Mannasoft Technology Corporation vs CIR CTA Case No 8745

Facts:

Petitioner is a domestic corporation registered with the SEC, to which the respondent conducted a tax
investigation for CY 2008.

Subsequently, petitioner was issued a Formal Assessment Notice (FAN) assessing for deficiency income
tax, VAT and Expanded Withholding tax. The FAN was received by a certain Angelo Pineda, a reliever
security guard. The petitioner then filed a protest to the FAN.

Then, respondent issued a Warrant of Distraint and/ or Levy ("WDL"), which petitioner protested.
Petitioner once again appealed for the reinvestigation of the CY 2008 case. Afterwards, petitioner
received respondent's letter denying petitioner's request for reinvestigation, with a statement that the
same constitutes respondent's final decision on the matter.

Petitioner filed an appeal with the CTA.

During the trial, petitioner presented 2 witnesses:

1. Ms. Alma Fernandez (Petitioner’s Assistant Vice President for Finance) who testified to prove
that due process was not observed in the issuance of the assessments because the petitioner
did not receive any Notice of Informal Conference (NIC), Preliminary Assessment Notice (PAN)
and Final Decision on Disputed Assessment (FDDA). She also testified that the FAN and WDL
were not received by petitioner’s authorized representative; and
2. Ms. Luisa Caleon (Court-Commisioned CPA who testified that petitioner is not liable for the
alleged deficiency income tax, VAT, and EWT.

On the other hand, respondent also presented 2 witnesses:

1. Revenue Officer Madonna Angelli Lubo-Marco who testified on the conduct of the verification
and examination of petitioner's deficiency taxes; and the procedures followed by respondent in
the issuance of the assessment; and
2. Group Supervisor Emmanuel James Obsequio who testified on the reinvestigation and
reexamination of petitioner's assessment for deficiency taxes; and on the issuance of the PAN
and FDDA

Petitioner argues that respondent violated its right to due process when it did not receive the NIC, the
PAN, and the FAN; that the FAN and the WDL were not received by petitioner's duly authorized officer.
On the other hand, Respondent argues that the assessments were made and issued in accordance with
the law, rules and regulations. Respondent further avers that the FDDA should be the decision
appealable to the Court, thus, the Court (CTA) has no jurisdiction to take cognizance of the case since
the Petition for Review was filed out of time.

Issue:

a. WoN the CTA has jurisdiction over the case

b. WoN respondent violated petitioner’s due process rights in conducting the assessment
against the petitioner
Ruling:

a. Yes. The CTA based its jurisdiction from Sec 7(a)(1) of RA 1125, as amended by RA 9282, which
provides that the Court (CTA) has exclusive appellate jurisdiction to review, by way of appeal,
decisions of the CIR involving disputed assessments or other matters arising under 1997 NIRC.
This provision was further implemented by Sec 3(a)(1) of the RRCTA.

The Court explained that the term "disputed assessment" covers assessments wherein the
taxpayer is accorded the opportunity to challenge the same, which presupposes that a valid assessment
was issued by respondent. Under RR No. 12-99, a taxpayer whose protest is denied in whole or in part
by the CIR may appeal such denial to the CTA within thirty (30) days from receipt of such denial.

On the other hand, the term "other matters" may include the following: prescription of the CIR'
s right to collect taxes; determination of the validity of a warrant of distraint and levy issued by the CIR;
and validity of a waiver of the statute of limitations

In CIR v. Hambrecht & Quist Philippines, Inc., the Supreme Court had occasion to dissect the
jurisdiction of the CT A, as follows:

... [W]e have previously ruled that the appellate jurisdiction of the CT A is not limited to cases which
involve decisions of the CIR on matters relating to assessments or refunds. The second part of the
provision covers other cases that arise out of the National Internal Revenue Code (NIRC) or related laws
administered by the Bureau of Internal Revenue (BIR).

It can be gathered from the foregoing that since no assessment was validly issued by respondent
, the present case cannot be deemed a disputed assessment, which would require a protest before the
same may be brought before the Court. However, The Court still has jurisdiction over the present case
under the term "other matters," under the aforesaid provisions of the law.

b. Yes. The CTA ruled that the assessment made against petitioner are void for failure to comply
with due process, hence, not yet final, executory and demandable.

Sec 3 of RR No 12-99 requires that respondent issue the NIC, the PAN, and the FAN in writing to the
taxpayer and that the same be received by the latter. It is elementary that a taxpayer must actually
receive any assessment issued by respondent in order for the same to be valid.

In this case, the NIC, PAN and FAN were served through personal delivery but all turned out to be
received by unauthorized persons – Ms. Gladys Badocdoc, a receptionist at Mannasoft (NIC and PAN)
and Angelo Pineda, a security guard who is not an employee of petitioner (FAN).

