[G.R. No. 128315. June 29, 1999.

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. PASCOR REALTY AND

DEVELOPMENT CORPORATION, ROGELIO A. DIO and VIRGINIA S.
DIO, Respondents.

An assessment contains not only a computation of tax liabilities, but also a demand for
payment within a prescribed period. It also signals the time when penalties and interests
begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies
thereon, due process requires that it must be served on and received by the taxpayer.
Accordingly, an affidavit, which was executed by revenue officers stating the tax liabilities of
a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an
assessment that can be questioned before the Court of Tax Appeals.

Statement of the Case

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
praying for the nullification of the October 30, 1996 Decision 1 of the Court of Appeals 2 in
CA-GR SP No. 40853, which effectively affirmed the January 25, 1996 Resolution 3 of the
Court of Tax Appeals 4 in CTA Case No. 5271. The CTA disposed as follows:j

"WHEREFORE, finding [the herein petitioner’s] ‘Motion to dismiss’ as UNMERITORIOUS, the

same is hereby DENIED. [The CIR] is hereby given a period of thirty (30) days from receipt
hereof to file her answer."
Petitioner also seeks to nullify the February 13, 1997 Resolution 5 of the Court of Appeals
denying reconsideration.
The Facts

As found by the Court of Appeals, the undisputed facts of the case are as follows:
"It appears that by virtue of Letter of Authority No. 001198, then BIR Commissioner Jose U.
Ong authorized Revenue Officers Thomas T. Que, Sonia T. Estorco and Emmanuel M.
Savellano to examine the books of accounts and other accounting records of Pascor Realty
and Development Corporation, (PRDC) for the years ending 1986, 1987 and 1988. The said
examination resulted in a recommendation for the issuance of an assessment in the amounts
of P7,498,434.65 and P3,015,236.35 for the years 1986 and 1987, respectively.
"On March 1, 1995, the Commissioner of Internal Revenue filed a criminal complaint before
the Department of Justice against the PRDC, its President Rogelio A. Dio, and its Treasurer
Virginia S. Dio, alleging evasion of taxes in the total amount of P10,513,671.00. Private
respondents PRDC, Et. Al. filed an Urgent Request for Reconsideration/Reinvestigation
disputing the tax assessment and tax liability.

"On March 23, 1995, private respondents received a subpoena from the DOJ in connection
with the criminal complaint filed by the Commissioner of Internal Revenue (BIR) against
them.

"In a letter dated May 17, 1995, the CIR denied the urgent request for
reconsideration/reinvestigation of the private respondents on the ground that no formal
assessment has as yet been issued by the Commissioner.

"Private respondents then elevated the Decision of the CIR dated May 17, 1995 to the Court
of Tax Appeals on a petition for review docketed as CTA Case No. 5271 on July 21,1995. On
September 6, 1995, the CIR filed a Motion to Dismiss the petition on the ground that the CTA
has no jurisdiction over the subject matter of the petition, as there was no formal assessment
issued against the petitioners. The CTA denied the said motion to dismiss in a Resolution
dated January 25, 1996 and ordered the CIR to file an answer within thirty (30) days from
receipt of said resolution. The CIR received the resolution on January 31, 1996 but did not
file an answer nor did she move to reconsider the resolution.

"Instead, the CIR filed this petition on June 7, 1996, alleging as grounds that:

‘Respondent Court of Tax Appeals acted with grave abuse of discretion and without
jurisdiction in considering the affidavit/report of the revenue officer and the indorsement of
said report to the secretary of justice as assessment which may be appealed to the Court of
Tax Appeals;

Respondent Court of Tax Appeals acted with grave abuse of discretion in considering the
denial by petitioner of private respondents’ Motion for Reconsideration as [a] final decision
which may be appealed to the Court of Tax Appeals.’

"In denying the motion to dismiss filed by the CIR, the Court of Tax Appeals stated:
‘We agree with petitioners’ contentions, that the criminal complaint for tax evasion is the
assessment issued, and that the letter denial of May 17, 1995 is the decision properly
appealable to [u]s. Respondent’s ground of denial, therefore, that there was no formal
assessment issued, is untenable.

‘It is the Court’s honest belief, that the criminal case for tax evasion is already an
assessment. The complaint, more particularly, the Joint Affidavit of Revenue Examiners
Lagmay and Savellano attached thereto, contains the details of the assessment like the kind
and amount of tax due, and the period covered.

‘Petitioners are right, in claiming that the provisions of Republic Act No. 1125, relating to
exclusive appellate jurisdiction of this Court, do not, make any mention of ‘formal
assessment.’ The law merely states, that this Court has exclusive appellate jurisdiction over
decisions of the Commissioner of Internal Revenue on disputed assessments, and other
matters arising under the National Internal Revenue Code, other law or part administered by
the Bureau of Internal Revenue Code.

‘As far as this Court is concerned, the amount and kind of tax due, and the period covered,
are sufficient details needed for an ‘assessment’ these details are more than complete,
compared to the following definitions of the term as quoted hereunder. Thus:

‘Assessment is laying a tax. Johnson City v. Clinchfield R. Co., 43 S.W. (2d) 386, 387, 163
Tenn. 332. (Words and Phrases, Permanent Edition, Vo. 4, p. 446)

‘The word assessment when used in connection with taxation, may have more than one
meaning. The ultimate purpose of an assessment to such a connection is to ascertain the
amount that each taxpayer is to pay. More commonly, the word ‘assessment’ means the
official valuation of a taxpayer’s property for purpose of taxation. State v. New York, N.H. and
H.R. Co. 22 A. 765, 768, 60 Conn. 326, 325. (Ibid. p. 445)’

‘From the above, it can be gleaned that an assessment simply states how much tax is due
from a taxpayer. Thus, based on these definitions, the details of the tax as given in the Joint
Affidavit of respondent’s examiners, which was attached to the tax evasion complaint, more
than suffice to qualify as an assessment. Therefore, this assessment having been disputed by
petitioners, and there being a denial of their letter disputing such assessment, this Court
unquestionably acquired jurisdiction over the instant petition for review.’" 6
As earlier observed, the Court of Appeals sustained the CTA and dismissed the petition.

Hence, this recourse to this Court. 7

Ruling of the Court of Appeals

The Court of Appeals held that the tax court committed no grave abuse of discretion in ruling
that the Criminal Complaint for tax evasion filed by the Commissioner of Internal Revenue
with the Department of Justice constituted an "assessment" of the tax due, and that the said
assessment could be the subject of a protest. By definition, an assessment is simply the
statement of the details and the amount of tax due from a taxpayer. Based on this definition,
the details of the tax contained in the BIR examiners’ Joint Affidavit, 8 which was attached to
the criminal Complaint, constituted an assessment. Since the assailed Order of the CTA was
merely interlocutory and devoid of grave abuse of discretion, a petition for certiorari did not
lie.
Issues
Petitioners submit for the consideration of this Court the following
issues:jgc:chanrobles.com.ph

"(1) Whether or not the criminal complaint for tax evasion can be construed as an
assessment.

(2) Whether or not an assessment is necessary before criminal charges for tax evasion may
be instituted.

(3) Whether or not the CTA can take cognizance of the case in the absence of an
assessment." 9

In the main, the Court will revolve whether the revenue officers’ Affidavit-Report, which was
attached to the criminal Complaint filed with the Department of Justice, constituted an
assessment that could be questioned before the Court of Tax Appeals.

The Court’s Ruling

The petition is meritorious.
Main Issue: Assessment

Petitioner argues that the filing of the criminal complaint with the Department of Justice
cannot in any way be construed as a formal assessment of private respondents’ tax liabilities.
This position is based on Section 205 of the National Internal Revenue Code 10 (NIRC), which
provides that remedies for the collection of the deficient taxes may be by either civil or
criminal action. Likewise, petitioner cites Section 223 (a) of the same Code, which states that
in case of failure to file a return, the tax may be assessed or a proceeding in court may be
begun without assessment.

Respondents, on the other hand, maintain that an assessment is not an action or proceeding
for the collection of taxes, but merely a notice that the amount stated therein is due as tax
and that the taxpayer is required to pay the same. Thus, qualifying as an assessment was the
BIR examiners’ Joint Affidavit, which contained the details of the supposed taxes due from
respondent for taxable years ending 1987 and 1988, and which was attached to the tax
evasion Complaint filed with the DOJ. Consequently, the denial by the BIR of private
respondents’ request for reinvestigation of the disputed assessment is properly appealable to
the CTA.

We agree with petitioner. Neither the NIRC nor the revenue regulations governing the protest
of assessments 11 provide a specific definition or form of an assessment. However, the NIRC
defines the specific functions and effects of an assessment. To consider the affidavit attached
to the Complaint as a proper assessment is to subvert the nature of an assessment and to set
a bad precedent that will prejudice innocent taxpayers.

True, as pointed out by the private respondents, an assessment informs the taxpayer that he
or she has tax liabilities. But not all documents coming from the BIR containing a
computation of the tax liability can be deemed assessments.

To start with, an assessment must be sent to and received by a taxpayer, and must demand
payment of the taxes described therein within a specific period. Thus, the NIRC imposes a 25
percent penalty, in addition to the tax due, in case the taxpayer fails to pay the deficiency tax
within the time prescribed for its payment in the notice of assessment. Likewise, an interest
of 20 percent per annum, or such higher rate as may be prescribed by rules and regulations,
is to be collected from the date prescribed for its payment until the full payment. 12
The issuance of an assessment is vital in determining the period of limitation regarding its
proper issuance and the period within which to protest it. Section 203 13 of the NIRC
provides that internal revenue taxes must be assessed within three years from the last day
within which to file the return. Section 222, 14 on the other hand, specifies a period of ten
years in case a fraudulent return with intent to evade was submitted or in case of failure to
file a return. Also, Section 228 15 of the same law states that said assessment may be
protested only within thirty days from receipt thereof. Necessarily, the taxpayer must be
certain that a specific document constitutes an assessment. Otherwise, confusion would arise
regarding the period within which to make an assessment or to protest the same, or whether
interest and penalty may accrue thereon.

It should also be stressed that the said document is a notice duly sent to the taxpayer.
Indeed, an assessment is deemed made only when the collector of internal revenue releases,
mails or sends such notice to the taxpayer. 16

In the present case, the revenue officers’ Affidavit merely contained a computation of
respondents’ tax liability. It did not state a demand or a period for payment. Worse, it was
addressed to the justice secretary, not to the taxpayers.

Respondents maintain that an assessment, in relation to taxation, is simply understood to

mean:jgc:chanrobles.com.ph

"A notice to the effect that the amount therein stated is due as tax and a demand for
payment thereof." 17

"Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for the
proper presentation of tax rolls." 18

Even these definitions fail to advance private respondents’ case. That the BIR examiners’
Joint Affidavit attached to the Criminal Complaint contained some details of the tax liabilities
of private respondents does not ipso facto make it an assessment. The purpose of the Joint
Affidavit was merely to support and substantiate the Criminal Complaint for tax evasion.
Clearly, it was not meant to be a notice of the tax due and a demand to the private
respondents for payment thereof.
The fact that the Complaint itself was specifically directed and sent to the Department of
Justice and not to private respondents shows that the intent of the commissioner was to file a
criminal complaint for tax evasion, not to issue an assessment. Although the revenue officers
recommended the issuance of an assessment, the commissioner opted instead to file a
criminal case for tax evasion. What private respondents received was a notice from the DOJ
that a criminal case for tax evasion had been filed against them, not a notice that the Bureau
of Internal Revenue had made an assessment.

In addition, what private respondents sent to the commissioner was a motion for a
reconsideration of the tax evasion charges filed, not of an assessment, as shown thus:
"This is to request for reconsideration of the tax evasion charges against my client PASCOR
Realty and Development Corporation and for the same to be referred to the Appellate
Division in order to give my client the opportunity of a fair and objective hearing." 19

Additional Issues: Assessment Not Necessary

Before Filing of Criminal Complaint

Private respondents maintain that the filing of a criminal complaint must be preceded by an
assessment. This is incorrect, because Section 222 of the NIRC specifically states that in
cases where a false or fraudulent return is submitted or in cases of failure to file a return
such as this case, proceedings in court may be commenced without an assessment.
Furthermore, Section 205 of the same Code clearly mandates that the civil and criminal
aspects of the case may be pursued simultaneously. In Ungab v. Cusi, 20 petitioner therein
sought the dismissal of the criminal Complaints for being premature, since his protest to the
CTA had not yet been resolved. The Court held that such protests could not stop or suspend
the criminal action which was independent of the resolution of the protest in the CTA. This
was because the commissioner of internal revenue had, in such tax evasion cases, discretion
on whether to issue an assessment or to file a criminal case against the taxpayer or to do
both.

Private respondents insist that Section 222 should be read in relation to Section 255 of the
NIRC, 21 which penalizes failure to file a return. They add that a tax assessment should
precede a criminal indictment. We disagree. To reiterate, said Section 222 states that an
assessment is not necessary before a criminal charge can be filed. This is the general rule.
Private respondents failed to show that they are entitled to an exception. Moreover, the
criminal charge need only be supported by a prima facie showing of failure to file a required
return. This fact need not be proven by an assessment.

The issuance of an assessment must be distinguished from the filing of a complaint. Before
an assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer.
The taxpayer is then given a chance to submit position papers and documents to prove that
the assessment is unwarranted. If the commissioner is unsatisfied, an assessment signed by
him or her is then sent to the taxpayer informing the latter specifically and clearly that an
assessment has been made against him or her. In contrast, the criminal charge need not go
through all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer
is notified that a criminal case had been filed against him, not that the commissioner has
issued an assessment. It must be stressed that a criminal complaint is instituted not to
demand payment, but to penalize the taxpayer for violation of the Tax Code.

WHEREFORE, the petition is hereby GRANTED. The assailed Decision is REVERSED and SET
ASIDE. CTA Case No. 5271 is likewise DISMISSED. No costs.

SO ORDERED.

G.R. No. 109976             April 26, 2005

PHILIPPINE NATIONAL OIL COMPANY, Petitioner,vs.

THE HON. COURT OF APPEALS, THE COMMISSIONER OF INTERNAL REVENUE and
TIRSO SAVELLANO, Respondents. x--------------------x

G.R. No. 112800             April 26, 2005

PHILIPPINE NATIONAL BANK, Petitioner,vs.THE HON. COURT OF APPEALS, COURT

OF TAX APPEALS, TIRSO B. SAVELLANO and COMMISSIONER OF INTERNAL
REVENUE, Respondents.

This is a consolidation of two Petitions for Review on Certiorari filed by the Philippine National
Oil Company (PNOC)1 and the Philippine National Bank (PNB),< 2 assailing the decisions of the
Court of Appeals in CA-G.R. SP No. 29583 3 and CA-G.R. SP No. 29526,4 respectively, which
both affirmed the decision of the Court of Tax Appeals (CTA) in CTA Case No. 4249. 5
The Petitions before this Court originated from a sworn statement submitted by private
respondent Tirso B. Savellano (Savellano) to the Bureau of Internal Revenue (BIR) on 24
June 1986.  Through his sworn statement, private respondent Savellano informed the BIR
that PNB had failed to withhold the 15% final tax on interest earnings and/or yields from the
money placements of PNOC with the said bank, in violation of Presidential Decree (P.D.) No.
1931.  P.D. No. 1931, which took effect on 11 June 1984, withdrew all tax exemptions of
government-owned and controlled corporations.

In a letter, dated 08 August 1986, the BIR requested PNOC to settle its liability for taxes on
the interests earned by its money placements with PNB and which PNB did not withhold. 6  
PNOC wrote the BIR on 25 September 1986, and made an offer to compromise its tax
liability, which it estimated to be in the sum of P304,419,396.83, excluding interest and
surcharges, as of 31 July 1986.  PNOC proposed to set-off its tax liability against a claim for
tax refund/credit of the National Power Corporation (NAPOCOR), then pending with the BIR,
in the amount of P335,259,450.21.  The amount of the claim for tax refund/credit was
supposedly a receivable account of PNOC from NAPOCOR.7

On 08 October 1986, the BIR sent a demand letter to PNB, as withholding agent, for the
payment of the final tax on the interest earnings and/or yields from PNOC's money
placements with the bank, from 15 October 1984 to 15 October 1986, in the total amount
of P376,301,133.33.8   On the same date, the BIR also mailed a letter to PNOC informing it of
the demand letter sent to PNB.9

PNOC, in another letter, dated 14 October 1986, reiterated its proposal to settle its tax
liability through the set-off of the said tax liability against NAPOCOR'S pending claim for tax
refund/credit.10   The BIR replied on 11 November 1986 that the proposal for set-off was
premature since NAPOCOR's claim was still under process.  Once more, BIR requested PNOC
to settle its tax liability in the total amount of P385,961,580.82, consisting
of P303,343,765.32 final tax, plus P82,617,815.50 interest computed until 15 November
1986.11

On 09 June 1987, PNOC made another offer to the BIR to settle its tax liability.  This time,
however, PNOC proposed a compromise by paying P91,003,129.89, representing 30% of
the P303,343,766.29 basic tax, in accordance with the provisions of Executive Order (E.O.)
No. 44.12
Then BIR Commissioner Bienvenido A. Tan, in a letter, dated 22 June 1987, accepted the
compromise.  The BIR received a total tax payment on the interest earnings and/or yields
from PNOC's money placements with PNB in the amount of P93,955,479.12, broken down as
follows:

Previous payment made by PNB P        2,952,349.23

Add: Payment made by PNOC pursuant to the
compromise agreement of June 22, 198 P      91,003,129.89
Total tax payment P      93,955,479.1213

Private respondent Savellano, through four installments, was paid the informer's reward in
the total amount of P14,093,321.89, representing 15% of the P93,955,479.12 tax collected
by the BIR from PNOC and PNB.  He received the last installment on 01 December 1987.14

On 07 January 1988, private respondent Savellano, through his legal counsel, wrote the BIR
to demand payment of the balance of his informer's reward, computed as follows:

BIR tax assessment P    385,961,580.82

Final tax rate 0.15
Informer's reward due (BIR deficiency tax
assessment x Final tax rate P      57,894,237.12
Less: Payment received by private
respondent Savellano P      14,093,321.89
Outstanding balance P   43,800,915.2515

BIR Commissioner Tan replied through a letter, dated 08 March 1988, that private respondent
Savellano was already fully paid the informer's reward equivalent to 15% of the amount of
tax actually collected by the BIR pursuant to its compromise agreement with PNOC.  BIR
Commissioner Tan further explained that the compromise was in accordance with the
provisions of E.O. No. 44, Revenue Memorandum Order (RMO) No. 39-86, and RMO No. 4-
87.16

Private respondent Savellano submitted another letter, dated 24 March 1988, to BIR
Commissioner Tan, seeking reconsideration of his decision to compromise the tax liability of
PNOC.  In the same letter, private respondent Savellano questioned the legality of the
compromise agreement entered into by the BIR and PNOC and claimed that the tax liability
should have been collected in full.17
On 08 April 1988, while the aforesaid Motion for Reconsideration was still pending with the
BIR, private respondent Savellano filed a Petition for Review ad cautelam with the CTA,
docketed as CTA Case No. 4249.  He claimed therein that BIR Commissioner Tan acted "with
grave abuse of discretion and/or whimsical exercise of jurisdiction" in entering into a
compromise agreement that resulted in "a gross and unconscionable diminution" of his
reward.  Private respondent Savellano prayed for the enforcement and collection of the total
tax assessment against taxpayer PNOC and/or withholding agent PNB; and the payment to
him by the BIR Commissioner of the 15% informer's reward on the total tax collected. 18 He
would later amend his Petition to implead PNOC and PNB as necessary and indispensable
parties since they were parties to the compromise agreement. 19

In his Answer filed with the CTA, BIR Commissioner Tan asserted that the Petition stated no
cause of action against him, and that private respondent Savellano was already paid the
informer's reward due him.  Alleging that the Petition was baseless and malicious, BIR
Commissioner Tan filed a counterclaim for exemplary damages against private respondent
Savellano.20

PNOC and PNB filed separate Motions to Dismiss, both arguing that the CTA lacked
jurisdiction to decide the case. 21 In its Resolution, dated 28 November 1988, the CTA denied
the Motions to Dismiss since the question of lack of jurisdiction and/or cause of action do not
appear to be indubitable.22

After their Motions to Dismiss were denied by the CTA, PNOC and PNB filed their respective
Answers to the amended Petition.  PNOC averred, among other things, that (1) it had no
privity with private respondent Savellano; (2) the BIR Commissioner's discretionary act in
entering into the compromise agreement had legal basis under E.O. No. 44 and RMO No. 39-
86 and RMO No. 4-87; and (3) the CTA had no jurisdiction to resolve the case against it. 23 On
the other hand, PNB asserted that (1) the CTA lacked jurisdiction over the case; and (2) the
BIR Commissioner's decision to accept the compromise was discretionary on his part and,
therefore, cannot be reviewed or interfered with by the courts. 24 PNOC and PNB later filed
their amended Answer invoking an opinion of the Commission on Audit (COA) disallowing the
payment by the BIR of informer's reward to private respondent Savellano. 25

The CTA, thereafter, ordered the parties to submit their evidence, 26 to be followed by their
respective Memoranda.27
On 23 November 1990, private respondent Savellano, filed a Manifestation with Motion for
Suspension of Proceedings, claiming that his pending Motion for Reconsideration with the BIR
Commissioner may soon be resolved.28 Both PNOC and PNB opposed the said Motion.29

Subsequently, the new BIR Commissioner, Jose U. Ong, in a letter to PNB, dated 16 January
1991, demanded that PNB pay deficiency withholding tax on the interest earnings and/or
yields from PNOC's money placements, in the amount of P294,958,450.73, computed as
follows:

Withholding tax, plus interest under the letter of

demand dated November 11, 1986 P     385,961,580.82
Less: Amount paid under E.O. No. 44P     91,003,129.89
Amount still due and collectible P     294,958,450.7330

This BIR letter was received by PNB on 06 February 1991, 31 and was protested by it through a
letter, dated 11 April 1991. 32 The BIR denied PNB's protest on the ground that it was filed out
of time and, thus, the assessment had already become final.33

Private respondent Savellano, on 22 February 1991, filed an Omnibus Motion moving to

withdraw his previous Motion for Suspension of Proceeding since BIR Commissioner Ong had
finally resolved his Motion for Reconsideration, and submitting by way of supplemental offer
of evidence (1) the letter of BIR Commissioner Ong, dated 13 February 1991, informing
private respondent Savellano of the action on his Motion for Reconsideration; and (2) the
demand-letter of BIR Commissioner Ong to PNB, dated 16 January 1991. 34

Despite the oppositions of PNOC and PNB, the CTA, in a Resolution, dated 02 May 1991,
resolved to allow private respondent Savellano to withdraw his previous Motion for
Suspension of Proceeding and to admit the supplementary evidence being offered by the
same party.35

In its Order, dated 03 June 1991, the CTA considered the case submitted for decision as of
the following day, 04 June 1991.36

On 11 June 1991, PNB appealed to the Department of Justice (DOJ) the BIR assessment,
dated 16 January 1991, for deficiency withholding tax in the sum of P294,958,450.73.  PNB
alleged that its appeal to the DOJ was sanctioned under P.D. No. 242, which provided for the
administrative settlement of disputes between government offices, agencies, and
instrumentalities, including government-owned and controlled corporations. 37
Three days later, on 14 June 1991, PNB filed a Motion to Suspend Proceedings before the
CTA since it had a pending appeal before the DOJ. 38 On 04 July 1991, PNB filed with the CTA
a Motion for Reconsideration of its Order, dated 03 June 1991, submitting the case for
decision as of 04 June 1991, and prayed that the CTA hold its resolution of the case in view
of PNB's appeal pending before the DOJ.39

On 17 July 1991, PNB filed a Motion to Suspend the Collection of Tax by the BIR.  It alleged
that despite its request for reconsideration of the deficiency withholding tax assessment,
dated 16 January 1991, BIR Commissioner Ong sent another letter, dated 23 April 1991,
demanding payment of the P294,958,450.73 deficiency withholding tax on the interest
earnings and/or yields from PNOC's money placements.  The same letter informed PNB that
this was the BIR Commissioner's final decision on the matter and that the BIR Commissioner
was set to issue a warrant of distraint and/or levy against PNB's deposits with the Central
Bank of the Philippines.  PNB further alleged that the levy and distraint of PNB's deposits,
unless restrained by the CTA, would cause great and irreparable prejudice not only to PNB, a
government-owned and controlled corporation, but also to the Government itself. 40

Pursuant to the Order of the CTA, during the hearing on 19 July 1991, 41 the parties submitted
their respective Memoranda on PNB's Motion to Suspend Proceedings. 42

On 20 September 1991, private respondent Savellano filed another Omnibus Motion calling
the attention of the CTA to the fact that the BIR already issued, on 12 August 1991, a
warrant of garnishment addressed to the Central Bank Governor and against PNB.  In
compliance with the said warrant, the Central Bank issued, on 23 August 1991, a debit advice
against the demand deposit account of PNB with the Central Bank for the amount
of P294,958,450.73, with a corresponding transfer of the same amount to the demand
deposit-in-trust of BIR with the Central Bank.  Since the assessment had already been
enforced, PNB's Motion to Suspend Proceedings became moot and academic.  Private
respondent Savellano, thus, moved for the denial of PNB's Motion to Suspend Proceedings
and for an order requiring BIR to deposit with the CTA the amount of P44,243,767.00 as his
informer's reward, representing 15% of the deficiency withholding tax collected. 43

Both PNOC and PNB opposed private respondent Savellano's Omnibus Motion, dated 20
September 1991, arguing that the DOJ already ordered the suspension of the collection of the
tax deficiency.  There was therefore no basis for private respondent Savellano's Motion as the
same was premised on the erroneous assumption that the tax deficiency had been collected.
When the DOJ denied the BIR Commissioner's Motion to Dismiss and required him to file his
answer, the DOJ assumed jurisdiction over PNB's appeal, and the CTA should first suspend its
proceedings to give the DOJ the opportunity to decide the validity and propriety of the tax
assessment against PNB.44

The CTA, on 28 May 1992, rendered its decision, wherein it upheld its jurisdiction and
disposed of the case as follows:

WHEREFORE, judgment is rendered declaring the COMPROMISE AGREEMENT between the

Bureau of Internal Revenue, on the one hand, and the Philippine National Oil Company and
Philippine National Bank, on the other, as WITHOUT FORCE AND EFFECT;

The Commissioner of Internal Revenue is hereby ordered to ENFORCE the ASSESSMENT of

January 16, 1991 against Philippine National Bank which has become final and unappealable
by collecting from Philippine National Bank the deficiency withholding tax, plus interest
totalling (sic) P294,958,450.73;

Petitioner may be paid, upon collection of the deficiency withholding tax, the balance of his
entitlement to informer's reward based on fifteen percent (15%) of the deficiency withholding
total tax collected in this case or P44,243.767.00 subject to existing rules and regulations
governing payment of reward to informers.45

In a Resolution, dated 16 November 1992, the CTA denied the Motions for Reconsideration
filed by PNOC and PNB since they substantially raised the same issues in their previous
pleadings and which had already been passed upon and resolved adversely against them. 46

PNOC and PNB filed separate appeals with the Court of Appeals seeking the reversal of the
CTA decision in CTA Case No. 4249, dated 28 May 1992, and the CTA Resolution in the same
case, dated 16 November 1992.  PNOC's appeal was docketed as CA-G.R. SP No. 29583,
while PNB's appeal was CA-G.R. SP No. 29526.  In both cases, the Court of Appeals affirmed
the decision of the CTA.

