TAX REMEDIES (NIRC)

I. BUREAU OF INTERNAL REVENUE

A. Organizational Structure
1. Chief Officials of the BIR (Sec. 3)
SEC. 3. Chief Officials of the Bureau of Internal Revenue. - The Bureau of Internal Revenue shall have a chief
to be known as Commissioner of Internal Revenue, hereinafter referred to as the Commissioner, and four (4)
assistant chiefs to be known as Deputy Commissioners.

2. Agents of the CIR (Sec 12)

SEC. 12. Agents and Deputies for Collection of National Internal Revenue Taxes. - The following are hereby
constituted agents of the Commissioner:
a) The Commissioner of Customs and his subordinates with respect to the collection of national internal
revenue taxes on imported goods;
b) The head of the appropriate government office and his subordinates with respect to the collection of
energy tax; and
c) Banks duly accredited by the Commissioner with respect to receipt of payments internal revenue taxes
authorized to be made thru banks.
Any officer or employee of an authorized agent bank assigned to receive internal revenue tax payments and
transmit tax returns or documents to the Bureau of Internal Revenue shall be subject to the same sanctions
and penalties prescribed in Sections 269 and 270 of this Code.

B. Powers and Duties of the BIR

1. Powers and Duties of the BIR (Sec. 2)
SEC. 2. Powers and Duties of the Bureau of Internal Revenue. - The Bureau of Internal Revenue shall be
under the supervision and control of the Department of Finance and its powers and duties shall comprehend
the assessment and collection of all national internal revenue taxes, fees, and charges, and the enforcement
of all forfeitures, penalties, and fines connected therewith, including the execution of judgments in all cases
decided in its favor by the Court of Tax Appeals and the ordinary courts. The Bureau shall give effect to and
administer the supervisory and police powers conferred to it by this Code or other laws.

2. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases (Sec. 4)

SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The power to interpret
the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the
Commissioner, subject to review by the Secretary of Finance.

The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof
administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive
appellate jurisdiction of the Court of Tax Appeals.

3. Power of the Commissioner to Obtain Information, and to Summon, Examine, and Take Testimony of
Persons (Sec. 5)
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 of 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;
and
(E) To cause revenue officers and employees to make a canvass from time to time of any revenue district or region
and inquire after and concerning all persons therein who may be liable to pay any internal revenue tax, and all
persons owning or having the care, management or possession of any object with respect to which a tax is
imposed.
The provisions of the foregoing paragraphs notwithstanding, nothing in this Section shall be construed as granting
the Commissioner the authority to inquire into bank deposits other than as provided for in Section 6(F) of this
Code.

CASES:

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

COMMISSIONER OF INTERNAL REVENUE, vs. HON. RAUL M. GONZALEZ,

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing the
Decision1 dated October 31, 2006 and Resolution2 dated March 6, 2007 of the Court of Appeals (CA) in CA-G.R. SP No.
93387 which affirmed the Resolution3 dated December 13, 2005 of respondent Secretary of Justice in I.S. No. 2003-774
for violation of Sections 254 and 255 of the National Internal Revenue Code of 1997 (NIRC).

The facts as culled from the records:

Pursuant to Letter of Authority (LA) No. 00009361 dated August 25, 2000 issued by then Commissioner of Internal
Revenue (petitioner) Dakila B. Fonacier, Revenue Officers Remedios C. Advincula, Jr., Simplicio V. Cabantac, Jr., Ricardo
L. Suba, Jr. and Aurelio Agustin T. Zamora supervised by Section Chief Sixto C. Dy, Jr. of the Tax Fraud Division (TFD),
National Office, conducted a fraud investigation for all internal revenue taxes to ascertain/determine the tax liabilities of
respondent L. M. Camus Engineering Corporation (LMCEC) for the taxable years 1997, 1998 and 1999.4 The audit and
investigation against LMCEC was precipitated by the information provided by an "informer" that LMCEC had substantial
underdeclared income for the said period. For failure to comply with the subpoena duces tecum issued in connection
with the tax fraud investigation, a criminal complaint was instituted by the Bureau of Internal Revenue (BIR) against
LMCEC on January 19, 2001 for violation of Section 266 of the NIRC (I.S. No. 00-956 of the Office of the City Prosecutor
of Quezon City).5

Based on data obtained from an "informer" and various clients of LMCEC,6 it was discovered that LMCEC filed fraudulent
tax returns with substantial underdeclarations of taxable income for the years 1997, 1998 and 1999. Petitioner thus
assessed the company of total deficiency taxes amounting to ₱430,958,005.90 (income tax - ₱318,606,380.19 and value-
added tax [VAT] - ₱112,351,625.71) covering the said period. The Preliminary Assessment Notice (PAN) was received by
LMCEC on February 22, 2001.7

LMCEC’s alleged underdeclared income was summarized by petitioner as follows:

Year Income Income Undeclared Percentage of

Per ITR Per Investigation Income Underdeclaration

1997 96,638,540.00 283,412,140.84 186,733,600.84 193.30%

1998 86,793,913.00 236,863,236.81 150,069,323.81 172.90%

1999 88,287,792.00 251,507,903.13 163,220,111.13 184.90%8

In view of the above findings, assessment notices together with a formal letter of demand dated August 7, 2002 were
sent to LMCEC through personal service on October 1, 2002.9 Since the company and its representatives refused to
receive the said notices and demand letter, the revenue officers resorted to constructive service10 in accordance with
Section 3, Revenue Regulations (RR) No. 12-9911.

On May 21, 2003, petitioner, through then Commissioner Guillermo L. Parayno, Jr., referred to the Secretary of Justice
for preliminary investigation its complaint against LMCEC, Luis M. Camus and Lino D. Mendoza, the latter two were sued
in their capacities as President and Comptroller, respectively. The case was docketed as I.S. No. 2003-774. In the Joint
Affidavit executed by the revenue officers who conducted the tax fraud investigation, it was alleged that despite the
receipt of the final assessment notice and formal demand letter on October 1, 2002, LMCEC failed and refused to pay
the deficiency tax assessment in the total amount of ₱630,164,631.61, inclusive of increments, which had become final
and executory as a result of the said taxpayer’s failure to file a protest thereon within the thirty (30)-day reglementary
period.12

Camus and Mendoza filed a Joint Counter-Affidavit contending that LMCEC cannot be held liable whatsoever for the
alleged tax deficiency which had become due and demandable. Considering that the complaint and its annexes all
showed that the suit is a simple civil action for collection and not a tax evasion case, the Department of Justice (DOJ) is
not the proper forum for BIR’s complaint. They also assail as invalid the assessment notices which bear no serial
numbers and should be shown to have been validly served by an Affidavit of Constructive Service executed and sworn to
by the revenue officers who served the same. As stated in LMCEC’s letter-protest dated December 12, 2002 addressed
to Revenue District Officer (RDO) Clavelina S. Nacar of RD No. 40, Cubao, Quezon City, the company had already
undergone a series of routine examinations for the years 1997, 1998 and 1999; under the NIRC, only one examination of
the books of accounts is allowed per taxable year.13

LMCEC further averred that it had availed of the Bureau’s Tax Amnesty Programs (Economic Recovery Assistance
Payment [ERAP] Program and the Voluntary Assessment Program [VAP]) for 1998 and 1999; for 1997, its tax liability was
terminated and closed under Letter of Termination14 dated June 1, 1999 issued by petitioner and signed by the Chief of
the Assessment Division.15 LMCEC claimed it made payments of income tax, VAT and expanded withholding tax (EWT),
as follows:

YEAR AMOUNT OF TAXES

PAID

1997 Termination Letter Under Letter of Authority No. EWT - P 6,000.00

174600 Dated November 4, 1998 VAT - 540,605.02
IT - 3,000.00

1998 ERAP Program pursuant WC - 38,404.55

to RR #2-99 VAT - 61,635.40

1999 VAP Program pursuant IT - 878,495.28

to RR #8-2001 VAT - 1,324,317.0016

LMCEC argued that petitioner is now estopped from further taking any action against it and its corporate officers
concerning the taxable years 1997 to 1999. With the grant of immunity from audit from the company’s availment of
ERAP and VAP, which have a feature of a tax amnesty, the element of fraud is negated the moment the Bureau accepts
the offer of compromise or payment of taxes by the taxpayer. The act of the revenue officers in finding justification
under Section 6(B) of the NIRC (Best Evidence Obtainable) is misplaced and unavailing because they were not able to
open the books of the company for the second time, after the routine examination, issuance of termination letter and
the availment of ERAP and VAP. LMCEC thus maintained that unless there is a prior determination of fraud supported by
documents not yet incorporated in the docket of the case, petitioner cannot just issue LAs without first terminating
those previously issued. It emphasized the fact that the BIR officers who filed and signed the Affidavit-Complaint in this
case were the same ones who appeared as complainants in an earlier case filed against Camus for his alleged "failure to
obey summons in violation of Section 5 punishable under Section 266 of the NIRC of 1997" (I.S. No. 00-956 of the Office
of the City Prosecutor of Quezon City). After preliminary investigation, said case was dismissed for lack of probable cause
in a Resolution issued by the Investigating Prosecutor on May 2, 2001.17

LMCEC further asserted that it filed on April 20, 2001 a protest on the PAN issued by petitioner for having no basis in fact
and law. However, until now the said protest remains unresolved. As to the alleged informant who purportedly supplied
the "confidential information," LMCEC believes that such person is fictitious and his true identity and personality could
not be produced. Hence, this case is another form of harassment against the company as what had been found by the
Office of the City Prosecutor of Quezon City in I.S. No. 00-956. Said case and the present case both have something to do
with the audit/examination of LMCEC for taxable years 1997, 1998 and 1999 pursuant to LA No. 00009361.18

In the Joint Reply-Affidavit executed by the Bureau’s revenue officers, petitioner disagreed with the contention of
LMCEC that the complaint filed is not criminal in nature, pointing out that LMCEC and its officers Camus and Mendoza
were being charged for the criminal offenses defined and penalized under Sections 254 (Attempt to Evade or Defeat Tax)
and 255 (Willful Failure to Pay Tax) of the NIRC. This finds support in Section 205 of the same Code which provides for
administrative (distraint, levy, fine, forfeiture, lien, etc.) and judicial (criminal or civil action) remedies in order to enforce
collection of taxes. Both remedies may be pursued either independently or simultaneously. In this case, the BIR decided
to simultaneously pursue both remedies and thus aside from this criminal action, the Bureau also initiated
administrative proceedings against LMCEC.19
On the lack of control number in the assessment notice, petitioner explained that such is a mere office requirement in
the Assessment Service for the purpose of internal control and monitoring; hence, the unnumbered assessment notices
should not be interpreted as irregular or anomalous. Petitioner stressed that LMCEC already lost its right to file a protest
letter after the lapse of the thirty (30)-day reglementary period. LMCEC’s protest-letter dated December 12, 2002 to
RDO Clavelina S. Nacar, RD No. 40, Cubao, Quezon City was actually filed only on December 16, 2002, which was
disregarded by the petitioner for being filed out of time. Even assuming for the sake of argument that the assessment
notices were invalid, petitioner contended that such could not affect the present criminal action,20 citing the ruling in the
landmark case of Ungab v. Cusi, Jr.21

As to the Letter of Termination signed by Ruth Vivian G. Gandia of the Assessment Division, Revenue Region No. 7,
Quezon City, petitioner pointed out that LMCEC failed to mention that the undated Certification issued by RDO Pablo C.
Cabreros, Jr. of RD No. 40, Cubao, Quezon City stated that the report of the 1997 Internal Revenue taxes of LMCEC had
already been submitted for review and approval of higher authorities. LMCEC also cannot claim as excuse from the
reopening of its books of accounts the previous investigations and examinations. Under Section 235 (a), an exception
was provided in the rule on once a year audit examination in case of "fraud, irregularity or mistakes, as determined by
the Commissioner". Petitioner explained that the distinction between a Regular Audit Examination and Tax Fraud Audit
Examination lies in the fact that the former is conducted by the district offices of the Bureau’s Regional Offices, the
authority emanating from the Regional Director, while the latter is conducted by the TFD of the National Office only
when instances of fraud had been determined by the petitioner.22

