01. CIR v.

T Shuttle Services  G.R. No. 240729, August 24, 2020

Laws and Regulations: Sec. 228 of the NIRC, Section 3 of RR 12-99, RMO 40-2019
Doctrine: Limitation on Presumption of Registered Mail

•    July 15, 2009: CIR issued to respondent a Letter of Notice (LN) No. 057-RLF-07-00-00047 informing it of the
discrepancy found after comparing its tax returns for CY 2007 with the RELIEF and Third-Party Matching under the
Tax Reconciliation System
•    July 24, 2009: LN was received and signed by a certain Malou Bohol
•    January 12, 2010: CIR issued Letter of Authority (LOA) No. 200800044533 AND nic
•    March 29, 2010: CIR issued a PAN for IT and VAT
•    July 20, 2010: CIR issued a FAN for IT and VAT
•    November 28, 2012: RDO issued a PCL requesting respondent to pay the assessed tax liability within 10 days
from notice
•    January 23, 2013: RDO issued a FNBS giving respondent the last opportunity to settle its tax liability within 10
days from notice
•    March 20, 2013: T Shuttle sent a letter to the RDO and the collection officers stating that: (1) it is not aware of
any pending liability for CY 2007 (2) Mr. B. Benitez, who signed and received the preliminary notices, was a
disgruntled rank-and-file employee not authorized to receive the notices; and (3) Mr. B. Benitez did not forward the
notices to it. It also requested a grace period of 1 month to review its documents.
•    April 2, 2013: RDO denied the requested 1-month grace period.
•    April 19, 2013: T Shuttle protested the FNBS: (1) not liable for IT (2) exempt from VAT as common carrier (3)
service of the NIC was invalid (4) did not receive the PAN and FAN prior to the issuance of the FNBS.
•    April 23, 2013: constructively served with WDL
•    May 2, 2013: filed a Petition for Review (With Prayer for Preliminary Injunction and Issuance of a Temporary
Restraining Order) with the CTA
•    August 22, 2013: CIR prayed for the denial of the petition for review (1) due process was observed (2) failed to
timely protest FAN and to submit within the prescribed period of 60 days supporting documents (3) presumption of
the propriety and exactness of tax assessments
•    CTA Division: granted
•    MR of CIR in CTA Division: denied
•    CTA En Banc: affirmed the ruling of the CTA Division that the CIR failed to prove that the PAN and the FAN were
properly and duly served upon and received by T Shuttle and failure to demand payment of the taxes due within a
specific period

ISSUES:
1.    W/N Due Process Observed
2.    W/N FAN is void for not containing definite due date

HELD: petition for review on certiorari is DENIED

1.    NO.
•    As can be gleaned from the above provisions (due process requirement in Section 228 of the NIRC, Section 3 of
RR 12-99 dated September 6, 1999), service of the PAN or the FAN to the taxpayer may be made by registered
mail. Under Section 3(v), Rule 131 of the Rules of Court, there is a disputable presumption that "a letter duly
directed and mailed was received in the regular course of the mail." However, the presumption is subject to
controversion and direct denial, in which case the burden is shifted to the party favored by the presumption to
establish that the subject mailed letter was actually received by the addressee.
•    In view of respondent's categorical denial of due receipt of the PAN and the FAN, the burden was shifted to the
CIR to prove that the mailed assessment notices were indeed received by respondent or by its authorized
representative.  As ruled by the CTA En Banc, the CIR's mere presentation of Registry Receipt Nos. 5187 and 2581
was insufficient to prove respondent's receipt of the PAN and the FAN. It held that the witnesses for the CIR failed to
identify and authenticate the signatures appearing on the registry receipts; thus, it cannot be ascertained whether
the signatures appearing in the documents were those of respondent's authorized representatives. It further noted
that Revenue Officer Joseph V. Galicia (Galicia), the CIR's witness, had in fact admitted during cross-examination
that he was uncertain whether the PAN and FAN were actually received by respondent.
•    As can be gleaned from RMO 40-2019 dated May 30, 2019, a detailed record of all assessment notices issued
by the CIR is required. Notably, among the details to be recorded by the Chief of the Assessment Division or the
Head of the Reviewing Office are the "[n]ame of [t]axpayer/[p]erson who received the assessment notice" and, more
importantly, the "[p]osition/designation/relationship to the taxpayer, if not served to the taxpayer named in the
assessment notice."  While RMO 40-2019 was not yet in force at the time the questioned PAN and FAN in the case
were issued, the fact of such subsequent issuance of RMO 40-2019 by the CIR gives the Court all the more reason
to affirm, if only for consistency and uniformity, the CTA En Banc's finding.