In the meantime, the Central Bank again issued on 02 September 1992 a debit advice against
the demand deposit account of PNB with the Central Bank for the amount
of P294,958,450.73,47 and on 15 September 1992, credited the same amount to the demand
deposit account of the Treasurer of the Republic of the Philippines. 48   On 04 November 1992,
the Treasurer of the Republic issued a journal voucher transferring P294,958,450.73 to the
account of the BIR.49   PNB, in turn, debited P294,958,450.73 from the deposit account of
PNOC with PNB.50
PNOC and PNB then filed separate Petitions for Review on Certiorari with this Court, praying
that the decisions of the Court of Appeals in CA-G.R. SP No. 29583 and CA-G.R. SP No.
29526, respectively, both affirming the decision of the CTA in CTA Case No. 4249, be
reversed and set aside.  These two Petitions were consolidated since they involved identical
parties and factual background, and the resolution of related, if not exactly, the same issues.

In its Petition for Review, PNOC alleged the following errors committed by the Court of
Appeals in CA-G.R. SP No. 29583:

1.  The Court of Appeals erred in holding that the deficiency taxes of PNOC could not be the
subject of a compromise under Executive Order No. 44; and

2.  The Court of Appeals erred in holding that Savellano is entitled to additional informer's
reward.51

PNB, in its own Petition for Review, assailed the decision of the Court of Appeals in CA-G.R.
SP No. 29526, assigning the following errors:

1.  Respondent Court erred in not finding that the Court of Tax Appeals lacks jurisdiction on
the controversy involving BIR and PNB (both government instrumentalities) regarding the
new assessment of BIR against PNB;

2.  The respondent Court erred in not finding that the Court of Tax Appeals has no
jurisdiction to question the compromise agreement entered into by the Commissioner of
Internal Revenue; and

3.  The respondent Court erred in not ruling that the Commissioner of Internal Revenue
cannot unilaterally annul tax compromises validly entered into by his predecessor. 52

The decisions of the Court of Appeals in CA-GR SP No. 29583 and CA-G.R. SP No. 29526,
affirmed the decision of the CTA in CTA Case No. 4249.  The resolution, therefore, of the
assigned errors in the Court of Appeals' decisions essentially requires a review of the CTA
decision itself.

In consolidating the present Petitions, this Court finds that PNOC and PNB are basically
questioning the (1) Jurisdiction of the CTA in CTA Case No. 4249; (2) Declaration by the CTA
that the compromise agreement was without force and effect; (3) Finding of the CTA that the
deficiency withholding tax assessment against PNB had already become final and
unappealable and, thus, enforceable; and (4) Order of the CTA directing payment of
additional informer's reward to private respondent Savellano.

I Jurisdiction of the CTA

A. The demand letter, dated 16 January 1991 did not constitute a new assessment against
PNB.

The main argument of PNB in assailing the jurisdiction of the CTA in CTA Case No. 4249 is
that the BIR demand letter, dated 16 January 1991, 53 should be considered as a new
assessment against PNB.  As a new assessment, it gave rise to a new dispute and
controversy solely between the BIR and PNB that should be administratively settled or
adjudicated, as provided in P.D. No. 242.

This argument is without merit.  The issuance by the BIR of the demand letter, dated 16
January 1991, was merely a development in the continuing effort of the BIR to collect the tax
assessed against PNOC and PNB way back in 1986.

BIR's first letter, dated 08 August 1986, was addressed to PNOC, requesting it to settle its tax
liability.  The BIR subsequently sent another letter, dated 08 October 1986, to PNB, as
withholding agent, demanding payment of the tax it had failed to withhold on the interest
earnings and/or yields from PNOC's money placements.  PNOC wrote the BIR three
succeeding letters offering to compromise its tax liability; PNB, on the other hand, did not act
on the demand letter it received, dated 08 October 1986.  The BIR and PNOC eventually
reached a compromise agreement on 22 June 1987.  Private respondent Savellano
questioned the validity of the compromise agreement because the reduced amount of tax
collected from PNOC, by virtue of the compromise agreement, also proportionately reduced
his informer's reward.  Private respondent Savellano then requested the BIR Commissioner to
review and reconsider the compromise agreement.  Acting on the request of private
respondent Savellano, the new BIR Commissioner declared the compromise agreement to be
without basis and issued the demand letter, dated 16 January 1991, against PNB, as the
withholding agent for PNOC.

It is clear from the foregoing that the BIR demand letter, dated 16 January 1991, could not
stand alone as a new assessment.  It should always be considered in the factual context
summarized above.
In fact, the demand letter, dated 16 January 1991, actually referred to the withholding tax
assessment first issued in 1986 and its eventual settlement through a compromise
agreement.  In addition, the computation of the deficiency withholding tax was based on the
figures from the 1986 assessments against PNOC and PNB, and BIR no longer conducted a
new audit or investigation of either PNOC and PNB before it issued the demand letter on 16
January 1991.

These constant references to past events and circumstances demonstrate that the demand
letter, dated 16 January 1991, was not a new assessment, but rather, the latest action taken
by the BIR to collect on the tax assessments issued against PNOC and PNB in 1986.

PNB argues that the demand letter, dated 16 January 1991, introduced a new controversy. 
We see it differently as the said demand letter presented the resolution by BIR Commissioner
Ong of the previous controversy involving the compromise of the 1986 tax assessments.  BIR
Commissioner Ong explicitly declared therein that the compromise agreement was without
legal basis, and requested PNB, as the withholding agent, to pay the amount of withholding
tax still due.

B. The CTA correctly retained jurisdiction over CTA Case No. 4249 by virtue of Republic Act
No. 1125.

Having established that the BIR demand letter, dated 16 January 1991, did not constitute a
new assessment, then, there could be no basis for PNB's claim that any dispute arising from
the new assessment should only be between BIR and PNB.

Still proceeding from the argument that there was a new dispute between PNB and BIR, PNB
sought the suspension of the proceedings in CTA Case No.  4249, after it contested the
deficiency withholding tax assessment against it and the demand for payment thereof before
the DOJ, pursuant to P.D. No. 242.  The CTA, however, correctly sustained its jurisdiction and
continued the proceedings in CTA Case No. 4249; and, in effect, rejected DOJ's claim of
jurisdiction to administratively settle or adjudicate BIR's assessment against PNB.

The CTA assumed jurisdiction over the Petition for Review filed by private respondent
Savellano based on the following provision of Rep. Act No. 1125, the Act creating the Court of
Tax Appeals:

SECTION 7.  Jurisdiction. – The Court of Tax Appeals shall exercise exclusive appellate

jurisdiction to review by appeal, as herein provided -
(1)   Decisions of the Collector of Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties imposed in relation
thereto, or other matters arising under the National Internal Revenue Code or other law or
part of law administered by the Bureau of Internal Revenue; . . . (Underscoring ours.)

In his Petition before the CTA, private respondent Savellano requested a review of the
decisions of then BIR Commissioner Tan to enter into a compromise agreement with PNOC
and to reject his claim for additional informer's reward.  He submitted before the CTA
questions of law involving the interpretation and application of (1) E.O. No. 44, and its
implementing rules and regulations, which authorized the BIR Commissioner to compromise
delinquent accounts and disputed assessments pending as of 31 December 1985; and (2)
Section 316(1) of the National Internal Revenue Code of 1977 (NIRC of 1977), as amended,
which granted to the informer a reward equivalent to 15% of the actual amount recovered or
collected by the BIR.54 These should undoubtedly be considered as matters arising from the
NIRC and other laws being administered by the BIR, thus, appealable to the CTA under
Section 7(1) of Rep. Act No. 1125.

PNB, however, insists on the jurisdiction of the DOJ over its appeal of the deficiency
withholding tax assessment by virtue of P.D. No. 242.  Provisions on jurisdiction of P.D. No.
242 read:

SECTION 1.  Provisions of law to the contrary notwithstanding, all disputes, claims and
controversies solely between or among the departments, bureaus, offices, agencies, and
instrumentalities of the National Government, including government-owned or controlled
corporations, but excluding constitutional offices or agencies, arising from the interpretation
and application of statutes, contracts or agreements, shall henceforth be administratively
settled or adjudicated as provided hereinafter; Provided, That this shall not apply to cases
already pending in court at the time of the effectivity of this decree.

SECTION 2.  In all cases involving only questions of law, the same shall be submitted to and
settled or adjudicated by the Secretary of Justice, as Attorney General and ex officio legal
adviser of all government-owned or controlled corporations and entities, in consonance with
Section 83 of the Revised Administrative Code.  His ruling or determination of the question in
each case shall be conclusive and binding upon all the parties concerned.

SECTION 3.  Cases involving mixed questions of law and of fact or only factual issues shall be
submitted to and settled or adjudicated by:
(a)  The Solicitor General, with respect to disputes or claims controversies between or among
the departments, bureaus, offices and other agencies of the National Government;

(b)  The Government Corporate Counsel, with respect to disputes or claims or controversies
between or among government-owned or controlled corporations or entities being served by
the Office of the Government Corporate Counsel; and

(c)  The Secretary of Justice, with respect to all other disputes or claims or controversies
which do not fall under the categories mentioned in paragraphs (a) and (b).

The PNB and DOJ are of the same position that P.D. No. 242, the more recent law, repealed
Section 7(1) of Rep. Act No. 1125, 55 based on the pronouncement of this Court
in Development Bank of the Philippines v. Court of Appeals, et al., 56]  quoted below:

The Court … expresses its entire agreement with the conclusion of the Court of Appeals —
and the basic premises thereof — that there is an "irreconcilable repugnancy…between
Section 7(2) of R.A. No. 1125 and P.D. No. 242," and hence, that the later enactment (P.D.
No. 242), being the latest expression of the legislative will, should prevail over the earlier.

In the said case, it was expressly declared that P.D. No. 242 repealed Section 7(2) of Rep.
Act No. 1125, which provides for the exclusive appellate jurisdiction of the CTA over decisions
of the Commissioner of Customs.  PNB contends that P.D. No. 242 should be deemed to have
likewise repealed Section 7(1) of Rep. Act No. 1125, which provide for the exclusive appellate
jurisdiction of the CTA over decisions of the BIR Commissioner. 57

After re-examining the provisions on jurisdiction of Rep. Act No. 1125 and P.D. No. 242, this
Court finds itself in disagreement with the pronouncement made in Development Bank of the
Philippines v. Court of Appeals, et al., 58 and refers to the earlier case of Lichauco & Company,
Inc. v. Apostol, et al.,59 for the guidelines in determining the relation between the two
statutes in question, to wit:

The cases relating to the subject of repeal by implication all proceed on the assumption that
if the act of later date clearly reveals an intention on the part of the law making power to
abrogate the prior law, this intention must be given effect; but there must always be a
sufficient revelation of this intention, and it has become an unbending rule of statutory
construction that the intention to repeal a former law will not be imputed to the Legislature
when it appears that the two statutes, or provisions, with reference to which the question
arises bear to each other the relation of general to special.  (Underscoring ours.)
When there appears to be an inconsistency or conflict between two statutes and one of the
statutes is a general law, while the other is a special law, then repeal by implication is not the
primary rule applicable.  The following rule should principally govern instead:

Specific legislation upon a particular subject is not affected by a general law upon the same
subject unless it clearly appears that the provisions of the two laws are so repugnant that the
legislators must have intended by the later to modify or repeal the earlier legislation. The
special act and the general law must stand together, the one as the law of the particular
subject and the other as the general law of the land. (Ex Parte United States, 226 U. S., 420;
57 L. ed., 281; Ex Parte Crow Dog, 109 U. S., 556; 27 L. ed., 1030; Partee vs. St. Louis & S.
F. R. Co., 204 Fed. Rep., 970.)

Where there are two acts or provisions, one of which is special and particular, and certainly
includes the matter in question, and the other general, which, if standing alone, would
include the same matter and thus conflict with the special act or provision, the special must
be taken as intended to constitute an exception to the general act or provision, especially
when such general and special acts or provisions are contemporaneous, as the Legislature is
not to be presumed to have intended a conflict. (Crane v. Reeder and Reeder, 22 Mich., 322,
334; University of Utah vs. Richards, 77 Am. St. Rep., 928.)60

It has, thus, become an established rule of statutory construction that between a general law
and a special law, the special law prevails – Generalia specialibus non derogant.61

Sustained herein is the contention of private respondent Savellano that P.D. No. 242 is a
general law that deals with administrative settlement or adjudication of disputes, claims and
controversies between or among government offices, agencies and instrumentalities,
including government-owned or controlled corporations. Its coverage is broad and sweeping,
encompassing all disputes, claims and controversies.  It has been incorporated as Chapter 14,
Book IV of E.O. No. 292, otherwise known as the Revised Administrative Code of the
Philippines.62 On the other hand, Rep. Act No. 1125 is a special law 63 dealing with a specific
subject matter – the creation of the CTA, which shall exercise exclusive appellate jurisdiction
over the tax disputes and controversies enumerated therein.

Following the rule on statutory construction involving a general and a special law previously
discussed, then P.D. No. 242 should not affect Rep. Act No. 1125.  Rep. Act No. 1125,
specifically Section 7 thereof on the jurisdiction of the CTA, constitutes an exception to P.D.
No. 242.  Disputes, claims and controversies, falling under Section 7 of Rep. Act No. 1125,
even though solely among government offices, agencies, and instrumentalities, including
government-owned and controlled corporations, remain in the exclusive appellate jurisdiction
of the CTA.  Such a construction resolves the alleged inconsistency or conflict between the
two statutes, and the fact that P.D. No. 242 is the more recent law is no longer significant.

Even if, for the sake of argument, that P.D. No. 242 should prevail over Rep. Act No. 1125,
the present dispute would still not be covered by P.D. No. 242.  Section 1 of P.D. No. 242
explicitly provides that only disputes, claims and controversies solely between or among
departments, bureaus, offices, agencies, and instrumentalities of the National Government,
including constitutional offices or agencies, as well as government-owned and controlled
corporations, shall be administratively settled or adjudicated.  While the BIR is obviously a
government bureau, and both PNOC and PNB are government-owned and controlled
corporations, respondent Savellano is a private citizen.  His standing in the controversy could
not be lightly brushed aside.  It was private respondent Savellano who gave the BIR the
information that resulted in the investigation of PNOC and PNB; who requested the BIR
Commissioner to reconsider the compromise agreement in question; and who initiated CTA
Case No. 4249 by filing a Petition for Review.

In Bay View Hotel, Inc. v. Manila Hotel Workers' Union-PTGWO, et al.,64] this Court upheld the
jurisdiction of the Court of Industrial Relations over the ordinary courts and justified its
decision in the following manner:

We are unprepared to break away from the teaching in the cases just adverted to.  To draw a
tenuous jurisdictional line is to undermine stability in labor litigations.  A piecemeal resort to
one court and another gives rise to multiplicity of suits.  To force the employees to shuttle
from one court to another to secure full redress is a situation gravely prejudicial.  The time to
be lost, effort wasted, anxiety augmented, additional expense incurred – these are
considerations which weigh heavily against split jurisdiction.  Indeed, it is more in keeping
with orderly administration of justice that all the causes of action here "be cognizable and
heard by only one court:  the Court of Industrial Relations."

The same justification is used in the present case to reject DOJ's jurisdiction over the BIR and
PNB, to the exclusion of the other parties.  The rights of all four parties in CTA Case No.
4249, namely the BIR, as the tax collector; PNOC, the taxpayer; PNB, the withholding agent;
and private respondent Savellano, the informer claiming his reward; arose from the same
factual background and were so closely interrelated, that a pronouncement as to one would
definitely have repercussions on the others.  The ends of justice were best served when the
CTA continued to exercise its jurisdiction over CTA Case No. 4249.  The CTA, which had
assumed jurisdiction over all the parties to the controversy, could render a comprehensive
resolution of the issues raised and grant complete relief to the parties.

II. Validity of the Compromise Agreement

A. PNOC could not apply for a compromise under E.O. No. 44 because its tax liability was not
a delinquent account or a disputed assessment as of 31 December 1985.

PNOC and PNB, on different grounds, dispute the decision of the CTA in CTA Case No. 4249
declaring the compromise agreement between BIR and PNOC without force and effect.

PNOC asserts that the compromise agreement was in accordance with E.O. No. 44, and its
implementing rules and regulations, and should be binding upon the parties thereto.

E.O. No. 44 granted the BIR Commissioner or his duly authorized representatives the power
to compromise any disputed assessment or delinquent account pending as of 31 December
1985, upon the payment of an amount equal to 30% of the basic tax assessed; in which
case, the corresponding interests and penalties shall be condoned.  E.O. No. 44 took effect
on 04 September 1986 and remained effective until 31 March 1987.

The disputed assessments or delinquent accounts that the BIR Commissioner could
compromise under E.O. No. 44 are defined under Revenue Regulation (RR) No. 17-86, as
follows:

a)   Delinquent account – Refers to the amount of tax due on or before December 31, 1985
from a taxpayer who failed to pay the same within the time prescribed for its payment arising
from (1) a self assessed tax, whether or not a tax return was filed, or (2) a deficiency
assessment issued by the BIR which has become final and executory.

Where no return was filed, the taxpayer shall be considered delinquent as of the time the tax
on such return was due, and in availing of the compromise, a tax return shall be filed as a
basis for computing the amount of compromise to be paid.

b)  Disputed assessment – refers to a tax assessment disputed or protested on or before

December 31, 1985 under any of the following categories:

1)       if the same is administratively protested within thirty (30) days from the date the
taxpayer received the assessment, or
2.)      if the decision of the BIR on the taxpayer's administrative protest is appealed by the
taxpayer before an appropriate court.

PNOC's tax liability could not be considered a delinquent account since (1) it was not self-
assessed, because the BIR conducted an investigation and assessment of PNOC and PNB
after obtaining information regarding the non-withholding of tax from private respondent
Savellano; and (2) the demand letter, issued against it on 08 August 1986, could not have
been a deficiency assessment that became final and executory by 31 December 1985.

The dissenting opinion contends, however, that the tax liability of PNOC constitutes a self-
assessed tax, and is, therefore, a delinquent account as of 31 December 1985, qualifying for
a compromise under E.O. No. 44.  It anchors its argument on the declaration made by this
Court in Tupaz v. Ulep,65 that internal revenue taxes are self-assessing.

It is not denied herein that the self-assessing system governs Philippine internal revenue
taxes.  The dissenting opinion itself defines self-assessed tax as, "a tax that the taxpayer
himself assesses or computes and pays to the taxing authority."  Clearly, such a system
imposes upon the taxpayer the obligation to conduct an assessment of himself so he could
determine and declare the amount to be used as tax basis, any deductions therefrom, and
finally, the tax due.

E.O. No. 44 covers self-assessed tax, whether or not a tax return was filed.  The phrase
"whether or not a tax return was filed" only refers to the compliance by the taxpayer with the
obligation to file a return on the dates specified by law, but it does not do away with the
requisite that the tax must be self-assessed in order for the taxpayer to avail of the
compromise.  The second paragraph of Section 2(a) of RR No. 17-86 expressly commands,
and still imposes upon the taxpayer, who is availing of the compromise under E.O. No. 44,
and who has not previously filed any return, the duty to conduct self-assessment by filing a
tax return that would be used as the basis for computing the amount of compromise to be
paid.

Section 2(a)(1) of RR No. 17-86 thus involves a situation wherein a taxpayer, after
conducting a self-assessment, discovers or becomes aware that he had failed to pay a tax
due on or before 31 December 1985, regardless of whether he had previously filed a return
to reflect such tax; voluntarily comes forward and admits to the BIR his tax liability; and
applies for a compromise thereof.  In case the taxpayer has not previously filed any return,
he must fill out such a return reflecting therein his own declaration of the taxable amount and
computation of the tax due.  The compromise payment shall be computed based on the
amount reflected in the tax return submitted by the taxpayer himself.

Neither PNOC nor PNB, the taxpayer and the withholding agent, respectively, conducted self-
assessment in this case.  There is no showing that in the absence of the tax assessment
issued by the BIR against them, that PNOC and/or PNB would have voluntarily admitted their
tax liabilities, already amounting to P385,961,580.82, as of 15 November 1986, and would
have offered to compromise the same.  In fact, both PNOC and PNB were conspicuously
silent about their tax liabilities until they were assessed thereon.

Any attempt by PNOC and PNB to assess and declare by themselves their tax liabilities had
already been overtaken by the BIR's conduct of its audit and investigation and subsequent
issuance of the assessments, dated 08 August 1986 and 08 October 1986, against PNOC and
PNB, respectively.  The said tax assessments, uncontested and undisputed, presented the
results of the BIR audit and investigation and the computation of the total amount of tax
liabilities of PNOC and PNB.  They should be controlling in this case, and should not be so
easily and conveniently ignored and set aside.  It would be a contradiction to claim that the
tax liabilities of PNOC and PNB are self-assessed and, at the same time, BIR-assessed; when
it is clear and simple that it had been the BIR that conducted the assessment and determined
the tax liabilities of PNOC and PNB.

That the BIR-assessed tax liability should be differentiated from a self-assessed one, is
supported by the provisions of RR No. 17-86 on the basis for computing the amount of
compromise payment.  Note that where tax liabilities are self-assessed, the compromise
payment shall be computed based on the tax return filed by the taxpayer. 66 On the other
hand, where the BIR already issued an assessment, the compromise payment shall be
computed based on the tax due on the assessment notice. 67

For instances where the BIR had already issued an assessment against the taxpayer, the tax
liability could still be compromised under E.O. No. 44 only if: (1) the assessment had been
final and executory on or before 31 December 1985 and, therefore, considered a delinquent
account as of said date;68 or (2) the assessment had been disputed or protested on or before
31 December 1985.69

RMO No. 39-86, which provides the guidelines for the implementation of E.O. No. 44, does
mention different types of assessments that may be compromised under said statute (i.e.,
jeopardy assessments, arbitrary assessments, and tax assessments of doubtful validity). 
RMO No. 39-86 may not have expressly stated any qualification for these particular types of
assessments; nonetheless, E.O. No. 44 specifically refers only to assessments that were
delinquent or disputed as of 31 December 1985.

E.O. No. 44 and all BIR issuances to implement said statute should be interpreted so that
they are harmonized and consistent with each other.  Accordingly, this Court finds that the
different types of assessments mentioned in RMO No. 39-86 would still have to qualify as
delinquent accounts or disputed assessments as of 31 Dcember 1985, so that they could be
compromised under E.O. No. 44.

The BIR had first written to PNOC on 08 August 1986, demanding payment of the income tax
on the interest earnings and/or yields from PNOC's money placements with PNB from 15
October 1984 to 15 October 1986.  This demand letter could be regarded as the first
assessment notice against PNOC.

Such an assessment, issued only on 08 August 1986, could not have been final and executory
as of 31 December 1985 so as to constitute a delinquent account.  Neither was the
assessment against PNOC an assessment that could have been disputed or protested on or
before 31 December 1985, having been issued on a later date.

Given that PNOC's tax liability did not constitute a delinquent account or a disputed
assessment as of 31 December 1985, then it could not be compromised under E.O. No. 44.

The assessment against PNOC, instead, was more appropriately covered by Revenue
Memorandum Circular (RMC) No. 31-86.  RMC No. 31-86 clarifies the scope of availment of
the tax amnesty under E.O. No. 4170 and compromise payments on delinquent accounts and
disputed assessments under E.O. No. 44.  The third paragraph of RMC No. 31-86 reads:

[T]axpayers against whom assessments had been issued from January 1 to August 21, 1986
may settle their tax liabilities by way of compromise under Section 246 of the Tax Code as
amended by paying 30% of the basic assessment excluding surcharge, interest, penalties and
other increments thereto.

The above-quoted paragraph supports the position that only assessments that were disputed
or that were final and executory by 31 December 1985 could be the subject of a compromise
under E.O. No. 44.  Assessments issued between 01 January to 21 August 1986 could still be
compromised by payment of 30% of the basic tax assessed, not anymore pursuant to E.O.
No. 44, but pursuant to Section 246 of the NIRC of 1977, as amended.
Section 246 of the NIRC of 1977, as amended, granted the BIR Commissioner the authority
to compromise the payment of any internal revenue tax under the following circumstances:
(1) there exists a reasonable doubt as to the validity of the claim against the taxpayer; or (2)
the financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. 71

There are substantial differences in circumstances under which compromises may be granted
under Section 246 of the NIRC of 1977, as amended, and E.O. No. 44.  Although PNOC and
PNB have extensively argued their entitlement to compromise under E.O. No. 44, neither of
them has alleged, much less, has presented any evidence to prove that it may compromise
its tax liability under Section 246 of the NIRC of 1977, as amended.

B. The tax liability of PNB as withholding agent also did not qualify for compromise under
E.O. No. 44.

Before proceeding any further, this Court reconsiders the conclusion made by BIR
Commissioner Ong in his demand letter, dated 16 January 1991, that the compromise
settlement executed between the BIR and PNOC was without legal basis because withholding
taxes were not actually taxes that could be compromised, but a penalty for PNB's failure to
withhold and for which it was made personally liable.

E.O. No. 44 covers disputed or delinquency cases where the person assessed was himself the
taxpayer rather than a mere agent.72   RMO No. 39-86 expressly allows a withholding agent,
who failed to withhold the required tax because of neglect, ignorance of the law, or his belief
that he was not required by law to withhold tax, to apply for a compromise settlement of his
withholding tax liability under E.O. No. 44.  A withholding agent, in such a situation, may
compromise the withholding tax assessment against him precisely because he is being held
directly accountable for the tax.73

RMO No. 39-86 distinguishes between the withholding agent in the foregoing situation from
the withholding agent who withheld the tax but failed to remit the amount to the
Government.  A withholding agent in the latter situation is the one disqualified from applying
for a compromise settlement because he is being made accountable as an agent, who held
funds in trust for the Government.74

Both situations, however, involve withholding agents.  The right to compromise under these
provisions should have been claimed by PNB, the withholding agent for PNOC.  The BIR held
PNB personally accountable for its failure to withhold the tax on the interest earnings and/or
yields from PNOC's money placements with PNB.  The BIR sent a demand letter, dated 08
October 1986, addressed directly to PNB, for payment of the withholding tax assessed
against it, but PNB failed to take any action on the said demand letter.  Yet, all the offers to
compromise the withholding tax assessment came from PNOC and PNOC did not claim that it
made the offers to compromise on behalf of PNB.

Moreover, the general requirement of E.O. No. 44 still applies to withholding agents – that
the withholding tax liability must either be a delinquent account or a disputed assessment as
of 31 December 1985 to qualify for compromise settlement.  The demand letter against PNB,
which also served as its assessment notice, had been issued on 08 October 1986 or two
months later than PNOC's.  PNB's withholding tax liability could not be considered a
delinquent account or a disputed assessment, as defined under RR No. 17-86, for the same
reasons that PNOC's tax liability did not constitute as such.  The tax liability of PNB, therefore,
was also not eligible for compromise settlement under E.O. No. 44.

C. Even assuming arguendo that PNOC and/or PNB qualified under E.O. No. 44, their
application for compromise was filed beyond the deadline.

