CIR v. DLSU Tax Exemption Case

COMMISSIONER OF INTERNAL REVENUE versus SONY PHILIPPINES, INC.
G.R. No. 178697 November 17, 2010
Facts:
1. the CIR issued Letter of Authority (LOA 19734) authorizing certain revenue officers to examine Sonys
books of accounts and other accounting records regarding revenue taxes for the period 1997 and
unverified prior years.
2. A preliminary assessment for 1997 deficiency taxes and penalties was issued by the CIR which Sony
protested.
3. Thereafter, acting on the protest, the CIR issued final assessment notices, the formal letter of demand
and the details of discrepancies.
4. The CIR assessed a deficiency VAT - P11,141,014.41
Issue:
1. Whether or not he Letter of Authority is Valid
2. Whether or not respondent (Sony) is liable for the deficiency VAT in the amount of P11,141,014.41
Ruling:
1. Based on Section 13 of the Tax Code, a Letter of Authority or LOA is the authority given to the
appropriate revenue officer assigned to perform assessment functions. It empowers or enables said
revenue officer to examine the books of account and other accounting records of a taxpayer for the
purpose of collecting the correct amount of tax.
There must be a grant of authority before any revenue officer can conduct an examination or
assessment. Equally important is that the revenue officer so authorized must not go beyond the authority
given. In the absence of such an authority, the assessment or examination is a nullity.
The LOA 19734 covered the period 1997 and unverified prior years. For said reason, the CIR
acting through its revenue officers went beyond the scope of their authority because the deficiency VAT
assessment they arrived at was based on records from January to March 1998 or using the fiscal year
which ended in March 31, 1998.
It violated also Section C of Revenue Memorandum Order No. 4390 - A Letter of Authority
should cover a taxable period not exceeding one taxable year.
2. CIRs argument that Sonys advertising expense could not be considered as an input VAT credit because
the same was eventually reimbursed by Sony International Singapore (SIS).
Sonys deficiency VAT assessment stemmed from the CIRs disallowance of the input VAT credits
that should have been realized from the advertising expense of the latter. It is evident under Section 110
of the 1997 Tax Code that an advertising expense duly covered by a VAT invoice is a legitimate business
expense. There is also no denying that Sony incurred advertising expense. Aluquin testified that
advertising companies issued invoices in the name of Sony and the latter paid for the same. Indubitably,
Sony incurred and paid for advertising expense/ services. Where the money came from is another matter
all together but will definitely not change said fact.
The CIR further argues that Sony itself admitted that the reimbursement from SIS was income and, thus,
taxable.
Insofar as the subsidy may be considered as income and, therefore, subject to income tax, the
Court agrees. However, the Court does not agree that the same subsidy should be subject to the 10%
VAT. To begin with, the said subsidy termed by the CIR as reimbursement was not even exclusively
earmarked for Sonys advertising expense for it was but an assistance or aid in view of Sonys dire or
adverse economic conditions, and was only equivalent to the latters (Sonys) advertising expenses.
There must be a sale, barter or exchange of goods or properties before any VAT may be levied.
Certainly, there was no such sale, barter or exchange in the subsidy given by SIS to Sony. It was but a
dole out by SIS and not in payment for goods or properties sold, bartered or exchanged by Sony.
COMMISSIONER OF INTERNAL REVENUE v. DE LA SALLE UNIVERSITY, INC.,
[G.R. No. 196596. November 9, 2016.]
FACTS:
In 2004, the Bureau of Internal Revenue (BIR) issued to DLSU Letter of Authority (LOA) No. 2794
authorizing its revenue officers to examine the latter's books of accounts and other accounting records for
all internal revenue taxes for the period Fiscal Year Ending 2003 and Unverified Prior Years.
BIR through a Formal Letter of Demand assessed DLSU the following deficiency taxes: (1) income tax
on rental earnings from restaurants/canteens and bookstores operating within the campus; (2) VAT
business income; and (3) documentary stamp tax (DST) on loans and lease contracts. The BIR demanded
the payment of P17,303,001.12, inclusive of surcharge, interest and penalty for taxable years 2001, 2002
and 2003.
DLSU protested the assessment. The Commissioner failed to act on the protest; thus, DLSU filed on
August 3, 2005 a petition for review with the CTA Division.
DLSU, a non-stock, non-profit educational institutions, principally anchored its petition on Article XIV,
Section 4 (3) of the Constitution, which reads:
(3) All revenues and assets of non-stock, non-profit educational institutions used actually,
directly, and exclusively for educational purposes shall be exempt from taxes and duties. Xxx
In 2010, the CTA Division partially granted DLSU's petition for review. The DST assessment on the loan
transactions of DLSU in the amount of P11,681,774.00 is hereby CANCELLED. However, DLSU is
ordered to pay the deficiency income tax, VAT and DST on its lease contracts, plus 25% surcharge for
the fiscal years 2001, 2002 and 2003 in the total amount of P18,421,363.53.
Both the Commissioner and DLSU moved for the reconsideration. The CTA Division denied the
Commissioner's motion for reconsideration while it held in abeyance the resolution on DLSU's motion for
reconsideration.
The Commissioner appealed to the CTA En Banc arguing that DLSU's use of its revenues and assets for
non-educational or commercial purposes removed these items from the exemption coverage under the
Constitution.
DLSU formally offered to the CTA Division supplemental pieces of documentary evidence to prove that
its rental income was used actually, directly and exclusively for educational purposes.
The CTA Division, in view of the supplemental evidence submitted, reduced the amount of DLSU's tax
deficiencies.
The CTA En Banc dismissed the Commissioner's petition for review and sustained the findings of
the CTA Division. The CTA En Banc was satisfied with DLSU's supporting evidence confirming that
part of its rental income had indeed been used to pay the loan it obtained to build the university's Physical
Education – Sports Complex.
The CTA En Banc partially granted DLSU's petition for review and further reduced its tax
liabilities to P2,554,825.47 inclusive of surcharge.
CIR ARGUMENTS:
DLSU's rental income is taxable regardless of how such income is derived, used or disposed of. DLSU's
operations of canteens and bookstores within its campus even though exclusively serving the university
community do not negate income tax liability.
The Commissioner contends that Article XIV , Section 4 (3) of the Constitution must be harmonized with
Section 30 (H) of the Tax Code, which states among others, that the income of whatever kind and
character of [a non-stock and non-profit educational institution] from any of [its] properties, real or
personal, or from any of [its] activities conducted for profit regardless of the disposition made of such
income, shall be subject to tax imposed by this Code.
The Commissioner posits that a tax-exempt organization like DLSU is exempt only from property tax but
not from income tax on the rentals earned from property. Thus, DLSU's income from the leases of its real
properties is not exempt from taxation even if the income would be used for educational purposes.

DLSU ARGUMENTS:
DLSU stresses that Article XIV, Section 4 (3) of the Constitution is clear that all revenues and
assets of non-stock, non-profit educational institutions used actually, directly and exclusively for
educational purposes are exempt from taxes and duties.
On this point, DLSU explains that: (1) the tax exemption of non-stock, non-profit educational
institutions is novel to the 1987 Constitution and that Section 30 (H) of the 1997 Tax Code cannot amend
the 1987 Constitution; (2) Section 30 of the 1997 Tax Code is almost an exact replica of Section 26 of the
1977 Tax Code — with the addition of non-stock, non-profit educational institutions to the list of tax-
exempt entities; and (3) that the 1977 Tax Code was promulgated when the 1973 Constitution was still in
place.
DLSU thus invokes the doctrine of constitutional supremacy, which renders any subsequent law that is
contrary to the Constitution void and without any force and effect. Section 30 (H) of the 1997 Tax Code
insofar as it subjects to tax the income of whatever kind and character of a non-stock and non-profit
educational institution from any of its properties, real or personal, or from any of its activities conducted
for profit regardless of the disposition made of such income, should be declared without force and effect
in view of the constitutionally granted tax exemption on "all revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and exclusively for educational purposes."
DLSU further submits that it complies with the requirements enunciated in the YMCA case, that for an
exemption to be granted under Article XIV , Section 4 (3) of the Constitution, the taxpayer must prove
that: (1) it falls under the classification non-stock, non-profit educational institution; and (2) the income it
seeks to be exempted from taxation is used actually, directly and exclusively for educational purposes.
ISSUE:
W/N it is required that the revenues and income of a non-stock, non-profit educational institution
must have also been sourced from educational activities or activities related to the purposes of an
educational institution for it to be tax-exempt.
RULING:
No, it is not required that the revenues and income of a non-stock, non-profit educational institution must
have also been sourced from educational activities or activities related to the purposes of an educational
institution for it to be tax-exempt
Before fully discussing the merits of the case, we observe that:

1. The constitutional provision refers to two kinds of educational institutions: (1) non-stock, non-
prot educational institutions and (2) proprietary educational institutions.
2. DLSU falls under the frst category. Even the Commissioner admits the status of DLSU as a
nonstock, non-profit educational institution.
3. While DLSU's claim for tax exemption arises from and is based on the Constitution, the
Constitution, in the same provision, also imposes certain conditions to avail of the exemption. We
discuss below the import of the constitutional text vis - à- vis the Commissioner's
counterarguments.
4. There is a marked distinction between the treatment of non-stock, non-profit educational
institutions and proprietary educational institutions. The tax exemption granted to non-stock, non-
prot educational institutions is conditioned only on the actual, direct and exclusive use of their
revenues and assets for educational purposes. While tax exemptions may also be granted to
proprietary educational institutions, these exemptions may be subject to limitations imposed by
Congress.
The Commissioner opposes DLSU's claim for tax exemption on the basis of Section 30 (H) of the Tax
Code. The relevant text reads: The following organizations shall not be taxed under this Title [Tax
Income] in respect to income received by them as such:
(H) A non-stock and non-profit educational institution xxx xxxxxx
Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind and
character of the foregoing organizations from any of their properties, real or personal, or from any
of their activities conducted for profit regardless of the disposition made of such income shall be
subject to tax imposed under this Code.

The Commissioner posits that the 1997 Tax Code qualified the tax exemption granted to non-stock,
nonprofit educational institutions such that the revenues and income they derived from their assets, or
from any of their activities conducted for profit, are taxable even if these revenues and income are used
for educational purposes.
We now adopt YMCA as precedent and hold that:

1. The last paragraph of Section 30 of the Tax Code is without force and effect with respect to
nonstock, non-profit educational institutions, provided, that the non-stock, non-profit educational
institutions prove that its assets and revenues are used actually, directly and exclusively for
educational purposes.

2. The tax-exemption constitutionally-granted to non-stock, non-profit educational institutions, is
not subject to limitations imposed by law.
The tax exemption granted by the Constitution to non-stock, non-profit educational institutions is
conditioned only on the actual, direct and exclusive use of their assets, revenues and income for
educational purposes.
A plain reading of the Constitution would show that Article XIV, Section 4 (3) does not require that
the revenues and income must have also been sourced from educational activities or activities
related to the purposes of an educational institution. The phrase all revenues is unqualified by any
reference to the source of revenues. Thus, so long as the revenues and income are used actually, directly
and exclusively for educational purposes, then said revenues and income shall be exempt from taxes and
duties.
We find it helpful to discuss at this point the taxation of revenues versus the taxation of assets.
REVENUES consist of the amounts earned by a person or entity from the conduct of business operations.
It may refer to the sale of goods, rendition of services, or the return of an investment. Revenue is a
component of the tax base in income tax, VAT, and local business tax (LBT).
ASSETS, on the other hand, are the tangible and intangible properties owned by a person or entity. It may
refer to real estate, cash deposit in a bank, investment in the stocks of a corporation, inventory of goods,
or any property from which the person or entity may derive income or use to generate the same. In
Philippine taxation, the fair market value of real property is a component of the tax base in real property
tax. Also, the landed cost of imported goods is a component of the tax base in VAT on importation 88 88
and tariff duties.
Thus, when a non-stock, non-profit educational institution proves that it uses its revenues actually,
directly, and exclusively for educational purposes, it shall be exempted from income tax, VAT, and
LBT. On the other hand, when it also shows that it uses its assets in the form of real property for
educational purposes, it shall be exempted from RPT.
WHEREFORE, premises considered, we DENY the petition of the Commissioner of Internal Revenue
in G.R. No. 196596 and AFFIRM the December 10, 2010 decision and March 29, 2011 resolution of the
Court of Tax Appeals En Banc in CTA En Banc Case No. 622, except for the total amount of deficiency
tax liabilities of De La Salle University, Inc., which had been reduced.
MEDICARD PHILIPPINES, INC VS. CIR (GR NO. 222743) APRIL 5, 2017
FACTS
MEDICARD is a health maintenance organization (HMO) that provides prepaid health and medical
insurance coverage to its clients. Individuals enrolled in its health care programs pay an annual
membership fee and are entitled to various preventive, diagnostic and curative medical services provided
by duly licensed physicians, specialists, and other professional technical staff participating in the group
practice health delivery system at a hospital or clinic owned, operated or accredited by it.
MEDICARD filed it first, second, and third quarterly VAT Returns through Electronic Filing and
Payment System (EFPS) on April 20, July 25, and October 25, 2006, respectively, and its fourth quarterly
VAT Return on January 25, 2007.
Upon finding some discrepancies between MEDICARD’s Income Tax Returns (ITR) and VAT Returns,
the CIR issued a Letter Notice (LN) dated September 20, 2007. Subsequently, the CIR also issued a
Preliminary Assessment Notice (PAN) against MEDICARD for deficiency VAT. MEDICARD received
CIR’s FAN dated December 10, 2007 for allegedly deficiency VAT for taxable year 2006 including
penalties.
MEDICARD filed a protest arguing, among others, that that the services it render is not limited merely to
arranging for the provision of medical and/or hospitalization services but include actual and direct
rendition of medical and laboratory services. On June 19, 2009, MEDICARD received CIR’s Final
Decision denying its protest. The petitioner MEDICARD proceeded to file a petition for review before
the CTA.
The CTA Division held that the determination of deficiency VAT is not limited to the issuance of Letter
of Authority (LOA) alone and that in lieu of an LOA, an LN was issued to MEDICARD informing it if
the discrepancies between its ITRs and VAT Returns and this procedure is authorized under Revenue
Memorandum Order (RMO) No. 30-2003 and 42-2003.
Also, the amounts that MEDICARD earmarked and eventually paid to doctors, hospitals and
clinics cannot be excluded from the computation of its gross receipts because the act of earmarking or
allocation is by itself an act of ownership and management over the funds by MEDICARD which is
beyond the contemplation of RR No. 4-2007. Furthermore, MEDICARD’s earnings from its clinics and
laboratory facilities cannot be excluded from its gross receipts because the operation of these clinics and
laboratory is merely an incident to MEDICARD’s line of business as an HMO.
MEDICARD filed a Motion for Reconsideration but it was denied. Petitioner elevated the matter to the
CTA en banc.
CTA en banc partially granted the petition only insofar as 10% VAT rate for January 2006 is concerned
but sustained the findings of the CTA Division.
ISSUES:
1. Is the absence of the Letter of Authority fatal?