Petitioner further asserted that LMCEC’s claim that it was granted immunity from audit when it availed of the VAP and
ERAP programs is misleading. LMCEC failed to state that its availment of ERAP under RR No. 2-99 is not a grant of
absolute immunity from audit and investigation, aside from the fact that said program was only for income tax and did
not cover VAT and withholding tax for the taxable year 1998. As for LMCEC’S availment of VAP in 1999 under RR No. 8-
2001 dated August 1, 2001 as amended by RR No. 10-2001 dated September 3, 2001, the company failed to state that it
covers only income tax and VAT, and did not include withholding tax. However, LMCEC is not actually entitled to the
benefits of VAP under Section 1 (1.1 and 1.2) of RR No. 10-2001. As to the principle of estoppel invoked by LMCEC,
estoppel clearly does not lie against the BIR as this involved the exercise of an inherent power by the government to
collect taxes.23

Petitioner also pointed out that LMCEC’s assertion correlating this case with I.S. No. 00-956 is misleading because said
case involves another violation and offense (Sections 5 and 266 of the NIRC). Said case was filed by petitioner due to the
failure of LMCEC to submit or present its books of accounts and other accounting records for examination despite the
issuance of subpoena duces tecum against Camus in his capacity as President of LMCEC. While indeed a Resolution was
issued by Asst. City Prosecutor Titus C. Borlas on May 2, 2001 dismissing the complaint, the same is still on appeal and
pending resolution by the DOJ. The determination of probable cause in said case is confined to the issue of whether
there was already a violation of the NIRC by Camus in not complying with the subpoena duces tecum issued by the BIR.24

Petitioner contended that precisely the reason for the issuance to the TFD of LA No. 00009361 by the Commissioner is
because the latter agreed with the findings of the investigating revenue officers that fraud exists in this case. In the
conduct of their investigation, the revenue officers observed the proper procedure under Revenue Memorandum Order
(RMO) No. 49-2000 wherein it is required that before the issuance of a Letter of Authority against a particular taxpayer,
a preliminary investigation should first be conducted to determine if a prima facie case for tax fraud exists. As to the
allegedly unresolved protest filed on April 20, 2001 by LMCEC over the PAN, this has been disregarded by the Bureau for
being pro forma and having been filed beyond the 15-day reglementary period. A subsequent letter dated April 20, 2001
was filed with the TFD and signed by a certain Juan Ventigan. However, this was disregarded and considered a mere
scrap of paper since the said signatory had not shown any prior authorization to represent LMCEC. Even assuming said
protest letter was validly filed on behalf of the company, the issuance of a Formal Demand Letter and Assessment Notice
through constructive service on October 1, 2002 is deemed an implied denial of the said protest. Lastly, the details
regarding the "informer" being confidential, such information is entitled to some degree of protection, including the
identity of the informant against LMCEC.25

In their Joint Rejoinder-Affidavit,26 Camus and Mendoza reiterated their argument that the identity of the alleged
informant is crucial to determine if he/she is qualified under Section 282 of the NIRC. Moreover, there was no
assessment that has already become final, the validity of its issuance and service has been put in issue being anomalous,
irregular and oppressive. It is contended that for criminal prosecution to proceed before assessment, there must be a
prima facie showing of a willful attempt to evade taxes. As to LMCEC’s availment of the VAP and ERAP programs, the
certificate of immunity from audit issued to it by the BIR is plain and simple, but petitioner is now saying it has the right
to renege with impunity from its undertaking. Though petitioner deems LMCEC not qualified to avail of the benefits of
VAP, it must be noted that if it is true that at the time the petitioner filed I.S. No. 00-956 sometime in January 2001 it
had already in its custody that "Confidential Information No. 29-2000 dated July 7, 2000", these revenue officers could
have rightly filed the instant case and would not resort to filing said criminal complaint for refusal to comply with a
subpoena duces tecum.
On September 22, 2003, the Chief State Prosecutor issued a Resolution27 finding no sufficient evidence to establish
probable cause against respondents LMCEC, Camus and Mendoza. It was held that since the payments were made by
LMCEC under ERAP and VAP pursuant to the provisions of RR Nos. 2-99 and 8-2001 which were offered to taxpayers by
the BIR itself, the latter is now in estoppel to insist on the criminal prosecution of the respondent taxpayer. The
voluntary payments made thereunder are in the nature of a tax amnesty. The unnumbered assessment notices were
found highly irregular and thus their validity is suspect; if the amounts indicated therein were collected, it is uncertain
how these will be accounted for and if it would go to the coffers of the government or elsewhere. On the required prior
determination of fraud, the Chief State Prosecutor declared that the Office of the City Prosecutor in I.S. No. 00-956 has
already squarely ruled that (1) there was no prior determination of fraud, (2) there was indiscriminate issuance of LAs,
and (3) the complaint was more of harassment. In view of such findings, any ensuing LA is thus defective and allowing
the collection on the assailed assessment notices would already be in the context of a "fishing expedition" or "witch-
hunting." Consequently, there is nothing to speak of regarding the finality of assessment notices in the aggregate
amount of ₱630,164,631.61.

Petitioner filed a motion for reconsideration which was denied by the Chief State Prosecutor.28

Petitioner appealed to respondent Secretary of Justice but the latter denied its petition for review under Resolution
dated December 13, 2005.29

The Secretary of Justice found that petitioner’s claim that there is yet no finality as to LMCEC’s payment of its 1997 taxes
since the audit report was still pending review by higher authorities, is unsubstantiated and misplaced. It was noted that
the Termination Letter issued by the Commissioner on June 1, 1999 is explicit that the matter is considered closed. As
for taxable year 1998, respondent Secretary stated that the record shows that LMCEC paid VAT and withholding tax in
the amount of ₱61,635.40 and ₱38,404.55, respectively. This eventually gave rise to the issuance of a certificate of
immunity from audit for 1998 by the Office of the Commissioner of Internal Revenue. For taxable year 1999, respondent
Secretary found that pursuant to earlier LA No. 38633 dated July 4, 2000, LMCEC’s 1999 tax liabilities were still pending
investigation for which reason LMCEC assailed the subsequent issuance of LA No. 00009361 dated August 25, 2000
calling for a similar investigation of its alleged 1999 tax deficiencies when no final determination has yet been arrived on
the earlier LA No. 38633.30

On the allegation of fraud, respondent Secretary ruled that petitioner failed to establish the existence of the following
circumstances indicating fraud in the settlement of LMCEC’s tax liabilities: (1) there must be intentional and substantial
understatement of tax liability by the taxpayer; (2) there must be intentional and substantial overstatement of
deductions or exemptions; and (3) recurrence of the foregoing circumstances. First, petitioner miserably failed to explain
why the assessment notices were unnumbered; second, the claim that the tax fraud investigation was precipitated by an
alleged "informant" has not been corroborated nor was it clearly established, hence there is no other conclusion but
that the Bureau engaged in a "fishing expedition"; and furthermore, petitioner’s course of action is contrary to Section
235 of the NIRC allowing only once in a given taxable year such examination and inspection of the taxpayer’s books of
accounts and other accounting records. There was no convincing proof presented by petitioner to show that the case of
LMCEC falls under the exceptions provided in Section 235. Respondent Secretary duly considered the issuance of
Certificate of Immunity from Audit and Letter of Termination dated June 1, 1999 issued to LMCEC.31

Anent the earlier case filed against the same taxpayer (I.S. No. 00-956), the Secretary of Justice found petitioner to have
engaged in forum shopping in view of the fact that while there is still pending an appeal from the Resolution of the City
Prosecutor of Quezon City in said case, petitioner hurriedly filed the instant case, which not only involved the same
parties but also similar substantial issues (the joint complaint-affidavit also alleged the issuance of LA No. 00009361
dated August 25, 2000). Clearly, the evidence of litis pendentia is present. Finally, respondent Secretary noted that if
indeed LMCEC committed fraud in the settlement of its tax liabilities, then at the outset, it should have been discovered
by the agents of petitioner, and consequently petitioner should not have issued the Letter of Termination and the
Certificate of Immunity From Audit. Petitioner thus should have been more circumspect in the issuance of said
documents.32

Its motion for reconsideration having been denied, petitioner challenged the ruling of respondent Secretary via a
certiorari petition in the CA.

On October 31, 2006, the CA rendered the assailed decision33 denying the petition and concurred with the findings and
conclusions of respondent Secretary. Petitioner’s motion for reconsideration was likewise denied by the appellate
court.34 It appears that entry of judgment was issued by the CA stating that its October 31, 2006 Decision attained
finality on March 25, 2007.35 However, the said entry of judgment was set aside upon manifestation by the petitioner
that it has filed a petition for review before this Court subsequent to its receipt of the Resolution dated March 6, 2007
denying petitioner’s motion for reconsideration on March 20, 2007.36

The petition is anchored on the following grounds:

 I.

The Honorable Court of Appeals erroneously sustained the findings of the Secretary of Justice who gravely abused his
discretion by dismissing the complaint based on grounds which are not even elements of the offenses charged.

II.

The Honorable Court of Appeals erroneously sustained the findings of the Secretary of Justice who gravely abused his
discretion by dismissing petitioner’s evidence, contrary to law.

III.

The Honorable Court of Appeals erroneously sustained the findings of the Secretary of Justice who gravely abused his
discretion by inquiring into the validity of a Final Assessment Notice which has become final, executory and demandable
pursuant to Section 228 of the Tax Code of 1997 for failure of private respondent to file a protest against the same. 37

The core issue to be resolved is whether LMCEC and its corporate officers may be prosecuted for violation of Sections
254 (Attempt to Evade or Defeat Tax) and 255 (Willful Failure to Supply Correct and Accurate Information and Pay Tax).

Petitioner filed the criminal complaint against the private respondents for violation of the following provisions of the
NIRC, as amended:

SEC. 254. Attempt to Evade or Defeat Tax. – Any person who willfully attempts in any manner to evade or defeat any tax
imposed under this Code or the payment thereof shall, in addition to other penalties provided by law, upon conviction
thereof, be punished by a fine of not less than Thirty thousand pesos (P30,000) but not more than One hundred
thousand pesos (P100,000) and suffer imprisonment of not less than two (2) years but not more than four (4) years:
Provided, That the conviction or acquittal obtained under this Section shall not be a bar to the filing of a civil suit for the
collection of taxes.

SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax, Withhold and Remit Tax and Refund
Excess Taxes Withheld on Compensation. – Any person required under this Code or by rules and regulations
promulgated thereunder to pay any tax, make a return, keep any record, or supply any correct and accurate
information, who willfully fails to pay such tax, make such return, keep such record, or supply such correct and accurate
information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensations at the time or times
required by law or rules and regulations shall, in addition to other penalties provided by law, upon conviction thereof, be
punished by a fine of not less than Ten thousand pesos (P10,000) and suffer imprisonment of not less than one (1) year
but not more than ten (10) years.

x x x x (Emphasis supplied.)

Respondent Secretary concurred with the Chief State Prosecutor’s conclusion that there is insufficient evidence to
establish probable cause to charge private respondents under the above provisions, based on the following findings: (1)
the tax deficiencies of LMCEC for taxable years 1997, 1998 and 1999 have all been settled or terminated, as in fact
LMCEC was issued a Certificate of Immunity and Letter of Termination, and availed of the ERAP and VAP programs; (2)
there was no prior determination of the existence of fraud; (3) the assessment notices are unnumbered, hence irregular
and suspect; (4) the books of accounts and other accounting records may be subject to audit examination only once in a
given taxable year and there is no proof that the case falls under the exceptions provided in Section 235 of the NIRC; and
(5) petitioner committed forum shopping when it filed the instant case even as the earlier criminal complaint (I.S. No.
00-956) dismissed by the City Prosecutor of Quezon City was still pending appeal.

