per
square meter. BIR assessedAquafresh of CGT and DST defencies. .Aquafresh protested the assessments.

ISSUE:
W/N the requirement of consultation with competent appraisers both from the public and private
sectors in determining the fair maeket value of the lots is applicable in the case

HELD:
Yes, it is applicable. That's why, the CIR should follow the provisions stipulated under SEC. 6(E) of the
NIRC. In addition, the BIR's position that the requirement of consulation with appraisers is mandatory
only when formulationg or making changes in yhe schedule of zonal value is not tenable. The court also
held that, the act of classifying the properties, involved reclassification and revision of the prescribed
zonal value.

140. Talento v. Escalada 556 SCRA 491 (2008)

141. CIR V B.F. GOODRICH PHIL., INC., ET AL GR No. 104171, February 24, 1999

Facts: Private respondent BF Goodrich Philippines Inc. was an American corporation prior to July 3,
1974. As a condition for approving the manufacture of tires and other rubber products, private
respondent was required by the Central Bank to develop a rubber plantation. In compliance therewith,
private respondent bought from the government certain parcels of land in Tumajubong Basilan, in 1961
under the Public Land Act and the Parity Amendment to the 1935 constitution, and there developed a
rubber plantation.

On August 2, 1973, the Justice Secretary rendered an opinion that ownership rights of Americans over
Public agricultural lands, including the right to dispose or sell their real estate, would be lost upon
expiration on July 3, 1974 of the Parity Amendment. Thus, private respondent sold its Basilan land
holding to Siltown Realty Phil. Inc., (Siltown) for P500,000 on January 21, 1974. Under the terms of the
sale, Siltown would lease the property to private respondent for 25 years with an extension of 25 years
at the option of private respondent.

Private respondent books of accounts were examined by BIR for purposes of determining its tax liability
for 1974. This examination resulted in the April 23, 1975 assessment of private respondent for
deficiency income tax which it duly paid. Siltown’s books of accounts were also examined, and on the
basis thereof, on October 10, 1980, the Collector of Internal Revenue assessed deficiency donor’s tax of
P1,020,850 in relation to said sale of the Basilan landholdings.

Private respondent contested this assessment on November 24, 1980. Another assessment dated March
16, 1981, increasing the amount demanded for the alleged deficiency donor’s tax, surcharge, interest
and compromise penalty and was received by private respondent on April 9, 1981. On appeal, CTA
upheld the assessment. On review, CA reversed the decision of the court finding that the assessment
was made beyond the 5-year prescriptive period in Section 331 of the Tax Code.

Issue: Whether or not petitioner’s right to assess has prescribed.

Held: Applying then Sec. 331, NIRC (now Sec. 203, 1997 NIRC which provides a 3-year prescriptive period
for making assessments), it is clean that the October 16, 1980 and March 16, 1981 assessments were
issued by the BIR beyond the 5-year statute of limitations. The court thoroughly studied the records of
this case and found no basis to disregard the 5-year period of prescription, expressly set under Sec. 331
of the Tax Code, the law then in force.

For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or
assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law or
prescription, being a remedial measure, should be liberally construed in order to afford such protection.
As a corollary, the exceptions to the law on prescription should perforce be strictly construed.

Tax Case No. 142

Commisioner of Internal Revenue v. United Salvage and Towage Phils. (USTP)
G.R. no. 197515, July 2, 2014