2. Should the amounts that MEDICARD earmarked and eventually paid to the medical service
providers still form part of its gross receipts for VAT purposes?
RULING
1. Yes.
The absence of the LOA violated MEDICARD’s right to due process. An LOA is the authority given to
the appropriate revenue officer assigned to perform assessment functions. Under the NLRC, unless
authorized by the CIR himself or by his duly authorized representative, through an LOA, an examination
of the taxpayer cannot ordinarily be undertaken. An LOA is premised on the fact that the examination of a
taxpayer who has already filed his tax returns is a power that statutorily belongs only to the CIR himself
or his duly authorized representatives. In this case, there is no dispute that no LOA was issued prior to the
issuance of a PAN and FAN against MEDICARD. Therefore, no LOA was also served on MEDICARD.
The LN cannot replace the LOA required under the law even if the same was issued by the CIR himself.
Under RR No. 12-2002, LN is issued to a person found to have underreported sales/receipts per data
generated under the RELIEF system. Upon receipt of the LN, a taxpayer may avail of the BIR’s
Voluntary Assessment and Abatement Program. If a taxpayer fails or refuses to avail of the said program,
the BIR may avail of administrative and criminal remedies, particularly closure, criminal action, or audit
and investigation. Since the law specifically requires an LOA and RMO No. 32-2005 requires the
conversion of the previously issued LN to an LOA, the absence thereof cannot be simply swept under the
rug, as the CIR would have it. In fact, Revenue Memorandum Circular No. 40-2003 considers an LN as a
notice of audit or investigation only for the purpose of disqualifying the taxpayer from amending his
returns. The revenue officers not having authority to examine MEDICARD in the first place, the
assessment issued by the CIR is inescapably void.
2. No.
The VAT is a tax on the value added by the performance of the service by the taxpayer. It is, thus, this
service and the value charged thereof by the taxpayer that is taxable under the NLRC.
COMMISSIONER OF INTERNAL REVENUE, Petitioner vs. LANCASTER PHILIPPINES, INC.,

Respondent. (G.R. No. 183408; July 12, 2017)
FACTS:
The CIR issued letters of authority (LOA) to revenue officers to examine Lancaster's books for FY 1997-
1998. Later, the CIR issued deficiency income tax assessment (DITA) against Lancaster for FY 1998-
1999. Moreover, the CIR flagged Lancaster's alleged deviation from generally accepted accounting
principles in using a "cropping year" not in line with its FY. Finally, Lancaster applied for deductions for
the taxable year in which the tobaccos crops were realized not in the FY in which the expenses were
incurred. The CIR disallowed these deductions.
On appeal, the CTA resolved that there was excess of authority on the part of the CIR and its revenue
officers, citing the disparity in coverage between the LOA and the DITA. However, this issue was never
raised by Lancaster.
ISSUES:
[1] Does the CTA have power to rule upon the CIR's or revenue officers' scope of authority?
[2] Did the CTA err in resolving the issue on the revenue officers' acts in excess of authority although
never raised by Lancaster?
[3] Did the revenue officers exceed their authority in examining Lancaster's books for FY 1 April 1997 to
31 March 1998 but issuing DITA for FY 1 April 1998 to 31 March 1999?
[4] Did Lancaster deviate from GAAP by adopting a method by which its incomes and deductions within
a "cropping year" are included in its return for the following year, considering that these years do not
coincide?
[5] Was Lancaster wrong in applying for deductions for the taxable year in which the gross income on
tobacco crops was realized and not in the FY in which they were incurred?
HELD:
[1] Yes, the CTA has jurisdiction to rule upon other matters arising under the National Internal Revenue
Code or other law or part of law administered by the BIR.
Since it is the power of the CIR to examine and assess taxpayers, and it is pursuant to such power that the
CIR authorized its revenue officers to conduct an examination of the books of account and accounting
records of Lancaster, and eventually issue a deficiency assessment against it, such power being one
granted by the Tax Code, the CTA has power to judge this issue.
[2] No the CTA did not err. Under the Revised Rules of the Court of Tax Appeals, "In deciding the case,
the Court may not limit itself to the issues stipulated by the parties but may also rule upon related issues
necessary to achieve an orderly disposition of the case."
[3] Yes, the revenue officers exceeded their authority in doing so.
The audit process normally commences with the issuance by the CIR of a Letter of Authority. The LOA
gives notice to the taxpayer that it is under investigation for possible deficiency tax assessment; at the
same time it authorizes or empowers a designated revenue officer to examine, verify, and scrutinize a
taxpayer's books and records, in relation to internal revenue tax liabilities for a particular period. The
DITA should be based on the FY covered by the LOA.
Under Revenue Memorandum Order (RMO) No. 43-90, the LOA shall cover a taxable period not
exceeding one taxable year. Therefore, although in this case the LOA states, "taxable year 1998 to
[blank]," it is presumed that the authority is for one taxable year only. Hence, when the DITA for the
following year was issued, there was excess of authority.
[4] No, Lancaster did not. In the present case, we find it wholly justifiable for Lancaster, as a business
engaged in the production and marketing of tobacco, to adopt the crop method of accounting.
An accounting method is a "set of rules for determining when and how to report income and
deductions."The Tax Code recognizes the following methods: (1) Cash basis method; (2) Accrual
method; (3) Installment method; (4) Percentage of completion method; and (5) Other accounting
methods.
Any of the foregoing methods may be employed by any taxpayer so long as it reflects its income properly
and such method is used regularly. The peculiarities of the business or occupation engaged in by a
taxpayer would largely determine how it would report incomes and expenses in its accounting books or
records. The NIRC does not prescribe a uniform, or even specific, method of accounting.
An example of such method not expressly mentioned in the NIRC, but duly approved by the CIR, is the
'crop method of accounting' authorized under RAM No. 2-95. The pertinent provision reads: Crop Year
Basis is a method applicable only to farmers engaged in the production of crops which take more than a
year from the time of planting to the process of gathering and disposal. Expenses paid or incurred are
deductible in the year the gross income from the sale of the crops are realized.
The crop method recognizes that the harvesting and selling of crops do not fall within the same year that
they are planted or grown. This method is especially relevant to farmers, or those engaged in the business
of producing crops who, pursuant to RAM No. 2-95, would then be able to compute their taxable income
on the basis of their crop year. On when to recognize expenses as deductions against income, the
governing rule is found in the second sentence of Subsection F cited above. The rule enjoins the
recognition of the expense (or the deduction of the cost) of crop production in the year that the crops are
sold (when income is realized).
[5] No, there was no error in Lancaster doing so.
A reading of RAM No. 2-95, however, clearly evinces that it conforms with the concept that the expenses
paid or incurred be deducted in the year in which gross income from the sale of the crops is realized. Put
in another way, the expenses are matched with the related incomes which are eventually earned. Nothing
from the provision is it strictly required that for the expense to be deductible, the income to which such
expense is related to be realized in the same year that it is paid or incurred. As noted by the CTA, the crop
method is an unusual method of accounting, unlike other recognized accounting methods that, by
mandate of Sec. 45 of the NIRC, strictly require expenses be taken in the same taxable year when the
income is 'paid or incurred, ' or 'paid or accrued, ' depending upon the method of accounting employed by
the taxpayer.
CIR vs. PASCOR
309 SCRA 402
GR No. 128315 June 29, 1999
"An assessment is not necessary before a criminal charge can be filed."
FACTS: The BIR examined the books of account of Pascor Realty and Devt Corp for years 1986, 1987
and 1988, from which a tax liability of 10.5 Million Pesos was found. Based on the recommendations of
the examiners, the CIR filed an information with the DOJ for tax evasion against the officers of Pascor.
Upon receipt of the subpoena, the latter filed an urgent request for reconsideration/reinvestigation with
the CIR, which was immediately denied upon the ground that no formal assessment has yet been issued
by the Commisioner. Pascor elevated the CIR's decision to the CTA on a petition for review. The CIR
filed a Motion to Dismiss on the ground of lack of jurisdiction of CTA as there was no formal assessment
made against the respondents. The CTA dismissed the motion, hence this petition.
ISSUE: Is a formal assessment necessary in the filing of a criminal complaint?
HELD: No. Section 222 of the NIRC 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.
SMI-ED Phil. Technology, Inc. v. CIR

