Case Name CIR vs.

Eron Subic Power Corporation

G.R. No.

Ponente

Topic Requisites of a valid assessment

Doctrine

Facts
● Enron, a domestic corporation registered with the Subic Bay Metropolitan Authority
as a freeport enterprise, filed its annual income tax return for the year 1996.
● BIR, through a preliminary five-day letter, informed it of a proposed assessment of
an alleged P2,880,817.25 deficiency income tax.
○ Enron disputed the proposed deficiency assessment in its first protest letter.
● CIR gave a formal assessment notice requiring it to pay the alleged deficiency
income tax
○ Enron protested this deficiency tax assessment.
● Due to the non-resolution of its protest within the 180-day period, Enron filed a
petition for review in the Court of Tax Appeals (CTA).
○ It argued that the deficiency tax assessment did not provide the legal and
factual bases of the assessment.
○ Enron likewise questioned the substantive validity of the assessment.
● CTA ruled in favor of Enron and the CA affirmed
● In this appeal, CIR alleges that the assessment was valid
○ It asserts that the respondent was properly appraised of its deficiency taxes
by giving it the preliminary five day letter and the audit paper. It also argues
that it verbally informed Eron’s representative of its deficiency taxes.

Issue/s: WON ERON WAS PROPERLY INFORMED OF ITS DEFICIENCY? NO.

Ruling
A notice of assessment is:

[A] declaration of deficiency taxes issued to a [t]axpayer who fails to respond to a

Pre-Assessment Notice (PAN) within the prescribed period of time, or whose reply
to the PAN was found to be without merit. The Notice of Assessment shall inform
the [t]axpayer of this fact, and that the report of investigation submitted by the
Revenue Officer conducting the audit shall be given due course.
The formal letter of demand calling for payment of the taxpayer's deficiency tax or
taxes shall state the fact, the law, rules and regulations or jurisprudence on
which the assessment is based, otherwise the formal letter of demand and the
notice of assessment shall be void.(emphasis supplied)

To implement the provisions of Section 228 of the NIRC, RR No. 12-99 was
enacted. Section 3.1.4 of the revenue regulation reads:

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 taxpayer's 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.

Letter and Audit Paper do not constitute valid assessment

● The advice of tax deficiency, given by the CIR to an employee of Enron, as
well as the preliminary five-day letter, were not valid substitutes for the
mandatory notice in writing of the legal and factual bases of the
assessment.
● These steps were mere perfunctory discharges of the CIR's duties in
correctly assessing a taxpayer.
● The law requires that the legal and factual bases of the assessment be
stated in the formal letter of demand and assessment notice. Thus, such
cannot be presumed. Otherwise, the express provisions of Article 228 of the
NIRC and RR No. 12-99 would be rendered nugatory.
○ The alleged "factual bases" in the advice, preliminary letter and "audit
working papers" did not suffice.
○ There was no going around the mandate of the law that the legal and
factual bases of the assessment be stated in writing in the formal
letter of demand accompanying the assessment notice.
● The old law simply required that the BIR inform/notify the taxpayer of its
deficiency taxes.
○ The amendment requiring the assessment to contain the facts and
law on which it is based is in keeping with PROCEDURAL DUE
PROCESS
Case Name CIR vs. United Salvage And Towage (Phils.), Inc.

G.R. No. G.R. No. 197515, July 2, 2014

Ponente Peralta, J.

Topic Legal and factual bases of the assessment must be in the formal
letter of demand and assessment notice

Doctrine The law requires that the legal and factual bases of the assessment
be stated in the formal letter of demand and assessment notice.
Such cannot be presumed. The alleged “factual bases” in the
advice, preliminary letter and “audit working papers” did not suffice.

It is clear that a taxpayer must be informed in writing of the legal

and factual bases of the tax assessment made against him. The
use of the word "shall" in these legal provisions indicates the
mandatory nature of the requirements laid down therein.

Facts
Short version: Petitioner found respondent United Salvage and Towage (Phils.),
Inc. (USTP) liable to pay, among others, deficiency expanded withholding tax
(EWT) for taxable year 1994. A mere perusal of the FAN for the deficiency EWT for
taxable year 1994 will show that other than a tabulation of the alleged deficiency
taxes due, no further detail regarding the assessment was provided by petitioner.
Only the resulting interest, surcharge and penalty were anchored with legal basis.

USTP is engaged in the business of sub-contracting work for service contractors

engaged in petroleum operations in the Philippines. During the taxable years in
question, it had entered into various contracts and sub-contracts with several
petroleum service contractors, such as Shell Philippines and Alorn Production for
the supply of service vessels.

BIR found respondent USTP liable for deficiency income tax, withholding tax,
value-added tax (VAT) and documentary stamp tax (DST) for taxable years
1992,1994, 1997 and 1998. It issued demand letters with attached assessment
notices.