2.    Yes. Question of fact which this Court will not entertain in the present appeal under Rule 45.

2. CIR vs. BPI

Facts:

Through a letter dated May 6, 1991, the CIR sent Assessment Notices6 to Citytrust Banking Corporation
(Citytrust) in connection with its deficiency internal revenue taxes for the year 1986 in the aggregate amount of
P20,865,320.297.

The assessments came after Citytrust's execution of three Waivers of the Statute of Limitations (Waivers)
under the National Internal Revenue Code. (NIRC) dated August 11, 1989, July 12, 1990, and November 8,
1990 extending the prescriptive period for the CIR to issue an assessment.

Citytrust protested the assessments on May 30, 1991 and, again, on February 17, 1992. In the interim, through
the Bureau of Internal Revenue (BIR) Office of the Accounting Receivable/Billing Section letter dated February
5, 1992, the CIR demanded the payment of the subject deficiency taxes within 10 days from receipt thereof.12

At this juncture, two portions of the total assessment (P20,865,320.29) became the subject of separate
proceedings: first, the compromise and collection of the deficiency IT portion that led to another Supreme Court
case of the same title.

in the Decision dated November 16, 2018, the Court upheld the September 21, 2011 Warrant's cancellation.
The Court explained that: first, the CIR did not offer proof that Citytrust received the letter dated February 5,
1992. This failure "lead[s] to the conclusion that no assessment was issued."17 Second, estoppel does not lie
against BPI. It was the tax authorities who had caused the aforementioned defects. The flawed waivers did not
extend the prescriptive periods for assessment.18 Thus, CIR's right to assess Citytrust/BPI "already prescribed
and [BPI] is not liable to pay the deficiency tax assessment."

Fifth, the CIR issued the Assessment Notices against Citytrust on May 6, 1991. However, it issued the subject
warrant of distraint and/or levy to collect the taxes so assessed only in 2011, which was beyond the three-year
prescriptive period to collect assessed taxes.

Issue:

1. Did the CIR timely issue assessments against Citytrust for deficiency EWT, WTD, DFT, and WTC pertaining
to the taxable year 1986?

2. May the CIR still collect the unpaid taxes?

Ruling:

1. No. The CIR's right to assess has already prescribed. On the other hand, both the CTA Division and CTA
EB carefully reviewed and examined the records (i.e., tax returns for each tax type, waivers of the statutes of
limitations, etc.) to precisely ascertain whether the period to assess each tax type has prescribed. The
court a quo ultimately invalidated the waivers of the statutes of limitations due to the absence of the CIR's
signature and found that only the assessments for EWT42 and DFT have not prescribed.
Verily, the 1977 Tax Code, as amended,43 allowed the parties to execute an agreement waiving the three-year
statute of limitation for tax assessment.44 However, it is already established that, to be valid, waivers of this nature
must be in the form as prescribed by the applicable tax regulations.45 That both parties must signify their assent in
extending the assessment period is not merely a formal requisite under tax rules, but one that is essential to the
validity of a contract under the Civil Code.

Furthermore, the Court already ruled that BPI is not estopped from raising questions on the waivers' validity. That
the fundamental defect that invalidated the subject waivers were caused by the CIR gives more reason to the
taxpayer to seek redress for this inadvertence.