FACTS:
USTP engaged in the business of sub-contracting work for service contractors engaged in petroleum
operations in the Philippines.
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.[4] Particularly, 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.
On January 29, 1998 and October 24, 2001, USTP filed administrative protests against the 1994
and 1998 EWT assessments, respectively.
On February 21, 2003, USTP appealed by way of Petition for Review before the CTA 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.
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. CTA-
Special First Division partially granted the Motion to Withdraw and declared the issues on income
tax, VAT and DST deficiencies closed and terminated. Consequently, the case was submitted for
decision covering the remaining issue on deficiency EWT and WTC, respectively, for taxable years
1992, 1994 and 1998.
he 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. 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. Said assessments were, therefore, declared void
for failure to comply with Section 228 of the 1997 National Internal Revenue Code (Tax Code).
From the foregoing, the only remaining valid assessment is for taxable year 1992.
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. Thus, in ruling for USTP, the CTA-Special First Division cancelled Assessment Notice Nos.
25-100546-92 and 25-1-000545-92, both dated January 9, 1996 and covering the period of 1992,
as declared in its Decision.
Dissatisfied, CIR moved to reconsider the aforesaid ruling, but the same was denied for lack of merit.
Thus, CIR appealed to the Supreme Court.

CIR 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.
Thus, the period for tax collection should have begun to run from the date of the reconsidered
or modified assessment.

ISSUE:
Whether or not petitioner’s right to collect the creditable withholding tax and expanded withholding
tax for taxable year 1992 has already prescribed.

RULING:
Yes, it has already prescribed.
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. 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. 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.
The 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.
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 January 22, 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.
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 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.
With 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, 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.” Thus, while “taxes are the lifeblood of the
government,” the power to tax has its limits, in spite of all its plenitude. 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. After all, the statute of
limitations on the collection of taxes was also enacted to benefit and protect the taxpayers.

143. Bank of the Philippine Islands

v.
Commissioner of Internal Revenue

FACTS:

On June 1985 the Bank of the Philippine Islands sold to the Bangko Sentral ng Pilipinas 500,000.00
USD for the total amount of 1 million USD. The Bureau of Internal Revenue issued an assessment against
BPI stating that they are liable for deficiency of document stamp tax on the sale of foreign bills to the BSP.
The deficiency due was 28,020.00 PhP. BPI filed a protest dated November 16, 1989 to the BIR stating that
the under the established market practice, the buyer is the one responsible for paying the documentary
stamp tax, the buyer is the BSP which is exempt from such tax, thus BPI should not be liable for the
documentary stamp tax. BPI also contended that the amendment on the tax code stating that if one party
is exempt from the tax imposed then the other party who is not exempt shall be liable took effect only on
January 1, 1986 thus the liability could not be shifted to them.

In October 1992, BIR issued a warrant of distraint or levy against BPI for the assessed deficiency
of documentary stamp tax for 1985. BIR then issued a ruling denying their request for reconsideration on
September, 1997. BIR contended that in a BIR ruling it stated that documentary stamp taxes are payable
by either person, signing, issuing, accepting, or transferring the instrument, document, or paper. IF one
party is exempt then the liability shall be borne by the party not exempted.

BPI filed a petition with the Court of Tax Appeals on the ground that prescription of the rights of BIR to
enforce a collection of the assessed amount is up to three years only, but BIR waited for seven years and
nine months to deny the protest. CTA held that the statute of limitations for BPI has not yet set it and the
assessment has not yet prescribed.

ISSUE:
 Whether the Prescriptive period for the collection of the assessed tax deficiency has already set
in.

RULING:
 The period for the BIR to assess and collect an internal revenue tax is limited to three years by
Sec. 203 of the NIRC. The BIR has three years counting from the actual filing of the return or from the last
date prescribed by law for the filing of the return to assess a national internal revenue tax or begin a court
proceeding for the collection of tax without assessment, but in case of false or fraudulent return with
intent to evade tax or the failure to file any return at all, then the prescriptive period would be 10 years
from discovery of the BIR of the falsity, fraud, or omission. After the issuance of assessment the BIR has
another 3 years to issue a distraint or levy. In the case the assessment was issued October of 1989 then
we count the three year period from October 20, 1989 then BIR has only up to October 19, 1992 to collect
the deficiency.
The warrant of distraint was issued October 15, 1992, only a few days before the expiration of the 3 year
period to collect. The commencement of the proceedings for distraint and levy suspended the running of
the statute of limitation on the collection tax. The petition is granted and the assessment is set aside and
ordered cancelled.

