G.R. No.
197590 November 24, 2014 01 .00 .62 .62 00 62
BUREAU OF INTERNAL REVENUE, as represented 20 148,500 186,106 334,606 58,581. 276,025.
by the COMMISSIONER OF INTERNAL 02 .00 .62 .62 00 62
REVENUE, Petitioner, 20 148,100 152,817 300.917 48,729. 252,188.
vs. 03 .00 .53 .93 00 93
COURT OF APPEALS, SPOUSES ANTONIO VILLAN
MANLY, and RUBY ONG MANLY, Respondents.
[To ₱865,63 ₱1,238, ₱2,104, ₱380,8 ₱1,723,7
DECISION tal] 3.26 938.32 571.58 24.21 47.3712
DEL CASTILLO, J.:
and that despite his modestincome for the said years,
There is grave abuse of discretion when the respondent spouses were able to purchase in cash the
determination of probable cause is exercised in an following properties:
arbitrary or despotic manner, due to passion or personal
hostility, so patent and gross as to amount to an evasion
1) a luxurious vacation house in Tagaytay City
of a positive duty or a virtual refusal to perform a duty
valuedat ₱17,511,010.0013 in the year 2000,
enjoined by law.1 This Petition for Certiorari2 under Rule
evidenced by a Deed of Absolute Sale14 dated
65 of the Rules of Court assails the Decision3 dated
October 24, 2000;
October 28, 2010 and the Resolution4 dated May 10,
2011 of the Court of Appeals (CA) in CA-G.R. SP No.
112479. 2) a Toyota RAV4 for ₱1,350,000.00 in the year
2001, evidenced by a Sales Invoice15 dated June
28, 2001; and
Factual Antecedents
3) a Toyota Prado for ₱2,000,000.00 in 2003,
Respondent Antonio Villan Manly (Antonio) is a
evidenced by a Deed of Sale16 dated July 9,
stockholder and the Executive Vice-President of
2003.17
Standard Realty Corporation, a family-owned
corporation.5 He is also engaged in rental business.6 His
spouse, respondent Ruby Ong Manly, is a housewife.7 Since respondent spouses failed to showthe source of
their cash purchases, the revenue officers concluded
that respondent Antonio’s Income Tax Returns (ITRs) for
On April 27, 2005, petitioner Bureau of Internal Revenue
taxable years 2000, 2001,and 2003 were
(BIR) issued Letter of Authority No. 2001
underdeclared.18 And since the under declaration
000123878 authorizing its revenue officers to investigate
exceeded 30% of the reported or declared income, it
respondent spouses’ internal revenue tax liabilities for
was considered a prima facie evidence of fraud with
taxable year 2003 and prior years.
intent to evade the payment of proper taxes due to the
government.19 The revenue officers, thus, recommended
On June 6, 2005, petitioner issued a letter9 to the filing of criminal cases against respondent spouses
respondent spouses requiring them to submit for failing to supply correct and accurate information
documentary evidence to substantiate the source of their intheir ITRs for the years 2000, 2001, and 2003,
cash purchase of a 256-square meter log cabin in punishable under Sections 25420 and 25521 in relation to
Tagaytay City worth ₱17,511,010.00. Respondent Section 248(B)22 of Republic Act No. 8424 or the "Tax
spouses, however, failedto comply with the letter.10 Reform Act of 1997," hereinafter referred to as the
National Internal Revenue Code (NIRC).23
On June 23, 2005, the revenue officers executed a Joint
Affidavit11 alleging that respondent Antonio’s reported or Respondent spouses, in their Joint Counter-
declared annual income for the taxable years 1998-2003 Affidavit,24 denied the accusations hurled against them
are as follows: and alleged that they used their accumulated savings
from their earnings for the past24 years in purchasing
Net the properties.25 They also contended that the criminal
Profit complaint should be dismissed because petitioner failed
Rental to issue a deficiency assessment against them.26
Busines
Taxable Total
s Tax In response, the revenue officers executed a Joint
Compe sources
(1169- Due/pai CASH Reply-Affidavit.27 Respondent spouses, in turn, executed
nsation of
73 G. d a Joint Rejoinder-Affidavit.28
Income Funds
Masang
kay St., Ruling of the State Prosecutor
Tondo,
Manila On August 31, 2006, State ProsecutorMa. Cristina A.
