G.R. No.

210987 November 24, 2014

THE PHILIPPINE AMERICAN LIFE AND GENERAL INSURANCE COMPANY, Petitioner,

vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, Respondents.

FACTS:
Petitioner Philamlife sold its 49.89% shareholding in PhilamCare through competitive
bidding to STI Investments, Inc. in 2009 for PhP 104,259,330. After paying documentary
stamp and capital gains taxes, Philamlife applied for a tax clearance with the BIR. The BIR
informed Philamlife of potential donor’s tax liability because the selling price was lower than
the book value of the shares based on PhilamCare's 2008 financial statements.
The Commissioner of Internal Revenue (CIR) denied Philamlife's request for a ruling
that the sale was not subject to donor’s tax. Citing Section 100 of the National Internal
Revenue Code (NIRC) and Revenue Regulation 6-2008 (RR 6-2008), the CIR ruled that the
price difference was a taxable donation subject to 30% donor’s tax. The CIR also stated that
BIR Ruling [DA-(DT-065) 715-09], relied upon by Philamlife, had been revoked.
The Secretary of Finance affirmed the CIR's ruling. Philamlife then appealed to the
Court of Appeals (CA) via a petition for review under Rule 43, arguing that Section 7(c.2.2)
of RR 06-08 and RMC 25-11 were void, that Section 100 of the NIRC was inapplicable as
the sale was at fair market value and a bona fide business transaction without donative
intent, and that RMC 25-11 was being applied retroactively.
The CA dismissed Philamlife's petition for lack of jurisdiction, holding that the Court
of Tax Appeals (CTA) had jurisdiction over the matter as it involved a ruling by the
Commissioner in the exercise of her power to interpret tax laws, which falls under "other
matters arising under the NIRC or other laws administered by the BIR." Philamlife sought
reconsideration, which was denied, leading to this petition before the Supreme Court.

ISSUES: 1) WON the CA erred in dismissing the petition for lack of jurisdiction.

HELD:
The Supreme Court held that the CA did not err in dismissing the petition for lack of
jurisdiction. It clarified that while Section 4 of the NIRC provides for the Secretary of
Finance's review of the Commissioner's interpretative rulings, there is no explicit provision
for further appeal. However, the Court interpreted Section 7(a)(1) of RA 1125, as amended,
which grants the CTA exclusive appellate jurisdiction over "other matters arising under the
National Internal Revenue or other laws administered by the Bureau of Internal Revenue," to
impliedly include appeals from the Secretary of Finance's review under Section 4 of the
NIRC. The Court reasoned that to leave the mode of appeal undetermined would be an
injustice to taxpayers.
The Court implies that from the purpose of RA 1125 and its amendatory laws the
CTA is the proper forum with which to institute the appeal. As the specialized quasi-judicial
agency mandated to adjudicate tax, customs, and assessment cases, there can be no other
court of appellate jurisdiction that can decide the issues raised in the CA petition, which
involves the tax treatment of the shares of stocks sold.
It further held that the CTA's appellate jurisdiction now includes the power of
certiorari. Hence, it can now rule not only on the propriety of an assessment or tax treatment
of a certain transaction, but also on the validity of the revenue regulation or revenue
memorandum circular on which the said assessment is based.
THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs. PEDRO B. BAUTISTA and
DATIVA CORRALES TAN, respondents. PEDRO B. BAUTISTA and DATIVA
CORRALES TAN, petitioners, vs. THE COLLECTOR OF INTERNAL REVENUE.