144. Commissioner Of Internal Revenue v. Transitions Optical Philippines, Inc., G.R. No. 227544, 22
November 2017

145. Republic of the Philippines vs. GMCC United Development Corporation

FACTS
In March 2003, the BIR National Investigation Commission issued a Letter of Authority authorizing the
examination of the book of accounts and other accounting records of GMCC. Because of GMCC’s failure
to respond, the Assistant Commissioner of the Enforcement Service issued a Subpoena Duces Tecum on
the president of GMCC, Jose Go. GMCC still did not comply. This urged the BIR to finally investigate
through a Third Party Information.

It was discovered that in 1998, GMCC executed 2 dacion en pagos in favor of its sister companies, but it
failed to declare the income it earned from these transactions including the donor tax and VAT resulting
from the favor in granted to its sister companies. Likewise, in 1999, GMCC sold 5 condominium units and
parking lots to one Valencia Wong, which income was again not declared by GMCC in its 1999 Audited
Financial Statements.

As a result of these non-compliances from GMCC, the BIR issued a Notice to Taxpayer and a Preliminary
Assessment Notice but the same was ignored by GMCC. It was only when the BIR issued a Final Assessment
Notice that GMCC finally responded, protesting the issuance of such notice because the 3-year period for
assessment and collection of its tax had already prescribed and that even assuming arguendo that the
same has not yet prescribed, the sale in 1999 was nevertheless declared in its 2002 Audited Financial
Statement. As to the dacion en pagos, there was no more need to declare it because GMCC allegedly did
not gain from these transactions. The BIR, however, contends that the non-declaration of GMCC
constituted fraud and therefore falls under the 10-year period exception; as such, the period to assess
and collect, has not yet prescribed. Both the Department of Justice and Court of Appeals ruled that the
period has already prescribed hence this petition.

ISSUE: Which period shall apply in determining whether the period to assess and collect has already
prescribed: 3-year or 10-year period?
RULING: The 3-year period shall apply thus, the period to assess and collect from GMCC has already
prescribed because the assessment notice was given only in 2003 when the last day prescribed by law for
GMCC’s filing its 1998 tax return was April 15, 1999 (hence it should have been in 2002 and not 2003).
While the CIR has the power to assess and collect taxes under Section 2 of the National Internal Revenue
Code, it is, however, limited by Section 203 which states that 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.

The Republic fails to convince that the tax return in this case is fraudulent and thus, the three-year period
is not applicable. GMCC may have erred in reporting their tax liability when they recorded the assailed
transactions in the wrong year (2002 instead of 1999), but such error stemmed from the wrong application
of the law and is not an indication of their interest to evade payment. If there were really an intent to
evade payment, GMCC would not have reported and subsequently paid the income tax, albeit in the
wrong year.

For the 10-year period under Section 222(a) [which applies in case of a false or fraudulent return with
intent to evade tax or of failure to file a return] to apply, it is not enough that fraud is alleged in the
complaint, it must be established by clear and convincing evidence.