Despite already ruling that the tax liabilities of PNOC and PNB could not be compromised
under E.O. No. 44, this Court still deems it necessary to discuss the finding of the CTA that
the compromise agreement had been filed beyond the effectivity of E.O. No. 44, since the
CTA made a declaration in relation thereto that paragraph 2 of RMO No. 39-86 was null and
void for unduly extending the effectivity of E.O. No. 44.

Paragraph 2 of RMO No. 39-86 provides that:

2. Period for availment. – Filing of application for compromise settlement under the said law
shall be effective only until March 31, 1987.  Applications filed on or before this date shall be
valid even if the payment or payments of the compromise amount shall be made after the
said date, subject, however, to the provisions of Executive Order No. 44 and its implementing
Revenue Regulations No. 17-86.

It is well-settled in this jurisdiction that administrative authorities are vested with the power
to make rules and regulations because it is impracticable for the lawmakers to provide
general regulations for various and varying details of management. The interpretation given
to a rule or regulation by those charged with its execution is entitled to the greatest weight
by the court construing such rule or regulation, and such interpretation will be followed
unless it appears to be clearly unreasonable or arbitrary.75
RMO No. 39-86, particularly paragraph 2 thereof, does not appear to be unreasonable or
arbitrary.  It does not unduly expand the coverage of E.O. No. 44 by merely providing that
applications for compromise filed until 31 March 1987 are still valid, even if payment of the
compromised amount is made on a later date.

It cannot be expected that the compromise allowed under E.O. No. 44 can be automatically
granted upon mere filing of the application by the taxpayer.  Irrefutably, the applications
would still have to be processed by the BIR to determine compliance with the requirements of
E.O. No. 44.  As it is uncontested that a taxpayer could still file an application for compromise
on 31 March 1987, the very last day of effectivity of E.O. No. 44, it would be unreasonable to
expect the BIR to process and approve the taxpayer's application within the same date
considering the volume of applications filed and pending approval, plus the other matters the
BIR personnel would also have to attend to.  Thus, RMO No. 39-86 merely assures the
taxpayers that their applications would still be processed and could be approved on a later
date.  Payment, of course, shall be made by the taxpayer only after his application had been
approved and the compromised amount had been determined.

Given that paragraph 2 of RMO No. 39-86 is valid, the next question that needs to be
addressed is whether PNOC had been able to submit an application for compromise on or
before 31 March 1987 in compliance thereof.  Although the compromise agreement was
executed only on 22 June 1987, PNOC is claiming that it had already written a letter to the
BIR, as early as 25 September 1986, offering to compromise its tax liability, and that the said
letter should be considered as PNOC's application for compromise settlement.

A perusal of PNOC's letter, dated 25 September 1986, would reveal, however, that the terms
of its proposed compromise did not conform to those authorized by E.O. No. 44.   PNOC did
not offer to pay outright 30% of the basic tax assessed against it as required by E.O. No. 44;
and instead, made the following offer:

(2) That PNOC be permitted to set-off its foregoing mentioned tax liability
of P304,419,396.83 against the tax refund/credit claims of the National Power Corporation
(NPC) for specific taxes on fuel oil sold to NPC totaling P335,259,450.21, which tax
refunds/credits are actually receivable accounts of our Company from NPC. 76

PNOC reiterated the offer in its letter to the BIR, dated 14 October 1986. 77 The BIR, in its
letters to PNOC, dated 8 October 1986 78 and 11 November 1986,79 consistently denied PNOC's
offer because the claim for tax refund/credit of NAPOCOR was still under process, so that the
offer to set-off such claim against PNOC's tax liability was premature.

Furthermore, E.O. No. 44 does not contemplate compromise payment by set-off of a tax
liability against a claim for tax refund/credit.  Compromise under E.O. No. 44 may be availed
of only in the following circumstances:

SEC. 3.  Who may avail. – Any person, natural or juridical, may settle thru a compromise
any delinquent account or disputed assessment which has been due as of December 31,
1985, by paying an amount equal to thirty percent (30%) of the basic tax
assessed.…

SEC. 6.  Mode of Payment. – Upon acceptance of the proposed compromise, the amount
offered as compromise in complete settlement of the delinquent account shall be paid
immediately in cash or manager's certified check.

Deferred or staggered payments of compromise amounts over P50,000 may be considered on

a case to case basis in accordance with the extant regulations of the Bureau upon approval of
the Commissioner of Internal Revenue, his Deputy or Assistant as delineated in their
respective jurisdictions.

If the Compromise amount is not paid as required herein, the compromise agreement is
automatically nullified and the delinquent account reverted to the original amount plus the
statutory increments, which shall be collected thru the summary and/or judicial processes
provided by law.

E.O. No. 44 is not for the benefit of the taxpayer alone, who can extinguish his tax liability by
paying the compromise amount equivalent to 30% of the basic tax.  It also benefits the
Government by making collection of delinquent accounts and disputed assessments simpler,
easier, and faster.  Payment of the compromise amount must be made immediately, in cash
or in manager's check.  Although deferred or staggered payments may be allowed on a case-
to-case basis, the mode of payment remains unchanged, and must still be made either in
cash or in manager's check.

PNOC's offer to set-off was obviously made to avoid actual cash-out by the company. The
offer defeated the purpose of E.O. No. 44 because it would not only delay collection, but
more importantly, it would not guarantee collection.  First of all, BIR's collection was
contingent on whether the claim for tax refund/credit of NAPOCOR would be subsequently
granted.  Second, collection could not be made immediately and would have to wait until the
resolution of the claim for tax refund/credit of NAPOCOR.  Third, there is no proof, other than
the bare allegation of PNOC, that NAPOCOR's claim for tax refund/credit is an account
receivable of PNOC.  A possible dispute between NAPOCOR and PNOC as to the proceeds of
the tax refund/credit would only delay collection by the BIR even further.

It was only in its letter, dated 09 June 1987, that PNOC actually offered to compromise its tax
liability in accordance with the terms and circumstances prescribed by E.O. No. 44 and its
implementing rules and regulations, by stating that:

Consequently, we reiterate our previous request for compromise under E.O. No. 44, and
convey our preparedness to settle the subject tax assessment liability by payment of the
compromise amount of P91,003,129.89, representing thirty percent (30%) of the basic tax
assessment of P303,343,766.29, in accordance with E.O. No. 44 and its implementing BIR
Revenue Memorandum Order No. 39-86.80

PNOC claimed in the same letter that it had previously requested for a compromise under the
terms of E.O. No. 44, but this Court could not find evidence of such previous request.   There
are stark and substantial differences in the terms of PNOC's offer to compromise in its earlier
letters, dated 25 September 1986 and 14 October 1986 (set-off of the entire amount of its
tax liability against the claim for tax refund/credit of NAPOCOR), to those in its letter, dated
09 June 1987 (payment of the compromise amount representing 30% of the basic tax
assessed against it), making it difficult for this Court to accept that the letter of 09 June 1987
merely reiterated PNOC's offer to compromise in its earlier letters.

This Court likewise cannot give credence to PNOC's allegation that beginning 25 September
1986, the date of its first letter to the BIR, there were continuing negotiations between PNOC
and BIR that culminated in the compromise agreement on 22 June 1987.  Aside from the
exchange of letters recounted in the preceding paragraphs, both PNOC and PNB failed to
present any other proof of the supposed negotiations.

After the BIR denied the second offer of PNOC to set-off its tax liability against the claim for
tax refund/credit of NAPOCOR in a letter, dated 11 November 1986, there is no other
evidence of subsequent communication between PNOC and the BIR.  It was only after almost
seven months, or on 09 June 1987, that PNOC again wrote a letter to the BIR, this time
offering to pay the compromise amount of 30% of the basic tax assessed against.  This letter
was already filed beyond 31 March 1987, after the lapse of the effectivity of E.O. No. 44 and
the deadline for filing applications for compromise under the said statute.

Evidence of meetings between PNOC and the BIR, or any other form of communication,
wherein the parties presented their offer and counter-offer to the other, would have been
very valuable in explaining and supporting BIR Commissioner Tan's decision to accept PNOC's
third offer to compromise after denying the previous two.  The absence of such evidence
herein negates PNOC's claim of actual negotiations with the BIR.

Therefore, even assuming arguendo that the tax liabilities of PNOC and PNB qualify as
delinquent accounts or disputed assessments as of 31 December 1985, the application for
compromise filed by PNOC on 09 June 1987, and accepted by then BIR Commissioner Tan on
22 June 1987, was still filed way beyond 31 March 1987, the expiration date of the effectivity
of E.O. No. 44 and the deadline for filing of applications for compromise under RMO No. 39-
86.

D. The BIR Commissioner's discretionary authority to enter into a compromise agreement is

not absolute and the CTA may inquire into allegations of abuse thereof.

The foregoing discussion supports the CTA's conclusion that the compromise agreement
between PNOC and the BIR was indeed without legal basis.  Despite this lack of legal support
for the execution of the said compromise agreement, PNB argues that the CTA still had no
jurisdiction to review and set aside the compromise agreement.  It contends that the
authority to compromise is purely discretionary on the BIR Commissioner and the courts
cannot interfere with his exercise thereof.

It is generally true that purely administrative and discretionary functions may not be
interfered with by the courts; but when the exercise of such functions by the administrative
officer is tainted by a failure to abide by the command of the law, then it is incumbent on the
courts to set matters right, with this Court having the last say on the matter. 81

The manner by which BIR Commissioner Tan exercised his discretionary power to enter into a
compromise was brought under the scrutiny of the CTA amidst allegations of "grave abuse of
discretion and/or whimsical exercise of jurisdiction." 82 The discretionary power of the BIR
Commissioner to enter into compromises cannot be superior over the power of judicial review
by the courts.
The discretionary authority to compromise granted to the BIR Commissioner is never meant
to be absolute, uncontrolled and unrestrained.  No such unlimited power may be validly
granted to any officer of the government, except perhaps in cases of national emergency. 83 In
this case, the BIR Commissioner's authority to compromise, whether under E.O. No. 44 or
Section 246 of the NIRC of 1977, as amended, can only be exercised under certain
circumstances specifically identified in said statutes.  The BIR Commissioner would have to
exercise his discretion within the parameters set by the law, and in case he abuses his
discretion, the CTA may correct such abuse if the matter is appealed to them. 84

Petitioners PNOC and PNB both contend that BIR Commissioner Tan merely exercised his
authority to enter into a compromise specially granted by E.O. No. 44.  Since this Court has
already made a determination that the compromise agreement did not qualify under E.O. No.
44, BIR Commissioner Tan's decision to agree to the compromise should have been reviewed
in the light of the general authority granted to the BIR Commissioner to compromise taxes
under Section 246 of the NIRC of 1977, as amended.  Then again, petitioners PNOC and PNB
failed to allege, much less present evidence, that BIR Commissioner Tan acted in accordance
with Section 246 of the NIRC of 1977, as amended, when he entered into the compromise
agreement with PNOC.

E. The CTA may set aside a compromise agreement that is contrary to law and public policy.

PNB also asserts that the CTA had no jurisdiction to set aside a compromise agreement
entered into in good faith.  It relies on the decision of this Court in Republic v.
Sandiganbayan85 that a compromise agreement cannot be set aside merely because it is too
one-sided.  A compromise agreement should be respected by the courts as the res judicata
between the parties thereto.

This Court, though, finds that there are substantial differences in the factual background of
Republic v. Sandiganbayan and the present case.

The compromise agreement executed between the Presidential Commission on Good

Government (PCGG) and Roberto S. Benedicto in Republic v. Sandiganbayan was judicially
approved by the Sandiganbayan.  The Sandiganbayan had ample opportunity to examine the
validity of the compromise agreement since two years elapsed from the time the agreement
was executed up to the time it was judicially approved.  This Court even stated in the said
case that, "We are not dealing with the usual compromise agreement perfunctorily submitted
to a court and approved as a matter of course. The PCGG-Benedicto agreement was
thoroughly and, at times, disputatiously discussed before the respondent court. There could
be no deception or misrepresentation foisted on either the PCGG or the Sandiganbayan." 86

In addition, the new PCGG Chairman originally prayed for the re-negotiation of the
compromise agreement so that it could be more just, fair, and equitable, an action
considered by this Court as an implied admission that the agreement was not contrary to law,
public policy or morals nor was there any circumstance which had vitiated consent. 87

The above-mentioned circumstances strongly supported the validity of the compromise

agreement in Republic v. Sandiganbayan, which was why this Court refused to set it aside. 
Unfortunately for the petitioners in the present case, the same cannot be said herein.

The Court of Appeals, in upholding the jurisdiction of the CTA to set aside the compromise
agreement, ruled that:

We are unable to accept petitioner's submissions.  Its formulation of the issues on CIR and
CTA's lack of jurisdiction to disturb a compromise agreement presupposes a compromise
agreement validly entered into by the CIR and not, when as in this case, it was indubitably
shown that the supposed compromise agreement is without legal support.  In case of
arbitrary or capricious exercise by the Commissioner or if the proceedings were fatally
defective, the compromise can be attacked and reversed through the judicial process
(Meralco Securities Corporation v. Savellano, 117 SCRA 805, 812 [1982]; Sarah E. Ramsay,
et. al. v. U.S. 21 Ct. C1 443, aff'd 120 U.S. 214, 30 L. Ed. 582; Tyson v. U.S., 39 F. Supp. 135
cited in page 18 of decision) ….88

Although the general rule is that compromises are to be favored, and that compromises
entered into in good faith cannot be set aside, 89 this rule is not without qualification.  A court
may still reject a compromise or settlement when it is repugnant to law, morals, good
customs, public order, or public policy.90

The compromise agreement between the BIR and PNOC was contrary to law having been
entered into by BIR Commissioner Tan in excess or in abuse of the authority granted to him
by legislation.  E.O. No. 44 and the NIRC of 1977, as amended, had identified the situations
wherein the BIR Commissioner may compromise tax liabilities, and none of these situations
existed in this case.

The compromise, moreover, was contrary to public policy.  The primary duty of the BIR is to
collect taxes, since taxes are the lifeblood of the Government and their prompt and certain
availability are imperious needs.91 In the present case, however, BIR Commissioner Tan, by
entering into the compromise agreement that was bereft of any legal basis, would have
caused the Government to lose almost P300 million in tax revenues and would have deprived
the Government of much needed monetary resources.

Allegations of good faith and previous execution of the terms of the compromise agreement
on the part of PNOC would not be enough for this Court to disregard the demands of law and
public policy.  Compromise may be the favored method to settle disputes, but when it
involves taxes, it may be subject to closer scrutiny by the courts.  A compromise agreement
involving taxes would affect not just the taxpayer and the BIR, but also the whole nation, the
ultimate beneficiary of the tax revenues collected.

F. The Government cannot be estopped from collecting taxes by the mistake, negligence, or
omission of its agents.

The new BIR Commissioner, Commissioner Ong, had acted well within his powers when he
set aside the compromise agreement, dated 22 June 1987, after finding that the said
compromise agreement was without legal basis.  When he took over from his predecessor,
there was still a pending motion for reconsideration of the said compromise agreement, filed
by private respondent Savellano on 24 March 1988.  To resolve the said motion, he reviewed
the compromise agreement and, thereafter, came upon the conclusion that it did not comply
with E.O. No. 44 and its implementing rules and regulations.

It had been declared by this Court in Hilado v. Collector of Internal Revenue, et al.,92 that an
administrative officer, such as the BIR Commissioner, may revoke, repeal or abrogate the
acts or previous rulings of his predecessor in office.  The construction of a statute by those
administering it is not binding on their successors if, thereafter, the latter becomes satisfied
that a different construction should be given.

It is evident in this case that the new BIR Commissioner, Commissioner Ong, construed E.O.
No. 44 and its implementing rules and regulations differently from that of his predecessor,
former Commissioner Tan, which led to Commissioner Ong's revocation of the BIR approval
of the compromise agreement, dated 22 June 1987.  Such a revocation was only proper
considering that the former BIR Commissioner's decision to approve the said compromise
agreement was based on the erroneous construction of the law ( i.e., E.O. No. 44 and its
implementing rules and regulations) and should not give rise to any vested right on PNOC. 93
Furthermore, approval of the compromise agreement and acceptance of the compromise
payment by his predecessor cannot estop BIR Commissioner Ong from setting aside the
compromise agreement, dated 22 June 1987, for lack of legal basis; and from demanding
payment of the deficiency withholding tax from PNB.  As a general rule, the Government
cannot be estopped from collecting taxes by the mistake, negligence, or omission of its
agents94 because:

. . . Upon taxation depends the Government ability to serve the people for whose benefit
taxes are collected.  To safeguard such interest, neglect or omission of government officials
entrusted with the collection of taxes should not be allowed to bring harm or detriment to the
people, in the same manner as private persons may be made to suffer individually on account
of his own negligence, the presumption being that they take good care of their personal
affairs. This should not hold true to government officials with respect to matters not of their
own personal concern. This is the philosophy behind the government's exception, as a
general rule, from the operation of the principle of estoppel. ( Republic vs. Caballero, L-27437,
September 30, 1977, 79 SCRA 177; Manila Lodge No. 761, Benevolent and Protective Order
of the Elks, Inc. vs. Court of Appeals , L-41001, September 30, 1976, 73 SCRA 162; Sy vs.
Central Bank of the Philippines, L-41480, April 30, 1976, 70 SCRA 571; Balmaceda vs.
Corominas & Co., Inc., 66 SCRA 553; Auyong Hian vs. Court of Tax Appeals , 59 SCRA
110; Republic vs. Philippine Rabbit Bus Lines, Inc. , 66 SCRA 553; Republic vs. Philippine Long
Distance Telephone Company, L-18841, January 27, 1969, 26 SCRA 620; Zamora vs. Court of
Tax Appeals, L-23272, November 26, 1970, 36 SCRA 77; E. Rodriguez, Inc. vs. Collector of
Internal Revenue, L-23041, July 31, 1969, 28 SCRA 119).95

III. Finality of the Tax Assessment

A. The issue on whether the BIR complied with the notice requirements under RR No. 12-85
is raised for the first time on appeal and should not be given due course.

PNB, in another effort to block the collection of the deficiency withholding tax, this time raises
doubts as to the validity of the deficiency withholding tax assessment issued against it on 16
January 1991.  It submits that the BIR failed to comply with the notice requirements set forth
in RR No. 12-85.96

Whether or not the BIR complied with the notice requirements of RR No. 12-85 is a new issue
raised by PNB only before this Court.  Such a question has not been ventilated before the
lower courts.  For an appellate tribunal to consider a legal question, it should have been
raised in the court below.97 If raised earlier, the matter would have been seriously delved into
by the CTA and the Court of Appeals.98

B. The assessment against PNB had become final and unappealable, and therefore,
enforceable.

The CTA and the Court of Appeals declared as final and unappealable, and thus, enforceable,
the assessment against PNB, dated 16 January 1991, since PNB failed to protest said
assessment within the 30-day prescribed period.  This Court, though, finds that the significant
BIR assessment, as far as this case is concerned, should be the one issued by the BIR against
PNB on 08 October 1986.

The BIR issued on 08 October 1986 an assessment against PNB for its withholding tax liability
on the interest earnings and/or yields from PNOC's money placements with the bank.  It had
30 days from receipt to protest the BIR's assessment. 99 PNB, however, did not take any action
as to the said assessment so that upon the lapse of the period to protest, the withholding tax
assessment against it, dated 8 October 1986, became final and unappealable, and could no
longer be disputed.100 The courts may therefore order the enforcement of this assessment.

It is the enforcement of this BIR assessment against PNB, dated 08 October 1986, that is in
issue in the instant case.  If the compromise agreement is valid, it would effectively bar the
BIR from enforcing the assessment and collecting the assessed tax; on the other hand, if the
compromise agreement is void, then the courts can order the BIR to enforce the assessment
and collect the assessed tax.

As has been previously discussed by this Court, the BIR demand letter, dated 16 January
1991, is not a new assessment against PNB.  It only demanded from PNB the payment of the
balance of the withholding tax assessed against it on 08 October 1986.  The same demand
letter also has no substantial effect or impact on the resolution of the present case.  It is
already unnecessary and superfluous, having been issued by the BIR when CTA Case No.
4249 was already pending before the CTA.  At best, the demand letter, dated 16 January
1991, constitute a useful reference for the courts in computing the balance of PNB's tax
liability, after applying as partial payment thereon the amount previously received by the BIR
from PNOC pursuant to the compromise agreement.

IV. Prescription
A. The defense of prescription was never raised by petitioners PNOC and PNB, and should be
considered waived.

The dissenting opinion takes the position that the right of the BIR to assess and collect
income tax on the interest earnings and/or yields from PNOC's money placements with PNB,
particularly for taxable year 1985, had already prescribed, based on Section 268 of the NIRC
of 1977, as amended.

Section 268 of the NIRC of 1977, as amended, provides a three-year period of limitation for
the assessment and collection of internal revenue taxes, which begins to run after the last
day prescribed for filing of the return. 101

The dissenting opinion points out that more than four years have elapsed from 25 January
1986 (the last day prescribed by law for PNB to file its withholding tax return for the fourth
quarter of 1985) to 16 January 1991 (the date when the alleged final assessment of PNB's
tax liability was issued).

The issue of prescription, however, was brought up only in the dissenting opinion and was
never raised by PNOC and PNB in the proceedings before the BIR nor in any of their
pleadings submitted to the CTA and the Court of Appeals.

Section 1, Rule 9 of the Rules of Civil Procedure lays down the rule on defenses and
objections not pleaded, and reads:

SECTION 1.  Defenses and objections not pleaded.  – Defenses and objections not pleaded
either in a motion to dismiss or in the answer are deemed waived.  However, when it appears
from the pleadings or the evidence on record that the court has no jurisdiction over the
subject matter, that there is another action pending between the parties for the same cause,
or that the action is barred by prior judgment or by the statute of limitations, the court shall
dismiss the claim.

The general rule enunciated in the above-quoted provision governs the present case, that is,
the defense of prescription, not pleaded in a motion to dismiss or in the answer, is deemed
waived.  The exception in same provision cannot be applied herein because the pleadings and
the evidence on record do not sufficiently show that the action is barred by prescription.

It has been consistently held in earlier tax cases that the defense of prescription of the period
for the assessment and collection of tax liabilities shall be deemed waived when such defense
was not properly pleaded and the facts alleged and evidences submitted by the parties were
not sufficient to support a finding by this Court on the matter. 102 In Querol v. Collector of
Internal Revenue,103 this Court pronounced that prescription, being a matter of defense,
imposes the burden on the taxpayer to prove that the full period of the limitation has expired;
and this requires him to positively establish the date when the period started running and
when the same was fully accomplished.

In making its conclusion that the assessment and collection in this case had prescribed, the
dissenting opinion took liberties to assume the following facts even in the absence of
allegations and evidences to the effect that: (1) PNB filed returns for its withholding tax
obligations for taxable year 1985; (2) PNB reported in the said returns the interest earnings
of PNOC's money placements with the bank; and (3) that the returns were filed on or before
the prescribed date, which was 25 January 1986.

It is not safe to adopt the first and second assumptions in this case considering that Section
269 of the NIRC of 1977, as amended, provides for a different period of limitation for
assessment and collection of taxes in case of false or fraudulent return or for failure to file a
return.  In such cases, the BIR is given 10 years after discovery of the falsity, fraud, or
omission within which to make an assessment. 104

It is also not safe to accept the third assumption since there can be a possibility that PNB
filed the withholding tax return later than the prescribed date, in which case, following the
dictates of Section 268 of the NIRC of 1977, as amended, the three-year prescriptive period
shall be counted from the date the return was actually filed. 105

PNB's withholding tax returns for taxable year 1985, duly received by the BIR, would have
been the best evidence to prove actual filing, the date of filing and the contents thereof. 
These facts are relevant in determining which prescriptive period should apply, and when
such prescriptive period should begin to run and when it had lapsed.  Yet, the pleadings did
not refer to any return, and no return was made part of the records of the present case.

This Court could not make a proper ruling on the matter of prescription on the mere basis of
assumptions; such an issue should have been properly raised, argued, and supported by
evidences submitted by the parties themselves before the BIR and the courts below.

B. Granting that this Court can take cognizance of the defense of prescription, this Court finds
that the assessment of the withholding tax liability against PNOC and collection of the tax
assessed were done within the prescriptive period.
Assuming, for the sake of argument, that this Court can give due course to the defense of
prescription, it finds that the assessment against PNB for its withholding tax liability for
taxable year 1985 and the collection of the tax assessed therein were accomplished within
the prescribed periods for assessment and collection under the NIRC of 1977, as amended.

If this Court adopts the assumption made by the dissenting opinion that PNB filed its
withholding tax return for the last quarter of 1985 on 25 January 1986, then the BIR had until
24 January 1989 to assess PNB.  The original assessment against PNB was issued as early as
08 October 1986, well-within the three-year prescriptive period for making the assessment as
prescribed by the following provisions of the NIRC of 1977, as amended:

SEC. 268.  Period of limitation upon assessment and collection . – Except as provided in the
succeeding section, internal revenue taxes shall be assessed within three years after the last
day prescribed by law for the filing of the return, and no proceeding in court without
assessment for the collection of such taxes shall be begun after the expiration of such
period…

SEC. 269.  Exceptions as to period of limitation of assessment and collection of taxes. –…

(c) Any internal revenue tax which has been assessed within the period of limitation above-
prescribed may be collected by distraint or levy or by a proceeding in court within three years
following the assessment of the tax.

Sections 268 and 269(c) of the NIRC of 1977, as amended, should be read in conjunction
with one another.  Section 268 requires that assessment be made within three years from the
last day prescribed by law for the filing of the return.  Section 269(c), on the other hand,
provides that when an assessment is issued within the prescribed period provided in Section
268, the BIR has three years, counted from the date of the assessment, to collect the tax
assessed either by distraint, levy or court action.  Therefore, when an assessment is timely
issued in accordance with Section 268, the BIR is given another three-year period, under
Section 269(c), within which to collect the tax assessed, reckoned from the date of the
assessment.

In the case of PNB, an assessment was issued against it by the BIR on 08 October 1986, so
that the BIR had until 07 October 1989 to enforce it and to collect the tax assessed.  The
filing, however, by private respondent Savellano of his Amended Petition for Review before
the CTA on 02 July 1988 already constituted a judicial action for collection of the tax assessed
which stops the running of the three-year prescriptive period for collection thereof.
A judicial action for the collection of a tax may be initiated by the filing of a complaint with
the proper regular trial court; or where the assessment is appealed to the CTA, by filing an
answer to the taxpayer's petition for review wherein payment of the tax is prayed for. 106

The present case is unique, however, because the Petition for Review was filed by private
respondent Savellano, the informer, against the BIR, PNOC, and PNB.  The BIR, the collecting
government agency; PNOC, the taxpayer; and PNB, the withholding agent, initially found
themselves on the same side.  The prayer in the Amended Petition for Review of private
respondent Savellano reads:

WHEREFORE, in view of the foregoing, petitioner respectfully prays that the compromise
agreement of June 22, 1987 be reviewed and declared null and void, and that this Court
directs:

a) respondent Commissioner to enforce and collect and respondents PNB and/or PNOC to pay
in a joint and several capacity, the total tax liability of P387,987,785.73, plus interests from
31 October 1986; and

b) respondent Commissioner to pay unto petitioner, as informer's reward, 15% of the tax
liability collected under clause (a) hereof.

Other equitable reliefs under the premises are likewise prayed for. 107 (Underscoring ours.)