USTP filed administrative protests against the 1994 and 1998 EWT assessments,
respectively. Unheeded, USTP appealed by way of Petition for Review before the
CTA alleging that the Notices of Assessment are bereft of any facts, law, rules and
regulations or jurisprudence; thus, the assessments are void and the right of the
government to assess and collect deficiency taxes from it has prescribed on
account of the failure to issue a valid notice of assessment within the applicable
period.

During the pendency of the proceedings, USTP moved to withdraw the aforesaid
Petition because it availed of the benefits of the Tax Amnesty Program under
Republic Act (R.A.) No. 9480. Having complied with all the requirements, the CTA
partially granted the Motion to Withdraw and declared the issues on income tax,
VAT and DST deficiencies closed and terminated in accordance with the
pronouncement in PBC v. CIR. Consequently, the case was submitted for decision
covering the remaining issue on deficiency EWT and WTC, respectively, for
taxable years 1992, 1994 and 1998.

The CTA held that the Preliminary Assessment Notices (PANs) for deficiency EWT
for 1994 and 1998 were not formally offered. Hence, pursuant to Section 34, Rule
132 of the Revised Rules of Court, the Court shall neither consider the same as
evidence nor rule on their validity. As regards the Final Assessment Notices
(FANs) for deficiency EWT, the CTA held that the same do not show the law and
the facts on which the assessments were based. Said assessments were declared
void for failure to comply with Section 228 of the 1997 Tax Code. From the
foregoing, the only remaining valid assessment is for 1992.

The CTA declared that the right of CIR to collect the deficiency EWT and WTC for
1992 had already lapsed pursuant to Section 203 of the Tax Code. Thus, in ruling
for USTP, the CTA cancelled Assessment Notice Nos. 25-1-00546-92 and
25-1-000545-92.

Upon appeal, the CTA En Banc affirmed the decision with modification. CTA En
Banc upheld the 1998 EWT assessment. In addition to the basic EWT deficiency of
₱14,496.79, USTP is ordered to pay surcharge, deficiency interest, and
delinquency interest.

Issue/s
Whether or not the EWT assessments issued against the USTP for taxable year
1994 were valid.

Ruling
To determine whether the requirement for a valid assessment is duly complied
with, it is important to ascertain the governing law, rules and regulations and
jurisprudence at the time the assessment was issued. In the instant case, the
PANs and FANs pertaining to the deficiency EWT for taxable years 1994 and 1998
were issued on January 19, 1998, when the Tax Code was already in effect.

The date of issuance of the notice of assessment determines which law applies.
RA 8424 has already amended the provision of Section 229 on protesting an
assessment. The old requirement of merely notifying the taxpayer of the CIR's
findings was changed in 1998 to informing the taxpayer of not only the law, but
also of the facts on which an assessment would be made; otherwise, the
assessment itself would be invalid.

In the instant case, the 1997 NIRC covers the 1994 and 1998 EWT FANs because
there were issued on January 19, 1998 and September 21, 2001, respectively.
Clearly, the assessments are governed by the law.

To implement the law, BIR enacted Revenue Regulation No. 12-99, of which:

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
taxpayer’s 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.

It is clear from the foregoing that a taxpayer must be informed in writing of the legal
and factual bases of the tax assessment made against him. The use of the word
"shall" in these legal provisions indicates the mandatory nature of the requirements
laid down therein.

A mere perusal of the FAN for the deficiency EWT will show that other than a
tabulation of the alleged deficiency taxes due, no further detail regarding the
assessment was provided by CIR. Only the resulting interest, surcharge and
penalty were anchored with legal basis. Petitioner should have at least attached a
detailed notice of discrepancy or stated an explanation why the amount of
₱48,461.76 is collectible against respondent and how the same was arrived at.
Any short-cuts to the prescribed content of the assessment or the process thereof
should not be countenanced.
The alleged "factual bases" in the advice, preliminary letter and "audit working
papers" did not suffice.

Notably, the amendment is in keeping with the constitutional principle that no

person shall be deprived of property without due process.

Dispositive Portion
WHEREFORE, the petition is DENIED. The June 27, 2011 Decision of the Court of
Tax Appeals En Banc in C.T.A. EB No. 662 is hereby AFFIRMED.

Affirmed CTA decision:

WHEREFORE, premises considered, the Petition is PARTLY GRANTED. The
Decision dated March 12, 2010 and the Resolution dated July 15, 2010 are
AFFIRMED with MODIFICATION upholding the 1998 EWT assessment. In addition
to the basic EWT deficiency of ₱14,496.79, USTP is ordered to pay surcharge,
annual deficiency interest, and annual delinquency interest from the date due until
full payment pursuant to Section 249 of the 1997 NIRC.