146. CIR v. FMF DEVELOPMENT CORPORATION, GR No. 167765, 2008-06-30

Facts:
On April 15, 1996, FMF filed its Corporate Annual Income Tax Return for taxable year 1995 and declared
a loss. On May 8, 1996, however, it filed an amended return and declared a loss.
The BIR then sent FMF pre-assessment notices, all dated October 6, 1998, informing it of its alleged tax
liabilities. FMF filed a protest against these notices with the BIR and requested for a
reconsideration/reinvestigation. He also advised FMF of the informal conference set on February 2,
1999 to allow it to present evidence to... dispute the BIR assessments.
On February 9, 1999, FMF President Enrique Fernandez executed a waiver of the three-year prescriptive
period for the BIR to assess internal revenue taxes, hence extending the assessment period until
October 31, 1999. The waiver was accepted and signed by RDO Zambarrano.
On October 18, 1999, FMF received amended pre-assessment notices... from the BIR. FMF immediately
filed a protest on November 3, 1999 but on the same day, it received BIR's Demand Letter and
Assessment Notice... reflecting FMF's alleged deficiency taxes
On November 24, 1999, FMF filed a letter of protest on the assessment invoking, inter alia,[7] the
defense of prescription by reason of the invalidity of the waiver.
In its reply, the BIR insisted that the waiver is valid because it was signed... by the RDO, a duly
authorized representative of petitioner.
FMF filed a petition for review with the CTA challenging the... validity of the assessment.
On March 20, 2003, the CTA granted the petition and cancelled Assessment Notice No. 33-1-00487-95
because it was already time-barred.
The CTA ruled that the waiver did not extend the three-year prescriptive period within which the BIR can
make a valid assessment because it... did not comply with the procedures laid down in Revenue
Memorandum Order (RMO) No. 20-90.
First, the waiver did not state the dates of execution and acceptance of the waiver, by the taxpayer and
the BIR, respectively; thus, it cannot be... determined with certainty if the waiver was executed and
accepted within the prescribed period.
Second, the CTA also found that FMF was not furnished a copy of the waiver signed by RDO
Zambarrano.
Third, the CTA pointed out that since the case involves... an amount of more than P1 million, and the
period to assess is not yet about to prescribe, the waiver should have been signed by the Commissioner
of Internal Revenue, and not a mere RDO.
On appeal to the Court of Appeals, the decision of the CTA was affirmed... the waiver did not strictly
comply with RMO No. 20-90. Petitioner contends that the waiver was validly executed mainly because it
complied with Section 222 (b)[12] of the National Internal Revenue Code (NIRC). Petitioner points out
that the waiver was in writing, signed by the taxpayer and the Commissioner, and executed within the
three-year prescriptive period.
Petitioner also argues that the requirements in RMO No. 20-90 are merely directory; thus, the indication
of the dates of execution and acceptance of the waiver, by the taxpayer and the BIR, respectively, are...
not required by law.
Petitioner also argues that the requirements in RMO No. 20-90 are merely directory... there is no
provision in RMO No. 20-90 stating that a waiver may be invalidated upon failure of the BIR to furnish
the taxpayer a copy of the waiver... urther, it contends that respondent's execution of the waiver was
a... renunciation of its right to invoke prescription.
Further, it contends that respondent's execution of the waiver was a... renunciation of its right to invoke
prescription. On the other hand, respondent counters that the waiver is void because it did not comply
with RMO No. 20-90. Respondent assails the waiver because (1) it was not signed by the Commissioner
despite the fact that the assessment involves an amount of more than P1 million; (2)... there is no stated
date of acceptance by the Commissioner or his duly authorized representative... it was not furnished a
copy of the BIR-accepted waiver.
Moreover, a waiver of the statute of limitations is not a waiver of the right to invoke the defense of...
prescription. Moreover, a waiver of the statute of limitations is not a waiver of the right to invoke the
defense of... prescription
Petitioner contends that the procedures in RMO No. 20-90 are merely directory and that the execution
of a waiver was a renunciation of respondent's right to invoke prescription.

Issues:
WHETHER OR NOT RESPONDENT'S WAIVER OF THE STATUTE OF LIMITATIONS WAS VALIDLY EXECUTED.

WHETHER O[R] NOT THE PERIOD TO ASSESS HAD PRESCRIBED.