Thus, the requirement that the notices be served to the taxpayer, or an authorized representative of the
taxpayer, was not followed in the service of the NIC, the PAN, and the FAN to petitioner. The notices
were received by either a receptionist or a security guard. These individuals were not authorized to
receive the stated notices from the BIR, as testified to by petitioner's witness.

Non-receipt of the NIC and the PAN results to the invalidity of the FAN issued thereafter, for being
violative of petitioner's right to due process. Further, since the FAN itself was also not actually received
by petitioner or its authorized representative, the same cannot be considered as having been validly
issued and therefore, is considered void and cannot become final, executory and demandable.
NOTE: The fact that petitioner was able to protest the FAN, albeit belatedly, does not cure
respondent's violation of petitioner's right to due process. Thus, petitioner's filing of a protest to the
FAN "does not denigrate the fact that it was deprived of statutory and procedural due process to
contest the assessment before it was issued."

________________________________________

COMMISSIONER OF INTERNAL REVENUE vs. KUDOS METAL CORPORATION

FACTS:

On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income Tax Return (ITR) for the
taxable year 1998. CIR assessed Kudos Metal Corporation for taxable year 1998.

In connection thereto, petitioner’s accountant executed two waivers of the defense of prescription. The
first was executed on 10DEC2001, notarized on 22JAN2002 and received by BIR Enforcement Service
and BIR Tax Fraud Division on 31JAN2002 and 4FEB2002 respectively. The second was excuted on
18FEB2002, notarized on 19FEB2003 and received by BIR and accepted by the Assistant Commissioner
on 28FEB2003.

Subsequently, BIR issued a Preliminary Assessment Notice for the taxable year 1998 against the
respondent. This was followed by a Formal Letter of Demand with Assessment Notices for taxable year
1998. BIR then rendered a final decision requesting the immediate payment of income tax, VAT, EWT,
Withholding Tax-Compensation and Penalties.

CTA (2nd Division) issued a Resolution canceling the assessment  notices issued against Petitioner for
having been issued beyond the prescriptive period as the waiver purportedly failed to (a) have the valid
officer execute the same (i.e., only the Assistant Commissioner signed it and not the CIR); (b) the date of
acceptance was not indicated, which is necessary to determine whether the acceptance was made
within the prescriptive period; (c) the fact of receipt by the taxpayer was not indicated in the original
copy.

On appeal, the CTA En Banc affirmed the cancellation of assessment notices. Although it ruled that the
Assistant Commissioner was authorized to sign the waiver, it found that the first waiver was still invalid
based on the second and third grounds stated by the CTA Second Division. It further held that the
second waiver is invalid for violating Section 222(b) of the 1997 Tax Code which mandates that the
period agreed upon in a waiver of the statute can still be extended by subsequent written agreement,
provided that it is executed prior to the expiration of the first period agreed upon. 

Hence, this petition. Petitioner claims that respondent is estopped from adopting a position contrary to
what it has previously taken. Petitioner insists that by acquiescing to the audit during the period
specified in the waivers, respondent led the government to believe that the "delay" in the process
would not be utilized against it. Thus, respondent may no longer repudiate the validity of the waivers
and raise the issue of prescription.

Respondent, oon the other hand, counters that as to the doctrine of estoppel by acquiescence relied
upon by petitioner, the principle of equity comes into play only when the law is doubtful, which is not
present in the instant case.
ISSUE:

Has the CIR’s right to assess prescribed?

RULING:

YES. The requirements for a valid waiver as laid down in RMO 20-90 and RDAO No. 5-01 are mandatory
to give effect to Section 222 of the Tax Code. Specifically, the flaws in the waiver executed by Kudos
Metal were as follows: (a) there was no notarized written authority in favor of the signatory for the
company; (b) there is no stated date of acceptance by the Commissioner or his representative; and (c)
the fact of the receipt of the copy was not indicated in the original waivers.

Due to the defects in the waivers, the period to assess or collect taxes was not extended. Consequently,
the assessments were issued by the BIR beyond the 3 year period (Sec 203 NIRC) and are void.

As to the argument of estoppel, the Court held that it cannot be applied in this case as an exception to
the statute of limitations on the assessment of taxes considering that there is a detailed procedure for
the proper execution of the waiver, which the BIR must strictly follow. The doctrine of estoppel is
predicated on equity which, broadly defined, is justice according to natural law and right. As such, the
doctrine of estoppel cannot give validity to an act that is prohibited by law or one that is against public
policy.