19 [P]133,5 [P] [P] [P]55,8 [P] Montera-Barot issued a Resolution29 in I.S. No. 2005-573
98 32.36 191,915 325,447 34.00< 269,613. recommending the filing of criminal charges30 against
.10 .46 46 respondent spouses, to wit:
19 142,550 260,961 403,512 79,254. 324,258. WHEREFORE, premises considered, it is respectfully
99 .50 .78 .28 00 28 recommended that [respondent] spouses ANTONIO
20 141,450 213,740 355,190 64,757. 290,433. VILLAN MANLY and RUBY ONG MANLY be charged
00 .00 .67 .67 21 46 [with] the following:
20 151,500 233,396 384,896 73,669. 311,227.
(1) Three (3) counts of Violation of Section 254 – IN LIGHT OF ALL THE FOREGOING, the instant
Attempt to Evade or Defeat Tax of the NIRC for petition is hereby DENIED, and the assailed Resolution
taxable years 2000, 2001, and 2003; of the Secretary of Justice dated July 27, 2009
dismissing I.S. No. 2005-573 against private
(2) Three (3) counts for Violation of Section 255 respondents, AFFIRMED. However, the dismissal of the
of the NIRC – Failure to Supply Correct and instant case is without prejudice to the refiling by the BIR
Accurate Information for taxable years 2000, of a complaint sufficient in form and substance before
2001 and 2003; the appropriate tribunal.
(3) Three counts of Violation ofSection 255 of SO ORDERED.45
the NIRC – Failure to Pay, as a consequence of
[respondent spouses’] failure to supply correct The CA likewise denied petitioner’s Motion for
and accurate information on their tax returns for Reconsideration46 in its Resolution47 dated May 10,
taxable years 2000, 2001, and 2003.31 2011.
Respondent spouses moved for reconsideration32 but the Issues
State Prosecutor denied the same in a
Resolution33 dated November 29, 2007. Hence, petitioner filed the instant Petition contending
that the CA committed grave abuse of discretion
Ruling of the Secretary of Justice amounting to lackor excess of jurisdiction in holding that:
On appeal to the Secretary of Justice via a Petition for I. A CATEGORICAL FINDING OF THE EXACT
Review,34 Acting Justice Secretary Agnes VST AMOUNT OF TAX DUE FROM THE PRIVATE
Devanadera (Devanadera) reversed the Resolution of RESPONDENT SHOULD BE SPECIFICALLY
the State Prosecutor. She found no willfulfailure to pay or ALLEGED [AND THAT] SINCE THE BIR
attempt to evade or defeat the tax on the part of FAILED TO MAKE SUCH FINDINGS
respondent spouses as petitioner allegedly failed to THEYCONSEQUENTLYFAILED TO BUILD A
specify the amount of tax due and the likely source of CASE FOR TAX EVASION AGAINST
income from which the same was based.35 She also [RESPONDENT SPOUSES] DESPITE THE
pointed out petitioner’s failure to issue a deficiency tax WELL ESTABLISHED DOCTRINE THAT IN
assessment against respondentspouses which is a TAX EVASION CASES, A PRECISE
prerequisite to the filing of a criminal case for tax COMPUTATION OF THE [TAX] DUE IS NOT
evasion.36 The dispositive portion of the NECESSARY.