Ruling:
Under Section 203[15] of the NIRC, internal revenue taxes must be assessed within three years counted
from the period fixed by law for the filing of the tax return or the actual date of filing, whichever is later.
An exception to the three-year prescriptive period on the assessment of taxes is Section 222 (b) of the
NIRC, which provides:... f 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. Authorizes the extension of the original three-year period by the execution of a valid waiver,
where the taxpayer and the BIR agreed in writing that the period to issue an assessment and collect the
taxes due is extended to an agreed upon date. The waiver shall be signed by the taxpayer himself or his
duly authorized representative.
The date of such acceptance... by the Bureau should be indicated.
before the expiration of the period of prescription. Commissioner For tax cases involving more than
P1M... waiver must be executed in three (3) copies,... docket of the case... copy for the taxpayer... 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.

Applying RMO No. 20-90, the waiver in question here was defective and did not validly extend the
original three-year prescriptive period. Firstly, it was not proven that respondent was furnished a copy
of the BIR-accepted waiver. Secondly, the waiver was signed only... by a revenue district officer, when it
should have been signed by the Commissioner as mandated by the NIRC and RMO No. 20-90,
considering that the case involves an amount of more than P1 million, and the period to assess is not yet
about to prescribe. Lastly, it did not contain... the date of acceptance by the Commissioner of Internal
Revenue, a requisite necessary to determine whether the waiver was validly accepted before the
expiration of the original three-year period. Bear in mind that the waiver in question is a bilateral
agreement, thus... necessitating the very signatures of both the Commissioner and the taxpayer to give
birth to a valid agreement.
a waiver of the statute of limitations under the NIRC, to a certain extent being a derogation of the
taxpayer's right to security against prolonged and unscrupulous investigations,... must be carefully and
strictly construed. It does not mean that the taxpayer relinquishes the right to invoke prescription
unequivocally, particularly where the language of the document is equivocal... in this case, the waiver
became unlimited in time because it did not specify a definite date, agreed upon between the BIR and
respondent, within which the former may assess and collect taxes. It also had no binding effect on
respondent because there was no consent by the Commissioner. On this basis, no implied consent can
be presumed, nor can it be contended that the concurrence to such waiver is a mere formality. In fine,
Assessment Notice No. 33-1-00487-95 dated October 25, 1999, was issued beyond the three-year
prescriptive period.
The waiver was incomplete and defective and thus, the three-year prescriptive period was not tolled nor
extended and continued to run until April 15,... 1999 Even if the three-year period be counted from May
8, 1996, the date of filing of the amended return, assuming the amended return was substantially
different from the original return, a case which affects the reckoning point of the prescriptive
period,[22] still, the subject assessment is definitely considered time-barred.

147. CIR vs. Stanley Works (Phils.) Incorporated, GR No. 187859, 3 December 2014

148. COMMISSIONER OF INTERNAL REVENUE vs. KUDOS METAL CORPORATION

G.R. No. 178087 May 5, 2010

FACTS:

On April 15, 1999, Kudos Metal Corporation filed its Annual ITR for the taxable year 1998.

Pursuant to a Letter of Authority dated September 7, 1999, the BIR issued three Notices of Presentation
of Records. Kudos Metal failed to comply with these notices, hence, the BIR issued a Subpeona Duces
Tecum dated September 21, 2006.
A review and audit of Kudos Metal's records then ensued.

Nelia Pasco, accountant of Kudos Metal, executed a Waiver of the Defense of Prescription. This was
received by the BIR Enforcement Service, and by the BIR Tax Fraud Division, and accepted by the Assistant
Commissioner of the Enforcement Service. This was followed by a second Waiver of Defense of
Prescription

On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable year 1998 against
Kudos Metal. This was followed by a Formal Letter of Demand with Assessment Notices for taxable year
1998, dated September 26, 2003 which was received on November 12, 2003.

Kudos Metal 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"
believing that the government's right to assess taxes had prescribed, Kudos Metal filed on August 27, 2004
a Petition for Review with the CTA.

On October 4, 2005, the CTA Second Division issued a Resolution canceling the assessment notices issued
against Kudos Metal 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.

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 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.