Petitioner argues that with the finality of the assessment due to failure of the private respondents to challenge the same
in accordance with Section 228 of the NIRC, respondent Secretary has no jurisdiction and authority to inquire into its
validity. Respondent taxpayer is thereby allowed to do indirectly what it cannot do directly – to raise a collateral attack
on the assessment when even a direct challenge of the same is legally barred. The rationale for dismissing the complaint
on the ground of lack of control number in the assessment notice likewise betrays a lack of awareness of tax laws and
jurisprudence, such circumstance not being an element of the offense. Worse, the final, conclusive and undisputable
evidence detailing a crime under our taxation laws is swept under the rug so easily on mere conspiracy theories imputed
on persons who are not even the subject of the complaint.

We grant the petition.

There is no dispute that prior to the filing of the complaint with the DOJ, the report on the tax fraud investigation
conducted on LMCEC disclosed that it made substantial underdeclarations in its income tax returns for 1997, 1998 and
1999. Pursuant to RR No. 12-99,38 a PAN was sent to and received by LMCEC on February 22, 2001 wherein it was
notified of the proposed assessment of deficiency taxes amounting to ₱430,958,005.90 (income tax - ₱318,606,380.19
and VAT - ₱112,351,625.71) covering taxable years 1997, 1998 and 1999.39 In response to said PAN, LMCEC sent a letter-
protest to the TFD, which denied the same on April 12, 2001 for lack of legal and factual basis and also for having been
filed beyond the 15-day reglementary period.40

As mentioned in the PAN, the revenue officers were not given the opportunity to examine LMCEC’s books of accounts
and other accounting records because its officers failed to comply with the subpoena duces tecum earlier issued, to
verify its alleged underdeclarations of income reported by the Bureau’s informant under Section 282 of the NIRC. Hence,
a criminal complaint was filed by the Bureau against private respondents for violation of Section 266 which provides:

SEC. 266. Failure to Obey Summons. – Any person who, being duly summoned to appear to testify, or to appear and
produce books of accounts, records, memoranda, or other papers, or to furnish information as required under the
pertinent provisions of this Code, neglects to appear or to produce such books of accounts, records, memoranda, or
other papers, or to furnish such information, shall, upon conviction, be punished by a fine of not less than Five thousand
pesos (P5,000) but not more than Ten thousand pesos (P10,000) and suffer imprisonment of not less than one (1) year
but not more than two (2) years.

It is clear that I.S. No. 00-956 involves a separate offense and hence litis pendentia is not present considering that the
outcome of I.S. No. 00-956 is not determinative of the issue as to whether probable cause exists to charge the private
respondents with the crimes of attempt to evade or defeat tax and willful failure to supply correct and accurate
information and pay tax defined and penalized under Sections 254 and 255, respectively. For the crime of tax evasion in
particular, compliance by the taxpayer with such subpoena, if any had been issued, is irrelevant. As we held in Ungab v.
Cusi, Jr.,41 "[t]he crime is complete when the [taxpayer] has x x x knowingly and willfully filed [a] fraudulent [return] with
intent to evade and defeat x x x the tax." Thus, respondent Secretary erred in holding that petitioner committed forum
shopping when it filed the present criminal complaint during the pendency of its appeal from the City Prosecutor’s
dismissal of I.S. No. 00-956 involving the act of disobedience to the summons in the course of the preliminary
investigation on LMCEC’s correct tax liabilities for taxable years 1997, 1998 and 1999.

In the Details of Discrepancies attached as Annex B of the PAN,42 private respondents were already notified that
inasmuch as the revenue officers were not given the opportunity to examine LMCEC’s books of accounts, accounting
records and other documents, said revenue officers gathered information from third parties. Such 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;
xxx

x x x x (Emphasis supplied.)

Private respondents’ assertions regarding the qualifications of the "informer" of the Bureau deserve scant consideration.
We have held that 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.43 In the same vein, herein
private respondents cannot be allowed to escape criminal prosecution under Sections 254 and 255 of the NIRC by mere
imputation of a "fictitious" or disqualified informant under Section 282 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 said "informer."

Subsequently, petitioner sent to LMCEC by constructive service allowed under Section 3 of RR No. 12-99, assessment
notice and formal demand informing the said taxpayer of the law and the facts on which the assessment is made, as
required by Section 228 of the NIRC. Respondent Secretary, however, fully concurred with private respondents’
contention that the assessment notices were invalid for being unnumbered and the tax liabilities therein stated have
already been settled and/or terminated.

We do not agree.

A notice of assessment is:

[A] declaration of deficiency taxes issued to a [t]axpayer who fails to respond to a Pre-Assessment Notice (PAN) within
the prescribed period of time, or whose reply to the PAN was found to be without merit. The Notice of Assessment shall
inform the [t]axpayer of this fact, and that the report of investigation submitted by the Revenue Officer conducting the
audit shall be given due course.

The formal letter of demand calling for payment of the taxpayer’s deficiency tax or taxes shall state the fact, the law,
rules and regulations or jurisprudence on which the assessment is based, otherwise the formal letter of demand and
the notice of assessment shall be void.44

As it is, the formality of a control number in the assessment notice is not a requirement for its validity but rather the
contents thereof which should inform the taxpayer of the declaration of deficiency tax against said taxpayer. Both the
formal letter of demand and the notice of assessment shall be void if the former failed to state the fact, the law, rules
and regulations or jurisprudence on which the assessment is based, which is a mandatory requirement under Section
228 of the NIRC.

Section 228 of the NIRC 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 provisions of Section 228 of the NIRC, RR No.
12-99 was enacted. Section 3.1.4 of the revenue regulation 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 x.45 (Emphasis supplied.)

The Formal Letter of Demand dated August 7, 2002 contains not only a detailed computation of LMCEC’s tax deficiencies
but also details of the specified discrepancies, explaining the legal and factual bases of the assessment. It also reiterated
that in the absence of accounting records and other documents necessary for the proper determination of the
company’s internal revenue tax liabilities, the investigating revenue officers resorted to the "Best Evidence Obtainable"
as provided in Section 6(B) of the NIRC (third party information) and in accordance with the procedure laid down in RMC
No. 23-2000 dated November 27, 2000. Annex "A" of the Formal Letter of Demand thus stated:

Thus, to verify the validity of the information previously provided by the informant, the assigned revenue officers
resorted to third party information. Pursuant to Section 5(B) of the NIRC of 1997, access letters requesting for
information and the submission of certain documents (i.e., Certificate of Income Tax Withheld at Source and/or
Alphabetical List showing the income payments made to L.M. Camus Engineering Corporation for the taxable years 1997
to 1999) were sent to the various clients of the subject corporation, including but not limited to the following:

1. Ayala Land Inc.

2. Filinvest Alabang Inc.

3. D.M. Consunji, Inc.

4. SM Prime Holdings, Inc.

5. Alabang Commercial Corporation

 6. Philam Properties Corporation

7. SM Investments, Inc.

8. Shoemart, Inc.

9. Philippine Securities Corporation

10. Makati Development Corporation

From the documents gathered and the data obtained therein, the substantial underdeclaration as defined under Section
248(B) of the NIRC of 1997 by your corporation of its income had been confirmed. x x x x46 (Emphasis supplied.)

In the same letter, Assistant Commissioner Percival T. Salazar informed private respondents that the estimated tax
liabilities arising from LMCEC’s underdeclaration amounted to ₱186,773,600.84 in 1997, ₱150,069,323.81 in 1998 and
₱163,220,111.13 in 1999. These figures confirmed that the non-declaration by LMCEC for the taxable years 1997, 1998
and 1999 of an amount exceeding 30% income47 declared in its return is considered a substantial underdeclaration of
income, which constituted prima facie evidence of false or fraudulent return under Section 248(B)48 of the NIRC, as
amended.49

On the alleged settlement of the assessed tax deficiencies by private respondents, respondent Secretary found the
latter’s claim as meritorious on the basis of the Certificate of Immunity From Audit issued on December 6, 1999
pursuant to RR No. 2-99 and Letter of Termination dated June 1, 1999 issued by Revenue Region No. 7 Chief of
Assessment Division Ruth Vivian G. Gandia. Petitioner, however, clarified that the certificate of immunity from audit
covered only income tax for the year 1997 and does not include VAT and withholding taxes, while the Letter of
Termination involved tax liabilities for taxable year 1997 (EWT, VAT and income taxes) but which was submitted for
review of higher authorities as per the Certification of RD No. 40 District Officer Pablo C. Cabreros, Jr.50 For 1999, private
respondents supposedly availed of the VAP pursuant to RR No. 8-2001.

RR No. 2-99 issued on February 7, 1999 explained in its Policy Statement that considering the scarcity of financial and
human resources as well as the time constraints within which the Bureau has to "clean the Bureau’s backlog of
unaudited tax returns in order to keep updated and be focused with the most current accounts" in preparation for the
full implementation of a computerized tax administration, the said revenue regulation was issued "providing for last
priority in audit and investigation of tax returns" to accomplish the said objective "without, however, compromising the
revenue collection that would have been generated from audit and enforcement activities." The program named as
"Economic Recovery Assistance Payment (ERAP) Program" granted immunity from audit and investigation of income tax,
VAT and percentage tax returns for 1998. It expressly excluded withholding tax returns (whether for income, VAT, or
percentage tax purposes). Since such immunity from audit and investigation does not preclude the collection of
revenues generated from audit and enforcement activities, it follows that the Bureau is likewise not barred from
collecting any tax deficiency discovered as a result of tax fraud investigations. Respondent Secretary’s opinion that RR
No. 2-99 contains the feature of a tax amnesty is thus misplaced.

Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate. It also gives the government a chance
to collect uncollected tax from tax evaders without having to go through the tedious process of a tax case.51 Even
assuming arguendo that the issuance of RR No. 2-99 is in the nature of tax amnesty, it bears noting that a tax amnesty,
much like a tax exemption, is never favored nor presumed in law and if granted by statute, the terms of the amnesty like
that of a tax exemption must be construed strictly against the taxpayer and liberally in favor of the taxing authority.52

For the same reason, the availment by LMCEC of VAP under RR No. 8-2001 as amended by RR No. 10-2001, through
payment supposedly made in October 29, 2001 before the said program ended on October 31, 2001, did not amount to
settlement of its assessed tax deficiencies for the period 1997 to 1999, nor immunity from prosecution for filing
fraudulent return and attempt to evade or defeat tax. As correctly asserted by petitioner, from the express terms of the
aforesaid revenue regulations, LMCEC is not qualified to avail of the VAP granting taxpayers the privilege of last priority
in the audit and investigation of all internal revenue taxes for the taxable year 2000 and all prior years under certain
conditions, considering that first, it was issued a PAN on February 19, 2001, and second, it was the subject of
investigation as a result of verified information filed by a Tax Informer under Section 282 of the NIRC duly recorded in
the BIR Official Registry as Confidential Information (CI) No. 29-200053 even prior to the issuance of the PAN.

Section 1 of RR No. 8-2001 provides:

SECTION 1. COVERAGE. – x x x
Any person, natural or juridical, including estates and trusts, liable to pay any of the above-cited internal revenue taxes
for the above specified period/s who, due to inadvertence or otherwise, erroneously paid his internal revenue tax
liabilities or failed to file tax return/pay taxes may avail of the Voluntary Assessment Program (VAP), except those falling
under any of the following instances:

1.1 Those covered by a Preliminary Assessment Notice (PAN), Final Assessment Notice (FAN), or Collection Letter
issued on or before July 31, 2001; or

1.2 Persons under investigation as a result of verified information filed by a Tax Informer under Section 282 of
the Tax Code of 1997, duly processed and recorded in the BIR Official Registry Book on or before July 31, 2001;

1.3 Tax fraud cases already filed and pending in courts for adjudication; and

x x x x (Emphasis supplied.)

