Taxation Cases

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 128315 June 29, 1999
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
PASCOR REALTY AND DEVELOPMENT CORPORATION, ROGELIO A. DIO and VIRGINIA S. DIO,
respondents.

PANGANIBAN, J.:
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 protests 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 CTA Case No. 5271. The CTA disposed as follows:
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.1âwphi1.nêt
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 of the 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 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 anassessment. 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, Vol. 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 following issues:
(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 resolve whether the revenue officers' Affidavit-Report, which was
attached to criminal revenue Complaint filed 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 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 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 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 rates as may be prescribed by rules and regulations, is to be collected form 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:

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 NLRC, 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.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-36181 October 23, 1982
MERALCO SECURITIES CORPORATION (now FIRST PHILIPPINE HOLDINGS CORPORATION),
petitioner,
vs.
HON. VICTORINO SAVELLANO and ASUNCION BARON VDA. DE MANIAGO, et al., as heirs of the
late Juan G. Maniago, respondents.
G.R. No. L-36748 October 23, 1982
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
HON. VICTORINO SAVELLANO and ASUNCION BARON VDA. DE MANIAGO, et al., as heirs of the
late Juan G. Maniago, respondents.
G.R. No. L-36181
San Juan, Africa, Gonzales & San Agustin for petitioner.
Ramon A. Gonzales for respondents.
TEEHANKEE, J.:
These are original actions for certiorari to set aside and annul the writ of mandamus issued by Judge
Victorino A. Savellano of the Court of First Instance of Manila in Civil Case No. 80830 ordering
petitioner Meralco Securities Corporation (now First Philippine Holdings Corporation) to pay, and
petitioner Commissioner of Internal Revenue to collect from the former, the amount of
P51,840,612.00, by way of alleged deficiency corporate income tax, plus interests and surcharges due
thereon and to pay private respondents 25% of the total amount collectible as informer's reward.
On May 22, 1967, the late Juan G. Maniago (substituted in these proceedings by his wife and children)
submitted to petitioner Commissioner of Internal Revenue confidential denunciation against the
Meralco Securities Corporation for tax evasion for having paid income tax only on 25 % of the
dividends it received from the Manila Electric Co. for the years 1962-1966, thereby allegedly
shortchanging the government of income tax due from 75% of the said dividends.
Petitioner Commissioner of Internal Revenue caused the investigation of the denunciation after which
he found and held that no deficiency corporate income tax was due from the Meralco Securities
Corporation on the dividends it received from the Manila Electric Co., since under the law then
prevailing (section 24[a] of the National Internal Revenue Code) "in the case of dividends received by
a domestic or foreign resident corporation liable to (corporate income) tax under this
Chapter . . . .only twenty-five per centum thereof shall be returnable for the purposes of the tax
imposed under this section." The Commissioner accordingly rejected Maniago's contention that the
Meralco from whom the dividends were received is "not a domestic corporation liable to tax under this
Chapter." In a letter dated April 5, 1968, the Commissioner informed Maniago of his findings and
ruling and therefore denied Maniago's claim for informer's reward on a non-existent deficiency. This
action of the Commissioner was sustained by the Secretary of Finance in a 4th Indorsement dated
May 11, 1971.
On August 28, 1970, Maniago filed a petition for mandamus, and subsequently an amended petition for
mandamus, in the Court of First Instance of Manila, docketed therein as Civil Case No. 80830, against
the Commissioner of Internal Revenue and the Meralco Securities Corporation to compel the
Commissioner to impose the alleged deficiency tax assessment on the Meralco Securities Corporation
and to award to him the corresponding informer's reward under the provisions of R.A. 2338.
On October 28, 1978, the Commissioner filed a motion to dismiss, arguing that since in matters of
issuance and non-issuance of assessments, he is clothed under the National Internal Revenue Code and
existing rules and regulations with discretionary power in evaluating the facts of a case and since
mandamus win not lie to compel the performance of a discretionary power, he cannot be compelled to
impose the alleged tax deficiency assessment against the Meralco Securities Corporation. He further
argued that mandamus may not lie against him for that would be tantamount to a usurpation of
executive powers, since the Office of the Commissioner of Internal Revenue is undeniably under the
control of the executive department.
On the other hand, the Meralco Securities Corporation filed its answer, dated January 15, 1971,
interposing as special and/or affirmative defenses that the petition states no cause of action, that
the action is premature, that mandamus win not lie to compel the Commissioner of Internal Revenue to

make an assessment and/or effect the collection of taxes upon a taxpayer, that since no taxes have
actually been recovered and/or collected, Maniago has no right to recover the reward prayed for, that
the action of petitioner had already prescribed and that respondent court has no jurisdiction over the
subject matter as set forth in the petition, the same being cognizable only by the Court of Tax
Appeals.
On January 10, 1973, the respondent judge rendered a decision granting the writ prayed for and
ordering the Commissioner of Internal Revenue to assess and collect from the Meralco Securities
Corporation the sum of P51,840,612.00 as deficiency corporate income tax for the period 1962 to
1969 plus interests and surcharges due thereon and to pay 25% thereof to Maniago as informer's
reward.
All parties filed motions for reconsideration of the decision but the same were denied by respondent
judge in his order dated April 6, 1973, with respondent judge denying respondents' claim for
attorneys fees and for execution of the decision pending appeal.
Hence, the Commissioner filed a separate petition with this Court, docketed as G.R. No. L-36748
praying that the decision of respondent judge dated January 10, 1973 and his order dated April 6,
1973 be reconsidered for respondent judge has no jurisdiction over the subject matter of the case
and that the issuance or non-issuance of a deficiency assessment is a prerogative of the Commissioner
of Internal Revenue not reviewable by mandamus.
The Meralco Securities Corporation (now First Philippine Holdings Corporation) likewise appealed the
same decision of respondent judge in G.R. No. L-36181 and in the Court's resolution dated June 13,
1973, the two cases were ordered consolidated.
We grant the petitions.
Respondent judge has no jurisdiction to take cognizance of the case because the subject matter
thereof clearly falls within the scope of cases now exclusively within the jurisdiction of the Court of
Tax Appeals. Section 7 of Republic Act No. 1125, enacted June 16, 1954, granted to the Court of Tax
Appeals exclusive appellate jurisdiction to review by appeal, among others, 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 law or part of law administered by the Bureau of Internal
Revenue. The law transferred to the Court of Tax Appeals jurisdiction over all cases involving said
assessments previously cognizable by courts of first instance, and even those already pending in said
courts. 1 The question of whether or not to impose a deficiency tax assessment on Meralco Securities
Corporation undoubtedly comes within the purview of the words "disputed assessments" or of "other
matters arising under the National Internal Revenue Code . . . .In the case of Blaquera vs. Rodriguez,
et al, 2 this Court ruled that "the determination of the correctness or incorrectness of a tax
assessment to which the taxpayer is not agreeable, falls within the jurisdiction of the Court of Tax
Appeals and not of the Court of First Instance, for under the provisions of Section 7 of Republic Act
No. 1125, the Court of Tax Appeals has exclusive appellate jurisdiction to review, on appeal, any
decision of the Collector of Internal Revenue in cases involving disputed assessments and other

matters arising under the National Internal Revenue Code or other law or part of law administered by
the Bureau of Internal Revenue."
Thus, even assuming arguendo that the right granted the taxpayers affected to question and appeal
disputed assessments, under section 7 of Republic Act No. 1125, may be availed of by strangers or
informers like the late Maniago, the most that he could have done was to appeal to the Court of Tax
Appeals the ruling of petitioner Commissioner of Internal Revenue within thirty (30) days from
receipt thereof pursuant to section 11 of Republic Act No. 1125. 3 He failed to take such an appeal to
the tax court. The ruling is clearly final and no longer subject to review by the courts. 4
It is furthermore a well-recognized rule that mandamus only lies to enforce the performance of a
ministerial act or duty 5 and not to control the performance of a discretionary power. 6 Purely
administrative and discretionary functions may not be interfered with by the courts. 7 Discretion, as
thus intended, means the power or right conferred upon the office by law of acting officially under
certain circumstances according to the dictates of his own judgment and conscience and not
controlled by the judgment or conscience of others. 8 mandamus may not be resorted to so as to
interfere with the manner in which the discretion shall be exercised or to influence or coerce a
particular determination. 9
In an analogous case, where a petitioner sought to compel the Rehabilitation Finance Corporation to
accept payment of the balance of his indebtedness with his backpay certificates, the Court ruled that
"mandamus does not compel the Rehabilitation Finance Corporation to accept backpay certificates in
payment of outstanding loans. Although there is no provision expressly authorizing such acceptance,
nor is there one prohibiting it, yet the duty imposed by the Backpay Law upon said corporation as to
the acceptance or discount of backpay certificates is neither clear nor ministerial, but discretionary
merely, and such special civil action does not issue to control the exercise of discretion of a public
officer." 10 Likewise, we have held that courts have no power to order the Commissioner of Customs to
confiscate goods imported in violation of the Import Control Law, R.A. 426, as said forfeiture is
subject to the discretion of the said official, 11 nor may courts control the determination of whether
or not an applicant for a visa has a non-immigrant status or whether his entry into this country would
be contrary to public safety for it is not a simple ministerial function but an exercise of discretion. 12
Moreover, since the office of the Commissioner of Internal Revenue is charged with the
administration of revenue laws, which is the primary responsibility of the executive branch of the
government, mandamus may not he against the Commissioner to compel him to impose a tax assessment
not found by him to be due or proper for that would be tantamount to a usurpation of executive
functions. As we held in the case of Commissioner of Immigration vs. Arca 13 anent this principle, "the
administration of immigration laws is the primary responsibility of the executive branch of the
government. Extensions of stay of aliens are discretionary on the part of immigration authorities, and
neither a petition for mandamus nor one for certiorari can compel the Commissioner of Immigration to
extend the stay of an alien whose period to stay has expired.
Such discretionary power vested in the proper executive official, in the absence of arbitrariness or
grave abuse so as to go beyond the statutory authority, is not subject to the contrary judgment or

control of others. " "Discretion," when applied to public functionaries, means a power or right
conferred upon them by law of acting officially, under certain circumstances, uncontrolled by the
judgment or consciences of others. A purely ministerial act or duty in contradiction to a discretional
act is one which an officer or tribunal performs in a given state of facts, in a prescribed manner, in
obedience to the mandate of a legal authority, without regard to or the exercise of his own judgment
upon the propriety or impropriety of the act done. If the law imposes a duty upon a public officer and
gives him the right to decide how or when the duty shall be performed, such duty is discretionary and
not ministerial. The duty is ministerial only when the discharge of the same requires neither the
exercise of official discretion or judgment." 14
Thus, after the Commissioner who is specifically charged by law with the task of enforcing and
implementing the tax laws and the collection of taxes had after a mature and thorough study
rendered his decision or ruling that no tax is due or collectible, and his decision is sustained by the
Secretary, now Minister of Finance (whose act is that of the President unless reprobated), such
decision or ruling is a valid exercise of discretion in the performance of official duty and cannot be
controlled much less reversed by mandamus. A contrary view, whereby any stranger or informer would
be allowed to usurp and control the official functions of the Commissioner of Internal Revenue would
create disorder and confusion, if not chaos and total disruption of the operations of the government.
Considering then that respondent judge may not order by mandamus the Commissioner to issue the
assessment against Meralco Securities Corporation when no such assessment has been found to be
due, no deficiency taxes may therefore be assessed and collected against the said corporation. Since
no taxes are to be collected, no informer's reward is due to private respondents as the informer's
heirs. Informer's reward is contingent upon the payment and collection of unpaid or deficiency taxes.
An informer is entitled by way of reward only to a percentage of the taxes actually assessed and
collected. Since no assessment, much less any collection, has been made in the instant case,
respondent judge's writ for the Commissioner to pay respondents 25% informer's reward is gross
error and without factual nor legal basis.
WHEREFORE, the petitions are hereby granted and the questioned decision of respondent judge
dated January 10, 1973 and order dated April 6, 1973 are hereby reversed and set aside. With costs
against private respondents.
Melencio-Herrera, Plana, Vasquez and Relova, JJ., concur.
Gutierrez, Jr., J., took no part.
G.R. No. 139050 October 2, 2001