Affirmed with modification by CTA:

WHEREFORE, the instant Petition for Review is hereby GRANTED. Accordingly,
Assessment Notice No. 25-1-00546-92 dated January 9, 1996 for deficiency
Expanded Withholding Tax and Assessment Notice No. 25-1-000545 dated
January 9, 1996 for deficiency Withholding Tax on Compensation are hereby
CANCELLED.
 Case Name Samar-I Electric Cooperative vs. CIR

G.R. No. G.R. No. 193100

Ponente VILLARAMA, JR., J

Topic Requisites of a Valid Assessment

Doctrine When the legal and factual bases can be found in the series of
correspondence between the BIR and the taxpayer (and not in the formal
letter of demand and financial assessment notice), there was substantial
compliance with the requirements of Section 228, as the taxpayer was
informed in writing.

Facts

Samar-I Electric Cooperative, Inc. (Petitioner) is an electric cooperative, with principal

office at Barangay Carayman, Calbayog City. It was issued a Certificate of Registration by
the National Electrification Administration (NEA) on February 27, 1974 pursuant to
Presidential Decree (PD) 269. Likewise, it was granted a Certificate of Provisional
Registration under Republic Act (RA) 6938, otherwise known as the Cooperative Code of
the Philippines on March 16, 1993, by the Cooperative Development Authority (CDA).

On July 13, 1999 and April 17, 2000, petitioner filed its 1998 and 1999 income tax returns.

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.

On November 13, 2000, respondent issued a duly signed Letter of Authority (LOA) No.
1998 00023803; covering the examination of petitioner's books of account and other
accounting records for income and withholding taxes for the period 1997 to 1999. The
LOA was received by petitioner on November 14, 2000.

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.

On 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. Attached to the letter is a
summary of the report, with an explanation of the findings of the investigators.
On December 13, 2001, petitioner executed a Waiver of the Defense of Prescription under
the Statute of Limitations, good until March 29, 2002.

On 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.
Respondent's Reply dated May 27, 2002, contained the explanation of the legal basis of
the issuance of the questioned tax assessments.

However, on July 8, 2002, respondent dismissed petitioner's protest and recommended

the issuance of a Final Assessment Notice.

Consequently, on September 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 Php 3,760,225.69, as well as deficiency
income tax covering the years 1998 to 1999 in the amount of Php 440,545.71, or in the
aggregate amount of Php 4,200,771.40.

Petitioner SAMELCO-I raised the following legal and factual errors in C.T.A. EB No. 462,
viz.:

● The Court in Division gravely erred in holding that the 1997 and 1998 assessments
on withholding tax on compensation (received by SAMELCO-I on September 15,
2002), have not prescribed even if the waiver validly executed was good only until
March 29, 2002.
● The Court in Division erred in holding that CIR can validly assess within the ten
(10)-year prescriptive period even if the notice of informal conference, PAN, formal
letter of demand, and assessment notice mention not a word that the BIR is
invoking Section 222 (a) of the 1997 Tax Code [then Sec. 223, NIRC], due to
alleged false withholding tax returns filed by [SAMELCO-I] as the same assertions
were mere afterthought to justify application of the 10-year prescriptive period to
assess.
● The Court in Division failed to consider that CIR made no findings as to
SAMELCO-I's filing of a false return as clearly manifested by the non-imposition of
50% surcharge on the 1997, 1998 and 1999 basic withholding tax deficiency in the
PAN, demand notice and even in the assessment notice other than interest
charges.
● The Court in Division erred in failing to declare as void both the formal letter of
demand and assessment notice on withholding tax on compensation for 1997
taxable year, given its non-compliance with Section 3.1.4 of RR 12-99.

The CTA EB found that the issues and arguments raised by the parties were "mere
reiterations of what have considered and passed upon by the Court in division in the
assailed Decision and the Amended Decision." It ruled that due process was observed in
the issuance of the assessments in accordance with Section 228 of the Tax Code; and that
the 1997 and 1998 assessments on deficiency withholding tax on compensation have not
prescribed.

On April 10, 2003, Final Decision on Disputed Assessment, petitioner was still held liable
for the alleged tax liabilities
CTA First Division ordered petitioner to pay CIR deficiency withholding tax on
compensation in the aggregate amount of Php 2,690,850.91.

Issue/s

(1) Whether the 1997 and 1998 assessments on withholding tax on compensation
were issued within the prescriptive period provided by law
(2) Whether the assessments were issued in accordance with Section 228 of the NIRC
of 1997

Ruling

(1) 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 petitioner’s 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, AND (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 x x xxx x

The 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
taxpayer’s 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 x x

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.

Dispositive Portion

WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of

the Court of Tax Appeals En Banc dated March 11, 2010 and July 28, 2010, respectively,
in C.T.A. EB Nos. 460 and 462 (C.T.A. Case No. 6697), are hereby AFFIRMED and
UPHELD.

With costs against the petitioner.