FACTS:
Appeal from a decision of the Court of Tax Appeals. Spouses Pedro B. Bautista and
Dativa Corrales Tan each filed a separate income tax return for 1947.The husband reported
an income of P2,300 and paid an income tax of P9.00, after claiming personal exemptions of
P2,500 as head of family and P500 for a minor child. The wife reported in her return an
income of P9,999.90 derived from the sale of her share in a lot and building at Tabora street,
Manila, paying an income tax of P490. She also claimed personal exemptions of P2,500 for
being a married person or head of family and P500 for the same minor child.
Under investigation by the Bureau of Internal Revenue, the returns were
consolidated and a deficiency was assessed against them in the sum of P15,564.54.The
deficiency assessment was the result mainly of the alleged under-declaration of the
proceeds of the sale of the wife's share in the Tabora property and the over-valuation of the
cost thereof.The spouses contested the assessment on the grounds that the amount actually
received by them from the sale was P49,999.00 and not P66,606.66; that they failed to claim
deduction for losses sustained as a result of the fire which destroyed their house; that the
Tabora property was a capital asset and only 50% of the gain was taxable; and that the right
to assess the deficiency income tax had prescribed.
On appeal, the Court of Tax Appeals rendered the decision appealed, ordering the
spouses to pay the deficiency income tax plus surcharges. The Bautistas maintain, in this
appeal, that the lower court erred (1) in overruling their defense of prescription; (2) in not
allowing deductions on account of the loss suffered by them; and (3) in holding that the
Tabora property was an ordinary asset.

ISSUE: WON the right of the BIR to assess the deficiency income tax had already
prescribed. (NO)

HELD:
With respect to prescription, the income tax returns of the Bautistas for 1947 are
deemed filed as of March 1, 1948. Section 331 of the Tax Code provides that the deficiency
assessment must be made within five years after the return was filed, and the assessment is
deemed made when the notice to this effect is released, mailed or sent by the Collector to
the taxpayer, for the purpose of giving effect to said assessment. Said section does not
require that the notice be received by the taxpayer within the said period of five years.
In the case at bar, the Collector assessed the deficiency tax on January 21, 1953
and notice to this effect was sent or given due course prior to March 1, 1953, for it was
received in the Office of the City Treasurer of Quezon City, on February 13, 1953, and,
hence, before the expiration of said period.
As to the alleged fire losses disallowed by the court, suffice it to say that the
question whether the findings are correct or not depends upon the degree of credence
attached to the testimonial evidence introduced by the taxpayers, which the lower court was
in a better position to decide. Finally, the contention that the property was a capital asset, is
untenable, in view of the findings of the lower court that said property was primarily held by
them for rent, and that they never occupied the same as their residence. On the other hand,
theclaim of the Government has already been rejected in Collector of Internal Revenue vs.
University of Sto. Tomas, G. R. No. L-11274 and L-11280, November 28, 1958. The
surcharge of 5% and the interest of 1% a month referred to in Section 51 (e) of the Tax Code,
are imposed upon the "tax unpaid."Decision affirmed. ConcepcioH n, J., ponente Collector of
Internal Revenue vs. Bautista and Corrales Tan, 105 Phil. 1326, Nos. L-12250 and L-12259
May 27, 195.
 G.R. No. 213943

COMMISSIONER OF INTERNAL REVENUE, Petitioner

vs
PHILIPPINE DAILY INQUIRER, INC., Respondent

FACTS:
Philippine Daily Inquirer, Inc. (PDI) filed its Annual Income Tax Return and Quarterly
VAT Returns for taxable year 2004. The BIR, through its RELIEF system, found
discrepancies between PDI's declared purchases and its suppliers' declared sales, issuing a
Letter Notice (LN) alleging underdeclaration of purchases. PDI submitted reconciliation
reports. Subsequently, the BIR issued a Preliminary Assessment Notice (PAN) and then a
Formal Letter of Demand (FLD) and Assessment Notice for deficiency VAT and income tax
for 2004. PDI protested the assessment, and upon the BIR's inaction within 180 days, filed a
Petition for Review with the CTA.
The CTA First Division granted PDI's petition, cancelling the assessment. It found
that PDI had presented sufficient evidence (ICPA report and supporting documents) to
controvert the BIR's assessment, which was based solely on the RELIEF system findings.
The CTA First Division also ruled that the three Waivers of the Statute of Limitation executed
by PDI were defective and did not extend the three-year prescriptive period for assessment.
The CTA En Banc affirmed the CTA First Division's decision, finding no reason to
depart from its findings. It held that PDI had adequately discharged its burden of proving the
incorrectness of the BIR's assessment, which the BIR failed to rebut with contrary evidence.
The CTA En Banc also upheld the finding that the Waivers were defective and the
assessment was issued beyond the prescriptive period. The CIR then appealed to the
Supreme Court.