CIR argues that the government's right to assess taxes is not barred by prescription as the two waivers
executed by Kudos Metal, 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, CIR claims
that Kudos Metal is estopped from adopting a position contrary to what it has previously taken. CIR insists
that by acquiescing to the audit during the period specified in the waivers, Kudos Metal led the
government to believe that the "delay" in the process would not be utilized against it. Thus, they may no
longer repudiate the validity of the waivers and raise the issue of prescription.

Kudos Metal 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 the CIR, they counter that the principle of equity
comes into play only when the law is doubtful, which is not present in the instant case.

ISSUE: Whether the CIR’s right to assess has prescribed.

HELD: YES.

The requirements for a valid waiver as laid down in RMO 20-90 and RDAO No. 5-01 are mandatory to give
effect to Section 222 of the Tax Code.
Specifically, the flaws in the waiver executed by Kudos Metal were as follows:

(a) there was no notarized written authority in favor of the signatory for the company;
(b) there is no stated date of acceptance by the Commissioner or his representative; and
(c) the fact of the receipt of the copy was not indicated in the original 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.

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. The BIR failed to verify whether a notarized written authority was given
by the Kudos Metal to its accountant, and to indicate the date of acceptance and the receipt by them 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.

149. RCBC v. CIR, G.R. No. 170257, 7 September 2011

149. RCBC v. CIR, G.R. No. 170257, 7 September 2011

FACTS: 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 (FCDU) for the calendar years 1994 and 1995. On August 15, 1996, RCBC received Letter of Authority
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.
On January 23, 1997, RCBC executed two Waivers of the Defense of Prescription Under the
Statute of Limitations of the National Internal Revenue Code effectively extending the period of the
Bureau of Internal Revenue (BIR) to assess up to December 31, 2000.
Subsequently, RCBC received two Formal Letters of Demand together with Assessment Notices
from the BIR for the deficiency tax assessments. RCBC paid some of the deficiency taxes as assessed by
the BIR. However, it refused to pay the assessments for deficiency FCDU onshore tax and documentary
stamp tax. RCBC argued that the waivers of the Statute of Limitations were not valid because the same
were not signed or conformed to by the CIR as required under Section 222(b) of the Tax Code. RCBC also
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.
The CTA-En Banc 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. 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. 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. 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.
 ISSUE: 1) Whether RCBC, 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; and 2) Whether RCBC, 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.

RULING: 1) Yes, RCBC is estopped from questioning the validity of the waivers. 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. Estoppel is
clearly applicable to the case. 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 action effectively 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.

2) Yes, RCBC is 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)
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.
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.
It is, therefore, indisputable that the withholding agent is merely a tax collector and not a
taxpayer. 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.”
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 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.

150. CIR v. Phoenix Assurance Inc., L-19727, 20 May 1965

151. Bank of the Philippine Islands vs. Commissioner of Internal Revenue

473 SCRA 205, G.R. No. 139736. October 17, 2005

FACTS:

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 two foreign
bills of exchange (United States $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 notice finding petitioner BPI
liable for deficiency DST on the said sales of foreign bills of exchange to the Central Bank. Petitioner BPI
received the Assessment, together with the attached Assessment Notice, on 20 October 1989.

BPI protested the Assessment but did not receive any immediate reply to its protest letter. However,
almost three years later, the BIR issued a Warrant of Distraint and/or Levy against BPI.

BPI did not hear again from the BIR until almost five years later, when the CIR denied its “request for
reconsideration”.

BPI then proceeded to file a Petition for Review with the CTA shortly after.

BPI raised the defense of prescription of the right of CIR to enforce collection of the assessed amount. It
alleged that the CIR only had three years to collect on the assessment but waited seven years and nine
months to deny the protest.
The CTA held that the statute of limitations for CIR to collect on the Assessment had not yet prescribed.
In resolving the issue of prescription, the CTA reasoned 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.

The CA affirmed the decision of the CTA and BPI elevated the case to the SC.