FACTS:
SMI-Ed Philippines is a PEZA-registered corporation authorized “to engage in the business of
manufacturing ultra high-density microprocessor unit package.”6 SMI-Ed Philippines “failed to
commence operations.”. On August 1, 2000, it sold its buildings and some of its installed machineries and
equipment to Ibiden Philippines, Inc., another PEZA-registered enterprise, for ¥2,100,000,000.00
(₱893,550,000.00). SMI-Ed Philippines was dissolved on November 30, 2000. In its quarterly income tax
return for year 2000, SMI-Ed Philippines subjected the entire gross sales of itsproperties to 5% final tax
on PEZA registered corporations. SMI-Ed Philippines paid taxes amounting to ₱44,677,500.00. On Feb 2,
2001, SMI-Ed Philippines filed an administrative claim for the refund of ₱44,677,500.00 with the Bureau
of Internal Revenue (BIR). SMIEd Philippines alleged that the amount was erroneously paid. It also
indicated the refundable amount in its final income tax return filed on March 1, 2001. It also alleged that
it incurred a net loss of ₱2,233,464,538.00. The BIR – did not act on SMI-Ed Philippines’ claim, which
prompted the latter to file a petition for review before the Court of Tax Appeals on September 9, 2002.
PETITIONER ARGUMENTS:  Court of Tax Appeals Second Division erroneously assessed the 6%
capital gains tax on the sale of SMIEd Philippines’ equipment, machineries, and buildings. Section 27(D)
(5) of the National Internal Revenue Code of 1997 is clear that the 6% capital gains tax on domestic
corporations applies only on the sale of lands and buildings and not to machineries and equipment.  It
also argued that the Court of Tax Appeals Second Division cannot make an assessment at the first
instance. Its jurisdiction to make an assessment since its jurisdiction, with respect to the decisions of
respondent, is merely appellate.  Even if the Court of Tax Appeals Second Division has such power, the
period to make an assessment had already prescribed under Section 203of the National Internal Revenue
Code of 1997 since the return for the erroneous payment was filed on September 13, 2000. This is more
than three (3) years from the last day prescribed by law for the filing of the return. The Court of Tax
Appeals Second Division denied SMI-Ed Philippines’ claim for refund in the decision dated December
29, 2004, WITH THE findings:  The court found that SMI-Ed Philippines’ administrative claim for
refund and the petition for review with the Court of Tax Appeals were filed within the two-year
prescriptive period.  However, fiscal incentives given to PEZA-registered enterprises may be availed
only by PEZAregistered enterprises that had already commenced operations. Since SMI-Ed Philippines
had not commenced operations, it was not entitled to the incentives of either the income tax holiday or the
5% preferential tax rate. Payment of the 5% preferential tax amounting to ₱44,677,500.00 was erroneous.
(so erroneous ang self-assessment ni SMI)  After finding that SMI-Ed Philippines sold properties that
were capital assets under Section 39(A)(1) of the National Internal Revenue Code of 1997, the Court of
Tax Appeals Second Division subjected the sale of SMIEd Philippines’ assets to 6% capital gains tax
under Section 27(D)(5) of the same Code and Section 2 of Revenue Regulations No. 8-98. It was found
liable for capital gains tax amounting to ₱53,613,000.00.Therefore, SMIEd Philippines must still pay the
balance of ₱8,935,500.00 as deficiency tax “which respondent should perhaps look into.  In its
comment, respondent argued that the Court of Tax Appeals’ determination of petitioner’s liability for
capital gains tax was not an assessment.  Such determination was necessary to settle the question
regarding the tax consequence of the sale of the properties. This is clearly within the Court of Tax
Appeals’ jurisdiction under Section 7 of Republic Act No. 9282.42Respondent also argued that
“petitioner failed to justify its claim for refund.” CTA EN BANC- AFFIRMED CTA DIVISION’S
RULING SMI-Ed Philippines filed a petition for review before this court on December 27, 2006, praying
for the grant of its claim for refund and the reversal of the Court of Tax Appeals En Banc’s decision.
ISSUES: 1. The honorable CTA En Banc grievously erred and acted beyond its jurisdiction when it
assessed for deficiency tax in the first instance.
2. Even assuming that the honorable CTA En Banc has the right to make an assessment against the
petitionerappellant, it grievously erred in finding that the machineries and equipment sold by the
petitionerappellant is subject to the six percent (6%) capital gains tax under Section 27(D)(5) of the Tax
Code.33
HELD: 1. Jurisdiction of the Court of Tax Appeals- there is jurisdiction The term “assessment” refers to
the determination of amounts due from a person obligated to make payments. In the context of national
internal revenue collection, it refers the determination of the taxes due from a taxpayer under the National
Internal Revenue Code of 1997. The power and duty to assess national internal revenue taxes are lodged
with the BIR. Section 2 of the National Internal Revenue Code of 1997 provides: SEC. 2. Powers and
Duties of the Bureau of Internal Revenue. – The Bureau of Internal Revenue shall be under the
supervision and control of the Department of Finance and its powers and duties shall comprehend the
assessment and collection of all national internal revenue taxes, fees, and charges, and the enforcement of
all forfeitures, penalties, and fines connected therewith,including the execution of judgments in all cases
decided in its favor by the Court of Tax Appeals and the ordinary courts. The Bureau shall give effect to
and administer the supervisory and police powers conferred to it by this Code or other laws. (Emphasis
supplied) The BIR is not mandated to make an assessment relative to every return filed with it. Tax
returns filed with the BIR enjoy the presumption that these are in accordance with the law. Tax returns are
also presumed correct since these are filed under the penalty of perjury.. Generally, however, the BIR
assesses taxes when it appears, after a return had been filed, that the taxes paid were incorrect or false, or
fraudulent. The BIR also assesses taxes when taxes are due but no return is filed. Thus: SEC. 6. Power of
the Commissioner to Make assessments and Prescribe additional Requirements for Tax Administration
and Enforcement.– (A) Examination of Returns and Determination of Tax Due. – After a return has been
filed as required under the provisions of this Code, the Commissioner or his duly authorized
representative may authorize the examination of any taxpayer and the assessment of the correct amount of
tax: Provided, however; That failure to file a return shall not prevent the Commissioner from authorizing
the examination of any taxpayer. The tax or any deficiency tax so assessed shall be paid upon notice and
demand from the Commissioner or from his duly authorized representative. The Court of Tax Appeals
has no power to make an assessment at the first instance. On matters such as tax collection, tax refund,
and others related to the national internal revenue taxes, the Court of Tax Appeals’ jurisdiction is
appellate in nature. Thus, the BIR first has to make an assessment of the taxpayer’s liabilities. When the
BIR makes the assessment, the taxpayer is allowed to dispute that assessment before the BIR. If the BIR
issues a decision that is unfavorable to the taxpayer or if the BIR fails to act on a dispute brought by the
taxpayer, the BIR’s decision or inaction may be brought on appeal to the Court of Tax Appeals. The
Court of Tax Appeals then acquires jurisdiction over the case. When the BIR’s unfavorable decision is
brought on appeal to the Court of Tax Appeals, the Court of Tax Appeals reviews the correctness of the
BIR’s assessment and decision. In reviewing the BIR’s assessment and decision, the Court of Tax
Appeals had to make its own determination of the taxpayer’s tax liabilities. The Court of Tax Appeals
may not make such determination before the BIR makes its assessment and before a dispute involving
such assessment is brought to the Court of Tax Appeals on appeal. The Court of Tax Appeals’ jurisdiction
is not limited to cases when the BIR makes an assessment or a decision unfavorable to the taxpayer.
Because Republic Act No. 1125 also vests the Court of Tax Appeals with jurisdiction over the BIR’s
inaction on a taxpayer’s refund claim, there may be instances when the Court of Tax Appeals has to take
cognizance of cases that have nothing to do with the BIR’s assessments or decisions. WHEN THE BIR
FAILS TO ACT ON A CLAIM FOR REFUND OF VOLUNTARILY BUT MISTAKENLY PAID
TAXES, FOR EXAMPLE, THERE IS NO DECISION OR ASSESSMENT INVOLVED. Taxes are
generally self-assessed. They are initially computed and voluntarily paid by the taxpayer. The government
does not have to demand it. If the tax payments are correct, the BIR need not make an assessment. The
self-assessing and voluntarily paying taxpayer, however, may later find that he or she has erroneously
paid taxes. Erroneously paid taxes may come in the form of amounts that should not have been paid.
Thus, a taxpayer may find that he or she has paid more than the amount that should have been paid under
the law. Erroneously paid taxes may also come in the form of tax payments for the wrong category of tax.
Thus, a taxpayer may find that he or she has paid a certain kind of tax that he or she is not subject to. In
these instances, the taxpayer may ask for a refund. If the BIR fails to act on the request for refund, the
taxpayer may bring the matter to the Court of Tax Appeals. From the taxpayer’s self-assessment and tax
payment up to his or her request for refund and the BIR’s inaction, the BIR’s participation is limited to
the receipt of the taxpayer’s payment. The BIR does not make an assessment; the BIR issues no decision;
and there is no dispute yet involved. Since there is no BIR assessment yet, the Court of Tax Appeals may
not determine the amount of taxes due from the taxpayer. There is also no decision yet to review.
However, there was inaction on the part of the BIR. That inaction is within the Court of Tax Appeals’
jurisdiction. In other words, the Court of Tax Appeals may acquire jurisdiction over cases even if they do
not involve BIR assessments or decisions. In this case, the Court of Tax Appeals’ jurisdiction was
acquired because petitioner brought the case on appeal before the Court of Tax Appeals after the BIR had
failed to act on petitioner’s claim for refund of erroneously paid taxes. The Court of Tax Appeals did not
acquire jurisdiction as a result of a disputed assessment of a BIR decision. Petitioner argued that the Court
of Tax Appeals had no jurisdiction to subject it to 6% capital gains tax or other taxes at the first instance.
The Court of Tax Appeals has no power to make an assessment. As earlier established, the Court of Tax
Appeals has no assessment powers. In stating that petitioner’s transactions are subject to capital gains tax,
however, the Court of Tax Appeals was not making an assessment. It was merely determining the proper
category of tax that petitioner should have paid, in view of its claim that it erroneously imposed upon
itself and paid the 5% final tax imposed upon PEZAregistered enterprises. The determination of the
proper category of tax that petitioner should have paid is an incidental matter necessary for the resolution
of the principal issue, which is whether petitioner was entitled to a refund. The issue of petitioner’s claim
for tax refund is intertwined with the issue of the proper taxes that are due from petitioner. A claim for tax
refund carries the assumption that the tax returns filed were correct.55 If the tax return filed was not
proper, the correctness of the amount paid and, therefore, the claim for refund become questionable. In
that case, the court must determine if a taxpayer claiming refund of erroneously paid taxes is more
properly liable for taxes other than that paid. If the taxpayer is found liable for taxes other than the
erroneously paid 5% final tax, the amount of the taxpayer’s liability should be computed and deducted
from the refundable amount. Any liability in excess of the refundable amount, however, may not be
collected in a case involving solely the issue of the taxpayer’s entitlement to refund. The question of tax
deficiencyis distinct and unrelated to the question of petitioner’s entitlement to refund. Tax deficiencies
should be subject to assessment procedures and the rules of prescription. The court cannot be expected to
perform the BIR’s duties whenever it fails to do so either through neglect or oversight. Neither can court
processes be used as a tool to circumvent laws protecting the rights of taxpayers. Petitioner’s entitlement
to benefits given to PEZA-registered enterprises Petitioner is not entitled to benefits given to PEZA-
registered enterprises, including the 5% preferential tax rate under Republic Act No. 7916 or the Special
Economic Zone Act of 1995. This is because it never began its operation. Essentially, the purpose of
Republic Act No. 7916 is to promote development and encourage investments and business activities that
will generate employment.59 Giving fiscal incentives to businesses is one of the means devised to
achieve this purpose. It comes with the expectation that persons who will avail these incentives will
contribute to the purpose’s achievement. Hence, to avail the fiscal incentives under Republic Act No.
7916, the law did not say that mere PEZA registration is sufficient. Republic Act No. 7916 or The Special
Economic Zone Act of 1995 provides that the fiscal incentives and the 5% preferential tax rate are
available only to businesses operating within the Ecozone.60 A business is considered in operation when
it starts entering into commercial transactions that are not merely incidental to but are related to the
purposes of the business. It is similar to the definition of “doing business,” as applied in actions involving
the right of foreign corporations to maintain court actions: “a continuity of commercial dealings and
arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some
of the functions normally incident to, and in progressive prosecution of, the purpose and object of its
organization” Petitioner never started its operations since its registration on June 29, 199863 because of
the Asian financial crisis.64Petitioner admitted this.65 Therefore, it cannot avail the incentives provided
under Republic Act No. 7916. It is not entitled to the preferential tax rate of 5% on gross income in lieu of
all taxes. Because petitioner is not entitled to a preferential rate, it is subject to ordinary tax rates under
the National Internal Revenue Code of 1997. Imposition of capital gains tax The Court of Tax Appeals
found that petitioner’s sale of its properties is subject to capital gains tax. For petitioner’s properties to be
subjected to capital gains tax, the properties must form part of petitioner’s capital assets. Section 39(A)(1)
of the National Internal Revenue Code of 1997 defines “capital assets”: SEC. 39. Capital Gains and
Losses. – (A) Definitions.- As used in this Title – (1) Capital Assets.- the term ‘capital assets’ means
property held by the taxpayer (whether or not connected with his trade or business), but does not include
stock in trade of the taxpayer or other property of a kind which would properly be included in the
inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer
primarily for sale to customers in the ordinary course of his trade orbusiness, or property used in the trade
or business, of a character which is subject to the allowance for depreciation provided in Subsection (F)
of Section 34; or real property used in trade or business of the taxpayer. (Emphasis supplied) Thus,
“capital assets” refers to taxpayer’s property that is NOT any of the following: 1. Stock in trade; 2.
Property that should be included inthe taxpayer’s inventory at the close of the taxable year; 3. Property
held for sale in the ordinary course of the taxpayer’s business; 4. Depreciable property used in the trade or
business; and 5. Real property used in the trade or business. The properties involved in this case include
petitioner’s buildings, equipment, and machineries. They are not among the exclusions enumerated in
Section 39(A)(1) of the National Internal Revenue Code of 1997. None of the properties were used in
petitioner’s trade or ordinary course of business because petitioner never commenced operations. They
were not part of the inventory. None of themwere stocks in trade. Based on the definition of capital assets
under Section 39 of the National Internal Revenue Code of 1997, they are capital assets. Respondent
insists that since petitioner’s machineries and equipment are classified as capital assets, their sales should
be subject to capital gains tax. Respondent is mistaken. Capital gains of individuals and corporations from
the sale of real properties are taxed differently. Individuals are taxed on capital gains from sale of all real
properties located in the Philippines and classified as capital assets. Therefore, only the presumed gain
from the sale of petitioner’s land and/or building may be subjected to the 6% capital gains tax. The
income from the sale of petitioner’s machineries and equipment is subject to the provisions on normal
corporate income tax. To determine, therefore, if petitioner is entitled to refund, the amount of capital
gains tax for the sold land and/or building of petitioner and the amount of corporate income tax for the
sale of petitioner’s machineries and equipment should be deducted from the total final tax paid. Petitioner
indicated, however, in its March 1, 2001 income tax return for the 11-month period ending on November
30, 2000 that it suffered a net loss of ₱2,233,464,538.00.69 The BIR did not make a deficiency
assessment for this declaration. Neither did the BIR dispute this statement in its pleadings filed before this
court. There is, therefore, no reason todoubt the truth that petitioner indeed suffered a net loss in 2000.
Since petitioner had not started its operations, it was also not subject to the minimum corporate income
tax of 2% on gross income.70 Therefore, petitioner is not liable for any income tax. Prescription Section
203 of the National Internal Revenue Code of 1997 provides that as a general rule, the BIR has three (3)
years from the last day prescribed by law for the filing of a return to make an assessment. If the return is
filed beyond the last day prescribed by law for filing, the three-year period shall run from the actual date
of filing. This court said that the prescriptive period to make an assessment of internal revenue taxes is
provided “primarily to safeguard the interests of taxpayers from unreasonable investigation.”
Accordingly, the government must assess internal revenue taxes on time so as not to extend indefinitely
the period of assessment and deprive the taxpayer of the assurance that it will no longer be subjected to
further investigation for taxes after the expiration of reasonable period of time.73 Rules derogating
taxpayers’ right against prolonged and unscrupulous investigations are strictly construed against the
government.74 The BIR had three years from the filing of petitioner’s final tax return in 2000 to assess
petitioner’s taxes. Nothing stopped the BIR from making the correct assessment. The elevation of the
refund claim with the Court of Tax Appeals was not a bar against the BIR’s exercise of its assessment
powers. The BIR, however, did not initiate any assessment for deficiency capital gains tax.78 Since more
than a decade have lapsed from the filing of petitioner’s return, the BIR can no longer assess petitioner for
deficiency capital gains taxes, if petitioner is later found to have capital gains tax liabilities in excess of
the amount claimed for refund. The Court of Tax Appeals should not be expected to perform the BIR’s
duties of assessing and collecting taxes whenever the BIR, through neglect or oversight, fails to do so
within the prescriptive period allowed by law. WHEREFORE, the Court of Tax Appeals’ November 3,
2006 decision is SET ASIDE. The Bureau of Internal Revenue is ordered to refund petitioner SMI-Ed
Philippines Technology, Inc. the amount of 5% final tax paid to the BIR, less the 6% capital gains tax on
the sale of petitioner SMI-Ed Philippines Technology, Inc. ‘s land and building. In view of the lapse of
the prescriptive period for assessment, any capital gains tax accrued from the sale of its land and building
that is in excess of the 5% final tax paid to the Bureau of Internal Revenue may no longer be recovered
from petitioner SMI-Ed Philippines Technology, Inc.
COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. FITNESS BY DESIGN, INC.,