Private respondent Savellano, in his Amended Petition for Review in CTA Case No. 4249,
prayed for (1) the CTA to direct the BIR Commissioner to enforce and collect the tax, and (2)
PNB and/or PNOC to pay the tax – making CTA Case No. 4249 a collection case.  That the
Amended Petition for Review was filed by the informer and not the taxpayer; and that the
prayer for the enforcement of the tax assessment and payment of the tax was also made by
the informer, not the BIR, should not affect the nature of the case as a judicial action for
collection.  In case the CTA grants the Petition and the prayer therein, as what has happened
in the present case, the ultimate result would be the collection of the tax assessed. 
Consequently, upon the filing of the Amended Petition for Review by private respondent
Savellano, judicial action for collection of the tax had been initiated and the running of the
prescriptive period for collection of the said tax was terminated.

Supposing that CTA Case No. 4249 is not a collection case which stops the running of the
prescriptive period for the collection of the tax, CTA Case No. 4249, at the very least,
suspends the running of the said prescriptive period.  Under Section 271 of the NIRC of 1977,
as amended, the running of the prescriptive period to collect deficiency taxes shall be
suspended for the period during which the BIR Commissioner is prohibited from beginning a
distraint or levy or instituting a proceeding in court, and for 60 days thereafter. 108 Just as in
the cases of Republic v. Ker & Co., Ltd.109 and Protector's Services, Inc. v. Court of
Appeals,110 this Court declares herein that the pendency of the present case before the CTA,
the Court of Appeals and this Court, legally prevents the BIR Commissioner from instituting
an action for collection of the same tax liabilities assessed against PNOC and PNB in the CTA
or the regular trial courts.  To rule otherwise would be to violate the judicial policy of avoiding
multiplicity of suits and the rule on lis pendens.

Once again, that CTA Case No. 4249 was initiated by private respondent Savellano, the
informer, instead of PNOC, the taxpayer, or PNB, the withholding agent, would not prevent
the suspension of the running of the prescriptive period for collection of the tax.  What is
controlling herein is the fact that the BIR Commissioner cannot file a judicial action in any
other court for the collection of the tax because such a case would necessarily involve the
same parties and involve the same issues already being litigated before the CTA in CTA Case
No. 4249.  The three-year prescriptive period for collection of the tax shall commence to run
only after the promulgation of the decision of this Court in which the issues of the present
case are resolved with finality.

Whether the filing of the Amended Petition for Review by private respondent Savellano
entirely stops or merely suspends the running of the prescriptive period for collection of the
tax, it had been premature for the BIR Commissioner to issue a writ of garnishment against
PNB on 12 August 1991 and for the Central Bank of the Philippines to debit the account of
PNB on 02 September 1992 pursuant to the said writ, because the case was by then, pending
review by the Court of Appeals.  However, since this Court already finds that the compromise
agreement is without force and effect and hereby orders the enforcement of the assessment
against PNB, then, any issue or controversy arising from the premature garnishment of PNB's
account and collection of the tax by the BIR has become moot and academic at this point.

V. Additional Informer's Reward

Private respondent Savellano is entitled to additional informer's reward since the BIR had
already collected the full amount of the tax assessment against PNB.
PNOC insists that private respondent Savellano is not entitled to additional informer's reward
because there was no voluntary payment of the withholding tax liability.  PNOC, however,
fails to state any legal basis for its argument.

Section 316(1) of the NIRC of 1977, as amended, granted a reward to an informer equivalent
to 15% of the revenues, surcharges, or fees recovered, plus, any fine or penalty imposed and
collected.111 The provision was clear and uncomplicated – an informer was entitled to a
reward of 15% of the total amount actually recovered or collected by the BIR based on his
information.  The provision did not make any distinction as to the manner the tax liability was
collected – whether it was through voluntary payment by the taxpayer or through
garnishment of the taxpayer's property.  Applicable herein is another well-known maxim in
statutory construction – Ubi lex non distinguit nec nos distinguere debemos  – when the law
does not distinguish, we should not distinguish.112

Pursuant to the writ of garnishment issued by the BIR, the Central Bank issued a debit advice
against the demand deposit account of PNB with the Central Bank for the amount
of P294,958,450.73, and credited the same amount to the demand deposit account of the
Treasurer of the Republic of the Philippines.  The Treasurer of the Republic, in turn, already
issued a journal voucher transferring P294,958,450.73 to the account of the BIR.

Since the BIR had already collected P294,958,450.73 from PNB through the execution of the
writ of garnishment over PNB's deposit with the Central Bank, then private respondent
Savellano should be awarded 15% thereof as reward since the said collection could still be
traced to the information he had given.

WHEREFORE, in view of the foregoing, the Petitions of PNOC and PNB in G.R. No. 109976
and G.R. No. 112800, respectively, are hereby DENIED.  This Court AFFIRMS the assailed
Decisions of the Court of Appeals in CA-G.R. SP No. 29583 and CA-G.R. SP No. 29526, which
affirmed the decision of the CTA in CTA Case No. 4249, with modifications, to wit:

(1)    The compromise agreement between PNOC and the BIR, dated 22 June 1987, is
declared void for being contrary to law and public policy, and is without force and effect;

(2)Paragraph 2 of RMO No. 39-86 remains a valid provision of the regulation;

(3)The withholding tax assessment against PNB, dated 08 October 1986, had become final
and unappealable.  The BIR Commissioner is ordered to enforce the said assessment and
collect the amount of P294,958,450.73, the balance of tax assessed after crediting the
previous payment made by PNOC pursuant to the compromise agreement, dated 22 June
1987; and

(4)    Private respondent Savellano shall be paid the remainder of his informer's reward,
equivalent to 15% of the deficiency withholding tax ordered collected herein,
or P 44,243,767.61. SO ORDERED.

[G.R. NO. 136975 : March 31, 2005]

COMMISSION OF INTERNAL REVENUE, Petitioner, v. HANTEX TRADING CO.,

INC., Respondent.

Before us is a Petition for Review of the Decision1 of the Court of Appeals (CA) which
reversed the Decision2 of the Court of Tax Appeals (CTA) in CTA Case No. 5126, upholding
the deficiency income and sales tax assessments against respondent Hantex Trading Co., Inc.

The Antecedents

The respondent is a corporation duly organized and existing under the laws of the Philippines.
Being engaged in the sale of plastic products, it imports synthetic resin and other chemicals
for the manufacture of its products. For this purpose, it is required to file an Import Entry and
Internal Revenue Declaration (Consumption Entry) with the Bureau of Customs under Section
1301 of the Tariff and Customs Code.

Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of Counter-Intelligence Division of
the Economic Intelligence and Investigation Bureau (EIIB), received confidential information
that the respondent had imported synthetic resin amounting to P115,599,018.00 but only
declared P45,538,694.57.3 According to the informer, based on photocopies of 77
Consumption Entries furnished by another informer, the 1987 importations of the respondent
were understated in its accounting records.4 Amoto submitted a report to the EIIB
Commissioner recommending that an inventory audit of the respondent be conducted by the
Internal Inquiry and Prosecution Office (IIPO) of the EIIB.5

Acting on the said report, Jose T. Almonte, then Commissioner of the EIIB, issued Mission
Order No. 398-896 dated November 14, 1989 for the audit and investigation of the
importations of Hantex for 1987. The IIPO issued subpoena duces tecum and ad
testificandum for the president and general manager of the respondent to appear in a
hearing and bring the following:
1. Books of Accounts for the year 1987;
2. Record of Importations of Synthetic Resin and Calcium Carbonate for the year 1987;
3. Income tax returns & attachments for 1987; andcralawlibrary
4. Record of tax payments.7
However, the respondent's president and general manager refused to comply with the
subpoena, contending that its books of accounts and records of importation of synthetic resin
and calcium bicarbonate had been investigated repeatedly by the Bureau of Internal Revenue
(BIR) on prior occasions.8 The IIPO explained that despite such previous investigations, the
EIIB was still authorized to conduct an investigation pursuant to Section 26-A of Executive
Order No. 127. Still, the respondent refused to comply with the subpoena issued by the IIPO.
The latter forthwith secured certified copies of the Profit and Loss Statements for 1987 filed
by the respondent with the Securities and Exchange Commission (SEC).9 However, the IIPO
failed to secure certified copies of the respondent's 1987 Consumption Entries from the
Bureau of Customs since, according to the custodian thereof, the original copies had been
eaten by termites.10

In a Letter dated June 28, 1990, the IIPO requested the Chief of the Collection Division,
Manila International Container Port, and the Acting Chief of the Collection Division, Port of
Manila, to authenticate the machine copies of the import entries supplied by the informer.
However, Chief of the Collection Division Merlita D. Tomas could not do so because the
Collection Division did not have the original copies of the entries. Instead, she wrote the IIPO
that, as gleaned from the records, the following entries had been duly processed and
released after the payment of duties and taxes:

IMPORTER - HANTEX TRADING CO., INC. 'SERIES OF 1987

ENTRY NO. DATE RELEASED ENTRY NO. DATE RELEASED
Acting Chief of the Collection Division of the Bureau of Customs Augusto S. Danganan could
not authenticate the machine copies of the import entries as well, since the original copies of
the said entries filed with the Bureau of Customs had apparently been eaten by termites.
However, he issued a certification that the following enumerated entries were filed by the
respondent which were processed and released from the Port of Manila after payment of
duties and taxes, to wit:

Hantex Trading Co., Inc.

Entry No. Date Released Entry No. Date Released
Xxx
Bienvenido G. Flores, Chief of the Investigation Division, and Lt. Leo Dionela, Lt. Vicente
Amoto and Lt. Rolando Gatmaitan conducted an investigation. They relied on the certified
copies of the respondent's Profit and Loss Statement for 1987 and 1988 on file with the SEC,
the machine copies of the Consumption Entries, Series of 1987, submitted by the informer, as
well as excerpts from the entries certified by Tomas and Danganan.

Based on the documents/records on hand, inclusive of the machine copies of the

Consumption Entries, the EIIB found that for 1987, the respondent had importations
totaling P105,716,527.00 (inclusive of advance sales tax). Compared with the declared sales
based on the Profit and Loss Statements filed with the SEC, the respondent had unreported
sales in the amount of P63,032,989.17, and its corresponding income tax liability
was P41,916,937.78, inclusive of penalty charge and interests.

EIIB Commissioner Almonte transmitted the entire docket of the case to the BIR and
recommended the collection of the total tax assessment from the respondent.13

On February 12, 1991, Deputy Commissioner Deoferio, Jr. issued a Memorandum to the BIR
Assistant Commissioner for Special Operations Service, directing the latter to prepare a
conference letter advising the respondent of its deficiency taxes.14

Meanwhile, as ordered by the Regional Director, Revenue Enforcement Officers Saturnino D.

Torres and Wilson Filamor conducted an investigation on the 1987 importations of the
respondent, in the light of the records elevated by the EIIB to the BIR, inclusive of the
photocopies of the Consumption Entries. They were to ascertain the respondent's liability for
deficiency sales and income taxes for 1987, if any. Per Torres' and Filamor's Report dated
March 6, 1991 which was based on the report of the EIIB and the documents/records
appended thereto, there was a prima facie case of fraud against the respondent in filing its
1987 Consumption Entry reports with the Bureau of Customs. They found that the
respondent had unrecorded importation in the total amount of P70,661,694.00, and that the
amount was not declared in its income tax return for 1987. The District Revenue Officer and
the Regional Director of the BIR concurred with the report.15

Based on the said report, the Acting Chief of the Special Investigation Branch wrote the
respondent and invited its representative to a conference at 10:00 a.m. of March 14, 1991 to
discuss its deficiency internal revenue taxes and to present whatever documentary and other
evidence to refute the same.16 Appended to the letter was a computation of the deficiency
income and sales tax due from the respondent, inclusive of increments:
Total 14,752,903.2817

The invitation was reiterated in a Letter dated March 15, 1991. In his Reply dated March 15,
1991, Mariano O. Chua, the President and General Manager of the respondent, requested
that the report of Torres and Filamor be set aside on the following claim:

'[W]e had already been investigated by RDO No. 23 under Letters of Authority Nos. 0322988
RR dated Oct. 1, 1987, 0393561 RR dated Aug. 17, 1988 and 0347838 RR dated March 2,
1988, and re-investigated by the Special Investigation Team on Aug. 17, 1988 under Letter of
Authority No. 0357464 RR, and the Intelligence and Investigation Office on Sept. 27, 1988
under Letter of Authority No. 0020188 NA, all for income and business tax liabilities for 1987.
The Economic Intelligence and Investigation Bureau on Nov. 20, 1989, likewise, confronted
us on the same information for the same year.

In all of these investigations, save your request for an informal conference, we welcomed
them and proved the contrary of the allegation. Now, with your new inquiry, we think that
there will be no end to the problem.

Madam, we had been subjected to so many investigations and re-investigations for 1987 and
nothing came out except the payment of deficiency taxes as a result of oversight. Tax
evasion through underdeclaration of income had never been proven.18

Invoking Section 23519 of the 1977 National Internal Revenue Code (NIRC), as amended,
Chua requested that the inquiry be set aside.

The petitioner, the Commissioner of Internal Revenue, through Assistant Commissioner for
Collection Jaime M. Maza, sent a Letter dated April 15, 1991 to the respondent demanding
payment of its deficiency income tax of P13,414,226.40 and deficiency sales tax
of P14,752,903.25, inclusive of surcharge and interest.20 Appended thereto were the
Assessment Notices of Tax Deficiency Nos. FAS-1-87-91-001654 and FAS-4-87-91-001655.21

On February 12, 1992, the Chief of the Accounts Receivables/Billing Division of the BIR sent a
letter to the respondent demanding payment of its tax liability due for 1987 within ten (10)
days from notice, on pain of the collection tax due via a warrant of distraint and levy and/or
judicial action.22 The Warrant of Distraint and/or Levy23 was actually served on the
respondent on January 21, 1992. On September 7, 1992, it wrote the Commissioner of
Internal Revenue protesting the assessment on the following grounds:
I. THAT THE ASSESSMENT HAS NO FACTUAL AS WELL AS LEGAL BASIS, THE FACT THAT
NO INVESTIGATION OF OUR RECORDS WAS EVER MADE BY THE EIIB WHICH
RECOMMENDED ITS ISSUANCE.24
II. THAT GRANTING BUT WITHOUT ADMITTING THAT OUR PURCHASES FOR 1987
AMOUNTED TO P105,716,527.00 AS CLAIMED BY THE EIIB, THE ASSESSMENT OF A
DEFICIENCY INCOME TAX IS STILL DEFECTIVE FOR IT FAILED TO CONSIDER OUR REAL
PURCHASES OF P45,538,694.57.25
III.THAT THE ASSESSMENT OF A DEFICIENCY SALES TAX IS ALSO BASELESS AND
UNFOUNDED CONSIDERING THAT WE HAVE DUTIFULLY PAID THE SALES TAX DUE
FROM OUR BUSINESS.26

In view of the impasse, administrative hearings were conducted on the respondent's protest
to the assessment. During the hearing of August 20, 1993, the IIPO representative presented
the photocopies of the Consumption and Import Entries and the Certifications issued by
Tomas and Danganan of the Bureau of Customs. The IIPO representative testified that the
Bureau of Customs failed to furnish the EIIB with certified copies of the Consumption and
Import Entries; hence, the EIIB relied on the machine copies from their informer.27

The respondent wrote the BIR Commissioner on July 12, 1993 questioning the assessment on
the ground that the EIIB representative failed to present the original, or authenticated, or
duly certified copies of the Consumption and Import Entry Accounts, or excerpts thereof if the
original copies were not readily available; or, if the originals were in the official custody of a
public officer, certified copies thereof as provided for in Section 12, Chapter 3, Book VII,
Administrative Procedure, Administrative Order of 1987. It stated that the only copies of the
Consumption Entries submitted to the Hearing Officer were mere machine copies furnished
by an informer of the EIIB. It asserted that the letters of Tomas and Danganan were
unreliable because of the following:

In the said letters, the two collection officers merely submitted a listing of alleged import
entry numbers and dates released of alleged importations by Hantex Trading Co., Inc. of
merchandise in 1987, for which they certified that the corresponding duties and taxes were
paid after being processed in their offices. In said letters, no amounts of the landed costs and
advance sales tax and duties were stated, and no particulars of the duties and taxes paid per
import entry document was presented.

The contents of the two letters failed to indicate the particulars of the importations per entry
number, and the said letters do not constitute as evidence of the amounts of importations of
Hantex Trading Co., Inc. in 1987.
The respondent cited the following findings of the Hearing Officer:

'[T]hat the import entry documents do not constitute evidence only indicate that the tax
assessments in question have no factual basis, and must, at this point in time, be withdrawn
and cancelled. Any new findings by the IIPO representative who attended the hearing could
not be used as evidence in this hearing, because all the issues on the tax assessments in
question have already been raised by the herein taxpayer.29

The respondent requested anew that the income tax deficiency assessment and the sales tax
deficiency assessment be set aside for lack of factual and legal basis.

The BIR Commissioner30 wrote the respondent on December 10, 1993, denying its letter-
request for the dismissal of the assessments.31 The BIR Commissioner admitted, in the said
letter, the possibility that the figures appearing in the photocopies of the Consumption Entries
had been tampered with. She averred, however, that she was not proscribed from relying on
other admissible evidence, namely, the Letters of Torres and Filamor dated August 7 and 22,
1990 on their investigation of the respondent's tax liability. The Commissioner emphasized
that her decision was final.32

The respondent forthwith filed a Petition for Review in the CTA of the Commissioner's Final
Assessment Letter dated December 10, 1993 on the following grounds:

First. The alleged 1987 deficiency income tax assessment (including increments) and the
alleged 1987 deficiency sales tax assessment (including increments) are void ab initio, since
under Sections 16(a) and 49(b) of the Tax Code, the Commissioner shall examine a return
after it is filed and, thereafter, assess the correct amount of tax. The following facts obtaining
in this case, however, are indicative of the incorrectness of the tax assessments in question:
the deficiency interests imposed in the income and percentage tax deficiency assessment
notices were computed in violation of the provisions of Section 249(b) of the NIRC of 1977,
as amended; the percentage tax deficiency was computed on an annual basis for the year
1987 in accordance with the provision of Section 193, which should have been computed in
accordance with Section 162 of the 1977 NIRC, as amended by Pres. Decree No. 1994 on a
quarterly basis; and the BIR official who signed the deficiency tax assessments was the
Assistant Commissioner for Collection, who had no authority to sign the same under the
NIRC.

Second. Even granting arguendo that the deficiency taxes and increments for 1987 against
the respondent were correctly computed in accordance with the provisions of the Tax Code,
the facts indicate that the above-stated assessments were based on alleged documents which
are inadmissible in either administrative or judicial proceedings. Moreover, the alleged bases
of the tax computations were anchored on mere presumptions and not on actual facts. The
alleged undeclared purchases for 1987 were based on mere photocopies of alleged import
entry documents, not the original ones, and which had never been duly certified by the public
officer charged with the custody of such records in the Bureau of Customs. According to the
respondent, the alleged undeclared sales were computed based on mere presumptions as to
the alleged gross profit contained in its 1987 financial statement. Moreover, even the alleged
financial statement of the respondent was a mere machine copy and not an official copy of
the 1987 income and business tax returns. Finally, the respondent was following the accrual
method of accounting in 1987, yet, the BIR investigator who computed the 1987 income tax
deficiency failed to allow as a deductible item the alleged sales tax deficiency for 1987 as
provided for under Section 30(c) of the NIRC of 1986.33

The Commissioner did not adduce in evidence the original or certified true copies of the 1987
Consumption Entries on file with the Commission on Audit. Instead, she offered in evidence
as proof of the contents thereof, the photocopies of the Consumption Entries which the
respondent objected to for being inadmissible in evidence.34 She also failed to present any
witness to prove the correct amount of tax due from it. Nevertheless, the CTA provisionally
admitted the said documents in evidence, subject to its final evaluation of their relevancy and
probative weight to the issues involved.35

On December 11, 1997, the CTA rendered a decision, the dispositive portion of which reads:

IN THE LIGHT OF ALL THE FOREGOING, judgment is hereby rendered DENYING the herein
petition. Petitioner is hereby ORDERED TO PAY the respondent Commissioner of Internal
Revenue its deficiency income and sales taxes for the year 1987 in the amounts
of P11,182,350.26 and P12,660,382.46, respectively, plus 20% delinquency interest per
annum on both deficiency taxes from April 15, 1991 until fully paid pursuant to Section
283(c)(3) of the 1987 Tax Code, with costs against the petitioner.

SO ORDERED.36
The CTA ruled that the respondent was burdened to prove not only that the assessment was
erroneous, but also to adduce the correct taxes to be paid by it. The CTA declared that the
respondent failed to prove the correct amount of taxes due to the BIR. It also ruled that the
respondent was burdened to adduce in evidence a certification from the Bureau of Customs
that the Consumption Entries in question did not belong to it.
On appeal, the CA granted the petition and reversed the decision of the CTA. The dispositive
portion of the decision reads:

FOREGOING PREMISES CONSIDERED, the Petition for Review is GRANTED and the December
11, 1997 decision of the CTA in CTA Case No. 5162 affirming the 1987 deficiency income and
sales tax assessments and the increments thereof, issued by the BIR is hereby REVERSED.
No costs.37

The Ruling of the Court of Appeals

The CA held that the income and sales tax deficiency assessments issued by the petitioner
were unlawful and baseless since the copies of the import entries relied upon in computing
the deficiency tax of the respondent were not duly authenticated by the public officer
charged with their custody, nor verified under oath by the EIIB and the BIR
investigators.38 The CA also noted that the public officer charged with the custody of the
import entries was never presented in court to lend credence to the alleged loss of the
originals.39 The CA pointed out that an import entry is a public document which falls within
the provisions of Section 19, Rule 132 of the Rules of Court, and to be admissible for any
legal purpose, Section 24, Rule 132 of the Rules of Court should apply.40 Citing the ruling of
this Court in Collector of Internal Revenue v. Benipayo ,41 the CA ruled that the assessments
were unlawful because they were based on hearsay evidence. The CA also ruled that the
respondent was deprived of its right to due process of law.

The CA added that the CTA should not have just brushed aside the legal requisites provided
for under the pertinent provisions of the Rules of Court in the matter of the admissibility of
public documents, considering that substantive rules of evidence should not be disregarded.
It also ruled that the certifications made by the two Customs Collection Chiefs under the
guise of supporting the respondent's alleged tax deficiency assessments invoking the best
evidence obtainable rule under the Tax Code should not be permitted to supplant the best
evidence rule under Section 7, Rule 130 of the Rules of Court.

Finally, the CA noted that the tax deficiency assessments were computed without the tax
returns. The CA opined that the use of the tax returns is indispensable in the computation of
a tax deficiency; hence, this essential requirement must be complied with in the preparation
and issuance of valid tax deficiency assessments.42

The Present Petition

The Commissioner of Internal Revenue, the petitioner herein, filed the present Petition for
Review under Rule 45 of the Rules of Court for the reversal of the decision of the CA and for
the reinstatement of the ruling of the CTA.

As gleaned from the pleadings of the parties, the threshold issues for resolution are the
following: (a) whether the petition at bench is proper and complies with Sections 4 and 5,
Rule 7 of the Rules of Court; (b) whether the December 10, 1991 final assessment of the
petitioner against the respondent for deficiency income tax and sales tax for the latter's 1987
importation of resins and calcium bicarbonate is based on competent evidence and the law;
and (c) the total amount of deficiency taxes due from the respondent for 1987, if any.

On the first issue, the respondent points out that the petition raises both questions of facts
and law which cannot be the subject of an appeal by certiorari under Rule 45 of the Rules of
Court. The respondent notes that the petition is defective because the verification and the
certification against forum shopping were not signed by the petitioner herself, but only by the
Regional Director of the BIR. The respondent submits that the petitioner should have filed a
motion for reconsideration with the CA before filing the instant Petition for Review .43

We find and so rule that the petition is sufficient in form. A verification and certification
against forum shopping signed by the Regional Director constitutes sufficient compliance with
the requirements of Sections 4 and 5, Rule 7 of the Rules of Court. Under Section 10 of the
NIRC of 1997,44 the Regional Director has the power to administer and enforce internal
revenue laws, rules and regulations, including the assessment and collection of all internal
revenue taxes, charges and fees. Such power is broad enough to vest the Revenue Regional
Director with the authority to sign the verification and certification against forum shopping in
behalf of the Commissioner of Internal Revenue. There is no other person in a better position
to know the collection cases filed under his jurisdiction than the Revenue Regional Director.

Moreover, under Revenue Administrative Order No. 5-83,45 the Regional Director is

authorized to sign all pleadings filed in connection with cases referred to the Revenue
Regions by the National Office which, otherwise, require the signature of the petitioner.

We do not agree with the contention of the respondent that a motion for reconsideration
ought to have been filed before the filing of the instant petition. A motion for reconsideration
of the decision of the CA is not a condition sine qua non for the filing of a Petition for Review
under Rule 45. As we held in Almora v. Court of Appeals:46

Rule 45, Sec. 1 of the Rules of Court, however, distinctly provides that:
A party may appeal by certiorari from a judgment of the Court of Appeals, by filing with the
Supreme Court a petition for certiorari within fifteen (15) days from notice of judgment, or of
the denial of his motion for reconsideration filed in due time. ( Emphasis supplied)

The conjunctive "or" clearly indicates that the 15-day reglementary period for the filing of a
petition for certiorari under Rule 45 commences either from notice of the questioned
judgment or from notice of denial of the appellant's motion for reconsideration. A prior
motion for reconsideration is not indispensable for a Petition for Review on Certiorari under
Rule 45 to prosper. '47

While Rule 45 of the Rules of Court provides that only questions of law may be raised by the
petitioner and resolved by the Court, under exceptional circumstances, the Court may take
cognizance thereof and resolve questions of fact. In this case, the findings and conclusion of
the CA are inconsistent with those of the CTA, not to mention those of the Commissioner of
Internal Revenue. The issues raised in this case relate to the propriety and the correctness of
the tax assessments made by the petitioner against the respondent, as well as the propriety
of the application of Section 16, paragraph (b) of the 1977 NIRC, as amended by Pres.
Decree Nos. 1705, 1773, 1994 and Executive Order No. 273, in relation to Section 3, Rule
132 of the Rules of Evidence. There is also an imperative need for the Court to resolve the
threshold factual issues to give justice to the parties, and to determine whether the CA
capriciously ignored, misunderstood or misinterpreted cogent facts and circumstances which,
if considered, would change the outcome of the case.