ISSUES: 1) WON the PDI adequately controverted the BIR’s assessment; 2) WON the right
to assess had prescribed; and WON PDI was estopped from raising the defense of
prescription.

1. WON PDI HAS ADEQUATELY CONTROVERTED BIR’S ASSESMENT

No. The general rule is that findings of fact of the CTA are not to be disturbed
by this Court unless clearly shown to be unsupported by substantial evidence.[17] Since by
the very nature of its functions, the CTA has developed an expertise to resolve tax issues,
the Court will not set aside lightly the conclusions reached by them, unless there has been
an abuse or improvident exercise of authority.
In reaching their conclusions, the CTA First Division and En Banc
relied on the report submitted by the ICPA. According to the CTA, the BIR failed to rebut the
ICPA report. However, there were discrepancies that PDI were able to explain. In particular,
the ICPA report showed that the purchase from Millennium Cars, Inc. was made on behalf of
an employee as a loan. In addition, the underdeclared input tax insofar as Alliance Printing,
Inc. is concerned was due to the latter's erroneous posting of data, a fact that the
corporation admitted. However, there are still issues that need to be resolved. In particular,
PDI failed to justify its erroneous listing of purchases from Harrison Communications, Inc.,
McCann Erickson, Inc., and WPP Marketing Corporation as general and administrative
expenses.

2. WON THE RIGHT TO ASSES HAS PRESCRIBED and WON THE PDI IS ESTOPPED
FROM RAISING THE DEFENSE OF PRESCRIPTION.
Yes. The right to assess has prescribed. CIR alleges that PDI filed a false or
fraudulent return, thus, Section 222 applies (10 years). While the filing of a fraudulent return
necessarily implies that the act of the taxpayer was intentional and done with intent to evade
the taxes due, the filing of a false return can be intentional or due to honest mistake. In CIR v.
B.F. Goodrich Phils., Inc.,[31] the Court stated that the entry of wrong information due to
mistake, carelessness, or ignorance, without intent to evade tax, does not constitute a false
return. In this case, we do not find enough evidence to prove fraud or intentional falsity on
the part of PDL. Since the case does not fall under the exceptions, Section 203 of the NIRC
should apply. As a rule, Section 203 of the NIRC provides that an assessment of internal
revenue tax under ordinary circumstances must be made within three (3) years counted from
the period fixed by law for the filing of the tax return or the actual date of filing, whichever is
later. Indeed, the Waivers executed by the BIR and PDI were meant to extend the three-year
prescriptive period, and would have extended such period were it not for the defects found
by the CTA. This further shows that at the outset, the BIR did not find any ground that would
make the assessment fall under the exceptions.