Note: Requisites of a valid waiver: (i) acceptance date; (ii) expiry date; (iii) signed by authorized officer of
taxpayer and BIR; (iv) notarized; (v) fact of receipt must be indicated in the copies

________________________

CIR vs PDI GR No. 213943

FACTS:

PDI is a corporation engaged in the business of newspaper publication. On 15 April 2005, it filed its
Annual Income Tax Return for taxable year 2004. BIR then alleged that there was an underdeclaration of
domestic purchases from its suppliers. In response, PDI submitted reconciliation reports.

On 21 March 2007, PDI executed a Waiver of the Statute of Limitation (First Waiver) consenting to the
assessment and/or collection of taxes for the year 2004 which may be found due after the investigation,
at any time before or after the lapse of the period of limitations fixed by Sections 203 and 222 of the
National Internal Revenue Code (NIRC) but not later than 30 June 2007. The First Waiver was received
on 23 March 2007. On 5 June 2007, PDI executed a Waiver of the Statute of Limitation (Second Waiver),
which was accepted on 8 June 2007.

Subsequently, BIR issued Preliminary Assessment Notice (PAN) wherein PDI was assessed for alleged
deficiency income tax and VAT for taxable year 2004. In a letter dated 12 December 2007, PDI sought
reconsideration of the PAN and expressed its willingness to execute another Waiver (Third Waiver),
which it did on the same date, thus extending BIR’s right to assess and/or collect from it until 30 April
2008.
On 17 April 2008, PDI received a Formal Letter of Demand dated 11 March 2008 and an Audit Result/
Assessment Notice from the BIR, demanding for the payment of alleged deficiency VAT and income tax.
PDI thenfiled its protest.

Subsequently, PDI filed a Petition for Review against the CIR alleging that the 180-day period within
which the BIR should act on its protest had already lapsed. The Court of Tax Appeals First Division ruled
in favor of PDI stating that the period of assessment must not extend indefinitely because doing so will
deprive the taxpayer of the assurance that it will not be subjected to further investigation after the
expiration of a reasonable period of time. It held that the three-year prescriptive period under Section
203 of the NIRC applies in this case since PDI introduced proof that the determination made by the CIR
on the supposed overdeclared input tax of ₱l,601,652.43 is not correct.

Regarding the execution of the waiver, The CTA First Division found that while the First and Second
Waivers were executed in three copies, the BIR failed to provide the office accepting the waivers with
their respective third copies. The CTA First Division found that the third copies were still attached to the
docket of the case. The CTA First Division also found that the BIR failed to prove that the Third Waiver
was executed in three copies. Further, the revenue official who accepted the Third Waiver was not
authorized to do so.

Upon appeal, CTA en Banc ruled that there is no reason to depart from the 1 st Division’s findings.

ISSUE:

Whether or not petitioner’s right to assess respondent for deficiency VAT and income tax has prescribed

HELD:

Yes. In Commissioner of Internal Revenue v. Javier (276 Phil. 914), this Court ruled that fraud is never
imputed. The Court stated that it will not sustain findings of fraud upon circumstances which, at most,
create only suspicion.

It explained that while the filing of a fraudulent return necessarily implies that the act of the taxpayer
was intentional and done with intent to evade the taxes due, the filing of a false return can be
intentional or due to honest mistake. In CIR  v. B.F. Goodrich Phils., Inc.,31  the Court stated that the entry
of wrong information due to mistake, carelessness, or ignorance, without intent to evade tax, does not
constitute a false return. In this case, we do not find enough evidence to prove fraud or intentional
falsity on the part of PDI.

Since the case does not fall under the exceptions (Sec 222 NIRC), Section 203 of the NIRC should apply. It
provides:

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.

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.

Indeed, the Waivers executed by the BIR and PDI were meant to extend the three-year prescriptive
period, and would have extended such period were it not for the defects found by the CTA. In this case,
the CTA found that contrary to PDI’s allegations, the First and Second Waivers were executed in three
copies. However, the CTA also found that the CIR failed to provide the office accepting the First and
Second Waivers with their respective third copies, as the CTA found them still attached to the docket of
the case. In addition, the CTA found that the Third Waiver was not executed in three copies.

The failure to provide the office accepting the waiver with the third copy violates RMO 20-90 and RDAO
05-01. Therefore, the First Waiver was not properly executed on 21 March 2007 and thus, could not
have extended the three-year prescriptive period to assess and collect taxes for the year 2004. To make
matters worse, the CIR committed the same error in the execution of the Second Waiver on 5 June 2007.
Even if we consider that the First Waiver was validly executed, the Second Waiver failed to extend the
prescriptive period because its execution was contrary to the procedure set forth in RMO 20-90 and
RDAO 05-01. Granting further that the First and Second Waivers were validly executed, the Third Waiver
executed on 12 December 2007 still failed to extend the three-year prescriptive period because it was
not executed in three copies. In short, the records of the case showed that the CIR’s three-year
prescriptive period to assess deficiency tax had already prescribed due to the defects of all the Waivers.