REPUBLIC OF THE PHILIPPINES, represented by the COMMISSIONER OF CUSTOMS, petitioner,
vs.
THE COURT OF TAX APPEALS and AGFHA, INCORPORATED, respondents.
VITUG, J.:
On 12 December 1992, a shipment of bales of textile gray cloth, under Bill of Lading No. HKT-138899,
arrived at the Manila International Container Port (MICP) aboard the vessel "S/S ACX Daisy." The
shipment's Inward Foreign Manifest stated that the bales of cloth were consigned to GQ
GARMENTS, Inc., of 244 Escolta Street, Binondo, Manila. The Clean Report of Findings (CRF) issued
by the Societe Generale de Surveilance (SGS), however, mentioned AGFHA, Incorporated, to be the
consignee of the shipment. Forthwith, the shipping agent, FIL-JAPAN, requested for an amendment
of the Inward Foreign Manifest so as to correct the name of the consignee from that of GQ
GARMENTS, Inc., to that of AGFHA, Inc.
On 22 January 1993, FIL-JAPAN forwarded to AGFHA, Inc., the amended Inward Foreign Manifest
which the latter, in turn, submitted to the MICP Law Division. The MICP indorsed the document to the
Customs Intelligence Investigation Services (CIIS). The CIIS placed the subject shipment under Hold
Order No. H/CI/01/2293/01, dated 22 January 1993, on the ground that GQ GARMENTS, Inc., could
not be located in its given address at 244 Escolta Street, Binondo, Manila, and was thus suspected to
be a fictitious firm. Forfeiture proceedings under Section 2530(f) and (l) (3-5) of the Tariff and
Customs Code were initiated.
AGFHA, Inc., through its president Wilson Kho, filed a motion for intervention contending that
AGFHA, Inc., is the lawful owner and actual consignee of the subject shipment. The motion for
intervention was granted on 2 March 1993. Following a hearing, the Collector of Customs came up with
a draft decision ordering the lifting of the warrant of seizure and detention on the basis of its
findings that GQ GARMENTS, Inc., was not a fictitious corporation and that there was a valid waiver
of rights over the bales of cloth by GQ GARMENTS, Inc., in favor of AGFHA, Inc. The draft decision
was submitted to the Deputy Commissioner for clearance and approval, who, in turn, transmitted it to
the CIIS for comment. The CIIS opposed the draft decision, insisting that GQ GARMENTS, Inc., was
a fictitious corporation and that even if it did exist, its president, John Barlin, had no authority to
waive the right over the subject shipment in favor of AGFHA, Inc.
The Deputy Commissioner, relying on the comment of the CIIS, rejected the draft decision of the
Collector of Customs.
GQ GARMENTS, Inc., and AGFHA, Inc., filed a joint motion for reconsideration, which was given due
course. Convinced that the evidence presented established the legal existence of GQ GARMENTS,
Inc., and finding that a resolution passed by the Board of Directors of GQ GARMENTS, Inc., ratified
the waiver of its president, the Collector of Customs in another draft decision granted the joint
motion. The Office of the Commissioner of Customs, however, disapproved the new draft decision and
denied the release of the goods; it ruled:
"1. x x x [I]t is quite suspicious that it took more than one month before the alleged error in the
consignee was discovered by the shipper and by AGFHA, Inc., and by GQ Garments especially
considering the fact that there is a CRF naming therein AGFHA as consignee of the subject shipment
which means that the shipper was contracted by SGS so that the latter can inspect the subject
shipment to be imported by consignee; that Mr. Wilson Kho admitted it was AGFHA who ordered the
shipment by telephone call; that prior to this shipment there was no order placed in the name of GQ
Garments from Indonesia; and that this is already the second of four shipments ordered by AGFHA,
Inc., from Jakarta, Indonesia.

"2. Mr. Wilson Kho's explanation that the shipper committed an error in naming GQ GARMENTS as
the consignee of the subject shipment because his business card contains the name of both GQ
GARMENTS and AGFHA, Inc. appears to be an afterthought and self-serving. Moreover, he admitted
that he is not an officer nor even a stockholder of GQ GARMENTS so why should his business card
indicate his name as President/General Manager of GQ GARMENTS and AGFHA, Inc. That is clearly a
misrepresentation.
"3. During the hearing on April 15, 1994, Mr. John John Barlin of GQ GARMENTS admitted that the
letter dated February 11, 1993 purportedly signed by him (in which he allegedly informed the Collector
of Customs that AGFHA, Inc., is the rightful owner of the subject shipment and that GQ GARMENTS
is waiving its right over the same) actually came from Wilson Kho. In other words, the said letter is
spurious.
"4. From the admissions of both Mr. Wilson Kho and Mr. John John Barlin, it is clear that GQ
GARMENTS is actually owned by Mr. Wilson Kho and its corporate franchise appears to be being used
to perpetrate fraud and other scheme to confuse authorities (pp. 1-4, Decision of Commissioner of
Customs, Custom Case No. 94-017)"1
In deference to the directive of the Commissioner, the District Collector of Customs ordered the
forfeiture of the shipment. On 14 October 1994, AGFHA, Inc., interposed an appeal to the Office of
the Commissioner of Customs. The appeal was dismissed consistently with the Commissioner's earlier
stand that disapproved the Collector of Customs' draft decision.
On 5 October 1995, AGFHA, Inc., filed a petition for review with the Court of Tax Appeals
questioning the forfeiture of the bales of textile cloth. Finding merit in the plea of appellants, the
Court of Tax Appeals granted the petition and ordered the release of the goods to AGFHA, Inc.
On 27 December 1996, the Commissioner of Customs then challenged before the Court of Appeals the
decision of the tax court.
In its decision, dated 31 May 1999, the Court of Appeals dismissed the appeal for lack of merit.
Quoting extensively from the assailed decision of the tax court, the appellate court ruled that the
Bureau of Customs has failed to satisfy its burden of proving fraud on the part of the importer or
consignee. It expounded thusly:
"Section 2530 (f) and (1) 3-5 of the Tariff and Customs Code, provide that in order that a shipment
be liable to forfeiture, it must be proved that fraud has been committed by the importer/consignee
to evade payment of the duties due. To establish the existence of fraud, the onus probandi is on the
part of the Bureau of Customs who ordered the forfeiture of the subject shipments. The BOC,
however, failed.
"x x x x x x x x x
"'x x x This Court could not fathom any individual or collective importance of the x x x findings [of
the BOC] as indicative of the actual commission of fraud or any attempt or frustration thereof. As
defined, actual or intentional fraud consists of deception willfully and deliberately done or resorted to
in order to induce another to give up some right. It must amount to intentional wrong-doing with the
sole object of avoiding the tax.

`The circumstances or findings presented by the [BOC] do not reveal x x x any kind of deception that
could have been played upon [the] Bureau to give up some of its right, e.g., to collect correct taxes on
properly declared shipment of goods.
`x x x x x x x x x
`[BOC] is saying that the shipper knew all along that AGFHA, Inc., was the real consignee due to the
pre-inspection done by SGS and the corresponding issuance of the CRF naming AGFHA, Inc. as the
consignee. So that in naming GQ GARMENTS Inc. as the consignee in the Bill of Lading and Inward
Foreign Manifest, the same was intentional and deliberately done and not a case of error or
inadvertence x x x.
`[The Court] could not believe that [BOC] assumed the above circumstance as a fact in his attempt to
forfeit the subject shipment in favor of the government. The respondent is trying to second guess
the act of the shipper that the latter had prior knowledge of AGFHA Inc., as the true consignee
before the shipment. [The Court] deem[s] such conclusion as pure hearsay. Obviously, it is only the
shipper and/or the SGS who could personally vouch for events that transpired prior to the shipment
of the goods subject matter of this case.
`x x x [AGFHA Inc.] has offered the following controverting and convincing evidence x x x:
`1. Telex message from the shipping agent of shipper P.T. Mandala Subur Textile Industry to FIL-
JAPAN Shipping Company Manila, requesting amendment of the Bill of Lading and other shipping
records, to change consignee from GQ Garments, Inc. to Agfha, Inc.;
`2. Application for Amendment of the Inward Foreign Manifest filed by the shipper's agent, FIL-
JAPAN Shipping Company, for approval with the Customs Law Division, Manila International Container
Port (MICP), to change the name of the consignee from GQ Garments, Inc. to Agfha, Inc.
`3. Letter dated February 10, 1993 by Wilson Kho, president of Agfha, Inc. addressed to Atty.
Buenaventura Maniego, District Collector of Customs, MICP, North Harbor, Manila manifesting the
former's intention and willingness to pay the corresponding duties and taxes on the subject shipment
based on a higher valuation indicated in the Clean Report of Findings (CRF) as recommended by the
SGS, as against the lower valuation indicated in the invoice.
`4. Bill of Lading covering the subject shipment showing the shipper as P.T. Mandala Subur Textile
Industry and the consignee as GQ Garments, Inc.
`5. The Clean Report of Findings (CRF) dated December 9, 1992 showing the consignee of the subject
shipment as Agfha, Inc. and the shipper as P.T. Mandala Subur Textile Industry.
`6. Import Authority No. (IAN) 18.012.37679, assigned by the Central Bank of the Philippines
appearing on the right hand portion of the CRF.
`The above evidence speak for themselves. If any deception is intended by petitioner Agfha, Inc., why
would it apply for an Import Authority Number under its name? It knew for certain that the subject
goods will be pre-inspected by SGS under its name.
"x x x x x x x x x
`x x x [AGFHA Inc.] expressed its willingness to pay the higher duties and taxes imposed on the
subject shipment as indicated in the CRF. x x x From the very start up to the end, petitioner had been

consistent in its actuations. It applied for an Import Authority with the Central Bank of the
Philippines which authority was used by the SGS in making the necessary pre-inspection and issuing
the CRF. It undertook remedial measures to amend the consignee in the Bill of Lading and Inward
Foreign Manifest when the shipper made a mistake. It then manifested to pay the correct taxes and
duties. The government stands to lose nothing.'"2
The Court of Appeals attributed the error in indicating GQ GARMENTS, Inc., instead of AGFHA, Inc.,
in the Inward Foreign Manifest as being the consignee of the subject shipment to the shipping agent.
It also noted the finding of the tax court that GQ GARMENTS, Inc., was, in fact, a registered
importer with Registration No. 91-5624 per the Customs Intelligence and Investigation Service List
of Registered Importers contained in Customs Memorandum Order No. 149-88 for the year 1991.
The BOC instituted the instant petition for review under Rule 45 of the Revised Rules of Court
assailing the affirmance by the Court of Appeals of the tax court's decision of 04 November 1996.
The appeal is not meritorious.
Section 2530 (f) and (1) (3-5) provides:
"Section 2530. Property Subject to Forfeiture Under Tariff and Customs Law. - Any vehicle, vessel or
aircraft, cargo, article and other objects shall, under the following conditions be subjected to
forfeiture;
"x x x x x x x x x
"f. Any article the importation or exportation of which is effected or attempted contrary to law, or
any article of prohibited importation or exportation, and all other articles which, in the opinion of the
Collector, have been used, are or were entered to be used as instruments in the importation or
exportation of the former.
"x x x x x x x x x
"1. Any article sought to be imported or exported:
"x x x x x x x x x
"(3) On the strength of a false declaration or affidavit executed by the owner, importer, exporter or
consignee concerning the importation of such article;
"(4) On the strength of a false invoice or other document executed by the owner, importer, exporter
or consignee concerning the importation or exportation of such article; and
"(5) Through any other practice or device contrary to law by means of which such articles was entered
through a customhouse to the prejudice of the government."
The requisites for the forfeiture of goods under Section 2530(f), in relation to (1) (3-5), of the
Tariff and Customs Code are: (a) the wrongful making by the owner, importer, exporter or consignee
of any declaration or affidavit, or the wrongful making or delivery by the same person of any invoice,
letter or paper - all touching on the importation or exportation of merchandise; (b) the falsity of such
declaration, affidavit, invoice, letter or paper; and (c) an intention on the part of the importer/
consignee to evade the payment of the duties due.3
Petitioner asserts that all of these requisites are present in this case. It contends that it did not
presume fraud, rather the events positively point to the existence of fraud. Private respondent

AGFHA, Inc., on the other hand, maintains that there has only been an inadvertent error and not an
intentional wrongful declaration by the shipper to evade payment of any tax due. The resolution of
this issue would entail a reevaluation of the attendant circumstances, a matter that cannot be freely
undertaken by this Tribunal. It has been a settled rule that the Supreme Court is not a trier of
facts.4 Findings of the appellate court are generally binding and cannot be disturbed by this Court
unless it is sufficiently shown that there has been no evidence on record to support such findings.5
The assessment made by the appellate court carry even more weight when it is consistent with that of
the trial court.6 Consonantly, the factual determination of the Court of Tax Appeals, when supported
by substantial evidence, will not be reversed on appeal unless it is clear that the said court has
committed gross error in the process.7 The Collector of Customs, Court of Tax Appeals and the Court
of Appeals are unanimous in concluding that no fraud has been committed by private respondent in the
importation of the bales of cloth. The records do appear to sustain this conclusion.
Fraud must be proved to justify forfeiture.8 It must be actual, amounting to intentional wrong-doing
with the clear purpose of avoiding the tax.9 Forfeiture is not favored in law nor in equity.10 Mere
negligence is not equivalent to the fraud contemplated by law.11 What is here involved is an honest
mistake, not even directly attributable to private respondent, which will not deprive the government
of its right to collect the proper tax. The conclusion of the appellate court, being consistent with the
evidence on record and not contrary to law and jurisprudence, hardly can be overturned by this Court.
WHEREFORE, the petition is hereby DENIED and the assailed decision of the Court of Appeals is
AFFIRMED.
SO ORDERED.