Resolution37 dated July 27, 2009 reads:
II. THE BIR FAILED TO SHOW SUFFICIENT
WHEREFORE, the assailed Resolution is hereby PROOF OF A LIKELY SOURCE OF
REVERSED and SET ASIDE. The Chief State [RESPONDENT SPOUSES’] INCOME
Prosecutor ishereby directed to withdraw the Information DESPITE THE FACT THAT THE BIR WAS
filed against [respondent spouses] Antonio Villan Manly SUFFICIENTLY ABLE TO SHOW PROOF OF
and Ruby Ong Manly, if one has been filed, and report SUCH INCOME.48
the action taken thereon within ten (10) days from receipt
hereto. Petitioner’s Arguments
SO ORDERED.38 Petitioner imputes grave abuse of discretion on the part
of the CA in affirming the dismissal of the criminal cases
Petitioner sought reconsideration39 but Acting Justice against respondent spouses. Petitioner contends that in
Secretary Devanadera denied the same in a filing a criminal case for tax evasion, a prior computation
Resolution40 dated November 5, 2009. or assessment of tax is not required because the crime
is complete when the violator knowingly and willfully filed
Ruling of the Court of Appeals a fraudulent return with intentto evade a part or all of the
tax.49 In this case, an analysis of respondent spouses’
income and expenditure shows that their cash
Unfazed, petitioner filed a Petition for Certiorari41 with the
expenditure is grossly disproportionate to their reported
CA imputing grave abuse of discretion on the part of
or declared income, leading petitioner to believe that
Acting Justice Secretary Devanadera in finding no
they under declared their income.50 In computing the
probable cause to indict respondent spouses for
unreported or undeclared income, which was likely
willfulattempt to evade or defeat tax and willful failure to
sourced from respondent Antonio’s rental
supply correct and accurate information for taxable years
business,51 petitioner used the expenditure method of
2000, 2001 and 2003.
reconstructing income, a method used to determine a
taxpayer’s income tax liability when his records are
On October 28, 2010, the CA rendered the assailed inadequate or inaccurate.52 And since respondent
Decision42 dismissing the Petition for Certiorari. Although spouses failed to explain the alleged unreported or
it disagreed that anassessment is a condition sine qua undeclared income, petitioner asserts that criminal
nonin filing a criminal case for tax evasion, the CA, charges for tax evasion should be filed against them.
nevertheless, ruled that there was no probable cause to
charge respondent spouses as petitioner allegedly failed
Respondent spouses’ Arguments
to state their exact tax liability and to show sufficient
proof of their likely source of income. 43 The CA further
said that before one could be prosecuted for tax Respondent spouses, on the other hand, argue that the
evasion,the fact that a tax is due must first be instant Petition should be dismissed as petitioner availed
proved.44 Thus: of the wrong remedy in filing a Petition for Certiorari
under Rule 65 of the Rules of Court.53 And even if the
Petition is given due course, the same should still be
dismissed because no grave abuse of discretion can be an evasion or to a unilateral refusal to perform the duty
attributed to the CA.54 They maintain that petitioner enjoined or to act in contemplation of the law.65 Such is
miserably failed to prove that a tax is actually the situation in this case.
due.55 Neither was it able to show the source of the
alleged unreported or undeclared income as required by Having resolved the foregoing procedural matter, we
Revenue Memorandum Order No. 15-95, Guidelines and shall now proceed to determine the main issue in this
Investigative Procedures in the Development of Tax case.
Fraud Cases for Internal Revenue Officers.56 As to the
method used by petitioner, they claim that it completely Sections 254 and 255 of the NIRC pertinently provide:
ignored their lifetime savings because it was limited to
the years 1998-2003.57
SEC. 254. Attempt to Evade or Defeat Tax. – Any
person who willfully attempts in any manner to evade or
Our Ruling defeat any tax imposed under this Code or the payment
thereof shall, in addition to other penalties provided by
The Petition is meritorious. law, upon conviction thereof, be punished by a fine of not
less than Thirty thousand pesos (₱30,000.00) but not
Before discussing the merits of thiscase, we shall first more than One hundred thousand pesos (₱100,000.00)
discuss the procedural matter raised by respondent and suffer imprisonment of not less than two (2) years
spouses that petitioner availed of the wrong remedy in but not more than four (4) years: Provided, That the
filing a Petition for Certiorari under Rule 65 of the Rules conviction or acquittal obtained under this Section shall
of Court, instead of a Petition for Review on Certiorari not be a bar to the filing of a civil suit for the collection of
under Rule 45. taxes.