Moreover, private respondents cannot invoke LMCEC’s availment of VAP to foreclose any subsequent audit of its
account books and other accounting records in view of the strong finding of underdeclaration in LMCEC’s payment of
correct income tax liability by more than 30% as supported by the written report of the TFD detailing the facts and the
law on which such finding is based, pursuant to the tax fraud investigation authorized by petitioner under LA No.
00009361. This conclusion finds support in Section 2 of RR No. 8-2001 as amended by RR No. 10-2001 provides:

SEC. 2. TAXPAYER’S BENEFIT FROM AVAILMENT OF THE VAP. – A taxpayer who has availed of the VAP shall not be
audited except upon authorization and approval of the Commissioner of Internal Revenue when there is strong evidence
or finding of understatement in the payment of taxpayer’s correct tax liability by more than thirty percent (30%) as
supported by a written report of the appropriate office detailing the facts and the law on which such finding is based:
Provided, however, that any VAP payment should be allowed as tax credit against the deficiency tax due, if any, in case
the concerned taxpayer has been subjected to tax audit.

xxxx

Given the explicit conditions for the grant of immunity from audit under RR No. 2-99, RR No. 8-2001 and RR No. 10-2001,
we hold that respondent Secretary gravely erred in declaring that petitioner is now estopped from assessing any tax
deficiency against LMCEC after issuance of the aforementioned documents of immunity from audit/investigation and
settlement of tax liabilities. It is axiomatic that the State can never be in estoppel, and this is particularly true in matters
involving taxation. The errors of certain administrative officers should never be allowed to jeopardize the government’s
financial position.54

Respondent Secretary’s other ground for assailing the course of action taken by petitioner in proceeding with the audit
and investigation of LMCEC -- the alleged violation of the general rule in Section 235 of the NIRC allowing the
examination and inspection of taxpayer’s books of accounts and other accounting records only once in a taxable year --
is likewise untenable. As correctly pointed out by petitioner, the discovery of substantial underdeclarations of income by
LMCEC for taxable years 1997, 1998 and 1999 upon verified information provided by an "informer" under Section 282 of
the NIRC, as well as the necessity of obtaining information from third parties to ascertain the correctness of the return
filed or evaluation of tax compliance in collecting taxes (as a result of the disobedience to the summons issued by the
Bureau against the private respondents), are circumstances warranting exception from the general rule in Section 235.55

As already stated, the substantial underdeclared income in the returns filed by LMCEC for 1997, 1998 and 1999 in
amounts equivalent to more than 30% (the computation in the final assessment notice showed underdeclarations of
almost 200%) constitutes prima facie evidence of fraudulent return under Section 248(B) of the NIRC. Prior to the
issuance of the preliminary and final notices of assessment, the revenue officers conducted a preliminary investigation
on the information and documents showing substantial understatement of LMCEC’s tax liabilities which were provided
by the Informer, following the procedure under RMO No. 15-95.56 Based on the prima facie finding of the existence of
fraud, petitioner issued LA No. 00009361 for the TFD to conduct a formal fraud investigation of LMCEC.57 Consequently,
respondent Secretary’s ruling that the filing of criminal complaint for violation of Sections 254 and 255 of the NIRC
cannot prosper because of lack of prior determination of the existence of fraud, is bereft of factual basis and
contradicted by the evidence on record.

Tax assessments by tax examiners are presumed correct and made in good faith, and all presumptions are in favor of the
correctness of a tax assessment unless proven otherwise.58 We have held that a taxpayer’s failure to file a petition for
review with the Court of Tax Appeals within the statutory period rendered the disputed assessment final, executory and
demandable, thereby precluding it from interposing the defenses of legality or validity of the assessment and
prescription of the Government’s right to assess.59 Indeed, any objection against the assessment should have been
pursued following the avenue paved in Section 229 (now Section 228) of the NIRC on protests on assessments of internal
revenue taxes.60

Records bear out that the assessment notice and Formal Letter of Demand dated August 7, 2002 were duly served on
LMCEC on October 1, 2002. Private respondents did not file a motion for reconsideration of the said assessment notice
and formal demand; neither did they appeal to the Court of Tax Appeals. Section 228 of the NIRC61 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. No such
administrative protest was filed by private respondents seeking reconsideration of the August 7, 2002 assessment notice
and formal letter of demand. Private respondents cannot belatedly assail the said assessment, which they allowed to
lapse into finality, by raising issues as to its validity and correctness during the preliminary investigation after the BIR has
referred the matter for prosecution under Sections 254 and 255 of the NIRC.

As we held in Marcos II v. Court of Appeals62:

It is not the Department of Justice which is the government agency tasked to determine the amount of taxes due upon
the subject estate, but the Bureau of Internal Revenue, whose determinations and assessments are presumed correct
and made in good faith. The taxpayer has the duty of proving otherwise. In the absence of proof of any irregularities in
the performance of official duties, an assessment will not be disturbed. Even an assessment based on estimates is prima
facie valid and lawful where it does not appear to have been arrived at arbitrarily or capriciously. The burden of proof is
upon the complaining party to show clearly that the assessment is erroneous. Failure to present proof of error in the
assessment will justify the judicial affirmance of said assessment. x x x.

Moreover, these objections to the assessments should have been raised, considering the ample remedies afforded the
taxpayer by the Tax Code, with the Bureau of Internal Revenue and the Court of Tax Appeals, as described earlier, and
cannot be raised now via Petition for Certiorari, under the pretext of grave abuse of discretion. The course of action
taken by the petitioner reflects his disregard or even repugnance of the established institutions for governance in the
scheme of a well-ordered society. The subject tax assessments having become final, executory and enforceable, the
same can no longer be contested by means of a disguised protest. In the main, Certiorari may not be used as a substitute
for a lost appeal or remedy. This judicial policy becomes more pronounced in view of the absence of sufficient attack
against the actuations of government. (Emphasis supplied.)

The determination of probable cause is part of the discretion granted to the investigating prosecutor and ultimately, the
Secretary of Justice. However, this Court and the CA possess the power to review findings of prosecutors in preliminary
investigations. Although policy considerations call for the widest latitude of deference to the prosecutor’s findings,
courts should never shirk from exercising their power, when the circumstances warrant, to determine whether the
prosecutor’s findings are supported by the facts, or by the law. In so doing, courts do not act as prosecutors but as
organs of the judiciary, exercising their mandate under the Constitution, relevant statutes, and remedial rules to settle
cases and controversies.63 Clearly, the power of the Secretary of Justice to review does not preclude this Court and the
CA from intervening and exercising our own powers of review with respect to the DOJ’s findings, such as in the
exceptional case in which grave abuse of discretion is committed, as when a clear sufficiency or insufficiency of evidence
to support a finding of probable cause is ignored.64

WHEREFORE, the petition is GRANTED. The Decision dated October 31, 2006 and Resolution dated March 6, 2007 of the
Court of Appeals in CA-G.R. SP No. 93387 are hereby REVERSED and SET ASIDE. The Secretary of Justice is hereby
DIRECTED to order the Chief State Prosecutor to file before the Regional Trial Court of Quezon City, National Capital
Judicial Region, the corresponding Information against L. M. Camus Engineering Corporation, represented by its
President Luis M. Camus and Comptroller Lino D. Mendoza, for Violation of Sections 254 and 255 of the National Internal
Revenue Code of 1997.

No costs.

SO ORDERED.

b. G.R. No. 177982 October 17, 2008

FITNESS BY DESIGN, INC., vs. COMMISSIONER ON INTERNAL REVENUE

On March 17, 2004, the Commissioner on Internal Revenue (respondent) assessed Fitness by Design, Inc. (petitioner) for
deficiency income taxes for the tax year 1995 in the total amount of ₱10,647,529.69.1 Petitioner protested the
assessment on the ground that it was issued beyond the three-year prescriptive period under Section 203 of the Tax
Code.2 Additionally, petitioner claimed that since it was incorporated only on May 30, 1995, there was no basis to
assume that it had already earned income for the tax year 1995.3
On February 1, 2005, respondent issued a warrant of distraint and/or levy against petitioner,4 drawing petitioner to file
on March 1, 2005 a Petition for Review (with Motion to Suspend Collection of Income Tax, Value Added Tax,
Documentary Stamp Tax and Surcharges and Interests subject of this Petition)5 before the Court of Tax Appeals (CTA)
before which it reiterated its defense of prescription. The petition was docketed as CTA Case No. 7160.

In his Answer,6 respondent alleged:

The right of the respondent to assess petitioner for deficiency income tax, VAT and Documentary Stamp Tax for the year
1995 has not prescribed pursuant to Section 222(a) of the 1997 Tax Code. Petitioner’s 1995 Income Tax Return (ITR) filed
on April 11, 1996 was false and fraudulent for its deliberate failure to declare its true sales. Petitioner declared in its
1995 Income Tax Return that it was on its pre-operation stage and has not declared its income. Investigation by the
revenue officers of the respondent, however, disclosed that it has been operating/doing business and had sales
operations for the year 1995 in the total amount of ₱7,156,336.08 which it failed to report in its 1995 ITR. Thus, for the
year 1995, petitioner filed a fraudulent annual income return with intent to evade tax. Likewise, petitioner failed to file
Value-Added Tax (VAT) Return and reported the amount of P7,156,336.08 as its gross sales for the year 1995.
Hence, for failure to file a VAT return and for filing a fraudulent income tax return for the year 1995, the
corresponding taxes may be assessed at any time within ten (10) years after the discovery of such omission or
fraud pursuant to Section 222(a) of the 1997 Tax Code.

The subject deficiency tax assessments have already become final, executory and demandable for failure of the
petitioner to file a protest within the reglementary period provided for by law. The "alleged protest" allegedly filed on
June 25, 2004 at the Legal Division, Revenue Region No. 8, Makati City is nowhere to be found in the BIR Records nor
reflected in the Record Book of the Legal Division as normally done by our receiving clerk when she receive[s] any
document. The respondent, therefore, has legal basis to collect the tax liability either by distraint and levy or civil
action.7 (Emphasis and underscoring supplied)

The aforecited Section 222(a)8 of the 1997 Tax Code provides:

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. (Underscoring supplied)

The Bureau of Internal Revenue (BIR) in fact filed on March 10, 2005 a criminal complaint before the Department of
Justice against the officers and accountant of petitioner for violation of the provisions of "The National Internal Revenue
Code of 1977, as amended,9 covering the taxable year 1995." The criminal complaint was docketed as I.S. No. 2005-203.