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. L-20569 August 23, 1974
JOSE B. AZNAR, in his capacity as Administrator of the Estate of the deceased, Matias H. Aznar,
petitioner,
vs.
COURT OF TAX APPEALS and COLLECTOR OF INTERNAL REVENUE, respondents.
Sato, Enad Garcia for petitioner.
Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and Special Attorney
Librada R. Natividad for respondents.
ESGUERRA, J.:p
Petitioner, as administrator of the estate of the deceased, Matias H. Aznar, seeks a review and
nullification of the decision of the Court of Tax Appeals in C.T.A. Case No. 109, modifying the decision
of respondent Commissioner of Internal Revenue and ordering the petitioner to pay the government
the sum of P227,691.77 representing deficiency income taxes for the years 1946 to 1951, inclusive,
with the condition that if the said amount is not paid within thirty days from the date the decision
becomes final, there shall be added to the unpaid amount the surcharge of 5%, plus interest at the
rate of 12% per annum from the date of delinquency to the date of payment, in accordance with
Section 51 of the National Internal Revenue Code, plus costs against the petitioner.
It is established that the late Matias H. Aznar who died on May 18, 1958, predecessor in interest of
herein petitioner, during his lifetime as a resident of Cebu City, filed his income tax returns on the
cash and disbursement basis, reporting therein the following:
Year Net Income Amount of Tax Paid Exhibit
1945 P12,822.00 P114.66 pp. 85-88 B.I.R.

rec.
1946 9,910.94 114.66 38-A (pp. 329-332

B.I.R rec.)
1947 10,200.00 132.00 39 (pp. 75-78 B.I.R

rec.)
1948 9,148.34 68.90 40 (pp. 70-73

B.I.R. rec.)
1949 8,990.66 59.72 41 (pp. 64-67

B.I.R. rec.)
1950 8,364.50 28.22 42 (pp. 59-62, BIR

rec.)
1951 6,800.00 none 43 (pp. 54-57 BIR

rec.).
The Commissioner of Internal Revenue having his doubts on the veracity of the reported income of
one obviously wealthy, pursuant to the authority granted him by Section 38 of the National Internal
Revenue Code, caused B.I.R. Examiner Honorio Guerrero to ascertain the taxpayer's true income for
said years by using the net worth and expenditures method of tax investigation. The assets and
liabilities of the taxpayer during the above-mentioned years were ascertained and it was discovered
that from 1946 to 1951, his net worth had increased every year, which increases in net worth was very
much more than the income reported during said years. The findings clearly indicated that the
taxpayer did not declare correctly the income reported in his income tax returns for the aforesaid
years.

Based on the above findings of Examiner Guerrero, respondent Commissioner, in his letter dated
November 28, 1952, notified the taxpayer (Matias H. Aznar) of the assessed tax delinquency to the
amount of P723,032.66, plus compromise penalty. The taxpayer requested a reinvestigation which was
granted for the purpose of verifying the merits of the various objections of the taxpayer to the
deficiency income tax assessment of November 28, 1952.
After the reinvestigation, another deficiency assessment to the reduced amount of P381,096.07
dated February 16, 1955, superseded the previous assessment and notice thereof was received by
Matias H. Aznar on March 2, 1955.
The new deficiency assessment was based on the following computations:
1946
Net income per return ........................ P9,910.94
Add: Under declared income .............. 22,559.94
Net income per investigation............... 32,470.45
Deduct: Income tax liability
per return as assessed ...................................................... 114.66
Balance of tax due ........................................................... P3,687.10
Add: 50% surcharge ........................................................ 1,843.55
DEFICIENCY INCOME TAX ...................................... P5,530.65
1947
Net income per return ..................................................... P10,200.00
Add: Under declared income ............................................ 90,413.56
Net income per reinvestigation ....................................... P100,613.56
Deduct: Personal and additional exemption ...................... 7,000.00
Amount of income subject to tax ...................................... P93,613.56
Total tax liability ............................................................... P24,753.15
Deduct: Income tax liability per return as assessed ............ 132.00
Add: 50% surcharge ........................................................ 12,310.58 DEFICIENCY INCOME
TAX ...................................... P36,931.73
1948
Net income per return ...................................................... P9,148.34
Add: Under declared income ............................................. 15,624.63
Net income per reinvestigation .......................................... P24,772.97
Deduct: Personal and additional exemptions ...................... 7,000.00
Amount of income subject to tax ....................................... P17,772.97
Total tax liability ............................................................... 2,201.40
Deduct: Income tax liability per return as assessed ............ 68.90

Add: 50% surcharge ........................................................ 1,066.25 DEFICIENCY INCOME

TAX ...................................... P3,198.75
1949
Net income per return ....................................................... P9,990.66
Net income per reinvestigation .......................................... 114,409.19
Deduct: Personal and additional exemptions ...................... P7,000.00
Deduct: Income tax liability per return as assessed ............. 59.72
Balance of tax due ............................................................ P30,083.96
Add: 50% surcharge ......................................................... 15,041.98 DEFICIENCY INCOME
TAX ....................................... P45,125.94
1950
Net income per return ....................................................... P8,364.50
Net income per reinvestigation .......................................... P373,943.26
Deduct: Personal and additional exemptions ...................... 7,800.00
Deduct: Income tax liability per return as assessed ............. 28.00
Balance of tax due ............................................................ P185,855.00
Add: 50% surcharge ......................................................... 92,928.00 DEFICIENCY INCOME
TAX ....................................... P278,783.00
1951
Net income per return ........................................................ P6,800.00
Add: Under declared income ............................................... 33,355.80
Net income per reinvestigation ............................................ P40,155.80
Deduct: Personal and additional exemptions ........................ 7,200.00
Amount of income subject to tax ......................................... P32,955.80
Total tax liability .................................................................. P7,684.00
Deduct: Income tax liability per return as assessed ............... - o - .
Balance of tax due .............................................................. P7,684.00
Add: 50% surcharge ........................................................... 3,842.00 DEFICIENCY INCOME
TAX .......................................... P11,526.00
SUMMARY
1946
.... P5,530.65
1947 .... 36,931.73

1948 .... 3,198.75
1949 .... 45,125.94
1950 .... 278,783.00
1951 .... 11,526.00
Total .... P381,096.07

In determining the unreported income, the respondent Commissioner of Internal Revenue resorted to
the networth method which is based on the following computations:
1945
Real estate inventory ................................ P64,738.00
Other assets ............................................. 37,606.87
Total assets ............................................ P102,344.87
Less: Depreciation allowed ...................... 2,027.00
Networth as of Dec. 31, 1945 ................ P100,316.97
1946
Real estate inventory ................................. P86,944.18
Other assets ............................................. 60,801.65
Total assets ............................................. P147,745.83
Less: Depreciation allowed ...................... 4,875.41
Net assets ................................................ P142,870.42
Less: Liabilities .................. P17,000.00
Net Worth as of
Jan. 1, 1946 ................... P100,316.97 P117,316.97
Increase in networth ................................. 25,553.45
Add: Estimated living expenses ................. 6,917.00
Net income .............................................. P32,470.45
1947
Real estate inventory .................................. P237,824.18
Other assets ............................................... 54,495.52
Total assets ............................................... P292,319.70
Less: Depreciation allowed ......................... 12,835.72
Net assets .................................................. 279,483.98
Less: Liabilities ................... P60,000.00
Networth as of
Jan. 1, 1947 ........................ 125,870.42 P185,870.42
Increase in networth ................................... P93,613.56

 
 

 
 

 
 

Add: Estimated living expenses ................... 7,000.00

Net income ................................................P100,613.56
1948
Other assets .............................................. 118,720.60
Total assets ............................................... P363,544.78
Less: Depreciation allowed ........................ 20,936.03
Net assets ................................................. P342,608.75
Less: Liabilities ................... P105,351.80
Networth as of
Jan. 1, 1948 ...................... 219,483.98 P324,835.78
Net income ................................................ P24,772.97
1949
Real estate inventory ................................. P400,515.52
Investment in schools and other colleges .... 23,105.29
Other assets ............................................. 70,311.00
Total assets ............................................... P493,931.81
Less: Depreciation allowed ........................ 32,657.08
Net assets ................................................. P461.274.73
Less; Liabilities .................. P116,608.59
Networth as of
Jan. 1, 1949 ...................... 237,256.95 P353,865.54
Increase in networth .................................. P107,409.19
Add: Estimated living expenses .................. 7,000.00
Net income ............................................... P114,409.19
1950
Investment in Schools and
other colleges ................................ 193,460.99
October assets .......................................... 310,788.87
Total assets ............................................... P916,715.38
Less; Depreciation allowed ........................ 47,561.99
Net assets ................................................. P869,153.39
Less: Liabilities .................. P158,343.99
Networth as of Jan. 1, 1950 ... 344,666.14 P503,010.13

 
 
 

 
 

 
Net income ................................................. P373,943.26
1951
Real estate inventory ................................... P412,465.52
Investment in schools and other colleges ..... 214,016.21
Other assets ............................................... 320,209.40
Total assets ................................................ P946,691.13
Less: Depreciation allowed ......................... 62,466.90
Net assets .................................................. P884,224.23
Less: Liabilities ........................................... P140,459.03
Networth as of
Jan. 1, 1951 ................ 710,809.40 P851,268.43
Increase in networth .................................... P32,955.80
Add: Estimated living expenses .................... 7,200.00
Net income ................................................. P40,155.80
(Exh. 45-B, BIR rec. p. 188)
On February 20, 1953, respondent Commissioner of Internal Revenue, thru the City Treasurer of
Cebu, placed the properties of Matias H. Aznar under distraint and levy to secure payment of the
deficiency income tax in question. Matias H. Aznar filed his petition for review of the case with the
Court of Tax Appeals on April 1, 1955, with a subsequent petition immediately thereafter to restrain
respondent from collecting the deficiency tax by summary method, the latter petition being granted
on February 8, 1956, per C.T.A. resolution, without requiring petitioner to file a bond. Upon review,
this Court set aside the C.T.A. resolution and required the petitioner to deposit with the Court of Tax
Appeals the amount demanded by the Commissioner of Internal Revenue for the years 1949 to 1951 or
furnish a surety bond for not more than double the amount.
On March 5, 1962, in a decision signed by the presiding judge and the two associate judges of the
Court of Tax Appeals, the lower court concluded that the tax liability of the late Matias H. Aznar for
the year 1946 to 1951, inclusive should be P227,788.64 minus P96.87 representing the tax credit for
1945, or P227,691.77, computed as follows:
1946
Net income per return .............................................. P9,910.94
Add: Under declared income ..................................... 22,559.51
Net income ............................................................ P32,470.45
Less: Personal and additional exemptions .................. 6,917.00
Income subject to tax ............................................. P25,553.45
Tax due thereon ...................................................... P3,801.76
Less: Tax already assessed ...................................... 114.66
Balance of tax due .................................................... P3,687.10
Add: 50% surcharge ................................................. 1,843.55
Deficiency income tax ................................................ P5,530.65