Indeed, the remedy of a party aggrieved by a decision, SEC. 255. Failure to File Return, Supply Correct and
final order, or resolution of the CA is to file a Petition for Accurate Information, Pay Tax, Withhold and Remit Tax
Review on Certiorari under Rule 45 of the Rules of and Refund Excess Taxes Withheld on Compensation. –
Court, which is a continuation of the appellate process Any person required under this Code or by rules and
over the original case.58 And as a rule, if the remedy of regulations promulgated thereunder to pay any tax,
an appeal is available, an action for certiorari under Rule make a return, keep any record, or supply correct and
65 of the Rules of Court, which is anoriginal or accurate information, who willfully fails to pay such tax,
independent action based on grave abuse of discretion make such return, keep such record, or supply such
amounting to lack or excess of jurisdiction, will not correct and accurate information, or withhold or remit
prosper59 because it is not a substitute for a lost taxes withheld, or refund excess taxes withheld on
appeal.60 compensation at the time or times required by law or
rules and regulations shall, in addition to other penalties
There are, however, exceptions to this rule, to wit: 1) provided by law, upon conviction thereof, be punished by
when public welfare and the advancement of public a fine of not less than Ten thousand pesos (₱10,000.00)
policy dictate; 2) when the broader interest of justice so and suffer imprisonment of not less than one (1) year but
requires; 3) when the writs issued are null and void; 4) not more than ten (10) years.
when the questioned order amounts to an oppressive
exercise of judicial authority; 5) when, for persuasive In Ungab v. Judge Cusi, Jr.,66 we ruled that tax evasion
reasons, the rules may be relaxed to relieve a litigant of is deemed complete when the violator has knowingly
an injustice not commensurate with his failure to comply and willfully filed a fraudulent return with intent to evade
with the prescribed procedure; 6) when the judgment or and defeat a part or all of the tax.67 Corollarily, an
order is attended by grave abuse of discretion; or 7) in assessment of the tax deficiency is notrequired in a
other meritorious cases.61 criminal prosecution for tax evasion.68 However, in
Commissioner of Internal Revenue v. Court of
In this case, after considering the arguments raised by Appeals,69 we clarified that although a deficiency
the parties, we find that there is reason to give due assessment is not necessary, the fact that a tax is due
course to the instant Petition for Certiorari as petitioner must first be proved before one can be prosecuted for
was able to convincingly show that the CA committed tax evasion.70
grave abuse of discretion when it affirmed the dismissal
of the criminal charges against respondent spouses In the case of income, for it to be taxable, there must be
despite the fact that there isprobable cause toindict a gain realized or received by the taxpayer, which is not
them. excluded by law or treaty from taxation.71 The
government is allowed to resort to all evidence or
Although the Court has consistently adopted the policy of resources available to determine a taxpayer’s income
non-interference in the conduct and determination of and to use methods to reconstruct his income.72 A
probable cause,62 which is exclusively within the method commonly used by the government isthe
competence of the Executive Department, through the expenditure method, which is a method of reconstructing
Secretary of Justice,63 judicial intrusion, in the form of a taxpayer’s income by deducting the aggregate yearly
judicial review, is allowed when there is proof that the expenditures from the declared yearly income.73 The
Executive Department gravely abused its discretion in theory of this method is that when the amount of the
making its determination and in arriving atthe conclusion money that a taxpayer spends during a given year
it reached.64 exceeds his reported or declared income and the source