SO ORDERED.
 Case Name Pilmico-Mauri Foods Corp., v. CIR

G.R. No. G.R. No. 175651, September 14, 2016

Ponente Reyes, J.

Topic Supporting documents for declared expenses/deductibles;

estoppel in submitting official receipts/invoices
Reconciling Sec 29 (1997 NIRC) and Sec 238 (1977 NIRC)

Doctrine Statutory test of deductibility - it is axiomatic that to be deductible as a

business expense, three conditions are imposed, namely:
(1) the expense must be ordinary and necessary;
(2) it must be paid or incurred within the taxable year, and
(3) it must be paid or incurred in carrying on a trade or business.

In addition, not only must the taxpayer meet the business test, he must
substantially prove by evidence or records the deductions claimed
under the law, otherwise, the same will be disallowed. The mere allegation
of the taxpayer that an item of expense is ordinary and necessary does
not justify its deduction.

Facts
PMFC was assessed deficiency income tax, value-added tax and withholding tax for the
year 1996 amounting to 3 million including interest and penalties. PMFC filed a petition for
review to the CTA.

Before trial on the merits, PMFC and CIR filed a joint stipulation of facts wherein they both
agreed that one of the issues to be resolved is whether the 5 million purchase of raw
materials are unsupported. PMFC challenged the basis of CIR in disallowing the 5 million
as deduction, contending that the 1977 Tax Code did not have substantiation requirements
on deductions from gross income. PMFC also presented several invoices to prove the
purchase transactions happened.

The CTA affirmed the CIR assessment but reduced the total amount. The CTA cited
Section 238 of the 1977 Tax Code (now 237 of NIRC) which stated that “...The original of
each receipt or invoice shall be issued to the purchaser, customer or client at the time
the transaction is effected, who, if engaged in business or in the exercise of profession,
shall keep and preserve the same in his place of business for a period of three (3)
years from the close of the taxable year in which such invoice or receipt was issued,
while the duplicate shall be kept and preserved by the issuer, also in his place of business
for a like period.”
Among the invoices presented by PMFC, CTA found that one amounting to 2.3 million was
originally in the name of Pilmico Foods Corp (parent company of PMFC). The name was
erased and replaced with PMFC, a countersign written beside the correction. Another
invoice amounting to 2.7 million was undated and the word “Mauri” was inserted between
Pilmico and Foods. The CTA found that the alterations in the sales invoices gave rise to
serious doubts as to their authenticity.

PMFC filed for a review to the CTA En Banc who also affirmed the previous decisions. It
further explained that the purpose of the law in requiring the preservation by the purchaser
of the official receipts or sales invoices for a period of three years is two-fold: 1) to enable
said purchaser to substantiate his claimed deductions from the gross income, and 2) to
enable the Bureau of Internal Revenue to verify the accuracy of the gross income of the
seller from external sources such as the customers of said seller.

PMFC argued that Section 29 of the 1977 Tax Code, not Section 238 of NIRC, is
applicable to determine the deductibility of an expense, which only requires that:
(1) the expense must be ordinary and necessary;
(2) it must be paid or incurred within the taxable year; and
(3) it must be paid or incurred in carrying on a trade or business.

Relevant Issue
Whether the nature of evidence required to prove an ordinary expense like raw
materials is governed by Section 29 of the 1977 NIRC and not by Section 238 as
found by the CTA.

Ruling
The law intends for Section 29 and 238 of the 1977 Tax Code to be read together,
and not for one provision to be accorded preference over the other. Both provisions
must be construed to apply harmoniously, with Section 238 adding to the
requirements in Section 29.

The SC noted that in the Atlas case cited by PMFC, the Court declared that “not
only must the taxpayer meet the business test (Section 29), he must substantially
prove by evidence or records the deductions claimed under the law, otherwise, the
same will be disallowed (Section 238). The mere allegation of the taxpayer that an
item of expense is ordinary and necessary does not justify its deduction.”

It is then clear that Section 29, in enumerating only 3 requirements, does not
exempt the taxpayer from substantiating claims for deductions. While official
receipts are not the only pieces of evidence which can prove deductible expenses,
if presented, they shall be subjected to examination. PMFC submitted official
receipts as among its evidence, and the courts doubted their veracity. And PMFC
was unable to persuasively explain and prove through other documents the
discrepancies in the said receipts. Consequently, the deductions claimed must be
disallowed. The court invoked Section 238 of the 1977 NIRC considering that
official receipts are matters provided for in the said section.

Dispositive Portion
WHEREFORE, the instant petition is DENIED. The Decision dated August 29,
2006 and Resolution dated December 4, 2006 of the Court of Tax Appeals en banc
in C.T.A. EB No. 97 are AFFIRMED. However, MODIFICATION thereof, the legal
interest of six percent (6%) per annum reckoned from the finality of this Resolution
until full satisfaction, is here imposed upon the amount of P2,804,920.36 to be paid
by Pilmico-Mauri Foods Corporation to the Commissioner of Internal Revenue.