On the second issue, the petitioner asserts that since the respondent refused to cooperate
and show its 1987 books of account and other accounting records, it was proper for her to
resort to the best evidence obtainable - the photocopies of the import entries in the Bureau
of Customs and the respondent's financial statement filed with the SEC.48 The petitioner
maintains that these import entries were admissible as secondary evidence under the best
evidence obtainable rule, since they were duly authenticated by the Bureau of Customs
officials who processed the documents and released the cargoes after payment of the duties
and taxes due.49 Further, the petitioner points out that under the best evidence obtainable
rule, the tax return is not important in computing the tax deficiency.50

The petitioner avers that the best evidence obtainable rule under Section 16 of the 1977
NIRC, as amended, legally cannot be equated to the best evidence rule under the Rules of
Court; nor can the best evidence rule, being procedural law, be made strictly operative in the
interpretation of the best evidence obtainable rule which is substantive in character.51 The
petitioner posits that the CTA is not strictly bound by technical rules of evidence, the reason
being that the quantum of evidence required in the said court is merely substantial
evidence.52

Finally, the petitioner avers that the respondent has the burden of proof to show the correct
assessments; otherwise, the presumption in favor of the correctness of the assessments
made by it stands.53 Since the respondent was allowed to explain its side, there was no
violation of due process.54

The respondent, for its part, maintains that the resort to the best evidence obtainable
method was illegal. In the first place, the respondent argues, the EIIB agents are not duly
authorized to undertake examination of the taxpayer's accounting records for internal
revenue tax purposes. Hence, the respondent's failure to accede to their demands to show its
books of accounts and other accounting records cannot justify resort to the use of the best
evidence obtainable method.55 Secondly, when a taxpayer fails to submit its tax records
upon demand by the BIR officer, the remedy is not to assess him and resort to the best
evidence obtainable rule, but to punish the taxpayer according to the provisions of the Tax
Code.56

In any case, the respondent argues that the photocopies of import entries cannot be used in
making the assessment because they were not properly authenticated, pursuant to the
provisions of Sections 2457 and 2558 of Rule 132 of the Rules of Court. It avers that while
the CTA is not bound by the technical rules of evidence, it is bound by substantial
rules.59 The respondent points out that the petitioner did not even secure a certification of
the fact of loss of the original documents from the custodian of the import entries. It simply
relied on the report of the EIIB agents that the import entry documents were no longer
available because they were eaten by termites. The respondent posits that the two collectors
of the Bureau of Customs never authenticated the xerox copies of the import entries; instead,
they only issued certifications stating therein the import entry numbers which were processed
by their office and the date the same were released.60

The respondent argues that it was not necessary for it to show the correct assessment,
considering that it is questioning the assessments not only because they are erroneous, but
because they were issued without factual basis and in patent violation of the assessment
procedures laid down in the NIRC of 1977, as amended.61 It is also pointed out that the
petitioner failed to use the tax returns filed by the respondent in computing the deficiency
taxes which is contrary to law;62 as such, the deficiency assessments constituted deprivation
of property without due process of law.63
Central to the second issue is Section 16 of the NIRC of 1977, as amended,64 which provides
that the Commissioner of Internal Revenue has the power to make assessments and
prescribe additional requirements for tax administration and enforcement. Among such
powers are those provided in paragraph (b) thereof, which we quote:

(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 law or regulation 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.65

This provision applies when the Commissioner of Internal Revenue undertakes to perform her
administrative duty of assessing the proper tax against a taxpayer, to make a return in case
of a taxpayer's failure to file one, or to amend a return already filed in the BIR.

The petitioner may avail herself of the best evidence or other information or testimony by
exercising her power or authority under paragraphs (1) to (4) of Section 7 of the NIRC:

(1) To examine any book, paper, record or other data which may be relevant or material to
such inquiry;
(2) To obtain information from any office or officer of the national and local governments,
government agencies or its instrumentalities, including the Central Bank of the Philippines
and government owned or controlled corporations;
(3) 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;
(4) To take such testimony of the person concerned, under oath, as may be relevant or
material to such inquiry; '66
The "best evidence" envisaged in Section 16 of the 1977 NIRC, as amended, includes the
corporate and accounting records of the taxpayer who is the subject of the assessment
process, the accounting records of other taxpayers engaged in the same line of business,
including their gross profit and net profit sales.67 Such evidence also includes data, record,
paper, document or any evidence gathered by internal revenue officers from other taxpayers
who had personal transactions or from whom the subject taxpayer received any income; and
record, data, document and information secured from government offices or agencies, such
as the SEC, the Central Bank of the Philippines, the Bureau of Customs, and the Tariff and
Customs Commission.

The law allows the BIR access to all relevant or material records and data in the person of
the taxpayer. It places no limit or condition on the type or form of the medium by which the
record subject to the order of the BIR is kept. The purpose of the law is to enable the BIR to
get at the taxpayer's records in whatever form they may be kept. Such records include
computer tapes of the said records prepared by the taxpayer in the course of business.68 In
this era of developing information-storage technology, there is no valid reason to immunize
companies with computer-based, record-keeping capabilities from BIR scrutiny. The standard
is not the form of the record but where it might shed light on the accuracy of the taxpayer's
return.

In Campbell, Jr. v. Guetersloh,69 the United States (U.S.) Court of Appeals (5th Circuit)
declared that it is the duty of the Commissioner of Internal Revenue to investigate any
circumstance which led him to believe that the taxpayer had taxable income larger than
reported. Necessarily, this inquiry would have to be outside of the books because they
supported the return as filed. He may take the sworn testimony of the taxpayer; he may take
the testimony of third parties; he may examine and subpoena, if necessary, traders' and
brokers' accounts and books and the taxpayer's book accounts. The Commissioner is not
bound to follow any set of patterns. The existence of unreported income may be shown by
any practicable proof that is available in the circumstances of the particular situation. Citing
its ruling in Kenney v. Commissioner,70 the U.S. appellate court declared that where the
records of the taxpayer are manifestly inaccurate and incomplete, the Commissioner may
look to other sources of information to establish income made by the taxpayer during the
years in question.71

We agree with the contention of the petitioner that the best evidence obtainable may consist
of hearsay evidence, such as the testimony of third parties or accounts or other records of
other taxpayers similarly circumstanced as the taxpayer subject of the investigation, hence,
inadmissible in a regular proceeding in the regular courts.72 Moreover, the general rule is
that administrative agencies such as the BIR are not bound by the technical rules of
evidence. It can accept documents which cannot be admitted in a judicial proceeding where
the Rules of Court are strictly observed. It can choose to give weight or disregard such
evidence, depending on its trustworthiness.

However, the best evidence obtainable under Section 16 of the 1977 NIRC, as amended,
does not include mere photocopies of records/documents. The petitioner, in making a
preliminary and final tax deficiency assessment against a taxpayer, cannot anchor the said
assessment on mere machine copies of records/documents. Mere photocopies of the
Consumption Entries have no probative weight if offered as proof of the contents thereof.
The reason for this is that such copies are mere scraps of paper and are of no probative
value as basis for any deficiency income or business taxes against a taxpayer. Indeed,
in United States v. Davey,73 the U.S. Court of Appeals (2nd Circuit) ruled that where the
accuracy of a taxpayer's return is being checked, the government is entitled to use the
original records rather than be forced to accept purported copies which present the risk of
error or tampering.74

In Collector of Internal Revenue v. Benipayo ,75 the Court ruled that the assessment must be
based on actual facts. The rule assumes more importance in this case since the xerox copies
of the Consumption Entries furnished by the informer of the EIIB were furnished by yet
another informer. While the EIIB tried to secure certified copies of the said entries from the
Bureau of Customs, it was unable to do so because the said entries were allegedly eaten by
termites. The Court can only surmise why the EIIB or the BIR, for that matter, failed to
secure certified copies of the said entries from the Tariff and Customs Commission or from
the National Statistics Office which also had copies thereof. It bears stressing that under
Section 1306 of the Tariff and Customs Code, the Consumption Entries shall be the required
number of copies as prescribed by regulations.76 The Consumption Entry is accomplished in
sextuplicate copies and quadruplicate copies in other places. In Manila, the six copies are
distributed to the Bureau of Customs, the Tariff and Customs Commission, the Declarant
(Importer), the Terminal Operator, and the Bureau of Internal Revenue. Inexplicably, the
Commissioner and the BIR personnel ignored the copy of the Consumption Entries filed with
the BIR and relied on the photocopies supplied by the informer of the EIIB who secured the
same from another informer. The BIR, in preparing and issuing its preliminary and final
assessments against the respondent, even ignored the records on the investigation made by
the District Revenue officers on the respondent's importations for 1987.
The original copies of the Consumption Entries were of prime importance to the BIR. This is
so because such entries are under oath and are presumed to be true and correct under
penalty of falsification or perjury. Admissions in the said entries of the importers' documents
are admissions against interest and presumptively correct.77

In fine, then, the petitioner acted arbitrarily and capriciously in relying on and giving weight
to the machine copies of the Consumption Entries in fixing the tax deficiency assessments
against the respondent.

The rule is that in the absence of the accounting records of a taxpayer, his tax liability may
be determined by estimation. The petitioner is not required to compute such tax liabilities
with mathematical exactness. Approximation in the calculation of the taxes due is justified. To
hold otherwise would be tantamount to holding that skillful concealment is an invincible
barrier to proof.78 However, the rule does not apply where the estimation is arrived at
arbitrarily and capriciously.79

We agree with the contention of the petitioner that, as a general rule, tax assessments by tax
examiners are presumed correct and made in good faith. All presumptions are in favor of the
correctness of a tax assessment. It is to be presumed, however, that such assessment was
based on sufficient evidence. Upon the introduction of the assessment in evidence, a prima
facie case of liability on the part of the taxpayer is made.80 If a taxpayer files a Petition for
Review in the CTA and assails the assessment, the prima facie presumption is that the
assessment made by the BIR is correct, and that in preparing the same, the BIR personnel
regularly performed their duties. This rule for tax initiated suits is premised on several factors
other than the normal evidentiary rule imposing proof obligation on the petitioner-taxpayer:
the presumption of administrative regularity; the likelihood that the taxpayer will have access
to the relevant information; and the desirability of bolstering the record-keeping requirements
of the NIRC.81

However, the prima facie correctness of a tax assessment does not apply upon proof that an
assessment is utterly without foundation, meaning it is arbitrary and capricious. Where the
BIR has come out with a "naked assessment," i.e., without any foundation character, the
determination of the tax due is without rational basis.82 In such a situation, the U.S. Court of
Appeals ruled83 that the determination of the Commissioner contained in a deficiency notice
disappears. Hence, the determination by the CTA must rest on all the evidence introduced
and its ultimate determination must find support in credible evidence.
The issue that now comes to fore is whether the tax deficiency assessment against the
respondent based on the certified copies of the Profit and Loss Statement submitted by the
respondent to the SEC in 1987 and 1988, as well as certifications of Tomas and Danganan, is
arbitrary, capricious and illegal. The CTA ruled that the respondent failed to overcome
the prima facie correctness of the tax deficiency assessment issued by the petitioner, to wit:

The issue should be ruled in the affirmative as petitioner has failed to rebut the validity or
correctness of the aforementioned tax assessments. It is incongruous for petitioner to prove
its cause by simply drawing an inference unfavorable to the respondent by attacking the
source documents (Consumption Entries) which were the bases of the assessment and which
were certified by the Chiefs of the Collection Division, Manila International Container Port and
the Port of Manila, as having been processed and released in the name of the petitioner after
payment of duties and taxes and the duly certified copies of Financial Statements secured
from the Securities and Exchange Commission. Any such inference cannot operate to relieve
petitioner from bearing its burden of proof and this Court has no warrant of absolution. The
Court should have been persuaded to grant the reliefs sought by the petitioner should it have
presented any evidence of relevance and competence required, like that of a certification
from the Bureau of Customs or from any other agencies, attesting to the fact that those
consumption entries did not really belong to them.

The burden of proof is on the taxpayer contesting the validity or correctness of an

assessment to prove not only that the Commissioner of Internal Revenue is wrong but the
taxpayer is right (Tan Guan v. CTA, 19 SCRA 903), otherwise, the presumption in favor of the
correctness of tax assessment stands (Sy Po v. CTA, 164 SCRA 524). The burden of proving
the illegality of the assessment lies upon the petitioner alleging it to be so. In the case at bar,
petitioner miserably failed to discharge this duty.84

We are not in full accord with the findings and ratiocination of the CTA. Based on the letter of
the petitioner to the respondent dated December 10, 1993, the tax deficiency assessment in
question was based on (a) the findings of the agents of the EIIB which was based, in turn, on
the photocopies of the Consumption Entries; (b) the Profit and Loss Statements of the
respondent for 1987 and 1988; and (c) the certifications of Tomas and Danganan dated
August 7, 1990 and August 22, 1990:

In reply, please be informed that after a thorough evaluation of the attending facts, as well
as the laws and jurisprudence involved, this Office holds that you are liable to the assessed
deficiency taxes. The conclusion was arrived at based on the findings of agents of the
Economic Intelligence & Investigation Bureau (EIIB) and of our own examiners who have
painstakingly examined the records furnished by the Bureau of Customs and the Securities &
Exchange Commission (SEC). The examination conducted disclosed that while your actual
sales for 1987 amounted to P110,731,559.00, you declared for taxation purposes, as shown
in the Profit and Loss Statements, the sum of P47,698,569.83 only. The difference, therefore,
of P63,032,989.17 constitutes as undeclared or unrecorded sales which must be subjected to
the income and sales taxes.

You also argued that our assessment has no basis since the alleged amount of underdeclared
importations were lifted from uncertified or unauthenticated xerox copies of consumption
entries which are not admissible in evidence. On this issue, it must be considered that in
letters dated August 7 and 22, 1990, the Chief and Acting Chief of the Collection Division of
the Manila International Container Port and Port of Manila, respectively, certified that the
enumerated consumption entries were filed, processed and released from the port after
payment of duties and taxes. It is noted that the certification does not touch on the
genuineness, authenticity and correctness of the consumption entries which are all xerox
copies, wherein the figures therein appearing may have been tampered which may render
said documents inadmissible in evidence, but for tax purposes, it has been held that the
Commissioner is not required to make his determination (assessment) on the basis of
evidence legally admissible in a formal proceeding in Court (Mertens, Vol. 9, p. 214,
citing Cohen v. Commissioner). A statutory notice may be based in whole or in part upon
admissible evidence (Llorente v. Commissioner, 74 TC 260 (1980); Weimerskirch v.
Commissioner, 67 TC 672 (1977); and Rosano v. Commissioner, 46 TC 681 (1966). In the
case also of Weimerskirch v. Commissioner (1977), the assessment was given due course in
the presence of admissible evidence as to how the Commissioner arrived at his
determination, although there was no admissible evidence with respect to the substantial
issue of whether the taxpayer had unreported or undeclared income from narcotics sale. '85

Based on a Memorandum dated October 23, 1990 of the IIPO, the source documents for the
actual cost of importation of the respondent are the machine copies of the Consumption
Entries from the informer which the IIPO claimed to have been certified by Tomas and
Danganan:

The source documents for the total actual cost of importations, abovementioned, were the
different copies of Consumption Entries, Series of 1987, filed by subject with the Bureau of
Customs, marked Annexes "F-1" to "F-68." The total cost of importations is the sum of the
Landed Costs and the Advance Sales Tax as shown in the annexed entries. These entries
were duly authenticated as having been processed and released, after payment of the duties
and taxes due thereon, by the Chief, Collection Division, Manila International Container Port,
dated August 7, 1990, "Annex-G," and the Port of Manila, dated August 22, 1990, "Annex-H."
So, it was established that subject-importations, mostly resins, really belong to HANTEX
TRADING CO., INC.86

It also appears on the worksheet of the IIPO, as culled from the photocopies of the
Consumption Entries from its informer, that the total cost of the respondent's importation for
1987 was P105,761,527.00. Per the report of Torres and Filamor, they also relied on the
photocopies of the said Consumption Entries:

The importations made by taxpayer verified by us from the records of the Bureau of Customs
and xerox copies of which are hereto attached shows the big volume of importations made
and not declared in the income tax return filed by taxpayer.

Based on the above findings, it clearly shows that a prima facie case of fraud exists in the
herein transaction of the taxpayer, as a consequence of which, said transaction has not been
possibly entered into the books of accounts of the subject taxpayer.87

In fine, the petitioner based her finding that the 1987 importation of the respondent was
underdeclared in the amount of P105,761,527.00 on the worthless machine copies of the
Consumption Entries. Aside from such copies, the petitioner has no other evidence to prove
that the respondent imported goods costing P105,761,527.00. The petitioner cannot find
solace on the certifications of Tomas and Danganan because they did not authenticate the
machine copies of the Consumption Entries, and merely indicated therein the entry numbers
of Consumption Entries and the dates when the Bureau of Customs released the same. The
certifications of Tomas and Danganan do not even contain the landed costs and the advance
sales taxes paid by the importer, if any. Comparing the certifications of Tomas and Danganan
and the machine copies of the Consumption Entries, only 36 of the entry numbers of such
copies are included in the said certifications; the entry numbers of the rest of the machine
copies of the Consumption Entries are not found therein.

Even if the Court would concede to the petitioner's contention that the certification of Tomas
and Danganan authenticated the machine copies of the Consumption Entries referred to in
the certification, it appears that the total cost of importations inclusive of advance sales tax is
only P64,324,953.00 - far from the amount of P105,716,527.00 arrived at by the EIIB and the
BIR,88 or even the amount of P110,079,491.61 arrived at by Deputy Commissioner Deoferio,
Jr.89 As gleaned from the certifications of Tomas and Danganan, the goods covered by the
Consumption Entries were released by the Bureau of Customs, from which it can be
presumed that the respondent must have paid the taxes due on the said importation. The
petitioner did not adduce any documentary evidence to prove otherwise.

Thus, the computations of the EIIB and the BIR on the quantity and costs of the importations
of the respondent in the amount of P105,761,527.00 for 1987 have no factual basis, hence,
arbitrary and capricious. The petitioner cannot rely on the presumption that she and the
other employees of the BIR had regularly performed their duties. As the Court held
in Collector of Internal Revenue v. Benipayo ,90 in order to stand judicial scrutiny, the
assessment must be based on facts. The presumption of the correctness of an assessment,
being a mere presumption, cannot be made to rest on another presumption.

Moreover, the uncontroverted fact is that the BIR District Revenue Office had repeatedly
examined the 1987 books of accounts of the respondent showing its importations, and found
that the latter had minimal business tax liability. In this case, the presumption that the
District Revenue officers performed their duties in accordance with law shall apply. There is
no evidence on record that the said officers neglected to perform their duties as mandated by
law; neither is there evidence aliunde that the contents of the 1987 and 1988 Profit and Loss
Statements submitted by the respondent with the SEC are incorrect.

Admittedly, the respondent did not adduce evidence to prove its correct tax liability.
However, considering that it has been established that the petitioner's assessment is barren
of factual basis, arbitrary and illegal, such failure on the part of the respondent cannot serve
as a basis for a finding by the Court that it is liable for the amount contained in the said
assessment; otherwise, the Court would thereby be committing a travesty.

On the disposition of the case, the Court has two options, namely, to deny the petition for
lack of merit and affirm the decision of the CA, without prejudice to the petitioner's issuance
of a new assessment against the respondent based on credible evidence; or, to remand the
case to the CTA for further proceedings, to enable the petitioner to adduce in evidence
certified true copies or duplicate original copies of the Consumption Entries for the
respondent's 1987 importations, if there be any, and the correct tax deficiency assessment
thereon, without prejudice to the right of the respondent to adduce controverting evidence,
so that the matter may be resolved once and for all by the CTA. In the higher interest of
justice to both the parties, the Court has chosen the latter option. After all, as the Tax Court
of the United States emphasized in Harbin v. Commissioner of Internal Revenue ,91 taxation is
not only practical; it is vital. The obligation of good faith and fair dealing in carrying out its
provision is reciprocal and, as the government should never be over-reaching or tyrannical,
neither should a taxpayer be permitted to escape payment by the concealment of material
facts.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court
of Appeals is SET ASIDE. The records are REMANDED to the Court of Tax Appeals for further
proceedings, conformably with the decision of this Court. No costs. SO ORDERED.

G.R. No. 162852             December 16, 2004

PHILIPPINE JOURNALISTS, INC., petitioner,vs.

COMMISSIONER OF INTERNAL REVENUE, respondent.

This is a petition for review filed by Philippine Journalists, Incorporated (PJI) assailing the
Decision1 of the Court of Appeals dated August 5, 2003, 2 which ordered petitioner to pay the
assessed tax liability of P111,291,214.46 and the Resolution 3 dated March 31, 2004 which
denied the Motion for Reconsideration.

The case arose from the Annual Income Tax Return filed by petitioner for the calendar year
ended December 31, 1994 which presented a net income of P30,877,387.00 and the tax due
of P10,807,086.00. After deducting tax credits for the year, petitioner paid the amount of
P10,247,384.00.

On August 10, 1995, Revenue District Office No. 33 of the Bureau of Internal Revenue (BIR)
issued Letter of Authority No. 87120 4 for Revenue Officer Federico de Vera, Jr. and Group
Supervisor Vivencio Gapasin to examine petitioner’s books of account and other accounting
records for internal revenue taxes for the period January 1, 1994 to December 31, 1994.

From the examination, the petitioner was told that there were deficiency taxes, inclusive of
surcharges, interest and compromise penalty in the following amounts:

Value Added Tax P 229,527.90

Income Tax 125,002,892.95
Withholding Tax 2,748,012.35
Total P 127,980,433.20

In a letter dated August 29, 1997, Revenue District Officer Jaime Concepcion invited
petitioner to send a representative to an informal conference on September 15, 1997 for an
opportunity to object and present documentary evidence relative to the proposed
assessment. On September 22, 1997, petitioner’s Comptroller, Lorenza Tolentino, executed a
"Waiver of the Statute of Limitation Under the National Internal Revenue Code (NIRC)". 5 The
document "waive[d] the running of the prescriptive period provided by Sections 223 and 224
and other relevant provisions of the NIRC and consent[ed] to the assessment and collection
of taxes which may be found due after the examination at any time after the lapse of the
period of limitations fixed by said Sections 223 and 224 and other relevant provisions of the
NIRC, until the completion of the investigation". 6
On July 2, 1998, Revenue Officer De Vera submitted his audit report recommending the
issuance of an assessment and finding that petitioner had deficiency taxes in the total
amount of P136,952,408.97. On October 5, 1998, the Assessment Division of the BIR issued
Pre-Assessment Notices which informed petitioner of the results of the investigation. Thus,
BIR Revenue Region No. 6, Assessment Division/Billing Section, issued Assessment/Demand
No. 33-1-000757-947 on December 9, 1998 stating the following deficiency taxes, inclusive of
interest and compromise penalty:

Income Tax P108,743,694.88

Value Added Tax 184,299.20
Expanded Withholding Tax 2,363,220.38
Total P111,291,214.46

On March 16, 1999, a Preliminary Collection Letter was sent by Deputy Commissioner Romeo
S. Panganiban to the petitioner to pay the assessment within ten (10) days from receipt of
the letter. On November 10, 1999, a Final Notice Before Seizure 8 was issued by the same
deputy commissioner giving the petitioner ten (10) days from receipt to pay. Petitioner
received a copy of the final notice on November 24, 1999. By letters dated November 26,
1999, petitioner asked to be clarified how the tax liability of P111,291,214.46 was reached
and requested an extension of thirty (30) days from receipt of the clarification within which to
reply.9
The BIR received a follow-up letter from the petitioner asserting that its (PJI) records do not
show receipt of Tax Assessment/Demand No. 33-1-000757-94. 10 Petitioner also contested that
the assessment had no factual and legal basis. On March 28, 2000, a Warrant of Distraint
and/or Levy No. 33-06-04611 signed by Deputy Commissioner Romeo Panganiban for the BIR
was received by the petitioner.

Petitioner filed a Petition for Review 12 with the Court of Tax Appeals (CTA) which was
amended on May 12, 2000. Petitioner complains: (a) that no assessment or demand was
received from the BIR; (b) that the warrant of distraint and/or levy was without factual and
legal bases as its issuance was premature; (c) that the assessment, having been made
beyond the 3-year prescriptive period, is null and void; (d) that the issuance of the warrant
without being given the opportunity to dispute the same violates its right to due process; and
(e) that the grave prejudice that will be sustained if the warrant is enforced is enough basis
for the issuance of the writ of preliminary injunction.

On May 14, 2002, the CTA rendered its decision,13 to wit:

As to whether or not the assessment notices were received by the petitioner, this Court rules
in the affirmative.

To disprove petitioner’s allegation of non-receipt of the aforesaid assessment notices,

respondent presented a certification issued by the Post Master of the Central Post Office,
Manila to the effect that Registered Letter No. 76134 sent by the BIR, Region No. 6, Manila
on December 15, 1998 addressed to Phil. Journalists, Inc. at Journal Bldg., Railroad St.,
Manila was duly delivered to and received by a certain Alfonso Sanchez, Jr. (Authorized
Representative) on January 8, 1999. Respondent also showed proof that in claiming
Registered Letter No. 76134, Mr. Sanchez presented three identification cards, one of which
is his company ID with herein petitioner. …

However, as to whether or not the Waiver of the Statute of Limitations is valid and binding on
the petitioner is another question. Since the subject assessments were issued beyond the
three-year prescriptive period, it becomes imperative on our part to rule first on the validity of
the waiver allegedly executed on September 22, 1997, for if this court finds the same to be
ineffective, then the assessments must necessarily fail. …

After carefully examining the questioned Waiver of the Statute of Limitations, this Court
considers the same to be without any binding effect on the petitioner for the following
reasons:

The waiver is an unlimited waiver. It does not contain a definite expiration date. Under RMO
No. 20-90, the phrase indicating the expiry date of the period agreed upon to assess/collect
the tax after the regular three-year period of prescription should be filled up…

Secondly, the waiver failed to state the date of acceptance by the Bureau which under the
aforequoted RMO should likewise be indicated…
Finally, petitioner was not furnished a copy of the waiver. It is to be noted that under RMO
No. 20-90, the waiver must be executed in three (3) copies, the second copy of which is for
the taxpayer. It is likewise required that the fact of receipt by the taxpayer of his/her file
copy be indicated in the original copy. Again, respondent failed to comply.

It bears stressing that RMO No. 20-90 is directed to all concerned internal revenue officers.
The said RMO even provides that the procedures found therein should be strictly followed,
under pain of being administratively dealt with should non-compliance result to prescription
of the right to assess/collect…

Thus, finding the waiver executed by the petitioner on September 22, 1997 to be suffering
from legal infirmities, rendering the same invalid and ineffective, the Court finds
Assessment/Demand No. 33-1-000757-94 issued on December 5, 1998 to be time-barred.
Consequently, the Warrant of Distraint and/or Levy issued pursuant thereto is considered null
and void.

WHEREFORE,  in view of all the foregoing, the instant Petition for Review is
hereby GRANTED. Accordingly, the deficiency income, value-added and expanded
withholding tax assessments issued by the respondent against the petitioner on December 9,
1998, in the total amount of P111,291,214.46 for the year 1994 are hereby
declared CANCELLED, WITHDRAWN and WITH NO FORCE AND EFFECT. Likewise,
Warrant of Distraint and/or Levy No. 33-06-046 is hereby declared NULL and VOID. SO
ORDERED.14

After the motion for reconsideration of the Commissioner of Internal Revenue was denied by
the CTA in a Resolution dated August 2, 2002, an appeal was filed with the Court of Appeals
on August 12, 2002.