of such money is unexplained, it may be inferred that
such expenditures represent unreported or undeclared
Grave abuse of discretion is defined as a capricious and
income.74
whimsical exercise of judgment tantamount to lack or
excess of jurisdiction, a blatant abuse of authority so
grave and so severe as to deprive the court of its very
power to dispense justice, or an exercise of powerin an
arbitrary and despotic manner, due to passion, prejudice
or personal hostility, sopatent and gross as to amount to
In the case at bar, petitioner used thisSources
method ofto Funds as per Financial [P]1,656,251.02 [P]717,537.32 [P]81
determine respondent spouses’
Statementstaxas attached to the Income
liability.1âwphi1 Petitioner deducted respondent
spouses’ major cash acquisitions from their available
funds. Thus: Percentage of underdeclaration 957.27% 88.14% 133.2
And since the underdeclaration is more than 30%of
Cash Loan With Funds Major Unexpl respondent spouses’ reported or declared income, which
s draw availabl Acqui ained under Section 248(B) of the NIRC constitutes as prima
(busi al e sitions Sourc facie evidence of false or fraudulent return, petitioner
ness) of es of recommended the filing of criminal cases against
Capi Funds respondent spouses under Sections 254 and 255, in
tal relation to Section 248(B) of the NIRC.
19 P 900,0 130, 1,300,2
The CA, however, found no probable cause to indict
98 269,6 00.00 638. 52.44
respondent spouses for tax evasion. It agreed with
13.46 98
Acting Justice Secretary Devanadera that petitioner
19 324,2 (400, 39,2 1,263,7 failed to make "a categorical finding of the exact amount
99 58.28 000.0 81.8 92.59 of tax due from [respondent spouses]" and "to show
0) 7 sufficient proof of a likely source of [respondent
spouses’] income that enabled them to purchase the real
20 290,4 - 102, 1,656,2 17,51 (15,85 and personal properties adverted to x x x."78 We find
00 33.46 024. 51.02 1,010. 4,758. otherwise.
97 00 98)
20 311,2 - 406, 717,53 1,350, (632,4 The amount of tax due from respondent spouses was
01 27.62 309. 7.32 000.0 62.68) specifically alleged in the Complaint-Affidavit.79 The
70 0 computation, as wellas the method used in determining
the tax liability, was also clearly explained. The revenue
20 276,0 (100, 184, 360,11 officers likewise showed that the under declaration
02 25.62 000.0 092. 7.65 exceeded 30% of the reported or declared income.
0) 03
20 252,1 - 245, 857,47 2,000, (1,142, The revenue officers alsoidentified the likely source of
03 88.93 167. 4.55 000.0 525.45 the unreported or undeclared income intheir Reply-
97 0 ) Affidavit. The pertinent portion reads:
7
[To ₱1,72 20,86 (17,62 7. x x x x
5
tal: 3,747. 1,010. 9,747.
] 37 00 11)
[Respondent spouses] are into rental business and the
2000 2001 2003 net profit for six (6) years before tax summed only to
₱1,238,938.32 (an average of more or less
Unexplained funds – [P]15,8 [P]63 [P] Php200,000.00 annually). We asked respondent
under declaration 54,758. 2,462. 1,142, [Antonio] if we can proceed to his rented property to
98 68 525.45 [appraise] the earning capacity of the building [for] lease/
rent, but he declined our proposition. Due to such refusal
Taxable income [P]15,8 [P]63 [P]
made by the respondent, [petitioner], thru its
54,758. 2,462. 1,142,
examiners,took pictures of the subject property and
98 68 525.45
came up with the findings that indeed the unexplained
Income Tax due thereon: funds sought to have been used in acquiring the
valuable property in Tagaytay x x x came from the
First Php500,000.00 125,00 125,0 125,00 underdeclaration of rental income.80
0.00 00.00 0.00
In excess of 4,913,5 42,38 205,60 Apparently, the revenue officers considered respondent
Php500,000.00 22.87 8.06 8.14 Antonio’s rental business to be the likely source of their
unreported or undeclared income due to his unjustified
Total income tax due (net 4,973,7 93,71 281,87 refusal to allow the revenue officers to inspect the
tax paid) 65.66 9.06 9.14 building.