1947
Net income per return ............................................ P10,200.00
Add: Under declared income .................................. 57,551.19
Net income ........................................................... P67,751.19
Less: Personal and additional exemptions ............... 7,000.00
Income subject to tax ............................................. P60,751.19
Tax due thereon ..................................................... P13,420.38
Less: Tax already assessed ..................................... P132.00
Balance of tax due ................................................... P13,288.38
Add: 50% surcharge ................................................ 6,644.19
Deficiency income tax .............................................. P19,932.57
1948
Net income per return .............................................. P9,148.34
Add: Under declared income ..................................... 8,732.10
Net income ............................................................ P17,880.44
Less: Personal and additional exemptions ................. 7,000.00
Income subject to tax .............................................. P10,880.44
Tax due thereon ...................................................... P1,029.67
Less: Tax already assessed ....................................... 68.90
Balance of tax due .................................................... 960.77
Add: 50% surcharge ................................................. 480.38
Deficiency income tax ............................................... P1,441.15
1949
Net income per return ................................................. P8,990.66
Add: under declared income ......................................... 43,718.53
Net income ............................................................... P52,709.19
Less: Personal and additional exemptions .................... 7,000.00
Income subject to tax ................................................. P45,709.19
Tax due thereon ......................................................... P8,978.57
Less: Tax already assessed ......................................... 59.72
Balance of tax due ....................................................... P8,918.85
Add: 50% surcharge .................................................... 4,459.42
Deficiency income tax ................................................. P13,378.27
1950
Net income per return .................................................. P6,800.00
Add: Under declared income ......................................... 33,355.80
Net income ................................................................. P40,155.80

 
 
 
 

 
 
 

 
 
 
 
Less: Personal and additional exemptions ...................... 7,200.00
Income subject to tax .................................................. P32,955.80
Tax due thereon ........................................................... P7,684.00
Less: Tax already assessed ........................................... -o- .
Balance of tax due ........................................................ P7,684.00
Add: 50% surcharge .................................................... 3,842.00
Deficiency income tax .................................................. P11,526.00
1951
Net income per return ................................................... P8,364.50
Add: Under declared income ........................................ 246,449.06
Net income ............................................................... P254.813.56
Less: Personal and additional exemptions .................... 7,800.00
Income subject to tax ................................................ P247,013.56
Tax due thereon ........................................................ P117,348.00
Less: Tax already assessed ........................................ 28.00
Balance of tax due ..................................................... P117,320.00
Add: 50% surcharge .................................................. 58,660.00
Deficiency income tax ................................................ P175 980.00
SUMMARY
1946 P5,530.65
1947 19,932.57
1948 1,441.15
1949 13,378.27
1950 175,980.00
1951 11,526.00
P227,788.64.
I
The first vital issue to be decided here is whether or not the right of the Commissioner of Internal
Revenue to assess deficiency income taxes of the late Matias H. Aznar for the years 1946, 1947, and
1948 had already prescribed at the time the assessment was made on November 28, 1952.
Petitioner's contention is that the provision of law applicable to this case is the period of five years
limitation upon assessment and collection from the filing of the returns provided for in See. 331 of
the National Internal Revenue Code. He argues that since the 1946 income tax return could be
presumed filed before March 1, 1947 and the notice of final and last assessment was received by the
taxpayer on March 2, 1955, a period of about 8 years had elapsed and the five year period provided by
law (Sec. 331 of the National Internal Revenue Code) had already expired. The same argument is
advanced on the taxpayer's return for 1947, which was filed on March 1, 1948, and the return for
1948, which was filed on February 28, 1949. Respondents, on the other hand, are of the firm belief
that regarding the prescriptive period for assessment of tax returns, Section 332 of the National
 
 
 

 
 
 
 

Internal Revenue Code should apply because, as in this case, "(a) In the case of a false or fraudulent
return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be begun without assessment, at any time within
ten years after the discovery of the falsity, fraud or omission" (Sec. 332 (a) of the NIRC).
Petitioner argues that Sec. 332 of the NIRC does not apply because the taxpayer did not file false
and fraudulent returns with intent to evade tax, while respondent Commissioner of Internal Revenue
insists contrariwise, with respondent Court of Tax Appeals concluding that the very "substantial under
declarations of income for six consecutive years eloquently demonstrate the falsity or fraudulence of
the income tax returns with an intent to evade the payment of tax."
To our minds we can dispense with these controversial arguments on facts, although we do not deny
that the findings of facts by the Court of Tax Appeals, supported as they are by very substantial
evidence, carry great weight, by resorting to a proper interpretation of Section 332 of the NIRC. We
believe that the proper and reasonable interpretation of said provision should be that in the three
different cases of (1) false return, (2) fraudulent return with intent to evade tax, (3) failure to file a
return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun
without assessment, at any time within ten years after the discovery of the (1) falsity, (2) fraud, (3)
omission. Our stand that the law should be interpreted to mean a separation of the three different
situations of false return, fraudulent return with intent to evade tax, and failure to file a return is
strengthened immeasurably by the last portion of the provision which segregates the situations into
three different classes, namely "falsity", "fraud" and "omission". That there is a difference between
"false return" and "fraudulent return" cannot be denied. While the first merely implies deviation from
the truth, whether intentional or not, the second implies intentional or deceitful entry with intent to
evade the taxes due.
The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of
the NIRC should be applicable to normal circumstances, but whenever the government is placed at a
disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities due to false
returns, fraudulent return intended to evade payment of tax or failure to file returns, the period of
ten years provided for in Sec. 332 (a) NIRC, from the time of the discovery of the falsity, fraud or
omission even seems to be inadequate and should be the one enforced.
There being undoubtedly false tax returns in this case, We affirm the conclusion of the respondent
Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that the period of ten years
within which to assess petitioner's tax liability had not expired at the time said assessment was made.
II
As to the alleged errors committed by the Court of Tax Appeals in not deducting from the alleged
undeclared income of the taxpayer for 1946 the proceeds from the sale of jewelries valued at
P30,000; in not excluding from other schedules of assets of the taxpayer (a) accounts receivable from
customers in the amount of P38,000 for 1948, P126,816.50 for 1950, and provisions for doubtful
accounts in the amount of P41,810.56 for 1950; (b) over valuation of hospital and dental buildings for
1949 in the amount of P32,000 and P6,191.32 respectively; (c) investment in hollow block business in
the amount of P8,603.22 for 1949; (d) over valuation of surplus goods in the amount of P23,000 for
the year 1949; (e) various lands and buildings included in the schedule of assets for the years 1950
and 1951 in the total amount of P243,717.42 for 1950 and P62,564.00 for 1951, these issues would
depend for their resolution on determination of questions of facts based on an evaluation of evidence,
and the general rule is that the findings of fact of the Court of Tax Appeals supported by substantial
evidence should not be disturbed upon review of its decision (Section 2, Rule 44, Rules of Court).
On the question of the alleged sale of P30,000 worth of jewelries in 1946, which amount petitioner
contends should be deducted from the taxpayer's net worth as of December 31, 1946, the record
shows that Matias H. Aznar, when interviewed by B.I.R. Examiner Guerrero, stated that at the
beginning of 1945 he had P60,000 worth of jewelries inherited from his ancestors and were disposed
off as follows: 1945, P10,000; 1946, P20,000; 1947, P10,000; 1948, P10,000; 1949, P7,000; (Report of
B.I.R. Examiner Guerrero, B.I.R. rec. pp. 90-94).
During the hearing of this case in the Court of Tax Appeals, petitioner's accountant testified that on
January 1, 1945, Matias H. Aznar had jewelries worth P60,000 which were acquired by purchase
during the Japanese occupation (World War II) and sold on various occasions, as follows: 1945, P5,000
and 1946, P30,000. To corroborate the testimony of the accountant, Mrs. Ramona Agustines testified
that she bought from the wife of Matias H. Aznar in 1946 a diamond ring and a pair of earrings for
P30,000; and in 1947 a wrist watch with diamonds, together with antique jewelries, for P15,000.
Matias H. Aznar, on the other hand testified that in 1945, his wife sold to Sards Parino jewelries for
P5,000 and question, Mr. Aznar stated that his transaction with Sards Parino, with respect to the sale
of jewelries, amounted to P15,000.
The lower court did not err in finding material inconsistencies in the testimonies of Matias H. Aznar
and his witnesses with respect to the values of the jewelries allegedly disposed off as stated by the
witnesses. Thus, Mr. Aznar stated to the B.I.R. examiner that jewelries worth P10,000 were sold in
1945, while his own accountant testified that the same jewelries were sold for only P5,000. Mr. Aznar
also testified that Mrs. Agustines purchased from his wife jewelries for P35,000, and yet Mrs.
Agustines herself testified that she bought jewelries for P30,000 and P15,000 on two occasions, or a
total of P45,000.
We do not see any plausible reason to challenge the fundamentally sound basis advanced by the Court
of Tax Appeals in considering the inconsistencies of the witnesses' testimony as material, in the
following words:
We do not say that witnesses testifying on the same transaction should give identical testimonies.
Because of the frailties and the limitations of the human mind, witnesses' statements are apt to be
inconsistent in certain points, but usually the inconsistencies refer to the minor phases of the
transaction. It is the insignificance of the detail of an occurrence that fails to impress the human
mind. When that same mind, made to recall what actually happened, the significant point which it
failed to take note is naturally left out. But it is otherwise as regards significant matters, for they
leave indelible imprints upon the human mind. Hence, testimonial inconsistencies on the minor details

of an occurrence are dismissed lightly by the courts, while discrepancies on significant points are
taken seriously and weigh adversely to the party affected thereby.
There is no sound basis for deviating from the lower court's conclusion that: "Taxwise in view of the
aforesaid inconsistencies, which we deem material and significant, we dismiss as without factual basis
petitioner's allegation that jewelries form part of his inventory of assets for the purpose of
establishing his net worth at the beginning of 1946."
As to the accounts receivable from the United States government for the amount of P38,254.90,
representing a claim for goods commandered by the U.S. Army during World War II, and which
amount petitioner claimed should be included in his net worth as of January 1, 1946, the Court of Tax
Appeals correctly concluded that the uncontradicted evidence showed that "the collectible accounts
of Mr. Aznar from the U.S. Government in the sum of P38,254.90 should be added to his assets
(under accounts receivable) as of January 1, 1946. As of December 31, 1947, and December 31, 1948,
the years within which the accounts were paid to him, the 'accounts receivable shall decrease by
P31,362.37 and P6,892.53, respectively."
Regarding a house in Talisay Cebu, (covered by Tax Declaration No. 8165) which was listed as an asset
during the years 1945 and 1947 to 1951, but which was not listed as an asset in 1946 because of a
notation in the tax declaration that it was reconstructed in 1947, the lower court correctly concluded
that the reconstruction of the property did not render it valueless during the time it was being
reconstructed and consequently it should be listed as an asset as of January 1, 1946, with the same
valuation as in 1945, that is P1,500.
On the question of accounts receivable from customers in the amount of P38,000 for 1948, and
P123,816.58 for the years 1950 and 1951, which were included in the assets of Mr. Aznar for those
years by the respondent Commissioner of Internal Revenue, it is very clear that those figures were
taken from the statements (Exhs. 31 and 32) filed by Mr. Matias H. Aznar with the Philippine National
Bank when he was intending to obtain a loan. These statements were under oath and the natural
implication is that the information therein reflected must be the true and accurate financial condition
of the one who executed those statements. To believe the petitioner's argument that the late Mr.
Aznar included those figures in his sworn statement only for the purpose of obtaining a bigger credit
from the bank is to cast suspicion on the character of a man who can no longer defend himself. It
would be as if pointing the finger of accusation on the late Mr. Aznar that he intentionally falsified his
sworn statements (Exhs. 31 and 32) to make it appear that there were non-existent accounts
receivable just to increase his assets by fictitious entries so that his credit with the Philippine
National Bank could be enhanced. Besides, We do not lose sight of the fact that those statements
(Exhs. 31 and 32) were executed before this tax controversy arose and the disputable presumptions
that a person is innocent of crime or wrong; that a person intends the ordinary consequences of his
voluntary act; that a person takes ordinary care of his concerns; that private transaction have been
fair and regular; that the ordinary course of business has been followed; that things have happened
according to the ordinary course of nature and the ordinary habits of life; that the law has been
obeyed (Sec. 5, (a), (c), (d), (p), (q), (z), (ff), Rule 131 of the Rules of Court), together with the

