BADONG, CAREEN DOMINICA O.

TAX II
JD3A JURISDICTION OF THE CTA

ALLIED BANKING CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

The key to effective communication is clarity. The Commissioner of Internal Revenue (CIR) as well
as his duly authorized representative must indicate clearly and unequivocally to the taxpayer
whether an action constitutes a final determination on a disputed assessment.1 Words must be
carefully chosen in order to avoid any confusion that could adversely affect the rights and interest
of the taxpayer.

FACTS

On April 30, 2004, the Bureau of Internal Revenue (BIR) issued a Preliminary Assessment Notice
(PAN) to petitioner Allied Banking Corporation for deficiency Documentary Stamp Tax (DST) in
the amount of ₱12,050,595.60 and Gross Receipts Tax (GRT) in the amount of ₱38,995,296.76
on industry issue for the taxable year 2001. Petitioner received the PAN on May 18, 2004 and filed
a protest against it on May 27, 2004.

On July 16, 2004, the BIR wrote a Formal Letter of Demand with Assessment Notices to petitioner,
which partly reads as follows:

It is requested that the above deficiency tax be paid immediately upon receipt hereof,
inclusive of penalties incident to delinquency. This is our final decision based on
investigation. If you disagree, you may appeal the final decision within thirty (30) days
from receipt hereof, otherwise said deficiency tax assessment shall become final,
executory and demandable.

Petitioner received the Formal Letter of Demand with Assessment Notices on August 30, 2004.
On September 29, 2004, petitioner filed a Petition for Review with the CTA which was raffled to
its First Division. Respondent CIR filed a Motion to Dismiss on the ground that petitioner failed to
file an administrative protest on the Formal Letter of Demand with Assessment Notices.

The First Division of the CTA granted respondent’s Motion to Dismiss, and ruled that it is neither
the assessment nor the formal demand letter itself that is appealable to the CTA. It is the decision
of the CIR on the disputed assessment that can be appealed to the CTA. Petitioner failed to file
an administrative protest on the formal letter of demand with the corresponding assessment
notices. Hence, the assessments did not become disputed assessments as subject to the CTA’s
review under Republic Act No. 9282.

Aggrieved, petitioner moved for reconsideration but the motion was denied. Hence, petitioner
appealed the dismissal to the CTA En Banc.

Finding no reversible error in the Resolutions of the CTA First Division, the CTA En Banc denied
the Petition for Review as well as petitioner’s Motion for Reconsideration. The CTA En Banc
declared that it is absolutely necessary for the taxpayer to file an administrative protest in order
for the CTA to acquire jurisdiction. It emphasized that an administrative protest is an integral part
of the remedies given to a taxpayer in challenging the legality or validity of an assessment.
According to the CTA En Banc, although there are exceptions to the doctrine of exhaustion of
administrative remedies, the instant case does not fall in any of the exceptions.

ISSUE

Whether the Formal Letter of Demand dated July 16, 2004 can be construed as a final decision
of the CIR appealable to the CTA under RA 9282.

RULING

YES. Section 7 of RA 9282 expressly provides that the CTA exercises exclusive appellate
jurisdiction to review by appeal decisions of the CIR in cases involving disputed assessments.
The CTA, being a court of special jurisdiction, can take cognizance only of matters that are clearly
within its jurisdiction. Section 7 of RA 9282 provides:

Sec. 7. Jurisdiction. — The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue Code or other laws administered by the Bureau
of Internal Revenue;

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue Code or other laws administered by the Bureau
of Internal Revenue, where the National Internal Revenue Code provides a specific period of action,
in which case the inaction shall be deemed a denial;

xxxx

The word "decisions" in the above quoted provision of RA 9282 has been interpreted to mean the
decisions of the CIR on the protest of the taxpayer against the assessments. Corollary thereto,
Section 228 of the National Internal Revenue Code (NIRC) provides for the procedure for
protesting an assessment. It states:

SECTION 228. Protesting of Assessment. – When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his
findings: Provided, however, That a preassessment notice shall not be required in the following
cases:

xxx

Such assessment may be protested administratively by filing a request for reconsideration or

xxx
In the instant case, petitioner timely filed a protest after receiving the PAN. In response thereto,
the BIR issued a Formal Letter of Demand with Assessment Notices. Pursuant to Section 228 of
the NIRC, the proper recourse of petitioner was to dispute the assessments by filing an
administrative protest within 30 days from receipt thereof. Petitioner, however, did not protest the
final assessment notices. Instead, it filed a Petition for Review with the CTA. Thus, if we strictly
apply the rules, the dismissal of the Petition for Review by the CTA was proper. However, a careful
reading of the Formal Letter of Demand with Assessment Notices leads us to agree with
petitioner that the instant case is an exception to the rule on exhaustion of administrative
remedies, i.e., estoppel on the part of the administrative agency concerned.