On motion of petitioner in CTA Case No. 7160, a preliminary hearing on the issue of prescription10 was conducted during
which petitioner’s former bookkeeper attested that a former colleague – certified public accountant Leonardo Sablan
(Sablan) – illegally took custody of petitioner’s accounting records, invoices, and official receipts and turned them over
to the BIR.11

On petitioner’s request, a subpoena ad testificandum was issued to Sablan for the hearing before the CTA scheduled on
September 4, 2006 but he failed to appear.12

Petitioner thus requested for the issuance of another subpoena ad testificandum to Sablan for the hearing scheduled on
October 23, 2006,13 and of subpoena duces tecum to the chief of the National Investigation Division of the BIR for the
production of the Affidavit of the Informer bearing on the assessment in question.14 Petitioner’s requests were
granted.15

During the scheduled hearing of the case on October 23, 2006, on respondent’s counsel’s manifestation that he was not
furnished a copy of petitioner’s motion for the issuance of subpoenaes, the CTA ordered petitioner to file a motion for
the issuance of subpoenas and to furnish respondent’s counsel a copy thereof.16 Petitioner complied with the CTA
order.17

In a related move, petitioner submitted written interrogatories addressed to Sablan and to Henry Sarmiento and
Marinella German, revenue officers of the National Investigation Division of the BIR.18

By Resolution19 of January 15, 2007, the CTA denied petitioner’s Motion for Issuance of Subpoenas and disallowed the
submission by petitioner of written interrogatories to Sablan, who is not a party to the case, and the revenue
officers,20 it finding that the testimony, documents, and admissions sought are not relevant.21 Besides, the CTA found
that to require Sablan to testify would violate 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.22

In any event, the CTA held that there was no need to issue a subpoena duces tecum to obtain the Affidavit of the
Informer as the same formed part of the BIR records of the case, the production of which had been ordered by it.23

Petitioner’s Motion for Reconsideration24 of the CTA Resolution of January 15, 2007 was denied,25 hence, the present
Petition for Certiorari26 which imputes grave abuse of discretion to the CTA

I.

x x x in holding that the legality of the mode of acquiring the documents which are the bases of the above discussed
deficiency tax assessments, the subject matter of the Petition for Review now pending in the Honorable Second Division,
is not material and relevant to the issue of prescription.

II.

x x x in holding that Mr. Leonardo Sablan’s testimony, if allowed, would violate RA 2338 which prohibits the BIR to reveal
the identity of the informer since 1) the purpose of the subpoena is to elicit from him the whereabouts of the original
accounting records, documents and receipts owned by the Petitioner and not to discover if he is the informer since the
identity of the informer is not relevant to the issues raised; 2) RA 2338 cannot legally justify violation of the Petitioner’s
property rights by a person, whether he is an informer or not, since such RA cannot allow such invasion of property
rights otherwise RA 2338 would run counter to the constitutional mandate that "no person shall be deprive[d] of life,
liberty or property without due process of law."

III.

x x x in holding that the issuance of subpoena ad testificandum would constitute a violation of the prohibition to reveal
the identity of the informer because compliance with such prohibition has been rendered moot and academic by the
voluntary admissions of the Respondent himself.

IV.

x x x in holding that the constitutional right of an accused to examine the witness against him does not exist in this case.
The Petitioner’s liability for tax deficiency assessment which is the main issue in the Petition for Review is currently
pending at the Honorable Second Division. Therefore, it is a prejudicial question raised in the criminal case filed by the
herein Respondent against the officers of the Petitioner with the Department of Justice.

V.

x x x in dismissing the request for subpoena ad testificandum because the Opposition thereto submitted by the
Respondent was not promptly filed as provided by the Rules of Court thus, it is respectfully submitted that, Respondent
has waived his right to object thereto.

VI.

x x x when the Honorable Court of Tax Appeals ruled that the purpose of the Petitioner in requesting for written
interrogatories is to annoy, embarrass, or oppress the witness because such ruling has no factual basis since Respondent
never alleged nor proved that the witnesses to whom the interrogatories are addressed will be annoyed, embarrassed
or oppressed; besides the only obvious purpose of the Petitioner is to know the whereabouts of accounting records and
documents which are in the possession of the witnesses to whom the interrogatories are directed and to ultimately get
possession thereof. Granting without admitting that there is annoyance, embarrassment or oppression; the same is not
unreasonable.

VII.

x x x when it failed to rule that the BIR officers and employees are not covered by the prohibition under RA 2338 and do
not have the authority to withhold from the taxpayer documents owned by such taxpayer.

VIII.

x x x when it required the "clear and unequivocal proof" of relevance of the documents as a condition precedent for the
issuance of subpoena duces tecum.
 IX.

x x x when it quashed the subpoena duces tecum as the Honorable Court had issued an outstanding order to the
Respondent to certify and forward to the CTA all the records of the case because up to the date of this Petition the BIR
records have not been submitted yet to the CTA.27

Grave abuse of discretion implies such capricious and whimsical exercise of judgment as equivalent to lack of jurisdiction
or, in other words, when the power is exercised in an arbitrary or despotic manner by reason of passion or personal
hostility, and it must be so patent and gross as to amount to an evasion of positive duty or a virtual refusal of duty
enjoined or to act at all in contemplation of law.28

The Court finds that the issuance by the CTA of the questioned resolutions was not tainted by arbitrariness.

The fact that Sablan was not a party to the case aside, the testimonies, documents, and admissions sought by petitioner
are not indeed relevant to the issue before the CTA. For in requesting the issuance of the subpoenas and the submission
of written interrogatories, petitioner sought to establish that its accounting records and related documents, invoices,
and receipts which were the bases of the assessment against it were illegally obtained. The only issues, however, which
surfaced during the preliminary hearing before the CTA, were whether respondent’s issuance of assessment against
petitioner had prescribed and whether petitioner’s tax return was false or fraudulent.

Besides, as the CTA held, the subpoenas and answers to the written interrogatories would violate Section 2 of Republic
Act No. 2338 as implemented by Section 12 of Finance Department Order No. 46-66.

Petitioner claims, however, that it only intended to elicit information on the whereabouts of the documents it needs in
order to refute the assessment, and not to disclose the identity of the informer.29 Petitioner’s position does not
persuade. The interrogatories addressed to Sablan and the revenue officers show that they were intended to confirm
petitioner’s belief that Sablan was the informer. Thus the questions for Sablan read:

1. Under what circumstances do you know petitioner corporation? Please state in what capacity, the date or period you
obtained said knowledge.

2. Do you know a Ms. Elnora Carpio, who from 1995 to the early part of 1996 was the book keeper of petitioner? Please
state how you came to know of Ms. Carpio.

3. At the time that Ms. Carpio was book keeper of petitioner did she consult you or show any accounting documents and
records of petitioner?

4. What documents, if any, did you obtain from petitioner?

5. Were these documents that you obtained from petitioner submitted to the Bureau of Internal Revenue (BIR)? Please
describe said documents and under what circumstances the same were submitted.

6. Was the consent of the petitioner, its officers or employees obtained when the documents that you obtained were
submitted to the BIR? Please state when and from whom the consent was obtained.

7. Did you execute an affidavit as an informer in the assessment which was issued by the BIR against petitioner for the
tax year 1995 and other years?30 (Underscoring supplied)

while the questions for the revenue officers read:

1. Where did you obtain the documents, particularly the invoices and official receipts, which [were] used by your office
as evidence and as basis of the assessment for deficiency income tax and value added tax for the tax year 1995 issued
against petitioner?

2. Do you know Mr. Leonardo Sablan? Please state under what circumstance you came to know Mr.
Sablan?31 (Underscoring supplied)

Petitioner impugns the manner in which the documents in question reached the BIR, Sablan having allegedly submitted
them to the BIR without its (petitioner’s) consent. Petitioner’s lack of consent does not, however, imply that the BIR
obtained them illegally or that the information received is false or malicious. Nor does the lack of consent preclude the
BIR from assessing deficiency taxes on petitioner based on the documents. Thus Section 5 of the Tax Code provides:
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 query;

(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 and –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 representatives 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; and

(E) To cause revenue officers and employees to make a canvass from time to time of any revenue district or region and
inquire after and concerning all persons therein who may be liable to pay any internal revenue tax, and all persons
owning or having the care, management or possession of any object with respect to which a tax is imposed.

x x x x (Emphasis and underscoring supplied)

The law thus allows the BIR access to all relevant or material records and data in the person of the taxpayer,32 and the
BIR can accept documents which cannot be admitted in a judicial proceeding where the Rules of Court are strictly
observed.33 To require the consent of the taxpayer would defeat the intent of the law to help the BIR assess and collect
the correct amount of taxes.

Petitioner’s invocation of the rights of an accused in a criminal prosecution to cross examine the witness against him and
to have compulsory process issued to secure the attendance of witnesses and the production of other evidence in his
behalf does not lie. CTA Case No. 7160 is not a criminal prosecution, and even granting that it is related to I.S. No. 2005-
203, the respondents in the latter proceeding are the officers and accountant of petitioner-corporation, not petitioner.
From the complaint and supporting affidavits in I.S. No. 2005-203, Sablan does not even appear to be a witness against
the respondents therein.34

AT ALL EVENTS, issuance of subpoena duces tecum for the production of the documents requested by the petitioner –
which documents petitioner claims to be crucial to its defense35 – is unnecessary in view of the CTA order for respondent
to certify and forward to it all the records of the case.36 If the order has not been complied with, the CTA can enforce it
by citing respondent for indirect contempt.37

WHEREFORE, in light of the foregoing disquisition, the petition is DISMISSED.

Costs against petitioner.

SO ORDERED.

4. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax
Administration and Enforcement (Sec. 6)

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 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.

Any return, statement of declaration filed in any office authorized to receive the same shall not be withdrawn:
Provided, That within three (3) years from the date of such filing, the same may be modified, changed, or
amended: Provided, further, That no notice for audit or investigation of such return, statement or declaration has
in the meantime been actually served upon the taxpayer.

(B) Failure to Submit Required Returns, Statements, Reports and other Documents. - When a report required by
law as a basis for the assessment of any national internal revenue tax shall not be forthcoming within the time
fixed by laws or rules and regulations or when there is reason to believe that any such report is false, incomplete
or erroneous, the Commissioner shall assess the proper tax on the best evidence obtainable.

In case a person fails to file a required return or other document at the time prescribed by law, or willfully or
otherwise files a false or fraudulent return or other document, the Commissioner shall make or amend the return
from his own knowledge and from such information as he can obtain through testimony or otherwise, which shall
be prima facie correct and sufficient for all legal purposes.

(C) Authority to Conduct Inventory-taking, Surveillance and to Prescribe Presumptive Gross Sales and
Receipts. - The Commissioner may, at any time during the taxable year, order inventory-taking of goods of any
taxpayer as a basis for determining his internal revenue tax liabilities, or may place the business operations of any
person, natural or juridical, under observation or surveillance if there is reason to believe that such person is not
declaring his correct income, sales or receipts for internal revenue tax purposes. The findings may be used as the
basis for assessing the taxes for the other months or quarters of the same or different taxable years and such
assessment shall be deemed prima facie correct.

When it is found that a person has failed to issue receipts and invoices in violation of the requirements of Sections
113 and 237 of this Code, or when there is reason to believe that the books of accounts or other records do not
correctly reflect the declarations made or to be made in a return required to be filed under the provisions of this
Code, the Commissioner, after taking into account the sales, receipts, income or other taxable base of other
persons engaged in similar businesses under similar situations or circumstances or after considering other relevant
information may prescribe a minimum amount of such gross receipts, sales and taxable base, and such amount
so prescribed shall be prima facie correct for purposes of determining the internal revenue tax liabilities of such
person.

(D) Authority to Terminate Taxable Period. - When it shall come to the knowledge of the Commissioner that a
taxpayer is retiring from business subject to tax, or is intending to leave the Philippines or to remove his property
therefrom or to hide or conceal his property, or is performing any act tending to obstruct the proceedings for the
collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless
such proceedings are begun immediately, the Commissioner shall declare the tax period of such taxpayer
terminated at any time and shall send the taxpayer a notice of such decision, together with a request for the
immediate payment of the tax for the period so declared terminated and the tax for the preceding year or quarter,
or such portion thereof as may be unpaid, and said taxes shall be due and payable immediately and shall be subject
to all the penalties hereafter prescribed, unless paid within the time fixed in the demand made by the
Commissioner.

(E) Authority of the Commissioner to Prescribe Real Property Values. - The Commissioner is hereby authorized
to divide the Philippines into different zones or areas and shall, upon consultation with competent appraisers both
from the private and public sectors, determine the fair market value of real properties located in each zone or
area. For purposes of computing any internal revenue tax, the value of the property shall be, whichever is the
higher of:

(1) The fair market value as determined by the Commissioner; or

(2) The fair market value as shown in the schedule of values of the Provincial and City Assessors.