Add: 50% Surcharge 2,486,8 46,85 165,30
82.83 9.53 4.07 Respondent spouses’ defense that they had sufficient
savings to purchase the properties remains self-serving
20% Interest (up to 4,104,3 77,33 272,75 at thispoint since they have not yet presented any
5/31/2005) - 825 76.29 7.43 1.72 evidence to support this. And since there is no evidence
yet to suggest that the money they used to buy the
properties was from an existing fund, it is safe to assume
[P]11,5 [P]21 [P] 7 that that money is income or a flowof wealth other than a
Total Tax Due inclusive of
65,024. 7,916. 655,36 6 mere return on capital. It is a basic concept in taxation
Increments
79 02 9.01 that income denotes a flow of wealth during a definite
period of time, while capital is a fund or property existing
at one distinct point in time.81
2000 2001 2003
Moreover, by just looking at the tables presented by
Funds [Underdeclaration] [P]15,854,758.98 [P]632,462.68 petitioner, there is a manifest showing that respondent
[P]1,142,525.45
spouses had under declared their income. The huge
disparity between respondent Antonio’s reported or
declared annual income for the past several years and
respondent spouses’ cash acquisitions for the years
2000, 2001, and 2003 cannot be ignored. Infact, it
makes uswonder how they were able to purchase the
properties in cash given respondent Antonio’s meager
income.
In view of the foregoing,we are convinced that there is
probable cause to indict respondent spouses for tax
evasion aspetitioner was able to show that a tax is due
from them. Probable cause, for purposes of filing a
criminal information, is defined as such facts that are
sufficient to engender a well-founded belief that a crime
has been committed, that the accusedis probably guilty
thereof, and that he should be held for trial.82 It bears
stressing that the determination of probable cause does
not require actual or absolute certainty, nor clear and
convincing evidence of guilt; it only requires reasonable
belief or probability that more likely than not a crime has
been committed by the accused.83
In completely disregarding the evidence presented and
in affirming the ruling of the Acting Justice Secretary
Devanadera that no probable cause exists, we find that
the CA committed grave abuse of discretion amounting
to lack or excess of jurisdiction. As we have said, ifthere
is grave abuse of discretion, the court may step in and
proceed to make its own independent determination of
probable cause as judicial review is allowed to ensure
that the Executive Department acts within the
permissible bounds of its authority or does not gravely
abuse the same.84
We must make it clear, however, that we are only here to
determine probable cause.1âwphi1 As to whether
respondent spouses are guilty of tax evasion is an issue
that must be resolved during the trial of the criminal
case, where the quantum of proof required is proof
beyond reasonable doubt.
Before we close, we must stress that our ruling in this
case should not be interpreted as an unbridled license
for our tax officials to engage in fishing expeditions and
witch-hunting. They should not abuse their investigative
powers, instead they should exercise the same within
the bounds of the law. They must properly observe the
guidelines in making assessments and investigative
procedures to ensure that the constitutional rights of the
taxpayers are well protected as we cannot allow the
floodgates to be opened for frivolous and malicious tax
suits.
WHEREFORE, the Petition is hereby GRANTED. The
Decision dated October 28, 2010 and the Resolution
dated May 10, 2011 of the Court of Appeals in CA-G.R.
SP No. 112479 are hereby REVERSED and SET
ASIDE. The Resolutions dated August 31, 2006 and
November 29, 2007 of State Prosecutor Ma. Cristina A.
Montera-Barot in LS. No. 2005-573 finding probable
cause to indict respondent spouses Antonio Villan Manly
and Ruby Ong Manly for Violation of Sections 254 and
255 of the National Internal Revenue Code are hereby
REINSTATED.
SO ORDERED.