conclusive presumption that "whenever a party has, by his own declaration, act, or omission,
intentionally and deliberately led another to believe a particular thing true, and to act upon such
belief, he cannot, in any litigation arising out of such declaration, act or omission, be permitted to
falsify it" (Sec. 3 (a), Rule 131, Rules of Court), convincingly indicate that the accounts receivable
stated by Mr. Aznar in Exhibits 31 and 32 were true, in existence, and accurate to the very amounts
mentioned.
There is no merit to petitioners argument that those statements were only for the purpose of
obtaining a bigger credit from the bank (impliedly stating that those statements were false) and those
accounts were allegedly back accounts of students of the Southwestern Colleges and were worthless,
and if collected, would go to the funds of the school. The statement of the late Mr. Aznar that they
were accounts receivable from customers should prevail over the mere allegation of petitioner,
unsupported as they are by convincing evidence. There is no reason to disturb the lower court's
conclusion that the amounts of P38,000 and P123,816.58 were accounts receivable from customers and
as such must be included as petitioner's assets for the years indicated.
As to the questions of doubtful accounts (bad debts), for the amount of P41,810.56, it is clear that
said amount is taken from Exhibit 31, the sworn statement of financial condition filed by Mr. Matias
H. Aznar with the Philippine National Bank. The lower court did not commit any error in again giving
much weight to the statement of Mr. Aznar and in concluding that inasmuch as this is an item separate
and apart from the taxpayer's accounts receivable and non-deductible expense, it should be reverted
to the accounts receivable and, consequently, considered as an asset in 1950.
On the alleged over valuation of two buildings (hospital building which respondent Commissioner of
Internal Revenue listed as an asset from 1949-1951 at the basic valuation of P130,000, and which
petitioner claims to be over valued by P32,000; dentistry building valued by respondent Commissioner
of Internal Revenue at P36,191.34, which petitioner claims to be over valued by P6,191.34), We find no
sufficient reason to alter the conclusion of respondent Court of Tax Appeals sustaining the
respondent Commissioner of Internal Revenue's valuation of both properties.
Respondent Commissioner of Internal Revenue based his valuation of the hospital building on the
representation of Mr. Matias H. Aznar himself who, in his letter (Exh. 35) to the Philippine National
Bank dated September 5, 1949, stated that the hospital building cost him P132,000. However in view
of the effect of a typhoon in 1949 upon the building, the value allowed was P130,000. Exhibit 35,
contrary to petitioner's contention, should be given probative value because, although it is an unsigned
plain copy, that exhibit was taken by the investigating examiner of the B.I.R. from the files of the
Southwestern Colleges and formed part of his report of investigation as a public official. The
estimates of an architect and a civil engineer who agreed that a value of P84,240 is fair for the
hospital building, made years after the building was constructed, cannot prevail over the petitioner's
own estimate of his property's value.
Respondent Commissioner of Internal Revenue's valuation of P36,191.34 of the Dentistry Building is
based on the letter of Mr. and Mrs. Matias H. Aznar to the Southwestern Colleges, dated December
15, 1950, which is embodied in the minutes of the meeting of the Board of Trustees of the

Southwestern Colleges held on May 7, 1951 (Exhibit G-1). In Exhibit 26 A, which is the cash book of
the Southwestern Colleges, this building was listed as of the same amount. Petitioner's estimate of
P30,000 for this building, based on Architect Paca's opinion, cannot stand against the owner's
estimate and that which appears in the cash book of the Southwestern Colleges, if we take into
consideration that the owner's (Mr. Matias H. Aznar) letter was written long before this tax
proceeding was initiated, while architect Paca's estimate was made upon petitioner's request solely
for the purpose of evidence in this tax case.
In the inventory of assets of petitioner, respondent Commissioner of Internal Revenue included the
administrative building valued at P19,200 for the years 1947 and 1948, and P16,700 for the years
1949 to 1951; and a high school building valued at P48,000 for 1947 and 1948, and P45,000 for 1949,
1950 and 1951. The reduced valuation for the latter years are due to allowance for partial loss
resulting from the 1949 typhoon. Petitioner did not question the inclusion of these buildings in the
inventory for the years prior to 1950, but objected to their inclusion as assets as of January 1, 1950,
because both buildings were destroyed by a typhoon in November of 1949. There is sufficient
evidence (Exh. G-1, affidavit of Jesus S. Intan, employee in the office of City Assessor of Cebu City,
Exh. 18, Mr. Intan's testimony, a copy of a letter of the City Assessor of Cebu City) to prove that the
two buildings were really destroyed by typhoon in 1949 and, therefore, should be eliminated from the
petitioner's inventory of assets beginning December 31, 1949.
On the issue of investment in the hollow blocks business, We see no compelling reason to alter the
lower court's conclusion that "whatever was spent in the hollow blocks business is an investment, and
being an investment, the same should be treated as an asset. With respect to the amount representing
the value of the building, there is no duplication in the listing as the inventory of real property does
not include the building in question."
Respondent Commissioner of Internal Revenue included in the inventory, under the heading of other
asset, the amount of P8,663.22, treated as investment in the hollow block business. Petitioner objects
to the inclusion of P1,683.42 which was spent on the building and in the business and of P674.35 which
was spent for labor, fuel, raw materials, office supplies etc., contending that the former amount is a
duplication of inventory (included among the list of properties) and the latter is a business expense
which should be eliminated from the list of assets.
The inclusion of expenses (labor and raw materials) as part of the hollow block business is sanctioned
in the inventory method of tax verification. It is a sound accounting practice to include raw materials
that will be used for future manufacture. Inclusion of direct labor is also proper, as all these items
are to be embodied in a summary of assets (investment by the taxpayer credited to his capital
account as reflected in Exhibit 72-A, which is a working sheet with entries taken from the journal of
the petitioner concerning his hollow blocks business). There is no evidence to show that there was
duplication in the inclusion of the building used for hollow blocks business as part of petitioner's
investment as this building was not included in the listing of real properties of petitioner (Exh. 45-C p.
187 B.I.R. rec.).

As to the question of the real value of the surplus goods purchased by Mr. Matias H. Aznar from the
U.S. Army, the best evidence, as observed correctly by the lower court, is the statement of Mr.
Matias H. Aznar, himself, as appearing Exh. 35 (copy of a letter dated September 5, 1949 to the
Philippine National Bank), to the effect "as part of my assets I have different merchandise from
Warehouse 35, Tacloban, Leyte at a total cost of P43,000.00 and valued at no less than P20,000 at
present market value." Petitioner's claim that the goods should be valued at only P20,000 in
accordance with an alleged invoice is not supported by evidence since the invoice was not presented as
exhibit. The lower court's act in giving more credence to the statement of Mr. Aznar cannot be
questioned in the light of clear indications that it was never controverted and it was given at a time
long before the tax controversy arose.
The last issue on propriety of inclusion in petitioner's assets made by respondent Commissioner of
Internal Revenue concerns several buildings which were included in the list of petitioner's assets as of
December 31, 1950. Petitioner contends that those buildings were conveyed and ceded to
Southwestern Colleges on December 15, 1950, in consideration of P100,723.99 to be paid in cash. The
value of the different buildings are listed as: hospital building, P130,000; gymnasium, P43,000;
dentistry building, P36,191.34; bodega 1, P781.18; bodega 2, P7,250; college of law, P10,950; laboratory
building, P8,164; home economics, P5,621; morgue, P2,400; science building, P23,600; faculty house,
P5,760. It is suggested that the value of the buildings be eliminated from the real estate inventory
and the sum of P100,723.99 be included as asset as of December 31, 1950.
The lower court could not find any evidence of said alleged transfer of ownership from the taxpayer
to the Southwestern Colleges as of December 15, 1950, an allegation which if true could easily be
proven. What is evident is that those buildings were used by the Southwestern Colleges. It is true
that Exhibit G-1 shows that Mr. and Mrs. Matias H. Aznar offered those properties in exchange for
shares of stocks of the Southwestern Colleges, and Exhibit "G" which is the minutes of the meeting of
the Board of Trustees of the Southwestern Colleges held on August 6, 1951, shows that Mr. Aznar
was amenable to the value fixed by the board of trustees and that he requested to be paid in cash
instead of shares of stock. But those are not sufficient evidence to prove that transfer of ownership
actually happened on December 15, 1950. Hence, the lower court did not commit any error in sustaining
the respondent Commissioner of Internal Revenue's act of including those buildings as part of the
assets of petitioner as of December 31, 1950.
Petitioner also contends that properties allegedly ceded to the Southwestern Colleges in 1951 for
P150,000 worth of shares of stocks, consisting of: land, P22,684; house, P13,700; group of houses,
P8,000; building, P12,000; nurses home, P4,100; nurses home, P2,080, should be excluded from the
inventory of assets as of December 31, 1951. The evidence (Exh. H), however, clearly shows that said
properties were formally conveyed to the Southwestern Colleges only on September 25, 1952.
Undoubtedly, petitioner was the owner of those properties prior to September 25, 1952 and said
properties should form part of his assets as of December 31, 1951.
The uncontested portions of the lower court's decision consisting of its conclusions that library books
valued at P7,041.03, appearing in a journal of the Southwestern Colleges marked as' Exhibit 25-A,

being an investment, should be treated as an asset beginning December 31, 1950; that the expenses
for construction to the amount of P113,353.70, which were spent for the improvement of the buildings
appearing in Exhibit 24 are deemed absorbed in the increased value of the buildings as appraised by
respondent Commissioner of Internal Revenue at cost after improvements were made, and should be
taken out as additional assets; that the amount receivable of P5,776 from a certain Benito Chan
should be treated as petitioner's asset but the amount of P5,776 representing the value of a house
and lot given as collateral to secure said loan should not be considered as an asset of petitioner since
to do so would result in a glaring duplication of items, are all affirmed. There seems to be no
controversy as to the rest of the items listed in the inventory of assets.
III
The second issue which appears to be of vital importance in this case centers on the lower court's
imposition of the fraud penalty (surcharge of 50% authorized in Section 72 of the Tax Code). The
petitioner insists that there might have been false returns by mistake filed by Mr. Matias H. Aznar as
those returns were prepared by his accountant employees, but there were no proven fraudulent
returns with intent to evade taxes that would justify the imposition of the 50% surcharge authorized
by law as fraud penalty.
The lower court based its conclusion that the 50% fraud penalty must be imposed on the following
reasoning: .
It appears that Matias H. Aznar declared net income of P9,910.94, P10,200, P9,148.34, P8,990.66,
P8,364.50 and P6,800 for the years 1946, 1947, 1948, 1949, 1950 and 1951, respectively. Using the
net worth method of determining the net income of a taxpayer, we find that he had net incomes of
P32,470.45, P67,751.19, P17,880.44, P52,709.11, P254,813.56 and P40,155.80 during the respective
years 1946, 1947, 1948, 1949, 1950, and 1951. In consequence, he underdeclared his income by 227%
for 1946, 564% for 1947, 95%, for 1948, 486% for 1949, 2,946% for 1950 and 490% for 1951. These
substantial under declarations of income for six consecutive years eloquently demonstrate the falsity
or fraudulence of the income tax return with an intent to evade the payment of tax. Hence, the
imposition of the fraud penalty is proper (Perez vs. Court of Tax Appeals, G.R. No. L-10507, May 30,
1958). (Emphasis supplied)
As could be readily seen from the above rationalization of the lower court, no distinction has been
made between false returns (due to mistake, carelessness or ignorance) and fraudulent returns (with
intent to evade taxes). The lower court based its conclusion on the petitioner's alleged fraudulent
intent to evade taxes on the substantial difference between the amounts of net income on the face of
the returns as filed by him in the years 1946 to 1951 and the net income as determined by the
inventory method utilized by both respondents for the same years. The lower court based its
conclusion on a presumption that fraud can be deduced from the very substantial disparity of incomes
as reported and determined by the inventory method and on the similarity of consecutive disparities
for six years. Such a basis for determining the existence of fraud (intent to evade payment of tax)
suffers from an inherent flaw when applied to this case. It is very apparent here that the respondent
Commissioner of Internal Revenue, when the inventory method was resorted to in the first
assessment, concluded that the correct tax liability of Mr. Aznar amounted to P723,032.66 (Exh. 1,
B.I.R. rec. pp. 126-129). After a reinvestigation the same respondent, in another assessment dated
February 16, 1955, concluded that the tax liability should be reduced to P381,096.07. This is a
crystal-clear, indication that even the respondent Commissioner of Internal Revenue with the use of
the inventory method can commit a glaring mistake in the assessment of petitioner's tax liability.
When the respondent Court of Tax Appeals reviewed this case on appeal, it concluded that
petitioner's tax liability should be only P227,788.64. The lower court in three instances (elimination of
two buildings in the list of petitioner's assets beginning December 31, 1949, because they were
destroyed by fire; elimination of expenses for construction in petitioner's assets as duplication of
increased value in buildings, and elimination of value of house and lot in petitioner's assets because
said property was only given as collateral) supported petitioner's stand on the wrong inclusions in his
lists of assets made by the respondent Commissioner of Internal Revenue, resulting in the very
substantial reduction of petitioner's tax liability by the lower court. The foregoing shows that it was
not only Mr. Matias H. Aznar who committed mistakes in his report of his income but also the
respondent Commissioner of Internal Revenue who committed mistakes in his use of the inventory
method to determine the petitioner's tax liability. The mistakes committed by the Commissioner of
Internal Revenue which also involve very substantial amounts were also repeated yearly, and yet we
cannot presume therefrom the existence of any taint of official fraud.
From the above exposition of facts, we cannot but emphatically reiterate the well established
doctrine that fraud cannot be presumed but must be proven. As a corollary thereto, we can also state
that fraudulent intent could not be deduced from mistakes however frequent they may be, especially
if such mistakes emanate from erroneous entries or erroneous classification of items in accounting
methods utilized for determination of tax liabilities The predecessor of the petitioner undoubtedly
filed his income tax returns for "the years 1946 to 1951 and those tax returns were prepared for him
by his accountant and employees. It also appears that petitioner in his lifetime and during the
investigation of his tax liabilities cooperated readily with the B.I.R. and there is no indication in the
record of any act of bad faith committed by him.
The lower court's conclusion regarding the existence of fraudulent intent to evade payment of taxes
was based merely on a presumption and not on evidence establishing a willful filing of false and
fraudulent returns so as to warrant the imposition of the fraud penalty. The fraud contemplated by
law is actual and not constructive. It must be intentional fraud, consisting of deception willfully and
deliberately done or resorted to in order to induce another to give up some legal right. Negligence,
whether slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by
the law. It must amount to intentional wrong-doing with the sole object of avoiding the tax. It
necessarily follows that a mere mistake cannot be considered as fraudulent intent, and if both
petitioner and respondent Commissioner of Internal Revenue committed mistakes in making entries in
the returns and in the assessment, respectively, under the inventory method of determining tax
liability, it would be unfair to treat the mistakes of the petitioner as tainted with fraud and those of
the respondent as made in good faith.