In its decision dated August 5, 2003, the Court of Appeals disagreed with the ruling of the
CTA, to wit:

… The petition for review filed on 26 April 2000 with CTA was neither timely filed nor the
proper remedy. Only decisions of the BIR, denying the request for reconsideration or
reinvestigation may be appealed to the CTA. Mere assessment notices which have become
final after the lapse of the thirty (30)-day reglementary period are not appealable. Thus, the
CTA should not have entertained the petition at all.…
… [T]he CTA found the waiver executed by Phil. Journalists to be invalid for the following
reasons: (1) it does not indicate a definite expiration date; (2) it does not state the date of
acceptance by the BIR; and (3) Phil. Journalist, the taxpayer, was not furnished a copy of the
waiver. These grounds are merely formal in nature. The date of acceptance by the BIR does
not categorically appear in the document but it states at the bottom page that the BIR
"accepted and agreed to:"…, followed by the signature of the BIR’s authorized representative.
Although the date of acceptance was not stated, the document was dated 22 September
1997. This date could reasonably be understood as the same date of acceptance by the BIR
since a different date was not otherwise indicated. As to the allegation that Phil. Journalists
was not furnished a copy of the waiver, this requirement appears ridiculous. Phil. Journalists,
through its comptroller, Lorenza Tolentino, signed the waiver. Why would it need a copy of
the document it knowingly executed when the reason why copies are furnished to a party is
to notify it of the existence of a document, event or proceeding? …

As regards the need for a definite expiration date, this is the biggest flaw of the decision. The
period of prescription for the assessment of taxes may be extended provided that the
extension be made in writing and that it be made prior to the expiration of the period of
prescription. These are the requirements for a valid extension of the prescriptive period. To
these requirements provided by law, the memorandum order adds that the length of the
extension be specified by indicating its expiration date. This requirement could be reasonably
construed from the rule on extension of the prescriptive period. But this requirement does not
apply in the instant case because what we have here is not an extension of the prescriptive
period but a waiver thereof. These are two (2) very different things. What Phil. Journalists
executed was a renunciation of its right to invoke the defense of prescription. This is a valid
waiver. When one waives the prescriptive period, it is no longer necessary to indicate the
length of the extension of the prescriptive period since the person waiving may no longer use
this defense.

WHEREFORE, the 02 August 2002 resolution and 14 May 2002 decision of the CTA are
hereby SET ASIDE. Respondent Phil. Journalists is ordered [to] pay its assessed tax liability of
P111,291,214.46.

SO ORDERED.15

Petitioner’s Motion for Reconsideration was denied in a Resolution dated March 31, 2004.
Hence, this appeal on the following assignment of errors:
 I.

The Honorable Court of Appeals committed grave error in ruling that it is outside the
jurisdiction of the Court of Tax Appeals to entertain the Petition for Review filed by the herein
Petitioner at the CTA despite the fact that such case inevitably rests upon the validity of the
issuance by the BIR of warrants of distraint and levy contrary to the provisions of Section
7(1) of Republic Act No. 1125.

II.

The Honorable Court of Appeals gravely erred when it ruled that failure to comply with the
provisions of Revenue Memorandum Order (RMO) No. 20-90 is merely a formal defect that
does not invalidate the waiver of the statute of limitations without stating the legal
justification for such conclusion. Such ruling totally disregarded the mandatory requirements
of Section 222(b) of the Tax Code and its implementing regulation, RMO No. 20-90 which are
substantive in nature. The RMO provides that violation thereof subjects the erring officer to
administrative sanction. This directive shows that the RMO is not merely cover forms.

III.

The Honorable Court of Appeals gravely erred when it ruled that the assessment notices
became final and unappealable. The assessment issued is void and legally non-existent
because the BIR has no power to issue an assessment beyond the three-year prescriptive
period where there is no valid and binding waiver of the statute of limitation.

IV.

The Honorable Court of Appeals gravely erred when it held that the assessment in question
has became final and executory due to the failure of the Petitioner to protest the same.
Respondent had no power to issue an assessment beyond the three year period under the
mandatory provisions of Section 203 of the NIRC. Such assessment should be held void and
non-existent, otherwise, Section 203, an expression of a public policy, would be rendered
useless and nugatory. Besides, such right to assess cannot be validly granted after three
years since it would arise from a violation of the mandatory provisions of Section 203 and
would go against the vested right of the Petitioner to claim prescription of assessment.

V.
The Honorable Court of Appeals committed grave error when it HELD valid a defective waiver
by considering the latter a waiver of the right to invoke the defense of prescription rather
than an extension of the three year period of prescription (to make an assessment) as
provided under Section 222 in relation to Section 203 of the Tax Code, an interpretation that
is contrary to law, existing jurisprudence and outside of the purpose and intent for which they
were enacted.16

We find merit in the appeal.

The first assigned error relates to the jurisdiction of the CTA over the issues in this case. The
Court of Appeals ruled that only decisions of the BIR denying a request for reconsideration or
reinvestigation may be appealed to the CTA. Since the petitioner did not file a request for
reinvestigation or reconsideration within thirty (30) days, the assessment notices became
final and unappealable. The petitioner now argue that the case was brought to the CTA
because the warrant of distraint or levy was illegally issued and that no assessment was
issued because it was based on an invalid waiver of the statutes of limitations.

We agree with petitioner. Section 7(1) of Republic Act No. 1125, the Act Creating the Court of
Tax Appeals, provides for the jurisdiction of that special court:

SEC. 7. Jurisdiction. – The Court of Tax Appeals shall exercise exclusive appellate jurisdiction
to review by appeal, as herein provided –

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed

assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the National Internal Revenue Code
or other laws or part of law administered by the Bureau of Internal Revenue;
(Emphasis supplied).

The appellate jurisdiction of the CTA is not limited to cases which involve decisions of the
Commissioner of Internal Revenue on matters relating to assessments or refunds. The second
part of the provision covers other cases that arise out of the NIRC or related laws
administered by the Bureau of Internal Revenue. The wording of the provision is clear and
simple. It gives the CTA the jurisdiction to determine if the warrant of distraint and levy
issued by the BIR is valid and to rule if the Waiver of Statute of Limitations was validly
effected.
This is not the first case where the CTA validly ruled on issues that did not relate directly to a
disputed assessment or a claim for refund. In Pantoja v. David,17 we upheld the jurisdiction of
the CTA to act on a petition to invalidate and annul the distraint orders of the Commissioner
of Internal Revenue. Also, in Commissioner of Internal Revenue v. Court of Appeals ,18 the
decision of the CTA declaring several waivers executed by the taxpayer as null and void, thus
invalidating the assessments issued by the BIR, was upheld by this Court.

The second and fifth assigned errors both focus on Revenue Memorandum Circular No. 20-90
(RMO No. 20-90) on the requisites of a valid waiver of the statute of limitations. The Court of
Appeals held that the requirements and procedures laid down in the RMO are only formal in
nature and did not invalidate the waiver that was signed even if the requirements were not
strictly observed.

The NIRC, under Sections 203 and 222, 19 provides for a statute of limitations on the
assessment and collection of internal revenue taxes in order to safeguard the interest of the
taxpayer against unreasonable investigation.20 Unreasonable investigation contemplates cases
where the period for assessment extends indefinitely because this deprives the taxpayer of
the assurance that it will no longer be subjected to further investigation for taxes after the
expiration of a reasonable period of time. As was held in Republic of the Phils. v. Ablaza:21

The law prescribing a limitation of actions for the collection of the income tax is beneficial
both to the Government and to its citizens; to the Government because tax officers would be
obliged to act promptly in the making of assessment, and to citizens because after the lapse
of the period of prescription citizens would have a feeling of security against unscrupulous tax
agents who will always find an excuse to inspect the books of taxpayers, not to determine the
latter’s real liability, but to take advantage of every opportunity to molest peaceful, law-
abiding citizens. Without such a legal defense taxpayers would furthermore be under
obligation to always keep their books and keep them open for inspection subject to
harassment by unscrupulous tax agents. The law on prescription being a remedial
measure should be interpreted in a way conducive to bringing about the
beneficent purpose of affording protection to the taxpayer within the
contemplation of the Commission which recommend the approval of the
law. (Emphasis supplied)

RMO No. 20-90 implements these provisions of the NIRC relating to the period of prescription
for the assessment and collection of taxes. A cursory reading of the Order supports
petitioner’s argument that the RMO must be strictly followed, thus:
In the execution of said waiver, the following procedures should be followed:

1. The waiver must be in the form identified hereof. This form may be reproduced by the
Office concerned but there should be no deviation from such form. The phrase "but
not after __________ 19___" should be filled up…

2. …Soon after the waiver is signed by the taxpayer, the Commissioner of Internal Revenue
or the revenue official authorized by him, as hereinafter provided, shall sign the waiver
indicating that the Bureau has accepted and agreed to the waiver. The date of such
acceptance by the Bureau should be indicated…

3. The following revenue officials are authorized to sign the waiver.

A. In the National Office…

3. CommissionerFor tax cases involving more than P1M

B. In the Regional Offices

1. The Revenue District Officer with respect to tax cases still pending investigation and the
period to assess is about to prescribe regardless of amount.
…

5. The foregoing procedures shall be strictly followed. Any revenue official found
not to have complied with this Order resulting in prescription of the right to
assess/collect shall be administratively dealt with. (Emphasis supplied)22

A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of
the taxpayers’ right to security against prolonged and unscrupulous investigations and must
therefore be carefully and strictly construed. 23 The waiver of the statute of limitations is not a
waiver of the right to invoke the defense of prescription as erroneously held by the Court of
Appeals. It is an agreement between the taxpayer and the BIR that the period to issue an
assessment and collect the taxes due is extended to a date certain. The waiver does not
mean that the taxpayer relinquishes the right to invoke prescription unequivocally particularly
where the language of the document is equivocal. For the purpose of safeguarding taxpayers
from any unreasonable examination, investigation or assessment, our tax law provides a
statute of limitations in the collection of taxes. Thus, the law on prescription, being a
remedial measure, should be liberally construed in order to afford such protection. As a
corollary, the exceptions to the law on prescription should perforce be strictly
construed.24 RMO No. 20-90 explains the rationale of a waiver:

... The phrase "but not after _________ 19___" should be filled up. This indicates the expiry
date of the period agreed upon to assess/collect the tax after the regular three-year period of
prescription. The period agreed upon shall constitute the time within which to effect
the assessment/collection of the tax in addition to the ordinary prescriptive
period. (Emphasis supplied)

As found by the CTA, the Waiver of Statute of Limitations, signed by petitioner’s comptroller
on September 22, 1997 is not valid and binding because it does not conform with the
provisions of RMO No. 20-90. It did not specify a definite agreed date between the BIR and
petitioner, within which the former may assess and collect revenue taxes. Thus, petitioner’s
waiver became unlimited in time, violating Section 222(b) of the NIRC.

The waiver is also defective from the government side because it was signed only by a
revenue district officer, not the Commissioner, as mandated by the NIRC and RMO No. 20-90.
The waiver is not a unilateral act by the taxpayer or the BIR, but is a bilateral agreement
between two parties to extend the period to a date certain. The conformity of the BIR must
be made by either the Commissioner or the Revenue District Officer. This case involves taxes
amounting to more than One Million Pesos (P1,000,000.00) and executed almost seven
months before the expiration of the three-year prescription period. For this, RMO No. 20-90
requires the Commissioner of Internal Revenue to sign for the BIR.

The case of Commissioner of Internal Revenue v. Court of Appeals,25 dealt with waivers that
were not signed by the Commissioner but were argued to have been given implied consent
by the BIR. We invalidated the subject waivers and ruled:

Petitioner’s submission is inaccurate……

The Court of Appeals itself also passed upon the validity of the waivers executed by
Carnation, observing thus:

We cannot go along with the petitioner’s theory. Section 319 of the Tax Code earlier quoted
is clear and explicit that the waiver of the five-year 26 prescriptive period must be in writing
and signed by both the BIR Commissioner and the taxpayer.
Here, the three waivers signed by Carnation do not bear the written consent of the BIR
Commissioner as required by law.

We agree with the CTA in holding "these ‘waivers’ to be invalid and without any binding
effect on petitioner (Carnation) for the reason that there was no consent by the respondent
(Commissioner of Internal Revenue)."…

For sure, no such written agreement concerning the said three waivers exists between the
petitioner and private respondent Carnation.…

What is more, the waivers in question reveal that they are in no wise unequivocal, and
therefore necessitates for its binding effect the concurrence of the Commissioner of Internal
Revenue…. On this basis neither implied consent can be presumed nor can it be
contended that the waiver required under Sec. 319 of the Tax Code is one which is
unilateral nor can it be said that concurrence to such an agreement is a mere
formality because it is the very signatures of both the Commissioner of Internal
Revenue and the taxpayer which give birth to such a valid agreement. 27 (Emphasis
supplied)

The other defect noted in this case is the date of acceptance which makes it difficult to fix
with certainty if the waiver was actually agreed before the expiration of the three-year
prescriptive period. The Court of Appeals held that the date of the execution of the waiver on
September 22, 1997 could reasonably be understood as the same date of acceptance by the
BIR. Petitioner points out however that Revenue District Officer Sarmiento could not have
accepted the waiver yet because she was not the Revenue District Officer of RDO No. 33 on
such date. Ms. Sarmiento’s transfer and assignment to RDO No. 33 was only signed by the
BIR Commissioner on January 16, 1998 as shown by the Revenue Travel Assignment Order
No. 14-98.28 The Court of Tax Appeals noted in its decision that it is unlikely as well that Ms.
Sarmiento made the acceptance on January 16, 1998 because "Revenue Officials normally
have to conduct first an inventory of their pending papers and property responsibilities." 29

Finally, the records show that petitioner was not furnished a copy of the waiver. Under RMO
No. 20-90, the waiver must be executed in three copies with the second copy for the
taxpayer. The Court of Appeals did not think this was important because the petitioner need
not have a copy of the document it knowingly executed. It stated that the reason copies are
furnished is for a party to be notified of the existence of a document, event or proceeding.
The flaw in the appellate court’s reasoning stems from its assumption that the waiver is a
unilateral act of the taxpayer when it is in fact and in law an agreement between the
taxpayer and the BIR. When the petitioner’s comptroller signed the waiver on September 22,
1997, it was not yet complete and final because the BIR had not assented. There is
compliance with the provision of RMO No. 20-90 only after the taxpayer received a copy of
the waiver accepted by the BIR. The requirement to furnish the taxpayer with a copy of the
waiver is not only to give notice of the existence of the document but of the acceptance by
the BIR and the perfection of the agreement.

The waiver document is incomplete and defective and thus the three-year prescriptive period
was not tolled or extended and continued to run until April 17, 1998. Consequently, the
Assessment/Demand No. 33-1-000757-94 issued on December 9, 1998 was invalid because it
was issued beyond the three (3) year period. In the same manner, Warrant of Distraint
and/or Levy No. 33-06-046 which petitioner received on March 28, 2000 is also null and void
for having been issued pursuant to an invalid assessment.

WHEREFORE, premises considered, the instant petition for review is GRANTED. The

Decision of the Court of Appeals dated August 5, 2003 and its Resolution dated March 31,
2004 are REVERSED and SET ASIDE. The Decision of the Court of Tax Appeals in CTA
Case No. 6108 dated May 14, 2002, declaring Warrant of Distraint and/or Levy No. 33-06-046
null and void, is REINSTATED. SO ORDERED.

G.R. No. 172509, February 04, 2015

CHINA BANKING CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL

REVENUE, Respondent.

This Rule 45 Petition1 requires this Court to address the question of prescription of the
government’s right to collect taxes. Petitioner China Banking Corporation (CBC) assails the
Decision2 and Resolution3 of the Court of Tax Appeals (CTA) En Banc  in CTA En Banc Case
No. 109. The CTA En Banc affirmed the Decision4 in CTA Case No. 6379 of the CTA Second
Division, which had also affirmed the validity of Assessment No. FAS-5-82/85-89-000586 and
FAS-5-86-89-00587. The Assessment required petitioner CBC to pay the amount of
P11,383,165.50, plus increments accruing thereto, as deficiency documentary stamp tax
(DST) for the taxable years 1982 to 1986.cralawred

FACTS
Petitioner CBC is a universal bank duly organized and existing under the laws of the
Philippines. For the taxable years 1982 to 1986, CBC was engaged in transactions involving
sales of foreign exchange to the Central Bank of the Philippines (now Bangko Sentral ng
Pilipinas), commonly known as SWAP transactions. 5 Petitioner did not file tax returns or pay
tax on the SWAP transactions for those taxable years.

On 19 April 1989, petitioner CBC received an assessment from the Bureau of Internal
Revenue (BIR) finding CBC liable for deficiency DST on the sales of foreign bills of exchange
to the Central Bank. The deficiency DST was computed as follows:

Deficiency Documentary Stamp Tax                                    
Amount
For the years 1982 to 1985 

P 8,280,696.00
For calendar year 1986
P 2,481 ,975.60

Add : Surcharge 
P 620,493.90
P 3,102.469.50
 P11 ,383,165.506

On 8 May 1989, petitioner CBC, through its vice-president, sent a letter of protest to the BIR.
CBC raised the following defenses: (1) double taxation, as the bank had previously paid the
DST on all its transactions involving sales of foreign bills of exchange to the Central Bank;
(2) absence of liability, as the liability for the DST in a sale of foreign exchange through
telegraphic transfers to the Central Bank falls on the buyer ? in this case, the Central Bank;
(3) due process violation, as the bank’s records were never formally examined by the BIR
examiners; (4) validity of the assessment, as it did not include the factual basis therefore;
(5) exemption, as neither the tax-exempt entity nor the other party was liable for the
payment of DST before the effectivity of Presidential Decree Nos. (PD) 1177 and 1931 for the
years 1982 to 1986.7 In the protest, the taxpayer requested a reinvestigation so as to
substantiate its assertions.
On 6 December 2001, more than 12 years after the filing of the protest, the
Commissioner of Internal Revenue (CIR) rendered a decision reiterating the deficiency DST
assessment and ordered the payment thereof plus increments within 30 days from receipt of
the Decision.

On 18 January 2002, CBC filed a Petition for Review with the CTA. On 11 March 2002, the
CIR filed an Answer with a demand for CBC to pay the assessed DST. 1

On 23 February 2005, and after trial on the merits, the CTA Second Division denied the
Petition of CBC. The CTA ruled that a SWAP arrangement should be treated as a telegraphic
transfer subject to documentary stamp tax.

On 30 March 2005, petitioner CBC filed a Motion for Reconsideration, but it was denied in a
Resolution dated 14 July 2005.

On 5 August 2005, petitioner appealed to the CTA En Banc. The appellate tax court, however,
dismissed the Petition for Review in a Decision dated 1 December 2005. CBC filed a Motion
for Reconsideration on 21 December 2005, but it was denied in a 20 March 2006 Resolution.

The taxpayer now comes to this Court with a Rule 45 Petition, reiterating the arguments it
raised at the CTA level and invoking for the first time the argument of prescription. Petitioner
CBC states that the government has three years from 19 April 1989, the date the former
received the assessment of the CIR, to collect the tax. Within that time frame, however,
neither a warrant of distraint or levy was issued, nor a collection case filed in court.

On 17 October 2006, respondent CIR submitted its Comment in compliance with the Court’s
Resolution dated 26 June 2006.12 The Comment did not have any discussion on the question
of prescription.

On 21 February 2007, the Court issued a Resolution directing the parties to file their
respective Memoranda. Petitioner CBC filed its Memorandum 13 on 26 April 2007. The CIR, on
the other hand, filed on 17 April 2007 a Manifestation stating that it was adopting the
allegations and authorities in its Comment in lieu of the required Memorandum.
ISSUE
Given the facts and the arguments raised in this case, the resolution of this case hinges on
this issue: whether the right of the BIR to collect the assessed DST from CBC is barred by
prescription.

RULING OF THE COURT

We grant the Petition on the ground that the right of the BIR to collect the assessed DST is
barred by the statute of limitations.

Prescription Has Set In.

To recall, the Bureau of Internal Revenue (BIR) issued the assessment for deficiency DST on
19 April 1989, when the applicable rule was Section 319(c) of the National Internal Revenue
Code of 1977, as amended.16  In that provision, the time limit for the government to collect
the assessed tax is set at three years, to be reckoned from the date when the BIR
mails/releases/sends the assessment notice to the taxpayer. Further, Section 319(c) states
that the assessed tax must be collected by distraint or levy and/or court proceeding within
the three-year period.

With these rules in mind, we shall now determine whether the claim of the BIR is barred by
time.

In this case, the records do not show when the assessment notice was mailed, released or
sent to CBC. Nevertheless, the latest possible date that the BIR could have released, mailed
or sent the assessment notice was on the same date that CBC received it, 19 April 1989.
Assuming therefore that 19 April 1989 is the reckoning date, the BIR had three years to
collect the assessed DST. However, the records of this case show that there was neither a
warrant of distraint or levy served on CBC's properties nor a collection case filed in court by
the BIR within the three-year period.

The attempt of the BIR to collect the tax through its Answer with a demand for CBC to pay
the assessed DST in the CTA on 11 March 2002 did not comply with Section 319(c) of the
1977 Tax Code, as amended. The demand was made almost thirteen years from the date
from which the prescriptive period is to be reckoned. Thus, the attempt to collect the tax was
made way beyond the three-year prescriptive period.
The BIR’s Answer in the case filed before the CTA could not, by any means, have qualified as
a collection case as required by law. Under the rule prevailing at the time the BIR filed its
Answer, the regular courts, and not the CTA, had jurisdiction over judicial actions for
collection of internal revenue taxes. It was only on 23 April 2004, when Republic Act Number
9282 took effect,17 that the jurisdiction of the CTA was expanded to include, among others,
original jurisdiction over collection cases in which the principal amount involved is one million
pesos or more.

Consequently, the claim of the CIR for deficiency DST from petitioner is forever lost, as it is
now barred by time. This Court has no other option but to dismiss the present case.

The running of the statute of

limitations was not suspended
by the request for reinvestigation.

The fact that the taxpayer in this case may have requested a reinvestigation did not toll the
running of the three-year prescriptive period. Section 320 of the 1977 Tax Code
states:chanroblesvirtuallawlibrary

Sec. 320. Suspension of running of statute. —The running of the statute of limitations

provided in Sections 318 or 319 on the making of assessment and the beginning of distraint
or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended
for the period during which the Commissioner is prohibited from making the assessment or
beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the
taxpayer requests for a re-investigation which is granted by the Commissioner;
when the taxpayer cannot be located in the address given by him in the return filed upon
which a tax is being assessed or collected: Provided, That if the taxpayer informs the
Commissioner of any change in address, the running of the statute of limitations will not be
suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his
authorized representative, or a member of his household with sufficient discretion, and no
property could be located; and when the taxpayer is out of the Philippines. (Emphasis
supplied)

The provision is clear.  A request for reinvestigation alone will not suspend the statute of
limitations. Two things must concur: there must be a request for reinvestigation and the CIR
must have granted it. BPI v. Commissioner of Internal Revenue 18 emphasized this rule by
stating:
In the case of Republic of the Philippines v. Gancayco,  taxpayer Gancayco requested for a
thorough reinvestigation of the assessment against him and placed at the disposal of the
Collector of Internal Revenue all the [evidence] he had for such purpose; yet, the Collector
ignored the request, and the records and documents were not at all examined. Considering
the given facts, this Court pronounced that—
x x x. The act of requesting a reinvestigation alone does not suspend the period.
The request should first be granted, in order to effect suspension. (Collector v.
Suyoc Consolidated, supra; also Republic v. Ablaza, supra ). Moreover, the Collector gave
appellee until April 1, 1949, within which to submit his evidence, which the latter did one day
before. There were no impediments on the part of the Collector to file the collection case
from April 1, 1949 x x x.
In Republic of the Philippines v. Acebedo, this Court similarly found that —
. . . [T]he defendant, after receiving the assessment notice of September 24, 1949, asked for
a reinvestigation thereof on October 11, 1949 (Exh. “A”). There is no evidence that this
request was considered or acted upon. In fact, on October 23, 1950 the then Collector of
Internal Revenue issued a warrant of distraint and levy for the full amount of the assessment
(Exh. “D”), but there was follow-up of this warrant. Consequently, the request for
reinvestigation did not suspend the running of the period for filing an action for
collection. (Emphasis in the original)
The Court went on to declare that the burden of proof that the request for reinvestigation
had been actually granted shall be on the CIR. Such grant may be expressed in its
communications with the taxpayer or implied from the action of the CIR or his authorized
representative in response to the request for reinvestigation.

There is nothing in the records of this case which indicates, expressly or impliedly, that the
CIR had granted the request for reinvestigation filed by BPI. What is reflected in the records
is the piercing silence and inaction of the CIR on the request for reinvestigation, as he
considered BPI's letters of protest to be.

In the present case, there is no showing from the records that the CIR ever granted the
request for reinvestigation filed by CBC. That being the case, it cannot be said that the
running of the three-year prescriptive period was effectively suspended.

Failure to raise prescription at the

administrative level/lower court as a
defense is of no moment.
When the pleadings or the evidence on record
show that the claim is barred by prescription,
the court must dismiss the claim even if prescription
is not raised as a defense.

We note that petitioner has raised the issue of prescription for the first time only before this
Court. While we are mindful of the established rule of remedial law that the defense of
prescription must be raised at the trial court that has also been applied for tax cases. 19  Thus,
as a rule, the failure to raise the defense of prescription at the administrative level prevents
the taxpayer from raising it at the appeal stage.

This rule, however, is not absolute.

The facts of the present case are substantially identical to those in the 2014 case, Bank of
the Philippine Islands (BPI) v. Commissioner of Internal Revenue. 20 In that case, petitioner
received an assessment notice from the BIR for deficiency DST based on petitioner’s SWAP
transactions for the year 1985 on 16 June 1989. On 23 June 1989, BPI, through its counsel,
filed a protest requesting the reinvestigation and/or reconsideration of the assessment for
lack of legal or factual bases. Almost ten years later,  the CIR, in a letter dated 4 August
1998, denied the protest. On 4 January 1999, BPI filed a Petition for Review with the
CTA. On 23 February 1999, the CIR filed an Answer with a demand for BPI to pay the
assessed DST. It was only when the case ultimately reached this Court that the issue of
prescription was brought up. Nevertheless, the Court ruled that the CIR could no longer
collect the assessed tax due to prescription. Basing its ruling on Section 1, Rule 9 of the Rules
of Court and on jurisprudence, the Court held as follows:chanroblesvirtuallawlibrary

In a Resolution dated 5 August 2013, the Court, through the Third Division, found that the
assailed tax assessment may be invalidated because the statute of limitations on the
collection of the alleged deficiency DST had already expired, conformably with Section 1, Rule
9 of the Rules of Court and the Bank of the Philippine Islands v. Commissioner of Internal
Revenue decision. However, to afford due process, the Court required both BPI and CIR to
submit their respective comments on the issue of prescription.
Only the CIR filed his comment on 9 December 2013. In his Comment, the CIR argues that
the issue of prescription cannot be raised for the first time on appeal. The CIR further alleges
that even assuming that the issue of prescription can be raised, the protest letter interrupted
the prescriptive period to collect the assessed DST, unlike in the Bank of the Philippine
Islands case. xxxx

We deny the right of the BIR to collect the assessed DST on the ground of prescription.

Section 1, Rule 9 of the Rules of Court expressly provides that:

Section 1. Defenses and objections not pleaded. - Defenses and objections not pleaded either
in a motion to dismiss or in the answer are deemed waived. However, when it appears
from the pleadings or the evidence on record that the court has no jurisdiction over the
subject matter, that there is another action pending between the same parties for the same
cause, or that the action is barred by prior judgment or by the statute of limitations, the
court shall dismiss the claim.
If the pleadings or the evidence on record show that the claim is barred by
prescription, the court is mandated to dismiss the claim even if prescription is not
raised as a defense. In Heirs of Valientes v. Ramas , we ruled that the CA may motu
proprio  dismiss the case on the ground of prescription despite failure to raise this ground on
appeal. The court is imbued with sufficient discretion to review matters, not otherwise
assigned as errors on appeal, if it finds that their consideration is necessary in arriving at a
complete and just resolution of the case. More so, when the provisions on prescription were
enacted to benefit and protect taxpayers from investigation after a reasonable period of time.