Respondent; G.R. No. 215957; 09 November 2016
Facts:
On April 11, 1996, Fitness filed its Annual Income Tax Return for taxable year 1995.
On June 9, 2004, Fitness received a copy of the Final Assessment Notice dated March 17, 2004. The
Final Assessment Notice was issued under Letter of Authority No. 00002953. The Final Assessment
Notice assessed that Fitness had a tax deficiency in the amount of ₱10,647,529.69.
Fitness filed a protest to the Final Assessment Notice on June 25, 2004. According to Fitness, the
Commissioner’s period to assess had already prescribed. Further, the assessment was without basis since
the company was only incorporated on May 30, 1995.
On February 2, 2005, the Commissioner issued a Warrant of Distraint and/or Levy with Reference No.
OCN WDL-95-05-005 dated February 1, 2005 to Fitness.
Fitness filed before the First Division of the Court of Tax Appeals a Petition for Review (With Motion to
Suspend Collection of Income Tax, Value Added Tax, Documentary Stamp Tax and Surcharges and
Interests) on March 1, 2005.
On May 17, 2005, the Commissioner of Internal Revenue filed an Answer to Fitness’ Petition and raised
special and affirmative defenses. The Commissioner posited that the Warrant of Distraint and/or Levy
was issued in accordance with law. The Commissioner claimed that its right to assess had not yet
prescribed under Section 222(a) of the National Internal Revenue Code. Because the 1995 Income
Tax ,Return filed by Fitness was false and fraudulent for its alleged intentional failure to reflect its true
sales, Fitness’ respective taxes may be assessed at any time within 10 years from the discovery of fraud or
omission.
The Court of Tax Appeals First Division granted Fitness’ Petition on the ground that the assessment has
already prescribed. It ruled that the Final Assessment Notice is invalid for failure to comply with the
requirements of Section 228 of the National Internal Revenue Code.
The Commissioner’s Motion for Reconsideration and its Supplemental Motion for Reconsideration were
denied by the Court of Tax Appeals First Division.
Aggrieved, the Commissioner filed an appeal before the Court of Tax Appeals En Banc. The
Commissioner asserted ,that it had 10 years to make an assessment due to the fraudulent income tax
return filed by Fitness.
The Court of Tax Appeals En Banc ruled in favor of Fitness. It affirmed the Decision of the Court of Tax
Appeals First Division. The Commissioner’s Motion for Reconsideration was denied by the Court of Tax
Appeals En Banc in the Resolution dated December 16, 2014.
Issue:
Whether the applicable prescriptive period is 10 years as provided under Sec. 222(a) of the NIRC.
Ruling:
No.
To avail of the extraordinary period of assessment in Section 222(a) of the National Internal Revenue
Code, the Commissioner of Internal Revenue should show that the facts upon which the fraud is based is
communicated to the taxpayer...
The prescriptive period in making an assessment depends upon whether a tax return was filed or whether
the tax return filed was either false or fraudulent.1âwphi1 When a tax return that is neither false nor
fraudulent has been filed, the Bureau of Internal Revenue may assess within three (3) years, reckoned
from the date of actual filing or from the last day prescribed by law for filing. However, in case of a false
or fraudulent return with intent to evade tax, the assessment may be made within ten (10) years after the
discovery of the falsity or fraud.
Fraud is a question of fact that should be alleged and duly proven. “The willful neglect to file the required
tax return or the fraudulent intent to evade the payment of taxes, considering that the same is
accompanied by legal consequences, cannot be presumed.” Fraud entails corresponding sanctions under
the tax law. Therefore, it is indispensable for the Commissioner of Internal Revenue to include the basis
for its allegations of fraud in the assessment notice.
AZNAR V COURT OF TAX APPEALS

Facts: 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 ordering the petitioner to pay the government the
sum of P227,691.77 representing deficiency income taxes for the years 1946 to 1951. An investigation by
the Commissioner of Internal Revenue (CIR) ascertained the assets and liabilities of the taxpayer 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. Petitioner avers that according to the NIRC, the right of the CIR to assess deficiency income taxes
of the late Aznar for the years 1946, 1947, and 1948 had already prescribed at the time the assessment
was made on November 28, 1952; there being a five year limitation upon assessment and collection from
the filing of the returns. Meanwhile, respondents believe that the prescription period in the case at bar that
is applicable is under Sec. 332 of the NIRC which provides that: "(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". Petitioner argues said provision does not apply because
the taxpayer did not file false and fraudulent returns with intent to evade tax.
Issue: Whether or not the deceased Aznar filed false or fraudulent income tax returns and subsequently,
whether the action has not prescribed.
Held: The petition is without merit.

The respondent CTA concluded 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." 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 from the time of the discovery of the falsity, fraud or omission even seems to be
inadequate. 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.
COMMISSIONER OF INTERNAL REVENUE vs. ASALUS CORPORATION
February 22, 2017
GR No. 221590
FACTS:
On December 16, 2010, respondent Asalus Corporation (Asalus) received a Notice of Informal
Conference from Revenue District Office No. 47 of the Bureau of Internal Revenue (BIR). It was in
connection with the investigation conducted by Revenue Officer Fidel M. Bañares II on the Value-Added
Tax transactions of Asalus for the taxable year 2007. Asalus filed its Letter-Reply, dated December 29,
2010, questioning the basis of Bañares' computation for its VAT liability.
On January 10, 2011, petitioner Commissioner of Internal Revenue issued the Preliminary Assessment
Notice finding Asalus liable for deficiency VAT for 2007 in the aggregate amount of P413,378,058.11.
On August 26, 2011, Asalus received the Formal Assessment Notice stating that it was liable for
deficiency VAT for 2007 in the total amount of P95,681,988.64, inclusive of surcharge and interest.
Consequently, it filed its protest against the FAN, dated September 6, 2011.
On October 16, 2012, Asalus received the Final Decision on Disputed Assessment showing VAT
deficiency for 2007 in the aggregate amount of P106,761,025.17, inclusive of surcharge and interest and
P25,000.00 as compromise penalty. As a result, it filed a petition for review before the CTA Division.
In its April 2, 2014 Decision, the CTA Division ruled that the VAT assessment issued on August 26, 2011
had prescribed and consequently deemed invalid.
ISSUE:
WHETHER OR NOT the CTA erred in the decision and that the petition be granted in favor of the
petitioner.
HELD:
The statement given by the CTA were correct in a way, and it was given due respect for they
found it partly correct but, after a review of the records and applicable laws and jurisprudence, the
Court finds that the CTA erred in concluding that the assessment against Asalus had prescribed. Internal
revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of
the return, or where the return is filed beyond the period, from the day the return was actually filed.
Section 222 of the NIRC, however, provides for exceptions to the general rule. It states that in the case
of a false or fraudulent return with intent to evade tax or of failure to file a return, the assessment may
be made within ten years from the discovery of the falsity, fraud or omission.
In the oft-cited Aznar v. CTA, the Court compared a false return to a fraudulent return in relation to the
applicable prescriptive periods for assessments, to wit:
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."
WHEREFORE, petition is GRANTED. The July 30, 2015 Decision and the November 6, 2015 Resolution of
the Court of Tax Appeals En Banc are REVERSED and SET ASIDE. The case is ordered REMANDED to the
Court of Tax Appeals for the determination of the Value Added Tax liabilities of the Asalus Corporation.

Facts:
omission.
Issue:
Ruling:
No.
CIR v. United Salvage and Towage (Phils) Inc. (2014)

FACTS:
BIR found the respondent liable for deficiency in income tax, VAT, DST for certain years
between 1992-1998 arising out of service contracts with petroleum service contractors. [the tax issue is
not relevant] Facts relevant to Evidence issue: (1) Respondent filed a petition with the CTA claiming that
the assessments are void and the right of the government to assess and collect deficiency taxes from them
has prescribed on account of the failure to issue a valid notice of assessment within the applicable period
(2) CTA: a. Held that the Preliminary Assessment Notices for deficiency EWT for taxable years 1994 and
1998 were not formally offered; and shall not be considered as evidence, nor shall it rule on their validity.
b. Other assessments were declared void for failure to comply with Section 228 of NIRC. Only valid
assessment was for taxable year 1992, but the action on this assessment had already prescribed. (3) BIR
filed petition with SC to overturn CTA decision on the grounds (among others) that the technical rules of
evidence, particularly with respect to offer of evidence, should not apply to
ISSUE: WON the court should compel the CTA to consider the assessments that were not formally
offered.
BIR argues: (1) Technical rules of evidence do not apply to CTA. (2) While it failed to formally offer the
assessments, their existence and due execution were duly tackled during the presentation of petitioner’s
witnesses. (3) Also, even though they were not marked as exhibits, their existence and value were
properly established.
SC: Although technical rules of evidence do not strictly apply to the CTA, and have been relaxed in the
past for other cases, the circumstances in the current case do not warrant doing so. The parties should
strictly comply with Rule 132.34. (1) Cases before the CTA under its original jurisdiction are new cases.
Must be proven in minute detail. (2) Only that evidence which is formally offered will be considered by
the court. Identification and marking alone are INSUFFICIENT. (3) Distinction between identification
and offer (FOR DOCUMENTARY EVIDENCE): a. Identification: Done during trial and accompanied by
the marking of the evidence as an exhibit b. Offer: is done only when the party rests its case and not
before. (4) The choice of whether or not to offer is with the parties. The court cannot motu proprio
consider evidence that was not formally offered. (5) EXCEPTION TO THIS RULE (People v. Napat) a.
Where the same must have been duly identified by testimony and duly recorded; AND b. Incorporated in
the records (6) There must be STRICT COMPLIANCE with these two requisites to qualify for the
exception. (7) ITC: Not duly identified by testimony and not incorporated in the records of the case.
Rationale for the Rule on formal offer of evidence: A formal offer is necessary because judges are
mandated to rest their findings of facts and their judgment only and strictly upon the evidence offered by
the parties at the trial. Its function is to enable the trial judge to know the purpose or purposes for which
the proponent is presenting the evidence. On the other hand, this allows opposing parties to examine the
evidence and object to its admissibility. Moreover, it facilitates review as the appellate court will not be
required to review documents not previously scrutinized by the trial court.
BANK OF THE PHILIPPINE ISLANDS vs. COMMISSIONER OF INTERNAL REVENUE G.R.
No. 139736 October 17, 2005 Chico-Nazario, J.:
FACTS:
On June 6 and 14, 1985, BPI sold $500,000.00 to the Central Bank, for the total sale
amount of $1M. October 10, 1989: BIR issued deficiency assessment for DST in the amount of
28,020.00 for the said sales. October 20,1989, petitioner received the Assessment Notice and
consequently filed a protest in November 17,1989. In its protest, the BIR claims that; under the
established market practice, the DST on sale of foreign exchange is paid by the buyer. Thus,
when BPI sells to any party, the cost of DST is added to the total price or charge to the buyer and
the seller affixes the corresponding DST on the document. Since the Central Bank is exempt
from paying DST under Resolution No. 35-85 of the Fiscal Incentive Review Board, no DST
was affixed by the BPI. Petitioner did not receive a reply but soon after, October 15, 1992, BIR
issued a Warrant of distraint, and finally in August 13, 1997, BPI received a letter denying its
request for reconsideration. BPI alleged that the right of BIR to enforce collection of the assessed
DST is already prescribed. The BIR only had 3 years to collect the deficiency DST. It took them
7 years and 9 months to deny the protest and issue the warrant of distraint. CA sustained the
decision of the CTA with regards to the prescription period
ISSUE:
Whether or not the right of BIR to collect from the petitioner BPI the alleged deficiency
DST for taxable year 1985 had already prescribed.
RULING:
Under Section 203 of the Tax Code, the BIR has 3 years assessment period, counted from
the date of actual filling of the return or from the last date prescribed by law for the filing of such
return, whichever comes later. In cases of false or fraudulent returns with intent to evade tax
ofthe failure to file any return at all, the prescriptive period for assessment of the tax due shall be
10 years from the discovery by the BIR of the falsity, fraud, or omission. When the BIR validly
issues an assessment, within either the 3 or 10 year period, then the BIR has another 3 years after
the assessment within which to collect the national internal revenue tax due thereon by distraint,
levy and/or court proceeding. Counting the 3 year prescriptive period from October 20, 2989
(when the assessment notice was received by BPI), the BIR only had until October 19, 1992
within which to collect the assessment deficiency DST. Since the warrant of distraint was only
received by BPI on October 23, 1992, the right of the BIR to collect has already prescribed. A
waiver of the prescriptive period is provided in Section 223, paragraphs (b) and (d) required it to
be: In writing Agreed by both the Commissioner and the taxpayer Before the expiration of the
ordinary prescriptive periods of assessment and collection, and For a definite period beyond the
ordinary prescriptive periods for assessment and collection However, BPI executed no waiver of
the Statute of Limitations, thus it did not suspend running of the prescription. The protest of the
BPI is to be construed as a REQUEST FOR RECONSIDERATION and not a request for
reinvestigation that would suspend the running of the prescriptive period under Section 224. The
statute of limitations for collection “against BPI had expired; none of the conditions from the
statute of limitations on collection exists herein.”
COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. BASF COATING + INKS PHILS.,

INC., Respondent. (G.R. No. 198677; November 26, 2014)
2/3 of BC's board members and stockholders decided to dissolve the corporation by cutting its 50-year
term of existence (from 1990) short (only until March 31, 2001). Subsequently, BC moved out of its
address in Las Piñas City and transferred to Carmelray Industrial Park, Canlubang, Calamba, Laguna
On June 26, 2001, BC submitted 2 letters to BIR. The first was a notice of dissolution. The send was a
manifestation with documents supporting said dissolution such as BIR Form 1905 which refers to an
update of information contained in its tax registration. Thereafter, a FAN was sent to BC's former address
in Las Piñas City. The FAN indicated an amount of 18 million pesos representing income tax, VAT,
WTC, EWT and DST for the taxable year of 1999.
On March 5, 2004, BIR's RDO No. 39, South Quezon City, issued a First Notice Before Issuance of
Warrant of Distraint and Levy (FNB), which was sent to the residence of one of BC's directors.
On March 19, 2004, BC filed a protest letter citing lack of due process and prescription as grounds.
After 180 days without action on the part of the CIR, BC filed a petition for review with the CTA. Trial
ensued.
The CTA 1D ruled that since the CIR was actually aware of BC's new address and such error in sending
should not be taken against BC. According to the CTA 1D, since there are no valid notices sent to BC, the
subsequent assessments against it are considered void.
CIR filed an MR. It was denied. So, it went to CTA en banc. The CTA En Banc held that CIR's right to
assess respondent for deficiency taxes for the taxable year 1999 has already prescribed and that the FAN
issued to respondent never attained finality because BC did not receive it.
CIR filed an MR. Denied.