We conclude that the 50% surcharge as fraud penalty authorized under Section 72 of the Tax Code
should not be imposed, but eliminated from the income tax deficiency for each year from 1946 to
1951, inclusive. The tax liability of the petitioner for each year should, therefore, be:
1946 P 3,687.10
1947 13,288.38
1948 960.77
1949 8,918.85
1950 117,320.00
1951 7,684.00
P151,859.10
The total sum of P151,859.10 should be decreased by P96.87 representing the tax credit for 1945,
thereby leaving a balance of P151,762.23.
WHEREFORE, the decision of the Court of Tax Appeals is modified in so far as the imposition of the
50% fraud penalty is concerned, and affirmed in all other respects. The petitioner is ordered to pay
to the Commissioner of Internal Revenue, or his duly authorized representative, the sum of
P151,762.23, representing deficiency income taxes for the years 1946 to 1951, inclusive, within 30
days from the date this decision becomes final. If the said amount is not paid within said period, there
shall be added to the unpaid amount the surcharge of 5%, plus interest at the rate of 12% per annum
from the date of delinquency to the date of payment, in accordance with Section 51 of the National
Internal Revenue Code.
With costs against the petitioner.
• Sy Po vs. CTA, G.R. No. L-81446 | 1988-08-18

Facts:

The sole proprietor of Silver Cup(late husband of petitioner) did not produce his books of accounts on
despite the subpoena duces tecum issued against him. This prompted the investigating team to enter t
he factory bodega and seized different brands. On the basis of the team’s report of investigation, th
e Commissioner of Internal Revenue assessed Mr. Po Bien Sing deficiency income tax.

Issue: whether or not assessment can be made on the basis of the seized items by the investigating te
am.

Ruling: Yes.
In the case at bar, the persistent failure of the late Po Bien Sing and the herein petitioner to present
their books of accounts for examination for the taxable years involved left the Commissioner of Inte
rnal Revenue no other legal option except to resort to the power conferred upon him under Section 16
of the Tax Code. This refers to the rule on the “best evidence obtainable”. This applies when a tax rep
ort required by law for the purpose of assessment is not available or when the tax report is incomplet
e or fraudulent.
And as to its correctness, tax assessments by tax examiners are presumed correct and made in good f
aith. The taxpayer has the duty to prove otherwise. In the absence of proof of any irregularities in th
e performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner and appr
oved by his superior officers will not be disturbed. All presumptions are in favor of the correctness of
tax assessments.
COMMISSION OF INTERNAL REVENUE vs. HANTEX TRADING CO., INC G.R. No. 136975. March
31, 2005
Facts:
Hantex Trading Co is a company organized under the Philippines. It is engaged in thesale of plastic
products, it imports synthetic resin and other chemicals for themanufacture of its products. For this
purpose, it is required to file an Import Entry andInternal Revenue Declaration (Consumption Entry)
with the Bureau of Customs underSection 1301 of the Tariff and Customs Code. Sometime in October
1989, Lt. VicenteAmoto, Acting Chief of Counter-Intelligence Division of the Economic Intelligence
andInvestigation Bureau (EIIB), received confidential information that the respondent hadimported
synthetic resin amounting to P115,599,018.00 but only declaredP45,538,694.57. Thus, Hantex receive
a subpoena to present its books of accountwhich it failed to do. The bureau cannot find any original
copies of the productsHantex imported since the originals were eaten by termites. Thus, the Bureau
reliedon the certified copies of the respondent’s Profit and Loss Statement for 1987 and1988 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. The case was
submitted to the CTA which ruled that Hantexhave tax deficiency and is ordered to pay, per
investigation of the Bureau. The CAruled that the income and sales tax deficiency assessments issued
by the petitionerwere unlawful and baseless since the copies of the import entries relied upon
incomputing the deficiency tax of the respondent were not duly authenticated by thepublic officer
charged with their custody, nor verified under oath by the EIIB and theBIR investigator.
Issue:
Whether or not the final assessment of the petitioner against the respondent fordeficiency income
tax and sales tax for the latter’s 1987 importation of resins andcalcium bicarbonate is based on
competent evidence and the law
Ruling:
No. Section 16 of the NIRC of 1977, as amended, provides that the Commissioner of Internal Revenue
has the power to make assessments and prescribe additionalrequirements for tax administration and

enforcement. Among such powers are thoseprovided in paragraph (b), which provides that “Failure to
submit required returns,statements, reports and other documents. – When a report required by law as
a basisfor the assessment of any national internal revenue tax shall not be forthcomingwithin the time
fixed by law or regulation or when there is reason to believe that anysuch report is false, incomplete
or erroneous, the Commissioner shall assess theproper tax on the best evidence obtainable.” This
provision applies when theCommissioner 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’sfailure to
file one, or to amend a return already filed in the BIR. The “best evidence”envisaged in Section 16 of
the 1977 NIRC, as amended, includes the corporate andaccounting records of the taxpayer who is the
subject of the assessment process, theaccounting records of other taxpayers engaged in the same
line of business,including their gross profit and net profit sales. Such evidence also includes
data,record, paper, document or any evidence gathered by internal revenue officers fromother
taxpayers who had personal transactions or from whom the subject taxpayerreceived any income; and
record, data, document and information secured fromgovernment offices or agencies, such as the
SEC, the Central Bank of the Philippines, the Bureau of Customs, and the Tariff and Customs
Commission. However, the bestevidence obtainable under Section 16 of the 1977 NIRC, as amended,
does notinclude mere photocopies of records/documents. The petitioner, in making apreliminary and
final tax deficiency assessment against a taxpayer, cannot anchorthe said assessment on mere
machine copies of records/documents. Merephotocopies 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 businesstaxes
against a taxpayer.
SUPREME COURT
Manila
EN BANC
G.R. No. L-8685 January 31, 1957
THE COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
AURELIO P. REYES and COURT OF TAX APPEALS, respondents.
Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Ramon L. Avanceña,
Solicitor Jose P. Alejandro, Melquiades Gutierrez and Librada del Rosario-Natividad for petitioner.
Meer, Meer and Meer for respondents.
FELIX, J.:
This is a petition for certiorari filed by the Collector if the Internal Revenue wherein he seeks to
nullify the resolution of the Court of Tax Appeals restraining him from collecting, through summary
administrative methods, taxes allegedly due from Dr. Aurelio P. Reyes. The facts of the case may be
summarized as follows:
 
In a letter dated October 13, 1954, petitioner, the Collector of Internal Revenue demanded from
Aurelio P. Reyes payment of his alleged deficiency income taxes, surcharges, interests and penalties
for the tax years 1946 to 1950 amounting to P641,470.04 as of October 31, 1954, with the suggestion
that the aforesaid tax liabilities be paid either to the Bureau of Internal Revenue or the City
Treasurer of Manila. Together with said letter of assessment, respondent Aurelio P. Reyes received a
warrant of distraint and levy on his properties in the event that he should fail to pay the alleged
deficiency income taxes on or before October 31, 1954, Being informed by the City Treasurer of
Manila by a letter dated November 4, 1954, that said Treasurer was instructed by petitioner to
execute the warrant of distraint and levy on the amount demanded is not settled on or before
November 10, 1954, Aurelio P. Reyes filed with the Court of Tax Appeals on November 15, 1954, a
petition for review of the Collector's assessment of his alleged deficiency income tax liabilities. This
was followed by an urgent petition, filed on November 16, 1954, to restrain the Collector of Internal
Revenue from executing the warrant of distraint and levy on his properties, alleging among others,
that the right of respondent to collect by summary proceedings the tax demanded had already
prescribed in accordance with section 51 (d) of the National Internal Revenue Code, as his income tax
returns for the tax years 1946 to 1950 had been filed more than three years ago, the last one being
on April 27, 1951; that a distraint and levy on his properties would work injustice or irreparable injury
to him and would tend to render any judgment of the Court in the main case meaningless and
ineffectual; that the requisite if Section 11 of Republic Act No. 1125 for the filing of a bond or
deposit before a writ of distraint and levy may be suspended is not applicable in this case; and that a
greater portion of his assets consists of real properties located in Manila and shares a stock in the
Philippine Racing Club which are all encumbered in various financial institutions and therefore there is
no possibility that he would abscond with his property or remove or conceal the same.
The Collector of Internal Revenue opposed said petition in November 19, 1954, on the ground that
Court of Tax Appeals has no authority to restrain him from executing the warrant of distraint and
levy on his properties of Aurelio P. Reyes in connection with the collection of the latter's deficiency
income taxes; that said taxpayer has an adequate remedy in law by paying first and then seek for the
recovery thereof; and that section 51 (d) does not preclude distraint and levy. By resolution of
January 8, 1955, the Court of Tax Appeals upheld the stand of Aurelio P. Reyes and ordered the
Collector of Internal Revenue to desist from collecting by administrative method the taxes allegedly
due from Reyes pending the outcome of his appeal, without prejudice to other judicial remedy or
remedies which the Collector may desire to pursue for the protection of the interest of the
Government, pending the final decision of the case on the merits. On January 21, 1955, the Solicitor
General filed a notice of appeal from said resolution and instituted in this Court the instant certiorari
case on January 22, 1955.
It is not disputed that respondent Reyes filed his income tax returns for the years 1946 to 1950, and
that the warrant of distraint and levy against the properties of said respondent was issued only on
October 13, 1954, or 3 years, 5 months and 16 days after the respondent taxpayer has filed his
returns for the tax year 1950, which he made on April 27, 1951. Therefore, the issues in this