Thus, we proceed to determine whether the period to collect the assessed DST for the year
1985 has prescribed.

To determine prescription, what is essential only is that the facts demonstrating the lapse of
the prescriptive period were sufficiently and satisfactorily apparent on the record either in the
allegations of the plaintiff’s complaint, or otherwise established by the evidence. Under the
then applicable Section 319(c) [now, 222(c)] of the National Internal Revenue Code (NIRC)
of 1977, as amended, any internal revenue tax which has been assessed within the period of
limitation may be collected by distraint or levy, and/or court proceeding within three years
following the assessment of the tax. The assessment of the tax is deemed made and the
three-year period for collection of the assessed tax begins to run on the date the assessment
notice had been released, mailed or sent by the BIR to the taxpayer.

In the present case, although there was no allegation as to when the assessment notice had
been released, mailed or sent to BPI, still, the latest date that the BIR could have released,
mailed or sent the assessment notice was on the date BPI received the same on 16 June
1989. Counting the three-year prescriptive period from 16 June 1989, the BIR had until 15
June 1992 to collect the assessed DST. But despite the lapse of 15 June 1992, the evidence
established that there was no warrant of distraint or levy served on BPI’s properties, or any
judicial proceedings initiated by the BIR.

The earliest attempt of the BIR to collect the tax was when it filed its answer in the CTA on
23 February 1999, which was several years beyond the three-year prescriptive period.
However, the BIR’s answer in the CTA was not the collection case contemplated by the law.
Before 2004 or the year Republic Act No. 9282 took effect, the judicial action to collect
internal revenue taxes fell under the jurisdiction of the regular trial courts, and not the CTA.
Evidently, prescription has set in to bar the collection of the assessed DST. (Emphasis
supplied)

BPI  thus provides an exception to the rule against raising the defense of prescription for the
first time on appeal: the exception arises when the pleadings or the evidence on record
show that the claim is barred by prescription.

In this case, the fact that the claim of the government is time-barred is a matter of record. As
can be seen from the previous discussion on the determination of the prescription of the right
of the government to claim deficiency DST, the conclusion that prescription has set in was
arrived at using the evidence on record. The date of receipt of the assessment notice was not
disputed, and the date of the attempt to collect was determined by merely checking the
records as to when the Answer of the CIR containing the demand to pay the tax was filed.

Estoppel or waiver prevents the government

from invoking the rule against raising the
issue of prescription for the first time on appeal.

In this case, petitioner may have raised the question of prescription only on appeal to this
Court. The BIR could have crushed the defense by the mere invocation of the rule against
setting up the defense of prescription only at the appeal stage. The government, however,
failed to do so.

On the contrary, the BIR was silent despite having the opportunity to invoke the bar against
the issue of prescription. It is worthy of note that the Court ordered the BIR to file a
Comment. The government, however, did not offer any argument in its Comment about the
issue of prescription, even if petitioner raised it in the latter’s Petition. It merely fell silent on
the issue. It was given another opportunity to meet the challenge when this Court ordered
both parties to file their respective memoranda. The CIR, however, merely filed a
Manifestation that it would no longer be filing a Memorandum and, in lieu thereof, it would be
merely adopting the arguments raised in its Comment. Its silence spoke loudly of its intent to
waive its right to object to the argument of prescription.

We are mindful of the rule in taxation that estoppel does not prevent the government from
collecting taxes; it is not bound by the mistake or negligence of its agents. The rule is based
on the political law concept “the king can do no wrong,”21 which likens a state to a king: it
does not commit mistakes, and it does not sleep on its rights. The analogy fosters inequality
between the taxpayer and the government, with the balance tilting in favor of the latter. This
concept finds justification in the theory and reality that government is necessary, and it must
therefore collect taxes if it is to survive. Thus, the mistake or negligence of government
officials should not bind the state, lest it bring harm to the government and ultimately the
people, in whom sovereignty resides.

Republic v. Ker & Co. Ltd.23 involved a collection case for a final and executory assessment.
The taxpayer nevertheless raised the prescription of the right to assess the tax as a defense
before the Court of First Instance. The Republic, instead of objecting to the invocation of
prescription as a defense by the taxpayer, litigated on the issue and thereafter submitted it
for resolution. The Supreme Court ruled for the taxpayer, treating the actuations of the
government as a waiver of the right to invoke the defense of prescription. Ker effectively
applied to the government the rule of estoppel. Indeed, the no-estoppel rule is not absolute.

The same ingredients in Ker - procedural matter and injustice - obtain in this case. The
procedural matter consists in the failure to raise the issue of prescription at the trial
court/administrative level, and injustice in the fact that the BIR has unduly delayed the
assessment and collection of the DST in this case.  The fact is that it took more than 12
years for it to take steps to collect the assessed tax.  The BIR definitely caused untold
prejudice to petitioner, keeping the latter in the dark for so long, as to whether it is liable for
DST and, if so, for how much.cralawred

CONCLUSION

Inasmuch as the government’s claim for deficiency DST is barred by prescription, it is no

longer necessary to dwell on the validity of the assessment.chanrobleslaw

WHEREFORE, the Petition is GRANTED. The Court of Tax Appeals En Banc Decision dated
1 December 2005 and its Resolution dated 20 March 2006 in CTA EB Case No. 109 are
hereby REVERSED and SET ASIDE. A new ruling is entered DENYING respondent’s claim
for deficiency DST in the amount of P11,383,165.50.SO ORDERED.

G.R. No. 193100, December 10, 2014

SAMAR-I ELECTRIC COOPERATIVE, Petitioner, v. COMMISSIONER OF INTERNAL

REVENUE, Respondent.

At bar is a petition for review on certiorari of the Decision 1 of the Court of Tax Appeals En
Banc (CTA EB) dated March 11, 2010 and its Resolution 2 dated July 28, 2010 in C.T.A. EB
Nos. 460 and 462 (C.T.A. Case No. 6697) affirming the May 27, 2008 Decision 3 and the
January 19, 2009 Amended Decision 4 of the CTA’s First Division, and ordering petitioner to
pay respondent Commissioner of Internal Revenue (CIR) deficiency withholding tax on
compensation in the aggregate amount of P2,690,850.91, plus 20% interest starting
September 30, 2002, until fully paid, pursuant to Section 249(c) of the National Internal
Revenue Code (NIRC) of 1997.

The following facts are undisputed as found by the CTA’s First Division and adopted by the
CTA EB:
Samar-I Electric Cooperative, Inc. (Petitioner) is an electric cooperative, with principal office
at Barangay Carayman, Calbayog City. It was issued a Certificate of Registration by the
National Electrification Administration (NEA) on February 27, 1974 pursuant to Presidential
Decree (PD) 269. Likewise, it was granted a Certificate of Provisional Registration under
Republic Act (RA) 6938, otherwise known as the Cooperative Code of the Philippines on
March 16, 1993, by the Cooperative Development Authority (CDA).
Respondent Commissioner of Internal Revenue is a public officer authorized under the
National Internal Revenue Code (NIRC) to examine any taxpayer including inter alia, the
power to issue tax assessment, evaluate, and decide upon protests relative thereto.

On July 13, 1999 and April 17, 2000, petitioner filed its 1998 and 1999 income tax returns,
respectively. Petitioner filed its 1997, 1998, and 1999 Annual Information Return of Income
Tax Withheld on Compensation, Expanded and Final Withholding Taxes on February 17,
1998, February 1, 1999, and February 4, 2000, in that order.

On November 13, 2000, respondent issued a duly signed Letter of Authority (LOA) No. 1998
00023803; covering the examination of petitioner’s books of account and other accounting
records for income and withholding taxes for the period 1997 to 1999. The LOA was received
by petitioner on November 14, 2000.

Petitioner cooperated in the audit and investigation conducted by the Special Investigation
Division of the BIR by submitting the required documents on December 5, 2000.

On October 19, 2001, respondent sent a Notice for Informal Conference which was received
by petitioner in November 2001; indicating the allegedly income and withholding tax liabilities
of petitioner for 1997 to 1999. Attached to the letter is a summary of the report, with an
explanation of the findings of the investigators.

In response, petitioner sent a letter dated November 26, 2001 to respondent maintaining its
indifference to the latter’s findings and requesting details of the assessment.

On December 13, 2001, petitioner executed a Waiver of the Defense of Prescription under
the Statute of Limitations, good until March 29, 2002.

On February 27, 2002, a letter was sent by petitioner to respondent requesting a detailed
computation of the alleged 1997, 1998 and 1999 deficiency withholding tax on compensation.

On February 28, 2002, respondent issued a Preliminary Assessment Notice (PAN). The PAN
was received by petitioner on April 9, 2002, which was protested on April 18, 2002.
Respondent’s Reply dated May 27, 2002, contained the explanation of the legal basis of the
issuance of the questioned tax assessments.
However, on July 8, 2002, respondent dismissed petitioner’s protest and recommended the
issuance of a Final Assessment Notice.

Consequently, on September 15, 2002, petitioner received a demand letter and assessments
notices (Final Assessment Notices) for the alleged 1997, 1998, and 1999 deficiency
withholding tax in the amount of [P]3,760,225.69, as well as deficiency income tax covering
the years 1998 to 1999 in the amount of [P]440,545.71, or in the aggregate amount of
[P]4,200,771.40.

Petitioner filed its protest and Supplemental Protest to the Final Assessment Notices on
October 14, 2002 and November 4, 2002, respectively. But on the Final Decision on Disputed
Assessment issued on April 10, 2003, petitioner was still held liable for the alleged tax
liabilities.5
The CTA EB narrates the following succeeding events:

On May 29, 2003, the Petition for Review was filed by SAMELCO-I with the Court in division.

On May 27, 2008, the assailed Decision partially granting SAMELCO-I’s petition was
promulgated.

Dissatisfied, both parties sought reconsideration of the said decision. CIR filed the “Motion for
Partial Reconsideration (Re: Decision dated 27 May 2008[)]” on June 13, 2008. On the other
hand, SAMELCO-I’s “Motion for Reconsideration” was filed on June 17, 2008.

On January 19, 2009, the Court in division promulgated its Amended Decision which denied
CIR’s motion and partially granted SAMELCO-I’s motion.

Thereafter, CIR and SAMELCO-I filed their “Motion for Extension of Time to File Petition for
Review” on February 6, 2009 and February 11, 2009, respectively. Both motions were
granted by the Court.6
The following issues were raised by the parties in their petitions for review before the CTA
EB. In C.T.A. EB 460, herein respondent CIR raised the following grounds:
I. Whether or not SAMELCO-I is entitled to tax privileges accorded to members in
accordance with Republic Act No. 6938, or the Cooperative Code, or to privileges of
Presidential Decree (PD) No. 269.
 II. Whether or not SAMELCO-I is liable for the minimum corporate income tax (MCIT) for
taxable years 1998 to 1999.

III. Whether or not SAMELCO-I is liable to pay the total deficiency expanded withholding
tax of [P]3,760,225.69 for taxable years 1997 to 1999. 7

On the other hand, petitioner SAMELCO-I raised the following legal and factual errors in
C.T.A. EB No. 462, viz.:

I. The Court in Division gravely erred in holding that the 1997 and 1998
assessments on withholding tax on compensation (received by SAMELCO-I on September 15,
2002), have not prescribed even if the waiver validly executed was good only until March 29,
2002.

II. The Court in Division erred in holding that CIR can validly assess within the ten (10)-
year prescriptive period even if the notice of informal conference, PAN, formal letter of
demand, and assessment notice mention not a word that the BIR is invoking Section
222 (a) of the 1997 Tax Code [then Sec. 223, NIRC], due to alleged false withholding
tax returns filed by [SAMELCO-I] as the same assertions were mere afterthought to
justify application of the 10-year prescriptive period to assess.

III. The Court in Division failed to consider that CIR made no findings as to SAMELCO-I’s
filing of a false return as clearly manifested by the non-imposition of 50% surcharge on
the 1997, 1998 and 1999 basic withholding tax deficiency in the PAN, demand notice
and even in the assessment notice other than interest charges.

IV. The Court in Division erred in not holding that given SAMELCO-I’s filing of its 1997,
1998, and 1999 withholding tax returns in good faith, and in close consultation with the
BIR personnel in Calbayog City where SAMELCO-I’s place of business is located, the
latter should no longer be imposed the incremental penalties (surcharge and interest).

V. The Court in Division failed to rule that since there was no substantial under remittance
of 1998 withholding tax as the basic deficiency tax per amended decision is less than
30% of the computed total tax due per return, SAMELCO-I did not file a false return.

VI. The Court in Division overlooked the fact that for taxable year 1999, [SAMELCO-I]
remitted the amount of [P]844,958.00 as withholding tax in compensation instead
 of [P]786,702.43 as indicated in Page 8, Annex C of the CTA (1 st Division) Decision.

VII. The Court in Division erred in failing to declare as void both the formal letter of
demand and assessment notice on withholding tax on compensation for 1997 taxable
year, given its non-compliance with Section 3.1.4 of RR 12-99. 8

On February 26, 2009, the CTA EB consolidated both cases. After the filing of the respective
Comments of both parties, the cases were deemed submitted for decision. The CTA EB found
that the issues and arguments raised by the parties were “mere reiterations of what have
been considered and passed upon by the Court in division in the assailed Decision and the
Amended Decision.”9 It ruled that SAMELCO-I is exempted in the payment of the Minimum
Corporate Income Tax (MCIT); that due process was observed in the issuance of the
assessments in accordance with Section 228 of the Tax Code; and that the 1997 and 1998
assessments on deficiency withholding tax on compensation have not prescribed. Finding no
reversible error in the Decision and the Amended Decision, the CTA EB ruled, viz.:

WHEREFORE, premises considered, We deny the petitions for lack of merit. Accordingly,
We AFFIRM the May 27, 2008 Decision and the January 19, 2009 Amended Decision
promulgated by the First Division of this Court.SO ORDERED. 10

Petitioner moved for reconsideration. In a Resolution dated July 28, 2010, the CTA EB denied
the motion. Petitioner now comes to this Court raising the following assignment of errors:

A. The Honorable CTA En Banc gravely erred in holding that respondent sufficiently complied
with the due process requirements mandated by Section 228 of the 1997 Tax Code in the
issuance of 1997-1999 assessments to petitioner, even if the details of discrepancies on
which the assessments were factually and legally based as required under Section 3.1.4 of
Revenue Regulations (RR) No[.] 12-99, were not found in the Formal Letter of Demand and
Final Assessment Notice (FAN) sent to petitioner, in clear violation of the doctrine established
in the case of Commissioner of Internal Revenue vs. Enron Subic Power Corporation, G.R.
No. 166387, January 19, 2009, applying Section 3.1.4 of RR 12-99 in relation to Section 228
NIRC.

B. The Honorable CTA En Banc erred in holding that respondent observed due process
notwithstanding the missing Annex “A-1” that was meant to show Details of Discrepancies
and to be attached to BIR’s Letter of Demand/Final Notice dated September 15, 2002, which
was not furnished to petitioner and worse, a file copy of which is not even found in the BIR
records as part of its Exhibit “16” and neither is the same found in the CTA records.

C. In deciding that the 1997 and 1998 withholding tax assessments have not yet prescribed,
the Honorable CTA En Banc failed to consider the singular significance of the Waiver of the
Defense of Prescription validly agreed upon and executed by the parties.

D. The Honorable CTA En Banc erred in holding that respondent can validly assess within the
ten (10)-year prescriptive period even if the Notice of Informal Conference, PAN, and Final
Letter of Demand (dated September 15, 2002), mentioned not a word as to the falsity of the
returns filed by petitioner, but as an afterthought that was raised rather belatedly only in the
Answer and during the trial.

E. The Honorable CTA En Banc erred in holding as valid the 1997 deficiency withholding tax

assessment being anchored on RR 2-98 (as cited in Notice of Informal Conference and PAN),
as the said RR 2-98 governs compensation income paid beginning January 1, 1998. 11
We shall resolve the instant controversy by discussing the following two main issues in
seriatim: whether the 1997 and 1998 assessments on withholding tax on compensation were
issued within the prescriptive period provided by law; and whether the assessments were
issued in accordance with Section 228 of the NIRC of 1997.

On the issue of prescription, petitioner contends that the subject 1997 and 1998 withholding
tax assessments on compensation were issued beyond the prescriptive period of three years
under Section 203 of the NIRC of 1997. Under this section, the government is allowed a
period of only three years to assess the correct tax liability of a taxpayer, viz.:

SEC. 203. Period of Limitation Upon Assessment and Collection. – Except as provided in

Section 222, internal revenue taxes shall be assessed within three (3) years after the last day
prescribed by law for the filing of the return, and no proceeding in court without assessment
for the collection of such taxes shall be begun after the expiration of such period: Provided,
That in a case where a return is filed beyond the period prescribed by law, the three (3)-year
period shall be counted from the day the return was filed. For purposes of this Section, a
return filed before the last day prescribed by law for the filing thereof shall be considered as
filed on such last day.
Relying on Section 203, petitioner argues that the subject deficiency tax assessments issued
by respondent on September 15, 2002 was issued beyond the three-year prescriptive period.
Petitioner filed its Annual Information Return of Income Tax Withheld on Compensation,
Expanded and Final Withholding Taxes on the following dates: on February 17, 1998 for the
taxable year 1997; and on February 1, 1999 for the year taxable 1998. Thus, if the period
prescribed under Section 203 of the NIRC of 1997 is to be followed, the three-year
prescriptive period to assess for the taxable years 1997 and 1998 should have ended on
February 16, 2001 and January 31, 2002, respectively.

We disagree.

While petitioner is correct that Section 203 sets the three-year prescriptive period to assess,
the following exceptions are provided under Section 222 of the NIRC of 1997, viz.:

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

(a) In the case of a false or fraudulent return with intent to evade tax or of failure
to file a return, the tax may be assessed, or a proceeding in court for the collection
of such tax may be filed without assessment, at any time within ten (10) years
after the discovery of the falsity, fraud or omission: Provided, That in a fraud
assessment which has become final and executory, the fact of fraud shall be judicially taken
cognizance of in the civil or criminal action for the collection thereof.

(b) If before the expiration of the time prescribed in Section 203 for the assessment of the
tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after
such time, the tax may be assessed within the period agreed upon. The period so agreed
upon may be extended by subsequent written agreement made before the expiration of the
period previously agreed upon.

(c) Any internal revenue tax which has been assessed within the period of limitation as
prescribed in paragraph (a) hereof may be collected by distraint or levy or by a proceeding in
court within five (5) years following the assessment of the tax.

(d) Any internal revenue tax, which has been assessed within the period agreed upon as
provided in paragraph (b) hereinabove, may be collected by distraint or levy or by a
proceeding in court within the period agreed upon in writing before the expiration of the five
(5)-year period. The period so agreed upon may be extended by subsequent written
agreements made before the expiration of the period previously agreed upon.
(e) Provided, however, That nothing in the immediately preceding Section and paragraph (a)
hereof shall be construed to authorize the examination and investigation or inquiry into any
tax return filed in accordance with the provisions of any tax amnesty law or decree.
(Emphasis supplied.)
In the case at bar, it was petitioner’s substantial underdeclaration of withholding taxes in the
amount of P2,690,850.91 which constituted the “falsity” in the subject returns – giving
respondent the benefit of the period under Section 222 of the NIRC of 1997 to assess the
correct amount of tax “at any time within ten (10) years after the discovery of the falsity,
fraud or omission.”12

The case of Aznar v. Court of Tax Appeals 13 discusses what acts or omissions may constitute
falsity, viz.:

Petitioner argues that Sec. 332 of the NIRC does not apply because the taxpayer did not file
false and fraudulent returns with intent to evade tax, while respondent Commissioner of
Internal Revenue insists contrariwise, with respondent Court of Tax Appeals concluding that
the very “substantial underdeclarations of income for six consecutive years eloquently
demonstrate the falsity or fraudulence of the income tax returns with an intent to evade the
payment of tax.”

To our minds we can dispense with these controversial arguments on facts, although we do
not deny that the findings of facts by the Court of Tax Appeals, supported as they are by very
substantial evidence, carry great weight, by resorting to a proper interpretation of Section
332 of the NIRC. We believe that the proper and reasonable interpretation of said provision
should be that in the three different cases of (1) false return, (2) fraudulent return with intent
to evade tax, (3) failure to file a return, the tax may be assessed, or a proceeding in court for
the collection of such tax may be begun without assessment, at any time within ten years
after the discovery of the (1) falsity, (2) fraud, (3) omission. Our stand that the law should be
interpreted to mean a separation of the three different situations of false return, fraudulent
return with intent to evade tax, and failure to file a return is strengthened immeasurably by
the last portion of the provision which segregates the situations into three different classes,
namely “falsity,” “fraud” and “omission.” That there is a difference between “false return” and
“fraudulent return” cannot be denied. While the first merely implies deviation from the truth,
whether intentional or not, the second implies intentional or deceitful entry with intent to
evade the taxes due.
The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec.
331 of the NIRC should be applicable to normal circumstances, but whenever the government
is placed at a disadvantage so as to prevent its lawful agents from proper assessment of tax
liabilities due to false returns, fraudulent return intended to evade payment of tax or failure
to file returns, the period of ten years provided for in Sec. 332 (a) NIRC, from the time of the
discovery of the falsity, fraud or omission even seems to be inadequate and should be the
one enforced.

There being undoubtedly false tax returns in this case, We affirm the conclusion of the
respondent Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that the
period of ten years within which to assess petitioner’s tax liability had not expired at the time
said assessment was made.14
A careful examination of the evidence on record yields to no other conclusion but that
petitioner failed to withhold taxes from its employees’ 13th month pay and other benefits in
excess of thirty thousand pesos (P30,000.00) amounting to P2,690,850.91 for the taxable
years 1997 to 1999 – resulting to its filing of the subject false returns. Petitioner failed to
refute this finding, both in fact and in law, before the courts a quo.

We quote the following portion of the assailed Decision of the CTA EB, viz.:
It is noteworthy to mention that during the trial, the witness for the CIR testified that
SAMELCO-I did not file an accurate return, as follows:

ATTY. FRANCIA:
Q:Did the petitioner file an accurate Return?

MS. RAPATAN:
A:No.

ATTY. FRANCIA:
Q:Can you please explain?

MS. RAPATAN:
A:Because I based the computation of my deficiency withholding taxes on declared taxable
income per alpha list submitted then, I have extracted a data from the Alpha List, particularly
that of the manager and other officials, only their basic salary and their overtime pay were
declared but the other benefits were not actually subjected to withholding tax. So, the
deficiency withholding taxes from the taxes on the taxable 13 th month pay and other benefits
in excess of the [P]12,000.00 for 1997 and for the taxable years 1998 and 1999, in excess of
the [P]30,000.00. I also noticed that the per diem of the Manager was not included in the
withholding tax computation of SAMELCO[-]I.

ATTY. FRANCIA: Nothing further, your Honors.

JUSTICE BAUTISTA:Any re-cross?

ATTY. NAPUTO:No re-cross, your Honors.15

We have consistently held that courts will not interfere in matters which are addressed to the
sound discretion of the government agency entrusted with the regulation of activities coming
under its special and technical training and knowledge. 16 The findings of fact of these quasi-
judicial agencies are generally accorded respect and even finality as long as they are
supported by substantial evidence – in recognition of their expertise on the specific matters
under their consideration.17 In the case at bar, petitioner failed to proffer convincing
argument and evidence that would persuade us to disturb the factual findings of the CTA
First Division, as affirmed by the CTA EB. As such, we cannot but affirm the finding of
petitioner’s substantial underdeclaration of withholding taxes in the amount of P2,690,850.91
which constituted the “falsity” in the subject returns.

Anent the issue of violation of due process in the issuance of the final notice of assessment
and letter of demand, Section 228 of the NIRC of 1997 provides:
SEC. 228. Protesting of Assessment. – x x x

The taxpayers shall be informed in writing of the law and the facts on which the
assessment is made: otherwise, the assessment shall be void.
Petitioner contends that as the Final Demand Letter and Assessment Notices (FAN) were
silent as to the nature and basis of the assessments, it was denied due process, 18 and the
assessments must be declared void. It likewise invokes Revenue Regulations (RR) No. 12-99
which states, viz.:
3.1.4 Formal Letter of Demand and Assessment Notice. – The formal letter of demand
and assessment notice shall be issued by the Commissioner or his duly authorized
representative. The letter of demand calling for payment of the taxpayer’s deficiency tax or
taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the
assessment is based, otherwise, the formal letter of demand and assessment notice
shall be void . The same shall be sent to the taxpayer only by registered mail or by personal
delivery. x x x
We uphold the assessments issued to petitioner.

Both Section 228 of the NIRC of 1997 and Section 3.1.4 of RR No. 12-99 clearly require the
written details on the nature, factual and legal bases of the subject deficiency tax
assessments. The reason for the mandatory nature of this requirement is explained in the
case of Commissioner of Internal Revenue v. Reyes:19

A void assessment bears no valid fruit.

The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with
tax collection without first establishing a valid assessment is evidently violative of the cardinal
principle in administrative investigations: that taxpayers should be able to present their case
and adduce supporting evidence. In the instant case, respondent has not been informed of
the basis of the estate tax liability. Without complying with the unequivocal mandate
of first informing the taxpayer of the government’s claim, there can be no
deprivation of property, because no effective protest can be made. The haphazard
shot at slapping an assessment, supposedly based on estate taxation’s general provisions
that are expected to be known by the taxpayer, is utter chicanery.

Even a cursory review of the preliminary assessment notice, as well as the demand letter
sent, reveals the lack of basis for – not to mention the insufficiency of – the gross figures and
details of the itemized deductions indicated in the notice and the letter. This Court cannot
countenance an assessment based on estimates that appear to have been
arbitrarily or capriciously arrived at. Although taxes are the lifeblood of the government,
their assessment and collection “should be made in accordance with law as any arbitrariness
will negate the very reason for government itself.” (Emphasis supplied; citations omitted)
In Commissioner of Internal Revenue v. Enron Subic Power Corporation ,20 we held that the
law requires that the legal and factual bases of the assessment be stated in the formal letter
of demand and assessment notice, and that the alleged “factual bases” in the advice,
preliminary letter and “audit working papers” did not suffice. Thus:
Both the CTA and the CA concluded that the deficiency tax assessment merely itemized the
deductions disallowed and included these in the gross income. It also imposed the
preferential rate of 5% on some items categorized by Enron as costs. The legal and factual
bases were, however, not indicated.

The CIR insists that an examination of the facts shows that Enron was properly apprised of its
tax deficiency. During the pre-assessment stage, the CIR advised Enron’s representative of
the tax deficiency, informed it of the proposed tax deficiency assessment through a
preliminary five-day letter and furnished Enron a copy of the audit working paper allegedly
showing in detail the legal and factual bases of the assessment. The CIR argues that these
steps sufficed to inform Enron of the laws and facts on which the deficiency tax assessment
was based.