In the case of Vda. De Tan v. Veterans Backpay Commission, the respondent contended that
before filing a petition with the court, petitioner should have first exhausted all administrative
remedies by appealing to the Office of the President. However, we ruled that respondent was
estopped from invoking the rule on exhaustion of administrative remedies considering that in its
Resolution, it said, "The opinions promulgated by the Secretary of Justice are advisory in nature,
which may either be accepted or ignored by the office seeking the opinion, and any aggrieved party
has the court for recourse". The statement of the respondent in said case led the petitioner to
conclude that only a final judicial ruling in her favor would be accepted by the Commission.

Similarly, in this case, we find the CIR estopped from claiming that the filing of the Petition for
Review was premature because petitioner failed to exhaust all administrative remedies.

The Formal Letter of Demand with Assessment Notices reads:

Based on your letter-protest dated May 26, 2004, you alleged the following:

1. That the said assessment has already prescribed in accordance with the provisions of Section
203 of the Tax Code.

2. That since the exemption of FCDUs from all taxes found in the Old Tax Code has been deleted,
the wording of Section 28(A)(7)(b) discloses that there are no other taxes imposable upon FCDUs
aside from the 10% Final Income Tax.

xxx

It is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of
penalties incident to delinquency. This is our final decision based on investigation. If you disagree,
you may appeal this final decision within thirty (30) days from receipt hereof, otherwise said
deficiency tax assessment shall become final, executory and demandable.

It appears from the foregoing demand letter that the CIR has already made a final decision on
the matter and that the remedy of petitioner is to appeal the final decision within 30 days.

In Oceanic Wireless Network, Inc. v. Commissioner of Internal Revenue, we considered the

In this case, records show that petitioner disputed the PAN but not the Formal Letter of Demand
with Assessment Notices. Nevertheless, we cannot blame petitioner for not filing a protest
against the Formal Letter of Demand with Assessment Notices since the language used and the
tenor of the demand letter indicate that it is the final decision of the respondent on the matter.
We have time and again reminded the CIR to indicate, in a clear and unequivocal language,
whether his action on a disputed assessment constitutes his final determination thereon in
order for the taxpayer concerned to determine when his or her right to appeal to the tax court
accrues. Viewed in the light of the foregoing, respondent is now estopped from claiming that he
did not intend the Formal Letter of Demand with Assessment Notices to be a final decision.

Moreover, we cannot ignore the fact that in the Formal Letter of Demand with Assessment
Notices, respondent used the word "appeal" instead of "protest", "reinvestigation", or
"reconsideration". Although there was no direct reference for petitioner to bring the matter
directly to the CTA, it cannot be denied that the word "appeal" under prevailing tax laws refers to
the filing of a Petition for Review with the CTA. As aptly pointed out by petitioner, under Section
228 of the NIRC, the terms "protest", "reinvestigation" and "reconsideration" refer to the
administrative remedies a taxpayer may take before the CIR, while the term "appeal" refers to
the remedy available to the taxpayer before the CTA. Section 9 of RA 9282, amending Section
11 of RA 1125, likewise uses the term "appeal" when referring to the action a taxpayer must take
when adversely affected by a decision, ruling, or inaction of the CIR. As we see it then, petitioner
in appealing the Formal Letter of Demand with Assessment Notices to the CTA merely took the
cue from respondent. Besides, any doubt in the interpretation or use of the word "appeal" in the
Formal Letter of Demand with Assessment Notices should be resolved in favor of petitioner, and
not the respondent who caused the confusion.

To be clear, we are not disregarding the rules of procedure under Section 228 of the NIRC, as
implemented by Section 3 of BIR Revenue Regulations No. 12-99. It is the Formal Letter of
Demand and Assessment Notice that must be administratively protested or disputed within 30
days, and not the PAN. Neither are we deviating from our pronouncement in St. Stephen’s Chinese
Girl’s School v. Collector of Internal Revenue, that the counting of the 30 days within which to
institute an appeal in the CTA commences from the date of receipt of the decision of the CIR on
the disputed assessment, not from the date the assessment was issued.

What we are saying in this particular case is that, the Formal Letter of Demand with Assessment
Notices which was not administratively protested by the petitioner can be considered a final
decision of the CIR appealable to the CTA because the words used, specifically the words "final
decision" and "appeal", taken together led petitioner to believe that the Formal Letter of Demand
with Assessment Notices was in fact the final decision of the CIR on the letter-protest it filed
and that the available remedy was to appeal the same to the CTA.

We note, however, that during the pendency of the instant case, petitioner availed of the
provisions of Revenue Regulations No. 30-2002 and its implementing Revenue Memorandum
Order by submitting an offer of compromise for the settlement of the GRT, DST and VAT for the
period 1998-2003, as evidenced by a Certificate of Availment dated November 21, 2007.
Accordingly, there is no reason to reinstate the Petition for Review in CTA Case No. 7062.