ISSUE #1: Was the running of the 3-year prescriptive period to assess suspended when BC failed to
notify the CIR of its change of address?
No, the 3-year prescriptive period to assess was not suspended in favor of the CIR even if BC failed
notify regarding its change of address.
It is true that, under the Tax Code, the running of the Statute of Limitations shall be suspended when the
taxpayer cannot be located in the address given in the return filed upon which a tax is being assessed or
collected. In addition, Section 11 of RR 12-85 states that, in case of change of address, the taxpayer is
required to give a written notice thereof to the RDO or the district having jurisdiction over his former
legal residence and/or place of business.
However, the Supreme Court ruled that the above-mentioned provisions on the suspension of the 3-year
period to assess apply only if the CIR is not aware of the whereabouts of the taxpayer.
In the present case, the CIR, by all indications, was well aware that BC had moved to its new address in
Calamba, Laguna, as shown by the documents which formed part of respondent's records with the BIR.
Moreover, before the FAN was sent to BC's old address, the RDO sent BC a letter regarding the results of
its investigation and an invitation to an information conference. This could not have been done without
being aware of BC's new address. Finally, the PAN was "returned to sender" before the FAN was sent.
Hence, despite the absence of a formal written notice of Bc's change of address, the fact remains that
petitioner became aware of respondent's new address as shown by documents replete in its records. As a
consequence, the running of the three-year period to assess respondent was not suspended and has already
prescribed.
ISSUE #2: Section 3.1.7 of BIR Revenue Regulation No. 12-99 allows "constructive service" if the
assessment notice is served by registered mail. This constructive service rule was upheld in Nava v.
Commissioner of Internal Revenue. Isn't there constructive service in BC's case?
No there is none.
The CIR's reliance on the provisions of Section 3.1.7 of BIR RR No. 12-9944 as well as on the case of
Nava v. Commissioner of Internal Revenue is misplaced, because in the said case, one of the
requirements of a valid assessment notice is that the letter or notice must be properly addressed. It is not
enough that the notice is sent by registered mail as provided under the said RR. In the instant case, the
FAN was sent to the wrong address. Thus, the CTA is correct in holding that the FAN never attained
finality because BC never received it, either actually or constructively.
Philippine Journalists, Inc. v. Commissioner of Internal Revenue, G.R. No. 162852, 16 December 2004
24NOV
[YNARES-SANTIAGO, J.]
FACTS
The Revenue District Office of the Bureau of Internal Revenue (BIR) issued Letter of Authority for
Revenue Officer Federico de Vera, Jr. and Group Supervisor VivencioGapasin to examine petitioner’s
books of account and other accounting records for internal revenue taxes. Revenue District Officer Jaime
Concepcion invited petitioner to send a representative to an informal conference for an opportunity to
object and present documentary evidence relative to the proposed assessment. Petitioner’s
Comptroller, LorenzaTolentino, executed a “Waiver of the Statute of Limitation Under the National
Internal Revenue Code (NIRC)”. Records show that, it did not bear the date of acceptance, that
petitioner was not furnished a copy of the waiver, and the waiver was signed only by the Revenue
District Officer. The tax liability exceeds One Million Pesos (P1,000,000.00).
ISSUE
Whether the waiver is in accordance with RMO No. 20-90 to validly extend the three-year prescriptive
period under the NIRC.
HELD
NO.
The waiver document is incomplete and defective and thus the three-year prescriptive period was not
tolled or extended and continued to run. Consequently, the Assessment/Demand was invalid because it
was issued beyond the three (3) year period. In the same manner, Warrant of Distraint and/or Levy
which petitioner received thereafter is also null and void for having been issued pursuant to an invalid
assessment.
The NIRC, under Sections 203 and 222, provides for a statute of limitations on the assessment and
collection of internal revenue taxes in order to safeguard the interest of the taxpayer against
unreasonable investigation. Unreasonable investigation contemplates cases where the period for
assessment extends indefinitely because this deprives the taxpayer of the assurance that it will no
longer be subjected to further investigation for taxes after the expiration of a reasonable period of time.
A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the
taxpayers’ right to security against prolonged and unscrupulous investigations and must therefore be
carefully and strictly construed. xxx Thus, the law on prescription, being a remedial measure, should be
liberally construed in order to afford such protection.
The waiver is also defective from the government side because it was signed only by a revenue district
officer, not the Commissioner, as mandated by the NIRC and RMO No. 20-90. The waiver is not a
unilateral act by the taxpayer or the BIR, but is a bilateral agreement between two parties to extend the
period to a date certain. The conformity of the BIR must be made by either the Commissioner or the
Revenue District Officer. This case involves taxes amounting to more than One Million Pesos
(P1,000,000.00) and executed almost seven months before the expiration of the three-year prescription
period. For this, RMO No. 20-90 requires the Commissioner of Internal Revenue to sign for the BIR.
Commissioner of Internal Revenue v. Kudos Metal Corporation, G.R. 178087, 05 May 2010

24NOV
[DEL CASTILLO, J.]

FACTS
The CTA En Banc ruled for canceling the assessment notices issued against respondent for having been
issued beyond the prescriptive period. It found the first Waiver of the Statute of Limitations incomplete
and defective for failure to comply with the provisions of Revenue Memorandum Order (RMO) No. 20-
90. Thus: the waiver failed to indicate the date of acceptance. Such date of acceptance is necessary to
determine whether the acceptance was made within the prescriptive period; And, the fact of receipt by
the taxpayer of his file copy was not indicated on the original copy. The requirement to furnish the
taxpayer with a copy of the waiver is not only to give notice of the existence of the document but also of
the acceptance by the BIR and the perfection of the agreement. The subject waiver is therefore
incomplete and defective. As such, the three-year prescriptive period was not tolled or extended and
continued to run.
Petitioner argues that the government’s right to assess taxes is not barred by prescription as the two
waivers executed by respondent, through its accountant, effectively tolled or extended the period
within which the assessment can be made. In disputing the conclusion of the CTA that the waivers are
invalid, petitioner claims that respondent is estopped from adopting a position contrary to what it has
previously taken. Petitioner insists that by acquiescing to the audit during the period specified in the
waivers, respondent led the government to believe that the “delay” in the process would not be utilized
against it. Thus, respondent may no longer repudiate the validity of the waivers and raise the issue of
prescription.Respondent maintains that prescription had set in due to the invalidity of the waivers
executed by Pasco, who executed the same without any written authority from it, in clear violation of
RDAO No. 5-01.
ISSUE
Whether the belated assessment of the CIR is still valid and effective on the ground that respondent is
already in estoppel.
HELD
NO.
Section 203 of the National Internal Revenue Code of 1997 (NIRC) mandates the government to assess
internal revenue taxes within three years from the last day prescribed by law for the filing of the tax
return or the actual date of filing of such return, whichever comes later. Hence, an assessment notice
issued after the three-year prescriptive period is no longer valid and effective. Exceptions however are
provided under Section 222 of the NIRC.
Section 222 (b) of the NIRC provides that the period to assess and collect taxes may only be extended
upon a written agreement between the CIR and the taxpayer executed before the expiration of the
three-year period. RMO 20-90 issued on April 4, 1990 and RDAO 05-01 issued on August 2, 2001 lay
down the procedure for the proper execution of the waiver
Due to the defects in the waivers, the period to assess or collect taxes was not extended. Consequently,
the assessments were issued by the BIR beyond the three-year period and are void.
RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, vs. COMMISSIONER OF

INTERNAL REVENUE, Respondent. G.R. No. 170257 September 7, 2011 THIRD DIVISION
MENDOZA, J.: In the operation of the withholding tax system, the withholding agent is the payor, a
separate entity acting no more than an agent of the government for the collection of the tax in order to
ensure its payments; the payer is the taxpayer – he is the person subject to tax imposed by law; and the
payee is the taxing authority. In other words, the withholding agent is merely a tax collector, not a
taxpayer. Under the withholding system, however, the agent-payor becomes a payee by fiction of law. His
(agent) liability is direct and independent from the taxpayer, because the income tax is still imposed on
and due from the latter. The agent is not liable for the tax as no wealth flowed into him – he earned no
income. The Tax Code only makes the agent personally liable for the tax arising from the breach of its
legal duty to withhold as distinguished from its duty to pay tax since:
"the government’s cause of action against the withholding agent is not for the collection of income tax,
but for the enforcement of the withholding provision of Section 53 of the Tax Code, compliance with
which is imposed on the withholding agent and not upon the taxpayer." FACTS On January 23, 1997,
RCBC executed 2 waivers of Defense of Prescription. Under the statute of limitation of the NIRC
covering the Internal Revenue Taxes due for 1994 and 1995 extending the assessment up to Dec. 31,
2000. January 27, 2000: RCBC received a formal letter of demand together with assessment notices for
deficiency taxes. RCBC filed a Protest and then, a Petition for Review before the CTA pursuant to Sec.
228 of the 1997 Tax Code. Dec. 6, 2000: It again received a letter of demand which drastically reduced
the deficiency tax except from the onshore tax and document stamp tax (DST). RCBC argued the validity
of the waivers for not being signed and for the onshore tax, it should not be primarily liable since it is
only a withholding agent. CTA terminated the assessment for other deficiencies except for the FCDU
shore tax and DST charging 20% deficiency tax. Being denied in CTA en banc, it raised the matter to the
Supreme Court. While the case is pending, the DST deficiency was paid after the BIR approved its
application for abatement. ISSUES Whether or Not the RCBC as payee bank can be held liable for
deficiency on shore tax which is mandatory by law to be collected at source in the form of a final
withholding tax. RULING Petition is denied. As held in Chamber of Real Estate and Builder's
Association Inc. v. Executive Sec., the purpose of the withholding tax system are: 1. to provide the
taxpayer with a convenient way of paying his tax liability 2. to ensure the collection of tax 3. to improve
the governments cashflow. Under the withholding tax system, the payor is the taxpayer upon whom the
tax is imposed, while the withholding agent simply acts as an agent or a collector of the government to
ensure the collection of taxes The liability of the withholding agent is independent from that of the
taxpayer. The former cannot be made liable for the tax due because it is the latter who earned the income
subject to withholding tax. Based on the foregoing, the liability of the withholding agent is independent
from that of the taxpayer. The former cannot be made liable for the tax due because it is the latter who
earned the income subject to withholding tax. The withholding agent is liable only insofar as he failed to
perform his duty to withhold the tax and remit the same to the government. The liability for the tax,
however, remains with the taxpayer because the gain was realized and received by him. While the payor-
borrower can be held accountable for its negligence in performing its duty to withhold the amount of tax
due on the transaction, RCBC, as the taxpayer and the one which earned income on the transaction,
remains liable for the payment of tax as the taxpayer shares the responsibility of making certain that the
tax is properly withheld by the withholding agent, so as to avoid any penalty that may arise from the non-
payment of the withholding tax due. RCBC cannot evade its liability for FCDU Onshore Tax by shifting
the blame on the payor-borrower as the withholding agent.
The CTA, as a specialized court dedicated exclusively to the study and resolution of tax problems, has
developed an expertise on the subject of taxation and shall be accorded the highest respect and shall be
presumed valid, in the absence of any clear and convincing proof to the contrary
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. NEXT MOBILE, INC.

(FORMERLY NEXTEL COMMUNICATIONS PHILS., INC.), Respondent. (G.R. No. 212825,
December 07, 2015)
PRINCIPLE: Section 203 of the 1997 NIRC mandates the BIR to assess internal revenue taxes within 3
years from the last day prescribed by law for the filing of the tax return or the actual date of filing of such
return, whichever comes later. Hence, an assessment notice issued after the three-year prescriptive period
is not valid and effective. Exceptions to this rule are provided under Section 222 of the NIRC.
FACTS: After submission of its returs for the year 2001, NM received a copy of the LOA given by the
BIR to Revenue Officer (RO) NLC, covering January to December of 2001. 5 waivers were signed by
NM's finance director to extend the prescriptive period of assessment.
In 2005, BIR sent NM a Preliminary Assessment Notice (PAN) to which the latter replied. Later, NM
received a Formal Letter of Demand (FLD) to pay various tax deficiencies amounting to 313 million
pesos.
On November 23, 2005, NM filed its protest against the FLD and requested the reinvestigation. BIR
denied the protest. NM filed a Petition for Review before the CTA.
In the CTA, NM argued that the CIR's right to assess NM's deficiency taxes had already prescribed,
invoking the lack of authority on the part of the person who signed the waviers. The CTA ruled in favor
of NM and said that the 5 waivers of the statute of limitations were not valid and binding; thus, the three-
year period of limitation within which to assess deficiency taxes was not extended. It also held that the
records belie the allegation that respondent filed false and fraudulent tax returns; thus, the extension of the
period of limitation from 3 to 10 years does not apply.
ISSUE #1: Had the CIR's right to assess respondent's deficiency taxes already prescribed?
No, the CIR's right to assess NM's deficiency taxes had NOT yet prescribed.
Section 222(b) of the NIRC provides that the period to assess and collect taxes may only be extended
upon a written agreement between the CIR and the taxpayer executed before the expiration of the three-
year period. This is a waiver.
RMO No. 20-90 and RDAO 05-01 must be strictly complied with in order for such a waver to be valid.
Thus, a waiver of assessment period is invalid if, for example:
[1] It does not specify a definite agreed date between the BIR and the taxpayer within which the former
may assess and collect revenue taxes;
[2] It has been signed only by a revenue district officer, not the Commissioner;
[3] It has no date of acceptance;
[4] The taxpayer was not furnished a copy of the BIR-accepted waiver;
[5] The person who executed the waivers had no notarized written board authority to sign the waivers in
behalf of the corporation; or
[6] The fact of receipt by the taxpayer of its file copy was not indicated in the original copies of the
waivers.
In this case, both are at fault because NM deliberately executed defective waivers and raised the same
problem to avoid its tax liablity. On the other hand, the BIR's negligence or failure to comply with the
abovementioned regulations is so gross that it amounts to malice and bad faith.
Although it is true that waivers of this kind must be carefully and strictly construed because they are in
derogation of the taxpayer's right to security against prolonged and unscrupulous investigations, there are
5 reasons why the CTA's decision should be reversed.
[1] The parties in this case are in pari delicto or "in equal fault." In pari delicto connotes that the two
parties to a controversy are equally culpable or guilty and they shall have no action against each other.
[2] To uphold the validity of the waivers parties must come to court with clean handswould be consistent
with the public policy embodied in the principle that taxes are the lifeblood of the government.
[3] Parties must come to court with clean hands. NM should not be allowed to benefit from the defects in
its own waivers.
[4] NM is estopped from questioning the validity of its own waivers. It allowed the government to rely on
the defective waivers without raising them as soon as possible. In fact, in its protest, it did not mention
this.
[5] Finally, this is a highly suspicious situation. The BIR miserably failed to exact from NM compliance
with its own rules while NM raised the same invalidity it caused to avoid its tax liability. Such a situation
is dangerous and open to abuse by unscrupulous taxpayers who intend to escape their responsibility to
pay taxes by mere expedient of hiding behind technicalities.
ISSUE #2: Is the 10-year period of limitation for assessments of false and fraudulent returns applicable in
this case?
No, the longer 10-year period is not applicable. Applicable is the normal 3-year period.
Records failed to establish, even by prima facie evidence, that NM filed false and fraudulent returns on
the ground of substantial under-declaration of income in respondent Next Mobile's Annual ITR for
taxable year ending December 31, 2001.
SUMMARY: Next Mobile (NM) lost the case. The CIR succeeded in convincing the Supreme Court that
the CTA was wrong in invalidating the waivers.
COMMISSIONER OF INTERNAL REVENUE versus TRANSITIONS OPTICAL PHILIPPINES, INC.