Waiver must strictly conform to RMO No. 20-90. The failure to provide the office
accepting the waiver with the third copy violates RMO 20-90 and RDAO 05-01. Therefore,
the First Waiver was not properly executed on 21 March 2007 and thus, could not have
extended the three-year prescriptive period to assess and collect taxes for the year 2004. To
make matters worse, the CIR committed the same error in the execution of the Second
Waiver on 5 June 2007. Even if we consider that the First Waiver was validly executed, the
Second Waiver failed to extend the prescriptive period because its execution was contrary to
the procedure set forth in RMO 20-90 and RDAO 05-01. Granting that the First and Second
Waivers were validly executed, the Third Waiver executed on 12 December 2007 still failed
to extend the three-year prescriptive period because it was not executed in three copies. In
short, the records of the case showed that the CIR's three-year prescriptive period to assess
deficiency tax had already prescribed due to the defects of all the Waivers.
Clearly, the defects in the Waivers resulted to the non-extension of the period to
assess or collect taxes, and made the assessments issued by the BIR beyond the three-year
prescriptive period void. The CIR also argues that PDI is estopped from questioning the
validity of the Waivers. We do not agree. As stated by the CTA, the BIR cannot shift the
blame to the taxpayer for issuing defective waivers. The Court has ruled that the BIR cannot
hide behind the doctrine of estoppel to cover its failure to comply with RMO 20-90 and
RDAO 05-01 which were issued by the BIR itself. A waiver of the statute of limitations is a
derogation of the taxpayer's right to security against prolonged and unscrupulous
investigations and thus, it must be carefully and strictly construed. Since the three Waivers in
this case are defective, they do not produce any effect and did not suspend the three-year
prescriptive period under Section 203 of the NIRC.
 G.R. No. 166387 January 19, 2009

COMMISSIONER OF INTERNAL REVENUE, Petitioners,

vs.
ENRON SUBIC POWERCORPORATION, Respondents.

FACTS:
Enron, a domestic corporation registered with the Subic Bay Metropolitan Authority
as a freeport enterprise, filed its 1996 annual income tax return, indicating a net loss. The
Bureau of Internal Revenue (BIR) issued a preliminary five-day letter proposing a deficiency
income tax assessment of P2,880,817.25 which is disputed by Enron.
On May 26, 1999, the CIR issued a formal assessment notice to Enron for the same
deficiency. Enron protested this assessment. Due to the non-resolution of its protest within
180 days, Enron filed a petition for review with the Court of Tax Appeals (CTA), arguing that
the assessment violated Section 228 of the National Internal Revenue Code (NIRC) and
Section 3.1.4 of Revenue Regulations (RR) No. 12-99 by not providing the legal and factual
bases. Enron also questioned the assessment's substantive validity.
The CTA ruled in favor of Enron, canceling the deficiency tax assessment, stating
that the assessment notice failed to comply with the requirements of a valid written notice
under Section 228 of the NIRC and RR No. 12-99. The CIR's motion for reconsideration was
denied. The CIR appealed to the CA, which affirmed the CTA's decision, holding that the
audit working papers did not substantially comply with the legal requirements as they failed
to show the applicability of the cited law to the facts of the assessment. The CIR's motion for
reconsideration was deemed abandoned.

ISSUE: WON the formal assessment notice issued by the CIR against Enron Subic Power
Corporation complied with the requirements of Section 228 of the NIRC and Section 3.1.4 of
RR No. 12-99. (NO)

HELD:
The Supreme Court denied the petition and affirmed the decision of the Court of
Appeals. The Court reiterated the doctrine that it generally respects the conclusions of the
CTA, especially when affirmed by the CA, given the CTA's expertise in tax matters, unless
there is an abuse or improvident exercise of authority.
The Court found that the CIR erred in insisting that the notice of assessment
complied with the requirements of the NIRC and RR No. 12-99. The Court emphasized the
mandatory nature of Section 228 of the NIRC and Section 3.1.4 of RR No. 12-99, which
explicitly require that the formal letter of demand and assessment notice shall state the facts,
the law, rules and regulations, or jurisprudence on which the assessment is based,
otherwise, the assessment shall be void.
The Court noted the CTA's finding that the CIR merely issued a formal assessment
indicating the tax, surcharge, interest, and penalty due, without providing the written bases of
the law and facts supporting the assessment or explaining how the assessment was arrived
at, nor mentioning the specific provisions of the Tax Code or rules and regulations allegedly
violated by Enron. The CIR argued that the preliminary five-day letter, the advice of tax
deficiency given to Enron's employee, and the furnished audit working paper sufficed to
inform Enron of the legal and factual bases. However, the Court disagreed, stating that these
were not valid substitutes for the mandatory written notice in the formal letter of demand and
assessment notice. The Court held that the law explicitly requires the legal and factual bases
to be stated in the formal letter of demand accompanying the assessment notice and cannot
be presumed from other documents or communications during the pre-assessment stage.