2. No. The BIR may no longer collect the alleged deficiency taxes. Under the 1977 Tax Code, as amended,
"[a]ny internal revenue tax which has been assessed within the period of limitation above-prescribed may be
collected by distraint or levy or by a proceeding in court within three years following the assessment of the
tax." Stated differently, the three-year prescriptive period for the BIR to collect taxes via summary
administrative processes shall be reckoned from "the date the assessment notice had been released, mailed
or sent by-the BIR to the taxpayer."49

This reckoning point is not clear from the facts of the present case. However, the parties no longer dispute: (a) that
the CIR issued a letter dated May 6, 1991, to which the subject assessment notices were appended; (b) that
Citytrust filed its protest (dated May 27, 1991) on May 30, 1991; and that (c) the first instance the CIR proceeded to
administratively collect the assessed taxes was through the issuance of the November 2011 Warrant.

With only these considerations,50 the latest possible time the CIR could have released the assessment was the
same day Citytrust protested the same or on May 30, 1991. From this time, the CIR had three years to collect the
taxes assessed or until May 30, 1994.

No matter how the CIR frames the arguments, it is glaring from the 20-year gap between the issuance/release of the
assessment (1991) and the enforcement of collection through distraint and/or levy (2011) that prescription had
already set in.

To be sure, aside from summary administrative remedies, the law also allows the collection of unpaid taxes through
the institution of a collection case in court within the same three-year period. However, even the CIR's answer to
BPI's Second CTA Petition, which could have been considered as a judicial action for the collection of tax, was filed
belatedly (2011).51

It is clear that the tax authorities had been remiss in the performance of their duties. The Court must bar the CIR
from collecting the taxes in the present case because, "[w]hile taxes are the lifeblood of the nation, the Court cannot
allow tax authorities indefinite periods to assess and/or collect alleged unpaid taxes. Certainly, it is an injustice to
leave any taxpayer in perpetual uncertainty whether he will be made liable for deficiency or delinquent taxes.”

3. LA FLOR DELA ISABELA v. CIR

Facts:

On September 6, 2000, the CIR issued a Letter of Authority4 for the examination of La Flor's books of
account for "all internal revenue taxes for the period January 1, 1999 to December 31, 1999."
In connection thereto, La Flor executed five waivers of the statute of limitations to extend the CIR's
period to assess and collect the deficiency taxes.

On April 8, 2003, the company received a Preliminary Assessment Notice dated March 19, 2003.10

On March 14, 2005, La Flor received a Formal Letter of Demand (FLD)11 with the following attachments: (a)
Assessment No. LTAID II IT-99-00077 for deficiency income tax (IT); (b) Assessment No. LTAID II VT-99-0091 for
value-added tax (VAT); (c) Assessment No. LTAID II WC-99-00019 for withholding tax (WT) on compensation; and
(d) Assessment No. LTAID II CP-99-00020 for compromise penalty.

The company filed its protest12 on March 30, 2005 against the FLD and a Supplemental Protest Letter13 on April
12, 2005.

Thereafter, on July 9, 2007, it received the CIR's Final Decision on Disputed Assessments (FDDA)14 dated June 1,
2007, with a total assessment of deficiency taxes in the amount P10,460,217.23.

On October 8, 2007, La Flor applied for a tax amnesty under Republic Act No. (RA) 9480,15 as well as for a
compromise on October 18, 2007 pursuant to Section 204 of the National Internal Revenue Code (NIRC).
On November 23, 2007, the company received an undated Warrant of Distraint and/or Levy (WDL)16 issued by the
CIR. This prompted petitioner to file a Petition for Review with the CTA on November 29, 2007, assailing the CIR's
issuance of WDL.

Ruling of the Court of Tax Appeals in Division:

In its June 9, 2010 Decision,17 the CTA's Former Second Division dismissed La Flor's petition on the ground that it
was filed out of time. It held that La Flor had thirty (30) days or until August 8, 2007 from July 9, 2007 within which to
appeal the CIR's FDDA as per Section 228 of the NIRC, as amended, or to elevate its protest to the Commissioner
as provided in Section 3.1.5 of Revenue Regulations No. 12-99. However, instead of appealing the said FDDA or
elevating its protest to the Commissioner, La Flor availed of the tax amnesty under RA 9480 for its assessed IT and
VAT deficiencies and filed an application for compromise for its assessed WT deficiencies on October 8, 2007 and
October 18, 2007, respectively. Hence, its Petition for Review which was filed on November 29, 2007, or three
months from July 9, 2007, with the CTA in Division was clearly beyond the 30-day reglementary period The FDDA
dated June 1, 2007, therefore, had become final, executory, and demandable.