DOCTRINE: Estoppel applies against a taxpayer who did not only raise at the earliest opportunity its
representative's lack of authority to execute two (2) waivers of defense of prescription, but was also
accorded, through these waivers, more time to comply with the audit requirements of the Bureau of
Internal Revenue. Nonetheless, a tax assessment served beyond the extended period is void. FACTS: On
April 28, 2006, Transitions Optical received Letter of Authority No. 00098746 dated March 23, 2006
from Revenue Region No. 9, San Pablo City, of the Bureau of Internal Revenue. It was signed by then
Officer-in-Charge-Regional Director Corazon C. Pangcog and it authorized Revenue Officers Jocelyn
Santos and Levi Visaya to examine Transition Optical's books of accounts for intenul revenue tax
purposes for taxable year 2004. On October 9, 2007, the parties allegedly executed a Waiver of the
Defense of Prescription (First Waiver). In this supposed First Waiver, the prescriptive period for the
assessment of Transition Optical 's internal revenue taxes for the year 2004 was extended to June 20,
2008. The document was signed by Transitions Optical 's Finance Manager, Pamela Theresa D. Abad,
and by Bureau of Internal Revenue's Revenue District Officer, Myrna S. Leonida. This was followed by
another supposed Waiver of the Defense of Prescription (Second Waiver) dated June 2, 2008. This time,
the prescriptive period was supposedly extended to November 30, 2008. Thereafter, the Commissioner of
Internal Revenue, through Regional Director Jaime B. Santiago (Director Santiago), issued a Preliminary
Assessment Notice (PAN) dated November 11, 2008, assessing Transitions Optical for its deficiency
taxes for taxable year 2004. Transitions Optical filed a written protest on November 26, 2008. The
Commissioner of Internal Revenue, again through Director Santiago, subsequently issued against
Transitions Optical a Final Assessment Notice (FAN) and a Formal Letter of Demand (FLD) dated
November 28, 2008 for deficiency income tax, value-added tax, expanded withholding tax, and final tax
for taxable year 2004 amounting to P19, 701,849.68. In its Protest Letter dated December 8, 2008 against
the FAN, Transitions Optical alleged that the demand for deficiency taxes had already prescribed at the
time the FAN was mailed on December 2, 2008. ISSUES:
1. WON the two (2) Waivers of the Defense of Prescription entered into by the parties on October 9, 2007
and June 2, 2008 were valid. YES. 2. WON the assessment of deficiency taxes against respondent
Transitions Optical Philippines, Inc. for taxable year 2004 had prescribed. YES. RULING: 1. As a
general rule, petitioner has three (3) years to assess taxpayers from the filing of the return. An exception
to the rule of prescription is found in Section 222(b) and (d) of this Code, viz: Section 222. Exceptions as
to Period of Limitation of Assessment and Collection of Taxes.... (b) If before the expiration of the time
prescribed in Section 203 for the assessment of the tax, both the Commissioner and the taxpayer have
agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon.
The period so agreed upon may be extended by subsequent written agreement made before the expiration
of the period previously agreed upon. .... (d) Any intemal revenue tax, which has been assessed within the
period agreed upon as provided in paragraph (b) hereinabove, may be collected by distraint or levy or by
a proceeding in court within the period agreed upon in writing before the expiration of the five (5) year
period. The period so agreed upon may be extended by subsequent written agreements made before the
expiration of the period previously agreed upon. Thus, the period to assess and collect taxes may be
extended upon the Commissioner of Internal Revenue and the taxpayer's written agreement, executed
before the expiration of the three (3) year period. In this case, two (2) waivers were supposedly executed
by the parties extending the prescriptive periods for assessment of income tax, value-added tax, and
expanded and final withholding taxes to June 20, 2008, and then to November 30, 2008. Estoppel applies
in this case. Indeed, the Bureau of Internal Revenue was at fault when it accepted respondent's Waivers
despite their non-compliance with the requirements of RMO No. 20-90 and RDAO No. 05-01.
Nonetheless, respondent's acts also show its implied admission of the validity of the waivers. First,
respondent never raised the invalidity of the Waivers at the earliest opportunity, either in its Protest to the
PAN, Protest to the FAN, or Supplemental Protest to the FAN. It thereby impliedly recognized these
Waivers' validity and its representatives' authority to execute them.
Respondent only raised the issue of these Waivers' validity in its Petition for Review filed with the Court
of Tax Appeals. Second, respondent does not dispute petitioner's assertion that respondent repeatedly
failed to comply with petitioner's notices, directing it to submit its books of accounts and related records
for examination by the Bureau of Internal Revenue. Respondent also ignored the Bureau of Internal
Revenue's request for an Informal Conference to discuss other "discrepancies" found in the partial
documents submitted. The Waivers were necessary to give respondent time to fully comply with the
Bureau of Internal Revenue notices for audit examination and to respond to its Informal Conference
request to discuss the discrepancies. Thus, having benefitted from the Waivers executed at its instance,
respondent is estopped from claiming that they were invalid and that prescription had set in. 2. But, even
as respondent is estopped from questioning the validity of the Waivers, the assessment is nonetheless void
because it was served beyond the supposedly extended period. The First Division of the Court of Tax
Appeals found that "the date indicated in the envelope/mail matter containing the FAN and the FLD is
December 4, 2008, which is considered as the date of their mailing. Since the validity period of the
second Waiver is only until November 30, 2008, prescription had already set in at the time the FAN and
the FLD were actually mailed on December 4, 2008. For lack of adequate supporting evidence, the Court
of Tax Appeals rejected petitioner's claim that the FAN and the FLD were already delivered to the post
office for mailing on November 28, 2008 but were actually processed by the post office on December 2,
2008, since December 1, 2008 was declared a Special Holiday. This Court finds no clear and convincing
reason to overturn these factual findings of the Court of Tax Appeals. WHEREFORE, the Petition is
DENIED. NOTE: Considering the functions and effects of a PAN vis a vis a FAN, it is clear that the
assessment contemplated in Sections 203 and 222 of the National Intenial Revenue Code refors to the
service of the FAN upon the taxpayer. A PAN merely informs the taxpayer of the initial findings of the
Bureau of Internal Revenue. It contains the proposed assessment, and the facts, law, rules, and regulations
or jurisprudence on which the proposed assessment is based. It does not contain a demand for payment
but usually requires the taxpayer to reply within 15 days from receipt. Otherwise, the Commissioner of
Internal Revenue will finalize an assessment and issue a FAN. The PAN is a part of due process. It gives
both the taxpayer and the Commissioner of Internal Revenue the opportunity to settle the case at the
earliest possible time without the need for the issuance of a FAN.
On the other hand, a FAN contains not only a computation of tax liabilities but also a demand for
payment within a prescribed period. As soon as it is served, an obligation arises on the part of the
taxpayer concerned to pay the amount assessed and demanded. It also signals the time when penalties and
interests begin to accrue against the taxpayer. Failure to file an administrative protest within 30 days from
receipt of the FAN will render the assessment final, executory, and demandable.
Asian Transmission Corporation vs. CIR (2018) Petitioners: ASIAN TRANSMISSION CORPORATION
(ATC) Respondents: COMMISSIONER OF INTERNAL REVENUE Ponente: Bersamin (First Division)
Topic: Taxation SUMMARY: ATC executed waivers of the defense of prescription. After a Formal
Letter of Demand for deficiency, ATC assailed the validity of the waivers. Despite non-compliance with
the requisites for waiver, the Court nevertheless held that the waivers were valid, hence prescription
cannot be invoked. DOCTRINE: In Commissioner of Internal Revenue v. Next Mobile Inc., the Court
declared that as a general rule a waiver that did not comply with the requisites for validity specified in
RMO No. 20-90 and RDAO 01-05 was invalid and ineffective to extend the prescriptive period to assess
the deficiency taxes. However, due to peculiar circumstances obtaining, the Court treated the case as an
exception to the rule, and considered the waivers concerned as valid for the following reasons: First, the
parties in this case are in pari delicto or "in equal fault." In pari delicto connotes that the two parties to a
controversy are equally culpable or guilty and they shall have no action against each other. However,
although the parties are in pari delicto, the Court may interfere and grant relief at the suit of one of them,
where public policy requires its intervention, even though the result may be that a benefit will be derived
by one party who is in equal guilt with the other. Here, to uphold the validity of the Waivers would be
consistent with the public policy embodied in the principle that taxes are the lifeblood of the government,
and their prompt and certain availability is an imperious need. Taxes are the nation's lifeblood through
which government agencies continue to operate and which the State discharges its functions for the
welfare of its constituents. As between the parties, it would be more equitable if petitioner's lapses were
allowed to pass and consequently uphold the Waivers in order to support this principle and public policy.
Second, the Court has repeatedly pronounced that parties must come to court with clean hands. Parties
who do not come to court with clean hands cannot be allowed to benefit from their own wrongdoing.
Following the foregoing principle, respondent should not be allowed to benefit from the flaws in its own
Waivers and successfully insist on their invalidity in order to evade its responsibility to pay taxes. Third,
respondent is estopped from questioning the validity of its Waivers. While it is true that the Court has
repeatedly held that the doctrine of estoppel must be sparingly applied as an exception to the statute of
limitations for assessment of taxes, the Court finds that the application of the doctrine is justified in this
case. Verily, the application of estoppel in this case would promote the administration of the law, prevent
injustice and avert the accomplishment of a wrong and undue advantage. Respondent executed five
Waivers and delivered them to petitioner, one after the other. It allowed petitioner to rely on them and did
not raise any objection against their validity until petitioner assessed taxes and penalties against it.
Moreover, the application of estoppel is necessary to prevent the undue injury that the government would
suffer because of the cancellation of petitioner's assessment of respondent's tax liabilities. Finally, the
Court cannot tolerate this highly suspicious situation. In this case, the taxpayer, on the one hand, after
voluntarily executing waivers, insisted on their invalidity by raising the very same defects it caused. On
the other hand, the BIR miserably failed to exact from respondent compliance with its rules. The BIR's
negligence in the performance of its duties was so gross that it amounted to malice and bad faith.
Moreover, the BIR was so lax such that it seemed that it consented to the mistakes in the Waivers. Such a
situation is dangerous and open to abuse by unscrupulous taxpayers who intend to escape their
responsibility to pay taxes by mere expedient of hiding behind technicalities. It is true that petitioner was
also at fault here because it was careless in complying with the requirements of RMO No. 20-90 and
RDAO 01-05. Nevertheless, petitioner's negligence may be addressed by enforcing the provisions
imposing administrative liabilities upon the officers responsible for these errors. The BIR's right to assess
and collect taxes should not be jeopardized merely because of the mistakes and lapses of its officers,
especially in cases like this where the taxpayer is obviously in bad faith. FACTS: ATC is a manufacturer
of motor vehicle transmission component parts and engines of Mitsubishi vehicles. On January 3, 2003
and March 3, 2003, ATC filed its Annual Information Return of Income Taxes Withheld on
Compensation and Final Withholding Taxes and Annual Information Return of Creditable Income Taxed
Withheld (Expanded)/Income Payments Exempt from Withholding Tax, respectively. On August 11,
2004, ATC received Letter of Authority [(LOA)] No. 200000003557 where [the CIR] informed ATC that
its revenue officers from the Large Taxpayers Audit and Investigation Division II shall examine its books
of accounts and other accounting records for the taxable year 2002. Thereafter, [the CIR] issued a
Preliminary Assessment Notice (PAN) to ATC. Consequently, on various dates, ATC, through its Vice
President for Personnel and Legal Affairs, Mr. Roderick M. Tan, executed several documents
denominated as "Waiver of the Defense of Prescription Under the Statute of Limitations of the National
Internal Revenue Code". Meanwhile, on February 28, 2008, ATC availed of the Tax Amnesty [P]rogram
under Republic Act No. 9480. On July 15, 2008, ATC received a Formal Letter of Demand from [the]
CIR for deficiency [WTC] in the amount of P[hp]62,977,798.02, [EWT] in the amount of
P[hp]6,916,910.51, [FWT] in the amount of P[hp]501,077.72. On August 14, 2008, ATC filed its Protest
Letter in regard thereto. Accordingly, on April 14, 2009, ATC received the Final Decision on Disputed
Assessment where [the] CIR found ATC liable to pay deficiency tax in the amount of
P[hp]75,696,616.75. Thus, on May 14, 2009, ATC filed an appeal letter/request for reconsideration with
[the] CIR. On April 10, 2012, ATC received the Decision of [the] CIR dated November 15, 2011,
denying its request for reconsideration. As such, on April 23, 2012, ATC filed the instant Petition for
Review (with Application for Preliminary Injunction and Temporary Restraining Order). On November
28, 2014, the CTA in Division rendered its decision granting the petition for review of ATC. It held that
ATC was not estopped from raising the invalidity of the waivers inasmuch as the Bureau of Internal
Revenue (BIR) had itself caused the defects thereof. On August 9, 2016, the CTA En Banc promulgated
the assailed decision reversing and setting aside the decision of the CTA in Division, and holding that the
waivers were valid. It observed that the CIR's right to assess deficiency withholding taxes for CY 2002
against ATC had not yet prescribed. ISSUES: WoN the waivers executed by ATC are valid o YES. In
this case, the CTA in Division noted that the eight waivers of ATC contained the following defects, to
wit:  1. The notarization of the Waivers was not in accordance with the 2004 Rules on Notarial Practice;
 2. Several waivers clearly failed to indicate the date of acceptance by the Bureau of Internal Revenue;
 3. The Waivers were not signed by the proper revenue officer; and  4. The Waivers failed to specify
the type of tax and the amount of tax due. o We agree with the holding of the CTA En Banc that ATC's
case was similar to the case of the taxpayer involved in Commissioner of Internal Revenue v. Next
Mobile Inc. The foregoing defects noted in the waivers of ATC were not solely attributable to the CIR.
Indeed, although RDAO 01- 05 stated that the waiver should not be accepted by the concerned BIR office
or official unless duly notarized, a careful reading of RDAO 01-05 indicates that the proper preparation of
the waiver was primarily the responsibility of the taxpayer or its authorized representative signing the
waiver. Such responsibility did not pertain to the BIR as the receiving party. Consequently, ATC was not
correct in insisting that the act or omission giving rise to the defects of the waivers should be ascribed
solely to the respondent CIR and her subordinates. o Moreover, the principle of estoppel was applicable.
The execution of the waivers was to the advantage of ATC because the waivers would provide to ATC
the sufficient time to gather and produce voluminous records for the audit. It would really be unfair,
therefore, were ATC to be permitted to assail the waivers only after the final assessment proved to be
adverse. o Thus, the CTA En Banc did not err in ruling that ATC, after having benefitted from the
defective waivers, should not be allowed to assail them. In short, the CTA En Banc properly applied the
equitable principles of in pari delicto, unclean hands, and estoppel as enunciated in Commissioner of
Internal Revenue v. Next Mobile case. NOTES: Petition for review on certiorari DENIED.
Commissioner of Internal Revenue vs. Metro Star Superama, Inc. (December 8, 2010) On January 26,
2011, a Letter of Authority was issued for the examination Metro Star Superama Inc.’s (Metro Star)
books of accounts and other accounting records for income tax and other internal revenue taxes for the
taxable year 1999. For Metro Star’s failure to comply with several requests for the presentation of records
and Subpoena Duces Tecum, an Indorsement dated September 26, 2001 was issued informing Revenue
District Officer of Legazpi City to proceed with the investigation based on the best evidence obtainable
preparatory to the issuance of assessment notice. On November 8, 2001, a Preliminary 15-day Letter,
which Metro Star received on November 9, 2001, was issued stating that a post audit review was held and
it was ascertained that there was deficiency value-added and withholding taxes due from Metro Star. On
April 11, 2002, Metro Star received a Formal Letter of Demand dated April 3, 2002 assessing it an
amount for deficiency value-added and withholding taxes for the taxable year 1999. Subsequently, a Final
Notice of Seizure dated May 12, 2003 was sent to Metro Star, which it received on May 15, 2003, giving
it the last opportunity to settle its deficiency tax liabilities within 10 days from receipt thereof. On
February 6, 2004, Metro Star received a Warrant of Distraint/Levy dated May 12, 2003 demanding
payment of deficiency value-added tax and withholding tax payment. On July 30, 2004, Metro Star filed
with the Office of the CIR a MR which was denied. Denying that it received a Preliminary Assessment
Notice (PAN) and claiming that it was not accorded with due process, Metro Star filed a petition for
review with the CTA. The CTA-Second Division granted Metro Star’s petition for review. A
reconsideration was sought by the CIR but it was denied. On appeal to the CTA-En Banc, the petition was
dismissed. ISSUE: Whether failure to send the PAN would render the assessment null and void HELD:
On the matter of service of a tax assessment, a further perusal of our ruling in Barcelon is instructive, viz:
Jurisprudence is replete with cases holding that if the taxpayer denies ever having received an assessment
from the BIR, it is incumbent upon the latter to prove by competent evidence that such notice was indeed
received by the addressee. The onus probandi was shifted to respondent to prove by contrary evidence
that the Petitioner received the assessment in the due course of mail. The Supreme Court has consistently
held that while a mailed letter is deemed received by the addressee
in the course of mail, this is merely a disputable presumption subject to controversion and a direct denial
thereof shifts the burden to the party favored by the presumption to prove that the mailed letter was
indeed received by the addressee (Republic vs. Court of Appeals, 149 SCRA 351). The Court agrees with
the CTA that the CIR failed to discharge its duty and present any evidence to show that Metro Star indeed
received the PAN dated January 16, 2002. It could have simply presented the registry receipt or the
certification from the postmaster that it mailed the PAN, but failed. Neither did it offer any explanation on
why it failed to comply with the requirement of service of the PAN. Indeed, Section 228 of the Tax Code
clearly requires that the taxpayer must first be informed that he is liable for deficiency taxes through the
sending of a PAN. He must be informed of the facts and the law upon which the assessment is made. The
law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection
without first establishing a valid assessment is evidently violative of the cardinal principle in
administrative investigations - that taxpayers should be able to present their case and adduce supporting
evidence. This is confirmed under the provisions R.R. No. 12-99 of the BIR which pertinently provide:
xxx 3.1.2 Preliminary Assessment Notice (PAN). - If after review and evaluation by the Assessment
Division or by the Commissioner or his duly authorized representative, as the case may be, it is
determined that there exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said
Office shall issue to the taxpayer, at least by registered mail, a Preliminary Assessment Notice (PAN) for
the proposed assessment, showing in detail, the facts and the law, rules and regulations, or jurisprudence
on which the proposed assessment is based (see illustration in ANNEX A hereof). If the taxpayer fails to
respond within fifteen (15) days from date of receipt of the PAN, he shall be considered in default, in
which case, a formal letter of demand and assessment notice shall be caused to be issued by the said
Office, calling for payment of the taxpayer's deficiency tax liability, inclusive of the applicable penalties.
From the provision quoted above, it is clear that the sending of a PAN to taxpayer to inform him of the
assessment made is but part of the “due process requirement in the issuance of a deficiency tax
assessment,” the absence of which renders nugatory any assessment made by the tax authorities. The use
of the word “shall” in subsection 3.1.2 describes the mandatory nature of the service of a PAN. The
persuasiveness of the right to due process reaches both substantial and procedural rights and the failure of
the CIR to strictly comply with the
requirements laid down by law and its own rules is a denial of Metro Star’s right to due process. Thus, for
its failure to send the PAN stating the facts and the law on which the assessment was made as required by
Section 228 of R.A. No. 8424, the assessment made by the CIR is void.
COMMISSIONER OF INTERNAL REVENUE vs. ASALUS CORPORATION