Other discussions
Although CIR belatedly raised the issue on lack or inadequacy of supporting
documents (only on appeal), PMFC was estopped by its agreement to the joint
stipulation of facts.

Revenue laws are not intended to be liberally construed. Taxes are the lifeblood of
the government and “the price we pay for civilization” (by Holmes); hence, laws
relative thereto must be faithfully and strictly implemented.
 Case Name CIR vs. Fitness By Design, Inc.

G.R. No. G.R. No. 215957

Ponente Leonen

Topic Requisites of Valid Assessment

Doctrine Compliance with Section 228 of the National Internal Revenue

Code is a substantive requirement. It is not a mere formality.
Providing the taxpayer with the factual and legal bases for the
assessment is crucial before proceeding with tax collection. Tax
collection should be premised on a valid assessment, which would
allow the taxpayer to present his or her case and produce
evidence for substantiation.

Facts

Respondent Fitness filed its Annual Income Tax Return for the taxable year of
1995. According to Fitness, it was still in its pre-operating stage during the
covered period.

Respondent FITNESS received a copy of the Final Assessment Notice dated 17

March 2004 issued by petitioner CIR notifying FITNESS of its internal revenue tax
liabilities for the year 1995.

Respondent FITNESS filed a protest to the said notice pleading prescription. In its
Answer, petitioner CIR claimed that its right to assess had not yet prescribed
because the 1995 income tax return filed by the respondent FITNESS was false
and fraudulent for its alleged intentional failure to reflect its true sales.

CIR issued a Warrant of Distraint and/or Levy.

Respondent FITNESS filed before the First Division of CTA a Petition for Review
(With Motion to Suspend Collection of Income Tax, Value Added Tax, Documentary
Stamp Tax and Surcharges and Interests).

In its defense, the CIR 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 NIRC. Because the 1995 ITR filed by
Respondent 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.
CTA First Division: granted respondent FITNESS' petition on the ground that the
assessment has already prescribed. It cancelled and set aside the Final
Assessment Notice as well as the Warrant of Distraint and/or Levy issued by the
CIR. It ruled that the Final Assessment notice is invalid for failure to comply with
the requirements od Section 228 of NIRC.

On appeal before the CTA En Banc, the petitioner CIR asserted that it had 10
years to make an assessment due to the fraudulent ITR filed by FITNESS. It also
claimed that the assessment already attained finality due to respondent FITNESS’
failure to file its protest within the period provided by law. Respondent FITNESS
argued that the Final Assessment Notice issued to it could not be claimed as a
valid deficiency assessment that could justify the issuance of a warrant of distraint
and/or levy. It asserted that it was a mere request for payment as it did not provide
the period within which to pay the alleged liabilities.

CTA EN Banc: ruled in favor of FITNESS.

Issue/s

Whether the disputed Final Assessment Notice is a valid assessment.

Ruling

No, the disputed Final Assessment Notice is not a valid assessment.

First, it lacks the definite amount of tax liability for which respondent FITNESS is
accountable. It does not purport to be a demand for payment of tax due, which a
final assessment notice should supposedly be. An assessment, in the context of
the NIRC is a "written notice and demand made by the BIR on the taxpayer for the
settlement of a due tax liability that is there: definitely set and fixed." Although the
disputed notice provides for the computations of respondent's tax liability, the
amount remains indefinite. It only provides that the tax due is still subject to
modification, depending on the date of payment. Thus:

The complete details covering the aforementioned discrepancies

established during the investigation of this case are shown in the
accompanying Annex 1 of this Notice. The 50% surcharge and 20% interest
have been imposed pursuant to Sections 248 and 249 (B) of the [National
Internal Revenue Code], as amended. Please note, however, that the
interest and the total amount due will have to be adjusted if prior or beyond
April 15, 2004.
Second, there are no due dates in the Final Assessment Notice. This negates
petitioner's demand for payment. Petitioner CIR's contention that April 15, 2004
should be regarded as the actual due date cannot be accepted. The last paragraph
of the Final Assessment Notice states that the due dates for payment were
supposedly reflected in the attached assessment:

In view thereof, you are requested to pay your aforesaid deficiency internal
revenue tax liabilities through the duly authorized agent bank in which you
are enrolled within the time shown in the enclosed assessment notice.
(Emphasis in the original)

However, based on the findings of the CTA First Division, the enclosed
assessment pertained to remained unaccomplished.

Contrary to petitioner CIR's view, April 15, 2004 was the reckoning date of accrual
of penalties and surcharges and not the due date for payment of tax liabilities. The
total amount depended upon when respondent decides to pay. The notice,
therefore, did not contain a definite and actual demand to pay.