ISSUES:

1. WON the right of respondent BIR Commissioner to collect from petitioner BPI the alleged deficiency
DST for taxable year 1985 had prescribed

2. WON a request for reconsideration tolls the prescriptive period of the CIR to collect on an assessment

RULING:

There is no valid ground for suspending the running of the prescriptive period for collection of the
deficiency DST assessed against petitioner BPI.

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.

#152 Aznar vs. Court of Tax Appeals, 58 SCRA 519, No. L-20569.
August 23, 1974

Facts: 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 from1945 TO 1951. The Commissioner of Internal Revenue having his
doubts on the veracity of the reported income of one obviously wealthy, 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. Based on the above findings the BIR notified the taxpayer
(Matias H. Aznar) of the assessed tax delinquency. 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. The notice of final and
last assessment was receive by the petitioner on March 2, 1955. Petitioner contends that 8 years
had elapsed and the five year period provided by law.

Issue: 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.

Held: The CIR is not barred. 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, the Court 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.

153. COMMISSIONER OF INTERNAL REVENUE vs. PHILIPPINE DAILY INQUIRER

GR No. 213943 March 22, 2017

TOPIC: TAX REMEDIES – PRESCRIPTIVE PERIODS – (B) SECTIONS 203, 222, 223
FACTS:
Philippine Daily Inquirer (PDI) filed its Annual Income Tax Return for taxable year 2004 on April 15, 2005.
On August 10, 2006, PDI received a letter from BIR alleging that based on computerized matching
conducted on the data provided by 3rd party sources against PDI’s declaration on its VAT returns for
taxable year 2004, there was an underdeclaration of domestic purchases from its suppliers amounting to
P317,705,610.52. PDI submitted reconciliation reports and executed two Waivers of the Statute of
Limitation consenting to the assessment and/or collection of taxes for the year 2004 which may be found
due after the investigation, at any time before or after the lapse of the period of limitations fixed by
Sections 203 and 222 of the National Internal Revenue Code (NIRC) but not later than June 30, 2007. In a
Preliminary Assessment Notice (PAN), PDI was assessed for alleged deficiency income tax and VAT for
taxable year 2004. Pursuant to this, PDI sought reconsideration of the PAN and expressed its willingness
to execute another Waiver (Third Waiver), which it did on the same date, thus extending BIR's right to
assess and/or collect from it until 30 April 2008, which was accepted on December 20, 2007. However, on
April 17, 2008, PDI received a Formal Letter of Demand (FLD) and an Audit Result/Assessment Notice from
the BIR demanding payment for the alleged deficiency VAT and income tax. PDI filed a protest, and the
CIR claims that since PDI falsely filed the return for taxable year 2004, Sec. 203 (3 year period of limitation
for assessment of internal revenue tax) does not apply. Instead, Sec. 222 should apply, which states that
In the case of a false or fraudulent return with intent to evade tax or 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. The CIR argues that the
ten-year period starts from the time of the issuance of its Letter Notice on 10 August 2006. As such, the
assessment made through the Formal Letter of Demand dated 11 March 2008 is within the prescriptive
period.

ISSUE: Whether or not CIR’s right to assess PDI for deficiency VAT and income tax has prescribed.

HELD: Yes.
Under Section 203 of the NIRC, the prescriptive period to assess is set at three years. Sec. 222 only applies
as an exception to the period in the case of a false or fraudulent return with intent to evade tax or of
failure to file a return, which extends the period to 10 years. However, the Supreme Court held that this
case doesn’t fall under the exceptions. Indeed, the Waivers executed by the BIR and PDI were meant to
extend the 3-year prescriptive period, and would have extended such period were it not for the defects
found by the CTA. This further shows that at the outset, the BIR did not find any ground that would make
the assessment fall under the exceptions. Granting that the First and Second Waivers were validly
executed, the Third Waiver still failed to extend the 3-year prescriptive period because it was not executed
in three copies, as required by the IRRs. In short, the records of the case showed that the CIR's 3-year
prescriptive period to assess deficiency tax had already prescribed due to the defects of all the Waivers.
Clearly, the defects in the Waivers resulted to the non-extension of the period to assess or collect taxes,
and made the assessments issued by the BIR beyond the three-year prescriptive period void.