The Court highlighted that the 1998 amendment to the tax law, requiring the taxpayer
to be informed not only of the law but also of the facts on which the assessment is made, is
in line with the constitutional principle of due process. The absence of a fair opportunity for
Enron to be informed of the legal and factual bases of the assessment rendered the
assessment void. The Court cited Reyes v. Almanzor, et al., emphasizing that while taxes
are the lifeblood of the government and should be collected without unnecessary hindrance,
such collection must be done in accordance with the law, and any arbitrariness negates the
very reason for the government's existence.
 G.R. No. 215957

COMMISSIONER OF INTERNAL REVENUE, Petitioner

vs.
FITNESS BY DESIGN, INC., Respondent

To avail of the extraordinary period of assessment in Section 222(a) of the National Internal
Revenue Code, the Commissioner of Internal Revenue should show that the facts upon
which the fraud' is based is communicated to the taxpayer. The burden of proving that the
facts exist in any subsequent proceeding is with the Commissioner. Furthermore, the Final
Assessment Notice is not valid if it does not contain a definite due date for payment by the
taxpayer.

FACTS:
Fitness by Design, Inc. (Fitness) filed its 1995 Annual Income Tax Return on April 11,
1996, stating it was in its pre-operating stage. On June 9, 2004, Fitness received a Final
Assessment Notice (FAN) dated March 17, 2004, assessing a tax deficiency of
₱10,647,529.69. The FAN indicated that interest and the total amount due would be
adjusted if paid before or beyond April 15, 2004, and requested payment within the time
shown in the enclosed assessment notice. Fitness protested, arguing prescription and lack
of basis. The Commissioner claimed the assessment was timely due to a fraudulent return,
discovered through a tip, regarding unreported sales. The Commissioner also argued the
protest was filed late.
The Court of Tax Appeals (CTA) First Division granted Fitness' petition, finding the
assessment prescribed and invalid for failing to comply with Section 228 of the National
Internal Revenue Code (NIRC). The CTA En Banc affirmed this decision.

ISSUE: WON the Final Assessment Notice issued against Fitness by Design, Inc. a valid
assessment under Section 228 of the NIRC and Revenue Regulations No. 12-99.

HELD: No. The Supreme Court denied the Commissioner's Petition and affirmed the CTA
En Banc's decision.

The FAN was deemed invalid for two key reasons:

Lack of Definite Due Date: The FAN did not contain a specific and unequivocal due date
for payment. The mention of April 15, 2004, was tied to interest adjustments, not a firm
deadline. The reference to a due date in an "enclosed assessment notice" was found to be
unaccomplished. The adjustable total amount due, depending on the payment date, meant
the FAN did not reflect a definite and fixed tax liability, which is a crucial element of a valid
assessment.

Section 228 of the NIRC and Revenue Regulations No. 12-99 mandate that
taxpayers be informed in writing of the factual and legal bases of the assessment. This is a
substantive requirement to enable the taxpayer to make an intelligent protest and is rooted in
the constitutional right to due process. A valid assessment includes not only the computation
but also a demand for payment within a prescribed period.
To avail of the extended 10-year assessment period for fraud under Section 222(a) of
the NIRC, the Commissioner must communicate the facts upon which the fraud is based to
the taxpayer. The burden of proving fraud lies with the Commissioner. In this case, the FAN
and its attachments did not adequately detail the alleged fraudulent acts of Fitness. Since
the FAN was invalid, the Warrant of Distraint and/or Levy issued based on it was also void.
Conclusion: The Supreme Court upheld the importance of strict compliance with the due
process requirements in tax assessment. A Final Assessment Notice must contain a definite
amount of tax due and a clear due date for payment to be considered valid. Furthermore, if
the Commissioner invokes fraud to justify a longer assessment period, the basis for such
fraud must be properly communicated to the taxpayer in the assessment notice.