Compliance with Section 228 of the National Internal Revenue Code is a

substantative requirement. It is not a mere formality. Providing the taxpayer with
the factual and legal bases for the assessment is crucial before proceeding with
tax collection. Tax collection should be premised on a valid assessment, which
would allow the taxpayer to present his or her case and produce evidence for
substantiation.

The CTA did not err in cancelling the Final Assessment Notice as well as the Audit
Result/Assessment Notice issued by petitioner to respondent for the year 1995
covering the "alleged deficiency income tax, value-added tax and documentary
stamp tax, inclusive of surcharges and interest" for lack of due process. Thus, the
Warrant of Distraint and/or Levy is void since an invalid assessment bears no valid
effect.

Taxes are the lifeblood of government and should be collected without hindrance.
However, the collection of taxes should be exercised "reasonably and in
accordance with the prescribed procedure."

The essential nature of taxes for the existence of the State grants government with
vast remedies to ensure its collection. However, taxpayers are guaranteed their
fundamental right to due process of law, as articulated in various ways in the
process of tax assessment. After all, the State's purpose is to ensure the
well-being of its citizens, not simply to deprive them of their fundamental rights.

Dispositive Portion
WHEREFORE, the Petition is DENIED.

Case Name CIR vs. Pascor Realty Development Corp.

G.R. No. 128315

Ponente Panganiban, J.

Topic Requisites of a valid assessment

Doctrine An assessment contains not only a computation of tax liabilities, but also a
demand for payment within a prescribed period. It also signals the time
when penalties and interests begin to accrue against the taxpayer. To
enable the taxpayer to determine his remedies thereon, due process
requires that it must be served on and received by the taxpayer.

Facts

Pascor Realty Development Corporation’s books were examined by the BIR through a
Letter of Authority issued by the BIR Commissioner. Upon examination, the BIR assessed
that Pascor Realty is liable to pay P7,498,434.65 and P3,015,236.35 for the years 1986
and 1987 respectively.

However, Pascor Realty had not paid the amounts that were asked of them from the
assessment and thus, the Commissioner of Internal Revenue filed a criminal complaint
against them for tax evasion for failing to pay the P10,513,671.00 worth of taxes. At this
time, Pascor Realty also filed an Urgent Request for Reconsideration/Reinvestigation
disputing the tax assessment and tax liability that was given to them.

On March 23, 1995, Pascor Realty received a subpoena from the DOJ in connection with
the criminal complaint filed against them by the CIR. Later on May 17, 1995, the CIR
denied the Urgent Request filed by Pascor Realty on the grounds that the Commissioner
had not issued a formal assessment. The CIR decision was later appealed by Pascor
Realty to the Court of Tax Appeals. The CIR responded by filing a Motion to Dismiss at the
CTA on the grounds that the said Court did not have any jurisdiction over the matter that
was being appealed by Pascor Realty, and this was denied.
The CIR then filed a Petition with the Court of Appeals in order to have the dismissal made
by the CTA reversed. However, the CA stood with the CTA’s decision to deny the Motion to
Dismiss that was filed by the CIR.

Issue

1. Is an affidavit attached to a tax evasion complaint made by the CIR considered as

a tax assessment?

Held

No. an affidavit attached to a tax evasion complaint made by the CIR should not be
considered as a tax assessment.

The Supreme Court ruled in this case that neither the NIRC nor the revenue regulations
governing the protest of assessments provide a specific definition or form of an
assessment. Despite that, the NIRC does define the specific functions and effects of an
assessment such as that an assessment must demand payment of the taxes described
within a specific period.

That being said, the affidavit attached to the Complaint made by the CIR when it sued
Pascor Realty for tax evasion does not count as a proper assessment because
considering ther Affidavit as one would subvert the nature of an assessment. Further, not
all documents coming from the BIR containing a computation of the taxpayer’s tax liability
can be deemed as assessments.
Case Name CIR vs. Spouses Remigio P. Magaan and Leticia L. Magaan
(Undeclared wealth)

G.R. No. G.R. No. 232663

Ponente LEONEN, J.:

Topic Requisites of a valid assessment

Doctrine

Facts
● On November 9, 2005, a confidential informant filed a Complaint Affidavit before
the BIR alleging therein that the Magaan spouses had been operating two
financial companies, Imilec Tradehaus and Services Company and L4R
Realty and Development Corporation and that they have allegedly earned
Php 35M+ from April 1998 to January 2002, but was undeclared in their
income tax returns.
● The spouses were assessed a total of P24,329,405.68 worth of deficiency taxes
inclusive of surcharge and interests.
● Subsequently, the Magaan Spouses filed a Petition for Review before the Court of
Tax Appeals (CTA) where it ruled that the Magaan Spouses may be held liable
based on Maniwang's confidential information after finding that said spouses
received income from the checks issued by Maniwang, but these were
undeclared.
● In its June 30, 2015 Resolution, the CTA Second Division denied the Magaan
Spouses'
 Motion for Reconsideration. The Magaan Spouses filed a Petition for Review
before the CTA En Banc where it ruled in 2017, that since fraud was not proven,
the Second Division erroneously applied the 10-year prescription period and
declared that the assessments were void for lacking factual and legal bases,
hence, unfounded.
● Presiding Justice Roman G. Del Rosario and two other Associate Justices
dissented from the En Banc's ruling citing that the CIR sufficiently proved that the
Magaan Spouses committed fraud in not declaring the interest income from
the loan secured by the Real Estate Mortgage and that said REM was never
questioned and that Maniwang’s testimony that she paid the loan was
unrebutted and concluded thus, that fraud, having been proven, the 10-year
prescriptive period applied, and the assessments had not prescribed.
● In its June 28, 2017 Resolution, the CTA En Banc denied the CIR’s Motion for
Reconsideration.
● On August 29, 2017, after 'having moved for an extension; the CIR filed this
Petition. Respondent Magaan Spouses filed their Comment on January 3, 2018,
and in tum, petitioner filed a Reply insisting that while they filed a Rule 45 petition,
this case falls under the exception that such petitions may only raise questions of
law.
● Petitioner claims that the CTA En Banc's factual findings were totally devoid of
support or were glaringly erroneous, constituting grave abuse of discretion arguing
that the assessments against respondents had factual and legal bases, to wit: 1)
that despite receiving these notices, including a Subpoena, respondents only
submitted the Articles of Partnership of Imilec Tradehaus proving that they were
not its partners; 2) that the loans' existence was also confirmed by the notarized
Real Estate Mortgage’; 3) That the existence of the checks was also allegedly
established upon the submission of the originally marked exhibits; 4) that
respondents were well informed of the factual and legal bases of the assessments
through notices and letters, and had the opportunity to contest these, but simply
ignored them; 5) having proved respondents' intent to evade paying correct taxes
with clear and convincing evidence, heavily relying on Justice Del Rosario's
dissent.
● As this constitutes fraud, petitioner maintains that the 10-year prescriptive period
applies, and the deficiency income and percentage tax assessments were
seasonably issued.
● On the other hand, respondents argue that fraud has not been proven citing the
following points. Firstly, that the checks' existence cannot be proven by Maniwang's
oral
recollection given that: 1) no proof that the checks were deposited in their bank
accounts, and deny having received any income from the checks; 2) given that the
original copies had been available to petitioner who only refused to submit them; 3)
that Maniwang's affidavit was not corroborated by a disinterested person; 4) that
since the original checks were not formally offered, respondents say these cannot
be considered evidence under Rule 132, Section 34 of the Rules of Court; and that
 5) Maniwang also failed to explain how much from her check payments
corresponds to the principal and interest.
● Furthermore, respondents assert that the assessments are void for having no
legal and factual bases. They contend that petitioner failed to prove fraud with
competent and convincing evidence and that said assessments made were
allegedly only "guesstimated" by deducting the alleged principal amount from the
total amount of checks issued claiming that such computation is "illogical, wrong,
and a result of shallow investigative work.”
● Respondents add that when a certification had been issued proving that they
indeed filed tax returns, petitioner changed tactic to now say that they filed
fraudulent returns by not including the interest income.
● Finally,respondents say they cannot be faulted for not presenting their tax returns
from 1998 to 2001, since the Bureau of Internal Revenue only issued the Letter of
Authority in 2006. Since more than three years went by after the taxable years in
question, they say they cannot be expected to have kept their tax returns, books of
accounts, and other accounting records. Hence, this petition.

Issue/s:

1. Whether the Court of Tax Appeals En Banc committed grave abuse of

discretion? No.
2. Whether petitioner Commissioner of Internal Revenue has sufficiently
informed
respondent Spouses Remigio and Leticia Magaan of the factual bases of
the deficiency income and percentage tax assessments? No.
3. Whether petitioner Commissioner of Internal Revenue has established fraud
with clear and convincing evidence? No.

Ruling

1. The Court of Tax Appeals En Banc did not commit grave abuse of
discretion. As will be discussed, the deficiency income and percentage tax
assessments are void because respondents have not been sufficiently
informed of their factual basis. Moreover, the petitioner failed to prove
that respondents received any taxable income from the informant. No intent
to evade payment of taxes can be inferred here. Since fraud has not been
proven, the deficiency income and percentage tax assessments have
already been prescribed.

2. No. Respondents were not properly informed of the factual basis of

fraud to justify the belatedly issued deficiency assessments. The basis
 of their connection with Imilec Tradehaus is material in showing that they
used it to evade the correct payment of taxes. Assessments must be
based on facts and not mere presumptions. In failing to provide
respondents with material information, petitioner denied them the
opportunity to effectively protest. This renders the assessments void, for
which respondents cannot be held liable.