instances are: (1) whether the Court of Tax Appeals could restrain the Collector of Internal Revenue
from enforcing collection of income tax deficiency by summary proceedings after the expiration of
the three-year period provided for in section 51 (d) of the National Internal Revenue Code; and (2)
granting that the Collector could be restrained, whether the Court of Tax Appeals had any power to
grant an injunction without requiring the filing of a bond or making a deposit as prescribed by section
11 of Republic Act No. 1125.
Section 51 (d) of the National Internal Revenue Code reads as follows:
SEC. 51. Assessment and Payment of income Tax. —
xxx xxx xxx
(d) Refusal or neglect to make return; fraudulent returns, etc. — In cases of refusal or neglect to
make return or in cases of erroneous, false or fraudulent returns, the Collector of Internal Revenue
shall, upon discovery thereof, at any time within three years after said return is due, or has been
made, make a return upon information obtained as provided for in this Code or by existing law, or
require the necessary corrections to be made, and the assessment made by the Collector on Internal
Revenue thereon shall be paid by such person or corporation immediately upon notification of the
amount of said assessment.
and in a long line of cases this Court has already construed this just quoted provision to mean that the
three year prescriptive period provided therein constituted a limitation to the right of the
Government to enforce the collection of income taxes by the summary proceedings of distraint and
levy though it could proceed to recover the taxes due by the institution of the corresponding civil
action (Collector of Internal Revenue vs. Villegas, 56 Phil., 554, citing Holmes, Federal Income Tax,
2d., p. 581; Collector of Internal Revenue vs. Haygood, 65 Phil., 520; and Juan de la Viña vs. El
Gobierno de las Filipinas, G.R. No. 42669, January 29, 1938). This doctrine was reiterated in the case
of Philippine Sugar Estate Development Co., Inc., vs. Juan Posadas, 68 Phil., 216, wherein it was held
that:
. . . after the three years have elapsed from the date to which income tax returns which have been
found to be false, fraudulent or erroneous, may have been made, the Collector of Internal Revenue
cannot make any summary collection through administrative methods, but must do so through judicial
proceedings.
In the recent case of the Collector of Internal Revenue vs. Jose Avelino et al., supra, p. 327,
promulgated November 19, 1956, this Court held:
It therefore appears that when it refers to the Collection of income tax it is mandatory that the
right of the Collector of Internal Revenue to collect it by the summary methods of distraint and levy
be exercised within the period of three years from the time the income tax return is filed, otherwise
the right can only be enforced by judicial action. Since, admittedly, the deficiency taxes in question
were assessed and the warrants for their collection by distraint and levy were issued after the period
of three years from the filing of the returns, it is evident that said warrants, as well as the steps
taken in connection with the sale of the properties of the taxpayer, were issued without authority of

the law and, hence, the Court of Tax Appeals acted properly in enjoining their enforcement as prayed
for by petitioner.
It is, however, contended by petitioner that the respondent Court of Tax Appeals acted in complete
disregard of the prohibition of said section 305 of the National Internal Revenue Code when it
restrained the former from executing the warrant of distraint and levy against the properties of
respondent Aurelio P. Reyes. Said provision reads as follows:
SEC. 305. INJUNCTION NOT AVAILABLE TO RESTRAIN THE COLLECTION OF TAX. — No court
shall have authority to grant an injunction to restrain the collection of any internal revenue tax, fee,
or charge imposed by this Code (National Internal Revenue Code).
However, Section 11 of Republic Act No. 1125 prescribes the following:
SEC. 11. — Who may appeal; effect of appeal. — Any person, association or corporation adversely
affected by a decision or ruling of the Collector of internal Revenue,. may file an appeal in the Court
of Tax Appeals within thirty days after receipt of such decision or ruling.
No appeal taken to the Court of Tax Appeals from the decision of the Collector of Internal Revenue . .
. shall suspend the payment, levy, distraint, and/or sale of any property of the taxpayer for the
satisfaction of his tax liability as provided by existing law: Provided, however, That when in the opinion
of the Court the collection by the Bureau of Internal Revenue . . . may jeopardize the interest of the
Government and/or the taxpayer the Court at any stage of the proceeding may suspend said collection
and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more
than double the amount with the Court.
It can be inferred from the aforequoted provision that there may be instances like the one at bar,
when the Collector of Internal Revenue could be restrained from proceeding with the collection, levy,
distraint and/or sale of any property of the taxpayer. In this respect, this Court said in the case of
Collector of Internal Revenue vs. Avelino et al., supra:
This section (Sec. 11 of Rep. Act No. 1125) must be deemed to have modified section 305 of the
National Internal Revenue Code in view of the repeating clause contained in said Act to the effect
that "any law or part of law, or any executive order, rule or regulation or part thereof, inconsistent
with the provisions of this Act is hereby repealed" (Section 21).
But petitioner asserts that even assuming that under Section 11 of Republic Act No. 1125 respondent
court is empowered to order him to desist from the collection of said taxes by extra-judicial
methods, yet the Court erred in issuing the injunction without requiring the taxpayer either to deposit
the amount claimed or file a surety bond for an amount not more than double the tax sought to be
collected. We disagree with this contention. At first blush it might be as contended by the Solicitor
General, but a careful analysis of the second paragraph of said Section 11 will lead us to the conclusion
that the requirement of the bond as a condition precedent to the issuance of the writ of injunction
applies only in cases where the processes by which the collection sought to be made by means thereof
are carried out in consonance with the law for such cases provided and not when said processes are
obviously in violation of the law to the extreme that they have to be SUSPENDED for jeopardizing
the interests of the taxpayer.

Section 11 of Republic Act No. 1125 is therefore premised on the assumption that the collection by
summary proceedings is by itself in accordance with existing law; and then what is suspended is the
act of collecting, whereas, in the case at bar what the respondent Court suspended was the use of the
method employed to verify the collection which was evidently illegal after the lapse of the three-year
limitation period. The respondent Court issued the injunction in question on the basis of its finding
that the means intended to be used by petitioner in the collection of the alleged deficiency taxes
were in violation of law. It certainly would be an absurdity on the part of the Court of Tax Appeals to
declare that the collection by the summary methods of distraint and levy was violative of law, and
then, on the same breath require the petitioner to deposit or file a bond as a prerequisite for the
issuance of a writ of injunction. Let us suppose, for the sake of argument, that the Court a quo would
have required the petitioner to post the bond in question and that the taxpayer would refuse or fail to
furnish said bond, would the Court a quo be obliged to authorize or allow the Collector of Internal
Revenue to proceed with the collection from the petitioner of the taxes due by a means it previously
declared to be contrary to law?
The pronouncement made by the respondent Court, after due hearing, to the effect that summary
methods of collection by distraint and levy would be improper in the instant case, was done in the
exercise of its power to pass judgment on all matters brought before it. It was a lawful exercise of
the jurisdiction vested in said Court which is well--provided for in section 7 of Republic Act No. 1125:
SEC. 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.
There is another issue raised by respondent Aurelio P. Reyes that merits consideration. It does not
appear from the records that a motion for reconsideration was ever filed by counsel for petitioner,
although a notice of appeal, dated January 21, 1955, was filed in the court below. It is an established
doctrine in this jurisdiction that the attention of the Court should first be called to its supposed
error, and its correction asked for on a motion for reconsideration (Herrera vs. Barretto, 25 Phil.,
245; Uy Chua vs. Imperial, 44 Phil., 27; Manila Post Publishing Co. vs. Sanchez, 81 Phil., 614 46 Off.,
Suppl. (1) 412; Alvarez vs. Ibañez, 83 Phil., 104, 46 Off. Gaz., 4233).
That failure of the petitioner to file with the court below a motion for reconsideration of the order
subject of the certiorari proceedings is a fatal and insurmountable barrier, is further stressed in the
case of Valeriano Nicolas et al. vs. The Hon. Modesto Castillo et al., (97 Phil., 336) wherein this Court
held:
No motion for reconsideration was ever filed by petitioners in the court below, calling its attention to
the alleged errors and irregularities now raised in this petition, to give it an opportunity to correct
such errors and irregularities, if indeed any were committed. For his reason alone if not for any other,
the writ was applied for should be denied.

Wherefore, the petition for certiorari is denied and the resolution of the respondent Court of Tax
Appeals is hereby affirmed, without pronouncement as to costs. It is so ordered.
WILLIAM LI YAO, petitioner, vs. COLLECTOR OF INTERNAL REVENUE, respondent.

GRN L-11875 December 23, 1963
FACTS:
Petitioner is a naturalized Filipino of Chinese parents, the eldest son of a prosperous local businessman
by the name of Li Chay Too, who died sometime in 1948. In 1945 petitioner organized the Li Yao &
Company and made himself managing partner; from 1948, to February 1955 he was president of, and
owned shares in, the Li Chay Too & Sons, Inc.; and in 1950 he organized a corporation known as the Far
East Realty & Investment Co. of which he was also stockholder and president. Petitioner filed his
income tax returns for the years 1945 to 1951. However, a deficiency income tax in the amount of
P5,470.98 was assessed against him, which he paid.
In 1952 the Collector of Internal Revenue (CIR) believing that petitioner had not reported his true
incomes for the previous years, appointed a team to examine his books, an additional assessment of
P899,794.02 was made against. A second team of investigators was appointed and this team
recommended a deficiency income tax assessment of P2,722,030.33. This team employed what is
known as the net worth or inventory method. A third team was appointed, this team recommended an
assessment of P1,505,768.54 against petitioner; the inventory method was also used in making this
assessment. Demand was made for the collection of said assessment so petitioner herein presented a
petition with the CTA for the review of the said assessment. CTA found that the amount of the
income tax deficiency due from petitioner is P424,536.77.
Petitioner Li Yao sought to reconsider the decision and the assessment, alleging that the sum of
P5,470.98 paid by him as additional tax for the years 1945 to 1947 should be credited against his
deficiency income taxes, so that instead of P424,536.77 the -sum due should be only P411,294.12. The
court approved this petition for recoupment and reduced the assessment to P411,293.80.
Both petitioner and respondent appealed from the decision of CTA. Petitioner Li Yao raised the
questions on the validity of the net worth method of inventory used against him, and assails the CTA’s
refusal to grant petitioner’s request that the deficiency income assessed be distributed evenly over
the taxable years
ISSUE:
Whether the contention of petitioner should be allowed.
RULING:
NO. The taxpayer has the means of proving the existence of the obligation and it is he that must
produce such proof. The procedure followed by the CTA is that laid down by the rules on evidence;
that is, that the taxpayer who alleges that an obligation still exists must prove the existence thereof
by preponderance of evidence. The obligor or taxpayer has the means of proving that the obligation
does not exist or has been paid; the Government collecting the tax cannot be expected to find the

evidence itself, because it is natural that the taxpayer would try to suppress such evidence as may
prove that the obligation still exists.
After reading the arguments presented by petitioner and considering that the witnesses for
petitioner herein are his father-in-law and his wife and their testimonies failed to convince the judges
of the court below, the Court finds no potent reason why the findings of the court below that heard
the evidence should be disturbed.
The use of the inventory method is authorized under Section 15 of the National Internal Revenue
Code, as amended, which authorizes the CIR to assess taxes due a taxpayer from any other available
fact or evidence. If a taxpayer commits a violation of the law, hiding his income to evade payment of
taxes, the Government must be permitted to resort to all evidence or sources available to determine
his said income, so that the tax may be collected for public purposes. There is and there should be a
presumption of regularity accorded this action of the CIR in assessing the tax on the best evidence
obtainable, otherwise it, would be impossible to assess taxes due from a dishonest taxpayer.
In the case at bar the existence of assets or properties appearing in the name of the taxpayer or in
the name of his dummies or friends, without the taxpayer being able to give a definite reasonable
explanation for their existence justifies the CTA and this Court to resort to the inventory method of
assessment, such being necessary and at the same time just and equitable.
The last legal question raised is petitioner’s claim that the unreported incomes which appeared during
the last years of the period of assessment should not be considered as having been earned during the
years in which said incomes appeared, but should be spread throughout the whole period covered by
the assessment, that is, from 1945 to 1951.
Petitioner does not claim that the amounts appearing in the last period of the assessment were
acquired through savings or accumulated savings or any slow and continuous process, such that the
income cannot be distributed to any particular year of the period of assessment.
Section 39 of the National Internal Revenue Code requires the taxpayer to report yearly to the CIR
the income that he gets during the year from whatever source and include the same in the taxable
year in which the income was received by him. It is to be presumed that the income was earned at the
time that it appeared in the possession or control of the taxpayer, in accordance with the rule that
the law has been followed.
If Petitioner’s contention is to be followed, a taxpayer would be encouraged to hide his income
because in any case, if his unreported income would be discovered afterwards the said income,
although appearing in one year, would be distributed over a period of years. In other words, we will
have a rule, as advocated by petitioner’s counsel, that would not discourage the hiding of taxable
income because any discovery of any unreported income could always be allowed to be distributed over
a period of years. In the case at bar, the distribution over a period of years demanded by petitioner
would bring about a reduction of the tax assessed by the Court of Tax Appeals from P424,536,77 to
P232,416.59, or about one-half of the assessment made by the CTA. We are not prepared to permit
such unauthorized reduction in public taxes favorable to a dishonest taxpayer and prejudicial to the
interests of the State.