Ruling of the Court of Tax Appeals En Banc:

In the assailed February 2, 2012 Decision,19 the CTA En Banc denied La Flor's petition for lack of merit. It held that
if a protest is not acted upon by the CIR within 180 days from submission of supporting documents, the taxpayer
may appeal to the CTA within 30 days from the lapse of the 180-day period. When the CIR issued its FLD dated
March 21, 2005, petitioner timely filed its protest on March 30, 2005. It subsequently filed a Supplemental Protest
Letter to submit additional documents on April 12, 2005.

However, since the CIR did not act on La Flor's protest within 180 days from the submission of its
Supplemental Protest Letter on April 12, 2005, petitioner had 30 days from October 9, 2005, or until
November 8, 2005, within which to file a Petition for Review before the CTA. However, petitioner slept on its
right and sought relief only on November 29, 2007, or more than two years beyond the reglementary period.

Issues:

1. Whether the CTA erred in not ruling that the assessment and WDL are null and void;

2. Whether the CTA erred in not ruling that La Flor's obligation to pay IT and VAT deficiency has been
absolved by its availment of the tax amnesty; and

3. Whether the CTA erred in ruling that petitioner is liable for compromise penalty

Ruling:

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4. ASIAN TRANSMISSION CORPORATION VS. CIR

Facts:

[ATC] is a corporation duly organized and existing under Philippine Laws and with business address at Carmelray
Industrial Park, Canlubang, Calamba City, Laguna. ATC is a manufacturer of motor vehicle transmission component
parts and engines of Mitsubishi vehicles. It was organized and registered with the Securities and Exchange
Commission on August 29, 1973 as evidenced by its Certificate of Incorporation.

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" (Waiver),
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).

Ruling of the CTA in Division

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, namely: (a) the waivers were notarized by its own employee despite not being
validly commissioned to perform notarial acts; (b) the BIR did not indicate the date of its acceptance; ( c) the BIR did
not specify the amounts of and the particular taxes involved; and (d) respondent CIR did not sign the waivers
despite the clear mandate of RMO 20-90 to that effect. It ruled that the waivers, being invalid, did not operate to toll
or extend the three-year period of prescription. 4

Decision of the CTA En Banc

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.

Issue:

Whether or not the CTA En Banc acted in excess of jurisdiction or with grave abuse of discretion amounting to lack
or excess of jurisdiction in applying the ruling in Commissioner of Internal Revenue v. Next Mobile Inc.   as well as
11

the equitable principles of in pari delicto, unclean hands, and estoppel.

Ruling of the Court

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, viz.:

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. 

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.

Moreover, the principle of estoppel was applicable.  The execution of the waivers was to the advantage of ATC
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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. Indeed, the Court observed in Commissioner of Internal Revenue v. Next Mobile
Inc. that:

In this case, respondent, after deliberately executing defective waivers, raised the very same deficiencies it caused
to avoid the tax liability determined by the BIR during the extended assessment period. It must be remembered that
by virtue of these Waivers, respondent was given the opportunity to gather and submit documents to substantiate its
claims before the CIR during investigation. It was able to postpone the payment of taxes, as well as contest and
negotiate the assessment against it. Yet, after enjoying these benefits, respondent challenged the validity of the
Waivers when the consequences thereof were not in its favor. In other words, respondent's act of impugning these
Waivers after benefiting therefrom and allowing petitioner to rely on the same is an act of bad faith. 15

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.

WHEREFORE, the Court DENIES the petition for review on certiorari; AFFIRMS the decision promulgated on

August 9, 2016 by the Court of Tax Appeals En Banc in CTA EB No. 1289 (CTA Case No. 8476); and ORDERS the
petitioner to pay the costs of suit.