154. CIR vs. Asalus Corporation, GR No. 221590, February 22, 2017

155. CIR v. Ayala Securities Corp., 101 SCRA 231

Facts:
Ayala Securities Corp. (Ayala) failed to file returns of their accumulated surplus so Ayala was charged
with 25% surtax by the Commissioner of internal Revenue. The CTA (Court of Tax Appeals) reversed the
Commissioner’s decision and held that the assessment made against Ayala was beyond the 5-yr
prescriptive period as provided in section 331 of the National Internal Revenue Code. Commissioner
now files a motion for reconsideration of this decision. Ayala invokes the defense of prescription against
the right of the Commissioner to assess the surtax.

Issue:
Whether or not the right to assess and collect the 25% surtax has prescribed after five years.

Held:
No. There is no such time limit on the right of the Commissioner to assess the 25% surtax since there is
no express statutory provision limiting such right or providing for its prescription. Hence, the collection
of surtax is imprescriptible. The underlying purpose of the surtax is to avoid a situation where the
corporation unduly retains its surplus earnings instead of declaring and paying dividends to its
shareholders. SC reverses the ruling of the CTA.

156. CIR v. CA, CTA and YMCA

G.R. No. 124043, October 14, 1998, 298 SCRA 83

Facts: YMCA is a non-stock, non-profit institution, which conducts various programs and activities that are
beneficial to the public, especially the young people, pursuant to its religious, educational and charitable
objectives.
In 1980, private respondent earned, among others, an income of P676,829.80 from leasing out a portion
of its premises to small shop owners, like restaurants and canteen operators, and P44,259.00 from parking
fees collected from non-members. On July 2, 1984, the commissioner of internal revenue (CIR) issued an
assessment to private respondent, in the total amount of P415,615.01 including surcharge and interest,
for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and
deficiency withholding tax on wages. Private respondent formally protested the assessment and, as a
supplement to its basic protest, filed a letter dated October 8, 1985. In reply, the CIR denied the claims of
YMCA.

Contesting the denial of its protest, the YMCA filed a petition for review at the Court of Tax Appeals (CTA).
CTA favoured YMCA. Dissatisfied with the CTA ruling, the CIR elevated the case to the Court of Appeals
(CA). The CA initially ruled in favour of the CIR but was later reversed. Thus this petition.
Issue: whether the CA appreciated a question of fact as to disturb the factual findings of the CTA.

Held: It is a basic rule in taxation that the factual findings of the CTA, when supported by substantial
evidence, will be disturbed on appeal unless it is shown that the said court committed gross error in the
appreciation of facts. In the present case, this Court finds that the February 16, 1994 Decision of the CA
did not deviate from this rule. The latter merely applied the law to the facts as found by the CTA and ruled
on the issue raised by the CIR: "Whether or not the collection or earnings of rental income from the lease
of certain premises and income earned from parking fees shall fall under the last paragraph of Section 27
of the National Internal Revenue Code of 1977, as amended."

Clearly, the CA did not alter any fact or evidence. It merely resolved the aforementioned issue, as indeed
it was expected to. That it did so in a manner different from that of the CTA did not necessarily imply a
reversal of factual findings.

The distinction between a question of law and a question of fact is clear-cut. It has been held that "[t]here
is a question of law in a given case when the doubt or difference arises as to what the law is on a certain
state of facts; there is a question of fact when the doubt or difference arises as to the truth or falsehood
of alleged facts." 16 In the present case, the CA did not doubt, much less change, the facts narrated by the
CTA. It merely applied the law to the facts. That its interpretation or conclusion is different from that of
the CTA is not irregular or abnormal.