February 22, 2017
GR No. 221590
FACTS:
On December 16, 2010, respondent Asalus Corporation (Asalus) received a Notice of Informal
Conference from Revenue District Office No. 47 of the Bureau of Internal Revenue (BIR). It was in
connection with the investigation conducted by Revenue Officer Fidel M. Bañares II on the Value-Added
Tax transactions of Asalus for the taxable year 2007. Asalus filed its Letter-Reply, dated December 29,
2010, questioning the basis of Bañares' computation for its VAT liability.
On January 10, 2011, petitioner Commissioner of Internal Revenue issued the Preliminary Assessment
Notice finding Asalus liable for deficiency VAT for 2007 in the aggregate amount of P413,378,058.11.
On August 26, 2011, Asalus received the Formal Assessment Notice stating that it was liable for
deficiency VAT for 2007 in the total amount of P95,681,988.64, inclusive of surcharge and interest.
Consequently, it filed its protest against the FAN, dated September 6, 2011.
On October 16, 2012, Asalus received the Final Decision on Disputed Assessment showing VAT
deficiency for 2007 in the aggregate amount of P106,761,025.17, inclusive of surcharge and interest and
P25,000.00 as compromise penalty. As a result, it filed a petition for review before the CTA Division.
In its April 2, 2014 Decision, the CTA Division ruled that the VAT assessment issued on August 26, 2011
had prescribed and consequently deemed invalid.
ISSUE:
WHETHER OR NOT the CTA erred in the decision and that the petition be granted in favor of the
petitioner.
HELD:
The statement given by the CTA were correct in a way, and it was given due respect for they found it
partly correct but, after a review of the records and applicable laws and jurisprudence, the Court finds that
the CTA erred in concluding that the assessment against Asalus had prescribed. Internal revenue taxes
shall be assessed within three years after the last day prescribed by law for the filing of the return, or
where the return is filed beyond the period, from the day the return was actually filed. Section 222 of the
NIRC, however, provides for exceptions to the general rule. It states that in the case of a false or
fraudulent return with intent to evade tax or of failure to file a return, the assessment may be made within
ten years from the discovery of the falsity, fraud or omission.
In the oft-cited Aznar v. CTA, the Court compared a false return to a fraudulent return in relation to the
applicable prescriptive periods for assessments, to wit:
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."
WHEREFORE, petition is GRANTED. The July 30, 2015 Decision and the November 6, 2015
Resolution of the Court of Tax Appeals En Banc are REVERSED and SET ASIDE. The case is ordered
REMANDED to the Court of Tax Appeals for the determination of the Value Added Tax liabilities of the
Asalus Corporation.

Facts:
omission.
Issue:
Ruling:
No.
Samar-I Electric CooperativeGR No 193100, December 10, 2014

FACTS:Samar-I Electric Cooperative, Inc. (Petitioner) is an electric cooperative, with principal office at
Barangay Carayman, Calbayog City.July 13, 1999 and April 17, 2000 Petitioner filed its 1998 and 1999
income tax returns, respectively. Petitioner filed its 1997, 1998, and 1999 Annual Information Return of
Income Tax Withheld on Compensation, Expanded and Final Withholding Taxes on February 17, 1998,
February 1, 1999, and February 4, 2000, in that order.November 13, 2000 - respondent issued a duly
signed Letter of Authority (LOA) No. 1998 00023803.Petitioner cooperated in the audit and investigation
conducted by the Special Investigation Division of the BIR by submitting the required documents on
December 5, 2000.October 19, 2001 -Respondent sent a Notice for Informal Conference which was
received by petitioner in November 2001; indicating the allegedly income and withholding tax liabilities
of petitioner for 1997 to 1999.In response, petitioner sent a letter dated November 26, 2001 to respondent
maintaining its indifference to the latters findings and requesting details of the assessment.December 13,
2001 Petitioner executed a Waiver of the Defense of Prescription under the Statute of Limitations, good
until March 29, 2002.February 28, 2002 - Respondent issued a Preliminary Assessment Notice (PAN).
The PAN was received by petitioner on April 9, 2002, which was protested on April 18, 2002.July 8,
2002 -Respondent dismissed petitioners protest and recommended the issuance of a Final Assessment
NoticeSeptember 15, 2002 -Petitioner received a demand letter and assessments notices (Final
Assessment Notices) for the alleged 1997, 1998, and 1999 deficiency withholding tax in the amount of
[P]3,760,225.69, as well as deficiency income tax covering the years 1998 to 1999 in the amount of
[P]440,545.71, or in the aggregate amount of [P]4,200,771.40.April 10, 2003 Final Decision on Disputed
Assessment, petitioner was still held liable for the alleged tax liabilities
DECISION OF LOWER COURT:(1) CTA First Division - ordered petitioner to pay CIR deficiency
withholding tax on compensation in the aggregate amount of P2,690,850.91
ISSUE:whether the 1997 and 1998 assessments on withholding tax on compensation were issued within
the prescriptive period provided by law; and whether the assessments were issued in accordance with
Section 228 of the NIRC of 1997.RULING:Yes.
SEC. 203. Period of Limitation Upon Assessment and Collection. Except as provided in Section 222,
internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the
filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be
begun after the expiration of such period: Provided, That in a case where a return is filed beyond the
period prescribed by law, the three (3)-year period shall be counted from the day the return was filed. For
purposes of this Section, a return filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day.Section 203 sets the three-year prescriptive period to assess, the
following exceptions are provided under Section 222 of the NIRC of 1997, viz.:SEC. 222. Exceptions as
to Period of Limitation of Assessment and Collection of Taxes. (a) In the case of a false or fraudulent
return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in
court for the collection of such tax may be filed without assessment, at any time within ten (10) years
after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which has
become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof.(b) If before the expiration of the time prescribed in Section 203
for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its
assessment after such time, the tax may be assessed within the period agreed upon. The period so agreed
upon may be extended by subsequent written agreement made before the expiration of the period
previously agreed upon.(c) Any internal revenue tax which has been assessed within the period of
limitation as prescribed in paragraph (a) hereof may be collected by distraint or levy or by a proceeding in
court within five (5) years following the assessment of the tax.(d) Any internal revenue tax, which has
been assessed within the period agreed upon as provided in paragraph (b) hereinabove, may be collected
by distraint or levy or by a proceeding in court within the period agreed upon in writing before the
expiration of the five (5)-year period. The period so agreed upon may be extended by subsequent written
agreements made before the expiration of the period previously agreed upon.(e) Provided, however, That
nothing in the immediately preceding Section and paragraph (a) hereof shall be construed to authorize the
examination and investigation or inquiry into any tax return filed in accordance with the provisions of any
tax amnesty law or decree. (Emphasis supplied.)
it was petitioners substantial underdeclaration of withholding taxes in the amount of P2,690,850.91 which
constituted the falsity in the subject returns giving respondent the benefit of the period under Section 222
of the NIRC of 1997 to assess the correct amount of tax at any time within ten (10) years after the
discovery of the falsity, fraud or omission.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.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.SEC. 228. Protesting of Assessment. x
xxxxx xThe taxpayers shall be informed in writing of the law and the facts on which the assessment is
made: otherwise, the assessment shall be void.
3.1.4 Formal Letter of Demand and Assessment Notice. The formal letter of demand and assessment
notice shall be issued by the Commissioner or his duly authorized representative. The letter of demand
calling for payment of the taxpayers deficiency tax or taxes shall state the facts, the law, rules and
regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of demand
and assessment notice shall be void. The same shall be sent to the taxpayer only by registered mail or by
personal delivery. x xx
Both Section 228 of the NIRC of 1997 and Section 3.1.4 of RR No. 12-99 clearly require the written
details on the nature, factual and legal bases of the subject deficiency tax assessments.Considering the
foregoing exchange of correspondence and documents between the parties, we find that the requirement
of Section 228 was substantially complied with. Respondent had fully informed petitioner in writing of
the factual and legal bases of the deficiency taxes assessment, which enabled the latter to file an
"effective" protest, much unlike the taxpayer's situation in Enron. Petitioner's right to due process was
thus not violated.