(F) Authority of the Commissioner to Inquire into Bank Deposit Accounts and Other Related information held
by Financial Institutions. [4] - Notwithstanding any contrary provision of Republic Act No. 1405, Republic Act No.
6426, otherwise known as the Foreign Currency Deposit Act of the Philippines, and other general or special laws,
the Commissioner is hereby authorized to inquire into the bank deposits and other related information held by
financial institutions of:

(1) A decedent to determine his gross estate; and

(2) Any taxpayer who has filed an application for compromise of his tax liability under Section 204(A)(2) of this
Code by reason of financial incapacity to pay his tax liability.

In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his financial
position demonstrates a clear inability to pay the tax assessed, his application shall not be considered unless and
until he waives in writing his privilege under Republic Act No. 1405, Republic Act No. 6426, otherwise known as
the Foreign Currency Deposit Act of the Philippines, or under other general or special laws, and such waiver shall
constitute the authority of the Commissioner to inquire into the bank deposits of the taxpayer.

(3) A specific taxpayer or taxpayers subject of a request for the supply of tax information from a foreign tax
authority pursuant to an international convention or agreement on tax matters to which the Philippines is a
signatory or a party of: Provided, That the information obtained from the banks and other financial institutions
may be used by the Bureau of Internal Revenue for tax assessment, verification, audit and enforcement purposes.

In case of a request from a foreign tax authority for tax information held by banks and financial institutions, the
exchange of information shall be done in a secure manner to ensure confidentiality thereof under such rules and
regulations as may be promulgated by the Secretary of Finance, upon recommendation of the Commissioner.

The Commissioner shall provide the tax information obtained from banks and financial institutions pursuant to a
convention or agreement upon request of the foreign tax authority when such requesting foreign tax authority
has provided the following information to demonstrate the foreseeable relevance of the information to the
request:

(a) The identity of the person under examination or investigation;

(b) A statement of the information being sought, including its nature and the form in which the said foreign tax
authority prefers to receive the information from the Commissioner;

(c) The tax purpose for which the information is being sought;

(d) Grounds for believing that the information requested is held in the Philippines or is in the possession or control
of a person within the jurisdiction of the Philippines;

(e) To the extent known, the name and address of any person believed to be in possession of the requested
information;

(f) A statement that the request is in conformity with the law and administrative practices of the said foreign tax
authority, such that if the requested information was within the jurisdiction of the said foreign tax authority then
it would be able to obtain the information under its laws or in the normal course of administrative practice and
that it is in conformity with a convention or international agreement; and

(g) A statement that the requesting foreign tax authority has exhausted all means available in its own territory to
obtain the information, except those that would give rise to disproportionate difficulties.

The Commissioner shall forward the information as promptly as possible to the requesting foreign tax authority.
To ensure a prompt response, the Commissioner shall confirm receipt of a request in writing to the requesting tax
authority and shall notify the latter of deficiencies in the request, if any, within sixty (60) days from receipt of the
request.

If the Commissioner is unable to obtain and provide the information within ninety (90) days from receipt of the
request, due to obstacles encountered in furnishing the information or when the bank or financial institution
refuses to furnish the information, he shall immediately inform the requesting tax authority of the same,
explaining the nature of the obstacles encountered or the reasons for refusal.

The term "foreign tax authority," as used herein, shall refer to the tax authority or tax administration of the
requesting State under the tax treaty or convention to which the Philippines is a signatory or a party of.

(G) Authority to Accredit and Register Tax Agents. - The Commissioner shall accredit and register, based on their
professional competence, integrity and moral fitness, individuals and general professional partnerships and their
representatives who prepare and file tax returns, statements, reports, protests, and other papers with or who
appear before, the Bureau for taxpayers. Within one hundred twenty (120) days from January 1, 1998, the
Commissioner shall create national and regional accreditation boards, the members of which shall serve for three
(3) years, and shall designate from among the senior officials of the Bureau, one (1) chairman and two (2) members
 for each board, subject to such rules and regulations as the Secretary of Finance shall promulgate upon the
recommendation of the Commissioner.

Individuals and general professional partnerships and their representatives who are denied accreditation by the
Commissioner and/or the national and regional accreditation boards may appeal such denial to the Secretary of
Finance, who shall rule on the appeal within sixty (60) days from receipt of such appeal. Failure of the Secretary
of Finance to rule on the Appeal within the prescribed period shall be deemed as approval of the application for
accreditation of the appellant.

(H) Authority of the Commissioner to Prescribe Additional Procedural or Documentary Requirements. - The
Commissioner may prescribe the manner of compliance with any documentary or procedural requirement in
connection with the submission or preparation of financial statements accompanying the tax returns.

CASES:
a. Revenue Memorandum Circular No. 23-2000
b. G.R. No. 148380 December 9, 2005

OCEANIC WIRELESS NETWORK, INC., vs. COMMISSIONER OF INTERNAL REVENUE

This is a Petition for Review on Certiorari seeking to reverse and set aside the Decision of the Court of Appeals dated
October 31, 2000, and its Resolution dated May 3, 2001, in "Oceanic Wireless Network, Inc. v. Commissioner of Internal
Revenue" docketed as CA-G.R. SP No. 35581, upholding the Decision of the Court of Tax Appeals dismissing the Petition
for Review in CTA Case No. 4668 for lack of jurisdiction.

Petitioner Oceanic Wireless Network, Inc. challenges the authority of the Chief of the Accounts Receivable and Billing
Division of the Bureau of Internal Revenue (BIR) National Office to decide and/or act with finality on behalf of the
Commissioner of Internal Revenue (CIR) on protests against disputed tax deficiency assessments.

The facts of the case are as follows:

On March 17, 1988, petitioner received from the Bureau of Internal Revenue (BIR) deficiency tax assessments for the
taxable year 1984 in the total amount of ₱8,644,998.71, broken down as follows:

Kind of Tax Assessment No. Amount

Deficiency Income Tax FAR-4-1984-88-001130 ₱8,381,354.00

Penalties for late payment FAR-4-1984-88-001131 3,000.00

of income and failure to

file quarterly returns

Deficiency Contractor’s FAR-4-1984-88-001132 29,849.06

Tax

Deficiency Fixed Tax FAR-4--88-001133 12,083.65

Deficiency Franchise Tax FAR-4—84-88-001134 ___227,712.00

T o t a l -------- ₱8,644,998.71

Petitioner filed its protest against the tax assessments and requested a reconsideration or cancellation of the same in a
letter to the BIR Commissioner dated April 12, 1988.

Acting in behalf of the BIR Commissioner, then Chief of the BIR Accounts Receivable and Billing Division, Mr. Severino B.
Buot, reiterated the tax assessments while denying petitioner’s request for reinvestigation in a letter 1 dated January 24,
1991, thus:

"Note: Your request for re-investigation has been denied for failure to submit the necessary supporting papers as per
endorsement letter from the office of the Special Operation Service dated 12-12-90."
Said letter likewise requested petitioner to pay the total amount of ₱8,644,998.71 within ten (10) days from receipt
thereof, 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 without further notice.

Upon petitioner’s failure to pay the subject tax assessments within the prescribed period, the Assistant Commissioner
for Collection, acting for the Commissioner of Internal Revenue, issued the corresponding warrants of distraint and/or
levy and garnishment. These were served on petitioner on October 10, 1991 and October 17, 1991, respectively.2

On November 8, 1991, petitioner filed a Petition for Review with the Court of Tax Appeals (CTA) to contest the issuance
of the warrants to enforce the collection of the tax assessments. This was docketed as CTA Case No. 4668.

The CTA dismissed the petition for lack of jurisdiction in a decision dated September 16, 1994, declaring that said
petition was filed beyond the thirty (30)-day period reckoned from the time when the demand letter of January 24, 1991
by the Chief of the BIR Accounts Receivable and Billing Division was presumably received by petitioner, i.e., "within a
reasonable time from said date in the regular course of mail pursuant to Section 2(v) of Rule 131 of the Rules of Court." 3

The decision cited Surigao Electric Co., Inc. v. Court of Tax Appeals4 wherein this Court considered a mere demand letter
sent to the taxpayer after his protest of the assessment notice as the final decision of the Commissioner of Internal
Revenue on the protest. Hence, the filing of the petition on November 8, 1991 was held clearly beyond the reglementary
period.5

The court a quo likewise stated that the finality of the denial of the protest by petitioner against the tax deficiency
assessments was bolstered by the subsequent issuance of the warrants of distraint and/or levy and garnishment to
enforce the collection of the deficiency taxes. The issuance was not barred by prescription because the mere filing of the
letter of protest by petitioner which was given due course by the Bureau of Internal Revenue suspended the running of
the prescription period as expressly provided under the then Section 224 of the Tax Code:

SEC. 224. Suspension of Running of the Statute of Limitations. – The running of the Statute of Limitations provided in
Section 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 (60) 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 files upon which a tax is being assessed or
collected: Provided, That if the taxpayer inform the Commissioner of any change of 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 located; and
when the taxpayer is out of the Philippines. 6 (Underscoring supplied.)

Petitioner filed a Motion for Reconsideration arguing that the demand letter of January 24, 1991 cannot be considered
as the final decision of the Commissioner of Internal Revenue on its protest because the same was signed by a mere
subordinate and not by the Commissioner himself.7

With the denial of its motion for reconsideration, petitioner consequently filed a Petition for Review with the Court of
Appeals contending that there was no final decision to speak of because the Commissioner had yet to make a personal
determination as regards the merits of petitioner’s case.8

The Court of Appeals denied the petition in a decision dated October 31, 2000, the dispositive portion of which reads:

"WHEREFORE, the petition is DISMISSED for lack of merit.

SO ORDERED."

Petitioner’s Motion for Reconsideration was likewise denied in a resolution dated May 3, 2001.

Hence, this petition with the following assignment of errors:9

THE HONORABLE RESPONDENT CA ERRED IN FINDING THAT THE DEMAND LETTER ISSUED BY THE (THEN) ACCOUNTS
RECEIVABLE/BILLING DIVISION OF THE BIR NATIONAL OFFICE WAS THE FINAL DECISION OF THE RESPONDENT CIR ON
THE DISPUTED ASSESSMENTS, AND HENCE CONSTITUTED THE DECISION APPEALABLE TO THE HONORABLE RESPONDENT
CTA; AND,
 II

THE HONORABLE RESPONDENT CA ERRED IN DECLARING THAT THE DENIAL OF THE PROTEST OF THE SUBJECT ALLEGED
DEFICIENCY TAX ASSESSMENTS HAD LONG BECOME FINAL AND EXECUTORY FOR FAILURE OF THE PETITIONER TO
INSTITUTE THE APPEAL FROM THE DEMAND LETTER OF THE CHIEF OF THE ACCOUNTS RECEIVABLE/BILLING DIVISION,
BIR NATIONAL OFFICE, TO THE HONORABLE RESPONDENT CTA, WITHIN THIRTY (30) DAYS FROM RECEIPT THEREOF.

Thus, the main issue is whether or not a demand letter for tax deficiency assessments issued and signed by a
subordinate officer who was acting in behalf of the Commissioner of Internal Revenue, is deemed final and executory
and subject to an appeal to the Court of Tax Appeals.

We rule in the affirmative.

A demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment.
The determination on whether or not a demand letter is final is conditioned upon the language used or the tenor of the
letter being sent to the taxpayer.

We laid down the rule that the Commissioner of Internal Revenue should always indicate to the taxpayer in clear and
unequivocal language what constitutes his final determination of the disputed assessment, thus:

. . . we deem it appropriate to state that the Commissioner of Internal Revenue should always indicate to the taxpayer in
clear and unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final
determination on the disputed assessment, as contemplated by Sections 7 and 11 of Republic Act No. 1125, as
amended. On the basis of his statement indubitably showing that the Commissioner’s communicated action is his final
decision on the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax court at
the opportune time. Without needless difficulty, the taxpayer would be able to determine when his right to appeal to
the tax court accrues.

The rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to continually delay the
finality of the assessment – and, consequently, the collection of the amount demanded as taxes – by repeated requests
for recomputation and reconsideration. On the part of the Commissioner, this would encourage his office to conduct a
careful and thorough study of every questioned assessment and render a correct and definite decision thereon in the
first instance. This would also deter the Commissioner from unfairly making the taxpayer grope in the dark and
speculate as to which action constitutes the decision appealable to the tax court. Of greater import, this rule of conduct
would meet a pressing need for fair play, regularity, and orderliness in administrative action.10

In this case, the letter of demand dated January 24, 1991, unquestionably constitutes the final action taken by the
Bureau of Internal Revenue on petitioner’s request for reconsideration when it reiterated the tax deficiency assessments
due from petitioner, and requested its payment. Failure to do so would result in the "issuance of a warrant of distraint
and levy to enforce its collection without further notice."11 In addition, the letter contained a notation indicating that
petitioner’s request for reconsideration had been denied for lack of supporting documents.

The above conclusion finds support in Commissioner of Internal Revenue v. Ayala Securities Corporation,12 where we
held:

The letter of February 18, 1963 (Exh. G), in the view of the Court, is tantamount to a denial of the reconsideration or
[respondent corporation’s]…protest o[f] the assessment made by the petitioner, considering that the said letter [was] in
itself a reiteration of the demand by the Bureau of Internal Revenue for the settlement of the assessment already made,
and for the immediate payment of the sum of P758,687.04 in spite of the vehement protest of the respondent
corporation on April 21, 1961. This certainly is a clear indication of the firm stand of petitioner against the
reconsideration of the disputed assessment…This being so, the said letter amount[ed] to a decision on a disputed or
protested assessment, and, there, the court a quo did not err in taking cognizance of this case.

Similarly, in Surigao Electric Co., Inc v. Court of Tax Appeals,13 and in CIR v. Union Shipping Corporation,14 we held:

". . . In this letter, the commissioner not only in effect demanded that the petitioner pay the amount of ₱11,533.53 but
also gave warning that in the event it failed to pay, the said commissioner would be constrained to enforce the
collection thereof by means of the remedies provided by law. The tenor of the letter, specifically the statement
regarding the resort to legal remedies, unmistakably indicate[d] the final nature of the determination made by the
commissioner of the petitioner’s deficiency franchise tax liability."

The demand letter received by petitioner verily signified a character of finality. Therefore, it was tantamount to a
rejection of the request for reconsideration. As correctly held by the Court of Tax Appeals, "while the denial of the
protest was in the form of a demand letter, the notation in the said letter making reference to the protest filed by
petitioner clearly shows the intention of the respondent to make it as [his] final decision."15

This now brings us to the crux of the matter as to whether said demand letter indeed attained finality despite the fact
that it was issued and signed by the Chief of the Accounts Receivable and Billing Division instead of the BIR
Commissioner.

The general rule is that the Commissioner of Internal Revenue may delegate any power vested upon him by law to
Division Chiefs or to officials of higher rank. He cannot, however, delegate the four powers granted to him under the
National Internal Revenue Code (NIRC) enumerated in Section 7.

As amended by 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; and

(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)

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.16

A request for reconsideration must be made within thirty (30) days from the taxpayer’s receipt of the tax deficiency
assessment, otherwise, the decision becomes final, unappealable and therefore, demandable. A tax assessment that has
become final, executory and enforceable for failure of the taxpayer to assail the same as provided in Section 228 can no
longer be contested, thus:

"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…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 (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."

Here, petitioner failed to avail of its right to bring the matter before the Court of Tax Appeals within the reglementary
period upon the receipt of the demand letter reiterating the assessed delinquent taxes and denying its request for
reconsideration which constituted the final determination by the Bureau of Internal Revenue on petitioner’s protest.
Being a final disposition by said agency, the same would have been a proper subject for appeal to the Court of Tax
Appeals.

The rule is that for the Court of Tax Appeals to acquire jurisdiction, an assessment must first be disputed by the taxpayer
and ruled upon by the Commissioner of Internal Revenue to warrant a decision from which a petition for review may be
taken to the Court of Tax Appeals. Where an adverse ruling has been rendered by the Commissioner of Internal Revenue
with reference to a disputed assessment or a claim for refund or credit, the taxpayer may appeal the same within thirty
(30) days after receipt thereof.17

We agree with the factual findings of the Court of Tax Appeals that the demand letter may be presumed to have been
duly directed, mailed and was received by petitioner in the regular course of the mail in the absence of evidence to the
contrary. This is in accordance with Section 2(v), Rule 131 of the Rules of Court, and in this case, since the period to
appeal has commenced to run from the time the letter of demand was presumably received by petitioner within a
reasonable time after January 24, 1991, the period of thirty (30) days to appeal the adverse decision on the request for
reconsideration had already lapsed when the petition was filed with the Court of Tax Appeals only on November 8, 1991.
Hence, the Court of Tax Appeals properly dismissed the petition as the tax delinquency assessment had long become
final and executory.

WHEREFORE, premises considered, the Decision of the Court of Appeals dated October 31, 2000 and its Resolution
dated May 3, 2001 in CA-G.R. SP No. 35581 are hereby AFFIRMED. The petition is accordingly DENIED for lack of merit.

SO ORDERED.

c. G.R. No. 178087 May 5, 2010

COMMISSIONER OF INTERNAL REVENUE vs. KUDOS METAL CORPORATION

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.1avvphi1

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.

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.

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.

d. G.R. No. 170389 October 20, 2010

COMMISSION OF INTERNAL REVENUE vs. AQUAFRESH SEAFOODS, INC.

Before this Court is a petition for review on certiorari,1 under Rule 45 of the Rules of Court, seeking to set aside the
November 9, 2005 Decision2 of the Court of Tax Appeals (CTA) En Banc in CTA-E.B. No. 77. The CTA En Banc affirmed the
December 22, 2004 Decision of the CTA First Division.

The facts of the case are as follows:

On June 7, 1999, respondent Aquafresh Seafoods Inc. sold to Philips Seafoods, Inc. two parcels of land, including
improvements thereon, located at Barrio Banica, Roxas City, for the consideration of Three Million One Hundred
Thousand Pesos (Php 3,100, 000.00). Said properties were covered under Transfer Certificate of Titles Nos. T-21799 and
T-21804.

Respondent then filed a Capital Gains Tax Return/Application for Certification Authorizing Registration and paid the
amount of Php186,000.00, representing the Capital Gains Tax (CGT) and the amount of Php46,500.00, representing the
Documentary Stamp Tax (DST) due from the said sale. Subsequently, Revenue District Officer Gil G. Tabanda issued
Certificate Authorizing Registration No. 1071477.

The Bureau of Internal Revenue (BIR), however, received a report that the lots sold were undervalued for taxation
purposes. This prompted the Special Investigation Division (SID) of the BIR to conduct an occular inspection over the
properties. After the investigation, the SID concluded that the subject properties were commercial with a zonal value of
Php2,000.00 per square meter.

On September 15, 2000, Regional Director Leonardo Q. Sacamos (Director Sacamos) of the Revenue Region Iloilo City
sent two Assessment Notices apprising respondent of CGT and DST defencies in the sum of Php1,372,171.46 and
Php356,267.62, respectively. Director Sacamos relied on the findings of the SID that the subject properties were
commercial with a zonal valuation of Php2,000.00 per square meter.

On October 1, 2000, respondent sent a letter protesting the assessments made by Director Sacamos. On December 1,
2000, Director Sacamos denied respondent's protest for lack of legal basis. Respondent appealed, but the same was
denied with finality on February 13, 2002.

On March 19, 2002, respondent filed a petition for review3 before the CTA seeking the reversal of the denial of its
protest. The main thrust of respondent's petition was that the subject properties were located in Barrio Banica, Roxas,
where the pre-defined zonal value was Php650.00 per square meter based on the "Revised Zonal Values of Real
Properties in the City of Roxas under Revenue District Office No. 72 – Roxas City" (1995 Revised Zonal Values of Real
Properties). Respondent asserted that the subject properties were classified as "RR" or residential and not commercial.
Respondent argued that since there was already a pre-defined zonal value for properties located in Barrio Banica, the
BIR officials had no business re-classifying the subject properties to commercial.

On December 22, 2004, the CTA promulgated a Decision4 ruling in favor of respondent, the dispositive portion of which
reads:

IN VIEW OF THE FOREGOING, respondent's assessments for deficiency capital against tax and documentary stamp taxes
are hereby CANCELLED and SET ASIDE. x x x

SO ORDERED.5

Ruling in favor of respondent, the CTA opined that that the existing Revised Zonal Values in the City of Roxas should
prevail for purposes of determining respondent's tax liabilities, thus:

While respondent is given the authority to determine the fair market value of the subject properties for the purpose of
computing internal revenue taxes, such authority is not without restriction or limitation. The first sentence of Section
6(E) sets the limitation or condition in the exercise of such power by requiring respondent to consult with competent
appraisers both from private and public sectors. As there was no re-evaluation and no revision of the zonal values of
the subject properties in Roxas City at the time of the sale, respondent cannot unilaterally determine the zonal values of
the subject properties by invoking his powers of obtaining information and making assessments under Sections 5 and 6
of the NIRC. The existing Revised Zonal Values of Real Properties in the City of Roxas shall prevail for the purpose of
determining the proper tax liabilities of petitioner.6

Petitioner Commissioner of Internal Revenue filed a Motion for Reconsideration, which was, however, denied by the
CTA in a Resolution7 dated April 4, 2005.

Petitioner then appealed to the CTA En Banc.

In a Decision dated November 9, 2005, the CTA En Banc dismissed petitioner's appeal, the dispositive portion of which
reads:

WHEREFORE, premises considered, the Petition for Review is DISMISSED for lack of merit.

SO ORDERED.8

The CTA En Banc ruled that the 1995 Revised Zonal Values of Real Properties should prevail. Said court relied on Section
6 (E) of the National Internal Revenue Code (NIRC) which requires consultation from appraisers, from both the public
and private sectors, in fixing the zonal valuation of properties. The CTA En Banc held that petitioner failed to prove any
amendment effected on the 1995 Revised Zonal Values of Real Properties at the time of the sale of the subject
properties.

Hence, herein petition, with petitioner raising the following issues for this Court's resolution, to wit:

I.

WHETHER OR NOT THE REQUIREMENT OF CONSULTATION WITH COMPETENT APPRAISERS BOTH FROM THE PRIVATE
AND PUBLIC SECTORS IN DETERMINING THE FAIR MARKET VALUE OF THE SUBJECT LOTS IS APPLICABLE IN THE CASE AT
BAR.

II.

WHETHER OR NOT THE COURT OF TAX APPEALS EN BANC COMMITTED GRAVE ERROR IN APPLYING THE FAIR MARKET
VALUE BASED ON THE ZONAL VALUATION OF A RESIDENTIAL LAND AS TAX BASE IN THE COMPUTATION OF CAPITAL
GAINS TAX AND DOCUMENTARY STAMP TAX DEFICIENCIES OF RESPONDENT.9

The petition is not meritorious. The issues being interrelated, this Court shall discuss the same in seriatim.

Under Section 27(D)(5) of the NIRC of 1997, a CGT of six (6%) percent is imposed on the gains presumed to have been
realized in the sale, exchange or disposition of lands and/or buildings which are not actively used in the business of a
corporation and which are treated as capital assets based on the gross selling price or fair market value as determined in
accordance with Section 6(E) of the NIRC, whichever is higher.

On the other hand, under Section 196 of the NIRC, DST is based on the consideration contracted to be paid or on its fair
market value determined in accordance with Section 6(E) of the NIRC, whichever is higher.