3. No. Petitioner failed to establish that respondents received income from

Maniwang's check payments. Most of the checks were issued to Imilec
Tradehaus, and respondent Remigio Magaan's riame appeared as
co-payee starting November 1999 and being a check co-payee does not
automatically establish the fact of income. Even if respondent Remigio
admitted having extended a loan to Maniwang, this act is not subject to
taxation.

Petitioner failed to prove that respondents received taxable income from the
check payments. Indeed, Maniwang's testimony did not establish that the
checks were deposited in their bank accounts. Second, the petitioner did not
even submit respondents' tax returns to prove that their income from the
alleged loan payments were not declared. Notably, petitioner had initially
assessed respondents as if no return had been filed. After the Court of Tax
Appeals had found that respondents had duly filed tax returns, petitioner
changed tune to claim that respondents filed fraudulent returns. Even then,
the petitioner failed to prove the basis of the deficiency assessments. It
offered nothing but the check payments to claim that respondents filed
fraudulent tax returns. Without proving receipt of taxable income, the
obligation to pay taxes does not arise. Petitioner cannot impute intent to
evade payment of correct taxes. Finally, the checks were not formally
offered in evidence.
Case Name Asian Transmission Corp. v. CIR

G.R. No.

Ponente

Topic Prescription

Doctrine

Facts:
● ATC filed its annual ITR
● The CIR sent a letter informing ATC that the Audit and Investigation Division
would be examining their books for the year 2002. This act was then
followed by the PAN
● On various dates, ATC issued the following waivers for the defense of
prescription (essentially, these documents would have the effect of waiving
any defense it has against the BIR that the assessment was filed out of
time)

● Later on, ATC availed of a tax amnesty

● CIR issued a Formal Letter of Demand against ATC for the latter’s
deficiency taxes
○ ATC protested this but the CIR ruled that ATC had allegedly already
waived its defense of prescription by virtue of the abovementioned
docs
 ● CTA: ruled in favor of ATC. Held that the waivers were invalid for the
following reasons. Therefore, the 3 year prescriptive period was not
extended.
○ the waivers were notarized by its own employee despite not being
validly commissioned to perform notarial acts;
○ the BIR did not indicate the date of its acceptance;
○ the BIR did not specify the amounts of and the particular taxes
involved; and
○ respondent CIR did not sign the waivers despite the clear mandate of
RMO 20-90 to that effect.
● CTA en banc reversed the CTA decision and CA affirmed

Issue: WON the waivers are valid? (Not really since they did not comply with
the law but the SC ruled that they should be considered effective)

Ruling:

GR: A waiver of the defense of prescription in tax assessment should conform to

the formalities of law to be considered valid.
XPNS:
1. When both parties are in pari delicto;
2. Public policy dictates that the waiver should be given effect

Effectivity of waiver advances public policy

Upholding the waiver’s legality is clearly consistent with public policy. This is based
upon the lifeblood theory. 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.

Both parties are in pari delicto, but ATC is more at fault

Fault of ATC
● ATC 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.
● ATC is estopped from questioning the validity of its waivers
○ ATC 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.
 ○ 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
● ATC’s act of questioning the waiver is HIGHLY SUSPICIOUS
○ In this case ATC, after voluntarily executing waivers, insisted on their
invalidity by raising the very same defects it caused

Fault of BIR
● 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.
● NEVERTHELESS, BIR’S LAPSES CAN BE RECTIFIED BY HOLDING ITS
OFFICERS ADMINISTRATIVELY LIABLE
○ Since BIR’s mistake can be corrected, the SC opted to hold ATC
liable to pay taxes

Case Name CIR vs. Basf Coating + Inks Phils., Inc.

G.R. No. G.R. No. 198677

Ponente

Topic Prescriptive Period

Doctrine

Facts
● Petitioner in the said case 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. The FAN indicated an amount
of 18 million pesos representing income tax, VAT, WTC, EWT and DST for the
taxable year of 1999.
● BIR's RDO issued a First Notice before the Issuance of Warrant of Distraint and
Levy (FNB), which was sent to the residence of one of BC's directors. The 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.
 ● The CTA First Division 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
them, since there are no valid notices sent to BC, the subsequent
assessments against it are considered void. CIR filed an MR which was denied
later on.
● So, it went to CTA en banc. The CTA En Banc held that CIR's right to assess
respondent for deficiency taxes has already been prescribed and that the FAN
issued to respondent never attained finality because BC did not receive it.
Issues:
Whether the running of the 3-year prescriptive period to assess suspended when BC
failed to notify the CIR of its change of address? No.

Ruling:

● NO, the 3-year prescriptive period to assess was not suspended in favor of
the CIR even if BC failed to notify regarding its change of address. 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.