CIR VS AVON G.R. Nos. 201418-19 October 3, 2018 FACTS: Avon filed its VAT Returns and Monthly
Remittance Returns of Income Tax Withheld for the taxable year 1999. They were served a Collection
Letter requiring them to pay P80, 246,459.15. These deficiency assessments were the same deficiency
taxes covered by the Preliminary Assessment Notice. Hence, Avon filed a letter protesting against the
PAN. Without ruling on Avon's protest, the Commissioner prepared the Formal Letter of Demand and
Final Assessment Notices. Avon then protested by resubmitting the protest. Avon informed the revenue
officers that all the documents necessary to support its defenses had already been submitted. The revenue
officers allegedly expressed that they would cancel the assessments resulting from the alleged
discrepancy in sales if Avon would pay part of the assessments. Avon paid the portions of the Final
Assessment Notices. However, in a Memorandum, the Bureau of Internal Revenue's officers
recommended the enforcement and collection of the assessments on the sole justification that Avon failed
to submit supporting documents within the 60-day period as required under Section 228 of the Tax Code.
Avon asserted that the items already paid were still included in the deficiency tax assessments. Avon
requested the reconsideration and withdrawal of the Collection Letter. It argued that it was devoid of legal
and factual basis, and was premature as the Commissioner of Internal Revenue had not yet acted on its
protest against the Final Assessment Notices. The Commissioner did not act on Avon's request for
reconsideration. Thus, Avon was constrained to treat the Collection Letter as denial of its protest. Avon
filed a Petition for Review before the Court of Tax Appeals. The CTA partially granted Avon's insofar as
it ordered the cancellation of the Final Demand and Final Assessment Notices for deficiency excise tax,
VAT, withholding tax on compensation, and expanded withholding tax. However, it ordered Avon to pay
deficiency income tax. The CTA also made a pronouncement that there was no deprivation of due process
in the issuance by the CIR of the assessment for AVON was afforded an opportunity to explain and
present its evidence. The Court of Tax Appeals En Banc further affirmed the Court of Tax Appeals
Special First Division's factual findings with regard to the cancellation of deficiency tax assessments and
disallowance of Avon's claimed tax credits. Finally, the Court of Tax Appeals En Banc rejected Avon's
contention regarding denial of due process. It held that Avon was accorded by the Commissioner a
reasonable opportunity to explain and present evidence. Moreover, the Commissioner's failure to
appreciate Avon's supporting documents and arguments did not ipso facto amount to denial of due
process absent any proof of irregularity in the performance of duties. Avon argues that the assessments
are void ab initio due to the failure of the Commissioner to observe due process. It maintains that from the
start up to the end of the administrative process, the Commissioner ignored all of its protests and
submissions.
ISSUE: Whether or not the Commissioner of Internal Revenue failed to observe administrative due
process, and consequently, whether or not the assessments are void. RULING: Avon's arguments are
well-taken. The Bureau of Internal Revenue is the primary agency tasked to assess and collect proper
taxes, and to administer and enforce the Tax Code. However, these powers must "be exercised reasonably
and [under] the prescribed procedure." The Commissioner and revenue officers must strictly comply with
the requirements of the law, with the Bureau of Internal Revenue's own rules, and with due regard to
taxpayers' constitutional rights. The Commissioner exercises administrative adjudicatory power or quasi-
judicial function in adjudicating the rights and liabilities of persons. Quasi-judicial power has been
described as: the power of the administrative agency to adjudicate the rights of persons before it. In
carrying out these quasi-judicial functions, the Commissioner is required to "investigate facts or ascertain
the existence of facts, hold hearings, weigh evidence, and draw conclusions from them as basis for their
official action and exercise of discretion in a judicial nature." Tax investigation and assessment
necessarily demand the observance of due process because they affect the proprietary rights of specific
persons. In Ang Tibay v. The Court of Industrial Relations, this Court observed that although
quasijudicial agencies "may be said to be free from the rigidity of certain procedural requirements[, it]
does not mean that it can, in justiciable cases coming before it, entirely ignore or disregard the
fundamental and essential requirements of due process in trials and investigations of an administrative
character." It then enumerated the fundamental requirements of due process that must be respected in
administrative proceedings: 1. The party interested or affected must be able to present his or her own case
and submit evidence in support of it. 2. The administrative tribunal or body must consider the evidence
presented. 3. There must be evidence supporting the tribunal's decision. 4. The evidence must be
substantial or "such relevant evidence as a reasonable mind might accept as adequate to support a
conclusion." 5. The administrative tribunal's decision must be rendered on the evidence presented, or at
least contained in the record and disclosed to the parties affected. 6. The administrative tribunal's decision
must be based on the deciding authority's own independent consideration of the law and facts governing
the case. 7. The administrative tribunal's decision is rendered in a manner that the parties may know the
various issues involved and the reasons for the decision. The first requirement is the party's substantive
right at the hearing stage of the proceedings, which, in essence, is the opportunity to explain one's side or
to seek a reconsideration of the adverse action or ruling.
It was emphasized, however, that the mere filing of a motion for reconsideration does not always result in
curing the due process defect, "especially if the motion was filed precisely to raise the issue of violation
of the right to due process and the lack of opportunity to be heard on the merits remained." The second to
the sixth requirements refer to the party's "inviolable rights applicable at the deliberative stage." The
decision-maker must consider the totality of the evidence presented as he or she decides the case. The last
requirement relating to the form and substance of the decision is the decisionmaker's '"duty to give reason'
to enable the affected person to understand how the rule of fairness has been administered in his [or her]
case, to expose the reason to public scrutiny and criticism, and to ensure that the decision will be thought
through by the decisionmaker." The Ang Tibay safeguards were subsequently "simplified into four basic
rights," as follows: (a) [T]he right to notice, be it actual or constructive, of the institution of the
proceedings that may affect a person's legal right; (b) reasonable opportunity to appear and defend his
rights and to introduce witnesses and relevant evidence in his favor; (c) a tribunal so constituted as to give
him reasonable assurance of honesty and impartiality, and one of competent jurisdiction; and (d) a finding
or decision by that tribunal supported by substantial evidence presented at the hearing or at least
ascertained in the records or disclosed to the parties. The due process requirement before administrative
bodies are not as strict compared to judicial tribunals in that it suffices that a party is given a reasonable
opportunity to be heard. Nevertheless, such "reasonable opportunity" should not be confined to the mere
submission of position papers and/or affidavits and the parties must be given the opportunity to examine
the witnesses against them. The right to a hearing is a right which may be invoked by the parties to thresh
out substantial factual issues. It becomes even more imperative when the rules itself of the administrative
body provides for one. While the absence of a formal hearing does not necessarily result in the
deprivation of due process, it should be acceptable only when the party does not invoke the said right or
waives the same. "[A] fair and reasonable opportunity to explain one's side" is one aspect of due process.
Another aspect is the due consideration given by the decision-maker to the arguments and evidence
submitted by the affected party. Administrative due process is anchored on fairness and equity in
procedure. It is satisfied if the party is properly notified of the charge against it and is given a fair and
reasonable opportunity to explain or defend itself. Moreover, it demands that the party's defenses be
considered by the administrative body in making its conclusions, and that the party be sufficiently
informed of the reasons for its conclusions. WHEREFORE, the Petition of the CIR is DENIED. The
Petition of Avon is GRANTED. The remaining deficiency Income Tax is hereby declared NULL and
VOID and is CANCELLED.
BANK OF THE PHILIPPINE ISLANDS vs. COMMISSIONER OF INTERNAL REVENUE G.R. No.
139736 October 17, 2005 Chico-Nazario, J.:
FACTS: On June 6 and 14, 1985, BPI sold $500,000.00 to the Central Bank, for the total sale amount of
$1M. October 10, 1989: BIR issued deficiency assessment for DST in the amount of 28,020.00 for the
said sales. October 20,1989, petitioner received the Assessment Notice and consequently filed a protest in
November 17,1989. In its protest, the BIR claims that; under the established market practice, the DST on
sale of foreign exchange is paid by the buyer. Thus, when BPI sells to any party, the cost of DST is added
to the total price or charge to the buyer and the seller affixes the corresponding DST on the document.
Since the Central Bank is exempt from paying DST under Resolution No. 35-85 of the Fiscal Incentive
Review Board, no DST was affixed by the BPI. Petitioner did not receive a reply but soon after, October
15, 1992, BIR issued a Warrant of distraint, and finally in August 13, 1997, BPI received a letter denying
its request for reconsideration. BPI alleged that the right of BIR to enforce collection of the assessed DST
is already prescribed. The BIR only had 3 years to collect the deficiency DST. It took them 7 years and 9
months to deny the protest and issue the warrant of distraint. CA sustained the decision of the CTA with
regards to the prescription period
ISSUE: Whether or not the right of BIR to collect from the petitioner BPI the alleged deficiency DST for
taxable year 1985 had already prescribed. RULING: Under Section 203 of the Tax Code, the BIR has 3
years assessment period, counted from the date of actual filling of the return or from the last date
prescribed by law for the filing of such return, whichever comes later. In cases of false or fraudulent
returns with intent to evade tax of the failure to file any return at all, the prescriptive period for
assessment of the tax due shall be 10 years from the discovery by the BIR of the falsity, fraud, or
omission. When the BIR validly issues an assessment, within either the 3 or 10 year period, then the BIR
has another 3 years after the assessment within which to collect the national internal revenue tax due
thereon by distraint, levy and/or court proceeding. Counting the 3 year prescriptive period from October
20, 2989 (when the assessment notice was received by BPI), the BIR only had until October 19, 1992
within which to collect the assessment deficiency DST. Since the warrant of distraint was only received
by BPI on October 23, 1992, the right of the BIR to collect has already prescribed. A waiver of the
prescriptive period is provided in Section 223, paragraphs (b) and (d) required it to be: In writing Agreed
by both the Commissioner and the taxpayer Before the expiration of the ordinary prescriptive periods of
assessment and collection, and For a definite period beyond the ordinary prescriptive periods for
assessment and collection However, BPI executed no waiver of the Statute of Limitations, thus it did not
suspend running of the prescription. The protest of the BPI is to be construed as a REQUEST FOR
RECONSIDERATION and not a request for reinvestigation that would suspend the running of the
prescriptive period under Section 224. The statute of limitations for collection “against BPI had expired;
none of the conditions from the statute of limitations on collection exists herein.”
CIR v. FIRST EXPRESS PAWNSHOP

G.R. Nos. 172054-46, 16 June 2009
Facts:
In this case, respondent a pawnshop company received the tax assessment on 3 January 2002. On 1
February 2002, respondent submitted its protest and attached the GIS and Balance Sheet as of 31
December 1998. Since petitioner did not act on the protest during the 180-day period,respondent filed a
petition before the CTA on 28 August 2002 and contended that petitioner did not consider the supporting
documents on the interest expenses and donations which resulted in the deficiency income tax.

Within 60 days from the filing of protest or until 2 April 2002, respondent should submit relevant
supporting documents. Respondent, having submitted the supporting documents together with its
protest, did not present additional documents anymore.
In a letter dated 12 March 2002, petitioner requested respondent to present proof of payment of DST on
subscription. In a letter-reply, respondent stated that it could not produce any proof of DST payment
because it was not required to pay DST under the law considering that the deposit on subscription was an
advance made by its stockholders for future subscription, and no stock certificates were issued.
Since respondent has not allegedly submitted any relevant supporting documents, petitioner now claims
that the assessment has become final, executory and demandable, hence, unappealable.
Issue: WON assessment has become final
HELD: NO. The assessment did not become final and unappealable. It cannot be said that respondent
failed to submit relevant supporting documents that would render the assessment final because when
respondent submitted its protest, respondent attached the GIS and Balance Sheet. Further, petitioner
cannot insist on the submission of proof of DST payment because such document does not exist as
respondent claims that it is not liable to pay, and has not paid, the DST on the deposit on subscription.
After respondent submitted its letter-reply stating that it could not comply with the presentation of the
proof of DST payment, no reply was received from petitioner.
The term “relevant supporting documents” should be understood as those documents necessary to support
the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the
taxpayer to submit additional documents. The BIR cannot demand what type of supporting documents
should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the
production of documents that a taxpayer cannot submit. Respondent has complied with the requisites in
disputing an assessment pursuant to Section 228 of the Tax Code.
Section 228 states that if the protest is not acted upon within 180 days from submission of documents, the
taxpayer adversely affected by the inaction may appeal to the CTA within 30 days from the lapse of the
180-day period. Respondent, having submitted its supporting documents on the same day the protest was
filed, had until 31 July 2002 to wait for petitioner’s reply to its protest. On 28 August 2002 or within 30
days after the lapse of the 180-day period counted from the filing of the protest as the supporting
documents were simultaneously filed, respondent filed a petition before the CTA.

CIR v. DLSU Tax Exemption Case

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COMMISSIONER OF INTERNAL REVENUE versus SONY PHILIPPINES, INC.

G.R. No. 178697 November 17, 2010

COMMISSIONER OF INTERNAL REVENUE v. DE LA SALLE UNIVERSITY, INC.,

[G.R. No. 196596. November 9, 2016.]

Before fully discussing the merits of the case, we observe that:

We now adopt YMCA as precedent and hold that:

1. Is the absence of the Letter of Authority fatal?

COMMISSIONER OF INTERNAL REVENUE, Petitioner vs. LANCASTER PHILIPPINES, INC.,

[5] No, there was no error in Lancaster doing so.

ISSUE: Is a formal assessment necessary in the filing of a criminal complaint?

SMI-ED Phil. Technology, Inc. v. CIR

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. FITNESS BY DESIGN, INC.,

AZNAR V COURT OF TAX APPEALS

Held: The petition is without merit.

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. FITNESS BY DESIGN, INC.,

CIR v. United Salvage and Towage (Phils) Inc. (2014)

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. BASF COATING + INKS PHILS.,

CIR filed an MR. Denied.

Commissioner of Internal Revenue v. Kudos Metal Corporation, G.R. 178087, 05 May 2010

RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, vs. COMMISSIONER OF

COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. NEXT MOBILE, INC.

COMMISSIONER OF INTERNAL REVENUE versus TRANSITIONS OPTICAL PHILIPPINES, INC.

COMMISSIONER OF INTERNAL REVENUE vs. ASALUS CORPORATION

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. FITNESS BY DESIGN, INC.,

Samar-I Electric CooperativeGR No 193100, December 10, 2014

withholding tax on compensation in the aggregate amount of P2,690,850.91

Section 228 of the NIRC of 1997.RULING:Yes.

tax amnesty law or decree. (Emphasis supplied.)

intentional or deceitful entry with intent to evade the taxes due.

made: otherwise, the assessment shall be void.

thus not violated.

CIR v. FIRST EXPRESS PAWNSHOP

Issue: WON assessment has become final

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