Thus, in determining the value of CGT and DST arising from the sale of a property, the power of the CIR to assess is
subject to Section 6(E) of the NIRC, which provides:

Section 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax
Administration and Enforcement. -

xxxx

(E) Authority of the Commissioner to Prescribe Real Property Values – The Commissioner is hereby authorized to divide
the Philippines into different zones or area and shall, upon consultation with competent appraisers both from the
private and public sectors, determine the fair market value of real properties located in each zone or area. For purposes
of computing internal revenue tax, the value of the property shall be, whichever is higher of:

(1) the fair market value as determined by the Commissioner; or

 (2) the fair market value as shown in the schedule of values of the Provincial and City Assessors.

While the CIR has the authority to prescribe real property values and divide the Philippines into zones, the law is clear
that the same has to be done upon consultation with competent appraisers both from the public and private sectors. It
is undisputed that at the time of the sale of the subject properties found in Barrio Banica, Roxas City, the same were
classified as "RR," or residential, based on the 1995 Revised Zonal Value of Real Properties. Petitioner, thus, cannot
unilaterally change the zonal valuation of such properties to "commercial" without first conducting a re-evaluation of
the zonal values as mandated under Section 6(E) of the NIRC.

Petitioner argues, however, that the requirement of consultation with competent appraisers is mandatory only when it
is prescribing real property values – that is when a formulation or change is made in the schedule of zonal values.
Petitioner also contends that what it did in the instant case was not to prescribe the zonal value, but merely classify the
same as commercial and apply the corresponding zonal value for such classification based on the existing schedule of
zonal values in Roxas City.10

We disagree.

To this Court's mind, petitioner's act of re-classifying the subject properties from residential to commercial cannot be
done without first complying with the procedures prescribed by law. It bears to stress that ALL the properties
in Barrio Banica were classified as residential, under the 1995 Revised Zonal Values of Real Properties. Thus, petitioner's
act of classifying the subject properties involves a re-classification and revision of the prescribed zonal values.

In addition, Revenue Memorandum No. 58-69 provides for the procedures on the establishment of the zonal values of
real properties, viz.:

(1) The submission or review by the Revenue District Offices Sub-Technical Committee of the schedule of
recommended zonal values to the TCRPV;

(2) The evaluation by TCRPV of the submitted schedule of recommended zonal values of real properties;

(3) Except in cases of correction or adjustment, the TCRPV finalizes the schedule and submits the same to the
Executive Committee on Real Property Valuation (ECRPV);

(3) Upon approval of the schedule of zonal values by the ECRPV, the same is embodied in a Department Order
for implementation and signed by the Secretary of Finance. Thereafter, the schedule takes effect (15) days after
its publication in the Official Gazette or in any newspaper of general circulation.

Petitioner failed to prove that it had complied with Revenue Memorandum No. 58-69 and that a revision of the 1995
Revised Zonal Values of Real Properties was made prior to the sale of the subject properties. Thus, notwithstanding
petitioner's disagreement to the classification of the subject properties, the same must be followed for purposes of
computing the CGT and DST. It bears stressing, and as observed by the CTA En Banc, that the 1995 Revised Zonal Values
of Real Properties was drafted by petitioner, BIR personnel, representatives from the Department of Finance, National
Tax Research Center, Institute of Philippine Real Estate Appraisers and Philippine Association of Realtors Board, which
duly satisfied the requirement of consultation with public and private appraisers.11

Petitioner contends, nevertheless, that its act of classifying the subject properties based on actual use was in accordance
with guidelines number 1-b and 2 as set forth in "Certain Guidelines in the Implementation of Zonal Valuation of Real
Properties for RDO 72 Roxas City" (Zonal Valuation Guidelines).12

Section 1 (b) of the Zonal Valuation Guidelines reads:

1. No zonal value has been prescribed for a particular classification of real property.

Where in the approved schedule of zonal values for a particular barangay -

xxxx

b) No zonal value has been prescribed for a particular classification of real property in one barangay, the zonal value
prescribed for the same classification of real property located in an adjacent barangay of similar conditions shall be
used.
Section 1 (b) does not apply to the case at bar for the simple reason that said proviso operates only when "no zonal
valuation has been prescribed." The properties located in Barrio Banica, Roxas City were already subject to a zonal
valuation, a fact which even petitioner has admitted in its petition, thus:

It must be noted that under the schedule of zonal values, Barangay Banica, where the subject lots are situated, has a
single classification only – that of a residential area. Accordingly, it has a prescribed zonal value of Php650.00 per square
meter.13

Petitioner, however, also relies on Section 2 (a) of the Zonal Valuation Guidelines, to justify its action. Said section states:

2. Predominant Use of Property.

a) All real properties, regardless of actual use, located in a street/barangay zone, the use of which are predominantly
commercial shall be classified as "Commercial" for purposes of zonal valuation.

In BIR Ruling No. 041-2001, issued on September 18, 2001, the BIR tackled the application of a provision which is
identical to Section 2 (a) of the Zonal Valuation Guidelines. BIR Ruling No. 041-2001 involved a request by the Iglesia Ni
Cristo that the re-computation of CGT and DST based on the predominant use of the real properties located at
Mindanao Avenue, Quezon City, be set aside. In said case, the Iglesia ni Cristo paid the CGT and DST based on the zonal
value of residential lots in Quezon City. The Revenue District Officer, however, ordered a re-computation of the CGT and
DST based on the ground that the real property is located in a predominantly commercial area and must be classified as
commercial for purposes of zonal valuation. The BIR ruled in favor of Iglesia ni Cristo stating that "Certain Guidelines in
the Implementation of Zonal Valuation of Real Properties for RDO No. 38, applying the predominant use of property as
the basis for the computation of the Capital Gains and Documentary Stamp Taxes, shall apply only when the real
property is located in an area or zone where the properties are not yet classified and their respective zonal valuation
are not yet determined." The pertinent portion of BIR Ruling No. 041-2001 reads:

In reply, please be informed that this Office finds your request meritorious. The number 2 guideline laid down in Certain
Guidelines in the implementation of Zonal valuation of Real Properties for RDO No. 38- North Quezon City xxx does not
apply to this case.

Number 2 of the CERTAIN GUIDELINES IN THE IMPLEMENTATION OF ZONAL VALUATION OF REAL PROPERTIES FOR RD
NO. 38 – NORTH QUEZON CITY" provides:

"2. PREDOMINANT USE OF PROPERTY:

ALL REAL PROPERTIES REGARDLESS OF ACTUAL USE, LOCATED IN A STREET/BARANGAY ZONE, THE USE OF WHICH ARE
PREDOMINANTLY COMMERCIAL SHALL BE CLASSIFIED AS 'COMMERICIAL'FOR PURPOSES OF ZONAL VALUATION."

It is the considered opinion of this Office that the guideline applies when the real property is located in an area or
zone where the properties are not yet classified and their respective zonal valuation are not yet determined.

In the instant case, however, the classification and valuation of the properties located in Mindanao Avenue, Bagong
Bantay, have already been determined. Under Department of Finance Order No. 6-2000, the properties along
Mindanao Avenue had already been classified as residential and commercial. The zonal valuation thereof had already
been determined. x x x Therefore, the Revenue District Officer of RDO No. 38 has no discretion to determine the
classification or valuation of the properties located in the pertinent area. The computation of the capital gains and
documentary stamp taxes shall be based on the zonal of residential properties located at Mindanao Avenue, Bago
Bantay, Quezon City.141avvphil

Based on the foregoing, this Court need not belabour on the applicability of Section 2 (a), as the BIR itself has already
ruled that the same shall apply only when the real property is located in an area or zone where the properties are not
yet classified and their respective zonal valuation are not yet determined. As mentioned earlier, the subject properties
were already part of the 1995 Revised Zonal Value of Real Properties which classified the same as residential with a
zonal value of Php650.00 per square meter; thus, Section 2 (a) clearly has no application.

This Court agrees with the observation of the CTA that "zonal valuation was established with the objective of having an
‘efficient tax administration by minimizing the use of discretion in the determination of the tax based on the part of the
administrator on one hand and the taxpayer on the other hand.’"15 Zonal value is determined for the purpose of
establishing a more realistic basis for real property valuation. Since internal revenue taxes, such as CGT and DST, are
assessed on the basis of valuation, the zonal valuation existing at the time of the sale should be taken into account.16
If petitioner feels that the properties in Barrio Banica should also be classified as commercial, then petitioner should
work for its revision in accordance with Revenue Memorandum Order No. 58-69. The burden was on petitioner to prove
that the classification and zonal valuation in Barrio Banica have been revised in accordance with the prevailing
memorandum. In the absence of proof to the contrary, the 1995 Revised Zonal Values of Real Properties must be
followed.

Lastly, this Court takes note of the wording of Section 2 (b) of the Zonal Valuation Guidelines, to wit:

2. Predominant Use of Property.

b) The predominant use of other classification of properties located in a street/barangay zone, regardless of actual
use shall be considered for purposes of zonal valuation.

Based thereon, this Court rules that even assuming arguendo that the subject properties were used for commercial
purposes, the same remains to be residential for zonal value purposes. It appears that actual use is not considered for
zonal valuation, but the predominant use of other classification of properties located in the zone. Again, it is undisputed
that the entire Barrio Banica has been classified as residential.

WHEREFORE, premises considered, the petition is denied. The November 9, 2005 Decision of the Court of Tax
Appeals En Banc, in CTA-E.B. No. 77, is hereby AFFIRMED.

SO ORDERED.

5. Authority of the Commissioner to Delegate Power (Sec. 7)

SEC. 7.Authority of the Commissioner to Delegate Power. - The Commissioner may delegate the powers vested
in him under the pertinent provisions of this Code to any or such subordinate officials with the rank equivalent to
a division chief or higher, subject to such limitations and restrictions as may be imposed under rules and
regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner: Provided,
however, That the following powers of the Commissioner shall not be delegated:

(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 Sec. 204 (A) and (B) of this Code, any tax liability: 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 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, the heads of the Legal, Assessment and Collection Divisions
and the Revenue District Officer having jurisdiction over the taxpayer, as members; and

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

6. Duty of the Commissioner to Ensure the Provision and Distribution of Forms, receipts, Certificates, and
Appliances, and the Acknowledgment of Payment of Taxes (Sec. 8)

Section 8. Duty of the Commissioner to Ensure the Provision and Distribution of Forms, Receipts, Certificates, and
Appliances, and the Acknowledgment of Payment of Taxes. -

(A) Provision and Distribution to Proper-Officials. - Any law to the contrary notwithstanding, it shall be the duty of the
Commissioner, among other things, to prescribe, provide, and distribute to the proper officials the requisite licenses;
internal revenue stamps; unique, secure and non-removable identification markings (hereafter called unique
identification markings), such as codes or stamps, be affixed to or form part of all unit packets and packages and any
outside packaging of cigarettes and bottles of distilled spirits; labels and other forms; certificates; bonds; records; invoices;
books; receipts; instruments; appliances and apparatus used in administering the laws falling within the jurisdiction of the
Bureau. For this purpose, internal revenue stamps, or other markings and labels shall be caused by the Commissioner to
be printed with adequate security features.
Internal revenue stamps, whether of a bar code or fuson design, or other markings shall be firmly and conspicuously
affixed or printed on each pack of cigars and cigarettes and bottles of distilled spirits subject to excise tax in the manner
and form as prescribed by the Commissioner, upon approval of the Secretary of Finance.

To further improve tax administration, cigarette and alcohol manufacturers shall be required to install automated volume-
counters of packs and bottles to deter over-removals and misdeclaration of removals.

(B) Receipts for Payment Mode. - It shall be the duty of the Commissioner or his duly authorized representative or an
authorized agent bank to whom any payment of any tax is made under the provisions of this Code to acknowledge the
payment of such tax, expressing the amount paid and the particular account for which such payment was made in a form
and manner prescribed therefor by the Commissioner.