Wherefore, the decision appealed from is affirmed.
Fact: Respondent Commissioner, wrote a letter to respondent Judge Ruiz requesting the issuance of a
search warrant against petitioners for violation of the National Internal Revenue Code, in relation to
all other pertinent provisions thereof, and authorizing a Revenue Examiner to make and file the
application for search warrant which was attached to the letter. In the afternoon of the following
day, respondent De Leon and his witness, respondent Logronio, went to the Court of First Instance of
Rizal. They brought with them the following papers: respondent Vera’s aforesaid letter-request; an
application for search warrant already filled up but still unsigned by respondent De Leon; an affidavit
of respondent Logronio subscribed before respondent De Leon; a deposition in printed form of
respondent Logronio already accomplished and signed by him but not yet subscribed; and a search
warrant already accomplished but still unsigned by respondent Judge. At that time respondent Judge
was hearing a certain case; so, by means of a note, he instructed his Deputy Clerk of Court to take the
depositions of respondents De Leon and Logronio. After the session had adjourned, respondent Judge
was informed that the depositions had already been taken. The stenographer, upon request of
respondent Judge, read to him her stenographic notes; and thereafter, respondent Judge asked
respondent Logronio to take the oath and warned him that if his deposition was found to be false and
without legal basis, he could be charged for perjury. Respondent Judge signed respondent de Leon’s
application for search warrant and respondent Logronio’s deposition, Search Warrant was then sign by
respondent Judge and accordingly issued. Three days later, the BIR agents served the search warrant
petitioners at the offices of petitioner corporation. Petitioners’ lawyers protested the search on the
ground that no formal complaint or transcript of testimony was attached to the warrant. The agents
nevertheless proceeded with their search which yielded six boxes of documents. Petitioners filed a
petition with the Court of First Instance of Rizal praying that the search warrant be quashed,
dissolved or recalled, that preliminary prohibitory and mandatory writs of injunction be issued, that
the search warrant be declared null and void, and that the respondents be ordered to pay petitioners,
jointly and severally, damages and attorney’s fees. On March 18, 1970, the respondents, thru the
Solicitor General, filed an answer to the petition. After hearing, the court, presided over by
respondent Judge, issued on July 29, 1970, an order dismissing the petition for dissolution of the
search warrant. Hence, Petitioners came to this Court.
Issue: Whether a corporation is entitled to protection against unreasonable search and seizure?
Held: Yes, A corporation is, after all, but an association of individuals under an assumed name and
with a distinct legal entity. In organizing itself as a collective body it waives no constitutional
immunities appropriate to such body. Its property cannot be taken without compensation. It can only
be proceeded against by due process of law, and is protected against unlawful discrimination. we are
of the opinion that an officer of a corporation which is charged with a violation of a statute of the
state of its creation, or of an act of Congress passed in the exercise of its constitutional powers,
cannot refuse to produce the books and papers of such corporation, we do not wish to be understood
as holding that a corporation is not entitled to immunity, against unreasonable searches and seizures.

CIR v. CA, ROH Auto Products G.R. No. 108358 January 20, 1995 DOCTRINE: The authority of the
Minister of Finance (now the Secretary of Finance), in conjunction with the CIR, to promulgate all
needful rules and regulations for the effective enforcement of internal revenue laws cannot be
controverted. Neither can it be disputed that such rules and regulations, as well as administrative
opinions and rulings, ordinarily should deserve weight and respect by the courts. However, is that all
such issuances must not override, but must remain consistent and in harmony with, the law they seek
to apply and implement. RECIT-READY: During the period when the President still wielded legislative
powers, EO No. 41 was promulgated declaring a one-time tax amnesty on unpaid income taxes, later
amended to include estate and donor’s taxes and taxes on business, for the taxable years 1981 to
1985. Availing itself of the amnesty, ROH Auto filed its Tax Amnesty Returns and paid the
corresponding amnesty taxes due. Prior to this, the CIR had already assessed ROH Auto’s deficiency
income and business taxes for its fiscal years 1981 and1982 in an aggregate amount of P1,410,157.71.
ROH Auto wrote that since it had been able to avail itself of the tax amnesty, the deficiency tax
notice should be cancelled and withdrawn. This was denied by the CIR because Revenue Memorandum
Order No. 4-87, implementing EO No. 41, had construed the amnesty coverage to include only
assessments issued by the Bureau of Internal Revenue after the promulgation of the EO and not to
assessments made prior. ROH Auto appealed the CIR’s denial to the Court of Tax Appeals who ruled in
favor of the taxpayer. The issue in this case is whether or not the position taken by the Commissioner
coincides with the meaning and intent of executive Order No. 41. The Court held that it is
inconsistent. The authority of the Minister of Finance (now the SOF), in conjunction with the CIR, to
promulgate all needful rules and regulations for the effective enforcement of internal revenue laws
cannot be controverted. Neither can it be disputed that such rules and regulations, as well as
administrative opinions and rulings, ordinarily should deserve weight and respect by the courts. Much
more fundamental than either of the above, however, is that all such issuances must not override, but
must remain consistent and in harmony with, the law they seek to apply and implement. Administrative
rules and regulations are intended to carry out, neither to supplant nor to modify, the law. FACTS: •
On 22 August 1986, during the period when the President of the Republic still wielded legislative
powers, Executive Order No. 41 was promulgated declaring a one-time tax amnesty on unpaid income
taxes, later amended to include estate and donor's taxes and taxes on business, for the taxable years
1981 to 1985. • Availing itself of the amnesty, respondent R.O.H. Auto., filed, in October 1986 and
November 1986, its Tax Amnesty Return No. 34-F-00146-41 and Supplemental Tax Amnesty Return
No. 34-F-0014664-B, respectively, and paid the corresponding amnesty taxes due. • Prior to this
availment, petitioner CIR, in a communication received by private respondent on 13 August 1986,
assessed the latter deficiency income and business taxes for its fiscal years ended 30 September
1981 and 30 September 1982 in an aggregate amount of P1,410,157.71. The taxpayer wrote back to
state that since it had been able to avail itself of the tax amnesty, the deficiency tax notice should
forthwith be cancelled and withdrawn. The request was denied by the Commissioner, in his letter of
22 November 1988, on the ground that Revenue Memorandum Order No. 4-87, dated 09 February
1987, implementing Executive Order No. 41, had construed the amnesty coverage to include only
assessments issued by the Bureau of Internal Revenue after the promulgation of the executive order
on 22 August 1986 and not to assessments theretofore made. WHETHER OR NOT THE POSITION
TAKEN BY THE COMMISSIONER COINCIDES WITH THE MEANING AND INTENT OF
EXECUTIVE ORDER NO. 41.
NO. Administrative rules and regulations are intended to carry out the law. Executive Order No. 41 is
quite explicit and requires hardly anything beyond a simple application of its provisions. If EO No. 41
had not been intended to include 1981-1985 tax liabilities already assessed (administratively) prior to
August 22, the law could have simply so provided in its exclusionary clauses. It did not. The conclusion
is unavoidable, and it is that the executive order has been designed to be in the nature of a general
grant of tax amnesty subject only to the cases specifically excepted by it. The taxable periods
covered by the amnesty include the years immediately preceding the 1986 revolution. It should be
understandable then that those who ultimately took over the reigns of government following the
successful revolution would promptly provide for abroad, and not a confined, tax amnesty. Also, Sec. 6
of EO No. 41 itself states that upon full compliance with the conditions of the tax amnesty and the
rules and regulations issued pursuant to this Executive order, the taxpayer shall be relieved of any
income tax liability on any untaxed income from January 1, 1981 to December 31, 1985, including
increments and penalties on account of the non-payment of the tax. Civil, criminal or administrative
liabilities arising from such acts are likewise deemed extinguished. There is no pretension that the tax
amnesty returns and due payments made by the taxpayer did not conform with the conditions
expressed in the amnesty order. The conclusion is unavoidable, and it is that the executive order has
been designed to be in the nature of a general grant of tax amnesty subject only to the cases
specifically excepted by it. Respondent can avail of the tax amnesty because it doesn’t fall under the
list of exceptions.
CIR vs. CA, CTA and FORTUNE TOBACCO CORPORATION G.R. No. 119761 August 29, 1996, Taxation
OCTOBER 25, 2017
FACTS:
‘Champion,’ ‘Hope,’ and ‘More’ were classified as foreign brands since they were listed in the World
Tobacco Directory as belonging to foreign companies.
However, Fortune Tobacco changed the names of ‘Hope’ to ‘Hope Luxury’ and ‘More’ to ‘Premium More,’
thereby removing the said brands from the foreign brand category and registered as a local brand.”
Ad Valorem taxes were imposed on these brands.
RMC 37-93, Reclassification of Cigarettes Subject to Excise Tax, was issued by the BIR which aims to
collect deficiencies on ad valorem taxes against Fortune Tobacco following their reclassification as
foreign branded cigarettes.

“HOPE,” “MORE” and “CHAMPION” being manufactured by Fortune Tobacco Corporation were
considered locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax
on cigarettes under RA 7654.
Fortune Tobacco filed a petition for review with the CTA. RMC 37-93 is found to be defective, invalid
and unenforceable.
The CA sustained the decision of the CTA. Hence, this appeal.
ISSUE:
Is RMC 37-93 a mere interpretative ruling, therefore not requiring, for its effectivity, hearing and
filing with the UP Law Center?
RULING:
A reading of RMC 37-93, particularly considering the circumstances under which it has been issued,
convinces us that the circular cannot be viewed simply as a corrective measure (revoking in the
process the previous holdings of past Commissioners) or merely as construing Section 142(c)(1) of the
NIRC, as amended, but has, in fact and most importantly, been made in order to place “Hope Luxury,”
“Premium More” and “Champion” within the classification of locally manufactured cigarettes bearing
foreign brands and to thereby have them covered by RA 7654.
Specifically, the new law would have its amendatory provisions applied to locally manufactured
cigarettes which at the time of its effectivity were not so classified as bearing foreign brands. Prior
to the issuance of the questioned circular, “Hope Luxury,” “Premium More,” and “Champion” cigarettes
were in the category of locally manufactured cigarettes not bearing foreign brand subject to 45% ad
valorem tax.

Hence, without RMC 37-93, the enactment of RA 7654, would have had no new tax rate consequence
on private respondent’s products. Evidently, in order to place “Hope Luxury,” “Premium More,” and
“Champion” cigarettes within the scope of the amendatory law and subject them to an increased tax
rate, the now disputed RMC 37-93 had to be issued. In so doing, the BIR not simply intrepreted the
law; verily, it legislated under its quasi-legislative authority.The due observance of the requirements
of notice, of hearing, and of publication should not have been then ignored.

Indeed, the BIR itself, in its RMC 10-86, has observed and provided:

In order that there shall be a just enforcement of rules and regulations, in conformity with the basic
element of due process, the following procedures are hereby prescribed for the drafting, issuance and
implementation of the said Revenue Tax Issuances:

(1) This Circular shall apply only to (a) Revenue Regulations; (b) Revenue Audit Memorandum
Orders; and (c) Revenue Memorandum Circulars and Revenue Memorandum Orders bearing on internal
revenue tax rules and regulations.

(2) Except when the law otherwise expressly provides, the aforesaid internal revenue tax
issuances shall not begin to be operative until after due notice thereof may be fairly presumed.

Due notice of the said issuances may be fairly presumed only after the following procedures have been
taken;

xxx xxx xxx

(5) Strict compliance with the foregoing procedures is
enjoined.
Nothing on record could tell us that it was either impossible or impracticable for the BIR to observe
and comply with the above requirements before giving effect to its questioned circular.
All taken, the Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid
and effective administrative issuance.

The decision of the Court of Appeals, sustaining that of the Court of Tax Appeals, is AFFIRMED.

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Republic of the Philippines

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

Republic of the Philippines

G.R. No. 139050 October 2, 2001

Republic of the Philippines

1945 P12,822.00 P114.66 pp. 85-88 B.I.R.

1946 9,910.94 114.66 38-A (pp. 329-332

1947 10,200.00 132.00 39 (pp. 75-78 B.I.R

1948 9,148.34 68.90 40 (pp. 70-73

1949 8,990.66 59.72 41 (pp. 64-67

1950 8,364.50 28.22 42 (pp. 59-62, BIR

1951 6,800.00 none 43 (pp. 54-57 BIR

Add: 50% surcharge ........................................................ 1,066.25 DEFICIENCY INCOME

1947 .... 36,931.73

1948 .... 3,198.75

1949 .... 45,125.94

1950 .... 278,783.00

1951 .... 11,526.00

Total .... P381,096.07

Add: Estimated living expenses ................... 7,000.00

• Sy Po vs. CTA, G.R. No. L-81446 | 1988-08-18

WILLIAM LI YAO, petitioner, vs. COLLECTOR OF INTERNAL REVENUE, respondent.

Wherefore, the decision appealed from is affirmed.

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