We disagree. The advice of tax deficiency, given by the CIR to an employee of

Enron, as well as the preliminary five-day letter, were not valid substitutes for the
mandatory notice in writing of the legal and factual bases of the
assessment. These steps were mere perfunctory discharges of the CIR’s duties in correctly
assessing a taxpayer. The requirement for issuing a preliminary or final notice, as the case
may be, informing a taxpayer of the existence of a deficiency tax assessment is markedly
different from the requirement of what such notice must contain. Just because the CIR
issued an advice, a preliminary letter during the pre-assessment stage and a final
notice, in the order required by law, does not necessarily mean that Enron was
informed of the law and facts on which the deficiency tax assessment was
made.21 (Emphasis supplied)
In this case, we agree with the respondent that petitioner was sufficiently apprised of the
nature, factual and legal bases, as well as how the deficiency taxes being assessed against it
were computed. Records reveal that on October 19, 2001, prior to the conduct of an informal
conference, petitioner was already informed of the results and findings of the investigations
made by the respondent, and was duly furnished with a copy of the summary of the report
submitted by Revenue Officer Elisa G. Ponferrada-Rapatan of the Special Investigation
Division. Said summary report contained an explanation of Findings of Investigation stating
the legal and factual bases for the deficiency assessment. In a letter dated February 27, 2002
petitioner requested for copies of working papers indicating how the deficiency withholding
taxes were computed.22 Respondent promptly responded in a letter-reply dated February 28,
2002 stating:
please be informed that the cooperative’s deficiency withholding taxes on compensation were
due to the failure of the cooperative to withhold taxes on the taxable 13 th month pay and
other benefits in excess of P30,000.00 threshold pursuant to Section 3 of Revenue Regulation
No. 2-95 implementing Republic Act No. 7833 and Section 2.78/1 B 11 of Revenue Regulation
2-98 implementing Section 32 B e of Republic Act No. 8424. Further, we are providing you
hereunder the computational format on how deficiency withholding taxes were computed and
sample computation from our working papers, for your information and guidance. 23
On April 9, 2002, petitioner received the PAN dated February 28, 2002 which contained the
computations of its deficiency income and withholding taxes. Attached to the PAN was the
detailed explanation of the particular provision of law and revenue regulation violated, thus:
DETAILS OF DISCREPANCIES

1. Deficiency income taxes for 1998 and 1999 respectively result from non-payment of
the minimum corporate income tax (MCIT) imposed pursuant to Section 27(E) of the
1997 Tax Reform Act.

2. Deficiency Withholding Taxes on Compensation for 1997-1999 are the total withholding
taxes on compensation of all employees of SAMELCO[-]I resulting from failure of
employer to withhold taxes on the taxable 13 th month pay and other benefits in excess
of [P]30,000.00 threshold pursuant to Revenue Regulation 2-98. 24

The above information provided to petitioner enabled it to protest the PAN by questioning
respondent’s interpretation of the laws cited as legal basis for the computation of the
deficiency withholding taxes and assessment of minimum corporate income tax despite
petitioner’s position that it remains exempt therefrom. 25 In its letter-reply dated May 27,
2002, respondent answered the arguments raised by petitioner in its protest, and requested it
to pay the assessed deficiency on the date of payment stated in the PAN. A second protest
letter dated June 23, 2002 was sent by petitioner, to which respondent replied (letter dated
July 8, 2002) answering each of the two issues reiterated by petitioner: (1) validity of EO 93
withdrawing the tax exemption privileges under PD 269; and (2) retroactive application of RR
No. 8-2000.26 The FAN was finally received by petitioner on September 24, 2002, and
protested by it in a letter dated October 14, 2002 which reiterated in lengthy arguments its
earlier interpretation of the laws and regulations upon which the assessments were based. 27

Although the FAN and demand letter issued to petitioner were not accompanied by a written
explanation of the legal and factual bases of the deficiency taxes assessed against the
petitioner, the records showed that respondent in its letter dated April 10, 2003 responded to
petitioner’s October 14, 2002 letter-protest, explaining at length the factual and legal bases
of the deficiency tax assessments and denying the protest. 28

Considering the foregoing exchange of correspondence and documents between the parties,
we find that the requirement of Section 228 was substantially complied with. Respondent had
fully informed petitioner in writing of the factual and legal bases of the deficiency taxes
assessment, which enabled the latter to file an “effective” protest, much unlike the taxpayer’s
situation in Enron. Petitioner’s right to due process was thus not violated.

WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of
Tax Appeals En Banc dated March 11, 2010 and July 28, 2010, respectively, in C.T.A. EB Nos.
460 and 462 (C.T.A. Case No. 6697), are hereby AFFIRMED and UPHELD.

With costs against the petitioner. SO ORDERED.

G.R. No. 167146             October 31, 2006

COMMISSIONER OF INTERNAL REVENUE, petitioner,vs.

PHILIPPINE GLOBAL COMMUNICATION, INC., respondent.

This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court, seeking to set
aside the en banc Decision of the Court of Tax Appeals (CTA) in CTA EB No. 37 dated 22
February 2005,1 ordering the petitioner to withdraw and cancel Assessment Notice No.
000688-80-7333 issued against respondent Philippine Global Communication, Inc. for its 1990
income tax deficiency. The CTA, in its assailed en banc Decision, affirmed the Decision of the
First Division of the CTA dated 9 June 2004 2 and its Resolution dated 22 September 2004 in
C.T.A. Case No. 6568.

Respondent, a corporation engaged in telecommunications, filed its Annual Income Tax

Return for taxable year 1990 on 15 April 1991. On 13 April 1992, the Commissioner of
Internal Revenue (CIR) issued Letter of Authority No. 0002307, authorizing the appropriate
Bureau of Internal Revenue (BIR) officials to examine the books of account and other
accounting records of respondent, in connection with the investigation of respondent’s 1990
income tax liability. On 22 April 1992, the BIR sent a letter to respondent requesting the
latter to present for examination certain records and documents, but respondent failed to
present any document. On 21 April 1994, respondent received a Preliminary Assessment
Notice dated 13 April 1994 for deficiency income tax in the amount of P118,271,672.00,
inclusive of surcharge, interest, and compromise penalty, arising from deductions that were
disallowed for failure to pay the withholding tax and interest expenses that were likewise
disallowed. On the following day, 22 April 1994, respondent received a Formal Assessment
Notice with Assessment Notice No. 000688-80-7333, dated 14 April 1994, for deficiency
income tax in the total amount of P118,271,672.00.3

On 6 May 1994, respondent, through its counsel Ponce Enrile Cayetano Reyes and
Manalastas Law Offices, filed a formal protest letter against Assessment Notice No. 000688-
80-7333. Respondent filed another protest letter on 23 May 1994, through another counsel
Siguion Reyna Montecillo & Ongsiako Law Offices. In both letters, respondent requested for
the cancellation of the tax assessment, which they alleged was invalid for lack of factual and
legal basis.4

On 16 October 2002, more than eight years after the assessment was presumably issued, the
Ponce Enrile Cayetano Reyes and Manalastas Law Offices received from the CIR a Final
Decision dated 8 October 2002 denying the respondent’s protest against Assessment Notice
No. 000688-80-7333, and affirming the said assessment in toto.5

On 15 November 2002, respondent filed a Petition for Review with the CTA. After due notice
and hearing, the CTA rendered a Decision in favor of respondent on 9 June 2004. 6 The CTA
ruled on the primary issue of prescription and found it unnecessary to decide the issues on
the validity and propriety of the assessment. It decided that the protest letters filed by the
respondent cannot constitute a request for reinvestigation, hence, they cannot toll the
running of the prescriptive period to collect the assessed deficiency income tax. 7 Thus, since
more than three years had lapsed from the time Assessment Notice No. 000688-80-7333 was
issued in 1994, the CIR’s right to collect the same has prescribed in conformity with Section
269 of the National Internal Revenue Code of 1977 8 (Tax Code of 1977). The dispositive
portion of this decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the petitioner.

Accordingly, respondent’s Final Decision dated October 8, 2002 is hereby REVERSED and SET
ASIDE and respondent is hereby ORDERED to WITHDRAW and CANCEL Assessment Notice
No. 000688-80-7333 issued against the petitioner for its 1990 income tax deficiency because
respondent’s right to collect the same has prescribed.9

The CIR moved for reconsideration of the aforesaid Decision but was denied by the CTA in a
Resolution dated 22 September 2004.10 Thereafter, the CIR filed a Petition for Review with
the CTA en banc, questioning the aforesaid Decision and Resolution. In its en banc Decision,
the CTA affirmed the Decision and Resolution in CTA Case No. 6568. The dispositive part
reads:

WHEREFORE, premises considered, the Petition for Review is hereby DISMISSED for lack of
merit. Accordingly, the assailed Decision and Resolution in CTA Case No. 6568 are hereby
AFFIRMED in toto.11

Hence, this Petition for Review on Certiorari raising the following grounds:

THE COURT OF TAX APPEALS, SITTING EN BANC, COMMITTED REVERSIBLE ERROR IN

AFFIRMING THE ASSAILED DECISION AND RESOLUTION IN CTA CASE NO. 6568 DECLARING
THAT THE RIGHT OF THE GOVERNMENT TO COLLECT THE DEFICIENCY INCOME TAX FROM
RESPONDENT FOR THE YEAR 1990 HAS PRESCRIBED

A. THE PRESCRIPTIVE PERIOD WAS INTERUPTED WHEN RESPONDENT FILED TWO LETTERS
OF PROTEST DISPUTING IN DETAIL THE DEFICIENCY ASSESSMENT IN QUESTION AND
REQUESTING THE CANCELLATION OF SAID ASSESSMENT. THE TWO LETTERS OF PROTEST
ARE, BY NATURE, REQUESTS FOR REINVESTIGATION OF THE DISPUTED ASSESSMENT.

B. THE REQUESTS FOR REINVESTIGATION OF RESPONDENT WERE GRANTED BY THE

BUREAU OF INTERNAL REVENUE.12

This Court finds no merit in this Petition.

The main issue in this case is whether or not CIR’s right to collect respondent’s alleged
deficiency income tax is barred by prescription under Section 269(c) of the Tax Code of 1977,
which reads:

Section 269. Exceptions as to the period of limitation of assessment and collection of taxes. –

x x xx x x x

c. Any internal revenue tax which has been assessed within the period of limitation above-
prescribed may be collected by distraint or levy or by a proceeding in court within three years
following the assessment of the tax.

The law prescribed a period of three years from the date the return was actually filed or from
the last date prescribed by law for the filing of such return, whichever came later, within
which the BIR may assess a national internal revenue tax. 13 However, the law increased the
prescriptive period to assess or to begin a court proceeding for the collection without an
assessment to ten years when a false or fraudulent return was filed with the intent of evading
the tax or when no return was filed at all.14 In such cases, the ten-year period began to run
only from the date of discovery by the BIR of the falsity, fraud or omission.

If the BIR issued this assessment within the three-year period or the ten-year period,
whichever was applicable, the law provided another three years after the assessment for the
collection of the tax due thereon through the administrative process of distraint and/or levy
or through judicial proceedings.15 The three-year period for collection of the assessed tax
began to run on the date the assessment notice had been released, mailed or sent by the
BIR.16

The assessment, in this case, was presumably issued on 14 April 1994 since the respondent
did not dispute the CIR’s claim. Therefore, the BIR had until 13 April 1997. However, as there
was no Warrant of Distraint and/or Levy served on the respondents nor any judicial
proceedings initiated by the BIR, the earliest attempt of the BIR to collect the tax due based
on this assessment was when it filed its Answer in CTA Case No. 6568 on 9 January 2003,
which was several years beyond the three-year prescriptive period. Thus, the CIR is now
prescribed from collecting the assessed tax.

The provisions on prescription in the assessment and collection of national internal revenue
taxes became law upon the recommendation of the tax commissioner of the Philippines. The
report submitted by the tax commission clearly states that these provisions on prescription
should be enacted to benefit and protect taxpayers:

Under the former law, the right of the Government to collect the tax does not prescribe.
However, in fairness to the taxpayer, the Government should be estopped from collecting the
tax where it failed to make the necessary investigation and assessment within 5 years after
the filing of the return and where it failed to collect the tax within 5 years from the date of
assessment thereof. Just as the government is interested in the stability of its collections, so
also are the taxpayers entitled to an assurance that they will not be subjected to further
investigation for tax purposes after the expiration of a reasonable period of time. (Vol. II,
Report of the Tax Commission of the Philippines, pp. 321-322). 17

In a number of cases, this Court has also clarified that the statute of limitations on the
collection of taxes should benefit both the Government and the taxpayers. In these cases, the
Court further illustrated the harmful effects that the delay in the assessment and collection of
taxes inflicts upon taxpayers. In Collector of Internal Revenue v. Suyoc Consolidated Mining
Company,18 Justice Montemayor, in his dissenting opinion, identified the potential loss to the
taxpayer if the assessment and collection of taxes are not promptly made.

Prescription in the assessment and in the collection of taxes is provided by the Legislature for
the benefit of both the Government and the taxpayer; for the Government for the purpose of
expediting the collection of taxes, so that the agency charged with the assessment and
collection may not tarry too long or indefinitely to the prejudice of the interests of the
Government, which needs taxes to run it; and for the taxpayer so that within a reasonable
time after filing his return, he may know the amount of the assessment he is required to pay,
whether or not such assessment is well founded and reasonable so that he may either pay
the amount of the assessment or contest its validity in court x x x. It would surely be
prejudicial to the interest of the taxpayer for the Government collecting agency to unduly
delay the assessment and the collection because by the time the collecting agency finally gets
around to making the assessment or making the collection, the taxpayer may then have lost
his papers and books to support his claim and contest that of the Government, and what is
more, the tax is in the meantime accumulating interest which the taxpayer eventually has to
pay .

In Republic of the Philippines v. Ablaza,19 this Court emphatically explained that the statute of

limitations of actions for the collection of taxes is justified by the need to protect law-abiding
citizens from possible harassment:

The law prescribing a limitation of actions for the collection of the income tax is beneficial
both to the Government and to its citizens; to the Government because tax officers would be
obliged to act promptly in the making of assessment, and to citizens because after the lapse
of the period of prescription citizens would have a feeling of security against unscrupulous tax
agents who will always find an excuse to inspect the books of taxpayers, not to determine the
latter’s real liability, but to take advantage of every opportunity to molest, peaceful, law-
abiding citizens. Without such legal defense taxpayers would furthermore be under obligation
to always keep their books and keep them open for inspection subject to harassment by
unscrupulous tax agents. The law on prescription being a remedial measure should be
interpreted in a way conducive to bringing about the beneficient purpose of affording
protection to the taxpayer within the contemplation of the Commission which recommended
the approval of the law.
And again in the recent case Bank of the Philippine Islands v. Commissioner of Internal
Revenue,20 this Court, in confirming these earlier rulings, pronounced that:

Though the statute of limitations on assessment and collection of national internal revenue
taxes benefits both the Government and the taxpayer, it principally intends to afford
protection to the taxpayer against unreasonable investigation. The indefinite extension of the
period for assessment is unreasonable because it deprives the said taxpayer of the assurance
that he will no longer be subjected to further investigation for taxes after the expiration of a
reasonable period of time.

Thus, in Commissioner of Internal Revenue v. B.F. Goodrich, 21 this Court affirmed that the
law on prescription should be liberally construed in order to protect taxpayers and that, as a
corollary, the exceptions to the law on prescription should be strictly construed.

The Tax Code of 1977, as amended, provides instances when the running of the statute of
limitations on the assessment and collection of national internal revenue taxes could be
suspended, even in the absence of a waiver, under Section 271 thereof which reads:

Section 224. Suspension of running of statute. – The running of the statute of limitation

provided in Sections 268 and 269 on the making of assessments and the beginning of
distraint or levy or a proceeding in court for collection in respect of any deficiency, shall be
suspended for the period during which the Commissioner is prohibited from making the
assessment or beginning distraint or levy or a proceeding in court and for sixty days
thereafter; when the taxpayer requests for a reinvestigation which is granted by
the Commissioner; when the taxpayer cannot be located in the address given by him in the
return filed upon which a tax is being assessed or collected x x x. (Emphasis supplied.)

Among the exceptions provided by the aforecited section, and invoked by the CIR as a
ground for this petition, is the instance when the taxpayer requests for a reinvestigation
which is granted by the Commissioner. However, this exception does not apply to this case
since the respondent never requested for a reinvestigation. More importantly, the CIR could
not have conducted a reinvestigation where, as admitted by the CIR in its Petition, the
respondent refused to submit any new evidence.

Revenue Regulations No. 12-85, the Procedure Governing Administrative Protests of

Assessment of the Bureau of Internal Revenue, issued on 27 November 1985, defines the two
types of protest, the request for reconsideration and the request for reinvestigation, and
distinguishes one from the other in this manner:
Section 6. Protest. - The taxpayer may protest administratively an assessment by filing a
written request for reconsideration or reinvestigation specifying the following particulars:x x x
x

For the purpose of protest herein—

(a) Request for reconsideration-- refers to a plea for a re-evaluation of an assessment on the

basis of existing records without need of additional evidence. It may involve both a question
of fact or of law or both.

(b) Request for reinvestigation—refers to a plea for re-evaluation of an assessment on the

basis of newly-discovered evidence or additional evidence that a taxpayer intends to present
in the investigation. It may also involve a question of fact or law or both.

The main difference between these two types of protests lies in the records or evidence to be
examined by internal revenue officers, whether these are existing records or newly
discovered or additional evidence. A re-evaluation of existing records which results from a
request for reconsideration does not toll the running of the prescription period for the
collection of an assessed tax. Section 271 distinctly limits the suspension of the running of
the statute of limitations to instances when reinvestigation is requested by a taxpayer and is
granted by the CIR. The Court provided a clear-cut rationale in the case of Bank of the
Philippine Islands v. Commissioner of Internal Revenue 22 explaining why a request for
reinvestigation, and not a request for reconsideration, interrupts the running of the statute of
limitations on the collection of the assessed tax:

Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional

evidence, will take more time than a reconsideration of a tax assessment, which will be
limited to the evidence already at hand; this justifies why the former can suspend the running
of the statute of limitations on collection of the assessed tax, while the latter cannot.

In the present case, the separate letters of protest dated 6 May 1994 and 23 May 1994 are
requests for reconsideration. The CIR’s allegation that there was a request for reinvestigation
is inconceivable since respondent consistently and categorically refused to submit new
evidence and cooperate in any reinvestigation proceedings. This much was admitted in the
Decision dated 8 October 2002 issued by then CIR Guillermo Payarno, Jr.

In the said conference-hearing, Revenue Officer Alameda basically testified that Philcom,
despite repeated demands, failed to submit documentary evidences in support of its claimed
deductible expenses. Hence, except for the item of interest expense which was disallowed for
being not ordinary and necessary, the rest of the claimed expenses were disallowed for non-
withholding. In the same token, Revenue Officer Escober testified that upon his assignment
to conduct the re-investigation, he immediately requested the taxpayer to present various
accounting records for the year 1990, in addition to other documents in relation to the
disallowed items (p.171). This was followed by other requests for submission of documents
(pp.199 &217) but these were not heeded by the taxpayer. Essentially, he stated that
Philcom did not cooperate in his reinvestigation of the case.

In response to the testimonies of the Revenue Officers, Philcom thru Atty. Consunji,
emphasized that it was denied due process because of the issuance of the Pre-Assessment
Notice and the Assessment Notice on successive dates. x x x Counsel for the taxpayer even
questioned the propriety of the conference-hearing inasmuch as the only question to resolved
(sic) is the legality of the issuance of the assessment. On the disallowed items, Philcom thru
counsel manifested that it has no intention to present documents and/or evidences allegedly
because of the pending legal question on the validity of the assessment. 23

Prior to the issuance of Revenue Regulations No. 12-85, which distinguishes a request for
reconsideration and a request for reinvestigation, there have been cases wherein these two
terms were used interchangeably. But upon closer examination, these cases all involved a
reinvestigation that was requested by the taxpayer and granted by the BIR.

In Collector of Internal Revenue v. Suyoc Consolidated Mining Company ,24 the Court weighed
the considerable time spent by the BIR to actually conduct the reinvestigations requested by
the taxpayer in deciding that the prescription period was suspended during this time.

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.

Although the Court used the term "requests for reconsideration" in reference to the letters
sent by the taxpayer in the case of Querol v. Collector of Internal Revenue ,25 it took into
account the reinvestigation conducted soon after these letters were received and the revised
assessment that resulted from the reinvestigations.
It is true that the Collector revised the original assessment on February 9, 1955; and
appellant avers that this revision was invalid in that it was not made within the five-year
prescriptive period provided by law (Collector vs. Pineda, 112 Phil. 321). But that fact is that
the revised assessment was merely a result of petitioner Querol’s requests for reconsideration
of the original assessment, contained in his letters of December 14, 1951 and May 25, 1953.
The records of the Bureau of Internal Revenue show that after receiving the letters, the
Bureau conducted a reinvestigation of petitioner’s tax liabilities, and, in fact, sent a tax
examiner to San Fernando, La Union, for that purpose; that because of the examiner’s report,
the Bureau revised the original assessment, x x x. In other words, the reconsideration was
granted in part, and the original assessment was altered. Consequently, the period between
the petition for reconsideration and the revised assessment should be subtracted from the
total prescriptive period (Republic vs. Ablaza, 108 Phil 1105).

The Court, in Republic v. Lopez, 26 even gave a detailed accounting of the time the BIR spent
for each reinvestigation in order to deduct it from the five-year period set at that time in the
statute of limitations:

It is now a settled ruled in our jurisdiction that the five-year prescriptive period fixed by
Section 332(c) of the Internal Revenue Code within which the Government may sue to collect
an assessed tax is to be computed from the last revised assessment resulting from a
reinvestigation asked for by the taxpayer and (2) that where a taxpayer demands a
reinvestigation, the time employed in reinvestigating should be deducted from the total
period of limitation.x x x x

The first reinvestigation was granted, and a reduced assessment issued on 29 May 1954,
from which date the Government had five years for bringing an action to collect.

The second reinvestigation was asked on 16 January 1956, and lasted until it was decided on
22 April 1960, or a period of 4 years, 3 months, and 6 days, during which the limitation
period was interrupted.

The Court reiterated the ruling in Republic v. Lopez in the case of Commissioner of Internal
Revenue v. Sison,27 "that where a taxpayer demands a reinvestigation, the time employed in
reinvestigating should be deducted from the total period of limitation." Finally, in Republic v.
Arcache,28 the Court enumerated the reasons why the taxpayer is barred from invoking the
defense of prescription, one of which was that, "In the first place, it appears obvious that the
delay in the collection of his 1946 tax liability was due to his own repeated requests for
reinvestigation and similarly repeated requests for extension of time to pay."

In this case, the BIR admitted that there was no new or additional evidence presented.
Considering that the BIR issued its Preliminary Assessment Notice on 13 April 1994 and its
Formal Assessment Notice on 14 April 1994, just one day before the three-year prescription
period for issuing the assessment expired on 15 April 1994, it had ample time to make a
factually and legally well-founded assessment. Added to the fact that the Final Decision that
the CIR issued on 8 October 2002 merely affirmed its earlier findings, whatever examination
that the BIR may have conducted cannot possibly outlast the entire three-year prescriptive
period provided by law to collect the assessed tax, not to mention the eight years it actually
took the BIR to decide the respondent’s protest. The factual and legal issues involved in the
assessment are relatively simple, that is, whether certain income tax deductions should be
disallowed, mostly for failure to pay withholding taxes. Thus, there is no reason to suspend
the running of the statute of limitations in this case.

The distinction between a request for reconsideration and a request for reinvestigation is
significant. It bears repetition that a request for reconsideration, unlike a request for
reinvestigation, cannot suspend the statute of limitations on the collection of an assessed tax.
If both types of protest can effectively interrupt the running of the statute of limitations, an
erroneous assessment may never prescribe. If the taxpayer fails to file a protest, then the
erroneous assessment would become final and unappealable. 29 On the other hand, if the
taxpayer does file the protest on a patently erroneous assessment, the statute of limitations
would automatically be suspended and the tax thereon may be collected long after it was
assessed. Meanwhile the interest on the deficiencies and the surcharges continue to
accumulate. And for an unrestricted number of years, the taxpayers remain uncertain and are
burdened with the costs of preserving their books and records. This is the predicament that
the law on the statute of limitations seeks to prevent.

The Court, in sustaining for the first time the suspension of the running of the statute of
limitations in cases where the taxpayer requested for a reinvestigation, gave this justification:

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.x x x x
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 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. v. U.S., 78 L. ed., 647).
(Emphasis supplied.)30

This rationale is not applicable to the present case where the respondent did nothing to
prevent the BIR from collecting the tax. It did not present to the BIR any new evidence for its
re-evaluation. At the earliest opportunity, respondent insisted that the assessment was invalid
and made clear to the BIR its refusal to produce documents that the BIR requested. On the
other hand, the BIR also communicated to the respondent its unwavering stance that its
assessment is correct. Given that both parties were at a deadlock, the next logical step would
have been for the BIR to issue a Decision denying the respondent’s protest and to initiate
proceedings for the collection of the assessed tax and, thus, allow the respondent, should it
so choose, to contest the assessment before the CTA. Postponing the collection for eight long
years could not possibly make the taxpayer feel that the demand was not unreasonable or
that no harassment or injustice is meant by the Government. There was no legal, or even a
moral, obligation preventing the CIR from collecting the assessed tax. In a similar
case, Cordero v. Conda,31 the Court did not suspend the running of the prescription period
where the acts of the taxpayer did not prevent the government from collecting the tax.

The government also urges that partial payment is "acknowledgement of the tax obligation",
hence a "waiver on the defense of prescription." But partial payment would not prevent the
government from suing the taxpayer. Because, by such act of payment, the government is
not thereby "persuaded to postpone collection to make him feel that the demand was not
unreasonable or that no harassment or injustice is meant." Which, as stated in Collector v.
Suyoc Consolidated Mining Co., et al., L-11527, November 25, 1958, is the underlying reason
behind the rule that prescriptive period is arrested by the taxpayer’s request for
reexamination or reinvestigation – even if "he has not previously waived it [prescription] in
writing."

The Court reminds us, in the case of Commissioner of Internal Revenue v. Algue, Inc ., 32 of
the need to balance the conflicting interests of the government and the taxpayers.
Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. On the other hand, such collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. It is therefore necessary to
reconcile the apparently conflicting interest of the authorities and the taxpayers so that the
real purpose of taxation, which is the promotion of common good, may be achieved.

Thus, the three-year statute of limitations on the collection of an assessed tax provided under
Section 269(c) of the Tax Code of 1977, a law enacted to protect the interests of the
taxpayer, must be given effect. In providing for exceptions to such rule in Section 271, the
law strictly limits the suspension of the running of the prescription period to, among other
instances, protests wherein the taxpayer requests for a reinvestigation. In this case, where
the taxpayer merely filed two protest letters requesting for a reconsideration, and where the
BIR could not have conducted a reinvestigation because no new or additional evidence was
submitted, the running of statute of limitations cannot be interrupted. The tax which is the
subject of the Decision issued by the CIR on 8 October 2002 affirming the Formal Assessment
issued on 14 April 1994 can no longer be the subject of any proceeding for its collection.
Consequently, the right of the government to collect the alleged deficiency tax is barred by
prescription.

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The assailed en banc

Decision of the CTA in CTA EB No. 37 dated 22 February 2005, cancelling Assessment Notice
No. 000688-80-7333 issued against Philippine Global Communication, Inc. for its 1990 income
tax deficiency for the reason that it is barred by prescription, is hereby AFFIRMED. No costs.
SO ORDERED.